Annual Report 2012 Sparebanken Vest Shall Be a Driving Force in Social and Commercial Development in Western Norway

EIENDOMSMEGLER VEST | FRENDE FORSIKRING | NORNE SECURITIES | BRAGE FINANS | KYTE NÆRINGSMEGLING

Annual report 2012 Sparebanken Vest shall be a driving force in social and commercial development in Western Norway.

The environment: Sparebanken Vest pursues an active, forward-looking environmental policy, both internally and externally. This report has therefore only been published in a PDF-version. The report is available at www.spv.no.

Other contributors: Photos by Tor Yttri and Marit Hommedal, design and layout by Knowit Reaktor. The cover photo is one of several everyday portraits that are used in

Sparebanken Vest’s communication with the market and society at large.

Content Key figures for the Sparebanken Vest Group...... 4 Managing director: 2012 - a profitable year in a new banking world...... 5 The corporate management...... 6 Sparebanken Vest – local identity through generations...... 7 Board of Directors’ Report...... 8 The board of Directors of Sparebanken Vest...... 25 Income statement...... 27 Balance sheet...... 28 Cash flow statement...... 30 Change in equity...... 31 Note 1 Accounting principles...... 32 Note 2 Accounting estimates and discretionary assessments...... 36 Note 3 Segment information...... 37 Note 4 Classification of financial instruments...... 39 Note 5 Fair value of financial instruments recognised at amortised cost...... 41 Note 6 Valuation hierarchy for financial instruments at fair value...... 42 Note 7 Financial risk management...... 44 Note 8 Risk classification of the credit portfolio...... 46 Note 9 Loans broken down by market, type of receivable and geographical area...... 48 Note 10 Commitments broken down by sector and the retail market...... 50 Note 11 Capitalised write-downs on commitments...... 52 Note 12 Development in losses and commitments in default...... 53 Note 13 Secured debt...... 54 Note 14 Loans to and receivables from credit institutions...... 55 Note 15 Guarantees and secured debt...... 55 Note 16 Certificates and bonds...... 56 Note 17 Shareholdings in group companies and associated companies...... 57 Note 18 Market risk...... 59 Note 19 Interest rate sensitivity...... 60 Note 20 Currency positions...... 61 Note 21 Financial derivatives...... 62 Note 22 Shares...... 63 Note 23 Liquidity risk / remaining time to maturity...... 66 Note 24 Net interest and credit commission income...... 67 Note 25 Interest on individual balance sheet items...... 67 Note 26 Net other operating revenues...... 68 Note 27 Operating expenses...... 69 Note 28 Pensions...... 70 Note 29 Taxes...... 73 Note 30 Intangible assets...... 74 Note 31 Tangible fixed assets...... 76 Note 32 Debt to credit institutions...... 77 Note 33 Deposits...... 78 Note 34 Deposits broken down by customer groups...... 78 Note 35 Securitised debt...... 79 Note 36 Subordinated loan capital and subordinated bond loans...... 81 Note 37 Capital adequacy...... 82 Note 38 The equity certificate...... 84 Note 39 Transactions with related parties...... 87 Note 40 Disputes...... 91 Note 41 Accounting intergration - Hardanger Sparebank...... 91 Auditor’s report...... 92 Control Committee’s report...... 94 Declaration from BoD & CEO...... 95 Group key figures...... 96 Corporate governance...... 104 Subsidiaries and associated companies...... 112 Organizational model...... 113 Regional map...... 114 Annual report 2012 PAGE 3 Key figures for the Sparebanken Vest Group

Amounts in NOK millions 2012 2011 2010 2009 2008 Income statement Net interest and credit commission income 1 797 1 590 1 516 1 453 1 308 Net other operating income 861 603 635 489 375 Total operating expenses 1 320 1 335 1 224 1 172 1 068 Profit/loss before write-downs and tax expense 1 338 858 927 770 615

Write-downs and losses on loans and guarantees 147 126 127 270 204 Pre-tax profit/loss 1 191 732 800 500 411

Balance sheet Assets under management 127 828 115 985 105 275 97 661 94 893

Net lending 106 789 99 304 88 465 82 302 76 235 Securities 17 790 13 970 14 829 13 129 11 463

Deposits 60 032 53 142 48 719 44 881 40 521 Subordinated loan capital 1 626 1 613 1 495 2 062 1 437 Equity 7 512 6 691 5 929 4 885 4 372

Key figures Net interest and credit commission income as % of primary capital 1.45 1.46 1.49 1.58 1.60 Pre-tax profit/loss as % of primary capital 0.96 0.67 0.79 0.54 0.50

Return on equity after tax 12.3 8.7 11.3 8.0 4.9

Loss percentage, loans 0.1 0.1 0.2 0.3 0.3

Change in net lending 7.5 12.3 7.5 8.0 17.9 Change in deposits 13.0 9.1 8.6 10.8 7.7

Net subordinated capital (NOK) 7 973 7 191 6 387 6 111 4 858 Capital adequacy 12.6 11.6 11.6 11.8 9.1 Core capital adequacy 12.3 10.8 10.8 10.5 7.7 Basel II fully implemented 16.6 15.6 15.0 13.2 11.2

Dividend per equity certificate (NOK) 2.50 2.00 3.50 2.00 1.88 Listed price per equity certificate at year end (NOK) 29.4 31.7 47.0 51.0 43.3 Direct return 8.5 6.3 7.5 3.9 4.3 Effective return per equity certificate as % (1.0) (25.1) (3.9) 22.3 (44.5) Owner fraction, profit per equity certificate 21.2 21.5 18.1 9.4 6.6

See page 99 for a full overview of key figures and definitions.

PAGE 4 annual report 2012 MANAGING DIRECTOR STEIN KLAKEGG 2012 – a profitable year in a new banking world

Last year was marked by changes in framework conditions, new customer interfaces and good growth in the Norwegian economy. It has been an exciting, inspiring, eventful and demanding year in many ways. While the global economy was characterised by economic downturn, Norway experienced a high level of private consumption, an increase in investments and very low unemployment.

There was strong optimism in the economy of and further increase the bank’s capital Western Norway in 2012. This is reflected in adequacy. These measures have proven the bank’s results. Sparebanken Vest recorded successful, and the work on cost-cutting a historically good profit performance in measures and further improving operations 2012 as a result of increased customer will continue unabated in 2013. activity, overall growth in income, good cost management and low losses. At the same time, the bank has made further efforts to ensure better customer experiences At the same time, however, 2012 was a and enable customers to use the bank in a year marked by considerable uncertainty new, more digitalised manner than in the about the bank’s national and international past. Customers no longer want to have to go framework conditions. The global economy to a bank to do their day-to-day banking to was challenging and marked by unrest in the same extent as before. They both want the financial markets, sovereign debt crises, to and are able to do this themselves in the low growth and high unemployment. The comfort of their own homes. We also know, Norwegian economy, however, went against on the other hand, that when customers the international trend in 2012. There are are about to make important financial few signs that the international downturn will decisions, they want to do so face-to-face and spread to Norway in the coming year. in consultation with an expert who knows the local conditions. Sparebanken Vest has At the national level, the uncertainty was therefore invested substantial resources in primarily linked to the future regulatory improving our employees’ expertise in 2012 capital requirements stipulated by the as well, while at the same time making sure authorities. The uncertainty relating to how, that our banking services are increasingly and how quickly, the Norwegian authorities available in the homes of people in Western will implement the joint European capital Norway. requirements known as CRD IV has been demanding for the whole Norwegian financial The mobile banking application is proof sector. Signals from the Norwegian financial of this. Sparebanken Vest fully embraced authorities indicate that the Norwegian the digital age in October 2012, when the rules will deviate from those that apply to mobile banking application was launched. our nearest neighbours and that they will be In just under three months, almost 30,000 introduced earlier than in the eurozone. What customers had starting using the service, and is clear, however, is that running a bank will be the feedback was almost exclusively positive. more expensive in future. Inspired by this, in 2013, we will continue our efforts to ensure that Sparebanken Vest is Against this background, Sparebanken Vest the most committed and capable provider of has implemented important measures in financial advisory services in Western Norway. Annual report 2012 2012 to strengthen its long-term profitability I am looking forward to it! PAGE 5 The corporate management

Sparebanken Vest’s management team has a clear ambition for the bank to achieve a position as the leading financial services group in Western Norway.

Stein Klakegg (1957) Managing Director since 9 January 2006. Master’s degree in business economics from the Norwegian School of Economics (NHH). Also holds qualifications in occupational psychology and management. Has previously worked for the Nevi group and Rieber & Søn ASA, lastly as Group Director of Rieber & Søn ASA. Member of the board of Nets Holding AS. He has also held various directorships with companies in Norway and abroad.

Jan Erik Kjerpeseth (1971) Deputy Managing Director since 19 June 2006. Joined the bank in 1999. Also responsible for business development, products, market, IT, banking systems and finances. Chair of the board of Frende Liv, Frende Skade and Eiendomsmegler Vest and deputy chair of Bergen Chamber of Commerce. Graduate in marketing from the Norwegian School of Marketing. Also holds an MBA from Heriot-Watt University and an Executive MBA in Brand Management from the Norwegian School of Economics (NHH). He has previous experience as marketing manager with Sparebanken Sogn og Fjordane.

Hallgeir Isdahl (1956) Director of SPV Markets with effect from 1 October 2011. Joined the bank in 2008 as chief economist. Has a Master’s degree in economics and a cand.mag. degree from the University of Bergen. He has previously worked as CEO of Finansbanken Bergen and held various positions in DNB, including bank manager for Discretionary Management in DnB Luxembourg, chief economist / investment strategist for DnB Investor AS and chief of analysis and portfolio manager for Realforvaltning.

Henning Nordgulen (1965) Director – Corporate Market since 19 June 2006. Joined the bank in 2003 as bank manager with responsibility for Marine Shipping in the Corporate Division. Bachelor of Business Administration from BI Norwegian Business School, with additional qualifications from IMD Lausanne. Broad professional experience from industry, shipping and finance, including the companies Gearbulk and Rikett. Chair of the board of Brage Finans AS.

Kate Henriksen (1960) Director – Retail Market since 19 June 2006. Joined the bank in 2003 as regional manager with responsibility for the Retail Division. Graduate engineer from Bergen College of Engineering and a degree in economics from the Norwegian School of Economics (NHH). She has broad professional experience including from DNB, Statoil, Vesta and Ementor. Board member of the Savings Banks’ Guarantee Fund and Sparebanken Vest Eiendomsforvaltning.

Siren Sundland (1971) Director of Corporate Communication since 15 April 2009. Joined the bank in 2007. Has a cand.philol. degree from the University of Bergen, majoring in Nordic literature. She has worked in the field of brand management and strategic communication for a number of companies in Western Norway. Wide-ranging experience from various professional environments, including Bergen National Academy of the Arts, the Norwegian Broadcasting Corporation (NRK) and the newspaper Bergens Tidende. Chair of the board of Den Nationale Scene and board member of Advisory Board, NHH.

Pål Pedersen (1954) Director of the Legal Division since 2009 with responsibility for legal issues, potential bad debts relating to commercial engagements, depot and the Secretariat. Joined the bank in 1990. Legal Director from 1994. Law degree from the University of Bergen. Previous experience as an assistant judge and lawyer in private practice. Qualified as an advocate in 1984. Completed the Solstrand leadership programme in 2003. Broad experience from banking, finance and commercial law. Board member of Sparebanken Vest Boligkreditt AS.

Gro Hatleskog (1956) Director of Human Resources and Organisation from 2012. Director – Human Resources in Sparebanken Vest from 2007 to 2009. Holds a cand.polit. degree from the University of Bergen, majoring in Administration and Organisation Theory. Has extensive experience as Director of HR and Organisation from both the financial sector and from industry, in the companies Vesta Forsikring, Nera and Beerenberg. She also has experience from the public sector. Member of the board of Christian Michelsen Research and Hjelp24.

PAGE 6 annual report 2012 Sparebanken Vest – local identity through generations

1982 - Austrheim & Fedje Sparebank (1911) - Bremnes & Moster Sparebank (1975) - Bruvik Sparebank (1903) - Eid sokn Sparebank (1842) - Fusa Sparebank (1858) 1964 - Hosanger nye Sparebank (1928) - Alvøen Sparebank (1877) - Samnanger Sparebank (1874) - Herdla Sparebank (1899) - Skånevik Sparebank (1863) - Stord Sparebank (1862) - Strandebarm Sparebank (1853) 1823 2000 - Sund & Austevoll Sparebank (1896) - Bergens Sparebank 1970 - Acquisition of Vår Bank & - Vikøy Sparebank (1860) is established - Os Sparebank (1926) Forsikring, Bergen

1800 1900 2000

1971 1983 2006 - Alversund Sparebank (1910) - Fjære Sparebank (1875) - Establishment Haugesund - Fjell Sparebank (1911) - Establishment Etne - Haus Sparebank (1866) - Hamre & Åsane 1986 2007 Sparebank (1904) - Fitjar Sparebank (1865) - Acquisition of Fokus Banks’ - Manger Sparebank (1889) business in Sogn & Fjordane - Masfjorden Sparebank (1910) 1989 - Establishment Sandnes - Sparebanken Nordfjord (1852) 1973 - Sogndal Sparebank (1842) 2008 - Odda Sparebank (1916) - Establishment Stavanger

1975 2009 - Lindås Sparebank (1865) - Sauda Sparebank (1892) - Establishment Hinna - Establishment Sola

2011 - Sparebanken Hardanger (1846) - Establishment Nærbø

ANNUAL REPORT 2012 PAGE 7 Board of Directors’ report

The Sparebanken Vest Group recorded an operating profit before write-downs and tax of NOK 1,338 million in 2012, compared with NOK 858 million in 2011. The result reflects the fact that the economic development in Western Norway has been positive throughout the year. The financial performance is the result of good operations in the bank’s business areas, increased volume and improved interest margins, increased commission income from banking services and Frende Forsikring, and low losses. The bank has worked actively in 2012 to optimise operations and increase earnings in order to comply with new future guidelines for capital requirements. More capital-efficient operations and good results have improved the bank’s financial strength throughout the year. Customer satisfaction was at a stable, high level in 2012, and new digital banking services were well received by the customers. The Board of Directors is very satisfied with the profit for the year.

There was unrest and uncertainty with the economic growth rate in Asia and in the global economy also in 2012. budget challenges in the USA in 2012. Challenges relating to handling the high Despite international turbulence, the oil sovereign debt in many countries in price remained at a high level throughout Southern Europe have caused particular the year, and there are still no clear signs concern. Likewise, the steadily rising of it changing in the time ahead. unemployment rate among many of our most important trading partners in Europe The Norwegian economy and the indicates that it will take a long time for macroeconomic framework for Western the financial situation to return to normal. Norway have been good. Norway, and There was also uncertainty associated Western Norway in particular, enjoys a

PAGE 8 annual report 2012 special position compared with many previous year. A slow development rate in other economies in the world. Some of high-pressure areas and low interest rates the driving forces behind the growth for housing loan customers contributed to in the Norwegian economy are robust increasing prices in the housing market. government finances, good growth in demand from households and a marked At the end of 2012, housing prices increase in oil investments. Western and household debt were at a record Norway is characterised by a substantial level compared with the income level. share of its business and industry Norwegian financial authorities have targeting petroleum-related activities, expressed concern about increased which affects the region positively. The socio-economic vulnerability as a twofold division of the private sector in consequence of this debt growth. The the Norwegian economy has become authorities increased the requirement more clear, however. Industry related to for house buyers’ own capital to 15% of the petroleum sector, such as shipyards the purchase price in 2011. The effect of and manufacturers of equipment for oil this more stringent requirement has been and gas production, is doing well, while hotly debated. It is not unlikely, however, traditional industry such as aluminium, that the authorities will introduce paper and the furniture industry is measures in 2013 vis-à-vis financial negatively affected by the financial crisis institutions as an attempt to curb the in Europe. The challenges are expected to growth in house prices and debt. continue into 2013, especially for some industries exposed to competition and For Sparebanken Vest, the unrest in export-oriented industries. the international financial markets has affected the financial situation In early 2012, Sparebanken Vest launched throughout the year. At the start of the its own index, the Vestlandsindeks year, the margins were under pressure due (Western Norway Index), which is a to higher borrowing costs for the banks. quarterly survey among 700 business The bank’s interest margins increased managers in the counties of Western throughout the year as borrowing costs Norway: Møre og Romsdal, Sogn og fell, while the bank’s lending rates have Fjordane, Hordaland and Rogaland. All remained unchanged. This has resulted four surveys in 2012 show that businesses in slightly improved net interest for the in Western Norway are tentatively bank in 2012. The development in the optimistic about their own financial international securities markets has situation, and that they are cautiously affected the bank’s financial investments optimistic about the future. In all the in a generally positive direction in 2012. surveys, access to qualified labour has been cited as a critical factor for the Throughout the year, the bank has businesses’ ability to utilise their capacity. made efforts to adapt to ever more new rules and requirements for the financial The employment market in Western industry. This has been demanding Norway has been good in 2012. work. It is Sparebanken Vest’s ambition The employment rate is high, and to meet all official requirements for unemployment in the three counties in capital adequacy and financial strength. which Sparebanken Vest has operations is The Board of Directors is concerned the lowest in the country at under 2%. with ensuring that Norwegian financial institutions are robust. At the end of There was still good activity in the 2012, Sparebanken Vest meets all capital housing market. The trend in the sale of requirements stipulated by Norwegian houses was relatively unchanged from the authorities by a good margin. At the

Annual report 2012 PAGE 9 same time, the bank has expressed • A solid RM portfolio that dominates a strong wish for more predictability the overall risk situation and provides from the authorities when in comes access to favourable funding to the introduction of future capital • A big equity buffer with a large holding requirements. of primary capital • Distribution policy that provides Targeted efforts are being made to flexibility without issuing equity even strengthen the bank’s profitability in order at attractive dividend levels to maintain healthy finances and ensure • High direct return a good return on equity also in future. Sparebanken Vest has implemented both In the second half-year 2012, the bank cost-cutting measures and income- hired a dedicated Investor Relations generating activities in 2012 that are contact, who will be the bank’s liaison expected to produce effects from 2013 vis-à-vis financial market participants, and in the years ahead. including equity certificate holders and groups of analysts. In autumn 2012, the bank’s Supervisory Board decided to change the bank’s The Board of Directors proposes that the defined-benefit pension scheme to a Supervisory Board adopts a cash dividend system based on return on pension of NOK 2.50 (2.00) per equity certificate. capital. The change will have a positive effect on equity and reduce the bank’s The Group’s return on equity is 12.3 current pension expenses in the time (8.7)% and its capital adequacy ratio ahead. Further rationalisation of pursuant to the transitional arrangement underlying operations is high on the is 12.6 (11.6)% based on the Board of bank’s agenda, and a target has been Directors’ proposal for allocation of the set of a 2% maximum cost growth in the profit for the year in the parent bank. parent bank until 2015. The nature of the business The bank’s equity certificate Sparebanken Vest is an independent listed The price of the bank’s equity certificate financial services group that is engaged (ticker: SVEG) showed a dividend-adjusted in banking and financing activities in the return of 0% in 2012, while the equity counties of Hordaland, Rogaland, Sogn og certificate index at Oslo Børs (OSEEX) Fjordane and Møre og Romsdal. fell by 1.7%. The liquidity of the equity certificate declined slightly in 2012 The Group’s head office is in Bergen, compared with 2011. The annualised and the bank has 64 sales outlets. The turnover velocity of SVEG was 9.3% in Group is involved in estate agency 2012. By comparison, the turnover in the activities through Eiendomsmegler Vest Norwegian stock market and on Oslo Børs AS, property management through was generally much lower in 2012 than Sparebanken Vest Eiendom AS (formerly the previous year. AS Filialbygg), and home mortgages through Sparebanken Vest Boligkreditt AS. The Board of Directors’ goal is that SVEG These three limited liability companies are over time shall yield an attractive risk- wholly owned by the parent bank. adjusted return for investors by: • Pure exposure to the Norwegian Sparebanken Vest is also the largest economy owner in the securities company Norne • Exposure to Norway’s most attractive Securities AS with a holding of 47.58%, region with a sound customer basis and the largest owner in the insurance and good growth company Frende Holding AS with a

PAGE 10 annual report 2012 holding of 44.7%. These companies trend is expected to continue in 2013. are jointly owned with 13 other savings banks. The housing credit company Verd Strategic direction Boligkreditt AS is jointly owned with Sparebanken Vest’s vision is for the eight independent savings banks and it bank to be a driving force for social is run by Sparebanken Vest Boligkreditt and economic development in Western AS. Sparebanken Vest owns 40% of the Norway. shares. Sparebanken Vest owns 49.9% of the shares in the leasing company Sparebanken Vest’s strategic direction Brage Finans AS. The company is jointly remains unchanged. The goal for the owned with nine other savings banks. The coming years is that the bank shall bank’s ownership interests in associated attain the position of Western Norway’s companies help to complete the bank’s leading and preferred financial services range of services and products. group. Four key strategic areas have been given priority: The bank shall The insurance company simplify operations through continuous Frende Holding AS improvement, and customers shall had its fifth year of operation in 2012 and perceive doing business with the bank showed strong progress during the year. as being simple. Furthermore, the bank The company has two subsidiaries: Frende shall focus on maintaining a strong Skadeforsikring and Frende Livsforsikring, position in its most important market and a total of 151 employees. Both areas. It will also be important for the companies recorded a positive profit bank to continue to build on the positive performance in 2012, characterised by development in associated companies strong growth, good profitability and and to take even greater advantage of the positive financial income. The companies earning potential provided by the product have 135,000 customers in total. The company platform. good development in 2012 is expected to continue in 2013. Sparebanken Vest is making determined efforts to develop and improve the bank’s The securities company Norne competitiveness in the short and long Securities AS term. This includes developing the bank’s AS increased its turnover by 24% in staff, products and management systems. 2012 compared with 2011, despite a challenging market. At the same time, Sparebanken Vest has chosen to be operating expenses were reduced by independent in a sector where the 21%. In autumn 2012, Norne took over prevailing trend is centralisation and part of Terra Markets’ business and 70 greater distance to customers as a result cooperation agreements with various Terra of demanding mergers, alliances and banks. The takeover contributed to Norne acquisitions. Its independent position having more than 26,000 customers at gives Sparebanken Vest freedom of the end of 2012. manoeuvre. The bank emphasises closeness to its customers, know-how The leasing company Brage Finans AS about the region’s business and industry had its second year of operation in 2012, and local decision-making authority. and it had 19 employees at year-end. Brage Finans has done very well in Corporate governance the market, and according to industry Sparebanken Vest’s principles and policy statistics, it is the seventh biggest for corporate governance are based on company in the country measured by new the applicable version of the Norwegian sales to the leasing market. This positive Code of Practice for Corporate Governance

Annual report 2012 PAGE 11 drawn up by the Norwegian Corporate with ensuring that the bank practises Governance Board (NUES). The bank a competitive, but not leading, pay also makes reference to the Financial policy that is perceived as motivating by Supervisory Authority of Norway’s module the bank’s management in relation to for the evaluation of overall management implementing the adopted strategy and and control, which reflects the principles achieving the goals set. of the European Banking Authority (EBA). A full account of corporate governance Sparebanken Vest’s principles and policy in Sparebanken Vest is provided in a shall ensure that its corporate governance separate section of the annual report. is in accordance with generally accepted and recognised perceptions Statement concerning the annual and standards and in compliance with accounts statutes and regulations. Moreover, The annual accounts have been prepared the bank’s corporate governance shall on the basis of the going concern ensure good cooperation between assumption and based on forecasts for its different stakeholders, such as operations in 2013 and projections for owners of equity certificates, lenders, three years thereafter. customers, employees, governing bodies, management and society as a whole. In Sparebanken Vest’s consolidated and the Board of Directors’ view, the bank’s company accounts for 2012 have corporate governance is satisfactory and been prepared in accordance with in compliance with the principles and the International Financial Reporting policy. Standards (IFRS), the Financial Supervisory Authority of Norway’s Nineteen board meetings were held in Regulations relating to annual reports and 2012. Follow-up of operations, strategy, accounts, and the Regulations relating to framework conditions and risk and capital the accounting treatment of loans and management have been the board’s guarantees. In the company accounts, the main focus areas. The Board of Directors bank exercises its right to use a simplified has drawn up a yearly plan for its work, form of IFRS. Consequently, dividend/ and it places great emphasis on ensuring group contributions from subsidiaries are that its members have the requisite included in the basis for the parent bank’s knowledge and expertise. The board has dividend in the same year as they are again carried out a self-evaluation of how earned. it works, and of its expertise, priorities and cooperation between the board and the Sparebanken Vest has not changed its management in 2012. accounting principles in 2012. The annual financial statements have been prepared The board has appointed three in accordance with the above-mentioned committees to ensure the quality regulations and, in the Board of Directors’ and efficiency of its work.The Audit view, they provide a true and fair view of Committee is charged with ensuring that the Group’s financial position. Sparebanken Vest has an independent and effective external and internal Profit audit function, and financial and risk Sparebanken Vest recorded a profit reporting in accordance with statutes after tax of NOK 864 million in 2012, an and regulations. The Credit Committee increase of NOK 316 million compared deals with credit matters under the with 2011. The profit before write-downs authorisation of the Board of Directors. and tax expense increased by NOK The Compensation Committee is tasked 480 million, while write-downs on loans

PAGE 12 annual report 2012 increased by NOK 21 million and the tax margins measured against the 3-month expense increased by NOK 143 million. money market interest rate increased by an average of 0.9 percentage points The profit for 2012 is affected by in 2012. Deposit volumes increased by improved operations and a normalisation NOK 6.9 billion, or 13.0%. The growth in of the capital markets with lower deposits breaks down as NOK 2.7 billion, credit risk premiums and a general or 8.7%, in the retail market segment improvement in access to short-term and NOK 4.2 billion, or 19.1%, in the and long-term financing for banks. corporate market segment. The deposit Uncertainty is still attached to the final margin measured against the 3-month version of the new capital adequacy money market interest rate increased by directive, CRD IV, including whether an average of 0.9 percentage points in Norwegian supervisory authorities will 2012. demand even more stringent liquidity and capital requirements over and above the Net other operating income requirements published by the European Other operating income increased by NOK Commission to date. Sparebanken Vest 258 million from 2011 to 2012, NOK 152 has therefore given priority to measures million of which is related to an increased that reduce its exposure to capital- contribution from financial instruments intensive industries and focused more on and NOK 84 million to an increased enterprises that increase less capital- contribution to profits from associated intensive income. Measures have also companies. been implemented with a view to further rationalisation of the bank’s operations. The improved results for financial instruments is mainly due to less unrest Revenues in the financial markets and a tightening Net interest and credit of credit spreads in the second half-year, commission income which contributed to a substantial Net interest income increased by NOK increase in the value of the bank’s 207 million, or 13%, from 2011 to 2012. bond portfolio. The contribution from A lower money market interest rate and net banking services increased by NOK tightening of credit spreads on long- 11 million, and income from the estate term financing have reduced the bank’s agency business increased by NOK 8 average financing costs by 0.2% in 2012. million. Measured against average financing costs, a growth in volume contributed Operating expenses NOK 157 million to the increase in net The Group’s operating expenses interest income, while the net effect of amounted to NOK 1,320 million in 2012. increased lending margins and reduced This is a reduction of NOK 15 million deposit margins contributed NOK 125 compared with 2011. The operating million to net interest. The interest on expenses for the year were affected by the bank’s liquidity portfolio (bonds) was the decision to change the regulation reduced by NOK 53 million from 2011 to of the bank’s defined-benefit pension 2012. scheme. Following the new pension regulation, pensions in payment will be Lending volumes increased by NOK 7.5 regulated by the return on pension capital billion, or 7.5%, in the same period. The from the life insurance company. Pensions growth in lending breaks down as NOK in payment were previously regulated 6.0 billion, or 8.3%, in the retail market based on an average of price and wage segment and NOK 1.5 billion, or 5.5%, in growth. The non-recurring effect of the corporate market segment. Lending the new pension regulation leads to a

Annual report 2012 PAGE 13 Finansieringsstruktur pr. 31.12.2010

Millioner 14 000 12 000 10 000 8 000 6 000 4 000 2 000

0 2011 2012 2013 2014 2015 2016 2017 2018

Expected losses – total portfolio Write-downs Finansieringsstruktur 800 0,67% 0,67% 0,70% 750 0,66% 0,63% 0,64% 0,64% 0,64% 0,62% 0,63% 0,63% 0,63% 0,63% 700 0,62% 0,60% 650 0,60% 600 0,51% 100% 0,49% 5,9% 5,4% 5,7% 6,4% 5,5% 6,0% 6,6% 6,8% 8,4% 7,0% 7,5% 7,3% 550 0,50% 90% 16,0% 14,9% 14,2% 12,9% 14,1% 14,1% 14,7% 14,3% 10,6% 10,2% 9,4% 8,8% 500 0,43% 80% 276 240 243 261 273 275 450 281 287 301 335 336 339 273 0,40% 70% 80,1% 80,5%

80,7% 400 81,0% 79,9% 79,7% 78,8% 78,9% 82,8% 83,2% 84,0% 78,0% 238 60% 350 0,29% 0,30%

50% 165 300 0,24% 139 0,23% 40% 250 94 0,20% 30% 200 Write-downs as % of gross lendings as % of gross Write-downs 20% 70 150 45 283 283 291 288 39 Capitalised write-downs Capitalised 238 233 367 298 377 394 244 312 239 330 343 291 291 0,10% 10% 100 144

0% 124 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 50 114 0 0,00% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q < 0,2% 0,2%><0,75% > 0,75% 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012

Individual write-downs Group write-downs Write-downs as % of gross lendings

reduction in expenses of NOKUtvikling 262 million. i likviditetsbeholdning 24 million in 2012. og strukturell Group write-downs likviditet Excluding the pension plan change, the remain unchanged in the amount of increase in operating expensesMill amounted NOK 46 million. This indicates that the Mnd to NOK 247 million in 2012. risk in the retail market portfolio is low 18000 25 and stable. A continued strong economic 16000 NOK 50 million of the increase in situation in the bank’s market area expenses can be attributed14000 to the contributes to low unemployment and 20 acquisition of Sparebanken12000 Hardanger. sound finances among retail customers. A In addition, NOK 34 million10000 has been total of 95% of the retail market portfolio incurred and provision made for consists of loans secured by mortgage, 15 8000 Kommuner og reorganisation costs to rationalise the and the proportion of loans with a high fylkeskommuner 6000 bank’s operations, NOK 32 million has loan-to-asset value ratio is decreasing. Andre 10 been allocated to increased4000 pension The Financial Supervisory Authority Aksjer Benyttet for å skaffe expenses due to a lower discount2000 rate, of Norway’s guidelines for new home låneadgang i NB NOK 40 million to increased provision0 for mortgages clearly contribute to reducing 5 Stat incentive schemes and NOK 25 millionQ1 08 toQ2 08 Q3 08the proportion of loans with a loan-to- Banker Q2 11 Q3 11 -2000 Q2 10 Q3 10 Q4 10 Q4 11 OMF write-downs of early-phase project costs assetQ4 08 valueQ1 09 of moreQ2 09 thanQ3 09 85%. IndividualQ1 10 Q1 11 Interbank relating to the bank’s new -4000head office. write-downs in the corporateQ4 09 market The underlying increase in expenses segment have decreased from NOK 280 was NOK 66 million, corresponding to million in 2011 to NOK 249 million in 4.9%. The cost-income ratio (C/I) was 2012. Group write-downs have increased 49.7%. Corrected for the pension scheme from NOK 284 million to NOK 348 million. plan change, the C/I ratio was 59.5%, The risk profile in the corporate market compared with 60.9% in 2011. portfolio is stable. Lower financing costs Finansieringsstruktur pr. 31.12.2011 combined with repricing of the portfolio Write-downs on loans and guarantees have improved the risk-adjusted rate of Total write-downs on loans and return. Millioner guarantees amount to 0.14% of gross Capital adequacy, transitional arrangement Capital adequacy, Basel II Kr 22 000 lending. The amount of NOK 147 million The Group’s return on equity is 12.3 16,6% corresponds to an increase of NOK 21 (8.7)%. The profit per equity certificate is 16,0% % 16,6% 15,6% 0,4% % 15,6% 0,5% million on 2011. Individual write-downs16 in NOK 6.10 (4.55). The diluted profit is the 1,5% 0,4% Kr 17 000 15 15 1,0% 2,2% 12,6% 2,2% the retail market segment have 14increased same. 14 1,7% 2,2% 2,3% 13 12,3% 11,4% 11,6% 0,3% 13 from NOK 19 million in 2011 to12 NOK11,6% 12 0,8% 1,2% 0,3% 0,3% 1,7% Kr 12 000 11 11 10 1,2% 1,6% 1,6% 1,6% 10 9 9 8 8 12,9% 12,8% 12,9% 13,3% 14% 7 9,6% 9,5% 9,5% 9,7% 10,6% 7 Kr 7 000 6 6 5 5 4 4 Kr 2 000 3 3 2 2 1 1 PAGE 14 0 annual report 2012 0-1 år 1-3 år 3-5 år Over 5 år Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Kapitalmarkedsføring* Core capital Core capital OMF i markedet Subordinated bond Subordinated bond OMF i bytteordningen Additional capital Additional capital * Ekskl. OMF og Bytteordningen NB Tier 1 capital equals the sum of core Tier 1 capital and subordinated bonds. Capital adequacy is based on the sum of Tier 1 capital and additional capital. Finansieringsstruktur pr. 31.12.2010

Millioner 14 000 12 000 10 000 8 000 6 000 4 000 2 000

0 2011 2012 2013 2014 2015 2016 2017 2018

Expected losses – total portfolio Write-downs Finansieringsstruktur 800 0,67% 0,67% 0,70% 750 0,66% 0,63% 0,64% 0,64% 0,64% 0,62% 0,63% 0,63% 0,63% 0,63% 700 0,62% 0,60% 650 0,60% 600 0,51% 100% 0,49% 5,9% 5,4% 5,7% 6,4% 5,5% 6,0% 6,6% 6,8% 8,4% 7,0% 7,5% 7,3% 550 0,50% 90% 16,0% 14,9% 14,2% 12,9% 14,1% 14,1% 14,7% 14,3% 10,6% 10,2% 9,4% 8,8% 500 0,43% 80% 276 240 243 261 273 275 281 287 301 335 339 273 450 336 0,40% 70% 80,1% 80,5%

80,7% 400 81,0% 79,9% 79,7% 78,8% 78,9% 82,8% 83,2% 84,0% 78,0% 238 60% 350 0,29% 0,30%

