3 Key figures 4 Directors’ report 6 profit and loss account 7 Balance sheet
8 cash flow statement 9 equity statement 10 notes
30 auditor’s report
31 audit committee’s annual report 31 Declaration by the Board of Directors
and ceo
33 information about the company
C
ontent
Key figures
FiGures in noK ‘000sPRoFIt AnD Loss ACCoUnt
2010 2009net interest margin 0,80 % 1,07 %
profit after tax as a % of average total assets 0,42 % 0,53 %
KeY BALAnCe sHeet FIGURes
noK noKGross loans to customers 2 604 034 1 436 242
collectively assessed impairment provisions 3 628 2 207
equity 218 789 110 789
total assets 2 773 068 1 605 073
average total assets 1 906 456 1 071 687
otHeR KeY FIGURes
cost income ratio 19,07 % 23,62 %
impairment charge as a % of total assets 0,05 % 0,15 %
impairment provisions as a % of total assets 0,14 % 0,15 %
return on equity after tax 7,18 % 5,39 %
capital adequacy ratio 20,82 % 19,61 %
BALAnCe sHeet tRenDs
% noKGrowth in total assets 72,77 % 1 167 995
HIGHLIGHTS
Bustadkreditt sogn og Fjordane as is a wholly-owned subsidiary of sparebanken sogn og Fjordane. the company is based at the Bank’s head office in Førde.
in January 2009 sparebanken sogn og Fjordane was licensed by the Financial supervisory authority of norway to set up a residential mortgage company that would issue covered bonds. the company was formed through reorganising ssF eigedom as. it started normal operations in March 2009, and over the course of 2009 and 2010 it issued covered bonds with a face value of noK 2.35 billion. at the close of 2010 the total cover pool was worth noK 2.7 billion. the cover pool was made up of residential mortgages worth noK 2.6 billion, as well as two bonds with a total value of noK 100 million that are included as substitute assets. substitute assets made up 3.7 percent of the total cover pool. all of the company’s loans are subject to variable interest rates.
the establishment of Bustadkreditt sogn og Fjordane as was an important part of spare-banken sogn og Fjordane’s strategy for securing long-term liquidity.
at the close of 2010, the company had 2850 residen-tial mortgages worth a total of noK 2,600 million. the weighted average loan-to-value ratio was 52.0 percent, and the weighted average loan term was 12.0 years. the average mortgages for each customer has a value of noK 952.000. the geographic distribution of the residential mortgage portfolio was as follows:
Region share
Western norway 73.2 %
Førde 24.0 %
PROFIT AND LOSS ACCOUNT
in 2010 the company made an operating profit before loan impairment charges of noK 12.5 million. the net loan impairment charge was noK 1.4 million, which related to collectively assessed impairment provisions. profit for the year after tax was noK 8.0 million.
net interest income was noK 15.3 million in 2010, equivalent to 0.80 percent of average total assets. other operating income totalled around
noK 0.1 million.
in 2010, operating expenses were noK 2.9 million, equivalent to 19.1 percent of total operating income. the company has no employees, and buys services from sparebanken sogn og Fjordane and edb Business partner as. services are bought on market terms.
TRENDS IN NON-PERFORMING LOANS
at the close of 2010, the company had one loan with a balance of noK 1.2 million that was more than 90 days overdue. this loan is not included as part of the cover pool. non-performing loans are monitored carefully.
BALANCE SHEET AND CAPITAL ADEQUACY total assets have increased in line with the loan portfolio, and at 31 December 2010 they totalled noK 2,773 million. this was an increase of almost noK 1.2 billion over 31 December 2009. the company borrows money through covered bonds. the company also has a long-term credit facility of noK 300 million with sparebanken sogn og Fjordane. at the close of the year, noK 105 million of the credit facility was unused.
equity at the close of the year was noK 218.8 million after allocation of the profit for the year. in 2010 sparebanken sogn og Fjordane injected noK 100 million of new share capital to ensure
in the cover pool. residential mortgages and substitute assets are collateral for the covered bonds.
RISK
Bustadkreditt sogn og Fjordane as is exposed to credit risk, operational risk, liquidity risk and interest rate risk. credit risk is the most significant of these. capital adequacy has been calculated by measuring credit risk using the standardised approach and operational risk using the basic indicator approach. limits have been set on exposure to the various classes of risk. the Board considers it a priority for the company to maintain a low risk exposure. the company considers that there was no significant change in the inherent risk associated with the various risk classes over the course of the year.
Credit risk
Bustadkreditt sogn og Fjordane as is exposed to credit risk through residential mortgages, and to counterparty risk through its investments in financial markets.
the loans that it purchases from sparebanken sogn og Fjordane have good collateral. at the time of purchase, the loan must represent no more than 75 percent of the approved value of the collateral. the values of properties used as collateral for residential mortgage loans are updated quarterly. Valuations by eiendomsverdi as are used to determine the approved values of the properties.
the first tranche of loans from sparebanken sogn og Fjordane was bought in March 2009. since then, the market value of residential
Weighted loan-to-value ratio
0% 5% 10% 15% 20% 25% 30% 35% over 75% 60–75% 50–60% 40–50% Under 40%
property has risen. sparebanken sogn og Fjordane services the loans held by Bustadkreditt sogn og Fjordane as. the loans are performing well, and are closely monitored by the Bank. around 63.5 percent of the loan portfolio held by Bustadkreditt sogn og Fjordane as has a loan-to-value ratio of under 60 percent. the company considers its loan portfolio to be low-risk. the figure shows the weighted loan-to-value ratio for the loans held by the company.
the performance of the loan portfolio is
monitored monthly through a credit report which sets out areas such as the composition of the portfolio by risk group, loan performance and the impact of a fall in property prices and higher default rates on the cover pool. credit risk has increased somewhat in parallel with the increase in the size of the portfolio, but nevertheless the Board considers the risk to be low.
the company’s counterparty risk derives from investments in financial markets and exposure to other financial institutions. there are limits on the company’s exposure to any given counterparty. in order to protect itself against losses, the company only has exposure to financially sound counter-parties.
Liquidity risk
liquidity risk is the risk that the company will be unable to repay its debts when they are due. the company’s liquidity buffer shall be sufficient to allow it to repay all of its debts when they are due. the company always maintains the minimum liquidity buffer required by the Board and sufficient liquidity to cover its net obligations over the next six months.
