Sparebanken Vest the second quarter and first half-year 2010

Transcription

1 Sparebanken Vest the second quarter and first half-year 2010 Key developments The best ever result in the first half-year o Increase in nominal net interest o Improved results for financial instruments o Lower loss write-downs o Lower costs o Positive one-off effects Income growth in the bank s subsidiaries and strategic investments Improved return on equity Successful issue of equity certificates and subordinated bonds State Finance Fund redeemed Greater liquidity and capital adequacy Key figures Operating profit/loss before write-downs and tax Second quarter First half-year NOK 272 mill. NOK 219 mill. NOK 494 mill. NOK 308 mill. Pre-tax profit NOK 237 mill. NOK 166 mill. NOK 443 mill. NOK 196 mill. Profit/diluted profit per equity certificate NOK 1.90 NOK 1.59 NOK 3.60 NOK 1.63 Net interest 1.51% 1.69% 1.52% 1.62% Accounting cost-income ratio 54.0% 57.3% 53.5% 65.7% Return on equity (ROE) annualised 14.6 % 11.6 % 13.4% 5.9% Deposits/loans ratio, end of quarter 56.3% 56.9% 56.3% 56.9% Liquidity indicator, end of quarter 107.6% 107.6% 107.6% 107.6% Core capital adequacy, end of quarter 10.4% 8.6% 10.4% 8.6% Capital adequacy, end of quarter 11.4% 10.2% 11.4% 10.2% Core capital adequacy, end of quarter (Basel II fully implemented) Capital adequacy, end of quarter (Basel II fully implemented) 12.6% 9.9% 12.6% 9.9% 13.8% 11.5% 13.8% 11.5% The capital adequacy figures include 50% of the profit for the period Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 1 of 24

2 New leasing company supplements strategy for offshoots and contributes to future earnings The focus on leasing is a natural continuation of the business development strategy pursued by Sparebanken Vest in recent years. In May, Sparebanken Vest joined forces with nine other independent savings banks to form a leasing company. The collaboration with other savings banks follows the same model used in connection with Frende Forsikring, Norne Securities and Verd Boligkreditt. The goal is also the same to offer competitive products to customers and contribute to the banks' product portfolio, expertise and earnings. Leasing as a form of financing is on the increase in Norway. The total national leasing portfolio amounted to approx. NOK 85 billion in Estimates indicate that the leasing market in Hordaland alone is worth over NOK 8 billion. The new leasing company will strengthen Bergen as a financial centre and establish a local bank-owned financing company in Western Norway. The company will use the owner banks strong local connections to offer products and services that are adapted to the needs of business and industry in Western Norway. The Financial Supervisory Authority has granted the required licences, and the new company is developing as planned. It will be fully operational in the fourth quarter The organisation has already been staffed with skilled key personnel with extensive experience from leasing. The new company will utilise the owner banks distribution network and it has acquired a modern IT system that will help to keep costs down over time. With its investment in the leasing market, Sparebanken Vest is now able to offer a complete product portfolio in the areas of insurance, securities and financing. Participation in a greater part of the value chain lays the foundation for increased future earnings and growth in other income. Frende Liv made a positive contribution to profits in the second quarter 2010 which means that this strategic offshoot of the financial services group Sparebanken Vest is now starting to blossom ahead of the stipulated sub-target. For Sparebanken Vest, this confirms that the decision to invest in new business areas was correct. The product portfolio in the new leasing company will mainly target business and industry and consist of financing operating and other assets. Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 2 of 24

