Interim Report January June

Transcription

1 Interim Report January June

2 INTERIM REPORT JANUARY JUNE Handelsbanken s Interim Report JANUARY JUNE Summary January June, compared with January June Profit after tax for total operations went up by 12 per cent to SEK 6,068 million (5,426) and earnings per share after dilution increased by 12 per cent to SEK 9.59 (8.57) Operating profit for continuing operations went up by 10 per cent to SEK 8,066 million (7,331) Return on equity for total operations was 13.6 per cent (12.8) Net interest income rose by 8 per cent to SEK 11,190 million (10,398) and by 10 per cent excluding exchange rate effects Income rose by 3 per cent to SEK 16,107 million (15,662) Tier 1 capital went up by SEK 4.8 billion to SEK 91.4 billion (86.6) and the Tier 1 ratio according to Basel II increased to 17.4 per cent (14.8) The average volume of loans to the public grew by 3 per cent to SEK 1,519 billion (1,473) Summary of, compared with Profit after tax for total operations grew by 7 per cent to SEK 3,136 million (2,932) and earnings per share after dilution increased by 7 per cent to SEK 4.95 (4.63) Operating profit for continuing operations went up by 5 per cent to SEK 4,136 million (3,930) Return on equity for total operations was 14.0 per cent (13.2) Net interest income rose by 3 per cent to SEK 5,683 million (5,507) Income increased by 3 per cent to SEK 8,169 million (7,938) The loan loss ratio was 0.04 per cent (0.06) The average volume of loans to the public grew by 4 per cent to SEK 1,552 billion (1,486), while the average volume of deposits increased by 3 per cent to SEK 614 billion (595) The liquidity reserve was maintained at a level of more than SEK 600 billion 2 Handelsbanken

3 INTERIM REPORT JANUARY JUNE Contents Page Group Overview 4 Business segments 5 Group performance 6 Branch office operations in Sweden 9 Branch office operations outside Sweden 11 Branch office operations in Great Britain 13 Branch office operations in Denmark 14 Branch office operations in Finland 15 Branch office operations in Norway 16 Handelsbanken International 17 Handelsbanken Capital Markets 18 Other 21 Condensed set of financial statements The Group 22 Key figures 22 Income statement 23 Earnings per share 23 Statement of comprehensive income 24 Quarterly performance 24 Balance sheet 25 Statement of changes in equity 26 Condensed statement of cash flows 26 Note 1 Accounting policies 26 Note 2 Net fee and commission income 27 Note 3 Net gains/losses on financial items at fair value 27 Note 4 Other administrative expenses 27 Note 5 Loan losses, impaired loans and pledged assets taken over 28 Note 6 Loans to the public 30 Note 7 Classification of financial assets and liabilities 32 Note 8 Fair value measurement of financial assets and liabilities 34 Note 9 Capital base and capital requirement in the banking group 35 Note 10 Goodwill and other intangible assets 37 Note 11 Derivatives 37 Note 12 Risks and uncertainty factors 38 Note 13 Liquidity and funding 38 Note 14 The Handelsbanken share 40 Note 15 Turnover of own debt instruments and shares 40 Note 16 Contingent liabilities 40 Note 17 Related-party transactions 40 Note 18 Discontinued operations 40 Parent company 41 Auditors report 44 Information on phone conference, etc 45 Share price performance and other information 46 3 Handelsbanken

4 INTERIM REPORT JANUARY JUNE Handelsbanken Group Overview Change Change Change Summary income statement Net interest income 5,683 5,082 12% 5,507 3% 11,190 10,398 8% 21,337 Net fee and commission income 1,949 1,988-2% 1,944 0% 3,893 3,971-2% 8,022 Net gains/losses on financial items at fair value % % % 1,377 Risk result - insurance % 81-53% % 205 Other dividend income % % 190 Share of profit of associated companies % % 11 Other income % 42-24% % 154 Total income 8,169 7,653 7% 7,938 3% 16,107 15,662 3% 31,296 Staff costs -2,477-2,352 5% -2,457 1% -4,934-4,708 5% -9,504 Other administrative expenses -1,273-1,276 0% -1,189 7% -2,462-2,471 0% -5,062 Depreciation, amortisation and impairments of property, equipment and intangible assets % % % -452 Total expenses -3,862-3,745 3% -3,764 3% -7,626-7,411 3% -15,018 Profit before loan losses 4,307 3,908 10% 4,174 3% 8,481 8,251 3% 16,278 Net loan losses % % % -1,507 Gains/losses on disposal of property, equipment and intangible assets Operating profit 4,136 3,539 17% 3,930 5% 8,066 7,331 10% 14,770 Taxes -1,048-1,019 3% -1,047 0% -2,095-1,987 5% -3,962 Profit for the period from continuing operations 3,088 2,520 23% 2,883 7% 5,971 5,344 12% 10,808 Profit for the period from discontinued operations, after tax % 49-2% % 217 Profit for the period 3,136 2,573 22% 2,932 7% 6,068 5,426 12% 11,025 Summary balance sheet Loans to the public 1,567,152 1,511,136 4% 1,531,500 2% 1,567,152 1,511,136 4% 1,513,687 of which mortgage loans 795, ,228 10% 772,800 3% 795, ,228 10% 758,847 Deposits and borrowing from the public 645, ,210 8% 641,709 1% 645, ,210 8% 564,142 of which households 249, ,754 4% 242,831 3% 249, ,754 4% 243,930 Total equity 89,275 82,592 8% 85,312 5% 89,275 82,592 8% 88,391 Total assets 2,249,823 2,325,621-3% 2,249,549 0% 2,249,823 2,325,621-3% 2,153,530 Summary of key figures Return on equity, total operations * 14.0% 12.0% 13.2% 13.6% 12.8% 12.9% Return on equity, continuing operations * 13.8% 11.8% 12.9% 13.4% 12.6% 12.6% C/I ratio, continuing operations 47.3% 48.9% 47.4% 47.3% 47.3% 48.0% Earnings per share, total operations, SEK after dilution Tier 1 ratio according to Basel II 17.4% 14.8% 17.2% 17.4% 14.8% 16.5% * When calculating return on equity, equity is adjusted for the impact of unrealised changes in the value of financial assets classified as "Available for Sale" and for cash flow hedges. 4 Handelsbanken

