Annual Report 2011 Bank 1 Oslo Akershus AS

Transcription

1 Annual Report 2011 Bank 1 Oslo Akershus AS

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3 Annual Report Contents Side 04 Key Figures and Ratios 05 Statement from the Managing Director 06 Company Description 09 Organisation Chart 10 SpareBank 1 Alliance 12 Annual Report 22 Incom Statement 22 Other Comprehensive Income 23 Balance Sheet 24 Statement of Changes in Equity 25 Cash Flow Statement 26 Auditor s Report

4 Annual Report Key figures and ratios for Bank 1 Oslo Akershus group Income statement summary (as a % of average assets) mnok % mnok % mnok % Net interest income Net commission and other income Net return on financial investments Total income Total operating expenses Profit before losses Losses on loans, guarantees Profit before tax Tax expense Profit after tax Profitability Return on equity after tax (%) 1.) 7.3% 13.3% 13.0% Net interest margin (%) 2.) 1.48% 1.62% 1.60% Cost/Income ratio (%) 3.) 77.0% 64.2% 62.3% From the balance sheet (mnok) Outstanding loans (gross) Outstanding loans including transf. SpareBank 1 Boligkreditt (gross) Deposits Deposit coverage 4.) 75.1% 71.3% 69.7% Annual growth in lending, % -0.6% 5.9% 1.3% Annual growth in lending including transf. SpareBank 1 Boligkreditt, % 11.5% 11.1% 11.7% Annual growth in deposits, % 4.6% 8.4% -8.4% Average assets Total assets Total assets including transf. SpareBank 1 Boligkreditt Losses and defaults Loss ratio (Loan losses as % of gross loans) 0.24% 0.38% 0.59% Non-performing loans as % of gross loans 1.00% 2.32% 1.99% Other impaired loans as % of gross loans 0.45% 0.29% 0.11% Solvency Capital adequacy ratio 5.) 13.3% 13.5% 11.6% 6.) Core capital ratio 10.9% 10.9% 8.6% Core capital Net capital Offices and Staffing No. of bank branches No. of real estate agents Total no. Of person-years worked ) Profit after tax in relation to average equity 2.) Total net interest income as a % of average total assets 3.) Total costs relative to total net income 4.) Deposits from customers as a % of gross loans (excluding SB1 Boligkreditt) 5.) Net capital as a % of calculated risk-weighted assets 6.) The core capital as a % of calculated risk-weighted assets

5 Annual Report Statement from the Managing Director During 2011 the bank launched a number of new solutions for tablet PCs and smart phones in order to establish a digital presence for our customers. On the corporate side, we now distinguish to a greater extent between loans according to size, where the larger loans focus on customised solutions, while smaller loans focus on more efficient customer management. Bank 1 Oslo Akershus and EiendomsMegler 1 Oslo Akershus have increased their market shares in 2011 in a demanding market. In 2011 the Group had a total growth in loans to retail and corporate customers of 11.5%, including housing loans transferred to SB1 Boligkreditt. The growth was 14.2% in the retail market and 3.1% in the corporate market. General credit growth among households, according to figures released by Statistics Norway, was 7.3% in EiendomsMegler 1 Oslo Akershus has increased its market share from 9.0% in 2010 to 9.5% at year-end During 2011, the bank has established two new local branches, and two new real estate broker offices. These are the last offices for the time being in the comprehensive programme of expansion that the bank and real estate brokerage business has carried out the over the last few years, with the main emphasis on presence near where customers work and live. Further expansion will be considered in relation to the commercial opportunities in the individuat parts of our market area. The expansion period has led to a higher level of costs and the bank will focus in the future on developing profitability in the new local banks, as to constantly implement improvement measures in the rest of the company. Our customers must have a good experience in their meeting with the bank, independently of which channel they choose to contact us. This is vital for the continued success of the bank. Based on this, we are investing considerable resources in achieving continual improvement throughout the organisation. Development of expertise for individual employees is a very important part of this work. The measures employed by the bank include preparation and certification in accordance with the Authorisation scheme for financial consultants, which forms an important part of training for all employees who provide our customers with consultancy services. The bank pays continual and great attention to conditions in the Trades Union movement, and each local branch has its own employees with special training within LO-preferential products, and who are also well-informed about other aspects of LO and our relationship with organised labour. There is still significant uncertainty in international finance markets at the beginning of This has a negative impact on banks access to, and costs of, funding and is expected the general financial trends during the year to come. Most of the Group s activity is in Norway and it has, for the moment, not been particularly affected by the debt crisis in Europe. A high and increasing deposit to loan ration, satisfactory cash holdings and good financial strength, together with our highly skilled employees provide an excellent basis from which to continue to expand in our market and to face future challenges.

