ANNUAL REPORT 2005mb.cision.com/Main/2876/9318278/54552.pdfPhoto: BITMAP (side 5, 12, 21, 22, 111),...

ANNUAL REPORT 2005

Photo: BITMAP (side 5, 12, 21, 22, 111), Elisabeth Tønnessen (page 107), Tom Haga (page 112, 115) and Åshild Moen.

The Sparebank 1 SR-Bank Group 4

Highlights 6

Main figures 7

Key figures 7

The CEO's article 8

Annual report 2005 10

Annual accounts, table of contents 23

Auditor's report for 2005 92

The Audit Committee's

statement for 2005 92

Primary capital certificates 93

Key figures during the past years 96

A group willing and able

to contribute 98

Corporate governance 100

Risk and capital management 105

Corporate market division 110

The Retail market division 113

Overview of our offices 116

Governing bodies 117

Organisational chart (simplified) 118

TABLE OF CONTENTS

WHAT SEPARATES ONE BANK FROM ANOTHER? INTEREST RATES, FEES AND PRODUCTS ARE OFTEN THE SAME. BUT HAVE YOU ASKED YOUR BANK WHAT THEY WANT?

OR WHAT ROLE THEY WANT TO PLAY? OUR ANSWER IS SIMPLE. THE OBJECTIVE OF SPAREBANK 1 SR-BANK IS TO HELP CREATE VALUES FOR THE REGION WE ARE PART

OF, AND THE ONLY WAY IN WHICH WE CAN DO THIS IS THROUGH THE ACHIEVEMENTS OF OUR 942 EMPLOYEES. IT’S A MATTER OF WILL.

Agathe Høynes, Aina Nordfonn, Alet Due-Olsen, Alf Henning Myklebust, Alf Inge Riska, Alf Sigmund Østreim, Alf Sveinung Lie, Alfhild Vikse, Alv Østerhus, Alvhild Tofterå Berge,

Anders Rundhaug, Andrè Liodden, Anita Christine Gundersen, Anita Hodnefjell, Anita Raustøl, Anita Sørhus, Anita Torjussen, Anlaug Stormo, Ann Helen Mæle, Ann Jeanette

Sunde Olaussen, Ann Kristin Igland, Ann Kristin Rise, Annbjørg Omdahl, Anne-Christine Joys, Anne-Gro Holta, Anne Beate Hope, Anne Beth Høivik, Anne Beth Naustvik Økland,

Anne Brit Idsøe, Anne Brit Myklestad, Anne Brit Watne, Anne Elise Olsen, Anne Grete Gjerde, Anne Grete Skraastad, Anne Grete Svennevig, Anne Haukalid, Anne Havsø Tveit,

Anne Herabakke, Anne Irene Lea, Anne Isaksen, Anne Jelsa, Anne Jorun Hauge, Anne Judith Vik, Anne Karin Undheim, Anne Karin Østerhus, Anne Karine Weibell, Anne Kristin H.

Førland, Anne Krogedal, Anne Lea Hobberstad, Anne Lill Larsen, Anne Lise Aukland, Anne Lise Bjorheim, Anne Lise Krossgått Førre, Anne M Slettebø, Anne Margrethe Karlstad,

Anne Marie Nortveit, Anne Mathiassen Bjørnsen, Anne Nystrøm Kvale, Anne Siri Goa Sandve, Anne Synnøve Håversen, Anne Torhild Anfinsen, Anne Turid Landmark, Anne W

Salbo Hundhammer, Annett Viste Levik, Annette Eide, Annette Skaarstad Hansen, Anny Bergeland, Anny Klingsheim, Ansgar Steffensen, Arild Ask, Arild Engø, Arild Langberg

Johannessen, Arild Lauvsnes, Arild Netteland, Arild Nielsen, Arild Ree, Arlin Opsahl Mæland, Arne Geir Larsen, Arne Gjerde, Arne Kjærstad, Arne L. Lund, Arne Mo, Arne Tjelta,

Arnfinn Høigård, Arnhild Haddeland, Arnlaug Vistnes, Arnt Eivind Roth Halvorsen, Arthur Tengesdal, Arve Austestad, Arve Pedersen, Arvid Ek, Arvid Gjesdal, Arvid Solem, Asgaut

Fiskå, Aslaug Holgersen, Aslaug Irene Frafjord, Asle Ingebrethsen, Astrid Auestad, Astrid Børresen, Astrid Hauge Edland, Astrid Horpestad, Astrid Høyland, Astrid H. Throndsen,

Astrid M. Bolme, Astrid Norheim, Astrid Saurdal, Astrid Skjæveland, Atle Mortensen, Atle Nilsen, Atle Oftedal, Atle Wb Nilsen, Atle Øvestad, Aud Helene Nese, Aud Inger

Haugland, Aud Randi Sivertsen Sletten, Aud S. J. Jåsund, Audny Hellevik, Audun Remesvik, Beate Bjelland Rabben, Bendik Voll, Bent Terje Lie, Bente Due-Olsen, Bente Erevik

Svendsen, Bente Hope, Bente Ilona Grastveit, Bente Stokdal, Bente Øyhovden, Berit Helene Bjerga, Berit Johannessen, Berit Karin Gramstad, Berit Mihle Laugaland, Berit Nygård,

Berit Sandåker Olsen, Berit Sie Eltervåg, Berit Sola, Berit Storhaug Ravndal, Berit Vatnekvam, Berit Vestersjø, Bernt H. Berge, Bernt Ringodd, Bertha Auestad, Bess Grastveit, Beth

Karin Laugaland Sele, Bidun Berge Hansen, Birgitte Nordnes, Birgitte Wendelbo Johansen, Birte Wereide, Bjarte Sivertsen, Bjørg Byberg, Bjørg Espeland, Bjørg Haarr, Bjørg Ravnås

Knutsen, Bjørg Stangenes Nilsen, Bjørg Tordis Lunde, Bjørn Berland, Bjørn Håheim, Bjørn Jan Tesdal, Bjørn Kjetil Hellestræ, Bjørn Rossebø, Bjørn Rune Olsen, Bjørn Sanne, Bjørn

Sivertsen, Bjørn Steinar Surdal, Bjørn Stensland, Bjørn Sørlund, Bjørnar Jacobsen, Bodil Eia Folkvord, Bodil H. Nernes, Bodil Olsen, Bodil Sjøthun, Bodil Sømme Danielsen, Brit

Carlsen, Brit Helen Lie Hagen, Brit Jane Tolås, Brit Røstvik, Brit Thomsen, Brit Tone Harveland, Brith Ladsten Breivik, Britt Fagerland, Børge Espeland, Børge Henriksen, Børge

Severin Furuhaug, Børge Sørensen, Bård-Espen Krabbedal, Bård Birkeland, Bård Ellingsen, Camilla Gram, Carl Fredrik Hjelle, Catherine Hauge, Cathrine Brueland Andersen,

Cathrine Leiros, Cecilie Hjelmervik, Cecilie Lileng, Cecilie Vik, Christian Jacobsen, Christian Krag, Christiane E. Skage, Christina R. Lund, Christine Christiansen, Christine Gjerde

Kvalsund, Christine Wathne Seloter, Christoffer Inge Hovda, Corine Vollen Aulin, Dag Kristian Risa, Dag Strøm, Dag Sønsterud, Dagfinn Pedersen, Dajmi Egenæs Birkedal, Ebba

Marie Breivik, Edda Runarsdottir Hodnefjell, Edna Kallevik, Edvard Jekteberg, Edvard Aarsland, Egil Nygård, Egil Reed, Einar Foss Kvavik, Einar Jøssang, Einar Osmundsen, Eirik

Bjelland, Eirik Fausa, Eirik Thorsen, Eivind Pedersen, Elbjørg Husebø, Eli Fosse Orstad, Eli Lunde Wells, Eli Margrethe Hansen, Eli Nødland Knoph, Eli Øye, Elin Berne, Elin Bie

Egge, Elin Bue, Elin Falck-Jørgensen Gitlesen, Elin Garborg, Elin Klungtveit, Elin Schanche, Elin Sørung, Elisabet Salthe, Elisabeth Falch, Elisabeth Krogedal, Elisabeth Ree-Pedersen,

Elisabeth Østensen, Elisabeth Øvstebø, Elise Oliversen, Ellen Hansen Vestre, Ellen Iversen, Ellen Kristin Westbye, Ellen Marie Jespersen, Ellen Strømme, Elna Olena Ydstebø, Else

Eriksen, Else Juul, Else Karin Rossavik, Else Karin Solvik, Else Marie Jonsson, Else Marie Rønneberg Mcneil, Emmy Holmquist, Endre Mathias Gaard, Erik Hansen, Erik Larsen, Erik

Salte, Erlend Halsne, Erling Titlestad, Erling Trondsen, Erling Trædal, Erna Nilsen, Espen Solum, Eva Eliassen, Eva Wanvik, Eva Aalvik, Evy-Tone Håland, Evy Sagen, Fred

Humborstad, Fredrik Vik Jørgensen, Freidar Sagen, Frode Bø, Frode Gjedrem, Frode Handeland, Frode Kulien, Frode Ollestad, Frode Solheim, Frøydis Spetland, Gabriel Haugen,

Gaute Jacobsen, Gaute Thise Jacobsen, Geir Danielsen, Geir Gundersen, Geir Helge Tjordal, Geir Hoff, Geir Inge Lian, Geir Lie, Geir Olav Måland, Geir Rønhovde, Geir Tjentland,

Geir Aamdal, Gerd Bergum, Gerd Ellinor Eikje, Gerd Karin Snørteland, Gerd Oddny Sørhus, Gerd Soltvedt, Gerd Solveig Sande, Gerd Størkersen, Gerd Watland, Gerd Åsbø,

Gjermund Øren, Glenn Sæther, Greta Tungland, Grete Breisteinslien Olsen, Grete Elisabeth Eide, Grete Frøyland, Grete Oanæs Dahl, Grete Torarin Haga, Grete Ø. Aukland, Grethe

Berge Østhus, Grethe Eriksen, Grethe E. Gjerde, Grethe Iversen, Grethe N. Holm, Grethe S Schreuder, Gro Anita Nøkland, Gro Barka, Gro Berit Haferkamp, Gro Lillian Netland

Hulløen, Gro Tveit, Gry Berit Lundal, Gry L. Paulsen, Gry Soland, Gry Åmot Sjøvoll, Gudbjørg Hetland, Gunlaug Haugland, Gunn Haaland, Gunn Kristi Høgøy, Gunn Merete

Johansen, Gunn Nag Nordanger, Gunn Rygh, Gunn Smithson, Gunnar Eriksen, Gunnar Fatland, Gunnar Førland, Gunnar Kristiansen, Gunnar Nielsen, Gunnar Steinsson, Gunvor

Bergesen, Gunvor Bøe, Guri Aarrestad, Guro Edquist, Guttorm Sirnes, Gyrid Bakka, Gyro Eftestøl Naterstad, Gøran Heggen, Halfdan Meling, Hanne Berit Sunde, Hanne Iren

Sværen, Hanne Joa Jacobsen, Hanne Keth Qvale, Hanne Lise Lindløv, Hanne Synnøve Andreassen, Hanne Tove Østebøvik, Hanne Aanderaa Kristiansen, Hans Jacob Hornseth,

Hans Kristian Torske, Hans Petter Salvesen, Hans P. C. Hansen, Harald Grønnestad, Harald Skarveland, Harald Utvik Hamre, Harald Vorland, Hege Eriksen Nilsen, Hege

Kyllingstad, Hege Lind Tvedt, Hege M. Drarvik Olsnes, Hege O. Larsen, Heidi Høivik, Heidi Nag Flikka, Heinz Goldhahn, Helen Hellesvik, Helene Vaaland Eriksen, Helga

Undheim, Helga Vinje, Helge H. Helgø, Helge Ims, Helge Larsen, Helge Lennart Aarsheim, Helge Lindland, Helge Pollestad, Helge Thorsen, Helge Torjussen, Henning Stålesen,

Henry Bjørkelund, Herbert Lundervold, Hild Marit Torvestad, Hilde Grønhilder Kristiansen, Hilde Marie Djupevik, Hilde Netland, Hilde Sløgedal Stava, Hilde Thoresen Solvoll,

Hilde Tollefsen, Hugo Heitmann Hansen, Håkon Færaas, Håkon Løvslett, Håvard Norberg Bø, Håvard Øvregård, Idun Vagle, Ina Aurtun, Inge Nilson, Inge Reinertsen, Ingebjørg

Feria, Inger Alida Stangeland, Inger Håland Hinna, Inger Johanne Solberg, Inger Lise Ask, Inger Lise Jonassen, Inger Lise Leite, Inger Lise Løland, Inger Lise Tønnessen, Inger

Mathiassen, Inger Reidun Tjordal Underbakke, Inger Årsvoll Tuxen, Ingfrid Warhaug, Inglen Haugland, Ingolf Harkestad, Ingrid Fritzke Andresen, Ingrid N. Stueland, Ingrid

Skjæveland, Ingunn B. Mæland, Ingunn Mæhle, Ingunn Stokdal, Ingunn Sunnevåg, Ingvar Austrått, Ingve Henriksen, Ingve Lerang, Ingvild Fitje Håland, Irene Fjeldheim, Irene Goa,

Irene Nesbø, Ivar Skogen, Iver Tønnessen Mathiesen, Jacob Magne Kvinnsland, Jahn Fredrik Hoff, Jan Arild Sørbø, Jan Arne Puntervoll, Jan Audun Lutro, Jan Audun Pedersen, Jan

Eie, Jan Einar Thesen, Jan Erik Østbø, Jan Friestad, Jan Georg Byberg, Jan Inge Buer, Jan Inge Rasmussen, Jan Jørgen Larsen, Jan Kristian Byberg, Jan Michael Nilsen, Jan

Michaelsen, Jan Ove Wolff-Jakobsen, Jan Petter Mauland, Jan Petter Mikaelsen, Jan Sigve Løvold, Jan Tjelle, Jan Vidar Vestly, Jane Brit Tønnesen Ripland, Jane Cave, Jane Margon

Vølstad, Janne Anette Wold, Janne Bore, Janne Clausen, Janne Erfjord, Janne Eskeland, Janne Fjellvang, Janne Stangeland Rege, Jarl Endre Egeland, Joar Johnsen, Johan Bjørn

Hatleskog, Johan Bull-Njaa, Johannes Høynes, Johannes Vold, John Hov, John Instanes, John Lervik, John Aage Tisløv, Jonas Ytreland, Jone Omland, Jorunn Esther Oliversen,

Jorunn E. Helgøy, Jorunn Finnestad, Jorunn Jøssang, Jorunn Lilledal, Jorunn Nepstad, Jorunn Nordvik, Jorunn Pedersen Lima, Jorunn Reianes Tvedt, Jorunn Risanger, Jorunn

Simonsen, Jorunn Vadla, Jorunn Vestbøstad, Jostein Opsal, Judith Marie Taarland, Julianne Johansen, Julie Klepp, Jørgen Kristiansen, Kalle Naley, Karen Bergesen, Karen Elise

Stølsvik, Karen Strøm Olsen, Kari Ellingsen, Kari Foss, Kari Grødem, Kari Helen Tollefsen, Kari Helgøy, Kari Hoff, Kari Høyvik, Kari Håland, Kari Idsø, Karin Bråtane, Karina

Hobbesland, Karstein Øye, Karsten Helleberg, Kate Elin Gravdal, Kate Pallesen, Ken Bårdvik, Kenneth Dalaker, Ketil B. Askildsen, Kim Ingebretsen, Kirsten Andersen, Kirsten

Ehrhorn Bjerga, Kirsten Knutsen, Kirsten Siv Ellingsen, Kirsti Skoglie, Kirsti Windingstad Løvik, Kjell Birkeland, Kjell Hestvik, Kjell Otto Vikse, Kjell Rek, Kjellaug Håvarstein, Kjetil

Helgesen, Kjetil Helland, Kjetil Kiil Halvorsen, Kjetil Skjæveland, Kjetil Søyland, Kjetil Øygarden, Klara Marie Fiskå, Knut Einar Rovik, Knut Inge Houeland, Knut Jåsund, Knut Nesse,

Knut Sirevåg, Kristian Spanne, Kristian Sørhus, Kristian Ur, Kristin Gundersen Lund, Kristin H. Furuholt, Kristin Skaar Smines, Kristine Ree Espedal, Kåre Gundersen, Kåre Haga,

Kåre Idsøe, Kåre Mæland, Kåre Nils Hallberg, Kåre Aano, Laila Abrahamsen, Laila Berntsen, Laila Rasmussen, Laila Strøm Stange, Laila Vestbø Risa, Lars Arne Bleie, Lars

Enevoldsen, Lars Færevaag, Lars Magne Markhus, Lars Martin Andersen, Lars Meling Hultin, Lars Nærland, Lars Sletten, Lars Varhaug, Leif Bø, Leif E. Bjelland, Leif Inge Løland,

Leif Ole Terøy, Leif Tore Vika, Leiv Helge Kaldheim, Leiv Inge Stokka, Leiv Kåre Asbjørnsen, Leiv Vik, Lena Fidje, Lene Gravdal, Lene Hellestø, Lillian Vestre, Linda Hapnes, Linda

Helen Høie, Linda Lillebø Haugstad, Line Hillestad, Linn Danielsen Hordvik, Linn Vetrhus Lode, Lisbet Tellefsen, Lise Ravndal, Liv Grethe Bergjord, Liv Grethe Obrestad, Liv Helen

Pettersen, Liv Ingjerd Grude, Liv Jorunn Skåland, Liv Mykland, Liv Synnøve Jensen, Liv Tone Tou, Liv Tungland, Livar Dubland, Magnar Hobberstad, Magnar Sandanger, Magne Kr.

Haugland, Magnhild Henden, Magnhild Høiland, Magnus Bjorland, Mai Brit Hanasand, Margaret Sagvåg, Margareth Alfsvaag, Margareth Storesund, Margot Fauskanger, Margot

O. Kristoffersen, Margrete Engeberg, Margrete Nordvik, Margunn Bjørnøy, Margunn Herigstad, Margunn Haaland, Margunn Mikelsen, Mari-Anne Petersen, Marianne Bakke-

Andersen, Marianne Johanson, Marianne Kaada, Marianne Skårdal Austrått, Marianne Skaar, Marianne Thu Salvesen, Marie Brunes, Marie Rosseid Eikeland, Marit Bellesen, Marit

Gryte, Marit Halvorsen, Marit Hvidsten, Marit Idsøe Skarbøvik, Marit Kristin Brekke Fiskaaen, Marit Peggy Eie, Marit Simonsen Ohm, Marit Solberg, Marit Sørbø, Marit Thorsrud,

Marit Veshovde, Marita Fjelde, Marita Olsen, Marita Raaen, Marita Øpstad Naaden, Marius Richard Riise Johnsen, Marlin Furuløkken, Marta Sandvik, Martha H. Botnen, Martin

Henrichsen, Maryanne Skjerve, May Hilde Byberg, May Jorunn Vatnaland, May Kristiansen, May Kristin Enevoldsen, Meheret Dotche, Merete Gustavson, Merete Håland, Merethe

Annaniassen, Merethe Kristensen Jerstad, Merethe Olsen Bygland, Mette Stene, Mindor Jelsa, Mona Malde Pedersen, Monica Bakken, Monica Kristoffersen, Monica Lilleland,

Monica Tjora, Morten Erga, Morten Lange, Morten Roalsø, Møyfrid Mæland, Møyfrid Synnøve Fuglestad, Målfrid Tveit Fredriksen, Målfrid Voll, Nils Eie, Nils Inge Bokn, Nils Mikal

Emberland, Nils Mikal Hegrestad, Nina Christine Henriksen, Nina Elisabeth Mortensen, Nina F. Mydske, Nina Møll, Nina Sjøen, Nina Stange Jakobsen, Nina Werness, Norunn

Marie Nordbø, Odd Abrahamsen, Odd Arild Kvaløy, Odd Breistrand, Odd M. Langvik, Odd Terje Vadla, Oddfrid Warland, Oddny Aven, Oddny Hebnes, Oddny Johnsen, Oddrun

Tjeltveit, Oddvar Rettedal, Oddvar Skretting, Oddveig Lima, Ola Aspen, Olaug Nedrebø, Olav Handeland, Olav Håland, Olav Lande Rossebø, Olav Magne Gard, Olav Strand, Ole

Magnus Bækkelund, Ole Magnus Sirevåg, Ole Petter Dahl, Ole Sigbjørn Langeland, Ole Skjærseth, Ottar Varhaug, Ove Susort, Palma Flølo Ørevik, Peder Skåre, Per-Erik Larsen, Per

Arne Jacobsen, Per Egeland, Per Ingve Leidland, Per Magne Strømstad, Per Skibeli, Petter Linaae, Petter Ølberg, Pål Frøiland, Ragnar Tollisen, Ragnhild Hegrestad, Ragnhild

Røykenes, Ragnhild Åmodt, Randi Dale, Randi Eim, Randi Eim Johansen, Randi Kjær, Randi Lillebø Larsen, Randi Ravndal, Randi Torgersen, Randi Aase, Rasmus Kvassheim, Reidar

Graue, Reidar Haga, Reidar Lieng, Reidun Idland, Reidun Ingjerd Sand, Reidun Nordbø, Reidun Raustein, Reidun Thuestad, Rigmor Bø Austrått, Rita Solum, Roar Bjørnsen, Roar

Haualand, Roar Ullenes Olsen, Roger Abusland, Rolf Birkeland, Rolf Bjarne Lie, Rolf Egeland, Rolf Hansen, Rolf Inge Lura, Rolf Mikkelsen, Rolf Simonsen, Rolf Aarsheim, Roy

Fardal, Roy Helle, Roy Tønnessen, Rudi Vestvik, Runar Skarstein, Runar Aarekol, Rune Andersen, Rune Bertelsen, Rune Bjørlo, Rune Sleveland, Rune Vaage, Sally Lund-Andersen,

Saousen Ludvigsen, Seri Berge, Sigmund Bendiksen, Sigmund Bræk, Sigmund Traa, Signe Halvorsen, Signe Kristiansen, Signe Skeie, Sigrid Riskedal, Sigrunn Austrått, Sigrunn T.U.

Stangeland, Silje Rasmussen, Siri Lindås, Siri S Dalehaug, Siri Tansø, Siril Kristoffersen, Sissel Bolme Hamre, Sissel Fjermestad, Sissel Hagen, Sissel Johnsen, Sissel Rage, Sissel

Roa Hobberstad, Sissel Tønnessen, Siv Birkeland, Siv Hind, Siw Kristin Deisz, Sjur Andre Svihus, Sjur Eftevaag, Solbjørg Lima Skadberg, Solfrid Byberg, Solfrid Sæbø, Solveig

Haugsgjerd, Solveig Olsnes Romsøe, Stein Arne Pallesen, Stein Høiland, Stein Olav Tollaksen, Steinar Borgen, Steinar Stornes, Steinar Vestbø, Stian A. Wathne, Stian Dahl, Stian

Helgøy, Stian Miljeteig, Stian Simonsen, Stig Horsberg Eriksen, Stig Morten Nerheim, Stine Johannessen, Sturla Malde, Ståle Hoff, Ståle Rasmussen, Ståle Thomsen, Sune Svela

Madland, Svein Hauge, Svein Inge Sel, Svein Ivar Førland, Svein Nordbø, Svein Nåden, Svein Rosberg, Svein Rødland, Svein Tysdal, Svein Aarrestad, Sveinung Hestnes, Sverre

Aune, Sverre Bertelsen, Sverre Dahle, Synnøve Wathne, Terje Galta, Terje Gismervik, Terje Johnsen, Terje Krumsvik, Terje Lunde, Terje Torgersen, Terje Vareberg, Therese Håland

Haver, Thor-Christian Haugland, Thora Sæther, Thorbjørn Jacobsen, Thorbjørn Thorkildsen, Thore Lie, Thrine Seglem, Tina Erga, Tjalve Lekvam, Tom Andre Lund, Tom Håland,

Tom Leif Rusdal, Tom Lie, Tom Ove Horpestad, Tom Rune Tjelta, Tom Steinsvåg, Tommy Husebø Ramsvik, Tommy Sletten, Tone Johnsen, Tone Karlsen, Tone Solheim Grøsle,

Tone Tangnæs Schulze, Tone Thorsdalen, Tor Dahle, Tor Ege, Tor Harald Skien, Tor Martin Kristiansen, Tor Reidar Frøystein, Tor Salvesen, Tor Tollefsen, Tor Tveit, Tor Tveit

Aanestad, Tor Undset, Torbjørn Høie, Torbjørn Vasstveit, Tordis Haraldsen, Tordis Pedersen, Tordis Stenberg, Tore Drange, Tore Medhus, Tore Snørteland, Torfrid Baustad,

Torhild Bjørndal, Torhild Dyskeland, Torild Naaden, Torild Sæbø Salvesen, Torill Haaland, Torill Margrethe Bjelland, Tormod Roth, Torodd Varhaug, Torstein Plener, Torunn

Dyskeland, Torunn Synnøve Grude, Torvald Søiland, Tove Bjelland, Tove Christiansen, Tove Haaland, Tove Mette Mikkelsen, Tove Schilling, Trine Lise Mjåland, Trond Anton

Ringøen, Trond Haaverstein, Trond Larsen, Trond Ove Edland, Trond Rannestad, Trond Sandvik, Trond Stave, Trond Støldal, Trygve Jan Gundersen, Turid Frøyland, Turid Hansen,

Turid Holmen, Turid Larsen, Turid Røsdal, Turid T. Krone, Turid Vanvik, Venke Mæland, Veronica Varhaugvik, Vibeke Solheim, Vidar Grastveit, Vidar Høyvik, Vidar Plaszko, Vigleik

Sirnes, Wenche Andreassen, Wenche Endresen, Wenche Netland, Wenche Winge, Wiggo Gilje, Willy Nøstbakken, Willy Skjørestad, Øygunn Nødland Idsøe, Øystein Vestre, Øystein

Viland, Øyvind Bjørgengen, Øyvind Håheim, Øyvind Rege, Øyvind Rønnevik, Øyvind Sjøtrø, Øyvind Vestbø, Ågot Bratteli, Åse Eikesdal, Åse Gry Andreassen, Åse Holm, Åse Linda

Stava, Åse Rygg, Åse Venke Tjørhom, Åse Winnie Skjæveland, Åsmund Sirevåg, Aage Olsen, Aasta Kalstø

The Sparebank 1 SR-Bank

Group

HISTORY

Sparebanken Rogaland, the legal name of SpareBank 1 SR-

Bank, was established on 1 October 1976 by merging 22

savings banks to become the country’s first regional savings

bank. After 29 years of operations and merging of a total of 39

savings banks, the bank has become the region's leading

bank. In November 1996, Sparebanken Rogaland was party to

the formation of the SpareBank 1 alliance, a Nordic banking

and product partnership.

THE GROUP

In addition to the bank, the group consists of the financial

company SpareBank 1 SR-Finans AS, EiendomsMegler 1

Rogaland AS, SR Investering AS and the bank’s company for

active asset management, SR-Forvaltning ASA. The Group has

942 employees, and total assets of NOK 67.2 billion.

THE BANK

SpareBank 1 SR-Bank is the country's second largest savings

bank. The bank's market areas are Rogaland, Agder and

Sunnhordland, and the bank currently has 50 branch offices in

its market area. The head office is located in Stavanger.

The customer-directed activities are organised into a retail

market division and a retail market division.

Retail market

With 186,860 customers, SpareBank 1 SR-Bank is the leading

retail customer bank in Rogaland. In addition to retail

customers, the retail market division serves more than 8,600

small businesses and agricultural customers. The bank supplies

products and services in the fields of financing, placing of

investments, payments facilities, pensions, non-life insurance

and life assurance. At the end of 2005, SpareBank 1 SR-Bank

had 67,700 non-life insurance customers.

Corporate market

SpareBank 1 SR-Bank holds a solid position in the corporate

market. About 40% of all businesspeople in the bank’s traditional

market list SpareBank 1 SR-Bank as their main banking. Since

establishing itself in the Agder counties in the fall of 2002, the

bank has enjoyed a positive market trend. By the end of 2005,

Sparebank 1 SR-Bank had more than 200 corporate main

banking connection customers in Agder, and further healthy

growth is expected. In total, the bank’s corporate market

division serves approx. 4,200 customers in business and

public administration, in addition to the 8,600 small businesses

and agricultural customers served by the retail market division.

EIENDOMSMEGLER 1 ROGALAND AS

The EiendomsMegler 1 chain is the Norwegian market leader

in real estate brokerage. EiendomsMegler 1 Rogaland AS is

the largest firm in this chain, and a regional market leader. In

2005 the company brokered approximately 5,100 homes from

its 20 real estate offices in Rogaland and Agder. The company

has 120 employees. In addition to brokering homes,

EiendomsMegler 1 Rogaland AS has a separate division for

business and project brokering, a separate division for the

sale of new homes in Spain, as well as a division for brokering

homes in housing co-operatives.

SPAREBANK 1 SR-FINANS AS

SpareBank 1 SR-Finans AS is the leading leasing company in

Rogaland, with more than NOK 2.1 billion in total assets, and

23 employees. The company's offfices are located alongside

the bank’s corporate market division for Stavanger and Jæren

at Forus outside of Stavanger. Its main products are leasing

and car loans. The leasing portfolio consists of a wide range

of products, and the customers represent most of the region's

business sectors.

SR-FORVALTNING ASA

SR-Forvaltning ASA manages portfolios for approx. 1,900

external customers, and for SpareBank 1 SR-Bank and

SpareBank 1 SR-Bank’s pension fund. The objective of SR-

Forvaltning is to be a local alternative with a high level of

expertise in financial management. The company has total

assets of NOK 4.3 billion, and nine employees.

SR INVESTERING AS

SR Investering AS is the group's recently established company

4

SpareBank 1 SR-Bank Annual Report 2005

for investment in equity capital instruments. The company’s

objectiveis to invest in companies, ventures, private equity

and seed funds in order to contribute to long term value

creation in the group's market area. SR Investering AS has

initial assets of NOK 200 million.

THE SPAREBANK 1 ALLIANCE

The overall objective of the SpareBank 1 alliance is to develop,

procure, sell and supply financial services and products, as

well as exploiting economies of scale in the form of lower

costs and/or higher quality, giving the customer the best

advice and the best services at competitive terms. The

Norwegian banks in the alliance co-operate through the jointly

owned holding company SpareBank 1 Gruppen AS. In addition

to Sparebank 1 SR-Bank, the other participant banks are

Sparebanken 1 Nord-Norge, Sparebanken 1 Midt-Norge and

Samarbeidende Sparebanker AS (15 local savings banks in

eastern and northwest Norway). Other owners and partners

through the SpareBank 1 Gruppen AS include Förenings-

Sparbanken AB (publ) in Sweden and the Norwegian

Federation of Trade Unions (LO). SpareBank 1 Gruppen AS

owns the companies Bank 1 Oslo AS, SpareBank 1

Livsforsikring AS, SpareBank 1 Fondsforsikring AS, SpareBank

1 Skadeforsikring AS, Odin Forvaltning AS, SpareBank 1

Bilplan AS (19.9%) and First Securities ASA 24.5%).

OBJECTIVE OF SPAREBANK 1 SR-BANK

The objective of Sparebank 1 SR-Bank is the creation of value

for the region which we are part of.

VISION

"SpareBank 1 SR-Bank - the recommended bank"

STRATEGY

SpareBank 1 SR-Bank shall be a profitable and solid bank that

is attractive for customers, capital markets, primary capital

certificate owners and employees alike. This is to be ensured

through:

• A savings bank philosophy with a strong brand identity and

modern operations, in which values are created locally and

channelled back to the community

• A clear set of priorities based on customer needs and

profitability

• A market area consisting primarily of Rogaland, Agder and

Hordaland

• A considerable position in the savings and pension market

• Competent employees who are proud to work for

SpareBank 1 SR-Bank

5

Sparebank 1 SR-Bank group management team: Back row, from the left: Sveinung Hestnes (Deputy CEO), Tore Medhus (Executive Vice President

Corporate Market), Rolf Aarsheim (Executive Vice President Retail Market), Tor-Christian Haugland (Executive Vice President Public Relations).

Front row, from the left: Terje Vareberg (CEO), Frode Bø (Executive Vice President, Head of Risk Management), Svein Ivar Førland (Executive Vice

President, Business Support, IT and Security), Gro Tveit (Acting CFO) and Arild Langberg Johannessen (Executive Vice President, Human Resources).

Highlights

• Historically good results - high recoveries on losses and high return on financial investements

• Group profit before tax. NOK 1.096 mill (NOK 821 mill).

• Return on equity after tax: 24,7% (20,2%)

• Interest rate margin: 1,76% (2,03%)

• Net other operating income: NOK 925 mill (NOK 721 mill)

• Operating costs: NOK 1.012 mill (NOK 948 mill)

• Gross non-performing loans: NOK 130 mill (NOK 203 mill)

• Net recovered losses: NOK 70 million (Net losses NOK 81 million).

• 12 month growth in lending: +13,5% (+11,3%)

• 12 month growth in deposits from customers: 13,5 % (17,0 %)

• Dividend of NOK 14 (NOK 9,2) per PCC

• Allocation of NOK 92 mill (NOK 60 Mill) to the endowment fund

(Figures from corresponding period in 2004 in parenthesis)

6


7

Main figures

(NOK mill) 2005 2004

Net interest income 1 113 1 129

Net other operating income 925 721

Total operating costs 1 012 948

Result before losses and write-downs 1 026 902

Losses and write-downs -70 81

Result of ordinary activities pre tax 1 096 821

Key figures

2005 2004

Total assets 31.12. (NOK mill) 67 237 59 140

Net loans to customers (NOK mill) 61 480 53 839

Deposits from customers (NOK mill) 37 530 33 062

Growth in loans (gross) 14 % 11 %

Growth in deposits 14 % 17 %

Capital adequacy ratio 1) 11,84 11,57

Core capital ratio 1) 8,98 9,08

Net equity and subordinated loan capital (NOK mill) 1) 5 338 4 411

Return on equity (%) 24,7 20,2

Cost percentage 53,0 53,2

Number of full time positions 862 813

Number of offices 50 50

Market price at the close of the year 230 144

Profit per primary capital certificate 1) 21,0 15,2

Dividend per primary capital certificate 14,0 9,2

Effective return on the primary capital certificate 66,1 40,0

RISK-amount as of 1. january 1) 1,79 6,06

Referring to page 95 for a complete list of key figures and definitions.

1) Figures calculated according to NGR.

SPAREBANK 1 SR-BANK IFRS

8


2005 WAS A VERY GOOD YEAR FOR SPAREBANK 1 SR-BANK. Customer satisfaction with our products and

services has been further strengthened. The financial result places the bank among the best banks in Norway

and the Nordic countries and creates a solid foundation for further efforts for the benefit of the region.

What you

is what sets you apart from

the others.

Norway is in a broad-based and probably long-term positive

economic cycle. Good times require strong backs. This is why

it is important to emphasize the need for long-term thinking

and action. The foundation for the development of the region

over the next 10-15 years is being laid now.

In this perspective, one must stress the necessity of careful

attention to the forces which may move or shift the develop-

ment in a positive or negative direction. In 2006, IRIS and

Agder Research will present scenarios for the Rogaland and

Agder counties towards 2020. The objective of this effort is to

create a debate on the long-term forces in play and take

measures to strengthen and exploit positive effects and to

counter negative developments.

In our view, active and diverse ownership with a will to deve-

lop and invest is very important to business development and

the creation of new jobs in the region. SpareBank 1 SR-Bank is

an active partner in the dialogue to create ownership and

equity groups in the region. We were also among the initiators

of Energivekst AS, which has a total equity of NOK 700

million. This company has had a very positive development

and has prepared the foundation for a second phase in which

a further NOK 1.8 billion has been committed. The experien-

ces from Energivekst and the development of other ownership

groups in the region underline the will and importance of

private ownership for positive business development.

Commercialisation of research results is demanding, but we

need to succeed in this respect if we are to supply more

knowledge-based products and services in the future. The

challenge is often not access to capital per se, but combining

competent, industrially oriented capital and commercially

viable ideas.

With the new international division of labour, toll and technical

trade barriers are dismantled. Markets for goods and services

are becoming integrated across national boundaries. A

vigorous and competitive business environment in our region

will have to supply products and services with an even higher

knowledge content than today. This means that the products

must reach markets with a high willingness to pay. As Norway

is a member of the EU inner market, the sections of our

industry which are exposed to competition must have the

same external conditions as the industries in the countries

with which we compete.

As far as long-term measures are concerned, equal external

conditions are by far the most important factor for positive

business development.

There have been significant structural changes in the finance

industry over the last 10 years. As a result of earlier state-

controlled banks Kredittkassen and Fokus Bank being taken

over by foreign banks, SpareBank 1 SR-Bank is now the

country's second largest Norwegian-owned bank. We believe

the nation and the region are best served by a diversity of

players in the finance sector, with Norwegian players also

having a role to play.

In light of this, it is with some concern we note the burgeoning

initiatives from European commercial banks to change the

special arrangement for savings banks as self-owned

foundations. Norwegian savings banks ensure a wide-ranging

ownership across Norway and represent a local and regional

corrective to the national and international financial groups.

Through their chartered purpose to serve the public good, the

savings banks can re-allocate a share of the profits to worthy

causes in the local community. At present, there are 126

savings banks in Norway. The need for structural changes and

adaptation in the Norwegian banking sector will be continuous.

However, a basic principle must be that such changes take

place in accordance with the wishes of the local community

which has contributed to creating the values which are

retained as equity in the savings banks' funds.

This year, SpareBank 1 SR-Bank will celebrate its 30-year

anniversary as the first regional bank in Norway. We believe

that being a savings bank is founded upon a very good

business concept in which a local foundation is combined

with proximity and expertise in all relations with our customers.

SpareBank 1 SR-Bank has always aimed for profitability and

solidity when conducting its business. High profitability is

also a precondition for being able to play an active part as a

regional development partner with considerable civic involve-

ment. The position which the bank has achieved in its market

would have been difficult to attain without the binding co-

operation which has been established with other savings

banks through the SpareBank 1 alliance. It is with satisfaction

we note that more and more savings banks share our view

and we welcome Sparebanken Volda Ørsta into the alliance.

In 2005, the SpareBank 1 banks and SpareBank 1 Gruppen AS

have again achieved financial results which place the banks in

a class of their own, compared to other Norwegian banks. The

results confirm the contribution of our long-term cooperation

strategy in strengthening the individual bank's position in the

respective markets.

SpareBank 1 SR-Bank has, for several years, had a high degree

of operating efficiency, a profitability equal to the best, a high

degree of employee satisfaction and in 2005 a sick leave rate

of 2.8 per cent. Outstanding results are created by proud,

thriving and busy employees.

9

Stavanger, March 2006

Terje Vareberg

CEO

Annual report

2005

SpareBank 1 SR-Bank achieved a pre-tax group profit of NOK

1,096 million in 2005. This is an improvement of NOK 275

million from 2004. After tax, the profit was NOK 856 million,

an improvement of NOK 244 million from 2004. Return on

equity after tax was 24.7 per cent, compared to 20.2 per cent

in 2004.

The very strong result in 2005 is, in addition to fundamentally

sound banking operations, due to: low losses, payments

connected to the Finance Credit involvement, positive securities

gains and very positive contribution from the stake in

SpareBank 1 Gruppen AS.

The Board is very pleased with the results for 2005.

The 2005 annual accounts for the SpareBank 1 SR-Bank group

have been prepared according to IFRS. All group figures are

stated according to IFRS, while all parent bank figures are

stated according to Norwegian Accounting Standards (NGR).

Comparable figures for 2004 have been converted into IFRS in

the group accounts. For a more detailed description of IFRS

implementation, see the separate section in the annual report,

and the annual accounts.

The groups lendings increased by 13.5 per cent and deposits

increased by 13.5 per cent in 2005.

Deposits as measured in percentage of gross lending were

60.7 per cent by the end of the year.

Net interest received was NOK 1,135 million in 2005, down

NOK 16 million from 2004. The interest margin was 1.76 per

cent in 2005. This is a decline from 2.03 per cent in 2004.

Net commission income was NOK 377 million, up 10.6 per

cent in 2005. Income from financial investments, jointly

controlled businesses and other operating income increased

by NOK 168 million to NOK 548 million in 2005. This increase

was partly due to very strong results from SpareBank 1

Gruppen, as well as solid yield from the group's securities.

Other income (excluding capital gains on securities, dividend

and other income from ownership) amount to 36.5 per cent

of total income, compared to 34.5 per cent in 2004.

Costs increased by 6.8 per cent in 2005. The cost percentage

for the parent bank was 48.4, and 53.0 per cent for the group.

The group had net reverse losses of NOK 70 million,

compared to losses of NOK 81 million in 2004. Corrected for

reverse losses from on the Finance Credit involvement, the

regular loss costs in 2005 were NOK 6 million. Defaults have

been reduced by NOK 73 million in 2005 and were NOK 130

million by the end of the year (0.21 per cent of gross lending).

The Board proposes that of the annual profit of NOK 840

million in the parent bank, NOK 317 million be allocated to

dividend (NOK 14 per primary capital certificate), NOK 156

million be allocated to the equalisation fund, NOK 92 million

be allocated to the endowment fund and NOK 275 million be

allocated to the savings bank's fund.

DEVELOPMENT OF THE GROUP

SpareBank 1 SR-Bank continued making good progress in the

group's business areas in 2005. The group confirmed its

position as the market leader in Rogaland, both in the retail

and corporate markets, as well as in real estate brokering. At

the same time, the group has continued its positive develop-

ment in the Agder counties. In the spring of 2005, SpareBank

1 SR-Bank and EiendomsMegler 1 Rogaland AS opened a new

branch in Grimstad. In the first quarter of 2006, the bank will

open. In 2005, the group decided to expand its geographical

business area to also include Hordaland. In the spring of

2006, the group will open a branch in Bergen where banking,

real estate brokering and leasing will form part of the product

range. Key personnel have been hired and the localisation

decided.

The interaction between the retail market division, the

corporate market division, the subsidiaries and the bank's

special divisions for trading, cash management and insurance

is an important factor behind the strong results in 2005.