5 INTERIM REPORT JANUARY JUNE Business segments THE GROUP S INCOME STATEMENT BY BUSINESS SEGMENT, JANUARY JUNE Branch office operations in Sweden Branch office operations outside Sweden Capital Markets Other Adjustments & eliminations Group Group Net interest income 7,622 3, ,190 10,398 Net fee and commission income 1, , ,893 3,971 Net gains/losses on financial items at fair value Risk result - insurance Share of profits of associated companies Other income Total income 9,736 4,130 2, ,107 15,662 Staff costs -1,568-1,322-1,102-1, ,934-4,708 Other administrative expenses ,462-2,471 Internal purchased and sold services -1, , Depreciation and amortisation Total expenses -3,573-2,338-1, ,626-7,411 Profit before loan losses 6,163 1, ,481 8,251 Net loan losses Gains/losses on disposal of property, equipment and intangible assets Operating profit 6,221 1, ,066 7,331 Profit allocation Operating profit after profit allocation 6,572 1, ,066 7,331 Internal income * -1,219-3, ,265 - Cost/income ratio, % Loan loss ratio, % Allocated capital 48,775 23,779 6,263 10,458 89,275 82,592 Return on allocated capital, % Average number of employees 4,422 3,092 1,618 1,946 11,078 10,677 * Internal income which is included in total income, comprises income from transactions with other operating segments. Since interest income and interest expense are reported net as income, this means that internal income includes the net amount of the internal funding cost among the segments. The business segments are recognised in compliance with IFRS 8, Operating Segments, which means that the segment information is presented in a similar manner to that which is applied internally as part of company governance. Handelsbanken s operations comprise Branch office operations in Sweden, Branch office operations outside Sweden and Capital Markets. Profit/loss for the segments is reported before and after internal profit allocation. Internal profit allocation means that the unit which is responsible for the customer is allocated all the profits deriving from its customers transactions with the Bank, regardless of the segment where the transaction was performed. Furthermore, income and expenses for services performed internally are reported net under Internal purchased and sold services. Transactions among the segments are reported primarily according to the cost price principle. The Other and Adjustments and eliminations columns show items which do not belong to a specific segment or which are eliminated at Group level. Other includes Treasury and central administrative departments and the cost of Oktogonen. The Adjustments and eliminations column includes translation differences and adjustments for staff costs. Adjustments for staff costs include the difference between the Group s pension costs calculated in accordance with IAS 19 Compensation to employees and the standard pension costs for the segments. The income statements by segment include internal items such as internal interest, commissions and payment for internal services rendered, primarily according to the cost price principle. Return on allocated capital for the segments is calculated based on average allocated equity and a tax rate of 26.3 per cent. For the Group, return on equity is calculated after reported tax. 5 Handelsbanken

6 INTERIM REPORT JANUARY JUNE Group performance JANUARY JUNE COMPARED WITH JANUARY JUNE Profit after tax for total operations grew by 12 per cent to SEK 6,068 million (5,426) and earnings per share increased by 12 per cent to SEK 9.75 (8.73) Return on equity for total operations was 13.6 per cent (12.8). Operating profit rose by 10 per cent to SEK 8,066 million (7,331), chiefly due to higher net interest income and lower loan losses. Adjusted for exchange rate movements of SEK -91 million, profit grew by 11 per cent. The C/I ratio for continuing operations was 47.3 per cent (47.3). Income Change Net interest income 11,190 10,398 8% Net fee and commission income 3,893 3,971-2% Net financial items % Other income % Total income 16,107 15,662 3% Income rose by 3 per cent to SEK 16,107 million, mainly due to higher net interest income. Disregarding exchange rate movements of SEK -400 million, income grew by 5 per cent. Net interest income rose by 8 per cent or SEK 792 million to SEK 11,190 million due to improved deposit margins and rising deposit and lending volumes. Excluding exchange rate movements of SEK -284 million, net interest income rose by 10 per cent. The fact that the Bank s refinancing was brought forward in time raised interest expense by some SEK -200 million. The Group s costs for various government fees that burden net interest income rose by SEK 178 million to SEK -499 million (-321). This increase was primarily due to the fact that the full, standard fee is payable to the Swedish Stabilisation Fund as of, compared with a halved fee in previous periods. The average volume of loans to the public grew by 3 per cent to SEK 1,519 billion (1,473). Adjusted for exchange rate movements, the increase was 6 per cent. Higher demand from companies during the second quarter contributed to a break in the trend of decreasing volumes and the average volume of corporate lending was unchanged. However, the volume of corporate lending was 3 per cent higher at the end of the period than at the beginning of the year. Demand for household credit was stable and the average volume rose by 7 per cent to SEK 712 billion (664). The average volume of deposits increased by 11 per cent, with figures of 7 per cent for the household sector and 14 per cent for the corporate sector. Net fee and commission income fell by 2 per cent to SEK 3,893 million (3,971). The decrease was mainly due to lower turnover in the equity markets which resulted in a 16 per cent fall in brokerage income, and also from lower lending commissions. The decline was offset by the fact the net payment commissions rose by 10 per cent and that fund management commissions increased by 15 per cent. In the first half of the year, the Bank s market share for net savings in mutual funds in Sweden was 71 per cent. Net gains/losses on financial items at fair value decreased to SEK 669 million (924), chiefly because the current uncertainty in the financial markets has affected market activity negatively. Expenses Change Staff costs -4,934-4,708 5% Other administrative expenses -2,462-2,471 0% Depreciation and amortisation % Total expenses -7,626-7,411 3% Total expenses increased by 3 per cent to SEK -7,626 million. Staff costs rose by 5 per cent, chiefly due to annual salary adjustments and a higher number of employees. The allocation made to the Oktogonen Foundation increased to SEK -420 million (-376). Variable compensation, including social security costs and other payroll overheads, was SEK -130 million (-132). The average number of employees increased by 4 per cent to 11,078 (10,677). Other administrative expenses fell slightly to SEK-2,462 million (-2,471). Loan losses Change Net loan losses Loan loss ratio as a % of loans, annualised Impaired loans, net 3,777 2,755 1,022 Proportion of impaired loans, % Handelsbanken

