Notes to accounts

Note 1 Accounting principles

1.1 Basis for preparation
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.

These quarterly accounts for SpareBank 1 Boligkreditt refers to the period 01.01.2017 - 30.06.2017.  The accounts have been produced in accordance with IAS 34 reporting for a partial year. The accounts are prepared in accordance with IFRS and IFRIC interpretations thereof.  The Company’s accounting principles and calculation methods have not materially changed since the annual accounts for 2016.  The principles adressed below should be seen in connection with the accounting principles as they were presented in the annual accounts for 2016.                

These financial accounts have been approved by the Board of Directors of SpareBank 1 Boligkreditt on 07.08.2017

1.2 Segment
Business segments are the Company’s primary reporting segment.  The Company has only one segment, which is the retail customer segment.  The segment consists of lending to private individuals and all loans have been acquired from the member banks of the SpareBank 1 alliance.  The Company’s total results as of the second quarter 2017 is therefore equal to the retail segment total results. 

1.3 Presentational 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.                             

1.4 Risk Management
SpareBank 1 Boligkreditt AS’ financial assets and liabilities fluctuates in value as a result of the variability of prices of such assets and liabilities in the financial markets. In the annual accounts for 2016 Note 3 explains in more detail the use of critical estimates and judgements when applying the accounting policies

1.5 Estimates and assessments regarding the use of accounting principles
The preparation of the financial information is in accordance with IFRS and involves management’s estimates which affect the implementation of accounting principles and thereby accounting values for assets, liabilities, revenue and costs. These estimates have been described in the notes to the annual accounts for 2016.


Note 2 Net Interest Income

NOK 1 000 30.06.2017 30.06.2016 2016
 
Interest income
Interest income and similar income from loans to and balances with credit institutions 253,990 242,291 526,792
Interest income and similar income from loans to and balances with customers 2,286,163 2,298,496 4,511,245
Interest income treasury bills -4,091 19,268 7,877
Commission expense (payable to shareholder banks) * -697,755 -676,681 -1,247,952
Total interest income 1,838,306 1,883,373 3,797,962
 
Interest expense
Interest expense and similar expenses to credit institutions -5,387 8,851 12,258
Interest expense and similar expenses on issued bonds 1,592,570 1,606,410 3,265,299
Interest expense and similar expenses on issued certificates 6,998 2,097 9,107
Interest expense and similar expenses on Tier 1 capital ** 0 19,260 45,227
Interest expense and similar expenses on Tier 2 capital 26,521 26,903 54,001
Other interest expenses 4,087 73 1,073
Total interest expense 1,624,789 1,663,595 3,386,965
 
Net interest income 213,517 219,778 410,997

* 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.

** The reclassification on Tier 1 capital, Hybrid capital to equity, occurred at 31.12.2016 so that the interest will first be recognized in other equity as of 01.01.2017


Note 3 Net Gains from Financial Instruments

NOK 1 000 30.06.2017 30.06.2016 2016
 
Net gains (losses) from financial liabilities (1) -4,047,766 -4,673,830 -3,274,659
Net gains (losses) from financial derivatives. hedging liabilities. at fair value. hedging instrument (1.3) 3,543,276 4,815,315 3,641,152
Net gains (losses) from financial assets (2) 348,154 -287,883 -665,916
Net gains (losses) from financial derivatives. hedging assets. at fair value. hedging instrument (2.3) 36,127 15,401 77,376
Net gains (losses) due to changes in basisswapspreads (4) -335,960 53,299 -299,947
Net gains (losses) -456,169 -77,698 -521,993

(1) The Company utilizes 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. Some liabilities in foreign currency are hedged with natural hedges (corresponding assets in the same currency and will cause the valuation change of the liabilities to be different to the valuation changes in the derivatives hedging the liabilities (there will also be valuation differences due to the the amortization of issuance costs and when the bonds are issued at prices different from par value.)

(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. Included in assets in the table are also investments which are hedged with natural currency hedges,  as well as investments in short term, highly rated bonds from funds received from swap counterparties for collateral purposes.   Such investments do not have a corresponding value change in the financial derivatives hedging the assets (and are also not included in the liabilities in line 1 in the table above as this contains only the Company’s issued debt securities).

