Annual Report 2018 “EVERYTHING WE DO, WE DO TO MAKE LIFE IN WESTERN EVEN BETTER!”

When Sparebanken Vest was founded almost 200 years ago, it heralded a new way of thinking about banking. The bank was to be owned by its customers, and its objective was to help the many poor in society. The idea that challenges are best solved together was what made us, and it is still what drives us. Today, we have more than 290,000 owners, and everything we do, we do to make life in even better.

We aim to make life even better for those growing up and settling down. For those who need to break with tradition and go their own ways. For those who have a dream they want to pursue. For everyone who works hard and for business owners who create jobs in Western Norway.

We will achieve this by caring about our customers, helping people where they are, being simple to bank with and by providing important advice along the way.

This sense of community gives us a unique strength to deal with major challenges. Challenges that concern us all and that are decisive for our future.

We can do it better together.

Most of the photos used in the annual report are from the ‘Family Bank’. Sparebanken Vest follows customers through all the important phases of life and big and small events – in short, a friend through thick and thin. Photo: Anne Lise Nordheim.

Sparebanken Vest strives for an active and future-oriented focus on the environment, both internally and externally. Because of this, the report is made in electronic form only. The report is available on www.spv.no Contents

Key figures for the Sparebanken Vest Group...... 5 Local identity through generations ...... 7 Organizational model ...... 9 Corporate Management ...... 11 The Board of Directors ...... 12 Journey through 2018 ...... 15 Comments by CEO ...... 16 Board of Directors’ report 2018 ...... 19

Accounting and notes ...... 39 Auditors Report ...... 118 Responsibility Statement ...... 124 Group Key Figures ...... 125 Explanation of key figures/ alternative performance targets ...... 133 Corporate governance...... 136 Subsidiaries, associated- and product companies...... 145 Branch locations...... 146 Photo: Shutterstock

Sparebanken Vest Annual Report 2018 page 4 Key figures for the Sparebanken Vest Group

Amounts in NOK million 2018 2017 2016 2015 2014 INCOME STATEMENT Net interest and credit commission income 2 716 2 565 2 399 2 354 2 320 Net other operating income 940 761 843 594 910 Total operating expenses 1 497 1 450 1 270 1 443 1 470 Profit/loss before write-downs and tax expense 2 159 1 877 1 972 1 505 1 760

Net profit on tangible fixed assets 0 0 23 76 143 Write-downs and losses on loans and guarantees 6 33 39 185 410 Profit/loss before tax expense 2 153 1 844 1 956 1 396 1 493

BALANCE SHEET Assets under management 189 376 175 190 162 752 161 663 147 070

Net lending 159 043 147 073 136 099 128 927 118 643 Securities 26 558 24 194 23 144 28 563 22 627

Deposits 72 536 69 111 66 486 63 900 66 448 Subordinated loan capital 2 001 2 109 2 133 1 838 2 426 Equity 15 635 14 054 13 065 11 314 9 094

KEY FIGURES Net interest and credit commission income as % of primary capital 1,46 1,50 1,47 1,55 1,68 Pre-tax profit/loss as % of primary capital 1,15 1,07 1,19 0,92 1,08

Return on equity after tax 11,9 11,0 13,1 11,0 13,7

Loss percentage, lending 0,00 0,02 0,03 0,15 0,35

Change in net lending 8,1 8,0 5,6 8,7 5,9 Change in deposits 5,0 3,9 4,0 -3,8 6,9

Net subordinated capital (NOK) 15 936 15 122 14 135 12 434 10 706 Capital adequacy 18,3 18,7 18,7 16,9 15,6 Core capital adequacy 16,5 16,7 16,5 15,0 13,6 Core Tier 1 capital adequacy 14,9 15,0 14,9 13,7 12,2 Capital adequacy, IRB 21,5 22,8 21,2 18,6 17,9

Dividend per equity certificate (NOK) 2,30 3,75 4,50 1,10 4,00 Listed price per equity certificate at year-end (NOK) 53,0 54,5 48,4 35,0 41,6 Direct return 4,3 6,9 9,3 3,1 9,6 Effective return per equity certificate in % 4,1 21,9 41,4 -6,2 18,1 Owner fraction after the distribution of dividend 22,5 22,1 23,2 24,6 19,5

See page 39 for a full overview of key figures and definitions

Sparebanken Vest Annual Report 2018 page 5 Sparebanken Vest Annual Report 2018 page 6 Local identity through generations

1823 Bergens Sparebank is established

1964 Alvøen Sparebank (1877) Sparebank (1899)

1970 Os Sparebank (1926) 1971 Sparebank (1910) Sparebank (1911) 1973 Sparebank (1916) Haus Sparebank (1866) og Åsane Sparebank (1904) 1975 Lindås Sparebank (1865) Sparebank (1889) Sparebank (1901)

1982 Sparebanken Vest 1982 og Sparebank (1911) 1983 Fjære Sparebank (1875) og Sparebank (1975) Sparebank (1903) Eid sokn Sparebank (1842) 1986 Sparebank (1865) Sparebank (1858) nye Sparebank (1928) Sparebank (1874) 1989 Sparebanken (1852) Skånevik Sparebank (1863) Sparebank (1842) Sparebank (1862) Sparebank (1853) Sund og Sparebank (1896) Vikøy Sparebank (1860)

2000 Acquisition of Vår Bank og Forsikring,

2006 Establishment and 2007 Acquisition of Fokus Bank’s business in & Fjordane 2008 Establishments in Greater Area 2009 Sparebank (1892)

2011 Sparebanken (1846) 2012 Establishment Establishment Nærbø 2015 Moving into new corporate headquarter at Jonsvollskvartalet in Bergen

Sparebanken Vest Annual Report 2018 page 7 Photo: Iselin Fotland

Sparebanken Vest Annual Report 2018 page 8 Organizational model

CEO

JAN ERIK KJERPESETH

OPERATIONAL RISK MANAGEMENT SERVICES FRANK JOHANNESEN SIREN SUNDLAND

ORGANIZATION AND DEVELOPMENT

TINA ØDEGÅRD

RETAIL MARKET CORPORATE MARKET INNOVATION AND ECONOMY AND CUSTOMER EXPERIENCE FINANCE FRANK BJØRNDAL RAGNHILD J. FRESVIK BJØRG MARIT EKNES JØRGEN GUDMUNDSSON

Sparebanken Vest Annual Report 2018 page 9 Sparebanken Vest Annual Report 2018 page 10 Corporate Management

Jan Erik Kjerpeseth (Born 1971) CEO since 31 October 2013. Joined the bank in 1999, previously filled the position of Deputy Managing Director. Chair of the board of Frende Liv, Frende Skade, Brage Finans, Finance Innovation and BKK. Chair of the board of Finans Norge and Vipps. Former chair of the board of Bergen Havn, Bergen Chamber of Commerce and board member of Nets. Graduate in marketing from the Norwegian School of Marketing and holds an MBA from Heriot- Watt University and an Executive MBA in Brand Management from the Norwegian School of Economics (NHH).

Frank H. Bjørndal (Born 1965) Head of Retail Market since 15 February 2017. Employee of Sparebanken Vest since 1985. Bjorndal has extensive management experience from various management positions in the retail market in Sparebanken Vest. Regional director in Bergen since 2006. Board member of Sparebanken Vest Boligkreditt AS and the Norwegian Handball Federation. Former board member of Eiendomsmegler Vest. Education from Handelshøyskolen BI. Has completed AFF Solstrand leadership programme for Young Leaders.

Tina Ødegård (Born 1977) Head of Organization and Development from 21.09.17. Employed 01.09.2017. Tina Ødegård has extensive experience from working with organizational and cultural development in several business sectors like petroleum, finance, transport, shipping and technology. Ødegård holds a Master of Philosophy from NTNU with a major in organizational psychology.

Ragnhild Janbu Fresvik (Born 1980) Head of Corporate Market since 27 November 2013. Joined the bank in 2012. At Sparebanken Vest, she has been senior business developer, head of investor relations and CFO. She has wide-ranging consulting and finance experience from Boston Consulting Group in Oslo, and later as Investment Manager with the private equity company Borea Opportunity Management. Chair of the board of Eiendomsmegler Vest and board member of SNF (NHH). Former board member of Tide ASA and Sparebanken Vest Boligkreditt. Masters degree in business economics (siviløkonom) from the Norwegian School of Economics (NHH).

Bjørg Marit Eknes (Born 1969) Head of Innovation and Customer Experience since 15 February 2017. Director of Retail Market since 2015. Has worked for Sparebanken Vest since 1997. Has wide-ranging management experience from various positions in Sparebanken Vest. Director of Business Support and Development since 2013 and previously filled the position of managing director of Sparebanken Vest Eiendomsforvaltning AS. She has previously worked for Sparebank and the insurance company KLP Forsikring. Board member of Bank ID Norge AS, Bergen Aquarium and Banksjef C.J. Eges Stipendielegat. Has a master`s degree in business economics from the Norwegian School of Economics (NHH), and an MBA from Bond University in Australia. Has completed the MBA Brand Management module one at NHH, and the AFF Solstrand leadership programme.

Siren Sundland (Born 1971) Head of Operational Services since 21 December 2015. Director of HR and Corporate Communication since 2009. Joined the bank in 2007. 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 Academy of Art and Design, the Norwegian Broadcasting Corporation (NRK) and the news­paper Bergens Tidende. Chair of the board of Den Nationale Scene and NHH’s Advisory Board. Has a cand.philol. degree from the University of Bergen, majoring in Nordic literature and Executive MBA in Management Control at NHH.

Frank Johannesen (Born 1959) Head of Risk Management since 21 December 2015. Joined the bank in 1985. Has a very wide-ranging banking background and has held various management positions in the bank. Has been Director of Risk Management in Sparebanken Vest since 2002 and Director of Economy and Finance since 2013. Has a law degree from the University of Bergen as well as an Executive MBA in Strategic Management from the Norwegian School of Economics (NHH). He has also completed the AFF Solstrand leadership programme.

Jørgen Gudmundsson (Born 1981) Executive Vice President of Economics and Accounting, Treasury and Back and Middle Office, and the bank’s Investor Relations from 21.11.2018. Comes from the position as Head of Risk and Macro analysis in Sparebanken Vest. Gudmundsson is authorized within interest rate analysis and is a graduate economist from NHH and holds a Bachelor of Business Economics from Oxford Brookes University. Prior to joining Sparebanken Vest in 2014, Gudmundsson worked for six years in Norges Bank within monetary policy.

Sparebanken Vest Annual Report 2018 page 11 The Board of Directors

Trygve Bruvik (Born 1952) – Chair (Deputy chair from March 2019) Member of the board since April 2008. Currently manages a family-owned property and investment company. Mr Bruvik was Managing Director/CEO of Vesta from 1994 to 2002. Former chair of the main board of the Norwegian Financial Services Association and chair of the main board of the Norwegian Insurance Association. Chairman of the Board in Marine Farms ASA from 2002 to 2008, and board member in G. C. Rieber AS 1997-2015, as chair from 2012 to 2015. Deputy chair of the board of DNO ASA 2002-2010. Bruvik holds a degree in business economics from BI Norwegian Business School and an engineering degree from Bergen Engineering College.

Arild Bødal (Born 1965) – Deputy chair (Chairman of the Board from March 2019) Member of the Board since April 2011, and Chair from March 2019. Currently manages his own investment and consultancy company, and provides services in the areas of strategy and business development, asset management, acquisitions and industry consolidation, including at Norva24. Also chair of the board and board member of a number of companies. From 1997 to 2015, managed Septik24-gruppen, which is now a part of Norva24. Qualified as an authorised accountant from BI Norwegian Business School, holds a university college degree in business and administration and part of a master’s degree in business administration (MBA) from Heriot-Watt University. Further education from BI Norwegian Business School, the Norwegian School of Economics (NHH) and the Norwegian University of Science and Technology (NTNU).

Magne Morken (Born 1958) Member of the board since March 2017. Runs own investment and consulting company. Former CEO of Hansa Tankers Management AS, Managing Director of Solvang ASA and Senior Vice President (Oslo/Stavanger/London). Master’s degree in business economics (siviløkonom) from the Norwegian School of Economics (NHH). Board member of Norwegian Hull Club, Bergen and SigCo, Bermuda. Former deputy chair of the board of Sparebank and board member of Gard P&I Club.

Gunnar Skeie (Born 1955) Member of the board since March 2016. General manager of Sparebankstiftinga Hardanger. Former lawyer and partner in the law firm Advokatene Kvåle og Skeie ANS in Norheimsund. Has been acting judge at Gulating Court of Appeal, lawyer affiliated with Kreditorforeningen in Bergen, assistant judge at the office of the chief local judge in Karmsund in Haugesund, assistant advocate with Advocate Tom Berge in Odda and legal adviser at Bergen Tax Office. Law degree from the University of Bergen. Has previously held the offices of head of the control committee of Eiendomskreditt AS, head of the control committee of Voss Veksel og Landmannsbank AS, and member of the board of Eiendomskreditt AS.

Richard Rettedal (Born 1971) Member of the board since April 2008. CFO of Trolltunga Robotics. Previously CFO of Sekal AS. Previously head of finance and administration at Roxar and CFO of Skanem AS. Mr Rettedal also worked in Dubai for a prolonged period. Working Chairman of the Board in Minter Markets AS. Holds an MBA with specialisation in finance from the University of Wisconsin – Madison, Florida International University and the University of Stavanger.

Birthe Kåfjord Lange (Born 1973) Member of the board since April 2012. Associate professor in Management at Kristiania University College and associate professor II at NHH Norwegian School of Economics. Former director NHH Executive and Manager People and Leadership Development in Statoil ASA. Former member of the board of Bergen Private Gymans AS, the board of the Norwegian School of Economics (NHH) and the nomination committee of BOB. Lange has also held various other offices. She has a PhD and degree studies from NHH and a cand.mag degree from the University of Bergen/Bergen University College.

Marianne Dorthea Jacobsen (Born 1980) Member of the Board since March 2017. CEO of Knowit Experience Bergen. Previously held positions as general manager, adviser and project manager at Knowit. Previously also customer adviser in Sparebanken Vest. Holds an MBA (Strategic and Management) from the Norwegian School of Economics (NHH), a master`s degree (Brand Management) from Queensland University of Technology, Australia, as well as a bachelor`s (Economics) from Leeds Metropolitan University, UK. Strategic adviser on digitalisation, innovation and branding for several banking and Finance Companies, among others.

Fred Risløw (Born 1981) Member of the board since March 2016 as an employee representative. Has worked for Sparebanken Vest since 2007. Authorised financial adviser. Bachelor’s degree in economics from University College in Sogndal. The bank’s regional employee representative for the / region, member of the board of the bank’s employee representative committee. Included office as deputy member of the bank’s general meeting, and a deputy board member.

Sparebanken Vest Annual Report 2018 page 12 The Board of Directors (continued)

Kristin Axelsen (Born 1966) Member of the board since April 2013 as an employee representative. Joined Sparebanken Vest in 2007. Has worked in banking since 1984. Authorised financial adviser. Bachelor’s degree in banking and finance from BI Norwegian Business School/the Bank Academy. Has served as vice chair of Ungt Entreprenørskap (Junior Achievement Young Enterprise) .

Anne-Marit Hope (Born 1959) Member of the board since April 2010. Chief employee representative for the Finance Sector Union of Norway. 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 Finance Sector Union of Norway.

Sparebanken Vest Annual Report 2018 page 13 Photo: Magnus Halvorsen Wathne

Sparebanken Vest Annual Report 2018 page 14 Journey through 2018

JANUARY MARCH MAY JULY SEPTEMBER NOVEMBER New, simple financing More than 650 participants Self-service solution Sparebanken Vest Buffer is launched Sparebanken Vest does solutions launched for attend the conference launched for topping up is the first bank in throughout Norway – a away with the ‘reserved mobile phones, where Vestlandskonferansen 2018. mortgages. Norway with push user-friendly digital amount’ function – users can apply for a notifications for solution that gives small now customers can consumer loan, order e-invoices. and medium-sized immediately see who credit and change credit enterprises quick and has charged their card limits on their EMV easy access to the account. mobile phone. amounts they have invoiced.

FEBRUARY APRIL JUNE AUGUST OCTOBER DECEMBER Veslemøy Fredriksen Thirteen-year-olds can now Sparebanken Vest joins Announcement of the Sparebanken Vest joins the Sparebanken Vest and takes over as head of get BankID and Mobile Bank forces with the start-up planned launch of growth guarantee scheme Sparebanken Sogn og Eiendomsmegler Vest. ID from Sparebanken Vest. company Folio on an Bulder Bank – the first Vekstgarantiordning, Fjordane are the first SME initiative to build Norwegian bank that enabling it to provide even banks in Norway to offer Norway’s easiest total will only be available on better financing solutions access to each other’s financial system. mobile phones. for enterprises in Western accounts. Norway.

OTHER HIGHLIGHTS IN 2018 Visa Smart Ung with ID, Pay with your watch! Contactless Sparebanken Vest makes it possible for available to those aged payment using a Sparebanken Vest corporate customers to receive payments 13 and over. card becomes possible with Fitbit and through AliPay. Garmin watches. Comments by CEO

that have been most vulnerable to fluctuations in recent years. This, combined with careful management and high credit quality, led to considerably lower provisions for losses in 2018 than the bank expected at the start of the year.

The bank entered 2018 with a strong capital base that enabled it to be a sound financial partner for both its retail and corporate customers. With a total growth in lending of 8% in 2018, the bank has contributed to growth and necessary restructuring in Western Norway, and my goal is that we keep contributing to profitable business opportunities and meet our customers’ financing needs going forward. The future is now

The year 2018 outlined a future of both opportuni- ties and threats for Norwegian banks. During 2018, Sparebanken Vest launched several new national initiatives and also extensively developed functions and services in existing digital channels.

Our philosophy is based on hands-on, in-house IT development focusing on the digital user experience. At the beginning of 2019, Sparebanken Vest’s One example of this is that we have developed push operations are marked by good, stable earnings notifications for eInvoices in record time, and we from a healthy lending portfolio. There is a high level were the first bank to launch this last summer. We of activity in the bank and good demand for its are now looking into other push notification options products among both new and existing customers, in close cooperation with our customers. In the the cost situation is stable and the financial situation future, it will be possible to receive notifications of is robust. e.g. payments made into accounts, new messages in online mailboxes, use of credit cards and region The second half-year of 2018 saw Western Norway’s locks. economy stabilise at a good level, which was positive for the bank. After a few years of weaker We want to be among the first to test the opportuni- growth in the Norwegian economy, the activity level ties presented by PSD2. For example, almost 1,000 in the region is now picking up and the oil price has customers have already activated the display of stabilised at a slightly higher level. This positive accounts in other banks using our channels. I situation is reflected in the bank’s own business believe we will look back at 2019 as the year the index – the Western Norway Index. In the fourth battle for customer ownership and business really quarter of 2018, the index registered the highest got under way. level of optimism among enterprises in Western Norway since before the oil crisis. Sparebanken Vest works hard to be able to offer the SME market simple, value adding solutions. This has generated positive ripple effects for Sparebanken Vest in the form of a higher activity In 2017, we began offering Norway’s closest level among customers, and a low loss level. The integration between banking and accounting bank has had low direct exposure to the industries through the accounting system Fiken. During 2018,

Sparebanken Vest Annual Report 2018 page 16 Sparebanken Vest has invested heavily in the fintech MUST WIN BATTLES 4.0 company Folio, on developing Norway’s easiest total In the second half of 2018, the bank, for the fourth financial system for SME enterprises. Folio and the time, used the ‘Must Win Battles’ method as a bank are working on a joint initiative in the SME strategic tool to ensure that Sparebanken Vest market, where we are developing a service where achieves its underlying target of a return on equity customers can carry out payments, attend to over time of 12 per cent, and to offer good, simple bookkeeping, liquidity management and payroll customer experiences. transactions in one place without having to log into multiple systems. One of the three battles we will focus on until the end of 2019 has the working title ‘A clearer In September, Sparebanken Vest launched its new signature’. Our customers have always had a very financing product Buffer, which is a simple digital personal relationship with the savings bank, and solution where an enterprise can see how much of a expect us to be as personal back. ‘A clearer liquidity buffer it can draw on, based on how much signature’ is about ensuring that every time we are it has invoiced its customers. When integrated with in contact with customers, we show that the cloud-based accounting systems, the solution will relationship is mutual, that we know each other and make it possible to see how much credit the that we care about people. It’s about openness, customer is entitled to at all times. learning and sharing.

I believe Buffer, with its integration with other data The two other battles are ‘Housing loans in a class of sources, represents the future of banking. The their own’ where we make efforts to deliver above solution we currently have is just the start, and there expectations during all phases of our customers’ is huge potential for further developing it in more home-buying journeys, and ‘The battle for freedom parts of the value chain. We are already working on of action’ that shall enable Sparebanken Vest concrete initiatives in this context. We can envisage employees to make the decisions we believe are taking Buffer out into the world too, but we are right for our customers. We have to have freedom of concentrating on the Norwegian market for the time action to be able to do so. being. We will achieve this by keeping the bank’s total App Store and Google Play have ranked nominal cost level at the same level as in 2017, Sparebanken Vest’s mobile banking solution top while also focusing on being effective every day and among its Norwegian counterparts. Our experience removing day-to-day problems. from the development of the current online banking solution is useful in our work on developing A VALUE PROPOSITION COMMITMENT Norway’s only exclusive mobile phone bank, Bulder If the bank is to achieve its most important, Bank. This is a new national initiative targeting a overriding goals for 2019, the changes that take completely different segment than those who place within the bank must keep up with the major choose Sparebanken Vest. Our strategy is to attract changes in society. I think Sparebanken Vest has the customer groups interested in innovative and already come a long way in establishing a non-traditional banking systems before the fintech performance and change-oriented organisational organisations get hold of them. culture. This is not a constant however, and we must always be inquisitive and willing to challenge Bulder Bank and Sparebanken Vest are two totally ourselves to find good customer solutions. different brands, focusing on different customer segments and with different value propositions. At The bank is in a good financial position for further the same time, there are huge opportunities for growth and development. The capital targets have exchanging technology. Bulder Bank will use digital been met, and the implementation of Basel IV will solutions developed by Sparebanken Vest where be advantageous to Sparebanken Vest. Furthermore, natural. Sparebanken Vest will likewise benefit from we have a cost structure, an organisational culture the technology Bulder Bank develops. and digital platform that put us in a good position for growth. The goal is therefore that we win further

Sparebanken Vest Annual Report 2018 page 17 market shares within our ordinary activities in 2019. To sum up – Sparebanken Vest will help make life in Western Norway even better in 2019 as well, by living up to our value proposition: A personal signature, simple digital services and a social commitment in Western Norway.

Jan Erik Kjerpeseth CEO

Sparebanken Vest Annual Report 2018 page 18 Board of Directors’ report 2018

Sparebanken Vest recorded a pre-tax Sparebanken Vest’s market position was further profit in 2018 of NOK 2,153 (1,844) strengthened in the past year, and, with a total million, and a return on equity of 11.9% growth in lending of 8% in 2018, the bank has (11.0). The operating profit was positively contributed to growth and necessary restructuring affected by an increase in net interest and in Western Norway. In the retail market, credit commission income, an improved Sparebanken Vest is winning market shares in performance from financial instruments Western Norway with a growth in lending of 7.4% in 2018, while the general growth in lending in and continued low losses. On the other the bank’s market area was 5.6%. The growth in hand, weaker results from associated lending in the corporate market was 9.8% in 2018. companies pull in a negative direction. This applies to Frende Forsikring in Operations are marked by good, stable earnings particular. The operating profit includes from a high-quality lending portfolio. There is a high NOK 94 million as the effect on profits of activity level in the bank and good demand for its the merger between Vipps, BankAxept products among both new and existing customers. and BankID. The development in margins is good, the cost situation is stable and the financial situation is The good cost development the Group has robust. enjoyed in recent years continues. Sparebanken Vest achieved a total cost The bank’s ambition is to be among the best banks reduction of 4.8% in the parent bank from in terms of customer satisfaction, among the 2012 to 2018, corresponding to an best two comparable banks in terms of ROE, the average reduction of 0.8% per year during strongest in terms of social commitment in Western the period. Norway and the most exciting place to work for people who want to develop their competence.

The Board is very satisfied with the bank’s development and profit performance in 2018.

THE NATURE OF THE BUSINESS Sparebanken Vest is an independent, listed financial services group that is engaged in banking and financing activities in the counties of Hordaland, Rogaland and Sogn og Fjordane. The Group’s head office is in Bergen. At the end of 2018, the bank had 33 points of sale.

The Group is engaged in estate agency business through Eiendomsmegler Vest AS and home mortgages through Sparebanken Vest Boligkreditt AS. These two limited liability companies are wholly owned by the parent bank.

Sparebanken Vest is also the largest owner of the securities company Norne Securities AS, with a holding of 47.6%, and of the insurance company Frende Holding AS, with a holding of 39.7%.

Sparebanken Vest Annual Report 2018 page 19 These companies are jointly owned with 14 other requirements. Sparebanken Vest delivered on both savings banks. The housing credit company Verd targets in 2018. Boligkreditt is run by Sparebanken Vest Boligkreditt AS and owned by eight independent savings banks. While the strategy remains unchanged and sets Sparebanken Vest has an ownership interest of a clear direction, the bank must also address 49.99% in the financing company Brage Finans AS. important strategic challenges to ensure that it The company is jointly owned with 11 other savings achieves its targets also going forward. The savings banks. bank of the future will be developed in the digital shift that is now taking place, at the same time as Balder Betaling AS is a company that, among other the bank’s current distinctiveness and strengths things, exercises ownership of the mobile payment are maintained. For Sparebanken Vest, this entails system Vipps on behalf of Sparebanken Vest and another step away from being a traditional digitalised other savings banks that are also among the owners bank towards becoming a digital bank supported by of Frende Forsikring. Balder Betaling has a holding traditional services and a personal signature. of 10.5% in Vipps, and Sparebanken Vest is the biggest owner of Balder with an ownership interest Our value proposition to our customers is a bank of 36%. with a personal signature, both physically and digitally; simple, good and user-friendly digital The bank’s ownership in associated companies services; and a socially committed bank that is helps to supplement the range of services passionate about Western Norway. and products offered by the bank. The profit contribution from associated companies amounted When customer expectations increase, deregulation to NOK 85 (120) million in 2018. The decrease accelerates, the competition from both existing and from 2017 is explained by a weaker performance by new competitors becomes tougher and switching Frende Forsikring due to higher claims costs, and a barriers are reduced, the customer experience and challenging financial market throughout the year. customer satisfaction become more important than ever. Sparebanken Vest already offers excellent STRATEGIC DIRECTION customer experiences and has been ranked in Sparebanken Vest continued its forward-looking the top three in Norway on customer service in development in 2018 and implemented several new the banking category for two years in a row. We measures to ensure the bank is prepared for the have also significantly improved our customer changes and opportunities that are now arising in satisfaction score in the EPSI Rating survey. The the banking and finance sector. bar for customer experiences is continuously being raised, however. For that reason, Sparebanken Vest Sparebanken Vest’s vision is: ‘Everything we do, continuously endeavours to become an even more we do to make life in Western Norway even better’. customer-oriented bank. The bank’s targets in relation to its most important stakeholders is to be among the best banks in In 2018, we therefore launched three new ‘Must terms of customer satisfaction, among the best Win Battles’, a methodology that has proved two savings banks on ROE, the strongest in terms successful for Sparebanken Vest in previous rounds. of social commitment in Western Norway and the The new battles are ‘Outstanding home purchases’, most exciting place to work for people who want which focuses on improving the lending experience to develop their competence. The sum of these for our customers both physically and digitally; targets is reflected in the bank’s ambition to become ‘The battle for freedom of action’, which is about Norway’s best savings bank. keeping the cost level down, creating freedom of action for new initiatives and ensuring that time and The bank’s long-term financial target has been resources are spent where they generate the highest raised from a return on equity of 11% to 12%, with yield; and ‘A stronger signature – turning words into a temporary target in 2018 of 11.5%. The target for action’, which is about improving and strengthening Core Tier 1 capital is still around 1 percentage point the bank’s personal signature and position. These above the sum of all regulatory minimum and buffer three battles are well under way and have already

Sparebanken Vest Annual Report 2018 page 20 generated considerable results. They will continue to national level) and be one of the simplest and most be a focus throughout 2019. forward-looking banks for both retail and corporate customers. Sparebanken Vest is investing in hands-on, in- house development focusing on the digital user THE BANK’S EQUITY CERTIFICATE experience. This is becoming increasingly important (TICKER SVEG) as the battle for traffic intensifies, and competition The Board of Sparebanken Vest emphasises a further increases as a result of PSD 2. This means transparent information policy with regard to a high degree of in-house development in areas that the bank’s financial development by providing provide opportunities for a differentiated customer consistent, timely, relevant and correct information experience and in areas that the bank defines as to equity certificate holders, Oslo Børs and the core services. In other areas where a product or a securities market. The Board’s goal is for the service is deemed a ‘hygiene factor’, the bank will bank to achieve good growth in profit per equity purchase standard solutions and enter into strategic certificate and a return on equity on a par with partnerships in selected areas where cooperation or better than comparable banks. This includes is the right course of action, e.g. through Vipps and securing the greatest possible value creation for with the fintech start-up Folio. the bank’s two classes of equity. The Board is also concerned with ensuring that the bank continues Based on our considerable in-house development to be a savings bank with a considerable degree of expertise and the technological developments that community ownership. are taking place whereby geographical boundaries are being erased thanks to digital distribution, we An investment in SVEG represents: have worked on three major national initiatives in • Pure exposure to the Norwegian economy 2018 that will be important growth drivers in 2019. • Exposure to Norway’s most attractive region with a Buffer is a new, innovative lending product for small sound customer base and good growth companies, which connects them to a cloud- • Lower risk through a 75% retail market portfolio based accounting system and provides access to and low direct exposure to the oil and offshore a dynamic, real-time credit limit. It thus helps to industry address the liquidity needs small companies often • A solid retail market portfolio that dominates face, which can hamper their growth. Buffer was the overall risk situation and provides access to launched in 2018 and will be further developed favourable financing and scaled up in 2019 through its integration with • A big equity buffer with a large holding of primary other accounting systems. We have also entered capital into a close partnership and co-ownership with the • A distribution policy that provides flexibility for self- fintech start-up Folio on creating a new platform financing even with attractive dividend levels for small companies, which integrates banking and accounting. ‘The bank account that does your At the turn of the year, the market price for accounts’ is currently being developed and tested, Sparebanken Vest’s equity certificate was NOK and will be launched in the first half of 2019. Last, 53.0 per certificate. At year-end 2017, the price but not least, we announced in autumn that we are was NOK 54.50. Sparebanken Vest paid a cash set to launch Norway’s first fully mobile banking dividend of NOK 3.75 per certificate in 2018. At solution. This will be a brand new way of doing the end of the year, the book equity and profit per banking; fully self-service and with a world-class equity certificate amounted to NOK 53.8 (51.4) and digital user experience. Bulder Bank, which is under NOK 6.04 (5.42), respectively. This corresponds to development and scheduled for launch in the first a price-book ratio of 0.98 (1.06). Around 9.3 million half of 2019, will be a brand that generates national equity certificates were traded, corresponding to a growth opportunities. sales value of approx. NOK 479 million during 2018. That was a decrease from approx. 17.2 million equity Sparebanken Vest’s strategic ambition is thereby to certificates in 2017. strengthen and consolidate our market position in Western Norway, create profitable growth (also at a The Board proposes that the General Meeting adopt

Sparebanken Vest Annual Report 2018 page 21 a cash dividend of NOK 2.30 (3.75) per equity Taking into account the bank’s capital adequacy, certificate for 2018. This represents about 41% of strategy and development, the goal is for up to 50% the equity certificate holders’ share of profits. of the year’s profit to be distributed to dividend funds.

Figure 1: Earnings (NOK) per equity certificate The potential for development and growth that

8 creates value for the bank’s owners, the expected profit development in a normalised market situation,

6,24 external framework conditions and the need for core 6,04 6 5,42 capital will be taken into account when determining dividend. The bank’s dividend policy will form the basis for the resolutions proposed by the Board at 4 the General Meeting.’

An overview of the bank’s 20 biggest equity 2 certificate holders is available in Note 42.

In 2018, Sparebanken Vest had two savings 0 2016 2017 2018 schemes in the bank’s equity certificates (SVEG) for all employees. The first scheme is the tax-free Figure 2: Dividend (NOK) per equity certificate scheme provided for in the tax legislation, whereby

5 employees can purchase equity certificates in 4,50 Sparebanken Vest for NOK 15,000 at a 20% discount. The second scheme offers equity 4 3,75 certificates for a stock exchange value of NOK 40,000 for employees, NOK 100,000 for level 2 3 managers and NOK 300,000 for the corporate 2,30 management team. The equity certificates 2 in the second savings scheme are subject to a commitment period that means employees

1 cannot sell them until they have held them for 36 months. This scheme includes a discount element that is liable to tax. In 2018, Sparebanken Vest’s 0 2016 2017 2018 employees purchased a total of 259,482 certificates through the bank’s savings schemes. Sparebanken Vest’s dividend policy is as follows: ‘Sparebanken Vest’s objective is to achieve results that CORPORATE GOVERNANCE provide a competitive return on the bank’s equity. Sparebanken Vest’s principles and policy for corporate governance are based on the current The profit for the year after tax shall be divided Code of Practice issued by the Norwegian Corporate between the equity certificate capital and primary Governance Board (NUES), as well as applicable capital in proportion to their relative share of the regulations in the area. bank’s equity (the owner fraction). The equity certificate holders’ share of the profit will be divided Sparebanken Vest’s strategy, policies, procedures, between dividend and the equalisation reserve. principles and articles of association are intended to ensure that its corporate governance is in Dividend funds will as far as possible be divided accordance with generally accepted and recognised between the different groups of owners so that they principles and standards, and in compliance each receive a proportionate share of the profit. The with laws and regulations. Moreover, the bank’s dividend funds will consist of a cash dividend for the corporate governance shall ensure good cooperation equity certificate holders and funds for the public between its different stakeholders, such as equity benefit. certificate holders, lenders, customers, employees,

Sparebanken Vest Annual Report 2018 page 22 governing bodies, management and society as a Standards (IFRS) as adopted by the EU and whole. In the Board’s view, the bank’s corporate published by the International Accounting Standards governance is satisfactory and in compliance with Board (IASB), and which are mandatory as of 31 its principles and policy. December 2018. In the company accounts, the bank exercises its right to use a simplified form of Ten board meetings and one board conference IFRS. Consequently, dividend/group contributions were held in 2018. The Board’s main focus has from subsidiaries are included in the basis for the been on following up operations, strategy, risk and parent bank’s dividend in the same year as they are capital management, and on monitoring markets earned. and framework conditions. The Board has adopted an annual plan for its work, and it places great The annual accounts have been prepared in emphasis on ensuring that its members have the accordance with the applicable regulations. In the requisite knowledge and expertise. Board’s view, they provide a true and fair picture of the Group’s profit performance and financial The Board has appointed four committees as part of position. its work: PROFIT PERFORMANCE • The Audit Committee is charged with ensuring Sparebanken Vest recorded a pre-tax profit of NOK that Sparebanken Vest has an independent and 2,153 (1,844) million in 2018, and a return on effective external and internal audit function, and equity of 11.9% (11.0). financial and risk reporting that is in accordance with laws and regulations. The operating profit was positively affected by an • The Risk Committee is charged with ensuring that increase in net interest and credit commission Sparebanken Vest’s risk and capital management income, an improved performance from financial underpins the bank’s strategic development instruments and continued low losses. On the other and goal attainment, while at the same time hand, weaker results from associated companies ensuring financial stability and acceptable asset pull in a negative direction. This applies to Frende management. Forsikring in particular. The operating profit includes • The Credit Committee deals with credit matters NOK 94 million as the effect on profits of the merger under the authorisation of the Board. between Vipps, BankAxept and BankID. • The Remuneration Committee is tasked with ensuring that the bank has a competitive, but not The good cost development the Group has enjoyed leading, pay policy that complies with applicable in recent years continues. Sparebanken Vest regulations for financial undertakings, and is achieved a total cost reduction of 5.4% in the seen as motivating by the bank’s management in parent bank from 2012 to 2018, corresponding to relation to implementing the adopted strategy and an average reduction of 0.9% per year during the achieving the goals set. period.

A full account of corporate governance in The loss costs for 2018 were positively affected Sparebanken Vest is provided in a separate article in by the reversal in model-based provisions of NOK the annual report. 20 million during the year, in addition to the good underlying development of the credit portfolio. STATEMENT CONCERNING THE ANNUAL The profit per equity certificate was NOK 6.04 ACCOUNTS (5.42). The annual accounts have been prepared on the basis of the going concern assumption and the The Group’s assets under management amounted accounts for 2018. to NOK 189.4 (175.2) billion, an increase of NOK 14.2 billion compared with 2017. The parent bank’s Sparebanken Vest’s consolidated and company assets under management alone amounted to NOK accounts for 2018 have been prepared in 112.9 (111.5) billion. accordance with International Financial Reporting

Sparebanken Vest Annual Report 2018 page 23 INCOME The contribution from financial instruments was Net interest and credit commission income positive in the amount of NOK 165 (minus 7) million. Net interest income amounted to NOK 2,716 The effect on profits of the merger between Vipps, (2,565) million in 2018. The increase of NOK 151 BankAxept and BankID makes a contribution of million is due to good growth in lending in the retail NOK 65 million to the profit for financial instruments. and corporate markets. Net interest as a percentage The market regulation of items valued at fair value of average assets under management was 1.46% produced a positive effect of NOK 55 million. A (1.50). Higher financing costs contribute to the widening of spreads in the liquidity portfolio in reduction in net interest as a percentage. the amount of NOK 42 million pulls in a negative direction. Gross lending increased by NOK 11.9 billion to NOK 160.0 (148.1) billion from the fourth quarter 2017, The bank’s customer brokerage and interest rate corresponding to year-on-year growth of 8.0%. Of and currency trading activities contributed NOK 63 gross lending, loans to the retail market amounted (61) million. to NOK 120.5 (112.2) billion, NOK 84.2 billion of which were loans transferred to Sparebanken Vest The income from Eiendomsmegler Vest’s estate Boligkreditt AS. Gross lending to the corporate agency activities amounted to NOK 210 (195) market amounted to NOK 39.4 (35.9) billion. The million. growth in the corporate market is the result of targeted customer selection in defined focus areas. The profit contribution from associated companies The bank has good access to projects in the SME amounted to NOK 85 (120) million in 2018. The segment, and its approach is selective and based decrease is due to a weaker performance by Frende on profitability and the amount of tied-up capital in Forsikring due to higher claims payments and a the projects. weaker financial result. Brage Finans, however, recorded increased income. The Group’s lending margin measured against the 3-month NIBOR rate decreased by an average of OPERATING EXPENSES 30 basis points in 2018. The margin development Total operating expenses amounted to NOK 1,497 must be seen in connection with a higher 3-month (1,450) million in 2018. The increase is due to the NIBOR rate throughout the year, while repricing in increased focus on Eiendomsmegler Vest, which November makes a positive contribution. is expected to have a positive effect in 2019, and slightly higher development costs linked to the Deposits from customers increased by NOK 3.4 bank’s multiple national initiatives in the retail and billion to NOK 72.5 billion from the fourth quarter corporate markets. 2017, corresponding to year-on-year growth of 5.0%. The deposits break down as follows: NOK 45.2 Costs as a percentage of income excl. financial (43.7) billion from retail customers and NOK 27.3 instruments (C/I) constituted 43.6% (44.1). The (25.4) billion from corporate customers. Group employed 701 full-time equivalents at the end of 2018, compared with 693 in 2017. The deposit margin measured against the 3-month NIBOR rate increased by an average of 34 basis WRITE-DOWNS ON LOANS AND GUARANTEES points in 2018, due to a higher 3-month NIBOR rate Write-downs on loans and losses on guarantees throughout the year. amounted to NOK 6 (33) million in 2018. The high quality of the lending portfolio and a good market Net other operating income outlook in Western Norway led to the positive Net commission income amounted to NOK 480 development in loss costs for the bank during 2018. (442) million in 2018. The increase is due to higher fees, higher income from savings and investment Individual write-downs for loans amounted to NOK products and increased commission income from 549 (588) million. Model-based provisions under sales of leasing and insurance products. IFRS 9 amounted to NOK 358 million (group write- downs in 2017 amounted to NOK 445 million).

