Highlights of Annual Report January December

Transcription

1 Highlights of Annual Report January December

2 Highlights of Stadshypotek s Annual Report January December SUMMARY OF JANUARY DECEMBER COMPARED WITH JANUARY DECEMBER Income totalled SEK 8,195 million (6,251). Operating profit increased by SEK 1,892 million to SEK 7,886 million (5,994). Net loan losses totalled SEK 21 million. In, recoveries exceeded new loan losses and totalled SEK 12 million net. The profit after tax amounted to SEK 5,801 million (4,407). Lending increased by SEK 47 billion (85) to SEK 891 billion. SUMMARY OF COMPARED WITH Q3 Income totalled SEK 2,181 million (2,006). Operating profit increased by SEK 132 million to SEK 2,071 million (1,939). Net loan losses totalled SEK 15 million (6). The profit after tax amounted to SEK 1,520 million (1,429).

3 Highlights of Stadshypotek s Annual Report January December FINANCIAL PERFORMANCE Full year compared with full year Operating profit increased by SEK 1,892 million to SEK 7,886 million (5,994). Net interest income amounted to SEK 8,052 million (6,244), with the branch in Norway accounting for SEK 649 million (396), the branch in Denmark for SEK 115 million (89) and the branch in Finland, which was established on 1 May, for SEK 258 million (79). Excluding the branches, net interest income thus increased by SEK 1,350 million. The growth in net interest income was attributable to an increase in lending volume and to improved margins due to the company s good position in the funding market. Net gains/losses on financial items at fair value amounted to SEK 150 million (19). Expenses rose by SEK 19 million to SEK 288 million (269). This increase was primarily due to IT expenses related to the branch in Finland, and to services purchased from the parent company. Net loan losses totalled SEK 21 million. In, recoveries exceeded new loan losses and totalled SEK 12 million net. Before deduction of the provision for probable loan losses, the volume of impaired loans was SEK 141 million (110). SEK 94 million (57) of the impaired loans were non-performing loans, while SEK 47 million (53) were loans on which the borrowers pay interest and amortisation, but which are nevertheless regarded as impaired. There were also non-performing loans of SEK 1,008 million (906) that are not classed as being impaired loans. After deduction for specific provisions totalling SEK -50 million (-44) and collective provisions of SEK -4 million (-6) for probable loan losses, impaired loans totalled SEK 87 million (60). compared with Q3 Stadshypotek s operating profit increased by SEK 132 million to SEK 2,071 million (1,939). Net interest income grew by SEK 207 million to SEK 2,161 million (1,954). SEK 208 million (161) of the net interest income was attributable to the branch in Norway, SEK 33 million (31) to the branch in Denmark and SEK 82 million (69) to the branch in Finland. Excluding the branches, net interest income increased by SEK 145 million. Net gains/losses on financial items at fair value amounted to SEK 22 million (53). Expenses grew by SEK 34 million to SEK 95 million (61), mainly due to an increase of SEK 27 million in administrative expenses. The increase was chiefly attributable to services purchased from the parent company, expenses related to the updating of existing international loan programmes, and IT expenses. GROWTH IN LENDING Loans to the public increased by around 6 per cent, or SEK 47 billion, from the end of the previous year, and stood at SEK 891 billion (844). On 1 September, Stadshypotek s branch in Finland acquired a mortgage loan portfolio of around EUR 0.5 billion from the parent company s branch in Finland, which corresponds to approximately SEK 4 billion of the increase in lending during the year. FUNDING Issues of covered bonds from Stadshypotek's benchmark series during the year totalled SEK 90.0 billion (102.8). Issues of covered bonds under the EMTCN programme totalled the equivalent of approximately EUR 3.9 billion (4.1), and under the American programme, an issue of USD 1.5 billion was carried out. During the year, Stadshypotek issued covered bonds on the Norwegian market for the first time. In total, NOK 8.8 billion was issued in. Also carried out during the year were Stadshypotek s first issues of covered bonds on the Australian market, totalling AUD 0.75 billion. CAPITAL ADEQUACY The capital ratio according to Basel II was 56.9 per cent (58.1), while the tier 1 ratio calculated according to Basel II was 40.6 per cent (40.5). Further information on capital adequacy is provided in the Capital base and capital requirement section on page 15. RATING Stadshypotek s rating remained unchanged during the year, with a stable outlook. Stadshypotek Covered bonds Long-term Short-term Moody s Aaa - P-1 Standard& Poor s AA- A-1+ Fitch AA- F1+ STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 1

