ANNUAL REPORT BANK 1 OSLO AKERSHUS AS

Transcription

1 2014 ANNUAL REPORT BANK 1 OSLO AKERSHUS AS

2 2 CONTENTS Side 3 Key figures and ratios 4 Statement from the CEO 5 Organisation chart 6 Business concept, vision and strategy 7 Out local branches in Oslo and Akershus 8 Corporate social responsibility 13 Directors report for Income statement 22 Balance sheet 23 Statement of change in equity 24 Cash flow statement 25 Auditor s report 27 The SpareBank 1-alliance 28 SpareBank 1 Banksamarbeidet DA

3 3 key figures and ratios for Bank 1 Oslo Akershus group Income statement summary (as a % of average assets) MNOK in % MNOK in % Net interest income Net commission and other income Net return on financial investments Total income Total operating expenses before losses Profit before losses Losses on loans and guarantees Profit before tax Tax expense Profit after tax Profitability Return on equity after tax (%) 1) 16.2 % 14.0 % Net interest margin (%) 2) 1.39 % 1.63 % Cost/Income ratio (%) 3) 57.9 % 61.3 % From the balance sheet (MNOK) Outstanding loans (gross) Outstanding loans including transf. SpareBank 1 Boligkreditt (gross) Deposits Deposit coverage 4) 79.1 % 76.7 % Annual growth in lending (%) 11.4 % 6.2 % Annual growth in lending including transf. SpareBank 1 Boligkreditt (%) 5.1 % 13.6 % Annual growth in deposits (%) 14.8 % 4.6 % Average assets Total assets Total assets including transf. SpareBank 1 Boligkreditt Losses and defaults Loss ratio (Loan losses as % of gross loans) % 0.07 % Non-performing loans as % of gross loans 0.45 % 0.81 % Other impaired loans as % of gross loans 0.13 % 0.40 % Solvency Capital adequacy ratio 5) 16.5 % 14.9 % Core capital ratio 6) 15.0 % 14.0 % Common equity Tier 1 capital ratio 14.6 % 13.1 % Core capital Net capital Offices and Staffing No. of bank branches No. of real estate agents Total no. of person-years worked ) Profit after tax in relation to average equity 2) Total net interest income as a % of average total assets 3) Total costs relative to total net income 4) Deposits from customers as a % of gross loans (excluding SB1 Boligkreditt) 5) Net capital as a % of calculated risk-weighted assets 6) The core capital as a % of calculated risk-weighted assets

4 4 Statement from the CEO 2014 returned a historically good profit for the Bank 1 Oslo Akershus Group. Profit after tax was NOK 452 million and return on equity amounted to 16.2 %. In 2014, the Group reported a growth in total loans to retail and business customers of 5.1 % (including mortgages transferred to SpareBank 1 Boligkreditt). Deposits grew by a total of 14.8 %. EiendomsMegler 1 Oslo Akershus maintains a stable market share of around 10 %. The Group maintains its ambition to strengthen its market position. The bank is experiencing increasing pressure on its margins, as a result of increased competition between banks for new loan and deposit customers. A growth greater than the market growth going forward will therefore require continuous adaptation of its cost structure. The Group s solvency was strengthened in 2014 through good results, as well as issuance of new subordinated loans and new subordinated bonds. The bank has experienced good demand for its bond issues, and has a robust financial structure that will withstand significant turmoil in the financial markets. The new banking reality is characterised by two main drivers, and these will be guiding the Bank s strategic considerations and adaptations. The first is continually renewed regulatory rules. At the same time, the future regulatory framework for the bank seems to have been increasingly clarified over the past year. The transitional rules in CRD IV with deduction rules for non-substantial holdings, which entered into force on 30 September 2014, have given the bank a increased manoeuvrability compared to what had been previously assumed. The other driver is changed customer behaviour. Customers are becoming accustomed to using on-line solutions in many fields. For that reason, many choose self-service solutions, possibly in collaboration with banking advisers. Customers are also showing an increased use of combined distribution channels. In their daily lives, which are filled with countless opportunities and offers, consumers look for simple and time-saving solutions, while at the same time seeking personal contact when there are complex needs and/ or financially crucial decisions have to be made. The Group s goal is for our customers to have the best customer experience in their meetings with the bank and estate agency, no matter which channel they have chosen to make contact. Against this background, it devotes extensive efforts to achieve continuous improvement throughout the organisation. Skills development for each employee are a vital part of this process. Bank 1 Oslo Akershus is a member of, and participant in, the SpareBank 1- alliance, where we share knowledge, develop technical solutions and work on continual product development. In this way we ensure that our customers are always offered the best solutions and products. Efficient capital growth and increased profitability will have the highest priority in the future. To achieve this we must have good customer satisfaction and strong adaptability in an increasingly digital world. I am optimistic about the bank s opportunities in A solid loan portfolio, large customer base, good products and broad distribution of its offices and digital channels will provide excellent opportunities for a further strengthening of its position.

