Management Report 6. Financial Statements 18. Declaration of the Management Board 59. Approval of the Supervisory Board 60. Auditor s Report 61

Transcription

1 2004 Annual Report

2 CONTENTS Introduction 5 Management Report 6 Description of the Consolidated of AS Sampo Pank Important Economic and ing Events in the Year 2004 Business Results of the Consolidated of AS Sampo Pank Risks and Internal Control Systems Ratings Lawsuits Financial Ratios Financial Statements 18 Declaration of the Management Board 59 Approval of the Supervisory Board 60 Additional documents to the Annual Report Auditor s Report 61 Proposal for the Distribution of Profit Annual Report 3

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

4 INTRODUCTION General Information on AS Sampo Pank Business name: AS Sampo Pank Address: Narva mnt 11, Tallinn, the Republic of Estonia Register code: Register: Commercial Register of the Republic of Estonia Filing date: 31 May 1996 Auditors Hanno Lindpere, authorised auditor since 1998 Tiina Sõmer, authorised auditor since 1998 Ernst & Young Baltic AS Harju 6, Tallinn Register code: The reporting period is 12 months. The balance sheet date of the report is 31 December The reporting currency is Estonian kroon and figures are presented in thousands of kroons. Abbreviations used in the present Annual Report are as follows: Sampo Pank or the in the meaning of AS Sampo Pank; The in the meaning of the Consolidated of AS Sampo Pank Annual Report 5

5 MANAGEMENT REPORT Description of the Consolidated of AS Sampo Pank Business name Main business activity 1) Register code 2) Register 3) Registration date Address Ownership percentage AS Sampo Pank ing services 1) ) Commercial Register of the Republic of Estonia 3) Narva mnt Tallinn AS Sampo Liising Leasing services 1) ) Commercial Register of the Republic of Estonia 3) Narva mnt Tallinn 100 SIA Sampo Lizings (under liquidation) Leasing services 1) ) Company Register of the Republic of Latvia 3) Tomsona iela 11 LV-1013 Riga 100 Sampo Kinnisvarahalduse AS Property management 1) ) Commercial Register of the Republic of Estonia 3) Narva mnt Tallinn 100 Sampo Baltic Asset Management AS Asset management services,fund manager 1) ) Commercial Register of the Republic of Estonia 3) (The District Court of Tartu, Reg. Dep.) Narva mnt Tallinn 100 There is no difference in the structure of AS Sampo Pank and the Consolidated of AS Sampo Pank. 6

6 IMPORTANT ECONOMIC AND BANKING EVENTS IN THE YEAR 2004 Economic and ing Environment EU Accession The integration process towards the European Union of the past years culminated in Estonia s EU accession in May The step implies Estonia s full integration with the common European political and economic area as well as further harmonisation of the country s economic and foreign policies within the European framework. To speed up the real convergence of the Estonian economy with the European economic area, shortly after EU entry Estonia joined the European Exchange Rate Mechanism ERM2 which is an interim stage in adopting the Euro. Estonia entered ERM2 maintaining its currency board arrangement at the pre-existing peg against the euro. Due to continuing harmonization of economic policies EU entry brought about several amendments in Estonia s customs and tax policies. EU accession has also had an essential impact on the competition environment and free movement of labour. Besides, opportunities for taking advantage of EU structural funds for the development of the country s economy fully opened up for Estonia. Estonia s EU membership and entry to ERM2 did not bring about significant changes in Estonia s money and financial markets, because international financial markets had taken these developments into consideration already earlier. As interest rates remained stable in the eurozone throughout the year 2004, essential changes did not occur in the level of interest rates in the Estonian economy either. At the same time, in the light of Estonia s progress made in the integration with the European structures and its rapid economic development the international rating agency Standard & Poors upgraded Estonia s sovereign rating and other rating agencies confirmed its existing high ratings. It testifies to the continued improvement of the country s creditworthiness. Continuing favourable economic development Supported by the upswing of the global economy, Estonia s economic growth accelerated to an estimated 6.2% in 2004, as stronger external demand together with Estonia s entry to the European single market led to a surge in goods export. EU accession has had an especially positive impact on the development of tourism being reflected in accelerated growth of services export. Domestic demand was primarily driven by investment that is not surprising, regarding the high investment demand existing in the economy and the favourable interest rate environment. Incomes of households increased on the strength of continuing economic growth. Although price rise accelerated, the increased basic income tax exemption mitigated somewhat its impact on households disposable income, supporting growth in consumption. As households actively took advantage of the opportunity to finance both consumption and home purchase by bank loans or leases, their financial liabilities continued to grow fast. The continuing rise in incomes resulting from favourable economic development still speaks in favour of further fast growth of borrowing in the short term. However, the growth rates of loans to households have started to stabilise, indicating that the increase in the loan burden of households will get moderated. Companies sales and profit increased on the strength of expanded external demand and consistently strong domestic demand. The growth rate of labour costs also accelerated from the prior year, although at a slower pace. The latter was to a certain extent an indication of increased salary pressures, as faster economic growth did not bring about the expected continuing growth in employment rate, experienced in recent years. On the contrary, a substantial deceleration of the growth of employment can be predicted on the basis of the data of the first three quarters of Thus, the global phenomenon that fast economic growth is accompanied only by a merger increase in the number of the employed was also experienced in Estonia. This phenomenon occurs when labour productivity increases faster than economic growth, for the 2004 Annual Report 7

7 reason that companies try to increase their efficiency in order to maintain competitiveness and prefer to invest rather in technology than in labour. Though the enlivening of the world economy supported growth in Estonia s export, it did not result in the decrease in the current account deficit, as active investment activity together with the stockpiling of goods prior to EU accession spurred growth in goods import. In coming years economic activity in Estonia is expected to continue expanding briskly due to the relatively favourable outlook for the global economy and high investment demand at home. The latter also refers that no substantial improvement of Estonia s external balance can be predicted in the short term, as investments that are additionally supported by the EU structural funds will fuel import demand. Developments in the ing Market The growth of loans continued to outpace that of deposits in the low interest rate environment. Similar to recent years, housing loans continued to expand fastest, facilitated by constantly declining interest rates and longer maturities. The role of domestic banks increased considerably in the financing of domestic companies, as more attractive loan conditions than earlier motivated companies to borrow rather from domestic banks than use foreign financing (incl. intra-group borrowing). Beside lending, banks also increased their efforts in attracting client deposits. In addition, great attention was paid to the marketing of pension funds and other savings and investment products. At the end of the year the positive results of the efforts became visible a substantial growth in client deposits was recorded. Regarding other saving products, the growth in voluntary funded pension products was among the fastest last year. Estonia s EU accession has increased the already tight competition situation in the financial sector, since it motivated several European banks and financial institutions to enter the Estonian financial market. While for market participants the new situation will entail further focusing on customer relationship and additional efforts to raise the efficiency of their business operations, for clients it will bring about a wider choice in the financial market. Important ing Events On 2 January, the ownership of AS Sampo Pank was transferred from Sampo plc to Sampo plc (Finland) due to the internal reorganisation of Sampo plc. On 27 January, AS Sampo Pank arranged a closed issue of subordinated coupon notes in the total amount of EUR 16 million. On 9 March the Listing and Surveillance Committee of the Tallinn Stock Exchange satisfied AS Sampo Pank s application to list the notes in the bond list of the Tallinn Stock Exchange. Trading in the above notes began on 19 March. On 4 February, Martti Juhani Porkka and Aare Tark were recalled from AS Sampo Pank s Supervisory Board and Gintautas Galvanauskas and Petri Kalervo Niemisvirta were elected as new members of the Supervisory Board. On 5 February, at the meeting of the Supervisory Board of AS Sampo Pank, Risto Tornivaara was elected as the new chairman of the Supervisory Board. On 25 March, Sampo plc, the sole shareholder of AS Sampo Pank, approved the 2003 Annual Report of the Consolidated of AS Sampo Pank and adopted a resolution to distribute the profit of the previous financial year in the amount EEK as follows: to carry an amount of EEK to the reserve capital and an amount of EEK to the next periods under the balance sheet item Retained profit/loss. Sampo plc appointed AS Sampo Pank s auditors for the financial year of 2004 as follows: Hanno Lindpere as the leading auditor and Tiina Sõmer as the executive auditor, both from the auditing company Ernst & Young Baltic AS. 8

