Annual Report SpareBank 1 Gruppen

Transcription

1 1 Annual Report 2011 SpareBank 1 Gruppen

2 2 SpareBank 1 Gruppen Content Board of Directors' Report 3 Income statement 18 Statement of comprehensive income 18 Balance Sheet 19 Consolidated statement of cash flow 20 Statement of changes in equity 21 Note 1 General information 23 Note 2 Accounting policies 23 Note 3 Financial risk management 29 Note 4 Critical accounting estimates and judgements 35 Note 5 Changes in Group structure 37 Note 6 Segment information 41 Note 7 Net insurance premium income 42 Note 8 Net commissions 42 Note 9 Gains and losses from financial assets and liabilities 43 Note 10 Net income from investment properties 44 Note 11 Other operating income 44 Note 12 Operating costs 44 Note 13 Shareholder structure 45 Note 14 Goodwill 45 Note 15 Other intangible assets 46 Note 16 Investments in subsidiaries 47 Note 17 Investments in associates and joint ventures 47 Note 18 Property, plant and equipment 48 Note 19 Other assets 49 Note 20 Classification of financial assets and liabilities 50 Note 21 Valuation hierarchy 51 Note 22 Securities at fair value 53 Note 23 Financial derivatives 54 Note 24 Securities available for sale 55 Note 25 Bonds at amortised cost 56 Note 26 Fair value of securities stated at amortised cost 57 Note 27 Investment properties 58 Note 28 Lending to and deposits with customers and financial institutions 59 Note 29 Net loan and guarantees loss provisions 61 Note 30 Credit risk exposure for each internal risk class 62 Note 31 Maximum credit risk exposure, not taking into account pledged security 63 Note 32 Contractual maturity of financial liabilities 63 Note 33 Age distribution of overdue, but not impaired loans and premium revenues 64 Note 34 Market risk related to currency risk 65 Note 35 Market risk related to interest rate risk 65 Note 36 Deposits from and liabilities to customers and financial institutions 66 Note 37 Subordinated loan capital and hybrid tier 1 capital 67 Note 38 Securities issued 67 Note 39 Capital adequacy 68 Note 40 Reinsurance receivables 68 Note 41 Insurance receivables from policyholders 69 Note 42 Insurance liabilities in life insurance 69 Note 43 Insurance provisions in P&C insurance 71 Note 44 Liabilities related to reinsurance 73 Note 45 Insurance risk in life insurance 73 Note 46 Insurance risk in P&C insurance 75 Note 47 Salaries and other remuneration of CEO and senior executives 77 Note 48 Pensions 79 Note 49 Number of employees and full-time equivalents 82 Note 50 Taxes 83 Note 51 Other liabilities 84 Note 52 Material transactions with related parties 85 Note 53 Events after the balance sheet date and legal disputes 88 Note 54 Revised balance sheet for SpareBank 1 Gruppen Group as of 31 December Auditor's Report 90

3 3 Board of Directors Report for 2011 SpareBank 1 Gruppen OPERATIONS IN 2011 The weak development of the securities markets combined with natural disasters and large claims resulted in reduced earnings for SpareBank 1 Gruppen SpareBank 1 Livsforsikring AS's record result was due in part to a significantly improved administration result. The company maintained good buffers throughout the year A high proportion of large claims, floods and storms resulted in a negative insurance result in SpareBank 1 Skadeforsikring Group The debt collection company Conecto AS merged with Actor Fordringsforvaltning AS with effect from 1 January 2011 Aggressive focus on national capital markets segment via SpareBank 1 Markets AS SpareBank 1 Gruppen decided to establish its own card company SpareBank 1 Gruppen AS is a holding company that produces, provides and distributes products in the fields of life and P&C insurance, fund management, capital markets, factoring, debt collection services and long-term monitoring. SpareBank 1 Gruppen AS is owned by SpareBank 1 Nord-Norge (19.5%), SpareBank 1 SMN (19.5%), SpareBank 1 SR-Bank (19.5%), Samarbeidende Sparebanker AS (19.5%), Sparebanken Hedmark (12%) and the Norwegian Confederation of Trade Unions and affiliated trade 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. SpareBank 1 Gruppen reported a pre-tax profit of NOK million for 2011, compared to NOK million in The net profit for the period amounted to NOK million, compared to NOK million in The result represents an annualised return on equity of 11.1%, compared to 18.7% for was a year of weak financial markets and high claims ratios. In addition to this, some larger items totalling NOK 245 million were recognised as income in 2010, including negative goodwill of NOK million in connection with the acquisition of Unison Forsikring AS. SpareBank 1 Gruppen's total assets amounted to NOK 42.0 billion as of 31 December This represents growth of around 3% since SpareBank 1 Gruppen's capital adequacy ratio as of 31 December 2011 was 16.2%, compared to 16.1% at year-end Its core capital adequacy ratio at year-end 2011 was 14.6%, compared to 12.5% in SpareBank 1 Gruppen's capital situation is considered satisfactory and, in the opinion of the Board, the Group is well capitalised with regard to meeting the expected requirements of the Solvency II regulations. SpareBank 1 Livsforsikring AS achieved its best result ever in 2011 despite falling equity markets. SpareBank 1 Livsforsikring AS maintained good buffers throughout 2011, which helped ensure the company was less affected by the market unrest during the year. The company's financial performance shows a significantly improved administration result in The company achieved an investment result of NOK million in 2011, which represents an increase of NOK 51.2 million from SpareBank 1 Livsforsikring AS increased provisions for reserves due to longer life expectancy by NOK million. The company saw tax income of NOK 97.8 million in This was due to the combined effect of the tax exemption method and provisions to the securities adjustment reserve now being subject to the Taxation Act's rule concerning the right to make deductions for insurance provisions. The Ministry of Finance has proposed that the tax exemption method should not apply to equities, etc. included in the group life

