INTERIM- REPORT Q4 2013

Transcription

1 INTERIM- REPORT Q4 2013

2 Fourth quarter 2013 Stable development in net interest Targeted cost measures give profit effect Increased write-downs Capital accumulation according to plan Proposed dividend NOK 3.0 per equity certificate Main figures Pre-tax profit 246 MNOK 547 MNOK MNOK MNOK Profit per equitiy certificate 1,33 kr 2,72 kr 6,13 kr 6,57 kr Net interest (annualised) 1,71 % 1,51 % 1,67 % 1,45 % Cost ratio 1) 43,9 % 60,4 % 48,8 % 58,0 % Return on equity (annualised) 9,8 % 21,9 % 11,7 % 14,1 % Proposed dividend per equity certificate 3,0 kr 2,5 kr 3,0 kr 2,5 kr Payout ratio 6,6 % 8,5 % Core Tier 1 11,2 % 10,6 % 11,2 % 10,6 % Core Tier 1 (IRB) 14,2 % 14,0 % 14,2 % 14,0 % 1) Cost ratio exluding on-offs related to change in pension scheme in 2012 (313 MNOK) 4Q Q 2012 YTD 2013 YTD

3 Report for the fourth quarter 2013 Main Figures Q Q NOKm Q IAS 19-R* reported 2013 IAS19-R* reported Net interest income and credit commissions Commissions receivable and income from banking services Commissions payable and cost of banking 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 *) The accounts have been prepared in accordance with International Financial Reporting Standards (IFRS). The comparable figures in the interim report for the fourth quarter have been converted on the basis of the amendments to IAS 19 that entered into force on 1 January The Group started using the revised standard from 1 January 2013, but the implementation was carried out with retrospective effect from 1 January 2012 for the sake of comparison. The change affects the recognition and presentation of the Group s defined benefit pension schemes. Fourth quarter 2013 Sparebanken Vest recorded a pre-tax profit of NOK 246 million (NOK 547 million) in the fourth quarter, and a return on equity of 9.8%. The result was positively affected by an increase in nominal net interest and reduced operating expenses. Lower income from financial investments and increased write-downs on loans and guarantees have a negative effect on profit. Excluding the non-recurring effect of a plan change in the bank s defined benefit pension scheme in the fourth quarter 2012 (NOK 313 million), the pre-tax profit increased by NOK 12 million. Net interest income in the fourth quarter amounted to NOK 580 million (NOK 478 million). The increase of NOK 102 million is a result of repricing of the lending portfolios for both the retail and corporate markets, and reduced borrowing costs as a result of falling interest rates in the money market. Reduced deposit margins and fees to the Norwegian Banks Guarantee Fund had the opposite effect. The lending margin for the retail and corporate markets measured against the average 3-month NIBOR was 2.58 (2.17) and 3.29 (2.94) percentage points, respectively, in the fourth quarter. The positive development in margins is the result of the repricing carried out in the first half-year and the fact that the money market interest rate was gradually reduced throughout The deposit margin for the retail and corporate markets in the fourth quarter was (-0.44) and (-0.44) percentage points, respectively. For the retail market, the reduced deposit margin in the quarter corresponds to the fall in the money market interest rate. For the corporate market, measures carried out in order to turn around the negative margin development have had the desired effect. Net interest income as a percentage of average assets under management was 1.71% in the fourth quarter, up 20 basic points from the same period the year before. In the fourth quarter, a fee of NOK 13 million to the Norwegian Banks Guarantee Fund was charged to net interest income, corresponding to minus 4 bp in relation to the average assets under management. 3

