SpareBank 1 Nord-Norge First quarter report 2010 the Group

Transcription

1 SpareBank 1 Nord-Norge First quarter report 2010 the Group Very satisfactory result for Q The bank has sustained its high level of solidity. Main features (figures in brackets refer to the same interim period in 2009): Operating result before tax for the first quarter totalled NOK 260 million (NOK 189 million). Return on equity after tax was 15.9 per cent (13.5 per cent). Earnings per equity certificate so far this year (parent bank): NOK 4.17 (NOK 2.68). The underlying banking operations are good. The result from core operations before losses amounted to NOK 205 million (173 million). Total contribution from the group's subsidiaries: NOK 19 million (NOK 34 million). Net result from financial investments totalled NOK 76 million (NOK 69 million). The contribution to the overall result from SpareBank 1 Gruppen AS amounted to NOK 22 million (NOK 2 million). The contribution to the overall result from other associates in the SpareBank 1 alliance (Bank 1 Oslo, BN Bank, SpareBank 1 Boligkreditt and SpareBank 1 Næringskreditt) amounted to NOK 19 million. Net gain from the bank s share portfolio included in the accounts totalled NOK 21 million. Net loss from interest-bearing portfolio (including related financial derivatives transactions) amounted to NOK 2 million. Net gain from foreign exchange and other financial derivatives was NOK 7 million. Cost development are under control. A non-recurring effect of recognising income from reduced pension commitments of NOK 60 million as a result of the transition to a new early retirement pension scheme (AFP) in the private sector. Cost/income ratio of 40 per cent (50 per cent). Reduced loan losses: Net losses totalled NOK 21 million (NOK 53 million). Total lending growth during the last 12 months (including loans transferred to SpareBank 1 Boligkreditt): 5.2 per cent (7.4 per cent). Retail market: 7.8 per cent (incl. SpareBank 1 Boligkreditt). Corporate market: -0.2 per cent. The accounts show a reduction in lending over the last 12 months of 4.9 per cent (+ 2.2 per cent). Growth in deposits in the last 12 months: 4.2 per cent (9.6 per cent). Retail market 4.8 per cent Corporate market per cent. Public sector market 24.8 per cent Deposit-to-loan ratio: 73.3 per cent (67.0 per cent). The bank has good financial strength with a core capital adequacy (Group) of 11.7 per cent (10.1 per cent) and a total capital adequacy of 13.4 per cent (11.7 per cent). Liquidity remains satisfactory. Introductory comments The quarterly accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS), including IAS 34 relating to interim reporting. IFRS involves the use of different principles for the incorporation of subsidiaries and joint-venture companies between parent bank and group accounts. In the consolidated accounts, the equity method is applied, in accordance with which results from joint-venture companies are incorporated in the Group s profit and loss account according to equity share, and are taken into consideration in the book value of equity shares in the balance sheet. The shares of the subsidiaries results are consolidated into the accounts. In accordance with IFRS, only the cost method of accounting shall be used in company accounts. This means that the book value of subsidiaries and joint-venture businesses in the parent bank s accounts is included at historic cost. In the parent bank s accounts, only the annual dividends received from these businesses are shown. In accordance with the rules and regulations from the Ministry of Finance dated 16 October 2008, permission was given to reclassify securities in the trading portfolio from the category At fair market value with value changes through the profit and loss account to categories which are assessed at amortised cost. The Group decided to make such a reclassification of large parts of the interest-bearing portfolio held available for sale as at 1 July Future assessments in these categories shall be calculated at amortised cost using the effective interest method of accounting, which means that earlier value write-downs and interest are amortised and incorporated as interest income over the remaining life of the securities in question. The bank s remaining portfolio of certificates and bonds is classified as At fair market value with value changes through the profit and loss account. To the extent that there is an active market for the securities involved, observable market prices are applied in order to assess fair market value. There are no observable market prices in some parts of the portfolio, and the bank has therefore utilised alternative value assessment methods according to IFRS 39 to ascertain fair market value as at 1/20

