CONTENTS. AS Sampo Pank Annual Report

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3 CONTENTS Introduction 5 Management Report 6 Description of the Consolidated of AS Sampo Pank Important Economic and ing Events in the Year 2005 Business Results of the Consolidated of AS Sampo Pank Other important information Risks and Internal Control Systems Ratings Lawsuits Financial Ratios Financial Statements 17 Declaration of the Management Board 62 Approval of the Supervisory Board 63 Additional documents to the Annual Report Auditor s Report 64 Proposal for the Distribution of Profit 65 AS Sampo Pank Annual Report

4 SUPERVISORY BOARD, MANAGEMENT BOARD OF AS SAMPO PANK Supervisory Board of AS Sampo Pank Georg Schubiger Gintautas Galvanauskas Petri Kalervo Niemisvirta Jukka Edvin Ohls Markku Pehkonen Risto Tornivaara Härmo Värk Chairman of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Management Board of AS Sampo Pank Aivar Rehe Chairman of the Management Board Ivar Pae Member of the Management Board Chief Financial Officer Indrek Puskar Member of the Management Board Director of Corporate Services Division Margus Zhuravljov Member of the Management Board Director of Personal and Retail ing Division 4

5 INTRODUCTION General Information on AS Sampo Pank Business name: AS Sampo Pank Address: Narva mnt 11, Tallinn, the Republic of Estonia Register code: Register: Commercial Register of the Republic of Estonia Filing date: 31 May 1996 Phone: Fax: Auditors Hanno Lindpere, authorised auditor since 1998 Tiina Sõmer, authorised auditor since 1998 Ernst & Young Baltic AS Rävala 4, Tallinn Register code: The beginning of reporting period is 01 January 2005 and the end of reporting period is 31 January The reporting period is 12 months. The balance sheet date of the report is 31 December The reporting currency is Estonian kroon and figures are presented in millions of kroons. Abbreviations used in the present Annual Report are as follows: Sampo Pank or the in the meaning of AS Sampo Pank; The in the meaning of the Consolidated of AS Sampo Pank. AS Sampo Pank Annual Report

6 MANAGEMENT REPORT DESCRIPTION OF THE CONSOLIDATED GROUP OF AS SAMPO PANK Business name Main business activity 1. Register code 2. Register 3. Registration date Address Ownership percentage AS Sampo Pank ing services Commercial Register of the Republic of Estonia Narva mnt Tallinn AS Sampo Liising 1 Leasing services Commercial Register of the Republic of Estonia Narva mnt Tallinn 100 SIA Sampo Lizings (under liquidation) Leasing services Company Register of the Republic of Latvia Tomsona iela 11 LV-1013 Riga 100 Sampo Kinnisvarahalduse AS Property management Commercial Register of the Republic of Estonia Narva mnt Tallinn 100 Sampo Baltic Asset Management AS Asset management services, Fund manager Commercial Register of the Republic of Estonia (The District Court of Tartu, Reg. Dep.) Narva mnt Tallinn In 2005, AS Sampo Liising was merged with the parent: in accordance with the merger agreement the merger date was 30 June 2005 and the respective entry concerning the merger was made in the commercial register on 3 January Until the balance-sheet date of the merger AS Sampo Liising was recognized at fair value in the separate balance sheet of the parent and from the balance-sheet date of the merger the assets and liabilities as well as income and expenses of the company being acquired have been included in the separate financial statements of the parent line by line. The merger of AS Sampo Liising with the parent did not have any impact on the consolidated financial statements. There is no difference in the structure of AS Sampo Pank and the Consolidated of AS Sampo Pank. 6

7 IMPORTANT ECONOMIC AND BANKING EVENTS IN THE YEAR 2005 Estonian Economic and ing Environment in 2005 Broad-based growth In 2005, Estonia s economy continued to grow at a brisk pace. Estonia excelled in the EU as one of the fastest growing countries, with a GDP growth of ca 9%. The rapid economic growth was boosted by favourable trends in world trade, foreign investment inflow, and low interest rates in the euro area. Furthermore, as last year was the first full year for Estonia in the EU, the advantages of being a member of the single market were more notable than ever. The combined effect of the aforementioned factors supported broad-based economic growth, which could not be considerably hindered even by the surging oil prices. The highest growth figures were reported by the export sector, primarily by goods export, which accelerated to 30%. The thriving development of export reduced Estonia s foreign trade deficit, thus contributing to the improvement of the external balance. The current account deficit decreased to 10% of GDP. Consumption and investments also thrived along with export. An increase in private consumption was supported by improved employment and a substantial rise in income. The growth of household disposable income was attributable to a 10% growth of gross wages, on average, and the simultaneous reduction in the rate of income tax to 24%. Consumption activity was also supported by low interest rates. Growth in the building sector was boosted by a great demand for housing. Investments in residential building increased most rapidly in A strong demand, in combination with favourable credit conditions, on the one hand, and some bottlenecks on the supply side, on the other hand, resulted in a rapid rise in real estate prices and building rates, indicating that the housing market was close to overheating. Nevertheless, residential building was not, by far, the only contributor to increased investments. Investments made in industry, the transport, logistics and energy sectors, also increased substantially. Investments into infrastructure were strongly supported by increased financing from the EU Structural Funds. Due to the increased saving, the relative share of domestic savings in the funding of investments rose: Nevertheless, the majority of capital investments were still financed from foreign savings. The demand for labour increased and the rate of unemployment decreased due to the country s fast economic growth. Last year, the unemployment rate dropped below 8%. At the same time, labour shortage became more evident in a number of sectors, being further aggravated because of greater opportunities to find work elsewhere in the EU. Stronger-than-expected economic growth and improved tax discipline resulted in a surplus of 2.5 billion EEK in tax revenues. In total, the public sector surplus amounted to approximately 2% of GDP. A government budget surplus and low loan commitments placed Estonia among the countries in the strongest financial position in the EU. Inflation was most strongly affected by the oil price increase Although the direct impact of Estonia s EU membership on prices has remained quite modest, it has speeded up the price convergence process. Last year s inflation rate of 4.1% was, however, largely driven by the increased fuel and energy prices, caused by higher oil prices. At the same time, more expansionary monetary conditions due to the inflow of foreign funds and fast growth in domestic credit contributed to the strengthening of the demand side pressures on prices. This was reflected in last year s accelerated core inflation (consumer prices, excluding food and energy). Buoyant economic activity was accompanied by an expansion in loans and growth in savings Buoyant economic activity was accompanied by an increased demand for investment that was also reflected in the greater need for borrowing. The annual growth of the debt of the real sector companies, financed by local Estonian banks and leasing companies, accelerated to 47%. The fast increase in the latter was, not only caused by the factors characterising high economic activity, but also due to the preference for domestic financing rather than foreign borrowing. AS Sampo Pank Annual Report

8 In 2005, the development was most rapid in the private loan market, supported by a strong demand for housing loans. While the decrease in nominal interest rates halted during the second half-year, increased income and favourable loan conditions still supported the demand for housing loans until the end of the year. A continuing rise in euro interest rates together with the tightening of the banks capital coverage requirements for home mortgages imposed by the of Estonia will, however, gradually dampen growth in borrowing and real estate prices. Therefore the peak in loan growth is presumably behind us. Apart from increasing household loan commitments, saving capacity also improved considerably last year. savings accounts reached their highest level for the last four years. Also, savings to pension funds increased considerably. Savings made into the second and third pillar amounted to approximately six billion EEK or 3.6% of GDP by the end of the year. The banking market, as a whole, is still characterised by tough competition. Last year, some changes also took place among the owners of the banks, resulting in an increased relative share of assets controlled by foreign owners, which amounted to almost 100% in the Estonian banking sector. At the same time, Estonian banking groups became more active in foreign markets, mostly in the Baltics. Due to the forthcoming entry into the euro zone, preparations for a smooth adoption of the euro were started in the banking sector The Government of the Republic and the of Estonia intend to adopt the euro at the first possible opportunity, provided that Estonia is able to meet all the established requirements. It is expected to take place on 1 January Important ing Events of the Consolidated of AS Sampo Pank On 27 January 2005, Markku Pehkonen, Senior Vice President and Head of Asset & Liability Management of Sampo plc, was elected as a new member of the Supervisory Board of Sampo Pank according to the decision adopted by Sampo plc, the sole shareholder of Sampo Pank. On 1 April 2005 Indrek Puskar commenced work as Director of the Corporate Services Division of Sampo Pank. At the same time, I.Puskar continued to fulfil his responsibilities as the Chairman of the Management Board of AS Sampo Liising. On 11 April 2005, Sampo Pank and Kreditanstalt für Wiederaufbau (KfW) from Germany concluded a loan agreement worth EUR 15 million on the financing of projects implemented by local municipalities in Estonia. The loan that is part of the program for infrastructure investments in Estonia with the EU support under the municipal finance facility is partly refinanced by the Council of Europe Development (CEB). On 5 May 2005 Sampo Pank and AS Sampo Liising concluded an agreement on the merger of AS Sampo Liising with Sampo Pank. As a result of the merger, the assets and liabilities of AS Sampo Liising was transferred to Sampo Pank. On 15 September 2005, at the meeting of the Supervisory Board of Sampo Pank Indrek Puskar was elected as a new member of the Management Board of Sampo Pank. The rest of the membership of the Management Board of Sampo Pank remained unchanged - Härmo Värk, Chairman of the Management Board; Ivar Pae, Chief Financial Officer and Margus Zhuravljov, Director of the Personal and Retail ing Division. On 3 January 2006, the merger of AS Sampo Liising with Sampo Pank, initiated in May 2005, was completed with making the respective entry in the commercial register. Sampo Pank continued using the trademark of Sampo Liising in providing leasing services to its customers. Alar Kiilmaa, the former Chief Financial Officer of AS Sampo Liising, was appointed as Director of the Lease Finance Division of Sampo Pank. On 4 January 2006, the Supervisory Board of Sampo Pank recalled Härmo Värk from the Management Board of Sampo Pank due to his appointment to Sampo s Baltic Management. Aivar Rehe was elected as a new member of the Management Board of Sampo Pank. Mr Rehe, who was appointed as Chairman of the Management Board, commenced work on 16 January On 30 January 2006, Sampo plc, the sole shareholder of Sampo Pank, elected Härmo Värk as a member of the Supervisory Board of Sampo Pank. The present membership of the Supervisory Board of Sampo Pank is as follows: Georg Schubiger (Chairman); Gintautas Galvanauskas, Petri Kalervo Niemisvirta, Jukka Edvin Ohls, Risto Tornivaara, Markku Pehkonen and Härmo Värk (members). 8