4 Net commission income amounted to NOK 101 million (NOK 94 mill.) in the fourth quarter. The increase of NOK 7 million is mainly due to growth in commission income from the sale of insurance products. Net commission income from payment transfers and the sale of alternative savings products is stable. The contribution to profits from associated companies shows progress in the quarter, with a total profit of NOK 9 million, an increase of NOK 9 million on the same period the year before. The contribution to profits from associated companies breaks down as follows: NOKm Q Q Frende Forsikring Norne Securities Brage Finans Verd Boligkreditt Net profit from associated companies Net income from financial instruments amounted to NOK 44 million (NOK 74 million). The stabilisation of the financial markets during 2013 has reduced the volatility of the risk mark-ups, which affects the fair value measurement of the Group s liquidity portfolio, bonds, fixed-interest loans and securities debt measured at fair value. Gains on certificates and bonds were reduced from NOK 31 million in the fourth quarter 2012 to NOK 9 million in the fourth quarter The bank s shareholdings show a positive increase in value of NOK 44 million in the quarter seen in isolation. The amount includes a book gain of NOK 40 million from the sale of shares in Frende Forsikring, and write-downs on unlisted shares in the amount of NOK 22 million. In December 2013, Sparebanken Sogn og Fjordane bought 10% of the shares in Frende Forsikring AS, which makes it the fourth biggest owner in Frende after Sparebanken Vest, Sparebanken Øst and Fana Sparebank. After the sale, Sparebanken Vest s ownership interest was reduced to 39.7%. Gain on financial instruments NOKm Q Q Dividends Gain/loss(-) on commercial papers and bonds Gain/loss(-) on shares and securities Net gain/loss(-) on other financial instruments Net gain on financial instruments Operating expenses in the fourth quarter 2013 amounted to NOK 341 million (NOK 110 million). Operating expenses for the fourth quarter 2012 were affected by the taking to income of NOK 313 million as a result of a plan change in the Group s defined benefit pension scheme. In addition, a provision of NOK 25 million was made in the fourth quarter 2012 for restructuring costs in connection with staff downsizing, as well as NOK 25 million in write-downs on capitalised early-phase project costs relating to the bank s new head office. Operating expenses for the fourth quarter 2013 were affected by NOK 30 million in restructuring costs. Excluding the plan change in the pension scheme and non-recurring costs, the Group s underlying operating expenses were reduced by NOK 62 million, from NOK 373 million in the fourth quarter 2012 to NOK 311 million in the fourth quarter Of this amount, NOK 15 million is due to a reduction in ordinary pension expenses and NOK 29 million to reduced provision for incentive schemes. This means that the positive cost trend from the first three quarters of the year has continued into the fourth quarter. The cost reduction in the quarter can be attributed to the parent bank. Corrected for the pension plan change and restructuring costs, the parent bank s expenses (including Sparebanken Vest Boligkreditt) amounted to NOK 279 million in the quarter, which is NOK 63 million less than in the same period the year before. The restructuring measures that were carried out, including a reduction in the number of branch offices and staff downsizing, are intended to contribute to the bank reaching its target of 2% average annual cost growth in the parent bank (including Sparebanken Vest Boligkreditt) up until Costs in the Group s subsidiaries are stable compared with the same period last year. In line with previous notification to the Oslo Stock Exchange total write-downs on loans and guarantees amounted to NOK 189 million (NOK 43 million) in the fourth quarter. Both individual write-downs and group write-downs increased in the quarter. See also the chapter on risk and capital factors and Notes 6 and 7, which describe the write-downs and the development in default of payment. 4

5 Risk and capital factors Credit risk The risk in the retail market portfolio is stable and low. A total of 95% of the portfolio is secured by mortgages with a low loan-to-asset value ratio. The risk-adjusted return on the portfolio is good. The risk in the corporate market portfolio is considered to be moderate. Defaults and other potential bad debt amounted to NOK 1,351 million (NOK 1,258 million) for the corporate market and NOK 226 million (NOK 296 million) for the retail market. Figure1 Defaults and other potential bad debt ,74 % 3,68 % 3,54 % ,37 % 1,32 % 1,26 % 1,22 % 0,37 % 0,32 % 0,34 % 0,24 % 0,29 % 0,30 % 0,24 % 0,24 % Default in relation to gross lendings is shown in Note 6. Based on a reassessment of the bank s credit commitments in the corporate market, individual write-downs have increased by NOK 119 million in the quarter. The write-down is mainly related to commitments in the shipping segment. Group write-downs increase by the net amount of NOK 64 million. Net confirmed losses in the period amounted to NOK 6 million. The loss cost in the fourth quarter thereby amounted to NOK 189 million, compared with NOK 43 million in the fourth quarter Figure 2 Write-downs Write-downs as % of gross lendings 0,80 % 0,70 % 0,60 % 0,50 % 0,40 % 0,30 % 0,20 % 0,10 % 0,00 % 3,83 % 4,13 % 3,85 % 3,83 % 3,83 % ,34 % 1,29 % 1,22 % 1,21 % Q Q Q Q Retail Corporate Retail, share of segment Corporate, share of segment 0,62 % Q ,60 % Q Share of total portfolio Market risk and operational risk The bank s interest rate and currency risk is managed within limits adopted by the Board of Directors and is considered to be low. 0,58 % Q ,61 % ,76 % Individuel write-downs Group write-downs Write-downs as % of gross lendings Q Q ,00 % 4,00 % 3,00 % 2,00 % 1,00 % 0,00 % Capitalised write-downs (MNOK) The bank is exposed to credit spread risk, primarily through the management of interest-bearing securities in the bank s liquidity portfolio, and to a lesser extent through proprietary trading. The portfolio mainly consists of securities issued by Norwegian banks, housing credit companies, municipalities, county authorities, state and non-financial enterprises. The bank s credit spread risk was slightly up in the fourth quarter. The bank s total stock market exposure (excluding subsidiaries and associated companies) at the end of the fourth quarter amounted to NOK 686 million (NOK 709 million). In its management, the bank focuses on the total exposure and concentration in companies and industries. The bank has stock market exposure through both unlisted companies and companies listed on Oslo Børs. The bank carried out write-downs of NOK 22 million on unlisted shares in the fourth quarter. The identification, analysis and follow-up of operational risk is addressed at the overriding level through management confirmations, continuous assessments and the registration of events. No matters have been uncovered during the quarter that are critical to the bank s operations. The bank s biggest operational risks are deemed to be the risk of digital attack, disruptions to the ICT systems and threats against the bank s employees. The bank works continuously to keep risk at an acceptable level. A project relating to emergency response and crisis plans has been initiated including recovery plans that the Financial Supervisory Authority of Norway has proposed that important financial institutions prepare in the course of Liquidity and financing The Group s liquidity situation is good. In 2013, it has been managed at the overriding level using liquidity indicators, structural liquidity and the deposits/loans ratio. From 2014, the bank will change its control parameters to ensure rational adaptation to future liquidity requirements from the authorities. At the end of 2013, the Group s liquidity indicator (6-month rolling average) was 101.9% (106.8%). The deposits/loans ratio was slightly reduced from the same period the year before, to 55.4% (56.2%), and it is roughly on a par with the previous quarter. At the end of the quarter, the group s net liquidity was approxi- 5

