Interim report for the second quarter and first half of 2012 Unaudited. Terra BoligKreditt AS

Transcription

1 Interim report for the second quarter and first half of 2012 Unaudited Terra BoligKreditt AS

2 Key figures Interim report for the second quarter and first half of 2012 The company had a pre-tax profit of NOK 36.4 million for the second quarter, compared with a loss of NOK 0.8 million in the same period of Pre-tax profit includes changes in the value of financial instruments (realised/unrealised and IFRS effects) of NOK 9.2 million, as against a negative NOK 1.6 million for the same period of Pre-tax profit for the first half was NOK 66.3 million, compared with NOK 35.5 million in the same period of Pre-tax profit includes changes in the value of financial instruments (realised/unrealised and IFRS effects) of NOK 21.5 million, as against NOK 16.9 million for the same period of Total assets under management amounted to NOK 53.9 billion at 30 June 2012, up by 24.6 per cent from 31 December and 37.1 per cent from a year earlier. The company s mortgage portfolio totalled NOK 41.6 billion at 30 June, up by 11.9 per cent from 31 December and 23.8 per cent from a year earlier. The company s borrowing portfolio totalled NOK 50.9 billion at 30 June, up by 22.6 per cent from 31 December and 35.4 per cent from a year earlier. Distributor commissions paid to the owner banks and OBOS totalled NOK 51 million in the second quarter and NOK 80.6 million for the first half, compared with NOK 31.5 million and NOK 62.4 million respectively in the same periods of The company s capital adequacy ratio was 11.2 per cent at 30 June, as against 10 per cent at 31 December and 10.9 per cent a year earlier. The capital adequacy ratio is calculated in accordance with the standard method specified by Basel II. No full or limited external auditing of the quarterly figures has been undertaken. Page 2 of 18

3 Interim report for the second quarter and first half Introduction Terra BoligKreditt s main purpose is to cover a substantial share of the funding needs of the banks in the Terra alliance and reduce their refinancing risk. At 30 June 2012, the owner banks and OBOS had transferred a total of NOK 41.6 billion in residential mortgages and thereby reduced their own funding requirements by a corresponding amount. The company is licensed as a credit institution and entitled to raise loans in the market through the issue of covered bonds. Norwegian regulations for covered bonds were adopted in 2007, and thereby established a new type of bond which has become an important source of financing within a few years for banks and credit institutions. By concentrating funding activities relating to covered bonds in Terra BoligKreditt, the owner banks and OBOS have secured a player in the bond market with a size which allows it to secure competitive terms in both Norwegian and international bond markets. Lending and funding activity began at Terra BoligKreditt in February 2005 and, with today s total assets of NOK 53.9 billion, it serves as an important funding channel for the alliance s banks and OBOS. To secure diversified funding sources, the company s goal is to be an active issuer in both Norwegian and international markets. New owner structure Terra BoligKreditt was demerged from Terra Gruppen AS with effect from 18 May The company is thereby directly owned by 79 Norwegian banks and OBOS. At the same time, a shareholder agreement has been entered into which commits the owner banks and OBOS to providing the company at any and all times with the capital required to meet its capital targets, currently a minimum of nine per cent core tier 1 capital and 10 per cent total primary capital (tier 2 capital).the shareholder agreement will ensure that the ownership of Terra BoligKreditt will gradually come into line with the individual distributor s share of the company s mortgage portfolio. Terra BoligKreditt has further strengthened its financing position through a note purchase agreement with the owner banks and OBOS related to purchasing the company s covered bonds, whereby the owners have accepted a liquidity obligation towards Terra BoligKreditt. The new agreement on liquidity support relates to Terra BoligKreditt s liquidity requirements for the next 12 months. Purchases of bonds not redeemed by Terra BoligKreditt are deducted from future purchase commitments. Profit and loss account for the second quarter and first half Pre-tax profit Terra BoligKreditt achieved a pre-tax profit of NOK 36.4 million in the second quarter, compared with a loss of NOK 0.8 million in the same period of Pre-tax profit includes changes in the value of financial instruments (realised/unrealised and IFRS effects) of NOK 9.2 million, compared with a negative NOK 1.6 million for the same period of For the first half, the company achieved a pre-tax profit of NOK 66.3 million, which represents a clear improvement from NOK 35.5 million for the same period of Pre-tax profit includes changes in the value of financial instruments (realised/unrealised and IFRS effects) of NOK 21.5 million, compared with NOK 16.9 million for the same period of Income The company s net interest income was NOK 88 million in the second quarter and NOK million for the first half, compared with NOK 41.8 million and NOK 97 million respectively in the same periods of The increase in net interest reflects a substantial growth in mortgage lending by the company, and the fact that its distributors (the owner banks and OBOS) succeeded in achieving higher margins on their mortgage portfolios in Terra BoligKreditt. Page 3 of 18

