Sparebanken Pluss Annual report 2009

Transcription

1 Sparebanken Pluss Annual report 2009

2 Annual Report MACROECONOMIC ENVIRONMENT The financial crisis brought the world economy into the worst recession since the 1930s, but the economic downturn that is now often referred to as The Great Recession ended during the first half of Growth in the global economy has picked up again, and over the year as a whole GDP in developed countries increased around 3 per cent. The economic crisis in the world economy was met with massive state initiatives in several countries. In 2009, the banking system had substantial amounts of cash added to it through various monetary policy measures, to ensure that banks did not go under due to liquidity reasons. It was also necessary to carry out rescue operations for individual banks. The banks were partly provided core capital and were offered a government injection of capital for market conditions to ensure that lending activities would be maintained. In addition to bringing an expansive fiscal policy over the last year, monetary policy was also used to stimulate the economy. In 2009, the key rate in Western countries sunk to record low levels and additionally, the central bank carried out market operations to keep money market rates down. The money markets functioned much better throughout the course of 2009, and risk premiums in different parts of the financial markets went down significantly. Norway has performed far better than most other countries throughout the economic crisis. During 2009, Norges Bank cut the interest rate from 3.00 per cent to 1.25 per cent, but towards the end of the year, Norges Bank assessed the situation for the Norwegian economy to be so beneficial that the signal rate was raised to 1.50 per cent. Added to the fact that the economic recession was considered to be over in Norway, it was feared that a bubble in the housing market could develop if mortgage interest rates were maintained at the lowest level. In December, the key interest rate was thus put up by a further 0.25 percentage points. Bank package 1 made it possible that the Norwegian banks were transferred extensive amounts of liquidity via F-loans and state trade arrangements. The system of the exchange of bonds against government bonds helped to bring the banks long-term financing in the order of NOK 213 billion. The change to the system was phased out during October In February 2009 Bank package 2 was introduced, establishing two funds. Government bond funds offered bond financing of up to NOK 50 billion, of which up to NOK 8 billion was loaned out by the end of the year. The government financial fund had a budget of NOK 50 billion to be used to strengthen core capital and therefore the lending capacity of banks. 28 banks were assigned core capital totalling NOK 4.1 billion through the scheme. The scheme was important to strengthen core capital for the banks that needed it, but also as a state signal to the financial markets of wanting to avoid a systemic crisis. When the financial crisis was at its worst, fears led to a strong deterioration of conditions in the employment market. Fiscal - and monetary policy measures were implemented to limit the increase in unemployment, and in addition to the downturn in the global economy not being as prolonged as anticipated, this meant that the unemployment rate rose much less than many had expected. According to the AKU figures, the unemployment rate stood at approximately 3 per cent at the end of Credit growth (C2) slowed to 4.1 per cent in December 2009, with both households and non-financial firms reducing their debt growth during the year. Twelve-month growth in credit to households amounted to 6.7 per cent in December, while for enterprises it fell to minus 1.4 per cent. During the course of 2009, twelve-month growth for the companies fell by a total of 16.9 percentage points. Global equity markets rose by over 60 per cent in The benchmark index on the Oslo Stock Exchange was nearly 65 per cent higher by the end of 2009 than it was at the end of the crisis year of 2008, when the stock market plunged by 54 per cent. BUSINESS AREA AND MARKET Sparebanken Pluss provides services within the areas of financing, savings and placements, insurance, pensions and payment transmission. The following is a brief excerpt from the Bank s corporate vision statement: Sparebanken Pluss shall be The Bank for Sørlandet ; a leading, financially strong and independent bank, with Sørlandet (the area along the southern coast and immediate inland districts of Norway, including Vest- and Aust-Agder) as its main market. The Bank s head office is located in Kristiansand. There are 14 local branches, 9 in Vest-Agder and 5 in Aust-Agder. During the last five years, the Bank has opened four new branches, at Arendal, Grimstad, Søgne and Lillesand. The last branch to be opened was Lillesand in May The new branches have attracted a large number of new customers and have been very important for the Bank s overall growth in recent years. The Bank has plans for further branches in the Agder region, especially in the western part of Vest-Agder. Sparebanken Pluss has three branches in Kristiansand, and is the only bank with more than one branch in the town. In 2009, loans, both absolutely and relatively, have increased most in the bank s main market; - Sørlandet. This was also the case last year. The proportion of loans in the Bank s main market now accounts for 80 per cent of total volume. The majority of loans outside Sørlandet can be linked to the Bank s agreement with Norway Christian Purchasing Society (KNIF). 2

