Board of Directors Report for SpareBank 1 Gruppen

Transcription

1 1 Board of Directors Report for 2009 SpareBank 1 Gruppen

2 2 SpareBank 1 Gruppen

3 3 Board of Directors Report for 2009 SpareBank 1 Gruppen AS OPERATIONS IN 2009 SpareBank 1 Gruppen AS is a holding company that, through its subsidiaries, provides and distributes products in the fields of life and P&C insurance, fund management, securities brokering, factoring, receivables management and debt collection of old claims. SpareBank 1 Gruppen AS is owned by SpareBank 1 Nord-Norge (19.5%), SpareBank 1 SMN (19.5%), SpareBank 1 SR-Bank (19.5%), Samarbeidende Sparebanker AS (19.5%), Sparebanken Hedmark (12%) and the Norwegian Confederation of Trade Unions and affiliated trade unions, LO (10%). In this Directors Report, SpareBank 1 Gruppen AS refers to the holding company and SpareBank 1 Gruppen refers to the group consisting of SpareBank 1 Gruppen AS and its subsidiaries. SpareBank 1 Gruppen reported a profit of NOK 1,193.7 million for 2009, compared to a loss of NOK million in The profit for 2009 is the highest reported result in the history of SpareBank 1 Gruppen. The profit gave a return on equity after tax of 17.5%, compared with minus 16.2% in The historic result is primarily attributed to strong financial markets, which led to positive returns on SpareBank 1 Gruppen s diverse securities portfolios. A substantial improvement in SpareBank 1 Livsforsikring AS s risk result also contributed to the positive result. SpareBank 1 Gruppen s total assets were NOK 61.5 billion as of 31 December 2009, which is an increase of 9.0% from In addition, ODIN s assets under management were NOK 28 billion as of 31 December 2009, which is an increase of NOK 8.8 billion from The capital adequacy ratio was 16.3% as of 31 December 2009, while the core capital adequacy ratio was 11.8%. The capital position of SpareBank 1 Gruppen is considered satisfactory. In 2009, SpareBank 1 Gruppen AS sold its 24.5% share in First Securities AS. The holding company owns 73.25% of the shares in Argo Securities AS. The company is engaged in securities activities and has its head office located in Oslo. SpareBank 1 Gruppen Finans Holding AS was established in 2009 as a subgroup of SpareBank 1 Gruppen AS. SpareBank 1 Gruppen Finans Holding AS is comprised of a value chain within debt collection. In the first quarter of 2009, SpareBank 1 Gruppen Finans Holding AS acquired both SpareBank 1 Factoring AS (formerly known as Glitnir Factoring AS) and Sparebanken Factoring AS (formerly owned by SpareBank 1 Nord-Norge). In the second quarter of 2009, the two acquired companies were merged into a single company called SpareBank 1 Factoring AS. SpareBank 1 Gruppen AS purchased 10% of Actor Fordringsforvaltning AS from Sparebanken Sør effective from 1 January 2009 and thereby increased its owner share to 100%. During the first quarter of 2009, SpareBank 1 Gruppen Finans Holding AS acquired the shares in Actor Fordringsforvaltning AS and the company is now a part of the subgroup. During 2009 SpareBank 1 Gruppen AS purchased % of the shares in Eiendomsverdi AS, a company involved in property valuation. In the fourth quarter of 2009, SpareBank 1 Skadeforsikring AS purchased the health insurance division of Skandia Lifeline Norge from Skandia Insurance Company Ltd. The investment gave SpareBank 1 Skadeforsikring AS a total market share of 15% in this market segment. The shares that SpareBank 1 Gruppen AS had in Bank 1 Oslo AS were demerged with effect from 1 January Consequently, Bank 1 Oslo AS became directly owned by the SpareBank 1 banks (90%) and the Norwegian Confederation of Trade Unions and affiliated trade unions, LO (10%). An important factor in the transfer of ownership was the strategy to establish a clear boundary between production and distribution in the SpareBank 1 Alliance. Bank 1 Oslo AS will continue to be a part of the SpareBank 1 Alliance. SpareBank 1 Livsforsikring AS has entered into an agreement with Gabler Wassum AS concerning the management and administration of their group defined benefit pension portfolio valued at approximately NOK 4.0 billion. The agreement provides Gabler Wassum AS with the opportunity to purchase the portfolio by the end of 2010.

