Sparebanken Vest Report for the third quarter 2010

Transcription

1 Sparebanken Vest - tredje kvartal 2010 Sparebanken Vest Report for the third quarter 2010 Key developments Improved profit performance and greater market shares for deposits and lendings Growth in nominal net interest and good position for further growth Low write-downs Meets new capital requirements (Basel III) by a good margin New online banking solution as a platform for better advisory service and distribution 80% of general insurance premiums recouped through Frende Continued improvement in profit performance for Eiendomsmegler Vest Key figures Operating profit/loss before write-downs and tax Third quarter At 30 Sept NOK 218 mill. NOK 249 mill. NOK 712 mill. NOK 557 mill. Pre-tax profit NOK 189 mill. NOK 156 mill. NOK 632 mill. NOK 352 mill. Profit/diluted profit per equity certificate NOK 1.32 NOK 1.53 NOK 4.79 NOK 3.16 Net interest 1.47% 1,52% 1.51% 1.58% Cost ratio 1.23% 1.16% 1.18% 1.27% Return on equity (ROE) annualised Deposits/loans ratio (end of quarter) Liquidity indicator (end of quarter) Core capital adequacy, end of quarter Capital adequacy, end of quarter Core capital adequacy, end of quarter (Basel II fully implemented) Total capital adequacy, end of quarter (Basel II fully implemented) 10.0% 10.6% 12.2% 7.5% The capital adequacy figures include 50% of the profit for the period 55.8% 54.6% 102.9% 102.0% 10.6% 8.6% 11.5% 10.1% 13.5% 9.6% 14.6% 11.1% Sparebanken Vest (SVEG) Report for third quarter unaudited Page 1 of 22

2 Globalisation creates opportunities and challenges for Western Norway The population of Western Norway is highly educated. The region has good universities and university colleges and excellent research expertise. Its business and industry is internationally-oriented and its restructuring capability is high. However, Western Norway is facing special challenges as regards restructuring, precisely because a large part of its private sector consists of export-oriented industry that will both have opportunities and face challenges in the time ahead from the new emerging economic superpowers Brazil, Russia, India and China - the so-called BRIC countries. Estimates show that, within 20 years, these four countries economies combined will be bigger than the six biggest Western countries together. The business community in Western Norway must therefore take further steps to ensure that it can offer products and, increasingly, services that these countries will be interested in purchasing. The business community in Western Norway must focus on becoming even more knowledge-based. DRIVE AND ENTHUSIASM IN WESTERN NORWAY : Minister of Trade and Industry Trond Giske (Labour Party) emphasised Western Norway's entrepreneurial spirit during his lecture at Vestlandskonferansen 2010 in Stavanger on 18 October. Business and industry is in a continuous restructuring process. Assignments disappear or change, and new ones are generated. Every year, new jobs account for about 10 per cent of the total. The reason is that industry must adapt to new products and technologies. Creative destruction, which is what this process is called, is the driving force behind economic growth. Old industries seldom die, since the shocks that have a negative effect on business and industry as a whole provide opportunities for the individual enterprise. Many of the new jobs that are created require greater expertise than the jobs that are lost. Industry will continue to be important, but it will be restructured and become more knowledge intensive. The question is whether industry will continue to be the driving force behind development as has long been the case in our region. There is reason to believe that it is the knowledge-intensive segment of the private sector that will form the basis for employment and increased productivity growth in the region in the years ahead. According to the OECD, an industry is defined as knowledge-intensive if more than 39% of the workforce have university college education or higher. Examples of such knowledge-based service provision include computer and telecommunication-based industries, financial services and consultancy services. They can also be found in industries relating to oil and shipping, for example production, design and development work. LOOKING FOR EVEN MORE KNOWLEDGE-BASED JOBS IN WESTERN NORWAY: Professor Victor D Norman of the Norwegian School of Economics and Business Administration (NHH) presented both opportunities and challenges facing the business community in Western Norway at this year's Vestlandskonferansen. Forty years ago, the Oslo area was an industrial hub in Norway. Today, there is almost no traditional industry left in the area. The service sector now accounts for 80% of employment in Oslo. In Western Norway, the share is 60%, and a lower proportion is knowledge-intensive. Will our region succeed in meeting the challenge that a transition to knowledge-intensive industries represents, and what factors will be decisive? Researchers emphasise a high level of education, good educational and research communities and high restructuring capability as our advantages. This is where the opportunities lie. The restructuring process also depends on other factors. It is particularly important that highly qualified people find Western Norway an attractive place to work after finishing their education. People in this category are drawn to places where the level of expertise is already high and where pay is good. If Western Norway is to retain its 250,000 highly educated persons, even more knowledge-based jobs must be created. There is a small enterprise dynamic in Western Norway that is hard to find elsewhere in Norway. Western Norway must become an even more diverse region that aims for knowledgebased growth, both in existing industries and by actively creating a platform for growth in new industries. The topic of this article is based on lectures that were held at the conference Vestlandskonferansen 2010 in Stavanger on 18 October. Read more at Sparebanken Vest (SVEG) Report for third quarter unaudited Page 2 of 22