4 4 SpareBank 1 Gruppen and investment choice portfolio of life insurance companies from and including 1 January The expected effect of this is that the tax cost will approach the general taxation rate of 28%. separate company. It therefore decided in 2011 to establish a card business area. SpareBank 1 Skadeforsikring Group experienced strong portfolio growth in 2011 and strengthened its market shares within landbased P&C insurance. Measured by premiums written, the growth amounted to NOK 515 million or 11.0%. A high proportion of natural disaster claims and a greater number of large claims resulted in higher compensation costs than in 2010, meaning that the gross claims ratio in 2011 was 80.9%, an increase of 3.6 percentage points since ODIN Forvaltning Group's total assets under management amounted to NOK 23.4 billion as of 31 December This is a reduction of NOK 8.9 billion, compared to ODIN Forvaltning Group redeemed equity funds worth a net NOK 1.9 billion in Management fees amounted to NOK million in 2011, which is NOK 14.4 million lower than in SpareBank 1 Markets Group 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. All the business areas were significantly strengthened by investments in human capital and infrastructure. The result for the year was affected by the building up that took place, while a challenging market situation affected the earnings potential of all players in the industry. SPAREBANK 1-ALLIANCE The SpareBank 1-alliance consists of a total of 15 independent banks, SpareBank 1 Gruppen AS and its subsidiaries, Bank 1 Oslo Akershus AS and BN Bank ASA. The independent banks in the alliance are: Samarbeidende Sparebanker (SamSpar) Sparebanken Hedmark SpareBank 1 Nord-Norge SpareBank 1 SMN SpareBank 1 SR-Bank SamSpar is a group of several smaller savings banks. These savings banks are: SpareBank 1 Buskerud-Vestfold SpareBank 1 Gudbrandsdal SpareBank 1 Hallingdal SpareBank 1 Lom og Skjåk SpareBank 1 Modum SpareBank 1 Nordvest SpareBank 1 Nøtterøy-Tønsberg SpareBank 1 Ringerike Hadeland SpareBank 1 Søre Sunnmøre SpareBank 1 Telemark SpareBank 1 Østfold Akershus 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 27.9 million in The factoring business area, organised in SpareBank 1 Gruppen Finans AS, was the country's third largest with a market share of 14.1% in 2011, compared to 11.6% in The pre-tax profit of the debt collection business area, organised in Conecto AS, was NOK 24.7 million in 2011, compared to NOK 19.5 million in Despite the reduced debt recovery fees and slightly lower number of referrals, the debt collection business area maintained its turnover through one-time income, higher recovery rates and a larger proportion of business referrals. Actor Fordringsforvaltning AS and Conecto AS were merged into an integrated debt collection company with effect from 1 January SpareBank 1 Gruppen has made strategic investments in important product areas in recent years via a series of acquisitions and structural changes, with debt collection, factoring and capital markets being the most recent examples of these. The goal is control of the product and value chain for the benefit of both customers and owners. SpareBank 1 Gruppen also wishes to offer products and services within the card and payment fields via a The alliance cooperates on banking services and products. As a whole the alliance is one of the largest providers of financial products and services in the Norwegian market. The member banks in the SpareBank 1-alliance distribute the SpareBank 1 Gruppen s products and collaborate in key areas such as brands, work processes, competence building, IT operations, systems development and purchasing. The alliance has signed strategic cooperation agreements with the Norwegian Confederation of Trade Unions (LO) and LO's affiliated unions, and delivers products and services to LO's members via the LOfavør advantage card scheme. The SpareBank 1-alliance's main goal is to ensure each bank s independence and regional affiliation through strong competitiveness, profitability and financial soundness. At the same time, the SpareBank 1-alliance represents a complete competitive banking alternative at the national level. To achieve common goals, the banks in the alliance have established a national marketing profile and developed a common strategy for brand building and communication. This strategic marketing platform also forms the basis for joint development of products and concepts. The marketing efforts are primarily aimed at the retail market, small and mediumsized enterprises, and unions affiliated with LO.

5 5 The product companies established under SpareBank 1 Gruppen AS and the alliance banks have developed a common technology platform. Sharing lessons learned and expertise within the alliance, based on best practice, are key elements of the alliance's development. As part of these efforts, resource centres have been established for credit management in Stavanger, payments in Trondheim, and training in Tromsø. The SpareBank 1-alliance managed assets totalling around NOK 710 billion at year-end 2011, compared to around NOK 665 billion at year-end SpareBank 1 Gruppen's has two main functions in the SpareBank 1- alliance: Managing and developing the financial group with respect to producing and delivering competitive products and services for distribution via the alliance banks and other banks with a distribution agreement with companies in SpareBank 1 Gruppen, and LO. This work is performed by SpareBank 1 Gruppen AS. Manage and develop the alliance cooperation with respect to common management, development and execution of activities that provide economies of scale and competitive advantages. This work is performed by Alliansesamarbeidet SpareBank 1 DA. Selskapet Alliansesamarbeidet SpareBank 1 DA represents the administrative superstructure of the alliance. The company handles the financing and ownership of applications, concepts, contracts and brands on behalf of the alliance partners. Alliansesamarbeidet SpareBank 1 DA is owned by: SpareBank 1 SR-Bank (17.74%) SpareBank 1 SMN (17.74%) SpareBank 1 Nord-Norge (17.74%) Samarbeidende Sparebanker Utvikling DA (17.74%) Sparebanken Hedmark (11.3%) SpareBank 1 Gruppen AS (10.0%) Bank 1 Oslo Akershus AS (7.74%) CORPORATE GOVERNANCE Shares in SpareBank 1 Gruppen AS are not publicly traded, but as of 31 December 2011 the company did have a bond issue listed on Oslo ABM. The company has, as shown in the section on «Operations in 2011», 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 Norwegian version of 2011 annual report. Executive management teams SpareBank 1 Gruppen has two executive management teams the group executive management team and the alliance executive management team. The group executive management team is responsible for operating and developing the financial group, and focuses on the results and operations of the companies in the Group. The alliance executive management team is responsible for the operational cooperation between SpareBank 1 Gruppen and the SpareBank 1-banks. The head of the alliance executive management team is represented in the group executive management team. Information about remuneration Information about the remuneration of the CEO, group executive management team, Board, Supervisory Board and Control Committee is provided in the financial statements' note 47, and information about the auditor's remuneration is described in note 12. 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. 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). SpareBank 1 Gruppen reported a pre-tax profit of NOK million in 2011, compared to NOK million in Uncertainty and turbulence in the financial markets affected the development of the financial results, which constitutes a substantial part of the Group's value creation. Natural disasters and large claims also affected the result in The net profit for the period was NOK million, which

