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The one often follows the other, which is why we cultivate expertise at every level, from top to toe via the shoulders and the knees. This is what makes us a real group, a large and complex unit that looks to the future with new ambitions, strength and knowledge.

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We were there for our customers and staff in 2008 and will continue to be so in 2009. Values and relationships will be created and nurtured – far beyond the financial. We will continue to make a major contribution to the region because this is so important to the local community and has such a positive effect.

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Our staff are competent professionals who meet our customers with sound advice and solutions. They are constantly developing throughout the entire group, enabling us to also tackle turbulent times with confidence.

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Our roots date back to 1839. Since then, we have built on the characteristics of our region: the commitment, thoroughness and outward-looking perspec- tive. We have learnt and gained experience from the good times and the bad, making us solid – from top to toe. TURMOIL AND DOWNTURN

SpareBank 1 SR-Bank aims to be a profitable and reliable financial group that is attractive to customers, the capital market, primary capital certificate holders, employees and the local community.

SpareBank 1 SR-Bank’s profit before tax in 2008 was NOK to be working as intended. Liquidity with a longer-term 643 million – half the result of the peak year 2007. Even perspective is now being supplied to the market and has though ordinary banking activities again recorded favourable ensured that the banks’ external financing does not results in 2008, the unrest in the financial markets obstruct credit supply to customers. This was necessary nationally and internationally led to major losses to ensure that the supply of credit did not come to a on holdings of bonds and shares. complete halt and consequently exacerbate the recession.

At the same time, the downturn meant that substantially Since the banking crisis some twenty years ago, Norwegian larger provisions than we have seen in recent years banks have been financially sound and, until early 2008, were charged to the accounts to meet losses on lending were on a par with most European banks. European banks to business and industry in the region. have – following a major injection of new equity - average core capital of around 10 per cent. In the future, rating Throughout 2008, SpareBank 1 SR-Bank consolidated agencies and external lenders will emphasise the banks’ its position in the market and acquired around 10,000 core capital adequacy. In view of this, a number new customers. Customer numbers rose towards of Norwegian banks will also take action to strengthen the end of the year – probably as a result of the unrest their core capital. in the financial markets. It is important to SpareBank 1 SR-Bank that it is able The global economic downturn and widespread unrest to supply the region’s business, industry and private in the financial markets in 2008 led to a fundamental customers with the required capital. The group’s growth change to the banks’ framework conditions. in lending in recent years is a reflection of the very high level of activity in the region. We are now seeing a massive Fundamentally, a Bank is a meeting place where people reduction in the demand for credit. This is a natural and companies with available capital can invest at an consequence of the recession. agreed interest rate. The capital raised then gives the banks the basis for lending money to customers who need extra In economically turbulent times, SpareBank 1 SR-Bank capital for various investment purposes. The banking strives to offset the negative effects of international unrest system is also vital to society’s money transfers. in relation to its customers. The bank’s Board of Directors has therefore made every effort to ensure that the bank A number of the largest banks in the USA and Europe has the financial freedom to act. The bank aims to be able have had to write down their equity as a result of massive to conduct its operations for a 12-month period without losses. New equity capital has largely been injected from having to raise new loans. each individual country’s authorities, resulting in partial nationalisation. This recapitalisation of international To ensure the basis for meeting the need for credit when banks has led to a major increase in the banks’ core capital. demand again picks up and to adapt the bank’s core capital This is considered necessary to be able to bear new losses to rating agencies’ and external lenders’ expectations, and boost confidence in the market. SpareBank 1 SR-Bank will strengthen its core capital. In this respect, it will also be appropriate to assess the The banks’ crucial social significance is the reason why capital instruments offered by the State Treasury funds. many countries’ authorities have provided an injection When choosing actions, the bank will give priority of fresh equity and increased borrowing. to solutions that best serve the primary capital certificate holders’ interests and that can help to secure the basis Until now, Norwegian banks have primarily been affected for the important role that the region’s leading bank plays by the financial turmoil because the external funding in the development of its local community. either subsided or became extremely expensive. Norwegian banks’ loans are typically financed with 50 per cent from deposits and 50 per cent from the banks’ external lending sources. The authorities’ lending scheme where housing Terje Vareberg bonds are exchanged for government securities now seems Chief Executive Offi cer HEAD://

When the arrows point upwards, the interest rate is comfortable and the returns are healthy. And when the stock markets come tumbling down, capital is scarce and companies must close their doors - we are the preferred bank. That is our vision, in good times and in bad.

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I am proud to be leading one of the Nordic region’s most profitable banks of the past ten years. I am proud to be leading a financial group that is constantly striving to find new opportunities to benefit our customers, and us. My responsibility is to ensure that we are on the ball.

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I am very fond of the following definition of knowledge: Knowledge is a renewable resource that can be used again and again. This is key to SpareBank 1 SR-Bank. We are totally committed to renewing knowledge within the organisation, regardless of the economic climate.

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We employ 1,173 people who accumulate thousands of personal experiences every single day. SpareBank 1 SR-Bank’s roots date back to 1839. My colleagues and I are on solid ground! That – combined with a good dose of enthusiasm for innovation – puts us in good stead to face the next day.

TABLE OF CONTENTS

The CEO’s article 4 Main fi gures and key fi gures 7 The SpareBank 1 SR-Bank Group 8 Group profi t before tax: NOK Organisational chart 11 643 million (NOK 1,256 million) The year’s events 24 Report of the Board of Directors 27 The Board of Directors 38

Return on equity after tax: Annual accounts table of contents 40 8.0 per cent (19.4 per cent)

Primary capital certifi cates 108 Key fi gures last 5 years 112 Human Capital 114 Net interest income: NOK 1,644 Corporate Market 118 million (NOK 1,340 million) Retail Market 121 Capital Market 124 Social Audit 127 The subsidiaries 130 Allocation to endowment fund: Corporate Governance 133 NOK 20 million (NOK 95 million) Risk and Capital Management 137

Overview of our offi ces 148 Governing bodies 150 Net commission and other income: NOK 796 million (NOK 895 million)

Net yield on fi nancial investments: NOK 42 million (NOK 388 million)

Growth in lending, gross last 12 months including SpareBank 1 Boligkreditt: 20.2 per cent (19.8 per cent)

Growth in deposits last 12 months: 8.2 per cent (18.0 per cent) MAIN FIGURES

(NOK million) 2008 2007 2006 Net interest income 1 644 1 340 1 128 Net other operating income 838 1 283 1 119 Total operating expenses 1 453 1 357 1 178

Profit before losses 1 029 1 266 1 069

Losses on loans and guarantees 386 10 -92

Profit from ordinary activities before tax 643 1 256 1 161

KEY FIGURES

2008 2007 2006 Total assets 31.12. (NOK million) 125 877 103 267 85 035 Net lending (NOK million) 99 056 87 861 77 059 Deposits from customers (NOK million) 54 307 50 214 42 547 Growth in loans including SpareBank 1 Boligkreditt 20,2 % 19,8 % 25,7 % Growth in deposits 8,2 % 18,0 % 13,4 %

Capital adequacy ratio 1) 9,80 9,77 10,56 Core capital ratio 1) 6,44 7, 35 7, 3 9 Net subordinated loan capital 1) 8 621 6 874 6 223 Return on equity (per cent) 8,0 19,4 23,1 Cost percentage 58,5 51,7 52,4

No. of man-years 1 117 1 021 944 No. of offices 53 54 52

Market price at year-end 2) 32,50 66,25 68,41 Earnings per primary capital certificate 2) 3,60 7, 8 5 7,7 8 Dividend per primary capital certificate 2) 1,00 4,75 4,34 Effective yield on the primary capital certificate -43,77 3,19 -11,74

Reference is made to page 110 for a complete list of key figures and definitions.

1) Figures for 2006 are calculated according to NGAAP. 2) 2006 has been restated due to the bonus issue and split carried out in 2007. SPAREBANK 1 SR-BANK

HISTORY On 1 October 1976, 22 savings banks in Rogaland merged THE BANK to form Norway’s first regional savings bank, Sparebanken The group’s market areas are Rogaland, Agder and Rogaland. At the time, this was the most comprehensive Hordaland. Currently, the bank has 53 branch offices merger that had been carried out among Norwegian savings and total assets of NOK 126 billion. The registered head banks. From the very beginning, the bank was the nation’s office is in Stavanger. The customer-oriented activity second largest savings bank, with total assets of NOK 1.5 is organised in three divisions – the Retail market billion. The regional savings bank grew through active division, the Corporate market division and the Capital interaction with community and business development in market division. The bank provides products and services Rogaland. This was in line with the bank’s roots that date within financing, investments, money transfers, pensions back to 1839, when the oldest of the merged savings banks as well as life and non-life insurance. was established in Egersund. The intention of the founders of the savings banks in the rural districts was to contribute RETAIL MARKET DIVISION to a positive development of the community by channelling SpareBank 1 SR-Bank is the leading retail customer bank value created locally back into the local community. in Rogaland with 209,000 customers. In addition to the retail customers, the division also serves 8,436 small In 1996, the bank was a co-founder of the SpareBank 1 business and agricultural customers, together with 2,617 Alliance, which is a banking and product alliance. clubs and associations. By participating in the SpareBank 1 Alliance, the group is linked to and cooperates with the independent, locally CORPORATE MARKET DIVISION based banks. By doing this, we can combine efficient SpareBank 1 SR-Bank has some 7,770 customers in the operations and economies of scale with the benefit of being business sector and the public sector. About 40 per cent close to our customers and the market. In March 2007, of all businesses in the bank’s traditional market list the bank changed its name from Sparebanken Rogaland SpareBank 1 SR-Bank as their main bank. In addition, to SpareBank 1 SR-Bank. there are small businesses and agricultural customers being served by the retail market division. THE GROUP As of 31 December 2008, SpareBank 1 SR-Bank had CAPITAL MARKET DIVISION 1,173 employees. The group comprises SpareBank 1 The object of when establishing the Capital market division SR-Bank, and the subsidiaries SpareBank 1 SR-Finans AS, in spring 2007 was to reinforce, further develop and EiendomsMegler 1 SR-Eiendom AS, SR-Investering AS, establish products and services that generate earnings from SR-Forvaltning ASA and Vågen Eiendomsforvaltning AS. activities other than traditional banking such as deposits

Teje Vareberg Svein Ivar Førland Sveinung Hestnes CEO Executive VP Executive VP Business Support and development Capital Market and lending. These other earnings are important to increase contribute to long-term value creation through investments the group’s earnings opportunities beyond the usual in business and industry in the group’s market area. banking activities and give the group several legs to stand At the end of 2008, the company had investments and on. The Capital market division is organised in four spe- commitments totalling NOK 235 million in 32 companies ciality areas: Trade/Sales/Operations, Corporate Finance, and private equity funds. Business development/acquisition and Asset Management. The Capital market manages NOK 10 billion and the VÅGEN EIENDOMSFORVALTNING AS operation and activities service all the group’s customers. In 2007, SpareBank 1 SR-Bank acquired Vågen Eiendoms- forvaltning AS which is the region’s largest commercial EIENDOMSMEGLER 1 SR-EIENDOM AS property manager. Management services are split into EiendomsMegler 1 SR-Eiendom AS is our region’s market three main fields; business management services, technical leader and the largest company in the nationwide operations, including caretaker services, and tenant EiendomsMegler 1 chain. This chain is the second largest follow-up. At year-end, the company was engaged chain of real estate agents in Norway. In 2008, the company in managing 55 properties with a total value of between sold just over 4,900 properties from its 24 real estate NOK 4 and NOK 4.5 billion. offices in Rogaland, Agder and Hordaland. The operation comprises commercial brokerage, holiday homes, THE SPAREBANK 1 ALLIANCE new-builds and used homes. The purpose of the SpareBank 1 Alliance is to develop, procure and supply competitive financial services and SPAREBANK 1 SR-FINANS AS products and to exploit economies of scale in the form SpareBank 1 SR-Finans is Rogaland’s leading leasing of lower costs and/or higher quality, so that customers company with NOK 5.0 billion in total assets. Its main get the best advice and the best services at competitive products are leasing to trade and industry and car loans terms. The banks in the alliance cooperate partly through to private customers. The leasing portfolio consists common projects and partly through the jointly-owned of a wide range of products, and the company’s customers holding company SpareBank 1 Gruppen AS. In addition range from self-employed individuals and small limited to SpareBank 1 SR-Bank, SpareBank 1 Gruppen is companies to large conglomerates and groups. owned by SpareBank 1 Nord-Norge, SpareBank 1 SMN, Sparebanken Hedmark, Samarbeidende Sparebanker AS SR-FORVALTNING ASA (16 savings banks in Southern Norway), and the Norwegian SR-Forvaltning’s objective is to be a local alternative with Confederation of Trade Unions (LO) and affiliated trade a high level of expertise in asset management. The company unions. manages portfolios for SpareBank 1 SR-Bank and SpareBank 1 SR-Bank’s pension fund, and portfolios SpareBank 1 Gruppen AS is the sole owner of the shares in for about 3,000 external customers. The external customer SpareBank 1 Livsforsikring AS (life insurance), SpareBank 1 base is made up of pension funds, public and private Skadeforsikring AS (non-life insurance), Bank 1 Oslo AS, enterprises and affluent private individuals. Total assets ODIN Forvaltning AS (asset management), SpareBank 1 amount to approximately NOK 4.8 billion. Medlemskort AS and SpareBank 1 Gruppen Finans Holding AS. The company also has stakes in Argo Securities AS SR-INVESTERING AS (75 per cent) and First Securities ASA (24.5 per cent). The SR-Investering AS was established in 2005 and aims to banks in the alliance also own SpareBank 1 Boligkreditt,

Thor-Christian Haugland Tore Medhus Erling Øverland Executive VP Executive VP CFO Communication Corporate Market EiendomsMegler 1, SpareBank 1 Utvikling DA and BNbank THE OBJECT CLAUSE ASA. ”The object of the Savings Bank is to promote savings by receiving deposits from an unspecified group of customers; THE OBJECT OF SPAREBANK 1 SR-BANK to provide financial services to the public, the business SpareBank 1 SR-Bank’s object is to create values for our community and the public sector; and to manage the funds regions. controlled by the bank in a prudent manner in accordance with the statutory rules that apply to savings banks. The STRATEGY savings bank can perform all normal banking transactions SpareBank 1 SR-Bank shall have the industry’s most and banking services in accordance with current attractive brand names and shall have as its hallmarks: legislation. Furthermore, the savings bank can provide investment services within the terms of the licences • To be the leading financial group in the region granted at any time. The savings bank can perform • To have satisfied customers who recommend us to others all normal banking transactions and banking services • To be best at creating values together with our customers in accordance with current legislation.” • To be one of the best within the savings and pension market • To be best at attracting, challenging and developing the most competent employees • To be one of the most profitable finance institution VISION ” SpareBank 1 SR-Bank in the Nordic region – the recommended bank“

Arild L. Johannessen Rolf Aarsheim Frode Bø Executive VP Human Recources Executive VP Retail Market Executive VP Head of Risk Management and Compliance INDEX THE SPAREBANK 1 SR-BANK GROUP

SpareBank 1 SR-Bank

EiendomsMegler 1 SR-Forvaltning ASA SpareBank 1 Vågen SR-Eiendom AS 67% Gruppen AS Eiendoms- 100% 19,9% forvaltning AS 100%

SpareBank 1 SR-Investering AS SpareBank 1 BN Bank ASA SR-Finans AS 100% Boligkreditt AS 20,0% 100% 23,4%

INDEX ORGANISATIONAL CHART

Supervisory board

Auditor Audit Committee

Internal Auditor Board

CEO Terje Vareberg

Executive VP Executive VP Executive VP Executive VP HR Corporate Market Capital Market Communication Arild L. Johannessen Tore Medhus Sveinung Hestnes Thor-Christian Haugland

Executive VP Executive VP Executive VP CFO Retail Market Business Support Head of Risk Management Erling Øverland Rolf Aarsheim and development and Compliance Svein Ivar Førland Frode Bø HEAD:// :// DALANE OPPLEVELSER ADVENTURES

Dalane Opplevelser Adventures organises social events for companies looking for something exciting for their employees or customers. The adventures are based on local culture and traditions which makes the participants feel that they have taken part in something useful and exciting. Strategy meetings with overnight stays, reward tours and teambuilding are among the activities on offer.

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Kjersti Søyland Bye is the general manager and adventure coordinator at Dalane Opplevelser. She set up the business in 2005 following seven years as culture manager for Bjerkreim local authority.

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”Good support from the bank, sensible advice and widespread expertise in many fields have given me the enthusiasm and determination to set up my own firm. The partnership reinforced my belief in my idea and that it would actually succeed, this was vital to the establishment of Dalane Opplevelser. Particularly in the start-up phase it was wonderful to get help with questions concerning investment and application arrangements to get started. In my opinion, a local bank is essential for the business, and the personal contact is invaluable.”

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”It is important for me to have SpareBank 1 SR-Bank onboard – principally as an adviser, but also as a good customer. Eventually I would like to be able to offer an even broader range of adventures that are unique to the Dalane and Egersund region. I want the trips to inspire my customers and make them familiar with our region in a positive way.” HEAD:// :// RUNE ANDERSEN

Customer adviser at SpareBank 1 SR-Bank Bjerkreim. He has worked in the group for more than 28 years.

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”Kjersti Søyland Bye has been a customer of mine for eight years. My tasks entail being an adviser, guide and sounding board.”

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”Kjersti Søyland Bye has been clever by using the bank’s expertise for different purposes, both now and when she was culture manager for Bjerkreim local authority. The dialogue between us is relaxed and informal, and the partnership often entails discussing proposals and ideas she puts forward in conjunction with Dalane Adventures. She is a determined lady; she knows what she wants and doesn’t give up easily. Her success has been of no surprise to me.”

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”Kjersti is an energetic and creative woman who is good at marketing our catchment area around Egersund, Bjerkreim and Sokndal – something we want to be part of. Therefore it is extra nice for the bank to have her as a customer.” HEAD:// :// BAG & BEAUTIFUL

Bag & Beautiful, Katharina, Friis & Company and Dick & Daisy are shops that specialise in selling bags, accessories and lingerie and offer strong international brand names from Norway and abroad.

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Astrid Tjensvold is the store manager of Bag & Beautiful AS which she set up in 1999. Today she has a total of eight shops under various names in the Stavanger region.

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”It was risky for the bank to take me on as a customer in 1999 – but they did anyway, and provided me with the start-up capital I needed. Since then we have expanded every single year and delivered good results. I am also a customer of SpareBank 1 Privatbank, and feel that the advisers have a firm grip on my overall financial situation. In addition, I feel it is extremely positive that I was granted the funds to open a new shop this year, even though sales were down slightly in 2008, and the financial market is very unstable. It is great to have an honest partner to discuss things with.”

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”My adviser and I hold regular meetings where we go through sales, liquidity and industry challenges. It is important to be able to turn around quickly in the current market and Bag & Beautiful has the finance, knowledge and strength to do so.” HEAD:// :// TONE THORSDALEN

Assistant bank manager of SpareBank 1 SR-Bank. She has worked for the group for just over four years.

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”Bag & Beautiful has been a customer of mine for as long as I have been employed in the bank. Our task as a bank and mine as an adviser is to advise Astrid Tjensvold on expansion, the further development of concepts and correct loan-to-asset value ratio in relation to industry, sales and risk.”

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”The corporate market in the bank has many retail customers, and our knowledge of this industry is sound. In the course of the last few years, Astrid Tjensvold has opened four new shops. The bank has followed this initiative and given her the liquidity and framework for it. We will also make contacts internally in the bank provided this is useful for the customer. In this respect, SpareBank 1 Privatbank has been a useful alternative in conjunction with the private customer relationship.”

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”Astrid Tjensvold and other key persons in her company are good at utilising our network of trade seminars and Arena. This has enabled her to make numerous useful contacts that help to develop the company.” HEAD:// :// ROBERT VERSLAND

Robert Versland is a judge at Lister District Court. He spends a lot of his spare time on different sports such as off-road cycling and snowboarding. He loves the countryside, and often relaxes by taking a stroll in the woods.

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The customer does not run his own company, but needs the bank’s advice in relation to his private finances and various investments, which he receives from SpareBank 1 Privatbank.

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”It is a privilege to have Christiane Skage as a permanent contact person. I feel that we have secured an appropriate finance package for the properties I own and rent out, together with the home that I have recently built for myself. My affairs are in order and I have great flexibility, which has been important for me. The bank is constantly supplying me with new investment options, and offers both presentations and individual advice in this respect. The bank also seems to take a comprehensive view, for example, in relation to insurance and risk distribution.”

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”Particularly with a view to the long term I feel it is important to establish a secure and reliable relationship with SpareBank 1 SR-Bank. In my opinion, the bank provides more than a pure banking function and forms the foundation for a dynamic and profitable partnership.” HEAD:// :// CHRISTIANE SKAGE

Manager of Privatbank–Agder in SpareBank 1 SR-Bank. Has worked for the group for well over three years.

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”Robert Versland is a customer of SpareBank 1 Privatbank and I have been his adviser for one year. My job entails being an adviser and discussion partner in financial questions.”

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”Robert Versland is an exciting and purposeful customer who has clear objectives. He studies every aspect of the situation and enjoys having a discussion partner with whom to highlight proposed solutions and outcomes from several aspects, to ensure the best possible route to achieving the goal. His interest in complex products such as currency and currency loans requires sound advice and expertise on our part. In this respect, the Markets Department at SpareBank 1 SR-Bank is a resource for us ‘out in the lines’ and strengthens our position as a bank.”

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”We will be continuing to work on developing the projects he is involved in. My task is also to challenge and make suggestions with the portfolio and investments in mind.” HEAD:// :// GENA AS

The Gena Institute of DNA analysis is Norway’s first private legal genetic laboratory and is located in Stavanger. Private paternity cases and genealogy analyses make up the bulk of the assignments, however the aim is to eventually also provide analyses to assist in criminal law cases. Gena offers better and substantially faster tests than those currently available through the public sector.

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Ragne Kristin Farmen is the general manager and set up the firm in 2005. She has a PhD in molecular biology/ toxicology and has previously worked as a criminal technician. Gena currently employs two people, however the laboratory has analysis capacity for major assignments.

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”I chose SpareBank 1 SR-Bank as my commercial bank because of your strong local and regional commitment, which I too share. As a customer I have always been given a warm welcome and sound advice. One of the first things I did was to lease two analysis-machines through the bank to reduce the need for capital at start-up. Furthermore I have received help to set up various banking services and reserve capital.”

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”Gena contributes nationally and internationally to the field via its own research and teaching. SpareBank 1 SR-Bank has many funds and application schemes that we have made use of – which we intend to continue to do.” HEAD:// :// ANNE-CHRISTINE JOYS

Bank manager corporate market at SpareBank 1 SR-Bank Stavanger. Has worked in the bank for eleven years and for nine years in the subsidiary SpareBank 1 SR-Finans.

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”As a bank manager in the corporate market I was involved in acquiring Gena as a customer. My responsibility was to help Ragne Kristin Farmen to cover her needs at the beginning, such as online banking, an overdraft facility and the leasing of laboratory equipment. I also made her aware of the opportunity to apply for funds from SR-Bank Næringsutvikling.”

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”A number of founders underestimate the time and costs involved in setting up their own company. In the case of Gena, substantial equity was already in place when Ragne contacted us. She did everything right in the start-up phase of the company, which makes it easier for the bank to provide the operating capital and other services required. Our customer events are a good supplement to the contact she already has with SpareBank 1 SR-Bank. Ragne has also enjoyed participating in our women’s network, where she exchanges experiences and makes new contacts with other women who have senior positions within local business and industry.”

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”Gena is showing great potential. Female entrepreneurs rarely establish this type of company, and it will be exciting for us to watch this company developing in a field that is so important to our society, for example, by helping to clear up criminal cases.” HODE:// :// STORMBERG AS

Stormberg develops and designs outdoor clothing in Norway and focuses on ethical trade with China. Its slogan is ”Small trips are big ones too” and reflects its main target group: families enjoying the outdoors. Around 25 per cent of those who are recruited to Stormberg are young people who for various reasons have been unable to find other work. A percentage of the company’s turnover is used for humanitarian and community projects.

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Steinar J. Olsen is Stormberg’s founder and general manager, and established the company in 1998. Stormberg sells around 1.8 million items of clothing a year and recorded a turnover of NOK 149 million in 2008.

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”All purchasing is done in US dollars, and the clothes are manufactured in China. Therefore sound advice regarding currency management is extremely important. For me, the bank is a competent and reliable partner who has played a role in the explosive expansion we have seen in the last few years – whilst at the same time supporting us when we have required increased financing.”

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”Despite financial turbulence we are budgeting for an increase in turnover in 2009. It is extremely important for us to have a major, reliable bank behind us when we are investing heavily in growth.” HODE:// :// VIDAR PLASZKO

Corporate adviser at SpareBank 1 SR-Bank, BM Agder. Has worked in the group for four years.

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”I have been a customer supervisor for Stormberg Group for around two years. My tasks primarily entail preparing financial solutions that enable the customer to achieve smooth day-to-day operations. It is also important for me to have a healthy relationship with other departments in the bank such as SR-Markets and Money Transfer.”

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”Stormberg has seen strong growth in recent years, including the opening of new retail outlets and companies in the group, together with a huge increase in the number of employees. The company is internationally vulnerable and in the growth phase has had various requirements in relation to an optimal financial solution in the group. Stormberg is prepared to be unconventional in its approach and has clear visions and values that have resulted in its steady growth. Like us, the customer is concerned about how the market perceives the company, and being able to ensure a high level of satisfaction in the workplace.”

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”In our opinion, having customers like Stormberg in the portfolio contributes to professional development in the bank. It presents exciting challenges, and enables us to be seen as an attractive workplace locally.” HODE:// :// BJØRGE

Bjørge ASA is a technology company with widespread experience as a supplier to the oil and gas market. The company represents some of the world’s leading suppliers within several of its product areas and is investing heavily in the development of its own technology. Bjørge ASA tailors total solutions for pumps, valves, fiscal measurement, instrumentation, automation, monitoring, fire and gas detection and extinguishing systems, as well as advanced surface treatment. Bjørge has 570 employees.

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Stig Feyling is the CEO of Bjørge ASA. He has the overall operating responsibility for the group’s eight subsidiaries, exchange, owners, financial institutions and HSE&Q.

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”Bjørge changed its bank three or four years ago. The main reason being that we wanted a local base and a proximity to the decision-makers in the bank. The flexibility and ability to make quick decisions was essential to our choice. To test the bank’s ability to provide management capacity, I asked the bank’s negotiating team how long it would take to get CEO Terje Vareberg to meet up at Bjørge. The answer was that it wouldn’t take very long. ”How long?” was my reply. ”I will time you from now!” A call was put through to Vareberg who set off. This culminated in us signing an agreement.

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”Bjørge has ambitious plans to be big. This will happen through organic growth and acquisitions. In this respect, it is important to have a bank that understands the industry, understands that increased turnover also generates higher working capital and that at the same time is able to offer a sensible framework in accordance with acquisition opportunities.” HODE:// :// BRITTA LIMA ERGA

Britta Lima Erga is an assistant bank manager at SpareBank 1 SR-Bank. She has worked in the group for two and a half years.

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”My responsibility in the bank is principally directed at customers in the oil service segment. I have been working with the Bjørge group for the past year. To deal with a customer of this size, it is important to be able to provide a wide range of competent colleagues, to secure the group’s requirements in all areas.”

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”Bjørge has seen strong growth in recent years and has implemented several exciting acquisitions. We have recently established a new banking agreement with the group and united all the subsidiaries in our bank. This will make it easier for the finance department to follow up the cash flows. The partnership has attracted numerous new customers to the bank, which we consider to be extremely positive. We hope this is a win-win situation for both parties.”

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”The Bjørge group is constantly evolving which makes it particularly interesting to be allowed to work with them. Demanding, but professional customers keep us as a bank on our toes by having to keep up-to-date on and develop our own expertise and the bank’s products.” 01. 02.

INCREASING EXPERTISE: The requirement for REBRANDING: In the course of spring 2008, the expertise in the banking sector is increasing, both SpareBank 1 logo was altered and the online banking as a result of regulatory requirements and because was revamped. The rebranding has led to greater there is a far greater emphasis on risk management customer awareness of the SpareBank 1 banks’ core and control. The group has invested substantial values. resources in increasing expertise. Effi cient systems and procedures have been developed to implement and comply with banking regulations effectively. In 2008, this was particularly relevant within the capital area (MiFid) and property brokerage.

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SJEF.NO: In 2008, we increased our focus on our STAVANGER – CAPITAL OF CULTURE 2008: younger customers. The website Sjef.no came online We believe it is important to support the culture of our in January 2008, with the aim of enabling customers region. SpareBank 1 SR-Bank was one of the main to take charge of their own accounts. In the course of sponsors of the Capital of Culture 2008 and provided the year, charges-free accounts were also launched. funding and input for a successful event. The initiative has attracted many new customers. 05. 06.

DIVIDEND ISSUE: Spring 2008 saw the implemen- THE FINANCIAL MARKETS: Turbulence in the tation of a dividend issue, in which 52 per cent of the world’s fi nancial markets and weaker economic growth primary capital certifi cate holders took part. The issue dominated 2008. The uncertainty peaked when injected NOK 174 million of capital into the bank. In Lehman Brothers collapsed in September 2008. addition there was a private placement for employees Authorities in numerous countries have made sub- with a capital infl ow of NOK 10 million. stantial efforts to curb the effects, particularly on the banks. Also Norwegian authorities have taken steps to support the banks’ lending.

07. 08.

ACQUISITION OF GLITNIR BANK ASA: The PUBLIC SECTOR: The efforts within the public SpareBank 1 banks purchased Glitnir Bank ASA in sector yielded results. Both Rogaland county council October 2008. The name was subsequently changed and no less than 19 local authorities use SpareBank to BNbank ASA in January 2009. 1 SR-Bank as their main bank, including Sandnes local authority, which became a new customer in 2008. EXPERTISE AT EVERY LEVEL In 2008, SpareBank 1 SR-Bank Group achieved a profit before tax of NOK 643 million. This is NOK 613 million lower than in 2007. Profit after tax was NOK 469 million, which is NOK 525 million lower than in 2007. The fall in profits was largely attributable to increased loan loss provisions and guarantees and lower net return on financial investments. The underlying operation before losses1) rose by NOK 144 million to NOK 1,085 million from 2007 to 2008. The return on equity after tax in 2008 totalled 8.0 per cent, 11.4 percentage points lower than in 2007. 1) Included in underlying operation; net interest income, currency/interest gains, other operating income and operating expenses.

In view of the unrest in financial markets and changes 1.0 per primary capital certificate), NOK 149 million in the economic outlook, in the opinion of the Board of be allocated to the dividend equalisation reserve, NOK Directors, the group achieved an acceptable result in 2008. 20 million to the endowment fund and NOK 156 million to the savings bank’s reserve. In 2008, the group recorded a 20.2 per cent growth in lending (including loans transferred to SpareBank 1 Bolig- The annual accounts for the SpareBank 1 SR-Bank group kreditt AS) and an 8.2 per cent growth in deposits. Deposits and the parent company were prepared in accordance in percentage of gross lending reached 54.5 per cent at the with IFRS regulations. end of the year, against 57.0 per cent at the end of 2007. THE NATURE OF THE OPERATIONS In 2008, net interest income totalled NOK 1,644 million, The SpareBank 1 SR-Bank group comprises the parent an increase of NOK 304 million from 2007. Measured company SpareBank 1 SR-Bank together with the in relation to average total assets, net interest income subsidiaries SpareBank 1 SR-Finans AS, EiendomsMegler totalled 1.49 per cent in 2008, up from 1.42 per cent in 2007. 1 SR-Eiendom AS, SR-Investering AS, SR-Forvaltning ASA and Vågen Eiendomsforvaltning AS. Moreover, Net commission and other income was NOK 796 million SR-Fondsforvaltning AS is under establishment. in 2008, 11.1 per cent lower than in 2007. In particular, commission income from savings and investment products SpareBank 1 SR-Bank’s registered head office contributed to the decline. Net return on financial invest- is in Stavanger. The bank has 53 offices in the counties ments fell by NOK 346 million to NOK 42 million in 2008. of Rogaland, Vest-Agder, Aust-Agder and Hordaland. Other income (excluding capital gains on securities, The group’s primary activities are sales and brokering dividends and income from ownership interests) accounted of financial products and services and investment services for 35.4 per cent of total income in 2008, against 42.2 covered by the current concessions, as well as leasing per cent in 2007. and real estate brokering.

The group’s operating expenses totalled NOK 1,453 million THE GROUP’S DEVELOPMENT in 2008, an increase of 7.1 per cent from 2007. The group’s In 2008, SpareBank 1 SR-Bank recorded good progress cost percentage in 2008 was 58.5, against 51.7 in 2007. in the group’s business areas. The group has cemented its position as market leader in Rogaland in the retail The group recorded net loan loss provisions of NOK and the corporate markets as well as real estate brokering. 386 million in 2008, against NOK 10 million in 2007. The group has strengthened its position in Hordaland Non-performing loans rose by NOK 256 million in 2008 and Agder. and at the end of the year totalled NOK 348 million (0.35 per cent of gross loans). The group’s subsidiaries and its participation in the SpareBank 1 Alliance contribute to SpareBank 1 SR-Bank’s Profit available for distribution in the parent company earnings. For the year seen as a whole, the level of activity is NOK 401 million. The Board of Directors proposes was good both in the real estate brokering company, that of this NOK 75 million be allocated to dividends (NOK the financing company, the investment company, the asset management company and the property management SpareBank 1 SR-Bank assumes a comprehensive social company. Fruitful collaboration and coordination between responsibility by supporting local initiatives in the fields the retail market, the corporate market, the subsidiaries of culture, sport and education. This is accomplished by and the bank’s specialised departments SR-Markets, making active use of the bank’s endowment fund for public structured finance, cash management and insurance benefit. In 2008 a total of NOK 55 million was allocated have contributed to the earnings in 2008. from this fund.

In autumn 2008, the SpareBank 1 banks acquired Glitnir DEVELOPMENTS IN THE GROUP’S Bank ASA for a favourable price and led to badwill being MARKET AREAS taken to income in the group accounts for SpareBank 1 Financial unrest and weaker international economic SR-Bank. This illustrates that the unrest in the financial development have led to a slowdown also of the Norwegian markets presents opportunities. On the other hand, economy. The factors that have ensured Norwegian com- developments in the financial markets have contributed panies, households and the public sector enjoy a buoyant to a reduced profit contribution from SpareBank 1 Gruppen income growth since 2003 are now less stable. Export AS and a similarly weaker result from financial invest- prices have fallen, and the growth in turnover has slowed. ments from 2007 to 2008. The outlook is uncertain, not just because of the uncertain outlook in the global economy, but also because the effects The developments in the financial markets influenced of monetary and fiscal measures are not known. the competition for customers in the course of the year. Competition in the lending market abated slightly, whilst In the group’s market areas, the population is growing competition for deposits remained strong. Overall, the fastest in Rogaland and around the major cities. According trend from 2007 continued with a falling pressure on to Statistics Norway, the population in the whole country margins, and margins rised in 2008. The level of activity rose by 1.3 per cent in 2008. Rogaland saw a population in the region remained high, but with some signs growth of 1.9 per cent. The corresponding figure for of a slowdown towards the end of the year. The growth Hordaland is 1.5 per cent, Aust-Agder 1.2 per cent and in lending reflects this trend. Vest-Agder 1.4 per cent. At the end of 2008, figures from the Norwegian Labour and Welfare Organisation (NAV) Income from sales of savings and investment products show that unemployment nationally was 2.0 per cent fell from 2007 to 2008. Income from money transfer of the workforce. In Rogaland the percentage of unem- activities also saw a slight drop following the launch ployed was 1.3 per cent, in Hordaland it was 1.8 per cent, of the charges-free customer programme. Increased and in Aust-Agder and Vest-Agder 2.5 per cent and 2.0 per commission income linked to arrangement fees and cent respectively. SpareBank 1 Boligkreditt AS compensated for some of the loss in income. Overall there was a moderate drop According to the business survey for Rogaland, companies in net commission and other income. in Rogaland and the other counties in the West of Norway are more optimistic compared to companies in central The profit in 2008 was adversely affected by the unrest Eastern Norway. This may be largely owing to the link in the financial markets through the fall in the price with oil-related activities. Almost half of the companies of securities. This is mainly bonds and certificates that are expecting profitability to remain on a par with 2008, are held for liquidity purposes and are eligible for loans whereas some 40 per cent are anticipating a reduction in Norges Bank, as well as shares and primary capital in investments in 2009 compared with 2008. certificates. The reclassification of securities limits the risk of future value changes affecting the income statement According to the business survey for Hordaland and Sogn beyond accounting for interest on an accruals basis. og Fjordane, over 40 per cent of the companies are expecting The loan losses have been low for several years. In 2008 the reduced turnover in 2009. Half of the companies are loan loss provisions rose to a more normal level. The Board reassessing or postponing investments owing to the financial of Directors is satisfied with the quality in the lending unrest. They are also expecting zero growth in employ- portfolio and the risk management is considered to be good. ment. The companies are more pessimistic regarding the outlook for 2009 than at the same time last year. The Board believes that it is important to the business community and the region’s inhabitants that SpareBank 1 According to the business survey for Agder, almost 40 per SR-Bank, as a solid, locally-based financial group, is able cent are expecting reduced turnover in 2009, whilst around to supply the capital necessary for growth and development 35 per cent are expecting increased turnover. Particularly in the group’s market areas. those companies within manufacturing, construction, In 2008, NOK 8 million was awarded to companies from retail trade and transport are most pessimistic about the four business development foundations that were market developments. Several companies are predicting established in 2007; SR-Bank Næringsutvikling in Dalane/ that employment in 2009 will remain the same. Some 40 Lister, Haugalandet, Southern Norway and the Stavanger- per cent are expecting to reduce their level of investments region respectively. The object of the foundations is to in 2009, whilst just below 20 per cent are expecting to contribute to business development that is beneficial increase investments. Almost 70 per cent of the companies to society at large by providing financial assistance and are expecting continued stable or increasing profitability investments in businesses and business-promoting in 2009. activities. A foundation is also currently being established in Bergen. The outlook in the group’s market areas is more uncertain Boligkreditt AS. Income from these loans is recorded as than for many years. In the course of the autumn 2008, commission income, and in 2008 totalled NOK 32 million. economic estimates for Norway and abroad where revised downwards, and the unrest in financial markets has OTHER INCOME continued. This will affect us. On the other hand, activity Net commission income in 2008 totalled NOK 554 million, in the market areas remains buoyant. Many companies which was a reduction of NOK 40 million (6.7 per cent) in the group’s market area are optimistic. The interest compared with 2007. The commission income from the rate level is reduced as a result of lower key policy rate. savings and investment products in particular contributed Norwegian authorities, and authorities in many countries, to the reduction. These amounted to NOK 133 million in have implemented comprehensive measures that are 2008, which is NOK 84 million (38.7 per cent) lower than expected to produce results. Growth may be reasonably in 2007. expected to see a slowdown also in our market areas, although the extent of this will largely depend on develop- Other operating income totalled NOK 242 million, ments in oil-related activities. 2008 saw some companies a reduction of NOK 59 million (19.6 per cent) from 2007. experiencing problems, and a slight rise in unemployment Of this the group’s real estate broking contributed earnings from low levels. There is reason to expect that this trend of NOK 232 million in 2008 (NOK 275 million in 2007). will continue in 2009. Other income also includes gains from the sales of buildings of NOK 7 million in 2008 (NOK 22 million in 2007). PROFITS Net return on financial investments was NOK 42 million Profit before tax and return on equity in 2008, down by NOK 346 million from 2007. Income from ownership interests totalled NOK 261 million, income NOK million % 1500 30 from financial investments NOK -234 million and dividends NOK 15 million. Included in income from ownership 25 1200 interests was badwill taken to income of NOK 414 million 20 relating to the acquisition of a stake in Glitnir Bank ASA. 900 The negative result from SpareBank 1 Gruppen AS totalled 15 NOK 151 million in 2008. In 2007, this result was positive 600 at NOK 231 million. Particularly the life insurance 10 company showed weak results compared with 2007 e.g. 300 5 as a result of weak development in the securities markets. Of income from financial investments in 2008, NOK 0 0 104 million was related to gains on foreign exchange 2004 2005 2006 2007 2008 and interest rate instruments, whilst there was NOK 338

Profit/loss before tax NOK million Return on equity million in losses on securities.

Other income (excluding capital gains on securities, NET INTEREST INCOME dividends and income from ownership interests) amounted In 2008, the group had net interest income of NOK 1,644 to 35.4 per cent of total income in 2008 against 42.2 per cent million, which is NOK 304 million higher than in 2007. in 2007. This amounted to 1.49 per cent of average total assets against 1.42 per cent in 2007. Particularly the volume OPERATING EXPENSES growth in loans and deposits as well as increased return The group’s operating expenses amounted to NOK 1,453 on equity (higher average market interest rate) led million in 2008, an increase of 7.1 per cent from 2007. to the increase in net interest income in 2008. The group’s expense to income ratio was 58.5 in 2008, compared to 51.7 in 2007. Net interest income and interest margin NOK million % Operating expenses 2000 3,0 NOK million % 2000 2,0 2,5 1500 2,0 1500 1,5 1000 1,5 1000 1,0 1,0 500 0,5 500 0,5 0 0,0 2004 2005 2006 2007 2008 0 0,0

Net interest income NOK million Interest margin 2004 2005 2006 2007 2008 Operating expenses NOK million % of average assets At the end of 2008, the bank had transferred NOK 12.2 billion in housing mortgage loans to SpareBank 1 Personnel expenses amounted to NOK 776 million in 2008, housing loans corresponding to NOK 12.2 billion, which at up 3.3 per cent on the preceding year. At the end of 2008, the end of 2008 was transferred to SpareBank 1 Boligkreditt the group employed 1,117 man-years, an increase of 96 AS. Lending to the corporate market and the public sector man-years from the end of 2007. rose by 30.0 per cent in 2008. The distribution between loans to the retail market and the corporate market/public Other operating expenses totalled NOK 677 million in sector was 57.0 per cent and 43.0 per cent respectively 2008, NOK 71 million (11.7 per cent) higher than in 2007. at the end of 2008 (60.2 per cent and 39.8 per cent at the Marketing shows greatest relative growth, which is partly end of 2007 respectively). attributable to increased costs relating to brand building in 2008. Gross lending, retail and corporate markets NOK million LOSSES AND DEFAULTS 70000 63755 In 2008, the group recorded net loan loss provisions 60000 of NOK 386 million compared to net loan loss provisions 56085 48864 of NOK 10 million in 2007. The corporate market had net 50000 48101 41890 37264 loan loss provisions of NOK 351 million and the retail 40000 36995 market NOK 35 million. Net loan loss provisions include 30000 28836 write-downs of groups of loans, which rose by NOK 98 19922 million in 2008. At the end of 2008, total write-downs on 20000 17169 loans amounted to NOK 578 million. Non-performing loans 10000 rose by NOK 256 million in 2008 and at the end of the year amounted to NOK 348 million (0.35 per cent of gross loans). 0 2004 2005 2006 2007 2008

Gross defaults Retail market Corporate market NOK million % including SpareBank 1 Boligkreditt AS 400 0,40 350 0,35 Total deposits were NOK 54.3 billion at the end of 2008, up 8.2 per cent from the end of 2007. The growth in the 300 0,30 retail and corporate market/public sector market was 250 0,25 14.3 per cent and 3.6 per cent respectively. 200 0,20 150 The deposit-to-loan ratio was 54.5 per cent at year-end 0,15 100 against 57.0 per cent at the end of 2007. Despite turbulence in the financial market, the group has maintained a good 50 0,10 deposit-to-loan ratio. 0 0,05 2004 2005 2006 2007 2008 Deposit-to-loan ratio Gross defaults % of gross lending % 62 BALANCE SHEET 60,7 60,7 The group’s total assets at the end of 2008 amounted 60 to NOK 125.9 billion, an increase of NOK 22.6 billion from

58 57,0 the end of 2007. 56 Gross lending, % growth, retail and corporate markets 54 55,0

% 54,5 50 52 44,7 50 40 2004 2005 2006 2007 2008 30,0 30 28,3 RETAIL MARKET DIVISION The retail market saw a total growth in income in 2008

20 16,0 of NOK 36 million (3.2 per cent) compared with 2007. 11,7 Net interest income rose by NOK 124 million whilst other

10 15,7 14,8 13,7

12,4 income fell by NOK 88 million in the same period. 10,6 0 In a market of tough competition for deposits, the Retail 2004 2005 2006 2007 2008 market division achieved a deposit growth of 14.1 per cent particularly as a result of positive results in fourth quarter Retail market Corporate market including SpareBank 1 Boligkreditt AS 2008. Growth in lending in 2008 was 13.4 per cent. The lending margin rose, whilst the deposit margin Growth in lending in 2008 was 20.2 per cent and total was marginally reduced for the year seen as a whole. lending at the end of 2008 was NOK 111.9 billion. Retail market lending rose by 13.7 per cent. Total loans include The decline in other income is primarily linked to lower in the current market. Flexibility, good communication and underwriting commissions and portfolio commissions expertise are essential for a healthy collaboration to ensure for savings and investment products. The falling stock that the bank and our customers together are able to come exchange and continued market instability mean a lower up with effective solutions in a challenging market. calculation base for portfolio commissions and reduced new subscriptions. The drop in income following the CAPITAL MARKET DIVISION launch of our charges-free accounts in the retail market The division comprises areas of expertise outside traditional has led to reduced commission income linked to money banking and has united the group’s resources within the transfers. However, the initiative is considered to be securities operation, management and product acquisition. a success, and in 2008 the bank achieved a satisfactory The securities operation is organised in SR-Markets net increase in its number of customers (approximately and comprises customer trade and own trade in interest 8,000 new customers, some 7,000 of whom are main rates and currency. The management is largely organised bank customers over 18 years old) and increased sales in separate subsidiaries and also comprises management of additional services. of the bank’s own investments in securities. Product acquisition is responsible for the group’s development and The declining stock exchange and a bleaker outlook have acquisition of products within savings and investments. led to customers becoming insecure. SpareBank 1 SR-Bank is committed to taking positive action on behalf of its Income from trade in interest rate and currency products customers and to be accessible. Throughout the year, rose from NOK 82 million in 2007 to NOK 146 million in a number of customers have been in discussion with local, 2008. The increase in the income comes largely through competent financial advisers at SpareBank 1 SR-Bank increased volume of transactions with the bank’s customers to be able to assess the situation effectively. The growth combined with excellent results from own-account trading. in customers and deposits saw a marked upturn when the uncertainty peaked in autumn 2008, which is a good SUBSIDIARIES indication of our customers’ confidence in the bank. Through their products and services, the subsidiaries allow the group to offer a broader range to customers and give Lower demand and greater uncertainty among retail customers the bank an enhanced earnings basis. Through interaction dominates early 2009. Nevertheless, a falling interest rate and joint marketing, the group is a total supplier level and continued low unemployment are producing pro- of financial services and products. mising market opportunities, even though the competition for the best customers has further intensified. The Retail EiendomsMegler 1 SR-Eiendom AS has 24 offices from market division is focusing on continued customer growth Grimstad to Bergen. The business comprises commercial and increasing its product range to its own customers. brokerage, leisure, new-builds and used homes, together New offices in Åsane and Fana opened in February 2009. with a department for housing rental that is currently being established. The company’s position as the most important CORPORATE MARKET DIVISION player in Rogaland was further consolidated in 2008. The Corporate market division had an overall income The same applies to commercial brokerage and sales of growth of NOK 181 million (30.8 per cent) from 2007 new-builds/housing projects. The company has a leading to 2008. Net interest income rose by NOK 135 million position in several of the towns in Vest-Agder and aims to and other income rose by NOK 46 million. Lending growth be the leading property broker in the Agder counties within in the division has been high, but the growth rate was a few years. As part of this initiative, Hodne Eiendom AS curbed in the course of the second six months of 2008. in Kristiansand was taken over in 2008. The operation A substantial part of the increase in the volume of lending in Bergen is progressing well and will be substantially can be attributed to growth in the focus areas in Hordaland strengthened in the year ahead. In 2008, EiendomsMegler 1 and Agder. Towards the end of the year, depreciation of the SR-Eiendom AS sold approximately 5,000 properties Norwegian krone also led to an increase in the krone value (approximately 6,000 in 2007) at a total value of NOK 11 billion. of loans in foreign currencies. Lending growth is expected Total income was slightly lower than in 2007 and was to be significantly lower in 2009 than in 2008. NOK 232 million in 2008. The profit before tax amounted to NOK 21.5 million in 2008 against NOK 36.8 million in 2007. Despite turbulent markets and a bleaker commercial outlook, the proportion of loans classified as high risk Vågen Eiendomsforvaltning AS, which SpareBank 1 remains at a low level. This part of the portfolio accounts SR-Bank purchased in 2007, is the region’s largest commercial for 5.8 per cent compared with 7.1 per cent in 2007. There property manager. The company manages 55 properties has been an increase in net write-downs of loans in the at a total value of between NOK 4 and 4.5 billion. course of 2008, reflecting, amongst other things, the risk The subsidiary Vågen Drift AS offers caretaker services, of losses as a result of challenging financial markets business management services and technical operations. and weaker economic growth. The profit before tax in 2008 was NOK 2.9 million, against NOK 1.5 million in 2007. In 2008, resources in the division were allocated to manage the risk in the portfolio in the most effective way possible. SpareBank 1 SR-Finans AS offers expertise and products The Corporate market division is solid and well organised in the fields of leasing and car financing. In addition to with competent staff experienced in dealing with the bank’s market area in Rogaland, Agder and Hordaland, uncertainty and risk. The bank makes every effort to ensure the company has distribution agreements with 12 other a close and fruitful dialogue with its customers banks affiliated to the SpareBank 1 Alliance. Total assets rose in 2008 by 41.0 per cent to NOK 5.0 billion. The loss The SpareBank 1 banks manage the alliance cooperation provisions rose in 2008, however the volume growth and and development of the product companies through increased interest rate margin ensured that the profit before the jointly-owned companies SpareBank 1 Utvikling DA tax rose to NOK 46.2 million (NOK 43.5 million in 2007). and the holding company SpareBank 1 Gruppen AS.