4 4 SpareBank 1 Gruppen In 2008, SpareBank 1 Gruppen introduced a new management system, based on principles taken from «Beyond Budgeting», that is called Dynamic Management. A consequence of this change is that the group has discontinued the traditional budgetary process and implemented rolling forecasts. Ambitious, relative targets and the extended use of benchmarks, which illustrate the company s performance in relation to the market and competitors, are important elements of Dynamic Management. The group s bonus and profit-sharing plans have been modified in accordance with the principles of Dynamic Management. In 2009, SpareBank 1 Gruppen engaged in a profitability improvement program called Delta. The goal of the program is to increase the annual profitability by NOK 361 million beginning in This does not include the Bank 1 Oslo AS profitability improvement program of NOK 89 million, as they are no longer a part of SpareBank 1 Gruppen AS of 1 January Large measures have been completed during 2009 and the program will continue through At year end 2009, the program was ahead of schedule and had already yielded positive results, having given an annual positive effect of NOK 182 million, including NOK 44 million from Bank 1 Oslo AS s program. In January of 2009, Eldar Mathisen, Chief Executive Officer, was diagnosed with a severe illness. As a result, Kirsten Idebøen, former Chief Financial Officer, was asked to fill the position of acting Chief Executive Officer. She was permanently hired as Chief Executive Officer in June of Eldar Mathisen passed away in September of SPAREBANK 1 ALLIANCE The SpareBank 1 Alliance consists of 20 savings banks, two commercial banks (Bank 1 Oslo AS and BN Bank ASA) and SpareBank 1 Gruppen. The alliance represents one of the largest providers of financial products and services in the Norwegian market. The banks in the SpareBank 1 Alliance distribute Spare- Bank 1 Gruppen s products and collaborate in key areas such as developing brands, work programs, development of skills and know-how, IT operations, system development and procurement. SpareBank 1 Gruppen and the banks in the alliance have entered into various strategic agreements related to banking and insurance services with the Norwegian Confederation of Trade Unions and affiliated trade unions, LO. The insurance benefits offered to members of LO, as well as the management of LO and the affiliated trade unions capital and deposits are essential for the collaboration between the associated companies. LO and the affiliated trade unions use the SpareBank 1 Alliance as their main supplier of financial products and services, provided that these products and services are offered on commercial and competitive terms. By the end of 2009, LO and the affiliated trade unions had approximately members. The main goal of the SpareBank 1 Alliance is to ensure each bank s independence and regional affiliation through strong competitiveness, profitability and financial soundness. Additionally, the SpareBank 1 Alliance offers an inclusive competitive banking alternative at a national level. In an effort to promote common goals, the banks in the alliance have established a national marketing profile and developed a common strategy for brand building and communication. This strategic marketing platform also forms the basis for joint development of products and concepts. The product companies established under SpareBank 1 Gruppen AS and the associated banks have developed a common technology platform. The sharing of experience and transfer of knowledge within the alliance, based on best practice, are key elements of the alliance s development. As a result of these efforts, knowledge centres have been established for Credit Management in Stavanger, Payments in Trondheim, and Training in Tromsø. The SpareBank 1 Alliance had total assets of around NOK 625 billion at the end of Total assets amounted to approximately NOK 585 billion in The SpareBank 1 Alliance consists of 350 offices and branches throughout Norway that distribute SpareBank 1 Gruppen s products. Alliansesamarbeidet SpareBank 1 DA provides the administrative framework for the alliance and manages financing and ownership of applications, concepts, contracts and brands on behalf of the alliance partners. The company is owned by the banks in the alliance and SpareBank 1 Gruppen AS, the latter having an ownership interest of 17.74% at 31 December When Bank 1 Oslo AS became directly owned by the alliance banks, LO and affiliated trade unions on 1 January 2010, it simultaneously became an owner of Alliansesamarbeidet SpareBank 1 DA. Bank 1 Oslo AS bought 7.74% of the shares in Alliansesamarbeidet SpareBank 1 DA from SpareBank 1 Gruppen AS, leaving the holding company with shareholdings representing 10%. SpareBank 1 Gruppen plays an important role in the efforts to realise the alliance s strategic goals. The group s operations are based on creating value for its customers and owners. SpareBank 1 Gruppen s main functions in the SpareBank 1 Alliance are two-fold: Manage and develop the financial group with respect to the production and delivery of competitive products and services for distribution through the alliance banks, LO and other banks that have a distribution agreement with companies in SpareBank 1 Gruppen. Manage and develop the alliance cooperation with respect to

5 5 common management, development and execution of activities that provide economies of scale and competitive advantages. SpareBank 1 Gruppen s vision states that «The customer must experience security, proximity and a simpler everyday life». This customer-focused vision supports the alliance s vision, which states that «SpareBank 1 shall be the recommended bank where customers are reminded of their local roots, meet staff who are experts at what they do, and experience a simpler everyday life». The core values of SpareBank 1 Gruppen AS are «to be an expert and close to you». This implies that the employees are friendly and helpful and are willing to be proactive, by taking initiative and providing customers with relevant and sound advice. Additionally, the employees are customer-focused and maintain professional competence, strong industry-related skills and are available for customers when needed. Advice given to customers and sales transactions completed are based on high ethical standards. The marketing efforts are aimed primarily at the retail market, small and medium-sized enterprises and trade unions affiliated with LO. CORPORATE GOVERNANCE The shares in SpareBank 1 Gruppen AS are not publicly traded, but the company had per 31 December 2009 bonds listed on the Oslo Stock Exchange and subordinated loans listed on the Oslo ABM. The company has a concentrated shareholder structure, with all shareholder groups either directly or indirectly represented in the board. There is ongoing communication within all the owner groups. The board of SpareBank 1 Gruppen AS has discussed the «Norwegian Code of Practice for Corporate Governance» and adopted this wherever the guidelines are applicable and where they are relevant for a company that does not have shares listed on a stock exchange. The company is managed in accordance with the objectives, strategies and ethical guidelines drawn up by the board. The company places great importance on being in compliance with the requirements set by the stock exchange. The core values of SpareBank 1 Gruppen AS are «to be an expert and close to you». This implies that the employees are friendly and helpful and are willing to be proactive, by taking initiative and providing customers with relevant and sound advice. In 2007 the board adopted a new dividend policy for the company. This means that the company s owners will be paid the maximum allowed dividend in accordance with the appropriate rules and regulations. In determining the dividend for SpareBank 1 Gruppen AS, importance shall be placed on keeping a satisfactory capital and core capital adequacy ratio in relation to the planned growth and risk associated with the company s operation. The financial situation must also be deemed satisfactory in other respects. In 2008, the board established an audit committee and a compensation committee. The duties and functions of these committees are described in the instructions set by the board. SpareBank 1 Gruppen has two management teams, group

6 6 SpareBank 1 Gruppen management, which is responsible for managing and developing the financial group, and alliance management, which is responsible for managing and developing the alliance collaboration. Together, these two groups constitute an extended management forum which is led by the Chief Executive Officer. The forum gathers monthly to discuss strategic decisions and other matters concerning the alliance cooperation. result from the subsidiaries was highly influenced by the strong growth in the financial markets, as well as good results from insurance operations. SPAREBANK 1 LIVSFORSIKRING AS Profit/loss - SpareBank 1 Livsforsikring AS: Information on the remuneration of the Chief Executive Officer, group management, board of directors, supervisory board and audit committee is provided in note 47. Information on the remuneration to the auditor is provided in note 12. SPAREBANK 1 GRUPPEN RESULTS AND KEY FIGURES SpareBank 1 Gruppen AS and SpareBank 1 Gruppen report the annual accounts in accordance with IFRS, International Financial Reporting Standards. The consolidated capital adequacy statement (COREP) is based on Bank 1 Oslo AS s IRB statement, and includes capital requirements for the other companies in the group. Profit/loss - SpareBank 1 Gruppen: Net result before tax from subsidiaries Total operating costs (parent company) Net investment charges (parent company) Gains from sale of companies Share of associated company Net result before amortisation Amortisation Pre-tax result Taxes Net result for the period SpareBank 1 Gruppen reported a profit after tax of NOK million in 2009, compared with a loss of NOK million for the previous year. This corresponds to a result improvement of NOK 1,757.3 million. The profit before tax was NOK 1,193.7 million, compared with a pre-tax loss in 2008 of NOK million. The total tax expense was NOK million compared with a tax expense in 2008 of NOK million. Pre-tax profit/loss from subsidiaries: Part of result from subsidiaries before tax: SpareBank 1 Livsforsikring SpareBank 1 Skadeforsikring Bank 1 Oslo group ODIN Forvaltning Argo Securities SpareBank 1 Medlemskort SpareBank 1 Gruppen Finans Holding Correction Group Net result before tax from subsidiaries The profit before tax from subsidiaries was NOK 1,244.1 million in 2009, against a loss of NOK million in The improved Risk result after technical allocations Administration result Investment result Reserves Result before allocations Allocation to additional provisions Compensation guaranted interest Transferred to policyholders Return on company's assets Net profit to owner before tax Taxes - - Net profit/loss for the period SpareBank 1 Livsforsikring AS achieved a pre-tax profit in 2009 of NOK million. The tax expense does not appear in the result as deferred tax benefits are not recognised in accordance with accounting standards IAS 12 as of 31 December The risk and investment results improved considerably in 2009, the administration result, also showed improvement compared to The underlying operations generated positive results and the company s operating result was NOK million for the insurance unit. The equivalent result last year adjusted for nonrecurring items was NOK 68 million. The company achieved a value adjusted return for customer portfolio with guarantee of 9.5% in The booked return was 7.1%. Allocation of portfolio assets as at 31 December 2009: Group portfolio Bonds 34.2 % 31.4 % Bonds held to maturity 24.3 % 30.3 % Real estate 21.7 % 22.9 % Other 5.2 % 3.0 % Stocks 14.5 % 12.4 % Total value Company portfolio Bonds 48.7 % 26.9 % Bonds held to maturity 14.7 % 32.6 % Real estate 17.0 % 32.2 % Other 19.4 % 1.0 % Stocks 0.1 % 7.3 % Total value Investment choice portfolio Bonds 31.5 % 28.9 % Other 7.1 % 16.7 % Stocks 61.4 % 54.4 % Total value