2 31 March 2010 for the securities in question. This is described in more detail in the note to the accounts on accounting principles. Since year-end, the Group has amended its classification of net interest income/costs regarding interest rate hedging for fixed interest loans. Previously, these items were recognised on the profit and loss account under Net value changes for financial assets, but are now reported under Interest income. The figures for previous periods (2010 and 2009) have also been moved to allow comparison. On 1 January 2010, SpareBank 1 Nord-Norge acquired a 19.5 per cent shareholding in Bank 1 Oslo AS from SpareBank 1 Gruppen AS. As part of the wage agreement entered into in 2008 between the Norwegian Federation of Trade Unions (LO) and the Confederation of Norwegian Enterprise (NHO), an agreement was signed for a new AFP scheme (early retirement pension). The former scheme implied that companies included a share of the pension connected to the early retirement pension scheme in their accounting of pension commitments and pension costs. The scheme provides pension payments from the age of 62 to 67 subsequent to voluntary retirement during this period. It has now been decided that the old scheme should be terminated as of 31 March This applies to all employees born after This amendment has an impact on accounting, in that accrued pension commitments and provisions for pension commitments for employees entering the new scheme as of Q no longer exist and shall therefore be removed from the consolidated balance sheet and recognised in the profit and loss account as a non-recurring item. The Group maintains its commitment to make pension payments to employees who have chosen to retire prior to 1 January Employees born during the period from and including 1944 to and including 1948 can choose between the old and the new early retirement pension schemes. The Group s actuaries have calculated the impact of the transition to the new scheme as of 31 March 2010 as NOK 60 million, of which NOK 57 million for the parent bank. These figures have been recognised as a reduction of the Group s pension commitments. Earnings development Operating result before tax at the end of the first quarter 2010 amounted to NOK 260 million. The corresponding result for the same interim period of 2009 was NOK 189 million. The Group s core operations (operations excluding net income from financial investments) remain good, posting a profit before losses of NOK 205 million, up by NOK 32 million on the same time last year. The Group s return on equity after tax as of 31 March 2010 is 15.9 per cent (13.5 per cent). For the parent bank, the return on equity is 20.5 per cent (15.1 per cent) and the result per equity certificate is NOK 4.17 (NOK 2.68). The tax cost has been calculated to NOK 56 million. Compared with the first quarter 2009, the causes of the NOK 71 million improvement in pre-tax result are as follows: Reduction in net interest income Increase in net commission income Increase in income from financial investments Reduction in other operating income Reduction in costs Reduction in net losses NOK -30 million NOK 28 million NOK 7 million NOK -21 million NOK 55 million NOK 32 million Share of SpareBank 1 Gruppen s result SpareBank 1 Gruppen s preliminary after-tax result at the end of the first quarter 2010 totalled NOK 93 million. The SpareBank 1 Nord-Norge Group s share of the result, amounting to NOK 18 million, has been incorporated in the accounts. Furthermore, a correction of the final annual result for 2009 has been recognised as income totalling NOK 4 million. With effect from 1 January 2010, the owner banks in SpareBank 1 Gruppen AS took over ownership of Bank 1 Oslo AS. As of the first quarter 2010, a contribution to overall result of NOK 7 million has been reported from Bank 1 Oslo. Subsidiaries The Group s subsidiaries produced an aggregate contribution of NOK 19 million towards the overall result for the first quarter. Of this, the result from SpareBank 1 Finans Nord-Norge AS accounted for NOK 11 million. SpareBank 1 Invest s contribution amounted to NOK 6 million. Otherwise, reference is made to the relevant notes to the quarterly accounts. Interest margin The Group s net interest income at the end of the first quarter 2010 amounted to NOK 272 million. This is NOK 30 million lower than in Q In relation to average total assets (GFK), net interest income as of Q is 1.70 per cent, 0.17 percentage points lower than for the same period last year. For the first quarter alone, net interest income is NOK 26 million lower than for the fourth quarter. The decline in net interest income is also due to the increase in transfer of loans to SpareBank 1 Boligkreditt. Income from the transferred portfolio is recognised as commission income. To ensure liquidity, the bank raised substantial long-term funding from the capital markets during the financial crisis in 2007 and These loans have large credit spreads compared with the current level and have raised the bank s average funding cost. Redemption and replacement of older capital market funding raised before the financial crisis (with low credit spreads) has had and is expected to still have - a negative effect on the bank s interest margin. 2/20

3 The bank has maintained its focus on lending margin. Tough competition, the current low interest rates, coupled with low activity levels in the economy, are expected to continue to exert downward pressure on the bank s overall interest margin also in nominal terms. Net income from banking services and other income Net commission income as of Q is NOK 120 million, an increase of NOK 28 million when compared with the same period last year. The improvement in result is largely ascribable to increased commission income from SpareBank 1 Boligkreditt and Entercard. Other income as of the end of Q is down NOK 21 million when compared with the same period last year. This is due to the fact that a gain on the sale of the Group s factoring business was recognised in Income from financial investments Net income from financial investments for the first quarter 2010 totalled NOK 76 million. The result breaks down as follows: Result from SpareBank 1 Gruppen Result from SpareBank 1 Boligkreditt Result from Bank 1 Oslo Result from BN Bank Amortised net lesser value booked as income, BN Bank Result from SpareBank 1 Næringskreditt Share dividends Net gains on shares Net loss on bonds Net gain on foreign exchange and financial derivatives NOK 22million NOK 4 million NOK 6 million NOK 7 million NOK 1 million NOK 1 million NOK 9 million NOK 21 million NOK -2 million NOK 7 million When compared with the first quarter 2009, the net result from financial investments is NOK 7 million higher. On 1 July 2008, the bank completed a reclassification of large parts of the interest-bearing securities in the trading portfolio, from the category At fair market value through the profit and loss account to categories which are assessed at amortised cost. This involved NOK 3,807 million of the portfolio amounting to NOK 4,981 million in the accounts as at 30 June If such a reclassification had not been made, further unrealised losses of NOK 212 million on this portfolio would have been charged to the profit and loss account from 1 July 2008 to 31 December 2008 as a result of increased credit spreads. Without reclassification, this unrealised loss would have been reduced to NOK 10 million as at 31 March Previously written-down amounts on this part of the portfolio as at 30 June 2008 amounted to NOK 112 million and are now included as income (amortised) over the remaining life of each of the securities involved. In 2008, 2009 and to date in 2010, income has been recognised at NOK 18 million, NOK 26 million and NOK 5 million respectively. As per 31 March 2010, average maturity for the reclassified part of the portfolio has been assessed as 1.86 years. The reclassified portfolio has been assessed with regard to the need for permanent write-down in value. As at 31 December 2008, such write-down was made on two of the 3/20 bank s investments, involving NOK 46 million. Further write-downs have been made on one of the securities involved in 2009, the amount being NOK 17 million. No further write-downs were made in See also the notes to the interim accounts for the first quarter. Operating costs Ordinary operating costs at the end of the first quarter 2010 totalled NOK 188 million, down by NOK 55 million or 22.6 per cent on the same time last year. As mentioned above, the pension costs have seen a reduction with a non-recurring effect of NOK 60 million as a result of the transition to the new early retirement pension scheme in the private sector. If we take this figure into account, ordinary operating costs are at approximately the same level as last year. Current pension costs related to the early retirement pension scheme will increase in the future as a result. In relation to average total assets (GFK), costs amounted to 1.17 per cent, after a decline of 0.34 percentage points compared with the same period last year. If the abovementioned figures regarding the early retirement pension scheme are not taken into account, the ratio is 1.55 per cent. The Group has a cost/income ratio of 40.1 per cent for Q compared with 50.1 per cent in Q The cost/income ratio excluding the reduction of pension costs is 52.9 per cent. At the end of the first quarter 2010, the bank had 774 manyears, of which 684 are in the parent bank. The corresponding figures for 2008 were 811 and 719 respectively. The Bank s cost-reducing measures are to be continued. This includes possible rationalisation measures within the areas of distribution and overall staffing levels. Net losses and commitments in default The Group s net losses on lending at the end of the first quarter totalled NOK 21 million. Net losses from the corporate market amounted to NOK 16 million, the private market NOK 5 million. As at 31 March 2010, net commitments in default and doubtful commitments amounted to NOK 546 million, equivalent to 1.13 per cent of gross lending, down by NOK 100 million on the same interim period in The Group s total individual loss write-downs at the end of the first quarter 2010 are NOK 216 million, a reduction of NOK 12 million on the last quarter. The bank continues to observe a weak development within individual branches, but to a lesser extent. Collective write-downs for impaired value on loans remain unchanged and there have been no changes to the longterm monitoring portfolio. Collective write-downs for impaired value on loans came to 0.49 per cent of the Group s gross lending at the end of the first quarter.