9 BUSINESS RESULTS OF THE CONSOLIDATED GROUP OF AS SAMPO PANK Income statement analysis The s net profit for 2005 totalled EEK million (2004: EEK m), an increase of 59.8% from the prior year. This increase is largely attributable to the fast growth of business volumes, improved cost efficiency and an additional low volume of allowances for loan impairment. Return on equity and return on assets were 23.2% (18.5%) and 1.5% (1.3%), respectively. Income The s income amounted to EEK million at the end of 2005 (2004: EEK m), experiencing an increase of 26.7% over the prior year. The composition of income was as follows: net interest income, 62.9% (65.3%); net fee and commission income, 21.3% (21.1%); other income, 15.8% (13.6%). Net Interest Income The s net interest income totalled EEK million (2004: EEK m), a gain of 22.1% compared with last year. Interest income amounted to EEK million (EEK 427.7m), an increase of 28.6%, and interest expense totalled EEK million (EEK m), an increase of 40.1% over the prior year. Return on interest earning assets decreased to 4.9% (5.5%), due to the overall decline in loan interest margins. Expense on interest bearing liabilities was 2.1% (2.0%). Net interest margin before allowances for loan impairment was 3.0% (3.4 %). Net Fee and Commission Income The s net fee and commission income totalled EEK million (2004: EEK 88.1 m), an increase of 28.0% compared with the prior year. Fee and commission income amounted to EEK million (EEK m), rising 30.0% from the prior year. Fee and commission expense reached EEK 46.6 million (EEK 34.5 m), a gain of 35.0%. The rise in net fee and commission income is largely attributable to the increased volumes of pension and investment funds, managed by the, as well as increased fee and commission income, due to the growing number of banking operations. Other Income The s other income totalled EEK 83.5 million (2004: EEK 56.9 m), a 46.8% rise from the prior year. Income from foreign exchange transactions and income from other financial transactions amounted to EEK 35.3 million (EEK 23.6 m) and EEK 33.4 million (EEK 22.6 m), respectively. Income from foreign exchange transactions increased by 49.9 % and income from other financial transactions gained 48.1%. Other operating income amounted to EEK 14.8 million (EEK 10.8 m), rising 37.5% over the year. Allowances for Loan Impairment Allowances for loan impairment totalled EEK 9.5 million in 2005 (2004: EEK 28.2 m). At the same time, EEK 1.3 million (EEK 1.1 m) was recovered from the write-offs of previous years. Net loan allowances amounted to EEK 8.2 million (EEK 27.1 m), which is 69.9% less than in the prior year. Operating Expenses The s operating expenses totalled EEK million at the end of 2005 (2004: EEK m), an increase of 23.3% compared with last year. The composition of operating expenses was as follows: personnel expenses, 48.5% (50.8%); other administrative expenses, 41.7% (36.5%); depreciation, 7.5% (7.9%); other operating expenses, 2.3% (4.7%). Administrative Expenses General administrative expenses amounted to EEK million at the end of 2005 (2004: EEK m), experiencing an increase of 27.3% over the prior year. AS Sampo Pank Annual Report

10 Personnel expenses accounted for 53.8% (58.2%) and other administrative expenses comprised 46.2% (41.8%) of general administrative expenses. The ratio of general administrative expenses to average total assets improved to 2.7% (2.9%). Personnel expenses totalled EEK million (2004: EEK m), a gain of 17.6% over the prior year. The average number of employees increased by 13.4%, to 559 persons (2004: 493 persons). Other administrative expenses amounted to E E K m i l l i o n ( : E E K m ), r i s i n g 40.8% from the prior year. This growth is largely attributable to the expansion of the office network, greater investments in information technology and increased advertising expenses. The largest expense items of other administrative expenses were: communication and data processing expenses, 36.0% (30.5%), and advertising expenses, 16.4% (14.9%). Other Operating Expenses and Depreciation Other operating expenses totalled EEK 8.0 million (2004: EEK 13.4 m), a decrease of 40.6% compared with the prior year. Depreciation totalled EEK 26.4 million (EEK 22.3 m), an increase of 18.1%. The s cost efficiency improved in the cost/income ratio was 66.0% (67.8%). Balance Sheet Analysis The s total assets amounted to EEK 14.0 billion at the end of 2005 (2004: EEK 9.7 m), an increase of 44.5% over the prior year. The loan portfolio as well as deposits increased substantially, due to Estonia s fast economic growth and favourable loan conditions. Assets The share of the loan portfolio in the assets increased to 79.9% (75.3%), while the share of liquid assets and securities declined to 18.4% (22.5%). Securities and Liquid Assets Total liquid assets amounted to EEK 2.6 billion at the end of 2005 (2004: EEK 2.2 b), an increase of 18.4% compared with last year. The composition of liquid assets was as follows: debt securities and fixed income securities, 49.0% (51.5%); claims and loans to the Central, 34.5% (22.9%); claims and loans to credit institutions, 13.7% (23.0%); cash, 2.8% (2.5%). The total volume of debt securities and fixed income securities amounted to EEK 1.3 billion at the end of 2005 (2004: EEK 1.1 bn), an increase of 12.5% over the prior year. Claims and loans to the Central totalled EEK 0.9 billion (EEK 0.5 bn), an increase of 78.6%, and claims and loans to credit institutions amounted to EEK 0.4 billion (EEK 0.5 bn), a decrease of 29.7%. Lending The s gross loan portfolio amounted to EEK 11.2 billion at the end of 2005 (2004: EEK 7.3 bn), a gain of 53.4% over the year. The growth of loans to private persons outpaced that of loans to companies. At the end of 2005, the share of loans to private persons represented 47.6% (42,8%) and that of loans to companies comprised 49.6% (54.1%) of the gross loan portfolio. Loans to private persons reached EEK 5.3 billion (2004: EEK 3.1 bn), an increase of 70.8%, and loans to companies totalled EEK 5.6 billion (EEK 3.9 bn), a gain of 40.8% over the prior year. Mortgage loans represented 74.1% of the loan portfolio of private persons. The margins of the mortgage loans, granted in 2005, declined by 1.2 percentage points compared with last year. The average maturity of mortgage loans was 21 years. Allowances for Loan Impairment and Overdue Loans The ratio of total allowances for loan impairment to the gross loan portfolio was 0.9% at the end of 2005 (2004: 1.6%). The share of overdue loans in the gross loan portfolio and in the assets was 5.0% (5.9%) and 4.0% (4.4%), respectively. Total allowances for loan impairment made up 18.6% (27.5%) of overdue loans. 10

11 Fixed and Other Assets Tangible and intangible assets together accounted for 1.0% (2004: 1.6%) of total assets. Tangible assets declined to EEK million (143.7 m), or 8.5% from the prior year. Intangible assets amounted to EEK 10.0 million (EEK 9.6 m), experiencing an increase of 3.7%. Other assets totalled EEK 22.4 million at year-end 2005 (EEK 53.9 m), a decrease of 58.5% compared with the prior year. Liabilities and Owners Equity The s total liabilities increased to EEK 13.1 billion by the end of 2005 (2004: EEK 9.1 bn), or 44%. Client deposits represented the largest share of total liabilities, accounting for 64.1% (56.3%), followed by amounts owed to credit institutions, comprising 24.6% (33.2%). The share of other liabilities made up 11.3% (10.4%) of total liabilities. Client Deposits The total volume of client deposits amounted to EEK 8.4 billion at the end of 2005 (2004: EEK 5.1 bn), a gain of 64% over the prior year. As the growth of deposits outpaced that of the loan portfolio, the ratio of the total loan portfolio to the deposits decreased to 134% (143%). Demand deposits totalled EEK 3.8 billion (2004: 2.6 bn), an increase of 44.2% from the prior year. Time deposits amounted to EEK 4.6 billion (EEK 2.5 bn), an increase of 84.9% over the year. Demand deposits represented 45.3% (51.5%) and time deposits comprised 54.7% (48.5%) of total client deposits. The composition of client deposits was as follows: private company deposits, 55.8% (57.4%); deposits of private persons, 23.9% (26,2%); deposits of other customers, 20.3% (16.4%). The deposits of private persons totalled EEK 2.0 billion at the end of 2005 (2004: EEK 1.3 bn), a gain of 49.6% over the year. The demand deposits of private persons experienced a strong growth of 77.7%, reaching EEK 0.9 billion at the end of 2005 (EEK 0.5 bn). This growth is attributable to a substantial customer volume growth. The time deposits of private persons amounted to EEK 1.1 billion (EEK 0.9 bn), an increase of 33.6% over the prior year. The total volume of private company deposits amounted to EEK 4.7 billion (EEK 2.9 bn), experiencing an increase of 59.3% over the year. As for the deposits of private companies, time deposits amounted to EEK 1.9 billion (EEK 1.0 bn) and demand deposits totalled EEK 2.8 billion (EEK 2.0 bn). The deposits of other customer groups represented 20.3% (16.4%) of total client deposits, amounting to EEK 1.7 billion at year-end 2005 (EEK 0.8 bn). Loans from s and Other Liabilities Loans from banks totalled EEK 3.2 billion at the end of 2005 (2004: EEK 3.0 bn), experiencing an increase of 6.4% over the previous year. Other liabilities amounted to EEK 7.1 million (EEK 11.1m), declining by 36.5%. Issued Debt Securities and Subordinated Liabilities The volume of issued debt securities reached EEK million at year-end 2005 (2004: EEK m), experiencing a gain of 147.4%. Subordinated liabilities totalled EEK million (EEK m), an increase of 40.6%. Owners Equity The owners equity of the amounted to EEK million at the end of 2005 (2004: EEK m), a gain of 51.3% over the prior year, as a result of increased share capital and higher profits. Capital adequacy was 12.4% (11.8%) as at the end of AS Sampo Pank Annual Report

12 OTHER IMPORTANT INFORMATION Shareholders of Sampo Pank As at Sampo plc owned 100% of Sampo Pank s shares ( shares). Dividend Policy Sampo Pank intends to retain profit for The total profit will be reinvested in order to finance the development of the business operations of the and its subsidiaries. Development Costs In 2005 s development costs amounted to EEK 43.5 million. The s development costs budgeted for 2006 total EEK 54.5 million. Remuneration of the Management and Supervisory Board Salaries and fringe benefits paid to the members of the management and supervisory boards of the s subsidiaries totalled EEK 9.5 million (taxes included) in the reporting period. Remuneration and the Average Number of Employees Development trends in 2006 Sampo Pank is a full service universal bank that implements Sampo plc s banking strategies in Estonia. The expects the Estonian loan market to continue to expand rapidly also in The aim of the is to effectively increase its market shares in the segments of retail and corporate banking as well as in the public sector segment. Considering the growing interest of private persons in savings and investment products, the is going to focus more on the development and improvement of these products in cooperation with Sampo Baltic Asset Management AS and AS Sampo Elukindlustus. In addition to providing credit and lease services to corporate customers, the is going to concentrate more on the development of settlement services in cooperation with the other Sampo banking units in the Baltics as well as in Finland. In view of the forthcoming adoption of the euro, presumably from 1 January 2007, the is going to carry out additional activities concerning banking technology and the main processes. In the medium term, the aims to generate value by profitably increasing its market share in the main business segments. Cost-efficient business operations and adherence to prudent business practice serve to achieve the goal. Salaries and fringe benefits to the employees of the in the reporting period totalled EEK 169 million (taxes included). The average number of persons employed by the during the year was

13 RISK MANAGEMENT AND INTERNAL CONTROL SYSTEMS Risk Management - See Financial Statements Note 2 on page 29 Internal Control Systems The internal control system, which forms an integral part of the management processes of the and the, is defined as a set of measures applied by the management in order to design, plan, organize and manage sufficient activities that ensure with reasonable assurance efficient operations of the in accordance with relevant laws and regulations, as well as the reliability of disclosed information. The s internal control system is primarily governed by the principles stipulated in the Credit Institutions Act of the Republic of Estonia and risk management policies of Sampo plc. The policy statements approved by the s Supervisory Board (the Financial Policy Statement, the Credit Policy Statement and the Operational Risk Policy Statement) determine the risk level acceptable to the owners (i.e. the risk profile). In running and developing the operations of the, s the Management Board is guided by the restrictions established in accordance with the risk profile. An efficient internal control system serves the following purposes: gives assurance to the management that the established risk profile is adhered to and informs the management of the necessity to revise the policy statements in accordance with the latest developmens in the business environment. The internal control system, which covers the activities of the entire, forms an integral part of the main and supportive processes going on in the companies of the. The internal control system is part of the management system and it is the responsibility of the managers of different levels and business areas to ensure that this system is established and applied efficiently. Each management level performs certain tasks in the internal control system. More detailed control is conducted in the form of daily controls within the business process, the functioning of which is ensured by means of random inspection controls (or monitoring). In addition to the daily functioning internal control system, there are several units and bodies in the that perform control functions the s Supervisory and Management Boards, several committees (incl. the ORCO, the ALCO, the IT Steering Committee) and the independent Internal Audit Department (hereinafter the IAD ) The coordinated activities of the s Supervisory and Management Boards and the IAD ensure the efficient functioning of the internal control system: The s Supervisory Board performs supervision over the activities of the and its subsidiaries, monitoring the activities of management boards, approving the s strategy and the general risk management principles. The Management Board is responsible for running the daily business of the, determining the scope of the competence and responsibility of each management level, for approving job descriptions, internal regulations and procedure rules. The members of the Management Board bear responsibility for the implementation of the approved action plans and for adherence to the established procedure rules. The activities of the IAD are aimed at giving reasonable assurance to the s management that the existing risk management system, the internal control system and management processes have been established as required and function efficiently. The s IAD is part of the joint internal audit function of the Sampo plc. According to the s organizational chart, the IAD is directly subordinated to the Chairman of the s Management Board, but functionally, it is subordinated to the s Supervisory Board. The IAD s annual action plan is approved by the s Supervisory Board. In accordance with AS Sampo Pank s Charter of Internal Auditing, approved by the s AS Sampo Pank Annual Report

