(Figures in NOK million)
Parent bank Group
2011 2012 Note 2012 2011
4 779 -7 632 Change in gross lending to customers 8 -8 145 4 424
4 278 4 339 Interest receipts from lending to customers 4 698 4 586
3 275 3 542 Change in deposits from customers 33 3 552 3 272
-1 875 -1 893 Interest payments on deposits from customers -1 872 -1 851
-4 018 -920 Change in receivables and deposits with financial institutions 7 -336 -3 697 -51 -110 Interest on receivables and debt to financial institutions -291 -218
-1 110 1 174 Change in commercial paper and bonds 27 1 173 -1 108
529 628 Interest receipts from commercial paper and bonds 628 529
850 795 Commission receipts 1 257 1 322
194 150 Capital gains from sale of trading 150 194
-1 177 -1 340 Payments for operations -1 746 -1 574
-291 -58 Paid tax 25 -130 -307
-826 -221 Other accruals -455 -994
4 557 -1 546 A Net change in liquidity from operations -1 517 4 578
-82 -47 Investments in tangible fixed assets 31 -67 -103
- 24 Receipts from sale of tangible fixed assets 31 33 -
-913 -563 Change in long-term investments in equities -563 -913
10 - Receipts from sales of long-term investments in equities - 10
289 364 Dividends from long-term investments in equities 364 289
-696 -222 B Net change in liquidity from investments -233 -717
2 032 14 999 Increase in securities issued 34 14 999 2 032
-6 350 -11 083 Repayment - securities issued -11 083 -6 350
-1 221 -1 011 Interest payments on securities issued -1 009 -1 222
1 750 825 Increase in subordinated loans 37 825 1 750
-783 -1 528 Repayments - subordinated loans 37 -1 528 -783
-150 -241 Interest payments on subordinated loans -241 -150
- 1 521 Share issues 40 1 521 -
-336 -299 Dividend to shareholders -299 -336
-5 058 3 183 C Net change in liquidity from financing 3 185 -5 059
-1 197 1 415 A+B+C Net change in cash and cash equivalents in the year 1 435 -1 198
1 578 381 Cash and cash equivalents 01.01 388 1 586
381 1 796 Cash and cash equivalents 31.12 1 823 388
Specification of cash and cash equivalents
263 1 314 Cash and receivables from the central bank 1 314 263
118 482 Receivables from financial institutions at call 509 125
381 1 796 Cash and cash equivalents 31.12 1 823 388
Cash and cash equivalents include cash and deposits in the central bank, and that part of total loans to and deposits in financial institutions that relate to pure placements in financial institutions.
The statement of cash flow shows how the parent bank and Group generated liquid assets and how these were applied. In total, the Group’s cash and cash equivalents rose to NOK 1 823 million in 2012.
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NOTE 1 GENERAL INFORMATION
The SpareBank 1 SR-Bank Group consists of the parent bank SpareBank 1 SR-Bank ASA (”the Bank”) and its subsidiaries: SpareBank 1 SR-Finans AS, EiendomsMegler 1 SR-Eiendom AS, SR-Investering AS, SR-Forretningsservice AS, SR-Forvaltning AS, and Kvinnherad Sparebank Eigedom AS, as well as the second tier subsidiary EiendomsMegler 1 Drift AS. Rygir Industrier AS and its subsidiaries (repossessed assets) also became a subsidiary of the Bank on 31 December 2012.
As of 31 December 2012, the Bank owned 29.9% of SpareBank 1 Boligkreditt AS and 27.8% of SpareBank 1 Næringskreditt AS. The Group treats these as associated companies.
The Bank also owns 19.5% of SpareBank 1 Gruppen AS, 19.5% of Bank 1 Oslo Akershus AS, 23.5% of BN Bank ASA and 17.7% of Alliansesamarbeidet SpareBank 1 DA. These ownership interests are treated as joint ventures. In addition to this SpareBank 1 SR-Bank owns 19.0% of SpareBank 1 Kredittkort AS and 26.0% of SpareBank 1 Kundesenter AS.