4 Stadshypotek Group Income statement Group Q3 Jan Dec Jan Dec Interest income 7,693 8, , ,163 29,869 8 Interest expense -5,532-6, , ,111-23,625 2 Net interest income Note 3 2,161 1, , ,052 6, Net gains/losses on financial items at fair value Note Fee and commission income Fee and commission expense Net fee and commission income Total income 2,181 1, , ,195 6, Staff costs Other administrative expenses Note Depreciation and amortisation Total expense Profit before loan losses 2,086 1, , ,907 5, Net loan losses Note Operating profit 2,071 1, , ,886 5, Tax ,085-1, Profit for the period 1,520 1, , ,801 4, Net earnings per share, before and after dilution, SEK 9,384 7,456 8,819 35,811 27,204 Statement of comprehensive income Group Q3 Jan Dec Jan Dec Profit for the period 1,520 1, , ,801 4, Translation differences for the period Total comprehensive income for the period 1,566 1, , ,791 4, Quarterly performance Group Q3 Q2 Q1 Interest income 7,693 7,949 8,113 8,408 8,216 Interest expense -5,532-5,995-6,134-6,450-6,502 Net interest income 2,161 1,954 1,979 1,958 1,714 Net gains/losses on financial items at fair value Net fee and commission income Total income 2,181 2,006 1,995 2,013 1,735 Staff costs Other administrative expenses Depreciation and amortisation Total expense Profit before loan losses 2,086 1,945 1,929 1,947 1,650 Net loan losses Operating profit 2,071 1,939 1,932 1,944 1,641 2 STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

5 Summary balance sheet Group Assets Loans to credit institutions 5,758 9,435 Loans to the public Note 7 891, ,929 Value change of interest-hedged item in portfolio hedge 5,271 4,490 Derivative instruments Note 8 20,708 18,211 Other assets 3,024 3,962 Total assets 925, ,027 Liabilities and equity Due to credit institutions 286, ,353 Issued securities 565, ,149 Derivative instruments Note 8 11,988 7,765 Other liabilities and provisions 19,174 16,693 Subordinated liabilities 16,700 16,700 Total liabilities 900, ,660 Equity 25,940 25,367 Total liabilities and equity 925, ,027 Statement of changes in equity Group Jan Dec Share capital * Translation reserve Retained earnings Total Equity at ember 4, ,361 25,367 Profit for the year 5,801 5,801 Other comprehensive income Total comprehensive income for the year -10 5,801 5,791 Group contributions provided -7,080-7,080 Tax effect on group contributions 1,862 1,862 Equity at ember 4, ,944 25,940 Statement of changes in equity Group Jan Dec Share capital * Translation reserve Retained earnings Total Equity at ember , ,418 24,431 Profit for the year 4,407 4,407 Other comprehensive income -7-7 Total comprehensive income for the year -7 4,407 4,400 Group contributions provided -4,700-4,700 Tax effect on group contributions 1,236 1,236 Equity at ember 4, ,361 25,367 * Average number of shares, before and after dilution 162,000 STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 3

