Interim Report January March

Transcription

1 20 10 Interim Report January March

2 Handelsbanken s Interim Report January - March Summary January March, compared with January March Profit after tax for total operations went up by 3 percent to SEK 2,853 million (2,765) and earnings per share amounted to SEK 4.59 (4.43) Return on shareholders equity for total operations was 13.5 percent (13.8) Operating profit for continuing operations was SEK 3,792 million (3,806) Income decreased by 4 percent to SEK 8,009 million (8,386) and expenses were unchanged Net interest income was SEK 5,316 million (5,393) The average volume of lending decreased by 3 percent due to exchange rate effects, and deposit volumes grew by 3 percent Net fee and commission income went up by 14 percent to SEK 1,983 million (1,739) The loan loss ratio decreased to 0.14 percent (0.23), with loan losses amounting to SEK -551 million (-896) The capital base was SEK billion and the capital ratio according to Basel II increased to 19.6 percent (16.7) Tier 1 capital increased to SEK 86.0 billion (81.4) and the Tier 1 ratio according to Basel II went up to 14.6 percent (11.6) Summary of, compared with Profit after tax for total operations went up by 13 percent to SEK 2,853 million (2,516) and earnings per share increased by 14 percent to SEK 4.59 (4.04) Operating profit for continuing operations grew by 18 percent to SEK 3,792 million (3,221) Income was SEK 8,009 million (7,967), while expenses fell by 10 percent to SEK -3,666 million (-4,058) Loan losses went down to SEK -551 million (-691), and the loan loss ratio dropped to 0.14 percent (0.18) Net impaired loans decreased to SEK 2,143 million (3,235), equivalent to 0.14 percent (0.21) of lending Return on equity for total operations increased to 13.5 percent (12.2) During the quarter, the Bank established 13 new branches in Great Britai

3 Contents Handelsbanken Group - Overview 4 Business segments 5 The Handelsbanken Group 6 Branch office operations in Sweden 9 Branch office operations outside Sweden 11 Branch office operations in Great Britain 13 Branch office operations in Denmark 14 Branch office operations in Finland 15 Branch office operations in Norway 16 Handelsbanken International 17 Handelsbanken Capital Markets 18 Handelsbanken Asset Management 20 Other 22 Handelsbanken Group 23 Key figures 23 Consolidated income statement 24 Earnings per share 24 Consolidated statement of comprehensive income 25 Quarterly performance for the Handelsbanken Group 25 Consolidated balance sheet 26 Consolidated statement of changes in equity 27 Consolidated summary cash flow statement 27 Accounting policies 27 Notes Group 28 Note 1. Net fee and commission income 28 Note 2. Net gains/losses on financial items at fair value 28 Note 3. Other administrative expenses 29 Note 4. Loan losses, impaired loans and collateral taken over 29 Note 5. Loans to the public 31 Note 6. Capital base and capital requirement etc. 33 Note 7. Goodwill and other intangible assets 35 Note 8. Derivatives 35 Note 9. Risks and uncertainty factors 36 Note 10. Handelsbanken s shares 37 Note 11. Turnover of own debt instruments and shares 37 Note 12. Contingent liabilities 37 Note 13. Related-party transactions 37 Note 14. Discontinued operations 37 Parent company 38 Information on phone conference etc. 40 Share price performance and other information 41 Page

4 Handelsbanken Group Overview Summary income statement Net interest income 5,316 5,393-1% 5,359-1% 5,316 5,393-1% 22,000 Net fee and commission income 1,983 1,739 14% 1,995-1% 1,983 1,739 14% 7,393 Net gains/losses on financial items at fair value 500 1,141-56% 497 1% 500 1,141-56% 2,457 Risk result - insurance % 31 19% % 171 Other dividend income Share of profits of associated companies % 18-61% % 26 Other income % 63-44% % 147 Total income 8,009 8,386-4% 7,967 1% 8,009 8,386-4% 32,335 Staff costs -2,356-2,442-4% -2,586-9% -2,356-2,442-4% -10,018 Other administrative expenses -1,195-1,122 7% -1,373-13% -1,195-1,122 7% -4,719 Depreciation, amortisation and impairments of property, equipment and intangible assets % % % -483 Total expenses -3,666-3,684 0% -4,058-10% -3,666-3,684 0% -15,220 Profit before loan losses 4,343 4,702-8% 3,909 11% 4,343 4,702-8% 17,115 Net loan losses % % % -3,392 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 3-100% 0 0 0% 4 Operating profit 3,792 3,806 0% 3,221 18% 3,792 3,806 0% 13,727 Taxes ,052-8% % ,052-8% -3,519 Profit for the period from continuing operations 2,824 2,754 3% 2,499 13% 2,824 2,754 3% 10,208 Profit for the period from discontinued operations, after tax % 17 71% % 36 Profit for the period 2,853 2,765 3% 2,516 13% 2,853 2,765 3% 10,244 Summary balance sheet Loans to the public 1,467,686 1,518,505-3% 1,477,183-1% 1,467,686 1,518,505-3% 1,477,183 of which mortgage loans 698, ,698 11% 684,920 2% 698, ,698 11% 684,920 Deposits and borrowing from the public 580, ,054 3% 549,748 6% 580, ,054 3% 549,748 of which households 231, ,337 3% 230,738 0% 231, ,337 3% 230,738 Total equity 85,316 77,934 9% 83,088 3% 85,316 77,934 9% 83,088 Total assets 2,221,785 2,275,281-2% 2,122,843 5% 2,221,785 2,275,281-2% 2,122,843 Summary of key figures Return on equity, total operations * 13.5% 13.8% 12.2% 13.5% 13.8% 12.6% Return on equity, continuing operations * 13.3% 13.8% 12.1% 13.3% 13.8% 12.5% C/I ratio, continuing operations 45.8% 43.9% 50.9% 45.8% 43.9% 47.1% Earnings per share, total operations, SEK Capital ratio according to Basel II 19.6% 16.7% 20.2% 19.6% 16.7% 20.2% Tier 1 ratio according to Basel II 14.6% 11.6% 14.2% 14.6% 11.6% 14.2% * When calculating return on equity, shareholders' equity is adjusted for the impact of unrealised changes in the value of financial assets classified as "Available for Sale" and for cash flow hedges. 4 Handelsbanken

