ANNUAL REPORT 2008 2

Contents

Page

The year 2008… ………………………………………………………………… 3

Financial highlights - the Group… …………………………………… 5

Annual report and Accounts 2008… ………………………………… 6

Profit and Loss Account… ……………………………………………… 14

Balance sheet………………………………………………………………… 15

Cash Flow Statement……………………………………………………… 16

Statement of changes in the equity capital… ………………… 17

Notes to the Accounts 2008…………………………………………… 18

The control committee’s Annual report for 2008…………… 51

Auditor’s Report for 2008… …………………………………………… 52

Declaration… ………………………………………………………………… 53

Key figures and ratios 2004-2008 (group)… …………………… 54

Corporate Governance…………………………………………………… 55

Organisation plan…………………………………………………………… 59 THE YEAR 2008 3

During the autumn of 2008 it was becoming increasingly apparent that the global financial crisis was going to be a challenge for Norwegian banks, including Sparebanken Sør. The market for funding loans virtually dried up over- night and banks became very careful about granting new loans. After a while, the Norwegian authorities brought out Bank Packages I and II which will help the banks with liquidity and strengthen their equity capital. This will mean that the national banking- and financial system will gradually be able to function in a satisfactory manner again. Against the background of the financial instability, Sparebanken Sør has established its own mortgage company, Sør Boligkreditt AS. This company will enable us to make use of Norges Bank’s scheme offering banks access to borrowing at the central bank. This will in due course also enable us to pro- vide house mortgage loans at more favourable prices.

The economic uncertainty which started in 2008 triggered a significant reduction in the sale of residential property and holiday cottages. The real estate brokerage sector became strongly affected by falling levels of sales, and several firms were forced to stop trading. Our wholly-owned real estate brokerage subsidiary, ABCenter Holding AS, was no excep- tion, and it became necessary to make substantial cuts in overall costs. The firm now has a structure which we believe is well adapted to future challenges in the market.

2008 was not a good year for the Sparebanken Sør Group. Our financial commitment to the Start football club in The pre-tax profit of NOK 18 million was NOK 319 million ­Kristiansand became rather difficult during the autumn of down on 2007. The result was strongly affected by the global last year. The building of the Sør Arena turned out to be financial crisis which is being felt in most countries in the more costly than originally planned. The owners failed to word. Impairment in value of the Bank’s securities portfolio raise sufficient new equity capital and the Bank therefore and increased losses on loans are the main reasons for the decided to acquire all the shares and take over the mana- weak overall ­result.­­­ In addition, the Bank’s real estate broke- gement of the club. This choice was made in order to safe- rage subsidiary, ABCenter Holding AS, made a substantial guard the Bank’s financial values in the best possible way loss on its operations. in a difficult and pressurised situation. The Bank’s intention is not to be a long-term owner of Start. Our ownership will However, it is important to note that our ordinary banking be discontinued as soon as we think that this is best for the operations did well throughout the year under review. There Bank’s interests. was good growth in house mortgage loans and our market shares have been increasing within this sector. It should also be pointed out that Sparebanken Sør is a very strong and financially sound bank with a capital adequacy ratio of 11.1 per cent. 4

During the course of the year under review, the Bank launched 2008 was a demanding year for Sparebanken Sør. There are new bonus programmes for our programme customers. many signs suggesting that the economic consequences of At the same time, we phased out most of the transaction- the global financial turbulence will become more pronounced ­related prices for the use of card services. This, in isolation, in 2009. This will clearly also have an impact on the Bank’s meant a substantial shrinkage in revenue generation for the operations as the year progresses. Bank. However, the competition in the market is challenging, Our aim is to ensure the Bank’s revenue generation and financial and prices for the use of card-based- and similar services strength so that we will be an active participant in the further strongly affect customers’ choice of banking connection. growth and development in the region also in the future.

In October 2008, the Bank’s new Grenland branch in Porsgrunn was opened. This is a result of our long-term strategy of further developing our bank in Telemark. Grenland is a new and exciting market area for Sparebanken Sør. We believe that Sparebanken Sør, with its size and structure, will have an excellent chance of succeeding at Grenland.

Morten Kraft Chief Executive Officer Financial highlights - the Group 5

From the Profit and Loss Account 2008 2007 2006 NOK mill. % of av. NOK mill. % of av. NOK mill. % of av. assets assets assets Interest income 2 241 7.05% 1 573 5.64% 1 001 4.27% Interest costs 1 612 5.07% 1014 3.64% 504 2.15% Net interest- and cr. comm. income 629 1.98% 559 2.00% 497 2.12% Other income 57 0.18% 270 0.97% 241 1.02% Operating costs 554 1.74% 480 1.72% 433 1.84% Result before losses 132 0.42% 349 1.25% 305 1.30% Losses 114 0.36% 12 0.04% -1 Result after losses 18 0.06% 337 1.21% 306 1.30% Tax 38 0.12% 99 0.36% 88 0.37% Result after tax -20 -0.06% 238 0.85% 218 0.93%

The Balance Sheet 2008 2007 2006 Assets 33 675 30 178 26 227 Net loans 28 340 25 816 22 102 Deposits 16 066 15 695 14 591 Equity and related capital 2 566 2 575 2 362

Capital adequacy ratio 12.7 % 12.1 % 13.0 %

Number of man-years at Group 1) 388 415 402

1) Parent Bank and ABCenter 6 ANNUAL REPORT AND ACCOUNTS 2008

THE SPAREBANKEN SØR GROUP’S BUSINESS refurbishment of two commercial buildings where we conduct banking business. In addition, a NOK 52 million charge has Sparebanken Sør is an independent savings bank with its head been made to the Group profit and loss account in respect of office located in Arendal. The Bank provides a broad range of the Bank’s subsidiary, ABCenter’s loss, and a charge of NOK banking- and investment products for the retail banking- and 18 million in respect of Start Toppfotball AS’s NOK 16 million corporate markets. The Group also conducts real estate broke- loss. The pre-tax result accordingly ended up at a modest NOK rage business through the Bank’s subsidiary, ABCenter AS, 18 million in 2008. This is equivalent to 0.06 per cent of average which is Sørlandet’s biggest real estate brokerage firm. assets. The result is NOK 319 million down on 2007.

The taxation cost is very high in relation to the pre-tax result OUR FRAMEWORK CONDITIONS due to the fact that losses on Norwegian shares do not qualify for any tax deduction. The international financial crisis has had a marked impact on the Norwegian economy and has significantly affected Norwegian The Board of Directors is not satisfied with the result for 2008. banks’ framework conditions throughout 2008. Crisis packages It is nevertheless a positive feature that the result before losses have been launched in order to secure global financial stability. from the Parent Bank’s current banking operations improved The crisis package of measures introduced by the Norwegian by NOK 59 million compared to 2007. The most important authorities towards the end of 2008 aimed at the country’s ­reason for this improvement is a satisfactory development in banking industry was necessary in order to secure financial net interest- and credit commission income. stability in Norway. In the same way as other Norwegian banks, Sparebanken Sør experienced a tight liquidity situation throughout Net interest income and average interest margin 2008. The situation gradually improved towards the end of the Net interest income totalled to NOK 629 million in 2008, up year and the Bank had good liquidity control at that time. by NOK 70 million on 2007. This is equivalent to 1.98 per cent of average assets, virtually identical to the ratio in 2007. The ­domestic interest rate level was volatile in 2008. There has been RESULT FOR THE YEAR a significant difference between Norges Bank’s benchmark rate of interest and 3-month NIBOR. In addition, the credit spreads for Accounting principles the Bank’s own funding loans have increased markedly. This has The Sparebanken Sør Group accounts have been prepared in meant frequent changes to customers’ ­interest rates both for accordance with the International Financial Reporting Standards, deposits and loans. The Bank also makes every effort to price IFRS. The accounting principles have been explained in more loans according to risk. We have adapted to these framework detail in Notes to the Accounts. conditions and have therefore on an overall basis ended up with net interest income in relation to average assets virtually The annual accounts are based on the assumption of a going on the same level as that which was experienced in 2007. concern. The Bank’s equity capital is at a reassuring level and, in the opinion of the Board of Directors, there are no circumstances Other (non-interest) income which would suggest anything else than the Bank’s continued Out of all the items in the accounts, other income was affected operations. the most by the financial turbulence in the markets.

The figures referred to in the annual report from the Board of Net other operating income totalled to NOK 57 million in 2008, Directors are Group figures, unless it is stated that the figures down by NOK 213 million on 2007. In relation to average assets, apply to the Parent Bank. this amounted to 0.18 per cent, as opposed to 0.97 per cent the year before. Result for the year The Sparebanken Sør Group’s result for 2008 is strongly affected Market developments during the fourth quarter of 2008 made by the global financial turbulence, substantial losses on certain it necessary to make substantial write-downs on the Bank’s larger commitments, and one-off costs in connection with the securities portfolio. Losses on shares in the trading portfolio 7 amounted to NOK 71 million, losses on bonds totalling NOK new premises in Kristiansand and Porsgrunn have also been 113 million at the end of the year under review. NOK 35 million charged to the profit and loss account. The consolidation of was charged to the profit and loss account in respect of the Start Toppfotball AS’s accounts in the fourth quarter has also Bank’s participation in the guarantee for Eksportfinans AS. contributed to the overall growth in costs compared to the year The fair market valuation of the Bank’s securities-related before. debt and related financial derivatives produced tan opposite effect. As a result of significantly increased credit spreads, this resulted in NOK 87 million being included as income in CREDIT LOSSES AND COMMITMENTS IN DEFAULT the accounts in 2008. During the fourth quarter of 2008, there was an increase in Net fee- and commission income was down from NOK 195 losses resulting in net losses ending up at NOK 114 million at million in 2007 to NOK 155 million in 2008. The most impor- the end of the year. Of this, collective write-downs accounted tant reason for this is lower income from the Group’s real for NOK 25 million. Individual write-downs totalled NOK 89 estate brokerage business, which totalled NOK 69 million in million, the loan loss in connection with Start accounting for NOK 2008 compared to NOK 105 million in 2007. Fee income from 47 million. The remaining amount of individual write-downs is payments transmission services also fell markedly. This is largely accounted for by a few larger individual losses. due to the fact that during 2008 we decided to waive these fees for our programme customers. Income from the sale of At the end of the year under review, total collective write-downs insurance, however, developed well in 2008. amounted to NOK 91 million.

Costs Net commitments in default and bad and doubtful commit- In 2008, costs totalled to NOK 554 million, up from NOK 480 ments totalled NOK 253 million at the end of 2008, as against million the year before. In relation to average assets, however, NOK 188 million 12 months earlier. In relation to total loans, the level of costs for the Group as a whole only rose marginally, this was equivalent to 0.89 per cent, as opposed to 0.73 per by 0.02 percentage points to 1.74 per cent. At the end of the cent in 2007. year, the Parent Bank’s overall cost ratio was 1.15 per cent.

Personnel costs posted a modest increase in 2008. The number BALANCE SHEET of man-years was reduced by 27 to 388 at the end of the year, excluding Start Toppfotball AS. 65 man-years were accounted Assets for by the ABCenter-group. The shrinkage in overall manning Aggregate assets stood at NOK 33.7 billion at the end of 2008, up levels is due to the restructuring within the ABCenter-group by 11.6 per cent or NOK 3.5 billion during the last 12 months. which was implemented towards the end of 2008. For the banking operations, there has been a smaller increase in the Loans number of man-years worked partly due to the opening of the The expansion in the balance sheet total is primarily ascribable Bank’s Grenland branch in Porsgrunn. to increased lending. At the end of 2008, loans totalled NOK 28.3 billion, up from NOK 25.8 billion in 2007, after a 9.8 per IT costs posted a moderate increase in 2008. This is ascribable to cent growth. The retail banking market grew by 14.5 per cent increased usage of machine resources at the electronic data and the corporate market by 2.9 per cent. In the retail banking processing centre and further development of the Bank’s IT- market, the rate of growth was largely on the same level as solutions. Marketing costs were higher due to increased use previously, whereas in the corporate market the rate of growth of resources partly in order to strengthen the brand name is now significantly lower. The Bank’s lending business was ­development. In addition, as a result of the financial crisis, hit by the financial crisis which arrived at the end of the third substantial resources have been employed on the marketing quarter last year. The access to funding for Norwegian banks of the Bank’s deposit products. became markedly limited, and it became necessary to intro- duce restrictions as far as new lending was concerned. This Substantial one-off costs relating to branch establishment in has a big impact on our lending to the corporate market. At 8

the end of 2008, our lending to the retail banking market was Debt incurred through the issuance of securities more or less normal again, but collateral and/or other rele- In 2008, the Bank’s securities-related debt amounted to vant security are now even more important than before, also NOK11.9 billion, as against NOK 9.7 billion in 2007. This is an due to the transfer of loans to Sør Boligkreditt AS in the very important source of funding. The Board of Directors attaches a near future. In the case of lending to the corporate market, our great deal of importance to the Bank having stable, long-term existing customers are prioritised. Retail banking customers funding. In view of the fact that the global financial crisis has accounted for 61.7 per cent of aggregate lending. The different brought about significantly higher costs for this type of funding, customer groups’ shares of the Bank’s loans are mentioned in the Bank has to a somewhat larger extent than previously rai- Note 27 in Notes to the Accounts. sed short-term loans.

Deposits Securities Deposits from customers remain the Bank’s most important At the end of 2008, the Bank’s portfolio of certificates and source of funding. At the end of the year, deposits totalled NOK bonds amounted to NOK 2.8 billion, unchanged during the last 16.1 million, up by NOK 371 million or 2.4 per cent on 2007. 12 months. The portfolio forms part of the Bank’s overall liqui- Retail banking deposits were up by 11.6 per cent, corporate dity coverage, and bonds amounting to NOK 2.5 billion of the deposits down by 8.1 per cent. The financial crisis triggered aggregate portfolio have been pledged as collateral security for very strong competition for deposits between banks. A great drawing rights facilities at Norges Bank. deal of attention was also given to Norwegian banks’ guarantee scheme for customer deposits. It became necessary to make The Bank’s investment in shares and Primary Capital Certifi- extra efforts in order to offer competitive terms and conditions cates (PCCs) accounted for a comparatively modest part of the for deposits, and this has produced good results in the retail balance sheet total, amounting to NOK 221 million at the end banking market. However, we inevitably lost some deposits of the year. Shares in the trading portfolio accounted for NOK but mostly within the corporate market. A substantial part of 69 million of the latter amount. The trading portfolio consists the shrinkage was attributable to a larger individual deposit. mainly of listed Norwegian shares. Another reason for the reduction is that companies use reserve funds when the access to new borrowing becomes reduced. Equity and related capital - capital adequacy Deposits according to customer groups are shown in Note 15 At the end of 2008, the Bank’s equity and related capital totalled to the accounts. NOK 2.6 billion, consisting of accrued profits amounting to NOK 2.3 billion which has been added to the Savings Bank’s Fund, At the end of 2008, deposits funded 56.7 per cent of net loans. and subordinated loan capital of NOK 300 million. In relation This is below the Bank’s targeted ratio of 60 per cent. to a risk-weighted asset calculation base (Basel II, Standard