SpareBank 1 SR-Bank, SpareBank 1 SMN, SpareBank 1 Nord-Norge and Samarbeidende Sparebanker AS each own 19.5% of SpareBank 1 Gruppen AS and Bank 1 Oslo Akershus AS. The other owners are Sparebanken Hedmark (12.0%) and the Norwegian Confederation of Trade Unions (LO) (10.0%). The SpareBank 1 Alliance’s management structure is regulated by an agreement between the owners. SpareBank 1 SR-Bank and SpareBank 1 Nord-Norge each own 23.5% of BN Bank ASA. SpareBank 1 SMN owns 33.0% and Samarbeidende Sparebanker AS owns 20.0%. BN Bank ASA’s management structure is regulated by an agreement between the owners.
The bank’s head office is in Stavanger and it has 53 branches in Rogaland, Vest-Agder, Aust-Agder and Hordaland. Some of the branches share premises with EiendomsMegler 1 SR-Eiendom AS. All of the subsidiaries have their head offices in Stavanger. SpareBank 1 SR-Bank was a savings bank until 31 December 2011, but was converted into a public limited company with effect from 1 January 2012. Please see note 42 for information about the conversion.
The Group’s core activities are selling and procuring financial products and services, as well as leasing and estate agency. The consolidated financial statements were authorised for issue by the Annual General Meeting and Supervisory Board on 25 April 2013. The Annual General Meeting is the Bank’s supreme authority.
NOTE 2 ACCOUNTING POLICIES
BASIS FOR PREPARATION OF THE ANNUAL FINANCIAL STATEMENTS
The Bank’s financial statements and the consolidated financial statements for 2012 for SpareBank 1 SR-Bank (”the Group”) have been prepared in accordance with International Finance Reporting Standards (IFRS) as adopted by the EU. This includes
interpretations from the International Financial Reporting Interpretations Committee (IFRIC) and its predecessor the Standing Interpretations Committee (SIC).
SpareBank 1 SR-Bank’s consolidated financial statements have been prepared in accordance with IFRS since 1 January 2005. Use of the same rules for the financial statements of savings banks was first permitted with effect from 1 January 2007. The annual financial statements of the Bank and the Group for 2012 have been prepared in accordance with IFRS.
The basis for measurement used in both the Bank’s and the consolidated financial statements is acquisition cost, with the following modifications: financial derivatives, financial assets and financial liabilities are recognised at fair value with value changes through profit or loss.
Preparing financial statements in accordance with IFRS requires the use of estimates. Furthermore, applying international reporting standards requires management to use its judgement. Areas that involve a great deal of discretionary estimates, a high degree of complexity, or areas where assumptions and estimates are significant for the Bank’s and the consolidated financial statements are described in note 3.
The annual financial statements are presented in accordance with IFRS and interpretations that are obligatory for annual financial statements presented as of 31 December 2012. The annual financial statements have been prepared on the basis of a going concern assumption.
New and amended standards implemented in 2012:
No new or amended IFRS rules or IFRIC interpretations came into effect in 2012 that had a material effect on the Group’s annual financial statements.
Standards, amendments and interpretations of existing standards that have not come into effect and which the Group has chosen not to adopt early:
The Group has chosen not to adopt any new or amended IFRS rules or IFRIC interpretations early.
IAS 1 Presentation of Financial Statements has been amended with the result that items in comprehensive income must be divided into two groups: those that will subsequently be reclassified to profit or loss and those that will not. The amendment does not change the items that must be included in comprehensive income.
IAS 19 Employees Benefits was amended in June 2011. The amendment means that all remeasurements must be recognised
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in comprehensive income immediately (no corridor), all costs from previous periods’ pensions accrual must be recognised
immediately, and that interest costs and expected returns must be replaced with a net interest amount calculated using the discount rate on the net pension liability (asset).
IFRS 9 Financial Instruments regulates the classification, measurement and accounting of financial assets and financial liabilities. IFRS 9 was published in November 2009 and October 2010, and replaces those parts of IAS 39 which deal with recognising, classifying and measuring financial instruments. According to IFRS 9, financial assets must be divided into two categories based on the measuring method: those that are measured at fair value and those that are measured at amortised cost. Classification takes place upon initial recognition. The classification will depend on the company’s business model for dealing with its financial instruments and the characteristics of the contractual cash flows generated by the instrument. The
requirements for financial liabilities are generally similar to those in IAS 39. The main change, in cases where a company has chosen fair value for financial liabilities, is that the part of the change in fair value due to changes in the company’s own credit risk must be recognised in the comprehensive income statement instead of the income statement, if this does not entail accrual errors in measuring the result. The Group has not yet assessed the total impact of the standard on the financial statements, but is planning to apply IFRS 9 once the standard comes into force and is approved by the EU. The standard comes into effect for accounting periods that start on 1 January 2015. The Group also wants to look at the impact of the remaining part phases of IFRS 9 once these are finalised by IASB. IFRS 10 Consolidated Financial Statements is based on the current principle of using the control concept as the key criterion for determining whether a company should be included in the consolidated financial statements of the parent company. The standard provides expanded guidance on determining whether control exists in cases where this is difficult. The Group has not considered all the possible consequences of IFRS 10. The Group plans to apply the standard in 2013 even through the EU does not require its application before 1 January 2014.