A low interest rate level combined with strengthened

10


competition in loan products has weakened the interest mar-

gin. The growth in lending shows that there is still a high acti-

vity level in both the group's retail and corporate markets.

The new EU Capital Adequacy Directive Basel II is scheduled

for implementation in Norway from January 1 2007.

SpareBank 1 SR-Bank has high ambitions as regards risk

management in general and for adapting to the new capital

adequacy regime in particular. This is why SpareBank 1 SR-

Bank applied to the Financial Supervisory Authority of Norway

for permission to use internal measuring methods (Internal

Rating-Based Approach - Foundation) for credit risk and the

standard for operational risk management from 1 January

2007. An answer to the application from the Financial

Supervisory Authority of Norway is expected in the autumn of

2006. This is described in greater depth in a separate chapter

in the annual report.

The group reached its targets for 2005 with results well above

the target figure of 15 per cent return on equity after tax, 8 per

cent core capital and almost 12 per cent capital adequacy.

The bank's target of a 50 per cent cost income ratio in the

parent bank has also been reached. The cost income ratio in

the parent bank ended up at 48.4 per cent.

The Board believes it is important to the business community

that SpareBank 1 SR-Bank is a solid financial group with a

local attachment, which can supply necessary capital for

growth and development in the group's market areas,

primarily Rogaland, Agder and Hordaland. In order to

contribute further to the long-term creation of value in the

group's market areas, a new wholly owned investment

company, SR Investering AS, was established in late 2005.

At the same time, SpareBank 1 SR-Bank shows a social

commitment through support of local initiatives in culture,

sports and education. This is done through active use of the

bank's endowment fund. In 2005, a total of NOK 51 million

was granted from the endowment fund.

DEVELOPMENT IN THE GROUP'S MARKET AREAS

The rising economic cycle which has characterised the

Norwegian economy since the latter half of 2003 seems to

continue into 2006, if not as strongly as in 2005. 2005 was

characterised in part by low interest rates and increased

productivity, and in the latter half also by falling unemployment

and a general optimism both in the business community and

households. The export industries are also experiencing

positive development. The growth rate in the Norwegian

economy is high and there is much to indicate that we are

close to full use of capacity. The drop in unemployment rates

has been more marked in Rogaland than in Norway as a

whole. Increased employment in business and industry has

led to a tighter labour market. According to the Economic

Barometer for Rogaland, there is already a lack of qualified

personnel in some industries, and this can lead to increased

pressure on wages and slow growth. This has, among other

things, led to an increase in the use of foreign labour.

The Rogaland business community is experiencing good

times, and according to the Economic Barometer for

Rogaland the prevailing mood for 2006 is one of optimism.

The majority of the businesses expect higher turnover and

profitability in 2006 than in 2005. 40 per cent of the

businesses in the poll expected increased manning needs in

2006. In addition, the municipalities have increased their

hiring in 2005, and increased transfers of state funds are

expected to lead to a continuation of this trend also in 2006.

Oil investments are expected to reach record levels next year,

with a prognosis of almost NOK 93 billion. The increased

level of oil investment is to a large extent due to increased

interest in oil and gas recovery due to the strong rise in the

price of oil. The spillover effects are considerable for the

Norwegian economy in general and for Rogaland in particular.

The development noted in the Agder counties is not dissimilar

from what we see in Rogaland, with falling unemployment

rates, optimism in the business community and an increased

need for labour. Over the last year, unemployment has been

reduced by 30 per cent in Aust-Agder and 13 per cent in Vest-

Agder. The most predominant factors in this development is

growth in orders and new industry enterprises, which are

important in the Agder region.

The same trend is seen in Hordaland, and according to the

NHO (Confederation of Norwegian Enterprise) Economic

Barometer for Hordaland and Sogn og Fjordane, the optimism

in the business community is on the increase. In Hordaland,

an employment increase on the order of 5-6,000 people is

expected in 2006. The highest growth is expected in

construction, retail and business services. Most businesses

expect increased turnover and higher profitability, which will

most likely lead to increased investment.

By the end of December 2005, there were 5,190 completely

unemployed people in Rogaland, according to the Labour

Market Administration. This is 2.5 per cent of the labour

force, a reduction of 1,697 people compared to December

2004. With an unemployment rate of 2.5 per cent, the

unemployment rate in Rogaland is 0.5 percentage points

below the national average. Unemployment in Rogaland is

down 0.8 percentage points since December 2004, while the

corresponding national average is 0.6 percentage points. The

unemployment rate has been reduced in spite of high labour

immigration from the EEA area and a reduction in sick leave.

In the Agder counties, unemployment was reduced by 1,290

people in 2005, to 4,500 people by the end of the year. In

Vest-Agder and Aust-Agder, unemployment rates were 3.6 and

3.2 per cent, respectively. This puts the total unemployment

in the Agder counties somewhat above the national average.

However, unemployment in the Agder counties fell considerably

more than the national average.

According to Statistics Norway, there were 396,490 people

living in Rogaland at the end of the third quarter of 2005. The

population increased by 3,386 people (0.9 per cent) in the

three first quarters of 2005. Only Oslo and Akershus have a

higher population growth rate than Rogaland. It is the Jæren

municipalities, including Stavanger and Sandnes, which have

11

the highest growth rate in the county, measured in per cent.

The number of inhabitants in the Agder counties was 266,268

at the end of the third quarter of 2005. This is an increase of

1,396 (0.5 per cent) in the first three quarters of 2005. The

population growth rate in the Agder counties was somewhat

lower than the national average of 0.6 per cent in the same

period. There are large regional differences in the Agder

counties as well. Kristiansand has the highest growth,

measured in per cent.

PROFIT DEVELOPMENT

NET INTEREST INCOME

In 2005, the group had net interest income of NOK 1,113 mil-

lion (1.76 per cent), which is NOK 16 million lower than in

2004. The interest margin was reduced by 27 basis points

from 2004. The reduction is due to increased competition, the

effects of the interest rate adjustments of the Central Bank of

Norway as well as improved portfolio quality.

OTHER INCOME

Net commission income in 2005 was NOK 377 million, up

NOK 36 million from 2004. Income from payment transfers

was NOK 201 million in 2005, while insurance income was

NOK 85 million. Commission income from the sale of funds,

structured products and real estate syndicates increased by

31.2 per cent, yielding a total of NOK 101 million. The sale of

real estate interest contributed the most to the increased

income in 2005.

Income from financial investments increased by NOK 85

million to NOK 230 million in 2005. Dividend from short-term

and long-term share investments increased from NOK 14

million in 2004 to NOK 38 million in 2005. This is mainly due

to NOK 23 million in dividend from Energivekst AS. The ban-

k's short-term share and primary capital certificate invest-

ments had a market value of NOK 317 million by the end of

the year, compared to NOK 294 million in 2004. Capital gains

were NOK 94 million, compared to NOK 61 million in 2004.

The bank's long term share investment holdings were trans-

ferred to the new subsidiary SR Investering AS before the end

of the year. The value was set at the time of transfer by an

independent auditor. The group's income from exchange

gains and interest instruments was NOK 63 million in 2005.

Income from jointly controlled activities is the group's income

from the stake in SpareBank 1 Gruppen AS. The income

contribution has increased from NOK 45 million in 2004 to

NOK 119 million in 2005. This is due to improved results in

SpareBank 1 Gruppen AS and an increased stake, from 15.46

per cent in 2004 to 17.63 per cent in 2005. The increased

stake is due to the fact that the bank took over 2.17 per cent

in connection with buying out Sparebanken Vest's stake in

SpareBank 1 Gruppen AS. The results of SpareBank 1

Gruppen AS are based on the preliminary accounts. Final

accounts will be presented in late February and adjustments

infany will be incorporated into the group's accounts for the

first quarter of 2006.

Other operating income for 2005 was NOK 199 million. This

was mostly commission income from real estate brokerage.

Other income (excluding capital gains on securities, dividend

and income from ownership) was 36.5 per cent of total inco-

me, compared to 34.5 per cent in 2004.

OPERATING EXPENSES

Expenses to income ratio in the parent bank was 48.4 per cent

and for the group 53.0 per cent in 2005, compared to 49.9 per

cent and 53.2 per cent, respectively, in 2004. The group's ope-

rating expenses were NOK 1,012 million in 2005, compared to

NOK 948 million in 2004, an increase of 6.8 per cent.

Group personnel expenses increased by 3.6 per cent in 2005,

from NOK 522 million in 2004 to NOK 541 million. The increase

in personnel expenses was due to ordinary wage increases,

new employees with high expertise and expenses for restruc-

turing and expertise-building measures. Other expenses in-

creased by 10.6 per cent. This was mainly due to increased IT

and marketing expenses. The operating expenses were 1.60 per

cent of average total assets, compared to 1.71 per cent in 2004.

12


NO

K m

illio

n

Percent

Result of ordinary activities

Profit before tax and returnon equity

Return on equity

2002 2003 2004 20052001

Net interest income and interest margin

2002 2003 2004

NO

K m

illio

n Percent

2005

Net interest income

Interest margin

1150

1100

1050

1000

950

900

2001

LOSS PROVISION

Defaults in the group have shown a positive development and

were NOK 130 million by the end of 2005. This was NOK 73

million lower than by the end of 2004, a reduction of 36 per

cent. Gross defaults as a percentage of gross lending were

0.21 per cent as of 31 December 2005, down from 0.37 per

cent by the end of 2004.

The group had net reverse losses of NOK 70 million, compared

to a loss cost of NOK 81 million in 2004. In 2005, the group

reached a settlement with the accounting firm KPMG and

insurer Lloyds and received NOK 91 million in connection

with the Finance Credit affair. Of the NOK 91 million, 15 million

were offset against a loss on Finance Credit not charged

against income, while the remaining NOK 76 million was

entered as reverse losses. Corrected for this entry, the ordinary

losses in 2005 were NOK 6 million.

The corporate market division had net reverse losses of NOK

72 million (excluding Finance Credit net loss of NOK 4

million), while losses in the retail market division were NOK 2

million. Loss as a percentage of gross lending was positive

with 0.11 per cent against minus 0.14 per cent in 2004. If loss

from the Finance Credit involvement is disregarded, the loss

percentage was 0.01 per cent.

Total individual write-off was NOK 163 million as of 31

December 2005, while write-off on lending groups was NOK

169 million, 0.54 per cent of total lending. From 1 January

2005, the group has made the transition to IFRS in its group

accounts and the new lending regulations in the bank

accounts. This means that there are changes in how losses

are assessed and written off. This is described in more detail

under the accounting principles section in the annual

accounts.

BALANCE SHEET

The group's total assets were NOK 67.2 billion as of 31

December 2005, up NOK 8.1 billion from 2004.

Lending rase by 13.5 per cent in 2005, and total lending was

NOK 61.8 billion by 31 December 2005. Lending in the retail

market rase by NOK 4.6 billion, an increase of 12.4 per cent,

while lending in the corporate market and the public sector

increased by NOK 2.7 billion, an increase of 15.7 per cent. The

distribution of lending in the retail market and the corporate

market is 67.8 per cent and 32.2 per cent, respectively.

Total deposits were NOK 37.5 billion, an increase of 13.5 per

cent as of 31 December 2005. The growth in the retail and

corporate markets was 4.0 per cent and 23.3 per cent,

respectively.

The deposit coverage is unchanged from the end of 2004 and

was 60.7 per cent as of 31 December 2005.

The group converted to IAS 19 when entering its pension

liabilities (IFRS for pensions) in both the company and group

13

Operating costs

Operating costs

Percent of average total assets

NO

K m

illio

n

Percent

20

15

10

5

0

-5

Gross lending, percentage growth,retail and corporate market

2002 2003 2004

Perc

ent

20052001

Retail market Corporate market

Gross lending, retail and corporate market

NO

K m

illio

n

Retail market

Corporate market

45000

40000

35000

30000

25000

20000

15000

10000

5000

0

2002 2003 2004 20052001

accounts. In the autumn of 2005, the use of this standard in

the company accounts as well was permitted given that the

group accounts are prepared according to IFRS. The group

has chosen to charge current estimate variances on pensions

directly against equity. For the group as a whole, this will

mean charging NOK 130 million after tax against equity.

This is, for all practical purposes, due to lower long-term

government bonds interest rates.

SUBSIDIARIES

Through their products and services, the subsidiaries provide

the group with a wider range of services for its customers.

Through joint activities and marketing, the group appears as

a total supplier of financial services and products.

EiendomsMegler 1 Rogaland AS is the leading real estate

agent in Rogaland with a market share and position paralleled

by that of the bank. In addition, the company has won consi-

derable market shares in Lyngdal, Mandal and Kristiansand in

recent years. In 2005, EiendomsMegler 1 Rogaland AS opened

a new branch in Grimstad, sharing premises with the bank. In

the spring of 2006, a new branch in Bergen will open, sharing

premises with the bank. EiendomsMegler 1 Rogaland AS

operates in the residential, commercial real estate and project

brokerage markets, and sold in excess of 5,100 properties

worth a total of NOK 8.3 billion in 2005. Total income in 2005

was NOK 190 million. The profit before tax was NOK 25.4

million.

SpareBank 1 SR-Finans AS offers expertise and products in

leasing and car financing. In addition to the bank's market

area in Rogaland og Agder, the company has distribution

agreements with 12 banks affiliated with the SpareBank 1

alliance(Samarbeidende Sparebanker AS). Leasing also forms

part of the product range in the group's new effort in Bergen.

In order to strengthen the company's profile and affiliation,

the company changed its name from Westbroker Finans AS to

SpareBank 1 SR-Finans AS in the first quarter of 2005. The

portfolio increased by 25 per cent in 2005, to NOK 2.1 billion.

The profit before tax was NOK 20.5 million.

The management of the investment portfolios of the bank and

its customers is organised in the company SR-Forvaltning

ASA. The company manages securities for consumers,

companies, pension funds and the bank and its pension fund.

The managed assets increased by 47 per cent in 2005, to NOK

4.3 billion. The profit before tax was NOK 24.7 million.

In December 2005, the company SR Investering AS was

founded. The company's aim is to contribute to long-term

value creation through investments in businesses in the

group's market area. The company will be in operation from

the first quarter of 2006. By the end of 2005 the company's

assets consisted of NOK 83 million in long-term share-

holdings and stakes in private equity, venture and seed funds

transferred from SpareBank 1 SR-Bank. SpareBank 1 SR-Bank

has committed a further NOK 100 million to the company to

be used for new investments.

SPAREBANK 1 BOLIGKREDITT AS

In the autumn of 2005, SpareBank 1 SR-Bank and the other

SpareBank 1 banks and Sparebanken Volda Ørsta, established

SpareBank 1 Boligkreditt AS. By the end of 2005, SpareBank 1

SR-Bank had a 26.7 per cent stake in this enterprise. The

enterprise has been established with the aim of being a credit

institution which issues bonds with special guarantees in the

enterprise's portfolio. The enterprise cannot start its operation

before the legislation takes effect. This is expected to happen

around 1 January 2007. In the mean time, the enterprise will

apply for a license as an ordinary credit institution and start

operations in the second quarter of 2006. The enterprise's loss

before tax was NOK 542,000 in 2005.

SPAREBANK 1-ALLIANSEN IN 2005

SpareBank 1 SR-Bank is a member of the SpareBank 1 alliance,

a broad-based cooperation between 19 independent

SpareBank 1 banks with total assets of almost NOK 270 billion.

The cooperation through the alliance is coordinated by the

jointly owned financial group SpareBank 1 Gruppen AS.

SpareBank 1 Gruppen AS is owned through 17.63 per cent

stakes for each of SpareBank 1 SR-Bank, SpareBank 1 Midt-

Norge, SpareBank 1 Nord-Norge and Samarbeidende

Sparebanker AS. Other owners are FöreningsSparbanken AB

(19.5 per cent) and LO (10 per cent).

SpareBank 1 Gruppen AS owns Bank 1 Oslo AS, SpareBank 1

Livsforsikring AS, SpareBank 1 Fondsforsikring AS, SpareBank

1 Skadeforsikring AS and ODIN Forvaltning AS - as well as

24.5 per cent of First Securities ASA and 19.9 per cent of

SpareBank 1 Bilplan AS.

Furthermore, SpareBank 1 Gruppen AS has the administrative

responsibility for cooperation in the SpareBank 1 alliance, in

which IT operations and development, brands, expertise

building, joint processes, use of best practice and purchases

are central. The alliance has, among other things, established

three expertise centres for payments (in Trondheim), credit

models (in Stavanger) and learning (in Tromsø), respectively.

The development in profitability in SpareBank 1 Gruppen AS

in 2005 shows that the objectives of the turnaround operation

which has been carried out have been reached in all business

14


Deposit to loan ratio

2002 2003 2004

Perc

ent

20052001

areas, and that the owners' ambitions for a satisfying return

on equity have been fulfilled. SpareBank 1 Gruppen AS managed

to improve its results in all business areas in 2005. In total,

the SpareBank 1 Gruppen achieved a profit before tax of NOK

755 million in 2005, an improvement of NOK 427 million on

2004. Return on equity after tax is 32.9 per cent.

The SpareBank 1 group's different product area companies

supply good and competitive products to the banks in the

areas of savings, pensions and insurance. The development

has been very good in all product areas in 2005. Among the

highlights was SpareBank 1 Skadeforsikring's establishment

of a non-life insurance company in Sweden, in a joint venture

with Trygg-Hansa, which is to distribute non-life insurance

products through FöreningsSparbanken. Furthermore,

SpareBank 1 Livsforsikring has supplied products tailor-made

according to the new law on compulsory service pension,

products which have been well received in the market. ODIN

Forvaltning has in 2005 yet again managed to exceed the

main index with all its funds. Bank 1 Oslo has established

4 new branches in 2005, and has started the rolling out of a

new plan for more branches in Oslo, Akershus and Hedmark.

The SpareBank 1 alliance's strategy for the period up to 2007

is based on the expectation of stronger competition in both

national and regional finance markets. Such a development

calls for a stronger cooperation to exploit further advantages

as regards lower costs, increased expertise and increased

quality in servicing our customers. The ambition level for the

alliance cooperation is in this regard higher than ever.

TRANSITION TO IFRS ACCOUNTING IN THE GROUP

ACCOUNTS FROM 1 JANUARY 2005

Listed companies in the EU/EEA are obliged to report their

group accounts according to IFRS from 1 January 2005. The

purpose of the new regulations is to lead to an increased use

of real values, making the accounts reflect the real book value

per share of companies to a larger degree, as well as making

accounts prepared in different countries easier to compare.

The transition to IFRS had both negative and positive effects

on the accounts of the SpareBank 1 SR-Bank group. According

to the transition regulations, these effects were charged

directly to equity at the implementation date. Some effects

were made effective from 1 January 2004 and some from 1

January 2005. The total effect on equity of the implementation

was positive by NOK 129 million. This includes the moving of

dividend from debt to equity until a final decision is made by

the Supervisory board. If this effect is disregarded, the imple-

mentation had a negative effect of NOK 79 million after tax.

When preparing the quarterly accounts as of 31 March 2005,

these figures were NOK 180 and NOK 28 million, respectively.

The reason for the change is due to corrections to the figures

from SpareBank 1 Gruppen AS, as well as changes in the inter-

pretation of the regulations pertaining to structured products.

So far, using IFRS in the bank's company accounts is not allowed

(with the exception of pensions as described earlier in the

annual report). The Financial Supervisory Authority of Norway

has advised the Ministry of Finance that, for the time being,

banks and financing companies shall not be permitted to

make the transition to IFRS in their company accounts. When

a transition to IFRS will be made effective has not been

clarified. Until such time, SpareBank 1 SR-Bank will present

its company accounts according to Generally Accepted

Norwegian Accounting Practices and the group accounts

according to IFRS.

More detailed information on the implementation of IFRS and

the regulations is found in accounting principles and notes to

the group accounts for 2005. The annual accounts with notes

for 2005 have been prepared according to Norwegian

regulations for the bank accounts and according to IFRS for

the group accounts. Both accounts are included in the annual

report.

CORPORATE GOVERNANCE

Corporate governance in SpareBank 1 SR-Bank comprises the

goals and paramount principles according to which the bank

is managed and controlled in order to ensure that the

interests of the primary capital certificate owners, the

depositors and other groups are safeguarded. Governance of

the group's activities shall ensure prudent asset management

and greater assurance that communicated goals and

strategies are attained and realised.

Consequently, the bank has established the following main

principles for ownership and company management. The

principles rest on the following three main pillars: openness,

predictability and transparency:

• Value creation for the primary capital certificate owners and

other interest groups

• A structure that ensures goal-oriented and independent

management and supervision

• Systems that ensure measurement and accountability

• Effective risk management

• Well set-out, easily understandable and up-to-date

information

• Equal treatment of the primary capital certificate owners

and a well-balanced relationship with other interest groups

• Compliance with laws, regulations and ethical standards

The group's shareholder management and corporate

governance is founded on "Norwegian recommendation for

shareholder management and corporate governance". A more

detailed description of shareholder management and

corporate governance is found in a separate section of the

annual report.

NEW CAPITAL ADEQUACY REGULATIONS (BASEL II)

The EU's new capital adequacy directive is scheduled for

implementation in Norway on 1 January 2007. The new

regulations are based on proposals for a new standard for

capital adequacy estimation from the Bank for International

Settlements (BIS).

SpareBank 1 SR-Bank has high ambitions for risk management

in general, and for adaptation to the new capital adequacy

regulations in particular. As a result, SpareBank 1 SR-Bank

15

has applied to the Financial Supervisory Authority of Norway

for permission to employ internal rating methods (Internal

Rating Based Approach - Foundation) for credit risk from 1

January 2007. For the banks which secure approval and which

can use internal rating methods, the statutory minimum

requirement for capital adequacy for credit risk will be based

on the group's internal risk assessments from 2007. This will

make the statutory minimum requirement for capital adequacy

more risk sensitive, placing the capital adequacy requirement

in closer accordance with the risk in underlying portfolios. In

order to secure approval from the Financial Supervisory

Authority of Norway to use internal rating methods, the banks

must satisfy extensive requirements in relation to organisation,

expertise, risk models and risk management systems. The

Financial Supervisory Authority of Norway expects to complete

the main part of the review of the applications in the autumn

of 2006.

SpareBank 1 SR-Bank has an ambition to use the Standard

method for estimating minimum capital adequacy for

operational risk from 2007.

In accordance with the level of ambition regarding of risk

management mentioned above, SpareBank 1 SR-Bank has for

several years invested considerable means and resources in

the effort to further develop expertise, risk models and risk

management systems.

A separate department for risk management, independent of

the business units, has been established. The department

reports directly to the CEO. The department is responsible for

the group's risk models and for the further development of

efficient risk management systems. The department is further-

more responsible for independent risk assessment, risk

reporting and the overall risk monitoring in the group.

To further strengthen the risk area, the SpareBank 1 alliance

has established a separate expertise centre for credit models.

The centre is the alliance's internal specialist group for credit

models, and is responsible for customer rating, pricing, analysis

and portfolio management models. Both the risk management

department and the expertise centre for credit models are

independent of the business units. This ensures independence

in both the following up of risk and reporting.

SpareBank 1 SR-Bank expects long-term gains from the efforts

in the risk management area:

• Reduced volatility in results due to improved risk

management and credit quality

• Increased profitability due to improved profitability

and capital allocation models

• Improved usage of equity through capital minimalisation

corresponding better to the risk in the underlying

operations.

RISK MANAGEMENT IN SPAREBANK 1 SR-BANK

The risk management in SpareBank 1 SR-Bank is to support

the group's strategic development and the fulfilment of its

objectives. Furthermore, the risk management is to ensure

continued financial stability and responsible asset manage-

ment. This is to be achieved through:

• A strong risk culture, characterised by a high level of

consciousness on risk management

• A solid understanding of which risks drive earning and risk

costs, and through this creating a better foundation for

decisions

• Strive towards optimal capital usage within the approved

business strategy

• Avoid unexpected negative events which can damage the

group's operations and reputation in the market

• Exploitation of synergy and diversification effects

The group has a moderate risk profile where no single event

shall be capable of seriously harming the group's financial

position. The risk profile is described in the group's overall

risk strategy, and defined through target figures for:

• Rating: SpareBank 1 SR-Bank is rated by rating firms

Moody's Investors Service and Fitch Ratings

• Return on risk adjusted capital: Yield, adjusted for risk is to

be one of the most important strategic targets in the internal

governance of SpareBank 1 SR-Bank. This entails the

different business areas receiving capital according to the

estimated risk of the activities, and that a running

follow-up of the yield from these is conducted

• Expected loss: Describes the less amount statistically

expected over a 12-month period

• Risk - adjusted capital (financial capital): Describes how

much capital the group believes it needs to cover the actual

risk the group has assumed

• Regulatory capital: Describes the capital requirement based

on set government rates

The overall risk strategy is made operational through separate

risk strategies for credit risk, market risk, liquidity risk and

operational risk. The risk strategies are approved by the Board

16


Core capital and capital adequacy ratio

2002 2003 2004 20052001

Core capital

Adequacy ratio

and are reviewed at least annually or when circumstances so

indicate.

The group's risk exposure and risk development are followed

up on the management level through periodical reports to the

administration and the Board.

Credit risk

Credit risk is defined as the danger of loss resulting from

customers or opposite party not being able or willing to fulfil

their obligations to the group.

The group has a low risk profile in the credit area, and the risk

profile is defined through the group's credit strategy. The

credit strategy contains target figures for, inter alia, risk-

adjusted capital, yield, risk adjusted, expected loss and for

concentration risks in connection with industries or the size

of commitments. In connection with the granting of credit

and the following up of credit, separate rating models and

portfolio management systems are used for the different

areas.

The underlying credit risks in the corporate and retail markets

have developed in a positive direction in 2005. This is related

to the fact that the group has a restrictive policy in regard to

high-risk commitments, the positive economic development

in the group's market areas and the low interest rate level.

Market risk

Market risk is the risk of loss due to changes in observable

market variables such as interest rates, currency exchange

rates and securities rates. The risk of changes in securities

rates due to changes in general credit prices is also defined as

market risk. The management of market risk takes place

through defined frameworks for, among other things, share

investments, bonds and for positions in the interest rate and

currency markets, and monthly reports are made to the Board.

The frameworks are reviewed and approved by the Board at

least annually. The group has conservative guidelines for market

risk, well within the maximum limits set by the authorities.

Liquidity risk

Liquidity risk is the risk of the group not being able to refinance

its debt or not being able to finance an increase in its assets

without considerable extra costs. The management of the

group's financing structure is based on an overall liquidity

strategy which is reviewed and approved by the Board at least

annually. The liquidity strategy reflects the group's moderate

risk profile.

The liquidity risk is reduced through spreading deposits over

different markets, deposit sources, instruments and terms.

Customer deposits are the group's most important source

of financing, and the group's deposit coverage remains

unchanged at 60.7 per cent as of 31 December 2004 and 31

December 2005.

The group's liquidity as of 31 December 2005 was satisfactory.

By the end of the year, only 14 per cent of the total deposit

volume is scheduled for refinancing in 2006. There is an even

distribution of international and national sources of funding.

In addition, the group has undrawn committed revolving

credit facility of 270 million euro.

Operational risk

Operational risk is defined as the risk of loss resulting from:

• Human error and lack of expertise

• Failure in ICT systems

• Unclear policy, strategy or routines

• Crime and internal irregularities

• Other internal and external causes

The group's risk management is so efficient that no single

event caused by operational risk is to able to seriously harm

the groups financial position. The risk strategy for operational

risk is approved at least annually by the Board. The risk

strategy focuses on risk sensitive target figures for expected

loss and estimation of risk adjusted capital. The group has a

moderate risk profile for operational risk.

The group has reduced the operational risk in 2005 through

systematic risk analyses and implementation of new

precautionary measures. The group uses a separate system

for reporting and following up on undesirable events, making

the group able to continuously improve processes based on

these reports.

A more detailed description of the risk management and risk

exposure in SpareBank 1 SR-Bank is found in the notes and in

a separate section in the annual report.

CAPITAL MANAGEMENT

The objective of the capital management in Sparebank 1

SR-Bank is to ensure an efficient capital funding and employ-

ment as well as responsible capital coverage. This is to be

ensured through an adequate process for planning and

following up on the group's capital requirements.

• The process is risk driven and includes all significant types

of risk in the group

• The process is an integrated part of the business strategy,

the management process and the decision structure

• The process is future-oriented and stress tests are

conducted

• The process is based on recognised and adequate

methods and procedures for risk measurement

• Processes are reviewed regularly, and at least annually,

by the Board

The group's target is a core capital coverage of 8 per cent and

a capital coverage of 12 per cent. By the end of 2005, the group's

capital coverage was 11.84 per cent, of which 8.98 per cent

was core capital. The corresponding key figures for the parent

bank were 12.15 per cent and 9.21 per cent, respectively. In the

first quarter of 2005, a new non-perpetual subordinated loan

of 13 billion yen was raised in the market (NOK 771 million).

This replaced a non-perpetual subordinated loan of NOK 300

million which had a so-called step-up in September 2005.

17

There were not issued any new fund bonds in 2005. On 31

December 2005, the fund bonds contributed 1.12 percentage

points to the group's core capital coverage and capital

coverage. Up to 15 per cent of the core capital can consist of

fund bonds. Any sums beyond this are added to the capital

coverage as subordinated loans.

AUDIT

External audit

The group's external auditor is PricewaterhouseCoopers.

Internal audit

The internal audit has been outsourced to Ernst & Young. The

internal auditor reports to the Board of the group.

EMPLOYEES AND WORKING ENVIRONMENT

By the end of 2005, the group had 942 employees, equalling

862 man-years. Manning has been increased by 49 man-years

in 2005. This is due to a further effort in the customer-

oriented business and a strengthening of the group's risk

management. The largest increase in manning is in the

activities directed towards compulsory service pension, where

10 new employees have been hired. In addition, both the retail

and corporate market divisions have been strengthened.

The group conducted organisation and working environment

surveys in 2005, as in earlier years. The surveys showed that

the employees have a satisfactory relationship with the group.

The group is characterised by employees with a selling

attitude, an ability and a will to adapt and a desire to raise

their level of expertise further. Sickness absence has been

further reduced in 2005, and is still low compared to other

finance institutions. Sickness absence in 2005 was 2.8 per

cent, compared to 3.1 per cent in 2004. Long-term sickness

absence has been further reduced, partly through the

participation in the Inclusive Workplace scheme and solid

follow-up from management.

An active effort in health, safety and environment is still being

made, including a continuous strengthening of the bank's

security regime. The bank has not experienced robbery in

2005.

Input factors or production methods with noticeable

environmental effects are not in use. The group's effect on the

external environment is limited to materials and energy

necessary for the group to conduct its activities. A continuous

effort is made employing electronic communication internally

and externally, contributing to reduced paper consumption. In

the opinion of the Board, the activities create little pollution of

the external environment.

Management of the group's total expertise

The group is focused on a continuous enhancement of the

expertise of all employees. Expertise is seen as the interaction

of knowledge, skills and attitudes, and an effort is made to

continuously enhance all these factors. This entails all

employees being engaged in courses, training or self-study a

minimum of 5 per cent of their total working hours.

At present, the group has approx. 110 employees attending

expertise-raising college courses, of which 60 managers and

key employees are attending an 18-month management and

culture development program in a joint project with the BI

Norwegian School of Management. Recently, 40 managers

and key employees underwent an exam in the same program.

This is used as a common management platform in

SpareBank 1 SR-Bank.

In 2005, the group carried out an extensive mapping of the

expertise of each single employee in the areas of knowledge,

skills and attitudes, which will be used actively to enhance the

organisation's total expertise.

In 2005, approx NOK 11 million was set aside for expertise-

enhancing measures, in addition to time spent on these

measures.

Policy on the staff’s life phases

SpareBank 1 SR-Bank has adopted a policy in relation to

staff’s life phases that is intended to encourage older employees

to continue working longer. The Group’s objective is for the

average retirement age to rise from 60 to 63 by the end of

2006. In 2005, the average retirement age was 62 years.

Individual adjustments and flexibility are the policy instru-

ments used to achieve this. Annual health checks have been

introduced for all staff above the age of 58, as well as the offer

of exercise and individually tailored expertise enhancement. At

the age of 62, working hours and tasks are tailored to

individual requirements aming at postponing retirement age.

Equal opportunities

Women account for 55 per cent of the Group’s man-years.

This percentage has been stable in recent years.

The Group management consists of nine people, one woman

and eight men.

The average wage for bank employees is NOK 364,000, with

women’s and men’s average wages being NOK 331,000 and

402,000, respectively.

The Group recruited 71 new employees in 2005, of which 33

were women and 38 were men. There are 212 employees with

reduced working hours, working a total of 143 man-years.

Of these, 12 are men, accounting for 6.4 man-years, and

200 are women, accounting for 136.6 man-years.

The Group has worked to raise the percentage of women in

management positions for several years, and the following

measures have been implemented in recent years with a view

to, inter alia, promoting equal opportunities:

• Adopting the objective of increasing the percentage of

women in management positions to 40 per cent

• Establishment of a talent development programme, in

which most of the participants are women

• Accommodating flexible working conditions

18


• Participation on the group management level in a

working group to increase female representation in the

finance industry

• Participation in FUTURA - development of future female

management talents in the finance industry

The efforts have resulted in the percentage of women in

management positions rising from 14 per cent to 32 per cent

over the past five years. The percentage remained stable from

2004 to 2005.

BANK ADVISORY COUNCILS

The bank advisory councils are intended to help identify

opportunities, and intercept signals regarding the bank’s

activities in the local market. They are made up of local

resource persons and are to act as advisers to the local offices

in their market work. SpareBank1 SR-Bank has local bank

advisory councils in the municipalities in which the bank is

represented, and the councils have been active in their work.

In 2005, the directors of the local bank advisory councils

attended a joint meeting, in which the bank’s management,

among other things, received valuable input in connection

with the bank’s exploitation and use of the endowment fund.

The bank advisory councils administer some of the bank’s

endowment funds, and have committed themselves to

ensuring that the funds are put to good use in the local

community.

PRIMARY CAPITAL

At the end of 2005, 10,361 holders of the bank’s primary

capital certificates were registered. This is an increase of 2,281

owners (equalling 28.2 per cent), since the end of 2004. The

percentage of primary capital certificates held by foreigners

was 19.4 per cent (14.4 per cent), while 44.8 per cent (47.2

per cent) were resident in Rogaland and Agder. At the end of

the year, the 20 largest owners controlled 32.1 per cent (30.3

per cent) of the primary capital.

36.1 per cent of the issued primary capital certificates were

traded in 2005. This is significantly above the figures for 2004,

when 27.2 per cent of the number of issued certificates were

traded. At the end of 2005, the price of the bank’s primary

capital certificates was NOK 230, compared to NOK 144 at

the end of 2004. Inclusive of the dividend paid, the bank’s

primary capital had an effective rate of return of 66.1 per cent

in 2005. For purposes of comparison, the primary capital

index at the Oslo Stock Exchange (GFBX) rose by 47.4 per

cent in 2005.

On 1 April 2005, the primary capital certificates were split in

two and this was followed by a capitalisation issue whereby

four certificates entitled owners to one new (free) certificate.

A total of 4,522,917 new primary capital certificates where

thus issued, and NOK 226,145,850 was transferred from the

equalisation fund to the primary capital. The total number of

primary capital certificates after the split and subsequent

capitalisation issue was 22,614,585.

During 2005 the bank made net purchases of 57,541 of its

own primary capital certificates, and at 31 December 2005

held 58,976 certificates. In 2005 the bank again took

advantage of its authorisation by the Supervisory Board to sell

its own primary capital certificates (146,447 in all) at a

discount to employees instead of increasing the primary

capital through an issue to employees. 652 employees now

hold primary capital certificates in SpareBank 1 SR-Bank. In

total, the employees have an ownership stake of 2.73 per cent.

Earnings per primary capital certificate in 2005 amounted to

NOK 21.0. Based on the bank’s dividend policy and other

considerations, the Board of Directors proposes paying a divi-

dend of NOK 14 per primary capital certificate for 2005. The

RISK amount (adjustment of original cost of capital) as at

1 January 2005 was fixed at NOK 6.06 per primary capital

certificate, while the amount as at 1 January 2006 was

calculated to be NOK 1.79 per certificate.

ENDOWMENT FUNDS

Pursuant to the (Norwegian) Saving Banks’ Act, the bank may

allocate a maximum of 25 per cent of the Saving Banks’

Guarantee Funds’ share of the profit to an endowment fund

for public benefit. The Board proposes to allocate NOK 92

million (equalling 25 per cent) to endowment funds for 2005.

CONTINUED OPERATIONS

Together with the implemented and planned measures, the

performance prospects and the macro-economic framework

conditions provide good conditions for the Group’s progress

in 2006. The core capital and the capital adequacy ratio signify

satisfactory solidity, and are well above the authorities’

requirements.

The annual report and accounts have been prepared with the

expectation of continued operations.

ALLOCATION OF THE ANNUAL PROFIT/DIVIDEND

The Board proposes that the annual profit for 2005 is

allocated as follows:

NOK Million

Profit for the year 840

Valuation difference fund 0

Available for distribution 840

Dividend (14 NOK per primary capital certificate) 317

Equalisation fund 156

The savings bank's fund 275

Endowment fund 92

Total allocations 840

PROSPECTS FOR 2006

The interest rate level stayed low through 2005 even if the

Central Bank of Norway increased interest rates twice, 0.5

percentage points in total. The Central Bank of Norway sig-

nals that the interest rate will increase somewhat in 2006, and

the market expects that the interest rate will rise 1 percentage

point from the present level by the end of 2006.

The economic prospects for most industries seem positive at

the entrance of 2006 and the Board expects high activity and

good results from the business community in 2006.

19

The increased activity has in time lowered unemployment and

the Board expects continued pressure on the access to skilled

labour.

The low interest rates, with continued low costs in connection

with home financing provides good opportunities for financial

savings.

Market competition is on the increase in most areas through

new players and increased efforts from existing competitors.

Increased customer requirements and expectations, combined

with technological changes pose major demands on the

organisation's ability to innovate and restructure.

The establishment of a branch in Bergen and the increased

efforts in Agder, Rogaland and new business areas, in

addition to increased efforts to enhance expertise, however,

give the Board reason to expect a strengthening of the group's

position in 2006.

The group will, in 2006 as before, appear as profitable and

solid, contributing to value creation for customers, owners

and the local community.

The Board expects that more difficult external framework

conditions, in connection with increased competition, higher

expertise requirements as well as the introduction of the Basel

II regulations, will lead to further structural changes in the

banking sector in 2006.

In addition to the group's inherent strength, the cooperation

in the SpareBank 1 alliance is central, as it provides the group

with economies of scale advantages in brand building,

technology and competitive products.

The Board's assessment is that the group is well prepared to

meet the challenges the group faces and the Board expects a

positive development in 2006.

The Board would like to thank the Group’s employees for their

efforts and their contribution to the bank’s performance in

2005.

The Board would also like to thank the Group’s customers

and employee representatives for the support they have given

SpareBank 1 SR-Bank in 2005.

