Half Year Report 2009

Transcription

1 Half Year Report 2009 SpareBank 1 Nord-Norge Group Board of Directors Report/Operating Report Half year accounts Statement from Board of Directors and Chief Executive Officer Group Information 1/22

2 SpareBank 1 Nord-Norge Second quarter report and accounts 2009 the Group Good result for second quarter and first half-year of The Bank s financial strength is good and liquidity remains satisfactory. Main features (figures and percentages in brackets refer to the same interim period in 2008): Operating result before tax for the first half-year of 2009 totalled NOK 359 million (NOK 262 million). o Return on equity capital after tax was 12.6 per cent (8.7 per cent). o Result per Primary Capital Certificate (PCC) so far this year (Parent Bank): NOK 7.10 (NOK 4.45). The underlying banking operations remain good. The result from core operations before credit losses amounted to NOK 338 million (NOK 345 million). The Group s subsidiaries made a total contribution of NOK 31 million towards the overall result for the first half-year of Net result from financial investments for the first half-year totalled NOK 123 million (a NOK 55 million loss). o Amortisation of net lesser value in connection with the acquisition of BNbank ASA, NOK 4 million, has been posted as income in the profit and loss account, plus a NOK 7 million contribution to the overall result. The Bank s share of SpareBank 1 Boligkreditt s result totalled NOK 5 million. o The contribution to the overall result from SpareBank 1 Gruppen AS amounted to NOK 59 million (NOK 49 million). o Net gain from the Bank s share portfolio included in the accounts totalled NOK 5 million. o Gains on interest-bearing portfolio (including related financial derivatives transactions) amounted to NOK 6 million, as incorporated in the accounts. o Income from other foreign exchange and financial derivatives and assets totalled NOK 32 million. Overall cost control under control, with a reduction of NOK 22 million or 4.5 per cent compared with the same interim period in Cost ratio: 50.4 per cent (62.9 per cent). Low losses on loans bearing in mind the macro-economic situation: Net losses totalled NOK 102 million (NOK 28 million). Continued low lending growth: Lending growth during the last 12 months (including loans transferred to SpareBank 1 Boligkreditt): 5.1 per cent (11 per cent). o Retail banking market; 8.2 per cent (including SpareBank 1 Boligkreditt). o Corporate banking market; NOK 0.8 per cent. During the last 12 months, the accounts show lending growth of 1.1 per cent (4.3 per cent). Development of deposits remains very good: Deposit growth in last 12 months: 6.9 per cent (4.3 per cent) Deposit coverage ratio: 71.6 per cent (67.6 per cent) The Bank has good financial strength with a core capital coverage ratio (Group) of 9.7 per cent (9.4 per cent). Liquidity remains satisfactory. Introductory comments The Group quarterly accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS), including IAS 34 relating to interim reporting. IAS I presentation of the financial accounts has been amended in 2009, involving several changes in the presentation of the profit and loss account as well as a statement of the changes in equity capital. Items which are recognised directly in equity capital shall now also be presented in the profit and loss account as extended profit and loss account items. In the equity capital statement, transactions between the owners and other transactions are kept separate. IFRS involves the use of different principles for the incorporation of subsidiaries and joint venture companies between Parent Bank- and Group accounts. In the Group accounts, the equity method is applied, in accordance with which results from joint venture companies are incorporated in the Group s profit and loss account according to equity share, and are taken into consideration in book value of equity shares in the balance sheet. The shares of the subsidiaries results are consolidated into the accounts. In accordance with IFRS, only the cost method of accounting shall be used in company accounts. This means that book value of subsidiaries and joint venture businesses in the Parent Bank s accounts is included at historic cost. In the Parent Bank s accounts, only the annual dividends received from these businesses are shown. In accordance with the rules and regulations from the Ministry of Finance dated 16 October 2008, permission was given to reclassify securities in the trading portfolio from the category At fair market value with value changes through the profit and loss account to categories which are assessed at amortised cost. The Group decided to make such a reclassification of large parts of the interestbearing portfolio held available for sale as at Future assessments in these categories shall be calculated at amortised cost through the help of the effective interest method of accounting, which means that earlier value write-downs and interest are amortised and incorporated as interest income over the remaining life of the securities in question. The Bank s remaining portfolio of certificates and bonds is classified as At fair market value with value changes through the profit and loss account. To the extent that there is an active market for the securities involved, observable market prices are applied in order to assess fair market value. In the case of parts of the 2/22

