2002 A N N U A L R E P O R T

Transcription

1 ANNUAL REPORT

2 ANNUAL REPORT DIRECTORS REPORT In, the Fokus Bank recorded a profit of NOK million, against a loss of NOK million the previous year. The pre-tax operating result before loan losses amounted to NOK million, against NOK million the previous year. The profit for was generated by an increase in net interest income, a cut in expenses, lower loan loss provisions and the recognition of gains on the sale of shares in Europay Norge AS. Fokus Bank made a profit on ordinary operations corresponding to a return on equity of 11.2% after tax. During the year, assets under management rose by NOK 4.8 billion, or 8.8%, to NOK 59.2 billion. Ordinary deposits rose 9.6% during the year, while gross lending rose 12.6%. Fokus Bank, Annual report, page 2/49

3 ANNUAL REPORT THE BANK IN The year was characterised by general uncertainty and a weak trend in the global economy, resulting in a sharp decline in equity prices and unstable interest rate markets. The global economic unrest affected the Norwegian economy. The uncertainty created by the international economy was increased by domestic factors, such as large pay increases, the strong Norwegian krone and a high interest rate level compared with Norway s major trading partners. This trend was a challenge to businesses operating in a competitive environment and put a damper on corporate investments. Consequently, credit demand from the corporate sector declined, a number of enterprises saw a fall in earnings and unemployment rose. The households, on the other hand, experienced higher real incomes owing to the rise in pay, and therefore their propensity to borrow was also higher throughout. In this uncertain economic climate, Fokus Bank benefited from its strategy which is to concentrate on the Bank s core activities. Fokus Bank concentrated on its strategy Focus on the customer and strove for high customer satisfaction. At the end of 2001, the Bank decided to give a lower priority to proprietary trading in shares. Because of this decision, Fokus Bank was not directly affected by the sharp fall in stock exchange prices. During, the Bank planned and implemented a number of measures to build up Fokus Bank as a strong national brand. One of the measures was nation-wide marketing, with television advertising as the main channel. Surveys show that these efforts have greatly improved the awareness and profile of Fokus Bank all over Norway. Fokus Bank established six new branches in. Two of them in Oslo, one in Lillestrøm, one in Bergen, one in Trondheim and one in Stavanger. This means that the Bank established new offices in and around the four largest cities in Norway, which constitute its geographical focus areas. As part of this continuous adjustment of the branch network to customer demand, the Bank sold its branch in Vikedal and has decided to sell the branches in Lofthus and Odda. At the end of 2001, Fokus Bank launched its own service concept targeted at high net-worth customers Fokus Private Banking. There was a large inflow of customers and Fokus Private Banking showed a very good trend in a demanding segment. Fokus Bank, Annual report, page 3/49

4 ANNUAL REPORT In the spring of, the Bank launched Fokus Retail Bank aiming at retail customers with high savings potential. This customer segment is growing and constitutes an important element of the Bank s target group. The core of the Retail Bank is advisory services tailored to meet the needs of the individual customers. Over the year, the first retail banking branches opened in Oslo, Trondheim and Bergen. They were very well received and the inflow of customers is good. Fokus Bank bases its activities within investment management on the open architecture principle to ensure the largest possible independence when advising its customers. Consequently, the Bank has decided to expand its customer-oriented services and to outsource operations to ensure that the customer achieves the most competitive product. The Bank entered into a number of agreements in to distribute the products of the best Norwegian and international investment funds. Fokus Bank offers these products to customers parallel with the products of the Firstnordic funds, which are the Bank s own funds. At the end of the year, Fokus Bank had about 50,000 internet banking customers. This is 10,000 more than at the same time the year before. In addition to the strong increase in the number of internet banking customers, the customers use of the internet banking facilities rose by 50%. Part of the reason for this increase is the fact that the Bank introduced a number of new services in. One of them is an investment portal which enable s customers to trade on international stock exchanges. The Norwegian Gallup s annual banking survey for shows that Fokus Bank s retail customers are the most satisfied retail banking customers in Norway. The result of the survey is confirmed by figures from the Norwegian Customer Survey which ranks Fokus Bank as the best major bank in Norway. Over the year, a number of large corporates have become customers of Fokus Bank. The proportion of the largest enterprises in Norway that consider Fokus Bank as their main banker has increased since the beginning of. The Bank s focus on the eastern region of Norway, Østlandet, strengthened when Danske Bank s branch for major corporate clients in Oslo was integrated into Fokus Bank. This integration merges the benefit of availability through Fokus Bank s network of branches with the strong professional environment in the corporate branch, thereby increasing the Bank s position in the corporate market. At the beginning of 2000, Fokus Branch started a critical and thorough review of its loan portfolio. At the same time, the Bank launched an extensive programme to upgrade staff skills, systems and procedures for credit processing. This programme continued in and materially increased the quality of the Bank s loan portfolio in. Fokus Bank, Annual report, page 4/49

5 ANNUAL REPORT PROFIT AND LOSS ACCOUNT In, the Fokus Bank recorded a profit of NOK million, against a loss of NOK million the previous year. The pre-tax operating result before loan losses amounted to NOK million, against NOK million the previous year. The profit for was affected by an increase in net interest income, a cut in expenses, lower loan loss provisions and the recognition of gains on the sale of shares in Europay Norge AS. Income Net interest income amounted to NOK 1,234 million, which is NOK million higher than in The increase in net interest income was generated by a sound increase in loans and deposits and a fall in non-interest bearing assets. As part of its efforts to concentrate on its core activities, Fokus Bank has sold properties and its short-term holding of equities over the past years. Net other operating income totalled NOK million, which is a fall of NOK million on Dividends from securities fell NOK 50 million from 2001 to. The reason is payment of extraordinary dividend in 2001 and the sale of the Bank s trading portfolio of equities in Net commission income fell NOK 50.2 million from 2001 to. The main reason for the fall is that commission income of NOK 37.5 million in Danske Securities ASA was consolidated into the accounts in Net gains / losses on securities rose by NOK 15.7 million from 2001 to. Fokus Bank incurred losses owing to the falling equity prices in 2001, but was not directly affected in because it had sold its proprietary holding of shares. Other operating income totalled NOK 70.1 million, which is a fall of NOK 28.5 million on The fall is due primarily to one-off income from the sale of branches in Expenses Operating expenses totalled NOK 1,123.4 million, which is a fall of NOK million on The main reason for the fall is that expenses of NOK 174 million for the integration of Fokus Bank s IT systems with Danske Bank s systems were recognised as an expense item in Staff costs were NOK 32.2 million lower in than in Staff costs of NOK 22.8 million at Danske Securities were recognised in Fokus Bank s accounts in The rest of the fall is accounted for by lower consumption of overtime and a decline in pension costs. General administrative expenses fell NOK million from 2001 to. Expenses of NOK 174 million for conversion to the shared IT platform were recognised in the accounts in In addition, administrative expenses of NOK 16.9 million at Danske Securities ASA were recognised in Fokus Bank s accounts in Expenses for, among other things, systems development and other development projects, and for marketing and customer communication rose from 2001 to. Depreciation of fixed assets went down by NOK 65.0 million. The reason that depreciation and write-downs were lower in is, among other things, that bank buildings were written down by NOK 16.7 million in 2001 and that write-off and write-down of goodwill in connection with Danske Securities ASA were recognised in the 2001 accounts with NOK 32.8 million. The cost/income ratio, defined as total operating expenses in relation to total operating income, stood at 0.68%, against 0.80% in Excluding IT integration expenses, the ratio was 0.69% in Fokus Bank, Annual report, page 5/49

6 ANNUAL REPORT Losses on loans and guarantees Net losses on loans stood at NOK million in, against NOK million in Specific loan loss provisions on retail customers accounted for 17.3% of total loan loss provisions, while business customers accounted for 82.7%. General loan loss provisions remained almost unchanged compared with provisions at the end of General loan loss provisions of NOK million and specific loan loss provisions are considered sufficient to cover the portfolio risk at year-end. As regards expected losses in the years ahead, we refer to Note 11. Tax The Fokus Bank had a tax charge of NOK million in. The tax charge is a reduction of a deferred tax credit. Allocation of profit It is proposed that of the NOK million profit for the year NOK million is distributed as dividend and NOK million transferred to other equity. Fokus Bank, Annual report, page 6/49

7 ANNUAL REPORT BALANCE SHEET Assets under management In, total assets under management increased by NOK 4.8 billion, or 8.8%, and amounted to NOK 59.2 billion at the end of the year. Gross lending totalled NOK 51.1 billion, which is an increase of 12.6% on the previous year. Business customers accounted for 12.2% and retail customers for 12.9% of this increase. Customer deposits reached NOK 29.4 billion at year-end an increase of NOK 2.6 billion, or 9.6%. The Bank s deposit coverage ratio defined as customer deposits as a percentage of gross lending stood at 58% at the end of the year. This figure is 1.0 percentage point lower than the ratio at the end of At the end of, Fokus Bank had liabilities of NOK 6.3 billion deriving from the issue of securities. This is NOK 3.5 billion lower than at the end of Fokus Bank takes advantage of the competitive edge provided by Danske Bank s ownership and position in the market to reduce the expenses associated with short-term funding and the issue of certificates and bonds. Capital adequacy ratio and equity capital At the end of the year, the core capital ratios of Fokus Bank ASA stood at 9.7% (parent company) and 8.0% (). The corresponding figures at the end of 2001 were 8.2% and 7.0%, respectively. The capital adequacy ratio at end- was 14.4% for the parent company and 11.9% for the. The annual accounts were prepared on the basis of the going-concern principle. Fokus Bank, Annual report, page 7/49