(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 utilizes 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 expressed in bps per annum.  The change in this cost 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 4 Salaries and Remuneration

NOK 1 000 30.06.2017 30.06.2016 2016
 
Salary 4,559 4,787 9,903
Salaries reinvoiced to SpareBank1 Næringskreditt* -1,328 -1,674 -2,691
Pension expenses 1,271 1,077 1,956
Social insurance fees 1,092 797 1,699
Other personnel expenses 224 156 541
Total salary expenses 5,818 5,143 11,409
 
Average number of full time equivalents (FTEs) 8 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 covered in SpareBank 1 Boligkreditt through participation in the pension fund ofSpareBank 1 SR-Bank ASA.  This pension scheme meets the legal demands on mandatory occupational pension.


Note 5 Administration Expenses

NOK 1 000 30.06.2017 30.06.2016 2016
 
IT operation and maintenance 4,962 4,735 9,456
Travel 578 411 944
Telephone and postage 27 29 123
Misc other adm expenses 1 8 9
Cost share with SpareBank 1 Næringskreditt AS -163 -163 -284
Total 5,404 5,021 10,247

Note 6 Other Operating Expenses

NOK 1 000 30.06.2017 30.06.2016 2016
 
Auditing. hired personnel from SpareBank 1 Group. other services 5,304 4,370 11,761
Operating expenses rented offices 342 294 618
Operating expenses reinvoiced to SpareBank 1 Næringskreditt -275 -254 -500
Misc other operating expenses 165 300 436
Total 5,536 4,711 12,315

Note 7 Other Assets

NOK 1 000 30.06.2017 30.06.2016 2016
 
Intangible assets 946 1,722 1,245
Account receivables from SpareBank 1 N 163 111 299
Total 1,109 1,833 1,543

Note 8 Lending to Customers

Lending to customers are residential mortgages only. The mortgages generally have a low loan-to-value and losses have been very low. The total amount of lending to customers at the end of Q2 2017 were NOK 173,6 billion. All mortgages carry a variable interest rate.

NOK 1 000 30.06.2017 30.06.2016 2016
 
Revolving loans - retail market 50,456,110 54,697,466 53,353,004
Amortising loans - retail market 122,977,516 117,789,470 120,969,630
Accrued interest 146,062 136,844 148,277
Total loans before specified and unspecified loss provisions 173,579,689 172,623,781 174,470,911
Specified loan loss provisions 0
Unspecified loan loss provisions 7,708 7,708 7,708
Total net loans and claims with customers 173,571,981 172,616,073 174,463,203
 
Liability
Unused balances under customer revolving credit lines (flexible loans) 13,121,002 18,627,409 13,593,736
Total 13,121,002 18,627,409 13,593,736
 
Defaulted loans
Defaults* 0.0 % 0.0 % 0.0 %
Specified loan loss provisions 0.0 % 0.0 % 0.0 %
Net defaulted loans 0.0 % 0.0 % 0.0 %
 
Loans at risk of loss
Loans not defaulted but at risk of loss 0.0 % 0.0 % 0.0 %
- Write downs on loans at risk of loss 0.0 % 0.0 % 0.0 %
Net other loans at risk of loss 0.0 % 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 30.06.2017 30.06.2016 2016
 
Loan loss provisions starting balance 7,708 7,708 7,708
Change in group loan loss provisions 0 0 0
Loan loss provisions ending balance 7,708 7,708 7,708

Note 9 Share Capital and Shareholder Information

List of shareholders as of 30.06.2017

No of Shares in per cent Share of votes
 
SpareBank 1 Østlandet 13,107,545 20.26 % 20.26 %
SpareBank 1 SMN 12,349,152 19.09 % 19.09 %
SpareBank 1 Nord-Norge 9,452,201 14.61 % 14.61 %
SpareBank 1 SR-Bank ASA 8,972,206 13.87 % 13.87 %
BN Bank ASA 3,904,571 6.03 % 6.03 %
SpareBank 1 BV 2,990,735 4.62 % 4.62 %
SpareBank 1 Østfold Akershus 2,879,967 4.45 % 4.45 %
Sparebanken Telemark 2,728,584 4.22 % 4.22 %
SpareBank 1 Ringerike Hadeland 2,374,127 3.67 % 3.67 %
SpareBank 1 Nordvest 1,421,523 2.20 % 2.20 %
SpareBank 1 Modum 941,527 1.46 % 1.46 %
SpareBank 1 Nøtterøy Tønsberg 904,606 1.40 % 1.40 %
SpareBank 1 Søre Sunnmøre 841,836 1.30 % 1.30 %
SpareBank 1 Hallingdal Valdres 775,375 1.20 % 1.20 %
SpareBank 1 Gudbrandsdal 599,994 0.93 % 0.93 %
SpareBank 1 Lom og Skjåk 461,533 0.71 % 0.71 %
Total 64,705,482 100 % 100 %

