SpareBank 1 Nord-Norge

Transcription

1 SpareBank 1 Nord-Norge Preliminary annual report and accounts 2008 The Group Satisfactory result for the fourth quarter when taking the global financial crisis into consideration. The underlying banking operations remain good. The Bank s financial strength is good and its liquidity satisfactory. Main features (amounts and percentages in brackets refer to the same period in 2007): Pre-tax operating result totalled NOK 493 million (NOK 893 million). o After-tax return on equity capital: 8.1 per cent (18.1 per cent). o Earnings per Primary Capital Certificate (PCC) (Parent Bank): NOK 4.09 (NOK 10.00). The underlying banking operations remain very good; the result from core operations before credit losses amounted to NOK 760 million (NOK 709 million). A reclassification of the main part of the Bank s interest-bearing portfolio in the trading portfolio was made as at from the category Market value through the profit and loss account to the categories which are evaluated at the amortized cost. The net result from financial investments in the last quarter amounted to NOK 27 million; losses totalled NOK 84 million (a gain of NOK 201 million) for the year. Net losses for the year are made up of the following elements: o Income booked in respect of badwill in connection with the acquisition of BNbank ASA amounted to NOK 415 million. o Contribution to the Bank s result from BNbank ASA totalled NOK 7 million. o Reduced result contribution from SpareBank 1 Gruppen AS. The Bank s share of the company s result amounted to a loss of NOK 151 million (a gain of NOK 229 million). The Bank s share of SpareBank 1 Boligkreditt s result amounted to NOK 6 million (NOK 2 million). o Losses on the Bank s shareholding portfolio totalled NOK 239 million. o Losses on the interest-bearing portfolio (including related financial derivatives transactions) totalled NOK 141 million. o Gains from other foreign exchange, financial derivatives and assets totalled NOK 19 million. Overall cost development under control a 0.9 per cent increase in costs compared to Losses on loans: Net losses of NOK 183 million (NOK 17 million). Lending growth during the last 12 months (including loans transferred to SpareBank 1 Boligkreditt): 7.4% (13.6%). o Retail banking market: 8.5 per cent (including SpareBank 1 Boligkreditt). o Corporate market: 5.4 per cent. The accounts showed 2.1 per cent lending growth for the last 12 months (8.6%). Deposit growth during the last 12 months: 7.9 per cent (15.3%). Overall deposit coverage ratio: 67.4 per cent (63.8 %). The Bank has good financial strength and continues to have satisfactory liquidity. Proposed payment of cash dividend: NOK 3.00 per PCC. NOK 40 million has been set aside for Donations. Introductory comments Group quarterly accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS), including IAS 34 relating to interim reporting. The transition to IFRS in the Parent Bank s accounts involves the use of different principles for the inclusion of subsidiaries and joint venture operations in the two accounts. In Group accounts, the equity method of accounting is applied, results from the joint venture operations being incorporated in the Group s profit and loss account according to the equity stakes in question, and allowing for the value of the equity stakes stated in the Balance Sheet. Subsidiaries results are consolidated into the Group accounts. In accordance with IFRS only the cost method of accounting is to be used in company accounts. This means that the book values of subsidiaries and joint ventures operations in the Parent Bank s Balance Sheet are based on historic cost. In the Parent Bank s Profit and Loss Account, only the annual dividend payments received from these companies are shown. 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 categories which are evaluated at amortized cost method. The SNN Group decided to apply such reclassification to large parts of its interest-bearing portfolio available for sale as at 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 amortized and included in the profit and loss account as interest income over the remaining life of the items in question. The Bank s other portfolio of certificates and bonds is classified as Fair Market Value 1/18