6 mately NOK 18.7 billion (NOK 15.2 billion). The total capital market financing amounts to NOK 60.7 billion (NOK 54.7 billion). The bank s relative proportion of covered bonds at the end of the fourth quarter was approx. 62% of the bank s capital market financing, including the swap arrangement with Norges Bank. The proportion of financing with a remaining term to maturity of more than three years was approximately 45% at the end of the quarter. Rating Sparebanken Vest is rated by Moody s and Fitch Ratings. The bank s rating for long-term borrowings is A2 from Moody s, with a stable outlook. Fitch confirmed all the bank s ratings on 5 December 2013, including the bank s rating for long-term borrowings of A-, with a stable outlook. Bonds issued by Sparebanken Vest Boligkreditt AS are rated by Moody s, and have an AAA rating, with a stable outlook. Financial strength The bank s Core Tier 1 capital, taking into account the Basel I floor, is up 0.6 percentage points from the fourth quarter 2012, at 11.2%. This is due to accumulated profits and low growth in the calculation basis. The bank thus meets the applicable combined minimum and buffer requirement of at least 9% Core Tier 1 capital by a good margin. The issuing of a new subordinated bond loan (NOK 250 million) and a new subordinated loan (NOK 500 million) will be included in the bank s own funds from the fourth quarter. With an overall capital adequacy of 14.3%, the bank also meets the requirement for an overall capital adequacy of 12.5%. From 1 July 2014, the combined requirement will increase to 10%, at the same time as the requirement for overall capital adequacy will increase from 12.5% to 13.5%. The bank meets these requirements at the end of capital buffer requirement. From 2014, the bank will balance this through capital adequacy targets that are linked to the regulatory minimum requirements and internal stress tests, and a target level that addresses the combined minimum and buffer requirement. The bank s capital adequacy target for Core Tier 1 capital, taking into account the Basel I floor, is 7.5%, while its target operating level is 11%. Figure 3 Capital adequacy, Basel I floor 14 % 12 % 10 % 8 % 6 % 4 % 2 % 12,6 % 12,4 % 12,6 % 12,7 % 0,3 % 0,2 % 0,2 % 0,3 % 1,7 % 1,7 % 1,7 % 1,6 % 0 % 2012 Q Q Q Q Q4 Total Capital 12,6 % 12,4 % 12,6 % 12,7 % 14,3 % Tier Capital 0,3 % 0,2 % 0,2 % 0,3 % 1,1 % Add. Tier 1 Cap. 1,7 % 1,7 % 1,7 % 1,6 % 2,0 % Core Tier 1 Capital 10,6 % 10,5 % 10,6 % 10,8 % 11,2 % Pursuant to IRB, the bank s Core Tier 1 capital adequacy in 2013 was relatively stable and was 14.2% at the end of the year an increase of 0.2 percentage points from the fourth quarter Overall capital adequacy increased from 16.6% to 18.1%. It is the above-mentioned issuing of subordinate bonds and subordinated loans that contribute to this. Figure 4 Capital adequacy, IRB 18 % 16 % 14 % 12 % 10 % 10,6 % 10,5 % 10,6 % 10,8 % 16,6 % 16,4 % 0,4 % 0,3 % 2,2 % 2,2 % 16,7 % 16,8 % 0,3 % 0,4 % 2,2 % 2,2 % 14,3 % 1,1 % 2,0 % 11,2 % 18,1 % 1,4 % 2,2 % From 1 January 2014, a floor has been introduced for an average LGD on housing loans of 20% in the banks IRB models. The Basel I floor means that this will only have a marginal effect on the bank s capital adequacy. At the end of 2013, the effect would have been minus 0.1 percentage points on overall capital adequacy. The requirements for financial strength are now a combination of a minimum capital requirement and a 8 % 14,0 % 13,9 % 14,2 % 14,3 % 6 % 4 % 2 % 0 % 2012 Q Q Q Q3 Total Capital 16,6 % 16,4 % 16,7 % 16,8 % Tier 2 Capital 0,4 % 0,3 % 0,3 % 0,4 % Add. Tier 1 Cap. 2,2 % 2,2 % 2,2 % 2,2 % Core Tier 1 Capital 14,0 % 13,9 % 14,2 % 14,3 % 14,2 % 2013 Q4 18,1 % 1,4 % 2,5 % 14,2 % 6

