Sparebanken Vest Third quarter 2012

Key developments • Sound third quarter – pre-tax profit of NOK 303 (135) million o Return on equity after tax of 12.5% (5.5%) for the quarter • Contribution to profits from product companies up NOK 60 million so far this year com- pared with the same period last year • Increased net interest and credit commission for the quarter: NOK 458 (416) million • Tightening of credit spreads leads to considerable gain on the bond portfolio • High level of activity characterises cost developments. Improvement programme on schedule • Improved financial strength – Core Tier 1 capital adequacy of 9.7%, compared with 9.5% the previous quarter o Mainly driven by good profit for the quarter and lower growth in lendings in the corporate market

Key figures

3Q 2012 3Q 2011 3Q 2012 3Q 2011 Acc. Acc. 2011 Operating profit / loss before write-downs and tax 329 mkr 167 mkr 812 mkr 604 mkr 858 mkr Pre-tax profit 303 mkr 135 mkr 708 mkr 533 mkr 732 mkr Net interest (annualised) 1,46 % 1,52 % 1,43 % 1,46 % 1,46 % Cost ratio (annualised) 54,1 % 65,6 % 58,5 % 61,6 % 60,9 % Deposits / Loans ratio 55,3 % 56,3 % 55,3 % 56,3 % 53,5 % Liquidity indicator 106,6 % 103,8 % 106,6 % 103,8 % 102,6 % Common equity 9,7 % 9,5 % 9,7 % 9,5 % 9,6 % Total capital 11,6 % 11,5 % 11,6 % 11,5 % 11,6 % Common equity (Basel II) 13,3 % 12,5 % 13,3 % 12,5 % 12,9 % Total capital (Basel II) 16,0 % 15,2 % 16,0 % 15,2 % 15,6 %

Common equity / Total capital includes 50% of operating profit for the period, except for 2011

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Sparebanken Vest (SVEG) – Third quarter 2012 – Not audited – 24 October 2012 offices by four in 2012, and even more offices have A modern bank with local, his- discontinued over-the-counter handling of cash. torical roots This development is expected to continue. Banking and insurance services are a key Sound position part of society’s infrastructure. With more The competition for customers is tough. However, than 251,000 retail customers and 10,000 market data show that Sparebanken Vest’s market corporate customers, Sparebanken Vest is position remains stable. the leading financial services group found- In total, the bank has a market share of 24% in our areas of Western Norway. Market share in Bergen is ed and rooted in Western Norway. Every 26%, and in Hordaland excluding Bergen it is 45%. quarter, our systems handle almost 22 In Sogn og Fjordane, the bank has a market share million customer transactions. of 30%, while in Rogaland, where the bank is still in the development phase, the market share is 9%. Sparebanken Vest continuously adapts to new user patterns, and it is now possible to carry the bank in To ensure that the bank has satisfied customers, your pocket and visit it any time you like. About 80% customer satisfaction (CSI) is measured on a regu- of the bank’s customers use lar basis. The most recent online banking, 78% of whom survey shows that the bank are active users who visit the maintains its high CSI level online bank six times a month in the retail market of 74 on average. This means that, for points in the third quarter. many people, the online bank is The number of housing loan by far the bank’s most visited customers is high, and more branch. than 95% of the retail mar- Sparebanken Vest recently ket portfolio consists of launched its self-developed loans secured by residential mobile banking solution. During mortgage. Combined with the first two weeks alone, as few defaults and acceptable many as 11,000 customers loan-to-asset value ratios, it downloaded the mobile banking means that the bank has application. The bank has previ- low risk relating to its hous- ously also launched SMS bank- ing loans. ing services and an online shop Broad range of services for purchasing insurance. More than 50,000 customers have Sparebanken Vest is a activated the SMS banking complete supplier of finan- service, and 18,000 have visited cial services, such as loans, the online shop. insurance, leasing, saving and investments etc. Among A good, safe framework other things, the bank offers Sparebanken Vest is a local full insurance products from service bank with 64 branch SIMPLER DAY-TO-DAY BANKING: With Frende Forsikring, our co- offices in Hordaland, Rogaland the new mobile banking solution, customers owned insurance company, and Sogn og Fjordane. We also can check their balance, pay bills or make which was established just have customer centres with transfers between own accounts – in just a over five years ago. few keystrokes. All they need to perform extended opening hours, a Fa- Already after three years, cebook page and an office in banking services on their mobile phone are their personal ID number and a self-selected Sparebanken Vest had Bergen that is open on Satur- PIN code. The token can be left at home recouped the volume of days. from now on. general insurance premi- The core of the bank’s opera- ums it had with its former tions is personal customer ad- supplier, and growth contin- visers. Our advisers are educated and trained to ues at a good pace. help and guide customers in both their day-to-day Frende Skadeforsikring has already established a priorities and the big financial questions in life. position in the Norwegian insurance market. Its The trend is towards a modernisation of the bank market share for the country as a whole is estimated office, where the main task is providing financial to be more than 3%. In Hordaland county, where advisory services, while traditional banking services most of the distribution network is found, the market are performed by the customers themselves. share is estimated to be 15%, and in some munici- palities, it is more than 30%. In the past year, the number of over-the counter transactions performed with the help of bank office Since the third quarter 2011, the bank has gained staff has been reduced by 25%. At the same time, 21% more general insurance customers and 18% the time freed up for advisory services has in- more life insurance customers. The number of cus- creased the sale of other products that the bank tomers with a credit card also increased by 15% in offers. A consequence of this development is that the same period. Sparebanken Vest reduced the number of branch 2