3 Report for the third quarter and as of September 2010 Financial key figures Sparebanken Vest s financial performance in the third quarter and at 30 September showed good progress compared with The group pre-tax profit in the third quarter amounts to NOK 189 (156) million. The corresponding profit for the year to date is NOK 632 (352) million. The growth in profit is primarily due to good growth in operating revenues and lower write-downs on loans and guarantees. The profit means an annualised return on equity in the third quarter of 10.0 (10.6)%, and an accumulated return of 12.2 (7.5)%. Nominal net interest is increasing. 3 Q 2010 Quarterly 3 Q Q Q 2010 Cumulative Net interest income and credit commissions Commissions receivable and income from Commissions payable and cost of banking 23 services Net banking services Income from owner interests in group companies Net gain/(loss) on financial instruments Other operating income Net 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 for the period Sparebanken Vest carried out a minor re-pricing of its lending and deposits portfolio in mid-july. Accumulated interest and credit commission income were NOK 58 million higher than last year. This growth is mainly due to an increase in volume, cf. Note 4. The quarter s net interest as a percentage of average funds under management is 1.47 (1.52)% per year. In the second quarter 2010, net interest was 1.51%. So far this year, net interest is 1.51 (1.58)%. The accumulated net earnings from banking services are on a par with Net earnings in the third quarter 2010 are lower than in the third quarter 2009 as a result of the bank having one-off compensation of NOK 18 million in the third quarter 2009 as a result of changes in the Visa organisation. In 2009, the bank took to income part of the final settlement with former insurance suppliers at the same time as the revenues from former sales of savings products with guaranteed principal sums were higher than in Adjusted for the abovementioned factors, the development in net earnings from banking services is satisfactory. In the third quarter, financial instruments saw net earnings of NOK 41 (47) million and the figure for the year to date is NOK 152 (40) million, NOK 105 million of which relates to the Nordito/PBS transaction in the second quarter. Sparebanken Vest values fixed-interest loans to customers and fixed-interest debt at market value. This principle means that, in addition to changes in interest rates, changes in value as a result of a change in the credit spread are also recognised in the income statement. Gain on financial instruments NOKm 3 Q 2010 For the third quarter, the net credit spread effect was recognised in the income statement in the amount of minus NOK 7 (minus NOK 100) million, and NOK 47 (minus NOK 241) million for the first nine months of the year. This accounting principle has an equalising effect on earnings in that credit spreads in the FVO portfolio recognised in the income statement are matched by the opposite value/ income development for the other elements in the group's financial instruments. Total other income is specified in Note 4. Quarters 3 Q Q 2010 Operating expenses amounted to NOK 322 (272) million in the third quarter. The total accumulated expenses are NOK 891 (862) million. The growth in costs reflects high activity in the group and the fact that the group is still in a strategic development phase. The increase in costs must also be seen in connection with the growth in income. Expenses in the third quarter include provision of NOK 23 (5) million for performance bonuses in accordance with the bank s bonus scheme for employees. Expenses so far this year have been influenced by the effect of the implementation of the new AFP (early retirement) rules in the first quarter (NOK 62 million). So far in 2010, provision has been made for bonus expenses of NOK 57 (5) million. In the third quarter, operating expenses as a percentage of average funds under management amounted to 1.23 (1.16)% per year. So far this year, the cost ratio is 1.18 (1.27)% per year. As of the third quarter, the group had 831 (826) full-time equivalents, including business taken over from Sauda Sparebank. The expenses are specified in more detail in Note 5. The cost-income ratio in the third quarter was 59.6 (52.2)%. As of 30 September, the ratio is 55.6 (60.8)%. Write-downs on loans and losses on guarantees amounted to NOK 29 (93) million in the third quarter and to NOK 80 (205) million accumulated. Actual write-downs and changes in writedowns are mainly linked to individual write-downs in the bank s corporate portfolio. Reference is made to the section on risk and capital factors and to Notes 6, 8, 9 and 10. Developments in deposits and lendings 1 Q 2010 Cumulative Dividends Gain/loss(-) on commercial papers and bonds Gain/loss(-) on shares and securities Net gain/loss(-) on other financial instruments Net gain/loss(-) on credit spread changes FVO portfolio Product margin, amortised Net gain on financial instruments At the end of the third quarter, deposits amounted to NOK 48.5 (43.3) billion. Retail customer deposits amounted to NOK 27.5 (25.5) billion, while corporate deposits amounted to NOK 21.0 (17.8) billion. Deposits increased by 11.9 (2.4)% over the last 12 months, 17.6 (minus 1.1)% in the corporate market and 7.8 (4.9)% in the retail market. The increase so far this year in the corporate market is 11.8 (17.9)%, and 5.4 (0.5)% in the retail market. Lendings amount to NOK 87.0 (79.4) billion. Of the total, NOK 63.7 (58.0) billion were loans to retail customers, while NOK 23.3 (21.4) billion were loans to the corporate market. Lendings increased by 9.6 (8.6)% over the last 12 months, 9.9 (7.0)% in the retail market and 8.9 (13.3)% in the corporate market. The Sparebanken Vest (SVEG) Report for third quarter unaudited Page 3 of 22