3 Sparebanken Pluss changed its supplier in the insurance field in The new insurance provider is Tennant Forsikring. The company is whollyowned by Gjensidige Forsikring. Tennant provides both non-life- and personal insurance was the first whole year of operations for Pluss Garanti Eiendomsmegling AS. The company is owned by Sørlandets Boligbyggelag and Sparebanken Pluss. The company conducts business in Kristiansand and at Vennesla. Most employees are located in the Bank s premises. Pluss Garanti, like other real estate brokerage firms, was affected by the financial crisis strongly during the second half of 2008, but the market turned back again, quickly and sharply, in early This, together with the fact that a number of operational changes were made in 2008, led to a marked improvement in the company s earnings in 2009 compared to the previous year. Pluss Garanti Eiendomsmegling AS is not involved in the markets for holiday cottages and commercial property. OPERATING RESULT In 2009, Sparebanken Pluss () made a NOK 394 million profit before losses on loans, as against NOK 259 million in This is equivalent to 1.19 per cent of average assets, and is an increase of 52 per cent. The s net interest income totalled NOK 422 million. This is a decrease of NOK 18 million. As a per cent of average assets, the net interest amounted to 1.28 per cent. Contributions to The Norwegian Banks Guarantee Fund, which are included in the calculation of the Bank s net interest income, increased to NOK 12.7 million in 2009, from NOK 3.5 million in Other (non-interest) operating income totalled NOK 174 million, up by NOK 156 million in relation to The increase is mainly due to the increase in value of the bond portfolio. In 2009, operating costs totalled NOK 201 million, up by NOK 2 million on Costs in relation to average assets finished up at a low level, 0.61 per cent, down from 0.73 per cent 12 months earlier. Costs as a percentage of income have also remained at a very low level. The overall ratio at the end of 2009 was 33.7 per cent, opposed to 43.5 percent a year earlier. Operating profit before tax was NOK 369 million, against NOK 213 million in 2008 an increase of 73 per cent LOSSES ON LOANS AND COMMITMENTS IN DEFAULT In 2009, under the heading of losses on loans and guarantees, the ended up with a gross loss cost of NOK 27 million. Recoveries relating to previous confirmed losses totalled NOK 2 million. Overall, therefore, the finished up with a net loss cost of NOK 25 million in Write-downs of groups of loans at the end of the year totalled NOK 92 million, equivalent to 0.34 per cent of gross lending. In view of the composition of the s loan portfolio, its diversification in relation to different commercial, industrial and other sectors, and the risk contained in the portfolio, the Board of Directors is of the opinion that the writedowns are sufficient in order to cover the credit risk in the s loan portfolio. With effect from , the authorities changed the limit for defaulted loans reporting so that a customer s involvement is considered in default if a payment is not paid within 30 days after the due date, or a frame credit has been overdrawn for more than 30 days. This limit was previously 90 days, and comparative figures from previous years have therefore been corrected. Throughout 2009, there has been a marked reduction in gross defaulted loans from NOK million to NOK million. The proportion of these that constitute a defaulted loan over 90 days is down from NOK million to NOK 68.2 million. The relationship between gross commitments in default and gross loans therefore amounts to 0.78 per cent for the, and 0.64 per cent for the, whereas the corresponding ratio for 2008 was 1.08 per cent. The level is considered to be moderate during the current economic situation. Against the background of the present economic situation, the Board of Directors is of the opinion that there is an increased uncertainty regarding the level of activity in parts of the industry, and this may result in increased risk of losses in For many years, the Bank has experienced very low credit loss costs, and for the period , the Board of Directors maintains a target for the Bank s aggregate loss level of under 0.25 per cent of gross lending per annum.. ALLOCATION OF PROFIT FOR THE YEAR The net income for 2009, after tax charge of NOK 109 million, amounted to NOK 260 million for the. Profit after tax in 2008 was NOK 146 million. The profit for the in 2009 was NOK 240 million. The Board of Directors proposes that Sparebanken Pluss s NOK 240 million profit for the year is allocated as follows: (NOK 1000) Dividend of NOK 8,50 per EC Transferred to the Dividend Equalisation Fund Transferred to the Savings Bank s Fund With reference to Law of Annual Financial Statements etc., paragraph 3-3, the Bank s Board of Directors confirms that the assumption of a going concern still applies, and that the annual report and accounts have been prepared on the basis of this assumption. The does not engage in research and development activities 3

4 ASSETS At the end of 2009, total assets were NOK million. Compared to the same period at the end of 2008, this is an increase of NOK million or 15.4 per cent. Deposits/Netloans (NOK mill.) per cent respectively of the Bank s total loans. Corresponding figures a year earlier were 60.9, 30.7 and 8.4 per cent respectively. Total equity capital (NOK mill.) Paid-in equity capital Retained earnings Deposits Netloans DEPOSITS Deposits from customers totalled NOK 14,164 million at the end of the year under review. The growth from has been on NOK 1,227 million or 9.5 per cent. At the end of the year, 63.4 per cent of the Bank s loans were funded by deposits from customers. On a basis this amounted to 52.0 per cent. The Bank makes effort to fund the growth in assets mainly through deposits and long-term funding loans in the Norwegian and international money- and capital markets. LOANS As at , the s gross loans totalled NOK 27,394 million, up by NOK 1,949 million or 7.6 per cent, compared to lending growth of 15.4 per cent a year earlier. At the end of 2009, the s retail bankingmarket, corporate bankingmarket and organizational market accounted for 60.3, 30.8 and FINANCIAL STRENGTH AND CAPITAL ADEQUACY When the new EU directive for capital adequacy, Basel II, was implemented by Sparebanken Pluss with effect from 1 January 2008, the Bank chose to use the standard approach for credit risk and the basic method for operational risk. The new rules and regulations are to a larger extent than previously, based on a closer conformity between actual risk and the capital employed. The introduction of Basel II means that figures for capital adequacy for 2008 and 2009 will not be directly comparable with those from earlier years. The Bank will adapt to the new rules and regulations in an optimal manner from the point of view of its size and risk profile, and in relation to what is expected from banks of a corresponding size. The Bank will therefore have an ongoing process in relation to whether it shall apply for IRB-approval in due course. An important part of the new capital adequacy rules and regulations is the need for the Bank to make regular assessments of the Bank s aggregate capital requirements based on its risk profile as well as management and control of risk (Internal Capital Adequacy Assessment Process - ICAAP). The process shall help make sure that the Bank has a level of risk management and control which provides an overview of the risk to which the Bank is exposed, and which ensures that the Bank maintains a level of equity and related capital which takes care of these risks to a sufficient extent. The Board of Directors completed this capital assessment procedure also in 2009, and Sparebanken Pluss has a level of equity and related capital which substantially exceeds the requirement which was arrived at through the ICAAP-process. However, 4

