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 01.01.2016 - 30.09.2016. 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 2015. The principles adressed below should be seen in connection with the accounting principles as they were presented in the annual accounts for 2015.
These financial accounts have been approved by the Board of Directors of SpareBank 1 Boligkreditt on 25.10.2016
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 2016 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 2015 Note 3 this risk and management thereof is more closely discussed.
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 2015.
Note 2 Net Interest Income
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Interest income | |||
| Interest income and similar income from loans to and balances with credit institutions | 388,957 | 208,677 | 300,398 |
| Interest income and similar income from loans to and balances with customers | 3,405,653 | 4,029,793 | 5,258,746 |
| Interest income treasury bills | 8,713 | 2,449 | 7,849 |
| Commission expense (payable to shareholder banks) * | -977,674 | -1,294,898 | -1,687,085 |
| Total interest income | 2,825,648 | 2,946,021 | 3,879,909 |
| Interest expense | |||
| Interest expense and similar expenses to credit institutions | 8,075 | 26,117 | 31,291 |
| Interest expense and similar expenses on issued bonds | 2,416,106 | 2,549,733 | 3,359,422 |
| Interest expense and similar expenses on issued certificates | 5,565 | 1,735 | 1,735 |
| Interest expense and similar expenses on Tier 2 capital | 72,485 | 56,989 | 80,584 |
| Other interest expenses | 1,020 | 18 | 19 |
| Total interest expense | 2,503,250 | 2,634,592 | 3,473,052 |
| Net interest income | 322,398 | 311,429 | 406,857 |
* 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 3 Net Gains on Financial Instruments
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Net gains (losses) from financial liabilities. hedged instruments (1) | -3,557,619 | -839,343 | -408,266 |
| Net gains (losses) from financial assets. hedged instruments (2) | -601,426 | -28,891 | -34,613 |
| Net gains (losses) from financial derivatives. hedging. at fair value. hedging instrumet (1.3) | 3,996,694 | 703,765 | 209,580 |
| Net gains (losses) due to changes in basisswapspreads (4) | -96,693 | 379,836 | 467,146 |
| Netto gains (losses) | -259,043 | 215,366 | 233,848 |
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 4 Salaries and Remuneration
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Salary | 7,666 | 7,824 | 10,726 |
| Salaries reinvoiced to SpareBank1 N | -2,311 | -3,828 | -3,108 |
| Pension expenses | 1,631 | 1,376 | 706 |
| Social insurance fees | 1,198 | 1,240 | 1,736 |
| Other personnel expenses | 119 | 465 | 640 |
| Total salary expenses | 8,303 | 7,077 | 10,700 |
| Average number of full time equivalents (FTEs) | 8 | 7 | 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 of SpareBank 1 SR-Bank ASA. This pension scheme meets the legal demands on mandatory occupational pension.
Note 5 Administration Expenses
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| IT operation and maintenance | 7,238 | 7,281 | 9,705 |
| Travel | 473 | 725 | 1,087 |
| Telephone and postage | 85 | 106 | 163 |
| Misc other adm expenses | 8 | 1 | 10 |
| Cost share with SpareBank 1 N | -205 | -450 | -340 |
| Total | 7,598 | 7,664 | 10,625 |
Note 6 Other Operating Expenses
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Auditing. hired personnel from SpareBank 1 Group. other services | 7,829 | 6,652 | 9,062 |
| Operating expenses rented offices | 447 | 427 | 675 |
| Operating expenses reinvoiced to SpareBank 1 Næringskreditt | -326 | -461 | -462 |
| Misc other operating expenses | 318 | 138 | 486 |
| Total | 8,268 | 6,756 | 9,760 |
Note 7 Other Assets
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Intangible Assets | 1,510 | 2,275 | 1,880 |
| Account Reveivables from SpareBank 1 Næringskreditt AS | 753 | 2,416 | 1,791 |
| Total | 2,262 | 4,692 | 3,671 |
Note 8 Lending to Customers
Lending to customers are residential mortgages only. The mortgages generally have a loan lon-to-value and losses have been very low. The total amout of lending to customers at the end of the period were NOK 173,3 billion. All mortgages carry a variable interest rate.
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Revolving loans - retail market | 53,822,598 | 54,058,759 | 54,205,342 |
| Amortising loans - retail market | 119,376,324 | 111,997,128 | 114,989,151 |
| Accrued interest | 137,449 | 153,028 | 152,202 |
| Total loans before specified and unspecified loss provisions | 173,336,371 | 166,208,914 | 169,346,696 |
| Specified loan loss provisions | 0 | ||
| Unspecified loan loss provisions | 7,708 | 7,708 | 7,708 |
| Total net loans and claims with customers | 173,328,663 | 166,201,206 | 169,338,988 |
| Liability | |||
| Unused balances under customer revolving credit lines (flexible loans) | 13,731,753 | 19,669,699 | 18,636,235 |
| Total | 13,731,753 | 19,669,699 | 18,636,235 |
| 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.