Sparebanken Vest Annual Report 2018 page 24 In addition to the write-downs mentioned above, stressed market conditions. The bank’s liquidity the bank had a total of NOK 68 million in provision needs and risk profile, including the stipulation of relating to guarantees, unused credit facilities and the bank’s risk tolerance through targets and limits, loan approvals at 31 December 2018. are analysed and the analysis considered as a separate board item (ILAAP2). THE PARENT BANK’S ALLOCATION OF PROFIT The parent bank’s profit after tax in 2018 amounted Credit risk to NOK 1,556 (1,357) million. With a deduction for The structure of Sparebanken Vest’s lending the payment of interest on hybrid capital and an portfolio is largely the same as at the end of allocation to the reserve for unrealised gains, the 2017. At year-end, the retail market accounted basis for dividend amounts to NOK 1,517 million. for approx. 75% of the portfolio, and approx. The owner fraction before the allocation of profit 96% of this portfolio consists of loans secured in 2018 was 22.5%. The Board proposes a cash by residential mortgages. The risk in the retail dividend of NOK 2.30 (3.75) per equity certificate market portfolio is still deemed to be stable and for 2018. That means a total dividend payment low. New housing loans are furnished within the of NOK 139 (221) million, which corresponds limits of the housing loan regulations, while new to a distribution percentage of 40.7% (74.4). At consumer loans comply with the guidelines set out the General Meeting, the Board of Directors will in the Financial Supervisory Authority of Norway’s recommend that the dividend for 2018 be paid as a circulars. Sparebanken Vest has emphasised that cash dividend. the possibility of deviating from the regulations’ requirements (up to 10% of new loans) should The Board of Directors also proposes that NOK primarily be considered for the younger age groups. 479 (150) million be spent on donations for the public benefit. That is equivalent to a distribution Lending margins in the retail market have decreased percentage of 40.7% (15.2). After allocation of the in 2018, while deposit margins have shown an profit for the year, the owner fraction remains at increasing trend. This must be seen in conjunction 22.5%, since the distribution to equity certificate with the higher NIBOR rate. Although the bank has holders and donations for the public benefit are at growth ambitions for 2019, the Board will prioritise the same level. The total retained profit is NOK 900 margins over growth to achieve the bank’s ROE million in the parent bank, corresponding to 59.3% target. (71.1). Commitments in default and potential bad debt in RISK AND CAPITAL MANAGEMENT the retail market amount to a total of NOK 316 (280) Risk and capital management underpins the bank’s million. This corresponds to 0.24%, compared with strategic development and ambitions and is one 0.23% of the portfolio at the end of 2017. of the Board of Directors’ priority areas. Based on quarterly reports, the Board evaluates the bank’s Good risk selection combined with macroeconomic risk and capital situation in relation to adopted developments have led to low losses in 2018. The control parameters. The exposure lies within the risk profile is stable and moderate. Sparebanken bank’s defined risk profile. In the Board’s view, the Vest also has relatively moderate exposure to bank’s guidelines and processes for risk and capital industries vulnerable to cyclical fluctuations. To management function well. ensure that the lending portfolio is diversified, the bank now prioritises small and medium-sized The bank’s risk and capital tolerance is specified enterprises in the corporate market. The margin through targets and parameters. Through the bank’s development is the same as the picture for the retail risk and capital assessments (ICAAP1), capital market. buffers and capital adequacy targets are set in order to safeguard the bank’s operations also under Commitments in default and potential bad debt in the corporate market amounted to a total of NOK 1,124 (1,261) million. This corresponds to 2.38%, 1) ICAAP Internal Capital Adequacy Process 2) ILAAP Internal Liquidity Adequacy Process compared with 2.91% of the portfolio at the end of

Sparebanken Vest Annual Report 2018 page 25 2017. The proportion of defaults and other potential credit spread risk has increased slightly in relation to bad debt in the portfolio was 0.80%, down from the end of 2017, at NOK 278 (254) million. 0.92% at the end of the fourth quarter 2017. The bank’s stock market exposure (excluding For 2018 as a whole, loss costs came to NOK 6 subsidiaries and associated companies) amounted (33) million. The total percentage provided for in to NOK 364 (416) million at the end of 2018. the portfolio is somewhat reduced. The Board is satisfied with the risk and price development in the The identification, analysis and follow-up of lending portfolio in 2018. operational risk is addressed at a general level through management confirmations, continuous Figure 3 – Defaults and potential bad debt assessments and the registration of events. No

1600 5 % matters have been uncovered in 2018 that are critical to the bank’s operations. 1400

4 % 1200 Operational risk

1000 Sparebanken Vest’s management of operational 3 % risk shall ensure that the bank’s risks resulting from 800 1.261 1.240 1.110 1.096 1.124 inadequate or failing internal processes or systems, 2 % 600 human error or external events are consistent with

400 0,92 % 0,89 % 0,82 % 0,80 % 0,80 % the risk level adopted by the Board. Operational 1 % risk also includes compliance risk. The Compliance 200 280 262 312 320 316 department is tasked with helping the bank to reach 0 0 % Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 its financial and strategic goals without it incurring Retail Corporate % of total criticism, sanctions or financial losses as a result of Figure 4 – Write-downs non-compliance.

0,9 1200 Management and control of operational risk in 0,8 0,70 % 1000 Sparebanken Vest can be described at three levels: 0,67 % 0,7 0,63 % 0,64 % 0,61 %

0,6 800 • Operational management and control, exercised by

0,5 445 431 402 418 425 the line organisation 600 0,4 • Overall risk management and control, attended to Capitalised write-downs (MNOK) 0,3 400 by Risk Management and Compliance Write-downs as % of gross lendings

0,2 • Internal audit control 200 0,1 588 561 562 569 551 Key processes involved in the management of 0,0 0 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 operational risk are risk assessment, implementation Individual write-downs Group write-downs Write-downs as % of gross lendings and follow-up of measures, and reporting. Market risk Overriding risk assessments are conducted annually The bank’s interest rate and currency risk is and as needed. To strengthen management and managed within limits adopted by the Board and is control of operational risk, governing documents, considered to be low. risk tolerance, risk assessment tools and the annual risk assessment process have been revised and The bank is exposed to credit spread risk, primarily renewed in 2018. Risk tolerance is qualitatively through the management of interest-bearing defined as low and quantitatively as maximum securities in the bank’s liquidity portfolio, and to a losses arising from operational events. very limited extent through proprietary trading. The portfolio mainly consists of securities issued by Risk tolerance and risk assessment tools are Norwegian banks, residential mortgage companies, implemented in our procedures for developing municipalities, county authorities, sovereign states new products and in connection with outsourcing and non-financial enterprises. The bank’s reported services.

Sparebanken Vest Annual Report 2018 page 26 A new process for annual risk assessments means bank and covered bonds issued by the bank’s that each department maps its own risk, control wholly owned subsidiary Sparebanken Vest activities and measures. In order to handle the risks, Boligkreditt AS are used in the capital market action plans are devised with existing and proposed financing. control activities and measures. Each control activity and each measure is assigned an owner Sparebanken Vest Boligkreditt carried out four who is responsible for follow-up. Risk Management public issues in 2018. Two of the issues were in provides guidance and quality assures the risk EUR, while two were in NOK. The EUR issues assessments. The risk situation for the bank as a amounted to EUR 500 million each, while the NOK whole is finally aggregated and reported in ICAAP. issues amounted to NOK 5 billion. Altogether, the The risk situation and the pertaining action plan are company has issued covered bonds for NOK 21.4 used as a basis for ongoing follow-up throughout the billion in 2018. The total volume of covered bonds year. issued by Sparebanken Vest Boligkreditt AS at year- end 2018 was approximately NOK 75.5 billion. Events and non-conformities are reported to the management and the Board at least quarterly, The total amount of senior bonds issued by along with defined measures where the level of Sparebanken Vest in 2018 was NOK 4.28 billion. Of risk is considered to exceed the tolerance limit. this amount, 13 issues (including the expansion of Non-conformities registered in 2018 have been at an existing bond issue) were in NOK. Sparebanken a stable low level and have not had a significant Vest also issued senior loans in the EUR and USD impact on the bank’s activities. Two IT-related markets for EUR 15 million and USD 95 million, events were, however, so serious that they were respectively. reported to the Financial Supervisory Authority in accordance with the regulations. The key interest rate was raised from 0.50% to 0.75% in September 2018. Since then, the money The complexity of the bank’s business is increasing market interest rate (3-month NIBOR) has, on in some areas. At the same time, there is increased average, been around 50 basis points above the focus on risk management and compliance from key interest rate. The corresponding figures were 40 a market and regulatory perspective. This is basis points in 2017 and 50 basis points in 2016. also largely due to new regulations in banking and finance. The Board’s focus is on ensuring The credit spreads (the interest rate mark-up on that the bank’s management in this area adapts 3-month NIBOR) for the bank’s borrowings in the to an increasing number of new guidelines and senior debt market increased during the year. At the requirements. end of 2018, the credit spread for five-year senior bonds issued by Sparebanken Vest was at a higher Compliance risk level than at the beginning of 2018, a widening from Management and control of compliance have a approximately 65 basis points to approximately 77 risk-based approach to identifying compliance risk basis points. in the business. At least one risk assessment of the business is carried out per year, which forms the Sparebanken Vest’s dependence on capital market basis for which activities are to be performed. The financing is increasing. This is due to good growth risk assessment and planned activities are approved in lending and a low interest rate level, which by the Board. The Compliance department carries means that a larger proportion of households and out proactive measures such as training and companies’ savings are channelled into other forms guidance, and reactive measures such as spot of saving than deposits. The Board is concerned checks and reviewing procedures. with keeping the bank’s liquidity risk at a moderate level, with a differentiated structure in relation to Liquidity and financing markets, sources, maturity etc. In addition to deposits, Sparebanken Vest uses capital market financing to finance the bank’s The Board annually considers the bank’s liquidity activities. Senior bond loans issued by the parent analyses (ILAAP) and discusses and decides the

Sparebanken Vest Annual Report 2018 page 27 bank’s risk tolerance in liquidity and financing. A as meeting all regulatory minimum and buffer key point in the bank’s liquidity management is requirements for Core Tier 1 capital, the Board has to ensure that the bank is capable of meeting its decided that the bank shall hold a management commitments as they fall due, and that the bank is buffer on top of these requirements. This buffer able to realise its growth ambitions on acceptable makes up about one percentage point. terms. The bank’s liquidity management shall also ensure that the bank has sufficient liquidity Sparebanken Vest’s Core Tier 1 capital adequacy reserves to survive periods when markets close ratio, taking into account the Basel I floor, is down and/or customers withdraw large amounts of their 0.1 percentage point from the end of 2017, to deposits. ILAAP thus represents an important 14.9%. The bank meets the current combined basis for Sparebanken Vest’s operational liquidity minimum and buffer requirement of 12% and the management. statutory Pillar II requirement of 1.8%, in total 13.8% Core Tier 1 capital, by a very good margin. The total capital market financing amounts to NOK The management buffer adopted by the Board is 95.0 (84.6) billion. The bank’s relative proportion also met. of covered bonds accounted for approx. 76% (71) of the bank’s capital market financing at the end of The bank wishes to meet regulatory requirements 2018. The proportion of financing with a remaining through maximum use of hybrid capital (1.5%) and term to maturity of more than three years was supplementary capital (2%). At year-end 2018, the approx. 56% (51) at year-end. level of hybrid capital was 1.6% and supplementary capital 1.9%. The overall capital adequacy is 18.3%. The Group’s liquidity situation is good. It is managed at the overall level using the Liquidity Coverage Ratio Figure 5 – Capital adequacy, Basel I floor (LCR), stress tests and the deposits/loan ratio. The Group’s Liquidity Coverage Ratio (LCR) was 138% 20 % 18,7 % 18,8 % 18,6 % 18,4 % 18,3 % at the end of 2018. A minimum NSFR (Net Stable 18 % Funding Ratio) requirement is yet to be introduced 2,1 % 2,0 % 2,0 % 1,8 % 1,9 % in Norway, and it is not known when this will take 16 % 1,6 % 1,7 % 1,6 % 1,6 % 1,6 % place. The low interest rate, competition from 14 % consumer loan banks and good growth in lending have led to a fall in the deposits/loan ratio in recent 12 % years. In 2018, it decreased marginally from 46% at 10 % the start of the year to 45% at the end of the year. The Group’s liquidity portfolio amounted to NOK 8 % 15,0 % 15,1 % 15,0 % 15,0 % 14,9 % 22.5 (20.3) billion at the end of 2018. 6 %

Rating 4 % Sparebanken Vest is rated by Moody’s. On 10 2 % July 2017, Moody’s changed the outlook for 0 % Sparebanken Vest and most other Norwegian rated 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 banks from ‘A1 Stable’ to ‘A1 Negative’. The reason Total Capital 18,7 % 18,8 % 18,6 % 18,4 % 18,3 % Tier Capital 2,1 % 2,0 % 2,0 % 1,8 % 1,9 % given by Moody’s for the change is the proposed Add. Tier 1 Cap. 1,6 % 1,7 % 1,6 % 1,6 % 1,6 % implementation of the Crisis Management Directive Core Tier 1 Capital 15,0 % 15,1 % 15,0 % 15,0 % 14,9 % in Norwegian law. Sparebanken Vest has been granted approval to Bonds issued by Sparebanken Vest Boligkreditt AS use the advanced IRB method (AIRB) to calculate are rated by Moody’s and have an AAA rating with a regulatory capital requirements for credit risk. The stable outlook. approval applies to both the retail market portfolio and the corporate market portfolio. Transitional rules Capital adequacy involving a Basel I floor of 80% are still binding on The Board annually discusses and decides the the bank, however. bank’s risk and capital tolerance (ICAAP). As well

Sparebanken Vest Annual Report 2018 page 28 Figure 6 – Capital adequacy, IRB The leverage ratio at the end of the 2018 was 7.1%, down 0.2 percentage points from 2017. 24 % Sparebanken Vest meets the regulatory minimum 22,8 % 22,3 % 22,4 % 22,0 % 21,5 % requirement (3%) and the buffer requirement (2%), 22 % 2,5 % 2,4 % 2,4 % 2,1 % 2,2 % in total 5%, applicable from 30 June 2017, by a 20 % 2,0 % 2,0 % 2,0 % good margin. 1,9 % 1,8 % 18 %

16 % Figure 7 –Leverage ratio

8 14 %

12 %

10 % 6

8 % 18,3 % 17,9 % 18,1 % 17,9 % 17,5 %

6 % 4 7,3 % 7,2 % 7,1 % 7,3 % 7,1 % 4 %

2 % 2

0 % 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 Total Capital 22,8 % 22,3 % 22,4 % 22,0 % 21,5 % Tier 2 Capital 2,5 % 2,4 % 2,4 % 2,1 % 2,2 %

Add. Tier 1 Cap. 2,0 % 2,0 % 2,0 % 1,9 % 1,8 % 0 Core Tier 1 Capital 18,3 % 17,9 % 18,1 % 17,9 % 17,5 % Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

The Financial Supervisory Authority of Norway THE RETAIL MARKET adopted an adjustment to the bank’s Pillar II Sparebanken Vest has seen positive development in requirement in mid-January 2019. This entails the the retail market throughout 2018. At the end of the requirement being reduced to 1.7%, so that the year, the bank had 277,494 retail customers, and bank’s overall minimum and buffer requirement had made progress in prioritised customer segments. is 13.7% at the end of the first quarter 2019. The Financial Supervisory Authority has also expressed The number of retail customers increased by about the Pillar II requirement as a nominal amount: 1.7% in 2018, and the growth in lending was 7.4%. NOK 1,370 million. It has also indicated that the This is higher than the general credit growth in the bank should have a management buffer of one economy, K2. Loans to retail customers constitute percentage point on top of all the requirements. The 75% of the bank’s lending portfolio, corresponding Board of Sparebanken Vest has decided to appeal to NOK 121 (112) billion at 31 December 2018. this decision to the Ministry of Finance. Deposits in the retail market have increased by 3.5%, amounting to NOK 45 (44) billion at year-end. Furthermore, the Ministry of Finance has decided to increase the counter-cyclical capital buffer from Increased diversification of income has been an 31 December 2019, making the bank’s overall important part of the bank’s strategy in recent years. requirement 14.2%. The Board of Directors The bank’s growth in securities funds is stronger of Sparebanken Vest assumes that the overall than the general market growth for securities funds requirements and guidelines are to be met in Norway. continuously. The bank’s own quarterly surveys show that The Basel I floor is expected to be discontinued customer satisfaction is at the highest level we in 2019, while a SME discount will be introduced have seen for almost ten years. In the national EPSI in relation to the capital requirements. Even if Rating, Sparebanken Vest had the greatest increase Sparebanken Vest was to be defined as systemically in customer satisfaction from 2017 to 2018 of all the important, as proposed by the Financial Supervisory banks. This is reflected in the bank being perceived Authority of Norway, the bank would meet the new as an easy bank to use, and in our customers requirements by a good margin. having a positive impression of our advisers.

Sparebanken Vest Annual Report 2018 page 29 The mobile banking app is the bank’s most frequent be priority areas in the retail market segment also in point of contact with customers, and their use 2019. increases when new functions are launched. In 2018, the bank launched a new service enabling In 2018, adaptations were made to our office parents to open accounts for children without having network with the decision to close one branch office. to visit the bank in person. This has been a huge success, and the bank has experienced growth in THE CORPORATE MARKET its youngest customer segments. In 2018, the bank The development in the corporate market has been made it possible for existing customers to check in good in 2018 in terms of access to new customers, the mobile and online banking solutions whether portfolio quality and diversified growth in total they are eligible for and to apply for a top-up loan assets. on their mortgage. Sparebanken Vest was the first bank in Norway to offer its customers notifications The growth in lending ended at 9.8% in 2018, a on locked mobile phone screens when they receive result of both targeted efforts to bring in new a new e-invoice. customers and the positive trend in the investment rate for existing customers from 2017 continuing The focus on family customers was strong also in into 2018. 2018. In addition to new digital solutions, the bank has increased its focus on families through funds A total of 2,400 new corporate customers joined for the public benefit and marketing activities. This Sparebanken Vest in 2018, the highest number has created a sense of pride among the bank’s ever. The growth is spread across segments and employees and resulted in a lot of positive feedback industries, primarily in the SME segment. Customer from customers. losses were at a stable, low level.

Although customers mostly have digital contact At the end of 2018, gross lending to corporate with the bank, Sparebanken Vest’s customers customers amounted to NOK 39.4 (35.9) billion. are still interested in being able to talk to or meet Deposits from the corporate market increased by with an adviser by phone or in person in an office 7.5% in 2018. At the end of 2018, the deposits when they need advice on important decisions in portfolio amounted to NOK 27.3 (25.4) billion. their lives. This is particularly the case for young customers buying their first home and customers The development in risk weights in the lending going through the breakup of a relationship. The portfolio has been stable, and the risk-adjusted bank has made systematic efforts throughout return on the corporate market portfolio has been the year to ensure good customer experiences in good and within the bank’s targets. their encounters with us. This work will continue unabated in 2019. The growing optimism shown by companies in Western Norway at the end of 2017 has increased In February 2018, Sparebanken Vest was rated in 2018. According to the bank’s own business as having the best customer service centre in the barometer, the Western Norway Index, the last time industry in 2017, and was again among the top the same level of optimism prevailed was before the three for 2018. financial crisis in 2014 when the oil price exceeded USD 100 a barrel. The competition situation in the banking market was characterised by intense competition throughout Targeted work to strengthen the credit quality in 2018, largely driven by the biggest banks. This the corporate market portfolio has been high on increased competition means stronger pressure on the agenda in recent years. Combined with a more the bank’s margins, which is assumed will continue positive macroeconomic outlook, this has resulted in 2019. Creating even better customer experiences in low losses in 2018 as well. Total losses on loans in all customer channels, working more efficiently amounted to NOK 6 (33) million in 2018. through automation and robot technology and introducing new solutions quickly on the market will

Sparebanken Vest Annual Report 2018 page 30 There has also been good development and growth solution that automates accounting for managers in customer-oriented activity in the Markets area in of small enterprises. The solution is designed to recent years, which was also the case in 2018. Total be integrated with pertaining services over and customer revenues from currency and fixed-interest above banking and accounting, thereby becoming products ended at NOK 63 (61) million in 2018. a digital ecosystem for the manager. The bank Targeted efforts are made to increase growth in this has a threefold role in the partnership with Folio – business areas. supplier of the technology kernel, distributor of bank products and investor. Folio’s solution is scheduled The bank’s primary focus in the corporate market for launch in the first quarter 2019. shall also, in the future, be on sound enterprises in Western Norway with local roots, where the Both Buffer and Folio present opportunities for traditional relationship between local advice, scalable national customer growth in the SME quick decision-making paths and a strong social segment, with sensible risk and good profitability. commitment are key elements. EQUITY INVESTMENTS The needs of the smallest and less complex Sparebanken Vest’s equity investments are intended corporate customers are quickly and expediently to make a positive contribution to the bank’s met by Direct Bank CM, which frees up more time earnings by delivering a return on equity that is in for proactive value-creating advisory services for accordance with the bank’s goals. Sparebanken medium-sized and large customers provided by a Vest has decided to gradually reduce this type of dedicated group of general and specialist advisers investment, and has sold several shareholdings in who are in close contact with customers. The Board 2018. believes that this will set the bank apart also in a more digital future. Equity investments amounted to NOK 364 (416) million at 31 December 2018. In addition, NOK The traditional banking services offered to, in 5,408 (4,333) million was paid into subsidiaries particular, small corporate customers are in a as equity. This primarily concerns the infusion of period of rapid digital development, and the bank capital in Sparebanken Vest Boligkreditt AS. NOK is in a good position to seize the opportunities this 1,054 (787) million was invested in associated represents, with a separate dedicated development companies in which the bank has holdings of team in the corporate market. In order to capitalise between 20% and 50%. on this development, the new services developed in 2018, i.e. Buffer and Folio, are designed to address ETHICS the national SME market. Sparebanken Vest has adopted a dedicated Code of Ethics for all employees of the bank. It was Buffer was launched in late autumn 2018 and updated in 2018, and the document forms part will give managers of small and medium-sized of our employment contract. The code is also enterprises quick, simple and fully digital access to discussed with all new employees as part of their liquidity without having to furnish private security. introduction to the bank’s operations. All authorised Buffer is integrated with the customer’s cloud- and approved advisers also undergo an annual based accounting system, and can assess in real ethics interview as part of the annual competence time how much credit the customer can draw on updating process. their outstanding receivables. Following its launch, it is now fully integrated with three of the biggest Trust is essential to our business. We are dependent cloud-based accounting systems, and partnership on customers, public authorities and society in agreements have been signed with several national general seeing Sparebanken Vest as a company accounting agencies. with high ethical standards. All of Sparebanken Vest’s employees shall have high ethical standards, Another important initiative is the partnership and each employee shall inspire confidence, be that was entered into in 2018 with the start-up honest and fair and act in accordance with the Folio. Folio is developing a fully-digital banking norms, rules and laws that apply in society.

Sparebanken Vest Annual Report 2018 page 31 All employees are subject to a duty of secrecy, recognised principles for corporate social respon- which also applies in relation to colleagues. Respect sibility and sustainability, including the UN’s 10 for our customers and for our social mission is a principles on human and labour rights, environmen- key element of our ethical philosophy. We shall not tal protection and anti-corruption set out in the UN take advantage of crises or vulnerable individuals Global Compact. for excessive financial gain. We have thorough risk assessment procedures and systems that we adhere The bank will not grant financing to customers/ to before offering customers financial products and businesses that: services, and we also endeavour to ensure that our - there is reason to believe do not comply with the customers understand the terms and conditions bank’s Code of Ethics, or in other ways conduct and risk associated with these products. We do not their business in conflict with the generally offer credit to customers who are clearly unable to accepted view of what constitutes ethical conduct service the loan or who demonstrate undesirable - have acted dishonestly in relation to the bank, or ethical conduct. are known to have acted dishonestly in relation to other parties, or if they are known to be/have been ANTI-MONEY LAUNDERING AND CORRUPTION involved in criminal activity Sparebanken Vest has zero tolerance for corruption - operate in conflict with official laws, regulations and and takes a very serious view of corruption linked environmental requirements, or without necessary to employees, customers and business associates. approval from public environmental authorities The bank’s expectations of employees are discussed Sparebanken Vest requires that the companies we in the Code of Ethics. For lending activities, this is finance or invest in are not involved in financial addressed through special provisions in the bank’s crime, including corruption, or prevent the exposure credit policy, and for suppliers, through the bank’s of corruption, and the companies we finance over procurement policy. a certain minimum amount are required to confirm this through a self-declaration. Work to combat money laundering and terrorism financing is an important part of the bank’s We require our fund managers to have procedures corporate social responsibility. The bank’s work on in place to ensure that they invest in companies anti-money laundering and terrorism financing takes that are open about their ownership structure, in a risk-based and enterprise-focused approach and addition to disclosing how much they pay in tax forms part of the bank’s risk management. The bank in all countries in which they operate. If separate has initiated extensive measures to prevent it being law and regulatory requirements for international exploited in connection with money laundering or taxation and trade have not been established, we terrorism financing. The bank’s employees regularly require compliance with the Wolfsberg Principles. take e-learning courses in anti-money laundering, All fund managers must also comply with the terrorism financing and corruption. Employees who Wolfsberg Principles in connection with efforts to deal directly with customers must also undergo prevent money laundering, concealed ownership more targeted training. and transactions capable of being used for money- laundering purposes. We refrain from involvement Sparebanken Vest shall be a role model and driver in investment advice where the object is to evade for sustainable social development in Western tax. This also applies to the distribution of services Norway. We shall achieve this by means of our own from other advisers or products on behalf of fund processes, our lending activities and our conduct managers who encourage tax evasion or money in relation to customers and society. The bank has laundering. an overarching strategy document that describes our principles for exercising corporate social HUMAN RIGHTS responsibility, and all granting of credit must be in Sparebanken Vest is obliged to manage societal line with the guidelines provided therein. and environmental risk and to ensure that the companies we finance, the suppliers we use and In its lending activity, Sparebanken Vest shall act the funds we distribute have familiarised themselves responsibly and in accordance with internationally with and take steps to reduce the negative impact

Sparebanken Vest Annual Report 2018 page 32 of their activities in a responsible way. The bank about the biggest problem of the age: Poverty. has developed a set of general criteria for what we believe should be included in the assessment of all The savings banks were a new approach to banking. companies. The banks were to be owned by the customers, and the profit was to benefit the local communities. The They include principles laid down in the Universal idea that challenges are best solved together was Declaration of Human Rights (as described in the what made us, and today, almost 200 years later, UN’s guiding principles for businesses and human this is still the idea that drives us. The community rights) and the UN Global Compact, which we have and the challenges have changed, but the way we endorsed. approach them is the same.

THE NATURAL ENVIRONMENT AND CLIMATE It is about believing in individuals – and in the CHANGE community. About believing that, regardless of Through the UN Global Compact, Sparebanken Vest the tasks or solutions before us, we will find better has undertaken to apply the ‘better safe than sorry’ solutions by working together. principle in relation to environmental challenges, to take the initiative to promote increased Sparebanken Vest’s vision is to help to make life environ­mental awareness and to encourage the in Western Norway even better. We will contribute development and use of environmentally friendly through our own processes, the projects and technology. In the Paris Agreement in 2015, the customers we choose to finance and how we world’s leaders agreed that global warming must be conduct ourselves in relation to customers, society kept well below 2 degrees – and we will aim for 1.5 and the environment. degrees – to be able to prevent dangerous climate change. This means that we will have to change The document ‘Principles for Corporate Social and adapt in many areas of society. Sparebanken Responsibility’ describes how we can exercise Vest takes its responsibility to help reach the Paris ethical conduct and corporate social responsibility Agreement’s goals seriously. in our business operations and in our dealings with our customers, through the businesses we invest Our goal is therefore to reduce our own climate in, the requirements we make of our suppliers, footprint by more than 40%, corresponding to 130 and what we emphasise to ensure that our tonnes of CO2 by 2030. In connection with this operations, corporate governance and ownership work, we have decided that our business shall be are sustainable. These guidelines are intended to climate neutral, with effect from autumn 2018. At ensure that Sparebanken Vest does not contribute 31 December 2018, we met these obligations by to violations of human rights or labour rights, money complying with the UN’s requirements of climate laundering and terrorism financing, corruption, neutral enterprises, defined through the initiative serious environmental harm or to other actions that Climate Neutral Now. can be perceived as unethical.

We keep track of our own greenhouse gas Sparebanken Vest works on corporate social emissions, both directly through transport and responsibility at the strategic level, in day-to-day indirectly through purchased energy, in the annual operations and by making good reporting available. energy and climate accounts. The accounts show a Sparebanken Vest has endorsed the UN Global considerable reduction in emissions from transport, Compact, and we make active endeavours to ensure electricity and waste over the course of the past that our operations are compatible with global two years, which is a result of targeted work and sustainability. Through our endorsement of the measures over time. We constantly endeavour to initiative, we are committed to basing our strategy further reduce our emissions. and operating processes on principles concerning human rights, the working environment, the natural CORPORATE SOCIAL RESPONSIBILITY environment and corruption. Before we were a bank, we were a community. A community of people who wanted to do something

Sparebanken Vest Annual Report 2018 page 33 SOCIAL DIVIDEND Sparebanken Vest works continuously to ensure Our social commitment is one of the things that its employees have the necessary competence. that really sets us apart. As a savings bank, we In recent years, the bank has devoted extensive undertake to manage the social dividend generated resources to ensuring that its financial advisers meet by our customers in the best possible manner. the requirements of the authorisation scheme for In 2018, Sparebanken Vest received more than financial advisers (AFR) and that those who sell and 2,300 applications for funding to support projects give advice on insurance meet the requirements of in Western Norway, and 1,210 of them received the approval scheme for general insurance (GOS). funding. The bank also received around 700 This is in order to ensure that customers are given proposals for ‘Hjertebank’ projects. correct information and that financial advisers have the right attitudes and skills. A number of our own projects have become established concepts with considerable impact: Competence updating has been carried out in 2018 in ethics, AFR, GOS and interdisciplinary topics. • ‘Hjertebank’ - we visited six places in Western Moreover, several new members of the bank’s staff Norway and celebrated the volunteers and have qualified as authorised financial advisers. It enthusiasts in Western Norway by distributing NOK is Sparebanken Vest’s goal that all its retail market 1 million and hosting a large party. advisers are authorised under both AFR and GOS. • Vestlandskonferansen – an action-packed All AFR candidates in the retail market shall also interdisciplinary business conference for Western undergo credit authorisation by Q1 2019. Norway • Kit campaign – distribution of kits to more than The bank has continued its work of rationalising 15,000 young handball and football players and modernising its training channels by increasing • Walking trail project – where 47 applications to the focus on e-learning, webcasts and the use of build a walking trail were granted in 2018 video, among other things. Examples of this include the ‘AD-Update’, where the bank’s CEO regularly EMPLOYEES shares thoughts, information and raises current At 31 December 2018, the Group had 701 full-time topics with employees through a live webcast. equivalents, 578 of whom were affiliated to the Videoconferencing has also become a common parent bank. meeting channel, which means that geographical distance is no longer an obstacle to efficient sharing The financial industry is facing both great of information. opportunities and challenges, and the right expertise among all employees is important to Management and employee development are key ensure further growth and profitability. In 2018, topics in organisational development. In 2018, the Sparebanken Vest recruited new expertise, mainly bank has continued its focus on management in IT and product development, in order to further development at all managerial levels. Various develop the company in the demanding, dynamic gatherings have been held for 85 managers, climate that prevails in the financial market. More focusing on strategy, change management, customer advisers were also recruited in 2018. In coaching and performance management. The total, Sparebanken Vest advertised 72 vacancies gatherings have been held locally in the bank’s externally in 2018. market area, providing a nice setting for the participants. Sparebanken Vest spends a great deal of resources and maintains a strong focus on being at the Continuity is important in the management forefront of technology development. The launch of development programmes, and they will be Folio, Buffer and Balder can be mentioned in this continued and further developed in 2019. The connection. This is underpinned by considerably development seminars are organised for all more resources being spent on systems manage­ managerial levels, and in 2018, a management ment and systems development, in addition to seminar was held for all managers. Two seminars customer insight and service development. were also held for level 2 managers (managers who

Sparebanken Vest Annual Report 2018 page 34 report to the corporate management) and two for common Norwegian certificate for enterprises that level 3 managers (managers who report to level 2). wish to document their environmental commitment. Each of these seminars lasted two days. The CEO also hosts a number of informal breakfast meetings The certification process addresses everything at which employees are invited to share their from procurement procedures, waste recycling, the experience and opinions. use of air travel, the working environment etc. The bank has established good, measurable figures WORKING ENVIRONMENT that enable it to measure the effect of different Sparebanken Vest has conducted organisational environmental measures. Sparebanken Vest surveys (Gallup Q12) in 2018, corresponding to looks for other certified businesses as partners, the one conducted in 2017. Q12 is a survey that and, for the bank’s customers, the certification focuses on what managers and employees can is a guarantee that the bank applies stringent actually improve and control. The questions are environmental criteria in relation to the working closely linked to the company’s results: profitability, environment, procurements, energy, transport, turnover, productivity and customer satisfaction. waste, emissions and aesthetics. The bank scores particularly well on employees’ satisfaction with the workplace, that they have All new employees are informed about the Eco- colleagues dedicated to a high-quality work Lighthouse principles, and what they entail for the performance and that they have colleagues who bank and for individual employees. care about each other. The Eco-Lighthouse certification entails a review of The survey provided valuable feedback confirming several issues that are addressed in connection with that the company is developing in the right direction. safety rounds, a focus on and procedures for the The findings of the survey have been used actively working environment, the natural environment and at all levels to ensure that we enhance what is good performance evaluation and planning discussions. and improve the areas that need it. Work is now This helps to ensure that each branch office under way at the different levels in relation to the supports the commitment, team spirit and sense of topics addressed in the organisational survey, and community in the organisation. Goals relating to the each department is working actively to improve climate, the working environment and the natural in the different areas. Topics and tools used in environment are shared throughout the organisation. connection with the survey will also be used actively in management development programmes In 2019, the bank will be recertified to maintain its going forward, to ensure that the bank’s working Eco-Lighthouse certification. environment continues to develop in a positive direction. SICKNESS ABSENCE AND INCLUSIVE WORKPLACE In 2018, as before, the bank spent substantial Overall sickness absence in Sparebanken Vest was resources on joint activities aimed at encouraging 3.98% in 2018, down 0.32 percentage points from and promoting team spirit in the organisation. The 2017. Of the total, 2.66% was long-term absence bank is still investing in various social activities for its and 1.32% short-term absence. The bank has a employees, including a company sports association, good system of cooperation on sickness absence a walking group and a company orchestra. Last year, and a strong focus on reducing the proportion a new employee exercise agreement was signed of employees on long-term sick leave, including with Sats Elixia in an effort to further improve the through close cooperation with the corporate health good working environment. All employees were also service and NAV. given an opportunity to take the flu vaccination. The company is bound by the Inclusive Workplace Sparebanken Vest in Jonsvoll recently passed an (IA) Agreement. Through its participation in the extensive environmental certification process in agreement, it is important for the bank to work 2017 and is proud to be able to call itself an Eco- systematically on reducing and following up Lighthouse. The Eco-Lighthouse scheme is the most sickness absence. The bank’s target is to have a

Sparebanken Vest Annual Report 2018 page 35 work attendance rate of at least 96.5% in 2019. Women’s pay as a By taking a proactive role and cooperating with the percentage of men’s by job level 2016 2017 2018 corporate health service, the bank is able to offer Level 1 (excl. CEO) 109,32% 112,20% 108% employees guidance on exercise, diet and health. Level 2 110,04% 111,04% 99% The bank also makes arrangements for employees Level 3 88,15% 89,53% 90% who, for various health reasons, require adaptations Other employees 83,64% 84,53% 85% to be made in the workplace.

Parental leave taken, Sparebanken Vest has a comprehensive plan for its number of days 2016 2017 2018 work on HSE (health, safety and the environment) 1,007 871 932 with a dedicated HSE manual and the IA agreement, Men days days days which it discusses with safety delegates, the 2,872 2,610 2,750 corporate health service, employee representatives Women days days days and NAV. The HSE Calendar ensures continuity in the bank’s HSE work and shows how partners are Sickness absence 2016 2017 2018 involved. The good, strong cooperation and dialogue Men 2,9% 2,8% 2,54% the bank enjoys with NAV and the corporate health Women 5,8% 5,9% 5,41% service were maintained in 2018. Total 4,2% 4,3% 3,98%

EQUAL OPPORTUNITIES Absence due to child sickness (total number Sparebanken Vest makes determined efforts to of days) 2016 2017 2018 promote equality and prevent discrimination, and 155.5 102.5 106 it takes its duties under the law and collective Men days days days agreements seriously. One of the measures it 260.5 182.5 187 initiated in 2018 was to establish an equality Women days days days group, comprising representatives of the company and elected officers. An equality policy was also Proportion of part-time employment 2016 2017 2018 introduced, which clarifies the bank’s overriding Men 3,01% 3,41% 6% goals for diversity in the organisation. Women 4,51% 3,25% 8%

In 2018, the breakdown between female and male employees in the bank was 52% and 48%, WHISTLEBLOWING respectively. The average age was 46 years. The In order to make it easier for individual employees bank’s Board consists of ten members. Four of to report matters warranting criticism, the bank the elected members are women. The corporate has, in addition to its internal whistleblowing management team consists of eight members, four procedures, entered into an agreement with an of whom are women. external third party that can receive and consider notifications. The purpose is to ensure anonymity Number of women by and impartiality. It is important for the bank to job level 2016 2017 2018 have good whistleblowing procedures in place, Corporate management 42,86% 42,86% 57,14% and they are easily available to employees through Level 2 16,00% 16,00% 21,43% the bank’s HSE manual (on the intranet). The Level 3 43,14% 43,14% 44,23% notifications received are treated confidentially, and Other employees 55,94% 55,94% 54,22% whistleblowers are protected against retaliation.

POST BALANCE SHEET EVENTS No significant events that affect the annual accounts have taken place since the balance sheet date.

Sparebanken Vest Annual Report 2018 page 36 OUTLOOK the next six months. While the trend is positive in The macroeconomic situation Rogaland, this is not the case in Sogn og Fjordane. Norway’s trading partners have experienced a Enterprises in Sogn og Fjordane are reporting the upswing in the last few years. Unemployment has lowest expectation level for six years. The prospects fallen, and wage growth has started to pick up. of weaker growth abroad, higher interests rates in However, the robust upswing that we have seen in Norway, and a stronger Norwegian krone reduce the the global economy in recent years now appears expectations of typical tourism industries such as to be slowing down. Growth is slowing in the EU in hotels and travel companies. particular. China is also experiencing weaker growth and fewer interest rate hikes are expected in the Sparebanken Vest USA. This is compounded by challenges linked Sparebanken Vest’s goal is a return on equity of to increased trade barriers between the USA and 12% and a dividend ratio of up to 50%. The Board China, and Brexit. Greater political unrest in Italy of Directors expects the bank to deliver on these and emerging economies may also have a negative goals for 2019. effect on global growth. The bank’s ambition is to be among the best banks There has been good growth in the Norwegian in terms of customer satisfaction, among the economy since autumn 2016, and the labour best two comparable banks in terms of ROE, the market has improved. The international upswing, strongest in terms of social commitment in Western higher oil prices and low interest rates have Norway and the most exciting place to work for pushed growth. There are indications that the people who want to develop their competence. The upswing in the Norwegian economy will continue. Board of Directors expects Sparebanken Vest to However, slowing growth in the rest of the world improve in all these areas going forward. and a levelling out of investments on the Norwegian continental shelf may curb the growth. Housing The bank is in a good financial position for further prices will probably continue to move sideways. growth and development. The capital targets have The value of the Norwegian krone fell across the been met, and the completion of CRD IV, including board this autumn. This was driven by the falling oil the discontinuation of the Basel I floor and the price, but the growing unrest in the market has also introduction of the discount for SMEs will, in relation contributed. to other parties, be advantageous to Sparebanken Vest. This will also be the case if the bank is defined The krone is expected to climb during spring, but as systematically important. one euro is still expected to cost NOK 9 come summer. We expect Norges Bank to raise the key The goal is for the bank to win market shares within policy rate again in March 2019 to 1.00%. its ordinary activities in 2019, and to increase contributions from subsidiaries and associated Western Norway companies. The results of the Western Norway Index 4/2018 suggest that the economy in Western Norway In 2019, Sparebanken Vest will continue trans­ is stabilising. Moderate growth in employment, forming its operations to adapt to new framework demand and investments make positive conditions. Investments in new technology, changed contributions in the fourth quarter. Enterprises expertise and new national initiatives will feature whose turnover is largely based on the petroleum strongly in this work. Adjusted for the establishment industry contribute to the positive development. of Bulder Bank, a bank that is only available on Despite the recent fall in the oil price, increased mobile phones, the goal is for the cost level to activity on the continental shelf has meant that remain more or less flat, nominally speaking, in petroleum industries are reporting an increase in 2019. activity over the past three months. The upswing in activity on the continental shelf has led enterprises, Careful management, good credit quality and whose turnover is largely linked to the oil industry, low exposure to industries vulnerable to cyclical to upwardly adjust their expectations the most for fluctuations have led to low losses for the bank

Sparebanken Vest Annual Report 2018 page 37 in recent years. The Board expects continued THANKS TO CUSTOMERS, BUSINESS low losses in 2019, although normalised losses ASSOCIATES, OFFICERS OF THE COMPANY, THE of around NOK 200 million have been taken into MANAGEMENT AND EMPLOYEES account in the bank’s financial calculations. The Board of Directors wishes to thank the bank’s employees and officers for their great enthusiasm, BOARD OF DIRECTORS good work effort and constructive cooperation In the election in 2018, Trygve Bruvik, Gunnar Skeie, in a year particularly marked by a high rate of Richard Rettedal, Birthe Kåfjord Lange, Anne-Marit digitalisation. The Board also wishes to thank the Hope and Fred David Risløw were re-elected for two bank’s customers, equity certificate holders and years. other partners for their continued support for Sparebanken Vest in 2018. The Board will work Trygve Bruvik was re-elected as Chair of the Board, actively to continue this positive cooperation going and Arild Bødal was re-elected as Deputy Chair, forward. both for a period of two years.