7 7 The capital adequacy ratio was 19.0% as of 31 December 2009 Net combined ratio per year: compared with 14.3% at the end of The core capital adequacy was 16.1% in 2009 against 11.0% in The solvency margin % 87.2% 89.9% 94.6% 94.0% 96.2% capital was 279% compared with 192% for the previous year. The minimum requirement for the solvency margin capital is 100%. At the end of 2009, the solvency margin requirement was NOK 798 million, compared with NOK 848 million in The allocation to additional provisions constituted NOK 128 million in The additional provisions amounted to NOK 289 million as of 31 December The securities adjustment reserve was NOK 327 million at year end. The buffer capital represented 11.7% of the insurance provisions, which corresponded to a value of NOK 1,783.0 million per 31 December An important goal for SpareBank 1 Livsforsikring AS is to attain an equivalent market share as the alliance banks and other distributors in their local market places. This includes both the retail and the corporate market. The company aims to achieve an increased market share by offering simplified and profitable products and by utilizing the extensive distribution system in the SpareBank 1 Alliance. SPAREBANK 1 SKADEFORSIKRING AS Profit for the period - SpareBank 1 Skadeforsikring AS: Gross written premium Net earned premium Net incurred claims Net insurance operating costs Other insurance income/costs Changes in other technical reserves Operating result before finance Net financial income Other costs Result before changes in security reserve Changes in security reserve Pre-tax profit Taxes Net profit for the period SpareBank 1 Skadeforsikring AS reported a pre-tax profit of NOK million for 2009, which is an increase of NOK million, compared to The financial income amounted to NOK million which was an increase of NOK million compared to The company had positive returns on all asset groups in The capital adequacy ratio was 34.2% at the end of 2009, which corresponds to a coverage of NOK 1,077 million in relation to the minimum requirements set by the authorities. The capital adequacy ratio increased by 6.1 percentage points in Claims ratio, net The net combined ratio for 2009 was 96.2%, which was 2.2 percentage points higher than in The gross claims ratio was 74.9% as of 31 December 2009, which is an increase of 3.8 percentage points compared with SpareBank 1 Skadeforsikring AS has ambitions for profitable growth in both the retail and the corporate markets. Because of this the company has continued to strengthen its distribution platform in The goal is to increase earnings by strengthening the direct distribution platform, as well as to ensure profitable growth through the existing distribution network. In addition to good profitability, the company s long-term focus on customer satisfaction has yielded good results. In 2009 independent surveys showed that the company still has the most satisfied customers after claims in the Norwegian P&C insurance market. BANK 1 OSLO GROUP 2006 Profit/loss Bank 1 Oslo Group: Cost ratio, net 2009 Net interest income Other operating income Operating costs Operating result before losses Net loan loss provisions Pre-tax operating profit Taxes Net profit/loss for the period The Bank 1 Oslo Group reported a pre-tax profit of NOK million in 2009, which is an increase of NOK million compared to the previous year. The pre-tax profit, measured against average total assets, was 0.77% against 0.01% in The net interest income measured against average total assets was 1.60% in 2009, compared to 1.73% in 2008.

8 8 SpareBank 1 Gruppen The Bank 1 Oslo Group achieved a profit before losses of NOK million in 2009, an improvement of NOK million compared to The increase is, amongst others, due to gains on the sale of financial instruments of NOK million. Development in commission and other income: Payments system Commission revenues from insurance and savings Real estate agency commission Guarantee commissions/other Net commission and other income Net commission income increased from NOK million in 2008 to NOK million in This was an increase of 22.7%. Losses on loan: Individual write-downs Group write-downs Net write-offs Incomings on previous write-offs Total loss on loans The Bank 1 Oslo Group had to recognize losses on loan totalling NOK million in 2009, an increase of NOK 58.1 million compared to The loss ratio (recognised loss as a percentage of gross lending) was 0.59% in 2009, against 0.31% in The development in non-performing loans (measured as a percentage of volume) shows a reduction of 0.4 percentage points compared to The reduction is largely owed to bigger recuperating engagements. The total assets per 31 December 2009 were NOK 25.6 billion, an increase of NOK 0.9 billion from 31 December The bank s total assets, including transfers to SpareBank 1 Boligkreditt AS, were NOK 28.9 billion, which corresponded to an increase of 12.4%. The growth is mainly related to increase in lending to the retail market. The Bank 1 Oslo Group s total eligible primary capital was NOK 1,525.5 million at year end and resulted in a capital adequacy ratio of 11.6%. The core capital was NOK 1,128 million with a core capital adequacy ratio of 8.6%. The bank s target is a capital adequacy ratio of 11%. During the first quarter of 2009 the bank raised a subordinated loan capital of NOK 500 million. ODIN FORVALTNING AS Profit for the period ODIN Forvaltning AS: Management fees Subscription and redemption fees Total operating income Total operating costs Operating profit Net financial income Pre-tax profit Taxes Net profit for the period ODIN Forvaltning AS reported pre-tax profit of NOK 42.1 million for 2009, compared to a pre-tax profit of NOK million in The lower profit is attributed primarily to a decrease in average total assets under management throughout the year. ODIN s value-oriented investment philosophy entails that the annual return yielded by ODIN s equity funds varies from year to year was a good year in the equity markets, and nine of ODIN s eleven self-managed equity funds showed a better return than the market in which they were invested. The equity funds show a good long-term return. At year end ODIN managed total assets of NOK 28 billion in eighteen equity funds and six interest funds. This is an increase of NOK 8.8 billion compared to Gross new subscriptions was somewhat reduced compared to the previous year, but low realisations resulted in an increase of NOK 2.1 billion in net new subscriptions. ARGO SECURITIES GROUP Loss for the period Argo Securities Group: NOK million 2009 Total operating income and other income 47.0 Salaries and other ordinary personnel expenses Depreciation and amortisation -9.2 Other operating expenses Operating result Net financial income 7.0 Pre-tax loss Taxes 13.5 Net loss for the period Argo Securities Group reported a pre-tax loss of NOK 48.9 million in what was the company s first complete financial year. The result shows the effects of desired expansion and strengthened competence. The company is expected to yield a profit for the 2010 financial year. The company used 2009 to build competence and the number of employees rose during the period. The future focus will be on increasing market share within all business areas together with the continuing work exploiting all synergies that participation in the SpareBank 1 Alliance provides. The department for alternative

