Sparebanken Vest Boligkreditt AS

Transcription

1 EIENDOMSMEGLER VEST FRENDE FORSIKRING NORNE SECURITIES KYTE NÆRINGSMEGLING Sparebanken Vest Boligkreditt AS Annual Report 2009

2 Content Sparebanken Vest Boligkreditt AS 3 Annual Report Profit and loss account 6 Balance sheet 7 Statement of cash flows 8 Equity movements 8 Notes 9 Auditor s report 25 Photo p. 3: Layout/production:

3 Sparebanken Vest Boligkreditt AS Sparebanken Vest Boligkreditt AS is a wholly owned subsidiary of Sparebanken Vest. The company has a concession to operate as a financing company which can issue covered bonds whereby the investors have a preferential right to coverage of their bonds against the company s underlying cover pool. This cover pool consists of mortgaged home loans issued by Sparebanken Vest and which meet the company s requirements for loans that may be included in the cover pool. One of the main requirements is that the outstanding loan balance on each loan shall not exceed 75% of the market value of the mortgaged property. With a firmly rooted local presence, and a leading financial services group in the Western Norway, Sparebanken Vest offers a broad range of products to retail customers and the commercial sector in the region. As a dominating bank in the retail market, home loans are one of the Group s most important products. Mortgaged home loans form the basis for the bonds issued by Sparebanken Vest Boligkreditt AS. By covering its funding requirement through the issue of covered bonds, the Sparebanken Vest Group is able to offer its customers home mortgage loans on competitive terms. Bonds issued by Sparebanken Vest Boligkreditt AS provide investors with a very high level of security, and the bonds have been accorded the best rating from Moody s and Fitch Ratings. Information about the composition of the underlying asset pool and outstanding bonds can be accessed at: Boligkreditt.aspx Contact: Egil Mokleiv, Managing Director, tel Fredrik Skarsvåg, Risk Manager, tel Sparebanken Vest Boligkreditt AS Annual Report

4 Annual Report 2009 Operations in 2009 Sparebanken Vest Boligkreditt AS was established in 2008 and is a wholly owned subsidiary of Sparebanken Vest. The company has a concession to operate as a financing company which can issue covered bonds, whereby the investors have a preferential right to coverage of their bonds against the company s underlying cover pool. This cover pool consists mainly of mortgaged home loans issued by Sparebanken Vest and which meet the company s requirements for loans that may be included in the cover pool. One of the main requirements is that the outstanding loan balance on each loan shall not exceed 75% of the market value of the mortgaged property. In the course of 2009 Sparebanken Vest Boligkreditt AS took over home loans totalling NOK 6.9bn from Sparebanken Vest, and at year-end the home loan portfolio amounted to NOK 11.9bn. At the same time, the company had outstanding covered bonds totalling NOK 10.5bn. The winter of 2008/2009 was a very difficult period for financial institutions in terms of covering their financing requirements. The market virtually collapsed when confidence disappeared, and the result was what is described as a financial crisis. The Norwegian market was relatively better placed than was the case in most other countries, and it was to some extent possible to cover the financing requirements in the domestic market. However this could only be done at historically high margins. The scope for international funding was minimal. The authorities in most countries stepped in to save their banks with a variety of support measures, and in Norway this was mainly focused on a scheme whereby Norwegian covered bonds could be swapped for government securities. The swap scheme meant that banks which could provide covered bonds were able to use these securities to obtain long-term funding by exchanging them for Treasury bills which could be traded in the market relatively easily. Against this backdrop, the establishment of Sparebanken Vest Boligkreditt AS took place with optimal effect for the Sparebanken Vest Group. The parent bank was able to utilise the swap scheme by selling loans to the company, in exchange for which the company issued covered bonds which were purchased and used in the swap scheme by the parent bank. The rating agencies assessment of covered bonds is of decisive importance and greatly affects the scope for issues and funding terms. All of the covered bonds issued by Sparebanken Vest Boligkreditt AS have a top rating (AAA rating or the equivalent) from two rating agencies, Moody s Investor Service and Fitch Ratings. The company has established a EUR 5bn Covered Bond Programme. In May 2009 Sparebanken Vest Boligkreditt AS received permission from the Financial Supervisory Authority of Norway to apply the IRB method to calculate the company s capital. A two year extension of the transitional regulations for companies with IRB approval means that until further notice this will not lead to any lower formal capital adequacy requirements than previously. Nevertheless, application of the IRB method has resulted in improved risk and capital management, and in time it should enable the company to achieve more effective utilisation of capital. Accounting results The accounts for 2009 show a profit of NOK 50.8m after tax and write-downs of loan groups. With interest income etc.of NOK 383.9m, and interest costs etc. of NOK 292.5m, the net interst and credit commissions was NOK 91.5m. With additional net other operating income of NOK 0.2m, net operating income totalled NOK 91.7m. Total operating expences was NOK 21.3m, including depreciations of NOK 1m, giving a profit before write-downs and tax of NOK 70.4m. After writing back NOK 0.1m related to previous write-downs of loan groups and tax provisioning of NOK 19.8m, the net profit after tax was NOK 50.8m. This corresponds to a return on equity of 10.9% after tax. At year-end the company had total assets of NOK 12.3bn, of which net lendings accounted for NOK 11.9bn. The loan portfolio is funded through the issue of bonds with a nominal value of NOK 10.5bn, and short-term funding of NOK 1. 3bn from Sparebanken Vest. At year-end, the capital ratio stood at 9.15%, calculated on the basis of the transitional rules for IRB-approved enterprises, and consisted entirely of core capital. If the company had implemented the full IRB effect, the capital ratio would have been 41.36%. The annual accounts are submitted on the assumption that the company will continue its operations. Risk Under the legislation and regulations governing enterprises with a concession to issue covered bonds, all types of risk are required to be at a low level. The Board attaches great importance on risk management by identifying, measuring and managing different risk elements in such a way that it enjoys confidence in the market and is able to maintain the high rating of the bonds that it issues. Credit risk The credit risk is defined as the risk that loan customers or counterparties do not meet their commitments to Sparebanken Vest Boligkreditt AS. The company s credit approval regulations set parameters for the loans that may be given as well as stipulating the requirements to be met by borrowers and loan security that can be acquired by the company. Under the classification system used by the company only the best risk classes can be included in the company s cover pool. At the end of 2009 the company held a home loan portfolio totalling NOK 11.9bn. At year-end, the overall balance on the portfolio of acquired loans corresponded to 50.4% of the objective value assessment of the mortgaged home properties. At year-end, one loan of NOK 0.9m was in default. The Board consider the quality of the loan portfolio to be very good and the credit risk low. Market risk The market risk is defined as the risk of economic loss as a result of changes in observable market variables such as interest and exchange rates and the price of financial instruments. Sparebanken Vest Boligkreditt AS shall have a low market risk and parameters are approved by the Board for the maximum interest and exchange rate risk to which the company may be exposed. 4 Sparebanken Vest Boligkreditt AS Annual Report 2009