7 INTERIM REPORT JANUARY JUNE COMPARED WITH Profit after tax for total operations went up by 7 per cent to SEK 3,136 million (2,932) and earnings per share increased by 7 per cent to SEK 5.04 (4.71). Return on equity was 14.0 per cent (13.2). Operating profit grew by 5 per cent to SEK 4,136 million (3,930), due to improved net interest income and higher dividend income. Income Change Net interest income 5,683 5,507 3% Net fee and commission income 1,949 1,944 0% Net financial items % Other income % Total income 8,169 7,938 3% Net interest income rose by 3 per cent, or SEK 176 million, to SEK 5,683 million. SEK 50 million of the increase was attributable to rising loan volumes in Sweden, while improved lending margins in Swedish branch office operations contributed SEK 63 million. Deposit margins in Sweden were virtually unchanged. Exchange rate effects had a SEK 13 million positive impact on net interest income. Fees for state guarantees and other deposit guarantees affecting net interest income increased by SEK 13 million to SEK -256 million (-243). The benchmark effect in Stadshypotek amounted to SEK -7 million (-10). The increase in credit demand from companies that was noted towards the end of the first quarter of was also evident in the second quarter, and the average volume of loans to the public increased by SEK 66 billion, or 4 per cent, to SEK 1,552 billion (1,486). Exchange rate effects were slightly positive, accounting for SEK 4 billion of the increase. The average volume of corporate lending rose by 6 per cent. Overall average deposits rose by 3 per cent to SEK 614 billion (595). The average volume of household deposits increased by 2 per cent, while corporate deposits grew by 4 per cent. Net fee and commission income was more or less unchanged at SEK 1,949 million (1,944). Lower equityrelated commission income was offset by increasing payment commissions. Commission income from payments increased by SEK 61 million or 10 per cent to SEK 651 million, mainly due to an increase in commission income from card operations by 10 per cent to SEK 431 million (391). Net gains/losses on financial items at fair value amounted to SEK 308 million (361). Expenses Change Staff costs -2,477-2,457 1% Other administrative expenses -1,273-1,189 7% Depreciation and amortisation % Total expenses -3,862-3,764 3% Total expenses increased by 3 per cent to SEK -3,862 million. Staff costs rose by 1 per cent. The allocation to the Oktogonen profit-sharing foundation amounted to SEK -210 million (-210), while variable compensation, including social security costs and other payroll overheads, totalled SEK -64 million (-66). Other administrative expenses rose by SEK 84 million, or 7 per cent, to SEK -1,273 million. The second quarter was burdened with various government fees totalling SEK -54 million (-1). The average number of employees rose slightly to 11,091 (11,066). Loan losses Change Net loan losses Loan loss ratio as a % of loans, annualised Impaired loans, net 3,777 3, Proportion of impaired loans, % PERFORMANCE IN THE BUSINESS SEGMENTS ( compared with ) In Branch office operations in Sweden operating profit increased by 5 per cent to SEK 3,180 million (3,041), due to a 3 per cent rise in net interest income and a 4 per cent drop in costs. The loan loss ratio was per cent (-0.01). In Branch office operations outside Sweden, operating profit increased by 12 per cent to SEK 696 million (623), due to growing income and lower loan losses. The loan loss ratio fell to 0.19 per cent (0.26). Handelsbanken Capital Markets operating profit was more or less unchanged at SEK 311 million (316). Net fee and commission income rose to SEK 713 million (621), partly as a result of higher advisory and insurance commissions. 7 Handelsbanken