6 6 SpareBank 1 Gruppen provided a annualised return on equity of 11.1%. The Group saw tax income of NOK million in 2011, compared to a taxes of NOK million in The high level of tax income was due in part to the calculated effect of the tax exemption method. Financial performance: NOK million Profit before tax in subsidiaries: SpareBank 1 Livsforsikring AS SpareBank 1 Skadeforsikring Group 1) ODIN Forvaltning AS SpareBank 1 Markets Group SpareBank 1 Medlemskort AS SpareBank 1 Gruppen Finans Group 2) Group adjustments Total profit before tax in subsidiaries: ) Unison Forsikring AS was consolidated into SpareBank 1 Skadeforsikring with effect from 1 July ) Conecto AS became 100% owned by SpareBank 1 Gruppen Finans AS with financial effect from 10 September Profit before this is recognised directly in equity. SpareBank 1 Livsforsikring AS SpareBank 1 Livsforsikring AS's products are primarily distributed through the banks in the SpareBank 1-alliance and the Norwegian Confederation of Trade Unions (LO). 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 Profit to customers before tax Tax charge Profit to customers after tax SpareBank 1 Livsforsikring AS achieved its best result ever in 2011 despite falling equity markets. This was in part due to the company having built up and sustained good buffers throughout the year. The net profit to owner before tax amounted to NOK million in 2011, compared to NOK million in The total net profit for the period amounted to NOK million, which is an improvement of NOK million on The company saw tax income of NOK 97.8 million in 2011, compared to taxes of NOK 60.2 million in Part of the reason for the high level of tax income was the calculated effect of the tax exemption method for equity related investments. Risk result The net risk result decreased by NOK 84.0 million compared to 2010 and amounted to NOK million in This was primarily due to a strong increase in provisions for compensation for disability within individual interest insurance and increased disability compensation within group life insurance and group pension insurance. The risk result improved within individual endowment insurance and individual life insurance. Administration result The administration result amounted to a loss of NOK 65.9 million in 2011, which represents an improvement of NOK million, compared to The improvement was due in part to the profitability programme implemented in 2010, which identified possible cost savings and income increasing measures. Most of the administration loss in 2011 occurred within the operation of group pension insurance. Investment result NOK million of the return profit in 2011 was used to strengthen the premium reserve due to expected longer life expectancy. The corresponding provision in 2010 was NOK 45.3 million. The reserves were built up gradually instead of strengthening supplementary provisions at year-end. The company had supplementary provisions of NOK million at year-end The value-adjusted capital yield in the group portfolio as a whole was 2.5% in The booked return on assets was 5.4%. The corresponding returns in 2010 were 7.1% and 5.2%, respectively. The capital yield in the company portfolio was 4.3% in 2011, compared to 4.5% in Asset allocation per portfolio as of 31 December 2011: Group portfolio Shares 13.8 % 14.8 % Other -0.2 % 7.1 % Property 21.0 % 21.5 % Bonds-Amortised costs 28.0 % 21.8 % Bonds-Market value 37.4 % 34.8 % Total value (NOK million) Company portfolio Shares 0.0 % 0.1 % Other -4.5 % 17.0 % Property 18.8 % 21.7 % Bonds-Amortised costs 24.8 % 11.1 % Bonds-Market value 60.9 % 50.1 % Total value (NOK million) Investment choice portfolio Shares 54.2 % 61.0 % Other -0.1 % 0.0 % Bonds 45.9 % 39.0 % Total value (NOK million) Solvency and capital situation The company's total assets amounted to NOK 26.6 billion as of 31 December This represents an increase of 0.5% since 2010.

7 7 Group portfolio Total value: NOK 15.7 billion Company portfolio Total value: NOK 2.9 billion Investment choice portfolio Total value: NOK 6.9 billion 37.4% 13.8% 21.0% Bonds - Market value Bonds - Amortised costs Real estate 60.9% 18.8% Bonds - Market value Bonds - Amortised costs Real estate 45.9% Bonds Shares Shares 24.8% 54.2% 28.0% The buffer capital, after the proposed application of the year's profit, amounted to NOK 1.7 billion, equivalent to 11.0% of insurance provisions. By way of comparison, the buffer capital at year-end 2010 amounted to NOK 2.3 billion, equivalent to 14.6% of insurance provisions. The main reason for the change was a fall in the securities adjustment reserve from NOK million in 2010 to NOK million in The company's capital adequacy was 18.5% at year-end 2011, compared to 19.3% at year-end The entire subordinated loan comprises core capital. A time limited subordinated loan amounting to NOK 200 million with a due date of 15 June 2016 was, with the Norwegian Financial Supervisory Authority's approval, redeemed (call option) on 15 June In 2011, the company received NOK million in equity through group contributions. The company s solvency margin capital ratio was 303.5% as of 31 December 2011, compared to 290.1% for The minimum requirement for the solvency margin capital is 100%. At year-end 2011, the solvency margin requirement was NOK million, compared to NOK million in SpareBank 1 Skadeforsikring Group achieved a pre-tax profit of NOK million for 2011, compared to NOK million for The portfolio grew strongly and, measured by premiums written, the growth amounted to NOK 515 million, equivalent to 11.0%. The growth via bank distribution, the Norwegian Confederation of Trade Unions (LO) and the subsidiary Unison Forsikring AS was solid. The Group strengthened its market shares within land-based P&C insurance in Compensation costs The result for 2011 was strongly affected by natural disasters caused by extreme weather in the fourth quarter and floods earlier in the year. Total gross compensation for natural disasters amounted to NOK million in This is a significant increase on previous years, and NOK million higher than in Compensation linked to natural disasters accounted for 3.6 percentage points of the Group's gross claims ratio in Gross compensation, natural disasters (NOK million): The company is continuously assessing the consequences of, and 150 adapting to, the coming Solvency II regulations. 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: NOK million Gross overdue premiums Accrued premiums for own account Accrued compensation for own account Insurance-related operating costs for own account Other insurance-related income/costs Other technical provisions Insurance result: Net financial income Other costs Operating result Change in security provisions Pre-tax profit Tax charge Net profit for the period SpareBank 1 Skadeforsikring Group was also affected by an unusually high proportion of large claims in There were 6 large claims involving total compensation of more than NOK 10 million within the fire combined corporate market. Total compensation for larger claims amounted to NOK 144 million and accounted for 2.8 percentage points of the Group's gross claims ratio in Claims submitted in connection with the 22 July terrorist attack amounted to NOK 63.4 million.