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| 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 Equity capital and shareholders
Shareholders registry as of 30.09.2016
| No. Of shares | Onwership | Vote | |
|---|---|---|---|
| SpareBank 1 SMN | 12,006,847 | 18,97 % | 18,97 % |
| SpareBank 1 SR-Bank ASA | 10,567,191 | 16,69 % | 16,69 % |
| SpareBank 1 Nord-Norge | 9,149,885 | 14,45 % | 14,45 % |
| Sparebanken Hedmark | 6,302,387 | 9,96 % | 9,96 % |
| Bank 1 Oslo Akershus AS | 6,125,894 | 9,68 % | 9,68 % |
| BN Bank ASA | 3,765,027 | 5,95 % | 5,95 % |
| SpareBank 1 BV | 2,835,536 | 4,48 % | 4,48 % |
| SpareBank 1 Østfold Akershus | 2,707,308 | 4,28 % | 4,28 % |
| Sparebanken Telemark | 2,512,410 | 3,97 % | 3,97 % |
| SpareBank 1 Ringerike Hadeland | 2,066,654 | 3,26 % | 3,26 % |
| SpareBank 1 Nordvest | 1,321,458 | 2,09 % | 2,09 % |
| SpareBank 1 Søre Sunnmøre | 808,891 | 1,28 % | 1,28 % |
| Modum Sparebank | 769,326 | 1,22 % | 1,22 % |
| SpareBank 1 Nøtterøy Tønsberg | 761,346 | 1,20 % | 1,20 % |
| SpareBank 1 Hallingdal | 712,309 | 1,13 % | 1,13 % |
| SpareBank 1 Gudbrandsdal | 514,360 | 0,81 % | 0,81 % |
| Lom og Skjåk Sparebank | 378,653 | 0,60 % | 0,60 % |
| Total | 63,305,482 | 100 % | 100 % |
The equity capital consists of 63 305 482 shares with a face value of NOK 100 each
Note 10 Liabilities incurred by issuing securities
| NOK 1 000 | Nominal value* 30.09.2016 | Nominal value* 30.09.2015 | Nominal value* 2015 | |||
|---|---|---|---|---|---|---|
| Short term notes. unsecured | 950,000 | - | - | |||
| Repurchased short term notes. unsecured | - | - | - | |||
| Senior unsecured bonds | 3,631,000 | 6,701,000 | 6,476,000 | |||
| Repurchased senior unsecured bonds | -232,000 | -38,000 | -74,000 | |||
| Covered bonds | 193,760,232 | 161,367,960 | 177,244,869 | |||
| Repurchased Covered bonds | -3,889,085 | -4,038,370 | -4,917,100 | |||
| Total debt incurred by issuing securities | 194,220,147 | 163,992,590 | 178,729,769 | |||
* Nominal value is incurred debt at exchange rates (EUR/NOK and USD/NOK) at the time of issuance
| NOK 1 000 | Book value 30.09.2016 | Book value 30.09.2015 | Book value 2015 | |||
|---|---|---|---|---|---|---|
| Short term notes. unsecured | 949,959 | - | - | |||
| Repurchased short term notes. unsecured | - | - | - | |||
| Senior unsecured bonds | 3,630,568 | 6,700,618 | 6,475,779 | |||
| Repurchased senior unsecured bonds | -231,291 | -38,036 | -73,998 | |||
| Covered bonds | 218,297,071 | 197,254,281 | 215,868,978 | |||
| Repurchased covered bonds | -4,102,595 | -4,248,583 | -5,125,020 | |||
| Activated costs incurred by issuing debt | -175,849 | -146,547 | -158,707 | |||
| Accrued interest | 1,715,578 | 1,881,784 | 1,866,571 | |||
| Total debt incurred by issuing securities | 220,083,440 | 201,403,517 | 218,853,602 | |||
Liabilities categorized by debt instrument and year of maturity (nominal value*. net of repurchased bonds) NOK 1.000:
Senior Unsecured Bonds
| Due in | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| 2015 | - | 225,000 | - |
| 2016 | 500,000 | 3,788,000 | 3,752,000 |
| 2017 | 2,668,000 | 2,650,000 | 2,650,000 |
| 2018 | 300,000 | - | - |
| 2019 | 881,000 | - | - |
| Total | 4,349,000 | 6,663,000 | 6,402,000 |
Covered bonds
| Due in | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| 2016 | 10,252,000 | 22,360,625 | 20,621,625 |
| 2017 | 19,480,500 | 21,013,000 | 21,013,000 |