Interest rate risk
the company shall manage its exposure to interest rate risk in order to minimise its exposure to interest rate fluctuations. exposure to changes in interest rate spreads is limited by the rules on credit risk. there are also limits on the exposure to changes in the absolute level of interest rates that are monitored and reported monthly.
Foreign currency risk
the company does not have any denominated loans or other foreign-currency-denominated investments.
STAFF, ORGANISATIONAL STRUCTURE AND EXECUTIVE BODY
Bustadkreditt sogn og Fjordane as has an agreement with sparebanken sogn og Fjordane setting out the terms on which loans are
pur-carried out by employees at sparebanken sogn og Fjordane. services are performed in accordance with agreements setting out which services are provided and at what price. the agreements are updated as required.
the supervisory Board consists of six members, all of whom are of have in the past been members of sparebanken sogn og Fjordane’s executive committee. the Board of Directors is made up of three members from within the Group and one external member. sparebanken sogn og Fjordane’s audit committee also acts as the audit committee for Bustadkreditt sogn og Fjordane as.
the ceo is officially employed by sparebanken sogn og Fjordane.
EMPLOYEES AND WORKING ENVIRONMENT the company has no employees. as a result, no special measures have been implemented to improve the working environment. the Board does not consider that the company’s operations pollute the environment.
EQUAL OPPORTUNITY AND DISCRIMINATION there are three men and one woman on the Board of Directors. the ceo is a man. the Board of Directors and management believe, like the rest of the Bank, in proactively promoting equal opportunity and preventing discrimination at the workplace.
REVIEW OF THE ANNUAL FINANCIAL STATEMENTS the Board believes that the profit and loss
account, balance sheet and notes provide sufficient information about the company’s operations and financial position at 31 December 2010. the Board also believes that the going concern assumption is appropriate. consequently, the Board confirms that the going concern assumption has been used in the preparation of the financial statements for 2010.
POST BALANCE SHEET EVENTS
the Board is not aware of any events after 31 December 2010 that have a material impact on the financial statements or on the company’s financial position.
STRATEGY AND PROSPECTS FOR 2011
in 2011, Bustadkreditt sogn og Fjordane as will continue with its core business, which is the purchase of residential mortgage loans from sparebanken sogn og Fjordane. throughout 2011 a conciderable increase in total assets is expected. the target group for its covered bonds are norwegian and international financial
institutions and other investors.
Bearing in mind the uncertainty surrounding global economic prospects, the housing market and loan performance will be monitored carefully in 2011. a great deal of work has been put into ensuring that the company has good procedures and high-quality data for the property values that underpin the cover pool. this work will be
continued in order to ensure that government requirements are met.
the discontinuation of the government’s swap scheme will mean that the company will need to sell its covered bonds through the financial markets. consequently, the company will participate in the Forum for covered bonds, which aims to coordinate marketing efforts, amongst other things.
ALLOCATION OF PROFIT FOR THE YEAR
Bustadkreditt sogn og Fjordane as made a profit of noK 8.0 million. the Board recommends transferring the profit to the company’s equity.
harald slettvoll ceo
Profit and loss account
Note 2010 2009
interest income 3, 6 68 066 36 860
interest expenses 52 721 25 371
Net interest income 15 345 11 489
commission income 223 105
Net commission income 223 105
net gain/loss on securities 6 – 147 163
Total other operating income – 147 163
Net other operating income 76 268
Total operating income 15 421 11 758
administration expenses 3 964 1 006
other operating expenses 5 1 976 1 771
Total operating expenses 8 2 940 2 777
Operating profit/loss before loan impairment charge 12 482 8 981
loan impairment charge 7, 15 1 421 2 207
Operating profit/loss 11 061 6 774
tax expense 9 3 103 1 106
Profit for the year 7 957 5 668
STATEMENT OF COMPREHENSIVE INCOME
Profit and loss account 7 957 5 668
Other comprehensive income after tax 0 0
Balance sheet
Note 2010 2009
ASSETS
loans and advances to credit institutions 3, 11 69 932 19 586
Gross loans to customers 13 2 604 034 1 436 242
collectively assessed impairment provisions 7, 15 - 3 628 - 2 207
net loans to customers 2 600 406 1 434 035
Financial assets measured at fair value through profit or loss:
Fixed-interest commercial paper and bonds 10, 12 99 794 149 775
Deferred tax 9 248 228
earned income not received 16 2 688 1 448
Total assets 2 773 068 1 605 073
SHAREHOLDERS’ EQUITY AND LIABILITIES Paid-up equity
share capital 200 000 100 000
Total paid-up equity 200 000 100 000
Retained earnings
other equity 21 18 746 10 789
Total retained earnings 18 746 10 789
Total equity 218 746 110 789
Debt
Debt to credit institutions 17 195 479 289 267
other financial liabilities:
issued commercial paper and bonds 18 2 347 471 1 199 872
tax payable 9 3 124 1 334
accrued costs 19 8 249 3 811
Total liabilities 2 554 323 1 494 284
Total liabilities and equity 2 773 068 1 605 073
hallvard Klakegg chair
Kjetil Joar Bjørset Gro skrede Mardal harald slettvoll ceo
Førde, 31 January 2011
Cash flow statement
2010 2009
profit/loss before tax 11 061 6 774
impairment losses 1 421 2 207
tax paid 1 334 0
other non-cash transactions 531 2 353
A) Net cash flow from operating activities 14 347 11 334
reduction/increase in loans and advances to customers - 1 167 792 - 1 436 242 reduction/increase in investments in commercial paper and bonds 49 981 - 149 775 B) Net cash flow from investment activities - 1 117 811 - 1 586 017
increase/reduction in loans from credit institutions - 93 788 289 267
increase/reduction in debt securities 1 147 599 1 199 872
increase/reduction in paid-up share capital 100 000 99 600
C) Net cash flow from financing activities 1 153 811 1 588 739
D) Net cash flow (A+B+C) 50 346 14 056
opening balance of cash and cash equivalents 19 586 5 531
Closing balance of cash and cash equivalents 69 932 19 586 Details of cash and cash equivalents
Deposits at other financial institutions 69 932 19 586
equity statement
PAID-UP EQUITY RETAINED EARNINGS
Total paid-up Other Total other Total Share capital equity equity equity equity
Opening balance 1 January 2009 400 400 5 121 5 121 5 521
profit for the reporting period 5 668 5 668 5 668
Equity transactions
new paid-up equity 99 600 99 600 99 600
Closing balance 31 December 2009 100 000 100 000 10 789 10 789 110 789 Opening balance 31.12.2009 100 000 100 000 10 789 10 789 110 789
profit for the reporting period 7 957 7 957 7 957
Equity transactions
new paid-up equity 100 000 100 000 100 000
1 accounting principles
2 critical accounting estimates and judgements
3 remuneration of senior management and the Board of Directors. transactions with related parties
4 segments 5 auditor’s fee
6 net income from financial instruments 7 impairment of loans and guarantees 8 operating expenses
9 tax expenses
10 classification of financial instruments 11 loans and advances to credit institutions 12 commercial paper and bonds
13 Breakdown of loans and guarantees 14 loan-to-value and cover pool
15 changes in impairment reserve for loans and guarantees 16 other current assets
17 Debt to credit institutions
18 Debt incurred through the issue of securities 19 other liabilities
20 off-balance-sheet obligations 21 capital adequacy ratio 22 Valuation of financial assets 23 credit risk
24 liquidity risk 25 risk exposure
26 sensitivity analysis of market risk 27 Disputes
n
ot
es t
o the ac
counts
NOTE 1 ACCOUNTING PRINCIPLES
GENERAL
the 2010 financial statements for Bustadkreditt sogn og Fjordane as were discussed and adopted at the Board meeting of 31 January 2011.