8 8 SpareBank 1 Gruppen The Group's gross claims ratio was 80.9% in 2011, representing an increase of 3.6 percentage points from Operating costs The gross cost ratio was 22.5% in 2011, representing an increase of 1.7 percentage points since Last year's cost ratio was affected by a positive one-time effect on pensions of NOK 42.5 million, as well as the absence of profit commissions to distributors. Development of combined ratio for own account (%): Claims ratio Cost ratio The combined ratio for own account, including natural disasters, was 103.4% in 2011, which was 5.7 percentage points higher than in Financial result 2011 was affected by turbulent financial markets, which is reflected in the lower financial income compared to SpareBank 1 Skadeforsikring Group's financial income totalled NOK million in 2011, compared to NOK million in The financial return on the Group's portfolio was 2.8%. The Group achieved a positive return of 3.7% in the fixed income portfolio, but a negative return of minus 7.8% on the equity portfolio. Capital situation At year-end 2011, SpareBank 1 Skadeforsikring Group's total assets amounted to NOK 13.3 billion. This represents growth of 9.5% since The capital adequacy ratio was 32.8% at yearend 2011, which corresponds to excess coverage of NOK 1,397 million in relation to the authorities' minimum requirements. The capital adequacy ratio was 0.3 percentage points stronger compared to year-end Unison Forsikring AS Unison Forsikring AS is a wholly owned subsidiary of SpareBank 1 Skadeforsikring AS. The company is a specialised partner for organisations and their members, and offers a broad spectrum of P&C insurance. Unison Forsikring AS saw a pre-tax loss of NOK million in 2011, and a net loss for the period of NOK million in The result both before and after tax was a loss of NOK 49.9 million in During 2011, Unison Forsikring AS achieved strong growth in premium volumes and helped SpareBank 1 Skadeforsikring Group achieve a higher market share for land-based P&C insurance. 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: NOK million Management fees Total operating income Payroll costs Amortisation Other operating expenses Total operating costs Operating result Net financial income Pre-tax profit Tax charge Net profit for the period ODIN Forvaltning Group achieved a pre-tax profit of NOK 21.8 million in 2011, compared to NOK 64.6 million in was a year characterised by a great deal of uncertainty and turbulence in the financial markets. This led to a decrease in total assets throughout the year and a fall in management fees. One-time costs were also incurred from investments aimed at better equipping ODIN Forvaltning Group to deliver high quality services. During 2011, the Group took important steps to strength the management team, expand the fund portfolio to include one bond fund and three attractive combination funds, and further develop its investment processes. All self-managed equity funds produced weaker returns than their respective benchmarks in This was largely due to «value companies» developing more weakly than «growth companies» in 2011 as well. Total assets At year-end 2011, ODIN Forvaltning Group was managing a total of NOK 23.4 billion, NOK 22 billion of which was in equity funds. ODIN Forvaltning Group redeemed equity funds worth a net NOK 1.9 billion in The SpareBank 1-banks' broad distribution network, distribution through other banks and distributors in Norway, Sweden and

9 9 Finland, together with the measures implemented in 2011, provide a good starting point for SpareBank 1 Markets Group SpareBank 1 Markets Group is an analysis based capital markets unit that is active within corporate finance, foreign capital and stockbroking. SpareBank 1 Gruppen AS owned 97.2% of the shares in SpareBank 1 Markets AS at year-end The remainder of the shares were owned by employees. Financial performance: NOK million Total operating income Other income Payroll, bonus and other staff costs Amortisation Other operating expenses Operating result Net financial income Pre-tax profit Tax charge Net profit for the period The result for 2011 was a loss of NOK million. Total turnover in 2011 amounted to NOK 86.2 million, compared to NOK 83.2 million in NOK 35.9 million of the turnover in 2011 came from brokerage from equity and derivatives trading, NOK 29.6 million from corporate finance fees, NOK 15.1 million from foreign capital, and NOK 5.6 million from other operating income. SpareBank 1 Markets Group carried out restructuring approved by the company's board and SpareBank 1 Gruppen AS in was primarily spent putting in place the necessary framework for a strong capital markets unit. All the business areas were significantly strengthened by investments in human capital and infrastructure. The result for the year was affected by this, as well as a challenging market situation that affected the earnings potential of all players in the industry. Its competitiveness after the phasing in of new resources indicates that the company will start 2012 at full market power. Financial performance: NOK million SpareBank 1 Gruppen Finans AS Management Factoring Portfolio Conecto AS 1) Total profit before tax in subsidiaries Excess value amortisation Pre-tax profit Tax charge Net profit for the period ) Conecto and Actor Fordringsforvaltning were merged with effect from 1 January Conecto was purchased with financial effect from 10 September SpareBank 1 Gruppen Finans Group achieved a pre-tax profit of NOK 27.9 million, which is NOK 19.3 million better than in SpareBank 1 Gruppen Finans AS SpareBank 1 Gruppen Finans AS's operations in 2011 were characterised by consolidation and a focus on growth in order to strengthen the company's market position. The company's total income in 2011 amounted to NOK 74.5 million, compared to NOK 94.4 million in The 2010 income includes a group contribution of NOK 26.0 million in The pre-tax profit amounted to NOK 12.2 million, compared to a loss of NOK 5.7 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 14.6 million in 2011, compared to NOK 2.0 million in The improvement in the result was due in part to lower lending losses. Losses on lending amounted to NOK 0.4 million in 2011, compared to NOK 10.4 million in Factoring achieved net operating income of NOK 58.1 million in 2011, which represents an increase of NOK 5.7 million since The business area is noticing pressure on margins both in its lending and factoring operations. Client turnover experienced a good increase of 29.9%. 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 judicial debt collection. Both companies are organised in a sub-group of SpareBank 1 Gruppen AS in which the ownership and management lies in SpareBank 1 Gruppen Finans AS. Portfolio The portfolio business area is involved in the acquisition of portfolios of monetary claims that are then recovered by the Group's debt collection company. The pre-tax profit for 2011 was NOK 3.5 million, compared to NOK 1.7 million in 2010, representing an improvement of NOK 1.9 million. The turnover in 2011 increased by NOK 4.3 million in relation to The portfolio volume increased by 86% and was NOK 1,152 million as of 31 December The book value at year-end 2011 was NOK 78.3 million, which is an increase of NOK 43.8 million from 2010.