8 INTERIM REPORT JANUARY JUNE FUNDING AND LIQUIDITY Handelsbanken maintains a strong position on the funding market, and thus can attract long-term market funding at attractive prices. The Bank s five-year CDS spread remains at the lowest level among European banks, and interest in the Bank s issues has remained substantial. In the first half of the year, the issue volume for long-term funding amounted to SEK 122 billion, comprising SEK 48 billion in senior funding and SEK 74 billion in covered bonds. As at e, the Bank had pre-financed all bonds maturing up to the second quarter of At the beginning of the third quarter, a five-year bond issue of USD 1.25 billion was carried out on the US market. This issue was the Bank s first 3(a)(2) issue, which means that the bond is included in some indexes, enabling the Bank to gain a broader investor base. The issue was heavily oversubscribed, attracting great interest from US, Asian and European investors alike. During the period, the Riksbank expressed a degree of concern that Swedish banks have heavy short-term deposits and funding in USD, and that part of this is funding long-term lending in USD, which is leading to undesirable liquidity risks in a foreign currency to which the Riksbank, in a stress situation, cannot guarantee access. In line with Handelsbanken s restrictive view on liquidity and currency risks, the inflow of short-term placements in foreign currency is consistently invested in short-term assets in the same currency, or swapped short-term into another desired currency. Over a long period, Handelsbanken s stable financial situation has created a strong position on the US market, and the Bank constantly has a large inflow of short-term dollar placements, which in line with the Bank s policy are also invested short-term. Regarding the Bank s bond funding in USD (and other foreign currencies), this is consistently swapped at the time of issue to the desired lending currency for the entire maturity up to and including the final maturity date of the bond. The Bank has continued to hold a liquidity reserve exceeding SEK 600 billion. This reserve covers the Bank s liquidity requirement for over two years, even if access to new funding in the markets were to disappear. Of the reserve, liquid assets placed with central banks increased to SEK 230 billion, and the collateral value of liquid bonds was SEK 81 billion. The remainder comprises an unutilised issue amount for covered bonds at Stadshypotek. CAPITAL 31 Mar Change Tier 1 ratio according to Basel II 17.4% 17.2% Capital ratio according to Basel II 19.7% 20.4% Equity 89,275 85,312 5% Tier 1 capital 91,393 88,819 3% The capital base was SEK 103 billion (105). This decrease was due to the fact that in the second quarter the Bank repaid a fixed-term subordinated loan in euro corresponding to SEK 5.4 billion. As a result of this, the capital ratio according to Basel II decreased to 19.7 per cent, compared with 20.4 per cent at the end of the preceding quarter. Equity increased by 5 per cent to SEK 89.3 billion. During the quarter, Tier 1 capital rose by SEK 2.6 billion to SEK 91.4 billion, and the Tier 1 ratio according to Basel II went up by 0.2 percentage points to 17.4 per cent. The period s profit made a positive contribution of 0.3 percentage points, while the continued improvement in credit quality contributed 0.2 percentage points. Increasing lending volumes, chiefly to companies, reduced the Tier 1 ratio by 0.3 percentage points. RATING During the period, Handelsbanken s short-term and long-term ratings were unchanged with the four rating agencies which monitor the Bank. All rating agencies gave the Bank a stable outlook. Long-term Short-term Standard & Poor's AA- A-1+ Fitch AA- F1+ Moody's Aa2 P-1 C+ DBRS AA (low) Financial strength DISCONTINUED OPERATIONS Discontinued operations includes businesses acquired by the Bank to protect its claims that it intends to sell. Profit after tax stemmed mainly from operations in the Plastal Group and totalled SEK 97 million in the first six months of, as compared to 82 million in the corresponding period of the previous year. Plastal is now displaying good profitability. 8 Handelsbanken

9 INTERIM REPORT JANUARY JUNE Branch office operations in Sweden Branch office operations in Sweden comprise six regional banks, as well as Handelsbanken Finans s and Stadshypotek s operations in Sweden. At Handelsbanken, the branches are the base of all operations, with responsibility for all customers. The regional banks deliver universal banking services and are run with the goal of having higher profitability than peer banks. Handelsbanken Finans has a full range of finance company services. Handelsbanken Finans works through the Bank s branches and in financing collaborations with retailers and vendors. Stadshypotek is the Bank s mortgage company, and is completely integrated with the branch operations. INCOME STATEMENT Change Change Change Net interest income 3,872 3,079 26% 3,750 3% 7,622 6,291 21% 12,993 Net fee and commission income % 915 2% 1,846 1,839 0% 3,819 Net gains/losses on financial items at fair value % % % 704 Other income % Total income 4,902 4,170 18% 4,834 1% 9,736 8,415 16% 17,532 Staff costs % % -1,568-1,502 4% -3,012 Other administrative expenses % % % -1,010 Internal purchased and sold services % % -1,386-1,462-5% -2,958 Depreciation and amortisation % -23-9% % -85 Total expenses -1,751-1,759 0% -1,822-4% -3,573-3,485 3% -7,065 Profit before loan losses 3,151 2,411 31% 3,012 5% 6,163 4,930 25% 10,467 Net loan losses % 29 0% Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit 3,180 2,469 29% 3,041 5% 6,221 4,873 28% 10,368 Profit allocation % 181-6% % 811 Operating profit after profit allocation 3,350 2,676 25% 3,222 4% 6,572 5,199 26% 11,179 Internal income % % -1, % -2,004 Cost/income ratio, % Loan loss ratio, % Allocated capital 48,775 40,609 20% 50,634-4% 48,775 40,609 20% 43,880 Return on allocated capital, % Average number of employees 4,449 4,309 3% 4,395 1% 4,422 4,327 2% 4,386 Number of branches % 461 0% % 461 BUSINESS VOLUMES Average volumes, SEK bn Change Change Change Loans to the public* Household % 557 2% % 534 of which mortgage loans % 505 2% % 478 Corporate % 460 4% % 464 of which mortgage loans % 206 2% % 190 Total 1, % 1,017 3% 1, % 998 Deposits and borrowing from the public Household % 191 2% % 182 Corporate % 156-1% % 150 Total % 347 1% % 332 * excl. loans to the National Debt Office 9 Handelsbanken

