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HEAD:// SHOULDER:// KNEE:// TOE:// EXPERTISE AT EVERY LEVEL HEAD:// 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. SHOULDER:// 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. KNEE:// 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. TOE:// 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. SHOULDER:// 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. KNEE:// 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. TOE:// 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.