8 ANNUAL REPORT Risk management Fokus Bank s risk management concentrates on credit risk, market risk, operational risk and liquidity risk. The credit risk represents the highest risk at the Bank and consequently attracts the most attention. Fokus Bank s credit management combines the advantages of local expertise with the s uniform guidelines and monitoring of the loan portfolio. The monitoring and management of the credit risk of the Bank s loan portfolio is centralised and regulated by the Bank s credit policy and credit strategy. All exposures are classified according to clearly defined rules. The composition of the loan portfolio is managed according to specific limits for maximum exposure within specific sectors. Systems and procedures for credit assessment have been upgraded to ensure that the risk on new exposures is satisfactory. In parallel with this, Fokus Bank has reduced the number of weak loans in the portfolio. This has increased the quality of the total portfolio. Operational risk is defined as losses caused by failure of internal processes or systems and losses caused by fraud or other external factors. Increased focus on internal controls and the conversion of Fokus Bank s systems to the Danske Bank s shared IT platform help reduce the Bank s operational risk. The Bank s market risk is defined as interest rate, share price and foreign exchange risk. The risk is low compared with the Bank s equity capital, in part because the Bank does not trade in short-term share holdings on its own account. The market risk is kept at a low level by using limit structures. Positions are monitored regularly to ensure that the risk is kept within the prescribed limits. Exposure limits are determined by the Board of Directors in consultation with Danske Bank, and in addition to Fokus Bank s risk management of Norwegian activities, Fokus Bank s risk management is incorporated in the total risk management of Danske Bank. Besides customer deposits, Danske Bank is Fokus Bank s most important source of capital. Limits have been determined for the amount of loans that may be financed on a short term. The liquidity risk is assessed to be at the same level as other Norwegian banks, not considering Fokus Bank s affiliation with Danske Bank. Fokus Bank, Annual report, page 8/49

9 ANNUAL REPORT Staff At the end of, the had a staff of 1,018. In terms of full-time employees, the number was 987, of whom 961 were employed by Fokus Bank ASA. In the course of, the number of full-time employees was reduced by 5. The Bank has entered into a local agreement with staff which governs agreements between staff and management on salary policies, working hours, the development of professional skills and recruitment. The Bank has an occupational health service to ensure the well-being of the staff, which aims at focusing on preventive measures. No occupational injuries or accidents were registered at Fokus Bank during the year. Absence due to illness was 4.5% in, against 3.6% in The increase is in line with the general increase in absence due to illness in Norway. By its nature, the business of Fokus Bank does little to pollute the environment. Outlook The global economic outlook was very uncertain at the beginning of It is assumed that an increasing number of Norwegian businesses will face difficulties because of the slowdown of the global economy, the weak growth in the Norwegian economy, the continued high level of interest rates in Norway, and the strong Norwegian krone. Growth in demand for credit is therefore expected to decline more and the credit risk on corporate credits, in particular, is likely to increase somewhat. In addition, financial savings are expected to be characterised by demand for fairly low-risk products also in In 2003, Fokus Bank will follow the same strategies as in and will strengthen its focus on customer relationships, core activities and strong credit management, in particular. Given the market outlook, 2003 is set to be a demanding year, but in view of the stability and solvency inherent in its owner, Danske Bank, Fokus Bank is considered to be in a very good position to meet the challenges. Fokus Bank, Annual report, page 9/49

10 ANNUAL REPORT Board of Directors The Board of Directors of Fokus Bank ASA consists of: Søren Møller Nielsen, Chairman Peter Straarup, Deputy Chairman John Giverholt Mette Cecilie Greve Anton Jenssen jr. Bjørn Arnestad Torbjørn R. Skjerve Vibeke Ulvin (elected by the staff) Thomas Borgen, Managing Director of Fokus Bank Deputy Directors Terje Svendsen Margunn Kleveland (elected by the staff) Finn Roy Orholm (elected by the staff) Søren Møller Nielsen Peter Straarup John Giverholt Mette Cecilie Greve Anton Jenssen jr. Torbjørn R. Skjerve Bjørn Arnestad Thomas F. Borgen Vibeke Ulvin Oslo, February 12, 2003 Fokus Bank, Årsrapport, side 10/47

11 PROFIT AND LOSS ACCOUNT PROFIT AND LOSS ACCOUNT Parent bank 2001 NOK million Note , ,3 Interest income and related income , , , ,6 Interest expenses and related expenses , ,0 969, ,7 Net interest and credit commission income 1 234, ,4 157,0 168,2 Dividends and other income from securities 27,5 77,5 350,9 366,9 Commission income and other income from banking services 335,8 385,4 (63,9) (68,3) Commissions paid and other expenses for banking services (64,7) (64,1) (21,0) (0,4) Net losses on securities (0,4) (16,1) 51,5 52,1 Net gains on foreign exchange and financial derivatives 49,1 51,5 110,6 68,8 Other operating income 70,1 98,6 585,1 587,3 Other operating income, net ,4 532, , ,0 Total operating income 1 651, ,2 515,8 513,2 Salaries, pensions and other staff costs 28, ,3 561,5 443,3 365,1 Administrative expenses ,8 475,3 54,6 28,2 Depreciation and write-downs of fixed assets 24 28,3 93,3 180,9 189,1 Other operating expenses ,0 189, , ,6 Total operating expenses 1 123, ,8 Operating profit before loan losses and net profit 359,9 527,4 on long-term investments in securities 528,0 330,4 577,2 128,6 Losses on loans and guarantees 4, 5 128,6 586,3 0,8 158,4 Net gains on financial fixed assets 158,4 45,8 (216,5) 557,2 Pre-tax result of ordinary operations 557,8 (210,1) (84,1) 114,6 Tax on result of ordinary operations ,6 (84,6) (132,4) 442,6 Result of ordinary operations after tax 443,2 (125,5) 0,0 0,0 Extraordinary expenses 0,0 0,0 0,0 0,0 Tax on extraordinary result 0,0 0,0 (132,4) 442,6 Result for the year 443,2 (125,5) ALLOCATIONS AND TRANSFERS 132,4 0,0 Transferred from other equity capital 0,0 125,5 132,4 0,0 TOTAL TRANSFERS 0,0 125,5 0,0 332,0 Dividends 332,0 0,0 0,0 110,6 Transferred to retained profits ,2 0,0 0,0 442,6 TOTAL ALLOCATIONS 443,2 0,0 Fokus Bank, Annual report, page 11/49

12 BALANCE Parent bank BALANCE SHEET 2001 NOK million Note 2001 ASSETS 1 148, ,5 Cash and deposits with central banks 1 343, , , ,7 Loans to and deposits with credit institutions , , , ,2 Loans to credit institutions 4 820, , , ,5 Gross lending to customers 2,5,6,7,8,30, , , , ,6 - Specific loan loss provisions , ,2 169,0 171,7 - General loan loss provisions 3 171,7 171, , ,2 Net lending to customers , ,9 1,7 1,3 Repossessed assets 26 1,3 1, , ,8 Commercial paper and bonds , ,5 304,6 284,0 Shares and other securities ,0 304,7 54,1 32,4 Holdings in associated companies 20 32,4 54, ,2 872,6 Holdings in consolidated companies 21,23,38 0,0 0,0 865,7 743,9 Intangible assets 24, ,0 874,3 283,1 214,1 Fixed assets 24,25,26,27 213,8 283,4 369,8 175,0 Other assets 192,0 372,8 593,2 292,5 Prepayments ,0 535, , ,0 Total assets , ,2 LIABILITIES AND EQUITY CAPITAL 2 782, ,6 Amounts due to credit institutions , , , ,6 Deposits from and amounts due to customers , , , ,4 Commercial paper and bonds issued , ,6 670, ,2 Other liabilities 1 468,1 671,9 375,2 146,5 Accrued expenses and prepaid income 365,4 584,4 209,2 528,9 Provisions for obligations and expenses 29,36,39 528,9 217, , ,2 Subordinated debt , , , ,4 TOTAL LIABILITIES , , , ,4 Paid-in capital *) , , , ,2 Retained profits 2 337, , , ,6 TOTAL EQUITY CAPITAL 16, , , , ,0 TOTAL LIABILITIES AND EQUITY CAPITAL , ,2 Off-balance-sheet items: See Notes 34, 35, 37, 40 *) Share capital: Total 136,324,267 shares with a nominal value of NOK 11 Søren Møller Nielsen Peter Straarup John Giverholt Mette Cecilie Greve Anton Jenssen jr. Torbjørn R. Skjerve Bjørn Arnestad Thomas F. Borgen Vibeke Ulvin Fokus Bank, Årsrapport, side 12/47

13 LIST OF NOTES Note 1 Accounting policies Note 2 Loans and loan losses by customer segment and industry Note 3 Changes in specific and general provisions for losses Note 4 Losses on loans and guarantees Note 5 Loans and losses by region Note 6 Doubtful, non-performing and non-interest bearing facilities Note 7 Leasing agreements by parent bank and others Note 8 Loans granted as subordinated debt Note 9 Loans to and amounts due from credit institutions Note 10 Changes in accrued, not-recognised interest on loans Note 11 Loans and guarantees by type of risk Note 12 Deposits from credit institutions Note 13 Deposits from customers Note 14 Bonds issued Note 15 Subordinated debt Note 16 Specification of changes in equity capital Note 17 Capital adequacy Note 18 Ownership Note 19 Bonds and commercial paper Note 20 Associated companies Note 21 Shares in subsidiaries Note 22 Other long-term shares Note 23 Participation in partnerships Note 24 Changes in fixed assets Note 25 Investment in and sale of fixed assets Note 26 Repossessed assets Note 27 Real property and tenancy agreements Note 28 Salaries and administrative expenses Note 29 Pensions, parent bank Note 30 Loans to employees and staff representatives Note 31 Interest income and interest expenses Note 32 Other operating income Note 33 Other operating expenses Note 34 Remaining life for main items at Note 35 Agreed time for change in interest rate on main items at Note 36 Taxation, parent bank Note 37 Guarantees, pledged assets Note 38 Subsidiaries Note 39 Provisions for obligations and costs Note 40 Financial derivatives and financial risk management Note 41 Contingent liabilities Note 42 Cash flow statement Fokus Bank, Annual report, page 13/49