6 Annual Report Company description The story of Bank 1 Oslo Akershus Bank 1 Oslo Akershus can look back on long traditions. It was established as far back as 1st April The bank was founded by the temperance movement, and its original name was Totalisternes Aktiebank (Teetotallers Mutual Bank). The bank has changed its name several times. Then, in the mid-1920s, the bank s shares were acquired by the labour movement, which had several reasons for owning the bank. One of these reasons was to ensure the availability of strike funds in the event of a general strike, which was at that time a very relevant issue. The bank was then called the Arbeidernes Landsbank [Workers s National Bank] until 1968, when it changed its name to Landsbanken. By that time, the bank had established itself as an ordinary commercial bank, with customers within both the retail and corporate markets. Throughout all of these years the labour movement had been a stable owner and also held significant ownership interests in another company, the insurance company Samvirke Forsikring. In 1996, the decision was made to merge these two companies into VÅR bank and insurance. In 1999, a buyer for the merged company was announced. This buyer was SpareBank 1 Gruppen, which had two main purposes for the acquisition. One was to gain a foothold for distribution of banking services in the Oslo market, and the other was to establish a large life and injury insurance portfolio. The owners had major plans for growth in both retail and corporate banking, and invested great efforts in the development of a sales culture and active marketing. This investment received a relatively large blow when the Finance Credit bankruptcy affected the bank. Bank 1 Oslo Akershus was one of the largest creditors of this company, and lost heavily on the bankruptcy. As time passed, the ambitions for growth returned. In 2005, the decision was made to invest in retail banking growth, including a decisive investment in new local branches. In the course of a 4-year period, the number of local branches increased from 5 to 16, leading to significant growth in the bank s retail segment. This strategy is still being pursued. Ownership structure The SpareBank 1 Alliance was established in 1997 with the purpose of collaborating in, among other things, technology, brand building and sales of off-balance sheet products, such as insurance and funds. In one way, SpareBank 1 has a very different ownership structure from other banking groups. Normally, a head office (preferably in Oslo) owns branches all around Norway. At SpareBank 1, the local banks own the business in Oslo - the SpareBank 1 Gruppen. The figure on page 7 shows how the collaboration and the ownership conditions in SpareBank 1 are organized, including the ownership of Bank 1 Oslo Akershus AS. The SpareBank 1 Alliance consists of five major regional banks and 15 smaller local savings banks. The smaller banks are, within the SpareBank 1 collaboration, organized into a partnership known as SamSpar (Co-operative Savings Banks). Additionally the Norwegian Confederation of Trade Unions (LO) is one of the owners of Bank 1 Oslo Akershus and SpareBank 1 Gruppen. Thus LO s ownership is continued from VÅR banking and insurance. Until 2010, Bank 1 Oslo Akershus was owned by SpareBank 1 Gruppen. From 2010, the bank has been owned directly by the SpareBank 1 banks and LO, with the same distribution of shares as SpareBank 1 Gruppen.

7 Annual Report THE SPAREBANK 1 ALLIANCE IS THE SECOND LARGEST PROVIDER OF FINANCIAL PRODUCTS AND SERVICES IN THE NORWEGIAN MARKET SpareBank 1 SR-Bank (19,5%) SpareBank 1 SMN (19,5%) SpareBank 1 Nord-Norge (19,5%) Sparebanken Hedmark (12%) Samarbeidende Sparebanker (19,5%) LO/ LO-forbund (10%) SpareBank 1 Gruppen AS Bank 1 Oslo Akershus AS SpareBank 1 Markets (97,2%) SpareBank 1 Livsforsikring (100%) ODIN Forvaltning (100%) Alliansesamarbeidet SpareBank 1 Medlemskort (100%) SpareBank 1 Gruppen Finans (100%) SpareBank 1 Skadeforsikring (100%) Collaborates in such central areas as: IT operations Brands Expertise building System development Conecto UNISON Working processes Purchasing (100%) (100%) Centres of excellence Payment - Trondheim Credit Management - Stavanger Training - Tromsø

8 Annual Report Business concept, vision and strategy Business concept Bank 1 Oslo Akershus offers a broad range of financial products and services. The bank acts as a professional consultant and one-stop provider of financial services with a product range that intends to meet customers needs throughout various phases of their lives or their businesses. The bank aims at developing new services and products to meet the needs of existing customers and reach new customer groups in its market. The bank offers products within the areas of finance, savings and investment, payment services, insurance and financial consultancy. Additionally the bank s subsidiary EiendomsMegler 1 offers real estate services. Bank 1 Oslo Akershus AS operates under the SpareBank 1 Oslo Akershus brand. Vision The customer experiences sureness, closeness and an easier daily life. Values Close and skilled. Organization SpareBank 1 Oslo Akershus Akershus divided into the business areas of the Retail Banking, Corporate Banking, and Trade Unions & Organizations, as well as support and control functions. The reason that trade unions are organized as a separate business area is that this segment is an important customer base thanks to their significant deposits. Owing to the considerable number of union members, the labour movement is also a strategic partner, to whom SpareBank 1 offers favourable services within bank and insurance services. Retail Banking is by far the bank s largest area and employs around 199 of the bank s 285 full-time workers. The bank s local branches are organized in four regions. Within Retail Banking the bank has a customer centre and a private banking operation, as well as product support, marketing and training functions. Corporate Banking is divided into two major customer teams, a business centre, an insurance department, a fx and fixed interest markets operation, a cash management team and support functions. In addition, the bank has a significant real estate agency presence in Oslo and Akershus. EiendomsMegler 1 Oslo Akershus is a wholly-owned subsidiary of the bank. The real estate agent has 23 offices in Oslo and Akershus. Market and product The bank s market area are the counties of Oslo and Akershus. This is the area in Norway that shows strongest growth and development. The population of most of the municipalities in the market area is increasing rapidly with subsequent new business growth. It is also a market that has considerable purchasing power. At the same time, competition in this market is fierce. Most of our competitors have their head offices in Oslo and are working very hard to maintain and develop their customer base. The population of the bank s market area are also among the first to adopt new technology, and competition from online and direct line banks is stronger here than in the rest of Norway. The bank s product range has been changed and developed significantly over the last few years. A considerable number of insurance products, savings products (off the bank s balance sheet), security products, brokerage services and credit card products have been added, and are playing an ever more important role in a market where earnings from traditional bank products are under pressure. Product distribution is also changing strongly. Cash handling and daily banking services are, to an increasing extent, in the course of being distributed as self-service solutions, and focus is directed on giving educated advice. On the business side, we differentiate between major and minor involvements, in which we focus on tailor-made solutions for the major involvements and more efficient customer management for the minor involvements.

