InterIm r e p o r t 3rd.Quarter 2009 BN Bank ASA
contents Report of the Directors... 3 Financial Ratios - Group... 11 Consolidated Income Statement - Group... 12 Consolidated Balance Sheet - Group... 13 Consolidated Statement of Changes in Equity - Group...14 Consolidated Cash Flow Statement - Group... 15 Notes to the Cosolidated Financial Statement - Group... 16 Income Statement - Parent Bank... 25 Balance Sheet - Parent Bank... 26 Statement of Changes in equity - Parent Bank... 27 Cash Flow Statement - Parent Bank... 28 Notes to the Financial Statement - Parent Bank... 29 Report of Review of Interim Financial Information... 37 [ 2 ]
BN Bank ASA Highlights Third Quarter 2009 Implementation of new strategy for BN Bank according to plan. Agreement with SpareBank 1 SMN for takeover of BN Bank s business in Ålesund. Strengthened liquidity situation cash position of NOK 13.7 billion at end of Q3 2009 (NOK 4.6 billion at end of Q2 2009). Strengthened operations and earnings profit of NOK 56 million (NOK 34 million for Q2 2009). Return on equity (after tax) of 8.9 per cent (5.2 per cent: Q2). Strengthened capital adequacy tier 1 capital ratio of 9.0 per cent (7.8 per cent: 30 June 2009) Continued decrease in volume of non-performing loans net non-performing and doubtful loans totalled NOK 0.8 billion (NOK 1.4 billion: 30 June 2009) Continued low losses on loans NOK 12 million (NOK 9 million: Q2) including the Ålesund portfolio. 30 September 2009 Net profit of NOK 91 million (loss of NOK 185 million: 30 September 2008) Return on equity (after tax) of 5.4 per cent (3.1 per cent: 30 September 2008) Total revenues of NOK 370 million (NOK 363 million: 30 September 2008). Operating expenses totalling NOK 201 million (NOK 256 million: 30 September 2008) Tier 1 capital ratio: 9.0 per cent (8.1 per cent: 30 September 2008) [ 3 ]
NOK million 30 September 2009 Introduction The implementation of the new strategy for BN Bank, which was adopted in the second quarter 2009, is going according to plan. The strategy will be rolled out in earnest in the fourth quarter, and the Bank will again focus on various market activities. Lisbet Nærø was appointed Managing Director at a board meeting on 27 October. She has been acting MD since January 2009, having come from the post of CFO at SpareBank 1 SR-bank. Profit performance is satisfactory, although still lower than the Bank s longer-term objective 100 80 60 40 20 0 (20) (40) (60) (80) (100) Operating result before loan losses Q3 2008 Q4 2008 The need for stabilising the customer base, as well as the competitive situation, the financing situation and falling interest rates, have all squeezed net interest income to date in 2009. The trend in underlying costs is positive, although costs of NOK 33 million arising from the winding up of property leases have generated extraordinarily high expenditure to date in 2009. Q1 2009 Q2 2009 Q3 2009 BN Bank s liquidity situation is good. To date in 2009, the Bank has issued bonds and certificates for NOK 6.8 billion, and in addition has financed its operations through Spare- Bank 1 Næringskreditt for NOK 6.4 billion. At 30 September 2009 the Bank s cash position was NOK 13.7 billion. Liquidity is intended to be used chiefly to cover future maturities, including early redemption of borrowings refinanced on high credit spreads in fourth-quarter 2008. Liquidity will also be used to assist lending growth. At 30 September 2009 the Bank s tier 1 capital ratio was 9.0 per cent, compared with 6.9 per cent at the start of the year. The corresponding capital adequacy ratio figures were 12.8 per cent and 9.8 per cent respectively. The Board of Directors considers BN Bank to be satisfactorily capitalised, but the Bank will continue working to further strengthen its capital adequacy. The owner banks capital adequacy, size and financial position will also help sustain BN Bank s capital adequacy. In September a letter of intent was signed between the property company Trysil Fageråsen Eiendom AS as owner, BN Bank as mortgagee and PEAB for the transfer of the property in the Estatia Project in Trysil. The purchase amount agreed is within the earlier provision made to cover the Bank s loss in connection with the loan to Estatia Resort Trysil AS. The ownership composition of BN Bank changed during September 2009. Sparebanken Hedemark wanted to sell its 15 per cent stake and entered into an agreement in August to sell the shares to SpareBank 1 SMN. SpareBank 1 SR-bank and SpareBank 1 Nord-Norge chose to exercise their preemptive rights and have applied for a licence to take over 3.5 per cent each of the shares in BN Bank. Subject to the licence being awarded, SpareBank 1 SR-bank and Spare- Bank 1 Nord-Norge will each own 23.5 per cent of BN Bank, while SpareBank 1 SMN will own 33 per cent. The remaining 20 per cent of the shares are owned by Samarbeidende Sparebanker Bankinvest AS. It has been decided to move BN Bank s head office to new premises, which the Bank will rent from SpareBank 1 SMN. This will reduce BN Bank s costs and also permit the Bank to operate from brand-new, up-to-the-minute premises. The moving date is expected to be in November 2010. Various plans are being considered for the property where the present head office is situated, including selling the property. The third quarter saw several positive signs of development in the Norwegian and international economies. The various stimulus packages introduced by the authorities are working, and several of the arrangements are now starting to be phased out. It will however take time before greater demand helps reduce unemployment and strengthens the economy. The key interest rate was set very low during the first half-year, and a cautious increase is expected in the fourth quarter of 2009. As a result, the krone has strengthened considerably in the past few weeks. Oil prices remained stable at a relatively high level in the third quarter, which is positive for the Norwegian economy. To date in 2009, the trend in losses and defaults has been positive. [ 4 ]