2 with value changes through the Profit and Loss Account. To the extent that there is an active market in the securities in question, observable market prices are applied in order to determine market value. For certain parts of the portfolio, due to the global financial crisis, there are no observable market prices and the Bank has therefore used alternative assessment methods in accordance with IFRS 39 in order to determine Fair Market Value as at for the securities involved. This is described in more detail in Notes to the Accounts, in a note about the applicable accounting principles. In December 2008, a consortium of the SpareBank 1-banks acquired Glitnir Bank ASA, now BNbank ASA. SpareBank 1 Nord-Norge owns 20 per cent of the shares in BNbank ASA. In this connection, SpareBank 1 Nord-Norge has booked NOK million as income in its Group accounts in respect of badwill. This amount has not been included in the Parent Bank s Profit and Loss Account. This is explained in more detail in a separate section below. Result At the end of the fourth quarter, the pre-tax result amounted to NOK 493 million. The corresponding figure last year was NOK 893 million. The Group s core operations (excluding net revenue generation from financial investments) remain very good, having posted a result which was NOK 51 million up on the same time in The reduction in the operating result compared to the same time in 2007 is to a large extent affected by losses on securities due to the global financial crisis both in the Bank s own portfolio, and through the Bank s reduced share of SpareBank 1 Gruppen s result has also had an adverse impact on the Bank s overall result. In addition, the Group operating result is affected by the abovementioned inclusion as income of the negative goodwill relating to the acquisition of BNbank ASA. SpareBank 1 Nord-Norge s share of the company s result, a NOK 6.5 million correction of the result for 2007 has in addition been factored in, so that the Group s share of SpareBank 1 Gruppen s result for 2008 amounts to a loss of NOK 157,7 million. SpareBank 1 Gruppen s loss is in its entirety related to SpareBank 1 Livsforsikring, which during the unsettled financial markets in 2008 decided to maintain a high proportion of shares compared to other market players. In addition, the life assurance company has decided to stop and to discontinue a larger IT project, which resulted in a write-down of a total amount of NOK 417 million. The background for the decision is the supplier s inability to deliver, and the fact that this represents a significant breach of contract. The cost involved does not affect either the customers or the life assurance company s capital adequacy situation. Furthermore, the financial crisis has resulted in lower revenue generation for ODIN s portfolio management business and somewhat increased credit losses at Bank 1 Oslo. Apart from the life assurance company, SpareBank 1 Gruppen s other subsidiaries posted good results in Proposal for allocation of the year s profit The main Board of Directors proposes to the Bank s Board of Trustees payment of a NOK 3.00 cash dividend per PCC, totalling NOK 53.7 million, and a transfer of NOK 19.4 million to the Dividend Equalisation Fund. The part of the profit to be allocated to the PCC-capital is in accordance with the PCC-holders relative share of the Parent Bank s equity capital as at , but adjusted for the dividend issue which was completed during the spring of It is proposed that NOK 40 million is set aside for the Bank s Donations Fund. This involves the following proposal for allocation of the profit for the year: The after-tax return on equity capital for the Group as a whole finished up at 8.1 per cent. The after-tax return on equity capital for The Parent Bank ended up at 5.9 per cent, with earnings per PCC amounting to NOK Parent Bank s profit after tax Set aside for cash dividend payment Set aside for Dividend Equalisation Fund Total for PCC-holders (34.22 %) NOK mill. NOK 53.7 mill. NOK 19.4 mill. NOK 73.1 mill. The taxation cost has been estimated at NOK 143 million. In comparison with 2007, the NOK 400 million reduction in the pre-tax result is ascribable to the following factors: Increase in net interest income NOK 114 million Reduction in net commission income -NOK 43 million Decrease in revenue generation from financial investments -NOK 285 million Reduction in other (non-interest) operating income -NOK 11 million Increase in costs -NOK 9 million Increase in net losses -NOK 166 million The Bank s share of SpareBank 1 Gruppen s result SpareBank 1 Gruppen s preliminary result for the fourth quarter of 2008 ended up as a loss of NOK 1,029.3 million, with a loss of NOK million for the year as a whole. In Set aside for Donations Fund Set aside for Savings Bank s Fund Total allocations NOK 40.0 mill. NOK100.6 mill. NOK mill. Dividend will be paid to those PCC-holders who are registered as holders as at The Bank s PCCs will be quoted ex dividend on Net interest income and average interest margin Group net interest income in the fourth quarter was at the same level as in the third quarter. In relation to average assets, net interest income for the year as a whole finished up at 2.15 per cent, up by 0.07 percentage points on the previous year. As a result of the financial crisis, ongoing refinancing of the Bank s funding loans in the financial markets has been subject to increased credit margins during This has so 2/18