5 The company will use financial derivatives to keep risk of this kind at a low level. All of the company s home loans run at a variable rate of interest which can be adjusted with six weeks notice to the customers. At the end of 2009 the company only had outstanding bonds denominated in Norwegian kroner and which run at floating interest rates based on 3-month NIBOR. The company only has investments in Norwegian kroner which run at floating interest rates. The overall interest rate risk is considered to be low. At year-end 2009 the company held no positions in foreign currency and was therefore not exposed to any exchange rate risk. The Board considers the overall market risk to be low. Liquidity risk This is the risk that the company will not be able either to refinance its requirements on maturity or to finance its assets on market terms. Sparebanken Vest Boligkreditt AS issues soft bullet bonds that it is entitled to extend the maturity by up to 12 months in the event that the company has difficulty arranging refinancing on normal maturity. In addition, the company has a credit facility with Sparebanken Vest whereby the bank undertakes to provide liquid support to ensure that the company effects timely settlement of outstanding bonds and related derivatives. Sparebanken Vest also provides the company s short-term financing. The Board considers the liquidity risk to be low. Operational risk This is risk of losses as a result of mistakes and irregularities in the management of transactions, a lack of internal control or irregularities in the systems used. The company has established a agreement with Sparebanken Vest covering management, production and IT operations, as well as accounting and risk management services. Under the agreement, the parent bank bears the risk for any defects related to the deliveries and services to be provided. The operational risk is assessed on an ongoing basis and any non-conformance is reported to the Board by company s internal audit section. The Board considers the operational risk to be low. It is the view of the Board that the company s overall risk exposure is low. Employees and working environment In the period up to October 2009 Sparebanken Vest Boligkreditt AS had two employees, the manager director and the risk manager (both men). From 1 October, the managing director was employed by Sparebanken Vest and hired back as the general manager of Sparebanken Vest Boligkreditt AS. The bulk of the company s production is carried out by various departments of Sparebanken Vest based on agreements between the company and the parent bank. The working environment is considered to be good, and it is the view of the Board that the company s activities do not pollute the external environment. The Board comprises four members, two of whom are women. Outlook The market for the issue of covered bonds normalised in the second half of 2009, in Norway and internationally. New bond issues are targeted at investors in both Norway and the international market. In the period ahead it will therefore be important to have a concentrated focus on marketing the company in order to promote the marketability of the company s bond issues. In order to issue new covered bonds, Sparebanken Vest Boligkreditt AS will have to purchase further portfolios of home loans from the parent bank. It may also be taken steps to enable the company to grant loans directly. The company s activities, in addition to further strengthening the Sparebanken Vest Group s position as a provider of home loans on competitive terms, are also expected to be profitable for the owner in a market characterised by intense competition. The expected volume development will make it necessary to increase the company s capital base as it has been decided that the transitional rules governing the capital adequacy of IRB-approved enterprises are to be maintained. Allocations The profit for the year ending 31 December 2009 was NOK 70.4m, before tax. The Board proposes that group contribution of NOK 70m be made to Sparebanken Vest for The Board has assessed the group contribution as reasonable given that the parent bank will increase the capital base in the company when needed. Bergen, 31 December 2009/03 February 2010 The Board of Directors of Sparebanken Vest Boligkreditt AS Knut Ravnå, Chairman pål Pedersen, Deputy Chairman Inga Lise Moldestad Vibeke Knudsen Egil Mokleiv, CEO Sparebanken Vest Boligkreditt AS Annual Report