10 10 SpareBank 1 Gruppen 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 24.7 million in 2011, compared to NOK 19.5 million in Despite the reduced debt collection fees and slightly lower number of referrals, the company maintained its turnover through one-time income, higher recovery rates and a larger proportion of business referrals. 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 877,000 members. The company works closely with LO and the unions, and delivers the advantage card concept, LOfavør, to members on behalf of the unions and LO. The company has three business areas: membership card administration, the LOfavør advantage card scheme, and systems and subsidiary ledger operations. 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 charge Net profit for the period The pre-tax profit for the year amounted to NOK 12.1 million, compared to NOK 11.1 million for The net profit for the period was NOK 8.5 million, which is NOK 0.5 million better than in SpareBank 1 Gruppen AS In addition to shares in subsidiaries, SpareBank 1 Gruppen AS's assets consist of bank deposits and minor assets. The company had liquidity reserves of NOK 414 million as of 31 December Unused credit facilities accounted for NOK 200 million of this amount. The liquidity reserves increased by around NOK 120 million, compared with while the total equity amounted to NOK 3,172 million. The company had distributable equity amounting to NOK 1,202 million at year-end Capital adequacy in 2011 was 40.0%, compared to 53.7% in The company's core capital adequacy ratio was 35.4% in 2011 and 44.9% in SpareBank 1 Gruppen The Group's cash and cash equivalents increased by NOK million in 2011 to NOK 1,276 million. The increase was due to net cash flows from operating activities and financing activities of NOK 1,048 million and NOK 162,8 million, respectively, exceeding the cash flow of NOK 1,025 million from investing activities. Investing activities in 2011 were mainly financed by operating activities. The largest changes between the operating result and cash flow from operating activities in 2011 were due to an increase in technical insurance provisions of NOK million. Security holdings were reduced by a net NOK 1,006 million to NOK 30,077 million as of 31 December The portfolio of investment properties reduced by a net NOK 36.2 million to NOK 4,154 million. Liabilities arising from the issuance of securities increased by a net NOK million to NOK 1,905 million. The dividend paid to owners amounted to NOK 440 million in SpareBank 1 Gruppen's total equity at year-end 2011 amounted to NOK 4,942 million, compared to NOK 4,628 million at year-end Recognised goodwill in the Group totalled NOK million as of 31 December 2011, compared to NOK million at year-end The Group's capital adequacy ratio was 16.2% as of 31 December 2011, compared to 16.1% in The Group's core capital adequacy ratio was 14.6% as of 31 December 2011, compared to 12.5% as of year-end The annual accounts have been presented on the assumption that the company will continue as a going concern. The Board finds that the prerequisites for such a going concern assumption are met by the financial statements for 2011 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. The equity consists of share capital, a share premium reserve and retained earnings. The share capital in SpareBank 1 Gruppen AS amounted to NOK 1,870 million as of 31 December 2011, DIVIDENDS The Board proposes that SpareBank 1 Gruppen AS distribute a dividend of NOK million for At the same time, a

11 11 NOK million share issue will be carried out aimed at shareholders in order to maintain the company's solvency. RISK FACTORS The operations of SpareBank 1 Gruppen are organised into different business areas through subsidiaries. There are major differences in the risk structure of the individual subsidiaries. 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 presented challenges in a number of areas for SpareBank 1 Gruppen. Given its substantial investment portfolio, the results were negatively affected by weak equity markets and a challenging interest rate market with widening credit spreads. The financial result for 2011 was therefore far lower than the financial result for The results were also affected by SpareBank 1 Markets AS undergoing a substantial strengthening process aimed at securing a position as a leading capital markets unit. The company is now considered well equipped to establish itself as a strong player within the capital markets segment was characterised by high claim ratios for SpareBank 1 Skadeforsikring AS, both due to a large number of large claims in the corporate segment and extra costs due to the development of the subsidiary Unison Forsikring AS. 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 Director 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 should ensure financial stability and sound asset management. This is to be achieved by: A moderate risk profile A strong risk culture characterised by a high level of risk management awareness Striving for an optimum application of capital within the adopted business strategy Exploiting synergy and diversification effects Adequate core capital in accordance with the chosen risk profile Ensuring compliance with all regulatory capital and solvency margin requirements Internal control in the Group is regulated by key mandatory guidelines, but are 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. In addition, the Group also conducts surveys across the group with regard to internal control, Personal Data Act, and security matters. SpareBank 1 Gruppen has outsourced internal auditing to Ernst & Young AS. This has supplied added expertise to the Group. The internal auditing operations also encompass the subsidiaries. Performance of risk management in 2011 As a financial group, SpareBank 1 Gruppen is subject to extensive regulations which are under continuous development. New regulations for calculating capital requirements, Solvency II, are being developed. Even though Solvency II is first expected to come into effect on 1 January 2014, SpareBank 1 Gruppen's goal is to meet all off Solvency II's requirements from 2013 onwards. In the same way as the Basel II regulations have been of major importance for the development of banks' risk management, Solvency II will have as least as large an effect on the calculation of capital requirements, as well as the need to develop new models for managing risk in insurance companies. Substantial work is being done on developing insurance companies in order to improve on new regulations, including participation in regulatory trial projects. The parent company will also be covered by the coming regulations. This has resulted in a need to establish far stronger interaction between the risk environments in the companies. This is necessary to ensure more consistent and uniform risk management. It is also a means of trying to ensure there is better expertise throughout the Group. Risk categories The Group's risk exposure is primarily related to market risk, insurance risk, ownership risk, credit risk and concentration risk, as well as operation risk (including compliance risk), liquidity risk and strategic and commercial risk. Please refer to the financial statements' note 3, financial risk management, for an explanation of the individual 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 VaR model. A corresponding model is used for the follow-up of each individual company. The subsidiaries in the Group manage and also monitor their own risk exposure in accordance with their own models and routines.