5 the Bank wishes to maintain a high strategic buffer of equity and related capital in order to ensure a large degree of freedom of action, and the importance of this has become even more apparent during the financial crisis in 2008/2009. At the end of 2009, the had responsible capital of NOK 2,830 million, and the capital adequacy ratio was per cent for the and per cent for the. The core capital ratio amounted to per cent for the and per cent for the respectively. PLUSS BOLIGKREDITT AS On December 2008, Sparebanken Pluss received the required licence to establish a mortgage company which will be able to issue covered bonds (OMF), and in January 2009 the wholly owned subsidiary Pluss Boligkreditt AS was established. The main purpose of the mortgage company is to ensure access for the Bank to stable and long-term funding at competitive terms and conditions. The establishment of Pluss Boligkreditt AS forms part of Sparebanken Pluss s long-term strategy, according to which the mortgage company s main purpose will be to issue preference bonds to be bought by national and international investors. Through the establishment of the credit company, the Bank will also be in a position to participate in the authorities scheme according to which covered bonds may be swapped for government securities. At the end of 2009, a house mortgage loan portfolio of NOK 4,931 million had been transferred from the Bank to Pluss Boligkreditt AS. The mortgage company has issued preference bonds amounting to NOK 4,900 million. Large parts of this portfolio have been swapped into treasury bill, and the Bank has a portfolio of NOK 4,231 million of these securities. EQUITY CERTIFICATES New laws relating to capital and organizational structures of savings banks came into force as of The designation in this new set of rules for primary capital certificates is equity certificates, and the PCCcapital has been given the term equity certificates capital. A summery of the 20 largest equity owners as of is included in note 34. The result per equity certificate was NOK 17.26, as against NOK at the same time last year. The board of Directors will propose to the Bank s Board of Trustees payment of a dividend for 2009 of NOK 8.50 per equity certificate. The new rules will have implications for the dividend shares on equity certificates, which will apply particularly to banks with low amounts of equity certificate capital such as Sparebanken Pluss. It is also reasonable to assume that new capital adequacy requirements could have a negative effect on the dividend shares for a period. Although the bank has high core capital and equity coverage, there will be an aim to strengthen this further forward. The Bank considers that approximately 50 per cent of the equity certificate capital share of surplus will be paid out per equity certificates. This will curb the fall of the equity certificate capital share of the Bank s equity. RISK AND INTERNAL CONTROL Risk is a fundamental aspect of banking business, and risk management and control represents a key area of the Bank s day-to-day operations and follow-up by the Board of Directors. The Bank s risk management and internal control shall help to ensure that the Bank s risk is managed in a way which supports the Bank s strategic targets, contributing to the Bank s long-term wealth creation. The overall framework of the Bank s risk management and exposure is assessed and agreed annually by the Board of Directors in connection with the maintenance of the Bank s internal strategy- and steering documents. The Board of Directors fixes concrete targets and limits for the Bank s credit risk, market risk and funding risk, as well as powers of attorney and a structure for follow-up and control which include reporting systems for management and the Board of Directors as far as the different risk groups are concerned. The Bank s aim is to have a low level of risk exposure, and there is a continual process aimed at further developing and improving the Bank s risk management. The most significant risk factors can be classified as financial risk, operational risk, plus strategic and business risk. Financial risk comprises credit risk, market risk (relating to the Bank s exposure in the interest rate-, foreign exchange- and stock markets) and funding risk. Operational risk is defined as the risk of loss which may be incurred due to insufficient or failing internal processes, systems or external events. Strategic risk is related to the strategies, plans and changes which the Bank has or is planning to have in connection with its marketing efforts, while business risk includes reputation risk. The Bank has an ongoing process relating to the monitoring and assessment of the different risk factors. Against the background of rules and regulations for internal control, all main areas have been subject to the completion of internal control confirmation, and an overall risk assessment has also been done. The Bank has a separate risk management committee. In the Board of Directors opinion, the Bank s risk management is satisfactory. Credit risk Credit risk represents the most significant area of risk in the Bank, and is defined as the risk of loss as a result of customers or counterparts failing to meet their obligations to the Bank. As a consequence of this, all work involving credit risk is therefore given high priority in day-to-day operations and as far as follow-up by the Board of Directors is concerned. The Board of Directors agrees the Bank s credit strategy and credit policy, and credit risk is also managed through credit routines, credit processes 5