all amounts in the financial statements and notes are stated in thousands of noK, unless otherwise specified.
ACCOUNTING PRINCIPLES
the financial statements have been prepared in accordance with section 3–9 of the norwegian accounting act and the regulations on the simplified application of iFrs issued by the norwegian Ministry of Finance on 21 January 2008. in general this means that recognition and measurement principles follow international accounting standards (iFrs) and that the financial statements and notes are presented in accordance with the norwegian accounting act and generally accepted accounting principles.
CHANGES TO ACCOUNTING PRINCIPLES in the event of fundamental accounting reforms/ changes to accounting principles, the figures for previous years must be adjusted to allow accurate comparison. if items in the accounts are
reclassified, comparative figures for previous periods shall be calculated and reported in the financial statements.
no changes were made to the accounting principles in 2010. no relevant changes were made to standards or interpretations in 2010. ESTIMATES
When preparing the financial statements, certain estimates are made that affect reported amounts. note 2 sets out significant estimates and
assumptions in greater detail.
INCLUSION ON THE BALANCE SHEET
assets and liabilities are included on the balance sheet from the date on which the company achieves genuine control over the assets and takes on genuine liabilities.
assets are taken off the balance sheet on the date on which genuine risk relating to the assets is transferred and control over the assets is lost or ceases.
FINANCIAL INSTRUMENTS
Classification of financial instruments a financial instrument is any contract that provides both a financial asset to one enterprise
For the initial calculation, all financial instruments covered by the standard have been identified and classified in one of the following categories, depending on the purpose of the investment:
• Financial assets and liabilities held for trading purposes, measured at fair value through profit and loss • Financial assets and liabilities measured at fair value with changes in fair value recognised in profit or loss, in accordance with the Fair Value Option • Loans and advances, carried on the balance sheet at amortised cost – Financial assets and liabilities held for trading purposes, measured at fair value through profit and loss
the trading portfolio contains instruments that were mainly acquired or taken on with the aim of being resold or bought back in the short term, or instruments that are part of a portfolio of identified instruments that are managed jointly and for which there is an established pattern of realising short-term gains. Financial derivatives are always measured at fair value through profit and loss.
– Financial assets and liabilities measured at fair value with changes in fair value recognised in profit or loss, in accordance with the Fair Value Option, referred to as FVO
this portfolio includes investments in commer-cial paper and bonds, fixed-interest loans and certain bonds issued by the company. the above-mentioned instruments, as well as interest rate swaps, are managed collectively and measured at fair value.
– Loans and advances, carried on the balance sheet at amortised cost
this category includes all loans and advances that are not defined at their fair value in the profit and loss account, or as financial assets available for sale. commercial paper
borrowings are included in this category. Valuation
Initial valuation of financial instruments
Financial instruments are included on the balance sheet at their fair value at the transaction date. Subsequent valuations
Calculating fair value
Fair value is defined as the amount that an asset or liability can be exchanged for, in a transaction between independent parties. the valuation is
Instruments that are traded in an active market
a market is considered active if it is possible to obtain external, observable prices, rates or volatilities, and these prices represent actual and frequent market transactions. For instruments that are traded in an active market, we use the listed price obtained from a stock exchange, broker or price-setting firm. if there is no price listed for the instrument, we break it down into its components and value it on the basis of the prices listed for the individual components.
instruments traded in an active market include financial instruments that are listed on a stock exchange or that are quoted on some other market, such as shares, bonds and commercial paper. they also include financial derivatives that are based on underlying quoted or stock
exchange listed prices/indexes/instruments. Instruments that are not traded in an active market
Financial instruments that are classified in this category are valued using various valuation methods. For example, normal and simple financial instruments are valued using recognised models based on observable market data.
Amortised cost method
Financial instruments that are not valued at fair value, are valued at amortised cost, and income is calculated using the internal rate of return
method. For the internal rate of return method, the investment’s internal rate of return is used. the internal rate of return is calculated by disco-unting contractual cash flows over the anticipated term to maturity. cash flows include arrangement fees and direct transaction costs that are not covered by the customer, as well as any residual value when the anticipated term to maturity expires. the amortised cost is the current value of these cash flows discounted by the internal rate of return.
Impairment of financial assets
Individually assessed impairment provisions
objective evidence that a loan or group of loans has fallen in value includes significant financial problems at the debtor, default or other major breaches of contract, cases where it is likely that the debtor will try to renegotiate his debt or other specific events that have occurred.
individually assessed impairment provisions reduce the loan’s value on the balance sheet, and changes in valuations for the reporting period are taken to the profit and loss account under
“loan impairment charge”. interest on loans that have previously been impaired down is calculated using the discount rate that was used to
calculated the impairment provision. interest calculated on the present value of the loan is included under “net interest income”.