3 far been compensated for by increased lending rates. In the case of unchanged money market rates, continued unsettled conditions in the financial markets will gradually bring about further increases in funding loan costs as the Bank s funding loans from the capital market are refinanced. The impact of continued increased funding loan costs is expected to be compensated for by higher lending rates, especially within the corporate market. In view of the financial crisis in 2008 the Bank has chosen to maintain higher liquidity buffers than normal. This factor has had an adverse impact on the Bank s average interest margin. It is expected that the need for extraordinarily high liquidity buffers will decrease during the course of spring Net income from banking services Net commission income totalled NOK 394 million in The corresponding figure in 2007 was NOK 437 million. With effect from , SpareBank 1 Nord-Norge discontinued charging usage- and monthly fees for cards and electronic payments transmission services for prioritised customers. Every effort will be made in order to compensate the reduced revenue generation as a result of this by increased other income (non-interest) and reduced costs. Income from financial investments The net gain from financial investments in the fourth quarter totalled NOK 27 million. The result breaks down as follows: Share of SpareBank 1 Gruppen s result - NOK 200 mill. SpareBank 1 Boligkreditt s result - NOK 2 mill. BNbank s result NOK 7 mill. Booked as income, negative goodwill relating to BNbank NOK 415 mill. Net loss on shares (incl. dividends) - NOK 118 mill. Net loss on bonds - NOK 56 mill. Net loss on foreign exchange and financial derivatives - NOK 19 mill. For the year as a whole, the net result from financial investments involved a loss of NOK 84 million, as against a gain of NOK 201 million 12 months ago. The result for the year breaks down as follows: Bank s share of SpareBank 1 Gruppen s result - NOK 151 mill. SpareBank 1 Boligkreditt s result NOK 6 mill. BNbank s result NOK 7 mill. Booked as income, in respect of negative goodwill relating to BNbank NOK 415 mill. Net loss on shares - NOK 239 mill. Net loss on bonds - NOK 141 mill. Net gain from foreign exchange and financial derivatives NOK 19 mill. Losses on the Bank s portfolio of shares and interest-bearing securities to a large extent involve unrealised losses and are ascribable to changes in assessed market value of the portfolios. As explained by way of introduction, a reclassification of large parts of the Bank s interest-bearing portfolio in the trading portfolio was made as at from the category Fair Market Value through the profit and loss account to categories assessed at amortized cost. This comprised NOK 3,807 million of the portfolio of NOK 4,981 million included in the accounts as at If such a reclassification had not been made, further unrealised losses in this portfolio for the second half of 2008 of NOK 212 million would have been charged to the profit and loss account as a result of increased credit spreads. Earlier written down amounts relating to this part of the portfolio as at amounted to NOK 112 million and will now be booked as income over the remaining life of each individual item of securities. For the fourth quarter of 2008, such inclusion of income in the accounts amounted to NOK 10 million. The average life of the reclassified part of the portfolio is 2.6 years. Reference is also made to the relevant note in the quarterly accounts. The reclassified portfolio has been evaluated with regard to the need for any allowance for permanent impairment. As at , such write-down has been made in respect of two of the Bank s placements, involving a total amount of NOK 46 million. Operating costs Ordinary operating costs totalled NOK 971 million in 2008, up by NOK 9 million or 0.9 per cent on Personnel- and administration costs accounted for NOK 1 million of the overall increase in expenditure, operating costs relating to buildings and depreciation NOK 7 million, whereas other operating costs were up by NOK 1 million. In relation to average assets, this amounted to 1.58 per cent, down by 0.07 percentage points compared to the year before. As at , the overall cost ratio for the Group as a whole amounted to 59.0 per cent, up from 51.4 per cent in At the end of 2008, Group manning levels were equivalent to 821 man-years, of which the Parent Bank accounted for 724. Corresponding figures in 2007 were 813 and 722 respectively. In view of expected lower growth, cost-reducing measures have been implemented and will be continued during Net credit losses and commitments in default At the end of 2008, net loan losses for the Group as a whole amounted to NOK 183 million, of which increased collective write-downs and change of previously written off loans accounted for NOK 40 million. Net losses were made up of NOK 203 million from the corporate market and a reversal of NOK -20 million from the retail banking market. The increase in individual loss write-downs is to a large extent attributable to losses charged to the profit and loss account in respect of two individual commitments within the sectors of fish farming and fishing industry. The Bank 3/18

