Notes to accounts

Note 1 General Information

SpareBank 1 Boligkreditt AS is the SpareBank 1 Alliance's separate legal vehicle established according to the specialist banking principle within the Norwegian legislation for covered bonds.

The Company's purpose is to acquire residential mortgages from its ownership banks organised in the SpareBank 1 Alliance and finance these by issuing covered bonds.

SpareBank1 Boligkreditt main office is located in Stavanger, visiting address Bjergsted Terrasse 1.

The accounts are prepared in accordance with "International Financial Reporting Standards" (IFRS), as determined by the EU and published by "International Accounting Standards Board" (IASB).

The Financial Statements for 2014 is approved by the Board of Directors on March 1, 2016.


Note 2 Summary of Significant Accounting Policies

Presentation Currency                 
The presentation currency is Norwegian Kroner (NOK), which is also the Company's functional currency. All amounts are given in NOK thousand unless otherwise stated.

Recognition and De-recognition of Assets and Liabilities on the Balance Sheet
Assets and liabilities are recognised on the balance sheet at the point in time when the Company establishes real control over the rights of ownership to assets and becomes effectively responsible for the discharge of a liabilities. 

Assets are de-recognised at the point in time when the real risk of the assets has been transferred and control over the rights to the assets has been terminated or expired. Liabilities are de-recognised when they have been effectively discharged.

Lending
Lending is measured at amortised cost. Amortised cost is the acquisition cost less any repayments on the principal, adding or subtracting any cumulative amortisation from an effective interest rate method, and less any loss of value or risk of loss. The effective rate of interest is the interest that exactly discounts estimated future positive or negative cash payments made prior to the financial instrument’s maturity. Assessment of loans is thus carried out in accordance with the "lending regulation dated 21 December 2004" c.f. circular no 10/2005 from The Financial Supervisory Authority of Norway.

Evaluation of impairments (write downs) on mortgage loans
The Company evaluates the occurrence of impairment to loans or groups of loans at 31 December each year.  Impairment has occurred if there is an objective proof of a reduction in value that can lead to a reduction in the future cash flow needed to service the debt.  Impairment must result from one or more events that has occurred after the first entering into of a loan or group of loans (a loss incident), and the result of the loss incident (or incidents) must also be measured reliably.  Objective proof that the value of a loan or a group of loans has been impaired includes observable data that is known to the group on the following loss incidents:

  • substantial financial difficulties for the Issuer or with the borrower
  • default on the contract, such as missing instalments or interest payments
  • the Company grants the borrower particular terms on the basis of financial or legal circumstances related to the borrower's financial situation
  • the probability that the debtor will enter into debt negotiations or other financial re-organisations
  • the active market for the financial assets cease to exist due to financial difficulties, or 
  • observable data indicates that there is a measurable reduction in the future cash flow from a group of loans since they were first entered into, even though the reduction cannot be attributed to a single loan in the group, including;
  • an unfavourable development in the payment status of the borrowers in the group, or
  • national and/or local financial conditions correlating to the default of the assets in the group       

The Company will first evaluate whether there exists individual objective proof of impairment for loans that are individually significant. For loans that are not individually significant, the objective proof of impairment will be evaluated either on an individual basis or collectively. If the Company concludes that there does not exist objective proof of impairment for an individually evaluated loan, whether it is significant or otherwise, the asset will be included in a group of loans having the same credit risk characteristics. This group will then be evaluated collectively for a possible impairment. Assets that are being evaluated individually for signs of impairment, and where an impairment is identified, or continues to be observed, will not be a part of a collective evaluation of impairment.

If objective proof of the occurrence of impairment exist, the magnitude of the loss will be considered to be the gap between the asset's book value and the present value of the estimated cash flow (exclusive of any future credit loss that has not yet occurred) discounted by the loan's last given effective interest rate. The book value of a loan will be reduced and the loss will be reflected in the income statement.

The future cash flow from a group of loans that has been collectively evaluated for impairment will be estimated in accordance with the contractual cash flow of the group as well as any historical loss on assets with a similar credit risk. Historic losses will be adjusted in accordance with existing observable data in order to allow for the effects of any current circumstances that were not present at the time of the historic losses, as well as the adjustment of the effects of circumstances that are not currently present.

According to Transfer and Servicing Agreement which the SpareBank 1 banks have entered into with the Company, SpareBank 1 Boligkreditt has the right to off-set any losses incurred on individual mortgage loans against the commissions due to all banks for the remainder of the calendar year.  The Company has not since the commencement of its operations had any instances of off-sets against the commissions due to its owner banks.

Segment
Segments are organised by business activities and the Company has only one segment, mortgage lending to private individuals.  All of the mortgages have been acquired from the SpareBank 1 Alliance banks.  The Company's entire result for 2014 is therefore the result of the mortgage lending to private customers segment.

Established losses
When there is a prevailing possibility that the losses are final, the loss will be classified as established losses. Any established losses that have been covered by previously specified loan loss provisions will be set off against these provisions. Any established losses that have not been provided for in the loan loss provisions, as well as excessive or insufficient loan loss provisions will be reflected in the income statement.

Securities
Securities consists of certificates and bonds. These are either carried at fair value or hold to maturity. All securities that are classified at fair value in the accounts are recorded at fair value, and changes in value from the opening balance are allocated in the income statement as income from other financial investments.  Certificates and bonds that are classified as hold to maturity are recorded at amortised cost by means of the effective interest rate method. The effective rate of interest is the interest that exactly discounts estimated future positive or negative cash payments made prior to the financial instrument's maturity.            

Hedge Accounting
The company has implemented fair value hedge accounting for bonds with fixed rates and bonds in foreign currencies. These bonds are entered into a hedging relationship with individually tailored interest swaps and currency swaps. The company values and documents the efficacy of the hedge both at first entry and consecutively. In fair value hedging both the hedging instrument and the hedged object are entered into the accounts at fair value with respect to the relevant interest rate curve and currency, and changes in these values from the opening balance are recorded in net income.  The cash flow is therefore known for the entire contractual duration after the hedging relationship has been established.  Because the hedging relationship is intended to remain in place throughout the life of the hedged instrument, only those changes which the interest rate and currency swap agreements are intended to hedge have an influence on the valuation of the hedging instrument.

Valuation of Derivatives and Other Financial Instruments
The Issuer uses financial derivatives to manage essentially all market risk on balance-sheet items.  Interest rate risk is hedged to a NIBOR 3 months floating rate basis and currency risk is hedged mostly by derivatives and in some cases by natural asset liabilities hedges.  

Liabilities:

  • The Issuer applies fair value hedge accounting under IFRS for fixed rate issued debt (covered bonds) utilizing derivatives (swaps) which hedge the fixed interest rate and currency elements of the issued bonds. 
  • Issued floating rate debt in NOK is accounted for at amortised cost

Assets: 

  • For liquidity management purposes the issuer maintains a portfolio of liquid assets (including bonds) of which a part is designated as held-to-maturity, and a part is designated as a trading portfolio utilizing the fair value option under IFRS.
  • The trading portfolio is valued at fair value (market value) and the associated derivatives (swaps) which hedge interest and/or currency risk are valued at fair value.
  • The designated held-to-maturity portfolio is valued at amortised cost and mainly include floating rate debt denominated in NOK.    

Though the issuer hedges all material interest rate and currency risk on its balance sheet, net unrealized gains (losses) from financial instruments may occur for the following reasons:

  • Temporary mark-to-market differences in the value of an interest rate swap smay occur depending on the difference between the level at which the 3 months floating rate leg in the swap was last fixed and the 3 months interest rate level at the financial reporting date.  
  • There is a credit risk element which forms a part of the fair value of the assets in the trading portfolio, which is not reflected in the value of the associated interest and/or currency swaps hedging the trading portfolio assets.  
  • There may be floating rate assets (bonds) in the held-to-maturity portfolio denominated in foreign currency which are hedged via a corresponding foreign exchange liability (issued debt) also on an effective floating rate basis. In such natural asset liability hedges there may be a small element of foreign currency risk which may impact the P&L in that the floating rate coupons on the asset and the liability are not reset on the same dates and/or may be of different magnitude.  

Intangible Assets
Purchased IT-systems and software are carried on the balance sheet at acquisition cost (including expenses incurred by making the systems operational) and will be assumed to amortise on a linear basis over the expected life span of the asset. Expenses related to development or maintenance are expensed as incurred.

Cash and Cash Equivalents
Cash and cash equivalents includes cash and deposits, other short term available funds and investments with a maturity of less than three months.    

Taxes
Tax in the income statement consists of tax payable on the annual taxable result before tax and deferred tax.  Deferred tax is calculated in accordance with the liability method complying with IAS 12.  With deferred taxes the liability or asset is calculated based on temporary differences, which is the difference between tax due according to the statutory tax calculations and tax calculated according to the financial accounts, as long as it is probable that there will be a future taxable income and that any temporary differences may be deducted from this income.

The tax rate for 2016 has been reduced from 27% to 25%. Temporary differences between the financial accounts and the tax due calculation have been readjusted to reflect 25%

In terms of deferred taxes, assets will only be included if there is an expectation that a future taxable result makes it possible to utilise the tax relief.  The assessment of this probability will be based on historic earnings and the future expectations regarding margins.                 