14 Supervisory Board, the IAD is obliged to submit a report on the detected shortcomings and the recommendations for the liquidation and prevention of these shortcomings to the s Management Board and to the Head of Internal Audit of Sampo plc at least once a quarter and to the s Supervisory Board at least once a half-year. The internal audit function is managed and the internal auditing process is performed pursuant to the legal acts of the Republic of Estonia, the Constitution of AS Sampo Pank, the Code of Ethics and the Statement of Internal Auditing Standards (SIAS), the guidelines developed by Sampo plc (e.g. the Guidelines of Sampo Internal Audit) and the internal regulations of AS Sampo Pank. The operations of the and the are regularly supervised by various authorities (e.g. the Financial Supervision Authority, Sampo plc etc.), and once a year, audited by an independent auditing company. In the course of audits, external auditors examine the s and the s internal control system and familiarize themselves with the results of the audits performed by the IAD. Based on the information gathered as a result of the audits, external auditors submit to the B ank s Management B oard a report containing their observations and, if necessary, also recommendations for the improvement of the existing internal control system. RATINGS Rating history of Sampo Pank: Moody s Investors Service Long-term deposit rating A2 A2 A3 Short-term deposit rating P-1 P-1 P-2 Financial strength rating D D D On 9 July 2003, Moody s Investors Service placed on review for possible upgrade the A3/Prime2 ratings of Sampo Pank following the rating upgrade of Sampo plc (Finland). At the same time the agency confirmed the D financial strength rating of Sampo Pank with its existing positive outlook. On 1 November 2004, Moody s upgraded the longterm and short-term deposit ratings of AS Sampo Pank to A2/P-1 from A3/P-2. Sampo Pank s financial strength rating D remained positive. Short descriptions of the levels of ratings are presented on the homepage of the rating agency All assigned ratings and changes made in the previous ratings are also published on the homepage. LAWSUITS In 2005, neither the nor any of its subsidiaries were involved in any lawsuits, which could incur considerable losses to them. 14

15 FINANCIAL RATIOS In millions of kroons, except for efficiency ratios and share figures For the period Total income Net interest income Net fee and commission income Operating expenses Allowances for loan losses Net profit Total at period-end Total assets Loan portfolio Deposits Equity Share of net loan portfolio in assets 79.7% 74.3% 79.9% 75.3% Loan portfolio / deposits 133% 141% 134% 143% Equity multiplier Per common share (in kroons) Basic earnings per share, at an average number of shares Book value at period-end Efficiency ratois Return on equity 23.8% 18.5% 23.2% 18.5% Return on assets 1.5% 1.3% 1.5% 1.3% Assets utilisation 6.6% 6.7% 6.8% 7.2% Interest income on average assets 4.8% 4.9% 4.9% 5.5% Interest expenses on interest-bearing liabilities 2.1% 2.0% 2.1% 2. 0% Net interest margin 2.9% 2.8% 3.0% 3.4% Interest spread 2.7% 3.0% 2.8% 3.5% Profit margin 22.7% 19.2% 21.7% 17.7% Cost/income ratio 64.1% 65.9% 66.0% 67.8% Definitions of key indicators: Total income: interest income, fees and commissions revenue, net profit from financial transactions Net interest income = interest income interest expense + net profit from securities at fair value through profit or loss + net profit (loss) from derivative instruments Equity multiplier = assets / equity Basic earning per share = net profit / average period-end number of shares Return on equity = net profit / average equity of the period Return on assets = net profit / average assets of the period Assets yield = total income / average assets of the period Interest income on average assets = interest income / average assets of the period Interest expenses on average interest-bearing liabilities = interest expenses / average interest-bearing liabilities of the period Net interest margin = net interest income before allowance / average assets of the period Interest spread = interest income / average interestearning assets of the period interest expenses / average interest-bearing liabilities of the period Profit margin = net profit / total income C o s t / i n c o m e r a t i o = ( g e n e r a l a d m i n i s t r a t i v e e x p e n s e s + value adjustments in tangible and intangible assets + other operating expenses) / (total income interest fee expenses) Computation of the efficiency figures is based on the financial year balance sheet averages. AS Sampo Pank Annual Report

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17 FINANCIAL STATEMENTS AS Sampo Pank Annual Report

18 BALANCE SHEET In millions of kroons, as at 31 December BANK GROUP Note ASSETS Cash Claims and loans Claims and loans to Central Claims and loans to credit institutions Claims and loans to clients 5, Leasing receivables 5,7, Allowance for claims and loans Securities at fair value through profit or loss Derivatives Other assets Prepayments and accrued income Shares of subsidiary undertakings Intangible assets Tangible assets Investment property TOTAL ASSETS LIABILITIES Amounts owed Amounts owed to credit institutions Amounts owed to clients Other amounts owed Derivatives Issued debt securities Other liabilities Accruals and deferred income Subordinated liabilities TOTAL LIABILITIES O W N E R S E Q U I T Y Share capital Paid-in capital over par Reserves Retained earnings TOTAL OWNERS EQUITY TOTAL LIABILITIES AND OWNERS EQUITY Adjusted due to the change in the presentation of subsidiary undertakings (see also Note 1). Notes on pages of this Annual Report form an integral part of the Financial Statements. 18

19 INCOME STATEMENT In millions of kroons, year ended 31 December BANK GROUP Note Interest income Interest income from banking activities Interest income from leasing activities Interest expense Interest expense from banking activities Net interest income Net fee and commission income Fee and commission income Fee and commission expense Net profit on financial operations General administrative expenses Salaries expense Social security tax expense Other administrative expenses Depreciation, amortisation and impairment of tangible and intangible assets and investment property 10,11, Impairment allowance Other operating income and expense Other operating income Other operating expenses PROFIT FOR THE FINANCIAL YEAR Basic earnings per share (in kroons) Diluted earnings per share (in kroons) Notes on pages of this Annual Report form an integral part of the Financial Statements. AS Sampo Pank Annual Report

20 CASH FLOW STATEMENT In millions of kroons, year ended 31 December BANK GROUP Note Cash flows from operating activities Profit for the financial year Profit adjustments Depreciation, amortisation and impairment of tangible and intangible assets and investment property Net interest income Allowances for loan and collateral impairment Changes in assets and liabilities related to operating activities Time deposits with credit institutions Claims to clients of credit institutions and leasing enterprises Securities at fair value through profit of loss and derivatives Other assets related to operating activities Liabilities to credit institutions, excl. loans Liabilities to clients of credit institutions Other liabilities related to operating activities Interest receipts Interest payments Total cash flows from operating activities Cash flows from investing activities Acquisition of tangible and intangible assets Disposal of tangible and intangibe assets Total cash flows from investing activities Cash flows from financing activities Proceeds from borrowed funds Repayments of borrowed funds Debt securities issued Paid upon redemption of debt securities Proceeds from subordinated loans Repayments of subordinated loans Cash proceeds from issuance of shares Total cash flows from financing activities Total cash flows Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents at end of year consist of: Cash Demand deposits with Central Demand deposits with credit institutions Notes on pages of this Annual Report form an integral part of the Financial Statements. 20

21 STATEMENT OF CHANGES IN OWNERS`EQUITY In millions of kroons Share capital Paid-in capital over par Mandatory reserve Retained earnings Total Number of shares Previously reported balance at 1 January Effect of adopting IAS Restated balance at 1 January Transfer to reserve Profit for the financial year Balance at 31 December Balance at 1 January Issue of new shares Transfer to reserve Profit for the financial year Balance at 31 December Share capital Paid-in capital over par Mandatory reserve Retained earnings Total Number of shares Balance at 1 January Transfer to reserve Profit for the financial year Balance at 31 December Balance at 1 January Issue of new shares Transfer to reserve Profit for the financial year Balance at 31 December The issued 15 million new shares, each with a nominal value of 10 kroons. The respective entry was made into the commercial register on 07 December The maximum share capital allowed by the Articles of Association of Sampo Pank is 900 million kroons, each with a nominal value of 10 kroons per share. If the retained earnings less the mandatory reserve as at 31 December 2005 formed from the profit for 2005, were fully distributed to the shareholders as dividends as as at 31 December 2005, income tax liability in the amount of million kroons would be incurred. The calculation of maximum possible income tax liability is based on the prerequisite that distributable net dividends and the incurred income tax expense must not exceed the distributable retained earnings as at Notes on pages of this Annual Report form an integral part of the Financial Statements. AS Sampo Pank Annual Report

22 NOTES TO THE FINANCIAL STATEMENTS Note 1 Accounting policies AS Sampo Pank, registered at Narva mnt 11, Tallinn, Estonia (reg.no ) is a limited liability credit institution, the sole shareholder of which was Sampo plc as at 31 December AS Sampo Pank employed 540 persons as at 31 December 2005 (2004:465). The main accounting principles applied in the preparation of these financial statements are set out below. 1. Basis of Preparation The consolidated financial statements of the Consolidated of AS Sampo Pank (the ) and the separate financial statements of the parent company AS Sampo Pank (the ) (hereinafter together also referred to as the financial statements ) have been prepared in compliance with the International Financial Reporting Standards (IFRS), as adopted by the EU. The financial statements have been prepared under the historic cost basis, except for financial assets and liabilities at fair value through profit or loss, derivatives and also investments in subsidiaries (in the s separate financial statements) which are measured at their fair value. According to the Estonian Business Code, the annual report, including the financial statements, prepa-red by the Management Board and approved by the Supervisory Board is authorized by the Shareholders General meeting. The shareholders hold the power not to approve the annual report and the right to request a new annual report to be prepared. From , several new and revised IFRS standards became effective. In the preparation of the current financial statements, the has adopted the following new / revised standards: IAS 1 IAS 2 IAS 8 Presentation of Financial Statements; Inventories; Accounting Policies, Changes in Accounting Estimates and Errors; IAS 10 Events after the Balance Sheet Date; IAS 16 Property, Plant and Equipment; IAS 17 Leases; IAS 21 The Effect of Changes in Foreign Exchange Rates; IAS 24 Related Party Disclosures; IAS 27 Consolidated and Separate Financial Statements; IAS 32 Financial Instruments: Disclosure and Presentation; IAS 33 Earnings per Share; IAS 36 Impairment of Assets; IAS 38 Intangible Assets; IAS 39 Financial Instruments: Recognition and Measurement; IFRS 3 Business Combinations; IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. In accordance with the revised and new standards the presentation, if applicable, has been changed as well (the presentation of comparative data has been also restated). The new and revised standards and interpretations, which have been adopted by EU before the balance sheet date, but are not effective yet (i.e. the Amendments to IAS 19 Employee Benefits Actuarial Gains and Losses, Plans and Disclosures ; IFRIC 4 Determining whether an Arrangement contains a Lease ; IFRS 6 Exploration for and Evaluation of Mineral Resources ; IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds ), do not have any effect on the accounting principles applied by the. 22

