For Northern . ANNUAL REPORT 2013 Design: Rød Tråd AS - Photo: Arnesen Arthur

Annual Report 2013 Operations 128

History 3 Group Management 130 Organisational charts 4 Main Board of Directors 134 Annual Report 6 Governing bodies in SpareBank 1 Nord-Norge 136 Important events in 2013 9 Principles for Corporate Governance 138 Vision and business consept 9 Risk management, internal control and capital management 144 The bank’s history 10 Localisation 11 Ownership 156 From the CEO 12 Report and results 14 Operations 158 SpareBank 1 Alliance and SpareBank 1 Group 164

Annual Accounts 2013 40 Corporate social responsibility 166

Income Statement 42 Together we make things happen 168 Balance Sheet 43 Waiting time is over 170 Changes in equity 44 The cycling festival of the ages in 172 Cash flow statement 46 Welcome to SNN Day 174 Notes 47 Faith in the culture industry 176 Statement from the Main Board of Directors 124 Report from the Control Committee 2013 125 Auditor's Report 126

2 HISTORY 40 SpareBank 1 Nord-Norge is the result of the merger of about 40 savings banks in , and . 74 SpareBank 1 Nord-Norge has an extensive network with a total of 74 branches, whereof 72 are in the region. The Bank also has two branches in Russia. 177 It all started 177 years ago when Tromsø Sparebank was established in 1836. A major wave of mergers began in the 1960s and 1970s and culminated in the establishment of Sparebanken Nord-Norge on 1 July 1989. Early in the 1990s Sparebank and Sparebanken Nordland became part of SparebankEN Nord-Norge. The history of the Bank is now being written at the University of Tromsø. 1996 In 1996 the Bank became part of the SpareBank 1 Alliance - a group of four regional banks and 16 smaller savings banks. These banks collectively own SpareBank 1 Gruppen AS, which is a supplier of various financial products and services.

The SpareBank 1 Alliance and the SpareBank 1 Group have been key to the positive development of SpareBank 1 Nord-Norge, and have thereby also contributed to the Bank becoming a strong, solid bank “For North Norway” - which is the Bank’s vision. 2011 SpareBank 1 Nord-Norge celebrated its 175-year anniversary in autumn 2011. The customers were invited to a magnificent concert where they enjoyed performances from the best artists the region has to offer. A number of other events were also arranged in the local area. 2012 The Main Board of Directors of SpareBank 1 Nord-Norge appointed Jan-Frode Janson as the new CEO and successor to Hans-Olav Karde. Karde stepped down as CEO on 31 December 2012, after running the Bank for 23½ years.

SpareBank 1 Nord-Norge Annual Report 2013 3 ANNUAL REPORT 2013

Organisational chart

Board of Directors

Internal Auditing

Chief Executive Officer

Finance Markets Risk management/compliance Business Development HR/Internal operations Communications Subsidiaries and strategic ownership interests

Helgeland Hålogaland Troms Finnmark Subsidiaries Region Region Region Region Region

4 Organisation of the financial services Group

SpareBank 1 Nord-Norge Financial Services Group

- Tromsø SpareBank 1 Gruppen AS - Bodø SpareBank 1 Finans Nord-Norge AS Equity stake 19,50 % Equity stake 100 % EiendomsMegler 1 Lofoten AS Alliansesamarbeidet SpareBank 1 DA Equity stake 60 % Equity stake 17,74 %

- Tromsø EiendomsMegler 1 Nord-Norge AS Equity stake 100 % SpareBank 1 Boligkreditt AS - Bodø Equity stake 13,15 % -

- SpareBank 1 Næringskreditt AS - North-West 1 Alliance Bank Equity stake 20,92 % Equity stake 75 % Mo i Rana

Mosjøen BN Bank ASA - Equity stake 23,50 %

- Sandnessjøen SpareBank 1 Nord-Norge Forvaltning ASA - Equity stake 100 % SpareBank 1 Verdipapirservice AS Equity stake 24,90 % - Tromsø

- Harstad SpareBank 1 Kundesenter AS - Finnsnes SpareBank 1 Regnskapshuset Equity stake 14,91 % Nord-Norge AS - Equity stake 100 % - Hammerfest SpareBank 1 Kredittkort AS - Alta Equity stake 19,83 % - Mo i Rana SpareBank 1 Nord-Norge Invest AS - Mosjøen Equity stake 100 % SpareBank 1 Markets AS - Trofors Equity stake 23,89 %

- Sandnessjøen Nord-Norge Eiendom IV AS Alsgården AS Equity stake Equity stake 100 % 100 %

SpareBank 1 Nord-Norge Annual Report 2013 5 ANNUAL REPORT 2013

Annual Report

Financial results In NOK million and as percent of average assets

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net interest income 1 038 1 103 1 075 1 206 1 320 1 173 1 129 1 129 1 166 1 285 Commission income and other income 325 366 416 465 411 462 513 506 656 931 Net return on financial investments 42 73 175 201 -84 524 404 184 260 346 Total income 1 405 1 542 1 666 1 872 1 647 2 159 2 046 1 819 2 082 2 562 Personnel costs 647 621 457 473 463 508 477 514 581 638 Other operating expenses 167 175 415 489 508 464 480 522 539 571 Total operating expenses 814 796 872 962 971 972 957 1 036 1 120 1 209 Result before losses 591 746 794 910 676 1 187 1 089 783 962 1 353 Loss on loans, guarantees etc. 318 169 65 17 183 185 87 101 195 172 Result before tax 273 577 729 893 493 1 002 1 002 682 767 1 181 Tax charge 62 174 172 186 143 143 186 157 172 214 Net profit 64 211 403 707 350 859 816 525 595 967

Balance sheet 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Cash and loans to and 649 426 980 2 814 3 433 3 067 3 294 2 866 2 142 2 047 claims on credit institutions CDs. bonds and other 2 807 3 124 4 511 5 403 7 228 9 453 12 178 11 841 12 997 11 919 interest-bearing securities Loans and advances to customers 36 869 37 931 41 638 50 213 51 268 48 180 49 046 51 642 54 551 57 282 - Individual write-downs 503 320 264 134 201 228 271 206 303 244 for impaired value - Collective write-downs 322 321 217 170 204 238 200 226 198 209 for impaired value Other assets 567 779 1 501 2 539 3 578 3 539 4 262 4 683 5 639 6 272 Total assets 40 892 42 260 48 630 60 969 65 507 64 239 68 780 71 032 75 329 77 520

Deposits from credit institutions 3 366 2 790 1 773 2 414 3 708 6 868 6 123 6 446 4 295 4 284 Deposits from customers 21 666 22 999 25 350 32 034 34 572 34 877 39 389 41 765 43 588 44 940 Debt securities in issue 11 171 11 738 15 668 19 665 19 746 14 162 14 477 13 342 16 534 16 336 Other liabilities 828 1 026 1 603 1 348 1 562 1 564 1 774 1 767 1 936 2 008 Subordinated loan capital 1 502 1 194 1 289 1 254 1 461 1 608 1 347 1 356 2 095 1 450 Total equity 2 359 2 513 2 947 4 254 4 458 5 160 5 670 6 356 6 881 8 502 Total liabilities and equity 40 892 42 260 48 630 60 969 65 507 64 239 68 780 71 032 75 329 77 520

6 Key figures In NOK million and as percent of average assets

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Return on equity capital 9.0 % 16.8 % 20.5 % 18.1 % 8.1 % 18.2 % 15.3 % 8.5 % 9.0 % 13.0 %

Cost/income group 57.9 % 51.6 % 52.3 % 51.4 % 59.0 % 45.0 % 46.8 % 57.0 % 53.8 % 47.2 % Cost/income group. 59.7 % 54.2 % 58.5 % 57.6 % 56.1 % 59.4 % 58.3 % 63.4 % 61.5 % 54.6 % ex. financial inv. Cost/income parent bank 56.9 % 51.6 % 51.6 % 55.7 % 62.6 % 46.8 % 50.1 % 57.6 % 51.8 % 44.0 % Cost/income parent bank. 59.0 % 52.8 % 54.4 % 53.4 % 50.0 % 54.8 % 53.3 % 58.8 % 57.3 % 46.5 % ex. financial inv. 12-month cost growth 2.6 % -2.2 % 9.5 % 5.6 % 0.9 % 0.1 % -1.5 % 8.3 % 8.1 % 7.9 %

Gross loans to customers* 36 869 37 931 41 638 52 582 56 806 59 061 63 334 68 034 75 914 80 581 Growth in loans last 12 months* 9.8 % 2.9 % 9.8 % 13.7 % 8.0 % 4.0 % 7.2 % 7.4 % 11.6 % 6.1 % Growth in loans last 12 months 9.8 % 2.9 % 9.8 % 8.6 % 2.1 % -6.0 % 1.8 % 5.3 % 5.6 % 5.0 % Deposits from customers 21 666 22 999 25 350 32 034 34 572 34 877 39 389 41 765 43 588 44 940 Growth in deposits last 12 months 7.4 % 6.2 % 10.2 % 15.3 % 7.9 % 0.9 % 12.9 % 6.0 % -1.3 % 3.1 % Share of loans transferred to 14.7 % 26.7 % 32.3 % 35.0 % 41.1 % 40.8 % Sp 1 Boligkreditt of total loans to retail customers Share of loans transferred to 9.7 % 18.4 % 22.6 % 24.1 % 28.1 % 28.5 % Sp 1 Boligkreditt of total loans to customers

Deposits as a percentage 58.8 % 60.6 % 60.9 % 60.9 % 60.9 % 59.1 % 62.2 % 61.4 % 54.3 % 55.8 % of gross lending* Deposits as a percentage 58.8 % 60.6 % 60.9 % 63.8 % 67.4 % 72.4 % 80.3 % 80.9 % 75.6 % 78.5 % of gross lending

Total assets 40 892 42 260 48 630 60 969 65 507 64 239 68 780 71 032 75 329 77 520 Average assets 39 347 41 992 44 911 58 023 61 267 65 169 66 245 70 291 72 921 75 952

Branches 92 83 85 81 81 76 75 75 74 74 Number of man-years (Group) 770 758 778 813 821 778 788 794 881 922 Number of man-years (parent bank) 708 699 714 722 724 690 675 670 672 647 Number of man-years (subsidiares) 63 60 64 91 97 88 113 124 209 275

Net other operating 23.1 % 23.7 % 25.0 % 24.8 % 25.0 % 21.4 % 25.1 % 27.8 % 31.5 % 36.3 % income of total income

Total regulatory Capital % 11.8 % 10.9 % 10.9 % 10.0 % 10.8 % 12.8 % 11.9 % 12.5 % 13.2 % 13.9 % Tier I Capital % 9.0 % 9.2 % 9.6 % 8.9 % 9.5 % 10.7 % 10.9 % 11.6 % 12.1 % 13.4 % Tier I capital 2 619 2 706 3 037 3 342 4 229 4 846 5 334 6 002 6 672 7 783 Equity and related capital resources 3 430 3 180 3 464 3 746 4 789 5 776 5 849 6 465 7 270 8 069 Total risk-weighted assets base IRB 29 296 31 750 35 594 37 452 44 565 42 567 48 966 51 704 55 098 57 989

Losses on loans to customers 0.86 % 0.45 % 0.16 % 0.03 % 0.32 % 0.31 % 0.14 % 0.15 % 0.26 % 0.21 % as a percentage of gross loans incl.agency loans Non-perf. commitments 1.96 % 0.61 % 0.60 % 0.41 % 0.80 % 0.97 % 0.78 % 0.69 % 0.52 % 0.60 % as % of gross loans Other doubtfull commitments 1.15 % 2.04 % 1.71 % 0.66 % 0.53 % 0.39 % 0.60 % 0.50 % 0.78 % 0.46 % as % of gross loans* Net commitments in default and 0.88 % 0.90 % 0.75 % at risk of loss as a percentage of gross loans* Loan loss provision ratio 25.71 % 30.64 % 28.41 %

* Gross loans to customers include SpareBank 1 Boligkreditt and Næringskreditt

SpareBank 1 Nord-Norge Annual Report 2013 7 ANNUAL REPORT 2013

Annual Report - Group Profit Analysis

Amounts in % of average assets

31.12.13 31.12.12 31.12.11 31.12.10 31.12.09 31.12.08 31.12.07 31.12.06 31.12.05 31.12.04

From profit and loss account Interest income 3.94 % 3.90 % 4.02 % 3.85 % 3.91 % 4.51 % 5.61 % 4.32 % 3.93 % 4.51 % Interest costs 2.24 % 2.30 % 2.41 % 2.14 % 2.18 % 2.60 % 3.53 % 2.18 % 1.54 % 2.60 % Net interest income 1.69 % 1.60 % 1.61 % 1.70 % 1.73 % 2.15 % 2.08 % 2.14 % 2.39 % 2.62 % Dividend and other income 0.43 % 0.31 % 0.30 % 0.44 % 0.47 % 0.50 % 0.42 % 0.34 % 0.22 % 0.06 % from investments Fees and commissions receivable 1.17 % 0.94 % 0.81 % 0.89 % 0.81 % 0.86 % 0.87 % 0.83 % 0.90 % 0.90 % Fees and commissions payable 0.10 % 0.10 % 0.11 % 0.13 % 0.14 % 0.14 % 0.11 % 0.13 % 0.14 % 0.17 % Net gain/loss on securities 0.02 % 0.05 % -0.04 % 0.17 % 0.17 % 0.36 % -0.07 % 0.19 % 0.17 % 0.07 % and foreign exchange Other operating income 0.15 % 0.06 % 0.03 % 0.01 % 0.04 % 0.04 % 0.05 % 0.16 % 0.17 % 0.14 % Net overall contribution 3.37 % 2.86 % 2.59 % 3.09 % 3.14 % 2.69 % 3.23 % 3.53 % 3.71 % 3.62 % Wages. salaries an 1.28 % 1.23 % 1.18 % 1.14 % 1.22 % 1.29 % 1.32 % 1.39 % 1.58 % 1.53 % general administration costs Depreciation etc. on 0.07 % 0.07 % 0.07 % 0.07 % 0.08 % 0.08 % 0.09 % 0.10 % 0.11 % 0.12 % fixed- and intangible assets Other operating costs 0.24 % 0.23 % 0.23 % 0.23 % 0.20 % 0.21 % 0.23 % 0.23 % 0.25 % 0.29 % Result before losses 1.78 % 1.32 % 1.11 % 1.64 % 1.82 % 1.10 % 1.58 % 1.81 % 1.77 % 1.67 % Losses on loans and guarantees 0.23 % 0.27 % 0.14 % 0.13 % 0.28 % 0.30 % 0.03 % -0.08 % 0.14 % 0.40 % Profit before tax 1.55 % 1.05 % 0.97 % 1.51 % 1.54 % 0.80 % 1.55 % 1.90 % 1.62 % 1.27 % Tax 0.28 % 0.24 % 0.22 % 0.28 % 0.22 % 0.23 % 0.33 % 0.40 % 0.38 % 0.40 % Profit for the year 1.27 % 0.82 % 0.75 % 1.23 % 1.32 % 1.40 % 1.22 % 1.50 % 1.24 % 0.87 % Minority interests 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.01 % 0.01 % 0.01 % 0.00 % Majority interests 1.27 % 0.82 % 0.75 % 1.23 % 1.32 % 1.40 % 1.21 % 1.49 % 1.23 % 0.87 %

8 Important events in 2013

CEO change Simplification and customer orientation On 1 January 2013, the leadership of SpareBank 1 Nord-Norge changed In 2013, SpareBank 1 Nord-Norge implemented organisational hands. Jan-Frode Janson succeeded the bank’s long serving CEO, changes that clarify our position as the region’s local bank. All Hans Olav Karde. regional directors are now part of the executive management team, and stronger mandates for our local banks make it more likely that New era for Northern Norway our customers will see SpareBank 1 Nord-Norge as a bank that makes In autumn 2013, SpareBank 1 Nord-Norge published new growth decisions on a local level. figures for Northern Norway covering the next few years via its Busi- ness Barometer for Northern Norway (KB). The autumn analysis Arctic Race of Norway shows that the region is enjoying a historic growth phase, and in 2014 We want great things for our region. One of last year’s big highlights Northern Norway will, for the first time, see higher growth than the was the realisation of the Arctic Race of Norway bike race. SpareBank total growth for Norway as a whole. Growth in Southern Norway has 1 Nord-Norge contributed to the project from the start and is also an of- until now always been higher than growth in Northern Norway. ficial partner. The Arctic Race was a great success in its first year. The TV pictures broadcast to 110 countries were an advert for Northern Equity issue Norway unlike any we have seen before. SpareBank 1 Nord-Norge is the region’s local bank and has a simple, clear vision: For Northern Norway! In order to ensure that the bank is Record result in a position to serve northern Norwegian business and households With a result before tax of almost NOK 1.2 billion and return on equity during a period of strong growth, it carried out a rights issue of equity of 13%, SpareBank 1 Nord-Norge is one of the most profitable banks certificates worth up to NOK 750 million. in the Nordic region. This clearly shows that Northern Norway is doing well.

Vision and business concept

The region’s own bank SpareBank 1 Nord-Norge is a leading provider of financial services operations and business are based on strict requirements with within the retail banking and corporate banking markets in North regard to integrity and commercial ethics as set out in the SNN Norway. Below is a presentation of the Group’s vision and business Corporate Code of Conduct. concept, as well as the overall financial goals. SpareBank 1 Nord-Norge is an independent financial services Our corporate vision is For North Norway! Very simple, but group within the SpareBank 1 Alliance. We know North Norway ambitious and demanding as well. This means that SpareBank 1 extremely well and contribute to development and growth within Nord-Norge wants to be known as being: the region

• The region’s local bank • A Group that creates value in, and invests it back into, Our general targets Northern Norway SpareBank 1 Nord-Norge’s general financial targets are as follows: • Close and competent, with decisions taken on a local level • Financially sound, generous and people-oriented Financial strength - rich in tradition, yet modern Core Tier 1 capital ratio of 14.5% or higher in 2016. • A driving force in the development of Northern Norway – we care about you! Profitability Top international class banking operations. This currently entails a return on equity of at least 12%. Business concept SpareBank 1 Nord-Norge provides comprehensive, modern fi- Cost-effectiveness nancial solutions to customers with a basis in the North Norway The parent bank’s annual average growth in costs should be a market. We create competitive advantages by being “Close and maximum of 2%. The parent bank’s cost/income ratio shall be Competent” in all our customer relationships. We know our cus- on a par with, or better than, comparable banks. tomers and have empathy for their situation. Therefore we are best at identifying needs and creating value-adding solutions. Income growth The Group’s interest income and commissions should increase SpareBank 1 Nord-Norge is an attractive workplace with a cor- by a minimum of 2% more than costs. porate culture characterised by dynamic training, a will to win and a willingness to work together towards a common goal. Our

SpareBank 1 Nord-Norge Annual Report 2013 9 ANNUAL REPORT 2013

The bank’s history

Sparebanken Nord-Norge was established on 1 July 1989 through a merger of the following savings banks:

Tromsø Sparebank 1836

Merges 1963 Sparebanken Nord Sparebank 1980

Merges 1969 1980 Sparebanken Nord-Norge Gisund Sparebank Alta Sparebank 1989 Sparebank Astafjordene Sparebank Dyrøy Sparebank Merges Sparebank 1991 Tranøy Sparebank Berlevåg Sparebank Nordkapp Sparebank

1970 Hillesøy Sparebank 1992 Sparebank Sparebank Sparebanken Nordland Skjervø og Sparebank 1978 Sør-Varanger Sparebank Måsøy Sparebank Sparebank

1982 Tromsøsundets Sparebank

Andenes Sparebank 1982 Øst-Finnmark Sparebank Hammerfest Sparekasse

1984 1984 Kvedfjord Sparebank Sparebank

10 SpareBank 1 Nord-Norge

74 branches in 64 municipalities as well as Svalbard. In addition there are 2 branch offices in North-West Russia.

Branches Regional Offices

HEAD OFFICE: Tromsø ORGANISATION: 5 regions REGION BRANCHES: Hammerfest Tromsø Harstad Bodø Mo i Rana

LOCALISATION: 74 branches NUMBER OF MAN-YEARS: 922

FINNMARK TROMS HÅLOGALAND NORDLAND HELGELAND Alta Bardufoss Andenes Bodø, Storgata 40 Brønnøysund Berlevåg Brøstadbotn Borkenes Bodø, City Nord Mo I Rana Breivikbotn Burfjord Bø Mosjøen Båtsfjord Finnsnes Evenskjer Hamarøy Nesna Hammerfest Gryllefjord Hamnvik Leinesfjord Sandnessjøen Havøysund Hansnes Harstad Misvær Honningsvåg Jektabanken Leknes Moldjord Lyngseidet Lødingen Rognan SPITSBERGEN Melbu Røst Longyearbyen Kirkenes Olderdalen Myre Værøy Kjøllefjord Oteren Narvik Ørnes, Meløy Lakselv , Bardu Ramberg Tana Senjahopen Reine NORTH-WEST Vadsø Sjøvegan Sortland RUSSIA Vardø Skjervøy Stokmarknes Murmansk Øksfjord Svolvær St. Petersburg Storslett Storsteinnes Sørreisa Tennevoll Tromsdalen, Amfi Tromsø, Storgata 65 Tromsø, Sjøgata 8

SpareBank 1 Nord-Norge Annual Report 2013 11 ANNUAL REPORT 2013 From the CEO

On 1 January 2013, the leadership of SpareBank 1 Nord-Norge Our local presence provides us with proximity to, and knowledge changed hands. The undersigned succeeded the bank’s long serving about, the markets we seek to serve. Confirmation of the attractive- Jan-Frode Janson, CEO chief executive officer, Hans Olav Karde. My most important focus ness of our local branches came on SNN day in Tromsø when 7,000 will be on continuing and strengthening the bank’s unique position people visited the Rødbanken building. in Northern Norway, in parallel with the modernisation required to keep up with other social trends. Northern Norway is enjoying a period of major investments, that to a large degree, are being made by the public sector and big, inter- This gives meaning to working “For Northern Norway” as a national and national companies. While SpareBank 1 Nord-Norge vision and guiding star. Given that the region is characterised by wants to strengthen its position in the corporate market, it is not optimism, a high level of activity and economic growth, it is even these major companies that are our bank’s target group. We want more inspiring. Expectations for the future are great, thanks to to be the indisputable first choice for small and medium-sized, our natural resources. A growing Northern Norway needs a solid, northern Norwegian companies and are now focusing even more local bank that knows this part of the country. strongly on this customer group.

In order to improve our customer orientation and clarify our posi- The bank has a strong, heartfelt commitment to the region. We live tion as Northern Norway’s bank, SpareBank 1 Nord-Norge simpli- out our vision “For Northern Norway” primarily through being a fied the organisation and oriented it more towards the customer bank for the people who live or have ties to Northern Norway and throughout 2013. All of Northern Norway is now represented in northern Norwegian trade and industry. the bank’s new executive management team via our five regional directors. This means that important decisions are being taken As part of our active social commitment, we contributed NOK 62 closer to the customer, which helps to reinforce the principle of million to northern Norwegian clubs, associations and knowledge local decisions. No decisions in SpareBank 1 Nord-Norge are institutions through the SpareBank 1 Nord-Norge Fund and our taken outside Northern Norway. cooperation agreements. These funds are distributed evenly across culture, athletics and sports, and development of competence. With a result before tax of almost NOK 1.2 billion and return on equity of 13%, SpareBank 1 Nord-Norge is one of the most profit- We want great things for our region. A good example of this, and able banks in the Nordic region. This clearly shows that Northern one of last year’s big highlights, was the realisation of the Arctic Norway is doing well. Race of Norway bike race. SpareBank 1 Nord-Norge contributed to this project right from the start and was also an official partner Our core activity is banking in Northern Norway. We strength- when the race started in Bodø on 8 August 2013. The region ened our focus on our core activity in 2013, including by selling got to show itself off at its very best over four days. The whole race Bank 1 Akershus and winding up/freezing SNN Invest. was broadcasted to hundreds of thousands of TV viewers on 110 TV channels around the world. We are proud to have contributed In order to ensure that the bank is in a position to play its part to a cycling festival whose ripple effects will be felt throughout in Northern Norway’s growth, a rights issue of equity certificates Northern Norway. worth up to NOK 750 million was conducted. The issue was well received in the market and oversubscribed by 65%. This KB, The Business Barometer for Northern Norway, has become demonstrates great faith in the development of the north and an important factual basis for social debate in Northern Norway. confidence in us as a bank. SpareBank 1 Nord-Norge is solid and It is published twice a year and presented at customer meetings well-equipped to participate in the development of this region. throughout Northern Norway. The Business Barometer has become an important reference document in a national context as well. The stricter requirements concerning financial strength are coming into force at the same time as Northern Norway is experiencing In 2013, KB presented forecasts for the region for the coming strong growth. Other Norwegian and international banks have an- years for the first time. For 2014, this forecast estimates GDP nounced they will be rationing lending. SpareBank 1 Nord-Norge growth in Northern Norway of 4%, compared to 2% nationally. has implemented and will continue to implement measures, both Investments are being made in further growth in the north. to meet the authorities’ requirements and to ensure that the bank’s In the absence of major disruptions and a reversal in the inter- financial strength cannot be questioned. Not the least, we want to national economy, the outlook for further growth and develop- participate in Northern Norway’s growth. ment in the region is very positive.

Having “the most satisfied customers” is one of the bank’s strategic The bank is very busy at the start of 2014. The changes that goals. Our employees have done a great job of significantly in- were made throughout last year put us in an even better creasing customer satisfaction, both with retail and corporate position to deliver services to the benefit of our customers customers. This inspires us to try even harder to ensure that even and to meet an ever evolving banking reality. more retail and corporate customers feel they have a home with us. SpareBank 1 Nord-Norge is well equipped for the future The customers are changing the way the bank is used through new – “For Northern Norway”! technology. The mobile bank became larger than the online bank in 2013. Nonetheless, we view our local branches as great assets.

Jan-Frode Janson 12 CEO SpareBank 1 Nord-Norge Annual Report 2013 13 ANNUAL REPORT 2013

14 Report and results Northern Norway has been enjoying a period of strong growth since 2010. This can be seen in all sectors of society. The business sector is undergoing wide-ranging renewal, the labour market is tight, and households have healthy finances and are strongly optimistic.

SpareBank 1 Nord-Norge Annual Report 2013 15 REPORT AND RESULTS Board of Directors’ report 2013

Northern Norway and (Same period 2012) SpareBank 1 Nord-Norge – in brief Highlights for 2013 Northern Norway has been enjoying a period of strong growth since 2010. This can be seen in all sectors of society. The • Pre-tax profit: NOK 1,181 million (NOK 767 million) business sector is undergoing wide-ranging renewal, the labour market is tight, and households have healthy finances and are • Net profit for the year: NOK 967 million (NOK 595 million) strongly optimistic. Growth and value creation in the region is • Return on equity (Group): 13.0 % (9.0 %). being slowed to some extent due to a lack of competent labour and efficient infrastructure. • Earnings per equity certificate (Group): NOK 4.13 (NOK 3.78). The good growth is due to the greater economic importance of • Very good and improved underlying banking operations. the region’s access to natural resources. This applies to both the traditional maritime resources and the significant oil and gas • Good profit contribution from joint ventures. finds in the Norwegian Sea and Barents Sea. At the same time, • Improved profit contribution from subsidiaries. recoverable and very high value deposits of minerals and rock • Cost/income ratio (Group): 47.2 % (53.8 %). types have been discovered. The situation for aquaculture and • Net loan losses: NOK 172 million traditional fisheries is good, and there is considerable capacity (NOK 195 million). for growth in aquaculture. All the most important fish stocks • Lending growth: 6.1 % (11.6 %) are enjoying good, sustainable development. Historically, the including intermediary loans. summer season has been the most important one for tourism, • Growth in deposits in last 12 months: 3.1 % (-1.3 %). but winter tourism is now becoming equally as important. • Deposit coverage ratio: 78.5% (75.6 %) • Very good liquidity Business sector growth, major public investments and increa- sing house building have resulted in a high level of activity • Successful issues completed in autumn 2013 with gross proceeds totalling NOK 772 million. in the building and civil engineering sector. Analyses of the • Good financial strength: region’s economy are published twice a year in KB, the bank’s Business Barometer for Northern Norway. • Total capital adequacy ratio: 13.9 % (13.1 %). • Tier 1 capital ratio (Group): 12.3 % (10.3 %). Although the outlook for the northern Norwegian economy is • Core Tier 1 capital ratio: 12.3 % (10.31 %). good, there is continuing uncertainty about its future develop- • Proposed cash dividend for equity certificate holders: ment. This is due both to the fact that Norwegian economic NOK 1.10 (NOK 1.15). growth appears to be slowing somewhat and the fact that the outlook for international economic growth remains uncertain.

Strategic goals and target attainment Strategic goals Targets Group 2013 Parent Bank 2013 Profitability Top international class banking operations. This cur- Return on equity 13.0 % 14.8 % rently entails a return on equity of at least 12 %. Efficiency Maximum annual average growth in costs of 2 %. Cost growth The parent bank's cost/income ratio shall be on a par 7.8 % 2.5 % with, or better than, comparable banks. Financial strength Tier 1 capital ratio Core Tier 1 capital ratio 14.5 % or higher in 2016 12.3 % 16.2 %

Top line growth Top line growth (interest income and com- Growth in interest contribution and commissions of 2 13.6 % 14.9 % missions) % above growth in operating costs

*)16 Based on long-term government bond rates as of December 2013. Loans to the retail sector increased by 8.4% in 2013, and de- Systematic customer activity generated good results in 2013. posits rose by 6.1%. Lending growth in the corporate sector The customer satisfaction trend in both the retail and corporate was 1.6% and the growth in deposits was 5.0%. Even with markets is good. The retail market’s customer service centre higher general growth in the north than in the country as a has performed well with regard to customer satisfaction. New, whole, the bank increased its market share within retail sector digital solutions are also helping to ensure customers enjoy a loans in 2012. Full official statistics have yet to be published positive experience. All advisers in SpareBank 1 Nord-Norge for last year, but it would appear that its market share within are authorised, which reassures customers when they are in retail sector loans increased in 2013 as well. contact with the bank.

In autumn 2013, the bank carried out a successful rights issue The Group’s return on equity was 13.0% for 2013, compared and a private placement for employees. The issues raised gross with 9.0% for 2012. proceeds totalling NOK 772 million and will ensure the bank financial strength and the capacity to be a good team player in Please also see the additional comments on the Group’s income the region’s development. statement and balance sheet later on in this report.

New regulatory requirements for equity in financial institutions also entail a requirement to increase the core Tier 1 capital in Goals and strategy SpareBank 1 Nord-Norge. The strategic capital target is a core SpareBank 1 Nord-Norge holds a unique position in the region, Tier 1 capital ratio of 14.5% or higher in 2016. Please refer to enjoying customer relationships with almost half of the popu- the section on the Group’s capital adequacy ratio later on in lation and a powerful distribution system thanks to branches the annual report. in 74 locations and a customer service centre that is open around the clock. SpareBank 1 Nord-Norge has successfully increased the Group’s net interest income (including commissions from transferred Our corporate vision is “For Norhern Norway!” portfolios) by 20% from NOK 1,341 million in 2012 to NOK It is very simple, but at the same time ambitious and demanding. 1,617 million in 2013. Besides growth, this is due to the fact This means that SpareBank 1 Nord-Norge wants to be known that the banks, including SpareBank 1 Nord-Norge, have in as being: general implemented margin expanding measures as one of the means of satisfying the new regulatory requirements for • The region’s local bank financial strength. Reduced money market interest rates also • A Group that creates value in, and invests it back into, helped to expand margins. Northern Norway • Close and competent, with decisions taken on a local level The Group’s net commissions and other operating income • Financially sound, generous and people-oriented - rich in (excluding commissions from transferred portfolios) totalled tradition, yet modern NOK 599 million in 2013, NOK 121 million more than the • A driving force behind the development of Northern Norway year before. The Group will continue to work on increasing – we care about you! commissions and other operating income. Business concept The importance of the Group’s strategic cooperation with the SpareBank 1 Nord-Norge provides comprehensive, modern SpareBank 1 Alliance has grown in recent years. The collabo- financial solutions to customers based in the northern Norwe- ration takes place in several dimensions, and the importance gian market. We ensure our competitive edge by being Close of the direct contribution to the result from the joint ventures and Competent in all customer relationships. We know our in the SpareBank 1 Alliance has increased for SpareBank 1 customers and, therefore, are the best at identifying needs Nord-Norge. and creating value-adding solutions.

The contribution to the result from the joint ventures amounted SpareBank 1 Nord-Norge is an attractive workplace with a to NOK 303 million in 2013. The corresponding figure for 2012 corporate culture characterised by dynamic training, a will to was NOK 210 million. win, and a willingness to work together towards a common goal. Our operations are based on strict requirements concerning The total net profit from financial investments was NOK 346 integrity and business ethics. million for 2013, compared with NOK 260 million for 2012. SpareBank 1 Nord-Norge is an independent financial services The cost/income ratio in the 2013 consolidated financial state- group within the SpareBank 1 Alliance. We know Northern ments is 47.2%, a reduction from 53.8% in 2012. Norway extremely well and contribute to the region’s growth and development. The Group recognised NOK 172 million in losses on loans in 2013, NOK 23 million less than in 2012. The Group’s risk classi- fication system indicates that the overall credit risk in the loan portfolio remains low. Good work is currently being done on non-performing and doubtful commitments in the Group, and this work will remain a high priority in the future. It is anticipated that the general level of losses will, in line with the region’s good economy, remain moderate in the immediate future.

SpareBank 1 Nord-Norge Annual Report 2013 17 REPORT AND RESULTS

Our general targets

• Financial strength Core Tier 1 capital ratio of 14.5% or higher in 2016. • Profitability Top international class banking operations. This currently entails a return on equity of at least 12 %. • Cost-effectiveness The parent bank’s annual average growth in costs should be a maximum of 2%. The parent bank’s cost/income ratio shall be on a par with, or better than, comparable banks. • Income growth The Group’s interest income and commissions should increase by a minimum of 2% more than costs.

SpareBank 1 Alliance and SpareBank 1 Group

The bank’s participation in the SpareBank 1 Alliance and its stake in SpareBank 1 Gruppen form an important part of the bank’s strategy. The participation has been important with respect to the development of SpareBank 1 Nord-Norge and has greatly contributed to the fact that the bank has become a financially sound, strong bank “for Northern Norway”. The SpareBank 1 banks run the Alliance and develop the product companies through the jointly-owned companies, SpareBank 1 Utvikling, and the holding company, SpareBank 1 Gruppen.

The purpose of the SpareBank 1 Alliance is to acquire and pro- vide competitive financial products and services, and to achieve economies of scale in the form of lower costs and/or higher quality. Accordingly, the Alliance provides retail and corporate customers with local roots, competence and easier day-to-day banking. The Alliance should also help to ensure the creation of value by the banks for the benefit of their region and the banks’ owners.

Please also see the special report on companies in the Spare- Bank 1 Alliance later on in this annual report.

18 SpareBank 1 Nord-Norge Annual Report 2013 19 REPORT AND RESULTS Comments on the annual accounts

In accordance with the provisions of the Norwegian Accounting Net commissions and other operating income Act, the financial statements for 2013 have been prepared on the SpareBank 1 Nord-Norge aims to increase its income from risk- assumption that the Group is a going concern. SpareBank 1 Nord- free areas by offering a broad range of products within savings, Norge’s consolidated financial statements have been prepared investment and insurance. In 2013, net commissions and in accordance with section 3-9 of the Norwegian Accounting other operating income accounted for 36% of total income, Act in compliance with IFRS (International Financial Reporting compared with 32% in 2012. Standards), as approved by the EU. Commissions from SpareBank 1 Boligkreditt increased Financial performance Group Parent Bank significantly in 2013. This growth is also primarily attributable to higher prices and lower funding costs in the company. As Amounts in NOK million 2013 2012 2013 2012 far as other commissions are concerned, higher income from Net interest income 1 285 1 166 1 113 1 034 both estate agency and the Group’s subsidiary accounting firms should be mentioned. Net commissions and 931 656 735 540 other operating income Net interest income, including commissions from transferred Net income from 346 260 383 272 loan portfolios, increased from NOK 1 341 million in 2012, to financial investments NOK 1 617 million in 2013. Operating costs 1 209 1 120 978 954

Losses 172 195 146 224 Net interest income, including commissions from Pre-tax profit 1 181 767 1 107 668 SpareBank 1 Boligkreditt, relative to average total Tax 214 172 192 153 assets: (2008-13)

Profit for the year 967 595 915 515 2,5%

The return on equity of 13% for 2013 exceeds the strategic target, which was a minimum of 12%. The return on equity in 2,0% the final quarter was 13.6%, which must be characterised as good, not least because equity increased in the fourth quarter 2013. The bank’s basic operations were further strengthened 1,5% throughout 2013 and remain extremely good.

The financial strength of both the Group and the parent bank 1,0% is satisfactory, and they have good deposit coverage ratios and liquidity. 0,5% In the opinion of the Main Board of Directors the Group is well placed to satisfy the region’s needs for financial services in the years ahead. 0,0% 2008 2009 2010 2011 2012 2013

Net interest income Net income from financial investments Total net interest income increased by NOK 119 million from Net income from financial investments totalled NOK 346 million 2012, amounting to NOK 1,285 million for 2013. The bank in 2013. This income can be broken down as follows: enjoyed good lending growth in the retail market in 2013, while growth in the corporate market was lower than in the year Profit sharing from joint ventures NOK 302 million before. Higher prices and lower money market interest rates Net income from securities NOK 44 million contributed to the growth in net interest income. Net interest • equities NOK 84 million income was also affected by loans transferred to SpareBank 1 • certificates/bonds NOK -30 million Boligkreditt and SpareBank 1 Næringskreditt. Income of NOK • currency and financial derivatives NOK -10 million 332 million from the transferred portfolio has been recognised under commissions. The corresponding figure for 2012 was NOK 175 million.

20 Associated companies and joint ventures Result contributions from associated companies and joint ventures are recognised in the consolidated financial statements in proportion to the bank’s stake using the equity method. In accordance with the cost method, only received dividends are recognised in the parent bank’s financial statements.

Company 2013 2012 2013 2012

Profit sharing in the Profit sharing Dividends in the Dividends in the consolidated in the consolidated parent bank’s parent bank’s Amounts in NOK million financial statements financial statements financial statements financial statements SpareBank 1 Gruppen AS (19.50 %) 210 96 134 85

SpareBank 1 Boligkreditt AS (13.15 %) 29 33 19 14

SpareBank 1 Næringskreditt AS (20.92 %) 5 4 3 4

SpareBank 1 Utvikling DA (17.74 %) 0 0 0 0

Bank 1 Oslo Akershus (4,90 %) 0 0 25 13

BN Bank ASA (23.50 %) 66 44 52 21

SpareBank 1 Kundesenter AS (14.91 %) 0 0 0 0

SpareBank 1 Verdipapirservice AS (24.90 %) -2 0 0 0

SpareBank 1 Kredittkort AS (19.83 %) -5 0 0 0

SpareBank 1 Markets AS (23.89 %) -1 0 0 0

Total 302 201 210 138

SpareBank 1 Gruppen Akershus to 4.8%. This agreement was signed together with SpareBank 1 Gruppen’s net profit in 2013 amounted to NOK SpareBank 1 SR-Bank and SpareBank 1 SMN, with Sparebanken 1 118 million (NOK 443 million). The SpareBank 1 Nord- Hedmark as the buyer. The transaction’s sale price matched Norge Group’s share of the result, amounting to NOK 210 mil- the book value of Bank 1 Oslo Akershus AS as of 30 September lion (NOK 96 million), has been incorporated into the finan- 2012. The agreement was approved by both the Financial Su- cial statements. SpareBank 1 Livsforsikring and SpareBank 1 pervisory Authority of Norway and the Ministry of Finance. Skadeforsikring made the greatest contributions to Spare- The transaction was formally executed in the second quarter Bank 1 Gruppen’s profit. SpareBank 1 Gruppen sold its stake 2013. The share of the result has not been incorporated in 2013 in SpareBank 1 Markets AS in the third quarter. (NOK 25 million).

SpareBank 1 Boligkreditt BN Bank and SpareBank 1 Næringskreditt SpareBank 1 Nord-Norge owned a 23.5% stake in BN Bank as SpareBank 1 Boligkreditt was set up by the banks in the of 31 December 2013. The share of the result as of the fourth SpareBank 1 Alliance to benefit from capital market funding quarter 2013 amounted to NOK 66 million (NOK 52 million) through the use of covered bonds. The banks transfer mort- including the effect of amortisation from the date of pur- gages with very good security to this company. This reduces chase. funding costs and increases the competitiveness of the Spare- Bank 1 banks. In 2013, BN Bank implemented measures to improve profit- ability that have significantly reduced costs and expanded The bank owned a 13.15% stake in SpareBank 1 Boligkreditt lending margins. The net profit for the period increased from as of 31 December 2013 and the share of its result for 2013 was NOK 188 million to NOK 252 million. Loan losses were higher NOK 29 million (NOK 33 million). than the expected long-term level. This is due to specific cir- cumstances relating to a few commitments in the corporate The SpareBank 1 banks established SpareBank 1 Nærings- market portfolio and losses in BN Bank’s former portfolio in kreditt in 2009 based on the same model and with the same Ålesund (guarantee portfolio). Structural solutions and further management as SpareBank 1 Boligkreditt. SpareBank 1 Nord- internal measures aimed at improving profitability and reducing Norge owned a 20.92% stake in the company and the share the risk-weighted balance sheet are in progress. The bank’s of its result for 2013 was NOK 5 million (NOK 4 million). application for Advanced IRB is one of these measures.

Bank 1 Oslo Akershus SpareBank 1 Markets As of 31 December 2012, SpareBank 1 Nord-Norge owned a SpareBank 1 Markets, whose main shareholder was Spare- 19.5% stake in Bank 1 Oslo Akershus. In January 2013, the Bank 1 Gruppen AS, was, as of 31 December 2013, directly bank signed an agreement to reduce its stake in Bank 1 Oslo owned by SpareBank 1 SMN (23.89%), SpareBank 1 Nord-

SpareBank 1 Nord-Norge Annual Report 2013 21 REPORT AND RESULTS

Norge (23.89%), Sparebanken Hedmark (14.33%), Samspar Securities (23.89%), the Norwegian Federation of Trade Unions (12%) The consolidated financial statements received NOK 27 and employees (2%). million in dividends from equity investments in 2013, and NOK 57 million in net capital gains were recognised for the In connection with the change in ownership structure, Spare- portfolio. The net capital gains include capital losses of NOK Bank 1 Gruppen wrote down its stake in SpareBank 1 Markets 23 million from a subsidiary, SpareBank 1 Invest AS. by NOK 132 million in the second quarter 2013. SpareBank 1 Nord-Norge’s share of this write-down was NOK 26 million. In the bank’s financial statements, dividends amount to NOK The result in SpareBank 1 Markets in the fourth quarter 2013 25 million and net capital gains NOK 164 million. Gains and shows a loss of NOK 11.5 million. SpareBank 1 Nord-Norge’s increases in value of NOK 99 million from the sale of the stake share of this was NOK 2.8 million. in Bank 1 Oslo Akershus are recognised as income. Parts of these gains are eliminated in the consolidated financial state- The share of the result as of the fourth quarter 2013 amounted ments such that the net gains amount to NOK 18 million. to NOK -1 million.

Other companies Subsidiaries The Alliance companies SpareBank 1 Verdipapirservice and The Group’s subsidiaries reported a combined pre-tax profit SpareBank 1 Kundesenter were established at the end of the for the year of NOK 87 million. The profit contribution of second quarter 2012. SpareBank 1 Nord-Norge’s stakes in these NOK 64 million after tax has been consolidated into the are 24.9% and 14.91%, respectively. Shares of the results from consolidated financial statements. Only dividends received these totalling NOK -2 million have been incorporated for the from the subsidiaries are recognised, in accordance with the full year 2013. The share of the result for 2013 of NOK -5 mil- cost method, in the parent bank’s financial statements. lion from the 19.83% stake in SpareBank 1 Kredittkort has also been incorporated.

Dividends for 2013 Write-downs in 2013 Share of the result for Subsidiaries in the parent bank’s in the parent bank’s Amounts in whole NOK 1,000 2013 after tax financial statements financial statements

SpareBank 1 Finans Nord-Norge AS 72 416 52 151 0

SNN Portefølje AS -20 992 0 - 20 000

Nord_Norge Eiendom IV AS 0 00

Alsgården AS -3 00

EiendomsMegler 1 Nord-Norge AS 11 056 5 200 0

EiendomsMegler 1 Lofoten AS -37 00

SpareBank 1 Nord-Norge Forvaltning AS 1 724 901 0

North-West 1 Alliance Bank 1 859 00

SpareBank 1 Regnskapshuset Nord-Norge AS* 2 909 00

Total 68 935 58 252 - 20 000

* Consolidated result, excluding write-downs in goodwill

The result in SNN Portefølje AS (formerly SpareBank 1 Nord- SpareBank 1 Nord-Norge’s banking operations in Russia, through Norge Invest AS) was affected by write-downs in some stakes, the North-West 1 Alliance Bank, are 75% owned by SpareBank including NOK 12 million in the investment funds Nord I 1 Nord-Norge and 25% owned by the bank’s Russian partner IS and Nord II IS, NOK 8 million in the stake in Nord-Norge Bank Tavrichesky in St. Petersburg. Eiendom IV, and NOK 5 million in the stake in Nordisk Areal Invest AS. SNN Portefølje AS owns 100% of the company SpareBank 1 Regnskapshuset Nord-Norge AS (formerly SNN Nord-Norge Eiendom IV, which in turn owns 100% of the Økonomihus AS) has invested in several northern Norwegian company Alsgården AS. Both companies are consolidated into accounting firms since 2011 and merged them into a single the consolidated financial statements as of 31 December 2013. company. The result for 2013 was affected by coordinating SNN Portefølje AS’s former operations are being restructured/ costs following the acquisitions. wound up. The company will continue as a legal entity for legal and practical reasons. The company’s stipulated purpose has changed in line with its changed activities.

22 Operating costs Group write-downs during the year increased by NOK 11 Ordinary operating costs for 2013 amounted to NOK 1 209 million to NOK 209 million as of 31 December 2013. On the million, an increase of NOK 89 million, or 7.9%, from 2012. same date, Group write-downs accounted for 0.37% of the Costs amounted to 1.59% of average total assets, an increase Group’s combined gross lending, or 0.26% of gross lending of 0.05 percentage points compared with 2012. when intermediary loans are included.

Development of costs relative to average total assets: In the opinion of the Main Board of Directors, the quality (2008-13) of the loan portfolio is good and the bank is still doing high quality work on Group commitments in default and doubtful 1,80% commitments. Based on this, and with reference to the region’s good economic performance, the Main Board of Directors 1,60% believes that the level of losses will remain moderate for the 1,40% immediate future.

1,20% Tax The Group’s tax cost for 2013 is estimated at NOK 214 million. 1,00% The tax basis has been reduced by permanent differences and 0,80% the effects of the exemption model. In accordance with IFRS wealth tax is not a tax cost. NOK 11 million has, therefore, been 0,60% recognised under other operating costs.

0,40% Dividend policy and 0,20% allocation of profit for the year 0,00% The bank’s dividend policy states that the bank aims to 2008 2009 2010 2011 2012 2013 distribute up to 50% of the profit for the year as a dividend The cost/income ratio in the 2013 consolidated financial (cash dividends and donations for publicly beneficial purposes), statements is 47.2%, a reduction from 53.8% in 2012. The the bank’s financial strength permitting. Stricter regulatory nominal costs show an increase of 7.8% for the Group, while requirements for banks’ equity will mean that a dividend rate the corresponding figure for the parent bank is 2.5%. One of less than 50% must be expected in the next few years. important reason for the increase in costs in the Group is the higher level of activities in the bank’s subsidiaries. This is The parent bank’s net profit for the period is distributed between especially true for SpareBank 1 Regnskapshuset Nord-Norge, the equity certificate holders and the bank’s community-owned which completed several acquisitions in 2013. Otherwise, capital in accordance with the relative distribution of equity costs are primarily increasing due to the general rise in wages capital between the groups of owners in the parent bank. The and higher payroll costs for new employees compared with equity certificate fraction (the proportion of equity held by the average for all employees. The financial statements were equity certificate holders) as of 1 January 2013 was 42.91%. charged with around NOK 8 million in profit sharing for employees in the fourth quarter 2013. If this cost is ignored, A cash dividend of NOK 1.10 per equity certificate, for a total the increase in costs from 2012 to 2013 in the parent bank of NOK 110.4 million, and an allocation of NOK 28.3 million to would be within the target for the average annual increase in the dividend equalisation fund have been approved. NOK 43.1 costs of a maximum of 2% in the parent bank. million has been set aside for publicly beneficial purposes. These funds will be distributed via the bank’s grant fund: the The Group’s personnel costs rose by 9.8% in 2013 and by SpareBank 1 Nord-Norge Fund. The bank’s Supervisory Board 2.1% in the parent bank. has approved the annual financial statements and allocation of the result. Cost reducing measures were implemented in the parent bank in 2013 such as rationalisation measures within staffing Allocation of the result for 2013 Total and cuts in other costs. Further cost reduction measures are Parent bank's net profit for the year 915.1 planned to take effect in 2014. Distribution/dividend 153.5 Losses and defaults on loans Retained profit 761.6 The Group’s net losses on loans as of 31 December 2013 amounted of which to dividend equalisation fund 282.3 to NOK 172 million: NOK 144 million from the corporate market and NOK 28 million from the retail market. Losses in of which to Savings Banks Fund 479.3 the corporate market are considered to be slightly higher than Total allocations 915.1 the economic situation would suggest they should be. Retained portion, parent bank's profit 83.2 %

The Group’s total individual loss write-downs as of 31 Retained portion, Group profit 84.1 % December 2012 were NOK 244 million, a reduction of NOK 59 million compared with 2012. Dividends will be distributed to equity certificate holders who are registered as of 25 March 2014. The bank’s equity certificates will be traded ex dividend as of 26/03/2014.

SpareBank 1 Nord-Norge Annual Report 2013 23 REPORT AND RESULTS

Balance sheet performance

Amounts in NOK million 31.12.13 31.12.12 Change Change in %

Balance

Total assets 77 520 75 329 2 191 3 %

Gross lending 57 282 54 551 2 731 5 %

Lending to customers including intermediary loans 80 581 75 914 4 677 6 %

Deposits from customers 44 940 43 588 1 352 3 %

Group’s gross lending (including transferred home mortgages) and deposits as of 31 December 2013, by the various markets

CM/PM RM incl. Boligkreditt CM PM RM

30 % 28 %

70 % 55 %

17 %

LOANS DEPOSITS

The Group’s deposits fund 78.5% of gross lending as of 31 December 2013. The corresponding fi gure at year-end 2012 was 75.6%. The deposit coverage ratio is considered to be good.