6 and delegated lending authority. Amongst other things, limits and ratios are agreed for expected credit losses, concentration risk and large customers. Compliance with the Bank s credit policy is monitored by a unit which is independent of the customer-related departments. The Bank s customers with credit commitments are classified through the Bank s own risk classification system, where customers are classified in default classes where the likelihood of default during a 12-month period is calculated on the basis of different internal and external financial data. The portfolio is divided into 10 different risk classes in addition to 2 classes for commitments in default and commitments with loss writedowns which are not in default. Risk development in the portfolio is registered through the classification system. Market risk Market risk affects the Bank s results through value changes in the interest rate-, foreign currency- and securities portfolios. The Board of Directors agrees limits for the Bank s market risk and reporting, and the limits are reviewed and assessed on an annual basis. Interest rate risk occurs as a result of different interest rate fixing periods relating to agreements entered into for claims- and debt items on and off the balance sheet. At the end of the year, the Bank s interest rate risk measured as the impact on the Banks overall result of a certain change in interest rates for different maturities was well within the limits agreed by the Board of Directors. Eventual interest rate increases were estimated to give a net positive contribution. Sparebanken Pluss is a foreign exchange bank and therefore subject to the authorities limits for position taking. The Bank has given itself significantly lower limits than those stipulated in the authorities requirements. At the end of the year, all limits agreed by the Board of Directors were adhered to. In 2009 too, the Bank had a very limited portfolio of shares. Investment in bonds and certificates was mainly related to the scheme involving securities pledged with Norges Bank as collateral security for borrowing and related to the authorities requirements according to which there must at all times be sufficient liquidity in order to cover the Bank s liabilities at maturity. Funding risk The Bank s lending operations will be funded long-term. For measurement, management and control of liquidity risk, there are established targets for the indicator values that measure the relationship between long-term and non-liquid assets, of which loans constitute a significant part. The composition and objective requirements of indicator values follow guidelines set by the Financial Supervisory Authority under risk-based supervision. At the turn of the year the indicator values for Sparebanken Pluss within the Board-adopted standards were better than the corresponding average figures for the reference banks, which the Financial Supervisory Authority provided separately. The Bank s liquidity reserves in the form of undrawn borrowing facilities in Norges Bank and the holding of liquid securities was significant at the year s end, both in absolute size and set in relation to the Bank s refinancing needs in Operational risk Operating risk is the risk of loss from different potential loss sources relating to the current operations of the Bank. This may occur as a result of insufficient or failing internal routines and processes, human failure or insufficient competence, failing ICT-systems, crime or internal fraud, mistakes from subcontractors etc. The Bank has routines which cover all significant areas, and the internal control is an important help in order to reduce operational risk, both as far as the laying off of risk and follow-up are concerned. The Bank s security systems are maintained and periodically tested throughout the year. Development in number of man-years and total assets Total assets Number of man-years ORGANISATION The working environment in the Bank is regarded as good. Systems and routines are in accordance with the requirements contained in Rules and Regulations relating to Health, Environment and Safety. The Bank has embraced the concept of Care in the Workplace, having entered 6

7 into an arrangement in this connection with the NAV. In relation to this agreement, the Bank wishes to see a reduction in staff s absenteeism through illness. The Bank also wants its employees to work actively until their ordinary retirement age. Absenteeism through illness, however, went up from an average of 2.6 per cent in 2008 to 4.2 per cent in 2009, which is well below the average for the Norwegian savings bank industry as a whole. As at , the Bank employed 191 people, equivalent to 172 man-years. 49 of the Bank s staff work on a part-time basis. The Bank s operations do not cause any pollution of the external environment.. EQUALITY BETWEEN THE SEXES - EQUAL OPPORTUNITIES Sparebanken Pluss s goal is to have a relatively even distribution of men and women at all staff levels. This has helped to achieve an evening out of the levels of different positions both in the case of internal and external recruitment. At the present time, the ratio of women among the Bank s managers and professional experts is 22 per cent. In the case of the Bank s staff (excluding General Managers), the salary index for men is 110 and for women 92. The Bank has 10 departmental managers, 5 of whom are women. Absenteeism through illness at Sparebanken Pluss is still higher for women than for men, the ratios being 6.5 and 2.0 per cent respectively. Of the Bank s 191 permanent employees, women account for 51 per cent. 51 per cent of women work part-time. In 2009, the Bank recruited 4 new staff, 2 women and 2 men. The Bank s Board of Directors consists of 6 members 3 women and 3 men. In recruitment, the best candidate from an ethnic minority background should always be judged against the best male and best female applicant. In addition, the best female should be judged against the best male applicant. Sparebanken Pluss makes it possible for employees with disabilities to remain in their jobs. The new buildings and conversions used so-called universal design, which means that they are designed so that all people should be able to use them in an equal manner as far as possible. IFRS (International Financial Reporting Standards) Listed companies and companies which have debt instruments quoted on a stock exchange are required to prepare group accounts in accordance with the international accounting standards (IFRS). Sparebanken Pluss created their own mortgage company in 2009 as a wholly owned subsidiary. The Bank s accounts () and consolidated financial statements are prepared under IFRS for the financial year Comparison figures for previous years have been reworked under IFRS and are shown in the Transition Document. The document aims to describe the financial effects of the transition from reporting in accordance with Norwegian accounting principles (NGAAP) to reporting under IFRS. CORPORATE GOVERNANCE Business concept, fundamental ideas and value basis: The Bank s vision is to be the Bank for Sørlandet, and it should be a leading, financially strong and independent bank with Sørlandet as its main market. The Bank shall contribute to growth and development within the region. Strict requirements with regard to honesty and business morals shall be the basis of the Bank s operations. The Bank will accordingly expect its staff to have a high degree of integrity and to have attitudes in accordance with the Bank s ethical guidelines. Management structure: The Bank s most senior body is the Board of Trustees, which consists of representatives from the depositors, EC-holders, staff and publicly appointed members, each of the four groups being represented in equal proportions. The Board of Trustees elects an election committee which proposes elected representatives for the Bank s various bodies. The Bank is managed by a Board of Directors consisting of six members. The Bank s Chief Executive Officer is not a member of the Board of Directors, in accordance with the rules and regulations contained in the Savings Banks Act, agreed in The Bank s staff provides one member of the Board of Directors. The Bank has introduced a separate routine for the assessment of suitability requirements for members and deputy members of the Board of Directors Control mechanisms: The Control Committee is the Board of Trustees control body for monitoring the Bank s operations and consists of 3 members. The Control Committee makes an annual statement to the Board of Trustees and also provides a report to FSAN about its work. The Bank has its own internal audit department, which reports to the Board of Directors. The Internal Auditor attends the meetings of the Control Committee. The Bank is subject to the Rules and regulations on risk management and internal controls. An annual report is sent to the Board of Directors. 7