Collectively assessed impairment provisions
loans that have not been individually tested for impairment, are tested jointly in groups. loans that have been tested individually, but which have not been impaired, are also tested in groups. these assessments are based on objective evidence of falls in value on the balance sheet date that can be linked to the group.
the groups are defined as loans with similar risk and valuation patterns based on the classification of customers by risk classes. the need for impair-ment provisions is calculated for each customer group on the basis of an assessment of the current economic climate and historical losses for the customer group in question.
collectively assessed impairment provisions reduce the loans’ carrying amount. changes in valuations for the reporting period are recognised in the profit and loss account under “loan ment charge”. like individually assessed impair-ment provisions, collectively assessed provisions are calculated on the basis of discounted cash flows. cash flows are discounted using market interest rates.
impairment provisions as a result of identifiable, objective evidence of a fall in value on the balance sheet date are included under “loan impairment charge”.
Commercial paper and bonds
this category includes commercial paper and bonds that the Group does not intend to hold to maturity. this portfolio includes commercial paper and bond defined as assets measured at fair value with changes in fair value recognised in profit or loss (FVo).
interest income and expenses on commercial paper and bonds are included under “net interest income” using the internal rate of return method. this method is described in the paragraph on amortised cost.
other changes in value are included under “net gains/losses on financial instruments measured at fair value”.
Debt to credit institutions
liabilities to credit institutions are recorded as “Debt to credit institutions” regardless of the calculation method used. interest expenses on these instruments are included under ”interest cost” using the internal rate of return method. other changes in value are included under “net gains/losses on financial instruments measured at fair value”.
Debt securities
Debt securities include commercial paper, bonds and subordinated debt issued by the Bank, regard-less of the valuation method. interest expenses on these instruments are included under “net interest income” using the internal rate of return method. other changes in value are included under “net gains/losses on financial instruments measured at fair value”.
TAXATION
the tax expense stated in the profit and loss account includes both tax payable on income and assets, and changes to deferred tax for the financial period. Deferred tax/ deferred tax assets are calculated by applying a 28 % tax rate to temporary differences that exist between
accounting and taxable values at the close of the year. Deferred tax is calculated using the tax rates and regulations that apply on the balance sheet date, or that are very likely to be adopted and will apply when the deferred tax asset is realised or the deferred tax becomes payable.
Deferred tax assets are included on the balance sheet on the assumption that the Bank will have taxable income as a result of profits in future years. Deferred tax and deferred tax assets within the Group are offset against one another, and only the net liability or asset is included on the balance sheet.
tax payable and deferred tax are charged to equity if the tax relates to items that in the current or previous periods have been taken to equity. ACCRUAL OF INTEREST AND FEES
interest and commission are recognised in the profit and loss account as they accrue as income or expenses. set-up fees for loans are included in the cash flow when calculating the amortised cost, and are taken to income under “net interest income” using the internal rate of return method. RECOGNITION OF INTEREST INCOME
interest income is recognised in the profit and loss account using the internal rate of return method. this involves taking arising nominal interest plus amortised set-up fees to income. interest is taken to income using the internal rate of return method both for balance sheet items measured at amortised cost and ones measured at fair value through profit and loss. interest income on impaired loans is calculated as the internal rate of return on the carrying value.
CASH FLOW STATEMENT
the cash flow statement shows cash flows grouped by source and area of use. cash is defined as cash and receivables from central banks, and instant access deposits with credit institutions.
POST BALANCE SHEET EVENTS
post balance sheet dates shall be reported in accordance with ias 10. events that are not covered by the financial statements, but that are material to any evaluation of the company, shall be disclosed.
NOTE 2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
NOTE 3 REMUNERATION OF SENIOR MANAGEMENT AND THE BOARD OF DIRECTORS. TRANSACTIONS WITH RELATED PARTIES
Remuneration of senior management and the Board of Directors
no remuneration has been paid to senior management or the Board of Directors. the company buys all of the services it needs, including management of the company, from sparebanken sogn og Fjordane. the company has not provided any loans to Board members or the ceo.
estimates and judgements are continuously reassessed, and are based on past experience and other factors, such as expectations of future events that are considered probable.
the company prepares estimates and makes assumptions about future developments. accounting estimates produced on the basis of this rarely entirely correspond with what actually happens. estimates that constitute a significant risk of changes to the carrying value of assets and liabilities over the coming financial year are discussed below.
Fair value of financial instruments
For securities that are not listed and for which there is not an active market, the company uses valuation techniques to determine their fair value. the company makes its assessments and uses methods and assumptions that in so far as it is possible are based on market conditions on the balance sheet date. Valuations are based on the most recent private placement price, any trans-action prices that we are aware of and discounted cash flows. We also obtain valuations and
estimated credit spreads from external brokers. Impairment provisions
an impairment provision shall be made when there is objective evidence of a fall in value. objective evidence that a loan or group of loans has fallen in value includes significant financial problems at the debtor, default or other major breaches of contract, cases where it is likely that the debtor will try to renegotiate his debt or other
specific events that have occurred. to decide whether there exists objective evidence justifying collectively assessed impairment provisions, we use models that have been developed to calculate credit risk, as well as our own data on the loans’ statistical remaining term to maturity.
all impairment provisions are based on discounted values, with the loan’s internal rate of return before impairment being used as the discount rate. in principle all cash flows from loans and groups of loans must be identified, and an assess-ment must be made as to what cash flows are at risk of default. With the large number of loans that are subject to assessment at an individual level, these calculations have to be based on the specifics of the loans and past experience. the models that are used to calculate credit risk are evaluated and validated regularly. this is also true of the model for collectively assessed impairment provisions for groups of loans. changes are implemented in order to ensure that estimates of future losses are based on past experience and our knowledge of the Bank’s portfolio and the macroeconomic prospects.
For further details of the approach to individually and collectively assessed provisions, see note 1 accounting principles.
Contingent liabilities
From time to time, ssF Bustadkreditt as will be involved in legal disputes. the potential impact on the financial statements will be assessed on a case-by-case basis.