5 Business segments THE GROUP S INCOME STATEMENT BY BUSINESS SEGMENT, JANUARY MARCH Branch office operations in Sweden Branch office operations outside Sweden Capital Markets Asset Mgmt Other Adjustments & eliminations Group Group Net interest income 3,212 1, ,316 5,393 Net fee and commission income ,983 1,739 Net gains/losses on financial items at fair value ,141 Risk result - insurance Share of profits of associated companies Other income Total income 4,245 2, ,009 8,386 Staff costs ,356-2,442 Other administrative expenses ,195-1,122 Internal purchased and sold services Depreciation and amortisation Total expenses -1,726-1, ,666-3,684 Profit before loan losses 2,519 1, ,343 4,702 Net loan losses Gains/losses on disposal of property, equipment and intangible assets Operating profit 2, ,792 3,806 Profit allocation Operating profit after profit allocation 2, ,792 3,806 Internal income * , ,116 - Cost/income ratio, % Loan loss ratio, % Assets 1,180, , ,163 83,387 1,164,874-1,024,250 2,221,785 2,275,281 Liabilities 1,137, , ,243 77,954 1,164,874-1,030,892 2,136,469 2,197,347 Allocated capital 42,527 26,794 3,920 5,433 6,642 85,316 77,934 Return on allocated capital, % Average number of employees 4,346 2,886 1, ,836 10,636 10,932 * Internal income which is included in total income, comprises income from transactions with other operating segments. Since interest income and interest expense are reported net as income, this means that internal income includes the net amount of the internal funding cost among the segments. The business segments are recognised in compliance with IFRS 8, Operating Segments. Profit/loss for the segments is reported before and after internal profit allocation. Internal profit allocation means that the unit which is responsible for the customer is allocated all the profits deriving from its customers transactions with the Bank, regardless of the segment where the transaction was performed. Furthermore, income and expenses for services performed internally are reported net on a separate line Internal purchased and sold services. Transactions among the segments are reported primarily according to the cost price principle. The Other and Adjustments and eliminations columns show items which do not belong to a specific segment or which are eliminated at Group level. Other includes Treasury and the central head office departments and also the cost of the Oktogonen profit-sharing foundation. The Adjustments and eliminations column includes translation differences and adjustments for staff costs calculated in accordance with IAS 19, Employee Benefits. The segment income statements include internal items such as internal interest, commissions and payment for internal services rendered, primarily according to the cost price principle. Return on allocated capital for the segments is calculated based on average allocated capital and a tax rate of 26.3 percent. For the Group, return on equity is calculated after reported tax. 5 Handelsbanken

6 The Group JANUARY MARCH COMPARED WITH JANUARY MARCH Operating profit for the first quarter was more or less unchanged from the corresponding period in, totalling SEK 3,792 million (3,806). Improved net fee and commission income and lower loan losses offset lower net gains/losses on financial items, which during the period of comparison contained unusually high income from foreign exchange and fixed income trading, as well as from funding operations, due to the market turbulence caused by the financial crisis. Exchange rate movements affected operating profit by SEK -54 million, or around -2 percent. Profit after tax increased by 3 percent to SEK 2,853 million (2,765). Household demand for the Bank s services remained buoyant during the period. However, the weak economic cycle meant that demand for loans from the corporate sector was limited, particularly on the Swedish market. The average volume of lending in the Group decreased by 3 percent, while deposit volumes grew by 3 percent. The C/I ratio for continuing operations was 45.8 percent (43.9). Earnings per share increased to SEK 4.59 (4.43) and the return on equity for total operations was 13.5 percent (13.8). This decrease was due entirely to an increase in shareholders equity. Income Net interest income 5,316 5,393-1% of which exchange rate changes of which benchmark effect of which deposit margin Sweden Net fee and commission income 1,983 1,739 14% of which equity market-related fees % Net financial items 500 1,141-56% Other income % Total income 8,009 8,386-4% Income declined by 4 percent, chiefly because net gains/losses on financial items in the period of comparison contained unsually high income, due to the particular market conditions at that time. Net interest income decreased by SEK 77 million, or 1 percent, to SEK 5,316 million. Exchange rate movements affected net interest income in branch operations by SEK -125 million, and the benchmark effect in Stadshypotek amounted to SEK 97 million (-35). Excluding these items, net interest income fell by SEK 84 million, primarily because declining deposit margins in Swedish operations reduced net interest income by SEK 269 million. Overall, the Group s expenses relating to the Swedish Stabilisation Fund, the Danish state deposit guarantee and various other deposit guarantees charged to net interest income amounted to SEK -161 million (-174). The average volume of loans to the public decreased by SEK 45 billion, or 3 percent, to SEK 1,464 billion (1,509). Exchange rate effects had a negative impact on volumes amounting to SEK 30 billion. Average deposit volumes from both households and companies grew by 3 percent, amounting to SEK 550 billion (532). Excluding exchange rate effects, the average volume of deposits increased by 6 percent. In Swedish branch operations, total deposit volumes grew by 4 percent, while household deposits increased by 7 percent to SEK 173 billion (162). Net fee and commission income grew by SEK 244 million, or 14 percent, to SEK 1,983 million (1,739), mainly due to an increase in equity-related commissions of SEK 171 million to SEK 875 million (704). Net fee and commission income went up by 16 percent in Swedish branch office operations and by 11 percent in Branch office operations outside Sweden. Net gains/losses on financial items at fair value decreased to SEK 500 million (1,141), primarily due to the high income created by the market turbulence in the first quarter of the previous year. Expenses Staff costs -2,356-2, % Other administrative expenses -1,195-1, % Depreciation and amortisation % Total expenses -3,666-3, % Analysis of changes Change % points Costs for variable compensation IAS 19 (pensions) Oktogonen Exchange rate changes Other costs Total change Total expenses decreased marginally. Staff costs fell by 4 percent, while other administrative expenses increased by 7 percent. Excluding variable compensation, the corridor effect according to IAS 19, the allocation to the Oktogonen profit-sharing foundation and exchange rate movements, expenses were in general unchanged. Expansion costs for new branch offices were SEK -47 million (-130). Including social security costs and other payroll overheads, variable compensation amounted to SEK 91 million (0). The number of employees decreased by 266 to a total of 10,624 at the end of the period (10,890). As an average figure, the number of employees was 10,636 (10,932). 6 Handelsbanken