5 5 Bank 1 Oslo Akershus Group Torbjørn Vik CEO Risk Management and Compliance Business Support CFO Gudrun Michelsen Director Risk Management and Compliance Geir-Egil Bolstad Financial Director CFO Legal Affairs EiendomsMegler 1 Marianne Uppman Director Legal Affairs Odd Nymark Director Retail Banking Corporate Banking Trade Unions and Organisations Kåre Johan Osen Director Retail Banking Monica Mathisen Director Corporate Banking Ottar Karbøl Director Trade Unions and Organisations

6 6 Business concept, vision and strategy Business concept Bank 1 Oslo Akershus AS operates under the market name SpareBank 1 Oslo Akershus, offering products within financing, savings and investment, payments, insurance and financial advice. The bank s subsidiary EiendomsMegler 1 also offers real estate services. Sales of products will be based on consulting with high levels of expertise and quality. Vision «The customer experiences security, proximity and an easier daily life». Focus is directed on customer requirements and needs. Customers must feel confidence in their bank and receive services in the channels they require. The Bank shall offer its customers simple processes and products that have value for them. Values «Close, skilled and fast». The bank must be readily available to its customers, providing good quality products and services in a responsible and efficient manner. Organisation The SpareBank 1 Oslo Akershus organisation is divided into the retail, corporate and organisational markets, as well as support and supervisory. The retail market is the bank s largest business area. Of the bank s 282 full-time equivalent positions, 187 work in retail banking. The retail market is divided into four regions - City centre, Romerike, Øst-Follo and Asker/Bærum, to which the bank s 18 local branches are belong. In the Retail Banking sector, the bank also offers a customer centre and a private banking operation, as well as product support, marketing and training functions. The corporate market is divided into a major customer team, business centre for the SMB segment, interest and currency department, Cash Management department, and support functions. The bank also has central staff functions covering risk management, legal services and line support services. The bank is the main bank for the Norwegian Confederation of Trade Unions [LO] and its affiliated unions. The Organisation Market is an area of the bank that works to retain and develop the cooperation between the bank and trade unions, locally and centrally. EiendomsMegler 1 Oslo Akershus is a wholly-owned subsidiary of the bank. Its 26 offices give the company excellent coverage in the local market. 3,364 housing sales were brokered in In May, the company its new Eidsvoll branch in partnership with the bank. Customer satisfaction related to real estate has improved greatly during The sellers of residental scored EM1OA at as high as 93 % throughout the year. The company is a strong driving force in the SpareBank 1-alliance in the establishment of innovative solutions that help to strengthen its position as attractive player in the industry. The website, Visomharsolgt.no, was established in 2014 and is a nationwide on-line service in which potential sellers can contact previous customers to gather experiences and reference input. This has had a positive effect on the company, both externally and internally. Local Market Oslo and Akershus is an area of high population growth and activity, which gives the bank room for growth. The bank s local branches have long been important points of contact for the retail market and businesses, and will continue to be important in the future. At the same time, the bank s focus on digital channels has been an important source of the growth that it has enjoyed in recent years. In particular, digital recruitment of new customers, loans and deposits have been successful, both through self-service solutions and not least through digital interaction with EiendomsMegler 1. There is considerable potential for leverage of the network that the 18 local branches have established in their local regions. There are plans to expand the local bank network with a new local branch in 2015, which will reinforce this position in the local market further. This branch will be located at Fornebu. This will be a clear commitment to a local market that is showing significant growth in housing and population growth. This local branch will offer both banking and real estate services. The bank will also have much to offer the growing customer group that wants self-service, by adapting the channels used to reach out to its customers. This is the reason for the bank s continuous development of digital solutions and adaptation of the organisation to conform with customers needs and requirements. In 2014, as part of its efforts to adapt its organisation, the bank built up a central specialist department to accommodate the increasing number of loan requests from customers that come through digital channels.

7 7 our local branches in Oslo and Akershus Eidsvoll Oslo Sentrum Youngstorget 5, 0181 Oslo. Lillestrøm Adolph Tidemands gate Lillestrøm Skøyen Sjølyst plass Oslo Asker Bankveien Asker Bekkestua Signaturgården Gamle Ringeriks vei 45A 1357 Bekkestua Lørenskog Bibliotekgata Lørenskog Majorstuen Majorstuveien 38 - inngang Kirkeveien 0367 Oslo Storo Vitaminveien Storosenteret 0485 Oslo Strømmen Stasjonsveien Strømmen Fornebu opens in Spring 2015 Grorud Bergensveien Grorud Nærsenter 0963 Oslo Jessheim Storgata Jessheim Lambertseter Langbølgen Oslo Kolbotn Kolbotnveien Kolbotn Eidsvoll Gladbakkveien 1 - Råholt Senter 2070 Råholt Sandvika Claude Monets allé 18 - vis à vis Sandvika Storsenter 1338 Sandvika Ski Jernbaneveien 10 - i den nye delen av Ski Storsenter 1400 Ski Majorstuen Storo Tveita Tvetenveien Tveitasenteret 0671 Oslo Vika Olav Vs gate Oslo Grorud Strømmen Lillestrøm Jessheim Bekkestua Skøyen Vika Oslo Sentrum Tveita Lørenskog Sandvika Lambertseter Asker Fornebu Kolbotn SpareBank 1 Oslo Akershus EiendomsMegler 1 Ski

8 8 Corporate social responsibility The financial crisis has shown the importance of stable banks to the economy has seen Bank 1 Oslo Akershus deliver a record result and it will use the solidity of its future operations to help our customers realise their ambitions, whether they are individuals, families or corporations. All of the Bank s stakeholders should be able to trust that the bank meets their needs, and is a credible and competent partner for the long term. This is an important part of the bank s corporate responsibility. Ever since its founding in 1898, further development of the community that the bank is part of has figured prominently in our choices and decisions. With our local knowledge and proximity to customers, the bank makes assessments, that in addition to finance and risk, are based on a social perspective, and how the Bank works closely with customers and communities to develop good businesses and good living. Vision, Values and Strategy Bank 1 Oslo Akershus AS vision: «The customer experiences security, proximity and an easier daily life» Bank 1 Oslo Akershus AS values: «Close, skilled and fast» Our values reflect what should characterise Bank 1 Oslo Akershus. Skilled employees, providing customers with quick responses, who ensure that customers always experience relevant service and in all channels find meetings with the bank to be a good experience. The Bank s vision and values are about putting customers at the centre. Through satisfied customers, who find their needs for financial services met in a good way, the bank wants to be a hub offering a total range of financial products and services in Oslo and Akershus. StrategY The bank s solvency was strengthened in 2014 through the issuance of new subordinated loans and new bonds, and solid annual profit, ensuring the bank can continue to meet it s clients financing needs. Uncertainty about future economic conditions and new requirements from regulatory authorities will, however, require considerable adaptability and facilitate the bank s strategic deliberations. Growth through efficient use of capital, enhanced customer satisfaction and increased growth in total income will be a high priority in the future. The triple bottom line Solid banking creates the foundation for economic development. The bank tries to balance consideration for society and the environment with financial objectives. The Bank has defined key areas to which special attention is de-