6 Summary cash flow statement Group Cash flow from operating activities 4,991 24,894 Cash flow from investing activities -3,923-27,881 Cash flow from financing activities -4,700 6,272 Cash flow for the year -3,632 3,285 Liquid funds at beginning of year 4,319 1,049 Cash flow for the year -3,632 3,285 Exchange rate difference on liquid funds Liquid funds at end of year 686 4,319 Liquid funds consist of funds available with banks and equivalent institutions, excluding funds in blocked account. Liquid funds with banks and equivalent institutions 686 4,319 Funds in blocked account with banks relating to issuance of covered bonds 5,072 5,116 Loans to credit institutions 5,758 9,435 Acquisition of mortgage loans On 1 August, Stadshypotek s branch in Finland (Handelsbanken Asuntoluottopankki) acquired mortgage loans from Svenska Handelsbanken s branch in Finland. The acquired assets had the following carrying amounts. Loans to the public 27,843 On 1 September, Stadshypotek s branch in Finland (Handelsbanken Asuntoluottopankki) acquired mortgage loans from Svenska Handelsbanken s branch in Finland. The acquired assets had the following carrying amounts. Loans to the public 3,907 Key figures Q3 Net interest margin, C/I ratio before loan losses, C/I ratio after loan losses, Return on equity, * *) Capital ratio according to Basel II, Tier 1 ratio according to Basel II, * The comparative figure for the full year has been adjusted with effect from Q1 following the rectification of a calculation error. TURNOVER OF OWN DEBT INSTRUMENTS Stadshypotek issues and repurchases debt instruments which it has issued on its account. This is for the purposes of financing its operations. Turnover during the period was as follows: Issued (sold) SEK 237 billion (220) Repurchased SEK 61 billion (30) Matured SEK 125 billion (78) Segment information Jan Dec Jan Dec Private Corporate Group Private Corporate Group Net interest income 5,883 2,169 8,052 4,607 1,637 6,244 Net gains/losses on financial items at fair value Net fee and commission income Total income 5,986 2,209 8,195 4,612 1,639 6,251 Expenses Profit before loan losses 5,776 2,131 7,907 4,410 1,572 5,982 Net loan losses Operating profit 5,747 2,139 7,886 4,419 1,575 5,994 Loans to the public 607, , , , , ,935 Private market is defined as lending secured by mortgages in single-family or two-family houses, second homes, housing co-operative apartments, owner-occupied apartments or residential farms. Corporate market is defined as lending secured by mortgages in multi-family dwellings, family farms, commercial and office buildings, or state and municipal loans. Geographical breakdown of business segments Jan Dec Jan Dec Income Total assets Income Total assets Sweden 7, ,203 5, ,604 Norway , ,466 Denmark , ,005 Finland , ,952 Group 8, ,961 6, ,027 4 STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

7 Parent company Income statement parent company Q3 Interest income 7,693 8, , ,163 29,869 8 Interest expense -5,532-6, , ,111-23,625 2 Net interest income Note 3 2,161 1, , ,052 6, Fee and commission income Fee and commission expense Net fee and commission income Net gains/losses on financial operations Note Total income 2,181 1, , ,195 6, Staff costs Other administrative expenses Note Depreciation and amortisation Total expense Profit before loan losses 2,086 1, , ,907 5, Net loan losses Note Operating profit 2,071 1, , ,886 5, Tax ,085-1, Profit for the period 1,520 1, , ,801 4, Statement of comprehensive income parent company Q3 Profit for the period 1,520 1, , ,801 4, Translation differences for the period Total comprehensive income for the period 1,566 1, , ,791 4, Summary balance sheet parent company Assets Loans to credit institutions 5,758 9,435 Loans to the public Note 7 891, ,929 Value change of interest-hedged item in portfolio hedge 5,271 4,490 Derivative instruments Note 8 20,708 18,211 Other assets 3,024 3,962 Total assets 925, ,027 Liabilities and equity Due to credit institutions 286, ,353 Issued securities 565, ,149 Derivative instruments Note 8 11,988 7,765 Other liabilities and provisions 19,174 16,693 Subordinated liabilities 16,700 16,700 Total liabilities 900, ,660 Equity 25,940 25,367 Total liabilities and equity 925, ,027 Memorandum items Assets pledged for own debt* 612, ,238 Other pledged assets none none Contingent liabilities none none Undertakings 2,648 4,077 * Assets pledged for own debt relates to collateral for covered bonds, which comprises loans against mortgages in single-family dwellings, second homes, multi-family dwellings and housing co-operative apartments with a loan-to-value ratio of up to 75 per cent of the market value, as well as office and commercial properties with a loan-to-value ratio of up to 60 per cent of the market value, and additional collateral in the form of cash funds on a blocked account. STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 5