Deposits Gross loans NOK million NOK million 20000 30000

25000 15000 20000

10000 15000

10000 5000 5000

0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008

Corporate market Retail banking market Corporate market Retail banking market 9

Method) of NOK 19.7 billion at the end of the year, the capital Credit risk adequacy ratio amounted to 12.7 per cent and the core capital Credit risk is defined as the risk of loss being incurred if custo- coverage ratio to 11.1 per cent. mers or counterparts fail to meet their liabilities. Credit risk is managed through the Group’s credit strategy, ­credit policy, credit routines, credit processes and the powers ALLOCATION OF PROFIT FOR THE YEAR of attorney/delegated lending authority relating to the granting of credit. These factors constitute the overall guidelines for the In the opinion of the Board of Directors, the 2008 profit and loss Bank’s granting of credit. account and balance sheet present a true picture of the Bank’s overall position and results. Furthermore, the Board is not The credit strategy is agreed at least once a year by the Board aware of any circumstances which have arisen after the turn of of Directors, comprising credit policy guidelines, as well as the year which would change its view in this respect. ­management targets for risk profile and risk concentrations within the Group. The Bank has introduced management The Board of Directors proposes that the Parent Bank’s NOK ­targets for risk involving expected losses, concentration risk, 18 million after-tax profit for the year is transferred in its different sectors, markets and geography, coupled with limits entirety to the Savings Bank’s Fund. for large customers and individual customers. Management targets for risk are monitored and reported to the Board of ­Directors at regular intervals. Sparebanken Sør has developed RISK- AND CAPITAL MANAGEMENT and actively uses models for risk classification in credit pro- cesses and portfolio management for the retail banking- and The risk management at Sparebanken Sør shall support corporate markets. the Group’s strategic goals and targets and development. Sparebanken Sør’s aim is that the Group, from a long-term The Board of Directors is responsible for the Group’s granting perspective, shall have good financial stability – so that there of credit and has delegated power of attorney-related limits is a good basis for development and growth, coupled with the to the Bank’s CEO, who, within his powers of attorney, has ­necessary financial strength to be able to deal with the effects ­delegated further within the organisation. The credit handling of economic downturns. Capital management shall ensure that routines, credit policy and credit models stipulate require- Sparebanken Sør has good capital adequacy and a competitive ments with regard to which credit processes and which risk return on equity capital in relation to the Bank’s risk profile. assessments shall be applied in connection with the granting The Board of Directors has agreed management targets for and follow-up of retail banking- and corporate banking loans the Bank’s aggregate risk level, as well as actual manage- and similar commitments. The powers of attorney are related ment targets for risk within each separate risk area. The risk to competence, markets, the size of the commitment in ques- management ensures that the risk exposure is known at all tion and risk. The Group has a moderate risk profile within the times, contributing to the Group meeting its strategic targets credit area. for financial stability and profitability. The risk is adapted to the organisation’s size, ambition, competence and market. Systems Market risk for follow-up and control of risk have been established. The Market risk is defined as the risk of loss due to unfavourable Group’s overall risk exposure and risk development are follo- changes in interest rates, foreign exchange rates and securi- wed up through quarterly reporting to the Group management ties prices. The management of market risk is done through and Board of Directors. The overall risk management and re- detailed management targets fixed by the Board of Directors porting are done by Risk Management, which reports direct to for amongst other things investment in shares, bonds and for the Bank’s CEO. positions in the foreign exchange market. Follow-up is done through ongoing reports of portfolios and management targets Sparebanken Sør is making every effort to further strengthen to Group management and the Board of Directors. risk management throughout the Bank, and to adapt itself to the Basel II IRBF rules and regulations. Interest rate risk is mainly related to the Bank’s portfolio of interest-bearing securities, fixed interest rate loans and fixed 10

rate deposits. The Board of Directors has fixed a NOK 30 million As at 31.12.2008, the liquidity indicator was 105.5, including limit for total interest rate risk on and off the Bank’s balance drawing rights. A ratio of 102 is stipulated in the Bank’s funding sheet, measured by the impact on the Bank’s overall result of a strategy. 1 percentage point shift in the level of interest rates. On average for the year, less than 25 per cent of the agreed limit for interest Operational risk rate risk was utilised. At the end of the year, the Bank’s interest Operational risk is defined as the risk of loss being incurred as rate risk amounted to NOK 9.1 million. a result of insufficient or failing internal processes, routines or systems, human error, crime or external events. This risk is The Bank is affected by fluctuations in the foreign exchange in particular related to failure in the Bank’s IKT-systems, or to markets. The most important balance sheet items in this human error. The internal control within these areas is subject ­connection are foreign currency loans to customers, hedged to ongoing reviews; in 2008, no weaknesses which would have by forward contracts or funding loans in the same currencies. been of importance for the Bank’s operational risk were The total limit for open foreign currency positions is NOK 100 identified. million. At the end of the year, NOK 77.6 million of the limit had been utilised. The management of operational risk is done through the further development of staff’s skills and competence, through At the end of the year, the Bank’s total investment in shares good routines, good internal control and quality assurance. amounted to NOK 221 million, of which the trading portfolio accounted for NOK 69 million. The Board of Directors has ­fixed Every year, an overall risk analysis is done within the ­different a maximum limit for the trading portfolio of about NOK 230 risk areas. Work is going on all the time on preventive ­measures million. and the development of new management- and ­reporting ­systems. The turbulence in the financial markets has meant that the Bank’s securities portfolios have had to be written down in The Group has a moderate risk profile in relation to the ­value by substantial amounts. Most of it are unrealised losses Bank’s organisation, routines and management systems. A which the Bank expects to recover during the next few years. ­‘catastrophe training exercise’ was done in 2007 in order to test the Bank’s contingency- and emergency plan. Funding risk Funding risk is defined as the risk of the Group being unable to meet its obligations or fund its assets. RESEARCH AND DEVELOPMENT Deposits from customers represent the Bank’s most ­important and most stable source of funding. The Board of ­Directors The Bank does not conduct any research. All development work ­attaches a great deal of importance to the ratio between at the Bank is directed at the IT-area, innovation and business ­deposits from and loans to customers being satisfactory. development. In ­order to further reduce the overall funding risk, the Bank applies ­targeted diversification of the funding loans from the capital ­market with regard to different maturities, markets, PERSONNEL AND WORKING ENVIRONMENT sources and ­instruments. Net refinancing requirements from sources other than customer deposits should not exceed NOK At the end of 2008, 323 man-years were worked at the ­Parent 900 ­million for the next 7 days, and not be more than NOK 1.6 Bank, and 11 employees were on special leave . In the Group (the billion for the next 3 months. Parent Bank and ABCenter), staff amounted to the ­equivalent As a liquidity reserve, Sparebanken Sør had committed, long- of 388 man-years. The overall manning level is stable and ope- term drawing rights facilities amounting to195 million euros at rations are run in accordance with the man-year framework the end of the year. The drawing rights facilities were not used limits introduced by the Board of Directors. The Working Envi- in 2008 and also remained unutilised at the end of the year. ronment Committee has worked on matters relating to safety In addition, the Bank has unutilised drawing rights facilities of and security, structural alterations of the Bank’s premises, the NOK 1.6 billion at Norges Bank. company health service, the IA-agreement (Care in the Work- 11 place) and general environment questions. our donations for various worthwhile causes, we have further As a CW company, the Bank works actively in order to take care enhanced Sparebanken Sør’s reputation as a bank with of matters relating to the Discrimination Act. Absenteeism ­local roots committed to and involved in the region’s local through illness is at a stable, low level, amounting to 4.8 per ­communities, through its corporate responsibility – the best cent in 2008, a little up from 2007, when the ratio was 4.3 per bank for Sørlandet and Telemark. cent.

SUBSIDIARIES AND ASSOCIATED COMPANIES EQUALITY BETWEEN THE SEXES AND EQUAL OPPORTUNITIES At the beginning of October 2008, the Bank acquired 99 per cent of the shares in Start Toppfotball AS and Start Stadion AS. Sparebanken Sor employs 342 people – 183 women and 159 Both companies’ results for the fourth quarter last year have men. 79 women are employed on a part-time basis, whereas been consolidated into the Bank’s Group accounts. The Bank only three men work on a part-time basis. has no intention of being a long-term owner of Start. Our equity In the case of the Bank’s governing bodies, women account for stake will be sold as soon as it is deemed to be best for the 32 per cent of the Board of Trustees’ members and 44 per cent Bank’s interests. of the members of the Board of Directors, whose Chairman is as woman. ABCenter Holding AS is a wholly-owned subsidiary of the Bank. 8 of the Bank’s senior management positions are held by The company is the parent company of the real estate brokerage ­women, equivalent to 23 per cent. The Board of Directors group, ABCenter, which has 11 real estate brokerage offices would wish to increase the proportion of female managers at in Aust- and Vest-Agder. In addition, the company has several the Bank. ‘display windows’ in locations in the inner parts of the regions and at some locations in the mountain areas.

EXTERNAL ENVIRONMENT In 2008, together with Sparebanken Sør, ABCenter’s head ­office moved into new premises in Kristiansand. In 2008, the The Bank’s operations do not produce any pollution of the company sold a total of 1,940 residential properties – including external environment. In connection with the financing of new houses, existing dwelling units and holiday cottages – plus different customers and projects, environment questions are some commercial buildings, at an aggregate value of about considered an important part of the credit-handling ­process. NOK 4 billion. This makes ABCenter the region’s largest real During the autumn of 2008, the Bank initiated a process estate broker. ­aimed at getting an ‘Environment Lighthouse Certificate’ for the Arendal branch and for the Bank’s head office. This During the fourth quarter of 2008, the Bank established Sør work is part of the development of the Bank’s environment ­Boligkreditt AS. The mortgage company’s corporate purpose is profile which is also strengthened through its membership to make or acquire house mortgage loans and to fund its ­lending as ‘­climate partner’ in the UN-town Arendal. activity mainly by issuing preference bonds. The ­company will be an important instrument for helping the Bank to adapt to future framework conditions and for further strengthening the DONATIONS FOR VARIOUS GOOD CAUSES Bank’s marketing efforts in the retail banking market.

The Board of Trustees set aside NOK 13 million of the 2007 pro- Eiendomsvekst AS owns a 120-decare area of sites at Longum fit for various worthwhile donations. Throughout the year under in Arendal. During the course of 2008, one site was sold. Efforts review, the Bank has followed the procedures approved by the are being made to develop this area further. Board of Trustees in January 2008 for the allotment of ­financial grants. The Bank’s local branch managers have ­allocated Markensgate 9 AS owns a commercial building with 5,000 30 per cent of the donation funds available; this has further square meter floor space in Kristiansand. Last year, the Bank ­improved the Bank’s image in the local communities. Through and ABCenter both moved into the building, having entered into 12

long-term rental agreement with the property management The 2008 result is not satisfactory. However, our financial company. Some of the space in the building will used by other strength is good and our liquidity situation is satisfactory. In tenants. this connection it is important that the Bank has established Sør Boligkreditt AS, which provides a new source of funding Prosjektutvikling AS owns a commercial building with 600 for the Bank’s house mortgage loans. In the near future, square meter floor space in Porsgrunn. Most of the building efforts will be made to further increase the retail banking is used by the Bank’s branch in Porsgrunn and a long-term market’s share of the Bank’s loans, and to further improve agreement has been entered into with the property manage- the quality insurance of the Bank’s corporate loan portfolio. ment company.

Rettighetskompaniet AS manages the name rights to Sør VOTE OF THANKS ­Arena up to 2016. The Board of Directors would like to thank all staff for their The remaining subsidiaries are mainly involved in the manage- good efforts in 2008. ment of smaller individual properties.

In the Notes to the Accounts, Note 18 provides a complete overview of all the Bank’s subsidiaries and the equity stakes involved.

SUMMARY AND FUTURE PROSPECTS

The global financial crisis and the downturn in the ­economy make it difficult to predict what will happen in 2009. In ­particular, there is uncertainty relating to the economic ­impact of the financial crisis in 2009.

Arendal, 16 March 2009

Alice Jervell Arne Johan Johnsen Kjell Pedersen-Rise Chairman

Erling Holm Per Adolf Bentsen Cathy Steller

Olav Inge Nordbø Unni Grete Farestveit Hilde Sakariassen 13

Infront from left: Cathy Steller, Unni Grete Farestveit, Alice Jervell, Hilde Sakariassen. Back from left: Per Adolf Bentsen, Arne Johan Johnsen, Erling Holm, Olav Inge Nordbø, Kjell Pedersen-Rise. 14 Profit and Loss Account

PARENT BANK GROUP 2006 2007 2008 NOK million Notes 2008 2007 2006 1 005 1 580 2 254 Interest- and similar income 4,23 2 241 1 573 1 001 510 1 022 1 617 Interest- and similar costs 4,16,23 1 612 1 014 504 495 558 637 Net interest- and credit commission income 4,13 629 559 497 110 115 114 Commissions and income from banking services 5 183 220 208 23 25 28 Commissions payable and costs relating to banking services 6 28 25 23 87 90 86 Net fee- and commission income 13 155 195 185 Income from financial instruments at fair market value 18 29 -138 with value changes through the profit and loss account 7 -138 29 18 Write-down and gains/losses on ivestments valued at cost 2 -43 or investment designated as available for sale 7 -11 5 19 22 10 Income from other financial instruments 7 10 22 19 16 14 17 Other operating income 9 41 19 19 53 67 -154 Total other operating income 13 -98 75 56 174 182 184 Personnel costs 21,22 250 244 222 17 19 21 Depreciation and write-down on fixed- and intangible assets 19 42 24 19 152 166 181 Other operating costs 8,9 262 212 192 343 367 386 Total operating costs 13 554 480 433 292 348 183 Operating result before losses 13 132 349 305 -1 12 114 Losses on loans, guarantees etc. 14 114 12 -1 293 336 69 Result before taxation cost 13 18 337 306 84 98 51 Tax payable on ordinary result 20 38 99 88 209 238 18 Result from ordinary operations after tax -20 238 218 Minority interests 25 -7 2 4 209 238 18 Majority interests -13 236 214 Allocations -10 -13 For donations 25 -199 -225 -18 Transferred to the Savings Bank’s Fund 25 -209 -238 -18 Total allocations Balance sheet 15

PARENT BANK NOK million GROUP 31.12.06 31.12.07 31.12.08 ASSETS Notes 31.12.08 31.12.07 31.12.06 70 543 975 Cash and claims on central banks 975 543 70 645 214 30 Loans to and claims on financial institutions 11,26 21 214 645 22 123 25 887 28 586 Net loans to customers 22,23,27 28 340 25 816 22 102 1 3 7 Repossessed assets 7 3 1 2 750 2 807 2 797 Bonds and certificates 26,28 2 797 2 807 2 750 217 222 221 Shares 26,28 221 222 217 68 65 521 Financial derivatives 26,33 521 65 68 51 129 281 Equity stakes in Group companies 18 11 1 1 Equity stakes in associated companies 17 1 1 11 10 9 11 Intangible assets 19 66 38 31 27 11 35 Deferred tax asset 20 13 28 121 114 110 Fixed assets 19 479 282 150 109 133 192 Other assets 10,21 234 187 154 26 203 30 138 33 767 TOTAL ASSETS 13,30 33 675 30 178 26 227

LIABILITIES AND EQUITY CAPITAL 1 131 1 591 2 217 Liabilities to financial institutions 11,26 2 118 1 591 1 131 14 601 15 709 16 111 Deposits from and liabilities to customers 15,16,23,26 16 066 15 695 14 591 7 617 9 711 11 882 Debt incurred through the issuance of securities 26,31 11 882 9 711 7 617 111 161 458 Financial derivatives 26,33 458 161 111 79 79 63 Liabilities relating to period tax 20 63 83 83 Deferred tax 20 11 314 321 443 Other liabilities 12,21 522 351 332 299 292 299 Subordinated loan capital 26,32 299 292 299 24 152 27 864 31 473 Total liabilities 13,29,30 31 408 27 895 24 164 Minority interests 5 6 19 17 19 Other equity capital -8 21 25 032 2 257 2 275 The Savings Bank’s Fund 2 275 2 257 2 032 2 051 2 274 2 294 Total equity capital 24,25 2 267 2 283 2 063 26 203 30 138 33 767 TOTAL LIABILITIES AND EQUITY CAPITAL 13,29 33 675 30 178 26 227

OFF-BALANCE SHEET ITEMS Contingent liabilities: 656 745 747 Guarantees 27 747 745 656 1 748 1 236 2 451 Book value of assets pledged as collateral security for debt 2 451 1 236 1 748 2 1 4 Other contingent liabilities 4 1 2

Arendal, 31 December 2008 / 16 March 2009

Alice Jervell Arne Johan Johnsen Kjell Pedersen-Rise Erling Holm Hilde Sakariassen Chairman Deputy Chairman