6 Profit and loss account Note Interest income etc Interest expenses etc Net interest income and credit commissions Commissions receivable and income from banking services 37 2 Commissions payable and cost of banking services Other operating income Net other operating income Net operating income Salaries and general administration expenses Depreciation Other operating expenses Total operating expenses Profit before write-downs and tax Write-downs and losses on loans and guarantees Profit before tax Taxes Profit after tax Profit per share Diluted profit per share Comprehensive income statement according to IAS 1) Profit for the period Comprehensive income for the period ) The table is adjusted in accordance with revised IAS from 1th January See Note 1 Accounting principles 6 Sparebanken Vest Boligkreditt AS Annual Report 2009

7 Balance sheet Assets Note 31/ /12-08 Loans to and deposits with credit institutions Net lendings Other intangible assets Accrued income 94 0 Total assets Liabilities and equity Loans to and deposits with credit institutions Securitised debt Accrued expenses and prepaid income Pension commitments Deferred tax Tax provision Other liabilities Total liabilities Equity Total paid-up equity Other equity Total equity Total liabilities and equity Bergen, 31 December 2009/03 February 2010 The Board of Directors of Sparebanken Vest Boligkreditt AS Knut Ravnå, Chairman pål Pedersen, Deputy Chairman Inga Lise Moldestad Vibeke Knudsen Egil Mokleiv, CEO Sparebanken Vest Boligkreditt AS Annual Report

8 Statement of cash flows Cash flows from operations Interest, commissions and fee income Interest, commissions and fees paid Payments for goods and services Payments to employees, pension schemes, national insurance, tax deductions etc Payment of taxes and public dues Payments on interest to credit inststiturions and securitised debt Net cash flow from operations Cash flows from investment activities Net growth in lendings Payments related to purchase of fixed assets Net cash flow from investment activities Cash flows from financing activities Net payments/revenues on loans to and receivables from other financial institutions Net revenues/payments on deposits from Norges Bank and other financial institutions Income related to bond debt Payments related to bond debt Payment of group contributions Net cash flow from financing activities Net cash flow in period Net change in cash and cash equivalents Liquid assets at 1 January Liquid assets at 31 December Equity movements Equity Other equity Sum Equity at 1 January Established Capital increase Profit for the year Equity at 31 December Profit for the year Group contribution Equity at 31 December Equity consitiutes shares with face value NOK 1000, wholly owned by SPV 8 Sparebanken Vest Boligkreditt AS Annual Report 2009