8 Notes The information in these notes relates to both the Group and the parent company. NOTE 1 Accounting policies Information relating to the Group has been stated in accordance with IAS 34. The contents of the report also comply with the applicable provisions of the Swedish Act on Annual Reports in Credit Institutions and Securities Companies, the Swedish Financial Supervisory Authority s regulations and general guidelines FFFS 2008:25 on annual reports in credit institutions and securities companies and recommendations from the Swedish Financial Reporting Board. The report for the parent company has been prepared in accordance with the Swedish Act on Annual Reports in Credit Institutions and Securities Companies and the Swedish Financial Supervisory Authority s regulations and general guidelines FFFS 2008:25 on annual reports in credit institutions and securities companies. None of the changes in the accounting standards which have come into force during the year has had a material impact on the parent company s or the Group s financial reports. The Group s and parent company s reports have been prepared in accordance with the same accounting policies and calculation methods that were applied in the annual report for. NOTE 2 Other information RISK Stadshypotek s operations are conducted with a controlled low level of risk. Stadshypotek s risks are credit risk, market risk, liquidity risk, operational risk and business risk. Credit risk is the risk that an individual borrower cannot fulfil his or her commitments. Market risk is the risk of price changes in the financial markets. The market risks affecting Stadshypotek are interest rate risk and exchange rate risk. Liquidity risk is the risk that Stadshypotek will not be able to meet its payment obligations when they fall due. Operational risk is the risk of processing errors in procedures and systems, and business risk is the risk of unexpected changes in financial performance. Credit risk is the most significant risk for Stadshypotek. The Stadshypotek board establishes policies which describe how various risks should be managed and reported. In addition, Stadshypotek s chief executive sets guidelines and instructions for managing and controlling all types of risk. These documents have been based on the policies that the Handelsbanken Board has adopted for managing and reporting risks within the Handelsbanken Group as a whole. Stadshypotek s risk management aims to ensure compliance with the strict approach to risk established by the board. Stadshypotek s lending operations and treasury function are integrated with those of Handelsbanken, which means that Stadshypotek s lending is carried out via the Bank s branch network. A collaboration agreement regulates the overall relationship between the parties and specifies the services which Handelsbanken is to perform on behalf of Stadshypotek. Thus, the business operations at Stadshypotek are conducted according to the same fundamental principles which apply at Handelsbanken. The Bank s corporate culture is centred around the principle of delegating responsibility to the employees who make business decisions. The person who is most familiar with the customer and the market conditions is also the best person to assess the risk. In Handelsbanken s decentralised organisation, the positive and negative outcomes of each branch are evaluated, which provides a natural risk limitation and caution in business operations. In addition to the accountability of decision-makers, control procedures are in place to ensure that excessive risks are not taken in individual transactions or local operations. In lending, this means that limits are set for large loans and these loans are assessed by a special credit organisation. Decisions on limits are made at the branch, at regional level or at central level, depending on the size of the credit limit. Procedures also exist to limit market risk and liquidity risk at Stadshypotek. Here, the company s board establishes limits. However, the limits set by the board of Stadshypotek may not exceed the limits for market risks and liquidity risks assigned by Handelsbanken to Stadshypotek. Stadshypotek has risk control which is independent of the business operations for the regular follow-up and monitoring of all risks applying to operations, primarily credit risk, market risk, liquidity risk, counterparty risk and operational risk. The risk control function carries out daily measurements and checks to ensure that risk exposure remains within the set limits. Limit utilisation is reported internally within the company, and to the parent company s central risk control function. In addition, limit utilisation is reported regularly to the chief executive and board of Stadshypotek as well as to the Group Chief Executive, CFO and Board of Handelsbanken. Stadshypotek is also covered by the central risk control at Handelsbanken, which is designed to identify the Handelsbanken Group s risks, gauge them, and ensure that management of these risks complies with the Group s low risk tolerance. The central risk control function is responsible for the independent reporting of risks for the banking group of which Stadshypotek is a part. Further, the central risk control function develops and provides models for measuring risk that are applied in Stadshypotek s operations and perform certain calculations that provide a basis for some of Stadshypotek s external reporting. Stadshypotek has a contingency plan for managing a liquidity shortage, and this plan also describes the company s liquidity-creating measures. Moreover, regular stress tests are carried out on the company s cash flows on the basis of certain assumptions relevant to the business. Stress tests for the entire group are also performed by the central risk control function, and here, Stadshypotek s liquidity requirements are taken into consideration. Moreover, Stadshypotek has a procedure for continual capital planning to ensure that it has a sufficient amount of capital to secure the company s survival if a serious loss were to occur, notwithstanding the measures taken to manage the risks. The method for calculating economic capital ensures that all risks are considered in a uniform manner when the need for capital is assessed. Information about credit risks regarding loan losses and about non-performing loans and impaired loans can be found in notes 6 and 7 of this report. At ember, Stadshypotek s interest rate risk in the case of a parallel increase in the yield curve of one percentage point was SEK -185 million (-129), which was well within the limit set by the board. 6 STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