8 On 7 April, Sampo Varahalduse AS was renamed Sampo Baltic Asset Management AS due to the expansion of the company in the Baltics. On 16 September, at the meeting of AS Sampo Pank s Supervisory Board, Georg Schubiger, a former member of the Supervisory Board, was elected as the new chairman of the Supervisory Board. Risto Tornivaara, the former chairman of the Supervisory Board, will continue as a member of the Supervisory Board. On 20 October, AS Sampo Pank signed a five-year loan agreement in the amount of EUR 110 million, syndicated by Sampo plc and Norddeutsche Landesbank Girozentrale (NORD/LB). On 1 November, the international rating agency Moody s upgraded the long term and short term deposit ratings of AS Sampo Pank to A2/P-1 from A3/P-2. Sampo Pank s D financial strength rating remained positive. On 3 November, Sampo Baltic Asset Management AS (SBAM) officially announced of the opening of its branch office in Lithuania, where SBAM is going to cooperate closely with the other companies of Sampo plc - UAB Sampo as and Sampo Gyvybes Draudimas (a life insurance company). On 16 December, the Supervisory Board of AS Sampo Pank satisfied the resignation application submitted by Tauno Vanaselja, Member of the Management Board of AS Sampo Pank. Tauno Vanaselja s powers as a Member of the Management Board were deemed to be terminated as at The Management Board of AS Sampo Pank will continue working with the remaining three members: Härmo Värk, Chairman of the Management Board; Ivar Pae, Chief Financial Officer and Margus Zhuravljov, Director of the Personal and Retail ing Division. On 27 January 2005 Markku Pehkonen, Senior Vice President and Head of Asset & Liability Management of Sampo plc, was elected as a new member of the Supervisory Board of AS Sampo Pank according to the decision adopted by Sampo plc, the sole shareholder of AS Sampo Pank. BUSINESS RESULTS OF THE CONSOLIDATED GROUP OF AS SAMPO PANK Balance sheet analysis Total assets of the Consolidated of AS Sampo Pank (hereinafter the ) amounted to 9.7 billion at the end of 2004, an increase of 34.8% or EEK 2.5 billion over the year. This increase was mainly generated by the growth of the loan portfolio. In 2004, similar changes took place in the structure of the s assets and liabilities as in the prior year. The share of loans in the assets increased by 2.5 percentage points to 74.1% and the share of client deposits in the liabilities decreased by 4.1 percentage points to 56.3%. The latter decrease resulted from the fast growth in external financing. Securities and Liquid Assets Total liquid assets amounted to EEK 2.2 billion at the end of 2004, accounting for 22.6% of the s total assets (24.3% in 2003). This was an annual increase of 25.3% or EEK million. The securities portfolio dominated in the structure of liquid assets at the end of 2004, accounting for 51.6% (38.6% in 2003). Cash and demand deposits with banks made up 48.3% (46.6% in 2003) of liquid assets. The portfolio of liquid securities exceeded EEK 1.1 billion at year-end of 2004, an annual increase of 67.8% or EEK million. The share of government bonds that comprised 44.9% of the total portfolio increased most. The composition of the rest of the portfolio was as follows: debt securities issued by credit and 2004 Annual Report 9

9 financial institutions 36.7% and other debt securities (mainly international corporations debt securities with high investment grade) 18.5%. Lending As a result of the s continued active lending, the gross loan portfolio increased considerably for the second consecutive year: in 2003 by 40.0% or EEK 1.5 billion and in 2004 by 38.9% or EEK 2.0 billion, respectively. At the end of 2004, the s gross loan portfolio amounted to EEK 7.3 billion. As for the structure of borrowers, the previous year s trends continued to prevail. The growth rate of loans to private persons exceeded that of loans to companies, whereas loans to private persons accounted for 42.8% (39.1% in 2003) of the loan portfolio. The share of loans to companies declined to 54.1% (57.7% in 2003). Loans to private persons experienced an annual increase of 51.9% or EEK 1.1 billion, totalling EEK 3.1 billion at the end of The increase is primarily attributable to growth in mortgage loans that comprised 83.1% of the total portfolio. At the same time, growth in consumer financing continued. The great interest of private persons in borrowing can be explained by favourable loan conditions as well as the improving economic environment. The average interest rate of mortgage loans granted during the year declined by 1,0 percentage points due to the fall of the 6 months Euribor and a decrease in loan margins. In 2004, the average maturity of mortgage loans was about 17 years. Although the share of loans to companies in the total loan portfolio has declined continuously in recent years, loans granted to companies for the implementation of long-term investment projects as well as for the funding of working capital still make up the largest part of the s loan portfolio. At the end of 2004, loans to companies amounted to EEK 3.9 billion, an annual increase of 30.1% or EEK million. By economic sectors, the share of the real estate sector in the s total loan portfolio is the greatest, comprising 56.4% at the end of 2004 (43.9% in 2003). The s total loans to the real estate sector amounted to EEK 4.1 billion, whereof mortgage loans to private persons accounted for 64.0%. The percentage of other major economic sectors in the s loan portfolio was as follows: industry 12% and wholesale & retail trade 9.9%, respectively. The share of the industrial sector decreased by 5.0 percentage points and the share of the trade sector declined by 2.7 percentage points from the prior year. Allowances for Loan Impairment and Overdue Loans Allowances for loan impairment represented 1.65% of the gross loan portfolio at the end of 2004 (2.05% in 2003). The decrease was related to the improved quality of the loan portfolio and the positive developments in Estonia s economy in recent years. The share of overdue loans in the gross loan portfolio accounted for 5.9% at the end of 2004 (9.5% in 2003). Allowances for loan impairment comprised 27.5% of overdue loans at year-end 2004 (21.1% in 2003). Fixed and Other Assets Intangible and tangible assets comprised 1.6% of the s assets at the end of 2004, as compared to 2.0% at the end of In 2004, intangible and tangible assets increased by EEK 4.0 million or 69.9% and by EEK 2.1 million or 1.5%, respectively. The increase in intangible assets was caused by the implementation of various banking technology development projects. Residual value of intangible and tangible assets was EEK 9.6 million and EEK million, respectively. Other assets decreased by 0.5% in 2004, amounting to EEK 53.9 million and accounting for 0.6% of the s total assets. 10

10 Liabilities and Owners Equity The s liabilities increased by EEK 2.4 billion or 35.9% in 2004, amounting to EEK 9.1 billion. The most important source of financing for the were client deposits and loans from banks, accounting for 56.3% (60.4% in 2003) and 33.2% of the s liabilities, respectively. The share of other liabilities (incl. issued debt securities 3.1% and subordinated liabilities 2.7%) comprised of about 10% of the s liabilities. Client Deposits In 2004, the achieved rather strong growth in deposits over the prior year. The total volume of client deposits increased by EEK 1.1 billion or 26.8% (EEK 0.5 billion or 13.6% in 2003), reaching EEK 5.1 billion by the end of The increase can be largely attributed to the growth of private company deposits, whereas the strongest growth was achieved in demand deposits. Time and demand deposits grew almost equally, amounting to EEK million (an annual increase of 28.0%) and EEK million (an annual increase of 25.6%), respectively. As at the end of 2004, time deposits totalled EEK 2.5 billion (48.5% of total deposits) and demand deposits amounted to EEK 2.6 billion (51.5% of total deposits). No significant changes occurred in the structure of deposits. Private company deposits made up 57.4% (60.3% in 2003) and deposits of private persons comprised 26.2% (26.0% in 2003) of total deposits. Deposits of private persons almost maintained the prior year s growth. Total deposits of private persons, reaching EEK 1.3 billion at the end of 2004, experienced an annual increase of 27.5% or EEK million. This growth is primarily attributable to a 34.4% (EEK million) increase in time deposits that amounted to EEK million at year-end of As for the term of depositing, the preferences of clients remained almost unchanged from the prior year the duration of the majority of deposit agreements did not exceed one year. In 2004, demand deposits of private persons increased by 17.1% or EEK 70.9 million, totalling EEK million. Private company deposits increased by 20.8% or EEK million in 2004, amounting to EEK 2.9 billion. The increase in private company demand deposits exceeded that of private company time deposits. Private company demand deposits increased by 21.7% or EEK million and private company time deposits grew by 19.1% or EEK million. At year-end 2004, private company demand deposits totalled EEK 2.0 billion, accounting for 75.0% of total demand deposits, and private company time deposits amounted to EEK million, accounting for 38.8% of total time deposits. Issued Debt Securities and Loans from s Loans from banks increased by EEK 1.9 billion or 171.6%, reaching EEK 3.0 billion at year-end 2004.The volume of issued debt securities totalled EEK million, experiencing a decrease of EEK million or 69,1% due to redemption. Equity and Subordinated Liabilities The s equity increased by 20.7% or EEK million due to the profit earned in 2004, amounting to EEK million. Subordinated liabilities increased by 16.6% or EEK 35.4 million, totalling EEK million. The s capital adequacy was 11.8% at the end of 2004 (12.6% in 2003). The Tier I Ratio was 8.4% in 2004 (8.9% in 2003). Income statement analysis The s net profit increased by 24.4% or EEK 21.2 million in 2004, amounting to EEK million. Return on equity increased by 0.8 percentage points to 18.5%, while return on assets remained at the previous year s level of 1.3% Annual Report 11