3 portfolio, due to the financial crisis, there are no observable market prices and the Bank has therefore used alternative value assessment methods according to IFRS 39 in order to ascertain fair market value as at for the securities in question. This is described in more detail in a note on principles to the accounts. A consortium of the SpareBank 1 banks acquired Glitnir Bank ASA, now called BNbank ASAS, in December SpareBank 1 Nord-Norge owns 20 per cent of the shares in BNbank ASA. In this connection, SpareBank 1 Nord-Norge included NOK million as income in its profit and loss account in respect of negative goodwill. In 2009, the difference between the Bank s book valuerelated share of BNbank s equity capital and the book value-related equity capital in BNbank s accounts is incorporated in the accounts. This is done through amortisation of surplus/lesser value of balance sheet items in relation to agreed maturities for the various items in question. Negative goodwill is not included in the Parent Bank s profit and loss account. Results Operating result before tax at the end of the second quarter of 2009 amounted to NOK 359 million. The corresponding result for the same interim period of 2008 was NOK 262 million. The Group s core operations (operations excluding net income from financial investments) remain very good, posting a result of NOK 338 million, down by just NOK 7 million on the same time last year. The improvement in operating result compared with the same interim period last year is to a large extent due to last year s inclusion in the profit and loss account of losses on securities as a result of the global financial crisis. For the second quarter in isolation, the pre-tax operating result totalled NOK 170 million, as opposed to NOK 196 million for the same interim period last year. For the first half-year of 2009, the Group s after-tax return on equity capital was 12.6 per cent (8.7 per cent). For the Parent Bank, the return on equity capital ended up at 19.6 per cent and the result per PCC so far this year is 7.10 (NOK 4.45). The taxation cost has been estimated at NOK 73 million. In relation to the first half of 2008, the reasons for the NOK 97 million improvement in pre-tax result are as follows: Reduction in net interest income NOK 32 million Reduction in net commission income NOK 6 million Increase in income from financial investments NOK 178 million Increase in other operating income NOK 9 million Reduction in costs NOK 22 million Increase in net losses -NOK 74 million Share of SpareBank 1 Gruppen s result SpareBank 1 Gruppen s preliminary after-tax result at the end of the second quarter of 2009 totalled NOK 297 million. The SpareBank 1 Nord-Norge Group s share of the result, amounting to NOK 59 million, has been incorporated in the accounts. As may be seen from the extended profit and loss account, in addition, a negative correction of NOK 10 million has been adjusted into the final annual result for 2008, this amount having been recognised directly in equity. Adjustments have also been made against equity capital for the Group s share of SpareBank 1 Gruppen s estimate discrepancies relating to pension provisions amounting to NOK 3 million, which is also recognised directly in equity. Otherwise reference is made to the statement of changes in equity capital. Subsidiaries The Group s subsidiaries produced an aggregate contribution of NOK 31 million towards the overall result for the first half-year of Of this, the result from SpareBank 1 Finans Nord-Norge AS accounted for NOK 44 million. Reference is also made to the note in the quarterly accounts. Net interest income and average interest margin At the end of the second quarter of 2009, the Group s net interest income was NOK 32 million down on the second quarter of In relation to average assets, net interest income for the first half-year amounted to 1.80 per cent, down by 0.27 percentage points on the same interim period last year. For the second quarter in isolation, net interest income was NOK 16 million lower than for the first quarter, and NOK 26 million down on the same period in The shrinkage in average interest margin in 2009 is to a large extent ascribable to the effects of a falling interest rate level, including: Reduced current return on the Bank s equity capital. Reduced overall deposit margin which has not been fully compensated for by increased lending margins. Every effort will continue to be made in order to increase the Bank s overall lending margin. With a low and falling level of interest rates, coupled with low activity levels in the economy, a continued downward pressure on the Bank s overall interest margin is expected also in nominal terms. Net revenue generation from banking services and other income At the end of the second quarter of 2009, net commission income totalled NOK 195 million, down from NOK 201 million 12 months ago. With effect from , SpareBank 1 Nord-Norge waived the usage- and monthly fees for cards and electronic payment transmission services for prioritised customers. The Bank will try to compensate for the reduced income as a result of this change by increased other income and reduced costs. For the second quarter in isolation, net commission income totalled NOK 103 million, as against NOK 92 million for the previous quarter, and NOK 106 million for the second quarter of During the first quarter of 2009, NOK 20 million was included as income under other (non-interest) income in the Group s profit and loss account following completion 3/22