291 291 0,10% 10% 100 144

Individual write-downs Group write-downs Write-downs as % of gross lendings

Utvikling i likviditetsbeholdning og strukturell likviditet

Mill Mnd The Group’s assets under management bank’s risk and capital situation in relation 18000 amount to NOK 127.8 billion, an25 increase to adopted control parameters. The board 16000 of NOK 11.8 billion compared with 2011. considers the bank’s total risk exposure to be low. The exposure lies within the 14000 20 12000 The parent bank’s profit after tax bank’s defined risk profile. In the Board 10000 amounted to NOK 860 million, an of Directors’ view, the bank’s guidelines increase of NOK 323 million from15 2011. and processes for risk and capital 8000 Kommuner og Adjusted for changes in the reserve for fylkeskommunermanagement function well. 6000 unrealised gains, the basis for dividend is Andre 10 4000 NOK 724 million. The Board of Directors Aksjer The bank’s risk and capital tolerance is Benyttet for å skaffe 2000 proposes a cash dividend for 2012 of låneadgang specifiedi NB through targets and parameters. 0 NOK 2.50 (2.00) per equity certificate,5 Stat Risk-adjusted capital is calculated for all Q1 08 Q2 08 Q3 08 Banker Q2 11 Q3 11 -2000 Q2 10 Q3 10 Q4amounting 10 to a total ofQ4 11NOK 79.4 main areas. Through the bank’s risk and Q4 08 Q1 09 Q2 09 Q3 09 Q1 10 Q1 11 OMF 1 -4000 Q4 09 million. This corresponds to a distributionInterbank capital assessments (ICAAP ), capital percentage of 50%. buffers and capital adequacy targets are set in order to safeguard the bank’s The bank increases its core capital operations even under stressed market adequacy by a total of NOK 745 million conditions. through the Board of Directors proposing that NOK 79 million be transferred to the Credit risk Finansieringsstruktur pr. 31.12.2011 equalisation reserve, NOK 136 million to The risk in the retail market portfolio is low the reserve for unrealised gains and NOK and stable. A continued strong economic 531 million to the bank’s primary capital. situation in the bank’s market area Millioner Capital adequacy, transitional arrangement Capital adequacy,The Board Basel of II Directors also proposes that contributes to low unemployment and Kr 22 000 NOK 35 million be spent on donations for sound finances among retail customers. A 16,6% 16,0% % 16,6% 15,6% 0,4% % 15,6% the public benefit.0,5% total of 95% of the retail market portfolio 16 1,5% 0,4% Kr 17 000 15 15 1,0% 2,2% 12,6% 2,2% consists of loans secured by mortgage, 14 14 1,7% 2,2% 2,3% 13 12,3% 11,4% 11,6% 0,3% 13 12 11,6% 12 Risk and capital management and the proportion of loans with a high 0,8% 1,2% 0,3% 0,3% 1,7% Kr 12 000 11 11 10 1,2% 1,6% 1,6% 1,6% 10 Risk and capital management underpins loan-to-asset value ratio is decreasing. 9 9 8 8 12,9% 12,8%the bank’s12,9% strategic13,3% development14% and The Financial Supervisory Authority 7 9,6% 9,5% 9,5% 9,7% 10,6% 7 Kr 7 000 6 6 ambitions, and is one of the Board of of Norway’s guidelines for new home 5 5 4 4 Directors’ key focus areas. Based on mortgages clearly contribute to reducing Kr 2 000 3 3 2 2 quarterly reports, the board evaluates the the proportion of loans with a loan-to- 1 1 0 0-1 år 1-3 år 3-5 år Over 5 år Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Kapitalmarkedsføring* Core capital Core capital OMF i markedet Subordinated bond Subordinated bond OMF i bytteordningen Additional capital Additional capital * Ekskl. OMF og Bytteordningen NB Tier 1 capital equals the sum of core Tier 1 capital and subordinated bonds. Capital adequacy is based on the sum of Tier 1 capital and additional capital. Annual report 2012 1) Internal Capital Adequacy Assessment Process PAGE 15 Finansieringsstruktur pr. 31.12.2010

Millioner 14 000 12 000 10 000 8 000 6 000 4 000 2 000

0 2011 2012 2013 2014 2015 2016 2017 2018

Expected losses – total portfolio Write-downs

800 0,67% 0,67% 0,70% 750 0,66% 0,63% 0,64% 0,64% 0,64% 0,62% 0,63% 0,63% 0,63% 0,63% 700 0,62% 0,60% 650 0,60% 600 0,51% 100% 0,49% 5,9% 5,4% 5,7% 6,4% 5,5% 6,0% 6,6% 6,8% 8,4% 7,0% 7,5% 7,3% 550 0,50% 90% 16,0% 14,9% 14,2% 12,9% 14,1% 14,1% 14,7% 14,3% 10,6% 10,2% 9,4% 8,8% 500 0,43% 80% 276 240 243 261 273 275 450 281 287 301 335 336 339 273 0,40% 70% 80,1% 80,5%

80,7% 400 81,0% 79,9% 79,7% 78,8% 78,9% 82,8% 83,2% 84,0% 78,0% 238 60% 350 0,29% 0,30%

Individual write-downs Group write-downs Write-downs as % of gross lendings

Utvikling i likviditetsbeholdning og strukturell likviditet

Mill Mnd

18000 25 16000

14000 20 12000 10000 15 8000 Kommuner og fylkeskommuner 6000 Andre 10 4000 Aksjer Benyttet for å skaffe 2000 låneadgang i NB 0 5 Stat Q1 08 Q2 08 Q3 08 Banker Q2 11 Q3 11 -2000 Q2 10 Q3 10 Q4 10 Q4 11 Q4 08 Q1 09 Q2 09 Q3 09 Q1 10 Q1 11 OMF -4000 Q4 09 Interbank

Finansieringsstruktur pr. 31.12.2011

Millioner Capital adequacy, transitional arrangement Capital adequacy, Basel II Kr 22 000 16,6% 16,0% % 16,6% 15,6% 0,4% % 15,6% 0,5% 16 1,5% 0,4% Kr 17 000 15 15 1,0% 2,2% 12,6% 2,2% 14 14 1,7% 2,2% 2,3% 13 12,3% 11,4% 11,6% 0,3% 13 11,6% 12 1,2% 0,3% 12 0,8% 0,3% 1,7% 11 Kr 12 000 11 10 1,2% 1,6% 1,6% 1,6% 10 9 9 8 8 12,9% 12,8% 12,9% 13,3% 14% 7 9,6% 9,5% 9,5% 9,7% 10,6% 7 Kr 7 000 6 6 5 5 4 4 Kr 2 000 3 3 2 2 1 1 0 0-1 år 1-3 år 3-5 år Over 5 år Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Kapitalmarkedsføring* Core capital Core capital OMF i markedet Subordinated bond Subordinated bond OMF i bytteordningen Additional capital Additional capital * Ekskl. OMF og Bytteordningen NB Tier 1 capital equals the sum of core Tier 1 capital and subordinated bonds. Capital adequacy is based on the sum of Tier 1 capital and additional capital.

asset value of more than 85%. The figure on page 15 shows capitalised write-downs and the percentage provided The risk profile in the corporate market for in relation to gross lending. Provisions portfolio is stable. The growth in gross relating to guarantees of NOK 19 million at lending was reduced throughout the year the end of 2012 come in addition. to 5.5% – in line with the adjusted control parameter for 2012. Lower financing costs Market risk and operational risk combined with repricing have improved the Sparebanken Vest’s interest rate and risk-adjusted rate of return. currency risk is managed within limits adopted by the Board of Directors and is The figure on page 14 shows the positive considered to be low. The bank is exposed development in expected losses (based to credit spread risk, primarily through on debt-servicing ability and security the management of interest-bearing coverage). At the end of the fourth quarter, securities in the bank’s liquidity portfolio. more than 84% (78.9%) of the portfolio The portfolio mainly consists of securities was in the category with the lowest issued by Norwegian banks, housing expected losses. credit companies, municipalities, county authorities and the state. The loss cost in 2012 amounted to The bank’s credit spread risk increased NOK 147 million, compared with NOK slightly towards the end of the year, but is 126 million in 2011. Group write-downs considered to be moderate. The bank has increased by NOK 63 million, and individual stock market exposure through companies write-downs were reduced by a total of listed on Oslo Børs and unlisted companies. NOK 26 million due to confirmed losses on In its management, the bank focuses on previously written down commitments. the total exposure and concentration in companies and industries. The stock market Commitments in default defined pursuant exposure (excluding subsidiaries and to Basel II amounted to NOK 1,258 associated companies) amounted to NOK million for the corporate market and NOK 709 (738) million at the end of the year. 296 million for the retail market. The corresponding balance sheet amounts were The identification, analysis and follow- NOK 1,127 million for the corporate market up of operational risk are addressed and NOK 295 million for the retail market. at the overriding level through expert

PAGE 16 annual report 2012 Finansieringsstruktur pr. 31.12.2010

Millioner 14 000 12 000 10 000 8 000 6 000 4 000 2 000

0 2011 2012 2013 2014 2015 2016 2017 2018

Expected losses – total portfolio Write-downs

80,7% 400 81,0% 79,9% 79,7% 78,8% 78,9% 82,8% 83,2% 84,0% 78,0% 238 60% 350 0,29% 0,30%

Individual write-downs Group write-downs Write-downs as % of gross lendings

Utvikling i likviditetsbeholdning og strukturell likviditet

Mill Mnd

18000 25 16000

Finansieringsstruktur pr. 31.12.2011

assessments, management confirmations Rating and events. Annual processes and the Sparebanken Vest is rated by Moody’s continuous registration of events during and Fitch Ratings. The bank’s rating for the year have not uncovered matters that long-term borrowing is A- from Fitch with are critical to the bank’s operations. a stable outlook, and A2 from Moody’s with a stable outlook. Bonds issued by Liquidity and financing Sparebanken Vest Boligkreditt AS are At the overriding level, Sparebanken Vest’s rated AAA by both Moody’s and Fitch. liquidity risk is managed using liquidity indicators, structural liquidity and the Capital adequacy deposits/loans ratio. The Group’s liquidity The Group’s revised capital adequacy situation is good. The Group’s net liquidity target pursuant to Basel III is 12.5% Core amounted to NOK 15.2 (11.7) billion at Tier 1 capital. Pursuant to the transitional the end of the year. arrangement, financial strength should be on a par with the third quarter 2011 The Group’s liquidity indicator (six-month (corresponding to 9.4% Core Tier 1 rolling average) is 106.8 (102.6)%, and capital). Figure 3 shows that the bank the bank’s capacity to operate under meets the current capital targets by a normal conditions without financing from good margin. the capital market is 20 (16) months (structural liquidity). The deposits/loans Compared with the same period last year, ratio has increased compared with the the bank’s Core Tier 1 capital adequacy same period last year: 56.2 (53.5)%. pursuant to the transitional arrangement was strengthened by 1.0 percentage The total capital market financing point. The increase is the result of amounts to NOK 54.7 (52.5) billion, and, accumulated profits, reduced growth in including the swap arrangement with the corporate market and cost-cutting Norges Bank, covered bonds account for measures. The bank’s buffer down to approximately 56% of this financing. The the authorities’ recommendation of 9% proportion of financing with a remaining Core Tier 1 capital under the transitional term to maturity of more than three years arrangement is now more than NOK was approximately 44%. 1,000 million.

Annual report 2012 PAGE 17 Compared with the same period last year, from the Norwegian authorities on how the Core Tier 1 capital adequacy pursuant capital requirement is to be calculated for to Basel II was strengthened by 1.1 banks that use internal calculation methods percentage points. (IRB) and on when the regulations will be implemented is of great importance. In the fourth quarter, the bank’s Supervisory Board decided to change the On the basis of recent indications of a regulation of the bank’s defined-benefit higher floor for the risk weighting of home pension scheme to a system based on mortgages, the bank has decided to take return on pension capital. Sparebanken a number of precautionary measures Vest has to date used deferred accounting pending a final decision by the Norwegian (‘the corridor method’) for the recognition authorities. Initially, this will involve a of pension commitments. Following the repricing of the corporate market portfolio revision of IAS 19R, from 2013 all listed and that the growth in lending will continue companies must recognise pension on a moderate to low level. commitments ‘immediately at fair value’ and enter estimate variances directly The retail market against equity. Surveys show that Sparebanken Vest maintains its position as the leading The change in the regulation of the retail bank in Western Norway. Its pension scheme led to a plan change market position is strong, and customer effect that was taken to income in 2012 satisfaction is high. The number of retail in the amount of NOK 262 million (NOK customers has increased by almost 6% 251 million in the parent bank), and it during 2012, partly as a result of the also reduced the estimate variance to merger with Sparebanken Hardanger. be entered against equity on 1 January The high level of customer satisfaction is 2013 to minus NOK 118 million after tax. reflected in, among other things, customers In the calculation of own funds as of 31 finding Sparebanken Vest simple to use. December 2012, NOK 80 million of this amount has already been deducted in the As part of the development of the bank’s form of own funds for capitalised pension distribution, Sparebanken Vest launched a funds. The overall effect on equity in 2012 mobile banking solution in autumn 2012. and 2013 as a result of the plan change, At the turn of the year, approximately including the changed discount rate, 28,000 customers had already downloaded and the introduction of the accounting the application. For the sake of comparison, standard in IAS19R therefore amounted to approximately 77,000 retail customers plus NOK 71 million for the Group. use Sparebanken Vest’s online banking solution. The feedback from customers Furthermore, the plan change will lead to regarding the mobile banking solution a reduction in pension expenses for the is largely very positive. The number of defined-benefit schemes in the time ahead. transactions performed at the bank’s branch offices continues to decline. A final decision on whether, and when, The further development of the bank’s more risk-sensitive capital requirement distribution channels is an ongoing process regulations will be introduced in Norway the goal of which is to achieve a customer- and the EU (CRD IV) has not yet been oriented, profitable balance between made. Although the direction of the traditional and new banking channels. regulations is set, the uncertainty is a The growth in lending in the retail market is challenge for Norwegian banks’ capital good and in line with the market trend. The planning and lending capacity, especially Financial Supervisory Authority of Norway’s to business and industry. Clear information guidelines for the financing of home

PAGE 18 annual report 2012 mortgages have been implemented in Rogaland continued after a new branch the bank’s policy and have so far not led office was opened in the Jæren area to a marked decrease in volume. The risk in 2011. The bank improved both its profile in the bank’s retail market portfolio market share and the level of customer is deemed to be good, with a portfolio satisfaction in 2012. consisting of home mortgages with a low loan-to-asset value ratio. SPV Markets The division is Sparebanken Vest’s Increased income diversification in securities firm, which attends to activities the retail market is still a strategic in connection with customer-related goal for Sparebanken Vest. Important trading in the interest and foreign business areas in this connection are currency area, proprietary trading in savings/investments and insurance. The the same areas and the bank’s equity development in savings/investments was investments. dominated by a turbulent market also in 2012. After quite a slow start to the year, From the third quarter 2012, the division the volume and earnings have improved was also assigned responsibility for the in the second half-year, however. In bank’s investment advisory services. general insurance, Sparebanken Vest’s The division was reorganised in 2012, share of the total premiums in Frende and payment transfers and letters of Skadeforsikring amounted to more than credit were taken away from the division. 41%, or NOK 406 million, at the end of The management structure has been 2012. About 10% of Sparebanken Vest’s simplified through the establishment customers now hold insurance policies in of a joint operating organisation, and Frende. The potential for further growth through the merger of proprietary and earnings is thereby good. trading in interest/foreign currency and equity investments under the same The corporate market management. This restructuring has Sparebanken Vest’s corporate market improved management efficiency and segment recorded more than 500 new operations. customers in 2012. The growth in net lending was NOK 1.5 billion, or 5.5%. In connection with the inclusion of Lending to the corporate market segment investment advisory services, 11 positions accounts for 26.4% of the bank’s lending. were transferred to the division, and it The growth in deposits in 2012 amounted currently has 35 employees. to NOK 4.2 billion, or 19.1%. The market Equity investments amounted to NOK shares for lending and deposits were 709 (738) million. In addition, NOK 1,928 8.7% and 16.8%, respectively, in the (1,880) million was paid to subsidiaries bank’s market area. as equity. NOK 575 (484) million was invested in associated companies, with The bank has continued its good holdings of between 20% and 50%. cooperation with business and industry in Western Norway in 2012, especially with Sparebanken Vest’s equity investments small and medium-sized enterprises. The have a twofold purpose. The investments bank further strengthened its advisory shall make a positive contribution to the capacity with new members of staff taken bank’s earnings by delivering a return on in different regions. A total of 22 of on equity that is in accordance with the the bank’s 64 branches have corporate bank’s goals. It is also Sparebanken Vest’s advisers. In addition, many branches goal that the investments shall help to are visited by advisers on certain days of strengthen business and industry in the the week. The positive development in region. The bank’s investments in the

Annual report 2012 PAGE 19 local region are therefore mainly made tightening of credit spreads (the interest in early-phase companies, and the bank rate mark-up on 3-month NIBOR) for the has a diversified portfolio with several bank’s borrowing in the bond market. companies that offer interesting products The credit spreads increased during the and have good sales potential. summer, only to fall again from August. At the end of 2012, for example, the credit Liquidity and financing spread for five-year senior bond issues by Sparebanken Vest’s liquidity has Sparebanken Vest was at a considerably been managed well within the control lower level than at the beginning of 2012 parameters also in 2012. The bank’s – a tightening from 190 to around 120 liquidity situation was good at year-end basis points. 2012, with substantial additional reserves and the capacity to operate without The Group has a well-diversified bond access to financing from the capital portfolio that is primarily invested in market for 20 months (structural liquidity). Norwegian issuers, including covered bonds, bonds issued by municipalities A significant proportion of the bank’s and county authorities, bank bonds and funding needs in 2012 have again bonds in large Norwegian enterprises. At been met by issuing covered bonds via the end of 2012, the gross bond portfolio the bank’s wholly owned subsidiary amounted to approximately NOK 15.2 Sparebanken Vest Boligkreditt. billion.

Sparebanken Vest Boligkreditt also carried Corporate social responsibility out an issue in the euro market in 2012, There has been an increasing awareness raising EUR 500 million (corresponding in recent years that the business to approximately NOK 4 billion). The community has a responsibility to society objective was to take advantage of the over and above making a profit. Both the potential for more reasonably-priced special interest organisations Finance financing through covered bonds. Norway (FNO) and the Norwegian Savings Banks Association, and the The total volume of covered bonds Confederation of Norwegian Enterprises issued by Sparebanken Vest Boligkreditt (NHO) have put corporate social amounted to NOK 34.7 billion at the end responsibility high on the agenda. of 2012. NOK 3.6 billion of this was used in the swap arrangement with Norges CSR has always been an integral Bank, while the rest was sold in the market part of Sparebanken Vest’s business in Norway and abroad. activities, among other things through its philanthropic activities. This work Norges Bank only made one change to was strengthened in 2012 by the the key interest rate during the year: from implementation of a dedicated CRS 1.75% to 1.50% on 14 March. strategy. The development of the strategy is based on best practice in companies we The money market interest rate (3-month wish to compare ourselves with, and we NIBOR) was 69 basis points above the key have chosen a structure that highlights interest rate in 2012. The corresponding how we work to achieve sustainable value figure in 2011 was 74 basis points. Before creation in three dimensions: financial the financial crisis, the money market value creation, social responsibility and interest rate was 25–30 basis points climate and environment considerations. above the key interest rate. Through the bank’s donations for the During the first quarter 2012, we saw a public benefit, the bank cooperates

PAGE 20 annual report 2012 on a number of projects relating to the Employees challenges posed by climate change. The number of full-time equivalents Sparebanken Vest’s social responsibility employed by the Group was 881 at 31 is also expressed in the bank’s vision December 2012. This is a reduction of five that it shall be a driving force for social full-time equivalents compared with 2011. and economic development in Western The bank has put considerable effort into Norway. developing employees into authorised financial advisers in recent years. The Board Sparebanken Vest endeavours to display of Directors is proud that the bank has met social responsibility in all its activities. the deadline for the national authorisation Equity investments and the bank’s scheme in an expedient manner and has activities for the public benefit are a thorough system in place for further described in the Board of Directors’ report. authorisations and recertifications. The authorisation scheme and the thorough Activities for the public benefit training of financial advisers have given Pursuant to the Savings Banks Act, savings the bank a competence boost that we banks may allocate part of their profits wish to continue and which has been set after tax and dividend to projects for the out in a clear competence strategy. In public benefit. 2012, we have made further efforts in this connection and continued the work on Over several years, Sparebanken Vest has rationalising training through the use of defined such activities as a strategic priority e-learning and webcast. area. When making awards to projects, the bank is concerned that the projects that The Board of Directors receive such grants produce a social return. Trygve Bruvik, Marit Solberg, Richard The projects should contribute to raising Rettedal and Anne Marit Hope (employee competence, sharing competence and representative) were re-elected for two stimulating interdisciplinary cooperation in years in 2012. Birthe Kåfjord Lange was Western Norway. elected as a new board member for two years. Trygve Bruvik was re-elected as Through its activities for the public Chair of the Board for two years, and Marit benefit, Sparebanken Vest gives high Solberg was re-elected as Deputy Chair for priority to climate issues in accordance two years. with the Climate Recommendations (Klimaanbefalingen) from the Norwegian Working environment Savings Banks Association. The Board of Directors is concerned with Sparebanken Vest having a good working In 2012, the awarding of funds for the environment where each employee feels public benefit targeted defined categories secure and has the opportunity to use in business and social development, his/her skills. The bank therefore makes including research and competence, continuous efforts to ensure this is the case innovation, climate, culture-based in all parts of the organisation. businesses, children and young people, culture and humanitarian causes. The bank’s annual organisational survey shows that the employees enjoy their work. NOK 30 million from the accounts for The feedback on employee satisfaction 2011 was allocated to grants for the has remained at a high and stable level public benefit in 2012. For 2012, the board for the past five years, which the Board of proposes to allocate NOK 35 million for Directors is very happy about. In addition, such grants in 2013. The bank’s gift fund the feedback shows that the bank makes stands at NOK 175 million. the most of each employee’s competence

Annual report 2012 PAGE 21 and that they have good opportunities to dialogue with customers. influence their work situation. The overall picture is one of a good and stable working Sickness absence and inclusive workplace environment. In 2012, overall sickness absence in Sparebanken Vest was 4.3%, which is a The contribution that managers make to slight increase from 4.1% in 2011. Of the the growth and development of individual total, 2.2% (2.1% in 2011) was long-term employees is beyond question. The Board absence and 2.1% (2.0% in 2011) short- of Directors is concerned with ensuring that term absence. Sparebanken Vest has managers who are generous, have the ability to carry things The bank runs annual health campaigns for through, recognise opportunities and see the bank’s employees in close collaboration the big picture. In general, our managers with the corporate health service. The aim is also receive good feedback on management to offer professional guidance in the areas principles. of exercise and diet, and to give employees an opportunity to check their BMI, blood The bank wishes to develop managers at all pressure and cholesterol level. levels of the organisation through continuous management development and practical The bank works systematically to reduce training. Dedicated employees and a good sickness absence through its commitment working environment are crucial to reaching to the IW (inclusive workplace) agreement. our goal of becoming the leading financial The bank’s managers have been trained to services group and most dedicated bank in ensure that new guidelines and requirements Western Norway. for following up employees on sickness absence are complied with. The bank’s Sparebanken Vest spends substantial objective is to have a work attendance rate of resources on various joint activities that aim at least 97%. to encourage and promote team spirit in the bank. The Board of Directors also want The bank adapts the work situation of the bank’s employees to be active in their employees who need it for various health- spare time to promote their own health. An related reasons, and focuses on reducing introduction course for new managers was the percentage of employees on long-term developed in 2012. It will be available in sickness absence. The average retirement the bank’s training portal at the beginning age of the bank’s employees in 2012 was of 2013. The bank has an active company just under 64. sports association and walking group. During 2012, a number of walks and activities were organised in Western Norway’s magnificent Gender equality scenery. Sparebanken Vest works actively and purposefully to promote gender equality and Ethics prevent discrimination. The bank’s Board Sparebanken Vest facilitates and monitors of Directors consists of nine members. Four that employees have good knowledge of the elected members are women. The of and comply with the bank’s ethical corporate management team consists of a guidelines. This is followed up through the total of eight members; three women and introduction programme for new employees five men. and in annual performance appraisal and development interviews. The ethical The natural environment and climate guidelines are evaluated and renewed on a change continuous basis. No breaches of the bank’s Sparebanken Vest does not use input Code of Ethics were reported in 2012. In the factors or production methods that directly Board of Directors’ view, the bank has high pollute the natural environment. The bank ethical standards both internally and in its endeavours to be environmentally conscious

PAGE 22 annual report 2012 in relation to its use of paper, waste heavily-indebted countries are facing management and recycling. a difficult financial situation with high unemployment, low private spending The bank has a broadly differentiated and reduced public demand as a result corporate portfolio. Several enterprises to of cuts in public sector budgets. In the which the bank has furnished loans are course of 2012, both monetary policy engaged in business activities that will have measures and structural measures have an impact on the natural environment. been implemented that have led to some renewed confidence in the financial and Through its extending of credit, the bank money markets. This can improve the has an indirect opportunity to influence state of the real economy in the long the natural environment. This factor will term. Negative growth is expected in the therefore be considered in connection with eurozone as a whole in 2013, but financial the bank’s credit assessments. activity is expected to improve towards the end of the year. The bank’s branch offices in Kaigaten, at Straume and at Korskirkeallmenningen are Moderate growth is expected in the USA in certified Eco-lighthouses. 2013. Several factors in the US economy developed in a positive direction in 2012, Being a certified Eco-lighthouse means and the prolonged negative trend in the that Sparebanken Vest meets many housing market has been reversed. We requirements in relation to reducing energy are now seeing an increase in both prices consumption, handling waste, sorting and sales of houses. At the same time, waste at source, HSE procedures, and the employment market is showing signs focusing on the environment with respect of improvement. Fiscal policy challenges to procurements, transport and travel. related to sovereign debt represent a risk factor for financial activity in the USA. It is also the bank’s explicit goal that the planned new building in Jonsvollskvarteret At the start of 2012, growth in the shall successfully integrate good emerging economies was slowing down. architecture and environmentally friendly/ This development was reversed in the energy-efficient solutions. The plan is second half-year, however. In China, that the building will be environmentally which is the biggest of the emerging certified and that a separate plan for economies, growth is now stabilising at a environmental goals, including main goals level of around 8%. This will make a sound and sub-goals, will be implemented. contribution to global growth in 2013.

Outlook High growth is expected in the Norwegian The first half-year 2012 was dominated economy in 2013. This is based on, among by the uncertainty relating to global other things, high demand from the growth and the unrest in the financial petroleum industry, a high level of activity markets. During the second half-year, there in the building and construction industry was some improvement in the financial and low interest rates. So far, we have been situation, however, and the uncertainty shielded from the crisis in Southern Europe. relating to a global recession has Towards the end of 2012, however, we abated. The outlook for 2013 represents saw a lower level of activity in traditional expectations of somewhat stronger growth export industry as a consequence of weak in global financial activities than we have international markets. Unemployment seen in 2012. is low, but it increased somewhat in the second half-year 2012. This is because The greatest uncertainty for global the workforce is growing faster than the growth is associated with the sovereign employment rate. This trend may continue debt situation in the eurozone. The into 2013. We expect continued low

Annual report 2012 PAGE 23 interest rates throughout 2013 because the The businesses in Western Norway have interest rates of our trading partners are long reported difficulties relating to access maintained at a low level. to qualified labour. Combined with low unemployment, the high participation rate The oil price has remained strong in Western Norway means that the region is throughout 2012, and a strong, stable dependent on sufficient access to labour in oil price is expected in 2013 as well. The the time ahead. The unemployment rate is geopolitical unrest in the Middle East has expected to be below the national average diminished and now poses less of a risk to also in 2013. high oil prices. Thanks to customers, business Western Norway is still characterised by a associates, officers of the company, the high level of activity and strong growth. management and employees The oil-related industry and building and The Board of Directors wishes to thank the construction industry are contributing to bank’s employees and officers for their this in particular. Norway’s biggest export great enthusiasm, solid work effort and counties are in Western Norway, which positive cooperation in 2012. The Board means that the region is particularly also wishes to thank the bank’s customers, sensitive to changes in international equity certificate holders and partners for demand and exchange rates. their continued support in 2012. The Board Many of the region’s businesses are will work actively to continue this positive connected to the oil and gas industry, cooperation in the time ahead. however, which means that the region is still not affected by the low economic growth in the eurozone. According to Norges Bank’s regional network survey, significant growth is expected in the next six months as well.

Bergen, 31 December 2012 / Stavanger, 20 February 2013 The Board of Directors of Sparebanken Vest

Trygve Bruvik Marit Solberg Øyvind A. Langedal Chair of the Board Deputy Chair

Richard Rettedal Birthe Kåfjord Lange Arild Bødal

Sivert Sørnes Tone Mattsson Anne-Marit Hope

Stein Klakegg Managing Director

PAGE 24 annual report 2012 The Board of Directors of Sparebanken Vest

The board manages the bank’s activities and is responsible for ensuring that the funds at the bank’s disposal are managed securely and expediently.

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

Marit Solberg - Deputy Chair of the Board Member of the board since April 2008. Chief Operating Officer Farming of Marine Harvest ASA. Currently holds directorships in Eksportutvalget for fisk AS (the Norwegian Seafood Export Council AS). Graduate from the University of Bergen with a Master’s degree in microbiology.

Øyvind Atle Langedal Member of the board since May 2007. Deputy Managing Director of Coast Center Base AS, Ågotnes. Graduate of the Bank Academy and has studied economics and management at NHHK (NHH continuing and further education). Has been CFO/Deputy Managing Director of Coast Center Base AS since 1998. Has previous experience from Økonomipartner Bergen AS, Rieber Skinn AS and Jebsens Rederi AS. Currently chair of the board of Vardø Barents Base AS and Maritime Waste Management AS and member of the board of Sambygg AS, Kirkenesbase AS and Helgelandsbase Holding AS.

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

Birthe Kåfjord Lange Member of the board since May 2012. PLD manager in Statoil ASA. She has a PhD and degree studies from the Norwegian School of Economics (NHH) and a cand.mag degree from the University of Bergen/Bergen University College. She is a former member of the board of Bergen Private Gymnas AS, member of the board of NHH, the nomination committee of BOB and holds various other offices. Birthe Kåfjord Lange is a deputy member of the board of directors of NHH.

Arild Bødal Member of the board since May 2011. Founder and general manager of Septik24 AS since 2003. Qualified as an authorised accountant at BI Norwegian Business School, has a university college degree in business and administration, studied business economics at NKS and took part of a Master’s degree in business administration (MBA) at Heriot-Watt University. Has completed various management development courses at BI Norwegian Business School, the Norwegian School of Economics (NHH) and the Norwegian University of Science and Technology (NTNU). General manager/business developer in Isco AS from 1998 to 2003, general manager of Karstad Stryn from 1996 to 1998 and CFO of Karstad from 1989 to 1996. Chair of the board of Smartek AS, Miljøservice AS, Johny Birkeland Transport, HØST Valuable Waste AS, Fjord Invest Såkorn, Gode Busser Holding AS, Vidre AS and NSM Bygginvest AS.

Sivert Sørnes Member of the board since May 2011. General manager of Sparebankstiftelsen Sauda. MSc in Business and Economics from BI Norwegian Business School. Managing Director of Sauda Sparebank from 1995 to 2009. Previous experience as chief accountant in Elkem Sauda and CFO of Hardanger Energi AS.

Anne-Marit Hope Member of the board since April 2010. Chief employee representative for the Finance Sector Union of Norway. Customer adviser in Sparebanken Vest, Ågotnes. Employee representative. Has worked for Sparebanken Vest since 1977. Qualified financial adviser from BI Norwegian Business School. Authorised financial advisor. Member of the board of the Hordaland branch of the Finance Sector Union of Norway.

Tone Mattsson Member of the board since 2003 as an employee representative. Joined Sparebanken Vest in 1986. Holds a Bachelor of Management (Banking and Finance) from BI Norwegian Business School. Table of contents – accounts and notes

INCOME STATEMENT...... 27 Note 18 Market risk...... 59 BALANCE SHEET...... 28 Note 19 Interest rate sensitivity...... 60 CASH FLOW STATEMENT...... 30 Note 20 Currency positions...... 61 CHANGES IN EQUITY...... 31 Note 21 Financial derivatives...... 62 Note 1 Accounting principles...... 32 Note 22 Shares...... 63 Note 2 Accounting estimates and Note 23 Liquidity risk / remaining time to maturity...... 66 discretionary assessments...... 36 Note 24 Net interest and credit commission income...... 67 Note 3 Segment information...... 37 Note 25 Interest on individual balance sheet items...... 67 Note 4 Classification of financial instruments...... 39 Note 26 Net other operating revenues...... 68 Note 5 Fair value of financial instruments Note 27 Operating expenses...... 69 Note 28 Pensions...... 70 recognised at amortised cost...... 41 Note 29 Taxes...... 73 Note 6 Valuation hierarchy for financial Note 30 Intangible assets...... 74 instruments at fair value...... 42 Note 31 Tangible fixed assets...... 76 Note 7 Financial risk management...... 44 Note 32 Debt to credit institutions...... 77 Note 8 Risk classification of the credit portfolio...... 46 Note 33 Deposits...... 78 Note 9 Loans broken down by market, type of Note 34 Deposits broken down by customer groups...... 78 receivable and geographical area...... 48 Note 35 Securitised debt...... 79 Note 10 Commitments broken down by Note 36 Subordinated loan capital and sector and the retail market...... 50 subordinated bond loans...... 81 Note 11 Capitalised write-downs on commitments...... 52 Note 37 Capital adequacy...... 82 Note 12 Development in losses and Note 38 The equity certificate...... 84 commitments in default...... 53 Note 39 Transactions with related parties ...... 87 Note 13 Secured debt...... 54 Note 40 Disputes...... 91 Note 14 Loans to and receivables from Note 41 Accounting integration – Hardanger Sparebank.....91 credit institutions...... 55 GROUP KEY FIGURES – FIVE YEARS...... 96 Note 15 Guarantees and secured debt...... 55 GROUP KEY FIGURES – PER QUARTER FOR TWO YEARS..... 100. Note 16 Certificates and bonds...... 56 Note 17 Shareholdings in group companies and associated companies...... 57.

