Interim Report January September

Transcription

1 DELÅRSRAPPORT JANUARI SEPTEMBER Interim Report January September 1 Handelsbanken

2 INTERIM REPORT JANUARY SEPTEMBER Handelsbanken s Interim Report January September Sammanfattning january september, compared with januari september Operating profit for continuing operations went up by 4 percent to SEK 10,937 million (10,506) Profit after tax for total operations went up by 5 percent to SEK 8,133 million (7,728) and diluted earnings per share rose to SEK (12.07) Tier 1 capital increased to SEK 86.9 billion (84.0) and the Tier 1 ratio according to Basel II went up to 15.7 percent (13.5) Return on equity for total operations was unchanged at 12.8 percent (12.8), while equity grew by 6 percent Net interest income declined by 6 percent to SEK 15,725 million (16,641) Net fee and commission income went up by 9 percent to SEK 5,895 million (5,398) Income declined to SEK 23,168 million (24,368) and expenses decreased to SEK -11,021 million (-11,162) The loan loss ratio decreased to 0.10 percent (0.23), with loan losses amounting to SEK -1,214 million (-2,701) The volume of credit commitments to the public increased by 18 percent, and the average volume of lending rose by 1 percent, adjusted for currency effects SUMMARY OF, COMPARED WITH Operating profit for continuing operations went up by 2 percent to SEK 3,606 million (3,539) Profit after tax for total operations went up by 5 percent to SEK 2,707 million (2,573) and diluted earnings per share rose to SEK 4.27 (4.07) Return on equity for total operations was 12.7 percent (12.0) Net interest income rose by 5 percent to SEK 5,327 million (5,082) Income declined by 2 percent to SEK 7,506 million (7,653), while expenses fell by 4 percent to SEK -3,610 million (-3,745) Loan losses went down to SEK -294 million (-369), and the loan loss ratio dropped to 0.08 percent (0.09) Average lending volumes were unchanged, while credit commitments went up by 6 percent Via Stadshypotek, Handelsbanken became the first Nordic bank to issue covered bonds in the US This year, Handelsbanken again had the most satisfied bank customers in the Nordic countries according to the SKI/EPSI survey 2 Handelsbanken

3 INTERIM REPORT JANUARY SEPTEMBER Contents Page Group Overview 4 Business segments 5 Group performance 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 Condensed set of financial statements The Group 23 Key figures 23 Income statement 24 Earnings per share 24 Statement of comprehensive income 25 Quarterly performance 25 Balance sheet 26 Statement of changes in equity 27 Condensed statement of cash flows 27 Accounting policies 27 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 pledged assets taken over 29 Note 5 Loans to the public 31 Note 6 Capital base and capital requirement in the banking group 33 Note 7 Goodwill and other intangible assets 35 Note 8 Derivatives 35 Note 9 Risks and uncertainty factors 36 Note 10 The Handelsbanken share 36 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 s interim report 38 Information on phone conference etc 40 Share price performance and other information 41 3 Handelsbanken

4 INTERIM REPORT JANUARY SEPTEMBER Handelsbanken Group Overview Change Change Change Summary income statement Net interest income 5,327 5,610-5% 5,082 5% 15,725 16,641-6% 22,000 Net fee and commission income 1,924 1,803 7% 1,988-3% 5,895 5,398 9% 7,393 Net gains/losses on financial items at fair value % % 1,101 1,960-44% 2,457 Risk result - insurance % 59-29% % 171 Other dividend income % 55-95% % 141 Share of profits of associated companies % 7-86% % 26 Other income % 38-16% % 147 Total income 7,506 7,762-3% 7,653-2% 23,168 24,368-5% 32,335 Staff costs -2,330-2,451-5% -2,352-1% -7,038-7,432-5% -10,018 Other administrative expenses -1,166-1,046 11% -1,276-9% -3,637-3,346 9% -4,719 Depreciation, amortisation and impairments of property, equipment and intangible assets % % % -483 Total expenses -3,610-3,642-1% -3,745-4% -11,021-11,162-1% -15,220 Profit before loan losses 3,896 4,120-5% 3,908 0% 12,147 13,206-8% 17,115 Net loan losses % % -1,214-2,701-55% -3,392 Gains/losses on disposal of property, equipment and intangible assets % % 4 Operating profit 3,606 3,255 11% 3,539 2% 10,937 10,506 4% 13,727 Taxes % -1,019-7% -2,932-2,797 5% -3,519 Profit for the period from continuing operations 2,661 2,426 10% 2,520 6% 8,005 7,709 4% 10,208 Profit for the period from discontinued operations, after tax % 53-13% Profit for the period 2,707 2,434 11% 2,573 5% 8,133 7,728 5% 10,244 Summary balance sheet Loans to the public 1,469,109 1,476,030 0% 1,484,406-1% 1,469,109 1,476,030 0% 1,477,183 of which mortgage loans 733, ,326 10% 720,228 2% 733, ,326 10% 684,920 Deposits and borrowing from the public 572, ,667-5% 580,113-1% 572, ,667-5% 549,748 of which households 240, ,226 4% 240,754 0% 240, ,226 4% 230,738 Total equity 84,698 79,779 6% 82,592 3% 84,698 79,779 6% 83,088 Total assets 2,188,032 2,147,756 2% 2,325,621-6% 2,188,032 2,147,756 2% 2,122,843 Summary of key figures Return on equity, total operations * 12.7% 12.0% 12.0% 12.8% 12.8% 12.6% Return on equity, continuing operations * 12.5% 11.9% 11.8% 12.6% 12.7% 12.5% C/I ratio, continuing operations 48.1% 46.9% 48.9% 47.6% 45.8% 47.1% Earnings per share, total operations, SEK after dilution Tier 1 ratio according to Basel II 15.7% 13.5% 14.8% 15.7% 13.5% 14.2% * When calculating return on equity, 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 INTERIM REPORT JANUARY SEPTEMBER Business segments THE GROUP S INCOME STATEMENT BY BUSINESS SEGMENT, JANUARY SEPTEMBER Branch office operations in Sweden Branch office operations outside Sweden Capital Markets Asset Mgmt Other Adjustments & eliminations Group Group Net interest income 9,495 5, ,725 16,641 Net fee and commission income 2,759 1, ,895 5,398 Net gains/losses on financial items at fair value , ,101 1,960 Risk result - insurance Share of profits of associated companies Other income Total income 12,716 6,602 2,478 1, ,168 24,368 Staff costs -2,250-1,954-1, , ,038-7,432 Other administrative expenses , ,637-3,346 Internal purchased and sold services -2, ,870 Depreciation and amortisation Total expenses -5,210-3,382-1, ,021-11,162 Profit before loan losses 7,506 3, ,147 13,206 Net loan losses ,101-1,214-2,701 Gains/losses on disposal of property, equipment and intangible assets Operating profit 7,393 2, ,937 10,506 Profit allocation Operating profit after profit allocation 7,941 2, ,937 10,506 Internal income * -1,433-4, ,863 - Cost/income ratio, % Loan loss ratio, % Allocated capital 41,679 25,978 4,375 5,617 84,698 79,779 Return on allocated capital, % Average number of employees 4,402 2,906 1, ,910 10,818 10,881 * 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. C/I ratios for the segments are calculated after internal profit allocation. Return on allocated capital for the segments is calculated based on average equity and mainly with a tax rate of 26.3 percent. For the Group, return on equity is calculated after reported tax. 5 Handelsbanken