Bustadkreditt sogn og Fjordane as has no employees and purchases business services from sparebanken sogn og Fjordane. all of the company’s loans have been acquired from sparebanken sogn og Fjordane, and an agreement has been signed with the bank on the servicing of the portfolio.
transactions comply with arm’s length principles. NOTE 4 SEGMENTS
the company mainly operates in one segment, which is retail customers. this segment consists of loans to retail customers and a small volume of loans to private businesses. all of the company’s loans have been bought from sparebanken sogn og Fjordane. the company does not have any operations outside norway. customers with overseas addresses are classified as part of the norwegian operations.
NOTE 5 AUDITOR’S FEE
2010 2009
statutory audit 56 74
Fee paid to Deloitte as independent inspector 104 188
tax advice 0 1
other services 0 156
Total 160 419
NOTE 6 NET INCOME FROM FINANCIAL INSTRUMENTS
Net interest income 2010 2009
interest income and similar income from loans and
advances to customers, measured at amortised cost 64 231 33 218
interest income and similar income from commercial paper and other
interest-bearing securities, measured at fair value 2 360 919
other interest income and similar income from receivables measured at fair value 1 475 2 723
Total interest income 68 066 36 860
interest and similar expenses on issued securities measured at amortised cost 44 870 19 395 other interest and similar expenses on debt measured at amortised cost 7 851 5 976
Total interest expenses 52 721 25 371
Total net interest income 15 345 11 489
Net gain/loss on securities
Bonds, commercial paper and other interest-bearing securities measured at fair value through profit or loss
commercial paper and bonds issued by the public sector – 32 48
commercial paper and bonds issued by the other parties - 115 115
Net income and gains from financial instruments
measured at fair value – 147 163
NOTE 7 IMPAIRMENT OF LOANS AND GUARANTEES
Loan impairment/recoveries of loans and guarantees during the period 2010 2009
new individually assessed impairment provisions for the year 0 0
change in collectively assessed impairment provisions for the year 1 421 2 207
other adjustments to impairment provisions 0 0
amounts written off against impairment provisions 0 0
NOTE 8 OPERATING EXPENSES
2010 2009
it expenses 964 1 002
office equipment 0 4
Total general administrative expenses 964 1 006
purchase of services from the Group 1 433 1 225
auditor’s fee 160 419
expenses on bond debt 314 55
outside consultants 49 69
other operating expenses 19 3
Total other operating expenses 1 976 1 771
Total operating expenses 2 940 2 777
NOTE 9 TAX
TAX EXPENSE 2010 2009
tax payable for the year 3 124 1 334
Total tax payable 3 124 1 334
Change in deferred tax/tax assets
Deferred tax relating to the origination and reversal of temporary differences - 20 - 228
Total change in deferred tax/tax assets - 20 - 228
Total tax expense 3 103 1 106
Reconciliation of expected tax expense with actual tax expense
profit/loss before taxation 11 061 6 774
expected income tax applying nominal tax rate 3 097 1 897
other differences 6 -790
Tax expense 3 103 1 106
tax payable 3 124 1 334
Tax payable on balance sheet 3 124 1 334
BREAKDOWN OF THE TAX EFFECT OF TEMPORARY DIFFERENCES AND LOSS CARRYFORWARDS Taxable temporary differences
NOTE 10 CLASSIFICATION OF FINANCIAL INSTRUMENTS
2010 2009
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
Net loans and advances to credit institutions loans and advances to credit institutions
measured at amortised cost 69 932 69 932 19 586 19 586
Total loans and advances to credit institutions 69 932 69 932 19 586 19 586 Bonds and commercial paper
commercial paper and bonds
measured at fair value *) 99 794 99 794 149 775 149 775
Total bonds and other securities 99 794 99 794 149 775 149 775 Net loans to customers
loans to customers
measured at amortised cost 2 604 034 2 604 034 1 436 242 1 436 242 Total loans before individually and
collectively assessed impairment provisions 2 604 034 2 604 034 1 436 242 1 436 242
– individually assessed impairment provisions 0 0 0 0
– collectively assessed impairment provisions - 3 628 - 3 628 - 2 207 - 2 207 Total net loans to customers 2 600 406 2 600 406 1 434 035 1 434 035 Other assets
other assets measured at amortised cost 2 688 2 688 1 448 1 448
Total other assets 2 688 2 688 1 448 1 448
Total financial assets 2 772 820 2 772 820 1 604 845 1 604 845 Financial assets grouped by category
Financial assets measured at fair value, FVo *) 99 794 99 794 149 775 149 775 Financial assets measured at amortised cost,
loans and advances 2 673 026 2 673 026 1 455 070 1 455 070
Total financial assets 2 772 820 2 772 820 1 604 845 1 604 845 Debt to credit institutions
loans and deposits from credit institutions
measured at amortised cost 195 479 195 479 289 267 289 267
Total debt to credit institutions 195 479 195 479 289 267 289 267 Debt securities
commercial paper and bonds
measured at amortised cost 2 347 471 2 332 030 1 199 872 1 198 200 Total debt securities 2 347 471 2 332 030 1 199 872 1 198 200 Other financial liabilities
other debt measured at amortised cost 8 249 8 249 3 811 3 811 Total other financial liabilities 8 249 8 249 3 811 3 811 Total financial liabilities 2 551 199 2 535 758 1 492 950 1 491 278 *) FVo: Fair Value option
NOTE 11 LOANS AND ADVANCES TO CREDIT INSTITUTIONS
2010 2009
total loans and advances to credit inst. without an agreed term at amortised cost *) 69 932 19 586 total loans and advances to credit inst. with an agreed term at amortised cost *) 0 0 Total loans and advances to credit institutions measured at amortised cost 69 932 19 586
NOTE 12 COMMERCIAL PAPER AND BONDS
Commercial paper and bonds measured at fair value, for which changes in fair value are recognised in the profit and loss account
2010 2009
COMMERCIAL PAPER BONDS TOTAL COMMERCIAL PAPER BONDS TOTAL
commercial paper and bonds,
carrying amount 49 794 50 000 99 794 99 660 50 115 149 775
of which listed on a stock exchange 49 794 0 49 794 99 660 0 99 660
par value 50 000 50 000 100 000 100 000 50 000 150 000
Distribution by sector
Finance, banking and insurance 0 50 000 50 000 0 50 115 50 115 Government and government-backed 49 794 0 49 794 99 660 0 99 660 Total 49 794 50 000 99 794 99 660 50 115 149 775
Modified duration 0,21 0,16 0,19 0,20 0,16 0,19
average effective
interest rate at 31 Dec. 2,06 % 2,89 % 2,43 % 2,02 % 2,42 % 2,13 %
Maturity structure of investments in bonds and commercial paper (market value)
2010 0 0 0 99 660 0 99 660 2011 49 794 0 49 794 0 0 0 2012 0 0 0 0 0 0 2013 0 0 0 0 0 0 2014 0 0 0 0 0 0 2015 0 50 000 50 000 0 50 115 50 115
all securities are noK-denominated.
the weighting used to calculate the average effective interest rate for the whole portfolio is based on the individual security’s share of the overall interest rate sensitivity.