9 9 investments has launched its first fund, Argo ProAktiv. Starting 2010, Argo Securities Group has implemented share trading via the SpareBank 1 Alliance s internet banking platform, which is expected to increase revenue %, equivalent to NOK 1,128.5 million comes from export revenue, compared to NOK million in SpareBank 1 Factoring AS also had a revenue of NOK 85.1 million within blocfactoring during SpareBank 1 Gruppen AS reduced its owner share from 75% to 73.25% during The remaining shares are owned by the employees. SPAREBANK 1 GRUPPEN FINANS HOLDING GROUP Profit for the period SpareBank 1 Gruppen Finans Holding Group: The company had per 31 December 2009 a market share in factoring revenue of 6.7%, an increase from last year with one percentage point. The market share excluding bloc-factoring increased from 7.7% to 9.1% in In the same period of time the total factoring revenue in Norway decreased by 13.9 %. Exclusive bloc-factoring the reduction was 13.6%. NOK million 2009 Actor Fordringsforvaltning 25.8 Actor Portefølje -2.1 Actor Verdigjenvinning -1.2 SpareBank 1 Factoring 6.6 Net result before tax from subsidiaries 29.0 Total operating costs (parent company) -1.5 Net investment result (parent company) 0.3 Amortisation -5.3 Pre-tax profit 22.5 Taxes -6.7 Net profit for the period 15.9 Actor Fordringsforvaltning AS: Actor Fordringsforvaltning AS runs a debt recovery business and provides services within receivables management, litigatory debt prosecution and juridical advice. The pre-tax profit increased by NOK 10.6 million to NOK 25.8 million in In the same period the revenue increased by NOK 19.2 million, from NOK 55.4 million to NOK 74.6 million. Actor Portefølje AS: Actor Portefølje AS operates with portfolio acquisitions and collection, the refinancing of non-performing loans and other related services. The company had a pre-tax loss of NOK 2.1 million in what was the company s first financial year. Most of the portfolios were acquired during the fourth quarter of 2009 and started to generate income at the end of the year. Actor Verdigjenvinning AS: Actor Verdigjenvinning AS operates within the debt collection of old claims business and other related services. Total revenue for 2009 was NOK 4.2 million. The company had a pre-tax loss of NOK 1.2 million. The loss is due to delays in expected supply of receivables and the significant restructuring the company went through in SpareBank 1 Factoring AS: SpareBank 1 Factoring AS is a finance company that operates within the factoring business and provides guarantees services. The company achieved a pre-tax result of NOK 6.6 million in The factoring revenue amounted to NOK 8,409.5 million in 2009 against 8,306.4 in SPAREBANK 1 MEDLEMSKORT AS Profit for the period SpareBank 1 Medlemskort AS: Total operating income Salaries Other operating expenses Operating result Net financial income Pre-tax profit Taxes Net profit for the period was a good year for SpareBank 1 Medlemskort AS, with a pre-tax profit of NOK 12.1 million and a net profit for the period of NOK 8.6 million. The company has a close cooperation with LO and affiliated trade unions and is the supplier of the advantage concept LOfavør, which is offered to all members on behalf of LO and the affiliated trade unions. The company also cooperates with the other companies in the SpareBank 1 Alliance, especially the banks and insurance companies. At the LO Congress in May 2009, LO and affiliated trade unions agreed to continue the LOfavør program until This has led to an increased activity in the company, and SpareBank 1 Medlemskort AS has experienced yet another year of growth in the use of membership benefits relating to the credit cards. This has led to a large increase in commission from the credit card supplier, which has been a good source of income for LOfavør. There is still substantial commercial potential. The company also experiences increased demand for its services from the alliance banks. OTHER In addition to shares in subsidiaries, the holding company's assets consist of bank deposits and other assets. The holding company had liquidity reserve of NOK 502 million as of 31 December 2009, and unutilised credit facilities accounted for NOK 400 million of this amount. The liquidity reserve decreased by approximately NOK 650 million compared with The group's cash and cash equivalents