Sparebanken Vest (SVEG) – Third quarter 2012 – Not audited – 24 October 2012

Board of directors’ report for the third quarter 2012 Main Figures in conjunction with the Group’s policy for long-term refinanc- Q3 Q3 30.09 30.09 ing. NOKm 2012 2011 2012 2011 Net interest income and credit The lending margin for the corporate market measured at commissions 458 416 1.319 1.179 average 3-month NIBOR was 2.87% in the third quarter, an Commissions receivable and income from increase of 0.18 percentage points on the second quarter. banking services 113 105 329 304 The lending margin for the retail market was 1.96%, an Commissions payable and cost of banking increase of 0.07 percentage points on the second quarter. services 24 21 77 62 The deposits margin for the corporate market fell by 0.12 Net banking services 89 84 252 242 Income from owner interests in group percentage points to -0.28%. Correspondingly, the deposits companies 10 -5 34 -26 margin for the retail market fell by 0.06 percentage points to Net gain/(loss) on financial instruments 116 -55 202 28 -0.23%. Other operating income 44 45 151 149 The net interest as a percentage of average assets under Net operating income 259 69 639 393 management was 1.46% and has increased by 0.02 per- Net operating income 717 485 1.958 1.572 centage points from the second quarter. Salaries and general administration 319 252 914 763 Depreciation 28 27 86 79 Ordinary income from commissions and fees and income Other operating expenses 41 39 146 126 from insurance show a positive development compared with Total operating expenses 388 318 1.146 968 the third quarter 2011. The share of profit/loss from associ- Profit before write-downs and tax 329 167 812 604 ated companies increased by NOK 15 million, of which the Write-downs and losses on loans and 26 32 104 71 profit from Frende Forsikring contributed with an increase of Profit before tax 303 135 708 533 NOK 13.8 million. Taxes 81 50 185 146 The net profit from financial instruments amounted to NOK Profit for the period 222 85 523 387 116 million in the quarter. The result was affected by an The accounts have been prepared in accordance with International improved financial market with increased share-related Financial Reporting Standards (IFRS). Pursuant to IFRS, all financial revenues and a tightening of credit spreads. The contribu- derivatives shall be capitalised at fair value. Sparebanken Vest has tion from share-related revenues has increased by NOK 44 also chosen to recognise fixed-interest financial assets and liabilities million compared with the third quarter 2011. The increase at fair value. This includes fixed-interest lendings, deposits and in the value of the Group’s holding of certificates and bonds securities debt. The selected accounting principle is called ‘Fair Value amounted to NOK 136 million. Lower credit spreads also Option’ (FVO), the purpose of which is to counteract major effects on affected the Group’s fixed-interest lendings, deposits and profit for balance sheet items that are managed together. Holdings of securities debt (the FVO portfolio), with a total negative effect on revenues of NOK 53 million compared with the certificates, bonds and shares are also valued at fair value. third quarter 2011.