4 Capitalised write-downs NOKm Provisions in % of loans increase so far this year amounts to 6.0 (1.4)% and 4.8 (5.1)%, respectively. Risk and capital factors Credit risk Sparebanken Vest s credit quality is good. This must be seen in connection with the high retail market percentage of the credit portfolio. The low risk profile in the retail market portfolio is due to the high proportion of loans secured by mortgages with a low loan-to-asset value ratio. Developments in the portfolio are stable in relation to the previous quarter, and slightly better than the same period last year. The risk profile in the corporate market portfolio is largely unchanged in relation to the previous quarter. Compared with the same period in 2009, developments are positive and must be seen in connection with the improved economic situation and greater activity in business and industry. Good credit management and risk-reducing measures also help to keep the risk profile low. At the end of the third quarter, the bank had NOK 216 (230) in defaulted loans (for more than 90 days) in the retail market and NOK 212 (275) million in the corporate market. The third quarter 2010 has also seen a certain improvement in the default percentage (in default for more than 90 days), as shown in the figure below. The change in the corporate market is mainly due to two commitments in different industries. Write-downs on loans and losses on guarantees amounted to NOK 29 (93) million in the third quarter, including an increase in group writedowns of NOK 3 million. 1,40 % 1,20 % 1,00 % 0,80 % 0,60 % 0,40 % 0,20 % 0,00 % Realised losses on loans and guarantees amounted to NOK 21 (34) million in the third quarter, NOK 14 (20) million of the losses were covered by previous write-downs. Total loss costs in the third quarter amounted to 0.13 (0.46)% per year of average gross lendings. Potential bad debts not defaulted on amount to NOK 877 (785) million, compared with NOK 904 million at 31 December They largely relate to commitments in industries exposed to cyclical fluctuations. The figure to the right shows capitalised writedowns and the percentage provided for in relation to gross lendings. Market risk and operational risk Payment defaults 90 days, gross loans Q Q Q Q Q Q Q Q Q Default rate 90 days, Retail Default rate 90 days, Total ,28 % Default rate 90 days, Corporate The bank s market risk is moderate. Interest, Group write-downs Individual write-downs Percentage provided for credit spread and currency risk is stable and low. The bank s management of stock market exposure focuses on total exposure and concentration in companies and industries. The exposure (excluding subsidiaries and associated companies) at the end of the third quarter was NOK 691 (623) million, compared with NOK 654 million at the end of the second quarter. 2Q ,21 % Q ,22 % Q ,23 % Q ,24 % Q ,29 % Q ,43 % Q ,49 % Q ,51 % Q ,60 % Q ,63 % Q ,62 % Q ,63 % Q ,64 % Q 2010 management confirmation and events. In the third quarter, annual processes and the continuous registration of events have not uncovered material matters that are critical in relation to the bank s operations. Liquidity and financing At the overriding level, the group s liquidity risk is managed using liquidity indicators, structural liquidity and the financing ratio. The group s liquidity situation remains good. At the end of the quarter, the group s holdings of certificates and bonds amounted to approximately NOK 14 (10.5) billion. The group s liquidity indicator is (102)%, while structural liquidity is 15 (14) months. The issuing of covered bonds in the third quarter amounted to NOK 1.9 billion, while the total volume of covered bonds issued is 16.4 billion. In step with normal seasonal fluctuations, the deposits/loan ratio is slightly down, but, at the end of the quarter, it is up on 2009: 55.8 (54.6)%. Rating Sparebanken Vest has been rated by Moody s and Fitch Ratings. The bank received an A rating from Fitch on long-term borrowings given stable prospects, and an A2 from Moody s given stable prospects. Bonds issued by Sparebanken Vest Boligkreditt AS have an AAA rating. Financial strength and equity certificates The development in the group s capital adequacy/financial strength is shown below in the following figures 1 : The group s capital adequacy based on the transitional arrangement is unchanged in the third quarter. Measured in accordance with BASEL II, the capital adequacy is strengthened. The development in financial strength must be seen in connection with a technical adjustment of the calculation of capital, developments in volume and quality in the corporate market segment and the accumulated effect on profit/loss. The Basel committee has published new capital requirements in the third quarter. The new requirements will be phased in from 2013 and will be fully implemented in The group meets the new requirements by a good margin. Business in subsidiaries and associated companies The bank s share of accumulated profit/loss from associated companies in the amount of minus NOK 34 (minus NOK 33) million and minus NOK 8 (minus NOK 12) million in the third quarter has been incorporated in the accounts using the equity method. The identification, analysis and follow-up of operational risk is 1 addressed at the overriding level through expert assessments, 50% of the profit is included Sparebanken Vest (SVEG) Report for third quarter unaudited Page 4 of 22 0,60 % 0,50 % 0,40 % 0,30 % 0,20 % 0,10 % 0,00 % Capital ratios - transitional scheme 11,8 % 11,6 % 11,4 % 11,4 % 1,2 % 1,2 % 1,0 % 0,9 % 10,6 % 10,5 % 10,4 % 10,5 % Q Q Q Q Core capital Additional capital 13,2 % 13,3 % 1,4 % 1,3 % Capital ratios - Basel II 13,8 % 1,2 % 11,8 % 12,0 % 12,6 % 14,5 % 1,1 % 13,4 % Q Q Q Q Core capital Additional capital