10 INTERIM REPORT JANUARY JUNE JANUARY JUNE COMPARED WITH JANUARY JUNE Earnings performance Operating profit rose by 28 per cent to SEK 6,221 million (4,873), chiefly due to improved net interest income. Net interest income rose by 21 per cent to SEK 7,622 million (6,291). Higher deposit margins resulting from higher interest rates caused net interest income to improve by SEK 1,258 million, while lending margins were negatively affected by SEK -240 million. The effect of greater deposit and lending volumes amounted to SEK 322 million. Fees to the Swedish Stabilisation Fund rose by SEK 108 million, and burdened net interest income by SEK -216 million (-108). Net fee and commission income was more or less unchanged. Net gains/losses on financial items at fair value, which consists chiefly of currency conversions and early redemption charges, decreased to SEK 254 million (284). Total expenses rose by 3 per cent to SEK -3,573 million (-3,485). Staff costs rose by 4 per cent as a result of the annual salary adjustment for and a 2 per cent increase in the average number of employees. The C/I ratio improved to 35.4 per cent (39.9). Recoveries exceeded the period s loan losses; net recoveries totalled SEK 58 million (-57). Thus the loan loss ratio improved to per cent (0.01). Business development The average volume of deposits from households continued to increase, amounting to SEK 193 billion (176), a rise of 10 per cent compared with the previous year. At the same time, figures from Svensk Fondstatistik showed that Handelsbanken s share of the mutual funds market continues to grow. During the first six months of the year, the Bank s share of the total net inflow on the Swedish mutual funds market amounted to 71 per cent. The average volume of mortgage loans to private individuals grew by 9 per cent to SEK 509 billion (466), although the rate of increase fell back during the second quarter. Credit demand from corporate customers increased during the second quarter, and as at e lending to companies totalled SEK 488 billion, 7 per cent higher than at the start of the year. COMPARED WITH Operating profit increased by 5 per cent to SEK 3,180 million (3,041), due to improved net interest income and lower costs. Net interest income grew by SEK 122 million, or 3 per cent, between the quarters. SEK 50 million of the increase was attributable to higher loan volumes, while rising lending margins contributed SEK 63 million. Deposit margins remained unchanged. The benchmark effect in Stadshypotek was marginal, amounting to SEK -7 million (-10). Fees for the Swedish Stabilisation Fund and the deposit guarantee increased to SEK -163 million (-155). Loans to households continued to grow, and the average volume of mortgage loans to private customers increased by SEK 9 billion to SEK 514 billion (505). The margin on the mortgage loan portfolio was 0.73 per cent (0.68). The average volume of corporate lending grew to SEK 479 billion (460); this was an increase of SEK 19 billion, compared with an increase of SEK 3 billion in the first quarter of the year. Net fee and commission income increased by 2 per cent to SEK 931 million (915), largely due to higher payment commissions. Brokerage income decreased in the wake of lower customer activity. Net gains/losses on financial items at fair value decreased to SEK 100 million (154). Total expenses decreased by SEK 71 million to SEK 1,751 million (1,822). SEK 28 million of this decrease was attributable to a reallocation of costs to Norwegian operations. Staff costs fell by 3 per cent, which was entirely attributable to this reallocation. Other expenses decreased by 5 per cent, partly due to lower IT costs. Recoveries exceeded the quarter s loan losses; net recoveries totalled SEK 29 million (29). The loan loss ratio was per cent (-0.01) 10 Handelsbanken

11 INTERIM REPORT JANUARY JUNE Branch office operations outside Sweden Branch office operations outside Sweden comprise the regional banks in Denmark, Norway and Finland, as well as the three regional banks in the UK. These countries, together with Sweden, are regarded as the Bank s home markets. The branch operations in these countries are run according to the same concept as in Sweden to provide universal banking services with a higher service level and at lower cost than peer banks. This business segment also includes Handelsbanken International as well as Handelsbanken Finans s and Stadshypotek s operations outside Sweden. Handelsbanken International is responsible for branch operations outside the Bank s home markets. INCOME STATEMENT Change Change Change Net interest income 1,590 1,737-8% 1,558 2% 3,148 3,502-10% 6,933 Net fee and commission income % 350 9% % 1,537 Net gains/losses on financial items at fair value % 87 56% % 273 Other income % 9 122% % 66 Total income 2,126 2,201-3% 2,004 6% 4,130 4,444-7% 8,809 Staff costs % % -1,322-1,302 2% -2,590 Other administrative expenses % % % -1,054 Internal purchased and sold services % % % -900 Depreciation and amortisation % -18-6% % -73 Total expenses -1,230-1,113 11% -1,108 11% -2,338-2,247 4% -4,617 Profit before loan losses 896 1,088-18% 896 0% 1,792 2,197-18% 4,192 Net loan losses % % % -1,408 Gains/losses on disposal of property, equipment and intangible assets Operating profit % % 1,319 1,334-1% 2,784 Profit allocation % % % 202 Operating profit after profit allocation % % 1,381 1,418-3% 2,986 Internal income -1,884-1,532-23% -1,519-24% -3,403-2,855-19% -5,954 Cost/income ratio, % Loan loss ratio, % Allocated capital 23,779 26,802-11% 24,992-5% 23,779 26,802-11% 25,117 Return on allocated capital, % Average number of employees 3,121 2,893 8% 3,062 2% 3,092 2,890 7% 2,931 Number of branches % 273 2% % 262 BUSINESS VOLUMES Average volumes, SEK bn Change Change Change Loans to the public Household % 146 5% % 143 Corporate % 296 3% % 318 Total % 442 3% % 461 Deposits and borrowing from the public Household % 39 5% % 42 Corporate % 103 0% % 103 Total % 142 1% % Handelsbanken

12 INTERIM REPORT JANUARY JUNE JANUARY JUNE COMPARED WITH JANUARY JUNE Earnings performance Operating profit fell by 1 per cent to SEK 1,319 million (1,334). Excluding exchange rate movements of SEK -65 million, operating profit increased by 4 per cent. Net interest income decreased by SEK 354 million, or 10 per cent, to SEK 3,148 million (3,502), with SEK 257 million of the decrease being due to exchange rate effects. Fees for state and deposit guarantees rose by SEK 39 million to SEK -163 million (-124). Expenses rose by 4 per cent, or SEK 91 million, chiefly due to the expansion of branch operations in the UK. Loan losses fell by 45 per cent to SEK -474 million (-863), and the loan loss ratio was 0.22 per cent (0.35). The average volume of loans decreased by SEK 18 billion, or 4 per cent, to SEK 450 billion (468), which was entirely attributable to exchange rate movements of SEK -39 billion. Adjusted for this, the average volume increased by 5 per cent. COMPARED WITH Operating profit rose by 12 per cent to SEK 696 million (623), due to lower loan losses. Profit before loan losses was unchanged at SEK 896 million (896). Net interest income rose by SEK 32 million, or 2 per cent, to SEK 1,590 million (1,558), mainly as a result of higher lending volumes. In local currencies, lending volumes increased on all home markets. Exchange rate movements positively affected net interest income by SEK 13 million. Expenses rose to SEK -1,230 million (-1,108). Expansion costs for new branch offices amounted to SEK -49 million (-42). Loan losses went down to SEK -201 million (-273), and the loan loss ratio dropped to 0.19 per cent (0.26). 12 Handelsbanken