4 Distributor commissions Distributor commissions paid to the owner banks and OBOS came to NOK 51 million in the second quarter and NOK 80.6 million in the first half, compared with NOK 31.5 million and NOK 62.4 million respectively for the same periods of The increase in these commissions reflected growth in the mortgage portfolio as well as higher margins. Balance sheet and liquidity Balance sheet Assets under management by Terra BoligKreditt amounted to NOK 53.9 billion at 30 June, up by NOK 10.7 billion or 24.6 per cent from 31 December. Lending Terra BoligKreditt s mortgage portfolio at 30 June totalled NOK 41.6 billion, up by NOK 4.4 billion (11.9 per cent) from 31 December and NOK 8 billion (23.8 per cent) from the same date a year earlier. Borrowing The company s borrowing at 30 June totalled NOK 50.9 billion, up by NOK 13.3 billion from the same date a year earlier. Terra BoligKreditt conducted three issues of covered bonds during the second quarter. The company raised NOK 1.2 billion through a new three-year bond and NOK 1.1 billion through a new five-year bond in May. An issue of EUR 650 million was conducted in the European market during June. The geographic breakdown of investors in the loan was 62 per cent Germany/Austria, 16 per cent Nordic region, nine per cent UK, six per cent Asia, three per cent Switzerland, two per cent Benelux and two per cent others. Of the various investors, 57 per cent were banks, 24 per cent fund managers, nine per cent central banks, seven per cent insurance companies/pension funds and three per cent others. Terra BoligKreditt conducted five issues of covered bonds in the Norwegian and international markets during the first half. Tap issues were also conducted on existing bonds. The company additionally raised NOK 200 million in other bonds, as well as NOK 450 million through three certificates. The total issue volume was NOK 13 billion. Repurchases and maturation of the company s bonds during the period totalled NOK 3.1 billion, so that the net issue amount was NOK 9.9 billion. The average tenor for the covered-bond issues has been about six years, ranging from three to 15 years. The table below shows the breakdown of the company s borrowing in various instruments. Amounts in NOK million 30 June June Dec Covered bonds 38,572 25,039 29,178 Swap arrangement with the Norwegian govt 10,365 10,365 10,365 Other bond debt 1,218 1,327 1,368 Certificates/short-term borrowing Subordinated loan capital Total borrowing 50,924 37,600 41,530 Liquidity The unstable conditions in European finance markets prompted Terra BoligKreditt to maintain a high level of liquidity during the first half. It experienced good demand from investors during this period, and particularly from international investors. Because of the persisting uncertainty in the EU, international investors are gradually shifting their investments into more stable markets, to the benefit of issuers of Norwegian covered bonds. During the first half, the company issued and sold covered bonds and other loans with a total value of NOK 13 billion. The mortgage portfolio increased over the same period by NOK 4.4 billion, while maturation and repurchases came to NOK 3.1 billion. Page 4 of 18

5 Risk management and capital adequacy Terra BoligKreditt's operations are confined exclusively to mortgage lending with security of up to 60 per cent of the mortgaged property at origination. The basis for calculating the capital adequacy ratio has increased in line with the growth in total lending, and amounted to NOK 15.6 billion at 30 June To finance continued growth and maintain applicable requirements for capital adequacy, the company conducted a private placement on 18 May 2012 with its new owner banks and OBOS following the demerger from Terra-Gruppen AS. The total subscribed was NOK 220 million. The company obtained a total of NOK 280 million in new equity during the first half, including NOK 60 million from a private placement with Terra-Gruppen AS and the above-mentioned NOK 220 million issue. Terra BoligKreditt accordingly had a total primary capital (tier 2 capital) of NOK 1,752 million at 30 June 2012, compared with NOK 1,371 million a year earlier. The table below presents developments in the capital adequacy ratio. Amounts in NOK million 30 June June Dec Risk-weighted assets 15,574 12,395 13,724 Total primary capital (tier 2 capital) 1,752 1,348 1,371 Capital adequacy ratio in per cent 11.2 % 10.9 % 10.0 % Capital adequacy is calculated in accordance with the standard method specified by Basel II. Outlook The board expects Terra BoligKreditt to maintain strong growth in its mortgage portfolio as its owner banks and OBOS reduce their own funding requirements with financing from the company. The board also expects the distributors to occupy a stronger competitive position during the second half of Financial markets are likely to remain beneficial for Norwegian bond issuers during the time to come. Norway s macroeconomic position, combined with a generally good economic position for households and companies, mean that Norwegian issuers of covered bonds are preferred among players in the financial market. Terra BoligKreditt accordingly expects demand for its bonds to remain good both in Norway and internationally. The company aims to be an active issuer in the Norwegian and international financial markets in the time to come. Oslo, 15 August 2012 The board of directors for Terra BoligKreditt AS Martin Mæland (chair) Odd Inge Løfald Bjørn Riise Øivind Gaarder Terje Svendsen Kjartan M Bremnes (chief executive officer) Page 5 of 18