5 Eiendomsmegler Vest continued to show positive profit development in the third quarter. As the leading regional player in this market, the estate agency has strengthened its position. The Eiendomsmegler Vest group recorded an accumulated pretax profit of NOK 24.5 (21.5) million. The pre-tax profit for the third quarter amounted to NOK 6.1 (4.2) million. Sparebanken Vest Boligkreditt AS manages lendings of NOK 19 billion. NOK 16 billion is financed by the issuing of covered bonds. So far this year, the company s pre-tax profit is NOK 64.4 (46.5) million, NOK 20.4 (22.3) million of which was earned in the third quarter. Frende Forsikring (holding 44.3%). The companies show a good increase in customers/ premiums both in general insurance and life insurance. Progress is according to plan. At 30 September 2010, Frende Skade had approx. NOK 534 million in premiums divided between approx. 54,000 customers. Since its start-up, Sparebanken Vest has recouped almost 80% of its former insurance premiums. Profit developments in Frende Liv are ahead of plan. Norne Securities AS (holding 42%) has established three business areas; online trading, stockbroking and corporate finance. Norne Securities is still in a development phase and the number of customers continues to increase. Norne has approximately 11,000 customers and 20 employees. Verd Boligkreditt AS (holding 40%) is a housing credit company that is owned by Sparebanken Vest and eight independent savings banks. Full-scale operation got under way in the second quarter So far, the company has issued covered bonds in the Norwegian market corresponding to NOK 750 million. A further NOK 200 million will be issued in October. The share capital was increased from NOK 50 million to NOK 100 million in the third quarter. The company is run by Sparebanken Vest Boligkreditt AS. Brage Finans AS (holding 49.9%) is a newly-formed financing company whose head office is in Bergen. Nine other independent savings banks are co-owners in Brage Finans. During the third quarter, the company has developed the organisation and had licences approved, and its share capital has been increased. The company became operative on 1 October 2010 and it is expected to be in full operation by 1 December. Prospects National and international The growth prospects for the global economy are slightly weaker for Most of the uncertainty is linked to developments in private consumption in the USA, the development of domestic demand in Europe and the continued unstable debt situation in the so-called PIIGS countries. These factors will put a damper on growth at the international and national level. The big picture is that the Norwegian economy is expanding, but that the force driving the expansion is being weakened by somewhat weaker development among our partners and in private consumption. Although weak development is expected across the board in Europe, two of Norway's biggest trading partners, Germany and Sweden, are expected to show positive growth. The stimulation provided by public purchases of goods and services is expected to be relatively weaker in the time ahead. Unemployment is expected to see only a moderate increase. Pressure in the Norwegian economy is deemed unlikely to arise in the short-term. Further price growth in the housing market is still possible in In 2011, the growth in house prices is expected to normalise at an annual increase of 5-6%. House building has increased somewhat throughout the year and this is expected to continue. Price developments in Norway reflect the economic situation and core inflation, which is around 0.9% measured as twelvemonth growth. This indicates that Norway will not need to raise interest rates in isolation. Interest rates abroad are not expected to rise in the near future. This is also reflected in the price structure in the interest market. Western Norway The framework conditions for economic activity in Western Norway are largely unchanged in the third quarter. In the period January to August, the export of goods, excluding ships, platforms and oil/gas, increased by as much as 14%. The most marked increase has been in metals, chemical products and fish. In step with the downward revision of growth projections for the global economy, the export industry must expect somewhat less help from international demand. Although the inflow of new orders is now positive, the amount of orders in hand is still at a low level. In the oil service industry, the framework conditions are expected to be influenced by two opposite forces in the time ahead: On the one hand, a continued high investment level in the petroleum sector, and, on the other hand, keener international competition. Projects will be smaller, and the contracts will therefore often be of shorter duration. Investment levels are expected to remain high. However, investments are expected to focus to a greater extent on better recovery rates and on improving maintenance while a reduction is expected in the development of new fields. The main challenges will still consist of improving competitiveness and internationalisation in areas where Western Norway has knowledge-related or technological advantages. Unemployment in the region is still lower than the average for Norway, with unemployment at the end of September of 2.2% in Rogaland and 1.9% in Sogn og Fjordane. In Hordaland, unemployment was 2.4%. Unemployment is only expected to increase moderately in the region in 2010 and In Norway, house prices have seen an 8.2% increase since the turn of the year. In Western Norway, there has been a 9% increase in both Rogaland and Hordaland. This means that, in these two counties, the growth rate in Western Norway is almost one percentage point higher than the national average. No comparable figures are available for Sogn og Fjordane. Sparebanken Vest The group s financial performance in the third quarter 2010 is in line with the Board s expectations. With material one-off effects earlier in 2010 and low losses, the group s accumulated profits exceed the Board s expectations. The Board therefore expects that profits in 2010 will see a marked improvement on Risk is primarily linked to developments in net interest, securities and losses. Interest margins have been under pressure again in the third quarter as a result of financing costs and minor changes in customer interest rates. This trend is expected to continue in the fourth quarter. Losses are affected by the business cycle and internal riskreducing measures. The group s market position is strong. The Board emphasises further development of the group s distribution strength and product range. The new online banking solution and the start-up of Brage Finans contribute towards this goal. Sparebanken Vest (SVEG) Report for third quarter unaudited Page 5 of 22