Unni Grete Farestveit Olav Inge Nordbø Per Adolf Bentsen Cathy Steller Morten Kraft Chief Executive Officer 16 Cash Flow Statement

PARENT BANK GROUP 2006 2007 2008 NOK million 2008 2007 2006 972 1 559 2 206 Interest receivable 2 193 1 555 968 -491 -969 -1 528 Ingerest payable -1 524 -970 -485 125 119 101 Other payments received 196 227 213 -337 -341 -391 Operations-related payments -524 -442 -424 2 5 3 Recoveries from confirmed losses 3 5 2 -79 -80 -79 Period tax paid -82 -83 -84 -4 -8 -8 Payments relating to donations -8 -8 -4 -1 Group contributions paid Minority share 7 -2 -4 187 285 304 Net cash flow from operations 261 282 182

-3 074 -3 795 -2 787 Increase in loans and repossessed assets -2 612 -3 745 -3 076 -8 -48 -266 Change in other assets -254 -58 -8 -1 066 -72 -183 Change in securities -183 -69 -1 066 2 352 431 184 Change in loans - other financial institutions 193 431 -457 -457 1 112 404 Change in deposits from customers 373 1 108 2 353 685 460 626 Change in funding loans from financial institutions 527 460 685 -10 -14 378 Change in other liabilities 420 22 -1 578 -1 926 -1 644 Net cash flow from current financial operations -1 536 -1 851 -1 569

-33 -12 -26 Investment in fixed assets -282 -166 -63 -22 -68 -182 Net investment in Group- and associated companies 10 3 1 10 Sale of fixed assets 19 5 7 -52 -79 -198 Net cash flow from investments -263 -151 -56

1 066 2 193 1 970 Change in debt incurred through the issuance of securities 1 970 2 193 1 066 300 Change in subordinated loan capital 300 1 366 2 193 1 970 Net cash flow from long-term funding activities 1 970 2 193 1 366

-77 473 432 Net change in liquid funds 432 473 -77 147 70 543 Liquid funds as at 01.01 543 70 147 70 543 975 Liquid funds as at 31.12 975 543 70 Statement of changes in the equity capital 17

PARENT BANK GROUP 2006 2007 2008 NOK million 2008 2007 2006 209 238 18 Result for the year -20 238 218 -10 -13 Donations -13 -10 12 -2 2 Change in market value of eq.cap.instrs. available for sale 2 -2 12 Dividends and disposal - minority in subsidiary 2 -3 -4 211 223 20 Total change in aggregate equity capital -16 220 216 18 NOTES TO THE ACCOUNTS 2008

1. General information In the Parent Bank’s accounts, at the first time of inclusion, the equity stakes in the Group companies are shown at cost The Sparebanken Sør Group consists of the Parent Bank, price. The equity stakes are tested on an annual basis for any Sparebanken Sør, and the subsidiaries ABCenter Holding impairment in value, and write-down is applied if ­necessary AS, Bankbygg AS, AS Eiendomsvekst, Kaldvell Eiendom AS, on the basis of rhe recoverable amount in question. ­Markensgate 9 AS, Markensgate 9 Invest AS, Prosjektutvikling AS, Rettighetskompaniet AS, Start Toppfotball AS, Start ­Stadion Associated companies AS, and Sør Boligkreditt AS. Associated companies are companies in which the Bank The Group conducts banking operations in 28 different has considerable influence. Considerable influence exists ­locations and real estate brokerage business in 15 locations when the Bank has an equity stake of between 20% and in ­Aust-Agder, Vest-Agder and Telemark. The Group conducts 50%. ­Associated companies are incorporated in the Group banking operations in 28 different locations and real estate bro- ­accounts according to the equity method of accounting. This kerage business in 11 locations in Aust-Agder and Vest-Agder. means that when the equity stakes are first incorporated, cost price is applied, with subsequent adjustment for the The Parent Bank’s head office is located in Arendal, whereas Bank’s share of the result of the associated company. ABCenter’s head office is located in Kristiansand. In the Parent Bank’s accounts, the equity stakes are carried at cost price the first time they are incorporated. The equity 2. Accounting principles stakes are tested on an annual basis for any impairment in value, and write-down is applied if necessary on the basis of The use of IFRS rhe recoverable amount in question. The Sparebanken Sør Group reports both its Parent Bank’s and Group’s accounts according to international standards for Foreign exchange financial reporting, IFRS, and currently valid interpretations. The accounts are presented in Norwegian kroner which are The accounts are based on IFRS standards and ­interpretations also the Group’s functional currency. which are obligatory and which have been approved by the EU for accounts to be presented for 2008. Transactions in foreign currencies are converted into NOK at the exchange rates ruling at the time of the transactions Consolidation and Group companies involved. Any foreign exchange losses and gains arising from The Group accounts comprise the Parent Bank and its sub- such transactions and from conversion of money items in sidiaries of which the Bank, on its own or together with sub- foreign currencies on the balance sheet day in question are sidiaries, owns more than 50 per cent and/or has a ­deciding incorporated in the profit and loss account. influence, and the equity is deemed to be permanent.­Internal transactions and intra-Group balances are netted out. The Group’s assets and liabilities in foreign currencies are recalculated into NOK at the middle rate of exchange ­ruling In the case of acquisition of subsidiaries, the cost price of at the Oslo Stock exchange on the balance sheet day in shares in the Parent company is netted out against the equity ­question. Foreign currency positions are limited through the capital in the Parent company at the time of acquisition. The use of hedging transactions in the same currencies. difference between cost price and net book value of assets in the subsidiary at the time of acquisition is added to the Interest income and interest costs assets to which the surplus value relates within the market Interest income and interest costs relating to assets and value of these assets. That part of the cost price which can- ­liabilities assessed at amortised cost are incorporated on not be added to specific assets represents goodwill. To the an ongoing basis in the profit and loss account according extent that the value of the acquired assets exceeds the cost to the effective interest rate method. The effective interest price, the difference is taken to income in the profit and loss rate is defined as the rate of interest which, when applied, account. means that the present value of the expected cash flow over 19 the expected life of the financial asset or financial liability Impairment in value of loans ends up equal to the book value of the financial asset or At regular intervals, an assessment is made to ascertain ­liability. When calculating the effective interest, the cash whether there is objective proof of impairment in value of flow­incorporated in the agreement is estimated, but without loans or groups of loans. Impairmenet in value exists if taking into consideration any future credit losses. there is objective proof of events which may bring about a If a financial asset is written down for impairment in value, reduced cash flow. Impairment in value must refer to events new effective interest is calculated based on the adjusted, ­occurring after the first imte a loan is assessed, and it estimated cash flow. must be possible to calculate such impairment in value in a ­reliable manner. Events which indicate that impairment in In the case of interest-bearing instruments which are ­assessed value has taken place are as follows: at market value, the interest is classified as­interest income or interest cost, whereas the impact of value change is ­classified - Significant financial difficulties being experienced by the as income or cost relating to financialinstruments. ­ borrower - Default Commission income and commission costs - Special terms and conditions having been agreed due to In general, commission income and commission costs are the borrower’s financial situation subject to accrual accounting in relation to when the ­services - The borrower is likely to enter into debt negotiations or involved are rendered or received. Fees relating to loans are other financial restructurings not shown directly through the profit and loss account, but - Data which can be observed indicating a measurable are factored into the calculation of effective interest and reduction in future cash flow from a group of loans ­included accordingly in the profit and loss account. Income received from the Group’s real estate brokerage business is The Bank first assesses whether there is individual,­objective booked through the profit and loss account once it has been proof of impairment in value. If this is not the case, the loan earned. The income involved is asccordingly included in the is included in a group of loans with the same credit risk. The profit and loss account when entering into an agreement group is then assessed on an aggregate basis with ­regard ­relating to the purchase and sale of a property or similar. to impairment in value. Loans which are written down ­individually are excluded in this connection. Loans to customers Initially, loans are assessed at market value. During If there is objective proof of impairment in value having ­subsequent periods, loans at floating rates of interest are ­occurred, the amount of loss is calculated as the ­difference assessed at amortised cost by using the effective interest between the loan’s book value and the present value of rate method. Fees relating to the loans are factored into the ­future, estimated cash flows discounted at the loan’s calculation of effective interest and included in the ­profit ­original effective rate of interest. The loan’s value is reduced and loss account accordingly. Amortised cost is equal to by using an appropriation account and the impairment in acquisition cost minus repayments relating to the principal ­value is ­included in the profit and loss account. Write-down amount, adjusted for the amortisation effect as a result of on groups of loans is dealt with according to corresponding application of the effective interest method and corrected for principles. any impairment in value. Loans in default and bad or doubtful loans Fixed interest rate loans to customers are incorporated in A customer’s aggregate commitments are deemed to be in the accounts at market value, any gains or losses due to default if repayments due or interest due have not been paid a change in market value being included in the profit and 90 days after the due date in question or if credit facilities loss account as a change in value. Market value is assessed have been overdrawn for more than 90 days. Loans which are by discounting the cash flow relating to the loans, with the not in default, but where the customer’s financial ­situation ­required return based on zero coupon interest. would suggest that the commitment is bad or ­doubtful, are classified as bad or doubtful. 20

Confirmed losses All financial instruments which are classified at fair ­market When it is highly probable that the losses in question are value through the profit and loss account are shown in the final, the losses are classified as confirmed. Losses are balance sheete at fair market value, and any change in fair ­deemed to be confirmed in the case of a formally­accounced market value from the opening balance sheet is booked composition with creditors, or in case of bankruptcy, of through the profit and loss account as net loss/gain from if the ­imposition of restraint upon chattels and the sale financial instruments. ­thereof have not brought about the required result, a legally ­confirmed judgment, or if the Bank has waived its rights Market value of securities such as shares, unit trust ­relating to the whole or part of the commitment involved. ­certificates and PCCs which are listed in ordinary markets is Confirmed­losses covered by previous individual write-downs defined as the last quoted purchase price. are ­recorded against the write-down in question. Confirmed losses against which no write-down has been made or where Fair market value of securities such as shares, unit trust there is too large or too small cover in relation to the write- ­certificates and PCCs which are not listed in ordinary­markets down made, are shown in the profit and loss account. is based on revenue generation and/or equity ­capital in the company in question. Repossessed assets In some cases, the Bank repossesses assets which have Market value of securities such as bonds and ­certificates been pledged as collateral security for loans, as part of the ­issued by others and which are owned by the Bank is treatment of loans and guarantees in default. At the time of ­ascertained by collecting information on credit spreads from repossession , the assets are assessed at their ­estimated central market players and by applying in-house ­calculations realisation value and the commitment in question is ­adjusted based on present value models. accordingly. At a later accounts presentation, the value is adjusted for the change in realisation value. Market value for securities-related debt is calculated as present value on the initial basis of the swap curve for the Financial instruments remaining life including an addition or a deduction for the Financial instruments consist of shares and unit trust group of issuers to which the Bank belongs. ­certificates, certificates, bonds and financial ­derivatives. ­Shares, unit trust certificates and Primary Capital­Certificates Market value of interest rate derivatives is calculated as the (PCCs) are classified in the accounts either at ’fair market present value based on the swap curve for the remaining value through the profit and loss account’ or as ’available life. Derivatives in foreign currencies are assessed at prices for sale’, any value change to be shown directly against ruling at the end of the year. equity capital. Certificates, bonds and financial ­derivatives as ­assets or liabilities are classified in the ­accounts at fair Market conditions in 2008 were turbulent and characterised market value with any value change included in the profit by lower trading activity than earlier. It has therefore been and loss account. difficult to obtain clear and unambiguous information from the market which could be used as a basis when ­assessing All financial liabilities, with the exception of subordinated market value. In view of this, market value is therefore loan capital, are accordingly incorporated in the accounts at ­subject to a larger degree of uncertainty than before. fair market value. In the case of financial liablities at ­fixed rates of interest which have been swapped into ­floating­rates Financial assets or -liabilities are removed from the of interest, accounts-related inconsistencies are ­accordingly ­balance sheet when the right to receive cash flows from avoided, as financial derivatives must be shown at fair the ­investment or liability to pay cash flows ceases or has ­market value. Financial liabilities at floating rates of interest ­ceased on realisation. are also included in the accounts at fair market ­value as this is calculated and reported at fair market value in connection All financial instruments are managed, measured and with the Bank’s ongoing follow-up of funding- and interest ­reported in accordance with currently valid strategy for the rate risk. financial instruments in question. 21

In practice, the Bank uses financial derivatives mainly for ­benefit schemes. A benefit-related scheme is a pension hedging purposes, but hedging-related accounting is not ­scheme which provides the right to receive a defined, future applied. benefit once retirement age has been reached. The level of pension is decided by factors such as age, the number of Subordinated loans years in employment and the amount of salary. The most Subordinated loans have priority after all other debt. comprehensive pension schemes are guaranteed through ­Subordinated loans are classified as a liability in the balance payment to an insurance company. sheet and are shown in the accounts at amortised cost. The liabilities included in the balance sheet relating to a ­defined Deposits benefit cheme amount to the present value of the defined Most deposits are shown in the accounts at amortised ­liability reduced by the market value of the ­pension resources. cost. The exception to this rule are deposits linked to share The liability is assessed every year by an ­independent actuary. ­dividends, such deposits being shown in the accounts at fair The present value of future, defined benefits is computed by market value, with any value change through the profit and discounting future, estimated payments, using interest rates loss account. recommended by Norsk Regnskapsstiftelse.

Intangible assets Economic parameters used as a basis for the computation Intangible assets consist of goodwill, rights and electronic of pension liabilities are up-dated on the balance sheet date data processing programmes. in question.

Goodwill is defined as the difference between the purchase Uncertain liabilities amount and the identified value of net assets in the acquired The Bank issues financial guarantees as part of its ordinary business. Goodwill is not depreciated but assessed annually operations. Loss assessment is made as part of the assess- with regard to write-down. ment of losses on loans and is reported together with these.