7 If the floor of 20% for average LGD on housing loans had applied in the fourth quarter, this would have resulted in a reduction in the bank s Core Tier 1 capital pursuant to IRB of 1.5 percentage points, to 12.7%. Overall capital adequacy would have been reduced by 2 percentage points to 16.1%. The capital adequacy target for Core Tier 1 capital pursuant to IRB is 8.5%, while the bank s operating target level is 12.5%. The regulatory buffer requirements will increase in the years ahead. This means that the bank s operating target level will also increase. The regulatory minimum requirement remains unchanged, however, and, unless the bank s internal stress tests indicate a higher level, the capital adequacy targets are also expected to remain unchanged. The regulatory buffer requirements and a continuation of the Basel I floor mean that Sparebanken Vest will need capital in the years ahead in order to satisfy all the regulatory requirements. The goal of meeting the requirements through operations by a satisfactory margin still applies. Sparebanken Vest is still working actively vis-à-vis the authorities to ensure that harmonised and competition-neutral regulations are introduced in the Nordic countries. The Norwegian interpretation of the Basel I floor does not contribute to such harmonisation. Sparebanken Vest points out that it is necessary that the Norwegian authorities interpret the regulations in the same way as the other Nordic countries. Operations in subsidiaries and associated companies Subsidiaries Eiendomsmegler Vest (holding 100%) sold 7.2% fewer houses in the fourth quarter compared with the corresponding period the year before, in line with a cooler housing market. At the same time, the company is maintaining its market share in the counties of Western Norway. Eiendomsmegler Vest recorded a pre-tax profit of NOK 4 million in the fourth quarter, compared with NOK 19 million in the fourth quarter Sparebanken Vest Boligkreditt AS (holding 100%) manages housing loans in the amount of NOK 44.9 billion (NOK 39.2 billion). At the end of the fourth quarter 2013, the company had issued covered bonds in the amount of NOK 39.9 billion (NOK 34.4 billion). Associated companies The share of profit/loss from associated companies shows progress, and a total of NOK 9 million was included in the accounts in accordance with the equity method in the fourth quarter. The accumulated profit at the end of the fourth quarter amounted to NOK 50 million (NOK 34 million). Frende Forsikring (holding 39.7%) continues to see growth in customers/premiums in both general insurance and life insurance. Frende Skade had a good fourth quarter in 2013 and exceeded 100,000 customers in the quarter. This means an increase of 10,000 in the number of new customers in Premiums increased throughout the year and totalled NOK 1,136 million at the end of the fourth quarter. The positive profit development continued in the fourth quarter. The company s combined ratio for the fourth quarter seen in isolation was 88.9%, while the combined ratio for 2013 as a whole fell to 92.3% from 97.0% in Frende Skade s profit for 2013 means a return on equity of 16.6%. During the fourth quarter, Frende Skade entered into agreements with a total of 10 franchise offices with a sales force of 25. They are located in areas where Frende does not have bank distribution. Frende Skade expects continued strong and profitable growth in Frende Liv continued its good development in the fourth quarter. In 2013, the company introduced a new core system for accident and health insurance. This has had very positive effects. New sales of accident and health policies exceeded NOK 70 million in 2013, and premiums for accident and health insurance grew by 22%. Premiums in Frende Liv increased by NOK 18 million in the fourth quarter and amounted to NOK 586 million at the end of the quarter. The number of retail customers increased by 7,400 to 59,000 in The number of insured enterprises increased by 286 in 2013, to 4,805 enterprises. The development in the company s claims and costs was positive in 2013, so that the profit for the year means a return on equity of 8.1%. Frende Liv expects continued positive development in premiums and profitability in