6 Bergen, 26 October 2010 The Board of Directors of Sparebanken Vest Trygve Bruvik Anne Kverneland Bogsnes Yvonne Torgersen Chair of the Board Deputy Chair Marit Solberg Richard Rettedal Øyvind A. Langedal Anne Marit Hope Gerd Kjellaug Berge Tone Mattsson Stein Klakegg Managing Director Sparebanken Vest (SVEG) Report for third quarter unaudited Page 6 of 22

7 Income statement, group Notes 01/ / / /09-09 Q Q Interest income and similar income Interest expenses and similar expenses Net interest and credit commission income Commission income and income from banking services Commission expenses and expenses relating to banking services Income from ownership interests in associated companies Net gain/(loss) on financial instruments 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 Pre-tax profit Tax Profit for the period Majority share of the profit for the period Minority share of the profit for the period Equity certificates' share of profits divided by the number of equity certificates 4,79 3,16 1,32 1,53 4,53 Diluted profit per equity certificate 4,79 3,16 1,32 1,53 4,53 Statement of comprehensive income 01/ / / / Q Q Profit for the period Financial assets available for sale Total profit for the period Majority share of the total profit for the period Minority share of the total profit for the period Sparebanken Vest (SVEG) Report for third quarter unaudited Page 7 of 22

8 Balance sheet, group Notes 30/ / /12-09 Assets Cash to and receivables from central banks Loans to and receivables from credit institutions Net lendings 7, Shares at fair value through profit or loss Commercial papers and bonds Shares available for sale Financial derivatives Shareholdings in associated companies Deferred tax asset Other intangible assets Tangible fixed assets Prepaid expenses Other assets Total assets Liabilities and equity Liabilities to credit institutions Deposits Securitised liabilities Financial derivatives Accrued expenses and pre-paid income Pension commitments Deferred tax Other provision for commitments Tax payable Subordinated loan capital Other liabilities Total liabilities Equity certificates Own equity certificates Premium reserve Equalisation reserve Total equity certificate capital Primary capital Gift fund Compensation fund Total primary capital Reserve for unrealised gains Other equity Minority interests Total equity Total liabilities and equity Sparebanken Vest (SVEG) Report for third quarter unaudited Page 8 of 22