| 2018 | 35,754,250 | 21,785,000 | 35,754,250 |
| 2019 | 27,530,484 | 25,410,598 | 27,167,690 |
| 2020 | 24,958,500 | 24,458,500 | 24,958,500 |
| 2021 | 28,458,162 | 25,385,435 | 25,402,456 |
| 2022 | 18,698,750 | 12,648,750 | 12,648,750 |
| 2023 | 9,211,200 | - | - |
| 2024 | 1,503,651 | 1,444,882 | 1,462,848 |
| 2025 | 1,010,000 | 1,010,000 | 1,010,000 |
| 2026 | 11,255,000 | 1,650,000 | 1,650,000 |
| 2027 | 475,850 | - | 475,850 |
| 2028 | 1,282,800 | 162,800 | 162,800 |
| Total | 189,871,147 | 157,329,590 | 172,327,769 |
| Total | 194,220,147 | 163,992,590 | 178,729,769 |
* 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 | 30.09.2016 | 30.09.2015 | 2015 | |||
|---|---|---|---|---|---|---|
| NOK | 59,885,435 | 56,133,687 | 56,218,289 | |||
| EUR | 131,672,207 | 104,415,444 | 120,721,290 | |||
| USD | 28,259,485 | 40,575,319 | 41,625,965 | |||
| SEK | 266,313 | 279,068 | 288,058 | |||
| Total | 220,083,440 | 201,403,517 | 218,853,602 | |||
Note 11 Subordinated Debt
| NOK 1000 | ISIN | Interest rate | Issued year | Call option | Nominal amount | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|---|---|---|---|---|
| With maturity | ||||||||
| Subordinated debt (Tier 2 capital instrument) | NO0010704109 | 3M Nibor + 225 bp | 2014 | 07.05.2019 | 1,600,000 | 1,600,000 | 1,600,000 | 1,600,000 |
| Perpetual | ||||||||
| Hybrid (Tier 1 capital instrument) | NO0010713746 | 3M Nibor + 310 bp | 2014 | 09.05.2019 | 350,000 | 350,000 | 350,000 | 350,000 |
| Hybrid (Tier 1 capital instrument) | NO0010745920 | 3M Nibor + 360 bp | 2015 | 23.09.2020 | 300,000 | 300,000 | 300,000 | 300,000 |
| Hybrid (Tier 1 capital instrument) | NO0010746191 | 3M Nibor + 360 bp | 2015 | 29.09.2020 | 180,000 | 180,000 | 180,000 | 180,000 |
| Hybrid (Tier 1 capital instrument) | NO0010767643 | 3M Nibor + 450 bp | 2016 | 22.06.2021 | 250,000 | 250,000 | - | - |
| Accured interest | 4,461 | 4,246 | 4,380 | |||||
| Book value | 2,680,000 | 2,684,461 | 2,434,246 | 2,434,380 | ||||
Note 12 Financial Derivatives
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Interest rate derivative contracts | |||
| Interest rate swaps | |||
| Nominal amount | 77,041,291 | 77,915,816 | 80,539,030 |
| Asset | 5,113,523 | 5,637,833 | 5,345,413 |
| Liability | -521,729 | -381,431 | -638,503 |
| Currency derivative contracts | |||
| Currency swaps | |||
| Nominal amount | 146,579,003 | 135,100,163 | 153,531,262 |
| Asset | 21,763,245 | 31,835,744 | 35,103,579 |
| Liability | -894,056 | -11,567 | -51,812 |
| Total financial derivative contracts | |||
| Nominal amount | 223,620,294 | 213,015,979 | 234,070,292 |
| Asset | 26,876,768 | 37,473,577 | 40,448,992 |
| Liability * | -1,415,786 | -392,999 | -690,315 |
| All derivative contracts exist for the purpose of hedging changes in interest rates and currency exchange rates. | |||
| Asset | 26,876,768 | 37,473,577 | 40,448,992 |
| Net gain (loss) on valuation adjustment of basisswap spreads | 402,058 | 411,440 | 498,751 |
| Net asset derivatives | 27,278,826 | 37,885,017 | 40,947,743 |
Basis swaps are currency swaps and are entered into at a certain cost (spread) between SpareBank 1 Boligkreditt and banks which offer such swaps and which have signed an ISDA agreement with the Company. Changes in the cost are valued each quarter across all of the Comapny’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.
