Annual Report SpareBank 1 Gruppen

Transcription

1 1 Annual Report 2012 SpareBank 1 Gruppen

2 2 SpareBank 1 Gruppen Content Board of Directors' Report 3 Income Statement 18 Statement of Comprehensive Income 19 Balance Sheet 20 Consolidated Statement of Cash Flow 21 Statement of Changes in Equity 22 Note 1 General information 23 Note 2 Accounting policies 23 Note 3 Critical accounting estimates and judgements 29 Note 4 Segment information 31 Note 5 Capital adequacy ratio 32 Risk notes Note 6 Financial risk management 33 Market risk Note 7 Market risk related to interest rate risk 38 Note 8 Market risk related to currency risk 38 Note 9 Financial derivatives 39 Insurance risk Note 10 Insurance risk in life insurance 40 Note 11 Insurance risk in P&C insurance 44 Credit risk Note 12 Credit risk exposure for each internal risk class 48 Note 13 Maximum credit risk exposure, not taking into account pledged security 49 Note 14 Age distribution of overdue but not impaired loans and premium income 50 Liquidity risk Note 15 Remaining contractual maturity of financial liabilities 50 Result notes Note 16 Net insurance premium income 51 Note 17 Net commissions 52 Note 18 Gains and losses from financial assets and liabilities 53 Note 19 Net income from investment properties 54 Note 20 Other operating income 54 Note 21 Operating costs 54 Note 22 Salaries and other remuneration of the CEO and executive personnel 55 Note 23 Pensions 57 Note 24 Tax 59 Balance sheet notes Note 25 Classification of financial assets and liabilities 60 Note 26 Valuation hierarchy 61 Note 27 Securities at fair value 64 Note 28 Securities available for sale 65 Note 29 Bonds at amortised cost 66 Note 30 Fair value of securities stated at amortised cost 67 Note 31 Investments in subsidiaries 68 Note 32 Investments in associated companies and joint ventures 68 Note 33 Investment properties 70 Note 34 Property, plant and equipment 71 Note 35 Goodwill 72 Note 36 Other intangible assets 73 Note 37 Reinsurance receivables 74 Note 38 Receivables from policyholders 74 Note 39 Lending to and deposits with customers and financial institutions 74 Note 40 Net loan loss provisions 76 Note 41 Other assets 77 Note 42 Insurance liabilities in life insurance 77 Note 43 Technical provisions in P&C insurance 79 Note 44 Securities issued 81 Note 45 Subordinated loan capital and hybrid tier 1 capital 81 Note 46 Deposits from and liabilities to customers and financial institutions 82 Note 47 Liabilities related to reinsurance 83 Note 48 Other liabilities 83 Other notes Note 49 Changes in group structure 83 Note 50 Shareholder structure 85 Note 51 Number of employees and full-time equivalents 85 Note 52 Material transactions with related parties 86 Note 53 Events after the balance sheet date and legal disputes 89 Note 54 Revised balance sheet for SpareBank 1 Gruppen as of 31 December Auditor's report 91

3 3 Board of Directors' Report for 2012 SpareBank 1 Gruppen OPERATIONS IN 2012 The Group's pre-tax profit more than doubled compared with Record pre-tax profit for SpareBank 1 Livsforsikring AS due to improved risk and administration results. The company increased its buffers throughout the year. Changes to the tax exemption method rules resulted in a significantly higher tax cost. A reduced claims ratio and more than doubling of its financial income contributed to significantly improve SpareBank 1 Skadeforsikring Group's result. A decision was taken in September to merge SpareBank 1 Livsforsikring and SpareBank 1 Skadeforsikring into a single business area. The aim is to develop comprehensive customer services and strong, in-house expert groups. A reduction in average total assets resulted in lower income and contributed to a loss for ODIN Forvaltning AS. A new CEO was appointed in the third quarter and it has undergone a comprehensive turnaround process. Pressure on margins and a fall in debt collection income resulted in a poorer result for SpareBank 1 Gruppen Finans Group. SpareBank 1 Markets AS focused heavily on a national capital markets group. The company significantly strengthened its position in the market for bond issues during the year. (19.5%), Samarbeidende Sparebanker AS (19.5%), Sparebanken Hedmark (12%) and the Norwegian Confederation of Trade Unions (LO) and its affiliated unions (10%). SpareBank 1 Gruppen AS's office address is in Tromsø, and the Group's primary market is Norway. In this Directors' Report, SpareBank 1 Gruppen AS refers to the holding company and SpareBank 1 Gruppen refers to the Group saw good financial markets and a drop in claims ratios. SpareBank 1 Gruppen reported a pre-tax profit of NOK million, compared with NOK million in The net profit for the period amounted to NOK million, compared with NOK million in The poorer net profit for the period was attributable to the tax cost in SpareBank 1 Livsforsikring AS resulting from changes to the tax exemption method rules for life insurance companies. The result represents an annualised return on equity of 8.7%, compared with 11.1% for Corrected for a non-recurring effect of NOK million, due to the aforementioned rule changes for tax in life insurance companies, the return on equity was 12.3%. SpareBank 1 Gruppen's total assets amounted to NOK 46.3 billion as of 31 December This represents growth of 10.3% since SpareBank 1 Gruppen AS is a holding company that produces, provides and distributes products within P&C insurance, life insurance, fund management, capital markets, factoring, debt collection and long-term monitoring via its subsidiaries. SpareBank 1 Gruppen AS is owned by SpareBank 1 Nord-Norge (19.5%), SpareBank 1 SMN (19.5%), SpareBank 1 SR-Bank ASA SpareBank 1 Gruppen's capital adequacy ratio as of 31 December 2012 was 14.6%, compared to 16.2% at year-end Its core capital adequacy ratio at year-end 2012 was 13.1%, compared with 14.6% the year before. SpareBank 1 Gruppen's capital situation is considered satisfactory and, in the opinion of the Board, the Group is well capitalised with respect to meeting the expected requirements of the Solvency II regulations.