9 NOTE 2 Other information, cont. CAPITAL-RELATED MATTERS In connection with the start of the transition to Basel II, Stadshypotek entered into a guarantee facility relating to mortgages for housing cooperative properties, to speed up the transition. The transaction affected the Tier 1 capital ratio according to the transitional rules by 0.15 percentage points at ember. The guarantee facility was completed in Q3. MATERIAL EVENTS AFTER BALANCE SHEET DATE There have been no material events after the balance sheet date. NOTE 3 Net interest income Q3 Interest income Loans to the public 7,602 8, , ,822 29,516 8 Loans to credit institutions Total 7,693 8, , ,163 29,869 8 Interest expense Due to credit institutions -1,312-1, , ,524-7, Issued securities -4,272-4, , ,168-16,260 6 Subordinated liabilities Derivative instruments* Fee to the Swedish Stabilisation Fund Other Total -5,532-6, , ,111-23,625 2 Net interest income 2,161 1, , ,052 6, * Net interest income from derivative instruments derived from Stadshypotek s funding, which can have both a positive and a negative impact on interest expenses. NOTE 4 Net gains/losses on financial items at fair value Q3 Hedge accounting, fair value hedges of which hedged items , of which hedging , , Loans, valued at cost Financial liabilities, valued at cost Derivatives not recognised as hedges Other realised gains Total The profit/loss item Fair value hedges includes the net result of unrealised and realised changes in the fair value of financial assets and liabilities which are subject to hedge accounting. Interest income and interest expenses for these instruments are recognised under net interest income. Derivatives not recognised as hedges are included in the held-for-trading category. Loans, valued at cost, refers to the early redemption charge for loans and other receivables which are repaid ahead of time. Financial liabilities, valued at cost, refers to realised price differences when repurchasing bonds. STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 7

10 NOTE 5 Other administrative expenses Q3 IT costs Cost of premises Purchased services Other administrative expenses Total NOTE 6 Loan losses Q3 Specific provision for individually assessed loans Provision for the period Reversal of previous provisions Total Collective provision Collective provision for individually assessed loans Write-offs Actual loan losses for the period Utilised share of previous provisions Reversal of actual loan losses in previous years Total Net loan losses Impaired loans Impaired loans Specific provision for individually assessed loans Collective provision for individually assessed loans -4-6 Net impaired loans Proportion of impaired loans, Reserve ratio for impaired loans, Loan loss ratio, Non-performing loans which are not impaired loans 1, STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER

11 NOTE 7 Loans to the public Loans to the public, by borrower category Loans before provisions Provisions for probable loan losses Loans after provisions Loans before provisions Provisions for probable loan losses Loans after provisions Households 632, , , ,972 Public sector, municipal companies 26,237-26,237 25,706-25,706 Housing co-operative associations 117, , , ,515 Other legal entities 114, , , ,742 Total loans to the public, before collective provisions 891, , , ,935 Collective provision Total loans to the public 891, , , ,929 of which in operations outside Sweden Households 85,685-85,685 76,266-76,266 Public sector, municipal companies 5,626-5,626 1,482-1,482 Housing co-operative associations 12,484-12,484 10,065-10,065 Other legal entities 4,580-4,580 3,858-3,858 Total loans to the public in operations outside Sweden 108, ,375 91,671-91,671 STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 9

12 NOTE 7 Loans to the public, cont. Loans to the public, by type of collateral Loans before provisions Provisions for probable loan losses Loans after provisions Loans before provisions Provisions for probable loan losses Loans after provisions Single-family housing 460, , , ,358 Housing co-operative apartments 134, , , ,982 Owner-occupied apartments* 11,803-11,803 11,325-11,325 Private market 607, , , ,665 Multi-family housing 220, , , ,788 Offices and commercial buildings 63, ,409 58, ,482 Corporate market 284, , , ,270 Total loans to the public, before collective provisions 891, , , ,935 Collective provision Total loans to the public 891, , , ,929 of which in operations outside Sweden Single-family housing 71,064-71,064 61,915-61,915 Housing co-operative apartments 4,563-4,563 4,335-4,335 Owner-occupied apartments* 11,803-11,803 11,325-11,325 Private market 87,430-87,430 77,575-77,575 Multi-family housing 20,568-20,568 13,665-13,665 Offices and commercial buildings Corporate market 20,945-20,945 14,096-14,096 Total loans to the public in operations outside Sweden 108, ,375 91,671-91,671 * Owner-occupied apartments entail individual ownership of a specific apartment in a multi-family dwelling, consisting either of an undivided interest in the property where the apartment is situated (direct ownership), or an interest in a legal entity which owns the property where the apartment is situated (indirect ownership). STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 10