4 of the sale of the Group s factoring business, from SpareBank 1 Finans Nord-Norge AS to SpareBank 1 Gruppen Finans Holding AS. Income from financial investments Net result from financial investments for the first half of 2009 totalled NOK 123 million. The result breaks down as follows: Result from SpareBank 1 Gruppen NOK 59 million Result from SpareBank 1 Boligkreditt NOK 5 million Result from BNBank NOK 7 million Amortised net lesser value booked as income, BNbank NOK 4 million Share dividends NOK 5 million Net gains on shares NOK 5 million Net gains on bonds NOK 6 million Net gains on foreign exchange and financial derivatives NOK 32 million In comparison with the first half-year of 2009, the net result from financial investments was NOK 178 million better. The improvement is principally ascribable to the fact that last year s write-downs on the Bank s portfolio of shares and interest-bearing financial instruments have been replaced by gains for the first half-year of 2009 incorporated in the accounts. For the second quarter in isolation, net result from financial investments amounted to NOK 55 million. The result breaks down as follows: Result from SpareBank 1 Gruppen NOK 57 million Result from SpareBank 1 Boligkreditt NOK 2 million Result from BNbank NOK 7 million Amortised net lesser value booked as income, BNbank NOK 2 million Share dividends NOK 5 million Net losses on shares -NOK 32 million Net losses on bonds -NOK 1 million Net gain on foreign exchange and financial derivatives NOK 15 million On , the Bank completed a reclassification of large parts of the interest-bearing securities in the trading portfolio, from the category At fair market value through the profit and loss account to categories which are assessed at amortised cost. This involved NOK 3,807 million of the portfolio amounting to NOK 4,981 million in the accounts as at If such a re-classification had not been made, further unrealised losses of NOK 212 million on this portfolio would have been charged to the profit and loss account from to as a result of increased credit spreads. This unrealised loss would have been reduced to NOK 113 million as at Previously written-down amounts on this part of the portfolio as at amounted to NOK 112 million and are now included as income (amortised) over the remaining life of each of the securities involved. For the first half of 2009, this inclusion of income totalled NOK 15 million. The average maturity for the reclassified part of the portfolio has been assessed with regard to the need for permanent impairment in value. As at , such write-down was made on two of the Bank s investments, involving NOK 46 million. Further write-downs have been made on one of the securities involved in the second quarter of 2009, the amount being NOK 4 million. Otherwise, reference is made to the relevant note in the quarterly accounts. Operating accounts Ordinary operating accounts for the first half-year of 2009 totalled NOK 469 million, down by NOK 22 million or 4.5 per cent on the same time last year. Personnel- and administration costs have been trimmed by NOK 12 million, whereas other operating costs have been reduced by NOK 10 million. In relation to average assets, costs amounted to 1.43 per cent, after a shrinkage of 0.21 percentage points compared with the first half-year of The Group s overall cost ratio ended up at 50.4 per cent for the first half of 2009, down from 62.9 per cent for the same interim period of For the second quarter in isolation, ordinary operating costs totalled NOK 226 million, down from NOK 243 million for the preceding quarter and NOK 237 million for the second quarter of At the end of the second quarter of 2009, overall manning levels were equivalent to 797, of which the Parent Bank accounted for 709. Corresponding figures 12 months ago were 823 and 727 respectively. Against the background of continued, expected weak growth, cost-reducing measures have been implemented. These efforts will be continued, including possible measures aimed at further enhancing overall effectiveness within the areas of distribution and manning levels. Net losses and commitments in default As at , the Group s net losses on loans totalled NOK 102 million, of which collective write-downs and changes in the long-term monitoring portfolio accounted for NOK 23 million. Net losses from the corporate market amounted to NOK 88 million, the retail banking market NOK 14 million. Net losses for the 2nd quarter in isolation totalled NOK 49 million, charged to the profit and loss account. As at , net commitments in default and doubtful commitments amounted to NOK 676 million, equivalent to 1.34 per cent of gross lending, up by NOK 188 million on the same interim period in Group individual loss write-downs in the first half of 2009 were to a large extent ascribable to a small number of individual commitments. Although, overall, there has been an increase in the level of commitments in default, there are at the present time few new bankruptcies and unexpected events involving outstanding commitments. The Bank is still to a smaller extent aware of a weaker development within certain sectors or in the portfolio generally. As a result of the weak economic situation, collective write-downs increased by only NOK 7 million during the last quarter. Collective write-downs totalled NOK /22