4 According to the main Board of Directors opinion, the quality of the bank s lending portfolio remains good, and every effort continues to be made towards effective work relating to commitments in default and doubtful commitments throughout the Group. As a result of the economic downturn, the bank witnessed a relatively high level of loan losses in 2008 and Despite the continued uncertainties regarding growth and development in international and national economies, the main Board of Directors is of the opinion that the level of loan losses in the near future will be somewhat lower when compared with 2008/2009. Tax At the end of the first quarter 2010, the Group s tax cost was estimated at NOK 56 million. In the parent bank s accounts, the basis for tax has been reduced by permanent differences coupled with the effects of the exemption model. According to IFRS, wealth tax is not a tax cost, and NOK 7 million has therefore been charged to the profit and loss account as part of other operating costs. Total assets On 31 March 2010, group assets stood at NOK 64,086 million, after a NOK 520 million or 0.8 per cent increase during the last 12 months. Lending As at 31 March 2010, group gross lending to customers totalled NOK 48,429 million. In comparison with 31 March 2009, this represents a reduction of 4.9 per cent. As at 31 March 2010, house mortgage loans amounting to NOK 11,443 million had been transferred to SpareBank 1 Boligkreditt AS. Lending growth including these loans amounted to 5.2 per cent. Retail banking loans were up by 7.8 per cent, whereas corporate and public sector loans were down by 0.2 per cent in all. Including the transferred loans to SpareBank 1 Boligkreditt, the share of lending to the retail market is somewhat higher than it was at the end of the first quarter of 2009, amounting to 69 per cent of aggregate loans at the end of the first quarter The financial crisis, with its diminishing effect on economic growth, has brought about a reduced growth in lending. The immediate future is expected to be characterised by a weak macro-economy, with weak lending growth, especially in the corporate market. However, the main Board of Directors sustains its ambitions for lending growth and increased market shares. In the case of new loans, particular emphasis is placed on customers ability to service and repay their outstanding loans, and on a satisfactory level of collateral and other security to ensure that credit risk is maintained at an acceptable level. Saving and investments As at 31 March 2010, group deposits from customers totalled NOK 35,497 million. Over the last 12 months, deposits increased by NOK 1,419 million or 4.2 per cent. Retail market customer deposits were up by 4.8 per cent and public sector deposits by 24.8 per cent, whereas deposits from corporate customers were down by 7.1 per cent. Portfolio of certificates and bonds The Group s portfolio of certificates and bonds totalled NOK 8,953 million at the end of the first quarter Comparative figures as at 31 December 2009 and 31 March 2009 were NOK 8,893 million and NOK 7,661 million respectively. The portfolio of interest-bearing securities remains higher than previous years as a result of the following: Increased liquidity reserves in the form of certificates and Treasury bills. Transfer of house mortgage loans to SpareBank 1 Boligkreditt involves an increased portfolio of covered bonds (and reduced loans). Using the authorities swap scheme for covered bonds involves accounting-related incorporation on a gross basis, which in turn means a parallel increase in assets (including certificates) and liabilities. The larger portfolio of certificates and bonds entails only a small degree of increased risk. Liquidity Deposits from customers represent the bank s main source of funding. At the end of the first quarter 2010, the deposit-to-loan ratio was 73.3 per cent, up by 6.3 percentage points on the same time last year. The bank s remaining funding, apart from equity capital and deposits from customers, is mainly from long-term funding from the capital markets. The bank s access to liquidity has been satisfactory throughout the period of unsettled global financial markets. The bank s strategic aim is to maintain the overall liquidity risk at a low level. Equity and capital adequacy SpareBank 1 Nord-Norge received permission from the Financial Supervisory Authority of Norway (FSAN) to apply internal measuring methods (Internal Rating Based Approach) for credit risk from 1 January The statutory minimum requirement for capital adequacy for credit risk was therefore, with effect from 2007, based on the bank s internal risk assessment. The rules and regulations render the statutory minimum requirement for capital adequacy more risk-sensitive, so that the capital requirement to a larger extent corresponds to the risk in the underlying portfolios. The use of internal computation methods involves comprehensive requirements relating to the bank s organisation, competence levels, risk models and risk management systems. As a result of the transition rules in the new regulation, IRB Banks were to gain full effect of reduced regulatory capital requirements from and including A resolution has now been reached to postpone this issue, and the transition rules for 2009 will continue to apply in The Group has been granted permission by FSAN to use proportional consolidation in its reporting of the capital adequacy of the assets in SpareBank 1 Boligkreditt and SpareBank 1 Næringskreditt. As at 31 March 2010, group core capital adequacy amounted to per cent (10.13 per cent) of the weighted asset calculation basis. The total capital adequacy was per cent (11.73 per cent). 4/20