PAGE 26 annual report 2012 Income statement

PARENT BANK GROUP

1 JAN.–31 DEC. 1 JAN.–31 DEC. 2011 2012 Notes 2012 2011 3 646 3 725 Interest income and similar income 4 944 4 390 2 211 2 285 Interest expenses and similar expenses 3 147 2 800 1 435 1 440 Net interest and credit commission income 24 1 797 1 590

417 444 Commission income and income from banking services 444 417 82 98 Commission expenses and expenses relating to banking services 98 82 125 257 Income from shareholdings in group companies and associated companies 34 (50) 74 286 Net gain/(loss), financial instruments 276 124 4 4 Other operating revenues 205 194 538 893 Net other operating revenues 26 861 603 1 973 2 333 Net operating revenues 2 658 2 193

909 845 Payroll and general administration expenses 28,39 1 007 1 058 93 100 Depreciation 30,31 114 107 132 145 Other operating expenses 199 170 1 134 1 090 Total operating expenses 27 1 320 1 335 839 1 243 Profit/loss before write-downs and tax expense 1 338 858 Table of contents – accounts and notes 126 145 Write-downs of loans and losses on guarantees 12 147 126 713 1 098 Profit/loss before tax expense 1 191 732

176 238 Tax expense 29 327 184 537 860 Profit for the financial year 864 548

Majority share of the profit for the period 864 548 Minority share of the profit for the period 0 0

Allocations (52) (79) Dividend on equity certificates 42 (136) Transferred to/from the reserve for unrealised gains (441) (531) Transferred to primary capital (56) (79) Transferred to the equalisation reserve (30) (35) Transferred to gifts (537) (860) Total allocations

4.46 6.07 Equity certificates' share of profits divided by the number of equity certificates 6.10 4.55 4.46 6.07 Diluted profit per equity certificate 6.10 4.55

Statement of comprehensive income

1 JAN.–31 DEC. 1 JAN.–31 DEC. 2011 2012 2012 2011 537 860 Profit for the period 864 611 0 0 Other items in the statement of comprehensive income 0 0 537 860 Total profit for the period 864 611

Majority share of the total profit for the period 864 611 Minority share of the total profit for the period 0 0

annual report 2012 PAGE 27 Balance sheet

PARENT BANK GROUP

31/12-11 31/12-12 Notes 31/12-12 31/12-11 Assets 668 877 Cash in and receivables from central banks 877 668 2 968 4 608 Loans to and receivables from credit institutions 14 878 481 68 421 67 903 Net lending 9,10,11,12,13 106 789 99 304 738 709 Shares at fair value through profit or loss 22 709 738 16 341 18 576 Certificates and bonds 16 15 152 11 537 1 208 969 Financial derivatives 21 1 929 1 695 1 880 1 928 Shareholdings in group companies 17 0 0 484 575 Shareholdings in associated companies 17 473 349 307 286 Other intangible assets 30 309 330 123 116 Tangible fixed assets 31 494 496 0 76 Pension assets 28 80 0 162 287 Prepaid expenses 31 56 280 39 Other assets 107 331 93 580 96 949 Total assets 127 828 115 985

Liabilities and equity 8 882 6 249 Debt to credit institutions 32 5 430 7 971 53 216 60 138 Deposits 33,34 60 032 53 142 21 395 19 814 Securitised debt 35 50 753 44 606 920 673 Financial derivatives 21 1 475 1 089 116 234 Accrued expenses and pre-paid income 182 116 182 46 Pension commitments 28 52 187 108 128 Deferred tax 29 129 109 21 19 Other provision for commitments 22 28 109 216 Tax payable 29 323 113 1 613 1 626 Subordinated loan capital 36 1 626 1 613 308 312 Other liabilities 292 320 86 870 89 455 Total liabilities 120 316 109 294

765 794 Equity certificates 38 794 765 (12) (11) Own equity certificates (11) (12) 562 569 Premium reserve 571 564 123 203 Equalisation reserve 282 176 1 438 1 555 Total equity certificate capital 1 636 1 493

5 048 5 579 Primary capital 5 614 5 078 175 175 Gift fund 175 175 14 14 Compensation fund 14 14 5 237 5 768 Total primary capital 5 803 5 267

35 171 Reserve for unrealised gains 0 0 0 0 Other equity 72 (70) Minority interests 1 1

6 710 7 494 Total equity 7 512 6 691

93 580 96 949 Total liabilities and equity 127 828 115 985

PAGE 28 annual report 2012 Bergen, 31 December 2012 / Stavanger, 20 February 2013 The Board of Directors of Sparebanken Vest

Trygve Bruvik Marit Solberg Richard Rettedal Chair of the Board Deputy Chair

Birthe Kåfjord Lange Arild Bødal Øyvind A. Langedal

Sivert Sørnes Anne-Marit Hope Tone Mattsson

Stein Klakegg

Managing Director

annual report 2012 PAGE 29 Cash flow statement

PARENT BANK GROUP

1 JAN.–31 DEC. 1 JAN.–31 DEC. 2011 2012 2012 2011 Cash flows from operations 3 021 3 515 Interest, commission and customer fees received 5 149 4 254 (1 268) (1 508) Interest, commission and customer fees paid (1 489) (1 261) 667 983 Interest received on other investments 482 469 (1 092) (936) Payment of interest on other borrowings (1 804) (1 634) (555) (513) Payments to other suppliers for goods and services (553) (608) (533) (593) Payments to employees, pension schemes, empl. Nat. Ins. contr., tax withholdings etc. (698) (653) (92) (109) Payment of taxes (113) (97) 5 4 Dividend received for securities held for trading purposes 4 5 539 65 Payments made/received on purchase/sales of securities held for trading purposes 65 539 692 908 Net cash flow from operations 1 043 1 014

Cash flows from investment activities 2 034 733 Payments made/received on loans to customers (7 251) (7 330) 2 206 (959) Payments made/received on receivables and loans to financial institutions (408) (545) 26 15 Dividend received for securities not held for trading purposes 15 26 (222) (5) Payments made/received on purchase/sale of shares not for trading purposes (5) (179) 3 929 (2 227) Payments made/received on purchase/sale of other securities not for trading purposes (3 590) 1 762 110 118 Dividend/group contributions received from group companies 0 0 (874) (91) Payments relating to investments in assoc. comp./subs. (91) (72) 2 9 Payments received from sale of operating assets etc. 0 2 (111) (80) Payments made on purchase of operating assets etc. (116) (122) (66) 0 Net cash effect of takeover of Sparebanken Hardanger 0 (66) 7 034 (2 487) Net cash flow from investment activities (11 446) (6 524)

Cash flows from financing activities 2 082 6 923 Payments made/received relating to customer deposits 6 825 2 090 (3 981) (3 561) Payments made/received on deposits from Norges Bank and other financial institutions (2 523) (2 760) 0 694 Payments received relating to subordinated loan capital (nominal principal) 694 0 0 (667) Payments made relating to repayment of subordinated loan capital (nominal principal) (667) 0 6 152 8 229 Payments received on issuing bond debt 18 080 17 749 (11 542) (9 784) Payments made relating to bond debt (11 751) (11 155) 0 35 Payments received from new equity certificate capital 35 0 (130) (81) Dividends paid / donations for the public benefit (81) (107) (7 419) 1 788 Net cash flows from financing activities 10 612 5 817

307 209 Net cash flow for the period 209 307

307 209 Net change in cash and cash equivalents 209 307 361 668 Cash and cash equivalents at beginning of period 668 361 668 877 Cash and cash equivalents at end of period 877 668

PAGE 30 annual report 2012 Changes in equity

GROUP Reserve Equity- Own Equali- Compen for un- certifi- equity Premium sation- Primary Gift sation- realised Other Minority cates certificates reserve reserve capital fund fund gains equity interests Total Equity at 31 Dec. 2010 539 (10) 467 144 4 637 175 14 0 (38) 1 5 929 Purchase/sale of own equity certificates (2) (1) (3) Distributed dividend and donations (75) (30) (105) Issue of equity certificates1) 226 97 323 Owner transactions and donations 226 (2) 97 (75) (31) 0 0 0 0 0 215

Profit for the financial year 107 471 (31) 548 Comprehensive income 0 Equity at 31 Dec. 2011 765 (12) 564 176 5 078 175 14 0 (70) 1 6 691

Purchase/sale of own equity certificates 1 1 2 Distributed dividend and donations (51) (30) (81) Capitalisation issue 29 6 35 Owner transactions and donations 29 1 6 (51) (29) 0 0 0 0 0 (44)

Profit for the financial year 158 566 141 864 Comprehensive income 0 Equity at 31 Dec. 2012 794 (11) 571 282 5 614 175 14 0 72 1 7 512

PARENT BANK Reserve for Equity Own equity Premium Equalisation Primary Compen unrealised certificates certificates reserve reserve capital Gift fund sation fund gains Total Equity at 31 Dec. 2010 539 (10) 465 68 4 607 175 14 77 5 935 Purchase/sale of own equity certificates (2) (1) (3) Issue of equity certificates 1) 226 97 323 Owner transactions and donations 226 (2) 97 0 (1) 0 0 0 320

Allocation of profit for the year to equity 56 441 (42) 454 Comprehensive income 0 Equity at 31 Dec. 2011 765 (12) 562 123 5 048 175 14 35 6 710

Purchase/sale of own equity certificates 1 1 2 Capitalisation issue 29 6 35 Owner transactions and donations 29 1 6 0 1 0 0 0 37

Allocation of profit for the year to equity 79 531 136 745 Comprehensive income 0 Equity at 31 Dec. 2012 794 (11) 569 203 5 579 175 14 171 7 494

1) Sparebanken Vest issued 9,022,310 new equity certificates as part of the consideration for the takeover of Hardanger Sparebank in the fourth quarter 2011. See Notes 38 and 41.

annual report 2012 PAGE 31 Boligkreditt AS is such that the parent bank has no further Note 1 Accounting principles involvement in transferred housing loans. When loans are transferred, all credit risk relating to the loans is also transferred. For more detailed information about transactions with the housing credit company, GENERAL reference is made to Note 39. The consolidated accounts for Sparebanken Vest comprise Sparebanken Vest, Sparebanken Vest Boligkreditt AS, Eiendomsmegler Vest AS, Standards, amendments and interpretations of existing Sparebanken Vest Eiendomsforvaltning AS and Jonsvollkvartalet AS as standards that have not entered into force and where the wholly owned subsidiaries. Sparebanken Vest Eiendomsforvaltning AS Group has not chosen early application and Eiendomsmegler Vest AS also have a number of subsidiaries. Frende • Amendments to IAS 19 Employee Benefits. As of 1 January 2013, Holding AS, Norne Eierselskap AS, Verd Boligkreditt AS and Brage Finans AS IAS 19 does not allow the ‘corridor method’ to be used for are also included as associated companies. Reference is made to Note 17 recognising estimate variances. The amendment involves a new for more details. classification of pension expenses in the income statement in that

the expenses are divided into three components (pension earnings, Sparebanken Vest was founded in 1823 as Bergens Sparebank. The net interest expenses and change in value). The earned pension rights bank’s equity certificates are listed on Oslo Børs. The bank is located in for the period and net interest expenses are presented under ordinary the counties of Hordaland, Sogn og Fjordane and Rogaland, and its head profit/loss, while estimate variances shall be recognised in their office is in Bergen. Its registered address is Kaigaten 4, 5016 Bergen. entirety in the statement of comprehensive income in the period in which they arise. Moreover, the disclosure requirements relating to The 2012 annual accounts for the Sparebanken Vest Group were defined-benefit pension agreements have changed. considered and adopted at a board meeting on 20 February 2013. Initially, the introduction of IAS19R will mean that non-capitalised estimate variances are entered against equity as of 1 January 2013. Unless otherwise specified, all amounts in the accounts and notes to This amounts to NOK 164 million before tax. Taking the tax effect into the accounts are stated in NOK million. The individual notes also refer account, the immediate equity effect amounts to NOK 118 million. to both the parent bank and the Group unless otherwise specified. The Total pension expenses for the defined-benefit scheme pursuant consolidated accounts have been prepared on the basis of the going to IAS19R are estimated at NOK 37 million in 2013. Without the concern assumption. introduction of IAS19R, and based on the same assumptions, the corresponding pension expenses pursuant to the previous scheme are BASIS FOR THE PREPARATION OF THE ANNUAL ACCOUNTS estimated at NOK 46 million. The consolidated accounts have been prepared in accordance with the The consequences for capital adequacy are less pronounced because International Financial Reporting Standards (IFRS) as adopted by the EU the deduction in own funds for over-financing of pension and published by the International Accounting Standards Board (IASB), commitments for accounting purposes is discontinued when the and which are mandatory from 31 December 2012. estimate variances are written down. Recognised pension funds in the Group amount to NOK 80 million and have been deducted from The consolidated accounts are based on the principles of historical own funds as of 31 December 2012. The net effect on own funds as cost accounting, with the exception of the following accounting items: of 1 January 2013 is therefore NOK 118 million minus NOK 80 million financial instruments at fair value through profit or loss (including = NOK 38 million. This weakens capital adequacy by 0.06%. financial derivatives), loans and receivables and other financial • IFRS 9 Financial Instruments. IFRS 9 will replace the present IAS 39. commitments measured at amortised cost, and, if applicable, financial In IFRS 9, measurement is determined by the company’s business instruments available for sale recognised at fair value. The consolidated model and the characteristics of the individual financial asset. A accounts have been prepared on the basis of uniform accounting financial asset is measured at amortised cost if the objective of the principles for similar transactions and events under otherwise identical company’s business model is to hold the asset in order to receive circumstances. the contractual cash flows, and the cash flows from the asset are solely payments of principal and interest on the principal outstanding. Sparebanken Vest’s company accounts have been prepared in IFRS 9 applies with effect from accounting years that start on or after accordance with a simplified form of IFRS. The same principles apply 1 January 2015. The EU has not approved the standard. The Group when using simplified IFRS as under IFRS for the company accounts, has not completed its evaluation of the effects of IFRS 9. with the exception of the recognition of dividends, group contributions • IFRS 10 Consolidated Financial Statements. IFRS 10 replaces the and other distributions relating to the result for the financial year. In the parts of IAS 27 Consolidated and Separate Financial Statements company accounts, the proposed dividend and donations for distribution that concern consolidated accounts, and SIC-12 Consolidation – are recognised in the year that forms the basis for the distribution. Special Purpose Entities. IFRS 10 is based on a single control model that is to be used for all entities. The content of the term ‘control’ has Preparing annual accounts and using IFRS mean that the management been changed somewhat in relation to IAS 27. Whether a company is has used estimates and made assumptions that have affected assets, to be included in the consolidated accounts in accordance with liabilities, income, expenses and information relating to contingent IFRS 10 depends on whether it is a controlled company. A controlled liabilities. Future events may result in changes to these assumptions. company is one in which the investor has power over the investee, is Estimates and the underlying assumptions are continuously assessed. exposed or has rights to variable returns from the investee, and has The effect of these changes will be recognised in the accounts when new the power to control the activities of the investee that materially estimates can be determined with sufficient certainty. affect the return. IFRS 10 applies with effect from accounting years that start on or after 1 January 2014. The EU has approved the The Group applied the following new standards and standard. amendments in 2012 • IFRS 12 Disclosure of Interests in Other Entities. IFRS 12 replaces • Amendments to IFRS 7 Financial Instruments: Disclosure. The disclosure requirements that previously followed from IAS 27 amendments concern more stringent disclosure requirements Consolidated and Separate Financial Statements, IAS 28 Investments concerning transfers of financial assets in which the company is in Associated Companies, and IAS 31 Interests in Joint Ventures. In still involved, and they aim to give the users a better understanding addition, a number of new disclosure requirements are introduced. of the exposure of the enterprise that transfers the financial assets. IFRS 12 applies with effect from accounting years that start on or Sparebanken Vest is of the opinion that the nature of the contractual after 1 January 2014. The EU has approved the standard. relationship between the parent bank and Sparebanken Vest • IFRS 13 Fair Value Measurement. The standard stipulates principles

PAGE 32 annual report 2012 and guidance for measuring the fair value of assets and liabilities for Subsidiaries which other standards require or allow fair value measurement. IFRS Subsidiaries are defined as companies in which the parent bank has a 13 applies with effect from accounting years that start on or after 1 controlling influence over operations. This is normally the case where the January 2013. The EU has approved the standard. parent bank directly or indirectly owns more than 50% of the shares. For • Amendments to IAS 1 Presentation of Financial Statements. The companies in which the shareholding is 50% or less, Sparebanken Vest amendments to IAS 1 concern the grouping of income and expenses makes an assessment of whether other circumstances indicate actual presented in the statement of comprehensive income based control. Subsidiaries are included in the consolidated accounts from the on whether or not they may be reclassified to profit or loss. The date on which the Group takes over control. Investments in subsidiaries amendments apply with effect from accounting years that start on or are recognised in the company accounts in accordance with the cost after 1 July 2012. The EU has approved the amendments. method. • Amendments to IAS 27 (Revised) Separate Financial Statements. As a result of the introduction of IFRS 10, IFRS 11 and IFRS 12, Associated companies amendments were made to IAS 27 that align the standard with the An associated company is a unit in which the Group has considerable new accounting standards. IFRS 10 Consolidated Financial influence but not a controlling interest. Considerable influence is deemed Statements replaced the parts of IAS 27 that concern consolidated to exist when the Group owns between 20% and 50% of the voting accounts. IAS 27 now only concerns company accounts. The capital. Investments in associated companies are recognised in the amendments apply with effect from accounting years that start on or consolidated accounts in accordance with the equity method, and in after 1 January 2014. The EU has approved the amendments. the company accounts in accordance with the cost method. On the • Amendments to IAS 28 (Revised) Investment in Associates and acquisition date, the investment is recognised at acquisition cost. Joint Ventures. IAS 28 has been extended to also apply to investments in joint ventures. The standard describes principles for Business combinations accounting and stipulates how the equity method shall be applied to Business combinations are recognised in accordance with the acquisition such investments. The amendments apply with effect from method. Transaction costs are recognised as they accrue, with the accounting years that start on or after 1 January 2014. The EU has exception of issue costs and expenses relating to the raising of loans. approved the amendments. • Amendments to IAS 32 (revised) Financial instruments: Presentation. The consideration is measured at fair value on the acquisition date. In Specifies netting of financial assets and commitments where the connection with the acquisition of an enterprise, all assumed assets and counterparty is the same. The amendments apply with effect from liabilities are assessed for classification and allocation in accordance with accounting years that start on or after 1 January 2014. The EU has terms and conditions of contract, financial circumstances and relevant approved the amendments. matters on the date of acquisition. Acquired assets and liabilities are • Amendments to IFRS 7 Financial Instruments: Disclosure. Changed recognised in the balance sheet at fair value in the Group’s opening disclosure requirements relating to an enterprise’s netting rights for balance. If the consideration exceeds the value of identifiable assets financial instruments, where a netting agreement has been entered and liabilities, the difference is recognised as goodwill. For more details into. The amendments apply with effect from accounting years relating to the accounting treatment of goodwill, see a separate section that start on or after 1 January 2013. The EU has approved the under intangible assets. If the acquisition cost is lower than identifiable amendments. assets and liabilities (badwill), the difference is recognised on the date of • IFRS 11 Joint Arrangements. Replaces the provisions in the applicable the transaction. Badwill is entered under the accounting line ‘Net gain/ IAS 31 and SIC 13. The amendments apply with effect from (loss), financial instruments’. accounting years that start on or after 1 January 2014. The EU has approved the amendments. Contingent considerations are classified as a commitment pursuant • Amendments to IAS 1 (improvement project 2011). Clarification of to IAS 39 and recognised at fair value in subsequent periods. The requirements for comparative figures and disclosure. The adjustment of contingent considerations in subsequent periods is amendments have not been finally approved by the EU. recognised in accordance with relevant standards. • Amendments to IAS 16 (improvement project 2011). Classification of maintenance equipment. The amendments have not been finally SEGMENT INFORMATION approved by the EU. The Group’s activities are divided into the following segments: the Retail • Amendments to IAS 32 (improvement project 2011). Specifies that Market (RM), the Corporate Market (BM) and capital market activities the tax effect of a distribution to holders of equity instruments in the banking business (Markets), as well as estate agency activities should be recognised in accordance with IAS 12 Income Taxes. The in the Group. The bank’s investments and related depreciation are amendments have not been finally approved by the EU. not assigned to the segments but are included under ‘Unallocated by • Amendments to IAS 34 (improvement project 2011). Clarifies interim segment’. The classification is based on internal management reporting financial reporting of segment information for total assets in order and resource allocation. to promote consistency with the requirements of IFRS 8 Operating Segments. The amendments have not been finally approved by the RECOGNITION OF INTEREST AND FEES EU. Interest income is taken to income using the effective interest rate • Amendments to IFRS 10, 11 and 12. The amendments clarify and method. This entails recognition of nominal interest income and provide guidance on the transition to the new standards for entities amortisation of establishment fees after the deduction of direct obliged to keep accounts. The amendments have not been finally establishment costs, as they arise. The effective interest rate method is approved by the EU. used for balance sheet items valued at amortised cost and balance sheet items valued at fair value through profit or loss. CONSOLIDATION PRINCIPLES The consolidated accounts include the parent bank, subsidiaries and Fees that are direct payment for services rendered are taken to income associated companies, including underlying subsidiaries and associated as the services are delivered. Loan establishment fees that exceed the companies. The consolidated accounts are prepared on the basis of direct external cost of establishing the loan are amortised over the uniform principles, and the recognition of shareholdings in subsidiaries expected life of the loan. and associated companies is based on the same reporting periods as for the parent company. Intercompany transactions and outstanding FINANCIAL ASSETS AND LIABILITIES accounts, including intercompany profit and unrealised gains and losses, Financial assets and liabilities are valued and classified in accordance with are eliminated when the consolidated accounts are prepared. annual report 2012 PAGE 33 IAS 39, and the presentation is in accordance with IFRS 7. Value changes spread will affect the required rate of return as the supplement added to during the period are recognised in the income statement. Note 4 specifies the zero coupon curve will be changed. the volume for each main group of financial instruments classified in the The buy-back of securities issued by the bank is netted against securities different measurement categories. debt in the balance sheet.

Recognition and derecognition Realised gains/losses and changes in the value of financial instruments The contract date has been chosen as the accounting date. Financial at fair value through profit or loss, including dividends, are presented in assets are removed from the balance sheet when the right to receive cash the accounts under ‘Net gain/(loss), financial instruments’ in the period flows from the investment terminates or is transferred on realisation. in which they arise.

Financial instruments at fair value through profit or loss Financial instruments valued at amortised cost This category has two sub-categories: financial instruments held for Lending and receivables at floating interest rates are valued at trading purposes, and financial instruments initially recognised at fair value amortised cost. Lending and receivables are defined as non-derivative through profit or loss. financial assets with fixed or determinable payments that are not traded in an active market. Lending is initially valued at fair value with Financial instruments held for trading purposes the addition of direct transaction costs. In periods after the initial In the financial instruments held for trading purposes category, the bank measurement, lending is valued at amortised cost based on the effective has classifiedshares and bonds acquired for short-term gain, or that interest rate method, as an expression of the fair value of the loan. If are of such a nature that a sale would be considered in the event of an there is objective evidence of a decline in the value of an individual loan attractive offer. Derivatives are also classified in this category insofar as or groups of loans, the loans are written down. The amount of the write- they are not an earmarked and effective hedging instrument. down is calculated as the difference between the balance sheet value A derivative is a financial instrument with the following characteristics: and the present value of future cash flows, based on the expected life of the loan. Write-downs are classified as a loss expense. • The value of the instrument changes as a result of changes in the interest rate, the exchange rate or the price of an underlying object. Interest income from loans are recognised under net interest also in • The instrument requires no or little initial investment. cases where a write-down has been carried out. Interest income on • The profit or loss on the instrument is determined at a future date. written-down loans is recognised using the original effective interest rate and on the basis of the written-down loan. This means that calculated Derivatives are recognised in the balance sheet at fair value when the interest until the time of write-down (‘healthy’ interest) is added to the derivative contract is entered into, and thereafter at the current fair balance of the loan when calculating amortised cost. Changes in a loan’s value. Derivatives in the balance sheet include forward foreign exchange interest rate that reflect changes in the market interest rate do not affect transactions, forward rate agreements, interest rate swaps, foreign the value of the loan. currency interest rate swaps and interest rate options. Financial liabilities at floating interest rates are recognised in the Financial instruments recognised at fair value balance sheet at amortised cost. Amortised cost is defined as the Financial instruments initially recognised at fair value through profit amount the instrument is initially measured at in the accounts (cost or loss are recognised in the balance sheet at fair value because this price) minus repayments of principal, with an addition or deduction for method of valuation eliminates or greatly reduces any inconsistent accumulated amortisation of all differences between cost price and the measurement and recognition that would otherwise have arisen had nominal amount, minus all write-downs. Amortisation is based on the the asset been measured or gains/losses been calculated on the basis of effective interest rate method. different assumptions. This means that the effect of changes in value on financial instruments that are managed together is reflected at the Financial instruments subject to hedge accounting same time in the accounts. Financial assets initially recognised at fair The Group has established hedge accounting to manage interest rate value through profit or loss includeloans at fixed rates, certificates risk and currency risk for long-term borrowings relating to the housing and bonds and shares. Financial liabilities at fixed interest rate are credit company. This is recognised as fair value hedging. A formal also assigned to this category. This applies to debt to credit institutions, earmarking and documentation of the hedging relationship takes place deposits, securitised debt and perpetual subordinated loans. when the hedging is established. There is a clear, direct and documented connection between fluctuations in the value of the hedged items that Financial assets recognised at fair value through profit or loss are are due to the hedged risk and fluctuations in the value of the financial recognised at fair value on acquisition, and transaction costs are charged derivatives (hedging instruments). The hedging instruments comprise to income. Subsequent measurement is at fair value. The fair value of interest rate and currency swaps. The hedging is documented with listed investments is based on the year-end market price. In the case of reference to the Group’s risk management strategy, clear identification unlisted securities where there is no active market, the Group applies of the hedged item and the hedging instrument, a clear description of valuation techniques to determine fair value. The valuations are based the hedged risk and a description of why the hedging is expected to be on the last issue price, traded prices known to us and discounted cash effective. The hedging instruments are valued at fair value and entered flows. In the case of securities in which there is no trading, the value is under ‘Net gain/(loss), financial instruments’ in the income statement. based on available accounting information, mainly in order to assess the need for write-downs and any obvious excess values. CURRENCY The fair value of fixed-rate loans is calculated by discounting the cash The Group’s presentation currency is Norwegian kroner. It is also the flow in the lending using the required rate of return derived from the zero functional currency of the parent company, subsidiaries and associated coupon curve, including the effect of the credit spread. companies.

The fair value of financial instrument liabilities is calculated by The bank’s receivables and liabilities in foreign currency are translated at discounting the cash flow from the loans using the required rate of the exchange rate on the balance sheet date. Income and expenses in return derived from the zero coupon curve. The credit spread on interest- foreign currency are translated into NOK at the rates on the transaction bearing securities is changed on the basis of an overall assessment that date. Currency items are largely hedged by matching them with takes account of observed trading in the market, credit margin reports corresponding items on the other side of the balance sheet, or through from various brokers, and internal evaluations. A change in the credit off-balance sheet hedging items.

PAGE 34 annual report 2012 TANGIBLE FIXED ASSETS capital assets, and tax payable on group contributions received. All of the Group’s properties are considered to be operating assets for own use, and the accounting treatment is in accordance with IAS 16. PENSION COMMITMENTS The properties are initially valued at historical cost and depreciated over Pension commitments are calculated in accordance with IAS 19. their expected useful life. Different elements with different useful lives Economic parameters used to calculate the pension commitments are must be differentiated and depreciated separately. Other tangible fixed updated on the balance sheet date, including the discount rate, which is assets are recognised at acquisition cost minus accumulated ordinary based on market interest rates on the balance sheet date. IAS 19 permits depreciation. the effect of differences between estimated and actual parameters to be entered in a ‘corridor’. Such deviations from estimates and assumptions Ordinary depreciation is based on the cost price, which is depreciated are measured against the greater of gross pension commitments and on a straight-line basis over the useful life of the asset. The depreciation total pension assets. If the deviations exceed 10% of the basis for the period and method are assessed every year to ensure that they are in measurement, the difference is amortised over the average remaining accordance with the economic realities of the fixed assets in question. period of service. Reference is otherwise made to the section on ‘Standards, amendments and interpretations of existing standards that The ordinary depreciation for the year is included in operating expenses have not entered into force and where the Group has not chosen early for the year. application’ for a more detailed description of the revised IAS 19 and expected effects of adopted amendments. On derecognition, any gains or losses are recognised under other operating income or other operating expenses. The net pension commitment is calculated and entered as a long-term liability in the accounts. The net pension commitment is the difference INTANGIBLE ASSETS between the gross pension commitment, which is the present value of Developed software expected future pension benefits, and pension assets in the insurance The development of software is recognised in the balance sheet and fund and the pension premium fund. Furthermore, the net pension classified as intangible assets when the amounts involved are deemed commitment entered in the balance sheet has been adjusted for to be material and the asset is expected to have lasting value. In accumulated deviations from estimates and the effect of changed connection with the development of software, the use of own resources assumptions, including employer’s National Insurance contributions. is capitalised insofar as expenses incurred can be measured in a The pension expense for the year is stated net in the income statement reliable manner. Costs relating to, among other things, pre-planning, under ‘Payroll and general administration expenses’. implementation and training are expensed as they arise. Capitalised software that has been developed by the bank is depreciated using The defined-benefit scheme was closed to new members in 2007 and the straight-line method over its expected useful life. Depreciation a voluntary transition to a defined-contribution scheme was offered. commences on the date the software is available for use in the company, The contributions are recognised in the accounts and accrued as payroll so that software under development is recognised at cost price until the expenses. See the note on the breakdown between the two schemes. development is completed. COMMITMENTS / PROVISIONS Whether a write-down is necessary as a result of the expected economic A provision has been made for commitments in accordance with IAS benefits being less than the balance sheet value is continuously assessed. 37. For a provision to be made, a commitment must exist as a result of a previous event, and there must be a high probability that the Goodwill commitment will have to be met. The provision has been calculated as Goodwill is the difference between the acquisition cost of a business the present value of future payments required to meet the commitment. and the fair value of the Group’s share of the net identifiable assets of The proposed dividend and donations for distribution were not formally the business on the acquisition date. Each goodwill item in the balance decided at year end and thus do not meet the criteria for a commitment sheet is allocated to cash flow-generating units that benefit from the under IAS 37.In the company accounts, dividends and donations are purchased asset. The choice of assessment unit is made on the basis recognised in the financial year that forms the basis for the allocation. of whether it is possible to identify and separate cash flows relating to the activity in question. Goodwill is tested annually for possible value POST BALANCE SHEET EVENTS depreciation and is recognised in the balance sheet at acquisition cost Events that occur after the balance sheet date are disclosed in minus write-downs. The write-down test of capitalised goodwill is carried accordance with IAS 10. The information concerns events that are not out by discounting expected future cash flows from the assessment units. recognised in the consolidated financial accounts, but whose nature makes them material to assessing the business. Customer portfolio The value of the customer portfolio is part of the cost price of CASH FLOW STATEMENT acquisitions. The value is set as the future cash flow, disregarding the Sparebanken Vest has made some changes to the classifications in the customer’s right to renewal. The customer portfolio is depreciated using cash flow statement in 2012. The statement is broken down into cash the straight-line method over the expected remaining contract period. flows from operations, investment activities and financing activities.

Cash flows from operations are defined as ongoing interest, commission TAXATION and fees related to lending, borrowings and deposits, interest rates Deferred tax and deferred tax assets are recognised in the balance sheet relating to liquidity, unpaid operating expenses and direct and indirect in accordance with IAS 12 Deferred Tax. The tax expense in the income taxes paid. Liquidity flows relating to securities held for trading purposes statement includes both the tax payable for the period and the change in are also classified here. deferred tax. The deferred tax/deferred tax asset is calculated at a rate of 28% of net temporary differences between accounting and tax values at Investment activities are defined as cash flows from changes in the year end. Tax-increasing and tax-reducing temporary differences that are nominal lending volume, cash flows from securities transactions not reversed or can be reversed in the same period are offset and entered net. held for trading purposes and investments in operating assets and real property. Cash flows relating to the volume of deposits, the raising and The deferred tax asset is capitalised on the basis of expectations of repayment of subordinated loans and bond debt, and equity are defined taxable income through earnings in future years. Tax payable in the as financing activities. balance sheet is the tax relating to the profit for the year, tax payable on annual report 2012 PAGE 35 EQUITY When buying own equity certificates, the purchase price including direct Equity consists of equity certificate capital, primary capital, the reserve costs will be recognised as a reduction in equity. The nominal value of for unrealised gains, other group equity and minority interests. own equity certificates is entered as a negative amount on a separate line under equity certificate capital. Any purchase price in excess of The equity certificate capital includes paid-up capital linked to equity nominal value is deducted from the bank’s primary capital. certificates, own holdings of equity certificates, the premium reserve and the equalisation reserve. The primary capital includes paid-up and The profit for the year is allocated to the owners of equity certificates retained primary capital, the gift fund and compensation fund. and primary capital in proportion to the ratio between the equity certificate capital plus the premium reserve, and primary capital plus In the parent bank, the reserve for unrealised gains consists of changes the compensation fund. The part of the year’s profit that is allocated to in the value of financial instruments where the principles used for equity certificate capital and not distributed as dividend is allocated to valuation in IFRS deviate from Norwegian GAAP. the equalisation reserve.

Other group equity consists of retained equity in subsidiaries and In the consolidated balance sheet, the proposed dividend and donations associated companies after the establishment of the Group, and the for distribution are classified as part of equity until the final resolutions effect of equity eliminations in the consolidated accounts. have been adopted by the Supervisory Board.

