ANNUAL REPORT 2007 Photo: Liv Øveland Cover photo: Colourbox CONTENTS Page The year 2007 4 Main figures - Group 2007 6 Financial highlights 2003 –2007 Group 7 Annual report and accounts 2007 8 Members of the Board of Directors 21 Corporate responsibility 22 Accounts 2007 42 Profit and Loss Account 44 Balance Sheet 45 Cash Flow Statement 46 Notes to the Accounts 47 Annual Report from the Board of Trustees 90 Auditors’ Report 91 Corporate Governance 92 THE YEAR 2007 a bank of our size and structure has a very good possibility of succeeding in the towns of Skien and Porsgrunn. We shall also be considering the establishment of new branches in the Agder counties during the course of 2008. The Bank’s subsidiary, ABCenter, is the region’s largest real estate bro- kerage company, which celebrated its 20th anniversary in 2007. The Bank and ABCenter will further develop their good cooperation in 2008, partly by sharing locations of their respective businesses. The Bank enjoyed strong growth in 2007, in particular in Kristiansand. Our cooperation with the football club, Start, was a strong, contributing factor of the excellent progress. The Bank is the club’s main sponsor and has secured the name rights for the new Arena Sør in Kristiansand up to and including 2016. Foto: Arild de Lange Nilsen Foto: Start was relegated after the 2007 season, but Sparebanken Sør will Adm. direktør Morten KraftAdm. direktør keep faith with the club and continue as Start’s most important sponsor in 2008 too. he year 2007 was an historically good year for the During the spring of 2008, Sparebanken Sør and ABCenter will be mov- Sparebanken Sør Group. The operating result before tax ing into a new building at Markensgate 9 in Kristiansand. This will help T totalled NOK 335 million. This was NOK 29 million up on the to further strengthen our position in the town, providing the basis for year before and the best result in the Bank’s history. This reflects new growth for the whole of the Group. good economic growth in the region but also shows that the Bank enjoyed very sound progress throughout the year. We at Sparebanken In 2007, the Bank decided to acquire an equity stake in the newly started Sør are pleased and proud about the good result for 2007. insurance company, Frende. This company is owned by savings banks. In addition to Sparebanken Sør, the biggest owners are Sparebanken In 2007, the Bank opened new branches at Bø and Brokelandsheia. Vest, Sparebanken Øst and Helgeland Sparebank. Frende Forsikring Preparations are currently being made to establish a new branch in shall offer products both within non-life and life insurance. Sparebanken Porsgrunn during the course of the spring of 2008. New branches will Sør wishes to be a supplier of all banking- and insurance products. Our strengthen the Bank’s distribution network, providing us with opportuni- strategic aim is to have equity stakes in the product companies with ties for growth and development in new market areas. Grenland is a which we work. This will help us to be able to offer our customers good new and geographically exciting area for Sparebanken Sør. It is felt that products at competitive prices. 4 Sparebanken Sør is a bank which wishes to demonstrate active corpo- rate responsibility. We contribute with competence and financial support for the development of business and culture, and for children and young people. We shall be a proactive provider of financial support, enabling the region to take care of larger joint projects within the areas of educa- tion, tourism, infrastructure etc. We also support a number of larger and smaller activities and projects locally. Sparebanken Sør is a local bank, with local and quick decision-making procedures. We enjoy a strong position in the market and we have com- petent staff. Out aim is to be a proactive partner supporting further growth and development in our region in 2008. Hovden Kviteseid Bø Åseral Bygland Nissedal Fyresdal Porsgrunn Evje Byremo Kragerø Tingvatn Åmli Brokelandsheia Risør Konsmo Tvedestrand Eydehavn Farsund Øyslebø Froland Vanse Arendal Lyngdal Fevik Spangereid Grimstad Mandal Kristiansand A map of the district, showing the location of Sparebanken Sør’s branches. 