Management of customers’ and the bank’s securities port- SpareBank 1 Gruppen AS is owned by SpareBank 1 folios are organised in the company SR-Forvaltning ASA. SR-Bank (19.89 per cent), SpareBank 1 Nord-Norge (19.89 The company manages securities for private individuals, per cent), SpareBank 1 SMN (19.89 per cent), Sparebanken companies, pension funds as well as the bank and its Hedmark (11.14 per cent), Samarbeidende Sparebanker pension fund. In 2008, assets under management fell AS (19.89 per cent) (16 savings banks in Eastern and by NOK 1.5 billion to NOK 4.8 billion. Profit before tax North-western Norway), together with the Norwegian amounted to NOK 46.8 million (NOK 54.4 million in 2007). Confederation of Trade Unions (LO)/trade unions affiliated to LO (9.29 per cent). SR-Investering AS is an investment company that is to con- tribute to long-term value added by investing in the busi- SpareBank 1 Gruppen AS owns 100 per cent of the ness community in the group’s market area. The company shares in SpareBank 1 Livsforsikring AS, SpareBank 1 invests in private equity funds and companies needing Skadeforsikring AS, Bank 1 Oslo AS, ODIN Forvaltning AS, capital for further growth or acquisitions. At the end of SpareBank 1 Medlemskort AS and SpareBank 1 Gruppen 2008, the company had investments and commitments Finans Holding AS, as well as 75 per cent of the shares totalling NOK 235 million in 32 companies and private in Argo Securities AS and 24.5 per cent of the shares equity funds. The volatile financial markets have affected in First Securities AS. SpareBank 1 Gruppen Finans the value of the company’s portfolio negatively and activity Holding AS owns 90 per cent of the shares in Actor generally within private equity. The portfolio is considered Fordringsforvaltning AS and 100 per cent of the shares to have moderate risk. The company’s loss before tax for in SpareBank 1 LTO AS. SpareBank 1 Gruppen AS 2008 was NOK -29,0 million (NOK 49.8 million in 2008). is also involved in SpareBank 1 Utvikling DA.

SPAREBANK 1 BOLIGKREDITT AS SpareBank 1 Gruppen AS has administrative responsibility SpareBank 1 Boligkreditt AS was established in 2005 for the cooperation processes in the SpareBank 1 Alliance, and has a licence issued by Kredittilsynet (The Financial where technology, brands, expertise, common processes/ Supervisory Authority of Norway) to operate as a mortgage application of best practice and procurement are key company. The company is owned by savings banks that elements. The alliance is also engaged in development are part of the SpareBank 1 Alliance and its offices work through three centres of excellence for Learning are in Stavanger. (Tromsø), for Payments (Trondheim) and for Credit models (Stavanger). The object of the mortgage company is to ensure owners stable and long-term financing on competitive terms. The SpareBank 1 banks are heavily involved in the The regulations for covered bonds were completed in June development work at the common arena. The most 2007, and the mortgage company has subsequently issued important projects within the SpareBank 1 Alliance such bonds. In 2008, the company issued bonds both in in 2008 were development of a new credit solution, Norwegian kroner and in foreign currency to a relatively modernisation of self-service solutions, together with substantial extent. In the course of the autumn 2008, the streamlining of the advisers’ interface. mortgage company became important to the SpareBank 1 banks to be able to utilise the authorities’ exchange system. The SpareBank 1 Alliance has entered into a long-term At the beginning of the year, the mortgage company had strategic partnership with EDB Business Partner ASA for a lending volume of approximately NOK 36.2 billion, the delivery and development of a core banking solution. approximately NOK 12.2 billion of which was transferred from SpareBank 1 SR-Bank. The exchange system facilitates BNBANK ASA good volume growth also in 2009. The mortgage company SpareBank 1 SR-Bank and the other savings banks in the had approximately NOK 1.6 billion in equity at the end SpareBank 1 Alliance purchased Glitnir Bank ASA and of 2008, and SpareBank 1 SR-Bank’s ownership stake the subsidiary Glitnir Factoring AS for NOK 300 million was 23.4 per cent. Based on transferred volume as at 31 in October 2008. The purchase was approved by the December 2008, SpareBank 1 SR-Bank’s ownership stake authorities in December 2008. SpareBank 1 SR-Bank’s stake rose to 33.7 per cent from March 2009. is 20 per cent. The group recorded badwill of NOK 414 million in income in conjunction with the purchase. SPAREBANK 1 ALLIANCE The object of SpareBank 1 Alliance is to acquire and deliver ACCOUNTING PRINCIPLES competitive financial services and products and to exploit SpareBank 1 SR-Bank prepares its parent company economies of scale in the form of lower costs and/or higher and group accounts in accordance with the International quality, so that private individuals and companies benefit Financial Reporting Standards (IFRS). from local roots, expertise and a simpler everyday life. Moreover the Alliance is to help to secure the banks’ value The description of the accounting principles in Note 2, page creation to benefit its own region and the bank’s owners. 45, sets out a more detailed account of important factors relating to the treatment for accounting purposes in accor- dance with the IFRS regulations. CORPORATE GOVERNANCE not significantly altered in 2008, however the second six Corporate governance in SpareBank 1 SR-Bank comprises months of the year showed a tendency towards increasing the goals and overriding principles according to which the default probability in the portfolio. Lower growth in the group is governed and controlled to secure the primary Norwegian economy and increasing uncertainty linked capital certificate holders, the customers and other groups’ to economic developments means weaker earnings in some interests in the group. Governance of the group’s activities business and industry sectors and higher unemployment. shall ensure prudent asset management and greater This trend is expected to lead to diminished credit quality assurance that the communicated objectives and strategies and losses in the near future. are achieved and realised. The lending portfolio in the corporate market has a mode- SpareBank 1 SR-Bank’s corporate governance principles rate risk profile. Growth in lending has been high, but was build on three main pillars; openness, predictability curbed in the second six months of 2008. A substantially and transparency. lower lending growth is expected in 2009. The portfolio’s quality is considered to be good, and 66 per cent of the The group’s main corporate governance lending exposure satisfies the group’s internal guidelines principles are as follows: for classification as low risk. There is a tendency for • Value creation for primary capital certificate a slightly weaker development in the portfolio within holders and other interest groups the property sector in the second six months of the year. • A structure that ensures goal-orientated The property portfolio linked to rental consists largely and independent management and control of centrally located properties with long-term leases and • Systems that ensure measurability and accountability reliable tenants, and a large part of this portfolio is interest • Effective risk management rate secured. The financing of housing projects normally • Well set-out, clear and timely information stipulates a minimum requirement of 70 per cent advance sale. • Equal treatment of primary capital certificate holders and a balanced relationship to other interest groups The quality in the retail market portfolio is considered to • Compliance with legislation, regulations and ethical be extremely good and 98 per cent of the lending portfolio standards satisfies the group’s internal guidelines for classification as low risk. Lending growth in the retail market division The group’s corporate governance is based on ”The in 2008 was 13.4 per cent and is expected to be moderate Norwegian Code of Practice for Corporate Governance”. in 2009. Further information on corporate governance can be found in a separate section of the annual report. MARKET RISK Management of market risk is carried out by applying RISK MANAGEMENT defined limits for investments in shares, bonds and for Risk and capital management in SpareBank 1 SR-Bank positions in the interest rate and foreign exchange markets. underpins the group’s strategic development and achieve- The Board reviews and approved limits once a year. ment of its goals. Risk management shall also ensure financial stability and prudent asset management. Parts of the group’s market risk are linked to investments This is achieved through: in bonds and certificates. In the course of 2008, the group • A strong organisational culture that is characterised increased its liquid assets in the form of bonds eligible by a high awareness of risk management for repurchase agreements with Norges Bank by NOK 3.6 • A good understanding of which risks drive earnings billion. NOK 1.6 billion of these relate to covered bonds • An effective capital acquisition and capital utilisation utilised in the authorities’ exchange system. When quanti- in relation to the group’s strategic targets and adopted fying risk linked to impairment in the value of the liquidity business strategy portfolio, SpareBank 1 SR-Bank distinguishes between • Avoiding unexpected single events that can seriously systematic risk (market risk) and unsystematic risk (default damage the group’s financial situation risk). Default risk associated with the mentioned portfolio • Exploiting synergies and diversification effects is quantified as credit risk. In November 2008, SpareBank 1 SR-Bank decided to reclassify parts of the liquidity reserve The group has a moderate risk profile. Its goal is to main- to the categories ”hold to maturity” and ”loans and receiv- tain the current international rating in order to ensure ables”. Bonds in these categories are not exposed to market ample long-term funding from the capital markets on risk for accounting purposes. competitive terms. Risk activities relating to trade in currency, interest rates The group’s risk is quantified e.g. through calculations and securities occurs within the currently approved limits, of expected losses and risk-adjusted capital to be able authorities and credit lines for counterparties. SpareBank 1 to cover unexpected losses. Expected losses describe the SR-Bank takes to a limited extent the interest rate and losses that statistically must be expected over a 12-month currency rate risk in conjunction with the trade activities. period. Risk-adjusted capital describes how much capital As far as possible, the income from operations is created the group believes it needs to cover the real risk that in the form of customer margins in order to ensure the group has assumed. the maximum stability and reliability of earnings.

CREDIT RISK The group’s exposure to market risk is considered The group has a moderate risk profile. The risk profile has to be moderate. LIQUIDITY RISK Operational risk is generally increasing in society and In the liquidity strategy for 2008, the Board of Directors SpareBank 1 SR-Bank is making every effort to increasing decided in autumn 2007 to lead the formulation of goals its expertise in this area in collaboration with the academic for liquidity management in a more conservative direction. environment. The group therefore allocated funds The change entails e.g. a decision to increase the group’s for a professorship within management of operational risk portfolio of liquid assets eligible for repurchase agreements at the University of Stavanger in 2006. In extension with Norges Bank, and also an increase in the amount of this work, the group and the University of Stavanger took of funding with maturity greater than 5 years. The liquidity the initiative for a R&D project in partnership with management builds on conservative limits and reflects the SpareBank 1 Alliance and DnB NOR. The object the group’s moderate risk profile. The group’s funding of the project is to establish Norway and the Norwegian primarily stems from customer deposits and long-term banks as a centre of excellence in Europe within manage- securities debt. The liquidity risk is mitigated through ment of operational risk in the finance sector. diversification of markets, funding sources, instruments and maturity periods. COMPLIANCE SpareBank 1 SR-Bank strives to have efficient processes The unrest that arose in the financial markets in the second to secure compliance with current laws and regulations. half of 2007 led to reduced liquidity in the financial markets. The turmoil persisted throughout the whole of In recent years, particularly the introduction of a new 2008, making it more difficult for the financial institutions Securities Trading Act and the MiFID regulations have to finance their loans. Despite the challenges in the market, been highlighted in the group to safeguard the investor SpareBank 1 SR-Bank’s liquidity situation was satisfactory protection required for customers as regards product throughout the year. Customer deposits are the group’s pri- complexity and requirements for expertise among own mary source of funding. For the group as a whole, customer staff. A comprehensive plan has been drawn up for deposits increased by NOK 4.1 billion from 2007 to 2008. systematic control of the area, with the purpose of securing The deposit-to-loan ratio was reduced from 57.0 per cent compliance with the legislation and uncovering any areas to 54.5 per cent from the end of 2007 to the end of 2008. for improvement.

The transfer of higly-secured mortgage loans to SpareBank 1 CAPITAL MANAGEMENT Boligkreditt AS, and the authorities’ swap facility, are SpareBank 1 SR-Bank has a dedicated process helping to reduce the liquidity risk in SpareBank 1 for capital management that is to secure: SR-Bank. The group’s securities debt is evenly distributed • An effective capital acquisition and capital application between international and national capital sources. in relation to the group’s strategic objectives and adopted business strategy OPERATIONAL RISK • Competitive return Operational risk is the risk of losses as a result of inadequate • A satisfactory capital adequacy on the basis or failing internal processes or systems, human errors of chosen risk profile or external events. The processes for management of opera- • Competitive terms and long-term ample borrowing tional risk in SpareBank 1 SR-Bank must as far as possible in the capital markets ensure that no single event caused by operational risk • That the group maintains current international ratings is able to seriously damage the group’s financial position. • Exploitation of growth opportunities in the group’s defined market area The group maintains a strong focus on quality and • That no isolated events are able to damage the group’s continuous improvement. This will ensure that SpareBank 1 financial position seriously SR-Bank remains an effective organisation in the long-term, by giving priority to continuous improvement Every year a capital plan is drawn up to secure a long-term of the organisation’s overall innovation and achievements. and effective capital management. These projections take In 2008, the group began using a separate system into account both expected development in the coming for registering and monitoring improvement measures. years, as well as a situation of a serious economic recession In addition the group has a system for reporting over several years. An important tool for analysing a situation and monitoring undesirable events. of a serious recession is the use of stress tests. Stress tests are carried out of both individual factors and scenario SpareBank 1 SR-Bank sold to a limited extent structured analyses where the group is exposed to a number savings products up until 2005. On the basis of the of different negative macroeconomic events over several products’ increased complexity, the promotion/sale of these years. In addition, SpareBank 1 SR-Bank has prepared products was discontinued. The group’s exposure in this contingency plans to be able to deal with such crises market is moderate. as effectively as possible should they nevertheless arise.

The group strives to continuously improve the quality At the end of 2008, the capital adequacy for the group was assurance process for new products. In 2008, SpareBank 1 9.8 per cent, of which the core capital adequacy was 6.4 per SR-Bank further developed this process and introduced cent. In 2008 the objective in the group was to have a capital new risk models and procedures. A separate approval adequacy of 10 to 11 per cent and a core capital adequacy of committee has also been established to secure a broad 7 to 8 per cent. As a result of transitional rules in conjunction assessment of all aspects of the development of new with the transition to new capital adequacy rules, the core products. capital adequacy as at 1 January 2009 was 7.1 per cent. Core capital and capital adequacy ratio and who want to further develop their skills. Absence % due to sickness in 2008 totalled 3.8 per cent (3.0 per cent 14 in 2007). The increase from the year before is owing to 11,84

12 11,57 an increase in long-term absence. The group’s participation 10,56 in the ‘Inclusive workplace’ scheme and the effective super- 9,80 10 9,77 9,08 8,98 vision of managers mean that the group is working system- 7,39 8 7,35 atically to ensure that sick leave is kept to a minimum. 6,44 6 Work is being actively undertaken within health, safety 4 and the environment, including a continuous strengthening 2 of the bank’s safety programme. The bank was the victim of one robbery in 2008. 0 2004 2005 2006 2007 2008 The Board of Directors considers the climate of collabo- Core capital adequacy ratio Capital adequacy ratio ration between the group’s management, employees and elected representatives to be excellent.

On the basis of the increased uncertainty in Norwegian MANAGEMENT OF THE GROUP’S and international economies, and a general recapitalisation OVERALL EXPERTISE of banks internationally, SpareBank 1 SR-Bank aims The group is focused on the continuous development to strengthen its capital adequacy in the next few years. of the expertise of all its employees, and approximately 5 per cent of the total working hours are used for staff In first quarter 2008, a new subordinated loan of NOK training. Competence is seen as the interaction between 500 million was raised and in the second quarter 2008 knowledge, skills and attitudes, and the group intends to a dividend issue of NOK 174 million was carried out. continually raise the level of expertise in all these areas. As at 31 December 2008, hybrid instruments totalling NOK 526 million accounted for 9.3 per cent of the group’s core In early 2009, the group had approximately 40 employees capital. Up to 15 per cent of the core capital may consist attending college courses. of hybrid instruments. Any surplus amount is included as a subordinated loan in capital adequacy. In conjunction In 2008, approximately NOK 13 million was used in compe- with the Government’s credit package in February 2009, tence-building measures in addition to the hours spent. the Norwegian Ministry of Finance announced its intention to exempt hybrid instruments used to inject core capital LIFE PHASE POLICY from the Norwegian State Finance Fund from the limit SpareBank 1 SR-Bank has adopted a life phase policy of 15 per cent, so that this type of hybrid instruments, that is intended, amongst other things, to encourage older together with normal hybrid instruments may together employees to continue working longer. The group’s goal is make up maximum 35 per cent of a bank’s core capital. to see the average retirement age rise to 63 years. Individual adaptation, flexibility and health-promoting measures In the Supervisory Board’s meeting on 30 October 2008, are key measures to achieve this goal. In 2008, the average the Board of Directors was granted a renewed authority retirement age was 60.5 years (62.4 years in 2007). in order to increase the primary capital by up to 10 per cent The lower retirement age in 2008 is attributable to some of the primary capital. The authority is valid for one year younger disability pensioners. There is a positive tendency from registration in the Register of Business Enterprises. for people with contractual pensions to remain in work longer than previously. AUDIT External audit EQUAL OPPORTUNITIES The group’s external auditor is PricewaterhouseCoopers AS. Gender equality is of paramount importance to SpareBank 1 SR-Bank and provisions are made to ensure that men Internal audit and women have the same opportunities with respect The internal audit is carried out by Ernst & Young AS. to development, pay and other benefits. We make every The internal audit reports to the group’s Board of Directors. effort to find flexible arrangements that make it possible to combine a career with family life. EMPLOYEES AND WORKING ENVIRONMENT At the end of 2008, the group had 1,173 employees, corres- Women account for 58.8 per cent of the man-years in the ponding to 1,117 man-years. The workforce increased by 96 bank, which is 1.5 percentage points more than in the past man-years during the year. This is owing to a sharper focus year. SpareBank 1 SR-Bank’s goal is for at least 40 per cent on customer-oriented business and a further strengthening of management positions to be held by women. This was of the group’s overall expertise, particularly within achieved in 2008, and at the end of the year it was 41 per the retail and capital market divisions, as well as risk cent (37.9 per cent in 2007). The proportion of female management. In 2008 the group has also carried out managers in the group has risen sharply since 2000 organisation and working environment surveys that show when it was 14 per cent. that employees have a good relationship with the company as an employee. The group boasts employees who have Group management consists of nine people: eight men the right sales approach, are flexible and enthusiastic and one woman. The following measures have been implemented SpareBank 1 SR-Bank carried out a dividend issue in April in recent years to promote equality: 2008, whereby 3,668,598 new primary capital certificates • Adoption of the objective of increasing the percentage were subscribed for a total of NOK 174 million. In addition of women in management positions to at least 40 per cent to this, a private placement was carried out among employees • Diversity and equal opportunity are the subjects in the third quarter 2008 and 264,838 new primary capital of management development programmes certificates were subscribed. Following this, the number and management groups of issued primary capital certificates totals 74,903,345 with • All vacant positions are advertised internally a nominal value of NOK 25. As a result of the dividend • Schemes are available with flexible working hours issue, the primary capital certificate percentage rose from • Participation in FUTURA, the Norwegian Financial 54.9 per cent to 56.5 per cent. The utilised primary capital Services Association’s management training programme certificate percentage for 2008 is weighted based on the for women issue date and totals 56.0 per cent.

The average salary for bank employees at the end of 2008 The consolidated profit per primary capital certificate for is NOK 430,000 per man-years, with the average salary 2008 totalled NOK 3.60. On the basis of the bank’s dividend for women and men being NOK 367,000 and NOK 509,000 policy, the Board proposes that a dividend of NOK 1.0 per respectively. primary capital certificate be paid for 2008. In 2007, the dividend was NOK 4.75. The Board of Directors proposes The number of people working reduced hours was 181, that in 2009 a bonus issue is carried out where five primary of which 14 are men and 167 are women, representing capital certificates entitle the owner to one new certificate. 126 man-years. By way of this scrip issue, NOK 375 million will be transferred from the Premium Reserve and the Dividend EXTERNAL ENVIRONMENT Equalisation Reserve to Primary Capital. The bank uses no input factors or production methods that have any significant environmental impact. The group’s Dividend per PCC and direct yield impact on the external environment is limited to the NOK % materials and energy necessary for the group to carry 6 8 on its business. A continuous effort is being made to switch 5 to electronic communication internally and externally, 6 which also helps to reduce paper consumption. In the 4 opinion of the Board, the bank’s activities pollute the 3 4 external environment only to a very limited extent. 2 BANK ADVISORY COUNCILS 2 SpareBank 1 SR-Bank has local bank advisory councils 1 in all of the municipalities where the bank is represented. 0 0 These bank advisory councils can help recognise opportu- 2004 2005 2006 2007 2008 nities and identify signals regarding the bank’s activities in the local markets. They are made up of local resource Dividend per PCC NOK Direct yield % persons and act as listening posts and advisers to the local offices in their marketing work. The bank advisory councils administer portions of the bank’s endowment fund for ENDOWMENT FUND FOR PUBLIC BENEFIT public benefit and have committed themselves to ensuring Pursuant to the Norwegian Act on Savings Banks, the bank that the funds are put to good use in the local community. may allocate a maximum of 25 per cent of the profit for the year less dividend to an endowment fund for public benefit. PRIMARY CAPITAL CERTIFICATES The Norwegian Ministry of Finance pointed out in a letter At the end of 2008, there were 11,482 registered holders of 20 January 2009 to The Norwegian Savings Banks of the bank’s primary capital certificates. The percentage Association that the Savings Banks Act (Norway) paves held by foreigners was 7.4 per cent, while 61.6 per cent were the way for dispensation from this rule, allowing banks held by local investors in Rogaland, the Agder counties and that believe they qualify for dispensation to apply for this. Hordaland. The 20 largest holders controlled 24.9 per cent The Board proposes that NOK 20 million be allocated of the primary capital certificates at the end of 2008. to this fund for 2008. The bank’s own holding of its certificates totalled 294,264 as at 31 December 2008. GOING CONCERN The future prospects and the general macroeconomic Trading in primary capital certificates in 2008 corresponded framework conditions changed during 2008. Implemented to 29.9 per cent of the number of issued certificates. and planned initiatives are proving promising for the At the end of 2008, the price of the bank’s primary capital group’s continued progress in 2009. The annual accounts certificates was NOK 32.5, against NOK 66.25 at the end are produced on the basis of a going concern assumption. of 2007. Including dividend paid, the bank’s primary capital certificates generated an effective rate of return of -43.8 per cent in 2008. ALLOCATION OF PROFIT/DIVIDEND Our primary areas are considerably affected directly The Board proposes the following allocation and indirectly by the activity in the petroleum sector. of the profit for 2008: The estimates for petroleum investments in 2009 are (NOK million) approximately on a par with 2008, which will help to keep Profit for the year 401 activity buoyant in 2009. However in the slightly longer Dividend (NOK 1.0 per PCC) 75 term, the estimates are more uncertain and a sustained low Dividend equalisation reserve 149 oil price is likely to lead to a dampened level of activity. Savings bank’s reserve 156 Endowment fund for public benefit 20 Norwegian finance institutions have been affected by the Total allocations 401 financial instability and the economic recession in several ways. Securities have fallen in value and it has become OUTLOOK FOR 2009 more expensive to lend money. The increased funding cost The macro-economic backdrop changed radically in the will gradually be reflected in increased risk premimums course of the second half of 2008. Following four years of for the finance institutions’ loan customers. Total losses the strongest continuous economic growth since the 1970s, and loan loss provisions increased in the fourth quarter growth declined during 2008. The economic slowdown 2008. Loss provisions must be expected to return to more is a result of a number of factors. Sustained unrest normal levels in 2009 following several years of extremely in the financial markets and weaker economic development low losses. internationally played a major role. Moreover a drop in the housing and securities markets have reduced wealth Competition in the finance sector has been mounting and led to lower expectations for future growth. The slow- in most areas for several years, but showed signs of change down in the Norwegian economy accelerated in the second in 2008. Foreign players appear to have a lower threshold six months. Norges Bank estimates that growth in GDP for for reducing activity in difficult times. Many banks Mainland Norway will be reduced from over 6.2 per cent prioritise existing customers as a result of a shortage in 2007, to around 2 per cent in 2008, to close to zero in of capital. Altered framework conditions mean that 2009. Other institutions are also expecting a marked greater importance is attached to adaptability. In addition, reversal in 2009. Statistics Norway is predicting a decline increased requirements and expectations from customers, in GDP for Mainland Norway of 1.7 per cent in 2009. There combined with technological changes, will place serious are few experiences with such radical changes in growth. demands on the organisation’s ability to innovate The last time the changes in growth where anywhere near and change. Although unemployment has risen slightly, these levels was in the late 1980s, when unemployment there is still strong competition for competent workers. in Norway rose from 1.5 to 6 per cent. Unemployment is now expected to double from 2 to 4 per cent. However, SpareBank 1 SR-Bank expects further creation of value estimates are quite uncertain. from the cooperation in the SpareBank 1 Alliance, where the group can, for example, exploit economies of scale A number of factors may nevertheless mitigate the decline in brand building, technology and product development. we are now witnessing. Monetary and fiscal policies The issuance of covered bonds through SpareBank 1 are being utilised to stimulate activity. The fiscal political Boligkreditt AS will be important for the group’s capital stimulus adopted in the autumn of last year accounts acquisition and funding costs in 2009. for over 2 per cent of GDP. Having raised its key policy rate from 5.25 to 5.75 per cent in the first six months of 2008, The Board of Directors points to the fact that unrest Norges Bank reduced the key policy rate in the second half in the financial markets and weaker economic growth of the year to 3 percent. In February 2009, Norges Bank is expected to dominate 2009. On the basis of this, reduced the key policy rate to 2.5 per cent and the estimates the Board is expecting 2009 to be a consolidation year indicate a further reduction to around 2 per cent before with low growth in lending and a focus on management the summer and that the key policy rate is likely to remain and the handling of risk, as well as close dialogue low for some considerable time. with the group’s customers. The Board is of the opinion that the group is well positioned and prepared to meet The sharp decline in the key policy rate will stimulate the challenges it will face and expects its underlying the Norwegian economy with a drop in the Banks’ lending operations to perform well in 2009. The group will rates. Disposable income will increase, making it easier for maintain a good market position in 2009 and be seen our customers to service their loans. At the same time there as a profitable and solid group that creates value is reason to believe that the increased spending power for its customers, owners and the local community. will be utilised to repay debt. Credit and lending growth will be further curtailed after several years of high growth. The Board of Directors would like to thank the group’s Growth in lending stagnated in the second six months employees and elected representatives for their excellent of 2008 and this trend is expected to continue into 2009. cooperation once again in 2008. Norges Bank’s lending survey from January 2009 substan- tiates this picture. Whilst lending growth is expected The interaction between inhabitants, business community to subside, it is important that that credit rationing and bank is important for the development of our region. is avoided, and that financing is made available In conjunction with this, the Board would like to thank to the group’s customers who have viable projects. the Group’s customers, owners and other partners for their loyal support of SpareBank 1 SR-Bank in 2008 and will make every effort to ensure that this continues in the year ahead. 01. 02.

03. 04.

01.CHAIRMAN OF THE BOARD KRISTIAN EIDESVIK: Ship-owner, Bømlo, born 1945. Coastal skipper’s certifi cate. 20 years of experience as a fi shing boat skipper/owner, built up and runs his own real estate and shipping company. Active politician at municipal and county level for 12 years. Chairman of the Board of Wilson ASA and Caiano AS. Holds several other managerial and board positions. Owns 62,440 primary capital certifi cates as of 31.12.2008. First election: 1997. Currently elected until: 2010. 02.VICE CHAIRMAN OF THE BOARD GUNN-JANE HÅLAND: Area manager Tampen/Oseberg, Petoro AS, Stavanger, born 1963. Master’s degree in Business Administration (MBA) from the Norwegian School of Management (BI) (1994). Experience from a range of managerial positions in Sandnes Sparebank, most recently as Deputy Managing Director. Board member of Roxar ASA. Owns no primary capital certifi cates as of 31.12.2008. First election: 2003. Currently elected until: 2009. 03.MEMBER OF THE BOARD INGRID LANDRÅK: Finance Manager, Wintershall Norge ASA, Stavanger, born 1970. Economics/business administration – three-year course in accounting and auditing at Rogaland University College (1989 - 92). Master in Accounting & Audit, Norwegian School of Economics and Business Administration, Bergen (1994-95). Competence programme for board work at Stavanger University College (2003-04). Experience: Pricewaterhouse (accountant), Scana Industrier ASA (controller, group management), Gilde Vest BA (CFO), Statoil ASA (head of the Finance Department). Owns no primary capital certifi cates as of 31.12.2008. First election: 2005. Currently elected until: 2009. 04.MEMBER OF THE BOARD BIRTHE CECILIE JØRGENSEN: Finance Manager, Grieg Shipping Group, Bergen, born 1971. Bachelor of Commerce from the Norwegian School of Management (BI) Sandvika (1997), Norwegian School of Economics and Business Administration (NHH) Authorised Financial Analysis course (2003). Experience from DnBNor as analyst and second-in-command in the shipping division. Member of the board of Grieg Athena AS, Grieg Inter- national AS and Green Reefers ASA. Owns no primary capital certifi cates as of 31.12.2008. First election: 2008. Currently elected until: 2010. 05.MEMBER OF THE BOARD ERIK EDVARD TØNNESEN: Managing partner of Skagerak Venture Capital AS, Kristiansand, born 1958. Bachelor of Commerce from the Norwegian School of Management (BI) in Oslo (1981). Experience from managerial positions in Sparebanken Sør, Acta Sundal Collier, Gjensidige Sør, Gjensidige NOR and Såkorninvest Sør AS. Chairman of the Board of Metallkraft AS, Advali AS, member of the board of Nordisk Energiforvaltning ASA and Lindesnes Avis. Owns no primary capital certifi cates as of 31.12.2008. First election: 2008. Currently elected until: 2010. 05. 06.

07. 08.

06.MEMBER OF THE BOARD EINAR RISA: Administrative leader of Rosenberg Services AS, Stavanger, born 1950. Cand. Mag. (Bachelor’s degree) from University of Oslo 1974. Scaffold-builder trade certifi cate 1992. Local union offi cial at Rosenberg Verft’s club (Fellesforbundet and the Confederation of Norwegian Trade Unions (LO)) from 1981, full-time union representative from 1986, fi rst as secretary and later as club leader from 1996 to March 2007. Has held positions in the local trade union movement and at corporate level in Kværner and Aker Kværner. Employee-elected Board member of Moss Rosenberg, Kværner Rosenberg and Kværner Oil and Gas, Aker Kværner Rosenberg and Rosenberg Verft AS from 1998 to March 2007. Chairman of the Board of Representatives of SpareBank 1 SR-Bank from 2001–2006. Board member of Stavanger-regionens Næringsutvikling AS (Greater Stavanger Economic Development). Owns 4,400 primary capital certifi cates as of 31. 12. 2008. First election: 2006. Currently elected until: 2009. 07.MEMBER OF THE BOARD KÅRE HANSEN: Technical Manager, NorDan AS, Moi, born 1955. Three-year engineering course – Business Technology, together with Advanced Management. IMD, Lausanne, Switzerland. Chairman of the Board Dalene Energi, member of the board of Dalane Vind AS, Kværnhuset, Industri-Inkubator AS and Chairman of the Board Stiftelsen SR-Bank Næringsutvikling Dalane / Lister. Experience from e.g. Aker Kværner, most recently as Managing Director of Aker Kværner – Kværner Egersund AS. Member of the control committee SpareBank 1 SR-Bank, 2004–2006. Owns no primary capital certifi cates as of 31.12.2008. First election: 2006 *. Currently elected until: 2009 *Elected as permanent deputy board member, however accepted as board member since 12.01.09. 08.EMPLOYEE-ELECTED MEMBER OF THE BOARD SALLY LUND-ANDERSEN: Corporate employee representative in SpareBank 1 SR-Bank, born 1961. Employed by SpareBank 1 SR-Bank since 1981. Member of the Executive Committee of Finansforbundet (The Finance Sector Union of Norway). Owns 426 primary capital certifi cates as of 31.12.2008. First election: 2006. Currently elected until: 2010. ANNUAL ACCOUNTS INDEX

Income statement 41 Balance sheet 42 Table of recorded income, expenses and changes in values 43 Changes in equity 43

Cash fl ow statement 44

Note 1 General information 45

Note 2 Accounting principles 45

Note 3 Financial risk management 50

Note 4 Critical estimates and assessments regarding the use of accounting principles 56

Note 5 Segment information 58

Note 6 Net interest income 60

Note 7 Net commission and other operating income 60

Note 8 Income from fi nancial investments 61

Note 9 Operating expenses 62

Note 10 Remuneration to senior employees and elected offi cers 63

Note 11 Taxes 65

Note 12 Other assets 66

Note 13 Tangible fi xed assets 66

Note 14 Intangible assets - goodwill 68

Note 15 Investments in ownership interests 69

Note 16 Shares, units and primary capital certifi cates 71

Note 17 Certifi cates and bonds 74

Note 18 Finansielle derivater 75

Note 19 Credit institutions – receivables and liabilities 76

Note 20 Lending to and receivables from customers 76

Note 21 Losses on loans and guarantees 80

Note 22 Deposits from customers 82

Note 23 Debt securities issued 83

Note 24 Subordinated loan capital 84

Note 25 Other liabilities 85

Note 26 Pensions (with direct recognition of actuarial deviations) 86

Note 27 Capital adequacy 88

Note 28 Related parties 90

Note 29 Primary capital and ownership structure 90

Note 30 Restricted funds 91

Note 31 Classifi cation of fi nancial instruments 92

Note 32 Maturity analysis of assets and liabilities 95

Note 33 Maximum credit risk exposures 96

Note 34 Credit quality per fi nancial asset class 97

Note 35 Credit risk exposure for each internal risk rating 100

Note 36 Distribution by age of defaulted loans not written down 100

Note 37 Remaining contractual term to run for liabilities 101

Note 38 Market risk related to interest risk 102

Note 39 Market risk related to currency risk 103

Note 40 Activities to be sold 103

Note 41 Events after the balance sheet date 103

Note 42 Mergers 104 Auditor’s report for 2008 105 Statement from the Board of Directors and the CEO 106 The Audit Committee’s statement for 2008 106 Primary capital certifi cates 108 Key fi gures for the last fi ve years 112 INCOME STATEMENT

Parent company The Group 2006 2007 2008 (fi gures in NOK million) Note 2008 2007 2006

2 934 5 023 7 293 Interest income 6 7 415 5 100 2 995 1 874 3 774 5 788 Interest expenses 6 5 771 3 760 1 867 1 060 1 249 1 505 Net interest income 1 644 1 340 1 128

464 601 564 Commission income 7 634 675 511 -77 -83 -82 Commission expenses 7 -80 -81 -75 25 26 10 Other operating income 7 242 301 242 412 544 492 Net commission and other operating income 796 895 678

10 11 14 Dividends 8 15 12 12 10 94 206 Income from ownership interests 8,15,42 261 234 189 200 89 -218 Income from financial investments 8 -234 142 240 220 194 2 Net yield on financial investments 42 388 441

1 692 1 987 1 999 Total income 2 482 2 623 2 247

500 570 608 Personnel expenses 9,10 776 751 634 295 301 351 Administration expenses 9 390 339 329 138 182 187 Other operating expenses 9 287 267 215 933 1 053 1 146 Total operating expenses 1 453 1 357 1 178

759 934 853 Profit before losses 1 029 1 266 1 069

-90 6 353 Losses on loans and guarantees 21 386 10 -92 849 928 500 Profit before tax 643 1 256 1 161

210 212 135 Taxes 11 163 249 237 639 716 365 Profit after tax 480 1 007 924

- - - Minority interests 11 13 10 639 716 365 Majority interests 469 994 914

Earnings per primary capital certificate (majority) 5,44 5,66 2,80 Earnings per primary capital certificate 1) 3,60 7, 8 5 7,7 8 5,44 5,66 2,80 Diluted earnings per primary capital certificate 3,60 7, 8 5 7,7 8

1) Earnings multiplied by primary capital certificate percentage divided by average number of outstanding certificates. (Earnings * 56.0 % / 72.919) BALANCE SHEET

Parent company The Group 2006 2007 2008 (fi gures in NOK million) Note 2008 2007 2006 Assets 834 2 622 6 998 Cash and balances at central banks 30 6 998 2 622 834 2 585 6 489 5 920 Loans to and deposits with credit institutions 19 1 416 3 357 170 74 656 84 647 95 163 Gross loans to customers 20 99 630 88 090 77 297 -99 -92 -320 - Loan loss write-downs on individual loans 20 -345 -98 -107 -123 -120 -206 - Loan loss write-downs on groups of loans 20 -229 -131 -131 74 434 84 435 94 637 Net loans to customers 20 99 056 87 861 77 059 3 526 5 406 3 986 Certificates and bonds at fair value 17 4 027 5 444 3 558 - - 5 048 Certificates and bonds held to maturity 17 5 048 - - 478 897 4 848 Financial derivatives 18 4 842 897 478 564 449 289 Shares, units and primary capital certificates 16 404 589 582 649 788 1 204 Investments in ownership interests 15 1 953 1 345 793 310 430 481 Investments in group companies 15 ------Intangible assets 14 20 23 4 287 282 326 Fixed assets 13 337 294 299 15 - - Deferred tax asset 11 - - 24 - - 127 Activities to be sold 40 638 43 579 595 733 1 060 Other assets 12 1 138 792 655 84 277 102 531 124 924 Total assets 125 877 103 267 85 035

Liabilities 6 060 5 813 11 121 Debt to credit institutions 19 11 119 5 812 6 028 43 143 50 995 54 940 Deposits from customers and debt to customers 22 54 307 50 214 42 547 26 057 35 635 45 657 Debt raised through issuance of securities 23 45 657 35 635 26 057 435 713 2 029 Financial derivatives 18 2 029 713 435 199 183 9 Taxes payable 11 22 211 217 - 13 71 Deferred tax 11 94 21 - - - - Activities to be sold 40 55 - 524 1 395 1 269 1 800 Other liabilities 25,26 2 458 1 995 1 935 2 952 2 825 4 170 Subordinated loan capital 24 4 170 2 825 2 992 80 241 97 446 119 797 Total liabilities 119 911 97 426 80 735

Equity 1 126 1 764 1 865 Primary capital 1 865 1 764 1 126 18 7 92 Premium reserve 92 7 18 721 777 838 Equalisation reserve 838 777 757 271 337 75 Allocated to dividend 75 337 271 1 707 1 970 2 066 Savings bank’s reserve 2 066 1 970 1 738 90 124 122 Endowment fund 122 124 90 103 106 69 Reserve for unrealised gains 69 139 110 - - - Other equity 827 707 178 - - - Minority interests 12 16 12 4 036 5 085 5 127 Total equity 29 5 966 5 841 4 300 84 277 102 531 124 924 Total liabilities and equity 125 877 103 267 85 035

Kristian Eidesvik Gunn-Jane Håland Birthe Cecilie Jørgensen Ingrid Landråk Styreleder Nestleder

Sally Lund-Andersen Einar Risa Erik Edvard Tønnesen Kåre Hansen Terje Vareberg Ansattes representant Administrerende direktør TABLE OF RECORDED INCOME, EXPENSES AND CHANGES IN VALUES (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 638 716 365 Profit for the year 480 1 007 924 1 96 -137 Estimate deviations pensions -156 105 1 - 3 -1 Change in value of financial assets available for sale -1 3 - 639 815 227 Total recorded income 323 1 115 925 639 815 227 - Of which majority’s share 313 1 102 915 - - - - Of which minority’s share 10 13 10

CHANGES IN EQUITY (fi gures in NOK million) Paid in equity Earned equity

Primary Premium Saving’s bank Endowment Equalisation Reserve for Other equity Total capital reserve reserve fund reserve unrealised equity Parent company gains Equity as at 31.12.2007 1 764 7 1 970 124 1 114 106 - 5 085 Estimate deviations pension 31.12.2008 - - -60 - -77 - - -137 Financial assets available for sale ------1 - -1 Changes in fair value without impact on profit - - -60 - -77 -1 - -138 Adjusted value repurchased primary capital certificates 3 - - - -3 - - - Dividend issue 92 82 - - - - - 174 Private placement with employees 6 3 - - - - - 9 Grants from endowment fund - - - -22 - - - -22 Price adjustment own primary capital certificates - - - - -10 - - -10 Dividend 2007 resolved in 2008 - - - - -336 - - -336 Profit for the year - - 156 20 225 -36 - 365 Equity as at 31.12.2008 1 865 92 2 066 122 913 69 - 5 127

Majority’s share Paid in equity Earned equity

Primary Premium Saving’s Endowment Equalisation Reserve for Other equity Minority Total capital reserve bank reserve fund reserve unrealised interests equity The Group gains Equity as at 31.12.2007 1 764 7 1 970 124 1 114 139 560 16 5 694 Policy change SpareBank 1 Gruppen ------147 - 147 Adjusted equity as at 1.1.2008 1 764 7 1 970 124 1 114 139 707 16 5 841 Estimate deviations pensions 31.12.2008 - - -60 - -77 - -18 -1 -156 Financial assets available for sale ------1 - - -1 Changes in fair value without impact on profit - - -60 - -77 -1 -18 -1 -157 Adjusted value repurchased primary capital certificates 3 - - - -3 - - - - Dividend issue 92 82 ------174 Private placement with employees 6 3 ------9 Grants from endowment fund - - - -22 - - - - -22 Price adjustment own primary capital certificates - - - - -10 - - - -10 Dividend 2007 resolved in 2008 - - - - -336 - - -14 -350 Adjusted equity SpareBank 1 Gruppen ------1 - 1 Profit for the year - - 156 20 225 -69 137 11 480 Equity as at 31.12.2008 1 865 92 2 066 122 913 69 827 12 5 966 CASH FLOW STATEMENT (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 849 928 500 Profit before tax 643 1 256 1 161 - - - Income from ownership interests -261 -234 -189 -113 2 -1 Changes in value of financial assets -1 -51 -153 -18 -22 -7 Gain on disposal of non-financial assets -8 -22 -18 43 47 54 Write-down of non-financial assets 64 52 54 -90 6 353 Losses on loans 386 10 -92 -149 -237 -183 Taxes paid -210 -255 -161 522 724 716 Cash flow from operations 613 756 602

-14 901 -9 991 -10 516 Change in gross lending to customers -11 540 -10 793 -15 395 -544 -3 999 763 Change in receivables from credit institutions 2 135 -3 282 - 5 182 7 852 3 945 Change in deposits from customers 4 093 7 667 5 018 2 411 -247 5 308 Change in debt to credit institutions 5 307 -216 2 392 -377 -1 880 -3 628 Change in certificates and bonds -3 631 -1 886 -398 -249 -138 -454 Change in other receivables -941 -137 -66 540 336 -2 196 Change in current liabilities -1 974 96 1 204 -7 416 -7 343 -6 062 A Net change in liquidity from operations -5 938 -7 795 -6 643