Portfolio of certificates and bonds Capital adequacy ratio The Group’s portfolio of certifi cates and bonds totalled NOK On 1 January 2007, SpareBank 1 Nord-Norge received per- 11,207 million as of 31 December 2013. The corresponding mission from the Financial Supervisory Authority of Norway fi gure as of 31 December 2012 was NOK 12,444 million. The to use internal calculation methods (IRB - Internal Rating Based holdings of interest-bearing securities include covered bonds Approach) for credit risk. issued under the government’s swap scheme. Capital adequacy ratio as of 31 December 2013 As of 1 July 2008, a large portion of the bank’s interest-bearing Group Parent Bank securities in the trading portfolio were reclassifi ed from ‘fair value through profi t and loss’ to categories that are valued at 2013 2012 2013 2012 amortised cost. Had the reclassifi cation not been performed, Core Tier 1 the Group would have had to recognise a charge of NOK 212 12.29 % 10.31 % 16.23 % 11.69 % capital ratio million as an unrealised loss during the last half of 2008 due to expanded credit spreads. The corresponding fi gure would Tier 1 13.42 % 12.11 % 17.52 % 13.72 % have been an unrealised gain of NOK 4.6 million as of 31 capital ratio December 2013. Tier 2 capital 0.49 % 1.09 % 0.96 % 1.51 %

Total capital 13.91 % 13.19 % 18.48 % 15.23 % adequacy ratio

24 If the full impact of the IRB approach is included (without a Corporate governance ‘floor’) the Group’s core Tier 1 capital ratio amounts to 14.29%. The governance of SpareBank 1 Nord-Norge is based on the The bank’s financial strength is considered good in relation to Norwegian Accounting Act and the principles stated in the the current regulatory minimum requirements. Norwegian Code of Practice for Good Corporate Governance. Please see the special section in the annual report on ‘Corporate The Group uses proportional consolidation for its capital governance’ which also covers the requirements of section adequacy reporting for the stakes in SpareBank 1 Boligkreditt, 3-3b of the Norwegian Accounting Act. It provides a detailed SpareBank 1 Næringskreditt, BN Bank, SpareBank 1 Markets description of SpareBank 1 Nord-Norge’s compliance with the and SpareBank 1 Verdipapirservice. As a result of the transitional Code of Practice. rules in the new regulations, the IRB banks were to benefit in full from the reduced regulatory capital adequacy requirements Good corporate governance in SpareBank 1 Nord-Norge is starting in 2010. This has been postponed until 2017, and the defined as the aims, targets and overall principles in accordance transitional rules (the ‘floor’) have therefore also been applied with which the bank is managed and controlled for the purpose in 2013. of safeguarding the interests of the owners and other groups in the bank. The Group’s corporate governance principles shall SpareBank 1 Nord-Norge submitted an application for A-IRB ensure the sound and appropriate management of the bank’s approval to the Financial Supervisory Authority of Norway in assets and liabilities, providing additional assurance that all mid-June 2013. This application is expected to be processed agreed targets, aims and strategies are met and adhered to. within 12 months. Permission to use A-IRB in the calculation of capital requirements for lending to the corporate market is The bank’s equity certificates are listed on the Oslo Stock important for the bank’s ongoing adaptation to new capital Exchange. The Articles of Association include no regulations requirements. that limit their negotiability. The Main Board of Directors is not aware of any agreements between the equity certificate Stricter new regulatory requirements for banks’ capital ade- holders that limit their negotiability or the exercising of the quacy entail a considerable improvement in banks’ financial voting rights they represent. strength. SpareBank 1 Nord-Norge has already implemented and will continue, a number of measures to improve the bank’s capital adequacy, including: Risk and capital management Risk and capital management is one of the Main Board of • various measures to increase earnings, including higher Directors’ priority areas, and it supports the Group’s strategic margins on loans ambitions, goals and development. The Group stresses the • reduced dividend payout ratio importance of good risk management that ensures financial • reduced lending growth, especially in the corporate market stability and prudent asset management over time. • application for A-IRB approval • measures to increase capital utilisation The Group’s control and management model clearly defines • selling down of the bank’s stake in Bank 1 Oslo Akershus responsibilities and roles. SpareBank 1 Nord-Norge invests • utilisation of capital allocated to the Sparebankstiftelsen a great deal of resources in establishing, following up and SpareBank 1 Nord-Norge foundation developing the Group’s quality and risk management systems and processes. In the opinion of the Main Board of Directors, it would be possible to achieve the new capital requirements using the The Group’s principles and framework for risk management measures mentioned above. However, this would require and internal control are set out in the bank’s ‘Policy for Risk heavily restricting the Group’s lending growth – especially Management and Compliance’. This is reviewed annually by within the corporate market. Continuing to significantly the Main Board of Directors and forms the Group’s internal restrict lending growth would impact short-term and long- framework for good management and control. The framework term earning opportunities and the Group’s long-term market provides guidelines for the Group’s overall approach towards position. Profitable participation in Northern Norway’s growth risk management, and is intended to ensure that the Group has forms an important part of the bank’s socio-economic role as an effective and appropriate process for this. the region’s own bank. Based on this, on 9 September 2013 the bank’s Supervisory Board decided to strengthen the bank’s Please also see the sections on ‘Risk management’, ‘Capital equity through a rights issue of up to NOK 750 million. A management’ and ‘Corporate governance’ in the annual report. successful rights issue for this amount was, therefore, carried This following section describes internal control and risk out at the end of September. At the same time, a private management in more detail. placement for the Group’s employees was carried out on the basis of previous authorisations granted by the Supervisory Board. The latter raised gross proceeds of NOK 22.5 million. Internal control The due date for payments for the new equity was 8 October The Main Board of Directors reviews the framework for manage- 2013 and the new capital was recognised in the fourth quarter ment and control and the ongoing follow-up of the development 2013. of key quality and risk indicators annually. Each year, all man- agers must confirm that laws, regulations, guidelines and routines The effects of the aforementioned implemented measures, are being complied with. The risk management and compliance including the issues, are recognised in the 2013 consolidated department bears general responsibility for ensuring that financial statements and will affect the financial statements in management and reporting systems are used actively by the next few years as well. managers to monitor business areas and disciplines.

SpareBank 1 Nord-Norge Annual Report 2013 25 REPORT AND RESULTS

The Main Board of Directors receives an annual independent medium-sized customers. The performance of the combined assessment of the Group’s risks, and whether internal control credit portfolio confirms that economic development in the is working in an appropriate and satisfactory manner. The region is strong. independent assessment is carried out by the bank’s internal auditor and the responsible auditor. The credit strategy emphasises the establishment of targets and limits for the ongoing management of credit risk. The bank’s rules and regulations relating to the granting of credit Risk management and the associated authorisations are linked to the probability Financial activities entail a need to control and manage risk. of default and collateral coverage, and they apply within the SpareBank 1 Nord-Norge’s Main Board of Directors stresses credit strategy and overall credit policy guidelines. The rules the importance of good risk management as a strategic tool for and regulations relating to the granting of credit are reviewed increasing value creation, and is responsible for monitoring annually by the Main Board of Directors. the Group’s risk exposure. This Main Board of Directors sets limits for all the key business and risk areas, which in turn The Main Board of Directors continuously monitors the risk in are measured and reported on in accordance with the adopted the bank’s loan portfolio. This is done to ensure that trends are guidelines. uncovered as early as possible and any necessary adjustments can be made to the credit policy. The risk management and compliance department prepares a quarterly summary of the risk picture for the Group. This Market risk forms the basis for the Main Board of Directors’ discussions The Group’s market risk is classified as moderate. The portfolio and evaluations of necessary measures. A key part of this of assets that are directly exposed to market fluctuations review is an assessment of the Group’s financial strength, represents a small part of total assets, and the bank is involved in profitability and efficiency based on developments in the securities trading for own account to a limited degree only. underlying portfolios and risks. The book value of equities and units as of 31 December 2013 Business risk was NOK 712 million, an increase of NOK 159 million from The Group’s business risk arises from potential falls in the year before. The bond and certificates portfolio totalled earnings, significant changes in capital requirements due to NOK 11,207 million as of 31 December 2013. This represents new regulatory requirements, and/or declining confidence, a reduction of NOK 1,237 million since 31 December 2012. or damage to its reputation, in the market due to serious events. Stress tests for market risk show that the bank and Group have the capacity to keep the level of risk within the adopted limits. Business risk can arise as a result of various risk factors and Changes in market values, together with the profit contribution the Group makes use of a broad range of tools (quantitative from associated companies, mean that profits may be exposed and qualitative) to identify and report such risks. to greater fluctuations than was previously the case. Stricter financial strength requirements require a stronger focus on the Good strategic planning is the most important tool for reducing Group’s capital use and total risk tolerance. business risk, and the Board reviews business strategies and plans every year. The Group’s limits and guidelines for good Liquidity risk corporate governance and the SNN Code play an important The bank’s liquidity risk is regarded as moderate. SpareBank 1 role in the commercial management of its operations. The Boligkreditt AS and SpareBank 1 Næringskreditt AS represent guidelines focus on attitudes and ethics and how SpareBank important sources of funding for the Group, and there remains 1 Nord-Norge does business with its customers and other potential for increased transfers of loans to these companies. associates. When the expected growth in lending and refinancing of current capital market funding upon maturity are taken into New, stricter requirements for financial strength and account, the bank is of the opinion that its refinancing needs liquidity mean the bank’s earnings must be improved. This for 2014 are fully manageable. must be achieved through higher earnings, more efficient operations and good capital management. Securities issued and debt to financial institutions amounted to NOK 20,620 million as of 31 December 2013, a reduction of Credit risk NOK 209 million compared with 2012. The work and focus on In 2013, the Group experienced good lending growth in the the area of liquidity is a high priority for the bank. retail market and low lending growth in the corporate market. The performance of the portfolio showed that the growth On 6 January 2013, the Basel Committee’s control body un- occurred in the low and medium loan risk categories. animously approved the Committee’s liquidity coverage ratio (LCR) proposal as a minimum standard. The proposal entails The Group’s credit portfolio in the corporate market has a an easing of the definition of LCR compared with the definition moderate level of risk, while the risk in the retail market published in 2010. Important changes are: portfolio is considered to be low. The risk trend in both markets • An expanded definition of ‘High Quality Level 1 Assets’. is stable. Most of the loans to retail customers are secured by • Reduction in the rates for ‘net cash outflows’. mortgages on real property and the collateral coverage is good. • A clarification that the liquidity reserves can be used The level of commitments in default and net losses in 2013 in turbulent economic times. is still somewhat higher than economic growth would suggest • The importance of having access to central bank they should be. The losses remain attributable to individual, reserves is clarified.

26 • The LCR standard will be phased in over a 4-year period, but The risk in the various companies is moderate, but the bank is for SIFI banks (systemically important financial institutions) indirectly exposed to significant market risk through its equity the LCR requirement is 100%, and for Liquidity Indicator 1 stake in SpareBank 1 Gruppen. the requirement is 110%. The Group holds a capital adequacy reserve for SpareBank 1 In connection with the implementation of Basel III and new Gruppen. For the stakes in SpareBank 1 Boligkreditt, Spare- liquidity requirements, the Group’s overall liquidity risk will Bank 1 Næringskreditt, BN Bank, SpareBank 1 Markets and be a high priority in the bank. The area will also be prioritised SpareBank 1 Verdipapirservice, the Group uses proportional in 2014, both with regard to ongoing follow-up, stress testing consolidation to calculate the regulatory capital requirement. and reporting. For the same reason, a prudent funding strategy is still required. It must take different considerations into The risk-adjusted capital is calculated for all the significant account, including balancing between the lowest possible risk areas. This is an important prerequisite for assessments borrowing costs in the capital market and the costs related to related to risk exposure, capital buffers and solvency targets diversification of the bank’s funding with regard to terms to in order to secure the Group’s operations even under stressed maturity and funding sources. market conditions.

The Main Board of Directors considers the Group’s liquidity One of the overall aims is to ensure that the Group’s combined risk strategy and contingency plans at least once a year. level is moderate and within the limits determined by the Group’s capital and other provisions. The goal is for good risk management The Group’s deposit coverage ratio was 78.5% as of 31 to ensure the Group’s earnings and profit performance are within December 2013 compared with 75.6% in 2012 and 80.9% in acceptable stability and predictability limits. 2011. The Group has enjoyed a positive trend in its deposit coverage ratio over the last several years. The fall in 2012 was due to high lending growth and negative deposit trends from the public sector. A good deposit coverage ratio and Capital management stable customer deposits are important for the bank’s liquidity SpareBank 1 Nord-Norge’s aim is to manage all significant risks management, and the bank expects new liquidity buffer in accordance with the best practices for comparable banks. requirements and the monitoring of liquidity risk to increase Processes have been established to assess the capital require- the competition for stable customer deposits. ments in light of the risk profile and the quality of the established risk management and control systems. Operational risk The importance of managing operational risk is well under- The capital adequacy regulations set minimum requirements stood. Therefore, special systems for monitoring, documenting for core Tier 1 capital, Tier 1 capital and primary capital, and and reporting risk and improvement areas have been established. cover credit risk, market risk and operational risk. Financial institutions must also carry out an internal capital adequacy The Group pays a lot of attention to external threats such assessment process (ICAAP). The Financial Supervisory as crime and fraud. Risk analyses are conducted based on Authority of Norway has provided guidelines for the content the Financial Supervisory Authority of Norway’s Risk and of the process, and the capital adequacy assessment shall Vulnerability Analysis and the Financial Services Industry’s include all significant risks, including risks beyond the threat assessment. regulatory minimum requirement. The assessment must also be forward-looking and based on satisfactory methods and Given the inherent risks of using information technology, the data. Uncertainty relating to the calculations, methods and area is subject to constant monitoring. The internal auditor also data must also be taken into account. The Group’s risk and conducts independent reviews and tests of the bank’s security in capital situation is assessed and summed up in a separate this area. Incidents that have affected, or may affect, the Group’s report to the Main Board of Directors every quarter. profitability and/or its reputation are followed up systematically. There is also a close collaboration within the SpareBank 1 The Group’s financial strength targets are included as key Alliance to ensure good and stable operations. There were no figures in the strategy and planning process. serious incidents in 2013, and operational losses were low. New regulatory requirements In the opinion of the Main Board of Directors, the area satis- New EU regulations for financial institutions and securities factorily supervised but constant vigilance is required. firms were adopted on 27 June 2013. The regulations, known as ‘CRD IV’ (Capital Requirements Directive IV), came into Ownership risk effect in the EU on 1 January 2014. CRD IV is mainly based on The stakes in joint ventures have increased significantly and the Basel Committee’s capital and liquidity standards (Basel total NOK 2 436 million (cost price for the parent bank) and III). CRD IV consists of regulations containing minimum re- NOK 3 564 million (Group) as of 31 December 2013. These quirements for various forms of capital, quantitative liquidity joint venture companies are important to the Group’s overall requirements, provisions concerning major commitments and business model, and the bank continuously assesses which the disclosure of financial information, as well as a directive stakes are strategically important and which can be classified containing licensing provisions, provisions concerning the as financial investments. The profit contributions from joint activities of supervisory authorities, operational and risk venture companies are also important to the Group’s overall management in the institutions, and requirements concerning profitability, and can result in greater volatility in results and capital buffers in excess of the minimum requirement. influence capital adequacy.

SpareBank 1 Nord-Norge Annual Report 2013 27 REPORT AND RESULTS

CRD IV has not yet been included in the EEA Agreement. The special circumstances it could also be set higher than 2.5%. Financial Supervisory Authority of Norway will, on behalf On 12 December 2013, the Ministry of Finance decided that of the Ministry of Finance, draw up specific national rules the countercyclical capital buffer will be introduced at 1%, that, insofar as it is possible, match the CRD IV regulations applicable from 30 June 2015. beyond those which are contained in the statutory provisions that came into effect on 1 July 2013. The regulations will be In a letter dated 3 March 2013, the Ministry of Finance translated and implemented by regulations that stipulate that announced that the Financial Supervisory Authority of Norway, the regulations apply, while the directive will be implemented based on developments in the housing market and in the IRB in one or more regulations. banks’ risk weights for housing, will tighten the requirements for the banks’ housing models. These stricter requirements will Norwegian statutory provisions concerning the capital and affect both the banks’ probability of default (PD) and loss given buffer requirements in CRD IV were adopted by the Storting default (LGD) estimates. To strengthen the banks’ models with (Norwegian Parliament) on 10 June 2013 and came into effect on regard to financial stability, the Ministry of Finance has changed 1 July 2013. The new provisions are contained in the Financial the Capital Requirements Regulations by raising the lower limit Institutions Act and Securities Trading Act, with authorisation for average LGD (‘the LGD floor’) from 10% to 20% from 1 to stipulate more detailed provisions in regulations. January 2014. The Financial Supervisory Authority of Norway is considering changes to the requirements concerning the banks’ The Financial Supervisory Authority of Norway has also con- PD estimates. Clarification is expected during spring 2014. sidered and drawn up a proposal concerning which institutions should be considered nationally systematically important and According to the new legislation, the Financial Supervisory will be subject to special requirements concerning capital buffers. Authority of Norway must consider all the risks to which The Financial Supervisory Authority of Norway recommends the institutions are and may be exposed, and the risk the that the following institutions be defined as systemically im- institutions themselves represent to the financial system. The portant: DNB Bank, Nordea Bank Norge, SpareBank 1 Nord-Norge, authority can impose higher capital requirements than the SpareBank 1 SR-Bank, SpareBank 1 SMN, Sparebanken Vest sum of the minimum requirements and buffer requirements and the merged unit of Sparebanken Sør and Sparebanken Pluss. on institutions that do not satisfy the statutory requirements. It recommends that systematically important institutions should The authority can issue instructions such as dividend and be subject to a capital requirement that is 2 percentage points bonus restrictions and changes to the institution and its orga- higher than that for other banks. This requirement must be nisation, management and supervision. Furthermore, account satisfied with core Tier 1 capital. will be taken of mutual ties in the banking system and their dependence on the international financial markets. These con- The systematically important institutions will also have to siderations will be tied to both the minimum requirements and satisfy additional requirements in addition to the extra capital buffer requirements. requirement: • The principle of proportionality will apply with respect to the The Group’s capital targets organisational, control and supervision requirements. This The Group’s capital situation is assessed in relation to the means that systematically important banks have to expect to adopted capital strategy. be held to higher standards in these areas than smaller banks. • A formalised self-assessment must be carried out by the Board. The capital plan is reviewed annually and must ensure good, • 100% fulfilment of the liquidity coverage ratio (LCR) long-term capital management. At the same time, it must from 1 January 2015. support the goal of maintaining the current credit rating and • Requirement concerning 110% of the value of Liquidity ensuring the Group’s access to long-term funding. SpareBank Indicator 1. 1 Nord-Norge’s assessments of the capital requirements are • Requirement concerning the drawing up of recovery plans based on various forward-looking scenarios, where the Group’s from as early as 2014. business plans and changes to regulatory requirements are also • The proposal has been circulated for consultation and final taken into consideration. New regulatory requirements are clarification is expected in spring 2014. taken into account insofar as these have been clarified and the Group has been informed of them. Detailed rules for a countercyclical capital buffer will be set forth in regulations in October 2014. The regulations are one The Main Board of Directors has revised the bank’s capital link in the process of strengthening the capital requirements targets based on the new regulatory requirements (Basel III/ and are the follow-up to the EU’s new rules. The purpose of CRD IV), projection of the expected development, and a the countercyclical capital buffer is to make the institutions scenario involving a serious economic recession lasting several more robust and more capable of withstanding loan losses in years. The revised target means that by the end of 2016 the any future recession. The capital buffer should simultaneously core Tier 1 equity ratio must be 14.5%, or higher, of the risk- reduce the risk of the banks contributing to strengthening a weight basis for calculation. The Group must also satisfy the possible recession by reducing lending. The Ministry of regulatory minimum requirements for core Tier 1 capital, Tier 1 Finance will determine the level of the countercyclical capital capital and primary capital at all times. buffer each quarter based on the economic situation and following advice from Norges Bank, which will prepare the In the judgement of the Main Board of Directors, the bank’s information upon which such decisions will be based. The revised internal capital targets are well within the applicable countercyclical capital buffer requirement will be between 0 regulatory requirements. to 2.5% of the risk-weighted basis for calculation, however in

28 The financial strength of both the bank and the Group is SpareBank 1 Nord-Norge Portefølje (formerly considered to be good, based on the regulatory minimum SpareBank 1 Nord-Norge Invest) requirements. Please also see the section on capital adequacy. The company changed its name from SpareBank 1 Nord-Norge Invest AS to SpareBank 1 Nord-Norge Portefølje on 29 January A description of the bank’s risk and capital management can 2014. As part of the bank’s greater focus on core activities, the also be found in the Capital Requirements Directive/Basel II company’s former activities are being restructured/wound up. (Pillar 3) document on www.snn.no. SpareBank 1 Nord-Norge Portefølje will continue as a legal entity for legal and practical reasons. Its objective has been changed from “participating on a commercial basis with equity, Auditing networks and expertise in companies that primarily operate The Group’s external auditor is KPMG. in the bank’s market area” to “administration of stakes owned Internal auditing is performed by Ernst & Young, which reports by the SpareBank 1 Nord-Norge Group and activities that to the Main Board of Directors. naturally form a part of this.”

SpareBank 1 Nord-Norge Invest AS owns 100% of the company Research and development activities Nord-Norge Eiendom IV, which in turn owns 100% of the The bank carries out business development on its own behalf company Alsgården AS. Both companies are consolidated into and participates in extensive joint development within the the consolidated financial statements as of 31 December 2013. SpareBank 1 Alliance. In the bank, these activities are all assigned to Business Development, which is also responsible for North-West 1 Alliance Bank market analysis, innovation, development and implementing In September 2010, SpareBank 1 Nord-Norge established banking new solutions. operations in Russia through North-West 1 Alliance Bank. Spare- Bank 1 Nord-Norge holds a 75% stake in the bank, while 25% of New solutions are generally developed in network-based expert the shares are owned by SpareBank 1 Nord-Norge’s Russian partner groups in the SpareBank 1 Alliance. In 2013, the Alliance invested Bank Tavrichesky in St. Petersburg. The head office is located in about NOK 200 million in such development projects. St. Petersburg and it has a branch in Murmansk.

The bank also publishes the Business Barometer for Northern North-West 1 Alliance Bank employed 78 full-time equivalents Norway twice a year. The Business Barometer turns the as of 31 December 2013. On the same date, the bank’s total spotlight on the region’s economic development and publishes balance sheet was equivalent to NOK 527 million. a macroeconomic forecast for the next 12-18 months. It is intended to improve knowledge about economic and regional The bank’s Main Board of Directors has decided that SpareBank development in the north. The bank also conducts ongoing 1 Nord-Norge’s exposure in Russia will not be increased and external monitoring and market and customer analyses. These that the strategy of having a presence and exposure in Russia provide important insights for the Board’s strategy work. will be assessed.

The bank does not engage in activities that can be characterised SpareBank 1 Nord-Norge Forvaltning ASA as research. However, the Group does grant funds for new The company is a wholly owned investment firm that provides knowledge and research purposes in the region through its discretionary investment management of client assets. donation fund, the SpareBank 1 Nord-Norge Fund (SNN Fund), and thus contributes to research that develops new knowledge SpareBank 1 Regnskapshuset Nord-Norge AS in important areas. In 2011, the bank established the company SNN Økonomihus Holding AS and commenced operations within financial man- agement and accounting. The SpareBank 1 Regnskapshuset Nord- Subsidiaries Norge AS venture is motivated by a desire to exploit synergy effects with the Group’s other activities, such as extra sales, SpareBank 1 Finans Nord-Norge AS improved customer satisfaction and payment services. The company has commercial responsibility for the product areas leasing and secured loan financing, with Northern A number of companies in this sector have been acquired Norway as its primary market area. The parent bank and since its start-up and all of them have now been merged with capital goods suppliers are important distribution channels SpareBank 1 Regnskapshuset Nord-Norge AS. As of 31 December for the company. 2013, the company had a total of 120 employees and branches in Hammerfest, Alta, Tromsø, Balsfjord, Finnsnes, Harstad, Mo EiendomsMegler 1 Nord-Norge AS i Rana, Sandnessjøen and Mosjøen/Trofors. The focus on this The company is wholly owned by SpareBank 1 Nord-Norge sector is part of a collaboration with a number of the banks and is engaged in estate agency in Northern Norway. The in the SpareBank 1 Alliance with similar activities. Areas in company is a member of a nationwide alliance with other which the owner banks will collaborate include brands, IT, companies owned by the SpareBank 1 banks. expertise, quality and work processes.

EiendomsMegler 1 Nord-Norge AS owned 60% of the company EiendomsMegler 1 Lofoten AS as of 31 December 2013.

SpareBank 1 Nord-Norge Annual Report 2013 29 REPORT AND RESULTS

Direct ownership in companies in the SpareBank 1 Alliance and strategic It has been decided that the stake will be transferred to Alliansesamarbeidet SpareBank 1 DA. The transaction will be ownership interests completed in 2014.

BN Bank SpareBank 1 Markets AS BN Bank provides financial services in the retail and corporate Together with SpareBank 1 SMN, Sparebanken Hedmark, markets. It is a purely online bank in the retail market. In the Samspar and the Norwegian Federation of Trade Unions, corporate market, BN Bank is a significant player in the field of SpareBank 1 Nord-Norge bought SpareBank 1 SR-Bank’s stake commercial real estate financing, and BN Bank has corporate in SpareBank 1 Markets AS in autumn 2013. As of 31 Decem- market offices in Oslo and Trondheim. SpareBank 1 Nord- ber 2013, the bank owns 23.89% of this company. Norge owns 23.5% of BN Bank. SpareBank 1 Kredittkort AS SpareBank 1 Boligkreditt AS The company was established in autumn 2012 and will offer SpareBank 1 Boligkreditt’s purpose is to fund first priority home credit card services to Alliance customers. mortgages for the banks in the SpareBank 1 Alliance. The banks transfer home mortgages to SpareBank 1 Boligkreditt before the The company is owned by the various Alliance banks. Spare- company borrows in the Norwegian and international capital Bank 1 Nord-Norge’s stake was 19.83% as of 31 December 2013. markets by issuing covered bonds. SpareBank 1 Boligkreditt’s covered bonds are rated Aaa and AAA respectively by Moody’s and Fitch. As of 31 December 2013, SpareBank 1 Nord-Norge SpareBank 1 Gruppen AS and owns 13.15% of SpareBank 1 Boligkreditt. Alliansesamarbeidet SpareBank 1 DA The SpareBank 1 banks run the Alliance and develop product SpareBank 1 Næringskreditt AS companies through the holding company SpareBank 1 Gruppen AS SpareBank 1 Næringskreditt’s purpose is to fund first priority and the jointly-owned company Alliansesamarbeidet Spare- commercial property mortgages for the banks in SpareBank 1 Bank 1 DA. SpareBank 1 Nord-Norge owns 19.5% of SpareBank 1 Alliance. The banks transfer first priority commercial property Gruppen AS and 17.74% of Alliansesamarbeidet SpareBank 1 DA. mortgages to SpareBank 1 Næringskreditt before the company borrows in the Norwegian and international capital market. Please also see the comments on the SpareBank 1 Alliance and SpareBank 1 Næringskreditt’s bonds are rated Aa3 by Moody’s SpareBank 1 Gruppen elsewhere in this annual report. rating agency. Bank Tavrichesky As of 31 December 2013, SpareBank 1 Nord-Norge owns 20.92% In 2010, SpareBank 1 Nord-Norge started banking operations of SpareBank 1 Næringskreditt. in Russia through North-West 1 Alliance Bank, which is owned 75% by SpareBank 1 Nord-Norge and 25% by SpareBank 1 Nord- Bank 1 Oslo Akershus Norge’s Russian partner Bank Tavrichesky. Bank Tavrichesky Bank 1 Oslo Akershus operates under the market name Spare- OJSC has its head office in St. Petersburg and branches in Bank 1 Oslo Akershus. The main customer groups are the retail seven Russian cities. The bank is the 11th largest regional bank market, small and medium-sized companies and the organi- in North-western Russia, and its activities are mainly aimed at sation market, primarily the trade union movement. small and medium-sized businesses. SpareBank 1 Nord-Norge owns around 10% of Bank Tavrichesky. Along with SpareBank 1 SR-Bank and SpareBank 1 SMN, SpareBank 1 Nord-Norge sold part of its stake in Sparebanken As mentioned in the information about the bank’s subsidiaries, Hedmark. The transaction was completed in 2013. Following the bank’s Main Board of Directors has decided not to increase the reduction of its stake, SpareBank 1 Nord-Norge now owns SpareBank 1 Nord-Norge’s exposure in Russia and to review its 4.8% of Bank 1 Oslo Akershus. presence and exposure strategy in Russia.

SpareBank 1 Verdipapirservice AS The company administers securities for customers. The company is located in Tromsø and commenced operations in 2013. SpareBank 1 Nord-Norge’s stake was 24.9% as of 31 December 2013. It has been decided that the stake will be transferred to Alliansesamarbeidet SpareBank 1 DA. The transaction will be completed in 2014.

SpareBank 1 Kundesenter AS The company is an Alliance company, established in autumn 2012, intended to offer Alliance customers a common, 24 hour customer centre in addition to the banks’ own customer centres. Operations commenced in 2013. The company is based in Stavanger. SpareBank 1 Nord-Norge’s stake was 14.91% as of 31 December 2013.

30 Personnel The region’s local bank wants to become the region’s fittest company as a means of strengthening its corporate culture. Group’s employees This is being done by motivating people to get active via a SpareBank 1 Nord-Norge is a strong and important contributor common exercise concept for the entire Group. to society that offers a high level of expertise and nearness to the local community and business sector. The Group is known for HSE training has been organised for all managers in the Group. its high profitability and capable employees, who create added The training is designed to satisfy the authorities’ requirements value for its customers by providing good financial advice. The concerning follow-up and facilitation for employees on sick employees are SpareBank 1 Nord-Norge’s most valuable asset leave. The Group works systematically on following up sick and represent the Group’s most important interaction with leave, facilitation and reducing sick leave. society. In the long run, it will be the employees’ commitment, competence and contributions that determine the Group’s Average absenteeism due to illness in 2013 was 4.55% for the success. SpareBank 1 Nord-Norge Group, a reduction of 0.3% since 2012. Of this total, self-certified absence accounts for 0.64 percentage SpareBank 1 Nord-Norge focuses on good financial advice in points and doctor-certified absence 3.91 percentage points. which the critical success factors are the employees’ expertise and building good relationships. The bank constantly strives SpareBank 1 Nord-Norge strives to prevent harm from robberies, to improve its quality of delivery on the basis of systematic threats or other serious incidents. The bank experienced no customer feedback. attempted robberies in 2013, although our branches experi- enced two attempted break-ins. No other serious offences were Employees who work in customer-oriented activities in the registered. The number of threats made to employees increased retail market are authorised financial advisers pursuant to the from one incident in 2012 to four in 2013. authorisation scheme for financial advisers. This is a national authorisation scheme that is aimed at protecting the industry’s One occupational injury was reported in SpareBank 1 Nord- reputation and encouraging and ensuring that financial Norge in 2013. Occupational injuries are registered and reported advisers have the necessary knowledge, mindset and skills. to NAV in accordance with the applicable routine.

SpareBank 1 Nord- Norge also participates in a corresponding Diversity authorisation scheme for salespeople and advisers within P&C SpareBank 1 Nord-Norge promotes equality in the workplace insurance. This scheme aims to improve the quality of sales and for its employees, including in relation to gender, ethnicity, advice such that customers can make good, correct choices. national origin, descent, skin colour, language, religion and belief. The Group employs people from many different nations. Employment SpareBank 1 Nord-Norge actively seeks to attract, hire and However, the gender ratio in managerial positions remains a develop employees who support its business strategy. The challenge. The proportion of women in management is lower bank also actively seeks to be a good employer by establishing than we would wish, at 33.6% on average. and maintaining good employer policies. Managers in SNN The number of full time equivalents in the Group increased Women Men Total by 37.5 in 2013. The parent bank saw a reduction of 24.5 full Executive management team 4 8 12 time equivalents, while the North-West 1 Alliance Bank saw Customer-oriented operations 16 30 46 an increase of 7 full time equivalents. Staffing increased by around 55 full time equivalents in the other subsidiaries. This Business development 6 12 18 increase was primarily due to the establishment of two new Support functions 4 7 11 offices in EiendomsMegler 1 Nord-Norge (Narvik and Lofoten) Markets 1 2 3 and the acquisition of three new offices in SpareBank 1 Regn- EiendomsMegler 1 4 6 10 skapshuset Nord-Norge (Mosjøen, Mo i Rana and Sandnessjøen). SNN Finans 2 6 8 The Group had 922 full time equivalents at year-end 2013. SNN Forvaltning 1 1 The Group is considered to be an attractive place to work. SNN Invest 1 1 Increasing numbers of external applicants, more recruitment SNN Regnskapshuset 4 8 12 from other regions and more newly qualified employees are Total 41 81 122 clear indicators of this. Percentage 33.6 % 66.4 % 100 %

99 recruitment processes were completed in 2013: 63 external and 36 internal. Both genders are represented in all of the Group’s control bodies. The proportion of women in the individual bodies is Health, safety and the environment (HSE) as follows: Supervisory Board 55%, Main Board of Directors The annual organisation survey shows that the Group’s 50%, EiendomsMegler 1 20%, SpareBank 1 Finans Nord-Norge employees and managers support the organisation. The bank’s 20%, SpareBank 1 Regnskapshuset Nord-Norge 60%, Spare- strategy of having clear targets has produced results, including Bank 1 Forvaltning 50%, and SpareBank 1 Invest 33%. The that it scores high on motivation/satisfaction and commitment. Group aims to improve the gender balance among bank managers through systematic training and individual support.

SpareBank 1 Nord-Norge Annual Report 2013 31 REPORT AND RESULTS

There are two men and one woman on the Control Committee. The number of equity certificate holders was 7 839 as of 31 The gender distribution ratio for the entire Group is 55% December 2013, a reduction of 176 over the last 12 months. women and 45% men. The proportion of equity certificate holders from Northern Norway was 31%. A list of the bank’s 20 biggest owners of All new employees undergo an induction programme to equity certificates can be found in note 42 to the annual help produce a common culture, business understanding, financial statements. confidence and quality in their interactions with customers. The Group’s life phase policy gives special consideration to The earnings per equity certificate (Group) amounted to NOK parents with small children and seniors. This is done to ensure 4.13. As of 31 December 2013, the price was NOK 35.50. Price/ the best possible balance between work and private life. earnings and price/book were 8.6 and 0.9, respectively, as of 31 December 2013.

Corporate social responsibility The bank’s dividend policy states that the bank aims to SpareBank 1 Nord-Norge conducts its business within the distribute up to 50% of the profit for the year as a dividend (cash applicable framework of laws, regulations, strategies, policies dividends and donations for publicly beneficial purposes), and rules. However, this framework does not provide guide- the bank’s financial strength permitting. Stricter regulatory lines for all types of situation. Therefore, a special SNN Code requirements for banks’ equity will mean that a dividend rate has been drawn up in order to provide guidance on our values. of less than 50% must be expected in the next few years prior to 2016. These values express SpareBank 1 Nord-Norge’s support for fundamental human rights and the bank tries to avoid contri- The parent bank’s net profit for the period is distributed between buting to business activities that could infringe upon these. the equity certificate holders and the bank’s community-owned capital based on the relative distribution of equity capital SpareBank 1 Nord-Norge’s ethical guidelines/SNN Code between the groups of owners in the parent bank. stipulate that employees must act in a socially responsible way and in line with social norms. The Group supports The dividend for the 2013 financial year has been set at NOK fundamental human rights and tries to avoid supporting 1.10 per equity certificate. This represents a distribution ratio business activities that could infringe upon these. Employees to equity certificate holder of 28.1% of the parent bank’s profit. must avoid participating in business activities that have a The dividend equalisation fund totals NOK 776 million as of negative impact on the environment. The Group’s guidelines/ 31 December 2013, after the allocation of NOK 392.7 million SNN Code also state that employees must support activities from the profit for the year. The dividend equalisation fund that seek to eliminate corruption and financial crime. also includes the amount set aside for the distribution of a cash dividend of NOK 110.3 million. In accordance with IFRS, If the guidelines/SNN Code are violated, or there is a suspicion this is treated as equity in the financial statements until the that they have been, an investigation will commence. There proposed cash dividend has been approved by the Supervisory were no violations of these guidelines in 2013. Board. The dividend for the community-owned capital is distributed through the allocation of funds for publicly bene- The Group must avoid participating in business activities ficial purposes. This totalled NOK 43.1 million for 2013. that have a negative impact on the environment. One of the The adopted dividend and allocation for publicly beneficial ways in which this is expressed is the Group’s Eco-Lighthouse purposes from the profit for the year represents a payout ratio certification, which means that the organisation focuses on of 8.3% for the community-owned capital. environmental work in all areas and that all employees have to contribute to achieving its environmental goals. Please also see the more detailed section on ownership in the annual report. Ownership SpareBank 1 Nord-Norge has two groups of owners. The bank’s Environment and climate equity certificate holders’ calculated ownership of the bank’s One of the main goals adopted by SpareBank 1 Nord-Norge equity (equity certificate fraction) was 42.91% as of 1 January is for the bank to be a resource and environmentally efficient 2013, whilst 57.09% of the equity was community-owned. The organisation, with a good, inspiring working environment. equity certificate fraction originally calculated as of 1 January The Group should be a creative and stimulating facilitator of 2013 was adjusted after the issue in autumn 2013 by including continuous improvements to the working environment and 2/12 of the proceeds of the issue. As of 1 January 2014, the the external environment. equity certificate fraction, excluding dividends for 2013, was calculated as being 47.33%. SpareBank 1 Nord-Norge has Eco-Lighthouse certification. Eco-Lighthouse is Norway’s most frequently used certification As of 31 December 2013, SpareBank 1 Nord-Norge’s equity scheme for enterprises that wish to document their environ- certificate capital was NOK 1 807 million. On the same date, mental efforts and demonstrate social responsibility. Being the number of equity certificates was 100 398 016, each with certified as an Eco-Lighthouse enterprise entails systematic a nominal value of NOK 18, fully paid-up. work on environmental measures in day-to-day business operations.

32 The requirements involve the implementation of measures The Group’s executive management team understand the im- to improve the environmental friendliness of operations and portance of being fit, and therefore many of the bank’s branches for a good working environment. The certificate is recognised focus on the physical activity of their staff. The bank adopted by the authorities in public procurements. a training concept in 2013 in order to motivate people to get active. No fewer than 88% of the employees participate in this. An annual statement that documents the Group’s consumption, Each individual records their activities electronically and are recycling rate and energy consumption, enables the Group’s followed up by a colleague who is nominated as their coach. CO2 emissions and impact on the external environment to be The results are rewarded with prizes. The bank’s company determined. The Group prepares energy and climate accounts sports team is also very active in a number of sports. and follows the international standards set out in the Green- house Gas Protocol and ISO 14064. This is the third time the bank has produced such annual accounts, and they are a reference source that are used for measures intended to minimise the bank’s emissions. Annual energy consumption (MWh) 14 000 In 2013, the Group used 12,493 MWh of electricity from the power grid and 49 MWh in the form of heating oil. 49,820 kg 12 000 of waste was produced, of which 36,620 kg was recycled or sorted. This represents a recycling rate of 74%. The transport 10 000 of goods and passengers by road and air resulted in 842 tons of emissions. The emissions accounted for in the annual report 8000 are followed up by the bank’s executive management team. 6000 The emissions associated with passenger transport (road and air) have been reduced by 7% from 2012 to 2013, while there 4000 was an increase of 13% for electricity and heating oil. The Group’s total emissions increased by 5.1% from 2012 to 2013, 2000 from 2,132 tons to 2,240 tons of CO2 equivalents.

0 Various measures have been implemented to reduce the bank’s Fossil fuels Electricity and heating travel activities, including facilitating video conferences, online 2011 2012 2013 meetings and phone meetings; the Group’s company car scheme for executive personnel also stimulates the purchase of vehicles with low emissions. Annual greenhouse gas emissions (tonnes of CO2e) The Group is constantly striving to develop new products that 1 400 reduce the impact on the environment. Online loans, mobile banking, SMS services and electronic distribution of the bank’s 1 200 annual report reduce transport and paper consumption needs. In 2013, the bank continued its work on developing electronic 1 000 payment solutions for companies and the public sector. 800 When undertaking major purchases for the Group, SpareBank 1

Nord-Norge sets environmental requirements for the suppliers. 600 When signing contracts a HSE declaration must be submitted, which obligates the supplier to fulfil statutory health, safety 400 and environment requirements in Norway. The supplier must also document its environmental policy, environmental 200 programme in relation to its products, and the ‘green’ waste management of packaging. In addition to this, the supplier must 0 disclose whether or not it is ISO certified or has implemented Direct emissions, Indirect emissions, Indirect emissions, an equivalent quality control system. The emphasis on the fossil fuels electricity and flights and waste heating environment during competitive tendering varies depending on what products the Group is seeking to purchase. 2011 2012 2013

Being in good physical shape is an important aspect of the Eco-Lighthouse work. One of the Group’s goals is to minimise the use of motor vehicles and seek environmentally friendly alternatives. By encouraging people to walk or cycle to work, employees will get fitter and at the same time make a positive contribution to the environment.

SpareBank 1 Nord-Norge Annual Report 2013 33 REPORT AND RESULTS

Corporate social responsibility Sparebankstiftelsen SpareBank 1 Nord-Norge As a leading financial institution, SpareBank 1 Nord-Norge The bank established Sparebankstiftelsen SpareBank 1 Nord- has a responsibility to develop and contribute to the region in Norge in 2011. The foundation’s primary purpose is to exercise which we work. SpareBank 1 Nord-Norge’s corporate social long-term and stable ownership of SpareBank 1 Nord-Norge, responsibility is manifested through grants from the SpareBank including the management of equity certificates that were 1 Nord-Norge Fund, commercial sponsorship agreements, the transferred to the foundation at the time of its establishment, provision of knowledge in connection with developing and and, insofar as it able, to participate in SpareBank 1 Nord- publishing the Business Barometer for Northern Norway and Norge’s equity issues. The foundation also makes grants for the activities of three foundations that have been established publicly beneficial purposes. at the bank’s initiative. The foundation was established due to the new Financial The SpareBank 1 Nord-Norge Fund is the main pillar of the Institutions Act that came into force in 2009 and laid down bank’s commitment to corporate social responsibility. Each regulations for the equal treatment of the two groups of owners year, support is provided to several hundred projects that of savings banks: the community and the equity certificate contribute to activities and diversity within culture, sport, holders. This solved the previous challenges associated knowledge and research. The distribution of donations for with the so-called dilution of equity certificate holders in publicly beneficial purposes should be regarded as dividends connection with high distributions of dividends to equity from the profit for the year to the community ownership of the certificate holders. In 2009, the bank therefore adopted a bank. The Group’s commercial sponsorship agreements also new dividend policy that established the equal treatment of help to highlight the bank’s corporate social responsibility. The the groups of owners, including the same payout ratio of net sponsorship portfolio helps to strengthen the bank’s brand and profit as dividends and donations. This could, however, lead create arenas for customer contact and building relationships. to very large distributions of dividends (read: donations) to the The sponsorship keeps activities going at many levels and can community as an owner – an owner which the bank cannot often help establish new projects. A good example of this is expect to participate in future equity issues. Over time, this the Arctic Race of Norway, which is described in further detail could have resulted in the crumbling of the bank’s community in the section on corporate social responsibility. The Group is ownership, which was not considered to be in the interests of therefore regarded as a useful, active and constructive partner either the bank or community owners. for the region’s cultural life, clubs and associations. Given this, the Supervisory Board resolved to establish Sparebankstiftelsen SpareBank 1 Nord-Norge, where the bank’s Support and donations to the region intention is for part of the annual dividend (donations) for the Amounts in NOK 1 000 community to be given to the foundation. This will enable the foundation to build up capital that can be used in connection SNN Fund Sponsor agreements with future equity issues by the bank. Over time, a larger part Sports and athletics 16 833 Sports and athletics 24 636 Cultural purposes 11 687 Cultural purposes 1 896 of the bank’s community ownership will thus be managed by Knowledge-based Knowledge-based the foundation. As of 31 December 2012, a total of NOK 227 and research 6 430 projects 422 million had been transferred from the bank to the foundation. NOK 31 million was also transferred at the start of 2013. This amount represents grant funds from prior years that were Foundations Knowledge-based role allocated but not used. SNN Art Foundation Business Barometer for North Norway* SNN Cultural Foundation 28 000 The foundation participated in the bank’s private placement Build and Sparebankstiftelsen share our competence* SpareBank 1 Nord-Norge in 2011 to the tune of NOK 33.7 million. In connection with the bank’s NOK 750 million private placement in 2013, Sparebankstiftelsen SpareBank 1 Nord-Norge participated in a consortium that provided a NOK 200 million guarantee for full subscription. The foundation’s subscription was ultimately Sports and athletics 41 469 (67 %) worth NOK 11.2 million and it thus maintained its ownership Cultural purposes 37 083 (22 %) interest in the bank. Knowledge-based and research projects 6 852 (11 %) Total 85 404 (100 %) SpareBank 1 Nord-Norges Kulturnæringsstiftelse SpareBank 1 Nord-Norge’s culture industry foundation was * Contributions not quantifiable The figures above include support from the Group’s culture industry foundation, established in 2012 by the bank’s Main Board of Directors. The SpareBank 1 Nord-Norges Kulturnæringsstiftelse. purpose of the foundation is to contribute to the development of the culture industry for the benefit of the public within Spare-Bank 1 Nord-Norge’s market area. This will be done by the found- ation making financial contributions (grants, loans or investment) to culture industry activities or culture industry promoting activities. Its overall objective is to help create more jobs.

34 Priorities when assessing suitability for funding will include: SpareBank 1 Nord-Norge’s Art Foundation • Diversity within the culture industry. SpareBank 1 Nord-Norge’s art foundation was established • Development of the culture industry through SpareBank 1 in 2007 by the bank’s Main Board of Directors. The purpose Nord-Norge’s entire market area. was to register the bank’s works of art, assume ownership of • Opportunities for developing sustainable structures that can them and further develop the collection as part of the bank’s eventually create the basis for increased employment in the corporate social responsibility in its market area. culture industry. All works of art are now registered. Its main purpose going SpareBank 1 Nord-Norge’s culture industry foundation was forward is to administer the collection that is displayed in the established in premises in the centre of Tromsø together with bank’s premises or made available to public institutions, and to the bank’s two other foundations in November 2012, and had develop the collection through new acquisitions. The foundation its first full year of operations in 2013 with three employees: is also tasked with encouraging interest in, and improving the full-time general manager and project consultant, and an knowledge about visual art in the region. Since its founding, office manager/secretary in a 25% position. 74 works have been acquired, mostly by northern Norwegian artists. A book has been produced presenting selected works The culture industry foundation participated in 161 projects from the collection that were displayed in a special exhibition in 2013, making a total of NOK 28 million in financial at the Art Museum of Northern Norway in 2011. contributions. The amount exceeds the planned annual budget of NOK 20 million because the first announced funds were SpareBank 1 Nord-Norge’s art foundation was established made available in late autumn 2012 and were processed in in the centre of Tromsø together with the bank’s two other winter 2013. Therefore, NOK 9 million that was budgeted for foundations in November 2012, and had its first full year of in 2012 was recognised in the 2013 financial year. operations in 2013 with one employee in a 25% position.

The culture industry foundation’s most important means The foundation’s website, www.snnstiftelsene.no/kunststiftelsen, are announcing grants within music, literature, film, and the was launched in June with a selection of some of the foundation’s dramatic and visual arts. During three rounds of announcements, 850 works of art and presentations of around 60 artists. The 332 applications were received applying for a total of NOK website is also updated with relevant news. 117 million. NOK 23.5 million was awarded to 141 projects. The project grants ranged from NOK 20,000 to NOK 600,000, Administration and providing information about the collection with an average of NOK 167,000. Support was also granted are important. With the regular changes to the bank’s structure, to five self-initiated projects and cooperative projects such the foundation contributes by decorating bank premises. The as NN+ (music video programme) and a northern Norwegian foundation has taken over the work on SpareBank 1 Nord- film industry gathering. The has foundation also given a total Norge’s art calendar and the 2014 calendar depicts art from of NOK 700,000 in support to seven short and documentary the foundation’s collection in combination with photos from films in a collaboration with Nordnorsk Filmsenter, and NOK the bank’s history. 330,000 divided between two scholarship candidates in co- operation with the Arts Council Norway. The Main Board of Directors The culture industry foundation has also invested a total of and executive management team NOK 2.8 million in four feature films and has pledged loan guarantees for two smaller music projects. The bank’s Main Board of Directors, which is chaired by Kjell Olav Pettersen, held 18 meetings in 2013. During the The culture industry foundation actively seeks to influence Supervisory Board meetings in 2013, Hans Tore Bjerkaas opinion and decision-makers to move them in the direction of was elected as a new member of the Main Board of Directors. focusing on the culture industry more strongly. Features have Bjerkaas is, perhaps, best known as the former director of been written in several northern Norwegian newspapers and broadcasting in the Norwegian Broadcasting Corporation. Dagens Næringsliv, and a number of talks have been given at conferences. Talks have also been given, and feature articles Several changes took place in the bank’s executive manage- published, in international forums. ment team in 2013. One of the most important measures was to include the bank’s regional directors in the executive The culture industry foundation’s report on its activities in management team. As a result of this, the executive manage- 2013 is available on the foundation’s website: ment team now consists of 12 people. http://snnstiftelsene.no/kulturnaeringsstiftelsen The Remuneration Committee evaluates the remuneration of the CEO and proposes any changes thereto. The committee consists of the Chairman of the Main Board of Directors and two other members, and is independent of any executive personnel. The bank is adapting its practices to the provisions stipulated in the new regulations relating to remuneration in the financial sector, and the Remuneration Committee’s mandate satisfies these provisions.

SpareBank 1 Nord-Norge Annual Report 2013 35 REPORT AND RESULTS

The Audit Committee prepares matters that will be reviewed by Other important industries in Northern Norway are also the Board concerning the monitoring of financial information and resource-based, including the energy sector, tourism, transport internal control and risk management. The CEO is responsible and the minerals industry. These industries operate in global for making information and recommendations available to markets and rely on efficient infrastructure for the transport of the committee as required and upon request. The committee goods, energy and people. A comprehensive, binding plan for consists of three members of the Main Board of Directors. These the development of Northern Norway’s infrastructure would are independent according to the definition in the Norwegian represent a very important contribution to releasing the value Code of Practice for Corporate Governance. creating potential of the region’s rich natural resources.

A risk committee consisting of three members of the Main Board Besides infrastructure, access to labour and expertise will prove of Directors was established in 2013. The committee’s task is challenges in the next few years. The growth in employment to prepare the Board’s consideration of risk assessments. turned in 2013 because of the large cohort who are now ending their active working lives. Business needs new recruits and Please refer also to the chapter ‘Corporate governance’ in this new expertise. In November 2013, 37% of the companies in annual report. the Regional Network North reported capacity problems, while one in four lacked labour.

Macroeconomic conditions Together with the Confederation of Norwegian Enterprise – outlook for 2014 and the Norwegian Federation of Trade Unions, SpareBank 1 Nord-Norge has taken the initiative to establish an arena that is The global economy reached safer ground in 2013, although the intended to bring participants together from across the region picture is still complex. The USA is in the process of bringing to identify, develop and realise important prerequisites for its economy back up to speed, largely thanks to the Federal increased value creation in Northern Norway. Reserve’s expansive monetary policy. This is now gradually being scaled back as private consumption and investments The housing sector has accounted for almost 25% of in housing and commerce rise. The eurozone has managed to investment in Norway in recent years, only surpassed by the deal with the national debt crisis and the countries in Southern oil sector. A shift in the national housing market occurred in Europe are getting back on their feet following dramatic cuts the middle of 2013, with both prices and new builds falling. and reforms in working life. The economies of China and other The picture is more positive in Northern Norway. New builds emerging countries are slower, but growth remains above 5%. increased by 2013, while housing prices flattened out. It is the Altogether this is expected to have a positive impact on the housing needs of the largest cities that is keeping the level of development of the global economy in 2014. activity and prices up. The bank expects the market to stabilise in 2014. This is little risk that a fall in house prices would have Global growth is important for Norway because it ensures a noticeable impact on household finances and, in turn, business. sales and prices for the country’s exports. The fact that growth stimuli are now coming from more markets will gradually However, the performance of the retail trade shows that reduce its dependence on high oil and commodity prices. If the consumers have become more cautious in 2013. Consumer price of oil falls below USD 100 per barrel, this will eventually growth has fallen to 1%, while savings remain at a high level. have consequences for oil and gas exploration and extraction If this trend persists during 2014, this may have an effect on activities in Norway and the High North. The oil sector will the wholesale and retail trade. make a stronger contribution to the northern Norwegian economy in the next few years. The development of Goliat to the north- As is evident from the above, the macroeconomic outlook for west of Hammerfest and Aasta Hansteen to the west of Bodø Northern Norway is good. Nonetheless, it should be noted will bring two new fields online. At the same time, the south- that some uncertainty remains concerning future economic eastern Barents Sea is being opened up for exploration developments. This is due to the weak trend of falling growth activities. This has produced an upturn in maritime-oriented in the Norwegian economy and continued uncertainty about industries and major Norwegian players in the oil industry the international economic situation. starting activities in, or moving activities to, the region. In 2013, the Norwegian and international authorities approved The seafood sector is the region’s most important industry several measures for increasing the financial strength of banks with respect to growth and value creation. Record salmon and contributing to financial stability. Based on these, Spare- prices were achieved in 2013 and exports from the region Bank 1 Nord-Norge has carried out issues worth more than NOK amounted to around NOK 15 billion. There is still a lot of 770 million, and has, by adjusting credit growth, prices and capacity available for increasing salmon production along costs, provided a basis for being considered an indisputably the coast of Northern Norway. strong and profitable northern Norwegian bank in the coming years as well. Traditional fisheries are enjoying sustainable stocks and large catch quotas, especially within the cod segment. Together For Norway, global growth is vitally important because it with the poor economy in a number of export markets, this ensures that the prices of the most important raw materials has resulted in pressure on prices. The fishing industry has remain firm and even increase. There is little reason to believe a strong need to streamline production so it can compete that oil prices will decline in coming years. This will ensure a profitability. high level of activity within exploration and extraction of oil

36 and gas in Norway and the rest of the world, and safeguard Both in Norway and internationally, the authorities are con- further growth in Norway’s most important industry. cerned with ensuring that the bank sector will develop in a healthy manner and contribute to financial stability. The Aquaculture and fisheries continue to have good opportunities measures that have been proposed are stricter capital adequacy, for growth and value creation. There are good opportunities plans for stricter risk weighting of banks’ housing loans and to expand capacity in the aquaculture industry. Through increased liquidity reserve requirements. The requirements effective efforts in international markets Norwegian farmed will reduce the banks’ ability to grow and impose significant salmon continues to find new markets. The prices appear to be changes on the banking sector. There is reason to believe that the stable at a satisfactory level. The traditional fisheries typically stricter requirements will lead to higher prices for customers, cultivate populations of species that are sustainable and provide reduced dividends for the owners, lower credit growth and the opportunities for good harvests. The quantity of cod available need for further efficiency gains in the banks. is at a historically high level, and this has led to pressure on the prices of some traditional cod products. This situation is challenging for SpareBank 1 Nord-Norge, when the Bank has both a strong desire to participate in and North Norway is impacted only to a limited extent by the contribute to further growth in the north, and at the same challenging and uncertain international economic situation. time must also introduce new liquidity and financial strength High oil prices have led to increased oil and gas activities in requirements from the authorities, and be perceived as indis- the Norwegian Sea and in the Barents Sea. This, in turn, has putably solid to be equipped for more difficult times. resulted in many new firms shifting their business operations to the region. North Norway’s historic position as a rich During 2013 the Bank will implement the necessary measures fishing area is also strengthened - both through good capacity to develop the Bank as a leading financial institution in North for further development of salmon farming and a favourable Norway. This entails measures to increase revenues, for situation in the classic fisheries. example through higher prices on loans to retail and corporate customers, cost reductions and increased sales of additional Strong growth in existing and new industries, combined with a products. large public sector, are creating capacity problems in the north. The situation is clearly apparent in the tight labour market, There is reason to believe that 2013 will be a good year for with almost no unemployment and a strong need for labour the Bank, and thus for the Bank’s various stakeholder groups. migration. Credit growth in 2013 will be significantly lower than in 2012, due to greater scarcity of capital. Companies will notice this as As a result of the robust economic growth, the housing market it will be easier to fund good projects with high profitability is, once again, in a state of imbalance. Following a period of than less profitable projects. In the retail market, access to substantial new housing construction activity prior to the residential property financing will be good, but the terms and financial crisis in 2008, there have been relatively few housing conditions of the credit will also be somewhat stricter. starts in recent years. This has led to increasing pressure and price increases in the housing market. With stricter bank requirements from the authorities, there is reason to expect that market competitiveness in general With low and stable interest rates, high wage growth and good will remain somewhat subdued, but there will always be prospects in the labour market, most people are not concerned strong competition for the best projects. about the high housing prices. Based on the sequence of events in other countries, several analytical groups and the authorities in particular are nevertheless concerned about a housing bubble beginning to be formed in Norway, and that eventually a substantial fall in housing prices must be expected to occur. This is a scenario that the Bank seeks to take into consideration in its credit policy, by establishing requirements for the maximum loan to value and the customer’s debt servicing capability even if interest rates were significantly higher. However, it is more difficult to take into account the indirect effects of a substantial decline in prices. If housing prices drop significantly, there is reason to believe that a number of service industries will see a dip in earnings as a result of households’ weakened economic situation.