Third quarter 2012 Finansielle instrumenter Sparebanken Vest recorded a pre-tax profit of NOK 303 Q3 Q3 30.09 30.09 million in the third quarter, compared with NOK 135 million in NOKm 2012 2011 2012 2011 the same quarter last year. The result was positively affected Utbytte 0 1 18 31 Gevinst/(tap) på sertifikater og obligasjoner 99 -37 164 -22 by an increase in the net nominal interest of NOK 42 million, Gevinst/(tap) på aksjer 7 -38 14 2 improvement in the profit/loss from associated companies of Gevint/(tap) andre finansielle instrumenter 35 -9 57 -10 NOK 15 million and an improvement in the return on financial Gevinst/(tap) endring kredittspread FVO instruments of NOK 171 million. portefølje -25 28 -51 27 An increase in the value of the Group’s holding of certificates Netto gevinst/(tap finansielle instrumenter 116 -55 202 28 and bonds accounts for NOK 136 million of the return on Investments in the development, operation and manage- financial instruments. These revenues vary with develop- ment of online self-service solutions such as online banking, ments in the financial markets. The result was negatively mobile banking and SMS banking services led to an in- affected by higher operating expenses, mainly related to the crease in IT costs of NOK 7 million compared with the third business acquired from Sparebanken Hardanger, non- quarter 2011. New measures have been initiated to reduce recurring expenses and IT. the IT costs, among other things by hiring 15 new IT em- The nominal net interest increased by NOK 42 million. The ployees who are set to replace the same number of advis- increase is due to a combination of a growth in volume and ers. higher lending margins as a result of decreased borrowing Operating expenses in the third quarter 2012 amounted to costs. The deposit margins have been reduced. The Group’s NOK 388 million, compared with NOK 318 million in the third average borrowing costs in the quarter are down by approxi- quarter 2011. Of the increase in expenses, NOK 12 million mately 40 basic points (bp) compared with the third quarter is related to the takeover of Sparebanken Hardanger, as 2011. The average 3-month NIBOR fell by approximately 90 expected. bp in the same period. The issuing of new long-term bonds Personnel expenses have increased by NOK 56 million. Of with a higher credit mark-up has reduced the effect on profits the increase in expenses, NOK 7 million can be attributed to of the fall in the money market interest rate and must be seen the takeover of Sparebanken Hardanger. Non-recurring 3