6 INTERIM REPORT JANUARY SEPTEMBER Group performance JANUARY SEPTEMBER COMPARED WITH JANUARY SEPTEMBER Operating profit for the first nine months went up by 4 percent to SEK 10,937 million (10,506). A 9 percent increase in net fee and commission income and slightly lower expenses, together with lower loan losses, offset lower net interest income and lower net gains/losses on financial items at fair value. Exchange rate movements affected operating profit by SEK -104 million, or -1 percent. Profit after tax for total operations increased by 5 percent and amounted to SEK 8,133 million (7,728). Adjusted for foreign exchange effects, the average volume of lending to the public in the Group was up by 1 percent from the corresponding period of the previous year. However, the appreciation of the Swedish krona meant that the average volume in SEK terms decreased by SEK 35 billion, or 1 percent. At the same time, there was a marked increase in the volume of credit commitments, which grew by 18 percent during the period. The average volume of household deposits rose by 4 percent, and total deposits grew by 2 percent. The C/I ratio for continuing operations was 47.6 percent (45.8). Earnings per share increased to SEK (12.40). Return on equity for total operations was unchanged at 12.8 percent (12.8), at the same time as equity increased. Income Change Net interest income 15,725 16,641-6% of which deposit margin Sweden -228 of which exchange rate changes -306 Net fee and commission income 5,895 5,398 9% Net financial items 1,101 1,960-44% Other income % Total income 23,168 24,368-5% Income declined by 5 percent, chiefly because net gains/ losses on financial items in the first quarter of the comparison period included a high proportion of currencyrelated income, due to the particular market conditions that prevailed at the time and to lower net interest income. Net interest income decreased by SEK 916 million, or 6 percent, to SEK 15,725 million. SEK 306 million of the decrease can be attributed to exchange rate movements, while a further SEK 228 million can be attributed to lower deposit margins in Swedish operations. The remainder of the decrease was chiefly due to the lower interest rate environment. 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 -474 million (-448). Net fee and commission income increased by SEK 497 million, or 9 percent, to SEK 5,895 million (5,398). This increase was mainly attributable to the fact that fund management commissions grew by 45 percent, or SEK 355 million, and to rising lending and insurance commissions. Net gains/losses on financial items at fair value decreased by SEK 859 million to SEK 1,101 million (1,960), due chiefly to unusually high income during the period of comparison. The result was also affected by lower customer activity, which reduced income at Handelsbanken Capital Markets, particularly in the third quarter. Expenses Change Staff costs -7,038-7, % Other administrative expenses -3,637-3, % Depreciation and amortisation % Total expenses -11,021-11, % Analysis of changes Change % points Costs for variable compensation IAS 19 (pensions) Oktogonen Exchange rate movements Other costs Total change Total expenses decreased by 1 percent to SEK -11,021 million. Staff costs fell by 5 percent, or SEK 394 million, mainly due to lower variable compensation, lower pension costs according to IAS 19, and exchange rate movements. The variable compensation, including social security costs and other payroll overheads, fell to SEK 173 million (335), and the allocation to the Oktogonen foundation increased by SEK 72 million to SEK -561 million (-489). The average number of employees fell by 63 to 10,818 (10,881). Other administrative expenses increased by 9 percent, chiefly due to a rise in IT development costs. Loan losses Change Net loan losses -1,214-2,701 1,487 Loan loss ratio as a % of loans, annualised Impaired loans, net 2,723 3, Level of impaired loans, % Loan losses more than halved to SEK -1,214 million. The loan loss ratio decreased to 0.10 percent (0.23) and net impaired loans fell to SEK 2,723 million, (3,710) corresponding to 0.17 (0.24) percent of lending. 6 Handelsbanken