Rights are carried in the balance sheet at cost price after Provisions are made for other uncertain liabilities if it is ­deemed deducting depreciation. The period of depreciation reflects more than likely than not that the liability would ­materialise, the life of the right. and if the financial consequences can be ­assessed in a relia- ble manner. Provisions for restructuring costs are made when Electronic data processing programmes are shown in the the Group has an agreement-related or legal liability. accounts at cost price after deducting depreciation. Straight- line depreciation reflecting economic life is applied. Tax Tax included in the profit and loss account consists of tax Fixed assets payable and deferred tax. Fixed assets comprise buildings, sites and operations- ­related chattels. Buildings and operations-related chattels Liabilities or assets are calculated in the case of deferred are shown in the accounts at cost price, deductions having tax on temporary differences, which involves the ­difference been made for depreciation and write-downs. The Bank ­between book value and tax-related value of assets and ­applies straight-line depreciation reflecting the asset’s ­liabilities. ­Deferred tax is 28 per cent of the temporary economic life. ­differences at the end of the accounting year. Tax-increas- ing and ­tax-decreasing temporary differences which are Impairment in value of other financial assets ­reversed or which can be reversed during the same period Impairment in value of other financial assets is assessed in are netted out and included in the accounts on a net basis. the same way as impairment in value of loans. Deferred tax asset is shown in the balance sheet based on expectation of taxable income through revenue generation Pensions in future years. The Bank has different pension schemes, which are all 22

Segment reporting Depreciation shall reflect the assets’ economic life. Every A segment is a customer category of similar products, ­services, effort is made in order to apply a depreciation period in return and risk. A segment can also be customer groups wit- ­accordance with the economic life involved, but there will hin a geographical area. The Bank’s operations are divided into ­always be a risk of the economic life in practice turning out the primary segments of retail banking, corporate market and to be different from the depreciation period. real estate brokerage. Geographical location is a secondary segment. The pension liabilities are based on estimates related to the investment return on the pension resources, future Cash flow statement ­interest rates, wage-, salary- and pension development, the The cash flow statement is prepared on the basis of gross cash ­development of the National Insurance’s basic amount, staff flows from operational-, investment- and financing activities. turnover, the share of disabled pensioners, expected usage Cash flows from operational activities are defined as currenet of SERPS and duration of life. Changes in the estimates can interest relating to lending- and deposit operations involving produce a significant impact on the pensioin liabilities and customers, net payments received/payments made relating pension costs. to loan- and deposit activities, fees and commissions from other operations, and payments made in connection with costs Market value of financial instruments which are traded in an ­related to ordinary operations. Investment activities are ­defined active market can normally be ascertained with a ­reasonable as investments in the ’available for sale portfolio’, c­oupled with degree of certainty. If this is not the case, ­different assess- investments in operating equipment and real estate. Cash ment models are applied, and these models are mentioned flows from the issue of and repayment of subordinated loans in more detail under the description of financial instru- and bond debt are defined as financing activities. ments. In our opinion, these models provide a good estimate of market value even if the method will also involve some Use of estimates and assessments relating to application uncertainty. Changed market conditions in 2009 may affect of accounting principles the values in the balance sheet in 2009. Critical estimates and assessments are primarily related to the write-down of individual loans or groups of loans, 2008 was characterised by significant turbulence in the ­pension liabilities, depreciation and amortisation, as well ­financial markets. This has had an impact on the general as confirmation of market value of financial instruments. level of interest rates and on the individual credit spreads ­Accounting estimates may deviate from the results ­achieved, relating to different issuers. The turbulence has therefore but are based on the best estimate available at the time of brought about substantial challenges as far as the assess- presenting the accounts. ment of fair market value of the interest rate instruments at the end of the year under review is concerned. The Bank’s corporate commitments are divided into dif- ferent risk classes according to the customer’s financial Events occurring after the balance sheet day strength and revenue generation. Commitments in the The accounts are deemed to be approved for pblication once ­weakest risk classes are reviewed 3-4 times each year with the Board of Directors has dealt with the accounts. The a view to write-down. All larger commitments are ­examined ­Supervisory Board and the regulatory authorities will after in order to establish whether it is necessary to make a this be able to refuse to approve the accounts but not to write-down. ­Criteria for write-down are mentioned under change the accounts. losses on ­loans. The Bank’s systems for risk classification are ­mentioned under risk management. Assessment of Events occurring up the time the accounts are ­published ­individual- and collective write-downs will always be based and which were known on the balance sheet date in on a significant amount of judgement. One can never know ­question have been taken into consideration in the accounts. with certainty which relevance historical data have as a basis Events ­relating to circumstances which were not known on for decisions. The realisation of collateral assets pledged as the ­balance sheeet day will be made known if they are of security relating to specific objects or sectors will always ­significant importance. involve a signidicant degree of uncertainty. 23

The accounts are prepared on the assumption of a going con- Bank’s granting of credit. The credit strategy is agreed at cern. In the Board of Directors’ opinion, this assumption was ­least once every year by the Board of directors and ­comprises valid when the accounts were approved for presentation.­ credit policy-related guidelines, as well as management tar- gets for risk profile and risk concentrations in the Group. Management targets have been introduced for ­expected 3. Financial risk management ­credit risk, concentration risk, sectors, markets and geo- graphy, and limits for large customers and individual Risk- and capital management ­customers. Management targets for risk is monitored and The risk management at Sparebanken Sor shall ­support reported at regular intervals to the Board of Directors. the Group’s strategic aims, targets and development. ­Sparebanken Sor has developed and actively uses models ­Sparebanken Sor’s aim is that from a long-term perspective for risk classification in risk processes and portfolio mana- the Group shall have good financial stability – so that there gement within the retail banking- and corporate markets. is a good basis for development and growth and at the same time the necessary financial strength to be able to tackle The Board of Directors is responsible for the Group’s ­granting downturns in the economy. Capital management shall of credit and has delegated powers of attorney-related limits to ­ensure that Sparebanken Sor has a good capital adequacy the CEO, who, within his powers of attorney, has ­delegated to ratio and a competitive return on equity capital in relation to others within the organisation. The credit-handling ­routines, its risk profile. credit policy and risk classification models stipulate certain The Board of Directors has agreed a management target requirements with regard to processes and risk assessments for the aggregate risk level and actual management ­targets which shall be applied in connection with the granting of and for risk within each separate risk area. The risk manage- follow-up of loans and other commitments within the retail ment shall make sure that the risk exposure at all times banking- and corporate sectors. The powers of attorney are is known, contributing to the Group reaching its ­strategic related to staff’s skills andcompetence, markets, the size of ­targets for ­financial stability and profitability. The risk is commitments, and risk. adapted to the size of the organisation, ambitions, staff’s The Group has a moderate risk profile within the credit skills and ­competence, and markets. Systems for follow-up area. and ­control of risk have been established. The Group’s overall risk ­exposure and risk ­development are followed up through Note 27 contains quantitative information on credit risk. quarterly reporting to the Group management and Board of ­Directors. The overall risk management and reporting are Market risk done by the Risk ­Management Department which reports Market risk is defined as the risk of loss due to­unfavourable ­directly to the Bank’s Chief Executive Officer. market changes in interest rates, foreign exchange rates and securities prices. The management of market risk shall One of Sparebanken Sor’s Board of Directors’ most ­important be done through detailed management targets fixed by the aims is to strengthen risk management at the Bank further Board of Directors for investment in shares, bonds and for and at the same time to prepare the Bank for adaptation to positions in the interest rate- and foreign exchange ­markets. the Basel II IRBF rules and regulations. Follow-up is done through ongoing reporting of portfolios and management targets to the Group management and Credit risk Board of Directors. Credit risk is defined as the risk of loss as a result of ­customers or conterparts not being able to meeet their Most of the Bank’s interest rate risk is related to the Bank’s ­obligations. portfolio of interest-bearing securities, fixed interest rate Credit risk is managed through the Group’s credit strategy, ­loans and fixed interest rate deposits. The Board of Directors credit policy, credit routines, credit processes and powers of has stipulated a limit of NOK 30 million for aggregate interest attorney relating to the granting of credit/delegated ­lending rate risk on and off the Bank’s balance sheet, measured by authority which comprise the overall guidelines for the the overall impact on results of a 1 percentage point ­change 24

in the level of interest rates. On average, throughout the year, The liquidity indicator as at 31.12.2008 was 105.5, including less than 25 per cent of the agreed limit for interest rate drawing rights. A ratio of 102 is factored into the Bank’s risk has been utilised, and at the end of the year, the Bank’s ­liquidity strategy. ­interest rate exposure totalled NOK 9.1 million. Note 29 contains quantitative information on funding risk. The Bank’s overall result is affected by fluctuations in the foreign exchange market. The most important balance ­sheet Operational risk item is lending in foreign currencies to customers, such Operational risk is defined as the risk of loss due to­insufficient ­loans being hedged through forward transactions or funding or failing internal processes, routines or systems, human loans in the same currencies. The total limit for open foreign ­error, crime or external events. This risk is in particular currency positions is NOK 100 million. At the end of the year ­related to failure of the Bank’s IT-systems, human ­error or currently under review, NOK 77.6 million was utilised. failure in routines and systems. Ongoing monitoring of the The Bank’s aggregate investment in shares amounts to NOK internal control within these areas is done and in 2008 ­there 221 million, of which the trading portfolio accounts for NOK were no identified weaknesses of any importance for the 69 million. The Board of Directors has agreed a maximum Bank’s overall risk situation. limit for the trading portfolio of NOK 230 million. The turbulence in the financial markets has meant that The management of operational risk is done through the the Bank’s securities portfolios had to be written down in further development of staff’s skills and competence, good ­value by substantial amounts. Most of it involves unrealised routines, good internal control and quality assurance. ­losses which the Bank expects to recover during the next few ­years. Each year, an overall risk analysis is done within the ­different risk areas. Notes 26, 28 and 30 contain quantitative information on Continual work is done involving preventive measures and market risk. development of new management- and reporting systems.

Funding risk The Group has a moderate risk profile in relation to the Funding risk is defined as the risk of the Group being unable Bank’s organisation, routines and management systems. In to meet its obligations, or being unable to fund its assets. 2007, a ’catastrophe exercise’ was done in order to test the Deposits from customers are the Bank’s most important Bank’s contingency plan. and most stable source of funding. The Board of Directors attaches a great deal of importance to the ratio between customer deposits and loans being satisfactory. In order to further reduce its overall funding risk, the Bank has been making every effort to diversify its funding loans from the capital market with regard to maturities, markets, funding sources and financial instruments. Net funding requirements from sources other than customer deposits must not amount to more than NOK 900 million for the next 7 days, and not more than NOK 1.6 billion for the next 3 months. As a liquidity reserve, the Bank had committed long-term drawing rights facilities of 195 million euros at the end of 2008. The facilities were not utilised last year and were also unutilised at the end of 2008. In addition, the Bank has ­unutilised drawing right facilities of NOK 1.6 billion at ­Norges Bank. 25

4. Net interest- and credit commission income

Parent Bank Group 2006 2007 2008 2008 2007 2006 10 23 27 Interest etc. on claims on financial institutions 27 23 10 925 1,414 2,007 Interest etc. on loans to customers 1,994 1,407 921 70 143 220 Interest etc. on certificates and bonds 220 143 70 1005 1580 2,254 Total interest income 2,241 1,573 1,001

5 60 93 Interest etc. on liabilities to financial institutions 93 60 5 256 520 762 Interest etc. on deposits from customers 757 512 250 249 426 736 Interest etc. on issued securities 736 426 249 16 20 Interest etc. on subordinated loan capital 20 16 6 Levy paid to the Norwegian Banks Guarantee Fund 6 510 1,022 1,617 Total interest costs 1,612 1,014 504 495 558 637 Net interest- and credit commission income 629 559 497

5. Commissions and income from banking services

Parent Bank Group 2006 2007 2008 2008 2007 2006 9 11 12 Guarantee commission 12 11 9 9 10 8 Securities trading and -administration 8 10 9 6 6 6 Interbank fees 6 6 6 71 72 70 Payments transmission services 70 72 71 7 8 9 Insurance services 9 8 7 Real estate brokerage and -management 69 105 98 8 8 9 Miscellaneous 9 8 8 110 115 114 Total commissions and income from banking services 183 220 208

6. Commissions payable and costs relating to banking services

Parent Bank Group 2006 2007 2008 2008 2007 2006 6 6 5 Interbank fees 5 6 6 15 17 18 Payments transmission services 18 17 15 2 2 5 Other commissions payable 5 2 2 23 25 28 Total commissions payable and costs of banking services 28 25 23 26

7. Income from financial instruments

Parent Bank Group 2006 2007 2008 2008 2007 2006 7 8 -71 Gains/losses, val. change, trading portfolio, eq. cap. instrs. -71 8 7 -3 -13 -113 Gains/losses and value change, certificates and bonds -113 -13 -3

-23 -8 35 Value change, loans and depositss ast market value 35 -8 -23 26 -38 Value change of related financial derivatives -38 26

161 77 -222 Value change, issued securities at fixed rates of interest -222 77 161 -151 -50 297 Value change of related financial derivatives 297 -50 -151

16 12 Value change, issued securities at floating rates of interest 12 16

1 -1 -38 Value change, other financial instruments 1) -38 -1 1

Total income from financial instruments at fair market 18 29 -138 value with value change through the profit and loss acct. -138 29 18

1) Of which NOK 35 million is accounted for by a guarantee in favour of Eksportfinans ASA

-10 Write-down - Start Toppfotball AS -20 Write-down - ABCenter Holding AS -3 -2 Write-down - Rettighetskompaniet AS

Write-down and losses/gains on investment designated 5 -11 as available for sale -11 5

Total write-down and losses/gains on investments valued 2 -43 at cost price or investment designasted as available for sale -11 5

8 10 12 Dividends from equity capital instruments 12 10 8 11 12 -2 Foreign exchange trading -2 12 11 19 22 10 Total income from other financial instruments 10 22 19

8. Other operating costs

Parent Bank Group 2006 2007 2008 2008 2007 2006 16 25 30 Marketing 37 32 24 60 61 64 IT-costs 69 65 65 13 14 13 Operating costs relating to real estate 37 27 17 4 5 6 External fees 9 7 7 59 61 68 Other operating costs 110 81 79 152 166 181 Total other operating costs 262 212 192 27

9. Rental income and -costs

The Group rents premises in some locations. In 2008, the annual rental totalled NOK 4.2 million. Own premises are rented­ out to the extent that they are not used for own operations. In 2008, the annual rental income was NOK 6.0 million. The Group also rents payment terminals for renting out to customers. In 2008, the annual rental income was NOK 6.3 ­million and the rental cost NOK 4.6 million.

10. Other assets

Parent Bank Group 2006 2007 2008 2008 2007 2006 76 98 146 Accrued income, not yet received, and prepaid costs 146 98 79 5 9 33 Pension resources 33 9 5 28 26 13 Other assets 55 80 70 109 133 192 Total other assets 234 187 154

11. Loans and liabilities to financial institutions

Parent Bank Group 2006 2007 2008 2008 2007 2006 Loans to and claims on financial institutions 11 27 30 No agreed maturity or notice of withdrawal 21 27 11 634 187 Agreed maturity or notice of withdrawal 187 634 645 214 30 Total loans to and claims on financial institutions 21 214 645

Liabilities to financial institutions 59 77 38 No agreed maturity or notice of withdrawal 38 77 59 1,072 1,514 2,179 Agreed maturity or notice of withdrawal 2,080 1,514 1,072 1,131 1,591 2,217 Total liabilities to financial institutions 2,118 1,591 1,131

12. Other liabilities

Parent Bank Group 2006 2007 2008 2008 2007 2006 74 77 81 Pension liabilities 81 77 74 6 5 6 Trade creditors 18 13 13 8 8 8 Tax deducted 15 11 10 55 32 26 Appropriation accounts 26 32 54 97 64 107 Other liabilities 137 70 92 15 16 17 Accrued holiday pay 24 22 19 41 94 182 Incurred interest 184 96 52 18 25 16 Other incurred costs 37 30 18 314 321 443 Total other liabilities 522 351 332 28

13. Segment reporting

Reporting by segment Group 2008 Group 2007

Profit and Loss Account Retail Corp. Real est. Not Total Retail Corp. Real est. Not Total (NOK million) bkg. bkg. brokerage allotted bkg. bkg. brokerage allotted

Net int. - and cr. comm. income 288 196 145 629 207 187 2 163 559 Net other operating income 45 19 74 -81 57 51 18 105 96 270 Operating costs 166 111 126 151 554 149 106 104 121 480 Op. res. bef. losses by segment 167 104 -52 -87 132 109 99 3 138 349 Losses on loans and guarantees 12 78 24 114 2 -2 12 12 Result before tax by segment 155 26 -52 -111 18 107 101 3 126 337

Net loans to customers 17,496 10,844 28,340 15,277 10,539 25,816 Other assets 105 5,230 5,335 83 4,279 4,362 Total assets by segment 17,496 10,844 105 5,230 33,675 15,277 10,539 83 4,279 30,178

Deposits from/liabs. to customers 9,942 6,124 16,066 8,936 6,759 15,695 Open accounts/other liabilities 7,554 4,720 105 2,963 15,342 6,341 3,780 83 1,996 12,200 Total liabilities by segment 17,496 10,844 105 2,963 31,408 15,277 10,539 83 1,996 27,895 Equity capital 2,267 2,267 2,283 2,283 Total liabs. and eq. cap. by segment 17,496 10,844 105 5,230 33,675 15,277 10,539 83 4,279 30,178

Reporting by segment Parent Bank 2008 Parent Bank 2007

Profit and Loss Account Retail Corp. Not Total Retail Corp. Not Total (NOK million) bkg. bkg. allotted bkg. bkg. allotted

Net int.- and credit comm. income 288 196 153 637 207 187 164 558 Net other operating income 45 19 -132 -68 51 18 88 157 Operating costs 166 111 109 386 149 106 112 367 Op. result bef. losses by segment 167 104 -88 183 109 99 140 348 Losses on loans and guarantees 12 78 24 114 2 -2 12 12 Result before tax by segment 155 26 -112 69 107 101 128 336