9 Cash flow statement, group 01/ / / / Cash flows from operations Interest, commission and customer fees received Interest, commission and customer fees paid Payment received for previously written-off receivables Net payments made/received relating to customers' instalment loans Changes in utilised overdraft facilities Net payments received/made relating to customer deposits Payments to other suppliers for goods and services Payment to employees, pension schemes, National Insurance contributions, tax withholdings etc Payment of direct and indirect taxes Net Payments made on sale/purchases of securities for short-term trading purposes Net cash flow from operations Cash flows from investment activities Payments received from sales of shares and shareholdings in other companies Payments made on purchases of shares and shareholdings in other companies Net payments made on other short-term securities Payments received from sales of securities, real property etc Payments made on purchases of securities, real property etc Payments received from the sale of operating assets etc Payments made on purchases of operating assets etc Net cash effect of takeover of Sauda Sparebank Net cash flows from investment activities Cash flows from financing activities Net payments made/received on loans to and receivables from other financial institutions Net payments received/made on deposits from Norges Bank and other financial institutions Payments received relating to subordinated loan capital Payments made relating to subordinated loan capital Payments received relating to bond debt Payments made relating to bond debt Net new equity certificates Dividends paid / Gifts for the public benefit Net cash flow from financing activities Net cash flow for the period Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Sparebanken Vest (SVEG) Report for third quarter unaudited Page 9 of 22

10 Changes in equity, group Equity Own equity Premium Equalisation Primary Reserve for Compensation unrealised Other Minority certificates certificates reserve reserve capital Gift fund fund gains 1) equity interests Total Equity 31 Dec Sale of own equity certificates 4 4 Payment of dividends and gifts Issue of equity certificates Correction deferred tax -6-6 Owner transactions and gifts Profit for the financial year Comprehensive income - change in value of shares available for sale Equity 31 Dec Profit for the accounting period Comprehensive income Equity certificates - split Issue of equity certificates Issue of equity certificates - costs Acquisition in subsidiaries -3-3 Purchase of own equity certificates Payment of dividends and gifts Equity 30 Sept Note 1 Accounting principles The consolidated accounts for the third quarter 2010 have been prepared in accordance with the requirements of the Securities Trading Act, the Financial Supervisory Authority of Norway's Regulations relating to annual reports and accounts and IAS 34. The accounts have been prepared on the basis of the same principles and with the same estimate methods as for the annual accounts for The accounting principles are described in the 2009 annual report. No amendments have been made to standards that have a material bearing on the accounts for the Sparebanken Vest group from 1 January The Group has established hedge accounting for fixed-rate loans tied to the housing credit company. The hedge is documented with reference to the Risk Management Strategy of the Group, unambiguous identification of the hedged item and hedging instrument, unambiguous description of the hedged risk, and a description of why protection is expected to be effective. The nominal value is EUR 500 million and NOK 600 million. Changes in credit spreads are not taken into account in the assessment of hedge effectiveness. All amounts are stated in NOK million and apply to the group unless otherwise specified. Sparebanken Vest (SVEG) Report for third quarter unaudited Page 10 of 22

11 Note 2 Segment information Operating income and expenses are allocated directly, with the exception of staff-related costs and depreciation. Net interest is allocated on the basis of internally calculated intra-group interest based on 3-month NIBOR. Income statement Corporate market Banking operations Retail market Capital market Estate agency Not allocated business by segment Total 1 Jan Sept Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -144 Profit/loss for the period Jan Sept Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -101 Profit/loss for the period Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -137 Profit for the year Banking operations Balance sheet Corporate market Retail market Capital market Estate agency Not allocated business by segment Total 30 Sept Net lendings Other assets Deposits Other liabilities and equity Sept Net lendings Other assets Deposits Other liabilities and equity Dec Net lendings Other assets Deposits Other liabilities and equity Sparebanken Vest (SVEG) Report for third quarter unaudited Page 11 of 22