9 9 voted and for which it has developed specific measures for each area. Bank 1 Oslo Akershus has not formulated a specific policy for corporate responsibility as the work of corporate responsibility is integrated into the bank s ongoing planning. The following describes how the ongoing operations of the bank put various aspects of CSR on the agenda. Ethics The Group is dependent on being trusted. Customers, authorities, other financial institutions and society must always have confidence in the Group s professionalism and integrity. The Group s code of ethics must increase awareness of, and adherence to, the high ethical standards required of the employees of Bank 1 Oslo Akershus. The guidelines require the Group and its employees and their representatives to act with care, integrity and objectivity, including loyally following the rules and conditions set by the authorities. Bank 1 Oslo Akershus has prepared the following formalised and repeated review of the Bank s code of ethics for the bank s employees, in order for this combination to constitute the formal basis for the actual conduct of all the Group s employees: The Code of Ethics is part of the HR portal (Employee Manual), and hence a part of the employment contract. The Code of Ethics are reviewed, with accompanying examples for new employees. Ethics is a mandatory module in the bank s on-line educational facility and all employees must pass the test. The Code of Ethics is a key part of the Group s management development program. All financial advisors in the bank are certified under a national licensing system for the entire financial industry. The content of the code of ethics is followed up in the bank s annual management verification. Individual managers are responsible for ensuring that employees are familiar with the regulations and must, in their management verification, confirm that they are familiar with the code and provide feedback on whether ethical issues are discussed in such forums as, e.g. department meetings. The management verification for 2014 indicates that the code of ethics is well known among bank employees and that ethical issues are discussed regularly. Supplier follow-up All suppliers to the Sparebank 1-alliance must sign a document stating that they are not complicit in breach of human and labour rights, harm to the environment or corruption. Financial crime Financial services constitute one of the pillars of a functioning society. Banks make trading, saving and investing easier - the things that make the wheels go around in a modern economy. At the same time, banks can be exploited by criminal networks. Governments around the world are currently investing considerable energy and resources in combating money laundering, and many of the new regulations in the banking sector deal with this. Bank 1 Oslo Akershus welcomes this. As a responsible bank, it supports all measures aimed at combating organised crime and terrorism. The concept of economic crime includes, among others, the following: Money laundering and terrorist financing

10 10 Cybercrime Internal fraud and corruption Money laundering and terrorist financing Money laundering is about getting funds or assets obtained through criminal activity to appear as seemingly legitimate funds. Financing of terrorism includes both channelling in, obtaining or receiving funds for financing terrorist acts. The Bank is subject to the government s money laundering legislation, which is aimed at helping combat money laundering and terrorist financing, and in collaboration with the other banks in Sparebank 1-alliance, has introduced a range of measures aimed at combating this type of crime. Training of bank staff in these topics takes place through in-classroom courses, on-line courses and reviews of the topic in meetings and the like. Cybercrime The Sparebank 1-alliance is, as are all major businesses/alliances, prone to virus attacks and hacker attacks from all over the world. The purpose is often financial crime. Bank 1 Oslo Akershus provides guidance to all of its customers about use of anti virus programs via its online bank service. The Bank has also participated in national security exercises (disaster exercises). Internal fraud and corruption Internal fraud encompasses actions where a staff member, temporary worker, employee representative or member of the governing bodies of Bank 1 Oslo Akershus in a deliberate and unauthorised manner, commits acts that result in gain or economic benefit to the employee himself or others. The Bank does not tolerate such actions and has made this known through its code of ethics, see the chapter concerning ethics. This code also includes a clear procedure for notification and handling of any indication of fraud and corruption. Human Rights The Group supports the recognised human rights principles.

11 11 Contribution to society Bank 1 Oslo Akershus supports sporting, cultural and charitable organisations and other charitable causes. The bank sees it as an important social task to conduct training activities in financial topics. The topics have included the new pension reform, property trends, product training, financial advice, pensions, payment systems and macroeconomics. The training activities help to keep our various customer groups updated on what is happening in the market, and about new products and solutions that provide increased security for their own finances. Customers How its customers, and the market in general, experience Bank 1 Oslo Akershus affects the Group s operations and results. Both reputation and customer satisfaction are key focus areas for the Group. The Bank conducts annual position surveys that map the banks market position in the population, based on a comprehensive questionnaire with many different topics, including market description, reputation and customer relationships. TNS Gallup conducts the surveys. Every second year, TNS Gallup also conducts a TRIM Index survey that measures customer satisfaction. Surveys of customers perception of, and satisfaction with, the bank show that both retail customers and corporate customers relative satisfaction increased from 2012 to In addition, the Sparebank 1-alliance conducts monthly surveys of customer satisfaction associated with the Alliance s call centres. The Bank 1 Oslo Akershus customer centre s score remains the highest in the surveys. On the basis of these surveys, the bank directs its focus on relevant initiatives for increasing customer satisfaction, such as good consultancy processes, opening hours at customer centres and the functionality of online banking and mobile solutions. The bank broad-based sales and consultancy processes are based on «Best customer practice». This is the key to good preparation for all consultancy meetings, which are systematised by the PM consultancy school. Good survey systems have been established that highlight and reward good consultancy experiences at local branches, and customer experience is monitored regularly by using «Mystery Shoppers». Employees/working conditions At year-end 2014 (2013), the Group had 411 (417) full-time equivalent positions, 282 (277) of which were employed by the parent bank and 129 (140) were employed by Eiendoms- Megler 1. The Bank is committed to providing women and men the same opportunities for professional and personal development, pay and promotion. Of the parent bank s total number of employees, 48 % are women and 52 % are men. The company has used various measures to encourage female representation in its senior management and this now stands at 42 %. 3 of the 7 members of the parent bank s senior management group are women The bank s Board has a total of 9 members, 2 of whom are women. The current average age of the bank s employees is 44.1 years old, while the average age of new employees in 2014 was 30.1 years old.

