Annual report. Highlights of Stadshypotek s JANUARY DECEMBER Operating profits rose by 9% to SEK 5,599m (5,150)

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1 Highlights of Stadshypotek s Annual report JANUARY DECEMBER Operating profits rose by 9% to SEK 5,599m (5,150) Net interest income rose by 1% to SEK 5,237m (5,183) Expenses decreased by 11% to SEK 134m (150) Recoveries exceeded new loan losses Lending increased by 8% to SEK 445bn (413) The most satisfied corporate customers in the mortgage market Largest proportion of satisfied private customers of the major banks mortgage institutions Application submitted to the Finansinspektionen for permission to issue covered bonds

2 Highlights of Stadshypotek s annual report January December Continued profit improvement with a strong third quarter In, Stadshypotek s operating profits rose by 9% till SEK 5,599m (5,150) its highest ever figure. The improvement in profits was attributable to both higher income and slightly lower expenses. Return on shareholders equity increased to 18.1% (16.0). Higher income Income totalled SEK 5,600m (5,130), a 9% increase from the figure. Of the SEK 470m improvement in income, net interest income accounted for an increase of SEK 54m, while Net gains/losses on financial items accounted for an increase of SEK 414m. The rise in net interest income to SEK 5,237m, (5,183) was mainly due to an increased proportion of private market lending. This shift offset the reduced amount of shareholders equity and the lower interest earned, due to falling interest rates during the year. Lower expenses and low loan losses Expenses, excluding loan losses, decreased to SEK 134m (150). Staff costs dropped by 15% and other administrative expenses by 10%. This decrease stemmed from continuing efficiency improvements. Recoveries exceeded new loan losses and the net amount recovered was SEK 133m (170), which corresponds to a loan loss ratio of -0.03% (-0.04) of lending. As at ember, Stadshypotek s bad debts before deduction of the provision for probable loan losses amounted to SEK 600m (958). Of the bad debts, SEK 54m (87) were non-performing loans and SEK 546m (871) were loans on which the borrowers pay interest and amortisation but which are considered doubtful in view of the borrowers repayment capacity and uncertainty as to the value of the collateral. After deduction of the provision for probable loan losses, the volume of bad debts was SEK 454m (710). Growth in lending Loans to the public continued to exhibit strong growth, rising by SEK 32bn to SEK 445bn (413). The whole increase was attributable to private market lending. Stadshypotek strengthened its position as the leading player on the Swedish corporate market, increasing its share of this market segment compared with the corresponding period of the previous year. Capital cover As at ember, the capital ratio was 8.8% (8.1). The rise stemmed from the fact that the company issued a debenture loan of SEK 3.5bn in January with the parent company as lender. The Tier 1 capital ratio was 7.4% (8.1). Covered bonds In September, Stadshypotek submitted an application to the Finansinspektionen (the Swedish Financial Supervisory Authority) for permission to issue covered bonds pursuant to the new law in Sweden on issuing covered bonds (2003:1223). Covered bonds are bonds with priority in the issuing institution s collateral. The collateral in Stadshypotek will mainly consist of loans to private individuals and companies granted against mortgages such as single-family houses, second homes and multi-family dwellings and with a loan-to-value ratio of 75% of the market value. One precondition for Stadshypotek s issuing of covered bonds is that it obtains the highest ranking, AAA. This new type of funding will replace the current form of institutional bond funding in Stadshypotek. Provided that the Finansinspektionen grants permission, the issuing of covered bonds is planned to commence during the first half of The bonds which Stadshypotek then has outstanding will be converted into covered bonds. New issues under these bond loans and under new loans issued afterwards will be in the form of covered bonds, with the exception of retail bonds. However, Stadshypotek s other debt, such as other funding from credit institutions and funding in the various commercial paper markets will not be converted into covered bonds. Stadshypotek s rating Long-term Short-term Moody s Aa1 P-1 Standard & Poor s AA- A-1+ Accounting principles The accounting follows the regulations of the Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL) and the directives issued by the Finansinspektionen (FFFS :20). These directives imply that the Swedish Financial Accounting Standards Council s recommendation 32 is applied and that the accounting as far as possible complies with IFRS through what is known as statutory IFRS. Stockholm, 21 February 2006 Frank Vang-Jensen Chief executive