8 The share of profit/loss from Frende Forsikring amounted to NOK 41 million (NOK 43 million) in As a result of the considerable uncertainty surrounding regulations a total of 45.1 million is allocated in 2013 relating to VAT on IT services from abroad. From 2014, Sparebanken Sogn og Fjordane will be a co-owner of Frende Holding, which will mean a stronger distribution network for the companies. Norne Securities AS (holding 47.6%) increased its turnover in 2013 compared with 2012, and there has been an improvement in all business areas. The greatest improvement took place in Corporate Finance. Norne will focus even more on Corporate Finance in 2014 and it expects an increase in activities in this area in the time ahead. Norne has terminated work on finding structural solutions, and decided further development on their own. New leader to take the company through the next stage started on 1 February The share of profit/loss from Norne Securities in the fourth quarter amounted to minus NOK 2 million (minus NOK 5 million). The corresponding figure for 2013 as a whole was minus NOK 2 million (minus NOK 12 million). Verd Boligkreditt AS (holding 40%) is a housing credit company owned by Sparebanken Vest and eight independent savings banks. The company, which is run by Sparebanken Vest Boligkreditt AS, manages housing loans in the amount of NOK 4.6 billion. The share of profit/loss from Verd Boligkreditt in the fourth quarter was NOK 3 million (NOK 1 million). The corresponding figure for 2013 as a whole was NOK 9 million (NOK 5 million). Brage Finans AS (holding 49.9%) is a financing company that has been in operation for three years. The company continued to progress in the fourth quarter, and both the growth in the lending portfolio and the company s financial performance are ahead of the original schedule. At the end of 2013, the company had a gross portfolio of NOK 1,843 million (NOK 987 million). The year 2013 was the first year the company recorded a profit, and the outlook for further progress in 2014 is good. The share of profit/loss from Brage Finans in the fourth quarter was NOK 1 million (NOK 0 million), and NOK 3 million (minus NOK 2 million) for 2013 as a whole. The year 2013 Sparebanken Vest recorded a pre-tax profit in 2013 of NOK 1,221 million (NOK 1,283 million), and a return on equity of 11.7% (14.1%). The result was positively affected by an increase in nominal net interest, growth in net commission income and an increased contribution to profits from associated companies. Lower income from financial investments and increased write-downs on loans and guarantees have a negative effect on the result. Operating expenses minus non-recurring costs show a reduction compared with Net interest income amounted to NOK 2,161 million, compared with NOK 1,797 million in The increase of NOK 364 million is largely due to increased lending margins, primarily as a result of repricing of the lending portfolios in both the retail and corporate markets, as well as reduced borrowing costs. The lending margin measured against the average 3-month NIBOR increased by 48 basic points. The deposit margin was reduced by 34 basic points in the same period. The development in margins must be seen in conjunction with the introduction of increased capital requirements and the bank s need to adjust its operations to the new requirements. The introduction of a permanent fee to the Norwegian Banks Guarantee Fund reduced net interest income by NOK 51 million compared with Net interest as a percentage of average assets under management was 1.67% in 2013, compared with 1.45% in Net commission income and other income amounted to NOK 576 million, compared with NOK 551 million in The increase is due to an increase in volume and income from payment transfers by card, and higher commission income from both insurance and alternative savings products. The increase must also be seen in conjunction with the fact that NOK 14 million relating to a new security solution for the online bank was charged to income in The income from Eiendomsmegler Vest s estate agency operations amounted to NOK 190 million in 2013, compared with NOK 197 million in Other operating income remained unchanged at NOK 8 million. The net result from financial investments was reduced by NOK 134 million. The change is primarily due to lower contributions from the bank s holding of certificates and bonds, as a result of a more stable financial market in 2013 than in Gains on certificates and bonds were reduced from NOK 195 million in 2012 to NOK 20 million in The return on the Group s 8