Note 2 Accounting estimates and discretionary assessments

When preparing the annual accounts in accordance with IFRS, For retail customers, separate procedures have been established to the group management has used estimates and assumptions identify matters of importance to the identification of loss events, that affect the amounts recognised for assets, liabilities, equity including continuous review and follow-up of default cases. and profit/loss. The estimates used are based on discretionary assessments and assumptions that were deemed to be realistic on The amount of the write-down is calculated as the difference the balance sheet date. New information and future events may between the balance sheet value (loan principal + accrued interest lead to significant changes to estimates with pertaining changes to at the date of valuation) and the present value of future cash flows recognised amounts. The Group’s most important estimates and discounted on the basis of the effective rate of interest over the assumptions are discussed below. useful life of the loan. Write-downs are classified as a loss expense in the income statement. Losses on loans and guarantees If there is objective evidence of one or more events having occurred The estimation of future cash flows from a loan also takes into since the initial recognition of the asset that affect future cash flows, account security taken over and sold, including costs in this the commitment is written down. Objective events could be default connection. When assessing security coverage, models are used to of payment, illiquidity or other material financial problems on the calculate the expected value of various assets pledged as security part of the debtor. in a realisation situation. Guidelines have been established for the assessment of future cash flows. Material commitments are The bank’s loss assessments will be the result of a process that reviewed by important credit environments in the bank before a final involves the business areas and important credit environments, decision is made. where there is a need for extensive use of discretionary assessment based on experience. Considerable uncertainty will be attached Commitments that are not identified by individual valuations or to the identification of commitments in which value impairment commitments that have been subject to an individual assessment, has taken place, and to the stipulation of fair value. The bank has where no individual write-down has been carried out, will be established a number of procedures and guidelines for addressing included in the assessment unit for group write-downs. When this uncertainty. Key factors in the area are commented on in the assessing the need for write-downs, the loans are broken down into following. groups with almost identical risk properties. The assessment is based on objective indications of a fall in value having occurred on the A division of responsibilities and procedures have been established balance sheet date that can be linked to the group. to ensure that decision-makers have as complete and relevant information as possible for identification of loss events and The calculation of the need for write-downs is based on the individual loss assessments. bank’s risk classification system, which is intended to be capable of identifying impaired payment status based on observable For corporate customers, chief responsibility for identification of loss and registered data. Any impairment in the portfolio as a result events is placed with the department that has chief responsibility for of macroeconomic factors that have not been addressed in the the commitment, since it knows the customer and the industry best. models shall be identified by a review of loss events at industry and For major corporate customers, periodic follow-up of commitments geographical level. Based on qualitative assessments performed by is required and procedures have been established for reviewing the customer divisions, necessary adjustments are estimated for commitments with identified objective evidence of loss events. The industry and geographical factors in the bank’s risk classification bank’s department for potential bad debt becomes involved and system. provides assistance relating to corporate commitments likely to default.

PAGE 36 annual report 2012 Note 2 Accounting estimates and discretionary assessments (contd.)

Fair value of financial instruments, including derivatives The required rate of return is based on a discretionary assessment of The fair value of financial instruments that are not traded in an the required rate of return in the market for the type of business the active market is determined by using various valuation techniques. assessment unit involves. The required rate of return chosen shall This is based on assumptions about what the market will use as a seek to reflect the risk in the enterprise being assessed and it shall be basis for the valuation of corresponding financial instruments and based on available information on the balance sheet date. the information available on the balance sheet date. See the notes on financial instruments and the statement of accounting principles Reference is made to Note 30 for comments relating to the for a description of the techniques used. Considerable discretion individual assessment units. must be exercised in the valuation of financial instruments that are not traded in an active market. Pension commitments The present value of pension commitments depends on economic Impairment of goodwill and actuarial assumptions. Key assumptions include the discount For all assessments units, tests are carried out to assess a potential rate, future wage growth, pension adjustments, expected return fall in the value of goodwill. Write-down tests are performed when on pension assets, plus demographic factors relating to disability there is an indication of a fall in value, and at least once a year. and mortality. Any changes in these assumptions affect the pension commitment and pension expense amounts recognised The choice of assessment unit is made on the basis of whether it is in the balance sheet. The calculation is based on guidelines for possible to identify and separate cash flows relating to the business assumptions issued by the Norwegian Accounting Foundation. in question. Future cash flows are based on historical results and, if relevant, take into account expectations of future conditions. The Reference is made to Note 28 for details relating to the Group’s estimation of future cash flows will therefore include assumptions pension commitments, and Note 1 for a more detailed description and estimates relating to highly uncertain factors. of the revised IAS 19 and expected effects of adopted amendments.

Note 3 Segment information

The management has considered which segments it is expedient to report on in relation to management and control. The segments are divided into the Corporate Market, the Retail Market, Markets and Real Estate Agency. Operating revenues are allocated directly, with the exception of NOK 60 million in the comparative figures, NOK 57 million of which is related to badwill in connection with the integration of Sparebanken Hardanger. Operating expenses are allocated directly, with the exception of IT expenses, staff- related costs and depreciation. Net interest is allocated on the basis of internally calculated intragroup interest based on 3-month NIBOR. Banking operations Corporate Retail Real Estate Not allocated Market Market Markets Agency by segment Total

GROUP

2012 Income statement Net interest 649 1 013 157 (4) (18) 1 797 Operating revenues 141 239 284 197 0 861 Operating expenses (155) (457) (33) (159) (516) (1 320) Losses (133) (14) 0 0 (147) Pre-tax profit 502 781 408 34 (534) 1 191 Tax expense (327) Profit/loss for the year 502 781 408 34 (534) 864

Balance sheet Net lending 27 052 79 737 0 0 0 106 789 Deposits 18 859 35 611 5 562 0 0 60 032

annual report 2012 PAGE 37 Note 3 Segment information (contd.)

2011 Income statement Net interest 569 799 9 3 209 1 590 Operating revenues 120 230 4 190 60 603 Operating expenses (143) (381) (41) (167) (602) (1 335) Losses (111) (15) 0 0 (126) Pre-tax profit 435 633 (28) 25 (333) 732 Tax expense (184) Profit/loss for the year 435 633 (28) 25 (333) 548

Balance sheet Net lending 25 246 73 745 314 0 0 99 304 Deposits 16 568 33 122 3 452 0 0 53 142

Banking operations Corporate Retail Not allocated Market Market Markets by segment Total

PARENT BANK

2012 Income statement Net interest 646 736 157 (99) 1 440 Operating revenues 141 239 256 257 893 Operating expenses (155) (457) (33) (445) (1 090) Losses (133) (12) 0 0 (145) Pre-tax profit 499 506 380 (287) 1 098 Tax expense (238) Profit/loss for the year 499 506 380 (287) 860

Balance sheet Net lending 26 880 40 847 176 0 67 903 Deposits 18 859 35 611 5 668 0 60 138

2011 Income statement Net interest 568 709 9 148 1 435 Operating revenues 120 230 129 59 538 Operating expenses (143) (381) (41) (568) (1 134) Losses (111) (15) 0 0 (126) Pre-tax profit 434 543 97 (360) 713 Tax expense (176) Profit/loss for the year 434 543 97 (360) 537

Balance sheet Net lending 25 463 42 645 314 0 68 421 Deposits 16 642 33 122 3 452 0 53 216

PAGE 38 annual report 2012 Note 4 Classification of financial instruments

GROUP

31/12-2012 Financial instruments at fair value through profit or loss Financial instr. Held for trading Recognised at subject to hedge Valued at purposes fair value accounting1) amortised cost Total Assets Cash in and receivables from central banks 877 877 Loans to and receivables from credit institutions 878 878 Lending 8 156 98 633 106 789 Shares 156 553 709 Certificates and bonds 47 15 105 15 152 Financial derivatives 970 959 1 929 Total 1 173 23 814 959 100 388 126 334

Liabilities Debt to credit institutions 172 5 258 5 430 Deposits 296 59 736 60 032 Securitised debt 6 485 16 450 27 818 50 753 Financial derivatives 674 801 1 475 Subordinated loan capital 926 700 1 626 Total 674 7 879 17 251 93 512 119 316

31/12-2011

Assets Cash in and receivables from central banks 668 668 Loans to and receivables from credit institutions 481 481 Lending 11 705 87 599 99 304 Shares 163 575 738 Certificates and bonds 78 11 459 11 537 Financial derivatives 1 208 487 1 695 Total 1 449 23 739 487 88 748 114 423

Liabilities Debt to credit institutions 169 7 802 7 971 Deposits 1 005 52 137 53 142 Securitised debt 7 809 10 707 26 090 44 606 Financial derivatives 920 169 1 089 Subordinated loan capital 952 661 1 613 Total 920 9 934 10 876 86 691 108 421

The group has no financial instruments classified as held to maturity or available for sale.

1) The group uses hedge accounting to manage interest rate risk and currency risk for long-term borrowings relating to the housing credit company. The hedging instruments (financial derivatives) will be recognised at fair value, while the hedged items will be recognised at fair value for selected risk elements (interest rate risk and currency risk).

annual report 2012 PAGE 39 Note 4 Classification of financial instruments (contd.)

PARENT BANK

31/12-2012 Financial instruments at fair value through profit or loss

Held for trading Recognised at Valued at purposes fair value amortised cost Total Assets Cash in and receivables from central banks 877 877 Loans to and receivables from credit institutions 4 608 4 608 Lending 6 963 60 940 67 903 Shares 156 553 709 Certificates and bonds 47 18 529 18 576 Financial derivatives 969 969 Total 1 172 26 045 66 425 93 642

Liabilities Debt to credit institutions 172 6 077 6 249 Deposits 296 59 842 60 138 Securitised debt 6 485 13 329 19 814 Financial derivatives 673 673 Subordinated loan capital 926 700 1 626 Total 673 7 879 79 948 88 500

31/12-2011

Assets Cash in and receivables from central banks 668 668 Loans to and receivables from credit institutions 2 968 2 968 Lending 9 811 58 610 68 421 Shares 163 575 738 Certificates and bonds 78 16 263 16 341 Financial derivatives 1 208 1 208 Total 1 449 26 649 62 246 90 344

Liabilities Debt to credit institutions 169 8 713 8 882 Deposits 1 005 52 211 53 216 Securitised debt 7 809 13 586 21 395 Financial derivatives 920 920 Subordinated loan capital 952 661 1 613 Total 920 9 935 75 171 86 026

The bank has no financial instruments classified as held to maturity, earmarked for hedging purposes or available for sale.

PAGE 40 annual report 2012 Note 5 Fair value of financial instruments recognised at amortised cost

GROUP 31/12-12 31/12-11 Balance Fair Balance Fair Notes sheet value value sheet value value

Cash in and receivables from central banks 877 877 668 668 Loans to and receivables from credit institutions 14 878 878 481 481 Loans to customers 9 98 633 98 582 87 599 87 546

Total assets recognised at amortised cost 100 388 100 337 88 748 88 695

Debt to credit institutions 32 5 258 5 265 7 802 7 833 Customer deposits 33 59 736 59 736 52 137 52 137 Securitised debt 35 27 818 28 053 26 090 26 153 Subordinated loan capital 36 700 714 662 656

Total liabilities recognised at amortised cost 93 512 93 768 86 691 86 779

Securities debt subject to hedge accounting 16 450 16 428 10 707 10 710

PARENT BANK

Cash in and receivables from central banks 877 877 668 668 Loans to and receivables from credit institutions 14 4 608 4 608 2 968 2 968 Loans to customers 9 60 940 60 889 58 610 58 556

Total assets recognised at amortised cost 66 425 66 374 62 246 62 192

Debt to credit institutions 32 6 077 6 084 8 713 8 744 Customer deposits 33 59 842 59 842 52 211 52 211 Securitised debt 35 13 329 13 448 13 586 13 627 Subordinated loan capital 36 700 714 662 656

Total liabilities recognised at amortised cost 79 948 80 088 75 172 75 238

Securities debt subject to hedge accounting 0 0 0 0

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

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

Loans to customers Only loans with a fixed mark-up on NIBOR are subject to valuation in this group. For all other loans, the deviations between fair value and amortised cost are non-material because any changes in value are reflected in the portfolio’s individual and group write-downs.

Customer deposits We believe amortised cost provides a good indication of the fair value of customer deposits.

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

annual report 2012 PAGE 41 Note 6 Valuation hierarchy for financial instruments at fair value

GROUP AND PARENT BANK Valuation of fair value

Level 1 Financial instruments traded in active markets are classified as level 1. A market is deemed to be active if the market prices are easily and regularly available from a stock exchange, broker, industry group, pricing service or regulatory authority, and these prices represent actual and regularly occurring market transactions at arm’s length. The market price used for financial assets is the applicable purchase price, while the applicable sales price is used for financial commitments. Instruments included in level 1 comprise listed shares, investments in unit trusts and treasury certificates.

Level 2 The fair value of financial instruments that are not traded in an active market is determined by using valuation methods. These valuation methods maximise the use of observable data where available and, as far as possible, are not based on the group’s own estimates. If all the material data required to determine the fair value of an instrument are observable data, the instrument is included in level 2. Instruments included in level 2 comprise loans to customers, equity instruments on the OTC list, other certificates and bonds, financial derivatives and all financial commitments valued at fair value.

Level 3 If one or more data items are not based on observable market information, the instrument is included in level 3.

31/12-2012 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 9 8 156 8 156 Shares valued at fair value through profit or loss 22 205 3 501 709 Certificates and bonds 16 1 489 13 663 15 152 Financial derivatives 21 970 970 Financial derivatives earmarked for hedge accounting 21 959 959 Total 1 694 23 751 501 25 946

Liabilities Debt to credit institutions 32 172 172 Deposits from and debt to customers 33 296 296 Securitised debt 35 6 485 6 485 Financial derivatives 21 674 674 Financial derivatives earmarked for hedge accounting 21 801 801 Subordinated loan capital 36 926 926 Total 0 9 354 0 9 354

Financial instruments valued pursuant to level 3 at 1 Jan. 2012 485 Purchase of shares classified as level 3 51 Sale of shares classified as level 3 (17) Reclassifications 4 Value adjustment relating to shares classified as level 3 (22) Financial instruments valued pursuant to level 3 at 31 Dec. 2012 501

PAGE 42 annual report 2012 Note 6 Valuation hierarchy for financial instruments at fair value (contd.)

31/12-2011 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 9 11 705 11 705 Shares valued at fair value through profit or loss 227 25 485 738 Certificates and bonds 16 9 11 528 11 537 Financial derivatives 21 1 208 1 208 Financial derivatives earmarked 21 487 487 for hedge accounting Total 236 24 953 485 25 675

Liabilities Debt to credit institutions 32 169 169 Deposits from and debt to customers 33 1 005 1 005 Securitised debt 35 7 809 7 809 Financial derivatives 21 920 920 Financial derivatives earmarked 21 169 169 for hedge accounting Subordinated loan capital 36 952 952 Total 0 11 024 0 11 023

Financial instruments valued pursuant to level 3 at 1 Jan. 2011 346 Purchase of shares classified as level 3 58 Sale of shares classified as level 3 (10) Reclassifications 25 Value adjustment relating to shares classified as level 3 66 Financial instruments valued pursuant to level 3 at 31 Dec. 2011 485

The parent bank and the group have different holdings of loans, certificates and bonds, plus financial derivatives subject to hedge accounting valued at fair value. All of these differences are related to level 2 and are described in the relevant notes.

annual report 2012 PAGE 43 Note 7 Financial risk management

Risk and capital management Good risk and capital management is a key strategic instrument in Sparebanken Vest’s value creation process. Good risk and capital management contribute to profitability and satisfactory rating and ensure the bank has good access to the capital market.

Sparebanken Vest has established its own risk strategies that specify control parameters for the individual risk areas. These strategies are reviewed at least once a year in connection with the bank’s overall planning process. The control parameters are intended to help to ensure the bank’s profitability, financial strength and liquidity through the diversification of risk in the short and long term.

The Board of Directors delegates authority to the Managing Director within each of the risk areas. Decision support and portfolio management systems have been established for both the retail market and the corporate market.

Organisation and responsibility Responsibility for and the exercise of the bank’s risk and capital management and control are divided between the bank’s Board of Directors, management and business units.

The Board of Directors of Sparebanken Vest is responsible for stipulating the bank’s overall risk tolerance. The Board shall also ensure that the bank has sufficient own funds in relation to the stipulated risk tolerance and the bank’s operations and that it is sufficiently capitalised in relation to regulatory requirements. The Board also defines the bank’s targets and limits in all risk areas, including adopting guidelines for the bank’s risk and capital management. Reporting in relation to targets and limits takes place quarterly to the Board of Directors.

The Board’s Credit Committee deals with credit matters in accordance with authorisations granted by the Board of Directors.

The Audit Committee is charged with ensuring that Sparebanken Vest has an independent and effective external and internal audit function, and financial and risk reporting that is in accordance with statutes and regulations.

The Managing Director is responsible for the bank’s overall risk and capital management, including to ensure that the bank has good models and frameworks for management and control at all times. Normally, unless the matter is considered by the bank’s Board of Directors, all decisions relating to risk and capital management are made by the Managing Director in consultation with other members of the bank’s management.

Risk Management and Compliance covers important functions relating to management, control, reporting and analysis. Risk Management and Compliance is also responsible for the bank’s models and frameworks for risk and capital management. The head of this function reports to the Managing Director.

The Validation Committee, which is chaired by the Managing Director, deals with both model validation and validation relating to the application of the bank’s credit systems and regulations. The bank uses internal measurement methods (IRB) to calculate capital for credit risk. Validation is a cornerstone of IRB that is intended to ensure that the IRB system is adapted to the portfolios to which it is applied. An annual validation report is prepared for the Board of Directors.

The Credit Committee, which is chaired by the Managing Director, deals with major commitments and matters of an unusual nature. Major commitments that involve risk are reviewed quarterly by the Managing Director’s Credit Committee.

All managers in Sparebanken Vest are responsible for managing risk and for ensuring good internal control in their own areas of responsibility in accordance with the bank’s adopted risk profile. In order to ensure good financial and administrative management, all managers must have the requisite knowledge about material risk factors within their own areas.

The role of the Internal Audit Function is to monitor the bank’s overall risk and capital management and internal control on behalf of the Board of Directors. The internal audit function is also tasked with checking whether procedures and guidelines are complied with and with assessing whether the bank’s models for risk and capital management provide a correct picture of the bank’s overall risk and capital situation. The internal audit function prepares an annual internal control report that also contains assessments of the bank’s IRB system and capitalisation process (ICAAP).

PAGE 44 annual report 2012 Note 7 Financial risk management (contd.)

Risk areas The bank’s risk and capital management mainly relates to four risk areas:

Credit risk is the risk of losses if the bank’s customers / counterparties are unable to meet their commitments relating to loans, credit facilities, guarantees and similar. For a more detailed description of credit risk, see Notes 8 to 17.

Market risk is defined as the risk of losses on open positions in financial instruments as a result of changes in market variables and/or market conditions within a specified timeframe. This includes stock market, interest- rate, currency and credit spread risk. For a more detailed description of market risk, see Note 18.

Liquidity risk consists of two elements – refinancing risk and price risk. By refinancing risk is meant the risk of not being able to refinance debt and not being able to finance an increase in assets. By price risk is meant the risk of not being able to refinance commitments without incurring material extra costs in the form of unusually expensive financing or a fall in the price of assets that must be realised. For a more detailed description of liquidity risk, see Note 23.

Operational risk is the risk of losses as a result of inadequate or deficient internal processes or systems, human error or external events.

Other risk areas:

Strategic risk is defined as the current or future risk relating to profits and capital due to changes in framework conditions for business and adverse business decisions, incorrect implementation of decisions or an inability to respond to changes in framework conditions for business.

Strategic risk is managed and dealt with through the bank’s strategy processes, and the strategy is evaluated annually. The business strategy sets the parameters for the bank’s risk strategies, while the assessment and management of risk guide the business strategy.

Insurance risk / pension risk The associated company Frende is exposed to insurance risk. Sparebanken Vest is affected by this through its holding in the company. For more detailed information about shareholdings in Frende, reference is made to Note 17.

As regards pension commitments, life insurance companies’ interest guarantee and meeting of pension commitments are deemed to entail a risk. The risk relating to the bank’s capitalised pension commitment (the bank’s defined-benefit scheme for employees) rests with the life insurance company DNB Livsforsikring.

Estimert kapitalbehov In addition to calculating regulatory capital, the bank also calculates its internal capital needs. T It differs from the regulatory capital in that it is based solely on a business economics perspective and has fewer limitations in relation to which methods are applied. The estimated capital need is used in the bank’s day-to-day management and forms the basis for commercial decisions.

For credit risk purposes, Sparebanken Vest uses internal systems to estimate its capital needs. Expected losses and economic capital are calculated on the basis of the following three components: probability of default, exposure and loss given default. The bank operates with a confidence level of 99.9% for a timeframe of one year, which corresponds to an A rating. The same model has been implemented for pricing the bank’s commitments.

The bank also calculates its capital needs in relation to the concentration in the credit portfolio. For the concentration risk resulting from large individual commitments, this capital is calculated using a simulation model. The industry/sector concentration is calculated using a more template-based amount based on the size and cyclicality of the industry or sector.

For market risk purposes, estimated capital needs are determined using stress tests for stock market, interest rate, currency and credit spread risk, respectively.

For liquidity risk purposes, estimated capital needs are calculated using a model that consists of four weighted variables: - Maturity structure of own borrowings - Market price of own bonds (spread) - Rating - Diversification of funding sources

For operational risk, regulatory capital is also used for the bank’s internal capital needs. Capital needs are also estimated for business risk purposes. It is regarded as a ‘residual risk’ and includes strategic risk and owner risk. For business risk, the amount is calculated on the basis of a comparison (with certain adjustment factors) with other banks.

annual report 2012 PAGE 45 Note 8 Risk classification of the credit portfolio

Credit risk Credit risk is the risk of losses if the bank’s customers fail to meet their commitments to the group. Credit risk arises through loans, credit facilities, guarantees, letters of credit and various derivative transactions with retail market and corporate market customers. Credit risk relating to derivative transactions is quantified using conversion factors that depend on the contract type and term to maturity.

Risk classification of loans and guarantees The measurement of credit risk is based on the following main components: i) probability of default (PD), ii), expected exposure at default (EAD) and iii) loss given default (LGD).

i) Probability of default (PD) is defined as the probability of a customer defaulting on a loan within the next 12 months. A default can be default of payment in excess of 90 days or other concrete circumstances (‘unlikely to pay’, cf. Basel II), that affect the customer’s ability to service the debt. The probability of default is calculated using statistical models (scorecards) based on logistic regression. Eleven risk classes from A to K are used in order to group the credit portfolio in Sparebanken Vest by debt-servicing ability.

ii) Expected exposure at default (EAD) is an estimated amount that shows the total exposure in relation to the customer in the event of default. EAD is estimated as the expected utilisation of credit plus the expected utilisation of unutilised drawing rights.

iii) Loss given default (LGD) indicates the loss ratio on a commitment in default expressed as a percentage of EAD. For the retail market, it is calculated on the basis of internal models. The type and value of loan security and the probability of recovery are key parameters in calculating the loss ratio. In addition to calculating the expected loss ratio, it is adjusted for periods of economic downturn by calculating a ‘downturn LGD’. The latter is used for capital adequacy purposes. Where the bank uses the basic IRB method for the corporate market, LGD rates from the Capital Adequacy Regulations are used. For economic capital, LGD is calculated using internal models for both the retail and corporate markets.

The scorecard models combine internal and external data to predict statistical relationships. The results are interpreted and form the basis for logical key figures, and they have a central place in the management of credit risk. A risk classification of all commitments is carried out every month in which data from internal and external sources are retrieved automatically. There is also manual follow-up of corporate commitments. The frequency of these assessments depends on the size of and risk associated with the commitment.

Adjusted scorecards have been developed in 2012 for both the retail and corporate markets. Adjusted scorecards for the retail market are broken down by product, so that customers are assigned one PD for housing loans and another PD for other products. These models are used internally in connection with the granting of loans and pricing, and the calculation of group write-downs. The group is waiting for approval from the Financial Supervisory Authority of Norway as regards the calculation of capital. A new system of risk classes has been introduced internally in this connection. The new system endeavours to achieve a more stable distribution across risk classes. Decision zones have been adjusted in accordance with the new risk classes, but they have not been significantly changed. The former and new system of risk classes is shown in the table below.

Risk classes based on probability of default

New intervals Former intervals

Risk class From and incl. Up to From and incl. Up to A 0.00% 0.10% 0.00% 0.15% B 0.10% 0.25% 0.15% 0.30% C 0.25% 0.50% 0.30% 0.45% D 0.50% 0.90% 0.45% 0.62% E 0.90% 1.50% 0.62% 0.78% F 1.50% 2.75% 0.78% 1.01% G 2.75% 5.00% 1.01% 1.41% H 5.00% 10.00% 1.41% 2.59% I 10.00% 25.00% 2.59% 4.48% J 25.00% 99.99% 4.48% 100.00% K 100.00% 100.00% 100.00% 100.00%

PAGE 46 annual report 2012 Note 8 Risk classification of the credit portfolio (contd.)

PARENT BANK GROUP Individual Individual Commitment write-downs1) Commitment write-downs1) Loans broken down by risk class 31/12-12 31/12-11 31/12-12 31/12-11 31/12-12 31/12-11 31/12-12 31/12-11 Corporate market A-D 15 794 13 257 0 0 15 794 13 759 0 0 E-H 17 963 16 948 0 0 17 963 16 948 0 0 I-J 999 1 316 0 0 999 1 315 0 0 K 1 258 1 224 267 302 1 258 1 224 267 302 Total – corporate market 36 014 32 745 267 302 36 014 33 247 267 302

Retail market A-D 40 034 39 277 0 0 81 341 72 364 0 0 E-H 4 165 4 247 0 0 5 566 5 109 0 0 I-J 413 444 0 0 476 491 0 0 K 232 222 25 18 272 238 25 18 Total – retail market 44 844 44 190 25 18 87 655 78 202 25 18 Total2) 80 858 76 935 292 320 123 669 111 449 292 320

1) All individual write-downs are allocated to the highest risk class. 2) The definition of a customer’s commitment on calculating risk classification will deviate somewhat from the definition of credit exposure pursuant to IFRS in a few areas. The total amount in this note will therefore not be fully reconcilable with commitments as defined in Note 10.

annual report 2012 PAGE 47 Note 9 Loans broken down by market, type of receivable and geographical area

PARENT BANK GROUP

31/12-11 31/12-12 31/12-12 31/12-11 Loans broken down by market 42 370 40 299 Wage earners 78 847 72 950 26 438 27 913 Industries/sectors 28 212 26 708 19 4 Public sector 4 19 179 167 Accrued interest 209 213 (24) (26) Amortisation (fees etc.) (26) (24) 68 210 Adjustment to fair value 210 68 69 050 68 567 Gross loans and receivables 107 456 99 934 (299) (273) Individual write-downs, loans (273) (299) (330) (391) Group write-downs, loans (394) (330) 68 421 67 903 Loans to and receivables from customers 106 789 99 304

Of which subordinated loan capital 43 43 Own funds in other financial institutions 43 43 43 43 Subordinated loan capital recognised under loans 43 43

Loans broken down by type of receivable, nominal principal 9 958 9 043 Overdraft facilities 24 755 22 722 1 694 2 199 Building loans 2 199 1 694 47 450 50 233 Instalment loans 72 175 63 642 59 102 61 475 Gross loans to customers 99 129 88 058 (299) (273) Individual write-downs, loans (273) (299) 58 803 61 202 Loans to customers after individual write-downs 98 856 87 759 161 155 Accrued interest 197 195 (24) (26) Amortisation (fees etc.) (26) (24) (330) (391) Group write-downs, loans (394) (330) 58 610 60 940 Loans to and receivables from customers at amortised cost 98 633 87 599

9 725 6 741 Loans to and receivables from customers, nominal principal 7 934 11 619 18 12 Accrued interest 12 18 68 210 Adjustment to fair value 210 68 9 811 6 963 Loans to and receivables from customers, fair value 8 156 11 705 68 421 67 903 Loans to and receivables from customers 106 789 99 304

Loans to customers recognised at fair value 12 844 9 811 Balance sheet value at 1 Jan. 11 705 14 126 (2 996) (2 990) Net additions/disposals (3 691) (2 384) (37) 142 Value change in period 142 (37) 9 811 6 963 Book value at 31 Dec. 8 156 11 705

The net gain/(loss) on loans recognised at fair value is included in the item net gain/(loss), financial instruments recognised at fair value (Note 26).

PAGE 48 annual report 2012 Note 9 Loans broken down by market, type of receivable and geographical area (contd.)

GROUP

31/12-12 31/12-11 Gross Individual Loans broken down by Gross Individual Proportion lending write-downs geographical area Proportion lending write-downs

71.9 77 213 191 Hordaland 74.2 74 116 213 8.7 9 299 7 Sogn og Fjordane 9.7 9 726 16 13.1 14 008 5 Rogaland 10.4 10 427 16 6.1 6 610 43 Rest of Norway 5.4 5 382 34 99.7 107 130 246 Total Norway 99.7 99 651 280 0.3 326 27 Abroad 0.3 282 19 100.0 107 456 273 Total geographical areas 100.0 99 934 299

PARENT BANK

31/12-12 31/12-11 Gross Individual Loans broken down by Gross Individual Proportion lending write-downs geographical area Proportion lending write-downs

67.7 46 452 191 Hordaland 68.1 47 000 213 10.4 7 094 7 Sogn og Fjordane 10.8 7 428 16 14.8 10 105 5 Rogaland 13.0 9 009 16 6.7 4 622 43 Rest of Norway 7.7 5 343 34 99.6 68 273 246 Total Norway 99.6 68 781 280 0.4 294 27 Abroad 0.4 269 19 100.0 68 567 273 Total geographical areas 100.0 69 050 299

annual report 2012 PAGE 49 Note 10 Commitments broken down by sectors and the retail market

2012

Loans in Unused credit Total default1) and Individual Lending facilities Guarantees commitments write-downs write-downs

GROUP

Primary industries 2 689 255 72 3 016 4 0 Manufacturing and mining 1 878 445 174 2 497 3 13 Building and construction, power and water supply 2 706 275 268 3 249 3 10 Commerce, hotels and restaurants 1 517 490 174 2 181 134 21 International shipping and pipeline transport 3 024 190 435 3 649 722 146 Other transport, post and telecommunications 1 401 132 10 1 543 6 0 Property management 11 445 683 650 12 778 180 66 Insurance and finance 1 741 220 122 2 083 14 10 Services 1 664 229 63 1 956 6 1 Municipal/public sector 4 0 0 4 0 0 Abroad 281 0 0 281 0 0 Total – business and industry 28 350 2 919 1 968 33 237 1 072 267 Retail customers 79 106 7 524 15 86 645 235 25 Total gross commitments 107 456 10 443 1 983 119 882 1 307 292 - Individual write-downs (273) 0 (19) (292) - Group write-downs (394) 0 0 (394) Total net commitments 106 789 10 443 1 964 119 196

PARENT BANK

Primary industries 2 649 251 72 2 972 4 0 Manufacturing and mining 1 857 442 174 2 473 3 13 Building and construction, power and water supply 2 559 263 268 3 090 3 10 Commerce, hotels and restaurants 1 446 483 174 2 103 134 21 International shipping and pipeline transport 3 024 181 435 3 640 722 146 Other transport, post and telecommunications 1 265 129 10 1 404 6 0 Property management 11 712 673 680 13 065 180 66 Insurance and finance 1 697 213 122 2 032 14 10 Services 1 556 219 63 1 838 6 1 Municipal/public sector 4 0 0 4 0 0 Abroad 281 0 0 0 0 0 Total – business and industry 28 050 2 854 1 998 32 621 1 072 267 Retail customers 40 517 3 253 15 43 785 212 25 Total gross commitments 68 567 6 107 2 013 76 406 1 284 292 - Individual write-downs (273) 0 (19) (292) - Group write-downs (391) 0 0 (391) Total net commitments 67 903 6 107 1 994 75 723

1) Default of payment in excess of 90 days.

PAGE 50 annual report 2012 Note 10 Commitments broken down by sectors and the retail market (contd.)

2011

Loans in Unused credit Total commit- default1) and Individual Lending facilities Guarantees ments write-downs write-downs

GROUP

Primary industries 2 563 204 25 2 792 13 4 Manufacturing and mining 1 926 783 205 2 914 28 23 Building and construction, power and water supply 2 651 618 499 3 768 181 37 Commerce, hotels and restaurants 1 240 500 187 1 926 144 49 International shipping and pipeline transport 3 252 28 211 3 491 514 87 Other transport, post and telecommunications 1 397 145 87 1 629 8 4 Property management 10 189 300 117 10 606 168 82 Insurance and finance 1 762 270 201 2 234 17 12 Services 1 606 153 93 1 852 36 2 Municipal/public sector 19 67 0 87 0 0 Abroad 269 0 113 382 51 2 Total – business and industry 26 875 3 069 1 738 31 682 1 160 302 Retail customers 73 058 6 547 19 79 625 206 18 Total gross commitments 99 934 9 616 1 757 111 307 1 366 320 - Individual write-downs (299) 0 (21) (320) - Group write-downs (330) 0 0 (330) Total net commitments 99 304 9 616 1 736 110 656

PARENT BANK

Primary industries 2 520 200 25 2 746 13 4 Manufacturing and mining 1 915 780 205 2 900 28 23 Building and construction, power and water supply 2 535 611 499 3 645 181 37 Commerce, hotels and restaurants 1 178 495 187 1 860 144 49 International shipping and pipeline transport 3 252 22 211 3 485 514 87 Other transport, post and telecommunications 1 273 142 87 1 502 8 4 Property management 10 394 292 147 10 833 167 82 Insurance and finance 1 726 265 201 2 192 17 12 Services 1 514 147 93 1 754 36 2 Municipal/public sector 19 67 0 86 0 0 Abroad 269 0 113 113 51 2 Total – business and industry 26 596 3 021 1 768 31 116 1 159 302 Retail customers 42 454 3 148 19 45 622 203 18 Total gross commitments 69 050 6 169 1 787 76 738 1 362 320 - Individual write-downs (299) 0 (21) (320) - Group write-downs (330) 0 0 (330) Total net commitments 68 421 6 169 1 766 76 087

1) Default of payment in excess of 90 days.

annual report 2012 PAGE 51 Note 11 Capitalised write-downs of commitments

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

PARENT BANK GROUP

31/12-11 31/12-12 31/12-12 31/12-11

Individual write-downs 275 299 Individual write-downs of loans at 1 January (nominal values) 299 275 (70) (96) Confirmed losses on loans previously provided for (96) (70) 44 74 Increased write-downs on previous individual write-downs 74 44 62 62 Write-downs of loans not previously written down 62 62 (27) (66) Reduction in previous years' write-downs of individually assessed loans (66) (27) 15 0 Write-downs acquired through the takeover of Hardanger Sparebank 0 15 299 273 Individual write-downs 273 299

Group write-downs 290 330 Write-downs of groups of loans at 1 January (nominal values) 330 291 26 61 Change in group write-downs in the period 63 26 14 0 Write-downs acquired through the takeover of Hardanger Sparebank 0 14 330 391 Write-downs of groups of loans 394 330 629 664 Total write-downs of loan commitments 667 630

Provision for bad debt rel. to guarantees 20 21 Provision for bad debt to cover losses on guarantees at 1 January 21 20 1 (2) Changes in write-downs on guarantees for the period (2) 1 0 0 Confirmed losses on guarantees covered by previous provision for bad debt 0 0 21 19 Specified provision for bad debt to cover losses on guarantees 19 21

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

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

When the best estimate of the future cash flow is estimated and recorded, the system will calculate the new value of the loan (amortised cost) and the difference will be the amount of the write-down.