8 The Bank has a clear risk strategy which is explained in the Credit Document, the Finance Document and the ICAAP Document, which are discussed every year at the Board of Directors. In addition, there are the Principles for Internal Control, which have been agreed by the Board of Directors. In general, the Bank has a low risk profile. Furthermore, the Bank is subject to the Financial Supervisory Authority of Norway s (FSAN) rules and regulations relating to Minimum requirements for capital adequacy and rules pertaining to large commitments to individual customers in relation to equity and related capital. In addition, the Bank is subject to Oslo Stock Exchange s rules for the reporting of trading for own account by primary insiders. PROSPECTS FOR 2010 The strong decline in global economic growth appears to be over, and activity in the Norwegian economy is expected to rise further in During 2009 the trend in the employment market was not nearly as dramatic as many had expected. Employment, however, was low in 2009 and this trend is expected to continue in 2010; whether this reduced employment can be improved by the influx of people to higher education and lower labour immigration, remains to be seen. It is believed that the AKU unemployment rate of around 3 per cent at the end of the year may still increase somewhat in Economic decline has contributed to a sharp reduction in wage growth. From 2008 to 2009, wage rates among normal employees fell from 6 per cent to approximately 4 per cent. In 2010 the average wage is expected to increase by 3.5 per cent. Developments in the consumer price index which went down to below 1 per cent in 2009 from 3.8 per cent in 2008, however, have resulted in a high real wage growth. Real wage growth is also expected to be high in As a result of the more normal conditions in the financial markets, it is assumed that financing for the banking sector in the form of deposits, ordinary funding and core capital will be available at reasonable terms in Thus, banks lending activities could be maintained. Despite the financial crisis, Sparebanken Pluss has held a high lending rate in both the retail - and corporate sectors in The Bank s good results, in combination with high confidence in the financial markets, means that lending growth will continue in The Board of Directors of Sparebanken Pluss expects the Bank s operating profit for 2010 will also be solid, but the strong turbulence in the international economies and financial markets will continue to have a negative influence on the Norwegian financial industry. The Bank s commitments in default and credit loss development may be affected by further economic development, but it is believed that losses will continue to be modest. VOTE OF THANKS The Board of Directors would like to thank all staff and elected representatives for another good year for the Bank in spite of turbulent framework conditions. At the same time, the Board would wish to thank the Bank s customers, EC-holders and other connections for the way in which they have all supported the Bank, and for the trust they have shown in the Bank during the year which is now behind us. DECLARATION IN ACCORDANCE WITH THE SECURITIES ACT, PARAGRAPH 5-5 The Board of Directors and Sparebanken Pluss s Chief Executive Officer hereby confirm that the Bank s 2009 annual accounts have been prepared in accordance with the currently valid accounting standards and that the information provided in the accounts provides a true and correct picture of the s and s assets, liabilities, financial position and overall result. In addition, we confirm that the annual accounts give a true and correct picture of the Bank s development, result and financial position, together with a description of the most central risk- and uncertainty factors facing the Bank. Kristiansand, 31. December March 2010 Arvid Grundekjøn Chairman Norunn Tveiten Benestad Deputy Chairman Kristin Wallevik Peder Syrdalen Magne Haug Bente Pedersen Stein A. Hannevik Chief Executive Officer 8