20


Stavanger, 23 February 2006

The Board of Directors of Sparebanken Rogaland

Geir Worum

Chairman of the Board

Ingrid Landråk Anne Elisabeth Kroken

Kristian Eidesvik

Deputy Chairman of the Board

Gunn-Jane Håland John P. Hernes

Magne Vathne Torstein Plener Terje Vareberg

CEO

Net interest income and interest margin

NO

K

Percent

Divided per certificate, NOK

Direct return, percent

16

14

12

10

8

6

4

2

0

2002 2003 2004 20052001

The Board of Directors

21

Geir Worum

Born in: 1947


Elected for the first time in: 1999

Term of office until: 2006

Managing Director of

Woco AS, Haugesund

Chairman of the Board in the

following companies:

Oma Baatbyggeri AS and

subsidiaries

Oma Slipp og Mekaniske Verksted

Solve IT-Stavanger AS

Rasmussen Elektro AS

Teleconsult AS

Woco AS

Vikom AS

Karmsundgaten 77 AS

Director in the following companies:

Sinvest ASA

Data Design System ASA

Haugaland Gass AS

Simek AS

Kristian Eidesvik

Born in: 1945

Deputy Chairman of the board



Ship owner, Bømlo

Director in :

Wilson AS

Green Reefers ASA

Caiano AS

Gunn-Jane Håland

Born in: 1963



Asset Manager Oseberg, Petoro AS,

Stavanger

22


Anne Elisabeth Kroken

Born in: 1962



Attorney running her own law firm

John Peter Hernes

Born in: 1959



General Manager, SåkornInVest, Forus

Chairman of the Baord in:

Kino 1 Stavanger/Sandnes AS

Director in:

OniX AS

Magne Vathne

Born in: 1944

Elected for the first time in 1998


Managing Director Coop Økonom BA,

Stavanger

Director in:

OBS AS

Coop Økonom BA

Marieroparken AS

Terje Vareberg

Born in: 1948

CEO SpareBank 1 SR-Bank

Chairman of the Board in:

Sparebankforeningen

SpareBank 1 Gruppen AS

IRIS AS

Deputy Chairman of the Board in:

Rogaland Teater

Torstein Plener

Born in: 1961



Group employee representative in

SpareBank 1 SR-Bank

Director in:

SpareBank 1 Gruppen AS

Ingrid Landråk

Born in: 1970



Controller

Revus Energy ASA

TABLE OF CONTENTS PAGE

INCOME STATEMENT 24

BALANCE SHEET 25

CASH FLOW STATEMENT 26

ACCOUNTING PRINCIPLES 27

NOTE 1 INTEREST INCOME AND INTEREST EXPENSE 30

NOTE 2 NET OTHER OPERATING INCOME 30

NOTE 3 WAGES AND GENERAL ADMINISTRATION

EXPENSES 31

NOTE 4 OTHER OPERATING EXPENSES 32

NOTE 5 WRITE-DOWN OF LOANS AND GUARANTEES 32

NOTE 6 LOSS/GAIN ON LONG TERM

FINANCIAL ASSETS 32

NOTE 7 TAXES 33

NOTE 8 ACCOUNTS RECEIVABLE FROM

CREDIT INSTITUTIONS 34

NOTE 9 CUSTOMER LENDING 34

NOTE 10 WRITE-DOWNS LENDING 34

NOTE 11 DEFAULTED, DOUBTFUL COMMITMENTS

AND NON-PERFORMING LOANS 35

NOTE 12 RISK CLASSIFICATION OF TOTAL LENDING 36

NOTE 13 LOSS ON LENDING AND GUARANTEES

DISTRIBUTED BY INDUSTRY 37

NOTE 14 CERTIFICATES AND BONDS 37

NOTE 15 SHARES AND OWNERSHIP 38

NOTE 16 TANGIBLE FIXED ASSETS 42

NOTE 17 OTHER ASSETS 42

PAGE

NOTE 18 PAYMENTS IN ADVANCE AND DEFERRED

INCOME 42

NOTE 19 DEBT TO CREDIT INSTITUTIONS 43

NOTE 20 CUSTOMER DEPOSITS 43

NOTE 21 BOND LOAN DEBT AND OTHER

LONG-TERM LOANS 43

NOTE 22 ALLOCATIONS TO LIABILITIES AND

EXPENSES 44

NOTE 23 PENSION SCHEMES 44

NOTE 24 SUBORDINATED LOAN CAPITAL 45

NOTE 25 PRIMARY CAPITAL, OWNERSHIP STRUCTURE

AND EQUITY MOVEMENTS 46

NOTE 26 GUARANTEES/SECURED DEBT 47

NOTE 27 CURRENCY POSITION AND CURRENCY

INTEREST AGREEMENTS 48

NOTE 28 CONDITIONAL COMMITMENTS 49

NOTE 29 DISTRIBUTION OF LENDING, GUARANTEES

AND DEPOSITS ACCORDING TO INDUSTRY

SECTOR AND GEOGRAPHIC AREA 49

NOTE 30 TRANSACTIONS WITH SUBSIDIARIES 49

NOTE 31 CAPITAL ADEQUACY RATIO 50

NOTE 32 REMAINING TERM OF THE LOAN AND

INTEREST RATE COMMITMENT TERM 51

NOTE 33 IMPLEMENTATION OF PENSION AND

NEW REGULATION RELATING TO LENDING 53

NOTE 34 RESTRICTED ASSETS 54

TABLE OF CONTENTS PAGE

INCOME STATEMENT 55

BALANCE SHEET 56

CONSOLIDATED SPECIFICATION OF INCOME,

EXPENSES AND VALUE CHANGES 57

STATEMENT OF CHANGES IN EQUITY 57

CASH FLOW STATEMENT 58

NOTE 1 GENERAL INFORMATION 59

NOTE 2 ACCOUNTING PRINCIPLES -

GROUP ACCOUNTS ACCORDING TO IFRS 59

NOTE 3 FINANCIAL RISK MANAGEMENT 63

NOTE 4 CRITICAL ESTIMATES AND ASSESSMENTS

REGARDING THE USE OF ACCOUNTING

PRINCIPLES 64

NOTE 5 SEGMENTS 66

NOTE 6 NET INTEREST INCOME 68

NOTE 7 NET FEE AND COMMISSION INCOME 69

NOTE 8 INCOME FROM OTHER FINANCIAL

INVESTMENTS 69

NOTE 9 OTHER OPERATING INCOME 69

NOTE 10 OPERATING EXPENSE 69

NOTE 11 INCOME TAX 71

NOTE 12 OTHER ASSETS 72

NOTE 13 PROPERTY, PLANT AND EQUIPMENT 72

NOTE 14 INTANGIBLE ASSETS 73

NOTE 15 ASSOCIATED COMPANIES AND

JOINT VENTURES 74

PAGE

NOTE 16 SECURITIES 75

NOTE 17 FINANCIAL DERIVATIVES 76

NOTE 18 CREDIT INSTITUTIONS -

LOANS AND DEPOSITS 77

NOTE 19 LOANS AND ADVANCES TO CUSTOMERS 77

NOTE 20 WRITE-DOWN OF LOANS AND

GUARANTEES DUE TO IMPAIRMENT 79

NOTE 21 DEPOSITS FROM CUSTOMERS 80

NOTE 22 DEBT SECURITIES ISSUED 81

NOTE 23 SUBORDINATED LOAN CAPITAL 81

NOTE 24 OTHER LIABILITIES 82

NOTE 25 PENSIONS (WITH DIRECT RECOGNITION

CHANGES IN ESTIMATES) 83

NOTE 26 CAPITAL ADEQUACY 85

NOTE 27 RELATED PARTIES 86

NOTE 28 PRIMARY CAPITAL CERTIFICATES AND

OWNERSHIP STRUCTURE 86

NOTE 29 RESTRICTED FUNDS 87

NOTE 30 IFRS - IMPLEMENTATION 88

NOTE 31 EVENTS AFTER THE BALANCE

SHEET DATE 91

THE AUDITOR’S REPORT/

THE AUDIT COMMITTEE’S STATEMENT 92

PRIMARY CAPITAL CERTIFICATES 93

KEY FIGURES FROM THE PAST FIVE YEARS 96

IFRS

NGAAP

Annual accounts

23

Income statement NGAAP

24


Geir Worum



Kristian Eidesvik

Deputy Chairman of the Board



CEO

24

NOTE 2005 2004 2003

Interest income 1 2 231 2 081 2 921

Interest expense 1 1 160 999 1 871

Net interest income 1 071 1 082 1 050

Dividends 2 178 77 14

Commission income 2 423 386 360

Commission expence 2 -76 -65 -67

Net change in fair market value of securities 2 175 131 163

Other operating income 2 10 9 8

Net other operating income 710 538 478

Total operating income 1 781 1 620 1 528

Wages and general administration expence 3 687 638 622

Depreciation and write-downs 16 45 49 55

Other operating expence 4 82 83 83

Total operating expence 814 770 760

Profit before losses and write-downs 967 850 768

Loss on loans and guarantees 5, 13 -70 76 218

Loss/gain on long-term financial assets 6 -23 - -14

Result of ordinary activities 1 060 774 564

Taxes 7 220 188 156

Profit/loss for the year 840 586 408

Dividend -317 -208 -151

Transferred to equalization reserve -156 -134 -95

Transferred to savings bank’s reserve -275 -184 -130

Transferred to endowment fund -92 -60 -32

Total allocation of profit/coverage of loss for the year -840 -586 -408

Profit/loss per primary capital certificate 21,0 15,2 10,9

SPAREBANK 1 SR-BANK NGAAP

Balance sheet NGAAP

NOTE 2005 2004 2003

Assets

Cash and balances with central banks 34 351 942 545

Loans and deposits with credit institutions 8 1 914 1 610 668

Loans to customers net of write-down 9,10,11,12,29 59 373 52 221 46 720

Certificates and bonds 14 3 148 2 867 2 375

Shares and ownership stakes 15 1 129 795 769

Intangible assets 16 27 127 34

Fixed Assets 16 294 297 309

Financial derivative 214 - -

Other assets 17 152 112 69

Prepayments and accrued income 18 168 158 300

Total assets 66 770 59 129 51 789

Liabilities and equity

Debt to credit institutions 19 3 649 2 749 4 928

Deposits from customers 20, 29 37 961 33 382 27 548

Total deposits 41 610 36 131 32 476

Certificates and other short-term borrowings 1 400 2 000 2 248

Bond and other long-term debt. 21 16 523 15 111 11 412

Debt established by issuance of securities 17 923 17 111 13 660

Financial derivatives - 63 94

Other debt 812 560 403

Accrued costs and income paid in advance 281 283 362

Cost accruals and other provisions 22, 23 412 359 150

Subordinated loan capital 24 2 296 1 720 1 835

Primary capital certificate capital 1 131 905 754

Holding of own primary capital certificates -3 - -4

Premium reserve 21 20 18

Savings bank’s reserve 1 505 1 198 1 132

Endowment fund 109 69 37

Dividend equalization reserve 673 710 872

Total equity 25 3 436 2 902 2 809

Total liabilities and equity 66 770 59 129 51 789

For off-balance sheet items, please see notes 26 og 27.

25


Cash flow statement

26


2005 2004 2003

Profit for the year 840 586 408

Dividend to owners of primary capital certificates -317 -208 -151

Dividends from subsidiaries 45 38 7

Depreciation and write-downs 45 49 55

Loss on loans -70 76 218

Transferred from the year’s activity 543 541 537

Change in gross loans to customers -6 830 -5 486 -3 520

Change in claims on credit institutions -328 -1 030 -239

Change in deposits from customers 4 579 5 835 831

Change in debt to credit institutions 900 -2 179 -138

Change in certificates and bonds -281 -493 -107

Change in other claims -377 -132 -28

Change in other short-term liabilities 148 -63 159

A Net cash flow from the activity -1 646 -3 007 -2 505

Change in fixed assets -41 -32 -37

Change in shares and ownership stakes -316 -44 326

B Net cash flow, investments -357 -76 289

Change in debt established by issuance of securities 812 3 451 1 808

Change in other long-term liabilities 576 -59 417

C Net cash flow, financing 1 388 3 392 2 225

A+B+C Net cash flow during the year -615 309 9

Cash and cash equivalents January 1st 1 002 693 684

Cash and cash equivalents December 31st 387 1 002 693

Net cash flow during the year -615 309 9

The liquidity balance includes cash and receivables from central banks, and the share of total deposits in and lending to credit institutions

that apply to pure investments in credit institutions. The cash flow analysis shows how SpareBank 1 SR-Bank have been provided with

liquid assets, and how these have been used.

Overall, the liquidity balance of the SpareBank 1 SR-Bank reduce by NOK 615 million. Operations in 2005 were characterised by a higher

growth in lending and customer deposits.


Accounting principles

GENERAL

The annual accounts for 2005 have been prepared in accordance

with the applicable laws, regulations and generally accepted

accounting practices in Norway. Unless otherwise stated, all

amounts are given in NOK million.

As of 1 January 2005, SpareBank 1 SR-Bank made a transition to

using IFRS (International Financial Reporting Standards) in its

group accounts. As of yet, IFRS is not permitted for use in the

bank's accounts. The 2005 annual accounts for the SpareBank 1

SR-Bank parent bank have therefore been prepared according to

Generally Accepted Norwegian Accounting Practice, while the

SpareBank 1 SR-Bank group accounts have been made according

to IFRS. Separate IFRS group accounts have been prepared with

notes and accounting principles presented in the annual report.

As of January 1 2005, SpareBank 1 SR-Bank made a transition to

using the new regulations relating to lending. This is in all

substantial aspects in accordance with the IAS 39 regulations

relating to lending and assessment of losses. The bank uses the

same interpretation of the regulations in its bank accounts, in

which the new regulations relating to lending are applied, and in

the group accounts, in which IAS 39 is applied. The figures for

2004 have not been converted according to the new standards in

the annual accounts.

SpareBank 1 SR-Bank has made a transition to using IAS 19

(IFRS pensions standard) when entering pension liabilities in

both the company and group accounts. In the autumn of 2005,

the use of this standard was permitted also in the Norwegian

accounts when the group accounts were presented according to

IFRS. This change took effect from 1 January 2004, making the

2004 and 2005 figures comparable.

In addition, we refer to the separate note in the company's

annual accounts for further details regarding the implementation

of these changes in the regulations.

CONSOLIDATION OF SUBSIDIARIES

Investments in subsidiaries are presented according to the equity

method of accounting in the company's accounts.

ASSOCIATED COMPANIES

Companies in which the bank holds long-term investment with

an interest between 20 and 50% and in which the bank has a

significant influence are defined as associated companies. Such

investments are assessed according to the equity method of

accounting in the company's accounts.

JOINT VENTURES

Joint ventures are financial undertakings regulated by an

agreement between the bank and one or more participants so

that the bank and the participants jointly control the undertaking.

No single participant has a controlling interest. In cooperation

with SpareBank 1 Nord-Norge, SpareBank 1 Midt-Norge, and

Samarbeidende Sparebanker AS, the bank owns SpareBank 1

Gruppen AS. The parties own 17.63 per cent each of the shares

in the company. In addition, the Swedish FöreningsSparbanken

AB owns 19.5% of the shares in the company, and the

Norwegian Federation of Trade Unions (LO) and federations

affiliated to LO own 10% of the shares. The governing structure

for the SpareBank 1 cooperation is regulated in an agreement

between the owners. In the company accounts of SpareBank 1

SR-Bank the shares in the SpareBank 1 Gruppen AS are assessed

according to the equity method.

ENTERING INCOME AND COSTS

Interest income and costs related to assets and liabilities

assessed at amortised cost are entered continuously in the profit

and loss statement based on an effective interest rate method.

All fees related to interest-bearing borrowing and lending are

included in the assessment of effective interest rate and

amortised over the expected term of the loan. Fees that are a

direct payment for performed services are entered as income

when they are acquired.

Pre-paid income and accrued, deferred costs at the end of the

year are periodised, and entered as liabilities in the balance

sheet. Accrued, deferred income is carried to income and entered

as a receivable in the balance sheet. Dividends from shares and

dividends from money market funds are entered as income the

year they are received. Dividends from shares and group

contributions minus deferred tax from subsidiaries, associated

companies and joint ventures are entered directly against book

interest in the relevant businesses. Profit/loss from the sale of

securities is calculated on the basis of the average cost of sold

securities. The purchase and sale of securities is entered at the

time of the settlement.

SHARES AND UNITS

Shares, primary capital certificates and shares in unit trusts that

are sold on the Stock Exchange or in a regulated market and

have good liquidity and dispersion of owners, are part of the

trading portfolio, and are assessed at market value on the

balance sheet date. If there is no continuous market, the value is

assessed on the basis of the company's methods of estimation.

Long-term share investments are assessed at initial cost. If the

real value is significantly lower than the initial cost, and the

decline in value is not considered to be temporary, the share is

written down to the real value. The write-down is reversed when

the basis for the write-down no longer exists.

CERTIFICATES AND BONDS

Certificates and bonds are classified as trading portfolio, and are

assessed at market value on the balance sheet date.

CURRENCY

Monetary assets and liabilities denominated in foreign currencies

27


28


are translated into NOK, at the rate of exchange ruling at the

balance sheet date 31. December. The bank’s accounts receivable

and debts in foreign currency have been converted at middle

market prices at 31 December. Income and costs in foreign

currency have been translated to NOK according to the exchange

rates at the time of transaction. The currency items are largely

hedged by corresponding items on the opposite side of the

balance sheet, or with hedging items off the balance sheet.

FINANCIAL INSTRUMENTS

Financial instruments include transferable financial assets and

liability items, in addition to financial derivatives. Financial

instruments on the balance sheet include shareholdings, primary

capital certificates, bonds, certificates and units in money market

instruments, as well as financial derivatives. Financial derivatives

are agreements the bank enters into with financial institutions or

customers in order to determine financial values, either as

interest rate conditions, exchange rates or the value of equity

instruments for specific periods. Such agreements include

forward exchange contracts, interest swap agreements (currency

swaps), currency and interest options and forward rate

agreements (FRAs).

We distinguish between agreements that are part of own-account

trading in order to attain profit in connection with price differences

and price changes (the trading portfolio), and agreements that

are part of ordinary activities. At the time of signing the agree-

ment, interest and currency agreements are classified as part of

the trading portfolio or banking activities, depending on the

individual agreement. The trading portfolio consists of certificates

and bonds, shares and primary capital certificates on the bank's

balance sheet, as well as currency, interest and equity instruments

not included in the balance sheet.

Financial instruments which are part of the trading portfolio are

assessed according to the market value principle, and any

changes in market value are entered in the profit and loss

account under the item net capital gains/losses. Agreements

entered into in order to reduce the bank's risk exposure in

connection with interest rate and/or currency fluctuations on

balance sheet items are defined as hedging agreements.

In order for a currency or interest rate agreement to be defined

as a hedging agreement, the expected value development of the

hedging agreement must be closely linked to the balance sheet

item being secured. Income and costs relating to hedging

agreements and the appurtenant balance sheet items are accrued

and classified in the same manner.

GROSS LENDING TO CUSTOMERS

As of 1 January 2005, SpareBank 1 SR-Bank made a transition to

using the new regulations relating to lending in its parent bank

accounts. With the transition to the new regulations relating to

lending, new routines for entering losses on lending were

implemented. This resulted in earlier unspecified losses being

reduced by a significant amount and lending fees previously

entered as income and LTMs (long-term monitored) loans

previously entered in the balance sheet, were reversed at the date

of transition. All these entries were against equity.

Loans are entered at amortised cost using the effective interest

method.

Loss of value on gross lending and credits entered at

amortised cost

On each balance sheet date, the bank considers whether there is

objective proof of the value of a financial asset or group of

financial assets having been reduced. Loss of value of a financial

asset or a group of financial assets has been incurred if, and only

if, there is objective proof of loss of value. The loss of value must

be the result of one or more events which have occurred since

first entering the asset or group of assets in the accounts (a loss

event), and the result of the loss event (or events) must be

possible to measure in a reliable manner. Objective proof of the

value of a financial assets or group of financial assets being

reduced includes observable data made known to the bank

regarding the following loss events:

- Significant financial difficulties for the issuer or borrower.

- Breach of contract, e.g. non-payment of instalments or interest.

- The bank granting the borrower special terms on the basis of

financial or legal matters related to the borrower's financial

situation.

- The likelihood of a debtor having to enter debt negotiations or

other financial reorganisations

- Due to financial difficulties, the active markets for the financial

asset cease to exist, or

- observable data indicate a measurable reduction in future cash

flow from a group of financial assets since first entering them

in the accounts, even if the reduction is not yet fully linked to

one individual financial asset in the group, including:

• Unfavourable development in the payment status of the

debtors in the group, or

• national or local financial conditions which correlates with the

default of the assets in the group.

The bank will first consider whether there are individual objective

proof of loss of value for financial assets which are individually

significant. For financial assets which are not individually

significant, the objective proof of loss of value is assessed

individually or collectively. If the bank finds that there is no

objective proof of loss of value for an individually assessed

financial asset, significant or not, the asset is included in a group

of financial assets with the same credit risk characteristics. The

group is then assessed as a whole as regards loss of value.

Assets which are assessed individually as regards loss of value,

and in which a loss of value is being identified or is still identified,

are not included in a total assessment of loss of value.

If there is objective proof of a loss of value having occurred, the

size of the loss is estimated as the difference between the ente-

red value of the asset and the present value of estimated future

cash flows (excluding future credit losses not incurred), discounted

with the original effective interest rate of the financial asset. The

entered value of the asset is reduced using an appropriation

account, and the loss is entered in the profit and loss account.

Future cash flows from a group of financial assets, which are

assessed together as regards loss of value, are estimated based

on the contractual cash flows for the group as well as historic

losses for assets with a similar credit risk. Historic losses are


adjusted for present observable data in order to take into

consideration the effect of existing conditions which were not

present at the time when the historic losses were incurred, as

well as adjusting the effects of former conditions not existing at

present.

DEFAULTS/DOUBTFUL

A customer's overall commitment is considered to be in default,

and is included in the bank's list of commitments in default,

when the instalments and interest due have not been paid 90

days after the due date, or the credit ceiling has been exceeded

for 90 days or more.

WRITE-OFFS

When there is a predominant probability that the losses are final,

the losses are classified as write-offs. Write-offs covered by loss

allocations carried out previously are entered against the allocations.

Write-offs that are not provided for in the loss allocations, as well

as excess or insufficient provisions in relation to former loss

allocations, shall be entered in the profit and loss account.

SEIZED ASSETS

As part of the handling of loans and guarantees in default, the

bank sometimes seizes the assets that have been offered as

security for such commitments. In the event of seizing the assets,

they are valued at their estimated realisation value. Seized assets

that are to be realised are classified as current assets. Any losses/

gains in connection with the disposal or re-evaluation of such

assets are entered as a loss/reduction in losses on lending.

TANGIBLE FIXED ASSETS

Tangible fixed assets are entered at initial cost in the accounts,

plus former appreciation, minus write-downs and ordinary

accumulated depreciation. Ordinary depreciation is based on

cost and the depreciation is linear over the economic life of the

tangible assets. If the actual value of a tangible fixed asset is

significantly lower than the book value and the decrease in value

is not expected to be of a temporary nature, the asset will be

written down to its real value. The write-down is reversed when

the basis for the write-down is no longer present.

ISSUED BONDS AND OTHER BORROWING

Issued bonds are entered in the balance sheet at nominal value,

plus any premium and minus any discount. Premium is entered

as income, and discount is entered as cost according to plan as

an adjustment of the running interest costs up to the bond's

maturity, or, if applicable, up to the time of the first interest rate

adjustment. Any investment discount when issuing other long-

term loans is handled correspondingly. Direct costs in connection

with issuing bonds and other borrowings are entered according

to plan as an adjustment of the running interest cost until the

maturity of the bond or the loan.

SUBORDINATED LOANS/BOND FUNDS

Subordinated loans have lower priority than bond loans, and

therefore have a higher price. Non-perpetual subordinated loans

may make up 50% of the core capital in the capital adequacy

ratio, while perpetual subordinated loans can make up 100% of

the core capital.

Hybrid Tier 1 Perpetual Capital is a so-called "hybrid", ranked

between equity and subordinated loan as regards priority. Hybrid

Tier 1 Perpetual Capital is an interest-bearing security, but banks

are not obligated to pay interest in periods where no dividend is

paid, and the investor has no later claim to interest which has

not been paid, i.e. the interest is not accumulated. Hybrid Tier 1

Perpetual Capital can not make up more than 15 per cent of the

total core capital. The issuing of Hybrid Tier 1 Perpetual Capital

does not affect entered equity. Costs incurred from taking up the

loan are accrued over the term of the loan.

PENSION COMMITMENTS

In the autumn of 2005, publicly listed companies which use IFRS

in their group accounts were permitted to make the transition to

IFRS regulations as regards pensions in their company accounts.

SpareBank 1 SR-Bank and its subsidiaries did this, effective from

the 2005 annual accounts, with retroactive effect from 1 January

2004. At the implementation, the accumulated estimate deviation

as of 1 January 2004 were entered against equity. The standard

used for handling pensions in the accounts is IAS 19.

Pension expenses and pension commitments are calculated

according to linear earnings, based on assumptions regarding

discount rate, future wage and salaries adjustments, retirement

pensions and national insurance benefits, future return on

pension assets, as well as actuary assumptions regarding

mortality, voluntary retirement, etc. In the balance sheet, net

pension assets within the group scheme are presented as fixed

assets, while net uncovered pension commitments are classified

as long-term debt. The employer's national insurance contribution,

which accrues according to applicable rates, is also included in

the amount for uncovered pension commitments. Total net

pension expenses are classified under wages and salaries in the

profit and loss account, and include the period's earning of

entitlements to pension benefits and interest paid on liabilities,

minus the estimated return on pension funds.

SpareBank 1 SR-Bank has chosen to enter estimate deviations

directly against equity when they occur.

TAXES

The year's tax expense in the profit and loss account consists of

tax payable on income for the year, adjusted by excessive/

insufficient allocations in earlier years, as well as changes in

deferred tax. Deferred tax is calculated on the basis of temporary

differences between accounting and fiscal assets at the end of

the accounting year.

Nominal tax rates are used in the calculation. Positive and

negative differences are assessed against each other, and their

net result is shown in the balance sheet. Deferred tax assets arise

if there is a temporary difference giving rise to future tax deductions.

DEBT

Debt is entered at the price of taking up the loan. Interest is

continuously entered as cost in the profit and loss account.

BUSINESS AREAS

SpareBank 1 SR-Bank considers the bank's operations to be a

single business area.

29


Notes to the accounts

30


NOTE 1 INTEREST INCOME AND INTEREST EXPENSE 2005 2004 2003

Interest income from claims on credit institutions 60 37 40

Interest income from lending to customers 2 086 1 971 2 753

Interest income from certificates and bonds 85 73 128

Interest income 2 231 2 081 2 921

Interest expence on debt to credit institutions 133 184 194

Interest expence on customer deposits 539 423 961

Interest expence on securities issued 396 323 617

Interest expence on subordinated loan capital 92 69 59

Premium to the Norwegian Banks' Guarantee Fund - - 40

Interest expence 1 160 999 1 871

In June 2004, a decision was made to merge the Savings Banks’s Guarantee Fund and the Commercial Banks’s Guarantee Fund. As a

result of the merger, the savings banks will be granted an exemption from the premium for the guarantee fund for a three-year period, from

and including 2004.

NOTE 2 NET OTHER OPERATING INCOME 2005 2004 2003

Income from shares 38 14 14

Income from ownership in affiliated companies 95 25 -7

Income from ownership in group companies 45 38 7

Dividend 178 77 14

Interbank commissions 22 23 25

Guarantee commissions 29 20 21

Payment transfers 201 189 178

Securities trading and management 70 56 48

Insurance products 85 83 68

Other commissions and fees 16 15 20

Commission income 423 386 360

Interbank commissions 17 17 18

Payment transfer 52 42 41

Other commissions 7 6 8

Commission expenses 76 65 67

Net profit/loss from certificates and bonds 5 6 22

Net profit/loss from shares and primary capital certificates 94 61 86

Net profit/loss from exchange and financial derivates 76 64 55

Net profit/loss 175 131 163

Operating income real estate 5 6 5

Other operating income 5 3 3

Other operating income 10 9 8

Net other operating income 710 538 478


NOTE 3 WAGES AND GENERAL ADMINISTRATION EXPENSES 2005 2004 2003

Wages 325 316 293

Pensions 44 41 46

Social security expenses 42 40 38

Other personnel expenses 29 25 23

Personnel expenses 440 422 400

IT expenses 137 119 123

Marketing 48 32 27

Postage/telephone 26 33 38

Travel/meetings/office supplies 24 20 19

Other administration expenses 12 12 15

General administration expenses 247 216 222

Wages and general administration expenses 687 638 622

Staff

Number of man years as of 31 December 722 686 708

Number of employees as of 31 December 792 756 767

Average number of employees 772 752 760

(Amounts in NOK 1,000)

Remuneration to the Board 1 318

Remuneration to the Audit Committee 436

Remuneration to the Supervisory Board 440

The remuneration for the CEO was NOK 2,483 thousand. When reaching the age of 62 the CEO may retire with a retirement pension

equalling 70% of his salary at the time of retirement. There are no contractual bonus schemes, option schemes or compensation in the

event of cessation of the employment relationship for the CEO, the chairman of the Board of Directors, the directors or the individual

employee at management level.

Loans and security to management employees Loans in NOK 1,000

CEO 3 951

Chairman of the Board -

Chairman of the Control Committee -

Chairman of the Board of Representatives 1 847

Members of the board with loans in the bank

Gunn Jane Håland 1 762

John Peter Hernes 137

Magne Vathne 595

Torstein Plener 1 365

Management employees

Deputy CEO and CFO 2 283

Executive Group Controller, CRO 2 653

Executive Vice President Business Support, IT and Security 1 962

Executive Vice President Corporate Market 1 467

Executive Vice President Retail Market 2 439

Executive Vice President Public Relations 3 392

Executive Vice President Human Resources 1 660

Control Committee 1 661

Board of Representatives 33 023

No security has been given. The terms of the loans do not deviate from the general terms for employees.

For information regarding management employees' primary capital certificate holdings in Sparebank 1 SR-Bank, see overview of governing

bodies in the Annual Report, where the number of owned primary capital certificates as of 31 December 2005 is listed.

31


32


NOTE 4 OTHER OPERATING EXPENSES 2005 2004 2003

Operating expenses real estate 24 21 21

External remuneration 18 17 16

Other operating expenses 40 45 46

Other operating expenses 82 83 83

The bank’s auditor’s fees entered as expenses amount to NOK 2,023,353. Of this NOK 978,086 for ordinary auditing services, while NOK

337,407 is for other audit-related services. In addition, NOK 56,610 has been entered as expenses for tax advice and NOK 651,250 for other

non-audit-related services. Non-audit-related services include accountancy advice in connection with IFRS of NOK 538,411.

NOTE 5 WRITE-DOWN OF LOANS AND GUARANTEES 2005 2004 2003

Change in individual write-downs over the period -54 -91 -84

Change in group write-downs over the period -7 - -

Write-off of commitments previously

written down 60 180 294

Write-off of commitments previously

not written down 20 5 18

Changes in connection with implementation of new regulations relating to lending -5 - -

Reverse loss from loss previously written off -84 -18 -10

Write-down of loans and guarantees -70 76 218

Write-off of commitments written down

individually in previous years 60 180 294

Write-off of commitments not written down

in previous years 20 5 18

Total write-off 80 185 312

A new regulation relating to lending was implemented on 1 January 2005. The 2005 figures are therefore not directly comparable

with previous years.

NOTE 6 LOSS/GAIN ON LONG TERM FINANCIAL ASSETS 2005 2004 2003

Write-down of securities 2 3 4

Reversal of previous write-down of securities -10 -9 -19

Net profit/loss on securities -15 6 1

Loss/gain on long term financial assets -23 - -14


NOTE 7 TAXES 2005 2004 2003

Tax basis

Profit/loss before taxes 1 060 774 564

Permanent differences -287 -116 -20

Group contribution -15 -8 -58

Changes in temporary differences -352 350 -

- changes in temporary differences without tax effect included 107 -346 -228

Annual tax basis 513 654 258

Annual income tax (tax payable) 144 182 72

Tax expenses

Income tax 144 182 72

Wealth tax 4 4 4

Tax effect of group contribution 4 2 16

Changes in deferred taxes 99 -97 64

- changes in deferred taxes without tax effect included -30 97 -

Excess/deficit in tax allocations in previous years -1 - -

Total tax expenses 220 188 156

Temporary differences

Fixed assets -60 -63 -65

Write-up 27 28 29

Pension assets outstanding - - 127

Securities 248 -1 -

Lending fees 142 - -

Pension liabilities -412 -358 -149

Other negative differences -35 -48 -35

Net temporary differences -90 -442 -93

Deferred tax/(tax advantage) -25 -124 -26

Explanation to why tax expenses for the year are not 28 per cent of pre-tax profit/loss

28 per cent of pre-tax profit/loss 297 217 157

28 per cent of permanent differences* -80 -33 -5

Too much/too little set aside for taxes in earlier years -1 - -

Wealth tax 4 4 4

Estimated tax expenses 220 188 156

*includes tax-exempt dividend, non-tax-deductible expenses, net tax-exempt profit from realisation of shares according to the exemption

model as well as tax allowances for profit attributable to affiliated companies (the percentage of the profit is extracted, as it has already

been taxed in the individual company).

The Bank implemented a new regulation relating to lending and pensions in 2005. The implementation effects have been entered directly

against equity and deferred tax/tax payable. Comparable figures for 2004 have been prepared accordingly.

RISK adjustment

The RISK adjustment amount for the bank’s primary capital certificates has previously been set at NOK 6.06. As of 1 January 2006 the RISK

amount has been estimated at NOK 1.79 per primary capital certificate.

33


34


NOTE 8 ACCOUNTS RECEIVABLE FROM CREDIT INSTITUTIONS 2005 2004 2003

Accounts receivable with no set term/notice 36 60 149

Accounts receivable with set term/notice of withdrawal 1 878 1 550 519

Accounts receivable from credit institutions 1 914 1 610 668

NOTE 9 CUSTOMER LENDING 2005 2004 2003

Overdraft facilities 10 239 4 485 2 906

Building loans 1 336 1 448 948

Repayment loans 48 114 46 856 43 525

Gross lending to customers 59 689 52 789 47 379

Individual write-down of lending -154 -208 -299

Group write-down of lending -162 -360 -360

Net lending to customers 59 373 52 221 46 720

Of this, subordinated loan capital

Equity and subordinated capital in credit institutions 60 60 60

Equity and subordinated capital in other finance institutions 43 43 43

Other equity and subordinated capital - - 33

Subordinated loan capital entered under lending 103 103 136

Lending to employees

Loans to employees 784 726 702

Subsidising of interest rate on loans to employees 10 9 18

Apart from ordinary staff terms, there are no special terms for these loans.

NOTE 10 WRITE-DOWNS LENDING 2005 2004 2003

Individual write-downs

Individual write-downs as of 1 January 208 299 383

- Write-off in the period where write-downs -60 -180 -294

have been made earlier

+/- Changes to individual write-down in the period 6 89 210

Individual write-downs as of 31 December 154 208 299

Group write-downs lending

Group write-downs as of 1 January 169 360 360

+/- Changes to Group write-downs in the period -7 - -

Group write-downs as of 31 December 162 360 360

The implementation of regulations relating to lending as of 1 January 2005 makes 2005 figures incomparable with earlier years.


NOTE 11 DEFAULTED, DOUBTFUL

COMMITMENTS AND NON-PERFORMING LOANS 2005 2004 2003 2002 2001

Defaulted commitments

Retail market:

Gross defaulted commitments 88 93 163 166 164

Individual write-downs 28 49 78 72 71

Net defaulted retail market commitments 60 44 85 94 93

Allocation rate retail market 32 % 53 % 48 % 43 % 43 %

Corporate market:



Net defaulted corporate market commitments 25 77 176 92 75

Allocation rate corporate market 22 % 22 % 23 % 28 % 43 %

Total:



Net defaulted commitments 85 121 261 186 168

Allocation rate lending 29 % 37 % 33 % 37 % 43 %

Of this, gross non-performing loans:

Retail market 69 80 124 104 97

Corporate market 10 49 120 31 35

Total 79 129 244 135 132

Not defaulted written down commitments

Retail market:

Not defaulted written down commitments 144 139 157 119 99


Net written down retail market commitments 102 95 109 73 62

Allocation rate retail market 29 % 32 % 31 % 39 % 37 %

Corporate market:



Net written down corporate market commitments 104 145 122 348 189

Allocation rate corporate market 43 % 39 % 50 % 40 % 38 %

Total:



Net written down commitments 206 240 231 421 251

Allocation rate lending 37 % 36 % 42 % 40 % 38 %

When instalments or interest due are not paid 90 days after their due date, or the credit limit has been overdrawn for 90 days or more,

the overall commitment to a customer is regarded as in default, and is included in the Group’s overview of commitments in default.

Loss assessments are carried out on commitments that have been in default for more than 60 days.

35


36



NOTE 12 RISK CLASSIFICATION OF TOTAL LENDING

2005 2004 2005 2004 2005 2004 2005 2004

Distribution by risk group Total commitment Gross lending Individual write-downs Expected annual average Net loss

Lowest and low risk 65 395 54 401 54 699 47 895 - 4 27 30

Medium risk 4 172 4 175 2 569 3 162 2 7 13 19

High and highest risk 3 020 2 321 2 421 1 732 152 197 44 39

Total 72 587 60 897 59 689 52 789 154 208 84 88

2005 2004 2005 2004

Distribution by risk group Total commitment Percentage of total commitment

Lowest and low risk 65 395 54 401 90,1 89,3

Medium risk 4 172 4 175 5,7 6,9

High and highest risk 3 020 2 321 4,2 3,8

Total 72 587 60 897 100,0 100,0

2005 2004 2005 2004

Distribution by geographical area Gross lending Percentage of gross lending

Oslo area 2 318 2 238 3,9 4,2

The Agder counties 4 411 2 747 7,4 5,2

Rogaland 50 436 44 944 84,5 85,1

Hordaland 1 747 1 635 2,9 3,1

Abroad 228 226 0,4 0,4

Other 549 999 0,9 1,9

Total 59 689 52 789 100,0 100,0

2005 2004 2005 2004 2005 2004 2005 2004

Distribution by sector and industry Total commitment Gross lending Individual write-downs Expected annual average Net loss

Farming/Forestry 2 124 2 028 1 790 1 783 5 4 6 4

Fisheries/Fish farming 462 771 270 364 6 14 2 11

Quarries/Mining 469 590 332 438 - - 1 2

Industry 3 969 2 460 1 628 1 480 28 25 4 8

Energy and water supply/

Construction 2 330 2 176 904 845 1 1 4 3

Distributive trades

Hotel and restaurants 2 048 1 703 1 419 1 276 10 13 4 5

Overseas shipping,

pipeline transport, other transport 1 575 2 106 1 394 1 861 10 9 4 4

Real estate operation 8 979 6 472 7 591 5 312 14 7 34 20

Tertiary sector 3 023 2 035 1 770 1 430 11 42 9 9

Public management and

financial services 2 743 1 938 799 743 - - - -

Total industry 27 722 22 279 17 897 15 532 85 115 68 66

Retail market 44 865 38 618 41 792 37 257 69 93 16 22

Total 72 587 60 897 59 689 52 789 154 208 84 88

Credit risk

Credit risk is defined as the risk of losses as a result of customers or opposing parties not having the will or ability to fulfil their obligations

to the bank. Credit risk is managed through the bank's credit strategy, credit policy guidelines and allocation regulations.

The credit strategy is decided at least once a year by the Board of Directors. The bank's credit strategy focuses on risk sensitive target

figures and limits set so that they govern the bank's credit risk profile in the most adequate and efficient manner possible. This is done

primarily by comparing target figures and limits connected with risk-adjusted capital, risk-adjusted dividend and expected losses. In

addition, the credit strategy imposes limits on the exposure and risk profile of portfolios, industries and individual customers.

The Board of Directors are responsible for the bank's granting of credits and loans. The Board delegates authority for operational decisions

in credit and loan issues to the CEO, within certain limits. The CEO can, within his authority, delegate authority. The delegated authority is

connected to the expected losses and likelihood of default from the commitment.

The bank develops and uses risk classification systems, risk pricing models and portfolio management systems actively to manage the

lending portfolio in line with the credit strategy, the credit policy guidelines and the allocation regulations. These, combined with the credit

handling routines, set clear requirements to the credit handling process and the risk assessments. The risk classification systems cover

both corporate and retail market customers, and are based on statistic calculations. The risk models on which the statistical calculations

are based are subject to continuous development and testing.

The portfolio is divided into five risk groups - lowest, low, medium, high and highest, respectively. The categorisation into different risk

groups is made on the basis of statistical calculation of each individual commitment's expected loss, based on the commitment's likeliho-

od of default, exposure to default and the loss rate in the case of default. In addition, there is a separate risk class for defaulted and written

down commitments. The commitments include all kind of capital services performed for the customer through loans, credits, guarantees

including commercial credit, not paid interest due and commissions and futures with currency and interest rate instruments.

The underlying credit risk in the corporate and retail markets had a positive development in 2005. This is a result of the bank's restrictive

practice in approving high-risk commitments, as well as the positive economic development in the bank's market area and the low interest

rate level. The bank has a low risk profile in the credit area. The bank aims to price its commitments according to the risk exposure, giving

the highest price for the commitments with the highest risk.The price models are based on the return requirements for risk-adjusted

capital.

For more information on credit risk, see the article "Risk and capital management", in the annual report.

NOTE 13 LOSS ON LENDING AND Lending Gross Recovery Net Loss

GUARANTEES DISTRIBUTED BY INDUSTRY guarantees loss of losses loss percentage

Farming/Forestry 1 796 2 - 2 0,11 %

Fisheries/Fish farming 321 - 3 -3 -0,93 %

Quarries/Mining 341 - - - 0,00 %

Industry 2 799 18 2 16 0,57 %

Energy and water supply/Construction 1 609 - 1 -1 -0,06 %

Distributive trades/Hotel and restaurants 1 579 3 4 -1 -0,06 %

Overseas shipping/Pipeline transport, other transport 1 456 5 3 2 0,14 %

Real estate operation 8 027 6 1 5 0,06 %

Tertiary sector 2 134 4 89 -85 -3,98 %

Public management and financial services 960 - - - 0,00 %

Carried forward from group write-downs 7 -7

Total industry 21 022 38 110 -72 -0,34 %

Retail customers 41 836 22 20 2 0,00 %

Total 62 858 60 130 -70 -0,11 %

NOTE 14 CERTIFICATES AND BONDS 2005 2004 2003

Certificates and bonds issued by the government 25 175 278

Certificates and bonds issued by others 3 123 2 692 2 097

Certificates and bonds 3 148 2 867 2 375

Trading portfolio 3 148 2 867 2 375

Acquisition cost 3 144 2 868 2 378

Proportion of publicly listed shares 52 % 60 % 70 %

Average effective interest rate 2,5 % 2,5 % 5,1 %

Distributed by significant currencies

NOK 2 440 2 785 2 375

EURO 640 82

USD 68

Public management 25 175 278

Financial enterprises 1 923 1 689 1 260

Non-financial enterprises 1 200 1 003 837


37


(NOTE 12 continued)

38


NOTE 15 SHARES AND OWNERSHIP 2005 2004 2003

Short-term investments in shares and primary capital certificates 317 294 260

Long-term investments in shares and primary capital certificates 17 53 100

Ownership in affiliated companies 484 311 253

Ownership in credit institutions 153 128 131

Ownership in other group companies 158 9 25

Shares and ownership 1 129 795 769

Investments in shares, units and primary capital certificates

The company's Ownership Number Acquisition Entered value/

(Sums in NOK 1,000) share capital percentage shares costs market value

Short-term investments in shares, units and primary capital certificates:

Publicly listed companies

Kongsberg Gruppen 150 000 0,4 119 515 11 513 14 820

Scana Industrier 209 167 1,0 1 671 000 5 809 7 520

Otrum 21 900 0,5 115 600 3 659 3 121

Vmetro 11 491 1,7 391 802 11 616 10 304

Prosafe 340 975 0,1 46 923 7 348 13 443

Lerøy Seafood Group 39 377 0,7 279 271 8 461 20 387

Orkla 1 301 789 0,0 57 684 11 238 16 123

Norske Skogindustrier 1 899 456 0,0 59 202 7 582 6 349

Kverneland 154 309 0,6 94 389 7 936 6 985

Norsk Hydro 4 738 866 0,0 20 386 10 698 14 127

Transocean USD 3 301 0,0 11 969 3 625 5 642

Pride USD 1 619 0,0 31 288 4 984 6 510

Opera Software 2 158 0,2 175 000 1 684 3 938

DOF 153 535 0,6 428 841 3 392 15 439

Statoil 5 473 964 0,0 102 878 12 059 15 946

DNB Nor 13 368 749 0,0 40 000 2 658 2 880

Sandsvær Sparebank 101 545 0,0 100 21 22

Sparebanken Vestfold 126 655 1,8 22 275 4 358 4 678

Sparebanken Nord-Norge 791 642 0,7 116 059 6 203 18 221

Sparebanken Pluss 125 000 2,7 34 280 7 486 8 741

Sparebanken Midt-Norge 1 262 227 0,5 238 156 6 857 18 636

Helgeland Sparebank 201 826 0,7 13 853 2 570 3 117

Shares secured in options

Ganger Rolf 45 350 0,2 20 000 6 632 6 632

Fred Olsen Energy 1 224 119 0,0 30 000 5 445 5 445

Steen og Støm 27 883 0,1 30 000 5 517 5 517

Sinvest 346 232 0,2 100 000 6 400 6 400

Other shares secured in options 15 102 15 102

Total shares secured in options 39 096 39 096

Other publicly listed companies 8 423 10 085

Sum publicly listed companies 189 276 266 130

Ågotnes Eiendom Holding 3 200 34,4 110 11 000 11 000

Løwenstrasse Eiendom Holding 2 500 100,0 250 25 000 25 000

Marine Farms 50 816 3,8 1 950 000 14 256 10 725

Other not listed companies 218 853 7 749 3 798

Total not listed companies 58 005 50 523

Total short-term investments in shares, stakes and primary capital certificates 247 281 316 653

Long-term investments in shares, units and primary capital certificates:

Non-t listed companies

Bankenes Betalingssental 165 000 4,3 283 830 4 940

Teller 45 000 1,7 784 11 165

Others 1 443

Total long-term investments in shares, units and primary capital certificates 17 548


Changes to long-term investments in shares, units and primary capital certificates

Entered value as of 1 January 2005 52 551

Additions/Disposals -43 135

Write-back of earlier write-down 8 132

Entered value as of 31 December 2005 17 548

Ownership in affiliated and jointly controlled companies

Book value

Admi-Senteret -

SpareBank 1 Utvikling 17 837

SpareBank 1 Boligkreditt 26 613

SpareBank 1 Gruppen 439 558

Total ownership in affiliated and jointly controlled companies 484 008

Company Ownership Number Face Entered

Shares in subsidiaries share capital percentage of shares value value

SpareBank 1 SR-Finans 67 000 100 134 000 67 000 153 033

Total ownership in credit institutions 67 000 153 033

EiendomsMegler 1 Rogaland 1 500 100 150 1 500 12 123

Westbroker Finans 100 100 100 100 8 032

SR Investering 30 000 100 3 000 30 000 133 572

SR-Forvaltning 6 000 66,7 4 000 4 000 4 727

Total ownership in other group companies 35 600 158 454

The voting stake and ownership stake equal for all companies

Subsidiaries, affiliated and jointly controlled companies

Date of Business Ownership

Company acquisition premises percentage

SpareBank 1 SR-Finans 1987 Stavanger 100,00

EiendomsMegler 1 Rogaland 1990 Stavanger 100,00

Westbroker Finans 1990 Stavanger 100,00

SpareBank 1 Gruppen 1996 Oslo 17,63

Admi-senteret 1984 Jørpeland 50,00

SR-Forvaltning 2001 Stavanger 66,67

SpareBank 1 Utvikling 2004 Oslo 20,00

SpareBank 1 Boligkreditt 2005 Stavanger 26,72

SR Investering 2005 Stavanger 100,00

The investment in all companies is assessed according to the equity method.

