gjensidige.no/banken ANNUAL REPORT 2010 GJENSIDIGE BANK BOLIGKREDITT AS

Transcription

1 gjensidige.no/banken ANNUAL REPORT 2010 GJENSIDIGE BANK BOLIGKREDITT AS

2 2 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT 2010 CONTENT PAGE CONTENT 3 Report of the Board of Directors 6 Income Statement 7 Balance Sheet 8 Statement of Changes in Equity 9 Cash flow Statement PAGE NOTES 10 Note 1 Accounting Principles 13 Note 2 Critical Accounting Estimates and Judgements 14 Note 3 Segment Information 14 Note 4 Net Interest Income 15 Note 5 Operating Expenses 15 Note 6 Losses 16 Note 7 Tax 16 Note 8 Intangible Assets 17 Note 9 Other Assets 17 Note 10 Loans to and Receivables from Credit Institutions 18 Note 11 Analysis of loans 18 Note 12 Impairment of loans 19 Note 13 Debt to credit institutions 19 Note 14 Debt Incurred through the Issue of Securities 19 Note 15 Other Liabilities 19 Note 16 Off-balance sheet commitments and contingent liabilities 20 Note 17 Classification of Financial Instruments 21 Note 18 Maturity analysis of assets and liabilities 22 Note 19 Loan to value ratio and security mass 22 Note 20 Transactions with related parties 23 Note 21 Capital Adequacy 24 Note 22 Risk 25 Note 23 Credit Risk 27 Note 24 Liquidity Risk 28 Note 25 Sensitivity analysis PAGE OTHER INFORMATION 29 Declaration from the Board of Directors and CEO Auditor s statement Control Committee s statement

3 REPORT OF THE BOARD OF DIRECTORS GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT BUSINESS Gjensidige Bank Boligkreditt AS was established in the spring of 2009 and later that year received a license from the Financial Supervisory Authority of Norway for the establishment of a Covered Bond (Mortgages) Company. The company has its head office in Førde. Services such as customer and loan management as well as day-to-day management and administrative services are provided by Gjensidige Bank ASA and Gjensidige Forsikring ASA. Banking and administrative services are also purchased from Sparebanken Sogn og Fjordane. The company s mission is to offer and/or obtain residential mortgages, commercial mortgages, loans secured by mortgages on other real property or public loans. At the close of 2010, the company only had residential mortgage loans. Gjensidige Bank Boligkreditt AS is a wholly owned subsidiary of Gjensidige Bank ASA. Gjensidige Bank ASA is a wholly-owned subsidiary of Gjensidige Bank Holding AS, which in turn is a wholly-owned subsidiary of Gjensidige Forsikring ASA. The company has issued covered bonds with a total face value of NOK 1,800 million. The company started operating in the third quarter of At the close of 2010 the company had 2,296 mortgages with a total outstanding balance of NOK 2,355.0 million. The company s loan portfolio is of high quality, and none of the loans are in default. The weighted average loan-to-value ratio is 44.6 per cent. The company does not carry out any R&D activities. COMMENTS ON THE ANNUAL ACCOUNTS Profit & loss account The financial statements have been prepared in accordance with simplified IFRS (International Financial Reporting Standards). In accordance with the requirements in Norwegian accounting legislation, the Board of Directors confirms that the prerequisites have been met for preparation of the accounts under the assumption that the company will continue as a going concern and that the annual accounts have been prepared under this assumption. The figures in brackets refer to the previous year was the company s first full year of operation, and the figures for the previous year are therefore not directly comparable. In 2010 the company made an operating profit after tax of NOK 7.3 million (0.7 million). The main reasons for the improvement were higher volumes and the fact that the company operated for the whole year in Net interest income for 2010 amounted to NOK 14.5 million (4.1 million), equivalent to 0.63 per cent (0.70 per cent) of average assets under management. In 2010 operating expenses totalled NOK 4.1 million (1.9 million), or 28.2 per cent (47.2 per cent) of total operating income for the year. The company buys services such as customer support, loan servicing and administrative services from Gjensidige Bank ASA, and the CEO is hired on a part-time basis from Gjensidige Forsikring ASA. Banking and administrative services are purchased from Sparebanken Sogn og Fjordane. Defaults and loan losses The company uses the Banking Group s guidelines for assessing and writing down losses on loans. In 2010 there was a NOK 0.3 million (1.2 million) expense for write-downs of loans. Group write-downs on the balance sheet at the close of the year amounted to NOK 1.6 million (1.2 million). No individual write-downs related to individual commitments have been made. The bank s total write-downs represented 0.01 per cent of gross lending at the end of the year. The company had no defaults over 30 days at the end of the year. The write-down is assessed to be sufficient. BALANCE SHEET The company s assets under management have growth in parallel with the loan portfolio, and amounted to NOK 2,426.3 million (1,753.7 million). The company borrows money by issuing covered bonds. The company also has a credit facility/vendor financing agreement with Gjensidige Bank ASA, which at the turn of the year amounted to NOK million. Loans At the end of the year, gross lending totalled NOK 2,355.0 million (1,681.6 million). The whole portfolio has been purchased from Gjensidige Bank ASA. The portfolio consists of loans with adjustable interest rates. The average loan commitment is just over NOK 1 million. There is no single exposure over NOK 7 million. Funding The company has issued covered bonds with a total face value of NOK 1,800 million (1,500 million), of which Gjensidige Bank ASA held NOK 750 million at 31 December At the turn of the year, the company s mortgages amounted to per cent of the covered bonds that it had issued. Capital adequacy and equity The company s equity at the close of the year was NOK million (80.7 million). The bank had NOK million (79.0 million) in net equity and subordinated loan capital, and its capital adequacy ratio was 14.5 per cent (11.9 per cent). The figure for equity and subordinated loan capital includes the operating profit for Gjensidige Bank Boligkreditt AS complies with the Basel II regulations. The new rules are based on the principles set out in the report International Convergence of Capital Measurement and Capital Standards. The Basel II regulations allow institutions to adapt the reporting of capital adequacy according to how advanced the company s own methods for quantifying risk is. REPORT OF THE BOARD OF DIRECTORS