5 per cent of the Group s aggregate gross lending as at The Bank s scoring models for loans made to industry and commerce show a significant increase in the share of high risk. This change, however, is largely attributable to the model basis in June 2009 having been changed in order to calculate the probability of default as a long-term average throughout an economic cycle compared with the earlier basis applied, against a point in time. A comparison of the portfolio as at against the same point in time in 2008 using new scoring models on both occasions, show only smaller changes in overall risk. The increased share of high risk is accordingly not due to changes in the underlying portfolio. According to the main Board of Directors opinion, the quality of the Bank s lending portfolio remains good, and every effort continues to be made at effective work relating to commitments in default and doubtful commitments throughout the Group. Against the background of impaired economic prospects nationally and internationally, we still expect a continued, high level of credit losses compared with the last two years very low level of loan losses. Tax At the end of the second quarter of 2009, the Group s tax cost was estimated at NOK 73 million. In the Parent Bank s accounts, the basis for tax has been reduced by permanent differences coupled with effects of the exemption model. According to IFRS, wealth tax is not a tax cost, and NOK 7 million has therefore been charged to the profit and loss account as part of other operating costs. Compared with 2008, the reduced tax cost as a percentage of the operating result before tax is primarily ascribable to the exemption model. Assets At the end of the second quarter of 2009, Group assets stood at NOK 67,961 million, after a NOK 7,813 million or 13.0 per cent increase during the last 12 months. Loans As at , Group gross lending to customers totalled NOK 50,473 million. In comparison with the end of the second quarter of 2008, this involved a growth of 1.1 per cent. As at , house mortgage loans amounting to NOK 6,963 million had been transferred to SpareBank 1 Boligkreditt AS. Lending growth including these loans amounted to 5.1 per cent. Retail banking loans were up by 8.2 per cent, whereas the corporate and public sector loans were down by 0.8 per cent in all. Including the transferred loans to SpareBank 1 Boligkreditt, the share of lending to the retail banking market is somewhat higher than it was at the end of the last quarter of 2008, amounting to 68 per cent of aggregate loans at the end of the second quarter of The financial crisis, with reducing economic growth and a levelling out of/fall in house prices, has brought about reduced lending growth. The time ahead is expected to be characterised by a weak macro-economy, involving weak lending growth. However, the main Board of Directors would still wish to see lending growth and increased market shares if at all possible. In the case of new loans, particular emphasis is placed on customers ability to service and repay their outstanding loans, and on a satisfactory level of collateral and other security in order that credit risk shall be maintained at an acceptable level. Saving and investments At the end of the quarter currently under review, Group deposits from customers totalled NOK 36,129 million. During the last 12 months, deposits increased by NOK 2,336 million or 6.9 per cent. Retail banking deposits were up by 8.7 per cent and the public sector deposits by 29.4 per cent, whereas deposits from corporate customers were down by 7.0 per cent. However, the crisis in the financial markets has not brought about losses of customer deposits of any significance. Portfolio of certificates and bonds The Group s portfolio of certificates and bonds totalled NOK 11,846 million at the end of the second quarter of Comparative figures as at and were NOK 4,981 and NOK 6,756 million respectively. The increase was principally attributable to: Increased liquidity reserves in the form of certificates and Treasury bills. Transfer of house mortgage loans to SpareBank 1 Boligkreditt involves an increased portfolio of particularly well secured bonds (and reduced loans). The usage of the authorities swap scheme for funding involves accounted-related incorporation on a gross basis, which in turn means a parallel increase in assets (including certificates) and liabilities. The larger portfolio of certificates and bonds only involves a small degree of increased risk. Liquidity and funding Deposits from customers represent the Bank s most important source of funding. At the end of the second quarter of 2009, the overall deposit coverage ratio was 71.6 per cent, up by 3.9 percentage points on the same time last year. Apart from equity and related capital as well as deposits from customers, long-term funding loans from the capital markets mainly represent the Bank s remaining funding. The Bank s access to funding has been satisfactory throughout the period of unsettled global financial markets. The Bank s strategic aim is to maintain the overall funding risk at a low level. Basel II New capital adequacy rules and regulations (Basel II the EU s new directive for capital coverage) were implemented in Norway from 1 January The new rules and regulations are based on recommendation to new standard for capital coverage computations from Bank for International Settlements (BIS). SpareBank 1 Nord-Norge received permission from the Financial Supervisory Authority of Norway (FSAN) to apply internal measuring methods (Internal Rating-Based Approach) for credit risk from 1 January The statutory minimum requirement for capital coverage for credit risk was therefore with effect from 2007 based on the Bank s internal risk assessment. The new rules and regulations make the statutory minimum requirement for 5/22