4 4 SpareBank 1 Gruppen SpareBank 1 Livsforsikring AS achieved the best pre-tax profit in the company's history with improvements in both the risk and the administration results. SpareBank 1 Livsforsikring AS further strengthened its buffer capital throughout 2012, including by increasing the securities adjustment reserve by NOK million. The company's administration result continues to improve and was NOK 9.7 million better than in The company achieved an interest result of NOK million, which is NOK 99.8 million lower than in The risk result after technical provisions was NOK million, which is NOK 50.1 million better than in Claims provisions within individual policies were strengthened by a total of NOK 147 million, and are now deemed adequate. SpareBank 1 Livsforsikring AS's tax cost was NOK million. The high tax cost was due to changes to the rules for life insurance companies that came into effect on 1 January 2012 and mean that the tax exemption method can no longer be applied to equities, etc. included in the group and investment choice portfolios. The non-recurring effect of this change amounted to NOK million and was charged in the fourth quarter. SpareBank 1 Skadeforsikring Group achieved a pre-tax profit of NOK million, which is NOK million better than in The profit from insurance business amounted to NOK 62.4 million. This is NOK 99.7 million better than in The improved result was mainly attributable to better claims ratios in both the retail market and the corporate market. SpareBank 1 Skadeforsikring Group's gross combined ratio for 2012 was 98.7% and the gross claims ratio was 79.1%. The claims ratio was 5.5 percentage points lower than in SpareBank 1 Skadeforsikring Group's premiums written increased by NOK 248 million and the total premiums written at year-end 2012 amounted to NOK 5.45 billion. A decision was taken in 2012 to more closely integrate the P&C and life insurance business into the Group. The aim is to develop comprehensive customer services and strong, in-house expert groups. Closer collaboration between the companies will also produce a basis for more efficient processes throughout the value chain, greater competitiveness and lower costs. The organisation model and legal structure of this merged insurance business is contingent on the authorities' approval. ODIN Forvaltning Group's total assets under management amounted to NOK 24.8 billion as of 31 December This was NOK 1.4 billion more than at year-end The drop in average total assets in 2012 compared with 2011 resulted in a NOK 46.4 million reduction in management fees. The result before tax was NOK million. Corrected for non-recurring costs of approximately NOK 30 million, the company enjoyed positive underlying operations in SpareBank 1 Markets AS experienced a loss of NOK million in It focused on investments during the year with the aim of putting in place the required framework conditions for a strong capital markets unit. The company strengthened its position in the market for bond issues in 2012, primarily due to the collaboration with SpareBank 1 SMN becoming operational in the second quarter of The collaboration includes access to the balance sheet capacity of SpareBank 1 SMN. The result for the year was affected by the build up that took place. SpareBank 1 Gruppen Finans Group, which operates in the factoring, debt collection and long-term monitoring business areas, achieved a pre-tax profit of NOK 25.1 million. The factoring business area, organised in SpareBank 1 Gruppen Finans AS, was the country's third largest with a market share of 15.7%, compared with 14.1% in The pre-tax profit of the debt collection business area, organised in Conecto AS, was NOK 16.7 million, compared with NOK 24.7 million in Fewer new cases resulted in a drop in debt collection income. Higher portfolio volumes than in 2011 resulted in increased interest income within portfolio administration, organised in SpareBank 1 Gruppen Finans AS. The total portfolio volume was NOK million as of 31 December 2012, an increase of NOK 352 million since year-end SpareBank 1 Gruppen has made strategic investments in important product areas in recent years via structural changes and acquisitions, with capital markets, debt collection, and factoring being the most recent examples. The goal is to control the product and value chains for the benefit of both customers and owners. CORPORATE GOVERNANCE Shares in SpareBank 1 Gruppen AS are not publicly traded, but as of 31 December 2012 the company did have a bond issue listed on Oslo ABM. The company has, as shown in the section on «Operations in 2012», a concentrated shareholder structure. All shareholders and groupings of shareholders are represented on the Board, either directly or indirectly. There is continuous, good contact with all shareholders and groupings of shareholders in the company. The Board of SpareBank 1 Gruppen AS has discussed the «Norwegian Code of Practice for Corporate Governance» and has determined to comply with those sections that are relevant to a company whose shares are not listed on a stock exchange. The Board's overall report on the company's corporate governance has been incorporated into the 2012 annual report. Group executive management team SpareBank 1 Gruppen's executive management team is responsible for running and developing the financial group with a focus on results and operations associated with the companies in the

5 5 Group, as well as responsibility for the operational collaboration between SpareBank 1 Gruppen and the SpareBank 1 banks. Information about remuneration Information about the remuneration of the CEO, executive management team, Board, Supervisory Board and Control Committee is provided in the financial statements' note 22, and information about the auditor's remuneration is provided in note 21. Dividend policy SpareBank 1 Gruppen AS's long-term goal is to pay out 30-50% of its profits, at a consolidated level, as a net dividend to its owners. When fixing the net dividend for SpareBank 1 Gruppen, the focus is on maintaining satisfactory core and total capital adequacy in relation to planned growth, as well as maintaining a satisfactory overall financial position in relation to internal ICAAP calculations and the Group's liquidity. The target for the core capital ratio, including hybrid tier 1 capital, is a minimum of 11% and for the total capital adequacy ratio it is a minimum of 13%. SpareBank 1 Gruppen should achieve the capital adequacy goals established by the Solvency II regulations by a good margin. The Board's net dividend proposal for 2012 attaches weight to the fact that SpareBank 1 Gruppen has not paid a net dividend in recent years as well as the fact that the Group is deemed adequately capitalised to satisfy the expected Solvency II requirements. The net dividend proposal for 2012 helps SpareBank 1 Gruppen to achieve its targets with respect to the long-term target of paying out 30-50% of the profit at a consolidated level. SPAREBANK 1 GRUPPEN RESULTS AND KEY FIGURES SpareBank 1 Gruppen AS and the Group prepare their financial statements in accordance with the EU approved International Financial Reporting Standards (IFRS). Pre-tax profit per business area: NOK million Result before tax from the subsidiaries: SpareBank 1 Livsforsikring AS SpareBank 1 Skadeforsikring Group ODIN Forvaltning Group SpareBank 1 Markets AS SpareBank 1 Medlemskort AS SpareBank 1 Gruppen Finans Group Group adjustments Net result before tax from the subsidiaries SpareBank 1 Livsforsikring AS SpareBank 1 Livsforsikring AS's focus areas are within defined contribution pensions, group life insurance and individual risk insurance. The company's products and primarily distributed via the banks in the SpareBank 1 Alliance, Norwegian Confederation of Trade Unions (LO) and its affiliated unions. Financial performance: NOK million Risk result after technical provisions Administration result Interest result Provisions Remuneration for interest guarantee Total result for supplementary provisions Allocation to supplementary provisions Profit to customers Return on the company's funds Net profit to owner before tax Tax cost Net profit to owner after tax SpareBank 1 Livsforsikring AS achieved the best pre-tax profit in the company's history, which amounted to NOK million compared with NOK million in SpareBank 1 Gruppen reported a pre-tax profit of NOK million, compared with NOK million in The good performance of the securities markets combined with a lower claims ratio helped to significantly improve the result. The net profit for the period was NOK million, which provided a return on equity of 8.7%. The Group's tax cost was NOK million, compared with tax income of NOK million in The high tax cost was due to the non-recurring effect of NOK million linked to the introduction of new rules limiting use of the tax exemption method for equities owned by life insurance companies. Corrected for this tax charge, the return on equity was 12.3%. Sales of defined contribution pensions and individual risk insurance have grown significantly by 26% and 15%, respectively, compared with The company maintained a strong position in the market for individual risk insurance in Sales of group life insurance rose by 130% in relation to the year before. SpareBank 1 Livsforsikring AS strengthened its buffer capital throughout 2012, including through increasing the securities adjustment reserve by NOK million. The company also strengthened the building up of reserves for higher life expectancy by NOK million. The total net profit after tax was NOK million, which is NOK million lower than in The company's tax cost was high at NOK million, compared to tax income of NOK 97.8 million in New regulations concerning changes in the taxation of equities-related investments in the management of customer