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

PAGE 52 annual report 2012 Note 12 Development in losses and commitments in default

PARENT BANK GROUP

31/12-11 31/12-12 Losses on loans, guarantees etc. 31/12-12 31/12-11 9 (26) Changes in individual write-downs for the period (26) 9 70 96 Confirmed losses on commitments previously provided for 96 70 37 32 Confirmed losses on commitments not previously provided for 32 37 (17) (17) Recoveries in previously confirmed write-downs (17) (17) 99 85 Net effect on profits/loss from individual write-downs 85 99 26 61 Change in group write-downs in the period 63 26 124 147 Write-downs and losses on loans 148 124

0 0 Confirmed losses on guarantees 0 0 1 (2) Changes in write-downs on guarantees in the period (2) 1 1 (2) Losses on guarantees (2) 1

126 145 Total losses on loans, guarantees etc. 147 126

The group’s net loss expense in 2012 corresponded to 0.14% of average gross loans of NOK 103,695 million.

Expected losses for the next 12 months are estimated to exceed the long-term average, which is estimated to be 0.25% of commitments.

31/12-11 31/12-12 Commitments in default 31/12-12 31/12-11 396 402 Gross loans in default (more than 90 days) 425 400 (70) (86) Individual write-downs (86) (70) 327 316 Net loans in default 339 330 18% 21% Percentage provided for 20% 17%

31/12-11 31/12-12 Other loans with loss write-down 31/12-12 31/12-11 966 882 Gross other loans with loss write-down 882 966 (230) (187) Individual write-downs (187) (230) 737 695 Net other loans with loss write-down 695 737 24% 21% Percentage provided for 21% 24%

31/12-11 31/12-12 Age distribution of commitments in default 31/12-12 31/12-11

Retail market 181 127 31–60 days 152 190 32 33 61–90 days 40 33 185 209 More than 90 days 232 188 398 369 Total retail market 424 412

Corporate market 27 133 31–60 days 133 27 24 5 61–90 days 5 24 211 193 More than 90 days 193 212 262 331 Total corporate market 331 263

208 260 31–60 days 285 217 56 38 61–90 days 45 58 396 402 More than 90 days 425 400 661 700 Total 755 675

The table shows defaults on payments exceeding 30 days where the amount in default exceeds NOK 1,000 in one of the commitment’s accounts.

annual report 2012 PAGE 53 Note 13 Secured debt

Gross loans are largely secured by mortgage. Security in the retail market largely consists of real property. In the corporate market, security mainly consists of tangible fixed assets.

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

PARENT BANK GROUP

31/12-12 31/12-12 Retail Corporate Retail Corporate market market Total Security level market market Total

19.2% 30.4% 23.8% 0% - 50% 25.7% 30.4% 27.0% 27.5% 27.3% 27.4% 50% - 75% 43.2% 27.3% 38.8% 29.5% 11.4% 22.1% 75% - 90% 17.3% 11.4% 15.7% 10.8% 3.3% 7.8% 90% - 100% 6.2% 3.3% 5.4% 7.1% 22.5% 13.4% 100% - 4.4% 22.5% 9.4% 2.9% 0.0% 1.7% Other security 1.6% 0.0% 1.1% 3.0% 5.1% 3.8% Unsecured 1.6% 5.1% 2.6% 100.0% 100.0% 100.0% Total 100.0% 100.0% 100.0%

31/12-11 31/12-11 Retail Corporate Retail Corporate market market Total Security level market market Total

21.6% 28.4% 24.3% 0% - 50% 27.2% 28.4% 27.5% 34.2% 33.7% 34.0% 50% - 75% 40.7% 33.7% 38.8% 18.7% 8.7% 14.9% 75% - 90% 15.8% 8.7% 13.9% 12.5% 4.4% 9.4% 90% - 100% 7.8% 4.4% 6.9% 6.6% 20.1% 11.7% 100% - 4.6% 20.1% 8.8% 2.6% 0.0% 1.6% Other security 1.6% 0.0% 1.2% 3.8% 4.7% 4 .1% Unsecured 2.3% 4.7% 2.9% 100.0% 100.0% 100.0% Total 100.0% 100.0% 100.0%

PAGE 54 annual report 2012 Note 14 Loans to and receivables from credit institutions

PARENT BANK GROUP

31/12-11 31/12-12 31/12-12 31/12-11 Loans to and receivables from credit institutions with no agreed 2 610 4 214 term to maturity or period of notice 484 386 Loans to and receivables from credit institutions with an agreed 358 394 term or period of notice 394 95 2 968 4 608 Loans to and receivables from credit institutions 878 481

Geographical areas 2 462 4 168 Hordaland 438 19 0 25 Sogn og Fjordane 25 0 435 50 Rest of Norway 50 390 72 365 Abroad 365 72 2 968 4 608 Total geographical areas 878 481

Note 15 Guarantees and secured debt

PARENT BANK GROUP

31/12-11 31/12-12 Breakdown of guarantee types 31/12-12 31/12-11 799 869 Payment guarantees 869 799 543 603 Contract guarantees 603 543 0 24 Loan guarantees 24 0 2 1 Guarantees for taxes 1 2 443 516 Other guarantee liabilities 486 413 1 787 2 013 Guarantee liability in relation to customers 1 983 1 757 23 380 31 740 Intercompany liquidity facility 0 0 25 167 33 753 Total guarantee liability 1 983 1 757

Secured debt Bonds and certificates – as security for overnight loans 10 650 10 523 from Norges Bank, with a value of 10 523 10 650 10 650 10 523 Total secured debt 10 523 10 650

annual report 2012 PAGE 55 Note 16 Certificates and bonds

GROUP 31/12-12 Broken down by sector Spread risk Cost price Market value Rel. distribution State 0 1 487 1 490 10% Banking and finance 92 3 234 3 264 22% Covered bonds 206 8 886 8 962 59% Municipalities and county authorities 14 1 098 1 135 7% Companies etc. 4 299 301 2% Certificates and bonds 316 15 004 15 152 100%

Listed/unlisted Av. interest rate Listed 2.28% 13 225 13 341 88% Unlisted 2.07% 1 779 1 811 12% Certificates and bonds 1) 2) 15 004 15 152 100%

31/12-11 Broken down by sector Spread risk Cost price Market value Rel. distribution State 0 9 9 0% Banking and finance 115 3 885 3 882 34% Covered bonds 160 6 426 6 408 56% Municipalities and county authorities 15 526 555 5% Companies etc. 18 686 683 6% Certificates and bonds 308 11 532 11 537 100%

Listed/unlisted Av. interest rate Listed 3.94% 6 524 6 517 56% Unlisted 3.97% 5 008 5 020 44% Certificates and bonds 1) 2) 11 532 11 537 100%

PARENT BANK

31/12-12 Broken down by sector Spread risk Cost price Market value Rel. distribution State 0 1 487 1 490 8% Banking and finance 92 3 234 3 264 18% Covered bonds 240 12 270 12 386 67% Municipalities and county authorities 14 1 098 1 135 6% Companies etc. 4 299 301 2% Certificates and bonds 350 18 388 18 576 100%

Listed/unlisted Av. interest rate Listed 2.23% 16 634 16 792 90% Unlisted 2.07% 1 754 1 784 10% Certificates and bonds1) 2) 18 388 18 576 100%

31/12-11 Broken down by sector Spread risk Cost price Market value Rel. distribution State 0 9 9 0% Banking and finance 113 3 885 3 882 24% Covered bonds 216 11 193 11 212 69% Municipalities and county authorities 15 526 555 3% Companies etc. 18 686 683 4% Certificates and bonds 362 16 299 16 341 100%

Listed/unlisted Av. interest rate Listed 3.70% 11 401 11 430 70% Unlisted 3.97% 4 898 4 911 30% Certificates and bonds 1) 2) 16 299 16 341 100%

1) Including subordinated loans of NOK 56.4 (59.4) million. 2) NOK 1.049 (565) million of which is foreign. The average interest rate is calculated by identifying the discount rate that results in a calculated value equal to the market value.

PAGE 56 annual report 2012 Note 17 Shareholdings in group companies and associated companies

Balance sheet value Balance sheet value in subgroup in parent bank Group companies Number (balance sheet value, parent bank) of shares Holding (%) 31/12-12 31/12-11 31/12-12 31/12-11 Sparebanken Vest Boligkreditt AS 1 700 000 100 1 700 1 700 Sparebanken Vest Eiendomsforvaltning AS 1 100 15 124 Sparebanken Vest Eiendom Jonsvollskvartalet AS1) 100 100 110 Sparebanken Vest Eiendom Dale AS 1 100 1 1 Sparebanken Vest Eiendom Kaigaten AS 1 100 6 6 Sparebanken Vest Eiendom Lonevåg AS 1 100 1 1 Sparebanken Vest Eiendom Nedre 1 100 21 21 Korskirkealmenning AS Sparebanken Vest Eiendom Nordfjordeid AS 1 100 1 1 Sparebanken Vest Eiendom Norheimsund AS 1 100 2 2 Sparebanken Vest Eiendom Sogndal AS 1 100 2 2 Sparebanken Vest Eiendom Stord AS 1 100 3 3 Sparebanken Vest Eiendom Sauda AS 1 100 2 2 Eiendomsmegler Vest AS 1 200 100 53 53 Kyte Næringsmegling AS 1 350 90 7 7 Herland Eiendom AS 147 70 9 9 Kyrkjebøkvartalet AS 10 000 100 3 3 Jonsvollskvartalet AS1) 100 100 158 Vestlandskonferansen AS 100 100 Total group companies in parent bank 1 928 1 880

1) In 2012, Jonsvollkvartalet AS was sold from Sparebanken Vest Eiendomsforvaltning AS to the parent company.

Associated companies Number (balance sheet value, parent bank) of shares Holding (%) 31/12-12 31/12-11 Frende Holding AS 3 021 489 44.70 363 340 Norne Eierselskap AS 87 512 964 49.00 34 16 Verd Boligkreditt AS 60 000 40.00 60 60 Brage Finans AS 24 950 000 49.90 117 67 Total shares in associated companies 575 484

Norne Eierselskap AS has been written down in Sparebanken Vest’s company accounts by NOK 42 million in 2011. On 4 January 2012, the bank participated in a share issue relating to Norne Eierselskap AS of which the bank’s share amounted to NOK 17.7 million.

Associated companies (company Profit information – 20112) Assets Liabilities Income after tax Frende Holding AS, Bergen 2 469 2 016 1 087 (54) Norne Eierselskap AS, Bergen 20 0 0 (55) Verd Boligkreditt AS, Bergen 3 069 2 918 91 2 Brage Finans AS, Bergen 481 362 16 (9)

2) Last official accounts (31 Dec. 2011).

annual report 2012 PAGE 57 Note 17 Shareholdings in group companies and associated companies (contd.)

Associated companies Frende Norne Verd Bolig- Brage (balance sheet value, group) 2012 Holding AS Eierselskap AS kreditt AS Finans AS Total Balance sheet value at beginning of period 212 16 61 60 349 Additions 0 0 0 0 0 Capital increase 23 18 0 50 91 Share of profit/loss 43 (12) 5 (2) 34 Balance sheet value at end of period 278 22 66 108 473

Associated companies (balance sheet value, group) 2011 Balance sheet value at beginning of period 231 29 39 27 326 Additions 0 0 0 0 0 Capital increase 0 15 20 37 72 Share of profit/loss (19) (27) 1 (5) (50) Balance sheet value at end of period 212 16 61 60 349

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

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

Verd Boligkreditt AS was formed in 2009 as a collaboration between Sparebanken Vest and eight independent savings banks with the object of financing housing loans by issuing covered bonds. The company is managed by Sparebanken Vest. The bank will not transfer its own loan portfolios to Verd Boligkreditt AS. Sparebanken Vest has an ownership interest of 40%. The remaining 60% is owned by the other eight savings banks in proportion to their assets under management.

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

PAGE 58 annual report 2012 Note 18 Market risk

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

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

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

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

Note 19 shows the sensitivity of the bank’s interest rate risk to a parallel shift in the interest rate curve. The sensitivity of the bank’s exchange rate risk is shown in Note 20. The sensitivity of the bank’s stock market risk to a percentage fall in all share prices can be derived from Note 22. Note 16 shows the sensitivity of the bank’s credit spread risk. The method used is taken from the Financial Supervisory Authority of Norway’s module for market and credit risk in insurance.

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

The total capital requirement relating to market risk can be summarised as follows:

31/12-12 31/12-11 Market risk 1 110 1 000

annual report 2012 PAGE 59 Note 19 Interest rate sensitivity

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

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

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

The changes in value in the tables assume a parallel shift in the interest rate curve for all durations. The changes are calculated by taking into account the average remaining term to maturity of the positions, positions on the balance sheet date and the assumed change in the interest rate.

The tables below show the financial consequences of a 1% interest rate increase for the Group and the parent bank’s balance sheet total broken down by time intervals and balance sheet items. By balance sheet total is meant all balance sheet items that entail an interest rate risk as well as contract amounts of derivatives.

Interest rate sensitivity by period 0–3 3 - 12 More than GROUP months months 1-3 years 3-5 years 5 years Total 31 Dec. 2012 Change in value balance sheet total (22.3) 6.2 (7.8) 8.4 (17.2) (32.7) 31 Dec. 2011 Change in value balance sheet total (23.4) 34.3 (19.1) (0.1) 12.9 4.6

PARENT BANK 31 Dec. 2012 Change in value balance sheet total (15.1) 6.2 (7.8) 8.4 (17.2) (25.5) 31 Dec. 2011 Change in value balance sheet total (8.4) 28.4 (19.1) (0.1) 12.9 13.7

Interest rate sensitivity broken down by balance sheet items

PARENT BANK GROUP

31/12-11 31/12-12 Balance sheet 31/12-12 31/12-11 (81.7) (150.0) Fixed-interest loans (150.0) (81.7) (99.5) (108.9) Other loans (154.0) (150.5) (36.9) (51.7) Bonds/certificates (52.1) (37.2) (0.7) (2.2) Other (3.3) (2.1) (218.8) (312.8) Total assets (359.4) (271.5) 4.9 1.4 Fixed-interest deposits 1.4 4.9 79.8 91.1 Other deposits. customers 91.1 79.8 311.0 259.3 Bonds/certificates 298.6 348.7 5.4 4.2 Other borrowing 4.3 11.3 401.1 356.0 Total liabilities 395.4 444.7 (168.6) (68.7) Derivatives (68.7) (168.6) 13.7 (25.5) Total (32.7) 4.6

PAGE 60 annual report 2012 Note 20 Currency positions

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

Currency USD EUR GBP CHF DKK JPY Other Aggregate Net currency exposure at 31 Dec. 2012 3 19 (38) 5 139 1 4 133 Effect on profit and equity of changes in exchange rates of 5% 0 1 (2) 0 7 0 0 7 Net currency exposure at 31 Dec. 2011 41 (8) 4 12 94 (12) 10 141 Effect on profit and equity of changes in exchange rates of 5% 2 0 0 1 5 (1) 1 7

annual report 2012 PAGE 61 Note 21 Financial derivatives

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

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

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

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

Interest rate agreements - Forward Rate Agreements (FRA), which stipulate a rate of interest on a nominal amount for a future period of time.

- Interest swaps, which are agreements to swap interest rate terms (fixed for floating) for a specific amount over a given period of time.

- Interest rate options (call) entitle the buyer to receive from the seller the difference between the market rate and the agreed rate of interest, if the market rate is higher than the agreed rate of interest for a specific amount over a given period.

- Interest rate options (put) entitle the buyer to receive from the seller the difference between the market rate and the agreed rate of interest, if the market rate is lower than the agreed rate of interest for a specific amount over a given period.

Portfolio guarantee The bank participates in a guarantee that guarantees against risk relating to the volatility of the value of Eksportfinans’ liquidity portfolio. The bank’s share is NOK 50 million.

Options The bank’s holding of options relate to the interest rate cap on housing loans for young people (BSU).

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

31/12-12 31/12-11 Nominal Positive Negative Nominal Positive Negative value market value market value value market value market value FRA 1 000 1 1 0 1 8 Interest swap agreements 34 140 922 652 27 065 1 143 779 Options/Cap/Floor/Collar/Swaption 6 480 1 3 2 206 3 4 Total interest rate instruments 41 620 924 656 29 271 1 146 791

Interest rate derivatives earmarked for hedging purposes 17 192 955 252 8 342 487 0 Interest rate and currency derivatives earmarked for hedging purposes 8 837 4 549 7 942 0 169 Total derivatives earmarked for hedging purposes 26 029 959 801 16 284 487 169

Portfolio guarantee 50 8 0 50 0 3

Options 0 0 0 0 0 0 Total equity-related contracts 0 0 0 0 0 0

Instalments 4 381 37 17 15 362 62 126 Total currency-related contracts 4 381 37 17 15 362 62 126

Total OTC derivatives 72 080 1 929 1 475 60 967 1 695 1 089

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

The parent bank’s exposure to derivatives corresponds to that of the group with the exception of interest rate and currency derivatives earmarked for hedge accounting, which only concerns the subsidiary Sparebanken Vest Boligkreditt AS.

PAGE 62 annual report 2012 Note 22 Shares

Shares are classified at fair value through profit or loss Cost price 31/12-12 31/12-11 Shares valued at fair value through profit or loss are divided into the following portfolios Trading portfolio (listed) 161 156 163 Recognised at fair value 581 553 575 Total shares valued at fair value through profit or loss 709 738 Valuation method Listed 186 192 Fund investments as priced by the investment management company 19 35 Shares valued on the basis of the OTC list 3 25 The companies' own valuations on the basis of EVCA1) 76 55 Shares valued on the basis of other valuation techniques 2) 425 430 Shares valued at fair value through profit or loss 709 738

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

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

The Group has a commitment to pay further equity related to the following ordinary share limits and venture investments in 2012. The committed amount relating to share investments for 2011 amounted to NOK 113 million.

Comm. amount Paid Borea Opportunity II As 50 35 Fjordinvest Sørvest AS (Såkorn) 14 7 Icon Capital III AS 5 1 Incitia Ventures II AS 5 4 Norgesinvestor Opportunity AS 10 8 Sarsia Seed AS 20 15 Committed amounts relating to share investments 104 70

annual report 2012 PAGE 63 Note 22 Shares (contd.I)

Specification of shares, units and funds as of 31 Dec. 2012 Balance sheet value in NOK 1,000 Number of shares Holding (%) Balance sheet value Norwegian companies Aker Solutions ASA 35 000 0.0 % 3 952 Amundsen Brands AS 225 000 9.8 % 2 250 Appy AS 100 000 4.2 % 3 600 Atea ASA 35 000 0.0 % 2 100 Bergensavisen GROUP AS 315 840 9.8 % 6 317 Bipper Communication AS 395 460 14.5 % 14 237 Borea Noterte III AS A-Aksjer 50 000 1.9 % 3 700 Borea Opportunity II AS 22 500 15.4 % 29 250 Christian Michelsen Research AS 1 400 5.0 % 6 300 Cool Flame Technologies AS 127 000 6.5 % 2 540 Creacon International Holding AS 5 389 6.4 % 11 140 Det Norske Oljeselskap ASA 40 000 0.0 % 3 300 Dnb ASA 150 000 0.0 % 10 560 Eiendomskreditt AS 272 000 10.0 % 29 920 Eksportfinans AS 2 638 1.0 % 50 122 Electromagnetic Geoservices AS 170 000 0.1 % 2 220 Epsis AS 20 202 6.7 % 2 020 Ez Systems AS 301 359 6.2 % 12 054 Fjord Line AS 400 000 0.8 % 3 600 Fjordinvest AS 17 000 16.5 % 4 250 Fjordinvest Sørvest AS 7 100 000 17.3 % 5 625 Helgeland Sparebank 200 000 1.1 % 6 200 Hordaland Maritime Miljøselskap AS 3 333 7.5 % 5 000 Icefresh AS 71 883 17.4 % 6 973 Includu Holding AS 1 429 12.5 % 2 001 It's Learning AS 6 700 4.2 % 24 790 K.F.S. Egenkapitalbevis 4 140 8.3 % 4 140 Marine Harvest ASA 1 200 000 0.0 % 6 144 Nordito Property AS 367 645 3.6 % 8 871 Norgesinv. Opp. AS 76 800 12.9 % 7 020 Norsk Hydro ASA 230 000 0.0 % 6 412 Norsk Innovasjonskapital II AS 1 333 12.8 % 4 802 Norwegian Air Shuttle ASA 15 000 0.0 % 2 159 Norwegian Car Carriers AS 1 271 810 1.0 % 2 162 Opera Software ASA 120 000 0.1 % 3 792 Opra Technologies ASA 1 500 000 2.2 % 2 250 Orkla ASA 47 500 0.0 % 2 304 Osmolife AS 23 750 000 13.9 % 7 125 Pinovo AS 65 647 12.9 % 4 595 Sarsia Development AS 201 851 11.6 % 7 509 Sarsia Seed AS 3 788 328 17.1 % 3 788 Seagarden ASA 2 279 938 4.0 % 2 280 Sea-Hawk Navigation AS 71 472 15.3 % 7 250 Sorbwater Technology AS 75 988 11.7 % 9 878 Sparebank1 Næringskreditt 52 909 0.6 % 6 614 Statoil ASA 65 000 0.0 % 9 035 Telenor ASA 55 000 0.0 % 6 171 TGS Nopec Geophysical ASA 30 000 0.0 % 5 445 Tide ASA 2 175 600 9.6 % 33 722 Vekstfondet AS 28 501 18.9 % 2 850 Voss Veksel- Og LandmandsbanK 9 499 10.0 % 18 533 Wellis AS 6 600 3.7 % 4 620 Weyland AS 61 469 15.0 % 10 204 Yara International ASA 25 000 0.0 % 6 845 Other Norwegian companies 66 681 517 218

PAGE 64 annual report 2012 Note 22 Shares (contd.I) Note 22 Shares (contd.II)

Specification of shares, units and funds as of 31 Dec. 2012 Specification of shares, units and funds as of 31 Dec. 2012 Balance sheet value in NOK 1,000 Number of shares Holding (%) Balance sheet value Norwegian companies Balance sheet value in NOK 1,000 Number of shares Holding (%) Balance sheet value Aker Solutions ASA 35 000 0.0 % 3 952 Foreign companies Amundsen Brands AS 225 000 9.8 % 2 250 Nets Holding AS 3 199 540 1.8% 145 823 Appy AS 100 000 4.2 % 3 600 Polarcus Ltd 320 000 0.1% 2 125 Atea ASA 35 000 0.0 % 2 100 Royal Caribbean Cruises Ltd 30 000 0.0% 5 520 Bergensavisen GROUP AS 315 840 9.8 % 6 317 Seadrill Limited 35 000 0.0% 7 116 Bipper Communication AS 395 460 14.5 % 14 237 Standard Drilling ASA 250 000 0.1% 2 400 Borea Noterte III AS A-Aksjer 50 000 1.9 % 3 700 Subsea 7 S.A. 50 000 0.0% 6 630 Borea Opportunity II AS 22 500 15.4 % 29 250 Other foreign companies 5 872 Christian Michelsen Research AS 1 400 5.0 % 6 300 175 486 Cool Flame Technologies AS 127 000 6.5 % 2 540 Shares in unit trusts Creacon International Holding AS 5 389 6.4 % 11 140 Holberg Global 73 281 7 764 Det Norske Oljeselskap ASA 40 000 0.0 % 3 300 Holberg Rurik 64 302 7 680 Dnb ASA 150 000 0.0 % 10 560 Number of shares in unit trusts 756 Eiendomskreditt AS 272 000 10.0 % 29 920 16 201 Eksportfinans AS 2 638 1.0 % 50 122 Electromagnetic Geoservices AS 170 000 0.1 % 2 220 Total investments in shares, units and funds 708 905 Epsis AS 20 202 6.7 % 2 020 Ez Systems AS 301 359 6.2 % 12 054 Fjord Line AS 400 000 0.8 % 3 600 Fjordinvest AS 17 000 16.5 % 4 250 Fjordinvest Sørvest AS 7 100 000 17.3 % 5 625 Helgeland Sparebank 200 000 1.1 % 6 200 Hordaland Maritime Miljøselskap AS 3 333 7.5 % 5 000 Icefresh AS 71 883 17.4 % 6 973 Includu Holding AS 1 429 12.5 % 2 001 It's Learning AS 6 700 4.2 % 24 790 K.F.S. Egenkapitalbevis 4 140 8.3 % 4 140 Marine Harvest ASA 1 200 000 0.0 % 6 144 Nordito Property AS 367 645 3.6 % 8 871 Norgesinv. Opp. AS 76 800 12.9 % 7 020 Norsk Hydro ASA 230 000 0.0 % 6 412 Norsk Innovasjonskapital II AS 1 333 12.8 % 4 802 Norwegian Air Shuttle ASA 15 000 0.0 % 2 159 Norwegian Car Carriers AS 1 271 810 1.0 % 2 162 Opera Software ASA 120 000 0.1 % 3 792 Opra Technologies ASA 1 500 000 2.2 % 2 250 Orkla ASA 47 500 0.0 % 2 304 Osmolife AS 23 750 000 13.9 % 7 125 Pinovo AS 65 647 12.9 % 4 595 Sarsia Development AS 201 851 11.6 % 7 509 Sarsia Seed AS 3 788 328 17.1 % 3 788 Seagarden ASA 2 279 938 4.0 % 2 280 Sea-Hawk Navigation AS 71 472 15.3 % 7 250 Sorbwater Technology AS 75 988 11.7 % 9 878 Sparebank1 Næringskreditt 52 909 0.6 % 6 614 Statoil ASA 65 000 0.0 % 9 035 Telenor ASA 55 000 0.0 % 6 171 TGS Nopec Geophysical ASA 30 000 0.0 % 5 445 Tide ASA 2 175 600 9.6 % 33 722 Vekstfondet AS 28 501 18.9 % 2 850 Voss Veksel- Og LandmandsbanK 9 499 10.0 % 18 533 Wellis AS 6 600 3.7 % 4 620 Weyland AS 61 469 15.0 % 10 204 Yara International ASA 25 000 0.0 % 6 845 Other Norwegian companies 66 681 517 218

annual report 2012 PAGE 65 Note 23 Liquidity risk/ remaining term to maturity

Liquidity risk is the risk of the bank being unable to service its debt as it falls due or being unable to finance increases in assets. The bank’s liquidity risk is assessed on the basis of an evaluation of the bank’s balance sheet structure, including the bank’s dependence on financing from sources other than its customers, and the extra costs involved in raising long-term financing from the capital market. Sparebanken Vest manages liquidity risk in accordance with a number of targets and parameters. The most important of these are structural liquidity (time without access to financing from the capital market), liquidity indicator (stable financing with maturity later than one year hence in relation to illiquid assets) and financing ratio (deposits in relation to lending).

The majority of the bank’s long-term financing with final due date later than one year hence has fixed short-term interest rates. This is done in order to reduce the interest rate risk associated with long-term borrowings.

In the following table, bond debt and deposits are included at nominal value and placed in the time band for final maturity. The earliest time band (0– 1 month) includes sight deposits, loan approvals and unused credit. Interest due later than one month hence is specified in order to distinguish between the loan principal and future interest payments.

GROUP 3–12 From 1–5 More than Residual time to maturity at 31/12 2012 0–1 month 1–3 months months years 5 years Total Debt to credit institutions 1 230 950 1 114 1 484 652 5 430 Interest disbursements 0 15 61 83 80 239

Customer deposits 59 547 305 137 43 0 60 032 Interest disbursements 0 4 3 2 0 9

Securitised debt 662 920 6 164 37 939 3 700 49 385 Interest disbursements 36 311 900 3 112 598 4 957

Loan approvals and unused credit facilities 10 443 0 0 0 0 10 443

Subordinated loan capital and subordinated bonds 0 0 0 0 1 435 1 435 Interest disbursements 2) 0 11 89 399 2 083 2 582

Financial derivatives, gross settlement (outflows) 1) 2 919 1 005 1 076 15 109 795 20 904 Total payments 74 837 3 521 9 544 58 171 9 343 155 416

1) Financial derivatives, gross settlement (inflows) 2 906 1 104 1 140 14 779 1 426 21 355 2) Interest disbursements are included for

subordinated bonds up to 2034, 2040 and 2042.

GROUP 3–12 From 1–5 More than Residual time to maturity at 31/12 2011 0–1 month 1–3 months months years 5 years Total Debt to credit institutions 2 006 1 088 584 3 549 701 7 928 Interest disbursements 0 37 122 187 101 447

Customer deposits 52 220 194 692 36 0 53 142 Interest disbursements 0 1 16 2 0 19

Securitised debt 130 2 573 5 925 29 418 5 665 43 711 Interest disbursements 26 367 1 019 3 169 492 5 073

Loan approvals and unused credit facilities 9 643 0 0 0 0 9 643

Subordinated loan capital and subordinated bonds 0 0 0 0 1 452 1 452 Interest disbursements2) 0 0 68 286 1 533 1 887

Financial derivatives, gross settlement (outflows)1) 3 591 2 176 2 504 9 692 786 18 749 Total payments 67 616 6 436 10 930 46 339 10 730 142 051

1) Financial derivatives, gross settlement (outflows) 3 478 2 284 2 429 9 778 1 336 19 305 2) Interest disbursements are included for subordinated bonds up to 2034 and 2040.

PAGE 66 annual report 2012 Note 24 Net interest and credit commission income

PARENT BANK GROUP

2011 2012 2012 2011 140 115 Interest and similar income from loans to and receivables from credit institutions 9 20 Interest and similar income from loans to and receivables from customers 2 403 2 462 - valued at amortised cost 3 611 3 358 462 572 - valued at fair value 873 571 641 576 Interest and similar income on certificates, bonds and other interest-bearing securities 451 441 3 646 3 725 Interest income and similar income 4 944 4 390

Interest and similar expenses on debt to credit institutions 251 173 - valued at amortised cost 147 216 7 7 - valued at fair value 7 7 Interest and similar expenses on deposits from and debt to customers 1 170 1 364 - valued at amortised cost 1 353 1 162 36 27 - valued at fair value 27 36 Interest and similar expenses on issued securities 336 290 - valued at amortised cost 1 182 968 365 341 - valued at fair value 341 365 Interest and similar expenses on subordinated loan capital 12 25 - valued at amortised cost 25 12 35 57 - valued at fair value 57 35 (1) 1 Other interest expenses and similar expenses.1) 8 (1) 0 0 Fee to the Saving Banks’ Guarantee Fund 0 0 2 211 2 285 Interest expenses and similar expenses 3 147 2 800 1 435 1 440 Net interest and credit commission income 1 797 1 590

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

Note 25 Interest on individual balance sheet items

GROUP Average interest rate as percentage1) Average volume 2012 2011 2012 2011 Assets Loans to and receivables from credit institutions 0.57 1.95 1 546 975 Loans to customers 4.34 4.28 103 313 91 178 Certificates and bonds 3.00 3.43 15 047 12 866

Liabilities Debt to credit institutions 2.22 2.82 6 894 7 833 Customer deposits 2.43 2.34 56 900 50 823 Securities debt 3.11 3.28 49 060 40 573

PARENT BANK Average interest rate as percentage1) Average volume 2012 2011 2012 2011 Assets Loans to and receivables from credit institutions 2.39 2.77 4 804 5 047 Loans to customers 4.57 4.49 66 377 63 143 Certificates and bonds 3.01 3.35 19 141 19 109

Liabilities Debt to credit institutions 2.27 2.73 7 946 9 354 Customer deposits 2.44 2.35 56 989 50 901 Securities debt 3.08 3.08 20 484 22 723

1) The average rate of interest is calculated as the interest as a percentage of the average volume. ann ual report 2012 . PAGE 67 Note 26 Net other operating income

PARENT BANK GROUP

2011 2012 2012 2011 35 36 Guarantee provision 36 35 256 269 Fees from payment transfers/interbank fee credit 269 256 126 139 Other commissions and fees 139 126 417 444 Commission income and income from banking services 444 417

43 60 Fees payment transfers/BBS/EFTPOS 60 43 21 17 Fees payment transfers/interbank debit 17 21 18 21 Other commissions and fees 21 18 82 98 Commission expenses and expenses relating to banking services 98 82

125 257 Income from shareholdings in group companies Income from shareholdings in associated companies 34 (50) 125 257 Income from shareholdings in group companies and associated companies 34 (50)

31 18 Dividend 18 31 (42) 0 Write-downs, associated companies 0 0 (55) 203 Gain/(loss) on certificates and bonds 195 (42) 59 (1) Gain/(loss) on shares (1) 59 148 (6) Gain/(loss) on financial derivatives (6) 148 26 28 Gain/(loss) on currency 28 26 Net gain/(loss), financial instruments, recognised at fair value 2) 24 142 - lending 142 24 (31) 0 - deposits 0 (31) (19) (12) - debt to credit institutions (12) (19) (28) (20) - securitised debt (20) (28) (108) 0 - subordinated loan capital 0 (108) 2 (56) - gain/loss, change in credit spread, own liabilities (56) 2 Net gain/(loss), financial instruments, recognised at amortised cost 10 (10) - securitised debt (12) 5 Net gain/(loss), financial instruments, relating to hedge accounting - derivatives earmarked for hedge accounting (257) 344 - securitised debt, hedged 257 (344) 57 0 Badwill relating to the acquisition of Sparebanken Hardanger 0 57 74 286 Net gain/(loss), financial instruments 1) 276 124

Brokerage commission 197 189 4 4 Other operating revenues 8 5 4 4 Other operating revenues 205 194 538 893 Net other operating revenues 861 603

1) Of which trading portfolio: 5 4 Dividend 4 5 (8) 33 Gain/(loss) on shares 33 (8) (10) 0 Gain/(loss) on financial derivatives 0 (10) 7 10 Gain/(loss) on currency 10 7

2) See Notes 9, 32, 33, 35 and 36

PAGE 68 annual report 2012 Note 27 Operating expenses

PARENT BANK GROUP

2011 2012 2012 2011 413 512 Pay 632 526 98 (125) Pensions1) (126) 105 71 77 Non-wage costs 83 72 188 235 IT expenses 235 188 139 146 Administration expenses 183 167 909 845 Payroll and general administration expenses 1 007 1 058

93 100 Depreciation 114 107

1 1 Operating expenses, real property 20 18 100 107 Rent and other operating expenses for rented premises 55 50 7 8 Expensed fixed assets 10 10 8 13 Other operating expenses 98 76 16 16 Wealth tax 16 16 132 145 Other operating expenses 199 170 1 134 1 090 Total operating expenses 1 320 1 335

1) See note 28

The average number of employees in 2012 was 761 (748) for the parent bank and 880 (856) for the Group.