10 10 SpareBank 1 Gruppen decreased by NOK million in The reduction is a result of net cash flow from operations and net cash flow from financing of NOK 3,263.5 million and NOK million, against a net cash flow of NOK -4,851.0 million from investment activities. Lending to customers increased by NOK 1,153.5 million, the holding of financial instruments rose by NOK 4,735.9 million and the real estate portfolio increased by NOK 48.0 million. Increased debt from securities issued rose by NOK 3,064.7 million and deposits from and liabilities to customers and credit institutions increased by NOK million. SpareBank 1 Gruppen AS received NOK 176 million in new equity in A dividend of NOK 800 million was paid to the shareholders in The equity consists of share capital, share premium reserve and other equity. The share capital in the holding company was NOK 1,782.4 million as of 31 December 2009, while the total equity was NOK 3,432.4 million. The group s total equity was NOK 5,293.3 million at the end of the year. Recognised goodwill in the group amounted to NOK million as of 31 December The group s capital adequacy ratio was 16.3% as of 31 December 2009 on a consolidated basis, compared with 12.6% in The group's core capital adequacy ratio was 11.8% as of 31 December 2009, compared with 9.4% for the previous year. For the holding company, capital adequacy ratio was 57.7%, compared to 74% in 2008, and the core capital adequacy ratio was 47.6% in 2009 and 61.7% in The holding company had distributable equity of NOK million at the end of the year. The transfer of shares in Bank 1 Oslo AS to the SpareBank 1 banks and LO brought along a decrease of capital in SpareBank 1 Gruppen AS of NOK 1 billion per 1 January Share premium reserves were reduced by NOK million and other equity was reduced by NOK million. The annual accounts have been presented on the assumption that the company will continue as a going concern. The board finds that the prerequisites for the going concern assumption have been met by the annual accounts for 2009 and the result forecasts for 2010 and Beyond matters mentioned in this report, no circumstances have arisen after the end of the financial year that would be of material significance to the company's financial position and results. PROPOSED ALLOCATION OF THE PROFIT FOR THE YEAR AND PAYMENT OF DIVIDEND Transferred from other equity: NOK 103 million. Proposed payment of dividend: NOK 120 million. RISK FACTORS The operations of SpareBank 1 Gruppen are organised into different business areas through the group s subsidiaries. There are major differences in the risk structure between each subsidiary. The most important risk categories that impact the group are related to market risk, credit risk, liquidity risk, insurance risk, operational risk, concentration risk, as well as strategic and business risk. Bank 1 Oslo AS was demerged from SpareBank 1 Gruppen with effect from 1 January This has led to a decreased risk exposure on many of the above mentioned risks. Responsibility for risk management and control The responsibility for risk management lies within the board of each subsidiary, the executive board and line management. The boards from each subsidiary have the responsibility for overall risk management in their own companies. Each subsidiary has its own risk managers. The responsibility for the overall risk management within the group lies with the Director for Strategy, Analysis and Risk Management in the holding company. The director reports to the Chief Executive Officer of SpareBank 1 Gruppen. The purpose of risk management in SpareBank 1 Gruppen is to ensure capital adequacy and the fulfilment of statutory capital requirements. This shall be achieved through a moderate risk profile characterised by a strong risk culture with a high level of risk management awareness striving towards an optimal capital allocation within the adopted business strategy exploitation of synergy and diversification effects, and an adequate core capital in accordance with the chosen risk profile DIVIDEND The board proposes that a dividend of NOK 120 million be distributed for 2009 from SpareBank 1 Gruppen AS. To pay the proposed dividend, SpareBank 1 Gruppen AS has to transfer NOK 103 million from other equity since this year s result was of NOK 17 million. Internal control within the group is defined as a line responsibility. In accordance with the «Regulations relating to Risk Management and Internal Control» and the group s own guidelines, risk factors in the operations are reviewed annually and action plans are prepared in all units, which are reported to the respective subsidiary s board of directors. In addition, surveys are conducted across the group with regard to internal control, Personal Data Act, and security matters. SpareBank 1 Gruppen has outsourced the internal auditing

11 11 function to Ernst & Young AS. The group has benefited with increased expertise as a result of this. Internal auditing operations also encompass the subsidiaries. PERFORMANCE OF RISK MANAGEMENT IN Gruppen AS. This separation has a significant effect on the risk profile of SpareBank 1 Gruppen. For additional information, we refer to Pillar 3-report, which is a publication in accordance with the instructions of the capital requirements. The separation of Bank 1 Oslo AS will not have any effect on the work related to risk management, such as work on regulatory requirements and requests from Finanstilsynet, other than a reduced risk exposure for SpareBank 1 Gruppen. The development in the Norwegian and International financial markets 2007 to February Index as of January 1 st 2007 = 100 While 2008 was characterised by one of history s largest plummets in both the stock and commodity markets, as well as significant fluctuation in the interest and currency rates; 2009 brought with it a reversal of large parts of the fall in rates. Moreover, Norway seems to have been affected by the financial crisis to a lesser degree compared to other countries. The positive market development in 2009 has yielded a considerable increase in risk capital for the company. The turbulence in 2008 provided the organisation with insights that are built upon in the development of future risk models and other relevant areas for risk management in SpareBank 1 Gruppen. At the same time, acquisition, restructuring and development of the companies in SpareBank 1 Gruppen Finans Holding Group and Argo Securities AS will in the future become an important part of the value added in SpareBank 1 Gruppen. They will also constitute a more significant part of risk elements in SpareBank 1 Gruppen. These companies have earlier been included as an element of ownership risk in the calculation of risk. From 2009, the companies were included in the overall risk calculation and were also a part of the calculation of diversification effects. The group s risk management review program has continued through The model developed and partly implemented in 2008 is still in progress and formed the basis for comparison of ICAAP calculations in RISK CATEGORIES The group s risk exposure is related primarily to market risk, ownership risk, credit risk, concentration risk, insurance risk, operational risk, liquidity risk as well as strategic and commercial risk. For an explanation of each risk category, see Note 3 Financial risk management. SpareBank 1 Gruppen is, as a financial group, subject to an extensive set of regulations which are constantly under development. Within insurance, a new set of rules for calculating capital requirement, Solvency II, is being developed. This will have consequences for SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS. Solvency II is expected to be in force from Similar to the effect Basel II had on the development of risk management in banks; Solvency II is expected to have at least the same effect on the calculation of capital requirements as well as the need for developing new models for risk management in insurance companies. Extensive work is being performed to prepare for the new rules, including participation in regulatory trial projects. SpareBank 1 Gruppen has recently gone through considerable changes which will have consequences for risk management in the group. Among the most important events with short term impact, is that Bank 1 Oslo AS is no longer owned by SpareBank 1 Gruppen AS. Instead, it is directly owned by the shareholders of SpareBank Market risk The group s consolidated market risk is measured and reported quarterly to the board of directors in SpareBank 1 Gruppen AS. The calculations are based on a Value at Risk (VAR) model. A corresponding model is used for the follow-up of each subsidiary. The subsidiaries manage and monitor risk exposure in accordance with their own models and routines. Financially, 2009 has been a very good year for SpareBank 1 Gruppen. From a risk management perspective, this applies particularly to SpareBank 1 Livsforsikring AS which had the most positive development in The company chose to retain its high holdings of stocks in 2008 and This resulted in weak results for the second half of 2008; however, in 2009 the company delivered the highest return to their customers compared to their competitors. The value adjusted return in the group portfolio was 9.5% and the booked return was 7.1%. SpareBank 1 Livsforsikring AS s securities adjustment reserves climbed from 0

