2 SpareBank 1 GruppenBoard of Directors Report 3Income Statement 18Statement of Comprehensive Income 19Balance Sheet 20Consolidated Statement of Cash Flow 21Statement of Changes in Equity 22Note 1 General information 23Note 2 Accounting policies 23Note 3 Critical accounting estimates and judgements 29Note 4 Segment information 31Note 5 Capital adequacy ratio 32Risk notesNote 6 Financial risk management 33Market riskNote 7 Market risk related to interest rate risk 38Note 8 Market risk related to currency risk 38Note 9 Financial derivatives 39Insurance riskNote 10 Insurance risk in life insurance 40Note 11 Insurance risk in P&C insurance 44Credit riskNote 12 Credit risk exposure for each internal risk class 48Note 13 Maximum credit risk exposure, not takinginto account pledged security 49Note 14 Age distribution of overdue but not impairedloans and premium income 50Liquidity riskNote 15 Remaining contractual maturity offinancial liabilities 50Result notesNote 16 Net insurance premium income 51Note 17 Net commissions 52Note 18 Gains and losses from financial assets and liabilities 53Note 19 Net income from investment properties 54Note 20 Other operating income 54Note 21 Operating costs 54Note 22 Salaries and other remuneration of theCEO and executive personnel 55Note 23 Pensions 57Note 24 Tax 59Balance sheet notesNote 25 Classification of financial assets and liabilities 60Note 26 Valuation hierarchy 61Note 27 Securities at fair value 64Note 28 Securities available for sale 65Note 29 Bonds at amortised cost 66Note 30 Fair value of securitiesstated at amortised cost 67Note 31 Investments in subsidiaries 68Note 32 Investments in associated companiesand joint ventures 68Note 33 Investment properties 70Note 34 Property, plant and equipment 71Note 35 Goodwill 72Note 36 Other intangible assets 73Note 37 Reinsurance receivables 74Note 38 Receivables from policyholders 74Note 39 Lending to and deposits with customers and financialinstitutions 74Note 40 Net loan loss provisions 76Note 41 Other assets 77Note 42 Insurance liabilities in life insurance 77Note 43 Technical provisions in P&C insurance 79Note 44 Securities issued 81Note 45 Subordinated loan capital and hybrid tier 1 capital 81Note 46 Deposits from and liabilities to customersand financial institutions 82Note 47 Liabilities related to reinsurance 83Note 48 Other liabilities 83Other notesNote 49 Changes in group structure 83Note 50 Shareholder structure 85Note 51 Number of employees and full-time equivalents 85Note 52 Material transactions with related parties 86Note 53 Events after the balance sheet date and legal disputes 89Note 54 Revised balance sheet for SpareBank 1 Gruppenas of 31 December 2011 90Auditors report 91Content
3Board of Directors Report for 2012SpareBank 1 GruppenOPERATIONS IN 2012The Groups pre-tax profit more than doubled compared with2011.Record pre-tax profit for SpareBank 1 Livsforsikring AS dueto improved risk and administration results. The companyincreased its buffers throughout the year. Changes to the taxexemption method rules resulted in a significantly higher taxcost.A reduced claims ratio and more than doubling of its financialincome contributed to significantly improve SpareBank 1Skadeforsikring Groups result.A decision was taken in September to merge SpareBank 1Livsforsikring and SpareBank 1 Skadeforsikring into a singlebusiness area. The aim is to develop comprehensive customerservices and strong, in-house expert groups.A reduction in average total assets resulted in lower incomeand contributed to a loss for ODIN Forvaltning AS. A new CEOwas appointed in the third quarter and it has undergone acomprehensive turnaround process.Pressure on margins and a fall in debt collection incomeresulted in a poorer result for SpareBank 1 Gruppen FinansGroup.SpareBank 1 Markets AS focused heavily on a national capitalmarkets group. The company significantly strengthened itsposition in the market for bond issues during the year.SpareBank 1 Gruppen AS is a holding company that produces,provides and distributes products within P&C insurance, lifeinsurance, fund management, capital markets, factoring, debtcollection and long-term monitoring via its subsidiaries.SpareBank 1 Gruppen AS is owned by SpareBank 1 Nord-Norge(19.5%), SpareBank 1 SMN (19.5%), SpareBank 1 SR-Bank ASA(19.5%), Samarbeidende Sparebanker AS (19.5%), SparebankenHedmark (12%) and the Norwegian Confederation of Trade Unions(LO) and its affiliated unions (10%). SpareBank 1 Gruppen ASsoffice address is in Tromsø, and the Groups primary market isNorway.In this Directors Report, SpareBank 1 Gruppen AS refers to theholding company and SpareBank 1 Gruppen refers to the Group.2012 saw good financial markets and a drop in claims ratios.SpareBank 1 Gruppen reported a pre-tax profit of NOK 786.6million, compared with NOK 387.3 million in 2011. The net profitfor the period amounted to NOK 443.4 million, compared withNOK 525.8 million in 2011. The poorer net profit for the periodwas attributable to the tax cost in SpareBank 1 Livsforsikring ASresulting from changes to the tax exemption method rules forlife insurance companies. The result represents an annualisedreturn on equity of 8.7%, compared with 11.1% for 2011.Corrected for a non-recurring effect of NOK 193.0 million, dueto the aforementioned rule changes for tax in life insurancecompanies, the return on equity was 12.3%.SpareBank 1 Gruppens total assets amounted to NOK 46.3 billionas of 31 December 2012. This represents growth of 10.3% since2011.SpareBank 1 Gruppens capital adequacy ratio as of 31 December2012 was 14.6%, compared to 16.2% at year-end 2011. Its corecapital adequacy ratio at year-end 2012 was 13.1%, compared with14.6% the year before. SpareBank 1 Gruppens capital situation isconsidered satisfactory and, in the opinion of the Board, theGroup is well capitalised with respect to meeting the expectedrequirements of the Solvency II regulations.
4 SpareBank 1 GruppenSpareBank 1 Livsforsikring AS achieved the best pre-tax profit inthe companys history with improvements in both the risk and theadministration results. SpareBank 1 Livsforsikring AS furtherstrengthened its buffer capital throughout 2012, including byincreasing the securities adjustment reserve by NOK 405.1 million.The companys administration result continues to improve and wasNOK 9.7 million better than in 2011. The company achieved aninterest result of NOK 268.8 million, which is NOK 99.8 millionlower than in 2011. The risk result after technical provisions wasNOK 291.5 million, which is NOK 50.1 million better than in 2011.Claims provisions within individual policies were strengthenedby a total of NOK 147 million, and are now deemed adequate.SpareBank 1 Livsforsikring ASs tax cost was NOK 290.2 million.The high tax cost was due to changes to the rules for life insurancecompanies that came into effect on 1 January 2012 and meanthat the tax exemption method can no longer be applied to equities,etc. included in the group and investment choice portfolios. Thenon-recurring effect of this change amounted to NOK 193.0 millionand was charged in the fourth quarter.SpareBank 1 Skadeforsikring Group achieved a pre-tax profit of NOK618.9 million, which is NOK 433.6 million better than in 2011. Theprofit from insurance business amounted to NOK 62.4 million.This is NOK 99.7 million better than in 2011. The improved resultwas mainly attributable to better claims ratios in both the retailmarket and the corporate market. SpareBank 1 SkadeforsikringGroups gross combined ratio for 2012 was 98.7% and the grossclaims ratio was 79.1%. The claims ratio was 5.5 percentagepoints lower than in 2011. SpareBank 1 Skadeforsikring Groupspremiums written increased by NOK 248 million and the totalpremiums written at year-end 2012 amounted to NOK 5.45billion.A decision was taken in 2012 to more closely integrate the P&C andlife insurance business into the Group. The aim is to developcomprehensive customer services and strong, in-house expertgroups. Closer collaboration between the companies will alsoproduce a basis for more efficient processes throughout the valuechain, greater competitiveness and lower costs. The organisationmodel and legal structure of this merged insurance business iscontingent on the authorities approval.ODIN Forvaltning Groups total assets under management amountedto NOK 24.8 billion as of 31 December 2012. This was NOK 1.4billion more than at year-end 2011. The drop in average totalassets in 2012 compared with 2011 resulted in a NOK 46.4 millionreduction in management fees. The result before tax was NOK -20.4million. Corrected for non-recurring costs of approximately NOK30 million, the company enjoyed positive underlying operationsin 2012.SpareBank 1 Markets AS experienced a loss of NOK 168.5 millionin 2012. It focused on investments during the year with the aimof putting in place the required framework conditions for a strongcapital markets unit. The company strengthened its position in themarket for bond issues in 2012, primarily due to the collaborationwith SpareBank 1 SMN becoming operational in the second quarterof 2012. The collaboration includes access to the balance sheetcapacity of SpareBank 1 SMN. The result for the year was affectedby the build up that took place.SpareBank 1 Gruppen Finans Group, which operates in thefactoring, debt collection and long-term monitoring businessareas, achieved a pre-tax profit of NOK 25.1 million. The factoringbusiness area, organised in SpareBank 1 Gruppen Finans AS,was the countrys third largest with a market share of 15.7%,compared with 14.1% in 2011. The pre-tax profit of the debtcollection business area, organised in Conecto AS, was NOK 16.7million, compared with NOK 24.7 million in 2011. Fewer newcases resulted in a drop in debt collection income. Higher portfoliovolumes than in 2011 resulted in increased interest incomewithin portfolio administration, organised in SpareBank 1 GruppenFinans AS. The total portfolio volume was NOK 1 504 millionas of 31 December 2012, an increase of NOK 352 million sinceyear-end 2011.SpareBank 1 Gruppen has made strategic investments in impor-tant product areas in recent years via structural changes andacquisitions, with capital markets, debt collection, and factoringbeing the most recent examples. The goal is to control the productand value chains for the benefit of both customers and owners.CORPORATE GOVERNANCEShares in SpareBank 1 Gruppen AS are not publicly traded, butas of 31 December 2012 the company did have a bond issue listedon Oslo ABM. The company has, as shown in the section on«Operations in 2012», a concentrated shareholder structure. Allshareholders and groupings of shareholders are represented on theBoard, either directly or indirectly. There is continuous, goodcontact with all shareholders and groupings of shareholders in thecompany. The Board of SpareBank 1 Gruppen AS has discussedthe «Norwegian Code of Practice for Corporate Governance» andhas determined to comply with those sections that are relevant toa company whose shares are not listed on a stock exchange.The Boards overall report on the companys corporate governancehas been incorporated into the 2012 annual report.Group executive management teamSpareBank 1 Gruppens executive management team is responsiblefor running and developing the financial group with a focus onresults and operations associated with the companies in the