9 Profit and loss account NOK MILLION Note: Interest receivable Interesr payable NET INTEREST INCOME Dividends and other income from securities Commissions receivable Commissions payable Net value change and gains on foreign exchange and securities Other operating income TOTAL OTHER OPERATING INCOME Wages and general administration costs 8,9, Depreciation etc. of fixed and intangible assets Other operating costs TOTAL OPERATING COSTS OPERATING RESULT BEFORE CREDIT LOSSES Losses on loans, guarantees etc. 14,15,16,17, OPERATING RESULT Tax payable on ordinary result RESULT FOR THE ACCOUNTING YEAR ,43 17,26 Result/diluted earnings/result per EC( in NOK) 34 18,71 11,36 Additional result according to IAS RESULT FOR THE ACCOUNTING YEAR Estimate discrepancy for pensions Total result

10 Balance sheet NOK MILLION Note: ASSETS Cash and claims on central banks Net loans to and claims on credit institutions 15, Net loans to and claims on customers 14,16,17, Repossessed assets Certificates, bonds and other interest-bearing securities 15, Equities, unit trust shares and ECs with variable yield Equity stakes in companies Deferred tax assets Fixed assets Other assets Prepaid costs, not yet incurred - accrued income, not yet received TOTAL ASSETS LIABILITIES AND EQUITY CAPITAL Liabilities to credit institutions Deposits from and liabilities to customers Borrowings through the issuance of securities Other liabilities Payable tax Incurred costs and income received, not yet accrued Provisions for liabilities Deferred tax Subordinated loan capital TOTAL LIABILITIES EQUITY CAPITAL Paid-in equity capital Retained earnings TOTAL EQUITY CAPITAL TOTAL LIABILITIES AND EQUITY CAPITAL Proposed dividend 21 Guaranties and assets pledged as collateral security December 2009 Kristiansand, 11. March 2010 Arvid Grundekjøn Chairman Norunn Tveiten Benestad Deputy Chairman Kristin Wallevik Peder Syrdalen Magne Haug Bente Pedersen Stein A. Hannevik Chief Executive Officer 10

11 CHANGES IN EQUITY CAPITAL Dividend Premium Savings Bank s Donnations Equalisation NOK MILLION EC-capital Fund Fund Fund Fund Total Balance Paid dividens for Total result Balance Paid dividens for Total result Balance Dividend Premium Savings Bank s Donnations Equalisation NOK MILLION EC-capital Fund Fund Fund Fund Total Balance Paid dividens for Total result Balance Paid dividens for Total result Balance Refer to Note 21 regarding the proposed dividend for 2009 and note 34 conserning Equity Certificates and Equity Certificates Capital. 11

12 C A S H F L O W S TAT E M E N T NOK MILLION Cash flows from operating activities Interest received Interest paid Dividends received Other payments received Other payments made Recoveries relating to confirmed losses Payment of tax Payment - donations Net change in deposits from customers Changes in net loans to and claims on customers Net cash flow from operating activities Cash flow from investment activities Payment received relating to securities Payment relating to securities Payment received in fixed assets Payment in fixed assets Change in other claims Net cash flow from nvestment activities Cash flows from financing activities 12 7 Net change in deposits from customers Net change in deposits from Norges Bank and other financial institutions Payment received of bond debt Payment of bond debt Change in short-term liabilities Subordinated loan capital Payment of devidend Net cash flow from financing activities Net change in liquid assets during the year Liquid assets as at Liquid assets as at

13 NOTES TO THE FINANCIAL STATEMENT 2009 Note Side Note 1 Accounting principles 14 Note 2 Segment reporting 17 Note 3 Interest income 18 Note 4 Interest expense 19 Note 5 Dividends and other income from securities 19 Note 6 Commissions 19 Note 7 Net value change and gains on foreign exchange and securities 20 Note 8 Salaries and general administration costs 20 Note 9 Employee, management and employee representatives 21 Note 10 Pension 23 Note 11 Fixed assets 25 Note 12 Other operating costs 25 Note 13 Risk Management in Sparebanken Pluss 26 Note 14 Loans before write-downs 28 Note 15 Credit area and credit risk 28 Note 16 Loans and guarantees by geographical area, sector and industry 30 Note 17 Defaulted loans 32 Note 18 Losses on loans, guarantees,etc. 33 Note 19 Repossessed assets 34 Note 20 Tax 35 Note 21 Proposed dividend 35 Note 22 Net loans to and claims on credit institutions 35 Note 23 Certificates, bonds and other interest-bearing securities 36 Note 24 Equity, unit trust shares and ECs with variable yield 36 Note 25 Equity stakes in companies 39 Note 26 Other assets 39 Note 27 Advance payments not accrued expenses and acquired not recieved income 39 Note 28 Liabilities to credit institutions 39 Note 29 Deposits from and debt to customers 40 Note 30 Borrowings through the issuance of securities 40 Note 31 Other liabilities 40 Note 32 Accrued expenses and prepaid income and provisions 41 Note 33 Subordinated loan capital 41 Note 34 Equity certificates and equity certificates capital 41 Note 35 Capital Adequacy 42 Note 36 Financial instruments by category 43 Note 37 Fair value of financial instruments 45 Note 38 Interest rate risk 48 Note 39 Liquidity risk 49 Note 40 Currency risk 52 Note 41 Asset pledged as collateral and guarantees 52 Note 42 Information on related parties 53 Note 43 Implementing IFRS 54 Note 44 Subsequent events and contingency outcomes 55 13