4 does not see much evidence of a weaker development within many industrial and commercial sectors or in the portfolio generally. In connection with the sale of parts of the Bank s portfolio of previously written off loans, an amount of NOK 38 million was booked as income in the profit and loss account in respect of recoveries of previous written off losses during the third quarter of Net commitments in default and bad and doubtful commitments at the end of the year totalled NOK 553 million, or 1.08 per cent of gross lending, involving an increase of NOK 125 million compared to Against the background of the downturn in the economy, the Group increased collective write-downs by NOK 34 million during the last quarter. Collective write-downs amounted to 0.4 per cent of the Group s aggregate net loans at the end of According to the main Board of Directors assessment, the quality in the Bank s lending portfolio remains good and good work is being done in connection with commitments in default and bad and doubtful commitments in the Group. However, as a result of weaker economic prospects nationally and internationally the Board of Directors expects a continued, increased level of credit losses compared to the very low level in recent years. Tax The Group s tax cost has been estimated at NOK 143 million for 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 taxation cost and NOK 7 million has accordingly been included in the profit and loss account as part of other operating costs. Comparable figures for 2007 have been corrected in accordance with this. In comparison with 2007, the increased tax cost as a percentage of the operating result before tax is primarily ascribable to the fact that losses on shares and the result from joint ventures not taxed in the Bank s accounts amount to a higher proportion of the Group s result. Total assets At the end of 2008, Group aggregate assets stood at NOK 65,507 million. During the last 12 months, the balance sheet expanded by NOK 4,538 million or 7.4 per cent. Loans Group gross lending to customers totalled NOK 51,268 million at the end of Compared to 2007, this involved an increase of 2.1 per cent. Retail banking loans expanded by 8.5 per cent, the corporate- and public sectors by 5.4 per cent. At the end of the year, house mortgage loans amounting to NOK 5,187 million had been transferred to SpareBank 1 Boligkreditt AS. Lending growth including these loans was 7.4 per cent. Including these transferred loans, the share of total loans made to retail banking customers was somewhat higher than at the end of the third quarter of 2008, accounting for 66 per cent of aggregate lending as at The global financial crisis, a falling rate of economic growth and a levelling out of/reduction in house prices have brought about lower lending growth. The period ahead is expected to be characterised by a weaker macro-economy with relatively weak growth in loans. The main Board of Directors nevertheless hopes to see lending growth and increased market shares. In the case of new loans, particular importance is attached to borrowers ability to repay and service their outstanding commitments, and to a satisfactory level of collateral and/or other security this in order to maintain the overall credit risk at an acceptable level. Deposits from customers, savings and placements For the Group as a whole, deposits from customers amounted to NOK 34,572 million as at During the last 12 months, deposits rose by NOK 2,538 million or 7.9 per cent. Deposits from the retail banking area increased by 9.9 per cent, whereas corporate- and public sector deposits were up by 4.8 and 8.5 per cent respectively. The global financial crisis has so far not resulted in the Bank losing customer deposits of any significance. Funding Deposits from customers represent the Bank s most important source of funding. At the end of the year, the overall deposit ratio was 67.4 per cent, up by 3.6 percentage points. In addition to equity and related capital and customer deposits, long-term loans from the capital markets are the Bank s most important source of funding. Although international financial markets remained unsettled during the fourth quarter of 2008 too, the Bank s access to funding has been good throughout the period. One of the Bank s targeted aims is to keep its overall funding risk at a low level. In view of its satisfactory liquidity situation, the Bank has only to an insignificant extent made use of the authorities arrangement for swapping preference bonds with government securities. It is expected that the Bank will participate in the arrangement in Basel II New capital adequacy rules and regulations (Basel II EU s new directive for capital adequacy) were introduced in Norway with effect from 1 January The new set of rules and regulations is based on a proposal for a new standard for capital adequacy calculations from Bank for International Settlements (BIS). SpareBank 1 Nord-Norge received permission from The Financial Supervisory Authority of Norway to use internal measuring methods (Internal Rating Based Approach) for credit risk from 1 January From 2007, therefore, the statutory minimum requirement for capital adequacy relating to credit risk has been based on the Bank s internal risk assessment. This makes the statutory minimum requirement for capital adequacy more risk-sensitive, which means that the capital requirement will to a larger extent correspond to the risk contained in the underlying portfolios. The use of internal measuring methods involves comprehensive 4/18