14 NOTE 1. ACCOUNTING POLICIES General The annual accounts have been prepared in compliance with accounting standards laid down by laws and regulations for commercial banks, as well as generally accepted accounting practices. Shares in subsidiaries are included in the Parent Bank accounts according to the cost method. Consolidation The Accounts include Fokus Bank and companies in which the Bank alone, or with subsidiaries, has a shareholding in excess of 50% of the share capital. These companies are presented in Note 21. Furthermore, associated companies (20-50% ownership) where the ownership gives an influence and is considered a longterm investment for the have been included in the consolidated accounts. These companies are listed in Note 20. Associated companies are carried in the Accounts according to the equity method. Inter-company accounts, interest, commissions and internal profits between companies in the have been eliminated. The profit and loss accounts of subsidiaries acquired during the accounting year are consolidated from the time of acquisition. Accounting for loan losses Loans are recorded at nominal value less loan loss provisions. Loan loss provisions are made on the basis of an evaluation of the individual facilities. When performing this evaluation, emphasis is placed on the customer s financial position as well as the realisable value of existing collateral. A facility is defined as non-performing when payment is not effected as agreed and 90 days have lapsed after the due date. When a credit facility is defined as non-performing, interest will, as a general rule, no longer be recognised. Likewise, unpaid interest recognised on the same facility during the year will, as a general rule, be reversed in the current year s Profit and Loss Account. Confirmed losses are all losses resulting from bankruptcy, compulsory composition, debt renegotiation or other similar proceedings. Specific loan loss provisions are provisions made to cover probable losses on facilities having been identified as non-performing or doubtful on the balance sheet date. Calculated loan losses represent the difference between the facility s nominal value and the value of the collateral, if any. In performing this evaluation, account will be taken of the customer s overall financial position and any steps which may have been taken to improve this. In situations where the loan conditions are changed, leading to the value of the loan being substantially lower than it would have been under normal interest conditions, the difference will be treated as a confirmed loss. The difference between the nominal value and the written-down value of the loan will be taken to income over the remaining term of the loan. In certain situations, the Bank will assume title to assets which have been pledged as security for a credit facility. When these assets are taken over for quick disposal, they will be valued at their fair value and included in a separate entry under other current assets in the Balance Sheet. If the Bank takes over such assets for its own use or considers the assets long-term investments, they will be valued at their fair value at the time of taking over and classified as fixed assets. Fokus Bank, Annual report, page 14/49

15 General provisions for loan losses General provisions for loan losses cover provisions for probable losses on credit facilities not identified and assessed according to the rules governing specific provisions on the balance-sheet date. General loan loss provisions include provisions for three groups of borrowers: - retail customers - major corporates - other business customers Valuation of property Bank buildings and other properties are valued at cost adjusted by earlier revaluations less accumulated ordinary depreciation and any write-downs. Repossessed assets are valued on the basis of the accounting regulations laid down by the Norwegian Banking, Insurance and Securities Commission as well as the requirements of the Norwegian Companies Act applicable to current assets, see also Note 27. Securities The Bank s holding of bonds and commercial paper constitutes its trading portfolio. The trading portfolio consists of readily marketable securities available for sale. The trading portfolio is valued at market value. The Bank s holding of shares consists of shares in subsidiaries and other long-term shares. Shares to be held for a long period of time and shares in subsidiaries are defined as long-term shares. Shares held as long-term investments are recorded at cost. If the value of a company is lower than the book value of the shares and the decrease is not temporary, the shares will be written down to their fair value. Major participations in partnerships are included in the accounts using the net method, while minor participations are included in the accounts using the cost method. These participations are shown in Note 23. Bonds issued Bonds issued are recorded in the Balance Sheet at market value at the date of issue. Premiums and discounts on bonds issued are accrued according to the straight-line method over the remaining time to maturity. See Note 14. Fokus Bank, Annual report, page 15/49

16 Leasing Finance leasing is classified as lending in the Balance Sheet. The interest portion of the rent is taken to income while the repayment portion is recorded as repayments on loans. The s lease contracts are entered into by the Bank s subsidiary Fokus Finans AS and mainly concern leasing of vehicles and machinery. Foreign exchange Assets and liabilities in foreign currency are converted into Norwegian kroner on the basis of the mid-market rate at December 31,. Net profit or loss is booked as net gains or losses on foreign exchange. Assets and liabilities in foreign currency are hedged either by similar items on the opposite side of the Balance Sheet or by off-balance-sheet hedging transactions. Unrealised gains and losses on assets and liabilities in foreign currency are netted against the related gains and losses on the hedging transactions. Income and expenses in foreign currencies are converted into Norwegian kroner at the current rate at the time of booking, See Notes 34 and 40. Financial derivatives Financial derivatives are classified in two portfolios, the banking portfolio and the trading portfolio. The banking portfolio includes derivatives traded for the purpose of hedging specific balance-sheet items. All other derivatives are included in the trading portfolio. Hedging contracts Contracts made to secure a future interest or foreign exchange rate applicable to items in the Bank s Balance Sheet are defined as hedging contracts. Hedging contracts are normally defined by a 1:1 relationship against an underlying balance-sheet item. Any items too small to be hedged 1:1 are hedged by contracts with almost identical maturity and principal. The balance-sheet item and the corresponding hedging are identified either by own portfolio or by the relationship being established and reported together. This is the case in particular for interest rate derivatives. Trading contracts All transactions not hedging balance-sheet items are defined as trading contracts. Foreign exchange derivatives are marked to market and recorded as net gains or losses on foreign exchange and financial derivatives. The result from interest rate derivatives is marked to market and booked as gains or losses on foreign exchange and financial derivatives. Market valuations are based on actual values in the markets, possibly market values based on yield curves or the like. The value of the portfolio is calculated as if liquidated at the balance-sheet date. The value does not necessarily correspond to the value the company might achieve in the market. Fokus Bank, Annual report, page 16/49

17 Portfolio and other risk management NOTES The Bank has a portfolio management system registering all lending commitments. All customers have been classified by risk category with attached risk marking. This tool facilitates management and monitoring of the Bank's credit risk, see also the sections describing loan losses and loan loss provisions. The Bank uses derivatives to hedge price, interest and foreign exchange risks. For interest rate risk management purposes and to manage risk limits, sensitivity limits are used. Calculation of positions and their sensitivity follows the structure imposed by these limits, see Note 35. Accrual of interest, fees and commissions Interest, fees and commissions are recorded as income or expenses, as the case may be, as they occur. Fees which constitute direct income for services rendered are recorded when received. Fees exceeding the costs of establishing an individual loan are accrued. Provisions for restructuring measures In case of restructuring of the company, an evaluation will be made as to the need to make provisions for restructuring measures. If expenses for measures implemented will not contribute to generating income in future accounting periods and if these future obligations represent actual obligations on the balance-sheet date, the expenses will be charged against income in the current accounting period and provisions will be made in the Balance Sheet. Provisions will be reversed as expenses are incurred. Depreciation Fixed assets are booked at cost with the addition of revaluations and after deduction of accumulated ordinary depreciation and write-downs. The depreciation rates used are based on estimated economic life. Depreciation is made according to the straight-line method. The following depreciation rates are used: machinery and equipment 10%, vehicles 20%, staff PCs 30% and buildings 2%. IT equipment is expensed in full in the year of acquisition. Capitalised development costs are amortised over four years. Revaluations are amortised at the same rates as ordinary depreciation. Fixed assets are written down if their real value is substantially lower than the book value and the fall in value is considered to be of a permanent nature. Lease assets are normally depreciated according to the annuity method. Pensions Pension costs are treated in accordance with the Norwegian accounting standards regarding pension costs. Net pension costs are recorded in the Profit and Loss Account under salaries, pensions and other staff costs. Net pension funds are included under prepayments in the Balance Sheet, while net pension commitments are included under other liabilities. Tax Deferred tax and deferred tax benefits are treated in accordance with the preliminary accounting standard for tax on profit. Payable tax and changes in deferred tax and deferred tax benefit are shown as tax for the year in the Profit and Loss Account. Deferred tax is calculated on the basis of timing differences between the booking of income/charges for tax and for accounting purposes, as the case may be, at the end of the accounting year. Positive and negative differences within the same period are offset against each other. Certain items are evaluated separately, including pension commitments and revaluations. Deferred tax benefits stem from timing differences which result in tax deductions in future. Deferred tax benefits are posted on the Balance Sheet as intangible assets, when it is likely that the tax reducing items can be realised. Fokus Bank, Annual report, page 17/49

18 NOTE 2. LOANS AND LOAN LOSSES BY CUSTOMER SEGMENT AND INDUSTRY GROUP NOK million Gross lending Guarantees Overdraft facilities Segment/industry sector Retail market Corporate market Of which: Agriculture/forestry Fishing/fish farming Industry/mining Oil and gas Shipping Building and construction, power, water supply Trade Hotels and restaurants Real estate Financial services Transport, storage Public sector Services International finance Total (gross) NOK million Non-performing loans Doubtful loans Specific loan loss provisions Segment/industry sector Retail market Corporate market Of which: Agriculture/forestry Fishing/fish farming Industry/mining Oil and gas Shipping Building and construction, power, water supply Trade Hotels and restaurants Real estate Financial services Transport, storage Public sector Services International finance Total (gross) Fokus Bank, Annual report, page 18/49

19 Parent Bank NOK million Gross lending Guarantees Overdraft facilities Segment/industry sector Retail market Corporate market Of which: Agriculture/forestry Fishing/fish farming Industry/mining Oil and gas Shipping Building and construction Trade Hotels and restraurants Real estate Financial services Transport, storage Public sector Services International finance Total Parent Bank (gross) NOK million Gross lending Guarantees Overdraft facilities Segment/industry sector Retail market Corporate market Of which: Agriculture/forestry Fishing/fish farming Industry/mining Oil and gas Shipping Building and construction, power, water supply Trade Hotels and restaurants Real estate Financial services Transport, storage Public sector Services International finance Total Parent Bank (gross) Fokus Bank, Annual report, page 19/49