39


(NOTE 15 continued)

40


Investments in subsidiaries SR- Eiendoms- Westbroker SR- SR

Added value analysis Finans Megler 1 Finans Forvaltning Investering

Capitalised equity at date of acquisition 53 400 8 000 50 4 000 133 067

Goodwill 40 000 - - 18 -

Acquisition cost 93 400 8 000 50 4 018 133 067

Calculation of capitalised value as of 31 December 2005

Opening balance as of 31 December 2004 130 305 12 736 8 086 4 136 -

Pension corridor against equity as of 1 January 2004 -1 794 -11 581 - -668 -

Estimate deviation pension 2004 -579 -2 776 - -487 -

Opening balance 1 January 2005 127 932 -1 621 8 086 2 981 -

Invested capital - - - - 133 067

Changes lending 1 663 - - - -

Annual profit 14 476 18 296 95 11 824 505

Transferred to company (Group contribution) 10 127 - 381 - -

Transferred from company (Dividend) - - -530 -9 667 -

Estimate deviation pension 2005 -1 165 -4 552 - -411 -

Closing balance as of 31 December 2005 153 033 12 123 8 032 4 727 133 572

Investment in affiliated and jointly controlled companies

SpareBank 1 Admi- SpareBank 1 SpareBank 1

Added value analysis Gruppen Senteret Utvikling Boligkreditt

Capitalised equity at date of acquisition 145 900 1 000 7 000 26 718

Goodwill - - - -

Acquisition cost 145 900 1 000 7 000 26 718

Calculation of capitalised value as of 31 December 2005

Opening balance as of 1 January 2005 304 100 - 7 000 -

Annual portion of profit/loss 94 920 - - -105

Corrected result from 2004 58 - - -

Adjusted against equity -1 772 - - -

Increased/new share stakes 42 750 - 10 837 26 718

Depreciation of goodwill -498 - - -

Closing balance as of 31 December 2005 439 558 - 17 837 26 613


(NOTE 15 continued)

SpareBank 1 Gruppen

SpareBank 1 Gruppen is owned by SpareBank 1 Nord-Norge, SpareBank 1 Midt-Norge, SpareBank 1 SR-Bank and Samarbeidende

Sparebanker AS, with a 17.63% stake each, and FöreningsSparbanken AB (publ) with 19.5% and the Norwegian Federation of Trade

Unions (LO) and affiliates with 10%. The ownership stake in the SpareBank 1 Gruppen AS should be considered as participation in a joint

venture, and is entered according to the equity method.

Company's Ownership Stake of

share capital stake voting

Name of company (NOK millions) shares

SpareBank 1 Gruppen AS 1 562 17,63 % 17,63 %

The joint venture consists of the parent company SpareBank 1 Gruppen AS, SpareBank 1 Livsforsikring AS, SpareBank 1 Skadeforsikring

AS, SpareBank 1 Fondsforsikring AS, Bank 1 Oslo AS, ODIN Forvaltning AS and SpareBank 1 Medlemskort AS. In addition, SpareBank 1

Gruppen AS owns 24.5% of the brokering business First Securities ASA and 20% of SpareBank 1 Utvikling DA. The subsidiaries have

activities within bank, insurance and fund management. All transactions between the bank and the subsidiaries in the SpareBank 1 Group

have been agreed on businesslike terms. Internal compensations between the bank and SpareBank 1 Gruppen AS that are not related to

sale and portfolio consulting have been based on the full cost principle.

2005 2004

Profit/loss 100 % 17,63 % 100 % 15,46 %

Profit/loss after taxes 657,0 285,0

Goodwill and added value depreciation -126,0 -132,0

Other eliminations -4,0

Minority stake -0,1

Annual profit 531,0 94,5 148,9 25,1

41


(NOTE 15 continued)

42


NOTE 16 TANGIBLE FIXED ASSETS Machines, Bank building

fixtures and and other

means of transport real estate Total

Acquisition cost as of 1 January 2005 456 346 802

Annual added value 34 8 42

Depreciation of acquisition costs 158 15 173

Total depreciation and write-downs as of 31 December 2005 229 148 377

Entered value as of 31 December 2005 103 191 294

Annual ordinary depreciation 36 6 42

Of this, depreciated on assets written up - 1 1

Annual depreciation - 2 2

Annual gains from divestment - 5 5

Percentage for ordinary depreciation 14-33 % 2 %

Of total entered value of bank buildings, NOK 174 million is for use in the banking activities.

Real estate of substantial importance to the bank:

Total Rented out

Geographical location Type m2 m2

Stavanger Bjergsted Bank building 8 954 921

Sola sentrum Bank building 3 783 1 955

Haugesund sentrum Bank building 3 536 363

Stavanger sentrum Bank building 3 085 930

Aksdalsenteret Tysvær Bank building 2 288 850

Egersund Bank building 2 069 210

Randaberg sentrum Bank building 1 903 928

Intangible assets

Acquisition costs goodwill as of 1 January 2005 32

Total depreciation and write-downs as of 31 December 2005 30

Entered value as of 31 December 2005 2

Deferred tax advantage 25

Total 27

Annual ordinary depreciation of goodwill 1

The individual items under Goodwill are depreciated in a straight line over 5 years.

NOTE 17 OTHER ASSETS 2005 2004 2003

Equity and subordinated capital SR-Bank pension fund 25 15 15

Dividend not received from subsidiaries 10 44 49

Various other assets 117 53 5

Other assets 152 112 69

NOTE 18 PAYMENTS IN ADVANCE AND DEFERRED INCOME 2005 2004 2003

Deferred income and

prepaid, not accrued expenses 154 142 155

Net pension assets - - 127

Other prepaid, not accrued expenses 14 16 18

Payments in advance and deferred income 168 158 300


NOTE 19 DEBT TO CREDIT INSTITUTIONS 2005 2004 2003

Debt with no set term or notice 195 119 50

Debt with set term or notice 3 454 2 630 4 878

Debt to credit institutions 3 649 2 749 4 928

Average interest rate 1,1 % 1,1 % 1,3 %

Debt distributed by significant currencies

USD 77 - 2 359

EURO 3 000 2 165 2 317

NOK 556 535 228

The average interest rate is calculated based on actual interest rate expenses during the year as a percentage of average debt to credit

institutions.

NOTE 20 CUSTOMER DEPOSITS 2005 2004 2003

Deposits from and debts to customers with no set term or notice 27 633 23 306 20 682

Deposits from and debts to customers with set term or notice 10 328 10 076 6 866

Customer deposits 37 961 33 382 27 548


Customer deposits are mainly in NOK. The average interest rate is calculated based on actual interest rate expenses during the year as a

percentage of average customer deposits.

NOTE 21 BOND LOAN DEBT AND OTHER LONG-TERM LOANS 2005 2004 2003

Due date

2004 - - 3 596

2005 - 3 737 3 785

2006 1 572 1 388 526

2007 6 028 6 108 1 967

2008 1 560 1 664 1 169

2009 1 265 1 265 600

2010 5 083 500 -

2011 605 605 560

2012 120 - -

2014 296 305 -

2035 80 - -

Premium 1 1 2

Holdings of own bonds -77 -456 -790

Capitalised costs from bond loans -10 -6 -3

Bond loan debt and other long-term loans 16 523 15 111 11 412


Debt distributed by significant currencies

NOK 7 400 7 709 5 800

EURO 5 293 6 703 3 898

USD 3 830 - -

Premium when taking up loans is entered as income over the term of the loan. All loans are without instalments. Average interest rate is

calculated based on actual interest rate expenses during the year, including any interest rate or currency swaps as a percentage of average

bond holdings.

43


44


NOTE 22 ALLOCATIONS TO LIABILITIES AND EXPENSES 2005 2004 2003

Uncovered pension liabilities 412 358 149

Other allocations to liabilities and expenses - 1 1

Allocation to liabilities and expenses 412 359 150

NOTE 23 PENSION SCHEMES

SpareBank 1 SR-Bank has collective pension schemes for its employees. The pension scheme is covered by the bank’s pension fund.

SpareBank 1 SR-Bank has a uniform scheme, in which the principal terms are 30 years of earning entitlements to pension benefits, 70%

retirement pension relative to the pension basis as of 1 January the year the employee reaches the age of 67, as well as invalidity, spouse

and children’s pension. All pension benefits are coordinated with expected benefits from the national insurance. If changes are made in the

national insurance scheme leading to reduced benefits, such reductions will not be compensated through the pension schemes. As of 31

December 2005 the pension scheme had 875 active members and 237 pensioners.

In addition to the pension liabilities that are covered through the insurance schemes, the bank has uncovered pension liabilities that

cannot be covered by the assets in the collective scheme. The liabilities apply to people that are not enrolled in the insurance schemes,

supplementary pensions in excess of 12 G (1 G = the national insurance basic amount), ordinary early retirement pensions and early

retirement contractual pensions.

Estimated assets are used when assessing the pension assets and when measuring accrued liabilities. These estimates are corrected every

year in accordance with the actual value of the pension assets in the pension fund, statements of the pension assets in the event of being

transferred from the insurance company, and actuary calculations regarding the size of the liabilities. The calculation of future pensions is

based on the following principles:

2005 2004

Discount rate 3,9 % 4,5 %

Expected dividend from assets 6,0 % 6,0 %

Wage adjustment 3,0 % 3,0 %

G adjustment/inflation 3,0 % 3,0 %

Pension adjustment 3,0 % 3,0 %

Employers' contribution 14,1 % 14,1 %

The calculations are based on standardised assumptions regarding death and invalidity trends and other demographic factors prepared by

Norges Forsikringforbund (the Norwegian Federation of Life- and Non-Life Offices). Furthermore, a resignation frequency of 2% is assu-

med up to 45 years of age, and 0% for the age group over 45. For the calculation of the contractual pension scheme liabilities, it has been

estimated that 25% of employees entitled to the scheme will make use of it at the age of 62, and that the 25% will make use of the scheme

when they reach 64 years of age.

Pension liabilities in defined benefit pension schemes 2005 2004

Present value of pension liabilities as of 1 January 787 653

Pension earned during the period 33 29

Interest expenses accrued on pension liabilities 35 33

Actuary gains and losses (estimate deviations) 85 94

Paid benefits -22 -22

Present value of pension liabilities as of 31 December 918 787

Of this, fund-based 764 643

of this, not fund-based 154 144

Pension assets

Pension assets 1 January 465 415

Expected dividend in the period 29 26

Actuary gains and losses (estimate deviation) 22 10

Payments from employer 63 45

Benefits paid -22 -22

Pension assets 31 December 557 474

Net pension liabilities in the balance sheet

Current value of pension liabilities as of 31 December 918 787

Pension assets as of 31 December 557 474

Net pension assets 31 December 361 313

Employers' contribution 51 45

Net pension liabilities in the balance sheet 412 358


Pension expenses in the period 2005 2004

Defined benefit pension earned in the period 33 29

Interest expenses accrued on pension liabilities 35 33

Expected dividend from pension assets -29 -26

Net defined benefit pension expenses, employers' contribution excluded 39 36

Accrued employers' contribution 5 5

Net defined benefit pension expenses entered in the profit and loss account 44 41

Defined benefit pension expenses - -

Accrued pension expenses during the period, entered in the profit and loss account 44 41

Actuary gains and losses (estimate changes)

Accrued actuary gains and losses during the period, entered against equity 71 96

Cumulative actuary gains and losses during the period, entered against equity 167 96

Expected dividend from pension assets has been calculated as: 29 26

Actual dividend from pension assets was: 60 38

Development over the last two years in the defined benefit pension scheme

Present value of pension liabilities as of 31 December 918 787

Pension assets as of 31 December 557 474

Net 361 313

NOTE 24 SUBORDINATED LOAN CAPITAL 2005 2004 2003

Due date/Interest rate

Of limited duration:

2009 - USD 83.7 million 3 months' Libor + margin - - 557

2010 - 3 months' Nibor + margin - 300 300

Premium - - 1

2014 EUR 65 million 3 months' Libor + margin 520 536 -

Capitalised expenditure -3 -4 -

2035 YEN 13,000 million 3 months' Libor + margin 782 - -

Total of limited duration 1 299 832 858

Perpetual:

USD 75 million 3 months' Libor + margin 508 454 501

Capitalised expenditure -17 -18 -23

Total perpetual 491 436 478

Fund bonds:

USD 75 million 3 months' Libor + margin 508 454 501

Capitalised expenditure from fund bonds -2 -2 -2

Total fund bonds 506 452 499

Subordinated loan capital 2 296 1 720 1 835

Subordinated loan capital and bond funds in foreign currencies (USD 150 million, EUR 65 million and Yen 13,000 million as of 31

December 2005) enter into the bank’s total currency position, so that there is no currency risk associated with the loans, see note 27.

Subordinated loan capital of Yen 13,000 million can be redeemed in 2012. Of the total subordinated loan capital, as of 31 December 2005,

all is considered supplementary capital. Premiums/discounts in connection with borrowing are entered as costs over the term of the loan.

Fund bonds can constitute a maximum of 15% of the overall core capital. Any fund bonds in excess of this are considered perpetual

subordinated loan capital.

45


(NOTE 23 continued)

46


NOTE 25 PRIMARY CAPITAL, OWNERSHIP STRUCTURE AND EQUITY MOVEMENTS

Primary capital

The primary capital of Sparebank 1 SR-Banks amounts to NOK 1,130,729,250 divided among 22,614,585 primary capital certificates, each

with the nominal value of NOK 50. In April 2005 a split and capitalisation issue was carried out, entailing that NOK 226.1 million was

transferred from the equalisation reserve and 4,522,917 new primary capital certificates (free certificates) were issued, with an issuing price

and nominal value per certificate of NOK 50. Four old certificates entitled owners to one new primary capital certificate. The primary capital

was raised in the following manner and at the following time:

Year Change Change in Total Number of primary

primary capital primary capital capital certificates

1994 Public issue 744,0 744,0 7 440 000

2000 Employee issue 5,0 749,0 7 489 686

2001 Employee issue 4,8 753,8 7 538 194

2004 Capitalisation issue 150,8 904,6 9 045 834

2005 Capitalisation issue/split 226,1 1 130,7 22 614 585

In addition to the primary capital, the primary capital certificate owners' share of the equity in SpareBank 1 SR-Bank consists of an

equalisation reserve which consist of accumulated profits not paid out as annual dividend. This equity is used to stabilise cash dividend, or

for capitalisation issue. Other equity is the savings bank's fund, premium account and revaluation reserve. Up to 25 per cent of the sum

allocated to the savings bank's funds can be set aside for the endowment fund.

The share of the profit attributable to the primary capital certificate owners:

The profit per primary capital certificate is calculated by dividing the profit attributable to the owners of the primary capital certificates by

the average number of outstanding primary capital certificatesin 2005. The profit attributable to primary capital certificate owners equals

the share of the bank's total equity of the primary capital, the dividend equalisation reserve and the share premium account, minus the

reserve for valuation variances.

The savings

Primary Premium Revaluation bank's Endowment Equalisation Total

capital account reserve fund fund reserve equity

Equity as of 31 December 2003 750 18 - 1 132 37 872 2 809

Implementation effect pension 1 January 2004 -85 -109 -194

Adjusted equity as of 1 January 2004 750 18 - 1 047 37 763 2 615

Capitalisation issue 151 -151 -

Endowments, endowment fund, etc. -1 -28 -29

Turnover own primary capital certificates 4 2 5 11

Estimate deviation pension 2004 -32 -41 -73

Annual profit/loss 184 60 342 586

Dividend -208 -208

Equity as of 31 December 2004 905 20 - 1 198 69 710 2 902

Implementation effect lending 1 January 2005 57 73 130

Adjusted equity as of 1 January 2005 905 20 - 1 255 69 783 3 032

Capitalisation issue 226 -226 -

Endowments, endowment fund, etc. -51 -1 -52

Turnover, own primary funds 1) -3 1 -8 -10

Estimate deviation pension 2005 -25 -32 -57

Annual profit/loss 275 91 474 840

Dividend -317 -317

Equity as of 31 December 2005 1 128 21 - 1 505 109 673 3 436

1) Turnover of own primary capital certificates in 2005:

(Figures in 1,000)

Reserve as of 31 December 2004 57

Change in reserve in 2005 2 892

Reserve as of 31 December 2005 2 949


47

The 20 largest primary capital certificate owners as of 31 December 2005

Primary capital

Owner certificate Percentage

Swedbank, Sweden 2 225 850 9,80 %

Folketrygdfondet 1 028 300 4,50 %

State Street Bank & Trust, USA 805 341 3,60 %

Trygve Stangeland 300 940 1,30 %

Tveteraas Finans AS 300 010 1,30 %

Brown Brothers Harriman & Co, USA 288 914 1,30 %

Frank Mohn AS 280 205 1,20 %

Clipper AS 260 000 1,10 %

JP Morgan Chase Bank, UK 258 440 1,10 %

Otto B. Morcken 195 000 0,90 %

Audley AS 194 532 0,90 %

Solvang Shipping AS 180 000 0,80 %

Westco AS 162 650 0,70 %

Forsand kommune 152 295 0,70 %

Trondheim kommune 120 450 0,50 %

Arne B. Corneliussen Invest AS 120 000 0,50 %

Ringerikes Sparebank 102 400 0,50 %

MP Pensjon 99 900 0,40 %

Terra Utbytte 93 250 0,40 %

Olav T. Stangeland 90 000 0,40 %

Total 20 largest owners 7 258 477 32,10 %

Other owners 15 356 108 67,9 %

Primary capital certificates issued 22 614 585 100,0 %

The total number of primary capital certificate owners as at 31 December 2005 is 10,361. This is an increase of 2,281 since the beginning of

the year. The percentage of primary capital certificates owned in Rogaland and the Agder counties is 44.8%, and the percentage owned

abroad is 19.4%. Reference is also made to the overview of primary capital certificate owners in the Board of Directors and the Supervisory

Board. For more details concerning primary capital certificates, see separate chapter in the annual report.

NOTE 26 GUARANTEES/SECURED DEBT 2005 2004 2003

Payment guarantees 1 514 1 058 878

Contract guarantees 1 331 868 735

Loan guarantees - 1 13

Tax guarantees 47 28 27

Other guarantees 209 255 264

Guarantee for the Norwegian Bank's Guarantee Fund 68 68 68

Total 3 169 2 278 1 985

The bank has no significant secured debts


(NOTE 25 continued)

48


NOTE 27 CURRENCY POSITION AND CURRENCY INTEREST AGREEMENTS 2005 2004 2003

Net position on foreign currencies

Ownership in foreign currencies 4 934 5 496 5 994

Forward purchases in foreign currencies 10 232 7 945 8 321

Debt in foreign currencies 15 030 11 494 12 368

Forward sale in foreign currencies 1 300 1 954 1 859

Currency risk

Currency risk can be defined as the bank’s risk for incurring losses as a consequence of changes in exchange rates. The bank has a policy of

limited currency risk on its own books. The Board of Directors has stipulated limits for the bank’s maximum currency position, both overall

and with regard to individual currencies. The bank’s maximum limits are conservative, and well within the limits set by Norges Bank, the

Norwegian central bank. Furthermore, the bank can only take on currency risk in the currencies for which Norges Bank stipulates exchange

rates on a daily basis. In relation to the bank’s size, currency risk has been low throughout 2005. At the end of the year, the aggregated

currency position was NOK 97 million. The largest positions were in USD, with NOK 62 million, and EUR with NOK 33 million, and only

minor positions in other currencies. All currency items have been converted according to the market rate on 31 December 2005.

Off-balance sheet interest, currency and share-related agreements (financial derivatives)

Nominal as of Nominal Value

31December2005 average 2005 31December2005

Trading portfolio

Interest 11 080 9 544 41

Currency 2 671 2 030 11

Hedging portfolio

Interest 9 005 9 746 92

Currency 12 190 11 634 215

Share swaps 1 160 1 262 36

Nominal total equal to the contract's principal sum.

Off-balance sheet interest, currency and share-related agreements (financial derivatives)

Trade in financial derivatives is largely carried out in order to reduce interest and currency risk in the balance sheet. The Board of Directors

have drawn up clear limits, both for currency and interest derivatives, on the extent of risk that may be placed in the trading portfolio.

Relative to the size of the bank, the limits for trade in derivatives is considered conservative, and the market risk as a consequence of trade

in these products is therefore considered to be small. Share-related agreements such as share options, share swaps, etc. are largely used to

secure guarantee products sold to customers. Derivatives are mostly carried out with solid Norwegian and international banks as counter-

parts. The credit risk is therefore considered to be small. Transactions with customers are part of the bank’s continuous credit assessment

of individual commitments. All instruments that are used throughout the year are subject to daily turnover in liquid markets. These are

described below:

Interest agreements largely comprise:

Interest swap agreements (interest swaps) are agreements to change interest terms on nominal amounts with customers or banks.

Forward rate agreements (FRAs) are agreements that set an interest rate for a nominal amount for a period in the future. Interest options

are agreements entitling the buyer to claim the difference between the money market rate and the agreed interest paid by the seller. The

difference is calculated on the basis of an agreed principal sum.

Currency agreements largely comprise:

Currency forward agreements are agreements to buy or sell a specific amount of currency at a future point in time at an agreed exchange

rate against a different currency. Currency swap agreements (currency swaps) are agreements with customers or banks to change currency

amounts at a previously agreed exchange rate, and pay interest on them for an agreed period.

Share agreements largely comprise:

Share swaps ensure the buyer a given rate of return on specific share index(es) and/or funds/trusts in return for the payment of

floating/fixed interest for a previously agreed period.


49

NOTE 28 CONDITIONAL COMMITMENTS

Sparebank 1 SR-Bank is party to several lawsuits. The lawsuits’ total financial extent is not considered to be of great significance. This is

because the bank has made loss allocations in the cases in which there is a probability that the bank will suffer losses as a consequence of

the lawsuits.

NOTE 29 DISTRIBUTION OF LENDING, GUARANTEES AND DEPOSITS

ACCORDING TO INDUSTRY SECTOR AND GEOGRAPHIC AREA Lending Guarantees Deposits

Agriculture/Forestry 1 790 6 712

Fisheries/Aquaculture 270 51 55

Quarries/Mining 332 9 619

Industry 1 628 1 171 1 441

Energy and water supply/Construction 904 705 1 387

Distributive trades/Hotel and restaurants 1 419 160 1 383

Overseas shipping/Pipeline transport, other transport 1 394 62 1 273

Real estate 7 591 436 2 172

Tertiary sector 1 770 364 2 999

Public management and financial services 799 161 8 456

Total corporate market 17 897 3 125 20 497

Retail customers 41 792 44 17 464

Total 59 689 3 169 37 961

Lending Guarantees Deposits

Oslo area 2 318 266 5 986

Agder counties 4 411 639 1 448

Rogaland 50 436 2 152 28 826

Hordaland 1 747 88 1 209

Abroad 228 20 282

Other 549 4 210

Total 59 689 3 169 37 961

NOTE 30 TRANSACTIONS WITH SUBSIDIARIES 2005 2004 2003

Income and expenses:

Interest income from subsidiaries 43 17 12

Interest expenses from subsidiaries 3 2 5

Commission income from subsidiaries 2 3 3

Commission expenses from subsidiaries 1 1 2

Other income from subsidiaries 1 1 1

Other expenses from subsidiaries 1 - -

Accounts receivable from subsidiaries:

Operating credit 461 522 1

Other lending 1 417 1 028 518

Other accounts receivable 11 44 50

Total accounts receivable 1 889 1 594 569

Debt to subsidiaries:

Deposits from subsidiaries 444 379 155

Other debts 15 7 59

Total debts 459 386 214

Subordinated

Accounts receivable and debts to affiliated companies Lending Deposits loans

Admi-Senteret AS 18 - -

SpareBank 1 Gruppen AS 26 100 43

SpareBank 1 Utvikling DA 55 - -

SpareBank 1 Boligkreditt AS - 100 -


50


NOTE 31 CAPITAL ADEQUACY RATIO 2005 2004 2003

The Savings bank's fund 1 505 1 313 1 132

- Pension fund - -98 -91

Paid up primary capital 1 131 905 754

- Own primary capital certificates -3 - -4

Endowment fund 109 69 37

Premium reserve 21 20 18

Dividend equalisation reserve 673 858 872

Fund obligations 506 452 473

Entered goodwill and other intangible assets -27 -31 -34

Share of non-performing non-amortised estimate deviation 144 - -

Core capital 4 059 3 488 3 157

Perpetual equity and subordinated loan capital 491 436 504

Time-limited equity and subordinated loan capital 1299 832 858

Additional capital 1 790 1 268 1 362

Gross equity and subordinated loan capital 5 849 4 756 4 519

Equity and subordinated loan capital in other finance institutions pursuant to Section 7e -494 -314 -262

Deduction in equity and subordinated loan capital -494 -314 -262

Net equity and subordinated loan capital 5 355 4 442 4 257

Total assets (weighted) 40 019 34 864 31 764

Sum items off balance sheet (weighted) 2 939 1 603 1 377

Currency risks and items in the trade balance 1 914 1 821 1 235

Deductions made pursuant to Section 7e-f -494 -314 -262

Loss allocations -316 -569 -660

Total calculation basis 44 062 37 405 33 454

Capital adequacy 12,15 % 11,88 % 12,72 %

The statement shows the capital adequacy ratio of SpareBank 1 SR-Bank. The capital adequacy ratio shall not be below eight per cent. The

equity value of the non-perpetual subordinated loan capital is reduced by 20% each year during the last five years before they are due. To

the extent that the bank has equity and subordinated capital in other financial institutions, this is directly deducted from the bank’s own

equity and subordinated capital for the percentage that exceeds 2% of the equity and subordinated capital of the receiving financial

institution.

If the bank has equity and subordinated capital in other financial institutions amounting to less than 2% of the equity and subordinated

capital of the financial institution in question, the sum of such capital is deducted from the bank’s equity and subordinated capital that

exceeds 10% of the bank’s equity and subordinated capital. The basis for calculation is weighted according to risk. There are five risk

categories, namely 0%, 10%, 20%, 50% and 100%, with the percentage indicating how much of the balance sheet item shall be included in

the calculation basis.


NOTE 32 REMAINING TERM OF THE LOAN AND INTEREST RATE COMMITMENT TERM

Up to 1-3 3-12 More than

Remaining term of the loan 1 month months months 1-5 years 5 years No term Total

NOK:

Cash and accounts receivable from central banks 163 175 338

Accounts receivable from credit institutions 1 161 500 60 1 721

Customer lending 10 465 380 583 5 474 39 021 -316 55 607


Assets with no term 1 744 1 744

Foreign currencies:

Cash and accounts receivable from central banks 13 13

Accounts receivable from credit institutions 36 1 68 88 193

Lending to customers 163 2 104 1 499 3 766

Certificates and bonds 708 708

Assets with no term 240 240

Total assets 11 988 880 779 10 544 40 723 1 856 66 770


Remaining term of the loan 1 month months months 1-5 years 5 years No term Total

NOK:

Debt to credit institutions 115 99 342 556

Customer deposits 32 405 2 200 2 509 412 37 526

Debt assumed when issuing securities 500 2 200 5 495 605 8 800

Debts with no term 1 298 1 298

Subordinated loan capital -

Total equity 3 436 3 436

Foreign currencies:

Debt to credit institutions 748 24 160 2 001 160 3 093

Customer deposits 435 435

Debt assumed when issuing securities 236 8 391 496 9 123

Subordinated loan capital 1 791 505 2 296

Debts with no term 207 207

Total debt and equity 33 703 2 724 5 105 16 398 3 394 5 446 66 770

Net total all items -21 715 -1 844 -4 326 -5 854 37 329 -3 590


Interest rate commitment term 1 month months months 1-5 years 5 years No term Total

NOK:

Cash and accounts receivable from central banks 163 175 338

Accounts receivable from credit institutions 1 161 500 60 1 721

Lending to customers 3 340 48 018 2 340 1 824 401 -316 55 607


Non-interest yielding assets 1 744 1 744

Foreign currencies:


Accounts receivable from credit institutions 36 150 7 193

Lending to customers 163 916 2 687 3 766

Certificates and bonds 228 480 708

Non-interest yielding assets 240 240

Total assets 5 550 51 995 5 144 1 824 401 1 856 66 770

51


52



Interest rate commitment term 1 month months months 1-5 years 5 years No term Total

NOK:

Debt to credit institutions 214 342 556

Customer deposits 32 405 2 200 2 509 412 37 526

Debt assumed when issuing securities 1 558 1 344 2 211 3 082 605 8 800

Debt with no term 1 298 1 298

Subordinated loan capital -


Foreign currency:

Debt to credit institutions 2 229 408 200 96 160 3 093

Customer deposits 435 435

Debt assumed when issuing securities 1 350 4 090 3 507 176 9 123

Subordinated loan capital 507 1 010 779 2 296

Debts with no term 207 207

Total debts and equity 38 698 9 052 5 262 7 097 1 720 4 941 66 770

Net interest rate exposure on the balance sheet -33 148 42 943 -118 -5 273 -1 319 -3 085

Derivatives not entered which affect

interest rate exposure 499 -3 872 -3 242 5 206 1 410 -

Net interest rate exposure, not capitalised

financial derivatives included -32 649 39 071 -3 360 -67 91 -3 085

As percentage of total assets -49 % 59 % -5 % 0 % 0 % -5 %

Overdrafts are included under the 0-1 month interval. The statement of the remaining term shows the remaining term for different balance

sheet items. The statement of the remaining interest rate commitment term shows the remaining term for which the bank is bound to the

applicable interest rate for different balance sheet items. Relative to the bank’s balance sheet, the bank has had low interest risk throughout

the year. At the end of the year, overall interest sensitivity was such that a 1% change in interest rates would have affected the bank’s

profits by NOK 4 million. All items on the balance sheet and the off-balance sheet items such as interest swaps etc. are included in this

calculation. For the trading portfolio, which largely consists of bonds and certificates, the portfolio has had short (bond) duration during

the year. At the end of the year, the portfolio had a (bond) duration of 0.15 years, and a 1% change in interest rates would have affected the

bank’s profits by approximately NOK 5 million.


(NOTE 32 continued)

53

NOTE 33 IMPLEMENTATION OF PENSION AND NEW REGULATION RELATING TO LENDING

Below follows a reconciliation of the balance sheet from 31 December 2004 to 1 January 2005 with the changes which were made based on

the implementation of the new regulation relating to lending on 1 January 2005 and the implementation of IAS 19 (pensions) on 1 January

2004. Attached is also a statement showing differences in the profit and loss account for 2004. Details of the individual items are described

in footnotes below.

Reconciliation as of 1 January 2005

Balance sheet Pension Estimate Balance sheet

31 December 2004 according to corridor deviation Profit/loss Changes 1 January 2005

Norwegian accounting principles (NGR) to equity pension 2004 lending/loss according to NGR

1) 2) 3) 4)


Accounts receivable from credit institutions 1 610 1 610

Lending to customers 52 221 178 52 399

Certificates, bonds and

other securities with fixed dividends 2 867 2 867

Shares and stakes 813 -14 -4 2 797

Intangible assets 31 70 27 -1 -50 77

Fixed assets 297 297

Other assets 406 -127 -9 270

Total assets 59 187 -71 23 -10 130 59 259

Debts to credit institutions 2 749 2 749

Customer deposits 33 382 33 382

Debts assumed when issuing securities 17 111 17 111

Financial derivatives 63 63

Other debts 560 560

Accrued expenses and prepaid income 283 283

Allocations for commitments and expenses 154 123 96 -14 359

Subordinated loan capital 1 720 1 720

Total debt 56 022 56 227

Primary capital certificates 905 905

Premium account 20 20

Equalisation reserve *) 858 -109 -41 2 73 783

The savings bank's fund *) 1 313 -85 -32 2 57 1 255

Endowment fund 69 69


Total debts and equity 59 187 -71 23 -10 130 59 259

* Distribution formula when allocating equity entries is 56.32 % to the equalisation reserve and 43.68 % to the savings bank's fund.

1) Pension corridor: With the transition to IAS 19 which is the IFRS standard for pensions, an opportunity was given in IAS 1 (standard on

implementation) to reset to zero estimate deviations (corridor) as of 1 January 2004 in its entirety against equity. For SpareBank 1 SR-Bank,

this totalled NOK 180 million after taxes. In addition comes NOK 14 million as a result of the bank's subsidiaries entering the pension

corridor against equity.

2) Estimate deviations pensions: SpareBank 1 SR-Bank has chosen to enter running estimate deviations directly against equity. This will be

done effective 1 January 2004. This deviation was NOK 70 million after taxes. In addition comes NOK 4 million due to subsidiaries making

corresponding entries against equity.

3) Difference in profit/loss 2004: Se reconciliation regarding transition to IAS 19 in the profit and loss account for 2004.

4) Changes to lending/loss: The new regulation relating to lending leads us to increase our equity by NOK 130 million. We reduce the

unspecified loss allocations by NOK 137 million after taxes (increase in equity). This takes place after the reviewing of the new regulations

and models for loss write-downs. Otherwise, we capitalise long term observation loans by NOK 12 million (increase in equity) and capitali-

se earlier lending fees taken to income by NOK 21 million (reduction in equity). In addition comes NOK 2 million as a result of the bank's

subsidiaries entering the effect of the regulations relating to lending against equity.


54


Reconciliation of profit/loss 2004:

Profit/loss Profit/loss

31 December 2004 31 December 2004

according to Norwegian accounting principles (NGR) pension according to NGR

1)

Interest income 2 081 2 081

Interest expenses 999 999


Dividend 77 77

Commission income 386 386

Commission expenses -65 -65

Net currency rate gain/loss 131 131

Other operating income 9 9

Net other income 538 538

Total operating income 1 620 1 620

Pay and general administration expenses 643 -5 638

Depreciation and write-downs 49 49

Other operating expenses 83 83

Total operating expenses 775 770

Profit before loss 845 850

Loss from lending and guarantees 76 76

Profit/loss from regular operations 769 774

Tax expenses 186 2 188

Annual result 583 3 586

1) Pension: With the transition to IAS 19 in the 2004 accounts, total pension expenses are reduced by NOK 5 million. This is due to the

actuary calculations and preconditions deviating somewhat between the two accounting languages.

NOTE 34 RESTRICTED ASSETS

As of 31 December 2005, the restricted assets in SpareBank 1 SR-Bank are worth NOK 20,011,671.


(NOTE 33 continued)

55

Income statement IFRS

IFRS IFRS NGAAP NGAAP

Notes 2005 2004 2004 2003

Interest income 6 2 276 2 143 2 143 3 009

Interest expense 6 1 163 1 014 1 014 1 914

Net interest income 1 113 1 129 1 129 1 095

Fee and commission income 7 453 405 405 369

Fee and commission expense 7 76 64 64 66

Net fee and commission income 377 341 341 303

Income from financial investments 8 230 145 145 177

Income from associated companies and joint ventures 15 119 45 25 -7

Other operating income 9 199 190 190 159

Operating expense 10, 13 1 012 948 956 922

Profit before write-downs 1 026 902 874 805

Write-downs on loans and guarantees 20 -70 81 81 236

Profit before income tax 1 096 821 793 569

Income tax 11 234 206 204 160

Profit for the year 862 615 589 409

Minority interests 6 3 3 1

Majority interests 856 612 586 408

Earnings per primary capital certificate (majority)

- Earnings per primary capital certificate 21.4 15.8 15.2 10.9

- Diluted earnings per primary capital certificate 21.4 15.8 15.2 10.9


Geir Worum

Chairman


Kristian Eidesvik

Vice Chairman



CEO

56



Balance Sheet IFRS

IFRS IFRS

Note 2005 2004

ASSETS

Cash and balances with central banks 29 351 942

Loans and deposits with credit institutions 18 43 67

Loans to customers net of write-downs 19, 20 61 480 53 839

Securities 16 3 626 3 213

Financial derivatives 17 519 -

Investment in associated companies and joint ventures 15 498 292

Intangible assets 14 12 12

Property, plant and equipment 13 305 309

Deferred tax asset 11 41 145

Other assets 12 362 321

Total assets 67 237 59 140

LIABILITIES

Loans and deposits from credit institutions 18 3 636 2 690

Deposit from customers 21 37 530 33 062

Securities issued 22 18 051 17 111

Financial derivatives 17 203 63

Taxes payable 11 162 197

Other liabilities 24, 25 1 489 1 151

Subordinated loan capital 23 2 336 1 760

Total liabilities 63 407 56 034

EQUITY

Primary capital certificates 1 128 905

PCC premium reserve 21 20

Other equity 2 674 2 176

Minority interests 7 5

Total equity 28 3 830 3 106

Total equity and liabilities 67 237 59 140

57

CONSOLIDATED SPECIFICATION OF INCOME,

EXPENSES AND VALUE CHANGES 2005 2004

Profit for the year 862 615

Unrecognised actuarial gains and losses -57 -73

Total income recognised 805 542

Majority’s portion 799 539

Minority’s portion 6 3

This specification shows the profit for the year if the unrecognised actuarial gains and losses had been recognised in the income statement.

STATEMENT OF CHANGES IN EQUITY

Majority interests

Paid in equity Retained earnings

Primary certificate PCC premium Savings Bank’s Donations Dividend Minority Total

capital reserve Fund Equalisation Fund interests equity

Equity capital as of 1 Jan 2004 750 18 1 032 37 895 3 2 735

Unrecognised actuarial gains and

losses as of 31 Dec 2004 - - -32 - -41 - -73

Changes in fair value booked to equity - - -32 - -41 - -73

Share dividend issue 151 - - - -151 - -

Donations - - -1 -28 - - -29

Purchase/sale of primary capital certificates 4 2 - - 5 - 11

Dividend for 2003 approved in 2004 - - - - -151 -1 -152

Profit for the year 2004 - - 195 60 356 3 614

Equity capital as of 31 Dec 2004 905 20 1 194 69 913 5 3 106

Implementation of IAS 39 1 Jan 2005

- Financial instruments - - 23 - 30 - 53

- Loans/impairment losses - - 58 - 73 - 131

- SpareBank 1 Group - - 4 - 5 - 9

Adjusted equity capital as of 1 Jan 2005 905 20 1 279 69 1 021 5 3 299

Unrecognised actuarial gains/

losses 31 Dec 2005 - - -25 - -31 -1 -57

Changes in fair value booked to equity - - -25 - -31 -1 -57

Share dividend issue 226 - - -226 - -

Donations - - - -51 -1 - -52

Purchase/sale of primary capital certificates -3 1 - - -8 - -10

Dividend for 2004 approved in 2005 - - - - -208 -3 -211

Profit for the year 2005 - - 282 91 482 6 861

Equity capital as of 31 Dec 2005 1 128 21 1 536 109 1 029 7 3 830


58



Cash Flow Statement

2005 2004

Profit before income tax 856 612

Impairment of non-financial fixed assets 48 49

Net impairment losses on loans and guarantees -70 81

Income taxes -187 -77

Net change in cash and cash equivalents from operations 647 665

Change in gross loans to customers -7 309 -5 626

Change in loans and deposits with credit institutions -7 -

Change in deposits from customers 4 468 4 796

Change in loans and deposits from credit institutions 946 -2 222

Change in certificates and bonds -292 -493

Change in other receivables -203 -195

Change in other short-term liabilities 169 362

A Net cash flow from operations -1 581 -2 713

Cash flow from investment activities

Investment in fixed assets -47 -45

Sale of tangible fixed assets 7 11

Change in shares and ownership interests -273 -65

B Net cash flow from investment activities -313 -99

Issuance of new debt securities 6 161 5 284

Payment on debt securities issued -5 148 -1 833

Issuance of new subordinated loan capital 822 536

Payment on subordinated loan capital -246 -651

Dividend to primary capital certificate holders -317 -208

C Net cash flow from financing activities 1 272 3 128

A+B+C Net cash flow for the period -622 316

Cash and cash equivalents 1 Jan 1 009 693

Cash and cash equivalents 31 Dec 387 1 009

Net cash flow for the period -622 316

59

Notes

NOTE 1 GENERAL INFORMATION

The Group, SpareBank 1 SR-Bank, is comprised of the parent

bank, SpareBank 1 SR-Bank, and its subsidiaries: SpareBank 1

SR-Finans AS, EiendomsMegler 1 Rogaland AS, SR Investering

AS and SR Forvaltning ASA. SpareBank 1 SR-Bank owns 26.7

percent of SpareBank 1 Boligkreditt AS which is accounted for as

an associated company in accordance with the equity method in

the Group accounts. SpareBank 1 Utvikling DA, which the Group

owns 20 percent of, is accounted for in the same way. SpareBank

1 SR-Bank owns 17.63 percent of SpareBank 1 Gruppen AS, and

this ownership interest is accounted for as a joint venture in

accordance with the equity method in the consolidated financial

statements.