Sparebanken Vest (SVEG) – Third quarter 2012 – Not audited – 24 October 2012

expenses amount to NOK 39 million and are related to pro- million from associated companies, and an increased con- visions for the bank’s improvement programme and incen- tribution from financial instruments of NOK 174 million. tive schemes. Increased personnel expenses in Eiendoms- Operating expenses increased by NOK 178 million, NOK 45 megler Vest are NOK 2 million. The lower interest rate and million of which is attributable to the acquisition and integra- acquired pension obligations from Sparebanken Hardanger tion of Sparebanken Hardanger. The loss cost increased by led to an increase in the Group’s pension expenses of NOK NOK 33 million on the third quarter 2011. 7 million. The bank’s personnel expenses, excluding non- recurring and acquisitions, are about unchanged compared The bank’s ongoing improvement programme has so far this to third quarter 2011. year resulted in a reduction of 31 full-time equivalents com- pared with the same period last year. The accounting effect Write-downs of loans and losses on guarantees amounted of this is expected to materialise in 2013. to NOK 26 million in the quarter, which is down NOK 6 mil- lion on the third quarter 2011. Net interest income increased by NOK 140 million in the period, as a result of both a growth in volume and changed See the chapter on risk and capital factors and Notes 6, 8, 9 margins. So far this year, the average 3-month NIBOR has and 10, which also shed light on developments in defaults of fallen by 45 bp compared with the same period in 2011. The payment. bank’s average borrowing costs are virtually unchanged The annualised return on equity for the quarter was 12.5%, compared with the first three quarters of 2011. So far this compared with 5.5% in the third quarter 2011. year, increased borrowing costs for new long-term financing has offset the effect of a lower money market interest rate. A stronger lending margin and weaker deposit margin are Developments in deposits and lendings therefore due to higher customer interest rates on lendings Developments in deposits and lendings were affected by the and deposits. takeover of Sparebanken Hardanger. The net lending vol- ume increased by NOK 12.5 billion to NOK 105.6 billion The net interest as a percentage of average assets under compared with the third quarter 2011, corresponding to management was 1.43%, compared with 1.46% at the end year-on-year growth of 13.4%. of the third quarter 2011. Lower interest on the liquidity portfolio as a result of a change in the composition of the Growth last Growth excl. portfolio had a negative effect on the net interest. 12 months Hardanger Lendings in total 13,4 % 9,5 % Other operating revenues increased by NOK 246 million Lendings retail market 13,0 % 8,9 % compared with the first three quarters of 2011. The increase Lendings corporate market 14,7 % 11,1 % is related to a strong improvement in the contribution to profits from associated companies and a significantly higher Gross lendings break down as NOK 77.5 billion to retail contribution from financial instruments. customers and NOK 28.8 billion to corporate customers. The organic growth in the last twelve months was 8.9% in The share of profit from associated companies amounted to the retail market and 11.1% in the corporate market. Seen in NOK 34 million, an increase of NOK 60 million on the same isolation, the change in lendings in the corporate market period in 2011, of which Frende Forsikring contributed NOK was -0.3% in the third quarter. For the retail market, the 51 million. NOK 14 million of this contribution to profits is growth in the third quarter was 2.2%. related to a re-assessment of the share of capitalised secu- Customer deposits increased by NOK 5.9 billion to NOK rity provisions in Frende Skadeforsikring. 58.4 billion, corresponding to year-on-year growth of 11.3%. The net profit from financial instruments amounted to NOK Growth last Growth excl. 202 million, an increase of NOK 174 million on the same period in 2011. Lower credit spreads have increased the 12 months Hardanger value of the Group’s holding of certificates and bonds by Deposits in total 11,3 % 6,9 % NOK 186 million. The market-value valuation had the oppo- Deposits retail market 16,4 % 10,4 % site effect on the net holding of fixed-interest lendings, de- Deposits corporate market 4,8 % 2,5 % posits and securities debt (the FVO portfolio), with a total negative effect on revenues of NOK 78 million compared Deposits break down as NOK 34.0 billion from retail cus- with the same period in 2011. tomers and NOK 24.4 billion from corporate customers. The growth in the last twelve months was 10.4% in the retail Commission from the estate agency business followed the market and 2.5% in the corporate market. development in volume and amounts to NOK 149 million so far this year, a slight increase on the same period in 2011. Assets under the Group’s management amounted to NOK 126 billion at the end of the quarter. The bank’s improvement programme has so far led to a reduction of 31 full-time equivalents compared with the The breakdown between deposits and lendings is further second quarter 2011. In addition, staff cutbacks correspond- specified in Notes 11 and 12. ing to ten full-time equivalents have been agreed through So far in 2012 severance packages or natural wastage, which will have effect from the second half-year. The improvement pro- Sparebanken Vest recorded a pre-tax profit of NOK 708 gramme is not expected to have full accounting effect until million in the first three quarters of the year, compared with 2013. NOK 533 million in the same period in 2011. Operating revenues increased by NOK 386 million, primarily as a re- The Group as a whole had 881 full-time equivalents at the sult of an improvement in the nominal net interest of NOK end of the third quarter, a decrease of five full-time equiva- 140 million, improvement in profit performance of NOK 60 lents from the turn of the year.