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 maturity | Non-financial assets and liabilities | 30.09.2016 |
|---|---|---|---|---|---|
| Assets | |||||
| Deposits at and receivables from financial institutions | 0 | 10,261,328 | - | - | 10,261,328 |
| Norwegian government short term debt certificates | 2,596,035 | - | - | - | 2,596,035 |
| Bonds | 46,372,134 | - | 74,730 | - | 46,446,864 |
| Lending to customers | - | 173,328,663 | - | - | 173,328,663 |
| Financial derivatives | 27,278,826 | - | - | - | 27,278,826 |
| Other assets | - | - | - | 2,262 | 2,262 |
| Total Assets | 76,246,995 | 183,589,991 | 74,730 | 2,262 | 259,913,978 |
| Liabilities | |||||
| Debt incurred by issuing securities | 178,880,889 | 41,202,550 | - | - | 220,083,440 |
| Collateral received in relation to financial derivatives | - | 25,331,451 | - | - | 25,331,451 |
| Financial derivatives | 1,415,786 | - | - | - | 1,415,786 |
| Deferred taxes | - | - | - | 380,104 | 380,104 |
| Taxes payable | - | - | - | - | - |
| Subordinated dept | - | 2,684,461 | - | - | 2,684,461 |
| Other liabilities | - | - | - | 117,308 | 117,308 |
| Total Liabilities | 180,296,675 | 69,218,462 | - | 497,412 | 250,012,550 |
| Total Equity | - | - | - | 9,901,428 | 9,901,428 |
| Total Liabilities and Equity | 180,296,675 | 69,218,462 | - | 10,398,840 | 259,913,978 |
*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 | 30.09.2015 |
|---|---|---|---|---|---|
| Assets | |||||
| Deposits at and receivables from financial institutions | - | 16,896,170 | - | - | 16,896,170 |
| Norwegian government short term debt certificates | - | - | - | - | - |
| Bonds | 28,297,849 | - | 225,079 | - | 28,522,929 |
| Lending to customers | - | 166,201,206 | - | - | 166,201,206 |
| Financial derivatives | 37,885,017 | - | - | - | 37,885,017 |
| Other assets | - | - | - | 4,692 | 4,692 |
| Total Assets | 66,182,866 | 183,097,376 | 225,079 | 4,692 | 249,510,013 |
| Liabilities | |||||
| Debt incurred by issuing securities | 161,719,935 | 39,683,582 | - | - | 201,403,517 |
| Collateral received in relation to financial derivatives | - | 35,800,968 | - | - | 35,800,968 |
| Financial derivatives | 392,999 | - | - | - | 392,999 |
| Deferred taxes | - | - | - | 234,604 | 234,604 |
| Taxes payable | - | - | - | - | - |
| Subordinated dept | - | 2,434,246 | - | - | 2,434,246 |
| Other liabilities | - | - | - | 305,434 | 305,434 |
| Total Liabilities | 162,112,933 | 77,918,795 | - | 540,038 | 240,571,767 |
| Total Equity | - | - | - | 8,938,246 | 8,938,246 |
| Total Liabilities and Equity | 162,112,933 | 77,918,795 | - | 9,478,284 | 249,510,013 |
*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 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
| NOK 1 000 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Bonds and bills | 30,189,424 | 18,778,651 | - | 48,968,075 |
| Financial Derivatives | - | 27,278,826 | - | 27,278,826 |
| Total Assets | 30,189,424 | 46,057,477 | - | 76,246,901 |
| Bonds | - | 178,880,889 | - | 178,880,889 |
| Financial Derivatives | - | 1,415,786 | - | 1,415,786 |
| Total Liabilities | - | 180,296,675 | - | 180,296,675 |
The following table presents the company
| NOK 1 000 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Bonds and bills | 22,097,884 | 6,199,965 | - | 28,297,849 |
| Financial Derivatives | - | 37,885,017 | - | 37,885,017 |
| Total Assets | 22,097,884 | 44,084,982 | - | 66,182,866 |
| Bonds | - | 161,719,935 | - | 161,719,935 |
| Financial Derivatives | - | 392,999 | - | 392,999 |
| Total Liabilities | - | 162,112,933 | - | 162,112,933 |
Note 15 Bonds classified as Hold to Maturity
As of 30.09.2016
| Bonds classified as | Book value 01.01.2016 | Investments | Matured | Amortizing | Exchange rate effects | Amortized cost 30.09.2016 |
|---|---|---|---|---|---|---|
| Hold to maturity | 224,605 | - | -150,000 | 181 | - | 74,786 |
| Total certificates and bonds | 224,605 | - | -150,000 | 181 | - | 74,786 |
Market value of bonds in hold to maturity portfolio
| Bonds classified as | Book value | Market value incl. currency effect | Effect on net inc if at fair vaue | |
|---|---|---|---|---|
| Hold to maturity | 74,786 | 75,175 | 388 | |
| Total certificates and bonds | 74,786 | 75,175 | 388 | |
Note 16 Other Liabilities
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Employees tax deductions and other deductions | 597 | 479 | 1,478 |
| Employers national insurance contribution | 210 | 202 | 462 |
| Accrued holiday allowance | 704 | 699 | 1,015 |
| Commission payable to shareholder banks | 95,986 | 127,554 | 117,921 |
| Deposits* | 1,520 | 13,566 | 12,977 |
| Pension liabilities | 13,073 | 19,185 | 12,360 |
| Other accrued costs | 5,218 | 143,748 | 9,902 |
| Total | 117,308 | 305,434 | 156,116 |
The Company does not have an overdraft facility or a revolving credit facility
* Deposits represents temporary balances paid in by customers in excess of the original loan amount
Note 17 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 30.09.2016).
| NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Covered bonds | 220,025,655 | 199,137,473 | 217,752,078 |
| Repurchased bonds | -4,127,576 | -4,265,659 | -5,155,728 |
| Derivatives | -25,672,251 | -37,133,385 | -39,848,930 |
| Total covered bonds | 190,225,827 | 157,738,429 | 172,747,420 |
| Lending to customers | 172,845,082 | 165,829,470 | 168,792,683 |
| Norwegian gov't short term debt | 1,023,873 | 0 | 7,210,022 |
| Other substitute assets (see cover pool ) | 32,782,891 | 9,638,149 | 14,664,356 |
| Total cover pool | 206,651,845 | 175,467,619 | 190,667,061 |
| Asset coverage | 108,6 % | 111,2 % | 110,4 % |
Note 18 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. 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. The transitional rules 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 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Share capital | 6,330,548 | 5,510,548 | 5,710,548 |
| Premium share fund | 3,167,922 | 2,757,922 | 2,857,922 |
| Other equity capital | 374,328 | 302,039 | 1,169,402 |
| Common equity | 9,872,798 | 8,570,509 | 9,737,872 |
| Intangible assets | -1,510 | -2,275 | -1,880 |
| Declared share dividend | - | - | -105,074 |
| 100% deduction of expected losses exceeding loss provisions IRB (CRD IV) | -312,674 | -316,059 | -326,724 |
| Prudent valuation adjustment (AVA) | -77,738 | -66,801 | -83,752 |
| Core equity capital | 9,480,876 | 8,185,374 | 9,220,442 |
| Hybrid bond | 1,080,000 | 830,000 | 830,000 |
| Tier 1 equity capital | 10,560,876 | 9,015,374 | 10,050,442 |
| Supplementary capital (Tier 2) | 1,600,000 | 1,600,000 | 1,600,000 |
| Total capital | 12,160,876 | 10,615,374 | 11,650,442 |
| Minimum requirements for capital. NOK 1 000 | 30.09.2016 | 30.09.2015 | 2015 |
|---|---|---|---|
| Credit risk | 3,184,869 | 3,123,558 | 3,122,194 |
| Market risk | - | - | - |
| Operational risk | 52,871 | 41,779 | 41,779 |
| Depreciation on groups of loans | - | - | - |
| CVA Risk | 107,396 | 126,289 | 165,228 |
| Difference in capital requirement resulting from transitional floor | 2,576,856 | 2,461,538 | 2,463,358 |
| Minimum requirement for capital | 5,921,992 | 5,753,164 | 5,792,559 |
Capital coverage
| 30.09.2016 | 30.09.2015 | 2015 | |
|---|---|---|---|
| Risk-weighted assets incl. transitional floor | 74,024,894 | 72,313,358 | 72,406,991 |
| Capital coverage (%) | 16,43 % | 14,76 % | 16,09 % |
| Tier 1 capital coverage (%) | 14,27 % | 12,54 % | 13,88 % |
| Core Tier 1 capital coverage (%) | 12,81 % | 11,38 % | 12,73 % |
| Leverage ratio (%) | 4,25 % | 3,43 % | 3,54 % |
Note 19 Related parties
The Company has 173 329 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 20 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 30.09.2016 this collateral amounted to NOK 25 331 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 21 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 30.09.2016