5Group, as well as responsibility for the operational collaborationbetween SpareBank 1 Gruppen and the SpareBank 1 banks.Information about remunerationInformation about the remuneration of the CEO, executive manage-ment team, Board, Supervisory Board and Control Committee isprovided in the financial statements note 22, and informationabout the auditors remuneration is provided in note 21.Dividend policySpareBank 1 Gruppen ASs long-term goal is to pay out 30-50% ofits profits, at a consolidated level, as a net dividend to its owners.When fixing the net dividend for SpareBank 1 Gruppen, the focusis on maintaining satisfactory core and total capital adequacy inrelation to planned growth, as well as maintaining a satisfactoryoverall financial position in relation to internal ICAAP calculationsand the Groups liquidity. The target for the core capital ratio,including hybrid tier 1 capital, is a minimum of 11% and for thetotal capital adequacy ratio it is a minimum of 13%. SpareBank 1Gruppen should achieve the capital adequacy goals established bythe Solvency II regulations by a good margin.The Boards net dividend proposal for 2012 attaches weight to thefact that SpareBank 1 Gruppen has not paid a net dividend inrecent years as well as the fact that the Group is deemed adequa-tely capitalised to satisfy the expected Solvency II requirements.The net dividend proposal for 2012 helps SpareBank 1 Gruppento achieve its targets with respect to the long-term target of payingout 30-50% of the profit at a consolidated level.SPAREBANK 1 GRUPPEN – RESULTS AND KEY FIGURESSpareBank 1 Gruppen AS and the Group prepare their financialstatements in accordance with the EU approved InternationalFinancial Reporting Standards (IFRS).SpareBank 1 Gruppen reported a pre-tax profit of NOK 786.6million, compared with NOK 387.3 million in 2011. The goodperformance of the securities markets combined with a lower claimsratio helped to significantly improve the result.The net profit for the period was NOK 443.4 million, whichprovided a return on equity of 8.7%. The Groups tax cost wasNOK 343.3 million, compared with tax income of NOK 138.5million in 2011. The high tax cost was due to the non-recurringeffect of NOK 193.0 million linked to the introduction of new ruleslimiting use of the tax exemption method for equities owned bylife insurance companies. Corrected for this tax charge, the returnon equity was 12.3%.Pre-tax profit per business area:NOK million 2012 2011Result before tax from the subsidiaries:SpareBank 1 Livsforsikring AS 479.4 414.1SpareBank 1 Skadeforsikring Group 618.9 185.3ODIN Forvaltning Group -20.4 21.8SpareBank 1 Markets AS -168.5 -154.8SpareBank 1 Medlemskort AS 10.4 12.1SpareBank 1 Gruppen Finans Group 25.1 27.9Group adjustments -8.5 28.7Net result before tax from the subsidiaries 936.4 535.1SpareBank 1 Livsforsikring ASSpareBank 1 Livsforsikring ASs focus areas are within definedcontribution pensions, group life insurance and individual riskinsurance. The companys products and primarily distributed viathe banks in the SpareBank 1 Alliance, Norwegian Confederation ofTrade Unions (LO) and its affiliated unions.Financial performance:NOK million 2012 2011Risk result after technical provisions 291.5 241.4Administration result -56.2 -65.9Interest result 268.8 368.5Provisions -145.3 -187.3Remuneration for interest guarantee 25.9 22.7Total result for supplementary provisions 384.7 379.4Allocation to supplementary provisions -43.7 0.0Profit to customers -43.1 -61.5Return on the companys funds 181.5 96.2Net profit to owner before tax 479.4 414.1Tax cost -290.2 97.8Net profit to owner after tax 189.2 511.9SpareBank 1 Livsforsikring AS achieved the best pre-tax profit inthe companys history, which amounted to NOK 479.4 millioncompared with NOK 414.1 million in 2011.Sales of defined contribution pensions and individual risk insurancehave grown significantly by 26% and 15%, respectively, comparedwith 2011. The company maintained a strong position in themarket for individual risk insurance in 2012. Sales of group lifeinsurance rose by 130% in relation to the year before.SpareBank 1 Livsforsikring AS strengthened its buffer capital throug-hout 2012, including through increasing the securities adjustment reser-ve by NOK 405.1 million. The company also strengthened the buildingup of reserves for higher life expectancy by NOK 145.3 million.The total net profit after tax was NOK 189.2 million, which isNOK 322.7 million lower than in 2011. The companys tax cost washigh at NOK 290.2 million, compared to tax income of NOK 97.8million in 2011. New regulations concerning changes in the taxationof equities-related investments in the management of customer
6 SpareBank 1 Gruppenassets in life insurance companies did not contain transitional rulesfor the tax-related opening value. The use of historical cost pricewill thus lead to a significant non-recurring cost of NOK 193.0million when calculating latent deferred tax.Risk resultThe net risk result has increased by NOK 50.1 million since year-end 2011 and amounted to NOK 291.5 million. As in 2011, 2012was spent building up claim provisions linked to disability withinindividual annuity and endowment insurance. The correspondingprovisions within group pension insurance were lower than theyear before. The provisions were considered adequate for all groupsof products at year-end 2012.Administration resultThe administration result was NOK -56.2 million, which was animprovement of NOK 9.7 million compared with 2011, despite non-recurring costs associated with the companys restructuring process.Investment resultThe interest result was NOK 268.8 million, compared with NOK 368.5million for 2011. The reduction was due to lower realised gains. NOK94.7 million of the interest profit was used to strengthen the premiumreserve because of expected higher life expectancy and NOK 43.7 mil-lion was allocated to supplementary provisions. The companyssupplementary provisions totalled NOK 374.7 million at year-end2012, compared with NOK 344.1 million at year-end 2011.The value-adjusted capital yield in the group portfolio as a whole was7.3%. The booked return on assets was 4.7%. The correspondingreturns in 2011 were 2.5% and 5.4%, respectively. The capital yieldin the company portfolio was 5.7%, compared with 4.3% in 2011.Asset allocation per portfolio as of 31 December 2012:Group portfolio 2012Equities 12.6 %Other 0.7 %Property 19.7 %Bonds - amortised cost 27.8 %Bonds - market value 39.2 %Value (NOK million) 16 908Company portfolio 2012Equities 0.0 %Other 0.2 %Property 18.4 %Bonds - amortised cost 15.8 %Bonds - market value 65.6 %Value (NOK million) 3 120Investment choice portfolio 2012Equities 53.2 %Other 0.4 %Bonds 46.4 %Value (NOK million) 8 239Solvency and capital situationThe companys total assets amounted to NOK 29.1 billion as of 31December 2012. This represents an increase of 9.2% since 2011.The buffer capital, after the proposed application of the yearsprofit, amounted to NOK 2.3 billion, equivalent to 13.6% ofinsurance provisions. By way of comparison, the buffer capital atyear-end 2011 amounted to NOK 1.7 billion, equivalent to 11.0%of insurance provisions. The main reason for the stronger buffercapital was the increase in the securities adjustment reserve toNOK 590.0 million from NOK 184.9 million in 2011.The companys capital adequacy ratio was 18.5% at year-end 2012,which was unchanged from 2011. All of the primary capital comprisescore capital. The company received NOK 248.0 million in equitythrough group contributions.At year-end 2012, the interest and risk profit within group definedbenefit pensions and paid-up policies, which totalled NOK 145.3million, was allocated to the premium reserve due to anticipatedhigher life expectancy in the insurance portfolio. NOK 83.1 millionof this was allocated for group defined benefit pensions and NOK 62.2million for paid-up policies.The Groups solvency margin capital ratio was 309.2% as of 31December 2012, compared to 303.5% for 2011. The minimum require-ment for the solvency margin capital ratio is 100%. At year-end2012, the solvency margin requirement was NOK 864.3 million,compared to NOK 794.6 million in 2011.The company continuously assesses the impact of, and adapts to, thecoming Solvency II regulations.SpareBank 1 Skadeforsikring GroupSpareBank 1 Skadeforsikring Group is the leading Norwegian sellerof insurance via banks, but also sells directly to retail customers andvia broker channels to corporate market customers.Financial performance:NOK million 2012 2011Gross written premium 5 600.4 5 358.2Net earned premium 5 073.1 4 695.9Accrued claims for own account -3 970.9 -3 973.5Insurance-related operating expenses for own account -1 012.9 -884.7Other insurance-related income/costs 14.3 31.8Other technical provisions -41.2 93.2Insurance result 62.4 -37.3Net financial income 537.6 260.3Other costs -0.1 0.0Operating result 599.9 223.0Change in security reserves 19.0 -37.7Pre-tax profit 618.9 185.3Tax cost -142.8 -94.6Net profit for the period 476.1 90.7Investment choice portfolioGroup portfolioObligasjoner - markedsverdiObligasjoner - amortisert kostEiendomAnnetAksjerObligasjoner - markedsverdiObligasjoner - amortisert kostEiendomAnnetAksjerObligasjonerAnnetAksjerCompany portfolio
7SpareBank 1 Skadeforsikring Group achieved a pre-tax profit ofNOK 618.9 million for 2012, compared with NOK 185.3 millionfor 2011. The strong improvement in the result was due to high netfinancial income and the significantly improved insurance resultin the parent company.SpareBank 1 Skadeforsikring Groups premium income for ownaccount amounted to NOK 5.1 billion, corresponding to growth of8.0% since 2011. SpareBank 1 Skadeforsikring Groups premiumswritten grew by NOK 248 million, which corresponds to growthof 4.8% since 2011. There was growth within bank distribution,the Norwegian Confederation of Trade Unions (LO) and thesubsidiary Unison Forsikring AS. Total premiums written at year-end 2012 amounted to around NOK 5.45 billion.Claims costsSpareBank 1 Skadeforsikring Groups gross claims ratio was79.1%, which represents a 5.5 percentage point improvementsince 2011. The good growth is attributable to premium measuresthat produced good income growth at the same time as claims costswere reduced. Significant profits from prior years for key productgroups and the claims costs project, which aims to reducepurchasing costs within claims settlements, have contributed tolower claims costs.The natural perils result improved despite a substantial change inthe claims reserve, which was due to the storms «Berit» and«Dagmar» resulting in higher compensation payments thanestimated as of 31 December 2011.SpareBank 1 Skadeforsikring Group again saw a large number ofmajor claims in 2012. Seven major claims involving compensationsums of more than NOK 10 million occurred during the year.Total compensation costs relating to larger claims amounted toNOK 138 million and accounted for 2.5 percentage points of theGroups gross claims ratio. In 2011, there were six equivalentclaims for more than NOK 10 million with total compensationcosts of NOK 144 