4 4 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT 2010 The company had NOK 7.9 million in unrestricted equity as per The Board believes that the company s equity and capital adequacy ratio are satisfactory and sufficient, in view of the company s operations. RISK FACTORS Risk is defined as the possibility that an event can affect the company s achievement of its objectives. Thus, in order to understand and manage risk, both the probability that the event will occur and the consequences of that event is assessed. Through the group s risk management and internal control, a structure is established that identifies, assesses, calls attention to and manages risk throughout the whole group in a systematic way. Risk management is based on specified objectives and strategies and the constraints for risk exposure that have been specified by the Board of Directors. The primary responsibility for good risk management and internal control is vested in the CEO and all managers and employees in the operational units that provide services to the company, by performing the work in keeping with the authority, rules of procedure and guidelines that are incumbent on the individual. The group and individual companies shall have moderate risk profiles, and there shall be no single event capable of seriously harming the company s financial position. FINANCIAL RISK The company s financial risk mainly comprises credit, liquidity and interest rate risk. Risk is reported monthly in accordance with the principles, strategies and limits on risk adopted by the Board. Credit risk The company s credit risk represents the risk of losses arising from customers or other counterparties failing to repay their debts when they are due. The company uses risk classification models to calculate the risk associated with its exposure to customers. It only provides loans secured with a residential mortgage. The first loans from Gjensidige Bank ASA were transferred in September Since then, house prices have risen. Gjensidige Bank ASA services the company s loan portfolio, and monitors it closely. Lack of losses are consideres satisfactory and the risk associated with the portfolio is considered low. Liquidity risk Liquidity risk is the risk that the company will be unable to meet all of its financial obligations when they are due, or be unable to fund its lending activities. Limits have been determined for the necessary access to liquid funds. In order to reduce the risk, liquidity forecasts are continuously updated. The company also holds an adequate liquidity buffer, designed to give it sufficient time to implement the necessary measures in the event of an acute liquidity freeze. Interest-rate risk Interest rate risk is the risk that equity will fall in value as a result of unexpected changes in general interest rate levels. Any such change in interest rate levels may lead to the market value of assets with fixedinterest periods falling. Alternatively, the market value of fixed-interest debt/liabilities may increase. The company s exposure to general interest rate levels is low in relation to its core capital. There are no fixedinterest loans in the portfolio, and all of the bonds issued are subject to variable interest rates. The company has set limits on interest rate level risk, which are monitored and reported monthly. Operational risk Operational risk is the risk of loss due to weaknesses or errors in processes and systems, errors committed by employees, or external events. To reduce risk, the group focuses on organising its activities with well-defined and clear lines of reporting and responsibility. Fixed procedures have been established for the execution of risk assessment, and each year the Board of Directors considers the status of the established internal control system. An independent compliance function has been established at the group to help ensure that it does not incur government sanctions, financial losses or loss of reputation as a result of non-compliance with laws, rules and standards. The compliance function identifies, assesses, gives advice on, monitors and reports the group s compliance risk. Employees who use the company s IT systems have to sign a special declaration on procedures for their use. On behalf of the Board of Directors, Gjensidige s internal auditing function monitors and assesses the extent to which risk management and internal control meet expectations. OWNERSHIP AND GOVERNANCE Good corporate governance Corporate governance is a priority for the Board of Directors. There is a particular emphasis on the composition of governing bodies, the responsibilities of the Board, communication and information, and risk management and auditing. The Board of Gjensidige Bank ASA has approved ethical rules, and all employees have access to its policy, guidelines, ethical rules, instructions and other information through the group s intranet. The Articles of Association, instructions and corporate governance systems establish a clear division of roles and responsibilities at the company. GOVERNING BODY Supervisory board The Supervisory Board is composed of 6 members and 2 deputy members. The Supervisory Board shall monitor the Board of Directors and CEO s administration of the company and ensure that its objects are promoted in accordance with legislation, the Articles of Association and the decisions of the General Meeting and the Supervisory Board.