5 At the end of the first quarter 2010, capital adequacy ratio in the parent bank was per cent (12.00 per cent), of which core capital constitutes per cent (10.66 per cent). The bank s goal for core capital adequacy is 10 per cent or higher. The bank s solidity is deemed satisfactory. If 50 per cent of the result were to be factored into the capital adequacy calculations, the capital adequacy ratio for the parent bank would be per cent (12.22 per cent) and for the Group per cent (11.92 per cent). The bank s equity certificate holders The bank s equity certificate capital amounts to NOK 896 million, represented by 17,912,073 equity certificates. The equity certificate ratio as at 1 January 2010 was calculated at per cent. The number of equity certificate holders at the end of the first quarter 2010 is 8,514, an increase of 208 over the past year. The number of equity certificate holders from North Norway is 2,457. An overview of the bank s 20 largest equity certificate holders is provided in the notes to the accounts. Concluding remarks and outlook The result at the end of the first quarter of 2010 is deemed to be very good especially in light of the current economic situation. The bank s core operations remain good. The macro-economic situation in Norway and northern Norway in particular is expected to remain relatively weak in the immediate future. This will result in a reduced demand for credit than normal, particularly within the corporate market, in addition to a somewhat higher level of loss compared with the period of strong economic expansion prior to 2008/2009. A low interest rate and increased competition are expected to continue to exert pressure on the bank's net interest income. The bank attaches importance to balance sheet growth, in terms of deposits and loans alike. Importance is also attached to increasing other income through sales of products and services. All lending growth shall involve good quality. The bank will continue to place a main focus on cost reducing measures. This includes possible rationalisation measures within the areas of distribution and overall staffing levels. Tromsø, 27 April 2010 The main Board of Directors of SpareBank 1 Nord- Norge 5/20

6 Key figures group Amounts in NOK million and in % of average assets % % % From the profit and loss account Net interest income % % % Net fee-, commision and other operating income % % % Net income from financial investments % % % Total income % % % Total costs % % % Result before losses % % % Losses % % % Result before tax % % % Tax % % % Minority interests % % % Result for the period % % % Profitability Return on equity capital % 13.5 % 18.2 % Interest margin % 1.87 % 1.80 % Cost/income % 50.1 % 45.0 % Balance sheet figures Loans and advances to customers Loans and advances to customers including SpareBank 1 Boligkreditt AS Deposits from customers Deposits as a percentage of gross lending % 67.0 % 72.4 % Growth in loans and advances to customers past 12 months -4.9 % 2.2 % -6.0 % Growth in loans and advances to customers including SpareBank 1 Boligkreditt AS 5.2 % 7.4 % 4.0 % Growth in deposits from customers past 12 months 4.2 % 9.6 % 0.9 % Average assets Total assets Losses on loans and commitments in default Losses on loans to customers as a percentage of gross loans 0.17 % 0.42 % 0.38 % Commitments in default as a percentage of gross loans 0.69 % 0.88 % 0.80 % Commitments at risk of loss as a percentage of gross loans 0.88 % 0.74 % 0.87 % Net commitments in default and at risk of loss as a percentage of gross loans 1.13 % 1.27 % 1.19 % Solidity Capital adequacy ratio % % % Core capital adequacy ratio % % % Core capital Equity and related capital resources Adjusted risk-weighted assets base Branches and full-time employees Branches Manyear Equity Certificates Equity Certificate ratio overall % % % % % % Quoted/market price NONG as at *) Quotation value Equity capital per Equity Certificate (NOK) Result per Equity Certificate (Parent Bank) Cash dividend per Equity Certificate to be paid P/E (Price/Earnings) P/V (Price/Book Value) *) Before Equity Certificate split in Profit for the period as a percentage of average total equity, calculated as average amount of quarterly equity and per and Total interest margin as a percentage of average total assets 3 Total costs as a percentage of total net income 4 Deposits from customers as a percentage of gross lending(ex. Sp1.Boligkreditt) 5 Average assets are calculated as average assets each quarter and at and Net subordinated capital as a percentage of calculated risk-weighted balance 7 Core capital as a percentage of calculated risk-weighted balance 8 EC holders share of equity capital as at Quoted price on Oslo Stock Exchange multiplied by numbers of EC's outstanding 10 EC-capital + Premium Fund + Dividend Equalisation Fund, divided by number of EC's outstanding 11 Profit for the period (parent bank) multiplied by Equity Certificates holders' share of the equity capital as at , in relation to total number of EC's 12 Cash dividend per EC for the accounting year. Resolution made by Main Board of Directors 13 Market price on Oslo Stock Exchange at end of period, divided by result for the period per EC 14 Market price on Oslo Stock Exchange at end of period, divided by book value of equity capital per EC 6/20

7 Statement of comprehensive income Parent Bank Group Q09 1Q Q10 1Q Interest income Interest costs Net interest income Fee- and commission income Fee- and commission costs Other operating income Net fee-, commision and other operating income Dividend Income from investments Net gain from investments in securities Net income from financial investments Total income Personnel costs Administration costs Ordinary depreciation Other operating costs Total costs Result before losses Losses Result before tax Tax Result for the period Majority interest Minority interests Result per Equity Certificate Result per Equity Certificate (Parent Bank) Diluted result per Equity Certificate Comprehensive income Result for the period Effective part of change in fair market value in cash flow hedging Net change in fair market value of investment in joint ventures Net change in fair market value of financial assets available for sale Tax on other comprehensive income Other comprehensive income for the period Total comprehensive income for the period Majority interest Minority interests Totalresult per Equity Certificate Total result per Equity Certificate (Parent Bank) Diluted total result per Equity Certificate Tax on other comprehensive income: Effective part of change in fair market value in cash flow hedging Net change in fair market value of financial assets available for sale Tax on other comprehensive income /20

8 Statement of financial position Parent Bank Group Assets Cash and balances with central banks Loans and advances to credit institutions Loans and advances to customers Individual write-downs for impaired value Collective write-downs for impaired value Net loans and advances to customers Shares Certificates and bonds Financial derivatives Investments in Group Companies Investments in assosiated companies and joint ventures Property, plant and equipment Intangible assets Other assets Total assets Liabilities Deposits from credit institutions Deposits from customers Debt securities in issue Financial derivatives Other liabilities Deferred tax liabilities Subordinated loan capital Total liabilities Equity Equity Certificate capital Equity Certificate premium reserve Dividend Equalisation Fund The Savings Bank's Fund Donations Fund for unrealised gains Other equity capital Result for the period Minority interests Total equity Total liabilities and equity /20