million.Operating costsThe gross claims ratio was 19.6%, which represents an increaseof 0.7 percentage points since 2011. The increase is mainlyattributable to non-recurring costs associated with restructuring.Profit commissions for the owner banks amounted to 0.9 percentagepoints of the cost/income ratio, compared with 0.6 percentagepoints in 2011.The combined ratio for own account, including natural perils, was98.2%, which is 5.3 percentage points higher than in 2011.Development of combined ratio, net (%):The provision concerning claim provisions in the act relating toinsurance activities was clarified in 2012. In accordance withthis clarification, indirect claim processing costs must be includedin the measurement of compensation costs, while before theywere classified as operating costs. This entails an allocation fromadministration costs to paid claims. The change has no effect onthe result, but does entail an increase in the claims ratio for ownaccount of 4.1 percentage points and a corresponding reductionin the cost/income ratio. Comparable figures for previous yearshave been restated in accordance with the new regulations.Financial result2012 was a good year in the financial markets, which is reflectedin the higher net financial income compared with 2011. SpareBank 1Skadeforsikring Groups net investment income totalled NOK 537.6million, compared with NOK 260.3 million in 2011. The financialreturn on the Groups portfolio was 5.2%. The improvement in thefinancial result is attributable to the high return on equities of 19.7%,as well as a satisfactory return in the fixed income portfolio.Capital situationAt year-end 2012, SpareBank 1 Skadeforsikring Groups totalassets amounted to NOK 14.8 billion. This is an increase of NOK1.6 billion since 2011. The capital adequacy ratio was 37.1% atyear-end 2012, which corresponds to excess coverage of NOK 1 800million in relation to the authorities minimum requirements.The capital adequacy ratio was 4.3 percentage points stronger thanat year-end 2011.Unison Forsikring ASUnison Forsikring AS is a wholly owned subsidiary of SpareBank 1Skadeforsikring AS. Unison Forsikring AS experienced a NOK-250.4 million loss before tax. The loss before tax in 2011 amountedto NOK -197.2 million. A number of profitability improvementCosts ratioClaims ratio2012201120102009200894.0 96.2 97.7103.5 98.218.275.818.877.417.480.318.884.720.078.2
8 SpareBank 1 Gruppenmeasures have been and will be implemented in Unison ForsikringAS, including disposals and repricing a number of the companysinsurance portfolios. This will also entail a considerable reductionin the number of employees in the company. A decision has beenmade to merge Unison Forsikring AS into SpareBank 1 Skade-forsikring AS with accounting effect from 1 January 2013. Themerger is contingent on the approval of the authorities.ODIN Forvaltning GroupODIN Forvaltning Group is one of Norways largest managers ofequity funds. ODIN Forvaltning Group is a value-oriented equityfund manager, which on behalf of its unit holders invests inundervalued companies with good products, a strong cash flow,solid balances and a high dividend capacity.Financial performance:NOK million 2012 2011Management fees 257.1 303.5Total operating income 257.1 303.5Payroll costs -110.1 -108.5Amortisation -26.0 -23.5Other operating costs -130.6 -151.2Total operating costs -266.7 -283.2Operating result -9.6 20.3Net financial income -10.8 1.5Pre-tax profit -20.4 21.8Tax cost 1.9 -7.0Net profit for the period -18.5 14.8ODIN Forvaltning Group experienced a NOK 20.4 million lossbefore tax in 2012, compared with a profit of NOK 21.8 million in2011. The organisation underwent a restructuring process focusedon improving administration processes and cost reducing measuresin the second half of 2012. The Groups operating result for 2012was NOK -9.6 million compared with NOK 20.3 million in 2011.The fall in the result is attributable to a combination of loweraverage total assets during the year and non-recurring costs ofaround NOK 30 million.10 out of ODINs 12 equity funds, all five bond funds and all threecombination funds produced returns ahead of their respectivebenchmark indices in 2012.Total assetsAt year-end 2012, ODIN Forvaltning Group had assets totallingNOK 24.8 billion under management: NOK 22.9 billion of whichwere in equity funds, NOK 0.9 billion in combination funds andNOK 1.0 billion in bond funds.The equity funds saw net redemption of NOK 1.8 billion. This, incombination with a relatively weak return in ODIN ForvaltningGroups two largest funds, resulted in its market share for equityfunds falling to 8.2% from 8.9% in 2011.Net new fund subscriptions amounted to NOK 184 million inODIN Forvaltning Groups combination funds. It has a marketshare for combination funds of 4.4%, compared with 3.8% in 2011.Its five bond funds saw net new fund subscriptions of NOK 203.5million, and its market share for bond funds was 0.4% at year-end2012.SpareBank 1 Markets ASSpareBank 1 Markets AS is an analysis based capital marketsunit that is active within corporate finance, foreign capital andstockbroking. SpareBank 1 Gruppen AS owned 97.55% of theshares in SpareBank 1 Markets AS at year-end 2012. The remainderof the shares were owned by employees.Financial performance:NOK million 2012 2011Total income 149.6 86.2Payroll and payroll-related costs -203.5 -149.7Other operating costs -104.7 -81.1Amortisation -6.5 -8.0Total operating costs -314.6 -238.8Operating result -165.0 -152.6Net financial costs -3.5 -2.2Pre-tax profit -168.5 -154.8Tax cost 44.1 41.7Net profit for the period -124.4 -113.1The result before tax for 2012 was a loss of NOK 168.5 million.Total sales amounted to NOK 149.6 million, which is an improve-ment of NOK 63.3 million on 2011. Income from the area of foreigncapital amounted to NOK 54.1 million, which is an improve-ment of NOK 42.5 million on 2011. This progress is largelyattributable to the company having strengthened its position in themarket for bond issues throughout the year, mainly due to thecollaboration with SpareBank 1 SMN. Brokers commissions fromthe equities and high yield business area amounted to NOK 39.8million, corporate finance fees were NOK 50.7 million and otheroperating income was NOK 5.1 million.SpareBank 1 Markets AS has undergone restructuring in the last2 years. During this period the resources have been used to put inplace the necessary framework for a strong capital markets unit.The result for 2012 was affected by this restructuring and achallenging market situation within the equities market thataffected the earnings potential of all market players in the industry.In 2012, SpareBank 1 Markets AS established a formalised colla-boration with SpareBank 1 SMN concerning own account tradingin bonds and derivatives. The collaboration supports issuingactivities and thus investment capacity. The greater balancesheet capacity has put SpareBank 1 Markets AS in a better positionto effectively arrange capital between borrowers and investors, and
9offer its customers relevant risk management solutions. Thecompany is now established as a central player in the market forsenior bank funding.SpareBank 1 Gruppen Finans GroupSpareBank 1 Gruppen Finans AS produces, delivers and distributesservices within factoring, portfolio acquisition and portfolio manage-ment. The companys registered address is in Oslo and it runs itsfactoring operations in Ålesund and Tromsø. SpareBank 1 GruppenFinans AS owns 100% of the shares in Conecto AS, which workswithin out of court and legal debt collection. Both companies areorganised in a sub-group of SpareBank 1 Gruppen AS that isowned and managed by SpareBank 1 Gruppen Finans AS.Financial performance:NOK million 2012 2011SpareBank 1 Gruppen Finans AS 12.1 12.2Management -7.1 -5.9Factoring 12.8 14.6Portfolio 6.4 3.5Conecto AS 16.7 24.7Net result before tax from the subsidiaries 28.8 36.9Excess value amortisation -3.7 -9.0Pre-tax profit 25.1 27.9Tax cost -6.7 -8.8Net profit for the period 18.4 19.1SpareBank 1 Gruppen Finans Group achieved a pre-tax profit of NOK25.1 million, which is NOK 2.8 million weaker than in 2011.SpareBank 1 Gruppen Finans ASSpareBank 1 Gruppen Finans AS achieved a pre-tax profit ofNOK 12.1 million, which is on a par with 2011. The company canpoint to good result progress in portfolio activities due to higherportfolio volumes and increased interest income. Factoringactivities saw good growth, but lower margins are squeezingearnings. SpareBank 1 Gruppen Finans AS reported total incomeof NOK 85.0 million, compared with NOK 73.2 million in 2011.FactoringThe factoring business area is involved in funding within theareas of factoring and guarantees. Its pre-tax profit amounted toNOK 12.8 million, compared to NOK 14.6 million for 2011.Factoring achieved net operating income of NOK 61.0 million,which represents an increase of NOK 2.2 million since 2011.Client turnover experienced a good increase of 18.1%. The businessareas market share was 15.7%, compared with 14.1% in 2011.PortfolioThe portfolio business area is involved in the acquisition of port-folios of monetary claims that are then recovered by the Groupsdebt collection company. Its pre-tax profit was NOK 6.4 million,compared with NOK 3.5 million in 2011, which represents animprovement of NOK 2.9 million. Turnover increased by NOK 9.9million in relation to 2011. Portfolio volume grew by 31% and wasNOK 1 504 million as of 31 December 2012. The book value atyear-end 2012 was NOK 120.6 million, which is an increase ofNOK 42.3 million since 2011.Conecto ASConecto AS is primarily involved in the collection of invoicedclaims. The company also provides fund management, legal debtcollection services and legal advice.Its pre-tax profit amounted to NOK 16.7 million, compared to NOK24.7 million for 2011. The debt collection market is currentlystagnant. Conecto ASs turnover amounted to NOK 153.6 million,a reduction of NOK 9.2 million since 2011. The fall was due tofewer incoming cases. The company produces a good resolutionrate for its customers.SpareBank 1 Gruppen Finans Group built the foundation for fur-ther growth and profitability in 2012. The collaboration with theSpareBank 1 banks will in the future provide new opportunitiesfor cross-sales of debt collection services to the banks corporatecustomers.SpareBank 1 Medlemskort ASSpareBank 1 Medlemskort AS is tasked with operating the jointmembership database of the unions affiliated to the NorwegianConfederation of Trade Unions (LO) that is used to administermembership card deliveries, collect premiums for group insurance,and run and administer the LOfavør advantage card scheme foraround 880 000 members. The company works closely with LOand the unions.Financial performance:NOK million 2012 2011Operating income 55.2 58.5Payroll costs -7.4 -6.6Operating costs Medlemskort -0.6 -2.0Operating costs LOfavør -31.5 -32.6Operating costs Reskontro -6.2 -6.1Total operating costs -45.7 -47.3Operating result 9.5 11.2Net financial income 0.9 0.9Pre-tax profit 10.4 12.1Tax cost -3.2 -3.6Net profit for the period 7.2 8.5The pre-tax profit for the year amounted to NOK 10.4 million,compared to NOK 12.1 million for 2011. The net profit for theperiod was NOK 7.2 million, which is NOK 1.3 million lower thanin 2011.