5 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT Control committee Every two years, the General Meeting elects a control committee composed of three members and one deputy member. One of the members satisfies the requirements that apply to judges, ref. the second sub-section of Section 54 of the Courts of Justice Act of 13 August This member also needs to be approved by the Financial Supervisory Authority of Norway. The control committee shall supervise the company s activities, and amongst other things check that its operations comply with relevant legislation and the Articles of Association. The Board of Directors The Board of Directors is composed of four members elected by the Supervisory Board. Members are elected for two years at a time. One of the Board members is not an employee of the Gjensidige group. The Board supervises the management of the company s affairs, and shall ensure that its operations are organised in a satisfactory manner, which includes ensuring that its book-keeping and asset management are properly audited. Changes to the composition of the Board of Directors The Chairman of the Board, Bjørn Walle, resigned from the Board and was replaced by Jørgen I. Ringdal. The reason for this was that Bjørn Walle took up the position of Chairman of Gjensidige Bank ASA s Board of Directors. External auditor KPMG has been chosen as the company s external auditor, and acts as its independent inspector, cf. Section 2-34 of the Financial Institutions Act. Internal auditor The internal auditor shall help reassure the Board of Directors and the management that the bank has appropriate and effective processes for risk management, internal control and corporate governance. The internal auditor reports to the Board. Gjensidige s corporate audit unit acts as the bank s internal company. WORKING ENVIRONMENT The company s CEO is hired from Gjensidige Forsikring ASA on a part-time contract (equivalent to 20 per cent of a full-time position) that runs until 26 June There were no personal injuries, property damage or accidents at the company in EQUAL OPPORTUNITY There are two men and two women on the Board of Directors. The CEO is a man. Like the group as a whole, the Board of Directors and management take a proactive approach to promoting equal opportunity at the company. The company follows the group s guidelines and regulations relating to corporate social responsibility, including those that relate to discrimination/diversity and ethics. THE ENVIRONMENT The company s operations result in minimal pollution of the environment. Internal environmental measures focus on energy economising, reducing travel through increased use of videoconferencing, standardised printers and copiers that print on both sides of the paper, and responsible waste management. STRATEGY AND OUTLOOK FOR 2011 In 2011, Gjensidige Bank Boligkreditt AS will continue with its core business, which consists of issuing covered bonds, which are almost entirely backed by residential mortgages bought from Gjensidige Bank ASA. The company will constantly look at the possibility of issuing further covered bonds, depending on the state of financial markets and the collateral available to the company. The company will continue to help ensure that Gjensidige Bank ASA has a diversified funding base. EVENTS AFTER THE BALANCE SHEET DATE The Board is not aware of any events after the end of the financial year that have a material impact on the financial statements presented. ALLOCATION OF PROFIT Gjensidige Bank Boligkreditt AS made a profit after tax of NOK 7.3 million. The proposal is to allocate profit before other components of comprehensive income to retained earnings. REPORT OF THE BOARD OF DIRECTORS Oslo, 31 December 2010/17 March 2011 Jørgen Ringdal Erik Ranberg Solbjørg Lie Chairman of the Board Gro Tønder Tormod S. Petersen CEO

6 6 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT 2010 INCOME STATEMENT NOK thousand Note Interest income 4 72,645 15,780 Interest expenses 4 58,194 11,677 Net interest income 14,451 4,104 Commission, etc. 60 Commission costs, etc. Net other operating income 60 Total income 14,511 4,104 Wages, salaries, etc. 148 Other expenses 5 3,299 1,722 Depreciation and writedowns on fixed assets and intangible assets Total operating expenses 4,089 1,936 Profit/ (loss) before loss 10,423 2,168 Writedowns on loans and guarantees 6, ,231 Profit/ (loss) before tax expense 10, Tax expense 7 2, Profit/ (loss) for the period 7, Other income and expenses TOTAL PROFIT (LOSS) FOR THE PERIOD 7, Gjensidige Bank Boligkreditt AS s shareholders 7, Earnings per share, NOK (basic and diluted)

7 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT BALANCE SHEET NOK thousand Note ASSETS Loans to and receivables from credit institutions 10 70,177 70,250 Loans to and receivables from customers 11 2,353,455 1,680,401 Intangible assets 8 1,069 1,711 Other assets 9 1,635 1,301 Total assets 2,426,336 1,753,664 LIABILITIES Debt to credit institutions , ,650 Debt securities 14 1,795,888 1,500,000 Other liabilities 15 11,510 5,217 Provisions Total liabilities 2,288,369 1,672,969 RETAINED EARNINGS Share capital 130,000 80,000 Share premium account Other equity 7, Total equity 137,966 80,695 RESULTS Total liabilities and equity 2,426,336 1,753,664 Oslo, 31 December 2010/17 March 2011 Jørgen Ringdal Erik Ranberg Solbjørg Lie Chairman of the Board Gro Tønder Tormod S. Petersen CEO

8 8 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT 2010 STATEMENT OF CHANGES IN EQUITY NOK thousand Share capital Share premium account Total paid-up equity Other equity Total equity Foundation Capital New equity ,900 79,900 79,900 Profit/ (loss) for the period Other profit/ loss components Profit/ (loss) for the period Equity as at , , ,695 Equity , , ,695 New equity ,000 50,000 50,000 Profit/ (loss) for the period ,272 7,272 Other profit/ loss components Profit/ (loss) for the period 7,272 7,272 Equity as at , ,020 7, ,966 Number of shares at the end of the period 130,000