12 12 SpareBank 1 Gruppen The value-adjusted return in SpareBank 1 Livsforsikring AS's customer portfolios was 2.5%, while the booked return in the customer portfolios was 5.4%. SpareBank 1 Livsforsikring AS's securities adjustment reserve was reduced from NOK million to NOK million during The supplementary provisions as of 31 December 2011 amounted to NOK million, compared to NOK million at year-end The company made no significant changes to the equity portfolio, but the proportion of equity investments decreased due to a fall in value over the year. The buffer capital in the life insurance company as of 31 December 2011 amounted to 11.0% of the insurance provisions, compared to 14.6% as of 31 December The buffer capital was primarily reduced due to a reduction in the securities adjustment reserve. Despite this, the life insurance company's buffer capital situation is considered satisfactory. is risk associated with the servicing of rental agreements. The risk in this category is also considered to be limited. The credit risk in SpareBank 1 Gruppen Finans AS is related to the factoring activities. Overall the credit risk in this portfolio is considered limited. Concentration risk Both SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS are assumed to have some exposure to concentration risk on the investment side, particularly related to investments in bonds issued by financial institutions. SpareBank 1 Skadeforsikring AS is exposed to a certain level of concentration risk associated with reinsurers. The capital needs for this risk have not been calculated as of 31 December SpareBank 1 Skadeforsikring AS's investment portfolio has a conservative investment profile and achieved a financial return of 2.8% in 2011, compared to 5.0% in At year-end 2011, the company had an equity portfolio of 7.9%. The equity portfolio was 9.4% in The company's fixed income investments have a very short maturity. 12.7% of the company's investment portfolio was placed in property, compared to 13.6% in The market risk in the P&C insurance company is considered medium high. Ownership risk SpareBank 1 Gruppen AS's financial position is regarded as satisfactory overall, given the current risk exposure. Financially, the parent company is deemed to have sufficient financial capacity to support the subsidiaries' adopted strategies. Credit risk The credit risk in SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS is related to investments in money market instruments and bonds. Investments in this area are generally made in high rated papers. The exposure to the so-called PIGS countries is very limited. As of 31 December 2011, the life insurance company's exposure to Spain amounted to 1.2% of the total financial assets in the company and group life portfolios. The exposure is to the Spanish state and Spanish covered bonds. Despite the very turbulent credit markets, SpareBank 1 Gruppen achieved a satisfactory return on its fixed income portfolio and has not experienced credit losses associated with the money market instruments and bonds. Insurance risk Insurance risk is an inherent part of the business of both SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS. Losses in SpareBank 1 Skadeforsikring AS can arise as a result of fluctuations in the year's claims ratio and prior-year losses. SpareBank 1 Livsforsikring AS's insurance risk is mainly associated with risk products without profit sharing. Both SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS 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. The reinsurance also covers cumulative claims and disasters. The risk associated with the reinsurers creditworthiness is placed under credit risk. Insurance risk is deemed to be subject to satisfactory control in both SpareBank 1 Skadeforsikring AS and SpareBank 1 Livsforsikring AS. 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 the holding company 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 The risk related to the other fixed income investments is limited to companies that have a high credit rating. The credit risk in this portion of the portfolio is considered to be low to moderate. 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 In connection with the implementation of the Group's ICAAP calculations, models were put in place for calculating necessary capital needs for operational risk. Reference is made to the Pillar 3 report for a more detailed description of these calculations. All mandatory guidelines in the Group were updated in 2011.

13 13 There is a dedicated compliance function in the Group, which continuously works to ensure compliance with the law, regulations, industry standards and so on, including through following up 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 reports are submitted to the Audit Committee, the board of the parent company, and the various subsidiaries on a quarterly basis. 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 is reduced by the diversification of loans in different markets, funding sources, instruments and maturity periods. The liquidity risk in SpareBank 1 Gruppen in 2011 was primarily linked to the parent company and is judged to be low. A group account scheme was established in 2011, which overall reduces liquidity risk. The larger SpareBank 1-banks work together closely in the area of funding. 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 Director 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. Changes in the regulations Following the spin-off of Bank 1 Oslo Akershus AS, SpareBank 1 Gruppen AS is not duty bound to prepare ICAAP documentation pursuant to the Basel II regulations. Nonetheless, some of SpareBank 1 Gruppen's subsidiaries are duty bound to prepare ICAAP documentation. SpareBank 1 Gruppen prepared ICAAP documentation pursuant to the applicable Basel II regulations in both 2011 and The consequence of this is that the requirements for equivalent reporting in relevant subsidiaries lapses, and that ICAAP documentation is only reported to Finanstilsynet at a Group level. SpareBank 1 Gruppen is regarded as an insurance dominated mixed financial group. The Group will thus, as mentioned, be covered by the future Solvency II regulations. Third Pillar Please refer to the separate Pillar 3 report for a more detailed review of the Group's capital and risk situation. The report is produced in accordance with the requirements stipulated in part 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 1,272 employees and 1,237 full-time equivalents at year-end The corresponding figures for 2010 were 1,195 and 1,162 respectively. SpareBank 1 Gruppen AS had 234 employees and 229 full-time equivalents as of 31 December The number of full-time equivalents in SpareBank 1 Skadeforsikring Group increased by 34, largely due to the claims settlement unit. SpareBank 1 Markets Group increased its full-time equivalents by 22 during Total turnover for the Group was 6.4% in The equivalent figure for 2010 was 9.9%,and was influenced by a major profitability programme. Corrected for statutory early retirement pensions, retirement pensions and disability pensions the Group's turnover for 2011 was 4.9%, compared to 7.6% in HR strategy SpareBank 1 Gruppen's HR strategy is based on the Group's vision and values. The main goal 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 The HR strategy follows the employment cycle of an employee and contains frameworks and guidelines for how SpareBank 1 Gruppen as an employer should administer and develop its most important resources, its employees. The HR strategy contains guidelines intended to help SpareBank 1 Gruppen remain an attractive and inclusive workplace without any form of discrimination. Key elements of SpareBank 1 Gruppen's HR strategy are: the