9 shareholdings increased from NOK 17 million in 2012 to NOK 56 million in 2013, NOK 40 million of which is a gain on the sale of shares in Frende Forsikring. The contribution to profits from associated companies amounted to NOK 50 million in 2013, an increase of NOK 16 million compared with Corrected for a non-recurring effect of a change in the bank s accounting treatment of the security provisions in Frende Skade of NOK 14 million in 2012, however, the overall progress amounts to NOK 30 million. The Group s operating expenses in 2013 amounted to NOK 1,428 million, compared with NOK 1,228 million in Excluding the non-recurring effect of the change in pension regulation and a write-down of capitalised project costs in 2012, as well as restructuring costs, the underlying cost reduction is NOK 96 million. Of this amount, reduced ordinary pension expenses amount to NOK 37 million and reduced provisions for incentive schemes to NOK 23 million. For 2013, operating expenses in the parent bank (including Sparebanken Vest Boligkreditt and ex. bonus) amounted to NOK 1,278 million, compared with NOK 1,004 million in Excluding pension plan change effects expenses have been reduced by NOK 57 million. The reduction corresponds to a cost reduction of 4.4% in 2013, which is well within the target of average annual cost growth in the parent bank (including Sparebanken Vest Boligkreditt and ex. bonus) of 2% up until Write-downs on loans and losses on guarantees amount to NOK 280 million (NOK 147 million), corresponding to 0.25% (0.14%) of gross lendings on an annualised basis. See the chapter on risk and capital factors and Notes 6 and 7, which describe the write-downs and the development in default of payment. Developments in deposits and lendings Gross lendings increased by NOK 5.4 billion to NOK billion from 2012, corresponding to year-on-year growth of 5.0%. Growth last 12 months Growth last quarter Lending total 5,0 % 1,7 % Lending retail market 7,2 % 1,8 % Lending corporate market -1,1 % 1,4 % Of gross lendings, loans to the retail market amounted to NOK 84.8 billion (NOK 79.1 billion), NOK 44.9 billion of which are loans that have been transferred to Sparebanken Vest Boligkreditt. Gross lendings to corporate customers amounted to NOK 28.1 billion (NOK 28.4 billion). The growth in lendings in the retail market is stable, with growth of 7.2% in The corporate market had negative growth of 1.1% in The lendings trend in the corporate market is still driven by a conscious policy of strengthening the bank s capitalisation. For the fourth quarter seen in isolation, the growth in lendings in the corporate market was 1.4%. Customer deposits increased by NOK 2.1 billion to NOK 62.2 billion, corresponding to year-on-year growth of 3.6%. Growth last 12 months Deposits break down as NOK 36.6 billion (NOK 34.0 billion) from retail customers and NOK 25.6 billion (NOK 26.1 billion) from corporate customers. The growth in 2013 is 7.8% in the retail market and minus 2.0% in the corporate market. For the fourth quarter seen in isolation, the growth in deposits in the corporate market was 5.1%. The breakdown between deposits and lendings is specified in Notes 8 and 9. Growth last quarter Deposits total 3,6 % 2,1 % Deposits retail market 7,8 % 0,0 % Deposits corporate market -2,0 % 5,1 % The Board of Directors proposal for the allocation of profit The parent bank s profit after tax amounted to NOK 842 million (NOK 922 million). Adjusted for a change in the reserve for unrealised gains, the basis for dividend is NOK 867 million. The percentage dividend for the allocation of profit in 2013 is 21.3%. The Board of Directors proposes a cash dividend of NOK 3.00 (2.50) per equity certificate for That means a total dividend payment of NOK 95.3 million (NOK 79.4 million), which corresponds to a distribution percentage of 51.6% (50%). The Board of Directors will recommend to the meeting of the Supervisory Board that the dividend for 2013 be paid as a cash dividend. The Board of Directors also proposes allocating NOK 40 million (NOK 35 million) in donations for the public benefit. This corresponds to a distribution percentage of 5.9% (6%). After allocation of the profit for the year, the owner fraction is 20.5%. 9