6 Declaration pursuant to section 5-6 of the Norwegian Securities Trading Act We hereby confirm that the company's interim financial statements for the period 1 January to 30 June 2012 have to the best of our knowledge been prepared in accordance with prevailing accounting standards, and that the information provided in the accounts gives a true and fair view of the company's assets, liabilities, financial position and performance as a whole. To the best of our knowledge, the interim report for the first half provides a true and fair view of important events during the accounting period and their influence on the interim financial statements, plus a description of the most important risk and uncertainty factors facing the company during the next accounting period. Oslo, 15 August 2012 The board of directors for Terra BoligKreditt AS Martin Mæland (chair) Odd Inge Løfald Bjørn Riise Øivind Gaarder Terje Svendsen Kjartan M Bremnes (chief executive officer) Page 6 of 18

7 Statement of comprehensive income 2nd quarter nd quarter st half st half Amounts in NOK 1,000 Notes INTEREST INCOME Interest from loans to customers 391, , , ,049 1,266,771 Interest from loans and receivables on credit institutions 16,113 20,539 41,354 37,109 81,615 Interest from bonds, certificates and financial derivatives 27,007 9,199 50,662 15,207 43,351 Other interest income 3,206 2,665 6,263 5,175 10,883 Total interest income 437, , , ,540 1,402,620 INTEREST EXPENSES Interest on debt securities issued 344, , , ,137 1,207,441 Interest on subordinated loan capital 3,751 4,780 7,883 9,434 17,840 Other interest expenses 1, ,223 2,001 4,030 Total interest expense 349, , , ,572 1,229,311 Net interest income 88,017 41, ,688 96, ,309 Dividend from shares classified as available for sale - - 3,356 2,932 2,932 NET GAINS AND LOSSES ON FINANCIAL INSTRUMENTS AT FAIR VALUE Net gains and losses on bonds and certificates Note 3 1,063 1,808 4,567 3,026 3,987 Net gains and losses of fair value hedging on debt securities issued Note 3,8 9,772 1,707 9,717 1,244 (1,018) Net gains and losses on financial derivatives Note 3 (11,076) (5,738) 2,772 21,471 (14,192) Net gains and losses on loans at fair value Note 3 9, ,401 (8,837) 17,604 Total gains and losses on financial instruments at fair value 9,207 (1,582) 21,457 16,904 6,381 Commissions costs 50,950 31,471 80,588 62, ,684 SALARIES AND GENERAL ADMINISTRATIVE EXPENSES Salaries, fees and other personnel expenses 3,671 3,063 7,308 6,593 13,769 Administrative expenses 3,569 3,217 6,440 6,431 12,564 Total salaries and administrative expenses 7,240 6,280 13,748 13,024 26,333 Depreciation ,447 Other operating expenses 2,226 2,968 5,080 5,132 10,871 Losses on loans and guarantees PROFIT BEFORE TAXES 36,416 (835) 66,316 35,522 33,287 Taxes 10,198 (194) 17,545 9,128 8,456 PROFIT FOR THE PERIOD 26,218 (641) 48,771 26,394 24,831 Other comprehensive income COMPREHENSIVE INCOME FOR THE PERIOD 26,218 (641) 48,771 26,394 24,831 The total comprehensive income for the period above is attributable to the shareholders of the Company. Page 7 of 18

8 Balance sheet Amounts in NOK 1,000 Notes 30 June June Dec ASSETS Lending to and receivables on credit institutions 1,680,874 3,150,509 3,330,351 Lending to customers Note 4 41,633,202 33,633,837 37,193,832 Securities Bonds and certificates at fair value through profit or loss Note 5 9,579,822 1,902,206 1,882,581 Financial derivatives Note 8 847, , ,861 Shares classified as available for sale 15,000 15,000 15,000 Total securities 10,441,838 2,426,514 2,639,442 Other intangible assets Deferred tax assets 11,738 10,309 11,738 Fixed intangible assets 4,175 4,479 4,699 Total other intangible assets 15,913 14,788 16,437 Other financial assets 138,358 84,580 74,638 TOTAL ASSETS 53,910,185 39,310,228 43,254,700 LIABILITIES AND EQUITY Loans from credit institutions 330, ,000 Financial derivatives Note 8 920, , ,133 Debt securities issued Note 6 50,605,066 37,281,587 41,211,527 Other liabilities 235, , ,461 Pension liabilities 1,725 1,644 1,725 Subordinated loan capital Note 6 318, , ,321 TOTAL LIABILITIES 52,411,881 38,239,133 42,185,167 Called-up and fully paid capital Share capital 302, , ,871 Share premium reserve 447, , ,512 Paid-in, non-registered capital increase 220, ,000 - Other paid-in equity 477, , ,728 Total called-up and fully paid capital 1,448,111 1,068,111 1,068,111 Retained earnings Other equity 50,193 2,984 1,422 Total retained equity 50,193 2,984 1,422 TOTAL EQUITY 1,498,304 1,071,095 1,069,533 TOTAL LIABILITIES AND EQUITY 53,910,185 39,310,228 43,254,700 Page 8 of 18