11 The s total income which includes net interest income, net fee and commission income and other noninterest income increased by 17.9% or EEK 63.6 million in 2004, amounting to EEK million. Net interest income accounted for 69.5% (69.3% in 2003), net fee and commission income 21.1% (18.9%) and other noninterest income 9.4% (11.8%) of the s total income. Net interest income increased by 18.2% or EEK 44.7 million, totalling EEK million in Net fee and commission income increased by 31.2% or EEK 21.0 million, reaching EEK 88.1 million. Other non-interest income decreased by 5.0% or EEK 2.1 million, amounting to EEK 39.6 million. In the structure of non-interest income, income from foreign exchange transactions accounted for 5.6% (6.8% in 2003), income from securities 1.3% (2.3%) and other operating income 2.6% (2.7%) of the s total income in Interest Income and Expense The s interest income amounted to EEK million in 2004, an annual increase of 14.0% or EEK 54.7 million. The rise principally resulted from the growth of the volume of interest earning assets and the increased share of the loan portfolio in interest earning assets. At the same time, the s average return on interest earning assets declined by 0.8 percentage points to 5.6%. Interest income on total assets decreased by 0.6 percentage points to 5.3% in 2004 due to intensive growth of assets and declining loan interest rates. The s interest expense amounted to EEK 154.4, an increase of 6.9% or EEK 10.0 million. This increase was caused by the increase in interest bearing liabilities. The average price of interest bearing liabilities declined by 0.4 percentage points to 2.1%. The s interest spread was 3.5% in 2004 (3.8% in 2003). Net interest margin after allowances decreased to 3.1% in 2004 (from 3.5% in 2003). Allowances for Loan Impairment Allowances for loan impairment made in 2004 totalled EEK 28.2 million (EEK 17.5 million in 2003). At the same time EEK 1.1 million was recovered from the write-offs of previous years which was EEK 0.2 million less than in the prior year. Net loan allowances amounted to EEK 27.1 million in Fee and Commission Income and Expense, Currency Exchange The s fee and commission income increased by 37.4% or EEK 33.4 million in 2004, totalling EEK million. This increase primarily resulted from the increase in the arrangement fees from loan and guarantee agreements due to the fast growth of the loan portfolio. Fees and commissions paid by the amounted to EEK 34.5 million, an increase of 56.1% or EEK 12.4 million over the prior year. This increase is largely attributable to the growth of the volume of card transactions. Net fee and commission income totalled EEK 88.1 million, a gain of 31.2% or EEK 21.0 million. The breakdown of the s fee and commission income for 2004 was as follows: fee and commission income from cash and bank operations 25.5% (31.5% in 2003), arrangement fees from loan and guarantee agreements 34.0% (28.9% in 2003), fees from card transactions 18,0% (19.6% in 2003), fees and commissions from investment services 16.4% (11.8% in 2003) and other fees and commissions 6.1% (8.2% in 2003). Fee and commission income from bank operations increased by 11.0% or EEK 2.8 million, amounting to EEK 28.1 million. At the same time, fees and commissions paid for bank operations increased by 14.8% or EEK 0.9 million, totalling EEK 6.8 million. Net fee and commission income from bank operations increased by 9.9% or EEK 1.9 million, amounting to EEK 21.3 million. The total volume of payments made by clients increased by 26.0% over the year. 12

12 Net fee and commission income from cash operations increased by 13.5% or EEK 0.3 million in 2004, totalling EEK 2.2 million. Arrangement fees from loan and guarantee agreements, the greatest source of fee and commission income, experienced a substantial increase of 61.7% or EEK 15.9 million during the year, amounting to EEK 41.8 million at the end of The s fee and commission income from card transactions gained by 26.2% or EEK 4.6 million due to the increased number of bank cards as well as the growth of the volume of card payments in 2004, totalling EEK 22.0 million. At the same time, fee and commission expense related to card transactions increased by 77.3% or EEK 9.3 million, amounting to EEK 21.4 million. The volume of both card payments and cash withdrawals from ATMs increased by 44.0% and 19.1%, respectively. The number of debit and credit cards (incl. instalment loan cards) issued by the increased by 15.1% and 35.2%, respectively. Fees and commissions from investment services achieved the highest growth rate for the second consecutive year. In 2004, fees and commissions from investment services totalled EEK 20.1 million, an increase of 91.3% or EEK 9.6 million. This significant growth is mainly attributable to the increased number of clients who have joined Sampo s Pillar II pension funds and the resulting growth in investments. Income from foreign exchange transactions remained almost at the previous year s level, amounting to 23.6 million, a decrease of 1.6% or EEK 0.4 million. Other Non-Interest Income Total other non-interest income earned by the in 2004 amounted to EEK 16.0 million, a decrease of 9.6% or EEK 1.7 million. Operating Expenses The s non-interest expense increased by 12.5% or EEK 31.5 million, totalling EEK million. However, at the same time cost efficiency improved. The s cost/income ratio declined from 71.0% in 2003 to 67.8% in 2004 and the ratio of non-interest expense to average assets decreased from 3.8% in 2003 to 3.4% in No significant changes occurred in the structure of the s non-interest expense in Personnel expenses represented the largest share of the s non-interest expense, accounting for 50.8% (51.8% in 2003), followed by other administrative expenses 36.5% (39.3%), depreciation 7.9% (6.4%) and other operating expenses 4.7% (2.5%). Personnel expenses totalled EEK million, an increase of 10.4% or EEK 13.6 million. The growth mainly resulted from the increased number of employees and higher salaries. In 2004, the average number of employees increased by 6.5% to 493 people. In 2004, the largest expense items in other administrative expenses were communication and data processing expenses, comprising 30.5% (32.7% in 2003), advertising expenses, forming 14.9% (18.0%) and premises rent and maintenance expenses, making up 20.4% (18.1%) of other administrative expenses. Communication and data processing expenses decreased by 2.2% or EEK 0.7 million during the year, totalling EEK 31.6 million. Advertising expenses decreased by 13.4% or EEK 2.4 million, amounting to EEK 15.4 million. Premises rent and maintenance expenses grew by 18,5% or EEK 3.3 million, totalling EEK 21.2 million. Depreciation totalled EEK 22.3 million in 2004, a growth of 38.1% or EEK 6.2 million, largely due to the investments made in banking technology and intangible assets Annual Report 13

13 Shareholders of Sampo Pank As at Sampo plc owned 100% of Sampo Pank s shares ( shares). Dividend Policy Sampo Pank intends to retain profit for The total profit will be reinvested in order to finance the develop ment of the business operations of the and its subsidiaries. Sampo Pank s Development Costs In 2004 Sampo Pank s development costs amounted to EEK 26.7 million. The s development costs budgeted for 2005 total EEK 34.9 million. Remuneration of the Management and Supervisory Boards of the s Subsidiaries Salaries and fringe benefits paid to the members of the management and supervisory boards of the s subsidiaries totalled EEK thousand in the reporting period. Remuneration and the Average Number of Employees of the s Subsidiaries Salaries and fringe benefits to the employees of the s subsidiaries in the reporting period totalled EEK thousand. The average number of persons employed by the during the year was 493. Development trends in 2005 Sampo Pank is a universal bank that renders services to private and corporate customers as well as the public sector, being guided by client-oriented servicing principles. In the private customers segment the Sampo Pank together with its subsidiaries continues focusing on the further growth of the customer base and business volumes. The is actively seeking to benefit from the expansion of the market of savings and investment services and mortgage loans. In the corporate banking segment the focuses on serving small and medium-sized companies, providing them flexible financing solutions and cost-efficient settlement services. Estonia s EU accession has contributed considerably to the enlivening of investment activity both in the public sector and infrastructure companies. The aims to be competitive in the financing of both areas. In the medium term the aims to generate value by profitably increasing its market share in the above business segments. Cost-efficient business operations and adherence to prudent business practice serve to achieve the goal. 14

14 RISK MANAGEMENT AND INTERNAL CONTROL SYSTEMS Risk Management - See Financial Statements Note 2 on page 28 Internal Control Systems Internal control systems which form an integral part of the management processes of the Consolidated of AS Sampo Pank can be defined as actions taken by the management in order to plan, organise and direct the performance of sufficient actions so as to ensure with reasonable assurance efficient operations of the in compliance with relevant laws and regulations. The s internal control systems are primarily governed by the principles stipulated in the laws and other legal acts of the Republic of Estonia and risk management policies of Sampo plc. Internal control systems that cover the activities of the entire form an integral part of the main and supportive processes of the. Internal control systems are part of the s management techniques and it is the responsibility of the managers of different levels and business areas to ensure that these systems are created and applied efficiently. In addition to the daily functioning of internal control systems there are several units and bodies both in the and in the that perform control functions supervisory and management boards, several committees (incl. ORCO, ALCO, IT Steering Committee) and the independent Internal Audit Department. The coordinated activities of the s Supervisory and Management Boards and the Internal Audit Department ensure the efficient functioning of internal control systems. The s Supervisory Board performs supervision over the activities of the and its subsidiaries, monitors the activities of management boards, approves the s strategy and general risk management principles. The policy statements approved by the s Supervisory Board (the Financial Policy Statement, the Credit Policy Statement and the Operational Risk Policy Statement) define the acceptable risk level. Pursuant to the above policies management boards are responsible for the arrangement of business activities on a daily basis, including the determination of the scope of competence and responsibility of each management level as well as the approval of job descriptions of employees and internal procedure rules and regulations. Management boards are responsible for the implementation of approved action plans and the adherence to the established procedure rules. The establishment of internal control systems is governed by the principle that control must be economically efficient, i.e. expenses made for the establishment of a control system must not exceed the expected return. Each management level performs certain tasks in the internal control system. More detailed control is conducted in the form of daily controls within the business process, the functioning of which is ensured by means of random inspection controls and monitoring. The independent Internal Audit Department of the (IAD) monitors the operations of the entire, incl. AS Sampo Liising, Sampo Baltic Asset Management AS and Sampo Kinnisvarahalduse AS. The activities of the IAD are aimed to give reasonable assurance to the management of the that internal control systems meet relevant requirements and function effectively. Observing the agreed standards, the IAD systematizes information concerning risk management and the efficient functioning of internal control systems. One of the IAD s responsibilities is to analyse the reasons for detected shortcomings in the business processes of the and to make recommendations for improving risk management and increasing the efficiency of internal control systems. The IAD s annual action plan is approved by the s Supervisory Board. According to the s organisational chart the IAD is directly subordinated to the Chairman of the Management Board. In compliance with AS Sampo Pank s Charter of Internal Auditing approved by the Supervisory Board, the IAD is obliged to submit quarterly reports to the Supervisory Board. The internal audit function is managed and the internal auditing process is performed in accordance with the Statement of Internal Auditing Standards (SIAS) and the Internal Auditing Manual of AS Sampo Pank Annual Report 15