20 NOTE 3. CHANGES IN SPECIFIC AND GENERAL PROVISIONS FOR LOSSES Parent Bank 2001 NOK million , ,2 Specific provisions for losses on loans, guarantees etc., at , ,1 - Confirmed losses in the period on loans, guarantees, etc., (189,3) (395,6) previously provided for by specific provisions (395,6) (189,3) 220,1 114,8 + Increased specific provisions for losses in the period 114,8 220,1 409,9 293,7 + New specific provisions for losses in the period 293,7 421,0 (90,7) (276,5) - Reversals of specific provisions for losses in the period (276,5) (99,7) 1 527, ,6 Specific provisions for losses on loans, guarantees etc., at , ,2 Parent Bank 2001 NOK million ,0 171,6 General provisions for losses on loans, guarantees, etc., at ,9 177,0 0,0 0,1 + General provisions in the period for losses on loans, guarantees, etc. (4,4) (0,1) 169,0 171,7 General provisions for losses on loans, guarantees, etc., at ,5 176,9 169,0 171,7 Of which general provisions for loan losses at ,7 171,7 0,0 0,0 Of which general provisions for guarantees at ,8 5,2 NOTE 4. LOSSES ON LOANS AND GUARANTEES Parent Bank 2001 NOK million ,0 (263,6) Changes in specific loan loss provisions in the period (263,6) 352,1 0,0 0,1 + Changes in general loan loss provisions in the period (4,4) (0,1) 189,3 395,6 + Confirmed losses in the period, previously 400,1 189,3 provided for by specific provisions 46,1 20,0 + Confirmed losses in the period, not previously 20,0 53,2 provided for by specific provisions (8,2) (23,5) - Recoveries of losses confirmed in prior periods (23,5) (8,2) 0,0 0,0 + Debt remission, subsidiaries 0,0 0,0 577,2 128,6 Losses on loans, guarantees, etc., in the period 128,6 586,3 Net provisions for losses on loans and guarantees, etc. Parent Bank 2001 NOK million ,1 20,0 Confirmed losses charged against income 20,0 53,2 220,1 114,8 Increase in specific loss provisions 114,8 220,1 409,9 293,7 New specific loss provisions 293,7 421,0 676,1 428,5 Total new losses 428,5 694,3 (90,7) (276,5) Reversal of specific loss provisions (276,5) (99,7) 585,4 152,0 Total specific losses 152,0 594,6 (8,2) (23,5) Recovered on previously confirmed losses (23,5) (8,2) 0,0 0,1 Increase in/(reversal of) general loss provisions 0,1 (0,1) 577,2 128,6 Loss provisions for the period 128,6 586,3 Fokus Bank, Annual report, page 20/49

21 NOTE 5. LOANS AND LOSSES BY REGION Gross lending Losses Accrued, non-recog- NOK million nised interest *) Region Retail Corporate Total % Gross Recoveries **) Net Amount % Region Troms (7) 6 33 Region Nord-Trøndelag Region Sør-Trøndelag / Møre og Romsdal Region Hordaland / Sogn og Fjordane Region Rogaland (13) 0 0 Region Telemark Region Oslo / Østlandet Not allocated on regions (3) Shared capital Parent Bank Subsidiary ***) Eliminations *) "Accrued, not recognised interest" is interest on credit facilities defined as non-performing or doubtful. According to the regulations of the Norwegian Banking, Insurance and Securities Commission, interest on such facilities shall not be booked as income and will therefore reduce the Parent Bank's net interest. See the definiton of non-interest bearing facilities in Note 6. **) Recoveries consist of reversed loss provisions and recoveries on previously ascertained losses. ***) The retail market is broken down nearly pro rata as for the Parent Bank. The corporate market is primarily in the region Oslo/Østlandet. Fokus Bank, Annual report, page 21/49

22 NOTE 6. DOUBTFUL, NON-PERFORMING AND NON-INTEREST BEARING FACILITIES Total Parent Bank 1) NOK million Doubtful loans *)2) Gross doubtful loans Specific loan loss provisions Net doubtful loans Loan loss provisions in % of gross doubtful loans Non-performing loans *)3) Gross non-performing loans Specific loan loss provisions Net non-performing loans Loan loss provisions in % of gross non-performing loans Net non-performing loans in % of gross lending 0,3 0,9 1,0 1,3 1,4 *) Of these: Non-interest bearing loans 4) Gross non-performing loans Specific loan loss provisions Net non-performing loans Loan loss provisions in % of gross non-performing loans Net non-performing loans in % of gross lending 0,1 0,1 0,7 0,7 1,0 Accrued, not recognised interest Development in soft loans 5) Soft loans ) The Parent Bank figures are almost identical to the figures. 2) Doubtful loans are loans where an evaluation of the customer's financial situation has led to a specific loan loss provision being made, even though the loan is currently performing. 3) Loans with overdrawn/overdue amounts are classified as non-performing, unless the situation is assessed as temporary. If the loan has been overdrawn for more than 90 days it is always classified as non-performing. 4) Non-interest bearing facilities are loans with accrued not recognised interest and commissions. 5) Loans where, owing to the customer's financial position, the customer and the Bank have agreed that an interest rate lower than the market rate shall beapplied for a period of time. Fokus Bank, Annual report, page 22/49

23 NOTE 7. LEASING AGREEMENTS BY PARENT BANK AND OTHERS NOK million 2001 Agreements Retail Corporate Total Retail Corporate Total Parent Bank 7,2 264,2 271,4 0,0 0,0 0,0 Subsidiaries 0,0 0,0 0,0 5,6 294,2 299,8 7,2 264,2 271,4 5,6 294,2 299,8 Losses on agreements Gross Recovered Net Gross Recovered Net (NOK m) Parent Bank 6,2 0,0 6,2 0,0 0,0 0,0 Subsidiaries 0,0 0,0 0,0 9,1 0,0 9,1 Eliminations 0,0 6,2 0,0 6,2 9,1 0,0 9,1 The subsidiary Fokus Finans AS merged with Fokus Bank ASA as at Leasing operations were transferred to Nordania Leasing, which is part of Danske Bank, and the leasing portfolio at Fokus Bank ASA will be settled during the remaining term of the leases. NOTE 8. LOANS GRANTED AS SUBORDINATED DEBT Loans granted to other companies as subordinated debt consist of: NOK million 2001 Loans to and amounts due from credit institutions 0,0 2,8 Bonds and other interest-bearing securities 0,0 0,0 Total granted to financial institutions 0,0 2,8 Granted to others 35,9 1,2 Total subordinated debt granted 35,9 4,0 NOTE 9. LOANS TO AND AMOUNTS DUE FROM CREDIT INSTITUTIONS Parent Bank 2001 NOK million , ,9 Undated loans to and amounts due from credit institutions 1 119, , , ,8 Dated loans to and amounts due from credit institutions 2 357, , , ,7 Total loans to and amounts due from credit institutions 3 477, ,2 NOTE 10. CHANGES IN ACCRUED, NOT-RECOGNISED INTEREST ON LOANS Parent Bank 2001 NOK million ,2 45,0 Accrued, not-recognised interest on loans at ,0 94,2 10,5 6,5 - Earlier periods' interest income on loans, recognised this period 6,5 10,5 66,2 8,4 - Accrued, not-recognised interest on loans that are no longer on the Balance Sheet 8,4 66,2 27,5 18,5 + The period's accrued, not-recognised interest on loans identified as doubtful loans 18,5 27,5 45,0 48,6 Accrued, not-recognised interest on Balance Sheet loans at ,6 45,0 Fokus Bank, Annual report, page 23/49

24 NOTE 11. LOANS AND GUARANTEES BY TYPE OF RISK Fokus Bank classifies all loan customers by risk. The risk category is determined on the basis of, among other things, a credit analysis of the individual customers. The category reflects the risk that the customer will default on loans, without taking into account whether collateral has been provided. Owing to the transition to a new rating model, the figures for are not comparable with the figures for Over the year, the risk inherent in the Bank s portfolio of loans and guarantees showed a satisfactory downward trend. Corporate market NOK million Risk Gross lending Guarantees Unutilised overdraft facilities Specific loan loss provisions Low Medium High Total Retail market NOK million Risk Gross lending Guarantees Unutilised overdraft facilities Specific loan loss provisions Low Medium High Total General loan loss provisions are not classified. Expected annual level of loss On the basis of empirical data on loan loss provisions made by Norwegian banks over several years in a normal business cycle, it is customary to expect a level of losses of approximately 0.4% to 0.5% of total loans. The upgrading of the Bank s credit policy and completed and ongoing reductions of the proportion of weak facilities make us expect that Fokus Bank will not, over a normal business cycle, incur losses higher than what is considered normal for Norwegian banks. Fokus Bank, Annual report, page 24/49

25 NOTE 12. DEPOSITS FROM CREDIT INSTITUTIONS Parent Bank 2001 NOK million ,7 443,9 Undated loans to and deposits from credit institutions 443,9 126, , ,7 Dated loans to and deposits from credit institutions , , , ,6 Total loans and deposits from credit institutions , ,9 Specification of debt in main currencies. The amounts are translated into Norwegian kroner at the rate in force on the balance sheet date. USD 1 668,6 SEK 345,9 EUR 1 388,3 The average rate of interest for loans to and deposits from credit institutions is 7.18%. The calculation of the average rate is based on real interest expenses in relation to average capital. No accounts have special rates. NOTE 13. DEPOSITS FROM CUSTOMERS Parent Bank 2001 NOK million , ,7 Call deposits from and other related liabilities to customers , , , ,9 Time deposits from and other related liabilities to customers 1 426, , , ,6 Total deposits from customers , ,0 Liabilities by main currency. The amounts are translated into Norwegian kroner at the rate in force on the balance sheet date. USD 367,8 EUR 138,3 GBP 35,5 SEK 31,2 The average rate of interest for deposits from customers is 5.6%. The calculation of the average rate is based on real interest expenses in relation to average capital. No accounts have special rates. Fokus Bank, Annual report, page 25/49