6 capital coverage more risk-sensitive, so that the capital requirement to a larger extent corresponds to the risk in the underlying portfolios. The use of internal computation methods involves comprehensive requirements relating to the Bank s organisation, staff s skills and competence, risk models and risk management systems. As a result of transition rules relating to the new regulations, IRB-banks will nevertheless not experience the full impact of the reduced regulatory requirements until Equity capital and capital adequacy As at , Group capital adequacy amounted to per cent (10.93 per cent) of the weighted asset calculation basis. In 2009, the computation has been made according to the transitional rules and regulations provided by FSAN. The core capital ratio was 9.65 per cent (9.44 per cent) at the end of the quarter currently under review. As at , the Parent Bank capital adequacy ratio was per cent (11.21 per cent) and the core capital per cent (9.52 per cent). In July 2009, the Bank raised a NOK 350 million subordinated loan. This loan is in part replacement of a EUR 50 million subordinated loan with an option to early redemption ( call/step-up ) at the beginning of During the course of the autumn, the Bank will consider whether to raise further subordinated loan capital. If 50 per cent of the result earned so far this year were to be factored into the capital adequacy calculations, the capital adequacy ratio for the Parent Bank would be per cent and for the Group per cent. The Bank s financial strength is regarded as satisfactory. The main Board of Directors has so far decided that the Bank will not apply to the Government Finance Fund for financial funds. The Bank s PCC-holders The Bank s PCC-capital amounts to NOK 896 million, represented by 17,912,073 PCCs. The PCC-ratio as at was calculated at per cent. At the end of the second quarter of 2009, the number of PCC-holders was 8,362, down by 124 during the last 12 months. The number of PCC-holders from North-Norway was 2,515 at the same time. A summary of the Bank s 20 largest PCCholders is included in Notes to the Accounts. Equity Certificates new legislation in place New law, rules and regulations relating to Equity Certificates (the former Primary Capital Certificate/PCC) came into force on 1 July The new legislation amongst other things means that Equity Certificates in savings banks to a larger extent may be compared with shares. The new rules and regulations involve a larger degree of similar treatment of different groups of owners in savings banks and this will to a large extent minimise earlier challenges relating to dilution of PCC-holders investments in the case of payment of cash dividends. The new legislation is regarded as positive for the Equity Certificate as securities. In the very near future, the main Board of Directors will assess in more detail the Bank s adaptation to the new rules and regulations. Concluding remarks The first half-year result of 2009 is deemed to be good especially taking into consideration the difficult macroeconomic situation. The Bank s core operations remain very good. The macro-economic situation in Norway and Nord-Norge is expected to remain weak going forward. This will continue to mean low demand for credit, coupled with a relatively high level of credit losses. A low interest rate level is likely to continue to contribute to downward pressure on the Bank s net interest income. The Bank attaches importance to balance sheet growth, both as far as deposits and loans are concerned. Furthermore, it is considered important to make every effort to further increase other (non-interest) income through the sale of different products and services. All lending growth shall involve good quality. As a result of expected weak growth, the Bank will continue to focus strongly on cost-reducing measures. This includes possible measures of enhanced effectiveness within the areas of distribution and overall manning levels. Tromso, 11 August 2009 The main Board of Directors of SpareBank 1 Nord- Norge 6/22

7 Key figures group Amounts in NOK million and in % of average assets % % % From the profit and loss account Net interest income % % % Net fee-, commision and other operating income % % % Net income from financial investments % % % Total income % % % Total costs % % % Result before losses % % % Losses % % % Result before tax % % % Tax % % % Minority interests % % % Result for the period % % % Profitability Return on equity capital % 8.7 % 8.1 % Interest margin % 2.07 % 2.15 % Cost/income % 62.9 % 59.0 % Balance sheet figures Loans and advances to customers Loans and advances to customers including SpareBank 1 Boligkreditt AS Deposits from customers Deposits as a percentage of gross lending % 67.7 % 67.4 % Growth in loans and advances to customers past 12 months 1.1 % 4.3 % 2.1 % Growth in loans and advances to customers including SpareBank 1 Boligkreditt AS 5.1 % 11.0 % 8.0 % Growth in deposits from customers past 12 months 6.9 % 4.3 % 7.9 % Average assets Total assets Losses on loans and commitments in default Losses on loans to customers as a percentage of gross loans 0.40 % 0.11 % 0.36 % Commitments in default as a percentage of gross loans 0.93 % 0.32 % 0.60 % Commitments at risk of loss as a percentage of gross loans 0.76 % 0.95 % 0.88 % Net commitments in default and at risk of loss as a percentage of gross loans 1.34 % 0.98 % 1.08 % Solidity Capital adequacy ratio % % % Core capital adequacy ratio % 9.44 % 9.06 % Core capital Equity and related capital resources Adjusted risk-weighted assets base Branches and manyears Branches Manyear Primary Capital Certificates PCC ratio overall % % % % % % Quoted/market price NONG as at *) Quotation value Equity capital per PCC (NOK) Result per PCC (Parent Bank) Cash dividend per PCC to be paid P/E (Price/Earnings) P/V (Price/Book Value) *) Before PCC split in Profit for the period as a percentage of average total equity, calculated as average amount of quarterly equity and per and Total interest margin as a percentage of average total assets. 3 Total costs as a percentage of total net income. 4 Deposits from customers as a percentage of gross lending. 5 Average assets are calculated as average assets each quarter and at and Net subordinated capital as a percentage of calculated risk-weighted balance 7 Core capital as a percentage of calculated risk-weighted balance 8 PCC holders share of equity capital as at Quoted price on Oslo Stock Exchange multiplied by numbers of PCC's outstanding 10 PCC-capital + Premium Fund + Dividend Equalisation Fund, divided by number of PCC's outstanding 11 Profit for the period (parent bank) multiplied by PCC holders' share of the equity capital as at , in relation to total number of PCC's. 12 Cash dividend per PCC for the accounting year. Resolution made by Main Borad of Directors 13 Market price on Oslo Stock Exchange at end of period, divided by result for the period per PCC. 14 Market price on Oslo Stock Exchange at end of period, divided by book value of equity capital per PCC. 7/22