5 demands as far as the Bank s organisation, competence, risk models and risk management systems are concerned. 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 Equity capital and capital adequacy As at , the Group s capital adequacy ratio was per cent (10.00 per cent) of the statutory weighted asset calculation basis. The calculations in 2008 have been made in accordance with the transitional rules and regulations introduced by The Financial Supervisory Authority of Norway. The core capital coverage ratio was 9.06 per cent (8.92 per cent). At the end of 2008, the Parent Bank s capital adequacy ratio amounted to per cent (10.35 %), the core capital ratio being 9.61 per cent (9.06 %). The Bank s PCC-holders Following the completion of the NOK 102 million dividend issue during the spring of 2008, the Bank s PCC-capital totals NOK 896 million, made up of 17,912,073 certificates. After this, the new PCC ratio has been estimated at per cent. As at , the Bank had 8,371 PCC-holders, down by 198 during the last 12 months. The number of PCC-holders from Nord-Norge was 2,554 at the end of the quarter. Notes to the Accounts include a list of the Bank s 20 largest PCC-holders. The SpareBank 1 banks have acquired BNbank ASA The banks in the SpareBank 1 alliance have acquired all the shares in Glitnir Bank ASA now BNbank ASA for NOK 300 million. Until further notice, Glitnir Bank s operations will be continued with a head office in Trondheim. SpareBank 1 Nord-Norge s share of the acquisition is 20 per cent. Glitnir Bank has operations in Trondheim, Oslo, Aalesund and Fossnavaag. The Bank has 160 employees and an aggregate loan portfolio of NOK 47 billion. The subsidiary, Glitnir Factoring in Aalesund, with 26 staff, is also part of the acquisition. negative goodwill in connection with the acquisition of BNbank ASA. Negative goodwill will not be included in the Parent Bank s accounts. Negative goodwill is arrived at as the assessed value of BNbank ASA as at transaction date minus the acquisition cost. Concluding remarks future prospects The overall result for 2008 is affected by the unsettled financial markets, directly through the losses included in the Profit and Loss Account in respect of losses on the Bank s interest-bearing portfolio and share portfolio, and indirectly through SpareBank 1 Gruppen AS s contribution to the Bank s total results being significantly impaired in relation to 2007, largely for the same reasons. The Bank s core operations, however, were good throughout the year. The main Board of Directors is very pleased with the result from the Bank s core operations. The macro-economic situation is expected to become weaker in Norway and North Norway during the period ahead. This will bring about lower demand for credit, coupled with a continued high level of credit losses. In spite of this, the Bank will continue to emphasise the importance of balance sheet growth, both as far as deposits and loans are concerned, and every effort will continue to be made in order to increase other income (non-interest) through the sale of various products and services. As before, lending growth will at all times be subject to good loan quality. In view of expected weaker growth, the Bank will continue to focus strongly on cost-reducing measures. Tromso, 11 February 2009 The main Board of Directors of SpareBank 1 Nord-Norge An amount of NOK 415,4 million has been booked as income in the Group s profit and loss account in respect of 5/18

6 Key figures group Amounts in NOK million and in % of average assets % % % From the profit and loss account Net interest income % % % Net fee-,commission and other operating income % % % Net income from financial investments % % % Total income % % % Total costs % % % Profit before losses % % % Losses % % % Profit before tax % % % Tax % % % Minority interests % % % Profit for the period % % % Profitability Return on equity capital % 18.1 % 24.5 % Interest margin % 2.08 % 2.14 % Cost/income % 51.4 % 49.5 % 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 % 63.8 % 60.1 % Growth in loans and advances to customers past 12 months 2.1 % 8.6 % 11.0 % Growth in loans and advances to customers including SpareBank 1 Boligkreditt AS 7.4 % 13.6 % 11.1 % Growth in deposits from customers past 12 months 7.9 % 15.3 % 9.6 % Average assets Total assets Losses on loans and commitments in default Losses on loans to customers as a percentage of gross loans 0.36 % 0.03 % % Commitments in default as a percentage of gross loans 0.60 % 0.43 % 0.52 % Commitments at risk of loss as a percentage of gross loans 0.88 % 0.69 % 1.12 % Net commitments in default and at risk of loss as a percentage of gross loans 1.08 % 0.85 % 1.22 % Solidity Capital adequacy ratio % % % Core capital adequacy ratio % 8.92 % 9.77 % Core capital Equity and related capital resources Total risk-weighted assets base IRB 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) 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. 6/18

7 Profit and loss account Parent Bank Group (Amounts in NOK million) Q07 4Q Q08 4Q Interest income Interest costs Net interest income Fee- and commission income Fee- and commission costs Other operating income Net fee-,commission and other operating income Dividend Income from investments Net gain from investments in securities Net income from financial investments Total income Personnel costs General administration costs Ordinary depreciation Other operating costs Total costs Profit before losses Losses Profit before tax Tax Minority interests Profit for the period Allocation of profit for the period: Fund for Evaluation Differences Dividend Equalisation Fund Donations Saving Bank's Fund Total allocations Result per PCC - Premium Capital Certificates Result per PCC (Parent Bank)* Diluted result per PCC* *Result multiplied by PCCs' share of result, divided by average number of PCCs. SpareBank 1 Nord-Norge has not issued options or other financial instruments which can bring about dilution of the result/earnings per Primary Capital Certificate. 7/18

8 Balance sheet 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 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 Minority interests Total equity Total liabilities and equity /18