Coordination with SpareBank 1 BN Bank s main areas of concentration will be commercial real estate financing, deposits and home loans. As well as focusing on these areas, the Bank will offer various SpareBank 1 products. The general aim is for BN Bank s operations and products to be based on cost-effectiveness, low risk, simplicity and predictability. This is in line with BN Bank s original strategy prior to the merger with the former KredittBanken. In the field of commercial real estate, BN Bank shall have cutting-edge expertise in commercial real estate, good customer relations, and be a partner for the owner banks. Through a more highly focused strategy, BN Bank shall strengthen its position as a leading player in financing low-risk commercial real estate. In the retail banking market, BN Bank shall be a direct services bank with the emphasis on self-service, simple products and competitive terms. The Bank s focus will be on recruiting new customers, developing the customer base, cost-effective operations and low risk. In addition to deposits, the most important source of BN Bank s funding will be covered bonds and the Norwegian bond market. Historically, BN Bank has been a player in the bond market and will develop its position further in this market. The work to further develop and coordinate the operations of the credit institutions BNkreditt, BN Boligkreditt and SpareBank 1 Boligkreditt, aimed at strengthening the funding of the BN Bank Group and the banking alliance s operations, will continue. In September 2009, BN Bank and SpareBank 1 SMN entered into an agreement for SpareBank 1 SMN to take over BN Bank s business in Ålesund. Under the agreement, SpareBank 1 SMN will take over all 36 staff in Ålesund and all customer relationships, which at 30 September consisted of NOK 4.8 billion in loans and NOK 1.5 billion in deposits. The loans and deposits in Ålesund will be transferred gradually to SpareBank 1 SMN. BN Bank will finance the portfolio and guarantee the credit risk. The guarantee and financing will be gradually reduced. If the guarantee has not been paid after 3 years it may be extended for up to a further 2 years. BN Bank s Ålesund business did not fit the Bank s new strategy. The solution that has now been agreed protects the assets in the portfolio in the best possible way, while also providing a good solution for the customers and staff at Ålesund. SpareBank 1 Næringskreditt AS SpareBank 1 Næringskreditt AS was established in 2009 and granted a licence by the Financial Supervisory Authority of Norway to operate as a credit institution. The company is owned by the savings banks that form the SpareBank 1 alliance and is co-located with SpareBank 1 Boligkreditt AS in Stavanger. The purpose of setting up the company has been to secure the banks within the alliance a source of stable and long-term financing of commercial real estate at competitive rates. SpareBank 1 Næringskreditt procures loans with mortgages on commercial property and issues covered bonds within the regulations covering such bonds established in 2007. BN Bank is permitted to transfer loans to the company and, as part of the Bank s funding strategy, NOK 7.5 billion in loans had been transferred from BNkreditt as of 30 September 2009. To date, SpareBank 1 Næringskreditt has used the bonds in the swap arrangement with Norges Bank. BN Bank is responsible for managing the transferred loans, and BNkreditt receives a commission based on the net return on the loans transferred by the Bank and the costs to the company. See Note 9 for more information about SpareBank 1 Næringskreditt. [ 5 ]
Results for the three quarters to 30 September 2009 The results of the Ålesund business are separated out in Results of discontinued operations, so that Results of continuing operations reflect the Bank s operations in commercial real estate and the retail banking market. The figures as of 30 September 2009 are compared with the corresponding figures at 30 September 2008. For the three quarters to 30 September, the BN Bank Group achieved a pre-tax profit on continuing operations of NOK 157 million (NOK 102 million). Profit after tax was NOK 113 million (NOK 76 million), giving a return on equity of 5.4 per cent (3.1 per cent). Total revenues were NOK 370 million (NOK 363 million) as of 30 September. Measures designed to stabilise the customer base and to secure funding for the Bank have brought about a decrease in both lending and deposit margins. These lower margins, combined with falling volumes of lending and deposits and falling interest rates, have weakened income to date this year compared with the same period of 2008. The result in 2008 was however weakened as a result of write-downs on bonds issued by the previous owner. The financial unrest in the second half of 2008 and the splitting up of the Glitnir Group in Norway gave rise to costs for the Bank also in 2009. BN Bank is working to wind up property leases entered into while the Bank was owned by Glitnir. In that connection, cost provisions totalling NOK 33 million were made as of 30 September 2009. Some counterparties to structured products disappeared from the market in 2008, giving rise to negative value changes totalling NOK 24 million in first-quarter 2009. The open positions were closed in first-quarter 2009. The results of discontinued operations have been negative to date this year by NOK 22 million. These are the results of the Ålesund business. Write-downs on loans in this portfolio total NOK 53 million to date this year. For continued operations the pre-tax profit for the third quarter totalled NOK 86 million (NOK 50 million). Profit after tax for continued operations was NOK 62 million (NOK 36 million), giving a return on equity for the quarter of 8.9 per cent (5.2 per cent). The increase in third-quarter profits is chiefly attributable to a decrease in operating expenses in the quarter relating to provisions for winding up property leases in second-quarter 2009 and decreased losses on loans. In addition, income rose during the quarter, while the general level of costs fell. The results of discontinued operations (i.e. the Ålesund business) were negative, with a loss of NOK 6 million in third-quarter 2009 (loss of NOK 2 million). Write-downs on loans in the Ålesund business totalled NOK 16 million in the third quarter (NOK 8 million). Revenues The loan transfers to SpareBank 1 Næringskreditt have caused a fall in net interest income, although this has been compensated for by an increase in other income. Net interest income fell by NOK 14 million in the third quarter, while other operating income rose by NOK 22 million. The table below shows total revenues, with revenues from SpareBank 1 Næringskreditt included in the contribution from loans. Net interest income NOK million Q2 2009 Q1 2009 Change Total revenues 134 133 1 Loans and advances 8 Deposits 2 Equity -6 Interest on overdue payments -3 Liquidity portfolio -16 Value changes 19 Other items -3 Third Quarter 2009 The results of the Ålesund business are separated out in Results of discontinued operations, so that Results of continuing operations reflect the Bank s operations in commercial real estate and the retail banking market. The figures for third-quarter 2009 are compared with the corresponding figures for second-quarter 2009. The income state-ments for the past five quarters are included in Note 11. Total revenues for the third quarter 2009 were NOK 134 million (NOK 133 million). The loans transferred to SpareBank 1 Næringskreditt have helped boost income from the lending business. As of 30 September 2009, the settlement from these transfers has been used to increase the cash position, which has had a negative impact on results. As the cash position is gradually reduced, this effect will be reversed. [ 6 ]