7 Loan losses Net loan losses Loan loss ratio as a % of loans, annualised Impaired loans, net 2,143 3,937-1,794 Level of impaired loans, % Loan losses went down by 39 percent to SEK -551 million. Of these loan losses, net actual losses accounted for SEK - 21 million (-58). The allocation to the collectively assessed provisions was SEK -25 million (-32). The loan loss ratio decreased to 0.14 percent (0.23) and net impaired loans fell by SEK 1,794 million to SEK 2,143 million, corresponding to 0.14 percent of lending. COMPARED WITH Operating profit rose by 18 percent to SEK 3,792 million (3,221), chiefly due to lower expenses and loan losses. Profit after tax for total operations went up to SEK 2,853 million (2,516) and earnings per share increased by 14 percent to SEK 4.59 (4.04). Return on equity for total operations was 13.5 percent (12.2). Income Net interest income 5,316 5,359-1% Net fee and commission income 1,983 1,995-1% Net financial items % Other income % Total income 8,009 7,967 1% Net interest income decreased by SEK 43 million, or 1 percent, to SEK 5,316 million. Exchange rate movements and a smaller number of days in the quarter affected net interest income by SEK -31 million and SEK -42 million respectively. Lower lending volumes reduced net interest income by some SEK -30 million. The benchmark effect in Stadshypotek amounted to SEK 97 million. The deposit margin was stable following five successive quarters of falling margins in Swedish operations. The average volume of lending in the Group decreased by SEK 12 billion to SEK 1,464 billion (1,476), due to exchange rate movements. Within Handelsbanken International the deliberate reduction continued, with lending volumes being reduced by SEK 5 billion, or 7 percent. The average volume of deposits was SEK 550 billion (549), with only minor changes since the fourth quarter for both the household and the corporate segment. Exchange rate effects reduced the average volume by SEK 4 billion. Net fee and commission income decreased slightly to SEK 1,983 million (1,995) and commission income relating to the equity market totalled SEK 875 million (911). Net gains/losses on financial items at fair value were more or less unchanged, amounting to SEK 500 million (497). Expenses Staff costs -2,356-2, % Other administrative expenses -1,195-1, % Depreciation and amortisation % Total expenses -3,666-4, % Analysis of changes Costs for variable compensation -57 % points -1.4 IAS 19 (pensions) Oktogonen Exchange rate changes Other costs Total change Expenses were down 10 percent from the previous quarter to SEK -3,666 million and were slightly lower than in the corresponding period of. Excluding the breakdown items referred to in the table above, the total expenses fell by 4 percent. Staff costs decreased by 9 percent. The average number of employees was unchanged at 10,636 (10,638). Other administrative expenses fell by 13 percent to SEK -1,195 million. The decrease was a general one across all expense categories except external IT costs, which were unchanged. Loan losses Net loan losses Loan loss ratio as a % of loans, annualised Impaired loans, net 2,143 3,235-1,092 Level of impaired loans, % Loan losses fell by SEK 140 million to SEK -551 million. Loan losses totalled SEK -115 million (-318) in Swedish branch office operations and SEK -436 million (-373) in Branch office operations outside Sweden. The latter figure included SEK -343 million (-7) at Handelsbanken International, where the Bank has reserved SEK 335 million for a previously identified risk exposure. Of the total loan losses, net actual losses were SEK -21 million (-121). Provisions for collectively assessed loans were SEK -25 million (-54). Loan losses as a proportion of lending decreased to 0.14 percent (0.18). Gross impaired loans fell to SEK 7,886 million (8,615), while net impaired loans decreased by 34 percent to SEK 2,143 million (3,235), equivalent to 0.14 percent (0.21) of lending. 7 Handelsbanken

8 PERFORMANCE IN THE BUSINESS SEGMENTS ( compared with ) In Branch office operations in Sweden operating profit increased by 19 percent to SEK 2,404 million (2,013), mainly due to lower loan losses. The loan loss ratio was 0.05 percent (0.13). Income increased by 3 percent and expenses fell by 3 percent. Operating profit from Branch office operations outside Sweden decreased by SEK 82 million or 11 percent to SEK 673 million (755). The decrease was due entirely to an increase in loan losses of SEK 336 million at Handelsbanken International, to SEK -343 million (-7). In other markets, loan losses decreased. The loan loss ratio was 0.35 percent (0.27). Handelsbanken Capital Markets operating profit grew by 4 percent to SEK 397 million (381). The profit growth was chiefly attributable to a 12 percent reduction in costs. Income fell by 6 percent as the result of lower net fee and commission income. Handelsbanken Asset Management s operating profit rose by 29 percent to SEK 163 million (126). The improvement in earnings is attributable to higher net fee and commission income and a lower allocation to the deferred capital contribution at Handelsbanken Liv. Net fee and commission income rose to SEK 316 million (309), a result of higher volumes under management and the fact that Handelsbanken Liv received SEK 32 million (0) in a yield split. Net savings in Handelsbanken s funds amounted to SEK 2.4 billion, including SEK -0.4 billion in XACT Fonder, which moved to Handelsbanken Capital Markets during the quarter. LIQUIDITY The Bank s total liquidity reserve was kept at a consistently high level during the period and exceeded SEK 450 billion at the end of the quarter, including SEK 213 billion in liquid assets invested with central banks. The liquidity portfolio of bonds eligible as collateral amounted to SEK 77 billion. The remainder of the liquidity reserve consisted of unutilised headroom for issues in Stadshypotek s covered bond pool. The total reserve secures the Bank s liquidity requirements for more than two years without access to new market funding. In the first quarter of, the Bank already decided to refinance around two-thirds of the bond volume of SEK 161 billion which reaches maturity in. The bond issues during the quarter totalled SEK 106 billion (38), consisting of SEK 57 billion in bank bonds and SEK 49 billion in covered bonds. The maturity for issues completed was in the range 3-10 years. The outstanding volume of bonds rose during the quarter by SEK 51 billion. The bonds due to mature during 2011 and 2012 amount to SEK 123 billion and SEK 144 billion respectively. CAPITAL Tier 1 ratio according to Basel II 14.6% 11.6% Capital ratio according to Basel II 19.6% 16.7% Equity 85,316 77,934 9% Tier 1 capital 86,043 81,386 6% Capital base 115, ,483-2% The Bank s capital situation was further consolidated during the first quarter. Since the third quarter of 2008, the Tier 1 ratio according to Basel II has risen from 10.0 percent to 14.6 percent. During the same period, the average volume of loans rose by 5 percent. This improvement in the capital situation has above all been made possible by steady profit growth and conscious efforts to reduce the level of risk in the Bank s operations. The capital base amounted to SEK billion and the capital ratio according to Basel II was 19.6 percent (16.7). During the first quarter of, a dated subordinated loan of SEK 5.2 billion was repaid, and this reduced the capital ratio by 0.9 percentage points. Equity increased by SEK 7.4. billion to SEK 85.3 billion. During the first quarter, the increase was SEK 2.2 billion. Tier 1 capital grew by SEK 4.7 billion to SEK 86.0 billion. The Tier 1 ratio increased by 3.0 percentage points during the latest twelve-month period to 14.6 percent. During the first quarter, the increase was 0.4 percentage points. As in the fourth quarter, migration of credit risks was limited and had a marginally positive impact on the Tier 1 ratio. RATING Handelsbanken s rating in the first quarter remained unchanged at Standard & Poor s, Fitch and Moody s, with all three rating agencies issuing a stable outlook. Long-term Short-term Financial strength Standard & Poor's AA- A-1+ Fitch AA- F1+ Moody's Aa2 P-2 C+ DISCONTINUED OPERATIONS Discontinued operations includes businesses acquired by the Bank that it intends to divest. Profit after tax in the first quarter amounted to SEK 29 million, compared to SEK 17 million in the fourth quarter of. 8 Handelsbanken

9 Branch office operations in Sweden Branch office operations in Sweden comprise six regional banks, Handelsbanken Finans s operations in Sweden, and Stadshypotek. At Handelsbanken, the branches are the base of all operations with responsibility for all customers. The regional banks deliver universal banking services and are run with the goal of having higher profitability than peer banks. Handelsbanken Finans has a full range of finance company services. Handelsbanken Finans works through the Bank s branches and in financing collaborations with retailers and vendors. Stadshypotek is the Bank s mortgage company, and is completely integrated with the branch operations. INCOME STATEMENT Net interest income 3,212 3,453-7% 3,058 5% 3,212 3,453-7% 13,305 Net fee and commission income % 900 1% % 3,377 Net gains/losses on financial items at fair value % 134-9% % 512 Other income % 26-85% % 76 Total income 4,245 4,390-3% 4,118 3% 4,245 4,390-3% 17,270 Staff costs % % % -3,060 Other administrative expenses % % % -1,032 Internal purchased and sold services % % % -2,534 Depreciation and amortisation % -20 5% % -80 Total expenses -1,726-1,622 6% -1,787-3% -1,726-1,622 6% -6,706 Profit before loan losses 2,519 2,768-9% 2,331 8% 2,519 2,768-9% 10,564 Net loan losses % % % -2,325 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit 2,404 2,196 9% 2,013 19% 2,404 2,196 9% 8,239 Profit allocation % % % 757 Operating profit after profit allocation 2,523 2,312 9% 2,335 8% 2,523 2,312 9% 8,996 Internal income ,552 68% % ,552 68% -3,733 Cost/income ratio, % Loan loss ratio, % Assets 1,180,200 1,107,198 7% 1,163,512 1% 1,180,200 1,107,198 7% 1,163,512 Liabilities 1,137,673 1,068,909 6% 1,124,737 1% 1,137,673 1,068,909 6% 1,124,737 Allocated capital 42,527 38,289 11% 38,775 10% 42,527 38,289 11% 38,775 Return on allocated capital, % Average number of employees 4,346 4,536-4% 4,362 0% 4,346 4,536-4% 4,481 Number of branches % 461 0% % 461 BUSINESS VOLUMES Average volumes, SEK bn Deposits and borrowing from the public Household % 173 0% % 168 Corporate % 156-1% % 152 Total % 329 0% % 320 Loans to the public* Household % 505 2% % 490 of which mortgage loans % 449 2% % 433 Corporate % 472-1% % 483 of which mortgage loans % 176 3% % 166 Total % 977 0% % 973 * excl. loans to the National Debt Office 9 Handelsbanken

10 JANUARY MARCH COMPARED WITH JANUARY MARCH Earnings performance Operating profit rose by 9 percent to SEK 2,404 million (2,196), chiefly due to lower loan losses. Profit before loan losses fell by 9 percent to SEK 2,519 million (2,768), mainly as a result of lower net interest income. Net interest income decreased by 7 percent, or SEK 241 million, to SEK 3,212 million (3,453). Lower deposit margins negatively affected net interest income by SEK 269 million. Higher volumes of business from households and improved margins on lending due to the Bank s favourable funding had a positive impact on net interest income. The fee to the Stabilisation Fund burdened net interest income by SEK 51 million (54). Net fee and commission income went up by 16 percent, partly due to higher equity market-related commissions and also higher lending commissions. Net gains/losses on financial items at fair value decreased by 7 percent to SEK 122 million (131), owing to lower customer activity. Expenses rose by 6 percent to SEK 1,726 million (1,622), giving a C/I ratio of 39.6 percent. Staff costs rose by 1 percent, since the cost of the annual salary adjustment for was largely neutralised by a 190-person reduction in the average number of employees. Loan losses decreased to SEK -115 million (-572), which corresponds to a loan loss ratio of 0.05 percent (0.23). Business development Deposits from households continued to increase, amounting to SEK 173 billion (162). Over the past twelve months, Handelsbanken s share of the household deposit market in Sweden has risen from 17.7 percent to 18.2 percent as of the end of February. The average volume of mortgage loans to private individuals grew by 10 percent to SEK 460 billion (418). The Bank s position as the largest lender to companies in Sweden was further reinforced, and over the past twelve months its market share has risen from 26.1 percent to 26.7 percent as of the end of February. COMPARED WITH Operating profit increased by 19 percent to SEK 2,404 million (2,013), due partly to lower loan losses, but also to lower costs and higher net interest income. Net interest income grew by SEK 154 million, or 5 percent, between the quarters. The change in the composition of lending, with an increasing share of mortgage loans and a decreasing share of corporate loans, had a negative impact on net interest income. The benchmark effect in Stadshypotek, which is the result of the Bank funding itself with benchmark loans that do not exactly match each credit in the portion of the mortgage loan portfolio that they fund, amounted to SEK +97 million (-89). The effect over time is marginal, but it can vary between quarters. Loans to households continued to grow, and the average volume of mortgage loans to private individuals increased by SEK 11 billion to SEK 460 billion (449). The margin on the mortgage loan portfolio was unchanged at 0.65 percent (0.65). Corporate lending decreased and the average volume of loans was SEK 466 billion (472). The estimated cost for the Stabilisation Fund amounted to SEK -51 million (-54). Net fee and commission income increased by 1% to SEK 907 million (900). Lending commissions showed the greatest increase. Expenses decreased by 3 percent to SEK 1,726 million (1,787). Staff costs fell by 2 percent and other administrative expenses dropped by 22 percent, since the previous quarter had been negatively affected by increasing IT-related costs and seasonal effects. Loan losses decreased to SEK 115 million (318) and the loan loss ratio was 0.05 percent (0.13). 10 Handelsbanken

11 Branch office operations outside Sweden Branch office operations outside Sweden comprise the regional banks in Denmark, Finland and Norway, and also two regional banks in Great Britain. These countries, together with Sweden, are regarded as the Bank s domestic markets. The branch operations in these countries are run according to the same concept as in Sweden to provide universal banking services with a higher service level and at lower cost than peer banks. This business segment also includes Handelsbanken International and Handelsbanken Finans s operations outside Sweden. Handelsbanken International is responsible for branch operations outside the Bank s domestic markets. INCOME STATEMENT Net interest income 1,765 1,694 4% 1,883-6% 1,765 1,694 4% 7,317 Net fee and commission income % 377 6% % 1,533 Net gains/losses on financial items at fair value % 97-37% % 250 Other income Total income 2,243 2,150 4% 2,354-5% 2,243 2,150 4% 9,106 Staff costs % % % -2,778 Other administrative expenses % % % -1,133 Internal purchased and sold services % % % -842 Depreciation and amortisation % -20 0% % -84 Total expenses -1,134-1,203-6% -1,226-8% -1,134-1,203-6% -4,837 Profit before loan losses 1, % 1,128-2% 1, % 4,269 Net loan losses % % % -1,067 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit % % % 3,202 Profit allocation % % % 294 Operating profit after profit allocation % % % 3,496 Internal income -1,323-1,844 28% -1,237-7% -1,323-1,844 28% -5,524 Cost/income ratio, % Loan loss ratio, % Assets 513, ,155-44% 544,470-6% 513, ,155-44% 544,470 Liabilities 486, ,805-45% 517,441-6% 486, ,805-45% 517,441 Allocated capital 26,794 26,350 2% 27,029-1% 26,794 26,350 2% 27,029 Return on allocated capital, % Average number of employees 2,886 3,023-5% 2,920-1% 2,886 3,023-5% 2,976 Number of branches % 243 0% % 243 BUSINESS VOLUMES Average volumes, SEK bn Deposits and borrowing from the public Household % 42 0% % 45 Corporate % % % 132 Total % % % 177 Loans to the public Household % 142 0% % 139 Corporate % 338-4% % 361 Total % 480-3% % Handelsbanken

12 JANUARY MARCH COMPARED WITH JANUARY MARCH Earnings performance Operating profit increased by 8 percent to SEK 673 million (623). Profit before loan losses increased by 17 percent to SEK 1,109 million (947). The improvement in profit was attributable to income rising by SEK 93 million and expenses being 69 million lower. Net interest income increased by 4 percent to SEK 1,765 million (1,694), including a SEK 103 million negative effect from exchange rate movements. Adjusted for the exchange rate effects, net interest income grew by 10 percent. Fees for state guarantees and other deposit guarantees totalled SEK 52 million (64). In addition, net interest income was adversely affected by a conscious reduction of lending volumes in Handelsbanken International. Net gains/losses on financial items at fair value decreased by SEK 34 million, primarily because the result of foreign exchange transactions was higher than normal in the period of comparison. Expenses fell by 6 percent, which was chiefly attributable to exchange rate movements. The operating deficit for branches in regional banks outside Sweden which have not yet reported a profit was SEK 46 million (82). Staff costs fell by 7 percent, and the average number of employees dropped by 137, or 5 percent. Loan losses totalled SEK -436 million (-324), owing mainly to a provision of SEK 335 million for one exposure at Handelsbanken International. The loan loss ratio was 0.35 percent (0.24). Business development The average volume of lending decreased by 10 percent to SEK 468 billion (520). Around half of the decrease was due to exchange rate changes. In local currency terms, lending in Great Britain and Norway grew, while lending in Denmark and Finland fell. The deliberate reduction in lending volumes outside the Bank s domestic markets which began in the previous year, reduced lending volumes within Handelsbanken International by SEK 30 billion, or 32 percent. COMPARED WITH Operating profit decreased by SEK 82 million to SEK 673 million, chiefly due to lower net interest income and higher loan losses. Profit before loan losses fell by 2 percent to SEK 1,109 million (1,128). Net interest income decreased by SEK 118 million, or 6 percent, to SEK 1,765 million (1,883). SEK 31 million of the decrease was attributable to the appreciation of the Swedish krona. The fact that there were fewer days in the first quarter had a SEK 30 million negative impact on net interest income. Lower business volumes from corporate customers also had a negative effect on the net interest income figure. The average volume of loans to companies was 4 percent below the previous quarter. During the period, SEK 41 billion in deposits were transferred to the Central Treasury, mainly from insurance and fund management companies within branch operations outside Sweden; this explains the 22 percent drop in corporate deposits. Adjusted for this transfer, the average volume of corporate deposits increased by 8 percent. The transfer was a step in the centralisation of the Bank s funding described in note 9. Deposit and lending volumes for personal customers were unchanged. In Great Britain, however, volumes of business in local currency terms increased for personal and corporate customers alike. Expenses fell by 8 percent, or SEK 92 million, with SEK 73 million of this figure being within Handelsbanken International. Expansion costs for new branch offices were SEK -47 million (60). Loan losses totalled SEK -436 million (-373), owing to an increase within Handelsbanken International. Loan losses in the Nordic countries and Great Britain decreased. The loan loss ratio was 0.35 percent (0.27). Excluding Handelsbanken International, the loan loss ratio was 0.09 percent. 12 Handelsbanken

13 Branch office operations in Great Britain INCOME STATEMENT Net interest income % 280 0% % 918 Net fee and commission income % 20-10% % 85 Net gains/losses on financial items at fair value % 11 0% % 36 Other income 0 0 0% % 4 Total income % 310-1% % 1,043 Staff costs % % % -474 Other administrative expenses % % % -132 Internal purchased and sold services % % % -98 Depreciation and amortisation % -2 0% % -11 Total expenses % % % -715 Profit before loan losses % 137-4% % 328 Net loan losses % % % -151 Gains/losses on disposal of property, equipment and intangible assets 0-0 0% 0-0 Operating profit % Profit allocation % 3 133% % 24 Operating profit after profit allocation % Average number of employees % 511 4% % 502 Number of branches % 62 6% % 62 BUSINESS VOLUMES Average volumes, GBP m Deposits and borrowing from the public Household % 313 1% % 304 Corporate 1, % 1,021 1% 1, % 940 Total 1,350 1,152 17% 1,334 1% 1,350 1,152 17% 1,244 Loans to the public Household 1, % 1,093 7% 1, % 1,021 Corporate 4,519 4,451 2% 4,501 0% 4,519 4,451 2% 4,453 Total 5,684 5,395 5% 5,594 2% 5,684 5,395 5% 5,474 JANUARY MARCH COMPARED WITH JANUARY MARCH Earnings performance Operating profit rose to SEK 131 million (7) primarily as the result of improved net interest income and lower loan losses. Net interest income rose by SEK 112 million, or 67 percent, to SEK 279 million (167), due to increasing volumes and higher lending margins. Exchange rate effects had a negative impact on net interest income amounting to SEK 17 million. Expenses rose by 2 percent to SEK 177 million (173) as a result of the continued expansion of the branch network. During the past twelve months, the Bank opened six new branches. As a consequence of this, the average number of employees rose by 8 percent to 531. Loan losses amounted to SEK -0 million (-17), corresponding to a loan loss ratio of 0.00 percent (0.24). Business development In the first quarter the Bank decided to start another regional bank in Great Britain. Thus the British branch network will be organised into three regional banks: North, Central and South Great Britain. During the first quarter of the year, thirteen new branches were established, with four of these opening during the period. The average volume of loans rose by 5 percent to GBP 5,684 million (5,395), with loans to households rising by 23 percent. The volume of deposits grew by 17 percent to GBP 1,350 million (1,152). COMPARED WITH Operating profit rose by 41 percent to SEK 131 million (93), due to lower loan losses. Net interest income remained largely unchanged and was impacted negatively by SEK 7 million due to exchange rate movements. 13 Handelsbanken