12 12 55 % of EiendomsMegler 1 s total number of employees are women and 45 % are men. 2 of the 6 members of the company s senior management group are women. The Board of EiendomsMegler 1 has a total of 5 members, 1 of whom is female. The Group considers the candidates on the background of their formal qualifications and experience. In addition, the bank attaches considerable significance to their personal skills and attitudes. In this way, the Group ensures a neutral assessment and complies with the intentions of anti-discrimination and accessibility legislation. The Group bases its policy on its HR work supporting its commercial strategy. The Group has developed its own HR strategy. The overriding goal of the HR work is to ensure that the Group: Attracts the right employees by focusing on the Group s core values. Retains the best employees by offering them challenging tasks, constructive communication and reward for good performance Develops its employees by creating commercial understanding through involvement, giving responsibility in relation to clear goals. Annual working environment surveys are carried out throughout the Group, with subsequent systematic activities to meet organisational challenges and potential areas of improvement. The organisation survey conducted in 2014 showed an improvement from the previous year in terms of satisfaction with working at the bank. Compared to other banks in the Sparebank 1 Alliance, the bank scores very high on employee satisfaction. Eiendoms- Megler1, which uses another survey, has a solid total score for employee satisfaction, but at some sub-areas are working on specific improvements. Annual performance reviews aim at each employee, along with their manager, being able to discuss their development potential in order to create further commitment and satis- faction, through which they can improve their performance. The Group has established a joint management development programme for the bank and the real estate brokerage, and has initiated a business development programme for key resources. The bank has an active life phase policy. The life phase policy contains measures to ensure adaptation of the employees working conditions throughout their entire career. The bank and EiendomsMegler 1 have their own working environment committees that work with the safety service as needed. A Workplace Anti-Alcoholism and Drug Addiction Dependency Committee has been established in association with the bank s working environment committee. The collaboration with the employees organisations is regarded as being constructive. A works committee has been established consisting of representatives of management and the employee organisations. The committee has held four meetings in 2014 where current issues of importance to the Bank s commercial situation were discussed. The bank and EiendomsMegler1 work systematically on interaction in order to enhance business outcomes through better use of common customer streams. The bank has renewed its agreement concerning an Inclusive Workplace. Average absence due to illness in 2014 was 3.1 %, a decrease from 3.4 % in No industrial accidents or occupational injuries were reported during the year. The bank has drawn up a remuneration policy that has been approved by the Board in line with the remuneration regulations that came into force on 1 January The remuneration policy identifies leading employees and risk takers, and describes relevant remunerations schemes in the bank. The bonus schemes for the manage- ment and profit-sharing schemes for employees were terminated on 1 January Environment The Group s direct climatic and environmental impact is mainly related to waste from office operations. The group initiates regular measures to help reduce the consumption of electricity, paper and other resources, and to ensure that resource-intensive travel activity is limited. Close focus is also directed on the management of technological waste and procurement of environmentally friendly solutions. The Bank works constantly to ensure proper procurement of technological equipment, in which we put energy and environmental requirements as specific assessment criteria. All technological devices are treated as hazardous waste, ensuring environmentally sound handling of the equipment. The Bank has a dedicated travel policy for employees to limit the amount of business travel. Alternative options, such as the use of video conferencing, audio conferencing and digital tools for collaboration and knowledge sharing are used if they provide a satisfactory alternative. The Group offers an increasing number of paperless services that reduce environmental impact. The bank focuses on digital solutions, which means as many paperless processes as possible for customers and employees. There is a determined effort to increase the use of our self-service solutions in both local branches and the customer centre. Electronic signatures using BankID for mortgage applications with security in property were offered to customers from Q All contracts that are signed electronically will be offered to the customer in an easy and safe way, and they will be easier to retrieve from the customers electronic records. The company does not conduct any research and/or development activities over and above normal business development to promote growth and competitiveness.