15 The operations of the and the are audited by an independent auditing company. In the course of these audits external auditors examine the s and the s internal control systems and familiarize themselves with the results of the audits performed by the IAD. As a result, the independent auditing company submits to the s Management Board a report containing their observations and recommendations for the improvement of the existing internal control systems. RATINGS Rating history of Sampo Pank: Moody s Investors Service Long-term deposit rating A2 A3 A3 Short-term deposit rating P-1 P-2 P-2 Financial strength rating D D D On 29 July 2002, the international ratings agency Moody s Investors Service upgraded Sampo Pank s financial strength rating from the level D- to the level D and assigned a positive outlook. The s deposit ratings remained unchanged and were approved at the previous levels of Baa1 and Prime 2 by the Moody s. On 12 December 2002, Moody s Investors Service upgraded Sampo Pank s deposit ratings to A3/P-2 (positive outlook) from Baa1/P-2. The financial strength rating (D) and positive outlook were maintained. This rating action followed the upward revision of Estonia s foreign currency ceiling to A1 in November On 9 July 2003, Moody s Investors Service placed on review for possible upgrade the A3/Prime2 ratings of Sampo Pank following the rating upgrade of Sampo plc (Finland). At the same time the agency confirmed the D financial strength rating of Sampo Pank with its existing positive outlook. On 1 Novembril 2004, Moody s upgraded the long term and short-term deposit ratings of AS Sampo Pank to A2/P-1 from A3/P-2. Sampo Pank s D financial strength rating remained positive. Short descriptions of the levels of ratings are presented on the homepage of the rating agency All assigned ratings and changes made in the previous ratings are also published on the homepage. LAWSUITS In 2004, neither the nor any of its subsidiaries were involved in any lawsuits, which could incur considerable losses to them. 16

16 FINANCIAL RATIOS In thousands of kroons, except for efficiency ratios and share figures For the period Total income Net interest income Allowances for loan losses Net fee and commission income General administrative expenses Net profit Total at period-end Total assets Net loan portfolio Deposits Equity Share of net loan portfolio in assets 73,3% 71,0% 74,0% 71,5% Share of client deposits in assets 52,8% 56,1% 52,7% 56,0% Equity multiplier 15,43 13,82 15,43 13,82 Per common share (in kroons) Basic earnings per share, at an average number of shares 3,34 2,68 3,34 2,68 Book value at period-end 19,46 16,12 19,46 16,12 Efficiency ratios Return on equity 18,5% 17,7% 18,5% 17,7% Return on assets 1,3% 1,3% 1,3% 1,3% Assets utilisation 6,7% 7,2% 7,2% 7,9% Interest income on average assets 4,7% 5,2% 5,3% 5,9% Interest expenses on average interest-bearing liabilities 2,1% 2,5% 2,1% 2,5% Net interest margin before allowances 2,9% 3,0% 3,5% 3,7% Net interest margin after allowances 2,7% 3,0% 3,1% 3,5% Interest spread 2,9% 3,1% 3,5% 3,8% Profit margin 19,2% 18,0% 17,7% 16,6% Cost/income ratio 65,9% 70,6% 67,8% 71,0% Definitions of key indicators: Total income: interest income, fees and commissions revenue, net profit (loss) from securities (long term and short term investments), equity method gains (losses), net profit (loss) from financial transactions Net interest income = interest income interest expense + net profit (loss) from trading debt securities + net profit (loss) from options Return on equity = net profit / average equity of the period Return on assets = net profit / average assets of the period Assets yield = total income / average assets of the period Interest income on average assets = interest income / average assets of the period Interest expenses on average interest-bearing liabilities = interest expenses / average interest-bearing liabilities of the period Net interest margin before allowances = net interest income before allowances / average assets of the period Net interest margin after allowances = net interest income after allowances / average assets of the period Interest spread = interest income / average interest-earning assets of the period interest expenses / average interest-bearing liabilities of the period Profit margin = net profit / total income Cost / income ratio = (general administrative expenses + value adjustments in tangible and intangible assets + other operating expenses) / (total income interest fee expenses) Computation of the efficiency figures is based on the financial year balance sheet averages Annual Report 17

17 FINANCIAL STATEMENTS 18

18 BALANCE SHEET In thousands of kroons, as at 31 December Note ASSETS Cash Claims and loans Claims and loans to Central Claims and loans to credit institutions Claims and loans to clients 5, Leasing receivables 5,7, Allowance for claims and loans Securities Trading Available-for-sale Derivatives Shares of subsidiary undertakings Intangible assets Tangible assets Investment property Other assets Prepayments and accrued income TOTAL ASSETS LIABILITIES Amounts owed Amounts owed to credit institutions Amounts owed to clients Other amounts owed Derivatives Issued debt securities Other liabilities Accruals and deferred income Subordinated liabilities TOTAL LIABILITIES OWNERS EQUITY Share capital Paid-in capital over par Reserves Retained earnings TOTAL OWNERS EQUITY TOTAL LIABILITIES AND OWNERS EQUITY Notes on pages of this Annual Report form an integral part of the Financial Statements Annual Report 19

19 INCOME STATEMENT In thousands of kroons, year ended 31 December Note Interest income Interest income from banking activities Interest income from leasing activities Interest expense Interest expense from banking activities Interest expense from leasing activities Net interest income (loss) (+/-) Income from securities Income (loss) from associates (and subsidiaries in ) (+/-) Income from subsidiaries Net fee and commission income Fee and commission income Fee and commission expense Net profit (loss) on financial operations (+/-) General administrative expenses Salaries expense Social security tax expense Other administrative expenses Depreciation and amortisation 10,11, Bad and doubtful debts expense Other operating income and expense Other operating income Other operating expenses PROFIT FOR THE FINANCIAL YEAR Earnings per share (in kroons) Diluted earnings per share (in kroons) Notes on pages of this Annual Report form an integral part of the Financial Statements. 20

20 CASH FLOW STATEMENT In thousands of kroons, year ended 31 December Cash flows from operating activities Note Profit for the financial year Profit adjustments Non-cash expenses related to tangible assets, intangible assets and investment properties Net interest income Allowances for loan and collateral impairment, currency exchange differences Profit from securities, excl. trading securities Changes in assets and liabilities related to operating activities Time deposits with credit institutions Claims to clients of credit institutions and leasing enterprises Trading securities and derivatives Other assets related to operating activities Liabilities to credit institutions, excl. loans Liabilities to clients of credit institutions Other liabilities related to operating activities Interest receipts Interest payments Total cash flows from operating activities Cash flows from investing activities Acquisition of tangible and intangible assets Disposal of tangible and intangibe assets Disposal of subsidiaries, net of cash disposed Purchases of available-for-sale securities Sales of available-for-sale securities Total cash flows from investing activities Cash flows from financing activities Proceeds from borrowed funds Repayments of borrowed funds Debt securities issued Paid upon redemption of debt securities Proceeds from subordinated loans Repayments of subordinated loans Total cash flows from financing activities Total cash flows Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents at end of year consist of: Cash Demand deposits with Central Demand deposits with credit institutions Notes on pages of this Annual Report form an integral part of the Financial Statements Annual Report 21

21 STATEMENT OF CHANGES IN OWNERS` EQUITY ( and ) 1 In thousands of kroons Share capital Paid-in capital over par Mandatory reserve Retained earnings Total Number of shares Balance at 1 January Transfer to reserve Profit for the financial year Balance at 31 December Balance at 1 January Transfer to reserve Profit for the financial year Balance at 31 December There are no differences between the s and the s statements of changes in owners` equity. The maximum share capital allowed by the Articles of Association of Sampo Pank is 900 million kroons, each with a nominal value of 10 kroons per share. If the retained earnings as at 31 December 2004 were fully distributed to the shareholders as dividends, income tax liability in the amount of thousand kroons would be incurred. The calculation of maximum possible income tax liability is based on the prerequisite that distributable net dividends and the incurred income tax expense must not exceed the distributable profit as at Notes on pages of this Annual Report form an integral part of the Financial Statements. 22