9 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT CASH FLOW STATEMENT NOK thousand ) Cash flows from operating activities Net loans to customers (673,341) Interest payments by customers 70,009 14,126 Net interest reveived from credit institutions, etc. 2, Net other commission income 60 Operating expenses (3,447) (1,722) Paid taxes (161) Net outflow/ inflow from purch./ sale of interest-bearing fin. instr. Net cash flow from operating activities (604,820) 12,958 Cash flow from investing activities Net purchase of Intangible and fixed assets (1,924) Net cash flow from investing activities (1,924) Cash flow from financing activities Net inflow/ outflow from loans from credit institutions 609,174 (13,982) Net interest payment on financing activities (54,797) (8,930) Net inflow/outflow from other short-term liabilities 370 2,098 Paid-up equity 50,000 80,030 Net group contribution received/ dividends Net cash flow from financing activities 604,747 59,216 RESULTS Total cash flow (74) 70,250 Cash flow for the year Cash and cash equivalents as at 1 Jan. 70,250 Cash and cash equivalents as at 31 Dec. 70,177 70,250 Net cash inflow/ outflow (74) 70,250 Specification of cash and cash equivalents Cash and receivables from central banks Deposits at financial institutions 70,177 70,250 Cash and cash equivalents on cash flow statement 70,177 70,250 1) As part of its participation in the government swap facility for covered bonds, Gjensidige Bank Boligkreditt AS has received loans from Gjensidige Bank ASA, presented under Net loans to customers. Settlement of the loans is made by issuing covered bonds that are overtaken by Gjensidige Bank ASA as well as vendor financing, both presented under the section Net inflow / outflow from loans from credit institutions. The cash flow statement shows inflows and outflows of cash and cash equivalents over the course of the year. The statement is adjusted for items that do not result in cash flows, such as provisions, depreciation and writedowns on loans and guarantees. The cash flows are classified as operating activities, investing activities or financing activities. Cash is defined as cash and receivables from central banks and credit institutions.

10 10 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT 2010 NOTES 1 ACCOUNTING POLICIES GENERAL Gjensidige Bank Boligkreditt AS was established in 2009 and is owned by Gjensidige Bank ASA. The company is domiciled in Norway. The company s head office is located at Flovegen 2, Førde, Norway. The company issues covered bonds that can be used in the swap arrangement with Norges Bank (the central bank of Norway). All amounts in accounts and notes are stated in thousands of Norwegian kroner unless otherwise stated. The Company s presentation currency are in Norwegian kroner In accordance with the accounting regulations for banks, finance companies etc. are the financial statements prepared in accordance in line with simplified IFRS (International Financial Reporting Standards), taking into account the limitations of accounting regulations 1-5 CHANGES IN THE ACCOUNTING POLICIES As a main rule, all income and expenses shall be shown in the income statement. The exception to this rule is the effect of changes to accounting principles. In the event of fundamental accounting reforms/ changes in accounting policies, figures for previous years must be recalculated to allow comparisons. If items in the financial statement are reclassified, comparative figures must be calculated for the previous periods and be reported in the financial statements. Based on the assessments that have been made so far, the IFRSs and interpretation statements that have been issued up until 17 March 2011, the use of which is not mandatory as at 31 December 2010; i.e. IFRS 9, IFRIC 19, amendments to IAS 32, IFRIC 14 and the revised IAS 24, as well as improvements to IFRSs, are assumed to not have a significant effect on reported figures. PRINCIPLES FOR RECOGNISING INCOME AND EXPENSES Net interest income Interest rate revenue and expenses are calculated and recognised based on the effective interest rate method. The calculation takes into account establishment fees and direct marginal transaction costs that are an integral part of the effective interest rate Interest is recognised in profit or loss using the internal rate of return method both for balance sheet items that are measured at amortised cost and ones that are measured at fair value through the income statement. Interest income on writedowns on commitments are calculated as internal interest rates of the written down value. See also: Value calculation of fair value and Value calculation of amortised cost. Commission income and expenses The way in which commission income from various customer services is recognised depends on the nature of the commission. Charges are recognised as income when the services are delivered or a significant part of the service has been completed. Charges received for completed services are recognised as income in the period the services were performed. Commissions received as payment for various tasks are recognised as income once then service has been completed. Commission costs are transaction-based and are recognised in the period the services were received. Other operating income Other operating income that are not related to any of the other lines of income are generally recognised when the transaction has been completed. Operating expenses Operating expenses are accrued and expensed in the relevant accounting period. CURRENCY The company and Group s presentation currency and functional currency are Norwegian kroner. Transactions involving the purchase and sale of foreign currency denominated securities and financial instruments are translated into NOK using the exchange rate on the date of the purchase/ sale. The holdings of foreign securities and financial documents are valued in Norwegian kroner according to the exchange rate on the balance sheet day. Cash and cash equivalents are also valued at the exchange rate on the balance sheet date. SEGMENTS Gjensidige Bank Boligkreditt AS has only one business segment and that is lending to private customers. This segmentation best reflects the way the business is run by the management. INCLUSION OF NON-FINANCIAL ASSETS ON THE BALANCE SHEET Assets and liabilities are included on the bank s balance sheet when the bank obtains real control over rights to the assets or assumes real obligations. Assets are derecognised at the time the actual risk related to the assets has been transferred and the control of the rights to the assets has ended or expired. INTANGIBLE ASSETS Intangible assets, whether acquired separately or as a group, are carried on the balance sheet at the cost of acquisition. Intangible assets include customised software developed by the bank. This is carried on the balance sheet at its historical cost plus the costs of readying the software for use, less accumulated depreciations and any writedowns. When capitalising the carrying amount of new intangible assets, the probability of the financial benefits accruing to the company from the asset must be demonstrated. Additionally, it must be possible to reliably estimate the cost of the asset. Capitalised software expenses are depreciated across its expected useful lifespan, which normally is three to five years. The depreciation period and method is assessed annually. An evaluation is made of the need for writedowns when there are indications of impairment, and written down if the recoverable amount is lower than the carrying amount. Direct costs include expenses for employees who are directly involved in software development, materials and a number of relevant administrative expenses (overhead expenses). Expenses connected to the maintenance of software and IT systems are recognised directly in profit or loss.