10 SpareBank 1 GruppenThe membership base in LO is an important basis for SpareBank 1Medlemskort AS. The membership base is growing and is expectedto surpass 900 000 in 2013.SpareBank 1 Gruppen ASIn addition to shares in subsidiaries, SpareBank 1 Gruppen ASsassets consist of bank deposits and other minor assets. Bankdeposits were NOK 269.2 million as of 31 December 2012,compared with NOK 213.7 million as of 31 December 2011.The equity consists of share capital, a share premium reserveand retained earnings. The share capital in SpareBank 1 GruppenAS amounted to NOK 1 956 million as of 31 December 2012,while total equity amounted to NOK 3 861 million. The companyhad distributable equity amounting to NOK 1 335 million at year-end 2012.The capital adequacy ratio was 37.6%, compared with 40.0% in2011. The companys core capital adequacy ratio was 33.8% in2012 and 35.4% in 2011.SpareBank 1 GruppenThe Groups cash and cash equivalents decreased by NOK 521.1million in 2012 to NOK 755.0 million. The reduction was due to netcash flows from financing activities and investing activities of NOK-1 070 million and NOK -275.5 million, respectively, exceeding thecash flow from operating activities of NOK 824.5 million.The biggest changes between the operating result and cash flowfrom operating activities for 2012 are attributable to the increasein technical provisions of NOK 3 067 million, increase in depositsfrom and liabilities to customers and financial institutions ofNOK 1 519 million, and a negative cash flow from securities at fairvalue held to maturity of NOK -3 481 million. Securities issueddecreased by NOK 1 066 million to NOK 833.8 million. The dividendpaid to owners amounted to NOK 433.9 million in 2012.SpareBank 1 Gruppens total equity at year-end 2012 amounted toNOK 5 304 million, compared with NOK 4 942 million at year-end2011. Recognised goodwill in the Group totalled NOK 839.2million as of 31 December 2012, compared to NOK 861.1 millionat year-end 2011.The Groups capital adequacy ratio was 14.6% as of 31 December2012, compared to 16.2% in 2011. The Groups core capitaladequacy ratio was 13.1% as of 31 December 2012, compared to14.6% as of year-end 2011.The annual financial statements have been prepared on the basis ofa going concern assumption. The Board finds that the prerequisitesfor such a going concern assumption are met by the financialstatements for 2012 and the earnings forecast for 2013. Beyondmatters mentioned in this report, no circumstances have arisenafter the end of the accounting year that would be of materialsignificance to the companys position and results.DIVIDENDThe Board proposes that SpareBank 1 Gruppen AS distribute adividend of NOK 686.7 million for 2012.RISK FACTORSThe operations of SpareBank 1 Gruppen are organised into differentbusiness areas through subsidiaries. There are major differencesin the individual subsidiaries risk profile. The most important riskcategories to which the Group is exposed are market risk, insurancerisk, ownership risk, operational risk, credit risk, liquidity risk,concentration risk, and strategic and commercial risk.See note 6 on financial risk management for a more detaileddescription of the overall risk management in SpareBank 1 Gruppen.Responsibility for risk management, compliance and controlThe Groups board is responsible for risk management and compliancein the Group. The company boards are responsible for their owncompanys risk management and compliance.Responsibility for the overall risk management within the orga-nisation lies with the executive vice president responsible forstrategy, risk management and analysis in the parent company. Thisposition reports directly to the CEO of SpareBank 1 Gruppen AS.Risk management in SpareBank 1 Gruppen should support theGroups strategic development and achievement of its objectives,and ensure the fulfilment of statutory capital requirements. Riskmanagement is intended to ensure financial stability and soundasset management. This should be achieved by:A moderate risk profileA strong risk culture characterised by a high awareness of riskmanagementStriving for an optimum application of capital within theadopted business strategy.Making the most of all synergy and diversification effects.Adequate core capital for the chosen risk profile.Ensuring the Group complies with all regulatory capital andsolvency margin requirements.The risk management function in SpareBank 1 Gruppen AS estimatesthe Groups risk profile each year. A more comprehensive self-assessment of the Groups overall capital requirements is carriedout at least once a year. The purpose of the risk calculations is tomonitor the Groups risk exposures and assess the Groups future
11capital requirements in light of the owners appetite for risk. Therisk calculations are also tied to the established liquidity andcontingency plans.Risk management functions have been established at a companylevel in the Groups subsidiaries. The risk management functionsreport both to their own boards and the risk management functionin SpareBank 1 Gruppen AS, which bears overall responsibility.Internal control in the Group is regulated by key mandatory guide-lines, but is primarily defined as a line management responsibility.In accordance with the "Regulations on Risk Management andInternal Control" and the Groups own guidelines, risk factors inthe operations are reviewed annually and action plans are preparedin all units, which are reported to the respective company boards.Information from this company-by-company reporting is aggre-gated and reported to the Groups board. In addition, the Groupalso conducts surveys across the Group with regard to internalcontrol, the Personal Data Act, and security matters. SpareBank 1Gruppen has outsourced internal auditing to Ernst & Young. Thishas supplied added expertise to the Group. The internal auditingoperations also encompass the subsidiaries.Development of risk management in 2012The improvements to the Groups risk management have largelyfocused on improving the consistency and quality of risk manage-ment information. This work will continue in 2013. Developing andintegrating risk management into the Groups operations andstrategic decisions are thus priority tasks. SpareBank 1 Gruppenintroduced corporate risk management at the beginning of 2012. Thegoal is to bring together the Groups risk management resources andstrengthen its expertise within risk management.The risk management function in SpareBank 1 Gruppen ASconducted a review of the Groups overall risk management in thefirst half of 2012. The work resulted in a unified, long-term conceptfor developing the Groups risk management during the next plannedperiod. As an insurance dominated financial group, SpareBank 1Gruppen will also be subject to the group provisions in the comingSolvency II regulations. The introduction of the regulations willprobably be postponed until 2016 at the earliest. Nationaladaptations can be expected from 2014. The aims of the SolvencyII adaptation therefore match the future long-term aims for riskmanagement.A joint risk management function has been established as part ofthe work of forging a closer collaboration between SpareBank 1Skadeforsikring AS and SpareBank 1 Livsforsikring AS. Thisstrengthens the efficiency of, and expert environment for, riskmanagement in the Group.Risk categoriesMarket riskThe Groups consolidated market risk is measured and reportedquarterly to the Board of SpareBank 1 Gruppen AS. The calculationsare based on a Value-at-Risk model. A corresponding model is usedto follow-up each individual company. The subsidiaries in theGroup manage and also monitor their own risk exposure in accor-dance with their own models and routines.SpareBank 1 Gruppen is exposed to market risk through theinvestment portfolios in SpareBank 1 Livsforsikring AS, SpareBank 1Skadeforsikring Group and SpareBank 1 Markets AS. The investmentportfolios are heavily slanted towards fixed income securities, andparticularly exposure to the Norwegian interest rate market. Thedevelopment of global and Norwegian securities markets producedpositive growth for the Groups total investment portfolios in2012. The financial result for 2012 was far higher than the financialresult for 2011.The value-adjusted return in SpareBank 1 Livsforsikring ASs groupportfolios was 7.3%, while the booked return was 4.7%. The companyportfolio saw a return of 5.7%. The allocation of assets towardsequities was reduced during the year. The companys securitiesadjustment reserve grew to NOK 590.0 million in 2012, fromNOK 184.9 million in 2011. Supplementary provisions had, as of31 December 2012, increased to NOK 374.7 million from NOK344.1 million as of 31 December 2011 due to the interest surpluslinked to old individual products being allocated to supplemen-tary provisions.SpareBank 1 Skadeforsikring AS has a conservative investmentprofile. Nonetheless, the investment portfolios delivered a strongfinancial return of 5.2%, compared with 2.8% for 2011. At year-end2012, the company had a total portfolio of NOK 10 953 million,of which the equities portfolio accounts for 8.2%. The return onthe equities portfolio was 19.7%. The companys fixed incomeinvestments have a very short maturity. As of 31 December 2012,70.7% of the investment portfolio was invested in short-term bondsand 10.1% in loans and receivables. The returns on these assetclasses were 3.8% and 5.5%, respectively. 11.0% of the portfolio wasinvested in property, and achieved an overall return of 5.4%. Themarket risk in the P&C insurance portfolio is considered medium high.The market risk in SpareBank 1 Markets AS is estimated on thebasis of published limits. Besides the equity instrument limits, thecompany is exposed to market risk through an investment portfolioin fixed income securities that, as of 31 December 2012, had a marketvalue of NOK 3.9 billion. The portfolio refers to the collaborationwith SpareBank 1 SMN and mainly consisted at year-end 2012 ofbonds with variable rates (floating rate notes) where the couponpayments are variable and renewed every 6 months.