12 12 SpareBank 1 Gruppen The development of the results in 2009 has entailed a significantly better financial situation than at the beginning of the year. to NOK million during the year. The additional provisions amounted to NOK million, which is an increase of NOK million at year end. The capital and solvency margin are satisfying, and significantly better than at the beginning of the year. Up until August 2009, the buffer capital utilisation in SpareBank 1 Livsforsikring AS was followed up on a daily basis in order to monitor the risk exposure of the company. In August, the risk level in the company was lowered, and since then, there has been, a weekly follow-up of buffer capital utilisation. The value of property was reduced during the year. Despite the fact that SpareBank 1 Skadeforsikring AS has a conservative investment profile in its investment portfolio, the company s financial return was significantly affected in a positive direction by the development in the financial markets throughout The company invested 7.2% of the total financial assets in stocks, compared with 5.1% in During 2009, the company chose to exit hedgefunds. The company has a very short term to maturity on its interest placements. At the end of the year, 14% of the company s investment portfolio was placed in real estate, compared to 15.7% in The market risk on the company s financial placements is considered to be moderate. Ownership risk SpareBank 1 Livsforsikring AS received NOK 413 million in 2009 as contribution from the group. Given the present risk exposure, the holding company s financial position is regarded to be satisfying. The development of the results in 2009 has entailed a significantly better financial situation than at the beginning of the year. Credit risk In 2009, the group s credit risk was, first and foremost, associated with the credit risk in Bank 1 Oslo AS, which was demerged from SpareBank 1 Gruppen with effect from 1 January Credit risk represents the most significant risk element in Bank 1 Oslo AS. The bank s retail market portfolio increased by 15.3% in The growth within the corporate market was 2.6%. The corporate market s share of total lending constituted 27% as of 31 December 2009, compared to 29% as of 31 December The level of non-performing loans in Bank 1 Oslo AS increased in 2009 compared to This applies both to the retail and corporate market. Non-performing and impaired loans amounted to NOK million as of 31 December 2009, which was 2.1% of the bank s gross lending portfolio compared to 1.9% as of 31 December The credit risk in SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS is related to investments in commercial paper

13 13 and bonds. SpareBank 1 Livsforsikring AS is exposed towards so-called CDOs in its portfolios. CDOs are bonds where the yield depends on the credit characteristics of several underlying parties. In 2009 the CDOs, which are recognised as receivables at amortised value, were written down by NOK 21 million. The remaining positions in CDOs in SpareBank 1 Livsforsikring AS were recognised at NOK 211 million as of 31 December Other CDOs in the company s portfolio at the beginning of 2009, that are either indirect investments through interest funds or classified as current assets, came to maturity during The risk for additional write-downs of the remaining CDOs is expected to be moderate. Concentration risk In 2009, the concentration risk in SpareBank 1 Gruppen was mostly connected to the credit element in Bank 1 Oslo AS. Concentration risk in Bank 1 Oslo AS is the risk of losses as a result of concentrated exposure within individual customers, industries or geographic areas. Concentration risk for SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS is expected to be related to investment, especially in connection with investment in bonds issued by financial institutions. Capital requirements for this risk have not been calculated as of 31 December SpareBank 1 Skadeforsikring AS has a certain concentration risk in connection with reinsurers. in the holding company to identify the main category of operational risk before and after the implementation of measures. This work did not identify any serious risk factors in the group in In connection with the implementation of the group s ICAAP calculations, models were put in place for calculating necessary capital needs for operational risk. Reference is made to the Pillar 3-report for a more detailed description of these calculations. In connection with the new «Regulations relating to Risk Management and Internal Control», including paragraph 6 (last section) of these regulations, which clarifies the overlap with the «Capital Adequacy Regulations», all the framework and management documents in the group have been updated to clarify the boundaries between the risk processes that are encompassed by the internal control work and those that are encompassed by the ICAAP work. Compliance with statutory risk processes and an efficient implementation of these are ensured through this work. Liquidity risk Financing structure is based on an overall liquidity strategy which is reviewed and approved by the board at least once a year. The liquidity risk is reduced through diversification of the deposits across different markets, deposit sources, instruments and maturity terms. In 2009, the liquidity risk in SpareBank 1 Gruppen was mainly associated with the parent company and Bank 1 Oslo AS, and it is considered to be low. Insurance risk Insurance risk is a central part of the operations in both SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS. Losses in SpareBank 1 Skadeforsikring AS can arise as a consequence of fluctuations in the current year s claims ratio and changes in claims reserves. For SpareBank 1 Livsforsikring AS the insurance risk comes mainly from risk products without profit sharing. Strategic and commercial risk SpareBank 1 Gruppen has established a contingency plan for handling reputation-sensitive issues. Work on specific matters will be initiated and managed by the Director of Information and Public Relations, and will be a dynamic part of the department s planning. The contingency plan s agenda will be reviewed and updated every quarter. SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS relieve risk through reinsurance. The companies either cede a significant level of risk within individual business areas or cede a share of the claims from the overall insurance business to reinsurers. Reinsurance also covers cumulative claims and disasters. The risk associated with the reinsurers creditworthiness is placed under credit risk. The control of the insurance risk in both the life and P&C insurance companies is considered to be satisfactory. Operational risk The operational risk in the subsidiaries is currently documented in connection with the work done to meet the «Regulations relating to Risk Management and Internal Control». This work normally requires the management group of each subsidiary and staff area Together with the alliance s Risk Management Forum, the group will continue to focus on the establishment of quantitative models with the purpose of estimating the capital needs for the strategic and commercial risks in the group. Changes in the regulations As the owner of a bank, SpareBank 1 Gruppen is subject to the new capital adequacy rules for banks and other financial institutions (Basel II). The Pillar 2 stipulates that the institution must have a separate process for measuring capital requirements based on the company s risk profile. From 2007, SpareBank 1 Gruppen has submitted its own ICAAP calcualtions to Finanstilsynet. Work to identify the group s overall risk situation is under continuous development, and updated ICAAP calculations are prepared quarterly for the board. SpareBank 1 Gruppen publishes an annual Pillar 3-report, which covers the requirements stipulated in the