Net loans to customers 17,496 11,090 28,586 15,277 10,610 25,887 Other assets 5,181 5,181 4,251 4,251 Total assets by segment 17,496 11,090 5,181 33,767 15,277 10,610 4,251 30,138

Deps. from/liabs. to customers 9,942 6,169 16,111 8,936 6,773 15,709 Open accounts/other liabilities 7,554 4,921 2,887 15,362 6,341 3,837 1,977 12,155 Total liabilities by segment 17,496 11,090 2,887 31,473 15,277 10,610 1,977 27,864 Equity capital 2,294 2,294 2,274 2,274 Total liabs. and eq. by segment 17,496 11,090 5,181 33,767 15,277 10,610 4,251 30,138 29

Reporting by region Group 2008 Group 2007

Profit and Loss Account East West Real est. Not Total East West Real est. Not Total (NOK million) brokerage allotted brokerage allotted

Net int.- and cr. comm. income 241 243 145 629 210 209 2 138 559 Net other operating income 51 52 74 -120 57 52 53 105 60 270 Operating costs 135 142 126 151 554 123 132 104 121 480 Op. res. bef. losses by region 157 153 -52 -126 132 139 130 3 77 349 Losses on loans and guarantees 40 51 23 114 4 -4 12 12 Result before tax by region 117 102 -52 -149 18 135 134 3 65 337

Net loans to customers 13,018 15,627 -305 28,340 11,655 14,127 34 25,816 Other assets 105 5,230 5,335 97 107 83 4,075 4,362 Total assets by region 13,018 15,627 105 4,925 33,675 11,752 14,234 83 4,109 30,178

Deps. from/liabs. to customers 7,470 8,470 126 16,066 7,055 8,412 228 15,695 Open accounts/other liabilities 5,548 7,157 105 2,532 15,342 4,697 5,822 83 1,598 12,200 Total liabilities by region 13,018 15,627 105 2,658 31,408 11,752 14,234 83 1,826 27,895 Equity capital 2,267 2,267 2,283 2,283 Total liabs. and eq. cap. by region 13,018 15,627 105 4,925 33,675 11,752 14,234 83 4,109 30,178

Reporting by region Parent Bank 2008 Parent Bank 2007

Profit and Loss Account East West Not Total East West Not Total (NOK million) allotted allotted

Net int.- and cr. comm. income 241 243 153 637 210 209 139 558 Net other operating income 51 52 -171 -68 52 53 52 157 Operating costs 135 142 109 386 123 132 112 367 Op. res. bef. losses by segment 157 153 -127 183 139 130 79 348 Losses on loans and guarantees 40 51 23 114 4 -4 12 12 Result before tax by segment 117 102 -150 69 135 134 67 336

Net loans to customers 13,018 15,627 -59 28,586 11,655 14,127 105 25,887 Other assets 5,181 5,181 97 107 4,047 4,251 Total assets by segment 13,018 15,627 5,122 33,767 11,752 14,234 4,152 30,138

Deps. from/liabs. to customers 7,470 8,470 171 16,111 7,055 8,412 242 15,709 Open accounts/other liabilities 5,548 7,157 2,657 15,362 4,697 5,822 1,636 12,155 Total liabilities by segment 13,018 15,627 2,828 31,473 11,752 14,234 1,878 27,864 Equity capital 2,294 2,294 2,274 2,274 Total liabs and eq. cap. by segmen 13,018 15,627 5,122 33,767 11,752 14,234 4,152 30,138

Region East comprises all branches east of Arendal, including Arendal. Region West comprises all branches west of Arendal. 30

14. Losses and write-downs on loans

Loans Guarantees Total 2008 2007 2006 2008 2007 2006 2008 2007 2006 Individual write-downs Individual write-downs as at 01.01 52 60 69 0 0 0 52 60 69 -Period’s confirmed losses against which individual write-down was previously made 5 11 2 0 0 0 5 11 2 +Increased ind. write-downs during the period 17 0 0 0 0 0 17 0 0 +New ind. write-downs during the period 30 13 11 0 0 0 30 13 11 -Reversal of ind. write-downs during the period 6 10 18 0 0 0 6 10 18 =Individual write-downs as at 31.12 88 52 60 0 0 0 88 52 60

Collective write-down of loans Collective write-down as at 01.01 66 53 46 0 0 0 66 53 46 +Period’s change in collective write-down 25 13 7 0 0 0 25 13 7 =Collective write-down as at 31.12 91 66 53 0 0 0 91 66 53

Loss costs Period’s change in individual write-downs 36 -8 -9 0 0 0 36 -8 -9 +Period’s change in collective write-down 25 13 7 0 0 0 25 13 7 +Period’s confirmed losses against which individual write-down was previously made 5 11 2 0 0 0 5 11 2 +Period’s confirmed losses against which no individual write-down was previously made 49 1 2 0 0 0 49 1 2 +Booked as interest income 2 0 0 0 0 0 2 0 0 -Period’s recoveries from previous conf. losses 3 5 3 0 0 0 3 5 3 =Period’s loss cost 114 12 -1 0 0 0 114 12 -1

Losses on loans and guarantees by customer groups 2008 2007 2006 Primary industries 0 0 0 Industry 1 0 0 Building and construction 11 0 0 Transport and communication 0 0 0 Wholesale- and retail trade 13 -2 -4 Hotels and restaurants 2 -1 -3 Real estate 40 1 0 Financial- / business services 12 0 0 Retail banking customers 11 1 0 Miscellaneous -1 0 -1 Total losses on customers 89 -1 -8 Increase in collective write-down 25 13 7 Total losses on loans, guarantees etc. 114 12 -1 31

15. Deposits from customers according to different groups and sectors

Parent Bank Group 2006 2007 2008 2008 2007 2006 7,462 8,350 9,315 Retail banking customers 9,315 8,350 7,462 1,386 1,667 1,736 Public sector 1,736 1,667 1,386 219 246 204 Primary industries 204 246 219 1,798 627 552 Industry 552 627 1,798 310 344 451 Buildingd and construction 451 344 310 199 221 275 Transport and communication 275 221 199 447 435 462 Wholesale- and retail trade 462 435 447 91 89 92 Hotels and restaurants 92 89 91 988 1,558 1,098 Real estate 1,056 1,544 978 775 1,176 836 Financial- / business services 836 1,176 775 926 996 1,090 Sundry / other sectors 1,087 996 926 14,601 15,709 16,111 Total deposits from customers 16,066 15,695 14,591

16. Average interest rates and special terms and conditions for some liabilities items

2008 2007 2006 Liabilities to financial institutions Loans and deposits from financial institutions – no agreed maturity 3.0 % 2.9 % 1.8 % Loans and deposits from financial institutions – with agreed maturity 4.9 % 5.1 % 3.0 % Deposits from customers Deposits from customers – no agreed maturity 4.9 % 4.3 % 2.7 % Deposits from customers – with agreed maturity 4.4 % 4.2 % 3.0 % Debt incurred through the issuance of securities Certificate-related debt 7.2 % 5.5 % 3.1 % Bond debt 5.7 % 5.4 % 4.4

The average rate of interest is calculated as a weighted customers amount to NOK 171 million. All debt related to the ­average of the actual interest rate terms and conditions as issuance of securities is in NOK. at 31.12.2008, defined as annual interest paid in arrears. No liabilities items are subject to special terms and conditions. Bonds and certificates amounting to a book value of NOK 2,451 million have been pledged as collateral security for intra-day Of the total debt to financial institutions, the equivalent of NOK loans and D-loans from Norges Bank. Such loans must be 877 million is in foreign currencies. Of this, NOK 669 million is fully secured by depositing securities in VPS (The Norwegian in EUR, NOK 104 million in JPY and NOK 103 million in CHF. Registry of Securities). Of deposits from customers, NOK 134 million is in USD and NOK 25 million in EUR. Total foreign currency deposits from 32

17. Associated companies

Amounts in NOK thousand Book val. of eq. Acq. cap. at Opening Other Closing Name of company/reg. office Eq. stake cost acq. bal. Result changes balance

Associated companies: Kragerø Næringshavn AS 25 % 28 28 0 0 Søndeled Bygg A/S 29 % 870 870 1,151 4 1,155 Total equity stakes in associated companies 898 898 1,151 4 1,155

18. Group companies

Amounts in NOK thousand Eq. stake Book value 2008 2007 2006 ABCenter Holding AS 100 % 35,095 22,681 26,296 A/S Eiendomsvekst 100 % 2,935 2,935 2,935 Bankbygg A/S 51 % 191 191 189 Kaldvell Eiendom AS 100 % 7,162 Markensgate 9 AS 100 % 77,049 75,375 Markensgate 9 Invest AS 100 % 24,010 Prosjektutvikling AS 100 % 3,131 107 107 Rettighetskompaniet AS 100 % 21,530 23,659 21,430 Skippergata 10 AS 100 % 3,616 Start Stadion AS 100 % 3 Start Toppfotball AS 99 % 10,000 Sør Boligkreditt AS 100 % 100,000 Total equity stakes in Group companies 281,106 128,564 50,957 33

19. Fixed and intangible assets

Machinery, fixtures Group and transport eq. Buildings Intangible assets 2008 2007 2008 2007 2008 2007

Acquisition cost as at 01.01 140 142 374 235 90 79 Additions during the year 18 10 214 141 50 15 Disposals during the year 11 12 20 2 4 Acquisition cost as at 31.1. 147 140 568 374 140 90 Accumulated depreciation and write-downs 112 111 124 121 74 52 Book value as at 31.12 35 29 444 253 66 38

Ordinary depreciation 11 10 9 7 9 7 Write-downs 13 Gains on sale 0 3 1 0

Machinery, fixtures Parent Bank and transport eq. Buildings Intangible assets 2008 2007 2008 2007 2008 2007

Acquisition cost as at 01.01 130 134 201 200 18 19 Additions during the year 14 8 4 1 8 3 Disposals during the year 12 12 8 0 0 4 Acquisition cost as at 31.12 132 130 197 201 26 18 Accumulated depreciation and write-downs 102 105 117 112 15 9 Book value as ast 31.12 30 25 80 89 11 9

Ordinary depreciation 9 9 6 6 6 4 Gains on sale 0 0 3 1 0 0

Estimated economic life corresponds to the period of depreciation for the various groups of assets. The assets are subject to straight-line depreciation. The Group’s buildings are largely located within the Bank’s own district and are for the Bank’s own use. 34

20. Accounting treatment of tax

Parent Bank Group 2006 2007 2008 2008 2007 2006 Deferred tax and deferred tax asset:

2 2 9 Pension resources 9 2 2 -10 -11 -12 Negative tax-related accelerated depreciation of fixed assets -4 -4 -10 Premium relating to buildings in Group accounts 22 22 -3 -38 Premium/discount relating to securities -38 -3 -1 -4 5 Fixed interest rate loans 5 -4 -1 13 11 53 Financial derivatives - assets 53 11 13 -2 Deposits -2 -21 -22 -23 Pension liabilities -23 -22 -21 -25 -30 -16 Financial derivatives - liabilities -16 -30 -25 17 46 -13 Certificates and bond loans -13 46 16 Other accounts-related provisions -8 -7 -27 -11 -35 Total deferred tax and deferred tax assets in accounts -13 11 -28

Reconciliation of tax paid and included in p & l accoount:

73 72 67 Tax payable on the year’s result (period tax) 66 76 76 6 7 8 Wealth tax 8 7 7 6 18 -24 Deferrerd tax included in the profit and loss account -36 15 6 -1 1 Too much / too little set aside in previous years 1 -1 84 98 51 Tax shown in the profit and loss account 38 99 88

Parent Bank Group 2006 2007 2008 2008 2007 2006 Reconciliation of tax payable on the year’s result (period tax):

82 94 19 28 % of the result before tax 5 94 86 -3 -4 24 Permanent differences 25 -4 -4 -6 -18 24 Deferred tax included in the profit and loss account 36 -15 -6 73 72 67 Tax payable on the year’s result (period tax) 66 75 76 24.9 21.4 97.1 Tax payable as a percentage of the year’s result 366.7 22.2 24.8 35

21. Pension liabilities relating to staff and elected representatives

Guaranteed scheme all of whom have the option of retiring at the age of 62 years. Sparebanken Sor provides a Group pension scheme for its A separate arrangement has been provided for 20 ­managers, employees, through a life assurance company. The Bank’s who, subject to application, would be able to leave the Bank liabilities in this respect comprise 357 staff and 146 ­retired with a complimentary pension in addition to ’SERPS’. In employees. These liabilities are shown in the Bank’s ­accounts ­addition, a separate arrangement has been established for on the basis of IAS 19, in accordance with which the Bank’s past and present CEOs and the former DCEO with the option pension scheme is to be treated as a benefitscheme. ­ of retiring at the age of 60 years.

The total amount of pension resources is assessed on the These arrangements have been incorporated in the Bank’s basis of its estimated value at the end of the applicable accounts in accordance with IAS 19 for benefits ­provided ­accounting period. The estimated value is adjusted each for staff. The assumptions which have been applied in year in accordance with a statement provided by the life this ­connection are identical to those pertaining to the ­assurance company, setting out the transferable value of ­fund-based scheme. In the case of ’SERPS’, this scheme is the pension resources. based on the assumption of employees’ average propensity Accrued pension liabilities are assessed on the basis of their to opt for this alternative being 50 per cent, whereas the estimated value at the end of the relevant accounting period. ­corresponding ­ratio has been put at 100 per cent as far as the The amount is adjusted annually, according to a statement ­abovementioned arrangement for managers is concerned.­ provided by the life assurance company, setting out in detail the incurred pension liabilities. Calculations are based on the following assumptions: 2008 2007 An actuarial valuation is done each year, based on ­information Interest rate applied when discounting 5.10 % 4.35 % provided by the Bank. Expected annual wage- and salary growth 4.50 % 4.00 % Non-guaranteed scheme Expected annual adjustment of basic For employees retiring before normal pensionable age, or salary amount 4.25 % 4.00 % for employees who have not accumulated a full pension Expected annual adjustment of ­entitlement by the time they leave the Bank, ­Sparebanken pensions being paid 2.35 % 2.00 % Sor provides an annual amount. This pension scheme is Expected rate of return on invested funded by a direct charge to the profit and loss account and pension resources 6.10 % 5.45 % comprises 18 old age pensioners who are now ­receiving their pensions, and 18 employees benefitting from the ­statutory Financial assumptions: early retirement pension scheme (referred to ­elsewhere in Interest rate applied when discounting 4.00 % 5.10 % this Annual Report and Notes to teh Accounts as ’SERPS’). Expected rate of return on invested The latter scheme has been established for 337 employees, pension resources 6.00 % 6.10 % 36

21. Pension liabilities relating to staff and elected representatives

Breakdown of pension cost for the year: Guaranteed Non-guaranteed 2008 2007 2008 2007

Pensionable amounts accrued during the year 11 9 3 3 Interest cost relating to the pension liabilities 14 11 4 3 Expected rate of return on invested pension resources -15 -13 Impact of changed estimates included in the profit and loss account 2 1 5 1 Employers’ social security contributions subject to accrual accounting 1 3 1 1 Administration costs 1 1 Plan changes -8 Net pension cost 14 12 5 8

31.12.08 31.12.07

Guaranteed Non- Guaranteed Non- guaranteed guaranteed Gross pension liabilities -333 -106 -300 -87 Pension resources 260 260 Employers’ social security contribution of net pension liabilities -11 Impact of changes estimates not included in the profit and loss acct. 117 25 49 10 Net pension resources / -liabilities 33 -81 9 -77

In 2008, the Bank contributed NOK 28.8 million towards pension resources; on that amount, the Bank paid employers’­ social security contributions of NOK 4.1 million. The Group’s pensions schemes meet the requirements relating to ­obligatory occupational pension.