8 Statement of comprehensive income Parent Bank Group (Amounts in NOK million) Q08 2Q Q Interest income Interest costs Net interest income Fee- and commission income Fee- and commission costs Other operating income Net fee-, commision and other operating income Dividend Income from investments Net gain from investments in securities Net income from financial investments Total income Personnel costs Administration costs Ordinary depreciation Other operating costs Total costs Result before losses Losses Result before tax Tax Result for the period Majority interest Minority interests Result per PCC - Premium Capital Certificates Result per PCC (Parent Bank) Diluted result per PCC Comprehensive income Result for the period Net change in fair market value of investment in joint ventures Net change in fair market value of financial assets available for sale Tax on other comprehensive income Other comprehensive income for the period Total comprehensive income for the period Majority interest Minority interests Totalresult per PCC - Premium Capital Certificates Total result per PCC (Parent Bank) Diluted total result per PCC Tax on other comprehensive income: Net change in fair market value of financial assets available for sale Tax on other comprehensive income /22

9 Statement of financial position Parent Bank Group (Amounts in NOK million) Assets Cash and balances with central banks Loans and advances to credit institutions Loans and advances to customers Individual write-downs for impaired value Collective write-downs for impaired value Net loans and advances to customers Shares Certificates and bonds Financial derivatives Investments in Group Companies Investments in assosiated companies and joint ventures Property, plant and equipment Intangible assets Other assets Total assets Liabilities Deposits from credit institutions Deposits from customers Debt securities in issue Financial derivatives Other liabilities Deferred tax liabilities Subordinated loan capital Total liabilities Equity Primary Capital Certificates (PCC) PCC premium reserve Dividend Equalisation Fund The Savings Bank's Fund Donations Fund for unrealised gains Other equity capital Result for the period Minority interests Total equity Total liabilities and equity /22

10 Result from the Group's quarterly accounts (Amounts in NOK million) 2Q09 1Q09 4Q08 3Q08 2Q08 1Q08 4Q07 3Q07 2Q07 Interest income Interest costs Net interest income Fee- and commission income Fee- and commission costs Other operating income Net fee-, commision and other operating income Dividend Income from investments Net gain from investments in securities Net income from financial investments Total income Personnel costs Administration costs Ordinary depreciation Other operating costs Total costs Result before losses Losses Result before tax Tax Minority interests Result for the period Profitability Return on equity capital % % 9.27 % 5.98 % % 3.62 % % % % Interest margin 1.75 % 1.88 % 2.21 % 2.31 % 2.10 % 2.06 % 2.15 % 2.08 % 2.03 % Cost/income % % % % % % % % % Balance sheet figures Loans and advances to customers Deposits from customers Deposits as a percentage of gross lending 71.6 % 67.0 % 67.4 % 63.8 % 67.7 % 62.4 % 63.8 % 61.9 % 67.7 % Growth in loans and advances to customers including SpareBank 1 Boligkreditt AS 5.1 % 7.4 % 8.0 % 9.0 % 11.0 % 11.2 % 13.7 % 11.4 % 12.5 % Growth in deposits from customers past 12 months 6.9 % 9.6 % 7.9 % 6.1 % 4.3 % 7.3 % 15.3 % 9.0 % 14.4 % Average assets Total assets Losses on loans and commitments in default Losses on loans to customers as a percentage of gross loans 0.39 % 0.42 % 0.89 % 0.33 % 0.20 % 0.02 % 0.06 % 0.02 % 0.04 % Commitments in default as a percentage of gross loans 0.93 % 0.88 % 0.60 % 0.55 % 0.32 % 0.34 % 0.43 % 0.32 % 0.38 % Commitments at risk of loss as a percentage of gross loans 0.76 % 0.74 % 0.88 % 0.93 % 0.95 % 0.75 % 0.69 % 0.84 % 0.96 % Net commitments in default and at risk of loss as a percentage of gross loans 1.34 % 1.27 % 1.08 % 1.11 % 0.98 % 0.85 % 0.85 % 0.83 % 0.97 % Solidity Capital adequacy ratio % % % % % % % 8.94 % 9.71 % Core capital adequacy ratio 9.65 % % 9.06 % 9.35 % 9.44 % 9.54 % 8.92 % 7.76 % 8.36 % Core capital Equity and related capital resources Basel I risk-weighted assets base /22