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Sparebanken Vest (SVEG) – Third quarter 2012 – Not audited – 24 October 2012

The increase in IT costs accounts for NOK 35 million, and The loss cost in the third quarter amounted to NOK 26 mil- NOK 101 million can be attributed to increased personnel lion, compared with NOK 32 million in the third quarter 2011. expenses. NOK 11 million of the growth in personnel ex- Group write-downs increased by NOK 11 million, and indi- penses is related to an expansion of capacity and compe- vidual write-downs increased by NOK 4 million in total. Net tence-raising measures in the estate agency business, NOK confirmed losses on loans and guarantees was NOK 11 37 million to non-recurring expenses relating to increased million, compared with NOK 7 million in the third quarter provision for the improvement programme and incentive 2011. schemes in the banking operations, and NOK 19 million to At the end of the third quarter, the Group had NOK 225 the takeover of Sparebanken Hardanger. The bank’s in- million in defaulted loans (more than 90 days) in the retail crease in payroll and social expenses make up NOK 15 market, and NOK 276 million in the corporate market. In million, equivalent of 3.4%. Pension expenses increased by total, this amounts to an increase of NOK 46 million on the NOK 19 million as a result of a lower interest rate. third quarter 2011. Operating expenses so far this year amounted to NOK 1,146 million, an increase of NOK 178 million on the same Potential bad debts not defaulted on amounted to NOK 843 period in 2011. Of the increase in expenses, NOK 45 million million, a decrease of NOK 81 million on the third quarter is as expected related to the takeover and integration of 2011. Potential bad debts not defaulted on largely relate to Sparebanken Hardanger. commitments in industries exposed to cyclical fluctuations.

Write-downs in the first half-year amounted to NOK 104 The figure below shows capitalised write-downs and the million. See the accumulated figures in Notes 6, 8, 9 and 10, percentage provided for in relation to gross lendings. which also show developments in defaults of payment. The return on equity so far this year is 10.1%, compared Figure 2 Write-downs with 8.5% at the end of the third quarter 2011. The profit per equity certificate for the first three quarters of the year was NOK 3.67, compared with NOK 3.31 in 2011. Risk and capital factors

Credit risk The risk profile in the retail market portfolio is still affected by a low interest rate, low unemployment and good credit management. Together with a strong economic situation in Norway, this contributes to a low and stable risk. A total of 95% of the retail market portfolio consists of loans secured by mortgage. The proportion of loans with a loan-to-asset value ratio of more than 85% is being reduced in accord- ance with the Financial Supervisory Authority of Norway’s guidelines. Market risk and operational risk The risk profile in the corporate market portfolio shows con- The bank’s interest rate and currency risk is managed by tinued improvement. Management and closer follow-up of limits adopted by the Board of Directors and is considered to existing customers improve the risk profile and contribute to be low. The bank is exposed to credit spread risk, primarily lower growth in the portfolio, including by securing the adap- through the management of fixed-interest securities in the tation to current and future capital adequacy requirements. bank’s liquidity portfolio. The portfolio mainly consists of Higher achieved price and lower financing costs relating to securities issued by Norwegian banks, housing credit com- NIBOR interest rates in the period lead to a higher risk- panies, municipalities and county authorities. adjusted rate of return. The bank’s credit spread risk was reduced in the third quar- The figure below shows the positive development in ex- ter, and is considered to be moderate. The bank is exposed pected losses (based on debt-servicing ability and security to the stock market through companies listed on Oslo Børs coverage). At the end of the third quarter, just over 83% of and unlisted companies. In its management, the bank fo- the portfolio was in the category with the lowest expected cuses on the total exposure and concentration in companies losses. and industries. In the third quarter, the bank reduced its Figure 1 Expected losses – total portfolio exposure to the stock market by approximately NOK 57 100 % 5,7 % 6,4 % 5,5 % 6,0 % 6,6 % 6,8 % 8,4 % 7,0 % 7,5 % million by selling stocks. The bank’s stock market exposure 90 % 14,2 % 12,9 % 14,1 % 14,1 % 14,7 % 14,3 % 10,6 % 10,2 % 9,4 % (excluding subsidiaries and associated companies) amount- 80 % ed to NOK 725 (648) million at the end of the third quarter. 70 %

60 % The identification, analysis and follow-up of operational risk

50 % are addressed at the overriding level through expert as-

83,2 % 40 % 80,1 % 80,7 % 80,5 % 79,9 % 78,8 % 78,9 % 81,0 % 82,8 % sessments, management confirmations and events. During

30 % the quarter, annual processes and the continuous registra-

20 % tion of events have not uncovered matters that are critical to

10 % the bank’s operations.