SpareBank 1 Nord-Norge Annual Report 2013 37 REPORT AND RESULTS

Concluding remarks While some uncertainty about how the economy will develop The annual fi nancial statements have been prepared on the in the next few years remains, the macroeconomic conditions assumption that the Group is a going concern. This assumption suggest that 2014 will also be a good year for Northern Norway is based on the Group’s long-term strategic plans and earnings and SpareBank 1 Nord-Norge. From a longer-term perspective, forecasts for the coming years. The Group has healthy fi nances the region has a good chance of becoming one of the country’s and is in a strong fi nancial position. In particular, the status of most important growth regions. The bank’s role is to ensure that the bank’s core activities remains very satisfactory with further good, highly profi table projects receive the right funding. The improved earnings. Group also wants to use its expertise to help ensure the region can make the necessary investments such that its potential for In the years ahead, SpareBank 1 Nord-Norge will continue to greater value creation can be realised. The partnership with be an active partner in the region’s development and is well the Confederation of Norwegian Enterprise and Norwegian equipped to strengthen its leading position in Northern Norway. Federation of Trade Unions is thus an important initiative. In 2013, the Group’s employees also displayed a great work The bank still wishes to participate in the region’s economic ethic and the Main Board of Directors would like to thank growth potential in the form of increased lending, within everyone for their efforts, which were important contributions prudent limits for credit quality and the Group’s fi nancial to the development of the SpareBank 1 Nord-Norge Group. strength. At the same time, there is a need to improve the The Main Board of Directors would also like to thank the Group’s fi nancial strength. Therefore, a number of measures Group’s customers and other associates for their contributions have been introduced and will be continued to ensure that in 2013. the bank’s fi nancial strength satisfi es the new regulatory requirements.

Tromsø, 25 March 2014 The Main Board of Directors of SpareBank 1 Nord-Norge

Kjell Olav Pettersen Pål A. Pedersen Hans-Tore Bjerkaas (Chairman of the Board) (Deputy Chairman)

Greger Mannsverk Sonja Djønne Ann-Christine Nybacka

Vivi Ann Pedersen Anita Persen (Employee-elected)

Jan-Frode Janson (CEO)

38 SpareBank 1 Nord-Norge Annual Report 2013 39 ANNUAL ACCOUNTS 2013

40 Annual Accounts 2013

SpareBank 1 Nord-Norge Annual Report 2013 41 ANNUAL ACCOUNTS 2013

INCOME STATEMENT

Parent Bank Group 2012 2013 Amounts in NOK million Notes 2013 2012 2 722 2 825 Interest income 20 2 990 2 845 1 688 1 712 Interest costs 20 1 705 1 679 1 034 1 113 Net interest income 1 285 1 166 590 771 Fee- and commission income 21 892 686 72 71 Fee- and commission costs 21 75 74 22 35 Other operating income 21 114 44 540 735 Net fee- commission and other operating income 931 656 16 23 Dividend 22 27 17 81 239 Income from investments 22 303 210 175 121 Gain/losses and net value changes from investments in securities 22 16 33 272 383 Net income from investments 346 260 1 846 2 231 Total income 2 562 2 082 471 481 Personnel costs 23,25 638 581 483 497 Other operating costs 24,32 571 539 954 978 Total costs 1 209 1 120 892 1 253 Result before losses 1 353 962 224 146 Losses 14 172 195 668 1 107 Result before tax 1 181 767 153 192 Tax 26 214 172 515 915 Result for the year 967 595 Majority interests 966 595 Minority interests 1 Result per Equity Certificates 3,27 3,91 Result per EC * 4,13 3,78 3,27 3,91 Diluted result per EC* 4,13 3,78 *Result multiplied by ECs’ share of result, divided by number of ECs Comprehensive income 515 915 Result for the period 967 595 Recalculation differences 1 1 -1 6 Effective part of change in fair market value in cash flow hedging 6 -1 153 -1 Actuarial gains (losses) on benefit-based pension schemes 0 158 -43 -2 Tax on other comprehensive income -2 -44 109 3 Other comprehensive income for the period 5 114 624 918 Total comprehensive income for the period 972 709 Majority interest of total comprehensive income 972 709 Minority interests of total comprehensive income 0 0 Totalresult per Equity Certificate 3.96 3.92 Result per EC * 4.15 4.51 3.96 3.92 Diluted result per EC* 4.15 4.51 *Result multiplied by ECs' share of result, divided by number of ECs Tax on other comprehensive income: 0 -2 Effective part of change in fair market value in cash flow hedging -2 0 -43 0 Actuarial gains (losses) on benefit-based pension schemes 0 -44 -43 -2 Tax on other comprehensive income -2 -44

42 BALANCE SHEET

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million Notes 31.12.13 31.12.12 Assets 244 612 Cash and balances with Central Banks 655 271 4 761 4 470 Loans and advances to credit institutions 10 1 392 1 871 50 670 53 202 Net loans and advances to customers 11 56 829 54 050 382 556 Shares 30 712 553 12 442 11 207 Bonds and certificates 29 11 207 12 444 1 240 1 308 Financial derivatives 17 1 303 1 234 402 553 Investment in Group companies 31,41 2 407 2 436 Investment in associated companies and joint ventures 31,41 3 564 3 514 504 489 Property, plant and equipment 32 595 515 Intangible assets 33 81 53 782 1 108 Other assets 34 1 182 824 73 834 75 941 Total assets 77 520 75 329 Liabilities 4 294 4 292 Liabilities to credit institutions 10 4 284 4 295 43 550 44 889 Deposits from customers 35 44 940 43 588 16 534 16 336 Debt securities in issue 36 16 336 16 534 713 722 Financial derivatives 17 722 713 839 865 Other liabilities 37,25 1 058 1 021 173 187 Deferred tax liabilities 26 228 202 2 095 1 450 Subordinated loan capital 39 1 450 2 095 68 198 68 741 Total liabilities 69 018 68 448 Equity 1 655 1 807 Equity Certificates 42 1 807 1 655 245 843 Premium Fund 843 245 456 776 Dividend Equalisation Fund 776 456 3 083 3 565 Saving Bank's Fund 3 565 3 083 150 163 Donations 163 150 Fund for unrealised gains -2 -3 47 46 Other equity 1 327 1 273 5 636 7 200 Total equity exclusive minority interests 8 479 6 859 Minority interests 23 22 5 636 7 200 Total equity 8 502 6 881 73 834 75 941 Total liabilities and equity 77 520 75 329

Tromsø, 25 March 2014

Kjell Olav Pettersen Pål A. Pedersen Sonja Djønne (Chairman) (Deputy Chairman)

Hans Tore Bjerkås Ann-Christine Nybacka Anita Persen

Greger Mannsverk Jan-Frode Janson Vivi-Ann Pedersen (Chief Executive Officer) (Staff Representative)

SpareBank 1 Nord-Norge Annual Report 2013 43 ANNUAL ACCOUNTS 2013

CHANGES IN EQUITY

Amounts in NOK million EC Pre- Dividend Saving Fair value Dona- Other Total Minority Total capital mium Equalisa- Bank's reserve tions equity Majority interests equity Fund tion Fund Fund Fund interests Group Equity at 01.01.12 1 655 245 333 2 898 -4 133 1 083 6 343 13 6 356 Total comprehensive income for the period Period result 216 268 1 30 80 595 595 Other comprehensive income: Recalculation differences 1 1 1 Actuarial gains (losses) on 114 114 114 benefit-based pension schemes Effective part of change in fair -1 -1 -1 market value in cash flow hedg- ing Total other comprehensive -1 115 114 114 income Total comprehensive income for 216 267 1 30 195 709 709 the period

Transactions with owners Set aside for dividend payments -76 -76 -76

Reversal of dividend payments 76 76 76 Dividend paid 2011/other distribution -93 -83 -13 -189 -189 Other equity transactions 1 -5 -4 9 5 Total transactions with owners -93 -82 -13 -5 -193 9 -184 Equity at 31.12.12 1 655 245 456 3 083 -3 150 1 273 6 859 22 6 881

Total comprehensive income for the period Period result 394 478 43 51 966 1 967 Other comprehensive income: Recalculation differences 1 1 1 Effective part of change in fair 2 2 4 4 market value in cash flow hedging Total other comprehensive income 2 2 1 5 5 Total comprehensive 396 480 1 43 51 971 1 972 income for the period

Transactions with owners Equity issue 152 598 750 750 Set aside for dividend payments -110 -110 -110 Reversal of dividend payments 110 110 110 Dividend paid 2012/other distribution -76 -30 -106 -106 Other equity transactions 2 3 5 5 Total transactions with owners 152 598 -76 2 -30 3 649 649 Equity at 31.12.13 1 807 843 776 3 565 -2 163 1 327 8 479 23 8 502

44 Amounts in NOK million EC Pre- Dividend Saving Fair value Dona- Other Total Minority Total capital mium Equalisa- Bank's reserve tions equity Majority interests equity Fund tion Fund Fund Fund interests Parent Bank Equity at 01.01.12 1 655 245 333 2 898 133 -63 5 201 5 201

Total comprehensive income for the period Period result 217 268 30 515 515 Other comprehensive income: Actuarial gains (losses) on 110 110 110 benefit-based pension schemes Effective part of change in fair -1 -1 -1 market value in cash flow hedging Total other comprehensive income -1 110 109 109 Total comprehensive 217 267 30 110 624 624 income for the period

Transactions with owners Set aside for dividend payments -76 -76 -76 Reversal of dividend payments 76 76 76 Dividend paid 2011/other distribution -93 -83 -13 -189 -189 Other equity transactions -1 1 0 0 Total transactions with owners -94 -82 -13 -189 -189 Equity at 31.12.12 1 655 245 456 3 083 150 47 5 636 5 636

Total comprehensive income for the period Period result 394 478 43 915 915 Other comprehensive income: Effective part of change in fair 13 4 4 market value in cash flow hedging Actuarial gains (losses) on -1 -1 -1 benefit-based pension schemes Total other comprehensive 1 3 -1 3 3 income Total comprehensive income for 395 481 43 -1 918 918 the period

Transactions with owners Equity issue 152 598 750 750 Set aside for dividend payments -110 -110 -110 Reversal of dividend payments 110 110 110 Dividend paid 2012/other distribution -76 -30 -106 -106 Other equity transactions 1 1 2 2 Total transactions with owners 152 598 -75 1 -30 646 646 Equity at 31.12.13 1 807 843 776 3 565 163 46 7 200 7 200

SpareBank 1 Nord-Norge Annual Report 2013 45 ANNUAL ACCOUNTS 2013

CASH FLOW STATEMENT

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 668 1 107 Profit before tax 1 181 767 51 50 + Ordinary depreciation 56 54 -4 -3 + Write-downs, gains/losses fixed assets -3 -4 224 146 + Losses on loans and guarantees 172 195 153 192 - Tax 214 172 189 106 - Dividend paid on ECs 106 189

597 1 002 Provided from the year’s operations 1 086 651

184 54 Change in sundry liabilities: + increase/ - decrease 82 213 -393 -394 Change in various claims: - increase/ + decrease -455 -448 -2 549 -2 678 Change in gross lending to and claims on customers: - increase/ + decrease -2 951 -3 035 -1 238 1 061 Change in short term-securities: - increase/ + decrease 1 078 -1 156 -566 1 339 Change in deposits from and debt owed to customers: + increase/ - decrease 1 352 -545 212 -2 Change in debt owed to credit institutions: + increase/ - decrease -11 217

-3 753 382 A. Net liquidity change from operations 181 -4 103

-53 -35 - Investments in fixed assets -136 -61 4 3 + Sale of fixed assets 3 4 -470 -180 Change in holdings of long-term securities: - increase/ + decrease -50 -495

-519 -212 B. Liquidity change from investments -183 -552

3 192 -198 Change in borrowings through the issuance of securities: + increase/ - decrease -198 3 192 739 105 Change in EC/subordinated loan capital: + increase/ - decrease 105 739

3 931 -93 C. Liquidity change from financing -93 3 931

-341 77 A + B + C. Total change in liquidity -95 -724 5 346 5 005 + Liquid funds at the start of the period 2 142 2 866

5 005 5 082 = Liquid funds at the end of the period 2 047 2 142 Liquid funds are defined as cash-in-hand, claims on central banks, plus loans to and claims on credit institutions.

46 ANNUAL ACCOUNTS - NOTES

1 General information 2 Accounting principles 3 Critical estimates and assessments regarding the use of accounting principles 4 Business areas 5 Equity and capital adequacy ratio 6 Financial risk management

Credit risk 7 Credit exposure for each internal risk rating 8 Maximum credit exposure 9 Credit quality per class of financial assets 10 Loans to- and liabilities to credit institutions 11 Loans and advances to customers 12 Breakdown of periods for loans due, not written down 13 Transfer of financial assets 14 Losses on loans and guarantees

Market risk 15 Market risk relating to interest rate risk 16 Market risk relating to foreign exchange risk 17 Financial derivatives

Liquidity risk 18 Remaining contract-related maturity for liabilities 19 Maturities analysis of assets and liabilities

Income Statement 20 Net interest income 21 Net fee-, commission- and other operating income 22 Net income from investments 23 Personnel costs, benefits and loans to - as well as equity certificates owned by leading employees and employee representatives. 24 Operating costs 25 Pensions 26 Tax

Balance 27 Fair value on financial instruments 28 Fair value on financial instruments to amortised cost 29 Bonds and certificates 30 Shares 31 Investment in Group companies, associated companies and joint ventures 32 Property, plant and equipment 33 Intangible assets 34 Other assets 35 Deposits from customers 36 Debt securities in issue 37 Other liabilities 38 Guarantees 39 Subordinated loan capital

Other information 40 Acquistion of businesses 41 Related parties 42 Equity Certificates 43 Profit distribution 44 Events occurring after the end of the year

SpareBank 1 Nord-Norge Annual Report 2013 47 ANNUAL ACCOUNTS 2013

ANNUAL ACCOUNTS - NOTES

NOTE 1 - GENERAL INFORMATION of relevance for presentation, and have had no effects on the Group’s financial position or result. Business description SpareBank 1 Nord-Norge is an independent Norwegian financial The amendments to IFRS 7 means that entities have an obli- services group within the SpareBank 1 Alliance, with Equity gation to disclose information about netting rights and related Certificates registered on Oslo Stock Exchange. We know Northern agreements (e.g. collateral) associated with financial instruments. Norway and are a leading provider of financial services within The information is intended to provide users of the financial the retail and corporate markets in Northern Norway. Spare- statements with information useful for evaluating the effect of Bank 1 Nord-Norge provides comprehensive, modern financial netting agreements on the Group’s financial position. The new solutions to customers with a basis in the Northern Norway notes are required for all included financial instruments that market. are presented net in accordance with IAS 32 Financial Instru- ments: Presentation. The disclosure requirements also cover included financial instruments that are subject to an “enforceable Business address master netting arrangement” or equivalent agreement, regardless The SpareBank 1 Nord-Norge Group’s head office is located in of whether they are presented net in accordance with IAS 32. Tromsø, and its business address is 9298 Tromsø. The amendments have not affected the Group’s financial position or result.

Date of adoption of the group accounts IASB has adopted a series of amendments to IAS 19. The amend- The 2013 preliminary annual accounts were adopted by the ments are both of a fundamental nature, such as the corridor parent bank’s Main Board of Directors on 4 February 2014. The method not longer being permitted and expected returns on 2013 final annual accounts were adopted by the parent bank’s pension assets being changed conceptually, and of a simpler Main Board of Directors on 25 March 2014. nature such as mere clarifications and reformulations. The dis- appearance of the corridor method means that actuarial gains and losses must be recognised in other comprehensive income (OCI) in the period they arise. The amendment to IAS 19 has NOTE 2 affected net pension costs due to the fact that expected returns ACCOUNTING PRINCIPLES on pension assets must be calculated using the same interest rate as that used for discounting pension liabilities. Basis for preparation of the annual accounts The 2013 group and parent bank accounts for SpareBank 1 The IFRS 13 standard states principles and guidelines for measu- Nord-Norge have been prepared in accordance with EU-ap- ring fair value for assets and liabilities that other standards require, proved IFRSs (International Financial Reporting Standards) or permit, to be measured at fair value. The standard says nothing and the associated interpretations that can be applied as of 31 about when fair value should be applied, but this follows from December 2013, as well as additional Norwegian information other standards. requirements pursuant to the Accounting Act as of 31 December 2013. Unless otherwise defined, the same accounting principles The amendment to IAS 12 means that deferred tax on investment are used in the group and parent bank accounts. The financial properties measured at fair value under IAS 40 Investment Prop- statements are based on the historic cost principle, with the erty must initially be determined on the basis of an expectation exception of financial assets available for sale and financial that the asset will be recovered upon sale (and not use). The assets and liabilities (including derivatives) measured at fair Group had no investment properties as of 31 December 2013. value through profit and loss. The accounting policies that are applied are consistent with the policies applied in the previ- The amendment to IAS 16 clarifies that material spare parts ous accounting period, with the exception of the IFRS amend- and servicing equipment that meet the definition of property, ments that have been implemented in the group in the current plant and equipment are not inventory. accounting period. Below is a list of the relevant IFRS amend- ments that came into effect for the 2013 financial statements The amendment to IAS 32 clarifies that income tax that stems and the effects that they have had on the Group’s annual finan- from distributions to holders of equity instruments must be cial statements. recognised in financial statements in accordance with IAS 12.

The amendments to IAS 1 mean that items in the statement of Based on the assessments that have been made so far, the IFRSs other comprehensive income (OCI) must be grouped into two and interpretation statements published prior to the adoption categories. Items that may be reclassified to the income state- of the proposed annual financial statements, and which it was ment at a future point in time (e.g. net gain from hedging net not mandatory to apply as of 31 December 2013, have not had investments, translation differences from converting foreign any significant impact on the reported figures. currency to the presentation currency, net change in cash flow hedging, and net gain or loss from financial assets classified as The proposed annual financial statements were adopted by the available for sale) must be presented separately from items that Main Board of Directors and the bank’s CEO at the time in- will never be reclassified (e.g. actuarial gains and losses linked dicated by the dated and signed balance sheet. The annual to benefits based pension schemes). The amendments are only financial statements have further been approved by the Super-

48 visory Board on 25 March 2014. Prior to final approval, the Only the annual dividends received and any write-down on Main Board of Directors has the authority to change the annual the value of the shares are stated in the parent bank’s profit financial statements. and loss account. Intra-group transactions, open accounts and unrealised profit between group companies have been eliminated. Presentation currency The presentation currency is Norwegian kroner (NOK), which The minority interest’s share of the Group’s profit/loss is is also the bank’s functional currency. All amounts are pre- presented on a separate line in the profit and loss account. sented in NOK million unless otherwise stated. Under equity capital, the minority interest’s share is also presented on a separate line. Consolidation The consolidated accounts comprise the bank and all its sub- Associated companies sidiaries that are not planned to be sold in the near future, An associated company is defined as a company in which the which are therefore to be classified as held for sale in accord- bank has significant influence, but not a controlling interest. ance with IFRS 5. Subsidiaries are defined as companies in An influence is normally significant when the ownership which the bank has a controlling interest, i.e. the power to interest is between 20% and 50%. Associated companies are govern the company’s financial and operational policies for included in the group accounts according to the equity method the purpose of gaining benefits from the company’s activities. of accounting. The investment is recognised initially at historical cost in the balance sheet and subsequently adjusted for changes Subsidiaries are consolidated from the date the bank gains a in the bank’s share of the net assets of the associated company. controlling interest, and they will be eliminated from the con- The bank’s share of the associated company’s profit/loss is solidation on the date when such control is relinquished. incorporated in the group accounts, whereas the equity stake is recognised according to the cost method in the parent bank’s As at 31.12.13 following subsidiaries are consolidated: accounts, in the same manner as for group companies, as SpareBank 1 Finans Nord-Norge AS (100%), SpareBank 1 Nord- mentioned above. Norge Portefølje AS (100%), SpareBank 1 Nord-Norge Forvalt- ning ASA (100%), EiendomsMegler 1 Nord-Norge AS (100%), Joint ventures SpareBank 1 Regnskapshuset Nord-Norge AS (100%), NorthWest A joint venture may comprise jointly controlled operations, 1 Alliance Bank (75%), EiendomsMegler 1 Lofoten AS (60%), assets and/or companies. Joint control implies that the bank Nord-Norge Eiendom IV AS (100%), Alsgården AS (100%). exercises control jointly with other parties, as governed by an agreement. Jointly controlled operations and assets are recog- On achieving a controlling interest in a company (business nised in the bank’s group accounts as the bank’s proportional combinations), all identifiable assets and liabilities will be share of the assets, liabilities and other balance sheet items. recognised at fair value in accordance with IFRS 3. Joint ventures are recognised in the group accounts according to the equity method of accounting. In the parent bank’s accounts, Any positive differences between the cost of acquisition and the cost method of accounting is used, as mentioned above. fair value of identifiable assets and liabilities are recognised as goodwill, whereas any negative differences are recognised as As at 31.12.13 the following joint ventures are applied with income. The accounting of goodwill after the initial recogni- equity method of accounting: tion is commented on under the section on intangible assets. In the parent bank’s accounts, equity stakes in group compa- SpareBank 1 Gruppen AS (19,5%), SpareBank 1 Boligkreditt AS nies are recognised at cost price in accordance with IFRS. The (13,15%), SpareBank 1 Næringskreditt AS (20,92 %), BN Bank AS transition to IFRS in the parent bank’s accounts entails the use (23,5%), SpareBank 1 Utvikling DA (17,74%), SpareBank 1 Verdi- of different principles for the incorporation of subsidiaries, papirservice AS (24,9%), SparBank 1 Kundesenter AS (14,91%), joint venture businesses and associated companies into the SpareBank 1 Kredittkort AS (19,83%) and SpareBank 1 Markets AS two accounts. (23,89%).

In the IFRS-based group accounts, the equity method of accoun- In the parent bank’s accounts, equity stakes in joint ventures are ting is applied, which entails that profit/loss attributable to recognised at cost price in accordance with IFRS. joint ventures and associated companies is included in the Group’s profit and loss account by the equity stake, and they are taken into account in the book value of the assets in the balance sheet.

Profit/loss attributable to subsidiaries are consolidated into the accounts. In accordance with IFRS, only the cost method shall be used in the company accounts. This means that the book value of subsidiaries in the parent bank’s balance sheet repre- sents historical cost. The book values are tested for impairment.

SpareBank 1 Nord-Norge Annual Report 2013 49 ANNUAL ACCOUNTS 2013

Operations hold for sale Recognition and derecognition The consolidated accounts comprise the bank and all its subsidi- Financial assets and liabilities are recognised when the Group aries that are not planned to be sold in the near future, which are becomes party to the terms of the instrument contract. Initial therefore to be classified as held for sale in accordance with IFRS 5. recognition is at fair value, plus, for instruments that are not derivatives or measured at fair value through profit and loss, Classification and valuation of balance sheet items transaction costs that are directly referable to the acquisition Financial instruments are classified as being in or issuing of the financial asset or the financial liability. After one of the following categories: initial recognition, the instruments are measured as described - at fair value through profit or loss below. - available for sale (AFS) - loans and receivables The Group derecognises a financial asset when the contractual - investments held to maturity rights to the cash flows from the financial asset lapse, when it - financial instruments at amortised cost transfers the rights to receive the agreed cash flows in a transac- tion where practically all of the risk and benefits of owning the These categories are representet in the figure below. financial asset are transferred, or when it neither transfers nor retains practically all of the risk and benefits of ownership and it does not retain control of the financial asset either. All rights and obligations that were created or retained upon transfer of the derecognised financial asset are recognised separately as assets or liabilities. Transfers of assets where all or practically all of the risk and benefits are retained include, for example, repurchase agreements and transfers of individual mortgages and business loans. If the Group neither transfers nor retains all or practically all of the risk and benefits of owning the finan- cial asset and has simultaneously retained control, the Group continues to recognise the financial asset to the extent the bank has a lasting involvement in the financial asset.

Classification Stated at Financial Criteria that allows a financial asset or liability to follow the rules for fair Fair value asset or value through profit and loss through profi liabilities and loss Held for Stated at fair value Hold to Loand and Available for IFRS 7.25-26 sale for first time maturity receivables sale

Assets Cash and deposits with central banks Yes x x Lending to financial institutions Yes x Lending to customers Yes x x Shares Yes x x xx Certificates and bonds Yes x x x x Financial derivatives Yes x x Property - own buildings No Plant and equipment No Intangible assets No Other assets No

Liabilities Liabilities to financial institutions Ja Deposits from customers Ja Securities issued/funding Ja Financial derivatives Ja x x Other liabilities Nei Hybrid Tier 1 capital Ja Subordinated loan capital Ja

50 The bank has agreements concerning the legal sale of home and Loans and losses on loans property mortgages to SpareBank 1 Boligkreditt AS and Spare- Loans and receivables are non-derivative financial assets with Bank 1 Næringskreditt AS respectively. According to the admini- fixed or determinable payments that are not quoted in an active stration contracts concluded with these two alliance companies, market. Loans and receivables are recognised at fair value, plus the bank administers the loans and remains responsible for cus- direct marginal transaction costs, upon initial recognition, and at tomer contact. In addition to the sales amount for the loans, the amortised cost using the effective interest rate method in sub- bank receives remuneration in the form of commissions over sequent periods. When calculating the effective interest, the cash the life of the loans. There is some residual involvement asso- flows are estimated and all the contractual terms relating to ciated with sold loans with the possible, limited settlement of the financial instrument are taken into account. In the periods losses against commissions. The mortgage companies can sell after the initial measurement, the loan is assessed at amortised on loans purchased from the bank, but the bank’s right to ad- cost using the effective interest rate method. minister the customers and receive commissions continues. If the bank is unable to serve the customers, the right to serve them Upon initial recognition, fixed rate loans are designated as being and receive commissions lapses. The bank also has the op- measured at fair value with value changes through profit and tion to buy back loans, subject to certain conditions. The bank loss. Fair value is determined by actual cash flows from cus- has, therefore, neither retained nor transferred the most material tomers being discounted in accordance with the Group’s own risks or returns associated with sold loans. The bank recognises set required rate of return in relation to the actual term to ma- the amount associated with the residual involvement as an turity of the loan. Credit risk is also taken into account in the asset or liability. Reference is also made to note 13. required rate of return. Gains and losses that are attributable to changes in fair value are recognised as changes in value in the When it repurchases its own bonds, the repurchased bonds are income statement. Earned interest and any premium/discount derecognised and the difference between the payment for and is recognised as interest. The interest rate risk in fixed rate loans book value of the repurchased bond is recognised. is managed via interest rate swaps, which are booked at fair value.

If there is objective evidence of an impairment in value for individual loans or groups of loans, the loans are written down. The write-down amount is calculated as the difference between the carrying amount and the present value of estimated future cash flows, discounted by the loan’s effective interest rate. The effective interest rate used for discounting is not adjusted due to changes in the loan’s credit risk and loan terms. Write- Fair Fair value hierarchy Amortised cost Acquisition downs are classified as losses on loans. Interest income is t value IFRS 13.93 (b), BC216 (effective cost recognised using the effective interest rate method. option interest Level 1 Level 2 Level 3 listed observable other method) prices in market IFRS Objective evidence of an impairment in value active data 13.86 market IFRS for individual loans includes: IFRS 13.81 • the debtor experiencing a significant financial problem 13.76 • non-payment or other type of significant breach of contract • granted payment deferment or new credit to pay the instal- xx ment, agreed changes to the interest rate or other agreement x terms due to the debtor experiencing financial problems • it is deemed likely that the debtor will commence debt xxx settlement proceedings, other financial restructuring, or xx x that the debtor’s dwelling will be included in bankruptcy xx x proceedings x Loans that have not been subject to individual impairment asses- sments are assessed together in groups. Loans that are assessed individually, but where no write-down has taken place, are also assessed in groups. The groups are defined as loans with equal risk and value attributes based on the classification of customers by primary sector and risk class.

Groups of loans are written down for impairments in value x if objective evidence exists that: x • dramatic market changes are occurring in a risk class in x which the bank has groups of loans x • material changes are occurring in the framework conditions and these will undoubtedly have practical consequences for groups of loan customers x • a group of lenders are obviously unable to follow up the x necessary renewals and investments

SpareBank 1 Nord-Norge Annual Report 2013 51 ANNUAL ACCOUNTS 2013

• a group of lenders are exposed to events that will result in Derivatives designated as hedging instruments are recognised a lasting and material reduction in the ability to pay at fair value on the balance sheet. The criteria for, and treatment (e.g. cornerstone company with many middle-aged of, hedge accounting is described below. employees goes bankrupt) • negative changes in the ability of lenders in the group to pay • national or local economic conditions that are associated Intangible assets with defaults on the assets in the group Intangible assets consist of deferred tax assets, goodwill and licenses. Intangible assets are recognised in the balance sheet when the criteria have been satisfied. A distinction is made Defaulted and doubtful commitments between intangible assets with a finite or indefinite economic A commitment is deemed to be in default life. Assets with a finite economic life are amortised over their if one of the following criteria applies: economic life. Expenses for the internal development of intangible • A claim has been due for more than 90 days and the amount assets are capitalised only when the criteria for the develop- is over NOK 1,000, or when the bank considers it unlikely ment phase have been satisfied. Other expenses are recognised that the customer will meet its payment obligations. in the profit and loss account gradually as they are incurred. • A commitment is deemed to be doubtful when objective proof Intangible assets other than goodwill are subject to an impair- exists showing that one or more loss incidents have occurred ment test in accordance with IAS 36 when there is an indication and that this is having an impact on the expected future cash that the value of the asset may be impaired. Goodwill arises as a flow which can be estimated in a reliable manner. positive difference between the cost of acquisition of a company and the fair value of identifiable assets and liabilities, with reference to the section on consolidation principles. Goodwill Securities and derivatives is not amortised; it is subjected to an annual impairment test Securities and derivatives consist of equities and units, certifi- aimed at identifying possible impairments in value in accord- cates and bonds, and currency, interest and commodity instru- ance with IAS 36. In the case of goodwill, assets with an indefi- ment derivatives. Equities and units are classified as either fair nite useful life, and intangible assets not yet available for use, value through profit and loss or available for sale. Certificates the recoverable amounts are determined annually on the balance and bonds are classified as either fair value through profit and sheet date. When the carrying amount of an asset or a cash flow loss, held to maturity, or loans and receivables. Derivatives are generating unit exceeds its recoverable amount, the asset or always recognised at fair value through profit or loss. The Group unit will be written down. Write-downs are recognised through uses the trading date price when it initially recognises securities. profit and loss. Write-downs of goodwill cannot be reversed. Write-downs of other assets are reversed if the estimates used All financial instruments that are classified as fair value through to calculate the recoverable amount change. profit and loss are measured at fair value, and any change in value See note 33. from the opening balance is recognised as income or costs from other financial investments. In the opinion of the Group, this provides the most relevant information. Property, plant and equipment Property, plant and equipment, with the exception of invest- Equities and units classified as available for sale are also meas- ment property and owner-occupied property are recognised at ured at fair value, but any changes in value in relation to the the cost of acquisition and depreciated on a straight-line basis opening balance are recognised directly against equity. When over their estimated useful life. When determining a plan of it has proven impossible to determine the fair value of unlisted depreciation, the separate assets are split up into components equities, the cost price is used. Certificates and bonds that are with different useful lives to the extent that this is regarded classified as loans and receivables are measured at amortised as necessary, taking into account estimated residual value. cost using an approximate effective interest rate method. See Property, plant and equipment, which individually are regarded the description of this method in the section on lending. Invest- as insignificant, for example PCs and other office equipment, ments held to maturity are certificates and bonds with fixed or are not assessed individually for residual value, useful life or determinable cash flows plus a fixed due date that an entity impairment, but are considered as groups. When implementing intends, and is able, to hold to maturity with the exception of IFRS on 1 January 2004, all properties were value-adjusted to those the entity has classified as at fair value through profit and fair market value. According to IAS 16, these properties are loss upon initial recognition, those that meet the definition of deemed to have an estimated acquisition cost that corresponds loans and receivables. After initial recognition, financial assets to the value-adjusted amount at the time of such value adjust- held to maturity are measured at amortised cost using the effec- ment. Property, plant and equipment that are depreciated are tive interest rate method, with reductions for any losses due subject to a write-down test in accordance with IAS 36 when- to impairment. The sale or reclassification before due date of ever indicated by the circumstances. more than a significant amount of investments held to maturity will result in the remaining investments being held to maturity being reclassified to available for sale. This type of sale/reclas- sification will also prevent the Group classifying investments as ‘held to maturity’ for the two following financial years.

52 Repossessed assets Commission income and expenses In connection with the legal recovery of claims under out- Commission income and expenses are generally accrued in ac- standing loans and guarantees, the bank will repossess assets cordance with the delivery of a service. Fees related to interest- that have been pledged as security for such commitments in bearing instruments are not recognised as commissions; they some cases. At the time of acquisition, the assets are valued at are included in the calculation of the effective interest rate and their assumed realisation value. Repossessed assets that are to recognised accordingly. Advisory fees are accrued in accord- be sold are classified in the balance sheet as current assets or as ance with the agreement, typically at the time the service is fixed assets held for sale and are recognised in accordance with delivered. The same applies to day-to-day administrative IAS 2 and IFRS 5. Any losses/gains on the sale or reassessment services. Fees and charges related to the sale or brokerage of of the value of such assets are recognised as additions to or financial instruments, property or other investment objects deductions from losses on loans. that do not generate balance sheet items in the bank’s accounts, are recognised in the profit and loss account when the trans- action is finalised. Liabilities Funding is initially recorded at its original cost, which is the fair value of the proceeds received after deducting transaction Realised losses costs. Variable rate loans are thereafter measured at amortised When it is highly probable that losses are final, they are classi- cost, and any discount/premium is accrued over the term of fied as realised losses. Realises losses that are covered by pre- the loan. Fixed rate loans are included in hedge accounting vious individual loan loss provisions are booked against those and discounted according to the current interest rate curve. provisions. Realised losses without cover by way of loan loss No fair value option is applied to the Group’s liabilities. provisions and over or under coverage in relation to previous loan loss provisions are recognised through profit or loss. Deposits from customers are stated at amortised cost.

Foreign currency transactions and holdings Contingent liabilities Transactions in foreign currencies are converted into Norwe- The Group issues financial guarantees as part of its ordinary gian kroner using exchange rates prevailing at the time of the business. Latent liabilities are specified in note 38. Loans are transaction. Gains and losses related to completed transactions assessed for impairment as part of assessing loan losses and or to the conversion of holdings of cash or cash equivalents on the same basis, and are reported with these, ref. note 11. at the balance sheet date are included in the profit and loss Provisions are made for other contingent liabilities if it is more account, unless they are adjusted directly against equity in ac- probable than not that the liability will materialise and the cordance with the principles of hedging. Gains and losses on financial consequences can be reliably calculated. non-monetary items are included in the income statement in the same way as the corresponding balance sheet item.

Subordinated loans and hybrid Tier 1 capital Subordinated loans have priority after all other liabilities, are Hedge accounting classified as subordinated loan capital on the balance sheet, The Group utilises derivatives for operational hedging purposes and are stated at amortised cost. Hybrid Tier 1 capital is a bond in order to minimise interest risk from fixed rate instruments. with a specified interest rate, but the Group is under no obliga- The bank assesses and documents the effectiveness of hedging, tion to pay interest for a period in which no dividend is paid, both at the time of initial classification and on an ongoing basis. and an investor has no subsequent claim to the unpaid interest. In the case of fair value hedging, changes in value in the hedged Hybrid Tier 1 capital is classified as subordinated loan capital risk are recognised and changes in these values from the opening on the balance sheet and is stated at amortised cost. balance are recognised in the income statement. The bank has also, to a very minor extent, utilised cash flow hedging.

Interest income and expenses Interest income and expenses related to assets and liabilities that are valued at amortised cost are recognised in the profit and loss account in accordance with the effective interest rate method. All fees related to interest-bearing loans and borrow- ings are included in the calculation of an effective interest rate and are amortised over the expected life of the financial instru- ment. The market interest rate on debt instruments assessed at fair value is classified as interest income or interest expenses, whereas the effect of interest rate fluctuations is classified as income from financial investments.

SpareBank 1 Nord-Norge Annual Report 2013 53 ANNUAL ACCOUNTS 2013

Taxes Segment reporting Taxes recognised in the profit and loss account comprise tax Ordinary banking operations, involving private and business payable for the period and deferred taxes. Tax payable for the customers, represent the bank’s primary reporting format, with period is calculated tax on the current year’s taxable profit. Wealth leasing as the bank’s secondary reporting format. tax is calculated and recognised as other operating expenses See also note 4. in the profit and loss account. Deferred taxes are accounted for by means of the liability method in accordance with IAS 12. Deferred tax liabilities or assets are recognised in respect of Events after the date of the balance sheet all temporary differences, which arise as a difference between The annual accounts are deemed to be approved for publication the carrying amount and taxable value of assets and liabilities when the Main Board of Directors has approved the accounts. at the balance sheet date. However, no liabilities or assets are The Supervisory Board and regulatory authorities may refuse to calculated for deferred taxes on goodwill that do not give a tax approve the published annual accounts after this, but they deduction or items that are recognised for the first time and cannot change the accounts. Events occurring up to the time do not affect the financial or taxable profit. Deferred tax assets when the financial statements are approved for publication are calculated with respect to accumulated tax losses carried involving issues that were already known on the date of the forward at the balance sheet date. Deferred tax assets are recog- balance sheet will form part of the information basis for de- nised only to the extent that it is probable that the taxable profit termining estimates and will thereby be fully reflected in the will be available and unused tax losses can be utilised. annual accounts. Events that were not known on the balance See note 26. sheet date will be reported if they are significant. Such circum- stances are mentioned in note 44.

Pensions The annual accounts have been prepared on the basis that the SpareBank 1 Nord-Norge is required pursuant to the Mandatory Group will continue as a going concern. This assumption was Company Pension Act to provide occupational pension schemes valid in accordance with the Main Board of Directors’ opinion for its employees. The bank’s pension schemes satisfy the require- at the time the financial statements were approved for publication. ments of the aforementioned act. The Group has a defined contri- bution scheme and a closed defined benefit scheme. The defined The Main Board of Directors’ dividend proposal is stated in the contribution scheme is with SpareBank 1 Forsikring. The defined annual report. Proposed dividends and distributions for chari- benefit pension scheme is administered by a separate pension table purposes are classified as equity until final approval has fund, SpareBank 1 Nord-Norges Pensjonskasse, which manages been granted. the pension fund’s assets pursuant to the guidelines that apply for pension funds.

On 1 July 2006 the Group established a defined contribution pension scheme. All new staff are enrolled in this scheme. Pensions are accounted for in accordance with international accounting standards for the calculation and accounting of pensions (IAS 19). See note 25.

54 NOTE 3 - CRITICAL ESTIMATES AND ASSESSMENTS REGARDING THE USE OF ACCOUNTING PRINCIPLES

Losses on loans and guarantees Fair value of financial derivatives The bank assesses its entire portfolio of business customers annually. The fair value of financial derivatives is usually determined by using Large and especially risk commitments are examined on a quarterly ba- valuation methods where the price of the underlying object, for ex- sis. Loans to private customers are assessed when more than 55 days ample interest or foreign exchange rates, is obtained from the market. In have elapsed since a default or when there is a particularly bad payment the case of share options, volatility will either be observable implicit vol- history. For each customer, a likelihood of default is calculated, based atility or calculated volatility based on historical share price movements on historical financial data and credit report remarks and correspond- for the underlying object. If the bank’s risk position is approximately ingly for retail banking customers based on tax assessment figures and neutral, middle rates will be used. A neutral risk position means credit report remarks. The bank currently has nine categories for healthy for example that the interest rate risk within a repricing interval is commitments and two categories for commitments in default, based on approximately zero. In the opposite case, relevant purchase and sale the likelihood of default for each customer. These eleven categories are prices will be used to assess the net position. divided into groups based on low, medium, high, highest risk, and default an loss based on likelihood of default. The entire portfolio is scored on a In the case of a counterparty whose credit rating is weaker than monthly basis using automatic data acquisition based on objective data. that of the bank, the price will reflect an underlying credit risk. Individual write-downs are made due to impairment for loans where To the extent that market prices are obtained from transactions there is objective evidence that the loan in question is doubtful in ac- with a lower credit risk, this will be taken into account by cordance with the FSAN’s lending regulations and IAS 39. amortising the original price difference measured against such transactions with a lower credit risk over the maturity period. Individual write-downs for impaired value are calculated as the differ- ence between the loan’s book value and the present value of the dis- counted cash flow based on the effective interest rate at the time of the Intangible assets initial write-down. Subsequent changes in interest rates are taken into Intangible assets are subject to an impairment test which is account for loan agreements with adjustable interest rates. mainly based on the discounting of expected future cash flows. There will always be considerable uncertainty related to estimated Group write-downs for impaired value are calculated for sub-groups of cash flows, and in some cases there will also be uncertainty with loans, where there is objective information showing an increase in the regard to the methods for allocating cash flows to various assets. credit risk after the credit has been approved, but where it is not pos- sible to examine all the commitments on an individual basis or where it is not possible to specify the information at the commitment level. Pensions Such information can consist of a negative development in the credit Net pension liabilities and the current period’s pension costs risk classification or information about a negative development in the are based on a number of estimates, which include the return on value of assets pledged as collateral security, the profitability in a par- pension fund assets, the future interest rate and inflation levels, ticular industry, or the solvency of groups of debtors. future wage development, turnover of staff and development of the National Insurance basic amount (G), as well as the general The assessment of loss write-offs will always be based on a considerable development in the number of persons receiving disability benefits degree of subjective judgment. Predictions based on historical informa- and life expectancy. Uncertainty is to a great extent related to tion may prove to be wrong because one can never be certain about the gross liabilities and not to net liabilities as shown in the balance relevance of historical data as a basis for decision-making. In many sheet. The Group has previously used the corridor method for cases, assets pledged as collateral security are not sold in highly effec- recognising unamortised estimate deviations. The corridor method tive markets and the determination of fair market value may therefore be is no longer permitted and all estimate deviations must be recorded subject to considerable uncertainty. in the statement covering other operating income and costs under comprehensive income items, so-called OCI (Other Comprehen- sive Income). Fair value of equity capital instruments Financial assets assessed at fair value through the profit and loss account Acquisitions will normally be traded in active markets and the fair value can thus Acquisitions of other companies are recognised in the accounts be determined with reasonable certainty. For financial assets classified using the acquisition method, ref. IFRS 3. In the acquisition method, as available for sale this is not necessarily the case. Correspondingly, an acquisition analysis is carried out with full purchase price the market values for assets and liabilities that are carried at amortised allocation, where the purchase price is allocated to identifiable and appear in notes may be estimates based on discounted future cash assets and liabilities in the acquired company. A positive differ- flows, multiplier analysis or other calculation methods. Such methods ence between the fair value of the purchase sum paid and the could be subject to significant uncertainty. With the exception of a few fair value of the identifiable assets and liabilities is recognised as shares, the Norwegian stock market is considered to have poor liquidity. goodwill. Any badwill can, subject to certain criteria, be recog- Share prices will in most circumstances be the last known transaction nised as income in the income statement in the acquisition year. price. In some cases where the liquidity is poor and there is a great deal The acquisition analysis can be regarded as preliminary or final. of unexplained fluctuations in the share price, the share price might be determined based on the weighted average over a specified time Acquisition analyses contain both concrete calculations and the period, usually December. exercising of best judgement. Estimated items are always associated with some uncertainty, but they are, to the extent possible, supported In cases where there are no representative transactions, other valu- by calculations of expected cash flows, comparable transactions, etc. ation methods have been used in accordance with the valuation Please also see notes 33 and 40. hierarchy in IAS 39.

SpareBank 1 Nord-Norge Annual Report 2013 55 ANNUAL ACCOUNTS 2013

NOTE 4 - BUSINESS AREAS

Management has made an assessment of which business areas The bank operates in a limited geographical area and reporting are deemed reportable with respect to the form of distribution, along the lines of geographic secondary segments provides little products and customers. The primary format of reporting takes additional information. Significant types of assets (loans) allocated as a starting point risk and yield profiles of various assets and geographically are included in a separate note under loans. reporting is divided into retail banking sector, corporate sector, Markets and wholly-owned subsidiaries. The bank’s own invest- ment activities are not a separately reportable segment and appear under the item “unallocated” together with activities which can- not be allocated to either the retail or corporate business sectors.

31.12.13 Amounts in NOK million Retail banking Corporate SP1 Finans Markets Unallocated Total sector sector Net interest income 881 214 150 18 22 1 285 Net fee- and commission income 582 141 0 53 155 931 Other operating income 0 0 0 0 346 346 Operating costs 774 188 41 30 176 1 209 Profit before losses 689 167 109 41 347 1 353 Net losses on loans and guarantees 15 90 10 0 57 172 Profit before income tax 674 77 99 41 290 1 181

Loans and advances to customers 33 374 20 150 3 758 0 0 57 282 Individual write-down for impaired value -32 -189 -23 0 0 -244 Group write-down for impaired value -41 -148 -21 0 0 -210 Other assets 0 298 0 0 20 394 20 692 Total assets per business area 33 301 20 111 3 715 0 20 393 77 520

Liabilities to- and deposits from customers 24 748 20 192 0 0 0 44 940 Other liabilities and equity 8 552 0 3 715 0 20 313 32 580 Total equity and liabilities per business area 33 300 20 192 3 715 0 20 313 77 520

31.12.12 Amounts in NOK million Retail banking Corporate SP1 Finans Markets Unallocated Total sector sector Net interest income 834 186 115 14 17 1 166 Net fee- and commission income 418 93 0 22 123 656 Other operating income 0 0 0 44 216 260 Operating costs 769 171 37 30 113 1 120 Profit before losses 483 108 78 50 243 962 Net losses on loans and guarantees 13 178 4 0 0 195 Profit before income tax 470 -70 74 50 243 767

Loans and advances to customers 30 640 20 499 3 412 0 0 54 551 Individual write-down for impaired value -29 -258 -12 0 -4 -303 Group write-down for impaired value -36 -146 -7 0 -9 -198 Other assets 0 0 0 0 21 279 21 279 Total assets per business area 30 575 20 095 3 393 0 21 266 75 329

Liabilities to- and deposits from customers 25 683 17 905 0 0 0 43 588 Other liabilities and equity 0 0 3 393 0 28 348 31 741 Total equity and liabilities per business area 25 683 17 905 3 393 0 28 348 75 329

56 NOTE 5 - EQUITY AND CAPITAL ADEQUACY RATIO

New capital adequacy rules and regulations (Basel II – EU’s new The Group has been granted a permit by the Financial Supervisory directives for capital adequacy) were implemented in Norway Authority of Norway to use proportional consolidation in its with effect from 01.01.07. SpareBank 1 Nord-Norge has received reporting of the capital adequacy of the assets in SpareBank 1 permission from Finanstilsynet (The Financial Supervisory Au- Boligkreditt, SpareBank 1 Næringskreditt and BN Bank. thority of Norway) (FSAN) to apply internal calculation methods (Internal Rating-Based Approach) for credit risk from 01.01.07. The European Parliament passed CRD IV on 16 April 2013, and This will make the statutory minimum capital adequacy require- the final CRD IV text was approved by the Council of Europe on ment more risk-sensitive, which means that the capital require- 20 June 2013. CRD IV will be effective from 1 January 2014 and ment will to a larger extent correspond to the risk contained in consists of one directive and one regulation and replaces the cur- the underlying portfolios in question. The use of internal cal- rent capital adequacy directives. CRD IV will apply in Norway culation methods will involve comprehensive demands on the because of the EEA Agreement. On 10 June 2013, the Norwegian bank’s organisation, competence, risk models and risk manage- Ministry of Finance approved that the capital and buffer require- ment systems. As a result of transitional rules relating to the new ments shall apply to Norwegian institutions starting on 1 July 2013, directive mentioned above, IRB-banks would experience the full though with a phasing in period up to 2016. This means most impact of the reduced regulatory capital requirements in 2010. Norwegian banks will be expected to satisfy a core Tier 1 equity Until 2010, banks have to report on a parallel basis, both accord- requirement of at least 13 % by 1 July 2016. ing to the old capital adequacy calculations and Basel II. During the period 2007-2010, an annual reduction of the risk-adjusted SpareBank 1 Nord-Norge has established a goal of pure core calculation basis in relation to the old method (socalled correc- capital adequacy of 14.5% or higher in 2016. tion of ‘floor’) was permitted. A resolution has now been reached to postpone this issue, and the transition rules will continue to apply. The calculation basis in 2013 therefore amounts to 80 per cent of the calculated basis according to the Basel I rules and regulations.