13 NOTE 7 Loans to the public, cont. Non-performing loans by borrower category Non-performing loans which are not impaired loans Non-performing loans which are included in impaired loans Non-performing loans which are not impaired loans Non-performing loans which are included in impaired loans Households Public sector, municipal companies Housing co-operative associations Other legal entities Total 1, of which in operations outside Sweden Households Public sector, municipal companies Housing co-operative associations Other legal entities Total non-performing loans in operations outside Sweden Non-performing loans by type of collateral Non-performing loans which are not impaired loans Non-performing loans which are included in impaired loans Non-performing loans which are not impaired loans Non-performing loans which are included in impaired loans Single-family housing Housing co-operative apartments Owner-occupied apartments* Private market Multi-family housing Offices and commercial buildings Corporate market Total 1, of which in operations outside Sweden Single-family housing Housing co-operative apartments Owner-occupied apartments* Private market Multi-family housing Offices and commercial buildings Corporate market Total non-performing loans in operations outside Sweden * For a definition, see page 10. STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 11

14 NOTE 7 Loans to the public, cont. Impaired loans by borrower category Impaired loans Provision for probable Net impaired losses loans Impaired loans Provision for probable Net impaired losses loans Households Public sector, municipal companies Housing co-operative associations Other legal entities Total of which in operations outside Sweden Households Public sector, municipal companies Housing co-operative associations Other legal entities Total impaired loans in operations outside Sweden Impaired loans by type of collateral Impaired loans Provision for probable Net impaired losses loans Impaired loans Provision for probable Net impaired losses loans Single-family housing Housing co-operative apartments Owner-occupied apartments* Private market Multi-family housing Offices and commercial buildings Corporate market Total of which in operations outside Sweden Single-family housing Housing co-operative apartments Owner-occupied apartments* Private market Multi-family housing Offices and commercial buildings Corporate market Total impaired loans in operations outside Sweden * For a definition, see page 10. The reserved amount for probable losses in the tables showing impaired loans consists of a specific provision for individually assessed receivables. STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 12

15 NOTE 8 Derivative instruments Market value Market value Positive values Interest rate instruments 20,272 17,399 Currency instruments Total 20,708 18,211 Negative values Interest rate instruments 3,469 2,614 Currency instruments 8,519 5,151 Total 11,988 7,765 Net 8,720 10,446 Stadshypotek uses fair value hedges to protect the Group against undesirable impact on profit/loss due to changes in the market prices of reported assets or liabilities. Hedged risks in hedging packages at fair value comprise interest rate risk on lending and funding at fixed interest rates and currency risk on funding in foreign currency. The hedging instruments in these hedging packages consist of interest rate swaps and cross-currency interest rate swaps. Fair value hedges are also applied for portfolios of financial instruments. The hedged risk in these portfolio hedges is the interest rate risk for lending where the original interest rate was fixed for three months and interest rate caps for lending with a fixedinterest period of three months. The hedging instruments in these portfolio hedges consist of interest rate swaps and interest rate options (caps). Interest rate swaps and currency swaps are also used as hedges for changes in market value without hedge accounting being applied. STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 13