Continuing extremely tough competition in both deposits and home loans is squeezing earnings in these areas, and BN Bank s priority is to maintain the volume of business in preference to short-term profitability. Within the corporate market, there has been greater opportunity to raise margins in line with higher financing costs. The Bank s unrestricted funds (equity) have a short-term investment horizon, and return on these assets has been lower as a result of falling interest rates. The Bank s derivatives and other financial instruments that mature after one year, and the entire bond portfolio, are carried at fair value. Interest rate risk and exchange rate risk in the Bank are low, and fluctuations in interest rates and exchange rates should have a limited net effect on earnings. During periods when interest rate spreads between different instruments develop differently, effects on earnings may arise. The market situation and substantial fluctuations in interest and exchange rates have caused greater volatility in the value of financial instruments and also made value changes more volatile. Compared to second-quarter 2009, this has had a positive effect on other operating income amounting to NOK 19 million. Because of the competitive situation, continued downward pressure is expected on the Bank s revenues. The Bank still has borrowings raised prior to the turmoil in the financial markets, on terms that were in effect before the crisis began. Repricing of these borrowings on market terms will over time exert pressure on the Bank s earnings. A reduced cash position and redemption of some costly borrowings will, however, have a positive effect, although the redemptions will not take place before the second half of the fourth quarter. Operating expenses NOK million Q3 2009 Q2 2009 Change OOther operating expenses 52 82-30 Provision for winding up leases -18 Consultancy expenses -4 Depreciation/amortisation -2 Marketing -1 Other expenses -5 Other operating expenses were NOK 52 million (NOK 82 million) for the third quarter 2009. The ratio of operating expenses (excluding provisions for winding up property leases) to average total assets for third-quarter 2009 was 0.36 per cent (0.45 per cent), while the cost-income ratio was 39 per cent (62 per cent). As mentioned earlier, BN Bank is working to wind up property leases entered into while Glitnir owned the Bank. In that connection, NOK 33 million has been carried to expense to date this year. The underlying level of costs within banking operations fell during the quarter. The number of fulltime equivalents at the end of the quarter was 102 (103). At the start of the year, the number of full-time equivalents was 105. Efforts are being made to reduce costs further. The Bank is planning to increase marketing activities from the fourth quarter, which going forward will generate increased marketing costs. In addition, investments in self-service systems will give rise to a slight increase in IT expenditure. [ 7 ]
Write-downs on loan commitments The negative developments in the real economy gave rise to significant write-downs on loans towards the end of 2008 and in the first quarter 2009, although write-downs have been considerably reduced in the last two quarters. Lower interest rates, rising oil prices and the general trend in the Norwegian economy have had a positive effect. Not including individual write-downs, non-performing and doubtful loans totalled NOK 0.8 billion at the end of the third quarter, compared with NOK 1.4 billion at 30 June 2009. At the start of the year, the comparable volume was NOK 1.5 billion, which includes non-performing and doubtful loans in the Ålesund portfolio. Non-performing loans made up 1.76 per cent of all loans at 30 September 2009, compared with 2.78 per cent at 30 June 2009. Developments during the quarter have been positive and the Bank will continue to maintain a keen focus on the quality of the loan portfolio and on following up doubtful loans. See Note 3 for more information on non-performing and doubtful loans. For continuing operations, the sum of NOK 4 million was taken to income under loan losses in third-quarter 2009, compared with NOK 1 million carried to expense under loan losses for the second quarter. In all, loan losses in continuing operations total NOK 12 million to date this year, of which NOK 11 million (0.06 per cent of gross lending) were in the corporate market (commercial real estate) and NOK 1 million (0.01 per cent) in the retail market. Losses in the Ålesund portfolio totalled NOK 53 million in the same period. Collective write-downs totalled NOK 92 million at 30 September, and accounted for 0.22 per cent of gross lending at the same date. Individual write-downs at 30 September were NOK 296 million. Loan loss provisions on the Ålesund portfolio were NOK 119 million at 30 September, of which NOK 34 million were collective write-downs. Balance Sheet BN Bank s total assets were NOK 51.3 billion at 30 September 2009, which is NOK 1.2 billion down on the past 12 months. Lending, including lending in SpareBank 1 Næringskreditt, totalled NOK 43.5 billion at 30 September, NOK 4.6 billion (10 per cent) down on the past year. The decline in the underlying loan book has lessened since fourth-quarter 2008. NOK billion Q2 2009 Q1 2009 Q4 2008 Q3 2009 Loans and advances* 43.5 43.6 44.6 46.2 Change in the quarter -0.1-1.0-1.6-2.0 *Including SpareBank 1 Næringskreditt and the Ålesund portfolio. In the third quarter 2009, a loan portfolio of NOK 3.7 billion was transferred to SpareBank 1 Næringskreditt. Gross lending at 30 September breaks down into the following segments: NOK billion 30.6.09 30.6.08 Retail market 13.0 17.2 Commercial real estate* 25.7 27.6 Corporate market (Ålesund) 4.9 4.8 *Including loans transferred to SpareBank 1 Næringskreditt Deposits totalled NOK 15.2 billion as of 30 September 2009, which is NOK 3.3 billion (18 per cent) down on the past year. In September it was agreed to transfer NOK 1.5 billion in deposits to SpareBank 1 SMN. Underlying this was a third-quarter increase in customer deposits of NOK 0.2 billion. The deposit-to-loan ratio at 30 September was 45 per cent, compared with 38 per cent at 30 September 2008. The sale of the loan portfolio to SpareBank 1 Næringskreditt is the chief reason for the improvement in the deposit-toloan ratio. The bond market is steadily improving and BN Bank has noted increased demand for long-dated bonds issued by the Bank. To date this year, the Bank has issued bonds and certificates for NOK 6.8 billion, of which NOK 2.9 billion was in the third quarter. Prices in the bond market fell considerably in the third quarter. [ 8 ]