Parent Bank Group

31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Net equity and related capital Core capital 1 655 1 807 Equity Certificates 1 807 1 655 245 843 Premium Fund 843 245 3 083 3 565 Savings Bank's Fund 3 565 3 083 456 776 Dividend Equalisation Fund 776 456 150 163 Donations 163 150 Fund for unrealised gains -2 -3 46 Other equity 1 327 1 224 Minority interests 23 22 5 589 7 200 Total equity exclusive minority interests 8 502 6 832

-106 -154 Deduction set asite dividend -154 -106 -30 -131 Deduction net pension fund -134 -29 Deduction Fund for urealised gains 69 41 Adjusted subordinated capital from consolidated financial insitutions -163 -59 836 500 Hybrid Tier 1 bonds 653 989 Deferred tax, goodwill and other intangible assets -116 -87 -542 -472 Deduction subordinated capital in other financial institutions (50%) -174 -106 -95 -102 Deduction adjusted expected amount lost (50%) -94 -97 Capital adequacy ratio reserve (50 %) -606 -706 5 652 6 841 Core capital 7 783 6 672

Supplementary capital Perpetual non-call bonds 1 259 950 Subordinated loan capital 1 160 1 507 -542 -472 Deduction subordinated capital in other financial institutions (50%) -174 -106 -95 -102 Deduction adjusted expected amount lost (50%) -94 -97 Capital adequacy reserve (50 %) -606 -706 622 376 Supplementary capital 286 598

6 274 7 217 Net equity and related capital 8 069 7 270 SpareBank 1 Nord-Norge Annual Report 2013 57 ANNUAL ACCOUNTS 2013

NOTE 5 - EQUITY AND CAPITAL ADEQUACY RATIO

Parent Bank Group

31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Risk-weighted assets base 27 662 29 312 Credit risk IRB 26 778 25 966 11 126 7 207 Credit risk standardarised approach 20 443 21 261 38 788 36 519 Total credit risk 47 221 47 227

148 267 Debt risk 263 141 137 164 Equity risk 501 479 396 270 Currency risk 276 396 2 820 2 784 Operational risk (Basic approach) 2 966 3 317 -1 083 -944 Deduction subordinated capital in other financial institutions (100 %) -348 -269 -14 -3 Deduction adjusted expected amount lost (100 %) -47 -57 Core capital adequacy reserve (100 %) -1 211 -1 411 41 192 39 057 Total risk-weighted IRB assets base 49 621 49 823 Complements to overall floor Capital Requirements 8 368 5 275 41 192 39 057 Total risk-weighted assets base IRB 57 989 55 098 20.0 % 20.0 % Adjusted assets base IRB of Basel-I assets base. 20.0 % 20.0 %

Minimum requirements subordinated capital, Basel I I 921 938 Specialised lending exposure 939 921 646 631 Other corporations exposure 632 646 18 20 SME exposure 23 21 277 298 Property retail mortage exposure 497 456 32 47 Other retail exposure 51 33 318 410 Equity investments 2 212 2 344 Total credit risk IRB 2 142 2 077 890 576 Exposure standardarised approach 1 635 1 900 3 102 2 920 Total credit risk 3 777 3 977

12 21 Debt risk 21 11 11 13 Equity risk 41 38 32 22 Currency risk 22 32 226 223 Operational risk 237 265 Transitional arrangements 669 223 -88 -75 Deductions -128 -139 3 295 3 124 Minimum requirements subordinated capital 4 639 4 407

13.72 % 17.52 % Core capital adequacy ratio (CET 1) 13.42 % 12.11 % 1.51 % 0.96 % Supplementary capital adequacy ratio 0.49 % 1.09 % 15.23 % 18.48 % Capital adequacy ratio 13.91 % 13.19 %

58 NOTE 6 - FINANCIAL RISK MANAGEMENT

Risk management at SpareBank 1 Nord-Norge should support For further information, reference is made to the “Pillar III the Group’s strategic development and achievement of targets, Report” on our website. and it shall contribute to ensuring financial stability and safe and secure asset management through: A more detailed description of financial risk management relating to the credit risk, liquidity risk and market risk is • A strong organisational structure characterised provided below. by high risk management awareness • Striving towards an optimal application of capital within the adopted business strategy Credit risk • Striving for an equal risk-adjusted return on customers Credit risk is defined as the risk of loss due to customers or other over time within the adopted business strategy contracting parties not having the ability or willingness to fulfil • Exploitation of synergy and diversification effects their obligations to the Group. Credit risk is managed through the • Having sufficient core/subordinated capital according Group’s credit strategy, limits for the credit activities, guidelines to the chosen risk profile for the granting of credit and the internal rules and regulations relating to power of attorney/delegated lending authority. The principal aim is to ensure that the Group’s aggregate risk level is moderate and within the limits set by the Group’s sub- SpareBank 1 Nord-Norge applies internal measuring methods ordinated capital and other provisions. Through good risk IRB (Internal Rating Based Approach) for calculation of the management, the Group should have a stable and predictable statutory minimum capital adequacy requirements for credit earnings and profit performance. A business strategy and over- risk. The minimum requirements are thus more risk-sensitive all targets represent the Main Board of Directors’ instruments and will correspond to a greater extent with the risk in the for managing the Group’s risk profile and financial develop- underlying portfolios. The Group has a positive impact on the ment. The Chief Executive Officer is responsible for presenting capital adequacy of the introduction of the new regulations. this to the Main Board of Directors at least once a year, or when- ever other circumstances indicate such a presentation. The The credit strategy and limits for the credit activities are esta- Group’s minimum goal is to maintain its current international blished by the Main Board of Directors and revised and updated at rating in order to ensure a long-term ample supply of ordinary least once a year. The Group’s credit strategy sets out the overall borrowing from the capital markets. principles for the granting of credit and how the credit risk should be managed and priced at SpareBank 1 Nord-Norge. The Group’s risk is quantified for example through calculation of: SpareBank 1 Nord-Norge bases itself on the principles that have • Expected losses that describe the amount that the bank must been recommended by the Basel Committee in the document, statistically expect to lose during a 12-month period. “Principles for the Management of Credit Risk”, and on the new • Unexpected losses that describe how much capital capital adequacy rules and regulations (Basel II). In addition, (risk-adjusted) the Group must have in order to cover it is assumed that the management of credit risk is carried out the actual risk involved. within the framework of relevant laws, rules and regulations. The strategic credit targets consist of targets for: The risk-adjusted capital should cover 99.9 per cent of possible, unexpected losses. Statistical methods are used as a basis for • Return on capital and growth the calculations involved, but qualitative evaluations are also • Risk profile applied in some cases. • Concentration risk • Operative credit targets The return on the risk-adjusted capital is an important strategic result-related target for the internal management of the Group. The strategic credit targets are reported regularly to the bank’s Significant business areas are allotted capital in relation to the senior management and Main Board of Directors. The Main Board calculated risk relating to the activities, and the return on capital of Directors is responsible for the Group’s loan and credit approvals. is followed up. The calculation of risk-adjusted capital enables The rules and regulations in this respect, which have to be ap- the comparison of risk across risk groups and business areas. In proved by the Main Board of Directors, set out the principles addition, risk is measured and followed up through the reporting for the granting of credit-related powers of attorney/delegated of the use of limits and important portfolio risk targets. lending authority and the principles for credit decisions, and describe the decision structure. The Main Board of Directors In order to ensure an effective and appropriate process for risk delegates the powers of attorney/delegated lending authority to and capital management, the framework has been based on the the CEO, who, according to the rules and regulations relating following elements, which reflect the manner in which the Main to the granting of credits, delegates his powers of attorney to Board of Directors and the management manage the Group: others. The delegated powers of attorney/delegated lending • Strategy authority are related to the size of the commitment in question • Organisation and organisational culture and to the probability of default. Credit staff work in accord- • Risk and capital management ance with credit-related powers of attorney/delegated lending • Reporting authority, the credit policy and credit handling routines that • Follow-up stipulate clear quality requirements for the credit handling • Contingency plans process. • Compliance

SpareBank 1 Nord-Norge Annual Report 2013 59 ANNUAL ACCOUNTS 2013

Liquidity risk The management and control of the portfolio takes place through Funding risk is defined as the risk of the Group being unable to the risk classification of individual customers, risk pricing fund increases in assets and being unable to meet its obligations model and a portfolio management system to manage the lend- as its financial obligations fall due. ing portfolio in accordance with the adopted limits and guide- lines. The risk models on which management and control are The Main Board of Directors focuses strongly on predict- based on principle on statistical calculations, and they are ability and stability, and at least once a year it reviews the subject to ongoing further development and testing. Group’s liquidity strategy and the management of the Group’s financing structure in particular. The liquidity strategy reflects The models are based on three main components: the Group’s conservative risk profile, and it is important that random events do not have serious consequences for the Group’s 1. Probability of default. Customers are classified in risk ability to meet its financial obligations. This capability is defined classes according to the likelihood of the customers defaul- by everyday stress test of liquidity risk. ting on their commitments during a 12-month period. The probability of default is calculated based on historical data The Group’s Treasury department is responsible for liquidity series for key financial figures, as well as non-financial criteria management, whereas the department for risk management and such as behaviour and age. In order to classify customers accor- compliance monitors and reports on the utilisation of the limits ding to the probability of default, nine risk classes (A–I) are in accordance with the liquidity strategy. The liquidity risk is used. In addition, the Group has two risk classes (J and K) reduced by the diversification of loans in different markets, for customers with commitments in default and/or commit- funding sources, instruments and maturity periods. ments that have been written down. The Financial Supervisory Authority of Norway calculates group 2. Expected exposure in the case of default. This is the relationship between stable funding with maturity over 1 year/ estimate of what the exposure will be if a customer defaults. 1 month and illiquid assets, through Liquidity Indicator 1/2. The administration has set targets to at any time to be > 100% / 3. The degree of loss in the case of default. This is an > 105%. An increase in this ratio indicates lower risk. As 31.12.13 assessment of how much the Group could potentially lose reported Liquidity Indicator 1/2 respectively 108.36 and 115.27. if the customer defaults on his/her/its commitments. The The figures are reported on a consolidated basis. assessment takes into consideration the value of the assets that the customers have pledged as security, and the costs The credit ratings issued by the international credit rating incurred by the Group in connection with recovering the agencies, Moody’s and Fitch Ratings, are regarded as important commitment in default. These figures are estimated based in relation to international sources of funding loans. The bank’s on the bank’s own experience over time. Seven different long-term rating by Moody’s is A2 with “stable outlook”, while classes are used (1-7) for classification according to the the long-term rating by Fitch is A with “stabel outlook”. degree of loss in the event of default. SpareBank 1 Nord-Norge is seeking a financing structure that The three aforementioned components also form the basis is well diversified within certain limits in terms of both market for the Group’s portfolio classification and statistically based product and maturity. The bank shall have an active policy computations of expected losses and the need for risk-adjusted (Investor Relations) for Norwegian and international investors. capital. The purpose of the portfolio classification is to provide “In SpareBank 1 Alliance there is established a Euro Medium information about the level and development with regard to Term Notes (the default program for loans in EUR), a residential the aggregate credit risk in the entire portfolio, which is there- mortgage company for issuing“ Bond with security; SpareBank 1 fore divided into five different risk groups: lowest, low, medium, Boligkreditt and mortgage company SpareBank 1 Næringskreditt. high and highest. The classification into different risk groups The bank shall in its liquidity management actively use these is performed on the basis of a statistical computation of the tools, in line with peers. likelihood, in the case of each individual commitment, of de- fault, exposure in the case of default, and the degree of loss Customer deposits are the bank’s main source of funding. The involved when a default occurs. ratio between deposits from customers and loans was 78.3 per cent as at 31 December 2013, compared with 75,6 per cent and The Group endeavours to price its commitments according to 80.9 percent, respectively, two years ago. risk exposure, so that the commitments with the highest risk are priced the highest. The price model is based on the Group’s The Group’s liquidity and funding management is considered required rate of return on risk-adjusted capital. to be very satisfactory. For further information, reference is made to the “Pillar III Report” and to notes 18 and 19. For further information, reference is made to the “Pillar III Report” on our website and to notes 7, 8, 9, 11 and 14. The Group also has credit risk relating to investments in interest-bearing Market risk securities. Such credit risk is primarily noticeable through on- Market risk is defined as the risk of losses due to changes in going changes in the prices/values for the different securities. observable market variables such as interest rates, foreign ex- This is described in more detail under the section “Market change rates and securities markets. risk” below. Market risk arises mainly from the Group’s investment in bonds, certificates and shares, and as a result of activities that are performed to support the banking operations – such as funding, interest rate and foreign exchange trading. 60 Net loss The market risk is measured and monitored based on limits 31.03. that are adopted by the Main Board of Directors. The limits -17 847 997 kr are reviewed and renewed on an annual basis. The limits are 30.06. determined based on stress tests and the analysis of negative -33 650 962 kr market movements. 30.09. The department for risk management and compliance is respons- -45 918 828 kr ible for the ongoing, independent monitoring of market risk. 31.12. Interest rate risk is the risk of loss as a result of interest rate -55 346 431 kr fluctuations. It’s measured by delta vector analysis, based on 2% pure shift and monitored on the basis of the framework Value changes on financial derivatives as per 31.12.13 described above. The Group’s interest rate risk is mainly short 25 226 408 kr and considered low.

Currency risk is the risk of loss due to currency rate fluctua- In 2013 a specific write-down of NOK 1 271 359 is carried out tions. The limits for currency risk are expressed by limits for on one of the items in the bank’s “held to maturity” portfolio. the maximum aggregate currency position and maximum posi- This write-down was made due to an assessment of permanent tion in individual currencies. The Group’s foreign exchange impairment in value in relation to the earlier booked value. risk is well within the position limit stated in the applicable rules and regulations. The portfolio of bonds an certificates has not been adjusted thru the period. This due to governmental demand for cash The price risk for securities is defined as the risk of loss oc- positions. curring after changes in the value of bonds, certificates and equity capital instruments in which the Group has invested. The bank’s interest-bearing securities on the liabilities side of The Group’s exposure to this type of risk is regulated through the balance sheet are not priced on the basis of credit spreads limits for maximum investments in various portfolios. at “fair value”. The bank’s accounts are accordingly not affected by changes in the credit spreads related to the bank’s liabilities. The bank’s profit is affected by changes in market variables such as interest rates, foreign exchange rates and securities The development of the equity markets has had a positive impact prices during the course of the year. In 2008 major portions on the value of the bank’s portfolio of equities and funds. of the interest-bearing portfolio was reclassified from “at fair value through the profit and loss account” to the categories SpareBank 1 Nord-Norge has little net exposure to foreign “hold-to-maturity” and “loans and claims”. The reclassification currencies, and the accounts have not been particularly affected means that ongoing changes in market values for the reclassi- by fluctuations in the foreign exchange market. fied portfolio are not recognised in the accounts. Reference is made to a more detailed description in note 29. The Group’s market risk is classified as moderate.

The development of the credit spreads/margins in the securi- For further information, reference is made to the “Pillar III ties market in 2013 contributed to capital gains on the bank’s Report” and to notes 15 and 16. interest-bearing portfolio.

NOTE 7 - CREDIT RISK EXPOSURE FOR EACH INTERNAL RISK RATING

The bank applies its own risk classification system for the into different groups according to risk. The allocation is done by monitoring of credit risk in the portfolio. The classification of linking the collateral assets to the individual loans in question. risk classes is done on the basis of the probability of default Each customer is then put into risk groups according to prob- for each individual commitment. In addition to the probability ability of default and security class, as shown below. The clas- of default, the bank applies estimated value of collateralised sification matrix comprises 77 risk classes in relation to prob- assets pledged as security as an element when putting customers ability of default and security coverage. Parent Bank and Group Amounts in NOK million Average unsecured Total amount Average unsecured Total amount exposure - % exposure - % 2013 2013 2012 2012 Very low risk 0.2 % 24 872 0.2 % 22 626 Low risk 2.0 % 10 050 1.8 % 10 991 Medium risk 1.8 % 17 083 1.7 % 18 264 High risk 0.2 % 2 522 0.2 % 1 977 Very high risk 1.6 % 3 501 0.3 % 1 870 In default and written down 0.1 % 817 0.1 % 943 Total 5.9 % 58 845 4.3 % 56 671

SpareBank 1 Nord-Norge Annual Report 2013 61 ANNUAL ACCOUNTS 2013

NOTE 8 - MAXIMUM CREDIT EXPOSURE, NOT ALLOWING FOR ASSETS PLEDGED AS SECURITY

The table below shows maximum exposure to credit risk for the various components in the balance sheet, including financial derivatives. Exposure is shown on a gross basis, not taking into account any assets pledged as security and allowable set-offs.

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Assets 244 612 Cash and balances with central banks 655 271 4 761 4 470 Loans and advances to credit institutions 1 392 1 871 51 139 53 612 Loans and advances to customers 57 282 54 551 12 442 11 207 Certificates and bonds 11 207 12 444 1 240 1 308 Financial derivatives 1 303 1 234 69 826 71 209 Total maximum credit exposure (recognised) 71 839 70 371

Liabilities 2 589 2 121 Contingent liabilities 2 121 2 589 4 705 4 985 Unutilised credits 4 985 4 705 2 342 1 958 Loan approvals 1 958 2 342 Other commitments 9 636 9 064 Total maximum credit exposure off balance 9 064 9 636

79 462 80 273 Total maximum credit exposure 80 903 80 007 Group Parent Bank 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Banking activities by geography 48 345 37 932 North Norway, including Svalbard 38 054 48 441 7 715 20 719 Other regions 21 178 7 833 84 43 International 97 419 56 144 58 694 Total 59 329 56 693

Capital Market activity by geography 12 010 10 807 Norway 10 802 12 006 1 667 1 663 Europe/Asia 1 663 1 667 5 45 USA 45 5 13 682 12 515 Total 12 510 13 678

69 826 71 209 Total maximum credit exposure (recognised) 71 839 70 371

62 NOTE 9 - CREDIT QUALITY BY CLASS OF FINANCIAL ASSETS

Parent Bank Neither in default nor written down Amounts in NOK million Very low Low Medium High Very high In default or individu- Total risk risk risk risk risk ally written down 2013 Loans and advances to financial institutions 4 470 4 470

Loans and advances to customers Retail market 19 041 5 056 5 966 643 845 170 31 721 Corporate market 3 770 4 564 9 321 1 632 1 963 641 21 891 Total 27 281 9 620 15 287 2 275 2 808 811 58 082

Financial investments Listed government bonds 2 692 2 692 Listed other bonds 6 990 338 122 0 12 7 462 Unlisted other bonds 584 112 259 22 76 1 053 Total 10 266 450 381 22 88 11 207

Total 37 547 10 070 15 668 2 297 2 896 811 69 289

Amounts in NOK million Very low Low Medium High Very high In default or individu- Total risk risk risk risk risk ally written down 2012 Loans and advances to financial institutions 4 761 4 761

Loans and advances to customers Retail market 17 258 4 991 5 499 652 823 167 29 390 Corporate market 3 687 4 752 10 497 1 086 956 771 21 749 Total 25 706 9 743 15 996 1 738 1 779 938 55 900

Financial investments Listed government bonds 3 809 57 3 866 Listed other bonds 5 547 424 88 1 54 6 114 Unlisted other bonds 1 546 448 394 17 57 2 462 Total 10 902 872 539 18 111 12 442

Total 36 608 10 615 16 535 1 756 1 890 938 68 342

SpareBank 1 Nord-Norge Annual Report 2013 63 ANNUAL ACCOUNTS 2013

NOTE 9 - CREDIT QUALITY BY CLASS OF FINANCIAL ASSETS

Group Neither in default nor written down Amounts in NOK million Very low Low Medium High Very high In default or individu- Total risk risk risk risk risk ally written down 2013 Loans and advances to financial institutions 1 392 1 392

Loans and advances to customers Retail market 19 541 5 263 6 290 1 122 978 180 33 374 Corporate market 4 551 4 888 9 827 1 816 2 171 655 23 908 Total 25 484 10 151 16 117 2 938 3 149 835 58 674

Financial investments Listed government bonds 2 692 2 692 Listed other bonds 6 990 338 122 0 12 7 462 Unlisted other bonds 584 112 259 22 76 1 053 Total 10 266 450 381 22 88 11 207

Total 35 750 10 601 16 498 2 960 3 237 835 69 881

Amounts in NOK million Very low Low Medium High Very high In default or individu- Total risk risk risk risk risk ally written down 2012 Loans and advances to financial institutions 1 871 1 871

Loans and advances to customers Retail market 17 773 5 216 5 792 733 947 179 30 640 Corporate market 4 529 5 156 11 024 1 232 1 178 792 23 911 Total 24 173 10 372 16 816 1 965 2 125 971 56 422

Financial investments Listed government bonds 3 809 57 3 866 Listed other bonds 5 549 424 88 1 54 6 116 Unlisted other bonds 1 546 448 394 17 57 2 462 Total 10 904 872 539 18 111 12 444

Total 35 077 11 244 17 355 1 983 2 236 971 68 866

64 NOTE 10 - FINANCIAL INSTITUTIONS - LOANS AND ADVANCES

Parent Bank Group

31.12.12 Average 31.12.13 Average Amounts in NOK million 31.12.13 Average 31.12.12 Average interest rate % * interest rate % * interest rate % * interest rate % * Loans and advances to financial institutions 1 014 0.88 % 792 0.76 % Loans and advances without agreed maturity 844 0.76 % 1 052 0.89 % or notice of withdrawal 3 747 3.02 % 3 678 3.13 % Loans and advances with agreed maturity 548 3.01 % 819 2.13 % or notice of withdrawal 4 761 2.68 % 4 470 2.67 % Total 1 392 2.31 % 1 871 1.69 %

Broken down by the most important foreign currencies 3 295 3 880 NOK 802 405 128 9 GBP 9 128 349 287 EUR 287 349 403 103 USD 103 403 1 2 SEK 2 1 585 189 Other foreign currencies 189 585 4 761 4 470 Total 1 392 1 871

Deposits from credit institutions 499 2.49 % 831 1.91 % Loans and deposits from financial institutions 824 1.91 % 499 2.49 % without agreed maturity or notice of withdrawal 3 795 2.48 % 3 461 1.60 % Loans and deposits from credit institutions 3 460 1.60 % 3 796 2.61 % with agreed maturity or notice of withdrawal 4 294 2.60 % 4 292 1.89 % Total 4 284 1.89 % 4 295 2.60 %

Broken down by the most important foreign currencies 280 USD 280 1 116 EUR 1 116 2 DKK 2 4 012 3 176 NOK 3 168 4 013 4 294 4 292 Total 4 284 4 295

* Average interest rate/(yield) is calculated as the sum of interest expense divided by average volume

SpareBank 1 Nord-Norge Annual Report 2013 65 ANNUAL ACCOUNTS 2013

NOTE 11 - LOANS AND ADVANCES TO CUSTOMERS

As is evident from note 2, the parent bank and Group have loans to In 2013, the bank used a model that conforms with IFRS 13.9 customers that are measured at amortised cost and a fixed rate concerning the measurement of fair value, where an ‘exit price’ portfolio measured at fair value. Amortised cost involves valu- assessment is used. The valuation model takes account of credit ation according to the originally agreed cash flows, adjusted for premiums and changes in credit risk. any loss in value. Fixed rate loans are measured at fair value through profit and loss using the fair value option. When it Total commitments are defined as the total of gross loans, is not possible to observe the value of such instruments in an guarantees, unutilised credits and accrued interest. active market, alternative measurement methods must be used.

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Loans broken down by method of measurement 43 605 46 072 Gross loans to customers measured at amortised cost 49 542 46 817 7 534 7 540 Fixed rate portefolio measured at fair value 7 740 7 734 51 139 53 612 Gross loans to and advanses to customers 57 282 54 551

31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Loans broken down by different types Financial leasing 1 732 1 710 4 873 5 163 Overdraft- and working capital facilities 5 027 4 704 1 858 1 701 Building loans 1 701 1 858 44 408 46 748 Repayment loans 48 822 46 279 51 139 53 612 Gross loans to and advances to customers 57 282 54 551

287 221 Individual write-downs for impaired value 244 303 182 189 Collective write-downs for impaired value 209 198 50 670 53 202 Net loans and advances to customers (amortised cost) 56 829 54 050

50 715 53 242 Net loans and advances to customers (fair value) 56 869 54 095

Loans broken down by markets 29 390 31 678 Retail banking market 33 374 30 640 21 573 21 734 Corporate market 23 888 23 711 176 200 Public sector 20 200 51 139 53 612 Gross loans and advances 57 282 54 551

469 410 Individual and collective write-downs for impaired value 453 501 50 670 53 202 Net loans and advances 56 829 54 050

Of this, subordinated loan capital accounted for 42 43 Subordinated loan capital in financial institutions 43 42 1 0 Other subordinated loan capital 0 1 43 43 Subordinated loan capital shown under loans to customers 43 43

Loans to employees 873 926 Loans to employees 926 873 Interest rate subsidies to employees are not recognised as a separate operating cost, and are included in the bank’s net interest income. (See also note 23 relating to loans to employees)

66 Parent Bank Group Loans broken down by geographical areas

31.12.12 31.12.13 31.12.13 31.12.12 Gross Loans Gross Loans Gross Loans Gross Loans share share share share

16 % 8 280 16 % 8 408 Finnmark 16 % 9 161 16 % 8 986 34 % 17 225 34 % 18 461 Troms including Svalbard 34 % 19 616 34 % 18 371 40 % 20 217 38 % 20 426 Nordland 37 % 21 413 39 % 21 084 10 % 5 333 12 % 6 274 Other counties 12 % 6 755 10 % 5 691 0 % 84 0 % 43 International 1 % 337 1 % 419 100 % 51 139 100 % 53 612 Gross loans broken down 100 % 57 282 100 % 54 551 by geographic areas

Loans broken down by different commercial, industrial and other sectors

31.12.12 31.12.13 31.12.13 31.12.12 Total commitments 65 52 Mining and quarrying 82 92 1 171 942 Construction 1 257 1 484 13 108 Building of ships and boats 110 15 2 421 1 831 Electricity, gas, steam and air conditioning supply 1 835 2 426 794 458 Professional, scientific and technical activities 523 821 2 357 1 730 Fishing 1 742 2 367 173 485 Marine aquaculture 641 286 391 445 County muncipalities and muncipalities 646 612 1 034 1 495 Activities auxiliary to financial services and insurance activities 1 495 863 933 1 104 County muncipalities and muncipalities 1 126 956 1 884 1 878 Manufacturing 1 983 2 029 164 166 Information and communication 173 169 969 956 Crop and animal production 1 043 1 064 37 Foreign industrial 157 286 7 498 7 648 Real estate activities 7 598 7 553 367 380 Accomodation and food service activities 393 381 7 5 Forestry and logging 9 12 Central government and social security funds 1 1 Support activities for petroleum and natural gas extraction 21 807 769 Other service industries 848 891 2 421 3 258 Transportation and storage 3 816 2 991 815 820 International shipping and pipeline transport 820 815 907 980 Development of building projects 981 908 3 Unspecified 3 221 226 Water supply; sewerage, waste management and remediation activities 298 301 1 635 1 210 Wholesale and retail trade; repair of motor vehicles and motorcycles 1 513 1 923 30 257 32 824 Retail banking market - domestic 34 168 31 419 48 48 Retail banking market - international 364 136 57 392 59 818 Total 63 643 60 804

SpareBank 1 Nord-Norge Annual Report 2013 67 ANNUAL ACCOUNTS 2013

NOTE 11 - LOANS AND ADVANCES TO CUSTOMERS

31.12.12 31.12.13 31.12.13 31.12.12 Gross loans 54 47 Mining and quarrying 76 81 724 477 Construction 790 1 037 10 6 Building of ships and boats 8 12 1 429 864 Electricity, gas, steam and air conditioning supply 868 1 434 678 467 Professional, scientific and technical activities 531 705 1 609 1 623 Fishing 1 635 1 619 144 447 Marine aquaculture 601 257 356 402 County muncipalities and muncipalities 601 577 978 1 156 Activities auxiliary to financial services and insurance activities 1 002 807 176 200 County muncipalities and muncipalities 222 199 1 532 1 537 Manufacturing 1 642 1 677 145 148 Information and communication 155 150 876 876 Crop and animal production 963 971 37 0 Foreign industrial 157 286 7 026 7 116 Real estate activities 7 089 7 081 345 347 Accomodation and food service activities 360 359 6 4 Forestry and logging 9 11 Central government and social security funds 1 1 Support activities for petroleum and natural gas extraction 20 682 659 Other service industries 738 766 2 119 3 028 Transportation and storage 3 583 2 689 671 660 International shipping and pipeline transport 660 671 703 773 Development of building projects 774 704 210 208 Water supply; sewerage, waste management and remediation activities 279 290 1 239 849 Wholesale and retail trade; repair of motor vehicles and motorcycles 1 144 1 527 29 344 31 678 Retail banking market - domestic 33 037 30 506 46 43 Retail banking market - international 337 134 51 139 53 612 Total 57 282 54 551

Loans and advances to customers relating to financial leasing Gross advances relating to financial leasing - Maturities of less than 1 year 110 83 - Maturities of more than 1 year but not more than 5 years 1 079 996 - Maturities of more than 5 years 649 741 Total 1 838 1 820

Income received, not yet earned, relating to financial leasing 106 110 Net investments relating to financial leasing 1 732 1 710

Net investments in financial leasing may be analysed in the following way - Maturities of less than 1 year 104 78 - Maturities of more than 1 year but not more than 5 years 1 017 936 - Maturities of more than 5 years 611 696 Total 1 732 1 710

68 The bank uses a classification system for monitoring credit risk Individual write-downs are made on retail and corporate mar- in the commercial credit portfolio. Defaults are defined as over- ket commitments that are identified as doubtful in accordance drawn amounts/arrears of more than 90 days, or a situation in with the regulations of the Financial Supervisory Authority which objective evidence exists that indicates a customer will of Norway. The classification into risk groups (very low, etc.) default. For each customer, a likelihood of default is calculated, is determined by how likely the customer is to default, and based on historical financial data and credit report remarks collateral coverage. The share of the exposure that was high and correspondingly for retail customers based on tax assessment risk as of 31 December 2013 was 10.1%. Non-performing and figures and credit report remarks. The bank has nine categories doubtful commitments accounted for 1.4% of the bank’s over- for healthy commitments based on the likelihood of each all exposure at the same point in time. The expected average customer defaulting, as well as two separate categories for annual net losses over an economic cycle are set as equal to commitments in default or that have been written down. the expected losses for one year, as estimated by means of the bank’s classification system. In a period of economic expansion The entire portfolio is scored on a monthly basis using au- the actual annual losses will be less than in a future period tomatic data acquisition based on objective data. Monitoring of economic recession. In a period of economic recession the takes place based on the size of the commitment, risk class losses for an individual year are also expected to exceed the and migration. The scoring models for the corporate market expected average losses. Expected losses are one of the para- and the retail market are validated and adjusted annually. This meters in the bank’s pricing model for calculating recommended resulted in 2013 in a minor negative change in distribution price. between the risk groups and in the calculation of the expected annual average loss.

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Loans broken down by different risk groups Total contracts 22 626 24 872 Very low risk 26 153 23 981 11 705 10 995 Low risk 11 526 12 334 18 271 17 108 Medium risk 18 392 19 092 1 977 2 526 High risk 2 871 2 205 1 870 3 501 Very high risk 3 842 2 216 943 816 Commitments in default 859 976 57 392 59 818 Total 63 643 60 804

Gross loans 20 944 22 811 Very low risk 24 092 22 299 9 743 9 620 Low risk 10 151 10 372 15 997 15 287 Medium risk 16 416 16 818 1 738 2 275 High risk 2 620 1 966 1 779 2 808 Very high risk 3 149 2 125 938 811 Commitments in default 854 971 51 139 53 612 Total 57 282 54 551

Individual write-down for impaired value 287 221 Commitments in default 244 303 287 221 Total 244 303

Expected annual average net loss 1 1 Very low risk 1 1 3 3 Low risk 3 4 27 26 Medium risk 28 29 11 15 High risk 18 12 25 90 Very high risk 97 30 17 44 Commitments in default 48 24 84 179 Total 195 100

SpareBank 1 Nord-Norge Annual Report 2013 69 ANNUAL ACCOUNTS 2013

NOTE 11 - LOANS AND ADVANCES TO CUSTOMERS

If there is objective evidence of an impairment in value for indi- The effective interest rate used for discounting is not adjusted vidual loans or groups of loans, the loans are written down. due to changes in the loan’s credit risk and loan terms. The write-down amount is calculated as the difference between Write-downs are classified as losses on loans. Interest income the carrying amount and the present value of estimated future is recognised using the effective interest rate method. cash flows, discounted by the loan’s effective interest rate.

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Individual write-downs for impaired value Mining and quarrying 6 6 Construction 8 8 Building of ships and boats Electricity, gas, steam and air conditioning supply 3 Professional, scientific and technical activities 3 Fishing 21 1 Marine aquaculture 1 21 Other business support activities 2 37 Activities auxiliary to financial services and insurance activities 37 County muncipalities and muncipalities 1 1 Manufacturing 2 1 Information and communication 2 3 Crop and animal production 4 2 Foreign industrial 14 121 124 Real estate activities 124 125 8 3 Accomodation and food service activities 3 8 Forestry and logging Central government and social security funds Support activities for petroleum and natural gas extraction 9 Other service industries 9 11 Transportation and storage 1 13 22 5 International shipping and pipeline transport 5 22 52 4 Development of building projects 4 52 Extraction of crude oil and natural gas Unspecified Water supply; sewerage, waste management and remediation activities 3 5 Wholesale and retail trade; repair of motor vehicles and motorcycles 5 4 28 32 Retail banking market - domestic 36 33 0 Retail banking market - international 0 287 221 Total 244 303

70 Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Expected annual average net loss 0 Mining and quarrying 0 3 3 Construction 6 6 0 Building of ships and boats 0 5 5 Electricity, gas, steam and air conditioning supply 5 5 5 5 Professional, scientific and technical activities 5 5 1 1 Fishing 1 1 0 Marine aquaculture 1 1 1 Other business support activities 2 1 2 2 Activities auxiliary to financial services and insurance activities 2 2 County muncipalities and muncipalities 9 9 Manufacturing 10 12 1 1 Information and communication 1 1 2 2 Crop and animal production 3 3 Foreign industrial 15 15 Real estate activities 15 15 1 1 Accomodation and food service activities 1 2 Forestry and logging Central government and social security funds Support activities for petroleum and natural gas extraction 2 2 Other service industries 2 3 3 3 Transportation and storage 6 5 International shipping and pipeline transport 4 4 Development of building projects 4 4 Extraction of crude oil and natural gas Unspecified Water supply; sewerage, waste management and remediation activities 5 5 Wholesale and retail trade; repair of motor vehicles and motorcycles 8 8 24 24 Retail banking market - domestic 27 26 0 Retail banking market - international 0 84 83 Total 99 100

Fixed rate loans measured at fair value Financial instruments that are fixed rate loans are initially Such value changes shall not be recognised in their entirety recognised at cost price. The value from the measurement ‘up front’, but must be amortised over the remaining term to model may, therefore, differ the following day. Day 1 effects maturity of the loan. The bank has, based on its own models, are triggered and gains or losses recognised in net income from calculated such day 1 effects as amounting to NOK 60 million financial assets when the instrument’s equivalent prices be- as of 31 December 2013, which is not included in the book come available or underlying parameters become observable, value of the fixed rate portfolio. the position is redeemed, or when an appropriate amortisation method is used.

SpareBank 1 Nord-Norge Annual Report 2013 71 ANNUAL ACCOUNTS 2013

NOTE 12 - AGE DISTRIBUTION FOR LOANS DUE, NOT WRITTEN DOWN

Credit risk The table shows amounts due on loans and overdrafts relating to credit facilities/deposits, broken down by the number of days elapsed since the due date of the loan payment, not due to delays in payments transmission.

Parent Bank Amounts in NOK million Under 30 days 31 - 60 days 61 - 90 days Over 91 days Total 2013 Loans and advances to financial institutions

Loans and advances to customers Retail banking market 454 39 10 67 570 Corporate market 73 15 22 18 128 Total 527 54 32 85 698

Amounts in NOK million Under 30 days 31 - 60 days 61 - 90 days Over 91 days Total 2012 Loans and advances to financial institutions

Loans and advances to customers Retail banking market 429 44 10 69 552 Corporate market 177 37 18 32 264 Total 606 81 28 101 816

Of the total amount of gross loans due, but not written down, to financial institutions and customers, the market value of the related assets pledged as security was NOK 708 million as at 31.12.13 (NOK 837 million as at 31.12.12). The value of pledged assets is set at the realisation value (fair value less a reduction factor).

72 Group Amounts in NOK million Under 30 days 31 - 60 days 61 - 90 days Over 91 days Total 2013 Loans and advances to financial institutions

Loans and advances to customers Retail banking market 454 51 13 76 594 Corporate market 73 63 64 32 232 Total 527 114 77 108 826

Amounts in NOK million Under 30 days 31 - 60 days 61 - 90 days Over 91 days Total 2012 Loans and advances to financial institutions

Loans and advances to customers Retail banking market 496 25 14 84 619 Corporate market 150 45 12 36 243 Total 646 70 26 120 862

Of the total amount of gross loans due, but not written down, to financial institutions and customers, the market value of the related assets pledged as security was NOK 851 million as at 31.12.13 (NOK 1 024 million as at 31.12.12). The value of pledged assets is set at the realisation value (fair value less a reduction factor).

SpareBank 1 Nord-Norge Annual Report 2013 73 ANNUAL ACCOUNTS 2013

NOTE 13 - TRANSFER OF FINANCIAL ASSETS

In its ordinary business, the bank undertakes transactions that Liquidity facility result in the sale of financial assets where the bank has a perma- SpareBank 1 Nord-Norge has, together with the other owners of nent commitment. The bank continues to recognise these assets SpareBank 1 Boligkreditt, entered into an agreement to establish to the scope that the bank continues to have an involvement in a liquidity facility for SpareBank 1 Boligkreditt. This involves the property. The bank transfers such financial assets primarily the banks committing to purchase residential mortgage bonds through the sale of a customer’s residential loan to SpareBank limited to a total value of twelve months’ maturities from Spare- 1 Boligkreditt or a commercial property loan to SpareBank 1 Bank 1 Boligkreditt. Each owner is principally liable for its share Næringskreditt. of the need, subsidiarily for twice what its primary responsibility is with respect to the same agreement. The bonds can be deposited in Norges Bank and thus involve no significant increase in risk to SpareBank 1 Boligkreditt the bank. SpareBank 1 Boligkreditt holds as per its own internal The bank sells residential mortgage loans to SpareBank 1 Bolig- guidelines liquidity for the next twelve months’ maturities. This kreditt, which in turn issues covered bonds to investors with is deducted when evaluating the responsibilities of the banks. the transferred residential loans as security. On a net basis in If the business no longer possesses the liquidity for the next 2013, NOK 1.6 billion in residential loans were sold. In total, twelve months’ maturities consequently the bank would only residential loans to SpareBank 1 Boligkreditt of NOK 23 billion report any commitment associated with this. had been deducted at the end of the fiscal year. The loans are sold at their balance sheet value. Solvency Together with the other owners of SpareBank 1 Boligkreditt, Offsetting against commission revenues SpareBank 1 Nord-Norge has also entered into an agreement to The bank receives commissions for the residential loans sold ensure that SpareBank 1 Boligkreditt always has a Tier 1 capital corresponding to the interest income on the loans less the aver- ratio of at least 9 percent. The shareholders must contribute age financing costs of SpareBank 1 Boligkreditt, administrative sufficient Tier 1 capital within 3 months after having received costs and any possible losses arising, limited to a ceiling of one a written request to do so. The obligation of the shareholders year’s commission. The interest is established by the residential to contribute such Tier 1 capital is pro rata and not jointly and credit company. The loans transferred must have an LTV of max- severally, and will be with respect to each shareholder’s pro rata imun 75 percent at the point in time of the sale. The average LTV portion of the shares of SpareBank 1 Boligkreditt. for the loans sold from SpareBank 1 Nord-Norge is less than 50 percent. The bank transfers for all practical purposes all risks associated with the residential loans sold and the bank hence deducts them from its balance sheet. The bank furthermore enters all rights and obligations that are created or retained upon the transfer separately as assets or liabilities. The bank’s maxi- mum exposure to losses is represented by the highest amount for which coverage would be able to be demanded under the agree- ment and comprised around NOK 329 million in 2013 agaist NOK 175 million in 2012 (sum of commissions for 2013 and 2012). No losses have been recognised in the portfolio since the transfer.

Permanent commitment Amounts in NOK million Book value obligations Fair value obligations Maximum exposure to losses (last year’s commissions) NOK millions Settlement access 0 0 329 Average time to maturity of the portfolio is around three years.

74 SpareBank 1 Næringskreditt Liquidity facility The bank can sell commercial property loans to SpareBank 1 As described above concerning SpareBank 1 Boligkreditt, a Næringskreditt, which in turn issues covered bonds to inves- corresponding agreement has been entered into with Spare- tors with the transferred loans as security. As at 31.12.13 loans Bank 1 Næringskreditt. for NOK 303 million have been transferred to SpareBank 1 Næringskreditt. The loans are sold at their balance sheet value. Solvency In the same manner, an agreement has been entered to ensure Offsetting against commission revenues Tier 1 capital for SpareBank 1 Næringskreditt of a minimum As for SpareBank 1 Boligkreditt, a corresponding agreement of 9 percent. See the discussion above concerning SpareBank has been entered into concerning offsetting against commission 1 Boligkreditt. revenues. The bank has recieved NOK 2.6 million in commi- sion in 2013. As mentioned above regarding to SpareBank 1 Boligkreditt, the bank’s maximum exposure to losses is rep- resented by the highest amount for which coverage would be able to be demanded under the agreement and comprised around NOK 2.6 million in 2013. No losses have been recog- nised in the portfolio since the transfer.

SpareBank 1 Nord-Norge Annual Report 2013 75 ANNUAL ACCOUNTS 2013

NOTE 14 - WRITE-DOWN FOR IMPAIRED VALUE OF LOAN AND ADVANCES

If there is objective evidence of an impairment in value for indi- The groups are defined as loans with equal risk and value vidual loans or groups of loans, the loans are written down. attributes based on the classification of customers by primary The write-down amount is calculated as the difference between sector and risk class. the carrying amount and the present value of estimated future cash flows, discounted by the loan’s effective interest rate. When it is highly probable that losses are final, they are classi- The effective interest rate used for discounting is not adjusted fied as realised losses. Realises losses that are covered by pre- due to changes in the loan’s credit risk and loan terms. Write- vious individual loan loss provisions are booked against those downs are classified as losses on loans. Interest income is provisions. Realised losses without cover by way of loan loss recognised using the effective interest rate method. provisions and over or under coverage in relation to previous loan loss provisions are recognised through profit or loss. Loans that have not been subject to individual impairment assessments are assessed together in groups. Loans that are assessed individually, but where no write-down has taken place, are also assessed in groups.

Parent Bank Group

2012 2013 Amounts in NOK million 2013 2012 94 38 Change in individual write-downs for impaired value during the period 40 97 -40 -4 Change in collective write-downs for impaired value during the period 12 -40 141 109 Confirmed losses against which individual write-downs for impaired value 117 144 was previously made 40 11 Confirmed losses against which no individual write-downs for impaired value 11 5 was previously made -11 -8 Payments received on loans, guarantees etc. previously written down -8 -11 224 146 Total losses on loans and guarantees 172 195

Individual write-downs for impaired value 193 287 Individual write-downs for impaired value on loans and guarantees as at 1 January 303 208 141 109 - Confirmed losses during the period on loans and guarantees against which individual 117 144 write-downs for impaired value were previously made 22 4 - Reversal of previous years’ impaired value 12 24 4 9 + Increase in individual write-downs for impaired value of commitments against which 30 9 individual write-downs for impaired value were previously made 253 38 + Individual write-downs for impaired value of commitments where no allowance were 40 254 raised in previous years 287 221 = Individual write-downs for impaired value on loans and guarantees as at 31.12 244 303 Individual write-downs for impaired value of guarantees, parent bank NOK 0,1 million, and Group NOK 0,1 million, are included in the balance sheet as at 31.12.13 under liabilities. Accordingly the amount in 2012 was 0,2 mill NOK.

Collective write-downs for impaired value 213 182 Collective write-downs for impaired value on loans and guarantees as at 1 January 198 226 -31 7 + Collective write-downs for impaired value on loans and guarantees in the period 11 -28 182 189 = Collective write-downs for impaired value on loans and guarantees as at 31.12 209 198

76 Parent Bank Group Losses broken down by sector and industry 2012 2013 2013 2012 Propor- Loss Propor- Loss Propor- Loss Propor- Loss tion of tion of tion of tion of losses losses losses losses 0 % 1 0 % 0 Mining and quarrying 0 % 0 0 % -1 1 % 3 2 % 3 Construction 2 % 3 2 % 4 0 % 1 0 % 0 Building of ships and boats 0 % 0 0 % 1 1 % 2 Electricity, gas, steam an air conditioning supply 1 % 2 0 % 1 2 % 4 7 % 10 Professional, scientific and technical activities 6 % 10 2 % 4 15 % 35 0 % 0 Finanicial and insurance activities 0 % 0 0 % -1 0 % -1 1 % 1 Fishing 1 % 1 0 % 1 1 % 1 Marine aquaculture 1 % 1 0 % 1 -1 % -3 0 % 0 Other business support activities 4 % 7 0 % -1 Activities auxiliary to financial services and insurance activi- ties County muncipalities and muncipalities 2 % 4 37 % 57 Manufacturing 34 % 62 1 % 3 1 % 2 -1 % -1 Information and communication 1 % 2 2 % 4 -1 % -1 Crop and animal production -1 % -1 2 % 4 10 % 15 Foreign industrial 8 % 15 41 % 96 5 % 7 Real estate activities 4 % 7 47 % 96 1 % 1 Accomodation and food service activities 1 % 1 0 % 0 Forestry and logging Central government and social security funds Support activities for petroleum and natural gas extraction 0 % -1 -1 % -1 Other service industries -1 % -1 0 % 1 -1 % -2 7 % 11 Transportation and storage 7 % 12 0 % -1 4 % 10 8 % 12 International shipping and pipeline transport 7 % 12 5 % 10 21 % 49 9 % 14 Development of building projects 8 % 14 24 % 49 -1 % -3 -5 % -8 Extraction of crude oil and natural gas -4 % -8 -1 % -3 Unspecified 17 % 40 0 % 0 Water supply; sewerage, waste management and remedia- 19 % 39 tion activities -1 % -2 6 % 9 Wholesale and retail trade; repair of motor vehicles and 6 % 10 0 % -1 motorcycles -1 % -3 14 % 22 Retail banking market 18 % 33 0 % -1 100 % 235 100 % 154 Losses on loans to customers 100 % 180 100 % 206

11 8 Payments received on loans previously written-off as con- 8 11 firmed lost 224 146 Net losses on loans 172 195

SpareBank 1 Nord-Norge Annual Report 2013 77 ANNUAL ACCOUNTS 2013

NOTE 14 - WRITE-DOWN FOR IMPAIRED VALUE OF LOAN AND ADVANCES

Net non-performing and impaired commitments - Parent Bank 31.12.13 31.12.12 31.12.11 31.12.10 31.12.09 Non-performing commitments, not impaired 444 357 452 475 541 Impaired 373 586 322 361 194 Non-performing and impaired commitments 817 943 774 836 735

Non-performing commitments, not impaired 171 104 88 129 184 Impaired 50 183 105 129 36 Non-performing and impaired commitments 221 287 193 258 220 Net non-performing and impaired commitments 596 656 581 578 515

2013 2012 2011 2010 2009 Interest on written-down loans, included in Income * 58 56 50 46 36

Net non-performing and impaired commitments - Group 31.12.13 31.12.12 31.12.11 31.12.10 31.12.09 Non-performing commitments, not impaired 486 397 471 492 575 Impaired 373 592 338 378 228 Non-performing and impaired commitments 859 989 809 870 803

Individual write-downs for impaired value 194 120 96 137 190 Interest on reversal of discounted impairment of value 50 183 112 136 42 Total individual write-downs 244 303 208 273 232 Net non-performing and impaired commitments 615 686 601 597 571

2013 2012 2011 2010 2009 Interest on written-down loans, included in Income * 58 56 50 46 36

* Ordinary effective interest income, reduced by the amortising effect of interest related to individual write-downs, has been included in Income. Corresponding inclusion of income has been applied in the case of loans involving collective related write-downs, calculated at an average, effective rate of interest.

78 NOTE 15 - MARKET RISK RELATED TO INTEREST RATE RISK

Interest rate risk arises through the bank’s assets and liabilities Off-balance sheet items that are used in the bank’s risk manage- having different interest rate lock-in periods. ment, including interest rate swaps, are also included. The calculations are made on the basis of the bank’s positions as of Interest rate risk is managed within the limits set by the bank’s 31 December and market interest rates at the same . Main Board of Directors, where the interest rate risk is expressed by a maximum change in value of a 2% parallel interest rate Interest rate risk was low throughout 2013 and within the shift given by a yield curve. Limits for total interest rate risk overall limit of NOK 60 million established by the bank’s Main are given, and within specified time intervals. Board of Directors. The low exposure means that the market risk associated with interest rate risk has a limited effect on the This note is a sensitivity analysis conducted on the basis of bank’s profit performance. relevant balance sheet items as of 31 December 2013 and going forward. The bank’s interest rate risk is calculated by simulating a parallel interest rate shift of 2% for the entire interest rate curve. All the interest rate sensitive balance sheet items on the asset and liability sides are included in the analysis.

Interest rate risk with a 2% interest rate shift All amounts are equal for the parent bank and Group Amounts in NOK million 2013 2012 Bonds and certificates -39 -49 Fixed rate loans to customers -4 -19 Bond issues 47 55 Other financing and investments 1 1 Loans/deposits customers -13 5 Other derivatives 7 11 Total interest rate risk -2 4

A minus sign indicates that the bank will lose if interest rates rise. The table below shows the interest rate risk within the various time intervals with a 2% parallel interest rate shift.

Interest rate risk with a 2% interest rate shift by term to maturity 2013 2012 0 - 1 month 2 1 1 - 3 months -21 -10 3 - 6 months -2 -6 6 - 12 months 9 18 1 - 3 years 6 -4 3 - 5 years -6 3 5 - 10 years 11 2 Total interest rate risk -2 4

SpareBank 1 Nord-Norge Annual Report 2013 79 ANNUAL ACCOUNTS 2013

NOTE 16 - MARKET RISK RELATING TO FOREIGN EXCHANGE RISK

Currency risk is the risk of the Group incurring losses due to each individual currency where the long and short positions changes in exchange rates that are unfavourable for the bank’s are set off. The aggregated position is the largest of the absolute positions. The risk arises from the Group having differences sum of the long or short position. The currency risk has been between assets and liabilities in the individual currencies. low throughout the year and within the overall limits esta- The bank’s Board has set limits for currency positions exposed blished by the bank’s Main Board of Directors. to exchange rates within a day and overnight concerning aggregated position and largest position in a single currency. The table shows net currency exposure as of 31 December 2013, The currency risk is measured as the net currency exposure for including financial derivatives.

Parent Bank Group Net foreign exchange Net foreign exchange exposure NOK exposure NOK 2012 2013 Amounts in NOK million 2013 2012 Currency 6.5 23.0 EUR 23.0 6.5 29.7 25.8 USD 25.8 29.7 195.1 240.6 DKK 240.6 195.1 179.0 203.6 RUB 203.6 179.0 -0.2 2.7 Miscellaneous 2.7 -0.2 410.1 495.7 Total 495.7 410.1

50 50 Total foreign exchange limits 50 50 40 40 Total per currency 40 40

12.3 14.9 Impact on overall result from a 3 percentage point change. 14.9 12.3 41.0 49.6 Impact on overall result from a 10 percentage point change. 49.6 41.1

80 NOTE 17 - FINANCIAL DERIVATIVES

Currency- and interest rate contracts consist of Interest rate swaps • Commitments to exchange one set of cash flow for another over an agreed period.

Foreign exchange derivatives • Agreements to buy or sell a fixed amount of currency at an agreed future date at a rate of exchange which has been agreed in advance.

Currency swaps • Agreements relating to the swapping of currency- and interest rate terms and conditions, periods and amounts having been agreed in advance.

Interest rate- and currency swap agreements • Agreements involving the swapping of currency- and interest rate terms and conditions, periods and amounts having been agreed in advance.

Options • Agreements where the seller gives the buyer a right, but not an obligation to either sell or buy a financial instrument or currency at an agreed date or before, and at an agreed amount.

The bank’s Main Board of Directors has set limits for the maxi- Only hedges associated with the bank’s funding activities are mum risk for the bank’s interest rate positions. Routines have defined as fair value hedging pursuant to IAS 39. In general, been established that ensure the stipulated positions are kept to. the bank does not utilise cash flow hedging and had, as of 31 SpareBank 1 Nord-Norge concludes hedging transactions with December 2013, only one interest rate swap with such treat- recognised Norwegian and foreign banks to reduce its risk. ment, and this was insignificant in size. Derivative transactions are linked to ordinary banking opera- tions and are carried out to reduce the risk associated with the Financial derivatives are classified as held for sale and stated at bank’s borrowing (funding) in the financial markets, and to fair value on the balance sheet date. The fair value is determined reveal and reduce risk related to customer-oriented activities. using valuation methods based on observable market data.

Fair value hedges

Amounts in NOK million 31.12.13 31.12.12 Net losses recognised related to hedging instruments for fair value hedging were: -27 266 Total gains on hedged items related to the hedged risk were: 29 -267 Total, fair value hedges 2 -1

Foreign currency- and interest rate instruments

Fair value through 2013 2012 profit and loss account

Contract/ Fair value Contract/ Fair value notional amount notional amount Assets Liabilites Assets Liabilites Foreign currency instruments Foreign exchange financial 2 303 38 31 1 678 39 6 derivatives (forwards) Currency swaps 9 756 285 96 4 996 146 67 Currency options Total, non-standardised contracts 12 059 323 127 6 674 185 73 Standardised foreign currency contracts (futures) Total, foreign currency 12 059 323 127 6 674 185 73 instruments

SpareBank 1 Nord-Norge Annual Report 2013 81 ANNUAL ACCOUNTS 2013

NOTE 17 - FINANCIAL DERIVATIVES

Parent Bank and Group Fair value through 2013 2012 profit and loss account Contract/ Fair value Contract/ Fair value notional amount notional amount Assets Liabilites Assets Liabilites Interest rate instruments Interest rate swaps (including cross 25 356 418 595 23 275 448 618 currency) Short,-term interest rate swaps (FRA) Other interest rate contracts * 9 6 1 811 14 7 Total, non-standardised contracts 25 365 424 595 25 086 462 625 Standardised interest rate contracts (futures) Total, interest rate instruments 25 365 424 595 25 086 462 625

Securing of funding Interest rate instruments Interest rate swaps (including cross 9 832 561 8 318 593 15 currency) Short-term interest rate swaps (FRA) Other interest rate contracts Total, non-standardised contracts 9 832 561 8 318 593 15 Standardised interest rate contracts (futures) Total, interest rate instruments 9 832 561 8 318 593 15

Total foreign currency- and interest rate instruments Total, interest rate instruments 35 197 985 595 33 404 1 055 639 Total currency swaps and forwards 12 059 323 127* 6 675 185 74 Total 47 256 1 308 722 40 079 1 240 713

* The parent bank includes NOK 4 million for the subsidiary SpareBank 1 Finans that has been eliminated in the Group balance sheet.