6 6 SpareBank 1 Gruppen assets in life insurance companies did not contain transitional rules for the tax-related opening value. The use of historical cost price will thus lead to a significant non-recurring cost of NOK million when calculating latent deferred tax. Risk result The net risk result has increased by NOK 50.1 million since yearend 2011 and amounted to NOK million. As in 2011, 2012 was spent building up claim provisions linked to disability within individual annuity and endowment insurance. The corresponding provisions within group pension insurance were lower than the year before. The provisions were considered adequate for all groups of products at year-end Administration result The administration result was NOK million, which was an improvement of NOK 9.7 million compared with 2011, despite nonrecurring costs associated with the company's restructuring process. Investment result The interest result was NOK million, compared with NOK million for The reduction was due to lower realised gains. NOK 94.7 million of the interest profit was used to strengthen the premium reserve because of expected higher life expectancy and NOK 43.7 million was allocated to supplementary provisions. The company's supplementary provisions totalled NOK million at year-end 2012, compared with NOK million at year-end The value-adjusted capital yield in the group portfolio as a whole was 7.3%. The booked return on assets was 4.7%. The corresponding returns in 2011 were 2.5% and 5.4%, respectively. The capital yield in the company portfolio was 5.7%, compared with 4.3% in Solvency and capital situation The company's total assets amounted to NOK 29.1 billion as of 31 December This represents an increase of 9.2% since The buffer capital, after the proposed application of the year's profit, amounted to NOK 2.3 billion, equivalent to 13.6% of insurance provisions. By way of comparison, the buffer capital at year-end 2011 amounted to NOK 1.7 billion, equivalent to 11.0% of insurance provisions. The main reason for the stronger buffer capital was the increase in the securities adjustment reserve to NOK million from NOK million in The company's capital adequacy ratio was 18.5% at year-end 2012, which was unchanged from All of the primary capital comprises core capital. The company received NOK million in equity through group contributions. At year-end 2012, the interest and risk profit within group defined benefit pensions and paid-up policies, which totalled NOK million, was allocated to the premium reserve due to anticipated higher life expectancy in the insurance portfolio. NOK 83.1 million of this was allocated for group defined benefit pensions and NOK 62.2 million for paid-up policies. The Group's solvency margin capital ratio was 309.2% as of 31 December 2012, compared to 303.5% for The minimum requirement for the solvency margin capital ratio is 100%. At year-end 2012, the solvency margin requirement was NOK million, compared to NOK million in The company continuously assesses the impact of, and adapts to, the coming Solvency II regulations. Asset allocation per portfolio as of 31 December 2012: Group portfolio Group portfolio 2012 Equities 12.6 % Other 0.7 % Property 19.7 % Bonds - amortised cost 27.8 % Bonds - market value 39.2 % Value (NOK million) Aksjer Annet Eiendom Obligasjoner - amortisert kost Obligasjoner - markedsverdi SpareBank 1 Skadeforsikring Group SpareBank 1 Skadeforsikring Group is the leading Norwegian seller of insurance via banks, but also sells directly to retail customers and via broker channels to corporate market customers. Financial performance: Company portfolio Investment choice portfolio Company portfolio 2012 Equities 0.0 % Other 0.2 % Property 18.4 % Bonds - amortised cost 15.8 % Bonds - market value 65.6 % Value (NOK million) Aksjer Annet Eiendom Obligasjoner - amortisert kost Obligasjoner - markedsverdi Investment choice portfolio 2012 Equities 53.2 % Other 0.4 % Bonds 46.4 % Value (NOK million) Aksjer Annet Obligasjoner NOK million Gross written premium Net earned premium Accrued claims for own account Insurance-related operating expenses for own account Other insurance-related income/costs Other technical provisions Insurance result Net financial income Other costs Operating result Change in security reserves Pre-tax profit Tax cost Net profit for the period

7 7 SpareBank 1 Skadeforsikring Group achieved a pre-tax profit of NOK million for 2012, compared with NOK million for The strong improvement in the result was due to high net financial income and the significantly improved insurance result in the parent company. SpareBank 1 Skadeforsikring Group's premium income for own account amounted to NOK 5.1 billion, corresponding to growth of 8.0% since SpareBank 1 Skadeforsikring Group's premiums written grew by NOK 248 million, which corresponds to growth of 4.8% since There was growth within bank distribution, the Norwegian Confederation of Trade Unions (LO) and the subsidiary Unison Forsikring AS. Total premiums written at yearend 2012 amounted to around NOK 5.45 billion. Claims costs SpareBank 1 Skadeforsikring Group's gross claims ratio was 79.1%, which represents a 5.5 percentage point improvement since The good growth is attributable to premium measures that produced good income growth at the same time as claims costs were reduced. Significant profits from prior years for key product groups and the claims costs project, which aims to reduce purchasing costs within claims settlements, have contributed to lower claims costs. The natural perils result improved despite a substantial change in the claims reserve, which was due to the storms «Berit» and «Dagmar» resulting in higher compensation payments than estimated as of 31 December SpareBank 1 Skadeforsikring Group again saw a large number of major claims in Seven major claims involving compensation sums of more than NOK 10 million occurred during the year. Total compensation costs relating to larger claims amounted to NOK 138 million and accounted for 2.5 percentage points of the Group's gross claims ratio. In 2011, there were six equivalent claims for more than NOK 10 million with total compensation costs of NOK 144 million. Operating costs The gross claims ratio was 19.6%, which represents an increase of 0.7 percentage points since The increase is mainly attributable to non-recurring costs associated with restructuring. Profit commissions for the owner banks amounted to 0.9 percentage points of the cost/income ratio, compared with 0.6 percentage points in The combined ratio for own account, including natural perils, was 98.2%, which is 5.3 percentage points higher than in Development of combined ratio, net (%): Claims ratio Costs ratio The provision concerning claim provisions in the act relating to insurance activities was clarified in In accordance with this clarification, indirect claim processing costs must be included in the measurement of compensation costs, while before they were classified as operating costs. This entails an allocation from administration costs to paid claims. The change has no effect on the result, but does entail an increase in the claims ratio for own account of 4.1 percentage points and a corresponding reduction in the cost/income ratio. Comparable figures for previous years have been restated in accordance with the new regulations. Financial result 2012 was a good year in the financial markets, which is reflected in the higher net financial income compared with SpareBank 1 Skadeforsikring Group's net investment income totalled NOK million, compared with NOK million in The financial return on the Group's portfolio was 5.2%. The improvement in the financial result is attributable to the high return on equities of 19.7%, as well as a satisfactory return in the fixed income portfolio. Capital situation At year-end 2012, SpareBank 1 Skadeforsikring Group's total assets amounted to NOK 14.8 billion. This is an increase of NOK 1.6 billion since The capital adequacy ratio was 37.1% at year-end 2012, which corresponds to excess coverage of NOK million in relation to the authorities' minimum requirements. The capital adequacy ratio was 4.3 percentage points stronger than at year-end Unison Forsikring AS Unison Forsikring AS is a wholly owned subsidiary of SpareBank 1 Skadeforsikring AS. Unison Forsikring AS experienced a NOK million loss before tax. The loss before tax in 2011 amounted to NOK million. A number of profitability improvement