The share capital consists of 64 705 482 shares with a nominal value of NOK 100


Note 10 Liabilities incurred by issuing Securities

NOK 1 000 Nominal value* 30.06.2017 Nominal value* 30.06.2016 Nominal value 2016
 
Short term notes. unsecured 365,000 950,000 950,000
Repurchased short term notes. unsecured 0 0 0
Senior unsecured bonds 4,231,000 3,631,000 3,481,000
Repurchased senior unsecured bonds -326,000 -282,000 -232,000
Covered bonds 190,183,687 184,961,507 185,292,077
Repurchased Covered bonds -2,105,970 -3,635,195 -1,951,550
Total debt incurred by issuing securities 192,347,717 185,625,312 187,539,527

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

NOK 1 000 Book value 30.06.2017 Book value 30.06.2016 Book value 2016
 
Short term notes. unsecured 364,957 949,966 949,966
Repurchased short term notes. unsecured 0 0 0
Senior unsecured bonds 4,231,377 3,630,435 3,480,574
Repurchased senior unsecured bonds -326,130 -280,870 -231,456
Covered bonds 213,350,828 215,798,777 209,376,266
Repurchased covered bonds -2,273,383 -3,870,060 -2,136,734
Activated costs incurred by issuing debt -179,250 -159,745 -163,181
Accrued interest 1,298,533 1,529,119 1,781,147
Total debt incurred by issuing securities 216,466,932 217,597,621 213,056,583

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

Senior Unsecured Bonds and notes

Due in 30.06.2017 30.06.2016 2016
 
2016 500,000
2017 1,468,000 2,618,000 2,518,000
2018 1,621,000 300,000 800,000
2019 1,181,000 881,000 881,000
Total 4,270,000 4,299,000 4,199,000

Covered bonds

Due in 30.06.2017 30.06.2016 2016
 
2016 10,345,000 0
2017 2,149,500 19,877,500 19,449,500
2018 35,435,250 35,754,250 35,754,250
2019 27,564,438 27,550,128 27,535,470
2020 24,963,500 24,958,500 24,958,500
2021 28,839,651 28,505,307 28,770,128
2022 33,403,200 18,698,750 21,148,750
2023 9,494,150 9,374,900 9,252,750
2024 11,082,982 1,558,327 1,517,529
2025 1,010,000 1,010,000 1,010,000
2026 12,185,000 1,935,000 12,185,000
2027 667,246 475,850 475,850
2028 1,282,800 1,282,800 1,282,800
Total 192,347,717 185,625,312 187,539,527

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

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

NOK 1 000 30.06.2017 30.06.2016 2016
 
NOK 65,675,864 60,717,004 62,584,741
EUR 131,824,378 127,194,134 120,282,131
USD 18,695,188 29,407,367 29,922,726
SEK 271,501 279,115 266,985
Total 216,466,932 217,597,621 213,056,583

Note 11 Subordinated Debt

NOK 1000 ISIN Interest rate Issued year Call option Nominal amount 30.06.2017 30.06.2016 2016
 
With maturity
Subordinated debt (Tier 2 capital instrument) NO0010704109 3M Nibor + 225 bp 2014 43,592 1,600,000 1,600,000 1,600,000 1,600,000
Accrued interest 3,328 3,477 3,778
* Hybrid (Tier 1 capital instrument) 0 1,080,860 0
Book value 1,603,328 2,684,337 1,603,778

*All hybrid instruments have been reclassified to equity from 31.12.2016. This is according to the definition of a financial liability under IAS 32.


Note 12 Financial Derivatives

NOK 1 000 30.06.2017 30.06.2016 2016
 
Interest rate derivative contracts
Interest rate swaps
Nominal amount 74,562,672 79,229,257 69,479,995
Asset 3,995,594 5,701,627 4,346,925
Liability -661,148 -525,072 -667,779
Currency derivative contracts
Currency swaps
Nominal amount 137,466,427 142,587,689 138,286,431
Asset 20,689,219 26,474,623 22,604,660
Liability -276,415 -50,607 -1,113,441
Total financial derivative contracts
Nominal amount 212,029,099 221,816,946 207,766,425
Asset 24,684,813 32,176,250 26,951,585
Liability -937,562 -575,679 -1,781,221

All derivative contracts exist for the purpose of hedging changes in interest rates and currency exchange rates.