82 NOTE 18 - REMAINING CONTRACT-RELATED MATURITY FOR LIABILITIES

Liquidity risk An analysis that shows receipts and payments, including funding for a period of 12 months. In addition, the bank should future interest payments, at various points in time. SpareBank be able to survive for a minimum of 90 days in a ‘medium 1 Nord-Norge prepares an annual liquidity strategy that encom- stress’ situation, where no funding is available from the capital passes, for example, the bank’s liquidity risk. The principal markets. The bank manages its operations in accordance with objective for SpareBank 1 Nord-Norge is to maintain the bank’s these targets. ability to survive in a normal situation without any external

Parent Bank Amounts in NOK million On demand Under 3-12 1 - 5 Over Total 3 months months year 5 years 2013 Liabilities to credit institutions 424 2 516 443 860 49 4 292 Deposits from customers 4 985 161 390 692 878 7 106 Debt securities in issue 42 337 2 137 415 44 889 Liabilities relating to deferred tax 675 3 473 13 397 252 17 797 Derivatives Contract-related outgoing cash flows 1 518 483 1 813 346 4 160 Contract-related incoming cash flows -550 -303 -988 -306 -2 147 Other liabilities 713 21 701 1 435 Subordinated loan capital 1 450 1 700 Total liabilities 47 746 7 185 5 445 17 637 2 669 78 982

2012 Liabilities to credit institutions 19 842 236 3 197 4 284 Deposits from customers 4 708 4 708 Debt securities in issue 43 100 450 43 550 Liabilities relating to deferred tax 675 3 473 13 397 252 17 797 Derivatives Contract-related outgoing cash flows 664 501 1 730 503 3 398 Contract-related incoming cash flows -443 -325 -793 -392 -1 953 Other liabilities 783 783 Subordinated loan capital 130 627 1 338 2 095 Total liabilities 47 827 3 101 4 512 18 869 363 74 672

SpareBank 1 Nord-Norge Annual Report 2013 83 ANNUAL ACCOUNTS 2013

NOTE 18 - REMAINING CONTRACT-RELATED PERIODS FOR LIABILITIES

Group Amounts in NOK million On demand Under 3-12 1 - 5 Over Total 3 months months year 5 years 2013 Liabilities to credit institutions 424 2 508 443 860 49 4 284 Deposits from customers 4 985 161 390 692 878 7 106 Debt securities in issue 42 388 2 137 415 44 940 Liabilities relating to deferred tax 675 3 473 13 397 252 17 797 Derivatives Contract-related outgoing cash flows 1 518 483 1 813 346 4 160 Contract-related incoming cash flows -550 -303 -988 -306 -2 147 Other liabilities 946 21 701 1 668 Subordinated loan capital 1 450 1 700 Total liabilities 47 797 7 395 4 922 16 475 2 669 79 258

2012 Liabilities to credit institutions 19 842 236 3 198 4 295 Deposits from customers 4 407 4 407 Debt securities in issue 43 138 450 41 220 Liabilities relating to deferred tax 675 3 473 12 134 252 16 534 Derivatives Contract-related outgoing cash flows 664 501 1 730 503 3 398 Contract-related incoming cash flows -443 -325 -793 -392 -1 953 Other liabilities 783 182 965 Subordinated loan capital 130 627 1 338 2 095 Total liabilities 43 157 7 508 4 694 17 607 363 73 329

84 NOTE 19 - MATURITY ANALYSIS OF ASSETS AND LIABILITIES

The table shows whether assets and liabililties have maturity dates within one year after the balance sheet date. Parent Bank Amounts in NOK million On demand Under 3-12 1 - 5 Over Total 3 months months year 5 years 31.12.13 Assets Cash and balances with central banks 612 612 Loans and advances to credit institutions 3 982 145 74 256 13 4 470 Loans and advances to customers 8 510 500 2 309 8 117 34 176 53 612 - Individual write-downs for impaired value -221 -221 - Collective write-downs for impaired value -189 -189 Shares - available for sale 223 333 556 Shares - fair value 2 088 1 126 4 589 976 8 779 Financial derivatives 6 104 110 Bonds - fair value 6 728 1 550 34 2 318 Bonds - Loans and advances 1 1 267 1 039 1 308 Investments in Group companies 0 Investment in associated companies and joint ventures 553 553 Intangible assets 2 436 2 436 Property, plant and equipment 489 489 Intangible assets 0 Other assets 1 108 1 108 Total assets 13 105 2 740 5 841 15 988 38 267 75 941

Liabilities Liabilities to credit institutions 2 589 800 800 103 4 292 Deposits from customers 42 337 2 137 415 44 889 Debt securities in issue 560 84 938 12 954 1 800 16 336 Financial derivatives 21 701 722 Deferred tax 187 187 Other liabilities 865 865 Subordinated loan capital 1 450 1 450 Total liabilities 45 658 3 901 2 174 13 758 3 250 68 741

SpareBank 1 Nord-Norge Annual Report 2013 85 ANNUAL ACCOUNTS 2013

NOTE 19 - MATURITY ANALYSIS OF ASSETS AND LIABILITIES

Group Amounts in NOK million On demand Under 3-12 1 - 5 Over Total 3 months months year 5 years 31.12.13 Assets Cash and balances with central banks 655 655 Loans and advances to credit institutions 904 145 74 256 13 1 392 Loans and advances to customers 8 510 500 2 309 8 117 37 846 57 282 - Individual write-downs for impaired value -244 -244 - Collective write-downs for impaired value -209 -209 Shares - available for sale 379 333 712 Shares - fair value 2 088 1 126 4 589 976 8 779 Financial derivatives 6 104 110 Bonds - fair value 6 728 1 550 34 2 318 Bonds - Loans and advances 1 1 267 1 034 1 303 Investments in Group companies 0 Investment in associated companies and joint ventures 3 564 3 564 Goodwill 81 81 Property, plant and equipment 595 595 Intangible assets 0 Other assets 1 182 1 182 Total assets 10 070 2 740 6 071 15 983 42 656 77 520

Liability Liabilities to credit institutions 2 581 800 800 103 4 284 Deposits from customers 42 388 2 137 415 44 940 Debt securities in issue 560 84 938 12 954 1 800 16 336 Financial derivatives 21 701 722 Deferred tax 228 228 Other liabilities 1 058 1 058 Subordinated loan capital 1 450 1 450 Total liabilities 45 529 4 307 2 174 13 758 3 250 69 018

86

Parent Bank Amounts in NOK million On demand Under 3-12 1 - 5 Over Total 3 months months year 5 years 31.12.12 Assets Cash and balances with central banks 244 244 Loans and advances to credit institutions 3 637 804 153 156 11 4 761 Loans and advances to customers 8 284 538 1 860 8 251 32 237 51 170 - Individual write-downs for impaired value -287 -287 - Collective write-downs for impaired value -213 -213 Shares - available for sale 277 105 382 Shares - fair value 3 535 1 691 3 644 3 613 9 420 Financial derivatives 106 80 180 366 Bonds - fair value 8 0 2 601 47 2 656 Bonds - Loans and advances 1 240 1 240 Investments in Group companies 402 402 Investment in associated companies and joint ventures 2 407 2 407 Intangible assets 0 Property, plant and equipment 504 504 Intangible assets 0 Other assets 716 782 782 Total assets 13 405 4 991 4 843 14 406 36 189 73 834

Liabilities Liabilities to credit institutions 1 751 1 095 3 701 115 6 662 Deposits from customers 40 732 450 41 182 Debt securities in issue 562 3 620 12 152 200 16 534 Financial derivatives 21 369 323 713 Deferred tax 154 154 Other liabilities 839 839 Subordinated loan capital 2 095 2 095 Total liabilities 42 658 2 946 7 321 12 636 2 618 68 179

SpareBank 1 Nord-Norge Annual Report 2013 87 ANNUAL ACCOUNTS 2013

NOTE 19 - MATURITY ANALYSIS OF ASSETS AND LIABILITIES

Group Amounts in NOK million On demand Under 3-12 1 - 5 Over Total 3 months months year 5 years 31.12.12 Assets Cash and balances with central banks 271 271 Loans and advances to credit institutions 747 804 153 156 11 1 871 Loans and advances to customers 8 284 538 1 860 8 251 35 618 54 551 - Individual write-downs for impaired value -287 -287 - Collective write-downs for impaired value -213 -213 Shares - available for sale 277 276 553 Shares - fair value 3 535 1 691 3 614 581 9 421 Financial derivatives 106 80 180 366 Bonds - fair value 8 0 2 601 47 2 656 Bonds - Loans and advances 1 234 1 234 Investments in Group companies 0 Investment in associated companies and joint ventures 3 514 3 514 Goodwill 53 53 Property, plant and equipment 515 515 Intangible assets 0 Other assets 756 756 Total assets 10 589 4 991 4 817 14 578 40 286 75 261

Liability Liabilities to credit institutions 1 752 1 095 3 701 115 6 663 Deposits from customers 40 770 450 41 220 Debt securities in issue 562 3 620 12 152 200 16 534 Financial derivatives 21 369 323 713 Deferred tax 183 183 Other liabilities 1 021 1 021 Subordinated loan capital 2 095 2 095 Total liabilities 42 726 3 128 7 321 12 636 2 618 68 429

88 NOTE 20 - NET INTEREST INCOME

Parent Bank Group 2012 2013 Amounts in NOK million 2013 2012 Interest income 154 142 Interest and similar income from loans to and claims on credit institutions 20 37 2 252 2 399 Interest and similar income from loans to and claims on customers 2 685 2 485 316 284 Interest and similar income from certificates, 285 323 bonds and other interest-bearing securities 2 722 2 825 Total interest income 2 990 2 845

Interest costs 141 65 Interest and similar costs on liabilities to credit institutions 62 136 952 1 062 Interest and similar costs relating to deposits from and liabilities to customers 1 058 948 529 454 Interest and similar costs related to the issuance of securities 454 529 66 131 Interest and similar costs on subordinated loan capital 131 66 1 688 1 712 Total interest costs 1 705 1 679

1 034 1 113 Net interest income 1 285 1 166

NOTE 21 - NET FEE-, COMMISSION- AND OTHER OPERATING INCOME

Parent Bank Group 2012 2013 Amounts in NOK million 2013 2012 Fees and commissions receivable 27 34 Guarantee commissions 34 27 16 18 Interbank commissions 18 16 13 10 The arrangement of credit 10 14 175 332 Arrangement fee for SpareBank 1 Boligkreditt and Næringskreditt 332 175 2 2 Arrangement fee for vendor's lien-based loans 2 2 34 33 Securities trading, administration and trust department services 33 40 206 218 Payment transmission services 223 206 Brokerage commission 83 89 111 119 Insurance services 122 111 6 5 Other commission income 35 6 590 771 Total fee- and commission income 892 686 Fees and commissions payable 8 7 Interbank commissions 7 8 39 39 Payment transmission services 43 41 25 25 Other commission costs 25 25 72 71 Total fee- and commission costs 75 74

518 700 Net fee- and commission income 817 612

Other operating income 5 7 Real estate income 16 5 3 Property management 3 14 28 Other operating income 98 36 22 35 Total other operating income 114 44

SpareBank 1 Nord-Norge Annual Report 2013 89 ANNUAL ACCOUNTS 2013

NOTE 22 - INCOME FROM FINANCIAL INVESTMENTS

Parent Bank Group 2012 2013 Amounts in NOK million 2013 2012 16 23 Dividends from equity capital instruments 27 17

51 58 Income from Group companies 30 181 Income from joint ventures 303 210 81 239 Total income from equity stakes in Group companies and joint ventures 303 210

81 -47 Certificates and bonds assessed at fair value through the profit and loss account -47 81 -8 Certificates and bonds assessed at amortised cost - loans and advances -8 -5 Certificates and bonds assessed at amortised cost - hold to maturity -5 76 -55 Total income from certificates and bonds -55 76

2 2 Net value changes on hedged bonds and financial derivatives 2 2 47 -40 Net value changes on fixed rate loans to customers and derivatives -40 47 -6 26 Value changes on other financial derivatives 26 -6 43 -12 Total income from financial derivatives -12 43

29 162 Gains/losses on shares - classified at fair value through the profit and loss account 57 -113 -1 1 Gains/losses on shares - classified as available for sale 1 -1 28 163 Total income from shares 58 -114

28 25 Total income from currency trading 25 28

175 121 Net gains/losses and net value changes on financial assets 16 33

272 383 Income from financial investments 346 260

90 NOTE 23 - PERSONNEL COSTS, BENEFITS AND LOANS TO - AS WELL AS EQUITY CERTIFICATES OWNED BY LEADING EMPLOYEES AND EMPLOYEE REPRESENTATIVES

The Board’s statement on the fixing of salaries The bank shall not make use of options, share programmes, and other remuneration for executive personnel severance packages, and various forms of variable elements in the remuneration, or special benefits in addition to basic pay. 1. Guidelines for the coming financial year The bank’s Main Board of Directors shall ensure that the remu- Executive personnel neration of its executive personnel has no adverse effects on The definition of executive personnel encompasses the CEO, the bank’s reputation. executive vice presidents and regional directors. Fixing salaries The total remuneration packages of executive personnel include The Main Board of Directors shall assess the CEO’s overall their fixed salary, benefits in kind and individual pension performance, including the basis for their fixed salary, on an agreements. annual basis.

General principles for fixing total remuneration packages The CEO shall correspondingly assess the performances of Executive pay in SpareBank 1 Nord-Norge should be competi- executive personnel, including the basis for their fixed salary. tive, but it should not be a pay leader compared with the rest of the industry. Remuneration Committee The Remuneration Committee shall provide the Main Board The principal element of the remuneration package should be of Directors with an annual recommendation concerning the the fixed salary. Executive personnel in SpareBank 1 Nord-Norge CEO’s fixed salary and any other benefits. The Remuneration have no individual or collective bonus agreements. Committee shall also consider the general guidelines for the remuneration of employees of SpareBank 1 Nord-Norge on an Individual pension agreements allow them to retire at 62. annual basis and provide the Main Board of Directors with Pension agreements must satisfy the following three objectives: their conclusions. The Remuneration Committee shall also prepare a statement on the fixing of salaries and other remu- • Members of the group executive team have a right and duty neration for the CEO and other executive personnel, ref. the to retire from their position in the bank when they turn 62. provisions of the Public Limited Liability Companies Act. However, it must be possible for executive personnel to stay The statement shall be presented to the bank’s Main Board of on longer, if both parties so desire. Directors.

• They must permit any expectations and opportunities regar- Date effective ding an executive’s capacity for work between the ages of 62 The guidelines for the fixing of salaries and other remuneration and 67 to be clarified following individual discussions. for executive personnel in SpareBank 1 Nord-Norge become effective once the matter as been presented to the Supervisory • They must ensure that if full retirement is the outcome, Board. former executive personnel are able to earn an alternative income in order to maintain their purchasing power, with- 2. Report on executive pay policy in the preceding financial year out this being deducted from their pension payments. How- The Main Board of Directors confirms that the guidelines for ever, the bank has reserved the right to make deductions from executive pay for 2013 set forth in last year’s statement have pension payments for income in excess of this. been followed.

Personell costs, number of staff and man-years

Parent Bank Group 2012 2013 Amounts in NOK million 2013 2012 398 409 Wages and salaries 552 499 31 26 Pension costs 32 34 42 46 Social costs 54 48 471 481 Total personnel costs 638 581

736 691 Average number of staff 959 951 672 647 Number of man-years as at 31.12 922 906 704 678 Number of staff as at 31.12 966 951

SpareBank 1 Nord-Norge Annual Report 2013 91 ANNUAL ACCOUNTS 2013

NOTE 23 - PERSONNEL COSTS, BENEFITS AND LOANS TO - AS WELL AS EQUITY CERTIFICATES OWNED BY LEADING EMPLOYEES AND EMPLOYEE REPRESENTATIVES

Remuneration for the bank’s Chief Executive Officer Amounts in NOK thousand 2013 2012* The CEO’s remuneration consists of the following elements - Ordinary salary 2 643 3 019 - Benefits in kind 289 327 - Pension premium 78 1 729 - Tax compensation 1 584 * The benefits for 2012 pertain to former CEO Hans Olav Karde.

Fees paid to members of the Main Board of Directors in 2013 Amounts in NOK thousand Board fees Other Loans Number remuneration of equity certificates* Kjell Olav Pettersen (Chairman) 364 48 52 632 Sonja Djønne 160 16 2 053 5 000 Roar Dons (resigned March 2013) 40 Gunnar Kristiansen 160 36 076 Hans-Tore Bjerkaas (from March 2013) 120 18 4 761 Greger Mannsverk 160 37 14 464 Ann-Christine Nybacka 160 99 22 196 Pål Andreas Pedersen (Deputy Chairman) 193 78 Vivi Ann Pedersen 160 446 13 123 Anita Persen 160 70 3 081 Total 1 677 366

Persons closely related to members of the Main Board of Directors 1 742 Terms and conditions, collateral and other security are the same as for ordinary customers, with the exeption of employees’ elected representatives for whom terms and conditions are the same as for other employees.

Fees paid to members of the Control Committee 2013 Amounts in NOK thousand Fees Other Loans Number remuneration of equity certificates* Rigmor Abel 88 Kåre Brynjulfsen 88 2 596 Dag Norvang 88 Tore Bråthen (leder) 144 Sum 408

Fees paid to members of the Supervisory Board In 2013, fees totalling NOK 977 200 were paid to 49 members. The corresponding amount for 2012 was NOK 540 000 to 46 members.

* The above figures show the number of equity certificates held in SpareBank 1 Nord-Norge as at 31.12.13. Equity certificates owned by close family members or by companies of which the abovementioned persons are general partners or directors have also been included.

Pension fund SpareBank 1 Nord-Norge currently operates a defined benefit that fall outside the pension fund’s liabilities. In the case of the scheme via its own pension fund that, together with the pension bank’s operations, this covered 14 people in 2013. In 2013, the from the National Insurance Scheme, is intended to provide a bank’s premiums for the top hat insurance for these people pension of around 70% of salary at retirement age. For those amounted to around NOK 3.5 million. Executive directors and members who earn in excess of 12G, the bank has established regional directors also have their own early retirement agree- a group annuity (top hat) that covers the pension liabilities ments.

92 Benefits to members of the Group Management Committee 2013

Title/Name Salaries Pension Fees 3) Bonus Addi- Last year Loans Number and other premium tional accrued of equity short-term and tax pension pension rights certificates emolu- compensa- agree- 4) Amounts in NOK 1 000 ments tion ment

Chief Executive Officer Jan-Frode Janson 2 932 78 1) 2) 2 000 9 523 Senior group General Manager, CFO Rolf Eigil Bygdnes 1 984 507 40 1) 820 1 108 30 294 Senior group General Manager Stig Arne Engen 1 670 168 1) 296 4 090 8 202 Senior group General Manager Geir Andreassen 1 649 249 1) 473 262 35 726 Senior group General Manager Liv Bortne Ulriksen 1 935 94 1) 2) 1 481 55 700 Senior group General Manager Elisabeth Utheim 1 583 215 1) 399 931 8 310 Senior group General Manager Petter Høiseth 1 550 75 1) 2) 3 120 1 154 Senior group Regional Manager Per-Trygve Holmgren 1 613 544 1) 2 444 8 658 Senior group Regional Manager Christian Overvaag 1 331 75 1) 2) 148 34 769 Senior group Regional Manager Kåre A. Markussen 1 604 649 1) 1 326 826 Senior group Regional Manager Trude Glad 1 653 248 1) 7 003 Senior group Regional Manager Hanne J. Nordgaard 1 675 88 1) 2) 4 245 CEO SpareBank 1 Finans Hermod Bakkejord 1 641 432 1) 280 722 CEO EiendomsMegler 1 Kristin Amundsen 1 298 83 20 160 2) 1 883 CEO SNN Invest Kjell Ivar Helgesen 1 361 252 1) 874 2 896 CEO SNN Forvaltning Stig-Arne Pettersen 1.7. - 31.12 392 2) 2 859 CEO SNN Forvaltning Tom-Robin Solstad-Nøis 1.1. - 30.6 299 265 CEO SNN Regnskapshuset Tom Robert Aasnes 986 81 2) 1 500

1) Top hat 2) Have a defined contribution pension contract 3) Fees from Boards of subsidiaries, SpareBank 1 Gruppen and other similar companies 4) The above figures show the number of equity certificates held in SpareBank 1 Nord-Norge as at 31.12.13.

The early retirement pension scheme for some of the members of the Group Management Committee is to be regarded as an operating pension scheme where traditional pension entitlements have not been accumulated. The bank has made allocations in its accounts for the share relating to future liabilities also for these pension schemes.

All members of the Group Management appointed before 01.07.2006 have an ordinary pension agreement through the benefit-based scheme in Sparebanken Nord-Norges Pensjonskasse, as described in Note 25. Loans to other employees 1) 925 704

1) The loan rate of interest represents 80 % of the best house mortgage interest rate applicable at all times for our ordinary customers (within NOK 2 million), within a maximum loan amount of NOK 2 million. No guarantees have been granted.

The aggregate value of interest rate subsidies relating to loans to employees amounted to approximately NOK 8 million in 2013. SpareBank 1 Nord-Norge Annual Report 2013 93 ANNUAL ACCOUNTS 2013

NOTE 23 - PERSONNEL COSTS, BENEFITS AND LOANS TO - AS WELL AS EQUITY CERTIFICATES OWNED BY LEADING EMPLOYEES AND EMPLOYEE REPRESENTATIVES

Fees paid to members of the Main Board of Directors Amounts in NOK thousand Board fees Other Loans Number remuneration of equity certificates* Kjell Olav Pettersen (Chairman) 347 48 35 088 Sonja Djønne (from March 2012) 114 12 2 053 Roar Dons 153 48 12 852 Elisabeth Johansen (resigned March 2012) 50 8 Gunnar Kristiansen 84 13 26 753 Erik Sture Larre jr (resigned March 2012) 46 Greger Mannsverk (from March 2012) 114 26 4 941 Ann-Christine Nybacka 153 77 8 449 Pål Andreas Pedersen (Deputy Chairman) 176 72 Vivi Ann Pedersen 153 10 446 8 362 Anita Persen 153 49 701 Total 1 543 363

Persons closely related to members of the Main Board of Directors 1 742

Terms and conditions, collateral and other security are the same as for ordinary customers, with the exeption of employees’ elected representatives for whom terms and conditions are the same as for other employees.

Fees paid to members of the Control Committee Amounts in NOK thousand Board fees Other Loans Number remuneration of equity certificates* Rigmor Abel 84 Kåre Brynjulfsen 84 1 731 Dag Norvang 84 Tore Bråthen (leder) 137 Sum 389

Fees paid to members of the Supervisory Board In 2012, fees totalling NOK 540 000 were paid to 46 members. The corresponding amount for 2011 was NOK 684 500 to 42 members.

* The above figures show the number of equity certificates held in SpareBank 1 Nord-Norge as at 31.12.12. Equity certificates owned by close family members or by companies of which the abovementioned persons are general partners or directors have also been included.

Pension fund SpareBank 1 Nord-Norge today has a pension scheme through For the bank’s operations this currently applies to 14 persons. its own pension fund which together with the pension from the The bank’s top hat insurance premiums for these individuals National Insurance shall provide a pension of approximately 70 totalled around NOK 3,8 million in 2012, NOK 1 729 757 of wich per cent of final salary at retirement age. For those members was the premium for the CEO. In addition, the group- and who have a salary in excess of 12 G (the basic amount), the regionmanagement has their own early retirement agreement. bank has established a group annuity (‘top hat’) which takes care of those pension liabilities which fall outside the pension In 2012 there has not been paid bonus to the CEO, compared fund’s liabilities. with NOK 600 000 in the previous year.

94 Benefits to members of the Group Management Committee 2012

Title/Name Salaries Pension Fees 3) Bonus Addi- Last year ac- Loans Number and other premium tional crued pension of equity short-term and tax pension rights certificates emolu- compensa- agree- 4) Amounts in NOK 1 000 ments tion ment

Chief Executive Officer Hans Olav Karde 3 346 3 313 1) 2 483 2 760 33 276 Deputy CEO Oddmund Åsen 2 211 760 160 1) 1 015 2 703 15 188 Senior group General Manager Rolf Eigil Bygdnes 1 909 747 30 1) 941 1 108 20 771 Senior group General Manager Stig Arne Engen 1 620 154 1) 391 4 090 5 382 Senior group General Manager Geir Andreassen 1 598 226 1) 463 262 26 203 Senior group General Manager Liv Bortne Ulriksen 1 859 89 1) 2) 1 481 36 654 Senior group General Manager Elisabeth Utheim 1 554 197 1) 525 932 3 549 CEO SpareBank 1 Finans Hermod Bakkejord 1 687 715 1) 232 722 CEO EiendomsMegler 1 Kristin Amundsen 1 201 80 112 2) 1 884 CEO SNN Invest Kjell Ivar Helgesen 1 111 424 1) 794 2 897 CEO SNN Forvaltning Tom-Robin Solstad-Nøis 892 61 235 2) CEO Consis Alta Viggo Wollmann Olsen 762 42 2) CEO Merkantilservice Tom Robert Aasnes 1 005 45 13 2)

1) Top hat 2) Have a defined contribution pension contract 3) Fees from Boards of subsidiaries, SpareBank 1 Gruppen and other similar companies 4) The above figures show the number of equity certificates held in SpareBank 1 Nord-Norge as at 31.12.12.

The early retirement pension scheme for some of the members of the Group Management Committee is to be regarded as an operating pension scheme where traditional pension entitlements have not been accumulated. The bank has made allocations in its accounts for the share relating to future liabilities also for these pension schemes.

All members of the Group Management appointed before 01.07.06 have an ordinary pension agreement through the benefit-based scheme in Sparebanken Nord-Norges Pensjonskasse, as described in Note 25.

Loans to other employees 1) 776 420

1) The loan rate of interest represents 80% of the best house mortgage interest rate applicable at all times for our ordinary customers (within NOK 2 million), within a maximum loan amount of NOK 2 million. No guarantees have been granted.

The aggregate value of interest rate subsidies relating to loans to employees amounted to approximately NOK 7 million in 2012.

SpareBank 1 Nord-Norge Annual Report 2013 95 ANNUAL ACCOUNTS 2013

NOTE 23 - PERSONNEL COSTS, BENEFITS AND LOANS TO - AS WELL AS EQUITY CERTIFICATES OWNED BY LEADING EMPLOYEES AND EMPLOYEE REPRESENTATIVES

ECs held by SpareBank 1 Nord-Norge’ elected representatives as at 31.12.13 Numbers Kjell Kolbeinsen 1 422 652 Ole Ovesen 396 041 Odd Erik Hansen 226 513 Bente Evensen 92 060 Kjell Kræmer 79 499 Marie Fangel 77 862 Berit Berg 46 363 Sissel Ditlefsen 33 452 Einar Frafjord 21 766 Ann-Kirsten Larsen 18 509 Herman Mehren 14 276 Åshild Strømmesen 13 386 Ulf Mathisen 12 631 Tom Svendsen 12 058 Asbjørg Jensvoll Strøm 8 404 Daniel Nyhagen 7 310 May Britt Nilsen 6 525 Øyvind Pallesen 5 606 Tone Marie Myklevoll 3 678 Frode Helgerud 3 050 Hans Olav Gjøvik 1 984 Reidun Kristiansen 600 Therese Isaksen 321 Jan Hugo Sørensen 147 The above figures show the number of ECs held in SpareBank 1 Nord-Norge as at 31.12.13. ECs owned by close family members or by companies of which the abovementioned persons are general partners or directors have also been included.

96 ECs held by SpareBank 1 Nord-Norge’ elected representatives as at 31.12.12 Numbers Trond Mohn 2 714 024 Erik Sture Larre 1 134 493 Kjell Kolbeinsen 923 925 Ole Ovesen 432 906 Kjell Kræmer 105 329 Bente Evensen 81 820 Marie Fangel 51 908 Berit Berg 46 363 Sissel Ditlefsen 29 506 Frode Pedersen 27 323 Einar Frafjord 18 243 Herman Mehren 14 276 Ann-Kirsten Larsen 13 748 Asbjørg Jensvoll Strøm 8 404 Tom Svendsen 7 831 Ann Kathrina Langaune 7 136 May Britt Nilsen 5 097 Øyvind Pallesen 4 892 Tone Marie Myklevoll 3 678 Cecilie Lysjø 3 508 Hans Olav Gjøvik 1 984 Frode Helgerud 1 332 Therese Isaksen 1 042 Reidun Kristiansen 600 Jan Hugo Sørensen 98 The above figures show the number of ECs held in SpareBank 1 Nord-Norge as at 31.12.12. ECs owned by close family members or by companies of which the abovementioned persons are general partners or directors have also been included.

SpareBank 1 Nord-Norge Annual Report 2013 97 ANNUAL ACCOUNTS 2013

NOTE 24 - OPERATING COSTS

Parent Bank Group 2012 2013 Amounts in NOK million 2013 2012 471 481 Personnel costs 638 581 291 306 Administrative costs 337 319 51 50 Ordinary depreciation 53 54 141 141 Various operating costs 181 166 954 978 Total operating costs 1 209 1 120

Breakdown of operating costs Personnel costs 398 409 Wages and salaries 552 499 31 26 Pension costs 32 34 42 46 Social costs 54 48 471 481 Total personnel costs 638 581

Administrative costs 97 109 Development costs 109 97 49 52 Electronic data processing costs 58 55 54 56 Marketing costs 69 63 34 29 Travel - and training costs 32 38 11 9 Communications 10 12 10 11 Postage 12 11 12 19 Consultancy services 24 17 13 12 Cost involving the handling of cash 12 13 8 6 Office-related costs 7 9 3 3 Collection costs 4 4 291 306 Administrative costs 337 319

Other operating costs 18 31 Operating costs buildings 32 18 3 1 External auditor 1) 2 4 35 33 Rent paid - premises and bank buildings 37 39 21 11 Operating costs - premises 12 22 64 65 Other operating costs 98 83 141 141 Total other operating costs 181 166

Amounts in NOK thousand 1) Fees external auditor 894 807 Statutory auditing 1 934 1 368 62 Other certification services 239 231 4 Tax advisory services 4 2 347 50 Other non-audit services 90 2 347 3 303 861 Total remuneration for external auditor 2 267 3 946

98 NOTE 25 - PENSIONS

SpareBank 1 Nord-Norge has group occupational pension schemes a separate contractual defined benefit early retirement scheme for its employees. SpareBank 1 Nord-Norge is required, pursuant for certain senior executives. to the Mandatory Occupational Pensions Act, to provide occupa- tional pension schemes for its employees. The pension schemes Estimates are used when valuing pension assets and measuring satisfy the requirements of the aforementioned act. accrued liabilities. These estimates are corrected every year in accordance with the statement of the pension assets’ transfer The Group has a defined contribution scheme and a closed value and actuarial calculations of the size of the liabilities. The defined benefit scheme. The defined contribution scheme is with value of the pension fund’s liabilities, pension insurance in other SpareBank 1 Forsikring. The defined benefit pension scheme is insurance companies and the unsecured liabilities are included administered by a separate pension fund, SpareBank 1 Nord-Norges in the calculations below. Pensjonskasse, which manages the pension fund’s assets pursuant to the guidelines that apply for pension funds. IAS 19 “Employee Benefits” was revised on 1 January 2013 with respect to the basis for calculating pension liabilities and pension Full pension benefits in the defined benefit scheme require a con- costs. IAS 19 must be applied retrospectively and comparative fig- tributory period of 30 years and provide entitlement to a retire- ures must be restated if necessary. The Group has previously used ment pension of the difference between 70% of the employee’s the corridor method for recognising unamortised estimate devia- salary upon retirement and the estimated National Insurance tions. The corridor method is no longer permitted and all estimate benefits. Basic pension estimations for National Insurance Scheme deviations must be recorded in the statement covering other opera- pensions are based on 1G (“G” is the National Insurance basic ting income and costs under comprehensive income items, so- amount). The scheme does not include a spouse pension. The re- called OCI (Other Comprehensive Income). The corridor, which tirement age is 67 years. The scheme is adapted to the Mandatory amounted to NOK 69 million for the Group, was zeroed as of 1 Occupational Pension Act. January 2012. Pension liabilities increased correspondingly as of 1 January 2012, while equity was reduced by NOK 49 million after A new AFP (contractual early retirement) scheme in the private tax. The change was made with retroactive effect so that figures in sector was adopted in February 2010 and came into force on 1 2013 would be comparable. Previously the return on pension as- January 2011. Provisions set aside for liabilities related to the old sets was calculated using a long-term expected return on pension contractual early retirement scheme for employees born after 1948 assets. Due to the application of the revised IAS 19, the period’s were reversed and recognised as income in the income statement net interest cost is now calculated by applying the discount rate for in 2010. The same was done for liabilities related to employees the liabilities at the beginning of the period to the net liabilities. who were born during the period from 1944 to 1948, inclusive, Therefore, net interest costs consist of the interest on liabilities who chose not to retire based on the rules of the old contractual and the return on assets, both calculated using the discount rate. early retirement scheme. The new contractual early retirement Changes in net pension liabilities due to premium payments and scheme is classified as a defined benefit scheme. Due to insuf- pension payments are taken into account. The difference between ficient information on the measurement and allocation of the new the actual return on pension assets and the recorded return is rec- contractual early retirement scheme, the scheme will be treated as ognised immediately against OCI. a defined contribution scheme in the accounts. This means that the pension costs are recognised annually in accordance with The Group’s pension costs for defined benefit-based plans in 2012 the premium payments to the Joint Norwegian Confederation of according to the previous policy amounted to NOK 17 million. Trade Unions (LO)/Confederation of Norwegian Enterprise (NHO) Due to the revised policy for the treatment of unamortised esti- Scheme. No periodic provisions have been set aside for pension mate deviations and the calculation of the net interest costs, the liabilities in the Group’s balance sheet. recognised pension costs increased to NOK 24 million. The change is not regarded as material and the pension costs recog- In addition to the pension liabilities administered by the pension nised in 2012 were not changed. The Group’s net pension assets fund, the bank has its own pension insurance for employees as of 31 December 2012 increased to NOK 89 million. As of 31 whose ordinary pay exceeds 12G. This is a group annuity taken December 2013, the actuarial calculations were made on the basis out with the insurance company Storebrand. The Group also has of the changed mortality tariff, K2013BE (best estimate).

Parent Bank Group 31.12.12 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 31.12.12 (adjusted) (adjusted) Net pension liabilities in the balance sheet 643 643 655 Present value of future pension liabilities 671 660 660 740 740 787 Estimated value of pension resources 808 750 758 -97 -97 -132 Net pension liabilities in guaranteed schemes -137 -90 -98 -67 0 0 Estimated discrepancies not included in profit and loss account 0 0 -69 111 Social security liabilities 1 11 -29 -96 -131 Net pension liabilities in the balance sheet - 136 - 89 - 28

-4 % Invoice-based adjustments of benefits-based liabilities in % -3 % 4 % 5 % Deviation between anticipated and actual return on pension funds in % 5 % 4 %

SpareBank 1 Nord-Norge Annual Report 2013 99 ANNUAL ACCOUNTS 2013

NOTE 25 - PENSIONS

Parent Bank Group 31.12.12 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 31.12.12 (adjusted) (adjusted) Pension costs for the year 20 20 14 Pensionable amounts accrued during the year 14 21 21 19 19 24 Interest costs of pension liabilities 25 20 20 -35 -18 -28 Expected rate of return on assets in the scheme -29 -19 -36 11 Estimated discrepancies 11 Effects of changed, defined benefit plans 15 21 10 Net pension costs relating to defined benefit 10 22 16 plans excluding social security contributions 11 1 Employer's social security contributions - subject to accrual accounting 2 11 16 22 11 Net pension cost relating to defined benefit plans 12 23 17 8810 Curtailment/settlement 11 88 99 5 Other pension costs 7 99 33 39 26 Total pension costs including social security contributions 30 40 34 5,6 % 8,8 % The actual rate of return on pension assets 8,8 % 5,6 %

31.12.12 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 31.12.12 (adjusted) (adjusted) Change in net pension liabilities in the balance sheet -8 -8 -89 Net pension liabilities in the balance sheet as at 01.01 -89 -7 -7 87 Recognised against equity as at 01.01 90 -153 -20 Adjusted equity balance sheet as 31.12 -23 -157 16 22 11 Net pension cost relating to defined benefit plans 12 23 17 -7 -7 -6 Charged to the Profit and Loss Account -6 -7 -7 -30 -30 -28 Benefits paid -30 -31 -31 -29 -89 -132 Net pension liabilities in the balance sheet as at 31.12. -136 -89 -28 41 41 50 Other pension liabilities 50 41 41 12 -48 -82 Total pension liabilities in the balance sheet as at 31.12. -86 -48 13

Actuarial assumptions 3.90 % 3.90 % 4.00 % Discount rate 4.00 % 3.90 % 3.90 % 3.90 % 3.90 % 4.00 % Expected rate of return on scheme's assets 4.00 % 3.90 % 3.90 % 2.50 % 2.50 % 2.00 % Future wage- and salary developments 2.00 % 2.50 % 2.50 % 3.25 % 3.25 % 3.50 % Adjustment of basic amount (G) 3.50 % 3.25 % 3.25 % 0.20 % 0.20 % 0.60 % Increase in current pensions 0.60 % 0.20 % 0.20 % 6.00 % 6.00 % 6.00 % Social security liabilities 6.00 % 6.00 % 6.00 % 6.00 % 6.00 % 6.00 % Social security contributions 6.00 % 6.00 % 6.00 % 0.00 % 0.00 % 0.00 % Turnover age over 50 years 0.00 % 0.00 % 0.00 % 2.00 % 2.00 % 2.00 % Turnover age under 50 years 2.00 % 2.00 % 2.00 % 60.00 % 60.00 % 60.00 % Staff's average estimated propensity to opt for SRPS at the age of 62 60.00 % 60.00 % 60.00 % K2005 K2005 K2013BE Mortality rate, marriage probability etc. K2013BE K2005 K2005 IR2003 IR2003 IR2003 Disability IR2003 IR2003 IR2003

879 879 866 Number of members 883 894 894

100 31.12.12 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 31.12.12 (adjusted) (adjusted) Pension resources broken down on investment categories: Investment category: 69 % 69 % 65 % Certificates and bonds 65 % 69 % 69 % 27 % 27 % 32 % Shares 32 % 27 % 27 % 2 % 2 % 2 % Properties 2 % 2 % 2 % 2 % 2 % 1 % Other 1 % 2 % 2 % 100 % 100 % 100 % Total 100 % 100 % 100 %

Sensitivity The estimates are based on facts and circumstances as at 31.12.2013 assuming that all other parameters are constant. Actual results may differ from these estimates.

Discounting Pay Annual adjust- Pension Expected rate adjustment ment basic adjustment remaining amount (G) useful life Group 1 % -1 % 1 % -1 % 1 % -1 % 1 % -1 % +1 år -1 år Changes in pensions - Benefits-based pension liabilities -79 97 25 -22 -10 10 77 N/A 23 -24 - Net pension costs for the period incl. -5 6 2 -2 -1 1 5 N/A 1 -1 effects of recognised actuarial gains and losses

Parent Bank Changes in pensions - Benefits-based pension liabilities -77 94 24 -21 -10 10 76 N/A 22 -24 - Net pension costs for the period incl. -5 6 2 -2 1 1 4 N/A 1 -1 effects of recognised actuarial gains and losses

SpareBank 1 Nord-Norge Annual Report 2013 101 ANNUAL ACCOUNTS 2013

NOTE 26 - TAX

Parent Bank Group 2012 2013 Amounts in NOK million 2013 2012 Major components of income tax 85 174 Current tax costs 204 104 76 15 Change in deferred tax 13 76 -8 3 Shortfall/surplus in respect of accrual for taxation in the previous year/corrections -3 -8 153 192 Tax 214 172 9 11 Capital (property) tax (presented as other operating costs) 11 9 162 203 Income tax for the period 225 181 94 185 Tax payable in balance sheet 215 113 Change in net deferred tax 76 15 Change in deferred tax recognised in the income statement 13 76 18 -1 - Changes in principles recognised directly to equity -1 17 94 14 Total change in net deferred tax 12 93

31.12.12 31.12.13 31.12.13 31.12.12 Composition of deferred tax carried in the balance sheet and deferred tax recognised in the income statement Deferred tax in balance sheet Temporary differences: Deferred tax in balance sheet -15 -16 - Tangible fixed assets 179 132 - Current assets -1 98 132 - Pension liabilities 136 93 534 575 - Other temporary differences 551 508 Loss carried forward -20 -12 617 691 Total temporary differences 846 720

-173 -187 Deferred tax in balance sheet - 27%/28% -228 -202

2012 2013 2013 2012 Deferred tax recognised Deferred tax recognised Temporary differences in the income statement in the income statement -3 -1 - Tangible fixed assets 47 2 - Current assets 1 -1 22 34 - Pension liabilities 43 20 251 41 - Other temporary differences 43 250 Loss carried forward -8 1 270 74 Total temporary differences 126 272

76 21 Change in deferred tax recognised in the income statement - 27%/28% 34 76 Deferred tax related to new subsidiary as at 1 January 2013 -13 -6 Effect of changed tax rate from 28% to 27%. -8 76 15 Change in deferred tax recognised in the income statement - 27%/28%, 13 76 after corrections

Reconciliation of tax charge for the period recognised against profit and loss to profit before tax 187 309 28 % of profit before tax 334 217 -26 -110 Non-taxable profit and loss items (permanent differences) -107 -37 9 11 Capital gains tax 11 9 -8 -1 Shortfall/surplus in respect of accrual for taxation in the previous year -5 -8 -6 Effect of changed tax rate from 28% to 27%. -8 162 203 Taxation charge for the period 225 181

23.9 % 18.2 % Effective tax rate 18.9 % 23.3 % 102 (income tax for the period expressed as a percentage of profit before tax) NOTE 27 - FINANCIAL INSTRUMENTS AT FAIR VALUE

The table below contains financial assets and liabilities that The value is based on recently observable market data in the are classified as held for sale or which it has been decided to form of a transaction in the instrument between informed, wil- measure at fair value through profit and loss upon initial rec- ling and independent parties. Alternatively, that the instrument ognition. Fair value is the amount an asset can be sold for, or a was traded in an active market that is substantially like the liability can be settled for, in a transaction between two inde- relevant instrument. pendent parties. Level 3: Financial instruments that are valued in manner The value is set using different methods within three levels. other than on the basis of observable market data and in which credit margins constitute a material part of the basis for adjusting Level 1: Financial instruments that are valued using listed market value. Instruments in this category are valued using prices in active markets for identical assets or liabilities. The methods that are based on estimated cash flows, assessments category includes listed equities or fund units, government of assets and liabilities in companies, models in which material bonds and certificates traded in active markets. The price used parameters are not based on observable market data, or any is the price on the balance sheet date. The market is deemed industry standards. active if it is possible to obtain external, observable prices, ex- change rates, or interest rates, and these prices are actual and When valuation techniques are used, the value is adjusted for frequent market transactions. credit and liquidity risk. The price of the risk for equivalent instruments is used as the basis for making the assessment. Level 2: Financial instruments that are valued using infor- In 2013, the bank used a model that conforms with IFRS 13.9 mation that is not listed prices, but where prices are directly or concerning the measurement of fair value, where an ‘exit price’ indirectly observable for assets and liabilities, including listed assessment is used. The valuation model takes account of credit prices in inactive markets for identical assets and liabilities. premiums and changes in credit risk. The category includes bonds and interbank derivatives such as interest rate swaps, currency swaps and forward contracts listed on Reuters or Bloomberg, basis swaps between the currencies NOK, EUR, USD and GBP, and interest rate and currency derivatives with customers with insignificant credit spreads.

Parent Bank Valuation based Valuation based Valuation based on on listed prices in on observable factors other than an active market market data observable market Amounts in NOK million data Assets at 31.12.2013 Level 1 Level 2 Level 3 Total Loans and advances to credit institutions 224 388 612 Loans to customers at fair value 7 540 7 540 Shares at fair value 84 472 556 Bonds at fair value 2 503 6 289 8 792 Financial derivatives at fair value 1 303 1 303 Total assets 2 811 7 980 8 012 18 803

Liabilities as at 31.12.2013 Financial derivatives 722 722 Total liabilities 722 722

Assets at 31.12.2012 Level 1 Level 2 Level 3 Total Loans and advances to credit institutions 194 50 244 Loans to customers at fair value 7 042 7 042 Shares at fair value 69 208 276 553 Bonds at fair value 5 229 4 216 2 999 12 444 Financial derivatives at fair value 1 234 1 234 Total assets 5 492 5 708 10 317 21 517

Liabilities as at 31.12.2012 Financial derivatives 713 713 Total liabilities 713 713

SpareBank 1 Nord-Norge Annual Report 2013 103 ANNUAL ACCOUNTS 2013

NOTE 27 - FINANCIAL INSTRUMENTS AT FAIR VALUE Group Valuation based Valuation based Valuation based on on listed prices in on observable factors other than an active market market data observable market Amounts in NOK million data Assets at 31.12.2013 Level 1 Level 2 Level 3 Total Loans and advances to credit institutions 224 431 655 Loans to customers at fair value 7 740 7 740 Shares at fair value 84 528 612 Bonds at fair value 2 503 6 289 8 792 Financial derivatives at fair value 1 303 1 303 Total assets 2 811 8 023 8 268 19 102

Liabilities as at 31.12.2013 Financial derivatives 722 722 Total liabilities 722 722

Assets at 31.12.2012 Level 1 Level 2 Level 3 Total Loans and advances to credit institutions 194 77 271 Loans to customers at fair value 7 534 7 534 Shares at fair value 69 208 276 553 Bonds at fair value 5 229 4 216 2 999 12 444 Financial derivatives at fair value 1 234 1 234 Total assets 5 492 5 735 10 809 22 036

Liabilities as at 31.12.2012 Financial derivatives 713 713 Total liabilities 713 713

This years changes in value for financial instruments in level 3 Financial assets Financial liabilities Loans Shares Bonds Financial Financial Amounts in NOK million derivatives derivatives Booked value as at 01.01. 7 042 276 2 999 Net gains -56 78 Acquisition 1 280 174 Disposals -726 -2 999 Booked value as at 31.12. 7 540 528 0 0 0

104 NOTE 28 - FINANCIAL INSTRUMENTS AT AMORTISED COST

As is evident from note 2, the parent bank and Group have a The table below provides an overview of estimated fair values number of financial instruments on the balance sheet that are for items that are stated in the financial statements at amor- stated at amortised cost. Amortised cost involves valuation tised cost. The values are calculated on the basis of prices from according to the originally agreed cash flows, adjusted for any active markets where these are available, internal methods that loss in value. The calculations are made on the basis of the calculate these on a theoretical basis, or comparisons of prices individual instrument’s characteristics and values on the bal- for instruments in the portfolio in relation to the last available ance sheet date. Amortised cost will not always result in val- transaction. ues that are consistent with the market’s assessments of the same financial instruments. This may be due to factors such as differing perceptions of market conditions, risk factors and required rates of return.

Parent Bank Group 2012 2013 Amounts in NOK million 2013 2012 Booked Market Booked Market Lev- Assets Lev- Market Booked Market Booked value value value value el el value value value value 4 761 4 761 4 470 4 470 3 Total loans and advances 3 1 392 1 392 1 871 1 871 to credit institutions 43 628 43 587 45 662 45 702 3 Net loans and advances to 3 49 329 49 178 46 967 47 008 customers (amortised cost) 2 642 2 649 2 303 2 306 2,3 Bonds and certificates 2,3 2 306 2 303 2 649 2 642 (loans and advances) 355 355 112 113 2,3 Bonds and certificates 2,3 113 112 355 355 (hold to maturity) 51 386 51 352 52 547 52 591 Total fair value for assets 53 140 52 985 51 842 51 876 measured at amortised cost

Liabilities 4 294 4 294 4 292 4 292 3 Liabilities to credit institutions 3 4 284 4 284 4 295 4 295 43 550 53 550 44 889 44 889 3 Deposits from customers 3 44 940 44 940 43 588 43 588 16 534 16 534 16 336 16 740 2 Debt securities in issue (amortised 2 16 740 16 336 16 534 16 534 cost) 2 095 2 112 1 450 1 450 2 Subordinated loan capital (amor- 2 1 450 1 450 2 112 2 095 tised cost) 66 473 66 490 65 517 65 921 Total fair value for liabilities 65 972 65 568 66 529 66 512 measured at amortised cost

Off balance guarantee liabilities and pledging 2 589 2 121 Guarantee liabilities and other 2 121 2 589 liabilities (off balance) 5 718 6 218 Assets pledged as security 6 218 5 718 Liabilities 3 293 4 065 Book value of bonds that are in 4 065 3 293 Norges Bank's safe custody 2 425 2 153 Book value of bonds pledged in 2 153 2 425 the swap scheme

As is evident from note 28, fair value is determined using dif- Level 3: Financial instruments that are valued in a manner ferent models within three levels. If fair value had been used other than on the basis of observable market data and in which as the valuation principle for financial assets and liabilities at credit margins constitute a material part of the basis for adjust- amortised cost, the following levels would be used: ing market value. Instruments in this category are valued using methods that are based on estimated cash flows, assessments Level 2: Financial instruments that are valued using infor- of assets and liabilities in companies, models in which material mation that is not listed prices, but where prices are directly or parameters are not based on observable market data, or any indirectly observable for assets and liabilities, including listed industry standards. In 2013, the bank used a model that con- prices in inactive markets for identical assets and liabilities. forms with IFRS 13.9 concerning the measurement of fair value, The category includes bonds listed on Reuters, Bloomberg or where an ‘exit price’ assessment is used. The valuation model Norwegian tax assessment rates as of 31 December 2013. takes account of credit premiums and changes in credit risk.

SpareBank 1 Nord-Norge Annual Report 2013 105 ANNUAL ACCOUNTS 2013

NOTE 29 - CERTIFICATES AND BONDS

As is evident from note 2, the securities are certificates and bonds Other papers at fair value are valued using valuation methods classified as either held for sale (trading portfolio and unlisted), based on observable market data. Paper in the categories loans loans and receivables, or held to maturity. The value of the trading and receivable and held to maturity is stated at amortised cost. portfolio is set at the market price on the balance sheet date.

Certificates and bonds according to type of issuer Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Governments 3 930 2 749 - nominal value 2 749 3 930 3 922 2 747 - market value/fair value 2 747 3 922 3 922 2 747 - booked value 2 747 3 922 Other public issuer 1 053 560 - nominal value 560 1 053 1 061 571 - market value/fair value 571 1 061 1 061 571 - booked value 571 1 061 Financial institutions 3 961 5 158 - nominal value 5 158 3 961 4 029 5 220 - market value/fair value 5 220 4 029 4 029 5 220 - booked value 5 220 4 029 Non-financial institutions 438 252 - nominal value 252 440 433 254 - market value/fair value 254 435 433 254 - booked value 254 435 9 445 8 792 Total certificates and bonds assessed at fair value 8 792 9 447 Governments - nominal value - market value/fair value - booked value Financial institutions 2 568 2 234 - nominal value 2 234 2 568 2 577 2 238 - market value/fair value 2 238 2 577 2 566 2 232 - booked value 2 232 2 566 Non-financial institutions 89 84 - nominal value 84 89 72 68 - market value/fair value 68 72 76 71 - booked value 71 76 2 642 2 303 Total certificates and bonds classified as loans and advances 2 303 2 642 Governments - nominal value - market value/fair value - booked value Financial institutions 261 115 - nominal value 115 261 252 113 - market value/fair value 113 252 251 112 - booked value 112 251 Non-financial institutions 105 - nominal value 105 104 - market value/fair value 104 104 - booked value 104 355 112 Total certificates and bonds hold to maturity 112 355 12 442 11 207 Total certificates and bonds 11 207 12 444

106 Reclassified bonds As a result of the extraordinary market conditions, parts of the In total, NOK 1.2 million was amortised during the period from bank’s short-term portfolio became illiquid in 2008. After the 1 January 2013 to 31 December 2013. The amount previously changes to the international accounting standards in October amortised in the period 1 July 2008 NOK 76.5 million. Had the 2008 the Group chose to reclassify parts (cf. Note 1) of the bond reclassification process not been carried out, the Group would portfolio as of 1 July 2008 from the category held for sale to the have had to recognise NOK 212 million in costs in the second categories loans and receivables and held to maturity, since the half of 2008 as unrealised losses due to increased credit spreads. papers are no longer expected to be sold before maturity. This figure would have been an unrealised gain of NOK 4.6 million as of 31 December 2013.Write-downs due to permanent Listed papers are placed in the held to maturity category, and impairment in the value of this portfolio as of 31 December 2012 unlisted securities are placed in loans and receivables. These totalled NOK 80 million.A further write-down of NOK 8 mil- papers are stated at amortised cost. Previous write-downs will lion was carried out in 2013. NOK 1.4 million was recognised be reversed over the portfolio’s remaining maturity, which as of as costs in 2013 from unrealised losses on foreign exchange 31 December 2013 was an average of 2.3 years, and recognised linked to this portfolio. as income, in addition to the current coupon interest receivable, under net interest income.

Amounts in NOK million 31.12.13 31.12.12 Hold until maturity Book value 111 355 Nominal value (nominal amount) 115 366 Theoretical market value 114 355 Loans and claims Book value 75 142 Nominal value (nominal amount) 90 156 Theoretical market value 74 134

Total book value 186 497

SpareBank 1 Nord-Norge Annual Report 2013 107 ANNUAL ACCOUNTS 2013

NOTE 30 - SHARES AND PARTICIPATIONS

As is evident from note 2, it has been decided that SpareBank cash flows or assessments of assets and liabilities. Where fair 1 Nord-Norge’s equities portfolios in the held for sale (trading value cannot be measured reliably enough, cost price has been portfolio) will be stated at fair value and available for sale. The used. Equities in the category available for sale are purchased value of the trading portfolio is set at the market price on the with the intention of holding them as long-term investments balance sheet date. Other equities at fair value are valued using and at stated at cost price. valuation methods based on observable market data, estimated

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 69 84 Fair value through profit and loss account 84 69 305 465 Share will be started at fair value 621 476 8 7 Available for sale 7 8 382 556 Total shares and parts 712 553

Breakdown of shares and unit trust certificates as at 31.12.13 Company name Number of Our equity Our equity Market value Booked value Amounts in NOK 1 000 shares/units stake per cent stake PCCs Klepp Sparebank (KLEG) 2 300 0,214 % 267 148 148 Sparebank 1 Østfold Akershus (SOAG) 5 600 0,060 % 459 498 498 Sparebanken Øst (SPOG) 1 496 0,007 % 50 64 64 Sparebank 1 SMN (MING) 97 868 0,075 % 4 234 5 383 5 383 Helgeland Sparebank (HELG) 6 639 0,093 % 559 564 564 Sparebank 1 Nøtterøy-Tønsberg (NTSG) 5 580 0,519 % 627 441 441 Sparebanken Møre (MORG) 7 227 0,073 % 1 268 1 431 1 431 Sparebanken Vest (SVEG) 17 531 0,055 % 819 794 794 Sum equity certificates 8 283 9 323 9 323

108 Breakdown of shares and unit trust certificates as at 31.12.13 Company name Number of Our equity Our equity Market value Booked value Amounts in NOK 1 000 shares/units stake per cent stake Shares Sparebank 1 SR-Bank 11 915 0.005 % 498 718 718 Statoil ASA 35 316 0.001 % 4 881 5 191 5 191 Seadrill Ltd. 3 620 0.001 % 827 896 896 Yara International 9 000 0.003 % 2 310 2 349 2 349 Telenor ASA 15 000 0.001 % 1 637 2 169 2 169 Odfjell Drilling Ltd 5 758 0.003 % 241 209 209 DNB ASA 34 269 0.002 % 2 985 3 718 3 718 Gjensidige Forsikring 3 500 0.001 % 311 405 405 Aker Solutions ASA 1 117 0.000 % 100 121 121 Royal Caribbean Cruises 4 650 0.002 % 1 041 1 336 1 336 Subsea 7 S.A. 10 000 0.003 % 1 311 1 161 1 161 Orkla ASA A-Aksjer 20 000 0.002 % 968 946 946 Marine Harvest ASA 136 350 0.033 % 802 1 007 1 007 Norsk Hydro ASA 82 015 0.004 % 2 296 2 220 2 220 Golden Ocean Group 65 215 0.015 % 468 948 948 Det Norske Oljeselskap 5 000 0.004 % 408 334 334 Visa Inc. A-Aksjer (USD) 5 035 0.001 % 2 156 6 768 6 768 Visa Inc. C-Aksjer (USD) 11 749 0.002 % 5 031 15 793 15 793 Byggmax Group AB (SEK) 5 000 0.002 % 231 229 229 Cerrmaq 5 000 0.005 % 534 540 540 Austevoll Seafood 5 000 0.002 % 170 178 178 Stolt-Nielsen 3 021 0.005 % 313 505 505 Lerøy Seafood Group 1 265 0.002 % 203 224 224 Salmar ASA 15 500 0.014 % 957 1 147 1 147 Total shares 30 679 49 112 49 112

Units in share-investment funds DNB OBX 75 527 0.387 % 2 735 3 699 3 699 DBX MSCI WORLD ETF (EUR) 46 500 0.056 % 10 102 12 070 12 070 MSCI Emerging Markets Index (EUR) 7 100 0.012 % 1 501 1 685 1 685 MSCI Europe Index UCITS ETF (EUR) 21 000 0.038 % 6 255 7 638 7 638 Total units/participations 20 593 25 092 25 092 in share investment funds/unit trusts Total listed shares and participations 59 555 83 527 83 527 at fair value - held for trading

Unlisted shares at fair value Bank 1 Oslo Akershus 218 841 4.785 % 78 005 119 246 119 246 Nets Holding AS 3 647 975 1.979 % 132 718 239 366 239 366 Nordito Property AS 441 658 4.350 % 1 305 1 537 1 537 Bank Tavrichesky (RUB) 1) 104 821 999 9.349 % 122 284 105 247 105 247 Total unlisted shares at fair value 334 312 465 396 465 396 1) The book value of Bank Tavrichesky is the historical cost, adjusted for exchange rate changes.