3 Report for the second quarter and first half-year 2010 Second quarter Main Figures NOKm Quarters/Half Years 2 Q Q H H 2009 Net interest income and credit commissions Commissions receivable and income from banking services Commissions payable and cost of banking services Net banking services Income from owner interests in group companies Net gain/(loss) on financial instruments Other operating income Net operating income Net operating income Salaries and general administration expenses Depreciation Other operating expenses Total operating expenses Profit before write-downs and tax Write-downs and losses on loans and guarantees Profit before tax Taxes Profit for the period The group s pre-tax profit for the second quarter was NOK 237 (166) million. The improvement in profit compared with the second quarter last year was due to good growth in operating revenues, moderate growth in ordinary operating expenses and lower write-downs on lendings and guarantees. The nominal net interest is the same as before. There is good growth in earnings from banking services, financial instruments and business in the subsidiaries. The contribution to profits from the group s holdings in associated companies has improved. The one-off effect of NOK 105 million following the merger between Nordito and PBS had a positive effect on the result for the quarter. The net interest was 1.51 (1.69)% per year of average total assets. The net interest in the first quarter was 1.54%. There was a slight decline in the interest margin from deposits and lending activities during the quarter from 2.19% to 2.15% per year. Norges Bank raised the key interest rate to 2.0% at the beginning of the quarter. The average 3-month NIBOR increased again during the second quarter. Growth increased towards the end of the quarter. The increase in credit spreads from the first quarter continued in the second quarter. Over time, this results in higher interest rate levels and increased financing costs. No general re-pricing that affects the result has been carried out during the quarter. In mid-july, the group carried out a moderate re-pricing of lendings and deposits. The effects of the changes in margins and increased interest rate level have been compensated through volume growth. Underlying net earnings from banking services were satisfactory. Growth in the sale of Frende s insurance products continues to be strong. Earnings from alternative forms of savings are growing, but they are also affected by reduced revenue recognition from previous years sales of guaranteed savings products. Property sales have picked up in the second quarter. During the same period, Eiendomsmegler Vest s subsidiary Kyte Næringsmegling has sold several large properties in Bergen. Eiendomsmegler Vest AS s results continued to be very good in the second quarter. Net earnings from financial instruments amounted to NOK 97 (39) million for the quarter. Gain on financial instruments NOKm 2 Q 2010 Financial earnings were positively affected by the gain resulting from the merger between Nordito and PBS Holding AS. The gain of NOK 105 million was recognised as NOK 23 million in dividend and NOK 82 million in share capital gain. The parent bank s evaluation of fixed-interest loans to customers and fixed-interest debt at market value in the second quarter resulted in a net accounting gain of NOK 38 (-71) million in that the credit spreads have increased. The accounting principle reduces the effect on profits of other profit or loss recognition relating to securities due to an increase in the interest rate level and lower listed share prices. Further specifications of the group s revenues are shown in Notes 3 and 4. Operating expenses in the second quarter amounted to NOK 319 (294) million. Of the increase of NOK 25 million, NOK 16 million was related to the parent bank s general performance-based bonus scheme. Expenses in the second quarter were higher than in the first quarter. This is mainly due to the reversal of NOK 62 million in the first quarter as an implementation effect of new legislation relating to early retirement (AFP). At the turn of the quarter, the group had 826 (834) full-time equivalents. The take-over of Sauda Sparebank at the end of 2009 represents 12 full-time equivalents. During the last 12 months, the number of full-time equivalents was reduced by 20, not including the take-over of Sauda. The expenses are specified in more detail in Note 5. Quarters/Half Years 2 Q 1 H The accounting cost-income ratio was 54.0 (57.3)% in the second quarter. Write-downs on loans and losses on guarantees amounted to NOK 35 (53) million. Reference is made to the chapter on risk and capital factors and to Notes 6, 8, 9 and 10, which also include developments in default of payment. The annualised return on equity in the second quarter was 14.6 (11.6)% per year. 1 H 2009 Dividends Gain/loss(-) on commercial papers and bonds Gain/loss(-) on shares and securities Net gain/loss(-) on other financial instruments Net gain/loss(-) on credit spread changes FVO portfolio Product margin, amortised Net gain on financial instruments Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 3 of 24