7 INTERIM REPORT JANUARY SEPTEMBER COMPARED WITH Operating profit increased by 2 percent to SEK 3,606 million (3,539). An increasing net interest income combined with lower expenses and lower loan losses counteracted a decrease in net gains/losses on financial items. Profit after tax for total operations went up by 5 percent to SEK 2,707 million (2,573) and earnings per share for total operations rose to SEK 4.35 (4.14). Return on equity increased to 12.7 percent (12.0). Income Change Net interest income 5,327 5,082 5% Net fee and commission income 1,924 1,988-3% Net financial items % Other income % Total income 7,506 7,653-2% Net interest income increased by SEK 245 million or 5 percent to SEK 5,327 million. SEK 218 million of this increase is attributable to improved deposit margins in Swedish operations as a result of rising interest rates. Lending margins were generally stable during the period. Exchange rate movements decreased net interest income by SEK -43 million, and the benchmark effect in Stadshypotek amounted to SEK -36 million (2). Adjusted for foreign exchange effects, the average volume of lending to the public increased by 1 percent compared with the previous quarter. Demand for corporate credits was weak during the period, but the improving economic climate was reflected in an increased volume of credit commitments, which continued to rise during the quarter. Household credit volumes continued to increase. Average deposits rose by 1 percent to SEK 543 billion (537). The average volume of household deposits rose by 3 percent, but corporate volumes remained unchanged. Net fee and commission income decreased by SEK 64 million to SEK 1,924 million (1,988), primarily due to lower commission income from portfolio bond and custody operations and lower brokerage income. Payment commissions increased by 4 percent to a new record level of SEK 630 million (607). Net gains/losses on financial items at fair value decreased to SEK 177 million (424), chiefly due to low customer activity in fixed income and foreign exchange trading at Handelsbanken Capital Markets. Expenses Change Staff costs -2,330-2, % Other administrative expenses -1,166-1, % Depreciation and amortisation % Total expenses -3,610-3, % Total expenses decreased by 4 percent to SEK -3,610 million and staff costs fell by 1 percent. Other administrative expenses decreased by 9 percent due to a seasonal decrease in the third quarter, and the decrease was general across all expense categories. Exchange rate movements reduced total expenses by SEK 42 million. The average number of employees rose to 11,100 (10,719), chiefly due to an increased number of temporary staff during the summer. Loan losses Change Net loan losses Loan loss ratio as a % of loans, annualised Impaired loans, net 2,723 2, Level of impaired loans, % Loan losses decreased to SEK -294 million. Loan losses as a proportion of lending decreased to 0.08 percent (0.09). Net impaired loans decreased marginally to SEK 2,723 million (2,755), equivalent to 0.17 (0.17) percent of lending. PERFORMANCE IN THE BUSINESS SEGMENTS ( compared with ) In branch office operations in Sweden, operating profit increased by 2 percent to SEK 2,520 million (2,469), mainly due to improved net interest income. The loan loss ratio was 0.02 percent (-0.02). Income increased by 3 percent, while expenses fell by 2 percent. In branch office operations outside Sweden, operating profit increased by 19 percent to SEK 785 million (661), mainly due to lower loan losses. Income decreased by 2 percent, while expenses rose by 2 percent. The loan loss ratio was 0.19 percent (0.35). In the first nine months of the year, fifteen new branches were opened in Great Britain and eleven new branch managers were recruited in readiness for the opening of more new branches during the year. During the same period, net interest income in the UK operations increased by 57 percent in local currency terms. Handelsbanken Capital Markets operating profit declined by 43 percent to SEK 175 million (309). The decrease was chiefly attributable to lower income from fixed income and foreign exchange trading, due to low customer activity in the third quarter. Handelsbanken Asset Management s operating profit fell to SEK 100 million (155). The decline in profits was mainly due to decreased commission income, as well as an increase in the deferred capital contribution in Handelsbanken Liv of SEK 25 million. Net savings in Handelsbanken s funds, including SEK 0.2 billion in XACT Fonder, totalled SEK 9.1 billion. 7 Handelsbanken