9 Result from the Group's quarterly accounts (Amounts in NOK million) 4Q08 3Q08 2Q08 1Q08 4Q07 3Q07 2Q07 1Q07 4Q06 3Q06 2Q06 1Q06 4Q05 Interest income Interest costs Net interest income Fee- and commission income Fee- and commission costs Other operating income Net fee-,commission and other operating income Dividend Income from investments Net gain from investments in securities Net income from financial investments Total income Personnel costs General administration costs Ordinary depreciation Other operating costs Total costs Profit before losses Losses Profit before tax Tax Minority interests Profit for the period Profitability Return on equity capital 9.18 % 5.98 % % 3.62 % % % % % % % % % % Interest margin 2.21 % 2.31 % 2.10 % 2.06 % 2.15 % 2.08 % 2.03 % 2.05 % 2.10 % 2.18 % 2.16 % 2.16 % 2.26 % Cost/income % % % % % % % % % % % % % Balance sheet figures Loans and advances to customers Deposits from customers Deposits as a percentage of gross lending 67.4 % 63.8 % 67.7 % 62.4 % 63.8 % 61.9 % 67.7 % 60.8 % 60.1 % 60.9 % 64.7 % 60.2 % 60.9 % Growth in loans and advances to customers including SpareBank 1 Boligkreditt AS 7.4 % 8.5 % 10.6 % 11.0 % 13.6 % 11.4 % 12.5 % 12.4 % 11.1 % 10.6 % 10.3 % 11.3 % 9.8 % Growth in deposits from customers past 12 months 7.9 % 6.1 % 4.3 % 7.3 % 15.3 % 9.0 % 14.4 % 13.6 % 9.6 % 7.2 % 11.2 % 9.2 % 10.2 % Average assets Total assets Losses on loans and commitments in default Losses on loans to customers as a percentage of gross loans 0.89 % 0.33 % 0.20 % 0.02 % 0.06 % 0.02 % 0.04 % 0.02 % % % 0.01 % % 0.23 % Commitments in default as a percentage of gross loans 0.60 % 0.55 % 0.32 % 0.34 % 0.43 % 0.32 % 0.38 % 0.42 % 0.52 % 0.47 % 0.75 % 0.57 % 0.60 % Commitments at risk of loss as a percentage of gross loans 0.88 % 0.93 % 0.95 % 0.75 % 0.69 % 0.84 % 0.96 % 0.97 % 1.12 % 1.34 % 1.38 % 1.56 % 1.71 % Net commitments in default and at risk of loss as a percentage of gross loans 1.08 % 1.11 % 0.98 % 0.85 % 0.85 % 0.83 % 0.97 % 1.01 % 1.22 % 1.30 % 1.59 % 1.51 % 1.68 % Solidity Capital adequacy ratio % % % % % 8.94 % 9.71 % % % 9.33 % % % % Core capital adequacy ratio 9.06 % 9.35 % 9.43 % 9.35 % 8.92 % 7.76 % 8.36 % 8.63 % 9.77 % 8.30 % 8.88 % 9.69 % 9.57 % Core capital Equity and related capital resources Total risk-weighted assets base IRB /18

10 Change in equity Parent Bank Group (Amounts in NOK million) Equity capital as at Implementation effects IFRS transition Profit for the period Dividend Dividend issue Other equity adjustments Changes in minority interests Equity at end of period PCC ratio overall Parent Bank (Amounts in NOK million) Calculated Re-calculated PCC ratio PCC ratio Primary Capital Certificates Premuim Fund Dividend Equalisation Fund Set aside dividend Share Fund Fair Value Options A. Equity attributable to PCC holders of the Bank Saving Bank's Fund Donations Share Fund Fair Value Options B. Total Saving Bank's Fund % % PCC Ratio overall (A/(A+B)) % The dividend issue became effective from April and are therefore weighted by 2/3 when adjusting calculated PCC ratio as at /18

11 Cash Flow Analysis Parent Bank Group (Amounts in NOK million) Profit 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. 11/18

12 Notes Note 1 - Accounting Principles The Group's quarterly accounts have been prepared in accordance with International Financial Reporting Standards (IFRS), including IAS 34 relating to interim reporting. In a resolution fram 2007, the Minstry of Finance gave its permission for the use of IFRS in Parent Bankaccounts involving interim reporting with effect from the second quarter of The Bank has chosen to apply IFRS to the Parent Bank's accounts from the first quarter of 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 has decided to apply such reclassification to large parts of its interest-bearing 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 in the 4th quarter accounts of The remaining portfolio of certificates and bonds is assessed at market value through the profit and loss account. Market value or actual value is the price at which an asset can be sold, or the price fixed for settling a liability item on the basis of a transaction at arm s length, between well informed and voluntary parties. 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). 12/18