4 Capitalised write-downsnokm Provisions in % of loans First half-year The group s pre-tax profit was NOK 443 (196) million an increase of NOK 247 million. The profit has more than doubled compared with the first halfyear 2009, which makes it the best ever half-year result in the bank s history. Behind the good results from the first half-year lies a total income growth of NOK 165 million, reduced costs of NOK 21 million and reduced write-downs and losses on loans and guarantees of NOK 61 million. The half-year result is affected by the recognition of one-off effects: Reduced costs of NOK 62 million as a result of the implementation of new AFP (early retirement) regulations Gain from the merger between Nordito and PBS provides NOK 105 million in income. Provision of NOK 34 million has been made for bonuses in accordance with adopted schemes for the bank s employees. Net interest and credit commission revenues increased by NOK 29 million and are mainly related to volume growth for deposits and lendings. The net interest for the half-year was 1.52 (1.62)% per year of average total assets, and the interest margin was 2.17 (2.28)% per year. Net revenues from banking services increased by NOK 19 million. The increase is mainly related to commission from payment transfers. The net gain on financial instruments in the first half-year was NOK 111 (-7) million NOK 105 million of which is a gain from the Nordito/PBS merger. Adjusted for the merger gain, comparable figures for the half-year are NOK 6 million compared with minus NOK 7 million last year. The gain from the change in credit spreads for the FVO portfolio was NOK 54 (-141) million. The gain must be seen in connection with net revenues from other financial instruments, which in the first half-year amounted to minus NOK 48 million. The half-year operating expenses of NOK 569 (590) million were affected by the AFP effect of NOK 62 million and provision for bonuses of NOK 34 million. Adjusted for the net effect of NOK 28 million, operating expenses are at about the same nominal level as in The return on equity for the half-year was 13.4 (5.9)% per year. The credit spread effect of the valuation of the bank s fixedinterest debt and fixed-interest loans has a positive effect of approximately 2.1 percentage points on the return on equity. Developments in deposits and lendings Customer deposits increased by 9.1% to NOK 48.5 (44.5) billion. Retail customer deposits amounted to NOK 28.2 (26.9) billion, while corporate deposits amounted to NOK 20.3 (17.5) billion. The increase in deposits in the past 12 months was 15.7% in the corporate market and 4.7% in the retail market. Net lendings amounted to NOK 86.1 (78.2) billion. Of the total, NOK 62.4 (57.0) billion were loans to retail customers, while NOK 23.7 (21.2) billion were loans to the corporate market. The growth in lending in the past twelve months was 10.1%. Lendings to the retail market grew by 9.4%, while lendings to the corporate market grew by 12.1%. Growth in the retail market largely takes the form of housing loans, including housing loans for young people (BSU). Reference is made to Notes 11 and 12. Sparebanken Vest maintains its leading market position in Western Norway A recent market survey showed that 23% of retail customers and 19% of corporate customers in Western Norway consider Sparebanken Vest to be their main bank. In Hordaland excluding Bergen, the proportions were 47% and 48%, and in Bergen, 26% and 19%. In Sogn og Fjordane and Rogaland, the market shares remained relatively stable. Risk and capital factors Credit risk Good portfolio management and a somewhat improved economic situation contributed to an improvement in the risk profile of the bank s credit portfolios. The risk profile is deemed to be low in the retail market portfolio and moderate in the corporate market portfolio. At the end of the second quarter, the bank had NOK 244 (242) million in defaulted loans (default of payment for more than 90 days) in the retail market, and NOK 270 (265) million in the corporate market. The development in the default percentage is shown in the table below. The change in the corporate market is due to a few commitments having developed negatively in the second quarter. Default ratio RM 0,39 % 0,38 % 0,36 % 0,38 % 0,42 % 0,39 % CM 1,12 % 0,75 % 0,75 % 1,26 % 1,23 % 0,50 % Total 0,59 % 0,48 % 0,47 % 0,63 % 0,65 % 0,42 % Write-downs on loans and losses on guarantees amounted to NOK 35 (53) million in the second quarter. The corresponding figure for the first half-year was NOK 51 (112) million. Realised losses on loans and guarantees were NOK 20 (37) million in the second quarter, NOK 11 (33) million of which were covered by previous write-downs. During the first half-year, realised losses amounted to NOK 39 (46) million, NOK 22 (34) million of which were covered by previous write-downs. Total losses in the second quarter amounted to 0.16 (0.28)% per year of average gross loans. The corresponding half-year figure was 0.12 (0.30)% per year. Potential bad debts not defaulted on amounted to NOK 888 (357) million at 31 December They largely relate to commitments in industries exposed to cyclical fluctuations ,28 % ,21 % ,22 % ,23 % ,24 % ,29 % ,43 % Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q ,49 % ,51 % ,60 % ,63 % Individual loan loss provisions Group loan loss provisions Provisions degree 0,62 % ,63 % ,60 % 0,50 % 0,40 % 0,30 % 0,20 % 0,10 % 0,00 % Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 4 of 24