Pensions
SpareBank 1 Boligkreditt AS maintains two types of pension plans; a defined benefits plan and a defined contribution plan. The defined benefits plan was closed to new members in 2011.  Employees in the plan must migrate to the contribution plan from 01.01.2016. 

Defined Benefit Plan
The plan is fully funded through annual payments to the pension scheme, and are determined by periodic calculations by an actuary. A defined benefit plan is one which grants a specified future benefit upon reaching the specified pension age. Factors which determine the benefit are age, the number of years in employment/membership in the plan and remuneration. The liability which is recorded in the balance sheet is the net present value of the defined benefit reduced by the fair value of the pension plan assets. . The liability is calculated annually by independent actuaries. The net present value of the future benefits are found by using the yields on Norwegian government bonds adjusted for differences in maturity dates.

Defined Contribution Plan
In a defined contribution plan the company pays a defined contribution into the pension scheme. The Company has no further oblilgations beyond the defined contributions. The contributions are recorded as salary expense in the accounts. Any prepaid contributions are recorded as assets in the balance sheet (pension assets) to the extent that the asset will reduce future payments when due.

The Company has eight employees as of year end 2014.  All employees are included in SpareBank 1 SR-Bank ASAs pension scheme and accrue the same benefits as the other membership in that scheme which are employees of  SpareBank 1 SR-Bank ASA.  For the Chief Executive Officer of SpareBank 1 Boligkreditt future pension obligations for remuneration above the limit of 12 times the basic allowance or limit as formulated by the national pension scheme are accounted for in the Company's accounts.  One person is on permanent hire in Boligkreditt from SpareBank 1 Gruppen, which covers all pension obligations for this person.

In addition to the pension obligations, which are covered through the pension scheme, the Company has other uncovered pension obligations. These obligations exist for additions pensions beyond 12 G, ordinary early pensions and early pensions according to AFP (“Avtalefestet pensjon”).

Cash Flow Statement
The cash flow statement has been presented according to the direct method, the cash flows are grouped by sources and uses.  The cash flow statement is divided into cash flow from operational, investment and finance activities. 

Reserves
The Company will create reserves when there is a legal or self-administered liability following previous events, it is likely that this liability will be of a financial character, and it can be estimated sufficiently accurately. Reserves will be assessed on every accounting day and subsequently adjusted to reflect the most accurate estimate. Reserves are measured at the present value of the expected future payments required to meet the obligation. An estimated interest rate which reflects the risk free rate of interest in addition to a specific risk element associated with this obligation will be used as the pre-tax rate of discount.

Supplier Debt and other Short Term Liabilities                
Supplier debt is initially booked at fair value. Any subsequent calculations will be at amortised cost, determined by using the effective rate of interest method. Supplier debt and other short term liabilities where the effect of amortising is negligible, will be recorded at cost.

Interest Income and Expense
Interest income and expense  associated with assets, and liabilities measured at amortised cost, are recorded according to the effective rate of interest method. Any fees in connection with interest bearing deposits and loans will enter into the calculation of an effective rate of interest, and as such will be amortised over the expected maturity.

Commission Expense
Commissions are paid by the Company to its parents banks and represent most of the net interest margin earned in Boligkreditt.

Dividends
Proposed dividends are recorded as equity during the period up until they have been approved for distribution by the Company's general assembly.

Events after the Balance Sheet Date
The annual accounts are deemed to be approved for publication when the Board of Directors have discussed and approved them. The General Meeting and any regulatory authorities may subsequently refuse to approve the annual accounts, but they cannot change them. Events up until the annual accounts are deemed to be approved for publication and that concern issues already known on the accounting day, will be part of the information that the determination of accounting estimates have been based on, and as such will be fully reflected in the accounts. Events that concern issues not known on the accounting day, will be commented upon, provided that they are of relevance.

The annual accounts have been presented under the assumption of continuing operations. This assumption was, in the opinion of the Board of Directors, justified at the time when the accounts were presented to the Board of Directors for approval.       

Share Capital and Premium
Ordinary shares are classified as equity capital. Expenses directly related to the issuing of new shares or options with tax relief, will be recorded in the accounts as a reduction in the proceeds received.

Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements and disclosures about fair value measurements. The scope of IFRS 13 is broad; the fair value measurement requirements of IFRS 13 apply to both financial instrument items and non-financial instrument items for which other IFRSs require or permit fair value measurements and disclosures about fair value measurements, except for  share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value (e.g. net realizable value for the purpose of measuring inventories or value in use for impairment assessment purposes).

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions. Fair value under IFRS 13 is an exit price regardless of whether that price is directly observable or estimated using another valuation technique. Also, IFRS 13 includes extensive disclosure requirements.

Adoption of New and Revised International Financial Reporting Standards (IFRSs)
For the previous year, no new or revised IFRS have been incorporated into the Company's accounts

Standards issued but not yet effective
Standards issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. This listing of standards and interpretations issued are those that the Company reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The new and revised IFRSs are not mandatorily effective for the year ended December 31, 2014. The Company intends to adopt these standards when they become effective.  The Company is targeting implementing IFRS 9 early when this is possible.

Financial Instruments: Classification and Measurement
IFRS 9 issued in November 2009 introduced new requirements for the classification of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a "fair value through other comprehensive income" (FVTOCI) measurement category for certain simple debt instruments.

Key requirements of IFRS 9:

  • All recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified  dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI. All other debt investments and equity investments are measured at their fair value ant the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.
  • With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit and loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.
  • In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
  • The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the type of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an "economic relationship". Retrospective assessment of hedge effectiveness is also longer required. Enhanced disclosure requirements about an entity's risk management activities have also been introduced.

The mandatory effective date of IFRS 9 is 1 January, 2018. IFRS 9 has not yet been endorsed for application in the European Union.

It is not practicable to provide a reasonable estimate of the effect of IFRS 9 until the Company undertakes a detailed review.  

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 and the related interpretation when it becomes effective.

The mandatory effective date of IFRS 15 is 1 January, 2018. IFRS 15 has not yet been endorsed for application in the European Union. (expected approval in Q1 2016).  It is expected that the effects of IFRS 15 will be minor and no effect would have been expected as of the date of these accounts.


Note 3 Risk Management

SpareBank 1 Boligkreditt AS is an institution which acquires residential mortgages from banks in the SpareBank 1 Alliance.

This activity is predominantly financed by the issuance of covered bonds.  The Company is therefore subject to the Norwegian legislation for covered bonds and the demands this imply for exposure to risk. In addition, the Company wishes to maintain the AAA/Aaa ratings from Fitch and Moody's, resepctively, with regards to the covered bonds, which also requires a high degree of attention to risk management and a low risk exposure profile. 

The purpose with the risk and capital adequacy management within SpareBank 1 Boligkreditt AS is to ensure a satisfactory level of capital and a responsible management of assets in accordance with the Company's statutes and risk profile. This is ensured through an adequate process for risk management and planning and implementation of the Company's equity capital funding and capital adequacy.  

The Company's risk- and capital management are aiming to be in accordance to best practices - and this is ensured through:

  • A risk culture characterised through high awareness about types of risk and the management thereof
  • A competent risk analysis and control environment
  • A good understanding of which material risks the Company is exposed to"

Organisation and organisational culture
SpareBank 1 Boligkreditt AS is focused on maintaining a strong and alert organisational culture characterised by high awareness about risk management.

SpareBank 1 Boligkreditt AS is focused on independence and control, and the responsibilities are divided between different roles within the organisation:

  • The Board of Directors determines the main principles for risk management, including determining the risk profile, limits and guidelines. The Board also carries the responsibility to review capital levels in accordance with the risk profile and the requirements of the regulatory authorities.
  • The Chief Exceutive Officer is responsible for the day to day administration of the Company's business and operations according to laws, statutes, powers of attorney and instructions from the Board.  Staretgic items or operational items of an unusual nature or importance are discussed with and presented to the Board of Directors. The CEO may however decide a matter in accordance with a power of attorney from the Board. The CEO is responsible for implementing the Company's strategy and in cooperation with the Board to also develep and evolve the strategy. 
  • The risk manager reports both directly to the CEO and to the Board.  The risk managere is tasked with developing the framework for risk managament including risk models and risk management systems.  The poistion is further responsible for the independent evaluation and reporting of risk exposure in addition to maintaing all relevant laws and regulations.
  • The balance sheet committee is an advisory council for the operational management of the Company's balance sheet within the framework determined by the Board of Directors.  The committee is a an important component of Boligkreditt's operative management of liquidity risks.  The balance sheet committee is headed by the CEO and consists of the CFOs of the largest banks in the SpareBank 1 Alliance in addition to one representative from the smaller Alliance banks (Samspar).
  • The investment committee is an advisory council for the evaluation of counterparty exposure limits and for the composition of the liquidity portfolio.   The committee is headed by the CEO and consists of Boligkreditt's financial director and director for asset liability management.  The committee advises on credit limits for counterparties and the composition of the liquidity portfolio.  The CEO has been tasked by the Board to make decisions regarding credit limits for counterparties and individual investments. "              

Risk Categories:

In its risk management the Company's differentiates amongst the following categories of risk:

  • Credit Risk: The risk of loss as a result of that counterparties are unwilling and/or unable to meet their obligations to the Company.  Credit risk management is detailed in the Company's credit risk policy and this policy is approved by the Board of Directors annually. 
  • Liquidity Risk: The risk that the Company is unable to meet its obligations and/or finance its assets
  • Market Risks: The risk of loss as a result of changes in observable market variables such as interest rates, foreign exchange rates and securities.