12 Note 3 Net interest and credit commission income 01/ /09-10 Change 01/ /09-10 vs Q3-10 vs Q3-10 vs - 30/09-09 Q Q Q Q /09-09 Q3-09 Q2-10 Interest and similar income from loans to and receivables from credit institutions Interest and similar income from loans to and receivables from customers Interest and similar income from commercial papers, bonds and other interest-bearing securities Interest income and similar income Interest and similar expenses on debt to credit institutions Interest and similar expenses on deposits from and debt to customers Interest and similar expenses on issued securities Interest and similar expenses on subordinated loan capital Other interest expenses etc. 1) Fee to the Saving Banks' Guarantee Fund Interest expenses and similar expenses Net interest and credit commission income The changes are explained thus: Lending and deposit volumes: Lending and deposit margins: Other net interest income Fee to the Saving Banks' Guarantee Fund ) Interest from derivatives entered into to manage the interest rate risk attached to the bank's ordinary portfolios is classified as interest income and recognised as an adjustment of the bank's other interest income/ interest expenses. Note 4 Net other operating income 01/ /09-10 Change 01/ /09-10 vs Q3-10 vs Q3-10 vs - 30/09-09 Q Q Q Q /09-09 Q3-09 Q2-10 Guarantee commissions Fees from payment transfers /interbank fee credit Other commissions and fees Commission income and income from banking services Fees payment transfers/bbs/eftpos Fees payment transfers/interbank debit Other commissions and fees Commission expenses and expenses relating to banking services Net banking services 1) Income from ownership interests in associated companies Dividend Gain/(loss) on commercial papers and bonds Gain/(loss) on shares Gain/(loss) on other financial instruments Gain/(loss) on change in credit spread FVO portfolio Product margin amortised Net gain/(loss) on financial instruments Brokerage commission Other operating income Other operating income Net other operating income ) Specification of income and expenses relating to banking services Guarantee commissions Payment transfers Insurance Funds and other placement products Other income Net banking services Sparebanken Vest (SVEG) Report for third quarter unaudited Page 12 of 22

13 Note 5 Operating expenses 01/ / /09-10 vs - 30/ /09-09 Q Q Q Q /09-09 Change Q3-10 vs Q3-09 Q3-10 vs Q2-10 Payroll Pensions Transition to new AFP scheme Non-wage costs IT expenses Administration expenses Payroll and general administration expenses Ordinary depreciation of fixed assets Write-down of goodwill Depreciation Operating expenses, real property Rent and other operating expenses for rented premises Expensed fixed assets Other operating expenses Wealth tax Other operating expenses Total operating expenses Note 6 Losses on loans and guarantees 01/ / /09-10 vs - 30/ /09-09 Q Q Q Q /09-09 Change Q3-10 vs Q3-09 Q3-10 vs Q2-10 Change in individual write-downs in period Change in group write-downs in period Realised losses not covered by previous write-downs Recoveries on losses realised previously Write-downs and losses on loans Realised losses on guarantees not covered by previous provision for bad debt Change in provision for bad debt Losses on guarantees Losses on loans, guarantees etc Realised losses on loans covered by previous write-downs Realised losses on guarantees not covered by previous provision for bad debt Realised losses on loans not covered by previous write-downs Realised losses Note 7 Net lendings 30/ / /12-09 Valued at amortised cost Valued at fair value with changes in value recognised in the income statement Total Fair value is calculated by discounting the loan cash flow using the required rate of return derived from the zero coupon curve. The book value of loans with fixed, short-term interest rates is virtually identical to fair value. All the bank's fixed interest loans are included in the portfolio valued at fair value. Note 8 Write-down for impaired commitments Individually assessed 30/ / /12-09 Commitments in default Gross commitments in default Write-down Net commitments in default Percentage provided for 20 % 19 % 15 % Potential bad debts (in excess of 90 days) where the default amount in one of the commitment's accounts exceeds NOK 1,000. Potential bad debts not defaulted on Gross commitments assessed for impairment Write-down Net commitments assessed for impairment Percentage provided for 22 % 18 % 20 % Sparebanken Vest (SVEG) Report for third quarter unaudited Page 13 of 22

14 Note 9 Commitments in default The table shows defaults of payment exceeding 30 days where the amount in default is more than NOK 1,000 in one of the commitment's accounts. 30/ / /12-09 Retail market days days More than 90 days Total Corporate market days days More than 90 days Total days days More than 90 days Total Note 10 Capitalised write-downs on commitments Changes in individual and group write-downs and provision for bad debt relating to guarantees 30/ / /12-09 Individual write-downs Individual write-downs of loans at 1 January (nominal values) Realised losses on loans covered by previous write-downs Increase in write-downs of loans written down previously Write-downs of loans not written down previously Reduction in previous years' write-downs on individually assessed loans Write-downs acquired through takeover of Sauda Sparebank Individual write-downs Group write-downs Write-downs of loan groups at 1 January (nominal values) Increase in write-downs of loan groups Reduction in write-downs of loan groups Write-downs acquired through takeover of Sauda Sparebank Write-downs of loan groups Total write-downs of commitments Provision for bad debt for guarantees Provision for bad debt to cover losses on guarantees at 1 January Provision for bad debt on guarantees not provided for previously Reduction in previous years' provision for bad debt (write-back) Realised losses on guarantees covered by previous provision for bad debt Specified provision for bad debt to cover losses on guarantees Sparebanken Vest (SVEG) Report for third quarter unaudited Page 14 of 22