-64 -75 -108 Investments in tangible fixed assets -116 -75 -70 48 55 17 Proceeds from sale of fixed assets 17 55 48 -441 -124 -307 Change in shares and ownership interests -423 368 -1 071 -457 -144 -398 B Net change in liquidity from investments -522 348 -1 093

Debt raised by issuance of 9 845 21 255 19 364 securities 19 364 21 255 9 708 Repayment/foreign exchange effect – issuance -1 701 -11 677 -9 342 of securities -9 342 -11 677 -1 701 799 - 500 Subordinated loan capital raised 500 - 799 Repayment/foreign exchange effect – subordinated -143 -127 845 loan capital 845 -167 -143 -317 -271 -337 Dividend to primary capital certificate holders -337 -271 -317 8 483 9 180 11 030 C Net change in liquidity from financing 11 030 9 140 8 346

610 1 693 4 570 A+B+C Net change in liquidity for the year 4 570 1 693 610

387 997 2 690 Cash and cash equivalents as at 1 January 2 690 997 387 997 2 690 7 260 Cash and cash equivalents as at 31 December 7 260 2 690 997 610 1 693 4 570 Net change in liquid capital for the year 4 570 1 693 610

Liquid holdings specified 834 2 622 6 998 Cash and balances at central banks 6 998 2 622 834 163 68 262 Deposits with credit institutions 262 68 163 997 2 690 7 260 Liquid holdings as at 31 December 7 260 2 690 997

The liquid holdings include cash and balances at central banks, and the share of loans and deposits with credit institutions that refer to pure placings in credit institutions. The cash flow statement shows how the parent company and the group generated liquid assets and how these were applied. The overall liquidity balance in the group rose by NOK 4,570 million. In 2008, operations were marked by good growth in len- ding and in deposits from customers. NOTE 1 GENERAL INFORMATION The SpareBank 1 SR-Bank Group comprises the parent bank, The annual accounts are presented in accordance with IFRS stan- SpareBank 1 SR-Bank (”the Bank”), and its subsidiaries; SpareBank 1 dards and interpretations that are obligatory for accounts presented SR-Finans AS, EiendomsMegler 1 SR-Eiendom AS, SR-Investering as at 31.12.2008. . AS, SR-Forretningsservice AS, SR-Forvaltning ASA and Vågen Eiendomsforvaltning AS. 23.4 per cent of SpareBank 1 Boligkreditt The following standards are implemented in the annual accounts for AS is owned by the Bank and is dealt with as an associated company 2008: in the accounts. SpareBank 1 Utvikling DA and Vågen • IAS 39, IFRS 7 “Reclassification of financial assets”. Eiendomsmegling AS are treated in the same manner as the bank’s Changes are adopted that on certain terms allow for the interests represent 17.7 and 49.0 per cent respectively. The Bank reclassification of financial assets from the measurement owns 19.9 per cent of SpareBank 1 Gruppen AS and 20.0 per cent of categories ”at fair value with value change through profit or BNbank ASA (formerly Glitnir Bank AS). These shareholdings are loss” and ”available for sale” to the measurement categories treated as joint ventures. ”hold to maturity” and ”loans and receivables”. The Bank has utilised this opportunity and refers to note 17 for further The Bank’s registered office is in Stavanger and there are 53 branch information offices in the counties of Rogaland, Vest-Agder, Aust-Agder and Hordaland. Some of the offices share their space with EiendomsMegler The following standards, interpretations and changes are obligatory 1 SR-Eiendom AS. All of the subsidiaries have their head offices in for annual accounts that commence 1 January 2008 or later, but are Stavanger. not considered to be relevant to the annual accounts 2008: • IFRIC 12 ”Service concession arrangements” The group’s core activities are sales and brokering of financial • IFRIC 14, IAS 19 ”The limit on a defined benefit asset, products and services, as well as leasing and real estate brokering. minimum funding requirements and their interaction” • IFRIC 11, IFRS 2 “Group and treasury share transactions” The group’s accounts were adopted by the Supervisory Board on 26 March 2009. The Supervisory Board is the Bank’s highest body. The following interpretations of existing standards are published and will be obligatory for company and group accounts that com- mence 1 January 2009 or later, but without the management NOTE 2 ACCOUNTING PRINCIPLES having chosen early application. BASIS FOR PRESENTATION OF THE ACCOUNTS • IFRS 8 ”Operating segments” (effective as of 1 January FOR THE YEAR 2009). The standard replaces IAS 14 and coordinates The parent bank’s and the group’s accounts for 2008 for SpareBank 1 segment reporting with the requirements in the US standard SR-Bank (”the Bank”) have been prepared in accordance with SFAS 131, ”Disclosures about segments of an enterprise International Financial Reporting Standards (IFRS) as stipulated by and related information”. The new standard requires that the EU. This includes interpretations from the International Financial presented segment information is based on the Reporting Interpretations Committee (IFRIC) and its predecessor, management’s approach to segment information in internal the Standing Interpretations Committee (SIC). reporting. The bank will implement IFRS 8 as of 1 January 2009. The standard is not expected to affect the company The consolidated group accounts for SpareBank 1 SR-Bank have or the group accounts been prepared in accordance with the IFRS regulations of 1.1.2005. • IAS 23 (amended) ”Borrowing costs” These regulations could only be applied to savings banks’ accounts • IAS 1 (revised) ”Presentation of financial statements” with effect from 1.1.2007. The financial statements for 2008 are • IFRS 2 (amended) “Share-based payment thus presented in accordance with the IFRS regulations both for the • IAS 32 (amended) “Financial instruments: Presentation” and parent company and the group. IAS 1 (amended) ”Presentation of financial statements – putable financial instruments and obligations arising on The basis for both the parent bank’s accounts and the consolidated liquidation” accounts is historical cost with the following modifications: financial • IFRS 1 (amended) “First time adoption of IAS 27” and IAS 27 derivatives, financial assets and financial liabilities to fair value with (amended) “Consolidated and separate financial statements” changes in value through profit or loss. • IFRS 3 (revised) “Business combinations” The preparation of the accounts in accordance with IFRS calls for the • IFRS 5 (amended) “Non-current assets held-for-sale and use of estimates. Furthermore, the application of the international discontinued operations” (and consequent amendment to accounting standards calls for management to exercise discretion. IFRS 1, First time adoption) Areas that involve a great deal of discretionary estimates, a high • IAS 28 (amended) ”Investments in associates” (and degree of complexity or areas where assumptions and estimates consequent amendment to IAS 32, ”Financial instruments: are significant for the parent company and the group accounts, are Presentation”, and IFRS 7 ”Financial instruments: described in note 4. Disclosures”) • IAS 36 (amended) ”Impairment of assets” • IAS 38 (amended) “Intangible assets” • IAS 19 (amended) “Employee benefits” Acquisition accounting (the purchase method) is applied when recor- • IAS 39 (amended) “Financial instruments: Recognition and ding subsidiaries. On acquisition of control of an enterprise (business measurement” Amendment made as result of the combination) all identifiable assets and liabilities are recorded at fair improvement project published in May 2008 value in accordance with IFRS 3. A positive difference between the • In addition a number of amendments were made to IFRS 7, fair value of the acquired assets and fair value of identifiable assets IAS 8, IAS 10, IAS 18 and IAS 34 on the basis of IASB’s and liabilities is carried as goodwill, while any negative difference annual improvement project published in May 2008, but not (badwill) is recorded as income at the time of the acquisition. addressed above The Bank has not applied IFRS 3 retrospectively on business com- • IFRIC 16 ”Hedges of a net investment in a foreign operation” binations carried out prior to 1 January 2004. • The following interpretations of existing standards have been published and will be obligatory for annual accounts Intra-group transactions, inter-company balances and realised beginning on 1 January 2009 or later, however the profit between group companies are eliminated. management does not consider them relevant to the The accounting principles applied by the subsidiaries are changed company or the group: when this is necessary to ensure consistency in the group’s • IAS 16 (amended) “Property, plant and equipment” accounting principles. • IAS 27 (amended) “Consolidated and separate financial statements” The minority interests’ share of the group’s profit is presented on a • IAS 29 (amended) “Financial reporting in hyperinflationary separate line in the annual accounts under profit after tax. Their economies” share of equity is shown as a separate item. • IAS 31 (amended) “Interests in joint ventures” • IAS 40 (amended) ”Investment property” (and consequent ASSOCIATED COMPANIES amendment to IAS 16) Companies in which the Bank has a significant influence but not • IAS 41 (amended) ”Agriculture” control are defined as associated companies. Normally, significant • IAS 20 (amended) ”Accounting for government grants and influence arises when the Bank has a stake of between 20 and 50 disclosure of government assistance” per cent of the voting capital. Associated companies are recorded in • IFRIC 13 “Customer loyalty programmes” accordance with the cost method of accounting in the company • IFRIC 15 “Agreements for construction of real estates” accounts and the equity method in the group accounts.

PRESENTATION CURRENCY In the group accounts, new investments are recorded at acquisition The presentation currency is Norwegian kroner (NOK), which is also cost. Investments in associated companies include goodwill/badwill the Bank’s functional currency. All figures are in NOK million unless identified at the time of the acquisition, reduced by any possible otherwise stated. later write-downs.

SUBSIDIARIES The group’s share of profits or losses in associated companies are In the accounts of the parent bank, subsidiaries’ assets are valued recorded and added to the balance sheet value of the investments in accordance with the cost method of accounting. Investments are together with the share of changes in equity not taken to profit or assessed at the acquisition cost of the shares assuming that no write- loss. down has been necessary. The Bank owns 17.7 per cent of SpareBank 1 Utvikling DA, where Dividends, group contributions and other distributions are taken to the other owners are banks in the SpareBank 1 Alliance and income in the year they are paid. If the dividend/group contribution SpareBank 1 Gruppen AS. The Bank also owns 23.4 per cent of exceeds the share of the retained profit after the acquisition, the SpareBank 1 Boligkreditt AS and 49.0 per cent of Vågen excessive amount represents a repayment of invested capital, and Eiendomsmegling AS. All of these investments are defined as the distribution is deducted from the value of the investment in the associated companies. company’s accounts. JOINT VENTURES CONSOLIDATION Joint ventures can be jointly-controlled operations, jointly-controlled The group accounts include all the subsidiaries. Subsidiaries are all assets and jointly-controlled enterprises. Joint control implies that the units in which the Bank has a decisive influence on the unit’s the Bank by agreement exercises control together with other parti- financial and operational strategy, normally through the ownership cipants. Jointly controlled enterprises are recorded in accordance of more than half of the voting capital. When deciding whether this with the cost method in the company accounts and the equity is a decisive influence, the effect of potential voting rights that can method in the group accounts. be exercised or converted on the balance sheet date is included. Subsidiaries are consolidated from the date the bank has taken over SpareBank 1 Gruppen AS owns 19.9 per cent of each of the control and are no longer consolidated from the date the bank relin- following: SpareBank 1 SR-Bank, SpareBank 1 SMN, SpareBank 1 quishes control. Nord-Norge and Samarbeidende Sparebanker AS. Other owners are Sparebanken Hedmark (11.1 per cent) and the Norwegian • Observable data indicating that there is a measurable Confederation of Trade Unions (LO) (9.3 per cent). The management decrease in future cash flows from a group of financial structure of the SpareBank 1 co-operation is governed by an agree- assets since the initial recognition of those assets, although ment among the owners. The Bank classifies its participation in the decrease cannot yet be identified with the individual SpareBank 1 Gruppen AS as an investment in a joint venture. financial assets in the group including: – Adverse changes in the payment status of the borrowers BNbank ASA (Glitnir AS) owns 20.0 per cent each of the following: in the group SpareBank 1 SR-Bank, SpareBank 1 Nord-Norge and – National or local economic conditions that correlate Samarbeidende Sparebanker AS. SpareBank 1 SMN owns 25.0 per with defaults of the assets in the group cent whilst Sparebanken Hedmark owns 15.0 per cent. The manage- ment structure of BNbank ASA is governed by an agreement among The Bank first considers whether there is individual objective the owners. The Bank also classifies the stake in BNbank ASA as evidence of impairment of financial assets that are significant indi- an investment in a joint venture. vidually. For financial assets that are not individually significant, the objective evidence of impairment is considered individually or LOANS AND LOSSES ON LOANS collectively. If the Bank decides that there is no objective evidence Loans are measured at amortised cost in accordance with IAS 39. of impairment of an individually assessed financial asset, significant Amortised cost is acquisition cost minus repayments on the princi- or not, the asset is included in a portfolio of financial assets with the pal, plus or minus cumulative amortisation using the effective inte- same credit risk characteristics. They are tested for any impairment rest method, less any amount for a decline in value or exposure to loss on a portfolio basis. Assets that are tested individually for loss. The effective interest is the interest that exactly discounts impairment and where an impairment loss can be identified or is estimated future cash receipts and payments over the expected life still identified are not included in the portfolio assessment of of the financial instrument. impairment loss.

Fixed interest loans to customers are earmarked upon initial recog- If there is objective evidence that impairment loss has occurred, the nition at fair value with value changes through profit or loss in amount of the loss is calculated as the difference between the accordance with IAS 39.9. Gains and losses owing to changes in fair asset’s book (carrying) value and the present value of estimated value shall be recorded in profit or loss as a change in value. Earned future cash flows (excluding future credit losses that have not been interest and premium/discount shall be recorded as interest. The incurred) discounted at the financial asset’s original effective inte- interest rate risk inherent in fixed interest loans is managed by way rest rate. The carrying amount of the asset shall be reduced through of operational interest rate swaps that are recorded at fair value. the use of an allowance account and the loss shall be recorded in The Bank is of the opinion that assessment of fixed interest rate profit and loss. loans at fair value provides more relevant information on the values in the balance sheet. Future cash flows from a group of financial assets that are tested for impairment on a portfolio basis are estimated on the basis of the IMPAIRMENT OF FINANCIAL ASSETS contractual cash flows for the group and historical losses on assets On each balance sheet date the Bank assesses whether there is with a similar credit risk. Historical losses are adjusted for existing objective evidence that the value of a financial asset or group of observable data in order to take into account the effects of existing financial assets has been impaired. A loss in value of a financial circumstances that were not present at the time of the historical asset or group of financial assets has been incurred if, and only if, losses and to adjust for the effect of earlier circumstances that do there is objective evidence of an impairment that can result in a not exist today. reduction in future cash flows to service the loan. The impairment must be the result of one or more events that have occurred after COMPLEX FINANCIAL INSTRUMENTS the initial recording (a loss event) and it must be possible to measure In the case of structured capital-guaranteed product gains, including in a reliable manner the result of the loss event (or events). Objective subscription costs and possible structuring gains are recorded as day evidence that the value of a financial asset or group of financial 1 gains. Structuring gains are calculated by discounting the Bank’s assets has been reduced includes observed data that is known to future receivables (option premium) and obligations (guaranteed the group relating to the following loss occurrences: capital) using the swap curve. The Bank no longer offers these • Significant financial difficulty of the issuer or borrower products. • Breach of contract, such as a default or delinquency in payment of instalments and interest DEFAULTED LOANS/DOUBTFUL LOANS • The bank granting the borrower special terms on the basis of The total commitment to a customer is considered to be in default financial or legal reasons relating to borrower’s financial and included in the Bank’s summaries of defaulted loans when an situation instalment or interest is paid 90 days after due date or a line of cre- • Likelihood of the borrower entering into bankruptcy or other dit is overdrawn for 90 days or more. Loans and other commitments financial reorganisation that are not in default, but where the customer’s financial situation • Disappearance of an active market because of financial makes it likely that the Bank will incur a loss, are classified as doubt- difficulties ful loans. REALISED LOSSES permission, under certain conditions, to reclassify financial assets When it is highly probable that the losses are final the losses are in the categories hold for sale, at fair value with change in value classified as realised losses. Realised losses that are covered by through profit or loss and available for sale to the categories held to earlier specific loss provisions are recorded against the provisions. maturity and loans and receivables with effect from 1 July 2008. Realised losses without cover by way of loan loss provisions and The Bank has chosen to make use of this option. over or under absorption in relation to previous loan loss provisions Instruments where observable market prices usually exist were re- are recognised in profit and loss. classified to the category hold to maturity whilst instruments where market prices do not exist and the value is normally determined on SEIZED ASSETS the basis of alternative valuation methods were reclassified to the As part of the handling of defaulted loans and guarantees, the Bank category loans and receivables. The reclassification means a rever- acquires in some cases assets that have been lodged as collateral sal of unrealised losses at the time of reclassification. The reversed security for such commitments. At the time of acquisition the assets amount is amortised over the individual instrument’s remaining are valued at their assumed realisation value and the value of the term and is included in the line interest income/interest expenses. loan commitment is adjusted accordingly. Acquired assets that are The reclassification is carried out on the basis of the major and ab- to be realised are classified as holdings or fixed assets held for sale normal fluctuations that have arisen owing to the turbulent financial and recorded in accordance with the relevant IFRS standards (nor- markets. The Bank has traditionally deposited a larger part of the mally IAS 16, IAS 38, IAS 39 or IFRS 5). portfolio in Norges Bank and retained these bonds to maturity. These bonds have generally had extremely high credit rating and LEASES therefore, in the bank’s opinion, abnormal price fluctuations have Financial leases are recorded in the balance sheet under the main adversely affected the result in the period. The bank is both willing item ”Gross loans to customers” and recognised on the same prin- and able to hold the reclassified portfolio to maturity. ciples as amortised cost. All regular income during the expected term of the lease is included when calculating the lease’s effective DERIVATIVES AND HEDGING interest. Derivatives comprise currency and interest rate instruments as well as instruments linked to structured products. Derivatives are recog- The Bank has no ”sell and lease back” contracts covering property, nised at fair value through profit or loss. plant and equipment. The Bank uses derivatives for hedging purposes to minimise the in- SECURITIES terest rate risk of fixed interest instruments (bonds and certificates). Securities comprise shares and units, certificates and bonds. Shares The efficiency of the hedging is assessed and documented both and units are recognised either as hold for sale or at fair value with when the initial classification is made and on an ongoing basis. In change in value through profit or loss. Certificates and bonds are the case of complete hedging both the hedging instrument and the classified either as hold for sale, at fair value with value change hedged object are recognised at fair value and changes in these through profit or loss, as held to maturity or as a receivable. values compared to the opening balance are recorded in the income The Bank uses the price on the trade date upon initial recognition statement. See note 18 for further information. of securities. GOODWILL/BADWILL All financial instruments that are classified as hold for sale or at fair Goodwill is the positive difference between the acquisition cost of value with value change through profit or loss are measured at fair acquiring a business and the fair value of the bank’s share of the net value, and changes in the value from the opening balance are recor- identifiable assets in the business at the time of acquisition. ded as income from other financial investments. It is the Bank’s opi- Goodwill on the acquisition of subsidiaries is classified as intangible nion that financial instruments classified as at fair value with value assets. Goodwill on the acquisition of shares in associated compa- change through profit or loss provide more relevant information nies and joint ventures is included in the investment and tested for about the values in these items in the balance sheet than if they depreciation as part of the balance sheet value of the investment. were assessed at amortised cost. Goodwill is not amortised, but is subject to an annual impairment Certificates and bonds that are classified as held to maturity or as test with a view to ascertaining any impairment in value, in accor- a receivable are measured at amortised cost using an effective dance with IAS 36. When assessing any impairment, the assess- interest method. See description of this method in the section on ment is carried out at the lowest level where it is possible to identify loans. cash flows. Any write-down of goodwill is not reversible. In the cases where acquisition cost of acquiring a business is lower In conjunction with the extraordinary and negative developments in than fair value of the bank’s share of net identifiable assets at the the world’s financial markets in third quarter 2008, on 13 October time of acquisition, so-called badwill, the difference is immediately 2008 IASB adopted changes to IAS 39 Financial instruments – recorded as income and included in income from ownership Recognition and measurement and IFRS 7 Financial instruments - interests. Disclosure. The amendments were approved by the EU on 15 October and stipulated by the Norwegian Ministry of Finance through a regulation on 16 October. The amendments resulted in FIXED ASSETS UNCERTAIN LIABILITIES Fixed assets comprise buildings, plots of land and operating equip- The Bank issues financial guarantees as part of its ordinary business. ment. Buildings and operating equipment are recorded at cost less Guarantee liabilities are not included in the balance sheet, but gross depreciation and write-downs. Plots of land are recorded at cost latent liability is set out in note 25. The assessment of losses is part price less write-downs. The cost price includes all direct costs rela- of the assessment of losses on loans, follows the same principles ted to the acquisition of the asset. Depreciation is on a straight-line and is reported together with these, cf. note 21. Provisions are basis in order to allocate the cost price less possible residual value made for other uncertain liabilities if it is probable that a liability will over the useful life of the operating equipment. materialise and the financial consequences of this can be reliably calculated. Information is given on uncertain liabilities that do not Plots of land, buildings or sections of buildings owned by the Bank satisfy the criteria for balance sheet recording if they are with rental income and/or capital gains in mind are classified as significant. investment properties. In the case of buildings where the Bank uses a part for its own operations, that part that is leased to others is Allocations for restructuring costs are made when the Bank has a treated as an investment property if that part can be sectioned. The contractual or legal obligation. Bank has chosen to recognise investment properties in accordance with the cost method of accounting. SUBORDINATED LOANS AND HYBRID INSTRUMENTS ACTIVITIES TO BE SOLD Subordinated loans have a lower priority than all other debt. Non- These items in the balance sheet are the Bank’s activities that are perpetual subordinated loans can as additional capital account for resolved sold. The items include assets and liabilities relating to 50 per cent of the core capital in the capital adequacy ratio, whilst property companies that are to be syndicated or disposed of by perpetual subordinated loans can make up 100 per cent of the core selling parts to customers. The items are recognised at fair value. capital. Subordinated loans are classified as subordinated loan capi- tal in the balance sheet and are measured at fair value with value LONG-TERM LOANS change through profit or loss or amortised cost in the same way as Loans are initially recorded at the cost at which they are raised, other long-term loans. which is fair value of the proceeds received after deducting transac- A hybrid instrument is a bond with nominal interest, but the Bank is tion costs. Loans with variable interest are thereafter measured at not obliged to pay any interest in periods when no dividend is paid amortised cost. Any difference between the borrowing cost and the and the investor cannot later claim any interest, i.e. interest is not settlement amount at maturity is thus accrued over the term of the accumulated. Hybrid instruments are approved as core capital loan. Fixed interest loans are assessed at fair value with discounting elements limited upward to 15 per cent of the total core capital. The according to the current interest curve, though not taking into ac- Financial Supervisory Authority of Norway (Kredittilsynet) can count changes in credit spreads. The same applies to derivatives on demand that hybrid instruments are written down proportionally the debt side. Deposits from customers are assessed at amortised with equity if the Bank’s core capital adequacy falls below 5 per cent cost. or total capital ratio falls below 6 per cent. Write-downs on hybrid instruments must be written up again before any dividend can be PENSIONS paid to shareholders or the equity written up. Hybrid instruments All group companies have pension agreements linked to the Bank’s are classified as subordinated loan capital in the balance sheet and own pension fund. With the exception of Vågen Eiendomsforvaltning are measured at fair value with changes in value through profit or loss. AS, which has a separate deposit-based arrangement. The agree- ments are secured through payments to the pension fund, and are DIVIDEND determined by periodic calculations carried out by an actuary. A Dividend on primary capital certificates is recognised as equity in defined benefit plan is a pension scheme that entitles the insured the period through to it being adopted by the Bank’s Supervisory to a defined future benefit on reaching retirement age, normally Board. fixed by factors such as age, number of years of service and salary. The obligation recorded in the balance sheet in respect of a defined INTEREST INCOME AND INTEREST EXPENSES benefit plan is the present value of the defined obligation reduced Interest income and expenses related to assets and liabilities that by the fair value of pension assets. The obligation relating to the are measured at amortised cost are entered continuously in the defined benefit plan is calculated annually by an independent income statement in accordance with the effective interest rate actuary. The present value of future defined benefits is calculated method. The effective interest rate is the interest rate that results by discounting future payments using the interest rate for Norwegian in the present value of the expected cash flow over the expected life government bonds adjusted for differences in maturity dates. of a financial asset or liability being equal to the carrying value of the respective financial asset or liability. When calculating an With effect from 2005, IAS 19 allowed for recording actuarial gains effective interest rate, the cash flow effect inherent in the agree- and losses (estimate deviations) directly against equity. The Bank ment is estimated, without taking into account future impairment. has chosen to follow this principle. The calculations take therefore into account fees, transaction costs, premiums and discounts. If a financial asset is written down due to losses, a new effective supplies products and services within a limited geographic area that interest rate is calculated based on adjusted estimated cash flows. are subject to risks and returns that are different from other geo- graphic markets. The figures in the segment reporting are based on For interest-bearing instruments that are measured at fair value, the internal management reporting. market interest rate is classified as interest income or interest ex- penses, whereas the effect of interest rate fluctuations is classified EVENTS AFTER THE BALANCE SHEET DATE as income from financial investments. The annual accounts are published after they have been approved by the Board of Directors. The Supervisory Board and regulatory COMMISSION INCOME AND COMMISSION authorities may refuse to approve the published annual accounts EXPENSES subsequent to this but they cannot change the accounts. Commission income and commission expenses are generally accru- ed according to the delivery/receipt of a service. Fees related to in- Events occurring up to the time when the annual accounts are terest-bearing instruments are not recognised as commissions; they approved for publication involving issues that were already known are included in the calculation of the effective interest rate and re- on the balance sheet date will form part of the information basis for cognised accordingly in profit and loss. Advisory fees are accrued in determining accounting estimates and will thus be fully reflected in accordance with the agreement, typically at the time the service is the financial statements. Events that were not known on the balan- delivered. The same applies to day-to-day administrative services. ce sheet date will be reported if they are significant. Fees and charges related to the sale or brokerage of financial instru- ments, properties or other investment objects that do not generate The annual accounts have been prepared on the assumption that the balance sheet items in the Bank’s accounts, are recognised when group will continue as a going concern. This assumption was valid the transaction is completed. in accordance with the Board of Directors’ opinion at the time the financial statements were approved for publication. TRANSACTIONS AND BALANCE SHEET ITEMS IN FOREIGN CURRENCY The Board’s dividend proposal is stated in the Directors’ Report and Transactions involving foreign currencies are translated into the Statement of Changes in Equity. Proposed dividends are clas- Norwegian kroner using the exchange rates at the time of the trans- sified as equity until final approval is granted by the Supervisory actions. Gains and losses related to completed transactions or to Board. the conversion of balance sheet items in foreign currencies on the date of the balance sheet are recognised through profit or loss. Gains and losses on non-monetary items are included in the income NOTE 3 FINANCIAL RISK MANAGEMENT statement in the same way as the corresponding balance sheet Risk and capital management at SpareBank 1 SR-Bank underpins item. the group’s strategic attainment of its goals, its financial stability and satisfactory asset management. TAXES Taxes consist of the tax payable and deferred taxes. Taxes payable SpareBank 1 SR-Bank has a deliberate process for capital assess- are the estimated taxes on the year’s taxable profit. ment that shall ensure to the extent possible: • An efficient capital acquisition and capital application in Deferred taxes are accounted for by means of the liability method relation to the group’s strategic goals and adopted business in accordance with IAS 12. Deferred tax assets or liabilities are cal- strategy culated based on all the temporary differences, which are the dif- • A competitive rate of return ferences between the book values of assets and liabilities for • A satisfactory capital adequacy based on the adopted risk accounting purposes and for taxation purposes. However, no liabili- profile ties or assets are calculated for deferred taxes on goodwill that do • Competitive terms and ample long-term access to funding not give a tax deduction or items that are recognised for the first from the capital markets time and do not affect the financial or taxable profit. Deferred tax • That, at the very least, the group maintains its current assets are calculated for tax loss carryforwards. Assets with defer- international ratings red tax are included only to the extent that future taxable profits • Exploitation of growth opportunities in the group’s defined make it possible to exploit the related tax benefit. market area • That no single event can seriously harm the group’s financial Under IFRS regulations, the company’s wealth tax is not defined as status a tax cost. This is therefore recognised as an operating expense. Owing to the strategic targets and the business plan, an annual SEGMENT REPORTING capital plan is prepared. The capital plan takes into account both A business segment is part of an entity that is engaged in providing likely developments in the next few years and a situation of a individual products or services that are subject to risks and returns serious economic recession lasting several years. Stress tests are that are different from those of other business segments. A geo- carried out on individual factors and scenario analyses where the graphic market (segment) is a part of a business that group is exposed to a number of different negative macroeconomic events over several years. On the basis of this the Board of Directors Risk analysis: Thorough analyses of identified risks are carried out makes an overall assessment of whether the capital adequacy in order to understand the characteristics of the risks and to assess is sufficient and suited to SpareBank 1 SR-Bank’s risk profile and the effect of the established control and management initiatives. strategic targets. In addition, SpareBank 1 SR-Bank has prepared For areas in which the effect of the established control and contingency plans to ensure that it is able to deal with any critical management initiatives are considered unsatisfactory new situations that arise as effectively as possible. improvement measures are implemented.

The long-term goal is that the economic capital shall be allocated Risk management strategies: The risk management strategies within the adopted business strategy to the areas that generate the describe how the group is to deal with the individual risk. The highest risk-adjusted return. strategies also define the risk profile through e.g. limits for expected losses and risk-adjusted capital. The risk strategies are approved by The return on economic capital is one of the most important strate- the Board of Directors and are revised at least annually. gic targets in the internal management of SpareBank 1 SR-Bank. This entails that the business units are allocated capital in accor- Reporting and monitoring: One important risk management dance with the estimated risk of their activities and that their return element is the monitoring of current risk exposure. The group’s on capital is monitored on an ongoing basis. overriding risk exposure and risk development is monitored through periodic risk reports to management and the Board of Directors. The The group’s risk is quantified, for example, by calculating expected overriding risk monitoring and reporting is carried out by the losses and the need for risk-adjusted capital (economic capital) to Department for Risk Management and Compliance. cover unexpected losses. The expected losses are an indication of the amount of losses that, statistically, must be expected over a RISK EXPOSURE IN SPAREBANK 1 SR-BANK 12-month period. Economic capital describes how much capital the SpareBank 1 SR-Bank is exposed to different types of risk, and the group believes it needs to cover the actual risk the group has most important risk groups are described below: assumed. Credit risk is defined as the risk of losses as a result of customers The group has stipulated that initially the economic capital shall or other counterparties not being able or willing to fulfil their obliga- cover 99.9 per cent of possible unexpected losses. For the owner- tions to the group. ship risk in SpareBank 1 Gruppen, a confidence level of 99.5 per Credit risk is managed through the group’s overriding credit strategy, cent has been selected. The calculation of economic capital is based and the framework for granting credit is shown in the figure below. on statistical methods, but qualitative assessments are also used.

In order to ensure an effective and adequate process for risk and capital management, the framework is based on different elements that reflect the manner in which the Board of Directors and the management govern the group. The main elements are described Credit below. strategy

Strategic targets: Risk and capital management is based on the Credit political group’s strategic targets and business plan. guidelines

Organisation and organisational culture: SpareBank 1 SR-Bank strives to have a strong organisational culture characterised by high Credit authority regulations awareness of risk management. The organisational culture embraces management philosophy and the people in the organi- sation with their individual attributes such as integrity, core values Credit processing procedures and ethical approach. A deficient organisational culture can hardly be compensated for by other control and management initiatives, so SpareBank 1 SR-Bank has established a clear value base and ethical guidelines that are clearly communicated and publicised throughout the entire organisation. The group’s credit strategy focuses on risk-sensitive limits that are set so that they in the most expedient and effective way possible Paramount to SpareBank 1 SR-Bank is impartiality in risk manage- manage the group’s risk profile in the credit area. This is achieved ment, and the responsibility for risk management is therefore primarily by linking the limits to expected losses, risk-adjusted capi- shared between different roles in the organisation. tal and probability of default respectively.

Risk identification: The process for risk identification is forward- In order to avoid undesirable concentration risk, the strategic credit looking and covers all the group’s significant risk areas. limits also set restrictions linked to exposure and risk profile at portfolio level, and for different industries and individual customers. validation will be supplemented by more qualitative assessments if These restrictions are additional to the limits stipulated by the amount of statistical data is limited. ”Regulation regarding major commitments” . Application: The system for managing and measuring credit risk is The group’s credit-political guidelines impose overriding instructions tested to be able to assess whether it is well integrated in the orga- for financing of individual liabilities. The guidelines are partly gene- nisation and in the group’s risk management and decision-taking. ral and partly linked to concrete financing areas. For example, for financing of property commitments, minimum requirements are The paragraphs below provide a more detailed assessment of the imposed for equity, advance sale of housing projects and degree of portfolio quality and the portfolio development for the lending port- financing in relation to rental income on rental property. folio in the parent company (the retail market and the corporate market portfolios) in 2008. The group uses risk models for risk classification, risk pricing and portfolio management. The risk models are based on three main The graph below shows the percentage volume distribution of liabi- components: lities (excluding defaulted and written down liabilities) within the different default classes. 1. Probability of default: Customers are classified in a default class based on the probability that the customer will default on his obligations during a period of 12 months. The probability Default class of default is calculated based on historical data series for key % 25 financial figures, as well as non-financial criteria such as behaviour and age. The calculations are based on a long-term 20 average during an economic cycle. Nine default classes (A – I) 15 are used to classify the customers according to the probability

of default. In addition, the group has two default classes (J and Percentage 10 K) for customers with defaulted and/or written down commitments. 5

0 2. Exposure at default: This is an estimate of what the group’s A B C D E F G H I exposure will be if a customer were to default. This exposure 2008 2007 consists of lending volume, guarantees and approved, but not drawn limits. Guarantees and approved, but not drawn limits on the corporate market are multiplied by a conversion factor of 75 per cent. For the retail market approved, but not drawn The table below shows the intervals for the probability of default for limits are multiplied by a conversion factor of 100 per cent. each of the abovementioned default classes.

3. Loss given default: This is an estimate of how much the group SPAREBANK1 SR-BANK’S DEFAULT CLASSES can potentially lose if the customer defaults on his obligations. Default class Lower limit Upper limit This estimate takes into account the value of underlying A 0,00 % 0,10 % securities and the costs incurred by the group in collecting B 0,10 % 0,25 % defaulted commitments. These estimates are determined on C 0,25 % 0,50 % the basis of empirical data over time and must reflect the D 0,50 % 0,75 % value in economic downturns. Seven classes (1 – 7) are used E 0,75 % 1,25 % for classification according to the degree of loss in the event F 1,25 % 2,50 % of default. G 2,50 % 5,00 % H 5,00 % 10,00 %

The group carries out continuous further development and testing of I10,00 %- the risk management system to ensure that this maintains a high quality over time. This work can be divided into two main areas: The commitments’ default probability, exposure at default and loss at default form the basis for the calculation of each individual Quantitative validation: The quantitative validation is to ensure that commitment’s expected losses and thus classification in five diffe- the estimates utilised for probability of default, exposure at default rent risk groups. In addition the group has a separate risk group for and loss given default maintain a sufficiently high quality. Analyses customers with defaulted and/or written down commitments. are carried out to assess the models’ ability to rank the liabilities according to risk (discrimination ability), and the ability to determine The graph below shows the percentage volume distribution of com- the correct level for the risk parameters. In addition, the stability in mitments (excluding defaulted and written down commitments) the models’ estimates is analysed. In some cases, the quantitative within the different risk groups. Risk groups Commitment size % 70 60 18 % 50 40 11 %

Percentage 30 54 % 20 10 17 % 0 Lowest Low Medium High Highest

2008 2007 < 10 mill 54 % 10-100 mill 17 % 100-250 mill 11 % > 250 mill 18 %

The table below shows the intervals for expected losses for each of the above-mentioned risk groups. 54 per cent of the bank’s exposure is linked to commitments that equal less than NOK 10 million. 20 per cent of the exposure is SPAREBANK1 SR-BANK’S RISK GROUPS linked to commitments that total more than NOK 100 million. This Lower limit for Upper limit for Risk group part of the portfolio has a lower default probability than the rest of expected losses expected losses the corporate market portfolio. Lowest 0,00 % 0,02 % Low 0,02 % 0,34 % The graph below shows the exposure distributed by industries. Medium 0,34 % 2,15 % High 2,15 % 2,50 % Industries Highest 2,50 % -

13 % The quality in the portfolio is considered to be good. 85 per cent of 3 % the exposure satisfies the group’s internal guidelines for classifica- 5 % tion as lowest or low risk. The retail market portfolio is considered to be extremely good, and 98 per cent of the portfolio is classified 55 % as lowest or low risk. 19 %

The risk profile remained virtually unchanged in 2008, however there was a tendency towards increasing probability of default in the 5 % portfolio in the second six months of the year, partly as a result of slightly weaker developments within parts of the corporate market Other 13 % Oil 3 % Shipping 5 % Service sector 5 % Property 19 % Retail market 55 % portfolio relating to the property sector.

Slower growth in the Norwegian economy and mounting uncertain- The graph shows that 55 per cent of the exposure is in the retail ty relating to economic growth has meant weaker earnings in some market. The risk attached to this part of the portfolio is considered business and industry sectors and generally higher unemployment. to be low, both as a result of low default probabilities and as a result This trend is expected to lead to lessened credit quality in the near of good security coverage principally consisting of security in real future. estate.

Concentration risk is defined as risk that arises by concentrating the The overall property portfolio within the corporate market accounts exposure on an individual customer, industry or geographic area. for 19 per cent of total exposure. The property portfolio relating to The group has a particular focus on concentration risk relating to the rentals consists primarily of centrally located properties with long- exposure to major individual customers and to individual term leases and reliable tenants, and a large part of this portfolio is industries. interest rate secured. In the property portfolio relating to financing of housing projects, as a main rule there is a minimum requirement The paragraphs below provide a description of the concentration risk of 70 per cent advance sale. Only a minor part of the property port- relating to individual customers, industry and geography. folio applies to financing of plots, and the bulk of this is already regulated. The graph below shows the exposure distributed according to commitment size. The graph below shows the exposure distributed by geographic Liquidity risk is the risk of the group not being able to refinance its areas. liabilities or not being able to finance growth in assets without sub- stantial additional costs.

Geography The management of the group’s financing structure is based in the group’s overriding liquidity strategy that is reviewed and adopted by 7 % the Board of Directors at least once a year. In the liquidity strategy 6 % for 2008, the Board of Directors decided to direct the formulation 9 % of objectives for liquidity management in a more conservative direc- tion. This entailed, amongst other things, a decision to increase the 78 % group’s portfolio of liquid assets that qualify for access to loans in Norges Bank, and also increase borrowings with more than a five- year term. The group’s currency/finance area (SR-Markets) is responsible for liquidity management, while the Department for Risk Management and Compliance monitors and reports on the uti- lisation of limits in accordance with the liquidity strategy. The liqui- Other 7 % Hordaland 6 % Agder 9 % Rogaland 78 % dity management builds on conservative limits and reflects the group’s moderate risk profile. The group’s lending is principally financed by customer deposits and long-term securities debt. Liquidity risk is restricted by the securi- 78 per cent of the exposure is linked to Rogaland, whilst the remai- ties debt being distributed between different markets, borrowing ning portfolio is distributed between Agder, Hordaland and other sources, instruments and maturity dates. The figures below counties. The bank is expected to diversify further geographically in the next few years as a result of the focus on Agder and Hordaland.

Borrowing sources In addition to the credit risk in the lending portfolio as described above, the group has credit risk through exposure in securities. This 1 % 6 % portfolio consists mainly of low risk bonds that are held as a liquidity 3% buffer to gain access to loans in Norges Bank. At the end of 2008, 6 % this portfolio amounted to NOK 9 billion, NOK 5 billion of which consists of bonds that are to be held to maturity. The duration of the 42 % portfolio is 2.4 years.

The table below provides an overview of SpareBank 1 SR-Bank’s 34 % exposure in bonds within the different categories. 7 % THE BOND PORTFOLIO SPAREBANK1 SR-BANK 1 % NOK Percentage Of which hold to Subordinated loans 6 % Hybrid instruments 1 % Category Money market 1 % NOK certificates 6 % billion share maturity in NOK billion Schuldschein 3% NOK bonds 34 % EMTN 42 % F-loans 7 % Norwegian Covered bonds 2,8 31 % 1,9 Norwegian Finance 2,6 29 % 1,1

Foreign Finance 2,5 28 % 1,7 illustrate the diversity in the group’s borrowing sources as at 31 Norwegian Industry 0,6 6 % 0,1 December 2008. Norwegian state/municipalities 0,3 3 % 0,2

Norwegian Other 0,2 3 % 0,0 Between 2007 and 2008, the group’s securities debt rose by NOK 10 billion, an increase of 28 per cent. The debt is principally taken The group has a separate risk model for calculating credit risk in the up in the Norwegian securities market, which means that the per- bond portfolio. centage of borrowing from national investors has risen compared with 2007. The group’s securities debt is evenly distributed The group is also exposed to credit risk through the portfolio in SR- between international and national funding sources. Finans AS, which consists principally of leasing and car loans. The portfolio accounts for around 4 per cent of total lending exposure. The unrest in the financial markets persisted throughout the whole of 2008, making it more difficult for the financial institutions to For further information see notes 20, 33, 34, 35 and 36. finance their loans. Despite the challenges in the market, SpareBank 1 SR-Bank’s liquidity situation remained satisfactory throughout the year. Deposits from customers are the group’s most important source of funding. For the group as a whole, deposits rose by NOK 4 billion from 2007 to 2008. Net lending to customers, excluding transfers to SpareBank 1 Boligkreditt, rose by NOK 12 billion in the same Foreign exchange rate risk is the risk of losses due to fluctuations in period. The deposits ratio was reduced from 57.0 per cent to the foreign exchange rates. The group measures the currency risk 54.5 per cent in 2008. on the basis of net positions in the different currencies where the group has exposure. The currency rate risk is regulated by nominal SpareBank 1 Boligkreditt issues bonds with pre-emptive rights. The limits for maximum aggregate currency position and maximum transfer of well-secured housing loans to this company helps to position in individual currencies. The scope of the group’s trading in reduce the liquidity risk in SpareBank 1 SR-Bank. The group trans- foreign currency is modest and the currency rate risk is considered ferred net NOK 7.2 billion in housing loans to SpareBank 1 to be moderate. Boligkreditt in 2008. The rate risk linked to securities is the risk of losses that arise follow- At the end of 2008, the group has surplus liquidity in the form of ing changes in the value of the group’s bonds, certificates and equity deposits in Norges Bank and short placings in banks and credit capital instruments. In the course of 2008, the group increased its institutions equal to NOK 6.8 billion. The group’s buffer capital in holdings of liquid assets in the form of bonds that qualify for access the form of liquid assets totals NOK 5.1 billion. In the course of to loans in Norges Bank by NOK 3.6 billion. NOK 1.6 billion of these 2009, debt corresponding to NOK 10.7 billion is to be refinanced; relate to a bond with pre-emptive rights used in the Norwegian NOK 3.2 billion of this is F-loans from Norges Bank, making net re- Ministry of Finance exchange system. In quantification of risk at- financing requirements, excluding F-Loans NOK 7.5 billion. tached to a fall in value of the liquidity portfolio, SpareBank 1 SR- The figure below illustrates the borrowing portfolio’s maturity Bank distinguishes between systematic risk (market risk) and structure as at 31 December 2008. unsystematic risk (default risk). Default risk associated with the mentioned portfolio is quantified as credit risk. In October 2008, SpareBank 1 SR-Bank decided to reclassify parts of the liquidity Funding maturities reserve to the categories ”hold to maturity” and ”loans and receiva- Figures in NOK billion 12 bles”. The bonds that were reclassified are no longer entered it the accounts at fair value and are therefore no longer exposed to market 10 risk for accounting purposes. The group’s risk exposure to this form 8 of risk is regulated through limits for maximum investments in the different portfolios. 6

4 The Department for Risk Management and Compliance is responsi- 2 ble for ongoing and impartial monitoring of the group’s market risk. Risk-adjusted capital associated with market risk is measured and 0 followed up according to the Value at Risk (VaR) principle with a 2009 2010 2011 2012 2013 2014 2016 2017 2018+ 99.9 per cent confidence level. The VaR model is an important tool Funding F-loans Own holding in conjunction with internal framework management and capital allocation. The model is under development and is thus not used in the day-to-day management of market risk. For further information see notes 32,38 and 39. For further information see notes 38 and 39. Market risk is the risk of losses owing to changes in observable market variables such as interest rates, currency rates and securi- Operational risk is the risk of losses as a result of inadequate or ties rates. failing internal processes or systems, human errors or external events. Market risk in SpareBank 1 SR-Bank relates primarily to the group’s long-term investments in securities. In addition, the group has a cer- The risk strategy for operational risk is stipulated by the Board of tain exposure to market risk from trading in the interest rate and Directors at least once a year. The risk strategy sets limits for anti- currency markets, as well as from activities that underpin ordinary cipated losses and risk-adjusted capital. The group has effective risk borrowing and lending activities. The group’s market risk is measu- management and monitoring to ensure that events caused by ope- red and monitored on the basis of limits that are renewed and rational risk are unable to seriously damage the group’s financial approved by the Board of Directors at least once a year. The size of position. the limits is determined on the basis of stress tests and analyses of negative market movements. The group’s exposure to market risk The group’s framework for management of operational risk builds is moderate. on an internationally recognised framework for risk management (CoSo/CobiT). The group’s process for the identification, quantifica- Interest rate risk is the risk of losses as a result of interest rate tion and management of operational risk includes the use of loss fluctuations. The group’s interest rate risk is regulated by limits for data, undesired events and expert assessments. Scenario analyses maximum value change following a change in the interest rate level and statistical modelling are used to calculate the group’s risk of one per cent. The interest rate commitment terms for the group’s exposure for operational risk. instruments are mostly short and the group’s interest rate risk is low. The individual business units and areas of responsibility are respon- The corporate management carries out both a monthly and a quar- sible for the day-to-day follow-up and monitoring of operational risk. terly evaluation of the group’s achievements and strategic direction. Ownership risk is the risk of SpareBank 1 SR-Bank incurring nega- tive results from ownerships in strategically-owned companies and/ Compliance risk is the risk of the group incurring official sanctions/ or the need to provide these companies with new equity. The owner penalties or financial losses as a result of failure to comply with laws companies are defined as companies in which SpareBank 1 SR- and regulations. Bank has a significant stake and influence. The group strives to have good processes ensuring compliance with For the most part, SpareBank 1 SR-Bank AS has ownership risk current laws and regulations. Effective means of achieving this are: through its stake in SpareBank 1 Gruppen AS (19.9 per cent), • A clear value base that is clearly communicated and SpareBank 1 Boligkreditt AS (23.4 per cent) and BNbank ASA (for- understood in the organisation merly Glitnir Bank ASA) (20 per cent). • A process to note, communicate and implement changes in laws and regulations SpareBank 1 SR-Bank’s share of the risk exposure in SpareBank 1 • A process to follow up and report on compliance with Boligkreditt AS and BNbank ASA is consolidated into the different legislation and regulations risk groups at SpareBank 1 SR-Bank group’s calculations of risk- adjusted capital and in the regulatory capital adequacy reporting. Compliance is included in the quarterly and annual reporting to the Board of Directors and the CEO. Commercial risk is the risk of unexpected fluctuations in revenues and expenses as a result of changes in external conditions such as In 2008, the group has had a particular focus on the new securities tra- market situation or mandatory regulations. The group is striving to ding act and the MiFID regulations. A comprehensive plan was drawn develop a diverse income base, so that any failure within individual up for the systematic control of the area, where the object is to ensure product groups or customer segments does not have significant compliance with the legislation and identify any areas of improvement. long-term consequences. Over several years, SpareBank 1 SR- Bank has given systematic priority to value chain thinking and the development of products and services. NOTE 4 CRITICAL ESTIMATES AND ASSESSMENTS REGARDING THE USE OF ACCOUNTING PRINCIPLES Particularly commissions from the savings and investment area LOSSES ON LOANS AND GUARANTEES have seen a major drop in 2008 compared with 2007. The stock The Bank assesses its entire corporate market portfolio annually. market volatility in 2008 has reduced commissions both within Large commitments, defaulted loans and high-risk exposures are funds and property projects. subject to quarterly assessments. Loans to private customers are subject to evaluation when they are in default for more than 60 Reputation risk is the risk of a decline in earnings and access to capi- days. Large defaulted loans are evaluated on a quarterly basis. tal owing to declining confidence and reputation in the market, i.e. customers, counterparties, the stock market and the authorities. The bank’s risk classification systems are described under financial risk management. SpareBank 1 SR-Bank has established an overriding communicati- ons strategy to ensure that information is conveyed internally and Write-downs are made on individual loans and guarantees if there externally in a way that underpins the operation’s core values, is objective evidence that can be identified for an individual commit- objectives and vision. ”Decent bank” is the essential element of the ment, and the objective evidence entails a reduction in future cash group’s communications strategy. flows for servicing the commitment. Objective evidence may be default, bankruptcy, illiquidity or other significant financial SpareBank 1 SR-Bank has implemented a process to identify and difficulties. evaluate the group’s risk picture for reputation. All the reputation risks are evaluated against inherent risk and established control and Individual write-downs are calculated as the difference between the management measures. Improvement measures are implemented loan’s book value and the present value of future cash flows based where necessary. on the effective interest rate at the time of the calculation of the initial individual write-down. Subsequent changes in interest rates Reputation measurements show that the group’s reputation has are taken into account for loan agreements with floating interest been bolstered in 2008. rates if these changes affect the expected cash flow.