9 Notes Note 1 GENERAL The Sparebanken Vest Group comprises Sparebanken Vest, Sparebanken Vest Boligkreditt AS, Eiendomsmegler Vest AS and Filialbygg AS, with all subsidiaries and associated companies. Sparebanken Vest was established in 1823 as Bergens Sparebank. With founding capital in the form of tradable primary capital certificates, the bank has been listed on the Oslo Stock Exchange since 4 January The bank is located in the counties of Hordaland, Sogn & Fjordane and Rogaland, and the head office is in Bergen. The head office address is: Kaigaten 4, NO-5016 Bergen. The consolidated accounts for Sparebenken Vest 2008 were considered and adopted by the Corporate Assembly on 12 March All amounts in the accounts and the notes to the accounts are stated in NOK million, unless stated otherwise. The individual notes refer to both the parent bank and the Group, unless stated otherwise. ACCOUNTING PRINCIPLES The consolidated accounts are prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the EU and published by the International Accounting Standards Board (IASB), and which were compulsory at 31 December With effect from and including 2007 the company accounts have been prepared in accordance with simplified IFRS, except for the posting of dividends, group contributions and other allocations related to the accounting result for the year. The company accounts the proposed dividend and gifts for allocation are posted in they year which provides the basis for the allocation. With the implementation of IFRS, the bank has applied assumptions which affect estimates of assets, liabilities, income, costs and information related to contingent liabilities. Future events may lead to changes in these assumptions. The effect of these changes will be reflected in the accounts when the new estimates can be determined with sufficient certainty. Changes to published standards effective in 2008 ias 39 Financial instruments: Recognition and measurement and IFRS 7 Financial instruments disclosures, permits an entity to reclassify financial assets out of the target categories at fair value with value change through profit or loss and available for sate to other target categories for financial assets. Sparebanken Vest has not availed itself of this scope for reclassification. ifric 14, IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction gives guidance on the valuation of the amount of a pension plan surplus that can be recognised as an asset in the balance sheet in conformity with IAS 19. It also explains how pension fund assets or pension fund liabilities can be affected by statutory or contractual minimum funding requirements. This interpretation has no effect on the consolidated accounts as the Group has a net pension liability and is not subject to a minimum funding requirement. ifric 11, IFRS 2 Group and treasury share transactions gives guidance as to whether share-based transactions involving an entity s own shares or shares in group companies are to be recognised as having been settled with equity instruments or cash in the company accounts of the parent company and in each group company. This interpretation has no effect on the consolidated accounts. The Group has chosen to give early application of the following standards and amendments IFRS 8 Operating segments replaces IAS 14 Segment reporting. The new standard requires the participation of a chief operating decision maker to ensure that the segment information is presented in the same way as internal reporting. This has resulted in an increase in the number of segments presented. Standards, interpretations and amendments which took effect in 2008 which are not relevant for the Group IFRIC 12, Service concession arrangements Standards, amendments and interpretations of existing standards which have not taken effect and where the Group has not chosen early application IFRS 2 (amended), Share-based payment IFRS 3 (revised), Business combination ifrs 5 (amended), Non-current assets held-for sale and discontinued operations IAS 1 (revised), Presentation of financial statements IAS 19 (amended), Employee benefits IAS 23 (amended), Borrowing costs ias 27 (revised), Consolidated and separate financial statements IAS 28 (amended), Investments in associates ias 32 (amended), Financial instruments: Presentation and IAS 1 (amended), Presentation of financial statements Puttable financial instruments and obligations arising on liquidation IAS 36 (amended), Impairment of assets IAS 38 (amended), Intangible assets ias 39 (amended), Financial instruments: Recognition and measurement Interpretations and amendments of existing standards which have not taken effect and which are not relevant for the Group IAS 16 (amended), Property, plant and equipment ias 20 (amended), Accounting for government grants and disclosure of government assistance ias 27 (amended), Consolidated and separate financial statements IAS 28 (amended), Investments in associates ias 29 (amended), Financial reporting in hyperinflationary economies Sparebanken Vest Boligkreditt AS Annual Report