3 Income statement Group Change % Interest income % Interest expense % Net interest income % Net gain/losses on financial items Fee and commission income % Fee and commission expense % Total income % General administrative expenses Staff costs % Other % Depreciation according to plan Total expenses % Profit before loan losses % Loan losses, net Note % Operating profit % Taxes % Net profit for the period % Net earnings per share, SEK Note 1 Loan losses SEKm Specific provision for individually assessed loan receivables The period s write-down for actual loan losses Writeback of previous provisions for probable loan losses reported as actual loan losses in the period s accounts The period s provision relating to probable loan losses Recovered from actual loan losses in previous years Writeback of provisions for probable loan losses which are no longer necessary Net expense for the period for individually assessed loan receivables HIGHLIGHTS OF STADSHYPOTEK S ANNUAL REPORT JANUARY DECEMBER

4 Balance sheet Group Assets Loans to credit institutions Loans to the public Note Derivatives Note Property, plant and equipment 0 0 Other assets Total assets Liabilities and shareholders equity Liabilities to credit institutions Issued securities etc Derivatives Note Other liabilities and provisions Subordinated loans Total liabilities Shareholders equity Note Total liabilities and shareholders equity Note 2 Lending by type of property Lending before deduction of provisions Provisions for probable loan losses Lending after deduction of provisions Household Municipalities Housing co-operatives Other legal entities Total loans to the public loans by borrower loans for which interest has been accrued loans which are included in bad debts loans for which interest has been accrued loans which are included in bad debts Household Municipalities Housing co-operatives Other legal entities Total debts by borrower debts Provision for probable losses debts net debts Provision for probable losses debts net Household Municipalities Housing co-operatives Other legal entities Total The provision for probable losses refers to a specific provision for individually valued claims. HIGHLIGHTS OF STADSHYPOTEK S ANNUAL REPORT JANUARY DECEMBER

5 Note 3 Derivatives Derivatives for fair value hedges Fixed income contracts Nominal amount/maturity up to 1 yr > 1 yr 5 yrs over 5 yrs Total Positive fair value Negative fair value options swaps Currency-related contracts forwards Total derivatives for fair value hedges Note 4 Change in shareholders equity Opening shareholders equity Group contribution Tax on group contribution Restatement according to IAS Net profit for the period Closing shareholder equity Cash flow statement Cash flow from operating activities Cash flow from investing activities - 0 Cash flow from financing activities Cash flow for the period Liquid funds at beginning of period Cash flow for the period Liquid funds at end of period HIGHLIGHTS OF STADSHYPOTEK S ANNUAL REPORT JANUARY DECEMBER

6 Quarterly performance Q4 Q3 Q2 Q1 Q4 Interest income Interest expense Net interest income Net gain/losses on financial items Net operating income Total income General administrative expenses Staff costs Other Depreciation according to plan Total expenses Profit before loan losses Loan losses Operating profit Key figures Overall interest margin, % C/I ratio before loan losses, % C/I ratio after loan losses, % Loan loss ratio, % Proportion of bad debts, % debt provision ratio, % Return on shareholders equity, % Capital ratio, % Tier 1 capital ratio, % Parent company Total income for the period was SEK 5,600 m (5,130). Profit before appropriations and tax was SEK 5,599 m (5,150). LENDING PERFORMANCE Jan Sep Jan Jun Jan Mar Full year Loans to credit institutions Loans to the public Total BORROWING PERFORMANCE Jan Sep Jan Jun Jan Mar Full year Liabilities to credit institutions Issued securities Subordinated loans Total Stockholm, Telephone , Stadshypotek Production: Börstryck Photos: Håkan Flank