23 2. Presentation and Comparatives The same accounting principles and way of presentation that were used in the preparation of the prior year s financial statements have been used in the preparation of the present financial statements except for the accounting principles that derive from those new or revised standards that the is obliged to apply for annual periods beginning on or after Amendments made to the accounting principles derive from the application of revised IAS 27. In connection with the revision of IAS 27 it was prohibited to apply the equity method in the recording of investments in subsidiaries in the parent company s separate balance sheet starting from Investments in subsidiaries can be recorded in separate statements either at cost or at fair value. From the records investments in subsidiaries at fair value. The revised IAS 27 has been applied retroactively, as required. In accordance with the requirements of revised IAS 27 the adjusted the initial balances of retained earnings and investments in its subsidiaries in the amount of thousand kroons as at The adjustments of the initial balances did not have any impact on the s net profit for The remaining amendments made to the accounting principles due to the revision of IAS 27 that became effective on did not have any impact on size of the s and the s owners equity as at and net profit for Additionally, some smaller changes in the presentation of the present financial statements have been made in compliance with the requirements of the revised standards. The amendments that also required changing of the comparatives do not have any impact on the size of the s or the s owners equity as at and the business results of the financial year that ended on that date. 3. Cash and Cash Equivalents Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, including cash on hand and demand deposits with other credit institutions and the Central, on the use of which no substantial restrictions have been imposed. 4. Consolidation and Business Combinations Subsidiaries over which the holds control have been fully consolidated. In case the acquired or disposed a subsidiary some time in the middle of the year, the business results of the subsidiary are included in the consolidated financial statements only as from the date of obtaining control over the subsidiary or until the date of relinquishing control over it. The financial statements of subsidiaries are prepared for the same period as those of the and the and by using the same accounting principles. All intragroup transactions, balances and resulting unrealised profits/losses have been eliminated in the s consolidated statements. Business combinations are recorded at the date on which control is transferred to the using the purchase method of accounting, i.e. an amount equal to the fair value of the business combination on the date control is obtained, should be allocated to the identifiable assets acquired and the liabilities assumed (i.e. conditional liabilities). 5. Subsidiaries in the Separate Financial Statements of the Subsidiaries are recorded at fair value in the separate financial statements of the, while the respective changes in their fair value are recorded in the income statement. Fair value is the amount for which an asset or a liability could be exchanged or a liability settled, between knowledgeable, willing parties in an arm s length transaction. According to the estimates of the management the fair value of the subsidiaries is determined: a) with the same frequency, as presenting the reports to external users (e.g. once a month); and b) using book value of equity of subsidiaries. As its subsidiaries are an integrated part of the s AS Sampo Pank Annual Report

24 and the s operations and management does not have any intention to sell these investments, in the opinion of s management it is appropriate to use the book value of equity as a basis for fair value, except for Sampo Kinnisvarahaldus AS. The balance sheet of Sampo Kinnisvarahalduse AS includes the investment property (located in Pärnu), which is recorded using the cost model and therefore the book value of equity of this subsidiary has to be adjusted with difference between fair value and book value of the investment property. Profit/loss deriving from a change in the fair value of the subsidiary is recognized under Net profit on financial operations in the income statement. 6. Foreign Currencies The financial statements have been prepared in Estonian kroons (in millions of kroons) that is the accounting and presentation currency of the and the. The Estonian kroon (EEK) is pegged to the euro (EUR) at the rate of 1 EUR = EEK. All the other currencies except for the Estonian kroon are referred to as foreign currencies. Foreign-currency-based transactions are recorded by applying the exchange rate of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Estonian kroons at each balance sheet date, by applying the official exchange rates quoted by the of Estonia at the balance sheet date. Translation differences are recorded under Net profit on financial operations in the income statement for the period. Profit/loss from purchase and sale of currencies is also recorded as Net profit on financial operations in the income statement. Foreign currencies not quoted by the of Estonia are recorded in the balance sheet according to the exchange rate of the central bank of the respective country on the basis of the EUR exchange rate. 7. Derivatives Derivatives are financial instruments that are recorded at fair value in the balance sheet, while changes in their fair value are recorded in the income statement. Derivatives (e.g. spots, forwards and swaps, futures and options) are initially recognised in the balance sheet at their cost at trade date and subsequently measured at fair value. Fair values are determined on the basis of quoted market prices and the official exchange rates of the of Estonia. All derivatives are recorded as assets when their fair value is positive and as liabilities when fair value is negative. The nominal/contractual values of derivatives are recorded as off-balance sheet assets or liabilities and assets and liabilities from derivatives recorded in the balance sheet are not offset. Income and expenses on derivatives are recognised under Net profit on financial operations in the income statement. Income and expenses related to derivatives acquired for hedging purposes are recorded in the same group as the income/expenses of the underlying assets of the transaction. 8. Offsetting Financial assets and liabilities are offset and the net amount recorded in the balance sheet only if there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 9. Interest Income and Expense Interest income and expense (borrowing expenses) are recognised in the income statement on an accrual basis, using the effective interest method. Interest income includes coupon payments earned on fixed income securities and the amortisation of premium or discount of bonds and other zero coupon debt securities/bonds as well as analogous income on certain off-balance sheet instruments. 10. Fee and Commission Income Fee and commission income is recorded on an accrual basis. Fees related to loans (less direct expenses related to the loans) are taken into consideration while calculating the effective interest on the loan. 11. Securities Equity instruments (except for the equities whose fair value cannot be determined reliably), debt securities (except for the debt securities that are 24

25 intended to be held until maturity date) and other securities are financial assets that are recorded at fair value in the balance sheet, while changes in their fair value are recorded in the income statement. Securities are initially recognised in the balance sheet at cost at trade date and subsequently they are measured at fair value based on quoted market prices and the official exchange rates of the of Estonia. Purchase prices of the balance sheet date are used for listed securities. The fair value that is applied to unlisted securities is calculated on the basis of any information available to the about these securities. Income/loss deriving from, any change in the fair value of and the dividend as well as interest income received on the above-mentioned securities, is recognised under Net profit on financial operations in the income statement. 12. Loans and Impairment of Loans Disbursed loans (incl. leases) are recorded at cost at settlement date. Lease receivables (see accounting principle 27) include all finance leases and other claims arisen from financial transactions concluded by the leasing company (i.e. the subsidiary AS Sampo Liising until and the s Lease Finance Division from ) and they are subsequently accounted for at amortised cost, using effective interest rate. Allowances for loan impairment are recognised, if it is probable that the will not be able to collect all amounts in due time. The amount of the allowance is equal to the difference between the carrying amount of the lease receivable and the recoverable amount (including amounts recoverable from guarantees and collateral) which is the present value of expected future cash flows, discounted by the initial effective interest rate. Based on the experience, the interest receivables which are uncollectible are considered doubtful and since that time the recognition of interest income is finalised. Loan losses are estimated, based on earlier experience in the evaluation of different components of the loan portfolio, the credit ratings assigned to the borrowers and reflecting the current economic environment in which the borrowers operate. Allowances for loan impairment are recognised under Impairment allowance in the income statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the previously recognised impairment loss shall be reversed either directly or by adjusting an allowance account. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal shall be recognised in profit or loss. When a loan is uncollectible, it is recognised off the balance sheet together with the allowance recorded earlier. Subsequent recoveries are recognised as income under Impairment allowance in the income statement. Interest income is recorded under Interest income from banking activities in the income statement. 13. Other Financial Assets Other financial assets are the remaining assets which are not included under securities, loans and derivatives. Other financial assets, excluding debt securities that are held until maturity date, and other claims, are recorded at their fair value in the balance sheet. Debt securities that are held until redemption date and other claims are recognised in the balance sheet at amortised cost in the balance sheet. If the recoverable amount of the financial asset is less than its carrying value, the financial asset is written down to the recoverable amount and the respective cost is recognised under Impairment allowance in the income statement. The reversal of impairment is recognised on the same line of the income statement. 14. Tangible and Intangible Assets All tangible and intangible assets are recognised at acquisition cost wherefrom accumulated depreciation and impairment losses have been deducted, except for the intangible assets whose AS Sampo Pank Annual Report

26 useful lifetime has not been specified, that are measured at acquisition cost, wherefrom only accumulated impairment losses have been deducted. Tangible assets are assets whose acquisition cost exceeds 20 thousand kroons and the expected useful lifetime is over one year. Tangible assets whose acquisition cost is less than 20 thousand kroons are expensed at their acquisition. Based on the estimation of the management similar items of tangible assets can be initially recognised as a set of items. Depreciation on a tangible and a intangible assets is calculated from the moment of putting it into operation for the purpose planned by the management and depreciation will be completed either upon classifying the tangible asset as Tangible assets for sale or upon derecognition. The straight-line depreciation method is used with the rates being established as follows: Buildings Improvment of buildings Intangible assets Equipment, computers, cars Other tangible assets 2% p.a. 20% p.a. 25% p.a. 30% p.a. 20% p.a. The depreciable amount of an asset (i.e., cost of an asset less its residual value) is expensed over the expected useful life of an asset. Depreciation expense is recorded under Depreciation, amortisation and impairment of tangible and intangible assets and investment property in the income statement. At the end of the accounting period the remaining useful lifetime of essential tangible assets, the depreciation method used and non-depreciable residual values are estimated. In case the new estimations differ significantly from the initial ones, the useful lifetime, the depreciation method and/or residual values are adjusted prospectively. Depreciation calculation is suspended, if the nondepreciable residual value of the asset exceeds its carrying value. In case the tangible and/or the intangible asset declines, the asset is written down to its recoverable amount. In case the value of the fixed asset has recovered again, the expense which resulted from the write-down will be reversed. The impairment of either tangible or intangible asset as well as its reversal is recognized under Depreciation, amortisation and impairment of tangible and intangible assets and investment property in the income statement. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed, if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. Such reversal is recognised as a reduction of expenses in income statement when incurred. Subsequent expenditure related to tangible assets is added to the carrying value of the assets, if it is probable that economic benefit will be obtained from it and its acquisition cost can be measured reliably. If a certain part of the tangible asset is replaced in the course of improvement, the replaced part will be derecognised in the balance sheet. 15. Investment Property Investment property is land or a building or part of a building or both held to rental income or for capital appreciation or both. Investment property is measured using the historic cost basis, i.e. the same accounting principles that are applied in recognising tangible assets are also applied (see accounting principle 14). A particular asset is depreciated over its useful lifetime (40-50 years), using the straightline depreciation method. 16. Deposits Deposits are recorded under Amounts owed in the balance sheet at settlement date and relevant interest expenses are recognised under Interest expense from banking activities in the income statement. 17. Borrowings Borrowings are recorded under Amounts owed in the balance sheet at settlement date of the loan. 26

27 Borrowings are initially recognised at cost (net of direct transaction costs incurred) in the balance sheet and subsequently they are accounted for at amortised cost, using the effective interest rate. Transaction costs are taken into account at calculating the effective interest rate and they are amortised over the lifetime of the loan. The interest expense of the borrowings is recognised under Interest expense from banking activities in the income statement. 18. Debt Securities Issued Issued debt securities (incl. commercial papers) are initially recognised at cost in the balance sheet, being their issue proceeds net of transaction costs incurred, at trade date. Subsequently they are accounted for at amortised cost, using the effective interest rate. Transaction costs incurred are taken into account at the calculation of effective interest rate and are expensed over the period of the security. The relevant interest expense and the difference of the carrying value and the acquisition cost of the debt securities is recognised under Interest expense from banking activities in the income statement. 19. Subordinated Liabilities Subordinated liabilities are long-term liabilities which are reimbursed in case of the credit institution s bankruptcy or liquidation after the claims of other creditors have been met. Subordinated liabilities are initially recognised in the balance sheet at cost (net of direct transaction costs incurred) at settlement date. Subsequently they are accounted for at amortised cost, using the effective interest rate. Issuing costs are taken into account at the calculation of effective interest rate and are expensed over the period of the loan. Respective interest expense is recognised under Interest expense from banking activities in the income statement. 20. Income Tax Under the Income Tax Act of the Republic of Estonia no income tax is imposed on profit earned by companies, but it is imposed on disbursed dividends, certain payments and expenses indicated in the Income Tax Act. An income tax rate of 24/76 was imposed on dividends disbursed in An income tax rate of 23/77 will be imposed on dividends disbursed from 1 January 2006, while the tax rate will be lowered further by 1 per cent per annum, until it reaches the rate of 20/80 in As the disbursed dividends, but not the profit of the company are subject to income tax, there is no difference between the taxable and carrying residual values of assets and liabilities that would be subject to deferred income tax claim or liability. The potential income tax liability concerning the disposable owners equity which would arise, if the retained earnings were fully distributed to the shareholders is not recorded in the balance sheet. The maximum income tax liability incurred, if dividends were fully distributed, is presented in the statement of changes in owners equity. Income tax incurred by the distribution of dividends is recorded as expense in the income statement at the moment the distribution of dividends is announced. 21. Mandatory Reserve According to the Commercial Code, appropriations to the mandatory reserve have to be made each year (at a minimum of 5% of the net profit) until the reserve reaches 10% of the share capital. According to the decision of the general meeting of shareholders reserve capital may be used for covering losses (in case it is not possible to cover them at the expense of disposable owners` equity). Reserve capital can also be used for increasing share capital. 22. Reporting by Geographical and Business Segments The s primary segments are distinguished by business activities (banking activity, leasing activity, asset management and other activities) and secondary segments are geographical segments according to the location of the property. All assets and liabilities which are directly related to segments are recognised as the assets and liabilities of the segments. Other assets and liabilities are recorded as the s joint assets and liabilities. Expenses, which are not related to segments are recorded as the s joint expenses. AS Sampo Pank Annual Report