16 Related-party transactions Group claims/group liabilities BALANCE SHEET Group claims Loans to credit institutions 5,758 9,435 Derivative instruments 20,618 18,030 Other assets Total 26,436 27,520 Group liabilities Due to credit institutions 286, ,341 Derivative instruments 11,769 7,403 Other liabilities 7,791 5,536 Subordinated liabilities 16,700 16,700 Total 322, ,980 INCOME STATEMENT Interest income Interest expense -7,058-6,990 Fee and commission expense -5-9 Other administrative expenses Total -6,969-6,885 The business operations of Stadshypotek are highly decentralised. The basic principle is that organisation and working practices are determined by the branch offices of the Handelsbanken Group, which are responsible for all the business of individual customers. One consequence of this approach is that Stadshypotek s lending operations are run via Handelsbanken s Swedish branch operations and the lending operations in Stadshypotek s branches in Norway, Denmark and Finland are run via Handelsbanken s branch operations in the respective countries. Lending is to be carried out to the extent and on the terms stated in Guidelines for granting credits, established annually by the board of Stadshypotek. These guidelines include the maximum permitted loan-to-value ratio for various property types, as well as the decision limits which apply to the branches lending. In addition, for loan amounts in excess of a certain limit, an advance examination of the case is to be conducted by Stadshypotek s credit department before the loan can be disbursed. Stadshypotek s treasury function is also integrated with Handelsbanken s Treasury department. Functions necessary for management and control of the company remain within Stadshypotek. Those services which Handelsbanken performs on behalf of Stadshypotek are regulated in a collaboration agreement between the parties. Most of the inter-company transactions are thus with the parent company, Handelsbanken. The services that Stadshypotek purchases from the parent company, which are included in other administrative expenses, consist primarily of IT services and the treasury function. As in previous years, no payments have been made to the parent company in respect of the services performed by the latter in relation to the sale and administration of mortgage loans in Sweden. However, at Stadshypotek s branches outside Sweden, payments in line with market levels have been made to Handelsbanken s branches in the respective countries in respect of services performed by these branches on behalf of Stadshypotek s branches in relation to the sale and administration of mortgage loans. In addition, inter-company transactions consist of funding from the parent company, derivative transactions and lending to the parent company. STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 14

17 Capital base and capital requirement Capital base Equity 25,940 25,367 Tier 1 capital contribution 3,000 3,000 Deduction for intangible assets Special deduction for IRB institutions Tier 1 capital 28,865 28,319 Perpetual subordinated loans 5,300 5,300 Dated subordinated loans 6,300 7,000 Special deduction for IRB institutions Tier 2 capital 11,566 12,289 Capital base 40,431 40,608 Capital requirement Credit risk according to standardised approach Credit risk according to IRB approach 4,897 4,918 Operational risk Total capital requirement according to Basel II 5,688 5,593 Adjustment according to transitional rules 28,960 26,894 Capital requirement according to Basel II, transitional rules 34,648 32,487 Risk-weighted assets in accordance with transitional rules 433, ,091 Risk-weighted assets according to Basel II (capital requirement/8) 71,100 69,913 Capital adequacy analysis Capital requirement in Basel II compared with transitional rules Capital ratio according to Basel II Capital ratio according to transitional rules Tier 1 ratio according to Basel II Tier 1 ratio according to transitional rules Capital base in relation to capital requirement Basel II Capital base in relation to capital requirement according to transitional rules The figures reported in this section refer to the minimum capital requirements under Pillar 1 of the capital adequacy rules, Basel II. In the table, According to Basel II means that the figures are based on the minimum capital requirements after the transitional rules have ceased to apply. Stadshypotek has applied the advanced IRB approach for retail exposures (households and small companies) since Since ember 2010, the advanced IRB approach has been applied for medium-sized companies, housing co-operative associations and property companies. For the remaining credit risk exposures, the capital requirement is measured using the Basel II standardised regulations. STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 15

18 Capital base and capital requirement, cont. Credit risks ember Standardised approach IRB approach Capital requirement Exposure after credit risk protection (EAD) Average risk weight Capital requirement Institutions Corporate 9 247, ,218 of which advanced approach 246, ,194 of which foundation approach 1, Households , ,679 Other Total , ,897 Credit risks ember Standardised approach IRB approach Capital requirement Exposure after credit risk protection (EAD) Average risk weight Capital requirement Institutions Corporate - 226, ,373 of which advanced approach 225, ,344 of which foundation approach 1, Households , ,545 Other Total , ,918 STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 16

19 SUBMISSION OF REPORT I hereby submit this financial report. Stockholm, 6 February 2013 Per Beckman Chief Executive Next report: will be published on 17 July 2013 Starting in 2013, Stadshypotek will publish six-monthly reports. FACTS ABOUT THE COMPANY Registered name: Stadshypotek AB (publ). Corporate identity no.: Ownership: A subsidiary of Svenska Handelsbanken AB (publ), corporate identity number The Bank publishes consolidated accounts in which Stadshypotek AB is included. Address Stadshypotek AB Office address: Torsgatan 12 Postal address: SE Stockholm, Sweden Tel: +46 (0) , Fax: +46 (0) Website: STADSHYPOTEK HIGHLIGHTS OF ANNUAL REPORT JANUARY DECEMBER 17

20 Production: Hallvarsson & Halvarsson (0) SE Stockholm, Sweden