31 December 2018 / 20 February 2019 The Board of Directors of Sparebanken Vest

Trygve Bruvik Arild Bødal Kristin Axelsen Chair of the Board Deputy Chair of the Board

Anne-Marit Hope Marianne Dorthea Jacobsen Birthe Kåfjord Lange

Magne Morken Richard Rettedal Fred David Risløw

Gunnar Skeie Jan Erik Kjerpeseth CEO

Sparebanken Vest Annual Report 2018 page 38 Accounting and notes

Income statement ...... 40 Statement of comprehensive income ...... 40 Balance sheet...... 41 Cash flow statement...... 43 Changes in equity...... 44 Note 1 Accounting principles ...... 45 Note 2 Accounting estimates and discretionary assessments...... 51 Note 3 Segment information ...... 53 Note 4 Classification of financial instruments...... 55 Note 5 Fair value of financial instruments recognised at amortised cost ...... 57 Note 6 Valuation hierarchy for financial instruments at fair value...... 58 Note 7 Financial risk management ...... 60 Note 8 Risk classification of the credit portfolio ...... 62 Note 9 Lending broken down by geographical area ...... 64 Note 10 Commitments broken down by industry and the retail market ...... 65 Note 11 Description of the impairment model under IFRS 9 ...... 67 Note 12 Breakdown of gross lending between different stages of IFRS 9 ...... 69 Note 13 Write-down on loans, guarantees, unused credit facilities and loan approvals ...... 71 Note 14 Write-down on loans, guarantees, unused credit facilities and loan approvals ...... 74 Note 15 Renegotiated loans and loans in default ...... 75 Note 16 Secured debt ...... 77 Note 17 Loans to and receivables from credit institutions ...... 78 Note 18 Guarantees and secured debt ...... 78 Note 19 Commercial papers and bonds ...... 79 Note 20 Shareholdings in subsidiaries and associated companies ...... 81 Note 21 Market risk ...... 83 Note 22 Interest rate sensitivity ...... 84 Note 23 Currency positions ...... 85 Note 24 Financial derivatives ...... 86 Note 25 Hedge accounting of debt established by issuing securities ...... 88 Note 26 Shares ...... 89 Note 27 Liquidity risk/ remaining term to maturity ...... 91 Note 28 Net interest and credit commission income ...... 92 Note 29 Interest on individual balance sheet items ...... 93 Note 30 Net other operating income ...... 94 Note 31 Operating expenses ...... 95 Note 32 Pensions ...... 96 Note 33 Tax ...... 97 Note 34 Intangible assets ...... 99 Note 35 Tangible fixed assets...... 101 Note 36 Liabilities to credit institutions ...... 101 Note 37 Offsetting ...... 102 Note 38 Deposits from customers ...... 103 Note 39 Securitised debt ...... 104 Note 40 Subordinated loan capital and subordinated bond loans ...... 106 Note 41 Capital adequacy ...... 107 Note 42 The equity certificate ...... 110 Note 43 Transactions with related parties ...... 113 Auditor’s Report...... 118 Responsibility Statement ...... 124 Group key figures – 5 years...... 125 Group key figures – per quarter for two years...... 129

Sparebanken Vest Annual Report 2018 page 39 Income statement

PARENT BANK GROUP 1 Jan.–31 Dec. 1 Jan.–31 Dec. 2017 2018 Notes 2018 2017 2 187 2 391 Interest income from assets recognised at amortised cost 3 779 3 514 672 518 Interest income from assets recognised at fair value 949 864 991 1 018 Interest expenses and similar expenses 2 012 1 813 1 867 1 891 Net interest and credit commission income 28 2 716 2 565

870 968 Commission income and income from banking services 578 528 84 96 Commission expenses and expenses relating to banking services 98 85 177 293 Income from shareholdings in subsidiaries and associated companies 20 85 120 186 185 Net gain/(loss) on financial instruments 165 -7 4 0 Other operating income 210 206 1 152 1 349 Net other operating income 30 940 761 3 019 3 240 Net operating income 3 656 3 326

921 946 Payroll and general administration expenses 32,43 1 109 1 072 125 133 Depreciation 34,35 135 128 203 197 Other operating expenses 252 250 1 249 1 276 Total operating expenses 31 1 497 1 450 1 770 1 964 Profit before write-downs and tax 2 159 1 877

26 3 Write-downs on loans and guarantees 13 6 33 1 744 1 961 Pre-tax profit 2 153 1 844

387 405 Tax 33 492 427 1 357 1 556 Profit for the period 1 660 1 416

5,19 5,65 Profit/diluted profit per equity certificate 6,04 5,42

Allocations -221 -139 Dividend on equity certificates -37 4 Transferred to/from reserve for unrealised gains -836 -698 Transferred to primary capital -76 -202 Transferred to equalisation reserve -150 -479 Transferred to gift fund -37 -42 Transferred to hybrid capital -1 357 -1 556 Total allocations

Statement of comprehensive income

PARENT BANK GROUP 1 Jan.–31 Dec. 1 Jan.–31 Dec. 2017 2018 Notes 2018 2017 1 357 1 556 Profit for the period 1 660 1 416 3 3 Estimate variance, pensions 32 3 3 0 79 Changes in fair value due to credit risk - debt securities issued 79 0 3 82 Total items that will not be reclassified to profit or loss 82 3 0 0 Base margin from hedging instruments related to hedge accounting -39 0 3 82 Total other profit/loss elements in the period 43 3 -1 -21 Tax on other profit/loss elements 33 -12 -1 2 62 Total other profit/loss elements in the period after tax 32 2 1 359 1 618 Total profit for the period 1 692 1 418

Sparebanken Vest Annual Report 2018 page 40 Balance sheet

PARENT BANK GROUP 31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 Notes 2018 2017 Assets 685 563 Cash and receivables from central banks 563 685 14 104 12 775 Loans to and receivables from credit institutions 17 1 270 1 588 70 722 74 848 Net lending 8-16 159 043 147 073 376 364 Shares at fair value through profit or loss 26 364 376 40 Shares available for sale 40 19 066 16 584 Commercial papers and bonds 19 22 166 19 191 669 618 Financial derivatives 24,25 4 028 4 587 4 333 5 408 Shareholdings in group companies 20 787 1 054 Shareholdings in associated companies 20 1 346 1 022 32 0 Deferred tax asset 33 20 71 37 54 Pension assets 32 58 40 275 290 Other intangible assets 34 310 289 106 109 Tangible fixed assets 35 113 110 226 240 Prepaid expenses 51 58 7 10 Other assets 45 59 111 464 112 915 Total assets 189 376 175 190

Liabilities and equity 4 843 2 363 Liabilities to credit institutions 36 2 965 4 023 69 145 72 569 Deposits from customers 38 72 536 69 111 19 619 18 779 Securitised debt 39 94 269 83 873 1 070 902 Financial derivatives 24 860 1 070 199 181 Accrued expenses and pre-paid income 195 213 66 81 Pension obligations 32 86 70 0 17 Deferred tax 33 0 0 1 68 Other provision for commitments 10,11,13 68 1 330 382 Tax liabilities 33 455 401 2 109 2 001 Subordinated loan capital 40 2 001 2 109 619 841 Other liabilities 307 266 98 001 98 183 Total liabilities 173 742 161 135

1 476 1 507 Equity certificates 42 1 507 1 476 0 -2 Own equity certificates -2 0 617 645 Premium reserve 645 617 663 880 Equalisation reserve 1 019 884 2 755 3 030 Total equity certificate capital 3 169 2 977

9 551 10 300 Primary capital 10 778 9 701 150 150 Gift fund 150 150 14 14 Compensation fund 14 14 9 716 10 464 Total primary capital 10 943 9 866

37 33 Reserve for unrealised gains 0 0 Other equity 319 257 955 1 204 Hybrid capital 40 1 204 955

13 463 14 732 Total equity 15 635 14 054

111 464 112 915 Total liabilities and equity 189 376 175 190

Sparebanken Vest Annual Report 2018 page 41 31 December 2018 / 20 February 2019 The Board of Directors of Sparebanken Vest

Trygve Bruvik Arild Bødal Kristin Axelsen Chair of the Board Deputy Chair of the Board

Anne-Marit Hope Marianne Dorthea Jacobsen Birthe Kåfjord Lange

Magne Morken Richard Rettedal Fred David Risløw

Gunnar Skeie Jan Erik Kjerpeseth CEO

Sparebanken Vest Annual Report 2018 page 42 Cash flow statement

PARENT BANK GROUP 1 Jan.–31 Dec. 1 Jan.–31 Dec. 2017 2018 2018 2017 Cash flows from operating activities 3 491 3 617 Interest, commission and customer fees received 5 386 4 927 -671 -701 Interest, commission and customer fees paid -741 -668 389 495 Interest received on other investments 326 302 -600 -595 Interest paid on other borrowings -1 586 -1 456 -551 -539 Payments to other suppliers for goods and services -578 -591 -633 -617 Payments to employees, pension schemes, empl. Nat. Ins. contr., tax withholdings etc. -749 -759 -375 -325 Payment of taxes -400 -527 1 050 1 335 Net cash flow from operating activities 1 658 1 228

Cash flows from investment activities 6 723 -4 056 Payments made/received on loans to customers -11 921 -10 997 -8 268 1 329 Payments made/received on receivables and tied-up loans to financial institutions 260 -256 12 24 Dividend received for securities 24 12 45 167 Payments made/received on purchases/sales of shares 130 45 -652 1 728 Payments made/received on purchases/sales of other securities -2 926 -134 370 157 Dividend/group contributions received from group companies 28 48 19 0 Payments received from sales of assoc. com./sub. 0 0 -1 116 -667 Payments made relating to investments in assoc. com./sub. -267 -86 1 0 Payments received from sales of operating assets etc. 0 27 -115 -155 Payments made on purchases of operating assets etc. -163 -116 -2 981 -1 473 Net cash flow from investment activities -14 835 -11 458

Cash flows from financing activities 2 656 3 434 Payments made/received on customer deposits 3 435 2 628 -28 -2 612 Payments made/received on deposits from Norges Bank and other financial institutions -1 240 1 830 650 1 170 Payments received relating to subordinated loan capital and subordinated bonds 1 170 650 -698 -990 Payment made relating to redemption of subordinated loans and subordinated bonds -990 -698 9 467 4 294 Payments received on issuing bond debt 25 645 26 299 -9 729 -4 965 Payments made on redemption of bond debt -14 650 -20 092 0 59 Payments received on dividend issue 59 0 -360 -374 Dividends paid / Donations for the public benefit -374 -360 1 958 16 Net cash flows from financing activities 13 055 10 257

27 -122 Net cash flow for the period -122 27

27 -122 Net change in cash -122 27 658 685 Cash at beginning of period 685 658 685 563 Cash at end of period 563 685

Sparebanken Vest Annual Report 2018 page 43 Changes in equity

Own Equity equity Equa­ Compen- certifi- certifi- Premium lisation Primary sation Other Hybrid GROUP cates cates reserve reserve capital Gift fund fund equity capital Total Equity at 31 Dec. 2016 1 476 0 617 852 8 816 150 14 160 980 13 065

Profit/loss 2017 297 986 96 37 1 416 Items in statement of comprehensive income 0 2 2 Purchase/sale of own equity certificates 0 0 -2 -2 Distributed dividend and donations -266 -100 -366 Redemption of hybrid capital -325 -325 Issue of new hybrid capital 300 300 Interest paid on hybrid capital -49 -49 Tax on hybrid capital interest, directly against equity 12 12 Equity at 31 Dec. 2017 1 476 0 617 884 9 701 150 14 257 955 14 054

Profit/loss 2018 341 1 176 101 42 1 660 Items in comprehensive income 14 48 -30 32 Implementation of IFRS 9 directly against equity 2 7 -8 0 Purchase/sale of own equity certificates -2 0 -4 -6 Capitalisation issue 31 28 59 Distributed dividend and donations -221 -150 -371 Redemption of hybrid capital -249 -249 Issue of new hybrid capital 500 500 Interest paid on hybrid capital -58 -58 Tax on hybrid capital interest, directly against equity 14 14 Equity at 31 Dec. 2018 1 507 -2 645 1 019 10 778 150 14 319 1 204 15 635

Own Reserve Equity equity Equa­ Compen- for un- certifi- certifi- Premium lisation Primary sation realised Hybrid PARENT BANK cates cates reserve reserve capital Gift fund fund gains capital Total Equity at 31 Dec. 2016 1 476 0 617 587 8 716 150 14 0 980 12 540

Profit/loss 2017 297 986 37 37 1 357 Items in statement of comprehensive income 0 2 2 Purchase/sale of own equity certificates 0 0 -2 -2 Allocated dividend and donations -221 -150 -371 Redemption of hybrid capital -325 -325 Issue of new hybrid capital 300 300 Interest paid on hybrid capital -49 -49 Tax on hybrid capital interest, directly against equity 12 12 Equity at 31 Dec. 2017 1 476 0 617 663 9 551 150 14 37 955 13 463

Profit/loss 2018 341 1 176 -4 42 1 556 Items in statement of comprehensive income 14 48 62 Implementation of IFRS 9 directly against equity 2 7 8 Purchase/sale of own equity certificates -2 0 -4 -6 Allocated dividend and donations -139 -479 -617 Capitalisation issue 31 28 59 Redemption of hybrid capital -249 -249 Issue of new hybrid capital 500 500 Interest paid on hybrid capital -58 -58 Tax on hybrid capital interest, directly against equity 14 14 Equity at 31 Dec. 2018 1 507 -2 645 880 10 300 150 14 33 1 204 14 732

Sparebanken Vest Annual Report 2018 page 44 Note 1 Accounting principles

GENERAL INFORMATION Preparing annual accounts and using IFRS require the use of The consolidated accounts for Sparebanken Vest comprise the estimates. The application of the international standards also parent bank Sparebanken Vest and the wholly owned subsidiaries requires the management to make discretionary assessments. Eiendomsmegler Vest AS, with its subsidiary, and Sparebanken Areas that to a great extent involve such discretionary estimates, Vest Boligkreditt AS. They also include Frende Holding AS, Norne a high degree of complexity, or areas in which assumptions Eierselskap AS, Brage Finans AS, Jonsvollskvartalet AS and Balder and estimates have a material bearing on the parent bank or Betaling AS as associated companies. See Note 20 for more consolidated accounts, are described in Note 2. details. CHANGES IN ACCOUNTING PRINCIPLES Unless otherwise specified, all amounts in the accounts and notes IFRS 9 – Financial Instruments was implemented with effect to the accounts are stated in NOK million. The consolidated from 1 January 2018. It replaces the previously applied IAS accounts have been prepared on the basis of the going concern 39 – Financial Instruments –Recognition and Measurement. The assumption. implementation of IFRS 9 has affected the Group’s classification and measurement of financial instruments, and, in particular, Sparebanken Vest’s equity certificates are listed on Oslo Børs. The the impairment method for financial instruments recognised at bank is located in the counties of Hordaland, Sogn og Fjordane amortised cost. Reference is made to more detailed descriptions and Rogaland, and its head office is in Bergen. The address of the later in this note. head office and subsidiaries is Jonsvollsgaten 2, NO-5011 Bergen. IFRS 9 will be applied retrospectively, except in the case of hedge The 2018 annual accounts for the Sparebanken Vest Group were accounting. Retrospective application means that Sparebanken considered and adopted at a board meeting on 20 February 2019. Vest has prepared an opening balance sheet at 1 January 2018 as if the company had always applied the new principles. The main The General Meeting is the bank’s supreme governing body. rule in the standard is that comparative figures must be converted. However, Sparebanken Vest has decided to apply the exemption BASIS FOR THE PREPARATION OF THE ANNUAL ACCOUNTS rule in IFRS 7.2.15, which permits not converting the comparative The consolidated accounts have been prepared in accordance with figures. Comparative figures are thus based on IAS 39 both in International Financial Reporting Standards (IFRS) as adopted by the presentation of accounts and in the notes. The effects of the the EU and published by the International Accounting Standards new principles in the opening balance sheet for 2018 are entered Board (IASB), and which are mandatory from 31 December 2018. against equity (see reconciliation of equity and transitional notes in the 2017 annual accounts). The consolidated accounts are based on the principles of historical cost accounting. In addition, IFRS 15 – Revenue from Contracts with Customers – entered into force from 1 January 2018. The standard introduces Amortised cost is used for the valuation of financial assets and a new model for the recognition of revenue from customer liabilities, with the exception of financial instruments at fair value contracts. The bank’s revenues are largely regulated by the through profit or loss, at fair value through other comprehensive provisions of IFRS 9, and are outside the scope of IFRS 15. income and financial instruments designated for hedge accounting. Revenues covered by IFRS 15 are largely recognised at a certain point in time (when the customer gains control of the asset). The Amortised cost is calculated using the effective interest rate introduction of IFRS 15 does not change the time of recognition or method. It is defined as the amount the instrument is initially measurement of the consideration. measured at in the accounts (cost price) minus repayments of the principal, with an addition or deduction for accumulated CONSOLIDATION PRINCIPLES amortisation of all differences between cost price and the nominal The accounting principles are applied consistently to the amount, minus all write-downs. recognition of shareholdings in subsidiaries and are based on the same reporting periods as for the parent company. Fair value is defined as the price that would be received for selling an asset or paid for transferring a liability between independent Intercompany transactions and outstanding accounts, including market participants on the measurement date. intercompany profit and unrealised gains and losses, are eliminated when the consolidated accounts are prepared. For financial instruments subject to hedge accounting, the hedging instruments are recognised at fair value and the hedged items at Subsidiaries fair value for the hedged risks. Subsidiaries are defined as companies in which the parent bank has a controlling influence over the company’s operations (actual The consolidated accounts have been prepared on the basis of control). A controlled company is one in which the investor has uniform accounting principles for similar transactions and events power over the investee, is exposed or has rights to variable returns under otherwise identical circumstances. from the investee, and has the power to control the activities of the investee that materially affect the return. Sparebanken Vest’s company accounts have been prepared in accordance with a simplified form of IFRS. The same principles The concept of control means that a consolidation obligation must apply when using simplified IFRS for the company accounts as also be considered for companies in which the bank does not have under IFRS, with the exception of the recognition of dividends, a majority shareholding. In addition, a consolidation obligation group contributions and other distributions relating to the result can arise in certain situations as a result of a loan, if the loan for the financial year. In the company accounts, the proposed agreement entails such extensive rights that they could result in dividend and donations for distribution are recognised in the year control. Such rights must be distinguished from ordinary rights the that forms the basis for the distribution. bank has to protect its loans.

Sparebanken Vest Annual Report 2018 page 45 Subsidiaries are included in the consolidated accounts from payment transfers, the issuing of guarantees, estate agency and the date on which actual control is transferred to the Group. insurance sales. See Note 30 for further specification. Investments in subsidiaries are recognised in the company accounts in accordance with the cost method. RECOGNITION OF INTEREST EXPENSE AND FEES The interest expense for financial instruments valued at amortised Associated companies cost follows analogously that described for the taking to income An associated company is a unit in which the Group has of interest on assets. The expense is the interest rate that exactly considerable influence, but not a controlling interest. Considerable discounts the future cash flow from the instrument including any influence is deemed to exist if an enterprise directly or indirectly amortisation of expenses at the time the instrument is established. (e.g. through subsidiaries) controls 20% or more of the voting For financial liabilities at fair value, charges are expensed at the rights in the enterprise invested in, unless it can clearly be time of recognition, and interest will thereafter consists of accrued established that this is not the case. Conversely, if an enterprise interest disbursements for the instrument. directly or indirectly (e.g. through subsidiaries) controls less than 20% of the voting rights in the enterprise invested in, the Fees are expensed as the service is received. See Note 30 for enterprise is not deemed to have considerable influence unless it further specification. can clearly be established that the enterprise has such influence. However, the fact that an investor owns a significant holding or a FINANCIAL ASSETS AND LIABILITIES majority holding does not preclude another enterprise from having Financial assets and liabilities are valued and classified in considerable influence. Investments in associated companies accordance with IFRS 9, and the notes are prepared in accordance are recognised in the consolidated accounts in accordance with with IFRS 7 – Disclosures. Comparative figures are prepared in the equity method, and in the company accounts in accordance accordance with IAS 39. with the cost method. On the acquisition date, the investment is recognised at acquisition cost. The Group’s accounting Recognition and derecognition principles are applied consistently to the recognition of associated Financial assets and liabilities are recognised in the balance sheet companies. when the Group becomes a party to the instrument’s contractual terms. Financial assets and financial liabilities are derecognised Business combinations when the advantage or liability that follows from the contractual Business combinations are recognised in accordance with the terms is met, cancelled or terminated. See Note 11 for more acquisition method. The consideration is measured at fair value on information about recognition and derecognition. the acquisition date. Direct acquisition costs are expensed as they arise, with the exception of issue costs and expenses relating to Financial assets sold from Sparebanken Vest to Sparebanken Vest the raising of loans. Boligkreditt AS are derecognised in Sparebanken Vest’s accounts and recognised by Sparebanken Vest Boligkreditt. Sparebanken Acquired assets and liabilities are recognised in the balance sheet Vest Boligkreditt takes over all credit risk for the loan. at fair value in the Group’s opening balance. If the consideration exceeds the value of identifiable assets and liabilities, the Measurement categories difference is recognised as goodwill. For more details relating to IFRS 9 has introduced new classification and measurement how goodwill is treated for accounting purposes, see the separate principles. The measurement categories for financial assets in section under intangible assets. IAS 39 (fair value through profit or loss, available for sale, held to maturity and amortised cost) have been replaced by the following Contingent considerations are classified as liabilities and three categories in IFRS 9: recognised at fair value through profit or loss in subsequent • Amortised cost periods. • Fair value through other comprehensive income (FVOCI) • Fair value through profit or loss (FVPL) SEGMENT INFORMATION The Group’s activities are divided into the following segments: The measurement category is decided upon initial recognition of the Corporate Market (CM), the Retail Market (RM), Treasury the asset. and Estate Agency activities. Operating expenses are allocated directly, with the exception of IT expenses, staff-related costs and Note 4 specifies the volume for each main group of financial depreciation. The classification is based on internal management instruments classified in the different measurement categories. reporting and resource allocation. Debt instruments RECOGNITION OF INTEREST AND FEES Debt instruments, defined as all financial assets that are not Recognised interest income is calculated using the effective derivatives or equity instruments, must be subjected to two tests interest rate method on the gross capitalised asset. The effective to decide their classification and measurement pursuant to IFRS 9. interest rate is the rate that exactly discounts the future cash flow, through the expected life of the financial instrument to its gross The first test, which is done at instrument level, is a valuation of book value at the time of recognition. This entails taking nominal the instrument’s contractual terms. This is often referred to as the interest to income as it arises, and amortising establishment fees SPPI test (SPPI = solely payment of principal and interest). Only after deducting direct establishment costs and other premiums or instruments with contractual cash flows that solely comprise the discounts. payment of ‘normal’ interest and principal on given dates qualify for measurement at amortised cost. All other financial instruments For debt instruments held as assets recognised at amortised cost must be measured at fair value. This can include instruments with and written down as a result of objective evidence of loss (see contractual terms that are not related to basic debt instruments, Note 11), interest is recognised based on the net carrying amount. for example instruments with gearing or ‘built-in derivatives’. ‘Normal’ interest includes compensation for the time value of Fees that are direct payment for services rendered are taken to money (risk-free interest), credit risk, other ‘basic’ lending risks income as the services are delivered. The accounting item ‘Net (e.g. liquidity risk) and costs (e.g. administrative costs) and profit other operating income’ includes fees and commission from margin.

Sparebanken Vest Annual Report 2018 page 46 Instruments that in principle qualify for measurement at amortised test for amortised cost and are consequently measured at fair cost must then undergo a business model test. This is done at value through other comprehensive income in the parent bank’s portfolio level: company accounts. • Debt instruments shall be measured at amortised cost if the instruments are held in a business model, in which the purpose In connection with the conversion to IFRS 9, Sparebanken Vest of holding the instrument is to receive contractual cash flows. has not deemed it necessary to classify any of its shareholdings • Instruments with cash flows that only consist of the payment at fair value through other comprehensive income. The category of interest and principal that are held both for the purpose of ‘available for sale’ under IAS 39 has been removed in IFRS 9. receiving contractual cash flows and for sale shall be measured Shares that were classified as available for sale have therefore at fair value through other comprehensive income (FVOCI) along been reclassified at fair value through profit or loss. The with interest income and any write-downs recognised through accounting item ‘Available for sale’ in the balance sheet comprises profit or loss. This means that the instrument is recognised in the securities classified in this category in the comparative figures balance sheet at fair value, and that interest on and write-downs under IAS 39. for credit losses are recognised through profit or loss, in the same way as if the instrument had been measured at amortised Financial instruments at fair value through profit or loss cost, while other changes in value are recognised through other Derivatives are recognised in the balance sheet at fair value when comprehensive income. the derivative contract is entered into, and thereafter at the • Other debt instruments shall be measured at fair value through current fair value. For more information about the scope and use profit or loss. They will typically be instruments held in trading of derivatives in the Group, see Note 24. portfolios, portfolios that are managed, measured and reported to the management at fair value, and portfolios whose scope of sale Liquid assets are recognised at fair value through profit or loss. is too large for them to fall under the other two business models. Relatively many transactions take place in the portfolio in order • Instruments that, following these tests, are to be measured at to adapt the quality and size to external and internal buffer amortised cost or fair value through OCI can nonetheless be requirements. It is also a goal to maximise returns at all times designated as measured at fair value through profit or loss if this within the overall requirements. The liquidity reserves generate eliminates or significantly reduces an accounting mismatch. credit risk and there are return targets within the framework for this risk. Liquid assets are managed, measured and reported to Equity instruments the management on the basis of their fair value. Investments in equity instruments shall be measured at fair value in the balance sheet. Changes in value shall as a rule be Equity instruments are recognised at fair value through profit or recognised in ordinary profit/loss, but an equity instrument may loss. The instruments give rise to cash flows that are payments be designated at fair value through other comprehensive income from other factors than interest and principal, and thereby fail the (FVTOCI). SPPI test. For equity instruments not held in a trading portfolio, the company can choose recognition through other comprehensive Derivatives income (without recycling). As described in the section ‘Fair value All derivatives shall in principle be measured at fair value through other comprehensive income’, Sparebanken Vest has through profit or loss (FVPL), but derivatives designated for hedge chosen not to apply recognition through other comprehensive accounting shall be recognised in accordance with the principles income. for hedge accounting. Financial instruments classified for recognition at fair value Financial instruments recognised at amortised cost through profit or loss Debt instruments that are subjected to the SPPI test and that Financial instruments are classified in this category if the are covered by a business model whose purpose is to hold classification eliminates or significantly reduces accrual the instrument in order to receive contractual cash flows are accounting differences for gains and losses on hedging recognised at amortised cost. The following principal items are instruments and hedged items in connection with financial measured at amortised cost in the consolidated accounts: hedging. • Loans with floating interest rates • Receivables from credit institutions and cash in and receivables Financial liabilities that form part of a portfolio that is managed from central banks and valued on the basis of fair value in accordance with a • Financial liabilities with a floating interest rate documented risk management or investment strategy can also be assigned to this category. Financial assets and financial liabilities recognised at amortised cost are initially valued at fair value with the addition of direct Fixed rate loans are assigned to this category. This is because the transaction costs. In periods after the initial measurement, the bank hedges the interest rate risk for this significant balance sheet assets/liabilities are valued at amortised cost based on the item through derivatives. The latter must always be measured at effective interest rate method. fair value through profit or loss, and recognition of the loans at amortised cost will thus lead to significant fluctuations in profit/ Fair value through other comprehensive income (FVOCI) loss. Recognition at fair value through profit or loss will lead to a Debt instruments that undergo the SPPI test and that are more harmonised presentation of the derivatives’ profit/loss and covered by a business model whose purpose is both to be held changes in the value of loans. for the purpose of receiving contractual cash flows and for sale shall be measured at fair value through other comprehensive For the same reason, the bank’s financial liabilities at fixed interest income (FVOCI) along with interest income and any write-downs rates are also assigned to this category. The latter includes recognised through profit or loss. debt to credit institutions, deposits, securitised debt, as well as subordinated loans and subordinated bonds at fixed interest rates. Loans secured by a mortgage in the parent company’s company Gains and losses relating to changes in own credit risk are accounts will probably be sold during the life of the loan to recognised through comprehensive income. The latter represents the wholly-owned subsidiary Sparebanken Vest Boligkreditt a change in relation to IAS 39, which is the basis for the AS. These loans do not therefore satisfy the business model comparative figures.

Sparebanken Vest Annual Report 2018 page 47 Other changes in value for these instruments are recognised under the hedging instrument, a clear description of the hedged risk and ‘Net gain/(loss) on financial instruments’. a description of why the hedging is expected to be effective.

More information about fair value IFRS 9 simplifies the requirements for hedge accounting by Financial instruments recognised at fair value are recognised at linking hedge effectiveness more closely with the management’s fair value upon acquisition, and transaction costs are charged risk management and it leaves greater room for assessment. The to income. Subsequent measurements are at fair value. The fair requirement for a hedge effectiveness of 80–125% has been value of listed investments is based on the market price on the removed and replaced by more qualitative requirements, including balance sheet date. In the case of unlisted securities where there that there must be an economic relationship between the hedging is no active market, the Group values bonds and certificates using instrument and the hedged item, and that the effect of credit risk prices from Nordic Bond Pricing AS. Various valuation techniques must not dominate the value changes in the hedging relationship. are used to determine the fair value of unlisted equity certificates Under IFRS 9, a prospective (forward-looking) effectiveness test in accordance with IFRS 13, such as the last issue price or traded is sufficient, while hedge effectiveness under IAS 39 had to prices known to the Group. In the absence of recent transactions, be considered both retrospectively and prospectively. Hedging the value is set on the basis of a consistent valuation method. documentation is still required.

The value of the fixed-interest loans is estimated by discounting Hedge ineffectiveness, defined as the difference between the the cash flows using a risk-adjusted discount factor that takes value adjustment of hedging instruments and the value adjustment market players’ preferences into account. The discount factor of the hedged risks in the items, is recognised in profit or loss as it is calculated on the basis of an observable swap interest rate arises. The exception is the part of the value adjustment caused by with the addition of a margin requirement. When estimating the a change in the basis spread relating to the hedging instruments. margin requirement, the bank looks at observable market interest The latter is presented in the statement of comprehensive income. rates for corresponding loans. The swap interest rate element of This represents a change from the comparative figures since these the discount factor fluctuates continuously, while the observable effects were presented in ordinary profit/loss pursuant to IAS 39. market interest rates for corresponding loans do not change as frequently. The margin requirement is therefore based on the The hedging instruments are recognised at fair value and changes difference between the market interest rates and the swap interest in value are included in ‘Net gain/(loss) on financial instruments’ rate over a given period. in the income statement. Changes in value relating to hedged risks in the hedged items are included in the same accounting item. The fair value of financial instrument liabilities is calculated by discounting the cash flow from the loans using the required rate IMPAIRMENT LOSSES ON LOANS VALUED AT AMORTISED COST of return derived from the zero coupon curve. The credit spread Under IFRS 9, the recognition shall be based on expected credit on interest-bearing securities is changed on the basis of an loss (ECL). The write-downs shall be unbiased and forward-looking. overall assessment that takes account of observed trading in the This differs from IAS 39 (comparative figures) where write-downs market, credit margin reports from various brokers, and internal were only to be made for losses if there was objective evidence of evaluations. A change in the credit spread will affect the required a loss event having occurred. The general model for impairment rate of return in that the supplement added to the zero coupon of financial assets in IFRS 9 applies to both financial assets curve will change. measured at amortised cost and assets measured at fair value through other comprehensive income. Loan approvals, unused The buy-back of securities issued by the bank is netted against credit facilities and guarantee commitments are also covered by securities debt in the balance sheet (derecognised). the impairment model.

Realised gains/losses and changes in the value of financial The measurement of the provision for expected losses under the instruments at fair value through profit or loss, including dividends, general model depends on whether the credit risk has increased are presented in the accounts under ‘Net gain/(loss) on financial significantly since initial recognition. Upon initial recognition and instruments’ in the period in which they arise. when the credit risk has not increased significantly after initial recognition, a provision shall be made for 12-month expected Financial instruments designated for hedge accounting losses. Twelve-month expected losses are the losses expected to For financial instruments subject to hedge accounting, the occur during the instrument’s life, but that can be linked to events hedging instruments are recognised at fair value and the hedged occurring in the next 12 months. If the credit risk has increased items at fair value for the hedged risks. Sparebanken Vest has also significantly since initial recognition, a provision for expected implemented IFRS 9 with respect to hedge accounting. losses shall be made for the whole life of the instrument.

The Group uses hedge accounting to achieve an accounting The bank has established a method (see Note 11) for assessing treatment that reflects how interest rate risk and currency risk are whether the credit risk has increased significantly after initial managed for long-term borrowings relating to the housing credit recognition by calculating the risk of a default occurring during company. This leads to a presentation in the income statement the financial instrument’s remaining life. The expected credit of gains and losses on bonds issued at fixed interest rates and/or loss is calculated as a weighted average of the present value of foreign currency (hedged item) with gains and losses on pertaining all cash flows over the expected remaining life under different interest rate and currency swaps (hedging instrument). This is scenarios, i.e. the difference between the contractual cash flows recognised as fair value hedging. under the contract and the cash flows the bank expects to receive, discounted by the effective interest rate on the instrument. A formal designation and documentation of the hedging relationship takes place when the hedging is established. There is In addition to the general model, separate principles apply to a clear, direct and documented connection between fluctuations issued and purchased loans that have incurred a credit loss at the in the value of the hedged item that are due to the hedged time of initial recognition. Sparebanken Vest has not identified any risk and fluctuations in the value of the financial derivatives. such commitments. The hedging is documented with reference to the Group’s risk management strategy, clear identification of the hedged item and The method in the IFRS 9 standard entails slightly higher volatility

Sparebanken Vest Annual Report 2018 page 48 in write-downs and is based on the economic outlook. Write-downs Acquired customer portfolio must be expected to take place earlier under IFRS 9 than under The value of the customer portfolio is included in the cost price IAS 39. This will be especially relevant at the beginning of an of acquisitions. The value is set as the future cash flow, without economic downturn. See Note 11 for a more detailed description taking into account the customer’s right to renewal. The customer of the impairment model under IFRS 9. portfolio is depreciated using the straight-line method over the expected contract period. CURRENCY The Group’s presentation currency is Norwegian kroner. It is also TAX the functional currency of the parent company, subsidiaries and Deferred tax and deferred tax assets are recognised in the balance associated companies. sheet in accordance with IAS 12 Deferred Tax.

The bank’s receivables and liabilities in foreign currency are The tax expense in the income statement includes both the translated at the exchange rate on the balance sheet date. tax payable for the period and the change in deferred tax. The Currency items are largely hedged by matching them with deferred tax/deferred tax asset is calculated at a rate of 25% of corresponding items on the other side of the balance sheet, or by net temporary differences between accounting and tax values using derivatives. at the end of the financial year. Tax-increasing and tax-reducing temporary differences that are reversed or can be reversed in the Income and expenses in foreign currency are translated into NOK same period are offset and entered net. Some companies in the at the rates on the transaction date. Group that are not covered by the financial tax calculate the above based on 22% of net temporary differences. TANGIBLE FIXED ASSETS Tangible fixed assets are valued at historical cost and depreciated The deferred tax asset is capitalised on the basis of expectations of over their expected useful life. taxable income through earnings in future years.

Ordinary depreciation is based on the cost price, and assets are Tax liabilities in the balance sheet is the tax payable on the profit depreciated on a straight-line basis over the useful life of the for the year, tax payable on capital assets and tax payable on asset. The depreciation period and method are assessed every year group contributions received. to ensure that they are in accordance with the economic realities of the fixed assets in question. PENSION OBLIGATIONS Pension obligations are calculated in accordance with IAS 19. The ordinary depreciation for the year is included in operating The pension expense for the year is entered net in the income expenses for the year. statement under ‘Payroll and general administration expenses’.

On derecognition, any gains or losses are recognised under ‘Net See Note 32 for more details. profit on tangible fixed assets’. The Company has both a defined benefit and a defined INTANGIBLE ASSETS contribution pension scheme, which meet the requirements of the Developed software Act relating to Mandatory Occupational Pensions. Software development is recognised in the balance sheet and classified as an intangible asset when the value is deemed to Defined benefit scheme be material and the asset is expected to have lasting value. In It was decided to wind up the defined benefit scheme, which connection with software development, the use of own resources was closed to new members in 2007, and to derecognise it for is capitalised insofar as expenses incurred can be measured in accounting purposes in the third quarter 2016. As of 1 January a reliable manner. Costs relating, among other things, to pre- 2017, all employees, except partially disabled employees and planning, implementation and training are expensed as they employees on sick leave, became members of the common defined arise. Capitalised software that has been developed by the bank is contribution scheme. Following the derecognition of the defined depreciated using the straight-line method over its expected useful benefit scheme, the remainder is deemed insignificant and the life. Depreciation commences on the date the software is available presentation of the note has therefore been simplified somewhat for use in the company, so that software under development is (see explanation in Note 32). recognised at cost price until the development is completed. Defined contribution scheme Whether a write-down is necessary as a result of the expected Sparebanken Vest has an ordinary defined contribution scheme economic benefits being less than the balance sheet value is and an individual compensatory scheme for members who lost continuously assessed. their defined benefit pension. An annual agreed deposit is trans- ferred to a securities fund in connection with the latter scheme. Goodwill The contributions to the securities funds consist of an asset Goodwill is the difference between the acquisition cost of a furnished as security for the company, and a corresponding gross business and the fair value of the Group’s share of net identifiable pension obligation for the employees. Employer’s National Insur- assets in the business on the acquisition date. Each goodwill item ance contributions and financial tax are calculated and a provision in the balance sheet is allocated to cash flow-generating units that made from the sum of contributions and the development in value benefit from the purchased asset. The choice of assessment unit is of the securities funds. The items are presented gross. based on whether it is possible to identify and separate cash flows relating to the business in question. Goodwill is tested annually for CONTINGENT LIABILITIES/ PROVISIONS possible value depreciation and is recognised in the balance sheet A provision has been made for contingent liabilities in accordance at acquisition cost minus write-downs. The write-down test of with IAS 37. For a provision to be made, a contingent liability capitalised goodwill is carried out by discounting expected future must exist as a result of previous events, and it must be highly cash flows from the assessment units. likely that the liability will have to be met. The provision has been calculated as the present value of future payments required to meet the liability.