Further details about risk categories are discussed in later Notes


Note 4 Important Estimates and Considerations Regarding Application of Accounting Policies

The presentation of financial information in accordance with IFRS results in that management uses estimates and makes assumptions which affect the outcome of certain accounting principles, including the amounts accounted for assets, liabilities, income and cost.

Loss on loans and guarantees
The Company makes loan provisions for individual loans if an objective incident has occurred which can be identified in relation to a single exposure, and the objective incident reduces the future expected cash flow for repayment of the exposure.  Objective incident may be the default, bankruptcy, lack of liquidity or other material financial problems. Individual loan loss provisions are calculated as the difference between the book value of the loan and the net present value of the future cash flow based on the effective interest rate at the time of the initial calculation of the individual write off.  Subsequent changes in interest rates are considered for loan agreements with floating interest rates to the extent this impacts expected cash flow. Group loss provisions are estimated on groups of loans where there are objective evidence that an incurrence of loss has taken place following the initial accounting recognition of these loans on the balance sheet. Objective evidence include observable data which allows for a conclusion that the future cash flow from the group of loans is reduced.  The development in probability of default over time is one such objective evidence which is utilised in order to identify a need for a group loan loss provision.  Where a requirement for a group write down exists, the loss on the group of loans is calculated as the difference between the book value and the net present value of the future estimated cash flow.  In order to calculate this difference (which equates to the amount of write downs) the starting point is the expected loss for the group of loans. The estimates of individual and group loan loss provisions are always evaluated and formulated with a considerable degree of uncertainty.  Futures estimates based on historical incidents may prove to be erroneous because it is uncertain which relevance historical data have as a predictior for the future.  Where loans are secured on collateral in stressed situations, such as when certain objects or industries are in distress, the proceeds from sales of collateral in relative illiquid markets may be subject to a high degree of uncertainty.

Fair value of financial instruments
The fair value of financial instruments which are not traded in a liquid market are determined using valuation techniques.  The Company utilises methods and assumptions which are as far as possible based on observable market data and which represent market conditions as of the date of the financial accounts.  When valuing financial instruments where no observable market data are available, the Company estimates values based on what it is reasonable to expect that market participants would use as a basis for valuation of financial instruments.

Pensions
Net pension obligations are based on a number of estimates including future investment returns, future interest rate and inflation levels, developments in compensation, turnover, development in the "G" amount (the basic level of pension as determined by the public pension system and used as a yardstick in several calculations nationally) and the general development in the number of disabled persons and life expectancy are of significant importance.  The uncertainty is primarily related to the gross obligation for pensions and not the net amount which is recorded in the financial accounts (balance sheet).  Changes in pension obligation estimates which may result from changes in the factors mentioned above will be charged directly against the Company's recorded equity.

Income Taxation
The calculation of the income tax also incorporates material estimates.  For many transactions and calculations there will be a degree of uncertainty related to the final tax obligation. SpareBank 1 Boligkreditt AS records tax obligations in tax- and other legal disputes based upon whether future income tax obligations are expected to materialise.  If the final outcome of a particular case deviate from the original accrued amount for tax, the difference will affect the profit and loss account for tax expense. The recognised amounts for deferred taxation in the period where the difference is established will also be affected. 


Note 5 Net Interest Income

NOK 1 000 2015 2014
 
Interest income
Interest income and similar income from loans to and balances with credit institutions 300,398 205,278
Interest income and similar income from loans to and balances with customers 5,258,746 6,502,841
Interest income treasury bills 7,849 26,035
Commission expense (payable to shareholder banks) * -1,687,085 -2,258,058
Total interest income 3,879,909 4,476,095
 
Interest expense
Interest expense and similar expenses to credit institutions 31,291 40,085
Interest expense and similar expenses on issued bonds 3,359,422 3,970,238
Interest expense and similar expenses on issued certificates 1,735 48,067
Interest expense and similar expenses on subordinated debt 80,584 62,240
Other interest expenses 19 92
Total interest expense 3,473,052 4,120,722
 
Net interest income 406,857 355,372

* Commissions to our parent banks are calculated daily for each mortgage loan transferred. whereby the commission equals the customer loan rate less a rate which incorporates the Company's average cost of funding and operational costs. The operational add-on element is expressed through an average rate which is from time to time decided by the Company's Board of Directors.


Note 6 Net Gains from Financial Instruments

NOK 1 000 2015 2014
 
Net gains (losses) from financial liabilities. hedged instrument (1) -408,266 -4,464,177
Net gains (losses) from financial assets. hedged instrument (2) -34,613 234,463
Net gains (losses) from financial derivatives. hedging. at fair value. hedging instrument (1.3) 209,580 4,159,652
Net gains (losses) due to changes in basisswapspreads 467,146 31,604
Net gains (losses) 233,848 -38,458

(1) The Company utlilizes hedge accounting as defined in IFRS for issued fixed rate bonds (covered bonds) with derivatives (swaps) which hedges fixed rates to floating and foreign currencies to Norwegian kroner.  The hedges are individually tailored to each issued bond and exactly matches the cash flows and duration of the issued bonds. 

(2) SpareBank 1 Boligkreditt AS manages its liquidity risk by refinancing its outstanding bonds ahead of expected maturities and keeping proceeds as a liquidity portfolio. The majority of this portfolio is valued according to observed market values (fair value).  Fixed rate bonds and bonds in other currencies than Norwegian kroner are hedged using swaps. The latter are valued according to interest rate and foreign exchange rates and are also valued at fair value (though differences may occur because the valuation of the bonds include a credit risk/spread element which the swaps do not contain).  A smaller part of the portfolio is classified as hold-to-maturity and consist of bonds in Norwegian kroner at floating rates. 

(3) All derivatives are valued at fair value according to changes in market interest rates and foreign exchange rates.  Changes in valuations from the previous period is accounted for in profit and loss. 

(4) The Company utliizes basis swaps, which is the foreign exchange swap that changes foreign currency exposure into Norwegian kroner exposure, and this is entered into at a certain cost (spread over 3 months NIBOR).  The change in the spread is used to adjust the valuation of all of the outstanding basis swaps each quarter, along with the change in other transaction charges to enter into the swaps.  An increase in the costs for basis swaps results in a positive adjustment (gain), while a reduction in basis swap costs lead to a negative adjustment (loss).  The effect of the basis swap valuation adjustments can be material from quarter to quarter because the Company's portfolio of swaps is extensive.  All basis swap valuation adjustments will reverse in line the with the passage of time and will become zero at the latest at the point of the scheduled swap termination date. 


Note 7 Salaries and Remuneration

NOK 1 000 2015 2014
 
Salary 10,726 10,176
Salaries reinvoiced to SpareBank1 N -3,108 -5,329
Pension expenses 706 1,783
Social insurance fees 1,736 1,611
Other personnel expenses 640 1,984
Total salary expenses 10,700 10,224
Average number of full time equivalents (FTEs) 8 8

* The company’s employees have shared employment between SpareBank 1 Næringskreditt and SpareBank 1 Boligkreditt. All remuneration is effectuated through SpareBank 1 Boligkreditt and a portion is reinvoiced to SpareBank 1 Næringskreditt. The company also buys administrative services from SpareBank 1 SR-Bank ASA and SpareBank 1 Gruppen. Pension benefit obligations are safeguarded in SpareBank 1 Boligkreditt through participation in the pension fund of SpareBank 1 SR-Bank ASA. This pension scheme meets the legal requirements on mandatory occupational pension schemes.


Note 8 Salaries and other Remuneration of Management

Paid in 2015

NOK 1 000 Total compensation Bonus Other compensation Pension cost Accrued Pensions Employee mortgage loan
 
Management
Chief Executive Office - Arve Austestad 2,089 - 168 706 4,637 4,163
Director. Head of Finance & Risk - Henning Nilsen 1,347 - 35 208 1,043 1,383
Chief Operating Officer - Eivind Hegelstad 1,314 - 35 - - 4,425
Total for Management 4,750 - 238 914 5,680 9,971

Paid in 2014

NOK 1 000 Total compensation Bonus Other compensation Pension cost Accrued Pensions Employee mortgage loan
 
Management
Chief Executive Office - Arve Austestad 2,197 144 162 616 5,178 2,788
Director. Head of Finance & Risk - Henning Nilsen 1,350 88 36 173 1,183 1,433
Chief Operating Officer - Eivind Hegelstad 1,467 96 67 - - 4,261
Total for Management 5,014 328 265 789 6,361 8,482

All employees have an offer of an employee mortgage loan from SpareBank 1 SR-Bank. The terms and conditions for this include an interest rate one percentage point below the standard rate as determined by the. Norwegian Treasury Department from time to time.