11 Quarterly Report - Changes in equity Amounts in NOK million Group: PCC capital Premium Fund Dividend Equalisation Fund Saving Bank's Fund Donations Fund Fair value reserve Fund for evaluation differences Period result Total Majority interests Minority interests Total equity Equity at Total comprehensive income for the period Period result Other comprehensive income: Net change in fair market value of investment in joint ventures Tax on other comprehensive income Total other comprehensive income Total comprehensive income for the period Transactions with owners Dividend issue Set aside for dividend payments Reversal of dividend payments Dividend paid Payments from Donations Fund Sum transaksjoner med eierne Equity at Equity at Total comprehensive income for the period Period result Other comprehensive income: Net change in fair market value of investment in joint ventures Net change in fair market value of financial assets available for sale Tax on other comprehensive income Total other comprehensive income Total comprehensive income for the period Transactions with owners Dividend issue Set aside for dividend payments Reversal of dividend payments Dividend paid Payments from Donations Fund Total transactions with owners Equity at PCC ratio overall Parent Bank (Amounts in NOK million) Primary Capital Certificates (PCC) 896 PCC premium reserve 123 Dividend Equalisation Fund 277 Set aside dividend - 54 Share Fund Fair Value Options - 5 A. Equity attributable to PCC holders of the Bank The Savings Bank's Fund Donations 133 Share Fund Fair Value Options - 10 B. Total Saving Bank's Fund PCC Ratio overall (A/(A+B)) % 11/22

12 Statement of cash flows Parent Bank Group (Amounts in NOK million) Result before tax Ordinary depreciation Write-downs, gains/losses fixed assets Losses on loans and guarantees Tax Group contributions Dividend paid on PCCs Provided from the year's operations Change in sundry liabilities: + increase/ - decrease Change in various claims: - increase/ + decrease Change in gross lending to and claims on customers: - increase/ + decrease Change in short term-securities: - increase/ + decrease Change in deposits from and debt owed to customers: + increase/ - decrease Change in debt owed to credit institutions: + increase/ - decrease A. Net liquidity change from operations Investment in fixed assets Sale of fixed assets Change in holdings of long-term securities: - increase/ + decrease B. Liquidity change from investments Change in borrowings through the issuance of securities: + increase/ - decrease Change in PCC/subordinated loan capital: + increase/ - decrease C. Liquidity change from financing A + B + C. Total change in liquidity Liquid funds at the start of the period = Liquid funds at the end of the period Liquid funds are defined as cash-in-hand, claims on central banks, plus loans to and claims on credit institutions. 12/22

13 Notes Note 1 - Accounting Principles The Group s quarterly accounts have been prepared in accordance with stock exchange rules and regulations and International Financial Reporting Standards (IFRS), including IAS 34 relating to interim reporting. The quarterly accounts do not comprise all information which is required in complete annual accounts and should be read in conjunction with the 2008 Annual Accounts. IAS 1 presentation of the financial accounts has been amended in 2009, involving several changes in the presentation of the profit and loss account now Statement of comprehensive income as well as the statement of changes in equity capital. Items which are recognised directly in equity capital shall now also be presented in the Statement of comprehensive income as extended profit and loss account items. In the equity capital statement transactions between the owners and other transactions are kept separate. In accordance with the rules and regulations dated 16 October 2008 issued by the Ministry of Finance, it is now permitted to reclassify securities in a trading portfolio from the category Market value with any value changes shown through the profit and loss account to the category Hold until maturity and Loans and claims. The SNN Group decided to apply such reclassification to large parts of its interestbearing portfolio with effect from Future assessments within these categories shall be calculated at amortized cost with the help of the effective interest method, which means that earlier write-downs of values and interest are to be amortized and included in the profit and loss account as interest income over the remaining life of the items in question. Reference is made to Note 12. The remaining portfolio of certificates and bonds is assessed at market value through the profit and loss account. To the extent that there is an active market in the securities in question, known market prices are applied in order to establish actual value. For parts of the portfolio (portfolio of CDOs Collateralised Debt Obligations), observable prices were not available, and the Bank has therefore applied alternative assessment methods according to IFRS 39 in order to determine actual value ( Fair Market Value ) as at for the securities involved.in the absence of direct prices for the financial instruments, broad market indexes are used. These follow fluctuations in the credit markets, and are thought to reflect relevant re-pricing of credit risk in relation to pricing of the types of securities in question. Credit indexes used are Itraxx Europe Investment Grade Index, CDX North America Index and CMBX North America (with relevant rating in relation to the Bank s portfolio). 13/22