28 The notes also present clients liabilities with the and the as concentrated by major geographical areas of clients` domicile and economic sector. Determination of geographical areas is based on the division of states and territories by the State Classification Centre. Economic sectors have been defined in accordance with the Classifier of Estonian Economic Activities issued by the Statistics Office Register of Companies. 23. Earnings Per Share Earnings per share are calculated by dividing the net profit for a period by the period s weighted average number of shares. 24. Assets Management Services The provides asset management services and is engaged in fund management. The assets owned by the third party and managed by the are recorded off-balance sheet. balance sheet. An asset acquired under finance lease is depreciated either during its useful lifetime or the lease term, depending on which of them is shorter. A lease is classified as an operating lease, if it does not transfer substantially all risks and rewards incident to ownership, whereas lease payments are recorded as operating expenses by the lessee and operating income by the lessor. Regarding finance lease from the lessor s viewpoint, see also accounting principle Significant Accounting Estimates The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are related to lease and loan portfolio. For further information please see note 2 and note Research and Development Costs In general, research and development costs are expensed when incurred, with an exception of research and development costs which can be identified and which probably generate revenue during next periods. 26. Provisions Provisions are recognised, in case it is probable (based on a past event) that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount of the obligation can be reliably estimated. The provisions are recorded under the expenses of the accounting period. 27. Accounting for Leases A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset. Finance leases are measured at the fair value of the asset or at the present value of minimum lease payments, if the latter is lower, in the lessee s 28

29 Note 2 Risk Management General Principles The objectives of risk management are as follows: to identify, manage and price all risks arising from the operations of the Consolidated of AS Sampo Pank; to ensure a stable structure of revenues and the reliability, stability and profitability of the as well as to ensure an increase in shareholders value. Risk management includes the following activities as a minimum: Identifying. The risks associated with providing new services are studied, recognized and approved before launching a new product or starting a new activity. Pricing. The general principle is that all risks assumed by the must be compensated with an optimal risk/return ratio. The criteria used in the pricing of risks are as follows: the capital tied up by a service/product, the targeted capital yield, and the costs related to a product/ service. Portfolio management. The portfolios of the products/services are managed with the aim the aim of preserving the required risk/return ratio and preventing possible losses. The responsibility for portfolio management is clearly divided between different divisions and structural units of the by use of the authorizations and limits. Management accounting, risk measurement and reporting is conducted independently of business activities. The main types of risk resulting from the operations of the are: Credit risk; Market risk (related to fluctuations in foreign exchange rates, interest rates and prices of financial assets); Liquidity risk; Operational risk. The s Management Board who is responsible for risk management has delegated the risk management function as follows: Assessment of credit risk to the Rating Committee; Management of credit risk to credit committees; Management of market, liquidity and investment risks to the Assets and Liabilities Management Committee (ALCO); Management of IT risk to the IT Steering Committee; Management of operational risk to the Operational Risk Committee (the ORCO). The Financial Policy Statement and its subdocuments stipulate the principles of taking and managing financial risks and the areas of responsibility in the. The credit risk arising from the activities of the is managed in compliance with the Credit Policy Statement and the credit risk management principles of Sampo Baltic banking. The management of the operational risk arising from the activities of the is regulated by the Operational Risk Policy Statement. All the s policy statements have been developed in accordance with the respective principles of Sampo plc and have been approved by the s Supervisory Board. Credit Risk Credit risk is a fluctuation in the s earnings due to bad debts or changes in the other party s creditworthiness. A loss arises when cash flows agreed with a debtor or the other party do not materialize or when the value of a receivable/ agreement changes due to a change in the other party s creditworthiness. AS Sampo Pank Annual Report

30 All such exposures are monitored and controlled according to counterparty limits, which that are established by the respective decision-making committee, and by portfolio diversification, which is stipulated by the ALCO or the s Credit Committee. The target structure of the s credit portfolio by risk categories and economic sectors is determined in the Credit Policy Statement that is developed by the beginning of each financial year. Credit Risk Related to Financial Institutions Credit risk related to financial institutions is managed through the internal counterparty rating system. Based on the ratings, counterparties are divided into categories and every category is assigned a limit. The categorization of counterparties and the establishment, alteration and cancellation of limits is carried out by the s Credit Committee. The system of credit limits covers capital and money market transactions, as well as foreign exchange and derivative transactions. Credit risk associated with derivatives is assessed, using the methodology which takes into consideration the maturity and type of an instrument. Credit risk related to financial institutions is monitored by the Credit Risk Department and adherence to limits is monitored by the Assets and Liabilities Management Department. Credit Risk Related to Lending Process of credit risk assumption. Pursuant to the principles approved by the s Management Board, credit risk decisions are adopted by a multi-level decision-making system. Depending on the size of the risk, credit risk decisions concerning different counterparties are made by the following decision makers: the s Credit Committee, the SME Credit Committee, the Credit Committee of Private Persons, the Credit Committee of AS Sampo Liising, the Regional Credit Committee or individual decision makers. Decisions related to larger exposures are approved by relevant credit committees of the parent bank (Sampo plc). Credit decisions are based on a thorough analysis of the credit applicant s financial performance and business activities. Before the respective credit committee makes a credit risk decision, Sampo plc s internal rating has to be assigned to the counterparty. Risk ratings to large exposure clients are assigned by the rating committee of the parent bank on the basis of the proposal submitted by the credit analyst. Monitoring of loans and other credit products. The main objective in the monitoring of loans and other credit products is to prevent possible loan losses and to form reserves for covering them. Clients are monitored on two levels: the monitoring of loans (clients) on an individual basis and the monitoring of the aggregate credit portfolio. On an individual basis, a loan (a credit product) is monitored by the client s relationship manager and the Credit Risk Department pursuant to the procedures established for the monitoring of clients and handling overdue loans. The objective of the monitoring of the aggregate credit portfolio is to analyse changes and risk concentration in the s credit portfolios, as well as to inform the s Credit Committee and the management accordingly. Credit risk assessment is conducted via an internal reporting system. According to the system, reports, which reflect the scope and concentration of credit risks, as well as their distribution between different products, economic sectors and risk categories are prepared periodically (on a daily, monthly or quarterly basis). All necessary information is compiled and analysed by the Credit Risk Department. Allowances for loan impairment. The objective is to form reserves for covering possible loan losses and to represent the s assets at their fair value in the balance sheet. Allowances for loan impairment depend on the client s risk rating. The has adopted the rating principles used by Sampo plc according to which assumed credit risks are divided into 13 groups: L1+...D. In assigning risk ratings, several factors are taken into consideration: payment discipline, financial condition, competitiveness, management competence, the overall situation of the economic sector etc. Problem claims are assessed on an individual basis and allowances for loan impairment are established for the uncollateralised part of such claims. 30

31 Collective assessment for the impairment of the credit portfolio are formed for covering possible loan losses assumed in the rating classes L1+...L4. Loans are defined as problem assets when they are more than 90 days overdue and/or if the borrower s financial situation has deteriorated considerably. Allowances for loan impairment are calculated on a monthly basis. Allowances for loan impairment are not formed for loans within the first ninety days after the signing of the loan agreement. Handling of problem loans. The objective is to decrease actual loan losses by recovering overdue loans and the claims written off earlier. The has set up a separate unit the Risk Assets Department, which is responsible for the management of problem assets. Country Risk Country limits are established in the Credit Policy Statement and approved by the s Supervisory Board. Established limits depend on the ratings assigned by international rating agencies, based on the risk level of a particular country. The Assets and Liabilities Management Department is responsible for the daily monitoring of country limits and periodic reporting to the ALCO, the s Credit Committee and the Supervisory Board. Market Risk Market risk arises from changes in interest rates, foreign exchange rates and prices of financial assets. These risks are monitored in the course of the s daily activities. Market risk limits are determined by the ALCO pursuant to the Financial Policy Statement and monitored and managed by the Assets and Liabilities Management Department in co-operation with the Financial Markets Division. The Assets and Liabilities Management Department reports to the ALCO and the s Supervisory Board on a regular basis. Foreign Exchange Risk Foreign exchange risk is a potential loss caused by fluctuations in currency exchange rates. The does not actively deal with taking foreign exchange positions, but holds a reasonable level of positions necessary to offer services to clients. In addition to the of Estonia regulations for open foreign currency positions, the Financial Policy Statement establishes open foreign currency position limits on currency groups that are reviewed at least once a year. The ALCO establishes limits by currencies. All foreign currency positions are monitored on a daily basis and marked to market. Foreign currency market risk is measured applying the Value-at-Risk (VaR) method. VaR is defined as the greatest possible loss on existing open foreign currency positions within 24 hours with 95% probability, based on the volatility of the exchange rates of the previous 100 banking days. The VaR limit is set by the s Supervisory Board. Open foreign currency positions arising from the s operations are hedged primarily by swap and forward transactions. Intraday open foreign currency position limits are set by the ALCO. The Assets and Liabilities Management Department carries out the daily monitoring of exposures. Interest Rate Risk Interest rate risk is defined as an adverse variation in net interest income or in the market value of the s balance sheet and off-balance-sheet assets and liabilities caused by a change in the absolute level of interest rates, in the spread of the borrowing and lending rates, in the shape of the yield curve, or in any other aspect concerning interest rates. The uses the GAP methodology for measuring and monitoring interest rate risk. Besides, various interest risk scenarios to value potential losses deriving from interest rate changes are used. Interest rate risk is defined as the potential loss resulting from an assumed parallel shift of the yield curve by 100 basis points. The overall interest rate risk limit is approved by the s Supervisory Board. The overall limit is established as a percentage of the budgeted net interest income. The ALCO has the authority to establish interest rate risk limits on the main currencies and to approve different strategies for the management of interest rate risk. Open interest rate positions are covered according to the estimation of future trends in the market made by the Assets and Liabilities Management Department and the Financial Markets Division. The market AS Sampo Pank Annual Report