8 INTERIM REPORT JANUARY SEPTEMBER FUNDING AND LIQUIDITY During the first half of the year, the Bank refinanced all its bond maturities up to February This, coupled with the continuing shortage of demand for credit, caused the Bank to reduce its issue volumes during the third quarter. During the quarter a total of SEK 34 billion was issued, including SEK 27 billion worth of covered bonds. The Bank continued to diversify its funding, and in September, Handelsbanken, through Stadshypotek, became the first Nordic bank to issue covered bonds in the US. This was a three-year issue, with a volume of USD 1.6 billion. The accumulated issue volume during the year was SEK 204 billion, of which SEK 68 billion are senior bonds and SEK 136 billion are covered bonds. The early refinancing of maturing bonds meant that during the third quarter, the Bank was able to reduce the part of its liquidity reserve that had been placed in the Riksbank, while maintaining its liquidity position. At the end of the period, the liquidity reserve exceeded SEK 500 billion. Liquid assets invested with central banks accounted for SEK 78 billion of the reserve, with SEK 14 billion of this placed with the Riksbank. Liquid bonds totalled SEK 79 billion and the remainder consisted of unutilised headroom for issues in Stadshypotek s covered bond pool. CAPITAL Change Tier 1 ratio according to Basel II 15.7% 13.5% Capital ratio according to Basel II 20.7% 19.1% Equity 84,698 79,779 6% Tier 1 capital 86,890 84,040 3% The capital base amounted to SEK billion and the capital ratio according to Basel II was 20.7 percent, compared with 19.1 percent at the same date in. During the first quarter of, a dated subordinated loan of SEK 5.2 billion was repaid at the full notional amount, and this reduced the capital ratio by 0.9 percentage points. Equity increased by SEK 4.9 billion to SEK 84.7 billion. Tier 1 capital rose by SEK 2.9 billion to SEK 86.9 billion and during the past 12-month period, the Tier 1 ratio went up by 2.2 percentage points to 15.7 percent. During the third quarter the increase was 0.9 percentage points, with 0.2 percentage points of this being attributable to the profit for the period. The remainder was chiefly attributable to lower risk-weighted assets, where the positive migration of credit risks made a 0.3 percentage point contribution. In addition, reduced corporate loans and exchange rate effects each made a 0.1 percentage point contribution to the increase in the Tier 1 ratio. RATING During the first nine months of the year, Handelsbanken s short-term and long-term ratings were unchanged with the four rating agencies which monitor the Bank. All rating agencies gave the Bank a stable outlook. Long-term Short-term Standard & Poor's AA- A-1+ Fitch AA- F1+ Moody's Aa2 P-1 C+ DBRS AA (low) DISCONTINUED OPERATIONS Discontinued operations includes businesses acquired by the Bank to protect its claims that it intends to sell. Profit after tax for the nine-month period amounted to SEK 128 million (19). Financial strength OTHER In the third quarter, the Bank decided to merge Handelsbanken Capital Markets and Handelsbanken Asset Management. The merger will be carried out during the fourth quarter. This interim report has not been examined by Handelsbanken s auditors. 8 Handelsbanken

9 INTERIM REPORT JANUARY SEPTEMBER 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 comparable 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 Change Change Change Net interest income 3,204 3,335-4% 3,079 4% 9,495 10,247-7% 13,305 Net fee and commission income % 932-1% 2,759 2,477 11% 3,377 Net gains/losses on financial items at fair value % 162 5% % 512 Other income % % 76 Total income 4,301 4,263 1% 4,170 3% 12,716 13,152-3% 17,270 Staff costs % % -2,250-2,286-2% -3,060 Other administrative expenses % % % -1,032 Internal purchased and sold services % % -2,181-1,843 18% -2,534 Depreciation and amortisation % -22-9% % -80 Total expenses -1,725-1,621 6% -1,759-2% -5,210-4,919 6% -6,706 Profit before loan losses 2,576 2,642-2% 2,411 7% 7,506 8,233-9% 10,564 Net loan losses % ,007-94% -2,325 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit 2,520 1,968 28% 2,469 2% 7,393 6,226 19% 8,239 Profit allocation % 207 7% % 757 Operating profit after profit allocation 2,742 2,145 28% 2,676 2% 7,941 6,661 19% 8,996 Internal income % % -1,433-3,149 54% -3,733 Cost/income ratio, % Loan loss ratio, % Allocated capital 41,679 38,635 8% 40,609 3% 41,679 38,635 8% 38,775 Return on allocated capital, % Average number of employees 4,552 4,585-1% 4,309 6% 4,402 4,521-3% 4,481 Number of branches % 460 0% % 461 BUSINESS VOLUMES Average volumes, SEK bn Change Change Change Loans to the public* Household % 527 3% % 490 of which mortgage loans % 472 3% % 433 Corporate % 470-1% % 483 of which mortgage loans % 187 3% % 166 Total 1, % 997 1% % 973 Deposits and borrowing from the public Household % 178 4% % 168 Corporate % 149 0% % 152 Total % 327 2% % 320 * excl. loans to the National Debt Office 9 Handelsbanken