Risk and capital adequacy There was a positive development in the risk picture in the third quarter. Various packages of measures introduced by the authorities, falling and low interest rates, and positive tendencies in a number of submarkets, have helped to reduce defaults and lessened the need for write-downs. In the case of continuing operations, 52 per cent of the Bank s lending is exposed to real estate operations, while 44 per cent is exposed to the retail market. The overall risk in the loan portfolio is considered relatively low, but because of economic developments and impaired collateral for the Bank s lending, risk has increased in the past year. The level of losses over time in BN Bank is very closely linked to macroeconomic trends. The trend in the real economy and property prices will therefore continue to influence the extent of losses in the time ahead. There is uncertainty attached to predicting further loss trends. The Bank will continue to monitor closely the quality of the loan portfolio and to follow up doubtful loans. The liquidity situation was strengthened through the quarter and access to liquidity on competitive terms is good. The share of long-term financing measured according to the Financial Supervisory Authority s liquidity indicator 1 was 96 per cent at 30 September 2009, compared with 80 per cent at 30 June 2009. As a result of the loan transfers to SpareBank 1 Næringskreditt and the falling volume of lending, capital adequacy has strengthened in 2009. The capital adequacy ratio at 30 September was 12.8 per cent, as against 9.8 per cent at the start of the year. The equivalent figures for the tier 1 capital ratio were, respectively, 9.0 and 6.9 per cent. Against the background of substantial write-downs in fourth-quarter 2008, capital adequacy was reduced in 2008. However, as a result of the increase to date this year, it is now considerably higher than at 30 September 2008, when the capital adequacy ratio was 11.0 per cent while the tier 1 capital ratio was 8.1 per cent. The Bank s capital base including 50 per cent of profits was NOK 4 060 million at the end of September 2009, while tier 1 capital was NOK 2 860 million. Risk-weighted assets totalled NOK 31 707 million at the same date. The Bank computes capital adequacy according to the standard method in the Basel II regulations. A limited audit has been carried out of the financial statements. The Board of Directors considers BN Bank to be satisfactorily capitalised, but the Bank will nevertheless continue working to strengthen its capital adequacy further. The owner banks capital adequacy, size and financial position will also help to sustain the Bank s capital adequacy. BN Bank has not applied for an infusion of tier 1 capital via the State Finance Fund. Subsidiaries The BN Bank Group comprises the bank BN Bank and the credit institutions Bolig- og Næringskreditt AS (BNkreditt) and BN Boligkreditt. The two credit institutions are chiefly financing instruments for the Bank s lending activities. [ 9 ]
Bolig- og Næringskreditt AS BNkreditt provides low-risk mortgage loans for the purchase of commercial properties, and at the end of thirdquarter 2009 had a loan portfolio of NOK 13.8 billion, compared to NOK 20.8 billion at 30 September 2008. At the end of September, NOK 7.5 billion in loans had been transferred to Sparebank 1 Næringskreditt. BNkreditt had an outstanding bond debt of NOK 9.6 billion at 30 September 2009, compared with NOK 7.7 billion at 30 September 2008. BNkreditt posted a profit after tax of NOK 60 million for the first three quarters to 30 September, compared with an after-tax profit of NOK 140 million for the same period in 2008. The decrease in profit this year is largely owing to negative changes in the value of the company s borrowings. Losses on loans were NOK 15 million for the first three quarters of 2009, compared with NOK 2 million for the same period of 2008. Write-downs to date this year are collective write-downs in their entirety. Collective writedowns totalled NOK 53 million at 30 September, which is 0.38 per cent of lending. The capital adequacy ratio and tier 1 capital ratio were 20.9 per cent and 14.1 per cent respectively at 30 September 2009. BN Boligkreditt AS BN Boligkreditt is the Bank s credit institution for issuance of covered bonds. At the end of the third quarter 2009, the company had a residential mortgage portfolio of NOK 6.7 billion, compared with NOK 9.1 billion at 30 September 2008. In 2008 the company issued covered bonds for NOK 6.5 billion. Of this, NOK 2.5 billion was refinanced in May 2009. BN Boligkreditt posted a profit after tax of NOK 14 million for the three quarters to 30 September 2009, compared with an after-tax profit of NOK 42 million for the same prior-year period. Net interest income was NOK 17 million higher than for the same prior-year period, while value changes on financial instruments were NOK 38 million lower. The capital adequacy ratio and tier 1 capital ratio were 14.1 per cent and 11.2 per cent respectively at 30 September 2009. Outlook BN Bank s new strategy will, in the Board s opinion, provide a sound basis for developing the Bank s value and assets. The new strategy will bring about changes in the Bank s operations and structure, and will require some reorganisation. Work is being done to adapt the level of costs to the new strategy. In 2009, the Board has focused particularly on the liquidity situation, defaults, financial strength and profit performance. This has had good results and more positive developments are expected. Various marketing activities will be launched in the fourth quarter and growth is expected in both loans and deposits in the near future. Priority areas will be deposits, the bond market and the opportunities for using covered bonds. While there is still uncertainty attached to developments in the real economy, there are positive signs of improvement in several areas. In commercial real estate, the Bank s loan portfolio is on the whole low-risk, and the low interest rates are having a positive impact on this segment. The Bank s operations in Ålesund consist chiefly of lending to businesses operating offshore service vessels, and to seafood businesses and other industries. Strengthened oil prices and a possible economic recovery are likely to have a positive effect on this portfolio. The Board of Directors Trondheim, 27. october 2009 [ 10 ]