The Board of Directors 2015 2014
 
Kjell Fordal 100 97
Inge Reinertsen 79 76
Tore Anstein Dobloug 79 76
Merete N. Kristiansen 79 76
Merete Eik 79 -
Inger S. Eriksen - 76
Trond Sørås (Observer) 20 14
Geir-Egil Bolstad (Observer) 17 16
Total for the Board of Directors 450 431
The Control Committee
Ola Neråsen 10 10
Brigitte Ninauve 10 10
Solveig Midtbø 5 -
Ivar Listerud - 10
Kjersti Hønstad 13 13
Total for the Control Committee 38 42
The Committee of Representatives
Arne Henning Falkenhaug 9 9
Sveinung Hestnes 2 -
Vegard Sæten 2 -
Kjersti Hønstad 2 2
NIls Arne Norheim - 2
Hanne J Nordgaard 2 2
Gudrun Michelsen 2 2
Total for the Committee of Representatives 18 16

Note 9 Pensions

SpareBank 1 Boligkreditt changed ended its defined benefits pension scheme for all employees after 31.12.2015. All employees (eight in total) are from 1.1.2016 moved to a defined contributon pension scheme. The Company pays the agreed contribution into the pension scheme and has no further obligations. For the Company's CEO the Company has future pension obligations for salary above 12G (the cap for contributions according to the defined contribution scheme) and these liabilities are accounted for in the Company's accounts.

2015 2014
 
Net pension obligations on the balance sheet
Present value pension obligation as of Dec 31 15,567 21,431
Pension assets as of Dec 31 4,734 4,836
Net pension obligation as of Dec 31 10,833 16,595
Employer payroll tax 1,527 2,340
Net pension obligation recorded as of Dec 31 12,360 18,935
 
Pension expense in the period
Defined benefit pension accrued in the period 602 1,796
Defined contribution plan pension costs including AFP 292 170
Pension expense accounted for in the income statement 894 1,966
 
The following economic assumptions have been made when calculating the value of the pension obligations:
Discount rate 2.70% 2.30%
Expected return on pension assets 2.70% 2.30%
Future annual compensation increases 2.50% 2.75%
Regulatory cap change 2.25% 2.50%
Penions regulation amount 2.25% 2.00%
Employer payroll taxes 14.10% 14.10%

Note 10 Administration Expenses

NOK 1 000 2015 2014
 
IT operation and maintenance 9,705 8,080
Travel 1,087 1,037
Telephone and postage 163 163
Misc other adm expenses 10 19
Invoiced to SpareBank 1 Næringskreditt AS -340 -
Total 10,625 9,299

Note 11 Other Operating Expenses

NOK 1 000 2015 2014
 
Auditing. hired personnel from SpareBank 1 Group. other services 9,062 12,162
Operating expenses rented offices 675 570
Operating expenses invoiced to SpareBank 1 N -462 -867
Misc other operating expenses 486 200
Total 9,760 12,064

Auditing

Remuneration to Deloitte AS and cooperating companies is allocated as follows:

NOK 1 000 2015 2014
 
Legally required audit 571 500
Other attestation services. incl. examination services. loan documents sample testing. comfort letters 841 665
Other services outside auditing 57 48
Total (incl VAT) 1,469 1,213

Note 12 Taxes

NOK 1 000 2015 2014
 
Change to 27% from 28% for tax corrections: too little payable tax recorded in 2013 - 733
Change in deferred taxes 135,956 77,853
Tax expense 135,956 78,586
 
Specification of tax effects on elements in comprehensive income and loss
Pension estimate deviation -1,421 1,752
Tax effects on elements in comprehensive income and loss -1,421 1,752
 
Reconciliation tax expense
27% of pre-tax profit/loss 164,061 76,578
Permanent differences 5 1,274
Change due to tax rate change (27% to 25%) in deferred tax (28% to 27% in 2014). -29,530 734
Calculated tax expense 134,277 78,586
 
Effective tax rate 22,20% 27,71%
Temporary differences as of 31.12
Net unrealized gain/loss 2,646,524 1,221,763
Pension -12,360 -18,935
Total temporary differences that affect taxable income 2,634,164 1,202,828
 
Tax deficit to be carried forward -931,692 -113,694
Corrections to be carried forward -220,230 -220,230
Total other differences that affect the taxable income -1,151,922 -333,924
 
Tax reducing temporary differences. net 1,482,242 868,904
Tax increasing temporary differences. net - -
Net temporary differences 1,482,242 868,904
Net deferred tax benefit (-) / deferred tax (+) 370,561 234,604
 
Assets - deferred tax
Liabilities - deferred tax 370,561 234,604
Deferred tax
Deferred tax 01.01 234,604 178,307
Reclassified from deferred tax to tax payable in the first quarter of 2014 - -20,537
27% of pre-tax net income 164,061 76,578
Change due to change in the pension estimate 1,421 -1,752
Change due to tax rate change from 27 % to 25 % (28 % to 27 % in 2014) -29,530 734
Other changes 5 1,274
Deferred tax 31.12 370,561 234,604

Note 13 Other Assets

NOK 1 000 2015 2014
 
Intangible assets * 1,880 2,904
Receivables 1,791 1,564
Total 3,671 4,468

Intangible assets *

NOK 1 000
 
Acquisition cost 01.01.2014 30,794
Acquisitions 1,603
Disposals
Acquisition cost 31.12.2014 32,397
 
Accumulated depreciation and write-downs 01.01.2014 27,792
Periodical depreciation 1,702
Periodical write-down -
Disposal ordinary depreciation -
Accumulated depreciation and write-downs 31.12.2014 29,494
Book value as of 31.12.2014 2,904
 
Acquisition cost 01.01.2015 32,397
Acquisitions 962
Disposals
Acquisition cost 31.12.2015 33,359
 
Accumulated depreciation and write-downs 01.01.2015 29,494
Periodical depreciation 1,985
Periodical write-down -
Disposal ordinary depreciation -
Accumulated depreciation and write-downs 31.12.2015 31,479
Book value as of 31.12.2015 1,880
Financial lifespan 3 år
Depreciation schedule line

Note 14 Lending to Customers

Lending to customers consists of residential mortgages only. The mortgages generally have a low loan lon-to-value and actual losses have not been recorded. The total amout of lending to customers at the end of 2015 were NOK 169 billion. All mortgages carry a variable interest rate.

NOK 1 000 2015 2014
 
Revolving loans - retail market 54,205,342 56,465,882
Amortising loans - retail market 114,989,151 104,560,477
Accrued interest 152,202 186,630
Total loans before specified and unspecified loss provisions 169,346,696 161,212,990
Specified loan loss provisions 0
Unspecified loan loss provisions 7,708 7,708
Total net loans and claims with customers 169,338,988 161,205,282
 
Liability
Unused balances under revolving credit lines 18,636,235 19,210,784
Total 18,636,235 19,210,784
 
Defaulted loans
Defaults* 0.0 % 0.0 %
Specified loan loss provisions 0.0 % 0.0 %
Net defaulted loans 0.0 % 0.0 %
 
Loans at risk of loss
Loans not defaulted but at risk of loss 0.0 % 0.0 %
- Write downs on loans at risk of loss 0.0 % 0.0 %
Net other loans at risk of loss 0.0 % 0.0 %

*The entire customer loan balance is considered to be in default and will be included in overviews of defaulted loans when overdue instalments and interest payments are not received within 90 days or if credit limits on revolving loans are exceeded for 90 days or more.

Changes to loan loss provisions

NOK 1 000 2015 2014
 
Loan loss provisions as of 01.01 7,708 7,708
Change in group loan loss provisions 0 0
Loan loss provisions as of 31.12 7,708 7,708

Loans sorted according to geography (Norwegian counties)

NOK 1 000 Lending 2015 Lending 2015 % Lending 2014 Lending 2014 %
 
NO01 Østfold 6 145 884 3.63% 5 704 005 3.54%
NO02 Akershus 18 026 924 10.65% 15 790 919 9.80%
NO03 Oslo 17 205 312 10.16% 16 183 203 10.04%
NO04 Hedmark 12 782 891 7.55% 11 866 108 7.36%
NO05 Oppland 4 570 495 2.70% 3 804 998 2.36%
NO06 Buskerud 9 347 308 5.52% 8 608 366 5.34%
NO07 Vestfold 6 825 251 4.03% 6 039 376 3.75%
NO08 Telemark 6 027 434 3.56% 5 278 528 3.27%
NO09 Aust Agder 459 263 0.27% 538 837 0.33%
NO10 Vest Agder 1 923 355 1.14% 2 276 758 1.41%
NO11 Rogaland 24 310 677 14.36% 27 419 416 17.01%
NO12 Hordaland 3 604 683 2.13% 3 786 644 2.35%
NO14 Sogn og Fjordane 316 366 0.19% 236 108 0.15%
NO15 Møre og Romsdal 9 615 178 5.68% 8 655 117 5.37%
NO16 Sør Trøndelag 17 932 825 10.59% 15 739 961 9.76%
NO17 Nord Trøndelag 7 655 581 4.52% 7 177 368 4.45%
NO18 Nordland 9 050 823 5.34% 9 001 037 5.58%
NO19 Troms 9 713 575 5.74% 9 269 289 5.75%
NO20 Finnmark 3 792 768 2.24% 3 797 023 2.36%
Svalbard 32 397 0.02% 32 220 0.02%
SUM 169 338 988 100.0 % 161 205 282 100.0 %