11 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT IMPAIRMENT OF NON-FINANCIAL ASSETS The company reviews the carrying value for assets and identifiable intangible assets annually or more frequently if there are occurrences or changes in the assumptions that indicate that the carrying value is irrecoverable. Indicators that are assessed as significant by the company and that can trigger testing for impairment include: A significant drop in profitability in relation to past or expected future profitability Significant changes in the company s use of assets or overall strategy for its activities Significant downturn for the industry or the economy Previous impairment losses, except for goodwill, will be reversed if the assumptions for the impairments no longer exist. Impairment losses are only reversed to the extent that the new carrying value does not exceed what would have been the carrying value after depreciation at the time of the reversal if there had been no impairment. FINANCIAL INSTRUMENTS Recognition and derecognition Financial assets and liabilities are recognised in the balance sheet when the company becomes a party to the instrument s contractual terms. Ordinary purchases and sales of financial instruments are recognised on the transaction date. When a financial asset or a financial liability is initially recognised (asset/liability that does not have fair value through profit or loss), it is measured at fair value plus transaction costs that are directly related to the purchase or issue of the financial asset or liability. Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire or when the business transfers the financial asset in a transaction where all or practically all the risk and rewards related to ownership of the asset are transferred. Classification of financial instruments When initially recognised, financial assets are classified in one of the following categories, depending on the purpose of the investment: Loans and receivables, carried on the balance sheet at amortised cost Financial assets that are to be recognised at fair value with fair value changes through profit or loss (Fair value option) Available-for-sale financial assets, measured at fair value with changes in value recognised in equity Held-for-trading financial assets measured at fair value through profit or loss Investments held to maturity, carried at amortised cost Derivatives classified as hedging instruments When initially recognised, financial liabilities are classified in one of the following categories Financial liabilities defined as liabilities measured at fair value with fair value changes through profit or loss Other financial liabilities carried at amortised cost If there is objective evidence that a financial asset is impaired, a writedown is made for the estimated loss. Objective evidence means occurrences indicating that the loan is impaired. Such evidence may include information about damaged credit histories, bankruptcy or other defaults. At fair value through the income statement On implementing IFRS, and in subsequent periods for initial recognition in the accounts, all financial assets and liabilities can be measured at fair value through profit or loss if they have been purchased with the intention of being sold or: the classification reduces a mismatch in the measurement or recognition that would have arisen otherwise as a result of different rules for the measurement of assets and liabilities the financial assets are included in a portfolio that is managed and evaluated regularly at fair value Financial assets measured at fair value through profit or loss are measured at fair value on the balance sheet date. Changes in fair value are recognised in profit or loss. Changes in fair value are included in Net income/(loss) on financial instruments. The company has on the balance non financial assets or liabilities carried at fair value. The bank will continuously assess whether new financial assets or liabilities are carried at fair value if the criteria for this are met. Available-for-sale Securities available for sale are non-derivative financial assets that are designated as such or that are not classified in any other category. Securities in this category are measured at fair value, while changes in fair value are recognised through the statement of comprehensive income. Each quarter these assets are tested for impairment. If the impairment is significant the total loss - measured as the difference between the cost of acquisition and fair value less any impairment of the financial asset that has previously been recognised in the income statement - is deducted from equity and recognised in the income statement. Impairments of shares and similar instruments recognised in the income statement are reversed through the statement of comprehensive income. Investments held to maturity Investments held to maturity are non-derivative financial assets with fixed or determinable payments and with a fixed maturity date, and that the company has the intention and capability of holding until maturity, with the exception of: those that the company initially designates at fair value through profit or loss those that meet the definition of loans and receivables Held to maturity assets are measured at amortised cost using the effective interest rate method. RESULTS Loans and receivables Loans and receivables are non-derivative financial assets with fixed payments or determinable payments. Loans and receivables are initially recognised at fair value, and thereafter at amortised cost using the effective interest rate method. When calculating the effective interest rate, cash flows are estimated and all the contractual terms of the financial instruments are taken into account. On each balance sheet day loans and receivables are reviewed to determine if there are objective evidence that a receivable/loan or a group of receivables/loans have been impaired. Individual writedowns are made first, before determining any group writedowns. Financial derivatives The trading of financial derivatives is subject to strict limitations. All derivatives are measured at market value on the contract date. Subsequent measurement is done at fair value with changes in value being recognised as they occur. Fair value for derivatives are measured based on listed prices whenever possible. When listed prices are not available, the company estimates fair value based on valuation models that use observable market data. The company does not use hedge accounting.