10 The total retained profit from the parent bank amounts to 83.9% (87%). The proposal for the allocation of profit thus takes account of the need to increase financial strength in order to meet new, more stringent capital requirements. Outlook Sparebanken Vest expects the Norwegian economy to grow below the trend rate in the years ahead, and that growth in the Norwegian economy will not exceed the trend growth rate until The forecast model indicates that the key interest rate will remain unchanged, and no changes will therefore be made to monetary policy until the beginning of While growth in the Norwegian economy is now below the trend growth, there are more positive signs in both the US and European economies. The fact that our traditional trading partners are experiencing better times can compensate for the likelihood of somewhat lower growth in new emerging economies in the years ahead. The level of activity in the Norwegian economy cooled down in the course of last year, and growth in 2013 was lower than the trend growth. The activity level in industries that have been responsible for much of the upswing now appears to be slowing down. Following a period of record oil-related investments, lower growth is expected in the years ahead. The same applies to housing investments. The lower growth trend will continue in 2014, but increased demand from our trading partners will compensate for some of the fall in oil and housing investments. Western Norway The level of activity is still good in Western Norway, but there are signs of lower growth here as well. Sparebanken Vest s business and industry index, Vestlandsindeks, has long shown a downward trend, but the first survey in 2014 shows somewhat greater optimism than the previous survey in Western Norway is expected to get slightly less help from the oil and gas sector and the building and construction industry going forward. The level of activity in the oil supplier industry will still be good, but it is possible that the difference between businesses targeting the oil industry and other businesses will be reduced somewhat. Traditional export enterprises are expected to see a more positive development in 2014 due to the weaker Norwegian krone and the better outlook internationally. Sparebanken Vest Sparebanken Vest implemented changes in the bank s organisation and executive management in the fourth quarter The new organisation is intended to contribute to further rationalisation of processes and clarification of responsibility for performance, and to ensure a more performance and customer-oriented management. The bank s main strategy remains unchanged, and the goal is that the new management will develop the bank further as a sound, profitable bank in Western Norway. The bank s goal of meeting regulatory requirements through operations by a satisfactory margin still applies. Repricing measures that were carried out in 2013 in both the retail and corporate market as a consequence of more stringent capital requirements and increased risk weights on housing loans have had positive effects on profits. The current margin situation combined with a positive development in other income, good cost control and moderate losses will be necessary preconditions for accumulating equity through operations also in the time ahead. The bank increased both individual loss write-downs and group write-downs in the fourth quarter 2013 as a result of a revaluation of the credit portfolio. An uncertain macroeconomic situation could mean that losses will be somewhat higher in 2014 than in the preceding years, but on a lower level than indicated by the total loss write-downs in the fourth quarter A slowdown in growth in the Norwegian economy can also have consequences for the bank s volume development in the corporate market, while weaker development in house prices could contribute to lower growth in the retail market. In the time ahead, Sparebanken Vest will continue to give priority to the work of increasing revenues from the bank s different product and service areas. Moreover, the bank is well on track in relation to reaching its target of a 2% average annual cost growth in the parent bank in the period up until Sparebanken Vest expects that the associated companies contribution to profits will increase in 2014 and it expects continued good growth in core banking operations for the coming year. The development in margins will depend on the competitive situation and future regulatory framework conditions. Sparebanken Vest will continue to make active endeavours to ensure Nordic harmonisation of the regulations and thereby equal competitive conditions for banks that operate in Norway. 10

11 Bergen, 5 February 2014 The Board of Directors of Sparebanken Vest Trygve Bruvik Marit Solberg Birthe Kåfjord Lange Chair of the Board Deputy Chair Arild Bødal Richard Rettedal Øyvind A. Langedal Anne Marit Hope Sivert Sørnes Kristin Axelsen Jan Erik Kjerpeseth Managing Director 11

12 Income statement, group Notes 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 Payroll and general administration expenses Depreciation Other operating expenses Total operating expenses Profit before write-downs and tax Write-downs 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 for equity certificates 6,13 6,57 1,33 2,72 Diluted profit per equity certificate 6,13 6,57 1,33 2,72 Statement of comprehensive income Q Q Profit/loss for the period Estimate variance, pensions* Tax effect of estimate variance, pensions Effect of change in tax rules Other profit/loss elements that will not be reclassified to profit or loss after tax Other profit/loss elements that will be reclassified to profit or loss after tax Total other profit/loss elements in the period Total profit for the period Majority share of the total profit for the period Minority share of the total profit for the period * In the fourth quarter 2013, the bank recalculated the pension commitment based on updated assumptions. In this connection, the bank implemented a new mortality basis in the calculation (K2013). The new mortality tariffs are based on a dynamic mortality basis, unlike the former K2005 table that was introduced in With a dynamic mortality basis, life expectancy is expected to increase (reduced mortality) for each cohort. This has led to an increase in the estimated pension commitments and thereby an estimate variance in the statement of comprehensive income. 12

13 Balance sheet, group Notes 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 Financial derivatives Shareholdings in associated companies 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 Other equity Minority interests 1 1 Total equity Total liabilities and equity

14 Cash flow statement, group Cash flows from operations Interest, commission and customer fees received Interest, commission and customer fees paid Interest receieived on other assets Interest payments on other funding Payments to other suppliers for goods and services Payment to employees, pension schemes, National Insurance contributions, tax withholdings etc Payment of taxes Dividends received on securities for trading purposes 5 4 Net receipts/payments on sales/purchases of securities for trading purposes Net cash flow from operations Cash flows from investment activities Payments received/made relating to customers' loans Net receipts/payments on loans to credit institutions Dividends received on securities not for trading purposes Net receipts/payments on sales/purchases of securities not for trading purposes -1-5 Net receipts/payments on sales/purchases of other financial instruments Payments related to associated companies Payments received from the sale of operating assets etc. 3 0 Payments made on purchases of operating assets etc Net cash flows from investment activities Cash flows from financing activities Payments received/made relating to customer deposits Payments received/made on deposits from Norges Bank and other financial institutions Receipts related to issues of subordinated loan capital Payments related to redemptions of subordinated loan capital Receipts related to issues of bonds and commercial papers Payments related to redemptions of bonds and commercial papers New equity certificates 0 35 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