9 Annual Report Bank 1 Oslo Akershus AS CEO Torbjørn Vik Risk management and compliance Gudrun Michelsen Business support/cfo Geir-Egil Bolstad Legal Affairs Marianne Uppman Retail Banking Kåre Johan Osen Corporate Banking Monica Mathisen Trade unions and organizations Ottar Karbøl

10 Annual Report The SpareBank 1 Alliance The SpareBank 1 Alliance consist of a total of 15 independent banks, SpareBank 1 Gruppen AS with its subsidiaries, Bank 1 Oslo Akershus AS and BN Bank. The independent banks in the alliance are: SpareBank 1 SR-Bank SpareBank 1 SMN SpareBank 1 Nord-Norge Sparebanken Hedmark Samarbeidende Sparebanker (SamSpar) SamSpar is a merger 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 The alliance is a banking and product collaboration. In total, the alliance is one of the largest providers of financial products and services on the Norwegian market. The banks in the SpareBank 1 Alliance distribute the SpareBank 1 Gruppen group s products and collaborates in such central areas as brands, working processes, expertise building, IT operations, system development and purchasing. The alliance has entered into strategic partnership agreements with the Norwegian Federation of Trades Unions [LO] and its unions. An overarching goal for the SpareBank 1 Alliance is to ensure the independence of the individual banks, and regional presence through strong competitive ability, profitability and financial strength. At the same time, the SpareBank 1 Alliance represents a competitive full banking alternative at a national level. In order 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. The market strategic platform also forms the basis for common products and concept development. The marketing efforts of the alliance are mainly directed at the retail market, small and medium-sized companies and unions affiliated to LO. The company, Alliansesamarbeidet SpareBank 1 DA forms the administrative superstructure of the alliance partnership. The company is responsible for financing and ownership of applications, concepts, contracts and brands on behalf of the participants in the alliance partnership. The company 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%) The main functions of SpareBank 1 Gruppen within the SpareBank 1 Alliance are two-fold: To operate and develop the finance group using production and delivery of competitive products and services for distribution among the alliance banks, other banks that have a distribution agreement with companies in the SpareBank 1 Gruppen group and LO. This work is organised in the company SpareBank 1 Gruppen AS. Operate and develop the alliance partnership with common administration, development and implementation of activities that give economies of scale and spread of expertise. This work is organised in the company Alliansesamarbeidet SpareBank 1 DA. The SpareBank 1 Gruppen AS group is owned by: SpareBank 1 SR-Bank (19.5%) SpareBank 1 Nord-Norge (19.5%) SpareBank 1 SMN (19.5%) Samarbeidende Sparebanker AS (19.5%) Sparebanken Hedmark (12%) and LO/unions associated with LO (10%), that are not part of the alliance.

11 Annual Report SpareBank 1 Gruppen AS is the parent company of the group that consists of: SpareBank 1 Skadeforsikring AS (100%) which owns 100% of the shares in Unison Forsikring AS SpareBank 1 Livsforsikring AS (100%) ODIN Forvaltning AS (100%) SpareBank 1 Medlemskort AS (100%) SpareBank 1 Gruppen Finans AS (100%) which owns 100% of the shares in Conecto AS SpareBank 1 Markets AS (97.2%) The product companies established under SpareBank 1 Gruppen AS and the alliance banks have developed a common technology platform. Experience exchange and transfer of expertise within the alliance, based on best practice, are an important element in further development of the alliance. As part of these efforts, centres of excellence have been established in Stavanger, Trondheim and Tromsø for Credit Management, Payment and Training, respectively. SpareBank 1 Nord-Norge SparBank 1 SMN SpareBank 1 SR-Bank Samarbeidende Sparebanker SpareBank 1 Oslo og Akershus Sparebanken Hedmark At the end of the year, the SpareBank 1 Alliance consisted of the following banks: SpareBank 1 Nord-Norge SpareBank 1 Midt-Norge SpareBank 1 SR-Bank Sparebanken Hedmark SpareBank 1 Buskerud-Vestfold SpareBank 1 Ringerike Hadeland SpareBank 1 Nord-Norge SpareBank 1 SMN SpareBank 1 Hallingdal SpareBank 1 Gudbrandsdal 1 SR-Bank SpareBank 1 Nordvest SpareBank 1 Hardanger Samarbeidende Sparebanker SpareBank 1 Lom 1 i og Oslo Skjåk og SpareBank 1 Søre Sunnmøre Akershus SpareBank 1 Nøtterøy-Tønsberg Sparebanken Halden SpareBank Hedmark 1 Modum SpareBank 1 Rygge-Vaaler Sparebank BNbank SpareBank 1 Telemark BNbank Bank 1 Oslo Akershus AS