10 INTERIM REPORT JANUARY SEPTEMBER JANUARY SEPTEMBER COMPARED WITH JANUARY SEPTEMBER Earnings performance Operating profit rose by 19 percent to SEK 7,393 million (6,226) due to lower loan losses. Profit before loan losses fell by 9 percent to SEK 7,506 million (8,233) as a result of lower net interest income. Net interest income decreased by 7 percent, or SEK 752 million, to SEK 9,495 million (10,247). Lower deposit margins negatively affected net interest income by SEK 228 million. The fee to the Stabilisation Fund reduced net interest income by SEK -157 million (-149). Net fee and commission income increased by 11 percent, partly due to higher lending commissions. Net gains/losses on financial items at fair value increased by 20 percent to SEK 454 million (378). Staff costs fell by 2 percent as the average number of employees decreased by 3 percent. Overall, expenses rose by 6 percent to SEK 5,210 million (-4,919), chiefly due to an increase in IT costs. The C/I ratio was 39.3 percent. Loan losses decreased to SEK -113 million (-2,007), which corresponds to a loan loss ratio of 0.02 percent (0.27). Business development Among those banks offering a full range of services, Handelsbanken has for many years been the one with the most satisfied customers. At the beginning of October, SKI (Swedish Quality Index) presented the results of its annual survey, which revealed that the Bank has maintained this leading position and noted record levels among both private and corporate customers. Never before has the Bank had such satisfied private customers in Sweden as this year. Of the major Swedish banks, Handelsbanken is also the one with the most stable growth over time. Deposits from households continued to increase, amounting to SEK 179 billion (166). Since the turn of the year, Handelsbanken s share of the household deposit market in Sweden has risen from 18.0 percent to 18.8 percent as at 31 August. The average volume of mortgage loans to private individuals grew by 11 percent to SEK 472 billion (427). Handelsbanken is the largest lender to companies in Sweden and its market share as at 31 August was 26.3 percent. Since the formation of the Forestry and Farming business area in 2008, the inflow of forest-owners and farmers as customers has been very good. The number of active customers who own properties classified for tax purposes has continued to rise and now stands at 102,000 forestry and agricultural businesses. Of this figure, nearly three thousand became customers of the Bank during the first nine months of the year. A total of 1,500 employees have been trained and are continuing to receive training in products and banking services aimed at forest-owners and farmers. COMPARED WITH Operating profit rose by 2 percent to SEK 2,520 million (2,469), as a result of improved net interest income and lower costs. Profit before loan losses rose by 7 percent to SEK 2,576 million (2,411). Net interest income grew by SEK 125 million, or 4 percent, between the quarters. Improved deposit margins resulting from rising interest rates caused net interest income to increase by SEK 218 million. The benchmark effect in Stadshypotek affected net interest income negatively by SEK -36 million (2). The effect over time is marginal, but it can vary between quarters. The change in the composition of lending, with an increasing share of mortgage loans and a decreasing share of corporate loans, also had a negative impact on net interest income. Loans to households continued to grow, and the average volume of mortgage loans to private customers increased by SEK 12 billion to SEK 484 billion (472). The margin on the mortgage loan portfolio was stable at 0.67 percent (0.67). Credit demand from companies remained weak and average volumes fell by SEK 8 billion to SEK 462 billion (470). Fees for the Swedish Stabilisation Fund and the deposit guarantee totalled SEK -90 million (-94). Net fee and commission income fell by 1 percent to SEK 920 million (932), mainly due to lower equity brokerage commissions. However, an increase in card use coupled with an increase in the number of cards generated higher payment commissions. Net gains/losses on financial items at fair value, which consists primarily of early redemption charges and the result of currency conversions, increased by 5 percent to SEK 170 million (162). Expenses decreased by 2 percent to SEK 1,725 million (-1,759). Staff costs increased by 1 percent as the result of the employment of temporary staff during the summer, which was a main contributory factor to the average number of employees increasing by 243 people. Other administrative expenses decreased. Loan losses remained low and amounted to SEK -56 million for the quarter (+58). 10 Handelsbanken

11 INTERIM REPORT JANUARY SEPTEMBER Branch office operations outside Sweden Branch office operations outside Sweden comprise the regional banks in Denmark, Finland and Norway, as well as the 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 Change Change Change Net interest income 1,742 1,896-8% 1,737 0% 5,244 5,434-3% 7,317 Net fee and commission income % 390-6% 1,158 1,156 0% 1,533 Net gains/losses on financial items at fair value % 49-22% % 250 Other income % % 6 Total income 2,158 2,324-7% 2,201-2% 6,602 6,752-2% 9,106 Staff costs % % -1,954-2,090-7% -2,778 Other administrative expenses % % % -1,133 Internal purchased and sold services % % % -842 Depreciation and amortisation % % % -84 Total expenses -1,135-1,163-2% -1,113 2% -3,382-3,611-6% -4,837 Profit before loan losses 1,023 1,161-12% 1,088-6% 3,220 3,141 3% 4,269 Net loan losses % % -1, % -1,067 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit % % 2,119 2,447-13% 3,202 Profit allocation % 58-7% % 294 Operating profit after profit allocation 839 1,004-16% % 2,257 2,587-13% 3,496 Internal income -1,570-1,097-43% -1,532-2% -4,425-4,287-3% -5,524 Cost/income ratio, % Loan loss ratio, % Allocated capital 25,978 27,512-6% 26,802-3% 25,978 27,512-6% 27,029 Return on allocated capital, % Average number of employees 2,940 2,956-1% 2,893 2% 2,906 2,994-3% 2,976 Number of branches % 250 2% % 243 BUSINESS VOLUMES Average volumes, SEK bn Change Change Change Loans to the public Household % 142 0% % 139 Corporate % 326-3% % 361 Total % 468-2% % 500 Deposits and borrowing from the public Household % 42-2% % 45 Corporate % 100-1% % 132 Total % 142-1% % Handelsbanken