* Change due to basis swap spread adjustment Liability Asset
 
Asset/Liability -937,562 32,176,250 26,951,585
Net gain (loss) on valuation adjustment of basisswap spreads -137,157 552,050 198,803
Net asset/liability derivatives -1,074,719 32,728,300 27,150,388

Basis swaps are currency swaps and are entered into at a certain cost (spread) between SpareBank 1 Boligkreditt and counterparties (banks) that have signed an ISDA and CSA agreement with the Company.  Changes in the cost are valued each quarter across all of the Company’s swaps in accordance with the IFRS rules.  An increase in the cost would result in an increase in the value of the basisswaps while a cost decrease would reduce the value of the basis swaps. The effect may be material from quarter to quarter because the Company’s portfolio of swaps is extensive.  All basisswap value changes will reverse over time towards the point of termination of the swaps. All swaps are employed for hedging purposes.


Note 13 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 maturit Non-financial assets and liabilities 30.06.2017
 
Assets
Deposits at and receivables from financial institutions - 10,490,289 - - 10,490,289
Norwegian government short term debt certificates 2,667,460 - - - 2,667,460
Bonds 42,106,577 - - 42,106,577
Lending to customers - 173,571,981 - - 173,571,981
Financial derivatives 24,684,813 - - - 24,684,813
Defered tax asset - - - 6,174 6,174
Other assets - - - 1,109 1,109
Total Assets 69,458,849 184,062,270 - 7,283 253,528,402
 
Liabilities
Debt incurred by issuing securities 170,240,644 46,226,289 - - 216,466,932
Collateral received in relation to financial derivatives - 23,245,875 - - 23,245,875
Financial derivatives 1,074,719 - - - 1,074,719
Deferred taxes - - - 208,816 208,816
Taxes payable - - - - -
Subordinated dept - 1,603,328 - - 1,603,328
Other liabilities - - - 89,939 89,939
Total Liabilities 171,315,363 71,075,492 - 298,756 242,689,610
 
Total Equity - 1,080,000 - 9,758,792 10,838,792
 
Total Liabilities and Equity 171,315,363 72,155,492 - 10,057,547 253,528,402

*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 maturit Non-financial assets and liabilities 30.06.2016
 
Assets
Deposits at and receivables from financial institutions - 11,257,916 - - 11,257,916
Norwegian government short term debt certificates 1,656,360 - - - 1,656,360
Bonds 44,658,605 - 74 - 44,733,335
Lending to customers - 172,616,073 - - 172,616,073
Financial derivatives 32,728,300 - - - 32,728,300
Other assets - - - 1,833 1,833
Total Assets 79,043,265 183,873,989 74 1,833 262,993,817
 
Liabilities
Debt incurred by issuing securities 175,957,449 41 - - 217,597,621
Collateral received in relation to financial derivatives - 31 - - 31,632,419
Financial derivatives 575,679 - - - 575,679
Deferred taxes - - - 370,561 370,561
Taxes payable - - - 31,621 31,621
Subordinated dept - 2 - - 2,684,337
Other liabilities - - - 133,917 133,917
Total Liabilities 176,533,129 75,956,927 - 536,099 253,026,155
 
Total Equity - - - 9,967,662 9,967,662
 
Total Liabilities and Equity 176,533,129 75,956,927 - 10,503,760 262,993,816

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


Note 14 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 is at fair value 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 is at fair value 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 assets and liabilities at fair value as of 30.06.2017y

NOK 1 000 Level 1 Level 2 Level 3 Total
 
Bonds and bills 29,076,787 15,697,249 - 44,774,036
Financial Derivatives - 24,684,813 - 24,684,813
Total Assets 29,076,787 40,382,062 - 69,458,849
Bonds - 170,240,644 - 170,240,644
Financial Derivatives - 1,074,719 - 1,074,719
Total Liabilities - 171,315,363 - 171,315,363

The following table presents the company’s assets and liabilities at fair value as of 30.06.2016

NOK 1 000 Level 1 Level 2 Level 3 Total
 
Bonds and bills 30,722,252 15,592,712 - 46,314,964
Financial Derivatives - 32,728,300 - 32,728,300
Total Assets 30,722,252 48,321,012 - 79,043,264
Bonds - 175,957,449 - 175,957,449
Financial Derivatives - 575,679 - 575,679
Total Liabilities - 176,533,128 - 176,533,128