12 SpareBank 1 GruppenOwnership riskSpareBank 1 Gruppen ASs financial position is regarded as satis-factory overall, given the current risk exposure. Financially, theholding company is deemed to have sufficient financial capacityto support the subsidiaries adopted strategies.Credit riskThe credit risk in SpareBank 1 Livsforsikring AS, SpareBank 1Skadeforsikring Group and SpareBank 1 Markets AS is related toinvestments in money market instruments and bonds. Invest-ments in this area are generally made in high rated papers.The insurance companies are also exposed to a credit riskassociated with various reinsurers. Their rating is monitoredclosely, and the risk is considered to be low. In the real estate port-folio there is risk associated with the servicing of lease agreements.The risk in this category is also considered to be limited.The credit risk in SpareBank 1 Gruppen Finans Group is relatedto factoring and debt collection activities. Overall the credit riskin this portfolio is considered limited.Concentration riskSpareBank 1 Livsforsikring AS, SpareBank 1 SkadeforsikringGroup and SpareBank 1 Markets AS are assumed to have someexposure to concentration risk on the investment side, particularlyrelated to investments in bonds issued by financial institutions.The risk management function in SpareBank 1 Gruppen AS monitorsthe total concentration in these investment portfolios every quarter.Insurance riskInsurance risk is an inherent part of the business of both SpareBank 1Livsforsikring AS and SpareBank 1 Skadeforsikring Group.However, the nature of the risks in the two companies differsomewhat. Losses in SpareBank 1 Skadeforsikring Group can ariseas a result of fluctuations in the years claims ratio and prior-yearlosses. For SpareBank 1 Livsforsikring AS the risk is primarilyassociated with risk products without profit sharing, but alsowith higher life expectancy and disability.Both SpareBank 1 Livsforsikring AS and SpareBank 1 SkadeforsikringGroup reduce risk through reinsurance, partly by the reinsurersassuming portions of the risk within individual business seg-ments and partly by limiting the own account share for individualclaims through reinsurance. Reinsurance also covers cumulativeclaims and disasters. Risk associated with the reinsurers credit-worthiness is categorised under credit risk.The control of the insurance risk within P&C and life insurance isdeemed satisfactory.Operational riskOperational risk in the subsidiaries is documented in connectionwith work relating to compliance with the "Regulations on RiskManagement and Internal Control". This work normally requiresthe management group of a particular subsidiary and staff area inSpareBank 1 Gruppen AS to identify operational risk both beforeand after the implementation of measures. This work did notidentify any serious risk factors in the Group in 2012.In connection with the implementation of the Groups ICAAPcalculations, calculation methods have been established for cal-culating the necessary capital requirements for operational risk.The Groups compliance function monitors compliance withlegislation, regulations, industry standards and so on, as well asinternal guidelines. Compliance with statutory risk processesand an efficient implementation of these are ensured throughthis work. At a Group level, compliance risk is primarily followedup in the form of regular qualitative analyses, as well as contin-uously in day-to-day operations. At a company level, compliancereports are also produced in connection with the management ofthe investment portfolios. Compliance is reported to both theboards of both SpareBank 1 Gruppen AS and the subsidiariesevery quarter.Liquidity riskManagement of the Groups financial structure is based on anoverall liquidity strategy that is assessed and approved by theBoard at least annually. The liquidity risk in SpareBank 1 Gruppenwas primarily linked to the parent company and was judged tobe low. The group account scheme introduced in 2011 reducesliquidity risk. A substantial part of the parent companys fundingis secured through a close collaboration between the largerSpareBank 1 banks in this area.Strategic and commercial riskSpareBank 1 Gruppen has established a contingency plan forhandling sensitive public relations issues. Part of this is a list ofrelevant issues, which is reviewed and updated every quarter.Work on a concrete issue is initiated and led by the executive vicepresident for communication.Together with the alliances risk management forum, the Groupwill continue to focus on the establishment of quantitative modelswith a view to estimating the capital needs for the strategic andcommercial risk in the Group.Pillar 3Please refer to the separate Pillar 3 report for a more detailedreview of the companys capital and risk situation. The report isproduced in accordance with the requirements stipulated in part
IX, chapters 45 and 46, of the Capital Requirements Regulations,as well as to satisfy the markets stricter requirements concerningtransparency and openness concerning risk issues in generally. ThePillar 3 report is published on: http://investor.sparebank1.no.ORGANISATION AND WORKING ENVIRONMENTOrganisationSpareBank 1 Gruppen had a total of 1 331 employees, correspondingto 1 297 full-time equivalents. The corresponding figures for 2011were 1 272 and 1 237 full-time equivalents. SpareBank 1 GruppenAS had 272 employees, corresponding to 267 full-time equivalents.The corresponding figures for 2011 were 234 employees and 229full-time equivalents.A total of 92 employees left in 2012. Total turnover was 7.0%, com-pared with 6.4% in 2011. Corrected for statutory early retirementpensions, retirement pensions and disability pensions, the Groupsturnover was 6.4%, compared with 4.9% in 2011.Measures were implemented to reduce staffing levels as part of thework on forging a closer collaboration between SpareBank 1Skadeforsikring AS and SpareBank 1 Livsforsikring AS. Most ofthis reduction in staffing will take place in 2013. The process ofreducing staffing is being carried out in consultation with theunions. So far terminations have been avoided.HR-strategySpareBank 1 Gruppens HR strategy is based on the companysvision and values. The main goal of the HR strategy is to ensurethat SpareBank 1 Gruppen:Attracts the right employees by focusing on the values«experts and close to you»Retains the best employees by giving them responsibilities,communicating with them and rewarding them for goodperformanceDevelops employees by involving them, giving them clearobjectives and following them upKey areas of SpareBank 1 Gruppens HR strategy include: Thetrainee scheme, pay and rewards, health and safety (HSE), skillstraining, life phases and equality, and career opportunities.Trainee schemeThe trainee scheme was introduced in 2006 and has been activeever since. A total of 23 trainees have concluded their trainee periodsince the start of the scheme. Several of these now work in keypositions in the Group. SpareBank 1 Gruppen had 10 trainees in2012 and will recruit a new group of trainees in 2013.Pay and remunerationRegular analyses are conducted to ensure that the Group offerscompetitive terms without being a pay leader. As well as fixedsalaries, SpareBank 1 Gruppen has an incentive scheme whichrewards relative performance.Company bonusThe company level bonus relates to the individual companystarget attainment and provides the same bonus for all employees.The size of the company bonus depends on how well the companyhas done compared with its competitors.Individual non-recurring bonusIn addition to the company bonus, a bonus pot is allocated forindividual non-recurring bonuses if the return on equity inSpareBank 1 Gruppen is among the top three in a league table ofmixed financial groups in the Nordic region. This is additional to theordinary salary pot in the annual pay reviews as per 1 January.Executive personnelExecutive personnel in SpareBank 1 Gruppen are not covered bythe general bonus schemes, but do have their own schemes. Themaximum achievable bonus amount for executive personnel,who are defined as the group executive management team, with anindividual bonus agreement is 1-3 months salary in SpareBank 1Gruppen. The bonus for meeting targets for a year is paid out inaccordance with the Ministry of Finances regulations relating toremuneration in financial institutions.Working environment and sick leaveThe companys working environment is considered good. Annualorganisation surveys are conducted in the Group, with furtherfollow-up through systematic activities in the organisation toremedy any weaknesses identified in the surveys.SpareBank 1 Gruppen has separate working environment com-mittees in each company. The safety service in the companies isproactive and a central Workplace Anti-Alcoholism and DrugAddiction Dependency Committee has also been appointed. Thework with the unions has been very constructive and made apositive contribution to operations and the results in 2012.SpareBank 1 Gruppen continued its Inclusive Workplace agree-ments for the companies in the Group in 2012. The sick leave ratewas 4%, which was made up of 3.1% who submitted a medicalcertificate and 0.9% who were self-certified. Sick leave is lowcompared with the rest of the industry. E-learning courses withexams in various HSE disciplines were provided for bothmanagers and safety deputies in 2012. These were organised inconsultation with the individual working environment committees.13
14 SpareBank 1 GruppenSpareBank 1 Gruppens code of conduct specifies notificationrules for employees and representatives should they becomeaware of matters that are in violation of laws, regulations or theGroups internal rules. A separate notification routine has also beenestablished.Skills developmentSpareBank 1 Gruppen AS has its own general skills strategy.Technical and professional training and other skills developmentmeasures are initiated and run primarily in the individual subsi-diary as needed. Management development programmes havealso been established at different levels, and these are managedjointly by SpareBank 1 Gruppen AS on behalf of the companies.Continuous improvement is a key element of skills development.A central project group has been established to develop relevantmethods and tools for continuous improvement. At the sametime, managers and coaches also undergo training in the use ofcontinuous improvement methods and tools.Life phase and equalityThe Group has a life phase and equality committee that is taskedwith following up matters such as ensuring compliance with theGender Equality Act in the organisation. The committee also focuseson how SpareBank 1 Gruppen can be an attractive employer foremployees in various life phases.Of the Groups employees, 46% were women and 54% were men.5.9% of female and 1.6% of male employees work part-time. Twoof the nine members of the executive management team arewomen. The key management teams in the holding company andsubsidiaries have 22% female representation. 32% of all managersare women. One of the eight board members of the Groups board wasfemale at year-end 2012. 37% of the subsidiaries board members arewomen.SpareBank 1 Gruppen applies a method of assessing roles andpositions in order to ensure it fixes pay levels objectively. Equalpay in relation to work of equal worth is also a topic in annualsalary reviews. The main reason that the pay level of men isslightly higher than for women in the Group is that there aremore men in both senior positions and highly technical positions.Attractive employerSpareBank 1 Gruppen is experiencing greater interest from youngemployees. The Group regards this as a result of SpareBank 1sstrong branding combined with the targeted marketing ofSpareBank 1 Gruppen as an attractive employer at universities anduniversity colleges. In a nationwide university survey conductedin 2012, SpareBank 1 Gruppen was ranked the joint 25th mostattractive employer and was one of the top three financial groups.149 new employees were recruited in 2012. The majority ofthose who were recruited have at least 3 years education afterupper secondary school. Most new employees are aged between26 and 35. The average age of employees in SpareBank 1 Gruppenwas 42.8.CORPORATE RESPONSIBILITYSpareBank 1 Gruppen undertakes to take into consideration howthe Groups behaviour impacts people, society and the environment.This responsibility entails setting targets that exceed those in thelegislation to which the financial markets are subject. Corporateresponsibility covers everything from asset management andinvestments in inclusive workplaces and employee rights.The environment, climate accounts and the Eco-LighthouseSpareBank 1 Gruppens impact on the external environment, bothdirect and indirect, is limited. This includes through waste, energyuse, travel, transport, material choices, purchasing and waterconsumption.SpareBank 1 Gruppen will, for the fifth year in a row, prepare climateaccounts based on the total energy consumed by the organisationsdaily operations. The climate accounts are published on:http://investor.sparebank1.no. SpareBank 1 Gruppen was Eco-Lighthouse certified in 2012 and thus satisfies all the criteriastipulated by the Eco-Lighthouse Foundation for this type ofindustry.Social engagementSpareBank 1 Gruppen has involved itself in a microcredit company,Kolibri Kapital. Microcredit involves providing small loans topoor, enterprising people in developing countries that can beused to develop a business or improve living conditions. KolibriKapital raises money in Norway by continuously expanding itsshare capital. All the loans are made to microbanks in SouthAfrica, Asia and South America. SpareBank 1 Gruppen contributesshare capital.SpareBank 1 Gruppen worked with the Norwegian Association ofthe Blind and Partially Sighted (NAPB) in 2012. NAPB contributedvaluable input to SpareBank 1 concerning how banking servicescan be designed for the visually impaired. SpareBank 1 Gruppenprovided financial support for renovating and remodelling theHurdal rehabilitation centre.CHANGES TO THE BOARD AND THE GROUP EXECUTIVEMANAGEMENT TEAMFinn Haugan, CEO of SpareBank 1 SMN, was elected Chairman ofthe Board in April 2012. He succeeded Arne Austreid, CEO ofSpareBank 1 SR-Bank ASA, who had been the chairman sinceApril 2011. In April 2012, Per Halvorsen, CEO of SpareBank 1