12 INTERIM REPORT JANUARY SEPTEMBER JANUARY SEPTEMBER COMPARED WITH JANUARY SEPTEMBER Earnings performance Operating profit fell by 13 percent due to higher loan losses and amounted to SEK 2,119 million (2,447). Profit before loan losses rose by 3 percent to SEK 3,220 million (3,141), chiefly due to higher profits in Great Britain. Net interest income decreased by 3 percent to SEK 5,244 million (5,434). Adjusted for exchange rate movements of SEK -306 million, net interest income grew by 2 percent. Fees for state guarantees and deposit guarantees rose to SEK -183 million (-167). Net interest income was also adversely affected by lower lending volumes in Handelsbanken International. Expenses fell by 6 percent, which was entirely attributable to exchange rate movements. The operating deficit for branches in regional banks outside Sweden which have not yet reported a profit was SEK 127 million (221). Loan losses were SEK -1,101 million (-694), and the loan loss ratio was 0.30 percent (0.17). The average volume of lending decreased by 9 percent to SEK 464 billion (508). The decrease was entirely attributable to exchange rate movements of SEK -27 billion and the deliberate reduction of around SEK 30 billion in lending volumes at Handelsbanken International, which began last year. Adjusted for this, lending volumes rose. COMPARED WITH Operating profit improved by 19 percent to SEK 785 million (661), chiefly due to lower loan losses. Net interest income was more or less unchanged at SEK 1,742 million (1,737). Adjusted for exchange rate movements of SEK -43 million, net interest income grew by 3 percent. In local currencies, lending volumes increased in Great Britain and Norway. Expenses increased by 2 percent or SEK 22 million. Expansion costs for new branch offices amounted to SEK -40 million (-42). Loan losses were SEK -238 million (-427), and the loan loss ratio was 0.19 percent (0.35). 12 Handelsbanken

13 INTERIM REPORT JANUARY SEPTEMBER Branch office operations in Great Britain INCOME STATEMENT Change Change Change Net interest income % % % 918 Net fee and commission income % 20-10% % 85 Net gains/losses on financial items at fair value % 14 0% % 36 Other income % 0-100% % 4 Total income % % 1, % 1,043 Staff costs % % % -474 Other administrative expenses % -34-3% % -132 Internal purchased and sold services % % % -98 Depreciation and amortisation % -3 0% % -11 Total expenses % % % -715 Profit before loan losses % % % 328 Net loan losses % % -151 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit % % % 177 Profit allocation % 1 400% % 24 Operating profit after profit allocation % % % 201 Average number of employees % 563 7% % 502 Number of branches % 72 7% % 62 BUSINESS VOLUMES Average volumes, GBP m Change Change Change Loans to the public Household 1,366 1,057 29% 1,250 9% 1, % 1,021 Corporate 4,863 4,461 9% 4,722 3% 4,701 4,437 6% 4,453 Total 6,229 5,518 13% 5,972 4% 5,961 5,434 10% 5,474 Deposits and borrowing from the public Household % 335 2% % 304 Corporate 1,076 1,016 6% 1,015 6% 1, % 940 Total 1,419 1,334 6% 1,350 5% 1,373 1,214 13% 1,244 JANUARY SEPTEMBER COMPARED WITH JANUARY SEPTEMBER Earnings performance Operating profit rose to SEK 281 million (84) as the result of a strong improvement in net interest income. Net interest income rose by SEK 293 million or 46 percent to SEK 931 million (638). This can be attributed to higher lending margins and volume increases. Exchange rate effects had a negative impact on net interest income amounting to SEK 71 million. Expenses rose by 4 percent to SEK -562 million (-542) as a result of the continued expansion of the branch network. This caused the average number of employees to rise by 13 percent to 564. Loan losses amounted to SEK -183 million (-107), which corresponds to a loan loss ratio of 0.37 percent (0.23). Business development During the period, the Bank decided to start another regional bank in Great Britain. This means that branch operations in Great Britain will be organised under three regional banks as of 1 January 2011: northern, central and southern Great Britain. In the first nine months of the year, fifteen new branches were opened and eleven new branch managers were recruited in readiness for the opening of more new branches during the year. The average volume of loans rose by 10 percent to GBP 5,961 million (5,434), with loans to households rising by 26 percent. The volume of deposits grew by 13 percent to GBP 1,373 million (1,214). COMPARED WITH Operating profit fell to SEK 9 million (141) as provisions made for probable loan losses rose to SEK -168 million (-15). Profit before loan losses rose by 13 percent to SEK 177 million (156), mainly as a result of improved net interest income. Net interest income rose by 12 percent or SEK 36 million, mainly due to increased volumes, but also to higher lending margins. 13 Handelsbanken