SpareBank 1 Nord-Norge Annual Report 2013 109 ANNUAL ACCOUNTS 2013

NOTE 30 - SHARES AND PARTICIPATIONS

Total shares and other equity investments at fair value through the profit and loss account Company name Number of Our equity Our equity Market value Booked value Amounts in NOK 1 000 shares/units stake per cent stake Available for sale - long-term investments Sparebankmateriell AS 2 312 7.330 % 225 225 225 TIL Holding AS 1 346 293 26.150 % 13 450 3 002 3 002 S.W.I.F.T (EUR) 11 79 83 83 Trygg Parkering 120 4 200 4 200 4 200 Total shares available for sale - long-term investments 17 954 7 510 7 510 Parent bank’s total investment in shares and parts 411 821 556 433 556 433

Stakes owned by SpareBank 1 Nord-Norge Portefølje AS (formerly SNN Invest) as of 31 December 2013 Shares and other equity investments are, with one exception, classified as equities that will be booked at fair value with value changes through profit and loss. The investment in Bodø-Gruppen AS is classified as being available for sale under IFRS 5, and is thereby stated at the lower of cost price and fair value. Changes in value are recognised through profit and loss.

Unlisted shares assessed at fair value through the profit and loss account Amounts in NOK 1 000 Number of Our equity Our equity Market value Booked value shares/units stake per cent stake Andel i Nord II IS 69.67 % 86 207 70 859 70 859 Andel i Nord I IS 60.90 % 110 167 56 535 56 535 Nordisk Areal Invest AS 238 247 4.02 % 19 417 13 818 13 818 Viking Venture III LP 32 475 0.90 % 2 840 3 630 3 630 NorInnova Technology Transfer AS 613 3.70 % 2 900 2 756 2 756 Nord I AS 618 300 61.83 % 1 908 1 994 1 994 Meløy Næringsutvikling AS 337 12.48 % 1 452 1 089 1 089 Helse Investering AS 600 40.00 % 604 720 720 Diverse 673 667 667 Saltenposten 50 2.50 % 565 565 565 Sentrums Næringshage AS 387 6.25 % 517 517 517 Kapnord Fond AS 4 145 6.79 % 4 653 414 414 Tromsprodukt AS 10 1.92 % 392 392 392 Norinnova Invest AS (A-aksjer) 3 288 8.30 % 4 051 381 381 MariNor AS 60 13.22 % 343 343 343 Div investeringer (under kr 100 000) 108 161 161 Nord Kapitalforvaltning AS 1 000 000 30.00 % 68 139 139 Bodø Industrier AS 12 0.38 % 108 108 108 Målselvindustri Bygg AS 10 8.62 % 104 104 104 Bodø reg.Utviklingsselskap AS 1 000 5.56 % 100 100 100 Bodø-Gruppen AS 25 000 100.00 % 27 895 Bodø-Gruppen Invest AS 1 210 33.33 % 1 222 Ibidium Norden AS 115 865 10.51 % 2 449 Norinnova Invest AS (B-aksjer) 332 6.60 % 332 Såkorninvest Nord AS 16 250 17.52 % 3 000 Nord Norge Eiendom IV AS 1 685 100.00 % 20 037 Alfheim Stadion II 4 175 000 24.50 % 4 175 Breivoll Inspection Technologies AS 1 150 2.61 % 1 549 Total shares SNN Portefølje AS 297 836 155 292 155 292 Group's total investment in shares 709 657 711 725 711 725 and participations/unit trusts

110 Total equity certificates SNN Portefølje AS owns 100% of the shares in Bodø-Gruppen AS. Nord I and Nord II are managed and classified as venture capital A sales process aimed at realising the company is ongoing. organisations pursuant to IAS 28. The company is therefore The company was valued in accordance with IFRS 5 as avail- exempt from using the equity method for investments/stakes able for sale, and therefore has not been consolidated like an of between 20% and 50%. In other types of companies, such ordinary subsidiary. Nord Norge Eiendom IV AS has been con- investments would be considered associated companies with a solidated into SpareBank 1 Nord-Norge’s consolidated financial duty to consolidate their share in the financial statements. statements, and has therefore not been consolidated into Spare- Bank 1 Nord -Norge Portefølje AS’s accounts.

The company owns 60.9% stakes in Nord I AS and Nord I IS, and a 69.7% stake in Nord II AS. The underlying agreements between the shareholders limits voting and influence powers to 50%. The investments are therefore not considered subsidiaries.

SpareBank 1 Nord-Norge Annual Report 2013 111 ANNUAL ACCOUNTS 2013

NOTE 31 - INVESTMENTS IN GROUP COMPANIES, ASSOCIATED COMPANIES AND JOINT VENTURES

Parent Bank Investments in Group companies Amounts in NOK million 31.12.13 31.12.12 Equity stakes in financial institutions 457 342 Equity stakes in other Group companies 96 60 Total investments in Group companies 553 402

Shares and equity stakes included in the Group accounts and shown in the parent bank’s accounts according to the cost method of accounting Company Name Share capital Number of Cost Share of Booked shares equity and value voting capital Amounts in NOK 1 000 SpareBank 1 Finans Nord-Norge AS, Tromsø 307 000 61 400 366 000 100 % 366 000 SpareBank 1 Nord-Norge Portefølje AS, Tromsø 252 000 252 000 252 000 100 % 16 578 EiendomsMegler 1 Nord-Norge AS, Tromsø 21 100 21 100 28 000 100 % 29 636 SpareBank 1 Nord-Norge Forvaltning ASA, Tromsø 2 000 200 000 6 548 100 % 6 548 North West 1 Alliance Bank, Russland 96 033 3 450 000 90 786 75 % 90 786 SpareBank 1 Regnskapshuset Nord-Norge AS, Tromsø 150 1 500 43 610 100 % 43 610 Total investment shown in the parent bank`s accounts 553 158 *Of this are 7 000 shares, with total cost price 35 mill NOK, paid-up share capital, but not registered as share capital as per 31.12.13. None of the subsidiaries are quoted.

Investments in joint ventures Amounts in NOK million 31.12.13 31.12.12 Equity stakes in financial institutions 1 614 1 635 Equity stakes in other joint ventures 822 772 Total investments in joint ventures 2 436 2 407

Shares and equity stakes in joint ventures, included in the parent bank’s accounts according to the cost method of accounting Company names Share of equity and voting capital SpareBank 1 Gruppen AS 19.50 % SpareBank 1 Markets AS 23.89 % Alliansesamarbeidet SpareBank 1 DA 17.74 % SpareBank 1 Boligkreditt AS 13.15 % SpareBank 1 Næringskreditt AS 20.92 % BN Bank ASA 23.50 % SpareBank 1 Verdipapirservice AS 24.90 % SpareBank 1 Kundesenter AS 14.91 % SpareBank 1 Kredittkort AS 19.83 %

Intra-group balances relating to the bank and the abovementioned companies: Reference is made to note 41.

112 Group Investments in associated companies and joint ventures

2013 Total SpareBank 1 Bank 1 Allianse- BN Bank SpareBank 1 SpareBank Other share Gruppen AS Oslo samarbeidet ASA Boligkreditt AS 1 Nærings- 19,50 % Akershus SpareBank 1 DA 23,50 % 13,15 % kreditt AS AS (solgt) Amounts in NOK million 17,74 % 20,92 % As at 1 January 3 514 1 111 305 18 779 1 051 211 39 Acquisition/sale -53 -17 -305 44 32 150 43 Share of profit - IFRS 349 210 46 67 29 5 (8.0) Share of result booked as -46 -46 administrative costs Items incorporated 0 directly in equity capital Paid-out dividend -200 -134 -44 -19 -3 As at 31 December 3 564 1 170 0 18 846 1 093 363 74

Included in “Other “: SpareBank 1 Verdipapirservice AS, SpareBank 1 Kundesenter AS and SpareBank 1 Kredittkort AS and SpareBank 1 Markets AS.

2012 Total SpareBank 1 Bank 1 Allianse- BN Bank SpareBank 1 SpareBank 1 Other share Gruppen AS Oslo Ak- samarbeidet ASA Boligkreditt AS Nærings- 19,50 % ershus AS SpareBank 1 DA 23,50 % 13,46 % kreditt AS 19,50 % Amounts in NOK million 17,74 % 16,16 % As at 1 January 3 019 1 016 280 18 726 768 211 Acquisition/sale 424 84 14 22 265 39 Share of profit - IFRS 249 96 25 39 52 33 4 Share of result booked as -39 -39 administrative costs Items incorporated -1 -1 directly in equity capital Paid-out dividend -138 -85 -14 -21 -14 -4 As at 31 December 3 514 1 111 305 18 779 1 051 211 39 Included in “Other “: SpareBank 1 Verdipapirservice AS, SpareBank 1 Kundesenter AS and SpareBank 1 Kredittkort AS.

The Group’s equity stakes in associated companies and joint ventures Name Assets Liabilities Income Profit/ loss Ownership share 2013 Joint ventures SpareBank 1 Gruppen AS 9 891 8 758 2 489 210 19.50 % SpareBank 1 Markets AS* 161 118 11 -3 23.89 % Alliansesamarbeidet SpareBank 1 DA 99 82 122 -2 17.74 % SpareBank 1 Boligkreditt AS 27 111 26 022 44 28 13.15 % SpareBank 1 Næringskreditt AS 3 298 2 935 11 6 20.92 % BN Bank ASA 8 814 7 967 163 59 23.50 % SpareBank 1 Verdipapirservice AS 22 9 1 -2 24.90 % SpareBank 1 Kundesenter AS 0 0 4 0 14.91 % SpareBank 1 Kredittkort AS 41 4 0 -5 19.83 % Total 49 438 45 896 2 845 292 *Income and profit/loss from date of purchase, 30 September 2013. 2012 Joint ventures SpareBank 1 Gruppen AS 9 107 8 061 2 270 88 19.50 % Bank 1 Oslo AS 5 694 5 350 192 21 19.50 % SpareBank 1 Boligkreditt AS 25 123 24 075 51 33 13.46 % SpareBank 1 Næringskreditt AS 1 944 1 730 8 4 16.16 % Alliansesamarbeidet SpareBank 1 DA 92 74 117 0 17.74 % BN Bank ASA 9 807 9 022 149 44 23.50 % SpareBank 1 Verdipapirservice AS 9 0 0 0 24.90 % SpareBank 1 Kundesenter AS 0 0 0 0 23.50 % SpareBank 1 Kredittkort AS 32 2 0 -1 19.83 %

Total 51 809 48 314SpareBank 2 786 1 Nord-Norge Annual 189 Report 2013 113 ANNUAL ACCOUNTS 2013

NOTE 32 - PROPERTY, PLANT AND EQUIPMENT

Parent Bank Group Buildings Machinery, fix- Total Amounts in NOK million Buildings Machinery, Total and other tures, fittings and other fixtures, fittings property and vehicles property and vehicles 2013 317 599 918 Cost of acquisition or adjusted value as at 01.01.13 317 874 1 191 43337 Acquisitions 110 37 147 156 Disposals 1 5 6 8 8 Revaluation 10 10 312 627 941 Cost of acquisition or adjusted value as at 31.12.13 416 906 1 322

49 364 414 Accumulated depreciation and write-downs as at 49 627 676 01.01.13 34144 Current period's depreciation 13 45 58 Current period's impairment in value 156 Reversed accumulated depreciation relating to 2 5 7 buildings which have been sold 51 400 452 Accumulated depreciation and impairment in 60 667 727 value as at 31.12.13 261 227 489 Book value as at 31.12.13 356 239 595

2012 325 701 1 026 Cost of acquisition or adjusted value as at 325 966 1 291 01.01.12 6 56 62 Acquisitions 6 64 70 9 154 163 Disposals 9 154 163 5 2 7 Revaluation 5 2 7 317 599 918 Cost of acquisition or adjusted value as at 31.12.12 317 874 1 191

49 481 524 Accumulated depreciation and write-downs as at 49 740 789 01.01.12 11 37 48 Current period's depreciation 11 40 51 3 3 Current period's impairment in value 3 3 8 153 161 Reversed accumulated depreciation relating to build- 8 153 161 ings which have been sold 49 364 414 Accumulated depreciation and impairment in value as 49 627 676 at 31.12.12 268 235 504 Book value as at 31.12.12 268 247 515

1 - 5 % 10 - 33 % Depreciation rates 1 - 5 % 10 - 33 % 0 % Dwelling units, building plots and sites, works of art 0 %

Provision of collateralised assets as security The bank has not provided collateral security or accepted any other limitations of its rights to use its fixed tangible assets.

The gross value of fully depreciated assets still in use The gross value of fixed tangible assets which are fully depreciated and still in use was NOK 355 million as at 31.12.13.

Revaluation The bank does not make revaluations of fixed tangible assets on an ongoing basis. In connection with the initial implementation of IFRS, buildings were revalued at a total of NOK 39 million. The basis for this revaluation were independent assessments.

Liabilities The Group has signed binding agreements concerning the purchase of NOK 30 million of fixed assets as of 31 December 2013.

Investment property group The bank has no properties which are defined as investment properties as at 31.12.13.

Fixed assets held for sale The amount for buildings and other real estate includes 3 flats and 4 lots that are being held for sale with a value of NOK 4.5 million as at 31.12.13.

114 NOTE 33 - INTANGIBLE ASSETS

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Banking licenses 21 20 Customer portfolio, expertise 29 Deferred tax benefit Goodwill 60 4 Total intangible assets 81 53

The goodwill associated with the acquisition of a Russian sub- Goodwill and licence items are assessed for impairment each sidiary in 2010, has been allocated to licences. year, and the values are written down if there is a basis for this. No such write-downs were made in 2013. Goodwill is primarily attributable to the acquisition of Spare- Bank 1 Regnskapshuset Nord-Norge AS and acquisition/merger Please see note 3 for a description of the valuation model. with subordinate accounting firms. A final acquisition analysis was carried out as per 31 December 2013, ref. IFRS 3.

NOTE 34 - OTHER ASSETS

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 141 147 Accrued interest from customers, subject to accrual accounting 175 175 182 188 Accrued interest from securities, subject to accrual accounting 188 182 75 75 Capital contribution to the SpareBank 1 Nord-Norge Pension Fund 75 75 12 18 Other debtors 18 12 58 65 Other pre-paid costs, not yet incurred 65 41 188 423 Prepaid income SpareBank 1 Boligkreditt 423 188 40 34 Internal accounts 37 43 Client account – property brokerage 32 20 56 27 Miscellaneous 38 58 782 1 108 Other assets 1 182 824

SpareBank 1 Nord-Norge Annual Report 2013 115 ANNUAL ACCOUNTS 2013

NOTE 35 - DEPOSITS FROM CUSTOMERS Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Proportion Deposits Proportion Deposits Proportion Deposits Proportion Deposits 91 % 37 356 86 % 38 483 Deposits from and liabilities to customers. without 86 % 38 534 91 % 37 182 agreed maturity 9 % 6 194 14 % 6 406 Deposits from and liabilities to customers. with 14 % 6 406 9 % 6 406 agreed maturity 100 % 43 550 100 % 44 889 Total deposits 100 % 44 940 100 % 43 588 2.29 % 2.50 % Average interest rate 1) 2.50 % 2.29 %

Deposits broken down by sector and industry 0 % 2 378 5 % 2 409 Central government- and social security administration 5 % 2 409 0 % 2 378 14 % 5 873 12 % 5 169 Counties and municipalities 11 % 5 169 14 % 5 873 1 % 353 1 % 360 Agriculture and related services 1 % 360 1 % 353 0 % 11 0 % 13 Forestry and related services 0 % 13 0 % 11 2 % 731 2 % 735 Fishing and hunting 2 % 735 2 % 731 0 % 45 0 % 18 Aquaculture (fish farming and hatcheries) 0 % 18 0 % 45 0 % 33 0 % 39 Mining industry and extraction 0 % 39 0 % 33 0 % 0 0 % 0 Services related to extraction of crude oil and natural gas 0 % 0 0 % 0 1 % 450 1 % 450 Extraction of crude oil and natural gas 1 % 450 1 % 450 1 % 447 1 % 397 Industry 1 % 397 1 % 447 0 % 2 0 % 1 Ship and boat building 0 % 1 0 % 2 2 % 853 2 % 754 Electricity. gas. steam and hot water supply 2 % 754 2 % 853 1 % 211 0 % 197 Water supply. sewage and waste services 0 % 197 1 % 211 0 % 173 0 % 167 Development of construction projects 0 % 167 0 % 173 2 % 948 3 % 1 164 Other building and construction services 3 % 1 164 2 % 948 3 % 1 235 3 % 1 237 Retail trade. repair of motor vehicles 3 % 1 237 3 % 1 235 0 % 15 0 % 35 International shipping and pipeline transport 0 % 35 0 % 15 1 % 522 2 % 757 Other transport and storage 2 % 757 1 % 522 1 % 235 1 % 237 Accommodation and hospitality services 1 % 237 1 % 235 1 % 229 1 % 281 Information and communication 1 % 281 1 % 229 3 % 1 360 4 % 1 592 Sale and management of real estate 4 % 1 584 3 % 1 360 3 % 1 155 3 % 1 182 Professional and financial services 3 % 1 182 3 % 1 155 1 % 325 1 % 353 Business services 1 % 353 1 % 325 5 % 2 228 5 % 2 205 Other service sector industries 5 % 2 205 5 % 2 228 0 % 26 0 % 13 Foreign business 0 % 48 0 % 42 56 % 23 014 54 % 24 384 Retail banking sector 54 % 24 383 56 % 23 014 1 % 301 1 % 333 Foreign sector 1 % 365 1 % 308 1 % 397 1 % 407 Insurance. securities fund 1 % 400 1 % 412 and other financial enterprices 100 % 43 550 100 % 44 889 Total deposits broken down by sector and industry 100 % 44 940 100 % 43 588

Deposits broken down by geographical area 94 % 38 848 89 % 39 767 North-Norway. including Svalbard 88 % 39 761 94 % 38 863 5 % 4 375 11 % 4 776 Other regions 11 % 4 776 5 % 4 375 1 % 327 1 % 346 International 1 % 403 1 % 350 100 % 43 550 100 % 44 889 Total deposits broken down by geographical areas 100 % 44 940 100 % 43 588 1) Average interest rate is calculated as annual total interest / average volume.

116 NOTE 36 - DEBT SECURITIES IN ISSUE

As is evident from note 2, SpareBank 1 Nord-Norge has financial costs. Variable rate loans are thereafter measured at amortised debt securities in issue with fixed or determinable payments. cost, and any discount/premium is accrued over the term of the Funding is initially recorded at its original cost, which is the loan. Fixed rate loans are included in hedge accounting and fair value of the proceeds received after deducting transaction discounted according to the current interest rate curve.

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 6 969 7 569 Bond debt with fixed interest rate 7 569 6 969 9 565 8 767 Bond debt determinable interest rate 8 767 9 565 16 534 16 336 Total debt securities in issue 16 336 16 534

3.42 % 2.93 % Average interest rate for bond debt 2.93 % 3.42 %

Bond debt broken down by maturities 3 899 2013 3 899 1 424 1 858 2014 1 858 1 424 3 551 3 213 2015 3 213 3 551 4 128 4 262 2016 4 262 4 128 3 350 3 635 2017 3 635 3 350 250 3 745 2018 and later years 3 745 250 560 559 Impact from recalculation to market value of bonds - hedging-related accounting 559 560 -628 -936 Own bonds -936 -628 16 534 16 336 Bond debt and other long-term borrowings 16 336 16 534

Broken down by the most important foreign currencies 14 832 14 094 NOK 14 094 14 832 558 900 SEK 900 558 1 144 1 342 EUR 1 342 1 144 16 534 16 336 Total liabilities broken down by major currencies 16 336 16 534

Average interest is calculated on the basis of actual interest cost for the year, including any interest rate- and currency swaps, as a percentage of the average securities portfolio.

SpareBank 1 Nord-Norge Annual Report 2013 117 ANNUAL ACCOUNTS 2013

NOTE 37 - OTHER LIABILITIES

Parent Bank Group 31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 411 440 Other liabilities 499 464 426 425 Incurred costs / prepaid income 559 553 2 0 Provision for incurred costs / obligations 0 4 839 865 Total other liabilities 1 058 1 021

Other liabilities 95 89 Creditors 95 101 94 185 Accrued tax 216 115 24 25 Tax deductions 32 29 Debt to foundations 73 39 Agreed payments from Donations Fund 39 73 41 50 Pensionliabilities (IAS 19) 50 43 84 52 Miscellaneous liabilities 67 103 411 440 Total other liabilities 499 464

Incurred costs / prepaid income Incurred costs / prepaid income 106 111 61 59 Incurred personnel costs 78 75 361 360 Incurred interest 360 362 4 6 Miscellaneous incurred costs 15 6 426 425 Total 559 553

Assets pledged as security Securities pledged as collateral security in 2013 6 218 Relevant liabilities in 2013 2 102

Securities pledged as collateral security in 2012 5 718 Relevant liabilities in 2012 2 368

Bonds and certificates are deposited as security for D/F loans SpareBank 1 Nord-Norge Portefølje AS has committed an amount from Norges Bank. Bonds have also been pledged to the Ministry of up to MNOK 215 for possible issues in Nord II IS in 2014. of Finance in connection with the swap scheme. Commitments relating to the acquisition of property, plant and equipment: Ongoing lawsuits As at 31.12.13, the Group did not have any major commitments As at 31.12.13, the Group did not have any provisions relating to the acquisition of property, plant and equipment. for ongoing lawsuits.

118 NOTE 38 - GUARANTEES

Parent Bank Group

31.12.12 31.12.13 Amounts in NOK million 31.12.13 31.12.12 Breakdown of guarantee liabilities 1 608 818 Payment guarantees 818 1 608 276 343 Contract guarantees 343 276 592 Loan guarantees 592 0 Guarantees for tax payment 0 679 342 Miscellaneous 342 679 26 26 Guarantees in favour of the Norwegian Banks' Gurantee Fund (NBGF) 26 26 2 589 2 121 Total guarantee liabilities 2 121 2 589

Guarantees broken down by commercial, industrial and other sectors 617 146 Agriculture, forestry, fisheries, hunting and fish farming 146 617 Production of crude oil and natural gas 111 225 Industry and mining 225 111 1 007 1 051 Building and construction, power- and water supply 1 051 1 007 152 154 Wholesale and retail trade; hotel- og restaurant industry 154 152 152 0 International shipping and pipeline transport 0 152 94 244 Other transport and communication 244 94 410 255 Financing, property management and business services 255 410 23 16 Other service industries 16 23 Municipalities 23 30 Retail banking market 30 23 2 589 2 121 Total guarantees 2 121 2 589

Guarantees broken down by geographical areas 298 296 Finnmark 296 298 1 370 1 280 Troms including Svalbard 1 280 1 370 769 349 Nordland 349 769 152 196 Other regions 196 152 2 589 2 121 Total guarantees broken down by geographical areas 2 121 2 589

SpareBank 1 Nord-Norge Annual Report 2013 119 ANNUAL ACCOUNTS 2013

NOTE 39 - SUBORDINATED LOAN CAPITAL Parent Bank Group 31.12.12 31.12.13 Maturity structure 31.12.13 31.12.12 Amounts in NOK million 350 350 2019 fixed rate of interest 8.35 (call opt. 2014) 350 350 112 2018 3 months Nibor + margin 1.25 (call opt. 2013) 112 100 100 2019 3 months Nibor + 2.4 (Call opsjon 2014) 100 100 200 2018 3 months Nibor + 2.75 (Call opsjon 2013) 200 500 500 2022 3 months Nibor + 2.75 (Call opsjon 2017) 500 500 -3 Premium/discount relating to subordinated loans -3 Currency premium, limited in time 1 259 950 Total with definite maturities 950 1 259

Hybrid Tier 1 instruments 370 2033 6 months libor+margin (USD 60 mill.)(Call opsj 2013) 370 500 500 2099 3 months Nibor + 4.75 (Call opsjon 2017) 500 500 -34 Capital security currency gains/losses -34 836 500 Total Hybrid Tier 1 instruments 500 836

2 095 1 450 Total subordinated loan capital 1 450 2 095

5.27 % 5.64 % Average interest rate NOK 5.64 % 5.27 % 2.92 % 2.70 % Average interest rate USD 2.70 % 2.92 %

NOTE 40 - BUSINESS ACQUISITIONS

Consolidation of Nord-Norge Eiendom IV AS/ Acquisition/merger of accounting firms Alsgården AS SpareBank 1 Regnskapshuset Nord-Norge AS (Regnskapshuset) The SpareBank 1 Nord-Norge Group owns 100% of the shares is a wholly owned subsidiary of SpareBank 1 Nord-Norge. in Nord-Norge Eiendom IV, which in turn owned 100% of the shares in Alsgården AS. Regnskapshuset completed the acquisition of four accounting firms in Helgeland in February/March 2013. During the year In previous years the investment has been assessed as avail- these were merged into Regnskapshuset, with accounting con- able for sale pursuant to IFRS 5. From and including 2013, the tinuity and effect from 1 January 2013. investment no longer satisfies the criteria for using this assess- ment method. Therefore, the companies have been consolidated Acquisition analyses have been prepared in line with IFRS 3, into the consolidated financial statements with effect from 1 where identifiable assets and liabilities are stated at fair value January 2013. at the time of acquisition. The difference between the Group’s acquisition cost and the book value of the net assets is allo- Acquisition analyses have been prepared in line with IFRS 3, cated to goodwill. where identifiable assets and liabilities are stated at fair value at the time of acquisition. The difference between the Group’s acquisition cost and the book value of the net assets is allocated to goodwill for own buildings. Account is taken of deferred tax when calculating goodwill.

120 NOTE 41 - RELATED PARTIES

Parent Bank Subsidiaries Joint ventures SpareBank 1 Nord-Norge SpareBank 1 Finans Nord-Norge AS SpareBank 1 Gruppen AS EiendomsMegler 1 Nord-Norge AS SpareBank 1 Boligkreditt AS SpareBank 1 Nord-Norge Forvaltning ASA SpareBank 1 Utvikling DA SpareBank 1 Nord-Norge Portefølje AS BN Bank ASA North West 1 Alliance Bank SpareBank 1 Næringskreditt AS SpareBank 1 Regnskapshuset Nord-Norge AS SpareBank 1 Markets AS EiendomsMegler 1 Lofoten AS SpareBank 1 Verdipapirservice AS Nord-Norge Eiendom IV AS SpareBank 1 Kundesenter AS Alsgården AS SpareBank 1 Kredittkort AS

Current account ratio with subsidiaries Amounts in NOK million 2013 2012 Income items - Parent Bank Interest received and similar income from loans and claims from subsidiaries 94 96 Deposit rate to subsidiaries 6 6 Share dividend 58 51 Accrued commissions from arranging vendor’s lien-based loans 2 2 Commisions and income from banking services 2 5 Other operating costs 9 6 The parent bank offers some administration of salary services for subsidiaries.

Balance sheet items - Parent Bank Loans and advances to subsidiaries 3 411 3 188 Due to subsidiaries 298 194 Other liabilities and incurred costs 5 26 Claim on dividends 5 20 As at 31.12.13, vendor’s lien-based loans and lesing arranged for SpareBank 1 Finans totalled NOK 1 180 million.

Transactions with joint ventures Amounts in NOK million 2013 2012 Income items - Parent Bank Interest received and similar income from loans and claims from joint ventures 15 9 Deposit interest rate applicable to joint ventures 7 13 Share dividends 201 138

Balance sheet items - Parent Bank Loans and advances to joint ventures 769 367 Deposits from and liabilities to joint ventures 1 195 1 599

Transactions with joint ventures

As a participant in the SpareBank 1- The most important transactions alliance, different transactions A) Purchase of management- and information technology, and development services between the Parent Bank and joint from SpareBank 1 Utvikling DA, NOK 109 million (2013) and NOK 97 million (2012). ventures are carried out. B) Commisions from sale of insurance- and savings products with an insurance element for Spare- All transactions entered into are Bank 1 Gruppen AS totalled NOK 119 million and NOK 111 million respectively in 2013 and 2012. done on commercial terms as a part of ordinary business and at C) Loans sold to SpareBank 1 Boligkreditt AS as at 31.12.13 22 996 mill kroner market prices. Accrued commission from SpareBank 1 Boligkreditt AS in 2013 329 mill kroner Receivables SpareBank 1 Boligkreditt AS as at 31.12.13 424 mill kroner D) Loans sold to SpareBank 1 Næringskreditt AS as at 31.12.13 303 mill kroner Accrued commission from SpareBank 1 Næringskreditt AS in 2013 3 mill kroner

SpareBank 1 Nord-Norge Annual Report 2013 121 ANNUAL ACCOUNTS 2013

NOTE 42 - EQUITY CERTIFICATES (EC) AND OWNERSHIP STRUCTURE

The bank’s EC-capital amounts to NOK 1 807 164 288 made up of 100 398 016 certificates, each of a nominal value of NOK 18. As at 31.12.13, the bank had 7 839 EC-holders (8 015 as at 31.12.12).

Change in the bank’s EC-capital and total certificates Year Change Change in EC capital Total EC capital Total number of certificates 2000 Issue earmarked for staff 10 453 101 659 701 800 6 597 018 2001 659 701 800 6 597 018 2002 659 701 800 6 597 018 2003 659 701 800 6 597 018 2004 659 701 800 6 597 018 2005 Bonus issue 131 940 500 791 642 200 7 916 422 2005 EC split 791 642 200 15 832 844 2006 791 642 200 15 832 844 2007 Dividend issue 49 055 400 840 697 600 16 813 952 2008 Dividend issue 54 906 050 895 603 650 17 912 073 2009 895 603 650 17 912 073 2010 895 603 650 17 912 073 2011 EC split and issues 759 621 025 1 655 224 675 66 208 987 2012 1 655 224 675 66 208 987 2013 Rigths issue and private 750 029 552 1 807 164 288 100 398 016 placement for employees

The 20 largest EC-Holders Name Number of ECs Share Pareto Aksje Norge 5 253 551 5.23 % MP Pensjon PK 2 720 503 2.71 % Citibank N.A. New York Branch 2 385 597 2.38 % Pareto Aktiv 2 209 269 2.20 % Frank Mohn AS 2 204 670 2.20 % Flps - Princ All Sec Stock Sub 1 795 800 1.79 % Sparebankstiftelsen SpareBank 1 Nord Norge 1 411 606 1.41 % Forsvarets Personellservice 1 233 930 1.23 % Arctic Funds PLC 1 184 907 1.18 % Verdipapirfondet DnB Norge (IV) 1 066 353 1.06 % Pareto Verdi 1 056 986 1.05 % J.P. Morgan Chase Bank N.A London 918 400 0.91 % Morgan Stanley & Co. Llc, USA 912 064 0.91 % Larre Eiendom 2 AS 873 623 0.87 % Tonsenhagen Forretningssentrum AS 873 623 0.87 % Sparebankstiftelsen DnB NOR 840 306 0.84 % AS Atlantis Vest 806 114 0.80 % Renterisiko AS 770 265 0.77 % Consept Eiendom AS 739 796 0.74 % Morgan Stanley & Co. LLC, Klientkonto 1 USA 662 873 0.66 %

20 largest EC-holders 29 920 236 29.80 % Other EC-holders 70 477 780 70.20 %

ECs issued 100 398 016 100.00 %

122 EC ratio The result for the accounting year is divided between the EC-holders and the bank according to the EC-ratio fixed as at 01.01, adjusted for any issues during the accounting year.

Parent Bank Amounts in NOK thousand 01.01.14 01.01.13 01.01.13 (adjusted) Equity Certificates 1 807 164 1 680 548 1 655 225 Premium Fund 843 268 344 860 245 179 Dividend Equalisation Fund, excluding dividends 684 995 338 763 347 018 A. Equity attributable to EC holders of the bank 3 335 427 2 364 171 2 247 422

Saving Bank's Fund 3 591 627 3 025 627 3 006 994 Donations 119 861 119 861 149 861 B. Total Saving Bank`s Fund 3 711 488 3 145 488 3 156 855

Total equity, excluding dividends 7 046 915 5 509 659 5 404 277

EC ratio ( A/ (A+B)) 47,33 % 42,91 % 41,59 %

NOTE 43 - PROFIT DISTRIBUTION

Distribution of the Parent Bank`s profit after tax Amounts in NOK million 2013 2012 Profit after tax 915 515

Cash dividend to EC holders 110 76 Dividend Equalization Fund 283 141 To EC holders (amount) 393 217 To EC holders (per cent) 42.91% 42.07%

Donations 43 30 Saving Bank`s Fund 479 268 To community owned capital (amount) 522 298 To community owned capital (per cent) 57.09% 57.93% Total distribution 915 515 Dividends will be distibuted to registered equity certificate holders as at 25 March 2014. The bank`s equity certificates will be traded ex dividend as of 26 March 2014.

NOTE 44 - EVENTS OCCURRING AFTER THE END OF THE YEAR

The distribution of a cash dividend of NOK 110 million from It has been proposed correspondingly to pay a group contri- the profit of the year to the equity capital certificate holders bution, limited up to NOK 30 million, to wholly owned sub- in SpareBank 1 Nord-Norge (parent bank) has been proposed. sidiaries. This is also included as part of the equity until the This proposal has not been adopted as at the date of the balance Supervisory Board has approved the distribution. sheet, and it has therefore not been recognised as a liability on the date of the balance sheet, but it is still included in the In 2013, an agreement was concluded concerning the sale of equalisation reserve. the bank’s stakes in the alliance companies SpareBank 1 Verdi- papirservice AS and SpareBank 1 Kundesenter AS from 1 January 2014 to Alliansesamarbeidet SpareBank 1 DA. The transactions’ sale price corresponds to the book value as of 31 December 2013.

SpareBank 1 Nord-Norge Annual Report 2013 123 ANNUAL ACCOUNTS 2013

STATEMENT FROM THE MAIN BOARD OF DIRECTORS

The SpareBank 1 Nord-Norge Group – a Statement from the Board of Directors Theand SpareBank Chief Executive 1 Nord-Norge Officer Group – a Statement from the Board of Directors and Chief Executive Officer

The TheBoard Board of Directors of Directors and Chief and Chief Executive Executive Offi cer Officer have today have discussedtoday discussed and approved and approved the annual reportthe and annual accounts report and and the accounts abridged, and consolidated the abridged, annual consolidated report and annual accounts report for and SpareBank accounts 1 Nord-Norgefor SpareBank as at 31 1 December Nord-Norge 2013 as and at 31 for December year 2013 2013including and for abridged, year 2013 consolidated including compara- tive abridged,fi gures as atconsolidated 31 December comparative 2012 and for figures the year as at 2012 31 December 2012 and for the year 2012. According to our full and fi rm conviction, the annual report and accounts have been prepared in complianceAccording with to the our requirements full and firm contained conviction, in theIAS annual approved report by andthe EU,accounts and in have compliance been with Norwegianprepared supplementary in compliance requirements with the requirements forming part contained of the Securities in IAS approved Trading Act.by the EU, and in compliance with Norwegian supplementary requirements forming part of the Securities AccordingTrading to Act.our full and fi rm conviction, the 2013 annual report and accounts have been prepared in compliance with currently valid accounting standards, and the information provided in the reportAccording and accounts to our full gives and a firm true conviction,and correct thepicture 2013 of annual the Groups`s report andassets, accounts liabilites have and been fi nancialprepared position in compliance and result withas a whole currently as at valid 31 December accounting 2013 standards, and 31 Decemberand the information 2012. Further- more,provided according in theto our report full andand accountsfi rm conviction, gives a thetrue annual and correct report picture and accounts of the Group’s provide assets,a true and liabilitiescorrect and financial position and result as a whole as at 31 December 2013 and 31 December 2012. Furthermore, according to our full and firm conviction, the annual • report overview and of accounts important provide events a during true and the correct accounting period in question and their impact on the annual report and accounts • description• overview of the of most important central events risk- and during uncertainty the accounting factors facingperiod the in questionoperations and their during impactthe next on accounting the annual period. report and accounts • a description• description of close of theindividuals` most central signifi risk- cant and transactions uncertainty factors facing the operations during the next accounting period • a description of close individuals’ significant transactions Tromso, 25 March 2014 The main Board of Directors of SpareBank 1 Nord-Norge Tromso, 25 March 2014 The main Board of Directors of SpareBank 1 Nord-Norge

Kjell Olav Pettersen Pål A.Pedersen Sonja Djønne Kjell Olav Pettersen Pål A. Pedersen Hans-Tore Bjerkaas

Hans-Tore Bjerkaas Greger Mannsverk Anita Persen

Ann-Christine Nybacka Vivi Ann Pedersen Sonja Djønne Ann-Christine Nybacka Greger Mannsverk

Jan-Frode Janson (Chief Executive Officer)

Anita Persen Vivi Ann Pedersen

Jan-Frode Janson (Chief Executive Offi cer)

124 REPORT FROM THE CONTROL COMMITTEE 2013

Report from the Control Committee 2013

During the business year of 2013, SpareBank 1 Nord-Norge’s Control Committee has completed its task in accordance with paragraph 13 of the Savings Banks’ Act and according to the currently valid instructions for the Control Committee. The Committee has monitored and seen to it that the Bank’s operations have been conducted in compliance with the Savings Banks’ Act’s rules and regulations, the Bank’s bylaws and any other rules and regulations to which the bank must adhere.

The Control Committee has examined the Annual Accounts, Annual Report and Auditor’s Report and has no comments to make in that connection. The Control Committee is of the opinion that the Main Board of Directors’ assessment of the Bank’s financial position is true and fair, and would wish to recommend that the Annual Report and Accounts presented are adopted as SpareBank 1 Nord-Norge’s Annual Financial Statement for 2013.

Tromso, 25 March 2014

SpareBank 1 Nord-Norge Annual Report 2013 125 ANNUAL ACCOUNTS 2013

AUDITOR’S REPORT

To the Board of Representatives of SpareBank 1 Nord-Norge

INDEPENDENT AUDITOR’S REPORT

Report on the Financial Statements We have audited the accompanying financial statements of SpareBank 1 Nord-Norge, which comprise the financial statements of the parent company SpareBank 1 Nord-Norge and the con- solidated financial statements of SpareBank 1 Nord-Norge and its subsidiaries. The parent com- pany’s and the consolidated financial statements comprise the balance sheet as at 31 december 2013, and the income statement and the statement of other comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

The Board of Directors and the Managing Director’s Responsibility for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation and fair pres- entation of the financial statements in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility An audit involves performing procedures to obtain audit evidence about the amounts and dis- closures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control rel- evant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

126 AUDITOR’S REPORT

Opinion In our opinion, the financial statements are prepared in accordance with the law and regulations and give a true and fair view of the financial position of SpareBank 1 Nord-Norge and of SpareBank 1 Nord-Norge and its subsidiaries as at 31 December, 2013, and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report and Report on corporate governance Based on our audit of the financial statements as described above, it is our opinion that the infor- mation presented in the Board of Directors’ report and Report on corporate governance concern- ing 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 regula- tions.

Opinion on Accounting Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Infor- mation», it is our opinion that the 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 Norway.

Tromsø, 25 March 2014 KPMG AS

Stig-Tore Richardsen State Authorised Public Accountant

SpareBank 1 Nord-Norge Annual Report 2013 127 OPERATIONS

128 Operations

Risk management, internal control and capital management are key areas with respect to financial activities, and the control and management of risk is a strategic tool used at SpareBank 1 Nord-Norge to increase the creation of value.

SpareBank 1 Nord-Norge Annual Report 2013 129 Senior Group General Manager, Risk Management and compliance Geir Andreassen

Group Management Education Bachelor’s degree in auditing Experience Internal Chief Auditor, Sparebanken Nord Director of Accounting, Tromsø Sparebank Auditor, Noraudit Harstad

SpareBank 1 Nord-Norge: - Senior Group General Manager Risk Management and compliance since 2007 - Senior Group General Manager, Finance/Accounting

CEO Jan-Frode Janson

Education Graduate degree in economics and business administration and PhD in Industrial Economics and Technology Management Experience Deputy CEO at Fokus Bank General Manager at ABB Installasjon Midt-Norge Marketing and product manager at Nidar AS Senior consultant/researcher at NTNU/Sintef

Senior Group General Manager, business development Liv B. Ulriksen

Education Fiskerikandidat med hovedfag i økonomi Experience Director of Marine Business Area at Nofima Assistant Director, Norwegian Institute of Fisheries and Aquaculture

SpareBank 1 Nord-Norge: - General Manager, Corporate Accounts Department - Business Consultant, Key Accounts Department - Senior Group Manager since 2008

130 Senior Group General Manager, CFO Communications Director Rolf Eigil Bygdnes Stig Arne Engen

Education Education Graduate degree in economics and business Graduate degree in economics and b administration and MBA usiness administration Experience Experience Assistant General Manager, Sparebanken Nord Lecturer at Folkeuniversitetet Finance Director, A/L Håko, Tromsø (Adult Education Association) in Bardu and Målselv CEO, NORFICO Finance and Marketing Manager, Kleber AS Lecturer at Norwegian School of Management Manager of business development project at Kleber AS

SpareBank 1 Nord-Norge: SpareBank 1 Nord-Norge: - Deputy Regional General Manager, Tromsø - Communications Director since 2010 - Managing Director SpareBank 1 Securities - Senior Group General Manager, Retail Market - Senior Group General Manager, CEO since 2004 - Regional General Manager, Region Midt-Troms - General Manager, Retail Market, Midt-Troms - Consultant

Senior Group General Manager, Support Functions Elisabeth Utheim

Education Cand. polit. Experience Senior Group General Manager, SpareBank 1 Nord-Norge since 2005 Human Resources and Organization Manager, Hammerfest Municipality Project Manager and Senior Executive Officer, University of Tromsø Project Manager, Vadsø Municipality

131 Regional Director Finnmark Senior Group General Manager, Per Trygve Holmgren Subsidiaries and holdings Petter Høiseth Education Finance and administration, BI/Bankakademiet and Education Management, SAS Akademiet. Cand.jur. from the Faculty of Law in Tromsø Experience Experience Deputy Norges Bank Head of Legal Department, SpareBank 1 Nord-Norge Director of SAS North Cape Hotels Attorney at Advokatfirmaet BAHR General Manager K-Bank/Nordea Judge at Nord-Troms Assistant Professor, Faculty of Law in Tromsø SpareBank 1 Nord-Norge: Associate Attorney at Advokatfirmaet Selmer - Regional Director Finnmark from 2005 - Regional General Manager

Regional Director Troms Christian Overvaag

Education Graduate degree in Business Experience CEO at Brigg Utvikling CEO at Næringsforeningen i Tromsø-regionen Senior Corporate Insurance Adviser, Gjensidige

SpareBank 1 Nord-Norge: - General Manager Corporate, Troms

132 Regional Director Helgeland Regional Director Hålogaland Hanne J. Nordgaard Kåre A. Markussen

Education Education Graduate degree in Business, NHH and Copenhagen Engineering - business Business School Experience Experience CEO, Managing Director and Executive Director at TINE Meieriet CEO and Finance Manager at Søndre Hegeland Miljøverk IKS Nord BA, Harstad/Oslo Finance Manager at Nettbuss/Nettlast Helgeland Regional General Manager at DnB, Harstad Project Manager and Management Trainee at General Manager at DnC, Hammerfest Storebrand Liv, Oslo Manager at Finnmark Supply AS, Hammerfest Industrial Consultant at Nordbase AS, Hammerfest Project Engineer at Årdal og Sunndal Verk AS, Oslo Project Engineer at Hjellnes AS, Oslo

SpareBank 1 Nord-Norge: - Regional General Manager, Harstad

Regional Director Salten Trude Glad

Education Graduate degree in Business, NHH and Master of Management, BI Oslo Experience Investor Relations Manager Rieber & Søn ASA Sous Chief Finace at Norgeskreditt/ Vestenfjelske Bykreditt Bergen Bond Broker and Finacial Analyst at Bergen Fondsmeglerforretning

SpareBank 1 Nord-Norge: - Regional General Manager, Salten - General Manager Corporate Banking, Salten - Senior Corporate Banking consultant

133 Main Board of Directors

Chairman Deputy chairman Kjell Olav Pettersen Pål Andreas Pedersen

Education Education Bachelor of Business Administration in Banking Cand. oecon. and Dr. polit, University of Oslo Experience Tromsbanken AS: Experience - Bank manager, financial controller, etc Professor of Economics, Bodø Graduate School of Business, Regional bank manager, Fokus Bank ASA University of Nordland, since 1988 Managing Director of Tromsø Athletics Club Guest professor at University of Kent in Canterbury, UK, 2000-2001 Managing Director of Coop Nord SA Dean at the Bodø Graduate School of Business, 2003-2007

Member Member Hans-Tore Bjerkaas Sonja Djønne

Education Education Cand.mag from University of Tromsø Bachelor of Business Administration

Experience Experience Journalist at NRK Project Analyst ROI Invest Regional editor at NRK Troms and Finnmark Purchasing Manager at Helgelandssykehuset HF Director television at NRK Purchasing Manager at Rana kommune Director broadcasting at NRK HR consultant/officer at Rana trygdekontor Director general at NRK Employment Director at Rana kommune

134 Member Member Anita Persen Ann-Christine Nybacka

Education Education Educator/BI Norwegian School of Management Helsingfors School of Economics, Position: Managing Director of Finnmark Kontorservice Norwegian School of Economics and Business Administration Experience Experience Managing Director of Studentsamskipnaden i Finnmark (SIF) Financial advisor, Stockhouse Finance AB Day care centre manager, Studentsamskipnaden i Finnmark (SIF) Advisor, Föreningsbanken Special teacher, Karasjok Municipality/Finnmark County Administration Financial controller and administrative manager, LKAB hamn Financial controller, SCA Munksund Logistics manager, SCA Munksund Director at the Brønnøysund Register Centre

Member Employee-elected member Greger Mannsverk Vivi Ann Pedersen

Education Education Oslo Maritime Technical School, College of Engineering, Banking qualifications line of marine technology and marine engineering Experience Experience SpareBank 1 Nord-Norge: Head of Division at Kværner Kimek AS - Debt advisor in the collection department Kimek AS: - Regional employee representative for the Troms region - Production Manager - Senior/corporate employee representative for Finance - Sales Engineer/Project Engineer - Sector Union of Norway at SNN - Division engineer Constructor/Machine Engineer at A/S Sydvaranger Constructor at Munch Internasjonal AS

SpareBank 1 Nord-Norge Årsrapport 2013 135 Governing bodies in SpareBank

SUPERVISORY BOARD Rådmann Jan-Hugo Sørensen, Hansnes (Chairman) 2013 Deputy members elected from the bank’s ECC holders Adm. direktør Frode Helgerud, Oslo (Deputy Chairman) 2013 Adm. direktør Trond Mohn, Bergen 2013/2014 Seniorforsker Toril Ringholm, Tromsø 2012/2015 Members elected from the bank’s depositors Daglig leder Trond Vidar Hansen, Tromsø 2012/2015 Førstekonsulent Åshild Strømmesen, Sommarøy 2013/2016 Student Ane Kristine Røger, Stokmarknes 2011/2014 Fiskerikandidat Line Mikkelsen, Tromsø 2012/2015 Prosjektleder Stig Vonka, Harstad 2011/2014 Selvst. næringsdrivende Reidun Kristiansen Flakstad, Gryllefjord 2010/2013 Kontorleder Jorhill Andreassen, Silsand 2011/2014 Rådmann Jan-Hugo Sørensen, Hansnes 2010/2013 Linn Knudsen, Alta 2011/2014 Daglig leder Rita Myrvang, Rossfjordstraumen 2012/2015 Direktør Stein Kristiansen, Jakobsli 2011/2014 Ordfører Aina Willumsen, Træna 2012/2015 Jurist Tone Marie Myklevoll, Tromsø 2011/2014 Members elected from the bank’s employees HR manager Hilde Sivertsen, 2013/2016 Hovedverneombud May Britt Nilsen, Sørkjosen 2013/2016 Daglig leder Trine Stenvold, Fauske 2010/2013 Fagsjef Hans Olav Gjøvik, Tromsø 2011/2014 Nærings- og kultursjef Kari Ann Olsen Lind, Stokmarknes 2013/2016 Seniorrådgiver Einar Frafjord, Tromsø 2011/2014 Juridisk seniorrådgiver Charlotte Ringkjøb, Bodø 2011/2014 Rådgiver Ann-Kirsten Larsen, Tromsø 2011/2014 Personalkonsulent Britt Dahlberg, Bardu 2011/2014 Seniorrådgiver Ulf Mathisen, Hammerfest 2013/2016 Rådgiver Therese Isaksen, Mo i Rana 2011/2014 Deputy members elected from the bank’s depositors Seniorrådgiver Daniel Nyhagen, Tromsø 2013/2016 Siviløkonom Anders J. H. Eira, Kåfjord 2013 Innkjøpssjef Øyvind Pallesen, Tromsø 2013/2016 Fagarbeider Terje Marius Nilsen, Straumsbukta 2013 Innkjøpsansvarlig Thone Bjørklund, Hammerfest 2013 Deputy members elected from the bank’s employees Næringssjef Stig-Gøran Olsen, Sandnessjøen 2013 Rådgiver Anne Kathrine Nygaard, Mo i Rana 2013/2014 Rådmann Hugo Thode Hansen, Harstad 2013 Rådgiver Egon Enoksen, Stokmarknes 2013/2014 Pensjonist Villy Konrad Johansen, Alta 2013 Seniorrådgiver Hilde Hauan, Tromsø 2013/2014 Rådgiver Finn Harald Olsen, Bodø 2013/2014 Members elected from the county councils Rådgiver Irina S. Møllersen, Kirkenes 2013/2014 Ordfører Tor Asgeir Johansen, Kjøpsvik 2012/2015 Rådgiver Linda Bornø, Harstad 2013/2014 Student Cecilie Terese Myrseth, Tromsø 2012/2015 Rådgiver Vanja Teigeland, Finnsnes 2013/2014 Politiker Line Miriam Sandberg, Silsand 2012/2015 Seniorkonsulent Fritz Hansen, Tromsø 2013/2014 Sjøvett og opplæringsansvarlig Kari Lene Olsen, Honningsvåg 2012/2015 THE SUPERVISORY BOARD’S Deputy members elected from the county councils Pensjonist Jon Tørset, Bodø 2012/2015 ELECTION COMMITTEE Ordfører Dag Sigurd Brustind, Hamnvik 2012/2015 Members Ordfører Ivar B. Prestbakmo, Sjøvegan 2012/2015 Jurist Charlotte Ringkjøb, Bodø (Chairman/Depositor elected) 2012/2013 Masterstudent Ellen Johansen, Kokelv 2012/2015 Kunsthåndverker Marie M. Fangel, Tromsø (ECC holder elected) 2013/2014 Student Cecilie Terese Myrseth, Tromsø (County council elected) 2012/2013 Members elected from the bank’s ECC holders Seniorrådgiver Einar Frafjord, Tromsø (Employee elected) 2013/2014 Styreleder Kjell Kræmer, Tromsø 2010/2013 Styreleder Kjell Kolbeinsen, Tromsø 2012/2015 Deputy members Advokat Erik Sture Larre, Oslo 2011/2014 Rådmann Jan-Hugo Sørensen, Hansnes (Depositor elected) 2012/2013 Ordfører Ole-Henrik Hjartøy, Bodø 2013/2016 Advokat Erik Sture Larre, Oslo (ECC holder elected) 2013/2014 Kommunalsjef Asbjørg Jensvoll Strøm, Finnsnes 2012/2015 Ordfører Tor Asgeir Johansen, Kjøpsvik (County council elected) 2012/2013 Øk.ansvarlig Bente Evensen, Tromsø 2011/2014 Rådgiver Therese Isaksen, Mo i Rana (Employee elected) 2013/2014 Konsernsjef Oddbjørn Schei, Tromsø 2012/2015 Kunstner Berit Berg, Tromsø 2012/2015 Kjøpmann Herman Mehren, Oslo 2010/2013 Daglig leder Ole Ovesen, Sørreisa 2010/2013 DEPOSITORS’ ELECTION COMMITTEE Optiker Sissel Ditlefsen, Tromsø 2013/2016 Members Jurist Charlotte Ringkjøb, Bodø (Chairman) 2012/2013 Kunsthåndverker Marie M. Fangel, Tromsø 2013/2016 Selvst.nærings Reidun Kr. Flakstad, Gryllefjord 2012/2013 Finansanalytiker Tom Rømer Svendsen, Oslo 2010/2013 Daglig leder Rita Myrvang, Sørreisa 2013/2014