Strategic risk is the risk of losses as a result of erroneous strategic Group write-downs are calculated for subgroups of loans where there decisions. In SpareBank 1 SR-Bank’s strategy process, the Board is objective evidence indicating impairment in future cash flows to of Directors, the management and the divisions are involved in the repay the loans, and where it is not possible to assess all the com- work. On this basis, strategic targets are drawn up with an associa- mitments on an individual basis or where it is not possible to identify ted business and action plan. evidence at the commitment level. Objective evidence for groups of loans may consist of a negative risk classification development, basic amount (G) and the general development in the number of information about a negative development in the value of assets persons receiving disability benefits and life expectancy. Uncertainty pledged as collateral, profitability in a particular industrial sector, or is to a great extent related to gross liabilities and not to net liabili- the solvency of groups of debtors. The consequences of develop- ties that are shown in the balance sheet. Changes in estimates as a ments in solvency and the value of assets pledged as collateral will consequence of changes in the above parameters will be recorded be analysed using the bank’s analytical tools, statistical methods directly against equity on an ongoing basis. that include historical information on the probability of default and recovery percentages, as well as other known information. Some SIGNIFICANT ACQUISITIONS IN 2008 – portfolios of smaller loans such as consumer loans and private over- ACQUISTION ANALYSIS (PPA) drafts will be assessed using statistical methods. On 20 October 2008, the SpareBank 1 - banks signed an agree- ment to acquire 100 % of the shares in BNbank ASA (Glitnir Bank The assessment of individual and group write-downs will always call ASA) for a total of NOK 300 million. The transaction was carried out for a considerable degree of discretionary judgment. Predictions on 5 December 2008. As a result of this transaction, SpareBank 1 based on historical data may prove to be incorrect because of the SR-Bank became the owner of 20 per cent of the shares. uncertainty of the relevance of the historical data as a decision- making basis. When the value of assets pledged as collateral is Such an acquisition is recorded in the accounts according to the linked to special objects or industrial sectors in a crisis situation, it acquisition method. Using the acquisition method, a complete may be necessary to realise these assets in markets that are not Purchase Price Allocation - PPA is to be carried out where the very liquid and, therefore, the assessment of fair value may be purchase price is allocated to identified assets and liabilities in the subject to considerable uncertainty. acquired company. Added values beyond those allocated to identi- fied assets and liabilities are shown in the accounts as goodwill. Any FAIR VALUE OF EQUITY INTERESTS lesser values (badwill) following thorough assessment, will be Financial assets assessed at fair value through profit or loss will shown as income in the income statement in the acquisition year. normally be traded in active markets and the fair value can thus be The acquisition analysis can in accordance with IFRS 3.62 be regar- determined with reasonable certainty. For financial assets classified ded as a provisional or final. as available for sale this is not necessarily the case. Similarly, market values for assets and liabilities that are carried at amortised In conjunction with the purchase of BNbank ASA in accordance with prices and appear in notes may be estimates based on discounted IFRS 3, an acquisition analysis has been carried out with assistance future cash flows, multiplier analyses or other calculation methods. from external experts. In total, the acquisition analysis identified net Such methods can be subject to significant uncertainty. With the lesser values of NOK 2,077 million. SpareBank 1 SR-Bank’s share exception of a few shares, the Norwegian stock market is conside- of this totals NOK 415 million. These plus and minus values are red to have poor liquidity. Share prices will under most circumstan- linked to BNbank’s lending portfolio, portfolio of borrowings, pen- ces be the last known traded price. sion liabilities and contingent liabilities.

FAIR VALUE OF FINANCIAL DERIVATIVES The analysis contains both concrete calculations and use of past The fair value of financial derivatives is usually determined by using experience to arrive at an as accurate as possible fair value of valuation methods where the price of the underlying object, for BNbank ASA on the acquisition date. There is always uncertainty example, interest and currency rates, is obtained from the market. attached to discretionary items, however these are as far as possi- In the case of share options, volatility will either be observable ble substantiated by estimates of expected cash flows, comparable implicit volatility or calculated volatility based on historical share transactions in earlier periods and so on. A reasonableness assess- price movements for the underlying object. If the Bank’s risk position ment has been carried out at total level of the value calculated by is relatively neutral, middle rates will be used. A neutral risk position BNbank ASA seen in relation to how other banks are priced in the means for example that the interest rate risk within a repricing current market (price/book). The purchaser banks’ own primary capi- interval is approximately zero. Otherwise the relevant purchase or tal certificates showed a positive development when the acquisition sales price is used to assess the net position. For financial derivatives of BNbank ASA was announced in the market, which also underpins where the other party has a weaker credit rating than the Bank, the the value of BNbank ASA in the acquisition analysis. price will reflect the underlying credit risk. To the extent that market prices are obtained from transactions with a lower credit risk, this As a result of the acquisition transaction being carried out close to will be taken into account by amortising the original price difference closing of the accounts for 2008, all the SpareBank 1 banks invol- measured against such transactions with a lower credit risk over the ved have chosen to regard the acquisition analysis as provisional. A maturity period. provisional acquisition analysis can be changed within 12 months following the takeover date, and any errors that might be uncovered PENSIONS in this period will be taken into account in the final acquisition ana- Net pension liabilities and the pension expenses for the year are lysis in 2009. Such errors can, in accordance with IAS 8, lead to based on a number of estimates, including the yield on pension adjustments of badwill in the next 12-month period. Errors will in assets, future interest and inflation rates, future wage development, such cases be shown against equity, whilst any changes in estima- staff turnover, development in the Norwegian National Insurance tes are recorded in the period they arise. NOTE 5 SEGMENT INFORMATION

Management has assessed which segments are reportable based on the form of distribution, products and customers. The primary reporting format is based on the risk and return profile of the assets, and it is divided between the retail market (including self-employed people), the corporate market and subsidiaries of considerable significance. The Bank’s own investment activities are not a separate reportable segment and they appear under the item ”other activities” together with activities that cannot be allocated to the retail market, the corporate market or subsidiaries of considerable significance. The figures for business areas and geography are based on internal management reporting.

Reporting by business area: (fi gures in NOK million) Retail- Corporate- Eiendoms- SR- SR- SR- Other SR-Bank 2008 market market Megler 1 Finans Forvaltning Investering activities group Net external interest income 818 588 -7 368 1 - -124 1 644 Net internal interest income - -21 19 -245 1 3 243 - Net interest income 818 567 12 123 2 3 119 1 644 Net commission and other income 347 203 232 -2 61 - -45 796 Net yield on financial investments - - 10 1 1 -26 56 42 Operating expenses -397 -90 -232 -43 -17 -6 -668 -1 453 Profit/loss before losses 768 680 22 79 47 -29 -538 1 029 Losses on loans and guarantees -21 -246 - -33 - - -86 -386 Profit/loss before taxes 747 434 22 46 47 -29 -624 643

Lending to customers 50 672 44 491 - 4 915 - - -448 99 630 Individual loan write-downs -46 -274 - -25 - - - -345 Group loan write-downs -16 -190 - -23 - - - -229 Other assets - - 582 130 59 171 25 879 26 821 Total assets per segment 50 610 44 027 582 4 997 59 171 25 431 125 877

Deposits from and debt to customers 24 511 30 429 - - - - -633 54 307 Other liabilities - - 562 4 664 51 6 60 321 65 604 Total liabilities per segment 24 511 30 429 562 4 664 51 6 59 688 119 911

Equity - - 20 333 8 165 5 440 5 966 Total liabilities and equity per segment 24 511 30 429 582 4 997 59 171 65 128 125 877

Retail- Corporate- Eiendoms- SR- SR- SR- Other SR-Bank 2007 market market Megler 1 Finans Forvaltning Investering activities group Net external interest income 706 435 -5 219 1 - -16 1 340 Net internal interest income -13 -3 16 -141 1 3 137 - Net interest income 693 432 11 78 2 3 121 1 340 Net commission and other income 435 156 275 -1 68 2 -40 895 Net yield on financial investments - - - 1 - 52 335 388 Operating expenses -353 -73 -249 -32 -16 -7 -627 -1 357 Profit/loss before losses 775 515 37 46 54 50 -211 1 266 Losses on loans and guarantees 16 -28 - -3 - - 5 -10 Profit/loss before taxes 791 487 37 43 54 50 -206 1 256

Lending to customers 50 429 34 218 - 3 472 - - -29 88 090 Individual loan write-downs -36 -56 - -6 - - - -98 Group loan write-downs -14 -106 - -11 - - - -131 Other assets - - 733 90 68 201 14 314 15 406 Total assets per segment 50 379 34 056 733 3 545 68 201 14 285 103 267

Deposits from and debt to customers 21 450 29 545 - - - - -781 50 214 Other liabilities - - 716 3 245 61 33 43 157 47 212 Total liabilities per segment 21 450 29 545 716 3 245 61 33 42 376 97 426

Equity - - 17 300 7 168 5 349 5 841 Total liabilities and equity per segment 21 450 29 545 733 3 545 68 201 47 725 103 267 (continuation note 5) Retail- Corporate- Eiendoms- SR- SR- SR- Other SR-Bank market market Megler 1 Finans Forvaltning Investering activities group 2006 Net external interest income 702 242 -3 126 1 - 60 1 128 Net internal interest income -6 48 8 -71 - 3 18 - Net interest income 696 290 5 55 1 3 78 1 128 Net commission and other income 336 120 226 -3 51 - -52 678 Net yield on financial investments - - - - 1 24 416 441 Operating expenses -343 -61 -202 -24 -12 -5 -531 -1 178 Profit/loss before losses 689 349 29 28 41 22 -89 1 069 Losses on loans and guarantees 5 37 - - - - 50 92 Profit/loss before taxes 694 386 29 28 41 22 -39 1 161

Lending to customers 48 152 26 504 - 2 642 - - -1 77 297 Individual loan write-downs -52 -51 - -9 - - 5 -107 Group loan write-downs -34 -89 - -8 - - - -131 Other assets - - 519 103 54 159 7 141 7 976 Total assets per segment 48 066 26 364 519 2 728 54 159 7 145 85 035

Deposits from and debt to customers 19 189 23 954 - - - - -596 42 547 Other liabilities - - 503 2 562 47 25 35 051 38 188 Total liabilities per segment 19 189 23 954 503 2 562 47 25 34 455 80 735

Equity - - 16 166 7 134 3 977 4 300 Total liabilities and equity per segment 19 189 23 954 519 2 728 54 159 38 432 85 035

The group operates in a geographically limited area from Grimstad in the southeast to Bergen in the northwest. In addition, important classes of assets (loans and deposits) are distributed geographically in separate notes under deposits and loans.

Rogaland Agder Others/Undistributed SR-Bank Group Geographic distribution 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 Net interest income 1 438 1 231 1 055 152 82 60 53 27 13 1 644 1 340 1 128 Net commission and other income 718 784 598 64 95 77 14 16 3 796 895 678 Net yield on financial investments 42 388 440 - - - - - 1 42 388 441 Operating expenses -1 292 -1 223 -1 064 -114 -95 -83 -47 -39 -31 -1 453 -1 357 -1 178 Profit/loss before losses 906 1 180 1 029 102 82 54 21 4 -14 1 029 1 266 1 069 Losses on loans and guarantees -326 - - -57 - - -3 -10 92 -386 -10 92 Profit/loss before tax 579 1 180 1 029 45 82 54 19 -6 78 643 1 256 1 161

Lending to customers 84 961 76 709 69 482 10 129 8 381 6 465 4 539 3 000 1 350 99 630 88 090 77 297 Individual loan write-downs -270 -96 -102 -64 - - -11 -2 -5 -345 -98 -107 Group loan write-downs -227 - - -1 - - -1 -131 -131 -229 -131 -131 Other assets 26 801 15 259 7 976 8 - - 12 - - 26 821 15 406 7 976 Total assets per segment 111 266 91 872 77 356 10 073 8 381 6 465 4 539 2 867 1 214 125 877 103 267 85 035

Deposits from and debt to customers 50 728 47 900 40 835 2 532 2 016 1 620 1 047 298 92 54 307 50 214 42 547 Other liabilities 64 886 47 212 38 188 304 - - 415 - - 65 605 47 212 38 188 Total liabilities per segment 115 614 95 112 79 023 2 836 2 016 1 620 1 462 298 92 119 911 97 426 80 735

Equity 5 915 5 694 4 300 22 - - 30 - - 5 966 5 841 4 300 Total liabilities and equity per segment 121 529 100 806 83 323 2 857 2 016 1 620 1 491 298 92 125 877 103 267 85 035 NOTE 6 NET INTEREST INCOME (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006

Interest income 92 378 550 Interest on receivables from credit institutions 306 236 21 2 719 4 440 6 262 Interest on lending to customers 6 628 4 659 2 851 116 184 409 Interest on certificates and bonds 409 184 116 Interest on written-down financial assets 7 21 72 - Loans and receivables from customers 72 21 7 2 934 5 023 7 293 Total interest income 7 415 5 100 2 995

Interest expenses 62 224 324 Interest on debt to credit institutions 330 228 64 930 1 853 2 907 Interest on deposits from customers 2 883 1 833 919 774 1 537 2 314 Interest on securities issued 2 315 1 536 774 108 160 225 Interest on subordinated loan capital 225 163 110 - - 18 Fee to the Banks’ guarantee fund 18 - - 1 874 3 774 5 788 Total interest expenses 5 771 3 760 1 867 1 060 1 249 1 505 Net interest income 1 644 1 340 1 128

NOTE 7 NET COMMISSION AND OTHER OPERATING INCOME (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006

35 51 45 Guarantee commissions 42 49 34 20 22 20 Interbank commissions 20 22 20 38 81 34 Securities trading 34 81 38 - - - Management 60 66 49 52 74 42 Brokerage commission 42 74 52 - 8 32 Commission from SpareBank 1 Boligkreditt AS 32 8 - 208 234 220 Money transfers 220 234 208 88 96 96 Insurance services 97 96 88 23 35 75 Other commission income 87 45 22 464 601 564 Total commission income 634 675 511

2 3 3 Guarantee commissions 3 3 2 17 16 15 Interbank commissions 15 16 17 48 54 58 Money transfers 58 54 48 10 10 6 Other commission expenses 4 8 8 77 83 82 Total commission expenses 80 81 75

6 4 3 Operating income from real estate 2 4 5 - - - Real estate brokerage 232 275 218 19 22 7 Other operating income 8 22 19 25 26 10 Total other operating income 242 301 242 412 544 492 Net commission and other income 796 895 678 NOTE 8 INCOME FROM FINANCIAL INVESTMENTS (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006

Change in value of interest rate instruments -1 -32 -167 Bonds and certificates – at fair value -171 -32 -1

Change in value of equity instruments 10 11 14 Dividend 15 12 12 10 94 206 Income from ownership interests 261 234 189 64 35 -122 Equity instruments – held for trading -122 35 104 52 - -35 Equity instruments – at fair value -47 53 52

Change in value of derivatives Net change in value of secured bonds - -3 -21 liabilities and derivatives -21 -3 - Net change in value of derivatives at fair - - -49 value bonds (assets) -49 - - Net change in value of secured fixed interest -2 -2 13 loans and derivatives 13 -2 -2 Total net income from financial assets 133 103 -161 at fair value -121 297 354

- 1 2 Realised available for sale instruments 2 1 - Total net income from securities - 1 2 available for sale 2 1 -

Currency trading 87 90 161 Net currency gain 161 90 87

220 194 2 Net income from financial investments 42 388 441 NOTE 9 OPERATING EXPENSES (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006

500 570 608 Personnel expenses 776 751 634 160 163 171 IT expenses 177 169 166 59 53 81 Marketing 98 71 77 76 86 99 Other administration expenses 115 99 86 43 47 54 Ordinary depreciation (note 13 and 14) 64 52 47 - - - Write-down of fixed assets (note 13 and 14) - - 7 22 25 31 Operating expenses real estate 33 26 23 26 48 34 External fees 36 52 27 47 61 68 Other operating expenses 154 137 111 933 1 053 1 146 Total operating expenses 1 453 1 357 1 178

Personnel expenses 371 429 436 Salaries 554 568 476 46 62 68 Pension costs (defined benefit plan, note 26) 89 76 56 48 53 63 Social benefits 85 73 62 35 26 41 Other personnel expenses 48 34 40 500 570 608 Total personnel expenses 776 751 634

809 852 893 Average number of employees 1 126 1 032 969 775 821 878 Number of fulltime equivalents as at 31 December 1 117 1 021 944 835 869 916 Number of employees as at 31 December 1 173 1 078 1 015

Auditor’s fees – external auditor - specifi cation (fi gures in NOK 1000) 1 226 1 281 1 643 Mandatory audit 2 509 1 737 1 658 351 388 348 Other attestation services 580 397 358 84 2 161 Tax advice 286 81 148 1 579 836 5 616 Other non-audit related services 1) 5 816 1 255 1 641 3 240 2 507 7 768 Total 9 191 3 470 3 805

1) Other non-audit services for 2008 include one-off costs of 5,003 relating to assistance regarding assessments in conjunction with structu- ral changes. Other non-audit services for 2007 include the fee for the law firm PricewaterhouseCoopers AS with 569 for the parent com- pany and 382 in addition for the group. Other non-audit services for 2006 include a wider internal control review of 1,516. All amounts are inclusive of VAT. NOTE 10 REMUNERATION TO SENIOR EMPLOYEES AND ELECTED OFFICERS (fi gures in NOK 1000)

Remuneration to Group Executive Management and elected offi cers Loans No. of PCCs Present value Of which Other as at owned as at of pension Pension 2008 Salary bonus 2) benefi ts 31 Dec. 31.12 1) obligation cost Terje Vareberg Chief Executive Officer 3 219 607 276 8 427 94 907 25 358 2 253 Sveinung Hestnes Executive VP Capital Market 1 930 350 164 2 291 33 902 13 873 833 Lisbet K. Nærø Chief Financial Officer 1 800 325 187 3 430 40 182 3 548 1 095 Tore Medhus Executive VP Corporate Market 1 810 338 123 2 228 12 091 8 857 454 Rolf Aarsheim Executive VP Retail Market 1 800 325 163 3 265 42 128 15 938 572 Svein Ivar Førland Executive VP Business Support and Development 1 584 285 175 3 525 7 094 3 980 492 Thor-Christian Haugland Executive VP Communication 1 345 240 171 4 200 3 037 4 839 480 Frode Bø Executive VP Risk Management and Compliance 1 242 225 112 1 732 4 184 3 396 326 Arild L. Johannessen Executive VP Organisation and HR 1 342 240 127 1 400 12 872 7 376 220

2007 Terje Vareberg Chief Executive Officer 3 055 575 230 7 147 94 117 14 560 1 640 Sveinung Hestnes Executive VP Capital Market 1 799 290 176 2 376 33 112 10 520 696 Lisbet K. Nærø Chief Financial Officer 1 612 275 157 3 449 34 258 2 127 993 Tore Medhus Executive VP Corporate Market 1 661 300 127 2 833 11 301 6 178 432 Rolf Aarsheim Executive VP Retail Market 1 589 225 163 3 223 41 338 10 547 557 Svein Ivar Førland Executive VP Business Support and Development 1 449 230 162 1 757 6 304 2 865 471 Thor-Christian Haugland Executive VP Communication 1 241 210 139 3 368 19 037 3 264 485 Frode Bø Executive VP Risk Management and Compliance 1 200 300 116 1 836 3 394 2 218 206 Arild L. Johannessen Executive VP Organisation and HR 1 196 200 141 1 500 10 984 4 910 237

2006 Terje Vareberg Chief Executive Officer 2 697 375 237 7 021 28 881 12 781 1 615 Sveinung Hestnes Executive VP Capital Market 1 652 250 180 2 231 2 329 8 143 627 Lisbet K. Nærø Chief Financial Officer 844 - 124 3 563 1 812 969 751 Tore Medhus Executive VP Corporate Market 1 490 220 119 1 422 3 119 5 488 354 Rolf Aarsheim Executive VP Retail Market 1 484 220 162 2 351 5 059 9 774 493 Svein Ivar Førland Executive VP Business Support and Development 1 301 190 162 1 975 1 514 2 300 376 Thor-Christian Haugland Executive VP Communication 1 131 170 154 3 377 739 2 842 381 Frode Bø Executive VP Risk Management and Compliance 853 92 130 1 836 577 1 214 139 Arild L. Johannessen Executive VP Organisation and HR 1 084 164 141 1 600 3 019 5 089 178

All managers and staff of SpareBank 1 SR-Bank, with the exception of the CEO, have a bonus scheme linked to their positions. The scheme encompasses group, divisional, departmental and individual bonuses depending on the position. No bonus schemes exceed 25 per cent of fixed salary. Any bonus paid to the CEO is determined by the Board of Directors upon special consideration.

The group executive management has pension benefits of up to 70 per cent of their fixed salary at the time of retirement, and these benefits are earned in the same manner as the rest of the bank’s employees. For further information about pension terms and benefits see note 26. The loan terms for executives are the same as for the rest of the employees.

1) The number of SpareBank 1 SR-Bank primary capital certificates held by the individual as at 31 December. The figure includes certificates held by close family members and known companies where the individual has decisive influence, cf. Section 1-2 of the Public Limited Companies Act (Norway).

2) Bonuses are paid in the current year, but are accrued and allocated to the previous year for accounting purposes. (continuation note 10)

Remuneration to Board of Directors and Audit Committee No. of PCCs Loans as at owned as at 2008 Fee Other benefi ts 31.12. 31.12 1) Kristian Eidesvik Chairman of the Board 300 2 - 62 440 Gunn-Jane Håland Vice Chairman of the Board 178 2 105 - Einar Risa Board member 153 2 1 812 4 400 Sally Lund-Andersen Board member (employee representative) 156 531 2 002 426 Ingrid Landråk Board member 156 2 - - Erling Øverland Board member 156 2 - 6 429 Erik Edvard Tønnesen Board member 88 2 2 - Birthe Cecilie Jørgensen Board member 81 - - -

Odd Rune Torstrup Chairman of the Audit Committee 125 2 - 9 900 Odd Broshaug Vice Chairman of the Audit Committee 90 2 1 618 - Vigdis Wiik Jacobsen Audit Committee member 90 2 - 9 900 Siv Gausdal Eriksen Audit Committee member 53 2 4 610 2 529 Egil Fjogstad Audit Committee member 58 2 - 544 651

2007 Kristian Eidesvik Chairman of the Board 290 - - 38 765 Gunn-Jane Håland Vice Chairman of the Board 163 - - - Einar Risa Board member 135 - - 4 000 Sally Lund-Andersen Board member (employee representative) 135 495 1 315 426 Ingrid Landråk Board member 135 - - - Erling Øverland Board member 135 - - 5 845 Katrine Trovik Board member 135 - - -

Odd Rune Torstrup Chairman of the Audit Committee 118 - - 9 000 Odd Broshaug Vice Chairman of the Audit Committee 85 - 1 586 - Svein Hodnefjell Audit Committee member 85 - - - Vigdis Wiik Jacobsen Audit Committee member 85 - - 9 000 Randi Larsen Skjæveland Audit Committee member 94 - 1 330 68 380

2006 Kristian Eidesvik Chairman of the Board 224 11 - 8 000 Gunn-Jane Håland Vice Chairman of the Board 135 - 1 304 - Einar Risa Board member 88 - 1 785 - Sally Lund-Andersen Board member (employee representative) 60 470 1 354 110 Ingrid Landråk Board member 120 - - - Erling Øverland Board member 60 - - 1 000 Katrine Trovik Board member 60 - - -

Odd Rune Torstrup Chairman of the Audit Committee 110 - - - Odd Broshaug Vice Chairman of the Audit Committee 80 - 1 555 - Svein Hodnefjell Audit Committee member 83 - - - Vigdis Wiik Jacobsen Audit Committee member 80 - - - Randi Larsen Skjæveland Audit Committee member 49 - 987 14 440

1) The number of SpareBank 1 SR-Bank primary capital certificates held by the individual as at 31 December. The figure also includes certifi- cates held by close family and known companies where the individual has decisive influence, cf. Section 1-2 of the Public Limited Companies Act. In addition, it includes primary capital certificates belonging to the institution that the elected officer represents. NOTE 11 TAXES (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 1 029 928 500 Profit before taxes 643 1 256 1 161 -308 -168 -57 Permanent differences 1) -98 -333 -347 -21 - -2 Group contribution - - - -37 -101 -2 516 Change in temporary differences -2 646 -156 -71 21 131 -190 -of which recorded directly against equity -186 154 2 - -162 - Excess/insufficient temporary difference calculated in previous years - -166 - - - 2 265 Loss carryforwards 2 350 -- 684 628 - Tax base/taxable income for the year 62 755 745

192 176 - Of which is tax payable 28% 18 204 209 6 - - Tax effect of group contribution - - - - 7 - Tax effect of issue costs recorded against equity - 7 - 10 28 62 Change in deferred tax 72 41 25 -6 -36 61 - of which change not recorded in income statement 61 -38 -6 1 37 12 Excess/insufficient tax payable allocation in previous years 12 35 1 203 212 135 Total tax charge 163 249 229

Explanation of why the tax charge for the year is not 28 % of the year’s profit before tax 288 260 140 28 % tax on profit before tax 165 344 325 -86 -47 -16 28 % tax on permanent differences 1) -13 -93 -97 - 7 - Tax impact of issue costs recorded against equity - 7 - 1 37 12 Excess/deficient tax allocation in previous years 12 36 1 - -45 -1 Deficient tax asset allocation in previous years -1 -45 - 203 212 135 Estimated tax charge 163 249 229

Deferred tax assets -113 -67 -108 - deferred tax assets that reverse in more than 12 months -158 -86 -132 -8 -7 -641 - deferred tax assets that reverse within 12 months -641 -7 -8 -121 -74 -749 Total deferred tax assets -799 -93 -140

Deferred tax 106 80 824 - deferred tax that reverses in more than 12 months 893 115 116 - 7 -4 - deferred tax that reverses within 12 months - - - 106 87 820 Total deferred tax 893 115 116

-15 13 71 Net deferred tax/deferred tax asset 94 21 -24

Specification of temporary differences 29 43 39 Gains and loss account 30 32 17 244 172 2 868 Differences related to financial items 2 868 172 242 106 71 36 Loans 53 85 106 -360 -205 -356 Pension liabilities -433 -257 -418 -29 -24 -24 Accounting provisions -25 -26 -30 - - - Leasing operating equipment 228 111 50 -44 -36 -30 Tangible fixed assets -35 -43 -51 - 26 -14 Group contribution paid ------2 265 Tax loss carryforward -2 353 1 -2 -54 47 254 Total temporary differences 333 75 -86

28 % 28 % 28 % Tax rate applied 28 % 28 % 28 % (continuation note 11)

1) includes tax-exempted dividends, non-tax-deductible expenses, net tax-exempt gains on realisation of shares in the European Economic Area (EEA), and tax allowances for profit attributable to associated companies (the percentage of the profit is extracted as it has already been taxed in the individual company).

Pursuant to IFRS regulations, wealth tax is classified as a levy and not as a tax charge. For 2008, the wealth tax is estimated at NOK 9 million and classified as other operating expenses. The note has been restated for 2006 with this in mind and comparable figures have been compi- led. (The income statements and the balance sheets for 2006 have not been restated with this in mind).

NOTE 12 OTHER ASSETS (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 25 25 35 Subordinated capital in SR-Bank Pension Fund 35 25 25 203 175 281 Other assets 336 210 252 225 325 415 Accrued not received interest on loans to customers 424 325 218 Accrued not received interest on certificates 15 33 56 and bonds 56 33 15 112 110 205 Accrued not received interest on financial derivatives 205 110 112 3 57 55 Accrued other income not received 62 75 17 12 8 13 Prepaid expenses 20 14 16 595 733 1 060 Total other assets 1 138 792 655

NOTE 13 TANGIBLE FIXED ASSETS (fi gures in NOK million)

Parent company The Group Machinery, Machinery, Buildings fi xtures Buildings fi xtures and real Investment and means and real Investment and means estate property of transport Total estate property of transport Total 200 20 459 679 Cost of acquisition as at 1.1.2008 200 22 507 729 16 - 92 108 Additions 16 - 100 116 4 1 10 15 Disposals 5 2 10 17 212 19 541 772 Cost of acquisition as at 31.12.2008 211 20 597 828

92 10 295 397 Acc. depreciation and write-downs as at 1.1.2008 91 11 333 435 4 - 50 54 Current year’s depreciation 4 - 57 61 4 - 1 5 Current year’s disposals 4 - 1 5 - - - - Current year’s write-downs - - - - 92 10 344 446 Acc. depreciation and write-downs as at 31.12.2008 91 11 389 491

120 9 197 326 Book value 31.12.2008 120 9 208 337

229 34 Fair value 231 34 (continuation note 13)

243 38 395 676 Cost of acquisition as at 1.1.2007 243 40 441 724 - - 75 75 Additions - - 79 79 43 18 11 72 Disposals 43 18 13 74 200 20 459 679 Cost of acquisition as at 31.12.2007 200 22 507 729

108 17 264 389 Acc. depreciation and write-downs as at 1.1.2007 107 18 300 425 3 1 43 47 Current year’s depreciation 3 1 47 51 19 8 12 39 Current year’s disposals 19 8 14 41 - - - - Current year’s write-downs - - - - 92 10 295 397 Acc. depreciation and write-downs as at 31.12.2007 91 11 333 435

108 10 164 282 Book value 31.12.2007 109 11 174 294

224 31 Fair value 227 34

284 55 332 671 Cost of acquisition as at 1.1.2006 285 56 373 714 - 5 65 70 Additions - 5 70 75 41 22 2 65 Disposals 42 21 2 65 243 38 395 676 Cost of acquisition as at 31.12.2006 243 40 441 724

123 25 229 377 Acc. depreciation and write-downs as at 1.1.2006 123 25 261 409 2 3 36 41 Current year’s depreciation 2 3 41 46 17 11 1 29 Current year’s disposals 18 10 2 30 - - - - Current year’s write-downs - - - - 108 17 264 389 Acc. depreciation and write-downs as at 31.12.2006 107 18 300 425

135 21 131 287 Book value 31.12.2006 136 22 141 299

223 39 Fair value 227 42

Collateral security The group has not mortgaged or accepted any other limitations on its right to dispose of the fixed assets.

Revaluation/depreciation The group does not reassess its fixed assets on an ongoing basis. In connection with the initial implementation of IFRS, buildings were valued at cost less accumulated depreciation in accordance with the Norwegian regulations applicable at the time. The ordinary depreciation rate for machinery, fixtures and means of transport is 14-33 per cent and two per cent for bank buildings, investment property and other types of real estate.

Commitments The group has contractual agreements to acquire fixed assets totalling NOK 41 million, NOK 8 million of which has been paid in advance. Of gross capitalised fixed assets, there are fixed assets under construction or not yet in use with a book value of NOK 8 million.

Buildings, real estate and investment properties The parent bank applies IFRS with effect from 1 January 2007 and the building portfolio was divided into buildings, other real estate and investment properties. Comparative figures for investment properties have been compiled for 2006.

Of the total book value of buildings and real estate NOK 112 million is used for banking. The fair value of the buildings has been established through independent valuation. A portion of the group’s buildings are rental properties. When property owned by the group can be physically divided and one or more of the divisions is rented, the rental portion is defined as an investment property. The group has chosen to account for its investment properties in accordance with the cost model. Operating expenses related to rental properties are in general either invoiced directly to the tenant or re-billed to the tenant by the group. (continuation note 13) Investment properties Parent company The Group Book Share Book Share Book Additions/ value rented Book Additions/ value rented value disposals/ 31.12. Rental 31.12. value disposals/ 31.12. Rental 31.12. 1.1.2008depreciation 2008 income 2008 1.1.2008depreciation 2008 income 2008 4 -1 3 1 8 % Bjergsted Terasse 4 -1 3 - 8 % 6 - 6 1 30 % Domkirkeplassen 6 - 6 1 30 % Apartment Bjergsted Terasse 1 -1 - - 10 -1 9 2 Total 11 -2 9 1 Book Share Book Share Book Additions/ value rented Book Additions/ value rented value disposals/ 31.12. Rental 31.12. value disposals/ 31.12. Rental 31.12. 1.1.2007depreciation 2007 income 2007 1.1.2007depreciation 2007 income 2007 5 -1 4 - 8 % Bjergsted Terrasse 5 -1 4 - 8 % 6 - 6 1 30 % Domkirkeplassen 6 - 6 1 30 % 4 -4 - - Haugesund town centre 4 -4 - - 4 -4 - 1 Tysvær (Aksdal senteret) 4 -4 - 1 2 -2 - 1 Madla 2 -2 - 1 Apartment Bjergsted Terrasse 1 - 1 - 100 % 21 -11 10 3 Total 22 -11 11 3 Book Share Book Share Book Additions/ value rented Book Additions/ value rented value disposals/ 31.12. Rental 31.12. value disposals/ 31.12. Rental 31.12. 1.1.2006depreciation 2006 income 2006 1.1.2006depreciation 2006 income 2006 5 - 5 1 8 % Bjergsted Terrasse 5 - 5 1 8 % 6 - 6 1 30 % Domkirkeplassen 6 - 6 1 30 % 2 2 4 - 23 % Haugesund town centre 2 2 4 - 23 % 7 -7 - - Sola 7 -7 - - 3 -3 - - Randaberg 3 -3 - - 3 1 4 1 51 % Tysvær (Aksdal senteret) 3 1 4 1 51 % 1 -1 - - Vigrestad 1 -1 - - 3 -1 2 1 42 % Madla 3 -1 2 1 42 % Apartment Bjergsted Terrasse 1 - 1 - 100 % 30 -9 21 4 Total 31 -9 22 4

NOTE 14 INTANGIBLE ASSETS - GOODWILL (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 32 - - Cost of acquisition as at 1.1 32 13 45 - - - Additions - 19 - - - - Disposals - - - 32 - - Cost of acquisition as at 31.12 32 32 45

30 - - Accumulated depreciation and write-downs as at 1 January 9 9 33 2 - - Current year’s write-downs 3 - 8 32 - - Accumulated depreciation and write-downs as at 31.12 12 9 41

- - - Book value as at 31 December 20 23 4

The book value (carrying value) as at 31 December 2008 is made up of NOK 19 million relating to goodwill in connection with the acquisition of 100 per cent of the shares in Vågen Eiendomsforvaltning AS in June 2007. The amount appears as the difference between identifiable assets including value added in the acquired company, and the cost price of the shares. The goodwill item’s elements relate to future earnings in the company, and are supported by present value calculations of expected future earnings that document a future economic benefit of the acquisi- tion of the company.

NOK 1 million of the goodwill in the balance sheet refers to EiendomsMegler 1 SR-Eiendom AS. The value of the goodwill items are reviewed annually and written down if there are grounds for so doing. In 2008 a write-down of NOK 3 million was made to goodwill relating to EiendomsMegler 1 SR-Eiendom AS. NOTE 15 INVESTMENTS IN OWNERSHIP INTERESTS

Subsidiaries, associated companies and joint ventures

Date of Registered Percentage Company acquisition offi ce stake 1) Investments in subsidiaries Shares owned by the parent bank SpareBank 1 SR-Finans 1987 Stavanger 100,00 EiendomsMegler 1 SR-Eiendom 1990 Stavanger 100,00 Westbroker Finans 1990 Stavanger 100,00 SR-Forvaltning 2001 Stavanger 66,67 SR-Investering 2005 Stavanger 100,00 SR-Forretningsservice 2007 Stavanger 100,00 Vågen Eiendomsforvaltning 2007 Stavanger 100,00 Shares owned by subsidiaries Jærmegleren 2007 Stavanger 100,00 Vågen Drift 2006 Stavanger 100,00 Investments in associated companies Admi-senteret 1984 Jørpeland 50,00 SpareBank 1 Utvikling 2004 Oslo 17,74 SpareBank 1 Boligkreditt 2005 Stavanger 23,41 Vågen Eiendomsmegling 2007 Stavanger 49,00 Investments in joint ventures SpareBank 1 Gruppen 1996 Oslo 19,89 BNbank 2) 2008 Trondheim 20,00

1) The percentage stake and the percentage of voting rights are the same for all 2) See note 42 for further information relating to the acquisition

Subsidiaries

Shares in subsidiaries parent bank The company’s Percentage No. of Nominal 2008 2007 2006 (fi gures in NOK 1000) share capital stake shares value Book value Book value Book value SpareBank 1 SR-Finans 167 000 100,00 334 000 167 000 292 479 265 663 165 663 Total investments in credit institutions 167 000 292 479 265 663 165 663 EiendomsMegler 1 SR-Eiendom 1 500 100,00 150 1 500 3 000 3 000 3 000 Westbroker Finans 100 100,00 100 100 - 4 177 4 177 SR-Investering 35 000 100,00 3 500 35 000 161 847 133 244 133 244 SR-Forvaltning 6 000 66,67 4 000 4 000 4 018 4 018 4 018 SR-Forretningsservice 100 100,00 1 000 100 125 125 - Vågen Eiendomsforvaltning 500 100,00 5 000 500 19 639 19 639 - Total other investments 41 200 188 629 164 203 144 439 Total investments in group companies parent 208 200 481 108 429 866 310 102

Investments in all of these companies are recorded in accordance with the cost method in the parent bank’s accounts. (continuation note 15)

(fi gures in NOK million) Transactions with subsidiaries 2008 2007 2006 Income and expenses Interest income from subsidiaries 248 144 67 Interest expenses to subsidiaries 24 22 11 Commission income from subsidiaries 4 3 2 Commission expenses to subsidiaries 1 2 2 Other income from subsidiaries 1 1 1 Other expenses to subsidiaries 1 - 1

Receivables from subsidiaries Operating credit 4 102 2 975 431 Other loans 409 163 1 991 Other receivables 14 3 84 Total receivables 4 525 3 141 2 506

Debt to subsidiaries Deposits from subsidiaries 599 782 627 Other liabilities - 1 22 Total liabilities 599 783 649

Associated companies and joint ventures Parent company (fi gures in NOK 1000) 2008 2007 2006

As at 1 January 788 335 648 919 519 601 Increased/new interests 415 976 139 416 146 943 Transferred from the company (dividend) - - -17 625 As at 31 December 1 204 311 788 335 648 919

Of which investments in credit institutions NOK 444,506 (2007: NOK 243,029). Investments in all of these companies are recorded in accordance with the cost method in the parent bank’s accounts.

The Group (fi gures in NOK 1000) 2008 2007 2006

As at 1 January 1 345 454 793 179 498 244 Increased/new interests 354 976 136 156 146 943 Acquisitions of associated companies 61 000 3 260 - Disposals of associated companies - -385 -290 Adjustments against equity 650 199 349 -23 599 Dilution losses - -821 - Badwill BNbank 414 173 - - Share of the profit -134 840 234 216 189 506 Transferred from the company (dividend) -88 458 -19 500 -17 625 As at 31 December 1 952 955 1 345 454 793 179

Investments in all of these companies are recorded in accordance with the equity method in the group accounts. Investments in associated companies 31 December 2008 include goodwill of NOK 26 million (2007: NOK 26 million). (continuation note 15)

The group’s stakes in associated companies and joint ventures

(fi gures in NOK million) Percentage 2008 Assets Liabilities Income Profi t/loss ownership

SpareBank 1 Gruppen Oslo 11 241 10 226 1 100 -161 19,89 SpareBank 1 Utvikling Oslo 60 40 81 7 17,74 SpareBank 1 Boligkreditt Stavanger 12 484 12 091 16 7 23,41 Vågen Eiendomsmegling Stavanger 6 5 3 1 49,00 Admi-senteret Jørpeland - - - - 50,00 BNbank Trondheim 10 848 10 298 14 7 20,00 Total 34 639 32 660 1 214 -139

Percentage 2007 Assets Liabilities Income Profi t/loss ownership

SpareBank 1 Gruppen Oslo 10 808 9 903 2 029 231 19,50 SpareBank 1 Utvikling Oslo 63 39 71 - 17,74 SpareBank 1 Boligkreditt Stavanger 3 709 3 464 104 2 23,63 Vågen Eiendomsmegling Stavanger 2 2 4 1 49,00 Admi-senteret Jørpeland 12 10 2 - 50,00 Total 14 594 13 418 2 209 234

Percentage 2006 Assets Liabilities Income Profi t/loss ownership

SpareBank 1 Gruppen Oslo 9 587 8 889 1 882 190 19,50 SpareBank 1 Utvikling Oslo 58 39 62 2 17,74 SpareBank 1 Boligkreditt Stavanger 220 113 3 - 26,72 SpareBank 1 Bilplan Trondheim 8 7 32 -2 26,70 Admi-senteret Jørpeland 11 9 2 - 50,00 Total 9 885 9 057 1 981 190

Receivables from and debts to associated companies and joint ventures Subordinated Loans loan Deposits Admi-Senteret 19 - - SpareBank 1 Gruppen 16 42 11 SpareBank 1 Boligkreditt - - 2 176 Vågen Eiendomsmegling - - 10 Total receivables and debt 35 42 2 197

NOTE 16 SHARES, UNITS AND PRIMARY CAPITAL CERTIFICATES (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 At fair value through profit or loss 341 303 154 - Listed 164 331 350 221 142 133 - Unlisted 238 249 224 562 445 287 Total at fair value through profit or loss 402 580 574

Available for sale 242 - Unlisted 2 98 242 Total available for sale 2 98 564 449 289 Total shares, units and primary capital certificates 404 589 582

Shares, units and primary capital certificates are classified in the categories fair value and available for sale. Securities that can be measured in a reliable manner and reported internally at fair value are classified at fair value through profit or loss. Other shares are classified as available for sale.