9 Result from the Group's quarterly accounts 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 2Q08 1Q08 Interest income Interest costs Net interest income Fee- and commission income Fee- and commission costs Other operating income Net fee-, commision and other operating income Dividend Income from investments Net gain from investments in securities Net income from financial investments Total income Personnel costs Administration costs Ordinary depreciation Other operating costs Total costs Result before losses Losses Result before tax Tax Minority interests Result for the period Profitability Return on equity capital % % % % % 8.71 % 5.98 % % 2.29 % Interest margin 1.70 % 1.85 % 1.77 % 1.70 % 1.87 % 2.21 % 2.31 % 2.10 % 2.06 % Cost/income % % % % % % % % % Balance sheet figures Loans and advances to customers Deposits from customers Deposits as a percentage of gross lending 73.3 % 72.4 % 69.3 % 71.6 % 67.0 % 67.4 % 63.8 % 67.7 % 62.4 % Growth in loans and advances to customers including SpareBank 1 Boligkreditt AS 5.2 % 4.0 % 5.6 % 5.1 % 7.4 % 8.0 % 9.0 % 11.0 % 11.2 % Growth in deposits from customers past 12 months 4.2 % 0.9 % 6.6 % 6.9 % 9.6 % 7.9 % 6.1 % 4.3 % 7.3 % Average assets Total assets Losses on loans and commitments in default Losses on loans to customers as a percentage of gross loans 0.17 % 0.37 % 0.32 % 0.39 % 0.42 % 0.89 % 0.33 % 0.20 % 0.02 % Commitments in default as a percentage of gross loans 0.69 % 0.80 % 0.79 % 0.93 % 0.88 % 0.60 % 0.55 % 0.32 % 0.34 % Commitments at risk of loss as a percentage of gross loans 0.88 % 0.87 % 0.83 % 0.76 % 0.74 % 0.88 % 0.93 % 0.95 % 0.75 % Net commitments in default and at risk of loss as a percentage of gross loans 1.13 % 1.19 % 1.21 % 1.34 % 1.27 % 1.08 % 1.11 % 0.98 % 0.85 % Solidity Capital adequacy ratio % % % % % % % % % Core capital adequacy ratio % % % 9.65 % % 9.06 % 9.35 % 9.44 % 9.54 % Core capital Equity and related capital resources Basel I risk-weighted assets base /20

10 Quarterly Report - Changes in equity Group PCC capital Premium Fund Dividend Equalisation Fund Saving Bank's Fund Donations Fund Fair value reserve Fund for evaluation differences Period result Total Majority interests Minority interests Total equity Equity at Total comprehensive income for the Period result Other comprehensive income: Net change in fair market value of investment in joint ventures Tax on other comprehensive income Total other comprehensive income Total comprehensive income for the period Transactions with owners Dividend issue Set aside for dividend payments Reversal of dividend payments Dividend paid Payments from Donations Fund Total transactions with owners Equity at Equity at Total comprehensive income for the Period result Other comprehensive income: Net change in fair market value of investment in joint ventures Net change in fair market value of financial assets available for sale Tax on other comprehensive income Total other comprehensive income Total comprehensive income for the period Transactions with owners Dividend issue Set aside for dividend payments 121 Reversal of dividend payments Dividend paid Payments from Donations Fund Total transactions with owners Equity at ECC ratio overall Parent Bank Equity Certificate capital Equity Certificate premium reserve Dividend Equalisation Fund Set aside dividend Share Fund Fair Value Options A. Equity attributable to Equity Certificate holders of the Bank The Savings Bank's Fund Allocated dividends to ownerless capital Donations Share Fund Fair Value Options B. Total ownerless capital Equity Certificate Ratio overall (A/(A+B)) % % 10/20

11 Statement of cash flows Parent Bank Group Result before tax Ordinary depreciation Write-downs, gains/losses fixed assets Losses on loans and guarantees Tax Group contributions Dividends/donations Provided from the year's operations Change in sundry liabilities: + increase/ - decrease Change in various claims: - increase/ + decrease Change in gross lending to and claims on customers: - increase/ + decrease Change in short term-securities: - increase/ + decrease Change in deposits from and debt owed to customers: + increase/ - decrease Change in debt owed to credit institutions: + increase/ - decrease A. Net liquidity change from operations Investment in fixed assets Sale of fixed assets Change in holdings of long-term securities: - increase/ + decrease B. Liquidity change from investments Change in borrowings through the issuance of securities: + increase/ - decrease Change in Equity Certificate/subordinated loan capital: + increase/ - decrease C. Liquidity change from financing A + B + C. Total change in liquidity Liquid funds at the start of the period = Liquid funds at the end of the period Liquid funds are defined as cash-in-hand, claims on central banks, plus loans to and claims on credit institutions. 11/20