Note 15 Share Capital and Shareholder Information

List of shareholders as of 31.12.2015 No of Shares in per cent Share of votes
 
SpareBank 1 SMN 10,830,923 18.97% 18.97%
SpareBank 1 SR-Bank ASA 9,532,264 16.69% 16.69%
SpareBank 1 Nord-Norge 8,253,765 14.45% 14.45%
Sparebanken Hedmark 5,685,145 9.96% 9.96%
Bank 1 Oslo Akershus AS 5,525,937 9.68% 9.68%
BN Bank ASA 3,396,289 5.95% 5.95%
SpareBank 1 BV 2,557,830 4.48% 4.48%
SpareBank 1 Søre Sunnmøre 2,442,160 4.28% 4.28%
Sparebanken Telemark 2,266,349 3.97% 3.97%
SpareBank 1 Ringerike Hadeland 1,864,251 3.26% 3.26%
SpareBank 1 Nordvest 1,192,036 2.09% 2.09%
SpareBank 1 Søre Sunnmøre 729,670 1.28% 1.28%
Modum Sparebank 693,980 1.22% 1.22%
SpareBank 1 Nøtterøy Tønsberg 686,782 1.20% 1.20%
SpareBank 1 Hallingdal 642,547 1.13% 1.13%
SpareBank 1 Gudbrandsdal 463,985 0.81% 0.81%
Lom og Skjåk Sparebank 341,569 0.60% 0.60%
Total 57,105,482 100% 100%

The share capital consists of 57 105 482 shares with a nominal value of NOK 100


Note 16 Equity

Equity is paid in by the Company's parent banks when a requirement arises. The requirement arises regularly when the Company acquires larger portfolios of mortgage loans. and otherwise according to changes in capitalization rules because SpareBank 1 Boligkreditt is subject to the same capiutal adequacy rules under Pillar 1 as banks in general. Each parent bank has also signed a Shareholders Agreement with the Company. which amongst other things stipulates when additional capital must be contributed.

NOK 1 000 Share capital Premium share fund Declared dividend Fund for unrealised profits Other equity capital Total equity capital
 
Equity as of 31.12.14 5,510,548 2,757,922 203,890 - 2,038 8,474,399
Changes during the year
Dividend paid for 2014 - - -203,890 - - -203,890
Capital increase 29.Sep 2015 200,000 100,000 - - - 300,000
Other paid in equity (not yet registered) - - 690,000 - 690,000
Net profit for the period - - 105,074 - 368,026 473,100
Other comprehensive income - pensions estimate deviation - - - 4,264 4,264
Equity as of 31.12.15 5,710,548 2,857,922 105,074 690,000 374,328 9,737,872

Note 17 Liabilities incurred by issuing Securities

NOK 1 000 Nominal value * 2015 Nominal value * 2014
 
Short term notes. unsecured - 750,000
Repurchased short term notes. unsecured - -
Senior unsecured Bonds 6,476,000 6,950,000
Repurchased senior unsecured bonds -74,000 -
Covered bonds 177,244,869 153,214,115
Repurchased Covered Bonds -4,917,100 -1,611,552
Total liabilities incurred by issuing securities 178,729,769 159,302,563

* Nominal value is incurred debt at exchange rates (EUR/NOK and USD/NOK) at the time of issuance

NOK 1 000 Book value 2015 Book value 2014
 
Short term notes. unsecured - 749,969
Repurchased short term notes. unsecured - -
Senior unsecured Bonds 6,475,779 6,948,228
Repurchased senior unsecured bonds -73,998 -
Covered bonds 215,868,978 181,117,727
Repurchased Covered Bonds -5,125,020 -1,825,486
Activated costs incurred by issuing debt -158,707 -148,534
Accrued interest 1,866,571 1,877,586
Total liabilities incurred by issuing securities 218,853,602 188,719,491

Liabilities categorized by debt instrument and year of maturity (nominal value*) NOK 1,000:

Senior Unsecured

Matures in 2015 2014
 
2015 - 1,700,000
2016 3,752,000 5,750,000
2017 2,650,000 250,000
Total 6,402,000 7,700,000

Covered Bonds

Matures in 2015 2014
 
2015 - 10,032,698
2016 20,621,625 25,975,625
2017 21,013,000 21,013,000
2018 35,754,250 21,785,000
2019 27,167,690 25,481,150
2020 24,958,500 24,128,500
2021 25,402,456 15,759,760
2022 12,648,750 3,233,750
2023 - -
2024 1,462,848 1,370,280
2025 1,010,000 1,010,000
2026 1,650,000 1,650,000
2027 475,850 -
2028 162,800 162,800
Total 172,327,769 151,602,563
 
Gran Total 178,729,769 159,302,563

* Nominal value is incurred debt at exchange rates (EUR/NOK and USD/NOK) at the time of issuance

Liabilities incurred by currency (book values at the end of the period)

NOK 1 000 2015 2014
 
NOK 56,218,289 53,495,067
EUR 120,721,290 99,956,242
USD 41,625,965 35,001,278
SEK 288,058 266,905
Sum 218,853,602 188,719,491

Note 18 Subordinated Debt

NOK 1000 ISIN Interest rate Issued Call option Nominal amount 2015 2014
 
With maturity
Subordinated debt (Tier 2 capital instrument) NO0010704109 3 mnd Nibor + 225 bp 2014 43,592 1,600,000 1,600,000 1,600,000
Perpetual
Hybrid (Tier 1 capital instrument) NO0010713746 3 mnd Nibor + 310 bp 2014 43,594 350,000 350,000 350,000
Hybrid (Tier 1 capital instrument) NO0010745920 3 mnd Nibor + 360 bp 2015 44,097 300,000 300,000 -
Hybrid (Tier 1 capital instrument) NO0010746191 3 mnd Nibor + 360 bp 2015 44,103 180,000 180,000 -
Accrued interest 4 4
Book value 830 2 1

Note 19 Financial Derivatives

NOK 1 000 2015 2014
 
Rate contracts
Interest rate swaps
Nominal amount 80,539,030 60,000,110
Asset 5,345,413 6,076,849
Liability -638,503 -778,250
Currency contracts
Currency swaps
Nominal amount 153,531,262 125,117,673
Asset 35,103,579 23,638,212
Liability -51,812 -46,793
 
Total fiancial derivatives
Nominal amount 234,070,292 185,117,783
Asset 40,448,992 29,715,061
Liability * -690,315 -825,043
All derivative contracts exist for the purpose of hedging changes in interest rates and currency exchange rates.
* Including basis swap spread adjustments. see note 6.
Asset (+)/ Liabilities (-) 40,448,992 29,715,061
Net gains (losses) from basis swap spread valuation changes * 498,751 31,604
Derivatives. net 40,947,743 29,746,665

Note 20 Classification of Financial Instruments

NOK 1 000 Financial instruments accounted for at fair value * Financial assets and debt accounted for at amortised cost Financial assets held to maturity Non-financial assets and liabilities 2015
 
Assets
Deposits at and receivables from financial institutions - 8,083,543 - - 8,083,543
Norwegian government short term debt certificates 8,705,692 - - - 8,705,692
Bonds 41,888,568 - 225,094 - 42,113,662
Lending to customers - 169,338,988 - - 169,338,988
Financial derivatives 40,947,743 - - - 40,947,743
Other assets - - - 3,671 3,671
Total Assets 91,542,003 177,422,531 225,094 3,671 269,193,299
 
Liabilities
Debt incurred by issuing securities 178,925,021 39,928,581 - - 218,853,602
Collateral received in relation to financial derivatives - 36,950,453 - - 36,950,453
Financial derivatives 690,315 - - - 690,315
Deferred taxes - - - 373,781 373,781
Taxes payable - - - - -
Subordinated debt - 2,434,380 - - 2,434,380
Other liabilities - - - 156,116 156,116
Total Liabilities 179,615,336 79,313,414 - 529,897 259,458,647
Total Equity - - - 9,747,533 9,747,533
Total Liabilities and Equity 179,615,336 79,313,414 - 10,277,430 269,206,180

*Fair value calculation according to changes in market interest rates and currencies exchange rates

NOK 1 000 "Financial instruments accounted for at fair value *" Financial assets and debt accounted for at amortised cost Financial assets held to maturity Non-financial assets and liabilities 2014
 
Assets
Deposits at and receivables from financial institutions - 16,268,940 - - 16,268,940
Norwegian government short term debt certificates 487,553 - - - 487,553
Bonds 19,090,735 - 790,214 - 19,880,949
Lending to customers - 161,205,282 - - 161,205,282
Financial derivatives 29,746,665 - - - 29,746,665
Other assets - - - 4,468 4,468
Total Assets 49,324,953 177,474,222 790,214 4,468 227,593,858
 
Liabilities
Debt incurred by issuing securities 149,567,065 39,152,427 - - 188,719,491
Collateral received in relation to financial derivatives - 27,181,223 - - 27,181,223
Financial derivatives 825,043 - - - 825,043
Deferred taxes - - - 234,604 234,604
Taxes payable - - - - -
Subordinated debt - 1,954,262 - - 1,954,262
Other liabilities - - - 204,836 204,836
Total Liabilities 150,392,108 68,287,912 - 439,440 219,119,459
 
Total Equity - - - 8,474,399 8,474,399
 
Total Liabilities and Equity 150,392,108 68,287,912 - 8,913,839 227,593,858

*Fair value calculation according to changes in market interest rates and currencies exchange rates


Note 21 Financial Instruments at Fair Value

Methods in order to determine fair value

General                
The interest rate curve that is used as input for fair value valuations of hedging instruments and hedging objects consists of the NIBOR-curve for maturities less than one year. The swap-curve is used for maturities exceeding one year.