SpareBank 1 SR-Bank’s headquarters are located in Stavanger.

The Bank has 50 offices in the counties of Rogaland, Vest-Agder

and Aust-Agder. Some of the offices are shared with

EiendomsMegler 1 Rogaland AS. All subsidiaries have

headquarters in Stavanger.

The Group’s main activities are sales and brokerage of financial

products and services, as well as leasing and brokerage of

property.

The Group’s annual accounts were approved by the parent

bank’s Board of Directors on 30 March 2006.

NOTE 2 ACCOUNTING PRINCIPLES – GROUP ACCOUNTS

ACCORDING TO IFRS

BASIS OF CONSOLIDATION

The 2005 group accounts for SpareBank 1 SR-Bank (”the Bank”)

have been prepared in accordance with International Financial

Reporting Standards (IFRS). These include interpretations from

the International Financial Reporting Interpretations Committee

(IFRIC) and the preceding interpretations committee, the

Standing Interpretations Committee (SIC).

The basis for accounting for the group accounts is historic cost

with the following modifications: financial assets available for

sale, financial derivatives and assets and financial liabilities

carried at fair value through profit or loss.

The annual accounts have been prepared in accordance with

IFRS and interpretations that are mandatory for annual accounts

prepared as of 31 December 2005 with additional changes due to

IAS 19 and IAS 39 as described below.

There are a number of new standards, changes to existing

standards and interpretations that are expected to be mandatory

for the Group in 2006. IFRS encourages early adoption where

possible, therefore the Group decided to implement the following

non-compulsory standards in 2005:

• IAS 19 (Amendment) – Employee Benefits (from 1 January

2006). The revised standard allows unrecognised actuarial

gains and losses to be recognised directly through the Group’s

equity. The Group has chosen to implement the revised

standard effective 1 January 2004, with comparable figures for

2004 changed accordingly.

• IAS 39 (Amendment) – The Fair Value Option (from 1 January

2006) The revised standard alters the definition of financial

instruments classified as fair value through profit or loss and

limits the option to designate financial instruments to this

category. The Bank has chosen to implement the revised

standard as of 1 January 2005. This implies a portion of the

Group’s liabilities in the form of bonds are carried at fair value

as well as structured products being carried at fair value. In

addition, fixed interest rate lending is carried at fair value.

Of the remaining standards, revisions and interpretations

effective for annual periods on or after 1 January 2006, the

following will impact the Group:

• IAS 39 and IFRS 4 (Amendment) – Financial Guarantee

Contracts (from 1 January 2006) The revised standard requires

financial guarantee contracts to be initially recognized at fair

value and subsequently measured at the highest of (i) the

remaining non-amortised amount related to fees received but

not yet recognised in the income statement and (ii) the

expected expenses related to the settlement of the liability on

the balance sheet date.

• IFRS 7 (New Standard) – Financial Instruments: Disclosures

and a revision of IAS 1 – Presentation of Financial Statements

– Capital Disclosures (from 1 January 2007) The revised

edition of IFRS 7 requires new disclosures in order to improve

information about financial instruments. The standard

replaces IAS 30 and expands the information requirements of

IAS 32. The standard goes beyond the current reporting

requirements and requires that information is given in a

qualitative and quantitative nature about the risk exposure

arising from financial instruments. Changes in IAS 1 require

further information about the Group’s capital as well as how

that capital is managed.

• IFRIC 4 – Determining whether an Arrangement contains a

lease (from 1 January 2006) IFRIC 4 requires an assessment of

whether an agreement contains elements of leasing based on

the agreement’s underlying intent.

Management is working to clarify the impacts of the above-

mentioned changes to the Group’s financial reporting.


60



FIRST TIME ADOPTION OF IFRS

As of 1 January 2005 it was mandatory for all publicly-listed

groups within the EU (including EEC-countries) to prepare

quarterly and annual accounts in accordance with International

Financial Reporting Standards (IFRS). SpareBank 1 SR-Bank has

prepared its quarterly and annual group accounts for 2005 in

accordance with IFRS.

Conversion to IFRS has been done retrospectively as of 1 January

2004. Comparable figures for one year are shown in the income

statement, balance sheet and notes with the exception of items

related to IAS 39 which are exempt from the requirement of

presenting comparable figures. For the Bank, the same applies to

items related to lending/loan impairment, shares and other

financial instruments. For these items comparable figures are

presented in accordance with Norwegian Generally Accepted

Accounting Principles (NGAAP).

For further details on implementation impacts, see Note 30 –

IFRS implementation.

REPORTING CURRENCY

The reporting currency is Norwegian kroner (NOK), which is the

Bank’s functional currency. All amounts are presented in NOK

million unless otherwise stated.

CONSOLIDATION

The annual accounts for the Group include the accounts for the

Bank and all subsidiaries. Subsidiaries are defined as companies

in which the Bank has a controlling interest, in other words, the

ability to govern the financial and operational principles of the

company in order to obtain benefits from the company’s activities.

Subsidiaries are consolidated from the point of acquisition, being

the date that the Group obtained control, and continue to be

consolidated until the date that such control ceases.

Upon achieving a controlling interest in a company (business

combination), all identifiable assets and liabilities are

incorporated in the balance sheet on the basis of their fair value

in accordance with IFRS 3. Any positive differences between the

cost of acquisition and fair value of identifiable assets and

liabilities are recognised as goodwill, whereas any negative

differences are recognised as income. The Bank has not applied

IFRS 3 retrospectively to all business combinations implemented

before 1 January 2004.

All transactions between Group companies are eliminated in the

group accounts. The minority’s share of the Group’s profit/loss

is presented on a separate line under profit/loss after tax in the

income statement. The minority’s share of equity is shown as a

separate item.

ASSOCIATED COMPANIES

An associate is a company where the Bank has significant

interest, typically defined as owning 20 percent or more of the

company’s shares. Associates are booked according to the equity

method of accounting. Investments are initially measured in the

balance sheet at cost and adjusted thereafter for changes in the

Bank’s share of net assets in the associate. The Bank’s share of

the associate’s profit/loss is recognised in the income statement.

The Bank owns 20 percent of Sparebank Utvikling DA with the

remaining ownership divided among other banks within

SpareBank 1-alliansen and SpareBank 1 Gruppen AS. This

investment is booked as an associate. The Bank also owns 26.7

percent of SpareBank 1 Boligkreditt AS which is also defined as

an associate.

JOINT VENTURES

A joint venture can consist of jointly-controlled operations, assets

and/or companies. Joint-control implies that the Bank shares

control with other parties governed by an agreement. Joint

ventures are presented in accordance with the equity method of

accounting.

SpareBank 1 SR-Bank, SpareBank 1 Midt-Norge, SpareBank 1

Nord-Norge and Samarbeidende Sparebanker AS each own 17.63

percent of SpareBank 1 Gruppen AS. Other owners include

FöreningsSparbanken AB (19.5 percent) and LO (10 percent).

The governance structure of the SpareBank 1-joint venture is

regulated by an agreement between its owners. The Bank

classifies its ownership interest in SpareBank 1 Gruppen AS as a

joint venture which is presented according to the equity method

of accounting.

LOANS AND IMPAIRMENT ALLOWENCES

The Group implemented IAS 39 with respect to loans and

impairment allowances as of 1 January 2005. As a result of the

transition, new routines were established for the impairment of

loans, and the amortisation of lending fees over the loans expected

repayment period was implemented. This resulted in a substantial

reduction in previously booked unspecified losses, the reversal of

lending fees previously recognised as income, and bad debt

under long-term supervision were carried in the balance sheet.

All of these impacts were recognised directly through equity.

Loans are carried at amortised cost in accordance with IAS 39.

Amortised cost is defined as acquisition cost less any repayments

of the principal amount, plus or minus cumulative amortisation

as a result of the application of the effective interest rate method,

and less any reductions for impairment and uncollectibiliy. The

effective rate of interest is the rate of interest which discounts the

estimated future cash flows during the expected repayment

period for a given financial instrument.

Loans in the parent Bank’s financial statements are measured

according to the same principles as applied to the consolidated

financial statements, as NGAAP lending regulations dated 21

December 2004 adopted basically the same principles as IFRS

(see FSA Norway circular nr 10/2005).

Loans to customer with fixed interest are carried at fair value.

Profit or losses as a result of changes in fair value are recognised

through the income statement as a change in fair value. Accrued

interest and premiums/discounts are recognised as interest

61

income. Risk exposure related to fixed interest rate loans is

managed through the use of interest rate swaps which are

measured at fair value. The Bank has the opinion that fair value

in the balance sheet for fixed interest rate loans provides more

relevant information about these items.

IMPAIRMENT OF FINANCIAL ASSETS

On each balance sheet date the Group considers whether there is

objective evidence indicating impairment in value of individual

financial asset or group of assets. Impairment loss is recognised

only if there is objective evidence that the present value of an

asset or group of assets has been reduced, based on discounted

future cash flows. Impairment may be a result of one or several

events occurring after initial recognition (an impairment event)

and the results of the event (or events) must also be able to be

measured reliably. Objective evidence indicating a loss in value

of a financial asset or group of assets includes observable data

brought to the Group’s attention for the following impairment

events:

- Significant financial difficulty of the issuer or obligor

- Breach of contract, such as a default or delinquency in interest

or principal payments

- The Group, for economic or legal reasons relating to the

borrower’s financial difficulty, granting to the borrower a

concession that the lender would not otherwise consider

- It becoming probable that the borrower will enter bankruptcy

or other financial reorganisation

- The disappearance of an active market for that financial asset

because of financial difficulties

- Observable data indicating that there is a measurable decrease

in the estimated future cash flows from a group of financial

assets since the initial recognition of those assets, although

the decrease cannot yet be identified with the individual

financial assets in the group, including:

• Adverse changes in the payment status of borrowers in the

group or

• National or local economic conditions that correlate with

defaults on the assets in the group

The Group first considers whether there exists objective evidence

of impairment of financial assets which are individually signifi-

cant. Objective evidence of impairment related to financial assets

which are not significant is assessed individually or in groups. If

there is no evidence of impairment for an individually assessed

asset, significant or not, the asset is included in a group of

financial assets with similar credit risk characteristics. The group

is then evaluated collectively for possible impairment losses.

Assets which are assessed individually with respect to impair-

ment in value, and where a loss in value is being identified or is

still identified, are not included in groups of financial assets for

assessment of group impairment losses.

If there is objective evidence that an impairment event have

taken place, the size of the impairment loss is calculated as the

difference between the asset’s book value and the present value

of estimated future cash flows, excluding future losses on loans

which are not yet incurred, discounted with the financial asset’s

original effective interest rate. The book value of the asset is

reduced by use of an allowance account and the loss is

recognised in the income statement.

Future cash flows from a group of financial assets which are

collectively assessed with respect to impairment are estimated

based on contractual cash flows for the group including historical

losses from assets with similar credit risk. Historical losses are

adjusted for existing observable data in order to take into

account effects of circumstances which did not exist when the

historical losses were incurred, as well as effects of previous

circumstances which do not exist at the balance sheet date.

IMPAIRMENT IN VALUE OF LOANS CARRIED AT FAIR VALUE

On each balance sheet date the Group considers whether there

are objective evidence that the value of a financial asset or group

of financial assets carried at fair value through profit or loss is

subject to impairment. Loss as a consequence of impairment is

recognised through profit or loss in the period they occur.

NON-PERFORMING LOANS AND LOANS AT RISK

A loan or commitment is regarded as in default (and is included

in the Bank’s record of defaulted loans) when instalments and

interest payments have not been made within 90 days after

maturity, or when credit limits have been exceeded for 90 days or

more. Loans and commitments that are not in default, but where

the customer’s financial circumstances are likely to lead to losses

for the Bank, are classified as at risk.

CONFIRMED LOSSES

Losses are classified as confirmed when it is highly probable that

they will occur. Confirmed losses covered by previous individual

write-downs are recognised against these write-downs.

Confirmed losses which are not covered by write-downs, as well

as positive or negative differences with respect to previous

write-downs are recognised in the income statement.

REPOSSESSED ASSETS

In cases of defaulted loans and guarantees, the Bank may

repossess assets that have been provided as collateral for such

commitments. Such assets are assessed at their estimated fair

value at the time of repossession and the value of the loan is

adjusted accordingly. Repossessed assets which are held for sale

are included in the balance sheet as current assets or fixed assets

held for sale and are measured in accordance with relevant IFRS

standards (normally IAS 16, IAS 38, IAS 39 or IFRS 5).

LEASING

Financial leases are classified as loans and measured at

amortised cost. All fixed payments in the leasing period are

included in the calculation of the agreement’s effective interest

rate. The Bank does not have sale and lease-back contracts with

respect to property, plant and equipment.

SECURITIES

Securities consist of shares, equity instruments, bonds and

certificates. Shares and equity instruments are classified either as

at fair value through profit or loss or as available for sale. Bonds

and certificates are classified either as at fair value through profit

or loss or as held-to-maturity.


62



All financial instruments that are classified at fair value trough

profit or loss are measured at fair value, and any change in fair

value is recognised as income from financial investments.

Shares classified as available for sale are measured at fair value

in the balance sheet, and changes in fair value except for

impairment are booked directly to equity.

Bonds and certificates classified as held-to-maturity are

measured at amortised cost in accordance with the effective

interest rate method (see reference in the Loans paragraph).

DERIVATIVES AND HEDGING

Derivatives include currency and interest-rate derivatives as well

as derivate instruments related to structured products.

Derivatives are measured at fair value, and any change in fair

value is recognised through profit or loss, unless designated for

hedging. The Bank assesses and documents the effectiveness of

hedging, both at the time of initial recognition and on an ong-

oing basis. For fair-value hedges, both the hedging instrument

and the hedged item are measured at fair value, and any changes

in fair value are recognised through profit or loss. Gains related

to structured products with a capital guarantee, including initial

fees and structural gains, are recognised as day one profits.

Structural gains are calculated by discounting the Bank’s option

premiums and liabilities (guaranteed capital) using the swap

curve.

GOODWILL

Goodwill is the result of a positive difference between the price

paid for an acquisition and the fair value of assets and liabilities,

both tangible an intangible, acquired at the time of the acquisition.

Goodwill resulting from acquisitions of associated companies is

recognised in the balance sheet together with the investment.

Goodwill is not amortised, but is subject to an annual impair-

ment test aimed at identifying possible impairment losses in

accordance with IAS 36. Impairment testing is made at the level

of the smallest identifiable cash-generating unit.

PROPERTY, PLANT AND EQUIPMENT

Tangible, fixed assets consist of property, plant and equipment.

Property and equipment are measured at historical cost less

depreciation and write-downs. Land is measured at historical

cost less write-downs. Historical cost includes all expenses

directly related to the acquisition of the asset. Historical cost,

less any residual value, is allocated over the asset’s estimated

economical life using a straight line depreciation method.

All properties or parts thereof owned by the Bank for generating

rental income or increase in value are classified as investment

property. Where part of the property is used by the Bank for its

own activities, the rented portion of the property is treated as an

investment property if the areas are physically separate. The Bank

has chosen to measure investment property according to the

cost model.

LONG-TERM LOANS

Loans are initially measured at fair value plus directly attributable

transaction costs. Loans are subsequently measured at

amortised cost. Any difference between cost of acquisition and

cost of settlement at maturity is accrued over the loan period

using the effective interest rate method.

PENSIONS

The Group’s companies have different pension schemes. The

schemes are secured through payments to insurance companies

or pension funds, and determined by actuarial calculations.

A defined benefit plan is a pension plan which entitles employees

to a defined future benefit when reaching the retirement age and

is usually determined by such factors as age, years of

employment and salary. The pension liability recognised in the

balance sheet is the present value of the defined liability less the

fair value of pension funds. The liability is calculated each year by

independent actuaries. The present value of future contributions

is calculated by discounting future pensions’ payments using the

interest rate of Norwegian state bonds adjusted for differences in

maturity.

From 2005 it is allowed to recognise certain actuarial gains and

losses directly to equity in accordance with IAS 19, a principle the

Bank has chosen to implement.

CONTINGENT LIABILITIES

The Bank issues financial guarantees in the course of its usual

business. Potential write-downs are considered in the same

process as for impairment on loans using the same principles

and are reported collectively (see Note 19). Provisions for

contingent liabilities are made if the liability is more likely than

not to materialise and the financial consequences can be measured

reliably. Information about contingent liabilities, which do not

satisfy the criteria for recognition in the balance sheet, is given in

notes if significant. Provisions for restructuring expenses are

made when the Bank has a contractual or legal obligation.

SUBORDINATED LOANS AND PERPETUAL SUBORDINATED

LOAN CAPITAL

Subordinated loans have priority after all other liabilities.

Subordinated loans with fixed maturity can be included with 50

percent of core capital in the calculation of capital adequacy,

whereas perpetual subordinated loans can be included with up to

100 percent of core capital. Subordinated loans are classified as

liabilities in the balance sheet and are measured at amortised

cost in accordance with other long-term loans.

Some of the Bank’s perpetual subordinated loan capital securities

has a nominal interest rate, but the Bank is not obliged to make

interest rate payments for periods without dividend payments,

and the investor cannot claim payments for interest at a later

date (e.g., interest does not accumulate). These perpetual sub-

ordinated loan capital securities have been approved to be part

of the core capital within a limit of 15 percent of total core capital.

The FSA in Norway can require such subordinated loan capital

securities to be written down in proportion with equity if the

bank’s core capital ratio falls below 5 percent or if total capital

ratio falls below 6 percent. Write-down of subordinated loan

63

capital securities must be reversed before dividend payments can

be made to shareholders or equity is increased. These sub-

ordinated loan capital securities are recognised in the balance

sheet as other long-term liabilities at amortised cost.

DIVIDENDS

Dividends on primary capital certificates are recognised as equity

until the dividends have been finally approved by the bank’s

Board of Representatives.

INTEREST INCOME AND INTEREST EXPENSE

Interest income and interest expense related to assets and

liabilities which are measured at amortised cost are recognised in

the income statement using the effective interest rate method.

The book value of the financial asset or liability carried at

amortised cost is equal to the present value of expected cash

flows over the maturity period of a financial asset or a financial

liability, discounted by the effective interest rate. Calculating the

effective interest rate entails making an estimate of future cash

flows, without taking possible future losses into account. The

calculation includes, amongst others, fees, transaction costs,

premiums and discounts.

If a financial asset is written down based on an impairment

calculation, a new effective interest rate is calculated based on

adjusted estimated cash flows. The market interest rate on debt

instruments measured at fair value is classified as interest

income or interest expense, whereas the effect of a change in

interest rate is classified as income from financial investments.

COMMISSION INCOME AND COMMISSION EXPENSE

Commission income and expense is generally accrued in

accordance with the delivery/receipt of a service. Fees related to

interest-bearing instruments are not recognised as commission,

but are included in the calculation of the effective interest rate

and accrued accordingly. Advisory fees are accrued in accordance

with the agreement, typically at the time the service is delivered.

The same applies to day-to-day administrative services. Fees and

charges related to sale or brokerage of financial instruments,

property or other investment objects that do not generate

balance sheet items in the Bank’s accounts, are recognised when

the transaction is completed.

TRANSACTIONS AND BALANCE SHEET ITEMS IN FOREIGN

CURRENCY

Transactions in foreign currencies are converted to Norwegian

kroner using the exchange rates at the date of the transaction.

Gains and losses related to completed transactions or to the

conversion of holdings of cash or cash equivalents in foreign

currency are recognised through profit or loss. Gains and losses

on non monetary items are included in the profit and loss in the

same way as the corresponding balance sheet item.

TAXES

Tax expense (tax income) is the aggregate amount included in

the determination of profit or loss for the period in respect of

current tax and deferred tax. Current tax is the amount of income

taxes payable (recoverable) in respect of the taxable profit

(tax loss) for a period.

Deferred tax is measured in the balance sheet according to the

liability method in accordance with IAS 12. Deferred tax asset or

liability is calculated based on all temporary differences, which

arise as a difference between the carrying amount and tax base of

assets and liabilities on the balance sheet date. However,

deferred tax asset or liability is not recognised with respect to

items that are recognised for the first time and do not affect

financial or taxable profit. Deferred tax asset is calculated for tax

losses carried forward. Deferred tax asset is recognised only to

the extent that it is probable that the Bank will generate future

taxable profits that make it possible to utilize accumulated tax

losses.

SEGMENT REPORTING

A business segment is a distinguishable component of an entity

that is engaged in providing an individual product or service or a

group of related products or services and that is subject to risks

and returns that are different from those of other business

segments Business segments are discussed in Note 5.

EVENTS AFTER THE BALANCE SHEET DATE

The annual accounts are published after they have been

approved by the Board of Directors. The Board of

Representatives and regulatory authorities can refuse to approve

the published annual accounts but cannot change them.

Events occurring up to the time when the annual accounts are

approved for publication and which involve issues which were

already known at the balance sheet date, will form part of the

basis of information for determining accounting estimates and

will thereby be fully reflected in the annual accounts. Events

which were not known on the balance sheet date will be reported

if significant.

The annual accounts were prepared under the assumption that

the Bank is a going-concern. This assumption was valid

according to the Board of Director’s opinion at the time the

financial statements were submitted for approval. The Board’s

proposal for dividend payments is shown in the annual report

and the note specifying changes in equity. Proposed dividends

are classified as equity until final approval

NOTE 3 FINANCIAL RISK MANAGEMENT

STRATEGY FOR USING FINANCIAL INSTRUMENTS

The Group uses financial instruments in order to reduce risk

arising during the ordinary course of banking activities, including

customer activities and funding. The use of financial instruments

is limited to those where risk and market value are measurable

and can be monitored through the Group’s systems for

performance measurement and risk management.

CREDIT RISK

Credit risk is defined as the risk of loss due to customers or


64



other counterparties not having the ability or willingness to fulfil

their obligations towards the Group. Credit risk is managed

through the Group’s credit strategy, credit policies and allocation

guidelines.

Sparebank 1 SR-Bank’s credit strategy is approved at least

annually by the Board of Directors. The Group’s credit strategy

focuses on key risk indicators and provides a framework for

maintaining an appropriate and effective risk profile for all credit

risks. This is primarily achieved by linking key indicators and

credit limits to risk-adjusted capital, risk-adjusted return and

expected losses. In addition, the credit strategy limits exposure

and risk profile on portfolio level, industries and individual

customers.

The Board of Directors are responsible for the Group’s loan and

credit approvals. The Board of Directors delegates authority,

within limits, to the CEO, who has operational responsibility for

decision-making in loan and credit issues. The CEO can further

delegate authority. Delegated authority is related to the loan and

commitment’s expected loss and probability of default.

The Group has developed and actively uses a system for risk

classification, a risk pricing model and a portfolio system for

managing its portfolio of loans in line with the credit strategy,

credit policies and allocation guidelines. In conjunction with

guidelines relating to credit process routines, these guidelines

constitute clear requirements as to how credit issues are handled

and risk assessments carried out. The risk classification system

covers private as well as corporate customers, and it is based on

statistical calculations. The risk models underlying statistical

calculations are subject to continuous development and testing.

The portfolio is divided into five risk groups – lowest, low,

medium, high and highest risk respectively. Categorisation into

risk group is based on a statistical calculation of each loan and

commitment’s expected loss, based upon the probability of

default with the resulting exposure and extent of losses. In

addition, there is a separate risk category for loans which are

already defaulted upon and written down. Loans and

commitments consist of all types of financial services provided

to the customer, such as loans, credit, guarantees including

letters of credit, accrued but not yet paid interest and

commission, and currency and interest rate derivates.

The underlying credit risk in both the corporate and private

portfolios has shown a positive development in 2005. This is

explained by the Group’s restrictive practice of taking on new

high risk exposures, a positive economic development in the

Group’s geographic market and low interest rate levels. The

Group has a low risk profile in its credit portfolios.

The Group endeavours to price loans and commitments based

on risk exposure, so that customers with the highest risk have

the highest price. The pricing model is based on the Group’s

required return on risk-adjusted capital.

For further information about credit risk, see the article “Risk-

and capital management”.

MARKET RISK

Market risk is defined as the risk of loss due to changes in

observable market variables such as interest rates, currency

rates, and stock market prices. The risk of changes in market

prices of securities caused by changes in general credit prices is

also considered a market risk.

Market risk is mainly caused by the Group’s investments in

bonds, certificates and shares, and as a consequence of activities

carried out to support ordinary banking activities, such as

funding and interest and currency trading.

CURRENCY RISK

Currency risk is the risk of loss due to changes in currency rates.

The Group measures currency risk based on net positions in

each individual currency, and has a low currency risk compared

to the size of the Group’s tier 1 and tier 2 capital.

INTEREST RATE RISK

Interest rate risk is the risk of loss as a result of changes in

interest rates. The risk arises mainly in relation to fixed-rate loans

and funding through fixed-rate securities. The Group measures

interest rate risk as the potential gain or loss as a result of

parallel shifts in the interest rate curve. The risk of non-parallel

shifts is managed by the establishment of limits for maximum

exposure per repricing period.

RISK RELATED TO EXCHANGE RATES

There is a risk of loss related to changes in the market price of

bonds, certificates and equity instruments which the Group has

invested in.

LIQUIDITY RISK

Liquidity risk is defined as the risk of the Group not being able to

re-finance their liabilities or finance an increase in assets without

incurring significant additional costs. Management of the

Group’s financial structure is based on a liquidity strategy which

is assessed and approved by the Board of Directors at least

annually. Liquidity risk is reduced by diversifying loans through

different markets, funding sources, instruments and maturity

periods.

ASSET MANAGEMENT

The Group provides asset management services to customers.

Assets held on behalf of customers under agreements about

asset management are not consolidated in the Group’s financial

statements.

65

NOTE 4 CRITICAL ESTIMATES AND ASSESSMENTS

REGARDING THE USE OF ACCOUNTING PRINCIPLES

LOSSES ON LOANS AND GUARANTEES

The Bank assesses its entire loans and guarantees portfolio of

corporate customers each year. Large exposures, defaulted loans

and high risk exposures are subject to quarterly assessment.

Loans to private customers are subject to evaluation when in

default for more than 60 days. Larger defaulted loans are

evaluated on a quarterly basis.

The Bank’s risk classification systems are described under

Financial risk management.

Write-down is made on individual loans and guarantees if there

is objective evidence of a loss event which can be identified on

individual exposures, and the objective evidence cause reduced

future cash flow for repayment of the loan. Objective evidence

may be default, bankruptcy, illiquidity and other significant

financial difficulties.

Individual write-downs due to impairment are calculated as the

difference between the loan’s book value and present value of

discounted cash flows based on the effective interest rate at the

time of initial write-down. Subsequent changes in interest rates

are taken into account for loan agreements with floating interest

rates to the degree these changes will affect the expected cash

flow.

Group write-downs due to impairment are calculated on sub-

groups of loans where there is objective evidence indicating a

reduction in future cash flows to repay the loans, and where it is

not possible to assess all exposures on an individual basis or

where it is not possible to identify evidence at contract level.

Objective evidence for groups of loans can consist of a negative

development in credit risk classification, information about a

negative development in the value of assets pledged as collateral,

profitability in a particular industry or group of debtors’

repayment ability. The consequences of developments in groups

of debtors’ repayment ability and in the value of assets pledged

as collateral will be analysed using the Bank’s analytical tools,

statistical methods including historical information and

probability of default, percentages of recoverable amounts and

other known information. Some portfolios of smaller loans such

as consumer loans and private overdrafts will be assessed based

upon statistical methods.

The assessment of individual and group write-downs due to

impairment will always include a considerable degree of

subjective judgement. Predictions based on historical

information can always be proven incorrect because of the

uncertainty of the relevance of historical data. In many cases,

assets pledged as collateral are not sold in the most effective

markets and, therefore, the stipulation of their fair value may be

subject to considerable uncertainty.

FAIR VALUE OF EQUITY INSTRUMENTS

Financial assets classified as fair value through profit or loss are

normally quoted in active markets and fair value is determined

with reasonable certainty. For financial assets classified as

available for sale this is not necessarily the case. Accordingly,

disclosures of fair value in the notes for assets and liabilities

measured at amortised cost may be estimates based on

discounted future cash flows, multiplier analysis or other

calculation methods. Such methods can be subject to significant

uncertainty. With the exception of a few quoted shares, the

Norwegian stock market is considered to have poor liquidity.

Share prices will under most circumstances be the last known

transaction price.

FAIR VALUE OF FINANCIAL DERIVATIVES

The fair value of financial derivatives is usually determined by

using valuation methods where the price of the underlying

object, for example interest and currency rates, is obtained from

the market. In the case of share options, volatility will either be

observable implicit volatility or calculated volatility based on

historical share price movements for the underlying instrument.

If the Bank’s risk position is approximately neutral, mid-prices

will be used. As an example, a neutral interest rate risk position

can exist when the net exposure for a repricing interval is

approximately zero. For other exposures the relevant bid/ask

price is used for determining the fair value of financial

instruments.

For financial derivatives where the counterpart has a weaker

credit rating than the Bank, the price will reflect any underlying

credit risk. To the extent that market prices are obtained from

transactions with a lower credit risk, this will be taken into

account by amortising the price difference measured against

such transactions with a lower credit risk, over the maturity period.

PENSIONS

Net pension liability and pension cost are based upon a series of

estimates, including return on pension funds, future interest and

inflation rates, development in wage rates, turnover, development

in the basic social security amount (’G’), the general develop-

ment in the number of persons receiving disability benefits and

life expectancy. Uncertainty is to a great extent related to gross

liabilities and not to net liabilities as shown on the balance sheet.

Changes in estimates as a consequence of the abovementioned

parameters will be recognised through equity to the extent

allowed by IAS 19.


66



NOTE 5 SEGMENTS

To identify reportable segments management has made an assessment of business and geographical segments based upon distribution

type, product and customer. The primary segment reporting format is business segments, and is based on the risk-and-return profile of the

activities. Reporting is divided between retail banking and corporate customers. The Bank’s own investing activities are not reported sepa-

rately and appear under the item ”unallocated” together with activities which cannot be allocated to either retail or corporate segments.

Eiendoms-

2005 Retail Corporate Megler 1 SR-Finans Unallocated Total

Net interest income 762 251 2 43 55 1 113

Net fee and commission income 291 103 - -2 -15 377

Other operating income - - 190 - 358 548

Operating expense 315 47 167 21 462 1 012

Profit before write-downs 738 307 25 20 -64 1 026

Write-downs on loans and guarantees 2 -72 - - - -70

Profit before income tax 736 379 25 20 -64 1 096

Loans to customers 41 792 17 897 - 2 059 64 61 812

Individual write-downs on

loans to customers -70 -84 - -9 - -163

Group write-downs

on loans to customers - - - -7 -162 -169

Other assets - - 388 79 5 290 5 757

Total assets per segment 41 722 17 813 388 2 122 5 192 67 237

Deposits and loans

from customers 17 464 20 066 - - - 37 530

Other liabilities - - 376 1 969 23 532 25 877

Total liabilities per segment 17 464 20 066 376 1 969 23 532 63 407

Equity - - 12 153 3 665 3 830

Total equity and liabilities

per segment 17 464 20 066 388 2 122 27 197 67 237

Eiendoms-

2004 Retail Corporate Megler 1 SR-Finans Unallocated Total

Net interest income 795 257 2 46 29 1 129

Net fee and commission income 271 74 - -2 -2 341

Other operating income - - 180 2 198 380

Operating expense 316 47 158 20 407 948

Profit before write-downs 750 284 24 26 -182 902

Write-downs on loans and guarantees 2 75 - 5 -1 81

Profit before income tax 748 209 24 21 -181 821

Loans to customers 37 257 15 532 - 1 644 - 54 433


on loans to customers -93 -115 - -14 - -222

Group write-downs

on loans to customers - - - -12 -360 -372

Other assets - - 323 171 4 807 5 301

Total assets per segment 37 164 15 417 323 1 789 4 447 59 140

Deposits and loans from customers 16 787 16 275 - - - 33 062

Other liabilities - - 325 1 661 20 986 22 972

Total liabilities per segment 16 787 16 275 325 1 661 20 986 56 034

Equity - - -2 128 2 980 3 106

Total equity and liabilities

per segment 16 787 16 275 323 1 789 23 966 59 140

67

The Group operates in the geographically limited area from Grimstad in the South to Ølen in the North. Reporting for geographic seconda-

ry segments is specified below. In addition, significant classes of assets (loans and deposits) are allocated geographically in separate notes

under loans and deposits.

Other/

2005 Rogaland Agder Unallocated Total

Net interest income 1 063 50 - 1 113

Net fee and commission income 339 38 - 377

Other operating income 527 21 - 548

Operating expense 950 59 3 1 012

Profit before write-downs 979 50 -3 1 026

Write-downs on loans and guarantees - - -70 -70

Profit before income tax 979 50 67 1 096

Loans to customers 51 916 4 462 5 434 61 812

Individual write-downs on loans to customers -115 -23 -25 -163

Group write-downs on loans to customers - - -169 -169

Other assets 5 757 - - 5 757

Total assets per segment 57 558 4 439 5 240 67 237

-

Deposits and loans from customers 28 395 1 448 7 687 37 530

Other liabilities 25 877 - - 25 877

Total liabilities per segment 54 272 1 448 7 687 63 407

Equity 3 830 - - 3 830

Total equity and liabilities per segment 58 102 1 448 7 687 67 237

Other/

2004 Rogaland Agder Unallocated Total

Net interest income 1 079 50 - 1 129

Net fee and commission income 313 28 - 341

Other operating income 362 18 - 380

Operating expense 894 54 - 948

Profit before write-downs 860 42 - 902

Write-downs on loans and guarantees - - 81 81

Profit before income tax 860 42 81 821

Loans to customers 46 166 2 977 5 290 54 433

Individual write-downs on loans to customers -158 -28 -36 -222

Group write-downs on loans to customers - - -372 -372

Other assets 5 300 1 - 5 301

Total assets per segment 51 308 2 950 4 882 59 140

Deposits and loans from customers 24 898 1 257 6 907 33 062

Other liabilities 22 972 - - 22 972

Total liabilities per segment 47 870 1 257 6 907 56 034

Equity 3 106 - - 3 106

Total equity and liabilities per segment 50 976 1 257 6 907 59 140


(NOTE 5 continued)

68



NOTE 6 NET INTEREST INCOME 2005 2004

Interest income

Interest income from loans and deposits with credit institutions 18 22

Interest income from loans to customers 2 172 2 047

Interest income from certificates and bonds 86 74

Total interest income 2 276 2 143

Interest expense

Interest expense on loans and deposits from credit institutions 138 185

Interest expense on deposits from and liabilities to customers 536 436

Interest expense on securities issued 396 323

Interest expense on subordinated loan capital 93 70

Total interest expense 1 163 1 014


Interest for 2005 is calculated according to amortised cost whereas interest for 2004 was calculated using historical cost in accordance with

NGAAP. The figures, therefore, are not fully comparable.

Average interest rates and average interest-bearing assets and liabilities for the period

Liabilities 2005 2004

Average interest-bearing deposits 35 959 31 507

Average interest rate on deposits 1.5 % 1.5 %

Average interest-bearing securities issued 16 259 14 455

Average interest rate on securities issued 2.4 % 2.2 %

Assets

Average interest-bearing loans to customers 57 353 51 100

Average interest rate on loans to customers 3.8 % 4.0 %

Average interest-bearing securities portfolio 3 069 2 485

Average interest rate on interest-bearing securities 2.5 % 2.5 %

INTEREST INCOME ON NON-PERFORMING LOANS AND LOANS AT RISK

Interest income on non-performing loans and loans at risk is 15 million kroner.

69

NOTE 7 NET FEE AND COMMISSION INCOME 2005 2004

Guarantee commission 28 18

Interbank commission 22 23

Securities trading and asset management fees 101 77

Money transfer fees 201 189

Insurance services 85 83

Other commission income 16 15

Total fee and commission income 453 405

Interbank commission 17 17

Money transfer fees 53 42

Other commission expense 6 5

Total commission expense 76 64

Total net fee and commission income 377 341

NOTE 8 INCOME FROM OTHER FINANCIAL INVESTMENTS 2005 2004

Value changes on interest rate instruments

- Value changes on bonds and certificates 5 6

Dividends from equity instruments 38 14

Value changes on equity instruments and derivatives

- At fair value through profit or loss 124 61

Currency trading

- Net transaction gain 63 64

Total income from other financial investments 230 145

NOTE 9 OTHER OPERATING INCOME 2005 2004

Operating income from properties 5 6

Real estate brokerage fees 189 180


Total other operating income 199 190


NOTE 10 OPERATING EXPENSE 2005 2004

Personnel expenses 541 522

IT expenses 145 124

Marketing 61 44

Other administrative expenses 71 74

Ordinary depreciation (note 13 and 14) 46 49

Write-down of fixed assets (note 13 and 14) 2 -

Operating expenses properties 25 22

External fees 20 20


Total operating expenses 1 012 948

70



Audit fees

The Group booked NOK 2,431,566 in total fees to the auditors. This includes NOK 1,257,608 for ordinary audit services and NOK 337,407

for other assurance services. In addition, NOK 112,024 has been booked for tax consultancy services and NOK 724,527 for other non-audit

services. Included in other non-audit services are NOK 541,536 for accounting consultancy services related to IFRS.

Personnel expenses 2005 2004

Salaries 401 393

Pension cost (defined-benefit plan, note 25) 51 47

Social expenses 55 53

Other personnel expenses 34 29

Total personnel expenses 541 522

Average number of employees 916 886

Number of man-years as of 31 Dec 862 813

Number of employees as of 31 Dec 942 891

(Amounts in NOK 1000)

Remuneration to the main Board of Directors 1 318

Remuneration to the Control Committee 436

Remuneration to the Board of Representatives 440

Remuneration to the CEO was NOK 2,483,000. The CEO has a pension scheme which entitles him to retire at the age of 62, with a pension

of 70 percent of his annual salary at the date of retirement. There are no contracts related to bonus, share options or remuneration on the

termination of employment for the CEO, Chairman of the Board of Directors or any members of senior management.

Loans and guarantees to senior management Loan balance in NOK 1000

CEO 3 951

Chairman of the Board of Directors -

Chairman of the Control Committee -

Chairman of the Board of Representatives 1 847

Members of the Board of Directors who have loans with the Bank

Gunn Jane Håland 1 762

John Peter Hernes 137

Magne Vathne 595

Torstein Plener 1 365

Senior management

Deputy CEO and CFO 2 283

Executive Group Controller, CRO 2 653

Executive Vice President Business Support, IT and Security 1 962

Executive Vice President Corporate Market 1 467

Executive Vice President Retail Market 2 439

Executive Vice President Public Relations 3 392

Executive Vice President Human Resources 1 660

Control Committee 1 661

Board of Representatives 33 023

No provisions of security or guarantees are given to the abovementioned parties. The loans are given on the same terms as the general

terms for employees.

Information regarding senior management’s holdings of primary capital certificates in SpareBank 1 SR-Bank is included in the table of

governing bodies in the annual report, where the number of PCCs owned as of 31 Dec 2005 is stated.

(NOTE 10 continued)

71


NOTE 11 INCOME TAX 2005 2004

Components of income tax

Current period’s tax expense 158 193

Capital tax 4 4

Change in deferred tax 73 9

Too small/large accrual for taxes payable in previous year -1 -

Income tax 234 206

Change in net deferred tax asset

Changes in deferred tax booked through the income statement 73 9

Changes in deferred tax booked through equity

- Financial assets according to IFRS 2 -

- Accounting provisions according to IFRS - 3

- Change in accounting principle for pensions -22 -104

- Change in accounting principle for loans 51 -

Total change in net deferred tax asset 104 -92

Deferred tax Deferred tax booked

in the balance sheet in the income statement

Composition of deferred tax carried in the balance sheet

and deferred tax recognised in the income statement: 2005 2004 2005 2004

Temporary differences:

- Revaluation of tangible fixed assets 27 28 1 1

- Other differences related to fixed assets -79 -120 -41 -32

- Goodwill 10 8 -2 -8

- Pension funds - - - 133

- Net pension liability -451 -387 64 231

- Securities 7 -1 -8 -

- Loans 142 - -142 -

- Hedging instruments 241 - -241 -

- Other temporary differences -43 -47 -4 5

Total temporary differences -146 -519 -373 330

Deferred tax in the balance sheet/

deferred tax booked in the income statement -41 -145 -104 92

Reconciliation of current period’s tax expense

and profit before income tax 2005 2004

28% of profit before income tax 307 230

Non-taxable income statement items (permanent differences)* -76 -28

Changes in deferred tax booked in the income statement -73 -9

Current period’s tax expense 158 193

* Including non-taxable dividends, non-deductible expenses, net non-taxable gain on the sale of shares within the EEC area, and deduction

of the share of profit or loss in associated companies (the share of profit or loss is deducted as it has already been taxed by the associate).