12 Notes Note 1 - Accounting Principles The Group s quarterly accounts have been prepared in accordance with stock exchange rules and regulations and International Financial Reporting Standards (IFRS), including IAS 34 relating to interim reporting. The quarterly accounts do not comprise all information which is required in complete annual accounts and should be read in conjunction with the 2008 Annual Accounts. IAS 1 presentation of the financial accounts has been amended in 2009, involving several changes in the presentation of the profit and loss account now Statement of comprehensive income as well as the statement of changes in equity capital. Items which are recognised directly in equity capital shall now also be presented in the Statement of comprehensive income as extended profit and loss account items. In the equity capital statement transactions between the owners and other transactions are kept separate. In accordance with the rules and regulations dated 16 October 2008 issued by the Ministry of Finance, it is now permitted to reclassify securities in a trading portfolio from the category Market value with any value changes shown through the profit and loss account to the category Hold until maturity and Loans and claims. The SNN Group decided to apply such reclassification to large parts of its interest-bearing portfolio with effect from Future assessments within these categories shall be calculated at amortized cost, which means that earlier write-downs of values and interest are to be amortized and included in the profit and loss account as interest income over the remaining life of the items in question. Reference is made to Note 12. The remaining portfolio of certificates and bonds is assessed at market value through the profit and loss account. To the extent that there is an active market in the securities in question, known market prices are applied in order to establish actual value. For parts of the portfolio (portfolio of CDOs Collateralised Debt Obligations), observable prices were not available, and the Bank has therefore applied alternative assessment methods according to IFRS 39 in order to determine actual value ( Fair Market Value ) as at for the securities involved.in the absence of direct prices for the financial instruments, broad market indexes are used. These follow fluctuations in the credit markets, and are thought to reflect relevant repricing of credit risk in relation to pricing of the types of securities in question. Credit indexes used are Itraxx Europe Investment Grade Index, CDX North America Index and CMBX North America (with relevant rating in relation to the Bank s portfolio). Note 2 - Capital Adequacy New capital adequacy rules and regulations (Basel II EU s new directives for capital adequacy) were implemented in Norway with effect from 1 January SpareBank 1 Nord-Norge has received permission from The Financial Supervisory Authorityof Norway (FSAN) to apply internal calculation methods (Internal Rating-Based Approach) for credit risk from 1 January With effect from 2007, therefore, the statutory minimum capital adequacy requirement for credit risk will be based on the Bank s internal assessment of risk. This will make the statutory minimum capital adequacy requirement more risk-sensitive, which means that the capital requirement will to a larger extent correspond to the risk contained in the underlying portfolios in question. The use of internal calculation methods will involve comprehensive demands on the Bank s organisation, competence, risk models and risk management systems. As a result of transitional rules relating to the new directive mentioned above, IRB-banks would not experience the full impact of the reduced regulatory capital requirements until Until 2010, banks had to report on a parallel basis, both according to the old capital adequacy calculations and Basel II. During the period , an annual adjustment of the risk-adjusted calculation basis in relation to the old method (socalled correction of 'floor') was permitted. A resolution has now been reached to postpone this issue, and the transition rules for 2009 will continue to apply in The calculation basis in 2010 therefore amounts to 80 per cent of the calculated basis according to the Basel I rules and regulations. 12/20

13 Parent Bank Group Equity and related capital resources Core capital eksclusive minority interests Result for the period Deduction Fund for Evaluation Differences Deduction Fund for unrealised gains Deduction set aside dividend Perpetuan non-call bonds Share core capital from consolidated financial institutions Deduction deffered tax Deduction subordinated capital in other financial institutions (50 %) Deduction adjusted expected amount lost (50 %) Core capital adequacy reserve (50 %) Core capital Subordinated loan capital Share supplementary capital from consolidated institutions Deduction subordinated capital in other financial institutions (50 %) Deduction adjusted expected amount lost (50 %) Core capital adequacy reserve (50 %) Supplementary capital Equity and related capital resources Risk-weighted assets base Credit risk Settlement/Delivery risk Position,foreign exchange and commodity risks Operational risk Standardised approach Standardised approach consolidated financial institutions Deduction subordinated capital in other financial institutions (100 %) Deduction adjusted expected amount lost (100 %) Core capital adequacy reserve (100 %) Total risk-weighted assets base - IRB Basel I risk-weighted assets base Adjusted risk-weighted assets base % % % Core capital adequacy ratio % % % 1.61 % 1.34 % 0.68 % Supplementary capital adequacy ratio 1.71 % 1.60 % 2.31 % % % % Capital adequacy ratio % % % Note 3 -Net bad and doubtful commitments Non-performing commitments Non-performing commitments, impaired Individual write-down for impaired value = Net bad and doubtful commitments Note 4 - Losses incorporated in the accounts Period's change in individual write-down for impaired value Period's change in collective write-down for impaired value Period's confirmed losses against which individual write-downs were previously made Period's confirmed losses against which individual write-downs were previously not made Recoveries in respect of previously confirmed losses = Total losses on loans Note 5 - Individual- and collective write-downs for impaired value Individual write-downs for impaired value: Individual write-downs for impaired value on loans and guarantees as at Confirmed losses during the period on loans and guarantees, against which individual write-downs for impaired value has prev. bee Reversal of previous years' individual write-downs for impaired value Increase in write-downs for impaired value for commitments against which individual write-downs for impaired value were previously made Write-downs for impaired value for commitments against which no individual write-downs for impaired value was previously raised = Individual write-downs for impaired value on loans and guarantees * Collective write-downs for impaired value: Collective write-downs for impaired value against losses on loans and guarantees as at Period's collective write-downs for impaired value against losses on loans and guarantees = Collective write-downs for impaired value against losses on loans, and guarantees *Individual write-downs for impaired value on guarantees, NOK 4 million, are included in the Balance Sheet as liabilities under 'Provisions against liabilities'. 13/20

14 Parent Bank Group Note 6 - Loans broken down by sector and industry Central government administration and social security administration Counties and municipalities Agriculture, forestry, fisheries, hunting and fish farming Production of crude oil and natural gas Industry and mining Building and construction, power and water supply Wholesale and retail trade; hotel and restaurant industry International shipping and pipeline transport Financing, property management and business services Transport and communication Other service industries Insurance, fund management and financial services Retail banking market Foreign retail banking market Gross lending Note 7 - Losses broken down by sector and industry Central government administration and social security administration Counties and municipalities Agriculture, forestry, fisheries, hunting and fish farming Production of crude oil and natural gas Industry and mining Building and construction, power and water supply Wholesale and retail trade; hotel and restaurant industry International shipping and pipeline transport Financing, property management and business services Transport and communication Other service industries Insurance, fund management and financial services Retail banking market Foreign retail banking market Non individual specific write-downs public market Collective write-downs public market Collective write-downs retail market Unallocated market Gross losses Recoveries from previously written off losses Net losses Note 8 - Deposits broken down by sector and industry Central government administration and social security administration Counties and municipalities Agriculture, forestry, fisheries, hunting and fish farming Production of crude oil and natural gas Industry and mining Building and construction, power and water supply Wholesale and retail trade; hotel and restaurant industry International shipping and pipeline transport Financing, property management and business services Transport and communication Insurance, fund management and financial services Other service industries Retail banking market Foreign retail banking market Deposits from customers /20