NOTE 13 BREAKDOWN OF LOANS AND GUARANTEES
2010 2009
loans to customers measured at amortised cost 2 604 034 1 436 242
Total gross loans to customers 2 604 034 1 436 242
individually assessed impairment provisions 0 0
collectively assessed impairment provisions (see note 15) 3 628 2 207
Net loans to customers 2 600 406 1 434 035
Distribution of loans by sector and industry
2010 2009
employees, etc. 2 600 442 1 435 067
overseas 3 592 1 175
NOTE 14 LOAN-TO-VALUE RATIO AND COVER POOL
2010 2009
Gross loans to customers 2 604 034 1 436 242
average loan per customer 952 965
number of loans 2 850 1 534
total value of properties securing the loans 9 555 717 3 687 605
Weighted average loan age (months) 35 33
Weighted average remaining term (months) 144 172
Weighted loan-to-value ratio 52 % 52 %
composition of cover pool:
residential mortgages 1) 2 593 726 1 435 561
substitute assets 2) 99 771 149 612
Total 2 693 497 1 585 173
1) under the regulations relating to credit institutions that issue covered bonds, the loan-to-value ratio cannot exceed 75 %. at 31 December 2010, the company had noK 10.3 million exceeding that limit. that amount was therefore not included when calculating the cover pool. at 31 December 2010 the company had one noK 1.2 million loan that was in default. non-performing loans are not included in the cover pool.
2) substitute assets consist of investments in short-term government debt and covered bonds. all investments are aaa-rated by standard & poor’s
NOTE 15 IMPAIRMENT OF LOANS AND GUARANTEES
2010 2009
individually assessed impairment provisions at 1 Jan. 0 0
amounts written off against individually assessed impairment provisions during the year 0 0
new individually assessed impairment provisions for the year 0 0
recoveries against individually assessed impairment provisions for the year 0 0
other adjustments to impairment provisions 0 0
Individually assessed impairment provisions at 31 Dec. 0 0
collectively assessed impairment provisions at 1 Jan. 2 207 0
increase in collectively assessed impairment provisions for the year 1 421 2 207 Collectively assessed impairment provisions at 31 Dec. 3 628 2 207
Total impairment provisions 3 628 2 207
NOTE 16 OTHER CURRENT ASSETS
2010 2009
accrued interest on loans 2 567 1 348
accrued interest on bonds 121 100
Total other current assets 2 688 1 448
NOTE 17 DEBT TO CREDIT INSTITUTIONS
2010 2009
total debt to credit inst. without an agreed term at amortised cost 195 479 289 267
total debt to credit inst. with an agreed term at amortised cost 0 0
Total debt to credit institutions, measured at amortised cost 195 479 289 267 the company has arranged a noK 300 million credit facility with sparebanken sogn og Fjordane, which is
NOTE 18 DEBT INCURRED THROUGH THE ISSUE OF SECURITIES
BOOK BOOK
FACE INTEREST ISSUE MATURITY VALUE VALUE
ISIN NUMBER VALUE CURRENCY RATE DATE DATE 2010 2009
no0010504194 400 000 noK Variable rate 30 Mar. 2009 17 aug. 2015 399 920 399 920 no0010504194 300 000 noK Variable rate 14 May 2009 17 aug. 2015 299 940 299 940 no0010504194 500 000 noK Variable rate 22 June 2009 17 aug. 2015 500 000 500 000 no0010572290 100 000 noK Variable rate 20 apr. 2010 27 apr. 2015 100 000 0 no0010582299 300 000 noK Variable rate 24 June 2010 28 June 2013 299 739 0 no0010572290 300 000 noK Variable rate 21 sept. 2010 27 apr. 2015 299 520 0 no0010593155 300 000 noK Variable rate 1 Dec. 2010 10 Mar. 2016 298 530 0 no0010572290 150 000 noK Variable rate 14 Dec. 2010 27 apr. 2015 149 700 0
amortization 122 12
Total debt incurred through the issue of securities 2 347 471 1 199 872 all loan agreements are subject to standard covenants.
in 2010, Bustadkreditt sogn og Fjordane as met all of the relevant conditions.
NOTE 19 OTHER LIABILITIES
2010 2009
accrued costs and advance income 8 189 3 705
other liabilities 60 106
Total other liabilities 8 249 3 811
NOTE 20 OFF-BALANCE-SHEET OBLIGATIONS
2010 2009
unused credit facilities 312 963 155 211
Total contingent liabilities 312 963 155 211
the unused credit facilities are undrawn home equity lines of credit. the company has no other off-balance-sheet obligations.
NOTE 21 CAPITAL ADEQUACY
Equity and subordinated debt 2010 2009
share capital 200 000 100 000
other equity 18 746 10 789
Equity 218 746 110 789
Deductions:
Deferred tax assets - 248 - 228
Core capital 218 498 110 561
Net equity and subordinated loan capital 218 498 110 561
Minimum requirement for equity and subordinated debt
Credit risk of which:
institutions 1 132 313
retail loans 5 840 2 364
residential mortgage loans 74 499 41 322
overdue advances 100 0
covered bonds 401 401
other advances 223 21
Total minimum requirement for credit risk 82 195 44 421
Operational risk 2 038 850
Deductions:
collectively assessed impairment provisions - 290 - 177
Minimum requirement for equity and subordinated debt 83 943 45 094 Capital adequacy
capital adequacy ratio 20,82 % 19,61 %
core capital ratio 20,82 % 19,61 %
the capital adequacy ratio has been calculated using the new capital adequacy regulations (Basel ii). the standard method has been used for credit risk and market risk, whilst the basic method has been used for operational risk. the minimum capital requirement is 8.00 %.
there are three pillars to the Basel ii regulations. pillar 1 relates to minimum capital adequacy requirements, and builds on the previous regulations in Basel i. pillar 2 relates to the institution’s internal assessment of total capital requirements (icaap), whilst pillar 3 covers disclosure requirements for financial information.