26 NOTE 14. BONDS ISSUED Loan information Bond loans, nominal value. NOK million Currency Amount in Amount Issued Type Price Maturity Type currency in NOK Interest terms Open NOK 330,0 Floating rate with cap Open 99, USD 300, ,9 Floating USD rate Closed NOK 150,0 Stock index Open NOK 300,0 Floating with interest rate floor Open 99, GBP 12,0 134,3 Fixed rate 6.5% Open 100, EUR 127,8 932,1 Floating EUR rate Open 99, USD 250, ,1 Floating USD rate Closed NOK 85,2 Stock index Closed NOK 101,0 Stock index Closed 68, NOK 60,2 Stock index Open NOK 300,0 Fixed rate 7% Closed NOK 147,1 Stock index 6 365,9 *) The currency amounts are calculated at mid-rate USD 6.956, GBP and EUR at December 31,. The bonds issued have been hedged by interest rate swaps at a ratio of 1:1. Bond loans, book value in NOK NOK million NOK million Amount of USD bonds - in NOK (nominal value) 3 826, ,4 Amount of EUR bonds - in NOK (nominal value) 932, ,3 Amount of GBP bonds - in NOK (nominal value) 134,3 156,8 Bonds issued in NOK - (nominal value) 1 473,5 925,4 Total bonds issued 6 365, ,9 Booked discount (84,5) (23,3) Balance Sheet value of bonds issued **) 6 281, ,6 Certificates of deposit issued 0,0 0,0 Total Balance Sheet value 6 281, ,6 *'*) Book value is equal to the nominal value. Discount and proprietary holding are booked separately. At December 31,, the bonds issued had a total market value of NOK 6,281.4 million. At December 31, 2001, the bonds issued had a total market value of NOK 9,744.6 million. Fokus Bank, Annual report, page 26/49

27 NOTE 14. BONDS ISSUED Special conditions: Fokus Bank Fokus Bank has issued a Norwegian kroner bond loan with maturity on The return on the bond loan is linked to an option which caps the investor's return at 5.75%. The bond issue is hedged by an option and an interest-rate swap at 1:1. Fokus Bank stock index Fokus Bank has issued a stock-index linked bond loan with maturity on The return on the bond loan will depend on the movements of six different stock indices. The return on the bonds will be paid at maturity. The bond issue is hedged by an asset swap at 1:1. Fokus Bank Fokus Bank has issued a stock-index linked bond loan with maturity on The return on the bond loan will depend on the movements of two different stock indices. The return on the bonds will be paid at maturity. The bond issue is hedged by an option and an interest-rate swap at 1:1. Fokus Bank Fokus Bank has issued a stock-index linked bond loan with maturity on The return on the bond loan will depend on the movements of three different stock indices. The return on the bonds will be paid at maturity. The bond issue is hedged by an option and an interest-rate swap at 1:1. Fokus Bank Fokus Bank has issued a stock-index linked bond loan with maturity on The return on the bond loan will depend on the movements of a stock index. The return on the bond loan will be paid at maturity. The bond issue is hedged by an option and an interest-rate swap at 1:1. Averate rate 6.15% The average rate has been calculated as interest expenses in relation to average annual capital. Fokus Bank, Annual report, page 27/49

28 NOTE 15. SUBORDINATED DEBT The figures apply to the parent Bank. The Bank's subordinated debt of NOK 1,565.2 million is issued in foreign currency. Expenses Issued Maturity Amount Equivalent in Interest excl. interest Original year year in currency NOK million rate for the year value USD 75.0 m 521,7 2, , USD 50.0 m 347,8 2, , Perpetual USD m 695,7 2, ,5 Total USD m 1 565,2 1733,7 The currency loans are converted at mid-rate USD 6,956 as at December 31,. The outstanding liabilities in foreign currency bear a floating rate of interest, which is adjusted every six months. The rates stated are the rates in force at the end of the year. The currency loans are included in the Bank's overall net currency position and are therefore continuously hedged against exchange rate fluctuations. NOTE 16. SPECIFICATION OF CHANGES IN EQUITY CAPITAL Parent Bank Share Premium Other invested Reserve for Other capital fund equity valuat. diff. equity Total NOK million Fokus Bank ASA ,6 309,4 34,6 123, , ,8 Share issue 300,0 300,0 Merger Fokus Finans 4,2 4,2 Allocation of result 110,6 110,6 Fokus Bank ASA ,6 309,4 34,6 123, , ,6 Share Premium Other invested Reserve for Other capital fund equity valuat. diff. equity Total NOK million Fokus Bank Konsern ,5 309,4 34,6 0, , ,9 Share issue 300,0 300,0 contribution from DDB Fokus Invest 11,3 11,3 Allocation of result 111,2 111,2 Fokus Bank Proup ,5 309,4 45,9 0, , ,4 Fokus Bank, Annual report, page 28/49

29 NOTE 17. CAPITAL ADEQUACY According to regulations concerning minimum capital requirements in financial institutions, the Parent Bank and required to have a capital adequacy ratio totalling at least 8% of the risk-weighted assets. the are At December 31,, Fokus Bank ASA had the following capital adequacy: Parent Bank NOK million Share capital Other equity capital Non-eligible excess pension funds Total core capital Book value of subordinated debt (excl. perpet.sub.debt) Non-eligible subordinated debt Total eligible subordinated debt Other supplementary capital Total supplementary capital Gross equity and subordinated capital (4 ) 0 Deductions 0 (4) Net equity and subordinated capital Risk-weighted assets ,16 9,72 Core capital ratio 8,02 7,00 13,34 14,35 Capital adequacy ratio 11,85 11,47 Fokus Bank, Annual report, page 29/49

30 NOTE 17. CAPITAL ADEQUACY Specification of risk-weighted assets Parent Bank NOK million Assets not included in the trading portfolio Off-balance-sheet items not included in the trading portfolio Items included in the trading portfolio Risk-weighted assets, currency risk Total risk-weighted assets, net Subordinated debt is included as supplementary capital in accordance with the regulations concerning Parent Bank capital adequacy, as follows: Perpetual subordinated debt 675,5 Subordinated debt (excl. perpet. sub. debt) 869,4 Total subordinated debt 1 544,9*) Subordinated debt (excl. perpet. sub. debt) 869,4 Reductions over the last 5 years 0,0 Restrictions according to the 50% rule 0,0 Eligible subordinated debt (excl. perpet. sub. debt) 869,4 Perpetual subordinated debt (included in other supplementary capital) 675,5 Eligible subordinated debt 1 544,9 *) Total subordinated debt stated in the Balance Sheet at December 31, : NOK 1,565.2 million. The difference is due to correction at a lower rate. The perpetual loan in USD is included as other supplementary capital in the capital adequacy calculation. figures for core and supplementary capital include holdings in associated companies. Specification of difference between core capital and equity capital according to the Balance Sheet: Parent Bank NOK million Core capital Balance sheet equity capital Difference The difference is due to the fact that reserve for valuation differences, deferred tax benefit, excess pension funds and other intangible assets have been deducted from the core capital when calculating the capital adequacy. Fokus Bank, Annual report, page 30/49

31 NOTE 18. OWNERSHIP Fokus Bank ASA is wholly owned by DDB Fokus Invest AS. The share capital at December 31,, consists of a total of 136,324,267 shares with a nominal value of NOK 11. NOTE 19. BONDS AND COMMERCIAL PAPER The portfolio of bearer bonds and commercial paper breaks down as follows: Parent Bank Trading portfolio NOK million Bonds 58,8 518,8 Government and government-backed bonds 518,8 58,8 0,0 0,0 Foreign bonds 0,0 0,0 503, ,3 Other bearer bonds 1 629,7 503,5 562, ,1 Book value of bearer bonds 2 148,5 565,1 578, ,1 Market value of bearer bonds 2 148,5 581,0 15,9 0,0 Surplus value of bearer bonds 0,0 15,9 Commercial paper 237,8 0,4 Government and government-backed commercial paper 0,4 237,8 522,1 264,8 Municipalities and financial institutions 264,8 522,6 759,9 265,2 Book value of commercial paper 265,2 760,4 762,3 265,2 Market value of commercial paper 265,2 762,8 2,4 0,0 Surplus value of commercial paper 0,0 2,4 All bonds are quoted on the stock exchange. In the commercial paper portfolio, only the commercial paper issued by the Norwegian Government and BN-Kreditt are listed. The nominal value of own bonds is NOK million (not included in the table above). The nominal value of own bonds is USD 24.0 million (not included in the table above). The book value of own bonds total NOK milion. Book values and market values are identical. Average yield to maturity of the trading portfolio is 7.74%. Fokus Bank, Annual report, page 31/49

32 NOTE 20. ASSOCIATED COMPANIES Balance Balance Company name sheet sheet valuation Additions/ Equity at Balance Share of valuation Business Ownership disposals time of sheet result Goodwill office % NOK 1,000 in acquisition goodwill NOK 1,000 write-off NOK 1,000 Held by Fokus Bank ASA: Nordenfjeldske Trondheim 39, (27 300) Personforsikring AS Meglerhuset Nylander A.S Trondheim 40, Mentor Ørlandet 26, Shares in associated companies (27 300) None of the companies are listed. NOTE 21. SHARES IN SUBSIDIARIES Share Nominal Ownership Equity Result Book Business capital Number value share capital in value office NOK 1,000 of shares NOK 1,000 % NOK 1,000 NOK 1,000 NOK 1,000 Credit institutions Fokus Kreditt AS Oslo , Other companies Danske Securities ASA Oslo , (6 786) Fokus Eiendomsmegling AS Skien , Firstnordic Fondene AS Trondheim , Fokus Kredittforsikring AS Trondheim , Skårersletta Eiendom AS Oslo , (2) 0 Total ADDITIONS/DISPOSALS OF SUBSIDIARIES Fokus Finans AS merged with Fokus Bank ASA on April 18,. The merger affected the accounts as from January 1,. Danske Securities ASA was acquired on December 31,. Accordingly, no part of the profit and loss account of Danske Securities ASA is included in the consolidated accounts for. Fokus Bank ASA did not sell off any subsidiaries from the in. None of the companies are listed. Fokus Bank, Annual report, page 32/49

33 NOTE 22. OTHER LONG-TERM SHARES Share Total nominal Ownership Book capital Number value share value NOK of shares NOK % NOK Held by Fokus Bank ASA Credit institutions Eksportfinans A.S , Other companies Other companies, net Total held by Fokus Bank ASA NOTE 23. PARTICIPATION IN PARTNERSHIPS The following companies have been included in the Accounts according to the net method: Company name Ownership % Share of equity capital NOK 1,000 Bomveien 3 ANS 50,0 (1 582,7) Roby ANS 100,0 (11 397,7) Total held by Fokus Bank (12 980,4) Fokus Bank, Annual report, page 33/49