8 8 SpareBank 1 Gruppen measures have been and will be implemented in Unison Forsikring AS, including disposals and repricing a number of the company's insurance portfolios. This will also entail a considerable reduction in the number of employees in the company. A decision has been made to merge Unison Forsikring AS into SpareBank 1 Skadeforsikring AS with accounting effect from 1 January The merger is contingent on the approval of the authorities. ODIN Forvaltning Group ODIN Forvaltning Group is one of Norway's largest managers of equity funds. ODIN Forvaltning Group is a value-oriented equity fund manager, which on behalf of its unit holders invests in undervalued companies with good products, a strong cash flow, solid balances and a high dividend capacity. Financial performance: Net new fund subscriptions amounted to NOK 184 million in ODIN Forvaltning Group's combination funds. It has a market share for combination funds of 4.4%, compared with 3.8% in Its five bond funds saw net new fund subscriptions of NOK million, and its market share for bond funds was 0.4% at year-end SpareBank 1 Markets AS SpareBank 1 Markets AS is an analysis based capital markets unit that is active within corporate finance, foreign capital and stockbroking. SpareBank 1 Gruppen AS owned 97.55% of the shares in SpareBank 1 Markets AS at year-end The remainder of the shares were owned by employees. Financial performance: NOK million NOK million Management fees Total operating income Payroll costs Amortisation Other operating costs Total operating costs Operating result Net financial income Pre-tax profit Tax cost Net profit for the period ODIN Forvaltning Group experienced a NOK 20.4 million loss before tax in 2012, compared with a profit of NOK 21.8 million in The organisation underwent a restructuring process focused on improving administration processes and cost reducing measures in the second half of The Group's operating result for 2012 was NOK -9.6 million compared with NOK 20.3 million in The fall in the result is attributable to a combination of lower average total assets during the year and non-recurring costs of around NOK 30 million. 10 out of ODIN's 12 equity funds, all five bond funds and all three combination funds produced returns ahead of their respective benchmark indices in Total assets At year-end 2012, ODIN Forvaltning Group had assets totalling NOK 24.8 billion under management: NOK 22.9 billion of which were in equity funds, NOK 0.9 billion in combination funds and NOK 1.0 billion in bond funds. The equity funds saw net redemption of NOK 1.8 billion. This, in combination with a relatively weak return in ODIN Forvaltning Group's two largest funds, resulted in its market share for equity funds falling to 8.2% from 8.9% in Total income Payroll and payroll-related costs Other operating costs Amortisation Total operating costs Operating result Net financial costs Pre-tax profit Tax cost Net profit for the period The result before tax for 2012 was a loss of NOK million. Total sales amounted to NOK million, which is an improvement of NOK 63.3 million on Income from the area of foreign capital amounted to NOK 54.1 million, which is an improvement of NOK 42.5 million on This progress is largely attributable to the company having strengthened its position in the market for bond issues throughout the year, mainly due to the collaboration with SpareBank 1 SMN. Broker's commissions from the equities and high yield business area amounted to NOK 39.8 million, corporate finance fees were NOK 50.7 million and other operating income was NOK 5.1 million. SpareBank 1 Markets AS has undergone restructuring in the last 2 years. During this period the resources have been used to put in place the necessary framework for a strong capital markets unit. The result for 2012 was affected by this restructuring and a challenging market situation within the equities market that affected the earnings potential of all market players in the industry. In 2012, SpareBank 1 Markets AS established a formalised collaboration with SpareBank 1 SMN concerning own account trading in bonds and derivatives. The collaboration supports issuing activities and thus investment capacity. The greater balance sheet capacity has put SpareBank 1 Markets AS in a better position to effectively arrange capital between borrowers and investors, and

9 9 offer its customers relevant risk management solutions. The company is now established as a central player in the market for senior bank funding. SpareBank 1 Gruppen Finans Group SpareBank 1 Gruppen Finans AS produces, delivers and distributes services within factoring, portfolio acquisition and portfolio management. The company's registered address is in Oslo and it runs its factoring operations in Ålesund and Tromsø. SpareBank 1 Gruppen Finans AS owns 100% of the shares in Conecto AS, which works within out of court and legal debt collection. Both companies are organised in a sub-group of SpareBank 1 Gruppen AS that is owned and managed by SpareBank 1 Gruppen Finans AS. Financial performance: NOK million SpareBank 1 Gruppen Finans AS Management Factoring Portfolio Conecto AS Net result before tax from the subsidiaries Excess value amortisation Pre-tax profit Tax cost Net profit for the period debt collection company. Its pre-tax profit was NOK 6.4 million, compared with NOK 3.5 million in 2011, which represents an improvement of NOK 2.9 million. Turnover increased by NOK 9.9 million in relation to Portfolio volume grew by 31% and was NOK million as of 31 December The book value at year-end 2012 was NOK million, which is an increase of NOK 42.3 million since Conecto AS Conecto AS is primarily involved in the collection of invoiced claims. The company also provides fund management, legal debt collection services and legal advice. Its pre-tax profit amounted to NOK 16.7 million, compared to NOK 24.7 million for The debt collection market is currently stagnant. Conecto AS's turnover amounted to NOK million, a reduction of NOK 9.2 million since The fall was due to fewer incoming cases. The company produces a good resolution rate for its customers. SpareBank 1 Gruppen Finans Group built the foundation for further growth and profitability in The collaboration with the SpareBank 1 banks will in the future provide new opportunities for cross-sales of debt collection services to the banks' corporate customers. SpareBank 1 Gruppen Finans Group achieved a pre-tax profit of NOK 25.1 million, which is NOK 2.8 million weaker than in SpareBank 1 Gruppen Finans AS SpareBank 1 Gruppen Finans AS achieved a pre-tax profit of NOK 12.1 million, which is on a par with The company can point to good result progress in portfolio activities due to higher portfolio volumes and increased interest income. Factoring activities saw good growth, but lower margins are squeezing earnings. SpareBank 1 Gruppen Finans AS reported total income of NOK 85.0 million, compared with NOK 73.2 million in Factoring The factoring business area is involved in funding within the areas of factoring and guarantees. Its pre-tax profit amounted to NOK 12.8 million, compared to NOK 14.6 million for Factoring achieved net operating income of NOK 61.0 million, which represents an increase of NOK 2.2 million since Client turnover experienced a good increase of 18.1%. The business area's market share was 15.7%, compared with 14.1% in Portfolio The portfolio business area is involved in the acquisition of portfolios of monetary claims that are then recovered by the Group's SpareBank 1 Medlemskort AS SpareBank 1 Medlemskort AS is tasked with operating the joint membership database of the unions affiliated to the Norwegian Confederation of Trade Unions (LO) that is used to administer membership card deliveries, collect premiums for group insurance, and run and administer the LOfavør advantage card scheme for around members. The company works closely with LO and the unions. Financial performance: NOK million Operating income Payroll costs Operating costs Medlemskort Operating costs LOfavør Operating costs Reskontro Total operating costs Operating result Net financial income Pre-tax profit Tax cost Net profit for the period The pre-tax profit for the year amounted to NOK 10.4 million, compared to NOK 12.1 million for The net profit for the period was NOK 7.2 million, which is NOK 1.3 million lower than in 2011.