12 Annual Report Annual Report 2011 Bank 1 Oslo Akershus group Increasing market shares in a demanding market Significant improvement in results and increased market shares for EiendomsMegler 1 Oslo Akershus Establishment of new local branches, real estate offices and self-service solutions Post-tax profit: NOK 103 million (NOK 187 million) Return on equity after tax: 7.3% (13.3%)

13 Annual Report The group s area of activity The corporate accounts consists of Bank 1 Oslo Akershus AS, and its subsidiaries EiendomsMegler 1 Oslo Akershus AS and Invest 1, 3, 4 and 5 AS. Invest 1 was created in the 3 quarter of 2010, with the purpose of owning and operating the Pellestova hotel at Hafjell until it can be sold, following the bankruptcy of Pellestova Eiendom AS. Invest 3, 4 and 5 have recently been established with the intention of preparing property for sale in connection with a major project that was defaulted upon. The bank has a 6.12 % ownership share in the SpareBank 1 Alliance s co-owned covered bonds company SpareBank 1 Boligkreditt AS (SB1 Boligkreditt). As at 31 December 2011, the bank had transferred housing loans of NOK 8.0 billion to SB1 Boligkreditt. Bank 1 Oslo Akershus AS has around 60,000 active bank customers. This means that a large customer group receives financial follow-up through personal counselling and other activities. The bank has intensified its activity of authorising consultants, and at year-end employed 80 authorised consultants. Increased knowledge helps the bank to undertake an ever more important role as consultant within matters of private finance. Earnings trend Bank 1 Oslo Akershus AS has its head office in Oslo and has a total of 18 local branches, nine of which are located in Oslo and nine are in Akershus. The Group aims to be a full-service provider of financial products and services in Oslo and Akershus. In addition to loans, this incorporates deposits and payment services, and most savings and insurance products. The group also acts as a real estate broker. The comprehensive range of products and services is delivered by the bank and its subsidiaries and by the companies in SpareBank 1 Gruppen AS. NOK million Operating profit before losses Operating profit before tax The Group has a multi-channel strategy for distribution of its products and services in person through the local branches, through a customer telephone call centre, and employing Internet and mobile phone applications. The group s performance In 2011, the group reported a total growth in lending to the retail and corporate markets of 11.5%. This includes housing loans transferred to SB1 Boligkreditt. The growth was 14.2% in the retail market and 3.1% in the corporate market. General credit growth among households, according to figures released by Statistics Norway, was 7.3%. The bank is therefore growing more than the market average and is increasing its market share in Oslo and Akershus. EiendomsMegler 1 Oslo Akershus has increased its market share from 9.0% in 2010 to 9.5% at year-end The most important customer groups for the bank are the retail market, the corporate market (small and medium-sized businesses), and organizations (primarily the trades union movement). The bank s strategy calls for a strong physical presence in the areas where the bank is represented, with a special focus on broad-based counselling for the retail market and corporate markets. In 2011, the group reported an operating profit before losses of NOK 187 million, a decrease of NOK 118 million compared with The pre-tax operating profit was NOK 134 million (NOK 222 million). Net interest income NOK million Net interest income in NOK million Net interest income as % of average total assets SB1 Boligkreditt 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%