34 NOTE 24. CHANGES IN FIXED ASSETS Parent Bank Bank Bank Machinery, buildings Machinery, buildings fixtures and other Intangible fixtures and and other Intangible NOK million and vehicles real property assets vehicles real property assets Goodwill Cost ,5 309,8 0,0 134,8 309,8 0,0 0,0 - Additions during the year 13,8 0,0 0,0 13,8 0,0 0,0 0,0 + Disposals during the year 22,7 115,6 0,0 23,3 115,6 0,0 0,0 Cost ,6 194,2 0,0 125,3 194,2 0,0 0,0 + Revaluations at ,0 69,5 0,0 0,0 69,5 0,0 0,0 - Total depreciation and write- 41,4 183,3 0,0 47,5 183,3 0,0 0,0 downs at Ordinary depreciation 20,5 4,2 0,0 20,6 4,2 0,0 0,0 during the year - Write-down on revaluation 0,0 0,1 0,0 0,0 0,1 0,0 0,0 during the year - Other depreciation/write-downs 0,0 3,4 0,0 0,0 3,4 0,0 0,0 during the year + Disposals depreciation/ 20,4 63,3 0,0 20,6 63,3 0,0 0,0 write-downs during the year Book value at ,1 136,0 0,0 77,8 136,0 0,0 0,0 Booked gains on sales/disposals 0,5 14,6 0,0 0,5 14,6 0,0 Booked losses on sales/disposals 0,1 0,0 0,0 0,1 0,0 0,0 Rate of ordinary depreciation 10% - 30% 2% 20% - 30% 10% - 30% 2% 20% - 30% 10% NOTE 25. INVESTMENTS IN AND SALE OF FIXED ASSETS Parent Bank Machinery, Bank buildings Machinery, Bank buildings fixtures and and other fixtures and and other vehicles real property vehicles real property NOK million Invested Sold Invested Sold Invested Sold Invested Sold ,2 2,4 0,0 190,4 28,3 2,4 0,0 195, ,4 0,7 6,0 1,4 34,1 0,9 6,5 1, ,5 0,8 37,1 0,0 61,0 0,8 37,1 0, ,8 10,1 1,1 34,6 52,8 10,4 1,1 34,6 13,8 1,4 0,0 52,3 13,8 1,6 0,0 52,3 Fokus Bank, Annual report, page 34/49

35 NOTE 26. REPOSSESSED ASSETS Parent Bank 2001 NOK million ,0 0,0 Commercial real property 0,0 0,0 0,0 0,0 Land 0,0 0,0 0,4 0,0 Residential real property 0,0 0,4 1,3 1,3 Other assets 1,3 1,3 1,7 1,3 Total repossessed assets 1,3 1,7 NOTE 27. REAL PROPERTY AND TENANCY AGREEMENTS The 's real property portfolio is split into two categories depending on the objective and time perspectiveapplicable to the usage/realisation of the asset. The following categories are used: Book value Gross area Number Book value NOK million m2 per m2 (NOK) Own buildings for banking operations 130, Staff residences, etc. 3, Bank buildings and other real property 134, Land 0, Utilisation of real property: Utilisation of area (m2) Own use Rented Vacant Own buildings for banking operations Staff residences, etc Total Own buildings for banking operations Real property purchased for banking operations, and from which Fokus Bank runs its main activities in the area, is included in "Own buildings for banking operations". Own buildings are assessed as one portfolio and recorded at cost less ordinary depreciation, including revaluations and write-downs. Tenancy agreements The Bank has entered into tenancy agreements for premises which are used to a varying extent by the Bank or sublet. The net cost of tenancy agreements for premises not used by the Bank is discounted over the remaining period of the tenancy agreement at an interest rate of 7.0%. Fokus Bank, Annual report, page 35/49

36 NOTE 28. SALARIES AND ADMINISTRATIVE EXPENSES Parent Bank 2001 NOK million ,7 388,9 Salaries 404,2 421,0 55,1 48,1 Pensions 48,3 56,0 83,0 76,2 Other staff costs 76,8 84,5 515,8 513,2 Total staff costs 529,3 561,5 72,9 87,3 Office costs 88,2 82,1 268,6 143,2 IT rent/operations 143,2 270,3 101,8 134,6 Other administrative expenses 137,4 122,9 443,3 365,1 Total administrative expenses 368,8 475,3 In the accounting year, the average number of employees of the Parent Bank was 946 and of the 979. For the Parent Bank, total expenses for salaries, pension commitments and other benefits to the Managing Director, Members of the Board of Directors, the Supervisory Board, the Control Committee and other staff representatives amounted to NOK 4,315,261, of which NOK 1,876,878 is salary and other benefits to Thomas F.Borgen, Managing Director. To that amount should be added NOK 446,600 as premium for a pension scheme. The Managing Director has received 1,711 conditional shares of Danske Bank. In addition, he has received 25,000 options as part of the general scheme for allocation of options in the Danske Bank. The options are non-negotiable and may not be exercised until three years after their allotment. The options cease to be valid if the contract of employment is terminated. Bonus in the form of conditional shares may be allocated to executives of the Danske Bank, The criteria for allocation are linked to performance in the various areas. Shares are vested three years after the rights have been granted. The right to conditional shares ceases to be valid if the contract of employment is terminated. Fokus Bank ASA has made an agreement with the Managing Director for two years' guaranteed salary in addition to salary granted under a severance agreement. Apart from this, Fokus Bank ASA has not undertaken any obligations towards the Managing Director or the Chairman of the Board concerning specific compensation if the contract of employment is changed or terminated. According to the articles of association, the Managing Director must retire at the age of 60. Fokus Bank, Annual report, page 36/49

37 NOTE 29. PENSIONS, PARENT BANK Fokus Bank ASA has its own pension fund covering the standard pension commitments. Pension benefits are based on the number of years of service as well as the salary level at pension age. The assets of the pension fund consist mainly of bonds and shares. At December 31,, the number of persons included in the company's pension agreement, was: Working 1,106 Retired 828 In addition, the Bank has charged pension commitments against income. These commitments are early retirement pensions, supplementary pensions and pension commitments to managers who may retire before their ordinary retirement age. At December 31,, the number of persons included in the pension scheme charged against income was: Working 58 Retired 313 In accordance with the GRS standard for pension costs, future commitments under the Contractual Early Retirement Scheme (CERS) for the financial services industry were calculated. In 1998, the CERS was extended to include 62-year olds. All employees are covered by the scheme, and the Bank has chosen to calculate the costs based on a 50% utilisation. In accordance, with the GRS standard for pension costs, the increased commitment as a result of the reduced pension age is treated as a change of plan. Consequently, the Bank may either charge the costs to income immediately or amortise them over the remaining amortisation period. The Bank has chosen the latter alternative. Pension funds and pension commitments: Financial assumptions: 2001 Discount rate 6.0% 6.0% Salary adjustments 3.0% 3.0% Adjustment of current pensions 3.0% 3.0% Adjustment of National Insurance 2.0% 2.0% basic amount Adjustment of paid-up policies 2.0% 2.0% Return on pension funds 7.0% 7.0% Pension fund Pension fund: 2001 Accrued pension commitments (884,3) (880,3) Pension funds 916, ,7 Deferred commitments on (losses)/gains 39,7 (77,0) Net pension commitments 71,6 86,4 Pension fund expenses for the year: 2001 Pension entitlements for the year 26,9 28,5 Interest expenses 49,4 49,0 Return on pension funds *) 60,9 69,2 Charged to income 0,5 0,4 Pension expenses for the year 14,9 7,9 *) The return on pension funds constitutes an estimate for. The actual return for was NOK 29.2 million. The accumulated difference between the estimated (applied) and the actual return was NOK 71.4 million at December 31,. Fokus Bank, Annual report, page 37/49

38 NOTE 29. PENSIONS, PARENT BANK Pension payments charged to income NPV of pension payments charged to income 2001 Early retirement pensions, etc. 89,4 96,3 CERS, total commitments 109,6 96,8 - deferred commitments (20,2) (22,5) CERS, total commitments charged to income 89,4 74,3 Total booked commitments 178,8 170,6 Pension expenses for the year charged to income 2001 Pension payments charged to income Change in early retirement pensions, etc Ordinary CERS expenses for the year Pension expenses for the year charged to income NOTE 30. LOANS TO EMPLOYEES AND STAFF REPRESENTATIVES Pensions charged to income As at December 31,, loans to employees amounted to NOK million, of which housing loans amounted to NOK million. The cost of providing preferential rates of interest on loans to employees amounted to NOK 9.9 million in, based on a compound annual rate of 8.2%. Included in the above amounts are loans to representatives, employees, former employees who have an agreement to continue to receive preferential employee interest rates, as well as retired employees. The preferential rate of interest reduces the Bank's net interest income. The average rate of interest charged on employee loans was 0.4% below the average on all loans in. Loans to the Managing Director, the other members of the Executive Board, members of the Board of Directors, the Supervisory Board and the Control Committee: Terje Svendsen Bjørn Arnestad The Managing Director and the other members of the Board of Directors, the Supervisory Board and the Control Committee have no loans or guarantees at December 31,. NOTE 31. INTEREST INCOME AND INTEREST EXPENSES Parent Bank 2001 NOK million ,9 802,2 Interest from loans to and amounts due from credit institutions 763,7 399, , ,2 Interest from loans to and amounts due from customers 4 279, ,6 192,6 119,9 Yield on bonds, CPs and other securities 119,9 198, , ,3 Interest income 5 163, ,4 544,0 623,6 Interest on amounts due to credit institutions 1 416,1 776, , ,1 Interest on deposits from and debt to customers 2 145, ,1 375,6 204,2 Interest on issued securities 204,2 375,6 112,3 49,7 Interest on subordinated debt 49,7 112,3 0,0 6,6 Other interest expenses 66,3 0,0 38,1 47,4 Levy to Commercial Bank Guarantee Fund 47,4 38, , ,6 Interest expenses 3 929, ,0 Fokus Bank, Annual report, page 38/49