Financial ratios - Group nok million note 30.09.09 % of ata 30.09.08 % of ata full year 2008 % of ata Summary of results Net income from interest and credit commissions 270 1.04 % 458 1.65 % 591 1.07 % Total other operating income 100 0.38 % -95-0.34 % -149-0.27 % Total income 370 1.42 % 363 1.31 % 442 0.80 % Total other operating expenses 201 0.77 % 256 0.92 % 395 0.71 % Operating profit/loss before impairment losses 169 0.65 % 107 0.39 % 47 0.09 % Impairment losses on loans and advances 12 0.05 % 5 0.02 % 328 0.59 % Profit/loss before tax 157 0.60 % 102 0.37 % -281-0.51 % Tax charge 44 0.17 % 26 0.09 % -71-0.13 % Result of remaining operations 113 0.43 % 76 0.27 % -210-0.38 % Profitability Return on equity 1 5.4 % 3.1 % -6.6 % Net interest income 2 0.69 % 1.10 % 1.07 % Cost-Income ratio 3 54.3 % 70.5 % 89.4 % Balance sheet figures Gross lending to customers 31 665 48 240 46 705 Gross lending incl SpareBank 1 Næringskreditt AS and operations under disposal 43 880 IA IA Customer deposits 15 188 18 457 16 005 Customer deposits incl operations under disposal 16 657 IA IA Deposit-to-loan ratio 4 48.0 % 38.3 % 34.3 % Increase/decrease in lending (gross) last 12 months -34.4 % -7.9 % -12.2 % Increase/decrease in deposits last 12 months -17.7 % -17.2 % -28.1 % Average total assets (ATA) 5 51 987 55 500 55 248 Total assets 51 280 52 515 54 239 Losses on loans & non-performing loans Loss ratio, lending 6 0.03 % 0.01 % 0.66 % Non-performing loans as % of gross lending 8 1.76 % 1.93 % 2.34 % Other doubtful loans as % of gross lending 8 1.55 % 0.33 % 1.75 % Solvency Capital adequacy ratio 12.80 % 11.0 % 9.8 % Tier 1 capital ratio 9.0 % 8.1 % 6.9 % Tier1 capital 2 860 3 247 2 786 Net capital base 4 060 4 444 3 985 Offices and staffing Number of offices 2 2 2 Number of full-time equivalents 7 102 104 105 Shares Earnings per share (whole NOK) before divested operations 9.13 6.14-16.96 Earnings per share (whole NOK) including divested operations 7.35-14.94-46.77 Note 1) Profit after tax as a percentage of average equity 2) Total net interest income to date this year in ratio to average total assets 3) Total operating expenses as a percentage of total operating income 4) Customer deposits as a percentage of lending to customers 5) average total assets are calculated as an average of quarterly total assets and as of 1 january and 31 December 6) Net loss as a percentage of average gross lending to date this year 7) Employees of the former Glitnir Factoring AS, Glitnir Privatøkonomi AS, Glitnir Eiendomsfinans AS and BN Bank`s division in Ålesund are not included in the 2008 figures 8) The figures are included BN Bank`s division in Ålesund [ 11 ]
Consolidated Income Statement - Group Q3 Q3 full year nok million note 2009 2008 30.09.09 30.09.08 2008 Interest and similar income 395 896 1 593 2 637 3 481 Interest expense and similar charges 325 739 1 323 2 179 2 890 Net income from interest and credit commissions 70 157 270 458 591 Change in value of fin instr carried at fair value -277 210-1 180 416 1 355 Other operating income 2 341-374 1 280-511 -1 504 Total other operating income 64-164 100-95 -149 Salaries and general administrative expenses 39 78 140 237 318 Depreciation, amortisation & write-downs 2-1 11 6 17 Other operating expenses 11 5 50 13 60 Total other operating expenses 52 82 201 256 395 Operating profit before impaiment losses 82-89 164 107 47 Impairment losses on loans and advances 3-4 3 12 5 328 Profit before income tax 86-92 157 102-281 Income tax expense 24-28 44 26-71 Result of remaining operation 62-64 113 76-210 Result from operations under disposal 5-6 -182-22 -261-369 Net profit/(loss) for year incl. discont. operations 56-246 91-185 -579 [ 12 ]
Consolidated Balance Sheet - Group full year nok million note 30.09.09 30.09.08 2008 Deferred tax assets 156 56 158 Intangible assets 3 33 8 Own funds lending 15 0 0 Tangible fixed assets 70 94 87 Repossessed properties 15 19 17 Loans and advances 3, 9 31 276 48 149 46 171 Prepayments and accrued income 68 129 139 Financial derivatives 802 1 067 3 301 Short-term investment securities 10 055 2 737 2 683 Cash and balances with credit institutions 3 595 231 1 673 Assets classified as held for sale 5 5 225 0 2 Total assets 51 280 52 515 54 239 Share capital 6 619 619 619 Retained earnings 2 220 2 528 2 129 Total equity 2 839 3 147 2 748 Subordinated loan capital 1 426 1 388 1 403 Liabilities to credit institutions 4 12 216 9 966 14 555 Debt securities in issue 4 16 624 16 763 17 298 Accrued expenses and deferred income 135 294 123 Other short-term liabilities 35 1 285 121 Financial derivatives 789 1 215 1 986 Customer deposits and accounts payable to customers 15 188 18 457 16 005 Liabilitites classified as held for sale 5 2 028 0 0 Total liabilities 48 441 49 368 51 491 Total equity and liabilities 51 280 52 515 54 239 The Board of Directors Trondheim, 27. october 2009 [ 13 ]
Change in Equity - group other share contrib. other total nok million capital capital reserves equity Balance Sheet at 1 January 2008 619 2 2 710 3 331 Result for the period 0 0-184 -184 Other paid-up share capital - share option scheme from Glitnir Bank hf. 0 0 1 0 Balance Sheet at 30 September 2008 619 2 2 526 3 147 Result for the period 0 0-395 -395 Reversed options, sale of BNbank out of Glitnir Group 0-2 -2-4 Balance Sheet at 31 December 2008 619 0 2 129 2 748 Result for the period 0 0 91 91 Balance Sheet at 30 September 2009 619 0 2 220 2 839 The Board of Directors Trondheim, 27. october 2009 [ 14 ]