Note 15 Other Liabilities

NOK 1 000 30.06.2017 30.06.2016 2016
 
Employees tax deductions and other deductions 450 387 1,470
Employers national insurance contribution 442 306 476
Accrued holiday allowance 445 428 1,011
Commission payable to shareholder banks 132,221 105,225 92,506
Deposits* 2,038 6,753 1,010
Pension liabilities 14,624 12,823 14,124
Other accrued costs -60,281 7,995 7,267
Total 89,939 133,917 117,865

The Company does not have an overdraft facility or a revolving credit facility as of 30.06.2017
* Deposits represents temporary balances paid in by customers in excess of the original loan amount


Note 16 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 substitute 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 30.06.2017).

NOK 1 000 30.06.2017 30.06.2016 2016
 
Covered Bonds 214,693,867 217,376,383 211,161,257
Repurchased Bonds -2,330,630 -3,927,714 -2,155,498
Derivatives -23,867,791 -31,798,450 -25,321,068
Total Covered Bonds 188,495,446 181,650,218 183,684,691
Lending to customers 173,122,544 172,207,775 173,757,431
Lending to the public sector (gov. bonds/certificates or gov. guaranteed debt) 4,174,857 3,614,410 0
Liquid assets (substitute assets) 27,532,840 22,200,956 26,181,743
Total Cover Pool 204,830,241 198,023,141 199,939,174
Asset-coverage 108.7 % 109.0 % 108.8 %
Liquidity Coverage Ratio (LCR) 30.06.2017 30.06.2016 2016
 
Liquid assets 236,708 9,204,456 6,907,156
Cash outflow next 30 days 273,570 253,503 430,345
LCR ratio 87 % 3631 % 1605 %
Net Stable Funding Ratio (NSFR) 30.06.2017 30.06.2016 2016
 
Available amount of stable funding 193,321,956 181,145,955 179,903,405
Required amount of stable funding 178,591,279 176,819,401 178,901,734
NSFR ratio 108.2 % 102.4 % 100.6 %

Note 17 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 second 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, which is implemented in Norway. The requirement of 15.0% total capital in effect from July 1, 2016 includes a 11.5% Core Tier 1 capital, including a 1.5% countercyclical buffer, and 3.5% other capital. From 31.12.2017 the countercyclical buffer will increase to 2.0%.

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 30.06.2017 30.06.2016 2016
 
Share capital 6,470,548 6,170,548 6,330,548
Premium share fund 3,237,922 3,087,922 3,167,922
Other equity capital 50,322 614,328 473,786
Common equity 9,758,792 9,872,798 9,972,256
Intangible assets -946 -1,722 -1,245
Declared share dividend -113,950 - -113,950
100% deduction of expected losses exceeding loss provisions IRB (CRD IV) -313,397 -315,593 -322,613
Prudent valuation adjustment (AVA) -70,534 -79,694 -71,438
Core equity capital 9,259,966 9,475,789 9,463,010
Hybrid bond 1,080,000 1,080,000 1,080,000
Tier 1 equity capital 10,339,966 10,555,789 10,543,010
Supplementary capital (Tier 2) 1,600,000 1,600,000 1,600,000
Total capital 11,939,966 12,155,789 12,143,010
Minimum requirements for capital. NOK 1 000 30.06.2017 30.06.2016 2016
 
Credit risk 3,246,189 3,169,337 3,173,049
Market risk 0 0 0
Operational risk 58,661 52,871 52,871
Depreciation on groups of loans 0 0 0
CVA Risk 191,458 127,595 109,651
Difference in capital requirement resulting from transitional floor 2,404,769 2,550,684 2,545,697
Minimum requirement for capital 5,901,077 5,900,487 5,881,268

Capital coverage

30.06.2017 30.06.2016 2016
 
Risk-weighted assets incl. transitional floor 73,763,459 73,756,084 73,515,848
Capital coverage (%) 16.19 % 16.48 % 16.52 %
Tier 1 capital coverage (%) 14.02 % 14.31 % 14.34 %
Core Tier 1 capital coverage (%) 12.55 % 12.85 % 12.87 %
Leverage ratio (%) 4.24 % 3.82 % 4.38 %

Note 18 Related parties

The Company has 173 571 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 to be 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 19 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 end of the period 30.06.2017 this collateral amounted to NOK 23 246 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 20 Contingencies and Events after 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 the end of the period 30.06.2017