14 14 SpareBank 1 Gruppen capital adequacy regulations with regard to market discipline and the publication of financial information. After the separation of Bank 1 Oslo AS, SpareBank 1 Gruppen is no longer required to prepare ICAAP calculations in accordance with the Basel II regulations. Some subsidiaries in SpareBank 1 Gruppen are still required to prepare ICAAP calculations. SpareBank 1 Gruppen will continue to prepare ICAAP calculations in accordance with current Basel II regulations. The consequence of this will be that the requirements for similar reporting in the respective subsidiaries will cease, and that complete ICAAP calculations will be prepared at group level only. PILLAR 3 Reference is made to a separate Pillar 3-report prepared in accordance with the requirements stipulated in Part IX, Chapters 45 and 46, of the Capital Adequacy Regulations. The report has also been prepared to meet the market s increased demand for transparency and openness with regard to risk in general and a more detailed review of the company s capital and risk situation. For the Pillar 3-report we reference to in SpareBank 1 Gruppen AS, IT, Information and Public Relations and functions related to alliance cooperation, lead the alliance cooperation. HR strategy SpareBank 1 Gruppen s HR strategy is based on the company s vision, values, goals and success factors. The main goal of the HR strategy is to ensure that SpareBank 1 Gruppen Attracts the right employees by focusing on the values «to be an expert and close to you». Retains the best employees by giving them responsibilities, communicating with them and rewarding them for good performance. Develops employees through involvement, establishment of clear goals and follow-up. The HR strategy follows the employment cycle of an employee and contains frameworks and guidelines for how the company as an employer should manage and develop its employees. Key areas of the HR strategy include skills development, career opportunities, remuneration and rewards, equal opportunities, fitness programme (HSE) and a trainee programme. ORGANISATION AND WORKING ENVIRONMENT AT SPAREBANK 1 GRUPPEN AS The HR strategy includes guidelines that will develop SpareBank 1 Gruppen as an attractive and including working place without any form for discrimination. Organisation SpareBank 1 Gruppen AS had 217 employees and full-time equivalents at the end of In SpareBank 1 Gruppen there were a total of 1,445 employees and 1,411 full-time equivalents. The corresponding figures for 2008 were 1,380 and 1,340, respectively. The increase in the workforce is related primarily to ventures in new business areas through the acquisition of companies and establishment of new companies. Since the trainee programme was introduced in 2006 a total of 14 trainees have completed their trainee period. All of them have central positions within the group. SpareBank 1 Gruppen has currently eight trainees and will recruit a new group of trainees in The purpose of the trainee programme is to recruit future managers and technical specialists who, during a two-year period, will acquire wide-ranging expertise in the group s various business areas. A total of 104 employees resigned from their positions in The total turnover in 2009 was 7.1%. The corresponding figure for 2008 was 9.4%. Adjusted for early retirement pensions (AFP), old age pensions and disability pensions, the group s turnover was 4.9%. This is regarded as a satisfactory level in relation to the market as a total. All business areas are organised within each subsidiary. The Chief Executive Officers for the four largest subsidiaries; together with the directors for Finance, Communication and Strategy & Business development; partake in the corporate management group of SpareBank 1 Gruppen AS. SpareBank 1 Gruppen AS leads and administers the cooperation within the SpareBank 1 Alliance. The managers of the staff areas The remuneration policy is another key area of the HR strategy. Regular analyses are conducted to ensure that the group offers competitive terms. The incentive scheme and profit sharing at the group level and bonus scheme at the company level was continued in The final results in relation to defined criteria for the group and the performance level compared to the competitors, form the basis for the profit sharing. Working environment and sickness leave The group s working environment is considered to be very good. Annual work climate surveys are conducted, which are followed up through systematic activities in the organisation to eliminate any weaknesses that are identified in the surveys. Each subsidiary in SpareBank 1 Gruppen has its own working

15 15 environment committee. This ensures an optimal way of identifying challenges in the working environment and establishes a body that has the authority to resolve them. Also, the safety personnel in each subsidiary make an active contribution. A central Workplace Anti-Alcoholism and Drug Addiction Dependency Committee has been appointed. Collaboration with the employee organisations has been constructive and had a positive impact on the operations and results for SpareBank 1 Gruppen continued the agreement on an Inclusive Workplace and had set a target for reducing sickness leave by 20% during the period of the agreement, which ran to the end of Sickness leave in 2009 was 4.5%, compared with 4.4% in These rates are among the lowest in the industry. Training in various HSE disciplines was provided for managers and safety coordinators in This was carried out in consultation with the individual working environment committees. SpareBank 1 Gruppen s ethical guidelines specify rules for how the employees and representatives shall give notice if they become aware of matters that are in violation of laws, regulations or the group s internal rules. A separate notification routine has also been established. Expertise Work related to human resources and expertise development in the alliance is organised in a HR-Committee. The Expertise-Committee s work focuses on the realisation of synergies based on the expertise identified in the alliance s various units, with the purpose to enhance the alliance s overall performance. A large portion of the committee s work is associated with the training model in the SpareBank 1 Alliance. Through this model, training is offered in the specialist areas of investment, insurance, financing and payment transfers. In connection with the training model, an internal certification programme has been developed for customer advisors, and a large number of advisors have already been certified. A separate proficiency strategy has been formulated to support the development of a culture of continuous learning. A common competency centre has been established in Tromsø, which will contribute to essential proficiency enhancement throughout the alliance. The proficiency strategy has to be considered in the context of the HR strategy, which aims to attract the right employees by focusing on the group s values «to be an expert and close to you». The strategy will also contribute to retain the best people through accountability, communication and reward of good performance. Involving the employees and setting good goals are emphasized as important for the employees success. subsidiaries initiate vocational training and other skills upgrading initiatives if required. The group has joint programmes for leadership development. Equal opportunities Of the group s employees, 46% are women and 54% are men. 6.1% of all female employees work on a part-time basis, compared with 1.5% of the male employees. In the group management, two out of eight members are women. The central management groups in the parent company and subsidiaries have 26% female representation overall, while the total share of female leaders in the group is 34%. There were two women among the eight members of the executive board at the end of the year, while female representation on the subsidiary boards was 35% overall. The group s Life Phase Committee ensures that the company complies with the Norwegian Gender Equality Act. The committee also focuses on how SpareBank 1 Gruppen can be an attractive employer for employees in various life phases. In connection with the development of the company s remuneration and reward system, an objective assessment was made of the group s various roles/positions. This was to ensure equal pay for work of equal value. The main reason why there is a somewhat higher wage level for men than women in the group is that there are more men than women in both senior and professional positions at a high level. The average salary for women in the group was 463,000 kroner as of December, compared with 571,000 kroner for men. As a member of the Norwegian Financial Services Association; SpareBank 1 Gruppen AS has participated in the FUTURA programme. This is a development programme that aims to increase the share of women in the recruitment basis for leading positions. Attractive employer SpareBank 1 Gruppen experiences an increased interest by young employees. This is a result of the fact that the group has a strong brand in the SpareBank 1-name and the activities that are carried out to market the group as an attractive employer at universities and colleges. SpareBank 1 Gruppen recruited 117 new employees in The majority of those employed had at least four years of education beyond high school. Most new employees were aged 26 to 40 years, but the group has recruited employees of all ages in The average age of employees in SpareBank 1 Gruppen was 42.5 years at the end of Efforts to emerge as an attractive employer with exciting career opportunities and competitive terms will continue in SpareBank 1 Gruppen has a collective strategy of expertise. The