13 13 Director s report for 2014 (Consolidated figures. Figures in (brackets) are for 2013 unless otherwise stated). A solid and historic performance for 2014 as a result of realisation of a stake in Nets Holding and reversal of losses. Profit after tax: NOK 452 million (NOK 328 million). Return on equity: 16.2 % (14.0 %). Net interest income: NOK 459 million (NOK 484 million). Net commission and other income: NOK 617 million (NOK 594 million). Net results from financial investment: NOK 166 million (NOK 49 million). Operating expenses: NOK 719 million (NOK 690 million). Losses on loans and guarantees: NOK -18 million (NOK 18 million). Growth in lending over the last 12 months incl. SB1 Boligkreditt: 5.1 % (13.6 %). Growth in deposits over the last 12 months: 14.8 % (4.6 %). Strengthened capitalisation through the issuance of new subordinated bonds for NOK 200 million in Q1 and new subordinated loans of NOK 200 million and a new fund bond of NOK 200 million in Q4. Pure capital adequacy: 14.6 % (13.1 %). On 24 February the bank was granted permission by the Financial Supervisory Authority to use the Advanced IRB approach in the calculation of capital requirements for corporate loans. The estimated effect on pure capital adequacy is in excess of 1 percentage point. The Board proposes a dividend of 30 % of net profit, equivalent to NOK per share Discontinued bonus schemes for management and employees. THE GROUP S AREA OF ACTIVITY The consolidated financial statements include the subsidiary Eiendoms- Megler 1 Oslo Akershus AS, and the bank s ownership shares in SpareBank 1 Boligkreditt AS, SpareBank 1 Gruppen AS and SpareBank 1 Kredittkort AS. Bank 1 Oslo Akershus AS has its head office in Oslo, and has a total of 18 local branches, 9 of which are located in Oslo and 9 in Akershus. Eiendoms- Megler 1 Oslo Akershus AS has its head office in Oslo, and has a total of 25 local offices, 14 of which are located in Oslo and 11 in Akershus. The Group has, as its goal, to be a full service provider of financial products and services in Oslo and Akershus. In addition to loans, this incorporates deposits and payment services, and most savings and insurance products. The Group also acts as a real estate broker. The comprehensive range of products and services is delivered by the bank, its subsidiaries, and by the product companies in SpareBank 1 Gruppen. The Group has a multi-channel strategy for distribution of its products and services in person through the local branches, through a customer telephone call centre, and employing Internet and mobile phone applications. CORPORATE TRENDS In 2014, the Group reported a growth in total loans to private and business customers of 5.1 %. This includes housing loans transferred to Sparebank 1 Boligkreditt AS. The growth in the retail market was 6.7 %, while the corporate market showed a decrease of 1.8 %. General credit growth among households in 2014, according to figures released by Statistics Norway, was 5.4 %. The market share for EiendomsMegler 1 Oslo Akershus was 10.1 %, compared to 10.2 % at the end of The most important customer groups for the bank are the retail market, small and medium-sized businesses, and organisations (primarily the trades union movement). The bank s current strategy calls for a strong physical presence in the areas in which the bank is represented, with a special focus on broad-based counselling.

14 14 The bank has continued its work towards increased profitability throughout The Retail (PM) Division has focused on efficiency improvements, growth in deposits, training and development in the consulting process, modification of the distribution network, skill building and correct pricing of loans in light of new capital requirements. The corporate market (BM) division is still focussing on credit quality and capital-efficiency, as well as the repricing of credits and increased sales of other financial products to new and existing customers. Brokerage has prioritised its measures for improving operations and efficiency. Changes in customer behaviour towards more self-service solutions and increasing automation of work processes create a need for a new direction in the distribution of the bank s products and services. This is crucial it the bank is to maintain its competitiveness and market position. The Bank invests heavily in development of future-oriented system solutions for self-service and efficient customer advice through the SpareBank 1-alliance. PROFIT trends MNOK Operating profit before losses Operating profit before tax In 2014, Group profit after tax amounted to NOK 452 million (NOK 328 million). The increase in profit is mainly due to gains on the sale of the bank s shares in Nets Holding and loss reversal. The Group s return on equity for 2014 was 16.2 %, compared with 14.0 % for Group return on equity, less revaluation of the bank s shares in Nets Holding, for 2014 was 11.6 %. Net interest income MNOK Net interest income in MNOK SB1 Boligkreditt Net interest income as % of average total assets 2.5 % 2.0 % 1.5 % 1.0 % 0.5 % 0.0 % Net interest income for 2014 totalled NOK 459 million (NOK 484 million), an decrease of NOK 25 million. The reduction is due to reduced interest margins and increased deposit volumes, while lending growth, taken in isolation, contributes to increased net interest income. Net interest income must be viewed in connection with commission income from SpareBank 1 Boligkreditt. For 2014, this commission income amounted to NOK 210 million (NOK 197 million). Net interest income as a percentage of average total assets was 1.39 % (1.63 %). Net commission income and other income Net commission income and other operating income for 2014 amounted to NOK 617 million (NOK 594 million), an increase of 3.9 % on The increase was mainly due to higher commission income from insurance, savings and SpareBank 1 Boligkreditt. Net results from financial investment In 2014, net income from financial investments totalled NOK 166 million (NOK 49 million). The increase is mainly due to gains on the sale of the bank s shares in Nets Holding of NOK 128 million. The bank s other investments are primarily in low risk bonds as part of its liquidity management strategy. Operating expenses MNOK Expenses 2.6 % 2.5 % 2.4 % 2.3 % 2.2 % 2.1 % 2.0 % 1.9 % 1.8 % Expenses as % of average total assets Operating expenses for 2014 ended at NOK 719 million (NOK 690 million), an increase of 28 million, equivalent to 4.1 %. The cost increase is mainly due to the new common IT solutions in the SpareBank 1-alliance and increased personnel costs. Pension costs have increased by NOK 5 million and the average number of employees in 2014 was 6 more than in The FTEs are partly linked to the strengthening of the Bank s commitment to selling insurance and its management of the SME segment. Relative operating expenses for the Group in terms of average total assets amounted to 2.17 % (2.32 %). The