9 Statement of changes in equity Amounts in NOK 1,000 Share capital Share premium reserve Other paid in equity Retained earnings: other equity Total equity Balance sheet as at 1 January , , , ,968 Result for the period ,220 32,220 Equity issue 67, , ,000 Reduction of share premium reserve - (477,413) 477, Disbursed group contribution and dividends for (34,079) (34,079) Balance sheet as at 31 December , , , ,109 Result for the period ,831 24,831 Equity issue 40, , ,000 Disbursed group contribution and dividends for (24,408) (24,408) Balance sheet as at 31 December , , ,728 1,421 1,069,533 Result for the period ,553 22,553 Equity issue 40, , ,000 Balance sheet as at 31 March , , ,728 23,974 1,252,085 Result for the period ,218 26,218 Equity issue 53, , ,000 Balance sheet as at 30 June , , ,728 50,192 1,498,304 Page 9 of 18

10 Cash flow statement Amounts in NOK 1,000 1st half CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxes 66,316 33,287 Income taxes paid (7,614) (2,827) Ordinary depreciation 769 1,447 Non-cash pension costs - 82 Change in loans to customers (4,439,370) (7,289,934) Change in bonds and certificates (7,697,241) (335,018) Change in financial derivatives 457,477 (280,060) Changes in other assets (63,719) (28,507) Changes in short-term liabilities and accruals 30,157 43,921 Net cash flow relating to operating activities (11,653,225) (7,857,609) INVESTMENT ACTIVITIES Payments related to acquisition of fixed assets (245) (2,021) Payments from shares classified as available for sale - - Net cash flow relating to investment activities (245) (2,021) FUNDING ACTIVITIES Gross receipts from issuance of bonds and commercial paper 12,994,372 12,178,826 Gross payments of bonds and commercial paper (3,184,391) (3,978,571) Gross receipts on issue of subordinated loan capital - - Gross payments of subordinated loan capital 139 (119,695) Gross receipts on issue of loan from credit institution 230, ,000 Gross payments on loan from credit institution - - Payments of group contribution and dividend - (33,900) Paid-up new share capital 380, ,000 Currency and hedging effects (416,442) 292,008 Net cash flow from funding activities 10,003,993 8,598,668 Net changes in bank deposits, cash and cash equivalents (1,649,477) 739,038 Bank deposits, cash and cash equivalents as at 1 January 3,330,351 2,591,313 Bank deposits, cash and cash equivalents at end of period 1,680,874 3,330,351 Page 10 of 18

11 Notes Note 1 Accounting policies General Terra BoligKreditt has prepared the accounts in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union (EU). The accounts have been prepared in accordance with the historic cost principle, with the exception of financial assets and financial liabilities at fair value through profit or loss, financial assets classified as available for sale as well as financial assets and liabilities that are part of fair value hedges, which have been recorded at fair value. Cash collateral Agreements with counterparties regulating trades in OTC derivatives require collateral to be provided in certain cases. Terra BoligKreditt AS was provided with such collateral in the form of cash during the second quarter of These cash sums are managed by Terra BoligKreditt AS for the duration of the collateral provision, and are recognised in the balance sheet as an asset with an associated liability. Both the cash asset and the liability are thereafter measured at amortised cost. Note 1 of the annual report for 2011 contains further details of accounting policies after IFRS. Note 2 Use of estimates and discretion In the application of the accounting policies, which are described in note 1 of the annual report for 2011, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Lending, non-performing/doubtful loans and writedowns If there are objective indications of an impairment loss having occurred, the loss is measured as the difference between the value of the asset recognised in the Balance Sheet and the present value of the estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate calculated at initial recognition). In measuring future cash flows, guarantees furnished by the banks distributing the loans are taken into account. The value of the asset recognised in the Balance Sheet is reduced by means of a provision account. The amount of loss is recognised in the result for the year. No loans were written down per 30 June Fair value of financial instruments The company applies various measurement methods to determine the fair value of financial instruments that are not traded in an active market. The chosen measurement methods are based on market conditions at the end of the reporting period. This means that if observable market data are unavailable, the company will make assumptions and apply discretion as to what the market will base its evaluation of corresponding financial instruments on. More information about the financial instruments can be found in notes 4, 5 and 9. Note 3 Net gains and losses on financial instruments at fair value 2nd quarter 2nd quarter 1st half 1st half Amounts in NOK 1, Net gains and losses on loans at fair value 9, ,401 (8,837) 17,604 Net gains and losses on bonds and certificates 1,105 1,785 5,302 2,211 3,785 Net gains and losses on financial debts, hedged 1) 113,067 (145,539) 416,442 73,663 (292,008) Net gains and losses on interest swaps related to lending (8,028) (7,252) (2,997) 20,324 (19,639) Net gains and losses on interest swaps related to bonds and certificates (43) 23 (735) Net gains and losses on interest and currency swaps related to liabilities (103,295) 147,247 (406,725) (72,419) 290,990 Net gains and losses on interest swaps not related to liabilities (3,048) 1,514 5,769 1,147 5,447 Net gains and losses on financial instruments at fair value 9,206 (1,581) 21,457 16,904 6,381 1) The company utilizes hedge accounting for long term borrowing in foreign currency where the cash flows are matched 1:1 through derivative contracts versus the corresponding hedging object. Page 11 of 18