Deputy members Rådmann Jan-Hugo Sørensen, Hansnes 2012/2013 Jurist Tone Marie Myklevoll, Tromsø 2013/2014 Kultursjef Kari Ann Olsen Lind, Stokmarknes 2013/2014

136 1 Nord-Norge

EQUITY CERTIFICATE REGIONAL BOARD OF DIRECTORS - SALTEN HOLDERS’ ELECTION COMMITTEE Members Members Daglig leder Trond Sigurd Tørdal, Bodø (Chairman) 2013/2014 Advokat Erik Sture Larre, Oslo (Chairman) 2013/2014 Direktør Bente Larsen, Bodø (Deputy Chairman) 2012/2013 Adm. direktør Trond Mohn, Bergen 2012/2013 Daglig leder Christen Selstad, Neverdal 2013/2014 Kunsthåndverker Marie M. Fangel, Tromsø 2013/2014 Konsern dir. Sten-Rune Brekke, Fauske 2013/2014 Næringsdrivende Alf Mangor Johannessen, Bodø 2012/2013 Deputy members Tillitsvalgt Gunn Helen Kristensen, Rognan (Employee elected) 2012/2013 Styreleder Kjell Kolbeinsen, Tromsø 2013/2014 Øk. ansvarlig Bente Evensen, Tromsø 2012/2013 Deputy members Kommunalsjef Asbjørg Jensvoll Strøm, Finnsnes 2012/2013 Distriktssekretær Rita Lekang, Bodø 2013 Daglig leder Stein Valle, Hamarøy 2013 Tillitsvalgt Aud Jorun Skaret, Meløy (Employee elected) 2013 CONTROL COMMITTEE Tillitsvalgt Svein Ove Aspmo, Bodø (Employee elected) 2013

Members Professor Tore Bråthen, Oslo (Chairman) 2012/2013 Disponent Dag Norvang, Tromsø 2012/2013 REGIONAL BOARD OF DIRECTORS - HÅLOGALAND Miljødirektør Rigmor Abel, Tromsø 2012/2013 Members

Daglig leder Berit Pettersen, Sortland (Chairman) 2013 Deputy member Adm.direktør Mona Kristine Rosvold, Harstad (Deputy Chairman) 2013 Konsulent Kåre Brynjulfsen, Silsand 2012/2013 Daglig leder Alf Lie, Leknes 2012/2013

Markedssjef Frank Sundermeier, Narvik 2013/2014 Regiondirektør Svein Helland, Svolvær 2013/2014 MAIN BOARD OF DIRECTORS Tillitsvalgt Vivi Ann Movik, Harstad (Employee elected) 2013/2014 Members Adm. direktør Kjell Olav Pettersen, Tromsø (Chairman) 2013/2014 Deputy members Professor Pål Andreas Pedersen, Bodø (Deputy Chairman) 2012/2013 Stipendiat Knut Foshaug, Narvik 2013 Daglig leder Sonja Djønne, Mo i Rana 2012/2013 Direktør Ørjen Robertsen, Sortland 2013 NRK-ansatt Hans-Tore Bjerkaas, Tromsø 2013/2014 Verneombud Johannes Frivåg, Sortland (Employee elected) 2013 Adm.dir Greger Mannsverk, Kirkenes 2012/2013 Tillitsvalgt Dag Inge Lund, Stokmarknes (Employee elected) 2013 Avd. direktør Ann-Christine Nybacka, Brønnøysund 2012/2013

Hovedtillitsvalgt Vivi Ann Pedersen, Tromsø (Employee elected) 2013/2014 Direktør Anita Persen, Alta 2012/2013 REGIONAL BOARD OF DIRECTIONS - TROMS Deputy members Members Ingeniør Erik Sture Larre jr., Oslo 2013 Gullsmed Elin Wintervold, Tromsø (Chairman) 2012/2013 Adm. direktør Trond Slettbakk, Harstad 2013 Daglig leder Ketil Arnesen, Tromsø (Deputy Chairman) 2013/2014 Tillitsvalgt Gunnar Kristiansen, Sortland (Employee elected) 2013 Daglig leder Jan Fredrik Jenssen, Vangsvik 2012/2013 Tillitsvalgt Kjetil Ask Olsen, Tromsø (Employee elected) 2013 Adm. direktør Geir Sagelv, Storslett 2013/2014

Lærer Anne Beck Strømseng, Bardu 2012/2013 Tillitsvalgt Kjetil Ask Olsen, Tromsdalen (Employee elected) 2013/2014 REGIONAL BOARD OF DIRECTORS - HELGELAND Members Deputy members Sivilingeniør Stig Roald Frammarsvik, Mo i Rana (Chairman) 2013/2014 Daglig leder Bjørnar Heimly, Skjervøy 2013 Advokat Toril Valla, Korgen (Deputy Chairman) 2012/2013 Markedsansvarlig/Lærer Eva Kristin Lyshoel, Finnsnes 2013 Daglig leder Brynjar Kroknes, Brønnøysund 2013/2014 Tillitsvalgt Trude Jakobsen, Tromsø (Employee elected) 2013 Innkjøpsleder Christin Walen Strand, Sandnessjøen 2012/2013 Tillitsvalgt Elena Rushfeldt, Tromsø (Employee elected) 2013 Daglig leder Ole Kristian Jenssen, Mosjøen Tillitsvalgt Christian Stavøy, Sandnessjøen (Employee elected) 2012/2013

Deputy members REGIONAL BOARD OF DIRECTORS - FINNMARK Adm. sjef Stig Sørra, Sandnessjøen 2013 Members Daglig leder Nina Rødahl Friis, Nesna 2013 Bedriftseier Tor Arne Pettersen, Alta (Chairman) 2012/2013 Tillitsvalgt Wenche Solli, Mosjøen (Employee elected) 2013 Daglig leder Ann Kristin Kvalsvik, Akkarfjord (Deputy Chairman) 2013/2014 Verneombud Anne Kirsti Øyjord, Mo i Rana (Employee elected) 2013 Adm. direktør Anne Wikan, Kirkenes 2013/2014 Spesialrådgiver Jan Terje Nedrejord, Karasjok 2012/2013 Optiker Kjell Hansen, Vadsø 2012/2013 Tillitsvalgt Arnhild Stenvoll, Hammerfest (Employee elected)) 2013/2014

Deputy members Daglig leder Mona Wisløff Vonheim, Alta 2013 Kontorleder Åge Antonsen, Kirkenes 2013 Tillitsvalgt Trond Mikalsen, Kautokeino (Employee elected) 2013 Tillitsvalgt Rita Annie Strøm, Alta (Employee elected)) 2013

SpareBank 1 Nord-Norge Annual Report 2013 137 OPERATIONS

Corporate governance at SpareBank 1 Nord-Norge Principles for Corporate Governance

About The Norwegian Accounting Act prove the opportunities for this, the Main Board of Directors was granted authorisation by the Supervisory Board on 25 Section 3-3b of the Norwegian Accounting Act March 2014 to purchase and establish security in the bank’s The executive management team and Main Board of Directors own equity certificates within the framework stipulated by the assess the bank’s corporate governance principles and how law and regulations. they are working on an annual basis. They issue a statement on the principles and practice of corporate governance, in The Main Board of Directors is authorised to purchase and accordance with section 3-3b of the Accounting Act and the establish security in the bank’s own equity certificates within Norwegian Code of Practice for Good Corporate Governance the framework stipulated by the law and regulations. The total of 23 October 2012. holdings of equity certificates that the bank owns and/or has security created by agreement in may not exceed 10% of the Below is a description of how section 3-3b, second paragraph bank’s equity certificate capital. The lowest price that can be of the Accounting Act is complied with in SpareBank 1 Nord- paid for the equity certificates is NOK 12.50 and the highest is Norge. The classifications refer to the numbering in the section. NOK 75.

1-3. Statement on the Norwegian Code of Practice for The equity certificates must be purchased in the securities Good Corporate Governance followed by SpareBank 1 market through the Oslo Stock Exchange. Sales shall take place Nord-Norge, information about where the Code of Practice in the same market, or as targeted sales to employees and elected may be found, and the reasons for any deviations from the officers in accordance with the applicable law and regulations. Code of Practice. The security must be pledged through agreements with custo- SpareBank 1 Nord-Norge’s corporate governance structure is mers as part of granting credit and any realisation of the secu- based on Norwegian law. SpareBank 1 Nord-Norge complies rity must take place in the securities market via the Oslo Stock with the Norwegian Code of Practice for Corporate Govern- Exchange. The authorisation is valid until 20 March 2014. ance, issued by the Norwegian Corporate Governance Board (NUES). The Code of Practice can be found at: nues.no. Any deviations from the Code of Practice are disclosed in the state- ment describing how the Code of Practice is complied with in 1. Corporate governance in the section on ‘Corporate governance in SpareBank 1 Nord- SpareBank 1 Nord-Norge Norge’ in the annual report. Corporate governance in SpareBank 1 Nord-Norge is defined 4. Description of the principal elements of SpareBank 1 as the aims, targets and overall principles in accordance Nord-Norge’s systems for internal control and risk manage- with which the bank is managed and controlled for the pur- ment in connection with the financial reporting process. pose of safeguarding the interests of the owners, depositors See point 10 in the section on ‘Corporate governance’. and other groups in the bank. Accordingly, the bank’s cor- porate governance principles shall ensure the sound and 6. The composition of governing bodies and a description appropriate management of the bank’s assets and liabilities, of the main elements of the current instructions and guide- providing additional assurance that all agreed targets, aims lines for work undertaken by the bodies and committees. and strategies are met and adhered to. See points 6, 7, 8 and 9 in the section on ‘Corporate governance’. The bank complies with the Norwegian Code of Practice for 7. Provisions in the Articles of Association regulating the Corporate Governance. (http://www.nues.no/filestore/Doku- appointment and replacement of board members. menter/Norskberiktiget.pdf) See points 7 and 8 in the section on ‘Corporate governance’. As a result of this, the bank has defined the following main 8. Provisions in the Articles of Association and authorisa- principles, which are based on the three core values of open- tions that permit the Board to decide to buy back or issue ness, predictability and transparency: the bank’s own equity capital certificates. • A structure which ensures systematic and independent In order to provide flexibility when selling equity certificates management and control to employees and elected representatives, the Supervisory • Systems that ensure measurement and accountability Board has previously authorised the Main Board of Directors • Effective risk management to buy back or issue the bank’s own equity certificates. To im-

138 • Full disclosure and effective communication to underpin SpareBank 1 Nord-Norge shall be an attractive workplace the trust between owners, the Main Board of Directors and with a corporate culture characterised by dynamic training, the bank’s management a will to win, and a willingness to work together towards a • Equal treatment of all owners and balanced relations with common goal. The bank’s operations are based on strict re- other interest groups quirements concerning integrity and business ethics. Com- • Compliance with laws, rules, regulations and ethical standards plying with laws, rules, regulations and ethical standards is a prerequisite for healthy banking operations. The bank’s Any instances where the bank does not comply with Norwe- core values and ethical guidelines are incorporated into the gian Code of Practice for Corporate Governance are described. SNN Code of Conduct, which describes how the bank does The bank’s corporate governance framework and principles business. The SNN Code of Conduct is clearly communicated do not cover the Code of Practice’s points on corporate take- to all members of staff and is available to our customers and overs. This is because the bank is a savings bank and these interested parties via the bank’s website. areas are not regarded as relevant in this context. SpareBank 1 Nord-Norge’s aims and strategy are described The bank’s corporate governance rules were last approved in more detail in another section of this annual report. by the Main Board of Directors at its meeting on 25 February 2014. 3. Equity and dividends 2. Business The bank shall be well capitalised at all times. The bank’s prin- cipal targets – including its capital adequacy ratio target – are SpareBank 1 Nord-Norge is an independent financial services communicated via the bank’s website, periodic presentations group within the SpareBank 1 Alliance. of its financial statements and in the bank’s annual report. The bank also undertakes periodic assessments of its risk in The bank’s corporate vision is For Northern Norway! relation to the bank’s risk capital (the ICAAP process). These are submitted to the bank’s Main Board of Directors. It is very simple, but at the same time ambitious and de- manding. This means that SpareBank 1 Nord-Norge wants Furthermore, the Main Board of Directors has devised a divi- to be known as being: dend policy which forms the basis for the distribution of divi- • The region’s local bank dends proposed to the Supervisory Board. The dividend policy • A Group that creates value in, and invests it back into, is published on the bank’s website, in periodic presentations Northern Norway of the financial statements, and in the bank’s annual report. • Close and competent, with decisions taken on a local level • Financially sound, generous and people-oriented - rich in tradition, yet modern 4. Equal tratment of shareholders and • A driving force behind the development of Northern Norway – we care about you! transactions with close associates Through ongoing dialogue, the bank shall ensure that own- The bank’s business concept is to provide comprehensive, ers and other stakeholder groups are given an opportunity modern financial solutions for the benefit of customers based to express their views on the bank’s strategic and business- in the northern Norwegian market. The bank ensures its com- related development. The bank must project an image of reli- petitive edge by being Close and Competent in all customer ability and predictability as far as the equity capital market relationships. is concerned.

Close refers to proximity, insight and involvement. This means that we are friendly, accommodating and professional, 5. Freely negotiable shares understand individual needs, are available and accessible, utilise our local knowledge, and have a strong presence The bank’s equity certificates are freely negotiable. No form throughout the market. Closeness refers to personal commitment, of trading restrictions have been adopted. coupled with an enthusiasm for the many opportunities pro- vided by both our workplace and our customers. 6. A structure which ensures Competent means being focused on our customers and possessing solid professional expertise, good skills and a systematic and independent clear, positive attitude. Our advisory services and sales must management and control be based on good, ethical standards and authorisations. We must provide highly professional advice. Competence The bank’s management structure is based on the bank’s corporate means an ability and willingness to take the initiative and vision, established aims and targets, strategies and core values. suggest relevant solutions to the bank’s customers. Compe- Management and control comprise all processes and control tence also entails an ability to work together with colleagues measures that have been introduced and implemented by the throughout the organisation in order to meet and realise the bank’s executive management team in order to ensure efficient bank’s overall targets and aims. operations and implementation of the bank’s strategies.

SpareBank 1 Nord-Norge Annual Report 2013 139 OPERATIONS

Several independent control bodies have been established in the bank’s website at least 21 days in advance of such meet- order to provide the necessary assurance that owners and other ings. The Supervisory Board cannot make decisions on any stakeholder groups receive correct information on business- other matters than those which have been specifi cally stated in related and fi nancial matters. These have each been assigned the notice convening the meetings. specifi c duties and purposes. The various bodies’ general roles and responsibilities are defi ned by the law, regulations and the The Supervisory Board consists of 40 members and Articles of Association. 26 substitute members, whose composition is as follows: • 16 members and 8 substitute members elected from among the bank’s equity certifi cate holders • Troms, Finnmark and Nordland – 4 members and 4 substitute Supervisory members elected by the county councils in question Board • 12 members and 6 substitute members from among the bank’s depositors Control Committee External Auditor • 8 members and 8 substitute members from among the bank’s employees

Main Board The Supervisory Board normally meets twice a year. and Directors Audit Committee and Risk Committee Internal Auditor 7.2 Nomination committees Nomination Committee for the Supervisory Board Remuneration Committee The Nomination Committee shall consist of 4 members and 4 substitute members, with representatives from all four of the CEO groups represented on the Supervisory Board. The Nomination Committee shall make the necessary preparations for the elec- tion of the following members: Risk Management • Chairman and Deputy Chairman of the Supervisory Board • Members and substitute members of the Main and Regional Boards of Directors, excluding the employees’ representatives CFO • Chairman of the Control Committee, members and substitute members Compliance • Members and substitute members of the Nomination Committee

In the case of the members and substitute members to be elect- ed from among the bank’s employees, only the staff’s repre- 7. Governing bodies sentative on the Nomination Committee is allowed to make a recommendation. 7.1 The supervisory Board The bank is a savings bank and therefore does not have a gen- Nomination committee for the depositors’ election eral meeting. Accordingly, this document deviates somewhat This nomination committee consists of 3 members and 3 from the Norwegian Code of Practice for Corporate Govern- substitute members. The committee’s task is to make the ance on this point, for formal reasons. These deviations are not necessary preparations for the depositors’ election of members deemed to entail any real difference in relation to the Code of and substitute members of the Supervisory Board, as well as Practice. members and substitute members of the nomination committee for depositors. The Supervisory Board is the bank’s supreme management body and has the following main responsibilities: Nomination committee for the equity certificate holders’ election • supervising the Main Board of Directors’ management This nomination committee consists of 3 members and 3 sub- of the company stitute members. The committee’s task is to make the necessary • adopting the annual report and annual fi nancial statements preparations for the equity certifi cate holders’ election of • electing members of the bank’s Board of Directors, members and substitute members of the Supervisory Board, Control Committee and nomination committees as well as members and substitute members of the nomination • appointing the bank’s responsible auditor committee for equity certifi cate holders. and determining the auditor’s remuneration • distributing the amount that, according to As part of their work, the nomination committees shall make the Savings Banks Act, paragraph 32, may be sure that members of the Supervisory Board, Control Committee, donated for publicly benefi cial purposes Nomination Committee and Main Board of Directors possess • raising subordinated loan capital the necessary competence. In addition, the nomination com- mittees should make every effort to ensure an appropriate When making the necessary preparations for meetings of the regional composition of members, and that both men and Supervisory Board, the bank shall ensure that all members re- women are well represented. ceive the relevant notice and agenda documents, including the Nomination Committee’s recommendations, in writing and at Guidelines for the aforementioned nomination committees least 21 days in advance. The documents shall be available on are established by the bank’s Supervisory Board.

140 7.3 The Main Board of Directors 2. The Main Board of Directors also established an audit committee. The function of the Main Board of Directors The Audit Committee is a preparatory body for the Main The Main Board of Directors manages the bank’s operations Board of Directors in matters concerning the monitoring of in accordance with the applicable law, Articles of Association financial information and the company’s internal control and and any other rules and regulations introduced by the Super- risk management. The CEO is responsible for making infor- visory Board. The Main Board of Directors is responsible for mation and recommendations available to the committee as ensuring the bank’s available resources are managed in a pru- required and upon request. dent and appropriate manner. The Main Board of Directors also has an obligation to ensure that all accounting and manage- The Audit Committee is comprises three members of the Board. ment of assets and liabilities are satisfactorily supervised. They must be independent according to the definition in the Norwegian Code of Practice for Corporate Governance. In addition, the Main Board of Directors has the following main responsibilities: 3. The Main Board of Directors also established a Risk Committee. • To appoint the Chief Executive Officer The Risk Committee shall be a preparatory body for the Main • To provide instructions for the day-to-day management Board of Directors in cases that are intended to improve the of the bank Board’s consideration of risk assessments. • To determine the bank’s strategy, budget, market-related and organisational targets The Risk Committee comprises three members of the Board. • To appoint and dismiss the head of the bank’s internal They must be independent according to the definition in the auditing department Norwegian Code of Practice for Corporate Governance.

The Main Board of Directors normally has 11 meetings each year. Reporting The Main Board of Directors receives The composition of the Main Board of Directors periodic reports on the following: The Main Board of Directors consists of 8 members elected by • financial performance the Supervisory Board. The Main Board of Directors also has • market developments 4 substitute members. All elected members are elected for 2 • management, personnel and years at a time and substitute members for 1 year at the time. organisational development Members and substitute members may be re-elected. In order • development of the overall risk situation to ensure continuity, half of the Main Board of Directors’ and the bank’s risk exposure members are elected every other year. In addition to the above, there will be periodic presentations of Qualification/disqualification the bank’s scorecard, which contains financial, organisational, The Main Board of Directors’ members are defined as primary market-related and quality-related targets. insiders and must comply with the bank’s rules and regula- tions regarding the acquisition of equity capital certificates in Central business and other related areas are looked at at least the bank and in SpareBank 1 Alliance banks. This also applies once a year, when limits and guidelines are evaluated and agreed. to the purchase of shares in companies which have a customer relationship with the bank. Fees paid to members of the bank’s Main Board of Directors Fees paid to the members of the Main Board of Directors are paid In the case of discussions concerning commitments involving as a fixed amount per annum. The amount is fixed by the bank’s companies in which members of the Main Board of Directors Supervisory Board. No fees are paid in addition to this. have an interest or hold a position, the member in question must declare himself/herself disqualified and leave the meet- ing. Furthermore, members of the Main Board of Directors and 7.4 The CEO executive personnel must inform the Main Board of Directors The CEO is responsible for the day-to-day management of the if they have, directly or indirectly, a significant interest in an bank’s operations in accordance with the applicable law, Articles agreement entered into by the bank. of Association, powers of attorney and instructions. His respon- sibility does not include matters that, in relation to the bank’s Evaluation of the Main Board of Directors circumstances, are of an extraordinary nature or of great importance. Each year, the Main Board of Directors conducts a self-evalu- Such matters are brought before the Main Board of Directors. ation of its work with regard to competence, working methods, the way in which it deals with the matters presented to it, meeting The CEO’s overall performance is assessed annually by the Main structure and the way in which various tasks are prioritised. Board of Directors.

Board committees 1. The Main Board of Directors has established a Remuneration 8. Control bodies Committee that shall prepare and present proposals concerning The Control Committee the remuneration of the CEO, and prepare items for the Main The Control Committee shall see to it that the bank is man- Board of Directors concerning the remuneration package in aged in an appropriate and satisfactory manner in accordance relation to the regulations concerning remuneration packages with the applicable law, rules, regulations, Articles of Associa- in financial institutions. The committee consists of the tion, and guidelines agreed by the bank’s Supervisory Board, Chairman of the Main Board of Directors and two members. and according to instructions from the Financial Supervisory

SpareBank 1 Nord-Norge Annual Report 2013 141 OPERATIONS

Authority of Norway. The Control Committee shall also ensure 9. Systems that safeguard assessment that the bank’s Board and CEO adequately supervise and and the allocation of responseibility control the parent bank and subsidiaries. Effective target management is necessary in order for the bank Members of the Control Committee are elected by the Super- to be able to assess at all times whether its various strategic visory Board; there are 3 members and 1 substitute member. targets are being met. The bank has prepared guidelines and The members are elected for 2 years at a time. measuring variables according to which the various profit centres are assessed and managed, based on the concept of Each year, the Control Committee provides a report on its balanced target management. work to the Supervisory Board and the Financial Supervisory Authority of Norway. Furthermore, the Control Committee Strategic planning and prognosis management are also used as provides a statement to the Supervisory Board on the annual management tools. report and annual financial statements. Allocation of responsibility is ensured through clear commu- The Control Committee normally holds 8 meetings a year. nication to the employees involved in business plans and the agreed targets. This is translated into an operational context External auditor through clearly defined roles, responsibilities and expectations, The main duty of the external auditor is to assess whether where the managers involved are held accountable for target the bank’s annual financial statements have been prepared in attainment within the various areas of responsibility. Remu- accordance with the applicable law, rules and regulations. The neration packages have been established based on how well external auditor must also ascertain whether or not the bank’s management and employees perform in relation to these meas- assets and liabilities have been managed in a satisfactory manner urement variables. and with appropriate control. The external auditor is elected by the Supervisory Board. 10. Risk management The external auditor presents a report on these matters to the bank’s Supervisory Board and Control Committee. and internal control Effective risk management is an important element as far as A separate agreement is entered into with the external auditor the bank meeting its strategic targets is concerned. Risk man- regarding the business relationship between the bank and the agement is an integral part of the executive management team’s external auditor. The external auditor can also be used for ad- decision-making processes, and a key element with respect to visory services as needed. The fees paid to the external auditor organisation, routines and systems. for auditing and other services must be specified in the bank’s annual report. The Group’s principles and limits for internal control and risk management are contained in a separate policy for risk The external auditor participates in Board meetings that management, which is reviewed annually by the Main Board consider the bank’s annual financial statements. of Directors. The policy for risk management and compliance is the Group’s internal framework for good management and Internal auditor control. The policy provides guidelines for the Group’s over- The internal audit is the most important tool for the Main all approach towards risk management, and is intended to Board of Directors and the bank’s management with regard to ensure that the Group has an effective and appropriate process monitoring and making sure that the control and management for this. process is targeted, effective and functions as it should. The bank has its own internal audit department, which reports to The Group uses the framework of the Committee of Sponsor- the Main Board of Directors. The audit plan for the bank’s in- ing Organisations of the Treadway Commissions (COSO) and ternal audit department is subject to annual approval by the the framework of the Control Objectives for Information and Main Board of Directors. Reports and recommendations issued Related Technology (CobiT) as a basis for its principles for in- by the internal audit department concerning improvements to ternal control and risk management. the bank’s risk management and internal control are continu- ously reviewed and taken into consideration. Internal control and risk management is a process which has been initiated and implemented by the bank’s Board, executive Risk management section management team and employees; this process shall identify, This section is independent of the bank’s customer units handle and follow up on the risks involved such that the ag- and responsible for: gregate risk exposure is in accordance with the bank’s agreed • further developing the bank’s framework for uniform and overall risk profile. overall risk management • overall risk management and follow-up The process shall support the bank’s strategic development and target achievement, and it shall help ensure financial stability Separate controller functions have been established in order to and the prudent management of assets and liabilities through: cover the areas of credit risk, operational risk and market risk (liquidity, interest rates and currency). • a strong risk culture characterised by a high awareness of risk management • striving towards an optimal allocation of capital within the adopted business strategy

142 • trying to achieve a similar risk-adjusted return on customers 11. Remuneration of the Main Board of over time within the Bank’s agreed business strategy Directors and executive personnel • exploitation of synergy and diversification effects • sufficient core capital in relation to the bank’s chosen risk profile The members of the Main Board of Directors receive a fixed • The main Board of Directors shall follow up all agreed framework annual remuneration. This remuneration is not based on perfor- arrangements, principles and quality and risk targets through: mance and no options have been issued to the members of the • quarterly reports from the CEO and the risk management department Main Board of Directors. • half-yearly and annual reports from the bank’s internal auditor The Main Board of Directors has also established guidelines The bank’s internal control and risk management systems also for the remuneration of members of the bank’s executive encompass the bank’s core values and guidelines for ethics and management team in accordance with the relevant laws. These corporate social responsibility. guidelines are submitted to the bank’s Supervisory Board. The Remuneration Committee submits an annual recommendation The Group’s management information systems include: on the CEO’s fixed salary and any bonuses to the Main Board of Directors. • balanced scorecards - follow-up of strategic and operational targets • portfolio management system – follow-up of credit/portfolio risk No options have been issued to any employees. Further details • the risk and information system – follow-up of areas of the remuneration of executive personnel can be found in the earmarked for improvement notes to the bank’s annual financial statements.

These systems are used actively throughout the Group and form a central part of the Main Board of Directors’ follow-up 12. Comprehensive information and of the Group’s targets. effective communication Every manager prepares an annual statement confirming that Comprehensive information and effective communication under- the framework, guidelines and routines have been observed, pin the relationship of trust between owners, the Main Board and that systems are used actively to follow up each manager’s of Directors and the bank’s executive management team, and profit centre. provide the bank’s stakeholder groups with an ongoing oppor- tunity to assess and relate to the bank. Every year, the Main Board of Directors receives an independent assessment of the Group’s risk from the internal auditor and the The bank’s information policy therefore emphasises an active responsible auditor, confirming whether the internal control is dialogue with the bank’s various stakeholder groups, in which working in an appropriate and satisfactory manner. the focus is on openness, predictability and transparency.

SpareBank 1 Nord-Norge’s Main Board of Directors bears primary The bank also attaches importance to the fact that correct, rel- responsibility for defining the limits for, and monitoring, the evant and timely information on the bank’s performance and Group’s risk exposure. SpareBank 1 Nord-Norge’s risks are results will inspire the confidence of the investor market. Infor- measured and reported in accordance with the principles and mation is distributed to the market through the bank’s quarterly policy adopted by the Main Board of Directors. investor presentations, website, stock exchange disclosures and press releases. Regular presentations are also arranged for The principal aim is to ensure that the Group’s overall risk the bank’s international partners, lenders, investors and other level is moderate and within the limits set by the Group’s sub- stakeholder groups. ordinated capital and other provisions. Good risk management is intended to enable the Group to achieve a financial perfor- mance and earnings that are stable and predictable.

The bank’s most important result target is to achieve a com- petitive return on its equity. One of the ways this is achieved is by focusing more on risk-adjusted return. Risk pricing is, therefore, essential in order to achieve the bank’s goal of a satisfactory return on equity.

Significant risks are analysed, managed and followed up through the bank’s ongoing risk management process to ensure that the bank operates in accordance with the approved risk profile and adopted strategies. The Main Board of Directors and the bank’s executive management team review the bank’s risk profile in relation to strategic, operational and transaction- related factors at least once a year. Developments in the risk picture are reported periodically to the CEO and the Main Board of Directors.

SpareBank 1 Nord-Norge Annual Report 2013 143 OPERATIONS

Risk management, internal control and capital management

Risk management, internal control and capital management are key areas with respect to financial activities, and the control and management of risk is a strategic tool used by SpareBank 1 Nord-Norge to increase the creation of value.

It is important for SpareBank 1 Nord-Norge that its external In order to satisfy the Group’s primary goals, the Group has and internal reporting maintains a high level of quality. The chosen to divide the risk management process into three parts: Group is dependent on a good reputation and trust among its customers, owners, the authorities and other business asso ciates in order to be an attractive partner and a natural fi rst Main Board of Directors choice. In order to achieve this, the Group must have a clear and effi cient structure for the division of responsibility and Stipulates the Group's risk profile and ensures that the Group management. has subordinated capital that is prudent based on the Groups risk and the authorities requirements SpareBank 1 Nord-Norge shall, at any given time, operate in accordance with the relevant laws, regulations and internal guidelines, including the Group’s core values and ethical guide- Chief Executive Risk Management lines (SNN Code). Officer, and Compliance Internal Auditing business units and department support departments The Group’s goal is to ensure fi nancial stability and sound asset management through good risk management. This is to be achieved through: First line Second Third of defence line of defence line of defence • A strong organisational structure characterised by Day-to-day General risk Independent high risk management awareness and high quality risk management reporting verification • A good understanding of which risks drive earnings and follow-up • Striving towards an optimal application of capital Instructions, limits and authorisations Formal reporting within the adopted business strategy • Preventing unexpected incidents from causing serious damage to the Group’s fi nancial position An important foundation for effective risk management is a • Exploitation of synergy and diversifi cation effects strong risk culture with a high degree of risk awareness and risk management throughout the entire group. To achieve this The Group aims to maintain a moderate risk profi le and at least every employee must have a good understanding of their own keep its present international rating. This will ensure a long- activities and actions, as well as the associated risks. term, good supply of funding from the capital markets. Responsibility for ongoing risk management is divided between the Main Board of Directors, boards of the subsidiaries, executive Group’s control and management model management team, specialist advisers and line management. Risk management and control are part of SpareBank 1 Nord- The Group’s control and management model aims to ensure Norge’s corporate governance, which is described in the chapter the independence of risk reporting, in which responsibilities ‘Corporate governance’. The emphasis is on responsibility through and roles in day-to-day risk management are stressed in par- personal authority and independence between the business ticular. areas and the departments and people who monitor them.

SpareBank 1 Nord-Norge has for many years invested a great The Main Board of Directors oin SpareBank 1 Nord-Norge deal of resources in the development of effective processes bears overall responsibility for the Group’s risk exposure and for the identifi cation, measurement and management of risk management, and setting overall targets such as risk profi les, under its own direction and through the SpareBank 1 Alliance. return targets and the allocation of capital between the various business areas. The Main Board of Directors also stipulates All managers are responsible for maintaining a full overview the overall limits, authorisations and guidelines for risk of the risk picture in their own business area and/or area of management in the Group, and all signifi cant aspects of the expertise at any given time. risk management models and decision-making processes.

144 The Risk Management and Compliance Department is In order to ensure an efficient and appropriate process for risk organised independently of the business areas and reports to and capital management, the framework has been based on the CEO. The department bears overall responsibility for com- elements that reflect the manner in which the Main Board of prehensive risk management, internal control and the Group’s Directors and management manages the Group. compliance with rules and provisions, including responsibi- • Strategic goals lity for the Group’s risk models and the further development • Organisation and corporate culture of effective risk management systems. • Identification of risk • Risk analysis The Credit Department is responsible for the preparation • Risk strategies and maintenance of targets, strategies, guidelines and routines, • Capital management (including return and capital adequacy) operative management and follow-up of the Group’s credit • Reporting operations and credit risk management. The department per- • Follow-up forms an independent role in relation to the business areas • Contingency plans and local banks. • Compliance The Internal Audit is tasked with providing objective advice In the risk and capital management process, corporate culture to the Board and management concerning the Group’s risk provides the foundation for the other elements. The corporate management and formulation of controls, as well as compliance culture includes management philosophy, management style with established routines, procedures and guidelines. An external and the integrity, core values and ethical attitudes of the peo- supplier of auditing services bears professional responsibi- ple in the organisation. It is difficult to compensate for an inad- lity for the Group’s internal auditing function, which ensures equate corporate culture using other control and management independence, competence and capacity. measures. SpareBank 1 Nord-Norge has therefore established clear core values and a code of conduct, and made the entire The Group Credit Committee makes recommendations on all organisation aware of them. matters that will be considered by the Main Board of Directors. The committee plays a central role in the formulation of the The Main Board of Directors’ duties are set out in a special Group’s credit strategies, policies and regulations. annual plan that is revised every year. This ensures that the Main Board of Directors has sufficient time for, and focus on, The Balance Sheet Committee is chaired by the CFO. The their key assigned duties. committee deals with matters related to the management of market and financial risk, and is responsible for ensuring The Chief Executive Officer is responsible for the Group’s compliance with the Main Board of Directors’ adopted lim- risk management, including the development of efficient man- its. The committee also follows up and stipulates the transfer agement systems, internal control and continuous follow-up, pricing of capital and the capital structure. delegating authorities and reporting to the Main Board of Directors. The Validation Committee is chaired by the Executive Vice President for Risk Management. Its main duties are to ensure that: The business areas are responsible for overall risk man- • The IRB system is adapted to the portfolios on which it is used. agement within their own area. Managers must establish • The assumptions on which the IRB system is based are reasonable. and execute responsible risk management within their areas • The IRB system measures what it is meant to measure. of responsibility and make sure that this responsibility is • The IRB system is well-integrated throughout the organisation actively exercised in accordance with the bank’s risk manage- and constitutes a key part of the Group’s risk management ment policy, authorities, instructions and routines. and decision-making process. • SpareBank 1 Nord-Norge complies with the Capital Requirements Regulations.

Strategic goals

Risk Follow-up identification Capital adequacy Return Organisation and Reporting organisational culture Risk analysis Regulatory Internal • Return on equity • Risk-adjusted return CET1 Core capital Creditor Capital management Stress tests adequacy protection

Risk management strategies

Strategies Contingency plans

Strategic Operational Growth Capital market Liquidity Capital adequacy Operations ICT equity stakes activities

Risk Management and Compliance Policy SpareBank 1 Nord-Norge Annual Report 2013 145 OPERATIONS

Internal control and The most important risks manager confirmation Strategic risk Directors, bank managers, specialist managers and department Risk of inadequate earnings or generation of capital attributed managers shall report upwards in the organisation in their to changes in the framework conditions, poor business deci- respective areas of responsibility on how risk management has sions, poor implementation of decisions or failure to adapt to been carried out in relation to the approved framework and changes in the commercial framework conditions. risk exposure within their area of responsibility. This shall provide the CEO and Main Board of Directors with sufficient SpareBank 1 Nord-Norge regularly assesses the Group’s strategy documentation to determine whether risk management is being by reviewing changes in general conditions, including the carried out properly. Manager confirmation or reporting shall competition situation, the public authorities’ requirements, take place at least once a year or when dictated by material cir- changes in customer behaviour, and requirements for compe- cumstances. This work is coordinated by the Risk Management tence and organisation. Department.

The purpose of the annual reporting is primarily: Reputation risk • to fulfil the managers’ responsibility for proper and goal-oriented Risk of inadequate earnings and funding due to declining confi- operations and to ensure that this responsibility is fulfilled in dence and reputation in the market, i.e. customers, contracting a systematic and uniform manner throughout the bank/Group parties, equity certificate holders and the authorities. • to lay the foundation for the active involvement of the bank’s boards, Audit Committee and general managers The Group’s limits and guidelines for good corporate govern- • to help the bank’s organisation and managers regularly assess ance and the SNN Code play an important role in the com- the various commercial and control-related risks, as well as mercial management of its operations. The guidelines focus on the choice of control measures attitudes and ethics and how SpareBank 1 Nord-Norge does business with its customers and other associates. The reproting should be used actively in a management devel- opment process which increases the understanding of the im- The Group’s corporate social responsibility strategy facilitates portance of good risk management and quality. The reporting the strategic use of communication and strengthens external and should also be a key tool in the bank’s training programme. internal relationships. Corporate social responsibility should be a means of strengthening our reputation among all relevant interest groups. Risk areas Credit risk SpareBank 1 Nord-Norge identifies and manages risk in the Risk of loss due to customers not having the ability following general risk areas: or willingness to fulfil their obligations.

Credit risk is the dominant risk in the bank’s operations. The bank must have good capacity in the area of credit and offer Regulatory capital good customers credit on competitive terms. Good credit risk Credit risk Market risk Operational risk management requires a high level of expertise among every- one who works with granting credit. The bank has a compre- hensive framework for managing the area of credit. The use of Economic capital credit score models for granting credit, portfolio management and in the calculation of capital requirements places great Concentration Business risk Ownership risk risk demands on structure, follow-up and reporting.

In the framework and principles for good credit management, Strategy and growth SpareBank 1 Nord-Norge has stressed the following main principles: • Completeness: there must be provisions Strategic risk Market growth Macroeconomic risk that regulate the business operations. • Reporting: all actions and decisions must be traceable, Other risks and compliance with provisions, routines and authorisations shall be reported. Funding risk Reputation risk Compliance risk • Independence; a distinction is made between the business units that grant credits; the credit department, which is responsible for support and following up that the guidelines and routines are followed; and the risk management depart- Comprehensive risk management at SpareBank 1 Nord-Norge is ment, which is responsible for monitoring credit risk. important in order to illustrate what risks the Group is exposed • ‘Arm’s length distance’: the criteria for granting credit to, and how great the exposure is. Please also see the more de- shall be objective. tailed information in the notes to the financial statements and • Board of Directors’ and the executive management team’s the Group’s Pillar 3 report on snn.no. responsibilities and duties.

146

Data and analytical tools are an integral part of risk manage- Credit policy for corporate market ment. SpareBank 1 Nord-Norge is constantly refining the clas- and retail market (CM and RM) sification system together with the banks in the SpareBank 1 The documents describe how the credit strategy shall be imple- Alliance. The system provides important support for the credit mented through the adoption of detailed criteria for the granting process, and the calculation of expected losses and the risk- of credit to the retail market and corporate market, respectively. adjusted capital (unexpected losses) is used as an integral part The preparation and maintenance of the credit policy is the of the credit decision process. responsibility of the CEO.

Rules and regulations for granting Credit risk is managed through: credit - exercising of credit authorities In the retail market all authorisations are personal and allocated A credit strategy that is adopted annually according to the size and risk of the commitment. Credit authori- by the Main Board of Directors sations in the corporate market are exercised through credit com- The credit strategy sets out general principles for granting credit mittees. The decision-making basis must accord with the bank’s and how the credit risk should be managed and priced. This in- credit strategy and credit policy, and must be characterised by cludes the structure of the bank’s governing documents, organisa- completeness, good quality and professionalism. This is docu- tion (division of responsibility and roles) of the credit function, mented using the bank’s ordinary administrative support system. general principles for granting credit and credit strategy goals.

The management of credit risk is based on the principles that have been recommended by the Basel Committee in the document, Classification/risk models “Principles for the Management of Credit Risk”, the new capital The bank’s risk classification system is based on a rating model adequacy rules and relevant laws and regulations. for calculating the probability of defaults or credit losses. The bank’s risk assessment of individual customers is based on the Guidelines for portfolio management customer’s capacity to service loans, the customer’s behaviour, Describes the limits and guidelines for managing the credit port- size of the credit and collateral for the credit. folio. This applies to the division of responsibilities and roles in connection with the measurement and reporting of risk and prof- Probability of default (PD) itability in the portfolio, as well as measures for strengthening the Customers are classified into risk classes according to their prob- portfolio within the limits in the credit strategy and credit policy. ability of defaulting on their commitments in a 12-month period. The probability of default is calculated based on historical data The portfolio’s composition is managed by adopting principles series for key financial figures, as well as non-financial criteria and limits for granting new credit or changes in existing com- such as behaviour and age. In order to classify customers ac- mitments. cording to the probability of default, nine risk classes (A–I) are used for the healthy portfolio. In addition, the Group has two risk classes (J and K) for customers with commitments in default and/ or commitments that have been written down.

Credit risk

IRB system "The models, organisation, work and decision-making processes, control mechanisms, IT systems, frameworks, internal guidelines and routines that are related to the classification and quantification of credit risk"

Management, reporting Risk models Application and control mechanisms Decision-making process IRB system

Development and Categorisation Credit strategy BSC (LIS) Stress testing maintenance PorTo Credit policy (Portfolio management) PD Forecasts Credit handbooks Risk-adjusted profitability Risk Risk LGD parameters classification Authorisations Validation Risk reporting EAD (verification)

Credit systems

Calibration Security Capitalisation Granting process Internal auditing (Adjustment models) evaluation (ICAAP) Organisation Requirement of independence

IT systems and process support

SpareBank 1 Nord-Norge Annual Report 2013 147 OPERATIONS

Intervals for probability of default in each risk class: Commitments include all types of capital services that are provided to the customer through loans, credit, guarantees including letters of credit, accrued unpaid interest and com- SpareBank 1 Nord-Norge’s risk classes of default missions, and forward currency and interest rate instruments. Risk classes Risk Lower level Upper level Approved, but unused credit limits are also included. of default (PD) A - 0.10 % The credit models are validated at least once a year with regard B 0.10 % 0.25 % to the ability to rank the customers and estimate the PD level. C Low 0.25 % 0.50 % D 0.50 % 0.75 % The validation results confirm that the model’s accuracy is with- E 0.75 % 1.25 % in the internal measurements and international requirements. F 1.25 % 2.50 % Medium G 2.50 % 5.00 % Expected exposure at default (EAD) H 5.00 % 10.00 % High I 10.00 % 99.99 % The Group estimates exposure at the time of default by J Default over taking the expected drawdown on committed credit limits 100 % 100 % 90 days into consideration. K Loss marked 100 % 100 % Loss given default (LGD) The Group estimates the loss given default for each loan based on the expected realisation value (RE value) of the underlying Group’s total exposure by risk class. Percentage of volume collateral, recovery percentage for the unsecured part of the by risk class as of 31 December 2013 and 31 December 2012: loans and direct costs for collection. The values are stipulated in accordance with fixed models, and the actual realisation values are validated in order to test the models’ reliability. IRB Businessess 60.0 % Based on the collateral coverage (RE value/EAD) the commit- ment is classified into seven classes, where the best collateral class has collateral coverage of more than 120%, and the lowest 50.0 % security class has a collateral coverage of less than 20%.

40.0 % These parameters (PD, EAD and LGD) provide the basis for the Group’s portfolio classification and statistical calculation of 30.0 % expected losses (EL) and the need for necessary capital/risk- adjusted capital (UL). Portfolio classification provides infor- mation on the level and development of the overall credit risk 20.0 % in the total portfolio.

10.0 % A-IRB-Corporate 0.0 % SpareBank 1 Nord-Norge has received the Financial Supervisory Default/ Low Average High Authority of Norway’s approval to apply internal measuring marked for loss methods (IRB) to credit risk. The bank has received approval 2012 2013 to use IRB Foundation for CM and IRB Retail for RM.

In calculating the capital requirement according to the IRB IRB Mass market incl. home mortgages Foundation method for CM, the risk parameter probability of 100.0 % default (PD) is based on internal models. The risk parameters 90.0 % conversion factor (CF) used to determine exposure at default (EAD), and loss given default (LGD) are set according to standard 80.0 % value rules stipulated in the Capital Requirements Regulations. 70.0 % Loss given default is statutorily set at 45%. The validation re- 60.0 % sults for SpareBank 1 Nord-Norge show that the level of losses to non-performing loans in CM is significantly lower than that 50.0 % used statutorily today. 40.0 %

30.0 %

20.0 %

10.0 %

0.0 % Default/ Low Average High marked for loss 2012 2013

148 Market risk Operational risk Risk of loss due to changes in observable market variables such Risk of loss as the result of inadequate or defective internal as interest rates, foreign exchange rates and securities markets. processes or systems, human error, or external circumstances. Operational risk encompasses legal risk, but not strategic or Market risk arises in primarily in connection with the bank’s reputation risk. investments in bonds, certificates and shares, and as a conse- quence of activities carried out to support ordinary banking ope- Operational risk is a risk category that encompasses most of rations, such as funding and interest rate and currency trading. the costs associated with quality flaws in the bank’s ongoing operations. The identification, management and control of op- Market risk is primarily controlled through the daily follow- erational risk form an integral part of managerial responsibility up of risk exposure based on the limits stipulated by the Main at all levels. The manager’s most important tool in this work Board of Directors and an ongoing analysis of outstanding is professional insight and management expertise, and action positions. The limits for exposure are reviewed and renewed plans, control routines and good follow-up systems. The sys- at least once a year. SpareBank 1 Nord-Norge’s market risk tematic work on risk assessment and management measures exposure is moderate. contributes to increased knowledge and greater awareness of relevant improvement needs within the individual business Bonds and certificates by rating: areas and areas of expertise.

Bonds and commercial paper The bank has implemented a special registration and follow- 10 000 up tool to improve the structure and follow-up of risk, incidents and improvement areas in the Group. 9 000

8 000 The risk management department is responsible for the ongoing, independent monitoring of the operational risk. 7 000

6 000 The Main Board of Directors receives an annual independent assessment of the Group’s risks, and whether internal control 5 000 is working in an appropriate and satisfactory manner from 4 000 internal auditing and the responsible auditor.

3 000 SpareBank 1 Nord-Norge participates in an R&D project in the 2 000 area of operational risk. The purpose is to increase the under- 1 000 standing of operational risk and what incidents can affect the bank’s financial strength, profitability and reputation. Another 0 goal is to develop methods and models for calculating the

CCC capital requirements to cover operational risk and improve A/A2 B/B2 CCC+ A-/A3 B-/B3 A+/A1 B+/B1 the management of this area. AA/Aa2 BB/Ba3 CCC/Caa AA-/Aa3 AAA/Aaa AA+/Aa1 BB+/Ba1 BBB/Baa2 BBB-/Baa3 BBB+/Baa1 The bank experienced no significant operational incidents AA rated papers account for 81.1% of the portfolio, and 99.9% in 2013 that entailed losses beyond what can be classified as of the portfolio have BBB or better (investment grade). ordinary operating costs for the activities in which the financial group is engaged. Within the Main Board of Directors’ adopted limits for currency risk, the exposure is minor. The aggregate currency position Liquidity risk totals NOK 15 million as of 31 December 2013 (NOK 4.7 mil- Risk of the Group being unable to fund increases in assets and lion in 2012). In addition, the bank has some large holdings in being unable to meet its obligations as its overall funding foreign currency. requirements increase.

The Group’s portfolio of equities and units as 31 December The management of the Group’s financial structure is based 2013 is somewhat higher than at year-end 2012. on an overall funding strategy that is reviewed and approved by the Main Board of Directors at least annually. The funding The holdings of equities, units and equity certificates had, as of risk is reduced by diversification of funding over several mar- 31 December 2013, a book value of NOK 712 million, NOK 159 kets, funding sources, instruments and maturities. Too great a more than at year-end 2012. The largest portion of the equities concentration in maturity increases refinancing vulnerability. exposure concerns strategic holdings in the parent bank and An attempt is made to limit this risk through defined limits. equity investments in SNN Invest.

The Board has decided to maintain the bank’s interest rate risk at a low level. This (measured as the change in value with a 2 percentage point change in interest rates) was NOK 0.04 million as of 31 December 2013. The corresponding figure as of 31 December 2012 was NOK 5.0 million.

SpareBank 1 Nord-Norge Annual Report 2013 149 OPERATIONS

The Group`s funding sources are shown In 2013, the Group obtained 90% of its funding from the by type of borrowing Norwegian market, and 10% from the international market. NOK NOK bonds Subordinated loans Euro - funding The Group’s most important source of funding is customer Gov. Swap arr. Capital bond Sek - funding deposits. The ratio between deposits and loans was 78.3% for Group as of 31 December 2013, compared with 81.3% and 86.4% one and two years ago, respectively. 4 %

6 % The parent bank is responsible for the funding of all ac- tivities in the Group. The development of the parent bank’s 2 % internally generated funding has shown that good growth in customer deposits and exploitation of the authorities’ 5 % 73 % swap scheme, through the transfer of well-secured home mortgages to SpareBank 1 Boligkreditt AS, have improved internally generated funding signifi cantly in recent 10 % The Group’s liquidity situation as of 31 December 2013 is deemed satisfactory. Between year-end 2012 and year-end 2013, transfers of home mortgages to SpareBank 1 Boligkreditt increased by NOK 1.7 billion, which provides a correspond- Development of internally generated funding Parent Bank ingly positive liquidity effect. At year-end 2013, the bank had 90% transferred NOK 23 billion to SpareBank 1 Boligkreditt AS. The bank’s ability to transfer well-secured home mortgages to SpareBank 1 Boligkreditt AS will also have a positive effect on 80% the bank’s funding requirements in the future.

70% The actual surplus liquidity at year-end 2013 was NOK 14 729 billion, defi ned as cash and cash equivalents in Norges Bank, Level I and Level II papers, and home mortgages ready for 60% transfer to SpareBank 1 Boligkreditt AS. Of the Group’s total funding volume of NOK 21 billion at the end of the year, NOK 50% 3.9 billion will be refi nanced in 2014.

40% Failing refinancing 16 000 30% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 000 Deposits % of lending Deposits % of lending incl. home mortgages 12 000

Deposits % of total balance sheet 10 000 Deposits % of total balance sheet incl. home mortgages

8 000 The funding portfolio`s maturity structure by maturity: 6 000 3 500

4 000 3 000 2 000 2 500 0 7 d 1 mth 3 mth 12 mth 15 mth 18 mth 24 mth 2 000 Net refinancing

1 500 The Main Board of Directors focuses heavily on predictability 1 000 and stability. It is important that random events do not have serious consequences for the Group’s ability to meet its fi nan- cial obligations. The Group’s goal is that the bank shall survive 500 for 12 months without any new external funding under nor- mal market conditions. The Group has a contingency plan for 0 handling bank-specifi c and market-related crisis scenarios. 01-14 02-14 01-15 02-15 01-16 02-16 01-17 02-17 01-18 02-18 01-19 01-21 01-22 02-23

150 The objective in the case of ‘failing refinancing’ is survival The book value of stakes in associated companies has increased for 12 months without access to external funding. The result in recent years, and the figure below shows the development of of the test shows positive liquidity per 12 months of NOK the book value for the parent bank and the Group. 11.22 billion. The risk in the various companies is moderate, but the bank is The Group uses the Financial Supervisory Authority of Norway’s indirectly exposed to a higher market risk through its stake in definition as its basis for calculating Liquidity Indicators 1 and 2. SpareBank 1 Gruppen. These are ratios that state how large a proportion of the bank’s liquid assets have long-term financing with maturity of more The bank maintains a capital adequacy reserve for SpareBank than one year or one month. The indicators are calculated on a 1 Gruppen and Bank 1 Oslo Akershus. The bank uses propor- consolidated level, i.e. the model takes account of the volume tional consolidation to calculate regulatory capital require- transferred to the mortgage companies, covered bond swap ments for the stakes in SpareBank 1 Boligkreditt, SpareBank 1 scheme with the government, and long F-loans from Norges Bank. Næringskreditt and BN Bank. As of 31 December 2013, Liquidity Indicators 1 and 2 amounted to 108.36% and 115.27%, respectively. Business risk The Group’s Treasury Department is responsible for liquidity Risk of inadequate earnings and funding related to a lack of management, whereas the Risk Management Department moni- diversification in the commercial basis or the lack of adequate tors compliance with the limits. The status of the limits adopted and permanent profitability due, for example, to a high cost/ by the Board is reported monthly to the Main Board of Directors. income rate.