Investment profile for the pension resources:

Short-term Long-term Shares bonds Money market bonds Real estate Sundry 31.12.2007 24.8 % 21.5 % 7.5 % 27.7 % 15.6 % 2.9 % 31.12.2008 3.8 % 29.9 % 14.0 % 28.8 % 16.8 % 6.7 % 37

22. Information relating to staff and elected representatives

Amounts in NOK thousand Fees paid to External Auditor Number of staff (all amounts excl. VAT) Parent Bank Group In 2008, there were on average 420 employees in the Group (Parent Bank and ABCenter), including technical personnel. Auditing 745 1,040 This was equivalent to 403 man-years on average. Tax advisory services 94 94 Accounts-related assistance 232 262 Other assistance 287 700 Fees paid at Parent Bank Total fees paid to External Auditor 1,358 2,096

Supervisory Board 133 Board of Directors 823 Loans and guarantees Control Committee 171 for staff in the Group Loans Guarantees Total fees paid to elected representatives 1,127 Ansatte 507,000 0

There are no agreements about any other remuneration than The total cost relating to interest subsidy for loans to staff that which is mentioned in Note 21 on pension liabilities. was NOK 8.0 million.

Salaries, loans/guarantees etc. and other benefits for senior persons Pension cost subj. to Total Loans, Fees and other Total Fringe accrual remune guaran- remuneration salaries benefits accounting -ration tees etc.

Senior personnel CEO 01.01.-31.12 Morten Kraft 1,486 163 670 2,319 748 DCEO 01.01.-31.03. Jan Hannestad 449 77 526

Dir. Marketing 01.01.-31.12 Gry J. Moen 881 156 244 1,281 2,326 Dir.HR and comm. 01.01.-31.12 Rolf H. Søraker 878 141 239 1,258 1,186 Reg.dir. West 01.01.-31.12 Øyvind Aasen 878 148 305 1,331 2,031 Reg.dir. East 01.01.-31.12 Gunnar Thomassen 882 149 238 1,269 1,635

Board of Directors Chairman 01.01.-31.12 Alice Jervell 132 132 1,809 Dep. Chairman 01.01-31.12 Arne Johan Johnsen 90 90 0 Member 01.01.-31.12 Hilde Sakariassen 97 97 0 Member 01.01.-31.12 Unni Grethe Farestveit 84 84 24 Member 01.01.-31.12 Olav Inge Nordbø 84 84 912 Member 01.01.-31.12 Kjell Pedersen-Rise 84 84 0 Member 01.01.-31.12 Erling Holm 84 84 0 Member 01.01.-31.03 Trond Fr. Winther 21 171 192 Member 01.04.-31.12 Cathy Steller 63 224 22 309 1,178 Member 01.01.-31.12 Per A. Bentsen 84 436 30 550 1,753 38

Salaries, loans/guarantees etc. and other benefits for senior persons Pension cost subj. to Total Loans, Fees and other Total Fringe accrual remune guaran- remuneration salaries benefits accounting -ration tees etc.

Control Committee Chairman 01.01.-31.12 Dennis Danielsen 79 79 0 Member 01.01.-28.02 Gunnar S. Langfeldt 9 9 Member 01.03.-31.12 Sølvi Sanden 26 26 0 Member 01.01.-31.12 Sverre Irgens 56 56 0

Supervisory Board Chairman 01.01.-31.12 Øystein Haga 24 24 967 Member 01.01.-31.12 Bente O. Brekka 5 5 0 Member 27.03.-31.12 Per E. Andersen 1 1 1,394 Member 01.01.-31.12 Kari Øi 5 5 661 Member 01.01.-31.12 Knut B. Aall 4 4 880 Member 01.01.-31.12 Dag O. Hødnebø 14 14 1,887 Member 01.01.-31.12 Mikkjel Skjevrak 5 5 772 Member 01.01.-31.12 Helge Sandåker 6 6 521 Member 01.01.-31.12 Jan Lindland 4 4 531 Member 01.01.-31.12 Rolf Sannes 2 2 1,044 Member 01.01.-31.12 Anita P. Hærås 5 5 0 Member 01.01.-31.12 Aanen Leland 5 5 117 Member 27.03.-31.12 Per J. Ougland 2 2 0 Member 01.01.-31.12 Rune Grimsby 4 4 913 Member 01.01.-31.12 Einar Amundsen 7 7 406 Member 27.03.-31.12 Øyvind Tveit 2 2 0 Member 27.03.-31.12 Ole M. Retterholt 2 2 347 Member 01.01.-31.12 Tone H. Strat, nestleder 5 5 495 Member 27.03.-31.12 Harald Andersen 2 2 0 Member 27.03.-31.12 Eivind R. Larssen 2 2 0 Member 01.01.-31.12 Anne-Nora Oma Dahle 0 Member 01.01.-31.12 Anne Efjestad 5 385 390 875 Member 01.01.-31.12 Merete Lie Seland 4 403 407 818 Member 01.01.-31.12 Jan D. Dalen 1 486 487 1,647 Member 01.01.-31.12 Carl Ove Jensen 4 416 420 2,489 Member 01.01.-31.12 Vivien Sveinall 4 361 365 1,388 Member 01.01.-31.12 Birger Sløgedal 5 427 432 324 Member 01.01.-31.12 Ingull Solbu 5 397 402 1,110

Senior personnel, ABCenter Man. dir. 01.01.-31.12. Alfred Solgaard 1,009 187 1,196 1,505

All loans have been extended on general terms and conditions which apply to staff, or at standard customer terms and conditions. 39

23. Closely related parties

Amounts in NOK thousand Group Chairman of management Board of Directors Control Committee Superv. Board 2008 2007 2008 2007 2008 2007 2008 2007 Loans outstanding as at 31.12 7,930 9,197 5,677 4,982 0 0 967 1,063 Interest income 361 306 319 255 13 4 58 53 Deposits as at 31.12 3,122 3,548 1,507 743 725 1,501 67 35 Interest cost 182 85 45 34 8 57 0,3 0,2

Subsidiaries Ass. company 2008 2007 2008 2007 Loans outstanding as at 31.12 284,439 70,385 14,715 15,483 Interest income 16,993 3,597 1,057 804 Deposits also include funds from Deposits as at 31.12 357,591 437,163 586 687 customers which are not included Interest cost 20,899 15,743 18 20 in subsidiaries’ balance sheets.

24. Equity and related capital and capital adequacy ratio (Parent Bank)

Capital adequacy With effect from the first quarter of 2008, we have reported capital adequacy according to the Basel II Standard Approach. According to statutory capital adequacy requirements, equity and related capital must amount to at least 8 per cent of a defined weighted assets calculation basis. The equity and related capital consists of core capital and supplementary ­capital in the form of subordinated loan capital.

31.12.2008 Sparebankens fond 2,275 The Savings Bank’s Fund 2,275 Deductions -109 Additions 32 Core capital 2,198 Subordinatedw loan capital 299 45 % of Fund for Market Value Reserve 9 Supplementary capital 308 Net equity and related capital 2,506

Calculation basis: Calculation basis for credit- and counterpart risk 18,315 Calculation basis for market risk 344 Calculation basis for position risk 1,189 Deduction in the calculation basis 101 Total calculation basis 19,747

Capital adequacy ratio 12.69 % Core capital coverage 11.13 %

The capital adequacy ratio for previous years was calculated according to Basel I and has not been included here as the figures are not comparable. 40

25. Change in equity capital Market Other Savings val. eq. Minority GROUP Bank’s Fund reserve capital interests TOTAL

Equity capital as at 01.01.2007 2,032 19 6 6 2,063 Result for 2007 238 -2 2 238 Donations -13 -13 Change in market value of equity capital instruments available for sale -2 -2 Dividends paid -3 -3 Equity capital as at 31.12.2007 2,257 17 4 5 2,283 Result for 2008 18 -31 -7 -20 Donations Change in market value of equity capital instruments available for sale 2 2 Disposal of minority in subsidiary 4 4 Dividends paid -2 -2 Equity capital as at 31.12.2008 2,275 19 -27 2,267

Market Other Savings val. eq. Minority PARENT BANK Bank’s Fund reserve capital interests TOTAL

Equity capital as at 01.01.2007 2,032 19 2,051 Result for 2007 238 238 Donations -13 -13 Change in market value of equity capital instruments available for sale -2 -2 Equity capital as at 31.12.2007 2,257 17 2,274 Result for 2008 18 18 Donations Change in market value of equity capital instruments available for sale 2 2 Equity capital as at 31.12.2008 2,275 19 2,294

26. Financial assets and liabilities according to classification Market val. Total Trading through Amortised Available book Market 31.12.2008 portfolio p&l acct. cost for sale value value

Loans to financial institutions 21 21 21 Loans to customers 738 27,602 28,340 28,340 Bonds and certificates 443 2,354 2,797 2,797 Shares 69 152 221 221 Financial derivatives 521 521 521 Total 512 3,613 27,623 152 31,900 31,900

Liabilities to financial institutions 2,118 2,118 2,118 Deposits from customers 8 16,058 16,066 16,066 Debt through issuance of securities 11,882 11,882 11,882 Financial derivatives 458 458 458 Subordinated loan capital 299 299 261 Total 0 12,348 18,475 0 30,823 30,785 41

Market val. Total Trading through Amortised Available book Market 31.12.2007 portfolio p&l acct. cost for sale value value

Loans to financial institutions 214 214 214 Loans to customers 738 25,078 25,816 25,816 Bonds and certificates 475 2,332 2,807 2,807 Shares 113 109 222 222 Financial derivatives 65 65 65 Total 588 3,135 25,292 109 29,124 29,124

Liabilities to financial institutions 1,591 1,591 1,591 Deposits from customers 11 15,684 15,695 15,695 Debt through issuance of securities 9,711 9,711 9,711 Financial derivatives 161 161 161 Subordinated loan capital 292 292 292 Total 0 10,175 17,275 0 27,450 27,450

Market val. Total Trading through Amortised Available book Market 31.12.2006 portfolio p&l acct. cost for sale value value

Loans to financial institutions 645 645 645 Loans to customers 822 21,280 22,102 22,102 Bonds and certificates 335 2,415 2,750 2,750 Shares 104 113 217 217 Financial derivatives 68 68 68 Total 439 3,305 21,925 113 25,782 25,782

Liabilities to financial institutions 1,131 1,131 1,131 Deposits from customers 49 14,542 14,591 14,591 Debt through issuance of securities 7,617 7,617 7,617 Financial derivatives 111 111 111 Subordinated loan capital 299 299 299 Total 0 8,076 15,673 0 23,749 23,749

A 10% change in the value of the shares in the trading portfolio represents a total value change of NOK 7 million. A general change in credit spreads of 10 points in our portfolio of bonds and certificates represents an aggregate change in value amounting to NOK 5 million. A 10 point change in credit spread on our securities-related debt represents a total value change of NOK 26 million.

The impact on overall results of a change in the general level of interest rates is described in Note 30.

42

27. Loans according to types, markets and risk

Loans according to types and markets

31.12.2008 Retail banking market Corporate market Gross Write- Net Gross Write- Net Total net loans down loans loans down loans loans

Credit facilities 4,029 2 4,027 1,136 23 1,113 5,140 Building loans 142 142 1,049 1,049 1,191 Repayment loans 12,985 57 12,928 8,440 97 8,343 21,271 Total loans at floating int. rates at amortised cost 17,156 59 17,097 10,625 120 10,505 27,602 Repayment loans at fixed int. rates at market value 399 399 339 339 738 Total loans 17,555 59 17,496 10,964 120 10,844 28,340

31.12.2007 Retail banking market Corporate market Gross Write- Net Gross Write- Net Total net loans down loans loans down loans loans

Credit facilities 3,041 1 3,040 1,157 7 1,150 4,190 Building loans 147 147 1,372 1,372 1,519 Repayment loans 11,738 47 11,691 7,741 63 7,678 19,369 Total loans at floating int. rates at amortised cost 14,926 48 14,878 10,270 70 10,200 25,078 Repayment loans at fixed int. rates at market value 399 399 339 339 738 Total loans 15,325 48 15,277 10,609 70 10,539 25,816

31.12.2006 Retail banking market Corporate market Gross Write- Net Gross Write- Net Total net loans down loans loans down loans loans

Credit facilities 134 2 132 679 11 668 800 Building loans 134 134 773 773 907 Repayment loans 12,799 33 12,766 6,874 67 6,807 19,573 Total loans at floating int. rates at amortised cost 13,067 35 13,032 8,326 78 8,248 21,280 Repayment loans at fixed int. rates at market value 420 420 402 402 822 Total loans 13,487 35 13,452 8,728 78 8,650 22,102 43

Loans, guarantees, commitments in default etc. according to important industrial, commercial and other sectors

Building and Public sector Primary industry Industry construction 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 Gross loans 56 62 58 450 401 368 829 727 679 702 709 570 Guarantees 0 0 0 4 2 3 268 260 308 86 184 80 Unutilised drawing rights facilities 351 350 396 57 65 54 165 98 124 139 145 126 Commitments in default 0 0 0 4 2 2 1 1 1 19 4 7 Other bad and doubtful commitments 0 0 0 0 0 2 2 2 5 39 49 43 Write-downs on individual loans 0 0 0 0 1 1 3 1 1 17 8 9 Special loss provisions - guarantees 0 0 0 0 0 0 0 0 0 0 0 0

Loans, guarantees, commitments in default etc. according to important industrial, commercial and other sectors - continued

Wholesale- and Hotels and Transport retail trade restaurants Real estate 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 Gross loans 284 275 248 1,091 1,283 1,076 358 428 359 6,123 5,666 4,579 Guarantees 38 38 31 87 82 75 7 3 3 208 147 126 Unutilised drawing rights facilities 21 31 23 192 226 369 27 63 12 611 697 397 Commitments in default 2 0 2 7 3 8 14 1 2 26 47 37 Other bad and doubtful commitments 2 4 5 43 10 16 25 12 13 24 8 7 Write-downs on individual loans 2 2 3 19 7 11 6 5 6 3 4 4 Special loss provisions - guarantees 0 0 0 0 0 0 0 0 0 0 0 0

Loans, guarantees, commitments in default etc. according to important industrial, commercial and other sectors - continued

Business services Retail banking Sundry TOTAL 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 Gross loans 708 637 511 17,462 15,209 13,363 456 537 404 28,519 25,934 22,215 Guarantees 26 7 7 12 13 12 11 9 9 747 745 654 Unutilised drawing rights facilities 47 72 42 1,169 995 414 40 44 44 2,819 2,786 2,001 Commitments in default 2 2 7 78 44 69 8 2 6 161 106 141 Other bad and doubtful commitments 7 1 4 39 48 16 0 0 0 181 134 111 Write-downs on individual loans 4 1 4 33 22 20 1 1 1 88 52 60 Special loss provisions - guarantees 0 0 0 0 0 0 0 0 0 0 0 0

Gross loans and guarantees according to location

2008 2007 2006 Loans Guar. Loans Guar. Loans Guar. Telemark 3,234 56 2,570 62 2,115 57 Aust-Agder 11,567 296 10,471 375 9,240 308 Vest-Agder 10,406 269 9,695 217 8,207 202 Other areas 3,312 126 3,198 91 2,653 89 Total 28,519 747 25,934 745 22,215 656 44

Individual write-downs on loans 2008 2007 2006 2005 2004

Commitments in default 161 106 141 77 142 Write-downs 24 18 25 22 39 Net commitments in default 137 88 116 55 103

2008 2007 2006 2005 2004

Bad and doubtful commitments 180 134 111 181 165 Write-downs 64 34 35 47 43 Net bad and doubful commitments 116 100 76 134 122

Loans according to risk classes

The models used are based on internal- and external data Risk class PD Upper limit PD Lower limit for the calculation of probability of default (PD) and ­expected A 0.00 0.10 losses (EL) at customer- and portfolio levels. Both retail B 0.10 0.25 C 0.25 0.50 banking- and corporate customers are scored each month D 0.50 0.75 and divided into 11 different risk classes (A-K) according to E 0.75 1.25 the probability of default. Class K contains loans in default F 1.25 2.00 and commitments against which individual write-downs G 2.00 3.00 have been made. H 3.00 5.00 I 5.00 8.00 The table below shows intervals for the different risk classes J 8.00 100.00 based on probability of default. K 100.00 100.00 45

The risk classification only takes into account ability to repay/service outstanding commitments, i.e. it calculates the likelihood of default. The collateral and other security coverage are accordingly not taken into consideration when dividing customers into different risk classes below.