12 Note 4 Lending to customers Amounts in NOK 1, June June Dec Installment loans - retail market 35,612,428 28,692,493 31,886,659 Installment loans - housing cooperatives 5,975,838 4,927,250 5,266,638 Adjustment fair value lending to customers 1) 44,936 14,094 40, Total lending before specific and general provisions for losses 41,633,202 33,633,837 37,193,832 Specific provisions for losses General provisions for losses Total lending to and receivables from customers 41,633,202 33,633,837 37,193,832 1) The table below shows fair value lending to customers 30 June 2012 Amounts in NOK Book value Fair value Variable rate loans 39,704,375 39,704,375 Fixed rate loans 1,883,891 1,928,827 Toal lending 41,588,266 41,633, June 2011 Amounts in NOK Book value Fair value Variable rate loans 31,427,087 31,427,087 Fixed rate loans 2,192,656 2,206,750 Toal lending 33,619,743 33,633, December 2011 Amounts in NOK Book value Fair value Variable rate loans 34,629,145 34,629,145 Fixed rate loans 2,524,152 2,564,687 Toal lending 37,153,297 37,193,832 Calculation of fair value of loans: The margin on the loans is considered to be on market terms. The market value of variable rate loans is therefore measured as equal to amortized cost. The market value of fixed rate loans is correspondingly measured as equal to amortized cost adjusted for the present value of the difference between the loans' fixed rate of interest and the interest rate at the balance sheet date. Note 5 Bonds and certificates at fair value through profit or loss Amounts in NOK 1,000 Bonds broken down by issuer sector Nominal value Cost price Market value Commercial banks 350, , ,222 Corporations owned by municipalities 25,000 25,039 25,038 Municipalities 3,448,200 3,449,750 3,450,516 Credit institutions 1,901,500 1,904,494 1,908,482 Treasury bills 3,866,000 3,844,315 3,845,563 Total bonds and certificates at fair value through profit or loss 9,590,700 9,573,598 9,579,822 Change in value charged to the profit and loss account 6,224 Average effective interest rate is 2.24 percent taking into account the fair value of the corresponding interest rate swap. The calculation is based on a weighted market value. 30 June 2012 Average term to maturity 0.6 Average duration when hedging is taken into account 0.2 All the bonds meet the requirements to be included in the cover pool for covered bonds. This means that they are rated AA-/Aa3 or better if the maturity exceeds 100 days, and A-/A3 if the maturity is 100 days or below. The rating is performed by an internationally recognized rating agency. Page 12 of 18