14 INTERIM REPORT JANUARY SEPTEMBER Branch office operations in Denmark INCOME STATEMENT Change Change Change Net interest income % 299-3% % 1,340 Net fee and commission income % 82-15% % 280 Net gains/losses on financial items at fair value % % 68 Other income % Total income % 404-7% 1,176 1,258-7% 1,689 Staff costs % % % -620 Other administrative expenses % -52 2% % -251 Internal purchased and sold services % -45 7% % -191 Depreciation and amortisation % -5-20% % -21 Total expenses % % % -1,083 Profit before loan losses % % % 606 Net loan losses % -23 0% % -189 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit % % % 417 Profit allocation % % 24 Operating profit after profit allocation % % % 441 Average number of employees % 627 0% % 677 Number of branches % 53 0% % 53 BUSINESS VOLUMES Average volumes, DKK bn Change Change Change Loans to the public Household % % % 18.5 Corporate % % % 21.1 Total % % % 39.6 Deposits and borrowing from the public Household % 8.6-1% % 8.2 Corporate % % % 12.8 Total % % % 21.0 JANUARY SEPTEMBER COMPARED WITH JANUARY SEPTEMBER Earnings performance Operating profit rose by 27 percent to SEK 384 million (302), chiefly due to lower loan losses. Profit before loan losses increased by SEK 2 million to SEK 449 million. Net interest income decreased by 10 percent or SEK 102 million, of which SEK 94 million is due to exchange rate effects. Not taking into account the fees paid to the Swedish and Danish state guarantees or the effects of exchange rate movements, net interest income was unchanged. Overall, after taking into account the above-mentioned adjustments, income rose by 4 percent and expenses rose by 1 percent. Loan losses were SEK -65 million (-145), which corresponds to a loan loss ratio of 0.14 percent (0.31). Business development EPSI s customer satisfaction survey showed that Handelsbanken once again topped the ratings in Denmark. The average volume of lending decreased by 1 percent to DKK 39.3 billion (39.7). Lending to households rose by 5 percent, while lending to companies fell by 6 percent, as the result of the low demand for credit. On tember, the government bail-out package in Denmark, Bankpakke 1, was terminated, according to plan and as a result, the Bank no longer needs to pay regular fees towards this. During the nine-month period, the fee amounted to SEK -44 million. COMPARED WITH Operating profit decreased by 23 percent to SEK 110 million (143). Net interest income fell by 3 percent. This can be attributed to higher fees to the Swedish and Danish state guarantees and to the effects of exchange rate movements. Adjusted for the aforementioned, net interest income was unchanged. Expenses were charged with SEK 15 million (2) for fees to cover losses in the case of Danish banks being closed down. Adjusted for this and the effects of exchange rate movements, expenses were on par with the previous quarter. Loan losses remained unchanged and amounted to SEK -23 million. 14 Handelsbanken

15 INTERIM REPORT JANUARY SEPTEMBER Branch office operations in Finland INCOME STATEMENT Change Change Change Net interest income % 253-6% % 1,065 Net fee and commission income % 100-5% % 306 Net gains/losses on financial items at fair value % % 20 Other income % Total income % 362-5% 1, % 1,386 Staff costs % -83 1% % -387 Other administrative expenses % % % -230 Internal purchased and sold services % % % -153 Depreciation and amortisation % -5 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 % % 375 Profit allocation % 16-31% % 58 Operating profit after profit allocation % % 433 Average number of employees % 484 0% % 502 Number of branches % 45 0% % 45 BUSINESS VOLUMES Average volumes, EUR m Change Change Change Loans to the public Household 3,170 3,060 4% 3,153 1% 3,148 3,041 4% 3,053 Corporate 6,734 7,084-5% 6,817-1% 6,766 7,316-8% 7,214 Total 9,904 10,144-2% 9,970-1% 9,914 10,357-4% 10,267 Deposits and borrowing from the public Household 1,264 1,389-9% 1,272-1% 1,268 1,405-10% 1,385 Corporate 2,498 2,387 5% 2,446 2% 2,516 1,948 29% 2,138 Total 3,762 3,776 0% 3,718 1% 3,784 3,353 13% 3,523 JANUARY SEPTEMBER COMPARED WITH JANUARY SEPTEMBER Earnings performance Operating profit fell to SEK 24 million (305) due to an increase in loan losses to SEK -467 million (-109). Profit before loan losses rose by 19 percent to SEK 491 million (414). Profits were adversely affected by the Swedish krona strengthening by 10 percent against the euro. Net interest income fell by 3 percent but expressed in local currency, net interest income grew by 8 percent, due to higher lending margins. Net fee and commission income rose by 31 percent or SEK 68 million, mainly due to increased commission on credit commitments. Expenses fell by 2 percent, which was entirely attributable to the strengthening of the Swedish krona. Loan losses increased and were SEK -467 million (-109), which corresponds to a loan loss ratio of 0.58 percent (0.12). Business development Handelsbanken has the most satisfied private and corporate customers among commercial banks in Finland, according to the EPSI customer satisfaction survey. Credit demand from companies was weak for most of the period and the average volume of corporate lending fell by 8 percent to EUR 6.7 billion. Loans to households rose, however, by 4 percent to EUR 3.2 billion. COMPARED WITH Operating profit rose by SEK 398 million to SEK 131 million (-237), which in its entirety is due to loan losses dropping to SEK -25 million (-413). Income and expenses were impacted by the Swedish krona appreciating by 4 percent compared to the previous quarter. Income decreased by 5 percent to SEK 343 million (362), partly attributable to exchange rate movements. Lending margins continued to improve, while the change in volumes was negative. The average volume of lending decreased by 1 percent, due to lower credit demand from companies. 15 Handelsbanken