14 Branch office operations in Denmark INCOME STATEMENT Net interest income % % % 1,340 Net fee and commission income % 65 9% % 280 Net gains/losses on financial items at fair value % 23-30% % 68 Other income % Total income % 431-8% % 1,689 Staff costs % % % -620 Other administrative expenses % % % -251 Internal purchased and sold services % % % -191 Depreciation and amortisation % -5 0% % -21 Total expenses % % % -1,083 Profit before loan losses % 159-6% % 606 Net loan losses % % % -189 Gains/losses on disposal of property, equipment and intangible assets 0-0 0% 0-0 Operating profit % % % 417 Profit allocation % Operating profit after profit allocation % 123 8% % 441 Average number of employees % 663-5% % 677 Number of branches % 53 0% % 53 BUSINESS VOLUMES Average volumes, DKK bn Deposits and borrowing from the public Household % 8.0 5% % 8.2 Corporate % % % 12.8 Total % % % 21.0 Loans to the public Household % % % 18.5 Corporate % % % 21.1 Total % % % 39.6 JANUARY MARCH COMPARED WITH JANUARY MARCH Earnings performance Operating profit increased to SEK 131 million (40). Profit before loan losses rose by 28 percent to SEK 150 million (117). Both income and expenses were affected by the depreciation of the Danish krone, which weakened by 9 percent against the Swedish krona. Net interest income went up by SEK 17 million, or 6 percent. The fee for the Danish state deposit guarantee affected net interest income by SEK -15 million (-28). Excluding the fee to the Danish state deposit guarantees as well as the effect of exchange rate movements, the increase was 11 percent. After adjustments for the above-mentioned items, income rose overall by 8 percent. Expenses, adjusted for the effects of exchange rate movements, went down by 1 percent. Loan losses were SEK -19 million (-77), which corresponds to a loan loss ratio of 0.13 percent (0.51). Business development The average volume of lending in local currency fell by 2 percent to DKK 39.2 billion (40.0). Loans to households grew by 4 percent and loans to companies by 7 percent. Average deposit volumes were down by 3 percent. Household deposits increased by 4 percent while corporate deposits went down by 7 percent. COMPARED WITH Operating profit rose by 14 percent to SEK 131 million (115), chiefly due to lower costs and lower loan losses. Adjusted for exchange rate effects, operating profit grew by 18 percent. Business volumes were virtually unchanged during the quarter. The loan loss ratio fell to 0.13 percent (0.28). 14 Handelsbanken

15 Branch office operations in Finland INCOME STATEMENT Net interest income % 287-9% % 1,065 Net fee and commission income % 87 6% % 306 Net gains/losses on financial items at fair value % 17-94% % 20 Other income Total income % 387-8% % 1,386 Staff costs % -97 0% % -387 Other administrative expenses % % % -230 Internal purchased and sold services % -41 2% % -153 Depreciation and amortisation % -6 0% % -21 Total expenses % % % -791 Profit before loan losses % % % 595 Net loan losses % % % -220 Gains/losses on disposal of property, equipment and intangible assets Operating profit % 70 86% % 375 Profit allocation % 34-85% % 58 Operating profit after profit allocation % % % 433 Average number of employees % 494 0% % 502 Number of branches % 45 0% % 45 BUSINESS VOLUMES Average volumes, EUR m Deposits and borrowing from the public Household 1,267 1,391-9% 1,324-4% 1,267 1,391-9% 1,385 Corporate 2,604 1,619 61% 2,709-4% 2,604 1,619 61% 2,138 Total 3,871 3,010 29% 4,033-4% 3,871 3,010 29% 3,523 Loans to the public Household 3,122 3,025 3% 3,089 1% 3,122 3,025 3% 3,053 Corporate 6,747 7,437-9% 6,909-2% 6,747 7,437-9% 7,214 Total 9,869 10,462-6% 9,998-1% 9,869 10,462-6% 10,267 JANUARY MARCH COMPARED WITH JANUARY MARCH Earnings performance Operating profit rose by 24 percent to SEK 130 million (105), chiefly due to higher income. Income and expenses were impacted by the appreciation of the Swedish krona, which went up by 9 percent compared to the previous year. Net interest income rose by 2 percent to SEK 262 million (256), and adjusted for exchange rate movements the increase was just over 12 percent. Expenses fell by 2 percent, which was entirely attributable to the strengthening of the Swedish krona. Loan losses were SEK -29 million (-27), which corresponds to a loan loss ratio of 0.11 percent (0.09). Business development Weak credit demand from corporate customers led to the average lending volume in local currency dropping by 6 percent to EUR 9.9 billion (10.5). However, corporate deposits rose by 61 percent to EUR 2.6 billion (1.6). The average volume of loans to households increased by 3 percent to EUR 3.1 billion (3.0). COMPARED WITH Operating profit rose by 86 percent to SEK 130 million (70), which is entirely attributable to lower loan losses. Income and expenses were impacted by the Swedish krona appreciating compared to the previous quarter. Net interest income decreased by SEK 25 million, of which SEK 10 million is due to exchange rate changes. Lending margins improved but lower business volumes negatively affected net interest income. The average volume of corporate lending decreased by 1 percent, due to lower credit demand. Expenses dropped by 4 percent compared with the previous quarter, mainly due to exchange rate movements. 15 Handelsbanken