Fee for elected auditor (NOK 1,000)

PARENT BANK GROUP

2011 2012 2012 2011 551 1 273 Audit fee 1 958 1 042 285 54 Attestation services1) 124 533 0 64 Tax advice 127 0 216 200 Other services 636 304 1 052 1 591 Total fees 2 845 1 878

1) Fees for attestation services for 2012 include NOK 54,375 debited to the premium reserve as issue costs.

annual report 2012 PAGE 69 Note 28 Pensions

Pursuant to the Act relating to mandatory occupational pensions, the Sparebanken Vest Group is required to have an occupational pension scheme, and the group’s pension scheme meets the requirements of the Act. The pension scheme includes the following:

1. A company pension scheme with a life insurance company. The full retirement pension corresponds to almost 70% of the final salary based on the present National Insurance basic amount (G) limited to maximum 12G. The scheme covers 981 (parent bank 932) persons, 414 of whom (parent bank 411) receive pensions under the scheme. Disability benefit is covered by the scheme. The defined-benefit scheme was closed to new members in 2007.

2. A defined-contribution scheme covering 349 (parent bank 279) employees. All new employees are registered in the defined-contribution scheme.

3. The collective early retirement (AFP) scheme with supplementary benefits from 62 to 67 years. Pensions are currently being paid to 46 (parent bank 45) persons under the scheme. The scheme is unsecured and is covered through operations.

4. A scheme for executive personnel covering 13 (parent bank 10) employees, with the option of retiring at the age of 65. The Managing Director is entitled to, and at the request of the Board of Directors obliged to, take early retirement at the age of 60. The pension benefits correspond to 70% of the final salary up to the age of 67. The Managing Director and employees who can retire at the age of 65 have an additional agreement that ensures 66% of pay in excess of 12 times the National Insurance basic amount from the age of 67. Under other early retirement schemes than AFP, employees are withdrawn from the company pension scheme but will be compensated from the ordinary retirement age for the reduction in pension entitlements. The scheme for executive personnel is unsecured and is covered through operations.

Financial assumptions used to calculate pension expenses and commitments Expenses Commitments Percentage 2012 2011 31/12-12 31/12-11 Discount rate 2.60 4.00 3.80 2.60 Expected return on pension assets 4.10 5.40 4.00 4.10 Annual wage growth 3.50 4.00 3.50 3.50 Annual pension adjustment 2.63 2.88 0.20 2.63 Adjustment of National Insurance basic amount (G) 3.25 3.75 3.25 3.25 Voluntary termination (over/under 40 years) 0-8.00 0-8.00 0-8.00 0-8.00 Tendency to take early retirement under AFP 50.00 50.00 50.00 50.00

The discount rate for the commitments has increased from 2.6% as of 31 Dec. 2011 to 3.8% as of 31 Dec. 2012. This is primarily due to the fact that the bank has started using the interest rate for covered bonds when calculating the discount rate, instead of the interest rate for government bonds. The emergence of the market for covered bonds has led to this market being considered sufficiently deep to form the basis for the calculation of the discount rate in accordance with IAS 19.

Investment of pension assets

Percentage 2012 2011 Bonds 56 49 Shares 7 12 Money market etc. 17 21 Real property 20 18

The value-adjusted return on pension assets at 30 September 2012 was 4.6%. The value-adjusted return for 2011 was 2.1%.

The expected premium for 2012 amounts to NOK 41 million (parent bank NOK 39 million).

The expected return on pension assets is calculated by assessing the expected return on assets that is included in the current investment strategy.

PAGE 70 annual report 2012 Note 28 Pensions (contd. I)

GROUP 2012 2011 Pension expenses Secured Unsecured Total Secured Unsecured Total Pension earnings for the year 46 6 52 36 5 41 Interest expense on pension commitments 37 1 38 45 2 47 Expected return on pension assets (33) 0 (33) (41) 0 (41) Administration expenses 4 0 4 4 0 4 Recognised plan change1) (313) 0 (313) 0 0 0 Recognised estimate variances, plan change1) 52 0 52 0 0 0 Other recognised estimate variances 44 4 49 26 8 34 Net pension expense (163) 12 (152) 71 14 85 Employer’s National Insurance contributions 7 1 8 6 1 7 Recognised pension expense (156) 13 (144) 76 15 91 Recognised premiums paid to the defined-contribution scheme, incl. AFP 18 14 Total pension expenses (126) 105

31/12-12 31/12-11 Pension commitment Secured Unsecured Total Secured Unsecured Total Present value of earned pension commitment 923 35 958 1 441 49 1 489 Fair value of pension assets (839) 0 (839) (794) 0 (794) Net pension commitment 84 35 119 647 49 696 Employer’s National Insurance contributions 12 5 17 91 7 98 Estimate variances not recognised (176) 12 (164) (606) (1) (607) Capitalised pension commitment (80) 52 (28) 133 55 187

Change in pension commitment during the year 2012 2011 Pension commitment at 1 Jan. 1 489 1 202 Pension earnings for the year 52 41 Interest expense on pension commitments 38 47 Plan change1) (275) 0 Estimate variances (303) 212 Acquisition of enterprise 0 31 Pension payments (43) (43) Pension commitment at 31 Dec. 958 1 489

Change in pension assets during the year Pension assets (market value) at 1 Jan. 794 745 Return on pension assets 33 41 Estimate variances (3) (20) Premiums paid/ paid to premium fund 48 30 Administration expenses (3) (4) Acquisition of enterprise 0 27 Pension payments (29) (24) Pension assets (market value) at 31 Dec. 839 794

Historical development 31/12 2012 31/12 2011 31/12 2010 31/12 2009 31/12 2008 31/12 2007 Gross pension commitments2) 976 1 587 1 266 1 317 1 326 1 158 Gross pension assets (839) (794) (745) (698) (670) (619) Estimate variances not recognised (164) (607) (375) (430) (512) (353) Net capitalised pension commitments (28) 186 146 189 144 186

1) Sparebanken Vest and its subsidiaries have in 2012 changed the regulation principle for pensions in payment from the average of wage and price inflation to a minimum regulation system. 2) Gross pension commitments include employer’s National Insurance contributions. annual report 2012 PAGE 71 Note 28 Pensions (contd. II)

PARENT BANK 2012 2011 Pension expenses Secured Unsecured Total Secured Unsecured Total Pension earnings for the year 42 5 47 33 4 37 Interest expense on pension commitments 36 1 37 44 2 46 Expected return on pension assets (32) 0 (32) (39) 0 (39) Administration expenses 4 0 4 4 0 4 Recognised plan change1) (300) 0 (300) 0 0 0 Recognised estimate variances, plan change1) 48 0 48 0 0 0 Other recognised estimate variances 42 4 46 25 7 33 Net pension expense (160) 10 (150) 67 13 80 Employer’s National Insurance contributions 6 1 7 5 1 6 Recognised pension expense (154) 11 (142) 72 14 86 Recognised premiums paid to the defined-contribution scheme, incl. AFP 17 12 Total pension expenses (125) 98

31/12-12 31/12-11 Pension commitment Secured Unsecured Total Secured Unsecured Total Present value of earned pension commitment 886 31 917 1 380 45 1 426 Fair value of pension assets (809) 0 (809) (763) 0 (763) Net pension commitment 77 31 108 617 45 662 Employer’s National Insurance contributions 11 4 16 87 6 93 Estimate variances not recognised (164) 11 (153) (573) (1) (574) Capitalised pension commitment (76) 46 (29) 131 51 182

Change in pension commitment during the year 2012 2011 Pension commitment at 1 Jan. 1 426 1 162 Pension earnings for the year 47 37 Interest expense on pension commitments 37 45 Plan change1) (262) 0 Estimate variances (287) 194 Acquisition of enterprise 0 31 Pension payments (43) (43) Pension commitment at 31 Dec. 918 1 426

Change in pension assets during the year 2012 2011 Pension assets (market value) at 1 Jan. 763 718 Return on pension assets 32 39 Estimate variances (1) (19) Premiums paid/ paid to premium fund 46 25 Administration expenses (3) (4) Acquisition of enterprise 0 27 Pension payments (29) (24) Pension assets (market value) at 31 Dec. 809 763

Historical development 31/12-12 31/12-11 31/12-10 31/12-09 31/12-08 31/12-07 Gross pension commitments2) 933 1 519 1 224 1 274 1 279 1 121 Gross pension assets (809) (763) (718) (675) (648) (598) Estimate variances not recognised (153) (574) (364) (417) (494) (343) Net capitalised pension commitments (29) 182 142 182 137 180

1) Sparebanken Vest has in 2012 changed the regulation principle for pensions in payment from the average of wage and price inflation to a minimum regulation system. 2) Gross pension commitments include employer’s National Insurance contributions.

PAGE 72 annual report 2012 Note 29 Tax

PARENT BANK GROUP

2011 2012 Tax expense for the year 2012 2011 93 199 Tax payable1) 306 97 0 19 Group contributions paid 0 0 (7) 0 Tax payable acquired as a result of acquisitions with tax continuity 0 (7) 90 20 Change in deferred tax 20 95 176 238 Tax expense for the year 327 184 1) Tax payable in the balance sheet also includes wealth tax in the amount of NOK 17 million

713 1 098 Profit/loss before tax expense 1 191 732 28% tax on 200 307 Accounting pre-tax profit/loss 333 205 12 0 Share of profit/loss from association companies (9) 14 4 4 Expensed wealth tax, non-deductible 4 4 (60) (90) Non-taxable income (18) (60) 20 17 Non-deductible expenses 18 20 0 0 Correction of deferred tax asset previous year 0 1 0 (1) Insufficient/excess provision for tax payable (1) 0 176 238 Tax expense 327 184 25% 22% Effective tax rate of 27% 25%

2011 2012 Change in capitalised deferred tax: 2012 2011 1 108 Capitalised deferred tax (tax asset) at 1 Jan. 109 (2) 90 20 Recognised through profit or loss in the period 20 95 (5) 0 Change in deferred tax as a result of acquisitions with tax continuity 0 (5) 21 0 Correction of deferred tax previous year 0 21 0 0 Changes entered against equity 0 0 108 128 Capitalised deferred tax (tax asset) at 31 Dec. 129 109

Deferred tax and the deferred tax asset in the balance sheet relate to the following temporary differences 31/12-11 31/12-12 Deferred tax asset 31/12-12 31/12-11 0 0 Profit and loss account 0 0 6 7 Tangible fixed assets 0 0 106 55 Financial instruments 59 19 51 13 Pension commitments 14 52 3 11 Other liabilities 12 4 0 0 Tax loss carryforward 0 10 166 86 Total deferred tax asset 85 85

31/12-11 31/12-12 Deferred tax 31/12-12 31/12-11 0 0 Profit and loss account 1 1 0 0 Tangible fixed assets 6 7 14 16 Goodwill 16 14 0 21 Pension assets 22 0 7 7 Other intangible assets 7 7 253 170 Financial instruments 162 165 274 214 Total deferred tax 214 194

108 128 Net deferred tax (tax asset) 129 109

Deferred tax in the income statement relates to the following temporary differences 2011 2012 Deferred tax recognised through profit or loss 2012 2011 0 0 Profit and loss account 0 (1) 1 0 Tangible fixed assets (1) 0 0 1 Other intangible assets 1 0 99 (32) Financial instruments (42) 107 (10) 59 Pension commitments 60 (10) 0 (8) Other liabilities (8) 1 0 0 Tax loss carryforward 10 (2) 0 0 Deferred tax asset from subsidiaries not previously capitalised 0 0 90 20 Total change deferred tax 20 95 In accordance with the exception provided for in IAS 12, the deferred tax liability relating to the takeover of excess value on a property in Jonsvollskvartalet AS is not recognised. It amounts to NOK 33 million. annual report 2012 PAGE 73 Note 30 Intangible assets

PARENT BANK GROUP

Excess Excess Software value Software value and customer and customer licences portfolio Goodwill Total licences portfolio Goodwill Total At 31 Dec. 2010 216 167 109 492 Acquisition cost 220 167 130 517 145 46 0 191 Accumulated depreciation 148 46 0 194 71 121 109 301 Balance sheet value at 31 Dec. 2010 72 121 130 323

Financial year 2011 71 121 109 301 Balance sheet value at 1 Jan. 2011 72 121 130 323 68 0 0 68 Additions during the year 69 0 0 69 47 15 0 62 Depreciation during the year 48 15 0 63 92 106 109 307 Balance sheet value at 31 Dec. 2011 93 106 130 330

At 31 Dec. 2011 284 167 109 560 Acquisition cost 289 167 130 586 192 61 0 253 Accumulated depreciation 196 61 0 256 92 106 109 307 Balance sheet value at 31 Dec. 2011 93 106 130 330

Financial year 2012 92 106 109 307 Balance sheet value at 1 Jan. 2012 93 106 130 330 46 0 0 46 Additions during the year 47 0 0 47 53 14 0 67 Depreciation during the year 54 14 0 68 85 92 109 286 Balance sheet value at 31 Dec. 2012 87 92 130 309

At 31 Dec. 2012 330 167 109 606 Acquisition cost 336 167 130 633 245 75 0 320 Accumulated depreciation 249 75 0 324 85 92 109 286 Balance sheet value at 31 Dec. 2012 87 92 130 309

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

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

PAGE 74 annual report 2012 Note 30 Intangible assets (contd.)

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

PARENT BANK GROUP

31/12-11 31/12-12 Assessment unit Grounds for the choice of assessment unit 31/12-12 31/12-11 Retail and corporate market, Goodwill from the takeover of Fokus Bank in Sogn og Fjordane is 82 82 Region Sogn og Fjordane included in the total activity of Region Sogn og Fjordane. 82 82 Retail and corporate market, Goodwill from the takeover of Sauda Sparebank is 27 27 Region Sunnhordland included in the total activity of Region Sunnhordland. 27 27 Kyte Næringsmegling AS has continued as a separate subsidiary of 0 0 Kyte Næringsmegling AS the Eiendomsmegler Vest group and is a natural assessment unit. 8 8

0 0 Eiendomsmegler Vest AS Ottesen & Dreyer (part of Eiendomsmegler Vest AS) 6 6 Herland Eiendom AS has continued as a separate subsidiary of the 0 0 Herland Eiendom AS Eiendomsmegler Vest Group and is a natural assessment unit. 7 7 109 109 Total goodwill 130 130

Testing of values The write-down test of capitalised goodwill is arrived at by discounting expected future cash flows from the assessment units. Cash flows are based on historical results from each assessment unit. The discount factor is based on an assessment of what the required rate of return is in the market for the type of activity that is included in the assessment unit. The required rate of return reflects the risk attached to the activity. The write-down tests are performed on the cash flows after tax. The tests have not uncovered the need to write down goodwill in the parent bank or Group as of 31 Dec. 2012.

Key write-down test preconditions

Assessment unit Required rate of return after tax Retail and corporate market, Region Sogn og Fjordane 8.70% Retail and corporate market, Region Sunnhordland 8.70% Kyte Næringsmegling AS 12.70% Eiendomsmegler Vest AS (Ottesen & Dreyer) 12.70% Herland Eiendom AS 12.70%

annual report 2012 PAGE 75 Note 31 Tangible fixed assets

PARENT BANK GROUP

Machinery, FFE and Land and Machinery, FFE and Land and means of transport buildings Total means of transport buildings Total

At 31 Dec. 2010 509 7 516 Acquisition cost 539 486 1 025 422 0 422 Accumulated depreciation 439 117 556 87 7 94 Balance sheet value at 31 Dec. 2010 100 369 469

Financial year 2011 87 7 94 Balance sheet value at 1 Jan. 2011 100 369 469 45 0 45 Additions during the year 47 6 53 5 11 16 Additions on the takeover of Hardanger Sparebank 5 13 18 1 0 1 Disposals during the year 1 0 1 31 0 31 Depreciation during the year 34 10 44 105 18 123 Balance sheet value at 31 Dec. 2011 118 378 496

At 31 Dec. 2011 558 18 576 Acquisition cost 587 510 1 097 453 0 453 Accumulated depreciation 469 132 601 105 18 123 Balance sheet value at 31 Dec. 2011 118 378 496

Financial year 2012 105 18 123 Balance sheet value at 1 Jan. 2012 118 378 496 34 0 34 Additions during the year 35 34 69 0 9 9 Disposals during the year 0 0 0 32 0 32 Depreciation during the year 36 10 46 Write-downs during the year1) 25 25 107 9 116 Balance sheet value at 31 Dec. 2012 117 377 494

At 31 Dec. 2012 592 9 601 Acquisition cost 622 544 1 166 485 0 485 Accumulated depreciation 505 142 647 Write-downs during the year 25 25 107 9 116 Balance sheet value at 31 Dec. 2012 117 377 494

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

1) In its entirety related to previous investments in the development of Jonsvollskvartalet.

PAGE 76 annual report 2012 Note 32 Debt to credit institutions

Debt to credit institutions is classified as valued at amortised cost or recognised at fair value.

PARENT BANK GROUP

31/12-11 31/12-12 31/12-12 31/12-11 1 620 1 107 No agreed term to maturity 288 709 7 093 4 970 With agreed term1) 4 970 7 093 8 713 6 077 Valued at amortised cost 5 258 7 802

169 172 With agreed term 172 169 169 172 Recognised at fair value 172 169

8 882 6 249 Debt to credit institutions 5 430 7 971

31/12-11 1/1 - 31/12-12 31/12-12 Balance Balance Additions/ Change sheet Recognised at fair value sheet value disposals in value value Cost value of debt 165 165 in CURRENCY Change in exchange rate (9) (9) (18) Value adjustment, interest rate 33 11 44 Value adjustment, credit spread (21) 1 (20) 168 3 171

Accrued interest 1 0 1 Recognised at fair value 169 172

Nominal value in CURRENCY EUR 20 20

The net gain/(loss) on debt recognised at fair value is included in the item net gain/(loss), financial instruments recognised at fair value (Note 26).

1) Includes repurchase agreement (scheme whereby government securities are swapped for covered bonds) with a book value of NOK 3,436 million.

Repurchase agreements (Repo) involve a transfer of assets whereby the bank retains the risk and the return, and therefore does not meet the requirements for derecognition. The transferred asset is recognised in its entirety with a counter entry for a financial commitment for the consideration received.

annual report 2012 PAGE 77 Note 33 Deposits

Customer deposits are classified as valued at amortised cost or recognised at fair value.

PARENT BANK GROUP

31/12-11 31/12-12 31/12-12 31/12-11 52 211 59 842 Valued at amortised cost 59 736 52 137 1 005 296 Recognised at fair value 296 1 005 53 216 60 138 Total deposits 60 032 53 142

31/12-11 1/1 - 31/12-12 31/12-12 Balance Additions/ Change Balance Recognised at fair value sheet value disposals in value sheet value Fixed-interest deposits 988 (699) 289 Value adjustment, interest rate 1 0 1 989 290

Accrued interest 16 (10) 6 Recognised at fair value 1 005 296

The net gain/(loss) on deposits recognised at fair value is included in the accounting item net gain/(loss), financial instruments recognised at fair value (Note 26).

Note 34 Deposits broken down by customer groups

Breakdown of deposits from and debt to customers

PARENT BANK GROUP

31/12-11 31/12-12 31/12-12 31/12-11 NOK % NOK % Breakdown by sector NOK % NOK % 1 323 2.5 1 753 2.9 Primary industries 1 753 2.9 1 323 2.5 1 137 2.1 1 832 3.0 Manufacturing and mining 1 832 3.1 1 137 2.1 1 616 3.0 1 739 2.9 Building and construction, power and water supply 1 739 2.9 1 616 3.0 1 793 3.4 1 903 3.2 Commerce, hotels and restaurants 1 903 3.2 1 793 3.4 671 1.3 664 1.1 International shipping and pipeline transport 664 1.1 671 1.3 770 1.4 1 115 1.9 Other transport, post and telecommunications 1 115 1.9 770 1.4 2 686 5.0 3 272 5.4 Property management 3 166 5.3 2 622 4.9 10 284 19.3 10 853 18.0 Services 10 853 18.1 10 275 19.3 1 345 2.5 3 013 5.0 Municipal/public sector 3 013 5.0 1 345 2.5 341 0.6 39 0.1 Abroad 39 0.1 341 0.6 21 967 41.3 26 183 43.5 Total – business and industry 26 077 43.4 21 893 41.2 31 249 58.7 33 955 56.5 Retail customers 33 955 56.6 31 249 58.8 53 216 100.0 60 138 100.0 Total corporate and retail customers 60 032 100.0 53 142 100.0

Geographical breakdown 39 769 74.7 42 619 70.9 Hordaland 42 513 70.8 39 696 74.7 5 647 10.6 5 638 9.4 Sogn og Fjordane 5 638 9.4 5 647 10.6 3 582 6.7 4 569 7.6 Rogaland 4 569 7.6 3 582 6.7 3 878 7.3 6 672 11.1 Rest of Norway 6 672 11.1 3 877 7.3 52 875 99.4 59 498 98.9 Total Norway 59 392 98.9 52 801 99.4 341 0.6 640 1.1 Abroad 640 1.1 341 0.6 53 216 100.0 60 138 100.0 Total geographical breakdown 60 032 100.00 53 142 100.0

Under the Act on guarantee schemes for banks and public administration etc. of financial institutions, all savings banks are required to be members of the Savings Banks’ Guarantee Fund. The Fund guarantees to cover losses incurred by a depositor on deposits with a member institution for an amount not exceeding NOK 2 million of the depositor’s total deposits. By deposit is meant any credit balance with the bank in an account registered by name, as well as commitments under certificates of deposit registered by name. The fee payable to the Savings Banks’ Guarantee Fund is determined in accordance with the provisions of the Guarantee Schemes Act.

PAGE 78 annual report 2012

Note 35 Securitised debt

Securitised debt is classified as valued at amortised cost, subject to hedge accounting or recognised at fair value.

GROUP 31/12-12 31/12-11 Balance sheet Balance sheet Valued at amortised cost Nominal value value value NOK 24 917 24 891 21 839 EUR 355 2 614 4 114 CHF 0 0 77 SEK 300 257 0 Accrued interest 56 60 31/12-11 1/1 - 31/12-12 31/12-12 27 818 26 090 Balance Additions/ Change Balance Recognised at fair value sheet value disposals in value sheet value Fixed-interest deposits 988 (699) 289 Subject to hedge accounting Value adjustment, interest rate 1 0 1 NOK 3 400 3 685 2 529 989 290 EUR 1 600 12 159 7 953 SEK 350 300 0 Accrued interest 16 (10) 6 Accrued interest 306 225 Recognised at fair value 1 005 296 16 450 10 707 Recognised at fair value The net gain/(loss) on deposits recognised at fair value is included in the accounting item net gain/(loss), NOK 6 126 6 137 7 316 financial instruments recognised at fair value (Note 26). EUR 0 0 157 Value adjustment, interest rate and exchange rate 118 145 Value adjustment, credit spread – opening balance (2) 26 Value adjustment, credit spread – this period 56 (28) Accrued interest 176 193 6 485 7 809 Securitised debt 50 753 44 606

Matured/ Change in Other Balance Balance sheet Issued redeemed exchange changes sheet Change in securities debt 31/12-11 2012 2012 rate 2012 2012 31/12-12 Certificates, nominal value 1 500 1 000 (1 500) 1 000 Bonds, nominal value 42 211 17 089 (10 240) (676) 48 384 Value adjustments 895 474 1 369 Total securities 44 606 18 089 (11 740) (676) 474 50 753

The net gain/(loss) on securitised debt recognised at fair value is included in the item net gain/(loss), financial instruments recognised at fair value (Note 26).

annual report 2012 PAGE 79 Note 35 Securitised debt (contd.)

Valued at amortised cost or subject to hedge accounting Recognised at fair value Maturity date securities debt: NOK Valuta NOK Valuta Total 2013 3 287 1 950 2 509 7 746 2014 6 700 478 1 777 8 955 2015 3 985 4 163 700 8 848 2016 3 900 3 936 7 836 2017 6 745 4 415 1 140 12 300 2018 1 600 1 600 2021 1 100 1 100 2022 500 500 2027 500 500 Total securities debt, nominal value 49 385

PARENT BANK 31/12-12 31/12-11 Nominal Balance Balance Valued at amortised cost value sheet value sheet value NOK 10 432 10 432 9 369 EUR 355 2 614 4 114 CHF 0 0 77 SEK 300 257 0 Accrued interest 26 26 13 329 13 586 Recognised at fair value NOK 6 126 6 309 7 459 EUR 0 0 157 Accrued interest 176 193 6 485 7 809 Securitised debt 19 814 21 395

PAGE 80 annual report 2012 Note 36 Subordinated loan capital and subordinated bond loans

Balance sheet value Issue year Nominal value Interest Redemption right 31/12-12 31/12-11 Ordinary subordinated loans 2007 Subordinated loans EUR 85 mill 3-mth. EURIBOR + 0.375% Call option 12/7-12 0 661 2012 Subordinated loans NOK 375 mill 3-month NIBOR + 3.50% Call option 9/2-17 375 Subordinated bond loans 2004 Subordinated bond loans1) USD 60 mill Fixed interest 7.30% Call option 30/4-14 470 510 2010 Subordinated bond loans NOK 400 mill Fixed interest 8.05% Call option19/5-20 456 442 2012 Subordinated bond loans NOK 325 mill 3-month NIBOR + 5.0% Call option 9/2-17 325 0 Subordinated loan capital 1 626 1 613

Subordinated bonds are included in their entirety in the bank’s core capital.

Change in Change in subordinated loans and Matured/ exchange Other subordinated bond loans 31/12-11 Issued redeemed rate changes 31/12-12 Ordinary subordinated loan capital, nominal value 662 375 (662) 375 Subordinated bond loans, nominal value 761 325 (26) 1 060 Value adjustments 190 1 191 Total subordinated loans and 1 613 700 (662) (26) 1 1 626 subordinated bond loans

31/12-12 31/12-11 Nominal Balance Balance Valued at amortised cost value sheet value sheet value NOK 700 694 0 EUR 0 0 677 Value adjustment, exchange rate 0 (18) Accrued interest 6 2 700 661

Recognised at fair value NOK 400 395 395 USD 60 429 429 Value adjustment, interest rate and exchange rate 72 97 Value adjustment, credit spread – opening balance 7 5 Value adjustment, credit spread – this period (1) 2 Accrued interest 24 24 926 952 Securitised debt 1 626 1 613

Effective rate of interest for the subordinated loan recognised at fair value in 2012: 4.48% and 7.10% (2011: 4.53% and 7.44%)

The net gain/(loss) on subordinated loan capital recognised at fair value is included in the item net gain/(loss), financial instruments recognised at fair value (Note 26).

1) The interest rate on the loan is fixed until 2034, after which a floating rate of interest will apply.

annual report 2012 PAGE 81 Note 37 Capital adequacy

Risk and capital management Banking operations entail risk in many areas, and good risk and capital management is a key strategic instrument in Sparebanken Vest’s value creation. For further information about risk and capital management, reference is made to Note 7 and to the Group’s Pilar III document. The latter is available on Sparebanken Vest’s website.

For regulatory capital purposes, the transitional scheme between the Basel I and Basel II regulations still applies. It stipulates that the risk-weighted volume cannot be reduced to less than 80 per cent of the corresponding figure calculated pursuant to the Basel I regulations. As such, the Basel I regulations still represent a ‘floor’ for minimum requirements for own funds.

Calculation of capital need and regulatory capital The bank’s capital assessment is based on quantification of the capital needs for the individual risk areas. Stress tests simulate the effects of situations that are unlikely to arise but could result in large unexpected losses. Qualitative assessments supplement the quantitative assessments.

In 2007, Sparebanken, as one of the first Norwegian banks, was given permission by the Financial Supervisory Authority of Norway to use internal methods to calculate credit risk . Sparebanken Vest has been an IRB (Internal Rating Based) bank ever since and has met the regulatory requirements for this approval. One condition for IRB approval is that the IRB system and its use are validated at least once a year. In Sparebanken Vest, the results of the validation are considered by the bank’s Valida- tion Committee. An annual validation report is submitted to the Board of Directors for consideration. The internal audit function regularly audits the system and its use, including compliance with the Capital Adequacy Regulations. The IRB system is audited at least once a year, and the reports are submitted to the Board of Directors for consideration. The framework and processes used by the bank to manage and control the IRB system follow from its credit strategy, policy and procedures.

When calculating capital in relation to credit risk, all of the bank’s customers who are covered by the IRB system shall be scored in the bank’s internal score models. The bank also calculates values for Loss Given Default (LGD) for retail market customers and small corporate customers. For corporate customers, LGD rates set out in the Capital Adequacy Regulations are used. No external rating is used by the bank, and nor does it have self-determined risk parameters beyond those that are used to set the basis for the calculation of and the sum of expected losses. Any values used for commitment security are taken into account when calculating LGD and in the scoring of retail market customers.

The bank classifies all commitments covered by the IRB system every month. Quantification of the risk parameters takes place in the same operation, and they are also updated each month. In the retail market, the commitment security values are adjusted annually or when a new commitment starts. In the corporate market, the updating of commitment security values is part of the procedure for monitoring commitments. The bank applies the definition of default used in the Capital Adequacy Regula- tions, which is when an account has been overdrawn for 90 days or more or for amounts of NOK 500 or more. Default can also be deemed to exist based on an ‘unlikely to pay’ criterion, such as insolvency, if information to this effect is received.

The bank uses a template-based method for operational risk, while market risk is calculated using the standard method.

PAGE 82 annual report 2012 Note 37 Capital adequacy (contd.)

PARENT BANK GROUP

31/12-11 31/12-12 31/12-12 31/12-11 Minimum requirement for own funds, Basel II 1 670 1 858 Corporate exposure (excl. SL) 1 858 1 670 332 252 Specialised lending exposure (SL) 252 332 16 17 Mass market exposure, SME 22 20 477 432 Mass market exposure, secured by mortgage on real property 684 655 149 152 Other mass market exposure 152 149 271 286 Equity positions 0 0 2 915 2 997 Total credit risk, IRB 2 968 2 826

30 44 Position risk, debt instruments 44 30 26 25 Position risk, equity instruments 25 26 13 14 Currency risk 14 13 264 277 Operational risk 346 303 941 750 Exceptional commitments pursuant to IRB 456 494 (3) (3) Deductions (3) (3) 4 186 4 104 Minimum requirement pursuant to IRB 3 850 3 689

70 0 Correction to transitional scheme 1 214 1 287 4 256 4 104 Minimum requirement for own funds 5 064 4 976

Own funds 765 794 Equity certificate capital 794 765 (12) (11) - Own equity certificates (11) (12) 562 569 Premium reserve 571 564 5 047 5 579 Primary capital 5 614 5 078 14 14 Compensation fund 14 14 175 175 Gift fund 175 175 123 203 Equalisation reserve 282 176 35 171 Other equity / Reserve for unrealised gains 72 (70) 0 0 Minority interests 1 1 6 710 7 494 Total book equity 7 512 6 691

(307) (361) Deferred tax asset, goodwill and other intangible assets (477) (412) 0 0 Unrealised gains on tangible fixed assets (16) (29) 756 1 051 Subordinated bonds 1 051 756 (12) 29 Value adjustment, own liabilities 29 (12) (197) (188) 50% deduction for expected loss IRB and own funds financ. inst. (196) (198) 0 0 Deduction for provision for dividend/gifts (114) (82) 0 0 Interim results that are not part of the core capital 0 0 6 951 8 024 Total core capital 7 789 6 714

662 372 Perpetual own funds 372 662 0 0 45% addition for net unrealised gain on tangible fixed assets 7 13 (197) (188) 50% deduction for expected loss IRB and own funds financ. inst. (196) (198) 465 184 Total supplementary capital 183 476

7 416 8 208 Net own funds 7 973 7 191

13.9% 16.0% Capital adequacy, transitional scheme 12.6% 11.6% 11.6% 13.6% of which core capital excluding subordinated bonds 10.6% 9.6% 1.4% 2.0% of which subordinated bonds 1.7% 1.2% 0.9% 0.4% of which supplementary capital 0.3% 0.8%

14.2% 16.0% Capital adequacy, Basel II fully implemented 16.6% 15.6% 11.8% 13.6% of which core capital excluding subordinated bonds 14.0% 12.9% 1.4% 2.0% of which subordinated bonds 2.2% 1.6% 0.9% 0.4% of which supplementary capital 0.4% 1.0%

annual report 2012 PAGE 83 Note 38 Equity certificates

The equity certificate capital at 31 December 2012 consists of 31,761,290 equity certificates each with a nominal value of NOK 25.

Owner fraction Figures for parent bank (NOK 1,000) 31/12-12 31/12-11 Equity certificates 794 032 765 186 Own equity certificates (10 603) (12 301) Premium reserve 568 467 561 915 Equalisation reserve 203 132 123 214 Total equity certificate capital (A) 1 555 028 1 438 014

Primary capital 5 578 666 5 047 405 Compensation fund 14 378 14 379 Gift fund 175 000 175 000 Total primary capital (B) 5 768 045 5 236 784

Reserve for unrealised gains 170 700 35 293 Equity 7 493 773 6 710 091

Owner fraction (A /(A + B) 21.2% 21.5%

Weighted owner fraction 21.9% 18.8%

Dividend per equity certificate 2.50 2.00

2012 – Total dividend of NOK 31,761,290 equity certificates (NOK 1,000) 79 403 0 2011 – Total dividend of NOK 21,585,142 equity certificates (NOK 1,000) 0 43 170 2011 – Total dividend of NOK 9,022,310 equity certificates (NOK 1,000)1) 0 9 022

1) Equity certificates issued to Sparebankstiftinga Hardanger on the acquisition of Hardanger Sparebank have, by agreement, entitlement to fifty per cent dividend for 2011. .