13 INTERIM REPORT JANUARY JUNE Branch office operations in Great Britain INCOME STATEMENT Change Change Change Net interest income % 329 9% % 1,270 Net fee and commission income % 16 31% % 73 Net gains/losses on financial items at fair value % 17 12% % 61 Other income 0 0 0% 0 0% 0 0 0% 0 Total income % % % 1,404 Staff costs % % % -523 Other administrative expenses % % % -133 Internal purchased and sold services % % % -108 Depreciation and amortisation % -2 0% % -9 Total expenses % % % -773 Profit before loan losses % % % 631 Net loan losses % % % -220 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit % % % 411 Profit allocation % 3 67% 8 8 0% 20 Operating profit after profit allocation % % % 431 Average number of employees % 689 6% % 585 Number of branches % 90 6% % 83 BUSINESS VOLUMES Average volumes, GBP m Change Change Change Loans to the public Household 1,851 1,250 48% 1,667 11% 1,759 1,207 46% 1,324 Corporate 5,461 4,722 16% 5,081 7% 5,271 4,620 14% 4,769 Total 7,312 5,972 22% 6,748 8% 7,030 5,827 21% 6,093 Deposits and borrowing from the public Household % 361-1% % 335 Corporate 1,335 1,015 32% 1,110 20% 1,222 1,025 19% 1,071 Total 1,691 1,350 25% 1,471 15% 1,581 1,350 17% 1,406 JANUARY JUNE COMPARED WITH JANUARY JUNE Earnings performance Operating profit decreased by 8 per cent to SEK 250 million (272) due to higher loan losses. The stronger Swedish krona also had a negative impact on the profit figure. In local currency, profit before loan losses grew by 27 per cent. Income rose by 17 per cent and net interest income grew by 17 per cent to SEK 687 million (587), which was attributable to larger business volumes. Average deposit volumes rose by 17 per cent, while lending volumes grew by 21 per cent. Exchange rate effects had a SEK -52 million impact on net interest income. In local currency, net interest income grew by 28 per cent. Net gains/losses on financial items grew by 44 per cent to SEK 36 million (25), due to the increased volume of customer business. Expenses rose by 18 per cent to SEK -428 million (-363) as a result of the continued expansion of the branch network. The expansion of the branch network caused the average number of employees to rise by 30 per cent to 709 (547). In local currency, expenses rose by 29 per cent. Loan losses were SEK -82 million (-15). Business development The average volume of loans rose by 21 per cent to GBP 7,030 million (5,827), with loans to households rising by 46 per cent. Deposit volumes grew by 17 per cent to GBP 1,581 million (1,350), while corporate deposits increased by 19 per cent. Twelve branches were opened during the first six months of the year. Since the mid-point of, the Bank has opened 23 new branches in the UK. COMPARED WITH Operating profit rose by 48 per cent to SEK 149 million (101), partly due to higher income, and partly to lower provisions for possible loan losses. Profit before loan losses, adjusted for exchange rate movements, increased by 13 per cent, due to improved net interest income. Net interest income, expressed in local currency, grew by 10 per cent, due to greater business volumes. Loan losses fell to SEK -26 million (-56). 13 Handelsbanken

14 INTERIM REPORT JANUARY JUNE Branch office operations in Denmark INCOME STATEMENT Change Change Change Net interest income % 272 3% % 1,199 Net fee and commission income % 70 0% % 290 Net gains/losses on financial items at fair value % 8 138% % 55 Other income % 2 300% % 16 Total income % 352 7% % 1,560 Staff costs % % % -551 Other administrative expenses % % % -229 Internal purchased and sold services % % % -204 Depreciation and amortisation % -4 0% % -17 Total expenses % % % -1,001 Profit before loan losses % % % 559 Net loan losses % % % -367 Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% 0 0 0% 0 Operating profit % % 192 Profit allocation % % 12 Operating profit after profit allocation % % 204 Average number of employees % 621 1% % 627 Number of branches % 54 0% % 53 BUSINESS VOLUMES Average volumes, DKK bn Change Change Change Loans to the public Household % % % 19.5 Corporate % % % 20.1 Total % % % 39.6 Deposits and borrowing from the public Household % 8.1 2% % 8.5 Corporate % % % 12.3 Total % % % 20.8 JANUARY JUNE COMPARED WITH JANUARY JUNE Earnings performance Operating profit decreased to SEK 78 million (274), mainly due to higher loan losses, as well as costs for the Danish deposit guarantee fund. Both income and expenses were affected by the 9 per cent appreciation of the Swedish krona. Income fell by 9 per cent, which was entirely due to exchange rate fluctuations. Net interest income decreased by SEK 55 million, of which SEK 52 million was due to exchange rate movements. The fee for the Swedish Stabilisation Fund burdened net interest income by SEK -17 million (-8). Stiff competition for deposits, coupled with the low interest rate environment, squeezed deposit margins. Loan losses totalled SEK -151 million (-42), stemming mainly from one customer exposure. Business development The Bank has a stable supply of new customers, and the average volume of lending increased by 5 per cent to DKK 41.1 billion (39.3). The Bank s lending to households rose by 13 per cent, while lending to companies fell by 3 per cent, due to the very low demand for credit in the market. The Bank increased its market share of lending to both households and companies. Volumes at the Bank s fund management company Handelsinvest grew by 36 per cent during the period. COMPARED WITH Operating profit rose to SEK 84 million (-6), due to lower loan losses. The effect of exchange rate movements was marginal. Owing to the bankruptcies of Amagerbanken and Fjordbank Mors, expenses were charged with a fee to the Danish deposit guarantee fund of SEK -22 million (-1). Net interest income grew by 3 per cent, or SEK 8 million, despite higher fees for the Swedish Stabilisation Fund. Loan losses fell to SEK -21 million (-130). 14 Handelsbanken