14 Annual Report Net interest income totalled NOK 405 million in 2011, NOK 17 million lower than in Pressure on the bank s net interest margin continued in 2011 and there has been a significant weakening of the loan margins throughout the year, while margins on deposits have shown a slight improvement. Net interest as a percentage of average total assets was 1.48% in 2011, down from 1.62% in As at 31 December 2011, the bank had transferred housing loans of NOK 8 billion to SB1 Boligkreditt AS. The income from these loans has been entered as commission income. In 2011, this commission income amounted to NOK 19 million, after a negative correction of NOK 4 million that resulted in an error in commission calculation for the 2nd half of 2009 and for Net commission and other income The group s net commission and other income rose by 15.6% in 2011, from NOK 324 million in 2010 to NOK 375 million. The increase in income is a result of increased commission income from real estate brokerage, in addition to increased other income that is mainly income from the Invest companies. Net yield on financial investments The group s portfolio of certificates and bonds totalled NOK 3.3 billion at the end of 2011, while its portfolio of shares, participations and other equity interests amounted to NOK 236 million. Net income from financial investment totalled NOK 33 million (NOK 106 million) for The reduction of NOK 73 million is due to lower dividends and price gains on shares in 2011 than in The reason for this is that 2010 contained a total profit/dividend of NOK 103 million, associated with the bank s shareholding in Nets Holding and Nordito Property compared with a positive effect of NOK 6 million in Net price trend s for the bank s bonds amount to a loss of NOK 11 million for 2011, compared with a loss of NOK 5 million in Income from currency and derivatives increased by NOK 9 million, compared with The value regulation of investment property amounted to NOK 19 million in 2011, compared with NOK 0 million in The bank s investment in bonds is mainly part of its liquidity management strategy. NOK million Operating expenses Expenses Expenses as % of average total assets The Group s total operating expenses for 2011 amounted to NOK 626 million (547 million). This represents an increase of NOK 79 million, or 14.5%. The bank is responsible for an increase of NOK 52 million. Reversal of accrued pension commitments from 2010 of NOK 26 million, resulting from new regulations for the AFP (contractual early retirement plan). New local branches at Lambertseter suburb, in the Vika district in central Oslo and in Lørenskog in Akershus contributed to increased costs of NOK 12 million, compared with 2010 Costs associated with collaboration in the SpareBank 1 Alliance have increased by NOK 10 million The Invest companies have had costs of NOK 18 million in 2011, compared with NOK 3 million in The increase is mainly due to the establishment of Invest 3, 4 and 5 in the 1st half of The real estate brokerage has seen a cost increase of NOK 12 million that is mainly due to increased salary costs as a result of the increase in capacity. Relative operating expenses for the group in terms of average total assets were 2.29 % (2.11%). The Group s cost ratio (costs in relation to income) amounted to 77.0% in 2011, compared with 64.2% in % 2.5% 2.4% 2.3% 2.2% 2.1% 2.0% 1.9% 1.8%

15 Annual Report Defaults and losses on loans 700 Balance Sheet % NOK million NOK million % 20.0% 15.0% 10.0% % 0 Period Q Q Q Q Q % Corporate Market Retail Market Total asstes SB1 Boligkreditt In 2011, net losses on loans amounted to NOK 53 million (NOK 83 million). The loss ratio (losses as a percentage of gross loans) amounted to 0.24% in 2011, compared with 0.38% in Defaulted commitments are loans that have been in default for more than 90 days, and other commitments that are not in default but where loan loss provisions have been made (called loss-involved). In 2011, net losses and loss-involved loans amounted to NOK 314 million (NOK 580 million). Measured against the gross loans, this amounted to 1.4% (2.6%). Individual write-downs at year-end of 2011 amounted to NOK 84 million (NOK 192 million). Total assets as at 31 December 2011 amounted to NOK 28.2 billion (NOK 26.9 billion). This represents an increase on 2010 of 4.8%. Commercial capital (total assets including transfers to Boligkreditt) amounted to NOK 36.2 billion (31.7 billion), a growth of 14.3%. The increase is mainly due to increased loans to the retail market, in addition to increases in cash holdings. Lending Growth as a % (including SB1 Boligkreditt) Write-downs on groups of loans at year-end of 2011 amounted to NOK 95 million (NOK 108 million). This amounted to 0.4% of gross loans (0.5%). Of total defaults longer than 90 days of NOK 217 million (NOK 515 million), allocations for losses were made of NOK 49 million (NOK 190 million), equivalent to 22.7% (37.0%). NOK million Other loans with written-down losses amounted to NOK 97 million (65 million), NOK 36 million (NOK 2 million) of which, equivalent to 37% (3.4%) was subject to a loss allocation Tax charge The Group reported a pre-tax profit of NOK 134 million. The tax charge for 2011 are estimated at NOK 32 million, giving an effective tax rate (the tax charge for the period as a percentage of the pre-tax profit) of 23% Retail Market Corporate Market (including trade union movement)