0 % Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

< 0,2 % 0,2 % > < 0,75 % > 0,75 %

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Sparebanken Vest (SVEG) – Third quarter 2012 – Not audited – 24 October 2012

Liquidity and financing Figure 3 Capital adequacy, transitional arrangement At the overriding level, Sparebanken Vest’s liquidity risk is 18,0 % managed using liquidity indicators, structural liquidity and the deposits/loans ratio. The Group’s liquidity situation is 16,0 % good. The Group’s liquidity amounted to NOK 16.1 billion (14.6) at the end of the quarter. 14,0 % 12,3 % 11,6 % The Group’s liquidity indicator (six-month rolling average) is 12,0 % 11,5 % 11,6 % 11,4 % 1,2 % 0,3 % 106.6 (103.8)%, and the bank’s capacity to operate under 0,8 % 0,8 % 0,3 % 1,6 % normal conditions without financing from the capital market 10,0 % 1,3 % 1,2 % 1,6 % 1,6 % is 18 (24) months (structural liquidity). The deposits/loans ratio is somewhat lower than at the same time last year; 8,0 % 55.3 (56.3)%. The total capital market financing amounts to NOK 55.7 6,0 % billion (53.7), and including the swap arrangement with 9,4 % 9,6 % 9,5 % 9,5 % 9,7 % 4,0 % Norges Bank, covered bonds account for approximately 53% of this financing. The proportion of funding with a re- 2,0 % maining term to maturity of more than three years was ap- proximately 42%. 0,0 % 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 Kapitaldekning 11,5 % 11,6 % 12,3 % 11,4 % 11,6 % Rating Tilleggskapital 0,8 % 0,8 % 1,2 % 0,3 % 0,3 % Fondsobligasjon 1,3 % 1,2 % 1,6 % 1,6 % 1,6 % Sparebanken Vest is rated by Moody’s and Fitch Ratings. Ren kjernekapital 9,4 % 9,6 % 9,5 % 9,5 % 9,7 % The bank’s rating for long-term borrowings is A- from Fitch with a stable outlook, and A2 from Moody’s with a stable outlook. Bonds issued by Sparebanken Vest Boligkreditt AS are rated AAA by both Moody’s and Fitch. Figure 4 Capital adequacy, Basel II Financial strength and equity certificates 18,0 % The Group’s capital adequacy targets pursuant to Basel II 16,6 % 16,0 % are 10% core capital and 13% own funds. Pursuant to the 15,6 % 15,6 % 16,0 % 15,2 % 1,6 % 0,5 % transitional arrangement, financial strength should be on a 1,0 % 0,4 % 1,1 % 2,2 % par with the third quarter 2011. Figure 3 shows that the bank 14,0 % 1,7 % 2,2 % 2,3 % meets the current capital targets. 1,7 % Compared with the previous quarter, the bank’s capital 12,0 % adequacy pursuant to the transitional arrangement in- 10,0 % creased by 0.2 percentage points to 9.7%. Compared with the same period last year, the bank’s Core Tier 1 capital 8,0 % adequacy pursuant to the transitional arrangement was 12,9 % 12,8 % 12,9 % 13,3 % strengthened by 0.3 percentage points. The increase during 6,0 % 12,4 % the past quarter is a result of accumulated profits and cost- cutting measures. The bank’s buffer in relation to the author- 4,0 % ities’ recommendation of 9% Core Tier 1 capital adequacy under the transitional arrangement is now more than NOK 2,0 % 430 million. 0,0 % Pursuant to the Basel II regime, Core Tier 1 capital was 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 strengthened by 0.4 percentage points in the previous quar- Kapitaldekning 15,2 % 15,6 % 16,6 % 15,6 % 16,0 % ter, for the same reasons provided for the transitional ar- Tilleggskapital 1,1 % 1,0 % 1,6 % 0,4 % 0,5 % rangement. Compared with the same period last year, Core Fondsobligasjon 1,7 % 1,7 % 2,2 % 2,3 % 2,2 % Ren kjernekapital 12,4 % 12,9 % 12,8 % 12,9 % 13,3 % Tier 1 capital adequacy pursuant to Basel II was strength- ened by 0.9 percentage points. Regulatory capital adequacy figures in Note 13. As specified in connection with the reporting for the first half- year 2012, Sparebanken Vest has used deferred accounting (‘the corridor method’) for the recognition of pension com- mitments. Following the revision of IAS 19, all listed compa- nies must, as of 1 January 2013, recognise pension com- mitments immediately at fair value and enter estimate vari- ances directly against equity and thereby own funds. Cost-cutting measures have been implemented. They con- tributed to the development in financial strength in the cur- rent quarter. The Board of Directors of Sparebanken Vest has recommended to the bank’s Supervisory Board a change of the bank’s defined-benefit pension scheme to a