13 Note 6 Debts from issuance of securities Covered bonds - Amounts in NOK 1,000 Nominal Local Interest ISIN amounts currency rate terms Interest rate Establishment Maturity 30 June June Dec CH ,000 CHF Fixed 3.14 % ,410,639 1,451,565 1,435,065 NO ,000 NOK Floating 3M Nibor % , ,032 NO ,000 NOK Fixed 5.40 % , , ,938 NO ,000 NOK Floating 3M Nibor % , , ,894 NO ,500,000 NOK Floating 3M Nibor % ,688,409 1,495,352 NO ,000,000 NOK Floating 3M Nibor % ,702,254 - NO ,000,000 NOK Floating 3M Nibor % , , ,395 NO ,000,000 NOK Floating 3M Nibor % , , ,256 NO ,000,000 NOK Fixed 5.00 % ,138,166 1,086,124 1,138,377 NO ,000,000 NOK Fixed 4.40 % ,212,563 1,213,565 1,213,050 XS ,000 EUR Fixed 2.00 % ,157,284 4,666,589 4,280,287 NO ,000,000 NOK Floating 3M Nibor % ,995,392 4,994,189 4,994,794 XS ,000 EUR Fixed 2.13 % ,749,773 3,871,735 3,860,589 NO ,000,000 NOK Fixed 5.20 % ,000,000 1,000,000 1,000,000 NO ,000,000 NOK Fixed 4.65 % , , ,000 NO ,500,000 NOK Floating 3M Nibor % ,197, ,649 1,197,531 NO ,000,000 NOK Floating 3M Nibor % ,727,972-1,727,534 NO ,600,000 NOK Fixed 4.60 % ,501, ,000 NO ,500,000 NOK Floating 3M Nibor % ,008,730-2,008,547 NO ,000,000 NOK Fixed 3.75 % , ,000 XS ,000 EUR Fixed 2.25 % ,740, NO ,000,000 NOK Floating 3M Nibor % ,198, NO ,000,000 NOK Floating 3M Nibor % ,098, XS ,000 EUR Fixed 2.00 % ,847, Value adjustments 310,310 (67,619) 347,803 Total covered bonds 1) 38,572,204 25,038,975 29,178,444 Covered bonds used as collateral in the swap arrangement with the Norwegian Government - Amounts in NOK 1,000 Nominal Local Interest ISIN amounts 2) currency rate terms Interest rate Establishment Maturity 30 June June Dec NO ,000,000 NOK Floating 3M Nibor % ,791,000 4,791,000 4,791,000 NO ,000,000 NOK Floating 3M Nibor % ,766,500 4,766,500 4,766,500 NO ,000,000 NOK Floating 3M Nibor % ,586,000 1,586,000 1,586,000 Covered bonds used as collateral in the swap arrangement with the Norwegian Government 1) og 2) 11,143,500 11,143,500 11,143,500 Unrecognised covered bonds issued related to the swap arrangement with the Norwegian Government (11,143,500) (11,143,500) (11,143,500) Total covered bonds 1) 38,572,204 25,038,975 29,178,444 1) For covered bonds ascribed to the company's cover pool, an overcollateralization requirement of 105 % applies. This means that the company must at all times have assets in its cover pool that exceed at least 105 % of the total outstanding covered bonds. Swap arrangement with the Norwegian Government - Amounts in NOK 1,000 Nominal Local Interest Description amounts 2) currency rate terms Establishment Maturity 30 June June Dec Swap agreement with the Govt. 2,971,071 NOK Floating 6 M Nibor % ,971,071 2,971,071 2,971,071 Swap agreement with the Govt. 1,487,382 NOK Floating 6 M Nibor % ,487,382 1,487,382 1,487,382 Swap agreement with the Govt. 987,036 NOK Floating 6 M Nibor % , , ,036 Swap agreement with the Govt. 3,445,211 NOK Floating 6 M Nibor % ,445,211 3,445,211 3,445,211 Swap agreement with the Govt. 1,474,614 NOK Floating 6 M Nibor % ,474,614 1,474,614 1,474,614 Total borrowing from Norwegian Government 10,365,314 10,365,314 10,365,314 2) A nominal amount of NOK 10,365,314,000 is interest-bearing debt. The nominal value of covered bonds that are ascribed to the company's cover pool is NOK 11,143,500. See the table above. Terra BoligKreditt has in 2009 participated in the swap arrangement with the Norwegian Government. The arrangement is administered by Norges Bank and entitles the company to swap its covered bonds with government securities. As of 31 December, Terra BoligKreditt with itsfive participations in the swap arrangement, raised interest-bearing debt totalling NOK 10,365,314,000; see the table above. The maturity term of these swap arrangements is four and five years. Page 13 of 18

14 Other bond debts - Amounts in NOK 1,000 Nominal Local Interest ISIN amounts currency rate terms Establishment Maturity 30 June June Dec NO ,500,000 NOK Floating 3M Nibor % , , ,245 NO ,000,000 NOK Floating 3M Nibor % , , ,566 NO ,000,000 NOK Floating 3M Nibor % , ,984 NO ,000 NOK Floating 3M Nibor % , Total other bond debt 1,217,609 1,327,370 1,367,794 Certificate borrowing - Amounts in NOK 1,000 Nominal Local Interest ISIN amounts currency rate terms Establishment Maturity 30 June June Dec NO ,000 NOK Fixed 2.97 % ,984 - NO ,000 NOK Floating 3M Nibor % , ,975 NO ,000 NOK Fixed 3.24 % , NO ,000 NOK Fixed 3.06 % , NO ,000 NOK Fixed 2.93 % , Total certificate borrowing 449, , ,975 Total debt securities issued 50,605,066 37,281,587 41,211,527 Subordinated loan capital - Amounts in NOK 1,000 Nominal Local Interest ISIN amounts currency rate terms Establishment Maturity 30 June June Dec NO ,000 NOK Floating 3M Nibor + 1,50 % 1) , , ,820 NO ,000 NOK Floating 3M Nibor + 2,40 % 2) , , ,501 Total subordinated loan capital 318, , ,321 1) Subordinated loan of NOK 139 million with maturity date 6 March 2018, have redemption rights (call) 6 March If the redemption right is unused, interest terms are 3M Nibor %. 2) Subordinated loan of NOK 180 million with maturity date 15 Desember 2020, have redemption rights (call) 15 Desember If the redemption right is unused, interest terms are 3M Nibor + 3,15%. This issue has a regulatory call allowing the issuer to call the bond at par + accrued interest should regulation change that prohibits the issuer from including the capital in its tier 2 capital calculation. Note 7 Coverpool Market value Amounts in NOK 1, June June Dec Residential mortgages 41,633,202 33,633,837 37,193,832 Substitute assets and derivatives: Financial derivatives (net) -83,668 60, ,228 Substitute assets 10,929,541 5,038,308 5,212,487 Total 52,479,075 38,732,911 42,791,547 The cover pool's overcollateralisation % % % 1) Substitute assets include lending to and receivables on credit institutions and bond and certificates at fair value through profit or loss. Page 14 of 18