15 INTERIM REPORT JANUARY JUNE Branch office operations in Finland INCOME STATEMENT Change Change Change Net interest income % 205-1% % 974 Net fee and commission income % 86 15% % 392 Net gains/losses on financial items at fair value % 9 222% % 27 Other income 2 2 0% 2 0% 4 4 0% 7 Total income % % % 1,400 Staff costs % -81-2% % -354 Other administrative expenses % % % -212 Internal purchased and sold services % % % -189 Depreciation and amortisation % -5 0% % -20 Total expenses % % % -775 Profit before loan losses % % % 625 Net loan losses % -427 Gains/losses on disposal of property, equipment and intangible assets Operating profit % Profit allocation % % % 55 Operating profit after profit allocation % Average number of employees % 477-2% % 487 Number of branches % 45 0% % 45 BUSINESS VOLUMES Average volumes, EUR m Change Change Change Loans to the public Household 3,231 3,153 2% 3,209 1% 3,220 3,137 3% 3,160 Corporate 6,728 6,817-1% 6,600 2% 6,664 6,781-2% 6,745 Total 9,959 9,970 0% 9,809 2% 9,884 9,918 0% 9,905 Deposits and borrowing from the public Household 1,227 1,272-4% 1,214 1% 1,220 1,270-4% 1,263 Corporate 1,706 2,446-30% 2,249-24% 1,977 2,525-22% 2,515 Total 2,933 3,718-21% 3,463-15% 3,197 3,795-16% 3,778 JANUARY JUNE COMPARED WITH JANUARY JUNE Earnings performance Operating profit improved by SEK 394 million to SEK 287 million (-107), due to lower loan losses. Profit before loan losses declined by SEK 32 million, of which SEK 19 million is due to exchange rate movements. The fee for the Swedish Stabilisation Fund burdened profits by SEK 21 million (14). Net interest income fell by 21 per cent but adjusted for exchange rate movements, the decrease was 13 per cent. This was partly due to a higher fee to the Swedish Stabilisation Fund and lower deposit volumes. Net fee and commission income, expressed in local currency, increased by 6 per cent, largely due to higher securities commissions. Expenses fell by 14 per cent, or SEK 52 million, of which SEK 34 million was due to the stronger Swedish krona. In local currency, expenses went down by 5 per cent, which was mainly due to the average number of employees decreasing by 17 persons, or 3 per cent. Loan losses fell to SEK -16 million (-442). Business development During the second quarter, credit demand from companies increased, and the average volume was up by 2 per cent from the preceding quarter. Deposits from the public decreased by 15 per cent, mainly due to lower corporate deposits. In May, Stadshypotek AB opened a branch in Finland. COMPARED WITH Operating profit rose by 52 per cent to SEK 173 million (114), which was attributable to higher income and lower loan losses. Adjusted for exchange rate movements, profit before loan losses increased by 26 per cent, due to higher income as well as lower expenses. Income increased by 10 per cent, while expenses fell by 2 per cent. Recoveries exceeded the quarter s loan losses; net recoveries totalled SEK 4 million (-20). 15 Handelsbanken

16 INTERIM REPORT JANUARY JUNE Branch office operations in Norway INCOME STATEMENT Change Change Change Net interest income % 555 2% 1,119 1,316-15% 2,564 Net fee and commission income % 70 23% % 301 Net gains/losses on financial items at fair value % % 109 Other income % 4 100% % 38 Total income % 658 4% 1,343 1,527-12% 3,012 Staff costs % % % -570 Other administrative expenses % -64-3% % -255 Internal purchased and sold services % % % -216 Depreciation and amortisation % -4-25% % -15 Total expenses % % % -1,056 Profit before loan losses % 383-3% % 1,956 Net loan losses % Gains/losses on disposal of property, equipment and intangible assets Operating profit % % % 1,856 Profit allocation % 3 67% % 65 Operating profit after profit allocation % % % 1,921 Average number of employees % 647 3% % 622 Number of branches % 50 0% % 49 BUSINESS VOLUMES Average volumes, NOK bn Change Change Change Loans to the public Household % % % 55.3 Corporate % % % Total % % % Deposits and borrowing from the public Household % % % 9.6 Corporate % % % 33.2 Total % % % 42.8 JANUARY JUNE COMPARED WITH JANUARY JUNE Earnings performance Operating profit decreased by 46 per cent to SEK 520 million (960), chiefly due to higher loan losses and lower lending margins. Profit before loan losses fell by 24 per cent, with exchange rate movements attributable for five percentage points of this decline. Net interest income decreased by 15 per cent, or SEK 197 million, of which SEK 80 million was attributable to the appreciation of the Swedish krona and the remainder mainly to lower lending margins. Fees to the Swedish Stabilisation Fund rose by SEK 28 million and burdened net interest income by SEK -54 million (-26). Expenses rose by 11 per cent to SEK -590 million (-533). Adjusted for exchange rate movements, staff costs increased by 13 per cent, partly as a result of the average number of employees increasing by 36 or 6 per cent. Among other things, this was due to the opening of two new branch offices. Loan losses increased to SEK -234 million (-34). Business development Business volumes from private customers grew from the previous year deposits by 20 per cent and lending by 15 per cent. In addition, the Bank s market shares increased. Deposits from companies grew by 18 per cent, whereas lending to corporate customers was virtually unchanged. COMPARED WITH Operating profit decreased by 28 per cent due to higher expenses and loan losses. Profit before loans losses decreased by 3 per cent, of which almost one half is due to exchange rate movements. Net interest income increased by 2 per cent, or SEK 9 million, to SEK 564 million (555), which was entirely attributable to exchange rate effects. Expenses rose by SEK 40 million, or 15 per cent, to SEK -315 million (-275). Just over 10 percentage points of the increase, or SEK 28 million, was due to a reallocation of expenses from the Swedish branch office operations. Loan losses increased to SEK -153 million (-81). 16 Handelsbanken