14 Note 2 - Capital Adequacy New capital adequacy rules and regulations (Basel II EU s new directives for capital adequacy) were implemented in Norway with effect from 1 January SpareBank 1 Nord-Norge has received permission from Kredittilsynet (The Financial Supervisory Authorityof Norway) (FSAN) to apply internal calculation methods (Internal Rating-Based Approach) for credit risk from 1 January With effect from 2007, therefore, the statutory minimum capital adequacy requirement for credit risk will be based on the Bank s internal assessment of risk. This will make the statutory minimum capital adequacy requirement more risk-sensitive, which means that the capital requirement will to a larger extent correspond to the risk contained in the underlying portfolios in question. The use of internal calculation methods will involve comprehensive demands on the Bank s organisation, competence, risk models and risk management systems. As a result of transitional rules relating to the new directive mentioned above, IRB-banks will still not experience the full impact of the reduced regulatory capital requirements until Until 2010, banks have to report on a parallel basis, both according to the old capital adequacy calculations and Basel II. During the period , an annual reduction of the risk-adjusted calculation basis in relation to the old method (socalled correction of 'floor') is permitted. The calculation basis in 2009 therefore amounts to 80 per cent of the calculated basis according to the Basel I rules and regulations. Parent Bank Group (Amounts in NOK million) Equity and related capital resources Core capital eksclusive minority interests Result for the period Deduction Fund for Evaluation Differences Deduction Fund for unrealised gains Deduction set aside dividend Perpetuan non-call bonds Share core capital from consolidated financial institutions Deduction deffered tax Deduction subordinated capital in other financial institutions (50 %) Deduction adjusted expected amount lost (50 %) Core capital adequacy reserve (50 %) Core capital Subordinated loan capital Share supplementary capital from consolidated institutions Deduction subordinated capital in other financial institutions (50 %) Deduction adjusted expected amount lost (50 %) Core capital adequacy reserve (50 %) Supplementary capital Equity and related capital resources Risk-weighted assets base Credit risk Settlement/Delivery risk Position,foreign exchange and commodity risks Operational risk Standardised approach Standardised approach consolidated financial institutions Deduction subordinated capital in other financial institutions (100 %) Deduction adjusted expected amount lost (100 %) Core capital adequacy reserve (100 %) Total risk-weighted assets base - IRB Basel I risk-weighted assets base Adjusted risk-weighted assets base % 9.52 % % Core capital adequacy ratio 9.65 % 9.44 % 9.06 % 1.28 % 1.69 % 1.12 % Supplementary capital adequacy ratio 1.43 % 1.49 % 1.50 % % % % Capital adequacy ratio % % % Note 3 -Net bad and doubtful commitments Non-performing commitments Non-performing commitments, impaired Individual write-down for impaired value = Net bad and doubtful commitments Note 4 - Losses incorporated in the accounts Period's change in individual write-down for impaired value Period's change in collective write-down for impaired value Period's confirmed losses against which individual write-downs were previously made Period's confirmed losses against which individual write-downs were previously not made Recoveries in respect of previously confirmed losses = Total losses on loans Note 5 - Individual- and collective write-downs for impaired value Individual write-downs for impaired value: Individual write-downs for impaired value on loans and guarantees as at Confirmed losses during the period on loans and guarantees, against which individual write-downs for impaired value has prev. been made Reversal of previous years' individual write-downs for impaired value Increase in write-downs for impaired value for commitments against which individual write-downs for impaired value were previously made Write-downs for impaired value for commitments against which no individual write-downs for impaired value was previously raised = Individual write-downs for impaired value on loans and guarantees * Collective write-downs for impaired value: Collective write-downs for impaired value against losses on loans and guarantees as at Period's collective write-downs for impaired value against losses on loans and guarantees = Collective write-downs for impaired value against losses on loans, and guarantees *Individual write-downs for impaired value on guarantees, NOK 5 million, are included in the Balance Sheet as liabilities under 'Provisions against liabilities'. 14/22