15Telemark, was elected to the Board as a representative ofSamarbeidende Sparebanker AS. He succeeded Bjørn Engaas,CEO of SpareBank 1 Nøtterøy-Tønsberg. Hans Olav Karde, formerCEO of SpareBank 1 Nord-Norge, retired on 31 December 2012 andat a meeting of the Supervisory Board held on 23 January 2013 hissuccessor as CEO of SpareBank 1 Nord-Norge, Jan-Frode Janson,was elected to the Board.The following changes were made to the executive managementteam in 2012: Turid Grotmoll and Rune Selmar joined theexecutive management team, while Tore Tenold, Leif Ola Rødand Aud Lysenstøen left.Turid Grotmoll was appointed the new CEO of SpareBank 1Skadeforsikring AS in June 2012, succeeding Tore Tenold who leftthe company. Turid Grotmoll had been the acting CEO sinceMarch 2012 and was previously the deputy CEO of SpareBank 1Skadeforsikring AS.In March 2012, Leif Ola Rød gave notice that he wished to resignhis position as the head of ODIN Forvaltning AS. Rune Selmar wasappointed in his place and started work on 1 August 2012. RuneSelmar has extensive experience from the wealth managementsector.OUTLOOKThe outlook for the Norwegian economy was good at the start of2013. High oil prices, a continued high level of activity in the oilsector, low interest rates and record low unemployment arecontributing to the optimism. There is reason to believe that 2013will also be a relatively good year for Norway with continued lowunemployment, low interest rates and low price inflation. Themacroeconomic conditions for profitable growth should, therefore,be relatively good in 2013. On the other hand, there is uncertaintysurrounding developments in Europe. Weak growth in theEuropean economy and instability in the financial markets mayhave a negative effect on the Norwegian economy. This in turncould affect SpareBank 1 Gruppens financial results, whichaccount for a substantial proportion of the Groups value creation.The SpareBank 1 Alliance is stronger than ever. Both the alliancebanks and the product areas are doing well in the current compe-tition situation, and financial performance is good. SpareBank 1Gruppen will, in close cooperation with the alliance banks,continue its work on strengthening the alliances position. At thesame time, the Group will continue its work on collaborationacross the companies to extract efficiency gains within costs,income and skills.The general publics increased focus on pensions indicates long-term growth in the market for security products and pensionsavings. The life insurance companys product breadth combinedwith its collaboration with the Norwegian Confederation ofTrade Unions (LO), affiliated unions, and the SpareBank 1 banksdistribution network provide a good starting point for growingbusiness volumes. The Norwegian Banking Law Commission hassubmitted its report on new occupational pension products, NOU2012:13, to the Ministry of Finance. SpareBank 1 Livsforsikring ASviews the new occupational pension products positively since theywill be simpler to manage and provide customers with morechoice. SpareBank 1 Livsforsikring AS is considered to be well-positioned in relation to the future pensions market in whichhigher capital requirements and a further focus on profitability willbe key.A closer collaboration between SpareBank 1 Livsforsikring ASand SpareBank 1 Skadeforsikring AS will contribute to greatercompetitiveness through opportunities for cross-sales and a morecomprehensive offer for customers. It will also contribute to moreefficient processes and provide a basis for further rationalisation.The future strategy will focus on profitable growth in thecompanies main products. SpareBank 1 is a leader in the sale ofindividual risk insurance products and the Board expectscontinued growth in 2013 within this product area. SpareBank 1Skadeforsikring will continue to systematically improve both itsclaim and cost/income ratio in the future, and this is expected toresult in a further reduction in the combined ratio in 2013.2012 was characterised by restructuring in SpareBank 1 MarketsAS. Its competitiveness following the phasing in of new resourcesand the advantage of being a bank-owned securities firm withaccess to the banks balance, good expertise and good customerrelationships suggest the company is starting 2013 with a significantupside with respect to earnings. The focus going forward, forboth the company and the SpareBank 1 Alliance, will be on realisingthis potential. The Board is expecting a substantial improvementin its result in 2013.Profitability in the debt collection industry and in Conecto AS isbeing squeezed. The company expects to improve profitabilitythrough growth and goal-oriented efficiency improvements in2013. The better growth will take place without a significantincrease in capacity. Factoring has enjoyed good growth, but atthe same time its margins are under pressure. Lending losses inthe company are low and the loss situation is not expected todeteriorate. The focus going forward will be on improvingrevenues and profitable growth.ODIN Forvaltning ASs future development depends on develop-ments in the equities markets, the funds returns, and net newequity fund, combination fund and bond fund subscriptions. Thecompanys primary goal is to provide the funds unit holders
16 SpareBank 1 Gruppenwith a better return than the markets the funds invest in and togrow its market shares in a savings and investment market that isexpected to grow in coming years. The turnaround processcompleted in 2012 is expected to have a significant impact on bothincome and costs.In the opinion of the Board, SpareBank 1 Gruppen will be able tocope well with continued volatility in the financial markets in2013 as well. SpareBank 1 Gruppen is exposed to the securitiesmarket through its various subsidiaries, and the development ofequity prices and interest rates has a major effect on the Groupsearnings. Given a normal return in the securities market, theBoard expects an improved result in 2013.A WORD OF THANKSOur colleagues made good contributions in 2012 and the colla-boration with the unions was close and fruitful. The Board wouldlike to thank all of SpareBank 1 Gruppens employees for theirefforts in 2012.Oslo, 13 March 2013Finn Haugan Jan-Frode Janson Per HalvorsenCHAIRMAN OF THE BOARDArne Austreid Knut Bekkevold Richard HeibergTor-Arne Solbakken Sally Lund-Andersen Kirsten IdebøenCHIEF EXECUTIVE OFFICERNOTE: This translation from Norwegian has been prepared for information purposes only.
SPAREBANK 1 GRUPPEN – INCOME STATEMENTParent company Group2012 2011 NOK 1 000 Note 2012 2011- - Gross insurance premium income 9 735 233 9 126 299- - - reinsurers share -631 318 -604 478- - Net insurance premium income 16 9 103 915 8 521 82118 543 23 856 Interest income 140 260 138 293-98 377 -86 758 Interest costs -127 111 -111 643-79 834 -62 902 Net interest income 18 13 149 26 650- - Commissions 627 890 699 780- - Commission costs -938 890 -924 856- - Net commissions 17 -311 000 -225 0761 752 640 Net income from financial instruments at fair value through profit or loss 18 1 872 905 -250 11128 - Net income from financial assets available for sale 18 102 622- - Net income from bonds at amortised cost 18 66 973 47 046- - Net income from bonds held to maturity 18 237 280 242 977- - Net income from investment properties 19 288 527 263 0031 055 602 629 293 Share of profit and group contribution from subsidiaries 3 356 2 932- - Other operating income 20 377 359 340 974977 548 567 031 Total net income 11 652 567 8 970 838- - Insurance benefits and claims 8 692 561 7 238 159- - Insurance claims recovered from reinsurers -413 101 -406 294- - To/(from) securities adjustment reserve for life insurance 405 143 -431 997- - Transferred to policyholders - life insurance 4 827 31 104- - Allocation to supplementary provisions 43 699 -- - Losses on loans, guarantees 40 776 1 56936 483 61 554 Operating costs 21, 22 1 955 211 2 000 44638 421 26 337 Depreciation and write-downs 34, 35, 36 134 428 90 251568 714 Other costs 42 388 60 46175 472 88 606 Total costs 10 865 934 8 583 699902 076 478 425 Operating result 786 634 387 139Share of profit from associated companies and joint- - ventures recognised according to the equity method 32 - 150902 076 478 425 Pre-tax profit 786 634 387 289214 588 43 132 Taxes 24 343 260 -138 506687 488 435 293 Net profit for the year 443 374 525 795Allocation of profit for the year:Shareholders of the parent company 446 417 529 905Minority interests -3 043 -4 110SpareBank 1 Gruppen18
SPAREBANK 1 GRUPPEN – STATEMENT OF COMPREHENSIVE INCOMEConsolidated income statement, costs and value changesParent company Group2012 2011 NOK 1 000 Note 2012 2011687 488 435 293 Profit for the year 443 374 525 7956 938 -29 774 Actuarial gains/losses on pensions 23 12 809 -113 099- - Revaluation of properties 34 - -2 700- - Adjustment of insurance liabilities - -- - Change in financial assets available for sale 25, 28 256 -301- - Translation differences 2 -796 450-1 943 8 337 Tax 24 -2 367 32 424692 483 413 856 Total comprehensive income for the year 453 276 442 569Shareholders of the parent company 456 319 446 679Minority interests -3 043 -4 11019
SPAREBANK 1 GRUPPEN – CONSOLIDATED BALANCE SHEETParent company Group31.12.12 31.12.11 NOK 1 000 Note 31.12.12 31.12.111)ASSETS125 382 121 325 Deferred tax asset 24 - 8 026- - Goodwill 35, 49 839 193 861 140- - Other intangible assets 36 297 405 233 9846 013 104 4 985 194 Investments in subsidiaries 31 - -10 147 10 147 Investments in associated companies and joint ventures 32 10 547 10 147164 888 160 863 Property, plant and equipment 34 1 061 269 1 016 143- - Reinsurance receivables 37 1 515 784 1 411 156162 192 202 067 Other assets 41 424 629 479 212- - Investment properties 33 4 147 509 4 153 878- - Bonds held to maturity 13, 25, 29, 30 4 477 834 4 522 630- - Bonds at amortised cost 13, 25, 29, 30 1 825 434 1 368 46721 102 17 583 Securities - available for sale 13, 25, 26, 28 24 538 19 193801 901 152 580 Lending to customers and deposits with financial institutions 13, 14, 25, 30, 39 1 231 366 894 271- - Securities at fair value 13, 25, 26, 27 27 969 246 24 155 4233 078 2 003 Financial derivatives 9, 13, 25, 26 112 018 11 317- - Receivables from policyholders 38 1 611 690 1 568 003269 191 213 717 Cash and cash equivalents 13, 25, 30 755 000 1 276 1497 570 985 5 865 479 TOTAL ASSETS 46 303 462 41 989 140EQUITY AND LIABILITIES2 400 277 1 970 277 Shareholders equity 50 2 400 277 1 970 2771 460 265 1 201 715 Retained earnings 2 906 097 2 974 364- - Other equity - not recognised through profit or loss - -- - Minority interests -2 704 -2 2803 860 542 3 171 992 Total equity 5 303 671 4 942 361283 544 283 568 Subordinated loan capital and hybrid tier 1 capital 15, 25, 30, 45 483 544 483 568- - Securities adjustment reserve 590 016 184 872- - Insurance provisions in life insurance 42 24 710 118 22 620 517- - Premium and claims provisions in P&C Insurance 43 9 692 942 9 120 19989 358 99 419 Net pension liabilities 23 342 535 393 347- - Deferred tax liability 24 560 555 -- - Payable tax 24 1 178 168 744833 818 1 905 025 Securities issued 15, 25, 26, 27, 30, 44 833 818 1 905 025- - Liabilities related to reinsurance 47 207 335 74 017- - Financial derivatives 9, 25, 26 177 101 244 800202 228 405 475 Other liabilities 48 1 116 068 1 087 5462 301 495 - Deposits from and liabilities to customers and financial institutions 15, 25, 46 2 284 581 764 1437 570 985 5 865 479 TOTAL EQUITY AND LIABILITIES 46 303 462 41 989 1401)The balance sheet as of 31 December 2011 has been revised to show comparable figures. A more detailed description of the changes isprovided in note 54.SpareBank 1 Gruppen20Oslo, 13 March 2013Finn Haugan Jan-Frode Janson Per HalvorsenCHAIRMAN OF THE BOARDArne Austreid Knut Bekkevold Richard HeibergTor-Arne Solbakken Sally Lund-Andersen Kirsten IdebøenCHIEF EXECUTIVE OFFICERNOTE: This translation from Norwegian has been prepared for information purposes only.