NOTE 22 VALUATION OF FINANCIAL ASSETS
Breakdown of financial assets measured at fair value Bonds and other fixed-interest securities
QUOTED PRICES AND
OBSERVABLE ASSUMPTIONS BOOK VALUE
2010 2009 2010 2009
Finance, banking and insurance 50 000 50 115 50 000 50 115
Government and government-backed 49 794 99 660 49 794 99 660
Total 99 794 149 775 – 99 794 149 775
Bonds and other fixed-interest securities
norwegian short-term government debt is valued at its most recent price on the stock exchange. other norwegian bonds and securities are measured at fair value based on valuation techniques. the valuation
NOTE 23 CREDIT RISK
CREDIT RISK BY CLASS OF FINANCIAL INSTRUMENT
MAXIMUM EXPOSURE 2010 2009
Bonds and commercial paper 99 794 149 775
net loans and advances to customers* 0 0
Total 99 794 149 775
*) net loans and advances to customers, measured at fair value 0 0
CREDIT RISK RELATING TO BONDS AND COMMERCIAL PAPER Credit risk by counterparty
Interest-bearing securities Debtor category by guarantor
AAA AA A BBB Non-investment Total 2010 Total 2009 fair fair fair fair grade fair fair
Figures in NOK ‘000s value value value value fair value value value
Finance, banking and insurance 50 000 0 0 0 0 50 000 50 115
Government and government-backed 49 794 0 0 0 0 49 794 99 660
Total 99 794 0 0 0 0 99 794 149 775
standard & poor’s ratings have been used. Changes in value
Total change in book value - 46 - 46 240
Changes in value recognised in the profit
and loss account for the period - 46 - 46 240
customers with residential mortgage loans are assessed according to the willingness and ability to repay their loans. When customers apply for a loan, they are subjected to a risk assessment and their debt servicing ability is calculated. the loan-to-value ratio of Bustadkreditt sogn og Fjordane as’s residential mortgage loans is less than 75 % at the time they are transferred from sparebanken sogn og Fjordane. the credit quality of loans that are not in arrears is high.
Bustadkreditt sogn og Fjordane as’s collateral consists of mortgages on residential properties. We consider the collateral for the portfolio to be very good. one account is over 90 days in arrears. the collateral for this non-performing loan is also considered to be good. the credit risk associated with the portfolio is low. LOANS BY CUSTOMER GROUPS
Gross Individually Net Loans and Unused Average non- assesed non-advances to credit Total loan performing impairment performing customers Guarantees facilities amount value amount provisions amount
GEOGRAPHIC DISTRIBUTION OF LOANS
Gross Individually Total Loans and Unused non- assesed non-advances to credit Total performing impairment performing customers Guarantees facilities amount amount provisions amount
oslo 279 611 0 29 148 308 759 0 0 0 akershus 232 492 0 23 253 255 745 0 0 0 eastern norway 117 820 0 22 221 140 041 0 0 0 Western norway 1 906 785 0 230 698 2 137 483 3 432 0 3 432 southern norway 7 596 0 4 195 11 791 0 0 0 central norway 42 360 0 2 994 45 354 0 0 0 northern norway 13 778 0 401 14 179 0 0 0 overseas 3 592 0 0 3 592 0 0 0 Total 2 604 034 0 260 509 2 864 543 3 432 0 0 TOTAL VALUE OF LOANS BY REMAINING TERM TO MATURITY
Loans and
advances to Unused Total customers Guarantees credit facilities amount
up to 1 month 0 0 0 0 1 – 3 months 8 0 0 8 3 months – 1 year 2 614 0 0 2 614 1 – 5 years 68 138 0 13 544 81 682 over 5 years 2 533 274 0 299 366 2 832 640 Total 2 604 034 0 312 910 2 916 944
AGED ANALYSIS OF LOANS IN ARREARS
FOR WHICH NO SPECIFIC IMPAIRMENT PROVISION HAS BEEN MADE
Loans and
advances to Unused Total customers Guarantees credit facilities amount
1 – 30 days in arrears 4 029 0 0 4 029
31 – 60 days in arrears 0 0 0 0
61 – 90 days in arrears 0 0 0 0
over 90 days in arrears 1 224 0 0 1 224
Total 5 253 0 0 5 253
GEOGRAPHIC DISTRIBUTION OF LOANS MORE THAN 90 DAYS IN ARREARS
Loans and
advances to Unused Total customers Guarantees credit facilities amount
eastern norway 0 0 0 0
Western norway 1224 0 0 1224
central norway 0 0 0 0
northern norway 0 0 0 0
Total 1 224 0 0 1 224
the geographic distribution is only provided for non-performing loans. an account is considered non-performing when a client is overdrawn for more than 90 days or when a repayment loan is more than 90 days in arrears and the amount in question is at least noK 1000.
CREDIT RISK BY CUSTOMER GROUP
Total Total Total Total changes in impaired Total changes impairment value through profit
NOTE 24 LIQUIDITY RISK
undiscounted cash flows required to meet financial obligations
Without
0–1 1–3 3–12 term to
months months months 1–5 years >5 years maturity Total
Debt to credit institutions 0 1 530 4 589 201 597 0 0 207 716
Debt incurred through
the issue of securities 4 357 13 771 54 265 2 263 937 302 381 0 2 638 712
other liabilities 11 373 0 0 0 0 0 11 373
unused credit facilities 312 963 0 0 0 0 0 312 963
Total 2010 328 694 15 301 58 854 2 465 535 302 381 0 3 170 764
Debt to credit institutions 0 1 887 5 662 304 367 0 0 311 917
Debt incurred through
the issue of securities 0 7 410 22 230 118 560 1 222 230 0 1 370 430
other liabilities 5 145 0 0 0 0 0 5 145
unused credit facilities 155 211 0 0 0 0 0 155 211
Total 2009 160 356 9 297 27 892 422 927 1 222 230 0 1 842 703 the above tables include interest payable. in order to calculate the interest expense on variable-rate
borrowing, current interest rates on the reporting date were used. NOTE 25 RISK MANAGEMENT
Bustadkreditt sogn og Fjordane as is exposed to credit risk, operational risk, liquidity risk and interest rate risk. credit risk is the most significant of these. capital adequacy has been calculated by measuring credit risk using the standardised approach and operational risk using the basic indicator approach. limits have been set on exposure to the various classes of risk. the Board considers it a priority for the company to maintain a low risk exposure.