16 Annual Report In the last 12 months, loans to customers increased by NOK 3,096 million, equivalent to 11.5%, to NOK 30.0 billion. Growth is split into NOK 2.9 billion, 14.2% in the retail market and NOK 196 million, 3.1% in the corporate market. Housing loans transferred to SB1 Boligkreditt make up NOK 8.0 billion (NOK 4.7 billion). At year-end 2011, the ratio between the retail and corporate markets was 78/22% (76/24%). There have been no other special changes in the credit risk profile in the overall loan profile over the last year. Deposits As at 31 December 2011, customer deposits amounted to NOK 16.5 billion (NOK 15.8 billion). This represents an increase of NOK 726 million, or 4.6% on 31 December The increase is distributed over NOK 621 million, or 13.4% in the retail market and NOK 105 million, or 0.9% in the corporate market (including the organisation market). As at 31 December 2011, the deposit to loan ratio was 75.1% (71.3%). Liquidity The Group s liquidity situation is considered to be satisfactory in both the long and short terms. The cash flow statement shows a net cash increase of NOK 581 million (NOK -79 million), so that cash holdings at the end of 2011 were NOK 1,481 million (NOK 900 million). The Cash Flow Statement shows a net change in cash from operations of NOK 1.4 billion (NOK 286 million), a net change in cash from investments of NOK -533 million (NOK -106 million) and a net change in cash from financing of NOK -237 million (NOK -259 million). In addition to the previously transferred loans to SB1 Boligkreditt, the bank had on its own books loans worth more than NOK 3.6 billion, that qualify for transfer at year-end. This makes up part of the bank s cash reserves, together with the portfolio of cash interest certificates. At year-end 2011, the portfolio of cash interest certificates amounted to NOK 2.7 billion (NOK 2.8 billion). Capital adequacy and capital requirements Since 2008, Bank 1 Oslo Akershus AS has been permitted by the Financial Supervisory Authority of Norway (Finanstilsynet) to report its capital requirements for credit risk according to internal models, a so-called IRB approval. This IRB approval has resulted in enhanced quality within the bank concerning the development of risk management, credit systems and expertise. The risk management systems are subject to continual improvement, with special emphasis on the registration, measurement and reporting of credit risks. The Financial Supervisory Authority monitors banks holding IRB approvals, to ensure that they comply with the regulations. As a result of the floors in the capital requirement regulations imposed by the supervisory authorities, IRN banks must still calculate regulatory capital requirements according to the previous regulations. The floor means that IRB banks are not permitted to set the capital requirement lower than 80% of the requirement of the previous regulations. At year-end 2011, the Group s capital and core capital adequacy amounted to 13.3% and 10.9%, respectively. Subordinate capital in the Group amounted to NOK 1.9 billion. 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Core capital Supplemental capital In addition to the regulatory capital requirements, the bank has defined the necessary capital adequacy requirements based on its own internally assessed risk profile (ICAAP). The Group employs internal models developed within the SpareBank 1 Alliance for calculating capital adequacy for credit risk. The calculations are supplemented with assessments of capital requirements for concentration risk, impact of diversification, outcome of stress scenarios and expansion plans. The total capital requirements are calculated and reported to the Board each quarter. The Board is of the opinion that the level of the Group s economic capital at the end of 2011 is satisfactory.

17 Annual Report Subsidiaries and co-owned companies In 2011, the EiendomsMegler 1 Group reported a pre-tax result of NOK 10.0 million (NOK -8.5 million). In 2010, the deficit was a result of write-downs worth NOK 9.2 million associated with goodwill and added value from previously acquired companies. The significant improvement in 2011 is mainly due to the positive impact on results from the comprehensive investment and change measures that have been implemented in recent years. In addition, the company has not performed goodwill or added value write-downs in Following the acquisitions, the company has succeeded in increasing its total market share and it appears that this trend will continue in There is an uncertain obligation of around NOK 38 million, plus potential interest, associated with sale of apartments in a development project on Gran Canaria. For further information, please refer to note 37. In 2011, Invest 1 reported a pre-tax result of NOK -4.5 million (NOK -1.3 million). The deficit in 2011 is mainly due to poor bookings at the hotel during much of the year. The Board proposes to make a group contribution of NOK 1 million to Invest 1 AS of NOK 4.6 million. In 2011, Invest 3 reported a pre-tax loss of NOK 2.4 million. The Board proposes making a Group contribution to Invest 3 AS of NOK 2.8 million. In 2011, Invest 4 reported a pre-tax loss of NOK 0.2 million. The Board proposes making a Group contribution to Invest 4 AS of NOK 0.6 million. In 2011, Invest 5 reported a pre-tax loss of NOK 0.2 million. The Board proposes making a Group contribution to Invest 5 AS of NOK 1.0 million. The deficits in 2011 at Invest 3, 4 and 5 are mainly due to the properties not being 100% rented throughout the year. SpareBank 1 Boligkreditt has been created by the banks in the SpareBank 1 Alliance to issue preferential bonds. The banks transfer very secure housing loans that present a low risk to the company. The bank s ownership share is 6.12% and is consolidated into the Group using the equity method. In 2011, this amounted to an item of NOK 1 million, the same as in Allocation of profit In 2011, the parent bank allocated NOK 72 million to other equity. The Board proposes that net dividend should not be paid to shareholders for The dividend is made by paying 100% of the annual profit, after group contributions, to the owners with a simultaneous implementation of a private issue to the same owners so that the net dividend amounts to 0%. The background for this method is the owner banks need to make the value creation in their associated companies transparent by fixing their own dividend. The owner banks company accounts employ the cost method that involves only paying out dividends that can be entered against income, thereby being part of the basis for determining the dividend. Corporate governance Bank 1 Oslo Akershus 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/ unions affiliated with LO (10%). Shares in Bank 1 Oslo Akershus AS are not listed on the stock exchange, but as at 31 December 2011, the company had bonded loans and subordinate loans listed on the Oslo ABM. The company has a concentrated shareholder structure and all of the shareholder groups are represented either directly or indirectly on the Board. In addition, the Board has an independent member elected by the shareholders. The Board of Bank 1 Oslo AS has discussed the Norwegian Code of Practice for Corporate Governance and complies with the guidelines of the code relevant to the company as an unlisted company. Governance of the company is based on Norwegian legislation, the articles of association and internal guidelines, as well as on the strategic goals adopted by the Board of Directors. The Board has established an audit committee that consists of three members of the Bank s Board and the members are appointed to the committee for a period of two years. At least one of the committee s members must possess relevant accounting or auditing expertise. The audit committee inspects, among other things, the draft quarterly and annual accounts before they are discussed by the Board. The committee must also evaluate the company s internal control systems, risk management system and internal audits to ensure that they work satisfactorily, while at the same time ensuring that Bank 1 Oslo Akershus