15 Note 9 - Subsidiaries Profit from ordinary operations (Amounts in NOK 1 000) after tax Equity Share of Eq.% SpareBank 1 Finans Nord-Norge AS SpareBank 1 Nord-Norge Invest AS Eiendomsdrift AS EiendomsMegler 1 Nord-Norge AS SpareBank 1 Nord-Norge Securities ASA Sparebanken Factoring BBL Eiendomsmegling AS Sparebanken Factoring was sold at BBL Eiendomsmegling AS are included in accounts for EiendomsMegler 1 Nord-Norge AS. Parent Bank Group Note 10 - Other assets Repossessed assets Accrued income Prepayments Other assets Total other assets Note 11 - Other liabilities Costs incurred Provisioning against incurred liabilities and costs Other liabilities Total other liabilities Note 12 - Investment in bonds As a result of extraordinary market conditions, parts of the Bank s ordinary securities portfolio became illiquid in Following the changes in international accounting standards in October 2008 (see note 1), the SNN Group decided to reclassify parts of the Bank s bond portfolio as at from the category Market value with inclusion of value changes over the profit and loss account to the categories Hold until maturity and Loans and claims as the securities in question no longer was expected to be sold before maturity. In the category Hold until maturity the Bank includes quoted securities, whereas unquoted securities has been put into the category of Loans and claims.' In the categories Hold until maturity and Loans and claims the securities are assessed at amortized cost. After the reclassification, the writedowns made earlier will be reversed over the portfolio s remaining life, which on average is 1,86 year as at , and included in the profit and loss account as interest income. For the last half year of 2008 and the year 2009, such inclusion of income amounts to NOK 44 million. As at the amount booked as income is NOK 5 million. If the reclassification had not been made, the Group would have charged NOK 212 million to the profit and loss account in the third and fourth quarter of 2008 due to increased credit spreads. This unrealised loss would have been reduced to NOK 10 as at It was necessary to apply a NOK 46 million write-down due to the permanent impairment of value in this portfolio as at A further NOK 17 million write-down has been made on this part of the portfolio as at No further write-down has been made in The portfolio had an NOK 478 million unrealised loss on foreign exchange as at As at the loss was NOK 3 million and as at the unrealised loss is NOK 44 million Hold until maturity Book value Nominal value (nominal amount) Theoretical market value Loans and claims Book value Nominal value (nominal amount) Theoretical market value Total book value /20

16 Note 13 - Securities issued and subordinated loan capital Parent Bank and Group Securities issued Certificates and other short-term borrowings 355 Bond debt Total debt securities in issue Changes in securities issued: Statement of financial position Issued Matured/ redeemed Exchange rate movements Other adjustments Statement of financial position Certificates and other short-term borrowings Bond debt Total debt securities issued Subordinated loan capital and perpetual subordinated loan capital securities Perpetual subordinated loan capital securities months Libor + margin (US$ 60 mill.)(call opt. 2013) Perpetual subordinated loan capital securities - currency Total perpetual subordinated loan capital securities Subordinated loan capital Subordinated loan capital with definite maturities Total subordinated loan capital Total subordinated loan capital and perpetual Changes in subordinated loan capital and perpetual subordinated loan capital securities: Statement of financial position Issued Matured/ redeemed Exchange rate movements Other adjustments Statement of financial position Subordinated loan capital with definite maturities Perpetual subordinated loan capital securities subordinated loan capital securities /20

17 Note 14 - Financial derivatives Parent Bank and Group Interest rate swaps: Commitments to exchange one set of cash flow for another over an agreed period. Foreign exchange derivatives: Agreements to buy or sell a fixed amount of currency at an agreed future date at a rate of exchange which has been agreed in advance Currency swaps: Agreements relating to the swapping of currency- and interest rate terms and conditions, periods and amounts having been agreed in advance. Interest rate- and currency swap agreements: Agreements involving the swapping of currency- and interest rate terms and conditions, periods and amounts having been agreed in advance. Options: Agreements where the seller gives the buyer a right, but not an obligation to either sell or buy a financial instrument or currency at an agreed date or before, and at an agreed amount. SpareBank 1 Nord-Norge enters into hedging contracts with respected Norwegian and foreign banks in order to reduce its own risk. Financial derivatives transactions are related to ordinary banking operations and are done in order to reduce the risk relating to the Bank s funding loans from the financial markets, and in order to cover and reduce risk relating to customer-related activities. Only hedging transactions relating to the Bank s funding loan operations are defined as fair value hedging in accordance with IFRS standard IAS 39. Other hedging transactions are defined as ordinary accounts-related hedging. The Bank does not use cash flow hedging. Fair value hedging transactions Net loss charged to the statement of comprehensive income in respect of hedging instruments in connection with actual value Total gain from hedging objects relating to the hedged risk Total fair value hedging transactions The Bank's main Board of Directors has determined limits for maximum risk for the Bank's interest rate positions. Routines have been established to ensure that positions are maintained within these limits. Fair value through statement of comprehensive income Fair value Fair value Fair value Foreign currency instruments Contract Assets Liabilites Contract Assets Liabilites Contract Assets Liabilites Foreign exchange financial derivatives (forwards) Currency swaps Currency options Total non-standardised contracts Standardised foreign currency contracts (futures) Total foreign currency instruments Interest rate instruments Interest rate swaps (including cross currency) Short,-term interest rate swaps (FRA) Other interest rate contracts Total non-standardised contracts Standardised interest rate contracts (futures) Total interest rate instruments Hedging of funding loans Foreign currency instruments Foreign exchange financial derivatives (forwards) Currency swaps Total, non-standardised contracts Standardised foreign currency contracts (futures) Total foreign currency instruments Interest rate instruments Interest rate swaps (including cross currency) Short-term interest rate swaps (FRA) Other interest rate contracts Total, non-standardised contracts Standardised interest rate contracts (futures) Total interest rate instruments Total interest rate instruments Total foreign currency instruments Total /20