The Group’s annual accounts for 2005 are presented in accordance with IFRS. Effects of first time adoption of IFRS are recognised directly

through equity and through deferred tax/tax charges in accordance with IFRS 1. Comparable figures for 2004 have been prepared accor-

dingly.

The Group does not have any tax loss carry-forward.

72



NOTE 12 OTHER ASSETS 2005 2004

Subordinated capital SR-Bank Pension Fund 25 15

Other assets 157 144

Accrued income, not yet received 163 146

Pre-paid expenses 17 16

Total other assets 362 321

NOTE 13 PROPERTY, PLANT AND EQUIPMENT Buildings Investment Machinery, Total

and property property inventory

and vehicles

Acquisition cost as of 1 Jan 2004 282 74 450 806

Acquisitions - - 45 45

Disposals -3 -5 -1 -9

Acquisition cost as of 31 Dec 2004 279 69 494 842

Accumulated depreciation and write-down as of 1 Jan 2004 118 29 337 484

Current period’s depreciation 5 1 43 49

Current period’s disposals 2 -2 - -

Current period’s write-down - - - -

Accumulated depreciation and write-down as of 31 Dec 2004 125 28 380 533

Book value as of 31 Dec 2004 154 41 114 309

Fair value 226 56

Acquisition cost as of 1 Jan 2005 279 69 494 842

Acquisitions 21 - 39 60

Disposals -15 -13 -160 -188

Acquisition cost as of 31 Dec 2005 285 56 373 714

Accumulated depreciation and write-down as of 1 Jan 2005 125 28 380 533

Current period’s depreciation 5 1 40 46

Current period’s disposals -8 -5 -159 -172

Current period’s write-down 1 1 - 2

Accumulated depreciation and write-down as of 31 Dec 2005 123 25 261 409

Book value as of 31 Dec 2005 162 31 112 305

Fair value 239 48

Provision of collateralised assets as security

The Bank has not provided collateral security or accepted any other limitations of its rights to dispose of its fixed tangible assets.

Revaluation/depreciation

The Group does not make revaluations of fixed tangible assets on an ongoing basis. In connection with the initial implementation of IFRS,

buildings were valued at acquisition cost less accumulated depreciation, in accordance with Norwegian regulations. The depreciation rate

for machinery, inventory and vehicles is 14-33 percent, and 2 percent for bank buildings, investment property and other types of property.

Commitments

The Group has contractual agreements to acquire fixed tangible assets totalling NOK 33 million. Fixed assets under construction or not yet

in use is included in the balance sheet with a book value of NOK 8 million.

Buildings and other property

Buildings include property used in the banking activities with a book value of NOK 174 million. Fair value of the buildings has been esta-

blished through independent valuation.

A portion of the Group’s buildings are rental properties. When a property can be physically divided and one or more of the divisions is ren-

ted, the rental portion is defined as an investment property. The Group has chosen to carry investment property at historical cost.

Operational expenses related to rental properties are either invoiced directly to the tenant or indirectly through the Group.

73


Opening Acquisitions/ Closing balance Rent income Share rented out

Investment property balance 1 Jan 2004 disposal/deprec. as of 31 Dec 2005 as of 31 Dec 2004

Bjergsted Terasse 7 - 7 1 10 %

Domkirkeplassen 7 -1 6 1 30 %

Haugesund sentrum 4 - 4 - 23 %

Sola 8 -1 7 1 51 %

Randaberg 5 - 5 - 49 %

Tysvær (Aksdal senteret) 4 - 4 - 51 %

Vigrestad 3 - 3 - 38 %

Madla 3 - 3 - 40 %

Leilighet Bjergsted Terasse 1 - 1 - 100 %

Flekkefjord 1 - 1 - 29 %

Avaldsnes 1 -1 - -

Hinna 1 -1 - -

Total as of 31 Dec 2004 45 -4 41 3

Opening Acquisitions/ Closing balance Rent income Share rented out

balance 1 Jan 2005 disposal/deprec. as of 31 Dec 2005 as of 31 Dec 2005

Bjergsted Terasse 7 -2 5 1 8 %

Domkirkeplassen 6 - 6 1 30 %

Haugesund sentrum 4 -2 2 - 10 %

Sola 7 - 7 1 49 %

Randaberg 5 -2 3 - 49 %

Tysvær (Aksdal senteret) 4 -1 3 - 37 %

Vigrestad 3 -2 1 - 15 %

Madla 3 - 3 1 40 %

Leilighet Bjergsted Terasse 1 - 1 - 100 %

Flekkefjord 1 -1 - - 29 %

Total as of 31 Dec 2005 41 -10 31 4

NOTE 14 INTANGIBLE ASSETS Goodwill Total

Acquisition cost as of 1 Jan 2004 45 45

Acquisitions - -

Disposals - -

Acquisition cost as of 31 Dec 2004 45 45

Accumulated depreciation and write-downs as of 1 Jan 2004 33 33

Current period’s write-down - -

Accumulated depreciation and write-down as of 31 Dec 2004 33 33

Book value as of 31 Dec 2004 12 12

Acquisition cost as of 1 Jan 2005 45 45

Acquisitions - -

Disposals - -

Acquisition cost as of 31 Dec 2005 45 45

Accumulated depreciation and write-downs as of 1 Jan 2005 33 33

Current period’s write-down - -

Accumulated depreciations and write-downsas of 31 Dec 2005 33 33

Book value as of 31 Dec 2005 12 12

Useful economic life and method of depreciation

Components of goodwill is tested for impairment annually, and written down if necessary.

(NOTE 13 continued)

74



NOTE 15 ASSOCIATED COMPANIES AND JOINT VENTURES

(Figures in NOK 1000)

SpareBank 1 Gruppen SpareBank 1 Utvikling Other associated companies*

2005 2004 2005 2004 2005 2004

As of 1 Jan 281 392 254 285 7 000 7 000 3 439 2 409

Acquisitions 42 750 27 361 10 837 - 26 718 1 499

Adjustments through equity 7 476 -42 295 - - - -607

Share of profit/loss 119 748 42 041 - - -745 288

Paid-out dividend - - - - -371 -150

As of 31 Dec 451 366 281 392 17 837 7 000 29 041 3 439

*Other associated companies include:

SpareBank 1 Boligkreditt (2005)

SpareBank 1 Bilplan

EiendomsMegler Sunnhordland

Admisenteret

The Group’s shares in associated companies and joint ventures (NGAAP):

Name Assets Liabilities Income Profit/loss Ownership interest

2005

SpareBank 1 Gruppen Oslo 7 402 245 7 023 214 1 550 050 95 026 17,63

SpareBank 1 Utvikling Oslo 61 595 43 595 57 579 3 101 20,00

SpareBank 1 Boligkreditt Stavanger 29 444 24 207 - -105 26,72

SpareBank 1 Bilplan Trondheim 7 803 6 014 35 515 -572 26,70

EiendomsMegler Sunnhordland Stord 1 129 893 2 704 95 50,00

Admisenteret Jørpeland - - - - 50,00

Total 7 502 216 7 097 923 1 645 848 97 545

2004

SpareBank 1 Gruppen Oslo 5 540 434 5 240 082 1 183 011 22 851 15,46

SpareBank 1 Utvikling Oslo 47 713 40 713 48 288 - 20,00

SpareBank 1 Bilplan Trondheim 7 490 5 129 30 179 - 26,70

EiendomsMegler Sunnhordland Stord 1 317 1 082 3 097 371 50,00

Admisenteret Jørpeland 12 474 10 758 2 542 434 50,00

Total 5 609 428 5 297 764 1 267 117 23 656

Receivables on and liabilities to associated companies

Loan Deposits Subordinated

loan

SpareBank 1 Gruppen 26 250 99 894 42 599

SpareBank 1 Utvikling 55 001 - -

SpareBank 1 Boligkreditt - 100 281 -

Admisenteret 18 179 315 -

75


NOTE 16 SECURITIES 2005

I) Shares and equity instruments 467

II) Certificates and bonds 3 159

Total securities 3 626

General description

When a security’s fair value can be determined by using appropriate valuation techniques, it is classified as at fair value through profit or

loss. This is the case for nearly all of the Group’s holdings of securities.

2005 2005

Fair value Available

through p&l for sale

I) Shares and securities

Quoted 273 -

Unquoted 187 7

Total shares and securities 460 7

II) Certificates and bonds according to sector of issuer

31 Dec 2005 Fair value through p&l

Nominal value Fair value

Government 7 7

Other public sector issuers 25 25

Financial institutions 1 919 1 923

Non-financial institutions 1 199 1 204

Total certificates and bonds 3 150 3 159

31 Dec 2004 Fair value through p&l

Nominal value Fair value

Other public sector issuers 175 175

Financial institutions 1 685 1 689

Non-financial institutions 1 003 1 003

Total certificates and bonds 2 863 2 867

Certificates and bonds at nominal value according to repricing intervals

Average

31 Dec 2005 < 6 months 6 - 12 months 1 - 3 years 4-5 years > 5 years interest rate

Government 7 - - - - 2.3 %

Other public sector issuers 25 - - - - 2.0 %

Financial institutions 1 919 - - - - 2.4 %

Non-financial institutions 1 149 50 - - - 2.6 %

Average

31 Dec 2004 < 6 months 6 - 12 months 1 - 3 years 4-5 years > 5 years interest rate

Government - - - - - 0.0 %

Other public sector issuers 175 - - - - 2.4 %

Financial institutions 1 685 - - - - 2.4 %

Non-financial institutions 1 003 - - - - 2.8 %

76



NOTE 17 FINANCIAL DERIVATIVES

General description:

The fair value of financial derivatives is usually determined by using valuation techniques where the price of the underlying object, for

example interest and currency rates, is obtained from the market. In the case of share options, volatility will either be the observable impli-

cit volatility or a calculated volatility based on historical share price movements for the underlying instrument. If the Bank’s risk position is

approximately neutral, mid-prices will be used. As an example, a neutral interest rate risk position can exist when the net exposure for a

repricing interval is approximately zero. For other exposures the relevant bid/ask price is used for determining the fair value of financial

instruments. For financial derivatives where the counterpart has a weaker credit rating than the Bank, the price will reflect any underlying

credit risk. To the extent that market prices are obtained from transactions with a lower credit risk, this will be taken into account by amor-

tising the price difference measured against such transactions with a lower credit risk, over the maturity period.

Currency and interest rate instruments 2005

At fair value through profit or loss Contract amount Fair value

Currency instruments Financial Financial

derivative derivative

asset liability

Currency forward contracts 1 747 17 13

Currency swaps 13 114 222 13

Total non-standardised currency contracts - - -

Standardised currency contracts (futures) - - -

Total currency instruments 14 861 239 26

At fair value through profit or loss Contract amount Fair value

Interest rate instruments Financial Financial

derivative derivative

asset liability

Interest rate swaps 15 055 88 121

Forward rate agreements (FRA) - - -

Other interest rate contracts - - -

Non-standardised interest rate contracts 1 161 36 28

Standardised interest rate contracts (futures) - - -

Total interest rate instruments 16 216 124 149

Hedging Contract amount Fair Value Distribute

Cash flow Fair value

Interest rate instruments Assets Liability hedging hedging

Interest rate swaps (covers also cross currency) 5 965 156 28 - 5 965

Forward rate agreements (FRA) - - - - -

Other interest rate contracts - - - - -

Total non-standardised interest rate contracts - - - - -

Standardised interest rate contracts (futures) - - - - -

Total interest rate instruments 5 965 156 28 - 5 965

Total financial derivatives 37 042 519 203

The Group has entered into fair value hedges for some fixed-rate borrowings. Each hedge is documented with reference to the Group’s risk

management strategy, a clear identification of the item being hedged, the instrument used, a description of the risk, a description of why

hedging is regarded as reasonable and a description for determining the efficiency of the hedge for current and future periods. The Group

has defined the hedged risk as value changes in the NIBOR component of the hedged fixed interest rates in NOK and value changes in

LIBOR and/or currency components of the hedged fixed interest rates in foreign currency.

The Group uses interest rate swaps as hedging instruments when it has fixed interest rates either in NOK or a foreign currency and makes

payments based upon a floating (typically 3 months) NIBOR rate. As of 31 December 2005 the net fair value of hedging instruments was

NOK 92 million (NOK 250 million in assets and NOK 158 million in liabilities).

77


NOTE 18 CREDIT INSTITUTIONS – LOANS AND DEPOSITS 2005 2004

Loans and deposits with credit institutions

Loans and deposits without agreed maturity or notice of withdrawal 43 67

Loans and deposits with agreed maturity or notice of withdrawal - -

Total 43 67

Loans and deposits from credit institutions

Loans and deposits from credit institutions without agreed

maturity or notice of withdrawal 183 61

Loans and deposits from credit institutions with agreed

maturity or notice of withdrawal 3 453 2 629

Total 3 636 2 690

Specified by currency

USD 77 -

EURO 3 000 2 165

NOK 543 476

Other currencies 16 49

Total 3 636 2 690

Average interest rate 1,1 % 1,1 %

The average interest rate is calculated based on the period’s actual interest expense as a percentage of average loans and deposits from

credit institutions.

NOTE 19 LOANS AND ADVANCES TO CUSTOMERS 2005 2004

Loans by type:

Financial leasing 1 783 1 449

Overdraft and working capital facilities 10 239 4 485

Building loans 1 374 1 499

Amortised loans 48 352 47 000

Revaluation of fixed-rate loans carried at fair value 64 -

Gross loans 61 812 54 433

Write-downs -332 -594

Loans to customers net of write-downs 61 480 53 839

Loans by markets:

Retail loans 41 890 37 264

Corporate loans 19 128 16 556

Public sector 730 613

Revaluation of fixed-rate loans carried at fair value (unallocated) 64 -

Gross loans 61 812 54 433

Write-downs -332 -594

Net loans 61 480 53 839

Whereof subordinated loan capital in other financial institutions 43 43

Loans and advances to employees

Loans to employees 959 888

Interest rate subsidies to employees 12 11

78



2005 2004 2005 2004 2005 2004 2005 2004

By risk group: Total exposures Gross loans Individual Expected annual average

Write-down net loss

Lowest and low risk 66 959 55 846 56 263 49 186 - 4 28 31

Medium risk 4 647 4 306 3 044 3 480 2 7 16 21

High and highest risk 3 040 2 387 2 441 1 767 161 211 45 40

Unallocated

(Revaluation of fixed-rate loans) 64 - 64 - - - - -

Total 74 710 62 539 61 812 54 433 163 222 89 92

2005 2004 2005 2004

By risk group: Total exposure Percentage of total exposure

Lowest and low risk 66 959 55 846 89.6 89.3

Medium risk 4 647 4 306 6.2 6.9

High and highest risk 3 040 2 387 4.1 3.8

Unallocated

(Revaluation of fixed-rate loans) 64 - 0.1 -

Total 74 710 62 539 100.0 100.0

2005 2004 2005 2004

By geographical area: Gross loans Percentage of gross loans

Oslo and surrounding area 2 600 2 253 4.2 4.1

Agder counties 4 462 2 977 7.2 5.5

Rogaland 51 916 46 166 84,0 84.8

Hordaland 1 929 1 767 3.1 3.3

International 228 226 0.4 0.4

Other 677 1 044 1.1 1.9

Total 61 812 54 433 100.0 100.0

2005 2004 2005 2004 2005 2004 2005 2004

By commercial and other sector: Total exposures Gross loans Individual Expected annual average

Write-down net loss

Agriculture/forestry 2 303 2 178 1 969 1 933 9 9 6 4

Fishing/fish farming 499 818 307 411 6 14 2 11

Mining 525 651 388 499 - - 1 2

Industry 4 217 2 642 1 876 1 665 28 26 5 9

Power and water supply

building and construction 2 690 2 399 1 264 1 068 2 1 4 3

Retail, hotel and

restaurant industry 2 182 1 830 1 553 1 403 10 14 4 5

Foreign shipping, pipelines and

other transport 1 805 2 293 1 624 2 048 10 10 4 4

Property management 9 131 6 617 7 743 5 457 14 8 37 22

Other service industries 3 432 2 392 2 179 1 787 15 47 10 10

Public administration and

financial services 2 899 2 093 955 898 - - - -

Unallocated

(Revaluation of fixed-rate loans) 64 - 64 - - - - -

Total sectors 29 747 23 913 19 922 17 169 94 129 73 70

Private customers 44 963 38 626 41 890 37 264 69 93 16 22

Total 74 710 62 539 61 812 54 433 163 222 89 92

(NOTE 19 continued)

79

NOTE 20 WRITE-DOWN OF LOANS AND GUARANTEES DUE TO IMPAIRMENT 2005 2004

Change in individual write-downs -59 -94

Change in group write-downs -8 -3

Confirmed losses for which individual write-downs was previously made 63 186

Confirmed losses for which no individual write-downs was previously made 24 12

Amortised loans -5 -

Payments received on loans, guarantees etc. previously written down -85 -20

Total losses on loans and guarantees -70 81


Individual write-downs on loans and guarantees as of 1 Jan 222 316

- Current period’s confirmed losses for which individual

write-downs was previously made -63 -186

- Reversal of previous years’ write-downs -43 -66

+ Increase in write-downs for loans and guarantees for which

individual write-downs have been made previously 13 57

+ Write-downs on loans and guarantees for which no individual

write-down have been made previously 34 101

= Individual write down on loans and guarantees as of 31 Dec 163 222

Group write-downs

Group write-down for impairment losses on loans and guarantees as of 1 Jan 176 375

+ Current period’s group write-down for impairment losses on loans and guarantees -7 -3

= Group write-down for impairment losses on loans and guarantees as of 31 Dec 169 372

Due to implementation of IAS 39 as of 1 Jan 2005 figures for 2005 are not comparable with previous years’ figures.

Of the total write-down for impairment losses as of 31 Dec 2005 NOK 16 million relates to leasing activities.

Loans and receivables to customers related to financial leasing 2005 2004

Gross receivables related to financial leasing

- Maturity of less than 1 year 77 82

- Maturity between 1 and 5 years 1 206 894

- Maturity of more than 5 years 500 473

Total 1 783 1 449

Net investment related to financial leasing 1 783 1 449


(NOTE 19 continued)

80



Losses specified by sector and industry 2005 2004

Proportion Proportion

SECTOR/ INDUSTRY of losses Losses of losses Losses

Agriculture/forestry -3 % 2 2 % 2

Fishing/fish farming 6 % -4 58 % 47

Mining 0 % - 2 % 2

Industry -26 % 18 56 % 45

Power and water supply/building and construction 1 % -1 -5 % -4

Retail, hotel and restaurant industry 1 % -1 6 % 5

Foreign shipping, pipelines and other transport -3 % 2 -11 % -9

Property management -7 % 5 -4 % -3

Other service industries 120 % -84 -2 % -2

Transferred from group allowance of impairment 11 % -8 -4 % -3

Retail customers -1 % 1 1 % 1

Total 100 % -70 100 % 81

Non-performing loans and loans at risk 2005 2004 2003 2002 2001

Non-performing loans 130 203 426 316 307

Other loans at risk 331 386 419 751 421

Total non-performing loans and loans at risk 461 589 845 1 067 728

Individual write-downs for impairment losses 163 222 316 396 290

Net non-performing loans and loans at risk 298 367 529 671 438

Interest income from non-performing loans and loans at risk is NOK 15 million.

2005 2004

NOTE 21 DEPOSITS FROM CUSTOMERS Proportion Deposits Proportion Deposits

Deposits from and liabilities to customers without agreed maturity 27 206 22 990

Deposits from and liabilities to customers with agreed maturity 10 324 10 072

Total deposits 37 530 33 062

Average interest rate 1.5 % 1.5 %

Deposits by commercial and other sectors:

Agriculture/forestry 1.9 % 712 2.0 % 663

Fishing/fish farming 0.1 % 55 0.2 % 68

Mining 1.6 % 619 1.1 % 368

Industry 3.8 % 1 441 3.1 % 1 037

Power and water supply/building and construction 3.7 % 1 387 3.3 % 1 106

Retail, hotel and restaurant industry 3.7 % 1 383 3.5 % 1 141

Foreign shipping, pipelines and other transport 3.4 % 1 273 3.5 % 1 160

Property management 5.8 % 2 172 4.7 % 1 539

Other service industries 6.8 % 2 568 8.0 % 2 645

Public administration and financial services 22.5 % 8 456 19.8 % 6 548

Total sectors 53.5 % 20 066 49.2 % 16 275

Retail customers 46.5 % 17 464 50.8 % 16 787

Total deposits by commercial and other sectors 100.0 % 37 530 100.0 % 33 062

Deposits by geographical area:

Oslo and surroundings 15.9 % 5 986 16.1 % 5 312

Agder counties 3.9 % 1 448 3.8 % 1 257

Rogaland 75.7 % 28 395 75.3 % 24 898

Hordaland 3.2 % 1 209 3.2 % 1 072

International 0.8 % 282 1.0 % 343

Other 0.6 % 210 0.5 % 180

Total deposits by geographical area 100.0 % 37 530 100.0 % 33 062

(NOTE 20 continued)

81

NOTE 22 DEBT SECURITIES ISSUED 2005 2004

Certificates and other short-term loans 1 400 2 000

Bonds 16 651 15 111

Total debt securities issued 18 051 17 111

Average interest rate 2.4 % 2.2 %

Bonds issued by maturity year:

2005 - 3 349

2006 1 543 1 365

2007 6 022 6 057

2008 1 560 1 664

2009 1 293 1 266

2010 5 053 500

2011 684 605

2012 120 -

2014 296 305

2035 80 -

Bonds issued 16 651 15 111

The average interest rate is calculated based on actual interest expense for the year, including interest rate on interest rate and currency

swaps, as a percentage of average securities issued.

NOTE 23 SUBORDINATED LOAN CAPITAL 2005 2004

With definite maturities:

Loan 1 (2010 - 3 months Nibor + margin) - 300

Loan 2 (2012 - 3 months Nibor + margin) 40 40

Loan 3 (2014 -EURO 65 million - 3 months Libor + margin) 517 532

Loan 4 (2035 -YEN 13 000 million - 3 months Libor + margin) 782 -

Total with definite maturities 1 339 872

Perpetual:

Loan 5 (USD 75 million - 3 months Libor + margin) 491 436

Total perpetual 491 436

Perpetual classified as Tier 1 Capital

Loan 6 (USD 75 million - 3 months Libor + margin) 506 452

Total perpetual classified as Tier 1 Capital 506 452

Total subordinated loan capital 2 336 1 760

Subordinated loan capital in foreign currency (USD 150 million, EURO 65 million and Yen 13 000 million as of 31 December 2005) is inclu-

ded in the Group’s total currency position to eliminate any currency risk associated with these loans. There is a prepayment option to repay

subordinated loan capital of Yen 13 000 million in 2012 and NOK 40 million in 2007. All subordinated loan capital is included as Tier 2

capital as of 31 December 2005, except for the perpetual capital included as Tier 1 capital. Premiums and discounts on subordinated debt

are included in the calculation of amortised cost. Subordinated loan capital can at most constitute 15 percent of total core (Tier 1) capital.

Any excess is included as perpetual subordinated loan capital in Tier 2 capital.


82



NOTE 24 OTHER LIABILITIES 2005 2004

Pension liabilities (note 25) 451 387

Accounts payable 170 159

Tax deductions 25 25

Settlement accounts 165 39

Other liabilities 290 217

Accrued holiday benefits 39 36

Accrued interest 204 169

Other accrued expenses 145 119

Total 1 489 1 151

Guarantee commitments (guaranteed amounts) 2005 2004

Payment guarantees 1 514 1 058

Contract guarantees 1 331 868

Other loan guarantees - 1

Guarantees for taxes 47 28

Other guarantee commitments 277 323

Total guarantee commitments 3 169 2 278

Mortgage

The Group does not have material mortgages.

Ongoing lawsuits

The Group is involved in several lawsuits. The total financial effects are regarded as insignificant as the Group has already made provisions

for lawsuits where it is considered more likely than not that a loss will be incurred.

Operational leasing

The period for the Group’s operational leasing contracts is 3 years. The annual expense is approximately NOK 4 million.

83

NOTE 25 PENSIONS (WITH DIRECT RECOGNITION CHANGES IN ESTIMATES)

The SpareBank 1 SR-Bank Group has a joint occupational pension scheme for its employees. The pension schemes for SpareBank 1 SR-

Bank, SR-Forvaltning ASA and EiendomsMegler 1 Rogaland AS are covered by the bank’s pension fund, whereas SpareBank 1 SR-Finans AS

administers its pension scheme through SpareBank 1 Livsforsikring AS.

SpareBank 1 SR-Bank, SR-Forvaltning ASA and EiendomsMegler 1 Rogaland AS have identical benefit schemes, and employee with 30 years

of pensionable service will receive a pension of 70 percent of his/her salary on 1 January beginning the year the employee turns 67 years

old. The pension scheme also includes disability pension and pension for spouses and dependant children. All pension benefits are coordi-

nated with the expected benefits from the National Insurance Scheme. In the case that social security benefits from the National Insurance

Scheme are reduced, this reduction will not be compensated for by the pension scheme. As of 31 December 2005 there were 998 active

members and 245 pensioners in the pension scheme.The pension scheme of SpareBank 1 SR-Finans AS has the same requirements for

years of pensionable service, but with somewhat lower salary coverage than the schemes covered by the pension fund. The pension scheme

of SpareBank 1 SR-Finans AS has 21 active members and 12 pensioners.

In addition to the pension obligations covered through the insurance schemes, the Group has unfunded pension commitments that can-

not be covered by plan assets in the joint pension schemes. These obligations applies to people who are not enrolled in the joint pension

scheme, have supplementary pensions exceeding 12G, ordinary early pensions and/or early pensions through the AFP scheme (contracted

early retirement scheme).

Estimates are used in the valuation of plan assets and gross pension obligations. These estimates are adjusted each year in accordance

with actual plan assets, statements of plan assets in case of transfer from the insurance company/pension fund and actuarial calculations

of gross pension obligations. Calculations of future pensions are based on the following assumptions:

2005 2004

Assumptions

Discount rate 3.9 % 4.5 %

Expected rate of return on plan assets 6.0 % 6.0 %

Future wage and salary developments 3.0 % 3.0 %

Adjustment of the basic social security amount (G) 3.0 % 3.0 %

Increase in current pensions 3.0 % 3.0 %

Social security tax 14.1 % 14.1 %

The calculations are based on standardised assumptions about developments in life expectancy and the number of people receiving disabi-

lity benefits, as well as other demographic factors compiled by the Norwegian Insurance Association. It is also assumed that there will be

turnover of 2 percent of employees aged 45 or younger and 0 percent of employees aged 45 years and older. Calculations of the AFP liabili-

ty are based on the assumption that 25 percent of all employees entitled to benefits will make use of early retirement at the age of 62 years

and another 25 percent at 64 years.

Pension liabilities related to defined benefit plans 2005 2004

Present value of pension liabilities as of 1 Jan 845 695

Pension earned in the period 38 34

Interest expense on accrued pension liabilities 38 35

Actuarial gains and losses (changes in estimates) 95 104

Pension payments -23 -23

Net present value of pension liabilities as of 31 Dec 993 845

Funded plans 831 694

Unfunded plans 162 151

Plan assets

Plan assets as of 1 Jan 497 438

Expected return on plan assets 31 28

Actuarial gains and losses (changes in estimates) 23 15

Employer’s contributions 69 48

Pension payments -22 -22

Plan assets as of 31 Dec 598 507


84






Net pension liabilities as of 31 Dec 395 338

Social security liabilities 56 49


Pension cost for the year

Pension cost related to defined benefit plans 38 34

Interest expense of accrued pension liabilities 38 35

Expected return on plan assets -31 -28

Net pension cost related to defined benefit schemes excluding social security tax 45 41

Accrued social security tax 6 6

Net pension cost related to defined benefit plans 51 47

Pension cost related to unfunded benefit plans - -

Pension cost for the year recognised in the income statement 51 47

Actuarial gains and losses

Actuarial gains and losses for the period recognised through equity 80 102

Accumulated actuarial gains and losses recognised through equity 181 102

Expected return on plan assets is calculated to: 31 28

Actual return on plan assets was: 65 42

Developments in the defined-benefit scheme over the last two years:



Net 395 338

(NOTE 25 continued)

85

NOTE 26 CAPITAL ADEQUACY 2005 2004

Primary Capital Certificates 1 131 905

- Primary Capital Certificates held by the Group -3 -

Premium fund 21 20

Saving Bank’s Fund 1 505 1 313

Dividend equalisation fund 673 858

Donations 109 69

Total equity capital 3 436 3 165

Excess funding of pension liabilities - -101

Deferred tax asset, goodwill and other intangible assets -46 -52

Proportion of unamortized changes in estimates on pensions 155 -

Subordinated loan capital qualifying as core capital 506 452

Total core capital 4 051 3 464

Supplementary capital in excess of core capital

Perpetual subordinated loan capital 491 436

Definite subordinated loan capital 1 339 872

Subordinated loan capital in other financial institutions -34 -15

Capital adequacy reserve -509 -346

Net core capital and supplementary capital 5 338 4 411

Assets not included in the trading portfolio 41 159 35 716

Off-balance sheet items not included in the trading portfolio 2 900 1 555

Currency risk and items in the trading portfolio 1 914 1 821

Deductions:

Subordinated loan capital in other financial institutions -34 -15

Write-down for impairment losses -332 -595

Capital adequacy reserve -509 -346

Total asset base for calculations 45 098 38 136

Capital adequacy ratio 11.84 % 11.57 %

Core capital ratio 8.98 % 9.08 %

Supplementary capital ratio 2.85 % 2.48 %

The note shows the capital adequacy ratio of SpareBank 1 SR-Bank Group. The capital adequacy ratio is required to be at least 8 percent.

Definite subordinated loan capital is reduces by 20 percent in value every year during the last 5 years prior to maturity. To the extent that

the Group holds more than 2 percent of subordinated loan capital in another financial institution, the excess value will reduce the Group’s

own subordinated loan capital directly with the same amount.

If the Group has subordinated loan capital in other financial institutions which is less than 2 percent of these financial institutions’ subordi-

nated loan capital, the total amount of such capital will be deducted in the Group’s subordinated loan capital with the amount that exceeds

10 percent of the Group’s own subordinated loan capital. In cases where the Group has been required to maintain 100 percent capital ade-

quacy reserve for certain assets, an amount equivalent to the asset’s book value should be deducted from the core and supplementary capi-

tal and from the asset base used for calculation. The asset base used for calculation is weighted according to risk. There are 5 risk categori-

es: 0, 10, 20, 50 and 100 percent, in which the percentage indicates what proportion of a balance sheet item that should be included in the

asset base for calculation.

The Group’s capital adequacy ratio is calculated according to NGAAP.


86



NOTE 27 RELATED PARTIES

Senior management BoD Control committee Associated companies Other related parties

2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Loans

Outstanding loans

as of 1 Jan 20 357 15 389 15 220 14 978 1 707 1 717 2 147 2 333 1 680 1 802

Loans issued during

the period 6 558 9 782 3 590 5 809 1 126 484 33 40 3 445 1 789

Repayments 7 109 7 521 14 951 5 634 1 172 488 600 255 3 274 2 173

Outstanding loans as

of 31 Dec 19 806 17 650 3 859 15 153 1 661 1 713 1 580 2 118 1 851 1 418

Interest income 303 283 221 564 49 55 25 39 33 26

Deposits - - - - -

Deposits as of 1 Jan 4 126 4 052 352 82 650 949 1 089 1 166 1 111 950

Additional deposits

during the period 16 984 14 056 2 148 6 973 2 637 2 823 5 217 3 626 3 745 6 053

Withdrawals 19 674 14 483 2 294 6 746 2 657 2 599 4 645 3 820 3 977 6 034

Deposits as of 31 Dec 1 436 3 625 206 309 630 1 173 1 661 972 879 969

Interest expense 61 67 - - 4 13 9 6 8 9

Remuneration to management 2005 2004

Salary and other short-term benefits 10 298 8 160

Board of Directors

Remuneration to the Board of Directors 1 318 1 178

NOTE 28 PRIMARY CAPITAL CERTIFICATES AND OWNERSHIP STRUCTURE

Primary Capital Certificates

Sparebank 1 SR-Bank has Primary Capital Certificates of NOK 1,130,729,250, consisting of 22,614,585 Primary Capital Certificates, each

with a nominal value of NOK 50. In April 2005 a PCC split and a dividend issue were performed, resulting in the transfer of NOK 226.1 mil-

lion from the Dividend Equalisation Fund and the issue of 4,522,917 new Primary Capital Certificates with issue price and a nominal value

of NOK 50. One new, additional Primary Capital Certificate was granted for each four original certificates held. Primary Capital Certificates

have been issued in the following way and at the following points in time:

Year Change Change in Total Number of

Primary Capital Certificates Primary Capital Certificates Primary Capital Certificates

1994 Public issue 744,0 744,0 7 440 000

2000 Employee issue 5,0 749,0 7 489 686

2001 Employee issue 4,8 753,8 7 538 194

2004 Stock dividend issue 150,8 904,6 9 045 834

2005 Stock dividend issue/PCC split 226,1 1 130,7 22 614 585

In addition to the PCC capital, owners of the Primary Capital Certificates are also entitled to a share of SpareBank 1 SR-Bank’s equity, the

Dividend Equalisation Fund, which consists of retained earnings that will no be paid as this years dividend. This equity capital is should be

used to stabilise cash dividends or for stock dividend issues. Other equity consists of the Savings Banks’ Fund, Premium fund and the

fund for valuation differences. Up to 25 percent of the amount transferred to the Savings Banks’ Fund can be allocated to the fund for

donations.

PCC-owners’ share of profit/loss

Earnings per PCC is calculated by dividing profit/loss allocated to the owners of the PCCs by the average number of outstanding PCCs. PCC

owners’ share of profit/loss corresponds to the proportion of the sum of PCC capital, Dividend Equalisation Fund and Premium fund to

the bank’s total equity, minus the fund for valuation differences.

87

Purchase/sale of own PCCs in 2005:

(figures in 1000)

Holdings as of 31 Dec 2004 57

Change in holdings 2005 2 892

Holdings as of 31 Dec 2005 2 949

The 20 owners with the largest holdings of Primary Capital Certificates as of 31 Dec 2005

Percentage

Owner PCC share

Swedbank, Sweden 2 225 850 9.80 %

Folketrygdfondet 1 028 300 4.50 %

State Street Bank & Trust, USA 805 341 3.60 %

Trygve Stangeland 300 940 1.30 %

Tveteraas Finans AS 300 010 1.30 %

Brown Brothers Harriman & Co, USA 288 914 1.30 %

Frank Mohn AS 280 205 1.20 %

Clipper AS 260 000 1.10 %

JP Morgan Chase Bank, UK 258 440 1.10 %

Otto B. Morcken 195 000 0.90 %

Audley AS 194 532 0.90 %

Solvang Shipping AS 180 000 0.80 %

Westco AS 162 650 0.70 %

Forsand kommune 152 295 0.70 %

Trondheim kommune 120 450 0.50 %

Arne B. Corneliussen Invest AS 120 000 0.50 %

Ringerike Sparebank 102 400 0.50 %

MP Pensjon 99 900 0.40 %

Terra Utbytte 93 250 0.40 %

Olav T. Stangeland 90 000 0.40 %

Sum 20 largest 7 258 477 32.10 %

Other owners 15 356 108 67.9 %

Outstanding Primary Capital Certificates 22 614 585 100.0 %

The total number of PCC owners as of 31 Dec 2005 is 10,361, which is an increase of 2,281 since 31 Dec 2004. The share of PCCs in owned

by individuals and companies in the Rogaland and Agder counties is 44.8 percent, and the share of foreign owners is 19.4 percent.

Reference is made to specification of PCC owners in the Board of Directors and Board of Representatives. For more details about PCCs,

see the separate chapter in the annual report.

NOTE 29 RESTRICTED FUNDS

As of 31 December 2005 the total value of restricted funds in the SpareBank 1 SR-Bank Group is NOK 25,099,016.


(NOTE 28 continued)

88



NOTE 30 IFRS - IMPLEMENTATION

From 1 January 2005 all publicly listed companies within the EU (including EEC countries) are required to prepare quarterly and annual

reports in accordance with IFRS. SpareBank 1 SR-Bank Group has presented its quarterly reports as well as the annual report for 2005 in

accordance with IFRS. Permission, for the time being, has not been granted to present the annual report for the parent bank in accordance

with IFRS. Separate quarterly and annual reports will be prepared in accordance with NGAAP for the parent bank.

IFRS has been implemented retrospectively as of 1 January 2004. Comparable figures for one year are shown in the income statement,

balance sheet and notes, with the exception of items related to IAS 39. This standard is exempt from the requirement of reporting compa-

rable figures for one year. For the SpareBank 1 SR-Bank Group this pertains to items related to loans/impairment losses on loans, securiti-

es and other financial instruments. For these items comparable figures are presented in accordance with NGAAP.

Briefly summarised, implementation of IFRS resulted in an increase in equity of NOK 129 million from 31 December 2003 to 1 January

2005. According to IFRS dividends is classified as equity until final approval is given by the Board of Representatives. As of 1 January 2005

this amount was NOK 208 million. Excluding the aforementioned dividend effect, net effect on equity was a reduction of NOK 79 million.

As of 31 March 2005 these figures were NOK 180 and NOK 28 million respectively. The reason for these changes was adjustments in the

figures from SpareBank 1 Gruppen AS, as well as changes in the interpretation of regulations for structured products. All effects on equity

have been allocated to the Dividend Equalisation Fund and the Saving Banks’ Fund in accordance with the PCC percentage as of 31

December 2004.

Reconciliation between the NGAAP and IFRS figures in the balance sheet from 31 December 2003 to 1 January 2004 and from 31

December 2004 to 1 January 2005 is shown in the tables below. There is also a specification of differences in the income statement for

2004 between NGAAP and IFRS. Details relating to individual items are described in footnotes. The accounting principles applied to the

individual items are described in note 2.

IFRS OPENING BALANCE AS OF 1 JAN 2004

Balance Pension Effect from owners Balance

31 Dec.2003 Reclassified. Corridor share SpareBank 1 Issued 1.1.2004

after NGAAP profit against equity Gruppen AS div. sales after IFRS

1) 2) 3) 4)

Cash and balances with central banks 545 545

Loans and deposits with credit institutions 149 149

Loans to customers net of write-downs 48 183 48 183

Certificates, bonds and other securities with

a fixed rate-of-return 2 375 2 375

Shares and other securities with a variable rate-of-return 364 364

Investment in associated companies 253 -43 210

Fixed tangible assets 353 353

Other assets 420 -57 -3 360

Total assets 52 642 -57 -43 -3 52 539

Loans and deposits from credit institutions 4 912 4 912

Deposits from customers 28 266 28 266

Securities issued 13 660 13 660

Other liabilities 1 118 -152 137 -12 1 091



Primary Capital Certificates 754 754

Holdings of own Primary Capital Certificates -4 -4

Premium reserve 18 18

Dividend equalisation fund *) 872 -109 -24 5 744

Dividends - 151 151

Saving Banks Fund *) 1 132 -85 -19 4 1 032

Other equity 37 37

Minority interests 2 1 3


Total liabilities and equity 52 642 - -57 -43 -3 52 539

89

1) Re-classification of dividends: According to IFRS, dividends are classified as equity until approved by the Bank’s most senior decision-

making body, the Board of Representatives. Therefore, in the opening balance the provision for dividends of NOK 152 million was re-classi-

fied from liabilities to equity as of 1 January 2004.

2) The pension corridor: According to IAS 19, which is the IFRS standard for pensions, IAS 1 (standard regulating implementation) gave

the possibility to recognise unrecognised actuarial gains and losses (the corridor) against equity as of 1 January 2004. This effect amounted

to NOK 194 million after tax for the SpareBank 1 SR-Bank Group.

3) Ownership interest SpareBank 1 Gruppen AS: SSpareBank 1 SR-Bank recognises its ownership interest in the SpareBank 1 Gruppen AS

according to the equity method of accounting. SpareBank 1 Gruppen’s implementation of IFRS as of 1 January 2004 affected book values

because of the recognition of the pension corridor. This amounts to NOK 43 million and reduces the book value of the ownership interest

in SpareBank 1 Gruppen AS.

4) Reversal of miscellaneous provisions: SpareBank 1 SR-Bank has reversed provisions for expenses made in accordance with NGAAP,

because such provisions are not in accordance with IFRS. This effect amounts to NOK 9 million after tax.

IFRS OPENING BALANCE AS OF 1 JAN 2005:

Balance IFRS effects Effect from Effect on Balance

sheet through equity ownership interests gain/loss sheet

31.12.2004 1.1.04 Reclass.of Change Change Sparebank1 Actuarial profit 2004 1.1.2005

NGAAP (excl dividends) dividends fin.instr. loans/loss Gruppen AS Pension NGAAP/IFRS acc.to IFRS

1) 2) 3) 4) 5) 6) 7)

Cash and balances with central banks 942 942

Loans and deposits with credit

institutions 67 67

Loans to customers net of write-down 53 839 181 54 020

Certificates, bonds and other

securities with a fixed rate of return 2 867 2 867


Shares and other securities with a

variable rate-of-return 347 44 391

Ownership interests 314 -43 9 20 301

Tangible fixed assets 309 309

Other assets 513 -60 -4 -50 29 -3 424

Total assets 59 198 -103 - 532 131 9 29 17 59 813

Loans and deposits from

credit institutions 2 690 2 690

Deposits from customers 33 062 33 062

Securities issued 17 111 17 111


Other liabilities 1 408 125 -211 -9 102 -12 1 403



Primary Capital Certificates 905 905

Premium reserve 20 20

Dividend Equalisation Fund *) 858 -128 30 73 5 -41 16 813

Dividends - 208 208

Saving Banks’ Fund *) 1 313 -100 23 58 4 -32 13 1 279

Donations 69 69

Minority interests 2 3 5


Total equity and liabilities 59 198 -103 - 532 131 9 29 17 59 813

*) The percent used for allocation of effects through equity as of 1 Jan 2004 and 1 Jan 2005 is 56.32% to the Dividend Equalisation Fund and

43.68% to the Saving Banks’ Fund.