12 12 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT 2010 Fair value Fair value is the amount for which an asset can be sold or a liability can be settled by a transaction at arm s length between well-informed and free parties. For financial assets listed on the stock exchange or on another regulated market place, fair value is set at the bid price on the last trading day up to and including the balance sheet day. For an asset that is to be acquired or for a liability that is held, fair value is set at the offer price. Where the market for a financial instrument is inactive, fair value is established through valuation methods. Valuation methods include the use of recently completed market transaction at arm s length between well informed and free parties, if these are available, references to the current fair value of another instrument that is virtually similar, discounted cash flow calculations, and option pricing models. If there is a valuation method that is widely used by market participants to price the instrument, and the technique has a track record of producing reliable estimates of prices actually achieved in real market transactions, that method is used. Amortised cost method Financial instruments that are not measured at fair value, are valued at amortised cost and the income is calculated using the internal rate of return method. In the internal rate of return method the investment s internal rate of return is used. The internal rate of return is determined by discounting the contractual cash flows within the anticipated term to maturity. Cash flows include establishment fees and the costs of transaction that are not covered by the customer. Amortised cost is the current value of such cash flows discounted by the internal rate of return. Debt to credit institutions Liabilities to credit institutions are recognised and measured after initial recognition at amortized cost using the effective interest method. Interest expense on these instruments is included in Net interest income. Debt securities in issue Debt securities include certificates of deposit or bonds issued by the bank, as well as repurchased bonds issued by the bank. Debt securities are carried at fair value upon initial recognition and amortized cost using the effective interest method in subsequent periods. When calculating the effective interest rate, cash flows are estimated and all the contractual terms of the financial instruments are taken into account. Interest rate costs and the amortisation of premium/discount on instruments are recognised in Net interest rate income using the IRR method. Premium/discount on issued bonds When bonds issued by the bank are repurchased, the discount or premium is recognised in profit or loss. ACCOUNTING PROVISIONS A provision is made when the company has a legal or implicit liability as a result of a past event, and it is probable that this will lead to a payment or transfer of other assets to cover the liability. TAXATION The tax expense comprises tax payable and deferred tax. The income tax is recognised as an expense or income and is included in the income statement as a tax expense with the exception of income tax on transactions that are recognised directly in equity. Payable tax is based on the company s taxable income and is calculated in accordance with Norwegian tax regulations and tax rates. The deferred tax assets and liabilities are recognised using the balance method on all temporary differences that arise between taxable and accounting values of assets and liabilities Deferred tax assets are calculated on unused loss carry-forwards and unused tax credits. The tax asset is only recognised to the extent that is is probable that future taxable profits may be used to offset temporary differences, unused tax loss carry-forwards and unused tax credits. The carrying values of deferred tax assets and deferred tax are subject to regular reviews. Deferred tax is calculated on temporary differences and untaxed provisions. Deferred tax assets and deferred tax liabilities are not discounted. Assets and liabilities are measured at the current tax rate in the period when the asset is realised or the liability is settled, based on the tax rate on the balance sheet day. Payable tax assets and tax liabilities, as well as deferred tax assets and tax liabilities, are offset if legally possible.

13 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS GENERAL The preparation of the financial statements under simplified IFRS and the application of the adopted accounting policies require that management make assessments, prepare estimates and apply assumptions that affect the reported amounts of assets, liabilities, income and expenses. The estimates and the associated assumptions are based on historic experience and other factors that are assessed as being justifiable based on the underlying conditions. The actual figures may deviate from these estimates. The estimates and the associated prerequisites are reviewed regularly. Changes in accounting estimates are recognised in the period the estimates are revised if the change only affects this period, or both in the period the estimates change and in future periods if the changes affect both the existing and future periods. INTANGIBLE ASSETS Intangible assets, consisting primarily of software, are reviewed annually to ensure that the depreciation method and period used match economic realities. The same applies to the residual value. Assets are written down if there is evidence of impairment. IMPAIRMENT OF FINANCIAL ASSETS Financial assets that are not carried at fair value are tested for impairment if there is objective evidence on the balance sheet date that a financial asset or a group of financial assets has fallen in value. The company uses both individual and group write downs of loans The Gjensidige Bank Boligkreditt AS accounting principles in which assessments, estimates and prerequisites may significantly diverge from the actual results are discussed below. WRITEDOWNS ON LOANS Loans and claims are evaluated each balance day to assess whether there are objective evidence that a claim/loan or a group of claims/ loans are impaired. Individual writedowns are assessed before the writedown on groups is determined. RESULTS If there is objective evidence that a financial asset is impaired, a writedown is made for the estimated loss. Objective evidence means evidence of occurrences indicating that the loan is impaired. This may be information about damaged credit histories, bankruptcy or defaults.