18 Note 15 - Business Areas Management has made an assessment of which business areas are deemed reportable with respect to form of distribution, products and customers. The primary format of reporting takes as a starting point risk and yield profiles of various assets and reporting is divided into private customers (Retail Banking Market), Corporate / Public Market and leasing. Apart from what is included in this list, the Group does not have any companies or segments which are of significant importance. The Bank operates in a limited geograpfical area and reporting along the lines of geograpfic segments provides little additional information. Group Retail Corporate Leasing Unallocated Total Net interest income Net fee- and commission income Other operating income Operating costs Result before losses Losses Result before tax Loans and advances to customers Individual write-downs for impaired value on loans and advances to customers Collective write-downs for impaired value on loans and advances to customers Other assets Total assets per business area Deposits from customers Other liabilities and equity capital Total equity and liabilities per business area Net interest income Net fee- and commission income Other operating income Operating costs Result before losses Losses Result before tax Loans and advances to customers Individual write-downs for impaired value on loans and advances to customers Collective write-downs for impaired value on loans and advances to customers Other assets Total assets per business area Deposits from customers Other liabilities and equity capital Total equity and liabilities per business area /20

19 Note 16 - Primary Capital Certificates (PCCs) The 20 largest PCC holders as at Number Share of PCC Holders of PCCs PCC Capital Pareto Aksjer Norge % Pareto Aktiv % MP Pensjon % Frank Mohn AS % Tonsenhagen Forretningssentrum AS % Framo Development AS % Grunnfond Invest AS % Sparebanken Rogalands Pensjonskasse % Forsvarets Personellservice % Pareto VPF % Karl Ditlefsen, Tromsø % Sparebankstiftelsen % Trond Mohn % Fred Olsen & Co s pensjonskasse % Terra Utbytte Verdipapirfond % Troms Kraft Invest AS, Tromsø % Lærdal Finans A/S % Ringerike Sparebank % Bodø Kommune, Bodø % Norges Råfisklag, Tromsø % TOTAL % Dividend policy Through its policy regarding owners of its capital and its dividend policy, the bank intends to ensure that its equity certificates are regarded as attractive and liquid financial instruments. The bank's objective is to manage the group's resources in such a way that, compared to comparable investments and taking into account the bank's risk profile, a good, long-term and competitive return on the bank's equity is achieved. For the owners of the bank's equity certificates, the return will be in the form of cash dividends and changes in the market price of the certificates. SpareBank 1 Nord-Norge's equity comprises two principal groups: the equity capital owned by the owners of the bank's equity certificates, and the equity capital that is socially owned. The bank's aim is to ensure that, over time, it will be a savings bank with a considerable element of sociallyowned capital. Furthermore, the bank's goal is to treat the owner groups equitably, in accordance with the intentions in the current legislation. This implies that the bank will seek to avoid undesirable equity dilution effects that result from inequitable treatment of the two groups of owners. The profit for the individual year is to be split proportionately between the owner groups in relation to their relative share of the bank's equity. Dividends will, as far as possible, be set so that each of the groups has at its disposal equally large relative shares of the profit as a dividend. Dividends will comprise cash payments to equity certificate holders and funds allocated to reserves for donations and endowments etc. The bank's aim is to distribute a total of up to 50 per cent of the profit for the year in the form of dividends. Trading statistics N O K dec.08 jan.09 feb.09 mar.09 apr.09 may.09 jun.09 jul.09 aug.09 sep.09 oct.09 nov. 09 dec.09 jan. 10 feb. 10 mar. 10 Price trend NONG dec.08 jan.09 feb.09 mar.09 apr.09 mai.09 jun.09 jun.09 jul.09 aug.09 sep.09 oct.09 nov. 09 dec.09 jan. 10 feb. 10 mar /20

20 SpareBank 1 Nord-Norge P.O. Box 6800 N-9298 Tromsø Telephone: ( ) Web: @snn.no Org.number: Headoffice: Storgata 65, Tromsø SpareBank 1 Nord-Norge Main Board of Directors: Kjell Olav Pettersen, Tromsø (Chairman) Erik Sture Larre jr., Oslo (Deputy Chairman) Roar Dons, Tromsø Elisabeth Johansen, Stamsund Ann-Christine Nybacka, Brønnøysund Pål Andreas Pedersen, Bodø Anita Persen, Alta Vivi Ann Pedersen, Tromsø (elected from the employees) Gunnar Kristiansen, Sortland (elected from the employees, deputy) Information Members of the Group Management Committee: Hans Olav Karde (Chief Executive Officer) Oddmund Åsen (Deputy Chief Executive Officer) Liv Bortne Ulriksen (Senior Group General Manager Corporate Banking Market) Stig Arne Engen (Senior Group General Manager Retail Banking Market) Rolf Eigil Bygdnes (Senior Group General Manager CFO) Elisabeth Utheim (Senior Group General Manager Support Functions) Geir Andreassen (Senior Group General Manager Risk Management) Kjell Kolbeinsen (Director, Information and Public Relations) Investor Relations Rolf Eigil Bygdnes (Senior Group General Manager CFO) Telephone [email protected] Financial Calendar Supervisory Board Meeting 17 March 2010 PCC noted exsclusive dividend 18 March 2009 Interim reports and accounts 2010: 1st quarter 28 April nd quarter 11 August rd quarter 28 October th quarter At the beginning of February /20