13 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 The new rules and regulations are based on Bank for International Settlements (BIS) proposal for a new standard for capitaladequacy calculations. 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 , a 5 per cent annual reduction of the risk-adjusted calculation basis in relation to the old method (socalled correction of 'floor') is permitted. The calculation basis in 2008 therefore amounts to 90 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 Period result Deduction Fund for Evaluation Differences Deduction Fund for unrealised gains Deduction set aside dividend Perpetuan non-call bonds Deduction deffered tax Deduction subordinated capital in other financial institutions (50 %) Deduction adjusted expected amount lost (50 %) Core capital Subordinated loan capital Deduction subordinated capital in other financial institutions (50 %) Deduction adjusted expected amount lost (50 %) Core capital adequacy reserve Supplementary capital Equity and related capital resources Risk-weighted assets base Credit risk Settlement/Delivery risk Position,foreign exchange and commodity risks Operational risk Total risk-weighted assets base % Deduction subordinated capital in other financial institutions Deduction adjusted expected amount lost Core capital adequacy reserve Total risk-weighted assets base % Complements to overall floor Capital Requirements Total risk-weighted assets base IRB Risk-weighted assets base IRB in 2008 are 90 % of Basel-I assets base, in % 9.69 % 9.06 % 9.61 % Core capital adequacy ratio 9.06 % 8.92 % 9.77 % 0.73 % 1.29 % 1.28 % Supplementary capital adequacy ratio 1.50 % 1.08 % 0.59 % % % % Capital adequacy ratio % % % Note 3 -Net bad and doubtful commitments Non-performing commitments, not impaired 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 Effect of implementing IFRS/new lending rules and regulation 0 0 = 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 Effect of implementing IFRS/new lending rules and regulation = Collective write-downs for impaired value against losses on loans, and guarantees *Individual write-downs for impaired value on guarantees, NOK 2 million, are included in the Balance Sheet as liabilities under 'Provisions against liabilities'. 13/18

14 Parent Bank (Amounts in NOK million) Group Note 6 - Loans broken down by sector and industry Central government administration,social security administration Counties/municipalities Agriculture, forestry, fisheries, hunting and fish farming Production of crude oil and natural gas Industry and mining Building and construction, power and water supply Wholesale and retail trade; hotel and restaurant industry International shipping and pipeline transport Financing, property management and business services Transport and communication Other services Insurance, fund management and financial services Retail banking market Foreign sector retail Gross lending Note 7 - Losses broken down by sector and industry Central government administration,social security administration Counties/municipalities Agriculture, forestry, fisheries, hunting and fish farming Production of crude oil and natural gas Industry and mining Building and construction, power and water supply Wholesale and retail trade; hotel and restaurant industry International shipping and pipeline transport Financing, property management and business services Transport and communication Other services Insurance, fund management and financial services Retail banking market Foreign sector retail Non individual specific write-downs public market Collective write-downs public market Collective write-downs retail market Unallocated market Gross losses Recoveries from previously written off losses Net losses Note 8 - Deposits broken down by sector and industry Central government administration and social security administration Counties and municipalities Agriculture, forestry, fisheries, hunting and fish farming Production of crude oil and natural gas Industry and mining Building and construction, power and water supply Wholesale and retail trade; hotel and restaurant industry International shipping and pipeline transport Financing, property management and business services Transport and communication Insurance, fund management and financial services Other service industries Retail banking market Foreign retail banking market Deposits from customers /18