Sparebanken Vest Annual Report 2018 page 49 The proposed dividend and donations for distribution are not UPCOMING AMENDMENTS TO STANDARDS AND formally decided on the balance sheet date and thus do not meet INTERPRETATIONS the criteria for being defined as a liability under IAS 37. Below is an overview of standards and amendments to existing In the parent bank, dividends and donations are recognised in the standards that have not entered into force, and where the Group financial year that forms the basis for the allocation. has not chosen early application. The matters discussed focus on amendments that are expected to have consequences for the POST BALANCE SHEET EVENTS Group’s future reporting. Events that occur after the balance sheet date are disclosed in accordance with IAS 10. The information concerns events that are IFRS 16 – Leases not recognised in the consolidated financial accounts, but whose IFRS 16 will be introduced with effect from 1 January 2019. The nature makes them material to assessing the business. standard sets out principles for the recognition, measurement and presentation of leases. A contract is or includes a lease agreement CASH FLOW STATEMENT if the contract transfers the right to exercise control of the use of The cash flow statement is broken down into cash flows from an identified asset for a period in exchange for a consideration. operations, investment activities and financing activities. The standard shall apply to all such contracts with the exception of contracts with a short lease period or where the underlying asset Cash flows from operations are defined as current interest, has a low value. commission and fees related to lending, borrowings and deposits, interest relating to liquidity, operating expenses and direct and At the commencement date of the lease, the lessee shall recognise indirect taxes paid. a right-of-use-asset and a lease liability. The lease liability is measured at the present value of the lease payment over the Investment activities are defined as cash flows relating to changes agreed lease period, where the lease payments are discounted in the nominal lending volume, cash flows from securities using the rate implicit in the lease if that rate can be readily transactions and investments in tangible fixed assets. determined. If not, the incremental borrowing rate shall be used. The incremental borrowing rate is estimated based on Cash flows relating to the volume of borrowings, the raising and observable risk-free interest rates in the market and the spread repayment of subordinated loans and bond debt and equity are on the bank’s senior bonds. The calculations are carried out for defined as financing activities. the corresponding time to maturity as the weighted average of the future cash flows from the lease on the date of recognition. EQUITY Equity consists of equity certificate capital, primary capital, the The right-of-use-asset is measured at acquisition cost, which is the reserve for unrealised gains, other group equity and hybrid capital. same as the lease liability, or, if relevant, adjusted for direct costs, costs for dismantling and removal of underlying assets and any The equity certificate capital includes paid-up capital linked lease payments made in advance. to equity certificates, own holdings of equity certificates, the premium reserve and the equalisation reserve. The primary capital The bank’s lease agreements are adjusted annually in line with includes paid-up and retained primary capital, the gift fund and the development in the consumer price index. Changes in the compensation fund. consumer price index are not taken into account when future lease payments are calculated, in line with the requirements of In the parent bank, the reserve for unrealised gains consists of the IFRS 16. Options to extend the lease are taken into account if it is increase in the value of financial instruments where the principles reasonably certain that the option will be exercised. used for valuation pursuant to IFRS deviate from the principles set out in Norwegian GAAP. For subsequent measurements, the lease liability shall be reduced by the lease amount paid and increased by the calculated interest. Other group equity consists of retained equity in subsidiaries and The right-of-use-asset shall be depreciated in line with the associated companies after the establishment of the Group, and requirements in IAS 16 and adjusted for any new measurement of the effect of equity eliminations in the consolidated accounts. the lease liability that is due to changes in agreed lease payments (e.g. CPI adjustments). When buying own equity certificates, the purchase price including direct costs will be recognised as a reduction in equity. The Sparebanken Vest will implement IFRS 16 with effect from nominal value of own equity certificates is entered as a negative 1 January 2019 for contracts that include a lease agreement amount on a separate line under equity certificate capital. pursuant to the definitions in the standard. This will primarily concern contracts for the lease of business premises that are Hybrid capital consists of subordinated bonds that do not satisfy included in the calculation of use-of-right-assets and related lease the definition of ‘financial liability’ in IAS 32. Interest accrued on liabilities. hybrid capital is allocated to hybrid capital. Interest is presented gross in the presentation of changes in equity, with a separate In connection with initial application of the standard, the lessee accounting item for pertaining tax. can decide to apply the standard with retrospective effect for each previous reporting period pursuant to the rules of IAS 8 The profit for the year is allocated to the equity certificate holders Accounting Policies, Changes in Accounting Estimates and Errors, and primary capital in proportion to the ratio between the equity or with retrospective effect whereby the overall effect is recognised certificate capital and the primary capital. The part of the year’s on initial application of the standard. Sparebanken Vest has profit that is allocated to equity certificate capital and not chosen the latter alternative, which means that the comparative distributed as dividend is transferred to the equalisation reserve. figures have not been converted.

In the consolidated balance sheet, the proposed dividend and The Sparebanken Vest Group has calculated a right-of-use-asset of distribution of donations are classified as part of equity until the NOK 541 million with a related lease liability in the same amount. final resolution has been adopted by the General Meeting. In the balance sheet, the right-of-use-asset will be classified under tangible fixed assets and the lease liability as other liabilities. In

Sparebanken Vest Annual Report 2018 page 50 the income statement, the depreciation of the right-of-use-asset Features with Negative Compensation Amendments to IFRS 9’, will be classified as depreciation, and interest on the lease liability which means that fixed-interest loans will meet the requirements will be classified as interest expense and thus become part of the of solely being payment of the loan principal and accrued interest. bank’s net interest. This represents a change from the comparative It was approved by the EU on 22 March 2018. This has no figures, where lease expenses were classified as operating material consequences for Sparebanken Vest, but the classification expenses. changes status from mandatory recognition at fair value through profit or loss (as a result of the debt instrument failing the The capitalised right-of-use-asset shall be included in the SPPI test (see the section on financial assets and liabilities)) to calculation basis for capital adequacy. Upon implementation on 1 voluntarily electing the fair value option. Fixed-interest loans are January 2019, the effect on the Group’s capital adequacy will be subject to hedging through the use of interest rate swaps. Hedge negative of around 0.7%. accounting is not used for these loans. This creates an accounting mismatch that qualifies for voluntarily electing the fair value IFRS 9 option. The bank has decided to use this option. IASB made a change to IFRS 9 in 2018 through ‘Prepayment

Note 2 Accounting estimates and discretionary assessments

When preparing the annual accounts in accordance with IFRS, the commitments in the corporate market, the assessment takes into Group’s management has used estimates and assumptions that account the market situation for the customer, the market affect the amounts recognised for assets, liabilities, equity and conditions in the sector in question and general market conditions profit/loss. The estimates used are based on discretionary of significance to the commitment. The possibilities for assessments and assumptions that were deemed to be realistic on restructuring, refinancing and recapitalisation are also assessed. the balance sheet date. New information and future events may The overall assessment of these factors forms the basis for lead to significant changes in estimates, with pertaining changes estimating future cash flows. The discounting period is estimated in recognised amounts. The Group’s most important estimates and on an individual basis or based on experience data about the assumptions are discussed below. period up until a solution is found to the conditions that have led to a fall in the value of the commitment. Losses on loans, unused credit facilities and guarantees Discretion is required at several levels when using the bank’s loss Estimates of future cash flows are based on experience data, the model. See Notes 11 and 13 for a more detailed description of the interpretation of available information and extensive use of loss model and estimation uncertainty. discretion.

The most important elements that involve a high degree of Fair value of financial instruments discretionary assessment are discussed below: The fair value of financial instruments that are not traded in an • Forward-looking macro data in different scenarios require the use active market is determined using various valuation techniques. of discretion. However, this application of discretion must be This is based on assumptions about what the market will use as consistent with other action taken by the bank in relation to the the basis for the valuation of corresponding financial instruments macro view. Transforming a macro view into the industry’s PD and the information available on the balance sheet date. See the paths and collateral value also requires considerable use of notes on financial instruments and the statement on accounting discretion. principles for a description of the techniques used. Considerable • Identifying commitments for inclusion on the watch list and discretion must be exercised in the valuation of financial subsequent overruling of automatic model calculations is also a instruments that are not traded in an active market. discretionary process. • If there is objective evidence of one or more events having Fixed-interest loans: occurred since the initial recognition of the asset that are Pursuant to IFRS, the valuation shall be based on an assessment expected to entail a risk of reduced debt-servicing ability, an of what an external investor would have assumed when investing individual loss assessment is carried out for the commitment. In in corresponding loans. A well-functioning market does not exist these cases, discretion will be applied both in the assessment of for the buying and selling of fixed-interest loans between market the objective event’s impact on debt-servicing ability and when players. The value of the fixed-interest loans is estimated by estimating the potential loss. discounting the cash flows using a risk-adjusted discount factor that takes market players’ preferences into account. The discount The bank’s loss assessments will be the result of a process that factor is calculated on the basis of an observable swap interest involves the business areas, important credit environments and rate with the addition of a margin requirement. When estimating other expert environments. the margin requirement, the bank looks at observable market interest rates for corresponding loans. The swap interest rate The amount of the write-down is determined based on an element of the discount factor fluctuates continuously, while the assessment of the difference between the balance sheet value observable market interest rates for corresponding loans do not (loan principal + accrued interest on the valuation date) and the change as frequently. The market players’ margin requirement is present value of future cash flows discounted on the basis of the thereby not directly observable, and it is estimated on the basis of effective interest rate over the useful life of the loan. the difference between the observable market interest rates and the swap interest rate over a given period. Since the margin When estimating write-downs on individual customers, both the requirement is not directly observable, there is uncertainty current and expected future financial position is assessed. For attached to the calculation of the fair value of fixed-interest loans.

Sparebanken Vest Annual Report 2018 page 51 Note 2 Accounting estimates and discretionary assessments (continued)

Basis swaps: The choice of assessment unit is made on the basis of whether it The subsidiary Sparebanken Vest Boligkreditt AS uses basis swaps is possible to identify and separate cash flows relating to the as hedging instruments to convert payment commitments in business in question. Future cash flows are based on historical foreign currencies into Norwegian kroner. The price of entering results and, if relevant, they take into account expectations of into basis swaps varies, which means that the hedging is not a future conditions. The estimation of future cash flows will perfect hedge. This affects the fair value of the derivative. In therefore include assumptions and estimates relating to highly addition, CSA agreements have been entered into on the uncertain factors. furnishing of security that clearly favour the bond owners. This has a price, because the counterparties face potentially large The required rate of return is based on a discretionary assessment commitments if, for example, they are downgraded. This price is of the required rate of return in the market for the type of business called a credit charge and may also vary over time. There is the assessment unit involves. The required rate of return chosen uncertainty associated with the calculation of fair value for such shall seek to reflect the risk in the business being assessed and it financial instruments. shall be based on information available on the balance sheet date.

For the volume of financial instruments classified at level 3 Reference is made to Note 34 for comments relating to the (subjective elements in the valuation), reference is made to Note individual assessment units. 6. It also provides information about sensitivity relating to the parameters used in the calculations.

Impairment of goodwill For all assessments units, tests are carried out to test for possible impairment of goodwill. Impairment tests are performed when there is an indication of a fall in value, and at least once a year.

Sparebanken Vest Annual Report 2018 page 52 Note 3 Segment information

The management has evaluated the segments that it is appropriate staff costs and depreciation. Net interest income is allocated to report in relation to corporate governance. The segments are: based on internally calculated interest based on 3-month NIBOR. Corporate Banking, Retail, Treasury and Real Estate Markets. Operating expenses are allocated, with the exception of IT costs,

Banking operations Estate Unallo- Corporate Retail Agency cated by Market Market Treasury activities segment Total GROUP 2018 Profit/loss Net interest 935 1 704 76 1 2 716 Net other operating income 205 337 188 210 940 Operating expenses -129 -374 -17 -215 -762 -1 497 Write-downs on loans and guarantees 14 -21 -6 Pre-tax profit 1 026 1 646 247 -4 -762 2 153 Tax -492 Profit for the period 1 660

Balance sheet Net lending 35 523 123 521 159 043 Deposits 21 924 47 780 2 832 72 536

2017 Profit/loss Net interest 871 1 644 50 2 565 Net other operating income 174 328 64 195 761 Operating expenses -126 -378 -14 -187 -745 -1 450 Write-downs on loans and guarantees -15 -18 -33 Pre-tax profit 904 1 576 100 8 -745 1 844 Tax -427 Profit for the period 1 416

Balance sheet Net lending 32 190 114 883 147 073 Deposits 20 769 46 213 2 130 69 111

Sparebanken Vest Annual Report 2018 page 53 Note 3 Segment information (continued)

Banking operations Estate Unallo- Corporate Retail Agency cated by Market Market Treasury activities segment Total PARENT BANK 2018 Profit/loss Net interest 934 1 024 -67 1 891 Net other operating income 205 337 807 1 349 Operating expenses -129 -374 -17 -756 -1 276 Write-downs on loans and guarantees 14 -17 -3 Pre-tax profit 1 025 969 723 -756 1 961 Tax -405 Profit for the period 1 556

Balance sheet Net lending 35 337 39 511 74 848 Deposits 21 924 47 779 2 866 72 569

2017 Profit/loss Net interest 870 1 065 -68 1 867 Net other operating income 174 328 650 1 152 Operating expenses -126 -378 -14 -731 -1 249 Write-downs on loans and guarantees -12 -15 0 -26 Pre-tax profit 906 1 000 568 -731 1 744 Tax -387 Profit for the period 1 357

Balance sheet Net lending 32 013 38 709 70 722 Deposits 20 769 46 211 2 165 69 145

Sparebanken Vest Annual Report 2018 page 54 Note 4 Classification of financial instruments

Fair value Fair value GROUP – IFRS 9 through through profit or loss profit or loss Hedge Amortised 31 Dec. 2018 (mandatory) (option) 2) accounting 1) cost Total Assets Cash and receivables from central banks 563 563 Loans to and receivables from credit institutions 1 270 1 270 Loans to and receivables from customers 30 998 128 045 159 043 Commercial papers and bonds 22 166 22 166 Financial derivatives 563 3 465 4 028 Shares, units and other equity interests 364 364 Total 54 091 0 3 465 129 877 187 434

Liabilities Liabilities to credit institutions 2 965 2 965 Deposits from customers 416 72 120 72 536 Securitised debt 7 854 41 883 44 532 94 269 Financial derivatives 860 860 Subordinated loan capital 178 1 824 2 001 Other provision for commitments 68 68 Total 860 8 448 41 883 121 508 172 699

GROUP – IAS 39 Held for trading Recognised Available Hedge Amortised 31 Dec. 2017 purposes at fair value for sale accounting 1) cost Total Assets Cash and receivables from central banks 2 965 2 965 Loans to and receivables from credit institutions 1 588 1 588 Lending 30 013 117 059 147 073 Shares 23 353 40 416 Commercial papers and bonds 116 19 075 19 191 Financial derivatives 631 3 956 4 587 Total 770 49 441 40 3 956 119 332 173 540

Liabilities Liabilities to credit institutions 4 023 4 023 Deposits from customers 581 68 530 69 111 Securitised debt 7 605 34 910 41 358 83 873 Financial derivatives 1 070 -0,254 1 070 Subordinated loan capital 455 1 654 2 109 Total 1 070 8 641 0 34 910 115 565 160 186

1) The Group uses hedge accounting to manage interest rate risk and currency risk for long-term financial liabilities relating to the housing credit company. For financial liabilities designated for hedge accounting, the hedged risks are recognised at fair value, while the rest is recognised at amortised cost. The hedging derivatives are valued at fair value.

2) Changes in fair value relating to changes in own credit risk are recognised in the statement of comprehensive income.

Nor does the Group have any financial instruments in the category ‘Fair value through other comprehensive income’.

Sparebanken Vest Annual Report 2018 page 55 Note 4 Classification of financial instruments (continued)

Fair value through Fair value Fair value other com- PARENT BANK – IFRS 9 through through prehensive profit or loss profit or loss income Amortised 31 Dec. 2018 (mandatory) (option) (OCI) cost Total Assets Cash and receivables from central banks 563 563 Loans to and receivables from credit institutions 12 775 12 775 Loans to and receivables from customers 8 853 29 604 36 390 74 848 Commercial papers and bonds 16 584 16 584 Financial derivatives 618 618 Shares, units and other equity interests 364 364 Total 26 419 0 29 604 49 728 105 750

Liabilities Liabilities to credit institutions 2 363 2 363 Deposits from customers 416 72 152 72 569 Securitised debt 7 854 10 925 18 779 Financial derivatives 902 902 Subordinated loan capital 178 1 824 2 001 Other provision for commitments 68 68 Total 902 8 448 0 87 331 96 682

PARENT BANK – IAS 39 Held for trading Recognised Available Amortised 31 Dec. 2017 purposes at fair value for sale cost Total Assets Cash and receivables from central banks 685 685 Loans to and receivables from credit institutions 14 104 14 104 Lending 10 629 60 093 70 722 Shares 23 353 40 416 Commercial papers and bonds 116 18 950 19 066 Financial derivatives 669 669 Total 808 29 932 40 74 882 105 662

Liabilities Liabilities to credit institutions 4 843 4 843 Deposits 581 68 564 69 145 Securitised debt 7 605 12 015 19 619 Financial derivatives 1 070 1 070 Subordinated loan capital 455 1 654 2 109 Total 1 070 8 641 0 87 076 96 786

Sparebanken Vest Annual Report 2018 page 56 Note 5 Fair value of financial instruments recognised at amortised cost

31 Dec. 2018 31 Dec. 2017

GROUP Balance Balance Notes sheet value Fair value sheet value Fair value Cash and receivables from central banks 563 563 685 685 Loans to and receivables from credit institutions 17 1 270 1 270 1 588 1 589 Loans to customers 12 128 045 128 135 117 059 117 059 Total assets recognised at amortised cost 129 877 129 968 119 332 119 333

Liabilities to credit institutions 36 2 965 2 966 4 023 4 023 Customer deposits 4,38 72 120 72 120 68 530 68 531 Securitised debt 39 44 532 45 043 41 358 42 073 Subordinated loan capital 40 1 824 1 829 1 654 1 684 Total liabilities recognised at amortised cost 121 440 121 958 115 565 116 311

Securities debt designated for hedge accounting 41 883 41 868 34 910 35 013

PARENT BANK

Cash and receivables from central banks 563 563 685 685 Loans to and receivables from credit institutions 17 12 775 12 775 14 104 14 105 Loans to customers 4,12 36 390 36 475 60 093 60 093 Total assets recognised at amortised cost 49 727 49 813 74 882 74 883

Liabilities to credit institutions 36 2 363 2 364 4 843 4 843 Customer deposits 4,38 72 152 72 153 68 564 68 565 Securitised debt 39 10 925 11 295 12 015 12 575 Subordinated loan capital 40 1 824 1 829 1 654 1 684 Total liabilities recognised at amortised cost 87 264 87 641 87 076 87 667

Valuation of financial instruments recognised 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 value 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 floating interest rates. This means that the fair value is virtually the same as the amortised cost on the balance sheet date.

Loans to customers Loans at amortised cost are written down in accordance with the rules in IFRS 9 as referred to in Note 12. Stage 1 impairment is calculated by model and will probably not affect the value of a loan in the event of a sale. The fair value of loans at amortised cost are therefore recognised at book value excluding Stage 1 impairment.

Customer deposits The Group considers that amortised cost provides a good indication of the fair value of customer deposits.

Liabilities 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.

Sparebanken Vest Annual Report 2018 page 57 Note 6 Valuation hierarchy for financial instruments at fair value

Fair value valuation fair value of an instrument are observable data, the instrument is included in level 2. Instruments included in level 2 comprise Level 1 certain equity instruments on the OTC list (see Note 26), other Financial instruments traded in active markets are classified as commercial papers and bonds, financial derivatives and all level 1. A market is deemed to be active if the market prices financial liabilities valued at fair value. are easily and regularly available from a stock exchange, broker, industry group, pricing service or regulatory authority, and these Level 3 prices represent actual and regularly occurring market transactions If one or more data items are not based on observable market at arm’s length. The market price used for financial assets is the information, the instrument is included in level 3. Non-listed applicable purchase price, while the applicable sales price is used equity instruments and certain equity instruments on the OTC list for financial liabilities. Instruments included in level 1 comprise are classified as level 3 (see Note 26). The same applies to fixed- some bonds and treasury certificates. interest loans valued at fair value because the margin requirement is not directly observable (see Note 1). 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 are, as far as possible, not based on the Group’s own estimates. If all the material data required to determine the

GROUP 31 Dec. 2018 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 30 998 30 998 Shares 26 97 267 364 Commercial papers and bonds 19 6 745 15 420 22 166 Financial derivatives 24 563 563 Financial derivatives designated for hedge accounting 25 3 465 3 465 Total 6 745 19 546 31 265 57 556

Liabilities Deposits from customers 38 416 416 Securitised debt 39 7 854 7 854 Financial derivatives 24 860 860 Financial derivatives designated for hedge accounting 25 0 0 Subordinated loan capital 40 178 178 Total 9 308 9 308

Loans to customers Shares Financial instruments valued at level 3 at 1 Jan. 2018 30 013 308 Additions/acquisitions 7 246 25 Sale/redemption/repayment -6 205 -67 The year’s value adjustment through profit or loss -56 1 Reclassification between levels 2 and 3 0 0 Financial instruments valued at level 3 at 31 Dec. 2018 30 998 267 An increase in the discount rate of 10 basis points for loans valued at fair value will lead to a reduction in value of NOK 57 million.

Sparebanken Vest Annual Report 2018 page 58 Note 6 Valuation hierarchy for financial instruments at fair value (continued)

GROUP 31 Dec. 2017 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 30 013 30 013 Shares 23 85 308 416 Commercial papers and bonds 19 1 100 18 091 19 191 Financial derivatives 24 631 631 Financial derivatives designated for hedge accounting 24 3 956 3 956 Total 1 123 22 763 30 321 54 207

Liabilities Deposits from customers 38 581 581 Securitised debt 39 7 605 7 605 Financial derivatives 24 1 070 1 070 Financial derivatives designated for hedge accounting 24 0 0 Subordinated loan capital 40 455 455 Total 9 711 9 711

Loans to customers Shares Financial instruments valued at level 3 at 1 Jan. 2017 26 884 371 Additions/acquisitions 6 743 15 Sale/redemption/repayment -3 579 -64 The year’s value adjustment through profit or loss -35 -14 Reclassification between levels 2 and 3 0 0 Financial instruments valued at level 3 at 31 Dec. 2017 30 013 308

PARENT BANK 31 Dec. 2018 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 8 853 8 853 Shares 26 97 267 364 Commercial papers and bonds 19 5 232 11 352 16 584 Financial derivatives 24 618 618 Total 5 232 12 067 9 120 26 419

Liabilities Deposits from customers 38 416 416 Securitised debt 39 7 854 7 854 Financial derivatives 24 902 902 Subordinated loan capital 40 178 178 Total 9 350 9 350

Loans to customers Shares Financial instruments valued at level 3 at 1 Jan. 2018 10 629 308 Additions/acquisitions 7 246 25 Sale/redemption/repayment -9 009 -67 The year’s value adjustment through profit or loss -13 1 Reclassification between levels 2 and 3 0 0 Financial instruments valued at level 3 at 31 Dec. 2018 8 853 267 An increase in the discount rate of 10 basis points for loans valued at fair value will lead to a reduction in value of NOK 17 million.

Sparebanken Vest Annual Report 2018 page 59 Note 6 Valuation hierarchy for financial instruments at fair value (continued)

PARENT BANK 31 Dec. 2017 Note Level 1 Level 2 Level 3 Total Assets Loans to customers 10 629 10 629 Shares 23 85 308 416 Commercial papers and bonds 19 1 002 18 064 19 066 Financial derivatives 24 669 669 Total 1 025 18 818 10 937 30 780

Liabilities Deposits from customers 39 581 581 Securitised debt 24 7 605 7 605 Financial derivatives 24 1 070 1 070 Subordinated loan capital 40 455 455 Total 9 711 9 711

Loans to customers Shares Financial instruments valued at level 3 at 1 Jan. 2017 21 084 371 Additions/acquisitions 4 128 15 Sale/redemption/repayment -14 459 -64 The year’s value adjustment through profit or loss -124 -14 Reclassification between levels 2 and 3 0 0 Financial instruments valued at level 3 at 31 Dec. 2017 10 629 308

Note 7 Financial risk management

Risk and capital management Reporting in relation to targets and limits takes place quarterly to Good risk and capital management is a key strategic instrument in the Board. Sparebanken Vest’s value creation process. Good risk and capital management contributes to profitability and a satisfactory rating The Board’s Credit Committee deals with credit matters within the and ensures that the bank has good access to the capital market. bounds of the authorisations granted by the Board. For more detailed information about risk and capital management, see the Pillar III document on the bank’s website. The Audit Committee is charged with ensuring that Sparebanken Vest has an independent and effective external and internal audit Sparebanken Vest has established its own risk strategies that function, and financial and risk reporting that is in accordance with specify control parameters for the individual risk areas. These laws and regulations. strategies are reviewed at least once a year in connection with the bank’s overall planning process. The control parameters are The Risk Committee is charged with ensuring that Sparebanken intended to help to ensure the bank’s profitability, financial Vest’s risk and capital management underpins the bank’s strategic strength and liquidity in the short and long term. development and goal attainment, while at the same time ensuring financial stability and acceptable asset management. The Board delegates authority to the CEO within each of the risk areas. Decision support and portfolio management systems have The CEO is responsible for the bank’s overall risk and capital been established for both the retail market and the corporate management, including ensuring that the bank, at all times, has market. good models and frameworks for management and control. Normally, unless the matter is considered by the bank’s Board, all Organisation and responsibility decisions relating to risk and capital management are made by the Responsibility for, and performance of, the bank’s risk and capital CEO in consultation with other members of the bank’s management and control is divided between the bank’s Board, management. management and business units. Risk Management attends to important functions relating to The Board of Sparebanken Vest is responsible for stipulating the management, control, reporting and analysis. Risk Management is bank’s overall risk tolerance. The Board shall also ensure that the also responsible for the bank’s models and frameworks for risk and bank has sufficient own funds in relation to the stipulated risk capital management. tolerance and the bank’s operations and that it is sufficiently capitalised in relation to regulatory requirements. The Board also The Validation Committee, which is chaired by the CEO, deals with defines the bank’s targets and limits in all risk areas, including both model validation and validation relating to the application of adopting guidelines for the bank’s risk and capital management. the bank’s credit systems and regulations. The bank uses internal

Sparebanken Vest Annual Report 2018 page 60 Note 7 Financial risk management (continued) measurement methods (IRB) to calculate capital in relation to Estimated capital, liquidity and financing needs credit risk. Validation is a cornerstone of the IRB system that is The bank’s process for assessing its capital, liquidity and financing intended to ensure that the system is adapted to the portfolios to needs (ICAAP and ILAAP) is rooted in its business strategy (vision, which it is applied. An annual validation report is prepared for the goals and business idea) and strategic measures that are given Board. priority in order to reach the bank’s goals. The targeted development four years hence is used as the basis for assessing The Credit Committee, which is chaired by the CEO, deals with the bank’s capital buffer and capital tolerance. The targeted major commitments and matters of an unusual nature. Major development one year hence is used as the basis for assessing the commitments that involve risk are reviewed quarterly by the Credit bank’s liquidity buffer and self-financing. The scenarios are Committee. intended to give direction to and set a level for the bank’s budget, and the risk and capital analysis can set constraints and All managers in Sparebanken Vest are responsible for managing limitations based on the bank’s financial and operational capacity, risk and ensuring good internal control in their own areas of as well as external framework conditions. responsibility in accordance with the risk profile adopted by the bank. In order to ensure good financial and administrative The bank’s capital adequacy and capital adequacy targets, and its management, all managers must have the requisite knowledge liquidity and liquidity targets, are tested by exposing the income about material risk factors within their own areas. statement and balance sheet to various stress scenarios. The capital adequacy target is formulated as a margin (buffer capital) The role of the internal audit function is to monitor the bank’s over and above the minimum requirement. The purpose of overall risk and capital management and internal control on behalf performing the stress tests is to confirm that the buffer capital is of the Board. The internal audit function is also tasked with sufficient for the bank to also satisfy the regulatory minimum checking whether procedures and guidelines are complied with and requirement in an economic situation that is realistic but not very with assessing whether the bank’s models for risk and capital probable. management provide a correct picture of the bank’s overall risk and capital situation. The internal audit function prepares an annual In addition to calculating regulatory capital, the bank also internal control report that also contains assessments of the bank’s estimates its internal capital need (economic capital). It differs IRB system and the bank’s capitalisation and liquidity processes from the regulatory capital in that it is based solely on a business (ICAAP and ILAAP). economics perspective and has fewer limitations in relation to which methods are applied. Economic capital is used in the bank’s Risk areas day-to-day management and forms the basis for commercial The bank’s risk and capital management mainly relates to four risk decisions. areas: For credit risk purposes, Sparebanken Vest uses internal systems Credit risk is the risk of a loss being incurred if the bank’s to estimate economic capital. Expected losses and economic customers / counterparties fail to meet their commitments relating capital are calculated on the basis of the following three to loans, credit facilities, guarantees and similar. For a more components: probability of default (PD), exposure and loss given detailed description of credit risk, see Notes 8 to 20. default (LGD). The bank operates with a confidence level of 99.9% for a timeframe of one year, which corresponds to an A rating. The Market risk is defined as the risk of losses on open positions in same model has been implemented for pricing the bank’s financial instruments as a result of changes in market variables commitments. and/or market conditions within a specified time frame. This includes stock market, interest rate, currency and credit spread The bank also calculates economic capital for the concentration in risk. For a more detailed description of market risk, see Notes 21 the credit portfolio. For the concentration risk resulting from to 26. individual commitments and industry/sector concentration, capital needs are estimated using the Financial Supervisory Authority’s Liquidity risk consists of two elements – refinancing risk and price methods described in circular 12/2016. 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. For market risk purposes, economic capital is estimated using the By price risk is meant the risk of not being able to refinance Financial Supervisory Authority’s methods described in circular commitments without incurring considerable extra costs in the 12/2016 for stock market, interest rate, currency and credit form of unusually expensive financing or a fall in the price of spread risk, respectively. assets that must be realised. For a more detailed description of liquidity risk, see Note 27. For owner risk, capital is only calculated for associated companies that are not consolidated gross. For the holding in Frende Holding Operational risk is the risk of losses as a result of inadequate AS, capital is calculated in accordance with the Financial internal processes or systems or of a failure in such processes or Supervisory Authority’s assessment of Pillar II requirements systems, human error or external events. relating to ownership in insurance enterprises, set out in the letter of 23 April 2018. Other risk areas: Owner risk is defined as the risk of losses or of necessary infusions For operational risk, regulatory capital is also used for the bank’s of new capital into companies where the bank has a strategic internal economic capital. ownership interest, as a result of the underlying risk in such companies.

Insurance risk. The associated company Frende is exposed to insurance risk. Sparebanken Vest is affected by this risk through its holding in the company.

Sparebanken Vest Annual Report 2018 page 61 Note 8 Risk classification of the credit portfolio

Credit risk ii) Expected exposure at default (EAD) is an estimated amount that Credit risk is the risk of losses if the bank’s customers fail to meet shows the expected exposure in relation to the customer at the their commitments to the Group. time of default. EAD is estimated as the actual utilisation of credit plus the expected utilisation of unutilised drawing rights (CF). Credit risk arises through loans, credit facilities, guarantees, documentary credit and various derivative transactions with retail market and corporate market customers. Credit risk relating to iii) Loss given default (LGD) indicates the loss ratio on a derivative transactions is quantified using conversion factors that commitment in default expressed as a percentage of EAD. For the depend on the contract type and term to maturity. retail market (RM) and corporate market (CM), it is calculated on the basis of internal models. The type and value of loan security Risk classification of loans and guarantees and the probability of recovery are key parameters in calculating The measurement of credit risk is based on the following main the loss ratio. In addition to calculating the expected loss ratio, components: i) probability of default (PD), ii) expected exposure at adjustments are made for periods of economic downturn by default (EAD) and iii) loss given default (LGD). calculating a ‘downturn LGD’. Since the bank has gained AIRB approval, a downturn LGD from the bank’s internal models is i) Probability of default (PD) is defined as the probability of a utilised in the calculation of capital adequacy for both RM and CM. customer defaulting on a loan within the next 12 months. A default can be default of payment in excess of 90 days or other The scorecard models are statistical models for predicting future concrete circumstances (‘unlikeliness to pay’, cf. Basel II) that outcomes. They use data from internal and external sources, and affect the customer’s ability to service the debt. The probability of all commitments are risk-classified monthly. The bank has a default is calculated using statistical models (scorecards) based system for automatic capture of risk data for all commitments. on logistic regression. Eleven risk classes from A to K are used in For corporate commitments, it also carries out manual follow-up order to group the credit portfolio in Sparebanken Vest by debt- and updating. The frequency depends on the size and risk of the servicing ability. Risk class K comprises commitments in default. commitment. The risk classification results in key figures that play a central role in the bank’s management.

Risk classes based on probability of default

Risk class From and incl. Up to A 0,00% 0,10% B 0,10% 0,25% C 0,25% 0,50% D 0,50% 0,90% E 0,90% 1,50% F 1,50% 2,75% G 2,75% 5,00% H 5,00% 10,00% I 10,00% 25,00% J 25,00% 99,99% K 100,00% 100,00%

Sparebanken Vest Annual Report 2018 page 62 Note 8 Risk classification of the credit portfolio (continued)

PARENT BANK GROUP Lending broken down by risk class Commitments1) Write-downs2) Commitments1) Write-downs2) 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 2018 2017 2018 2017 2018 2017 2018 2017 Corporate market A–D 19 123 19 584 70 20 810 20 414 70 E–H 24 173 20 461 226 24 354 20 767 226 I–J 991 829 40 998 839 40 K 1 118 1 257 521 551 1 124 1 261 521 551 Corporate market total 45 405 42 131 857 551 47 286 43 281 857 551

Retail market A–D 39 914 38 987 5 125 527 117 685 8 E–H 3 194 3 194 13 6 264 5 620 22 I–J 241 314 7 350 472 9 K 192 184 65 30 316 280 80 38 Retail market total 43 542 42 679 90 30 132 458 124 057 119 38 Total 88 947 84 810 947 581 179 744 167 338 975 589

Write-downs on loans (balance) 879 580 907 588 Write downs of unused credit facilities, loan approvals and guarantees 68 1 68 1 Total write-downs 947 581 975 589

1) The definition of a customer’s commitment in connection with calculating risk classification will deviate somewhat from the definition of credit exposure pursuant to IFRS in a few areas. Credit risk relating to derivative transactions is not included in Note 10, but is presented in other notes. Total commitments in Note 8 will therefore not be completely reconcilable with commitments as defined in Note 10.

2) Write-downs at 31 December 2017 are measured in accordance with IAS 39, comprise individual write-downs and are allocated to the highest risk class. Write-downs at 31 Dec. 2018 are based on IFRS 9. Here, both individual write-downs and model-based write-downs are divided into risk categories, while comparative figures only show individual write-downs. See a more detailed explanation under accounting principles and the note containing a description of the loss model.

Sparebanken Vest Annual Report 2018 page 63 Note 9 Lending broken down by geographical area

GROUP

31 Dec. 2017 31 Dec. 2018 Individual Total write- Proportion write-downs Gross Lending broken down by Gross downs under Proportion net lending under IAS 39 lending geographical area lending IFRS 9 net lending 68,7 472 101 769 Hordaland 108 208 648 67,6 8,4 18 12 378 Sogn og Fjordane 12 884 53 8,1 16,9 26 25 016 Rogaland 27 888 98 17,5 5,7 20 8 367 Rest of Norway 10 415 47 6,5 99,6 536 147 530 Total, Norway 159 395 846 99,7 0,4 52 575 Abroad 555 61 0,3 100,0 588 148 106 Total, geographical areas 159 951 907 100,0

PARENT BANK

31 Dec. 2017 31 Dec. 2018 Individual Total write- Proportion write-downs Gross Lending broken down by Gross downs under Proportion net lending under IAS 39 lending geographical area lending IFRS 9 net lending 62,4 465 44 897 Hordaland 45 799 631 60,3 10,4 18 7 419 Sogn og Fjordane 7 533 50 10,0 20,1 25 14 297 Rogaland 16 030 92 21,3 6,5 20 4 632 Rest of Norway 5 926 46 7,9 99,4 528 71 245 Total, Norway 75 288 819 99,5 0,6 52 494 Abroad 439 60 0,5 100,0 580 71 739 Total, geographical areas 75 726 879 100,0

Sparebanken Vest Annual Report 2018 page 64 Note 10 Commitments broken down by industry and the retail market

Unused Defaults and credit Total other potential Write-downs of 2018 Lending facilities Guarantees commitment1) bad debt loans, IFRS 9 GROUP Primary industries 5 795 562 12 6 369 2 26 Manufacturing and mining 1 534 392 122 2 048 13 22 Power and water supply 1 867 59 17 1 943 6 28 Building and construction industry 4 555 1 662 949 7 165 49 67 Commerce 1 644 883 163 2 691 17 16 International shipping and transport 5 267 222 364 5 853 694 485 Hotels and restaurants 640 65 9 714 12 15 Property management 14 734 462 131 15 327 186 87 Service sector 3 184 908 127 4 219 67 44 Public administration 13 0 0 13 0 0 Other financial undertakings 175 115 52 342 0 2 Total business and industry 39 409 5 328 1 946 46 683 1 045 792 Retail customers 120 542 12 579 11 133 131 338 115 Total gross commitments 159 951 17 907 1 957 179 815 1 384 907 - Write-down CM, calculated by model (Stage 1–3) 295 20 43 358 - Write-down RM, calculated by model (Stage 1–3) 63 3 0 66 - Write-down Stage 3, individually assessed CM 497 0 2 499 - Write-down Stage 3, individually assessed RM 52 0 0 52 Total net commitments 159 043 17 884 1 912 178 839

PARENT BANK Primary industries 5 491 538 12 6 041 2 26 Manufacturing and mining 1 447 384 122 1 953 13 22 Power and water supply 1 865 59 17 1 941 6 28 Building and construction industry 4 210 1 639 949 6 798 49 67 Commerce 1 507 876 163 2 546 17 16 International shipping and transport 4 996 206 364 5 566 694 485 Hotels and restaurants 571 64 9 645 12 15 Property management 14 715 462 131 15 308 186 88 Service sector 2 659 863 172 3 694 67 43 Public administration 17 0 0 17 0 0 Other financial undertakings 175 115 52 342 0 2 Total business and industry 37 655 5 204 1 991 44 850 1 045 792 Retail customers 38 072 5 980 11 44 063 209 86 Total gross commitments 75 726 11 184 2 002 88 913 1 255 878 - Write-down CM, calculated by model (Stage 1-3) 295 20 43 358 - Write-down RM, calculated by model (Stage 1-3) 44 3 0 47 - Write-down Stage 3, individually assessed CM 497 0 2 499 - Write-down Stage 3, individually assessed RM 42 0 0 42 Total net commitments 74 848 11 161 1 957 87 967

Sparebanken Vest Annual Report 2018 page 65 Note 10 Commitments broken down by industry and the retail market (continued)

Unused Defaults and credit Total other potential Individual 2017 Lending facilities Guarantees commitment1) bad debt write-downs GROUP Primary industries 4 775 564 7 5 346 9 0 Manufacturing and mining 1 170 497 100 1 767 12 4 Power and water supply 1 997 137 14 2 148 78 22 Building and construction industry 4 039 806 722 5 567 42 38 Commerce 1 584 704 149 2 437 16 3 International shipping and transport 5 100 181 812 6 093 791 444 Hotels and restaurants 534 68 7 609 10 2 Property management 13 662 873 123 14 658 184 21 Service sector 2 866 479 162 3 507 66 15 Public administration 16 290 0 306 0 0 Other financial undertakings 152 72 56 280 0 0 Total business and industry 35 895 4 671 2 152 42 718 1 209 550 Retail customers 112 211 12 182 12 124 405 301 38 Total gross commitments 148 106 16 853 2 164 167 123 1 510 588 - Individual write-downs, corporate segment 550 0 1 551 - Individual write-downs, retail customers 38 0 0 38 - Group write-downs, CM 384 0 0 384 - Group write-downs, RM 62 0 0 62 Total net commitments 147 073 16 853 2 163 166 088

PARENT BANK Primary industries 4 610 552 7 5 169 9 0 Manufacturing and mining 1 134 491 100 1 725 12 4 Power and water supply 1 997 137 14 2 148 78 22 Building and construction industry 3 815 783 722 5 320 42 38 Commerce 1 506 697 149 2 352 16 3 International shipping and transport 4 884 167 812 5 863 791 444 Hotels and restaurants 505 67 7 579 10 2 Property management 13 643 873 123 14 639 184 21 Service sector 2 577 447 207 3 231 66 15 Public administration 16 290 0 306 0 0 Other financial undertakings 152 72 56 280 0 0 Total business and industry 34 839 4 576 2 197 41 612 1 209 550 Retail customers 36 900 5 925 12 42 837 203 30 Total gross commitments 71 739 10 501 2 209 84 449 1 412 580 - Individual write-downs, corporate segment 550 0 1 551 - Individual write-downs, retail customers 30 0 0 30 - Group write-downs, CM 384 0 0 384 - Group write-downs, RM 53 0 0 53 Total net commitments 70 722 10 501 2 208 83 431

1) The definition of a customer’s commitment in connection with calculating risk classification will deviate somewhat from the definition of credit exposure pursuant to IFRS in a few areas. Credit risk relating to derivative transactions is not included in Note 10, but is presented in other notes. Total commitments in Note 8 will therefore not be completely reconcilable with commitments as defined in Note 10.

Sparebanken Vest Annual Report 2018 page 66 Note 11 Description of the impairment model under IFRS 9

This note describes the bank’s impairment model for financial delayed by 30 days or more (up to 90 days, which is defined as assets that are debt instruments and that are not classified at fair actual default). value through profit or loss. General impairment principles are described in Note 1. PD The bank uses the PD level as the primary criterion for significantly Sparebanken Vest has prepared a procedure for the quarterly increased credit risk. PD at the time of reporting is compared with calculation of losses based on historical information about account PD at the time the loan was furnished. If the following criteria are and customer data for the whole credit portfolio, loans, credit and met, it is classified as Stage 2: guarantees. • PD more than doubled since the loan was furnished. The goal of the model is to calculate expected credit loss (ECL) • Doubled PD constitutes at least 0.6%. based on forward-looking and unbiased estimates. Watch list The loss estimates are calculated on the basis of 12-month and The bank has chosen to use a watch list for commitments exposed lifetime probability of default (PD), loss given default (LGD) and to risk in order to take into account forward-looking information exposure at default (EAD). Historical data about the observed and to detect other relevant matters that may have arisen but probability of default rate (PD) and the observed loss given default that have not been detected by the bank’s PD models. These (LGD) form the basis for producing good estimates of future PD commitments are then transferred to Stage 2 – if they are not and LGD values. The bank considers forward-looking information already in Stage 2 or 3. PD can also be upwardly adjusted for about macroeconomic factors such as unemployment, GDP commitments on the watch list. growth, interest rates, house prices and other financial estimates, to be able to produce forward-looking estimates for PD and Forbearance LGD. Forward-looking EAD is based on agreed repayment plans Commitments with forbearance measures can either be healthy and observed levels of actual repayments and redemptions. All or in default. Commitments with forbearance measures include estimates shall be as unbiased as possible. They thereby differ commitments for which more favourable terms have been granted from corresponding estimates for PD, LGD and EAD that are used (renegotiation), or the refinancing of a commitment as a result in the calculation of capital. The estimates used to calculate of a debtor experiencing financial difficulties. The criterion that capital are more conservative, for example by including safety the debtor is experiencing financial difficulties distinguishes margins or estimates for serious economic downturns. forbearance from ordinary commercial renegotiation of terms. In other words, it is an additional factor that the bank would In line with IFRS 9, the bank groups its loans into three stages not have ordinarily granted a loan on these terms. This defines based on the probability of default (PD) at the time of recognition ‘forbearance’. If a commitment falls into this category, a 24-month compared with the balance sheet date, and checking the watch quarantine applies until it can be deemed healthy. These list, forbearance and instalments paid more than 30 days after the commitments are transferred to Stage 2 – if they are not already in due date. In other words, each individual loan (or commitment) is Stage 2 or 3, and the PD can be upwardly adjusted. classified as Stage 1, 2 or 3. This means that one and the same customer can have loans classified in different stages. In summary, the following commitments would be categorised under Stage 2: The bank uses the same PD model as in IRB, but with unbiased • PD more than doubled since the loan was furnished and is at calibration, meaning without safety margins, as the basis for least 0.6%. assessing increased credit risk. The PD estimate represents • At least 30 days’ overdue payment, or 12-month probability. Validation shows that it is accurate for • The commitment is on the bank’s watch list (but not classified as both short and long timeframes. It is therefore considered to be Stage 3), or a reasonable and pragmatic approach to assessing the increase • Forbearance has been granted in connection with payment in credit risk over the lifetime of a loan. The lifetime is set as problems relating to the commitment. the remaining time until maturity of the commitments for which information is available about the agreed repayment schedule. Stage 3: Assets for which the credit risk has increased significantly since initial recognition, and where there is objective evidence of a Stage 1: The starting point for all financial assets covered by the loss event on the balance sheet date, are classified under Stage 3. general loss model. A loss provision corresponding to 12-month For these assets, a provision for lifetime expected losses will be expected losses, meaning losses relating to events that may occur made. in the 12 months after the reporting date, will be made for all assets for which the credit risk is not significantly higher than Indicators that are assessed when decisions are made regarding upon initial recognition. This category includes all assets not whether there is objective evidence of loss are material financial transferred to Stage 2 or 3. problems on the part of the debtor, default of payment or other serious breaches of contract, approved deferments of payment Stage 2: Stage 2 includes assets for which the credit risk has or new credit for the payment of an instalment, agreed changes increased significantly since initial recognition, but where there is in the interest rate or other terms and conditions relating to the no objective evidence of a loss (see the definition under Stage 3). agreement as a result of the debtor’s financial problems. If a loss For these assets, a provision for lifetime expected losses will be event is identified, consideration is given to whether the loss made. This group includes loans for which the credit risk has events in question have reduced the estimated future cash flows increased significantly but that are not in default (i.e. not Stage 3; from the commitment. see below). As regards delimitation in relation to Stage 1, the bank itself defines what constitutes a significant increase in credit The definition of default in IFRS 9 under Stage 3 concurs with risk. However, IFRS 9 states that a significant increase in credit internal risk management and capital requirement calculations. risk will have occurred, unless this can be refuted, if payment is Also here, 90 days’ overdue payment is used as an important

Sparebanken Vest Annual Report 2018 page 67 Note 11 Description of the impairment model under IFRS 9 (continued) criterion for default, in addition to ‘unlikeliness to pay’ in The use of macro data accordance with Basel. Sparebanken Vest has divided the lending portfolio into 13 corporate market segments and 2 retail market segments. Our Recognition, derecognition, forbearance and confirmation of loss credit department receives the forward-looking macro data The loss model is devised so that the establishment of a new loan and considers how they affect the probability of default (PD) account is defined as a new commitment, while the redemption and developments in the value of security for the bank in each of a loan account is defined as derecognition. A new loan segment and each scenario. These assessments are based on account is assigned when a customer refinances their comment. expert assessments, and different macro data are assigned Renegotiated loans are defined as loans where modified terms different weights in the different segments. This generates PD have been granted in connection with the customer developing paths for each industry for the next five years, which are then payment problems, and that these terms would not be granted for converged against a long-run average. an ordinary loan. These accounts will be labelled as renegotiated (forbearance) and will thus automatically be transferred to Stage Model calculation 2 (if the commitment is not already in Stage 2 or Stage 3). Based on the grouping of commitments into different stages, the Reference is otherwise made to the section on recognition and use of forward-looking probability of default (PD paths) and the derecognition in Note 1 Accounting principles. The need to write collateral value, expected losses are calculated in the bank’s loss down the loan (the loss being booked against the customer’s loan) provision model. is confirmed once all collateral has been realised and it is certain that no further payments will be received on the loan. The claim The Financial Supervisory Authority’s reference model is used for on the customer remains and will be followed up unless it has LGD. Security coverage, probability of recovery and recovery of been agreed with the customer that the loan is to be written off. unsecured debt are the most important elements in this model. Security coverage is calculated specifically for each loan, while the Forward-looking information other elements are based on historically observed average values. The process starts with the bank’s macroeconomist sending macro data expectations to the bank’s credit environment. This is done In principle, losses per year are calculated using modelled on the basis of three different scenarios. The three scenarios exposure x PD x LGD for each year. Losses are discounted on the consist of a base case intended to cover a probability range of basis of the effective interest rate for the instruments back to the 60%, as well as a worst case and a best case with a probability time of reporting, and added together. A weighted sum is then weighting of 20%. The sensitivity in write-downs calculated by calculated for each scenario. model is specified in Note 13. Scenarios are used to adjust non- linear characteristics of subcomponents in the ECL calculation. Validation Calculations and assumptions are subject to independent Important macro data for the calculation are: validation by the bank’s validation team.

• Growth in GDP • Unemployment rate • Interest rate level • Growth in house prices • Oil price • Inflation • Consumption and saving rate • Exchange rates

Sparebanken Vest Annual Report 2018 page 68 Note 12 Breakdown of gross lending between different stages of IFRS 9

GROUP Total calculated Individually Calculated by model by model losses assessed Total Gross lending recognised at amortised cost Stage 1 Stage 2 Stage 3 Stage 3 Gross lending at 1 Jan. 2018 108 792 7 680 286 116 759 1 335 118 093 Transferred to 12-month ECL (Stage 1) 1 783 -1 737 -21 25 -25 0 Transferred to lifetime ECL – no objective evidence of loss (Stage 2) -3 793 3 843 -23 26 -26 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Calculated by model -37 -102 139 0 0 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Individually assessed -5 -48 -31 -85 85 0 Newly issued or acquired financial assets 37 752 2 396 28 40 177 36 40 213 Financial assets derecognised – excluding loss write-down -24 806 -1 548 -117 -26 471 -208 -26 680 Net change in existing loans -2 461 -115 -3 -2 579 -94 -2 674 Gross lending at 31 Dec. 2018 recognised at amortised cost 117 224 10 369 257 127 851 1 102 128 952 Loss write-down -89 -222 -47 -358 -549 -907 Net lending at 31 Dec. 2018 recognised at amortised cost 117 135 10 148 210 127 492 553 128 045 Lending valued at fair value 30 998 Capitalised lending at 31 Dec. 2018 159 043

Gross lending recognised at amortised cost, allocated to different stages at 31 Dec 2018 117 224 10 369 257 127 851 1 102 128 952 * Of which Corporate Market 29 764 5 559 77 35 400 977 36 377 * Of which Retail Market - mortgages 86 304 4 655 155 91 115 116 91 231 * Of which Retail Market - unsecured loans/other 1 156 155 25 1 335 9 1 344

Sparebanken Vest Annual Report 2018 page 69 Note 12 Breakdown of gross lending between different stages of IFRS 9 (continued)

PARENT BANK Total calculated Individually Calculated by model by model losses assessed Total Stage 1 Stage 2 Stage 3 Stage 3 Gross lending at 1 Jan. 2018 53 573 6 012 211 59 797 1 312 61 109 Transferred to 12-month ECL (Stage 1) 1 251 -1 205 -21 25 -25 0 Transferred to lifetime ECL – no objective evidence of loss (Stage 2) -2 431 2 472 -15 26 -26 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Calculated by model -24 -83 106 0 0 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Individually assessed -3 -31 -30 -64 64 0 Newly issued or acquired financial assets 26 983 2 087 25 29 094 36 29 130 Financial assets derecognised – excluding loss write-down -19 501 -1 318 -76 -20 895 -207 -21 102 Net change in existing loans -1 932 -225 -14 -2 171 -93 -2 264 Gross lending at 31 Dec. 2018 recognised at amortised cost or fair value through OCI 57 916 7 710 186 65 812 1 061 66 873 Write-down on losses on loans -88 -209 -42 -339 -540 -879 Net lending at 31 Dec. 2018 recognised at amortised cost or fair value through OCI 57 828 7 501 144 65 473 521 65 994 Lending valued at fair value 8 853 Capitalised lending at 31 Dec. 2018 74 848

In line with IFRS 9, the bank groups its loans into three stages based on the probability of default (PD) at the time of recognition compared with the balance sheet date, and checking the watch list, forbearance and instalments paid more than 30 days after the due date. In other words, each individual loan (or commitment) is classified as Stage 1, 2 or 3. All commitments recognised at amortised cost are included in the model.

Stage 1 is the starting point for financial assets covered by the general loss model, for which a provision will be made corresponding to 12-month expected losses. Stage 2 includes assets for which the credit risk has increased significantly since initial recognition, but where there is no objective evidence of a loss. Commitments at Stage 1 and 2 are assessed at portfolio level (calculated by model).

Stage 3 of the model includes assets for which the credit risk has increased significantly since initial recognition, and where there has been objective evidence of a loss event on the balance sheet date. They are divided into loans that have been individually assessed and loans assessed at portfolio level (calculated by model).

Sparebanken Vest Annual Report 2018 page 70 Note 13 Write-down on loans, guarantees, unused credit facilities and loan approvals

GROUP

Changes in write-downs for the period under Total calculated Individually IFRS 9 on loans, guarantees, unused credit Calculated by model by model losses assessed Total facilities and loan approvals Stage 1 Stage 2 Stage 3 Stage 3 Loss provision under IAS 39 at 31 Dec. 2017 1034 Implementation effect, IFRS 9 0 Loss provision in opening balance, IFRS 9, at 1 Jan. 2018 105 286 54 445 589 1 034 Transferred to 12-month ECL (Stage 1) 65 -54 -5 6 -6 0 Transferred to lifetime ECL – no objective evidence of loss (Stage 2) -7 17 -4 6 -6 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Calculated by model 0 -4 4 0 0 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Individually assessed 0 -1 -5 -6 6 0 Net new measurement of losses -81 10 21 -49 74 25 Newly issued or acquired financial assets 53 55 7 115 13 128 Financial assets derecognised -26 -44 -22 -92 -82 -174 Reversal of write-downs as a result of confirmed losses -42 -42 Currency effects and other changes 4 4 Loss provision at 31 Dec. 2018 110 265 50 425 551 975

Loan loss provision 89 222 47 358 549 907 Other provision for commitments 21 43 2 66 2 68 Total loss provision 110 265 50 425 551 975

Loss cost for the period: Changes in individual write-downs for the period -38 Currency effects and other changes -4 Confirmed loss in the period with previous individual write-down 32 Confirmed loss in the period with no previous individual write-down 39 Recoveries in previously confirmed write-downs -3 Net effect on profit/loss from individual write-downs 26 Changes in losses for the period, calculated by model (Stage 1–3) -20 Loss cost for the period 6

Gross lending recognised at amortised cost at 31 Dec. 2018 117 224 10 369 257 127 850 1 102 128 952 Loss write-down -89 -222 -47 -358 -549 -907 Net lending recognised at amortised cost in the balance sheet 117 135 10 148 210 127 492 553 128 045 Lending recognised at fair value through profit or loss 30 998 Capitalised lending as of 31 Dec. 2018 159 043

Sensitivity in write-downs calculated by model: CM RM Total Change in expected loss in event of 100% weighting, worst case 266 33 299 Change in expected loss in event of 100% weighting, best case -137 -22 -159 Change in expected loss in event of stress (raw PDs increase by 20% and security declines by 20%) 88 27 115 Change in expected loss if LGD is reduced by 10% -34 -7 -40 Change in expected loss if LGD is increased by 10% 34 3 36

ECL = Expected Credit Loss

Sparebanken Vest Annual Report 2018 page 71 Note 13 Write-down on loans, guarantees, unused credit facilities and loan approvals (contd.)

PARENT BANK

Changes in write-downs under IFRS 9 on loans, Total calculated Individually guarantees, unused credit facilities and loan Calculated by model by model losses assessed Total approvals Stage 1 Stage 2 Stage 3 Stage 3 Loss provision under IAS 39 at 31 Dec. 2017 1018 Implementation effect, IFRS 9 -12 Loss provision in opening balance, IFRS 9 102 276 47 425 581 1 006 Transferred to 12-month ECL (Stage 1) 63 -51 -5 6 -6 0 Transferred to lifetime ECL – no objective evidence of loss (Stage 2) -6 16 -4 6 -6 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Calculated by model 0 -4 4 0 0 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Individually assessed 0 -1 -5 -5 5 0 Net new measurement of losses -75 6 19 -50 73 22 Newly issued or acquired financial assets 53 53 7 113 13 126 Financial assets derecognised -27 -43 -19 -89 -81 -170 Reversal of write-downs as a result of confirmed losses -42 -42 Currency effects and other changes 4 4 Loss provision at 31 Dec. 2018 109 252 44 405 542 947

Loan loss provision 88 209 42 339 540 879 Other provision for commitments 21 43 2 66 2 68 Total loss provision 109 252 44 405 542 947

Loss cost for the period: Changes in individual write-downs for the period -39 Currency effects and other changes -4 Confirmed loss in the period with previous individual write-down 32 Confirmed loss in the period with no previous individual write-down 36 Recoveries in previously confirmed write-downs -2 Net effect on profit/loss from individual write-downs 23 Changes in losses for the period, calculated by model (Stage 1–3) -20 Loss cost for the period on loans, guarantees, unused credit and loan approvals 3

Gross lending recognised at amortised cost or fair value through OCI at 31 Dec. 2018 57 916 7 710 186 65 812 1 061 66 873 Loss write-down -88 -209 -42 -339 -540 -879 Net 57 828 7 501 144 65 473 521 65 994 Lending recognised at fair value through profit or loss 8 853 Capitalised lending at 31 Dec. 2018 74 848

Sparebanken Vest Annual Report 2018 page 72 Note 13 Write-down on loans, guarantees, unused credit facilities and loan approvals (contd.)

In line with IFRS 9, the bank groups its loans into three stages based on the probability of default (PD) at the time of recognition com- pared with the balance sheet date, and checking the watch list, forbearance and instalments paid more than 30 days after the due date. In other words, each individual loan (or commitment) is classified as Stage 1, 2 or 3. All commitments recognised at amortised cost are included in the model.

Stage 1 is the starting point for financial assets covered by the general loss model, for which a provision will be made corresponding to 12-month expected losses. Stage 2 includes assets for which the credit risk has increased significantly since initial recognition, but where there is no objective evidence of a loss. Commitments at Stage 1 and 2 are assessed at portfolio level (calculated by model).

Stage 3 of the model includes assets for which the credit risk has increased significantly since initial recognition, and where there has been objective evidence of a loss event on the balance sheet date. They are divided into loans that have been individually assessed and loans assessed at portfolio level (calculated by model).

Transfer between the stages shows how much of expected credit losses in the opening balance have migrated from the other stages. The effect of the new measurement method and new calculation in the quarter is presented on the line ‘Net new measurement of losses’.

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.

Write-downs of guarantees, unused credit facilities and loan approvals include off-balance sheet items and are recognised as debt obliga- tions in the accounts.

Sparebanken Vest Annual Report 2018 page 73 Note 14 Write-down on loans, guarantees, unused credit facilities and loan approvals

GROUP Total calculated Individually Calculated by model by model losses assessed Total CORPORATE MARKET Stage 1 Stage 2 Stage 3 Stage 3 Loss provision in opening balance, IFRS 9 91 255 18 364 552 916 Transferred to 12-month ECL (Stage 1) 56 -47 -3 6 -6 0 Transferred to lifetime ECL – no objective evidence of loss (Stage 2) -5 13 -2 6 -6 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Calculated by model 0 -3 4 0 0 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Individually assessed 0 0 -3 -4 4 0 Net new measurement of losses -65 4 13 -49 48 -1 Newly issued or acquired financial assets 50 48 3 102 12 113 Financial assets derecognised -24 -36 -7 -67 -73 -140 Reversal of write-downs as a result of confirmed losses -35 -35 Currency effects and other changes 4 4 Loss provision at 31 Dec. 2018 102 234 22 358 499 857

Total calculated Individually Calculated by model by model losses assessed Total RETAIL MARKET Stage 1 Stage 2 Stage 3 Stage 3 Loss provision in opening balance, IFRS 9 14 31 36 81 36 118 Transferred to 12-month ECL (Stage 1) 9 -7 -2 0 0 0 Transferred to lifetime ECL – no objective evidence of loss (Stage 2) -1 4 -2 0 0 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Calculated by model 0 -1 1 0 0 0 Transferred to lifetime ECL – objective evidence of loss (Stage 3) – Individually assessed 0 -1 -2 -2 2 0 Net new measurement of losses -15 6 9 0 27 26 Newly issued or acquired financial assets 3 6 3 13 2 15 Financial assets derecognised -2 -8 -15 -25 -9 -34 Reversal of write-downs as a result of confirmed losses 0 -6 -6 Currency effects and other changes 0 0 0 Loss provision at 31 Dec. 2018 8 31 28 66 52 118

Total write-downs on loans, guarantees, unused credit facilities and loan approvals 110 265 50 425 551 975

Sparebanken Vest Annual Report 2018 page 74 Note 15 Renegotiated loans and loans in default

Renegotiated loans (forbearance) Renegotiated loans are defined as loans where modified terms have been granted in connection with the customer developing payment problems, and that these terms would not be granted for an ordinary loan.

CM RM GROUP Opening balance 1 764 470 2 234 Write-down opening balance -195 -15 -210 Net opening balance 1 569 455 2 024

Closing balance 2081 797 2 878 Write-down closing balance -163 -26 -189 Net closing balance 1 918 771 2 689

The increase in volume linked to forbearance is primarily due to a reorganisation of the bank’s procedures relating to labelling and han- dling of forbearance. The figures may nonetheless indicate a slight increase in the number of commitments in the RM segment that are granted forbearance.

Defaults and other potential bad debt The table shows the recognised defaults and other potential bad debt, where the total reported is based on definitions pursuant to the Basel regulations.

PARENT BANK GROUP 31 Dec. 2018 31 Dec. 2018 Retail Corporate Retail Corporate market market Total market market Total 156 97 253 Loans in default more than 90 days 257 97 355 53 948 1 002 Other potential bad debt 81 948 1 029 209 1 045 1 255 Total defaults and potential bad debt 338 1 045 1 384 -42 -497 -540 - Individual write-downs of loans -52 -497 -549 167 548 715 Net defaults and potential bad debt 286 548 834

31 Dec. 2017 31 Dec. 2017 Retail Corporate Retail Corporate market market Total market market Total 143 79 222 Loans in default more than 90 days 222 79 301 60 1 130 1 190 Other potential bad debt 79 1 130 1 209 203 1 209 1 412 Total defaults and potential bad debt 301 1 209 1 510 -30 -550 -580 - Individual write-downs on loans -38 -550 -588 173 659 832 Net defaults and potential bad debt 263 659 922

Sparebanken Vest Annual Report 2018 page 75 Note 15 Renegotiated loans and loans in default (continued)

Age breakdown of defaults of payment The table shows the book value of loans registered in default, where the amount in default exceeds NOK 1,000 in one of the commitment’s accounts and is not due to payment delays.

PARENT BANK GROUP 31 Dec. 2018 31 Dec. 2018 Retail Corporate Retail Corporate market market Total market market Total 326 277 603 Up to 30 days 668 277 944 90 3 93 31–90 days 154 3 157 156 97 253 More than 90 days 257 97 355 572 377 949 Gross loans in default 1 079 377 1 456

31 Dec. 2018 31 Dec. 2018 Person- Bedrifts- Person- Bedrifts- marked marked Totalt marked marked Totalt 221 315 536 Up to 30 days 476 315 791 64 23 87 31–60 days 100 23 123 26 1 27 61–90 days 34 1 35 143 79 222 More than 90 days 222 79 301 454 418 872 Gross loans in default 832 418 1 250

Sparebanken Vest Annual Report 2018 page 76 Note 16 Secured debt

Gross lending is largely secured by mortgages. Security in the retail market mostly consists of real property. In the calculation below, these assets are recognised at fair value through estimates from Eiendomsverdi, up-to-date value assessments from estate agents or up-to-date valuations. In the corporate market, the majority of assets furnished as security are tangible fixed assets. Tangible fixed assets mainly comprise real property, but also mortgages on ships, waterfall rights etc. Current assets, such as factoring, simple monetary claims and operating equipment and other security such as lease guarantees, insurance contracts, guarantees secured by mortgage etc. are also pledged as security.

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 worth less than 50% of the value of the asset furnished as security, while 100%– means that the loan amount exceeds the value of the asset furnished as security.

The Group has changed its LTV calculation method in 2018 to gain a better overview of the levels the different commitments are categorised under. The comparative figures (31 Dec. 2017) have been changed correspondingly to make the comparison easier.

PARENT BANK GROUP 31 Dec. 2018 31 Dec. 2018 Retail Corporate Retail Corporate market market Total Security level market market Total 12,0% 36,5% 23,6% 0%–50% 20,8% 36,5% 24,5% 37,0 % 37,2% 37,1% 50%–75% 59,1% 37,2% 54,0% 30,7% 12,2% 21,9% 75%–90% 12,5% 12,2% 12,4% 5,9% 2,7% 4,4% 90%–100% 2,3% 2,7% 2,4% 4,2% 10,8% 7,3% 100%– 1,8% 10,8% 3,9% 0,5% 0,0% 0,3% Other security 0,2% 0,0% 0,1% 9,7% 0,6% 5,4% Unsec. 3,3% 0,6% 2,6% 100,0% 100,0% 100,0% Total 100,0% 100,0% 100,0%

31 Dec. 2017 31 Dec. 2017 Retail Corporate Retail Corporate market market Total Security level market market Total 12,8% 34,0% 22,4% 0%–50% 22,0% 34,0% 24,7% 39,9% 37,2% 38,7% 50%–75% 58,7% 37,2% 53,8% 28,4% 12,3% 21,1% 75%–90% 11,8% 12,3% 11,9% 4,7% 2,6% 3,7% 90%–100% 2,0% 2,6% 2,1% 3,5% 12,5% 7,6% 100%– 1,7% 12,5% 4,2% 0,8% 0,0% 0,4% Other security 0,3% 0,0% 0,2% 9,9% 1,4% 6,0% Unsec. 3,5% 1,4% 3,0% 100,0% 100,0% 100,0% Total 100,0% 100,0% 100,0%

Sparebanken Vest Annual Report 2018 page 77 Note 17 Loans to and receivables from credit institutions

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 2018 2017 13 714 12 037 No agreed term to maturity or period of notice 1 030 1 198 390 737 With an agreed term to maturity or period of notice 240 390 14 104 12 775 Loans to and receivables from credit institutions 1 270 1 588

Geographical areas 12 936 11 845 Hordaland 340 421 435 272 Rest of Norway 272 435 733 658 Abroad 658 733 14 104 12 775 Total, geographical areas 1 270 1 588

Loans to and receivables from credit institutions are assessed at amortised cost. Expected losses relating to this accounting item are deemed to be insignificant, and no impairment loss has therefore been recognised.

Note 18 Guarantees and secured debt

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 Breakdown by guarantee type 2018 2017 1 143 935 Payment guarantees 935 1 143 733 839 Contract guarantees 839 733 0 0 Loan guarantees 0 0 15 15 Guarantees for taxes 15 15 318 213 Other guarantee liabilities 168 273 2 209 2 002 Guarantee liabilities in relation to customers 1 957 2 164 64 711 75 490 Intercompany liquidity facility 66 920 77 492 Total guarantee liabilities 1 957 2 164

Secured debt 12 487 9 154 Nominal value of bonds deposited in Norges Bank 9 154 12 487 12 487 9 154 Total secured debt 9 154 12 487

Sparebanken Vest Annual Report 2018 page 78 Note 19 Commercial papers and bonds

GROUP 31 Dec. 2018 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 33 303 305 1% Covered bonds 245 12 883 13 077 59% Municipalities and county authorities 25 2 722 2 735 12% Enterprises etc. 5 90 89 0% Government 0 5 905 5 961 27% Commercial papers and bonds 308 21 902 22 166 100%

Average Listed/unlisted interest rate Listed 1,27% 21 613 21 879 99% Unlisted 1,86% 289 287 1% Commercial papers and bonds 1) 2) 21 902 22 166 100%

31 Dec. 2017 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 7 127 130 1% Covered bonds 222 12 470 12 620 66% Municipalities and county authorities 19 3 269 3 298 17% Enterprises etc. 8 118 116 1% Government 0 2 986 3 027 16% Commercial papers and bonds 256 18 970 19 191 100%

Average Listed/unlisted interest rate Listed 0,98% 16 372 16 579 86% Unlisted 1,32% 2 598 2 612 14% Commercial papers and bonds 1) 2) 18 970 19 191 100%

Sparebanken Vest Annual Report 2018 page 79 Note 19 Commercial papers and bonds (continued)

PARENT BANK 31 Dec. 2018 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 111 803 813 5% Covered bonds 162 8 599 8 757 53% Municipalities and county authorities 25 2 368 2 377 14% Enterprises etc. 5 90 89 1% Government 0 4 507 4 548 27% Commercial papers and bonds 304 16 367 16 584 100%

Average Listed/unlisted interest rate Listed 1,29% 15 578 15 788 95% Unlisted 1,54% 789 796 5% Commercial papers and bonds 1) 2) 16 367 16 584 100%

31 Dec. 2017 Rel. Broken down by sector Spread risk Cost price Market value distribution Banking and finance 56 1 201 1 223 6% Covered bonds 216 11 972 12 121 64% Municipalities and county authorities 19 2 952 2 981 16% Enterprises etc. 8 118 116 1% Government 0 2 593 2 625 14% Commercial papers and bonds 299 18 836 19 066 100%

Average Listed/unlisted interest rate Listed 0,99% 15 173 15 370 81% Unlisted 1,72% 3 663 3 696 19% Commercial papers and bonds 1) 2) 18 836 19 066 100%

1) Includes NOK 273.1 (58.7) million in subordinated loans in the Group and NOK 781.4 (1,152) million in the parent bank. 2) Of which NOK 4,500 (2,415) million in foreign commercial papers and bonds in the Group and NOK 3,147 (2,164) million in the parent bank.

The average interest rate is calculated by identifying the discount rate that gives a calculated value equal to the market value. The spread risk is the risk of negative changes in value as a result of changes in the issuer of the interest rate instrument’s credit risk. The spread risk in the table above is calculated based on the underlying instrument’s duration and the issuer’s credit rating, so that high credit risk securities are assigned higher weight than low credit risk securities. The spread risk is calculated based on the model prepared by the Financial Supervisory Authority of Norway.

Sparebanken Vest Annual Report 2018 page 80 Note 20 Shareholdings in subsidiaries and associated companies

Balance sheet value Balance sheet value Subsidiaries in sub-group in parent bank Holding 31 Dec. 31 Dec. 31 Dec. 31 Dec. (balance sheet value, parent bank) No of shares as % 2018 2017 2018 2017 Sparebanken Vest Boligkreditt AS 4 650 000 100 4 650 4 250 Subordinated bonds classified as equity 675 0 Eiendomsmegler Vest AS 1 200 100 83 83 SPV Næringsmegling AS 1 500 100 3 3 Kragset Eigedomsmekling AS 1 000 100 9 Vestlandskonferansen AS 100 100 0 0 Total group companies in parent bank 5 408 4 333

Holding 31 Dec. 31 Dec. Associated companies (balance sheet value, parent bank) No of shares as % 2018 2017 Frende Holding AS 2 684 911 39,72 323 323 Norne Eierselskap AS 87 512 964 49,00 18 18 Brage Finans AS 56 649 121 49,99 522 332 Jonsvollskvartalet AS 34 34,00 65 65 Balder Betaling AS 6 579 020 36,28 125 49 Total shares in associated companies 1 054 787

Frende Norne Holding Eier- Brage Jonsvolls- Balder Associated companies (balance sheet value, Group) 2018 Group selskap AS Finans AS kvartalet AS Betaling AS Total Balance sheet value at beginning of period 517 12 380 68 45 1 022 Capital increase/acquisition 191 76 267 Dividend -26 -2 -28 Share of profit for the year 22 -1 36 2 26 85 Balance sheet value at end of period 513 11 606 69 147 1 346

Frende Norne Holding Eier-­ Brage Jonsvolls- Balder Associated companies (balance sheet value, Group) 2017 Group selskap AS Finans AS kvartalet AS Betaling AS Total Balance sheet value at beginning of period 466 10 321 67 0 863 Capital increase/acquisition 37 49 86 Dividend -48 -48 Share of profit for the year 99 2 22 2 -4 120 Balance sheet value at end of period 517 12 380 68 45 1 022

Sparebanken Vest Annual Report 2018 page 81 Note 20 Shareholdings in subsidiaries and associated companies (continued)

Associated companies (company information)

Frende Holding Norne Brage Jonsvolls- Associated companies – company information – 20171) Group Eierselskap AS Finans AS kvartalet AS Total Cash and cash equivalents 62 0 179 15 257 Other current assets 753 0 63 0 816 Fixed assets 7 089 34 6 181 674 13 978 Total assets 7 905 34 6 423 689 15 051 Short-term financial liabilities 0 0 800 0 800 Other short-term liabilities 308 1 54 15 378 Long-term financial liabilities 6 199 4 4 677 644 11 524 Other long-term liabilities 88 0 30 4 122 Equity 1 309 29 862 26 2 226 Total liabilities and equity 7 905 34 6 423 689 15 051

Operating income 876 0 141 56 1 073 Depreciation -34 0 -7 -11 -51 Other operating expenses -587 0 -76 -2 -666 Interest income 47 0 0 0 47 Interest expenses 0 0 0 -36 -36 Tax -56 0 -12 -2 -70 Total profit after tax 246 0 46 6 297

Dividend received from associated company (Sparebanken Vest’s share) 26 0 2 0 28

1) The table shows accounting figures for associated companies from the last official accounts at 31 Dec. 2017.

The Frende Forsikring Group comprises the parent company Frende Holding AS, which develops and manages the wholly-owned subsidiaries Frende Skadeforsikring AS and Frende Livsforsikring AS.

Norne Securities AS offers investment services to the corporate and retail markets. 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.

Brage Finans AS is a financing company that provides financing of movable property, including leasing and loans secured by the purchased object. The company’s products are mainly distributed through owner banks, its own sales organisation and via agents. Sparebanken Vest owns 49.99% of the shares in the company.

Balder Betaling AS is a company that exercises ownership of VBB AS (formerly Vipps AS) for Sparebanken Vest and 14 other savings banks. Balder Betaling has a holding of 10.5% in VBB AS, and Sparebanken Vest is the biggest owner of Balder with a holding of 36%. VBB was formed at the start of the third quarter following a merger between Vipps, BankAxept and BankID, and it is thus a company with ownership of large parts of the Norwegian ID and payment infrastructure. The company is a strong Norwegian alternative to large international payment transfer providers.

Jonsvollskvartalet AS is a property company that owns ‘Jonsvollskvartalet’, which houses the bank’s head office. In addition to Sparebanken Vest, Eiendomsmegler Vest, Frende and Brage have offices at the same address. Sparebanken Vest owns 34% of the shares in the company.

Sparebanken Vest Annual Report 2018 page 82 Note 21 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 time frame. 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 a result of changes in the interest rate markets (see Note 22) • Stock market risk: The risk of a loss as a result of changes in share prices (see Note 26) • Currency risk: The risk of a loss as a result of changes in exchange rates (see Note 23) • Credit spread risk: The risk of a loss as a result of changes in credit spreads (see Note 19)

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, 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 CEO, further specifies and delegates limits and authorisations.

Sparebanken Vest’s investments shall be justified on the basis of the of the banking operations 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 22 shows the sensitivity of the bank’s interest rate risk to the effect of a parallel shift in the yield curve. The sensitivity of the bank’s exchange rate risk is shown in Note 23. The sensitivity of the bank’s stock market risk to a percentage fall in all share prices is shown in Note 26. Note 19 shows sensitivity expressed as credit spread risk.

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. Therefore, no diversification effect is calculated between the types of risks.

31 Dec. 31 Dec. The overall capital need linked to market risk is summed up as follows: 2018 2017 Market risk 603 567

The bank expresses market risk based on the calculations and methods described in circular 12/2016 from the Financial Supervisory Authority.

Sparebanken Vest Annual Report 2018 page 83 Note 22 Interest rate sensitivity

Interest rate risk is the risk of losses 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. Sparebanken Vest also has holdings of bonds and certificates, mainly in order 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 consolidated balance sheet. In order to give a balanced picture in the consolidated balance sheet, bonds issued at a fixed interest rate by the parent bank are classified as 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 in the consolidated balance sheet, fixed-interest loans to customers are classified as recognised at fair value.

The changes in value in the tables assume a parallel shift in the yield 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 one percentage point 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.

In 2018, the bank changed its method for calculating interest rate risk. From 2018, interest rate risk arising in connection with floating loans and deposits for the period from an interest rate change is decided until the change is effective are no longer included. Six weeks’ notice must be given for interest rate changes to loans, while eight weeks’ notice must be given for deposits. These items have previously been included in the 0–3 months’ interval, and been specified in the table ‘Interest rate sensitivity broken down by balance sheet items’ under ‘Other loans’ and ‘Other deposits/customers’. The changes are in accordance with the Financial Supervisory Authority of Norway’s guidelines on interest rate risk in the banking book, and the EBA’s ‘Guidelines on the management of interest rate risk arising from non-trading book activities’ Section 2.5, point 73b. Our understanding and application of the rules have been confirmed by the Financial Supervisory Authority of Norway.

Interest rate sensitivity by period More than GROUP 0–3 months 3–12 months 1–3 years 3–5 years 5 years Total 31 Dec. 2018 Change in value, bal. sheet total -0,6 17,9 -12,4 -0,3 7,8 12,3 31 Dec. 2017 Change in value, bal. sheet total 48,3 12,5 -24,7 -7,1 -23,1 5,9

More than PARENT BANK 0–3 months 3–12 months 1–3 years 3–5 years 5 years Total 31 Dec. 2018 Change in value, bal. sheet total 2,7 22,4 -8,0 0,5 14,2 31,8 31 Dec. 2017 Change in value, bal. sheet total 21,9 12,6 -31,1 11,9 -27,0 -11,7

Interest rate sensitivity broken down by balance sheet items

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 Balance sheet 2018 2017 -175,5 -194,4 Fixed-interest loans -571,2 -464,5 -82,2 - Other loans - -131,9 -144,5 -101,7 Bonds/certificates -123,0 -167,7 -12,1 - Other - - -414,3 -296,1 Total assets -694,2 -764,1 1,9 3,9 Fixed-interest deposits 3,9 1,9 118,5 - Other customer deposits - 118,6 358,9 2,8 Bonds/certificates 1 525,0 1 434,6 3,3 - Other borrowings - 3,3 482,6 6,7 Total liabilities 1 528,9 1 558,4 -80,0 321,2 Derivatives -822,4 -788,4 -11,7 31,8 Total 12,3 5,9

Sparebanken Vest Annual Report 2018 page 84 Note 23 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 amount to more than 15% of the institution’s own funds. The total net currency position (including positions in NOK) cannot amount to more than 30% of the institution’s own funds.

Aggre­ Currency USD EUR GBP CHF DKK SEK Other gated Net currency exposure at 31 Dec. 2018 47 2 0 17 6 11 20 104 Effect on profit and equity of change in exchange rates of 5% 2 0 0 1 0 1 1 5 Net currency exposure at 31 Dec. 2017 53 17 -7 -27 1 -48 2 -8 Effect on profit and equity of change in exchange rates of 5% 3 1 0 -1 0 -2 0 0

Sparebanken Vest Annual Report 2018 page 85 Note 24 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) on financial instruments. Interest from derivatives entered into to manage the interest rate risk associated with 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 contracts These are agreements to purchase or sell specific amounts of currency at an agreed exchange rate on a future date.

Interest rate agreements • Interest swaps are agreements to swap interest rate terms (fixed for floating) for a specific amount over a fixed period of time. • Interest rate options (call) entitle the buyer to receive from the seller the difference between the market rate and the agreed interest rate, if the market rate is higher than the agreed interest rate, for a specific amount over a fixed period. • Interest rate options (put) entitle the buyer to receive from the seller the difference between the market rate and the agreed interest rate, if the market rate is lower than the agreed interest rate, for a specific amount over a fixed period.

Interest rate and currency derivatives • Cross-currency interest rate swaps where the swap agreement includes both interest rate and currency terms.

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 Dec. 2018 31 Dec. 2017 Nominal Positive Negative Nominal Positive Negative GROUP value market value market value value market value market value Interest swap agreements 64 753 351 634 68 752 499 859 Options/Cap/Floor/Collar/Swaption 32 0 0 47 0 0 Total interest rate instruments 64 785 351 634 68 799 499 859

Interest rate derivatives designated for hedging 6 350 502 0 3 100 391 0 Interest rate and curr. derivatives designated for hedging 34 758 2 963 0 31 134 3 565 0 Total derivatives designated for hedging 41 108 3 465 0 34 234 3 956 0

Interest rate and currency derivatives 8 888 120 68 5 572 29 182 Instalments 5 292 92 158 7 819 103 29 Total interest rate and currency-related contracts 14 180 212 226 13 391 132 211

Total OTC derivatives 120 073 4 028 860 116 424 4 587 1 070

Sparebanken Vest Annual Report 2018 page 86 Note 24 Financial derivatives (continued)

31 Dec. 2018 31 Dec. 2017 Nominal Positive Negative Nominal Positive Negative PARENT value market value market value value market value market value Interest swap agreements 87 073 406 676 87 952 537 859 Options/Cap/Floor/Collar/Swaption 32 0 0 47 0 0 Total interest rate instruments 87 105 406 676 87 999 537 859

Interest rate and currency derivatives 8 888 120 68 5 572 29 182 Instalments 5 292 92 158 7 819 103 29 Total interest rate and currency-related contracts 14 180 212 226 13 391 132 211

Total OTC derivatives 101 285 618 902 101 390 669 1 070

See Note 21 for a description of the bank’s market risk management. See Notes 22 and 23 for a further description of the bank’s interest rate and currency management.

Interest rate and currency derivatives designated for hedge accounting exclusively concern the subsidiary Sparebanken Vest Boligkreditt AS.

Sparebanken Vest Annual Report 2018 page 87 Note 25 Hedge accounting of debt established by issuing securities

The Group uses hedge accounting to achieve an accounting treatment that reflects how interest rate risk and currency risk are managed for major long-term borrowings relating to the housing credit company. The hedged items consist exclusively of debt established by issu- ing financial instruments, and they are recognised in accordance with IFRS 9 as a fair value hedge. Separate interest rate and/or currency swaps with corresponding principals and maturity structures are entered into for the debt instruments in the hedging portfolio. Ineffec- tiveness can nonetheless arise as a result of random market variations in the evaluation of items and instruments.

The hedging instruments (interest rate and currency swaps) are recognised at fair value, while the hedged items are recognised at fair value for the hedged risks (interest rate and currency). Hedge ineffectiveness, defined as the difference between the value adjustment of hedging instruments and the value adjustment of the hedged risks in the items, is recognised in profit or loss as it arises. The exception is the part of the value adjustment caused by a change in the basis spread relating to the hedging instruments presented in the statement of comprehensive income.

Hedging instrument Hedged item Ineffectiveness Status at 31 Dec. 2018 nominal value nominal value nominal value Borrowing at a fixed interest rate: Interest rate swaps Nominal value NOK 6 350 6 350 0

Borrowing in currency at a floating interest rate: Currency swaps Nominal value EUR 26 26 0 Nominal value GBP 50 50 0

Interest rate and Borrowing in currency at a fixed interest rate currency swaps Nominal value EUR 3 413 3 413 0

Hedging Hedged item Recognised instrument Book value ineffectiveness Book value assets 3 465 Book value liabilities 0 41 883

Accumulated changes in value, closing balance 3 308 -3 448 Accumulated changes in value, opening balance 3 803 -3 909 Changes in fair value -495 461 -34

Ineffectiveness recognised through profit or loss (gain/loss financial instruments) 5 Changes in value recognised through other comprehensive income (base margin) -39 Total -34 In addition to the recognised change in value above, a NOK 2 million loss is recognised for realisation relating to the dissolution of a hedging transaction.

Sparebanken Vest Annual Report 2018 page 88 Note 26 Shares

The shareholding is recognised at fair value through profit or loss. 31 Dec. 31 Dec. Cost price 2018 2017 Shares valued at fair value through profit or loss are divided between the following portfolios Trading portfolio (listed) 0 0 23 Fair value through profit or loss 331 364 353 Shares recognised at fair value through profit or loss 364 376 Valuation method Listed 0 23 Shares valued on the basis of the OTC list 97 85 The companies’ own valuation based on EVCA 1) 62 53 Shares valued on the basis of other valuation techniques 2) 205 215 Shares recognised at fair value through profit or loss 364 376

1) The bank’s investments in venture shares are mainly mutual 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 committed to paying further equity relating to the following ordinary share limits and venture investments at 31 Dec. 2018:

Comm. amount Paid up Fjord Invest Sørvest AS 14 11 Contango Ventures 5 5 Sarsia Seed AS 26 26 Sarsia Seed II AS 40 8 SåkornInvest AS 3 2 Committed amounts relating to share investments 88 53

The committed amount relating to share investments for 2017 amounted to NOK 88 million, NOK 49 million of which was paid-up.

Sparebanken Vest Annual Report 2018 page 89 Note 26 Shares (continued)

Specification of shares, units and funds at 31 Dec. 2018 Balance sheet value in NOK 1,000 No of shares Holding (%) Bal. sheet value

Bergensavisen AS 315 840 9,8% 6 317 Christian Michelsen Research AS 1 400 1,3% 4 998 Contango Ventures II IS 5 202 2,7% 2 580 Eksportfinans AS 2 638 1,0% 60 912 Epsis AS 20 202 6,7% 2 020 Ez Systems AS 805 904 4,4% 8 865 Filmfondet Fuzz AS 5 338 253 19,5% 5 338 Fjordinvest Sørvest AS 11 290 647 17,3% 7 903 K.F.S. Egenkapitalbevis 4 140 8,3% 4 140 Lifecare AS 24 219 739 8,4% 8 477 Nordic Credit Rating AS 10 000 5,0% 2 500 Norsk Innovasjonskapital II AS 3 342 8,8% 22 057 Norsk Innovasjonskapital IV AS 13 488 6,6% 6 362 Novel Diagnostics AS 1 250 512 11,8% 2 501 Oiid AS 93 778 6,8% 9 378 Oslo Børs VPS Holding ASA 700 000 1,6% 97 300 Osmolife AS 24 250 000 9,6% 2 425 Osmolife Holding AG 1 314 469 16,2% 9 285 Sarsia Development AS 201 851 10,1% 7 368 Sarsia Seed AS 6 487 999 12,4% 8 488 Sarsia Seed Fond II AS 9 411 764 15,3% 5 929 Sorbwater Technology AS 356 310 15,1% 13 935 Visa Norge 3,8% 48 000 Wellis AS 4 093 193 14,9% 6 140 Other companies 10 623 Total investments in shares, units and funds 363 842

Sparebanken Vest Annual Report 2018 page 90 Note 27 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 an increase 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 additional costs involved in raising long-term funds from the capital market. Sparebanken Vest manages its liquidity risk in accordance with a number of targets and parameters. The most important are the Liquidity Coverage Ratio (the bank’s ability to cover its liquidity needs in a 30-day perspective) and the liquidity indicator (stable financing) with maturity more than one year hence in relation to illiquid assets). With effect from 2017, the bank has also used the Net Stable Funding Ratio (NSFR) as a control parameter.

Most of the bank’s long-term financing with more than one year until the final due date has agreed interest terms based on fixed short- term interest rates. This is 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, collateral deposits, loan approvals and unused credit.

GROUP More than Residual time to maturity at 31 Dec. 2018 0–1 month 1–3 months 3–12 months 1–5 years 5 years Total Liabilities to credit institutions 2 374 197 394 0 2 965 Interest disbursements 20 19 0 39

Customer deposits 70 512 700 863 458 0 72 533 Interest disbursements 4 0 3 0 0 7

Securitised debt 4 120 1 611 6 985 61 861 18 839 93 416 Interest disbursements 129 260 818 2 821 729 4 757

Loan approvals and unused credit facilities 17 907 0 0 0 0 17 907

Subordinated loan capital and subordinated bonds1) 1 982 1 982 Interest disbursements1) 14 54 268 1 049 1 385

Total disbursements 95 046 2 585 8 940 65 821 22 599 194 991

Financial derivatives Outgoing contractual cash flows 5 529 1 614 3 595 24 445 9 912 45 095 Incoming contractual cash flows 6 178 1 450 3 265 24 899 10 761 46 553

GROUP More than Residual time to maturity at 31 Dec. 2017 0–1 month 1–3 months 3–12 months 1–5 years 5 years Total Liabilities to credit institutions 3 274 0 186 559 0 4 019 Interest disbursements 0 0 18 26 0 44

Customer deposits 68 019 126 924 35 0 69 105 Interest disbursements 4 0 3 0 0 7

Securitised debt 484 0 11 933 59 639 11 013 83 069 Interest disbursements 139 173 603 2 019 273 3 207

Loan approvals and unused credit facilities 16 853 0 0 0 0 16 853

Subordinated loan capital and subordinated bonds1) 0 0 0 0 2 050 2 050 Interest disbursements1) 0 0 32 131 2 242 2 405

Total disbursements 88 773 299 13 699 62 409 15 578 180 759

Financial derivatives Outgoing contractual cash flows 1 877 2 023 6 625 25 734 5 381 41 640 Incoming contractual cash flows 1 920 1 805 7 442 26 993 5 949 44 109

1) Only the liquidity of subordinated bonds classified as debt is included in subordinated bonds. Interest disbursements are included up until 2099.

Sparebanken Vest Annual Report 2018 page 91 Note 28 Net interest and credit commission income

PARENT BANK GROUP

2017 2018 2018 2017 86 140 Interest and similar income from loans to and receivables from credit institutions 12 9 Interest and similar income from loans to and receivables from customers 2 100 2 251 - valued at amortised cost 3 767 3 505 405 239 - valued at fair value 661 612

Interest and similar income from certificates, bonds and other interest-bearing securities 0 0 - valued at amortised cost 0 0 267 279 - valued at fair value 287 252 2 858 2 909 Interest income and similar income 4 728 4 378

Interest and similar expenses on liabilities to credit institutions 54 51 - valued at amortised cost 28 27 0 0 - valued at fair value 0 0 Interest and similar expenses on deposits from customers 529 558 - valued at amortised cost 558 529 9 10 - valued at fair value 10 9 Interest and similar expenses on issued securities 144 143 - valued at amortised cost 577 485 105 134 - valued at fair value 134 105 - designated for hedge accounting, incl. interest on related derivatives 578 503 Interest and similar expenses on subordinated loan capital 49 47 - valued at amortised cost 47 49 32 10 - valued at fair value 10 32 18 13 Other interest expenses and similar expenses1) 17 22 52 52 Fee to the Saving Banks’ Guarantee Fund 52 52 991 1 018 Interest expenses and similar expenses 2 012 1 813 1 867 1 891 Net interest and credit commission income 2 716 2 565

1)Interest from derivatives entered into to manage the interest rate risk associated with 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 Annual Report 2018 page 92 Note 29 Interest on individual balance sheet items

Average interest rate as Average percentage1) volume GROUP 2018 2017 2018 2017 Assets Loans to and receivables from credit institutions 0,16 0,04 2 565 2 158 Loans to customers 2,91 2,92 152 148 140 933 Commercial papers and bonds 1,37 1,36 20 950 18 578

Liabilities Liabilities to credit institutions 0,90 0,77 2 656 3 156 Customer deposits 0,80 0,79 70 919 68 436 Securities debt 1,45 1,43 88 030 77 500

PARENT BANK Assets Loans to and receivables from credit institutions 1,29 1,07 10 989 8 106 Loans to customers 3,44 3,42 75 991 77 758 Commercial papers and bonds 1,53 1,50 20 180 17 838

Liabilities Liabilities to credit institutions 1,05 0,92 4 861 5 875 Customer deposits 0,80 0,79 70 949 68 470 Securities debt 1,36 1,44 19 344 17 877

1) The average interest rate is calculated as the amount of interest as a percentage of the average volume.

Sparebanken Vest Annual Report 2018 page 93 Note 30 Net other operating income

PARENT BANK GROUP

2017 2018 2018 2017 44 53 Guarantee provision 53 44 278 283 Fees from payment transfers 283 278 95 105 Income from insurance 105 95 66 76 Income from saving and investments 76 66 342 390 Commission income from group companies 45 60 Other commissions and fees 60 45 870 968 Commission income and income from banking services 578 528

76 83 Fees, payment transfers 84 76 3 7 Expenses relating to savings and investments 7 3 5 6 Other commissions and fees 8 7 84 96 Commission expenses and expenses relating to banking services 98 85

129 265 Income from shareholdings in subsidiaries 48 28 Income from shareholdings in associated companies 85 120 177 293 Income from shareholdings in group companies and associated companies 85 120

13 23 Dividend 23 13 107 -43 Gain/(loss) on commercial papers and bonds 1) -42 93 16 78 Gain/(loss) on shares 78 16 14 0 Gain/(loss) on financial derivatives 1) 0 14 47 62 Gain/(loss) on currency 63 47 Net gain/(loss) on financial instruments, recognised at fair value1) 25 94 - lending 75 -12 0 0 - deposits 0 0 -39 -25 - securitised debt -25 -39 10 6 - subordinated loan capital 6 10 -20 - gain/loss on change in credit spread, own liabilities 2) -20 Net gain/(loss) on financial instruments, recognised at amortised cost 13 -9 - securitised debt -15 -4 Net gain/(loss) on financial instruments relating to hedge accounting - derivatives designated for hedge accounting -549 1 218 - securitised debt, hedge 551 -1 344 186 185 Net gain/(loss) on financial instruments 165 -7

Brokerage commission 210 195 4 Other operating income 0 11 4 Other operating income 210 206 1 152 1 349 Net other operating income 940 761

1) The result of derivatives used to manage interest and currency risk is distributed between the financial instruments they are managed together with.

2) From and including 2018, the credit spread effect of own liabilities will be recognised through OCI due to the implementation of IFRS 9.

Sparebanken Vest Annual Report 2018 page 94 Note 31 Operating expenses

PARENT BANK GROUP

2017 2018 2018 2017 504 496 Payroll expenses including empl. Nat. Ins. contributions 622 616 77 74 Pension expenses 83 85 -15 -1 Effect on profit/loss relating to change in pension plan 1) -1 -15 47 50 Other personnel expenses 55 58 64 82 External fees 86 67 199 199 ICT expenses 212 210 44 46 Marketing 52 51 921 946 Payroll and general administration expenses 1 109 1 072

125 133 Depreciation 135 128

100 94 Operating expenses, premises 107 112 16 17 Wealth tax 17 16 87 87 Other operating expenses 129 122 203 197 Other operating expenses 252 250 1 249 1 276 Total operating expenses 1 497 1 450

1) See Note 32

The average number of employees measured in full-time equivalents in 2018 (2017) was 582 (599) in the parent bank and 692 (701) in the Group.

Fee for elected auditor (NOK 1 000)

PARENT BANK GROUP

2017 2018 2018 2017 1 289 1 341 Audit fee 1 834 1 703 128 203 Attestation services 589 377 101 16 Tax advice 18 106 135 0 Other services 0 135 1 653 1 560 Total fees 2 441 2 321

Sparebanken Vest Annual Report 2018 page 95 Note 32 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:

1. A defined contribution scheme for 743 (parent bank 604) persons.

2. A compensatory scheme for 266 (parent bank 243) employees. In addition to ordinary defined contribution pension, the Group has established a compensatory scheme for employees who previously had a defined benefit pension scheme (see point 3 below). The scheme is contribution-based. The annual agreed contribution is transferred to securities funds. The contributions to the securities funds consist of an asset furnished as security for the company, and a corresponding gross pension obligation for the employees. Employer’s National Insurance contributions and financial tax are calculated and a provision made from the sum of contributions and the development in value of the securities funds. The net pension obligation relating to this point thereby corresponds to the allocated contributions. The funds are disbursed to the members upon retirement, when they leave their employ, in the event of disability or death.

3. A defined benefit scheme applicable up to and including the 2016 financial year. However, partially disabled employees and employees partly on sick leave remain in this scheme, and it comprises three persons in active employment.

4. A scheme for senior executive personnel covering 11 employees, with the option of retiring at the age of 65. The CEO is entitled, and, should the Board so desire, obliged to take early retirement at the age of 62. The scheme for senior executive personnel is also covered by the remaining defined benefit scheme.

5. In addition to the above-mentioned schemes, the company pays premiums to the joint AFP scheme. The AFP scheme is a benefit- based multi-enterprise pension scheme that is financed through premiums stipulated as a percentage of employees’ pay. For accounting purposes, the scheme is treated as a defined contribution scheme in which premiums are expensed as they are paid.

Following the derecognition of the defined benefit scheme, the remainder is deemed insignificant. The notes that follow have therefore been simplified. They no longer include an overview of the economic parameters for calculation, decomposition of the pension expense, reconciliation of pension obligations and pension assets from the opening balance to the closing balance, allocation of pension assets or sensitivity calculations.

PARENT GROUP Pension expenses 2017 2018 2017 2018 Ordinary pension expense, defined benefit scheme 2 2 2 2 Recognised plan change -13 -1 -13 -1 Employer’s National Insurance contributions -2 0 -2 0 Net pension expense, defined benefit scheme -13 1 -13 1 Pension expense relating to the compensatory scheme 21 21 22 22 Pension expense relating to the defined contribution scheme 46 42 52 49 Pension expense relating to early retirement (AFP) 8 8 9 10 Total pension expenses 62 73 70 82

Estimate variance for pensions recognised through comprehensive income -3 -3 -3 -3

PARENT GROUP Pension obligation 2017 2018 2017 2018 Gross pension obligation relating to defined benefit scheme 43 42 43 42 Pension assets relating to defined benefit scheme -24 -27 -24 -27 Employer’s National Insurance contributions 4 3 4 3 Net pension obligation, defined benefit scheme 22 17 22 17 Capitalised pension relating to compensatory scheme 44 63 47 68 Total pension obligations shown in the balance sheet 66 81 70 86

Capitalised pension assets (securities fund) 37 54 40 58

Sparebanken Vest Annual Report 2018 page 96 Note 33 Tax

PARENT BANK GROUP

2017 2018 Tax for the year 2018 2017 314 365 Tax liabilities 1) 438 385 0 0 Paid withholding tax and correction of previous years’ tax assessment 0 -1 0 0 Effect of change in tax rules 2 2 12 14 Tax effect of interest on hybrid capital entered directly against equity 14 12 61 25 Change in deferred tax through profit or loss 38 30 387 405 Tax for the year 492 427 1) Tax liabilities in the balance sheet also include wealth tax in the amount of NOK 17 million (NOK 16 million)

1 744 1 961 Pre-tax profit 2 153 1 844 25% tax on: 436 490 Pre-tax profit/loss for accounting purposes 538 461 0 0 Share of profit/loss from associated company -21 -30 4 4 Expensed wealth tax, non-deductible 4 4 -67 -95 Non-taxable income -29 -21 13 5 Non-deductible expenses 5 13 0 0 Effect of change in tax rules 2 2 Different tax rate in subsidiaries (23% vs 25%) -7 -2 0 0 Insufficient/(excess) provision for tax liabilities 0 0 387 405 Tax 492 427

22% 21% Effective tax rate 23% 23%

2017 2018 Change in capitalised deferred tax: 2018 2017 -93 -32 Capitalised deferred tax (tax asset) at 1 Jan. -71 -102 61 25 Recognised in the period 38 30 0 21 Change in deferred tax for items in comprehensive income 12 0 0 3 Tax on implementation effect of IFRS 9 0 0 0 0 Correction of deferred tax previous year 0 -1 0 0 Effect of change in tax rules 2 1 1 0 Tax on pension expenses through comprehensive income 0 1 -32 17 Capitalised deferred tax (tax asset) at 31 Dec. -20 -71

Sparebanken Vest Annual Report 2018 page 97 Note 33 Tax (continued)

Deferred tax and the deferred tax asset in the balance sheet relate to the following temporary differences PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 Deferred tax asset 2018 2017 11 11 Tangible fixed assets 11 11 78 29 Financial instruments 63 105 7 7 Pension obligations 7 7 15 12 Other liabilities 13 17 0 0 Tax loss carryforward 2 4 111 60 Total deferred tax asset 97 144

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 Deferred tax 2018 2017 1 1 Profit and loss account 1 1 0 0 Tangible fixed assets 0 0 18 19 Goodwill 19 18 5 1 Other intangible assets 1 5 55 56 Financial instruments 56 48 79 77 Total deferred tax 77 73

-32 17 Net deferred tax (tax asset) -20 -71

Deferred tax in the income statement relates to the following temporary differences

2017 2018 Deferred tax recognised 2018 2017 0 0 Profit and loss account 0 0 0 -1 Tangible fixed assets 0 -1 -1 -3 Goodwill and other intangible assets -4 -1 46 26 Financial instruments 37 13 8 0 Pension obligations 0 8 8 4 Other liabilities 3 9 0 0 Tax loss carryforward 2 2 61 25 Total change in deferred tax 38 30

Sparebanken Vest Annual Report 2018 page 98 Note 34 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. 2016 610 167 109 886 Acquisition cost 619 167 130 916 486 132 0 618 Accumulated depreciation 494 132 8 634 124 35 109 268 Balance sheet value at 31 Dec. 2016 125 35 122 282

The 2017 financial year 124 35 109 268 Balance sheet value at 1 Jan. 2017 125 35 122 282 103 0 0 103 Additions during the year 103 0 0 103 81 14 0 95 Depreciation during the year 82 14 0 96 146 21 109 275 Balance sheet value at 31 Dec. 2017 146 21 122 289

At 31 Dec. 2017 432 167 109 708 Acquisition cost 441 167 130 738 286 146 0 432 Accumulated depreciation 295 146 8 449 146 21 109 275 Balance sheet value at 31 Dec. 2017 146 21 122 289

The 2018 financial year 146 21 109 276 Balance sheet value at 1 Jan. 2018 146 21 122 289 124 0 0 124 Additions during the year 124 0 7 131 2 0 0 2 Disposals during the year 2 0 0 2 93 14 0 107 Depreciation during the year 93 14 0 108 175 7 109 290 Balance sheet value at 31 Dec. 2018 176 6 129 310

At 31 Dec. 2018 525 167 109 801 Acquisition cost 534 167 150 852 350 160 0 510 Accumulated depreciation 359 160 21 541 175 7 109 290 Balance sheet value at 31 Dec. 2018 175 6 129 310

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.

Sparebanken Vest Annual Report 2018 page 99 Note 34 Intangible assets (continued)

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 based on whether it is possible to identify and separate cash flows relating to the business in question. The table below shows the different assessment units and the balance sheet value of goodwill in each unit.

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 Assessment unit Grounds for the choice of assessment unit 2018 2017 Goodwill from the acquisition of Fokus Bank in Retail and corporate market Sogn og Fjordane is included in the total activity 82 82 Region Sogn og Fjordane of Region Sogn og Fjordane. 82 82 Goodwill from the acquisition of Sauda Retail and corporate market Sparebank is included in the total activity of 27 27 Region Rogaland/Sunnhordland Region Rogaland/Sunnhordland. 27 27 Ottesen & Dreyer and Herland Eiendom AS Eiendomsmegler Vest AS (merged into Eiendomsmegler Vest AS). 13 13

Kragset Eigedomsmekling AS Acquired at end of 2018 7 0 109 109 Total goodwill 129 122

Testing of values The impairment test for capitalised goodwill is carried out by discounting expected future cash flows from the assessment units. The 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 impairment tests are performed on cash flows after tax. The tests have not uncovered any need to write down goodwill in the parent bank or Group at 31 Dec. 2018.

Key assumptions for impairment test Required rate of return Assessment unit after tax Retail and corporate market Region Sogn og Fjordane 10,00% Retail and corporate market Region Rogaland/Sunnhordland 10,00% Eiendomsmegler Vest AS (Ottesen & Dreyer, Herland Eiendom AS) 12,50%

Sparebanken Vest Annual Report 2018 page 100 Note 35 Tangible fixed assets

PARENT BANK GROUP

Machinery, Machinery, fixtures and fixtures and means of Land and means of Land and transport buildings Total transport buildings Total At 31 Dec. 2016 270 7 277 Acquisition cost 298 33 331 152 0 152 Accumulated depreciation 176 7 183 118 7 125 Balance sheet value at 31 Dec. 2016 122 26 148

The 2017 financial year 118 7 125 Balance sheet value at 1 Jan. 2016 122 26 148 12 0 12 Additions during the year 13 0 13 1 0 1 Disposals during the year 1 19 20 30 0 30 Depreciation during the year 31 0 31 99 7 106 Balance sheet value at 31 Dec. 2017 103 7 110

At 31 Dec. 2017 224 7 231 Acquisition cost 253 7 260 125 0 125 Accumulated depreciation 150 0 150 0 0 0 Accumulated write-downs 0 0 0 99 7 106 Balance sheet value at 31 Dec. 2017 103 7 110

The 2018 financial year 99 7 106 Balance sheet value at 1 Jan. 2018 103 7 110 31 0 31 Additions during the year 32 0 32 2 0 2 Disposals during the year 2 0 2 26 0 26 Depreciation during the year 27 0 27 102 7 109 Balance sheet value at 31 Dec. 2018 106 7 113

At 31 Dec. 2018 227 7 234 Acquisition cost 257 7 264 125 0 125 Accumulated depreciation 151 0 151 0 0 0 Accumulated write-downs 0 0 0 102 7 109 Balance sheet value at 31 Dec. 2018 106 7 113

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

Note 36 Liabilities to credit institutions

Liabilities to credit institutions are classified as recognised at amortised cost.

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 2018 2017 1 675 1 653 No agreed term to maturity 2 217 2 963 3 168 709 With agreed term to maturity 748 1 060 4 843 2 363 Total liabilities to credit institutions 2 965 4 023

Sparebanken Vest Annual Report 2018 page 101 Note 37 Offsetting

Parent bank As a result of ISDA agreements entered into between the parent bank and most financial counterparties concerning derivative transactions, the right to offset applies if the counterparty defaults on its obligations. In addition, CSA agreements have been entered into with the most important financial counterparties.

Sparebanken Vest Boligkreditt AS Sparebanken Vest Boligkreditt also uses ISDA agreements with external counterparties in connection with entering into derivative agreements. The agreements confer a right to offset in each currency, but not between currencies. The company has also entered into additional agreements (CSA) for weekly margin requirements for security that also apply to each currency. The agreements are unilateral, which means that only the counterparty must furnish security when the market value fluctuates. The counterparty shall furnish security when the market value exceeds a limit (in each currency) that depends on the counterparty’s rating. A higher rating leads to a higher market value limit for when the counterparty must furnish security. The CSA agreement contains rating clauses that mean that the counterparty must furnish additional security if the rating falls below defined rating triggers. If the rating falls below a pre-defined level, the derivatives shall be novated to another counterparty for the counterparty’s own account.

Gross Amount offset Balance Other Amount after balance sheet in the balance sheet Netting security/ possible net GROUP value sheet1) value agreements1) collateral settlement 31 Dec. 2018 Loans to and receivables from credit institutions 1 270 0 1 270 0 542 728 Financial derivatives – assets 4 028 0 4 028 209 1 700 2 119 Liabilities to credit institutions 2 965 0 2 965 0 1 700 1 265 Financial derivatives – liabilities 860 0 860 209 542 109

31 Dec. 2018 Loans to and receivables from credit institutions 1 588 0 1 588 0 726 862 Financial derivatives – assets 4 587 0 4 587 243 2 108 2 236 Liabilities to credit institutions 4 023 0 4 023 0 2 108 1 915 Financial derivatives – liabilities 1 070 0 1 070 243 726 101

Gross Amount offset Balance Other Amount after balance sheet in the balance sheet Netting security/ possible net PARENT BANK value sheet1) value agreements1) collateral settlement 31 Dec. 2018 Loans to and receivables from credit institutions 12 775 0 12 775 0 542 12 233 Financial derivatives – assets 618 0 618 209 0 409 Liabilities to credit institutions 2 363 0 2 363 0 0 2 363 Financial derivatives – liabilities 902 0 902 209 542 151

31 Dec. 2018 Loans to and receivables from credit institutions 14 104 0 14 104 0 726 13 378 Financial derivatives – assets 669 0 669 243 0 426 Liabilities to credit institutions 4 843 0 4 843 0 0 4 843 Financial derivatives – liabilities 1 070 0 1 070 243 726 101

1) Netting agreements are not offset in the balance sheet because the transactions are normally not settled on a net basis.

Sparebanken Vest Annual Report 2018 page 102 Note 38 Deposits from customers

Breakdown of deposits from customers.

PARENT BANK GROUP

31 Dec. 2017 31 Dec. 2018 31 Dec. 2018 31 Dec. 2017 NOK % NOK % Breakdown of term to maturity NOK % NOK % 45 279 65,5 47 859 65,9 No agreed term to maturity 47 859 66,0 45 279 65,5 23 866 34,5 24 710 34,1 With agreed term to maturity 24 677 34,0 23 832 34,5 69 145 100,0 72 569 100,0 Total deposits from customers 72 536 100,0 69 111 100,0

31 Dec. 2017 31 Dec. 2018 31 Dec. 2018 31 Dec. 2017 NOK % NOK % Breakdown by industry NOK % NOK % 2 855 4,1 2 790 3,8 Primary industries 2 790 3,8 2 855 4,1 1 825 2,6 1 904 2,6 Manufacturing and mining 1 904 2,6 1 825 2,6 737 1,1 1 166 1,6 Power and water supply 1 166 1,6 737 1,1 2 735 4,0 2 658 3,7 Building and construction industry 2 658 3,7 2 735 4,0 1 708 2,5 1 784 2,5 Commerce 1 784 2,5 1 708 2,5 2 098 3,0 1 919 2,6 International shipping and transport 1 919 2,6 2 098 3,0 279 0,4 259 0,4 Hotels and restaurants 259 0,4 279 0,4 3 418 4,9 4 033 5,6 Property management 3 999 5,5 3 383 4,9 5 647 8,2 6 011 8,3 Service sector 6 011 8,3 5 647 8,2 1 459 2,1 2 429 3,3 Public administration 2 429 3,3 1 459 2,1 2 688 3,9 2 407 3,3 Other financial undertakings 2 407 3,3 2 688 3,9 25 449 36,8 27 359 37,7 Total business and industry 27 326 37,7 25 414 36,8 43 696 63,2 45 210 62,3 Retail customers 45 210 62,3 43 697 63,2 69 145 100,0 72 569 100,0 Total corporate and retail customers 72 536 100,0 69 111 100,0

Geographical breakdown 53 062 76,7 54 064 74,5 Hordaland 54 031 74,5 53 028 76,7 6 638 9,6 6 799 9,4 Sogn og Fjordane 6 799 9,4 6 638 9,6 5 399 7,8 5 836 8,0 Rogaland 5 836 8,0 5 399 7,8 3 483 5,0 4 497 6,2 Rest of Norway 4 497 6,2 3 483 5,0 68 582 99,2 71 196 98,1 Total, Norway 71 163 98,1 68 548 99,2 563 0,8 1 373 1,9 Abroad 1 373 1,9 563 0,8 69 145 100,0 72 569 100,0 Total geographical breakdown 72 536 100,0 69 111 100,0

Under the Act on Guarantee Schemes for Banks and Public Administration etc. of Financial Institutions (the Guarantee Schemes Act), all savings banks are required to be members of the Norwegian Banks’ Guarantee Fund. The Fund is obliged to cover losses incurred by a depositor on deposits with a member institution in an amount not exceeding NOK 2 million of the total deposit. By deposit is meant any credit balance with the bank in an account registered by name, as well as obligations under certificates of deposit registered by name. The fee payable to the Norwegian Banks’ Guarantee Fund is determined in accordance with the provisions of the Guarantee Schemes Act.

Sparebanken Vest Annual Report 2018 page 103 Note 39 Securitised debt

Securitised debt is classified as valued at amortised cost, designated for hedge accounting or recognised at fair value. The accounting treatment of hedge accounting is specified in Note 1, the value of the hedging instruments in Note 4, while recognised hedge ineffectiveness is specified in Note 30.

31 Dec. 31 Dec. GROUP 2018 2017 Nominal Balance Balance Recognised at amortised cost value sheet value sheet value NOK 40 383 40 413 35 864 EUR 251 2 497 4 198 USD 180 1 565 699 SEK 0 0 550 Accrued interest 56 47 44 532 41 358 Designated for hedge accounting NOK 6 350 6 736 3 361 EUR 3 439 34 342 30 768 GBP 50 555 556 Accrued interest 249 225 41 883 34 910 Recognised at fair value NOK 4 052 4 057 3 927 EUR 384 3 801 3 616 Value adjustment, interest rate and exchange rate -72 42 Value adjustment, credit spread – opening balance -28 -18 Value adjustment, credit spread – this period 42 -28 Accrued interest 55 66 7 854 7 605 Securitised debt 94 269 83 873

Balance Balance sheet Matured/ Change in Other sheet 31 Dec. Issued redeemed exchange rate changes 31 Dec. Change in securities debt 2017 2018 2018 2018 2018 2018 Bonds, nominal value 83 069 25 651 -16 034 730 93 416 Value adjustments 804 49 853 Total securities debt 83 873 25 651 -16 034 730 49 94 269

The net gain/(loss) on securitised debt recognised at fair value is included in the item ‘Net gain/(loss) on financial instruments recognised at fair value’.

Sparebanken Vest Annual Report 2018 page 104 Note 39 Securitised debt (continued)

Recognised at fair Recognised at value or designated for amortised cost hedge accounting Total Maturity date, securities debt NOK Currency NOK Currency 2019 4 983 3 465 257 4 011 12 716 2020 7 050 596 1 550 5 160 14 357 2021 8 100 1 100 5 379 14 579 2022 8 700 3 045 8 508 20 253 2023 7 000 700 4 972 12 672 2024 4 550 5 071 9 621 2025 4 972 4 972 2027 500 500 2028 3 250 3 250 2031 497 497 Total securities debt, nominal value 93 416

31 Dec. 31 Dec. PARENT BANK 2018 2017 Nominal Balance Balance Recognised at amortised cost value sheet value sheet value NOK 6 833 6 848 6 560 EUR 251 2 497 4 198 USD 180 1 565 699 SEK 550 Accrued interest 15 8 10 925 12 015 Recognised at fair value NOK 4 052 4 041 3 927 EUR 384 3 758 3 612 Accrued interest 55 66 7 854 7 605 Securitised debt 18 779 19 619

Sparebanken Vest Annual Report 2018 page 105 Note 40 Subordinated loan capital and subordinated bond loans

Subordinated loans and subordinated bonds classified as liabilities Bal. sheet value 31 Dec. 31 Dec. Year of issue Nominal value Interest Redemption right 2018 2017 Ordinary subordinated loans 2013 Subordinated loan NOK 500 mill. 3-month NIBOR + 1.85% Call opsjon 10/10-18 0 502 2014 Subordinated loan NOK 500 mill. 3-month NIBOR + 1.50% Call opsjon 27/06-19 499 499 2016 Subordinated loan NOK 300 mill. 3-month NIBOR + 2.80% Call opsjon 12/05-21 302 301 2017 Subordinated loan NOK 350 mill. 3-month NIBOR + 1.70% Call opsjon 09/02-22 351 351 2018 Subordinated loan NOK 370 mill. 3-month NIBOR + 1.20% Call opsjon 28/03-23 370 0 2018 Subordinated loan NOK 300 mill. 3-month NIBOR + 1.65% Call opsjon 23/11-23 301 0

Subordinated bond loan 1) 2010 Subordinated bond loan NOK 162 mill Fixed interest 8.05% Call opsjon 19/05-20 178 455 Subordinated loan capital 2 001 2 109

Change in subordinated loans and 31 Dec. Matured/ Other 31 Dec. sub. bond loans 2017 Issued redeemed changes 2018 Ordinary subordinated loan capital, nominal value 1 650 670 -500 1 820 Subordinated bond loan, nominal value 1) 400 -239 0 161 Value adjustments 59 -38 21 Total sub. loans and sub. bond loans 2 109 670 -739 -38 2 001

31 Dec. 2018 31 Dec. 2017 Recognised at amortised cost Nominal value Bal. sheet value Bal. sheet value NOK 1 820 1 819 1 648 Accrued interest 4 6 1 824 1 654

Recognised at fair value NOK 161 159 395 Value adjustment, interest rate 19 43 Value adjustment, credit spread – opening balance -6 3 Value adjustment, credit spread – this period -2 -6 Accrued interest 8 20 178 455 Subordinated loan capital 2 001 2 109

Effective interest rate for subordinated loans recognised at fair value in 2018: 4.14% (2017: 4.08%)

The net gain/(loss) on subordinated loan capital recognised at fair value is included in the item ‘Net gain/(loss) on financial instruments recognised at fair value’.

Subordinated bonds classified as equity1) Subordinated bonds that do not satisfy the definition of a financial liability pursuant to IAS 32 are classified as equity.

Bal. sheet value 31 Dec. 31 Dec. Year of issue Nominal value Interest Redemption right 2018 2018

2013 Subordinated bond loan NOK 250 mill. 3-month NIBOR + 3.65% Call option 10/10/2018 0 252 2016 Subordinated bond loan NOK 400 mill. 3-month NIBOR + 4.50% Call option 8/9/2021 401 401 2017 Subordinated bond loan NOK 300 mill. 3-month NIBOR + 3.60% Call option 9/2/2022 302 302 2018 Subordinated bond loan NOK 250 mill. 3-month NIBOR + 2.85% Call option 23/3/2023 250 2018 Subordinated bond loan NOK 250 mill. 3-month NIBOR + 3.40% Call option 12/9/2023 251 Subordinated bonds classified as hybrid capital (cf. the presentation of equity) 1 204 955

1) Subordinated bonds classified as equity are in their entirety included in the bank’s core capital, while subordinated bonds classified as liabilities are included in the amount NOK 159 million of a nominal value of NOK 161 million.

Sparebanken Vest Annual Report 2018 page 106 Note 41 Capital adequacy

Risk and capital management The bank applies the definition of default used in the Capital Banking operations entail risk in many areas, and good risk and Adequacy Regulations. Defaults include default of payment of 90 capital management is a key strategic instrument in Sparebanken days or more for amounts of NOK 1,000 or more, and situations Vest’s value creation. For further information about risk and capital defined as ‘unlikeliness to pay’. Examples of the latter category management, see Note 7 and the Group’s Pillar III document. The are insolvency or specified provision for losses. latter is available on Sparebanken Vest’s website. Sparebanken Vest uses a template-based method for operational For regulatory capital purposes, the transitional arrangement risk, while market risk is calculated using the standard method. between the Basel I and CRD IV regulations still applies. It stipulates that the risk-weighted volume cannot be reduced to less The minimum requirement for own funds is 8%, Of this, 4.5% than 80% of the corresponding figure calculated pursuant to the shall be met by Core Tier 1 capital. The remaining 3.5%of the Basel I regulations. The Basel I regulations thereby still represent minimum requirement shall be met by 1.5% subordinated bonds a ‘floor’ as regards the minimum requirement for own funds. The (core capital) and 2%subordinated loans (supplementary capital). CRD IV regulations are expected to be implemented in Norwegian Other buffer requirements, including a systemic risk buffer (3%), law in the course of 2019. conservation buffer (2.5%), counter-cyclical capital buffer (2%) and the applicable Pillar II requirement (1.8%) are met by Core Calculation of economic capital and regulatory capital Tier 1 capital. Sparebanken Vest’s total capital requirement will The bank’s capital assessment is based on a quantification of thus be 17.3%, included an addition for Pillar II – 13.8% of economic capital for the individual risk areas. Stress tests which must be met by Core Tier 1 capital. simulate the effects of situations that are unlikely to arise, but that could result in large unexpected losses for the bank. In October 2018, the Supervisory Authority of Norway proposed Qualitative assessments supplement the quantitative assessments. changes to the regulations for identification of systemically important financial institutions (SIFI). The proposal means that In 2007, Sparebanken Vest was granted permission by the institutions that, at the end of the preceding year, had a proportion Financial Supervisory Authority of Norway to use internal methods of lending of at least 10% to the corporate market in one or more to calculate credit risk (FIRB), and the bank was also granted regions should also be regarded as systemically important. If this permission to use the advanced IRB method (AIRB) in 2017. One proposal is adopted, it will also apply to Sparebanken Vest, as the condition for IRB approval is that the IRB system and its bank’s market share in the corporate market in region west application are validated at least once a year. In Sparebanken Vest, (defined as Rogaland, Hordaland and Sogn og Fjordane) exceeds the results of the validation are considered by the bank’s 10%. This will mean that a SIFI buffer requirements of up to 2 Validation Committee. An annual validation report is submitted to percentage points will apply to the bank, and that the leverage the Board for consideration. The internal audit function regularly ratio buffer requirement will be increased by up to 1 percentage audits the system and its use, including compliance with the point. Capital Adequacy Regulations. The IRB system is audited at least once a year, and a report is submitted to the Board for In December 2018, the Financial Supervisory Authority of Norway consideration. The parameters and processes used by the bank to decided to raise the counter-cyclical capital buffer requirement to manage and control the IRB system follow from its credit strategy, 2.5 percentage points, with effect from 31 December 2019. policy and procedures. The Financial Supervisory Authority adopted an adjustment to the When calculating capital in relation to credit risk, all of the bank’s bank’s Pillar II requirement in mid-January 2019. This entails the customers who are covered by the IRB system shall be scored requirement being reduced to 1.7%, so that the bank’s overall using the bank’s internal score models. The bank calculates its minimum and buffer requirement is 13.7% at the end of the first own values for PD (Probability of Default) and for LGD (Loss Given quarter 2019. The Supervisory Authority has also expressed the Default) for customers in both the retail and corporate markets. Pillar II requirement as a nominal amount, NOK 1,370 million. It The bank does not use external rating, nor does it have self- has also indicated that the bank should have a management buffer determined risk parameters beyond those that are used to set the of one percentage point on top of all the requirements. basis for the calculation of and the amount of expected losses. The Board of Sparebanken Vest has adopted a management buffer The bank updates and classifies all commitments covered by the of around 1 percentage point in Core Tier 1 capital above the IRB system every month. In the retail market, the LGD level is regulatory minimum and buffer requirements for 2019, based on updated annually based on the Financial Supervisory Authority of the assumption that the CRD IV regulations will be implemented Norway’s reference model and updated estimates from in Norwegian law. If the CRD IV regulations are not implemented, Eiendomsverdi. In the corporate market, the value of furnished a decision has been made to set the management buffer at around security is updated by the bank’s own procedures. 0.8 percentage points.

Sparebanken Vest Annual Report 2018 page 107 Note 41 Capital adequacy (continued)

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 2018 2017 Weighted calculation basis 19 719 22 461 Enterprise – SME 22 482 19 895 1 859 1 366 Enterprise – Specialised 1 366 1 860 3 178 4 039 Enterprise – Other 4 039 3 179 264 616 Mass market with mortgage secured by property – SMEs 1 070 462 9 569 10 062 Mass market with mortgage secured by property – not SMEs 25 891 22 623 67 84 Mass market – Other SMEs 85 67 2 027 1 993 Mass market – Other not-SMEs 2 022 2 057 3 107 3 506 Equity positions, IRB 0 0 39 790 44 127 Total credit risk, IRB 56 954 50 143

971 80 Position risk, debt instruments 80 971 46 0 Position risk, equity instruments 0 46 3 896 4 263 Operational risk 5 748 5 391 18 459 19 143 Commitment pursuant to the standard method 9 509 7 997 643 205 Risk of credit valuation adjustment for counterparty (CVA) 1 693 1 903 63 805 67 817 Total weighted calculation basis before correction to transitional arrangement 73 983 66 451

0 0 Correction to transitional arrangement 12 899 14 290 63 805 67 817 Weighted calculation basis pursuant to the transitional arrangement 86 882 80 741

Own funds 1 476 1 507 Equity certificates 1 507 1 476 0 -2 - Own equity certificates -2 0 617 645 Premium reserve 645 617 9 551 10 300 Primary capital 10 778 9 701 14 14 Compensation fund 14 14 150 150 Gift fund 150 150 663 880 Equalisation reserve 1 019 884 37 33 Other equity 319 257 12 507 13 527 Total book equity excluding hybrid capital 14 430 13 099

Deductions -252 -270 Goodwill and other intangible assets -304 -278 including effect of gross consolidation of associated companies -14 -13 26 -33 Value adjustment, own liabilities -33 26 -40 -66 Value adjustment for requirement for justifiable valuation -63 -60 0 -125 Deduction for holdings in other companies in the financial sector -147 0 -155 -172 Adjusted expected loss in IRB portfolio -311 -285 Allocated dividend/donations -617 -371 12 086 12 860 Total Core Tier 1 capital 12 953 12 131 1 313 1 359 Subordinated bonds 1 359 1 313 13 399 14 219 Core capital 14 313 13 444 1 678 1 819 Paid-up subordinated loan capital 1 819 1 678 0 -196 Deduction for holdings in other companies in the financial sector -196 0 1 678 1 624 Supplementary capital 1 624 1 678 15 077 15 843 Own funds 15 936 15 122

Sparebanken Vest Annual Report 2018 page 108 Note 41 Capital adequacy (continued)

PARENT BANK GROUP

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 2018 2017 Minimum requirement 5 104 5 425 Minimum capital adequacy requirement: 8% 6 951 6 459 9 973 10 417 Surplus own funds 8 986 8 663 9 215 9 808 including surplus Core Tier 1 capital to meet buffer requirements 8 986 8 498 Buffer requirements 1 595 1 695 Conservation buffer: 2.5% 2 172 2 019 1 914 2 035 Systemic risk buffer: 3.0% 2 606 2 422 1 276 1 356 Counter-cyclical buffer: 2.0% 1 738 1 615 4 785 5 086 Total buffer requirement, Core Tier 1 capital 6 516 6 056 4 430 4 722 Surplus Core Tier 1 capital 2 470 2 442

18,9% 19,0% Core Tier 1 capital adequacy 14,9% 15,0% 2,1% 2,0% Subordinated bonds 1,6% 1,6% 2,6% 2,4% Supplementary capital 1,9% 2,1% 23,6% 23,4% Capital adequacy, transitional arrangement 18,3% 18,7%

18,9% 19,0% Core Tier 1 capital adequacy 17,5% 18,3% 2,1% 2,0% Subordinated bonds 1,8% 2,0% 2,6% 2,4% Supplementary capital 2,2% 2,5% 23,6% 23,4% Capital adequacy, IRB 21,5% 22,8%

31 Dec. 31 Dec. 31 Dec. 31 Dec. 2017 2018 Leverage ratio 2018 2017 111 464 112 915 Balance sheet items incl. gross consolidation of associated companies 193 946 178 185 18 121 19 166 Off-balance-sheet items 6 797 6 685 1 199 1 024 Other adjustments 445 -57 130 784 133 105 Calculation basis for leverage ratio 201 188 184 813 13 399 14 219 Core capital 14 313 13 444

10,2% 10,7% Leverage ratio 7,1% 7,3%

Sparebanken Vest Annual Report 2018 page 109 Note 42 The equity certificate

The equity certificate capital at 31 Dec. 2018 consisted of 60,274,630 equity certificates, each with a nominal value of NOK 25.

Owner fraction 31 Dec. 31 Dec. Figures for parent bank (NOK 1,000) 2018 2017 Equity certificates 1 506 866 1 475 850 Own equity certificates -2 177 -153 Premium reserve 645 071 616 995 Equalisation reserve 880 127 662 761 Total equity certificate capital (A) 3 029 887 2 755 453

Primary capital 10 299 654 9 551 391 Compensation fund 14 378 14 378 Gift fund 150 000 150 000 Total primary capital (B) 10 464 032 9 715 769

Reserve for unrealised gains 33 295 36 904 Hybrid capital 1 204 310 954 763 Equity 14 731 524 13 462 889

Owner fraction after the distribution of dividend (A /(A+ B)) 22,5% 22,1%

Weighted owner fraction through the year 22,3% 23,2%

Dividend per equity certificate 2,30 3,75

Total dividend on 60,274,630 (59,034,017) equity certificates (NOK 1,000) 138 632 221 378

Own equity certificates When buying own equity certificates, the purchase price including direct costs is 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.

2018 2017 Number of own equity certificates at 1 Jan. 6 123 8 720 Equity certificates purchased 415 000 370 000 Equity certificates sold 334 039 372 597

Number of own equity certificates at 31 Dec. 87 084 6 123

Effective return per equity certificate 2018 2017 Listed price at 31 Dec. 53,00 54,50 Dividend paid during the year 3,75 4,50 Listed price at 1 Jan. 54,50 48,40 Effective return in NOK 2,25 10,60 Effective return as a percentage 4,13 21,90

Sparebanken Vest Annual Report 2018 page 110 Note 42 The equity certificate (continued)

Proportion of The twenty largest owners No of ECs EC capital% SPAREBANKSTIFTINGA HARDANGER 11 954 394 19,83 PARETO INVEST AS 4 506 060 7,48 SPAREBANKSTIFTELSEN SAUDA 3 700 354 6,14 VPF NORDEA NORGE VERDI 3 510 743 5,82 METEVA AS 2 932 314 4,86 BERA AS 1 735 000 2,88 VPF EIKA EGENKAPITALBEVIS 1 609 044 2,67 CAPE INVEST AS 1 489 873 2,47 BERGEN KOMMUNALE PENSJONSKASSE 1 360 000 2,26 MP PENSJON PK 1 085 436 1,80 LANDKREDITT UTBYTTE 1 000 000 1,66 WENAASGRUPPEN AS 962 035 1,60 VPF NORDEA AVKASTNING 780 564 1,30 SPAR SHIPPING AS 743 480 1,23 VPF NORDEA KAPITAL 730 657 1,21 FONDSFINANS NORGE 545 000 0,90 STATE STREET BANK AND TRUST COMPANY 393 693 0,65 LARRE EIENDOM 2 AS 375 000 0,62 VERDIPAPIRFONDET NORDEA NORGE PLUS 342 550 0,57 VERDIPAPIRFONDET FONDSFINANS NOR 336 808 0,56 Total 40 093 005 66,52

Breakdown by number Volume intervals No of ECs Percentage No of owners Percentage 1 - 100 18 665 0,03 366 7,74 101 - 1 000 1 007 594 1,67 2 052 43,37 1 001 - 5 000 3 669 266 6,09 1 622 34,28 5 001 - 10 000 2 385 628 3,96 331 7,00 10 001 - 15 000 000 53 193 477 88,25 360 7,61 Total 60 274 630 100,00 4 731 100,00

Sparebanken Vest Annual Report 2018 page 111 Note 42 The equity certificate (continued)

Equity certificates owned by the CEO, executive personnel, members of the Board and persons closely related to the aforementioned, as well as members of the General Meeting, as defined in Section 7-26 of the Accounting Act and Section 8-20 of the Supplementary Regulations to the Act.

No of ECs Jan Erik Kjerpeseth, CEO 114 438 Frank H Bjørndal, Head of Retail Market 10 442 Bjørg Marit Eknes, CIO 42 861 Ragnhild Janbu Fresvik, Head of Corporate Market 23 661 Frank Johannesen, CRO 50 330 Siren Sundland, Head of Operational Services 45 375 Tina Ødegård, Head of Organisation and Development 11 938 Jørgen Gudmundssson, CFO 1 250 Trygve Bruvik, Chair of the Board 122 567 Arild Bødal, Deputy Chair of the Board 23 959 Magne Morken, board member 1 077 Gunnar Skeie, board member 7 867 Kristin Axelsen, board member 3 795 Anne Marit Hope, board member 6 362 Fred David Risløw, board member 1 346 Inger Johanne Thraning Westad, deputy board member 456 Bente Moore, deputy board member 703 Stig Standal Taule, deputy board member 5 261 Bodil Digranes, member of the General Meeting 3 413 Jostein Lid, member of the General Meeting 569 Arvid Eriksen, member of the General Meeting 1 699 Kirsten Guldbrandsen, member of the General Meeting 1 379 Bjarte Marøy, member of the General Meeting 2 127 Unni Grethe Brakedal Våge, member of the General Meeting 3 968 Wenche W Anglevik, member of the General Meeting 2 036 Solfrid Hagen, member of the General Meeting 2 625 Trond Marius Helgesen, member of the General Meeting 5 318 Sveinung Hetland, member of the General Meeting 944 Trond Mohn, member of the General Meeting 46 450 Widar Slemdal Andersen, member of the General Meeting 3 580 Eivind Lunde, member of the General Meeting 20 540 Tone Haaland, member of the General Meeting 4 518 Jan Øvrebø, member of the General Meeting 17 455 Åsmund Skår, member of the General Meeting 600 Sivert Sørnes, member of the General Meeting 107 Anne Maria Langeland, member of the General Meeting 3 554 Frode Høyland, member of the General Meeting 10 596 Jon Askeland, member of the General Meeting 728 Ove Ellingsen, member of the General Meeting 20 000 Mona Vikøyr, deputy member of the General Meeting 530 Mathias Hunskår Furevik, deputy member of the General Meeting 302 André Bjørkhaug, deputy member of the General Meeting 1 701 Bjørn Berland, deputy member of the General Meeting 8 085 Kjell Gunnar Lilleøren, deputy member of the General Meeting 5 624 Siri Schwings Birkeland, deputy member of the General Meeting 483 Brigt O Gåsdal, deputy member of the General Meeting 2 002 Per Berge, deputy member of the General Meeting 35 Anne-Kristin Heggøy, deputy member of the General Meeting 808 645 464

Sparebanken Vest Annual Report 2018 page 112 Note 43 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 General Meeting is provided pursuant to the requirements of the Accounting Act.

Shareholdings in group companies and associated companies are specified in Note 20.

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

Sub- Associated Key Intragroup transactions 2018 (NOK 1,000) sidiaries companies personnel Profit/loss Interest on loans 138 388 44 231 Interest on interest-bearing securities 16 907 -443 Interest and similar expenses on deposits -22 467 -5 582 Interest on financial derivatives 12 702 Commission income received relating to distribution 130 185 Group dividend/contributions received 264 870 27 795 Pay, pension and fees to executive personnel and officers of the company 2 524 28 519 Rent 0 -44 822 Management fees 389 608 1 478 Fees received for the sale of services 7 443 3 125 Fees paid for the purchase of services -4 914

Balance sheet Shares in subsidiaries, associated companies (capital increases) 400 000 267 038 Group contributions/dividend receivable 264 870 Net loans transferred to the housing credit company, present year 7 844 765 Loans transferred to the housing credit company, accumulated 84 195 535 Loans to related parties at 31 Dec. 11 538 452 948 681 Deposits from related parties 1 127 698 390 658 Holding of subordinated loans and bonds issued by Sparebanken Vest Boligkreditt AS 1 175 000 Holding of subordinated loans issued by associated companies 9 000

Sparebanken Vest Annual Report 2018 page 113 Note 43 Transactions with related parties (continued)

Sub- Associated Key Intragroup transactions 2017 (NOK 1,000) sidiaries companies personnel Profit/loss Interest on loans 90 946 45 514 Interest on interest-bearing securities 43 019 -546 Interest and similar expenses on deposits -31 810 -3 664 Interest on financial derivatives 4 305 Commission income received relating to distribution 104 453 Group dividend/contributions received 129 000 47 661 Pay, pension and fees to executive personnel and officers of the company 2 486 30 696 Rent -1 379 -44 822 Management fees 342 175 1 444 Fees received for the sale of services 6 055 2 667 Fees paid for the purchase of services 0 -1 470

Balance sheet Shares in subsidiaries, associated companies (capital increases): 1 030 000 86 151 Group contributions/dividend receivable 129 000 Net loans transferred to the housing credit company, present year 17 702 254 Loans transferred to the housing credit company, accumulated 76 350 770 Loans to related parties at 31 Dec. 12 515 431 1 061 070 Deposits from related parties 2 963 441 292 000 Holding of covered bonds issued by Sparebanken Vest Boligkreditt AS 456 981 Holding of subordinated loans and bonds issued by Sparebanken Vest Boligkreditt AS 1 076 525 Holding of senior bonds issued by the parent company 32 297 Holding of subordinated loans issued by associated companies 9 000

Subsidiaries mainly refer to Eiendomsmegler Vest AS and Sparebanken Vest Boligkreditt AS.

Internal transactions with the estate agency company are limited and mainly consist of interest on deposits and loans with associated balance sheet items.

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. In addition, the subsidiary has both deposits and liabilities as well as derivative agreements 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 comprise Frende Forsikring AS, Norne Securities AS, Brage Finans AS, Balder Betaling AS and Jonsvollskvartalet AS. Sparebanken Vest sells general and life insurance through Frende Forsikring on a commission basis. Leasing products are sold through Brage Finans in a corresponding manner.

Loans transferred to Sparebanken Vest Boligkreditt AS are specified above. The contractual relationship between the parent bank and Sparebanken Vest Boligkreditt AS indicates 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 that are within 75% of the objects’ value. The housing credit company has a rolling liquidity facility linked to the maturing of bonds 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 non-transferred assets (loans).

Sparebanken Vest Annual Report 2018 page 114 Note 43 Transactions with related parties (continued)

Payroll and other remuneration of executive personnel (figures in NOK 1,000)

Executive personnel are defined as members of the corporate management team. The information includes pay and total taxable remuneration, the proportion of the overall remuneration that relates to bonuses and calculated, earned pension rights for the year. 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 32 ‘Pensions’ for a description of the pension schemes.

Pay and Total payments in Bonus remunera- Pension 2018 – Executive personnel at 31 Dec. kind paid tion expense Jan Erik Kjerpeseth – CEO 4 154 995 5 149 1 396 Frank Johannesen – CRO 2 188 466 2 594 675 Ragnhild Janbu Fresvik – Head of Corporate Market 2 589 511 3 175 397 Frank Bjørndal – Head of Retail Market 2 053 268 2 371 399 Siren Sundland – Head of Operational Services 1 969 475 2 482 452 Bjørg Marit Eknes – CIO 2 046 469 2 515 337 Tina Ødegård – Head of Organisation and Development 1 742 64 1 806 269 Jørgen Gudmundsson – CFO (from 21 Nov. 2018) 1 274 65 1 339 122

Pay and Total payments in Bonus remunera- Pension 2017 – Executive personnel at 31 Dec. kind paid tion expense Jan Erik Kjerpeseth – CEO 3 983 921 4 904 1 417 Frank Johannesen – CRO 2 201 451 2 652 818 Ragnhild Janbu Fresvik – Head of Corporate Market 2 367 408 2 775 328 Frank Bjørndal – Head of Retail Market 1 825 133 1 958 378 Siren Sundland – Head of Operational Services 1 994 449 2 443 564 Bjørg Marit Eknes – CIO 2 025 443 2 468 410 Tina Ødegård – Head of Organisation and Development (from 1 Sept. 2017) 636 0 636 86

On the recommendation of the Remuneration Committee, the Board decides the salary of the CEO. The CEO determines the remuneration of other executive personnel after consultation with the Remuneration Committee.

A provision of NOK 3.8 (3.3) million has been made for the 2018 financial year for bonuses to be distributed among executive and key personnel following a thorough assessment.

Members of the corporate management team, the heads of Sparebanken Vest Boligkreditt AS and Eiendomsmegler Vest AS have a reciprocal period of notice of six months and a non-competition clause that applies for a further six months. With respect to the CEO, a mutual period of notice of six months applies. The Board can decide to terminate the employment relationship earlier without a reduction in pay. In the case of termination by Sparebanken Vest, salary is retained for a period of 18 months with a deduction for any pay received during that period. Members of the corporate management team, the heads of Sparebanken Vest Boligkreditt AS and Eiendomsmegler Vest AS also have an early-retirement agreement that applies from the age of 65. It gives them a right and an obligation to retire on 66– 70% of their pay until they reach the age of 67. The CEO is entitled to, and, should the Board so wish, obliged to take early retirement at the age of 62. Over and above this, there are no service contracts between members of the Board, the management or supervisory bodies and Sparebanken Vest or Sparebanken Vest’s subsidiaries that provide for remuneration on termination of the employment relationship.

Sparebanken Vest Annual Report 2018 page 115 Note 43 Transactions with related parties (continued)

Remuneration of officers of the company (in whole NOK) 2018 2017

Directors’ Additional Total Total Styret fee fee remuneration remuneration Trygve Bruvik Chair of the Board 393 750 59 800 453 550 432 000 Arild Bødal Deputy Chair of the Board 196 875 31 700 228 575 207 575 Richard Rettedal 170 000 57 200 227 200 219 000 Marianne D Jacobsen 170 000 10 600 180 600 122 650 Magne Morken 170 000 54 000 224 000 157 850 Birthe Kåfjord Lange 170 000 28 400 198 400 163 400 Gunnar Skeie 170 000 64 600 234 600 231 800 Anne Marit Hope 170 000 14 300 184 300 161 400 Kristin Axelsen 170 000 0 170 000 155 000 Fred David Risløw 170 000 0 170 000 155 000 Øyvind A Langedal Until March 2017 0 0 0 59 675 Berte-Elen R Konow Until March 2017 0 0 0 43 750 Arnulf Ingvaldsen Deputy member 26 750 0 26 750 45 000 Bernt Bergheim Deputy member 48 750 0 48 750 35 500 Inger Johanne W Thraning Deputy member 27 000 0 27 000 0 Bente Moore Deputy member 27 000 0 27 000 0 Stig Standal Taule Deputy member 27 000 0 27 000 0 Total 2 107 125 320 600 2 427 725 2 189 600

Directors’ fees and additional fees for participating in committees are decided by the General Meeting.

Remuneration of the parent bank’s General Meeting amounted to NOK 73,750 (70,750). Meeting attendance fees of NOK 642,200 (731,300) come in addition.

Sparebanken Vest Annual Report 2018 page 116 Note 43 Transactions with related parties (continued)

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 corporate management team 2018 2017 2018 2017 CEO Jan Erik Kjerpeseth 23 2 858 7 449 7 858 Other members of the corporate management team 7 745 9 296 27 153 15 733 Loans furnished on standard terms for employees 7 768 12 154 34 602 23 591

Loans and security furnished to officers of the parent bank Board of directors Marianne D Jacobsen 1 028 1 036 6 437 6 582 Gunnar Skeie 8 0 8 0 Arnulf Ingvaldsen, deputy member 2 0 2 0 Kristin Axelsen, employee representative 0 0 2 338 2 409 Anne Marit Hope, employee representative 1 18 781 1 061 Fred David V Risløw, employee representative 524 573 4 811 4 883 Inger Johanne Thraning, deputy employee repr. 37 8 2 201 2 289 Bente Moore, deputy employee repr. 3 20 1 397 1 390 Stig Standal Taule, deputy employee repr. 386 437 2 738 2 789 Loans are furnished on standard customer terms, with the exception of loans to employee representatives 1 989 2 092 20 713 21 403

General Meeting Rune Stavenes, Chair of the General Meeting 595 482 939 879 Other members of the General Meeting, with the exception of employee repre- sentatives 14 481 17 440 38 790 38 203 Loans are furnished on standard customer terms 15 076 17 922 39 729 39 082

Total loans and security furnished to employees 1) 399 017 428 759 1 672 351 1 644 218

1) Excluding the corporate management team and employee representatives on the Board. 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.

Note 44 Disputes

At 31 December 2018, Sparebanken Vest was not involved in any lawsuits or legal disputes of material financial significance to the Group’s activities. There are at all times various claims against the bank relating to its activities. Provision for bad debt has been made where it has been deemed necessary.

Sparebanken Vest Annual Report 2018 page 117 Deloitte AS Lars Hilles gate 30 Postboks 6013 Postterminalen NO-5892 Bergen Norway

Tel: +47 55 21 81 00 www.deloitte.no

To the General Meeting of Sparebanken Vest

INDEPENDENT AUDITOR’S REPORT

Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Sparebanken Vest. The financial statements comprise:

 The financial statements of the parent company, which comprise the balance sheet as at 31 December 2018, and income statement, statement of comprehensive income, statement of changes in equity, cash flow for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and  The financial statements of the group, which comprise the balance sheet as at 31 December 2018, and income statement, statement of comprehensive income, statement of changes in equity, cash flow for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion:

• The financial statements are prepared in accordance with the law and regulations. • The accompanying financial statements give a true and fair view of the financial position of the parent company as at 31 December 2018, and its financial performance and its cash flows for the year then ended in accordance with simplified application of international accounting standards according to § 3-9 of the Norwegian Accounting Act. • The accompanying financial statements give a true and fair view of the financial position of the group as at 31 December 2018, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Basis for Opinion We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, included International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company as required by laws and regulations, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Deloitte AS and Deloitte Advokatfirma AS are the Norwegian affiliates of Deloitte NWE LLP, a member firm of Deloitte Touche Registrert i Foretaksregisteret Tohmatsu Limited ("DTTL"), its network of member firms, and their related entities. DTTL and each of its member firms are Medlemmer av Den norske Revisorforening legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. Organisasjonsnummer: 980 211 282 Please see www.deloitte.no for a more detailed description of DTTL and its member firms.

© Deloitte AS

Sparebanken Vest Annual Report 2018 page 118 P Ient auditor’s report

IT Systems and Internal Controls relevant for Financial Reporting

T IT IT ’ IT

T IT IT R D report under the section “operational risk for

the Company’s assessment of risks related to ITsystems” IAE R Vest’s service providers focusing on whether the IT

P IT

I IR A IT

IT IT IT

Sparebanken Vest Annual Report 2018 page 119 age ndependent auditor’s report pareanken Vest

Corporate loan loss provisions

ey audit matter ow the matter was addressed in the audit pareanken Vest has loans in the corporate pareanken Vest has estalished control segment and reference is made to note activities related to the calculation of loan loss and for disclosures on implementation effects provisions in the corporate market segment following credit risk and loss provisions on loans and guarantees e considered the reasonaility of the loan loss provisions and the changes in these provisions ffective from anuary the ank has during the year and collected and assessed implemented and the models for pareanken Vests reasoning for these changes calculation of loan losses is changed from oective evidence for losses to an epected loss e assessed and tested the design of selected model control activities concerning individual loss provisions on impaired loans he control pareanken Vest has considered the need for activities we assessed and tested the design of loan loss provisions as per the implementation were related to identification of impaired loans date of and as per here is and the assessment of the epected future cash considerable judgement in the bank’s flows from these loans or a sample of these assessment of the sie of the loan loss control activities we tested if they operated provisions in the corporate market segment effectively during the period

he udgement is related to forwardlooking or a sample of impaired loans we tested if assessments of proaility of default and loss these were timely identified and assessed the given default in order to estimate the epected epected future cash flows that ank estimated loss on these loans

he assumptions and estimates used in these or remaining loan loss provisions calculated y assessments are crucial for the sie of these use of models and information from the service provisions and loan loss provisions in the provider we assessed the third party corporate market segment are therefore a key confirmation with regards to audit matter in the audit  documentation of the models

 determination of proaility of default loss given default and eposure at default and

 validation of the models against historical losses

e assessedtested a sample of applied forwardlooking assumptions against eternal reports on forwardlooking data from orges ank

e considered if the disclosures on loan loss provisions in the corporate market segment is in accordance with reuirements set forth in

Sparebanken Vest Annual Report 2018 page 120 age ndependent auditor’s report parebanken est

ther inforation anagement is responsible or the other inormation he other inormation comprises the nnual eport but does not include the inancial statements and our auditors report thereon

ur opinion on the inancial statements does not coer the other inormation and e do not epress an orm o assurance conclusion thereon

n connection ith our audit o the inancial statements our responsibilit is to read the other inormation and in doing so consider hether the other inormation is materiall inconsistent ith the inancial statements or our knoledge obtained in the audit or otherise appears to be materiall misstated

based on the ork e hae perormed e conclude that there is a material misstatement o this other inormation e are reuired to report that act e hae nothing to report in this regard

Responsibilities of the oard of irectors and the anain irector for the Financial tateents he oard o irectors and the anaging irector management are responsible or the preparation and air presentation o the inancial statements o the parent compan in accordance ith simpliied application o international accounting standards according to the oregian ccounting ct section and or the preparation and air presentation o the inancial statements o the group in accordance ith nternational inancial eporting tandards as adopted b the and or such internal control as management determines is necessar to enable the preparation o inancial statements that are ree rom material misstatement hether due to raud or error

In preparing the financial statements, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis o accounting unless management either intends to liuidate the roup or to cease operations or has no realistic alternatie but to do so

Auditor’s Responsibilities for the Audit of the Financial Stateents ur objecties are to obtain reasonable assurance about hether the inancial statements as a hole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion easonable assurance is a high leel o assurance but is not a guarantee that an audit conducted in accordance ith las regulations and auditing standards and practices generall accepted in ora including s ill alas detect a material misstatement hen it eists isstatements can arise rom raud or error and are considered material i indiiduall or in aggregate the could reasonabl be epected to inluence the economic decisions o users taken on the basis o these inancial statements

s part o an audit in accordance ith las regulations and auditing standards and practices generall accepted in ora included nternational tandards on uditing s e eercise proessional judgment and maintain proessional skepticism throughout the audit e also

• identi and assess the risks o material misstatement o the inancial statements hether due to raud or error e design and perorm audit procedures responsie to those risks and obtain audit eidence that is suicient and appropriate to proide a basis or our opinion he risk o not detecting a material misstatement resulting rom raud is higher than or one resulting rom error as raud ma inole collusion orger intentional omissions misrepresentations or the oerride o internal control

Sparebanken Vest Annual Report 2018 page 121 age Independent auditor’s report parebanen est

• obtain an understanding of internal control releant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of epressing an opinion on the effectiveness of the Company’s internal control • ealuate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management • conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit eidence obtained, whether a material uncertainty eists related to eents or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty eists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadeuate, to modify our opinion ur conclusions are based on the audit eidence obtained up to the date of our auditor’s report oweer, future eents or conditions may cause the Company to cease to continue as a going concern • ealuate the oerall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and eents in a manner that achiees fair presentation • obtain sufficient appropriate audit eidence regarding the financial information of the entities or business actiities within the Group to epress an opinion on the consolidated financial statements e are responsible for the direction, superision and performance of the group audit e remain solely responsible for our audit opinion

e communicate with those charged with goernance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit

e also proide those charged with goernance with a statement that we hae complied with releant ethical reuirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards

rom the matters communicated with those charged with goernance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in etremely rare circumstances, we determine that a matter should not be communicated in our report because the aderse conseuences of doing so would reasonably be epected to outweigh the public interest benefits of such communication

Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report ased on our audit of the financial statements as described aboe, it is our opinion that the information presented in the Board of Directors’ report and statements on Corporate Goernance and Corporate ocial esponsibility concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit is consistent with the financial statements and complies with the law and regulations

Sparebanken Vest Annual Report 2018 page 122 age ndependent auditor’s report parebanken est

Opinion on eistration and Docentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the nternational tandard on ssurance ngagements ssrance naeents Other than dits or eies of istorica inancia nforation, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in orway.

Bergen, ebruary Deloitte

Jon-Osvald Harila tate uthorised ublic ccountant

ote his translation from orwegian has been prepared for information purposes only.

Sparebanken Vest Annual Report 2018 page 123 Sparebanken Vest Annual Report 2018 page 124 Group key figures – 5 years

PROFIT DEVELOPMENT 2018 2017 2016 2015 2014 Interest income and similar income 4 728 4 378 4 272 4 653 5 265 Interest expenses and similar expenses 2 012 1 813 1 873 2 299 2 945 Net interest and credit commission income 2 716 2 565 2 399 2 354 2 320

Commission income and income from banking services 578 528 505 489 490 Commission expenses and expenses relating to banking services 98 85 90 86 90 Net banking services 480 442 415 403 400 Income from shareholdings in associated companies 85 120 113 70 74 Net gain/(loss) on financial instruments 165 -7 123 -83 248 Other operating income 210 206 192 204 188 Net other operating income 940 761 843 594 910 Net operating income 3 656 3 326 3 242 2 948 3 230

Payroll and general administration expenses 1 109 1 072 894 1 083 1 131 Depreciation 135 128 121 118 109 Other operating expenses 252 250 255 242 230 Total operating expenses 1 497 1 450 1 270 1 443 1 470 Profit before write-downs and tax 2 159 1 877 1 972 1 505 1 760

Net profit on tangible fixed assets 0 0 23 76 143 Write-downs on loans and guarantees 6 33 39 185 410 Pre-tax profit 2 153 1 844 1 956 1 396 1 493

Tax 492 427 435 349 305 Profit for the period 1 660 1 416 1 521 1 047 1 188

Sparebanken Vest Annual Report 2018 page 125 Group key figures – 5 years (continued)

31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. BALANCE SHEET DEVELOPMENT 2018 2017 2016 2015 2014 Assets Cash and receivables from central banks 563 685 658 631 2 209 Loans to and receivables from credit institutions 1 270 1 588 1 331 2 167 1 556 Net lending 159 043 147 073 136 099 128 927 118 643 Shares at fair value through profit or loss 364 376 411 380 531 Shares available for sale 0 40 40 0 0 Commercial papers and bonds 22 166 19 191 18 996 21 455 16 525 Financial derivatives 4 028 4 587 3 697 6 728 5 571 Shareholdings in associated companies 1 346 1 022 863 841 681 Deferred tax asset 20 71 102 0 0 Pension assets 58 40 2 0 0 Other intangible assets 310 289 282 279 315 Tangible fixed assets 113 110 148 177 781 Prepaid expenses 51 58 61 21 29 Other assets 45 59 62 57 229 Total assets 189 376 175 190 162 752 161 663 147 070

Liabilities and equity Liabilities to credit institutions 2 965 4 023 2 539 4 849 4 350 Deposits from customers 72 536 69 111 66 486 63 900 66 448 Securitised debt 94 269 83 873 76 032 77 069 62 151 Financial derivatives 860 1 070 1 427 1 611 1 463 Accrued expenses and pre-paid income 195 213 240 196 187 Pension obligations 86 70 63 226 308 Deferred tax 0 0 0 12 63 Other provision for commitments 68 1 1 2 2 Tax liabilities 455 401 528 414 334 Subordinated loan capital 2 001 2 109 2 133 1 838 2 426 Other liabilities 307 266 238 232 244 Total liabilities 173 742 161 135 149 687 150 349 137 976

Equity certificates 1 507 1 476 1 476 1 476 794 Own equity certificates -2 0 0 0 0 Premium reserve 645 617 617 617 570 Equalisation reserve 1 019 884 852 555 478 Total equity certificate capital 3 169 2 977 2 945 2 648 1 842

Primary capital 10 778 9 701 8 816 7 733 6 953 Gift fund 150 150 150 175 175 Compensation fund 14 14 14 14 14 Total primary capital 10 943 9 866 8 980 7 923 7 142

Other equity 319 257 160 166 109 Hybrid capital 1 204 955 980 577 0 Minority interests 0 0 0 0 1

Total equity 15 635 14 054 13 065 11 314 9 094

Total liabilities and equity 189 376 175 190 162 752 161 663 147 070

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) 182 178 167 873 160 806 151 992 138 502

Sparebanken Vest Annual Report 2018 page 126 Group key figures – 5 years (continued)

PROFIT/LOSS AS% OF PRIMARY CAPITAL 2018 2017 2016 2015 2014 Interest income and similar income 2,60 2,61 2,66 3,06 3,80 Interest expenses and similar expenses 1,14 1,11 1,19 1,51 2,13 Net interest and credit commission income 1,46 1,50 1,47 1,55 1,68

Commission income and income from banking services 0,32 0,31 0,31 0,32 0,35 Commission expenses and expenses relating to banking services 0,05 0,05 0,06 0,06 0,06 Net banking services 0,26 0,26 0,26 0,27 0,29 Income from shareholdings in associated companies 0,05 0,07 0,07 0,05 0,05 Net gain/(loss) on financial instruments 0,09 0,00 0,08 -0,05 0,18 Other operating income 0,12 0,12 0,12 0,13 0,14 Net other operating income 0,52 0,45 0,52 0,39 0,66 Net operating income 1,98 1,95 1,99 1,94 2,33

Payroll and general administration expenses 0,61 0,64 0,56 0,71 0,82 Depreciation 0,07 0,08 0,08 0,08 0,08 Other operating expenses 0,14 0,15 0,16 0,16 0,17 Total operating expenses 0,82 0,86 0,79 0,95 1,06 Profit before write-downs and tax 1,15 1,09 1,20 0,99 1,27

Net profit on tangible fixed assets 0,00 0,00 0,01 0,05 0,10 Write-downs on loans and guarantees 0,00 0,02 0,02 0,12 0,30 Pre-tax profit 1,15 1,07 1,19 0,92 1,08

Tax 0,26 0,25 0,26 0,23 0,22 Profit for the period 0,89 0,82 0,93 0,69 0,86

OTHER KEY FIGURES

Return on assets, earnings and capital structure (percentage) 1. Return on equity after tax 11,9 11,0 13,1 11,0 13,7 2. Total operating expenses as percentage of net operating income (cost-income) 41,6 44,2 39,7 48,9 45,5 3. Deposits/loans ratio 45,6 47 48,9 49,6 56,0

Balance sheet development (percentage) 4. Change in net lending 8,1 8,0 5,6 8,7 5,9 5. Change in commercial papers and bonds 15,5 1,0 -11,5 29,8 7,0 6. Change in deposits 5,0 3,9 4,0 -3,8 6,9 7. Change in assets under management 8,1 7,6 0,7 9,9 9,4

Defaults, provisions and losses on loans 8. Loss percentage, lending 0,00 0,02 0,03 0,15 0,35 9. Gross defaults as percentage 0,22 0,22 0,24 0,16 0,31

Capital adequacy 10. Net own funds 15 936 15 122 14 135 12 434 10 706 11. Calculation basis 86 882 80 741 75 461 73 645 68 563 12. Capital adequacy 18,3 18,7 18,7 16,9 15,6 13. Core capital adequacy 16,5 16,7 16,5 15,0 13,6 14. Core Tier 1 capital adequacy 14,9 15,0 14,9 13,7 12,2

Sparebanken Vest Annual Report 2018 page 127 Group key figures – 5 years (continued)

Equity certificates (parent bank) 2018 2017 2016 2015 2014 15. Equity certificate capital (NOK mill.) 1 507 1 476 1 476 1476 794 16. Dividend per equity certificate (NOK) 2,30 3,75 4,50 1,10 4,00 17. Listed price at 31 Dec. 53,00 54,50 48,40 35,00 41,55 18. Owner fraction after the distribution of dividend 22,50 22,10 23,18 24,64 19,50 19. Share of profit per equity certificate (NOK) 5,65 5,19 6,26 5,34 7,23 20. Effective return per equity certificate 4,13 21,90 41,43 -6,15 18,10 21. Direct return 4,34 6,88 9,30 3,14 9,63 22. Allocated dividend as a percentage of equity certificate holders’ basis for dividend 40,70 74,43 71,91 20,60 55,33

Personnel figures at 31 Dec. Number of employees 746 733 739 839 855 Number of full-time equivalents 701 693 714 803 813

Distribution network Points of sale 33 34 35 44 48

Definitions: 1. Profit/loss for the period as a percentage of average equity (excluding hybrid capital) through the year. 3. Deposits from customers as a percentage of loans to and receivables from customers. 4. Change in net lending at 31 Dec. as a percentage of net lending the year before. 5. Change in securities at 31 Dec. as a percentage of securities the year before. 6. Change in deposits at 31 Dec. as a percentage of deposits the year before. 8. Losses on loans and guarantees etc. as a percentage of gross lending at 31 Dec. 9. Gross defaults as a percentage of gross lending. 18. Equity certificate capital as a percentage of the parent bank’s equity at 31 Dec. 19. Equity certificates’ share of profit/loss divided by the weighted number of equity certificates. 20. Dividend paid plus change in exchange rate 1 Jan.–31 Dec., as a percentage of the listed price at 1 Jan. 21. Allocated dividend as a percentage of the listed price at year-end.

Sparebanken Vest Annual Report 2018 page 128 Group key figures – per quarter for two years

31 Dec. 30 Sept. 30 June 31 March 31 Dec. 30 Sept. 30 June 31 March PROFIT DEVELOPMENT (accumulated) 2018 2018 2018 2018 2017 2017 2017 2017 Interest income and similar income 4 728 3 462 2 261 1 105 4 378 3 266 2 177 1 088 Interest expenses and similar expenses 2 012 1 464 956 449 1 813 1 375 936 478 Net interest and credit commission income 2 716 1 997 1 305 656 2 565 1 891 1 241 610

Commission income and income from banking services 578 415 272 138 528 396 255 129 Commission expenses and expenses relating to banking services 98 70 44 25 85 65 43 20 Net banking services 480 346 228 113 442 331 212 109 Income from shareholdings in associated companies 85 72 46 -8 120 87 48 28 Net gain/(loss) on financial instruments 165 144 93 -15 -7 43 23 23 Other operating income 210 164 110 43 206 158 109 46 Net other operating income 940 726 476 133 761 619 392 206 Net operating income 3 656 2 723 1 781 789 3 326 2 510 1 633 816

Payroll and general administration expenses 1 109 814 546 269 1 072 790 533 265 Depreciation 135 99 65 32 128 95 64 30 Other operating expenses 252 181 126 68 250 175 118 60 Total operating expenses 1 497 1 095 737 370 1 450 1 061 715 355 Profit before write-downs and tax 2 159 1 629 1 045 420 1 877 1 449 918 461

Write-downs on loans and guarantees 6 6 -34 -29 33 68 50 29 Pre-tax profit 2 153 1 622 1 079 449 1 844 1 381 868 432

Tax 492 366 239 113 427 319 202 100 Profit for the period 1 660 1 257 840 336 1 416 1 061 666 332

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) 182 178 179 417 178 082 176 736 167 873 166 380 165 140 164 497

PROFIT/LOSS AS% OF PRIMARY CAPITAL

Interest income and similar income 2,60 2,58 2,56 2,54 2,61 2,62 2,66 2,68 Interest expenses and similar expenses 1,14 1,12 1,11 1,06 1,11 1,13 1,17 1,21 Net interest and credit commission income 1,46 1,46 1,45 1,48 1,50 1,49 1,48 1,47

Commission income and income from banking services 0,32 0,31 0,31 0,32 0,31 0,32 0,31 0,32 Commission expenses and expenses relating to banking services 0,05 0,05 0,05 0,06 0,05 0,05 0,05 0,05 Net banking services 0,26 0,26 0,26 0,26 0,26 0,27 0,26 0,27 Income from shareholdings in associated companies 0,05 0,05 0,05 -0,02 0,07 0,07 0,06 0,07 Net gain/(loss) on financial instruments 0,09 0,11 0,10 -0,03 0,00 0,03 0,03 0,06 Other operating income 0,12 0,12 0,12 0,10 0,12 0,13 0,13 0,11 Net other operating income 0,52 0,54 0,54 0,31 0,45 0,50 0,48 0,51 Net operating income 1,98 2,00 1,99 1,78 1,95 1,99 1,96 1,98

Payroll and general administration expenses 0,61 0,61 0,62 0,62 0,64 0,63 0,65 0,65 Depreciation 0,07 0,07 0,07 0,07 0,08 0,08 0,08 0,07 Other operating expenses 0,14 0,14 0,14 0,16 0,15 0,14 0,14 0,15 Total operating expenses 0,82 0,82 0,83 0,85 0,86 0,85 0,87 0,88 Profit before write-downs and tax 1,15 1,18 1,15 0,94 1,09 1,13 1,09 1,10

Write-downs on loans and guarantees 0,00 0,00 -0,04 -0,07 0,02 0,05 0,06 0,07 Pre-tax profit 1,15 1,18 1,19 1,00 1,07 1,08 1,03 1,03

Tax 0,26 0,26 0,26 0,25 0,25 0,25 0,24 0,24 Profit for the period 0,89 0,91 0,93 0,75 0,82 0,83 0,79 0,79

Sparebanken Vest Annual Report 2018 page 129 Group key figures – per quarter for two years (continued)

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 PROFIT DEVELOPMENT PER QUARTER (isolated) 2018 2018 2018 2018 2017 2017 2017 2017 Interest income and similar income 1 266 1 201 1 156 1 105 1 112 1 089 1 089 1 088 Interest expenses and similar expenses 547 508 507 449 439 439 458 478 Net interest and credit commission income 719 692 649 656 674 650 631 610

Commission income and income from banking services 163 144 134 138 131 141 126 129 Commission expenses and expenses relating to banking services 29 26 19 25 21 22 23 20 Net banking services 134 118 115 113 111 119 103 109 Income from shareholdings in associated companies 13 26 54 -8 33 39 20 28 Net gain/(loss) on financial instruments 21 52 107 -15 -50 20 0 23 Other operating income 46 54 67 43 48 49 63 46 Net other operating income 213 250 343 133 143 227 186 206 Net operating income 932 942 992 789 817 877 817 816

Payroll and general administration expenses 295 269 276 269 282 257 268 265 Depreciation 36 34 33 32 32 31 34 30 Other operating expenses 71 55 58 68 75 58 58 60 Total operating expenses 402 358 367 370 389 346 360 355 Profit before write-downs and tax 530 584 625 420 428 531 457 461

Net profit on tangible fixed assets 0 0 0 0 0 0 0 0 Write-downs on loans and guarantees 0 40 -5 -29 -35 18 21 29 Pre-tax profit 530 544 630 449 463 513 436 432

Tax 127 127 125 113 108 117 102 100 Profit for the period 403 417 505 336 355 395 334 332

AVERAGE ASSETS UNDER MANAGEMENT (PRIMARY CAPITAL) (isolated) 185 424 182 517 179 200 176 736 173 610 169 050 166 314 164 497

PROFIT/LOSS AS% OF PRIMARY CAPITAL (isolated)

Interest income and similar income 2,71 2,61 2,59 2,54 2,54 2,56 2,63 2,68 Interest expenses and similar expenses 1,20 1,14 1,17 1,06 1,03 1,06 1,13 1,21 Net interest and credit commission income 1,51 1,47 1,42 1,48 1,51 1,50 1,49 1,47

Commission income and income from banking services 0,35 0,31 0,30 0,32 0,30 0,33 0,30 0,32 Commission expenses and expenses relating to banking services 0,06 0,06 0,04 0,06 0,05 0,05 0,06 0,05 Net banking services 0,29 0,26 0,26 0,26 0,25 0,28 0,25 0,27 Income from shareholdings in associated companies 0,03 0,06 0,12 -0,02 0,08 0,09 0,05 0,07 Net gain/(loss) on financial instruments 0,04 0,11 0,24 -0,03 -0,11 0,05 0,00 0,06 Other operating income 0,10 0,12 0,15 0,10 0,11 0,12 0,15 0,11 Net other operating income 0,46 0,54 0,77 0,31 0,33 0,53 0,45 0,51 Net operating income 1,96 2,01 2,19 1,78 1,84 2,03 1,94 1,98

Payroll and general administration expenses 0,63 0,58 0,62 0,62 0,64 0,60 0,65 0,65 Depreciation 0,08 0,07 0,07 0,07 0,07 0,07 0,08 0,07 Other operating expenses 0,15 0,12 0,13 0,16 0,17 0,14 0,14 0,15 Total operating expenses 0,86 0,78 0,82 0,85 0,89 0,81 0,87 0,88 Profit before write-downs and tax 1,10 1,24 1,37 0,94 0,95 1,22 1,07 1,10

Net profit on tangible fixed assets 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Write-downs on loans and guarantees 0,00 0,09 -0,01 -0,07 -0,08 0,04 0,05 0,07 Pre-tax profit 1,10 1,15 1,38 1,00 1,03 1,18 1,02 1,03

Tax 0,26 0,27 0,27 0,25 0,24 0,27 0,23 0,24 Profit for the period 0,84 0,88 1,10 0,75 0,79 0,91 0,78 0,79

Sparebanken Vest Annual Report 2018 page 130 Group key figures – per quarter for two years (continued)

31 Dec. 30 Sept. 30 June 31 March 31 Dec. 30 Sept. 30 June 31 March BALANCE SHEET DEVELOPMENT 2018 2018 2018 2018 2017 2017 2017 2017 Assets Cash and receivables from central banks 563 584 645 566 685 590 581 670 Loans to and receivables from credit institutions 1 270 1 299 2 171 1 233 1 588 1 440 1 649 1 664 Net lending 159 043 155 169 152 139 149 106 147 073 143 946 141 699 138 553 Shares at fair value through profit or loss 364 387 476 432 416 437 442 430 Commercial papers and bonds 22 166 18 424 21 926 20 435 19 191 18 384 18 661 20 695 Financial derivatives 4 028 2 048 3 021 3 596 4 587 3 111 3 750 3 676 Shareholdings in associated companies 1 346 1 333 1 161 1 128 1 022 982 952 895 Deferred tax asset 20 0 142 128 71 63 53 38 Pension assets 58 48 48 40 40 3 2 2 Other intangible assets 310 297 304 293 289 286 288 289 Tangible fixed assets 113 109 104 105 110 128 134 144 Prepaid expenses 51 65 77 85 58 65 92 136 Other assets 45 203 265 55 59 574 81 67 Total assets 189 376 179 966 182 479 177 203 175 190 170 010 168 384 167 259

Liabilities and equity Liabilities to credit institutions 2 965 1 947 2 301 3 938 4 023 4 354 3 526 2 601 Deposits from customers 72 536 71 977 73 019 69 798 69 111 68 744 71 146 65 981 Securitised debt 94 269 86 847 88 225 85 226 83 873 79 065 76 332 81 329 Financial derivatives 860 981 939 861 1 070 1 096 1 082 1 215 Accrued expenses and pre-paid income 195 202 192 216 213 237 263 286 Pension obligations 86 80 80 70 70 47 64 64 Deferred tax 0 64 0 0 0 0 0 0 Other provision for commitments 68 69 77 59 1 0 1 1 Tax liabilities 455 153 231 333 401 370 247 214 Subordinated loan capital 2 001 1 832 1 831 1 841 2 109 2 105 2 099 2 126 Other liabilities 307 359 794 619 266 285 303 451 Total liabilities 173 742 164 510 167 689 162 962 161 135 156 304 155 063 154 268

Equity certificates 1 507 1 507 1 507 1 476 1 476 1 476 1 476 1 476 Own equity certificates -2 -3 0 -2 0 0 0 -2 Premium reserve 645 645 645 617 617 617 617 617 Equalisation reserve 1 019 665 665 665 884 587 587 587 Total equity certificate capital 3 169 2 814 2 817 2 755 2 977 2 679 2 680 2 678

Primary capital 10 778 9 555 9 558 9 556 9 701 8 715 8 715 8 714 Gift fund 150 150 150 150 150 150 150 150 Compensation fund 14 14 14 14 14 14 14 14 Total primary capital 10 943 9 719 9 722 9 721 9 866 8 880 8 879 8 878

Other equity 319 1 467 1 045 560 257 1 193 807 480 Hybrid capital 1 204 1 456 1 205 1 205 955 955 955 955

Total equity 15 635 15 456 14 789 14 241 14 054 13 707 13 321 12 991

Total equity and liabilities 189 376 179 966 182 479 177 203 175 190 170 010 168 384 167 259

Sparebanken Vest Annual Report 2018 page 131 Group key figures – per quarter for two years (continued)

Return on assets, earnings and capital structure 31 Dec. 30 Sept. 30 June 31 March 31 Dec. 30 Sept. 30 June 31 March (percentage) 2018 2018 2018 2018 2017 2017 2017 2017 Return on equity after tax (isolated) 10,9 12,2 12,5 10,1 10,6 12,2 10,7 10,6 Total operating expenses as% of net operating income, accumulated (cost-income) 41,6 40,8 42,0 47,5 44,2 42,9 44,5 44,3 Total operating expenses as% of net operating income, isolated in the quarter (cost-income) 43,8 38,6 42,2 47,5 48,3 40,0 44,7 44,3 Total operating expenses as% of net operating income, corrected for exchange rate gain/loss, acc. (cost-income) 43,6 43,1 44,3 46,7 44,1 43,7 44,7 45,6 Deposits/loans ratio 45,6 46,4 48,0 46,8 47,0 47,8 50,2 47,6

Financial strength (percentage) Core Tier 1 capital adequacy 14,9 15,0 15,0 15,1 15,0 14,9 14,7 14,8 Capital adequacy, transitional arrangement 18,3 18,4 18,6 18,8 18,7 18,4 18,3 18,4

Personnel Number of full-time equivalents 701 688 684 693 693 694 697 708

Owner fraction Equity certificate capital’s share of profit/loss divided by number of equity certificates (isolated) 1,46 1,51 1,84 1,22 1,36 1,52 1,28 1,26 Owner fraction (after distribution) 22,5 22,5 22,5 22,1 22,1 23,2 23,2 23,2 Book equity per equity certificate 53,8 52,2 50,6 48,9 51,4 50,1 48,6 47,3

Sparebanken Vest Annual Report 2018 page 132 Explanation of key figures/alternative performance targets

ISO ACC Net interest as a percentage of average assets under management 4Q2018 4Q2017 2018 2017 Net interest as shown in the income statement 719 674 2 716 2 565 Correction of interest on hybrid capital entered directly against equity -15 -12 -57 -49 Net interest used in relevant key figure 704 662 2 659 2 516 Average assets under management 185 424 173 610 182 178 167 873 No of days 365/92 365/92 365/365 365/365 Net interest as a percentage of average assets under management 1,51% 1,51% 1,46% 1,50%

Net other operating income as a percentage of net operating income 4Q2018 4Q2017 2018 2017 Net other operating income as shown in the income statement 213 143 940 761 Net operating income as shown in the income statement 932 817 3 656 3 326 Correction of interest on hybrid capital entered directly against equity -15 -12 -57 -49 Net operating income corrected for hybrid capital interest 917 805 3 599 3 277 Net other operating income as a percentage of net operating income 23,27% 17,7% 26,1% 23,2%

Operating expenses as a percentage of net operating income (cost-income) 4Q2018 4Q2017 2018 2017 Total operating expenses as shown in the income statement 402 389 1 497 1 450 Net operating income corrected for hybrid capital interest (see above) 917 805 3 599 3 277 Operating expenses as a percentage of net operating income (cost-income) 43,8% 48,3% 41,6% 44,2%

Operating expenses as a percentage of net operating income corrected for financial instruments 4Q2018 4Q2017 2018 2017 Total operating expenses as shown in the income statement 402 389 1 497 1 450 Net operating income corrected for hybrid capital interest (see above) 917 805 3 599 3 277 Correction for financial instruments as shown in the income statement -21 50 -165 7 Net operating income corrected for financial instruments 896 855 3 434 3 284 Operating expenses as a percentage of net operating income corrected for financial instruments 44,8% 45,5% 43,6% 44,1%

Return on equity 4Q2018 4Q2017 2018 2017 Profit after tax as shown in the income statement 403 355 1 660 1 416 Correction for interest on the hybrid capital entered directly against equity (after tax) -11 -9 -42 -37 Profit after tax corrected for interest on the hybrid capital 392 346 1 618 1 379 Average equity 14 215 12 926 13 600 12 484 No of days 365/92 365/92 365/365 365/365 Return on equity 10,9% 10,6% 11,9% 11,0%

Profit per equity certificate 4Q2018 4Q2017 2018 2017 Profit after tax corrected for interest on the hybrid capital (see above) 392 346 1 618 1 379 Weighted equity percentage during the year before allocation 22,4% 23,2% 22,3% 23,2% Average number of outstanding equity certificates during the year 60 134 443 59 013 018 59 818 786 59 000 770 Profit per equity certificate 1,46 1,36 6,04 5,42

Sparebanken Vest Annual Report 2018 page 133 Explanation of key figures/alternative performance targets (continued)

ACC Lending growth, past 12 months 2018 2017 Gross lending UB 159 951 148 106 Gross lending 12 months ago 148 106 137 145 Change past 12 months 8,0% 8,0%

Deposit growth, past 12 months 2018 2017 Deposits from customers UB 72 536 69 111 Deposits from customers 12 months ago 69 111 66 486 Change past 12 months 5,0% 3,9%

Deposit coverage 2018 2017 Net lending 159 043 147 073 Deposits from customers 72 536 69 111 Deposit coverage (deposits as percentage of lending) 45,6% 47,0%

2018 2017 Gross lending on balance sheet date 159 951 148 106 Loss cost 6 33 Losses on loans as a percentage of gross lending (UB) 0,00% 0,02%

Gross lending on balance sheet date 159 951 148 106 Commitments in default (>90 days) 355 301 Commitments in default (>90 days) as a percentage of gross lending (UB) 0,22% 0,20%

Gross lending on balance sheet date 159 951 148 106 Potential bad debt 1 384 1 510 Potential bad debt as a percentage of gross lending (UB) 0,86% 1,02%

Sparebanken Vest Annual Report 2018 page 134 Sparebanken Vest Annual Report 2018 page 135 Corporate governance

Sparebanken Vest has devised a corporate The bank’s policy is specified in various governing governance policy that has been approved documents that apply to Sparebanken Vest’s by the Board of Directors. It aims to ensure activities. They include the bank’s Articles of that the Group’s corporate governance is in Association, its strategies, including its corporate accordance with generally accepted social responsibility strategy, rules of procedure for principles and standards, and in the Board, the framework for management and compliance with laws and regulations. The control, ethical guidelines and procedures for suitability, insider trading and proprietary trading. policy describes the general principles for The governing documents are based, among other corporate governance, and the goal is to things, on the current version of the Norwegian ensure good cooperation between the Code of Practice for Corporate Governance1, which bank’s different stakeholders, such as applies to savings banks to the extent that it is equity certificate holders, lenders, appropriate, as well as applicable regulations in the customers, employees, governing bodies, area. management and society as a whole. The policy describes how the bank is managed The same principles for corporate governance apply and controlled in order to create value for to Sparebanken Vest’s subsidiaries. The Articles of the bank and its stakeholders. Association and the corporate governance policy are available on the bank’s website.

IMPLEMENTATION AND REPORTING ON CORPORATE GOVERNANCE This document provides a report covering each of the 15 chapters of the Code of Practice for Corporate Governance. There are no material deviations from the Code of Practice in the bank’s corporate governance. Any deviations will be explained in the relevant section.

The report also covers disclosure requirements set out in the Norwegian Accounting Act Section 3-3b.

BUSINESS Sparebanken Vest is a financial services group consisting of the parent bank and the subsidiaries Eiendomsmegler Vest AS (including its subsidiary SPV Næringsmegling AS), Sparebanken Vest Boligkreditt AS and Vestlandskonferansen AS. Unless otherwise stated, references to the bank and/or Sparebanken Vest in this text concern the Sparebanken Vest Group.

Pursuant to Sparebanken Vest’s Articles of Association, its object is to deliver transactions and services that it is common or natural for savings banks to deliver pursuant to the legislation applicable at all times and the licences granted at 1) Adopted by the Norwegian Corporate Governance Board (NUES); see www.nues.no all times. Moreover, Sparebanken Vest can provide

Sparebanken Vest Annual Report 2018 page 136 investment services and related services within the bonds. As of 31 December 2018, Sparebanken bounds of the licences granted at all times. Vest’s equity certificate capital amounted to NOK 1,506,865,750, divided between 60,274,630 equity The bank’s primary market area is the Western certificates with a value of NOK 25 fully paid-up. Norway region, but it also aims to have a national presence in the area of digital concepts. The Holders of equity certificates shall have a business shall be run at a satisfactory profit and predictable framework with respect to equal with acceptable risk. treatment, the return on their investment and as regards influencing how the bank is run. The stock The Board of Directors’ report contains a exchange listing of the equity certificates ensures description of the bank’s goals and strategies. The that the bank accepts and complies with the market strategic basis is evaluated at least once a year by conditions that prevail at all times in the market for the Board and the management, and the bank’s equity certificates, and it means that the bank plans are adjusted and adapted continuously. The accumulates historical data that can help it to market is updated about the bank’s strategic utilise the stock market as a source of equity if the agenda through the presentation of quarterly need should arise. reports. The Board evaluates the bank’s capital situation at Sparebanken Vest has a customer-oriented least once a year. A statement on risk and capital organisation that focuses on the Retail Market and management is published every year following the Corporate Market as business areas. The bank’s approval of the annual accounts (the Pillar 3 report). organisational structure is dynamic, and it is The regulatory regime relating to capital adequacy assessed on the basis of changing needs and (CRR/CRD IV2) has been adopted by the EU and framework conditions. will be implemented in Norway through the EEA Agreement. The bank continually assesses its Sparebanken Vest has adopted principles for capital adequacy in relation to regulatory ethical conduct and for exercising corporate social requirements. responsibility in our business operations and in dealings with our customers, through the Sparebanken Vest’s objective is to achieve results businesses we invest in, the requirements we make that provide good growth in earnings and a of our suppliers, and what we emphasise to ensure competitive return on the bank’s equity. The profit that our operations, corporate governance and for the year after tax will be divided between the ownership are sustainable. These guidelines are equity certificate capital and primary capital in intended to ensure that Sparebanken Vest does not proportion to their relative share of the bank’s equity contribute to violations of human rights or labour (the owner fraction). The equity certificate holders’ rights, money laundering and terrorism financing, share of the profit will be divided between dividend corruption, serious environmental harm or to other and the equalisation reserve. Dividend funds are actions that can be perceived as unethical. The divided between the different groups of owners so guidelines are also intended to ensure that failure that they each receive a proportionate share of the to comply with the principles will have clear profit. The dividend funds consist of a cash consequences, and that breaches will have dividend for the equity certificate holders and funds consequences for distribution and financing. for the public benefit. Taking into account the Corporate social responsibility is an integral part of bank’s capital adequacy, strategy and development, the bank’s business activities. The bank’s corporate the goal is for up to 50% of the year’s profit to be social responsibility is described in more detail in a distributed to dividend funds. separate section of the annual report. The Board is regularly granted authorisation by the EQUITY AND DIVIDENDS General Meeting to acquire and pledge as security Sparebanken Vest is a self-owned institution. The own equity certificates within certain limitations. infusion of external capital takes place through the 2) The Capital Requirements Regulation and the Capital Requirements issuing of equity certificates and subordinated Directive

Sparebanken Vest Annual Report 2018 page 137 The authorisations must be approved by the EQUITY CERTIFICATES AND NEGOTIABILITY Financial Supervisory Authority of Norway before Sparebanken Vest’s equity certificate is listed on they are used. Each authorisation is normally valid Oslo Børs and it is freely negotiable. The only for one year. The acquisition of equity certificates in limitation on ownership is a statutory requirement accordance with authorisations takes place through that currently states that the acquisition of a purchases in the securities market via Oslo Børs, qualified proportion of the equity certificate capital and disposals take place through sales in the same (10% or more) requires the consent of the Ministry market, or as private placements with employees of Finance (authorisation delegated to the Financial within statutory limitations. Supervisory Authority of Norway).

EQUAL TREATMENT OF EQUITY CERTIFICATE GENERAL MEETINGS HOLDERS AND TRANSACTIONS WITH CLOSE The bank’s supreme body is the General Meeting, ASSOCIATES which is composed of equity certificate holders, Sparebanken Vest has one class of equity customers, employees and representatives of the certificates. All equity certificate holders have the authorities. The business of the General Meeting is same rights. It is a goal that equity certificate to approve the annual report and accounts, holders shall be ensured equal treatment and equal including the allocation of profit and declaration of opportunities to exert influence in Sparebanken dividends. The General Meeting also elects Vest. In order to safeguard the interests of owners of members of the Board and the Nomination small holdings, the bank’s Articles of Association Committee. Resolutions or authorisations by the contain a limitation on voting rights that means that, General Meeting to take out subordinated loans and at a meeting for equity certificate holders, no one issue subordinated bonds are subject to the same may vote for equity certificates that represent more rules for a qualified majority as apply to than 15% of the total number of equity certificates amendments of the Articles of Association. issued by Sparebanken Vest. The bank’s Articles of Association are in accordance The owner fraction at year-end 2018 is 22.5%. The with the standard articles of association for savings biggest owner is Sparebankstiftinga Hardanger, banks drawn up by the Norwegian Savings Banks which represents 19.8% of the equity certificate Association and approved by the Financial capital. The bank’s 20 biggest owners own 66.5% Supervisory Authority of Norway. The Articles of of the equity certificate capital. Association contain detailed provisions on the composition of the General Meeting and the The rules of procedure for the Board include provi- election of its members. The General Meeting has sions relating to ethics and impartiality. The bank’s 48 members, 12 of whom are elected by the equity ethical guidelines apply to both officers of the Com- certificate holders. The right of equity certificate pany and employees. Among other things, they holders to attend general meetings is thereby contain guidelines for customer relations, benefits/ limited compared with Chapter 5 of the Public gifts, the duty of confidentiality, participation in Limited Liability Companies Act. The bank’s Articles other business activities and transactions with of Association stipulate that members of the related parties. As a rule, transactions, including General Meeting shall meet in person. It is not the purchase/sale of assets and services, shall not possible to attend by proxy. This means that the take place between Sparebanken Vest, its employ- Code of Practice’s recommendations on the use of ees and its equity certificate holders and officers, proxies at general meetings do not apply to nor with their related parties. Sparebanken Vest’s equity certificate holders.

Provisions have been included in the rules of Decisions are reached by simple majority. Decisions procedure for the Board that emphasise board to amend the Articles of Association require a two- members’ duty to exercise due care in relation to thirds majority of the votes cast. ethical conduct, impartiality and integrity. Moreover, board members must inform the Chair of the Board The General Meeting is convened by the Board. The if they become aware of a possible conflict of interest. rules on convening and holding general meetings

Sparebanken Vest Annual Report 2018 page 138 follow from the provisions of the Public Limited Separate rules of procedure have been adopted for Liability Companies Act Sections 5-5 to 5-16. the main Nomination Committee. The General Notices of and minutes of meetings of the General Meeting decides the remuneration of the Meeting are sent to Oslo Børs and are made Nomination Committee’s members. available on the bank’s website. The main Nomination Committee submits proposals The annual general meeting is held before the end to the General Meeting for the remuneration of of March each year to consider the annual report officers of the Company. No board members or and accounts and the auditor’s report, and to elect representatives of the management are members of members of the Board and the Nomination the Nomination Committee. Committee. This meeting also considers the allocation of profit for the year / declaration of a The bank has a separate nomination committee for dividend and the allocation of donations. Separate elections by equity certificate holders. This elections are held among employees, equity committee prepares elections by equity certificate certificate holders and customers to elect holders to the General Meeting. Sparebanken Vest representatives to the General Meeting. Public takes steps to enable equity certificate holders to representatives are appointed by the City of Bergen submit proposals for candidates to this nomination and the county councils of Sogn og Fjordane, committee. The committee has three members Hordaland and Rogaland. elected by the equity certificate holders.

The General Meeting has elected a Nomination THE BOARD OF DIRECTORS: COMPOSITION AND Committee, which nominates candidates to the INDEPENDENCE Board, as well as candidates to the General Meeting Pursuant to Sparebanken Vest’s Articles of for election by the depositors. A separate election is Association, the Board of Directors shall consist of held for the Chair of the General Meeting. ten members and five deputy members elected by the General Meeting for a term of two years at a The Board, the CEO, the auditor, the Nomination time. Three of these members and their personal Committee and certain members of the bank’s deputies shall be elected by and from among the management and specialists also attend general employees. The Chair and Deputy Chair are elected meetings as required. by the General Meeting in separate elections. At present, four of the full members of the Board are NOMINATION COMMITTEES women. A presentation of the members of Sparebanken Vest’s Articles of Association specify Sparebanken Vest’s Board is available on the that the bank shall have two nomination bank’s website and in this annual report. committees. Pursuant to the Articles of Association, the Nomination Committee for elections by The rules of procedure for the Board of customers and the General Meeting (the main Sparebanken Vest include guidelines for the Nomination Committee) shall consist of seven composition of the Board and terms of office. members elected by the General Meeting, and it Important criteria for members of the Board and its shall include representatives of all groups composition are qualifications, gender, capacity and represented at the General Meeting, plus an independence. The composition of the Board shall independent member elected from among former be such that it is capable of acting independently of board members. Grounds must be stated for the special interests and the bank’s management. The main Nomination Committee’s recommendations, Board’s overall competence shall be regularly which should contain relevant information about assessed in relation to the challenges facing the the candidates, including information about their bank. The Nomination Committee shall be informed competence, capacity and independence. The about the results of the assessment. Pursuant to recommendation shall also contain a description of the rules of procedure for the Board, board the committee’s work. The main Nomination members can own equity certificates in the bank. Committee participates in the deliberations of the General Meeting and presents its proposals.

Sparebanken Vest Annual Report 2018 page 139 THE WORK OF THE BOARD OF DIRECTORS • The Board’s Credit Committee deals with credit The Board of Sparebanken Vest holds 10–12 regular matters under the authorisation of the Board. meetings every year, as well as meetings in connec- tion with strategy work. In addition, the Board organ- • The Remuneration Committee is tasked with ises thematic days with a view to developing its ensuring that the bank has a competitive, but not expertise. Rules of procedure have been drawn up leading, pay policy that complies with applicable and adopted for the Board, with a pertaining calen- regulations for financial undertakings, and is seen dar for the Board’s work. The Board places particu- as motivating by the bank’s management in lar emphasis on work on the annual rolling strategy relation to implementing the adopted strategy and plan. The Board also considers whether the bank’s achieving the goals set. capital situation and risk situation are commercially acceptable and within the statutory limits. The bank’s internal auditor is subject to the Board’s authority and is entitled to attend board meetings. In cooperation with the Chair of the Board, the CEO An annual report is submitted to the Board on prepares matters for consideration by the Board. internal control, the Capital Adequacy Regulations The Board has adopted job instructions for the CEO. and the Securities Trading Act. The Board approves the internal audit function’s annual plan and The Board has overall responsibility for the manage­ resource needs. ment of Sparebanken Vest and for overseeing the day-to-day management and the bank’s activities. RISK MANAGEMENT AND INTERNAL CONTROL The Board’s management responsibility includes Good risk and capital management plays a central responsibility for organising the bank in an role in Sparebanken Vest’s long-term value creation. adequate manner, responsibility for adopting plans The bank’s overriding goals follow from its strategic and budgets, responsibility for keeping informed business basis. The target rate of return governs about the bank’s financial position and for ensuring the bank’s activities and specification of sub-goals. that the business, asset management and accounts The focus is on maintaining the bank’s competitive­ are subject to adequate control. ness in the short and long term. Sparebanken Vest’s market and business goals must be balanced The Board shall comply with the bank’s object as against the bank’s ability and willingness to take set out in its Articles of Association, and it shall risk. Risk and capital adequacy assessments are an comply with the guidelines and framework integral part of the bank’s strategic and business conditions issued by public bodies, including the processes. Financial Supervisory Authority of Norway. The bank’s risk management is related to four main The Board has appointed four committees as part of areas: its work: •. Credit risk • The Audit Committee is charged with ensuring • Market risk that Sparebanken Vest has an independent and • Liquidity risk effective external and internal audit function, and • Operational risk (including compliance risk) financial and risk reporting that is in accordance with laws and regulations. The Board of Sparebanken Vest requires the bank to be well-capitalised. A review of the bank’s most • The Risk Committee is charged with ensuring that important risk areas and capital adequacy Sparebanken Vest’s risk and capital management assessments (ICAAP3) is carried out at least once a underpins the bank’s strategic development and year and considered by the Board. The bank’s goal attainment, while at the same time ensuring capital strategy must be based on the actual risk to financial stability and acceptable asset which the business is exposed, supplemented by management. the effect of various stress scenarios.

3) Internal Capital Adequacy Assessment Process

Sparebanken Vest Annual Report 2018 page 140 The Financial Supervisory Authority of Norway has functions relating to management, control, reporting given Sparebanken Vest its approval for the use of and analysis. It is also responsible for the bank’s internal measurement methods (AIRB4) to calculate models for risk and capital management. The capital in relation to credit risk. This is an important Director of Risk Management reports to the CEO. stamp of approval for the bank’s risk and capital Guidelines have been prepared to ensure management. independence in control and risk reporting.

The Board annually considers the bank’s liquidity The bank’s Compliance department is an analyses (ILAAP5) and discusses and decides the independent function tasked with assisting the bank’s risk tolerance in liquidity and financing. A bank in achieving its financial and strategic goals, key point in the bank’s liquidity management is to without the risk of criticism, financial loss or ensure that the bank is capable of meeting its regulatory sanctions as a result of non-compliance. commitments as they fall due, and that the bank is Under the internal framework, the Compliance able to realise its growth ambitions on acceptable department carries out control activities to ensure terms. The bank’s liquidity management shall also compliance and identify deviations, and reports this ensure that the bank has sufficient liquidity to the CEO and the Board on a quarterly basis. It reserves to survive periods when markets close and/ also makes recommendations and conducts or customers withdraw large amounts of their training activities. deposits. ILAAP thus represents an important basis for Sparebanken Vest’s operational liquidity The Validation Committee, which is chaired by the management. CEO, deals with model validation and validation relating to the application of the bank’s credit Responsibility for implementing the bank’s risk and systems. The Credit Committee, which is chaired by capital management and control is divided between the CEO, deals with major commitments and the bank’s Board, management and business units. matters of an unusual nature.

The Board is also responsible for ensuring that the All managers in Sparebanken Vest are responsible bank has sufficient own funds in relation to the for managing risk and ensuring good internal desired risk and the bank’s operations, and for control in their areas of responsibility in accordance ensuring that it is sufficiently capitalised in relation with the bank’s adopted risk profile. to regulatory requirements. The Board also defines the bank’s targets and limits in all risk areas, The bank’s Finance/Accounting Department is including adopting guidelines for the bank’s risk responsible for financial reporting, internal financial and capital management. The guidelines also management, direct and indirect taxes, and internal include reporting on the status of the bank’s risk control of financial reporting. This includes situation, follow-up of risk reduction measures and responsibility for quarterly financial reporting in the quality of internal control. The bank’s internal accordance with applicable legislation, accounting control processes are assessed by the Board at standards and the accounting principles adopted least once a year. Reporting to the Board in relation for the Group. A template has been developed for to targets and limits takes place quarterly or more group reporting, which is intended to ensure the frequently if required. completeness of the reporting basis and the consistent application of principles. The CEO is responsible for the bank’s overall risk management, including the development of good The Board’s Audit Committee prepares interim and models and frameworks for management and annual accounts for consideration and approval by control. the Board. The Audit Committee’s tasks are related to the process of financial reporting and the The Risk Management unit attends to important submitted financial statements, monitoring of internal control and risk management systems, internal and external audits and the independence 4) Advanced Internal Ratings-Based 5) Internal Liquidity Adequacy Assessment Process of the auditor. The Board’s Risk Committee

Sparebanken Vest Annual Report 2018 page 141 prepares the Board’s deliberations relating to the basis of principles adopted by the Board and Board’s responsibility for monitoring and managing following consultation with the Remuneration the bank’s overall risk exposure and its Committee. The Board’s declaration on executive consideration of whether the management and pay shall be set out in a separate case document to control systems are adapted to the actual risk level the General Meeting. The CEO can grant additional and scope of the business. In addition to reviewing remuneration to employees based on the results accounts and risk reports, the corporate they have achieved and their work performance. management team carries out monthly reviews of Such additional remuneration is also intended to operating reports seen in relation to the budget for ensure the bank’s attractiveness in the employment banking operations, for consideration by the Board. market, while at the same time not being a risk driver. There are no option schemes for the CEO The bank’s Code of Ethics include a duty on the and executive personnel. part of employees to report matters that warrant criticism, including breaches of internal guidelines, The bank has adopted guidelines for remuneration laws and regulations, and a procedure for how such arrangements. In accordance with the regulations notification is to be given. and the Code of Practice for Corporate Governance, they include provisions that set a ceiling on the Sparebanken Vest’s business is subject to the performance-related remuneration of executive supervision of the Financial Supervisory Authority of personnel, and a requirement that 50% of such Norway. In addition to supervisory visits, the remuneration shall be paid in the form of equity Financial Supervisory Authority reviews the bank’s certificates in the bank, allocated over a period of annual and interim accounts, management three years. Executive personnel’s pay and benefits information and capital adequacy assessments. are described in the notes to the accounts. The Board and the management endeavour to maintain an open and constructive dialogue with INFORMATION AND COMMUNICATION the Financial Supervisory Authority. Sparebanken Vest’s information and communication shall be based on openness and A more detailed description of the bank’s risk and accessibility. Communication shall underpin the capital management is available on the bank’s relationship of trust between the bank’s owners, website. Board and management, and ensure that the bank’s stakeholders are given an opportunity to REMUNERATION OF THE BOARD OF DIRECTORS assess and arrange their affairs in relation to the Directors’ fees are decided by the General Meeting bank’s activities. The bank’s information policy is on the recommendation of the Nomination based on active dialogue characterised by Committee. The remuneration is not performance- openness, predictability and transparency. based, and options are not issued to members of Information is given to the market through quarterly the Board. As a rule, board members or companies open investor presentations, stock exchange to which they are affiliated shall not take on specific announcements and press releases, accounting assignments for the bank in addition to their office reports and webcasts. This material is available on as board member. Any additional fees are subject the bank’s website under Investor Relations. to approval by the General Meeting. In urgent matters, however, the chairs of the General Meeting The bank’s financial calendar is published on its and the Nomination Committee may jointly make website. In addition to the annual accounts, the decisions concerning additional fees. An overview Sparebanken Vest Group prepares quarterly of the remuneration of the Board is provided in a financial reports. The annual accounts are audited note to the annual accounts. by an external auditor. Regular presentations are also held for international partners, lenders and REMUNERATION OF EXECUTIVE PERSONNEL investors, and the bank is rated by an international The remuneration of the CEO is decided by the rating agency. bank’s Board, while the remuneration of other executive personnel is decided by the CEO on the

Sparebanken Vest Annual Report 2018 page 142 TAKE-OVERS commented on. The letter contains an assessment Like other savings banks, Sparebanken Vest is an of the bank’s internal control, including areas in independent institution that cannot be taken over which the internal control should be improved. by private individuals or enterprises through acquisition. The owner structure of savings banks is The relationship with the auditor is regulated in a set out in law. No one can own more than 10% of letter of assignment, which, among other things, the bank’s equity certificate capital. The statutory describes the parties’ responsibilities, how the limitation on ownership means that this section of auditor’s fee is stipulated and how other services the Code of Practice is not relevant for are to be agreed and paid. The Board ensures that Sparebanken Vest. the auditor presents the main features of the plan for the audit work. AUDITOR The external auditor is appointed by the General The external and internal auditors hold quarterly Meeting after obtaining the opinion of the Audit meetings with the Board’s Audit Committee and Committee. The auditor submits an annual auditor’s Risk Committee. If necessary, the CEO is present report to the General Meeting and holds regular during the consideration of individual matters. The meetings with the Board at which, among other minutes of the meetings of the Audit Committee things, the ‘Management Letter’ is presented and and Risk Committee are presented to the Board.

OVERVIEW OF GOVERNING AND CONTROL BODIES IN SPAREBANKEN VEST

GOVERNING BODIES CONTROL BODIES

GENERAL MEETING EXTERNAL AUDITOR

NOMINATION COMMITTEE

BOARD OF DIRECTORS

BOARD INTERNAL AUDITOR COMMITTEES

MANAGING DIRECTOR

Sparebanken Vest Annual Report 2018 page 143 Photo: Øystein Klakegg

Sparebanken Vest Annual Report 2018 page 144 Subsidiaries, associate- and product companies

Sparebanken Vest is continuously working on strategic business development. This has resulted in the formation of several new companies and initiatives within various 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 39,7% in the parent company Frende Holding AS. The remaining shareholding is owned by fourteen other independent savings banks. 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 47,6%. The remaining shareholding is owned by thirteen other independent savings banks and Must Invest AS. 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 eleven 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. www.brage.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. The company also operates Verd Boligkreditt* on behalf of 9 independent savings banks. www.spv.no/boligkreditt

EIENDOMSMEGLER VEST is a wholly owned real estate agency and is the leading player in the housing market in Western Norway. Eiendomsmegler Vest conducts its estate agency activities through the branded companies. www.emvest.no

BALDER BETALING Balder Betaling AS is a company that, among other things, exercises ownership of the mobile payment system Vipps on behalf of Sparebanken Vest and other savings banks that are also among the owners of Frende Forsikring. Balder Betaling has a holding of 10.5% in Vipps, and Sparebanken Vest is the biggest owner of Balder with an ownership interest of 36%. The company was established in 2017.

BULDER BANK Bulder Bank is Norway’s first mobile only bank and is a separate brand that operates under the Sparebanken Vest license. Was established in 2018 and has planned national launch towards customers in the second quarter of 2019. www.bulderbank.no

BUFFER Buffer is a new financing solution aimed at the national SME market in Norway. Launched in 2018 towards customers and operating as a separate brand under Sparebanken Vest’s license. www.buffer.no

FOLIO Sparebanken Vest initiated a collaboration with the fintech company Folio with the intention of buying a share in the company. Folio creates a solution for close integration between accounting and online banking. To be launched nationally in 2019. www.folio.no

* Sparebanken Vest sold its remaining holding in Verd Boligkreditt (www.verdboligkreditt.no) in November 2018. Branch locations of 1st January 2019

Eid Region Måløy Sogn og Fjordane Nordfjordeid Florø Førde Sogndal Florø

Sogndal

Region Lonevåg Bergen & surrounding Voss areas Voss Region Kleppestø Bergen Hardanger/ Midthordland/ Os Straume Norheimsund Voss Odda Storebø Eikelandsosen Os

Husnes Haugesund Bremnes Region Jonsvoll Leirvik Sunnhordland/ Åsane Haugalandet Loddefjord Haugesund Fyllingsdalen Etne Lagunen Sauda Sand

Stavanger

Region Stavanger Rogaland

Sandnes Nærbø

Sparebanken Vest Annual Report 2018 page 146 Jonsvollsgaten 2 I N-5011 Bergen (+47) 915 0555 I spv.no