Annual Report SpareBank 1 Gruppen

Transcription

1 Annual Report 2013 SpareBank 1 Gruppen

2 Contents Board of Directors' Report 3 Income statement 14 Statement of comprehensive income 16 Balance sheet 17 Consolidated statement of cash flow 19 Statement of changes in equity 20 Notes to the accounts Note 1 General information 21 Note 2 Accounting policies 21 Note 3 Critical accounting estimates and 36 judgements Note 4 Segment information 39 Note 5 Capital adequacy ratio 40 Risk notes Note 6 Financial risk management 41 Note 7 Market risk related to interest rate risk 55 Note 8 Market risk related to currency risk 55 Note 9 Financial derivatives 56 Note 10 Insurance risk in life insurance 57 Note 11 Insurance risk in P&C insurance 67 Note 12 Credit exposure for each internal risk 73 class Note 13 Maximum credit risk exposure, not 74 taking into account pledged security Note 14 Age distribution of overdue but not 75 impaired loans and premium income Note 15 Remaining contractual maturity of 76 financial liabilities Result notes Note 16 Net insurance premium income 77 Note 17 Net commissions 79 Note 18 Gains and losses from financial 79 assets and liabilities Note 19 Net income from investment 80 properties Note 20 Other operating income 81 Note 21 Operating costs 81 Note 22 Salaries and other remuneration of 82 the CEO and executive personnel Note 23 Pensions 84 Note 29 Bonds at amortised cost 97 Note 30 Fair value of securities measured at 98 amortised cost Note 31 Investments in subsidiaries 100 Note 32 Investments in associated companies 101 and joint ventures Note 33 Investment properties 102 Note 34 Property, plant and equipment 105 Note 35 Goodwill 107 Note 36 Other intangible assets 108 Note 37 Reinsurance receivables 109 Note 38 Receivables from policyholders 109 Note 39 Lending to and deposits with 110 customers and financial institutions Note 40 Net loan loss provisions 111 Note 41 Other assets 112 Note 42 Insurance liabilities in life insurance 113 Note 43 Technical provisions in P&C 115 insurance Note 44 Securities issued 117 Note 45 Subordinated loan capital and hybrid 118 tier 1 capital Note 46 Deposits from and liabilities to 118 customers and financial institutions Note 47 Liabilities related to reinsurance 119 Note 48 Other liabilities 119 Other notes Note 49 Changes to Group's structure 120 Note 50 Ownership structure 122 Note 51 Number of employees and full time 123 equivalents Note 52 Material transactions with close 129 associates Note 53 Events after the balance sheet date 129 and legal disputes Note 54 Revised balance sheet for SpareBank Gruppen as of 31 December 2012 Auditor's Report 131 Balance sheet notes Note 24 Taxes 87 Note 25 Classification of financial assets and 89 liabilities Note 26 Measurement hierarchy 91 Note 27 Securities at fair value 95 Note 28 Securities available for sale 97

3 Board of Directors' Report for 2013 SpareBank 1 Gruppen SpareBank 1 Gruppen results and key figures: OPERATIONS IN 2013 Record result for SpareBank 1 Gruppen. Premium growth and good result in SpareBank 1 Forsikring AS. The company has strengthened its buffer capital and finished building up reserves for group defined benefit pensions. Very good result in SpareBank 1 Skadeforsikring AS. This is primarily attributable to the lower claims ratio due to profit prior years and good underlying profitability in important product groups. ODIN Forvaltning AS's result improved due to higher management fees and lower operating costs. Increased turnover and improved result in SpareBank 1 Gruppen Finans AS Loss in Conecto AS due to write-downs and restructuring costs. SpareBank 1 Markets AS was sold to the owner banks and the Norwegian Confederation of Trade Unions (LO) in the third quarter. SpareBank 1 Gruppen AS is a holding company that produces, provides and distributes products within P&C insurance, life insurance, fund management, factoring, debt collection and long-term monitoring via its subsidiaries. SpareBank 1 Gruppen AS's office address is in Tromsø, and the Group's primary market is Norway. In this Board of Directors' Report, SpareBank 1 Gruppen AS refers to the holding company and SpareBank 1 Gruppen refers to the Group. SpareBank 1 Gruppen AS and the Group prepare their financial statements in accordance with the EU approved International Financial Reporting Standards (IFRS). NOK million Share of profit from subsidiaries before tax SpareBank 1 Forsikring AS SpareBank 1 Skadeforsikring Group 1, ODIN Forvaltning AS SpareBank 1 Medlemskort AS SpareBank 1 Gruppen Finans AS Conecto AS Group adjustments Pre-tax profit from the subsidiaries 1, ,104.9 Net operating costs and financial expenses in parent company Goodwill amortisation Pre-tax profit from continued business 1) 1, Tax from continued business Profit from continued business 1, Loss from wound up business 2) Net profit for the year 1, ) For the purposes of comparison, the figures for 2012 exclude SpareBank 1 Markets AS. 2) Includes SpareBank 1 Markets' net profit for the first nine months of 2013 and the write-down of shares in SpareBank 1 Markets AS due to the sale of SpareBank 1 Markets. SpareBank 1 Gruppen reported a pre-tax profit from ordinary operations of NOK 1,659.0 million, compared with NOK ) million in The net profit for the year amounted to NOK 1,096.8 million, compared with NOK million in The result represents an annualised return on equity of 20.3%, compared with 8.7% for SpareBank 1 Gruppen's total assets amounted to NOK 50.6 billion as of 31 December This represents growth of 9.1% since SpareBank 1 Gruppen's capital adequacy ratio as of 31 December 2013 was 19.8%, compared to 14.6% at 3) For the purposes of comparison, the figures for 2012 exclude SpareBank 1 Markets AS.

4 4 the end of the year before. Its core capital adequacy ratio at year-end 2013 was 18.4%, compared with 13.1% the year before. CORPORATE GOVERNANCE SpareBank 1 Gruppen AS's shares are not publicly traded, but as of 31 December 2013 the company did have a bond issue listed on Oslo ABM. The company 1 has a concentrated ownership structure. This is described in note 50. 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 decided 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 2013 annual report. Alliance executive management team In 2013, a decision was made to integrate the operations of SpareBank 1 Gruppen and Alliansesamarbeidet SpareBank 1 DA more closely in order to ensure the combined operations were managed in a uniform manner. A joint executive management team, the alliance executive management team, was established and the boards of SpareBank 1 Gruppen As and Alliansesamarbeidet SpareBank 1 DA hold joint board meetings. Information about remuneration Information about the remuneration of the CEO, alliance executive management team, Board, Supervisory Board and Control Committee is provided in the financial statements' note 22, and information about the auditor's remuneration is provided in note 21. Dividend policy SpareBank 1 Gruppen AS's long-term goal is to pay out 30-50% of its profits, at a consolidated level, as a net dividend to its owners. When determining the net dividend for SpareBank 1 Gruppen AS, the focus is on maintaining satisfactory core and total capital adequacy in relation to planned growth, as well as maintaining a satisfactory overall financial position in relation to internal ICAAP calculations and the Group's liquidity. The target for the core capital ratio, including hybrid tier 1 capital, is a minimum of 11% and for the total capital adequacy ratio it is a minimum of 13%. SpareBank 1 Gruppen should achieve the capital adequacy goals established by the Solvency II regulations by a good margin. The Board's dividend proposal for 2013 emphasises that the Group is deemed sufficiently capitalised in relation to both internal ICAAP calculations and satisfying the expected Solvency II requirements. The size of the dividend is based on the net profit for the year in the holding company, SpareBank 1 Gruppen AS. SpareBank 1 Gruppen AS's net profit for the year amounted to NOK million in BUSINESS AREAS - RESULTS AND KEY FIGURES SpareBank 1 Forsikring AS SpareBank 1 Forsikring AS's focus areas are within defined contribution pensions, group life insurance and individual risk insurance. The company's products are primarily distributed via the banks in the SpareBank 1 Alliance, Norwegian Confederation of Trade Unions (LO) and LO Forbund. Financial performance: NOK million Risk result after technical provisions Administration result Interest result Provisions Remuneration for interest guarantee Total result for supplementary provisions Allocation to supplementary provisions Profit to customers Return on the company's funds Net profit to owner before tax Taxes Net profit to owner after tax

5 5 SpareBank 1 Forsikring AS achieved a good pre-tax profit with improvements in both the risk and the interest results. SpareBank 1 Forsikring AS further strengthened its buffer capital throughout 2013, including by increasing the securities adjustment reserve by NOK million. Prior to the increase in reserves the risk result amounted to NOK million, compared to NOK million for The administration result was negative and slightly poorer than in The decrease was due to the administration result being charged NOK 55.0 million to strengthen administration provisions within paid-up policies. The company achieved an interest result of NOK million, which is NOK million higher than in The increase is primarily attributable to higher realised gains. The company's tax charge was NOK million lower than in This is due to the financial statements in 2012 being charged NOK million as a non-recurring effect of changes in the rules for the tax exemption method. Gross premium income, excluding incoming transferred capital, was NOK 3,860 million, compared with NOK 3,610 million in This corresponds to an increase of 6.9%. The company achieved a value-adjusted return on assets in the group portfolio of 8.1%, while the booked return on assets was 5.7%. The company's average yearly guaranteed interest rate is 3.14%. All new contracts are offered with guaranteed interest of 2.5%. The premium reserve was strengthened by NOK million at year-end 2013 due to higher life expectancy in the insurance portfolio. The reserves for contracts in group defined benefit pensions have been fully built up in accordance with the new mortality table. The level of provisions for paid-up policies as of 31 December 2013 was assessed as 54% of the estimated need to build up reserves. Insurance business area The P&C and life insurance business in SpareBank 1 Gruppen has been gathered, insofar as this was appropriate pursuant to the applicable regulations, under a single management team and in a joint unit, SpareBank 1 Forsikring. This sort of agglomeration of activities enables us to offer more comprehensive services to customers, provide a basis for more efficient processes throughout the entire value chain, strengthen competitiveness and lower costs. SpareBank 1 Skadeforsikring AS has outsourced large parts of its operations to SpareBank 1 Forsikring AS. 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 written premium 5, ,600.4 Net earned premium 4, ,073.1 Accrued claims for own account -2, ,970.9 Insurance-related operating expenses for own account ,012.9 Other insurance-related income/costs Other technical provisions Insurance result Net financial income Other costs Operating result 1, Change in security reserves Pre-tax profit 1, Taxes Net profit for the year SpareBank 1 Skadeforsikring Group achieved a record high pre-tax profit of NOK 1,243.5 million for 2013, compared to NOK million for The improvement in the result is primarily attributable to the recognition of considerable profit prior years as income, reductions in compensation costs due to reduced claims, and lower operating costs. A total of NOK million of profit prior years was recognised as income in The profit prior years is primarily linked to the positive development of previous years' claims provisions for short-tailed sectors. A large proportion of the profit prior years, NOK million, concerns the sale of the marine and Runoff portfolio, group home scheme, or claim years with reinsurance. These gains had no effect on the result.