(NOTE 30 continued)

90



1) This column summarises IFRS effects as of 1 Jan 2004, except the reclassification of dividends deducted from equity before the balance

sheet date.

2) Reclassification of dividends: According to IFRS, dividends are classified as equity until approved by the Bank’s most senior decision-

making body, the Board of Representatives. Therefore, in the opening balance the provision for dividends of NOK 211 million was re-classi-

fied from liabilities to equity as of 1 January 2004.

3) Effect on financial instruments: The largest item in this column relating to financial instruments, with the exception of loans, is fair value

measurement of long-term shareholdings according to IAS 39. These have previously been measured at historical cost. As a consequence

of a fair value measurement in accordance with IFRS 39, book value of the shares increased by NOK 44 million. The remaining items in

this column, which have an effect on equity, are: net present value of fixed-rate loans increased equity by NOK 16.4 million and provisions

for margins on interest rate swaps reduced equity by NOK 7.2 million. Net change in equity is NOK 53 million.

4) Effect on loans/impairment losses: IAS 39 also regulates loans and impairment losses. The effect of IAS 39 on these items is an increase

in equity by NOK 131 million. Provisions for unspecified losses were reversed by NOK 141 million after tax (reduction in equity). This effect

was after a review of new regulations and new models for the write-down of losses. Otherwise, long-term non-performing loans of NOK 11.7

million (increase in equity) are carried in the balance sheet as well as loan fees of NOK 21 million, which were previously recognised in the

income statement (reduction of equity).

5) Ownership interest SpareBank 1 Gruppen: SpareBank 1 SR-Bank recognises its ownership interest in SpareBank 1 Gruppen AS accor-

ding to the equity method of accounting. SpareBank 1 Gruppen’s implementation of IAS 39 as of 1 January 2005 led to an increase in the

book value of the ownership interest in the SpareBank 1 Gruppen AS of NOK 9 million. Amongst others this relates to reversal of unspecifi-

ed losses in the wholly owned subsidiary Bank 1 Oslo AS.

6) Unrecognised actuarial gains and losses: The Group has chosen to book the implementation effect of IAS 19 on the Group’s pension lia-

bilities directly through equity. For SpareBank 1 SR-Bank Group this effect amounted to NOK 73 million after tax.

7) Differences in profit for the year according to NGAAP/IFRS: Reference is made to reconciliation below concerning the implementation of

IFRS in the income statement for 2004.

Reconciliation of profit for the year according to NGAAP/IFRS for 2004:

Profit/ loss Ownership Profit/ loss

31.12.2004 interest SB1 Tax 31.12.2004

NGAAP Pension Goodwill Gruppen effect IFRS

1) 2) 3) 4)

Interest income 2 143 2 143

Interest expense 1 014 1 014


Fee and commission income 405 405

Fee and commission expense 64 64


Net commission and other income 531 531

Dividends 14 14

Income from associated companies 25 20 45

Net change in value of financial investments

measured at fair value through P/L 131 131

Net return on financial investments 170 190

Total income 1 830 1 850

Personnel expense 527 -5 522

Administrative expense 242 242

Impairment/changes in value of non-financial assets 57 -8 49


Total operating expenses 961 948

Profit before loss 869 901

Losses on loans and guarantees 81 81

Profit before tax and minority interests 788 820

Income tax 202 4 206

Minority interests 3 3

Profit 583 612

(NOTE 30 continued)

91

1) Pension: As an effect of implementing IAS 19 in the consolidated Group accounts for 2004 pension costs were reduced by NOK 4.7 milli-

on. This was due to different actuarial assumptions used in the two accounting frameworks.

2) Goodwill: According to IFRS goodwill is not depreciated, as it is under NGAAP, but is subject to an impairment test. This implies that

there is no goodwill depreciation in the IFRS annual accounts for 2004 and profit for the year is NOK 8.2 million higher than according to

NGAAP.

3) Ownership interest SpareBank 1 Gruppen AS: There is a difference in profit for the year between NGAAP and IFRS for SpareBank 1

Gruppen AS. The main difference is related to depreciation of goodwill in accordance with NGAAP, but not in accordance with IFRS.

According to IFRS goodwill is subject to an impairment test. As a consequence the profit according to IFRS is NOK 19.6 million higher

than according to NGAAP.

4) Taxes: Income tax will be different due to changes in taxable profit for the year, as mentioned above (ownership interest in SpareBank 1

Gruppen AS is included after tax).

NOTE 31 EVENTS AFTER THE BALANCE SHEET DATE

There have been no events after the balance sheet date of 31 December 2005 that has had an effect on the Group’s annual accounts.


(NOTE 30 continued)

92


Auditor’s report for 2005 We have audited the annual financial statements of

Sparebanken Rogaland as of December 31, 2005, showing a

profit of NOK 840 million for the parent company and a profit

of NOK 862 million for the group. We have also audited the

information in the directors' report concerning the financial

statements, the going concern assumption, and the proposal

for the allocation of the profit. The annual financial statements

comprise the financial statements of the parent company and

the group. The financial statements of the parent company

comprise the balance sheet, the statements of income and

cash flows and the accompanying notes. The financial state-

ments of the group comprise the balance sheet, the statement

of income and cash flows, the statement of changes in equity

and the accompanying notes. The regulations of the Norwegian

accounting act and accounting standards, principles and

practices generally accepted in Norway have been applied in

the preparation of the financial statements of the parent

company. IFRSs as adopted by the EU have been applied in

the preparation of the financial statements of the group.

These financial statements are the responsibility of the

Company’s Board of Directors and Managing Director. Our

responsibility is to express an opinion on these financial

statements and on other information according to the require-

ments of the Norwegian Act on Auditing and Auditors.

We conducted our audit in accordance with laws, regulations

and auditing standards and practices generally accepted in

Norway, including standards on auditing adopted by The

Norwegian Institute of Public Accountants. These auditing

standards require that we plan and perform the audit to

obtain reasonable assurance about whether the financial

statements are free of material misstatement. An audit inclu-

des examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements. An audit

also includes assessing the accounting principles used and

significant estimates made by management, as well as

evaluating the overall financial statement presentation. To the

extent required by law and auditing standards an audit also

comprises a review of the management of the Company's

financial affairs and its accounting and internal control

systems. We believe that our audit provides a reasonable

basis for our opinion.

In our opinion,

• the financial statements of the parent company have been

prepared in accordance with the law and regulations and

give a true and fair view of the financial position of the

company as of December 31, 2005, and the results of its

operations and its cash flows for the year then ended, in

accordance with accounting standards, principles and

practices generally accepted in Norway

• the financial statements of the group have been prepared

in accordance with the law and regulations and give a

true and fair view of the financial position of the group as

of December 31, 2005, and the results of its operations

and its cash flows and the changes in equity for the year

then ended, in accordance with IFRSs as adopted by the EU

• the company's management has fulfilled its duty to produce

a proper and clearly set out registration and documentation

of accounting information in accordance with the law and

good bookkeeping practice in Norway

• the information in the directors' report concerning the

financial statements, the going concern assumption, and

the proposal for the allocation of the profit are consistent

with the financial statements and comply with the law and

regulations

The Audit Committee’s statement for 2005The Audit Committee has carried out its duties in accordance

with the (Norwegian) Saving Banks Act and the instructions

for the committee. The bank’s activities in 2005 were in

accordance with the (Norwegian) Saving Banks Act, the

bank’s Articles of Association, and other provisions the bank

is obliged to follow.

The annual report and accounts have been submitted in

accordance with the regulations of the (Norwegian) Saving

Banks Act and of the Norwegian Banking, Insurance and

Securities Commission. The Supervisory Board may adopt the

profit and loss account and the balance sheet as the bank’s

accounts for 2005.

Stavanger, 23 February 2006

PricewaterhouseCoopers AS

Torbjørn Larsen, State Authorised Public Accountant (Norway)

Kåre HansenOdd Rune Torstrup

Chairman

Odd Broshaug

Svein Hodnefjell Vigdis Wiik Jacobsen

Note: This translation from

Norwegian has been prepared for

information purposes only.

Stavanger, 17 March 2006

Primary capital

certificates

PRIMARY CAPITAL

At the end of 2005 SpareBank 1 SR-Bank’s primary capital

amounted to NOK 1,128 million, dispersed on 22,555,609

outstanding pcc’s, each with a nominal value of NOK 50. The

number of issued certificates is 22,614,585. In addition, the

capital of the equalisation reserve attributable to the primary

capital certificate owners was NOK 673 million, as well as

NOK 21 million of the share premium account.

On 1 April 2005, the primary capital certificates were split in

two and this was followed by a capitalisation issue whereby

four certificates entitled owners to one new (free) certificate.

A total of 4,522,917 new primary capital certificates where

thus issued, and NOK 226,145,850 was transferred from the

equalisation reserve to the primary capital. The total number

of primary capital certificates after the split and subsequent

capitalisation issue was 22,614,585.

DIVIDEND POLICY

The financial objective of Sparebanken Rogaland is to attain

profits giving good, stable return on the bank’s total equity,

thus creating values for the primary capital certificate owners

by delivering competitive dividends and value appreciation on

the primary capital certificates. The bank’s profit for the year

will be divided between the primary capital certificate owners

and the savings bank’s fund in concurrence with their

respective percentage of the bank’s equity. In the pro rata

distribution between cash dividend and the equalisation

reserve, there may be variations due to emphasis placed on

consideration of the bank’s equity development.

The profit per primary capital certificate for 2005 was NOK 21.

Based on the bank’s dividend policy and other assessments,

the Board proposes paying a dividend of NOK 14 per primary

capital certificate for 2005.

INVESTOR POLICY

The bank place great emphasis on presenting correct,relevant

and updated information on the bank’s development and

results in order to ensure a high level of confidence in the

investor market. The bank communicates information through

quarterly investor presentations, web pages, press releases

and accounting reports. The bank regularly gives presentations

to international partners, lenders and investors, mainly in

London.

INFORMATION ADDRESSES

SpareBank 1 SR-Bank is also accessible via the Internet, with

information for investors, media and the broker business:

• SpareBank 1 SR-Bank’s homepage is www.sr-bank.no

• Other links for financial data: www.huginonline.no

FINANCIAL CALENDAR FOR 2006

• Ex dividend date: 31 March 2006

• First quarter: 27 April 2006

• Second quarter: 8 August 2006

• Third quarter: 26 October 2006

• The accounting figures for 2006 will be published in

February 2007

OWNERSHIP

It is the objective of SpareBank 1 SR-Bank to attain good

liquidity in its primary capital certificates, and attain a high

level of owner diversification, representing customers and

regional investors, as well as Norwegian and foreign

institutions. Over the course of 2005, the bank has bought net

57,541 own primary capital certificates and as of 31 December

2005 the bank had a reserve of 58,976 primary capital

certificates. The bank uses purchase and sale of its own

primary capital certificates as a measure to improve liquidity.

In 2005, as in previous years, the bank made use of the

authority from the Supervisory Board to sell its own primary

capital certificates (a total of 146,447 certificates) to its

employees at a discount, instead of increasing the primary

capital in connection with an employee placement.

93

At the end of 2005, 10,361 owners of the bank’s primary

capital certificates were registered. This is an increase of 2,281

(corresponding to 28.2 per cent) owners from the end of

2004. The share of the primary capital certificates owned by

foreigners was 19.4 per cent (14.4 per cent), while 44.8 per

cent (47.2 per cent) were resident in Rogaland and Agder.

The 20 largest owners controlled 32.1 per cent (30.3 per cent)

of the primary capital at the end of the year.

The following overview shows the ten largest owners of

primary capital certificates as of 31 December 2005:

Ten major primary certificate owners Number Share

1. Swedbank, Sweden 2,225,850 9.8 %

2. Folketrygdfondet 1,028,300 4.5 %

3. State Street Bank & Trust, USA 805,341 3.6 %

4. Trygve Stangeland 300,940 1.3 %

5. Tveteraas Finans AS 300,010 1.3 %

6 Brown Brothers Harriman & Co, USA 288,914 1.3 %

7. Frank Mohn AS 280,205 1.2 %

8. Clipper AS 260,000 1.1 %

9. JP Morgan Chase Bank, UK 258,440 1.1 %

10. Otto B. Morcken 195,000 0.9 %

Total ten largest owners 5,943,000 26.3 %

The ownership structure as of 31 December for the past five

years has been as follows:

2005 2004 2003 2002 2001

Rogaland share 1) 45% 47% 49% 46% 47%

Other Norwegian owners 36% 39% 34% 37% 38%

Foreign owners 19% 14% 17% 17% 15%

Number of owners 10,361 8,080 7,065 6,412 6,438

1) Including Agder in 2003-2005.

RISK-ADJUSTMENT

Adjusting the taxable original cost for Norwegian owners

using the RISK rules (RISK stands for “adjustment of original

cost of shares by taxed profit”) will take place for the last time

in 2005. The RISK amount as of 1 January 2005 has been set

at NOK 6.06 per primary capital certificate (adjusted for split

and the capitalisation issue in April 2005), while the RISK

amount as of 1 January 2006 is calculated at NOK 1.79 per

primary capital certificate.

RETURN ON THE BANK’S PRIMARY CAPITAL

CERTIFICATES IN 2005

At the end of 2005 the price of the bank’s primary capital

certificates was NOK 230, compared to NOK 144 at the end of

2004 (adjusted for the split and capitalisation issue on 1 April

2005). Including paid dividends, the bank’s primary capital

certificate has yielded in an effective return of 66.1 per cent in

2004. For purposes of comparison, the primary capital

certificate index at the Oslo Stock Exchange (GFBX) has risen

by 47.4 per cent in the same period.

The liquidity in the primary capital of SpareBank 1 SR-Banks

was relatively high in 2005. 36.1 per cent of the issued primary

capital certificates were traded in 2005, compared with 27.2

per cent in 2004.

KEY FIGURES

See separate table

CREDIT RATING

Moody’s Investor Service maintained its rating of

Sparebanken Rogaland (Long Term Bank Deposit) in 2005 at

A2, while the Short Term Deposit was maintained at Prime 1.

Fitch IBCA maintained its rating of Sparebanken Rogaland at

A- (long-term) and F2 (short-term) in 2005.

94


Price performance for 2005

Inde

xed/

reba

sed

Dec 20

04

Dec 20

05

Mar

2005

Jun 20

05

Sep 20

05

ROGG

95

KEY FIGURES

2005 2004 2003 2002 2001

Market price 31 December 230,0 144,0 107,7 60,0 82,2

Taxable price as of 1 January following year 149,18 93,60 69,66 59,67 81,50

Dividend per certificate 14,0 9,2 6,7 3,3 6,3

Direct return 1) 6,1 % 6,4 % 6,2 % 5,6 % 7,7 %

Effective return 2) 66,1 % 40,0 % 85,0 % -19,3 % 8,1 %

Book value per certificate 3) 80,8 72,3 72,8 68,8 72,8

Earnings per certificate 4) 21,0 15,2 10,9 -0,9 8,2

Allocated to equalization reserve per certificate 6,9 5,8 4,2 -0,9 3,5

Payout ratio, net 5) 67 % 61 % 61 % -357 % 77 %

Primary capital certificate percentage 6) 53,0 % 56,3 % 58,4 % 60,2 % 61,2 %

RISK amount as of 1 January following year 1,79 6,06 4,31 -0,97 3,15

Number of issued primary capital certificates 31 Dec. 22 614 585 22 614 585 22 614 585 22 614 585 22 614 585

Own primary capital certificates 31 December 58 976 1 435 115 985 206 670 168 000

Number of primary capital certificates

outstanding 31 December 22 555 609 22 613 150 22 498 600 22 407 915 22 446 585

Primary capital certificates traded

per year (in of issued certificates) 36 % 27 % 31 % 27 % 20 %

1) Dividend as a percentage of the Stock Exchange price at the end of the year.

2) Price rise during the year, plus paid dividends, as a percentage of the Stock Exchange price at the beginning of the year.

3) Book equity multiplied by the primary capital certificate percentage, divided by the number of outstanding certificates

4) Dividend per certificate as a percentage of profit per certificate

5) Dividend per certificate as a percentage of profit per certificate

6) The primary capital, the equalisation reserve and the share premium account as a percentage of the parent bank's equity at the

end of the year (excluding the revaluation reserve)

All figures have been revised in accordance with the split and capitalisation issue carried out on 1 April 2005.

Trading volume for the bank´sprimary capital certificates

2002 2003 2004

Perc

ent

20052001

Return on the bank´s primary capitalcertificates

2002 2003 2004

Perc

ent

2005

Effective return

OSEBX

2001


KEY IGURES DURING THE PAST YEARS IFRS IFRS NGR NGR NGR

Key figures in SpareBank 1 SR-Bank group 2005 2004 2003 2002 2001

Profit and loss account

Net interest income 1 113 1 129 1 095 1 050 979

Net exchange and capital gains/losses 192 131 163 -115 32

Other operating income 733 590 469 278 365

Total operating income 2 038 1 850 1 727 1 213 1 376

Total operating costs 1 012 948 922 838 785

Profit before losses and write-downs 1 026 902 805 375 591

Losses and write-downs 236 357 169

Tap på utlån og garantier -70 81

Result of ordinary activities 1 096 821 569 18 422

Taxes 234 206 160 51 127

Profit for the year 862 615 409 -33 295

Including minority interests 6 3 1 1 1

Majoritetsinteresser 856 612 408 -34 294

Profit and loss account (% of average total assets)

Net interest income 1,76 % 2,03 % 2,12 % 2,13 % 2,13 %

Net change in fair market value of securities 0,30 % 0,24 % 0,32 % -0,23 % 0,07 %

Other operating income 1,16 % 1,06 % 0,91 % 0,56 % 0,80 %

Total operating income 3,22 % 3,33 % 3,34 % 2,46 % 3,00 %

Total operating costs 1,60 % 1,71 % 1,78 % 1,70 % 1,71 %

Profit before losses and write-downs 1,62 % 1,62 % 1,56 % 0,76 % 1,29 %

Losses and write-downs 0,46 % 0,72 % 0,37 %

Tap på utlån og garantier -0,11 % 0,15 %

Result of ordinary activities 1,73 % 1,48 % 1,10 % 0,04 % 0,92 %

Taxes 0,37 % 0,37 % 0,31 % 0,10 % 0,28 %

Profit for the year 1,36 % 1,11 % 0,79 % -0,07 % 0,64 %

Volumes (NOK million)

Total assets 67 237 59 140 52 642 49 538 48 471

Loans to retail customers 41 890 37 264 33 353 29 819 27 935

Loans to corporate sector 19 858 17 169 15 521 15 626 15 831

Deposits from retail customers 17 464 16 787 15 944 15 375 13 815

Deposits from corporate sector 20 066 16 275 12 322 12 259 10 196

Growth in loans to retail customers % 12,4 11,7 11,9 6,7 8,4

Growth in loans to corporate sector % 15,7 10,6 -0,7 -1,3 16,3

Growth in deposits from retail customers % 4,0 5,3 3,7 11,3 10,7

Growth in deposits from corporate sector % 23,3 32,1 0,5 20,2 5,7

Equity (NOK million)

Primary-capital-certificate capital 1 128 905 750 747 748

Savings bank’s reserve 1 536 1 194 1 132 1 002 967

Dividend equalization reserve 1 029 913 872 775 796

Other equity 130 89 55 32 175

Minority interests 7 5 2 2 2

Total equity 3 830 3 106 2 811 2 558 2 688

Key-figures

Return on equity % 24,7 20,2 15,2 -1,3 11,2

Costs as a percentage of income 53,0 53,2 57,0 61,8 56,9

Number of man-years 862 813 829 818 807

Gross non-performing loans as a percentage of loans 0,2 0,4 0,9 0,7 0,7

Net non-performing loans as a percentage of loans 0,2 0,2 0,6 0,4 0,4

Unspecified loss provisions as a percentage of loans 0,27 0,68 0,77 0,83 0,81

Capital adequacy ratio % 11,84 11,57 12,32 10,81 12,69

Core capital ratio % 8,98 9,08 9,11 7,24 7,92

Average total assets 63 376 55 581 51 725 49 351 45 866

96

2002 2003 2004 20052001

Man years, group

Equity and subordinated loanN

OK

mill

ion

Subordinated loan

Other funds

Dividend equalization

Primary capital certificate capital

Saving banks reserve

Total operating costs

2002 2003 2004

Perc

ent o

f ave

rage

tota

l ass

ets

20052001

Deposits and loans

NO

K m

illio

n

Gross loans

Deposits

Profit and loss

NO

K m

illio

n

Result of ordinary activities

Losses and write-downs

Return of equity

2002 2003 2004

Perc

ent

20052001

97

A group willing and able to

contribute

Through its activities the SpareBank 1 SR-Bank Group creates

considerable values. In 2005, we created measurable values

worth almost NOK 1.7 billion.

• 35 per cent (approx. NOK 590 million) returned to

the community through taxes and special charges paid

by the company and its employees, and gifts for public

benefit.

• 20 per cent (approx. NOK 340 million) goes to the

employees, in the form of net wages, pensions and

benefits.

• 28 per cent (approx. NOK 470 million) is distributed to

our primary capital certificate owners in the form of cash

dividends and allocations to the equalisation reserve.

• 17 per cent (approx. NOK 275 million) is retained in the

savings bank's fund with a view to prepare for further

growth in our market area.

A BANK WILLING TO MAKE USE OF THE LOCAL

BUSINESS COMMUNITY

In addition to direct value creation, the Group’s activities also

create spill-over effects by creating a demand for goods and

services from local businesses.

In the course of/During the past year the SpareBank 1 SR-

Bank Group purchased of various goods and services amounted

to more than NOK 450 million. In addition to consuming IT

services on a large scale, the Group expends large sums on

communication (telecommunication, postage and freight

charges) and marketing – both services and materials. The

Group’s considerable number of buildings located throughout

the Group’s market area also requires maintenance work,

giving work to craftsmen of all trades. In as far as possible, we

use local suppliers of goods and services, provided they are

competitive. Our willingness to make use of local business

resources implies that most of the overall goods and services

we require are supplied by local players.

A BANK THAT CONTRIBUTES TO THE COMMUNITY

The SpareBank 1 SR-Bank Group is among Rogaland County's

largest taxpayers. Almost NOK 230 million of last year’s profit

goes to the community through taxes. In accordance with the

Storting’s tax decisions, these funds are channelled to public

authorities. The autorities goes on to distribute these assets

among a number of public services. The services we help fund

in this manner therefore depend on the decisions made by

our elected representatives. In addition to tax, the Group also

pays significant amounts in charges and fees, mostly in the

form of value added tax. The amount is well above NOK 60

million.

A BANK THAT IS WILLING AND ABLE TO SUPPORT ITS

LOCAL COMMUNITY

The SpareBank 1 SR-Bank Group has earmarked NOK 92

million of its 2005 profit for serving the public good in our

district. This is the maximum amount we are allowed to

allocate to such ends under the applicable regulations. In

total, we have allocated NOK 200 million to be endowed

on/upon worthy organisations and projects over the last 5 years.

98


Allocation of value creation 2005

Employees 20 %

PCC-owners28 %

The community35 %

SpareBank 1 SR-Bank Group17 %

These are resources that benefit many people living in our

local community – directly and indirectly. The funds have

been distributed among a large range of activities, from sup-

port to NGOs to building civic institutions on a larger scale.

The funding of the Sandnes Knowledge Centre with NOK 10.2

million and the Concert House in Stavanger with NOK 25

million are examples of the latter. In total, the group funded

different activities for the public good by NOK 51 million

directly from its endowment fund in 2005.

Every single year, numerous local associations and societies

receive large and small amounts in order to maintain their

level of activities. This type of support is important because it

contributes to diversity in organisational and cultural life. In

2005 we awarded about NOK 12 million to organisational and

cultural life through sponsor agreements and supportive

advertising. These are charged to the Group’s current

activities and come in addition to the NOK 92 million set

aside for projects serving the public good in 2006.

JOBS

Almost 940 employees work for the SpareBank 1 SR-Bank

Group. In total the employees received over NOK 340 million

in net wages, pensions and benefits in 2005. We are among

the largest employers in our district. We place great emphasis

on being an attractive employer, attracting knowledgeable and

able people. Our presence as a large, locally based financial

institution contributes to the diversity in the business

necessary for our district to remain a good and attractive

place to live.

In 2005 the employees paid a total of NOK 138 million in

taxes. These tax assets are in addition to the almost NOK 230

million paid by the group, and also help maintain a well-

developed range of services offered by the public authorities

in the region.

A BANK THAT GIVES ITS OWNERS SOLID RETURNS

A significant percentage of the equity the SpareBank 1 SR-

Bank Group requires to run its operations has been gathered

by issuing primary capital certificates. Almost half of these

primary capital certificates are owned by people, companies

and institutions in Rogaland and Agder. In order to make

owning these primary capital certificates attractive, it is

important that we offer competitive rates of return. This

requires that we continually achieve solid profits. These

profits raise the value of the primary capital certificates and

allow us to pay a competitive dividend - both through cash

dividends and allocations to the equalisation reserve that can

ensure the payment of competitive cash dividends in times

with less solid results. In 2005, a total of NOK 473 million

was allocated to primary capital certificate owners, of which

NOK 317 million was cash dividends, and NOK 156 million

was allocated to the equalisation fund.

A BANK THAT IS WILLING AND ABLE TO CONTINUE

GROWING

The SpareBank 1 SR-Bank Group shall, through its activities,

further the continued growth and development of Rogaland,

Agder counties and now also Hordaland County. We shall be

a group with a local identity, a bank that is able and willing to

shoulder its share of the responsibility for further developing

Rogaland, Agder and Hordaland as vigorous, attractive regi-

ons to live in. In order to achieve this, we must be able to

grow in tune with the development of the local community we

serve. That is why we have allocated more than NOK 275

million of our profits to ensuring that the Group continues to

have the strength to expand in the future. In addition comes

the allocation of NOK 156 million to the equalisation reserve.

99

In the presence of Sandnes mayor Jostein

Rovik, the manager of Sandnes Museum og

Vitensenter, Gro Persson receives a gift cheque

of NOK 10.2 million for the Knowledge Centre

from Inglen Haugland in SpareBank 1

SR-Bank.

What do your children know about sine, cosi-

ne and tangent? The Sandnes Knowledge

Centre is one of six such centres nationwide,

scheduled for completion in 2008. The centre

is to be a popular science experience centre,

especially aimed at stimulating the interest of

children and young people in science subjects,

subjects which will be crucial to the business

community in the years to come. SpareBank 1

SR-Bank has contributed NOK 10.2 million

from its endowment fund to the establishment

of the centre.

Corporate governance

The corporate governance of SpareBank 1 SR-Bank include the

goals and main principles according to which the Group is

managed and controlled in order to ensure that the interests

of the primary capital certificate owners, the depositors, and

other groups are safeguarded. The management of the

Group’s operations shall ensure prudent asset management

and greater assurance that communicated goals and

strategies are attained and realised.

SpareBank 1 SR-Bank has therefore adopted the following

overall principles for stockholder management and corporate

governance. These are built on the three principal pillars of

openness, predictability and transparency.

• Creation of value for the primary capital certificate owners

and other interest groups

• A structure that ensures goal-oriented and independent

management and control

• Systems that ensure measurement and accountability

• Effective risk management

• Well set-out, easily understandable and up-to-date

information

• Equal treatment of primary capital certificate owners and

well-balanced relations with other interest groups

• Compliance with laws, regulations and ethical standards

• The Group’s corporate governance are based on the

recommendations provided in the “Norwegian Code of

Practice for Corporate Governance”

VALUE CREATION FOR PRIMARY CAPITAL CERTIFICATE

OWNERS AND OTHER INTEREST GROUPS

SpareBank 1 SR-Bank's dividend policy:

”The financial objective of Sparebanken Rogaland’s activities is to

attain profits giving good and stable return on the bank’s total

funds, thus creating values for the primary capital certificate

owners through competitive dividends and value appreciation for

the primary capital certificates. The bank’s profit for the year will

be divided between the primary capital certificate owners and the

saving bank’s reserve, in concurrence with their respective

percentage of the bank’s equity. In the pro rata distribution bet-

ween cash dividend and the equalisation reserve, there may be

variations in the emphasis on the bank’s equity development.”

The required return on net capital is equivalent to the net

long-term government bond rate, with the addition of six

percentage points for risk premium.

A STRUCTURE THAT SECURES GOAL-ORIENTED AND

INDEPENDENT MANAGEMENT AND CONTROL

The Group’s management structure is founded on the bank’s

vision, goals, strategies and value base.

Management and control include all processes and control

measures implemented by the Group’s management in order

to ensure effective business operations and implementation of

the Group’s strategies. In order to create greater assurance that

primary capital certificate owners and the other interest groups

receive correct information on business and financial matters,

the Group has several independent supervisory bodies.

The Group’s management and supervisory bodies therefore

have their respective tasks and objectives, and the roles and

responsibility of the various bodies are ultimately defined by

(Norwegian) law, regulations and the Articles of Association.

MANAGEMENT BODIES

The Supervisory Board

The Supervisory Board’s principal tasks include the following:

• Supervising the Board of Directors’ management of

operations

• Adopting the accounts

• Election of members to the bank’s Board of Directors,

the Audit Committee and the Election Committee

• Choosing an external auditor

In joint meetings with the Board of Directors, the Supervisory

Board makes decisions on the following matters:

• Appointment of the Chief Executive Officer

• Establishing and shutting down branch offices in

municipalities where the bank does not have its principal

office, other branches or department offices

100


• Allocation of the amount which may, pursuant to Section

28 of the (Norwegian) Saving Banks Act, be used for the

public good

• Taking up subordinated loan capital

When preparing the Supervisory Board’s meetings, the bank

shall ensure that all members receive notice of the meeting by

mail, not later than eight days before the meeting, cf. Section

11 of the Saving Banks Act. The Supervisory Board may not

make decisions in matters other than those specifically listed

in the notice of the meeting.

The Supervisory Board has 56 members and 56 deputy

members, representing the following groups as follows:

• Primary capital certificate owners: 22 members and 22

deputy members

• The municipalities in Rogaland and Aust- and Vest-Agder:

10 members and 10 deputy members

• Depositors: 10 members and 10 deputy members

• Staff: 14 members and 14 deputy members

The Supervisory Board normally has three meetings per year.

Minutes from the Supervisory Board’s meetings of the past

three years are published on www.sr-bank.no.

Election committee

The Supervisory Board elects the Election Committee among

the members of the Supervisory Board. The Election

Committee consists of five members, two of whom represent

the primary capital certificate owners. The following groups

are represented with one member each: publicly elected

representatives, depositors and employees. From each group,

one deputy member is elected. The term of office is two years

at a time.

The election committee prepares:

• The election of the chairman and deputy chairman to the

Supervisory Board

• The election of members and deputy members for the

primary capital certificate owners and the depositors to the

Supervisory Board

• The election of the members and the deputy members to

the Board of Directors, not including the employees’

representatives

• The election of the members and deputy members to the

Audit Committee

• The election of the members and deputy members to the

Election Committee

In its work, the Election Committee shall consider the fact

that the Supervisory Board, the Audit Committee, the Election

Committee and the Board of Directors should have the skills

and expertise required for their tasks. In addition, the Election

Committee shall work towards a degree of district

representation, and ample representation of both genders.


The Board of Directors is elected by the Supervisory Board

and consists of nine members. One of these is elected by the

employees. The Chief Executive Officer is a member of the

Board, cf. Section 14 of the Saving Banks Act and the bank’s

Articles of Association. The first deputy member and the first

deputy member for the employees’ representative have the

right to appear and speak before the Board.

All elected members of the Board of Directors are elected for

a term of two years. Deputy members are elected for a term of

one year. Both members and deputy members may be re-

elected. In order to ensure continuity in board membership,

half of the Board’s members are elected every other year.

The Board of Directors has the paramount responsibility for

the management and organisation of the Group in accordance

with the law, the Articles of Association and regulations issued

by the Supervisory Board. The Board is responsible that the

assets managed by the Group are managed in a safe and

appropriate manner. It follows from this that the Board is also

obliged to ensure that accounting and asset management are

supervised in a reassuring manner. In exercising their respon-

sibility and carrying out their tasks, the members of the Board

shall exhibit prudence and discretion.

The Board also has the following principal tasks: determining

instructions for day-to-day management, strategy, budget,

market and organisational objectives; and appointing and

discharging the manager of the internal audit.

At regular intervals, the Board receives reports on profit

performance; market developments; management, personnel

and organisational development, and risk picture and risk

exposure trends for the Group.

In addition to the above, the Chief Executive Officer’s score

cards containing financial, organisation, market and quality

targets are presented periodically.

The Group’s ethical rules state that “representatives and

employees shall not participate in considering and decision-

making in cases if this may places the person’s impartiality in

doubt.” None of the board members elected by the

Supervisory Board shall have any employee or commissioned

101

Supervisory Board

ElectionCommittee

Board

Audit Committee

External Auditor

Internal Auditor

CEO

Overall Risk Management

GOVERNING BODIESINDEPENDENT

CONTROL BODIES

relationship to the Group beyond their office as

representatives.

When considering commitments in which the Board members

hold office or are stakeholders, the person in question shall

declare himself or herself disqualified and leave the meeting.

The members of the Board are defined as primary insiders,

and must comply with the Group’s regulations with regard to

acquiring primary capital certificates in SpareBank 1 SR-Bank

and the SpareBank 1 Alliance banks. This also applies to the

purchase of shares in companies that are in a customer

relationship with SpareBank 1 SR-Bank.

Pursuant to Norwegian law, the Board of Directors is jointly

responsible for the decisions made. In view of this, the Board

has not appointed any standing sub-committees. Instead, the

Board appoints ad hoc committees as required. These prepare

individual cases for consideration by the Board, for instance

in connection with considering remuneration schemes in the

organisation.

The Board members receive an annual remuneration that is

determined by the Supervisory Board. No remuneration is

paid in addition to this. Further information on remuneration

and loans to Board members is supplied in the annual

accounts.

The Board’s work is regulated in the Board Regulations, and

annual plans are drawn up for the Board’s work. Every year,

the Board assesses its work. This self-assessment evaluates

work procedures, case processing, meeting structure and the

priority given to various issues.

As a rule, the Board has eleven meetings per year.

The Chief Executive Officer

The Chief Executive Officer is responsible for the day-to-day

management of the Group’s operations in accordance with

the law, the Articles of Association, authorities and

instructions. Cases that are of an unusual nature in relation

to the Group’s activities or are of great significance are

presented to the Board.

If provided with authority by the Board, or if waiting for a

board decision would imply a significant disadvantage to the

Group, the Chief Executive Officer may, however, decide

certain matters.

The Chief Executive Officer shall implement the Group’s

strategy, as well as, in cooperation with the Board, further

develop its strategy.

Every month, the Chief Executive Officer briefs the Board on

the Group’s operations, its position and profit performance,

and participates as a member of the board in the Board’s

consideration of cases. The Board annually stipulates the

salary and other remuneration to the Chief Executive Officer.

SUPERVISING BODIES

Unit for overall risk management

The unit is independent of the customer units, and is

responsible for:

• Further development of the Group’s overall risk

management framework

• Overall risk management and follow-up

A separate controller function has been set up to cover the

areas of credit risk, operational risk and currency and finance

risk.

The Audit Committee

The Audit Committee is elected by the Supervisory Board and

consists of five members and two deputy members. The

members’ term of office is two years. The Audit Committee’s

chairman is elected by the Audit Committee.

The Audit Committee shall supervise that the Group’s operati-

ons are conducted in an appropriate and reassuring manner

in accordance with the law and regulations, Articles of

Association, guidelines determined by the Supervisory Board,

as well as orders from the Financial Supervisory Authority of

Norway.

The Audit Committee normally has 11 meetings per year.

The External Auditor

The external auditor’s principal task is to assess whether the

Group’s annual accounts have been submitted in accordance

with laws and regulations. The external auditor shall also

assess whether the assets are managed in a reassuring

manner and with prudent supervision. The external auditor is

chosen by the Supervisory Board.

The external auditor reports to the Supervisory Board and the

Audit Committee on these matters.

The Internal Auditor

The internal audit is a board and management tool for

monitoring that the risk management processes are goal-

oriented, effective, and working as planned. The Group’s inter-

nal audit operations are handled by an external supplier of

audit services, ensuring independence, expertise and capacity.

In terms of the organisation the internal audit reports to the

Board. The internal audit’s reports and recommendations on

improving the Group’s risk management are continually

reviewed in the Group.

Systems that ensure measurement and accountability

Effective management by objectives is necessary to help the

Group continually measure whether it is attaining its strategic

objectives. The Group has developed guidelines and effective

measured values according to which the business units are

measured and managed. Other effective management tools

used in the Group are strategic planning, forecasting and

budget management.

Accountability is ensured through clear communication of

102


business plans and adopted objectives to the employees. This

is carried out via clearly defined roles, responsibilities and

expectations, in which the managers are made accountable

for goal attainment within the various fields of responsibility.

Remuneration schemes are based on the management’s and

employees’ performance in relation to these measured values

EFFECTIVE RISK MANAGEMENT

Effective risk management is an important factor in assuring

that the Group attains its strategic objectives. Risk manage-

ment is an integrated part of the management’s decision-

making processes, and a crucial factor in organisation,

procedures and systems.

The Group carries out analyses, management and follow-up of

significant risks as part of its continuous risk management

process. This is to ensure that its operations are in accordance

with the approved risk profile and adopted strategies. The

Board and the management review the Group’s risk profile at

least once per year with regard to strategic, operational and

transactional matters. At regular intervals, the development of

the risk picture is reported to the Chief Executive Officer and

the Board.

WELL SET-OUT, EASILY UNDERSTANDABLE AND

UP-TO-DATE INFORMATION

Well set-out, easily understandable and up-to-date information

cements the relationship of trust among the owners, the

Board and the management, and ensures that the Group’s

interest groups are continuously given the opportunity to

assess the Group and relate to it at the same time.

The Group’s information policy therefore emphasises an

extensive dialogue with various interest groups. Openness,

dependability and transparency are essential in this dialogue.

SpareBank 1 SR-Bank also gives importance to inspiring the

investor market with trust through correct, relevant and up-

do-date information on the Group’s performance and results.

Quarterly investor presentations are held in order to keep the

market informed. In addition, the Group regularly gives

presentations for international partners, lenders and

investors. All quarterly reports, press releases and

presentations are available on www.sr-bank.no.

EQUAL TREATMENT OF PRIMARY CAPITAL CERTIFICATE

OWNERS AND A WELL-BALANCED RELATIONSHIP WITH

OTHER INTEREST GROUPS

General

The Group’s relations with its interest groups, including

primary capital certificate owners, depositors, lenders,

customers, employees and society at large, shall build on the

bank’s vision, goals, strategies and value base. The value base

shall be realised through a long-term approach, openness,

and honesty, and by acting responsibly, showing respectful-

ness, and willingness and ability to improve.

Primary capital certificate owners

The Board’s most important objective is to safeguard the

Group’s, and thus the primary capital certificate owners’,

long-term interests in all connections and regards.

The Group shall, through continuous dialogue, give all prima-

ry capital certificate owners the opportunity of expressing their

views on the bank’s operations and development. The Group’s

profile shall give it trustworthiness and predictability in the

market, and it shall aim for long-term and competitive rates of

return. In order to ensure a balanced and correct valuation of

the primary capital certificates, SpareBank 1 SR-Bank shall

provide the market with relevant and extensive information.

Depositors

One of the Board’s principal tasks is to secure the depositors’

assets. This shall be done through financial development,

resulting in prudent asset management, and not taking any

risks that are greater than is prudent on the basis of the

Group’s earnings and capital adequacy ratio.

Lenders

Through the overarching objective of solid and sound bank

operations that enable the Group to meet its future

commitments, the Group’s strategy for liquidity management

attends to the Group’s as well as the lenders’ interests. In

addition, the strategy shall help reduce the likelihood of

questions being raised or uncertainty emerging regarding the

Group’s solidity.

Customers

In order to create the best possible foundation for the

Group’s development, the Group shall engage in active

dialogue with its customers. This shall be part of normal

customer contact. In addition, user surveys and customer

panels will be used. All customer contact shall be based on

business-like principles, the Group’s value base, ethical

guidelines and the vision of the recommended bank.

By giving the value base a concrete, practical meaning in day-

to-day life, the Group wishes to promote collaboration among

its various employees and units – with the objective of

providing its customers with optimum solutions, and high

quality of service.

It is the Board’s responsibility to ensure that the Group

facilitates and maintains effective, appropriate and ethically

justifiable products and advice, thus building the best pos-

sible customer relations.

The employees

The Group’s value base states how the Group’s employees

shall act with a view to ethics and conduct. Management and

collaboration are rooted in the Group’s value base, procedures,

guidelines and work regulations. In order to succeed, all the

employees shall have expertise and quality in everything they

do.

The Group shall have a corporate culture that supports and

further develops the organisation’s employees to become a

dynamic winning team. The Group places great emphasis on

103

a corporate culture that promotes well-being, pleasure in

work, and a good working environment. This is measured

through quarterly surveys.

The Group’s employees shall act in a dependable manner,

have high ethical standards and show respect for the bank’s

tradition as a regional and locally-rooted savings bank.

Security for employees and customers is designed with a view

to protecting the employees and customers against physical

and mental harm, as well as protecting the assets the Group

manages.

Social responsibility

With its regional identity and its network of branches,

SpareBank 1 SR-Bank is an integrated part of the local com-

munity, and is actively involved in creating and participating

in local and regional meeting places. Profitability is a precon-

dition for contributing to local development projects. As a

savings bank, SpareBank 1 SR-Bank is able to allocate parts of

its profits for the benefit of the public good by placing them in

the bank’s endowment fund. This is used purposefully to

promote growth and development in the region.