10 IAS 31 (amended), Interests in joint ventures IAS 38 (amended), Intangible assets IAS 40 (amended), Investment property IAS 41 (amended), Agriculture IFRIC 13 Customer loyalty programmes IFRIC 15 Agreements for construction of real estates RECORDING OF INTEREST AND FEES Interest is included in the profit and loss account applying the effective interest rate method. This entails ongoing recognition of nominal interest income and amortisation of establishment fees less direct establishment costs. The recording of interest based on the effective interest rate method is used for balance sheet items valued at amortised cost as well as balance sheet items valued at fair value through profit or loss. Fees that are direct payment for services rendered are taken to income when paid. Loan establishment fees which exceed the direct external cost of establishing the loan are amortised over the expected lifetime of the loan. CONSOLIDATION The consolidated accounts comprise the parent bank and subsidiaries where the parent bank is able to control the company s operations. This is normally the case where the parent bank directly or indirectly owns more than 50% of the shares. The consolidated accounts are prepared applying uniform accounting principles. Subsidiaries are incorporated based on IFRS and all internal transactions and intercompany accounts payable and receivable are eliminated. On the acquisition of subsidiaries the cost price of the shareholding in the parent company is eliminated against the equity of the subsidiary at the date of acquisition. The difference between the cost price and the net book value is added to the assets/liabilities to which the surplus value relates. Any part of the cost price that cannot be added to identifiable assets and liabilities represents goodwill. Investments in subsidiaries are recorded in the company accounts applying the cost method. ASSOCIATED COMPANIES An associated company is a unit in the Group has considerable influence, but not control. A considerable influence is deemed to exist in relation to investments when the Group owns between 20% and 50% of the voting capital. For accounting purposes, investments in associated companies are recorded in the consolidated accounts applying the equity method and in the company accounts applying the cost method. At the date of purchase the investment is posted at acquisition cost. SEGMENT INFORMATION The Group s activities are divided into segments : banking activities in the Retail Market (RM), the Corporate Market (CM), and the Capital Market (Cap. M) as well as estate agency activities within the Group. The bank s investments and related depreciation charges are not divided by segment but are part of the figure described as Unallocated by segment. FINANCIAL ASSETS Financial assets are valued in accordance with IAS 39, and the presentation is in accordance with IFRS 7. Value changes in the period are posted in the profit and loss account, except for value changes related to financial assets that are available for sale which are posted against the reserve for unrealised valuation variances (equity). The date of the agreement has been chosen as the accounting date. Financial assets stated at fair value through profit or loss This category has two subcategories: financial assets held for trading purposes and financial assets initially classified at fair value through profit or loss. This is where we have classified shares and interest rate securities purchased for profit-taking, or of such a nature that a sale would be considered if a good offer was received. Financial assets which are stated at fair value through profit or loss are posted at fair value on acquisition and the transaction costs are charge against profits. Financial assets initially classified at fair value through profit or loss are recognised in the balance sheet at fair value as this method of valuation eliminates or to a large extent reduces inconsistent measurement and calculation that would otherwise have arisen with the measurement of assets or the calculation of capital gains/losses based on different assumptions. Accordingly, the effect of value changes on financial instruments which are managed as a single item is at the same time reflected in the accounts. Financial assets initially classified at fair value through profit or loss includes fixed-interest loans as well as commercial paper and bonds at fixed rates. Financial assets available for sale Financial assets available for sale are non-derivative financial assets which are assigned to this category or which are not classified in any other category. The Group has shareholdings classified in this category. Financial assets available for sale are initially recognised in the balance sheet at fair value plus transaction costs. Financial assets available for sale and financial assets recognised at fair value through profit or loss are recognised at fair value after the first-time entry in the balance sheet. The fair value of listed investments is based on the market price at yearend. In the case of unlisted securities where there is no active market, the Group applies assessment techniques to determine fair value. These techniques are based on the last issue price, traded prices known to us and discounted cash flows. In the case of securities where there is no turnover, the value is based on available accounting information, mainly in order to assess the need to write down the item or write up its value because of any obvious value appreciation. Financial assets are removed from the balance sheet when the right to receive cash flows from the investment terminates or is transferred on realisation. Realised gains/losses and changes in assessed values of financial assets stated at fair value through profit or loss, including dividends, are posted in the accounts under Net gain/loss(-) on financial instruments in the period when they arise. Changes in the value of equity instruments classified as available for sale are posted directly against equity. When securities classified as available for sale are sold or written down, the aggregate value regulation that has been posted against equity is posted in the profit and loss account as a profit or loss on investments in securities. Dividends from shares classified as available for sale are posted in the profit and loss account when the Group s right to the dividend has been established. Loans and accounts receivable Loans and accounts receivable are non-derivative financial assets with fixed or determinable payments and which are not 10 Sparebanken Vest Boligkreditt AS Annual Report 2009