6 6 SpareBank 1 Skadeforsikring Group's net income from investments amounted to NOK million, compared with NOK million the year before. The financial return was 4.5% in 2013, compared with 5.2% in At year-end 2013, SpareBank 1 Skadeforsikring Group has an investment portfolio of NOK 11.4 billion. The gross claims ratio was reduced by 18.1 percentage points from 2012 to The reduction in gross claims ratio was a result of the implemented process improvement measures, and better risk composition in the portfolios. This resulted in lower compensation payments for the year's claims, and recognition as income of the aforementioned profit prior years. The proportion of large claims was slightly higher than in A number of major natural events occurred in 2013 that resulted in a natural perils result of NOK million, compared with NOK million in Provisions for the natural perils fund were reduced by the same amount as the year's negative natural perils result. Gross operating costs were reduced by NOK 98.4 million from 2012 to 2013, which reduced the cost/income ratio of 1.5 percentage points. NOK 89.1 million in provisions for strengthening security reserves were recognised as costs in SpareBank 1 Skadeforsikring Group's gross combined ratio was 79.0%, which represents an improvement of 19.7 percentage points compared with Development of combined ratio for own account (%): The Group's premium income amounted to NOK 5,473.8 million, equivalent to a reduction of 1.4% compared with The reason for this was a reduction in income from Unison Forsikring AS due to downscaling and implemented profitability measures. Unison Forsikring AS was merged with SpareBank 1 Skadeforsikring AS with accounting effect from 1 January 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 costs Total operating costs Operating result Net financial income Pre-tax profit Taxes Net profit for the year ODIN Forvaltning Group achieved a NOK 71.9 million improvements in its pre-tax profit compared with The improvement in the result was due to a combination of higher average total assets during the year and cost reductions, as well as the result for 2012 containing around NOK 30 million in nonrecurring costs. At year-end 2013, ODIN Forvaltning Group was managing a total of NOK 32.8 billion, NOK 30.1 billion of which was in equity funds. This is an improvement of NOK 8 billion compared with yearend The equity fund market share was up by 0.1% to 8.3%, while the combination fund market share was up by 0.4% to 4.8% at year-end 2013.

7 7 SpareBank 1 Gruppen Finans AS SpareBank 1 Gruppen Finans AS produces, delivers and distributes services within factoring, portfolio acquisition and portfolio management. Financial performance: NOK million Management Factoring Portfolio Pre-tax profit Taxes Net profit for the year SpareBank 1 Gruppen Finans AS can point to a good improvement in the result in both business areas. The improvement in factoring's result was due in part to higher client turnover (9.3%) and a higher lending volume (24.7%). Growth in the portfolio volume of 30% and high receivables resulted in an improved result for the portfolio business as well. The portfolio volume was NOK 2,000 million as of 31 December 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. Financial performance: NOK million Operating income Operating costs Operating result Net financial income Pre-tax profit Taxes Net profit for the year Operations in 2013 were characterised by restructuring and the financial statements being charged a NOK 38.4 million write-down for selfdeveloped software. The company experienced an 11.7% rise in incoming cases, which resulted in total debt collection income of NOK million, compared with NOK million in SpareBank 1 Medlemskort AS SpareBank 1 Medlemskort AS is tasked with operating the joint membership database of the unions affiliated to the Norwegian Confederation of Trade Unions (LO) that is used to administer membership card deliveries, collect premiums for group insurance, and run and administer the LOfavør advantage card scheme for around members. The company works closely with LO and the unions. Financial performance: NOK million Operating income Payroll costs Operating costs Medlemskort Operating costs LOfavør Operating costs Reskontro Total operating costs Operating result Net financial income Pre-tax profit Taxes Net profit for the year Its pre-tax profit amounted to NOK 9.6 million, compared to NOK 10.4 million for The net profit for the year was NOK 6.8 million, which is NOK 0.4 million lower than the year before. The membership base in LO is an important basis for SpareBank 1 Medlemskort AS. The member base is growing slowly. SpareBank 1 Markets AS SpareBank 1 Markets AS was sold to the owner banks and the Norwegian Confederation of Trade Unions (LO) in the third quarter. A consolidated loss of NOK 85.2 million was recognised in connection with the sale. The result in SpareBank 1 Markets for the first nine months and the consolidated loss due to the sale are shown on a separate line as "Loss from wound up business" in the income statement. Please also see note 49.

8 8 SpareBank 1 Gruppen AS In addition to shares in subsidiaries, SpareBank 1 Gruppen AS's assets consist of bank deposits and other minor assets. Bank deposits were NOK 24.3 million as of 31 December 2013, compared with NOK million as of 31 December The equity consists of share capital, a share premium reserve and retained earnings. The share capital in SpareBank 1 Gruppen AS amounted to NOK 1,956 million as of 31 December 2013, while total equity amounted to NOK 3,367 million. The capital adequacy ratio was 46.5%, compared with 37.6% in The company's core capital adequacy ratio was 42.9% in 2013 and 33.8% in SpareBank 1 Gruppen The Group's cash and cash equivalents increased by NOK million in 2013 to NOK 1,203.9 million. The increase was due to net cash flows from financing activities and investing activities of NOK million and NOK 25.6 million, respectively, and cash flow from operating activities of NOK million. The biggest changes between the operating result and cash flow from operating activities for 2013 are attributable to the increase in technical provisions of NOK 3,477 million, increase in deposits from and liabilities to customers and financial institutions of NOK million, and a negative cash flow from securities at fair value of NOK 3,521 million. The dividend paid to owners amounted to NOK million in SpareBank 1 Gruppen's total equity at the end of the year amounted to NOK 5,800 million, compared with NOK 5,304 million at year-end Recognised goodwill in the Group totalled NOK million as of 31 December 2013, compared to NOK million the year before. The annual financial statements have been prepared on the assumption that the Group is a going concern. The Board finds that the prerequisites for such a going concern assumption are met by the financial statements for 2013 and the earnings forecast for Beyond matters mentioned in this report, no circumstances have arisen after the end of the accounting year that would be of material significance to the company's position and results. Dividend The Board proposes that SpareBank 1 Gruppen AS distribute a dividend of NOK million for Risk factors The operations of SpareBank 1 Gruppen are organised into different business areas through subsidiaries. There are major differences in the individual subsidiaries' risk profile. The most important risks 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. Please see note 6 on financial risk management for a more detailed description of the overall risk management and follow up of various types of risk in SpareBank 1 Gruppen. Responsibility for risk management, compliance and control The Group's Board is responsible for the Group's risk management and compliance. The company boards are responsible for their own company's risk management and compliance. Responsibility for the overall risk management within the Group lies with the alliance director for risk management and compliance. 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. The Group's risk management is organised as a matrix with significant cooperation between the parent and subsidiary companies. Risk management is intended to ensure financial stability and sound asset management. This should be achieved by: A moderate risk profile A strong risk culture characterised by a high awareness of risk management Striving for an optimum application of capital within the adopted business strategy Making the most of all synergy and diversification effects Adequate core capital in accordance with the chosen risk profile

9 9 Ensuring compliance with all regulatory capital and solvency margin requirements The risk management function in SpareBank 1 Gruppen AS estimates the Group's risk profile each year. A more comprehensive self-assessment of the Group's total capital requirements is carried out at least once a year. The purpose of the risk calculations is to monitor the Group's risk exposures and assess the Group's future capital requirements in light of the owners' appetite for risk. The risk calculations are also tied to the established liquidity and contingency plans. Internal control in the Group is regulated by key mandatory guidelines, but is primarily defined as a line management responsibility. In accordance with the "Regulations on Risk Management and Internal Control" and the Group's own guidelines, risk factors in the operations are reviewed annually. As part of this process, all units prepare action plans that are reported to the respective company boards. Information from this company-by-company reporting is aggregated and reported to the Group's board. In addition, the Group also conducts surveys across the Group with regard to IT, the Personal Data Act, and security matters. SpareBank 1 Gruppen has outsourced internal auditing to EY AS. This has supplied added expertise to the Group. The internal auditing operations also encompass the subsidiaries. Development of risk management in 2013 In 2013, the focus was particularly on facilitating the Group's risk management in relation to the Solvency II regulations, which will apply from 1 January SpareBank 1 Gruppen has facilitated corporate risk management in The goal is to bring together the Group's risk management resources and strengthen its expertise within risk management. In 2013, SpareBank 1 Gruppen conducted a somewhat limited ORSA reporting process with SpareBank 1 Forsikring AS, SpareBank 1 Skadeforsikring AS and SpareBank 1 Gruppen AS. A corresponding ICAAP reporting process was conducted simultaneously with SpareBank 1 Gruppen Finans AS and ODIN Forvaltning AS. Organisation and working environment at SpareBank 1 Gruppen AS Organisation SpareBank 1 Gruppen AS and its subsidiaries had 1,177 employees and 1,148 full time equivalents as of 31 December The corresponding figures for 2012 were 1,331 and 1,297, respectively. SpareBank 1 Markets AS was sold to its owner banks and the Norwegian Confederation of Trade Unions (LO) in the third quarter. SpareBank 1 Markets AS had 104 employees and full time equivalents. SpareBank 1 Gruppen AS had 287 employees and 282 full time equivalents. The corresponding figures for 2012 were 272 employees and 267 full time equivalents. A total of 114 employees left in Total turnover in 2013 was 9.8%. The corresponding figure for 2012 was 7.0%. Corrected for statutory early retirement pensions, retirement pensions and disability pensions, the Group's turnover was 8.5% in HR strategy SpareBank 1 Gruppen's HR strategy is based on the company's vision and values. The main goal of the HR strategy is to ensure that SpareBank 1 Gruppen: Helps to create value for the banks and customers Attracts the right employees by focusing on the values "experts and close to you" Retains the best employees by giving them responsibilities, feedback and rewarding good performance Develops employees through participation, clear gaols and follow-up Important areas of our HR strategy include: training, career opportunities, remuneration and rewards, a life phase policy, fitness programme (HSE), equal opportunities, and a trainee scheme. The HR strategy contains guidelines intended to help SpareBank 1 Gruppen remain an attractive and inclusive workplace without any form of discrimination. Working environment and sick leave The Group's working environment is considered good. This is confirmed by the annual survey of the Group. The survey is followed up systematic activities in the organisation to remedy any weaknesses identified in the survey.

10 10 The partnership with the unions has been very constructive and made a positive contribution to operations and the results in The company has employees who are organised in LO Finans and the Finance Sector Union of Norway. Each company has its own working environment committee. This ensures an optimum way of identifying challenges in the working environment and establishes a body that has the authority to resolve them. SpareBank 1 Gruppen's AKAN (workplace committee against alcoholism and drug addiction) work is addressed by the individual subsidiary's working environment committee. SpareBank1 Gruppen is an inclusive workplace company and again focused on following up sick leave and prevention work in The target for average sick leave was 3.6%. The result was 3.0%, which was made up of 2.2% who submitted a medical certificate and 0.8% who were self-certified. Doctor certified sick leave is significantly lower in the Group than in the rest of the industry. SpareBank 1 Gruppen's ethical guidelines specify rules for how employees and representatives should report breaches of laws, regulations or the Group's internal rules if they become aware of any. A special reporting routine has also been established. No such cases were reported in Training SpareBank 1 Gruppen AS has a defined, general training strategy. Technical and professional training and other skills development measures are initiated and run primarily in the individual subsidiary. 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. SpareBank 1 Gruppen is continuously striving to improve based on principles such as those in "Lean". A central project group has been established to develop relevant methods and tools for continuous improvement. Life phase and equal opportunities The Group has a life phase and equality committee that is tasked with following up matters such as ensuring compliance with the Gender Equality Act in the organisation. The committee also focuses on how SpareBank 1 Gruppen can be an attractive employer for employees in various life phases. 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 from just over 62 to closer to 67, which is the company's retirement age. Of the Group's employees, 49% are women and 51% are men. 6% of female and 1% of male employees work part-time. 38% of the alliance executive management team are women. 25% of the key management team members in the subsidiaries are women. 31% of all managers are women. 13% of the Board's members are women, while one woman and one man were attending deputies. 42% of the subsidiaries' board members are women. SpareBank 1 Gruppen applies a method of assessing roles and positions in order to ensure it fixes pay levels objectively. Equal pay in relation to work of equal worth is also a topic in annual salary reviews. The main reason that the pay level of men is slightly higher than that of women in the Group is that there are more men in both executive positions and highly technical positions. Attractive employer SpareBank 1 Gruppen is experiencing increasing 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. SpareBank 1 Gruppen recruited 131 new employees in The majority of those who were recruited have completed at least three 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 our employees as of 31 December 2013 was 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. Criteria for suppliers SpareBank 1 Gruppen's purchasing policy states that every purchase agreement that is signed must include an appendix on corporate responsibility (contains

11 11 requirements concerning human rights, employees rights, social matters, the environment, and combating corruption). The standard appendix on corporate responsibility imposes a duty to report on the supplier and states that SpareBank 1 can conduct inspections and audits at the supplier. It also states that the supplier has a duty to monitor subcontractors. Breaches of the corporate responsibility provisions are deemed breaches of contract and may provide grounds for terminating a contract. Human rights SpareBank 1 Gruppen has not drawn up special guidelines for human rights. This area is regarded as being covered by the Group's ethical rules, which describe general principles for how employees and representatives of the Group should conduct themselves and the principles on which decisions should be based in given situations. Employee rights and social conditions SpareBank 1 Gruppen has ensured that employees experience a good balance between work and time off, personal development and various lifestyle activities. The Group has also signed an inclusive workplace agreement with the aim of further enhancing its reputation as a serious, attractive employer. The external environment SpareBank 1 Gruppen has a limited impact on the external environment. The impact it has stems from waste, energy use, travel, transport, material choices, purchasing and water consumption. SpareBank 1 Gruppen prepares climate accounts every year based on the total energy consumed by the Group's daily operations. The climate accounts are published on: SpareBank 1 Gruppen is Eco-Lighthouse certified and thus satisfies all the criteria stipulated by the Eco-Lighthouse Foundation for this type of industry. Combating corruption SpareBank 1 Gruppen has not drawn up special guidelines for combating corruption. The Group's ethical guidelines, which form part of employment contracts, state how employees should act in relation to gifts, customers and hospitality. All new employees must take a special e-course on ethics. The Group also has routines for reporting unacceptable situations and breaches of security. Ethical management SpareBank 1 Gruppen wants to help promote good, ethical attitudes. Within the area of asset management, this is expressed by complying with internationally recognised principles for ethical management. Weight is given to ethical considerations when choosing external asset managers and analysing companies in its own funds. Weight is also given both to exercising good ownership and excluding companies that do not satisfy the Group's ethical standards. Exercising ownership means that the company's managers seek to encourage companies to promote good, ethical attitudes. As far as the exclusion of companies is concerned, the Group follows the same approach as the Government Pension Fund - Global when it comes to which companies and industries should be excluded. Changes to the Board and the alliance executive management team Per Halvorsen, CEO of SpareBank 1 Telemark, was elected Chairman of the Board in April He succeeded Finn Haugan, CEO of SpareBank 1 SMN. Alliansesamarbeidet SpareBank 1 DA and SpareBank 1 Gruppen AS were more closely integrated in 2013, as described in the section on Corporate Governance. The new alliance executive management team consists of Kirsten Idebøen (CEO), Turid Grotmoll and Rune Selmar (product companies), Eivind Gjemdal (IT), Torbjørn Martinsen (Risk Management and Compliance), Tore Haarberg (Market), Iren Rutle (Business Development) and Jarle Haug (Corporate Governance). Outlook High oil prices, a continued high level of activity in the oil sector, low interest rates and low unemployment helped make 2013 a good year for Norway. However, the picture for the Norwegian economy may be changing. Investment in the oil sector has flattened out. Weak growth in the European economy and instability in the financial markets may have a negative effect on the Norwegian economy. This in turn could affect SpareBank 1 Gruppen's financial results, which account for a substantial proportion of the Group's value creation. Despite some growing uncertainty about

12 12 macroeconomic developments, there is reason to believe that 2014 will also provide a basis for profitable growth for SpareBank 1 Gruppen. The SpareBank 1 Alliance is stronger than ever. Both the alliance banks and product areas are doing well against the competition and SpareBank 1 Gruppen achieved a very good result in SpareBank 1 Gruppen will, in close cooperation with the alliance banks, continue its work on strengthening the alliance's position in the market. At the same time, the Group will continue its work on collaboration across the company structures to extract efficiency gains within costs, income and skills. The Board expects the closer integration of SpareBank 1 Gruppen and the services provider Alliansesamarbeidet SpareBank 1 DA will help enable SpareBank 1 to tackle customer and market challenges even faster and more efficiently in the future. ODIN Forvaltning AS's future development depends on developments in the equities markets, the funds' returns, and net new equity fund, combination fund and bond fund subscriptions. The company's primary goal is to provide the funds' unit holders with a better return than the markets the funds invest in and to grow its market shares in a savings and investment market that is expected to grow in coming years. SpareBank 1 Gruppen is exposed to the securities market through its various subsidiaries, and the development of equity prices and interest rates has a major effect on the Group's earnings. Given a normal return in the securities market, the Board expects a good result in 2014 as well. The general public's increased focus on pensions indicates long-term growth in the market for security products and pension savings. The life insurance business's product breadth combined with its collaboration with the Norwegian Confederation of Trade Unions (LO), LO Forbund, and the SpareBank 1 banks' distribution network provide a good starting point for growing business volumes. Close collaboration between SpareBank 1 Forsikring AS and SpareBank 1 Skadeforsikring AS, under common management, will help increase competitiveness by providing opportunities for more cross-sales and an even more comprehensive service for customers. The collaboration will also help make processes more efficient and provide a basis for further rationalisation. The future strategy will focus on profitable growth within the companies' main products. SpareBank 1 is a leader in the sale of individual risk insurance products and the Board expects continued growth in 2014 within this product area. Profitability in the debt collection industry and in Conecto AS is being squeezed. After a demanding year of restructuring, the company expects to improve profitability through growth and targeted efficiency measures in Factoring enjoyed good growth and captured further market shares in The focus going forward will be on continued profitable growth.

13 13 A word of thanks Our colleagues made good contributions in 2013 and our partnership with the unions was close and fruitful. The Board would like to thank all of SpareBank 1 Gruppen's employees for their efforts in Oslo, 12 March 2014 Per Halvorsen Arne Austreid Knut Bekkevold Chairman of the Board Finn Haugan Richard Heiberg Jan-Frode Janson Sally Lund-Andersen Tor-Arne Solbakken Kirsten Idebøen CEO NOTE: This translation from Norwegian has been prepared for information purposes only.

14 Annual Financial Statements SpareBank 1 Gruppen

15 15 SpareBank 1 Gruppen Income Statement Parent company Group NOK 1,000 Note Gross insurance premium income 9,852,712 9,735, reinsurers' share -881, , Net insurance premium income 16 8,970,990 9,103,915 17,822 18,543 Interest income 155, , ,896-98,377 Interest costs -136, ,111-87,073-79,834 Net interest income 18 19,459 13, Commissions 767, , Commission costs -1,069, , Net commissions , ,000 2,002 1,752 Net income from financial instruments at fair value through 18 3,180,742 1,872,905 profit or loss - 28 Net income from securities available for sale Net income from bonds at amortised cost 18 48,959 66, Net income from bonds held to maturity , , Net income from investment properties , ,279 1,013,024 1,055,602 Share of profit and group contribution from subsidiaries 4,769 3, Other operating income , , , ,548 Total net income 12,662,469 11,448, Insurance benefits and claims 9,273,028 8,692, Insurance claims recovered from reinsurers -456, , Securities adjustment reserve for life insurance 393, , Transferred to policyholders - life insurance 7,778 4, Allocation to supplementary provisions 71,027 43, Net loan loss provisions 40 5, ,261 36,483 Operating costs 21, 22 1,450,811 1,582, ,964 38,422 Depreciation and amortisation 34, 35, , , Other costs 51,459 42, ,285 75,472 Total costs 11,003,439 10,493, , ,076 Operating result 1,659, ,140 Share of profit of associated companies and joint - - ventures recognised using the equity method , ,076 Pre-tax profit from ordinary operations 1) 1,658, , , ,588 Taxes , , , ,488 Profit for the year from continued business 1,247, , ,178 - Pre-tax loss from wound up business -176, , Taxes from wound up business 24 25,422 44, ,178 - Loss for the year from wound up business -150, , , ,488 Net profit for the year 1,096, ,374 1) For the purposes of comparison, the figures for 2012 exclude SpareBank 1 Markets AS.

16 16 SpareBank 1 Gruppen - Statement of Comprehensive Income Consolidated income statement, costs and value changes Parent company Group NOK 1,000 Note , ,488 Profit for the year 1,096, ,374 Statement of other operating income costs Items that will not be reclassified to the income statement: -12,572 6,938 Actuarial gains/losses in the pension agreement 23 57,524 12, Revaluation of properties 34 33, Revaluation allocated to insurance customers -28,263-3,520-1,943 Taxes 24-17,269-2,367-9,052 4,995 Total 45,607 10,442 Items that will later be reclassified to the income statement: 31,470 - Change in securities available for sale 31, Translation differences 2 1, ,470 - Total 32, ,419 4,995 Other operating income and costs (after taxes) 78,515 9, , ,483 Total comprehensive income for the year 1,175, ,276

17 17 SpareBank 1 Gruppen Consolidated Balance Sheet Parent company Group NOK 1,000 Note ) ASSETS 111, ,382 Deferred tax asset Goodwill 35, , , Other intangible assets , ,405 5,870,454 6,013,104 Investments in subsidiaries ,147 10,147 Investments in associated companies and joint ventures 32 10,487 10, , ,888 Property, plant and equipment ,730 1,003, Reinsurance receivables 37 1,656,390 1,515, , ,193 Other assets , , Investment properties 33 3,971,498 3,964, Bonds held to maturity 13, 25, 29, 30 4,607,769 4,477, Bonds at amortised cost 13, 25, 29, 30 2,316,208 1,825,434 60,553 21,102 Securities available for sale 13, 25, 26, 28 63,078 24, , ,901 Lending to customers and deposits with financial institutions 13, 14, 25, 30, 39 1,064,263 1,128, Securities at fair value 13, 25, 26, 27 31,598,411 27,969,246 2,097 3,078 Financial derivatives 9, 13, 25, 26 4, , Insurance receivables from policyholders 38 1,596,529 1,611,690 24, ,191 Cash and cash equivalents 13, 25, 30 1,203,902 1,042,420 7,318,438 7,570,985 TOTAL ASSETS 50,560,017 46,350,785 2,400,277 2,400,277 Shareholders' equity 50 2,400,277 2,400, ,331 1,460,265 Retained earnings 3,399,553 2,906, Minority interests - -2,704 3,366,609 3,860,542 Total equity 5,799,830 5,303, , ,544 Subordinated loan capital and hybrid tier 1 capital 15, 25, 30, , , Securities adjustment reserve 983, , Insurance provisions in life insurance 42 27,882,409 24,710, Premium and claims provisions in P&C Insurance 43 9,603,860 9,692,942 87,285 89,358 Net pension liabilities , , Deferred tax liability , , Payable tax ,815 1, , ,818 Securities issued 15, 25, 26, 27, 30, , , Liabilities related to reinsurance , , Financial derivatives 9, 25, , , , ,228 Other liabilities ,443 1,124,475 Deposits from and liabilities to customers and financial 2,678,312 2,301,495 institutions 15, 25, 46 2,644,066 2,284,581 7,318,438 7,570,985 TOTAL EQUITY AND LIABILITIES 50,560,017 46,350,785 1) The balance sheet as of 31 December 2012 has been revised to show comparable figures. A more detailed description of the changes is provided in note 54.

18 18 Oslo, 12 March 2014 Per Halvorsen Arne Austreid Knut Bekkevold Chairman of the Board Finn Haugan Richard Heiberg Jan-Frode Janson Sally Lund-Andersen Tor-Arne Solbakken Kirsten Idebøen CEO NOTE: This translation from Norwegian has been prepared for information purposes only.

19 19 Consolidated statement of cash flow Parent company Group NOK 1,000 Note Cash flows from operating activities 336, ,075 Pre-tax profit from ordinary operations 1,482, , Share of profit from associated companies and joint ventures recognised using the equity method ,964 38,421 Depreciation and amortisation 34, , , Net loan loss provisions 40 5, Revision of investment property values 33 22,134 70, Change in securities at fair value 27 7,203, ,943 87,073 79,834 Net interest income/interest costs 18-19,459-13, , ,562 Interest costs paid -136, ,296 17,822 17,910 Interest income received 155, ,260-8,181-3,126 Difference between cost recognised pensions and receipts/payments in pension schemes 23-33,158-38, Period's paid tax -1, Increase in reinsurance receivables , , ,321 Increase in lending to customers ,721 91,386 - Reduction in lending to customers 39 64, Change in technical provisions 42, 43 3,476,771 3,067, ,817 2,299,649 Increase in deposits from and liabilities to customers and financial institutions ,485 1,518, , ,810 Change in accrued expenses and prepaid revenues -9,234,729 13, Net increase in securities at fair value 9, 27-1,548,245-3,073, Additions of securities held to maturity 29-1,630, , Remuneration from disposal of securities held to maturity , , ,160 2,420,070 Net cash flow generated from operating activities 947, ,023 Cash flows from investing activities -6,018-3,519 Additions of securities available for sale 28-7,070-5, Remuneration from disposal of securities available for sale ,280-1,232,693 Payment of group contributions 1) - - 1,013,030 - Received dividends and groups contributions ,842-15,904 Additions of investments in subsidiaries , Disposal of investments in subsidiaries 148, Additions investment properties 33-6, , Remuneration from disposal of investment properties 33-5, Additions of intangible assets 36-64, ,197-36,675-42,446 Additions of own property, plant and equipment 34-44,752-50, Remuneration from own property, plant and equipment ,735 1,294,462 Net cash flow used in investing activities 25,595-50,617 Cash flows from financing activities - 430,000 Receipts - new equity - 430, , ,933 Payments - dividends -686, , ,105-1,066,201 Reduction in securities issued ,105-1,066, ,802 1,070,134 Net cash flow from financing activities -811,802-1,070, ,906 55,474 Net receipts/payments of cash 161, , , ,717 Cash and cash equivalents as of ,042,420 1,276,149 24, ,191 Cash and cash equivalents as of ,203,901 1,042,420 1) Group contribution payments are recognised as increases in investments in subsidiaries. Group contributions received by SpareBank 1 Gruppen are recognised through profit and loss.

20 20 Statement of changes in equity Group NOK 1,000 Note Share capital Share premium Retained earnings Minority interests Equity as of ,870,400 99,877 2,974,364-2,280 4,942,361 Profit for the year ,417-3, ,374 Year's comprehensive income - - 9,902-9,902 Year's total comprehensive income ,319-3, ,276 Capital increase 86, , ,000 Dividend paid , ,933 Disposals minority interests ,619 2,619 Total transactions with shareholders 86, , ,933 2,619-1,314 Other items booked directly against equity , ,104 Corrections from previous years , ,547 Other items booked directly against equity , ,651 Equity as of ,956, ,877 2,906,097-2,704 5,303,671 Profit for the year - - 1,096,759-1,096,759 Year's comprehensive income ,515-78,515 Year's total comprehensive income - - 1,175,274-1,175,274 Capital reduction Dividend paid , ,696 Disposals minority interests ,704 2,704 - Total transactions with shareholders ,401 2, ,696 Other items booked directly against equity , ,724 Corrections from previous years 1) ,305-14,305 Other items booked directly against equity - - 7,581-7,581 Equity as of ,956, ,877 3,399,553-5,799,830 Total equity Parent company Share Share Retained NOK 1,000 Note capital premium earnings Total equity Equity as of ,870,400 99,877 1,201,714 3,171,992 Profit for the year , ,488 Year's comprehensive income - - 4,995 4,995 Year's total comprehensive income , ,483 Capital increase 86, , ,000 Dividend paid , ,933 Total transactions with shareholders 86, , ,933-3,933 Equity as of ,956, ,877 1,460,265 3,860,542 Profit for the year , ,347 Year's comprehensive income ,052-9,052 Year's total comprehensive income , ,766 Dividend paid , ,696 Total transactions with shareholders , ,696 Equity as of ,956, , ,331 3,366,609 1) Corrections from previous years are primarily associated with differences between allocated and paid group contributions, as well as corrections of taxes in SpareBank 1 Skadeforsikring AS.

21 21 Notes to the financial statements Note 1 - General information As of 31 December 2013, SpareBank 1 Gruppen consisted of the parent company SpareBank 1 Gruppen AS and the wholly owned subsidiaries SpareBank 1 Forsikring AS, SpareBank 1 Skadeforsikring AS, ODIN Forvaltning AS, SpareBank 1 Medlemskort AS, SpareBank 1 Gruppen Finans AS and Conecto AS. Alliansesamarbeidet SpareBank 1 DA is recognised according to the equity method, and the Group's ownership interest is 10%. SpareBank 1 Gruppen AS's registered office is in Tromsø. SpareBank 1 Gruppen AS is a holding company that produces, provides and distributes products within P&C insurance, life insurance, fund management, factoring, debt collection and long-term monitoring via its subsidiaries. The Group's primary market is Norway. The consolidated financial statements were authorised for issue by the Annual General Meeting and Supervisory Board on 9 April The Annual General Meeting is the Group's supreme authority. Note 2 - Accounting policies Statement of compliance The consolidated financial statements and the parent company accounts for 2013 for SpareBank 1 Gruppen have been prepared in accordance with International Financial Reporting Standards (IFRS) and appurtenant interpretations from the International Financial Reporting Interpretations Committee (IFRIC), as adopted by the European Union (EU), as well as the other disclosure obligations stipulated by the Norwegian Accounting Act. The consolidated financial statements have been prepared on a historical cost basis. The discrepancies principally relate to financial derivatives, financial assets and financial liabilities recognised at fair value with value changes through the profit and loss and financial assets classified as available for sale, as well as properties owned for the purpose of earning rental income or appreciating in value that are classified as investment properties and are recorded at fair value in accordance with IAS 40. Preparation of accounts in accordance with IFRS requires the use of estimates. Moreover, management is required to exercise judgement in applying the Group's accounting policies. Areas in which critical judgements and estimates are required, containing high complexity, or areas in which judgements and estimates are material to the consolidated financial statements, are described in note 3. The consolidated financial statements have been presented on the assumption that the company will continue as a going concern. New and revised standards applied by the Group No new or amended IFRS rules or IFRIC interpretations came into effect in 2013 that are deemed to have had a material effect on the Group's annual financial statements.

22 22 IAS 1 Presentation of Financial Statements has been amended with the result that items in comprehensive income must be divided into two groups for the 2013 financial statements: those that will subsequently be reclassified to profit or loss and those that will not. The amendment does not change the items that must be included in comprehensive income. IFRS 7 Financial Instruments has been amended such that disclosures concerning net presentation of assets and liabilities must be provided. IFRS 13 Fair value Measurement defines the term "fair value" in the context of IFRS, provides a consistent description of how fair value is determined in the IFRS and specifies what additional information is to be disclosed when fair value is used. The standard does not expand the scope of recognition at fair value, but provides guidance on the application method where its use is already required or permitted by other IFRSs. The Group measures certain assets and liabilities at fair value. SpareBank 1 Gruppen AS and SpareBank 1 Gruppen have chosen to present comprehensive income items on a line in the statement of changes in equity for the year and the previous year, ref. IAS (d). Standards, revisions and interpretations of current standards that have not come into effect and where the Group has not chosen early adoption The Group has not early adopted any new or revised IFRSs or IFRIC interpretations. IFRS 9 Financial Instruments deals with the classification, measurement and recognition of financial assets and obligations, as well as hedge accounting. IFRS 9 was published in November 2009, October 2010 and November It replaces parts of IAS 39 that deals with equivalent issues. According to IFRS 9, financial assets must be classified into two categories: those that must be measured at fair value and those that must be measured at amortised cost. The measurement category is determined upon the initial recognition of the asset. Classification depends on the unit's business model for managing financial instruments and the attributes of the individual instrument's cash flows. The standard largely continues the requirements of IAS 39 as far as financial liabilities are concerned. The biggest change is that in cases where the fair value option has been adopted for a financial asset, changes in fair value that are due to changes in the unit's own credit risk are recognised in the comprehensive income statement and not in the traditional income statement, unless this results in a situation where the comparison is not achieved ('accounting mismatch'). The Group has still not assessed the full effect of IFRS 9. The Group will also assess the effect of the remaining parts of IFRS 9 once these are completed. IFRS 10 Consolidated Financial Statements is based on the current principle of using the control concept as the key criterion for determining whether a company should be included in the consolidated financial statements. The standard provides additional guidance in assessing whether an entity controls one or more other entities in instances where it is unclear. IFRS 10 means that the Group will have to consolidate some funds (that were not consolidated in 2013), which will result in higher total assets for the Group. In the assessment of the Group, IFRS 10 will have little effect on the consolidated annual financial statements. IFRS 11 Joint Arrangements focuses on the rights and obligations of the parties to the arrangement more than its legal structure. The joint arrangements are divided into two kinds: jointly controlled operational arrangements and joint ventures. Joint operations occur when participants have rights in relation to the assets and are liable for the obligations in the arrangement. A participant in a joint operation recognises its share of assets, liabilities, income and costs. Joint ventures occur when participants have rights in relation to net assets in the arrangement. Such arrangements are recognised using the equity method. The so-called gross method or proportional consolidation is no longer permitted. In the assessment of the Group, IFRS 11 will have little effect on the consolidated annual financial statements. IFRS 12 Disclosure of Interests in Other Entities contains all disclosures for other entities, including joint arrangements, associated companies, structured entities and other companies that cannot be consolidated. IFRS 12 means that the Group will have to provide more extensive disclosures about the Group's interests in other entities. Besides these, there are no other IFRSs or IFRIC interpretations which are not currently in effect and would be expected to have a material effect on the accounts.

23 23 Foreign currency translation Functional currency and presentation currency The accounts for each unit in the Group are measured in the currency used where the unit primarily operates (functional currency). Transactions in foreign currencies are translated into the functional currency using the exchange rate at the time of the transaction. The consolidated financial statements are presented in Norwegian kroner (NOK) which is the parent company's functional currency and the presentation currency of the Group. Foreign companies that are included in the Group and which use a different functional currency are translated into Norwegian kroner using an average exchange rate for the year for the profit and loss account and the prevailing exchange rate on the reporting date for the balance sheet. Any translation differences are reported in the total comprehensive income for the period and are disclosed separately under equity. All figures are presented in NOK thousands unless otherwise specified. Transactions and balance sheet items Transactions in foreign currencies are translated into the functional currency using the exchange rate at the time of the transaction. Realised currency gains and losses on settlements and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss. If the currency position is considered to be a cash flow hedge or regarded as hedging the net investment in a foreign business, the appurtenant gains or losses are reported in the total comprehensive income. Currency gains and losses in conjunction with loans, cash and cash equivalents are presented (net) as interest income or interest expense. Changes in the fair value of bonds and certificates in foreign currencies classified as available for sale are split between the effect of the currency translation of the amortised cost in the foreign currency and other changes in the carrying amount. Currency translation of the amortised cost is recognised in the profit and loss while other changes in the carrying amount are reported in the total comprehensive income. The effects of changes in foreign exchange rates on non-monetary items (both assets and liabilities) are incorporated into the assessment of fair value. Exchange differences on non-monetary items, such as shares at fair value through profit or loss, are recognised in the profit or loss as part of total gains and losses. Exchange differences on shares classified as available for sale are included in changes in value reported in the total comprehensive income. Consolidation Subsidiaries The consolidated financial statements include SpareBank 1 Gruppen AS and all its subsidiaries. Subsidiaries are all the units where SpareBank 1 Gruppen has the power to govern the financial and operating policies of the entity, normally through ownership of more than half the voting rights. Subsidiaries are consolidated from the date at which control is ceded to the Group and unconsolidated when the control is lost. The acquisition method is used when accounting for acquisitions of subsidiaries. Acquisition cost is measured as the fair value of assets transferred as consideration. Identified assets, assumed liabilities and assumed or incurred contingent liabilities are recognised at fair value at the acquisition date, irrespective of any non-controlling interests. Costs of acquisition that exceed the fair value of identifiable net assets in the subsidiary are recognised in the balance sheet as goodwill. If the acquisition cost is less than the fair value of net assets in the subsidiary, the difference is recognised in the profit or loss. Material intragroup transactions, receivables and payables are eliminated. Transactions with non-controlling ownership interests are treated as transactions with third parties. The effect of all transactions with non-controlling owners is reported in equity where there is not a change in control. Such

24 24 transactions will not result in goodwill or gains or losses. When control ceases, the remaining ownership interests are to be measured at fair value, and gains and losses are recognised in the profit or loss. Associated companies Associated firms are firms where companies in SpareBank 1 Gruppen have significant influence, but not control. Significant influence normally exists for investments where the Group has between 20% and 50% of the voting rights. Investments in associated companies are initially recognised at acquisition cost and subsequently measured using the equity method. Investments in associated companies include goodwill identified at the date of acquisition, reduced thereafter by any write-downs. The Group's share of profits or losses in associated companies is recognised in profit or loss and added to the carrying value of the investments, in addition to the share of the total comprehensive income in the associated company and the effect of any errors or policy changes. The Group does not recognise the share of losses if this would cause the carrying value of the investment to become negative. Joint ventures Interests in joint ventures may consist of joint operations, joint venture assets and joint venture activities. Joint control means that SpareBank 1 Gruppen through contractual agreements exercises shared control over economic activity with other participants. Joint ventures are accounted for using the equity method. Investments in subsidiaries and associated companies recorded in the parent company accounts Investments in subsidiaries and associated companies are valued in accordance with the cost method. If there is objective evidence of an impairment loss that is not temporary, the shares are then written down. A previously recognised impairment loss is reversed if the reason for the impairment no longer exists. Segment information Operating segments in the note are reported in the same way as in the Board of Directors' Report and internal reporting to the Board. The Group's business areas are divided into life insurance, general insurance, fund management, debt collection, factoring and other activities. The Group has no secondary segment reporting. This is consistent with internal reporting. The figures in the internal reporting are slightly different to those presented in the segment note. This is due to the fact that some units do no translate their figures for IFRS before they are reported internally. These segments are reported in the note in the same way that they are accounted for under IFRS. Loans and receivables Acquired portfolios Acquired portfolios are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are accounted for at amortised cost using the effective interest method. Trade receivables from factoring Factoring has some trade receivables where it has not taken over the credit risk (risk associated with debtors' inability to service and repay their outstanding loans) only the prepayment that has been paid on receivables that

25 25 have been transferred to the factoring company are recorded on the balance sheet, under "Loans to customers and receivables from credit institutions". Provisions Loss provisions for loans are included under "Net loan loss provisions". Other receivables Other receivables are recognised in the balance sheet at nominal value less provisions for expected losses. Provisions for losses are made on the basis of individual evaluations of each receivable. Securities and derivatives The Group has financial assets in the trading portfolio, voluntarily categorised at fair value through profit or loss, loans and receivables, investments held to maturity and securities available for sale. The principal rule is to classify investments at fair value through profit or loss, either through the trading portfolio or voluntary classification. This corresponds with how the investments are followed up. Certain investments in bonds/certificates are nonetheless classified into loans and receivables or held to maturity. This is undertaken in conjunction with the transaction. Regular purchases and sales of investments are recognised on the trade date, which is the date on which the Group commits to purchase or sell the asset. All financial assets that are not recognised at fair value through profit or loss, are initially recognised at fair value, with the addition of the associated transaction costs. Financial assets that are recognised as financial assets through profit or loss are recognised at fair value upon acquisition and transaction costs are recognised through profit or loss. Investments are removed from the balance sheet when the right to receive cash flows from the investment ceases or when the right has been transferred and the Group has transferred substantially all the risks and rewards incidental to ownership of the asset. Financial assets available for sale and financial assets at fair value through profit or loss are valued at fair value following initial recognition. Investments held to maturity are recognised at amortised cost using the effective interest method. Bonds which the Group intends to hold to maturity, but which for various reasons including not being traded in an active market do not fulfil the criteria for held-to-maturity portfolios under IAS 39, are classified as a separate line item in the balance sheet, bonds at amortised cost. The fair value of listed investments is based on the current bid price. If the market is not active (or if this applies to a security that is not listed), then the Group uses measurement techniques to determine the fair value. These include recently performed transactions at market rates, reference to other instruments that are substantially identical, and the use of discounted cash flow analysis and option models. The techniques emphasise market information wherever possible and only use company-specific information where necessary. Securities and derivatives at fair value through profit or loss Securities and derivatives at fair value through profit or loss are presented under "Securities at fair value" and "Financial derivatives" on the balance sheet, and changes in value are presented under "Net income from financial instruments at fair value through profit or loss" in the ordinary profit or loss. This category has two subcategories: financial assets held for trading, and financial assets that management has classified at fair value through profit or loss. A financial asset is classified in this category if it has been acquired primarily for the purpose of generating a profit from short-term fluctuations in price, or if management elects to classify it in this category when this is permitted by the regulations. Classification of assets at fair value option (FVO) - applies to all financial assets that are acquired unless an alternative classification has been made at the date on which the investment was made. Derivatives that have not been designated as hedging instruments are classified as held for trading.

26 26 Gains or losses from fair value changes of assets classified as "Financial assets at fair value through profit or loss", including dividends, are included in the profit or loss under "Net income from financial instruments at fair value through profit or loss" in the period in which they arise. Securities available for sale Securities available for sale are presented under the line item "Securities available for sale" in the balance sheet, and value changes are shown under "Change in securities available for sale" in the total comprehensive income and any write-downs are included in "Depreciation and amortisation" in the ordinary income statement. Securities available for sale are non-derivative financial assets that have been selected for inclusion in this category or which have not been classified in any other category. Securities which have been classified in this category are also measured at fair value, while changes in value from the initial recognition are reported in the total comprehensive income. Shares classified as available for sale in the Group are not actively traded in the market. Investments held to maturity Investments held to maturity are presented under "Bonds held to maturity" in the balance sheet, gains/losses on sale are shown under "Net income from bonds held to maturity" in the ordinary profit or loss and any write-downs are included in "Depreciation and amortisation" in the ordinary income statement. Investments held to maturity are non-derivative financial assets quoted in an active market, with fixed or determinable payments and a fixed maturity which Group management positively intends to hold until maturity. Such certificates and bonds are measured at amortised cost using the effective interest method. Impairment of financial assets Assets recognised at amortised cost The Group assesses at each balance sheet date whether there is objective evidence that a financial asset, or a group of financial assets, is impaired. Impairment losses on financial assets or a group of financial assets are recognised in profit or loss only if there is objective evidence of an impairment in value as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and this loss event (or events) has an impact on the estimated future cash flows that can be reliably estimated. For acquired portfolios and investments in bonds held to maturity the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If the impairment loss is subsequently reduced, and the reduction can be objectively linked to an event that took place after the impairment loss was recognised, the previously recognised impairment loss is reversed in the income statement. Assets classified as available for sale The Group assesses at each balance sheet date whether there is objective evidence that a financial asset, or a group of financial assets, is impaired. For equity instruments classified as available for sale, a substantial or long-term reduction in the fair value of the instrument below acquisition cost will also be an indication that the value of the asset has become impaired. The Group regards a reduction in value of 20% as being substantial and a reduction in value that has persisted for more than six months as being long-term. If these indications exist, and impairment losses have previously been reported in comprehensive income, the accumulated losses that have been recognised in comprehensive income will be reclassified to the income statement. The amount is measured as the difference between the acquisition cost and the current fair value, less impairment losses previously recognised through profit or loss. Impairment losses recognised in the income statement for an investment in an equity instrument shall not be reversed through profit or loss.

27 27 Derivatives Derivatives consist of currency and interest rate instruments, and instruments connected with structured products. Derivatives are recorded at fair value through profit or loss on the date at which the derivatives are purchased. Subsequent changes in fair value are recorded through profit or loss. Offsetting of financial assets and liabilities A financial asset or liability is offset and its net value presented in the balance sheet when the company a) has a legal netting right and b) intends to settle the net basis and/or realise the asset and settle the liability at the same time. Intangible assets Goodwill Goodwill is the difference between the acquisition cost of a business and the fair value of the Group's share of net identifiable assets in the business at the date of acquisition. Goodwill arising from the acquisition of subsidiaries is classified as an intangible asset. Goodwill is tested annually for impairment, and carried at acquisition cost less a deduction for write-downs. Write-downs of goodwill cannot be reversed. Gains or losses on the sale of a business include the carrying amount of goodwill appurtenant to the business divestiture. In subsequent impairment testing, goodwill is allocated to the cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the combination which gave rise to the goodwill. Development Capitalised development costs include the costs of materials, direct salaries and a proportion of the overheads. Other development costs are expensed to the profit or loss in the period in which they are incurred. Capitalised development costs are recorded at cost less accumulated depreciation and impairment losses. Licences Licences have a limited useful economic life and are recognised on the balance sheet at acquisition cost less accumulated depreciation. Licences are depreciated using the straight line method over their expected useful economic lives. IT software Standard IT software that fulfils the criteria for recognition in the balance sheet is recorded at acquisition cost (including expenses in conjunction with making the programme operative), and is depreciated on a straight-line basis over its expected useful economic life. Software developed in-house is primarily treated according to the same policies as those described for development. Costs for maintaining the software are expensed as they are incurred. Costs directly connected to developing identifiable and unique software that is owned by the Group is recognised in the balance sheet as an intangible asset when the following criteria are fulfilled: it is technically possible to complete the software so that it will be available for use management intends to complete the software and use or sell it it can be demonstrated how the software will generate probable future economic benefits sufficient technical, financial or other resources are available to complete and use or sell the software

28 28 the costs can be reliably measured. Direct costs include personnel costs for software development personnel and a portion of directly attributable overheads. Other development costs that do not fulfil these criteria are expensed as incurred. Development costs that are expensed may not be recognised in the balance sheet as an asset in subsequent periods. The carrying amount of software developed in-house is depreciated on a straight-line basis over its expected useful economic life. Other intangible assets In conjunction with the acquisition of a business an analysis of excess value is undertaken, and intangible assets that are identified are recognised in the Group's balance sheet. The Group has identified excess value linked to brands, customer relationships and software technology. The excess values are calculated using historical data that has been extrapolated, adjusted for uncertainty and subsequently discounted. Customer relationships and software technology are depreciated on a straight-line basis over their useful economic lives. Subsequent costs Subsequent costs relating to the carrying value of intangible assets are capitalised only when they increase the future economic benefits flowing from the asset. All other costs are expensed in the period in which they are incurred. Amortisation Amortisation is calculated and expensed on a straight-line basis over the estimated useful economic life of the intangible asset, unless its lifetime is unlimited. Intangible assets are amortised from the date on which they are available for use. Intangible assets with the exception of goodwill and intangible assets with indefinite lives have estimated lifetimes of between two and ten years. Intangible assets with the exception of goodwill and intangible assets with indefinite lives are subject to impairment testing in accordance with IAS 36 when the circumstances warrant it. Tangible fixed assets The Group's tangible fixed assets consist of machinery, fixtures and fittings, vehicles and buildings used by the Group for its own activities. The Group's own properties that it uses are revalued at fair value every three or five years. The measurement of value is based on an internal measurement model described under investment properties. Other tangible fixed assets are recognised at acquisition cost, less depreciation. Acquisition cost includes costs directly linked to acquiring the fixed asset. Subsequent costs are added to the carrying value of the fixed asset or are recognised separately when it is probable that future economic benefits linked to the cost will flow to the Group, and the costs can be reliably measured. The carrying amount relating to replaced parts is expensed. Other repairs and maintenance costs are recorded through profit or loss in the period in which the costs are incurred. Any increase in the carrying amount due to the revaluation of buildings is recognised in other comprehensive income and as the value adjustment reserve for the property. The revaluation is recognised in other comprehensive income and the revaluation is reduced by the undistributed profits allocated to customers in the group portfolio. Decreases that offset previous fair value increases on the same asset are treated for accounting purposes correspondingly.

29 29 Fixed assets are depreciated on a straight-line basis, with the tangible fixed asset's acquisition cost, or revalued asset value being written down to the residual value over its expected useful economic life, which is: Buildings Machinery, fixtures and fittings, and vehicles 50 years 3-10 years Tangible fixed assets which are depreciated are tested for impairment when there are indications that future earnings can not justify the carrying value of the asset. The difference between the carrying amount and the recoverable value is expensed as an impairment loss. The recoverable value is the higher of an asset's fair value less costs to sell and its value in use. At each reporting date, an assessment is made as to whether there is an indication that previous impairment losses on non-financial assets should be decreased. Investment properties Properties that are leased to tenants outside the Group are classified as investment properties. Investment properties are measured at fair value. Changes in value are reported through profit or loss under the line item "Net income from investment properties". The properties are evaluated individually on the basis of discounted cash flow projections. The required rate of return takes into account interest rates, the general risk in the property market and the specific risk for the individual property. The fair value measurement is updated every six months. Rental income, operating costs and the effect of value changes linked to investment properties are presented separately in notes 19 and 33. Impairment of non-financial assets Intangible assets with indeterminable useful economic lives and goodwill are not amortised, but tested annually for impairment. Tangible fixed assets and intangible assets which are depreciated are tested for impairment when there are indications that future earnings cannot justify the carrying value of the asset. The difference between the carrying amount and the recoverable value is expensed as an impairment loss. The recoverable value is the higher of an asset's fair value less costs to sell and its value in use. When testing for impairment, the fixed assets are placed into the smallest identifiable group of assets that generates cash inflows that are largely independent from the cash inflows from other groups of assets (cash-generating units). At each reporting date, an assessment is made as to whether there is an indication that previous impairment losses on non-financial assets (except goodwill) should be decreased.

30 30 Customer assets Financial instruments and other funds held by the Group but owned by investors (customer assets) are not recognised in the balance sheet. If the customer assets exceed the customer liabilities (customer debt), the overshoot is the property of the Group and is recorded in the balance sheet under the "Other assets" item. If the customer assets do not fully cover the client liability, the shortfall is the Group's debt to the customer and is recorded under "Other liabilities" in the balance sheet. Cash and cash equivalents Cash and cash equivalents include cash and bank deposits, other short-term, highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are presented in the line "Deposits from and liabilities to customers and financial institutions". Taxes payable and deferred taxes The tax cost comprises current and deferred tax. Tax is recognised through profit or loss, except to the extent that it relates to items reported in comprehensive income or recognised directly in equity. In these instances, tax is also reported in comprehensive income or recognised directly in equity. Current tax for the period is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax is accounted for using the liability method. Deferred tax is recognised on all temporary differences between the tax bases of assets and liabilities and their carrying amounts. If deferred tax arises on initial recognition of a liability or an asset in a transaction, which is not a business combination, and at the date of the transaction does not affect either the financial result or the tax result then it is not recorded in the balance sheet. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. When assessing the likelihood, historical earnings and estimated future margins are included in the evaluation. Any gains or losses on realising equities or units will not be taxable due to the tax exemption method, with the exception of the realisation of equities and units linked to group and investment choice portfolios in life insurance. In 2012, a deductible was introduced that would equal this income's proportional share of the profit allocated to life insurance such that the amendment would not effect this part of the equities-related income. No deferred tax has been calculated for the change in value of properties owned by separate companies, except for that part which has been allocated to the groups and investment choice portfolios in life insurance. Realisation of the properties in practice will be through the sale of shares or interests. Any gains or losses on realising equities or units will not be taxable due to the tax exemption method, with the exception of gains or losses linked to group and investment choice portfolios in life insurance. In the opinion of the Group the financial statements provide the fairest representation of the information when the deferred tax is not recognised for these types of value changes that are covered by the tax exemption method. Deferred tax assets and deferred tax shall be set off if there is a legal right to set off deferred tax assets against deferred tax, and deferred tax assets and deferred tax apply to income taxes imposed by the same tax authority for either a taxable firm or different taxable firms that intend to settle tax liabilities and tax assets on a net basis.

31 31 Securities issued The Group has securities issued classified in one of the following categories: financial liabilities recorded at changes in fair value through profit or loss or other financial liabilities recorded at amortised cost. Securities issued are initially recognised at cost, which is the fair value of the received proceeds less transaction costs. After its initial recognition, the Group measures securities issued with a variable rate at amortised cost using an effective interest rate method, while the Group's securities issued with a fixed rate are measured at fair value through profit or loss. Securities issued cease to be recognised from the moment the rights to the contractual terms are redeemed, cancelled or expire. Securities issued at amortised cost Securities issued that are recognised at amortised cost are recognised in the "Securities issued" item in the balance sheet and interest costs from securities issued are recognised in the "Interest costs" item in the ordinary result based on an effective interest rate method. Any differences between the cost and the settlement amount at maturity are accrued over the term of the loan by applying the effective interest rate on the loan. Securities issued at fair value through profit or loss Securities issued at fair value through profit or loss are recognised in the "Securities issued" item in the balance sheet and changes in value are recognised in "Net income from financial instruments at fair value through profit or loss" in the ordinary result. Securities issued are classified in this category if the classification eliminates or significantly reduces measurement inconsistencies that would otherwise have arisen when measuring borrowing and derivatives or when recognising related gains or losses on the basis of various factors. Fair value is based on the current sales price. If the market is not active (or if this applies to a security that is not listed), then the Group uses measurement techniques to determine the fair value. These include recently performed transactions at market rates, reference to other instruments that are substantially identical, and the use of discounted cash flow analysis and option models. The techniques emphasise market information wherever possible and only use company-specific information where necessary. Pensions The Group has both defined contribution pension plans and defined benefit pension schemes. The pension schemes are funded by payments to SpareBank 1 Forsikring AS. A defined contribution plan is a pension scheme in which the Group makes a fixed payment to the insurance company. The Group does not have any legal or other obligation to make additional payments if the insurance company does not have sufficient funds to pay all the employees the benefits that have accrued during current and prior periods. The contributions are accounted for as payroll costs as they fall due for payment. A defined benefit plan is a pension scheme which defines a specified monthly benefit that the employee will receive on retirement. The Group's group defined benefit scheme ensures members a pension that amounts to 70% of final salary (up to 12G) until they are 77 years old with subsequent gradual reductions. Salary payments exceeding 12 G are secured by a defined contribution-based arrangement. The defined benefit scheme was closed to new employees from 1 May 2005 onwards. In addition, there are obligations in conjunction with contractual pensions (AFPs) and certain special agreements relating to early pensioners and supplementary pensions. The old AFP provision contains simply a provision for former employees aged between 65 and 67 years old who are currently AFP pensioners. The old AFP scheme will be fully phased out by The liability recorded in the balance sheet linked to defined benefit schemes is the present value of defined benefits at the balance sheet date less the fair value of pension plan assets. The pension liabilities are calculated annually by an independent actuary using a straight line accrual method.

32 32 The present value of the defined benefits is determined by discounting estimated future payments with a discount rate based on the rate for a bond issued by a company with a high credit rating, the covered bond rate since this market is regarded as deep. The covered bond rate must have almost the same maturity as the related pension liabilities. Use of the corporate bond rate as the discount rate requires the existence of corporate bonds with long maturities and high quality in the same currency, as well as a deep market for such bonds. Market players have asserted that the covered bond market is sufficiently deep and that pricing in the market is reliable. Analyses conducted by market players such as Gabler-Wassum, and our owner banks' analyses, which take into account interest rate swap agreements, support the assertion that a deep and liquid market exists for corporate bonds with a high credit rating, concentrated on covered bonds. The Norwegian covered bond market has become better developed after the financial crisis and has a high credit rating. The companies in SpareBank 1 Gruppen have therefore chosen the covered bond rate as their discount rate for calculating pension liabilities. The remaining average accrual period for members of the defined benefit plan in SpareBank 1 Gruppen has been calculated as around eight years. SpareBank 1 Gruppen uses the new K2013 BE mortality table produced by the actuary firm EIKOS. This table is stronger than K2013, but weaker than the one from the Financial Supervisory Authority of Norway, K2013 FT. Actuarial gains or losses due to new information or changes in the actuarial assumptions are recognised in comprehensive income/equity in the period in which they arise. Changes in the pension plan's benefits are recognised through profit or loss or recognised as income on an ongoing basis in the income statement. A law on state subsidies to employees who take out contractual pensions in the private sector (AFP) came into force on 19 February Employees who take early retirement under the AFP scheme with effect from 2011 or later, will be given benefits under the new scheme. The new AFP scheme constitutes a lifelong entitlement in addition to the National Insurance Scheme and can be taken out from the age of 62. In the new AFP scheme the plan is for the company to pay a total premium based on the annual salary of the employee. The premium is calculated based on a fixed percentage of annual salary between 1 and 7.1 times the average National Insurance Scheme base amount (G). The annual premium rate for 2013 amounts to 2%. Premiums shall not be paid for employees after the year in which they become 61 years old. The accrued entitlements in the new scheme are calculated based on the employee's lifetime income, which includes all prior work years in the basis for the pension entitlement. The new scheme is funded by the Government covering 1/3 of the pension expenses and the employer covering 2/3. Subordinated loans and hybrid tier 1 capital Subordinated loans have a lower priority than all other types of debt. A dated subordinated loan can account for 50% of the core capital in the capital adequacy ratio, while perpetual subordinated loans may account for up to 100% of the core capital. Subordinated loans are classified as a liability on the balance sheet and are measured at amortised cost. Hybrid tier 1 capital is a bond with a nominal interest rate, where SpareBank 1 Gruppen is not under a duty to pay interest during periods when dividends cannot be disbursed, and neither is the investor entitled to interest payments that have not been made, i.e. the interest does not accrue. Hybrid tier 1 capital is approved as a constituent of core capital, up to a limit of 15% of total core capital. The Financial Supervisory Authority of Norway may require that the hybrid tier 1 capital be written down proportionally with equity if SpareBank 1 Gruppen's core capital adequacy falls below 5% or total capital adequacy is under 6%. Write-downs on tier 1 capital must be written up again before any dividend can be paid to shareholders or the equity is written up. Hybrid tier 1 capital is recognised at amortised cost. Insurance provisions - life insurance All the products in SpareBank 1 Forsikring AS are classified as insurance contracts.

33 33 Insurance contracts must be measured in accordance with IFRS 4. The standard does not contain specific measurement principles beyond certain limited conditions. Accounting policies applied by the accounting entity in the preparation of prior financial statements are permitted on the condition that the insurance provisions are sufficient under Norwegian regulations. In order to document this, the company must carry out an adequacy test. SpareBank 1 Forsikring AS carries out such a test annually. This shows that previously applied policies relating to insurance provisions for life insurance may be applied. The technical provisions in life insurance consist of the premium reserve, supplementary provisions, securities adjustment reserve, claims provisions, risk equalisation fund and other technical provisions. The provisions also include the contribution fund, premium fund and pensioner's profit fund. Critical assumptions and changes in technical conditions: The guaranteed rate follows the regulations established by the Financial Supervisory Authority of Norway. From 1 January 2011 the guaranteed rate was 2.5% for new contracts, while the guaranteed rate for newly accrued entitlements for group pensions was 2.5% from 1 January Moreover, new earnings and accrued entitlements follow the maximum permitted guaranteed rate that applied at the time the entitlements were earned. The mortality assumptions are largely based on common surveys in Finance Norway (FNO), while the estimates for disability are mainly based on the company's own experience. The mortality assumptions for people with a disability take into account the correlation between disability and mortality. The Financial Supervisory Authority of Norway has determined that the new mortality table for group pension insurance, K2013, shall apply from In line with the authorities' guidance, the entire risk and health profit was allocated to building up reserves in The reserves for contracts in group defined benefit pensions had been fully built up by year-end The reserve provisions and premiums are established on the basis of a policy that there should be a safety margin in the reserves and the premiums. The safety margins in the premiums and reserves are not quantified, but assessed by considering the levels of uncertainty and the maturities of the liabilities. The ordinary premium reserve in the company is calculated using prospective policies on the same tariff basis as the premium tariff. IBNR and RBNS provisions have been made, using statistical methods based on SpareBank 1 Forsikring AS's own experience. Securities adjustment reserve Provisions for the securities adjustment reserve correspond to the net unrealised excess value of financial assets, with the exception of investments in property, measured at fair value and included in the group portfolio of SpareBank 1 Forsikring AS. The net unrealised value is determined by undertaking a total assessment of the portfolio. Risk equalisation fund The purpose of the fund is to absorb fluctuations in the risk result over time. The provisions are not distributed across the individual insurance contracts and classified as equity. Technical provisions - general insurance Insurance contracts must be measured in accordance with IFRS 4. The standard does not contain specific measurement principles beyond certain limited conditions. The Financial Supervisory Authority of Norway has established minimum requirements for the various types of provisions, and provisions have been made for unearned premiums, claim provisions, security provisions and reinsurance provisions. The minimum requirements for premium provisions and claim provisions have also been met for each industry, and for security provisions in each industry group.

34 34 Claim provisions include the expected indirect costs of claims handling (ULAE) that have occurred on a certain date but have not yet been settled (IBNS losses). Natural perils provisions and guarantee provisions are not regarded as technical provisions under IFRS 4. These provisions are disclosed under retained earnings. The reinsured's portion of technical provisions is presented as a receivable in the consolidated financial statements under IFRS. Provisions The Group recognises a provision for restructuring and legal claims when there is a present legal or constructive obligation that has arisen as a result of a past event, payment is probable and the amount can be estimated with sufficient reliability. Provisions for restructuring costs include termination benefits for employees. No provisions are made for operating losses. Provisions are assessed at each balance sheet date and adjusted to reflect the latest best estimates. In instances where there are several liabilities of the same type, the likelihood that the liabilities will be settled is determined by evaluating such liabilities as a whole. Therefore a provision is made even though the likelihood of a settlement associated with certain individual circumstances may be low. Provisions are measured at the discounted present value of the expected stream of payments to fulfil the obligation. An estimated risk-free interest rate is used as the discount rate before tax which reflects the current market situation and the specific risk linked to the liability. Termination benefits Termination benefits are paid when employment is terminated by the Group prior to the normal date of retirement or when an employee accepts voluntary retirement in return for these benefits. The Group recognises termination benefits when it has demonstrably committed to either terminate the employment of current employees in accordance with a formal, detailed plan which the Group is irrevocably committed to, or to provide termination benefits as a result of an offer that was made to encourage early retirement. Termination benefits which are due more than 12 months after the balance sheet date are discounted to their net present value. Trade payables and other current liabilities Trade payables are measured at fair value upon initial recognition. Subsequent measurements of trade payables are made at amortised cost, determined using the effective interest method. Deposits from and liabilities to customers and financial institutions Deposits from and liabilities to customers and financial institutions are largely valued at amortised cost. Interest income and interest costs Interest income and interest costs linked to assets and liabilities measured at amortised cost are recognised through profit or loss on an ongoing basis based on the effective interest method. For deposits from customers and financial institutions and liabilities to financial institutions carried at fair value, the interest portion is expensed as interest cost (nominal rate), while other value changes are classified as income from financial instruments at fair value through profit or loss. All fees in conjunction with interest-bearing deposits and loans are included in the calculation of effective interest rates and are thus amortised over the expected maturities.

35 35 Commissions and commission costs Commissions and commission costs are generally recognised on an accrual basis as the services are provided. Fees in conjunction with interest-bearing instruments are not recorded as commissions, but are included in calculating the effective interest rate and recognised through profit or loss accordingly. Advisory/consultancy fees are accrued in accordance with the signed agreement, typically at the time the service is delivered. The same applies to ongoing management services. Fees in conjunction with selling or acting as an intermediary for financial instruments, property or other investments which do not generate balance sheet items in the SpareBank 1 Gruppen's consolidated financial statements, are recognised through profit or loss when the transactions are completed. Income from debt collection business Unresolved debt collection cases are evaluated in accordance with the percentage-of-completion method. This method requires revenues to be recognised in the accounting period in which the debt collection services are rendered, in line with progress in the debt collection case. The evaluation of earned income at the balance sheet date is determined on the basis of an assessment of the debt collection cases' turnover rate, estimated degree of completion and actual fee income during the last six months. Fee income is recognised when payments from the debt collection cases are received. Changes in the carrying value of unresolved debt collection cases are presented in the income statement under the line item "Other operating income". Book value is recognised as current assets under the line item "Other assets". Dividend income Dividends are recognised as income through profit or loss when the right to receive payment is established. Events after the balance sheet date The financial statements are regarded as having been approved for publication once they have been considered by the Board. The Annual General Meeting, the Supervisory Board and regulating authorities may subsequently decide not to authorise the financial statements, but may not change them. Events that take place before the date on which the financial statements are approved for publication, and which affect conditions that were already known on the balance sheet date, will be incorporated into the pool of information that is used when making accounting estimates and are thereby fully reflected in the financial statements. Events relating to situations that were not known about on the balance sheet date are disclosed if they are material. The financial statements have been prepared on the assumption that the Group is a going concern. In the Board's opinion, this assumption was valid at the time the financial statements were approved for publication. Share capital and share premium Ordinary shares are classified as equity. Costs which directly relate to the issuance of new shares or options with tax deductions are recognised as a reduction of compensation received in equity. Dividends The Board's proposed dividend distribution is included in the Directors' Report and the statement of changes in equity. Proposed dividends to the parent company's shareholders are classified as equity until finally approved at the Annual General Meeting. From the date on which the dividends are approved, they are classified as liabilities. Group contributions Group contributions to subsidiaries are recorded as an increase in investments in subsidiaries given that the transfer increases the value of the parent company's shares in the subsidiary. Proposed group contributions rendered are

36 36 classified as equity until finally approved at the Annual General Meeting. From the date on which the group contributions are approved, they are classified as liabilities. Note 3 - Critical accounting estimates and judgements The Group prepares estimates and makes assumptions concerning the future. These estimates and judgements are continually re-evaluated and are based on historical experience and a number of other factors such as future expectations believed reasonable given the current circumstances. Yet, as per definition, these accounting estimates will seldom fully match the actual results. Estimates and assumptions that represent a significant risk of material adjustments to the carrying amounts of assets and liabilities for the next financial year are discussed below. Fair value of derivatives and other financial instruments The fair values of financial instruments that are not traded in an active market are determined using varying measurement techniques. The Group considers and chooses techniques and assumptions that reflect market conditions on the balance sheet date as closely as possible. For a number of financial assets classified as available for sale yet not traded in an active market, the Group has used discounted future cash flows for measurement. The measurements require a high degree of judgement. When assessing whether fair value is lower than cost, the Group takes into consideration, among other factors, the future prospects in the relevant industry, the company s financial position and technological development. Investment properties The insurance companies in SpareBank 1 have large property investment portfolios. The properties are owned by wholly owned private limited companies, which own each individual property. The properties are valued individually using the company's internal measurement model by discounting estimated future cash flows for the individual property. The required rate of return takes into account interest rates, general risk in the property market and the specific risk for the individual property. For control purposes, external measurements are carried out for a sample of properties in the portfolio in parallel with the internal measurement. The sample consists of a randomly selected, predefined number of properties. The sample subject to external measurement is rolled over for a period of three years. The property portfolio is assessed at fair value on the balance sheet day. Fair value is the amount the individual property could be sold for in an arm's length transaction between well-informed, voluntary parties. The effect of latent tax is calculated outside the measurement model when the properties are valued. The latent tax often results in a discount in relation to the property value when trading such companies that own properties. Latent tax is calculated at 7% of the difference between fair value and taxable value, reduced by booked deferred tax in the company financial statements for the properties. The net effect is treated as a write-down of the value of the property companies. Please also refer to note 33 Investment properties. Sensitivity associated with properties Properties are especially sensitive to the discount rate. If no other parameters change, a rise/fall of 0.25% in the required rate of return will reduce/increase the values by around NOK 175 million, or about 3.6%. After an existing tenancy expires, premises are leased out again on the current market terms. If the net lease income decreases/increases by 1% when properties are leased out again, their market value will fall/rise by around 0.9%. This represents a change in value of around NOK 42 million. A 1% higher/lower expected floor space vacancy will reduce/increase values by 1.2% or around NOK 56 million.

37 37 Pensions The net present value of pension liabilities depends on several factors as determined by actuarial assumptions. The assumptions used in calculating net pension cost (income) include among other things, the discount rate. Changes in these assumptions affect the carrying amount of the pension liabilities. The Group determines a suitable discount rate at the end of each year. This discount rate is used to calculate the net present value of future estimated cash out-flows needed to settle the pension liabilities. The Group has from 31 December 2012 switched to using the covered bond rate when fixing a suitable discount rate since this market is considered deep enough. Other pension assumptions are partly based on market conditions. More detailed information is provided in note 23. Potential changes regarding expected annual increases in salaries, discount rates and so on, can have a significant impact on the calculated employee pension liabilities. The table below shows the sensitivity of SpareBank 1 Gruppen's pension liabilities: Effect on total pension liabilities Change Increase in assumption Reduction in assumption Discount rate 0.50% -6.51% 7.28% Wage growth 0.50% 2.93% -2.76% Pension growth 0.25% 2.59% -2.49% Expected lifetime 1 year 3.16% -3.33% The sensitivity analysis above is based on a change in one of the assumptions, given that all other assumptions remain constant. This is improbable in practice and changes in some of the assumptions may correlate. Sensitivity calculations are executed using the same method as actuarial calculations for calculating the pension liabilities on the balance sheet. The weighted average duration of the pension liability for SpareBank 1 Gruppen is The expected maturity profile of the Group's pension liabilities, which is the expected date of payment, is as follows: NOK 1,000 Less than 1-2 years 2-5 years Later than 5 Total Expected payment of the pension liability 1 year years 3, ,788 1,024, 859 1,048, 847 Other pension assumptions are partly based on market conditions. More detailed information is provided in note 23. Estimated impairment of goodwill The Group conducts annual impairment tests to identify any possible impairment of goodwill (as described in note 35). The recoverable amount for cash generating units is determined by calculating discounted future cash flows. These calculations require estimates consistent with the Group's market measurement. Estimated insurance provisions in life insurance Insurance provisions in life insurance are based on factors such as life expectancy and mortality rate, disability rate, and interest rate expectations. Changes in such assumptions affect the size of the insurance provisions. The premium provision is calculated as the cash value of the company s liabilities less the cash value of future

38 38 premiums. The guaranteed rate used in the calculation is the guaranteed rate that applies for the individual insurance contract, and the calculation is done according to the regulations governing premiums and insurance funds in life insurance. The maximum accepted guaranteed rate is assessed by the authorities on the basis of the interest rate for long-term government bonds. Potential changes in the guaranteed rate will affect the size of the liabilities. The mortality assumptions are largely based on common surveys in FNO, while the estimates for disability are mainly based on the company's own experience. There are claim provisions for all products, including both reported but not settled (RBNS) and incurred but not reported (IBNR) losses. IBNR provisions and RBNS provisions are calculated using statistical methods based on the company s own experience. Estimated insurance provisions in P&C insurance In P&C insurance, estimates are primarily used in the calculation of technical provisions related to claim provisions. Insurance products are classified in two main groups: short-tailed business and long-tailed business. The classification is based on the time span from when a loss or damage occurs until the loss or damage is reported and finally settled. Long-tailed business primarily involves insurance related to personal injuries. The basis for the claim provisions in SpareBank 1 Skadeforsikring Group is the expected loss from claims incurred or future claims based on reported damages. In addition to ongoing follow-up related to current claims, unsettled claims must be assessed annually. Provisions for IBNR and potential additional provisions related to long-tailed businesses are measured using models. Regression models are used as a starting point for vehicle or bodily injury, occupational injury and safety. Potential issues related to changes in the portfolio are also assessed. For short-tailed businesses, the IBNR is determined on the basis of reviews of the empirical data pertaining to the lag in the risk group during previous years, in addition to changes in the portfolio, the frequency of claims, major injuries and so on. A retrospective measurement is also made to assess the estimates for the claim provisions against the development of the factors involved in the calculation: paid claims, individual provisions for reported claims and IBNR. Provisions for losses related to a reinsurer's bankruptcy are measured at net present value. The parameters in the basis of the calculation are future expected dividends, inflation and the payment status of the claim. Sensitivity analysis for the life insurance company's assets The asset side of SpareBank 1 Forsikring AS is stress tested to indicate what the effect on the owner's profit would be were the following scenarios to occur: A 20% fall in equity markets, 1.5% increase in interest rates and 12% fall in the property market. These stress factors match the stress factors in Stress Test II for equivalent risks. The stress test scenarios were calculated as of 31 December Scenario Impairment NOK million Fall in equity markets -20% 492 Rise in interest rates 1.50% 254 Fall in property values -12% 451

39 39 Note 4 - Segment information NOK 1,000 Life insurance P&C insurance Fund management Brokering Debt collection and factoring Other operations Group items Total Total income 1) 7,262,158 5,800,818 4,908,561 5,239, , , , , , ,594 1,033,602-1,043,273-1,105,519 12,662,469 11,599,319 Segment result 572, ,947 1,243, ,876 51,496-20, ,506-28,383 25, , , ,223-1,051,883 1,659, ,634 Net profit for the year 481, , , ,130 37,446-18, ,372-19,400 18, , , , ,811 1,096, ,374 Minority interests' share of the profit , ,043 Assets per segment 33,235,137 29,058,761 14,814,168 14,827, , , ,570 1,187,593 1,435,421 7,348,455 7,592,859-6,297,022-7,345,000 50,560,017 46,350,785 Liabilities per segment 30,219,355 26,382,504 10,278,053 11,184, ,995 72, , ,830 1,010,200 3,968,470 3,728, ,516-1,750,534 44,760,187 41,047,114 1) Costs directly related to income are included. The Group's business areas are divided into life insurance, P&C insurance, fund management, brokering activities, debt collection and factoring, and other activities. The Group has no secondary segment reporting. This is consistent with internal reporting. Operating segments are reported differently in the note than in the Board of Directors' Report. In the Board of Directors' Report the segments are reported in the same way as for internal reports to the Group's Board. This is due to the fact that some units do no translate their figures for IFRS before they are reported internally. These segments are reported in the segment note in the same way that they are accounted for under IFRS.

40 40 Note 5 Capital adequacy ratio SpareBank 1 Gruppen is subject to the same capital adequacy regulations rules as insurance companies and other financial institutions. The requirement is 8% regulatory capital in relation to a risk weighted assets. Parent company Group NOK 1,000 Weighting Risk weighted assets - - Securities 10% 484, , ,961 69,306 Financial institutions 20% 2,546,568 2,447, Secured loans, etc. 50% 391, ,791 6,797,541 6,604,060 Fixed assets 100% 14,789,192 15,252, Other assets 150% 31,558 32, , ,882 Goodwill and other intangible assets 1,087, Assets related to investment choices 2,098,776 1,641,452 7,013,900 6,837,248 Total risk weighted assets 21,429,805 20,166, ,882 Excluding goodwill and other intangible assets , ,062 Items off the balance sheet 1,268 26, Net basis for calculation for institutions reporting in accordance with 1,913,038 2,806,475 Basel II - - Unrealised gains on financial investments -900, ,846-49,478-45,863 Deduction for regulatory capital in other financial institutions - - 7,129,407 6,801,565 Total recognised assets and items off the balance sheet and weighted assets 22,443,130 22,592,729 7,318,430 7,570,985 Total recognised assets 50,560,017 46,303,462 3,366,608 3,173,053 Equity 5,330,919 4,763, Hybrid tier 1 capital 200, ,000-24,739-22,932-50% deduction for primary capital in other financial institutions Minimum requirement for reassurance coverage -54,489-39, , ,488 - Deduction for suggested dividends -170, , Deduction for unrealised gains on investment properties/tangible fixed -67, ,168 assets Unrealised gains/losses allocated to the company portfolio -24,584-22, , ,882 - Deduction for deferred tax asset Intangible assets and goodwill -1,087,694-1,136,598 3,060,124 2,298,751 Total tier 1 capital 4,126,647 2,951, , ,000 Perpetual subordinated loans 283, , % of unrealised value of properties 30,221 56,326-24,739-22,932-50% deduction for primary capital in other financial institutions , ,068 Total supplementary capital 313, ,326 3,318,385 2,558,819 Net regulatory capital 4,439,868 3,291, % 37.6% Capital adequacy ratio 19.8% 14.6% 2,748,032 2,014,694 Surplus of regulatory capital 2,644,418 1,483,653

41 41 Note 6 Financial risk management Reporting financial risk factors This note describes risk management work in SpareBank 1 Gruppen. It describes the Group's: General goals Organisation of the risk management function and established policy documents Material risk exposures Follow-up and management of risk factors Regulatory changes within financial regulatory requirements and capital adequacy General goals Risk management in SpareBank 1 Gruppen shall support the Group's strategic development and achievement of objectives, and ensure the fulfilment of statutory capital requirements. Risk management shall ensure financial stability and sound asset management. This should be achieved by: A moderate risk profile A strong risk culture characterised by a high awareness of risk management Striving for an optimal application of capital within the adopted business strategy Making the most of all synergy and diversification effects Adequate core capital in accordance with the chosen risk profile Always satisfying the current capital and solvency requirements established by the authorities Organisation of risk management SpareBank 1 Gruppen utilises a corporate risk management and compliance model. The relationship and allocation of responsibilities between the parent company and subsidiaries are regulated by the applicable risk management policy documents approved by the Group's board. Those responsible for managing risk in the subsidiaries report their risk profile and capital situation to the risk management department in SpareBank 1 Gruppen AS every quarter. This reporting provides the basis for the information that is included in the quarterly ICAAP reporting to the Group's board. The Group's board also receives compliance reports every quarter. The risk management function in SpareBank 1 Gruppen AS reports to the board of the parent company, while the risk management functions in the subsidiaries report to their own boards and the executive management team in parallel with reporting to the parent company's risk management function. The figure below shows the general reporting lines for the risk management function between the parent company and subsidiaries. The Board of SpareBank 1 Gruppen AS is responsible for the general structure of the Group's risk management. Responsibility for the overall risk management within the Group lies with the alliance director for risk management and compliance. This position reports directly to the CEO of Alliansesamarbeidet SpareBank 1 DA. The risk management function in the parent company bears operational responsibility for structuring the Group's risk management. The risk management function is responsible for ensuring consistent and comprehensive risk management across the Group's business areas.

42 42 Control Committee The committee shall supervise that SpareBank 1 Gruppen's activities are conducted in an appropriate and reasonable manner in accordance with laws and regulations, the articles of association, guidelines established by the Supervisory Board and the Annual General Meeting, and directives issued by the Financial Supervisory Authority of Norway. Audit and Risk Committee The purpose of the Audit and Risk Committee is to function as a preparatory organ for the Group's board in matters relating to monitoring financial information and the Group's internal control and risk management. Policy provisions Policy documents that have been approved by the Board at a Group level provide a basis for the risk management structure and limits in subsidiaries. The following Group level policies have been established so far: Risk management and internal control policy Internal control policy Compliance policy Capital management policy ICAAP policy Risk-adjusted profitability policy Contingency plan for capital adequacy and liquidity management Corresponding policies have been established at a subsidiary level that support the Group's policies and guidelines. The policy documents are reviewed annually and were last approved by SpareBank 1 Gruppen AS's board in December 2013.