14 14 SpareBank 1 Gruppen trainee scheme, pay and remuneration, HSE, skills development, career opportunities, life phase policy and equality. Trainee scheme The trainee scheme was introduced in 2006 and has been active ever since. A total of 20 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 eight trainees in 2011 and will recruit a new group of trainees in The purpose of the trainee programme is to recruit future managers and technical specialists who, during a two year trainee period, will acquire wide-ranging expertise in the Group's various business areas. SpareBank 1 Gruppen continued its 'Inclusive Workplace' agreements for the companies in the Group in The sick leave rate in 2011 was 3.8%, which is low compared to the rest of the industry. Training in various HSE disciplines was provided for managers and safety coordinators, respectively, in This was carried out in consultation with the individual working environment committees. One occupational accident and injury was recorded in Damage to buildings was reported in connection with the terrorist attack in Oslo on 22 July The damage largely involved damaged glass in facades. Apart from this, no further damage to the company's buildings was reported in Pay and remuneration Regular analyses are conducted to ensure that the Group offers competitive terms without being a leader. The incentive scheme and profit sharing at the group level and bonus scheme at the company level was continued in The SpareBank 1 Gruppen ethical guidelines specify rules for how the employees and representatives shall give notice if 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. SpareBank 1 Gruppen has implemented changes in the Group's remuneration scheme pursuant to the Ministry of Finance's regulations relating to remuneration schemes in financial institutions, which came into force on 1 January The remuneration policy in SpareBank 1 Gruppen was adopted by the Board. The most important changes in relation to previous remuneration practices are: The measurement period/earnings period for financial bonus criteria has been changed from one year to two years for managers A model for deferred payment has been introduced in which half earned bonuses are given in the form of synthetic equity certificates (a curve of equity certificates) A written report will be prepared each year on how the remuneration scheme in SpareBank 1 Gruppen AS is practised. The report is presented to the Compensation Committee and the company's Board. Working environment and sickness absence The Group s working environment is generally considered to be very good. Annual work 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. The organisation survey is meant to provide a measure of the performance culture in order to support the culture the Group wants to cultivate. SpareBank 1 Gruppen has separate working environment committees in each company. The safety service in the companies works actively, and a Workplace Anti-Alcoholism and Drug Addiction Dependency Committee has also been appointed. Skills development Joint HR and skills work in the alliance is organised via an HR Committee. The mandate of the HR Committee is to develop a shared general HR strategy that includes attracting the right employees and developing employees. SpareBank 1 Gruppen has its own overarching skills strategy. Technical and professional training and other skills-enhancement 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. Similarly, SpareBank 1 Gruppen has a programme for key resources. SpareBank 1 Gruppen also has a mentor programme in which key managers act as mentors for talented employees. Life phase and equality The Group has a life phase committee that, among other things, ensures 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. A life phase policy has been adopted for the Group in which one of the goals is to increase the actual retirement age in the Group. The aim is to reduce the need for recruitment and at the same time take advantage of valuable expertise. Of the Group's employees, 46% were women and 54% were men as of 31 December % of female and 1.4% of male employees work part-time. Two of the nine members of the group

15 15 executive management team are women and three of the nine members of the alliance executive management team are women. The key management groups in the holding company and subsidiaries have 23% female representation. The Group wants to increase the proportion of women in senior positions and has initiated measures to achieve this. There was one woman among the eight members of the Group's Board at the end of the year, while female representation on the subsidiary boards was on average 36%. measures, safeguarding life, health and property, good products for customers, business ethics, environmental impact, credit policy, awareness campaigns and local commitment. 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. 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. As a member of the Norwegian Financial Services Association (FNH), SpareBank 1 Gruppen AS continued to participate in the FUTURA programme in This is a development programme that aims to increase the share of women in the recruitment base for leading 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. 161 new employees were recruited in 2011, of whom 59 were women and 102 were men. The majority of those who were recruited have at least tree years' education after upper secondary school. Most of the new employees are in the age group, but the Group also recruited employees in all age groups in The average age of employees in SpareBank 1 Gruppen was 42.5 in Efforts to promote the Group as an attractive employer with exciting career opportunities and competitive terms will continue in 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. Corporate responsibility is also about fraud and loss prevention SpareBank 1 Gruppen will, for the fourth year in a row, prepare climate accounts based on the total energy consumed by the organisation's daily operations. A process to secure SpareBank 1 Gruppen Eco-Lighthouse certification from 2012 has also started. Eco-Lighthouse certification is a Norwegian, official certification scheme. The scheme is supported and recommended by the Ministry of the Environment. The climate accounts are published on: 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. In 2011, SpareBank 1 Gruppen was the main sponsor of the Norwegian Heart and Lung Patient Organisation's «A hearty welcome» campaign which was aimed at women. The goal of the campaign was to raise women's awareness about heart disease, and raise money for research into heart disease in women. The banks in the SpareBank 1-alliance returned a total of NOK 416 million in 2011 to local communities through sponsorships and donation funds. CHANGES TO THE BOARD AND THE GROUP EXECUTIVE MANAGEMENT TEAM On 26 January 2011, Tor-Arne Solbakken, Vice President of the Norwegian Confederation of Trade Unions (LO), replaced Bente N. Halvorsen as a board member. Terje Vareberg retired from the Board at the same time. Arne Austreid, CEO of SpareBank 1 SR-Bank from 1 January 2011, was at the same time elected to the Board as the vice chairman. Arne Austreid was elected Chairman of the Board in April He succeeded Hans Olav Karde, CEO of SpareBank 1 Nord-Norge, who had been the chairman since April 2010.