Consolidated Cash Flow Statement - Group full year nok million 30.09.09 30.09.08 2008 Cash flows from operating activities Interest/commission received and fees received from customers 7 996 1 744 2 334 Interest/commission paid and fees paid to customers -83-223 -1 068 Interest received on other investments 99 217 247 Interest paid on other loans -1 056-1 696-2 337 Receipts/disbursements (-) on loans and advances to customers 8 596 5 831 7 975 Receipts/payments on customer deposits and debt -1 122-3 086-5 236 Receipts/payments (-) on liabilities to credit institutions -2 491-1 657 2 754 Receipts/payments (-) on securities in issue 53-1 053-2 529 Receipts on written-off debt -1 1 3 Other receipts/payments -2 546-180 -708 Payments to suppliers for goods and services -139-162 -249 Payments to employees, pensions and social security expenses -122-116 -217 Tax paid 0-96 -175 Net cash flow from operating activities 9 184-476 794 Cash flows from investing activities Receipts/payments (-) on balances with credit institutions 18-175 -46 Receipts/payments(-) on short-term securities investments -7329 154 180 Receipts/payments (-) on long-term investment securities 0-15 -72 Purchase of operating assets, etc 4-89 -15 Proceeds from sale of subsidiary 45 0 Net cash flow from investing activities -7 262-125 47 Cash flows from financing activities Net cash flow from financing activities 0 0 0 Net cash flow for the period 1 922-601 841 Cash and balances with central banks at 1 January 1 673 832 832 Cash and balances with central banks at 30 September 3 595 231 1 673 [ 15 ]
Notes - group Note 1. accounting policies The financial statements for the third quarter have been prepared in compliance with IFRS, including IAS 34 on Interim Financial Reporting. Both the financial statements for the Group and for the Parent Bank are based on IFRS. IAS 1 (revised), Presentation of financial statements has been applied for the Group as of 1 January 2009. A description of the accounting policies applied by the Group in preparing the financial statements is provided in the Annual Report for 2008. Glitnir Bank ASA and Bolig- og Næringsbanken ASA merged with effect from 1 January 2008. The merger is treated as a business continuity merger. Glitnir Bank changed its name to BNbank 31 December 2008. It was in the extraordinary shareholders meeting at 20 October 2009 decided that BNbank changes name to BN Bank See separate note for further details. Note 2. Other operating income and net gain/(loss) Q3 Q3 full year nok million 2009 2008 30.09.09 30.09.08 2008 Guarantee commission 1 1 2 4 5 Net commission income/expense 21-11 22-25 -21 Net gain/loss on securities 1-153 -49-145 -149 Net gain/loss on foreign exchange 317-210 1 300-334 -1 341 Operating income, real estate 0 0 1 0 0 Other operating income 1-1 4-11 2 Total other operating income and net gain/(loss) 341-374 1 280-511 -1 504 Net gain/loss on foreign exchange is mainly attributable to effects of exchange gains/losses which arise when borrowing and lending in foreign currencies is translated at the current exchange rate. Forward exchange contracts are measured at fair value with value changes carried through profit or loss. Exchange gain/loss effects on this line will therefore be wholly or partially equalled by effects with sign reversed under the line Change in value of financial instruments carried at fair value through profit or loss. It is in the third quarter of 2008 written down NOK 155 million in bond to the former parent company, Glitnir Banki hf, the result line Net gain / (loss) on securities. In connection with the sale and / or issuance of the structured products BN Bank has secured exposure by using stock options, AIO and interest rate swap agreements. Financial turbulence has led to that some contract counterparties have lapsed, and it has not been possible to replace the securing business. BN Bank is therefore partially exposed to market developments in a limited number of products. Change in exposure is booked over the Income Statement as incurred, and in the third and second quarter there were no effect at the Income Statement. In the first quarter of 2009 the effect on the Income Statement was 24 million. In 2008 the effect was 9 million. Exposure is reduced significantly in the first quarter. The effect on net profit / (loss) on securities so far in 2009 will be partly counteracted by the effects of opposite sign under the line for change financial instruments at fair value through profit. [ 16 ]
Note 3. Impairment losses and write-downs on loans carried at amortised cost The various elements included in impairment losses and write-downs on loans are set out in Note 1 in the annual report for 2008. Loans past due more than 3 months are defined as loans not serviced under the loan agreement for 3 months or more. As a first mortgage lender, the Group can however gain access to revenue, either through the courts or by some voluntary solution. Impairment losses and write-downs on loans described in this note apply to loans carried at amortised cost. Q3 Q3 full year nok million 2009 2008 30.09.09 30.09.08 2008 Write-offs in excess of prior-year write-downs 5 0 14 0 0 Write-offs on loans without prior write-downs 0 0 0 0 0 Confirmed losses transferred to discontinued operations -5 0-14 0 0 Write-downs for the pe riod: Change in group write-downs -5 1 5 0 63 Change in group write-downs transferred to discontinued operations 6 0 8 2-19 IFRS adjustment of group write-downs 0 0 0 0-4 Total change in group write-downs 1 1 13 2 40 Increase in loans with prior-year write-downs 0 0 32 0 0 Provisions against loans without prior write-downs 18 2 22 15 408 Decrease in loans with prior-year write-downs -6 0-8 0-6 Change in individual write-downs transferred to discontinued operations -17 0-47 -12-111 Total change in individual write-downs -5 2-1 3 291 Gross impairment losses -4 3 12 5 331 Recoveries on prior write-offs 0 0 0 0-3 Impairment losses -4 3 12 5 328 Revenue recognition of interest on writte-down loans 7 0 15 0 1 Q3 Q3 full year nok million 2009 2008 30.09.09 30.09.08 2008 Individual write-downs to cover imp. Losses at the start of the period 402 31 412 25 25 Write-offs covered by prior-year individual write-downs -26-1 -62-8 -13 Write-downs for the period: Increase in loans with prior-year individual write-downs 0 0 32 0 0 Write-down on loans without prior individual write-downs 18 2 22 15 407 Decrease in Loans with prior-year individual write-downs -13 0-23 0-6 Transferred assets classified as discontinued operations -85 0-85 0 0 Individual write-downs to cover Imp. Losses at the end of the period 296 32 296 32 412 Group write-downs to cover Imp. Losses at the start of the period 131 57 121 58 58 Group write-downs for the period to cover impairment losses -5 1 5 0 63 Transferred assets classified as discontinued operations -34 0-34 0 0 Group write-downs to cover Imp. Losses at the end of the period 92 58 92 58 121 [ 17 ]