15 15 Group s cost ratio (expenses in relation to income) was 57.9 % (61.3 %). Defaults and losses on loans Losses on loans for 2014 showed net inflow of NOK 18 million (NOK 18 million loss). The loss ratio (losses as a percentage of gross loans) amounted to % (0.07 %). BALANce sheet % 14.0 % 12.0 % 10.0 % Loans to customers in 2014 increased by NOK 2.1 billion, equivalent to 5.1 % to NOK 42.5 billion. This includes mortgages transferred to Sparebank 1 Boligkreditt AS of NOK 14.8 billion. Growth is split into NOK 2.2 billion, equivalent to 6.7 % in the retail market, while the corporate market showed a reduction of NOK 0.1 billion, equivalent to -1.8 %. Defaults and losses on loans MNOK Corporate Market Retail Market Gross non-performing and doubtful loans at the end of 2014 amounted to NOK 162 million (NOK 306 million). Measured against gross loans, this amounted to 0.6 % (1.2 %). Individual impairment at the end of 2014 amounted to NOK 44 million (NOK 138 million). Collective impairment at the end of 2014 amounted to NOK 85 million (NOK 85 million). Of total defaults longer than 90 days of NOK 125 million (NOK 205 million), allocations for losses were made of NOK 28 million (NOK 58 million), equivalent to 22.3 % (28.2 %) at yearend The reduction in defaults and loss severity are due to losses that are related to a single large commitment. Other loans with written-down losses amounted to NOK 37 million (102 million), NOK 16 million (NOK 81 million) of which, equivalent to 43.0 % (79.5 %) was subject to a loss allocation. 44 MNOK At year-end 2014, total assets amounted to NOK 35.6 billion (NOK 31.7 billion), an increase of 12.2 %. Commercial capital (total assets including transfers to Sparebank 1 Boligkreditt AS) amounted to NOK 50.4 billion (NOK 47.3 billion), a growth of NOK 3.1 billion, equivalent to 6.5 %. Lending MNOK Total assets SpareBank 1 Boligkreditt Growth as a % (incl. SpareBank 1 Boligkreditt) % 6.0 % 4.0 % 2.0 % 0.0 % Retail Market (incl. transferred til SpareBank 1 Boligkreditt) Corporate Market (incl. Trade Union movement) The split between the retail and corporate markets ended at year-end 2014 on 82/18 % (81/19 %) including mortgages transferred to SpareBank 1 Boligkreditt AS. If these transferred loans are excluded, the split would have been 73/27 % (69/31 %). Deposits Customer deposits totalled NOK 21.8 billion (NOK 19.0 billion) at year-end This represents an increase of NOK 2.8 billion, or 14.8 %. The retail market increased by NOK 2.9 billion, equivalent to 41.8 %. Deposits in the corporate market (including the organisation market) decreased by NOK 40 million, equivalent to -0.3%. At year-end 2014, deposit coverage (deposit/lending) was 79.1 % (76.7 %). Liquidity Bank 1 Oslo Akershus liquidity situation is considered to be good. Reduced growth in lending and increased growth in deposits has reduced its funding needs throughout the year. The Bank has covered its funding requirements in the securities market and in the transfer of mortgage loans to SpareBank 1 Boligkreditt AS. At yearend 2014, liquid assets, defined as cash, deposits in Norges Bank and receivables from financial institutions amounted to NOK 1.4 billion (NOK 1.8 billion). At year-end 2014, the Bank has cash reserves to cover more than the next 18 months estimated refinancing needs and loan growth without use of the securities market. At year-end 2014 the total volume of loans transferred to Sparebank 1 Boligkreditt AS amounted to NOK 14.8 billion (15.6 billion). Apart from loans that have already been transferred, the bank had

16 16 on its Balance Sheet loans that qualify for transfer of around NOK 5.4 billion This makes up part of the bank s cash reserves, together with the portfolio of cash interest certificates. At year-end 2014 the portfolio of cash interest certificates amounted to NOK 4.6 billion (NOK 2.8 billion). The increase in 2014 is partly due to increased liquidity and partly due to previous investments in Norges Bank, and in the interbank market, now being placed in the securities market. Capital adequacy and capital requirements The bank uses the IRB basic method for calculating capital requirements for credit risk. As a result of the continuation of the transitional rules in the capital requirement regulations, IRB banks must use the regulatory capital requirements calculated as 80 % according to the previous rules (Basel I) if they show higher capital requirements than the IRB approach. This limitation is not currently effective for Bank 1 Oslo Akershus, and the bank s capital adequacy reflects the IRB calculations. The Group s capital and Tier I capital adequacy were, at the end of 2014, 16.5 % and 15.0 %. Pure Tier I capital adequacy amounted to 14.3 %. Subordinated capital in the Group amounted to NOK 2.9 billion % 16.0 % 14.0 % 12.0 % 10.0 % 8.0 % 6.0 % 4.0 % 2.0 % 0.0 % 2.6 % 2.4 % 9.7 % 10.9 % 10.9 % Core capital Supplemental capital Pure core capital 1.9 % 9.9 % 10.9 % 0.9 % 13.1 % 14.0 % 1.5 % 14.6 % 15.0 % The Board of Directors of the Bank 1 Oslo Akershus reviews of the capital situation and future capital requirements on an ongoing basis. The Board emphasises that the Group must be sufficiently capitalised to meet, at any given time, all regulatory requirements, including buffers. On 24 February 2015, the Norwegian FSA informed Bank 1 Oslo Akershus AS that it has given the bank permission to use the advanced IRB approach for calculating regulatory capital requirements for credit risk for corporate customers. This permission enables the bank to use internal models in the calculation of capital adequacy. In Q1 2014, the bank issued a subordinate bond of NOK 200 million. In Q4 the bank issued new subordinated loan of NOK 200 million and a new subordinate bond of NOK 200 million. The bond issue will partly replace an existing loan that was repaid at the end of 2014, because it no longer satisfied the requirements of the capital adequacy framework that fully eligible Tier I capital. Bank 1 Oslo Akershus AS The bank s profit before losses for 2014 amounted to NOK 505 million (NOK 445 million). Net reversal of losses on loans of NOK 5 million (net losses on loans and guarantees of NOK 18 million) were recorded, so that result after losses amounted to NOK 510 million (NOK 428 million). Tax payable amounted to NOK 88 million (NOK 90 million), making the profit after tax NOK 422 million (NOK 338 million). The Group s capital and Tier I capital adequacy were, at the end of 2014, 16.5 % and 15.0 %, compared with 15.1 % and 14.2 % at the end of Pure Tier I capital adequacy amounted to 14.6 % (13.3 %). The bank s subordinated capital amounted to NOK 2.8 billion. Subsidiaries and co-owned companies The EiendomsMegler 1 Group maintains a stable market share of around 10 %. In 2014, the company reported a pre-tax result of NOK 2.5 million (NOK 4.8 million). The reduction in profit was primarily due to higher costs. The company has intensified its cost-efficiency efforts and has decided to coordinate selected administration and support services with the parent bank through the establishment of corporate administrations. In 2014, Invest 3 reported a pre-tax result of NOK -3.5 million (NOK -6.8 million). In 2014, Invest 4 reported a pre-tax result of NOK 0.3 million (NOK -2.2 million). In 2014, Invest 5 reported a pre-tax result of NOK -0.8 million (NOK -8.7 million). Invest 3 and 4 were sold in November 2014, and Invest 5 was sold in July The Invest companies were companies that bank established to own and manage assets that were acquired in connection with doubtful credit commitments. The bank has now one such company again, Invest 6 AS, which is currently inactive. Sparebank 1 Boligkreditt has been created by the banks in the Spare- Bank 1-alliance to issue preferential bonds. The banks transfer very secure housing loans that present a low risk to the company. The Bank s ownership share was 9.52 % until 29/12/2014 and 9.36 % after. For 2014, the impact on profits in the Group that is related to the shares of SpareBank 1 Boligkreditt stands at NOK -3.5 million (NOK 7.9 million). SpareBank 1 Gruppen AS is the Spare- Bank 1 banks jointly owned holding company, with underlying general and life insurance business. The bank s ownership was 1.4 % at the end of For 2014, this amounted to an impact on profit for the Group of NOK 23.3 million. SpareBank 1 Kredittkort AS conducted ordinary operations from 1 July The company is owned by banks in the SpareBank 1-alliance, and the stake of Bank 1 Oslo Akershus was, at yearend 2014, 9.28%. In June, SpareBank 1 Kredittkort AS conducted a successful