IFRS 12 Disclosures of Interest in Other Entities contains disclosure requirements for financial interests in subsidiaries, joint ventures, associated companies, special purpose entities (SPE) and other companies not recognised in the balance sheet. The Group has not assessed the full effects of IFRS 12. The Group plans to apply the standard in 2013 even through the EU does not require its application before 1 January 2014.
IFRS 13 Fair Value Measurement defines what is meant by fair value when the term is used in IFRS, provides a unified description of how fair value should be determined by IFRS, and defines what additional information should be disclosed when fair value is used. The standard does not expand the scope of recognition at fair value, but provides guidance on the application method where its use is already required or permitted by other IFRSs. The Group applies fair value as the measurement criterion for certain assets and liabilities. The Group has not assessed the full effects of IFRS 13 but will apply the standard in the 2013 accounting year.
Otherwise, no other IFRSs and IFRIC interpretations not yet in force are expected to have a material impact on the financial statements.
PRESENTATION CURRENCY
The presentation currency is Norwegian kroner (NOK), which is also the Group’s functional currency. All figures are in NOK million unless otherwise stated.
SUBSIDIARIES
Subsidiaries’ assets are valued using the cost method of accounting in the Bank’s financial statements. Investments are assessed at the acquisition cost of the shares assuming that no write-downs have been necessary.
Dividends, group contributions and other distributions are recognised as income in the year that they are approved by the Annual General Meeting. If the dividend/group contribution exceeds the share of the retained profit after the acquisition, the amount in excess represents a repayment on invested capital, but is, pursuant to the amended IAS 27, recognised as income in the year that it is paid.
CONSOLIDATION
The consolidated financial statements include all subsidiaries. Subsidiaries are defined as entities in which the Group has a controlling influence over the entity’s financial and operational strategy, normally through direct or indirect ownership of more than half of the voting capital. When deciding whether or not a controlling influence exists, the effect of potential voting rights that can be exercised or converted on the balance sheet date is included. Subsidiaries are consolidated from the date the Bank has taken over control and cease to be consolidated from the date the Bank relinquishes control.
The acquisition method is applied when recording the acquisition of subsidiaries. When acquiring control in a business (business merger) all identifiable assets and liabilities are recorded at fair value in accordance with IFRS 3. A positive difference between the fair value of the purchase price and the fair value of identifiable assets and liabilities is recorded as goodwill, while any negative difference (badwill) is recognised as income upon the acquisition. The Group has not applied IFRS 3 retrospectively to business combinations that were carried out prior to 1 January 2004. Intra-group transactions, intra-company balances and realised and unrealised profit between group companies are eliminated. The accounting policies in subsidiaries are changed when this is necessary to ensure consistency with the Group’s accounting policies.
The minority interests’ share of the Group’s profit is presented on a separate line under net profit for the period in the income statement.
Their share of the minority’s equity is shown as a separate item. ASSOCIATED COMPANIES
Associated companies are entities in which the Group has a significant interest but not control. Normally, significant influence arises when the Group has a stake of between 20% and 50% of the voting capital. Associated companies are recorded in
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accordance with the cost method of accounting in the Bank’s financial statements and the equity method in the consolidated financial statements.
New investments are recorded at acquisition cost in consolidated financial statements. Investments in associated companies include goodwill/badwill identified at the time of the acquisition, reduced by any possible later write-downs.
The Group’s share of profits or losses in associated companies are recorded and added to the book value of the investments, together with the share of unrecognised changes in equity. JOINT VENTURES
Joint ventures can be jointly owned operations, jointly controlled assets or jointly controlled enterprises. Joint control implies that the Group, by agreement, exercises control together with other participants. Jointly controlled enterprises are dealt with in accordance with the cost method of accounting in the Bank’s financial statements and the equity method in the consolidated financial statements.