5 The above figure sums up capitalised write-downs and the percentage provided for in relation to gross loans. Market risk and operational risk The bank s market risk (interest rates, currency, stock market, credit spread) is moderate, and the exposure is within the bank s control limits. At the overriding level, the bank s control limits for shares have focused on total exposure and concentration in companies and industries. The exposure (excluding subsidiaries and associated companies) at the end of the second quarter was NOK 654 million, compared with NOK 768 million at the end of the first quarter. Identification, analysis and follow-up of operational risk are addressed at the overriding level through expert assessments, management confirmation and events. In the second quarter, annual processes and the continuous registration of events have not uncovered material factors that have a negative effect on the bank s operations. Liquidity and financing At the overriding level, the bank s liquidity risk is managed using liquidity indicators, structural liquidity and the financing ratio. The group s liquidity situation is good. At the end of the quarter, the group s holdings of certificates and bonds amounted to approximately NOK 14 billion. The group s liquidity indicator was (107.6)%, while structural liquidity was 16 (12.1) months. The positive development in these indicators must be seen in connection with the issuing of covered bonds (OMF) of approx. NOK 4 billion in the second quarter. The formation of the housing credit company and issuing of covered bonds contribute to reducing the group s liquidity risk by increasing the availability of financing. In addition, lower financing costs have a positive effect on the group s net interest. The financing ratio has also shown positive development in the second quarter and was 56.3 (56.9)% at the end of the quarter. Sparebanken Vest has been rated by Moody s and Fitch Ratings. The bank received an A rating from Fitch on long-term borrowings given stable prospects, and an A2 from Moody s given negative prospects. Bonds issued by Sparebanken Vest Boligkreditt AS have an AAA rating. Financial strength and equity certificates The development in the group s capital adequacy/financial strength is shown in the following figures 1 : 10,2 % 1,6 % 8,6 % 1 50% of the result is included Capital ratio 11,8 % 11,6 % 11,4 % 1,2 % 1,2 % 1,0 % 10,6 % 10,5 % 10,4 % Q2 09 Q4 09 Q1 10 Q2 10 Tier 1 Tier 2 11,5 % 1,6 % 9,9 % Capital ratio - Basel II 13,2 % 13,3 % 1,4 % 1,3 % 13,8 % 1,2 % 11,8 % 12,0 % 12,6 % Q2 09 Q4 09 Q1 10 Q2 10 Tier 1 Tier 2 The group s capital adequacy pursuant to the transitional arrangement was somewhat reduced in the second quarter as a result of growth in total assets. Capital adequacy pursuant to Basel II was also affected by growth in total assets but this is compensated by reduced risk in the credit portfolio. The overall development is thereby positive. Sparebanken Vest raised new equity certificate capital through three private placements in the second quarter, a total of NOK million from a private placement, with a subsequent repair offering and private placement with employees of the company. In addition, a perpetual subordinated bond of NOK 400 million has been issued in the market. The proceeds have been used to refinance NOK 960 million in subordinated bonds from the State Finance Fund that were redeemed on 25 May. The transactions do not entail any changes in the bank s capital adequacy. However, the overall quality of the bank s own funds will increase. At 30 June, the owner fraction had increased to 19.6%, up from 9.4% at 30 March. In order to stimulate increased liquidity and trading in the equity certificate, Sparebanken Vest has entered into market-maker agreements with Norne Securities and Fondsfinans. Business in subsidiaries and associated companies Forms new leasing company. Sparebanken Vest has formed a new leasing company together with nine other savings banks. The company has been granted a licence and will be operational in the course of Jack Iversen and Terje Brurås have been appointed Managing Director and Deputy Managing Director, respectively, of the company. Sparebanken Vest owns 49.9% of the company. Eiendomsmegler Vest AS delivered good results in the second quarter as well. With a market share of 23%, the company is the marked leader in Hordaland. In Rogaland, the company maintains its market share of 11%. The subsidiary Kyte Næringsmegling has a market share of 30%. The company has many incoming orders and the turnover is increasing, among other things because the credit market is functioning better than last year. The Eiendomsmegler Vest group recorded a pre-tax profit of NOK 18.1 (17.3) million in the first half-year. Sparebanken Vest Boligkreditt AS is a wholly-owned company that manages housing loans financed by the issuing of covered bonds. The company is an important instrument in the group s liquidity management and it is run by the parent company. During the second quarter, the company has carried out its first Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 5 of 24