17 17 conversion of the SpareBank 1 banks credit card portfolio from EnterCard. For 2014, the company had a profit impact for the Group of NOK 1.1 million (NOK -2.6 million). Allocation of profit The Board proposes that 30 % of the net profit will be paid out as dividends. This amounts to NOK million or NOK per share. The Board proposes to transfer the remaining profit for 2014, NOK million to other equity. EQUITY ISSUE, CORPORATE GOVERNANCE AND CORPORATE MANAGEMENT The Bank has the following ownership structure: Sparebanken Hedmark (40.5 %), The Confederation of Trades Unions in Norway/affiliated unions (29.9 %), Samarbeidende Sparebanker AS (15.2 %), Sparebank 1 Nord-Norge (4.8 %), Sparebank 1 SMN (4.8 %) and Sparebank 1 SR-Bank (4.8 %). The shares in Bank 1 Oslo Akershus AS are not listed on the stock exchange, but as at 31 December 2014, the company had bonded loans listed on Oslo ABM. The company has a concentrated shareholder structure and all of the shareholder groups are represented either directly or indirectly on the Board. In addition, the Board has an independent member elected by the shareholders. The Board of Bank 1 Oslo AS has adopted the Norwegian Code of Practice for Corporate Governance and complies with the guidelines of the code where they are current and relevant to the company as an unlisted company Governance of the company is based on Norwegian legislation, the articles of association and internal guidelines, as well as on the strategic goals adopted by the Board of Directors. The Board has established both risk and audit committees. The committees consist of three members of the Bank s Board and members are appointed to the committees for a period of two years. In 2014, the same members participated in both committees. The audit committee for 2014 reviewed the draft quarterly and annual financial statements before they have been discussed by the Board. The committees have also evaluated the company s internal control systems, risk management system and capital management. The committees have also reviewed reports and letters from the Group s internal and external auditors, and have assisted the Board in ensuring that both audit arrangements work satisfactorily. The Bank has a dedicated remuneration committee that is made up of three members of the Bank s Board of Directors. The members are appointed to the Committee for a period of two years. The Committee normally meets twice a year. In 2014, the committee has been involved in the preparation of guidelines and remuneration of the Group s senior management and has assisted the Board in the preparation of the remuneration system for the CEO. RISK MANAGEMENT AND RISK FACTORS The Group manages its risk at an overarching level by applying the Board-adopted policy for risk and capital management. The information contained herein includes target figures and guidelines for the Group s tolerance to risk, a description of risk management processes, and the responsibilities and roles of risk management in the Group. The Group s activities are mainly associated with four risk areas - credit risk, market risk, liquidity risk and operational risk. The Group places great emphasis on identifying and monitoring key risks in such a manner that the bank can seek to achieve its strategic goals while having adequate subordinate capital at all times. The Group expresses and quantifies risk through a calculated, risk adjusted capital requirement. In 2014, this capital requirement decreased by NOK 42 million (from NOK 1,056.4 million to NOK 1,014.0 million, equivalent to 4%). Amounts in MNOK Credit risk Market risk Liquidity risk Operational risk Ownership risk Business risk Capital requirements before diversification * ) Diversification effect Capital requirements after diversification * ) Pure Tier 1 capital adequacy Utilisation of the Tier 1 capital 40.4 % 50.7 % Requirements for total capital ** ) Net capital risk Utilisation of the bank s total risk 45.1 % 57.3 % * ) Requirements for pure Tier 1 capital 10.0 % 9.0 % ** ) Requirement for total capital 13.5 % 12.5 % The table shows the distribution of the estimated capital requirement in risk areas and developments since last year-end. The principal risk areas are discussed individually below. The table also shows that the utilisation of the bank s total risk has declined substantially, from 57.3 to 45.1 %. This decline is due to both improvements in risk levels, but also in significant increases in the bank s total capital level. Credit risk Credit risk represents the main single risk for the Group. This is identified as the risk of losses from customers being unable or unwilling to fulfil their obligations to the bank. The bank s credit risk strategy derives from its commercial strategy and includes goals to maintain a low to moderate risk profile. The Board of Directors reviews the credit strategy at least once per annum. The increase in credit risk from NOK million to NOK million is due to both growth in lending and increased safety buffers in internal models that are used to calculate risk. The underlying portfolio shows positive trends, both through higher proportions of loans in good risk classes and lower proportion loans in non-performing and doubtful classes. The Board considers the trends in the bank s credit risk throughout the year