15 Note 11 Net lendings broken down by sector and industry 30/ / /12-09 Primary industries Manufacturing and mining Building and construction, power and water supply Commerce, hotel and restaurants International shipping and pipeline transport Other transport, post and telecommunications Property management Services Municipal/public sector Abroad Total - business and industry Retail customers Total corporate and retail customers Note 12 Deposits broken down by sector and industry 30/ / /12-09 Primary industries Manufacturing and mining Building and construction, power and water supply Commerce, hotel and restaurants International shipping and pipeline transport Other transport, post and telecommunications Property management Services Municipal/public sector Abroad Total - business and industry Retail customers Total corporate and retail customers Sparebanken Vest (SVEG) Report for third quarter unaudited Page 15 of 22

16 Note 13 Securities debt and subordinated loan capital Securities debt 30/ / /12-09 Commercial papers, nominal value Bonds, nominal value Value adjustment Total securities debt Change in securities debt 31/12-09 Issued Fell due/ redeemed Change in exchange rate Other changes 30/09-10 Commercial papers, nominal value Bonds, nominal value Value adjustment Total securities debt Subordinated loan capital and subordinated bond loans Ordinary subordinated loan capital, nominal value Subordinated bond loans, nominal value Value adjustment Total subordinated loans and subordinated bond loans Residual time to maturity 0-1 month 1-3 months 3-12 months 1-5 years Over 5 years Total Credit institutions, borrowings Securities debt, nominal value Subordinated loans and subordinated bond loans, nominal value Total borrowings from capital market Note 14 Capital adequacy 30/ / /12-09 Calculation basis Basel II: Credit risk/ Counterparty risk: Market risk: Currency risk: Operational risk: Total exceptional segments pursuant to IRB: Consolidated companies pursuant to the standard method Deductions in calculation basis IRB reporting of lower parameters Calculation basis, transitional scheme % % % Capital adequacy, transitional scheme 2010: Subordinated capital: ,0 % ,9 % ,8 % Net core capital ,1 % ,5 % ,6 % Net supplementary capital 477 0,9 % 743 1,5 % 641 1,2 % Capital adequacy requirements, transitional scheme 2010: ,0 % ,0 % ,0 % Calculated regulatory surplus/deficit Capital adequacy incl. 50 % of the result for the period ,5 % ,1 % Capital adequacy Basel II: Subordinated capital: ,9 % ,0 % ,2 % Net core capital ,8 % ,5 % ,8 % Net supplementary capital 477 1,1 % 629 1,5 % 641 1,4 % Capital adequacy requirements Basel II: ,0 % ,0 % ,0 % Calculated regulatory surplus/deficit Capital adequacy incl. 50 % of the result for the period ,6 % ,1 % Sparebanken Vest (SVEG) Report for third quarter unaudited Page 16 of 22

17 Note 15 Key information about equity certificate Sec. no (30 Sept. 2010) The twenty biggest owners No of ECs Proportion of equity share capital % SPARBANKSTIFTELSEN SAUDA ,84 FRANK MOHN AS ,03 MP PENSJON ,17 SKAGEN VEKST ,13 BERGEN KOMMUNALE PENSJONSKASSE ,89 ODIN NORGE ,67 ODIN NORDEN ,52 HERFO FINANS AS ,35 HOLBERG NORGE ,05 KOMMUNAL LANDPENSJONKASSE ,29 VERDIPAPIRFONDET ,02 KLP AKSJE NORGE ,52 KLP AKSJE NORDEN ,52 GOLDMAN SACHS & CO*) ,10 VPF NORDEA KAPITAL ,95 HELGELAND SPAREBANK ,91 PROFOND AS ,84 VPF NORDEA AVKASTNING ,78 VPF NORDEA NORGE ,77 SKUDENES & AAKRA SPAREBANK ,76 Total ,11 1) Nominee accounts Turnover statistics, the last 12 months Month Volume OSE (number) Market price ultimo October ,38 November ,29 December ,09 January ,10 February ,94 March ,57 April ,50 May ,00 June ,50 July ,40 August ,70 September ,00 Sparebanken Vest (SVEG) Report for third quarter unaudited Page 17 of 22