SR_Bank_Clement_Ombygget.indd 71 07.05.09 09.19 (continuation note 16)

Investments in shares, units and primary capital certifi cates parent bank

The company’s Percentage Cost of Book value/ (fi gures in NOK 1000) share capital ownership No. of shares acquisition market value At fair value through profit or loss Listed companies DOF 165 536 0,4 303 202 5 896 10 309 Kongsberg Gruppen 150 000 0,2 47 001 7 175 15 416 Kverneland 138 878 0,9 1 422 673 9 015 8 536 Norsk Hydro 1 370 257 0,0 283 266 10 471 7 875 Orkla 1 286 163 0,0 210 337 15 144 9 560 Pride (USD) 1 730 0,0 55 223 8 775 6 083 Scana Industrier 209 167 0,5 825 231 3 802 6 767 Solstad Offshore 75 588 0,2 82 883 8 150 4 849 StatoilHydro 7 971 618 0,0 97 213 13 779 11 073 Telenor 9 947 333 0,0 141 377 12 540 6 546 Wilh. Willhelmsen Class B shares 255 621 0,3 40 132 7 955 3 612

Melhus Sparebank 80 000 1,0 7 790 1 021 666 Nøtterø Sparebank 107 510 1,8 19 562 1 724 1 448 Protector Forsikring 86 156 0,5 458 855 2 200 2 152 Rygge-Vaaler Sparebank 147 260 2,5 36 700 5 422 3 303 SpareBank 1 Buskerud-Vestfold 233 428 2,7 63 820 11 405 4 787 SpareBank 1 SMN 1 446 545 0,8 464 120 18 748 14 016 SpareBank 1 Nord-Norge 895 604 0,8 150 707 11 317 6 631 Sparebanken Pluss 125 000 3,0 37 497 8 169 5 025 Voss Veksel- og Landmandsbank 9 500 1,7 1 603 3 953 3 366

Other listed companies 30 242 17 883

Repo-shares 1) Tandberg 113 675 0,0 30 000 4 586 4 586

Total listed companies 201 489 154 489

Unlisted companies Short-term investments Møbelinvest Eiendom Holding 2 500 25,0 125 12 500 9 375 Ryger Eiendomsinvest 25 000 4,1 41 3 981 3 896 SR Eiendomsinvest Tyskland I 3 483 2,2 75 253 7 854 7 887 Swiss Property 2 823 4,2 119 674 11 799 11 249

Other unlisted companies 12 914 8 514 Long-term investments Nordito 253 846 6,2 632 172 23 831 91 747 Total unlisted companies 72 879 132 668

Total at fair value through profit or loss shares, units and primary capital certificates 274 368 287 157

Available for sale Unlisted companies 2 145

Total shares, units and primary capital certificates parent bank 289 302 (continuation note 16)

Investments in shares, units and primary capital certifi cates group

The company’s Percentage Cost of Book value/ (fi gures in NOK 1000) share capital ownership No. of shares acquisition market value At fair value through profit or loss Total listed companies parent bank 201 489 154 489 Austevoll Seafood 92 159 0,0 81 000 3 159 891 Grieg Seafood 243 496 0,0 23 000 529 76 Kverneland 138 878 0,0 59 000 430 354 Roxar 238 783 0,8 1 948 624 11 863 6 820 Sparebanken Vest 266 589 0,5 13 350 2 601 1 155 Total listed companies subsidiaries 18 582 9 296 Total listed companies group 220 071 163 785

Total unlisted companies parent bank 72 879 132 668 Borea Opportunity II 146 120 2,2 3 250 7 494 4 991 Hitec Vision Private Equity III 4 415 7,3 319 927 - 7 362 Hitec Vision Private Equity IV 2,0 23 922 28 628 Marin Forvaltning 125 5,0 625 250 250 Marin Vekst II 1 016 7,5 75 810 7 581 3 883 Mikro A 200 16,5 33 000 2 970 1 000 Optimarin 1 626 10,9 206 541 8 010 8 010 Oslo Børs VPS Holding 86 008 0,1 37 500 2 925 2 813 Progressus 1 663 4,2 70 440 7 044 6 410 Proserv 13 591 2,0 277 599 8 502 8 502 RPT Gass 5 933 33,1 19 629 7 950 7 950 SR Feeder 1 675 29,9 500 1 000 1 000 Viking Venture II 2 880 1,4 40 000 3 861 2 884 Other unlisted companies subsidiaries 31 286 21 940 Total unlisted companies subsidiaries 112 795 105 622 Total unlisted companies group 185 674 238 290 Total at fair value through profit or loss shares, units and primary capital 405 745 402 075

Available for sale Unlisted companies parent bank 2 145 Unlisted companies subsidiaries 187

Total shares, units and primary capital certificates group 404 407

1) The shares are secured in options NOTE 17 CERTIFICATES AND BONDS (fi gures in NOK million)

Parent company The Group 2006 2007 2008 Certificates and bonds at fair value 2008 2007 2006 Government - - - Nominal value 38 16 25 - - - Fair value 38 16 25 Other public sector issuers 25 - 50 Nominal value 50 - 25 26 - 50 Fair value 50 - 26 Financial institutions 2 189 4 102 3 403 Nominal value 3 403 4 120 2 263 2 263 4 073 3 352 Fair value 3 352 4 091 2 264 Non-financial institutions 1 232 1 334 662 Nominal value 662 1 338 1 238 1 237 1 333 584 Fair value 587 1 337 1 243 3 526 5 406 3 986 Total certificates and bonds at fair value 4 027 5 444 3 558

Certificates and bonds – receivables And hold to maturity Financial institutions - - 4 773 Nominal value 4 773 - - - - 4 722 Fair value 4 722 - - Non-financial institutions - - 329 Nominal value 329 - - - - 326 Fair value 326 - - Total certificates and bonds – receivables - - 5 048 and hold to maturity 5 048 - -

Reclassification of financial assets In conjunction with the extraordinary and negative developments in the world’s financial markets in third quarter 2008, on 13 October 2008 IASB adopted changes to IAS 39 and IFRS 7. The change allows for the reclassification of parts or the whole of the portfolio of financial assets with retrospective effect to 1 July 2008. SpareBank 1 SR-Bank has chosen to make use of his opportunity and has chosen to reclassify parts of the bond portfolio to categories that are assessed at amortised cost, i.e. ”Hold to maturity” or ”Loans and receivables”. A corresponding reclassification has not been carried out in subsidiaries.

The table below shows the effect it would have had for accounting purposes of not reclassifying the portfolio.

1.7.2008 Parent company 3)

Amortisation Effect of Theoretical Certificates and bonds classified as: Book value as interest income reclass as gain market value At fair value through profit or loss 3 016 - - 3 016 Hold to maturity 1) 2 350 - - 2 350 Receivables 1) 578 - - 578 Total certificates and bonds 5 944 - - 5 944

31.12.2008 Parent company 3)

Amortisation Effect of Theoretical Certificates and bonds classified as: Book value as interest income reclass as gain market value At fair value through profit or loss 3 986 - - 3 986 Hold to maturity 2 674 -7 -60 2 607 Receivables 2) 2 374 -1 -10 2 363 Total certificates and bonds 9 034 -8 -70 8 956

1) Net unrealised losses that are reversed as at 1 July are NOK 47.3 million. The amount is amortised over the instruments’ remaining term. Weighted remaining term on the reclassification date is approximately 2.7 years. 2) Of receivables, NOK 1,625 million is bonds with pre-emptive rights utilised in the exchange system introduced by the Norwegian Ministry of Finance. 3) The note is identical for parent company and group. NOTE 18 FINANSIELLE DERIVATER

General description: The fair value of financial derivatives is usually determined by using valuation methods where the price of the underlying object, for example, interest and currency rates is obtained from the market. If the group’s risk position is approximately neutral, middle rates will be used. A neu- tral risk position means, for example, that the interest rate risk within a re-pricing interval is approximately zero. Otherwise the relevant pur- chase or sales price is used to assess the net position. For financial derivatives where the other party has a weaker credit rating than the group, the price will reflect the underlying credit risk. If market prices are obtained based on transactions with a lower credit risk, this will be taken into account by allocating the original price difference to future credit losses. The group has hedged certain fixed-rate borrowings. Each hedge is documented with reference to the group’s risk management strategy, a clear identification of the item being hedged, the hedging instrument used, a description of the hedged risk, a description of why hedging is regarded as highly probable and a description of when and how the group shall determine the efficiency of the hedge during the accounting period and that it is expected to be very effective during the next accounting period. The group has defined the hedged risk as value changes linked to the NIBOR component of the hedged fixed interest rates in NOK and value changes linked to LIBOR and the currency components of the hedged fixed interest rates in foreign currencies. The group uses interest rate swaps as hedging instruments, where the group receives fixed interest in NOK or a foreign currency and makes payments based on a floating (for the most part 3 months) NIBOR rate. As of 31 December 2008 the net fair value of hedging instruments was NOK 1,456 million (NOK 1,456 million in assets and NOK 0 million in liabilities).

Parent bank 1) At fair value through profit or loss (fi gures in NOK million) 2008 2007 Fair value Fair value Currency instruments Contract Assets Liabilities Contract Assets Liabilities Currency forward contracts 7 382 479 191 3 729 16 109 Currency swaps 26 111 946 858 12 154 188 34 Currency options - - - 72 1 - Total currency instruments 33 493 1 425 1 049 15 955 205 143

Interest rate instruments Interest rate swaps (including cross currency) 53 094 1 967 980 35 496 514 331 Other interest rate contracts - - - 45 4 2 Total interest rate instruments 53 094 1 967 980 35 541 518 333

Hedging/interest rate instruments Interest rate swaps (including cross currency) 16 973 1 456 - 8 704 174 237 Total hedging/interest rate instruments 16 973 1 456 - 8 704 174 237

Total currency instruments 33 493 1 425 1 049 15 955 205 143 Total interest rate instruments 70 067 3 423 980 44 245 692 570 Total currency and interest rate instruments 103 560 4 848 2 029 60 200 897 713

At fair value through profit or loss 2006 Fair value Currency instruments Contract Assets Liabilities Currency forward contracts 2 902 52 10 Currency swaps 11 522 115 107 Currency options - - - Total currency instruments 14 424 167 117

Interest rate instruments Interest rate swaps (including cross currency) 12 910 171 221 Other interest rate contracts 1 503 32 1 Total interest rate instruments 14 413 203 222

Hedging/interest rate instruments Interest rate swaps (including cross currency) 9 943 108 96 Total hedging/interest rate instruments 9 943 108 96

Total currency instruments 14 424 167 117 Total interest rate instruments 24 356 311 318 Total currency and interest instruments 38 780 478 435

1) The note is virtually the same for the parent bank and the group. NOTE 19 CREDIT INSTITUTIONS – RECEIVABLES AND LIABILITIES (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 Loans to and deposits with credit institutions 163 109 267 Loans and deposits at call 274 115 170 2 422 6 380 5 653 Loans and deposits with agreed maturities or notice 1 142 3 242 - 2 585 6 489 5 920 Total 1 416 3 357 170

Debt to credit institutions 253 1 201 2 376 Debt to credit institutions at call 2 374 1 201 222 5 807 4 612 8 745 Debt to credit institutions with agreed maturities or notice 8 745 4 611 5 806 6 060 5 813 11 121 Total 11 119 5 812 6 028

Specified by major currencies 725 2 788 5 253 NOK 5 251 2 787 694 4 101 2 675 5 552 EUR 5 552 2 675 4 101 1 223 17 23 USD 23 17 1 223 11 333 293 Other currencies 293 333 10 6 060 5 813 11 121 Total 11 119 5 812 6 028

2,0 % 4,3 % 4,6 % Average interest rate 4,6 % 4,3 % 2,0 %

The average interest rate is calculated on the actual interest expense during the year as a percentage of the average outstanding debt to credit institutions.

NOTE 20 LENDING TO AND RECEIVABLES FROM CUSTOMERS (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 Distribution by type of receivable - - - Financial leasing 3 653 2 735 2 191 20 021 24 492 23 117 Overdraft facilities and operating credits (including flexi-loans) 23 117 24 492 20 021 2 526 3 947 4 581 Building loans 4 904 3 985 2 633 52 133 56 313 67 330 Repayment loans 67 817 56 995 52 476 -24 -105 135 Excess value of fixed interest rate lending/amortisation of establishment fees 139 -117 -24 74 656 84 647 95 163 Gross lending 99 630 88 090 77 297 -222 -212 -526 Write-downs -574 -229 -238 74 434 84 435 94 637 Net lending 99 056 87 861 77 059 Distribution by market 48 152 50 429 50 672 Retail market 51 528 51 095 48 461 25 391 33 840 44 092 Corporate market 47 500 36 447 27 554 1 137 483 264 Public sector 463 665 1 306 -24 -105 135 Undistributed 139 -117 -24 74 656 84 647 95 163 Gross lending 99 630 88 090 77 297 -222 -212 -526 Write-downs -574 -229 -238 74 434 84 435 94 637 Net lending 99 056 87 861 77 059 Of which subordinated loan capital 60 60 60 Subordinated loan capital in credit institutions - -- 43 65 42 Subordinated loan capital in other financial institutions 42 65 43 103 125 102 Subordinated loan capital recorded as lending 42 65 43

871 1 135 1 495 Of which loans to employees 1 898 1 428 1 057 The terms are one percentage point lower than the standardised interest rate set by the Norwegian Ministry of Finance. (continuation note 20)

Parent company The Group 2006 2007 2008 Total lending distributed by risk group 2008 2007 2006 57 429 65 750 57 336 Lowest risk 59 094 66 580 58 699 19 534 26 411 36 339 Low risk 38 056 28 328 20 303 13 719 12 048 16 320 Medium risk 16 950 12 499 14 087 1 470 2 026 1 119 High risk 1 267 2 220 1 557 1 349 841 2 020 Highest risk 2 216 903 1 458 307 709 1 546 Defaults 1 564 739 321 93 808 107 785 114 680 Total 119 147 111 269 96 425

Gross loans distributed by risk group 49 552 53 075 52 467 Lowest risk 54 225 53 876 50 846 15 018 19 531 26 898 Low risk 28 615 21 448 15 787 7 415 9 436 11 824 Medium risk 12 454 9 887 7 783 1 217 1 713 820 High risk 968 1 907 1 304 1 171 623 1 870 Highest risk 2 066 685 1 280 307 374 1 149 Defaults 1 163 404 321 -24 -105 135 Undistributed 139 -117 -24 74 656 84 647 95 163 Total 99 630 88 090 77 297

Individual write-downs distributed by risk group 1) 103 99 324 Defaults 349 105 111 103 99 324 Total 349 105 111

1) In the event of a write-down, the capital of all loans irrespective of risk class is transferred to defaults.

Expected annual average net loss distributed by risk group 2) 3) 1 1 1 Lowest risk 2 2 2 29 31 45 Low risk 49 32 30 69 83 104 Medium risk 107 87 71 11 39 18 High risk 19 41 13 18 34 93 Highest risk 99 36 20 3 6 45 Defaults 45 6 3 131 194 306 Total 321 204 139

2) The expected average annual net loss is the amount that the parent bank and the group statistically expect to lose on the lending portfolio over a 12-month period. The calculations are based on a long-term average over an economic cycle. 3) The calculation model for expected average annual loss changed in 2008. Comparable figures for 2006 and 2007 were prepared in accor- dance with the new model.

Gross lending distributed by geographic area 62 482 67 253 73 577 Rogaland 76 666 69 732 64 424 6 010 7 648 9 004 The Agder counties 9 332 7 864 6 112 3 007 3 643 5 896 Hordaland 6 335 3 861 3 210 285 266 364 Abroad 365 266 285 2 872 5 837 6 322 Others 6 932 6 367 3 266 74 656 84 647 95 163 Total 99 630 88 090 77 297 (continuation note 20)

Parent company The Group 2006 2007 2008 Total commitments distributed by sector and industry 2008 2007 2006 2 293 2 655 3 308 Agriculture/forestry 3 567 2 887 2 500 693 885 709 Fisheries/fish farming 780 911 720 1 871 3 441 3 105 Mining/oil and gas 3 285 3 480 1 928 6 531 5 300 5 864 Industry 6 516 5 857 6 930 3 525 3 858 4 636 Power and water supply/building and construction 5 527 4 550 4 028 2 300 2 844 3 612 Retail trades, hotels and restaurants 3 856 3 047 2 478 2 280 5 047 7 777 Overseas shipping, pipeline transport, other transport 8 167 5 343 2 540 13 343 19 113 22 718 Property management 22 744 19 167 13 369 4 173 4 780 5 026 Service sector 5 708 5 327 4 655 3 083 1 414 1 065 Public sector and financial services 1 280 1 586 3 252 40 092 49 337 57 820 Total industry 61 430 52 155 42 400 53 716 58 448 56 860 Retail customers 57 717 59 114 54 025 93 808 107 785 114 680 Total 119 147 111 269 96 425

Gross lending distributed by sector and industry 1 930 2 157 2 692 Agriculture/forestry 2 951 2 389 2 137 639 614 693 Fisheries/fish farming 764 640 666 1 523 2 457 2 140 Mining/oil and gas 2 320 2 497 1 580 2 162 2 436 3 412 Industry 4 064 2 993 2 561 952 1 154 1 486 Power and water supply/building and construction 2 377 1 845 1 455 1 676 2 013 2 755 Retail trades, hotels and restaurants 2 999 2 216 1 854 2 046 3 453 7 160 Overseas shipping, pipeline transport, other transport 7 550 3 749 2 306 11 379 15 892 20 237 Property management 20 263 15 917 11 429 3 084 3 664 3 517 Service sector 4 195 4 211 3 566 1 137 483 264 Public sector and financial services 479 655 1 306 Undistributed (excess value of fixed interest rate -24 -105 135 lending/amortisation of establishment fees) 139 -117 -24 26 504 34 218 44 491 Total industry 48 101 36 995 28 836 48 152 50 429 50 672 Retail customers 51 529 51 095 48 461 74 656 84 647 95 163 Total 99 630 88 090 77 297

Individual write-downs distributed by sector and industry 4 - 1 Agriculture/forestry 2 - 4 1 - 1 Fisheries/fish farming 1 1 3 - - - Mining/oil and gas - - - 9 32 57 Industry 62 32 10 1 - 6 Power and water supply/buildings and construction 12 1 2 11 9 61 Retail trades, hotels and restaurants 63 10 11 6 3 1 Overseas shipping, pipeline transport, other transport 7 5 8 14 8 44 Property management 45 8 14 5 11 107 Service sector 108 11 7 - - - Public sector and financial services - - - 51 63 278 Total industry 300 68 59 52 36 46 Retail customers 49 37 52 103 99 324 Total 349 105 111 (continuation note 20)

Parent company Expected annual average net loss The Group 2006 2007 2008 distributed by sector and industry 2008 2007 2006 2 5 2 Agriculture/forestry 3 5 3 2 2 1 Fisheries/fish farming 1 2 2 10 16 28 Mining/oil and gas 29 16 10 22 17 18 Industry 20 19 23 9 11 14 Power and water supply/building and construction 16 13 11 6 13 13 Retail trades, hotels and restaurants 14 14 7 8 16 18 Overseas shipping, pipeline transport, other transport 19 17 9 31 69 86 Property management 86 69 31 18 24 99 Service sector 102 25 19 1 - - Public sector and financial services 1 - 1 109 172 279 Total industry 291 180 116 22 22 27 Retail customers 30 24 23 131 194 306 Total 321 204 139

The Group Loans to and receivables from customers related to financial leasing

Gross investments related to financial leasing Up to 1 year 181 158 117 Between 1 and 5 years 3 083 1 950 1 628 More than 5 years 1 361 619 446 Total 4 625 2 727 2 191

Net investments in financial leases Up to 1 year 167 158 116 Between 1 and 5 years 2 512 1 944 1 619 More than 5 years 977 617 443 Total 3 656 2 719 2 178 NOTE 21 LOSSES ON LOANS AND GUARANTEES (fi gures in NOK million)

Parent company 2006 2007 2008 RM CM Total RM CM Total RM CM Total Losses on loans and guarantees -17 -34 -51 -16 12 -4 11 198 209 Change in individual write-downs in the period - -39 -39 -3 - -3 7 79 86 Change in group write-downs in the period 11 2 13 3 17 20 7 30 37 Realised losses on commitments previously written down 1 2 3 - - - - 2 2 Realised losses on commitments not previously written down - 1 1 1 -1 - 1 22 23 Amortised loans -8 -9 -17 -4 -3 -7 - -4 -4 Recoveries on loans and guarantees previously written down -13 -77 -90 -19 25 6 26 327 353 Total losses on loans and guarantees

Individual write-downs 69 85 154 52 51 103 36 63 99 Individual write-downs to cover losses on loans and guarantees as at 1 January Realised losses in the period on loans and guarantees previously -11 -2 -13 -3 -17 -20 -7 -30 -37 written down individually -15 -45 -60 -23 -17 -40 -8 -18 -26 Reversal of write-downs in previous years Increase in write-downs on commitments previously 1 2 3 2 2 4 2 2 4 written down individually ------1 15 16 Amortised cost Write-downs on commitments not previously 8 11 19 8 44 52 22 246 268 written down individually 52 51 103 36 63 99 46 278 324 Individual write-downs to cover losses on loans and guarantees as at 31 December

Write-downs on groups of loans 34 128 162 34 89 123 9 111 120 Write-downs to cover losses on loans and guarantees as at 1 January - -39 -39 -3 - -3 7 79 86 Write-downs to cover losses on loans and guarantees in the period 34 89 123 31 89 120 16 190 206 Group write-downs to cover losses on loans and guarantees as at 31 Decem

Losses by sector and industry 1 % -1 -67 % -4 0 % - Agriculture/forestry 6 % -5 -17 % -1 0 % 1 Fisheries/fish farming 0 % - 0 % - 0 % - Mining/oil and gas 20 % -18 433 % 26 15 % 53 Industry 4 % -4 -17 % -1 2 % 6 Power and water supply/buildings and construction -2 % 2 -33 % -2 16 % 56 Retail trades, hotels and restaurants 4 % -4 -33 % -2 -1 % -3 Overseas shipping, pipeline transport, other transport 1 % -1 50 % 3 11 % 39 Property management 8 % -7 100 % 6 27 % 95 Service sector 43 % -39 -50 % -3 24 % 86 Transferred from write-downs of groups of loans 14 % -13 -267 % -16 6 % 20 Retail customers 100 % -90 100 % 6 100 % 353 Losses on loans to customers

The Group Defaulted and doubtful commitments 2008 2007 2006 2005 2004 Defaulted commitments 348 92 111 130 203 Other doubtful commitments 1 264 647 210 331 386 Total doubtful commitments 1 612 739 321 461 589 Individual write-downs -349 -105 -111 -163 -222 Interest on reversal of discounted write-downs 1 7 6 10 - Net doubtful commitments 1 264 641 216 308 367

Interest income from defaulted and doubtful commitments totals NOK 72 million.

Fair value of collateral security furnished for loans and receivables is equal to the book value plus write-downs. Collateral security is in the form of cash, securities, guarantees and properties. The Group 2008 2007 2006 RM CM Total RM CM Total RM CM Total 14 214 228 -17 11 -6 -17 -35 -52 13 85 98 - - - - -38 -38 8 30 38 4 19 23 11 2 13 - 5 5 1 - 1 1 2 3 1 22 23 1 -1 - - 1 1 -1 -5 -6 -4 -4 -8 -8 -11 -19 35 351 386 -15 25 10 -13 -79 -92

37 68 105 52 59 111 69 94 163

-8 -30 -38 -4 -19 -23 -11 -2 -13 -9 -21 -30 -23 -21 -44 -15 -51 -66

2 2 4 2 2 4 1 4 5 1 15 16 ------

27 265 292 10 47 57 8 14 22 50 299 349 37 68 105 52 59 111

9 122 131 26 105 131 34 135 169 13 85 98 - - - -8 -30 -38 mber 22 207 229 26 105 131 26 105 131

0 % - -40 % -4 1 % -1 0 % 1 -20 % -2 8 % -7 0 % - 0 % - 0 % - 14 % 54 260 % 26 20 % -18 4 % 16 -20 % -2 4 % -4 15 % 57 -10 % -1 -3 % 3 0 % 1 -20 % -2 3 % -3 10 % 40 30 % 3 2 % -2 25 % 95 70 % 7 10 % -9 25 % 98 0 % - 41 % -38 6 % 24 -150 % -15 14 % -13 100 % 386 100 % 10 100 % -92 NOTE 22 DEPOSITS FROM CUSTOMERS (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 33 078 40 858 40 953 Deposits from and debt to customers at call 40 327 40 084 32 489 10 065 10 137 13 987 Deposits from and debt to customers at agreed maturities 13 980 10 130 10 058 43 143 50 995 54 940 Total deposits 54 307 50 214 42 547

Deposits distributed by sector and industry 703 789 1 007 Agriculture/forestry 1 007 789 703 93 349 123 Fisheries/fish farming 123 349 93 471 1 624 520 Mining/oil and gas 520 1 624 471 1 546 2 086 2 286 Industry 2 286 2 086 1 546 1 364 1 464 1 805 Power and water supply/building and construction 1 805 1 464 1 364 1 544 1 768 1 612 Retail trades, hotels and restaurants 1 612 1 768 1 544 1 543 1 690 2 933 Overseas shipping, pipeline transport, other transport 2 933 1 690 1 543 2 856 3 961 4 127 Property management 4 127 3 961 2 856 4 451 5 920 5 819 Service sector 5 186 5 139 3 855 9 382 9 894 8 761 Public sector and financial services 8 761 9 894 9 382 - - 1 436 Borrowing government management concerning exchange system OMF 1 436 - - 23 953 29 545 30 429 Total industry 29 796 28 764 23 357 19 190 21 450 24 511 Retail customers 24 511 21 450 19 190 43 143 50 995 54 940 Total deposits distributed by sector and industry 54 307 50 214 42 547

Deposits distributed by geographic area 33 829 41 805 44 082 Rogaland 43 449 41 024 33 233 1 810 2 134 2 176 Agder counties 2 176 2 134 1 810 1 078 1 207 1 713 Hordaland 1 713 1 207 1 078 303 380 515 Abroad 515 380 303 6 123 5 469 6 454 Other 6 454 5 469 6 123 43 143 50 995 54 940 Total deposits distributed by geographic area 54 307 50 214 42 547 NOTE 23 DEBT SECURITIES ISSUED (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 801 5 515 3 259 Certificates and other short-term borrowings 3 259 5 515 801 25 256 30 580 42 796 Bonds 42 796 30 580 25 256 - -460 -398 Own certificates and bonds -398 -460 - 26 057 35 635 45 657 Total debt raised through issuance of securities 45 657 35 635 26 057

3,3 % 4,8 % 6,1 % Average interest rate 6,1 % 4,8 % 3,3 %

Average interest rate is calculated based on the actual interest expenses during the year, including any interest rate or currency swaps, as a percentage of average security holdings.

Debt raised through issuance of securities distributed by maturity date 1) Maturity 6 864 - - 2007 - - 6 864 4 005 9 139 - 2008 - 9 139 4 005 2 170 4 307 6 478 2009 6 478 4 307 2 170 5 811 6 637 7 957 2010 7 957 6 637 5 811 5 016 5 827 7 195 2011 7 195 5 827 5 016 514 4 585 6 091 2012 6 091 4 585 514 124 120 10 237 2013 10 237 120 124 372 3 149 4 633 2014 4 633 3 149 372 826 997 1 232 2016 1 232 997 826 - 349 464 2017 464 349 - - - 648 2018 648 - - 99 99 129 2024 129 99 99 83 79 101 2035 101 79 83 - 174 263 2037 263 174 - 173 173 229 2046 229 173 173 26 057 35 635 45 657 Total debt raised through issuance of securities 45 657 35 635 26 057

Debt raised through issuance of securities distributed by currencies 1) 10 785 17 012 22 776 NOK 22 776 17 012 10 785 10 634 14 371 17 500 EUR 17 500 14 371 10 634 3 666 2 846 3 683 USD 3 683 2 846 3 666 301 636 678 SEK 678 636 301 486 - - GBP - - 486 185 770 1 020 Other 1 020 770 185 26 057 35 635 45 657 Total debt raised through issuance of securities 45 657 35 635 26 057

1) Own bonds and certificates have been deducted Matured/ Exchange rate and Balance Issued redeemed Other changes Balance Change of debt raised through issuance of securities 1) 31.12.2007 2008 2008 2008 31.12.2008 Certificates, nominal value 5 515 4 744 7 000 - 3 259 Bonds, nominal value 30 158 14 620 7 900 4 394 41 272 Value adjustments -38 - - 1 164 1 126 Total debt raised through issuance of securities 35 635 19 364 14 900 5 558 45 657

1) The note is identical for parent company and the group NOTE 24 SUBORDINATED LOAN CAPITAL (fi gures in NOK million)

Parent company First The Group Maturity 2006 2007 2008 Principal Terms Maturity date 2008 2007 2006

Non-perpetual - - - 40 NOK 3 months Nibor + margin 2012 2007 - - 40 535 517 641 65 EUR 3 months Libor + margin 2014 2009 641 517 535 687 672 1 067 13 000 JPY 3 months Libor + margin 2035 2012 1 067 672 687 - - 499 500 NOK 3 months Nibor + margin 2018 2013 499 - - 449 450 450 450 NOK 3 months Nibor + margin 2017 2012 450 450 449 1 671 1 639 2 657 Total non-perpetual 2 657 1 639 1 711

Perpetual 458 396 522 75 USD 3 months Libor + margin 522 396 458 183 172 196 200 SEK 3 months Stibor + margin 196 172 183 170 170 170 170 NOK 3 months Nibor + margin 170 170 170 811 738 888 Total perpetual 888 738 811

Hybrid instruments 470 448 625 75 USD 3 months Libor + margin 625 448 470 470 448 625 Total hybrid instruments 625 448 470

2 952 2 825 4 170 Total subordinated loan capital 4 170 2 825 2 992

Subordinated loan capital and bond funds in foreign currencies are included in the group’s total currency position so that there is no currency risk associated with the loans. Of a total of NOK 4,170 million in subordinated loan capital, NOK 526 million counts as core capital, NOK 872 million as perpetual subordinated capital and NOK 2,544 million as non-perpetual subordinated capital. Capitalised expenses associated with borrowing are reflected in the calculation of the amortised cost. Hybrid instruments cannot make up more than 15 per cent of the total core capital. Any hybrid instruments in excess of this are considered perpetual subordinated loan capital.

Subordinated loan capital and bond fund loans 1) 2008 2007 2006 Ordinary subordinated loan capital, nominal value 2 596 1 596 1 672 Perpetual subordinated loan capital, nominal value 873 735 811 Bond fund loan, nominal value 526 406 469 Value adjustments 175 88 - Total subordinated loan capital and bond fund loans 4 170 2 825 2 952

Exchange rate and Matured/ other Balance Issued redeemed changes Balance Change of debt raised by issuance of subordinated loan/bond fund loans 1) 31.12.2007 2008 2008 2008 31.12.2008 Non-perpetual subordinated loan capital, nominal value 1 596 500 - 500 2 596 Perpetual subordinated loan capital, nominal value 735 - - 138 873 Bond fund loans, nominal value 406 - - 120 526 Value adjustments 88 - - 87 175 Total subordinated loan capital and bond fund loans 2 825 500 - 845 4 170

1) The note is identical for parent company and the group NOTE 25 OTHER LIABILITIES (fi gures in NOK million)

Parent company The Group 2006 2007 2008 Other liabilities 2008 2007 2006 361 205 356 Pension liabilities (note 26) 433 257 420 4 7 4 Specified loss provisions guarantees 4 7 4 28 24 24 Other specified provisions 24 24 29 22 17 23 Accounts payable 32 273 222 21 23 26 Tax withholdings 33 31 28 - - - Settlement accounts 450 313 229 419 231 275 Other liabilities 331 242 404 35 39 45 Accrued holiday pay 59 52 45 53 62 179 Accrued interest deposits customers 179 62 53 308 429 604 Accrued interest securities debt 604 429 308 15 45 64 Accrued interest derivatives 64 45 15 2 15 51 Accrued interest other debt 51 15 2 127 172 149 Other accrued expenses 194 245 176 1 395 1 269 1 800 Total other debt 2 458 1 995 1 935

Guarantee commitments (amounts guaranteed) 1 631 2 464 2 236 Payment guarantees 2 236 2 464 1 631 2 532 2 244 2 302 Contract guarantees 2 302 2 244 2 532 47 54 37 Guarantees for taxes 37 54 47 284 259 600 Other guarantee liabilities 600 259 284 68 - - Guarantee in favour of the Norwegian Banks’ Guarantee Fund - - 68 4 562 5 021 5 175 Total guarantees 5 175 5 021 4 562

Other liabilities 14 566 18 041 14 343 Unutilised credit lines 14 343 18 041 14 566 1 899 3 515 1 222 Loans approved not disbursed 1 223 3 682 2 022 105 46 - Letters of credit - 46 105 16 570 21 602 15 565 Total other liabilities 15 566 21 769 16 693

22 527 27 892 22 540 Total liabilities 23 199 28 785 23 190

Secured debt 3 238 3 895 6 675 Securities lodged as collateral 6 675 3 895 3 238

Ongoing lawsuits The group is a party to several lawsuits with a total financial exposure that is not considered to be of great significance, as the group has made provisions for losses in the cases in which there is a probability that the group will suffer losses as a consequence of the lawsuits.

Operational leasing The group’s operational leasing contracts have a term of 3 - 4 years. The annual expense is approximately NOK 8 million. The leasing contracts are mainly via SR-Finans AS. NOTE 26 PENSIONS (WITH DIRECT RECOGNITION OF ACTUARIAL DEVIATIONS)

SpareBank 1 SR-Bank Group has collective pension schemes for its employees. The pension schemes for SpareBank 1 SR-Bank, SR-Forvaltning ASA, SR-Investering AS, SR-Finans AS and EiendomsMegler 1 SR-Eiendom AS are covered by the bank’s pension fund.

SpareBank 1 SR-Bank, SR-Forvaltning ASA, SR-Investering AS, SR-Finans AS and EiendomsMegler 1 SR-Eiendom AS have uniform schemes in which the principal terms are a contribution period of30 years, 70 per cent pension relative to the pension basis as at 1 January in the year the employee reaches the age of 67, as well as a disability, surviving spouse and children’s pension. All pension benefits are coordinated with expected National Insurance benefits. If changes are made to the National Insurance scheme that entail a reduction in benefits, such reductions will not be compensated through the pension schemes. As at 31 December 2008 the pension schemes had 1,207 active members and 272 pensioners.

Vågen Eiendomsforvaltning AS has its own contribution-based mandatory service pension scheme covering 8 employees.

In addition to the pension liabilities that are covered through the insurance schemes, the group has uncovered pension liabilities that cannot be covered by the assets in the collective schemes. The liabilities apply to people that are not enrolled in the insurance schemes, supplementary pen- sions in excess of 12G (G = the National Insurance basic amount), ordinary early retirement pensions and contractual early retirement pension.

Estimated values are used when assessing pension assets and measuring accrued liabilities. These estimates are corrected every year in accor- dance with the actual value of the pension assets in the pension fund, statements of the transfer value of pension assets from the insurance com- pany, and actuarial calculations regarding the size of the liabilities. The calculation of future pensions is based on the following assumptions:

Assumptions 2008 2007 2006 Discount rate 4,0 % 4,8 % 4,3 % Expected yield on assets 6,0 % 6,0 % 5,5 % Future wage development 4,25 % 4,25 % 4,0 % Basic amount adjustment (G) 4,0 % 4,0 % 3,0 % Pension adjustment 3,5 % 3,0 % 3,0 % Employer’s NI contribution 14,1 % 14,1 % 14,1 % Voluntary retirement 5 % before age 45 5 % before age 45 2 % before age 45 2 % after age 45 2 % after age 45 0 % after age 45 Expected contractual early retirement from 62 years 25 % at age 62 25 % at age 62 25 % at age 62 and an additional 25 % at age 64 and an additional 25 % at age 64 and an additional 25 % at age 64

The mortality assumptions are based on published statistics and historical data. Average life expectancy (in number of years) on balance sheet date for a person who retires at the age of 65 is as follows: Males 19,3 years 19,3 years 17,6 years Females 21,8 years 21,8 years 19,9 years

Average life expectancy (in number of years) 20 years after the balance sheet date for a person who retires at the age of 65 is as follows: Males 19,3 years 19,3 years 17,6 years Females 21,8 years 21,8 years 19,9 years

The calculations are based on standardised assumptions regarding mortality and disability trends and other demographic factors prepared by the Association of Norwegian Insurance Companies (Norges Forsikringsforbund). The mortality assumptions are based on published statistics and historical data.

(figures in NOK million)

Parent company The Group 2006 2007 2008 Book value of liabilities 2008 2007 2006 207 37 197 Pension benefits – insured scheme 254 71 249 154 168 159 Pension benefits – uninsured scheme 179 186 171 361 205 356 Total book value of liabilities 433 257 420

Expenses charged to profit and loss 32 46 49 Pension benefits – insured scheme 68 59 41 14 16 19 Pension benefits – uninsured scheme 21 17 15 46 62 68 Total expenses charged to profit and loss 89 76 56 (continuation note 26)

Pension liabilities in defined benefit pension schemes 918 971 970 Present value of pension liabilities as at 1 January 1 072 1 076 993 41 51 61 Pension benefits earned during the period 71 60 50 37 45 48 Interest expenses accrued on pension liabilities 53 50 40 -3 -73 116 Actuarial gains and losses (estimate deviations) 137 -91 15 -22 -25 -30 Benefits paid -31 -26 -23 - - - Change in prior periods’ earnings 6 2 - 971 969 1 165 Present value of pension liabilities as at 31 December 1 308 1 071 1 076 836 818 1 021 of which fund-based 1 147 905 926 135 151 144 of which not fund-based 161 166 150

Pension assets 474 702 790 Pension assets as at 1 January 847 747 515 37 42 49 Expected return during the period 53 45 39 25 - - Actuarial gains and losses (estimate deviations) - - 24 149 71 99 Payments from employer 118 81 146 -28 -25 -30 Benefits paid -31 -29 -13 - - -55 Other changes -58 3 - 657 790 853 Pension assets as at 31 December 929 847 711

Net pension liabilities in the balance sheet 971 969 1 165 Present value of pension liabilities as at 31 December 1 308 1 071 1 076 657 790 853 Pension assets as at 31 December 929 847 711 314 179 312 Net pension liabilities as at 31 December 379 224 365 47 26 44 Employer’s National Insurance contribution 54 32 55 361 205 356 Net pension liabilities in the balance sheet 433 257 420

Pension costs for the period 42 51 61 Defined benefits pension earned during the period 71 60 50 37 45 48 Interest expenses accrued on pension benefits 53 50 40 -37 -42 -49 Expected return on pension assets -53 -45 -39 - - - Benefits earned in prior periods included in the period 6 2 - 42 54 60 Net defined benefit pension costs excluding employer’s NI contribution 77 67 51 4 8 8 Accrued employer’s NI contribution 11 9 5 46 62 68 Net defined benefit pension expenses recognised in profit and loss 89 76 56 - - - Defined contribution pension expenses - - - 46 62 68 Pension expenses for the period recognised in profit and loss 89 76 56

Actuarial gains and losses (estimate changes) Actuarial gains and losses included in equity -21 -131 190 for the period 217 -147 -1 Cumulative actuarial gains and losses 146 14 205 included in equity 250 33 180

37 42 49 The expected return on pension assets 53 45 39 67 46 - Actual return on pension assets - 46 67

The expected return on assets is the expected return taking into account the investment strategy adopted in the plans. The expected return on fixed income securities is based on effective interest rate of the securities at the balance sheet date. The expected return on equity instruments and investments in real estate reflects the long-term return achieved in the respective markets. (continuation note 26)

Composition of the group’s pension assets 2008 2007 2006 Real estate 22 22 12 - of which used by the bank - - - Shares 129 204 175 Other assets 778 621 524 Total pension assets 929 847 711

Development the last four years in defined benefit pension schemes in the group 2008 2007 2006 2005 Present value of pension liabilities as at 31 December 1 308 1 071 1 076 993 Pension assets as at 31 December 929 847 711 598 Net deficit 379 224 365 395

Expected premium paid for 2009 is NOK 90 million for the parent bank and NOK 107 million for the group.

NOTE 27 CAPITAL ADEQUACY (fi gures in NOK million)

Parent company The Group 2006 2007 2008 2008 2007 2006 1 131 1 774 1 872 Primary capital 1 872 1 774 1 131 -5 -10 -7 - Own primary capital certificates -7 -10 -5 18 7 92 Premium reserve 92 7 18 756 777 838 Equalisation reserve 838 777 756 337 75 Allocated to dividend 75 337 1 738 1 970 2 066 Savings bank’s reserve 2 066 1 970 1 738 90 124 122 Endowment fund 122 124 90 106 69 Reserve for unrealised gains 69 139 - - - Other equity 827 560 72 3 728 5 085 5 127 Total book equity 5 954 5 678 3 800

Core capital -14 - - Deferred taxes, goodwill and other intangible assets -23 -26 -31 -2 -1 Reserve for unrealised gains available for sale -1 -2 -337 -75 Deduction for allocated dividend -75 -337 -266 -364 50 % deduction subordinated capital in other finance institutions -17 -12 -158 -188 50 % deduction in expected losses IRB less provisions for losses -188 -173 - - 50 % capital adequacy reserve -547 -486 108 72 36 Share of non-performing non-amortised estimate deviations 38 77 116 470 448 526 Hybrid instruments 526 448 469 4 292 4 842 5 061 Total core capital 5 667 5 167 4 354

Supplementary capital beyond core capital 807 739 872 Perpetual subordinated capital 872 739 807 1 672 1 639 2 544 Non-perpetual subordinated capital 2 834 1 639 1 712 -599 -266 -364 50 % deduction subordinated capital in other finance institutions -17 -12 -42 -158 -188 50 % deduction in expected losses IRB less provision for losses -188 -173 - - - 50 % capital adequacy reserve -547 -486 -608 1 880 1 954 2 864 Total supplementary capital 2 954 1 707 1 869

6 172 6 796 7 925 Net subordinated capital 8 621 6 874 6 223

57 582 Basis for calculation Basel I 58 939 (continuation note 27)

Minimum subordinated capital requirement Basel II 1 860 2 299 Participation in specialised enterprises 2 299 1 860 1 037 1 368 Participation in other enterprises 1 368 1 037 31 32 Participation in mass market SMB 32 31 559 516 Participation in mass market private individuals 516 559 47 48 Participation in other mass market 48 47 - - Equity positions - 152 3 534 4 263 Total credit risk IRB 4 263 3 686

158 100 Debt risk 101 158 38 50 Equity risk 50 38 2 - Currency risk - 2 232 248 Operational risk 306 268 1 010 706 Transition scheme 657 806 431 596 Participations calculated in accordance with Basel I 1 754 776 -68 -58 Deductions -90 -108 4 607 5 337 5 905 Minimum subordinated capital requirement 7 041 5 626 4 715

10,72 % 10,19 % 10,74 % Capital adequacy ratio 9,80 % 9,77 % 10,56 % 7,45 % 7,26 % 6,86 % of which core capital 6,44 % 7,35 % 7,39 % 3,26 % 2,93 % 3,88 % of which supplementary capital 3,37 % 2,44 % 3,17 %

The capital adequacy ratio shall be at least 8 per cent. The equity value of non-perpetual subordinated loans is reduced by 20 per cent every year the last five years prior to maturity. To the extent the group has subordinated capital in other financial institutions, this is deducted directly from the group’s own subordinated capital for that part that exceeds 2 per cent of the recipient financial institution’s subordinated capital. If the group has subordinated capital in other financial institutions that amounts to less than 2 per cent of the individual financial institution’s subordinated capital, the total of such capital is deducted from the group’s subordinated capital for that part that exceeds 10 per cent of the group’s subordinated capital. In the event that the group has been ordered to maintain a 100 per cent capital adequacy ratio for specific assets an amount equal to the asset’s carrying value shall be deducted from the subordinated capital and from the basis for the calculation. The basis for the calculation is risk-weighted. NOTE 28 RELATED PARTIES (fi gures in NOK 1000) Group management Board of Directors Audit Committee Associated companies Other related parties 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 Loans Outstanding loans as at 1 Jan 27 494 25 376 19 106 2 685 2 658 5 043 7 379 2 542 2 173 15 445 4 184 4 233 301 2 242 92 New loans 13 004 5 224 16 475 5 910 2 050 2 657 5 020 604 3 333 5 735 4 412 1 752 513 783 1 123 Repayments 10 001 3 106 10 205 4 674 3 395 3 188 6 170 230 2 964 6 000 443 1 801 795 2 698 758 Outstanding loans as at 31 Dec 30 497 27 494 25 376 3 921 1 313 4 512 6 229 2 916 2 542 15 180 8 153 4 184 19 327 457

Interest income 1 319 831 351 101 77 95 286 139 48 802 193 69 3 115 74

Deposits Deposits as at 1 Jan 1 004 1 495 1 051 234 113 68 3 357 519 282 2 748 3 490 2 538 2 036 1 826 1 688 New deposits 16 887 22 004 12 442 1 304 1 336 1 430 9 992 4 039 2 699 7 571 7 256 7 626 11 021 11 944 6 499 Withdrawals 16 054 22 495 12 038 1 408 807 1 385 11 088 3 883 2 465 8 997 8 058 6 223 9 632 12 015 6 411 Deposits as at31 Dec 1 837 1 004 1 455 130 642 113 2 261 675 516 1 322 2 688 3 941 3 425 1 755 1 776

Interest expenses 69 33 18 2 12 1 148 20 5 127 141 93 139 69 28

NOTE 29 PRIMARY CAPITAL AND OWNERSHIP STRUCTURE Primary capital The primary capital of SpareBank 1 SR-Bank totals NOK 1,872,583,625 divided into 74,903,345 primary capital certificates, Each with a nominal value of NOK 25. The primary capital was raised in the following manner/at the following times:

Change in Total No. of primary primary primary Year capital capital capital certificates 1994 Public issue 744,0 744,0 7 440 000 2000 Private placement with employees 5,0 749,0 7 489 686 2001 Private placement with employees 4,8 753,8 7 538 194 2004 Bonus issue 150,8 904,6 9 045 834 2005 Bonus issue/split 226,1 1 130,7 22 614 585 2007 Bonus issue 200,0 1 330,7 26 613 716 2007 Bonus issue/split 443,5 1 774,2 70 969 909 2008 Dividend issue 91,7 1 866,0 74 638 507 2008 Private placement with employees 6,6 1 872,6 74 903 345

In addition to primary capital, the primary capital certificate holders’ share of the equity in SpareBank 1 SR-Bank consists of an equalisation reserve and a premium reserve. The equalisation reserve is retained earnings not distributed as annual dividends. This equity is used to stabi- lise cash dividends or for bonus issues. Other equity includes the savings bank’s reserve, the endowment fund and valuation difference fund. Up to 25 per cent of the profit that is not distributed as dividend can be set aside for the endowment fund.