16 16 SpareBank 1 Gruppen SOCIAL RESPONSIBILITY SpareBank 1 Gruppen has the following definition of community involvement: «We are committed to contribute to sustainable economic development together with our employees, their families, the community and society in general to improve the quality of life for most people. This work is based on four principles: economic growth, environmental balance, social progress and positive influence in society». Our goal is to make money, but value creation has to be in line with sustainable development. Our social commitment is thus about how value is created. We are committed to take into account how our behaviour affects people, the environment and the society. This responsibility makes demands beyond the laws, which the financial markets are subject to. Social Responsibility covers everything from investment management to labour rights. Social Responsibility is also about fraud and injury prevention measures, protection of life, health and values, good products to customers, business ethics, environmental impact, credit policies, attitudes and local involvement. An active community involvement consists of a long-term perspective on all aspects and consequences of business in society. Environment Although SpareBank 1 Gruppen does not pollute in the same way as traditional industry, we have an impact on the environment both directly and indirectly. This includes waste, energy use, travel, transportation, materials, procurement and water consumption. 100% of the waste produced in the SpareBank 1 Gruppen is sorted at source. This has been a common practice for the past six years. The company s goal is to continue to sort 100% of the waste. Most of the group's employees work in Hammersborggata. Hammersborggata 2 uses electric heating in the offices and district heating for ventilation. In Hammersborggata 9 district heating is used for both radiators and ventilation. SpareBank 1 Gruppen's ambition is to reduce energy consumption further in SpareBank 1 Gruppen. The climate accounts show the CO2 emissions measured in CO2- equivalents, based on reported data from various internal and external systems. These data are controlled by Co2Focus. Climate statements are prepared using the best available practice. The climate accounts are published on the websites of SpareBank 1 Gruppen. The climate statements are developed in accordance with the international standard Greenhouse Gas Protocol Initiative (GHG Protocol), which is the most common standard for measuring greenhouse gas emissions. The methodology is developed by the World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD). During 2009 measures to reduce SpareBank 1 Gruppen s impact on the environment were implemented. Increased use of video conferences to reduce the number of flights, more digital communications with customers to reduce the amount of paper mailings and less internal use of printers are some of the measures. The environmental effect of these measures will be measured in the climate statement for CHANGES TO THE BOARD AND EXECUTIVE MANAGEMENT In April 2009, Harry Konterud, who is Chief Executive Officer of Sparebanken Hedmark, was elected Chairman of the Executive Board. He succeeded Knut Oscar Fleten who had been the Chairman of the Board since April There were three changes in 2009 within corporate management. In June 2009 Kirsten Idebøen was hired as Chief Executive Officer, succeding Eldar Mathisen. Previously, she held the position as Chief Financial Officer in the group and had been acting Chief Executive Officer since January In September 2009 Sigurd Aune was appointed Chief Financial Officer in the group. He previously held the position as Chief Financial Officer of Bank 1 Oslo AS. In October 2009 Aud Lysenstøen was hired as Chief Executive Officer of SpareBank 1 Livsforsikring AS, succeeding Ole-Wilhelm Meyer, who was hired as Chief Executive Officer at The Norwegian Central Securities Depository (VPS). Lysenstøen came from the position as Division Manager with responsibility for the corporate area in SpareBank 1 Livsforsikring AS. An overriding goal for the procurement strategy is to always take into account the environmental impact and life cycle costs during the planning of procurement and purchasing processes. SpareBank 1 Gruppen provides annual climate accounts. The independent party Co2Focus AS makes the report. They examine the total energy consumption related to the daily operation of OUTLOOK The results of 2009 were very good for SpareBank 1 Gruppen. An improvement in the stock markets, lower interest rates and lower risk premiums on bonds contributed to net gains on financial instruments. After a sharp downturn in 2008, the Oslo Stock Exchange rose as much as 65 % in The events from the last two years have shown how dependent the group's results are upon

17 17 developments in financial markets. This dependence emphasizes the importance of focusing on profitability and risk management in the group s operations. The board expects that the profitability program Delta will provide a significant improvement in the underlying operations of all group companies during Norway seems to have overcome the financial crisis, but our small, open economy will remain highly dependent on developments in the world. At the beginning of 2010, there is a considerable uncertainty about the macroeconomic development. It is however probable that this year will not provide the corresponding development in the stock markets as in Thus, the group will not get the same help from good financial markets in 2010 as it experienced in The board is of the opinion, that SpareBank 1 Gruppen is financially well positioned to withstand volatility in credit and equity markets and that it has established appropriate risk management systems for the continuous monitoring of the SpareBank 1 Gruppen's overall risk exposure. During 2009, the group s risk-bearing capacity was significantly improved, among other factors through the development of securities reserves and additional provisions in SpareBank 1 Livsforsikring AS. The board considers that SpareBank 1 Gruppen has established a financial robustness in all companies, so that future volatility in financial markets should be managed in a good way in More demanding customers and increasingly professional actors contribute to increased competition in the financial markets. The result is an increased need for having the most competitive products and services in addition to the best and most motivated employees. Strengthening expertise as well as innovation and execution capability is therefore among the key factors of success in the further development of our operations. Through acquisitions and the establishing of new companies in both 2008 and 2009, SpareBank 1 Gruppen and its owners have demonstrated both willingness and ability to invest aggressively, even in situations that have been financially challenging. SpareBank 1 Gruppen has in recent years strengthened its overall financial position and financial flexibility, and thereby strengthened its ability to self-manage structural choices ahead. A WORD OF GRATITUDE The employees have shown strong commitment in There has been a close and productive collaboration with the employee organisations. The Board would like to extend thanks to all the employees of SpareBank 1 Gruppen for their excellent effort and contribution to this year s outstanding results. Oslo, 23 March 2010 Harry Konterud Bjørn Engaas Hans Olav Karde CHAIRMAN OF THE BOARD Terje Vareberg Finn Haugan Bente N. Halvorsen Knut Bekkevold Venche Johnsen Kirsten Idebøen CHIEF EXECUTIVE OFFICER NOTE: This translation from Norwegian has been prepared for information purposes only.