22 NOTES TO THE FINANCIAL STATEMENTS Note 1 Accounting policies AS Sampo Pank, registered at Narva mnt.11, Tallinn, Estonia (reg.no ) is a limited liability credit institution, the sole shareholder of which was Sampo plc as at December 31, Sampo Pank employed 465 persons as at 31 December The main accounting policies applied in the preparation of these financial statements are set out below. (1) Basis of Preparation The financial statements of the Consolidated of AS Sampo Pank (the ) and the parent company AS Sampo Pank (the ) are prepared in compliance with the International Financial Reporting Standards (IFRS). Financial statements are prepared under the historical cost convention, excluding financial assets and liabilities held for trading, other available-for-sale financial assets and derivatives which are measured at their fair value. (2) Presentation and Comparatives All figures in the present Financial Statements are presented in thousands of Estonian kroons, if not indicated otherwise. If necessary, comparative figures have been reclassified to conform to the changes in the presentation of the current financial statements. (3) Cash and Cash Equivalents Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, including cash on hand and demand deposits with other credit institutions and the Central, on the use of which no substantial restrictions have been imposed. (4) Consolidation and Business Combinations Subsidiary undertakings or undertakings, over which the holds control, have been fully consolidated. A subsidiary is excluded from consolidation where control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future. In the case the acquired or disposed a subsidiary some time in the middle of the year, the results of operations of the subsidiary are included in the consolidated financial statements as from the date of acquisition, which is the date on which control of the acquired subsidiary is effectively transferred to the buyer or until the date of disposal which is the date on which the parent ceases to have control over the subsidiary. All intragroup transactions, balances and resulting unrealised profits/losses are eliminated in the s consolidated statements. If needed, the accounting principles of a subsidiary undertaking have been adjusted according to those of the. Business combinations are recorded at the date on which the control is transferred to the using the purchase method of accounting, i.e. an amount equal to the fair value of the business combination on the date control is obtained, should be assigned to the identifiable assets acquired and liabilities assumed (starting from 30 March 2004 also assigned to the fair value of conditional liabilities). (5) Subsidiary Undertakings in the Financial Statements of the Parent Company Subsidiary undertakings are recorded in the unconsolidated financial statements of the using the equity method, i.e. investment in the subsidiary undertaking is initially recorded at acquisition cost in the s balance sheet and adjusted thereafter for the post acquisition change in the s share of the net assets of the subsidiary undertaking, minus allowances for impairment. (6) Foreign Currencies Foreign currency transactions are recorded by applying to the foreign currency amount the exchange rate of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Estonian kroons at each balance sheet date, by applying the official exchange rates quoted by the 2004 Annual Report 23

23 of Estonia at the balance sheet date. Translation differences are recorded under Net profit on financial operations in the income statement for the period. Profit/loss from purchase and sale of currencies is also recorded as Net profit on financial operations in the income statement. Foreign currencies not quoted by the of Estonia are recorded in the balance sheet according to the exchange rate of the central bank of the respective country on the basis of the EUR exchange rate. (7) Derivatives Derivatives (e.g. spots, forwards and swaps, futures and options) are initially recognised in the balance sheet at their acquisition cost (direct transaction costs included) at trade date and subsequently measured at fair value. Fair values are determined on the basis of quoted market prices and the official exchange rates of the of Estonia. All derivatives are carried as assets when their fair value is positive and as liabilities when fair value is negative. The nominal/contractual values of derivatives are recorded as off-balance sheet assets or liabilities and assets and liabilities from derivatives recorded in the balance sheet are not offset. Income and expenses on derivatives are recognised under Net profit on financial operations in the income statement. Income and expenses related to derivatives acquired for hedging purposes are recorded in the same group as the income/expenses of the underlying assets of the transaction. (8) Offsetting Financial assets and liabilities are offset and the net amount recorded in the balance sheet only if there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (9) Interest Income and Expense Interest income and expense are recognised in the income statement on an accrual basis, using the effective yield method. Recording of interest income on an accrual basis is suspended where a borrower has continuously failed to repay the loan principal. Interest income includes coupon payments earned on fixed income securities and the amortisation of premium or discount of bonds and other zero coupon debt securities/bonds as well as analogous income on certain off-balance sheet instruments. (10) Fee and Commission Income Fee and commission income is recorded on an accrual basis. Fees related to loans (less direct expenses related to the loans) are taken into consideration while calculating the effective yield on the loan. (11) Trading Securities Trading securities are securities which are acquired for generating a profit from fluctuations in market prices. Trading securities are initially recognised in the balance sheet at acquisition cost (including transaction costs) at trade date and subsequently measured at fair value based on quoted market prices and the official exchange rates of the of Estonia. Purchase prices of the balance sheet date are used for securities quoted on the stock exchange. Fair value is applied to trading securities issued by companies not listed on the stock exchange. Computation is based on any information available to the on the value of such investment. Income/loss on trading securities, i.e. any adjustment in the fair value of the securities as well as interests received on these securities, are recognised as Net profit on financial operations in the income statement. (12) Available-For-Sale Securities Available-for-sale securities include long-term securities and shares which can be realised before maturity either for the purpose of liquidity management or due to changes in interest rates, currency exchange rates and the prices of securities. Available-for-sale securities are initially recognised in the balance sheet at acquisition cost (including direct transaction costs) at trade date. Subsequently they are measured at fair value based on quoted market prices and on the official rates of the of Estonia. If some securities have not been priced at the market, the takes into account all accessible information on the value of the investment at the evaluation of its fair value. If the value of available-for-sale securities has impaired, they are written down to their recoverable amount. 24

24 Changes in currency exchange rates and fair value, impairment losses and reversals of impairment losses as well as dividends are recognised under Net profit on financial operations in the income statement. Interest earned is recognised under Interest income from banking activities in the income statement. (13) Loans and Impairment of Loans Disbursed loans (incl. leases) are recorded at acquisition cost at settlement date. All finance leases (see accounting principle 28) and other claims arisen from financial transactions concluded by the leasing company (i.e. the subsidiary AS Sampo Liising) are classified as leases and they are subsequently accounted for at amortised cost, using effective interest rate. Allowances for loan impairment are recognised, if it is probable that the will not be able to collect all amounts in due time. The amount of the allowance is equal to the difference between the carrying amount of the lease receivable and the recoverable amount (including amounts recoverable from guarantees and collateral) which is the present value of expected future cash flows, discounted by the initial effective interest rate. Loan losses are estimated, based on earlier experience in the evaluation of different components of the loan portfolio, the credit ratings assigned to the borrowers and reflecting the current economic environment in which the borrowers operate. Allowances for loan impairment are recognised under Bad and doubtful debt expense in the income statement. When a loan is uncollectible, it is recognised off the balance sheet together with the allowance recorded earlier. Subsequent recoveries are recognised as income under Bad and doubtful debt expense in the income statement. Interest income is recorded under Interest income from banking activities in the income statement. (14) Other Financial Assets and Liabilities Other financial assets and liabilities are the remaining assets and liabilities which are not included under securities, loans and derivatives. On the balance sheet other financial assets are accounted for at fair value and other financial liabilities are accounted for at amortised cost. Other financial assets and financial liabilities are recognised at trade date. If the recoverable amount of the financial asset is less than its carrying value, the financial asset is written down to the recoverable amount and the respective cost is recognised under Bad and doubtful debt expense in the income statement. The reversal of impairment is recognised on the same line of the income statement. (15) Tangible and Intangible Assets All tangible and intangible assets are stated at acquisition cost less accumulated depreciation. Intangible assets include acquired licences and software programs. Tangible assets are assets the acquisition cost of which exceeds 20 thousand kroons and expected useful lifetime is over one year. Tangible assets with an acquisition cost less than 20 thousand kroons are expensed at their acquisition. Depreciation on a tangible asset is calculated from the month of putting it into operation until full depreciation of the asset. The straight-line depreciation method is used with the minimum rates being established as follows: Buildings 2% p.a. Repairs of buildings 20% p.a. Intangible assets 25% p.a. Equipment, computers, cars 30% p.a. Other tangible assets 20% p.a Annual Report 25