Interest rate and currency swaps
Valuation of interest rate swaps at fair value is done through discounting future cash flows to their present values.  Valuation of currency swaps will also include the element of foreign exchange rates

Bonds   
Valuation of bonds at fair value is done through discounting future cash flows to present value.

With effect from 2009 SpareBank 1 Boligkreditt AS has implemented the changes in IFRS 7 in relation to the valuation of financial instruments as of the date of the financial accounts. The changes require a presentation of the fair value measurement for each Level.  We have the following three Levels for the fair value measurement:

  • Level 1: Quoted price in an active market.  Fair value of financial instruments which are traded in active markets are based on the market price at the balance sheet date. A market is considered to be active if the market prices are easily and readily available from an exchange, dealer, broker, industry group, pricing service or regulating authority and that these prices represent actual and regular market transactions on an arm's length basis.
  • Level 2: Valuation based on observable factors.  Level 2 consist of instruments which are not valued based on listed prices, but where prices are indirectly observable for assets or liabilities, but also includes listed prices in not active markets.
  • Level 3: The valuation is based on factors that are not found in observable markets (non-observable assumptions).  If valuations according to Level 1 or Level 2 are not available, valuations are based on not-observable information.  The Company has a matter of principle neither assets nor liabilities which are valued at this level. 

The following table presents the Company's financial assets and liabilities at fair value as of 31.12.2015

NOK 1 000 Level 1 Level 2 Level 3 Total
 
Bonds and bills 41,286,375 9,307,886 - 50,594,260
Financial Derivatives - 40,947,743 - 40,947,743
Total Assets 41,286,375 50,255,628 - 91,542,003
 
Bonds - 178,925,021 - 178,925,021
Financial - 690,315 - 690,315
Total Liabilities - 179,615,336 - 179,615,336

The following table presents the Company's financial assets and liabilities at fair value as of 31.12.2014

NOK 1 000 Level 1 Level 2 Level 3 Total
 
Bonds and bills 12,239,038 7,339,250 - 19,578,288
Financial Derivatives - 29,746,665 - 29,746,665
Total Assets 12,239,038 37,085,915 - 49,324,953
 
Bonds - 149,567,065 - 149,567,065
Financial - 825,043 - 825,043
Total Liabilities - 150,392,108 - 150,392,108

Note 22 Bonds classified as Hold to Maturity

As of 31.12.2015

Bonds classified as Book value 01.01.15 Investments Matured Amortising Exchange rate effects Amortised cost 31.12.15
 
Hold to maturity 790,215 - 565,000 -610 - 224,605
Total certificates and bonds 790,215 - 565,000 -610 - 224,605

Market value of bonds in hold to maturity portfolio

Bonds classified as Book value Market value incl fx effect Effect on results if fair vaue
 
Hold to maturity 224,605 225,681 1,076
Total certificates and bonds 224,605 225,681 1,076

Note 23 Other Liabilities

NOK 1 000 2015 2014
 
Employees tax deductions and other deductions 1,478 867
Employers national insurance contribution 462 411
Accrued holiday allowance 1,015 1,055
Commission payable to shareholder banks 117,921 164,329
Deposits* 12,977 14,209
Pension liabilities 12,360 18,935
Other accrued costs 9,902 5,030
Total 156,116 204,836

The Company does not have an overdraft facility or a revolving credit facility as of 31.12.2015 * Deposits represents temporary balances paid in by customers in excess of the original loan amount


Note 24 Credit Risk

Credit risk is defined as the risk that losses can occur as a consequence of that customers and others do not have the ability or willingness to meet their obligations to SpareBank 1 Boligkreditt as and when agreed.

Credit risk mainly includes loans to customers which are collateralised by private residences (residential mortgage loans), but also includes credit risk in derivatives contracts (counterparty credit risk) and investment in bonds within the Company's liquidity portfolio.  SpareBank 1 Boligkreditt AS maintains a credit policy and limits in order to manage and closely monitor all credit risk the company is exposed to. 

According to the Transfer and Servicing agreement between SpareBank 1 Boligkreditt and each parent bank, the Company has the right to reduce commissions payable for the remainder of the current calendar year to all of its parents banks by an amount equal to any incurred losses on individual mortgage loans.  The Company has not since the commencement of its operations had any instances of off-set against the commissions due to its parent banks. 

Credit exposure

NOK 1 000 2015 2014
 
Loans to customers 169,338,988 161,205,282
Loans to and deposits with credit institutions 8,083,543 16,268,940
Government certificates 8,705,692 487,553
Bonds 42,113,662 19,880,949
Financial derivatives 40,947,743 29,746,665
Total assets 269,189,628 227,589,389
Unused credit on flexible loans 18,653,742 19,210,784
Received collateral in relation to derivative contracts -36,950,453 -27,181,223
Total credit exposure 250,905,798 219,618,950

SpareBank 1 Boligkreditt AS will only purchase loans from the shareholder banks that have a high servicing capacity and low loan to value. This implies that the loans bought by the Company are in lower risk groups. The Company utilizes the same risk classification as the other banks in the SpareBank 1 Alliance. Presented below is an overview that shows how loans are allocated over the risk groups. The allocation in risk groups is based on expected loss (PD multiplied by LGD for each individual loan).

Lending to customers (residential mortgage loans)

The risk classification of the Company's lending is conducted on the basis of an evaluation of the exposures.  The evaluation is based on the following main criteria:

• Ability of the customer to pay (income and debt)

• Willingness to pay (payment remarks)

• Size of the loan

• Loan to value (maximum loan to collateral value is 75% and the collateral must be valued by an independent source,  Valuations are updated quarterly for the whole loan portfolio)

• Location

SpareBank 1 Boligkreditt AS utilizes the SpareBank 1 Alliance's IT platform and custom developed IT systems for the acquisition of loans from the banks in the SpareBank 1 Alliance. Credit risk is monitored by measuring the development of the mortgage portfolio's credit quality, details about missed payments, defaults and over the limit withdrawals.  For defaults and losses in the portfolio the Company has set the following limits:

• Maximum probability of default for the portfolio:  0.90 %

• Expected loss in the portfolio:  < 0.02 % of the loan volume

• Unexpected loss in the portfolio (at a 99.97% confidence level):  < 0,75 % of the loan volume

The following risk classification, step 1 to 3 is executed monthly based on objective data

1.Probability of default (PD): The customers are classified in PD classes depending on the likelihood for default within the next 12 months based on a long average (through cycle). The PD is calculated on the basis of historical dataseries for financial key numbers tied to income and source of income, as well as on the basis of non-financial criteria such as age and behaviour.  In order to group the customers according to PD, nine classes of probability of default are used (A to I).  In addition the Company has to default classes (J and K) for customers with defaulted and/or written down exposures.

2. Exposure at default:  This is a calculated number which provides the exposure with a customer at the point of default.  This exposure is usually of lending volume and the approved but not utilized credit lines.  Customers approved but not utilized credit lines are multiplied with a 100 per cent conversion factor.

3. Loss given default (LGD): This is a calculated number which expresses how much the Company potentially stands to lose if a custiner defaults on his or her obligations.  The assessment takes into consideration the collateral and the cost the Company could incur by foreclosing and collecting on the defaulted exposure.  The Company determines the realizable value on the collateral based on the experience of the SpareBank 1 banks over time, and so that the values reflect a cautious assessment in the lower point of an economic cycle.  Seven classes (1 to 7) are used to classify the exposures according to LGD. 

Definition of risk groups - based on probability of default

Risk group Lower limit Upper limit Distribution in % 2015 Distribution in % 2014 Total lending * 2015 Total lending * 2014
 
Lowest 0.00% 0.01% 75.98% 74.24% 128,452,104 119,549,325
Low 0.01% 0.05% 18.61% 19.30% 31,469,568 31,078,433
Medium 0.05% 0.20% 3.84% 4.76% 6,483,931 7,670,309
High 0.20% 0.50% 0.72% 0.82% 1,216,783 1,317,046
Highest 0.50% 100% 0.85% 0.88% 1,433,267 1,411,354
Totalt 100 100 169 161

* Total exposures are presented as exposure at default exclusive of accrued interest and before group loan loss provisions.