14 14 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT SEGMENT INFORMATION Gjensidige Bank Boligkreditt AS has only one business segment and that is lending to private customers. The segment consists of loans to private customers and the entire loan portfolio is purchased from Gjensidige Bank ASA. The company s full accounts fall therefore entirely under the segment Consumer. The Company does not engage in activities outside Norway. Customers with foreign domicile are classified as part of the Norwegian operations. All revenues and the company s profit is related to the business in Norway. 4 NET INTEREST INCOME NOK thousand Interest income Loans to and receivables from credit institutions 2, Loans to and receivables from customers 70,586 15,227 Interest-bearing securities Other income Total interest income *) 72,645 15,780 Interest and similar expenses on debt to credit institutions Interest and similar expenses on deposits and debt to customers Interest and similar expenses on securities issued 40,277 5,808 Interest and similar expenses on subordinated loan capital Other interest and similar expenses 17,917 5,869 Total interest expenses **) 58,194 11,677 Net interest income 14,451 4,104 *) Of this total interest income on financial assets that are not at fair value 72,645 15,780 **) Of this total interest expenses on financial liabilities that are not at fair value 58,194 11,677 Company classifies all financial assets as loans and receivables and all financial liabilities Other financial liabilities.

15 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT OPERATING EXPENSES NOK thousand Wages, salaries. etc. 130 Employer s NICs 18 Total wages. salaries. etc, 148 IT expenses 701 Fees 2,218 1,591 Other operating expenses Total other expenses 3,299 1,722 Ordinary depreciation Total operating expenses 4,089 1,936 Auditor s fee Statutory auditing KPMG 294 Audit-related services 200 Other services KPMG Tax-related services Internal auditing Total payments to auditor RESULTS The company has no employees and no compensation paid to senior executives. The company buys all services related to management of the company, including the General Manager, from Gjensidige Bank ASA and Gjensidige Forsikring ASA. Remuneration to be compensated for external directors, ie persons who are not employed in Gjensidige Forsikring. Provision have been made for director s fees of NOK 80,000 distributed with NOK 25,000 for Solbjørg Lie ( ) and NOK 55,000 to Susanne E.M. Thore ( ). Per directors has total loans of NOK 2.4 million and deposits of NOK 0.4 million in the Gjensidige Bank Group. Representatives and members of the Control Committee has total loans of NOK 10.2 million and deposits of NOK 10.7 million in the Gjensidige Bank Group. Interest terms of the Supervisory Board and is equal to regular customer terms. The company has no other remuneration to the Managing Director and has not committed itself to the CEO or chairman to give special consideration upon termination of appointment. All loans from the company passed through Gjensidige Bank ASA, but can as other loan commitments be transferred to Gjensidige Bank Boligkreditt AS in connection with the establishment of collateral by issuing bonds. 6 LOSSES NOK thousand The periods write-downs on loans and guarantees Change in individual write-downs over the reporting period Change in Group impairment over the reporting period 322 1,231 Other write-down Losses realised during the period covered by previous write-downs Losses realised during the period not covered by previous ind. write-downs Recoveries for the period against previous periods realised losses The periods write-down/ income on loans 322 1,231

16 16 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT TAX NOK thousand Current tax 2, Deferred tax (66) 102 Total 2, Reconciliation of tax expense Profit/ (loss) before tax expense 10, Expected tax at nominal tax rate of 28% 2, Tax effect of permanent differences 1 Tax expense The average effective tax rate 28% 28% Deferred tax assets Deferred tax (-) / income (+) Deferred tax effect of temporary differences Net deferred tax assets Net changes in deferred tax assets/ deferred tax through profit or loss are as follows: Assets (66) (102) At the end of the year (66) (102) Deferred tax assets resulting from loss carryforwards are only recognised to the extent that it is probable that they will be realised. Deferred tax assets and deferred tax are offset and the net amount is entered when this is permitted by legislation and the amounts relate to the same tax authority. 8 INTANGIBLE ASSETS NOK thousand Capitalised software Cost or adjusted value at Acquired 1,924 Disposed of Cost or adjusted value at pr ,924 Accumulated depreciation and writedowns at Depreciation for the year 214 Writedowns for the year Accumulated depreciation and writedowns at Carrying value at ,711 Cost or adjusted value at ,924 Acquired Disposed of Cost or adjusted value at pr ,924 Accumulated depreciation and writedowns at Depreciation for the year 641 Writedowns for the year Accumulated depreciation and writedowns at Carrying value at ,069 Useful life 3 year

17 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT OTHER ASSETS NOK thousand Earned income not yet received 1,635 1,301 Total 1,635 1, LOANS TO AND RECEIVABLES FROM CREDIT INSTITUTIONS NOK thousand Loans and receivables without an agreed term to maturity at amortized cost *) 70,177 70,250 Loans and receivables with an agreed term to maturity at amortized cost Total loans and receivables to credit institutions at amortized cost 70,177 70,250 *) Applicable to operating account in the bank RESULTS