10 10 SpareBank 1 Gruppen The membership base in LO is an important basis for SpareBank 1 Medlemskort AS. The membership base is growing and is expected to surpass in SpareBank 1 Gruppen AS In addition to shares in subsidiaries, SpareBank 1 Gruppen AS's assets consist of bank deposits and other minor assets. Bank deposits were NOK million as of 31 December 2012, compared with NOK million as of 31 December The equity consists of share capital, a share premium reserve and retained earnings. The share capital in SpareBank 1 Gruppen AS amounted to NOK million as of 31 December 2012, while total equity amounted to NOK million. The company had distributable equity amounting to NOK million at yearend statements for 2012 and the earnings forecast for Beyond matters mentioned in this report, no circumstances have arisen after the end of the accounting year that would be of material significance to the company's position and results. DIVIDEND The Board proposes that SpareBank 1 Gruppen AS distribute a dividend of NOK million for RISK FACTORS The operations of SpareBank 1 Gruppen are organised into different business areas through subsidiaries. There are major differences in the individual subsidiaries' risk profile. The most important risk categories to which the Group is exposed are market risk, insurance risk, ownership risk, operational risk, credit risk, liquidity risk, concentration risk, and strategic and commercial risk. The capital adequacy ratio was 37.6%, compared with 40.0% in The company's core capital adequacy ratio was 33.8% in 2012 and 35.4% in SpareBank 1 Gruppen The Group's cash and cash equivalents decreased by NOK million in 2012 to NOK million. The reduction was due to net cash flows from financing activities and investing activities of NOK million and NOK million, respectively, exceeding the cash flow from operating activities of NOK million. The biggest changes between the operating result and cash flow from operating activities for 2012 are attributable to the increase in technical provisions of NOK million, increase in deposits from and liabilities to customers and financial institutions of NOK million, and a negative cash flow from securities at fair value held to maturity of NOK million. Securities issued decreased by NOK million to NOK million. The dividend paid to owners amounted to NOK million in SpareBank 1 Gruppen's total equity at year-end 2012 amounted to NOK million, compared with NOK million at year-end Recognised goodwill in the Group totalled NOK million as of 31 December 2012, compared to NOK million at year-end The Group's capital adequacy ratio was 14.6% as of 31 December 2012, compared to 16.2% in The Group's core capital adequacy ratio was 13.1% as of 31 December 2012, compared to 14.6% as of year-end The annual financial statements have been prepared on the basis of a going concern assumption. The Board finds that the prerequisites for such a going concern assumption are met by the financial See note 6 on financial risk management for a more detailed description of the overall risk management in SpareBank 1 Gruppen. Responsibility for risk management, compliance and control The Group's board is responsible for risk management and compliance in the Group. The company boards are responsible for their own company's risk management and compliance. Responsibility for the overall risk management within the organisation lies with the executive vice president responsible for strategy, risk management and analysis in the parent company. This position reports directly to the CEO of SpareBank 1 Gruppen AS. Risk management in SpareBank 1 Gruppen should support the Group's strategic development and achievement of its objectives, and ensure the fulfilment of statutory capital requirements. Risk management is intended to ensure financial stability and sound asset management. This should be achieved by: A moderate risk profile A strong risk culture characterised by a high awareness of risk management Striving for an optimum application of capital within the adopted business strategy. Making the most of all synergy and diversification effects. Adequate core capital for the chosen risk profile. Ensuring the Group complies with all regulatory capital and solvency margin requirements. The risk management function in SpareBank 1 Gruppen AS estimates the Group's risk profile each year. A more comprehensive selfassessment of the Group's overall capital requirements is carried out at least once a year. The purpose of the risk calculations is to monitor the Group's risk exposures and assess the Group's future

11 11 capital requirements in light of the owners' appetite for risk. The risk calculations are also tied to the established liquidity and contingency plans. Risk management functions have been established at a company level in the Group's subsidiaries. The risk management functions report both to their own boards and the risk management function in SpareBank 1 Gruppen AS, which bears overall responsibility. Risk categories Market risk The Group's consolidated market risk is measured and reported quarterly to the Board of SpareBank 1 Gruppen AS. The calculations are based on a Value-at-Risk model. A corresponding model is used to follow-up each individual company. The subsidiaries in the Group manage and also monitor their own risk exposure in accordance with their own models and routines. Internal control in the Group is regulated by key mandatory guidelines, but is primarily defined as a line management responsibility. In accordance with the "Regulations on Risk Management and Internal Control" and the Group's own guidelines, risk factors in the operations are reviewed annually and action plans are prepared in all units, which are reported to the respective company boards. Information from this company-by-company reporting is aggregated and reported to the Group's board. In addition, the Group also conducts surveys across the Group with regard to internal control, the Personal Data Act, and security matters. SpareBank 1 Gruppen has outsourced internal auditing to Ernst & Young. This has supplied added expertise to the Group. The internal auditing operations also encompass the subsidiaries. Development of risk management in 2012 The improvements to the Group's risk management have largely focused on improving the consistency and quality of risk management information. This work will continue in Developing and integrating risk management into the Group's operations and strategic decisions are thus priority tasks. SpareBank 1 Gruppen introduced corporate risk management at the beginning of The goal is to bring together the Group's risk management resources and strengthen its expertise within risk management. The risk management function in SpareBank 1 Gruppen AS conducted a review of the Group's overall risk management in the first half of The work resulted in a unified, long-term concept for developing the Group's risk management during the next planned period. As an insurance dominated financial group, SpareBank 1 Gruppen will also be subject to the group provisions in the coming Solvency II regulations. The introduction of the regulations will probably be postponed until 2016 at the earliest. National adaptations can be expected from The aims of the Solvency II adaptation therefore match the future long-term aims for risk management. A joint risk management function has been established as part of the work of forging a closer collaboration between SpareBank 1 Skadeforsikring AS and SpareBank 1 Livsforsikring AS. This strengthens the efficiency of, and expert environment for, risk management in the Group. SpareBank 1 Gruppen is exposed to market risk through the investment portfolios in SpareBank 1 Livsforsikring AS, SpareBank 1 Skadeforsikring Group and SpareBank 1 Markets AS. The investment portfolios are heavily slanted towards fixed income securities, and particularly exposure to the Norwegian interest rate market. The development of global and Norwegian securities markets produced positive growth for the Group's total investment portfolios in The financial result for 2012 was far higher than the financial result for The value-adjusted return in SpareBank 1 Livsforsikring AS's group portfolios was 7.3%, while the booked return was 4.7%. The company portfolio saw a return of 5.7%. The allocation of assets towards equities was reduced during the year. The company's securities adjustment reserve grew to NOK million in 2012, from NOK million in Supplementary provisions had, as of 31 December 2012, increased to NOK million from NOK million as of 31 December 2011 due to the interest surplus linked to old individual products being allocated to supplementary provisions. SpareBank 1 Skadeforsikring AS has a conservative investment profile. Nonetheless, the investment portfolios delivered a strong financial return of 5.2%, compared with 2.8% for At year-end 2012, the company had a total portfolio of NOK million, of which the equities portfolio accounts for 8.2%. The return on the equities portfolio was 19.7%. The company's fixed income investments have a very short maturity. As of 31 December 2012, 70.7% of the investment portfolio was invested in short-term bonds and 10.1% in loans and receivables. The returns on these asset classes were 3.8% and 5.5%, respectively. 11.0% of the portfolio was invested in property, and achieved an overall return of 5.4%. The market risk in the P&C insurance portfolio is considered medium high. The market risk in SpareBank 1 Markets AS is estimated on the basis of published limits. Besides the equity instrument limits, the company is exposed to market risk through an investment portfolio in fixed income securities that, as of 31 December 2012, had a market value of NOK 3.9 billion. The portfolio refers to the collaboration with SpareBank 1 SMN and mainly consisted at year-end 2012 of bonds with variable rates (floating rate notes) where the coupon payments are variable and renewed every 6 months.