6 international issue of covered bonds worth the equivalent of EUR 500 million. In the first half-year, the company recorded a pre-tax profit of NOK 44.0 (24.2) million. Frende Forsikring (holding 44.7%). At the turn of the half-year, Frende Skade had NOK 500 million in premiums, divided between approx customers. Since its start-up two years ago, Sparebanken Vest has recouped barely 60 % of the previous insurance business. With growth of 150%, Frende was among the companies with the strongest growth in After 2.5 years of operation Frende Liv can refer to its first positive term results. This is before the plan.. Verd Boligkreditt AS (holding 40%) is a housing credit company that is owned by Sparebanken Vest and eight independent savings banks. Permission to form the company was granted in November. Since the turn of the year, Haugesund Sparebank has been the pilot bank, and full-scale operation was achieved during the second quarter. The company has issued covered bonds in the Norwegian market corresponding to NOK 750 million. The company is run by Sparebanken Vest. Norne Securities AS (holding 42%) has established three business areas; online brokering, stockbroking and corporate finance. Norne Securities has continued its growth in business volume in both corporate finance and stockbroking in the second quarter. Norne has approximately 11,000 customers and 20 employees. The bank s share of accumulated profit/loss from associated companies in the amount of minus NOK 26 (-21) million was included in the accounts using the equity method. New auditing arrangement In the first quarter, Sparebanken Vest decided to outsource the bank s internal audit function. The Supervisory Board awarded the assignment to PricewaterhouseCoopers. At the same time, Deloitte was elected as the bank s external auditor. Both agreements entered into force on 1 April Changes in the Board of Directors At the election meeting in April, Yvonne Torgersen and Anne Marit Hope (employee representative) were elected to the Board of Directors. They replace Jan O Yttredal, who resigned after twelve years of service, and Arve Havnerås, who took up a management position. Prospects National and international developments Developments in the global economy in 2010 are still expected to be characterised by low and uneven growth, and emerging economies are expected to be the dominant driving force. Short-term statistics for the USA and the Euro zone support the perception of a moderate economic recovery. High unemployment and the need for debt consolidation put a damper on both private consumption and public sector demand. The uncertainty relating to the debt situation in Greece has been a reminder of some of the challenges that the EU is facing. The prospects of a somewhat weaker economic development in Europe and a moderate investment trend in Norway, combined with a certain decline in private consumption, are expected to lead to moderate growth in Norway in the years ahead. Norges Bank s decision to keep the interest rate unchanged and to lower the interest rate path is an indication that the economic prospects are somewhat weaker than at the end of the previous quarter. Housing prices had gone up by 7% as of the end of June. Low building activity throughout 2009, low unemployment and continued prospects of low interest rates should help to maintain housing prices at the current level. A moderate increase in unemployment is expected in Core inflation is expected to remain well within the target of 2.5% in both 2010 and Sustained growth rates in the new emerging economies combined with production discipline in OPEC are expected to contribute to a relatively well-balanced oil market. Western Norway The industry structure in Western Norway differs from the rest of the country in that it mainly consists of oil and gas-related activities, metal production, shipbuilding, aquaculture and fisheries and shipping. Business and industry in Western Norway expands in step with international cyclical upturns. This mainly applies to the metal industry and, in part, to the chemical industry. In the oil service industry, the framework conditions will be influenced by two opposite forces in the time ahead: on the one hand, a continued high investment level in the petroleum sector, and, on the other hand, increased international competition. Projects will be smaller, and the contracts will therefore often be of shorter duration. The main challenges will consist of improving competitiveness and internationalisation in areas where Western Norway has knowledge-related or technological advantages. The building and construction industry is making good progress, which reflects both the general cyclical upturn and the effect of government measures. The unemployment rate is still lower than the national average, at 2.2% in Rogaland and Sogn og Fjordane and 2.4 % in Hordaland at the end of June. Only a moderate increase in unemployment is expected in the region in 2010 and House prices in Western Norway increased by 8% from June 2009 to June 2010 in both Rogaland and Hordaland. In the past month, there has been an increase of 1% in both counties. Both the annual and the monthly growth rate are one percentage point above the national average. There is reason to expect price development to be moderate in the time ahead, in line with the general development in the housing market. The regional development trends are underpinned by panel studies conducted in connection with the Business Barometer for Hordaland and Sogn og Fjordane, plus the Business Tendency Survey for Rogaland and Norges Bank s regional network survey. Sparebanken Vest The group s results for the first half-year and second quarter of 2010 are influenced by one-off factors. In other respects, the results exceed the Board of Director s expectations. The expected economic development will have a positive effect on risk in the portfolio and losses in the time ahead. The Board of Directors therefore expects overall losses for 2010 to be smaller than previously indicated. The Board of Directors expects the bank s net interest to face further pressure in the second half-year Over time, increased credit spreads in 2010 will be reflected in increased financing costs. In a market that is characterised by high competitiveness, it will be difficult to fully pass on these costs through re-pricing of the bank s lendings and deposits. The group s market position will be strengthened in In addition to good profit developments, this is also reflected in growth in total assets and various market surveys. The bank continues its work of implementing its strategy. The Board of Directors expects profits in 2010 to exceed Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 6 of 24

7 Bergen, 18 August 2010 The Board of Directors of Sparebanken Vest Trygve Bruvik Anne Kverneland Bogsnes Yvonne Torgersen Chair of the Board Deputy Chair Marit Solberg Richard Rettedal Øyvind A Langedal Anne Marit Hope Gerd Kjellaug Berge Tone Mattsson Stein Klakegg Managing Director Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 7 of 24