18 18 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT ANALYSIS OF LOANS NOK thousand Loans to customers at amortized cost 2,355,007 1,681,632 Loans to customers at fair value Total gross loans to customers 2,355,007 1,681,632 Individual write-downs Group write-downs (see note 12) 1,552 1,231 Net loans to customers 2,353,455 1,680,401 Loans by sector and industry Private individuals 2,355,007 1,681,632 Total 2,355,007 1,681,632 Loans by region NOK thousand Loans Percent Loans Percent Oslo 551, % 444, % Akershus 659, % 499, % Eastern Norway 380, % 234, % Southern Norway 55, % 32, % Western Norway 394, % 260, % Central Norway 199, % 145, % Northern Norway, Svalbard 106, % 65, % Abroad 7, % 0.00% Total gross loans by geographic area 2,355, % 1,681, % Gjensidige Bank Boligkreditt AS has no guarantees to customers. 12 IMPAIRMENT OF LOANS NOK thousand Write-downs of individual loans 1.1. Losses realised on loans for which writedowns had previously been made The period s individual writedowns Reversals of impairment losses on individual loans Other write-down Writedowns of individual loans Group writedowns ,231 The period s group writedowns 322 1,231 Group writedowns ,552 1,231 Total writedowns 1,552 1,231 The company does not have default over 30 days.

19 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT DEBT TO CREDIT INSTITUTIONS NOK thousand Debt without an agreed term to maturity valued at amortized cost 480, ,650 Debt with an agreed term to maturity valued at amortized cost Total debt to credit institutions at amortized cost 480, , DEBT INCURRED THROUGH THE ISSUE OF SECURITIES NOK thousand 2010 ISIN NUMBER FACE VALUE CURRENCY RATE ISSUED DUE BOOK VALUE NO NOK Variable ,000 NO ,000 NOK Variable ,000 NO ,000 NOK Variable ,000 NO ,000 NOK Variable ,000 NO ,000 NOK Variable ,888 Total debt incurred through the issue of securities 1,795,888 RESULTS 2009 ISIN NUMBER FACE VALUE CURRENCY RATE ISSUED DUE BOOK VALUE NO ,000 NOK Variable ,000 NO ,000 NOK Variable ,000 NO ,000 NOK Variable ,000 NO ,000 NOK Variable ,000 Total debt incurred through the issue of securities 1,500,000 Standard contract terms (loan terms) apply to the signed loan agreements. Gjensidige Bank Boligkreditt AS met all terms and conditions under existing conditions in OTHER LIABILITIES NOK thousand Other liabilities 7,386 2,470 Accrued interest expenses 4,123 2,747 Total other liabilities 11,510 5, OFF-BALANCE SHEET COMMITMENTS AND CONTINGENT LIABILITIES NOK thousand Unused credit facilities 506, ,645 Total contingent liabilities 506, ,645 Unused credit facilities includes approved and unused credit limits on home equity lines of credit. The company has not received or issued any provisions of security by surety.

20 20 GJENSIDIGE BANK BOLIGKREDITT ANNUAL REPORT CLASSIFICATION OF FINANCIAL INSTRUMENTS BOOK FAIR BOOK FAIR NOK thousand VALUE VALUE VALUE VALUE Classification of financial instruments Net loans to and receivables from credit institutions Loans and receivables to credit institutions. at amortized cost., loans and receivables 70,177 70,177 70,250 70,250 Total loans and receivables to credit institutions 70,177 70,177 70,250 70,250 Net loans to customers Loans to customers at fair value Loans to customers at amortized cost, loans and receivables 2,355,007 2,355,007 1,681,632 1,681,632 Total loans before individual and group writedowns 2,355,007 2,355,007 1,681,632 1,681,632 - Writedowns of individual loans - Group writedowns 1,552 1,552 1,231 1,231 Total net loans to customers 2,353,455 2,353,455 1,680,401 1,680,401 Other assets Other financial assets at amortized cost 1,635 1,635 1,301 1,301 Total other financial assets 1,635 1,635 1,301 1,301 Total financial assets 2,425,267 2,425,267 1,751,952 1,751,952 Financial assets summarized by classification Financial assets at amortized cost, loans and receivables 2,425,267 2,425,267 1,751,952 1,751,952 Total financial assets 2,425,267 2,425,267 1,751,952 1,751,952 Classification of financial liabilities Liabilities to credit institutions Loans and deposits from credit institutions at amortized cost 480, , , ,650 Total liabilities to credit institutions 480, , , ,650 Debt Securities Commercial paper and bonds at amortized cost 1,795,888 1,771,310 1,500,000 1,477,175 Total debt securities 1,795,888 1, ,500,000 1,477,175 Other financial liabilities Other financial liabilities at amortized cost 8,614 8,614 2,747 2,747 Total other financial liabilities 8,614 8,614 2,747 2,747 Total financial liabilities 2,285,438 2,260,860 1,670,397 1,647,572 Financial obligations summarized by classification Financial liabilities at fair value Financial liabilities at amortized cost 2,285,438 2,260,860 1,670,397 1,647,572 Total financial liabilities 2,285,438 2,260,860 1,670,397 1,647,572 There are no financial instruments at fair value.