15 Note 9 - Subsidiaries (Amounts in NOK 1 000) Profit from ordinary operations after tax Equity Share of Eq.% SpareBank 1 Finans Nord-Norge AS SpareBank 1 Nord-Norge Invest AS Eiendomsdrift AS EiendomsMegler 1 Nord-Norge AS SpareBank 1 Nord-Norge Securities ASA Sparebanken Factoring BBL Eiendomsmegling AS Parent Bank Group Note 10 - Other assets Repossessed assets Accrued income Prepayments Other assets Total other assets Note 11 - Other liabilities Costs incurred Provisioning against incurred liabilities and costs Other liabilities Total other liabilities Note 12 - Investment in bonds As a result of today s extraordinary market conditions, parts of the Bank s ordinary securities portfolio have become illiquid. Following the changes in international accounting standards in October 2008 (see note 1), the SNN Group has decided to reclassify parts of the Bank s bond portfolio as at from the category Market value with inclusion of value changes over the profit and loss account to the categories Hold until maturity and Loans and claims as the securities in question are no longer expected to be sold before maturity. In the category Hold until maturity the Bank will include quoted securities, whereas unquoted securities will be put into the category of Loans and claims In the categories Hold to maturity and Loans and claims the securities are assessed at amortized cost according to the effective interest method. After the reclassification, the writedowns made earlier will be reversed over the portfolio s remaining life, which on average is 2.6 year, and included in the profit and loss account as interest income. For the third quarter of 2008, such inclusion of income amounts to NOK 8 million.if the reclassification had not been made, the Group would have charged NOK 97 million to the profit and loss account in the third quarter of 2008 due to increased credit spreads.it has not been deemed necessary to apply write-down due to the permanent impairment of value in this portfolio as at (Amounts in NOK million) Hold to maturity Book value Nominal value (nominal amount) Theoretical market value Loans and claims Book value Nominal value (nominal amount) Theoretical market value Total book value /18

16 Note 13 - Business Areas Management has made an assessment of which business areas are deemed reportable with respect to form of distribution, products and customers. The primary format of reporting takes as a starting point risk and yield profiles of various assets and reporting is divided into private customers (Retail Banking Market), business customers (Corporate and Public Market) and leasing. The bank's own investment activities are not a separately reportable segment and appear under the item "unallocated" together with activities which cannot be allocated to either private or business segments. Group (Amounts in NOK 1 000) Retail Banking MarketPublic Banking Market Leasing Unallocated Total Net interest income Net fee and commission income Other operating income Operating costs Profit before losses Losses Profit before income tax Loans and advances to customers Individual write-downs for impaired value on loans and advances to customers Collective write-downs for impaired value on loans and advances to customers Other assets Total assets per business area Lending to and deposits to customers Other liabilities and equity capital Total equity and liabilities per business area Net interest income Net fee and commission income Other operating income Operating costs Profit before losses Losses Profit before income tax Loans and advances to customers Individual write-downs for impaired value on loans and advances to customers Collective write-downs for impaired value on loans and advances to customers Other assets Total assets per business area Lending to and deposits to customers Other liabilities and equity capital Total equity and liabilities per business area /18

17 Note 14 - Primary Capital Certificates (PCCs) The 20 largest PCC holders as at Number Share of total PCC Holders of PCCs PCC Capital Pareto Aksjer Norge % Pareto Aktiv % Frank Mohn AS % MP Pensjon % Tonsenhagen Forretningssentrum A/S % JPMorgan Chase Bank - client account % Framo Development AS % Mellon Bank - client account % Sparebankstiftelsen DnB NOR % Karl Ditlefsen % Forsvarets Personellservice % SpareBank 1 SR-Bank Finans % Trond Mohn % Citibank N.A % Sparebanken Rogaland Pensjonskasse % State Street Bank and Trust % Olsen & Co s pensjonskasse % Terra Utbytte Verdipapirfond % Troms Kraft Invest A/S % Lærdal Finans A/S % TOTAL % Dividend policy SpareBank 1 Nord-Norge aims to produce profits which will provide the basis for offering a competitive rate of return on the Bank's PCC's. The level of dividend paid to PCC-holders will depend upon the annual profit made. The sum of the dividend paid and transfer made to the Dividend Equalisation Fund should reflect the PCC-holders share of the Bank's equity capital. As far as the split between the total cash dividend payment and transfer to the Dividend Equalisation Fund is concerned, the Bank will seek to give priority to achieving a high cash dividend share. When considering the split between these two elements, however, the Board of Directors will also take into consideration the Bank s equity capital situation. The bank will make transfers to/and from the Dividend Equalisation Fund in accordance with the level of profit for the year and currently applicable laws, rules and regulations Trading statistics N O K #NAVN? sep.07 oct. 07 nov.07 dec. 07 jan.08 feb.08 mar.08 apr.08 may.08 jun.08 jul.08 aug.08 sep.08 oct.08 nov.08 dec.08 Price trend NONG oct. 06 nov.06 dec. 06 jan.07 feb.07 mar.07 apr.07 may.07 jun.07 jul.07 aug.07 sep.07 oct.07 nov.07 dec.07 jan.08 feb.08 mar.08 apr.08 may.08 jun.08 jul.08 aug.08 sep.08 oct.08 nov.08 dec.08 17/18