14 Notes to the financial statemen Note 1 Accounting principles 1. INTRODUCTION Sparebanken Pluss is an equity capital bank, with its registered office in Kristiansand but with several branches in the Agder counties. The bank may, within the framework of the statues and the laws that apply at any time, carry out all the services that banks in general have a license to perform. The Bank is licensed as an investment firm. With the effect from , Sparebanken Pluss established Pluss Boligkreditt AS as a wholly owned subsidiary. Pluss Boligkreditt AS offers loans secured on property within 75 per cent of the property value. Moreover, Sparebanken Pluss has an equity stake in Pluss Garanti Eiendomsmegling AS. Sparebanken Pluss gives it statements in Norwegian kroner (NOK), which is the s functional currency. 2. BASIS FOR PREPARATION OF FINANCIAL STATEMENTS The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and published by the International Accounting Standards Board (IASB) and who are obliged as of The accounts for 2009 are the first financial statements prepared under IFRS, the first official reporting under IFRS was the first-quarter financial statement for Comparison figures have been prepared and for further information about the adaption of the balance sheet as of and , refer to the transition document published on See also note 39 for further information. The following new standards and interpretations to existing standards are published and will be mandatory for the company and consolidated financial statements beginning 1 January 2010 or later, but without them the management has elected the early adoption of: IFRS 3 (revised) Business Combinations IAS 24 (revised) Information on Related Party Disclosures IAS 27 (revised) Consolidated Financial Statements Amendment to IAS 39 Financial Instruments Recognition and Measurement - Eligible Hedged Items The following new standards and interpretations to existing standards are published and will be mandatory for the company and consolidated financial statements beginning 1 January 2010 or later, but the management has assessed that these are not relevant to the and the : Amendment to IFRS 2 Share-based Payment Cash-settled Share-based Payment Transactions IFRIC 12 Concession Arrangements IFRIC 15 Agreements for the construction of Real Estate IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 16 Hedge of a Net Investment in Foreign Operations IFRIC 18 Transfers of Assets from Customer The Bank presents its accounting under IFRS and its subsidiary Pluss Boligkreditt AS places the accounting rules regarding simplified IFRS. The measurement basis for both the and accounts is the historical cost with the following modifications: Financial derivatives, financial assets and financial liabilities which are carried at fair value, with changes in value over the result. The preparation of financial statements in conformity with IFRS requires the use of estimates. Areas that largely contain these are discretionary estimates, those with a high degree of complexity, or areas where assumptions and estimates are significant to the and s financial is described in section DISCRETIONARY JUDGMENTS, ESTIMATES AND CONDITIONS 3.1. General In applying the s accounting policies, the company s leadership exercised discretion in some areas and made assumptions about future events as the basis of accounting. There will naturally be an inherent uncertainty in the financial records based on the use of discretion and assumptions about future events. The exercise of discretion and the determination of assumptions about future events management will look to available information on the balance sheet date, historical experience with similar assessments, as well as market and third-party assessments of current conditions. Although the management considers its estimates are based on the best estimates available, one must expect that the actual outcome in some cases may differ materially from what is the basis estimates. Estimates, assumptions and conditions that represent a significant risk of substantial changes in the carrying value of assets and liabilities within the next financial year are discussed below Fair value of financial instruments The fair value of financial instruments is partly calculated based on assumptions that are not observable in the market. This is particularly relevant in determining the premiums for credit risk by determining the fair value of fixed interest-bearing securities in the form of deposits, loans and securities issued by others. The management has, in these cases, based its assessments on information available in the market combined with the best of its judgment. Such information will include credit reviews conducted by other credit institutions Write-downs on loans Assessment of individual and group-related write-downs will always be based on a significant degree of discretion. Predictions based on historical information may prove to be incorrect because it can never be known for certain what relevance historical data s decisions are. When the safety values are related to specific items or industries that are in crisis, the security must be realised in illiquid markets, and the assessment of the security values will in such situations to be weighted with significant uncertainty Pensions Net pension liabilities and pension costs are based on several estimates concerning the return on plan assets, future interest rates and inflation levels, salary, turnover, development in G (National Insurance) and the general trend in the number of disability pensioners. Life expectancy is also of great importance. The uncertainty is largely based on the gross liability and not the net liability that emerges in the balance. Actuarial gains as a result of changes in these parameters are continuously recorded directly to equity. 4. AMORTISED COST - EFFECTIVE INTEREST METHODS The Bank balances loans with floating interest rates at amortised cost at the time of creation. The amortised cost includes the loan principal, fees and any direct costs. Borrowing at floating interest rates is also measured at amortised cost. Income / expenses yields are calculated at the effective interest rate method. Amortised cost is defined as the carrying value at the initial measurement, adjusted for received / paid instalments, any cumulative accrual of fees, commissions, etc, and any impairment losses. 14