32 risk of the debt securities included in the Trading Portfolio is measured and monitored according to the system of Value-at-Risk (VaR) on a daily basis. The total portfolio VaR limit on the s net own funds is set by the ALCO. The Assets and Liabilities Management Department is responsible for the daily monitoring of interest rate risk and it reports to the ALCO. Changes in the Value of Financial Assets The s equity investments are divided into two portfolios: the Equity Trading Portfolio and the Equity Investment Portfolio. The Equity Trading Portfolio is managed with the aim of providing services to the s clients. The overall limit of the Equity Trading Portfolio and the limits by individual shares are approved by the ALCO. The Assets and Liabilities Management Department monitors adherence to the limits and it periodically reports to the ALCO. The Equity Trading Portfolio is recorded at its fair value based on market prices. The Equity Investment Portfolio contains companies (unlisted) equities with the intention to exit at a certain time over a longer period or long-term investments into companies equities which are necessary in view of the s business activities (e.g. SWIFT). The size of the portfolio is established in the Financial Policy Statement. The Assets and Liabilities Management Department is responsible for relevant monitoring and reporting to the ALCO on a regular basis. Liquidity Risk Liquidity risk is defined as the s inability to meet its obligations due to market conditions or the mismanagement of its balance sheet. The s liquidity management is based on the current and desired profiles of its balance sheet structure and the maturities of relevant instruments. Liquidity management involves coordinated series of decisions concerning the maturity profile and financial instruments of assets and liabilities based on maturity gap reports. The main objective of liquidity management is to ensure the s ability to meet all its obligations duly. Other goals of liquidity management are as follows: To comply with the of Estonia requirements; To minimize negative efficiency; To coordinate cooperation between the providing structural units (the Financial Markets Division and the Financial Division) and the allocating structural units (the Personal and Retail ing Division, the Corporate Services Division, the International ing Division, the Lease Finance Division, the Financial Markets Division); To react duly and adequately to significant changes in the business environment. To maintain an adequate liquidity level, the has to keep part of its assets in liquid instruments, which includes liquidity reserves with the of Estonia, cash, demand as well as short-term deposits with other banks and liquid debt securities. The size, distribution and instruments of liquid assets are established by the ALCO. Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk in the is monitored by the Operational Risk Committee (ORCO). The Operational Risk Policy Statement that was prepared in 2003 stipulates the general principles of operational risk management and describes the respective management system. In 2005, the Operational Risk Policy Statement was updated in compliance with the requirements on the arrangement of operational risk management established by the Financial Supervision Authority and the main principles of the management and supervision of operational risk stipulated by the Basel Committee on ing Supervision. Operational risk is divided into: Risks related to personnel (personnel risk); Legal risks; Technological risks (incl. IT risk); Information security risks; Procedure risks; Environmental risks (incl. working environment, external fraud etc.). 32

33 High-level organizational culture provides security to our clients and creates trust in the. Multifaceted personnel risk incorporates threats that are primarily related to ethic principles, value judgements, competence and the job-fit of employees. The success of an organization is largely dependent on its ability to recruit, use and develop qualified personnel, especially on the management level. The risk of recruiting unsuitable persons or the inability to keep talented employees in the organization is hedged, using various recruitment sources, a thorough selection process, background surveys, special development programs and a motivation system. Competence patterns which have been developed on the basis of Sampo s basic values (entrepreneurship, openness, loyalty and ethicality) are used in the selection of new employees. To facilitate the initiation of new employees into the organization, an induction course is arranged, which is designed to familiarize them with the s operational principles, strategies, value judgements and internal regulations. All employees have job descriptions, which include position-related requirements and determine the scope of their responsibilities. Connections between the organization s strategies and an employee s individual objectives are strengthened and the continuity of personnel risk management is ensured by means of regular professional development interviews. Legal risk arises from the inadequacy and ineffectiveness of concluded agreements. To manage this risk, the validity of concluded agreements is checked regularly. Internal regulations have been developed to manage the s legal procedures. Daily transactions are regulated by and performed in compliance with standard agreements. Transactions that divert from the standard agreements have to be approved by the Legal Division. Legal risk is assessed by the Legal Division. Information technology risk (IT risk) - the most important of technology-related risks, is managed on several levels. The IT Steering Committee is responsible for ensuring IT resources necessary for the implementation of the s business objectives. The risks relating to the internal operations of the IT Division are managed by applying relevant procedures and control mechanisms. Additional control activities are carried out by the Information Security Department. Quarterly reports on the availability and service level of the systems necessary for providing business services as well as on major IT incidents are submitted to the IT Steering Committee. The activities of the IT Division are controlled both by internal and external auditors. The management of information security risk is coordinated by the IT Steering Committee, while on a daily basis the risk is managed by the Information Security Department. At the end of 2005, the Information Security Department was transferred to the IT Division in order to implement changes necessary for raising the efficiency of the existing information security level faster. This structural change also enables to apply measures recommended for mitigating the identified IT risks more efficiently. The Information Security Department keeps a register of information security incidents and submits regular reports to the s Management Board and the ORCO. To avoid procedure risk arising from inadequately or inefficiently managed operations, the has established strict procedure rules and instructions for performing daily banking transactions. In order to ensure compliance with the established procedure rules the applies an internal control system. Division heads submit reports on the results of inspection controls to the s Management Board and the ORCO once a year. The efficiency of and abidance by the procedure rules is assessed by the Internal Audit Department in the course of internal audits. The results of the performed audits are reported to the heads of structural units, as well as to the Management and the Supervisory Boards of the. The s security manager coordinates the management of risks related to the physical environment. It is assessed regularly if the working environment complies with the requirements stipulated in the legal acts and regulations and the security requirements established in the s internal regulations. In order to ensure physical security in those bank offices that perform cash transactions, the s security conception was developed in The s security manager is responsible for coordinating and monitoring antimoney laundering activities. AS Sampo Pank Annual Report

34 In order to mitigate operational risk, the has concluded, via Sampo plc, an insurance agreement covering potential losses due to fraud, crime (incl. electronic and computer crime) and professional activities of the employees. The Directors and Officers Liability Agreement has also been concluded. In order to mitigate risks related to the physical environment property insurance agreements have been concluded. Due to the growing importance of operational risk management, the s operational risk is assessed under the ORCO s coordination once a year. After the assessment the results are reported to the s Management Board. From 2005, the is obliged to conduct operational risk self-assessments in compliance with the relevant requirements established by Sampo plc. Since Q3 of 2005, the has submitted operational risk management reports to the Financial Supervision Authority. These reports together with some supplementary information have also been presented to the s Management Board, in order to give them an overview of the existing operational risks. 34

35 Notes CASH In millions of kroons, as at 31 December Cash in Estonian kroons Cash in foreign currencies Total cash CLAIMS AND LOANS TO CENTRAL BANK In millions of kroons, as at 31 December Demand deposits with Central Total claims and loans to Central CLAIMS AND LOANS TO CLIENTS In millions of kroons, as at 31 December Claims and loans by client types Government Local governments Insurance institutions Financial institutions Private enterprises Commercial undertakings of state and local governments Non-profit associations Private persons Total claims and loans to clients Claims and loans by collateral types Mortgage Pledge of register Surety, guarantee Deposit Other Witout collateral Lease asset Total claims and loans to clients Including Loans to subsidiaries Lease receivables including finance lease claims (see Note 37) Reverse repos AS Sampo Pank Annual Report

36 6 ALLOWANCE FOR CLAIMS AND LOANS In millions of kroons, year ended 31 December 2005 As of the end of the previous accounting period Allowances for loan impairment during the accounting period Loans Other claims Total Loans Other claims Total including allowances for lease receivables Uncollectible claims and loans written off during the accounting period Effect of merge with subsidiary As of the end of the accounting period In millions of kroons, year ended 31 December 2004 As of the end of the previous accounting period Allowances for loan impairment during the accounting period Loans Other claims Total Loans Other claims Total including allowances for lease receivables Uncollectible claims and loans written off during the accounting period As of the end of the accounting period Uncollectible claims and loans written-off earlier and recovered by the in 2005 totalled 1.1 million kroons and by the 1.3 million kroons, respectively (2004: : 0.8 million kroons, 1.1 million kroons). 7 OVERDUE CLAIMS AND LOANS In millions of kroons, as at 31 December 2005 Up to to 60 Over 60 Up to to 60 Over 60 days overdue days overdue days overdue days overdue days overdue days overdue Loans Lease receivables Total In millions of kroons, as at 31 December 2004 Up to to 60 Over 60 Up to to 60 Over 60 days overdue days overdue days overdue days overdue days overdue days overdue Loans Lease receivables Total Overdue claims and loans include claims and loans, the principal or interest of which is overdue. Overdue claims and loans are shown at their amortised cost. Loans, interest calculation of which, has been suspended totalled 14.7 million kroons as at 31 December 2005 ( : 67.4 million kroons). 36

37 8 SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS In millions of kroons, as at 31 December Trading securites Debt securities of government Debt securities of credit institutions Debt securities of financial institutions Other debt securities Shares Total trading securities Other securities Debt securities of credit institutions Other debt securities Shares Total other securities Total securities As at December 31, 2005, investments with a participation of over 10 per cent are included: Pankade Kaardikeskuse AS (10,6% participation, balance sheet value 883 thousand kroons, Estonian Republic). 9 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS In millions of kroons, as at 31 December Subsidiary undertakings 2005 Name of enterprise s control and voting power Book value of investment as at Gain from changes in fair value in 2005 Book value of investment as at Sampo Kinnisvarahalduse AS 100% AS Sampo Liising Sampo Baltic Asset Management AS 100% Total Subsidiary undertakings 2004 Name of enterprise s control and voting power Book value of investment as at Gain from changes in fair value in 2004 Book value of investment as at Sampo Kinnisvarahalduse AS 100% AS Sampo Liising 100% Sampo Baltic Asset Management AS 100% Total In 2005, AS Sampo Liising was merged with the parent: in accordance with the merger agreement the merger date was 30 June 2005 and the respective entry concerning the merger was made in the commercial register on 3 January Until the balance-sheet date of the merger AS Sampo Liising was recognized at fair value in the separate balance sheet of the parent and from the balance-sheet date of the merger the assets and liabilities as well as income and expenses of the company being acquired have been included in the separate financial statements of the parent line by line. The merger of AS Sampo Liising with the parent did not have any impact on the consolidated financial statements. All the s subsidiaries have been registered in the Republic of Estonia. AS Sampo Pank Annual Report

38 10 INTANGIBLE ASSETS In millions of kroons, year ended 31 December 2005 Licenses Total Licenses Total Residual value at beginning of year Cost at beginning of year Accumulated depreciation at beginning of year Acquisitions Internal movements at residual value Internal movements at cost Depreciation of internal movements Depreciation Residual value at end of year Cost at end of year Accumulated depreciation at end of year In millions of kroons, year ended 31 December 2004 Licenses Total Licenses Total Residual value at beginning of year Cost at beginning of year Accumulated depreciation at beginning of year Acquisitions Depreciation Residual value at end of year Cost at end of year Accumulated depreciation at end of year

39 11 TANGIBLE ASSETS In millions of kroons, year ended 31 December 2005 Land and buildings Other Total Land and buildings Residual value at beginning of year Cost at beginning of year Accumulated depreciation at beginning of year Acquisitions Disposals at residual value Disposals at cost Depreciation of sold assets Write-offs at residual value Write-offs at cost Depreciation of assets written-off Internal movements at residual value Internal movements at cost Depreciation of internal movements Depreciation Residual value at end of year Cost at end of year Accumulated depreciation at end of year Other Total In millions of kroons, year ended 31 December 2004 Land and buildings Other Total Land and buildings Computers Computers Computers Computers Residual value at beginning of year Cost at beginning of year Accumulated depreciation at beginning of year Acquisitions Disposals at residual value Disposals at cost Depreciation of sold assets Write-offs at residual value Write-offs at cost Depreciation of assets written-off Internal movements at residual value Internal movements at cost Depreciation of internal movements Depreciation Residual value at end of year Cost at end of year Accumulated depreciation at end of year Other Total 1 Write-offs relate to fully depreciated and obsolete fixed assets. AS Sampo Pank Annual Report