25 Depreciation expense is recorded under Depreciation and amortisation in the income statement. Depreciation rates are changed, if the useful lifetime of a tangible asset differs significantly from the expected one. When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount. In case the value of the fixed asset has recovered, the expense, which resulted from the write down, will be reversed. The impairment of either tangible or intangible fixed asset as well as its reversal is recognised in the income statement under Depreciation and amortisation. Subsequent expenditure related to fixed tangible assets are added to the carrying value of the assets, if it is probable that economic benefit which exceeds the initial estimated value of the present assets may be received in the future. (16) Investment Property Investment property is land or a building or part of a building or both held to earn rentals or for capital appreciation or both. Investment property is recognised at cost less accumulated depreciation. A particular asset is depreciated over its useful lifetime (40-50 years), using the straight-line depreciation method. (17) Deposits Deposits are recorded under Amounts owed in the balance sheet at settlement date and relevant interest expenses are recognised under Interest expense from banking activities in the income statement. (18) Borrowings Borrowings are recorded under Amounts owed in the balance sheet at settlement date of the loan. Borrowings are initially recognised at acquisition cost (net of direct transaction costs incurred) in the balance sheet and subsequently they are accounted for at amortised cost, using the effective interest rate. Transaction costs are taken into account at calculating the effective interest rate and they are amortised over the lifetime of the loan. The interest expense of the borrowings is recognised under Interest expense from banking activities in the income statement. (19) Debt Securities Issued Debt securities issued include issued debt securities and commercial papers. Issued debt securities are initially recognised at acquisition cost in the balance sheet, being their issue proceeds net of transaction costs incurred, at trade date. Subsequently they are accounted for at amortised cost, using the effective interest rate. Transaction costs incurred are taken into account at the calculation of effective interest rate and are expensed over the period of the security. The relevant interest expense and the difference of the carrying value and the acquisition cost of the debt securities is recognised under Interest expense from banking activities in the income statement. (20) Subordinated Liabilities Subordinated liabilities are long-term liabilities which are reimbursed in case of the credit institution s bankruptcy or liquidation after the claims of other creditors have been met. Subordinated liabilities are initially recognised in the balance sheet at acquisition cost (net of direct transaction costs incurred) at settlement date. Subsequently they are accounted for at amortised cost, using the effective interest rate. Issuing costs are taken into account at the calculation of effective interest rate and are expensed over the period of the loan. Respective interest expense is recognised under Interest expense from banking activities in the income statement. (21) Income Tax Under the valid Income Tax Act of the Republic of Estonia, an income tax rate of 26/74 was imposed on dividends and certain payments and expenses specified in section 10 of this act under Special cases of income tax payment disbursed until December An income tax rate of 24/76 is imposed on the 26

26 above payments and expenses disbursed starting from 1 January Income tax on the above payments and expenses is recorded together with the respective expenses. The potential income tax liability which would arise, if the retained earnings were fully distributed to the shareholders is not recorded in the balance sheet. The maximum income tax liability incurred, if dividends were fully distributed, is presented in the statement of changes in owners equity. Income tax incurred by the distribution of dividends is recorded as income tax expense in the income statement at the moment the distribution of dividends is announced. (22) Mandatory Reserve According to the Commercial Code, appropriations to the mandatory reserve have to be made each year (at a minimum of 5% of the net profit) until the reserve reaches 10% of the share capital. According to the decision of the general meeting of shareholders reserve capital may be used for covering losses (in case it is not possible to cover them at the expense of owners` equity) as well as for increasing share capital. (23) Reporting by Geographical and Business Segments The s primary segments are distinguished by business activities (banking activity, leasing activity, asset management and other activities) and secondary segments are geographical segments according to the location of the property. All assets and liabilities which are directly related to segments are recognised as the assets and liabilities of the segments. Other assets and liabilities are recorded as the s joint assets and liabilities. Expenses, which are not related to segments are recorded as the s joint expenses. The notes also present clients liabilities with the and the as concentrated by major geographical areas of clients` domicile and economic sector. Determination of geographical areas is based on the division of states and territories by the State Classification Centre. Economic sectors have been defined in accordance with the Classifier of Estonian Economic Activities issued by the Statistics Office Register of Companies. (24) Earnings Per Share Earnings per share are calculated by dividing the net profit for a period by the period s weighted average number of shares. (25) Assets Management Services The provides asset management services and is engaged in fund management. The assets owned by the third party and managed by the are recorded off-balance sheet. (26) Research and Development Costs In general, research and development costs are expensed when incurred, with an exception of research and development costs which can be identified and which probably generate revenue during next periods. (27) Provisions Provisions are recognised, in case it is probable (based on a past event) that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount of the obligation can be reliably estimated. The provisions are recorded under the expenses of the accounting period. (28) Accounting for Leases A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset. Finance leases are recognised at the present value of minimum lease payments in the lessee s balance sheet. An asset acquired under finance lease is depreciated over the shorter of the lease term or its useful life. A lease is classified as an operating lease, if it does not transfer substantially all risks and rewards incident to ownership, whereas lease payments are recorded as operating expenses by the lessee and operating income by the lessor. Finance lease from the lessor s viewpoint see also accounting principle Annual Report 27

27 Note 2 Risk Management General Principles The objective of risk management is to identify, manage and price all risks arising from the operations of the Consolidated of AS Sampo Pank and to ensure a stable structure of returns as well as reliability, stability and profitability of the and an increase in shareholder s value. Risk management includes the following activities as a minimum: Recognizing risks -The risks associated with providing new services are studied, recognized and approved before a function is started. Pricing - The general principle is that all risks the assumes must be compensated with an optimal risk/return ratio. Criteria in pricing risks are the capital tied up by a service/product, the targeted capital yield, and the costs incurred due to providing a product/service. Portfolio management - The portfolios of the products/services are managed with an aim to preserve the required risk/return ratio and to prevent possible losses. Responsibility for portfolio management is clearly distributed among different divisions and structural units of the by use of authorizations and limits. Measurement of risk and return - Risk and return are measured separately by different areas of activity and products. The main types of risk resulting from the operations of the are: Credit risk; Market risk (related to fluctuations in foreign exchange rates, interest rates and prices of financial assets); Liquidity risk; Operating risk. Responsibility for risk management is vested with the Management Board of the, who have delegated the risk management function as follows: the assessment of credit risk to the Rating Committee; the management of credit risk to credit committees; the management of market and liquidity risks to the Assets and Liabilities Management Committee (ALCO); the management of investment risk to the Investment Committee: the management of IT risk to the IT Steering Committee; the management of operating risk to the Operating Risk Committee (ORCO). The objectives of the Assets and Liabilities Management Committee function include identification of financial risks arising from the operations of the and the external environment, approval and application of the principles for financial risk as well as assets and liabilities management. Financial risk management on the next level is conducted by the Assets and Liabilities Management (ALM) Department and the Credit Risk Department. The ALM Department is responsible for the daily monitoring and measurement of market and liquidity risks, for improving and raising the efficiency of the financial risk management system. It also implements the risk measurement methods and prepares reports on financial risk management for the ALCO and the Supervisory Board of the. The Credit Risk Department is responsible for credit risk management on a daily basis, working out and implementing of risk measurement methods as well as reporting. Other s divisions and units perform their duties pursuant to the s strategies, business plans and risk management policies, as well as relevant working procedures, thus ensuring proper risk management. Business units decide on taking positions in line with approved limits. Sampo Pank s Financial Policy Statement and its sub-documents stipulate the principles of taking and managing financial risks in the. The Financial Policy Statement is the basis of implementing risk management policies at all levels of the organization as well as fast and efficient reaction to market changes. 28

28 Management of the credit risk arising from the activities of the is regulated by Sampo Pank s Credit Policy Statement that is approved by the s Supervisory Board. Management of the operating risk arising from the activities of the is regulated by Sampo Pank s Operating Risk Policy Statement that is approved by the s Supervisory Board. Credit Risk Credit risk is a fluctuation in the s earnings due to bad debts or changes in the other party s creditworthiness. A loss arises when cash flows agreed with a debtor or the other party do not materialize or when the value of a receivable/agreement changes due to a change in the other party s creditworthiness. The activities of the generate credit risk through balance sheet or off-balance sheet instruments. All such exposures are monitored and controlled according to the counterparty limits (which are established by the respective decision-making committee) and by portfolio diversification (which is stipulated the s Investment Committee or the s Credit Committee). Credit Risk Related to Financial Institutions Credit risk related to financial institutions is managed through the internal counterparties ratings system. Based on the ratings counterparties are divided into categories, and every category is assigned a limit. Categorization of counterparties and the imposition, alteration and cancellation of limits is carried out by the s Credit Committee. The system of credit limits covers capital, money and foreign exchange market transactions as well as transactions in derivatives. Credit risk associated with derivatives is assessed, using the methodology which takes into consideration the maturity and type of derivatives. Credit risk related to financial institutions is monitored by the Credit Risk Department and adherence to limits is monitored by the ALM Department. Credit Risk Related to Lending Sampo s credit risk is managed as follows: Process of credit risk assumption Pursuant to the principles approved by the s Management Board decisions on the assumption of credit risks are adopted by a multi-level decision-making system. Depending on the size of the risk, decisions on the assumption of counterparty risk are made by the following decisionmakers: the s Credit Committee, the SME Credit Committee, the Credit Committee of Personal Customers, the Credit Committee of AS Sampo Liising, the Regional Credit Committee or individual decisionmakers. The decisions made are based on a thorough analysis of the potential client s financial performance and business activities which have been conducted pursuant to the principles of the analysis of clients credit applications approved by the s Credit Committee. Before a decision on the assumption of credit risk is adopted by a credit committee, Sampo Pank s internal rating has to be assigned to the counterparty. Risk ratings to large exposure clients are granted by the s Rating Committee based on the proposal submitted by the credit analyst. Monitoring of loans and other credit products The main objective of the monitoring of loans and other credit products is to prevent possible loan losses and to form reserves for covering them. Clients are monitored on two levels: monitoring of loans (clients) on an individual basis and monitoring of the aggregate credit portfolio. A loan (credit product) is monitored on an individual basis by the client s relationship manager and the Credit Risk Department pursuant to the procedures of the monitoring of clients and dealing with overdue loans. The objective of the monitoring of the aggregate credit portfolio is to analyse changes and risk concentration in the s credit portfolios as well as to inform the s Credit Committee and the management about them. Credit risk assessment is conducted through an internal reporting system. According to the system reports which reflect the scope and concentration of credit risks as well as their distribution between different products, economic sectors and risk categories are prepared periodically (on a daily, monthly or quarterly basis). All necessary information is compiled and analysed by the Credit Risk Department Annual Report 29