Credit risk
Bustadkreditt sogn og Fjordane as is exposed to credit risk through residential mortgages, and to counter-party risk through its investments in financial markets. the loans that it purchases from sparebanken sogn og Fjordane have good collateral. at the time of purchase,
the loan must represent no more than 75 percent of the
approved value of the collateral. the values of properties 35%
Weighted loan-to-value ratio
FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS (FVO)Bonds and commercial paper 2010 2009
Book value 99 794 149 775
Maximum exposure to credit risk 50 000 50 115
Book value of associated credit derivatives that hedge credit risk 0 0
change in fair value of assets due to changes in credit risk for the year - 46 0 cumulative change in fair value of assets due to changes in credit risk - 46 0 change in fair value of associated credit derivatives for the year 0 0
the performance of the loan portfolio is monitored monthly through a credit report which sets out areas such as the composition of the portfolio by risk group, loan performance and the impact of a fall in property prices and higher default rates on the cover pool.
the company’s counterparty risk derives from investments in financial markets and exposure to other financial institutions.
there are limits on the company’s exposure to any given counterparty. in order to protect itself against losses, the company only has exposure to financially sound counterparties.
Liquidity risk
liquidity risk is the risk that the company will be unable to repay its debts when they are due.
the company’s liquidity buffer shall be sufficient to allow it to repay all of its debts when they are due. the company always maintains the minimum liquidity buffer required by the Board and sufficient liquidity to cover its net obligations over the next six months.
Interest rate risk
the company shall manage its exposure to interest rate risk in order to minimise its exposure to interest rate fluctuations. exposure to changes in interest rate spreads is limited by the rules on credit risk. there are also limits on the exposure to changes in the absolute level of interest rate that are monitered and reported monthly.
Foreign currency risk
the company does not have any foreign-currency-denominated loans or other foreign-currency-denominated investments.
Operational risk
operational risk is defined as the risk of losses due to human error, external actions or failures and defects with the company’s systems, procedures and processes. laws and regulations set out specific requirements relating to various records that have to be kept. this is partly to make it possible to check that the loans transferred to the company genuinely satisfy all of the relevant requirements. For instance, section 11 of the regulations requires there to be a database for the cover pool detailing the loans, forward interest rate and currency contracts, substitute assets, as well as covered bonds. the Bank has established a database that satisfies the requirements of the regulations. establishing these databases will make it easier for the Bank to uncover errors or defects with the company’s loan portfolio. amongst other things, in order to ensure that the company always has sufficient collateral for its borrowings, stress tests have been created. there are two parts to the tests: the first one looks at whether balance sheet requirements are met; based on that, the second part looks at profitability.
NOTE 26 SENSITIVITY ANALYSIS OF MARKET RISK
Based on the balance sheet at 31 December 2010, any changes in market risk taking place over the coming year will have the following impact on profit and equity
INTEREST RATES EXCHANGE RATE
Impact on profit/equity - 1,50 % 1,50 % - 12 % 12 %
loans and advances to credit institutions - 755 755 0 0
Bonds and commercial paper - 450 450 0 0
loans to customers - 24 879 24 879 0 0
Debt incurred through the issue of securities 21 973 - 21 973 0 0
Debt to credit institutions 2 111 - 2 111 0 0
Total - 2 000 2 000 0 0
this note sets out the impact on the financial statements over a period of 12 months of an immediate parallel change in interest rates of + 1.5 % and – 1.5 %. it takes into account ongoing interest income and expenses, the one-off impacts that any such immediate change in interest rates would have on items measured at fair value and the impact of a change in interest rates on profit over remaining fixed interest terms until the change impacts income and expenses.
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Control Committee´s Report
ANNUAL REPORT FOR 2010
BustaDKreDitt soGn oG FJorDane as control coMMittee
in 2010, the control committee consisted of: chair: Knut Jon sunde
Deputy chair: solicitor andreas rønnekleiv Member: ingrid Kassen
the committee has made inspections to make sure the bank is in compliance with legislations, articles of associations and other associations and decisions that the company is obligated to follow.
the control committee has, since the annual accounts for 2009 were presented, held two meetings. the committee has reviewed the minutes of the Board meetings. the committee considers the systems for government and control to be sufficient and adequate.
the committee has reviewed the Directors’ report and the annual accounts and associated notes for 2010.
the external auditor has summarised the accounts and has presented an audit report dated 31. January 2011.
the committee considers the auditor’s assessment of the financial position of the company to be accurate, and it recommends that the profit and loss account and balance sheet presented be adopted as the company’s accounts for 2010.
Førde, 11.02.2011
Knut Jon sunde – chair –
andreas rønnekleiv – Deputy chair –
ingrid Kassen – Member –
DeCLARAtIon BY tHe BoARD oF DIReCtoRs AnD Ceo
We declare that, to the best of our knowledge, the financial statements for 2010 have been prepared in accordance with current accounting standards, and that the information contained therein provides a true picture of the assets, liabilities, financial position and results of the company. the Board believes that the annual report gives a true picture of the performance, results and financial position of the company, and assesses the most important areas of uncertainty and potential risks it faces in 2011.
Førde, 31 January 2011
the Board of Directors of Bustadkreditt sogn og Fjordane as
hallvard Klakegg chair
Kjetil Joar Bjørset Gro skrede Mardal harald slettvoll ceo
InFoRMAtIon ABoUt tHe CoMPAnY Address:
Bustadkreditt sogn og Fjordane as langebruvegen 12,
6800 Førde
Tel. no.: +47 57 82 97 00 Company registration number: 47 946 917 990
Management:
harald slettvoll ceo Board of Directors:
hallvard Klakegg chair Kjetil Joar Bjørset Member Gro skrede Mardal Member Contact person:
