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 mortgagMaxProes 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 01.01.2013 - 30.09.2013. 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 2012. The principles adressed below should be seen in connection with the accounting principles as they were presented in the annual accounts for 2012.

These financial accounts for the third quarter of 2013 have been approved by the Board of Directors of SpareBank 1 Boligkreditt on 23.10.2013.

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 for the third quarter of 2013 is therefore equal to the retail segment total results. 

1.3 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 2012 Note 3 this risk and its management is more closely discussed. 

1.5 Estimates 
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 2012.


Note 2 - Net interest income

NOK 1 000 30.09.13 30.09.12 2012
 
Interest income
Interest income and similar income from loans to and balances with credit institutions 178,453 229,804 270,499
Interest income and similar income from loans to and balances with customers 4,943,221 4,316,998 5,859,367
Interest income treasury bills 48,693 13,489 54,644
Commission expense (payable to shareholder banks) * -1,646,450 -733,699 -1,152,643
Total interest income 3,523,917 3,826,592 5,031,867
 
Interest expense
Interest expense and similar expenses to credit institutions 14,295 11,487 15,031
Interest expense and similar expenses on issued bonds 3,234,915 3,557,258 4,690,224
Interest expense and similar expenses on issued certificates 82,460 110,780 141,560
Other interest expenses 21 26 32
 
Total interest expense 3,331,691 3,679,550 4,846,847
 

* Commissions are calculated daily and individually for the loans which Boligkreditt has purchased from its ownership banks. Commissions are calculated by deducting the the Company's all-in cost (average funding costs and an estimate for running operating costs as determined by the Company's Board from time to time) from the mortgage interest rate charged on a particular loan.


Note 3 - Net gains from financial instruments

NOK 1 000 30.09.13 30.09.12 2012
 
Net gains (losses) from financial liabilities 1,803,240 -2,256,983 -1,499,100
Net gains (losses) from financial assets 630,242 -140,423 -148,503
Net gains (losses) from financial derivatives, hedging, at fair value -2,414,954 2,554,945 1,841,534
Net gains (losses) from financial instruments 18,528 157,539 193,931
 

Note 4 - Salaries and remuneration

NOK 1 000 30.09.13 30.09.12 2012
 
Salary 7,274 6,981 10,198
Salaries reinvoiced to SpareBank 1 Næringskreditt* -3,224 -3,251 -4,523
Pension expenses 1,285 1,639 1,839
Social insurance fees 1,117 1,086 1,389
Other personnel expenses 262 464 555
Total salary expenses 6,714 6,919 9,458
 
Average number of man-years 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 safeguarded in SpareBank 1 Boligkreditt through participation in the pension fund of SpareBank 1 SR-Bank ASA. This pension scheme meets the legal demands on mandatory occupational pension.


Note 5 - Administration expenses

NOK 1 000 30.09.13 30.09.12 2012
 
IT operation and maintenance 6,169 3,606 5,627
Travel 882 879 1,183
Telephone and postage 72 100 150
Misc other adm expenses 30 18 49
Total 7,153 4,603 7,009
 

Note 6 - Other operating expenses

NOK 1 000 30.09.13 30.09.12 2012
 
Auditing, hired personnel from SpareBank 1 Group, other services 7,176 8,279 11,399
Operating expenses rented offices 427 385 528
Operating expenses reinvoiced to SpareBank 1 Næringskreditt -708 -745 -1,025
Misc other operating expenses 229 187 314
Total 7,125 8,106 11,216
 

Note 7 - Other assets

NOK 1 000 30.09.13 30.09.12 2012
 
Intangible assets 3,393 2,279 2,035
Receivables from SpareBank 1 Næringskreditt AS 1,446 1,176 1,552
Total 4,839 3,455 3,587
 

Note 8 - Lending to customers

Lending to customers consists of loans secured on residential real estate. The mortgage loans generally have a low loan-to-value ratio and historical loan provisions have been very low. Total lending to customers at the end of the third quarter 2013 was NOK 169.5 billion. All loans to customers carry a variable interest rate.

NOK 1 000 30.09.13 30.09.12 2012
 
Revolving loans - retail market 65,772,741 63,778,079 64,373,537
Amortising loans - retail market 103,607,771 93,294,755 95,677,823
Accrued interest 204,540 194,071 190,333
Total loans before specified and unspecified loss provisions 169,585,052 157,266,905 160,241,692
Specified loan loss provisions
Unspecified loan loss provisions 7,708 5,685 7,708
Total net loans and claims with customers 169,577,344 157,261,220 160,233,984
 
Liability
Unused balances under revolving credit lines 21,157,955 19,066,065 19,604,652
Total 21,157,955 19,066,065 19,604,652
Defaulted loans
Defaults* 0 0 0
Specified loan loss provisions 0 0 0
Net defaulted loans 0 0 0
Loans at risk of loss
Loans not defaulted but at risk of loss 0 0 0
- Write downs on loans at risk of loss 0 0 0
Net other loans at risk of loss 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 30.09.13 30.09.12 2012
 
Loan loss provisions as of 01.01.2012 7,708 5,685 5,685
Change in group loan loss provisions 0 0 2,023
Loan loss provisions as of 31.12.2012 7,708 5,685 7,708
 

Note 9 - Liabilities incurred by issuing securities

NOK 1 000 30.09.13 30.09.12 2012
 
0 0 0
Issued short term notes and borrowing, Securitate 4,550,000 4,275,000 4,425,000
Repurchased/retained short term notes, unsecured -591,000 -294,000 -405,000
Senior unsecured bonds 3,812,000 4,025,000 5,558,000
Repurchased/retained senior unsecured bonds 0 0 -1,060,500
Covered bonds 169,505,999 166,672,534 165,892,696
Repurchased/retained covered bonds -4,127,768 -4,969,420 -3,815,534
Withdrawn from the Norwegian Central Bank Swap Facility 6,569,843 14,864,778 14,864,778
Bonds deposited in the Norwegian Central Bank Swap Facility -7,552,000 -18,100,000 -18,100,000
Total liabilities incurred by issuing securities 172,167,074 166,473,892 167,359,440
 

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

Liabilities incurred by issuing securities

NOK 1 000 30.09.13 30.09.12 2012
 
0 0 0
Issued short term notes and borrowing, unsecured 4,549,180 4,274,090 4,424,021
Repurchased/retained short term notes, unsecured -590,839 -294,074 -405,412
Senior unsecured bonds 3,811,460 4,024,822 5,557,427
Repurchased/retained senior unsecured bonds 0 0 -1,062,281
Covered bonds 177,942,507 168,138,950 168,001,496
Repurchased/retained covered bonds -4,244,432 -5,168,544 -3,997,768
Withdrawn from the Norwegian Central Bank Swap Facility 6,575,879 14,898,603 14,885,672
Bonds deposited in the Norwegian Central Bank Swap Facility -7,552,000 -18,100,000 -18,100,000
Activated costs incurred by issuing debt -177,532 -159,149 -174,032
Accrued interest 1,751,094 1,681,511 1,515,695
Total liabilities incurred by issuing securities 182,065,316 169,296,209 170,644,817
 

Liabilities sorted by currency (book value)

NOK 1 000 30.09.13 30.09.12 2012
 
NOK 67,930,575 71,181,465 73,303,519
EUR 78,000,537 74,827,149 68,898,016
USD 35,903,469 23,061,986 28,218,402
SEK 230,734 225,609 224,880
Total 182,065,316 169,296,209 170,644,817
 

Note 10 - Financial derivatives

NOK 1 000 30.09.13 30.09.12 2012
 
Interest rate derivatives
Interest rate swaps
 
Nominal amount 86,263,759 100,508,837 93,521,163
Asset 4,280,197 5,318,497 5,229,881
Liability -747,405 -473,899 -609,517
Currency derivatives
Currency swaps
 
Nominal amount 107,245,701 90,592,114 91,838,341
Asset 5,900,957 789,345 874,618
Liability -79,562 -3,509,568 -2,921,796
Total for financial derivatives
 
Nominal amount 193,509,460 191,100,951 185,359,505
Asset 10,181,153 6,107,841 6,104,499
Liability -826,967 -3,983,467 -3,531,313
 

All derivative contracts are for the purpose of hedging interest rates and currency.


Note 11 - 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 30.09.13
 
Assets
Lending to and deposits with credit institutions 8,141,726 8,141,726
Norwegian treasury bills 5,289,918 5,289,918
Bonds 5,552,915 1,216,076 6,768,991
Lending to customers 169,577,344 169,577,344
Financial derivatives 10,181,153 10,181,153
Other assets 4,839 4,839
Total assets 21,023,987 177,719,070 1,216,076 4,839 199,963,972
 
Liabilities
 
Debt incurred by issuing securities 132,900,130 49,165,186 182,065,316
Collateral received in derivates transactions 5,970,786 5,970,786
Financial derivatives 826,967 826,967
Deferred tax
Tax payable 100,712 100,712
Other liabilities 2,797,990 2,797,990
Total liabilities 133,727,097 55,135,972 0 2,898,702 191,761,771
 
Total equity 8,202,201 8,202,201
 
Total liabilities and equity 133,727,097 55,135,972 11,100,903 199,963,972
 

*Fair value calculation according to market interest rates and currencies

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 30.09.12
 
Assets
Lending to and deposits with credit institutions 6,036,499 6,036,499
Norwegian treasury bills 1,801,802 1,801,802
Bonds 10,664,881 1,807,394 12,472,275
Lending to customers 160,233,984 160,233,984
Financial derivatives 6,104,499 6,104,499
Other assets 3,587 3,587
Total assets 18,571,182 166,270,483 1,807,394 3,587 186,652,647
 
Liabilities
Debt incurred by issuing securities 125,109,912 45,534,905 170,644,817
Collateral received in derivates transactions 3,213,665 3,213,665
Financial derivatives 3,531,313 3,531,313
Deferred tax 0 0
Tax payable 100,712 100,712
Other liabilities 1,369,734 1,369,734
Total liabilities 128,641,225 48,748,570 0 1,470,446 178,860,241
 
Total equity 7,792,406 7,792,406
 
Total liabilities and equity 128,641,225 48,748,570 9,262,852 186,652,647
 

*Fair value calculation according to market interest rates and currencies


Note 12 - Financial instruments at fair value

Procedures 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: 

  • Quoted price in an active market for an identical asset or liability (level 1)
  • Valuation based on observable factors either direct (prices) or indirected (deduced from prices used in level 1) other than quoted price for the asset or liability (level 2)
  • The valuation is based on factors that are not found in observable markets (non-observable assumptions) (level 3)

The following numbers present the company’s assets and liabilities at fair value as of 30.09.2013.

Note 12 - Financial instruments at fair value

The following numbers present the company’s assets and liabilities at fair value as of 30.09.2013

NOK 1 000 Level 1 Level 2 Level 3 Total
 
Bonds and bills 10,194,849 647,985 0 10,842,833
Financial derivatives 0 10,181,153 0 8,778,292
Total assets 10,194,849 10,829,138 0 19,621,125
 
Bonds 0 132,900,130 0 132,900,130
Financial derivatives 826,967 826,967
Total liabilities 0 133,727,097 0 133,727,097
 
The following numbers present the company
NOK 1 000
0 0 0 0
 
Bonds and bills 9,541,069 2,925,614 12,466,683
Financial derivatives 0 6,104,499 0 6,104,499
Total assets 9,541,069 9,030,113 0 18,571,182
 
Bonds 0 125,109,912 0 125,109,912
Financial derivatives 3,531,313 3,531,313
Total liabilities 0 128,641,225 0 128,641,225
 

Note 13 - Bonds classified as hold to maturity

Bonds classified as Book value - 31.12.12 Investment Departure Amortization Exchange rate - effects Amortised cost - 31.12.12
 
Hold to maturity 1,803,199 0 -590,000 -208 0 1,212,991
Total certificates and bonds 1,803,199 0 -590,000 -208 0 1,212,991
 

Market value of bonds in hold to maturity portfolio

Market value of bonds in hold to maturity portfolio Market value incl exchange rate effects/th> Effect on result if at fair value
 
Bonds classified as book value
Hold to maturity 1,212,991 1,220,410 7,419
Total certificates and bonds 1,212,991 1,220,410 7,419
 

Note 14 - Other liabilities

NOK 1 000 30.09.13 30.09.12 2012
 
Employees tax deductions and other deductions 299 290 526
Employers national insurance contribution 185 181 368
Accrued holiday allowance 624 643 914
Commission payable to shareholder banks 2,717,278 991,870 1,332,547
Deposits* 9,320 11,657 10,348
Pension liabilities 11,594 674 11,046
Other accrued costs 58,690 86,796 13,985
Total 2,797,990 1,092,111 1,369,734
 

The Company does not have an overdraft facility or a revolving credit facility as of 30.09.2013. * Deposits represents temporary balances paid in by customers in excess of the original loan amount.


Note 15 - Asset coverage requirement

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. Furthermore, the fact that market values are recorded for all bonds and certificates in the cover pool could have an impact. In addition any defaulted loans, i.e. loans in arrears at or beyond 90 days, are excluded from the test (there have been no occurances of any defaults starting with the commencement of operations through 30.09.2013). The company separates Cover Pool 1 and Cover Pool 2. Cover Pool 1 is utilised for market issuances of covered bonds whilst Cover Pool 2 is a separate mortgage portfolio established solely for use in the swap facility with Norway's Central Bank in 2009.

Pool 1

NOK 1 000 30.09.13 30.09.12 2012
 
Covered bonds 172,048,642 151,355,076 151,398,813
Repurchased/retained bonds -4,262,855 -5,204,271 -4,045,963
Derivatives -9,521,139 -2,318,959 -2,977,540
Total covered bonds 158,264,648 143,831,846 144,375,311
Lending to customers 162,926,838 141,742,125 145,006,745
Treasury bills 4,641,933 3,530,832 198,218
Substitute collateral 8,062,253 12,498,892 14,432,542
Total cover pool 175,631,024 157,771,849 159,637,505
Asset-coverage 1 1 1
 

Pool 2

NOK 1 000 30.09.13 30.09.12 2012
 
Covered bonds 8,596,048 18,229,817 18,113,843
Repurchased/retained bonds -998,877 -1,013,995 -1,014,019
Derivatives -44,598 -151,517 -18,975
Total covered bonds 7,552,574 17,064,305 17,080,849
Lending to customers 6,538,382 15,469,721 15,180,144
Treasury bills 647,985 0 1,603,584
Substitute collateral 666,064 1,830,314 433,229
Total cover pool 7,852,431 17,300,035 17,216,957
Asset-coverage 1 1 1
 

Note 16 - 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. The Board of Directors have approved a target for the Company's risk weighted equity coverage of assets of 10%.

A new capital requirements directive was introduced in Norway as of 1 January 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. During the transitional period 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 passed new regulatory requirements, CRD IV. The new regulations will introduce stricter requirements for capital adequacy, capital structure, liquidity buffers and funding. The new rules for capital requirements are gradually implemented in Norway through 2016. The requirement for minimum 12.5% total capital from 1 july 2013 includes minimum 9% core capital and 3.5% additional capital. The Company is working towards a plan to fulfill the new capital requirements.

Boligkreditt's parent banks have committed to support a minimum level of the Company's core capital ratio (Tier 1) of 9% pro rata according to their ownership stakes. If one or more banks are not able to pay in capital as needed, the commitment takes the form of a joint responsibility where each bank is responsible for up to twice its pro rata ownership in the Company.

Note 16 - Capital adequacy

Subordinated capital in NOK 1 000 30.09.13 30.09.12 2012
Share capital 5,310,548 4,610,548 5,030,548
Premium share fund 2,657,922 2,307,922 2,517,922
Other equity capital 98,050 420,695 243,936
Total equity capital entered into the balance sheet 8,066,520 7,339,165 7,792,406
Intangible assets -3,393 -2,279 -2,035
Declared share dividend 0 0 -140,855
100% deduction of expected losses exceeding loss provisions IRB -163,612 -136,302 -149,491
Core capital (Tier 1) 7,899,515 7,200,584 7,574,771
Supplementary capital 0 0 0
Total capital 7,899,515 7,200,584 7,574,771
 
Minimum requirements for capital according to Basel II i NOK 1 000 41,547 41,182 2,012
Credit risk 1,713,813 1,610,743 1,721,475
Market risk 0 0 0
Operational risk 27,797 23,942 23,942
Depreciation on groups of loans 0 0 0
Difference in capital requirement resulting from the transitional floor 4,242,703 3,943,726 3,986,810
Minimum requirement for capital 5,984,313 5,578,411 5,732,227
 
Capital adequacy
 
30.09.2013 30.09.2012 2012
 
Core capital ratio (%) (Tier 1) 10.56% 10.33% 10.57%
Total capital ratio (%) 10.56% 10.33% 10.57%
 

Note 17 - Related parties

Transactions with related parties
The Company has 169 577 MNOK loans to customers. These are acquired from shareholder banks at market value (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 are established between the Company and SpareBank 1 SR-Bank ASA.

SpareBank 1-alliansen
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. In accordance with a Board decision in SpareBank 1 Næringskreditt dated 17.09.09 one third of the administrative expenses in SpareBank 1 Boligkreditt AS are 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 Boligkredit AS.


Note 18 - Contingencies

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


Note 19 - Restricted cash

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 the end of September 2013 this collateral amounted to
NOK 5,970,786,122. This amount is included in the balance sheet as a deposit, but represents restricted cash. 


Note 20 - Events after the balance sheet date

No events have taken place subsequently to the date of these financial statements, 30.09.2013, which would affect these accounts in any material way. 

Senior unsecured bonds

Liabilities incurred by issuing securities according to maturity (nominal value* NOK 1,000)

Maturity year 30.09.13 30.09.12 2012
 
2012 0 906,000
2013 959,000 5,525,000 5,320,000
2014 4,275,000 1,575,000 3,197,500
2015 2,537,000 0
Sum 7,771,000 8,006,000 8,517,500
 

Central bank swap facility

Maturity year 30.09.13 30.09.12 2012
 
2012 0 0
2013 0 8,294,936 8,294,936
2014 6,569,843 6,569,843 6,569,843
Sum 6,569,843 14,864,778 14,864,778
 

Covered bonds

Maturity year 30.09.13 30.09.12 2012
 
2012 7,136,719
2013 7,357,301 15,621,891 13,986,773
2014 7,461,000 9,828,000 9,820,000
2015 18,376,000 18,240,000 18,376,000
2016 25,965,625 25,778,365 25,775,425
2017 21,013,000 21,013,000 21,013,000
2018 21,535,000 12,527,000 12,777,000
2019 25,204,447 12,106,298 20,882,210
2020 9,015,000 0
2021 15,620,641 15,346,969 15,343,372
2022 3,233,750 3,233,750 3,233,750
2023
2024 1,234,468 1,121,122 1,119,632
2025 160,000
2026 1,650,000 1,650,000 1,650,000
Total 157,826,232 143,603,113 143,977,162
 
Total 172,167,074 166,473,892 167,359,440
 

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