40 12 INVESTMENT PROPERTY In millions of kroons, year ended 31 December 2005 Residual value at beginning of year 13 Cost at beginning of year 15 Accumulated depreciation at beginning of year - 2 Residual value at end of year 13 Cost at end of year 15 Accumulated depreciation at end of year - 2 In millions of kroons, year ended 31 December 2004 Residual value at beginning of year 13 Cost at beginning of year 14 Accumulated depreciation at beginning of year - 1 Residual value at end of year 13 Cost at end of year 15 Accumulated depreciation at end of year - 2 Rental income from investment property was 1.2 million kroons in 2005 (2004: 1.3 million kroons). The market value of investment property (according to expert estimation) amounts to 10.5 million kroons. The carrying value of investment property has not been written down to its expected market value, as the value of the property in use exceeds its market value. The value in use is determined by discount rate (13%) and rental fee growth rate (1,5%). 13 OTHER ASSETS In millions of kroons, as at 31 December Items in transit Collateral assets for sale Total other assets PREPAYMENTS AND ACCRUED INCOME In millions of kroons, as at 31 December Interest receivable Other prepayments Other accrued income Total prepayments and accrued income FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The book value of financial assets and liabilities does not differ significantly from their fair value. The fair value is determined based on the listed market prices or discounted cashflow method. 40

41 16 AMOUNTS OWED TO CREDIT INSTITUTIONS In millions of kroons, as at 31 December Long-term liabilities Maturity Interest EIB % EIB % NIB M Euribor +0.2% NIB M Euribor +1% NIB M Euribor +0.8% NIB M Euribor +0.55% CEB M Euribor +0.36% EBRD M Euribor +1.5% KFW % KFW % KFW M Euribor +0.24% HSH Nordbank (agent) M Euribor +0.3% Sampo plc (agent) M Euribor +0.25% Demand deposits Overdrafts Total amounts owed to credit institutions AS Sampo Pank Annual Report

42 17 AMOUNTS OWED TO CLIENTS OF CREDIT INSTITUTION In millions of kroons, as at 31 December Demand deposits Government Local governments Insurance institutions Financial institutions Private enterprises Non-profit associations Private persons Total demand deposits of clients Demand deposits by residency Residents Non-residents Total demand deposits Demand deposits by currency Estonian kroon Foreign currency Total demand deposits Time deposits Government Non-budgetary funds Government social security funds Commercial undertakings of state and local governments Insurance institutions Financial institutions Private enterprises Non-profit associations Private persons Total time deposits Time deposits by residency Residents Non-residents Total time deposits Time deposits by currency Estonian kroon Foreign currency Total time deposits Total amounts owed to clients of credit institution

43 18 ISSUED DEBT SECURITIES In millions of kroons, as at 31 December Maturity Interest Sampo Pank % Sampo Pank % Sampo Pank % Sampo Pank % Sampo Pank % Sampo Pank structured debt securities * Total issued debts securities *The yield of debt securities depends on changes in the price of the underlying assets. If on the redemption date the price of t h e underlying assets is lower than it was on the issue date, the issued debt securities will be redeemed at their nominal value. 19 OTHER LIABILITIES In millions of kroons, as at 31 December Outgoing payment orders Incoming payment orders Clearing accunts Total other liabilities ACCRUALS AND DEFERRED INCOME In millions of kroons, as at 31 December Interest payable Payables to companies Vacation s and salarie s liabilities Tax liabilities Other accrued expenses Payables to Guarantee Fund Client prepayments Total accruals and deffered income SUBORDINATED LIABILITIES In millions of kroons, as at 31 December Maturity Interest AS Sampo Pank subordinated debt securities M Euribor +0.9% AS Sampo Pank subordinated debt securities M Euribor +0.3% Total subordinated liabilities AS Sampo Pank Annual Report

44 22 INTEREST INCOME In millions of kroons, year ended 31 December Loans Factoring Demand deposits Time deposits Overnight loans Other interest income Currency swap Leasing Total interest income INTEREST EXPENSE In millions of kroons, year ended 31 December Demand deposits Time deposits Borrowings Borrowings from government Subordinated liabilities Issued debt securities Currency swap Total interest expense

45 24 INTEREST PRODUCTIVITY OF THE BALANCE SHEET OF THE BANK 1,2 In millions of kroons, year ended 31 December Average balance for the year Interest income / expense Effective interest rate Average balance for the year Interest income / expense Effective interest rate Demand deposits with banks % % Time deposits with banks % % Total deposits % % Loan portfolio % % Allowances % % Net loan portfolio % % Securities % % Total interest-earning assets % % Other assets % % TOTAL ASSETS % % Demand deposits % % Time deposits % % Borrowings from banks % % Issued debt securities % % Amounts owed to government % % Subordinated liabilities % % Total interest-bearing liabilities % % Other liabilities and owners equity % % TOTAL LIABILITIES AND OWNER S EQUITY % % A 3 Interest income / interest-earning assets % % B 3 Interest expense / interest-bearing liabilities % % Interest spread (A- B) 2.7% 3.0% Net interest margin 4,5 2.9% 2.8% 1 Interest income and expense includes interest income and expense recorded in Notes 22 and 23 and profit from debt securities at fair value through profit or loss and profit (loss) from derivatives in Note Averages have been calculated based on the monthly average balances. 3 Interest income includes profit from debt securities at fair value through profit or loss and profit (loss) from derivatives in Note The figure also includes the result of currency swaps. 5 Net interest margin = net interest income / average assets of the period AS Sampo Pank Annual Report

46 24 INTEREST PRODUCTIVITY OF THE BALANCE SHEET OF THE GROUP 1,2 In millions of kroons, year ended 31 December Average balance for the year Interest income / expense Effective interest rate Average balance for the year Interest income / expense Effective interest rate Demand deposits with banks % % Time deposits with banks % % Total deposits % % Loan portfolio % % Allowances % % Net loan portfolio % % Securities % % Total interest-earning assets % % Other assets ,0% ,0% TOTAL ASSETS % % Demand deposits % % Time deposits % % Borrowings from banks % % Issued debt securities % % Amounts owed to government % % Subordinated liabilities % ,2% Total interest-bearing liabilities % % Other liabilities and owners equity % % TOTAL LIABILITIES AND OWNER S EQUITY % % A 3 Interest income / interest-earning assets % % B 3 Interest expense / interest-bearing liabilities % % Interest spread (A- B) 2.8% 3.5% Net interest margin 4,5 3.0% 3.4% 1 Interest income and expense includes interest income and expense recorded in Notes 22 and 23 and profit from debt securities at fair value through profit or loss and profit (loss) from derivatives in Note Averages have been calculated based on the monthly average balances. 3 Interest income includes profit from debt securities at fair value through profit or loss and profit (loss) from derivatives in Note The figure also includes the result of currency swaps. 5 Net interest margin = net interest income / average assets of the period 46

47 25 FEE AND COMMISSION INCOME In millions of kroons, year ended 31 December operations Cash operations Investment services Arrangement fees from loan and guarantee agreements Card transactions Other services Total fee and commission income FEE AND COMMISSION EXPENSE In millions of kroons, year ended 31 December operations Cash operations Investment services Arrangement fees from loan and guarantee agreements Card transactions Other services Total fee and commission expense NET PROFIT ON FINANCIAL OPERATIONS In millions of kroons, year ended 31 December Income from forex-operations Profit from debt securities at fair value through profit or loss Profit from shares at fair value through profit or loss Gain from changes in fair value of subsidiary undertakings Profit (loss) from derivatives Total income from trading securities SALARIES EXPENSE In millions of kroons, year ended 31 December Salaries Bonuses and vacation accrual Fringe benefits Total salaries expense AS Sampo Pank Annual Report

48 29 OTHER ADMINISTRATIVE EXPENSES In millions of kroons, year ended 31 December Rent Business travelling and training Communication and data processing expenses Office equipment and stationery goods Advertising Forms expenses Security expenses Maintenance expenses Transportation expenses Services purchased Other administrative expenses Total other administrative expenses The s development and research expenditures in 2005 totalled 43.5 million kroons (2004: 27 million kroons). Future minimum lease payments in 2005 by the following periods: up to 1 year 5 from 1 year to 5 year 11 annual lease payments under no-term lease contracts 2 Future minimum lease payments in 2004 by the following periods: up to 1 year 4 from 1 year to 5 year 8 annual lease payments under no-term lease contracts 3 million kroons million kroons million kroons million kroons million kroons million kroons The agreements include premises rent and do not include call options or any other limitations. 30 OTHER OPERATING INCOME AND EXPENSE In millions of kroons, year ended 31 December Other operating income Rent Sale of assets Other operations Total other operating income Other operating expense Membership fees Financial supervision Sale of assets Other operations Total other operating expense Total other operating income and expense

49 31 EARNINGS PER SHARE Year ended 31 December Weighted average number of shares for the year Profit for the year (in millions of kroons) Basic earnings per share (in kroons) Diluted earnings per share (in kroons) As the has no potential ordinary shares, basic earnings per share equal to diluted earnings per share. 32 TRANSACTIONS BETWEEN RELATED PARTIES Transactions between Sampo Pank and parent company In millions of kroons, as at 31 December Deposits and loans with parent company Other assets 19 1 Deposits and loans from parent company Subordinated loan from parent company Other liabilities 8 1 Derivatives (claims) Derivatives (liabilities) Interest income (per year) 10 4 Interest expense (per year) 11 4 Sampo plc was the parent company of AS Sampo Pank as at and as at Transactions with management In millions of kroons, as at 31 December 2005 Loans Range of interest Deposits Range of interest Salaries Management % % 9 In millions of kroons, as at 31 December 2004 Loans Range of interest Deposits Range of interest Salaries Management % % 8 Transactions with other companies belonging to consolidation group of Sampo plc In millions of kroons, as at 31 December Deposits with companies belonging to consolidation group 6 1 Loans to companies belonging to consolidation group 2 1 Deposits and loans from companies belonging to consolidation group Accruals and deferred income 1 1 Interest expense from companies belonging to consolidation group (per 2 1 Other income from companies belonging to consolidation group (per 10 5 Other expense from companies belonging to consolidation group (per ASSETS MANAGED BY THE GROUP The volume of the client portfolios managed by the as at 31 December 2005 amounted to about 1 billion kroons ( : 1 billion kroons). The market value of the clients funds kept in the s securities accounts amounted to 2 billion kroons as at 31 December 2005 ( : 1,3 billion kroons). The earns a service fee for the management of these portfolios which does not entail any credit or market risks for the. AS Sampo Pank Annual Report

50 34 STRUCTURE OF INTEREST-BEARING ASSETS AND LIABILITIES BY INTEREST RATE REPRICING DATE In millions of kroons, as at 31 December 2005 Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Debt securities Forwards and futures Credit lines and standby loans Total assets including total amount of fixed interest rate agreements at year-end Liabilities Demand Up to 1 month 1-3 kuud 3-6 kuud 6-12 kuud 1-2 aastat 2-5 aastat Üle 5 aasta Kokku Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Issued debt securities Subordinated liabilities Forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities including total amount of fixed interest rate agreements at year-end Gap (Assets-Liabilities) Cumulative Gap Assets Demand Up to 1 month 1-3 kuud 3-6 kuud 6-12 kuud 1-2 aastat 2-5 aastat Üle 5 aasta Kokku Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Debt securities Forwards and futures Credit lines and standby loans Total assets including total amount of fixed interest rate agreements at year-end Liabilities Demand Up to 1 month 1-3 kuud 3-6 kuud 6-12 kuud 1-2 aastat 2-5 aastat Üle 5 aasta Kokku Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Issued debt securities Subordinated liabilities Forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities including total amount of fixed interest rate agreements at year-end Gap (Assets-Liabilities) Cumulative Gap Total assets and liabilities also include assets and liabilities, which are recorded off-balance sheet (including forwards and futures, the unused limits of credit lines and standby loans and other irrevocable claims and commitments). 50

51 34 STRUCTURE OF INTEREST-BEARING ASSETS AND LIABILITIES BY INTEREST RATE REPRICING DATE In millions of kroons, as at 31 December 2004 Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Debt securities Forwards and futures Total assets including total amount of fixed interest rate agreements at year-end Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Issued debt securities Subordinated liabilities Forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities including total amount of fixed interest rate agreements at year-end Gap (Assets-Liabilities) Cumulative Gap Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Debt securities Forwards and futures Total assets including total amount of fixed interest rate agreements at year-end Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Issued debt securities Subordinated liabilities Forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities including total amount of fixed interest rate agreements at year-end Gap (Assets-Liabilities) Cumulative Gap Total assets and liabilities also include assets and liabilities, which are recorded off-balance sheet (including forwards and futures, the unused limits of credit lines and standby loans and other irrevocable claims and commitments). AS Sampo Pank Annual Report