18 Annual Report has an independent internal and external auditor. The committee meets five times per year prior to Board discussion of the quarterly and annual reports. The Board has established a remuneration committee that consists of three members of the bank s Board and which normally meets twice per year. The committee must remain informed about guidelines and remuneration for the Group s leading employees, and assist the Board in preparing remuneration schemes for the CEO. Bank 1 Oslo Akershus AS is part of the SpareBank 1 Alliance, and an agreement has been entered into between the shareholders that ensures that this remains the case in Risk management and risk conditions The Group manages its risk at an overarching level by applying the Board-adopted policy for risk and capital management. The information contained herein includes the Group s tolerance to risk, a description of risk management processes, and the responsibilities and roles of risk management in the Group. The Group s activities are linked primarily to five risk areas: credit risk, market risk, liquidity risk, operational risk and ownership risk. The Group places great emphasis on identifying and monitoring key risks in such a manner that the bank can seek to achieve its strategic goals while having adequate subordinate capital at all times. The Group expresses and quantifies risk through a calculated, risk adjusted capital requirement. The net risk-adjusted capital requirement increased in 2011 from NOK 1,109 million to NOK 1,084 million, an increase of 6.4%. The following tables show the distribution of risk areas and capital requirement trends over the year: NOK mill Credit risk Market risk Liquidity risk Operational risk Ownership risk Gross risk adjusted capital requirement Diversification effect *) Net risk adjusted capital requirement Credit risk Credit risk represents the main risk for the Group. This is identified as the risk of losses from customers being unable or unwilling to fulfil their obligations to the bank. The bank s credit risk strategy derives from its commercial strategy and includes goals to maintain a low to moderate risk profile. The Board of Directors reviews the credit strategy at least once per annum. The bank s risk classification systems were developed to allow the bank to manage its lending portfolio in line with its credit strategy and to ensure the risk-adjusted return. The bank employs the SpareBank 1 Alliance s jointly developed system solutions for credit approval in both the retail and corporate markets. The system solutions include decision-support tools in the form of models for risk classification, value assessment models for security and models for risk pricing. The credit models comply with the provisions of the Basle II regulations, and classify customers according to probability of default in 11 risk classes. Credit risk associated with individual commitments is continually monitored by means of continuous migration and default reporting, overdraft lists, and close contact with customers. At the portfolio level, credit risk is monitored in the form of periodic measurement and reporting of defined parameters against set limits for these parameters. Significant parameters in this regard are the likelihood of default, expected losses, unexpected losses, and risk-adjusted return. The Bank s credit risk has increased somewhat during 2011 (cf. the above table), mainly as a result of growth in loans. The Board would characterise the bank s credit risk at year-end 2011 as moderate. Market risk Market risk is associated with value change in interest, currency positions and securities. Market risk is managed by setting precise limits for, among other things, investments in certificates and bonds and for all positions in interest and currency markets. The limits are reviewed at least once a year and adopted by the bank s Board of Directors. The bank s exposure in relation to the adopted limits is reported to the Board of Directors every quarter. The bank s market risk exhibits a slight increase in 2011, as a result of the increase in its portfolio of securities, but is well within the set framework. The market risk for the bank as a whole is considered to be low. *) The diversification effect is the effect achieved by the Group being exposed to several types of risk that is not expected to cause maximum unexpected loss at the same time.