11 traded in an active market. Loans and receivables in the balance sheet comprise floating-rate loans, fixed-rate loans and loans with a built-in derivative. Floating rate loans Loan are initially recognised at fair value plus direct transaction costs. In periods after the initial valuation assessment, loans are recognised at amortised cost based on the effective interest rate method, as an expression of the fair value of the loan. If there is objective evidence of a decline in the value of an individual loan or groups of loans, the loans are written down. The amount of the write-down is calculated as the difference between the balance sheet value and the present value of future cash flows, based on the expected lifetime of the loan. Write-downs are classified as a chargeable cost. Interest income is taken to income on the basis of the effective interest rate method. In respect of commitments with individually determined write-downs, the effective interest rate is locked in cases where a) the loan is not in default, or b) the changed rate is regardless of the fact that the loan is in default and the interest rate change affects the expected cash flow. Fixed rate loans and loans with a built-in derivative Fixed rate loans and loans with a built-in derivative are stated at fair value. The fair value of fixed-rate loans is calculated by discounting the loan cash flow using the required rate of return derived from the zero coupon curve, including the effect of the credit spread. Derivatives A derivative is a financial instrument with all of the following characteristics: the value of the instrument changes as a result of a change in the interest rate, the exchange rate or the price of the underlying object the instrument requires no or little initial investment the profit or loss on the instrument is determined at a future date. Derivatives are recognised in the balance sheet at fair value when the derivative contract is made, and thereafter on a fair value basis. Derivatives in the balance sheet include forward foreign exchange transactions, forward rate agreements, interest rate swaps, foreign currency interest rate swaps, interest rate options and share options (linked to bank deposits with a stock exchange return). Realised and unrealised gains/profits on changes in the assessed value of derivatives are posted under Net gain on financial instruments in the period when they arise. FOREIGN EXCHANGE Receivables and accounts payable denominated in foreign currency are translated at the middle rate on the Oslo Stock Exchange at year-end. Income and expenses denominated in foreign currency are translated into Norwegian kroner at the rates prevailing on the date of the transaction. Foreign exchange items are mainly hedged by matching them against corresponding items on the other side of the balance sheet, or through off-balance sheet hedging items. FIXED ASSETS All of the Group s properties are considered to be operating assets for own use and the accounting treatment is in accordance with IAS 16. Group properties are initially stated at historical cost less depreciation over their expected lifetime. We have used the fair value option as the new cost price on implementation of IAS 16. As a result, new prices for separated items such as lifts, equipment and ventilation plant have been used along with external valuations of the buildings. Surplus values on the aforementioned basis are included in the acquisition cost. Where there has been a decline in the market value, the item in question is required to be written down and the effect is posted in the profit and loss account. Fixed assets are stated at acquisition cost less accumulated ordinary depreciation. Ordinary depreciation is based on the cost price and depreciation is on a straight line basis over the lifetime of the asset. The depreciation period and method is assessed each year to ensure that the method and the period used are in line with the economic reality pertaining to the asset in question. The ordinary depreciation charge for the year is included in operating expenses for the year. INTANGIBLE ASSETS Developed software Software that has been developed is posted in the balance sheet under intangible assets when the amounts involved are deemed to be material and the items are expected to have lasting value. In the development of software, costs related to use of own resources, pre-planning, implementation and training are charged in the profit and loss account. Software that has been developed by the bank and posted in the balance sheet is depreciated over its expected lifetime. There is continuous assessment of the need for write-downs where the expected economic benefits are less than the balance sheet value. Goodwill Goodwill is the difference between the cost price of an acquisition and the fair value of the Group s share of net identifiable assets of the business on the date of acquisition. Each year goodwill is tested for possible value depreciation and is posted in the balance sheet at acquisition cost less writedowns. Customer portfolio The value of the customer portfolio is part of the cost price of acquisitions. The value is set as the future cash flow and disregarding the customer s right to renewal. The customer portfolio is depreciated on a straight -line basis over the expected remaining contract period. FINANCIAL LIABILITIES Financial liabilities at a floating rate are stated at amortised cost. Amortised cost is defined as the initial amount of the instrument recognised in the accounts (cost price) less repayments of principal, with an addition or deduction for accumulated amortisation of all differences between cost price and the nominal amount, less all write-downs. Amortisation is based on the effective interest rate method. Financial liabilities at a fixed rate of interest are recognised in the balance sheet at fair value. This applies to debt to credit institutions, securitised debt bond debt and perpetual subordinated loans. In the case of indexed bonds and deposits, the derivative is separated from the main contract and posted separately. Bonds and deposits are recognised at fair value and the option is classified and posted in the balance sheet among other derivatives. Sparebanken Vest Boligkreditt AS Annual Report