6

Sparebanken Vest (SVEG) – Third quarter 2012 – Not audited – 24 October 2012

system based on return on pension capital. This matter will and expects continued growth in the time ahead. At the end be considered by the meeting of the Supervisory Board on of the third quarter, its assets under management amounted 25 October 2012. to NOK 1.4 billion. The final decision on whether, and when, more risk- Frende Liv had a good third quarter, where the insurance sensitive capital requirement regulations should be intro- result and cost developments, plus moderate claims pay- duced in Norway and the EU (CRD IV) has not yet been ments, contributed to a pre-tax profit. made. Although the direction of the regulations is set, the The company’s premiums for risk products increased by uncertainty creates challenges for Norwegian banks’ capital NOK 42 million to NOK 278 million in the course of the first planning and lending capacity. three quarters of the year. Of the growth in premiums for Clear information from Norwegian authorities on how the risk products, NOK 32 million is related to the retail market. capital requirement is to be calculated for banks that use At the end of the third quarter, Frende Liv’s total premiums internal calculation methods (IRB) and on when the regula- amounted to NOK 502 million, an increase from NOK 383 tions will be implemented is of great importance to the adap- million in the third quarter 2011. tation. In order to ensure equal competitive terms in the Norwegian market, it is important that the authorities of the The number of customers increased by 3,748 to 38,000 in Nordic countries manage to agree on harmonised regula- the first three quarters of the year, while assets under man- tions. agement amounted to NOK 1.6 billion. Sparebanken Vest’s share of profit/loss in Frende Forsikring Business in subsidiaries and (holding) in the third quarter was NOK 13.2 (-0.6) million. associated companies Corresponding number as of 30 September 2012 was NOK Subsidiaries 39.7 (-11.2) million. Eiendomsmegler Vest (100%) experienced increased Despite a challenging market, Norne Securities AS (hold- activity in the third quarter. It handled 847 properties, com- ing 47.6%) saw an increase in turnover in the first nine pared with 775 in the same quarter in 2011, corresponding months of the year of 21% compared with the same period to growth of 9.2%. last year. Total operating expenses in the same period were approximately 17% lower. It is mainly earnings from Corpo- The company recorded a growth in the number of assign- rate Finance and the bond area that contribute to the posi- ments of 18.3% in the third quarter compared with the same tive development, while earnings in stockbroking continue to period last year. show a falling trend in line with market developments in Eiendomsmegler Vest recorded a pre-tax profit for the third general. quarter of NOK 5.4 (4.9) million. The improvement is the In the third quarter, Norne completed the acquisition of parts result of increased sales and an adjustment of expenses. of Terra Markets’ business. It now has 90 of the country’s Sparebanken Vest Boligkreditt AS (100%) manages 112 savings banks among its partners. The acquisition gave housing loans in the amount of NOK 38.7 (30.5) billion. At Norne Securities 14,000 new customers, which constitutes a the end of the third quarter 2012, the company had issued two-fold increase. Norne is setting up branch offices in Oslo covered bonds in the amount of NOK 33.7 (25.9) billion. and Vilnius in connection with the takeover, and now has 41 employees. Associated companies The bank’s share of profit/loss from associated companies Sparebanken Vest’s share of profit/loss in the third quarter shows strong progress, and a total of NOK 10.0 (-5.0) mil- was NOK -3.9 (-3.5) million. Corresponding number as of 30 lion was included in the accounts in accordance with the September 2012 was NOK -6.7 (-12.0) million. equity method in the third quarter. The accumulated profit as of 30 September 2012 was NOK Verd Boligkreditt AS (holding 40%) is a housing credit 34.0 (-26) million, an improvement of NOK 60.0 million. company that is owned by Sparebanken Vest and eight independent savings banks. The company is run by Spare- In Frende Forsikring (holding 44.7%), the growth in cus- banken Vest Boligkreditt AS. tomers/premiums continued in both general insurance and life insurance. Sparebanken Vest’s share of profit/loss in the third quarter was NOK 1.2 (0.2) million. Corresponding number as of 30 Frende Skade had a good third quarter with a total of NOK September 2012 was NOK 3.3 (0.8) million. 942 million in premiums divided between 85,900 customers at the end of the quarter. The company acquired 9,600 new Brage Finans AS (49.9%) is a leasing company owned by customers in 2012, and it has an estimated market share of Sparebanken Vest and nine other independent savings more than 3% in the Norwegian private market. Its market banks. The company has been operational since autumn share in Hordaland is estimated to be 15%. In some munici- 2010. palities in Hordaland, its market share is more than 30%. At the end of the third quarter 2012, the company had a The loss ratio in the third quarter was 71.4%, compared with portfolio of NOK 826 million. The development in sales and 68.2% in the same period last year. The corresponding profit in the quarter was slightly better than expected, and figure as of 30 September 2012 was 72.3 (75.7)%. the number of orders for the current quarter is good. The company’s combined ratio for the first three quarters of Sparebanken Vest’s share of profit/loss in the third quarter the year was 96.2%, compared with 104.6% in the same was NOK -0.3 (-1.4) million. Corresponding number as of 30 period in 2011. September 2012 was NOK -1.7 (-4.0) million. The bank is satisfied with the development in Frende For- sikring, and the results are well ahead of the original operat- ing plan. Frende Skade continues to focus on cost efficiency 7

Sparebanken Vest (SVEG) – Third quarter 2012 – Not audited – 24 October 2012

Sparebanken Vest Outlook Lower interest rates and a tightening of credit spreads are expected to lead to improved net interest in the time ahead. International and national outlook We also expect increased commission and increased con- The uncertainty and volatility that characterised both the tributions to profits from the bank’s associated companies. financial markets and the global economy in the first half- No significant changes are expected in the risk situation for year of 2012 have somewhat abated in the third quarter. the bank’s lending portfolios, unless significant changes The stock exchanges went up to their highest levels so far occur in the Norwegian and international economies. this year, and credit spreads fell to the lowest levels of the Although there has been less turbulence in the global econ- year. Long-term interest rates increased somewhat in the omy in the third quarter, underlying conditions indicate that quarter, but there are nonetheless expectations of low inter- this may quickly change. In terms of both liquidity and finan- est rates and an expansive monetary policy in leading cial strength, Sparebanken Vest is well equipped to deal economies for a long time. with uncertainty. The increased belief in the future can largely be ascribed to The new regulatory regime for the bank sector (CRD IV) has measures implemented by the central banks in the EU and not yet been adopted by the EU. In the national budget for the USA to improve the situation in the money markets and 2013, it was stipulated that a final decision will be made by the economy. European authorities must nonetheless im- the end of November 2012 at the earliest. It is expected that plement necessary measures and structural changes that these regulations will be implemented in Norway as well facilitate better budget balance, lower unemployment rates through the EEA Agreement. and increased financial activity. When the USA approached the debt ceiling in August 2011, it created great uncertainty Although the direction of the regulations is set, the strength in the market. It is now expected that the debt ceiling will be and the time of introduction are currently unclear. This reached once again around the turn of the year, but that no makes capital planning challenging and affects the bank’s political decisions will be made until after the presidential lending capacity. election in November. Both the employment market and the For Sparebanken Vest, the adaptation to new regulatory