2008 2007 2006 Loans with individual write-down included under risk class K 223 192 180 Individual write-down -88 -52 -60 Net loans against which individual write-downs have been made 135 140 120

Loans against which collective write-down has been made incl. under: 1) Risk class A-D 58 49 49 Risk class E-G 138 175 104 Risk class H 47 53 18 Risk class I 39 41 11 Risk class J 139 21 15 Total loans subject to collective write-down 421 339 197 Collective write-down -91 -66 -53 Net loans subject to collective write-down 330 273 144

Loans in default against which no individual write-down has been made are included in risk class K 118 48 72 Periods involved Up to 1 month 30 16 19 1-3 months 37 13 12 3-6 months 41 3 25 6-12 months 6 7 13 Over 1 year 4 9 3 Total 118 48 72

1) Lending volume is calculated by multiplying lending volume by the average probability of default (PD) within each risk class.

2008 2007 2006 Loans not in default against which no write-down has been made Risk class A-D 16,454 17,119 14,637 Risk class E-G 8,549 6,707 6,405 Risk class H 1,117 652 442 Risk class I 568 347 164 Risk class J 1,069 530 118 Total for risk classes A-J 27,757 25,355 21,766

Net loans in total 28,340 25,816 22,102

2007 has been reclassified by using the classification model for 2008.

Open risk according to risk classes when the value of collateral security has been taken into consideration 2008 Av. open risk Risk class A-D 3.6 % Risk class E-G 5.1 % Risk class H 6.1 % Risk class I 3.0 % Risk class J 3.7 % Total 4.1 % 46

28. Securities

Certificates and bonds

Certificates and bonds Risk weighting 2008 2007 Certificates and bonds issued by the public sector 20 % 489 464 100 % 107 207 Certificates and bonds issued by other borrowers 20 % 1,480 1,399 100 % 721 737 Total certificates and bonds 2,797 2,807

Shares at market value through the profit and loss account Listed equity capital instruments in the trading portfolio 60 101 Unit trust investments priced by management company 9 12 Total, shares at market value through the profit and loss account 69 113

Number of % equity Acquisition Market Trading portfolio shares stake cost value

Financial institutions DnB NOR 70,000 0.01 4 2 Sparebank1 SMN 140,508 0.24 4 4 Sparebanken Møre 11,121 0.19 2 2 Sparebanken Pluss 31,600 2.43 4 3 Sparebank1 SR Bank 137,866 0.18 3 4 Storebrand 100,000 0.02 5 2

Other listed companies Acergy 100,000 0.05 6 4 Atea 50,000 0.05 2 1 Fred Olsen Energy 15,000 0.02 4 3 Golden Ocean Group 250,000 0.09 5 1 Norwegian Energy Company 150,000 0.10 2 2 Orkla A-aksjer 170,000 0.02 13 8 Royal Caribbean Cruises 30,000 0.05 4 3 SeaDrill 60,000 0.02 8 3 Sevan Marine 60,000 0.03 2 0 StatoilHydro 55,000 0.01 8 6 Tandberg 30,000 0.03 3 2 Telenor 100,000 0.01 8 5 Yara International 35,000 0.01 7 5

Unit trusts European Dynamic Growth Fund 47,564 10 8 Japan Smaller Companies Fund 18,722 2 1 Total trading portfolio 106 69 47

Shares a fair market value with any value change recognised directly in equity.

Number of % equity Acquisition Market Shares available for sale shares stake cost value Actor Fordringsforvaltning 20 10.00 14 16 Eksportfinans 3,497 1.33 41 41 Fløien Holding 2,142,857 14.29 6 6 Frende Skadeforsikring 298,800 9.96 36 36 Nordito 309,243 3.05 12 30 P-Hus Vest 76 15.70 4 4 Sørlandets Teknologisenter 900 7.17 2 1 Såkorninvest Sør 5,714 3.30 2 2 Other companies 8 9

Unit trusts Norgesinvestor Opportunities 38,400 4 3 Norgesinvestor Pro 50,000 5 4 Total - shares available for sale 134 152

29. Funding risk

Funding risk / remaining life Funding risk is defined as the risk of the Bank being unable to meet its obligations at maturity or to refinance its debt as it falls due for repayment, or being unable to fund an increase in its total assets. Funding risk occurs as a result of different remaining lives for claims and liabilities. Every effort is made in order to reduce the risk by prioritising more long-term funding provided this can be arranged at an acceptable cost in relation to short-term funding. Furthermore, the way in which the overall deposit coverage ratio develops is crucial for the Bank’s dependence upon the money market.

The tables below show remaining life for the main items on the liabilities side of the Groups’ balance sheet, including interest from 31.12 and until maturity.

No Total Balance Up to 1-3 3 months- 1-5 Over maturity including sheet Liabilities as at 31.12.2008 1 month months 1 year years 5 years agreed interest total

Liabs. to fin. institutions 245 336 1,170 745 2,496 2,118 Deposits from and liabilities to customers 16,064 60 4 5 16,133 16,066 Debt incurred through issuance of securities 10 924 3,249 8,128 1,122 13,433 11,882 Other liabilities 116 115 56 18 738 1,043 1,043 Subordinated loan capital 423 423 299 Total liabilities 16,435 1,435 3,309 9,321 2,290 738 33,528 31,408 48

No Total Balance Up to 1-3 3 months- 1-5 Over maturity including sheet Liabilities as at 31.12.2007 1 month months 1 year years 5 years agreed interest total

Liabs. to fin. institutions 328 148 646 749 1,871 1,591 Deposits from and liabilities to customers 15,702 40 10 15,752 15,695 Debt incurred through issuance of securities 150 1,033 1,398 6,918 1,382 10,881 9,711 Other liabilities 92 91 40 24 359 606 606 Subordinated loan capital 373 373 292 Total liabilities 16,272 1,312 1,438 7,598 2,504 359 29,483 27,895

No Total Balance Up to 1-3 3 months- 1-5 Over maturity including sheet Liabilities as at 31.12.2006 1 month months 1 year years 5 years agreed interest total

Liabs. to fin. institutions 105 429 687 1,221 1,131 Deposits from and liabilities to customers 14,545 35 34 11 14,625 14,591 Debt incurred through issuance of securities 60 150 1,491 5,994 770 8,465 7,617 Other liabilities 71 50 40 365 526 526 Subordinated loan capital 355 355 299 Total liabilities 14,781 664 1,565 6,005 1,812 365 25,192 24,164

Liquidity indicator

The Bank uses liquidity indicators according to Norges Bank’s standard, with the addition of unutilised drawing rights facilities.

Liquidity indicator 1 may be defined as follows:

Financing with remaining life over 1 year Illiquid assets

Liquidity indicator 2 may be defined as follows:

Financing with remaining life over 1 month Illiquid assets

2008 2007 2006

Liquidity indicator 1 as at 31.12 105.5 107.7 109.3 Liquidity indicator 2 as at 31.12 119.8 117.2 116.5

Liquidity indicator 1 – average for the year 106.3 106.3 106.2 Liquidity indicator 2 – average for the year 115.9 115.0 112.5 49

30. Interest rate risk

Interest rate risk / remaining time until agreed / probable intereest rate re-fixing Interest rate risk is incurred when there are differences in interest rate fixing peiods between asset- and liabilities items. The Bank will therefore not be able to apply interest rate changes on a parallel basis for all balance sheet items. Total interest rate risk, together with interest rate risk relating to the portfolio of certificates and bonds, is reported on a regular basis to the Board of Directors. The Bank shall have a moderate risk and throughout the year the risk has been within the limits stipulated by the Board of Directors.

Based on the Bank’s balance sheet as at 31.12.2008, a parallel shift in the yield curve of 1 percentage point would produce an aggregate impact on the overall result of NOK 10 million.

The table below shows the remaining periods until the next interest rate re-fixing for the main items in the Group’s balance sheeet as at 31.12.2008.

No Up to 1-3 3 months- 1-5 Over maturity Assets 1 month months 1 year years 5 years agreed Total

Cash and claims on central banks 912 63 975 Loans to and claims on financial institutions 21 21 Loans to and claims on customers 5 27,647 42 538 108 28,340 Bonds and certificates 687 1,932 178 2,797 Other asset items 1,542 1,542 Total assets 1,625 29,579 220 538 108 1,605 33,675

Of which in foreign currencies 142 1,217 12 413 1,784

No Up to 1-3 3 months- 1-5 Over maturity Liabilities and eq. capital 1 month months 1 year years 5 years agreed Total

Liabs. to fin. institutions 244 332 942 600 2,118 Deposits from and liabilities to customers 14,330 534 1,187 15 16,066 Debt incurred through the issuance of securities 1,289 3,541 2,971 3,645 436 11,882 Other liabilities 1,043 1,043 Subordinated loan capital 299 299 Equity capital 2,267 2,267 Total liabs. and eq. cap. 15,863 4,706 4,158 4,602 1,036 3,310 33,675

Of which in foreign currencies 115 291 642 398 1,446

Net interest rate exposure in the balance sheet -14,238 24,873 -3,938 -4,064 -928 -1,705 0 Nominal value of financial derivatives affecting the interest rate exposure -504 -3,253 202 3,201 354

Total int. rate exposure -14,742 21,620 -3,736 -863 -574 -1,705

Net int. rate exposure as a percentage of assets -43.8 64.2 -11.1 -2.6 -1.7 -5.1 50

31. Bond debt according to maturities Of which Nominal for own Market Repayment Final ISIN number Ticker amount account value Coupon structure maturity NO 0010300106 SORG05 750 137 614 NIBOR 3M Bullet 02.02.2009 NO 0010183999 SORG62 750 78 678 5.80 % Bullet 17.06.2009 NO 0010243512 SORG03 750 0 751 3.95 % Bullet 02.11.2009 NO 0010340953 SORG09 PRO 158 0 158 NIBOR 3M + 0.80 Bullet 16.11.2009 NO 0010403702 SORG14 PRO 900 0 900 NIBOR 6M + 0.20 Bullet 14.12.2009 NO 0010224652 SORG02 900 70 827 NIBOR 3M + 0.19 Bullet 05.05.2010 NO 0010393986 SORG13 PRO 900 0 887 NIBOR 3M + 0.17 Bullet 29.10.2010 NO 0010344864 SORG10 PRO 750 0 734 NIBOR 3M + 0.065 Bullet 10.02.2011 NO 0010416878 SORG15 PRO 900 0 925 5.50 % Bullet 16.05.2011 NO 0010279300 SORG04 850 0 838 3.75 % Bullet 18.08.2011 NO 0010350424 SORG11 PRO 675 5 680 5.00 % Bullet 26.01.2012 NO 0010438989 SORG17 PRO 535 0 525 NIBOR 3M + 0.69 Bullet 04.06.2012 NO 0010442056 SORG18 PRO 400 0 392 NIBOR 3M + 0.78 Bullet 03.10.2012 NO 0010311111 SORG07 PRO 900 0 881 4.45 % Bullet 15.05.2013 NO 0010460330 SORG19 PRO 450 150 322 7.00 % Bullet 26.09.2013 NO 0010467525 SORG20 PRO 500 130 382 NIBOR 3M + 2.15 Bullet 17.02.2014 NO 0010302425 SORG06 500 24 436 4.25 % Bullet 19.02.2016 SUM 11,568 594 10,930

In addition, the Bank has short-term certificate-based debt which is included in the balance sheet at a value of NOK 952 million.

32. Subordinated loan capital Of which for own Market Repayment Final ISIN number Ticker Nominal account value Coupon structure maturity NO 0010329626 SORG08 PRO 300 0 261 NIBOR 3M + 0.42 Bullet 15.03.2017

33. Financial derivatives 2008 2007 2006 Assets Liabs. Assets Liabs. Assets Liabs. Book Book Book Book Book Book Ordinary banking operations as at 31.12: value value value value value value

Forward exchange contracts – bought and sold 403 390 56 11 15 15 Interest rate swaps 118 63 9 150 53 96 FRAs 0 5 0 0 0 0 Total, financial derivatives 521 458 65 161 68 111

Interest rate swaps: Agreements to swap interest rates for a nominal amount for a fixed period Forward exchange contracts: Agreements to buy or sell a certain currency amount at a future date at an agreed rate FRAs: Agreements fixing a rate of interest for a nominal amount for a future period76 THE CONTROL COMMITTEE’S ANNUAL REPORT FOR 2008 51

To Sparebanken Sør’s Board of Trustees During the course of the year, the Control Committee The Control Committee has examined the Bank’s annual has monitored the Bank’s operations in accordance with ­financial statements for 2008 and recommends that the the Savings Banks Act and currently valid directives and ­Profit and Loss Account and Balance Sheet are adopted as ­instructions. the Bank’s official accounts.

The Bank’s operations have been conducted in compliance The Control Committee is of the opinion that the Board of with the Savings Banks Act, the Bank’s by-laws, the Board ­Directors’ assessment of the Bank’s financial position­covers of Trustees’ resolutions and other currently valid rules and all appropriate and relevant aspects. regulations.

Arendal, 17 March 2009

Dennis Danielsen Sverre Irgens Sølvi Sanden 52 AUDITOR’S REPORT FOR 2008

Respective Responsibilities of Directors and Auditors test basis, evidence supporting the amounts and disclosures We have audited the annual financial statements of in the financial statements. An audit also includes­assessing ­Sparebanken Sør as of 31 December 2008, showing a the accounting principles used and significant estimates ­profit of NOK 18.205.164 for the Parent Bank and a loss of made by management, as well as evaluating the overall NOK 20.000.000 for the group. We have also audited the ­financial statement presentation. To the extent required by ­information in the Board of Directors’ report concerning law and good auditing practice an audit also comprises a the financial statements, the going concern assumption, review of the management of the Bank’s financial affairs and and the proposal for the allocation of the profit. The annual its accounting and internal control systems. We believe that ­financial statements comprise the Parent Bank’s ­financial our audit provides a reasonable basis for our opinion. statements and the Group accounts. The Parent Bank’s ­financial ­statements and the Group accounts comprise the Opinion balance sheet, the statements of income and cash flows, the In our opinion, ­statement of changes in equity and the ­accompanying notes. • the financial statements are prepared in accordance with The rules of the Norwegian Accounting Act and ­International the law and regulations and give a true and fair view of ­Financial Reporting Standards as adopted by the EU have the financial position of the Parent Bank and the Group been ­applied to prepare the financial statements. These as of 31 December 2008, the results of its operations, its ­financial statements and the Board of Directors’ ­report cash flows and the changes in equity for the year then are the responsibility of the Bank’s Board of ­Directors ended, in accordance with the rules of the Norwegian and ­Managing Director. Our responsibility is to express an Accounting Act and International Financial Reporting opinion on these financial statements and on the other Standards as adopted by the EU. ­information according to the requirements of the Norwegian • the Bank’s management has fulfilled its duty to produce Act on ­Auditing and Auditors. a proper and clearly set out registration and documentation of accounting information Basis of Opinion • the information in the Board of Directors’ report concerning We conducted our audit in accordance with the Norwegian the financial statements, the going concern assumption, Act on Auditing and Auditors and good auditing practice in and the proposal for the allocation of the profit for the Norway, including standards on auditing adopted by Den Bank is consistent with the financial statements and norske Revisorforening. These auditing standards require complies with the law and regulations. that we plan and perform the audit to obtain reasonable ­assurance about whether the financial statements are free Note: This translation from Norwegian has been prepared of material misstatement. An audit includes examining, on a for information purposes only.