Primary capital certificate holders’ share of profit/loss Earnings per primary capital certificate are calculated by dividing the profit/loss attributable to the holders of primary capital certificates by the average number of outstanding primary capital certificates. The profit attributable to primary capital certificate holders corresponds to the primary capital’s, equalisation reserve’s and premium reserve’s share of the bank’s total equity less the valuation difference fund. (continuation note 29) Purchase/sale of own primary capital certificates 2008 (figures in NOK 1000) Holding as at 31 December 2007 9 956 Change in holding during 2008 -2 599 Holding as at 31 December 2008 7 357

The 20 largest primary capital certificate holders as at 31 December 2008 Primary capital Percentage Holder certificates ownership Coil Investment Group AS 3 791 661 5,1% Clipper AS 1 420 536 1,9% Frank Mohn AS 1 363 263 1,8% Trygve Stangeland 1 205 776 1,6% Tveteraas Finans AS 1 096 088 1,5% Laerdal AS 986 300 1,3% The Northern Trust Co., UK 905 845 1,2% Brown Brothers Harriman, USA 800 000 1,1% Køhlergruppen AS 750 000 1,0% Bank of New York, USA 712 617 1,0% Verdipapirfondet Nordea Norge 708 161 0,9% Bjergsted Investering AS 699 581 0,9% Westco AS 656 581 0,9% Olav T. Stangeland 594 642 0,8% State Street Bank & Trust, USA 582 239 0,8% Forsand Local Authority 568 525 0,8% Pareto AS 474 193 0,6% Helland AS 454 727 0,6% Skagen Vekst 440 000 0,6% Ringerike Sparebank 426 212 0,6% Total 20 largest owners 18 636 947 24,9% Other holders 56 266 398 75,1% Primary capital certificates issued 74 903 345 100,0 %

The total number of primary capital certificate holders as of 31 December 2008 was 11,482, an increase of 250 from the beginning of 2007. The percentage of primary capital certificates owned in Rogaland, Hordaland and the Agder counties is 61.6 per cent, and the percentage owned abroad is 7.4. Reference is also made to the overview of primary capital certificate holders on the Board of Directors and Supervisory Board. For more details concerning primary capital certificates, see the separate section in the annual report.

NOTE 30 RESTRICTED FUNDS (fi gures in NOK million) Parent company The Group 2006 2007 2008 2008 2007 2006 21 23 26 Tax deductions 33 31 28 21 23 26 Total restricted funds 33 31 28 NOTE 31 CLASSIFICATION OF FINANCIAL INSTRUMENTS (fi gures in NOK million)

The Group Financial instruments at fair value through profi t or loss Financial Financial assets and Financial Financial derivatives liabilities assets assets Non-fi nancial Held Recorded at as hedging assessed at available held to assets and 2008 for sale fair value instrument amortised cost for sale maturity liabilities Total Assets Cash and balances at central banks 6 998 6 998 Loans and deposits with credit institutions 1 416 1 416 Net loans to customers 4 200 94 856 99 056 Certificates and bonds at fair value 4 027 4 027 Certificates and bonds to hold to maturity 5 048 5 048 Financial derivatives 3 386 1 456 4 842 Shares, units and primary capital certificates 310 92 2 404 Investment in ownership interests 1 953 1 953 Intangible assets 20 20 Fixed assets 337 337 Operations to be sold 638 638 Other assets 1 138 1 138 Total assets 4 337 7 678 1 456 103 270 2 5 048 4 086 125 877

Liabilities Debt to credit institutions 11 119 11 119 Deposits from and debt to customers 54 307 54 307 Debt raised by issuance of securities 14 206 31 451 45 657 Financial derivatives 2 029 2 029 Taxes payable 22 22 Deferred tax liabilities 94 94 Operations to be sold 55 55 Other liabilities 2 458 2 458 Subordinated loan capital 1 889 2 281 4 170 Total liabilities 18 124 99 158 2 629 119 911

Total equity 5 966 5 966 Total liabilities and equity 18 124 99 158 8 595 125 877 (continuation note 31)

Financial instruments at fair value through profi t or loss Financial Financial assets and Financial Financial derivatives liabilities assets assets Non-fi nancial Held Recorded at as hedging assessed at available held to assets and 2007 for sale fair value instrument amortised cost for sale maturity liabilities Sum Assets Cash and balances at central banks 2 622 2 622 Loans to and deposits with credit institutions 3 357 3 357 Net loans to customers 2 436 85 425 87 861 Certificates and bonds at fair value 5 444 5 444 Certificates and bonds to hold to maturity - Financial derivatives 723 174 897 Shares, units and primary capital certificates 453 127 9 589 Investment in ownership interests 1 345 1 345 Intangible assets 23 23 Fixed assets 294 294 Operations to be sold 43 43 Other assets 792 792 Total assets 5 897 3 286 174 91 404 9 - 2 497 103 267

Liabilities Debt to credit institutions 5 812 5 812 Deposits from and debt to customers 50 214 50 214 Debt raised by issuance of securities 7 449 28 186 35 635 Financial derivatives 476 237 713 Taxes payable 211 211 Deferred tax liabilities 21 21 Other liabilities 1 995 1 995 Subordinated loan capital 1 292 1 533 2 825 Total liabilities 9 217 237 85 745 2 227 97 426

Total equity 5 841 5 841 Total liabilities and equity 9 217 237 85 745 8 068 103 267 (continuation note 31)

Financial instruments at fair value through profi t or loss Financial Financial assets and Financial Financial derivatives liabilities assets assets Non-fi nancial Held Recorded at as hedging assessed at available held to assets and 2006 for sale fair value instrument amortised cost for sale maturity liabilities Sum Assets Cash and balances at central banks 834 834 Loans to and deposits with credit institutions 170 170 Net loans to customers 2 283 74 776 77 059 Certificates and bonds at fair value 3 558 3 558 Certificates and bonds to hold to maturity - Financial derivatives 370 108 478 Shares, units and primary capital certificates 447 127 8 582 Investment in ownership interests 793 793 Intangible assets 4 4 Fixed assets 299 299 Operations to be sold 579 579 Other assets 679 679 Total assets 4 005 2 780 108 75 780 8 - 2 354 85 035

Liabilities Debt to credit institutions 6 028 6 028 Deposits from and debt to customers 42 547 42 547 Debt raised by issuance of securities 6 757 19 300 26 057 Financial derivatives 339 96 435 Taxes payable 217 217 Deferred tax liabilities - Operations to be sold 524 524 Other liabilities 1 935 1 935 Subordinated loan capital 1 339 1 653 2 992 Total liabilities 8 435 96 69 528 2 676 80 735

Total equity 4 300 4 300 Total liabilities and equity 8 435 96 69 528 6 976 85 035 NOTE 32 MATURITY ANALYSIS OF ASSETS AND LIABILITIES (fi gures in NOK million) Overdraft facilities/operating credits (including flexi-loans) are included in the interval “at call”.

Parent company Less than 3 More than 5 As at 31 December 2008 At call months 3-12 months 1 - 5 years years Total Assets Cash and balances at central banks 6 998 - - - - 6 998 Loans and deposits with credit institutions 4 571 1 119 - 223 7 5 920 Gross loans to customers 39 500 357 6 069 6 732 42 505 95 163 - Individual write-downs -320 - - - - -320 - Write-downs on groups of loans -206 - - - - -206 Net loans to customers 38 974 357 6 069 6 732 42 505 94 637 Certificates and bonds at fair value - 436 1 326 2 155 69 3 986 Certificates and bonds to hold to maturity - 65 393 4 547 43 5 048 Financial derivatives - 599 663 2 456 1 130 4 848 Shares, units and primary capital certificates 289 - - - - 289 Investment in ownership interests 1 685 - - - - 1 685 Fixed assets 326 - - - - 326 Operations to be sold 127 - - - - 127 Other assets 1 060 - - - - 1 060 Total assets 54 030 2 576 8 451 16 113 43 754 124 924

Liabilities Debt to credit institutions 2 375 2 893 4 089 1 764 - 11 121 Deposits from and debt to customers 53 341 162 - 1 437 - 54 940 Debt raised by issuance of securities - 2 668 3 809 31 481 7 699 45 657 Financial derivatives - 353 507 793 376 2 029 Taxes payable - - 9 - - 9 Deferred tax liabilities - - 71 - - 71 Other liabilities 1 800 - - - - 1 800 Subordinated loan capital - - - - 4 170 4 170 Total liabilities 57 516 6 076 8 485 35 475 12 245 119 797 (continuation note 32)

The Group

Less than 3 More than 5 As at 31 December 2008 At call months 3-12 months 1 - 5 years years Total Assets Cash and balances at central banks 6 998 - - - - 6 998 Loans to and deposits with credit institutions 67 1 119 - 223 7 1 416 Gross loans to customers 39 500 411 6 213 9 424 44 082 99 630 - Individual write-downs -345 - - - - -345 - Write-downs on groups of loans -229 - - - - -229 Net loans to customers 38 926 411 6 213 9 424 44 082 99 056 Certificates and bonds at fair value - 474 1 326 2 155 72 4 027 Certificates and bonds to hold to maturity - 65 393 4 547 43 5 048 Financial derivatives - 593 663 2 456 1 130 4 842 Shares, units and primary capital certificates 404 - - - - 404 Investment in ownership interests 1 953 - - - - 1 953 Fixed assets 337 - - - - 337 Operations to be sold 638 - - - - 638 Other assets 1 158 - - - - 1 158 Total assets 50 481 2 662 8 595 18 805 45 334 125 877

Liabilities Debt to credit institutions 2 373 2 893 4 089 1 764 - 11 119 Deposits from and debt to customers 52 708 162 - 1 437 - 54 307 Debt raised by issuance of securities - 2 668 3 809 31 481 7 699 45 657 Financial derivatives - 353 507 793 376 2 029 Taxes payable - - 22 - - 22 Deferred tax liabilities - - 94 - - 94 Operations to be sold 55 - - - - 55 Other liabilities 2 458 - - - - 2 458 Subordinated loan capital - - - - 4 170 4 170 Total liabilities 57 594 6 076 8 521 35 475 12 245 119 911

NOTE 33 MAXIMUM CREDIT RISK EXPOSURES (fi gures in NOK million)

Maximum credit risk exposure for balance sheet components, including derivatives. The exposure is shown excluding collateral security lodged and permitted off-sets.

Parent company The Group

2006 2007 2008 2008 2007 2006 Assets 834 2 622 6 998 Cash and balances at central banks 6 998 2 622 834 2 585 6 489 5 920 Loans to and deposits with credit institutions 1 416 3 357 170 74 656 84 647 95 163 Loans to and receivables from customers 99 630 88 090 77 297 3 961 5 724 4 181 Securities - held for trading 4 337 5 897 4 005 127 127 92 Securities - at fair value with value change through profit or loss 92 127 127 - - 5 048 Securities - held to maturity 5 048 - - 478 897 4 848 Derivatives 4 842 897 478 2 4 2 Securities – available for sale 2 9 8 1 634 2 021 2 672 Other assets 3 512 2 268 2 116 84 277 102 531 124 924 Total assets 125 877 103 267 85 035 (continuation note 33)

Liabilities 1 395 1 282 1 800 Contingent liabilities 2 458 2 016 1 935 14 566 18 041 14 343 Unutilised credit lines 14 343 18 041 14 566 1 899 3 515 1 222 Loans approved not disbursed 1 223 3 682 2 022 17 860 22 838 17 365 Total financial guarantees 18 024 23 739 18 523

102 137 125 369 142 289 Total credit risk exposure 143 901 127 006 103 558

Credit risk exposure on financial assets distributed by geographic area

Parent company The Group

2006 2007 2008 Banking activities 2008 2007 2006 67 511 78 385 89 167 Rogaland 88 592 74 622 67 374 6 010 7 648 9 004 Agder counties 9 332 7 864 6 112 3 007 3 643 5 896 Hordaland 6 335 3 861 3 210 285 266 364 Abroad 365 3 577 433 2 896 5 837 6 322 Other 6 932 6 413 3 288 79 709 95 779 110 753 Total banking activities 111 556 96 337 80 417

Markets activities 2 988 4 174 6 968 Norway 7 124 4 352 3 038 557 1 148 1 839 Europe/Asia 1 839 1 148 557 545 533 516 USA 516 533 545 4 090 5 855 9 323 Total markets activities 9 479 6 033 4 140

478 897 4 848 Derivatives 4 842 897 478

84 277 102 531 124 924 Total distributed by geographic area 125 877 103 267 85 035

NOTE 34 CREDIT QUALITY PER FINANCIAL ASSET CLASS (fi gures in NOK million)

The credit quality of financial assets is dealt with by the bank applying its internal guidelines for credit rating. The table below shows the credit quality per financial asset class for loan-related assets recognised in the balance sheet, based on the bank’s own credit rating system.

Parent company Neither matured nor written down Matured and Lowest Low Medium High Highest individually 2008 risk risk risk risk riskwritten Total Loans Loans to and deposits with credit institutions 5 920 - - - - - 5 920 Loans to and receivables from customers - Retail market 40 395 9 183 580 66 207 241 50 672 - Corporate market 11 675 17 715 11 244 754 1 663 908 43 959 Total loans 57 990 26 898 11 824 820 1 870 1 149 100 551

Financial investments Listed bonds and certificates 5 576 1 568 936 154 100 10 8 344 Unlisted bonds and certificates 544 35 55 21 35 - 690 Total financial investments 6 120 1 603 991 175 135 10 9 034

Total loan-related assets 64 110 28 501 12 815 995 2 005 1 159 109 585 (continuation note 34)

Neither matured nor written down Matured and Lowest Low Medium High Highest individually 2007 risk risk risk risk riskwritten Total Loans Loans to and deposits with credit institutions 6 489 - - - - - 6 489 Loans to and receivables from customers - Retail market 44 903 4 050 1 141 139 16 180 50 429 - Corporate market 8 172 15 481 8 295 1 574 607 194 34 323 Total loans 59 564 19 531 9 436 1 713 623 374 91 241

Financial investments Listed bonds and certificates 2 962 1 193 940 99 175 - 5 369 Unlisted bonds and certificates - - - - 37 - 37 Total financial investments 2 962 1 193 940 99 212 - 5 406

Total loan-related assets 62 526 20 724 10 376 1 812 835 374 96 647

Neither matured nor written down Matured and Lowest Low Medium High Highest individually 2006 risk risk risk risk riskwritten Total Loans Loans to and deposits with credit institutions 2 585 - - - - - 2 585 Loans to and receivables from customers - Retail market 43 225 3 386 1 040 181 140 180 48 152 - Corporate market 6 327 11 632 6 375 1 036 1 031 127 26 528 Total loans 52 137 15 018 7 415 1 217 1 171 307 77 265

Financial investments Listed bonds and certificates 1 047 1 459 956 25 39 - 3 526 Total financial investments 1 047 1 459 956 25 39 - 3 526

Total loan-related assets 53 184 16 477 8 371 1 242 1 210 307 80 791

The Group Neither matured nor written down Matured and Lowest Low Medium High Highest individually 2008 risk risk risk risk riskwritten Total Loans Loans to and deposits with credit institutions 1 416 - - - - - 1 416 Loans to and receivables from customers - Retail market 40 578 9 495 774 126 308 248 51 529 - Corporate market 13 647 19 120 11 680 842 1 758 915 47 962 Total loans 55 641 28 615 12 454 968 2 066 1 163 100 907

Financial investments Listed bonds and certificates 5 617 1 568 936 154 100 10 8 385 Unlisted bonds and certificates 544 35 55 21 35 - 690 Total financial investments 6 161 1 603 991 175 135 10 9 075

Total loan-related assets 61 802 30 218 13 445 1 143 2 201 1 173 109 982 (continuation note 34)

Neither matured nor written down Matured and Lowest Low Medium High Highest individually 2007 risk risk risk risk riskwritten Total Loans Loans to and deposits with credit institutions 3 357 - - - - - 3 357 Loans to and receivables from customers - Retail market 45 151 4 295 1 257 159 50 182 51 094 - Corporate market 8 725 17 153 8 630 1 748 635 222 37 113 Total loans 57 233 21 448 9 887 1 907 685 404 91 564

Financial investments Listed bonds and certificates 3 000 1 193 940 99 175 - 5 407 Unlisted bonds and certificates - - - - 37 - 37 Total financial investments 3 000 1 193 940 99 212 - 5 444

Total loan-related assets 60 233 22 641 10 827 2 006 897 404 97 008

Neither matured nor written down Matured and Lowest Low Medium High Highest individually 2006 risk risk risk risk riskwritten Total Loans Loans to and deposits with credit institutions 170 - - - - - 170 Loans to and receivables from customers - Retail market 43 340 3 500 1 094 190 156 181 48 461 - Corporate market 7 506 12 287 6 689 1 114 1 124 140 28 860 Total loans 51 016 15 787 7 783 1 304 1 280 321 77 491

Financial investments Listed bonds and certificates 1 079 1 459 956 25 39 - 3 558 Total financial investments 1 079 1 459 956 25 39 - 3 558

Total loan-related assets 52 095 17 246 8 739 1 329 1 319 321 81 049

Classification of financial investments: The bonds are allocated to SpareBank 1 SR-Bank’s own risk categories based on external ratings. If a security has an official rating, this must be used, but in cases where official rating does not exist external brokers’ shadow rating is used as the basis for the risk classification. The list below illustrates the link between SpareBank 1 SR-Bank’s risk categories and Standard & Poor’s rating matrix (Long-Term Credit Ratings).

The Bank’s risk category S&P rating Lowest risk AAA, AA+, AA and AA- Low risk A+, A and A- Medium risk BBB+, BBB, BBB- High risk BB+, BB, BB- Highest risk B+ and lower

In Norway, bonds and certificates listed on Oslo Børs’ main list and the ABM (Alternative Bond Market) are defined as listed bonds and certificates. NOTE 35 CREDIT RISK EXPOSURE FOR EACH INTERNAL RISK RATING (fi gures in NOK million)

Average unsecured Average unsecured Average unsecured Parent company exposure as % Total amount exposure as % Total amount exposure as % Total amount 2008 2008 2007 2007 2006 2006 Lowest risk 0,28 57 336 3,85 65 750 2,89 57 429 Low risk 9,45 37 074 10,64 26 411 12,16 19 534 Medium risk 30,25 16 320 13,45 12 048 8,18 13 719 High risk 15,19 384 8,98 2 026 6,19 1 470 Highest risk 28,24 2 020 13,20 841 5,19 1 349 Defaulted and written down 28,91 1 546 4,65 709 33,88 307 Total 7,53 114 680 6,76 107 785 5,78 93 808

Average unsecured Average unsecured Average unsecured The Group exposure as % Total amount exposure as % Total amount exposure as % Total amount 2008 2008 2007 2007 2006 2006 Lowest risk 0,28 59 094 3,80 66 580 2,83 58 699 Low risk 8,94 38 791 9,92 28 328 11,70 20 303 Medium risk 29,14 16 950 12,97 12 499 7,96 14 087 High risk 13,30 532 8,20 2 220 5,84 1 557 Highest risk 25,91 2 216 12,29 903 4,80 1 458 Defaulted and written down 28,31 1 564 4,47 739 32,40 321 Total 7,27 119 147 6,55 111 269 5,62 96 425

SpareBank 1 SR-Bank sets the realisation value of lodged collateral in such a way that the collateral, on a conservative evaluation, reflects the expected realisation value in a cyclical business downturn. For example, collateral in the form of a negative pledge and unlisted shares will, pursuant to the group’s internal guidelines, have no realisation value and are therefore not considered secured. The conservative evaluation implies that the realisation value actually achieved can be higher than the estimated realisation value.

NOTE 36 DISTRIBUTION BY AGE OF DEFAULTED LOANS NOT WRITTEN DOWN (fi gures in NOK million)

The table shows amounts due on loans and overdraft facilities/deposits that are not caused by delays in money transfers, by number of days after due date.

Parent company Less than 31 - 60 61 - 90 More than 2008 30 days days days 91 days Total Loans to and receivables from customers - Retail market 433 70 12 12 527 - Corporate market 184 15 29 57 285 Total 617 85 41 69 812

2007 Loans to and receivables from customers - Retail market 269 71 10 12 362 - Corporate market 18 - 1 13 32 Total 287 71 11 25 394

2006 Loans to and receivables from customers - Retail market 285 30 3 1 319 - Corporate market 93 4 2 7 106 Total 378 34 5 8 425

Of the total amount of gross matured but not written down loans to and receivables from customers, the fair value of the related collateral se- curity totalled NOK 622 million (NOK 357 million and NOK 301 million for 2007 and 2006 respectively) as at 31 December 2008. (continuation note 36)

The Group Less than 31 - 60 61 - 90 More than 2008 30 days days days 91 days Total Loans to and receivables from customers - Retail market 433 70 13 15 531 - Corporate market 184 18 35 68 305 Total 617 88 48 83 836

2007 Loans to and receivables from customers - Retail market 269 72 10 12 363 - Corporate market 22 1 1 13 37 Total 291 73 11 25 400

2006 Loans to and receivables from customers - Retail market 286 30 3 1 320 - Corporate market 97 9 2 10 118 Total 383 39 5 11 438

Of the total amount of gross matured but not written down loans to and receivables from customers, the fair value of the related collateral se- curity totalled NOK 646 million (NOK 363 million and NOK 313 million for 2007 and 2006 respectively) as at 31 December 2008.

NOTE 37 REMAINING CONTRACTUAL TERM TO RUN FOR LIABILITIES (fi gures in NOK million)

Parent company 1) Less than More than 5 2008 On call3 months 3-12 months 1 - 5 years years Total Debt to credit institutions 2 375 2 893 4 089 1 764 - 11 121 Deposits from and debt to customers 53 341 162 - 1 437 - 54 940 Debt raised through issuance of securities - 2 666 3 788 35 157 2 825 44 436 Subordinated loan capital - - - - 4 170 4 170 Total liabilities 55 716 5 721 7 877 38 358 6 995 114 667

Derivatives Contractual cash flows out - 9 917 3 172 5 608 1 442 20 139 Contractual cash flows in - -9 876 -2 985 -5 309 -1 405 -19 575

2007 Debt to credit institutions 1 199 3 604 80 310 620 5 813 Deposits from and debt to customers 49 666 431 694 204 - 50 995 Debt raised through issuance of securities - 4 260 4 892 21 416 5 105 35 673 Subordinated loan capital - - - - 2 739 2 739 Total liabilities 50 865 8 295 5 666 21 930 8 464 95 220

Derivatives Contractual cash flows out - 3 200 2 726 9 394 1 212 16 532 Contractual cash flows in - -3 071 -2 550 -8 604 -1 039 -15 264

2006 2) Debt to credit institutions - 5 328 282 450 - 6 060 Deposits from and debt to customers 39 363 2 260 1 343 177 - 43 143 Debt raised through issuance of securities - 4 556 2 317 17 084 2 109 26 066 Subordinated loan capital - - - - 2 952 2 952 Total liabilities 39 363 12 144 3 942 17 711 5 061 78 221 (continuation note 37)

The Group 1) Less than More than 5 2008 On call3 months 3-12 months 1 - 5 years years Total Debt to credit institutions 2 374 2 892 4 089 1 764 - 11 119 Deposits from and debt to customers 52 714 156 - 1 437 - 54 307 Debt raised through issuance of securities - 2 666 3 788 35 157 2 825 44 436 Subordinated loan capital - - - - 4 170 4 170 Total liabilities 55 088 5 714 7 877 38 358 6 995 114 032

Derivatives Contractual cash flows out - 9 917 3 172 5 608 1 442 20 139 Contractual cash flows in - -9 876 -2 985 -5 309 -1 405 -19 575

2007 Debt to credit institutions 1 198 3 604 80 310 620 5 812 Deposits from and debt to customers 48 885 431 694 204 - 50 214 Debt raised through issuance of securities - 4 260 4 892 21 416 5 105 35 673 Subordinated loan capital - - - - 2 739 2 739 Total liabilities 50 083 8 295 5 666 21 930 8 464 94 438

Derivatives Contractual cash flows out - 3 200 2 726 9 394 1 218 16 538 Contractual cash flows in - -3 071 -2 550 -8 604 -1 033 -15 258

2006 2) Debt to credit institutions 5 296 282 450 - - 6 028 Deposits from and debt to customers 38 767 2 260 1 343 177 - 42 547 Debt raised through issuance of securities - 4 556 2 317 17 084 2 109 26 066 Subordinated loan capital - - - - 2 992 2 992 Total liabilities 44 063 7 098 4 110 17 261 5 101 77 633

1) All amounts are in nominal NOK. 2) Contractual terms to maturity for derivatives are not shown for 2006 as it is impossible to reconstruct the data.

NOTE 38 MARKET RISK RELATED TO INTEREST RISK (fi gures in NOK million)

The table shows sensitivity of net interest cost (interest change of one percentage point) at the end of each of the last three years.

Parent company The Group 2006 2007 2008 2008 2007 2006 Valuta 88 30 NOK 30 8 8 22 2 EUR 2 2 2 22 1 USD 1 2 2

An interest rate risk arises when the group has different interest lock-in periods for its assets and liabilities. The main activities linked to deal- ing in interest rate instruments shall at all times take place within adopted limits and authorities. The group defines, therefore, quantitative goals for maximum potential loss. The commercial risk is continuously quantified and monitored..

The group’s overriding guidelines for interest rate risk define the maximum loss arising from a 1 percentage point change in interest rates. The maximum loss, locally, shall not exceed NOK 30 million on the kroner balance, and within each interest rate period (0-3 months, 3-6 months, 6-12 months, 1-2 years, etc.) the maximum loss shall not exceed NOK 15 million. The maximum net loss due to interest rate risk in currency balances is NOK 8 million. No single currency shall have an inherent interest rate risk in excess of NOK 5 million. NOTE 39 MARKET RISK RELATED TO CURRENCY RISK (fi gures in NOK million)

The table shows net currency exposure including financial derivatives in accordance with definition given by Norges Bank.

Parent company The Group 2006 2007 2008 2008 2007 2006 Currency -91 -9 23 EUR 23 -9 -91 -27 15 1 USD 1 15 -27 - - -7 CHF -7 - - -4 2 1 GBP 1 2 -4 5 -3 -46 Other -46 -3 5 -117 5 -28 Total -28 5 -117

4 - 1 Effect on profit or loss of a 3 % change 1 - 4

Currency risk arises when the group has differences in assets and liabilities in an individual currency. Foreign exchange trading shall always take place within the adopted guidelines and authorities at any time. The group’s limits define quantitative goals for maximum net currency exposure, measured in NOK. The commercial risk is quantified and monitored continuously.

The group has set limits for the net exposure in each individual currency, and limits for aggregate net currency exposure (expressed as the hig- hest of total long and short positions). The net overnight currency risk for spot trading must not exceed NOK 100 million per individual currency and NOK 125 million on aggregate.

NOTE 40 ACTIVITIES TO BE SOLD

SpareBank 1 SR-Bank establishes, as part of its business activity, investment projects for sale to its customers. As at 31 December 2008, the investment projects consist of 2 property companies, Rogaland NæringsInvest V AS and Risavika EiendomsInvest AS. Both projects are to be sold during the first six months of 2009. The items are recognised at fair value.

In the parent company, the projects are recognised at cost price NOK 127 million, less write-down as at 31 December 2008 of NOK 7 million. In the group the projects are consolidated relative to remaining shareholding. As at 31 December 2008, book value in the group was NOK 583 million (NOK 638 million in assets and NOK 55 million in debt), less a write-down of NOK 15 million. In addition, NOK 3 million was charged to profits for 2008. The write-down and share of profits are included in the line income from ownership interests.

NOTE 41 EVENTS AFTER THE BALANCE SHEET DATE

There have been no significant events after the balance sheet date of 31 December 2008 that affect the published consolidated accounts. However it must be pointed out that circumstances arose at the beginning of the year about which special stock exchange reports have been sent:

Voluntary winding up petition of Karmsund Maritime Service AS 10 March 2009. The bank’s total exposure is around NOK 290 million. The situation that has arisen will be reflected in the total loss provisions for first quarter 2009.

Fitch Ratings has adjusted down the rating for SpareBank 1 SR-Bank in a publication 9 March 2009. This has little effect on the bank’s financing ability. NOTE 42 MERGERS

On 20 October, banks in the SpareBank 1 Alliance signed an agreement for the purchase of 100 % of the shares in Glitnir Bank ASA (now BNbank ASA) with the subsidiaries BN Boligkreditt AS, Bolig- og Næringskredit AS and Glitnir Factoring AS for a purchase price of NOK 300 million. In a letter of 4 December 2008, the Norwegian Ministry of Finance granted a concession to conduct the transaction. The purchase price was transferred and the transaction carried out on 5 December 2008. A shareholder agreement has been entered into that regulates the continued operation of BNbank ASA as a joint venture, and SpareBanken 1 SR-Bank group therefore assesses the investment according to the equity method.

The owner distribution in BNbank ASA is as follows:

SpareBank 1 SR-Bank 20 % SpareBank 1 SMN 25 % SpareBank 1 Nord-Norge 20 % Samarbeidende Sparebanker 20 % Sparebanken Hedmark 15 %

An acquisition analysis has been carried out according to the rules in IFRS 3, which has given the following allocation of cost price:

ACQUISITION COST (figures in NOK 1000)

Cost price 60 000 Direct costs in conjunction with the acquisition 1 000 Total acquisition cost 61 000 Fair value of net purchased assets 475 173 Badwill 414 173

The difference between identifiable net assets and acquisition cost is, in accordance with IAS 28, shown as income and included in the year’s share of profit. The amount is taken to income under income from ownership interests.

The group has taken to income NOK 414 million in badwill relating to the acquisition. In addition NOK 7.0 million was taken to income in share of profit from the acquisition date and until 31 December 2008. Plus/minus values relating to deposits, funding and loans are amortised over the average term of the portfolios.

The acquisition analysis undertaken is not considered to be final and changes in the basis may therefore arise in 2009. See also note 15 regarding investment in ownership interests.

STATEMENT FROM THE BOARD OF DIRECTORS AND THE CEO

We declare that, to the best of our knowledge, the annual We also declare that the annual report provides an accurate accounts for the period 1 January to 31 December 2008 have summary of the development, results and the position been prepared in accordance with current accounting stan- of the company and the group, together with a description dards, and that the information in the accounts provides of the key risk factors and uncertain factors faced by the an accurate picture of the company’s and the group’s assets, company and the group. liabilities, financial position and overall results.

Stavanger, 12 March 2009

Kristian Eidesvik Gunn-Jane Håland Birthe Cecilie Jørgensen Chairman of the Board Vice Chairperson

Ingrid Landråk Sally Lund-Andersen Einar Risa Employee representative

Erik Edvard Tønnesen Kåre Hansen Terje Vareberg Chief Executive Officer

AUDIT COMMITTEE’S STATEMENT FOR 2008

The Audit Committee has performed its duties The annual report and accounts that are presented have in compliance with the Norwegian Savings Banks Act been prepared in compliance with the Norwegian Savings and the instructions to the Committee. Banks Act and the regulations issued by Kredittilsynet (The Financial Supervisory Authority of Norway). The The bank’s activities in 2008 were in accordance with Supervisory Board may adopt the profit and loss account the Savings Banks Act, the bank’s Articles of Association and the balance sheet as the bank’s accounts for 2008. and other regulations the bank must comply with.

Stavanger, 6 March 2008

Odd Rune Torstrup Odd Broshaug Siv Gausdal Eriksen Chairman of the Audit Committee

Egil Fjogstad Vigdis Wiik Jacobsen EXPERTISE AT EVERY LEVEL ://PRIMARY CAPITAL CERTIFICATES

PRIMARY CAPITAL • SpareBank 1 SR-Bank’s website: www.sr-bank.no At the end of 2008, SpareBank 1 SR-Bank had primary • Other links for financial information: www.huginonline.no capital of NOK 1,872 million, divided into 74,609,081 outstanding primary capital certificates with a nominal value of NOK 25 each. The number of certificates issued 10 largest primary Per- at the end of 2008 was 74,903,345. Furthermore, capital certificate Number centage the primary capital certificate holders’ capital consists holders as of 31.12.2008 of the equalisation reserve of NOK 838 million Coil Investment 3,791,661 5.1% and the premium reserve of NOK 92 million. Group AS Clipper AS 1,420,536 1.9% SpareBank 1 SR-Bank carried out a dividend issue in April Frank Mohn AS 1,363,263 1.8% 2008 with a subscription amount of NOK 174 million and Trygve Stangeland 1,205,776 1.6% a private placement among employees with a subscription Tveteraas Finans AS 1,096,088 1.5% amount of NOK 10 million. The issues strengthen Laerdal AS 986,300 1.3% the capital base, help to finance the group’s growth and enable interesting business opportunities to be exploited. The Northern 905,845 1.2% Trust Co., UK DIVIDEND POLICY Brown Brothers 800,000 1.1% SpareBank 1 SR-Bank’s financial objective for its operations Harriman, USA is to achieve results that provide a good and stable return Køhlergruppen AS 750,000 1.0% on the bank’s total equity and thus create values for Bank of New York, 712,617 1.0% primary capital certificate holders in the form of competitive USA dividends and an increase in the value of their certificates. The bank’s profit for the year will be divided between the primary capital certificate holders and the savings bank’s FINANCIAL CALENDAR FOR 2009 reserve in accordance with their respective share of the • Ex-dividend date: 27 March 2009 bank’s equity capital. In the proportional distribution • First quarter: 27 April 2009 between cash dividend and equalisation reserve, variations • Second quarter: 12 August 2009 may arise when priority consideration must be given • Third quarter: 29 October 2009 to the bank’s equity growth. Earnings per primary capital • Preliminary accounts for 2009 will certificate were NOK 3.6 in 2008. Based on the bank’s be published in February 2010. dividend policy, the Board proposes that a dividend of NOK 1.00 per primary capital certificate be paid for 2008. OWNERSHIP SpareBank 1 SR-Bank aims to ensure good liquidity in its INVESTOR POLICY primary capital certificates and achieve a good diversity It is crucial to the bank that accurate, relevant and timely of holders who represent customers, regional investors, information about the bank’s development and results as well as Norwegian and international institutions. inspires confidence in the investor market. Information The bank’s holding of its own primary capital certificates to the market is conveyed through quarterly investor pre- remained unchanged in 2008 at 294,264 primary capital sentations, websites, press releases and accounting reports. certificates. At the end of 2008, there were 11,482 registered Regular presentations are also held for international partners, holders of primary capital certificates, an increase of 250 lenders and investors, mainly in London and in Frankfurt. holders compared to the end of 2007. The percentage of primary capital certificates held by foreign nationals was INFORMATION ADDRESSES 7.4 per cent (9.3 per cent), while local investors in Rogaland, SpareBank 1 SR-Bank is accessible via the Internet with Agder and Hordaland held 61.6 per cent (64.7 per cent). information that is of interest to investors, the press as well The 20 largest holders controlled 24.9 per cent (30.2 per as brokers: cent) of the primary capital at the end of the year. ://PRIMARY CAPITAL CERTIFICATES

2008 2007 2006 2005 2004

Regional share 1) 62 % 65 % 63 % 48 % 47 % Other Norwegian holders 31 % 26 % 30 % 33 % 39 % Foreign holders 7 % 9 % 7 % 19 % 14 % Number of holders 11,482 11,232 11,376 10,361 8,080

1) Percentage from Rogaland, Agder and Hordaland. Percentage from Hordaland included as of 2005.

RISK ADJUSTMENT Sales of the bank’s primary capital certificates The adjustment of the taxable opening (original) value for % Norwegian stockholders pursuant to the RISK regulations 40 (Adjustment of opening value of shares based on the change 35 in retained taxed capital) took place for the last time 30 in 2005. Owing to changes to the tax rules, the RISK 25 amount was abolished with effect from 2006. 20 15 Return on the bank’s primary capital certificates in 2008 At the end of 2008, the price of the bank’s primary capital 10 certificates was NOK 32.5, compared to NOK 66.3 the 5 previous year. Including dividends paid, the bank’s 0 primary capital certificates yielded an effective return 2004 2005 2006 2007 2008 of –43,8 per cent in 2008. Certificates sold per year (% of certificates issued)

In 2008, sales of SpareBank 1 SR-Bank’s primary capital certificates corresponded to 29.9 per cent of the number of certificates issued compared to 22.9 per cent in 2007. Return on the bank’s primary capital certificates % CREDIT RATING 80 66,1 In 2008, Moody’s Investor Service maintained the rating 60

for SpareBank 1 SR-Bank of Aa3, however in conjunction 40,0 40,5 40 38,4 with the purchase of Glitnir Bank ASA the outlook changed 32,4 20 11,5

from a stable outlook to a negative outlook. The rating 3,2 on short-term financing was maintained throughout 2008 0 at Prime 1. -20 -40 -11,7 In 2008 Fitch Ratings maintained its rating of SpareBank 1 -60 -43,8 SR-Bank at A (long-term) and F1 (short-term). -80 -54,1 2004 2005 2006 2007 2008

Effective return OSEBX return ://PRIMARY CAPITAL CERTIFICATES

Key Figures 2008 2007 2006 2005 2004

Market price as of 31.12. (NOK) 32.50 66,25 68,41 83,25 52,12 Value for tax purposes as of 1.1. 32.70 56,10 54,44 54,00 33,88 following year (NOK) Dividend per certificate (NOK) 1) 1.00 4,75 4,34 5,07 3,33 Direct yield 3.1 % 7,2 % 6,3 % 6,1 % 6,4 % Effective return 2) -43,8 % 3,2 % -11,7 % 66,1 % 40,0 % Book value per certificate (NOK) 3) 38.5 40,8 34,9 34,3 31,8 Earnings per certificate (NOK) 4) 3.60 7,85 7,78 7,75 5,72 Payout ratio (net) 5) 33 % 84 % 68 % 67 % 61 % Primary capital certificate percentage 6) 56.1 54,9 % 51,0 % 53,0 % 56,3 % RISK amount as of 1.1. n.a. n.a. n.a. 0,65 2,19 following year (NOK) No. of certificates issued as of 31.12. 74,903,345 70 969 909 60 305 560 60 305 560 60 305 560 Own certificates as of 31.12. 294,264 294 264 244 264 157 269 3 827 No. of outstanding certificates as of 31.12. 74,609,081 70 675 645 60 061 296 60 148 291 60 301 733 Certificates traded per year 30 % 23 % 35 % 36 % 27 % (% of issued certificates)

1) Dividend as a percentage of year-end market price. 2) Price increase throughout the year plus paid dividend as a percentage of market price at the beginning of the year. 3) Primary capital, equalisation reserve and premium reserve divided by the number of outstanding certificates. 4) Primary capital certificates’ share of the group’s profit after tax. 5) Dividend as a percentage of allocated profit to primary capital certificate holders. 6) Primary capital, equalisation reserve and premium reserve as a percentage of parent bank’s equity at year-end (excluding allocated dividend, valuation difference fund and unrealised gains fund). As a result of the issue in 2008, the primary capital certificate ratio rose from 54.9 per cent to 56.5 per cent. Applied primary capital certificate ratio for 2008 is 56.0 per cent.

ROGG

EXPERTISE AT EVERY LEVEL KEY FIGURES LAST 5 YEARS (fi gures in NOK million)

SpareBank 1 SR-Bank group 2008 2007 2006 2005 2004 Income statement Net interest income 1 644 1 340 1 128 1 113 1 129 Net exchange gains/losses -234 142 240 192 131 Other operating income 1 072 1 141 879 733 590 Total operating income 2 482 2 623 2 247 2 038 1 850 Total operating expenses 1 453 1 357 1 178 1 012 948 Profit before losses 1 029 1 266 1 069 1 026 902 Losses on loans and guarantees 386 10 -92 -70 81 Result of ordinary activities 643 1 256 1 161 1 096 821 Taxes 163 249 237 234 206 Profit after tax 480 1 007 924 862 615 Minority interests 11 13 10 6 3 Majority interests 469 994 914 856 612

Income statement (percentage of average total assets) Net interest income 1,49 % 1,42 % 1,52 % 1,76 % 2,03 % Net exchange gains/losses -0,21 % 0,15 % 0,32 % 0,30 % 0,24 % Other operating income 0,97 % 1,21 % 1,19 % 1,16 % 1,06 % Total operating income 2,25 % 2,78 % 3,04 % 3,22 % 3,33 % Total operating expenses 1,32 % 1,44 % 1,59 % 1,60 % 1,71 % Profit before losses and write-downs 0,93 % 1,34 % 1,44 % 1,62 % 1,62 % Losses on loans and guarantees 0,35 % 0,01 % -0,12 % -0,11 % 0,15 % Result of ordinary activities 0,58 % 1,33 % 1,57 % 1,73 % 1,48 % Taxes 0,15 % 0,26 % 0,32 % 0,37 % 0,37 % Profit for the year 0,44 % 1,07 % 1,25 % 1,36 % 1,11 %

Volumes Total assets 125 877 103 267 85 035 67 237 59 140 Loans to retail customers 51 529 51 095 48 461 41 890 37 264 Loans to retail customers incl. SB1 Boligkreditt 63 755 56 085 48 864 41 890 37 264 Loans to corporate market 48 101 36 995 28 836 19 922 17 169 Deposits from retail customers 24 511 21 450 19 190 17 464 16 787 Deposits from corporate market 29 796 28 764 23 357 20 066 16 275 Growth in loans to retail customers % 0,8 5,4 15,7 12,4 11,7 Growth in loans to corporate market % 30,0 28,3 44,7 16,0 10,6 Growth in deposits from retail customers % 14,3 11,8 9,9 4,0 5,3 Growth in deposits from corporate market % 3,6 23,1 16,4 23,3 32,1

Equity Primary capital certificate capital 1 865 1 764 1 126 1 128 905 Savings bank’s reserve 2 066 1 970 1 738 1 505 1 198 Equalisation reserve 913 1 114 1 028 990 918 Other reserves 1 110 977 396 200 80 Minority interests 12 16 12 7 5 Total equity 5 966 5 841 4 300 3 830 3 106

Key figures Return on equity % 8,0 19,4 23,1 24,7 20,2 Cost ratio 58,5 51,7 52,4 49,7 51,2 No. of man-years 1 117 1 021 944 862 813 Loss ratio on loans 0,41 0,01 -0,13 -0,12 0,16 Gross non-performing loans as percentage of loans 0,35 0,10 0,14 0,21 0,38 Other doubtful loans as percentage of gross loans 1,27 0,73 0,27 0,54 0,71 Capital adequacy ratio % 9,80 9,77 10,56 11,84 11,57 Core capital ratio % 6,44 7, 35 7, 3 9 8 ,9 8 9,0 8 Average total assets 110 244 94 246 73 997 63 376 55 581 INDEX KEY FIGURES

Number of man-years, the group Profit and loss (NOK million) NOK million 1200 1117

1400 1021

1000 944 1200 862 813 1000 800

800 600 600 400 400 200 200

0 0 -200 2004 2005 2006 2007 2008

2004 2005 2006 2007 2008 Number of man-years, the group

Profit before tax Losses on loans and guarantees

Equity and subordinated loans Loans and deposits (NOK million) NOK million NOK million 12000 120000 10000 100000 8000 80000 6000 60000 4000 40000 2000 20000 0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Subordinated loans Other reserves Loans Deposits Equalisation reserve and allocated Primary to dividend certificate capital The Savings Bank’s Fund

Operating expenses % of average total assets Return on equity % % 2,0 30

25 1,5

20 1,0 15

10 0,5

5 0,0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008

Return on equity HEAD://

SpareBank 1 SR-Bank shall achieve its competitive edge by being the best at attracting, challenging and developing the most competent employees. Our core values ”Courage to speak your mind, strength to create by being able to view things in a long-term perspective, openness and sincerity by showing responsibility and respect for improvement”, run like a thread through everything we do and think on the subject of staff development.

SHOULDER://

Arild L. Johannessen is Executive VP of Organisation and Human Resources. The responsibility entails the assurance that our numerous employees possess the appropriate and necessary expertise to secure our customers’ requirements. In this respect, the quality of our work to ”attract, challenge and develop the most competent employees” is crucial to our success.

KNEE://

Organisation and Human Resources has considerable knowledge regarding management and staff development to enable these to be developed in the best interests of our customers. We work hard to recruit new members of staff who are able to further develop the group with the appropriate future expertise.

TOE://

Organisation and Human Resources consists of several experienced staff members with long service both in their own organisation and in other industries. Together we are working to ensure that the group’s staff are able to do a good job for you the customer, and to ensure that SpareBank 1 SR-Bank is seen as an attractive employer. ://HUMAN CAPITAL

THE INDIVIDUALS WITHIN THE ORGANISATION and we want our employees to be challenged and to grow at all times, through good teamwork. HR STRATEGY SpareBank 1 SR-Bank will achieve its competitive edge ETHICS AND VALUES by being the best at attracting, challenging and developing SpareBank 1 SR-Bank will be perceived as a ”decent bank”, our most talented employees. Our core values ”Courage and our core values help us to cement and build on the to speak your mind, strength to create by taking a long- culture we represent. This year we have upgraded our term perspective, being open and sincere, and by taking ethical guidelines with illustrations to make them easier responsibility and showing respect for improvement”, for our employees to relate to. Our employees will be run like a red thread through all our undertakings known for their accurate and proper advice, ensuring that and considerations concerning staff development our customers maintain their utmost trust in us and that at SpareBank 1 SR-Bank. our long-term relations are built for joint value creation. The core values are deeply rooted in our culture and Throughout 2009 we will have an extra focus on ethical provide the framework for the way in which we conduct learning and training for different ethical dilemmas. ourselves when dealing with our customers and with each Our employees will be well-trained to tackle the ethical other. Our ”core language” contains words such as decent, problems they might encounter whether in conversations safe, reliable, trust and teamwork. We use these words with the customer or in other everyday situations. We live every single day, and we make every effort to achieve by trust, and we remind each other of this every day. our goal of adding value to the region we are part of.