12 Financial liabilities at a fixed rate of interest are recognised in the balance sheet at fair value as this method of valuation eliminates or to a large extent reduces inconsistent measurement and calculation that would otherwise have arisen with the measurement of the liability or the calculation of capital gains/losses based on different assumptions. Accordingly, the effect of value changes on financial instruments which are managed as a single item is at the same time reflected in the accounts. Fair value is calculated by discounting the loan cash flow using the required rate of return derived from the zero coupon curve. The credit spread on interest-earning securities is changed on the basis of an overall assessment which takes account of observed turnover in the market, credit margin reports from various brokers, and internal evaluations. A change in the credit spread will affect the required rate of return as the supplement attached to the zero coupon curve will be changed. When the bank buys back its own securities, the difference between the balance sheet value and the consideration paid is posted as Net gain/(loss) on financial instruments. The buyback of securities issued by the bank is netted against securities debt in the balance sheet. IMPORTANT ASSESSMENTS MADE IN RELATION TO THE GROUP S ACCOUNTING PRINCIPLES In applying accounting principles related to certain IFRS accounting standards, the Group makes evaluations based on its own judgement. Estimates and assumptions represent a considerable risk of major changes in the balance sheet value of assets and liabilities, the most important of which are discussed below. Impairment of goodwill Goodwill in the balance sheet is not amortised. On reporting dates it is considered whether there is objective evidence to indicate any impairment of goodwill. If such evidence exists, a write-down test is carried out. All assessment units are tested annually to verify that values are still intact. The choice of assessment unit is made on the basis of whether it is possible to identify and separate cash flows related to the activity in question. Future cash flows are determined on the basis of historical results and budgets. The required rate of return / discount rate is based on an assessment of what the required rate of return is in the market for the type of activity that is included in the assessment unit. The required rate of return reflects the risk attached to the activity. Fair value of financial instruments, including derivatives The fair value of financial instruments that are not traded in an active market is determined by using various valuation techniques. Reference is made to the note on financial assets and commitments, and to the statement on accounting principles and the description of techniques used. Loan write-downs All commitments which are subject to an individual valuation shall be assessed to determine whether there is objective evidence showing that a loss event has occurred and that the loss event has reduced the estimated future cash flows from the loan. If there is objective evidence of loan impairment, the loan loss is calculated as the difference between the balance sheet value (loan principal + accrued interest at the date of valuation) and the present value of future cash flows discounted taking account of the effective rate of interest and the expected lifetime of the loan. In estimating future cash flows, account is only taken of the credit loss caused by the loss events which have arisen. The estimation of future cash flows from a loan also takes account of loan security which is taken over and sold, including costs in this connection. The need to write down the loan (the loss being booked against the customer s loan) is determined when all security has been realised and it is certain that no further payments will be received on the loan. The claim on the customer remains and will be followed up, unless it has been agreed with the customer that the loan is to be waived. Pension commitments The net present value of pension commitments depends on current economic and actuarial assumptions. Any change made to these assumptions affects the pension commitment amount recorded in the balance sheet and the pension expense. The calculation is based on guidelines on assumptions issued by the Norwegian Accounting Foundation. TAXATION Deferred tax and deferred tax assets are stated in the balance sheet in accordance with IAS 12 Deferred Tax. The tax charge in the profit and loss account includes both the tax payable for the period and the change in deferred tax. Deferred tax/deferred tax assets are calculated at a tax rate of 28% on the basis of timing differences between values for accounting and taxation purposes at year-end. Taxable and tax-deductible timing differences which are reversed or can be reversed within the same time interval are netted against each other and entered net. Deferred tax assets are posted in the balance sheet on the basis of expectations of taxable income through earnings in future years. Tax payable in the balance sheet relates to the tax on the profit for the year, tax payable on capital assets, and tax linked to the group contribution received. PENSION COMMITMENTS Pension commitments are calculated in accordance with IAS 19. Economic assumptions used to calculate the pension commitments are updated at year-end, including the discount rate which is based on year-end market rates. IAS 19 permits the effect of divergence between estimated and actual assumptions to be entered in a corridor. Deviations from estimates and assumptions are measured against the larger of gross pension commitments and total pension fund assets. If the deviations exceed 10% of the basis of measurement, the difference is amortised over the average remaining period of service. The bank s net pension commitments are calculated and posted as a long-term liability in the accounts. Net pension commitments are the difference between gross pension commitments (the present value of expected future pensions) and the balance on pension funds assets in the insurance fund and the pension premium fund. The figure for net pension commitments corrected for deviations from estimates and changes in pension assumptions, including employer s national 12 Sparebanken Vest Boligkreditt AS Annual Report 2009

13 insurance contributions, appears in the balance sheet. The pension charge for the year is stated net in the profit and loss account under «Salaries and general administration expenses». COMMITMENTS / PROVISIONS A provision for commitments has been made in accordance with IAS 37. The provision meets the requirement that a commitment exists as a result of a previous event, and there is a high probability that the commitment will have to be met. The provision has been calculated as the present value of future payments required to meet the commitment. The proposed dividend and gifts for distribution had not been formally decided at year-end and thus do not meet the criteria for what constitutes a commitment under IAS 37. In the company accounts, dividends and gifts are posted in the financial year which provides the basis for the allocation. POST BALANCE-SHEET EVENTS Events after the balance sheet date are disclosed in accordance with IAS 10. The information relates to events which are not included in the consolidated financial accounts, but which are of such a kind that they are material for an assessment of the business. STATEMENT OF CASH FLOWS The statement of cash flows is prepared on the basis of gross cash flows from operations, investment and financing activities. Cash flows from other securities transactions, as well as the issue and repayment of subordinated loans, bond debt and equity are defined as financing activities. EQUITY Equity consists of paid up PCC capital, the PCC premium reserve, own holdings of PCCs, the equalisation reserve, the Sparebanken capital fund, the gift fund and the reserve for valuation variances. When the bank purchases its own PCCs, the purchase price, including direct costs, is posted as a reduction of equity. The nominal value of the bank s own holdings of PCCs is posted as a reduction of paid up equity, while the remainder is posted as a reduction of retained earnings. The reserve for valuation variances relates to changes in the value of financial assets classified as available for sale. In the parent bank, the reserve for valuation variances also includes changes in the value of financial assets where the principles used for value determination in IFRS diverge from the principles set out in Good Accounting Practice. In accordance with the regulations governing primary capital certificates, the basis for payment of dividends and gifts is limited to the profit for the year. In the consolidated accounts, the proposed dividend and gifts for distribution are classified as part of equity until the final resolutions have been adopted by the Corporate Assembly. Cash flows from operations are defined as ongoing interest related to customer borrowings and deposits, net receipts/ payments related to lending and deposit activities, and payments related to the cost of ordinary operations. Investment activities are defined as cash flows from securities transactions apart from the trading portfolio, as well as purchases of fixed assets and real estate. Sparebanken Vest Boligkreditt AS Annual Report

14 Note 2 Segments profit and loss account Result Corporate Market Retail Market Unallocated segment 2009 Net interest income Operating income Operating expenses Losses Pre-tax profit Taxes Profit after tax Total 2008 Net interest income Operating income -8-8 Operating expenses Losses Pre-tax profit Taxes Profit after tax Balance Sheet 31/12-09 Net lendings Other assets Other liabilities and equity /12-08 Net lendings Other assets Other liabilities and equity Note 3 Net interest income and credit commissions Interest etc. on loans to and deposits with credit institutions Interest etc. on loans to and receivables from customers: - stated at amortised cost stated at fair value Total Interest etc. on loans from credit institutions Interest etc. on securities issued Other interest costs and commissions 11 0 Interest costs Net interest income and credit commissions Sparebanken Vest Boligkreditt AS Annual Report 2009

15 Note 4 Salaries and general administration expenses Salaries Pensions 1) Social security contributions Administration expenses Salaries and general administration expenses ) See note 13 The average number of employees in 2009 was 1,75. Senior employees CEO Salary/ fees Additional fees Pension Egil Mokleiv 2) Board of directors Knut Ravnå, Chairman 75 Pål Pedersen, Deputy Chairman 50 Inga Lise Moldestad 50 Vibeke Knudsen 50 Total Board fees and additional fees for participation in committees is pursuant to a resolution of the Corporate Assembly. 2) CEO Egil Mokleiv was employed in the company until 30th September Mokleiv is now hired from Sparebanken Vest. Note 5 Operating expenses Ordinary depriciations of fixed assets Depriciations Fixed assets charged agaist income Other operating expenses Total operating expenses Fee to elected auditor (NOK 1 000) Audit fee Establishment and increase of capital 0 75 Assistance Covered Bond Programme Total Sparebanken Vest Boligkreditt AS Annual Report

16 Note 6 Taxes Tax charge for the year Tax payable Change in deferred tax Tax charge for the year Pre-tax profit % tax on pre-tax profits Non-deductable costs 9 1 Tax charge Effective rate of tax 28 % 28 % Deferred tax assets in the profit and loss account relates the following timing differences: 31/ /12-08 Pension commitments 0 29 Total deferred tax assets 0 29 Change in deferred tax assets in the balance sheet: 31/ /12-08 Balance sheet value (deferred tax assets) at 1 January Posted in profit and loss account Timing difference group contribution Balance sheet value at 31 December The calculation of deferred tax /deferred tax assets is based on the timing differences between accounting and taxation values at year-end and the tax loss to be carried forward. Deferred tax liabilities in the profit and loss account relates the following timing differences: 31/ /12-08 Group contribution Total deferred tax liabilities Net deferred tax Note 7 Classification of financial instruments 31/ /12-08 Assets Balance sheet value Adjustment to fair value Balance sheet value Adjustment to fair value Loans to and deposits with credit institutions Customer loans at fair value Customer loans at amortised cost Loans Total Liabilities Debt to credit institutions at amortised cost Securitised debt at amortised cost Total Sparebanken Vest Boligkreditt AS Annual Report 2009

17 Note 8 Loans 31/ /12-08 Distribution of loans by sector - nominal amount of loan principal Overdraft facilities Instalment loans Gross loans to customers Individual loan write-downs 0 0 Loans to customers after individual write-downs Write-down of loan groups Loans to and receivables from customers at amortised cost Market distribution of loans Wage earners Corporate Gross loans and receivables Write-down of loan groups Loans to and receivables from customers Write-downs and losses Change in individual write-downs in period 0 0 Change in loan group write-downs in period Write-downs and loan losses Realised losses on loans covered by previous write-downs 0 0 Realised losses on guarantees not covered by previous loss provisions 0 0 Realised losses 0 0 Defaulted commitments Defaulted commitments days days 0 0 Over 90 days 0 0 Total Geographic distribution of loans 31/12-09 Proportion Loans Write-down Hordaland 91, Sogn og Fjordane 6, Rogaland 1, Sum Norway 100, Abroad 0, Sum 100, /12-08 Proportion Loans Write-down Hordaland 91, Sogn og Fjordane 6, Rogaland 1, Sum Norway 100, Abroad 0,0 0 Sum 100, Sparebanken Vest Boligkreditt AS Annual Report