18 18 to be good, and characterises its credit risk status at year-end as moderate. Market risk Market risk is associated with value changes in interest, currency positions, securities and real property. Market risk is managed by setting precise limits for, among other things, investments in certificates and bonds and for all positions in interest and currency markets. The limits are reviewed at least once a year and adopted by the bank s Board of Directors. The bank s exposure in relation to the adopted limits is reported to the Board of Directors every quarter. The Bank Group s market risk declined in 2014, mainly due to reduced property risk (sales of Invest 3, 4 and 5). The market risk for the bank as a whole is regarded as being low. Liquidity risk Liquidity risk is the risk of the bank not being able to refinance its liabilities on maturity. At the same time, liquidity risk involves a price element, defined as the risk that the bank will not manage to obtain financing without substantial additional costs in periods of market turmoil. Throughout 2014, the bank has had a satisfactory liquidity situation. All of the performance indicators at year-end 2014 are within the Board s framework. The liquidity risk is regarded as being low. The liquidity risk is calculated in the capital context as an added cost in the event of loss of parts of the ordinary deposit portfolio. Operational risk Operational risk includes risk of financial losses due to human or system errors, either internally or externally inflicted on the bank. Risk of loss of reputation, legal risk, risk from lack of expertise, ethics and attitudes of employees are all elements in operational risk. Throughout 2014, the Bank continued to work on registration and monitoring of operational losses and other un- desired incidents. The Bank bank continues to focus on further development of effective internal control systems. Guidelines describe how employees shall report significant incidents and circumstances. Throughout 2014, the bank has also experienced periods of downtime of its IT systems, which, among other things, affected customers access to self-service channels. The Bank has devoted considerable effort over the last few years to identify underlying causes and implement measures that will contribute to stable operation. This has resulted in higher operational stability in 2014 than in previous years. The Board considers that the Group has good overall control of its operational risk, thanks to both preventive and identifying control measures. Ownership risk In addition to the four above risk categories, the banking group also holds a high proportion of equity in order to meet estimated risks associ-

19 19 ated with strategic shareholdings. The greatest item here is the bank s ownership stake in SpareBank 1 Boligkreditt. The reduction from 2013 is primarily a result of the sale of the bank s shares in Nets Holding. For more information about the bank s risk and capital management, please refer to notes 5 and 6, as well as the bank s Pillar III document (available at sparebank1.no\oslo-akershus\hovedside-om-oss-ir). CORPORATE SOCIAL RESPONSIBILITY Information about the Group s work of safeguarding its corporate responsibility are described in the separate topic chapter in the annual report. This chapter also contains information about the working environment, gender equality and measures taken to protect the external environment. Going concern assumption The annual financial statements have been presented on the assumption that the company is a going concern. Future prospects Uncertainty regarding future economic conditions is considered to have towards the end of the year. Bank solvency was strengthened in 2014 through good results, as well as issuance of new subordinated loans and new subordinated bonds. The bank has experienced good demand for its bond issues, and has a robust financial structure that will withstand significant turmoil in the financial markets. The Group maintains its ambition to strengthen its market position. The bank is experiencing increasing pressure on its margins, as a result of increased competition between banks for new loan and deposit customers. A growth greater than the market growth going forward will therefore require continuous adaptation of its cost structure. At the same time, the future regulatory framework for the bank seems to have been increasingly clarified over the past year. The transitional rules in CRD IV with deduction rules for non-substantial holdings, which entered into force on 30 September 2014, have given the bank a significantly increased manoeuvrability compared to what had been previously assumed. These factors, together with the customers expectations, will be guiding the Bank s strategic considerations and adaptations. Efficient capital growth, enhanced customer satisfaction and increased profitability will have the highest priority in the future. The Board is optimistic about the bank s opportunities in A solid loan portfolio, large customer base, good products and broad distribution of its offices and digital channels will provide excellent opportunities for a further strengthening of its position. The Board wishes to thank all of the employees of the Group for their excellent efforts in the past year. Oslo, 13 March 2015 Richard Heiberg Roar Flåthen Tore Anstein Dobloug Jan-Egil Pedersen Arve Bakke Chairman Deputy Chairman Tone Bjørnov Finn Haugan Knut Oscar Fleten Dordi Formoe Thorbjørn Vik Employee representative CEO

20 20 the governing board of bank 1 oslo akershus as Richard Heiberg Roar Flåthen Tore Anstein Dobloug Jan-Egil Pedersen Chairman Deputy Chairman Arve Bakke Tone Bjørnov Finn Haugen Knut Oscar Fleten Dordi Formoe Employee representative Torbjørn Vik CEO