CONSOLIDATED STATEMENT OF CASH FLOWParent company Group2),3)2012 2011 NOK 1 000 Note 2012 2011CASH FLOWS FROM OPERATING ACTIVITIES902 076 478 425 Pre-tax profit 786 634 387 289Share of profit from associated companies and joint- - ventures recognised according to the equity method 32 -400 15038 421 26 337 Depreciation and write-downs 34, 36 134 428 90 251- - Losses on loans/guarantees 40 776 1 569- - Revision of investment property values 33 55 177 13 154- - Change in securities at fair value 18 -739 943 1 080 17779 834 62 902 Net interest income/interest costs 18 -13 149 -26 650-101 562 -82 787 Interest costs paid -130 296 -107 67217 910 23 709 Interest income received 140 326 138 284Difference between cost recognised pensions and-3 126 8 110 receipts/payments in pension schemes 23 -38 005 -47 501- - Periods paid tax- - Increase in reinsurance receivables 37 -104 628 -- - Reduction in reinsurance receivables 37 - 83 182-649 321 -30 000 Increase in lending to customers 39 -337 871 -311 285- - Reduction in lending to customers 39 - -- - Change in technical provisions 42, 43 3 067 486 677 239Increase in deposits from and liabilities to customers2 299 649 1 145 and financial institutions 46 1 518 593 230 892Reduction in deposits from and liabilities to customers- - and financial institutions 46 - --163 839 -158 245 Change in accrued expenses and prepaid revenues -33 239 -85 543- -1 311 Net increase in securities at fair value 9, 27 -3 073 880 -2 124 759- - Additions of securities held to maturity 29 -606 244 -316 060- - Remuneration from disposal of securities held to maturity 29 198 696 357 5742 420 042 328 285 Net cash flow generated from operating activities 824 461 40 301CASH FLOWS FROM INVESTING ACTIVITIES-3 519 - Additions of securities available for sale 28 -5 276 -188- - Remuneration from disposal of securities available for sale 28 188 1 210-1 232 693 -525 608 Payment of group contributions 1) - --15 904 - Additions of investments in subsidiaries - -128 - Disposal of investments in subsidiaries - -- - Additions of investment properties 33 -53 808 -185 625- - Remuneration from disposal of investment properties 33 5 000 204 424- - Additions of intangible assets 36 -114 197 -123 586- - Remuneration from intangible assets 36 - --42 446 -60 312 Additions of own property, plant and equipment 34 -108 113 -140 325- - Remuneration from own property, plant and equipment 34 730 225 946-1 294 434 -585 920 Net cash flow used in investing activities -275 476 -18 144CASH FLOWS FROM FINANCING ACTIVITIES- - Receipts - subordinated loan capital 45 - -- -150 278 Payments - redemption of subordinated loan capital 45 - -365 278430 000 440 000 Receipts - new equity 430 000 440 000-433 933 -440 000 Payments - dividends -433 933 -440 000- 528 111 Increase in securities issued 44 - 528 111-1 066 201 - Reduction in securities issued 44 -1 066 201 --1 070 134 377 833 Net cash flow from financing activities -1 070 134 162 83355 474 120 197 Net cash flow for the period -521 149 184 990213 717 93 520 Cash and cash equivalents as of 01.01 1 276 149 1 091 159269 191 213 717 Cash and cash equivalents as of 31.12 755 000 1 276 1491)Group contribution payments are recognised as increases in investments in subsidiaries. Group contributions received bySpareBank 1 Gruppen are recognised through profit or loss21
STATEMENT OF CHANGES IN EQUITYParent companyShare premium Retained TotalNOK 1 000 Note Share capital reserve earnings equityEquity as of 31.12.10 1 782 400 247 877 727 859 2 758 136Profit for the year - - 435 293 435 293Years comprehensive income - - -21 437 -21 437Years total comprehensive income - - 413 856 413 856Capital increase 88 000 352 000 - 440 000Capital reduction - -500 000 500 000 -Dividend paid - - -440 000 -440 000Total transactions with shareholders 88 000 -148 000 60 000 -Equity as of 31.12.11 1 870 400 99 877 1 201 715 3 171 992Profit for the year - - 687 488 687 488Years comprehensive income - - 4 995 4 995Years total comprehensive income - - 692 483 692 483Capital increase 86 000 344 000 - 430 000Dividend paid - - -433 933 -433 933Total transactions with shareholders 86 000 344 000 -433 933 -3 933Equity as of 31.12.12 50 1 956 400 443 877 1 460 265 3 860 542Group Other equity- not recognisedShare premium Retained through Minority TotalNOK 1 000 Note Share capital reserve earnings profit or loss interests equityEquity as of 31.12.10 1 782 400 247 877 2 691 636 71 454 15 446 4 808 813Changes booked directly against equity 1)-180 960 -180 960Revised equity as of 31.12.10 1 782 400 247 877 2 510 676 71 454 15 446 4 627 853Profit for the year - - 529 905 - -4 110 525 795Years comprehensive income - - -11 772 -71 454 - -83 226Years total comprehensive income - - 518 134 -71 454 -4 110 442 569Capital increase 88 000 352 000 - - - 440 000Capital reduction - -500 000 500 000 - - -Dividend paid - - -440 000 - - -440 000Disposals minority interests - - - - -13 616 -13 616Total transactions with shareholders 88 000 -148 000 60 000 - -13 616 -13 616Other items booked directly against equity 2)- - -114 446 - - -114 446Other items booked directly against equity - - -114 446 - - -114 446Equity as of 31.12.11 1 870 400 99 877 2 974 364 - -2 280 4 942 361Profit for the year - - 446 417 - -3 043 443 374Years comprehensive income - - 9 902 - - 9 902Years total comprehensive income - - 456 319 - -3 043 453 276Capital increase 86 000 344 000 - - - 430 000Dividend paid - - -433 933 - - -433 933Disposals minority interests - - - - 2 619 2 619Total transactions with shareholders 86 000 344 000 -433 933 - 2 619 -1 314Other items booked directly against equity - - -2 105 - - -2 104Corrections from previous years 3)- - -88 547 - - -88 547Other items booked directly against equity - - -90 652 - - -90 651Equity as of 31.12.12 50 1 956 400 443 877 2 906 097 - -2 704 5 303 6711)Equity as of 31.12.10 has been revised to show comparable figures. A detailed description of the change booked directly against equity can be found innote 2 «accounting policies» in the the section on «Changes in the policies for determining claim provisions» and other descriptions of changes in note 54in the 2011 annual report.2)Other items booked against equity primarily concern changes in provisions for insurance (natural disaster claims, guarantees) and business mergers.3)Other items booked against equity primarily concern changes in the tax effect from changed group contributions in relation to what is assumed when theaccounts are closed.SpareBank 1 Gruppen22
NOTE 1 – GENERAL INFORMATIONAs of 31 December 2012, SpareBank 1 Gruppen consisted of theparent company SpareBank 1 Gruppen AS and the wholly ownedsubsidiaries SpareBank 1 Livsforsikring AS, SpareBank 1 Skade-forsikring AS, ODIN Forvaltning AS, SpareBank 1 Medlemskort AS andSpareBank 1 Gruppen Finans AS, as well as SpareBank 1 Markets ASwith an ownership interest of 97.55%.The SpareBank 1 DA alliance is recognised according to the equitymethod, and the Groups ownership interest is 10%.SpareBank 1 Gruppen ASs registered office is in Tromsø.SpareBank 1 Gruppen AS is a holding company that produces,provides and distributes products within P&C insurance, life insurance,fund management, capital markets, factoring, debt collection andlong-term monitoring via its subsidiaries. The Groups primarymarket is Norway.The consolidated financial statements were authorised for issue by theAnnual General Meeting and Supervisory Board on 10 April 2013. TheAnnual General Meeting is the Groups supreme authority.NOTE 2 – ACCOUNTING POLICIESStatement of complianceThe consolidated financial statements and the parent companys annualfinancial statements for 2012 for SpareBank 1 Gruppen have beenprepared in accordance with International Financial ReportingStandards (IFRS) and appurtenant interpretations from the InternationalFinancial Reporting Interpretations Committee (IFRIC), as adoptedby the EU, as well as the other disclosure obligations stipulated by theNorwegian Accounting Act.The consolidated financial statements have been prepared on a historicalcost basis. The deviations principally relate to financial derivatives,financial assets and financial liabilities recognised at fair value withvalue changes through profit or loss and financial assets classified asavailable for sale, as well as properties owned for the purpose ofearning rental income or appreciating in value that are classified asinvestment properties and are recorded at fair value in accordance withIAS 40.Preparing financial statements in accordance with IFRS requires theuse of estimates. Moreover, the management team has to exercisejudgement in applying the Groups accounting policies. Areas inwhich critical judgements and estimates are required, that are highlycomplex, or areas in which judgements and estimates are material tothe consolidated financial statements, are described in note 3.The consolidated financial statements have been prepared on thebasis of a going concern assumption.New and revised standards applied by the GroupNo new or amended IFRS rules or IFRIC interpretations came into effectin 2012 that are deemed to have had a material effect on the Groupsannual financial statements.SpareBank 1 Gruppen AS and SpareBank 1 Gruppen have chosen topresent comprehensive income items on a line in the statement ofchanges in equity for 2012 and 2011, ref. IAS 1.106 (d).Standards, amendments and interpretations of existing standardsthat have not come into effect and which the Group has chosen notto adopt earlyThe Group has chosen not to adopt any new or amended IFRSs orIFRIC interpretations early.IAS 1 Presentation of Financial Statements has been amended with theresult that items in comprehensive income must be divided into twogroups: those that will subsequently be reclassified to profit or loss andthose that will not. The amendment does not change the items thatmust be included in comprehensive income.IFRS 9 Financial Instruments regulates the classification, measurementand accounting of financial assets and financial liabilities. IFRS 9was published in November 2009 and October 2010, and replacesthose parts of IAS 39 which deal with recognising, classifying andmeasuring financial instruments. According to IFRS 9, financial assetsmust be divided into two categories based on the measuring method:those that are measured at fair value and those that are measured atamortised cost. The classification assessment is undertaken uponinitial recognition. The classification will depend on the companysbusiness model for dealing with its financial instruments and thecharacteristics of the contractual cash flows generated by the instrument.The requirements for financial liabilities are generally similar to thosein IAS 39. The