16 Branch office operations in Norway INCOME STATEMENT Net interest income % 735-7% % 2,775 Net fee and commission income % 62 21% % 289 Net gains/losses on financial items at fair value % 21 24% % 87 Other income Total income % 815-2% % 3,143 Staff costs % % % -593 Other administrative expenses % % % -255 Internal purchased and sold services % -51 4% % -188 Depreciation and amortisation % -3 33% % -16 Total expenses % % % -1,052 Profit before loan losses % 552-5% % 2,091 Net loan losses % % % -416 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% Operating profit % % % 1,675 Profit allocation % 43-81% % 91 Operating profit after profit allocation % % % 1,766 Average number of employees % 620 0% % 625 Number of branches % 48 0% % 48 BUSINESS VOLUMES Average volumes, NOK bn Deposits and borrowing from the public Household % 8.7 3% % 8.6 Corporate % % % 34.3 Total % % % 42.9 Loans to the public Household % % % 50.1 Corporate % % % Total % % % JANUARY MARCH COMPARED WITH JANUARY MARCH Earnings performance Operating profit rose by 53 percent to SEK 478 million (312), due to lower loan losses. The profit before loan losses rose by 10 percent to SEK 526 million (479). Exchange rate movements had only a marginal impact on the income statement. Net interest income rose by SEK 42 million or 7 percent, due to improved lending margins and higher deposit volumes. Net interest income was affected by expenses of SEK -12 million (-11) relating to the Swedish Stabilisation Fund and of SEK -2 million (-) relating to the Norwegian deposit guarantee. Net fee and commission income increased by 15 percent to SEK 75 million (65). Expenses went up by 7 percent. The average number of employees fell by 1 percent and staff costs rose by 1 percent. The C/I ratio before loan losses improved to 33.9 percent (34.8). Loan losses decreased to SEK -48 million (-167), and the loan loss ratio was 0.10 percent (0.38). Business development The average volume of lending to households increased by 10 percent in local currency and Handelsbanken gained market share. Like the general trend in the Norwegian market, Handelsbanken s corporate lending fell. Deposits from the public grew by 11 percent. COMPARED WITH Operating profit rose by 24 percent to SEK 478 million (385), due to lower loan losses. The profit before loan losses fell by 5 percent to SEK 526 million (552). Net interest income decreased by 7 percent, or SEK 48 million, to SEK 687 million (735). Net interest income was negatively impacted by exchange rate changes and the fact that the first quarter of the year has fewer days. Margins and business volumes were stable between the quarters. 16 Handelsbanken

17 Handelsbanken International INCOME STATEMENT Net interest income % 240-5% % 1,219 Net fee and commission income % 143 1% % 573 Net gains/losses on financial items at fair value % 25-72% % 39 Other income % 3-67% % 14 Total income % 411-7% % 1,845 Staff costs % % % -704 Other administrative expenses % % % -265 Internal purchased and sold services % % % -211 Depreciation and amortisation % -4-25% % -15 Total expenses % % % -1,195 Profit before loan losses % % % 650 Net loan losses Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit Profit distribution % 66-94% % 97 Operating profit after profit allocation Average number of employees % 632-4% % 670 Number of branches % 35-9% % 35 BUSINESS VOLUMES Average volumes, SEK bn Deposits and borrowing from the public Household % 3.4 0% % 4.1 Corporate % % % 38.1 Total % % % 42.2 Loans to the public Household % 3.7 8% % 4.0 Corporate % % % 77.8 Total % % % 81.8 JANUARY MARCH COMPARED WITH JANUARY MARCH Earnings performance Operating profit decreased to SEK -200 million (159), mainly due to higher loan losses. Profit before loan losses fell by SEK 52 million, to SEK 143 million (195), due to lower income. Income decreased by 23 percent, mainly due to lower lending volumes. Net interest income decreased by 32 percent to SEK 229 million (335), of which SEK -39 million was attributable to exchange rate movements. Commissions rose by 13 percent, mainly due to higher lending commissions. Business development Handelsbanken had 32 branches and four representative offices in 17 countries outside the Nordic countries and Great Britain. The average volume of corporate lending decreased by 33 percent to SEK 59.6 billion (89.4). During the year, focus has been on making more efficient use of the Bank s capital, which was reflected in a conscious reduction of lending volumes. During the quarter, SEK 41 billion in deposits were transferred from Handelsbanken International to Central Treasury, mainly from insurance and fund management companies, which explains why corporate deposits fell by 67 percent compared to the previous quarter. Adjusted for this, average volumes rose by SEK 13 billion. COMPARED WITH Operating profit fell to SEK -200 million (93). The reduction is primarily attributable to Handelsbanken having reserved SEK 335 million for a previously identified risk exposure. Total loan losses were SEK -343 million (-7). Profit before loan losses rose by 43 percent to SEK 143 million (100). Net interest income decreased by 5 percent due to lower business volumes. The average number of employees went down by 27, which contributed to a 12-percent reduction in staff costs. 17 Handelsbanken