12 12 SpareBank 1 Gruppen Ownership risk SpareBank 1 Gruppen AS's financial position is regarded as satisfactory overall, given the current risk exposure. Financially, the holding company is deemed to have sufficient financial capacity to support the subsidiaries' adopted strategies. Credit risk The credit risk in SpareBank 1 Livsforsikring AS, SpareBank 1 Skadeforsikring Group and SpareBank 1 Markets AS is related to investments in money market instruments and bonds. Investments in this area are generally made in high rated papers. The insurance companies are also exposed to a credit risk associated with various reinsurers. Their rating is monitored closely, and the risk is considered to be low. In the real estate portfolio there is risk associated with the servicing of lease agreements. The risk in this category is also considered to be limited. The credit risk in SpareBank 1 Gruppen Finans Group is related to factoring and debt collection activities. Overall the credit risk in this portfolio is considered limited. Concentration risk SpareBank 1 Livsforsikring AS, SpareBank 1 Skadeforsikring Group and SpareBank 1 Markets AS are assumed to have some exposure to concentration risk on the investment side, particularly related to investments in bonds issued by financial institutions. The risk management function in SpareBank 1 Gruppen AS monitors the total concentration in these investment portfolios every quarter. Insurance risk Insurance risk is an inherent part of the business of both SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring Group. However, the nature of the risks in the two companies differ somewhat. Losses in SpareBank 1 Skadeforsikring Group can arise as a result of fluctuations in the year's claims ratio and prior-year losses. For SpareBank 1 Livsforsikring AS the risk is primarily associated with risk products without profit sharing, but also with higher life expectancy and disability. Both SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring Group reduce risk through reinsurance, partly by the reinsurers assuming portions of the risk within individual business segments and partly by limiting the own account share for individual claims through reinsurance. Reinsurance also covers cumulative claims and disasters. Risk associated with the reinsurers' creditworthiness is categorised under credit risk. The control of the insurance risk within P&C and life insurance is deemed satisfactory. Operational risk Operational risk in the subsidiaries is documented in connection with work relating to compliance with the "Regulations on Risk Management and Internal Control". This work normally requires the management group of a particular subsidiary and staff area in SpareBank 1 Gruppen AS to identify operational risk both before and after the implementation of measures. This work did not identify any serious risk factors in the Group in In connection with the implementation of the Group's ICAAP calculations, calculation methods have been established for calculating the necessary capital requirements for operational risk. The Group's compliance function monitors compliance with legislation, regulations, industry standards and so on, as well as internal guidelines. Compliance with statutory risk processes and an efficient implementation of these are ensured through this work. At a Group level, compliance risk is primarily followed up in the form of regular qualitative analyses, as well as continuously in day-to-day operations. At a company level, compliance reports are also produced in connection with the management of the investment portfolios. Compliance is reported to both the boards of both SpareBank 1 Gruppen AS and the subsidiaries every quarter. Liquidity risk Management of the Group's financial structure is based on an overall liquidity strategy that is assessed and approved by the Board at least annually. The liquidity risk in SpareBank 1 Gruppen was primarily linked to the parent company and was judged to be low. The group account scheme introduced in 2011 reduces liquidity risk. A substantial part of the parent company's funding is secured through a close collaboration between the larger SpareBank 1 banks in this area. Strategic and commercial risk SpareBank 1 Gruppen has established a contingency plan for handling sensitive public relations issues. Part of this is a list of relevant issues, which is reviewed and updated every quarter. Work on a concrete issue is initiated and led by the executive vice president for communication. Together with the alliance's risk management forum, the Group will continue to focus on the establishment of quantitative models with a view to estimating the capital needs for the strategic and commercial risk in the Group. Pillar 3 Please refer to the separate Pillar 3 report for a more detailed review of the company's capital and risk situation. The report is produced in accordance with the requirements stipulated in part

13 13 IX, chapters 45 and 46, of the Capital Requirements Regulations, as well as to satisfy the market's stricter requirements concerning transparency and openness concerning risk issues in generally. The Pillar 3 report is published on: ORGANISATION AND WORKING ENVIRONMENT Organisation SpareBank 1 Gruppen had a total of employees, corresponding to full-time equivalents. The corresponding figures for 2011 were and full-time equivalents. SpareBank 1 Gruppen AS had 272 employees, corresponding to 267 full-time equivalents. The corresponding figures for 2011 were 234 employees and 229 full-time equivalents. A total of 92 employees left in Total turnover was 7.0%, compared with 6.4% in Corrected for statutory early retirement pensions, retirement pensions and disability pensions, the Group's turnover was 6.4%, compared with 4.9% in Measures were implemented to reduce staffing levels as part of the work on forging a closer collaboration between SpareBank 1 Skadeforsikring AS and SpareBank 1 Livsforsikring AS. Most of this reduction in staffing will take place in The process of reducing staffing is being carried out in consultation with the unions. So far terminations have been avoided. HR-strategy SpareBank 1 Gruppen's HR strategy is based on the company's vision and values. The main goal of the HR strategy is to ensure that SpareBank 1 Gruppen: Attracts the right employees by focusing on the values «experts and close to you» Retains the best employees by giving them responsibilities, communicating with them and rewarding them for good performance Develops employees by involving them, giving them clear objectives and following them up Key areas of SpareBank 1 Gruppen's HR strategy include: The trainee scheme, pay and rewards, health and safety (HSE), skills training, life phases and equality, and career opportunities. Trainee scheme The trainee scheme was introduced in 2006 and has been active ever since. A total of 23 trainees have concluded their trainee period since the start of the scheme. Several of these now work in key positions in the Group. SpareBank 1 Gruppen had 10 trainees in 2012 and will recruit a new group of trainees in Pay and remuneration Regular analyses are conducted to ensure that the Group offers competitive terms without being a pay leader. As well as fixed salaries, SpareBank 1 Gruppen has an incentive scheme which rewards relative performance. Company bonus The company level bonus relates to the individual company's target attainment and provides the same bonus for all employees. The size of the company bonus depends on how well the company has done compared with its competitors. Individual non-recurring bonus In addition to the company bonus, a bonus pot is allocated for individual non-recurring bonuses if the return on equity in SpareBank 1 Gruppen is among the top three in a league table of mixed financial groups in the Nordic region. This is additional to the ordinary salary pot in the annual pay reviews as per 1 January. Executive personnel Executive personnel in SpareBank 1 Gruppen are not covered by the general bonus schemes, but do have their own schemes. The maximum achievable bonus amount for executive personnel, who are defined as the group executive management team, with an individual bonus agreement is 1-3 months' salary in SpareBank 1 Gruppen. The bonus for meeting targets for a year is paid out in accordance with the Ministry of Finance's regulations relating to remuneration in financial institutions. Working environment and sick leave The company's working environment is considered good. Annual organisation surveys are conducted in the Group, with further follow-up through systematic activities in the organisation to remedy any weaknesses identified in the surveys. SpareBank 1 Gruppen has separate working environment committees in each company. The safety service in the companies is proactive and a central Workplace Anti-Alcoholism and Drug Addiction Dependency Committee has also been appointed. The work with the unions has been very constructive and made a positive contribution to operations and the results in SpareBank 1 Gruppen continued its 'Inclusive Workplace' agreements for the companies in the Group in The sick leave rate was 4%, which was made up of 3.1% who submitted a medical certificate and 0.9% who were self-certified. Sick leave is low compared with the rest of the industry. E-learning courses with exams in various HSE disciplines were provided for both managers and safety deputies in These were organised in consultation with the individual working environment committees.