LENDING AND LOAN LOSSES
Loans with variable rates are measured at amortised cost in accordance with IAS 39. The amortised cost is the acquisition cost minus repayments on the principal, taking into account transaction costs, plus or minus cumulative amortisation using the effective interest method, and less any amount for impairment in value or exposure to loss. The effective interest rate is the interest that exactly discounts estimated future cash receipts and payments over the expected life of the financial instrument.
Fixed rate loans to customers are earmarked upon initial
recognition at fair value, with value changes through profit or loss, in accordance with IAS 39.9. Gains and losses resulting from changes in fair value are recorded through profit or loss as a change in value. Accrued interest and premiums/discounts are recorded as interest. The interest risk inherent in fixed rate loans is managed using operational interest rate swaps that are recorded at fair value. The Bank uses the fair value option for measuring fixed rate loans, as this largely eliminates
inconsistencies in measuring other comparable instruments in the balance sheet.
SALES OF LOANS
The Bank has concluded an agreement concerning the sale of loans with good security and collateral in real estate to SpareBank 1 Boligkreditt AS and SpareBank 1 Næringskreditt AS. In line with the administration contract between the Bank and financial institutions, the Bank administers the loans and maintains the contact with customers. The Bank receives a fee in the form of commissions for the duties involved in administering the loans. There is a residual involvement related to sold loans upon possible limited settlement of losses against commissions. According to the administration contract with the Bank, the financial institutions can sell on loans that are purchased from the Bank while the Bank’s right to administer customers and receive commissions follow the loans. Should the Bank be unable to serve customers, the right to serve and commissions may lapse. The Bank also has the option to buy back loans under certain conditions and thus the Bank is considered to have retained
genuine control of the sold loans based on IAS 29.30.c. The Bank has thus neither retained nor transferred the material risk and return associated with the sold loans. The Bank recognises the amount associated with the residual involvement as an asset or liability. The Bank also recognises as a liability the fair value of the residual credit risk associated with sold loans. This has been calculated as very small. Based on an assessment of significance, the Bank has not recognised any amount for residual involvement in the sold loans. This is described in note 9.
ASSESSMENT OF IMPAIRMENT OF FINANCIAL ASSETS
On each balance sheet date, the Group assesses whether there is any objective evidence that the cash flow expected when the item was initially recorded will not be realised and that the value of the financial asset or group of financial assets has been reduced. An impairment in value of a financial asset assessed at amortised cost or group of financial assets assessed at amortised cost has been incurred if, and only if, there is objective evidence of impairment that could result in a reduction in future cash flows to service the commitment. The impairment must be the result of one or more events that have occurred after the initial recognition (a loss event) and it must be possible to measure the result of the loss event (or events) in a reliable manner. Objective evidence that the value of a financial asset or group of financial assets has been reduced includes observable data that is known to the Group relating to the following loss events:
• The issuer or borrower is experiencing significant financial difficulties
• Breach of contract, such as a default or delinquency in payment of instalments and interest
• The Bank granting the borrower special terms for financial or legal reasons relating to borrower’s financial situation • Likelihood of the debtor entering into debt negotiations or
other financial reorganisation
• Disappearance of an active market for the financial asset because of financial difficulties
• Observable data indicating that there is a measurable decline in future cash flows from a group of financial assets since the initial recognition of those assets, even though the decline cannot yet be fully identified with the individual financial assets in the group including:
- adverse changes in the payment status of the borrowers in the group
- national or local economic conditions that correlate with defaults of the assets in the group
The Group first considers whether there is individual objective evidence of impairment of financial assets that are significant individually. For financial assets that are not individually significant, the objective evidence of impairment is considered individually or collectively. If the Group decides that there is no objective evidence of impairment of an individually assessed financial asset, significant or not, the asset is included in a portfolio of financial assets with the same credit risk characteristics. The group is tested for any impairment on a portfolio basis. Assets that are tested individually for impairment and where impairment can be identified or is still identified are not included in the portfolio assessment of impairment. See note 3.
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If there is objective evidence that impairment has occurred, the amount of the loss is calculated as the difference between the asset’s book (carrying) value and the present value of estimated future cash flows (excluding future credit losses that have not