Loans to and deposits with credit institutions

SpareBank 1 Boligkreditt only has deposits with financial institutions rated A-/A2 or higher as of 31.12.2015

Bonds and certificates

Rating class 2015 2014
 
AAA/Aaa
Covered Bonds 14,832,945 13,599,039
Norw. Government bills 8,705,692 487,554
Other government or gov guaranteed bonds 25,468,493 5,920,103
Financial institutions -
Total 49,007,130 20,006,695
 
AA+/Aa1 til AA-/Aa3
Covered Bonds 1,812,225 361,807
Financial institutions 3,319,040 -
Total 5,131,265 361,807
 
A+/A1
Financial institutions 4,764,503 -
Total 4,764,503 -
 
Total 58,902,897 20,368,502

Fitch/Moody's/S&P rating classes are used. If the ratings differ. the lowest counts. All bonds are publicly listed.,Financial derivatives,Derivative contracts are only entered into with counterparties with a certain minimum rating by Fitch Ratings and Moody's Ratings Service. If the value of the derivative exceeds the credit limits held by SpareBank 1 Boligkreditt for counterparty risk in derivative contracts the counterparty must post cash collateral in either NOK or EUR. SpareBank 1 Boligkreditt is not required to post collateral if the value of the contract should be in favour of the counterparty. Collateral received is included in the balance sheet under receivables with and debt to credit institutions.

Financial derivatives

Derivative contracts are only entered into with counterparties with a certain minimum rating by Fitch Ratings and Moody's Ratings Service. If the value of the derivative exceeds the credit limits held by SpareBank 1 Boligkreditt for counterparty risk in derivative contracts the counterparty must post cash collateral in either NOK or EUR. SpareBank 1 Boligkreditt is not required to post collateral if the value of the contract should be in favour of the counterparty. Collateral received is included in the balance sheet under receivables with and debt to credit institutions.


Note 25 Liquidity Risk

Liquidity risk is defined as the risk that the business is not able to meet its obligations at maturity.

SpareBank 1 Boligkreditt AS issues covered bonds at shorter maturities than the residential mortgages which make up the largest portion of assets on the Company’s balance sheet.  The Liquidity risk which arises is closely monitored and is in compliance with the Norwegian covered bond legislation which amongst other things requires that the cash flow from the cover pool is sufficient to cover outgoing cash flows for holders of preferential claims on the cover pool (holders of covered bonds and counterparties in associated hedging contracts (swaps).  In order to manage the liquidity risk certain limits and liquidity reserves have been approved by the Board of Directors.  SpareBank 1 Boligkreditt AS maintains a liquidity reserve which will cover undrawn amounts under revolving loans, a theoretical temporary halt to incoming interest payments from the mortgage loans and at any point in time cover bond maturities for the next six months (100 per cent) and 50 per cent for maturities between 6 and 12 months, according to the proposals for a new Net Stable Funding Ratio (NSFR).   Liquidity risk is monitored on a regular basis and weekly reports are presented to the management and monthly reports to the Board.

Boligkreditt's shareholder banks have committed themselves to buying covered bonds in a situation where the primary market for issuance of covered bonds is not functioning.  This commitment has no liquidity effects on the SpareBank 1 banks because the covered bonds can be deposited with the central bank at any time.  The Company may require its shareholder banks to acquire covered bonds from it in an amount which is capped at the amount of the next 12 months upcoming maturities less what the Company holds as its own liquidity reserve.  Each shareholder bank's responsibility is pro rata in accordance with its ownership stake in the Company and secondary up to a level of twice its pro rata stake if other banks are unable or unwilling to meet their commitment.   Each bank may make a deduction in its commitment for bonds already purchased under this commitment. 

Liquidity Risk - all amounts in 1000 NOK

31.12.15 No set term Maturity 0 to 1 month Maturity 1 to 3 months Maturity 1 to 5 years Maturity more than 5 years
 
Loans to credit institutions 50,197,205 6,434,928 3,286,100 11,086,835 12,100,177 1,483,146
Lending to customers 169,338,988 9,322 14,151 1,329,844 167,938,509
Derivatives 40,947,743 25,343,180 9,038,705
Treasury Bills 8,705,692 4,739,781
Other assets with no set term 3,671 3,671
Total Assets 269,193,299 6,438,598 3,295,422 15,840,767 38,773,201 178,460,360
Liabilities incurred when issuing securities -218,853,602 158,707 -672,290 -568,436 -136,813,686 -51,213,822
Other liabilities with a set term -36,950,453 -36,950,453
Derivatives -690,315 -3,130 -447,723 -204,067
Liabilities with no set term -526,677 -526,677
Subordinated debt -2,434,380 0 -2,434,380
Equity -9,737,872 -9,737,872
Total liabilities and equity -269,193,299 -10,105,841 -37,625,873 -568,436 -137,261,409 -53,852,269
Net total all items -3,667,243 -34,330,451 15,272,331 -98,488,209 124,608,091

Liquidity Risk - all amounts in 1000 NOK

31.12.14 No set term Maturity 0 to 1 month Maturity 1 to 3 months Maturity 1 to 5 years Maturity more than 5 years
 
Loans to credit institutions 36,149,890 4,204,767 12,139,515 189,412 11,538,397 1,445,186
Lending to customers 161,205,282 226 6,041 1,333,985 159,832,637
Derivatives 29,746,665 17,986,819 10,429,328
Treasury Bills 487,553 264,444
Other assets with no set term 4,468 4,468
Total Assets 227,593,858 4,209,235 12,139,741 459,897 30,859,201 171,707,151
Liabilities incurred when issuing securities -188,719,491 148,533 -251,144 -501,509 -118,077,596 -57,733,794
Other liabilities with a set term -27,181,223 -27,181,223
Derivatives -825,043 -513,222 -241,047
Liabilities with no set term -439,440 -439,440
Subordinated debt -1,954,262 0 -1,954,262
Equity -8,474,399 -8,474,399
Total liabilities and equity -227,593,858 -8,765,306 -27,432,367 -501,509 -118,590,818 -59,929,103
Net total all items -4,556,070 -15,292,626 -41,612 -87,731,617 111,778,048

Note 26 Interest Rate Risk

The interest rate risk is the risk of a negative profit effect due to rate changes. The balance sheet of SpareBank 1 Boligkreditt consists in all essence of loans to retail clients with a variable interest rate that can be changed after a 6 week notice period, floating rate current deposits, bonds and certificates in the Company's liquidity portfolio and of issued  bonds and certificates. In accordance with the Norwegian legislation applicable to Covered Bonds and internal guidelines, SpareBank 1 Boligkreditt hedges all interest rate risk by utilising interest rate swaps. The Board approves limits for interest rate risk for different terms. Reports to the Board are presented on a monthly basis. The table below reports the effect on market value in NOK for one per cent change in interest rates for the Company’s portfolios of mortgages, derivatives and issued bonds. The interest rate sensitivity shows the expected effect from a 100 basis points parallel shift in the interest rate curve:

Interest rate risk - all amounts in 1 000 NOK

31.12.15 No set term Maturity 0 to 1 month Maturity 1 to 3 months Maturity 3 to 12 months Maturity 1 to 5 years Maturity more than 5 years
 
Loans to credit institutions 50,197,205 13,798,383 18,996,862 13,290,834 3,674,048 437,078
Lending to customers 169,338,988 169,338,988
Treasury Bills 8,705,692 4,739,781 3,965,912
Other assets with no set term 3,671 3,671
Total Assets 228,245,556 3,671 13,798,383 193,075,631 17,256,746 3,674,048 437,078
 
Liabilities incurred when issuing securities -218,853,602 158,707 -7,165,766 -34,399,765 -23,706,227 -109,208,193 -44,532,358
Other liabilities with a set term -36,950,453 -36,950,453
Liabilities with no set term -526,677 -526,677
Subordinated debt -2,434,380 -2,434,380
Equity -9,737,872 -9,737,872
Total liabilities and equity -268,502,984 -47,056,294 -7,165,766 -34,399,765 -23,706,227 -109,208,193 -46,966,738
Net interest rate risk
before derivatives -40,257,428 -47,052,624 6,632,617 158,675,866 -6,449,482 -105,534,145 -46,529,660
Derivatives 40,257,427 0 -15,586,140 -117,215,091 22,625,436 105,544,855 44,889,626
Net interest rate risk -47,052,624 -8,953,523 41,460,774 16,175,954 10,710 -1,640,034
% of total assets 17% 3% 15% 6% 0% 1%

Interest rate risk - all amounts in 1 000 NOK

31.12.14 No set term Maturity 0 to 1 month Maturity 1 to 3 months Maturity 3 to 12 months Maturity 1 to 5 years Maturity more than 5 years
 
Loans to credit institutions 36,149,890 20,453,388 8,380,459 4,416,799 2,363,147 536,096
Lending to customers 161,205,282 161,205,282
Treasury Bills 487,553 264,444 223,110
Other assets with no set term 4,468 4,468
Total Assets 197,847,193 4,468 20,453,388 169,850,185 4,639,908 2,363,147 536,096
 
Liabilities incurred when issuing securities -188,719,491 148,533 -10,486,519 -30,199,159 -9,104,680 -89,433,182 -49,644,485
Other liabilities with a set term -27,181,223 -27,181,223
Liabilities with no set term -439,440 -439,440
Subordinated debt -1,954,262 -1,954,262
Equity -8,474,399 -8,474,399
Total liabilities and equity -226,768,815 -35,752,715 -10,486,519 -30,199,159 -9,104,680 -89,433,182 -51,598,747
Net interest rate risk
before derivatives -28,921,622 -35,748,551 9,966,869 139,651,026 -4,464,772 -87,070,035 -51,062,651
Derivatives 28,921,622 0 -16,079,883 -99,788,001 8,556,536 87,087,240 49,145,730
Net interest rate risk -35,748,551 -6,113,014 39,863,025 4,091,765 17,205 -1,916,920
% of total assets 16% 3% 18% 2% 0% 1%

The table below presents a net change in market value in NOK for all the Company's asset and liabilities given a one per cent parallel move of the interest rate curve.