5 MAIN FINANCIAL FIGURES - GROUP From the Profit and Loss Account 2007 2006 2005 NOK NOK NOK million million million Interest income 1 573 1 001 772 Interest costs 1 014 504 303 Net interest- and credit commission income 559 497 469 Other income 270 241 234 Operating costs 480 433 397 Result before credit losses 349 305 306 Credit losses 12 -1 Result after credit losses 337 306 306 Tax 998885 Result after tax 238 218 221 Balance Sheet 2007 2006 2005 NOK NOK NOK million million million Assets 30 178 26 227 21 665 Net lending 25 816 22 102 19 050 Deposits 15 695 14 591 12 235 Equity and related capital 2 575 2 362 1 847 Capital adequacy ratio 12.1 % 13.0 % 12.8 % Number of man-years worked at the Group 415 402 389 6 FINANCIAL HIGHLIGHTS 2003-2007 (GROUP) Profit & Loss Acct. Items - % of average assets 2007 2006 2005 2004 2003 Interest- and credit comm. income 5.64% 4.27% 3.75% 3.88% 6.02% Interest costs 3.64% 2.15% 1.47% 1.42% 3.50% Net interest- and cr. comm. income 2.00% 2.12% 2.28% 2.46% 2.52% Net other operating income 0.97% 1.02% 1.14% 1.14% 1.18% Operating costs 1.72% 1.84% 1.93% 2.09% 2.28% Operating result before credit losses 1.25% 1.30% 1.49% 1.51% 1.42% Losses on loans, guarantees etc. 0.04% 0.12% 0.44% Result before tax cost 1.21% 1.30% 1.49% 1.39% 0.98% Tax payable on ordinary result 0.36% 0.37% 0.41% 0.36% 0.30% Result from ordinary operations after tax 0.85% 0.93% 1.08% 1.03% 0.68% Average assets 27 890 23 453 20 550 18 623 17 180 From the Balance Sheet Assets 30 178 26 227 21 665 19 358 17 570 Net loans 25 816 22 102 19 050 17 093 15 539 Deposits from customers 15 695 14 591 12 235 10 828 10 260 Equity and related capital 2 575 2 362 1 847 1 629 1 446 Capital adequacy ratio 12.1 % 13.0 % 12.8 % 12.2 % 11.8 % Other key figures Costs as % of income 57.90% 58.67% 56.47% 58.12% 61.64% Deposits as % of loans 60.80% 66.02% 64.22% 63.35% 66.03% Return on equity capital 11.54% 11.60% 13.20% 13.30% 8.77% Number of man-years worked at the Group 415 402 389 385 404 7 ANNUAL REPORT AND ACCOUNTS 2007 OUR FRAMEWORK CONDITIONS 124 Inflation 122 International economic development features 120 he growth in the global economy remained high in 2007 too, in 11 8 particular due to the growth in oil-producing countries, and to 11 6 T exports from China, India and other Asian countries. The turn- 11 4 around and falling growth during the latter half of 2007, especially in 11 2 USA, and a certain financial instability in large parts of the world, have 11 0 created some uncertainty at the start of 2008. 108 106 2003 2004 2005 2006 2007 Developments in the US are of great importance to the global economy. The current account deficit is historically high and the estimates for 2008 7.00 are characterised by low expectations despite the authorities’ efforts to Norges Bank’s benchmark rate of interest 6.00 stimulate the economy through lower interest rates and lower taxes. The problems in the US housing market have meant substantial losses for 5.00 many lenders. More than half of all house mortgage loans in USA are 4.00 sold on to other investors in many parts of the world and this has % brought about financial instability which has created unsettled conditions 3.00 and increased credit costs in the Norwegian financial market. Growth 2.00 estimates for Europe have also been adjusted downwards for 2008. There is now some fear of a recession within parts of the global econo- 1.00 my. 0.00 2003 2004 2005 2006 2007 The Norwegian economy Inflation was moderate in 2007. Against the background of fears of the The strong growth in the Norwegian economy has been continuing. For underlying and increasing inflation during the last two years, Norges the fourth consecutive year, the gross national product will increase by Bank has been raising its benchmark rate of interest, initially in 2006, by more than 4 per cent. Norway has an open economy, which is signifi- a total of 1.25 percentage points, and in 2007 by a further total of 1.75 cantly influenced by developments in the countries of our trading part- percentage points, the rate reaching 5.25 per cent at the end of the year. ners. We enjoyed great competitive advantages during 2007 with high export- and oil prices, coupled with good demand for products and serv- Economic growth in the countries of our trading partners, coupled with ices from the oil service sector and oil-related industry. High growth in better terms of trade and growth in oil-related investment, has helped productivity and access to labour have contributed towards high growth bring about the upturn in the Norwegian economy. This growth has also ability within the economy. The growth in production would suggest that contributed to increased investment by mainland businesses and good the level of capacity utilisation is very high.