19 Annual Report Liquidity risk Liquidity risk is the risk of the bank not being able to refinance its liabilities on maturity. At the same time, liquidity risk involves a price element, defined as the risk that the bank will not manage to obtain financing without substantial additional costs. Despite the turbulence in the financial markets throughout 2011, the Group has had satisfactory liquidity. In relation to the performance indicators for which the Board of Directors has set limits - including the survival period without external injection of capital, the net refinancing need for various maturities, liquidity indicator and results of the bank s stress tests in the area - the liquidity situation at is at the same level as the previous year. All the performance indicators at the beginning of 2012 are well within the limits set by the Board. The liquidity risk is regarded as low. The Norwegian funding market continued a stable high price level from 2010 into the first half of The credit crunch in Europe increased towards the end of the summer, and there was a significant increase in credit supplements. As with other banks, Oslo Akershus AS has, therefore, experience higher prices for its market financing. By the New Year 2012, the issue markets had improved significantly. Credit supplements above Nibor have reduced in pace with improved prospects in Europe. It is, however, important to remember that the current price level is still higher than the level of the debt that must be refinanced in the future. The liquidity risk is calculated in the above table as an added cost in the case of loss of parts of the ordinary deposit portfolio. Operational risk Operational risk includes risk of financial losses due to human or system errors, either internally or externally inflicted on the bank. The following are all elements in operational risk: the risk of loss of reputation; legal risk; and risk due to the lack of expertise, ethics and/or appropriate attitudes among employees. In 2011, further focus was placed on implementing systems for the registration and monitoring of operational losses and other undesired incidents, and the bank continues to focus on further development of effective internal control systems. Guidelines describe how employees shall report significant incidents and circumstances. The Group considers that it has a low operational risk overall, thanks to both preventive and identifying control measures. As at the end of 2011, the risk was calculated at NOK 101 million (NOK 88 million). The increase is due to higher business volumes. Ownership risk The Group calculates ownership risk associated with strategic shareholdings. The larges is associated with the bank s ownership stake in SB1 Boligkreditt, and it is the increase in this ownership share that makes up the increase in ownership risk for Please also refer to note 6 and the bank s Pillar III document for further discussion of the risk conditions. Organisation At year-end 2011, the Group had 406 full-time equivalent positions, 285 of which were employed by the parent bank, 117 were employed by EiendomsMegler 1 and the remaining 4 in Invest 1. Of the parent bank s total number of employees, 47% are women and 53% are men. The company has used various measures to encourage female representation in its management and this now stands at 30%. Three of the seven members of the parent bank s senior management group are women. The Board of the bank has a total of 9 members. 2 of these are women. The current average age of the bank s employees is 43 years old, while the average age of new employees was 35 years old. When engaging new employees, the Group considers the candidates on the background of their formal qualifications and experience. In addition, the bank attaches considerable significance to their personal skills and attitudes. In this way, the Group ensures a neutral assessment and complies with the intentions of anti-discrimination and accessibility legislation. The Group bases its policy on its HR work supporting its commercial strategy. The overriding goal of the HR work is to ensure that the Group: attracts the right employees by focusing on the values close and competent ; Retains the best employees by offering them challenging tasks, constructive communication and reward for good performance Develop its employees through the philosophies of Dynamic management which creates commercial understanding through involvement, giving responsibility in relation to clear goals and follow-up. The Group has an active life phase policy. The life phase policy contains measures to increase the actual retirement age in the bank. This is based on a financial perspective, by reducing the Group s need for recruitment; on an expertise perspective by the Group benefiting longer from valuable expertise; and on a social perspective, by maintaining a rich working environment.

20 Annual Report Annual working environment surveys are carried out throughout the group, with systematic measures incorporated to improve any weak areas emerging from the surveys. The bank has an internal working environment committee that works actively with the bank s safety service. In partnership with SpareBank 1 Gruppen, the bank has established a Workplace Anti- Alcoholism and Drug Addiction Dependency Committee. Managers and employees have been trained in conjunction with the police, aimed at preventive activities in this area. The collaboration with the employees organisations is regarded as being constructive. The bank has entered into an agreement concerning an Inclusive Workplace. Average absence due to illness in 2011 was 3.7 percent, a slight increase from 3.6 percent for No industrial accidents or occupational injuries were reported during the year. The bank has drawn up a remuneration policy that has been approved by the Board in line with the remuneration regulations that came into force on 1 January The remuneration policy identifies leading employees and risk takers, and describes relevant remunerations schemes. The variable salary element for these groups amounts to a maximum of 1.5 monthly salary payments. The bank employs a profitsharing scheme for other employees of up to NOK 50,000 per year. The criteria for the scheme are linked to return on equity, cost trends and growth in deposits and loans, both absolutely and in relation to those achieved by comparable banks. The activities of the Group are not of such a nature as to directly pollute the external environment. The company does not conduct any research and/ or development activities over and above normal business development to promote growth and competitiveness. Going concern assumption The annual financial statements have been presented on the assumption that the company is a going concern. Prospects Following a strong expansion in the local branch network over the last few years, the Group is well positioned for future growth. The expansion has led to a higher level of costs and the Group will focus in the future on developing profitability in the new local banks, as to constantly implement improvement measures in the rest of the Group. Norwegian banks face a significant challenge associated with access to, and prices of, market finance. This is expected to remain in the coming year. Adaptation to new and anticipated regulations for banks and insurance companies will also contribute to increased finance costs for banks. The strong competition in the banking market will make it probable that the pressure on banks interest rate margins will remain. Bank 1 Oslo Akershus AS is constantly working on adaptation of the bank s deposit and loan terms and conditions, based on market trends. There is still significant uncertainty in international finance markets at the beginning of This has a negative impact on banks access to, and costs of, funding and is expected the general financial trends during the year to come. Most of the Group s activity is in Norway and it has, for the moment, not been particularly affected by the debt crisis in Europe. A high and increasing deposit to loan ratio, satisfactory liquidity and good financial strength provide a good starting point from which to meet future challenges. The Board of Directors wishes to thank the group s employees for their efforts in the past year. Oslo, 23rd March 2012 Hans Olav Karde Roar Flåthen Finn Haugan Arne Austreid Arve Bakke Chairman Vice-chairman Tone Bjørnov Bjørn Engaas Richard Heiberg Dordi Formoe Thorbjørn Vik Employee representative Man. Director