14 14 SpareBank 1 Gruppen SpareBank 1 Gruppen's code of conduct specifies notification rules for employees and representatives should they become aware of matters that are in violation of laws, regulations or the Group's internal rules. A separate notification routine has also been established. 149 new employees were recruited in The majority of those who were recruited have at least 3 years' education after upper secondary school. Most new employees are aged between 26 and 35. The average age of employees in SpareBank 1 Gruppen was Skills development SpareBank 1 Gruppen AS has its own general skills strategy. Technical and professional training and other skills development measures are initiated and run primarily in the individual subsidiary as needed. Management development programmes have also been established at different levels, and these are managed jointly by SpareBank 1 Gruppen AS on behalf of the companies. CORPORATE RESPONSIBILITY SpareBank 1 Gruppen undertakes to take into consideration how the Group's behaviour impacts people, society and the environment. This responsibility entails setting targets that exceed those in the legislation to which the financial markets are subject. Corporate responsibility covers everything from asset management and investments in inclusive workplaces and employee rights. Continuous improvement is a key element of skills development. A central project group has been established to develop relevant methods and tools for continuous improvement. At the same time, managers and coaches also undergo training in the use of continuous improvement methods and tools. The environment, climate accounts and the Eco-Lighthouse SpareBank 1 Gruppen's impact on the external environment, both direct and indirect, is limited. This includes through waste, energy use, travel, transport, material choices, purchasing and water consumption. Life phase and equality The Group has a life phase and equality committee that is tasked with following up matters such as ensuring compliance with the Gender Equality Act in the organisation. The committee also focuses on how SpareBank 1 Gruppen can be an attractive employer for employees in various life phases. Of the Group's employees, 46% were women and 54% were men. 5.9% of female and 1.6% of male employees work part-time. Two of the nine members of the executive management team are women. The key management teams in the holding company and subsidiaries have 22% female representation. 32% of all managers are women. One of the eight board members of the Group's board was female at year-end % of the subsidiaries' board members are women. SpareBank 1 Gruppen applies a method of assessing roles and positions in order to ensure it fixes pay levels objectively. Equal pay in relation to work of equal worth is also a topic in annual salary reviews. The main reason that the pay level of men is slightly higher than for women in the Group is that there are more men in both senior positions and highly technical positions. Attractive employer SpareBank 1 Gruppen is experiencing greater interest from young employees. The Group regards this as a result of SpareBank 1's strong branding combined with the targeted marketing of SpareBank 1 Gruppen as an attractive employer at universities and university colleges. In a nationwide university survey conducted in 2012, SpareBank 1 Gruppen was ranked the joint 25th most attractive employer and was one of the top three financial groups. SpareBank 1 Gruppen will, for the fifth year in a row, prepare climate accounts based on the total energy consumed by the organisation's daily operations. The climate accounts are published on: SpareBank 1 Gruppen was Eco- Lighthouse certified in 2012 and thus satisfies all the criteria stipulated by the Eco-Lighthouse Foundation for this type of industry. Social engagement SpareBank 1 Gruppen has involved itself in a microcredit company, Kolibri Kapital. Microcredit involves providing small loans to poor, enterprising people in developing countries that can be used to develop a business or improve living conditions. Kolibri Kapital raises money in Norway by continuously expanding its share capital. All the loans are made to microbanks in South Africa, Asia and South America. SpareBank 1 Gruppen contributes share capital. SpareBank 1 Gruppen worked with the Norwegian Association of the Blind and Partially Sighted (NAPB) in NAPB contributed valuable input to SpareBank 1 concerning how banking services can be designed for the visually impaired. SpareBank 1 Gruppen provided financial support for renovating and remodelling the Hurdal rehabilitation centre. CHANGES TO THE BOARD AND THE GROUP EXECUTIVE MANAGEMENT TEAM Finn Haugan, CEO of SpareBank 1 SMN, was elected Chairman of the Board in April He succeeded Arne Austreid, CEO of SpareBank 1 SR-Bank ASA, who had been the chairman since April In April 2012, Per Halvorsen, CEO of SpareBank 1