Ownership risk Business risk manifests itself by an unexpected weakening in The risk of losses in associated companies is related to the risk earnings. This decline may be attributed to competitive condi- that the individual company assumes in its operations, as well tions that result in lower volumes and pressure on the prices, as the risk of a need for the injection of fresh capital into one competitors that introduce new products, government regula- or more of these companies. tions or negative media coverage. A loss arises if the Group is not able to adapt its costs to such changes. The risk related to stakes in associated companies is signifi- cant. This entails an increased risk of volatility in the bank’s Good strategic planning is the most important tool for reducing earnings and effects on the capital adequacy ratio. business risk. Reputation risk is governed through policies and business activities, including compliance. Associated companies are important to the bank’s overall business model, and the bank continuously assesses which Since business risk can arise as a result of different risk factors, stakes are strategically important and which interests can be a broad range of tools (quantitative and qualitative) are used to classified as financial investments. The Group’s share of the identify and report such risks. net profit/loss in these companies was recognised at NOK 210 million for 2012. The corresponding figure for 2011 was NOK 195 million. Compliance risk Risk that the Group incurs government sanctions/fines, financial losses or a weakened reputation as a result of a failure to comply Development of associated companies (book value) with acts/regulations, standards or internal guidelines. 3 800 3 600 3 400 The Group stresses the importance of good processes to ensure 3 200 compliance with the current laws and regulations. Effective 3 000 means include: 2 800 • Clear values that are clearly communicated 2 600 2 400 and understood throughout the organisation 2 200 • A process to identify, communicate and 2 000 implement changes in acts and regulations 1 800 • A process to follow up and report compliance 1 600 1 400 with acts and regulations 1 200 1 000 800 600 400 200 0 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Group (book value) Parent Bank (historical cost)

SpareBank 1 Nord-Norge Annual Report 2013 151 OPERATIONS

Capital management The Board is responsible This process is an integral SpareBank 1 Nord-Norge’s capital management process shall for initiating the ICAAP part of the Group’s overall ensure to the greatest possible extent: process and capital plan- risk management: • Efficient procurement and application of capital in relation to ning, as well as approv- the Group’s strategic target and adopted business strategy ing the structure and Identify the Group's • A competitive return. methods chosen. The Risk picture • A satisfactory capital adequacy ratio based on the chosen risk Board is also responsible profile. for setting targets for the • Competitive terms and a good long-term supply of funding Group’s capital level that from the capital markets are tailored to the risk Need for • That the Group manages at least to maintain its current inter- profile and commercial risk-adjusted capital national ratings framework conditions. • Exploitation of growth opportunities in the Group’s defined This process is an inte- market area gral part of the Group’s • That no single incident is able to seriously damage the Group’s overall risk management: Stress testing financial position The capital management It is a long-term goal in the adopted business strategy that the process shall: • be risk driven and risk-adjusted capital should, insofar as it is possible, be allocated Assess capital to areas that provide a satisfactory risk-adjusted return. encompass all signifi- adequacy cant types of risk in the SpareBank 1 Nord-Norge’s capital has different purposes: Group. • Equity, plus any hybrid Tier 1 capital, shall cover the Group’s • be an integral part of defined requirements for risk-adjusted capital. The risk-adjusted the business strategy, Reporting and capital describes how much capital is required to cover the management process follow-up actual risk that is generated by the Group’s overall activities. and decision-making • The purpose of the subordinated loans is to be a safety buffer structure. that is not be exposed to risk. • be forward-looking. Strategic planning, • be based on recognised capital allocation and capital application SpareBank 1 Nord-Norge is subject to minimum capital adequacy and satisfactory meth- and financial strength regulations through legislation. The Com- ods and procedures for mittee of European Banking Supervisors (CEBS) has issued the measurement of risk. guidelines for supervisory authorities on when they are to as- • be reviewed at regular intervals, sess the institutions’ processes for the management of risk and at least once a year, by the Main Board of Directors capital requirements in the form of an Internal Capital Adequacy Assessment Process (ICAAP).

Stress tests

Macro scenario Effect on risk Change in capital Stressed and earnings needs and capital base capital adequacy

GDP Credit risk

Unemployment Market risk Capital needs

Inflation Other risks

Capital adequacy Share market Income

Profit contribution Real estate prices JVs/Associates Capital base

Interest rate Costs

Price of oil Losses on loans

152 Forecasts and stress tests function in an appropriate and satisfactory manner”. In con- Processes and models for stress tests are key in the assessment nection with this, it provides a general authority to lay down of the Group’s long-term capital requirements. The purpose “further requirements for financial institutions for the purpose of this is to identify conditions that can negatively affect the of promoting financial stability”. Important amendments are risk picture and capital adequacy. The stress tests shall include primarily based on the Financial Supervisory Authority of Nor- all significant elements of the risk picture and an assessment way’s white paper from 2011: of the impact on the Group’s financial strength. • Explicit minimum requirements for core Tier 1 capital and Tier 1 capital (4.5% and 6% respectively) in addition to the The stress tests should represent conditions that may occur minimum requirement for primary capital (8%) from time to time and for which SpareBank 1 Nord-Norge • Capital buffer requirement should make allowances with respect to long-term operations. • Authorisation to set quantitative liquidity requirements The assessment and determination of the necessary capital re- and an unweighted capital requirement quirements are included in an overall risk assessment, together • Clarification of the boards’ responsibility to monitor with an assessment of future growth plans and strategies. and manage risk in the institutions • Systemic risk must form part of the Financial Supervisory Risk measurement and risk-adjusted capital Authority of Norway’s Pillar 2 assessments Internally the group uses risk-adjusted capital as a measure for • The potential for common supervisory instructions calculating risk. for institutions with similar risk exposure

Risk-adjusted capital indicates how great a loss an enterprise The authorities have introduced a protection buffer of 2.5% may incur under extreme conditions. The calculation of the and a requirement for a general systemic risk buffer of 2%. The risk-adjusted capital is a key element in the assessment of the systemic risk buffer increases to 3% in 1 July 2014 and applies Group’s need for equity to operate in a responsible manner. for all banks, regardless of size. A separate buffer will also be Risk-adjusted capital allows risk to be compared across types introduced for systemically important institutions, which will of risk and business areas. be set at 1 percentage point as of 1 July 2015, and then increase by a further 1 percentage point as of 1 July 2016. The Financial The Group’s revised target is a core Tier 1 capital adequacy ratio Supervisory Authority of Norway has suggested to the Ministry of 14.5% or higher, before 2016. At year-end 2013, the Group’s of Finance that SpareBank 1 Nord-Norge should be classified a capital adequacy ratio was 13.91%: Tier 1 capital amounted to systemically important financial institution. In addition to this, 13.42% and core Tier 1 capital amounted to 12.3%. a countercyclical capital element will be introduced, which will vary between 0 and 2.5% and be determined by the national Both the external and internal requirements are compared with regulatory authorities. On 12 December 2013, the Ministry of the Group’s Tier 1 capital, and the book equity and Tier 1 capital Finance concluded that the countercyclical capital buffer should will normally be higher than the risk-adjusted capital. This pro- initially be set at 1%. The requirement will come into effect on vides a buffer in relation to the stipulated external and internal 30 June 2015. A decision about the level of the countercyclical minimum requirements, which gives the Group the necessary capital buffer will be taken every quarter. Any decision about strategic freedom of action and long-term stability. an increase will normally come into effect no earlier than 12 months after the decision has been made.

New framework conditions The Norwegian authorities have chosen to continue the tran- The EU adopted new regulations for financial institutions and sitional rules in Basel II, which set a limit for how low the securities firms in the first half of 2013: the Capital Require- Norwegian banks’ risk weighted basis for calculation can be set ments Directive (CRD IV). These build on the Basel Committee’s in relation to the Basel I rules (the so-called Basel I floor). The recommendations from December 2010 on new, stricter capi- special Norwegian supervision practices are of no significance tal and funding standards, Basel III. The new regulations were in relation to the Norwegian banks’ actual financial strength, but introduced on 1 January 2014 and entail significantly stricter mean that Norwegian banks appear poorly capitalised in inter- requirements for equity and new requirements for long-term national comparisons. funding and liquidity reserves. The CRD IV regulations are meant to apply to all banks and securities firms in the European One lesson learned from the financial crisis is that the authorities Economic Area (EEA) and will be phased in gradually in the of many countries concentrated too little on the development of run up to 2019. The new regulations, which require increasing systemic risk and measures to reduce it. A number of regulatory earnings to build up capital, will be a major challenge for the changes will therefore be implemented that can directly or in- banks given that they simultaneously face requirements for directly be linked to systematic and macro risk. The purpose of increased long-term funding and liquidity, which will increase macro supervision and macro regulation is to limit systemic risk funding costs. in the financial markets. Strong macro supervision and good macro regulation can help to limit the costs (reduced economic activity CRD IV is EEA relevant legislation that will be incorporated into and higher unemployment) associated with financial crises. the EEA Agreement. The Financial Institutions Act and Secu- rities Trading Act were amended on 14 June 2013, with effect The Norwegian authorities have, based on systemic risk consid- from 1 July 2013. A new objectives paragraph in the Financial erations, increased the capital requirements for home mortgages Institutions Act stipulates that the act shall “contribute to financial when these are calculated using internal models. This was done stability, including ensuring that banks and financial institutions by increasing the minimum requirement of the loss given de-

SpareBank 1 Nord-Norge Annual Report 2013 153 OPERATIONS

fault (LGD) model parameter from 10% to 20% in the Capital The requirement that the institutions, in addition to the Pillar Requirements Regulations. The minimum requirement applies 1 requirements, should have a process for assessing the overall for the average of the home mortgage portfolio. The change came capital requirements in relation to the risk profile (Pillar 2) and into effect on 1 January 2014. The Financial Supervisory Autho- a strategy for maintaining the level continues to apply. However, rity of Norway has announced that it may be relevant to further the new buffer requirements will partly cover some of the areas increase the risk weights associated with home mortgages by that must be assessed under Pillar 2. The authorities’ assess- correcting the banks’ estimates for the probability of default (PD). ments of capital requirements in excess of the minimum require- ments must be adjusted to these conditions. It will be possible More important clarifications relating to the new, short-term to assess the capital requirements for institution-specific risk LCR liquidity requirement were announced by the Basel Com- factors independent of the buffer requirements. The supervisory mittee in January 2013, and in December 2013, the European authorities will base their assessment of the banks’ ICAAP on the Banking Authority (EBA) published a report for the European risks the banks themselves identify. The risks the banks should Commission with recommendations concerning the definition assess are credit, liquidity, funding, market and currency risk, of liquid assets with good and very good liquidity and credit as well as operational risk, systemic risk and other risk associ- quality. The European Commission will issue the final defini- ated with the individual business areas. It is suggested that the tion of LCR by the end of June 2014, which will also be based risk associated with imprudent debt accumulation be included on these recommendations. The Financial Supervisory Authority in the list of risks that must be taken into consideration in the of Norway has proposed that a requirement of 100% LCR be Capital Requirements Regulations. The Financial Supervisory stipulated for systemically important institutions in Norway from Authority of Norway will assess whether or not the banks have 1 July 2015. The LCR requirement in Norway will probably be adequately identified individual risks and whether the assessed assessed on the basis of the EU’s final requirements and which capital requirements are sufficient. securities can be used to fulfil the requirement. Given the Nor- wegian market’s limited access to government securities, it is In the feedback to the banks’ boards, the Financial Supervisory very important for Norwegian banks that assets issued in foreign Authority of Norway will attach importance to the institutions currency are approved and that covered bonds are approved as having: level 1 assets. • capital targets that take account of the bank’s overall level of risk, minimum requirements and buffer requirements The long-term NSFR liquidity requirement has not been finally • plans for escalating the level of capital where this is deemed necessary defined in the CRD IV regulations and the EBA must report to • capital composition in line with the new regulations the European Commission by no later than 31 December 2015 on how one can ensure that the institutions use stable funding sources. In light of this, the Financial Supervisory Authority of SpareBank 1 Nord-Norge is interested in the establishment of a Norway has suggested that, for the time being, a requirement be level playing field for competition in the market and is urging set for long-term funding for the systemically important institu- the Norwegian authorities to strive for the greatest possible har- tions in the form of the so-called Liquidity Indicator 1 and that monisation in accordance with the intentions behind the new the requirement be set at 110%. framework conditions in the EEA.

SpareBank 1 Nord-Norge is working to be ready to meet the new requirements for the various areas. The Group will gradually adapt to the new requirements up until the final regulations are in place.

154 SpareBank 1 Nord-Norge Annual Report 2013 155 OPERATIONS Ownership The bank`s equity – ownership composition SpareBank 1 Nord-Norge has two groups of owners. As of certificate capital. The bank still hopes to increase the number and 1 January 2014, the bank’s equity certificate holders held 47.9% percentage owned by Northern Norwegian equity certificate holders, (equity certificate fraction) of the bank’s equity via the equity and has, for many years, also sought to encourage employees’ own- certificate capital, while 52.1% was community-owned. ership of the bank. This has been accomplished through the sale of equity certificates to employees at a discount, and by private place- After the issue, the adjusted equity certificate fraction was 42.9% ments to employees. as of 1 January 2013. This includes 2/12 of the proceeds of the issues in autumn 2013. Ownership policy SpareBank 1 Nord-Norge’s equity certificate capital totals NOK The bank hopes that its ownership and dividend policy will help 1 807 million, divided into 100 398 016 equity certificates, each ensure that its equity certificate is viewed as an attractive and liq- with a nominal value of NOK 18. The bank’s equity certificates are uid financial instrument. It aims to ensure that the management of listed on the Oslo Stock Exchange. There were 7 839 holders as of the Group’s resources results in a good, long-term and competitive 31 December 2013, compared with 8 015 at year-end 2012. return on the bank’s equity in relation to comparable investments and given the bank’s risk profile. For the bank’s equity certificate Notes 23 a, b, c, d, and e contain an overview of the equity certifi- holders, this return will take the form of cash dividends and price cates owned by the bank’s executive management team and elected appreciation. SpareBank 1 Nord-Norge’s equity consists of two main officers. As of year-end 2012, 2 396 equity certificate holders were elements: equity certificate capital belonging to the bank’s equity from Northern Norway, compared with 2 412 at previous year-end certificate holders and the bank’s community-owned equity. The 2012. The corresponding figures for 2011, 2010 and 2009 were bank aims to ensure that it remains a savings bank with a signifi- 2 434, 2 423 and 2 199 respectively. cant share of community ownership. Furthermore, it aims to treat the bank’s two groups of owners equally in accordance with the As of 31 December 2013, Northern Norwegian equity certificate intentions of the current legislation. This means that the bank will holders accounted for 20.6% (25.5%) of the bank’s total equity seek to avoid undesired saturation and dilution effects as a result of treating the two groups of owners differently.

Trading, liquidity and price performing

350 1400,0

300 1200,0

250 1000,0

200 800,0

150 600,0 Volume (`000)

100 400,0

50 200,0

0 0,0 31.12.2008 31.12.2009 31.12.2010 31.12.2011 31.12.2012 31.12.2013

SpareBank 1 Nord-Norge Norwegian banks (ECC-index) Nordic Banks (STOXX)

European banks (STOXX 600) Volume (`000)

156 Dividend policy The profit for individual years is divided proportionately between 2013 financial years. The payout ratio has thus deviated from the groups of owners according to their relative share of the bank’s the bank’s ownership policy in the last two years. equity. Dividends will, insofar as it is possible, be fixed such that each group of owners receives a proportionally equal share of the Sparebankstiftelsen SpareBank 1 Nord-Norge is a non-profit profit as dividends. These will consist of cash dividends for equity foundation. The foundation is one of the bank’s largest equity certificate holders and funds for publicly beneficial purposes. certificate holders and its main purpose is to act as a long-term and stable owner of SpareBank 1 Nord-Norge. Please refer to In light of the new regulatory requirements for bank equity, the section about the foundation in the Board of Directors’ the bank has indicated that a dividend rate of less than 50% Report for further information. must be expected for the next few years. The price of the bank’s equity certificates has been below book value for some time. The highest and lowest prices for the bank’s equity certifi- At the same time, the bank has needed to retain a larger than cate were NOK 37.22 and NOK 24.96, respectively, in 2013. normal proportion of the profit for the year in 2013. The bank 90 508 608 equity certificates were traded on the Oslo Stock has, therefore, chosen to payout less to the community-owned Exchange in 2013. The corresponding figure for 2012 was capital (donations for publicly beneficial purposes) than to 9 352 037. the equity certificate holders (cash dividends) in the 2012 and

Table key figures 2013 2012 2011 2010 Number of equity certificates 100 398 016 66 208 987 66 208 987 17 912 073 Equity certificate capital 1 807 164 288 1 655 224 675 1 655 224 675 895 603 650 Price as of 31 December, adjusted for equity transaction 35,50 24,70 28,90 37,76 Dividend for the financial year 1,10 1,15 1,40 2,16 Dividends paid for the previous year 1,15 1,40 2,16 2,53 Market value as of 31 December (traded part of equity) 1) 7447 4418 5083 5548 Ownership fraction 2) 42,9 % 42,1 % 38,7 % 34,5 % Distribution ratio equity certificates (parent bank) 3) 28,1 % 35,1 % 54,9 % 50,0 % Profit per equity certificate, Parent Bank 4) 3,91 3,27 2,55 4,32 Profit per equity certificate, Group 5) 4,13 3,78 3,07 5,90 Price/equity, book value (parent bank) 6) 1,04 0,78 0,96 1,45 Price/equity, book value (Group) 6) 0,89 0,64 0,80 1,09

The Group’s core Tier 1 capital ratio was 12.3% at year-end 2013. Please also refer to the notes to the interim financial statements. The Group’s capital adequacy ratio is regarded as good.

Definitions: Financial calendar 1. Price (NONG) multiplied with number of equity certificates as of 31.12. 2. Ownership fraction: (equity certificate + equalisation fund)/(total equity capital First quarter 6 May 2014 – valuation difference fund) Second quarter 13 August 2014 3. Distribution ratio equity certificate: (Total dividends)/ Third quarter 29 October 2014 ECC owners share of profit for the year after group contributions. Preliminary annual financial Early February 2015 4. Profit per equity certificate, Parent Bank: Profit for the year for the Parent Bank / statements 2014 number of equity certificates as of 31.12. 5. Profit per equity certificate, Group: Profit for the year for the Group / A list of the 20 biggest owners of equity certificates as of number of equity certificates as of 31.12. 31 December 2013 can be found in note 42 to the annual 6. Price (NONG)/equity book value per equity certificate as of 31.12. financial statements.

Equity certificate ownership 2013 2012 2011 2010 2009 2008 2007 2006 North Norwegian owners 20,6 % 25,5 % 24,8 % 27,9 % 26,5 % 32,1 % 22,6 % 21,6 % Other Norwegian owners 65,6 % 64,1 % 67,3 % 66,6 % 66,2 % 59,9 % 63,3 % 60,2 % Foreign owners 13,8% 10,3% 7,9 % 5,5 % 7,3 % 8,0 % 14,1 % 18,2 %

Rating, status Moody´s Fitch Ratings Long-term Short-term Outlook Long-term Short-term Outlook SpareBank 1 Nord-Norge A2 P-1 Stable A F1 Stable

157 OPERATIONS

Operations Retail market Good customer experiences Lending and deposit growth SpareBank 1 Nord-Norge wants the most satisfied customers Although no official statistics are available yet, it appears as if by ensuring they have the best customer experience. The bank the growth in credit and deposits was good for Northern Norwegian wants to understand its customers and deliver good, comprehen- households in 2013. Demand for loans from households incre- sive advice based on their needs. The customers should meet ased over the year. While the gap has narrowed, credit growth in committed, capable advisers in the bank’s broad distribution Northern Norway still appears to be above the national average. network. The bank wants to deliver financial products and solu- The annual growth in the Group’s retail market lending, includ- tions simply and efficiently, with a high degree of quality and ing loans transferred to SpareBank 1 Boligkreditt, was 8.4% in expertise, via the channels the customers demand. 2013. Competition for the best customers in the retail market remains strong, but the bank maintained its competitiveness in Using the bank the market in 2013. The bank’s funding costs fell during 2013 – across more distribution channels and earnings in the retail market therefore grew. SpareBank 1 Nord-Norge is the region’s local bank! The bank The Group’s bank deposits from retail customers have been de- is accessible via its 73 actual branches, online bank, telephone veloping well for many years and grew by 6.1% in 2013. The bank, mobile bank and customer service centre. The bank’s level of loyalty to the bank when it comes to deposits remains physical distribution network did not change in 2013, while the high. Even though competition is strong, customers are choosing customers’ use of the bank is constantly evolving. In 2013, use to stick to ‘their’ bank as long as it offers terms considered of the mobile bank surpassed use of the online bank on several reasonable in relation to the market. occasions. The Group offers customers a good, full range of fi- nancial services through a combination of physical presence, Percentage growth 2012 2013 knowledgeable staff and good online and mobile solutions. Retail market lending 11.0 % 8.4 % Customer behaviour is changing. An increasing number of Retail market deposits 8.8 % 6.1 % customers want to perform simple bank purchases and ser- vices themselves. New self-service solutions for buying in- Interest rates remained low and relatively stable throughout surance and savings products were therefore launched in 2013. Extremely good private finances and very low unemploy- 2013. ment have contributed to a generally low level of defaults and very low losses. The loan portfolio in the retail market is very The number of people visiting the actual branches to carry out low risk, and the customers are well equipped to handle both simple banking services has fallen markedly. The customers slightly higher interest rates and a fall in housing prices. primarily want advice and guidance on making the right choices in matters that have major financial consequences. Advisers Increasing card use being combined and local branches are used extensively for this. with efficient payment solutions More than half of the population of Northern Norway has an The prevalence of payment and credit cards is very high among account with SpareBank 1 Nord-Norge. This proportion has retail market customers. Using cards as a means of payment is in- remained relatively unchanged, but varies strongly in different creasing year-on-year, but the growth is slowing. Transactions in areas of the region. The bank’s market shares for the different Norway increased by 5.8% in 2013, while the rate of growth in product groups vary from around 20% to 40%, and have been 2012 was 8.3%. increasing in recent years. This is particularly true for deposit and lending products. The proportion of transactions completed abroad continues to grow strongly, from an 11.8% increase in 2012 to 18.2% in 2013. The trend for cash withdrawals from AMTs has been falling in the Savings and insurance last 5 years, apart from in 2012. The use of AMTs fell by 6.7% from The bank is focused on increasing the proportion of income it 2012 to 2013. The bank expects continued significant falls in total earns from products that are outside the balance sheet. This corre- ATM transactions. Customers are increasingly using self-service sponds with increasing interest from customers, who are seeking solutions online and via mobile phones for payment services. access to a full range of financial services from one provider. No. of transactions (mill) 2011 2012 2013 Endring i % Saving is becoming increasingly important for the Group’s cus- Cards in payment 44.4 48.1 50.9 5.8 tomers, and the need for advice on long-term saving for pensions terminals in Norway has increased in particular. The bank has been very successful at Cards abroad 5.9 6.6 7. 8 18.2 selling P&C and personal insurance, but competition in the P&C (Visa transactions) insurance market is strong and customer loyalty low. Withdrawals from the 3.3 3.0 2.8 -6.7 bank’s ATMs 158 Corporate market Good deposits growth There are more than 46 000 companies in Northern Norway Deposits from companies totalled over NOK 12.6 billion, an and more than 2/3 of these have a customer relationship with increase of almost NOK 600 million in 2013. Even though the SpareBank 1 Nord-Norge. The majority are small and medium- growth in deposits is somewhat lower than for the country as sized companies. The bank also has a large number of teams a whole, it has increased from 3.4% in 2012 to 5.0% in 2013. and associations as customers. The numbers in both groups are This indicates that companies have improved their liquidity relatively constant. and are using their own capital for operations. Nonetheless, the bank is seeing positive results from its work on satisfying In the last 2 years the bank has deliberately focused on more the customers’ need for alternative savings and investment efficient payment solutions and complete product packages for opportunities. small and medium-sized companies. This focus bore fruit in 2013. As in the retail market, the market share measured by the Reduced lending growth in the volume of business for the various product groups is still lower than the proportion of customers. This is a typical trait in the corporate market banking market and shows that many banking customers have The Group’s lending to corporate customers increased by 1.6% multiple banking connections. in 2013, compared with 12.9% in 2012. The growth in lending to companies in Northern Norway has been higher than for the Risk trend country as a whole since 2008. The reduction in lending growth in 2013 was particularly noticeable in the second half of the Business in Northern Norway has been achieving steadily bet- year. The main reasons behind this were a need to reduce ter financial results for many years. Good business conditions relatively high lending growth and that a number of major in the north are having a positive effect on the calculated risk customers’ investments matured in the first half of 2013. At the in the bank’s loan portfolio. same time, the Group wants to move lending growth in the direction of lower risk. Even though the high risk portfolio in particular has grown in the last few years, it is still the influx of new low risk customers Percentage growth 2012 2013 and systematic risk reducing work with high risk customers Corporate market lending 12,9 % 1,6 % that is affecting the overall development of risk. Corporate market deposits 3,4 % 5,0 %

Lending by risk class 80.000 Good development in sales of 70.000 occupational pensions to corporate customers in 2013 60.000 Sales of pension-related products developed well in 2013. 50.000 New sales totalled NOK 33 million and the net growth was 90 pension agreements. At the start of 2014, 2 542 companies 40.000 had chosen the bank as their provider of occupational pension agreements. The annual premium grew by NOK 29 million from 30.000 2012 to 2013, an increase of 22%. Very few of these customers choose to end their customer relationship with the bank. 20.000 A total of 15 082 employees of northern Norwegian companies 10.000 now have occupational pensions through SpareBank 1 Nord- Norge; 1 004 more than in 2012. The market share measured 0 by the number of companies was 24% in Northern Norway. Low Medium High Default and write-downs A steadily growing number of the region’s small companies 20.12.06 20.12.07 20.12.08 prefer the bank as their provider of occupational pensions. 20.12.09 20.12.10 20.12.11 20.12.12 20.12.13 Measured by premium reserves, the bank enjoyed 25% growth in the portfolio, an increase of NOK 166 million. The total portfolio amounts to NOK 688 million in defined contribution pensions and NOK 268 million in defined benefit pensions. The number of com- panies with defined benefit pensions was stable in 2013 at 70.

SpareBank 1 Nord-Norge Annual Report 2013 159 OPERATIONS

Development of losses SpareBank 1 Nord-Norge The Group’s net losses on loans in 2013 totalled NOK 172 mil- lion, approximately NOK 23 million less than the year before. Losses amounted to 0.21% of the total loan portfolio, including Markets intermediary loans, compared to 0.26% in 2012. Losses devel- oped positively in 2013, while they are still somewhat high in Organisation of the securities firm light of the good economic situation. In 2010, SpareBank 1 Nord-Norge’s Main Board of Directors The Group increased group write-downs by NOK 12 million in decided to establish SpareBank 1 Nord-Norge Markets (hereaf- the last year. This is due in part to the slightly higher risk in ter called SNN Markets) as a division of the bank. The division the loan portfolio and in part to greater uncertainty concerning comprises all the customer-oriented business of the bank’s economic developments in Norway. former capital markets section, the customer-oriented part of SpareBank 1 Nord-Norge Securities and the bank’s savings and investments advisers. SNN Markets comprises people who Banking operations in Russia work in the markets for customers. All settlement and con- SpareBank 1 Nord-Norge’s banking operations in Russia, troller functions are provided by Operations Support Capital through the North-West 1 Alliance Bank, are 75% owned by Markets, which is also responsible for support and controller SpareBank 1 Nord-Norge and 25% owned by the bank’s Russian functions for SNN Forvaltning ASA and treasury. partner Bank Tavrichesky in St. Petersburg. The head office is located in St. Petersburg and it has a branch in Murmansk. Aktiv Forvaltning has been continued as a separate company called SNN Forvaltning ASA. The company has close ties to The main activities of North West 1 Alliance Bank involve SNN Markets and is 100% owned by SpareBank 1 Nord-Norge. offering a range of financial products and services to Russian retail customers and smaller companies, and to some extent Following the establishment of SNN Markets, the securities Nordic customers with operations in Russia. The emphasis is firm has been assigned a bigger role. The division of respon- on running the activities with a low to moderate level of risk. sibilities between SNN Markets and the investment services in the regional offices has been clarified. At the same time, the SpareBank 1 Nord-Norge’s exposure in Russia is being con- establishment of Operations Support Capital Markets, actual solidated, and the strategy of having a presence and exposure management under The Securities Trading Act and an inde- in Russia is under review. pendent compliance function, have strengthened the division of work and internal control.

Public sector In 2011, the Financial Supervisory Authority of Norway ap- The bank maintained its strong position in the public sector in proved the organisation of the investment service business as 2013. Competition is especially strong in the area of deposits, a securities firm. In June 2013, following a change in leader- but following open tender competitions, eight municipalities ship in SNN Markets, the Financial Supervisory Authority chose to renew their main banking agreements at the same time as of Norway approved Director Tom Robin Solstad-Nøis as the new main bank agreements were signed. One of the bank’s cus- actual manager of the securities firm’s licensed investment ser- tomers chose another main bank after the tender competition. vices.

The bank’s participation in the SNN Markets’ services: • Purchase and sale of equities and units municipal sector in Northern Norway • Interest rate and currency trading Region Number of SNN as their Market • Sale of Norwegian bonds and certificates, municipalities/county main bank share as well as bond market issues administrations • Trading in commodity derivatives Finnmark 20 16 80 % • Investment advice Troms 21 19 90 % • Active management via SNN Forvaltning ASA Hålogaland 20 13 65 % • Various corporate services such as issues, Salten 14 9 64 % valuations and other financial services. • Analyses of listed and local companies. Helgeland 17 5 29 % Totalt 92 62 67 % The corporate department’s activities, consisting of two people, were transferred to SpareBank 1 Markets on 1 October 2013. State-owned enterprises SNN Markets will work closely with SpareBank 1 Markets’ SpareBank 1 Nord-Norge is the main bank for 18 state-owned corporate team. SpareBank 1 Markets is owned by SpareBank enterprises. The bank has participated in renewed prequalifi- 1 Nord-Norge, SpareBank 1 SMN, Sparebanken Hedmark, cation rounds for new agreement periods with the state. the Samspar banks and the Norwegian Federation of Trade Unions. The owners have ambitions of turning SpareBank 1 Future outlook Markets into a national market player. As far as macroeconomic developments in the next few years are concerned, please refer to the Board of Directors’ Report.

160 Organisation of 2013 was a year with a good level of activity. The securities, Main Board securities firm investment advice and SNN Forvaltning business areas all Internal audit of Directors - Actual managers earned more in relation to the previous year. The corporate branches - Actual managers department can also point to positive net earnings as of 30 Sep- SNN Markets IR tember 2013, which was when it was transferred from SNN Markets to SpareBank 1 Markets. The interest rates and currency business area’s earnings were good in 2013, but fell slightly CEO below the fi gures for 2012. This was mainly due to less interest rate hedging activity in the corporate market. The equities and corporate area managed to return to profi t after a few years of weak earnings and major challenges. Compliance Director Markets securities firm Tom Robin Solstad-Nøis Actual manager Securities The securities business area comprises sales of Norwegian listed equities and exchange traded funds, foreign equities, and Investment CS Tromsø Finnmark region bonds, primarily issued by Norwegian companies, nominated Equities adviser Actual manager Actual manager in NOK. The equities sales area has for some years experienced SNN Markets Tromsø Vadsø relatively major challenges, but in 2013 it managed to return to profi t. SNN Markets does not have its own equities analysis function, but works closely with SpareBank 1 Markets and their Interest Actual manager CS Midt-Troms Hålogaland region rates and IR Markets Actual manager Actual manager analysis services. A joint settlement function for all equities currency Tromsø Finnsnes Harstad trading in the SpareBank 1 Alliance, except for SR-Bank, has also been delegated to SpareBank 1 Markets. Such trading is channelled through SpareBank 1 Markets’ broker identity on CS Nord-Troms Salten region Corporate Actual manager Actual manager Actual manager the Oslo Stock Exchange. This collaboration is expected to re- Sortland Storslett Bodø sult in cost savings and reduced vulnerability on the system and settlement sides.

Actual manager Helgeland region Bond trading continued its positive development from 2012, Alta Actual manager primarily due to greater interest in interest-bearing investments Mo among wealthy private individuals and companies in the region.

Investment advice SNN Markets’ investment advisers work in the market for larg- er investments; primarily with customers who have an invest- ment capacity of more than NOK 500,000. They also handle all sales of complex savings products. At year-end 2013, the securities firm had the following departments: The investment advisers are based in regional offi ces, but are a part of SNN Markets’ organisation. Accordingly, Markets is thus represented in all of the bank’s regions, with the excep- tion of Helgeland, where a professional group will be estab- Markets lished in Bodø to cover both Helgeland and Salten.

The investment advice business area delivered a good result in 2013, measured by both earnings and the increase in as- sets under management. Earnings increased by just over NOK Interest rates Securities and currency 2 million compared with 2012 and fi nished the year at NOK 16.7 million. Total assets increased by NOK 900 million.

Investment advice SNN Forvaltning ASA Corporate Prior to 30 September 2013, corporate fi nance in SNN Markets offered services in the following areas: • Equity and debt issues • Acquisition and sale of companies • Purchase and sale of shareholdings • Valuations SNN Markets’ corporate department delivered a positive result for 2013. Earnings within equity issues and facilitating bond issues were good, including in advice linked to equity issues in SpareBank 1 Nord-Norge.

SpareBank 1 Nord-Norge Annual Report 2013 161 OPERATIONS

Interest rates and currency SNN Markets’ broker desk has six people and earned just over NOK 41 million in 2013. This is a decrease compared with 2012. This was primarily due to less interest rate hedging ac- tivity in the corporate market. Its income principally comes from trading in currencies and interest rate instruments on behalf of customers. The department does little trading on its own account.

The activities take place in the following main areas: • Currency hedging and spot trading • Currency trading • Currency financing • Interest rate hedging instruments • Interest-bearing securities such as bonds and certificates

SNN Forvaltning ASA SpareBank 1 Nord-Norge Forvaltning ASA offers, via SNN Markets, discretionary asset management services, primarily to customers in Northern Norway. Through proximity to the customers and prudent management, the company aims to be the customers’ first choice when it comes to the provision of these services. The interaction between the investment advis- ers in SNN Markets and the managers in SNN Forvaltning is intended to help the companies achieve their target of increasing the amount of capital under management.

The primary target group for the company’s products are northern Norwegian private and institutional investors. The private target group primarily consists of wealthy private indi- viduals and small investment companies, and the institutional target group primarily consists of companies, large investment companies and public sector customers such as municipali- ties, foundations and pension funds. Both groups want advice and traditional exposure within bonds and equities, including equity certificates.

SNN Forvaltning has worked closely with the investment ad- visers in SNN Markets. 2013 produced a good result, measured both by volume under management and the company’s result. The company’s sales income amounted to NOK 8.6 million and its profit for the year was NOK 1.7 million. The company also contributed NOK 3 million in commissions to SpareBank 1 Nord-Norge. The company’s goal is to have NOK 2.8 billion of assets under active management by year-end 2015.

162 SpareBank 1 Nord-Norge Annual Report 2013 163 OPERATIONS

SpareBank 1 Alliance and SpareBank 1 Group

SpareBank 1 Gruppen SpareBank 1 Gruppen is owned by SpareBank 1 SR-Bank (19.5%), Companies owned by most of the banks in the Alliance SpareBank 1 Nord-Norge (19.5%), SpareBank 1 SMN (19.5%), and LO with various interests: Sparebanken Hedmark (12%), Samarbeidende Sparebanker AS • Bank 1 Oslo Akershus (19.5%), Bank 1 Oslo Akershus (1.4%), and the Norwegian • BN Bank Federation of Trade Unions (LO)/affiliated unions (9.6%). • SpareBank 1 Boligkreditt • EiendomsMegler 1 Companies owned by SpareBank 1 Gruppen AS • SpareBank 1 Kundeservice (100% of the shares): • SpareBank 1 Kredittkort • SpareBank 1 Forsikring • SpareBank 1 Næringskreditt • ODIN Forvaltning • SpareBank 1 Markets • SpareBank 1 Medlemskort • SpareBank 1 Verdipapirservice • SpareBank 1 Gruppen Finans • Conecto The SpareBank 1 Alliance comprises approximately 350 offices and branches all over Norway. In total, the Alliance has ap- proximately 6 500 employees. 1 300 of these are employed by The SpareBank 1 Alliance SpareBank 1 Gruppen AS and its subsidiaries. SpareBank 1 Gruppen provides the administrative superstructure for the SpareBank 1 Alliance through Alliansesamarbeidet Spare- SpareBank 1 Gruppen’s vision: Bank 1 DA (owned by the regional banks, Samarbeidende Spare- Attractive for the customers and the banks! banker, Bank 1 Oslo Akershus and SpareBank 1 Gruppen). Values: This company was established to develop and deliver joint IT/ Experts and close to you. mobile solutions, branding and marketing concepts, business models, products and services, expertise, analyzes, processes, best- SpareBank 1 Gruppen was founded in 1996. practice solutions and procurement. The Alliance also develops three competence centers for training (Tromsø), payment transmis- sion services (Trondheim) and credit management (Stavanger).

164 The Alliance structure

Eiere og alliansepartnere:

SpareBank 1 SpareBank 1 SpareBank 1 Sparebanken Bank 1 Samarbeidende LO/ SR-Bank SMN Nord-Norge Hedmark Oslo Akershus lokale sparebanker LO-forbund (19,50 %) (19,50 %) (19,50 %) (11 %) (1,40 %) (19,50 %) (9,60 %)

SpareBank 1 Gruppen AS* Alliansesamarbeidet SpareBank 1 DA* Bank 1 Oslo Akershus* SpareBank 1 Forsikring The company was established to develop and deliver joint IT / mobile solutions, branding and marketing concepts, busi- ness models, products and services, BN Bank* ODIN Forvaltning expertise, analyzes, processes, best- practice solutions and procurement.

Competence centres: SpareBank 1 Boligkreditt* SpareBank 1 Medlemskort Payment service/Trondheim, Credit/Stavanger Training/Tromsø

SpareBank 1 Kredittkort* SpareBank 1 Gruppen Finans EiendomsMegler 1 Norge

SpareBank 1 Kundesenter SpareBank 1 Næringskreditt* Conecto

SpareBank 1 Verdipapirservice

SpareBank 1 Markets* * Owned by the regional banks, Samarbeidende Sparebanker, Bank 1 Oslo Akershus and SpareBank 1 Gruppen * Companies owned by most of the banks in the Alliance and LO with various interests

SpareBank 1 Nord-Norge Annual Report 2013 165 166 Corporate social responsibility

SpareBank 1 Nord-Norge is the region’s local bank and it is important for our region to have an exciting and diverse sporting and cultural life. This helps our local communities grow and develop and also at- tract skills to the region.

SpareBank 1 Nord-Norge Annual Report 2013 167 Together we make things happen SpareBank 1 Nord-Norge is the region’s local bank and it is important for our region to have an exciting and diverse sporting and cultural life. This helps our local communities grow and develop and also attract skills to the region.

he bank’s social commitments support several hun- There was a great deal of interest in the bank’s grants scheme in dred projects, big and small, every year; at the same 2013. The Group considered a total of 1,456 applications; 45% Ttime, a number of northern Norwegian sports teams, cultural more than in 2012. NOK 142 million was applied for in total. actors and organisations have sponsorship agreements with the bank. Sports Knowledge and research The SpareBank 1 Nord-Norge Fund Culture SpareBank 1 Nord-Norge creates value through its operations 33 % that stays in the region. The bank has two groups of owners. 49 % As of 1 January 2014, 47.3% was owned by equity certifi cate holders, while 52.7% was owned by the community. The pro- portion of dividends from the bank’s profi t that goes to the community-owned capital can be allocated and distributed for publicly benefi cial purposes in the bank’s market area.

SpareBank 1 Nord-Norge equity 18 % Equity certificate owners Community owned capital (1 Jan 2013) 57,1% 42,9%

Sponsorship portfolio Parent bank`s profit 2013 Sponsorship is the commercial part of the bank’s corporate social NOK 915,1 million responsibility, and forms part of SpareBank 1 Nord-Norge’s mar- keting and brand building.

Payments charged as costs to the bank’s sponsorship portfolio Dividend Support and donations amounted to NOK 26.9 million in 2013, distributed through agree- to the region NOK 110,4 million ments with 120 sports teams, 31 cultural actors and 14 knowledge- SNN fund NOK 43,1 million based sponsorships.

Sports Reatined Retained Knowledge share of profits share of profits Culture NOK 282,3 million NOK 479,3 million

91 % 2 % Donations in 2013 309 projects received donations from the bank in 2013. 128 7 % cultural projects, 135 sports projects and 46 knowledge-based projects benefi ted by a total of NOK 34.9 million. NOK 24.6 mil- lion of this went to projects aimed at children and young people.

168 Our contribution to the region

The Group's contribution Grants, partnership agreements Knowledgebased company and foundations

Solid core operations ensure we make a good contribu- Grants for publicly beneficial purposes KB (The Business Barometer for Northern Norway). tion to the region. - in 2013, 309 projects in the region Published twice a year since 1995. 1,950 people attended received support from the SNN Fund, presentations in 2013. 90% of the Group’s profit remains in the region totalling NOK 34.9 million We want to teach northern Norwegian youth about the Locally jobs - 922 full time equivalents at 72 offices Partnership agreements with teams, as- economy. In cooperation with Ungt Entreprenørskap, we sociations and cultural organisations taught 742 lower secondary pupils through the Economy NOK 215 million in taxes from the bank in the region - these partnerships were and Career Choice programme to the public purse worth NOK 26.9 million in 2013 Funding of PhDs and professor chairs at the region’s NOK 133 million in annual purchases Project support to develop the region’s universities from northern Norwegian companies culture industry - in 2013 the foundation The SNN School – a 3-month training and authorisation NOK 176 million in annual tax income from our employees supported 161 projects with a total of NOK 28 million programme for new financial advisers. 15 employees par- NOK 34.2 million in dividends for northern ticipated in 2013 Norwegian equity certificate holders 169 SeminarsSpareBank 1 Nord-Norge Annual Report 2013 Waiting time is over

We have waited for 1,436 days. On 30 September last year, it became clear that Bodø/Glimt were finally back in Norwegian football’s premier league. Last year’s season was a fantastic journey. Not just for Glimt’s players, manager and support staff, faithful fans from the Yellow Horde and the public, but for the whole of Northern Norway

Aspmyra Stadium = the children’s arena he team has developed fantastically and could already “Glimt is not only focusing on young people at the sporting taste premier league football before the summer. The level. Glimt is also the first club in the country to establish Tclub was also the top scoring team in league football in Norway a special arena for children,” says an enthusiastic marketing and it will be exciting to see how they continue to develop. manager, Runar Berg. All children aged up to 16 years old Newly promoted teams always find the Norwegian premier will receive free admission to all matches via the children’s league a challenge. And how will Glimt meet this new daily arena at Aspmyra. life? The Chairman of the Board, Mads Torrisen, put it like this in Glimt’s newsletter: “The answer is as simple as it is brutal. “We carried out a trial at the promotion match against Vard last Given the resources Glimt has, you can never be safe. The team autumn. 850 children came! At Aspmyra young people have still has to fight hard and constantly in all areas in order to their own entrance and there will be a children’s VIP area in cling on. Everyone who loves Glimt must, therefore, do their bit the main stand with space for 500 children and young people. to ensure the team meet the standards of the premier league in We are also establishing a special children’s jury that will everything we do.” name Glimt’s man of the match,” says Berg.

As Bodø/Glimt’s general sponsor, we look forward to some Focus on children and young people magical moments at Aspmyra. Developing talent has been a key element in Bodø/Glimt’s premier league comeback. The club allocates a lot of time “SpareBank 1 Nord-Norge is the region’s local bank. As true and resources to building up the talent that already calls natives of Northern Norway, we cheer on everyone who is Aspmyra home, at the same time as it maintains a good working to develop sports, culture and business in our region,” overview of players outside the city of Bodø. says bank manager Terje Edelsteen Moen, of SpareBank 1 Nord-Norge’s Bodø branch. Glimt works proactively with both Nordland and Håloga- land football districts. In the last few years, they have The waiting time for Bodø/Glimt is finally over. arranged meetings for some of the best 14 and 15 year old from these two districts. These young players get a chance to show what they can do in intense training drills and internal matches. The feedback from players, parents and managers has been very positive.

170 SpareBank 1 Nord-Norge Annual Report 2013 171 The cycling festival of the ages in Northern Norway

On 8 August last year, the starting gun fired for the very first stage of the Arctic Race of Norway. The cycling race turned into a fantastic celebration from the start in Bodø to the finishing line in Harstad, with more than 150,000 spectators along the route. This is pretty outstanding in a region with just 120,000 inhabitants. 74 hours of the race were also broadcast on more than 110 TV channels.

Cycling festival for the youngest as well ver four stages, the world’s elite peddled through As the official partner and sponsor of the green jersey, Spare- ourbeautiful region while TV cameras captured Bank 1 Nord-Norge wanted everyone to take part in the national Oimages of Northern Norway; surrounded by majestic moun- celebration, especially children. Therefore, the bank established tains, deep fjords, magnificent nature and an enthusiastic a special cycling race for just for kids - the SNN Mini Arctic public that embraced the event from the very start. Race.

To quote Norwegian TV’s cycling guru, Johan Kaggestad: The cycling race was a great success with more than 2,000 “What these madmen from Andørja have accomplished is quite entrants at seven different venues. The bank has received a fantastic. I wish them all the happiness and success on their lot of fantastic feedback from the kid’s race. One mother said: journey.” One of the madmen he was referring to was Knut- ”When Mathias crossed the finish line and was standing on the Eirik Dybdahl, who has worked tirelessly to stage the race. podium in a green jersey with a medal around his neck, I was so touched I was moved to tears.” This became many people’s proudest memory of the summer and was an incredible event Brand building for an entire region for both young and old. “SpareBank 1 Nord-Norge has been with us from the very start. It had faith in our project and is an important partner for the The year’s Arctic Race of Norway was held on 14-17 August. event,” says Knut-Eirik Dybdahl of the Arctic Race of Norway. This year it may, if possible, be even more exotic with finish lines at the North Cape and in Tromsø. As an official partner, we “SpareBank 1 Nord-Norge wants to be an active contributor look forward to the second time this fantastic cycling festival to developing the region and we also want to lay the ground- is held. We also believe a lot of kids will be looking forward work for activities throughout Northern Norway. Therefore, it to taking part in the SNN Mini Arctic Race. is natural for us to get involved with the Arctic Race of Norway and its brand building for an entire region,” says Communica- tions Director Stig-Arne Engen of SpareBank 1 Nord-Norge.

172 SpareBank 1 Nord-Norge Annual Report 2013 173 Welcome to SNN Day

On a particular Saturday in October, the Jolly Roger was hoisted on the roof of the building that is home to the Tromsø branch of our industry colleague, Nordea. At the same time Rødbanken was invaded by dozens of pirates armed with pistols and swords. With them they had a chest full of gold coins and hundreds of treasure maps.

his Saturday marked a small milestone in the bank’s Thistory: before and after SNN Day. The children’s own bank On Saturday 5 October, at 11:00 precisely, the doors of the venerable Rødbanken building opened in Tromsø. A wave of people, big and small, young and old, washed into the bank’s head office. On the door, Ladd and Line welcomed all the chil- dren and handed out balloons.

“SNN Day was an open day in which SpareBank 1 Nord-Norge offers the best from our employees and our partners,” says the bank’s communications director, Geir-Håvard Hanssen.

The ground floor of Rødbanken had been converted into Kranes Café for the day. The stocks of ice cream, soft drinks, freshly baked cinnamon rolls and delicious, moist carrot cake Art and culture were rapidly depleted - all served by the bank’s employees. The bank’s main hall hosted a classical café concert and a real northern Norwegian cake table. “At the cathedral we set up an enclosed football area where the kids could play football against the big Tromsø IL boys. It “It was very popular and almost impossible to find a vacant was full of action with playing and ball tricks. We held a cook- chair. The first in the queue was actually Signe Landmark, ing course for the children in the bank’s canteen. Small hands who is 102 years old! proved eager to learn how to make sushi and decorate cup- cakes. Afterwards the kids served the result to proud mums The audience was served classical pearls by the Norwegian and dads,” says Hanssen. Arctic Philharmonic Orchestra. The region’s new favourite, opera star Hamida Kristoffersen, was very impressive,” says The whole building was teeming with enthusiastic youngsters Hanssen. hunting for the bank’s treasure chest. They were accompanied by scary pirates, who were also enthusiastic employees of the As part of the bank’s corporate social responsibility, Spare- bank. Music and pirate dancing echoed around the pirate cave, Bank 1 Nord-Norge wants to help ensure the conditions for and through the magical, round window the children could talented young people are as good as possible. Underway the see the Jolly Roger flapping slightly in the wind far away. audience heard a beautiful trumpet recital given by students from the Music Conservatory. The concert in the main hall ended with a fiery swing string set, with references to Django Speed date with the CEO Reinhardt, Charlie Parker and Dizzie Gillespie, by the boys The employees also served up some exciting talks during SNN in Tre Strenge Menn. Day. Entrepreneurs got tips on entrepreneurship, there were tips and advice on buying your own home, and about how the “In the foyer of the main hall the bank’s art foundation pre- bank can be used digitally. sented a mini art exhibition. Here visitors could see highlights from the bank’s art collection such as Adelsteen Normann, Olav “A lot of people also took the opportunity to have a speed date Christoffer Jensen and Anna-Eva Bergmann. The whole thing with our very own, happy CEO, Jan-Frode Janson,” says Hanssen. was topped off with the children’s own art studio arranged by the Art Museum of Northern Norway,” says Hanssen.

174 Great atmosphere “One of the highlights of SNN Day was the music festival. hit ”Get Lucky”. The atmosphere was great and when the band Here the bank presented artists and partners who have recei- sang the hit song ”Can You Hear The Morning Singing”, both ved support from the bank and cultural foundation. In order to young and old sang along. ensure there was space for as many people as possible we put up a gigantic, 300 square metre tent in Bankgata,” says Hanssen. “We wanted five thousand visitors on SNN Day. We thought three thousand would come, but ended up welcoming a com- On the poster were local artists and bands like The BonBons, pletely fantastic almost seven thousand visitors. In 2014, we Northern Lies, Line Mari Kristensen, Mats Forøy and Motiv. There will arrange an open day at many of the bank’s regional offices. were also performances from Kulta and Hålogaland Theatre. SNN Day is a great way to communicate our corporate social “However, the undeniable highpoint was still Violet Road,” responsibility, at the same time as it shows we are generous says Hanssen. They did not just deliver a new song, ”Don’t and people-oriented,” concludes Hanssen. You Know It”, but also a bouncy cover version of Daft Punk’s

SpareBank 1 Nord-Norge Annual Report 2013 175 Faith in the culture industry

In autumn 2012, SpareBank 1 Nord-Norge established the first private foundation in the country totally dedicated to promoting a region’s culture industry. Setting aside a nine figure amount of private capital for cultural purposes was a unique thing to do, not just in a Norwegian context, but also in an European context.

e have been met with great enthusiasm from projects in Northern Norway and on Svalbard within the areas various actors and many exciting projects have of literature, visual art, music, film and dramatic art.” Wbeen presented. Since its start-up in September 2012, Spare- Bank 1 Nord-Norge’s culture industry foundation has become “On average, the grants were for less than NOK 200,000. Some involved in 161 projects and provided a total of NOK 28 mil- of the largest development projects, like KaviarFactory, have lion in grants, investments and loan guarantees,” says general received closer to NOK 1 million,” says Olsen. KaviarFactory manager, Bjørn Eirik Olsen. is a closed caviar factory in Henningsvær, which has now been converted into an exciting art hall.

The culture industry creates identity and a sense of belonging Exciting focus on film and music The culture industry is developing at a pace, both nationally SpareBank 1 Nord-Norge’s culture industry foundation wants and internationally, and is described as one of the most to be more than just a financial contributor. important industries of the future. “We are in a dialogue with the authorities and organisations A survey by the Eastern Norway Research Institute from 2008, about important initiatives and collaborative projects. Together showed that the culture industry accounted for 3% of GDP and with Innovation Norway, the municipality of Tromsø and that it employs almost as many people as the hotel and restau- several others, we have arranged the music and video project rant industry. NN+.

Senior Researcher Britt Kramvik at Norut Tromsø said, in con- In March 2013, SpareBank 1 Nord-Norge’s culture industry nection with the publication of KB (the Business Barometer foundation took the initiative to arrange, and support, the for Northern Norway) in spring 2009, that the culture industry first industry conference for the northern Norwegian film contributes much more in a broader perspective. industry,” says Olsen.

She said: “The culture industry is expected to create value such “Six artists and bands from Northern-Norway were picked for as identity, a desire to live somewhere specific, and a sense of the project. One of these was Eline Thorp, a young and very belonging. At the same time, this value is not included when promising artist from Hamarøy that got support to launch her projects are evaluated or assessed. It is, therefore, difficult to debut album “Mirror’s Egde”. The album was released in January document the genuine value creation that the culture industry and has gotten very good reviews. We see a great potensial in contributes. The value created is much higher than its purely her melancholic and stunning pop and look forward to follow economic value alone.” Eline in the time to come,” says Olsen.

“We want to contribute to a development where private capital From caviar to art plays a larger and more important role in the development of “The most important funds from SpareBank 1 Nord-Norge’s Norwegian cultural life. As the first private culture industry culture industry foundation are grants for development foundation in Norway, we have experience, knowledge and measures. The Board has made grants to a wide range of thoughts about this,” concludes Olsen.

176 SpareBank 1 Nord-NorgeEline Annual Torp Report released 2013 her debut177 album Mirror’s Edge in January 2014. © Erika Hebbert Larsen SpareBank 1 Nord-Norge Org. nr.: NO 952 706 365 Postboks 6800, 9298 Tromsø, telefon 02244, faks 77 62 25 71, www.snn.no