16 INTERIM REPORT JANUARY SEPTEMBER Branch office operations in Norway INCOME STATEMENT Change Change Change Net interest income % 629 1% 1,950 2,040-4% 2,775 Net fee and commission income % 80-11% % 289 Net gains/losses on financial items at fair value % % 87 Other income % Total income % 727 1% 2,263 2,328-3% 3,143 Staff costs % % % -593 Other administrative expenses % % % -255 Internal purchased and sold services % % % -188 Depreciation and amortisation % % % -16 Total expenses % % % -1,052 Profit before loan losses % 468 1% 1,465 1,539-5% 2,091 Net loan losses % % -416 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% Operating profit % % 1,394 1,290 8% 1,675 Profit allocation % 24-25% % 91 Operating profit after profit allocation % % 1,444 1,338 8% 1,766 Average number of employees % 616 0% % 625 Number of branches % 48 0% % 48 BUSINESS VOLUMES Average volumes, NOK bn Change Change Change Loans to the public Household % % % 50.1 Corporate % % % Total % % % Deposits and borrowing from the public Household % 9.4 5% % 8.6 Corporate % % % 34.3 Total % % % 42.9 JANUARY SEPTEMBER COMPARED WITH JANUARY SEPTEMBER Earnings performance Operating profit rose by 8 percent to SEK 1,394 million (1,290), due to lower loan losses. Profit before loan losses decreased by 5 percent to SEK 1,465 million (1,539). Net interest income fell by SEK 90 million or 4 percent, partly due to the notice period applicable to customers when Norges Bank increases its key rates and to currency effects. Net interest income was affected by expenses of SEK -37 million (-29) relating to the Swedish Stabilisation Fund and of SEK -6 million (-6) relating to the Norwegian deposit guarantee. Expenses rose by 1 percent to SEK 798 million (789) and the C/I ratio was 35.3 percent (33.9). The average number of employees fell by 1 percent and staff costs rose by 2 percent. Loan losses went down to SEK -71 million (-249), and the loan loss ratio was 0.05 percent (0.19). Business development Handelsbanken is at the top among both private and corporate customers in the EPSI customer satisfaction survey for Norwegian banking customers. The average volume of lending to households increased by 11 percent and Handelsbanken gained market share. Deposits from households grew by 9 percent. Loans to companies fell by 3 percent. COMPARED WITH Operating profit decreased by 10 percent due to higher loan losses. Profit before loan losses rose by 1 percent to SEK 471 million (468). Net interest income improved by 1 percent, or SEK 5 million, to SEK 634 million (629). Staff costs were unchanged while the average number of employees rose by three persons. The C/I ratio was 36.0 percent (35.6). Net loan losses amounted to SEK -37 million (14), which corresponds to a loan loss ratio of 0.08 percent (-0.02). 16 Handelsbanken

17 INTERIM REPORT JANUARY SEPTEMBER Handelsbanken International INCOME STATEMENT Change Change Change Net interest income % 248-5% % 1,219 Net fee and commission income % 108 6% % 573 Net gains/losses on financial items at fair value Other income % 1 100% % 14 Total income % % 1,075 1,434-25% 1,845 Staff costs % % % -704 Other administrative expenses % % % -265 Internal purchased and sold services % % % -211 Depreciation and amortisation % -3 0% % -15 Total expenses % % % -1,195 Profit before loan losses % % % 650 Net loan losses % % -99 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit % % % 551 Profit distribution % 17 0% % 97 Operating profit after profit allocation % % % 648 Average number of employees % 603 1% % 670 Number of branches % 32 0% % 35 BUSINESS VOLUMES Average volumes, SEK bn Change Change Change Loans to the public Household % 3.9-1% % 4.0 Corporate % % % 77.8 Total % % % 81.8 Deposits and borrowing from the public Household % 3.4-6% % 4.1 Corporate % % % 38.1 Total % % % 42.2 JANUARY SEPTEMBER COMPARED WITH JANUARY SEPTEMBER Earnings performance Operating profit decreased to SEK 30 million (458), a result of the Bank making a provision of SEK 335 million during the first quarter for a previously identified risk exposure. Profit before loan losses fell by SEK 199 million to 351 million (550). Profits were adversely affected by the Swedish krona strengthening during the period. Income decreased by 25 percent, due to the fact that some business in New York which is now part of Central Treasury was included in the period of comparison, but also to lower lending volumes. The currency effect was SEK -110 million. Expenses fell, due partly to exchange rate movements and also because the average number of employees fell by 77. Business development The main task of Handelsbanken International is to support the Bank s customers in the Nordic region and Great Britain with their international business and, in the long term, to develop prioritised countries operations into regional banks in line with the Bank s business model. The Bank had 32 branches and four representative offices in 17 countries outside the Nordic countries and Great Britain. In the Netherlands, where the bank has five branches, three managers were recruited for new branches. The average volume of corporate lending decreased by 29 percent to SEK 58.4 billion (82.2), which is partly attributable to exchange rate movements but also to a deliberate reduction of lending volumes in order to make the utilisation of the Bank s capital more efficient. During the first quarter, deposits were moved from Handelsbanken International to Central Treasury, mainly from insurance and mutual fund management companies. This is the main reason that deposits from companies decreased by SEK 23.4 billion. COMPARED WITH Operating profit fell to SEK 99 million (131). Profit before loan losses fell by 30 percent, primarily due to lower net gains/losses on financial items. The strengthening of the Swedish krona against most other currencies also had a negative effect on earnings. 17 Handelsbanken