39 NOTE 32. OTHER OPERATING INCOME Parent Bank 2001 NOK million ,1 22,4 Income from shares and other securities 22,4 68,4 8,6 5,1 Income from holdings in associated companies 5,1 8,6 75,3 140,7 Income from holdings in group companies 0,0 0,5 157,0 168,2 Dividends and other income from securities 27,5 77,5 34,8 31,0 Guarantee commissions 21,5 34,8 28,1 13,6 Credit broking 21,1 28,1 44,2 51,8 Securities trading and asset management 51,8 78,7 205,7 210,5 Payment transactions 181,4 205,7 7,8 6,3 Insurance services 6,3 7,8 30,3 53,7 Other operations 53,7 30,3 350,9 366,9 Commission and fee income 335,8 385,4 1,8 5,1 Securities trading and asset management 5,1 2,1 62,1 63,2 Payment transactions 59,6 62,0 63,9 68,3 Commissions and fees paid 64,7 64,1 20,5 5,5 Net gains/(losses) on CPs, bonds, etc. 5,5 22,7 (41,5) (5,9) Net gains/(losses) on shares and other securities (5,9) (38,8) (21,0) (0,4) Net gains/(losses) on securities (0,4) (16,1) 51,5 52,1 Net gains/(losses) on foreign currency and derivatives 49,1 51,5 30,5 51,7 Net gains/(losses) 48,7 35,4 26,6 15,4 Operating income from real property 16,6 25,9 3,0 0,0 Profit on sale of fixed assets 0,0 3,0 81,0 53,4 Other operating income 53,5 69,7 110,6 68,8 Other operating income 70,1 98,6 585,1 587,3 Total other operating income 417,4 532,8 NOTE 33. OTHER OPERATING EXPENSES Parent Bank 2001 NOK million ,2 80,3 Rent 80,9 66,2 1,5 1,0 Real estate charges 1,0 1,5 19,7 5,2 IT maintenance 5,2 22,0 0,4 0,1 Loss from sale of fixed assets 0,1 0,4 4,7 14,1 Processing of cash 14,1 4,7 31,4 34,6 Operating and maintenance expenses, real estate 34,6 31,4 57,0 53,8 Other operating expenses 61,1 63,5 180,9 189,1 Total 197,0 189,7 In, the Fokus Bank paid fees to external auditors relating to the accounting year amounting to NOK 1,807,800. Of this amount fees for non-auditing services accounted for NOK 342,000. Fokus Bank, Annual report, page 39/49

40 NOTE 34. REMAINING LIFE FOR MAIN ITEMS AT From From Without Up to From months 1 year Over remaining NOK million month months to 1 year to 5 years 5 years life TOTAL ASSETS, NOK Cash and deposits with central banks and loans eligible for refinancing at central banks 1 155,1 0,0 0,0 0,0 0,0 178, ,2 Loans to and deposits with credit institutions 354,6 0, ,0 75, ,5 0, ,1 Loans to and amounts due from customers 4 551,4 253, , , ,0 0, ,9 Bonds, CPs and other interest-bearing securities 562,0 516,2 531, ,5 45,5 0, ,2 Other assets with remaining life 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Assets without remaining life 0,0 0,0 0,0 0,0 0, , ,7 Total assets, NOK 6 623,1 769, , , , , ,1 LIABILITIES AND EQUITY CAPITAL, NOK Amounts due to credit institutions 507, ,0 147, ,0 223, , ,8 Deposits from and debt to customers ,4 26,6 178,9 88,7 0,5 0, ,1 Debt securities in issue 0,0 330,0 150,0 611,2 300,0 0, ,2 Other debt with remaining life 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Debt without remaining life 0,0 0,0 0,0 0,0 0, , ,4 Subordinated debt 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Equity capital 0,0 0,0 0,0 0,0 0, , ,4 Total liabilities and equity capital , ,6 476, ,9 523, , ,9 ASSETS IN FOREIGN CURRENCY Cash and deposits with central banks and loans eligible for refinancing at central banks 0,0 0,0 0,0 0,0 0,0 10,3 10,3 Loans to and amounts due from credit institutions 63,3 0,0 0,0 0,0 0,0 0,0 63,3 Loans to and amounts due from customers 136,2 271,7 227, , ,8 0, ,4 Bonds, CPs and other interest-bearing securities 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Other assets with remaining life 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Assets without remaining life 0,0 0,0 0,0 0,0 0,0 29,8 29,8 Total liabilities and equity capital in FOREIGN CURRENCY 199,5 271,7 227, , ,8 40, ,8 LIABILITIES AND EQUITY CAPITAL IN FOREIGN CURRENCY Amounts due to credit institutions 1 079,1 0,0 0, ,7 294,5 0, ,3 Deposits from and debt to customers 602,7 1,6 0,0 0,0 0,0 0,0 604,3 Debt securities in issue 0,0 0, , ,3 0,0 0, ,2 Other debt with remaining life 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Debt without remaining life 0,0 0,0 0,0 0,0 0,0 36,0 36,0 Subordinated debt 0,0 0,0 0,0 0, ,1 0, ,1 Equity capital 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Total liabilities and equity capital in FOREIGN CURRENCY 1 681,8 1, , , ,6 36, ,9 Net liquid exposure Total balance-sheet items (23 904,4) (3 140,9) 975,7 (6 040,3) ,3 (6 346,3) 0,1 Incoming/outgoing payments on off-balance sheet financial derivatives Norwegian kroner 0,0 (364,0) 0,0 (5 363,0) 0,0 0,0 (5 727,0) Foreign currency 0,0 369,0 0, ,1 0,0 0, ,1 NET TOTAL ALL ITEMS (23 904,4) (3 135,9) 975,7 (6 998,2) ,3 (6 346,3) (952,8) Fokus Bank, Annual report, page 40/49

41 NOTE 35. AGREED TIME FOR CHANGE IN INTEREST RATE ON MAIN ITEMS AT From From Without Up to From months 1 year Over interest NOK month months to 1 year to 5 years 5 years exposure TOTAL ASSETS, NOK Cash and deposits with central banks and loans eligible for refinancing at central banks 1 155,1 0,0 0,0 0,0 0,0 178, ,2 Loans to and amounts due from credit institutions 3 208,4 155,7 50,0 0,0 0,0 0, ,1 Loans to and amounts due from customers , ,5 353, ,3 786,8 0, ,9 Bonds, CPs and other interest-bearing securities 757, ,0 37,2 50,0 500,0 0, ,2 Other assets with remaining life 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Assets without remaining life 0,0 0,0 0,0 0,0 0, , ,7 Total assets, NOK , ,2 440, , , , ,1 LIABILITIES AND EQUITY CAPITAL, NOK Amounts due to credit institutions 3 828, , ,5 0,0 0,0 0, ,8 Deposits from and debt to customers , ,3 178,9 89,2 0,0 0, ,1 Debt securities in issue 0,0 330,0 150,0 611,2 300,0 0, ,2 Other debt with remaining life 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Debt without remaining life 0,0 0,0 0,0 0,0 0, , ,4 Subordinated debt 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Equity capital 0,0 0,0 0,0 0,0 0, , ,4 Total liabilities and equity capital, NOK , , ,4 700,4 300, , ,9 ASSETS IN FOREIGN CURRENCY Cash and deposits with central banks and loans eligible for refinancing at central banks 0,0 0,0 0,0 0,0 0,0 10,3 10,3 Loans to and amounts due from credit institutions 63,3 0,0 0,0 0,0 0,0 0,0 63,3 Loas to and amounts due from customers 4 019,4 0,0 0,0 0,0 0,0 0, ,4 Bonds, CPs and other interest-bearing securities 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Other assets with remaining life 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Assets without remaining life 0,0 0,0 0,0 0,0 0,0 29,8 29,8 Total assets in FOREIGN CURRENCY 4 082,7 0,0 0,0 0,0 0,0 40, ,8 LIABILITIES AND EQUITY CAPITAL IN FOREIGN CURRENCY Amounts due to credit institutions 294, ,8 0,0 0,0 0,0 0, ,3 Deposits from and debt to customers 602,7 1,6 0,0 0,0 0,0 0,0 604,3 Debt securities in issue 0,0 0, , ,3 0,0 0, ,2 Other debt with remaining life 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Debt without remaining life 0,0 0,0 0,0 0,0 0,0 36,0 36,0 Subordinated debt 0,0 0,0 0,0 695,5 869,7 0, ,2 Equity capital 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Total liablilties and equity capital in FOREIGN CURRENCY 897, , , ,8 869,7 36, ,0 Net interest rate exposure Total balance-sheet items 2 552, ,8 (7 919,7) (407,9) 117,1 (4 548,9) 0,0 Off-balance-sheet financial derivatives affecting interest rate exposure Norwegian kroner 4 645,6 (1 689,0) 1 580,3 (3 571,6) (1 210,5) 0,0 (245,2) Foreign currency (2 882,9) 2 843,4 (10,5) 59,8 2,8 0,0 12,6 NET TOTAL ALL ITEMS 4 315, ,2 (6 349,9) (3 919,7) (1 090,6) (4 548,9) (232,6) INFORMATION REGARDING INTEREST RATE SENSITIVITY AT YEAR-END Effect on the Profit and Loss Account of an interest-rate increase of 1% TRADING BANK TOTAL P&L effect of an interest-rate increase of 1% 0,0 4,2 4,2 The figures show the net effect on the Bank's Profit and Loss Account if the rate of interest for all net interest positions in foreign currency increases by 1%. Fokus Bank, Annual report, page 41/49