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

2012 2011 The number of equity certificates at 1 January 492 053 393 768 Equity certificates purchased 157 918 154 760 Equity certificates sold 225 863 56 475

The number of equity certificates at 31 December 424 108 492 053

Effective return per equity certificate 2012 2011 Listed price at 31 December 29.40 31.70 Dividend paid in year 2.00 3.50 Listed price at 1 January 31.70 47.00 Effective return in NOK (0.30) (11.80) Effective return as a percentage (0.95) (25.11)

PAGE 84 annual report 2012 Note 38 Equity certificates (contd.I)

The twenty biggest owners No of ECs Proportion of EC capital % Sparebankstiftinga Hardanger 9 604 394 30.24 Sparbankstiftelsen Sauda 3 168 241 9.98 MP pensjon 1 516 935 4.78 Frank Mohn as 1 085 078 3.42 Fondsfinans 1 000 000 3.15 Bergen Kommunale Pensjonskasse 1 000 000 3.15 Skagen Vekst 995 506 3.13 Herfo Finans AS 757 222 2.38 VPF Nordea Norge 611 235 1.92 Kommunal Landpensjonkasse 443 388 1.40 Sparebanken Vest 424 108 1.34 KLP Aksje Norge VPF 386 609 1.22 Terra Utbytte vpf 369 305 1.16 klp Aksje Norden vpf 328 889 1.04 vpf Nordea Kapital 283 000 0.89 Brage Invest as 232 235 0.73 Helgeland Sparebank 197 333 0.62 Skudenes og Aakra Sparebank 175 053 0.55 vpf Nordea Avkastning 168 111 0.53 Fusa Kraftlag 156 720 0.49 Total 22 903 362 72.12

annual report 2012 PAGE 85 Note 38 Equity certificates (contd.II)

Equity certificates owned by the Managing Director, executive personnel, members of the Board of Directors, members of the Supervisory Board and Control Committee, and persons closely related to the aforementioned, defined in section 7-26 of the Accounting Act and section 8-20 of the Supplementary Regulations to the Act.

Antall EKB Erling Syvertsen, Chair of the Supervisory Board 23 333 Svein Ove Lid, member of the Supervisory Board 2 000 Ove Ellingsen, member of the Supervisory Board 3 500 Jon Askeland, member of the Supervisory Board 200 Jostein Valen, member of the Supervisory Board 677 Ingrid Tjørhom, member of the Supervisory Board 319 Kristin Axelsen, member of the Supervisory Board 567 Lisbeth Ormevik, member of the Supervisory Board 1 534 Bodil Digranes, member of the Supervisory Board 1 292 Kirsten Guldbrandsen, member of the Supervisory Board 828 Linda K. Nordeide, member of the Supervisory Board 2 263 Liv Erstad, member of the Supervisory Board 250 Wenche Anglevik, member of the Supervisory Board 200 Solfrid Hagen, member of the Supervisory Board 200 Karen Dahle, member of the Supervisory Board 1 000 Bjørn Berland, member of the Supervisory Board 400 Trond Mohn, member of the Supervisory Board 22 856 Eivind Lunde, member of the Supervisory Board 10 108 Siri Birkeland, member of the Supervisory Board 242 Jan Øvrebø, member of the Supervisory Board 5 535 Arne Buanes, member of the Supervisory Board 4 304 Trygve Bruvik, Chair of the Board of Directors 44 921 Marit Solberg, Deputy Chair 5 322 Anne Marit Hope, member of the Board of Directors 1 497 Øyvind Atle Langedal, member of the Board of Directors 3 193 Tone Mattsson, member of the Board of Directors 1 072 Sivert Sørnes, member of the Board of Directors 2 475 Kjell Steinsbø, member of the Control Committee 1 064 Stein Norvald Klakegg, Managing Director 6 984 Jan Erik Kjerpeseth, Deputy Managing Director 5 815 Henning Nordgulen, Director – Corporate Market 1 725 Kate Henriksen, Director – Retail Market 367 Pål Pedersen, Legal Director 1 336 Frank Johannesen, Director – Risk Management 1 144 Siren Sundland, Director of Corporate Communication 2 000 160 523

Breakdown by number No of ECs No of ECs Percentage No of owners Percentage 1 - 100 14 276 0.04 246 8.79 101 - 1 000 675 373 2.13 1 515 54.11 1 001 - 5 000 1 606 247 5.06 723 25.82 5 001 - 10 000 995 432 3.13 137 4.89 10 001 - 32 000 000 28 469 962 89.64 179 6.39 Total 31 761 290 100.00 2 800 100.00

PAGE 86 annual report 2012 Note 39 Transactions with related parties

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

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

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

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

Associated Key Intragroup transactions 2012 (NOK 1,000) Subsidiaries companies personnel

Income statement Interest from loans to customers 118 456 11 567 Interest from interest-bearing securities (issued by the housing credit company) 134 637 2 990 Interest and similar expenses on deposits from customers (37 661) (8 940) Commission income received relating to distribution 0 69 437 Gain/(loss) on financial instruments 12 751 0 Group dividend/contributions received 256 923 0 Pay, pension and fees to executive personnel and officers of the company 0 0 28 259 Rent (98 294) 0 Management fees 43 925 0 Fees received for the sale of services 1 953 4 322

Balance sheet Shares in subsidiaries, associated companies: - Capital increases 47 770 90 817 Group contributions/dividend receivable 263 923 0 Liabilities linked to group contributions paid (66 348) 0 Net transferred loans to the housing credit company, present year 8 067 524 0 Transferred loans to housing credit company, accumulated 39 168 994 0 Loans to related parties as of 31 Dec. 1 111 611 450 241 Deposits from related parties 4 010 636 177 969 Holding of covered bonds issued by Sparebanken Vest Boligkreditt AS 3 757 763 189 492

annual report 2012 PAGE 87 Note 39 Transactions with related parties (contd.I)

Associated Key Intragroup transactions 2011 (NOK 1,000) Subsidiaries companies personnel

Income statement Interest from loans to customers 132 776 4 054 Interest from interest-bearing securities (issued by the housing credit company) 206 919 0 Interest and similar expenses on deposits from customers (43 374) (10 652) Commission income received relating to distribution 0 54 669 Gain/(loss) on financial instruments (15 286) 0 Group dividend/contributions received 125 000 0 Pay, pension and fees to executive personnel and officers of the company 0 0 25 949 Rent (98 294) 0 Management fees 37 359 0 Fees received for the sale of services 1 890 3 156

Balance sheet Shares in subsidiaries, associated companies: - Capital increases 800 000 72 125 Group contributions receivable 131 029 0 Transferred loans to the housing credit company, present year 9 374 239 0 Transferred loans to the housing credit company, accumulated 31 101 470 0 Loans to related parties as of 31 Dec. 2 704 213 222 327 Deposits from related parties 984 675 417 390 The parent bank's holding of covered bonds 5 096 544 282 000

Subsidiaries mainly refer to Eiendomsmegler Vest AS, Sparebanken Vest Boligkreditt and Sparebanken Vest Eiendomsforvaltning AS. Eiendomsmegler Vest AS is market leader in Hordaland in estate agency activities and number three in Rogaland. Internal transactions with the estate agency company are limited and mainly consist of interest on deposits and lending with pertaining balance sheet items. Sparebanken Vest Eiendomsforvaltning manages the group’s properties and receives rent from the parent company. Sparebanken Vest Boligkreditt AS is a wholly-owned company that manages housing loans financed by the issuing of covered bonds. Sparebanken Vest sells loans to the company, which in turn finances its activities by issuing covered bonds. Sparebanken Vest owns part of the bonds issued by the housing credit company and receives interest income on these bonds. In addition, the subsidiary has both deposits and liabilities in relation to the parent company, on which interest is calculated in accordance with the arm’s length principle. Sparebanken Vest Boligkreditt pays management fees for transferred loans and buys administrative services from Sparebanken Vest. Associated companies consist of Frende Forsikring, Norne Securities, Brage Finans and Verd Boligkreditt. Sparebanken Vest sells general and life insurance through Frende Forsikring on a commission basis. Leasing products are sold through Brage Finans correspondingly.

Loans transferred to Sparebanken Vest Boligkreditt are described above. The contractual relationship between the parent bank and Sparebanken Vest Boligkreditt AS entails that the parent bank has no further involvement in transferred housing loans, since all credit risk relating to the loans has been transferred to the housing credit company. These are loans with a floating interest rate subject to a requirement for the furnishing of security within 75% of the objects’ value. There will therefore be no material deviations between the balance sheet value and the fair value of the loans in question. The housing credit company has a drawing right in the parent bank with a credit limit of NOK 7 billion and a rolling liquidity facility relating to bonds that reach maturity in the next 12 months. The latter is exclusively an intercompany agreement between the parent bank and the housing credit company. The realisation of such a facility will provide access to issued bonds and not transferred assets (loans).

PAGE 88 annual report 2012 Note 39 Transactions with related parties (contd.II)

Payroll and other remuneration of executive personnel Executive personnel are defined as members of the corporate management team. The information includes annual salaries as of 31 December 2012, all taxable remuneration expensed and paid in 2012, the proportion of the overall remuneration that concerns bonus, and calculated, earned pension rights in 2012 (2011 figures in brackets). Earned pension comprises earned pension rights for the year in the bank’s company pension scheme and earned pension in the scheme for the remuneration of executive personnel. See Note 28 ‘Pensions’ for a description of the pension schemes.

As of 31 December 2012, Managing Director Stein Klakegg had an annual salary of NOK 2,696,000 and received total taxable remuneration of NOK 3,228,000 (3,358,000) in 2012. Bonuses accounted for NOK 307,000 (587,000) of the remuneration paid. Earned pension rights in 2012 are calculated at NOK 2,508,000 (2,345,000). As of 31 December 2012, Deputy Managing Director Jan Erik Kjerpeseth had an annual salary of NOK 1,867,000 and received total taxable remuneration of NOK 2,479,000 (2,375,000) in 2012. Bonuses accounted for NOK 253,000 (456,000) of the remuneration paid. Earned pension rights in 2012 are calculated at NOK 584,000 (506,000). The corresponding information, in the same order, for other executive personnel is as follows: Henning Nordgulen (Director – Corporate Market) NOK 1,582,000, NOK 1,972,000 (2,024,000), NOK 213,000 (356,000) and NOK 621,000 (554,000); Kate Henriksen (Director – Retail Market) NOK 1,490,000, NOK 1,914,000 (1,893,000), NOK 173,000 (288,000) and NOK 700,000 (650,000); Pål Pedersen (Legal Director) NOK 1,381,000, NOK 1,781,000 (1,806,000), NOK 167,000 (298,000) and NOK 722,000 (732,000); Siren Sundland (Director of Corpo- rate Communication) NOK 1,211,000, NOK 1,521,000 (1,546,000), NOK 157,000 (253,000) and NOK 431,000 (389,000); Hallgeir Isdahl (Director – Markets) NOK 1,400,000, NOK 1,586,000 (1,217,000), NOK 100,000 (165,000) and NOK 386,000 (57,000); Gro Hatleskog (Director of Human Resources) (hired 1 January 2012) NOK 1,530,000, NOK 1,539, 000, NOK 0 and NOK 762,000 and Frank Johannesen (Director of Risk Management) NOK 1,274,000, NOK 1,616,000 (1,643,000), NOK 160,000 (268,000) and NOK 513,000 (486,000). On the recommendation of the Compensation Committee, the Board of Directors sets the salary paid to the Managing Director and the Deputy Managing Director. The Managing Director determines remuneration for other executive personnel after consultation with the Compensation Committee.

Provision of NOK 5 (2) million has been made for the 2012 financial year for bonuses to be distributed among executive and key personnel, following assessment.

If, at the bank’s request, members of the corporate management resign their positions, they are entitled to severance pay corresponding to one year’s salary in addition to their ordinary salary during the period of notice (6 months). Severance pay is only paid if the employee leaves his/her position at the bank’s request and complies with the provisions prohibiting competition. If the employee resigns at his/her own initiative, he/she is not entitled to severance pay. With respect to the Managing Director, there is a mutual period of notice of six months. The Board of Directors can decide to terminate employment earlier without a reduction in pay. If the bank terminates the employment relationship, salary and additional benefits are paid for 18 months from the expiry of the period of notice after the deduction of any external pay received during the period.

Remuneration of officers of the company (in whole NOK) 2012 2011 Payments Total Total Board of Directors Directors' fees Additional fees in kind remuneration remuneration

Trygve Bruvik Chair of the Board 360 000 66 000 17 988 443 988 420 000 Marit Solberg Deputy Chair 180 000 3 000 183 000 176 000 Øyvind A Langedal 150 000 90 000 240 000 210 000 Tone Mattsson 150 000 0 150 000 150 000 Richard Rettedal 150 000 75 000 225 000 201 000 Yvonne Torgersen Hetlevik Until May 2012 50 000 12 000 62 000 156 000 Anne Marit Hope 150 000 0 150 000 150 000 Arild Bødal From May 2011 150 000 15 000 165 000 100 000 Sivert Sørnes From May 2011 150 000 39 000 189 000 103 000 Birthe Kåfjord Lange From May 2012 100 000 0 100 000 Arnulf Ingvaldsen Deputy member 25 000 27 000 52 000 Bernt Bergheim Deputy member 25 000 63 000 88 000 Anne Kverneland Bogsnes Until May 2011 66 000 Gerd Kjellaug Berge Until May 2011 50 000 Total 1 640 000 390 000 17 988 2 047 988 1 782 000

Directors’ fees and additional fees for participating in committees are decided by the Supervisory Board. Remuneration of the parent bank’s Supervisory Board amounted to NOK 132,500 (174,168). In addition to meeting fees of NOK 825,000 (941,000).

2012 2011 Total Total Control Committee Remuneration Additional fees remuneration remuneration Tom W Horne Chair 125 000 0 125 000 125 000 Kjell Steinsbø Deputy chair 95 000 0 95 000 95 000 Magni Haugland 85 000 0 85 000 85 000 Charlotte H. Lem 85 000 0 85 000 85 000 Total 390 000 0 390 000 390 000 annual report 2012 PAGE 89 Note 39 Transactions with related parties (contd.III)

Loans and security furnished to executive personnel, employees and officers of the company (NOK 1,000)

PARENT BANK GROUP Loans and security furnished to the Managing Director and Deputy Managing Director (NOK 1,000) 2012 2011 2012 2011

Managing Director Stein Klakegg 3 516 2 046 4 847 5 063 Deputy Managing Director Jan Erik Kjerpeseth 28 24 6 881 7 074 Lån er gitt til generelle vilkår for ansatte

Loans and security furnished to officers of the company (NOK 1,000), parent bank Board of Directors Marit Solberg, board member 0 0 70 965 Yvonne Torgersen Hetlevik, board member 0 14 0 2 414 Arnulf Ingvaldsen, deputy board member 0 0 237 253 Sivert Sørnes, board member 4 518 4 518 Øyvind A Langedal, board member 0 0 2 389 0 Kjell Helge Sævdal, deputy 211 0 2 311 0 employee representative Anne Marit Hope, employee representative 0 0 1 225 1 281 Tone Mattsson, employee representative 0 777 1 358 777 Fredrik Skaarer Fjose, deputy employee representative 1 914 0 1 914 0 Geir Vindheim, deputy employee representative 0 2 003 0 2 003 Loans are furnished on standard customer terms with the exception of employee representatives

Chair of the Supervisory Board Erling Syvertsen 3 561 0 3 561 0 Loans are furnished on standard customer terms

Total loans and furnishing of security to employees (NOK 1,000)1) 441 032 500 876 1 452 406 1 286 618

Total loans and furnishing of security to other members of the Supervisory Board and Control Committee (NOK 1,000) The Supervisory Board 2) 1 041 1 802 6 750 11 273 Control Committee 0 0 0 0

1) Excluding the Managing Director, the Deputy Managing Director and employee representatives.

2) Excluding the Chair of the Supervisory Board, and employee representatives.

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

PAGE 90 annual report 2012 Note 39 Transactions with related parties (contd.III) Note 40 Disputes

Loans and security furnished to executive personnel, employees and officers of the company As of 31 December 2012, Sparebanken Vest was not involved in any lawsuits or legal disputes of material financial significance to the (NOK 1,000) group’s activities. The bank is otherwise subject to various claims relating to its activities at all times. Provision for bad debt has been made where it has been deemed necessary. PARENT BANK GROUP Loans and security furnished to the Managing Director and Deputy Managing Director (NOK 1,000) 2012 2011 2012 2011 Note 41 Accounting integration – Hardanger Sparebank Managing Director Stein Klakegg 3 516 2 046 4 847 5 063 Deputy Managing Director Jan Erik Kjerpeseth 28 24 6 881 7 074 Lån er gitt til generelle vilkår for ansatte Hardanger Sparebank was taken over with accounting effect from 1 November 2011. The pre-tax profit for the acquired company for the period November and December was incorporated in the consoli- Loans and security furnished to officers of the company (NOK 1,000), parent bank dated accounts for 2011 in the amount of NOK 6 million. Board of Directors Marit Solberg, board member 0 0 70 965 Compensation Yvonne Torgersen Hetlevik, board member 0 14 0 2 414 The fair value of equity certificates issued (9,022,310) 323 Arnulf Ingvaldsen, deputy board member 0 0 237 253 Cash compensation 78 Sivert Sørnes, board member 4 518 4 518 Total compensation 401 Øyvind A Langedal, board member 0 0 2 389 0 Kjell Helge Sævdal, deputy 211 0 2 311 0 employee representative The fair value of the equity issued represents the listed share price on the date of the transaction. Anne Marit Hope, employee representative 0 0 1 225 1 281 Tone Mattsson, employee representative 0 777 1 358 777 The breakdown of the takeover’s tangible and intangible values are as follow: Fredrik Skaarer Fjose, deputy employee representative 1 914 0 1 914 0 Allocation of acquisition cost Geir Vindheim, deputy employee representative 0 2 003 0 2 003 Cash in and receivables from central banks 12 Loans are furnished on standard customer terms Loans to and receivables from credit institutions 1 with the exception of employee representatives Gross loans to and receivables from customers 3 624 Provision for bad debt (29) Chair of the Supervisory Board Securities 337 Erling Syvertsen 3 561 0 3 561 0 Shareholdings in group companies 2 Loans are furnished on standard customer terms Tangible fixed assets 16 Identifiable intangible excess values 8 Total loans and furnishing of security to employees (NOK 1,000)1) 441 032 500 876 1 452 406 1 286 618 Other assets 21 Debt to credit institutions (451) Total loans and furnishing of security to other members Deposits from and debt to customers (2 314) of the Supervisory Board and Control Committee (NOK 1,000) Securitised debt (699) The Supervisory Board 2) 1 041 1 802 6 750 11 273 Pension commitments (5) Control Committee 0 0 0 0 Other liabilities (65) Badwill (57) 1) Excluding the Managing Director, the Deputy Managing Director and employee representatives. Total acquired assets and liabilities 401

2) Excluding the Chair of the Supervisory Board, and employee representatives. MExcess value in connection with the takeover was primarily linked to the shareholding and property values. Negative value is linked to pension commitments and other liabilities. The cost of subsidising the interest rate on loans to employees is not recognised as an operating expense and Badwill arises in the accounts as a result of a fall in the value of the consideration between the date the agreement was entered affects the bank’s net interest. Loans to employees are subsidised by a 20% discount on standard customer terms. into (28 April) and the date on which the transaction was implemented (1 November). In addition, the acquired bank has, prior to the transaction, realised excess value relating to the shareholding over and above what formed the basis for the negotiated conversion ratio.

If the merger had taken place on 1 January, the figures for the Group would have been as follows:

2011 Net interest and credit commission income 1 650 Net operating income 2 275 Pre-tax profit/loss 765

annual report 2012 PAGE 91 PAGE 92 annual report 2012 annual report 2012 PAGE 93 PAGE 94 annual report 2012 annual report 2012 PAGE 95 Group key figures – 5 years

PROFIT DEVELOPMENT 2012 2011 2010 2009 2008

Interest income and similar income 4 944 4 390 3 947 3 955 5 548 Interest expenses and similar expenses 3 147 2 800 2 431 2 502 4 240 Net interest and credit commission income 1 797 1 590 1 516 1 453 1 308

Commission income and income from banking services 444 417 382 388 393 Commission expenses and expenses relating to banking services 98 82 85 83 76 Net banking services 346 335 297 305 317 Income from shareholdings in associated companies 34 (50) (42) (42) (37) Net gain/(loss), financial instruments 276 124 212 77 (56) Other operating revenues 205 194 168 149 151 Net other operating revenues 861 603 635 489 375 Net operating revenues 2 658 2 193 2 151 1 942 1 683

Payroll and general administration expenses 1 007 1 058 962 945 844 Depreciation 114 107 98 87 86 Other operating expenses 199 170 164 140 138 Total operating expenses 1 320 1 335 1 224 1 172 1 068 Profit/loss before write-downs and tax expense 1 338 858 927 770 615

Write-downs of loans and losses on guarantees 147 126 127 270 204 Profit/loss before tax expense 1 191 732 800 500 411

Tax expense 327 184 189 137 204 Profit for the financial year 864 548 611 363 207

Majority share of the profit/loss for the period 864 548 611 362 206 Minority share of the profit/loss for the period 0 0 0 1 1

PAGE 96 annual report 2012 Group key figures – 5 years (contd. I)

BALANCE SHEET DEVELOPMENT 31/12-12 31/12-11 31/12-10 31/12-09 31/12-08

Assets

Cash in and receivables from central banks 877 668 361 299 4 753 Loans to and receivables from credit institutions 878 481 368 143 1 291 Net lending 106 789 99 304 88 465 82 302 76 235 Shares at fair value through profit or loss 709 738 714 604 463 Certificates and bonds 15 152 11 537 13 406 11 808 8 565 Shares available for sale 0 0 0 112 67 Financial derivatives 1 929 1 695 709 605 2 368 Shareholdings in associated companies 473 349 326 185 121 Deferred tax asset 0 0 2 74 0 Other intangible assets 309 330 323 318 266 Tangible fixed assets 494 496 469 469 466 Pension assets 80 0 0 0 0 Prepaid expenses 31 56 50 28 26 Customer funds – defined-contribution pension agreements 0 0 0 0 43 Other assets 107 331 82 714 229 Total assets 127 828 115 985 105 275 97 661 94 893

Liabilities and equity

Debt to credit institutions 5 430 7 971 10 529 14 583 12 140 Deposits 60 032 53 142 48 719 44 881 40 521 Securitised debt 50 753 44 606 37 064 29 732 34 249 Financial derivatives 1 475 1 089 795 458 1 338 Accrued expenses and pre-paid income 182 116 134 90 102 Pension commitments 52 187 147 189 144 Deferred tax 129 109 0 0 162 Other provision for commitments 22 28 24 19 14 Tax payable 323 113 126 407 15 Subordinated loan capital 1 626 1 613 1 495 2 062 1 437 Other liabilities 292 320 313 355 399 Total liabilities 120 316 109 294 99 346 92 776 90 521

Equity certificates 794 765 539 398 267 Own equity certificates (11) (12) (10) 0 (4) Premium reserve 571 564 467 10 9 Equalisation reserve 282 176 144 39 6 Total equity certificate capital 1 636 1 493 1 140 447 278

Primary capital 5 614 5 078 4 637 4 083 3 684 Gift fund 175 175 175 175 175 Compensation fund 14 14 14 14 0 Total primary capital 5 803 5 267 4 826 4 272 3 859

Reserve for unrealised gains 0 0 0 105 60 Other equity 72 (70) (38) 60 174 Minority interests 1 1 1 1 1

Total equity 7 512 6 691 5 929 4 885 4 372

Total liabilities and equity 127 828 115 985 105 275 97 661 94 893

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) 123 903 109 260 101 725 92 017 81 572

annual report 2012 PAGE 97 Group key figures – 5 years (contd. II)

PROFIT AS PERCENTAGE OF PRIMARY CAPITAL 2012 2011 2010 2009 2008

Interest income and similar income 3.99 4.02 3.88 4.30 6.80 Interest expenses and similar expenses 2.54 2.56 2.39 2.72 5.20 Net interest and credit commission income 1.45 1.46 1.49 1.58 1.60

Commission income and income from banking services 0.36 0.38 0.38 0.42 0.48 Commission expenses and expenses relating to banking services 0.08 0.08 0.08 0.09 0.09 Net banking services 0.28 0.31 0.29 0.33 0.39 Income from shareholdings in associated companies 0.03 (0.05) (0.04) (0.05) (0.05) Net gain/(loss), financial instruments 0.22 0.11 0.21 0.08 (0.07) Other operating revenues 0.17 0.18 0.17 0.16 0.19 Net other operating revenues 0.69 0.55 0.62 0.53 0.46 Net operating revenues 2.15 2.01 2.11 2.11 2.06

Payroll and general administration expenses 0.81 0.97 0.95 1.03 1.03 Depreciation 0.09 0.10 0.10 0.09 0.11 Other operating expenses 0.16 0.16 0.16 0.15 0.17 Total operating expenses 1.07 1.22 1.20 1.27 1.31 Profit/loss before write-downs and tax expense 1.08 0.79 0.91 0.84 0.75

Write-downs of loans and losses on guarantees 0.12 0.12 0.12 0.29 0.25 Profit/loss before tax expense 0.96 0.67 0.79 0.54 0.50

Tax expense 0.26 0.17 0.19 0.15 0.25 Profit for the financial year 0.70 0.50 0.60 0.39 0.25

Majority share of the total profit/loss for the period 0.70 0.50 0.60 0.39 0.25 Minority share of the total profit/loss for the period 0.00 0.00 0.00 0.00 0.00

OTHER KEY FIGURES

Profitability, earnings and capital structure (percentage) 1. Return on equity after tax 12.3 8.7 11.3 8.0 4.9 2. Total profitability before losses and tax 1.08 0.79 0.91 0.84 0.75 3. Total net profitability 0.70 0.50 0.60 0.39 0.25 4. Total operating expenses as percentage of net operating revenues (cost-income) 49.66 60.88 56.90 60.35 63.46 5. Deposits/loans ratio 56.22 53.51 55.07 54.53 53.15

Balance sheet development (percentage) 6. Change in net lending 7.54 12.25 7.49 7.96 17.86 7. Change in certificates and bonds 31.33 (13.94) 13.53 37.86 67.65 8. Change in deposits 12.97 9.08 8.55 10.76 7.74 9. Change in total assets 10.21 10.17 7.80 2.92 26.44

Defaults, provisions and losses on loans 10. Loss percentage, loans 0.14 0.13 0.15 0.32 0.26 11. Gross defaults as percentage 0.40 0.40 0.49 0.48 0.39 12. Net defaults as percentage 0.32 0.33 0.38 0.40 0.36 13. Percentage provided for defaulted loans 20.24 17.43 22.58 15.48 7.69

Capital adequacy 14. Net own funds 7 973 7 191 6 387 6 111 4 858 15. Calculation basis 63 300 62 200 54 862 51 875 53 612 16. Capital adequacy 12.6 11.6 11.6 11.8 9.1 17. Core capital adequacy 12.3 10.8 10.8 10.5 7.7

PAGE 98 annual report 2012 Group key figures – 5 years (contd. III)

Equity certificates (parent bank) 2012 2011 2010 2009 2008 18. Equity certificate capital (NOK million) 794 765 539 398 267 19. Dividend per equity certificate (NOK) 2.50 2.00 3.50 2.00 1.88 20. Listed price at 31 Dec. 29.40 31.70 47.00 51.00 43.25 21. Owner fraction 21.20 21.50 18.13 9.43 6.63 22. Share of profit per equity certificate (NOK) 6.10 4.55 5.86 4.53 3.23 23. Diluted profit per equity certificate (NOK) 6.10 4.55 5.86 4.53 3.23 24. Effective return per equity certificate (0.95) (25.11) (3.92) 22.25 (44.47) 25. Direct return 8.50 6.31 7.45 3.92 4.34 26. Dividend provision as a percentage of the equity certificates' share of the profit 40.98 43.94 59.68 44.13 58.13

Personnel Number of employees 926 920 873 868 879 Number of full-time equivalents 881 886 838 835 841

Distribution network Sales outlets 64 68 63 63 59

Definitions: 1. Profit/loss for the financial year as a percentage of the average equity throughout the year. 2. Operating profit/loss before losses and tax as a percentage of average total assets. 3. Profit/loss on ordinary operations after tax as a percentage of average total assets. 5. Deposits from and debt to customers as a percentage of loans to and receivables from customers. 6. Change in net lending at 31 December as a percentage of net lending the previous year. 7. Change in securities at 31 December as a percentage of securities the previous year. 8. Change in deposits at 31 December as a percentage of deposits the previous year. 10. Losses on loans and guarantees etc. as a percentage of gross loans at 31 December. 11. Gross defaults as a percentage of gross lending. 12. Defaulted loans with deductions for individual write-downs on such loans, as a percentage of net lending. 13. Individual write-downs on defaulted loans, as a percentage of the gross volume of such loans. 21. Equity certificate capital as a percentage of the parent bank's equity as of 31 December. 22. Equity certificates' share of profits divided by the number of equity certificates 24. Dividend paid plus change in exchange rate 1 January-31 December, as a percentage of the listed price at 1 Jan. 25. Provision for dividend as a percentage of the listed price at year end.

annual report 2012 PAGE 99 Group key figures – per quarter for two years

PROFIT DEVELOPMENT (accumulated) 31/12-12 30/09-12 30/06-12 31/03-12 31/12-11 30/09-11 30/06-11 31/03-11 Interest income and similar income 4 944 3 721 2 490 1 254 4 390 3 193 2 057 1 019 Interest expenses and similar expenses 3 147 2 402 1 629 832 2 800 2 014 1 294 641 Net interest and credit commission income 1 797 1 319 861 422 1 590 1 179 763 378

Commission income and income from banking services 444 329 216 104 417 304 199 99 Commission expenses and expenses relating to banking services 98 77 53 27 82 62 41 21 Net banking services 346 252 163 77 335 242 158 78 Income from shareholdings in associated companies 34 34 24 4 (50) (26) (21) (18) Net gain/(loss), financial instruments 276 202 86 108 124 28 83 66 Other operating revenues 205 151 107 49 194 149 104 45 Net other operating revenues 861 639 380 238 603 393 324 171 Net operating revenues 2 658 1 958 1 241 660 2 193 1 572 1 087 549

Payroll and general administration expenses 1 007 914 595 291 1 058 763 511 257 Depreciation 114 86 58 28 107 79 52 25 Other operating expenses 199 146 105 57 170 126 87 41 Total operating expenses 1 320 1 146 758 376 1 335 968 650 323 Profit/loss before write-downs and tax expense 1 338 812 483 284 858 604 437 226

Write-downs of loans and losses on guarantees 147 104 78 50 126 71 39 11 Profit/loss before tax expense 1 191 708 405 234 732 533 398 215

Tax expense 327 185 104 58 184 146 96 52 Profit/loss for the period 864 523 301 176 548 387 302 163

Majority share of the profit/loss for the period 864 523 301 176 548 387 302 163 Minority share of the profit/loss for the period 0 0 0 0 0 0 0 0

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) 123 903 123 221 122 245 121 795 109 260 107 882 107 504 108 150

PROFIT AS PERCENTAGE OF PRIMARY CAPITAL Interest income and similar income 3.99 4.03 4.10 4.14 4.02 3.96 3.86 3.82 Interest expenses and similar expenses 2.54 2.60 2.68 2.75 2.56 2.50 2.43 2.40 Net interest and credit commission income 1.45 1.43 1.42 1.39 1.46 1.46 1.43 1.42

Commission income and income from banking services 0.36 0.36 0.36 0.34 0.38 0.38 0.37 0.37 Commission expenses and expenses relating to banking services 0.08 0.08 0.09 0.09 0.08 0.08 0.08 0.08 Net banking services 0.28 0.27 0.27 0.25 0.31 0.30 0.30 0.29 Income from shareholdings in associated companies 0.03 0.04 0.04 0.01 (0.05) (0.03) (0.04) (0.07) Net gain/(loss), financial instruments 0.22 0.22 0.14 0.36 0.11 0.03 0.16 0.25 Other operating revenues 0.17 0.16 0.18 0.16 0.18 0.18 0.20 0.17 Net other operating revenues 0.69 0.69 0.63 0.79 0.55 0.49 0.61 0.64 Net operating revenues 2.15 2.12 2.04 2.18 2.01 1.95 2.04 2.06

Payroll and general administration expenses 0.81 0.99 0.98 0.96 0.97 0.95 0.96 0.96 Depreciation 0.09 0.09 0.10 0.09 0.10 0.10 0.10 0.09 Other operating expenses 0.16 0.16 0.17 0.19 0.16 0.16 0.16 0.15 Total operating expenses 1.07 1.24 1.25 1.24 1.22 1.20 1.22 1.21 Profit/loss before write-downs and tax expense 1.08 0.88 0.79 0.94 0.79 0.75 0.82 0.85

Write-downs of loans and losses on guarantees 0.12 0.11 0.13 0.17 0.12 0.09 0.07 0.04 Profit/loss before tax expense 0.96 0.77 0.67 0.77 0.67 0.66 0.75 0.81

Tax expense 0.26 0.20 0.17 0.19 0.17 0.18 0.18 0.19 Profit/loss for the period 0.70 0.57 0.50 0.58 0.50 0.48 0.57 0.61

Majority share of the profit/loss for the period 0.70 0.57 0.50 0.58 0.50 0.48 0.57 0.61 Minority share of the profit/loss for the period 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

PAGE 100 annual report 2012 Group key figures – per quarter for two years (contd.I)

PROFIT DEVELOPMENT PER QUARTER (isolated) Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Interest income and similar income 1 223 1 231 1 236 1 254 1 197 1 136 1 038 1 019 Interest expenses and similar expenses 745 773 797 832 786 720 653 641 Net interest and credit commission income 478 458 439 422 411 416 385 378

Commission income and income from banking services 115 113 112 104 113 105 100 99 Commission expenses and expenses relating to banking services 21 24 26 27 20 21 20 21 Net banking services 94 89 86 77 93 84 80 78 Income from shareholdings in associated companies 0 10 20 4 (24) (5) (3) (18) Net gain/(loss), financial instruments 74 116 (22) 108 96 (55) 17 66 Other operating revenues 54 44 58 49 45 45 59 45 Net other operating revenues 222 259 142 238 210 69 153 171 Net operating revenues 700 717 581 660 621 485 538 549

Payroll and general administration expenses 93 319 304 291 295 252 254 257 Depreciation 28 28 30 28 28 27 27 25 Other operating expenses 53 41 48 57 44 39 46 41 Total operating expenses 174 388 382 376 367 318 327 323 Profit/loss before write-downs and tax expense 526 329 199 284 254 167 211 226

Write-downs of loans and losses on guarantees 43 26 28 50 55 32 28 11 Profit/loss before tax expense 483 303 171 234 199 135 183 215

Tax expense 142 81 46 58 38 50 44 52 Profit/loss for the period 341 222 125 176 161 85 139 163