52 35 CONCENTRATION OF EXPOSURES BY GEOGRAPHICAL REGIONS In millions of kroons, as at 31 December 2005 Region Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Region share (%) Estonia Germany Lithuania France the United Kingdom Finland the Netherlands the United States of America Russia Belgium Sweden Denmark Luxembourg Norway Ireland Other regions Total Region Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Region share (%) Estonia Germany Lithuania France the United Kingdom Finland the Netherlands the United States of America Russia Belgium Sweden Denmark Luxembourg Norway Ireland Other regions Total Including loans to credit institutions and loans to customers. 52

53 35 CONCENTRATION OF EXPOSURES BY GEOGRAPHICAL REGIONS In millions of kroons, as at 31 December 2004 Region Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Region share (%) Estonia Finland Russia Germany the United States of America France the Netherlands Italy the United Kingdom Denmark Luxembourg Greece Belgium Ireland Sweden Other regions Total Region Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Region share (%) Estonia Finland Russia Germany the United States of America France the Netherlands the United Kingdom Italy Denmark Luxembourg Greece Belgium Sweden Ireland Other regions Total Including loans to credit institutions and loans to customers. AS Sampo Pank Annual Report

54 36 CONCENTRATION OF EXPOSURES BY ECONOMIC SECTORS In millions of kroons, as at 31 December 2005 Economic sector Balance sheet exposures Loans 1 Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Sector share (%) Real estate, renting and business activities Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Private persons Manufacturing Financial intermediation Public administration and defence Transport, storage and communication Other community, social and personal service activities Hotels and restaurants Construction Agriculture, hunting and forestry Electricity, steam, gas and water supply Education Healthcare and social work Mining Fishing Total Economic sector Bilansilised võlakohustused Loans 1 Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Sector share (%) Real estate, renting and business activities Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Private persons Manufacturing Financial intermediation Public administration and defence Transport, storage and communication Other community, social and personal service activities Hotels and restaurants Construction Agriculture, hunting and forestry Electricity, steam, gas and water supply Education Healthcare and social work Mining Fishing Total Including loans to credit institutions and loans to customers. 2 Private persons housing loans are included in real estate, renting and business activities sectors. 54

55 36 CONCENTRATION OF EXPOSURES BY ECONOMIC SECTORS In millions of kroons, as at 31 December 2004 Economic sector Balance sheet exposures Loans 1 Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Sector share (%) Real estate, renting and business activities Financial intermediation Manufacturing Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Public administration and defence Private persons Hotels and restaurants Transport, storage and communication Other community, social and personal service activities Construction Electricity, steam, gas and water supply Education Agriculture, hunting and forestry Healthcare and social work Mining Fishing Total Economic sector Balance sheet exposures Loans 1 Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Sector share (%) Real estate, renting and business activities Financial intermediation Manufacturing Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Private persons Public administration and defence Transport, storage and communication Hotels and restaurants Other community, social and personal service activities Construction Agriculture, hunting and forestry Electricity, steam, gas and water supply Education Healthcare and social work Mining Fishing Total Including loans to credit institutions and loans to customers. 2 Private persons housing loans are included in real estate, renting and business activities sectors. AS Sampo Pank Annual Report

56 37 GROUP FINANCIAL LEASE GROSS AND NET INVESTMENTS In millions of kroons, as at 31 December Net investments Gross investments Interest income expexted in coming periods Net investments Gross investments Interest income expexted in coming periods Up to 1 year From 1 year to 5 years Over 5 years Total As at 31 December 2005 unguaranteed residual value of leased assets totalled 8 million kroons ( : 3 million kroons). 38 OFF BALANCE SHEET TRANSACTIONS In millions of kroons, as at 31 December Contractual value Market value Contractual value Market value Claims Liabilities Assets Liabilities Claims Liabilities Assets Liabilities Irrevocable transactions Guarantees and other similar irrevocable transactions Credit lines and overdrafts (unused limits) Revocable transactions Credit lines and overdrafts (unused limits) Derivatives Currency related derivatives Interest rate related derivatives Contractual value Market value Contractual value Market value Claims Liabilities Assets Liabilities Claims Liabilities Assets Liabilities Irrevocable transactions Guarantees and other similar irrevocable transactions Credit lines and overdrafts (unused limits) Revocable transactions Credit lines and overdrafts (unused limits) Derivatives Currency related derivatives Interest rate related derivatives

57 39 BUSINESS SEGMENTS OF GROUP In millions of kroons, income and expense year ended 31 December 2005, assets and liabilities as at 31 December ing Leasing Asset management Elimination Interest revenue Interest revenue from other segment Interest expense Interest expense from other segment Fee and commission income Fee and commission income from other segment Profit on financial operations Bad and doubtful debts expense Profit from segment Unallocated interest expense - 98 Other unallocated revenue 15 Other unallocated expense Net profit for the year 172 Segment assets Total assets Segment liabilities Unallocated liabilities and related interest payable Total liabilities Acquisiton of tangible and intangible assets Depreciation Other non-cash expenses In millions of kroons, income and expense year ended 31 December 2004, assets and liabilities as at 31 December ing Leasing Asset management Elimination Interest revenue Interest revenue from other segment Interest expense Interest expense from other segment Fee and commission income Fee and commission income from other segment Profit on financial operations Bad and doubtful debts expense Profit from segment Unallocated interest expense - 75 Other unallocated revenue 11 Other unallocated expense Net profit for the year 108 Segment assets Total assets Segment liabilities Unallocated liabilities and related interest payable Total liabilities Acquisiton of tangible and intangible assets Depreciation Other non-cash expenses As the entire operations of the take place within Estonia, no separate information has been presented about the secondary segment. Theprices used in cross-segment transactions do not differ largely from market prices. AS Sampo Pank Annual Report

58 40 CAPITAL ADEQUACY In millions of kroons, as at 31 December ORIGINAL OWN FUNDS Paid-in share capital Other reserves Retained earnings Intangible fixed assets (with the minus) ADDITIONAL (SURPLUS) OWN FUNDS TOTAL GROSS OWN FUNDS (1+2) DEDUCTIONS FROM THE TOTAL GROSS OWN FUNDS NET OWN FUNDS (3-4) OWN FUNDS FOR COVERING THE MARKET RISKS OF THE TRADING BOOK RISK WEIGHED ASSETS Category I Category II Category III Category IV RISK WEIGHED DERIVATIVES AND OTHER IRREVOCALBE TRANSACTIONS I II CAPITAL REQUIREMENT AGAINST CURRENCY RISK CAPITAL REQUIREMENT AGAINST THE RISKS ASSOCIATED WITH THE TRADING BOOK Capital requirement against interest position risks Capital requirement against equity risks CAPITAL REQUIREMENT AGAINST THE POSITIONS OF TRADING BOOK INSTRUMENTS EXCEEDING THE RISK EXPOSURE LIMITS CAPITAL ADEQUACY (5+6)/(7+8+9x10+10x12,5+11x12,5) 12.39% 11.50% 12.44% 11.82% 41 EXPOSURES In millions of kroons, as at 31 December Number/ Amount % of net own funds Number/ Amount % of net own funds Number/ Amount % of net own funds Number/ Amount % of net own funds Number of large exposure customers Loans granted to customers with % % % % large exposure Loans granted to persons associated with credit institution % % % % Maximum credit risk exposure as at 31 December 2005 of the totalled 15.9 billion kroons and of the 15.9 billion kroons ( : 11.1 billion kroons, 10.7 billion kroons). 58

59 42 ASSETS AND LIABILITIES BY REMAINING MATURITIES In millions of kroons, as at 31 Decemebr 2005 Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Trading securities Other securities Derivatives Shares of subsidiary undertakings Other assets Prepayments and accrued income Forwards Credit lines and standby loans Total assets Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Derivatives Issued debt securities Other liabilities Accruals and deffered income Subordinated liabilities Forwards Credit lines and standby loans Other irrevocable commitments Total liabilities Gap (Assets-Liabilities) Cumulative Gap Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Trading securities Available-for-sale securities Derivatives Other assets Prepayments and accrued income Forwards Credit lines and standby loans Total assets Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Over 5 years Overdue Overdue Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Derivatives Issued debt securities Other liabilities Accruals and deffered income Subordinated liabilities Forwards Credit lines and standby loans Other irrevocable commitments Total liabilities Gap (Assets-Liabilities) Cumulative Gap Claims to clients and accrued income are recorded at net value including allowances. Total assets and liabilities also include assets and liabilities, which are recorded off-balance sheet (including forwards, the unused limits of credit lines and standby loans and other irrevocable claims and commitments). Total Total Total Total AS Sampo Pank Annual Report

60 42 ASSETS AND LIABILITIES BY REMAINING MATURITIES In millions of kroons, as at 31 Decemebr 2004 Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Trading securities Available-for-sale securities Derivatives Shares of subsidiary undertakings Other assets Prepayments and accrued income Forwards Total assets Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Claims to clients and accrued income are recorded at net value including allowances. Total assets and liabilities also include assets and liabilities, which are recorded off-balance sheet (including forwards, the unused limits of credit lines and standby loans and other irrevocable claims and commitments). Over 5 years Over 5 years Overdue Overdue Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Derivatives Issued debt securities Other liabilities Accruals and deffered income Subordinated liabilities Forwards Credit lines and standby loans Other irrevocable commitments Total liabilities Gap (Assets-Liabilities) Cumulative Gap Grupp Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Trading securities Available-for-sale securities Derivatives Other assets Prepayments and accrued income Forwards Total assets Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Over 5 years Overdue Overdue Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Derivatives Issued debt securities Other liabilities Accruals and deffered income Subordinated liabilities Forwards Credit lines and standby loans Other irrevocable commitments Total liabilities Gap (Assets-Liabilities) Cumulative Gap Total Total Total Total 60

61 43 CURRENCY NET POSITIONS In millions of kroons, as at 31 December 2005 Common position of EEK and EUR USD Other Total Common position of EEK and EUR USD Other Total Total assets Total liabilities Balance sheet position Off-balance sheet position In millions of kroons, as at 31 December 2004 Common position of EEK and EUR USD Other Total Common position of EEK and EUR USD Other Total Total assets Total liabilities Balance sheet position Off-balance sheet position AS Sampo Pank Annual Report

62 DECLARATION OF THE MANAGEMENT BOARD OF AS SAMPO PANK The Management Board of AS Sampo Pank is responsible for the preparation of the 2005 Financial Statements presented on pages and confirms that: a) the Financial Statements have been compiled in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU ; b) the Financial Statements present a true and fair view of the financial situation, business results and cash flows of the and the ; c) AS Sampo Pank is a going concern. Aivar Rehe Chairman of the Management Board 20 February 2006 Ivar Pae Member of the Management Board 20 February 2006 Indrek Puskar Member of the Management Board 20 February 2006 Margus Žuravljov Member of the Management Board 20 February

63 APPROVAL OF THE SUPERVISORY BOARD The Supervisory Board of AS Sampo Pank approved the Annual Report for 2005 complied by the Management Board. Georg Schubiger 30 March 2006 Gintautas Galvanauskas 30 March 2006 Petri Kalervo Niemisvirta 30 March 2006 Jukka Edvin Ohls 30 March 2006 Markku Pehkonen 30 March 2006 Risto Tornivaara 30 March 2006 Härmo Värk 30 March 2006 AS Sampo Pank Annual Report

64 AUDITOR S REPORT 64

65 PROPOSAL FOR THE DISTRIBUTION OF PROFIT On 20 February 2006, Sampo Pank s Management Board confirmed the Financial Statements and the Management Report for Sampo Pank s Management Board proposes to distribute the profit for the financial year 2005 in the amount EEK as follows: a) to carry an amount of EEK to the reserve capital under the balance sheet item Reserve ; b) to carry an amount EEK to the next periods under the balance sheet item Retained earnings. AS Sampo Pank Annual Report