42 NOTE 36. TAXATION, PARENT BANK At the end of the accounting year, there are timing differences between values for accounting and for tax purposes. Deferred tax liabilities/deferred tax benefits are calculated on the basis of these differences. TAX EXPENSE FOR THE YEAR: Tax payable on the profit for the year 0,0 0,0 Gross change in deferred tax, Norwegian companies 114,6 (84,0) Total tax expense for the year 114,6 (84,0) Including tax on extraordinary items 0,0 0,0 Tax expense on profit on ordinary operations 114,6 (84,0) PAYABLE TAX EXPENSE FOR THE YEAR: Profit before tax on ordinary operations 557,2 (216,5) Profit on extraordinary items before tax 0,0 0,0 Permanent differences +/- 1,1 4,0 Change in timing differences +/- (558,3) 212,5 Basis for payable tax, Norwegian companies 0,0 0,0 1) PAYABLE TAX ON THE BALANCE SHEET: Payable tax on the net profit for the year 0,0 0,0 Tax payable on group contributions given 0,0 0,0 Total payable tax 0,0 0,0 SPECIFICATION OF THE BASIS FOR DEFERRED TAX/DEFERRED TAX BENEFIT Differences to be offset: Fixed assets +/- (1 905,8) (1 616,9) Current assets +/- (450,1) (528,9) Debt +/- (228,0 (241,6) Loss carried forward - (72,8) (730,2) Total (2 656,7) (3 117,6) Deferred tax (-) / Deferred tax (+) on the Balance Sheet Tax rate: 28% (743,9) (872,9) DIFFERENCES THAT ARE NOT OFFSET: Fixed assets - 0,0 0,0 Current assets - 0,0 0,0 Debt - 0,0 0,0 Loss carried forward + 0,0 0,0 Total 0,0 0,0 Deferred tax assets Tax rate: 28% 0,0 0,0 Deferred tax benefit (-) / deferred tax (+) on the Balance Sheet: Deferred tax benefit (-) / deferred tax (+) (743,9) (872,9) Deferred tax benefits on group contributions received 0,0 5,2 Total deferred tax benefit (-) / deferred tax (+) on the Balance Sheet (743,9) (867,7) Tax loss carry forwards expire in Deferred tax benefit in the consolidated financial statements: A number of the group companies have negative timing differences. Net deferred tax benefit at December 31,, are recognised at NOK million. Fokus Bank, Annual report, page 42/49

43 NOTE 37. GUARANTEES, PLEDGED ASSETS Parent Bank 2001 NOK million Payment guarantees Contract guarantees Loan guarantees Guarantees for taxes due, etc Other guarantee liabilities Guarantee liabilities Pledged assets Government bonds and CPs at a total book value of: Pledged as security for: 0,0 0,0 Total property and stockbroking activities: 0 0 0,0 0,0 Total daily lending from Norges Bank: 0 0 5,3 0,0 Total book value of bank buildings and other real property: 0,0 5,3 0,1 0,0 Pledged as security for loans totalling: 0,0 0,1 Fokus Bank ASA has provided a guarantee to the Deposit Protection Fund At January 1, 2003, the guarantee amounts to NOK 334,210,000. Fokus Bank, Annual report, page 43/49

44 NOTE 38. SUBSIDIARIES The Parent Bank's Balance Sheet includes the following outstandings with subsidiaries: NOK million 2001 LOANS AND OTHER AMOUNTS DUE Loans to and amounts due from credit institutions 8 162, ,2 Other amounts due 194,5 77,7 Total loans and other amounts due 8 356, ,9 DEPOSITS AND OTHER LIABILITIES Amounts due to credit institutions 420,2 96,1 Total deposits and other liabilities 420,2 96,1 Guarantees 0,0 0,0 NOTE 39. PROVISIONS FOR OBLIGATIONS AND COSTS Parent Bank 2001 NOK million ,6 178,8 Pension obligations, etc. 178,8 171,6 0,0 0,0 General provisions for guarantee liabilities 0,0 0,0 0,0 332,0 Provisions for dividends 332,0 0,0 38,6 18,1 Other provisions for obligations and costs 18,1 45,6 209,2 528,9 Total provisions for obligations and costs 528,9 217,2 NOTE 40. FINANCIAL DERIVATIVES AND FINANCIAL RISK MANAGEMENT (All amounts in NOK 1,000) Financial derivatives is the blanket term describing agreements whose value depends on one or more financial products. Fokus Bank enters into such agreements to lock in future foreign exchange and interest rates, both as a service to its customers and to meet its own business needs. HEDGING TRANSACTIONS Foreign exchange derivatives and interest rate derivatives are used actively to hedge Balance Sheet items and thus reduce foreign exchange and interest rate risk. Hedging transactions are removed from the Bank's trading portfolio immediately they are entered into, but are included in the Bank's total foreign exchange and interest rate positions. All other financial derivatives are termed trading contracts/transactions. Fokus Bank, Annual report, page 44/49

45 NOTE 40. PROVISIONS FOR OBLIGATIONS AND COSTS At December 31,, the Bank had the following outstanding financial derivatives: Nominal values Actual value Hedging Trading Hedging Trading Foreign exchange derivatives Forward exchange contracts (49 548) ( ) Currency options bought Currency options written (44 967) Currency and interest rate swaps ( ) Interest rate derivatives FRAs bought (1 096) FRAs sold Futures Interest rate swaps (52 022) Interest rate options bought Interest rate opitons written (305) (3 800) Comments Inter-company transactions are not included. Only one side of foreign exchange-related contracts is included, that is the part the Bank is to receive. The nominal value is calculated on the basis of the contract amount upon which the interest calculation is based or upon which a possible future foreign currency swap is based. The contract amounts in foreign currency are translated into Norwegian kroner at the year-end foreign exchange rates. CREDIT AND MARKET RISKS The Bank's exposure in foreign exchange and interest rate instruments is credit related. The major transactions are mainly carried out with Danske Bank, the owner. Trading in the instruments is assessed by the Bank's ordinary credit committees. The individual counterparties are assessed and limits established for the credit risk which it is natural for them to incur on these kinds of instrument. The instruments that each can utilise are specified within the limits. Different weightings are attached to the products within the limits subject to the credit risk inherent in each product. The Bank's foreign exchange system is updated with the customers' utilisation of single products as well as groups of products within the established limits. The assigned limits are monitored in order to avoid limit excesses. Control of credit authorisation is maintained by regular reporting between the Foreign Exchange Department and the credit committees as regards limit utilisation and maintaining the limits. Netting has been arranged with other banks. The Bank endeavours to establish netting agreements with other customers just as this type of transaction is also comprised by collateral set aside. Fokus Bank, Annual report, page 45/49

46 NOTE 40. PROVISIONS FOR OBLIGATIONS AND COSTS At December 31,, the Bank's credit equivalent values amounted to: Credit equivalent values Hedging Trading Total Foreign exchange derivatives Forward exchange contracts Currency options Foreign currency and interest rate swaps Interest rate derivatives FRAs Futures Interest rate swaps Interest rate options Total The credit equivalent value is calculated as the total risk related to contracts which, according to the current market value, will give the Bank a gain and the probability of further gains from future movements in market values. The contract amounts in foreign currency were translated into Norwegian kroner at December 31,. Market risk is limited by position limits and continuous reporting and monitoring of foreign exchange and interest rate positions. Position limits are defined at section and department levels based on overall limits established by the Bank's Board of Directors and administration. Foreign exchange exposure is based largely on the recommendations and limits laid down by Norges Bank. The limits for interest rate positions have been established at a level which reduces risk while at the same time allowing a reasonable level of daily business to be conducted. All interest rate limits are based on sensitivity limits distributed on gap. The capital markets department conducts ordinary monitoring of operations. In addition, the settlements department carries out an independent monitoring/supervision of position limits. Positions in equity instruments are controlled by position limits that are monitored by the performing department and the settlements department. The Bank's liquidity risk is controlled by guidelines for the composition of the Bank's funding. The guidelines are followed up daily by the head of the department and monthly byreporting to the Bank's management. FOREIGN EXCHANGE RATE SENSITIVITY AT YEAR-END Effect on the Profit and Loss Account of a negative change in exchange rates. TRADING BANK TOTAL All currencies ,0 % change (57) 0 (57) The figures show the effect on the Profit and Loss Account of a negative change in exchange rates for all our net positions. The total of all absolute values per currency is used to calculate the effect on the Profit and Loss Account. LENDING COMMITMENS The Bank has undertaken commitments that may result in credit exposure. At December 31,, these commitments amounted to NOK 270 million in addition to the amounts presented in the Bank's Balance Sheet. Fokus Bank, Annual report, page 46/49

47 NOTE 41. CONTINGENT LIABILITIES In consequence of its ordinary operations, the Bank is a party to lawsuits and the processing of disputed claims, including claims for compensation against the Bank. The claims are assessed in accordance with the Norwegian accounting standards for contingent liabilities. The assessment concludes that it is not likely that the advanced claims will lead to any substantial compensations. Hence, no specific provisions for such payments have been made. NOTE 42. CASH FLOW STATEMENT Parent Bank NOK million Interest and commission income Interest and commission expenses Other operating income Other operating expenses Reversals of prior-year provisions Tax paid Net cash flow from operations Decrease/(increase) in loans to and deposits from (7 586) (4 496) credit institutions (5 665) Decrease/(increase) in lending (6 118) (1 064) Decrease/(increase) in other amounts due 241 (20) Increase/(decrease) in loans and deposits from (920) credit institutions (781) Increase/(decrease) in deposits from customers (831) 0 0 Increase/(decrease) in CP liabilities 0 0 (95) 213 Increase/(decrease) in other liabilities 528 (240) (1 972) Net cash flow from ordinary financial activities (2 400) (389) (38) Investments in fixed assets (14) (435) Sale of fixed assets (134) 237 Net cash flow from investments 183 (184) (525) (3 463) Increase/(decrease) in bonds issued (3 463) (525) 33 (464) Increase/(decrease) in subordinated debt (464) Injected share capital/preference capital Change in equity capital (80) (3 627) Net cash flow from long-term financing (3 616) (81) (2 132) Net change in cash and short-term investments (2 163) 27 (47) Decrease/(increase) in cash (47) Dividend paid for the year before (1 380) Net purchase/(sale) of short-term securities (1 380) (1 427) Total change in cash and short-term investments (1 427) Fokus Bank, Annual report, page 47/49

48 AUDITOR S REPORT Fokus Bank, Annual report, page 48/49