Loans past due more than 3 months 1 full year nok million 30.09.09 30.09.08 2008 Gross principal 645 929 1 092 Individual write-downs 208 0 34 Net principal 437 929 1 058 Other loans with individual write-downs 1 full year nok million 30.09.09 30.09.08 2008 Gross principal 567 159 820 Individual write-downs 172 32 381 Net principal 395 127 439 Loans past due more than 3 months by sector and as a percentage of loans 1 gross outstanding gross outstanding gross outstanding nok million 30.09.09 % 30.09.08 % 2008 % Corporate 489 1,34 679 1,41 794 1,70 Retail 156 0,43 250 0,52 298 0,64 Total 645 1,76 929 1,93 1 092 2,34 1 The numbers in the note information regarding non-performing loans, other loans with individual write-down and non-performing loans distributed by sector and in per cent of loans are including BN Bank s division in Ålesund that otherwise is treated as discontinued operations. Note 4. Funding The Group had issued bonds and certificates in the nominal amount of NOK 6 759 million at 30 September 2009, either as new issues or increases in existing tap issues. Fixed-rate loans are measured at fair value on the balance sheet, while variable-rate loans are measured at amortised cost. nok million certificates bonds total Net debt (nominal) at 1 January 2009 1 270 15 734 17 004 New issues 0 0 0 Increase in existing issues 230 56 286 Purchase and maturity of existing issues -770-821 -1 591 Net debt (nominal) at 31 March 2009 730 14 970 15 700 New issues 0 3 406 3 406 Increase in existing issues 0 127 127 Purchase and maturity of existing issues -67-4 744-4 811 Net debt (nominal) at 30 June 2009 663 13 759 14 422 New issues 850 2 090 2 940 Increase in existing issues 0 0 0 Purchase and maturity of existing issues -276-597 -873 Net debt (nominal) at 30 September 2009 1 237 15 252 16 489 [ 18 ]
Liabilities to credit institutions nok million group New borrowings during the period - EUR million 0 Loans redeemed during the period - EUR million 275 Unitilised credit facilities - EUR million 75 Recognised Values full year nok million 30.09.09 30.09.08 2008 Certificates carried at amortised cost 0 0 0 Certificates selected for fair value carrying 1 261 1 077 1 323 Total recognised value of Certificates 1 261 1 077 1 323 Bonds carried at amortised cost 8 771 7 107 6 350 Bonds selected for fair value carrying 6 592 8 579 9 625 Total recognised value of bonds 15 363 15 686 15 975 Total recognised value of debt securities in issue 16 624 16 763 17 298 Note 5. Result from discontinued operations In connection with the sale of former Glitnir Bank ASA October 2008 the subsidiaries Glitnir Privatøkonomi AS (GPØ) and Glitnir Eiendomsfinans AS (GEF) were sold. Starting with the fourth quarter of 2008, these companies have been rated as completed activities under IFRS 5. As a result of the sale the bank has written down all the carrying values related to investments in GPØ and GEF in the third quarter of 2008. SpareBank 1 Factoring (former Glitnir Factoring AS) (GF) was decided sold in January 2009 and BN Bank has written down all the carrying values related to investment in the GF in the fourth quarter of 2008. The sale was conducted in the first quarter of 2009. Operations in Ålesund, which mainly comprises lending to the corporate market, will be a organizational subject Spare- Bank 1 SMN. The agreement is signed, and the excretion from BN Bank starts in Q4 2009. From third quarter 2009 Ålesund is considered as discontinued operations under IFRS 5. Specification of results of operations under disposal Q3 Q3 full year nok million 2009 2008 30.09.09 30.09.08 2008 Net income from interst and credit commissions 16 27 43 81 118 Total other operating income 4 30 12 92 98 Total other operating expences 12 228 33 423 484 Total impairment losses on loans and advances 16 0 53 10 130 Result before tax of operations under disposal -8-171 -31-260 -398 Computed tax charge -2 11-9 1-29 Result after tax of operations under disposal -6-182 -22-261 -369 [ 19 ]
Cash flow statement relating to disposals full year nok million 30.09.09 30.09.08 2008 Cash flow from operating activities 21-35 -19 Cash flow from investing activities 0-4 -5 Cash flow from financing activities 0 48 48 Net cash flow for the period 21 9 24 Specification of results of continued operations Q3 Q4 full year nok million 2008 2008 2008 Net Income from interest and credit commissions 157 133 591 Total other operating income -164-54 -149 Total other operating expenses 82 140 395 Operating profit/loss befor impairment losses -89-62 47 Impairment losses 3 323 328 Profit/loss before tax of continued operations -92-384 -281 Computed tax charge -28-98 -71 Profit/loss after tax of continued operations -64-286 -210 Other assets classified as held for sale In connection with the redemption of a loan in the fourth quarter 2008, the Bank took over 50% of the shares in a company. The Bank intends to sell these shares on. In the third quarter of 2009 are assets and liabilities related to operations in Ålesund classified as held for sale under IFRS 5. Note 6. Disclosures relating to the merger Bolig- og Næringsbanken ASA (the acquiring company) merged as of 1 January 2008 with Glitnir Bank ASA (the acquired company), and changed the name to Glitnir Bank ASA (Changed name to BNbank 31 December. 2008 and to BN Bank 20 October 2009). The acquired company, Glitnir Bank ASA, operates a banking business in the Parent Bank, and a factoring business through the wholly owned subsidiary Glitnir Factoring AS. All activities belonging to the merged companies have been continued within the merged group. Following the merger, the banking business from the acquired company has been integrated with the banking business in the acquiring company. The merger between Bolig- og Næringsbanken ASA (acquirer) and Glitnir Bank ASA (acquiree) as of 1 January 2008 is a merger under joint control since the parent companies in the merged group were both wholly owned by Glitnir Banki h.f. of Iceland at the date of merger. As a consequence, the merger has been conducted as a business continuity merger in which capitalised assets under IFRS at 31 December 2007 for the merging groups formed the base for the merger balance sheet for the new group at 1 January 2008. The acquiree company, Glitnir Bank ASA, did its financial reporting in 2007 under generally accepted accounting principles in Norway (N-GAAP) and has therefore restated the balance sheet figures to IFRS as of 31 December 2007 as the basis for the merger balance sheet. Comparative figures for 2007 in the merged group have been restated as though the merged groups were also a group reporting under IFRS in 2007. The last-mentioned applies likewise to the comparative figures for the Parent Bank. [ 20 ]