15 Changes in equity, group Equity certificates Own equity certificates Premium reserve Equalisation reserve Equalisation reserve Gift fund Comp. fund Other Minortity equity interests Equity 31 Dec Convertion as of 31/ by introduction of IAS 19R - pension corridor Tax effect by recognition of corridor Equity per 1/ converted acc. to IAS Total Equity per 1/ converted accord. to IAS Result 2012 converted accord. to IAS Other comprehensive income Purchase/sale of own equity certificates Issue of eqiute certificates - dividend Payment of dividends and gifts Equity 31 Des Profit/loss Comprehensive income Purchase/sale of own equity certificates Distributed dividend and donations Effect of change in tax rules in relation to equity Equity at 31 Dec

16 Notes Note 1 Accounting principles The consolidated accounts for the fourth quarter 2013 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. With the exception of amendments to IAS19, Employee Benefits, the accounts have been prepared on the basis of the same principles and using the same estimate methods as the annual accounts for The accounting principles are described in the annual report for The introduction of IAS19R means that it is no longer permitted to use the corridor method to recognise estimate variances. The difference between the balance sheet value of pension commitments and the estimated pension commitments was recognised directly against equity upon implementation. The amendment to IAS19 also entails a new classification of pension expenses in the income statement in that the expenses are divided into three components (pension earnings, net interest expenses and change in value). The earned pension entitlements for the period and net interest expenses are presented under the ordinary profit/ loss, while estimate variances will be recognised in their entirety in the statement of comprehensive income in the period in which they arise. Comparative figures for 2012 have been converted in accordance with the amended accounting standard. All amounts are stated in NOK million and apply to the group unless otherwise specified. Conversion effects relating to the implementation of IAS19R Equity certificates Own equity certificates Premium reserve Equalisation reserve Equalisation reserve Gift fund Comp. fund Other Minortity equity interests Total Reported equity 31 Dec Convertion as of 31/ by introduction of IAS 19R - pension corridor Tax effect by recognition of corridor Equity 1 Jan IAS 19R Reported equity 31 Dec Convertion as of 31/ by introduction of IAS 19R - pension corridor Tax effect by recognition of corridor Equity 1 Jan IAS 19R The consequence for the comparative figures in the income statement for the year 2012 is a reduction in pension expenses of NOK 92 million through the introduction of IAS19R. This is due to corridor depreciation no longer being used in relation to the pension expense (NOK 40 million) and a change in the accounting effect of the plan change that was implemented in the fourth quarter 2012 (NOK 52 million). The accounting effect of the plan change in the final quarter of 2012 is greater pursuant to IAS19R because estimate variances that reduced the plan change effect are no longer recognised in the accounts. Estimate variances shall be recognised in their entirety in the statement of comprehensive income in the period in which they arise. For 2012, this amounted to NOK 350 million before tax. IFRS 13, Fair Value Measurement, came into force on 1 January The standard contains principles and guidelines for measuring the fair value of assets and liabilities for which other standards require or allow fair value measurement. The standard has not led to changes in the Group s income statement or balance sheet, but it will be necessary to provide more comprehensive information in the notes to both the interim and annual accounts. Reference is made to Note 10, among others, which describes financial instruments measured at fair value and a classification relating to how objectively they can be valued. For a description of valuation techniques, see the annual report for

17 Note 2 Segment information The management has evaluated the segments that it is appropriate to report in relation to corporate governance. The segments are: Corporate Banking, Retail, Capital Market and Real Estate Markets. Operating expenses are allocated, with the exception of IT costs, staff costs and depreciation. Net interest income is allocated based on internally calculated interest based on 3-month NIBOR. Banking operations Corporate Estate agency market Retail marketcapital market business Not allocated by segment Total 2013 Income statement Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -313 Profit for the period /12-13 Balance sheet Net lendings Deposits Income statement Net interest income Operating income Operating expenses Losses Pre-tax profit Tax -353 Profit for the year /12-12 Balance sheet Net lendings Deposits

18 Note 3 Net interest and credit commission income Q Q /12-13 vs 31/12-12 Change Q4-13 vs Q4-12 Q4-13 vs Q3-13 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 Norwegian Banks' Guarantee Fund Interest expenses and similar expenses Net interest and credit commission income ) 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 Chagne Q Q /12-13 vs 31/12-12 Q4-13 vs Q4-12 Q4-13 vs Q3-13 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 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