15 The effective interest method is a method that calculates the amortised cost and accrued interest income / expenses for the relevant period. Interest income is recorded as income using the effective interest rate method. The effective interest rate is the interest rate for that the loan s discounted cash flows over the expected term of the loan s amortised cost at the time. This means that any difference between the original loan s carrying amount and the accrued value is accrued over the loans expected. 5. VALUATION OF LOANS AND LOSSES 5.1. Income and expense of interest and value modification Interest rate from loans with floating interest rates including loans with a rolling fixed rate, interest calculated at the effective yield and is booked as income over the loan s term of maturity. Fees and commissions are included in the calculation of effective interest rate. Interest from fixed interest loans is recognised as interest income as it accrues. Changes in the discounted value of expected future cash flows are recognised over the line for changes in value of financial instruments. For interest rates on loans with floating interest rates, including the funding of rolling fixed rate, interest is calculated to effective yield and expensed over the loan maturity. Fees and commissions are included in the calculation of the effective interest rate. Interest rates on fixed rate loans are expensed as incurred. Premiums / discounts with the past redemption of fixed rate loans are recorded as they occur. Premiums / discounts with back of bond financing for a floating rate income are recorded in the statement as they arise Fixed rate loans assessed at true value Loans (assets) with a fixed rate up to 12 months are valued at the amortised cost. Fixed interest rate loans with an initial fixed rate over 12 months are recorded at fair value with changes in value over the result. In valuation of the loan, changes in the yield curve and any changes in credit premiums are taken into account. Assessment of fixed rate loans at fair value is carried out in accordance with IAS 39.9, where it is open for the classification of fair value if an accounting mismatch will occur if such valuation was not completed. The accounting mismatch which would have emerged, is linked to the corresponding hedging instruments in the form of interest rate swap agreements that are subject to fair value Losses and write-down on loans valued at amortised cost Losses on loans are calculated as the difference between the carrying value and net present value of estimated future cash flows, discounted using the effective interest rate. Using the effective interest rate method means that it made account for interest income on loans that are written down. These loans are recognised at the interbank interest rate at the date adjusted for changes in interest rates until the time of impairment. The income rates are based on the loan s recorded value. In the income statement, the line losses on loans consist of realised losses, changes in impairment losses on loans and provisions for guarantees, as well as input on past realised losses. Losses on loans are based on an assessment of the Bank s loan and guarantee portfolio in accordance with IAS 39. The Bank determines the losses on loans and guarantees on a quarterly basis. Non-performing and doubtful loans are followed up with regular reviews Reduction in value of loans and individual write-down losses Impairment loss is made when there is objective evidence that a lending has impairment as a result of weakening credit quality. An impairment loss is reversed if the loss is reduced and can be related objectively to an event occurring after the impairment time. All loans that are considered essential, as well as a selection of others, will be assessed to see whether there is objective evidence of impaired credit, and the objective indication is likely to result in reduced future cash flows to the operation of the engagement. Objective evidence may be defaults, bankruptcies, debt settlement, a lack of liquidity or other significant financial problems. The write down is calculated as the difference between the carrying value and estimated present value of estimated future cash flows. Discounting occurs on the effective interest rate write-downs These are loans which have not been subject to individual impairment in the group write-downs. Loans are divided into groups with approximately the same risk characteristics with regard to servicing. write-downs are calculated on subgroups of loans where there is objective evidence that shows that the future cash flow for the operation of the engagements is weakened. write-downs made in order to cover expected credit losses caused by incidents that have occurred, shall take into account losses in the portfolio at the time of measurement, but that are not yet identified at the individual s commitment level. Objective events would be a negative trend in risk classification, adverse developments in security values or negative industry developments Realised losses When it is highly probable that the loss is final, this is recognised as a realised loss. This includes losses in which the Bank has lost its claim against the debtor in bankruptcy, confirmed by piecework, by the business expenses that have not brought, by a court ruling and by the debt remission. This applies even if the Bank has otherwise suspended enforcement or waived part or all engagements. Some realised losses will be covered through the previous decision made on individual loan loss write-downs, and ascertained against the former provision. Realised losses, without coverage in individual impairment loss, as well as over-or under cover in relation to previous impairment loss, are recognised Repossessed assets Assets acquired as a result of non-performing loans are valued at acquisition at fair value. Such assets are classified in the balance after their character. Subsequent valuation and classification of income effects follow the principles of the relevant balance sheet item. 6. FINANCIAL INSTRUMENTS 6.1. Financial instruments at fair value Financial instruments trading in an active market are valued at observed market prices, while financial instruments not traded in an active market value are assessed by using valuation techniques. These techniques are based on the recent settlement of transactions between independent parties, by reference to instruments with similar content or the discounting of cash flows. Valuations are based as far as possible on externally observed parameter values. The fair value of fixed income securities are determined on the basis of established market values reported from the external market, or by the fair value calculated on the basis of the market s current yield curve and credit spread curve at any time. In calculating the fair value of contracts entered into, interest rate swaps in the market will be at all times be the relevant interbank interest rate curve used Financial derivatives Financial derivatives are measured at fair value, with changes in value over the result. Sparebanken Pluss has used the following derivative financial instruments: options linked to stock indexes, currency futures, interest rate swap agreements (swap) and currency swaps. Interest rate swaps will be recognised at fair value and changes in value will be the result. The calculation of the fair market value is added at any time, with the current yield curve as a basis Interest bearing securities (bonds and certificates) Sparebanken Pluss has established two separate investment portfolios. The Bank s 15