15 Note 8 Derivatives and hedging Amounts in NOK 1, June December 2011 Assets Nominal amount Market value Nominal amount Market value Interest rate cap 14,000-97,700 - Interest swap investments Interest swap lending 1) (90,000) 1, ,000 1,453 Interest and currency swap 2) 15,327, ,792 11,093, ,408 Total financial derivative assets 15,251, ,016 11,699, ,861 Liabilities Nominal amount Market value Nominal amount Market value Interest rate cap Interest swap investments 159,500 1, ,500 1,585 Interest swap lending 1,942,418 73,728 1,898,515 70,959 Interest and currency swap 1) 19,635, ,715 15,235, ,590 Total financial derivative liabilities 21,736, ,765 17,293, ,133 1) The hedging instruments related to the lending portfolio with fixed interest rate are rebalanced when necessary. The negative nominal value is a result of a previously entered swap being reversed as a result of rebalancing. 2) Nominal amount is converted to historical currency exchange rate. Fair value hedging Terra BoligKreditt applies fair value hedging on fixed-rate financial liabilities with the exception of loans related to the swap arrangement with the Norwegian Government. The hedge object is the swap interest element of the financial liabilities. Interest and currency swaps are used as hedging instruments. 30 June December 2011 Amounts in NOK 1,000 Value recognised Value recognised Nominal amount in balance sheet Nominal amount in balance sheet Hedging instruments: Interest and currency swaps 1) and 2) 24,605,268 (3,753) 15,971, ,758 Hedged items: Financial commitments incl foreign exchange 2) 24,605,268 (53,320) 15,971,505 (469,761) Net value recognised in Balance Sheet - (57,073) - (13,003) 1) Nominal amount is converted to historical currency exchange rate. 2) The book value of the hedging instruments is net market value. The book value of the hedged objects is cumulative change in value associated with hedged risk and is an adjustment of financial liabilities at amortized cost. Gains/losses on fair value hedging Amounts in NOK 1,000 2nd quarter nd quarter st half st half 2011 Full-year 2011 Hedging instruments (103,295) 147,247 (406,725) (72,419) 290,990 Hedged items 113,067 (145,539) 416,442 73,663 (292,008) Net gains/losses (inefffectiveness) 9,772 1,707 9,717 1,244 (1,018) Page 15 of 18

16 Note 9 Capital adequacy ratio Total primary capital 30 June June Dec Share capital 302, , ,871 Share premium reserve 447, , ,512 Paid, but not registered, share capital 220, ,000 - Other paid in equity 477, , ,728 Other equity 1,422-23,410 1,422 Total equity recognised in the Balance Sheet 1,449,532 1,044,701 1,069,533 Intangible assets (4,175) (4,479) (4,699) Deferred tax assets (11,738) (10,309) (11,738) Total core tier 1 capital 1,433,619 1,029,913 1,053,096 Core capital adequacy ratio (core tier 1 capital) 30 June June Dec Weighted calculation basis 15,574,088 12,395,400 13,724,400 Core tier 1 capital 1,433,619 1,029,913 1,053,096 Core tier 1 capital ratio 9.2 % 8.3 % 7.7 % Total core tier 1 capital 1,433,619 1,029,913 1,053,096 Subordinated loan capital 318, , ,321 Total primary capital (tier 2 capital) 1,752,079 15,844,044 17,242,917 Capital adequacy ratio (tier 2 capital) 30 June June Dec Risk-weighted assets 15,574,088 12,395,400 12,395,400 Total primary capital (tier 2 capital) 1,752,079 1,348,094 1,348,094 Capital adequacy ratio 11.2 % 10.9 % 10.0 % Required capital corresponding to 8% of calculation basis 1,245, ,632 1,097,952 Surplus equity and subordinated capital 506, , ,465 The capital adequacy ratio is calculated by using the standard method in Basel II. 2nd quarter 2012 Risk-weighted Calculation basis assets requirement Credit risk 14,709,363 1,176,749 Market risk 717,463 57,397 Operational risk 147,263 11,781 Total 15,574,088 1,245,927 The company employs the standard method for calculating credit and market risk, and the basic indicator approach for calculating operational risk. A buffer will be maintained by the company at all times in relation to the minimum capital requirement of eight per cent. The buffer must be sufficient to cope with relevant risks which could affect the company. The company s internal capital adequacy assessment process (ICAAP) is pursued to ensure that the company has a sufficient buffer in relation to the minimum requirement. The company has previously had capital targets of seven per cent for tier 1 capital and 10 per cent for total primary capital (tier 2 capital). Proposals from the European Banking Authority (EBA) involve a recommended requirement that core tier 1 capital adequacy for banks should correspond to a minimum of nine per cent of the risk-weighted balance sheet by 30 June The Financial Supervisory Authority of Norway (FSA) also assumes that Norwegian banks and finance enterprises should hold at least nine per cent core tier 1 capital by the end of June The company is planning to capitalise continued strong growth in the loan portfolio and, on the basis of the FSA s statement, the board resolved on 20 March 2012 to change the internal capital targets to nine per cent core tier 1 capital and 10 per cent total primary capital (tier 2 capital) with effect from 30 June Capital Page 16 of 18