17 INTERIM REPORT JANUARY JUNE Handelsbanken International The main task of Handelsbanken International is to support the international business of the Bank s customers in the Nordic region and the UK and, in the long term, to develop operations in prioritised countries into regional banks in line with the Bank s business model. During the quarter, another branch was opened in the Netherlands. Thus the Bank has 35 branches and five representative offices in a total of 17 countries outside the Nordic countries and the UK. INCOME STATEMENT Change Change Change Net interest income % 197-6% % 926 Net fee and commission income % 108-4% % 481 Net gains/losses on financial items at fair value % 24 75% % 21 Other income % 1 100% % 5 Total income % 330 1% % 1,433 Staff costs % % % -592 Other administrative expenses % -49 0% % -225 Internal purchased and sold services % % % -183 Depreciation and amortisation % -3 0% % -12 Total expenses % % % -1,012 Profit before loan losses % 98-21% % 421 Net loan losses Gains/losses on disposal of property, equipment and intangible assets 0 0 0% 0 0% % -1 Operating profit % % Profit distribution % % 50 Operating profit after profit allocation % % Average number of employees % 628 1% % 610 Number of branches % 34 3% % 32 BUSINESS VOLUMES Average volumes, SEK bn Change Change Change Loans to the public Household % 4.0 5% % 4.0 Corporate % % % 56.7 Total % % % 60.7 Deposits and borrowing from the public Household % 2.7 7% % 3.3 Corporate % % % 13.5 Total % % % 16.8 JANUARY JUNE COMPARED WITH JANUARY JUNE Earnings performance Operating profit improved to SEK 184 million (-69), chiefly a result of the Bank having made a provision of SEK 335 million for a previously identified risk exposure during the first quarter of last year. Profit before loan losses fell by SEK 90 million to SEK 175 million (265), of which SEK 25 million was due to exchange rate movements. Income fell by 11 per cent. Adjusted for exchange rate movements the decrease was 3 per cent, mainly due to lower net interest income, which in turn was largely explained by a conscious reduction in lending volumes. Expenses increased by 1 per cent, and loan losses consisted of net recoveries of SEK 9 million (-334). Business development The average volume of lending was down by 17 per cent from the corresponding period of the previous year to SEK 52.8 billion (63.7). This was attributable to exchange rate movements, as well as to the conscious reduction in lending volumes that was carried out in. COMPARED WITH Operating profit decreased by SEK 40 million to SEK 72 million (112). Profit before loan losses decreased by SEK 21 million to SEK 77 million (98), mainly as a result of higher expenses from the expansion in the Netherlands. The effect of exchange rate movements was marginal. 17 Handelsbanken

18 INTERIM REPORT JANUARY JUNE Handelsbanken Capital Markets Capital Markets consists of Handelsbanken s investment banking and asset management operations, including insurance savings. The unit has a functional and product responsibility throughout the Group for trading in financial instruments, structured products, cash management, corporate finance and debt capital markets, economic and financial research, and for all savings products except account savings. The income figures for Capital Markets products throughout the Group are presented below, followed by comments on the figures. The figures for the Handelsbanken Capital Markets business segment are presented after this. INCOME DISTRIBUTION IN THE GROUP FOR HANDELSBANKEN CAPITAL MARKETS PRODUCTS Branch office operations in Sweden Branch office operations outside Sweden Capital markets products in the group Change / January - June Capital Markets Other Change -11/-11 Net interest income 336 Commission income 1, ,452 of which brokerage income % -16% of which mutual funds and custody ,064-8% 8% of which insurance % -6% Net fee and commission income 1,334 Net financial items % -41% Risk result - insurance 119 Other income 11 Total income 2,234 JANUARY JUNE COMPARED WITH JANUARY JUNE The Group s brokerage income decreased by 16 per cent to SEK 775 million (919) due to lower activity on the market. Asset management commissions increased by 8 per cent to SEK 1,064 million (982). The increase is mainly attributable to increased mutual fund flows. Mutual fund commissions increased by 15 per cent to SEK 867 million, (757), while income from custody operations fell 12 per cent to SEK 197 million (225). Insurance commissions decreased by 6 per cent due to a lower yield split. The net gains/losses on financial items decreased to SEK 711 million (1,197). The decrease was due to increased caution during the financially turbulent first six months of. Currency transactions related to branch office operations, which are included in net gains/losses on financial items, resulted in a currency gain of SEK 277 million as compared to SEK 264 million in the period of comparison. COMPARED WITH Total brokerage income decreased by 12 per cent to SEK 362 million (413). Increased caution among customers resulted in lower activity on the market. In equity trading, the Bank was ranked as best in the US for Nordic equities by Greenwich Associates and as the best European stockbrokers for Nordic equities in small and medium-sized companies by Thomson Reuters. Handelsbanken is the market leader in structured products in Sweden. Its market share of new sales of equity-linked bonds and certificates increased to 22 per cent (21). The Bank s trading volumes on the warrants and ETN markets amounted to 51 per cent in Sweden and 50 per cent in the Nordic region. Despite the internationally difficult climate for IPOs and new issues, during the first half of the year, the Bank has been able to increase business volumes and strengthen its market position. In Sweden, the Bank managed two of the year s three major IPOs and the only major new issue. Advisory commissions grew by 25 per cent. The net profit on currency transactions for customers in the branch office operations rose to SEK 145 million (132). Activity remained high in the credit market and the Bank maintained its strong position. During the quarter, bonds were issued with a value of more than EUR 2 billion and the Bank participated in syndications with a value in excess of EUR 9 billion. The total volume of assets under management by the Group decreased by 1 per cent to SEK 590 billion (596). However, fund assets under management increased by 3 per cent to SEK 199 billion (193). The average volume of mutual fund assets rose by 3 per cent to SEK 198 billion (192). Handelsbanken Fonder continued to strengthen its market position and had the highest new savings in mutual funds in Sweden in the first half of the year, representing a market share of 71 per cent. Net savings in the Bank s mutual funds 18 Handelsbanken