Because the merger was conducted as a business continuity merger, no new goodwill arose as a result of the business integration between the merging companies. The acquiring company has however recognised goodwill relating to goodwill recognised in the acquired company in connection with an earlier business integration in the acquired company. In the acquiring company s opinion, recoverable amounts of goodwill exceed the amounts recognised, and the conclusion is not sensitive with regard to the assumptions used when calculating recoverable amounts. In connection with the merger, the acquiring company issued 2 626 131 shares with a face value of NOK 50 each, in total NOK 131 million. In addition, the share premium reserve has increased by NOK 68 million. Merger balance sheet at 1 January 2008 merger merger nok million acquirer acquiree effects balance Deferred tax assets 51 3 0 54 Intangible assets 263 24 0 287 Interests in associates 0 0 0 0 Tangible fixed assets 81 15 0 96 Repossessed properties 15 0 0 15 Loans and advances 46 568 6 531 0 53 099 Prepayments and accrued income 43 20 0 63 Financial derivatives 625 378 0 1 003 Short-term investment securities 2 572 340 0 2 912 Cash and balances with credit institutions 638 194 0 832 Total assets 50 856 7 505 0 58 361 Share capital 488 116 15 619 Other undistributable equity 0 83-15 68 Retained earnings 2 163 481 0 2 644 Minority interest 0 0 0 0 Total equity 2 651 680 0 3 331 Subordinated loan capital 1 268 201 0 1 469 Liabilities to credit institutions 9 997 588 0 10 585 Debt securities in issue 18 868 62 0 18 930 Accrued expenses and deferred income 287 44 0 331 Other short-term liabilities 142 91 0 233 Financial derivatives 884 336 0 1 220 Customer deposits and accounts payable to customers 16 759 5 503 0 22 262 Total liabilities 48 205 6 825 0 55 030 Total equity and liabilities 50 856 7 505 0 58 361 [ 21 ]
Note 7. Contingent liabilities Sale of structured financial products The bank has been sued by 13 of the bank s customers who have worked together on a class by buying a structured savings product. BN Bank has been one of several banks that have financed the product, while other players have been the issue, organized and sold the product. True state of the area is not clarified. Oslo District Court has rejected class action suit against, among others, BN Bank. The Court has not taken a position on the substantive requirements, it is only the process form that are processed. The class action sued did not fulfill some of the terms and conditions that are required, for example the same of substantially similar to the actual and legal basis, and that the group process was the best form of negotiation. 10 of the Bank`s customers have appealed the injunction. No provision has been made for any loss as a result of the action. Total loan financing of this product amounted to NOK 120 million per 30 September 2009. BN Bank has to a limited extend facilitated and sold structured products, but has issued and offered financing for this type of product to a slightly greater extent. The total outstanding volume of equity-linked bonds and deposit accounts with equity-linked returns at 30 September 2009 was 1,9 billion, while loans with collateral in this type of product totalled NOK 1,8 billion at the same date. Reversal One of the Bank s customers became insolvent in the second half of 2008. At the time of the insolvency, the Bank had no involvement with the customer, the loan having been repaid in its entirety shortly before liquidation proceedings commenced. The administrators have warned that they will consider claiming reversal of the payment, but the Bank s view is that there is no great probability of the administrators succeeding with their claim. The loan repayment that may be reversed amounted to NOK 110 million.the deadline for claiming reversal went out in Q3. BN Bank has not received any claims from the administrators. Note 8. Contingent outcomes, events after the balance sheet date Apart from the matters mentioned in the note above, there are no assets or liabilities to which contingent outcomes are attached and where those outcomes could have a significant impact on the Group s financial position and results. There were no significant events after the balance sheet date. Note 9. Transfer to SpareBank 1 Næringskreditt SpareBank 1 Næringskreditt AS was established in 2009 and is licensed by the Financial Supervisory Authority of Norway to operate as a credit institution. The company is owned by the savings banks that form the SpareBank 1 alliance and is colocated with SpareBank 1 Boligkreditt AS in Stavanger. BN Bank hold 8.2 per cent of SpareBank 1 Næringskreditt`s equity. The purpose of the creditt institution is to secure for the banks in the alliance a source of stable and long-term financing of commercial real estate at competitie rates. SpareBank 1 Næringskreditt procures loans with mortgages on commercial property and issues covered bonds within the regulations governing such bonds established in 2007. As part of the alliance, BN Bank is permitted to transfer loans to the company and, as part of BN Bank`s funding stragegy, NOK 3.8 billion in loans was transferred from BNkreditt at the end of June, while another 3.7 was transferred in September. BN Bank is responsible for administration of the transferred loans and BNkreditt receives a commision based on the net return on the loans transferred by the Bank and the costs to the company. In order to attend to the interests of existing bondholders, in connection with the transfer BN Bank guaranteed to ensure that Bnkreditt`s capital adequacy ratio would be at least 20 per cent at all times. Should the capital adequacy ratio fall below 20 per cent, the parent bank is required to make its receivable subordinate to other debt in BNkreditt and/or put ut a guarantee. At 30 September, BNkreditt`s capital adequacy ratio was 20.9 per cent. BN Bank has provided guarantees for loan commitments transferred where the loan commitments exceed 25 per cent of SpareBank 1 Næringskreditt`s capital base. In addition, BN Bank guaranteed for 2 per cent of transferred lending volume. At 30 September this two guarantees amounted to NOK 888.8 million. [ 22 ]