17 Note 10 Contingency and overdraft facilities The company has an overdraft facility with DNB Bank ASA (DNB). It also has a contingency facility with DNB which allows covered bonds to be issued for an amount not exceeding NOK 1 billion. Note 16 to the annual accounts for 2011 provide a more detailed presentation of the overdraft and contingency facilities with DNB. The owner banks and OBOS entered into a new note purchase agreement with Terra BoligKreditt on 10 May 2012 concerning the purchase of covered bonds, whereby the owner banks and OBOS have accepted a liquidity obligation towards Terra BoligKreditt. The new agreement on liquidity support meets Terra BoligKreditt s liquidity requirements for the coming 12 months and replaces the previous agreement to buy covered bonds up to NOK 3 billion. A new shareholder agreement was also entered into on 10 May, in which the owner banks and OBOS accept an obligation to provide capital to Terra BoligKreditt so that the latter can maintain its capital target. Note 11 Risk management Terra BoligKreditt AS has established a framework for risk management and control in the company that defines risk willingness and the principles for managing risk and capital. The value of financial assets and liabilities fluctuates as a result of risk in the financial markets. Note 4 to the annual accounts for 2011 describes the company's financial risk which also applies to the financial risk in 2012 to date. Note 12 Change in ownership Before 10 May 2012, Terra BoligKreditt AS was a wholly-owned subsidiary of Terra-Gruppen AS, which has been owned in turn by 79 banks and Oslo Bolig- og Sparelag (OBOS). In order to strengthen the ties between Terra BoligKreditt and the owners, ownership of the company was transferred from Terra-Gruppen AS to the owner banks and OBOS directly with effect from 10 May The share capital at 30 June 2012 comprised shares with a nominal value of NOK 1.00 per share, including a paid-in but unregistered capital increase of NOK 53.2 million in share capital and NOK million in share premium reserve. An overview of the 10 largest shareholders is provided below: Shareholders Number of shares Percentage Oslo Bolig og Sparelag 27,340, % Totens Sparebank 18,282, % Jernbanepersonalets Sparebank 13,568, % Lillestrøm Sparebank 12,577, % Aurskog Sparebank 10,849, % Klepp Sparebank 10,547, % Sparebanken Narvik 10,010, % Time Sparebank 8,387, % Melhus Sparebank 8,150, % Rørosbanken Røros Sparebank 7,579, % Page 17 of 18

18 Key Figures (unaudited) Amounts in NOK 1, June June Dec Balance sheet development Lending to customers 41,633,202 33,633,837 37,193,832 Debt securities issued 50,605,066 37,281,587 41,211,527 Subordinated loan capital 318, , ,321 Equity 1,498,304 1,071,095 1,069,533 Equity in % of total assets Average total assets 48,056,151 38,644,648 39,433,543 Total assets 53,910,185 39,310,228 43,254,700 Rate of return / profitability Combined average spread for lending and deposits, annualised (%) 1) Fee and commission income in relation to average total assets, annualised (%) Other operating expences in relation to average total assets, annualised (%) Staff and general administration expenses in relation to average total assets, annualised (%) Cost/income ratio (%) 2) Return on total capital, annualised (%) 3) Return on equity, annualised (%) 4) Total assets per full-time position 3,906,535 2,848,567 2,922,615 Financial strength Core tier 1 capital 1,433,619 1,029,913 1,053,096 Total primary capital (tier 2 capital) 1,752,079 1,348,094 1,371,416 Calculation basis capital adequacy ratio 15,574,088 12,395,400 13,724,400 Core tier 1 capital ratio % Capital adequacy ratio % (tier 2 capital) Defaults in % of gross loans Loss in % of gross loans Staff Number of full-time positions at end of period Liquidity indicators Overview of liquidity indicators and prognosis Actual Prognosis As of 30 June Sep Dec Mar June 2013 Liquidity Indicator I 105 % 99 % 98 % 86 % 98 % Liquidity Indicator II 127 % 109 % 120 % 107 % 118 % Average of indicators 116 % 104 % 109 % 97 % 108 % 1) Net interest income in % of average total assets. 2) Total operating expences in % of net interest income. 3) Net profit/loss for the year in % of average total assets. 4) Net profit/loss for the year in % of average equity (return on equity). 5) Liquidity Indicator I 6) Liquidity Indicator II Funding with remaining time to maturity exceeding 12 months Illiquid assets Funding with remaining time to maturity exceeding 1 month Illiquid assets Page 18 of 18