16 16 SpareBank 1 Gruppen OUTLOOK The outlook for the Norwegian economy was uncertain at the start of Nonetheless, there is reason to believe that 2012 will also be a relatively good year for Norway with continued low unemployment, low interest rates and low price inflation. Therefore, the macroeconomic conditions for profitable growth should be relatively good in On the other hand, volatile financial markets are resulting in uncertainty about financial results, which constitute a significant portion of value creation in SpareBank 1 Gruppen. SpareBank 1 Markets AS is undergoing a building up process. The Board is expecting a substantial improvement in the result in Its competitiveness after the phasing in of new resources indicates that the company will start 2012 at full market power. The market situation is excepted to remain challenging in the short-term, but it is assumed that the level of activity will gradually increase in The Board believes the conditions are now right for SpareBank 1 Markets AS to establish itself as a leading capital markets unit in Norway, which is regarded as strategically important for the SpareBank 1-alliance. The Group will continue its work on cooperation right across the companies to extract efficiency gains within costs, income and skills in The breadth of SpareBank 1 Gruppen's product range, combined with its partnership with the Norwegian Confederation of Trade Unions (LO) and the SpareBank 1-banks' distribution network, means the Board believes that SpareBank 1 Gruppen is well positioned to increase its volume of business within life insurance. Defined benefit pensions and paid-up policies currently face challenging regulations. These products have high annual guaranteed returns and will thus be capital-demanding pursuant to the Solvency II regulations. The authorities are working on changes to the regulations that could potentially result in better profitability and reduced capital requirements. The Board believes the outlook for 2012 is also good for profitable growth within P&C insurance. SpareBank 1 Skadeforsikring Group is systematically working on various measures aimed at improving both the claims ratio and the cost ratio, and these are expected to have a positive effect on the P&C insurance group's combined ratio going forward. In the opinion of the Board, SpareBank 1 Gruppen will be able to cope well with continued volatility in the financial markets in 2012 as well. SpareBank 1 Gruppen is exposed to the securities market through its various subsidiaries, and the development of equity prices and interest rates have a major effect on the Group's earnings. Given a normal return in the securities market, the Board expects a substantially improved result in In the opinion of the Board, SpareBank 1 Gruppen is well capitalised and in a good position to satisfy the new, stricter capital requirements due to the introduction of the Solvency II regulations. A WORD OF GRATITUDE The employees displayed great drive in 2011, which was a demanding year for many of the business areas. Collaboration with the employee organisations has been close and productive. The Board would like to thank all of SpareBank 1 Gruppen's employees for their contributions in Oslo, 16 March 2012 Arne Austereid Hans Olav Karde Bjørn Engaas CHAIRMAN OF THE BOARD Finn Haugan 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 2011 SpareBank 1 Gruppen

18 18 SpareBank 1 Gruppen SPAREBANK 1 GRUPPEN INCOME STATEMENT Parent company Group NOK 1,000 Note Gross insurance premium income reinsurers' share Net insurance premium income Interest income Interest expense Net interest income Commissions Commission costs Net commissions Net income from financial instruments at fair value through the 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 Securities adjustment reserve for life insurance Transferred to policyholders - life insurance Allocation to supplementary provisions Net loan loss provisions Operating costs 12, Depreciation and amortisation 14, 15, Other costs Total costs Operating result Share of profit of associated companies and joint - - ventures accounted for by the equity method Pre-tax profit Tax charge Net profit for the year Allocation of profit for the year: Shareholders of the parent company Minority interests SPAREBANK 1 GRUPPEN STATEMENT OF COMPREHENSIVE INCOME Consolidated income statement, costs and value changes Parent company Group NOK 1,000 Note Profit for the year Actuarial gains/losses on pensions Revaluation of properties Adjustment of insurance liabilities Change in available for sale financial assets 20, Translation differences Taxes Total comprehensive income for the year Shareholders' of the parent company Minority interests

19 19 SPAREBANK 1 GRUPPEN CONSOLIDATET BALANCE SHEET Parent company Group NOK 1,000 Note ) ASSETS Deferred tax asset Goodwill 5, Other intangible assets Investments in subsidiaries Investments in associated companies and joint ventures Property, plant and equipment Reinsurance receivables Other assets 19, Investment properties Bonds held to maturity 20, 25, 26, Bonds at amortised cost 20, 25, 26, Securities available for sale 20, 21, 24, Lending to customers and deposits with financial institutions 20, 26, 28, 31, Securities at fair value 20, 21, 22, Financial derivatives 20, 21, 23, Insurance receivables from policyholders Cash and cash equivalents 20, 26, TOTAL ASSETS EQUITY AND LIABILITIES Shareholders equity Retained earnings Other equity - not recognised in the profit and loss account Minority interests Total equity Subordinated loan capital and hybrid tier 1 capital 20, 32, 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 20, 21, 32, Liabilities related to reinsurance Financial derivatives 20, 21, Other liabilities Deposits from and liabilities to customers and financial institutions20, 32, TOTAL EQUITY AND LIABILITIES ) The balance sheet as of has been revised to show comparable figures. A detailed description of the change booked directly against equity can be found in note 2 «Accounting policies», in the section on «Changes in the policies for determining claim provisions». Please also refer to the description of changes in note 54. Oslo, 16 March 2012 Arne Austereid Hans Olav Karde Bjørn Engaas CHAIRMAN OF THE BOARD Finn Haugan 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.

20 20 SpareBank 1 Gruppen CONSOLIDATED STATEMENT OF CASH FLOW Parent company Group NOK 1,000 Note )3) CASH FLOWS FROM OPERATING ACTIVITIES Net profit for the year Share of profit of associated companies and joint - - ventures accounted for by the equity method Depreciation and amortisation 15, Revision and depreciation of investment property values Net loan loss provisions Difference between costs recognised pensions and receipts/payments in pension schemes Increase in reinsurance receivables Reduction in reinsurance receivables Increase in lending to customers Reduction in lending to customers Change in technical insurance provisions 42, Change in accrued expenses and prepaid revenues Increase in deposits from and liabilities to - - customers and financial institutions Reduction in deposits from and liabilities to customers and financial institutions Net cash flow generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Increase in securities at fair value 22, Reduction in securities at fair value 22, Increase in securities at held to maturity Reduction in securities at held to maturity Increase in securities available for sale Reduction in securities available for sale Payment of group contributions 1) Additions intangible assets Reduction/(Increase) investment properties Reduction/(Increase) property, plant and equipment Net cash flow used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES - - Receipts - subordinated loan capital Payments - redemption of subordinated loan capital Receipts - new equity Liquidity effect of demerged Bank 1 Oslo Akershus AS Payments - dividends Increase in securities issued Reduction in securities issued Net cash flow from financing activities Net receipts/payments of cash Cash and cash equivalents as of Cash and cash equivalents as of ) Group contribution payments are recognised as increases in investments in subsidiaries. Group contribution received by SpareBank 1 Gruppen are recognised through profit and loss 2) The balance sheet as of has been revised to show comparable figures. A detailed description of the change booked directly against equity can be found in note 2 «Accounting policies», in the section on «Changes in the policies for determining claim provisions». Other changes are described in note 54. 3) Cash flow for the period ending contains effects linked to sale of Bank 1 Oslo Akershus AS.