Majority share of the profit/loss for the period 341 222 125 176 161 85 139 163 Minority share of the profit/loss for the period 0 0 0 0 0 0 0 0

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) (isolated) 125 935 125 150 122 696 121 795 113 750 108 716 106 891 108 150

PROFIT AS PERCENTAGE OF PRIMARY CAPITAL (isolated) Interest income and similar income 3.86 3.91 4.05 4.14 4.17 4.15 3.90 3.82 Interest expenses and similar expenses 2.35 2.46 2.61 2.75 2.74 2.63 2.45 2.40 Net interest and credit commission income 1.51 1.46 1.44 1.39 1.43 1.52 1.44 1.42

Commission income and income from banking services 0.36 0.36 0.37 0.34 0.39 0.38 0.38 0.37 Commission expenses and expenses relating to banking services 0.07 0.08 0.09 0.09 0.07 0.08 0.08 0.08 Net banking services 0.30 0.28 0.28 0.25 0.32 0.31 0.30 0.29 Income from shareholdings in associated companies 0.00 0.03 0.07 0.01 (0.08) (0.02) (0.01) (0.07) Net gain/(loss), financial instruments 0.23 0.37 (0.07) 0.36 0.33 (0.20) 0.06 0.25 Other operating revenues 0.17 0.14 0.19 0.16 0.16 0.16 0.22 0.17 Net other operating revenues 0.70 0.82 0.47 0.79 0.73 0.25 0.57 0.64 Net operating revenues 2.21 2.28 1.90 2.18 2.17 1.77 2.02 2.06

Payroll and general administration expenses 0.29 1.01 1.00 0.96 1.03 0.92 0.95 0.96 Depreciation 0.09 0.09 0.10 0.09 0.10 0.10 0.10 0.09 Other operating expenses 0.17 0.13 0.16 0.19 0.15 0.14 0.17 0.15 Total operating expenses 0.55 1.23 1.25 1.24 1.28 1.16 1.23 1.21 Profit/loss before write-downs and tax expense 1.66 1.05 0.65 0.94 0.89 0.61 0.79 0.85

Write-downs of loans and losses on guarantees 0.14 0.08 0.09 0.17 0.19 0.12 0.11 0.04 Profit/loss before tax expense 1.53 0.96 0.56 0.77 0.69 0.49 0.69 0.81

Tax expense 0.45 0.26 0.15 0.19 0.13 0.18 0.17 0.19 Profit/loss for the period 1.08 0.71 0.41 0.58 0.56 0.31 0.52 0.61

Majority share of the profit/loss for the period 1.08 0.71 0.41 0.58 0.56 0.31 0.52 0.61 Minority share of the profit/loss for the period 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 annual report 2012 PAGE 101 Group key figures – per quarter for two years (contd.II)

BALANCE SHEET DEVELOPMENT 31/12-12 30/09-12 30/06-12 31/03-12 31/12-11 30/09-11 30/06-11 31/03-11

Assets

Cash in and receivables from central banks 877 345 537 676 668 1 253 2 383 238 Loans to and receivables from credit institutions 878 864 596 1 306 481 181 925 398 Net lending 106 789 105 571 103 994 101 595 99 304 93 113 91 054 89 387 Shares at fair value through profit or loss 709 725 782 771 738 648 690 740 Certificates and bonds 15 152 15 274 16 482 13 940 11 537 13 684 12 874 13 899 Financial derivatives 1 929 1 725 1 326 1 215 1 695 1 298 533 521 Shareholdings in associated companies 473 426 416 370 349 352 357 320 Other intangible assets 309 306 320 327 330 324 325 319 Tangible fixed assets 494 510 511 505 496 467 469 468 Pension assets 80 0 0 0 0 0 0 0 Prepaid expenses 31 97 82 70 56 76 80 71 Other assets 107 129 468 744 331 87 282 875 Total assets 127 828 125 972 125 514 121 519 115 985 111 483 109 972 107 236

Liabilities and equity

Debt to credit institutions 5 430 5 366 6 633 7 266 7 971 8 028 6 838 8 733 Deposits 60 032 58 380 58 051 56 483 53 142 52 463 52 598 48 481 Securitised debt 50 753 50 931 49 440 46 988 44 606 41 744 41 279 40 674 Financial derivatives 1 475 1 402 1 027 931 1 089 601 820 628 Accrued expenses and pre-paid income 182 196 125 110 116 127 121 148 Pension commitments 52 187 187 187 187 147 147 147 Deferred tax 129 74 68 91 109 73 0 22 Other provision for commitments 22 19 11 29 28 33 25 25 Tax payable 323 244 164 92 113 90 108 41 Subordinated loan capital 1 626 1 645 2 171 2 148 1 613 1 598 1 446 1 480 Other liabilities 292 362 694 409 320 370 465 871 Total liabilities 120 316 118 806 118 571 114 734 109 294 105 274 103 847 101 250

Equity certificates 794 794 794 765 765 539 539 539 Own equity certificates (11) (14) (15) (12) (12) (11) (10) (10) Premium reserve 571 570 570 564 564 467 467 467 Equalisation reserve 282 123 123 123 176 68 68 68 Total equity certificate capital 1 636 1 473 1 472 1 440 1 493 1 063 1 064 1 064

Primary capital 5 614 5 048 5 048 5 047 5 078 4 607 4 607 4 607 Gift fund 175 175 175 175 175 175 175 175 Compensation fund 14 14 14 14 14 14 14 14 Total primary capital 5 803 5 237 5 237 5 236 5 267 4 796 4 796 4 796

Reserve for unrealised gains 0 0 0 0 0 0 0 0 Other equity 72 455 233 108 (70) 350 265 126 Minority interests 1 1 1 1 1 0 0 0

Total equity 7 512 7 166 6 943 6 785 6 691 6 209 6 125 5 986

Total liabilities and equity 127 828 125 972 125 514 121 519 115 985 111 483 109 972 107 236

PAGE 102 annual report 2012 Group key figures – per quarter for two years (contd.II) Group key figures – per quarter for two years (contd.III)

BALANCE SHEET DEVELOPMENT 31/12-12 30/09-12 30/06-12 31/03-12 31/12-11 30/09-11 30/06-11 31/03-11 Profitability, earnings and capital 31/12-12 30/09-12 30/06-12 31/03-12 31/12-11 30/09-11 30/06-11 31/03-11 structure (percentage) Assets Return on equity after tax 12.30 10.10 8.90 10.40 8.70 8.50 10.10 11.10 Total profitability before losses and tax 1.08 0.88 0.79 0.94 0.79 0.75 0.82 0.85 Cash in and receivables from central banks 877 345 537 676 668 1 253 2 383 238 Total net profitability 0.70 0.57 0.50 0.58 0.50 0.48 0.57 0.61 Loans to and receivables from credit institutions 878 864 596 1 306 481 181 925 398 Total operating expenses as % of net Net lending 106 789 105 571 103 994 101 595 99 304 93 113 91 054 89 387 operating income, accumulated (cost-income) 49.66 58.53 61.08 56.97 60.88 61.58 59.80 58.83 Shares at fair value through profit or loss 709 725 782 771 738 648 690 740 Total operating expenses as % of net operating income, isolated in the quarter (cost-income) 24.86 54.11 65.75 56.97 59.10 65.57 60.78 58.83 Certificates and bonds 15 152 15 274 16 482 13 940 11 537 13 684 12 874 13 899 Total operating expenses as % of net Financial derivatives 1 929 1 725 1 326 1 215 1 695 1 298 533 521 operating income, corrected for gain/loss Shareholdings in associated companies 473 426 416 370 349 352 357 320 in exchange rate, acc. (cost-income) 55.42 65.26 65.63 68.12 64.52 62.69 64.74 66.87 Other intangible assets 309 306 320 327 330 324 325 319 Deposits/loans ratio 56.22 55.30 55.82 55.60 53.51 56.34 57.77 54.24 Tangible fixed assets 494 510 511 505 496 467 469 468 Pension assets 80 0 0 0 0 0 0 0 Financial strength (percentage) Prepaid expenses 31 97 82 70 56 76 80 71 Capital adequacy, transitional scheme 12.6 11.2 11.2 12.2 11.6 11.1 11.2 11.6 Other assets 107 129 468 744 331 87 282 875 Total assets 127 828 125 972 125 514 121 519 115 985 111 483 109 972 107 236 Personnel Number of full-time equivalents 881 881 876 882 886 846 847 846 Liabilities and equity Owner fraction Debt to credit institutions 5 430 5 366 6 633 7 266 7 971 8 028 6 838 8 733 Equity certificate capitals' share of profits Deposits 60 032 58 380 58 051 56 483 53 142 52 463 52 598 48 481 divided by the number of equity certificates 6.10 3.67 2.13 1.26 4.55 3.31 2.58 1.39 Securitised debt 50 753 50 931 49 440 46 988 44 606 41 744 41 279 40 674 Diluted profit per equity certificate 6.10 3.67 2.13 1.26 4.55 3.31 2.58 1.39 Financial derivatives 1 475 1 402 1 027 931 1 089 601 820 628 Owner fraction 21.2 21.9 21.9 21.5 21.5 18.1 18.1 18.1 Accrued expenses and pre-paid income 182 196 125 110 116 127 121 148 Book equity per equity certificate 52.7 50.4 48.8 48.5 47.8 53.3 52.4 51.2 Pension commitments 52 187 187 187 187 147 147 147 Deferred tax 129 74 68 91 109 73 0 22 Other provision for commitments 22 19 11 29 28 33 25 25 Tax payable 323 244 164 92 113 90 108 41 Subordinated loan capital 1 626 1 645 2 171 2 148 1 613 1 598 1 446 1 480 Other liabilities 292 362 694 409 320 370 465 871 Total liabilities 120 316 118 806 118 571 114 734 109 294 105 274 103 847 101 250

Reserve for unrealised gains 0 0 0 0 0 0 0 0 Other equity 72 455 233 108 (70) 350 265 126 Minority interests 1 1 1 1 1 0 0 0

Total equity 7 512 7 166 6 943 6 785 6 691 6 209 6 125 5 986

Total liabilities and equity 127 828 125 972 125 514 121 519 115 985 111 483 109 972 107 236

annual report 2012 PAGE 103 Corporate governance

Policy for Corporate Governance suitability, inside trading and proprietary Sparebanken Vest has drawn up a trading. Among other sources, the corporate governance policy that governing documents are based on the has been approved by the Board of Norwegian Code of Practice for Corporate Directors. It aims to ensure that the Governance1 and the European Banking group’s corporate governance is in Authority’s2 principles for internal accordance with generally accepted and governance, which have been adapted recognised perceptions and standards, to Norwegian conditions by the Financial and in compliance with laws and Supervisory Authority of Norway in its regulations. The policy describes the module for the evaluation of internal general principles that apply. The goal governance. Sparebanken Vest’s goal is is to ensure good cooperation between to satisfy the recommendations in the the bank’s different stakeholders, such above-mentioned documents. as holders of equity certificates, lenders, customers, employees, governing bodies, The Articles of Association and the management and society as a whole. The corporate governance policy are available policy describes how the bank is managed on the bank’s website www.spv.no. and controlled in order to create value for In accordance with section 1 of the the bank and its stakeholders. Norwegian Code of Practice, a report on the bank’s compliance with the Code of The bank’s policy is specified in various Practice follows below. The report shall governing documents that apply to also meet the disclosure requirements Sparebanken Vest’s activities. They set out in the Norwegian Accounting Act include the bank’s Articles of Association, section 3-3b. its strategies, including its corporate social responsibility strategy, rules of The business procedure for the Board of Directors, the Sparebanken Vest is a financial services framework for management and control, group consisting of the parent bank and ethical guidelines and procedures for the subsidiaries Eiendomsmegler Vest

1) www.nues.no 2) www.eba.europa.eu AS, Sparebanken Vest Boligkreditt AS and the need should arise. Sparebanken Vest Eiendomsforvaltning AS. References to the bank and/or The Board of Directors evaluates the Sparebanken Vest in this article concern bank’s capital situation at least once a the Sparebanken Vest Group. year. The most recent evaluation was carried out at the end of 2012. The Pursuant to its Articles of Association, regulatory regime for financial strength Sparebanken Vest’s object is to deliver (CRD IV ) is undergoing change. The bank financial services to the public, business continually assesses its capital adequacy and industry and the public sector in in relation to regulatory requirements. Western Norway. The business shall be run at a satisfactory profit and with Sparebanken Vest’s profit for the year is acceptable risk. divided between equity certificate capital and primary capital in proportion to the The Board of Directors’ report contains owner fraction. The equity certificate a description of the bank’s goals and capital’s share of the profit is divided strategies. The strategic basis is evaluated between a cash dividend and the at least once a year by the Board and equalisation reserve. Sparebanken Vest the management, and the bank’s plans endeavours to distribute an attractive are adjusted and adapted continuously. cash dividend to equity certificate holders. The market is updated about the Sparebanken Vest’s financial goal for its bank’s strategic agenda through the business is to achieve results that provide presentation of quarterly reports. a satisfactory overall return in the form of dividend and an increase in value. Sparebanken Vest has a customer- The development of the bank’s equity oriented organisation that focuses on situation and its financial strength are the Retail Market, the Corporate Market emphasised when allocating profit. and the Capital Market as business areas. The business areas are supplemented by The Board of Directors is authorised by support and staff functions. The bank’s the Supervisory Board to acquire and organisational structure is dynamic, and it pledge as security own equity certificates is assessed on the basis of changed needs for a total nominal value of NOK 100 and framework conditions. million within the limits stipulated in statutes and regulations. The total Equity and dividends holding of equity certificates that the Sparebanken Vest is a self-owned bank owns and/or has a charge created institution. The infusion of external capital by agreement on cannot exceed 10% of takes place through the issuing of equity the equity certificate capital stipulated in certificates and subordinated bonds. the Articles of Association. The minimum Sparebanken Vest’s equity certificate amount that can be paid for equity capital amounted to NOK 1,555 million at certificates is NOK 1 and the maximum 31 December 2012, divided between 31.8 amount is NOK 150. This limit also applies million equity certificates. to any charge created by agreement, which means that the claim the charge Holders of equity certificates shall have is intended to secure must not exceed a predictable framework with respect the amount that follows from these to equal treatment, the return on their limitations. investment and influence on how the bank is run. The stock exchange listing The acquisition of equity certificates takes of the equity certificates ensures that place through purchases in the securities the bank accepts and complies with the market via Oslo Børs, and disposals market conditions that prevail at all times take place through sales in the same in the market for equity certificates, and market, or as private placements with it means that the bank accumulates employees within the limits provided for historical data that can help it to utilise in applicable statutes and regulations. the stock market as a source of equity if The authorisation is valid for 18 months

3) Capital Requirement Directive from the date of the Supervisory Board’s Free negotiability resolution or until such time as the Sparebanken Vest’s equity certificate is Financial Supervisory Authority of Norway listed on Oslo Børs (Oslo stock exchange) revokes the authorisation. and it is freely negotiable. The only limitation on ownership is a statutory Equal treatment of equity certificate requirement that currently states that holders and transactions with close the acquisition of a qualified proportion associates of the equity certificate capital (10% or Sparebanken Vest has one class of more) requires the consent of the Ministry equity certificates. It is a goal that equity of Finance (authorisation granted to certificate holders shall be ensured equal the Financial Supervisory Authority of treatment and the same possibility to Norway). exert influence in Sparebanken Vest. To safeguard the interests of owners of Supervisory Board and Control small holdings, the bank’s Articles of Committee Association contain a limitation on voting The bank’s supreme body is the rights that means that, at an election Supervisory Board, which is composed meeting for equity certificate holders, no of equity certificate holders, customers, one may vote for equity certificates that employees and representatives of the represent more than 15% of the total authorities. The Supervisory Board is number of equity certificates issued by tasked with ensuring that the bank Sparebanken Vest. acts in accordance with its object and in compliance with the law, its Articles The owner fraction at year-end of Association and the decisions of the 2012 is 21.2%. The biggest owner is Supervisory Board. Sparebankstiftelsen Hardanger, which represents 30.24% of the equity The bank’s Articles of Association are in certificate capital. The bank’s 20 biggest accordance with the Financial Supervisory owners own 72.1% of the equity Authority of Norway’s normal articles of certificate capital. association for savings banks that have issued negotiable equity certificates. The rules of procedure for the Board Pursuant to the Savings Bank Act and of Directors contain provisions relating the Financial Institutions Act, this to ethics and impartiality. The bank’s means that the rules concerning the ethical guidelines apply to both officers composition of and election of members of the company and employees. They to the Supervisory Board shall be contain guidelines for customer relations, stipulated in the articles of association. benefits/gifts, the duty of confidentiality, The Supervisory Board has 48 members, participation in other business activities 12 of whom are elected by the holders and transactions with close associates. of the equity certificates in accordance As a rule, transactions, including the with detailed provisions set out in the purchase/sale of assets and services, shall Articles of Association. Equity certificate not take place between Sparebanken Vest, holders’ right to attend meetings of its employees and its equity certificate the Supervisory Board is thus limited holders and officers, nor with close compared with Chapter 5 of the Public associates of the same parties. Limited Liability Companies Act.

Provisions have been included in the rules Decisions are reached by ordinary of procedure for the Board of Directors majority decision. Amendments to the that emphasise board members’ duty Articles of Association require a majority to exercise due care in relation to ethical of two-thirds of those present, and at conduct, impartiality and integrity. least 24 members must vote in favour Moreover, board members must inform of the proposal. Moreover, proposed the Chair of the Board if they become amendments to the Articles of Association aware of a possible conflict of interest. must have been presented to the Supervisory Board at a previous meeting. Notices of and the conducting of ordinary the main Nomination Committee meetings of the Supervisory Board shall in Sparebanken Vest shall consist be in accordance with the provisions of of seven members elected by the the Savings Banks Act and the Financial Supervisory Board, and it shall include Institutions Act. Notices of and minutes representatives of all groups represented of meetings of the Supervisory Board are on the Supervisory Board, plus a free- sent to Oslo Børs and are made available standing member who is elected from on the bank’s website. among former members of the Board of Directors (preferably a former Chair Pursuant to the Articles of Association, an or Deputy Chair). Grounds must be annual meeting of the Supervisory Board stated for the Nomination Committee’s shall be convened before the end of recommendations, which should March every year for consideration of the contain relevant information about annual accounts, annual report, auditor’s the candidates, including information report and statement from the Control about their competence, capacity and Committee. This meeting also considers independence. The recommendation proposals for dividend on the bank’s shall also contain a description of the equity certificate and the allocation of committee’s work. The Nomination donations/provisions to the gift fund. A Committee presents its proposals at meeting of the Supervisory Board is held a meeting of the Supervisory Board. before the end of April every year to elect Separate rules of procedure have been members of the Board of Directors, the adopted for the Nomination Committee. Control Committee etc. Separate elections Remuneration of the Nomination are held among employees, equity Committee is decided by the Supervisory certificate holders and customers to elect Board. members of the Supervisory Board. Public representatives are appointed by the The Nomination Committee submits City of Bergen and the county councils proposals to the Supervisory Board for the of Sogn og Fjordane, Hordaland and remuneration of officers of the company. Rogaland. No members of the Board of Directors or representatives of the management are The Supervisory Board has elected a members of the Nomination Committee. Nomination Committee, which nominates candidates to the Board of Directors There is a separate nomination and the Control Committee as well as committee for elections by equity members of the Supervisory Board to be certificate holders. This committee elected by depositors. Separate elections prepares elections by equity certificate are held for the Chair and Deputy Chair holders to the Supervisory Board. The of the Supervisory Board. The Control committee has three members elected by Committee, which is also elected by the equity certificate holders. the Supervisory Board, is tasked with supervising and controlling the work of The Board of Directors: composition the Board of Directors and the bank’s and independence management. Pursuant to the Articles Pursuant to Sparebanken Vest’s Articles of Association, the Control Committee of Association, the Board of Directors shall have four members and two deputy shall consist of nine members and four members. deputy members elected for a terms of two years and one year, respectively. The Board of Directors, Managing The Chair and Deputy Chair are elected Director, members of the bank’s by the Supervisory Board in separate management and specialists also attend elections. At present, four of the full meetings of the Supervisory Board as members of the Board of Directors are required. women. A presentation of the members of Sparebanken Vest’s Board of Directors Nomination committees is available on the bank’s website. Pursuant to the Articles of Association, The rules of procedure for the Board of budgets for the bank, responsibility for Directors of Sparebanken Vest contain keeping informed about the bank’s guidelines for the composition of the financial position and for ensuring that Board and terms of office. Important the bank’s business, asset management criteria for members of the Board and and accounts are subject to adequate its composition are qualifications, control. gender, capacity and independence. The composition of the Board shall The Board of Directors shall act in be such that it is capable of acting accordance with the bank’s object as independently of special interests and the set out in its Articles of Association, bank’s management. The Board’s overall and it shall comply with the guidelines competence shall be regularly assessed and framework conditions stipulated by in relation to the challenges facing the public bodies, the Financial Supervisory bank. The Nomination Committee shall Authority of Norway, the Supervisory be informed about the results of the Board and the Control Committee. assessment. Pursuant to the rules of procedure for the Board, board members The Board of Directors has appointed are encouraged to own equity certificates three committees as part of its work: in the bank. • The Audit Committee is charged with The work of the Board of Directors ensuring that Sparebanken Vest has The Board of Directors of Sparebanken an independent and effective external Vest holds 12 to 14 regular meetings and internal audit function, and every year, as well as meetings in financial and risk reporting that is in connection with strategy work. In accordance with statutes and addition, the Board organises thematic regulations. days with a view to developing its • The Board’s Credit Committee, which expertise. Rules of procedure have been deals with credit matters under the drawn up and adopted for the Board, authorisation of the Board of with a pertaining calendar for the Board’s Directors. work. The Board places particular • The Compensation Committee, which emphasis on work on the annual rolling is tasked with ensuring that the bank strategy plan. The Board also considers has a competitive, but not leading, whether the bank’s capital situation and pay policy that is seen as a motivation risk situation are commercially acceptable by the bank’s management in relation and within the statutory limits. to implementing the adopted strategy and achieving the goals set. In cooperation with the Chair of the Board, the Managing Director prepares The bank’s internal auditor is subject to matters for consideration by the Board. the Board’s authority and is entitled to The Board of Directors has adopted job attend board meetings. An annual report instructions for the Managing Director. is submitted to the Board on internal The Board evaluates the work of the control, the Capital Adequacy Regulations Managing Director, the Deputy Managing and the Securities Trading Act. The Board Director and the internal auditor in of Directors approves the internal audit accordance with the Board’s annual plan. function’s annual plan and resource needs. The Board of Directors has overall responsibility for the management of Risk management and internal Sparebanken Vest and for overseeing the control day-to-day management of the bank’s Good risk and capital management have activities. By the Board’s management a central role in Sparebanken Vest’s long- responsibility is meant, among other term value creation. The bank’s overriding things, responsibility for organising goals follow from its strategic business the bank in an adequate manner, basis. The target rate of return governs responsibility for adopting plans and the bank’s activities and specification of

4) Internal Capital Adequacy Assessment Process 5) Internal Ratings-Based sub-goals. The focus is on maintaining the The Managing Director is responsible bank’s competitiveness in the short and for the bank’s overall risk management, long term. Sparebanken Vest’s market including the development of good and business goals must be balanced models and frameworks for management against the bank’s ability and willingness and control. to take risk. Risk and capital adequacy assessments are an integral part of the The bank’s Risk Management and bank’s strategic and business processes. Compliance department attends to important functions relating to The bank’s risk management is related to management, control, reporting and four main areas: analysis. It is also responsible for the • Credit risk bank’s models for risk and capital • Market risk management. The head of Risk • Liquidity risk Management and Compliance reports to • Operational risk the Managing Director.

Sparebanken Vest’s goal is that the bank The bank’s overriding compliance shall have a moderate risk profile. The function is organised under Risk Board of Directors of Sparebanken Vest Management and Compliance. The Legal requires the bank to be well-capitalised. A Division has overall responsibility for legal review of the bank’s most important risk matters, and the managers of the various areas and capital adequacy assessments entities are responsible for ensuring that (ICAAP ) is carried out at least once a year the business is run in accordance with and considered by the Board of Directors. applicable regulations. The securities The bank’s capital strategy must be based business has its own compliance function, on the actual risk to which the business is as required by statutes and regulations. exposed, supplemented by the effect of various stress scenarios. The Validation Committee, which is chaired by the Managing Director, deals In 2007, the Financial Supervisory with model validation and validation Authority of Norway gave Sparebanken relating to the application of the bank’s Vest its approval for the use of internal credit systems. The Managing Director’s measurement methods (IRB ) to calculate Credit Committee deals with major capital in relation to credit risk. This is commitments and matters of an unusual an important stamp of approval for the nature. bank’s risk and capital management. All managers in Sparebanken Vest Responsibility for implementing the are responsible for managing risk and bank’s risk and capital management and ensuring good internal control in their control is divided between the bank’s areas of responsibility in accordance with Board of Directors, management and the bank’s adopted risk profile. business units. Sparebanken Vest has established a policy The Board is also responsible for ensuring for internal control (IC policy) that defines that the bank has sufficient own funds the goals for and the organisation and in relation to the desired risk and the implementation of its work on internal bank’s operations, and for ensuring that control. The policy also includes reporting it is sufficiently capitalised in relation on the status of the bank’s risk situation to regulatory requirements. The Board and the quality of internal control, as well also defines the bank’s targets and as follow-up of risk reduction measures. limits in all risk areas, including adopting guidelines for the bank’s risk and capital The main elements are the annual reviews management. Reporting to the Board of of risk and internal control, and the Directors in relation to targets and limits registration of events and continuous risk takes place quarterly. assessment. The elements are described in the bank’s risk strategy and in the IC A more detailed description of the bank’s policy, which has been considered by risk and capital management is available the bank’s Board of Directors. Follow-up on the bank’s website. of identified risk areas and any material deviations found in the internal control Remuneration of the Board of of the bank’s financial reporting are also Directors part of the quarterly risk reporting to the Directors’ fees are decided by the management and Board. Supervisory Board on the recommendation of the Nomination Committee. The The bank’s Finance/Accounting remuneration is not performance-related, Department is responsible for financial and options are not issued to members reporting, internal financial management, of the Board of Directors. As a rule, board direct and indirect taxes, and internal members or companies with which they control of financial reporting. This includes are associated shall not take on specific responsibility for quarterly financial assignments for the bank in addition reporting in accordance with applicable to their office as board member. Any legislation, accounting standards and the additional fees are subject to approval by accounting principles adopted for the the Supervisory Board. In urgent cases, group. A template has been developed for however, the chairs of the Supervisory group reporting, which is intended to ensure Board and the Nomination Committee the completeness of the reporting basis and may jointly make decisions concerning the consistent application of principles. additional fees. An overview of the remuneration of the Board of Directors is In addition to reviewing the bank’s risk provided in a note to the accounts. reporting, the Board of Directors’ Audit Committee reviews the bank’s accounts Remuneration of executive personnel before they are approved by the Board. The remuneration of the Managing The Audit Committee’s tasks concern Director, Deputy Managing Director and the process relating to the preparation of internal auditor is decided by the bank’s accounts and the prepared accounts, as Board of Directors, while the remuneration well as auditing and the independence of of other executive personnel is decided the auditor. In addition to reviewing the by the Managing Director on the basis accounts and risk reports, the corporate of principles adopted by the Board of management team carries out monthly Directors and following prior consultation reviews of operating reports seen in with the Compensation Committee. The relation to the budget for the banking Managing Director can grant additional operations, and briefs the Board of remuneration to employees based on the Directors. The bank’s ethical guidelines results achieved and work performance. include a duty on the part of employees Such additional remuneration is to report matters that warrant criticism, also intended to ensure the bank’s including breaches of internal guidelines, attractiveness in the employment market, laws and regulations, and a procedure for while at the same time not being a risk how such notification is to be given. driver. There are no option arrangements for the Managing Director and executive Sparebanken Vest’s business is subject to personnel. the supervision of the Financial Supervisory Authority of Norway. In addition to The bank has adopted guidelines supervisory visits, the Financial Supervisory for remuneration arrangements. In Authority reviews the bank’s annual and accordance with the regulations and the interim accounts, risk reports and capital Code of Practice for Corporate Governance, adequacy assessments. The Board of they include provisions that set a ceiling Directors and the management endeavour on the performance-related remuneration to maintain an open and constructive of executive personnel, and a requirement dialogue with the Financial Supervisory that 50% of such remuneration shall Authority. be paid in the form of equity certificates in the bank, allocated over a period of Auditor three years. Executive personnel’s pay The external auditor is elected by the and benefits are described in the notes Supervisory Board. The auditor submits an to the accounts. Information about the annual auditor’s report to the Supervisory bank’s remuneration arrangements is also Board and holds an annual meeting available on the bank’s website. with the Board of Directors at which the ‘Management Letter’ is presented and Information and communication commented on. The letter contains an The Board of Directors of Sparebanken assessment of the bank’s internal control, Vest has adopted separate guidelines for including areas in which the internal financial information. They are intended to control should be improved. The auditor ensure that the financial markets receive holds an annual meeting with the Control correct, relevant and timely information Committee at which the auditor’s report about the bank’s development and results. is reviewed and the Board of Directors’ Information is given to the market through report and annual accounts with notes are quarterly open investor presentations, commented on. stock exchange announcements and press releases, the bank’s website and The relationship with the auditor is accounting reports. regulated in a letter of assignment, which, among other things, describes the parties’ A financial calendar is available on responsibilities, stipulates the auditor’s fee the bank’s website that, among other and describes how other services are to be things, announces the dates for quarterly agreed and paid. presentations. The website also contains an activity calendar that includes information The external and internal auditors hold about elections by depositors to the bank’s quarterly meetings with the Board’s Audit Supervisory Board. Committee. If necessary, the Managing Director is present during the consideration In addition to the annual accounts, of certain matters. The minutes of the the Sparebanken Vest Group publishes meetings of the Audit Committee are quarterly financial reports. The annual presented to the Board of Directors. accounts are audited by an external auditor. Ovierwiev of governing and control bodies in Regular presentations are also held Sparebanken Vest for international partners, lenders and investors, and the bank is rated by two Governing bodies Control bodies international rating agencies. Supervisory External auditor Board Takeovers Nomination Control Sparebanken Vest is an independent Committee Committee Board of institution that cannot be taken over by Directors others through acquisition. In the case of Board Internal auditor acquisitions on the bank’s part, emphasis committees Managing is placed on satisfactorily safeguarding Director the interests of all stakeholders. Good information and equal treatment of shareholders/owners is paramount. It is a goal that such acquisitions shall have as little negative effect as possible on day-to- day operations. Subsidiaries and associated companies

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

Frende Forsikring consists of the sister companies Frende Livsforsikring and Frende Skadeforsikring. The company was formed in 2007 and its head office is in Bergen. Sparebanken Vest has an ownership interest of 44.7% in the parent company Frende Holding AS. The remaining shareholding is owned by thirteen other independent savings banks. Read more: www.frende.no

Norne Securities AS was formed in 2008. It has established three business areas: online brokering, stockbroking and corporate finance. The company’s head office is in Bergen and Sparebanken Vest is the biggest owner with 47,58%. The remaining shareholding is owned by thirteen other independent savings banks and Must Invest AS. Read more: www.norne.no

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

Verd Boligkreditt AS is a housing credit company that is owned by Sparebanken Vest holding 40% and eight independent savings banks. Verd Boligkreditt became fully operational in 2010 and is licensed as a credit company with the right to issue covered bonds. The company is run by Sparebanken Vest Boligkreditt AS. Read more: www.verdboligkreditt.no

Sparebanken Vest Boligkreditt AS is wholly owned by Sparebanken Vest. It was formed in 2008 for the purpose of managing loans and issuing covered bonds.

Eiendomsmegler Vest is wholly owned by Sparebanken Vest and it is a leading regional player in the real estate market in Western Norway. Kyte Næringsmegling AS and Herland Eiendom are also part of the company. Read more: www.emvest.no

Sparebanken Vest Eiendomsforvaltning AS is a wholly owned subsidiary of Sparebanken Vest. It is

EIENDOMSFORVALTNING responsible for realising/developing and managing/operating all of the group’s buildings and premises. Formed in 1939. Sparebanken Vest Eiendomsforvaltning AS is responsible for managing/operating all of the group’s rented premises including contract signing/administration, maintenance/restoration, electricity/cleaning and other operating expenses relating to the premises (around 70 locations covering a total of 45,000 m3). The company also rents out premises to external tenants. The company has ten subsidiaries (‘single-purpose’ companies).

PAGE 112 annual report 2012 Organizational model

Managing Director

Stein Klakegg

Corporate Human Resources and Communication Organisation

Siren Sundland Gro Hatleskog

*Risk Management and Compliance Frank Johannesen

Retail Market Corporate Market Division Business Legal Division SPV Markets

Support and Kate Henriksen Henning Nordgulen Pål Pedersen Hallgeir Isdahl Development

- Regions - Regions Jan Erik Kjerpeseth - Secretariat - Asset management - Customer service - Customer service - Legal - Currency/interest - Business Center - Insurance - ISP (info. systems and - Special commitments - Shares - Business Center processes) - Business - Depot - Savings and - Credit support development and investments products - Market - CFO - Investor Relations

*Risk Management and Compliance should be independent of the bank’s ongoing operations and meets the management team by case

ÅRSRAPPORTAnnual report 2011 2012 PAGESIDE 113 Regional map

Måløy

Selje Eid Region Måløy Sogn og Stryn Fjordane Nordfjordeid Florø Førde Årdal Florø Førde Sogndal Høyanger

Masfjorden R Lindås egion Sogndal Nordhordland Mastrevik Fedje Manger Lonevåg Knarvik Dale Frekhaug Knarvik Voss Region Askøy Bjørkheim Hardanger/ Arna Rong Ulvik Midthordland/ Region Vest Kleppestø Bergen Granvin Voss Eidfjord Ågotnes Sotra Os Straume Utne Skogsvåg Kinsarvik Os Jondal Storebø Norheimsund Odda Strandebarm Odda Stord Husnes Eikelandsosen Røldal Fitjar Region Husnes Kaigaten Sunnhordland / Bremnes Sauda Haugalandet Mosterhamn Haugesund Korskirkeallmenningen Region Leirvik Sletten Bergen Sveio Åsane Haugesund Arna Sæbøvik Loddefjord Skånevik Oasen Etne Nesttun Sauda Lagunen Sand Stavanger

Sandnes Stavanger Klepp Region Hinna Rogaland Sola Sandnes Nærbø

ÅRSRAPPORTPAGE 114 2011 annual reportSIDE 2012114 www.spv.no