Sensitivity of net interest rate expense in NOK 1000

Currency Change in basis points 2015 2014
NOK 100 74,560 36,556

Mortgage rates (variable) are set by SpareBank 1 Boligkreditt AS, but for all practical purposes follow the recommendations from the local originating banks. The mortgage interest rates are set dependent on collateral and LTV, customer risk category and the competitive mortgage lending landscape.


Note 27 Currency Risk

The foreign exchange risk is the risk of a negative P&L impact as a result of changes in foreign currencies.

SpareBank 1 Boligkreditt AS balanse consists mainly of lending to private individuals in Norway and in NOK, current deposits in NOK and liabilities issued in the Norwegian or international capital markets.  In accordance with the Norwegian covered bond legislation and its internal guidelines the Company hedges all currency risk, either by the utilisation of swaps or by way of asset liability management, i.e. mainting exposures in assets and liabilities of the same currency.  Weekly risk reports are created by the management team and reports to the Board of Directors have a monthly frequency.  The currency risk (sensitivity to currency movements) are calculated by adding the exposure in the various currencies.  No other currencies than the NOK had a material net position on the Company's balance sheet at the end of the year.

Net currency exposure in NOK 1 000

Currency 2015 2014
 
EUR -2,706 26,735
- Bank Deposits 2,117 31,115
- Issued Bonds -120,721,290 -99,956,242
- Derivatives 116,867,190 96,840,019
- Bond investments 3,849,277 3,111,844
USD 38,900 3,383
- Bank Deposits 38,975 3,645
- Issued Bonds -41,625,965 -35,001,278
- Derivatives 41,625,891 35,001,015
- Bond investments
SEK 0 0
- Bank Deposits - -
- Issued Bonds -288,058 -266,906
- Derivatives 288,059 266,906
- Bond investments - -
Total 36,195 30,118

P&L effect before tax. in NOK 1000

Currency Change in Exchange Rate (per cent) 2015 2014
 
EUR +10 219 3,111
USD +10 4,422 365
SEK +10 - -
Total 4,642 3,476

Note 28 Asset Coverage Test

The asset coverage is calculated according to the Financial Services Act § 2-31 (Covered Bond Legislation). There is a discrepancy between the asset coverage test and the amounts in the balance sheet because for the purposes of the test mortgage loans which may have migrated above the 75% loan to value level are reduced to reflect the decrease in the value of the underlying collateral so that only a maximum loan corresponding to a value of 75% of the collateral is considered. Market values are used for all subsitute collateral in the test. In addition any defaulted loans, i.e. loans in arrears at or beyond 90 days, are excluded from the test (there have been no occurrences of any defaults starting with the commencement of operations through 31.12.2015).

NOK 1 000 2015 2014
 
Covered Bonds 217,752,078 182,989,799
Repurchased Bonds -5,155,728 -1,843,388
Derivatives -39,848,930 -29,035,167
Total Covered Bonds 172,747,420 152,111,245
Lending to customers 168,792,683 160,919,570
Treasury Bills 7,210,022 487,554
Substitute collateral 14,664,356 8,792,087
Total Cover Pool 190,667,061 170,199,211
Asset-coverage 110.4 % 111.9 %

Note 29 Capital Adequacy

The primary goal for the Company's management of capital reserves is to ensure compliance with laws and regulatory requirements and maintain solid financial ratios and a high quality credit assessment in order to best support its business.

A new capital requirements directive was introduced in Norway as of January 1, 2007 (Basel II). SpareBank1 Boligkreditt AS obtained permission from the Financial Services Authority in Norway (Finanstilsynet) for the implementation of its own Internal Ratings Based (IRB) model for credit risks from the seond quarter of 2009.

Transitional rules have been implemented by the FSA whereby regulated financial institutions with approved IRB models will not be able to fully benefit from the results of such models until the year 2018. Regulated entities are allowed to reduce by 20% the total sum of risk weighted assets which would otherwise have been in place under the previous Basel I framework.  In the following years until the end of 2017, the transitional rules will lead to significantly higher capital requirements than what would otherwise have been applicable under Basel II.

The European Union has approved new regulatory requirements, CRD IV.  The new regulations places more robust requirements on capital adequacy, capital structure, liquidity buffers and funding.  CRD IV is gradually introduced in Norway up until the end of 2016. The requirement of 15.0% total capital from July 1, 2016 includes a 11.5% Core Tier 1 capital and 3.5% other capital. 

The Company's parent banks have committed themselves to keep the Equity Core Tier 1 capital at a minimum 9% (is currently being reviewed with a target to increase to 11%). Primarily this commitment is pro rata according to the ownership stakes in the Company, but it is a joint and several undertaking if one or more ownership banks are unable to comply, up to the maximum of twice the initial pro rata amount. 

Capital. NOK 1 000 2015 2014
 
Share capital 5,710,548 5,510,548
Premium share fund 2,857,922 2,757,922
Other equity capital 1,179,063 205,928
Total equity capital entered into the balance sheet 9,747,533 8,474,398
Intangible assets -1,880 -2,904
Declared share dividend -114,211 -203,890
Hybrid bond 830,000 350,000
100% deduction of expected losses exceeding loss provisions IRB -326,724 -272,755
Prudent valuation adjustment (AVA) -83,765 -50,940
Core capital (Tier 1) 10,050,953 8,293,909
Supplementary capital (Tier 2) 1,600,000 1,600,000
Total capital 11,650,953 9,893,909
Minimum requirements for capital. NOK 1 000 2015 2014
 
Credit risk 3,122,194 2,894,117
Market risk - -
Operational risk 41,779 35,713
Depreciation on groups of loans - -
CVA Risk 165,228 148,400
Difference in capital requirement resulting from transitional floor 2,463,358 2,538,910
Minimum requirement for capital 5,792,642 5,617,140

Capital Coverage

2015 2014
 
Risk-weighted assets. incl. transitional floor 72,406,991 70,214,246
Capital coverage (%) 16 14
Tier 1 capital coverage (%) 14 12
Core Tier 1 capital coverage (%) 13 11

Note 30 Related parties

The Company has 169 347 MNOK loans to customers. These are loans acquired from shareholder banks at market values (i.e. nominal value).

SpareBank 1 SR-Bank ASA
The Company purchases a substantial amount of their support functions from SpareBank 1 SR-Bank ASA. A complete SLA is established between the Company and SpareBank 1 SR-Bank ASA.                 

SpareBank 1 – Alliance
In addition the Company has a Transfer and Servicing agreement in place with each individual shareholder bank regulating amongst other things the servicing of mortgage loans.

SpareBank 1 Næringskreditt AS
All employees within SpareBank 1 Boligkreditt AS are also to various degrees working for SpareBank 1 Næringskreditt AS.  Twenty percent of the administrative expenses in SpareBank 1 Boligkreditt AS are to charged to SpareBank 1 Næringskreditt AS. This division of administrative expenses between the two companies reflect the actual resources utilisation in SpareBank 1 Boligkreditt AS.


Note 31 Collateral Received

SpareBank 1 Boligkreditt has signed ISDA-agreements including CSAs (Credit Support Annexes) with a number of financial institutions that are counterparties in interest rate and currency swaps. These institutions post collateral in the form of cash deposits to SpareBank 1 Boligkreditt. At the year-end 31.12.2015 this collateral amounted to NOK 36 950 million. This amount is included in the balance sheet, but represents restricted cash.  According to signed ISDA and CSA agreement, it is not permitted for the parties in derivatives transactions to net amounts amongst various transactions.


Note 32 Contingencies and Events after the Balance Sheet Date

SpareBank 1 Boligkreditt AS is not a party to any ongoing legal proceedings. 

No events have taken place after the balance sheet date which are expected to have any material impact on the financial statements as of Dec. 31, 2015. 

The dividend for 2015 is proposed to be NOK 105 million (NOK 1.84 per share)