TEAM AND TEAMWORK Most people take it for granted that their workplace will provide job satisfaction and skills development, not to mention capable managers. We take a slightly different view. Our staff will be involved in ensuring that their workplace is a good and exciting place to be. We do this by continuous involvement. At SpareBank 1 SR-Bank, new and exciting projects are continuously underway focusing on innovation, improvements, work processes and know- ledge sharing, to ensure that we are constantly finding good new solutions for our customers, thus using the expertise of our talented staff. We continuously discover new talents within the organisation; some prove to be good managers, some are able to show us new ways of working and some display expertise we had no idea the individual EXPERTISE held. Development occurs primarily in the workplace and The main reason why our employees have chosen happy workers produce good results. Teamwork is a key SpareBank 1 SR-Bank as a workplace is its opportunities word because we believe that we think better together for skills development. A large finance house has a lot to than alone. Safe surroundings provide room for growth offer and the choices are endless. You can choose a career ://HUMAN CAPITAL

path that brings huge professional challenges with SR-Bank: Missionary, Conductor and Gardener. specialisation, climb the ladder within the advisory field, The missionary will convey the organisation’s vision choose management as a career option or combine the two. and values and be a good role model. When you choose It is up to the individual employee. the conductor role, your primary target as a leader Seeds are sprouting every single day in every single corner is to ensure that your team work towards a common goal, of our different business units. Skills are being developed by being clear on all demands and expectations. A good everywhere, in the workplace, in our practical training “gardener” in SpareBank 1 SR-Bank focuses on the programmes for managers, or the Advisor programmes development of each and every one of their employees, where our 650 advisors practice and hone their techniques and it is expected that the leader inspires and motives into sound advice, enabling us together to become even on a daily basis. more adept at understanding our customers’ needs and creating added value in partnership with our customers. The managers at SpareBank 1 SR-Bank who focus on It can be compared to an athlete who is training to become developing good employees and achieving results through two seconds faster, jump two centimetres higher or lift teamwork are highly prized. Managers are our most three kilos more. It requires professional expertise at every important means of driving forth a sustainable development level, which is our way of thinking too. Every single day both at a personal and an organisational level. We offer we will achieve a little more than the day before, and a wide range of management programmes, from senior we will achieve this through plenty of practise, in safe management programmes and talent development program- surroundings and with a good sense of humour in our mes for new managers conducted by the SpareBank 1 everyday lives, and not least through good management. Alliance to Futura management development programmes especially targeted at women, and different internal, tailor-made management development programmes for Vision new or more experienced managers. The goal is to create reliable, business-minded managers who are motivated by developing competent employees.

Strategy CHALLENGES AND MOST

SKILLS IMPORTANT TASKS IN 2009 We have two main aims for 2009. The first is to put our advisors in the retail market through a new authorisation

KNOWLEDGE scheme for financial advisors. The second is to step Laws and guidelinesCOMPETENCE up our focus on following up absence due to sickness ATTITUDES and various preventative measures. We have noticed a tendency towards a slightly higher level of sick leave we Values wish to address this. Our most effective means of achieving this is by following up the individual closely, combined with various activities that may help our staff to deal with an increasingly complex and challenging financial reality.

MANAGEMENT AND ACHIEVEMENTS For us the most important management attribute is that ”We live by trust, and we remind you care about people. The results are often simply a conse- each other of this every day!” quence of this. We have three management characteristics we use as metaphors to describe management at SpareBank 1 ://HUMAN CAPITAL

STÅLE HOFF:// bank manager at SpareBank 1 SR-Bank Bryne Ståle Hoff takes the role of bank manager seriously and shows huge commitment to the local community. He has also managed to create a dynamic team that is characterised by a healthy culture of collaboration and achievement, where the goal is to be the preferred bank in a munici- pality where there is fierce competition. Hoff is also known for his good interaction across the division. The office has recorded excellent profits and is showing healthy growth both in deposits and lending.

SPAREBANK 1 SR-BANK BERGEN:// Bergen performed positively throughout the whole of 2008. Earnings rose substantially, and the number of customers doubled. The staff have been creative and good at spreading their message in the market, e.g. through the media. ”This accolade is important to us and our in-house culture, particularly since we are relatively new to Hordaland. We are certain that the two new offices in Fana and Åsane will help us to maintain this level in 2009,” says financial advisor Kristian Botnen.

ANNE LISE AUKLAND:// bank manager at SpareBank 1 SR-Bank Mandal Anne Lise Aukland is able to see, challenge and impose requirements on the individual employee in a positive way. Together they have developed a performance culture in the office that ensures that they are continuously looking for smarter ways in which to work. As the manager, she is also actively committed to building a common culture with the other depart- ments in the bank. Aukland takes the initiative for social gatherings and is good at highlighting good results and achievements. The staff have clearly expressed that they appreciate her immensely.

THOMAS LIDSHEIM:// bank manager structured financing at SpareBank 1 SR-Bank ”The project’s objective is to gradually change the Corporate market from being a finance house to a knowledge centre as well. This process will take time and require a major contribution from staff and managers as well as challenging our way of managing. We will reap the rewards of the know- ledge the overall organisation possesses and transfer the knowledge from human capital to structure capital,” says Lidsheim. The vision is to enable the Corporate market to live up to the saying “If SR-Bank had known what SR-Bank knows”. HEAD://

The Corporate market division is to be a burgeoning and profitable operation with a strong commitment to the companies in the South and West of Norway. The division serves customers from Hordaland in the north to Aust-Agder in the south and has four regional corporate market departments.

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Tore Medhus is Executive VP of the Corporate market and therefore has overall responsibility for the group’s corporate customers. The responsibility entails finding optimum solutions for our customers through sound and relevant advice, product development and distribution of our services. Moreover the division is responsible for dealing with the risk in the portfolio in a best possible way.

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The Corporate market division has a good solid organisation of competent workers who are experienced in dealing with uncertainty and risk. In 2008 our new Advisor school opened to further develop the division with correct and future expertise.

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The Corporate market division consists of 177 employees. The majority have widespread experience and service both in their own organisation and in other industries. The employees have broad industry knowledge and the division has specialist departments within Construction and Property, PetroMaritime and the public sector. Together we have also acquired a broad solid network amongst the region’s business and industry. ://CORPORATE MARKET

OUTLINE OF 2008: • High level of activity and great demand for our products and services Number Growth in deposits: -4.6% • Good growth and a strengthened market position of customers: 7,770 Gross lending: MNOK 40,142 in all market areas Growth in lending: 29.7% Deposits: MNOK 22,286 • Support for regional business and industry with a growth in lending of 30 per cent • Reinforced focus on close customer dialogue to pinpoint good solutions in a challenging market – in view of the financial unrest and a more investments are being made in e-learning. In the course sober outlook of 2008, the division hired 21 new members of staff • Increase in expertise through establishment externally and nine members of staff internally. of new Advisor School and e-learning • The PRO concept for small and medium-sized companies CUSTOMERS AND MARKETS was launched nationally by the Sparebank 1 Alliance exchange rates during the third and fourth quarters led to an increase in the NOK value of lending in foreign WE CREATE VALUES LOCALLY currencies. A substantial part of the increase in the lending The Corporate market division will be an expanding volume was derived through growth in our new focus and profitable operation with strong links to companies areas in Hordaland and Agder. In these areas combined, in the South and West of Norway. The division serves we have attracted over 1,250 customers, who are served customers from Hordaland in the north to Aust-Agder by 25 advisors. in the south and has four regional corporate market departments and a specialist department within the The Corporate market division saw growth in all customer petro-maritime sector, as well as the group’s 53 branch segments in 2008, and established customer relationships offices. In addition, customers are served through the with almost 1,000 new corporate customers (net) in the internet (www.sr-bank.no) and by our corporate customer course of the year, the majority of which were customers call centre (telephone no +47 02008). SpareBank 1 SR-Bank in the SMB segment. This is an important focus area for has business relationships with almost 13,500 corporate the bank and during 2008 the Corporate market division customers, including the SMB segment (small and medium established separate units to serve customers in the SMB sized businesses). segment in all market areas. SpareBank 1 SR-Bank has

EMPLOYEES The Corporate market division employs 177 man-years. This includes 21 employees at SpareBank 1 SR-Finans AS The Corporate market and nine employees linked to the sale of commercial real division saw growth in all estate at EiendomsMegler 1 SR-Eiendom AS. The Corporate customer segments in 2008 market division has become an attractive and exciting workplace, and 2008 saw the start-up of our new Advisor School. This programme has six different sessions over a period of 18 months. In addition to this, substantial ://CORPORATE MARKET

also continued its market concept for small and medium- as many of our customers as possible can reap the benefits sized companies. “PRO – Because working time is money” of the bank’s range of products and services. has so far been a resounding success and in 2008 was launched nationally by the SpareBank 1 Alliance. Today CREDIT RISK TRENDS over 2,300 customers are served via the PRO concept in The group has developed and actively makes use of state- SpareBank 1 SR-Bank, an increase of some 1,000 customers of-the-art risk classification systems, risk pricing models in the course of 2008. The PRO School programme, which and portfolio management systems to manage the risk aims to increase profitability, expertise and networks, had inherent in the loan portfolio. In conjunction with the some 350 participants throughout the entire market area. credit review procedures, these establish clear require- ments for credit review processes and risk assessments. The group makes every effort to ensure that important financial challenges are efficiently highlighted and, Despite difficult financial markets and increased in collaboration with IRIS and Agder Research, has created uncertainty regarding the future in business and industry, a retail trading report that looks at status, challenges the percentage of high-risk loans remains at a low level. and trends within the retail trade. The report was This portion of the portfolio accounted for 5.8 per cent presented in May 2008 at no less than six local retail against 7.1 per cent in 2007. The bank focuses especially trading seminars from Bergen in the north to Kristiansand on customers in the lowest to medium risk categories, and in the south. Furthermore throughout 2008 we carried has seen a substantial increase in lending volume in these out 15 different ARENA meetings for business customers. risk classes. As a result of increased uncertainty regarding ARENA is a meeting place for trade and industry that the future in business and industry, an increase is expected aims to foster new ideas, professional viewpoints in the level of high-risk commitments. and opportunities for network-building. Some 1,500 participants attended these events. There was an increase in net write-downs of loans in the course of 2008. Throughout the year net losses totalling The Economic Barometer for Rogaland and Agder is NOK 245 million were recorded, which amongst other published in partnership with the county administrations, things reflects the increased uncertainty regarding the Greater Stavanger Economic Development, Innovation future in trade and industry. The year has seen a moderate Norway, the Norwegian Confederation of Trade Unions rise in gross defaults, from a historical low of 0.12 per cent (LO), the Norwegian Labour and Welfare Organisation at the beginning of the year to 0.20 per cent of gross lending (NAV), and the Confederation of Norwegian Enterprise at the end of 2008. A continued moderate increase (NHO). In conjunction with the four publications, we in defaults to a more normalised level must be expected. organise presentations of the barometer, as well as lectures In the course of the year, the division has seen a redistri- in relevant topics for business and industry. The challenges bution of resources to deal with the continuous risk that business and industry faced in 2008 meant that the in the portfolio in a best possible way. Economic Barometer attracted more attention than ever, and also cemented its position as an important management OUTLOOK FOR 2009 tool for this sector. The group is anticipating a challenging year for business and industry in 2009. The outlook is more volatile than PRODUCTS AND SERVICES it has been for a long time, and the shortage of capital Our long history has enabled us to develop a high level as a result of a fraught financial market is expected of expertise in order to satisfy our customers’ needs for to dominate 2009. The unrest that started in the inter- different financing solutions. Recently we have also further national financial markets has had a major impact, developed our expertise within different investment and the downturn in the real economy is likely to affect options for our customers. In this respect, we collaborate trade and industry into 2009. Many of our corporate closely with other parts of the group. customers have already felt the effects of a stagnating global economy. Through our wholly-owned subsidiary EiendomsMegler 1 SR-Eiendom AS, we offer commercial real estate and project The Corporate market division has a sound and efficient brokerage. organisation staffed by competent people who are This company is the market leader in Rogaland. Leasing experienced in coping with uncertainty and risk. and special financing is offered to our customers via The bank aims to maintain a close and open dialogue with SpareBank 1 SR-Finans AS. its customers in the current market. Flexibility, open communication and expertise are essential to a healthy Our overall product and service range to commercial and partnership that will enable both the bank and our business customers in the group now enables us to cover all customers to emerge stronger from a challenging market. our customers’ significant needs within the financial area. In the future we will give priority to promoting this so that HEAD://

The customers are to feel that SpareBank 1 SR-Bank ://RETAIL MARKET takes the relevant initiatives and is available to the customer when required. Effective self-service solutions and a modern customer centre in combination with the branch offices will create values for the customers.

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Rolf Aarsheim is Executive VP of the Retail market and has overall responsibility for the group’s activities in relation to its retail customers. Development of modern products, relevant advice and distribution of the services are included in this area of responsibility.

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Through systematic new recruitment and further training of staff, the group is prepared for mounting customer expectations and more stringent official requirements relating to the sale of financial services.

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Widespread experience in local banking is the group’s basis for meeting the customer’s requirements in his local environment. Over two thousand weekly customer meetings, together with telephone conversations and communication via self-service channels, give the group new experience and knowledge of market developments and customer requirements. OUTLINE OF 2008: • Healthy earnings and profitability in the retail market in spite of radically altered market conditions compared • Number of customers with SpareBank 1 to 2007. SR-Bank as their main bank: 209,000 • Strengthened market position in the young adults • Number of agricultural customers: 2,860 segment. Particular investment gave a net increase • Number of small and medium- of 6.1 per cent in the age group 25 to 34 years. sized companies: 5,576 Re-branding, launch of no fees accounts and special • Number of clubs and associations: 2,617 communications programme were key to achieving this. • Number of customers • Drop in income relating to sales within savings and with savings agreements: 32,016 investments. The income within this area fell by approxi- • Number of customers with mately NOK 80 million compared to the previous year. investments in Odin funds: 48,547 • Growth in lending of 13.4 per cent confirms that • Number of customers with we are still there for our customers. non-life insurance policies: 62,617 • A higher growth in deposits than in lending, despite • Lending (NOK million): 63,738 tough competition for deposit funds particularly in the • Deposits (NOK million): 28,513 second half of the year. The lending margin rose, whilst • Off-balance sheet savings the deposit margin remained consistent with 2007 investments (NOK million): 8,625

WE CREATE VALUE LOCALLY Throughout 2008, stock exchange falls and a more sober outlook led to increased uncertainty amongst to professional advice is further underpinned by a modern our customers. A number of customers consulted with customer centre and an increasingly wide range of services SpareBank 1 SR-Bank’s financial advisors when the on the internet. A forward-looking service range offered stock market fell and unrest was mounting. Customers through the region’s most advanced distribution network approached competent advisors in the bank who, using is considered to be an important reason for the group’s reliable tools, were able to help customers to assess their customer and income growth. own options. The fact that they were present locally made it easier to get in touch. When the unrest peaked amongst EMPLOYEES depositors in the market, the defined lift in the number The Retail market division employs 525 man-years. of customers and deposits in SpareBank 1 SR-Bank In addition, we have 175 employees at EiendomsMegler 1 confirmed our customers’ confidence in the bank. SR-Eiendom AS. The division recruited 95 new employees in 2008. Women account for 50 per cent of the managerial Customers will see that SpareBank 1 SR-Bank takes the positions. relevant action and is available to the customer on request. To this end, we continue to develop the group’s competent CUSTOMERS AND MARKETS advisors through further education, training and the Throughout 2008, increased interest rates and a lower development of effective tools. The distance between the level of activity in the housing market led to a slowdown customer and our nearest offices is short. The proximity of market growth within loans. Housing prices fell back ://RETAIL MARKET

somewhat after a lengthy upturn. Growth in lending in it is transferred to the Corporate market division, which 2008 was 13.4 per cent. Good customer growth in the last offers more specialist expertise. part of 2008 contributed to growth throughout the entire market area, the greatest being in Hordaland and Agder, PRODUCTS AND SERVICES where the group continues to expand. In early 2009 growth The launch of no fees accounts for retail customers was is significantly lower as a result of lower demand in the the largest single restructuring in the group’s product market and the implementation of management initiatives. range in 2008. The new alternatives were well received in the market. ”Sjef.no” was launched in early 2008 and has, The financial crisis gradually resulted in increasingly combined with the increased focus on younger customers, tougher competition for deposit funds throughout the year. yielded favourable results. The deposit interest rates that were offered in the market in the period were to an extent far above the market interest DEVELOPMENTS IN THE CREDIT AREA rate. The deposit margin was marginally reduced from The quality in the portfolio is good. Minimal unemploy- 1.62 to 1.59 per cent compared to 2007. Growth in deposits ment, good wage growth and close monitoring of customers totalled 14.1 per cent, which is considered to be extremely have resulted in low defaults. Gross defaults as a percentage satisfactory in a turbulent market. of lending have been at a low level throughout the year and stood at 0.5 per cent at the end of 2008. Income relating to payments transfers was reduced from NOK 170 million to NOK 153 million (net) compared SpareBank 1 Boligkreditt AS is a stable source of funding to the year before. The main reason is the introduction for secure housing loans. At the end of 2008, SpareBank 1 of a no fee alternative. Income relating to sales of credit SR-Bank had transferred approximately NOK 12.2 billion cards, non-life insurance and currency services is doing to SpareBank 1 Boligkreditt AS. well compared to 2007. OUTLOOK FOR 2009 AGRICULTURE Uncertainty regarding future developments in the financial, Activity within the agricultural sector was high again housing and labour markets dominates households in early in 2008, particularly in mid-Jæren. For the majority 2009. Unemployment is expected to rise and housing prices of productions, the market situation has been good are unstable. On the other hand, many will benefit from throughout the whole year, however substantial cost lower interest rates. The uncertainty is reflected in lower growth led to reduced profitability. Structural changes housing turnover and lower demand for loans. Key to entail increasingly greater requirements of expertise SpareBank 1 SR-Bank is close dialogue with its customers, within agriculture. SpareBank 1 SR-Bank aims to who are in need of advice, whether it is to solve a difficult be the region’s best service for agricultural customers, financial situation as a result of unemployment, and in 2008 the group commenced the distribution or to realise opportunities and dreams. of non-life insurance within agriculture. Huge capacity in the industry with clearly lower market SMB MARKET growth will ensure tougher competition and pressure on The smallest corporate customers are served by the margins on standard services. Nevertheless we have seen Retail market division through the local branch offices. that specialist expertise and our local presence were valued Commitments are distinguished by the fact that the by our customers in 2008. Consequently, market opportunities businesses are organised as sole proprietorships, with for the Retail market division are once again considered a low level of complexity and risk, seen from the bank’s to be promising for 2009. perspective. If the nature of the business changes, HEAD://

The Capital market division’s vision is to be seen as the preferred supplier of capital market products and services in the South and West of Norway.

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Sveinung Hestnes is the Executive VP for Capital Market and has an overall responsibility for the group’s deliveries of products and services within the Capital market. The responsibility comprises the group’s securities business, SR-Markets and the subsidiaries that supply management services and products.

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The core of the division’s knowledge focuses on investment and management services. The division’s operation is largely subject to licence from the Financial Supervisory Authority of Norway which imposes stringent requirements for formal and practical expertise. This expertise, which is largely accumulated over time, has in the past year been supplemented by new expertise from new employees.

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The Capital market division currently consists of 59 people with long and varied experience of banking, finance and commerce. This experience gives the department knowledge and approaches – an expertise that supports the group’s objective to cover the customer’s needs. ://CAPITAL MARKET

OUTLINE OF 2008 • Continued healthy growth and activity in the division • Recruitment of new employees in Corporate Finance • Financial unrest increases demand for interest rate • 59 highly-skilled employees • NOK 10 billion and currency hedging, but has also led to a fall • Required licences under management in the value of securities for securities firms • Growth phase • Clarification of the securities firm, SpareBank 1 SR-Markets • On the whole satisfactory result in view of the financial unrest

VISION The object of the establishment of the Capital market several product areas than its customer share would indicate. division in spring 2007 was to strengthen, further develop The vision for the Capital market division is therefore: and establish products and services that generate income from other activities than traditional banking, such as deposits and loans. This is often referred to as ”other ” The recommended provider income”, and these are important to increase the group’s of capital market services income avenues beyond traditional banking. The Capital and products” market division helps to ensure that the group is able to cover its customers’ needs through a complete product and service range. It makes use of existing expertise CUSTOMERS AND MARKETS and gradually new expertise will be incorporated into this ”Buy, sell, stock exchange crash, financial crisis, stagnation, new division, which supports and complements the current recession, bear, bull, shorting”. These words, and many Retail market division and the Corporate market division. more, have been repeated in the media throughout 2008 In this way the division will underpin and consolidate in the context of the national and global capital markets. the group’s opportunities and results: 2008 was a turbulent year and taught us that the distances from the local to the global are not far indeed. Events in the USA and China have an impact on our region too. ” The aim is to build Western The management environments have seen the effects Norway’s centre of excellence for of unsettled financial markets, and have kept their focus capital market products and services” on close contact with their customers in an unsettling time. Other parts of the operation, including SpareBank 1 SR-Markets, have seen healthy growth and return on parts The group’s vision ”The recommended bank” represents of their operations. a level of ambition that puts us into an attacking position. Even though the group has a substantial number of custom- In 2008, activities linked to organisation and skills ers in Rogaland, there is a huge potential in the entire development have largely concentrated on the introduction market area. This applies also to the ”old market area” of the new regulations governing securities firms (MiFiD), where the group has markedly lower market shares in as well as general activities in the entire market segment. ://CAPITAL MARKET

The Capital market division has NOK 10 billion under The Asset Management area consists of the following management and our operations and activities support companies: SR-Investering AS, SpareBank 1 SR-Forvaltning all of the group’s customers. ASA and Vågen Eiendomsforvaltning AS. These companies carry out respectively, long-term investments in business In 2008, the division’s total profit was around NOK 150 and industry in the group’s market area, portfolio manage- million, down NOK 100 million from 2007. The profit ment largely for external customers and property is considered to be satisfactory in view of market management. The subsidiaries are described in more detail developments in 2008. in paragraph on page 130.

EMPLOYEES AND ORGANISATION OUTLOOK Despite 2008 being a turbulent year, we have strengthened The Capital markets in Norway and internationally have our position by, amongst others, appointing several competent been exposed to unusually severe disruptions in 2008, employees in Corporate Finance. At the end of 2008, the particularly in the second half of the year as the American Capital market division had 59 employees. The division authorities did not intervene when the investment bank believes it will be fully staffed with the required expertise Lehmann Brothers encountered problems. in the course of 2009. Future growth will depend After many years of growth, companies are expected to on the division’s ability to create business in partnership increase their focus on consolidation and costs, and reduce with its customers. In 2008, the division also focused investments. This will apply to the majority of companies on its employees’ expertise in conjunction with the imple- and industries and will lead to lower earnings as a result mentation of the Mifid regulations and introduced sound of reduced growth and fiercer competition. Such procedures to ensure compliance with the regulations. conditions also curb the scope for acquisitions and mergers. The activity in our market areas has been high in recent The division is organised into four areas of expertise: years, largely as a result of high activity in oil-related • Trade/Sales/Operations industries. There are signs of a slowdown. Even though oil • Corporate Finance investments have been high, and are expected to remain • Business development and acquisition high in 2009, there is substantial uncertainty concerning • Asset Management the investment level in the slightly longer term.

The first two areas, Trade/Sales/Operation and Corporate These conditions have meant that early 2009 is dominated Finance, make up the group’s securities firm called by substantially greater uncertainty than in previous years. SpareBank 1 SR-Markets. Unsettled markets have led to greater demand for interest rate and currency trading, including hedging products, Companies that provide investment services, including but the general activity level in the capital market has investment advice and reception and transmission fallen in light of altered financial markets and real of orders for financial instruments, must have a licence economical framework conditions. Overall the Capital from Kredittilsynet (The Financial Supervisory Authority market division, of Norway). This operation will be clearly separated from which exists to put capital to work in the South-West the group’s other operations. of Norway, is expecting 2009 to be a demanding year.

The Business Development and Acquisition unit is responsible for analysis and procurement of the savings and investment products that the group sells in its network. The products are supplied by SpareBank 1 Gruppen AS, the group’s own subsidiaries or external suppliers. HEAD://

SpareBank 1 SR-Bank will have the finance industry’s most ://SOCIAL AUDIT attractive brand. Through its activities, SpareBank 1 SR-Bank will contribute to continued growth and development in Rogaland, Agder and Hordaland.

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Thor-Christian Haugland is Executive VP for Communication. The responsibility entails a total responsibility for the group’s communication, internal and external, as well as the group’s relationship to society, its reputation. Executive VP Communication is responsible for ensuring that the collaboration with the rest of the group across divisions and business units is working satisfactorily with a view to achieving optimum results and strengthening the group as a whole.

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The Communications Department encompasses broad expertise that covers various genre within communication. The combination of staff with expertise within both the printed media and the digital media gives us a good and safe platform from which to face the challenges in the years ahead. We attach importance to ongoing courses and training of each individual employee.

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The Communications Department consists of 9 employees. The combination of highly experienced staff in the group and staff from other industries helps to produce effective and well-though-out solutions. The department is organised in units for sponsorships and endowment funds, external communication as well as internal communication and media handling. WE CREATE VALUES FOR OUR REGION WE PURCHASE GOODS AND SERVICES LOCALLY SpareBank 1 SR-Bank creates significant added values In addition to the direct creation of values, the group’s through its activities. In 2008 we created quantifiable operations also have ripple effects because of our need values worth approximately NOK 1.5 billion. of goods and services from the local business community.

• NOK 445 million (29 per cent) was transferred back In 2008, SpareBank 1 SR-Bank purchased various goods to society via the direct and indirect taxes paid by the and services worth around NOK 710 million. In addition company and its employees, and through endowments to being a large-scale consumer of IT services, the group benefiting the public at large spends substantial amounts on communication (telephony, • NOK 690 million (46 per cent) went to the employees postage and freight) and marketing – both in terms of in the form of net pay, pensions and other remunerations services and material. The large number of buildings we • NOK 224 million (15 per cent) went to our primary capital have in the group’s catchment area need to be maintained, certificate holders in the form of cash dividends which means work for craftsmen of all types. We purchase and allocations to the dividend equalisation fund the majority of goods and services from regional and local • NOK 156 million (10 per cent) was retained by the group suppliers, provided these are considered competitive. (in addition to the provision for the equalisation fund) to support further growth in our market area OUR ACTIVITY IS IMPORTANT TO SOCIETY SpareBank 1 SR-Bank is one of Rogaland’s biggest taxpayers. Approximately NOK 163 million of last year’s profit devolves on society in the form of taxes. These funds are channelled in accordance with a parliamentary Distribution of value creation resolution to the central authorities. Thereafter, the Government distributes the funds among a range of socially 10 % beneficial purposes. The purposes that we help finance are dependent on decisions made by our elected politicians. 29 % In addition to income tax, the group pays substantial amounts in indirect tax and duties, principally employer’s social secu- 46 % rity contributions. This amounts to around NOK 85 million.

JOBS 15 % Around 1,173 employees work at SpareBank 1 SR-Bank. They received a total of NOK 690 million in net pay, pensions and other remunerations in 2008. We are one

Group Owners of the largest employers in the district, and we strive Employees Society to be an attractive employer that attracts knowledgeable and competent people. Our presence as a major locally- based financial institution contributes to the diversity of trade and industry that is necessary in order for our district to remain a pleasant and attractive place to live. ://SOCIAL AUDIT

In 2008, our employees paid a total of NOK 175 million IT IS IMPORTANT THAT WE GIVE in taxes. These taxes are in addition to the NOK 163 million OUR OWNERS A GOOD RETURN paid by the group, and they contribute in turn to the A substantial part of the equity SpareBank 1 SR-Bank needs maintenance of the region’s well-developed public service to conduct its operations is derived by issuing primary sector. capital certificates. Over 60 per cent of this primary capital is held by people, companies and institutions native to WE INVEST IN INITIATIVES THAT BOLSTER Rogaland, Agder and Hordaland. In order to make these THE REGION’S SUSTAINABILITY primary capital certificates attractive to potential holders, SpareBank 1 SR-Bank has set aside a total of NOK 355 it is important that we are able to offer a competitive return. million for purposes benefiting the public at large over Our doing so relies on the consistent creation of healthy the last five years. These funds benefit us all – either results; results that both increase the value of the primary directly or indirectly. The range is vast – from purely capital certificate and that allow us to pay a competitive humanitarian support and non-profit organisations dividend, both in the form of cash and in the form to community building on a larger scale. of allocations to the equalisation fund to secure the payment of a competitive cash dividend also in times Examples of donations in 2008: of weak results. In 2008 a total of NOK 224 million was • Norwegian Championship allocated for primary capital certificate holders, divided in vocational subjects NOK 2,000,000 between NOK 75 million in cash dividends and NOK 149 • The Foundation The Emigrant million to the equalisation fund. Ship ”Restoration” NOK 3,000,000 • Upgrade of sports facilities in Egersund NOK 1,300,000 In 2008, the price of SpareBank 1 SR-Bank’s primary capital • Young Entrepreneurs in Agder NOK 400,000 certificates (ROGG) was affected by the decline in the stock • Business development foundation markets and the weaker economic outlook. The effective in the Bergen region – sustainable return in 2008, including price change and dividend, was -44 business development NOK 9,000,000 - per cent. Thus the decline for ROGG was less than the drop • The Safe Society Foundation both for the Oslo Stock Exchange main index and the – crime prevention initiatives NOK 7,500,000 average amongst Norwegian primary capital certificate banks. • New Astroturf pitch - Skudenes Youth and sports club NOK 400,000 WE ARE PART OF AN ENERGETIC AND DYNAMIC REGION Overall the group donated almost NOK 55 million SpareBank 1 SR-Bank values morality and decency to different community purposes in 2008. as the fundamental pillars of its operation. This means that we are worth trusting. We are a modern and forward- Every single year a huge number of local clubs and associa- looking financial group, available to our customers where tions receive varying amounts to be able to maintain their and in the way that suits them. We care about the region activity level. This support is vital because it adds to the and act responsibly. SpareBank 1 SR-Bank’s focus areas are diversity of the organisation and our cultural life. In 2008 the South and West of Norway. We build on the distinctive the group provided approximately NOK 17 million for our features of this region; enthusiasm, thoroughness organisational and cultural life in the form of sponsorship and an outward-looking perspective. If we are to continue agreements. These funds are charged to the group’s ongoing to contribute to the development of this region we must operations and are additional to the allocations and awards continue to focus on profitability and stability. Therefore that are made via the gift fund. we set aside NOK 305 million of the profit to secure the group the necessary strength for growth in harmony with the region’s development needs. EIENDOMSMEGLER 1 SR-EIENDOM AS

Highly-skilled Employees Key fi gures: The company increased its staff by 10 per cent to 163.2 Sold in 2008: 4,916 properties man-years in 2008. There is a good balance between women worth an aggregate NOK 11 billion and men, and 41 per cent of the company’s management are Total revenue: MNOK 231.5 women. A high level of employee satisfaction and motivated Profi t before tax: MNOK 21.5 staff help to secure good earnings. (MNOK 36.8 in 2007)

Competent staff with a high level of professional expertise are the company’s most important asset, and some 40 employees are now undergoing training as brokers and property brokers, in addition to the 90 members of staff who already have such Purchasing property is an important event for most of us. expertise. This is a high fi gure in our industry. The company EiendomsMegler 1 SR-Eiendom AS’s task is to conduct this makes every effort both fi nancially and in terms of time process properly and expediently. We hope that, by being to ensure that as many as possible acquire the relevant satisfi ed with the job we have carried out, our customers formal qualifi cations. become ambassadors for our enterprise.

Number of homes sold 2005 – 2008 With its 24 offi ces from Grimstad to Bergen, Eiendoms- Megler 1 SR-Eiendom AS is well represented. The business 6000 comprises commercial brokerage, leisure, new builds 5000 and used homes. The company occupies a leading position in several of the towns in Vest-Agder. The company aims 4000 to be the leading property broker in the whole of this region 3000 within a few years. As a step in this direction, Hodne Eiendom AS in Kristiansand was taken over in 2008. 2000 Sales value 2005 – 2008 1000 (NOK billion) 15 0

2005 2006 2007 2008 12

CUSTOMERS AND MARKETS 9 EiendomsMegler 1 SR-Eiendom AS is a major participant in the property brokerage market, and the operation entails 6 contact with a huge number of people in our market area. Throughout the year, around 10,000 families have been 3 in contact with us to buy or sell their homes. We have also been contacted by the many people who enquire about 0 our properties for sale. 2005 2006 2007 2008 ://THE SUBSIDIARIES

The company’s position as the dominant participant Outlook for 2009 in Rogaland was further strengthened in 2008. This also Financial unrest and a weaker fi nancial outlook spell applies within commercial brokerage and sales of new future uncertainty. There is also uncertainty in our region builds/housing projects. regarding how long the high level of oil investments of recent The enterprise in Bergen is running smoothly and will years will persist. Generally weaker growth will squeeze be further consolidated in the year ahead. margins, in turn leading to negative value development for the companies and number of transactions. Expectations for 2009 The property market saw a major downturn in the last quarter Nevertheless, SR-Investering AS continues to see lucrative of 2008, with falling prices and a halving of the number business opportunities. The company is still in the invest- of properties sold, leading to sober expectations for 2009. ment phase, has a long-term perspective and it will therefore Property prices are expected to fall further and a lower take some years before we can begin to reap the rewards number of units sold than in 2008. At the same time the of today’s investments. company has chosen to tackle the uncertainty offensively. There will be no changes to staff numbers, and the business The company is anticipating a satisfactory result in 2009. is to be expanded with new offi ces in Åsane, Fana, Gjesdal Along with the group’s other operations, SR-Investering AS and Farsund. In addition a separate department is being is well-equipped to exploit the opportunities and meet set up for rental properties. The company’s strong market the challenges it will encounter in 2009. position is to be reinforced by an increased presence and visibility. SR-FORVALTNING ASA SR-Forvaltning ASA is a securities enterprise licensed SR-INVESTERING AS to engage in asset management. The company’s objective The company’s objective is to contribute to long-term value is to attract customers with its high level of local expertise creation through investments in business and industry within fi nancial asset management. The company has in the group’s market area. SR-Investering AS was established eleven employees and manages portfolios for SpareBank 1 in 2005 and is a wholly-owned subsidiary of Sparebank 1 SR-Bank and Sparebank 1 SR-Bank’s pension fund, as well SR-Bank. The company became part of the Capital market as portfolios for around 3,000 external customers. The division in 2007. At the end of 2008, the company external customer base comprises pension funds, public had investments and commitments totalling NOK 235 million and private businesses and affl uent private individuals. in 32 companies and private equity funds. In 2008, the loss after tax was NOK -26.7 million. Profi t before tax in 2008 totalled NOK 46.8 million. Total assets were NOK 4.8 billion at the end of the year, NOK SR- Investering AS receives ample investment requests 1 billion of which was under management for SpareBank 1 and has built up a good network with other groups in the SR-Bank and Sparebank 1 SR-Bank’s Pension Fund. region. Network building and cooperation with other parties, external and internal, has been paramount since the start SR-Forvaltning’s operations are based on a conservative in 2005. philosophy and a long-term perspective. Different portfolio models form the basis for the structure and adaptation Financial unrest and falling stock markets also affect of the management of the individual investor’s assets under the activity within Private Equity and SR-Investering AS’ management. The management concept is based on exploiting investment area. The global price fall across industries different investment options in combinations that lead and companies’ different phases is refl ected in the value to higher yields and minimal risk. The goal is to deliver development of the company’s portfolio. good risk-adjusted results to the individual investor. ://THE SUBSIDIARIES

In 2008, existing and new customers invested NOK 700 companies. The majority of customers are based in Rogaland, million in new funds in SR-Forvaltning’s investment however the aim is to be a major market participant both in solutions. During the year, customers withdrew NOK 800 Hordaland and in the Agder counties. In Agder the company million from management. The net change of assets from has two salespersons located in Kristiansand, and there are customers was therefore a reduction of NOK 100 million. two in Bergen, Hordaland. As of April 2008, the company acquired its own agent in Haugesund. The company also has a Total assets dropped by NOK 1.5 billion in the course of 2008 distribution agreement with 12 Samspar banks in the Spare- to NOK 4.8 billion. Reduction in market value of underlying Bank 1 Alliance within the leasing area, which means that around securities amounted to NOK 1.4 billion of the change in total 10 per cent of the company’s leasing volumes relate to cus- assets. Customers’ net withdrawals of assets from SR-Forvaltning tomers outside Rogaland, Hordaland and the Agder counties. totalled NOK 0.1 billion of the change in total assets. Fund manager success, quality of service and a healthy and Owing to the current fi nancial crisis, 2009 is expected to be effective operation are key factors for good earnings in 2009. a consolidation year in terms of volumes. The company’s sales apparatus will work actively with customers who have SR-Forvaltning, development in investment requirements, whilst at the same time work will assets under management, 2004 – 2008 be actively undertaken to fi nd good solutions for customers (NOK billion) 7 who owing to a declining order intake and profi tability need to adjust the planned repayment plans. 6

5 Portfolio distribution 4

3 22 % 17 % 2

1 4 % 0 2 % 5 % 2004 2005 2006 2007 2008 2 % 8 % 4 % SPAREBANK 1 SR-FINANS AS The company’s operation is lease fi nancing to business 5 % 13 % and industry and car loans to personal customers. The profi t 18 % before tax was NOK 46.2 million in 2008. The improved results are largely attributable to volume growth and stable interest rate margin. The result is considered to be satisfac- Rental equipment, commercial services Property management tory in spite of an increase in the company’s loss provisions Transport and overseas shipping for 2008. At the end of 2008, the company had total assets Retail trades, hotels and restaurants Building and construction, power, water supply of NOK 5.0 billion, an increase of 40.8 per cent compared Industry to 2007. New sales have been good both within leasing Extraction crude oil Fisheries/fish farming and car loans. Overall, gross volume of new sales in 2008 Agriculture and forestry totalled NOK 2.5 billion, 28.4 per cent higher than for 2007. Public sector and financial services Retail market

Harmonisation with the bank’s distribution network is a major VÅGEN EIENDOMSFORVALTNING AS factor for the positive development in new sales. Car loans In 2008, Vågen Eiendomsforvaltning AS recorded a pre-tax are sold in their entirety through the retail market area profi t of NOK 2.9 million against NOK 1.5 million in 2007. of the bank, via one-to-one contact between the bank’s The company manages 55 properties at a total value of advisors and our customers. between NOK 4 and 4.5 billion. Caretaker services, business management services and technical operations are available Sales to the corporate market are made partly by the through the subsidiary Vågen Drift AS. The two companies company’s own sellers and partly by the bank’s advisors. combined employ 13 people. Approximately half of the new sales are to customers of both SpareBank 1 SR-Finans AS and SpareBank 1 SR-Bank. In the last six months of 2008, the property market for commer- cial buildings nosedived owing to a marked decline in the At the end of 2008, the company had 38 employees equalling sale and purchase of commercial properties. Nevertheless, the 36.2 man-years, an increase of two employees from 2007. rental market remained buoyant throughout the year, and rental In view of the substantial volume increase, this illustrates prices rose by around 10 per cent. There has been a fair amount how the work to improve and streamline the business of new building in recent years, and around 90,000 square enhances the company’s competitiveness. metres of offi ce space is due for completion in 2009. This is likely to result in more vacant properties in 2009 and pressure The company’s customer base on the corporate side ranges on rentals, particularly for offi ce premises. Turnover of commer- from sole traders and small limited companies to large cial properties is expected to pick up in the second half of 2009. ://CORPORATE GOVERNANCE

Every year, the management and the Board of Directors of SpareBank 1 SR-Bank assess the principles for corporate governance and how these are working in SpareBank 1 SR-Bank. The bank’s policy for corporate governance can be found at www.sr-bank.no. The following description explains how the 15 sections of the Norwegian Code of Practice for corporate governance * are followed up in SpareBank 1 SR-Bank.

*) The Norwegian Code of Practice, published by Norsk utvalg for eierstyring og selskapsledelse (The Norwegian Corporate Governance Board), is available at www.nues.no

Section 1 REPORT ON CORPORATE Separate ethical guidelines have been drawn up based GOVERNANCE on the group’s core values: ”Courage to speak your mind, There are no signifi cant differences between the Code strength to create by being able to view things in a long- of Practice of 4 December 2007 and their implementation in term perspective, openness and sincerity by showing respon- SpareBank 1 SR-Bank. The Code of Practice applies provided sibility and respect for improvement”. More information it is appropriate for savings banks with primary capital about the bank’s core values is available on page 115. certifi cates. The ethical guidelines are clearly communicated throughout Corporate governance in SpareBank 1 SR-Bank comprises the organisation and they defi ne duty of confi dentiality, the objectives and overriding principles according to which competence, confl icts of interest, relationship to customers the group is governed and controlled to secure the interests and suppliers, relationship to media, securities trading, of the primary capital certifi cate holders, the customers insider dealing, relevant private economic matters and and other groups. Governance of the group’s activities shall warning procedures. The guidelines apply to all members ensure prudent asset management and greater assurance of staff and elected representatives in governing bodies. that publicly declared goals and strategies are going to be Deviations from section 1 of the Code of Practice: None. maintained and realised. Section 2 OPERATIONS SpareBank 1 SR-Bank will create values for the region Pursuant to the articles of association, SpareBank 1 SR-Bank’s the bank is part of. The market is updated on objectives object is to manage the funds controlled by the group in and strategies through presentations in conjunction with a prudent manner in accordance with the regulations that the publication of the group’s quarterly results. Read more apply to savings banks. The savings bank can perform all about the group’s objectives and main strategies on page 8. normal banking transactions and banking services in accor- dance with current legislation. Furthermore, the bank can SpareBank 1 SR-Bank wishes to contribute to sustainable provide investment services within the limits of the current social development through responsible business operation. licences. A complete copy of the articles of association The group’s business activities must refl ect fundamental is available on the group’s website. ethical values and show respect for people, society and the In the annual strategy processes, the Board of Directors environment. Through its operations, SpareBank 1 SR-Bank assesses whether the objectives and guidelines set out creates substantial values. In 2008 we created measurable in the strategy are unambiguous, comprehensive and well values of around NOK 1.5 billion. Read more about operationalised and easy to understand for the group’s the bank’s social accounts on page 127. employees. All signifi cant guidelines are available to the group’s employees via SpareBank 1 SR-Bank’s intranet. Deviations from section 2 of the Code of Practice: None. ://CORPORATE GOVERNANCE

Section 3 EQUITY CAPITAL of SpareBank 1 SR-Bank that all primary capital certifi cate As at 31 December 2008, SpareBank 1 SR-Bank had an equity holders are treated equally and that they have the same capital of NOK 6.0 billion. In accordance with stipulated infl uence. All primary capital certifi cates have equal voting calculation rules for capital adequacy for fi nancial institutions, rights. The bank abides by the regulations of the Financial the group had an overall capital adequacy of 9.8 per cent Institutions Act concerning owner and voting rights restrictions and a core capital adequacy of 6.4 per cent. The authorities’ provided the provisions apply to savings banks with primary minimum requirements for such capital adequacy are 8 and capital certifi cates. 4 per cent respectively. The Board of Directors assesses the capital situation on an ongoing basis in light of the company’s In the event of primary capital increases, existing primary objectives, strategies and desired risk profi le. The Board of capital certifi cates shall have pre-emptive rights unless Directors considers the capital adequacy as at 31 December special conditions dictate otherwise. In the event of this, 2008 to be satisfactory. Based on the increased instability such deviation will be justifi ed. in the Norwegian and international economies, and a general recapitalisation of banks internationally, the Board Transactions with close associates of Directors’ ambition in the next few years is to strengthen The group’s ethical rules stipulate that a board member the capital adequacy. must not participate in the discussion and the resolution of matters if the matter may diminish confi dence in that For more details of the capital adequacy regulations (Basel II) party’s impartiality. None of the board members elected see the annual report’s chapter on risk and capital management. by the Supervisory Board must in any way be employed or be carrying out assignments for the group beyond their Dividend position as elected representatives. Each member is obliged The Board of Directors has adopted a clear and predictable to ensure that he or she is not to be declared incompetent dividend policy. The dividend policy is reproduced dealing with a particular case. in the annual report’s article about primary capital certifi cates page 108. SpareBank 1 SR-Bank’s economic objective For the group’s other employees, transactions with close for its operation is to achieve results that yield a healthy and associates are fully dealt with in and regulated by the group’s stable return on the bank’s total equity, thus creating values ethical guidelines. for primary capital certifi cate holders in the form of a com- petitive dividend and increase in value of the primary capital In the event of material transactions between the SpareBank certifi cates. The bank’s Supervisory Board decides the annual 1 SR-Bank group and primary capital certifi cate holders, dividend based on proposals made by the Board of Directors. board members, senior employees or close associates, unless When determining dividend, the anticipated results are taken this concerns matters that are dealt with by the Supervisory into account, as well as external framework conditions Board, the Board of Directors must ensure that a valuation and core capital requirements. is carried out by an independent third party. Deviations from section 4 of the Code of Practice: None. Repurchase The Board of Directors of SpareBank 1 SR-Bank has the Section 5 FREELY NEGOTIABLE SHARES authority to purchase its own primary capital certifi cates for The Bank’s primary capital certifi cates are listed on the up to 10 per cent of the primary capital. In accordance with Oslo Børs Stock Exchange and may be freely negotiated. The the authority, primary capital certifi cates can be purchased articles of association contain no restrictions on negotiation. in the market through the stock exchange. Primary capital Deviations from section 5 of the Code of Practice: None. certifi cates can be purchased for between NOK 25 and 150 each. The authority is valid for 1 year from the decision being Section 6 GENERAL MEETINGS made at the Supervisory Board’s meeting on 27 March 2008. A savings bank is in principle a self-owned institution and The authority is proposed renewed each year. the management structure and composition of the governing bodies differ from those of limited share companies, cf. Capital increase section 7 of the Savings Banks Act (Norway) regarding which At the beginning of the year, the Board is authorised to carry bodies a savings bank must have – supervisory board, audit out a capital increase of up to NOK 177,424,750. The author- committee and board of directors. ity was granted by the Supervisory Board in a meeting on 30 October 2008 and is valid for 1 year. The Supervisory Board’s principal task is to supervise the Board of Director’s and the CEO’s management of the group. Moreover, the Board is authorised to carry out a capital The Supervisory Board of SpareBank 1 SR-Bank is statutory increase of up to NOK 50 million to implement a private and consists of 40 members, 16 of which represent the placing of primary capital certifi cates to the bank’s employees. primary capital certifi cate holders, four from the county The authority was granted by the Supervisory Board councils in Rogaland, Hordaland and Aust- and Vest Agder, in a meeting on 27 March 2008 valid for two years. ten are customers and ten are employees. The members are Deviations from section 3 of the Code of Practice: None. elected for four years at a time. Pursuant to the legislation, it is considered important that the elected members together Section 4 EQUAL TREATMENT refl ect the savings bank’s customer structure, other interest OF SHAREHOLDERS groups and social function. In the case of a savings bank that It is paramount to the Board of Directors and the management has issued negotiable primary capital certifi cates, at least ://CORPORATE GOVERNANCE

one-fi fth and no more than two-fi fths of the Supervisory has an employment contract with or an assignment Board’s members must be elected by the holders of primary for the group above and beyond that of being an elected capital certifi cates. offi cer. For a brief CV of the Board members, see page 38, which is also available at www.sr-bank.no. The list on page The Supervisory Board shall, amongst other things, adopt 150 shows the number of primary capital certifi cates owned the group’s annual accounts, raise subordinated loans by the members of the governing bodies as at 31 December and give power of attorney to carry out increases in capital, 2008. Board members are encouraged to own primary capital distribute endowments for public benefi t and nominate certifi cates in the bank. members to the bank’s elected bodies and determine their Deviations from section 8 of the Code of Practice: None. remuneration. The Chairperson of the Board and the auditor attend meetings of the Supervisory Board. Section 9 THE WORK OF THE BOARD OF DIRECTORS Furthermore, a meeting is held every year for holders The Board of Directors has the overriding responsibility of primary capital certifi cates at which representatives are for the management of the SpareBank 1 SR-Bank group elected to the Supervisory Board and a report on the group’s and will manage the group’s activities in accordance with fi nancial position is presented. All holders of primary capital laws, the articles of association and resolutions of the certifi cates with known addresses receive written notice of Supervisory Board. The Board of Directors is responsible for the meeting by post. Each primary capital certifi cate entitles ensuring that the funds controlled by the group are managed the holder to one vote. All primary capital certifi cate holders in a prudent manner. The Board of Directors is to keep may attend the meeting and votes may be cast by proxy. abreast of the group’s fi nancial position and development. Deviations from section 6 of the Code of Practice: SpareBank 1 This includes budgets and prognosis for the group. Strategy SR-Bank adheres to the Savings Banks Act’s provisions processes are implemented annually and the fi nal product regarding the savings bank’s bodies. is a three-year business plan for the group with overriding objectives, strategy, budget and prognoses. The Board of Section 7 NOMINATION COMMITTEE Directors is involved throughout the entire strategy process. SpareBank 1 SR-Bank’s Nomination Committee is statutory and comprises fi ve members elected from among members The Board of Director’s responsibility, review and reporting of the Supervisory Board. Primary capital certifi cate holders of risk management and internal control is described on page are represented by two members and the customers, publicly 137. See also section 10. elected members and the employees are represented by one member each. Further information on the members The work of the Board of Directors is governed by separate is available on the bank’s website. No member of the Board or written rules of procedure. The Board sets annual calendars representative of management is a member of the Nomination for meetings and work plans. The agenda for each Board Committee. The Nomination Committee proposes candidates meeting is fi xed by the Board’s chairperson in collaboration on the basis of stipulated criteria and proposes remuneration with the management of the bank on the basis of the annual to members of the Supervisory Board, the Board of Directors, work plan. It is paramount that board meetings are well the Audit Committee and the Nomination Committee. The prepared and that all members are able to take part in the Committee is elected for two years at a time. The Nomination decision-making processes. The Board of Directors carries Committee submits its recommendation to the bank’s out an annual review of its own working methods. Every Supervisory Board for election of the members of the Board year, the Board of Directors determines instructions of Directors and the Audit Committee. The recommendation for the CEO. A deputy chairman is elected to chair meetings contains the Nomination Committee’s reasoning and relevant in instances where the Chairperson of the Board can not information about the candidates’ background. or should not chair the Board’s work. Deviations from section 7 of the Code of Practice: All members of the Nomination Committee are elected from The Audit Committee among the groups that are represented on the Supervisory The Board of Directors of SpareBank 1 SR-Bank has an audit Board, pursuant to regulations governing nomination committee that consists of four of the Board’s members and committees in savings banks. Currently, expanding that normally meets fi ve to six times annually. At least one the committee with a member who is not a member of the committee’s members must have relevant accounting of the Supervisory Board is not considered necessary. or auditing expertise. The audit committee’s objects, tasks and functions are stipulated in accordance with international Section 8 SUPERVISORY BOARD AND BOARD rules and EU’s auditing directive. The audit committee reviews OF DIRECTORS, COMPOSITION AND e.g. the drafts for the quarterly and annual accounts prior INDEPENDENCE to discussion by the Board of Directors. In its review of the See section 6 for information about the Supervisory Board. accounts, the Committee has discussions with the management and external auditor. The Committee shall also monitor The Board of Directors has seven members, including one whether the operation’s internal control system, risk manage- member elected by and from among the employees. ment systems and internal audit are working satisfactorily The chairperson and the members of the Board of Directors and in conjunction with this shall hold regular meetings with are elected by the Supervisory Board for two years at a time. the internal and external auditors. The Committee is a sub- The Chief Executive Offi cer is not a member of the Board. committee of the board of directors and a combined board None of the Board members elected by the Supervisory Board has the overall responsibility and takes the fi nal decision. ://CORPORATE GOVERNANCE

Compensation Committee Board members receive an annual compensation that The Board of Directors of SpareBank 1 SR-Bank has is stipulated by the Supervisory Board. The Board members’ a compensation committee consisting of three of the Board’s fee is not linked to profi t or the like. None of the Board members and that normally meets three to four times members elected by the Supervisory Board has assignments a year. The Compensation Committee prepares the treatment for the company above and beyond Board membership. of principle issues relating to salary level, bonus systems, More information regarding compensation and loans pension terms, employment contracts and so on for senior is set out in note 10. employees of SpareBank 1 SR-Bank and shall assist the Board in drawing up a remuneration scheme for the Chief Executive The Chief Executive Offi cer’s salary and other remuneration Offi cer. are fi xed by the Board of Directors following prior discussion Deviations from section 9 of the Code of Practice: None. by the Compensation Committee. Guidelines for remunera- tion to senior employees are presented to the Supervisory Section 10 RISK MANAGEMENT Board for information. Further details about salary and remu- AND INTERNAL CONTROL neration of senior employees is provided in note 10. Risk management in SpareBank 1 SR-Bank underpins the group’s strategic development and performance. Risk The group’s employees are encouraged to own primary management shall also ensure fi nancial stability and prudent capital certifi cates in the bank, ref. board authority regarding asset management. SpareBank 1 SR-Bank strives to have employee issues in section 3. a strong organisational culture that is characterised by high Deviations from sections 11 and 12 of the Code of Practice: None. awareness of risk management. SpareBank 1 SR-Bank has therefore established clear core values and ethical guidelines Section 13 INFORMATION AND COMMUNICATION that are well communicated and publicised throughout SpareBank 1 SR-Bank makes every effort to ensure that the entire organisation. correct, relevant and timely information about the group’s performance and results inspires investor market confi dence. Paramount to SpareBank 1 SR-Bank is impartiality in risk Information to the market is distributed through quarterly management, and the responsibility for risk management is investor presentations. Regular presentations are given to therefore shared between different roles in the organisation. international partners, lenders and investors. All reporting The Board of Directors of SpareBank 1 SR-Bank is respon- is based on openness and equal treatment of players in the sible for ensuring that the group has a subordinated capital securities market. The group’s fi nancial calendar is published that is appropriate on the basis of the adopted risk profi le on the bank’s website. All quarterly reports, press releases and mandatory requirements. The group’s Board stipulates and presentations are available at www.sr-bank.no. the overriding objectives such as risk profi le, projected return Deviations from section 13 of the Code of Practice: None. and how the capital is to be distributed between the different business areas. The Board also stipulates the overriding Section 14 TAKE-OVERS limits, authorities and guidelines for risk management in the The ownership structure of a savings bank is regulated group. The Board of Directors has adopted ethical rules that by legislation. Noone can own more than 10 per cent contribute to awareness of and compliance with the ethical of the savings bank’s primary capital. standard set out for the group. If more than this is acquired, permission must be sought from Kredittilsynet (The Financial Supervisory Authority The internal auditor is an instrument used by the Board of Norway). A list of the 20 largest primary capital certifi cate and by management to monitor whether the risk management holders in SpareBank 1 SR-Bank is available on the bank’s process is appropriate, effective and works as intended. The website www.sr-bank.no. internal auditing function is carried out by Ernst & Young, Deviations from section 14 of the Code of Practice: Statutory thus helping to secure the requisite specialist expertise. ownership restrictions.

The internal audit carries out operational audit of offi ces Section 15 AUDITOR and business areas in the SpareBank 1 SR-Bank group. An external auditor is elected by the Supervisory Board The audit’s risk assessments form the basis for the areas and carries out the fi nancial audit. The external auditor that are to be reviewed. Special audit reports are prepared attends board meetings at which the annual accounts with results and proposals for initiatives that are presented are dealt with and submits an audit report to the Supervisory to the appropriate manager and the group’s management. Board and the Audit Committee. The Board of Directors A summary of the reports is sent every four months to the informs the Supervisory Board of the auditor’s remuneration Audit Committee and the Board of Directors. The internal in a meeting. The external auditor is not engaged in providing auditor presents an annual plan to the Board of Directors any advisory services to the group of any signifi cance. for implementation of the audit work. Any advisory services provided by the external auditor must be within the limits set down in section 4-5 of the Audit and For further information about risk management and internal Auditors Act (Norway). Specifi ed auditor’s fees for fi nancial control, see page 137. audit and services other than audit are shown in note 9. The Deviations from section 10 of the Code of Practice: None. Board of Directors holds an annual meeting with the external auditor without the general manager or others from Sections 11 and 12 REMUNERATION TO THE the day-to-day management being present. BOARD OF DIRECTORS AND SENIOR EMPLOYEES Deviations from section 15 of the Code of Practice: None. HEAD://

The risk management environment will contribute ://RISK AND CAPITAL MANAGEMENT to an effective and prudent risk management in the group.

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Frode Bø is Executive VP Risk Management and Compliance and is responsible for ensuring that the group has a risk management that contributes to enhanced value creation, financial stability and prudent asset management. The department is responsible for the development and implementation of risk management systems, risk reporting and monitoring that the group complies with official laws and regulations.

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The risk management centre at SpareBank 1 SR-Bank is one of the leading centres of excellence in Norway. The staff are highly academically qualified, and the centre works in close partnership with the SpareBank 1 Alliance and the academic risk centre at the University of Stavanger to secure the exchange of experiences and development of expertise.

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The risk management environment has varied experience both from business and industry and banking/finance. The environment works closely together with the business units to achieve a strong organisational culture that is characterised by high level of awareness of risk management in the group. The core activity of the banking industry is to achieve elements that reflect the manner in which the Board value creation by taking conscious risks. Therefore of Directors and the management govern the group. SpareBank 1 SR-Bank invests substantial resources The main elements are described below. in further developing risk management systems and processes in line with leading international practice. STRATEGIC TARGETS The risk and capital management is based on the group’s The object of SpareBank 1 SR-Bank’s risk and capital strategic targets and business plan. Strategic targets are management is to underpin the group’s attainment of its described in more detail in page 8. strategic objectives, ensure financial stability and provide satisfactory asset management. ORGANISATION AND ORGANISATIONAL CULTURE SpareBank 1 SR-Bank aims to have a strong organisational The group’s risk is quantified, for example, by calculating culture characterised by high awareness of risk manage- expected losses and the need for risk-adjusted capital to ment. The organisational culture embraces management cover unexpected losses. Expected losses are an indication philosophy and the people in the organisation with their of the amount of losses that, statistically, must be expected individual attributes such as integrity, basic values and over a 12-month period. Risk-adjusted capital describes ethical attitudes. An inadequate organisational culture can how much capital the group believes it needs to cover hardly be compensated for by other control and manage- the actual risk the group has assumed. ment initiatives. SpareBank 1 SR-Bank has established a clear value base and ethical guidelines that are clearly The return on risk-adjusted capital is one of the most communicated and publicised throughout the entire important strategic targets in the internal management organisation. of SpareBank 1 SR-Bank. This means that the business units are allocated capital in accordance with the estimated Paramount to SpareBank 1 SR-Bank is impartiality in risk risk of their activities and that their return on capital management, and the responsibility for risk management is monitored on an ongoing basis. is therefore distributed between different roles in the organisation: The group has stipulated that initially the risk-adjusted capital shall cover 99.9 per cent of unexpected losses. For the ownership risk in SpareBank 1 Gruppen AS, a confidence level of 99.5 per cent has been selected based SpareBank 1 SR-Bank aims on statistical methods for calculating risk-adjusted capital to have a strong organisational in addition to qualitative assessments. culture characterised by high awareness of risk management. To ensure an effective and adequate process for risk and capital management, the framework is based on different ://RISK AND CAPITAL MANAGEMENT

The Board of Directors of SpareBank 1 SR-Bank is responsi- regulations and credit review procedures. The Credit ble for ensuring that the group has primary and subordina- Committees place special emphasis on the identification of ted equity suited to the group’s objectives, strategy and risk risk associated with the individual application and conduct profile, and that in addition satisfies official requirements. a separate independent assessment of credit risk, where The group’s Board of Directors adopts the overall objecti- the consequences of the different risks for the group are ves such as risk profile, rate of return and how the capital clarified. is to be distributed across the different business units. The Board of Directors also determines the overall limits, RISK IDENTIFICATION authorisations and guidelines for risk management in the The risk identification process is forward-looking group. The Board of Directors has adopted ethical rules and covers all the group’s significant risk areas. promoting the awareness of and compliance with the ethical standards set out for the group. RISK ANALYSIS Thorough analyses of identified risks are carried out in The CEO is responsible for the overall risk management order to understand the characteristics of the risks and to and is thus responsible for ensuring that efficient risk assess the effect of the established control and management manage-ment systems are implemented in the group. initiatives. New improvement initiatives are implemented The CEO is also responsible for delegation of authority for areas in which the effect of the established control and and for reporting to the Board of Directors. management initiatives are considered unsatisfactory.

The managers of the business and support units are RISK MANAGEMENT STRATEGIES responsible for the day-to-day risk management within The risk management strategies describe how the group their own area of responsibility, and they must at all times is to deal with each individual risk. The strategies define ensure that the risk management and the risk exposure the risk profile through, amongst other things, limits is within the limits and overriding management principles for expected losses and risk-adjusted capital. The risk stipulated by the Board or the CEO. strategies are approved by the Board of Directors and reassessed at least once a year. The Department for Risk Management and Compliance is organised independently of the business units and REPORTING AND MONITORING reports directly to the CEO. The department is responsible One important risk management element is the monitoring for the maintenance and further development of the frame- of current risk exposure. The group’s overriding risk work for risk management, including risk models and risk exposure and risk development are monitored through management systems. Further, the Department is responsible periodic risk reports to the management and the Board for independently monitoring and reporting on the risk of Directors. The overriding risk monitoring and reporting exposure, and the group’s compliance with applicable laws are carried out by the Department for Risk Management and regulations. and Compliance.

The internal audit monitors that the risk management RISK EXPOSURE IN SPAREBANK 1 SR-BANK process is appropriate, effective and functions as expected. The financial system in Norway and in other countries The group’s internal audit function is outsourced to Ernst experienced severe disruptions in 2008. The crisis in the & Young. This helps to ensure independence, expertise financial markets entered a serious phase in mid-September and capacity. The internal audit reports to the Board of 2008, when one of the major American investment banks Directors. The internal audit’s reports and recommendations defaulted. As a result, the flow of credit, including the regarding improvements to the group’s risk management market for loans between banks, suffered a severe blow. are continuously reviewed in the group. The credit spreads in the financial markets have risen, and in particular long-term financing has become substantially The Risk and Capital Management Committee has an more expensive. The financial crisis has had a serious impact overall responsibility to monitor the group’s risk profile, on the real economy with subsequent weak economic funding and capital adequacy situation. The Committee growth and major uncertainty linked to future developments also deals with drafts for risk strategies, capital allocations, in the Norwegian and international economies. validation reports and recommends new risk models. The Risk and Capital Management Committee has a broad The financial crisis has made comprehensive measures composition with senior employees from the business units necessary. The authorities in Norway and in other countries and from risk and capital management. have implemented such measures to stimulate increased activity. Experiences from past economic downturns The Credit Committees are responsible for submitting have shown that the region of Rogaland is able to deal an impartial recommendation to the authority holder. In with the challenges of the current climate. The business their recommendations, the Credit Committees make an environment in the region is among the most competitive assessment of the loan and credit applications in accordance in Norway, and over time this has made the region highly with the current credit strategy, credit policy, loan granting innovative and adaptable. ://RISK AND CAPITAL MANAGEMENT

SpareBank 1 SR-Bank is exposed to different types of risk, The group uses risk models for risk classification, and the most important risk groups are described below: risk pricing and portfolio management. The risk models are based on three main components: CREDIT RISK is defined as the risk of losses due to counterparties’ inability or unwillingness to fulfil their 1. Probability of default: Customers are classified in obligations towards the group. a default class based on the probability of default during a 12-month period. The probability of default is calculated based on historical data series for key financial figures, as well as non-financial criteria such as behaviour and age. The calculations are based on a long-term average during an economic cycle. Nine default classes (A – I) are used to Credit group the customers according to the probability of default. strategy In addition, the group has two default classes (J and K) for customers with defaulted and/or written down Credit political commitments. guidelines 2. Exposure at default: This is an estimate of what the exposure will be if a customer defaults. This exposure Credit authority regulations consists of lending volume, guarantees and approved, but not drawn limits. Guarantees and approved, but not drawn limits in the corporate market are multiplied Credit processing procedures by a conversion factor of 75 per cent. Approved, but not drawn limits for the retail market are multiplied by a conversion factor of 100 per cent.

Credit risk is managed through the group’s overall credit 3. Loss given default: This is an estimate of how much strategy, and the framework for credit approval is shown the group can potentially lose if the customer defaults in the figure above on his obligations. This estimate takes into account the value of underlying securities, and the costs incurred The group’s credit strategy focuses on risk-sensitive limits by the group in collecting defaulted commitments. These that are set so that they in the most expedient and effective estimates are determined on the basis of empirical data way possible manage the group’s risk profile in the credit over time and must reflect the value in economic down- area. This is achieved primarily by linking the limits turns. Seven classes are used (1 – 7) for classification to expected losses, economic capital and probability according to the degree of loss in the event of default. of default. The group carries out continuous further development To avoid undesired concentration risk, the strategic credit and testing of the risk management system to ensure limits set restrictions linked to exposure and risk profile that this retains a high quality over time. This work at portfolio level, and for different industries and can be divided into two main areas: individual customers. These restrictions are additional to the limits stipulated by the Authorities regarding Quantitative validation: The quantitative validation major commitments. is to ensure that the estimates utilised for probability of default, exposure at default and loss given default retain The group’s credit-policy guidelines impose overriding a sufficiently high quality. Analyses are carried out to instructions for financing of individual liabilities. The assess the models’ ability to rank the liabilities according guidelines are partly general and partly linked to specific to risk (discrimination ability) and the ability to determine financing areas. For example, for financing of property the correct level for the risk parameters. In addition, commitments, minimum requirements are set for equity, the stability in the models’ estimates is analysed. In some pre-sale of housing projects and degree of financing cases, the quantitative validation will be supplemented in relation to rental income on property for rental. by more qualitative assessments if the amount of statistical data is limited. The Board of Directors is responsible for the group’s loan and credit approvals, but delegates within certain limits Application: The system for managing and measuring the credit authorities to the CEO, who in turn may delegate credit risk is tested to be able to assess whether it is well these further within his own authorities. The delegated integrated in the organisation and in the group’s risk credit authorities are linked to a liability’s expected losses management and decision taking. and its probability of default. ://RISK AND CAPITAL MANAGEMENT

The paragraphs below provide a more detailed assessment The graph below shows the percentage volume distribution of the portfolio quality and the development for the lending of liabilities (excluding defaulted and written down portfolio in the parent bank (the retail market and corporate liabilities) within the different risk groups. market portfolio) in 2008. The retail market portfolio includes SpareBank 1 SR-Bank’s mortgage portfolio Risk groups transferred to SpareBank 1 Boligkreditt (the covered bond % 70 company) 60 The graph below shows the percentage volume distribution 50 of liabilities (excluding defaulted and written down 40 liabilities) within the different default classes.

Percentage 30 Default class 20 % 25 10 0 20 Lowest Low Medium High Highest

15 2008 2007

Percentage 10 The table below shows the intervals for anticipated losses 5 as a percentage of the exposure for each of the above mentioned risk groups. 0 A B C D E F G H I Risk groups SpareBank 1 SR-Bank

2008 2007

Risk group Lower limit Upper limit for expected for expected The table below shows the intervals for anticipated losses losses losses as a percentage of the exposure for each of the above mentioned risk groups. Lowest 0,00 % 0,02 % Low 0,02 % 0,34 % Default classes SpareBank 1 SR-Bank Medium 0,34 % 2,15 % High 2,15 % 2,50 % IKKE DESIGNET FERDIG Default class Lower limit Upper limit Highest 2,50 % -

A 0.00 % 0.10 % B 0.10 % 0.25 % The quality in the portfolio is considered to be good. C 0.25 % 0.50 % 85 per cent of the exposure satisfies the group’s internal D 0.50 % 0.75 % guidelines for classification as lowest or low risk. The retail E 0.75 % 1.25 % market portfolio is considered to be very good, and 98 per F 1.25 % 2.50 % cent of the portfolio is classified as lowest or low risk. G 2.50 % 5.00 % H 5.00 % 10.00 % The risk profile has not significantly altered in 2008, I10.00 %-however the second six months of the year showed a tendency towards increasing default probability in the portfolio, partly owing to somewhat weaker developments within parts of the corporate market portfolio linked to the property sector. The liabilities’ probability of default, exposure at default and loss given default, forms the basis for the calculation Slower growth in the Norwegian economy and mounting of each individual liability’s expected losses and thus uncertainty relating to economic growth has meant weaker classification in five different risk groups. In addition, earnings in some business and industry sectors and the group has a separate risk group for customers with generally higher unemployment. This trend is expected defaulted and/or written down liabilities. to lead to weakened credit quality in the near future.

Concentration risk is defined as risk that arises by concen- trating the exposure on an individual customer, industry ://RISK AND CAPITAL MANAGEMENT

or geographic area. The group has a particular focus The overall property portfolio within the corporate market on concentration risk relating to the exposure to major accounts for 17 per cent of total exposure. The property individual customers and to individual industries. portfolio relating to rental consists primarily of centrally located properties with long-term leases and reliable The paragraphs below provide a description of the tenants, and a large part of this portfolio is interest rate concentration risk relating to individual customers, secured. In the property portfolio relating to financing industry and geography. of housing projects, as a main rule there is a requirement of minimum 70 per cent pre-sale. Only a minor part The graph below shows the exposure distributed according of the property portfolio applies to financing of sites, to size of commitment. and the bulk of this is already regulated.

Commitment size Overall portfolio within shipping accounts for 4 per cent of total exposure where a substantial part of the exposure

11 % within this industry is linked to oil-related activities.

9 % The graph below shows the exposure distributed by geographic areas. 64 % 16 % Geography

7 % 6 %

9 % < 10 NOK million 64 % 10-100 NOK million 16 % 100-250 NOK million 9 % > 250 NOK million 11 % 78 %

64 per cent of the bank’s exposure is linked to liabilities that make up less than NOK 10 million. 20 per cent of the exposure is linked to liabilities that make up more than NOK 100 million. However, this part of the portfolio has a lower probability of default than the rest of the corporate Other 7 % Hordaland 6 % market portfolio. Agder 9 % Rogaland 78 %

The graph below shows the exposure distributed by industries. 78 per cent of the exposure is linked to Rogaland, whilst the remaining portfolio is distributed between Agder, Industries Hordaland and other counties. The bank is expected to diversify geographically further in the coming years

12 % as a result of the investment in Agder and Hordaland. 3 % 4 % In addition to the credit risk in the lending portfolio as described above, the group has credit risk through 4 % exposure in securities. This portfolio consists primarily 60 % of low-risk bonds that are held as a liquidity buffer to gain access to loans in Norges Bank. At the end of 2008, this 17 % portfolio amounted to NOK 9 billion, NOK 5 billion of which consisted of bonds that are to be held to maturity. The duration of the portfolio is 2.4 years.

Other 12 % Oil 3 % Shipping 4 % Service sector 4 % Property 17 % Retail market 60 %

The graph shows that 60 per cent of the exposure is in the retail market. The risk attached to this part of the portfolio is considered to be low, both as a result of low probability of default and as a result of good security coverage mainly consisting of security in real estate. ://RISK AND CAPITAL MANAGEMENT

The table below provides an overview of SpareBank 1 The group’s funding primarily stems from customer SR-Bank’s exposure in bonds within the different deposits and long-term debt instruments. Liquidity risk categories. is mitigated through diversification of markets, funding sources, instruments and maturity dates. The figure below The Bond portfolio SpareBank 1 SR-Bank illustrate the diversity in the group’s funding sources as per 31 December 2008.

Of which held to maturity Borrowing sources Category NOK billion Percentage share in NOK billion

1 % 6 % Norwegian Covered 2.8 31 % 1.9 3% bonds 6 % Norwegian Finance 2.6 29 % 1.1 Foreign Finance 2.5 28 % 1.7 Norwegian Industry 0.6 6 % 0.1 Norwegian state/muni- 0.3 3 % 0.2 42 %

cipalities Norwegian Other 0.2 3 % 0.0 34 %

7 % 1 %

The group has a separate risk model for calculating Subordinated loans 6 % Hybrid instruments 1 % Money market 1 % NOK certificates 6 % credit risk in the bond portfolio. Schuldschein 3% NOK bonds 34 % EMTN 42 % F-loans 7 % The group is also exposed to credit risk through the portfolio in SpareBank 1 SR-Finans, and the group’s ownership stake in BNbank ASA. The portfolio in Between 2007 and 2008, the group’s portfolio of debt SpareBank 1 SR-Finans accounts for around 4 per cent instruments rose by NOK 10 billion, an increase of 28 per of total lending exposure. cent. The dept instruments are primarily issued in the Norwegian bond market, which means that the percentage LIQUIDITY RISK is the risk of the group not being able of borrowing from national investors has increased to refinance its debt or not being able to finance growth compared to 2007. The group’s funding is evenly in assets without a substantial increase in costs. distributed between international and national investors.

SpareBank 1 SR-Bank’s financing structure is based The turmoil in the financial markets persisted throughout upon an overall liquidity strategy which is reviewed 2008, making it more difficult for financial institutions and approved by the Board of Directors at least once a year. to finance their lending activitiy. Despite the challenges In the liquidity strategy for 2008, the Board of Directors in the market, SpareBank 1 SR-Bank’s liquidity situation decided to increase the level of conservatism within was satisfactory throughout the year. Customer deposits liquidity management. This entailed a decision to increase are the group’s primary source of funding. For the group the group’s portfolio of liquid assets eligible for repurchase as a whole, customer deposits increased by NOK 4 billion agreements with Norges Bank, and also an increase from 2007 to 2008. Net lending to customers, excluding in the amount of funding with maturity greater than 5 years. transfers to SpareBank 1 Boligkreditt, increased The group’s treasury department is responsible for the by NOK 12 billion in the same period. The deposit-to-loan operative liquidity management, while the Department ratio was reduced from 57.0 per cent to 54.5 per cent for Risk Management and Compliance monitors and reports in 2008. on the utilisation of limits in accordance with the liquidity strategy. The liquidity management is based upon conser- SpareBank 1 Boligkreditt issues covered bonds. vative limits and reflects the group’s moderate risk profile. The transfer of highly-secured mortgage loans to this company reduces SpareBank 1 SR-Bank’s liquidity risk. In 2008 the group transferred net NOK 7.2 billion in mortgage loans to SpareBank 1 Boligkreditt.

At the end of 2008, the group has a liquidity reserve in the form of deposits with Norges Bank and short-term money market deposits equal to NOK 6.8 billion. The group’s buffer capital in the form of liquid assets totals NOK 5.1 billion. In 2009 SpareBank 1 SR-Bank is to refinance NOK 10.7 billion. NOK 3.2 billion stems from repurchase agreements with Norges Bank, making net refinancing requirements, ://RISK AND CAPITAL MANAGEMENT

excluding F-Loans, NOK 7.5 billion. The figure below Ministry of Finance’s swap arrangement for government illustrates the funding portfolio’s maturity profile bonds. . In quantification of the market risk related to as per 31 December 2008. the value of the liquidity reserve portfolio, SpareBank 1 SR-Bank distinguishes between systematic risk (market Funding maturities risk) and unsystematic risk (default risk). Default risk Figures in NOK billion associated with this portfolio is quantified as credit risk. 12 In October 2008, SpareBank 1 SR-Bank decided to 10 reclassify parts of the liquidity reserve to the categories ”hold to maturity” and ”loans and receivables”. The bonds 8 that were reclassified are valued at amortised cost and, 6 for accounting purposes, they are no longer exposed to market risk . The group’s exposure toward systematic risk 4 is regulated through limits determining the maximum 2 investments in the different portfolios.

0 The Department for Risk Management and Compliance 2009 2010 2011 2012 2013 2014 2016 2017 2018+ is responsible for the continuous and impartial monitoring

Funding F-loans Own holding of the group’s market risk. Risk-adjusted capital associated with market risk is measured and monitored according to the Value at Risk (VaR) principle with a 99.9 percent MARKET RISK is the risk of losses due to changes confidence level. The VaR model is an important tool in in observable market variables such as interest rates, determining market risk limits and for capital allocation. foreign exchange rates and other financial instruments. The model is under development and is therefore not used in daily monitoring of market risk. Market risk in SpareBank 1 SR-Bank relates primarily to the group’s long-term investments in financial instruments. OPERATIONAL RISK is the risk of losses as a result In addition, the group is exposed to market risk through of inadequate or failing internal processes or systems, trading in interest rate and foreign exchange instruments, human errors or external events. as well as from activities supporting the group’s core business activities. The group’s market risk is measured The risk strategy for operational risk is approved by the and monitored according to limits subjected to renewal Board of Directors at least once a year. The risk strategy and approval by the Board of Directors at least once a year. sets limits for expected losses and risk-adjusted capital. The determination of the limits is in turn based upon The group has effective risk management and monitoring stress tests and analyses of negative market movements. to ensure that events caused by operational risk are not The group’s market risk exposure is moderate. able to seriously damage the group’s financial position.

Interest rate risk is the risk of losses due to interest rate The group’s framework for management of operational volatility. The group’s interest rate risk is regulated through risk is based upon internationally recognised framework limits determining the maximum loss following a one for risk management (CoSo/CobiT). The group’s process percent parallel change in the yield curve. The funding for identification, quantification and management portfolio’s coupon lengths are mostly short and the group’s of operational risk includes the use of loss data, undesired interest rate risk is low. events and expert assessments. Scenario analyses and statistical modelling are used to calculate the group’s risk Foreign exchange rate risk (FX-risk) is the risk of losses exposure for operational risk. due to volatility in foreign exchange rates (FX). The group measures the FX-risk as the net positions in each currency- The individual business and support units are responsible cross. The FX-risk is regulated through nominal limits for the day-to-day follow-up and monitoring of operational determining the maximum aggregate currency exposure risk. and the maximum exposure in one single currency. The scope of the group’s FX-trading is modest and The group maintains a strong focus on quality and the FX- risk is considered to be moderate. continuous improvement to help to ensure that SpareBank 1 SR-Bank remains a reputable organisation, by focusing SpareBank 1 SR-Bank is also exposed to losses that stem on continuous improvement of the organisation’s overall from changes in the value of investments in financial ability to innovate, perform and produce results. In 2008, instruments such as bonds, certificates and equities. the group began using a separate system for the registration In the course of 2008, the group increased its liquid assets and monitoring of improvement measures. in the form of bonds eligible for repurchase agreements with Norges Bank by NOK 3.6 billion. NOK 1.6 billion Continuous improvement of the quality assurance process of these relate to a covered bond used in the Norwegian for new products is a focus area for the group. In 2008, ://RISK AND CAPITAL MANAGEMENT

SpareBank 1 SR-Bank further developed this process and expansion of activities in terms of product breadth and introduced new risk models and procedures. and geography. Over several years, SpareBank 1 SR-Bank A separate approval committee was set up to secure a broad has given systematic priority to value chain thinking assessment of all real aspects relating to the development and the development of products and services. and introduction of new products. Particularly commissions from the savings and investment The group has a separate system for reporting and moni- area have seen a major drop in 2008 compared with 2007. toring undesired events. All operational events that may The stock market uncertainty in 2008 has reduced result in losses or where losses have arisen are to be commissions both within funds and property projects. recorded. Improvement measures are to be considered and implemented where appropriate. The group works REPUTATION RISK is the risk of a decline in earnings continuously to improve its reporting culture to enable and access to capital owing to declining confidence and it to keep abreast of all significant developments. reputation in the market, i.e. customers, counterparties, the stock market and the authorities. OPERATIONAL RISK is generally increasing in society and SpareBank 1 SR-Bank is making every effort to SpareBank 1 SR-Bank has established an overall communi- increase its expertise in this area in partnership with the cations strategy to ensure that information is conveyed academic environment. In conjunction with this, the group internally and externally in a way that underpins the granted funds for a professorship within operational risk operation’s basic values, objectives and vision. ”Decent at the University of Stavanger in 2006. As an extension bank” is the essential element of the group’s communications of this work, the group and the University of Stavanger took strategy. the initiative to establish a R&D project in collaboration with the SpareBank 1 Alliance and DnB NOR. The object SpareBank 1 SR-Bank has implemented a process of the project is to establish Norway and Norwegian banks to identify and evaluate the group’s risk exposure for as a European centre of excellence within the management reputation at least once a year. All the reputation risks of operational risk. The project is to develop an operational are evaluated against inherent risk and established control risk management tool that qualifies for use of the Advanced and management measures. Improvement measures Measurements Approach (AMA) calculating the minimum are implemented where necessary. capital adequacy requirements for operational risk. Reputation measurements show that the group’s reputation OWNERSHIP RISK is the risk of SpareBank 1 SR-Bank has been bolstered in 2008. incurring negative results from ownerships in strategi- cally-owned companies and/or the need to provide these STRATEGIC RISK is the risk of losses as a result companies with new equity. The owner companies of erroneous strategic decisions. In SpareBank 1 SR-Bank, are defined as companies in which SpareBank 1 SR-Bank the Board of Directors, the management and the divisions has a significant stake and influence. are involved in the strategy process,. On this basis, strategic targets are drawn up with an associated business For the most part, SpareBank 1 SR-Bank has ownership and action plan. risk through its stake in SpareBank 1 Gruppen (19.9 per cent), SpareBank 1 Boligkreditt AS (23.4 per cent) and The corporate management carries out both a monthly BNbank ASA (formerly Glitnir Bank ASA) (20 per cent). and quarterly evaluation of the group’s achievements The companies’ activities are described in more detail in and strategic direction. the paragraph regarding SpareBank 1 Alliance, at page 9.

SpareBank 1 SR-Bank’s share of the risk exposure COMPLIANCE RISK is the risk of the group incurring in SpareBank 1 Boligkreditt AS and BNbank ASA is thus official sanctions/penalties or financial losses as a result consolidated into the different risk groups in SpareBank 1 of failure to comply with laws and regulations. SR-Bank’s calculations of risk-adjusted capital and in the regulatory capital adequacy reporting. The group strives to have good processes ensuring compliance with current laws and regulations. COMMERCIAL RISK is the risk of unexpected Effective means of achieving this are: fluctuations in revenues and expenses as a result • A clear value base that is clearly communicated of changes in external conditions such as the market and understood in the organisation situation or mandatory regulations. The group is striving • A process to note, communicate and implement to develop a diverse income base, so that any failure within changes in laws and regulations individual product groups or customer segments does • A process to monitor and report on compliance not have significant long-term consequences. Over time, with legislation and regulations the group has developed a cost-effective operation in combination with continuous increase in expertise ://RISK AND CAPITAL MANAGEMENT

Compliance is included in the quarterly and annual Available risk capital in the same period is estimated reporting to the Board of Directors and the CEO. at NOK 6,4 billion.

In 2008 the group has had a particular focus on the new The group’s regulatory capital adequacy ratios are Securities Trading Act (Norway) and MiFID-regulations. A determined on the basis of the selected confidence level comprehensive plan is drawn up for the systematic control for risk-adjusted capital. The selected confidence level of the area, where the object is to ensure compliance with corresponds to a regulatory core capital adequacy the legislation and identify any areas of improvement. of 7 - 8 per cent.

CAPITAL ADEQUACY The graph below shows the development in the capital SpareBank 1 SR-Bank prepares capital plans to achieve adequacy between 2001 and 2008. a long-term and effective capital management and also to ensure that the group has an appropriate capital adequacy on the basis of risk exposure.

The capital plan takes into account both anticipated developments in the next few years and a situation of a serious financial setback lasting several years. Stress tests are carried out of individual factors and scenario analyses where the group is exposed to a number of different negative macro-economic events over several years. In addition, SpareBank 1 SR-Bank has prepared contingency plans to maximise its changes of being able to handle such critical situations should they arise.

The graph below shows the group’s risk exposure for a 12-month period expressed through risk-adjusted capital. The need for risk-adjusted capital is also compared with available risk capital. Risk capital is defined as the group’s At the end of 2008, the regulatory capital adequacy equity with addition of hybrid capital that satisfies given for the group was 9.80 per cent, of which the core capital internally stipulated criteria. adequacy accounted for 6.44 per cent. For the parent bank, the corresponding key figures were 10.74 per cent and 6.86 per cent respectively. As a result of transitional rules in conjunction with the transition to new capital adequacy rules, the groups core capital adequacy on 1 January 2009 was 7.1 per cent.

Due to the disruptions in the Norwegian and international financial markets, and a general recapitalisation of banks internationally, SpareBank 1 SR-Bank will strengthen its capital adequacy in the coming years.

THE CAPITAL ADEQUACY ACCORD (BASEL II) EU’s new directive for capital adequacy was introduced in Norway with effect from 1 January 2007. The regulations build on a new standard for calculating capital adequacy from the Bank for International Settlements (BIS). The object of the capital adequacy accord is to strengthen stability in the financial market through: • More risk-sensitive capital requirements • Better risk management and control • Closer supervision • More information to the market The above graph shows that the group has a risk-adjusted capital of NOK 6,9 billion before diversification effects The capital adequacy regulations are based on three pillars: and NOK 6,1 billion after diversification effects. The Pillar 1: Minimum regulatory capital requirement diversification effect shows the risk-reducing effect Pillar 2: Assessment of total capital requirements by having exposure to different risk areas that cannot and supervisory follow-up be expected to lead to unexpected losses at the same time. Pillar 3: The institutions’ disclosure of information ://RISK AND CAPITAL MANAGEMENT

Pillar 1 – Minimum regulatory capital requirement: important when the banks have more freedom to utilise The new capital adequacy regulation contains different their own systems and methods to calculate the capital methods that the banks can choose between to calculate requirement. the capital requirement. The different methods are shown SpareBank 1 SR-Bank has received approval from in the figure below: Kredittilsynet (The Financial Supervisory Authority of Norway) to use an internal rating method (IRB) for credit

Credit risk Marked risk Operational risk risk with effect from 2007. The bank is approved for use of Basis IRB for the corporate market and the IRB method

Standard method Standard method Basic method for the mass market.

Basic IRB method 1) International Standardised approach For the subsidiary SpareBank 1 SR-Finans AS, there are rating approach 1) plans for a subsequent transition to the IRB method, and

Advanced IRB method 1) AMA-method 1) the portfolio is therefore reported according to the standard method until further notice. The company’s main products 1) These methods require the approval of the supervisory authority are leasing to trade and industry and retail car loans.

SpareBank 1 SR-Bank owns 23.4 per cent of SpareBank 1 For banks that are approved to use internal measuring Boligkreditt AS and 20 per cent of BNbank ASA as at 31 methods (IRB - Internal Rating Based Approach) for credit December 2008. As mentioned above, the portfolios from risk, this means that the statutory minimum requirement these two companies are consolidated into SpareBank 1 for capital adequacy for credit risk will be based on the SR-Bank’s capital adequacy reporting and are reported group’s internal risk assessments. This will make the according to the standard method. statutory minimum requirement for capital adequacy more risk-sensitive, and the capital requirement will be more SpareBank 1 Boligkreditt AS has applied to use the IRB in line with the risk in the underlying portfolios. method for calculating the capital adequacy for the mass market portfolio. Approval is due in the course of 2009. When calculating the capital requirement according When calculating the minimum requirement for regulatory to Basis IRB, calculation of the risk parameter probability capital for operational risk SpareBank 1 SR-Bank uses the of default (PD) is based on separate models, whilst the standardised approach .When calculating the minimum risk parameters conversion factor (CF) used to determine requirement for regulatory capital for market risk, exposure at default and loss given default (LGD), are tem- SpareBank 1 SR-Bank uses the standard method. plate rules stipulated in the capital requirement regulation.

When calculating the capital requirement according to the IRB method for mass market (retail market), separate models are used to calculate the risk parameters’ probability of default (PD), conversion factor (CF) used to determine exposure at default, as well as loss given default (LGD).

Pillar 2 – Assessment of total capital requirement and supervisory follow-up. The pillar is based on two main principles. The banks are to have a process to assess their total capital in relation to risk profile and a strategy to maintain their capital level. The supervisory authorities are to review and evaluate the banks’ internal assessment of capital requirements and strategies. In addition, the supervisory authorities are to monitor and ensure compliance with the mandatory capital requirements. The supervision must implement appropriate supervisory measures if it is not satisfied with the result of this process.

Pillar 3 – Disclosure of information. Pillar 3 is to encourage greater market discipline through a requirement to disclose information enabling the market, including analysts and investors, to assess the institution’s risk profile and capitalisation as well as management and control. The disclosure requirements are particularly AUST-AGDER FINLAND VEST-AGDER Grimstad SWEDEN

ROGALAND Kristiansand NORWAY HORDALAND DENMARK Søgne Mandal Lyngdal Tonstad Farsund Lund Sauda Flekkefjord Sand Vikeså Forsand Jørpeland Fister Sokndal Tau Ålgård Sandnes Stavanger Egersund Ølen Finnøy Vindafjord Rennesøy Kopervik Sola Vigrestad Nærbø Bryne Fana Bokn Aksdal Varhaug Klepp Bergen Tananger Randaberg Kvitsøy Åsane INDEX OFFICESOVERVIEW OF OUR Åkra Haugesund Karmsund Skudeneshavn Årdal CONTACT INFORMATION

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SpareBank 1 SR-Bank Bjergsted Terrasse 1, P.b. 250, 4066 Stavanger

Fax +47 51 57 12 60 Email: [email protected] Website: www.sr-bank.no THE SUPERVISORY BOARD MEMBERS ELECTED FROM (The figures in the brackets state how many primary capital AND BY THE EMPLOYEES certificates the person in question owned in the SpareBank 1 Anne Nystrøm Kvale, Stavanger (10 818) SR-Bank as at 31. December 2008. We have also included Christina R. Lund, Stavanger (8 189) primary capital certificates owned by close family members Frode Handeland, Sandnes (1 599) and known companies in which the person has decisive Hanne Keth Qvale, Sandnes (4 411) influence, cf.Section 1–2 of the Companies. Act. We have Helge Pollestad, Stavanger (790) also included primary capital certificates belonging to the Kirsten Siv Ellingsen, Stavanger (3 208) institution that has elected the person as its representative.) Lars Magne Markhus, Stavanger (23 959) Roar Haualand (4 820) MEMBERS ELECTED BY PRIMARY Tor Ege, Sandnes CAPITAL CERTIFICATE OWNERS Torstein Plener, Stavanger (8 905) Alf Erevik, Ringerike Sparebank, Hønefoss (428 246) Alfred Ydstebø, Coil investment group, Stavanger (3 791 661) THE BOARD OF DIRECTORS Berit Rustad, SpareBank 1 SMN, Trondheim (116 263 ) Shipowner Kristian Eidesvik, Chairman of the Board (62 440) Egil Fjogstad, Solvang Shipping, Stavanger (544 651) Area Manager Gunn Jane Håland, Vice Chairman of the Board Elisabeth Utheim, SpareBank 1 Nord Norge, Tromsø (53 063) Managing leader leder Einar Risa (4 400) Kristin Hedberg, Grasol Invest, Stavanger (156 232) Finance Manager Ingrid Landråk Kristine Tveteraas, Tveteraas Finans, London (1 153 872) Managing Partner Erik Edvard Tønnesen Leif Inge Slethei, Røyneberg (398 756) Finance Manager Birthe Cecilie Jørgensen Magne Vathne, Sandnes, Coop Økonom BA (369 069) Corporate employee representative Sally Lund-Andersen, Olav Linga, Sagvåg Employee representative (426) Olav Stangeland, Tjelta (778 519) Olav Tredal, Sør-Audnedal (3 495) THE AUDIT COMMITTEE Ragnhild Hegre, Sandnes (15 996) Attorney Odd Rune Torstrup, Randi Larsen Skjæveland, Jørpeland (864) Chairman of the Audit Committee (9 900) Torill Stave, Oslo, AS Clipper (1 425 777) Head of Division Odd Broshaug, Deputy Chairman of the Audit Committee Trygve Jacobsen, Stavanger, Westco AS (662 757) Pharmaseutical chemist Siv Gausdal Eriksen (2 529) Exploration Manager Vigdis Wiik Jacobsen (9 900) MEMBERS ELECTED FROM Finance Manager Egil Fjogstad (544 651) AND BY THE DEPOSITORS Brit Elisabeth Bratland, Varhaug GROUP MANAGEMENT Eyvin M. Olsen, Stavanger CEO direktør Terje Vareberg (94 907) Inga Roda, Finnøy Executive Vice President, Jan Moen, Sand Capital Market Sveinung Hestnes (33 112) Jan Olaf Tønnevold CFO Erling Øverland (6 429) Karl Endre Igland, Lyngdal (133) Executive Vice President, Retail Market Rolf Aarsheim (42 128) Lynn Atteraas Erland, Paradis Executive Vice President, Olav Sande, Randaberg Corporate Market Tore Medhus (12 091) Siv Gausdal Eriksen (2 529) Executive Vice President, Communication Svein Kjetil Søyland, Ålgård (2 549) Thor-Christian Haugland (3 037) Executive Vice President, MEMBERS APPOINTED Human Resources Arild Langberg Johannessen (12 872) BY THE MUNICIPALITIES Executive Vice President, Business Support, and development Svein Ivar Førland (7 094) Arne Madland, Kleppe Executive Vice President, Head of Risk Management Olav Haavorstad, Øvrebø and compliance Frode Bø (4 184) Reidun Korsvoll, Sand (880) Robert Erlandsen, Rådal EXTERNAL AUDITOR PricewaterhouseCoopers AS

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