29 The target structure of the s credit portfolio by risk categories and by economic sectors is determined in the Credit Policy Statement. Allowances for loan impairment The objective is to form reserves for covering possible loan losses and to represent the s assets at their real value in the balance sheet. Allowances for loan impairment depend on the client s risk rating. The has adopted the rating principles used by Sampo plc according to which assumed credit risks are divided into 13 groups: L1+... D. In assigning risk ratings several factors are taken into account: payment discipline, financial condition, competitiveness, management competence, the overall situation of the economic sector etc. General allowances for the impairment of the credit portfolio are formed for covering possible loan losses assumed in the rating classes L1+...L4. Claims classified into classes L4- and D are assessed on an individual basis and the uncollateralised part of the claim is provisioned to the full extent. Loans, which are more than 90 days overdue and/or if the borrower s financial situation has deteriorated considerably are defined as problem assets. Allowances for loan impairment are calculated on a monthly basis. Handling of problem loans The objective is to decrease actual loan losses by recovering overdue loans and the claims written off earlier. The has set up a separate unit the Risk Assets Department which is responsible for the management of problem assets. Country Risk Country limits are set in the Credit Policy Statement and approved by the s Supervisory Board. Established limits depend on the ratings assigned by international rating agencies, based on the risk level of a concrete country. The ALM Department is responsible for the daily monitoring of country limits and periodic reporting to the ALCO, the s Credit Committee and the Supervisory Board. Market Risk Market risk arises from changes in interest rates, foreign exchange rates and prices of financial assets. Such risks are monitored in the s daily activities. Market risk limits are determined by the ALCO and monitored and managed by the ALM Department in co-operation with the Treasury. The ALM Department reports to the ALCO and Supervisory Board on a regular basis. Foreign Exchange Risk Foreign exchange risk is a potential loss caused by fluctuations in currency exchange rates. The does not actively seek taking foreign exchange positions, but holds a reasonable level of positions necessary to offer services to clients. In addition to the of Estonia regulations for open foreign currency positions, the Financial Policy Statement establishes open foreign currency position limits to currency groups which are reviewed at least once a year. The ALCO establishes limits by currencies. All foreign currency positions are monitored on a daily basis and marked to market. Foreign currency market risk is measured applying the Value-at-Risk (VaR) method. VaR is defined as the greatest possible loss on existing open foreign currency positions within 24 hours with 95% probability, based on the volatility of exchange rates of the previous 100 banking days. The VaR limit is set by the Supervisory Board. Open foreign currency positions arising from the s operations are hedged primarily by swap and forward transactions. Intraday open foreign exchange position limits are set by the ALCO. The ALM Department carries out day-to-day monitoring of exposures. Interest Rate Risk Interest rate risk is defined as an adverse variation in net interest income or in the market value of the s balance sheet and off-balance-sheet assets and liabilities caused by a change in the absolute level of interest rates, in the spread of the borrowing and lending rates, in the shape of the yield curve, or in any other aspect concerning interest rates. 30

30 The uses the GAP methodology for measuring and monitoring interest rate risk. Besides, different interest risk scenarios to value potential losses from interest rate changes are used. Interest rate risk is defined as the potential loss resulting from an assumed parallel shift of the yield curve by 100 basis points. The interest rate risk overall limit is approved by the Supervisory Board. The overall limit is set as a per cent to the budgeted net interest income. The ALCO has the authority to establish interest rate risk limits for main currencies and to approve different strategies for the management of interest rate risk. Open interest rate positions are covered according to the/estimation of future trends in the market made by the ALM Department and the Treasury and Trading Division. The market risk of the debt securities included in the Trading Portfolio is measured and monitored according to the system of Value-at-Risk (VaR) on a daily basis. The total portfolio VaR limit on the s net own funds is set by the ALCO. The ALM Department is responsible for the daily monitoring of interest rate risk and has to report to the ALCO. Changes in the Value of Financial Assets The s equity investments are divided into two portfolios: the Equity Trading Portfolio and the Equity Investment Portfolio. The Equity Trading Portfolio is managed with the intention to provide services to the s clients and to benefit from medium-term market movements. The overall limit of the Equity Trading Portfolio is approved by the ALCO. The structure of the Equity Trading Portfolio is set and the limits to individual shares are approved by the Investment Committee. The ALM Department is responsible for monitoring the abidance by the limits and periodically reports to the ALCO. The Equity Trading Portfolio is recorded at its fair value, based on market prices. The Equity Investment Portfolio contains companies equities (not listed) with the intention to exit in a certain time over a longer period or long-term investments into companies equities which are necessary due to the s business activities (e.g. SWIFT). The size of the portfolio is set by the Financial Policy Statement. The ALM Department is responsible for relevant monitoring and reporting to the ALCO on a regular basis. Liquidity Risk Liquidity risk is defined as the s inability, due to the market conditions or mismanagement of its balance sheet, to meet its obligations. The s liquidity management is based on the current and desired profiles of its balance sheet structure and maturities of relevant instruments. Liquidity management involves coordinated series of decisions concerning the maturity profile and instruments of assets and liabilities based on maturity gap reports. The main objective of liquidity management is to ensure the s ability to meet all its obligations in time. Other goals of liquidity management are: To comply with the of Estonia requirements; To minimize negative efficiency; To co-ordinate co-operation between the providing structural units (the Treasury and Trading Division and the Financial Division) and the allocating structural units (the Personal and Retail ing Division, the Corporate Services Division, the International ing Division, AS Sampo Liising, the Treasury and Trading Division); To react duly and adequately to significant changes in the business environment. To maintain an adequate level of liquidity, the has to keep part of its assets in liquid instruments, which includes the liquidity reserves with the of Estonia, demand deposits with other banks and cash as well as short-term deposits with other banks and liquid debt securities. The size, distribution and instruments of the liquid assets are established by the ALCO. Operating risk Operating risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operating risk in the is monitored by the Operating Risk Committee (ORCO). The s Operating Risk Policy Statement which was drawn up in 2003 stipulates general principles for the management of operating risk and describes the respective management system Annual Report 31

31 Operating risk is divided into: Risks related to personnel (personnel risk); Legal risks; Technological risks (incl. IT risk); Procedure risks; Environmental risks (incl. working environment, fraud from outside etc.); Risks related to information security. Personnel risk incorporates threats which are primarily related to ethic principles, value judgements, competence and the job-fit of employees. New employees are selected by means of competence patterns which have been developed on the basis of Sampo s basic values (entrepreneurship, openness, loyalty and ethicality). High-level organisational culture provides security to our clients and creates trust towards the. The success of an organisation is largely dependent on its ability to recruit, use and develop qualified personnel, especially at the managent level. The risk of recruiting unsuitable persons or the inability to keep talented employees in the organisation is hedged by applying various recruitment sources, a thorough selection process, special development programs and motivation system. To facilitate new employees to get accommodated to the new working environment, a basic course is arranged which is aimed at familiarizing new employees with the s operating principles, strategies, value judgements and internal regulations thoroughly. All employees have job descriptions which include position related requirements and determine the scope of their responsibility. Connections between the organisation s strategies and an employee s individual objectives are strengthened and the continuity of risk management is ensured through regular development interviews. Legal risk arises from inadequacy and ineffectiveness of concluded agreements. To manage the risk, validity of concluded agreements is checked regularly. Internal regulations have been developed to manage the s legal procedures. Daily transactions are regulated by and made in line with standard agreements. Transactions that divert from the standard agreements have to be approved by the Legal Division. The assessment of legal risk is performed by the Legal Division. Information technology risk (IT risk) is managed on several levels. The IT Steering Committee is responsible for combining the objectives of the and the IT resources. Risks relating to the internal operations of the IT Division are managed applying relevant procedures and control mechanisms. Additionally, the Information Security Department performs a control function. External auditing is conducted by other auditing companies. To avoid procedure risk arising from inadequately or inefficiently managed operations, the has implemented and established strict procedure rules for performing daily banking transactions. In order to ensure compliance with the established procedure rules the applies internal inspection control systems. Division heads submit reports on the results of these controls to the s Management Board and the ORCO once a year. The hedging of the s risks related to the physical environment is coordinated by the security manager. Conformity of the working environment with the requirements stipulated in regulations and in the s security requirements are assessed on a regular basis. In 2004 the security systems and procedures of the s offices were audited under the supervision of the s Security Manager. The management of information security risk is coordinated by the IT Steering Committee and on a daily basis the risk is managed by the Information Security Department which is directly subordinated to the Chairman of the Management Board. The Information Security Department keeps a register of information security incidents and submits the respective report to the s Management Board and the ORCO, In order to hedge operating risk, respective insurance agreements have been concluded. Due to the growing importance of the management of operating risks, the s operating risk is assessed under the ORCO s coordination once a year. After the assessment, the results are reported to the s Management Board. 32