15 15 Telemark, was elected to the Board as a representative of Samarbeidende Sparebanker AS. He succeeded Bjørn Engaas, CEO of SpareBank 1 Nøtterøy-Tønsberg. Hans Olav Karde, former CEO of SpareBank 1 Nord-Norge, retired on 31 December 2012 and at a meeting of the Supervisory Board held on 23 January 2013 his successor as CEO of SpareBank 1 Nord-Norge, Jan-Frode Janson, was elected to the Board. The following changes were made to the executive management team in 2012: Turid Grotmoll and Rune Selmar joined the executive management team, while Tore Tenold, Leif Ola Rød and Aud Lysenstøen left. Turid Grotmoll was appointed the new CEO of SpareBank 1 Skadeforsikring AS in June 2012, succeeding Tore Tenold who left the company. Turid Grotmoll had been the acting CEO since March 2012 and was previously the deputy CEO of SpareBank 1 Skadeforsikring AS. In March 2012, Leif Ola Rød gave notice that he wished to resign his position as the head of ODIN Forvaltning AS. Rune Selmar was appointed in his place and started work on 1 August Rune Selmar has extensive experience from the wealth management sector. OUTLOOK The outlook for the Norwegian economy was good at the start of High oil prices, a continued high level of activity in the oil sector, low interest rates and record low unemployment are contributing to the optimism. There is reason to believe that 2013 will also be a relatively good year for Norway with continued low unemployment, low interest rates and low price inflation. The macroeconomic conditions for profitable growth should, therefore, be relatively good in On the other hand, there is uncertainty surrounding developments in Europe. Weak growth in the European economy and instability in the financial markets may have a negative effect on the Norwegian economy. This in turn could affect SpareBank 1 Gruppen's financial results, which account for a substantial proportion of the Group's value creation. The SpareBank 1 Alliance is stronger than ever. Both the alliance banks and the product areas are doing well in the current competition situation, and financial performance is good. SpareBank 1 Gruppen will, in close cooperation with the alliance banks, continue its work on strengthening the alliance's position. At the same time, the Group will continue its work on collaboration across the companies to extract efficiency gains within costs, income and skills. The general public's increased focus on pensions indicates longterm growth in the market for security products and pension savings. The life insurance company's product breadth combined with its collaboration with the Norwegian Confederation of Trade Unions (LO), affiliated unions, and the SpareBank 1 banks' distribution network provide a good starting point for growing business volumes. The Norwegian Banking Law Commission has submitted its report on new occupational pension products, NOU 2012:13, to the Ministry of Finance. SpareBank 1 Livsforsikring AS views the new occupational pension products positively since they will be simpler to manage and provide customers with more choice. SpareBank 1 Livsforsikring AS is considered to be wellpositioned in relation to the future pensions market in which higher capital requirements and a further focus on profitability will be key. A closer collaboration between SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS will contribute to greater competitiveness through opportunities for cross-sales and a more comprehensive offer for customers. It will also contribute to more efficient processes and provide a basis for further rationalisation. The future strategy will focus on profitable growth in the companies' main products. SpareBank 1 is a leader in the sale of individual risk insurance products and the Board expects continued growth in 2013 within this product area. SpareBank 1 Skadeforsikring will continue to systematically improve both its claim and cost/income ratio in the future, and this is expected to result in a further reduction in the combined ratio in was characterised by restructuring in SpareBank 1 Markets AS. Its competitiveness following the phasing in of new resources and the advantage of being a bank-owned securities firm with access to the bank's balance, good expertise and good customer relationships suggest the company is starting 2013 with a significant upside with respect to earnings. The focus going forward, for both the company and the SpareBank 1 Alliance, will be on realising this potential. The Board is expecting a substantial improvement in its result in Profitability in the debt collection industry and in Conecto AS is being squeezed. The company expects to improve profitability through growth and goal-oriented efficiency improvements in The better growth will take place without a significant increase in capacity. Factoring has enjoyed good growth, but at the same time its margins are under pressure. Lending losses in the company are low and the loss situation is not expected to deteriorate. The focus going forward will be on improving revenues and profitable growth. ODIN Forvaltning AS's future development depends on developments in the equities markets, the funds' returns, and net new equity fund, combination fund and bond fund subscriptions. The company's primary goal is to provide the funds' unit holders

16 16 SpareBank 1 Gruppen with a better return than the markets the funds invest in and to grow its market shares in a savings and investment market that is expected to grow in coming years. The turnaround process completed in 2012 is expected to have a significant impact on both income and costs. In the opinion of the Board, SpareBank 1 Gruppen will be able to cope well with continued volatility in the financial markets in 2013 as well. SpareBank 1 Gruppen is exposed to the securities market through its various subsidiaries, and the development of equity prices and interest rates has a major effect on the Group's earnings. Given a normal return in the securities market, the Board expects an improved result in A WORD OF THANKS Our colleagues made good contributions in 2012 and the collaboration with the unions was close and fruitful. The Board would like to thank all of SpareBank 1 Gruppen's employees for their efforts in Oslo, 13 March 2013 Finn Haugan Jan-Frode Janson Per Halvorsen CHAIRMAN OF THE BOARD Arne Austreid Knut Bekkevold Richard Heiberg Tor-Arne Solbakken Sally Lund-Andersen Kirsten Idebøen CHIEF EXECUTIVE OFFICER NOTE: This translation from Norwegian has been prepared for information purposes only.

17 Financial statements 2012 SpareBank 1 Gruppen

18 18 SpareBank 1 Gruppen SPAREBANK 1 GRUPPEN INCOME STATEMENT Parent company Group NOK Note Gross insurance premium income reinsurers' share Net insurance premium income Interest income Interest costs Net interest income Commissions Commission costs Net commissions Net income from financial instruments at fair value through profit or loss Net income from financial assets available for sale Net income from bonds at amortised cost Net income from bonds held to maturity Net income from investment properties Share of profit and group contribution from subsidiaries Other operating income Total net income Insurance benefits and claims Insurance claims recovered from reinsurers To/(from) securities adjustment reserve for life insurance Transferred to policyholders - life insurance Allocation to supplementary provisions Losses on loans, guarantees Operating costs 21, Depreciation and write-downs 34, 35, Other costs Total costs Operating result Share of profit from associated companies and joint - - ventures recognised according to the equity method Pre-tax profit Taxes Net profit for the year Allocation of profit for the year: Shareholders of the parent company Minority interests

19 19 SPAREBANK 1 GRUPPEN STATEMENT OF COMPREHENSIVE INCOME Consolidated income statement, costs and value changes Parent company Group NOK Note Profit for the year Actuarial gains/losses on pensions Revaluation of properties Adjustment of insurance liabilities Change in financial assets available for sale 25, Translation differences Tax Total comprehensive income for the year Shareholders of the parent company Minority interests

20 20 SpareBank 1 Gruppen SPAREBANK 1 GRUPPEN CONSOLIDATED BALANCE SHEET Parent company Group NOK Note ) ASSETS Deferred tax asset Goodwill 35, Other intangible assets Investments in subsidiaries Investments in associated companies and joint ventures Property, plant and equipment Reinsurance receivables Other assets Investment properties Bonds held to maturity 13, 25, 29, Bonds at amortised cost 13, 25, 29, Securities - available for sale 13, 25, 26, Lending to customers and deposits with financial institutions 13, 14, 25, 30, Securities at fair value 13, 25, 26, Financial derivatives 9, 13, 25, Receivables from policyholders Cash and cash equivalents 13, 25, TOTAL ASSETS EQUITY AND LIABILITIES Shareholders equity Retained earnings Other equity - not recognised through profit or loss Minority interests Total equity Subordinated loan capital and hybrid tier 1 capital 15, 25, 30, Securities adjustment reserve Insurance provisions in life insurance Premium and claims provisions in P&C Insurance Net pension liabilities Deferred tax liability Payable tax Securities issued 15, 25, 26, 27, 30, Liabilities related to reinsurance Financial derivatives 9, 25, Other liabilities Deposits from and liabilities to customers and financial institutions 15, 25, TOTAL EQUITY AND LIABILITIES ) The balance sheet as of 31 December 2011 has been revised to show comparable figures. A more detailed description of the changes is provided in note 54. Oslo, 13 March 2013 Finn Haugan Jan-Frode Janson Per Halvorsen CHAIRMAN OF THE BOARD Arne Austreid Knut Bekkevold Richard Heiberg Tor-Arne Solbakken Sally Lund-Andersen Kirsten Idebøen CHIEF EXECUTIVE OFFICER NOTE: This translation from Norwegian has been prepared for information purposes only.