main change, in cases where a company has chosen fairvalue for financial liabilities, is that the part of the change in fairvalue due to changes in the companys own credit risk must berecognised in the comprehensive income statement instead of theincome statement, if this does not entail accrual errors in measuringthe result. The Group has not fully assessed the impact this standardwill have on the financial statements. The Group is planning to applyIFRS 9 once the standard comes into force and is approved by theEU. The standard comes into effect for financial periods that start on1 January 2015. The Group also wants to look at the impact of theremaining part phases of IFRS 9 once these are finalised by IASB.IFRS 10 Consolidated Financial Statements is based on the currentpolicy of using control as the decisive criteria for determining whethera company should be included in the consolidated financial statements.The standard provides expanded guidance on determining whethercontrol exists in cases where this is difficult. The Group has not con-sidered all the possible consequences of IFRS 10. The Group plans toapply the standard in the 2013 financial year even though the EU doesnot require its application before 1 January 2014.IFRS 12 Disclosure of Interests in Other Entities contains disclosurerequirements for an entitys involvement in subsidiaries, jointarrangements, associated companies, unconsolidated SPEs/structuredentities. The Group has not assessed the full effects of IFRS 12. TheGroup plans to apply the standard in the 2013 financial year eventhough the EU does not require its application before 1 January 2014.IFRS 13 Fair value Measurement defines the term «fair value» in thecontext of IFRS, provides a consistent description of how fair value isdetermined in the IFRS and specifies what additional information isto be disclosed when fair value is used. The standard does not expandthe scope of recognition at fair value, but provides guidance on theapplication method where its use is already required or permitted byother IFRSs. The Group applies fair value as the measurement crite-rion for certain assets and liabilities. The Group has not assessed thefull effects of IFRS 13. The Group is planning to apply IFRS 13 in the2013 financial year.Besides these, there are no other IFRSs or IFRIC interpretations whichare not currently in effect and would be expected to have a materialeffect on the financial statements.Foreign currency translationFunctional currency and presentation currencyThe accounts for each unit in the Group are measured in the currencyused where the unit primarily operates (functional currency). Tran-sactions in foreign currencies are translated into the functional currencyusing the exchange rate at the time of the transaction. The consolidatedfinancial statements are presented in Norwegian kroner (NOK) whichis the parent companys functional currency and the presentationcurrency of the Group. Foreign companies that are included in theNotes23
Group and which use a different functional currency are translated intoNorwegian kroner using an average exchange rate for the year forincome statement and the prevailing exchange rate on the reportingdate for the balance sheet. Any translation differences are reported incomprehensive income for the period and are disclosed separatelyunder equity. All figures are presented in NOK thousands unlessotherwise specified.Transactions and balance sheet itemsTransactions in foreign currencies are translated into the functionalcurrency using the exchange rate at the time of the transaction.Realised currency gains and losses on settlements and from the trans-lation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised through profit or loss.If the currency position is considered to be a cash flow hedge orregarded as hedging the net investment in a foreign business, theappurtenant gains or losses are reported in comprehensive income.Currency gains and losses in conjunction with loans, cash and cashequivalents are presented (net) as interest income or interest expense.Changes in the fair value of commercial paper and bonds in foreigncurrencies classified as available for sale are split between the effectof the currency translation of the amortised cost in the foreign currencyand other changes in the carrying amount. Currency translation of theamortised cost is recognised through profit or loss while other changesin the carrying amount are reported in comprehensive income. Theeffects of changes in foreign exchange rates on non-monetary items(both assets and liabilities) are incorporated into the assessment of fairvalue. Exchange differences on non-monetary items, such as shares atfair value through profit or loss, are recognised through profit or lossas part of total gains and losses. Exchange differences on sharesclassified as available for sale are included in changes in valuereported in comprehensive income.CONSOLIDATIONSubsidiariesThe consolidated financial statements include SpareBank 1 GruppenAS and all its subsidiaries. Subsidiaries are all the units whereSpareBank 1 Gruppen has the power to control the financial andoperating policies of the entity, normally through ownership of morethan half the voting rights. Subsidiaries are consolidated from the dateat which control is ceded to the Group and unconsolidated when thecontrol is lost.The acquisition method is used when accounting for acquisitions ofsubsidiaries. Acquisition cost is measured as the fair value of assetstransferred as consideration. Identified assets, assumed liabilities andassumed or incurred contingent liabilities are recognised at fair valueat the acquisition date, irrespective of any non-controlling interests.That amount of the acquisition cost that exceeds the fair value ofidentifiable net assets in the subsidiary is recognised in the balancesheet as goodwill. If the acquisition cost is less than the fair value ofnet assets in the subsidiary, the difference is recognised throughprofit or loss.Material intragroup transactions, receivables and payables areeliminated.Transactions with non-controlling ownership interests are treated astransactions with third parties. The effect of all transactions withnon-controlling owners is reported in equity where there is not achange in control. Such transactions will not result in goodwill or gainsor losses. When control ceases, the remaining ownership interestsare to be measured at fair value, and gains and losses are recognisedthrough profit or loss.Associated companiesAssociated firms are firms where companies in SpareBank 1 Gruppenhave significant influence, but not control. Significant influence nor-mally exists for investments where the Group has between 20% and50% of the voting rights. Investments in associated companies areinitially recognised at acquisition cost and subsequently measuredusing the equity method. Investments in associated companiesinclude goodwill identified at the date of acquisition, reduced there-after by any write-downs.The Groups share of profits or losses in associated companies isrecognised through profit or loss and added to the carrying value of theinvestments, in addition to the share of comprehensive income in theassociated company and the effect of any errors or policy changes. TheGroup does not recognise the share of losses if this would cause thecarrying value of the investment to become negative.Joint venturesInterests in joint ventures may consist of joint operations, joint ventureassets and joint venture activities. Joint control means that SpareBank 1Gruppen through contractual agreements exercises shared controlover economic activity with other participants. Joint ventures arerecognised using the equity method.Investments in subsidiaries and associated companies recorded inthe parent companys financial statementsInvestments in subsidiaries and associated companies are valuedusing the cost method. If there is objective evidence of lasting impair-ment, the shares are written down. A previously recognised impairmentis reversed if the reason for the impairment no longer exists.Segment informationOperating segments in the note are reported in the same way as in theBoard of Directors Report and internal reporting to the Board.The Groups business areas are divided into life insurance, P&Cinsurance, fund management, brokering activities, debt collectionand factoring, and other activities. The Group has no secondarysegment reporting. This is consistent with internal reporting.The figures in the internal reporting are slightly different to thosepresented in the segment note. This is due to the fact that some unitsdo no translate their figures for IFRS before they are reported internally.These segments are reported in the note in the same way that they arerecognised in accordance with IFRS.Loans and receivablesAcquired portfoliosAcquired portfolios are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. Theseare accounted for at amortised cost using the effective interest method.Trade receivables from factoring activitiesTrade receivables from factoring activities are evaluated in two ways.In those instances where the factoring business has not taken over thecredit risk (risk associated with debtors inability to service and repaytheir outstanding loans) only the prepayment that has been paid onreceivables that have been transferred to the factoring company arerecorded on the balance sheet, under «Loans to customers and recei-vables from credit institutions». When the factoring business takes overthe credit risk, the gross receivables are recorded and included in thebalance sheet under «Other assets». The portion of these trade recei-vables that is not financed is included in the balance sheet under«Other liabilities».ProvisionsLoss provisions for loans and guarantees (debtors) are included under«losses on loans and guarantees».Other receivablesOther receivables are recognised in the balance sheet at nominalvalue less provisions for expected losses. Provisions for losses are madeon the basis of individual evaluations of each receivable.Securities and derivativesThe Group has financial assets in the trading portfolio, voluntarilycategorised at fair value through profit or loss, loans and receivables,investments held to maturity and securities available for sale. Theprincipal rule is to classify investments at fair value through profit orloss, either through the trading portfolio or voluntary classification.This corresponds with how the investments are followed up. Certaininvestments in commercial paper and bonds are nonethelessclassified into loans and receivables or held to maturity. This is under-taken in conjunction with the transaction.SpareBank 1 Gruppen24