Arendal, 16. March 2009 KPMG AS

Terje H. Holst State Authorised Public Accountant

Declaration 53

Declaration from the Board of Directors and Chief Executive Officer

The Board of Directors and the Bank’s Chief Executive Officer - The information contained in the accounts gives a correct, have today dealt with and approved the Annual Report and fair and true picture of the Group’s and Parent Bank’s Accounts for the Parent Bank and Sparebanken Sor Group ­assets, liabilities and financial position and result as a for the calendar year 2008 and as at 31 December 2008. whole as at 31 December 2008.

The Annual Accounts for the Parent Bank and Group have - The Annual Report for the Group and Parent Bank gives a been prepared in accordance with the EU-approved IFRS and correct, fair and true overview of: related interpretation statements, and in compliance with - the development, result and financial position of the further information requirements relating to the Accounting Group and Parent Bank. Act and which are to be applied as at 31.12.2008. The ­Annual - the most central risk- and uncertainty factors facing the Report for the Group and Parent Bank is in accordance Group and Parent Bank. with the requirements contained in the Accounting Act and ­compliance with Norsk Regnskapsstandard 16 (Norwegian Accounting Standard) as at 31.12.2008

According to our best conviction: - The Annual Accounts for 2008 for the Group and Parent Bank have been prepared in accordance with currently ­applicable accounting standards.

Arendal, 16 March 2009

Alice Jervell Arne Johan Johnsen Kjell Pedersen-Rise Erling Holm Hilde Sakariassen Chairman of the Board Deputy Chairman of the of Directors Board of Directors

Unni Grete Farestveit Olav Inge Nordbø Per Adolf Bentsen Cathy Steller Morten Kraft Chief Executive Officer 54 KEY FIGURES AND RATIOS 2004-2008 (GROUP)

Profit and Loss Account - NOK million 2008 2007 2006 2005 2004

Interest- and credit commission income 2 241 1 573 1 001 772 723 Interest costs 1 612 1 014 504 303 264 Net interest- and credit commission income 629 559 497 469 459 Net other operating income 57 270 241 234 212 Operating costs 554 480 433 397 390 Operating result before losses 132 349 305 306 281 Losses on loans guarantees etc. 114 12 -1 22 Result before taxation cost 18 337 306 306 259 Tax on ordinary result 38 99 88 85 67 Result from ordinary operations after tax -20 238 218 221 192

Profit and Loss Account items as a percentage of average assets 2008 2007 2006 2005 2004

Interest- and credit commission income 7.05% 5.64% 4.27% 3.75% 3.88% Interest costs 5.07% 3.64% 2.15% 1.47% 1.42% Net interest- and credit commission income 1.98% 2.00% 2.12% 2.28% 2.46% Net other operating income 0.18% 0.97% 1.02% 1.14% 1.14% Operating costs 1.74% 1.72% 1.84% 1.93% 2.09% Operating result before losses 0.42% 1.25% 1.30% 1.49% 1.51% Losses on loans, guarantees etc. 0.36% 0.04% 0.12% Result before taxation cost 0.06% 1.21% 1.30% 1.49% 1.39% Tax on ordinary result 0.12% 0.36% 0.37% 0.41% 0.36% Result from ordinary operations after tax -0.06% 0.85% 0.93% 1.08% 1.03% Average assets 31 794 27 890 23 453 20 550 18 623

From the Balance Sheet Assets 33 675 30 178 26 227 21 665 19 358 Net loans 28 340 25 816 22 102 19 050 17 093 Deposits from customers 16 066 15 695 14 591 12 235 10 828 Equity and related capital 2 566 2 575 2 361 1 844 1 629 Capital adequacy ratio 12.7 % 12.1 % 13.0 % 12.8 % 12.2 %

Other key figures and ratios Costs as a percentage of income 80.75% 57.90% 58.67% 56.47% 58.12% Deposits as a percentage of loans 56.70% 60.80% 66.02% 64.22% 63.35% Return on equity capital -0.88% 11.54% 11.60% 13.20% 13.30% Total man-years at Group 1) 388 415 402 389 385

1) Parent Bank and ABCenter CORPORATE GOVERNANCE 55

Ownership structure Sparebanken Sør is a self-owning institution. The Bank has not The Bank has a significant commitment to the local issued Primary Capital Certificates (PCCs) or other external ­communities through its financial contributions to projects equity capital and therefore does not have any external owners. and causes within the areas of culture, sport, athletics and The Bank’s equity and related capital consists of the Savings to organisations in the region, both through sponsorships Bank’s Fund of NOK 2.3 billion and a subordinated loan of NOK and donations. 300 million – a total of NOK 2.6 billion. Asset- and liabilities management - personal portfolio Market management The Bank is built on a savings bank tradition going back The Bank manages substantial assets and liabilities on ­behalf to1825 and is the result of a number of mergers with ­smaller of depositors, investors and the community. It is therefore savings banks, and the establishment of some own opera- ­important that the Bank’s management of these resources is tions. Sparebanken Sør conducts its operations within the done in a reassuring manner, in accordance with applicable counties of Vest-Agder, Aust-Agder and Telemark, but also laws, rules and regulations, and in such a way that the Bank takes care of customers outside its geographical area when achieves its strategic goals for the benefit of all involved. a connection with this region is involved. The Board of Trustees is the Bank’s highest organ which Values shall see to it that the Bank operates according to applicable The Bank’s corporate vision is “We enrich people’s lives laws, by-laws and its own resolutions. The Board of ­Trustees and make the region more prosperous”. This refers to the ­consists of 28 members who are elected by the Bank’s quality of life for the region’s population and the framework ­depositors (a total of 16 members), the county ­municipalities of ­conditions for industry and commerce. Vest-Agder, Aust-Agder and Telemark (a total of 5 ­members) and the Bank’s employees (a total of 7 members). In 2008, We have based our operations on the following three core ­Sparebanken Sør’s Board of Trustees held 4 meetings. values: The Control Committee is elected by the Board of Trustees Personal: This is the most important value with regard to and consists of 3 members, one of whom has to be a lawyer. how we want to be seen as a bank. Through relationships, On behalf of the Board of Trustees, the Control Committee we build trust and a long-term aspect into our contact with shall supervise the Bank’s operations and make sure that customers in a way which makes us unique in ­comparison they are conducted in accordance with applicable laws, rules with our competitors. Customers and colleagues shall and regulations and the instructions provided by the Board of ­always be able to trust us. Trustees. In 2008, the Control Committee held 7 meetings.

Proactive: We tackle new opportunities and challenges with The Election Committee is elected the Board of Trustees a proactive attitude. It shall be apparent that we have a real and consists of 5 members. The committee shall make the commitment and that we care. By ‘going that extra mile’ we ­necessary preparations for the election of Board of Trustees create additional values for our customers and colleagues. members elected from the Bank’s depositors, the election We enjoy our work and are delighted by good achievements. of the Board of Trustees’ Chairman and Deputy Chairman, the Board of Directors’ Chairman and Deputy Chairman, and Local: We have a real commitment to the region and help the other members of the Board of Directors. The ­Election create growth and good living conditions. We know the ­local Committee shall make the necessary preparations for the communities, have quick decision processes and take all election of the Control Committee’s Chairman, Deputy decisions locally. The values we create benefit the region in Chairman and member, as well as members of the Election a permanent manner. We use part of the Bank’s profit for Committee. donations and measures in the local communities of the ­region. 56

The Board of Directors is elected by the Board of Trustees. and liabilities in a safe, secure and reassuring way, and with The Board of Directors consists of 9 members and shall be appropriate internal control. ­elected with 3 representatives coming from each of the Agder ­counties, 1 representative from Telemark and 2 ­representatives In addition, the Bank has an internal auditing unit which from the Bank’s employees. The Chairman of the Board of is headed up by the internal audit manager, who reports ­Directors is responsible for convening the ­meetings and for ­directly to the Board of Directors. The internal audit ­manager making sure that the Board of Directors’ discussions are duly attends the meetings of the Board of Directors and ­provides recorded in the minutes of the meetings held. The Board of reports to the Board of Directors about the quality of the Directors has the overall responsibility for the safe, secure Bank’s internal control. The internal auditor is ­permitted and appropriate management of all the Bank’s assets and to make comments about matters presented by the Group liabilities, and for the supervision and monitoring of the ­management. Each year, the internal auditing unit provides ­day-to-day management of the Bank’s operations. The Board the Board of Directors with a confirmation relating to the of Directors sees to it that the Bank’s operations are managed Bank’s internal control and risk management. The ­internal in accordance with applicable laws, by-laws and the Board of auditing unit’s action plan is subject to the Board of ­Directors’ Trustees’ ­resolutions. The Board of Directors shall make sure annual approval. that the Bank’s operations are organised in an appropriate way and that there is good and reassuring control. Powers of Risk management, organisation and responsibility Attorney for the Bank’s Chief Executive Officer are ­stipulated The responsibility for the Bank’s risk management and con- by the Board of Directors. To an appropriate extent, these trol is divided between different organisational units and roles ­Powers of Attorney are delegated to the Bank’s managers and within the Group. ­employees. The Board of Directors­ held 18 meetings in 2008. The Board of Directors is responsible for the Group having a The CEO is appointed by the Board of Directors, which capital adequacy ratio which is appropriate in relation to the ­stipulates his terms of employment. He is responsible for desired risk profile and the authorities’ requirements. The the day-to-day management of the Bank and shall follow the Board of Directors stipulates targets for capital adequacy, instructions provided by the Board of Directors. Day-to-day risk profile, the employment of capital and the requirements management does not include matters of an unusual kind or for return on assets and capital. The Board of Directors also of great importance for the Bank. The CEO shall see to it that stipulates guidelines for risk management and targets for ongoing accounting complies with applicable laws, ­rules risk limits. and regulations, and that the management of all ­assets and ­liabilities is done in a safe and reassuring ­manner. The CEO’s The role of the internal auditing unit is, on behalf of the Board remuneration is not linked to results, nor is he ­included in of Directors, to monitor the Bank’s overall risk ­management the Bank’s ordinary profit sharing ­scheme. The CEO has and to assess whether the Bank’s models, systems and ­appointed a Group management team which is ­responsible ­routines relating to risk management provide a correct for the operative management of the Bank’s activities. ­picture of the Bank’s risk- and capital situation. The internal Sparebanken Sør’s Group management team consists of 5 auditing unit shall also check that routines and guidelines members, including the CEO, and holds weekly meetings, are complied with. or, if circumstances should necessitate it, more often. The CEO is responsible for the Bank’s total risk ­management. Auditing, internal control and risk management He is responsible for making sure that the Bank has good The external auditor is appointed by the Bank’s Board of and effective systems for risk assessment, risk ­management Trustees. The external auditor shall confirm that the­financial and risk monitoring. information contained in the Annual Accounts is correct and that the accounts comply with applicable laws, rules and The department for risk management, at an overall level, ­regulations. Furthermore, the external auditor shall see to is responsible for important functions of the Bank’s risk it that the Bank has organised the management of assets ­management, such as the assessment, analysis, reporting 57 and control of the Bank’s risk and capital adequacy. The Reputation - trust ­department shall develop and maintain the Bank’s models The Bank is dependent upon customers’ trust, and trust from for risk management for the Bank’s entire operations. within the communities in general. The Bank has therefore developed a communications strategy in order to underpin The various business areas are responsible for the ­day-to-day the Bank’s values and operations. Furthermore, the Bank risk management within their respective areas. The ­business has agreed ethical guidelines which apply to all staff elected areas are responsible for the risk ­management and risk­ representatives. Rules for employees’ trading in securities exposure being within the limits, targets and ­guidelines have also been agreed, including trading for own account ­stipulated by the Board of Directors. and insider trading. These guidelines shall ­ensure that the Bank’s operations at all levels are conducted in a ­reassuring Credit Support is a support function for the for the Bank’s manner with regard to qualification and ­objectivity. ­Ethics ­distribution network and is responsible for the preparation and morals are important assumptions for the Bank and maintenance of credit policy, credit handbooks and ­achieving its long-term goals. ­routines. This department is also responsible for quality ­assurance in order to make sure that the decision basis Staff have been pledged to secrecy and this is an ­important in connection with the granting of credit complies with the aspect with regard to the Bank’s handling of ­confidential Bank’s credit handling routines. Furthermore, the depart- ­information about private persons, companies and the ment is central in connection with any legal advisory services ­public sector. The Bank’s ‘intra-net’ provides easy access provided, and in connection with follow-up of commitments for all staff as far as questions relating to the Bank’s ethical in default and bad and doubtful commitments. rules and regulations are concerned.

Capital management Dividends - donations The Board of Directors’ aim it that, from a long-term The Bank has no owners and no dividend is therefore paid ­perspective, the Group shall be well capitalised – so that it from the Bank’s profit, all of which is transferred to the has a good basis for development and growth during periods ­Savings Bank’s Fund in order to further boost the Bank’s of strong economic expansion and at the same time has the financial strength, enabling it to take on the tasks which necessary financial strength to deal with downturns in the are part of the Bank’s corporate vision, aims, targets and economy. The Bank’s equity and related capital shall be at ­strategies. least 12 per cent of the total risk-weighted assets. Remuneration for members of the Board of Directors Through laws and supervisory authorities, the Bank is Board members receive a fixed annual remuneration which ­subject to certain rules and regulations relating to minimum is stipulated by the Board of Trustees. There are no result- requirements with regard to capital coverage and financial related fees or other bonus scheme for members of the strength. Processes for the management and computation Board of Directors. of risk and capital requirements have been provided in the form of ICAAP (Internal Capital Adequacy Process). Remuneration for members of the Group management The Board of Directors is responsible for the ICAAP-process team and capital planning, which is also an integrated part of the The CEO determines the remuneration for all other mem- Group’s total risk management. The Bank reports risk and bers of the Group management team according to guidelines capital according to the standard method. At the same time, from the Board of Directors. None of these members receive the Bank has been developing models for the calculation of result-based remuneration apart from their participation in capital according to advanced methods. The result of the the Bank’s ordinary profit-sharing scheme which comprises analyses of the Bank’s aggregate risk and capital require- all the Bank’s employees and which is the same for all. ments shows that Sparebanken Sør is sufficiently and well The Board of Directors has established a pension ­agreement capitalised in relation to its risk. for the CEO which enables him to leave the Bank after ­attaining the age of 60 years. 58

On the left: Morten Kraft (Chief Executive Officer), Gunnar P. Thommassen (Director, Region East), Rolf H. Søraker (HR and communications), Gry Moen (Director, Markets) and Øyvind Aasen (Director, Region West). ORGANISATION PLAN 59

Senior personnel at Head Office: Risk management: Magne Kvaslerud, General Manager Customer service: Hans Tore Haugland, General Manager Capital Markets: Kjetil Korneliussen, General Manager Financial control / Markets: Terje Grut-Johnsen, General Manager real estate: Olaf Eivindstad, General Manager Credit Support: Frode Mathiesen, General Manager Internal Auditing: Vidar Hansen, Audit Manager IT: Trond Ivar Moen, General Manager

Board of Directors

Internat audit

Managing Director/CEO Morten Kraft

Capital Markets ABCenter Holding AS

Risk Management

Region West / Credit Support Director Øyvind Aasen

Region East Director Gunnar P. Thomassen A map of the district, showing the location of Sparebanken Sør’s branches HR / Group Support / Financial control and Accounting Director Rolf Horst Søraker Hovden Kviteseid Bø Market Director Gry Moen Åseral Bygland Nissedal Fyresdal Grenland Evje Byremo Kragerø Tingvatn Åmli Brokelandsheia Risør Konsmo Tvedestrand Eydehavn Farsund Øyslebø Froland Vanse Arendal Lyngdal Fevik Spangereid Grimstad Mandal Kristiansand S.W.I.F.T. address: AASPNO22, Companyreg.no.: NO00937893566 Telephone: +4737025000,Telefax: +4737024150, www.sor.no Sparebanken Sør,Postal address: Serviceboks 602,N-4809 Arendal, Norway THE YEAR 2008

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