Gifts and sponsor contributions shall be grounded in the

bank’s vision and business idea, and shall be distributed in a

manner that supports wide coverage and diversity.

COMPLIANCE WITH LAWS, REGULATIONS AND

ETHICAL STANDARDS

Ethics and morals are important preconditions for long-term

profitability and goal attainment. Compliance with laws,

regulations and ethical standards are further preconditions for

sound bank operations. The Group has drawn up ethical

guidelines and internal instructions for own transactions and

insider trading. The instructions describe the laws and

regulations that apply to all employees, temporary staff and

representatives, both internally and in relation to the Group’s

interest groups. The ethical guidelines are communicated

clearly within the organisation and define desirable and

undesirable conduct. All employees are bound to

confidentiality and shall sign a promise of confidentiality.

The obligation to maintain confidentiality shall not impede

employees from notifying the appropriate bodies if there are

matters within the Group that they assume to be in breach of

applicable laws, regulations and instructions. If employees

become aware of matters that are in breach of regulations,

this shall be reported to the immediate superior. The promise

of confidentiality and the ethical guidelines are re-examined by

all employees every other year through a verification of their

understanding, acceptance and compliance. Breach of the

guidelines and routines are not accepted, and serious matters

are automatically reported to the police.

The Group’s intranet contains a security gateway that deals

with regulations and emergency preparedness plans.

104


For several years, SpareBank 1 SR-Bank has put substantial

resources into developing methods, processes and risk

management systems on a par with the top comparable

international banks.

The Group’s risk management shall sustain the Group’s

strategic development and goal achievement. Risk manage-

ment shall also ensure financial stability and prudent asset

management. This shall be attained through:

• A sound risk culture, characterised by a high level of risk

management awareness

• A good understanding of which risks that drive earnings

and risk costs, and, create a better decisionmaking basis

• Aim for optimum capital allocation within the adopted

business strategy

• Avoiding unexpected negative events that could be

detrimental to the Group’s operations and market reputation

• Utilising of synergy and diversification effects

The Group has a moderate risk profile. According to the

profile, no single event shall be able to damage the Group’s

financial position seriously. The Group has the objective of at

least maintaining its current international rating. This is to

encure long-term, good access to ordinary funding from the

capital markets. The size of the Group’s subordinated capital

corresponds with this ambition.

The Group’s risk is quantified in calculations of expected loss

and the need for risk-adjusted capital (economicial capital)

in order to cover unexpected loss. Expected loss and risk-

adjusted capital are calculated for all principal risk categories,

and for all the Group’s business areas. Expected loss describes

the amount the Group must, statistically, expect to lose over

a twelve-month period. Risk-adjusted capital describes how

much capital the Group believes it will require in order to

cover the actual risk it has assumed. As safeguarding against

all losses is impossible, the Group has stipulated that the

risk-adjusted capital shall cover 99.9% of all possible,

unexpected loss. Statistical methods have been used for

calculating expected loss and risk-adjusted capital, but in

some cases the calculations nevertheless require expert

opinions.

The return on risk-adjusted capital is one of the most

important strategic performance indicators in the internal

management of SpareBank 1 SR-Bank. This implies that the

business units receive capital in accordance to the calculated

risks related to the business, and that return on capital is

monitored continuously. Calculating risk-adjusted capital

allows the Group to compare risk across risk categories and

business units. In addition, risk is measured and followed up

through measuring, among other things, limit use and

important portfolio risk indicators.

The Group follows up overall risk exposure and risk develop-

ment through periodical risk reports to the management and

the Board of Directors. The risk management department

carries out the overall risk monitoring and reporting. The

department is independent of the Group’s various business

units. Independent risk reporting is an important risk

management principle in SpareBank 1 SR-Bank.

RESPONSIBILITY FOR RISK MANAGEMENT

AND CONTROL

Risk management and control are a part of SpareBank 1 SR-

Bank’s management of operations described in the chapter

“Corporate governance.” Great weight has been attached to

responsibility through personal authorities, and independence

among the business units and organisational units

monitoring the business units. In order to ensure effective

risk management in SpareBank 1 SR-Bank, the responsibility

is divided among different roles in the organisation, as shown

in the diagram below:

105

Risk and capital management

SpareBank 1 SR-Bank’s Board of Directors is responsible for

ensuring that the Group’s equity prudent in view of the

adopted risk profile and regulatory requirements. The Group’s

Board stipulates the overall objectives, such as the risk profile,

required rates of return and how the assets shall be allocated

among the various business units. The Board also stipulates

the overall limits, authorities and guidelines for risk manage-

ment in the Group, as well as all significant aspects of the risk

management models and decision-making processes.

The Boards of Directors in the various subsidiaries attend to

their tasks in the individual companies in concurrence with

decisions made by the Group’s Board of Directors.

The Chief Executive Officer is responsible for risk manage-

ment. This means that the Chief Executive Officer is

responsible for effective risk management systems being

implemented in the Group and the risk exposure being

monitored. The Chief Executive Officer is also responsible for

delegating authorities and reporting to the Board.

The business units are responsible for the day-to-day risk

management within their areas of responsibility and they

shall, at all times, ensure that the risk management and risk

exposure are within the limits and overall management

principles that have been adopted by the Board or the Chief

Executive Officer.

Credit support is a support function within the business

segments responsible for ensuring that decision-making

processes (and the basis for making these decisions) in

connection with loan and credit applications are in accordance

with credit policy and credit processing procedures. The

department draws up proposals for credit strategy indicators

and guidelines. In addition, the department handles all

commitments in which the debtor is subject to winding-up

proceedings, or where it follows from the Group’s procedures

that compulsory winding-up or collection shall be implemented.

The risk management department is organised so as to be

independent of the business units. The department reports

directly to the Chief Executive Officer. The department is

responsible for the Group’s risk models and for further

developing effective risk management systems. The department

is also responsible for independent risk assessment, risk

reporting and overall risk monitoring in the Group.

Internal audit is a Board and management tool for monitoring

that the risk management process is goal-oriented, effective

and working according to plan. The Group’s internal audit

function is handled by an external supplier. This ensures

independence, expertise and capacity. In organisational terms,

the internal audit reports to the Board. The internal audit’s

reports and recommendations for improvements in the

Group’s risk management are continually reviewed in the

Group.

By and large, there are two committees within the risk

management field that assist the Chief Executive Officer with

providing a basis for making decisions and following up:

Credit Committees. The Group has separate credit

committees for the corporate market, the retail customer

market and subsidiaries.

The credit committees are responsible for submitting an

independent recommendation to the authorised unit or

person. They carry out their work as follows:

• Assessment of loan and credit applications in accordance

with applicable credit strategies, credit policy, granting

regulations and credit processing procedures

• Placing special emphasis on identifying risk in connection

with individual applications and carrying out an

independent credit risk assessment

• Ensuring that the potential consequences of the various

risks have been clarified

The Balance Sheet Committee is responsible for considering

matters in connection with asset structure and liquidity risk,

market risk, transfer pricing of capital and compliance with

the limits adopted by the Board.

ASSET MANAGEMENT

SpareBank1 SR-Bank’s objective in connection with asset

management is to ensure that financing is obtained and

deployed effectively, and that the Group has a prudent capital

adequacy ratio. This is secured through an appropriate

process for planning and follow-up of the Group’s asset

management:

• The process is risk-driven and comprises all significant risk

types for the Group

• The process is an integrated part of the business strategy,

the management process and the decision-making

structure

• The process is forward-looking

• The process is based on recognised and reassuring

methods and procedures for risk measurement

• The process is reviewed regularly, and at least once

annually year by the Board of Directors

106


Board of Directors

Stipulates the overall risk profile and ensures that the Group has sufficient subordinated capital in accordance with the level

of risk taken and the demands placed upon us by the authorities.

Chief ExecutiveOfficer, Business

units andSupport Dep.

Riskmanagementdepartment

Internalaudit

1. Line ofdefence

Day-to-dayrisk

management

2. Line ofdefence

Overall risk management, includingreporting responsibility

and supervision

3. Line ofdefence

Independentconfirmation

Instructions, limits and authorisations Formal reports

The adopted business strategy includes the long-term objective

that funds shall, in as far as possible, be allocated the segments

that give the highest risk-adjusted rate of return.

The Group’s objective is a core capital adequacy ratio of 8%

and a capital adequacy ratio of 12%. At the end of 2005, the

capital adequacy ratio for the Group was 11.84%, of which

8.98% was core capital.

CREDIT RISK

Credit risk is defined as the risk of loss due to customers or

counterparts being unable or unwillig to meet their

commitments to the Group.

Credit risk is managed via the Group’s credit strategies, credit

policy guidelines and the procedures for granting loans.

The credit strategy is adopted by the Board of Directors once

per year. The Group’s credit strategy concentrates on risk-

sensitive indicators and limits. These are put together such as

to manage the Group’s risk profile in the credit segment as

appropriately and effectively as possible. This is primarily

done by linking indicators and limits to risk-adjusted capital,

risk-adjusted rate of return and expected loss respectively. In

addition, the credit strategy stipulates limits to exposure and

risk profile at portfolio level, for industries and in relation to

individual customers.

The Board is responsible for the Group’s granting of loans

and credit. Within certain limits, the Board delegates authority

to the Chief Executive Officer, giving him the operational

responsibility for decisions on loan and credit matters. The

Chief Executive Officer can, within his authorities, delegate

these authorities to others. The delegated authorities are

linked to expected loss and probability of default on

commitments.

The Group actively uses risk classification systems, risk

pricing models and a newly-developed portfolio management

system to manage and monitor the lending portfolio in

accordance with credit strategies, credit policy guidelines and

the procedures for granting loans. Together with the credit

consideration procedures, this entails explicit requirements to

credit consideration processes and risk assessments. The

above-mentioned risk management systems cover customers

both in the corporate and retail market. The risk models that

form the basis for the risk management systems are based on

statistical calculations, and are continually further developed

and tested. The models are based on three components:

1. Probability of default. Customers are classified in default

categories on the basis of their probability of defaulting on

their commitments within a twelve-month period. Probability

of default is calculated on the basis of historical data series

for financial key figures, as well as non-financial criteria such

as conduct and age. In order to group customers by default

probability, nine default categories (A - I) are used. The table

below shows the intervals for default probability for each of

the default categories.

SpareBank 1 SR-Bank’s default categories

Default category Minimum limit Maximum limit

A - 0.10%

B 0.10% 0.25%

C 0.25% 0.50%

D 0.50% 0.75%

E 0.75% 1.25%

F 1.25% 2.50%

G 2.50% 5.00%

H 5.00% 10.00%

I 10.00% 99.99%

In addition, the Group has two default categories (J and K) for

customers with commitments that have been defaulted on

and/or written down.

Below, the distribution of the commitment volumes within the

various default categories is given in percentages (excluding

commitments that have been defaulted on and written down).

The commitments include all types of capital services

provided customers by the Group in the form of loans,

credits, guarantees including letters of credit, accrued, unpaid

interest and commissions and forward transactions with

currency and interest rate instruments. Approved, but not

utilised limits have also been included.

2. Exposure at default. This is a calculated quantity showing the

extent of exposure in the event of customer default.

3. Loss given default. This is an assessment of how much the

Group stands to lose if the customer defaults on commit-

ments. The assessment takes into account the collateral

provided by the customer and the Group’s costs in connection

with collecting on defaulted commitments. These amounts

are stipulated on the basis of the Group’s historical experi-

ence.

107Distribution of loans within the defined

default classifications*

Perc

enta

ge

Default classifications

Ex. defaults and write-downs

Seven categories (1 - 7) are used to classify loss given default.

The three above-mentioned components also form the basis

for the Group’s portfolio classification and statistically based

calculations for expected loss and the need for risk-adjusted

capital. The objective of the portfolio classification is to provide

information on the level and development of the overall credit

risk in the overall portfolio, and the portfolio is therefore

divided into five risk categories: minimum, low, medium, high

and maximum risk. The grouping into risk categories takes

place on the basis of statistical calculations for expected loss

for each commitment, based on the commitment’s probability

of default, exposure at default and loss given default.

SpareBank 1 SR-Bank’s risk categories

Minimum limit Maximum limit

Risk category for expected loss for expected loss

Minimum 0.00% 0.04%

Low 0.04% 0.20%

Medium 0.20% 0.75%

High 0.75% 1.25%

Maximum 1.25% 100%

In addition, there is a separate risk category for commitments

that have been defaulted or written down.

The graph below shows the distribution of commitment

volumes (excluding commitments that have been defaulted

on or written down) in percentages, within the various risk

categories. The commitments include all types of capital

services offered customers through loans, credits, guarantees

including letters of credit, accrued, unpaid interest and com-

missions and forward transactions with currency and interest

rate instruments. Approved but not utilised limits have also

been included.

The underlying credit risk in the corporate and retail market

portfolio has performed well in 2005. This is linked to the

Group’s restrictive practice in connection with granting high-

risk commitments, the positive financial trend in the Group’s

market segment and the low level of interest rates. The Group

has a low risk profile within the credit field.

LIQUIDITY RISK

Liquidity risk is the risk that the Group will be unable to re-

finance its debt or be unable to finance asset increases

without significant extra cost. The management of the

Group’s financing structure is based on an overall liquidity

strategy. This is reviewed and adopted by the Board of

Director minimum once per year. The liquidity risk is reduced

by spreading funding among different markets, funding

sources, instruments and terms. The Group’s currency/

financial department is responsible for managing liquidity,

while the risk management department monitors and reports

limit use in accordance with the liquidity strategy of the

management and the Board of Directors.

The Group’s customer deposits are its main source of funding.

The capital adequacy ratio of deposits has remained at a high,

stable level throughout 2005, and was 60.7% at the end of

2005. This level corresponds to that of the end of 2004.

As at 31 December 2005, the Group’s liquidity situation is

good. International and national sources of funding are evenly

distributed. The Group also has undrawn, committed drawing

rights. The liquidity indicator of Norges Bank, the Norwegian

Central Bank, is used as a parameter in liquidity management.

The liquidity indicator is arrived at by dividing the Group’s

stable funding with its non-liquid assets. Stable financing

includes gross lending to the public, other receivables, seized

assets, fixed-asset investments and real capital. As at 31

December 2005, the indicator value was 100.8%, as compared

with 97.3% at the end of 2004.

MARKET RISK

Market risk is the risk of loss due to changes in observable

market variables such as interest rates, exchange rates and

security markets. The risk of security price changes owing to

changes in general credit prices and credit risk tied to

individual securities is also considered market risk.

In SpareBank 1 SR-Bank market risk largely arises from the

Group’s investments in bonds, certificates and shares, and as

a consequence of activities that are carried out to support

bank operations, such as funding, and interest rate and

currency trading.

Market risk is measured and monitored using limits that have

been adopted by the Board. The limits are reviewed and

renewed annually. The limits are stipulated on the basis of

stress tests and analyses of negative market trends.

SpareBank 1 SR-Bank has moderate exposure to market risk.

Interest rate risk is the risk of loss arising from changes in

interest rate levels. This is measured and monitored using the

above-mentioned framework. Interest rate risk largely comes

from fixed interest rate lending and funding in fixed-rate

securities. The interest rate risk for all interest rate positions

108


Distribution of loans within the defineddefault classifications*

Perc

enta

ge

Level of Risk

Ex. defaults and write-downs

Lowest Low Medium High Highest

can be expressed by looking at the change in value of interest

rate instruments in the event of an interest rate change of

1%. The Group’s analyses show the effect of the above-menti-

oned change in interest rates for different term limits, and

there are separate limits for interest rate exposure within the

individual periods. Interest terms on the Group’s instruments

are usually short and its interest rate risk is therefore low.

Exchange rate risk is the risk of loss caused by exchange rate

changes. The Group measures currency risk in net positions

in different currencies. The limits for exchange rate risk are

defined as limits for maximum aggregated currency positions

and maximum positions in individual currencies. The Group’s

currency risk is well within the position limit stated in the

regulations, and the currency risk is low.

Security price risk is the risk of loss following from changes in

the value of the Group’s investments in bonds, certificates

and equity securities. The value of these securities depends

on factors that are specific to the individual issuers and on

general market fluctuations. The Group’s risk exposure to this

form of risk is governed by maximum investment limits for

the various portfolios.

OPERATIONAL RISK

Operational risk can be defined as the risk of loss following

from:

• Human error and inadequate expertise

• ICT system failure

• Imprecise policy, strategy or procedures

• Crime and internal irregularities

• Other internal and external causes

The Group’s risk management and monitoring processes are

so effective that no single operational risk event shall be able

to seriously damage the Group’s financial position.

The risk strategy for operational risk is approved minimum

once per year by the Board of Directors. The risk strategy

concentrates on risk-sensitive indicators, such as expected

loss and calculations of risk-adjusted capital. The Group has

a moderate operational risk profile.

Through the use of systematic risk analyses and implementation

of new, preventive measures, the Group has reduced its

operational risk in 2005. The Group uses its own system for

reporting and follow-up of undesired events, so that the

Group can, on the basis of these reports, continually improve

its processes.

New rules for capital adequacy ratio (Basel II)

It is planned that the EU’s new directive for capital adequacy

ratio will be introduced to Norway as of 1 January 2007. The

new regulatory framework is based on proposals for a new

standard for capital adequacy ratios from the Bank for

International Settlements (BIS). The new regulatory frame-

work will allow banks with sound risk management and risk

management systems to use their own models in calculating

capital adequacy ratio.

SpareBank 1 SR-Bank gives great importance to risk manage-

ment and adapting to the new capital adequacy ratio

regulations. SpareBank 1 SR-Bank has therefore applied to the

Financial Supervisory Authority of Norway for permission to

allow internal measuring methods (Internal Rating Based

Approach - Foundation) for credit risk as of 1 January 2007.

For those banks that are approved and are given permission

to use internal measurement methods, the regulatory

minimum requirement for capital adequacy ratio as of 2007

will be based on the bank’s internal risk assessments. This

will make the regulatory minimum requirement for capital

adequacy ratio more risk-sensitive, so that the capital

adequacy ratio will correspond better with the risk in the

underlying portfolios. In order to be approved and be given

permission to use internal measuring methods by the

Financial Supervisory Authority, the banks must satisfy

extensive requirements with regard to organisation, expertise,

risk models and risk management systems. The Financial

Supervisory Authority plans to have completed most of the

application reviews by the autumn of 2006.

It is SpareBank 1 SR-Bank’s ambition to use the standard

method for calculating the minimum capital adequacy ratio

for operational risk from 2007.

In accordance with this ambition for risk management,

SpareBank 1 SR-Bank has over several years invested

considerable funds and resources in the work to further

develop expertise, risk models and risk management systems,

all with a view to adapting to the above-mentioned

requirements.

The department for risk management has the overall

responsibility for risk picture follow-up and reporting in the

Group and the further development of risk management

systems. In order to further strengthen the risk area, the

SpareBank 1 Alliance has set up a special Centre of Excellence

for Credit Models. This is the Alliance’s own professional

community for credit models. The Competence Centre is

responsible for rating, pricing, analysis and portfolio

management models for all the SpareBank 1 banks. Both the

department for risk management and the Centre of Excellence

for Credit Models are independent of the business units. This

ensures independence in risk follow-up and reporting.

SpareBank 1 SR-Bank expects long-term gains from its invest-

ment in risk management:

• Lower performance volatility, as a result of improved risk

management and better credit quality

• Increased profits, as a result of better profitability and

capital allocation models.

• Better application of equity, in that the minimum capital

adequacy ratio will correspond more closely to risk in the

underlying operations.

109

Corporate market

division

FACTS

Number of customers: approx. 4,200

Growth in lending: 16.5 per cent

Growth in deposits: 27.7 per cent

Gross lending: MNOK 15,419

Deposits: MNOK 16,225

EVENTS IN 2005

SpareBank 1 SR-Bank had strong growth in the number of

new corporate customers, both in Rogaland and the Agder

counties.

The group has strengthened its position in most business

segments, especially in real estate brokering through the

development and facilitation for sale of real estate projects.

The target group is investors looking for long-term placements.

The group strengthened its position in leasing and special

financing, under the direction of SpareBank 1 SR-Finans AS.

Sale of mandatory occupational pension to corporate

customers is an important focus area. Resources allocated to

this effort have been increased significantly in 2005.

The group has made a systematic effort to further enhance its

employees' expertise, in order to be even better prepared to

meet the customers' needs for advice and follow-up.

WE CREATE VALUES AT THE LOCAL LEVEL

The business market division serves customers from

Hordaland in the north to Aust-Agder in the south. We are

represented in the market by our six regional business market

divisions and 50 local offices. In addition, customers are

served via our website (www.sr-bank.no) and through a newly-

established corporate customer centre (tel. +47 02008), where

telephone and email are the most important channels. In

total, SpareBank 1 SR-Bank has business relations with 9,700

business customers, including the SME segment.

STRATEGY

It is the objective of SpareBank 1 SR-Bank to help our customers

create values. In this manner we want to help put into practice

the bank’s vision of being "the recommended bank." We

believe in being present at the local level, and being well

acquainted with the region we serve. SpareBank 1 SR-Bank is

the only local financial group with a full range of products.

EMPLOYEES

Overall, the corporate market division employs 125 man-years.

This includes 23 employees in SpareBank 1 SR-Finans AS and

6 employees working with the sale of commercial real estate

in Eiendomsmegler 1 Rogaland AS. 33 of the employees are

women. There are four women in managerial positions. In

2005, 23 new man-years with a high level of expertise were

recruited externally, of which 8 are employed in the corporate

insurance market department, which is affiliated with the

bank's pension market efforts.

CUSTOMERS AND MARKETS

We have more than 4,200 customers in the business market

division. Overall, more than 40 per cent of the businesses in

Rogaland are our customers. The number of corporate market

customers in Agder has risen to 200 since we started our

business there in earnest in the autumn of 2002. In 2005, it

was decided that SpareBank 1 SR-Bank will open a branch in

Bergen. This will increase our availability for corporate market

customers in Hordaland.

The corporate market division has experienced growth in all

segments, most notably in the large customer segment,

where several of the listed companies in the region have

chosen SpareBank 1 SR-Bank as their new main bank. Among

the bank's existing customers, a large proportion of them are

small businesses with a need for traditional and standardised

financial products and services. In 2005, it was decided to

make a special effort towards this segment. SpareBank 1 SR-

Bank is increasing its focus on product development and

allocating resources to local branches, close to where the

customers do their business.

110


In March 2006, we will launch a recently developed market

concept for this segment. The concept is named Pro -

"Because working hours are money".

As in previous years, we carried out a number of marketing

measures in 2005. We have published four issues of “Tett på

næringslivet”. This publication is distributed to more than

15,000 businesses, and highlights businesses in different

sectors. So far, our customers have responded with positive

feedback to this effort.

Together with our highly valued partners, we organised three

different events within the ARENA concept iin 2005. Overall,

these events have gathered a total of 1,700 business

executives for lectures and discussions on a number of

interesting topics.

As in previous years, we have published the ”Konjunktur-

barometeret for Rogaland”. This was done in collaboration

with Rogaland County, the Norwegian Federation of Trade

Unions (LO), the Norwegian Confederation of Business and

Industry (NHO), the Labour Market Administration (Aetat),

ARNE and Innovation Norway. This year, we also published

"Konjunkturbarometeret for Agder". In the “Barometer” we

focus on macro-economic trends that are of relevance for

businesses in our market area. The presentations of the

cyclical barometer attracted 450 people in the course of

the year.

In 2005, the bank also made a retail analysis for Rogaland,

focusing on where the flow of retail trade in the region goes.

As in previous years, we organised several breakfast meetings

in the bank’s premises in Bjergsted in 2005. In connection

with this, customers have met both the Governor of Norges

Bank, the Norwegian Central Bank, and government ministers

for discussions. In connection with these breakfast meetings,

we have also cooperated with players such as Skagen

Fondene and ODIN.

PRODUCTS AND SERVICES

As the region’s leading financial supplier within the corporate

market we are preoccupied with having state-of-the-art expertise

on our customer’s activities. This provides the foundation we

need to offer our customers the right solutions. In tune with

our customers’ changing needs, we have built up expertise

and skills in a number of new fields during the past years.

Our long tradition has given us a sound understanding of

different financing solutions. During recent years we have also

developed broad expertise within various placement

alternatives for our customers. In connection with this, we

work closely with our investment management company, SR-

Forvaltning ASA.

Through our wholly owned subsidiary Eiendomsmegler 1

Rogaland AS we offer commercial and project real estate

brokering. The company is the market leader in Rogaland. Our

customers are offered leasing and special financing through

SpareBank 1 SR-Finans AS.

Through a number of internationally oriented customers, we

have developed considerable knowledge over some time

within different services directed abroad. This applies both to

payment solutions, currency trade, letters of credit and

general consulting services.

In 2005, we entered a cooperation agreement in international

payment solutions with ING Group NV, one of Europe's

leading banks in this area. This service will enable our

customers to further rationalise their processes in their

international efforts.

As of 2002, SpareBank 1 has engaged in the sale of insurance

solutions. Through this effort we have built up expertise both

within life and non-life insurance. Through 2005, a special

effort has been made selling mandatory occupational pension,

and we see that the customers choose us on the basis of our

concept of counselling tightly interwoven with our branch

111

We wish to produce useful channels for professional communication and discussion for the business in our market area. On Friday 7 March 2006,

the Governor of the Norwegian central bank, Mr. Svein Gjedrem gave a presentation on Norwegian monetary policy and the current economic

situation, based on Norges Bank’s inflation report.

network. The bank aims to offer this product to all our

corporate customers before the end of the year.

For a long time, traditional payment solutions constituted the

bank’s core expertise. SpareBank 1 SR-Bank has expanded its

expertise in this business area in order to offer more future-

oriented solutions and tailor these to the customers' needs.

In 2005, we supplied new payment solutions connected to the

new "Kolumbus" card, which has been introduced in public

transportation in Rogaland. Another important effort is the

development and sale of solutions in connected to safe

authentication on the internet (BankID).

CREDIT RISK TRENDS

The group has developed risk classification systems, risk

pricing models and a portfolio management system which are

in active use in managing the lending portfolio. This, combin-

ed with the credit handling routines, sets down clear require-

ments to the credit handling process and risk assessments.

The percentage of high risk has been greatly reduced over the

course of the year. This share of the portfolio amounts to 4.3

per cent in 2005, compared to 7.1 per cent in 2004. The bank

focuses on customers within the low to middle risk categories

in a goal-oriented fashion. There has been significant growth

in these risk categories.

Through 2005, net reverse losses of NOK 72 million were

entered in the accounts of the corporate market division. Gross

defaults at the end of the year were 0.2 per cent of the average

lending volume, compared to 0.7 per cent of the average

lending volume at the same time in the preceding year.

OUTLOOK FOR 2006

We expect the positive development in the business market to

continue in 2006. Business and industry are signalling

increased activity. For a number of enterprises, the shortage

of qualified labour will be a major challenge in the time ahead.

The business community in the region is on the offensive,

and we expect increased activity in connection with mergers

and take-overs in 2006.

Lending activities are expected to rise at the same rate as in

2005. We will continue to closely follow ongoing risk

development.

The bank expects a positive response from its customers to

its service pension efforts.

112


Most of the business are small. Via our local branches SpareBank 1 SR-Bank has 5.562 smallsized corporate customers. Often these business do not

have a dedicated employee for financial affairs and contact with the bank. Nontheless they are the foundation of added value in local communities.

Good advice as well as effective banking products and services are critical for the business activities of these customers.

FACTS

Number of retail customers with SpareBank 1 SR-Bank

as their main banking connection: 186,860

Number of agricultural customers: 3,009

Number of small and medium-sized businesses: 5,562

Number of clubs and associations: 2,192

Number of customers with savings agreements: 22,100

Number of customers with investments

in ODIN funds: 41,408

Number of customers with general insurance: 67,700

Lending: NOK 43,118 million

Deposits: NOK 20,819 million

Off-balance sheet savings investments: NOK 8,351 million

STRATEGY

SpareBank 1 SR-Bank is construed as a professional advisor

and total supplier of financial services with a product range

which covers the customers' needs through the different

phases of their lives. The development of services and

products adapted to ever more differentiated customer needs

is given a high level of priority in the organisation. The bank's

multi-channel strategy is designed to give the customers a

feeling of familiarity, a high degree of availability and effective

interaction between the channels. Internet and telephonic

banking, a call centre and, in time, mobile services are under

continuous development, and are at the forefront of the

market in terms of quality.

Close interaction between the different business units in the

group and the product suppliers provide the customers with

added value and consequently increased business volumes.

The pension, savings and investment market is growing fast.

The effort to attain a higher profile in this market is given

priority.

MULTI-CHANNEL BANK - THE CUSTOMER'S CHOICE

At the end of the year, SpareBank 1 SR-Bank had 50 branch

offices which form the core of its distribution network. At the

recommendation of the bank, more and more customers are

using a combination of our Internet and telephone banking

facilities and our call centre to handle simple, everyday

banking transactions. Our call centre handles all incoming

calls and communication via the Internet bank. During 2005,

we saw a strong growth in electronic communication, which

will continue to increase strongly in the time ahead. Customer

satisfaction is high among call centre users.

EMPLOYEES

At the end of 2005, the Retail market division had 440

employees, of which 62 per cent were women and 38 per cent

were men. This is an increase of 7 man-years from 2004. The

average employee is 45 years old. In managerial positions,

there are 16 women.

The financial advisors in the branch network are close to the

customers, know their local community well, have a high level

of expertise and actively seek out the customers for follow up.

Together with the financial advisors in the branch network,

the advisors in the call centre play an increasingly important

role in connection with giving advice via email and telephone.

The group has made a systematic effort to streamline

operations and adapt its expertise to changed customer

behaviour patterns tending towards increased self-service.

One of our objectives is to offer increased expertise and

capacity for advisory and proactive sales efforts.

EVENTS IN 2005

Further development of the branch network:

• Opening a new branch in Grimstad in May 2005

• Decision to establish a new branch in Farsund in March 2006

• Preparing for opening a new branch in Bergen in May 2006

• New contract with Avinor regarding the operation of

a branch at Sola Airport. This branch represents

something new as regards bank branches in Norwegian

airports.

113

The Retail market

division

New business areas/products:

• Car mortgages were launched by SpareBank 1

SR-Finans AS in May 2005 and are distributed in the Retail

market division with very good results

• Investment fund account with insurance element and fund

switch without tax payment was launched by SpareBank 1

Liv AS in May. Sales have been good

• A new youth concept was launched in June, based on 30

customer focus groups. More than 500 youths helped

outline the premises for the development of the concept,

which was very well received

• Loans with an interest rate cap, were launched in early

summer. This is a product which complements our product

range in financing without having yielded any large

volumes as of yet

• The compulsory service pension effort was initiated in

close cooperation with the Corporate market division

• The sale of shares in 4 real estate syndicates was facilitated

in cooperation with the Corporate market division.

The target group is customers who want a diversified and

long-term investment portfolio.

• New products for the Norwegian Confederation of

Trade Unions (LO) customers (LO Favør Bil og Hjem)

were launched in June and were well received in the market

FINANCIAL DEVELOPMENT

The division's profitability is good, with a risk-adjusted

dividend of 23.8 per cent after taxes. Volume growth in the

balance sheet, good cross-sales, very low losses and good

cost control characterise the development. For further

segment information, see Note 5 in the IFRS accounts.

DEPOSITS AND LENDING

A growth in deposits of 4 per cent is satisfactory when seen in

connection with the low interest rate level. Due to changes in

the regulations on wealth tax, customers transferred NOK 250

millions to money market funds in December. The 12.4 per

cent growth in lending was 1 percentage point below total

market growth. Due to fiercer competition, price adjustments

were made in the spring which created growth for the rest of

the year. Margins have been under pressure and have fallen

by a total of 47 basis points. An interest rate buffer of five per

cent is used in the liquidity assessments of set to the

customers, which is in the upper market range, leading to a

somewhat subdued growth in certain segments. The pressure

on the margins has been compensated through increased

growth. The effort to secure other operating income and

maintain good cost control remains a priority.

OTHER OPERATING INCOME

The growth in total other income was 7.5 per cent, or NOK 20

million. The income from payment transactions shows a

moderate growth of 1.3 per cent due to a decline in manual

services and consequent growth in self-service, very low-priced

electronic services. This trend will continue. Insurance income

showed a growth of 0.6 per cent, NOK 0.4 million. Strong

price pressure and reduced bonus in connection with the loss

ratio have given weaker growth than expected. The income

from the savings and investment segment has grown by 31

per cent, or NOK 16.8 million, which is satisfactory.

DEFAULTS AND LOSSES

Gross defaults have been at a stable and historically low level

throughout the year, and were 0.33 per cent in December.

Low interest rate levels, stable and low unemployment rates

combined with close follow-up of the customers are the main

causes. Losses have been marginal, NOK 2 million, or 0.02

per cent of the lending portfolio. The quality of the portfolio is

good.

EXTERNAL CONDITIONS

The Norges Bank key interest rate has increased from 1.75 per

cent to 2.25 per cent over two interest rate adjustments of

0.25 percentage points each in 2005. The rise, combined with

signals for further adjustments in 2006 of up to 1 percentage

point, has not had any tangible effect on the optimism of

Norwegian households, something which is amply illustrated

by the strong growth in borrowing. The share market rising

39.65 per cent has led to many selling off shares to secure

profits and finance the purchase of capital goods and holiday

homes and improving their homes.

SUMMARY OF THE DIVISION'S SUB-AREAS

Retail customers

The number of customers who define SpareBank 1 SR-Bank

as their main banking connection has increased by a total of

2,980, to 192,412. Approximately 50 per cent of the growth

comes in the Agder counties. The development is satisfactory,

and particularly so, when taking into account the increasingly

fierce competition from new and existing players. Customer

satisfaction is at a high and stable level.

Agriculture

Structural changes and large turnover of properties, farming

land and milk quotas have characterised 2005. Demand has

been larger than supply and changed tax regulations coming

into force in 2006 have boosted this development and has

lead to strong pressure on prices.

Increased prices on agricultural properties are a challenge to

both farmers who are considering larger investments and for

the bank as a qualified advisor and financial backer.

For the tomato sector and the pork production sector, 2005

was a far better year than 2004. No forms of production have

been especially exposed in 2005, but the pressure on product

prices is generally increasing. The ongoing WTO negotiations

make the need for restructuring more obvious. The need for

capital is ever increasing and the expertise in relation to

evaluating customers and projects is an important driver in

order to be seen as the recommended agricultural bank in our

market areas. The bank has taken a clear position in the debate

on the development of agriculture as an industry. The bank's

market position has been further strengthened in 2005.

The Small business market

About 5,562 small businesses are connected to the Retail

market division through the individual branch offices. The

114


businesses are typically organised as sole traders, with a low

level of complexity and risk from the bank's point of view. If

the organisation of the business changes, it is transferred to

the Corporate Market Division, which can provide specialist

expertise. Developments in this market were satisfactory in

2005.

THE OUTLOOK AHEAD

The households' financial status is sound and they are

optimistic regarding the future. Unemployment is low, and is

expected to fall further. According to our forecasts, interest

rate levels will rise by approximately 1 percentage point in

2006, which is not expected to influence the will and ability of

the households to take up loans. The growth in the savings

and investment markets will continue. The market is expected

to provide sales of the bank's products and services on a par

with 2005.

Capacity build-up in the financial industry will continue. This,

combined with a more differentiated and demanding market,

will challenge the ability of the organisation to restructure and

to focus on business-oriented priorities. This also demands a

clear strategy on market activities and the development of new

services/products. A very tight labour market will make the

competition for good employees even harder. The Retail

market division is well prepared to meet increased competition,

and a positive development is expected in 2006 as well.

115

There are many dreams, and good banking solutions are what it takes to realise them. Being close to the customers and good advice from our

employees are the pillars of our operations and a precondition for our vision of being the recommended bank.

Overview of

our offices

116


Sauda

Sand

ØlenVindafjord

Fister

Årdal

Jørpeland

Tau

Forsand

Vikeså Tonstad

Ålgård

Sandnes

Aksdal

Haugesund

Karmsund

Kopervik

Bokn

Sjernarøyane

Rennesøy

Finnøy

Kvitsøy

Sola

Tananger

RandabergStavanger

KleppBryne

Nærbø

Varhaug

Vigrestad

EgersundLund

SokndalFlekkefjord

Farsund

Lyngdal MandalKristiansand

Bergen

Grimstad

Skudeneshavn

117

The Supervisory Board

(The figures in the brackets state how many primary capital

certificates the person in question owned in the Sparebanken

Rogaland as at 31 December 2005. We have also included pri-

mary capital certificates owned by close family members and

known companies in which the person has decisive influence,

cf. Section 1-2 of the Companies Act. We have also included

primary capital certificates belonging to the institution that

has elected the person as its representative.)

Members elected by primary capital certificate owners

Andersson Bjarne, Oslo (1 028 300)

Apeland Bjørn, Tysvær (81 785)

Egenäs Ulf, Sverige (2 225 850)

Erevik Alf, Hønefoss (106 900)

Gudmestad Martha, Stavanger (50)

Haugan Finn, Trondheim (20 870)

Hedberg Per, Stavanger (47 597)

Hystad Anne Elise, Karmøy (5 100)

Jacobsen Trygve, Stavanger (173 672)

Kolnes Mona Iren, Stavanger (4 900)

Kræmer Hanne Karoline, Tromsø (13 450)

Larre Erik Sture, Oslo (49 500)

Nysted Terje, Forsand (152 295)

Næsheim Birte, Stavanger (10 800)

Næss Knut, Jørpeland (188 000)

Skjæveland Randi Larsen, Stavanger (25 400)

Risa Bjarne, Nærbø (8 250)

Risa Einar, Leder, Stavanger (30 000)

Stangeland Torbjørg, Sola (110 000)

Stave Torill, Oslo (261 500)

Tandberg Øyvind Andreas, Hønefoss

Tveteraas Kristine, Oslo (300 010)

Members elected from and by the depositors

Bakke Synnøve I., Hauge i Dalane

Byberg Odd, Klepp

Hansen Kåre, Egersund

Hovland Mandrup, Aksdal

Igland Karl Endre, Lyngdal

Nordtveit Sølvi Lysen, Vats

Reke Mette, Sola (600)

Valskår Terje, Kløfta

Vaage Anbjørn, Suldal

Østensjø Inger, Stavanger (900)

Members appointed by the municipalities

Alvestad Svein Ove, Bokn (966)

Eikeland Peder, Bjerkreim

Fredriksen Kjell H., Egersund

Haram Per, Stavanger (600)

Hidle Terjer, Nord Hidle (960)

Maudal Arne, Forsand

Sølhusvik Lars Johan, Haugesund

Søyland Svein Kj., Gjesdal

Aarenes Hans Greger, Flekkefjord

Aass Tor Syvert, Nærbø

Members elected from and by the employees

Berland Bjørn, Stavanger (2 387)

Clausen Janne, Mandal

Ellingsen Kirsten Siv, Stavanger (282)

Erga Morten, Jæren

Halvorsen Arnt Eivind Roth, Finnøy (1 222)

Hamre Harald Utvik, Stavanger (2 089)

Hegrestad Ragnhild, Egersund (1 400)

Kvale Anne Nystrøm, Stavanger (2 207)

Markhus Lars Magne, Stavanger (4 737)

Solheim Vibeke, Stavanger (722)

Throndsen Astrid H., Finnøy (947)

Trædal Erling, Ølen (1 269)

Wells Eli Lunde, Stavanger (1 237)

Østhus Grethe Berge, Vedavågen


General Manager Geir Worum, Chairman of the Board

Ship ownerr Kristian Eidesvik, Deputy Chairman

of the Board (3 000)

Managing Director John Peter Hernes

Controller Ingrid Landråk

Managing Director Magne Vathne

Attorney Anne Elisabeth Kroken

Asset manager Gunn Jane Håland

CEO Terje Vareberg (22 669)

Employee representative Torstein Plener (2 527)

Deputy member for the employees (regulary attends board

meetings) Birte Wereide (1 441)

Deputy member (regulary attends board meetings)

Lise Hansson

The Audit Committee

Attorney Odd Rune Torstrup, Chairman of the Board

Head of Division Odd Broshaug, Deputy Chairman

of the Board

Manager Svein Hodnefjell

Exploration Manager Vigdis Wiik Jacobsen

Technical director Kåre Hansen

Group management

CEO Terje Vareberg (22 669)

Deputy CEO, CFO Sveinung Hestnes (2 117)

Acting CFO Gro Tveit (1 507)

Executive Group Controller, CRO Frode Bø (365)

Executive Vice President Retail Market Rolf Aarsheim (4 847)

Executive Vice President Corporate Market Tore Medhus (2 907)

Executive Vice President Human Resources

Arild Langberg Johannessen (2 507)

Executive Vice President Public Relations

Thor-Christian Haugland (842)

Executive Vice President, Business Support, IT and Security

Svein Ivar Førland (1 302)

External auditor

PricewaterhouseCoopers DA

Attn. state-authorised public accountant Torbjørn Larsen

Governing bodies

Organisational chart

(simplified)

118


Board

Externalauditor

Internalauditor

CompanySecratary

SupervisoryBoard

CEO

Jan Friestad

Sveinung Hestnes

Terje Vareberg

Audit committee

Deputy CEO

Stian HelgøyFinance

Arild L. JohannessenPersonell div.

Thor-Chr. HauglandPublic Relations

Gro TveitActing CFO

Frode BøGroup Risk Controller

Gro TveitAccounting

Catherine HaugeAnalysis

Johannes VoldEiendomsMegler 1

Dag SønsterudSR-Forvaltning

Knut SirevågSB1 SR-Finans

Tor DahleSR Investering

Tore MedhusCorporate Market

Rolf AarsheimRetail Market

Svein Ivar FørlandBusiness support

SpareBank 1 SR-Bank

CENTRAL SWITCHBOARD +47 02002

HEAD OFFICE/ADMINISTRATION:

Bjergsted Terrasse 1, P.O. Box 218

4001 Stavanger, Norway

Fax +47 51 88 22 78

E-mail: [email protected]

Website: www.sr-bank.no

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