8 Income statement, group Notes 01/ / / /06-09 Q Q Interest income and similar income Interest expenses and similar expenses Net interest and credit commission income Commission income and income from banking services Commission expenses and expenses relating to banking services Income from ownership interests in associated companies Net gain/(loss) on financial instruments Other operating income Net other operating income Net operating income Salaries and general administration expenses Depreciation Other operating expenses Total operating expenses Profit before write-downs and tax Write-downs and losses on loans and guarantees Pre-tax profit Tax Profit for the period Majority share of the profit for the period Minority share of the profit for the period Equity certificates' share of profits divided by the number of equity certificates 3,60 1,63 1,90 1,59 4,53 Diluted profit per equity certificate 3,60 1,63 1,90 1,59 4,53 Statement of comprehensive income 01/ / / / Q Q Profit for the period Financial assets available for sale Total profit for the period Majority share of the total profit for the period Minority share of the total profit for the period Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 8 of 24

9 Balance sheet, group Notes 30/ / /12-09 Assets Cash to and receivables from central banks Loans to and receivables from credit institutions Net lendings 7, Shares at fair value through profit or loss Commercial papers and bonds Shares available for sale Financial derivatives Shareholdings in associated companies Deferred tax asset Other intangible assets Tangible fixed assets Prepaid expenses Customer funds - defined contribution pension agreements Other assets Total assets Liabilities and equity Liabilities to credit institutions Deposits Securitised liabilities Financial derivatives Accrued expenses and pre-paid income Pension commitments Deferred tax Other provision for commitments Tax payable Subordinated loan capital Other liabilities Total liabilities Equity certificates Own equity certificates Premium reserve Equalisation reserve Total equity certificate capital Primary capital Gift fund Compensation fund Total primary capital Reserve for unrealised gains Other equity Minority interests Total equity Total liabilities and equity Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 9 of 24

10 Cash flow statement, group 01/ / / / Cash flows from operations Interest, commission and customer fees received Interest, commission and customer fees paid Payment received for previously written-off receivables Net payments made/received relating to customers' instalment loans Changes in utilised overdraft facilities Net payments received/made relating to customer deposits Payments to other suppliers for goods and services Payment to employees, pension schemes, National Insurance contributions, tax withholdings etc Payment of direct and indirect taxes Payments received from sale of securities for short-term trading purposes Payments made on purchases of securities for short-term trading purposes Net cash flow from operations Cash flows from investment activities Payments received from sales of shares and shareholdings in other companies Payments made on purchases of shares and shareholdings in other companies Payments received from other short-term securities Payments made on purchases of other short-term securities Payments received from sales of securities, real property etc Payments made on purchases of securities, real property etc Payments received from the sale of operating assets etc Payments made on purchases of operating assets etc Net cash effect of takeover of Sauda Sparebank Net cash flows from investment activities Cash flows from financing activities Net payments made/received on loans to and receivables from other financial institutions Net payments received/made on deposits from Norges Bank and other financial institutions Payments received relating to subordinated loan capital Payments made relating to subordinated loan capital Payments received relating to bond debt Payments made relating to bond debt Dividends paid / Gifts for the public benefit Net cash flow from financing activities Net cash flow for the period Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 10 of 24

11 Changes in equity, group Equity Own equity Premium Equalisation Primary Reserve for Compensation unrealised Other Minority certificates certificates reserve reserve capital Gift fund fund gains 1) equity interests Total Equity 31 Dec Sale of own equity certificates Payment of dividends and gifts Issue of equity certificates Correction deferred tax Owner transactions and gifts Profit for the financial year Comprehensive income - change in value of shares available for sale Equity 31 Dec Profit for the accounting period Comprehensive income Equity certificates - split Issue of equity certificates Issue of equity certificates - costs Acquisition in subsidiaries Payment of dividends and gifts Equity 30 June Note 1 Accounting principles The consolidated accounts for the second quarter 2010 have been prepared in accordance with the requirements of the Securities Trading Act, the Financial Supervisory Authority of Norway's Regulations relating to annual reports and accounts and IAS 34. The accounts have been prepared on the basis of the same principles and with the same estimate methods as for the annual accounts for The accounting principles are described in the 2009 annual report. No amendments have been made to standards that have a material bearing on the accounts for the Sparebanken Vest group from 1 January The Group has established hedge accounting for a fixed-rate loan tied to the housing credit company. The hedge is documented with reference to the Risk Management Strategy of the Group, unambiguous identification of the hedged item and hedging instrument, unambiguous description of the hedged risk, and a description of why protection is expected to be effective. Loan nominal value is EUR 500 million and secured with regard to interest rate risk and currency risk. Changes in credit spreads are not taken into account in the assessment of hedge effectiveness. All amounts are stated in NOK million and apply to the group unless otherwise specified. Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 11 of 24

12 Note 2 Segment information Operating income and expenses are allocated directly, with the exception of staff-related costs and depreciation. Net interest is allocated on the basis of internally calculated intra-group interest based on 3-month NIBOR. Income statement Corporate market Banking operations Retail market Capital market Estate agency business Not allocated by segment Total 1 Jan June 2010 Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -100 Profit/loss for the period Jan June 2009 Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -66 Profit/loss for the period Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -137 Profit for the year Banking operations Balance sheet Corporate market Retail market Capital market Estate agency business Not allocated by segment Total 30 June 2010 Net lendings Other assets Deposits Other liabilities and equity June 2009 Net lendings Other assets Deposits Other liabilities and equity Dec Net lendings Other assets Deposits Other liabilities and equity Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 12 of 24

13 Note 3 Net interest and credit commission income 01/ /06-10 Change 01/ /06-10 vs H1-10 vs Q2-10 vs Q2-10 vs - 30/06-09 Q Q Q /06-09 H2-09 Q2-09 Q1-10 Interest and similar income from loans to and receivables from credit institutions Interest and similar income from loans to and receivables from customers Interest and similar income from commercial papers, bonds and other interest-bearing securities Interest income and similar income Interest and similar expenses on debt to credit institutions Interest and similar expenses on deposits from and debt to customers Interest and similar expenses on issued securities Interest and similar expenses on subordinated loan capital Other interest expenses etc. 1) Fee to the Saving Banks' Guarantee Fund Interest expenses and similar expenses Net interest and credit commission income The changes are explained thus: Lending and deposit volumes: Lending and deposit margins: Other net interest income Fee to the Saving Banks' Guarantee Fund ) Interest from derivatives entered into to manage the interest rate risk attached to the bank's ordinary portfolios is classified as interest income and recognised as an adjustment of the bank's other interest income/ interest expenses. Note 4 Net other operating income 01/ /06-10 Change 01/ /06-10 vs H1-10 vs Q2-10 vs Q2-10 vs - 30/06-09 Q Q Q /06-09 H2-09 Q2-09 Q1-10 Guarantee commissions Fees from payment transfers /interbank fee credit Other commissions and fees Commission income and income from banking services Fees payment transfers/bbs/eftpos Fees payment transfers/interbank debit Other commissions and fees Commission expenses and expenses relating to banking services Net banking services 1) Income from ownership interests in associated companies Dividend Gain/(loss) on commercial papers and bonds Gain/(loss) on shares Gain/(loss) on other financial instruments Gain/(loss) on change in credit spread FVO portfolio Product margin amortised Net gain/(loss) on financial instruments Brokerage commission Other operating income Other operating income Net other operating income ) Specification of income and expenses relating to banking services Guarantee commissions Payment transfers Insurance Funds and other placement products Other income Net banking services Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 13 of 24

14 Note 5 Operating expenses 01/ / /06-10 vs - 30/ /06-09 Q Q Q /06-09 Change H1-10 vs H2-09 Q2-10 vs Q2-09 Q2-10 vs Q1-10 Payroll Pensions Transition to new AFP scheme Non-wage costs IT expenses Administration expenses Payroll and general administration expenses Ordinary depreciation of fixed assets Write-down of goodwill Depreciation Operating expenses, real property Rent and other operating expenses for rented premises Expensed fixed assets Other operating expenses Wealth tax Other operating expenses Total operating expenses Note 6 Losses on loans and guarantees 01/ / /06-10 vs - 30/ /06-09 Q Q Q /06-09 Change H1-10 vs H2-09 Q2-10 vs Q2-09 Q2-10 vs Q1-10 Change in individual write-downs in period Change in group write-downs in period Realised losses not covered by previous write-downs Recoveries on losses realised previously Write-downs and losses on loans Realised losses on guarantees not covered by previous provision for bad debt Change in provision for bad debt Losses on guarantees Losses on loans, guarantees etc Realised losses on loans covered by previous write-downs Realised losses on guarantees not covered by previous provision for bad debt Realised losses on loans not covered by previous write-downs Realised losses Note 7 Net lendings 30/ / /12-09 Valued at amortised cost Valued at fair value with changes in value recognised in the income statement Total Fair value is calculated by discounting the loan cash flow using the required rate of return derived from the zero coupon curve. The book value of loans with fixed, short-term interest rates is virtually identical to fair value. All the bank's fixed interest loans are included in the portfolio valued at fair value. Note 8 Write-down for impaired commitments Individually assessed 30/ / /12-09 Commitments in default Gross commitments in default Write-down Net commitments in default Percentage provided for 19 % 18 % 15 % Potential bad debts (in excess of 90 days) where the default amount in one of the commitment's accounts exceeds NOK 1,000. Potential bad debts not defaulted on Gross commitments assessed for impairment Write-down Net commitments assessed for impairment Percentage provided for 18 % 21 % 20 % Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 14 of 24

15 Note 9 Commitments in default The table shows defaults of payment exceeding 30 days where the amount in default is more than NOK 1,000 in one of the commitment's accounts. 30/ / /12-09 Retail market days days More than 90 days Total Corporate market days days More than 90 days Total days days More than 90 days Total Note 10 Capitalised write-downs on commitments Changes in individual and group write-downs and provision for bad debt relating to guarantees 30/ / /12-09 Individual write-downs Individual write-downs of loans at 1 January (nominal values) Realised losses on loans covered by previous write-downs Increase in write-downs of loans written down previously Write-downs of loans not written down previously Reduction in previous years' write-downs on individually assessed loans Write-downs acquired through takeover of Sauda Sparebank Individual write-downs Group write-downs Write-downs of loan groups at 1 January (nominal values) Increase in write-downs of loan groups Reduction in write-downs of loan groups Write-downs acquired through takeover of Sauda Sparebank Write-downs of loan groups Total write-downs of commitments Provision for bad debt for guarantees Provision for bad debt to cover losses on guarantees at 1 January Provision for bad debt on guarantees not provided for previously Reduction in previous years' provision for bad debt (write-back) Realised losses on guarantees covered by previous provision for bad debt Specified provision for bad debt to cover losses on guarantees Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 15 of 24

16 Note 11 Net lendings broken down by sector and industry 30/ / /12-09 Primary industries Manufacturing and mining Building and construction, power and water supply Commerce, hotel and restaurants International shipping and pipeline transport Other transport, post and telecommunications Property management Services Municipal/public sector Abroad Total - business and industry Retail customers Total corporate and retail customers Note 12 Deposits broken down by sector and industry 30/ / /12-09 Primary industries Manufacturing and mining Building and construction, power and water supply Commerce, hotel and restaurants International shipping and pipeline transport Other transport, post and telecommunications Property management Services Municipal/public sector Abroad Total - business and industry Retail customers Total corporate and retail customers Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 16 of 24

17 Note 13 Securities debt and subordinated loan capital Securities debt 30/ / /12-09 Commercial papers, nominal value Bonds, nominal value Value adjustment Total securities debt Change in securities debt 31/12-09 Issued Fell due/ redeemed Change in exchange rate Other changes 30/06-10 Commercial papers, nominal value Bonds, nominal value Value adjustment Total securities debt Subordinated loan capital and subordinated bond loans Ordinary subordinated loan capital, nominal value Subordinated bond loans, nominal value Value adjustment Total subordinated loans and subordinated bond loans Residual time to maturity 0-1 month 1-3 months 3-12 months 1-5 years Over 5 years Total Credit institutions, borrowings Securities debt, nominal value Subordinated loans and subordinated bond loans, nominal value Total borrowings from capital market Note 14 Capital adequacy 30/ / /12-09 Calculation basis Basel II: Credit risk/ Counterparty risk: Market risk: Currency risk: Operational risk: Total exceptional segments pursuant to IRB: Consolidated companies pursuant to the standard method Deductions in calculation basis IRB reporting of lower parameters Calculation basis, transitional scheme % % % Capital adequacy, transitional scheme 2010: Subordinated capital: ,1 % ,2 % ,8 % Net core capital ,1 % ,7 % ,6 % Net supplementary capital 565 1,0 % 791 1,6 % 641 1,2 % Capital adequacy requirements, transitional scheme 2010: ,0 % ,0 % ,0 % Calculated regulatory surplus/deficit Capital adequacy incl. 50 % of the result for the period ,4 % ,2 % Capital adequacy Basel II: Subordinated capital: ,4 % ,5 % ,2 % Net core capital ,2 % ,9 % ,8 % Net supplementary capital 565 1,2 % 666 1,6 % 641 1,4 % Capital adequacy requirements Basel II: ,0 % ,0 % ,0 % Calculated regulatory surplus/deficit Capital adequacy incl. 50 % of the result for the period ,8 % ,5 % Sparebanken Vest (SVEG) Second Quarter & First Half Year Report 2010 Unaudited Page 17 of 24