32 Notes CASH In thousands of kroons, as at 31 December Cash in Estonian kroons Cash in foreign currencies Total cash CLAIMS AND LOANS TO CENTRAL BANK In thousands of kroons, as at 31 December Demand deposits with Central Total claims and loans to Central CLAIMS AND LOANS TO CLIENTS In thousands of kroons, as at 31 December Government Local governments Insurance institutions Financial institutions Private enterprises Non-profit associations Private persons Total claims and loans to clients Including Loans to subsidiaries Lease receivables including finance lease claims (see Note 38) Including reverse repos To private enterprises Annual Report 33

33 6 ALLOWANCE FOR CLAIMS AND LOANS In thousands of kroons, year ended 31 December 2004 Loans Other claims Total Loans Other claims As of the end of the previous accounting period Total Allowances for loan impairment during the accounting period including allowances for lease receivables Allowances for penalties Uncollectible claims and loans written off during the accounting period Currency exchange differences As of the end of the accounting period ALLOWANCE FOR CLAIMS AND LOANS In thousands of kroons, year ended 31 December 2003 Loans Other claims Total Loans Other claims As of the end of the previous accounting period Total Allowances for loan impairment during the accounting period including allowances for lease receivables Allowances for penalties Uncollectible claims and loans written off during the accounting period Currency exchange differences As of the end of the accounting period Uncollectible claims and loans written-off earlier and recovered by the in 2004 totalled 836 thousand kroons and by the thousand kroons, respectively (2003: : thousand kroons, thousand kroons). 7 OVERDUE CLAIMS AND LOANS In thousands of kroons, as at 31 December 2004 Claim Up to 30 days overdue 30 to 60 days overdue Over 60 days overdue Up to 30 days overdue 30 to 60 days overdue Over 60 days overdue Loans Lease receivables Total OVERDUE CLAIMS AND LOANS In thousands of kroons, as at 31 December 2003 Claim Up to 30 days overdue 30 to 60 days overdue Over 60 days overdue Up to 30 days overdue 30 to 60 days overdue Over 60 days overdue Loans Lease receivables Others Total Overdue claims and loans include claims and loans, the principal or interest of which is overdue. Overdue claims and loans are shown at their amortised cost. Loans, interest calculation of which, has been suspended totalled thousand kroons as at 31 December 2004 ( : thousand kroons). 34

34 8 SECURITIES In thousands of kroons, as at 31 December Trading securites Debt securities of government Debt securities of credit institutions Debt securities of financial institutions Other debt securities Shares Total trading securities Available-for-sale securities Debt securities of government Debt securities of credit institutions Other debt securities Shares Total available-for-sale securities Total securities As at December 31, 2004, investments with a participation of over 10 per cent are included: ade Kaardikeskuse AS (10,6% participation, balance sheet value 883 thousand kroons, Estonian Republic) W Glass OÜ (100% participation, balance sheet value 48 thousand kroons, Estonian Republic) is excluded from consolidation, because it has been acquired and held exclusively with a view to its subsequent disposal. 9 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS In thousands of kroons, as at 31 December Subsidiary undertakings 2004 Name of enterprise Owners equity Number of shares Nominal value of share Acquisition cost s voting power Book value of investment as at Profit/ loss calculated by the equity method in 2004 Book value of investment as at Sampo Kinnisvarahalduse AS % AS Sampo Liising % Sampo Asset Management AS % Total Subsidiary undertakings 2003 Name of enterprise Owners equity Number of shares Nominal value of share Acquisition cost s voting power Book value of investment as at Profit/ loss calculated by the equity method in 2003 Book value of investment as at Sampo Kinnisvarahalduse AS % AS Sampo Liising % Sampo Varahalduse AS % Kinnisvara Finantseerimise AS % Total The new business name of Sampo Varahalduse AS is Sampo Baltic Asset Management AS. The respective change in the name of the company was filed with the Commercial Register on On 15 September 2003 the share capital of Sampo Kinnisvarahalduse AS was decreased by thousand kroons. 3 The liquidation of Kinnisvara Finantseerimise AS was completed on 29 May Additional income in the amount of thousand kroons was received from the liquidation. It is recorded under Income from securities in the income statement. All the s subsidiaries have been registered in the Republic of Estonia. The net assets held by the parent company equal the subsidiary undertakings book value of the equity. SIA Sampo Lizings (the Republic of Latvia), a subsidiary of AS Sampo Liising, is under liquidation. As the total assets of the subsidiary are insignificant, they have not been consolidated into the financial statements of AS Sampo Liising Annual Report 35

35 10 INTANGIBLE ASSETS In thousands of kroons, year ended 31 December 2004 Licences Prepayments Total Litsentsid Prepayments Total Residual value at beginning of year Cost at beginning of year Accumulated depreciation at beginning of year Acquisitions Write-offs at residual value Write-offs at cost Depreciation of assets written-off Depreciation Residual value at end of year Cost at end of year Accumulated depreciation at end of year TANGIBLE ASSETS In thousands of kroons, year ended 31 December 2004 Land and buildings Computers Other Total Land and buildings Computers Other Total Residual value at beginning of year Cost at beginning of year Accumulated depreciation at beginning of year Acquisitions Disposals at residual value Disposals at cost Depreciation of sold assets Write-offs at residual value Write-offs at cost Depreciation of assets written-off Internal movements at residual value Internal movements at cost Depreciation of internal movements Depreciation Residual value at end of year Cost at end of year Accumulated depreciation at end of year Write-offs relate to fully depreciated and obsolete fixed assets. 36

36 12 INVESTMENT PROPERTY In thousands of kroons, year ended 31 December 2004 Residual value at beginning of year Cost at beginning of year Accumulated depreciation at beginning of year Depreciation Residual value at end of year Cost at end of year Accumulated depreciation at end of year Rental income from investment property was thousand kroons in 2004 (2003: thousand kroons). Business expenses directly related to investment property totalled 318 thousand kroons in 2004 (2003: 202 thousand kroons). The market value of investment property (according to expert estimation) amounts to thousand kroons. The carrying value of investment property has not been written down to its expected market value, as the value of the property in use exceeds its market value. 13 OTHER ASSETS In thousands of kroons, as at 31 December Items in transit Collateral assets for sale Other Total other assets PREPAYMENTS AND ACCRUED INCOME In thousands of kroons, as at 31 December Interest receivable Prepaid rents Other prepayments Other accrued income Total prepayments and accrued income PLEDGED ASSETS In thousands of kroons, as at 31 December Collateral deposits Total pledged assets FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The book value of financial assets and liabilities does not differ significantly from their fair value Annual Report 37

37 17 AMOUNTS OWED TO CREDIT INSTITUTIONS In thousands of kroons, as at 31 December Maturity Interest Long-term liabilities EIB 20,06,08 5,6-7,5% EIB ,45% NIB M Euribor +1% NIB M Euribor +1% NIB M Euribor +0,8% NIB M Euribor +0,55% CEB M Euribor +0,36% EBRD M Euribor +1,5% KFW ,41% KFW ,8-6,1% HSH Nordbank (agent) M Euribor +0,45% Sampo plc (agent) M Euribor +0,25% Demand deposits Overdrafts Total amounts owed to credit institutions

38 18 AMOUNTS OWED TO CLIENTS OF CREDIT INSTITUTION In thousands of kroons, as at 31 December Demand deposits Government Non-budgetary funds Government social security funds Local governments Insurance institutions Financial institutions Private enterprises Non-profit associations Private persons Total demand deposits of clients Demand deposits by residency Residents Non-residents Total demand deposits Demand deposits by currency Estonian kroon Foreign currency Total demand deposits Time deposits Government Non-budgetary funds Government social security funds Local governments Insurance institutions Financial institutions Private enterprises Non-profit associations Private persons Total time deposits Time deposits by residency Residents Non-residents Total time deposits Time deposits by currency Estonian kroon Foreign currency Total time deposits Total amounts owed to clients of credit institution Annual Report 39

39 19 ISSUED DEBT SECURITIES In thousands of kroons, as at 31 December Maturity Interest Dexia Banque Internationale a Luxembourg S,A, (agent) 25,10,04 3M Euribor +0,9% Sampo ,30% Sampo ,10% Sampo ,00% Sampo ,55% Sampo ,60% Total issued debts securities OTHER LIABILITIES In thousands of kroons, as at 31 December Outgoing payment orders Incoming payment orders Clearing accunts Total other liabilities ACCRUALS AND DEFERRED INCOME In thousands of kroons, as at 31 December Interest payable Payables to companies Vacation s and salarie s liabilities Tax liabilities Other accrued expenses Payables to Guarantee Fund Client prepayments Total accruals and deffered income SUBORDINATED LIABILITIES In thousands of kroons, as at 31 December Maturity Interest Landesbank Schleswig-Holstein Girozentrale M Euribor +1,9% Sampo plc M Euribor +1,75% AS Sampo Pank subordinated debt securities M Euribor +0,9% Total subordinated liabilities

40 23 INTEREST INCOME In thousands of kroons, year ended 31 December Loans Factoring Demand deposits Time deposits Overnight loans Securities Repos Other interest income Leasing Total interest income INTEREST EXPENSE In thousands of kroons, year ended 31 December Demand deposits Time deposits Borrowings Borrowings from government Subordinated liabilities Issued debt securities Currency swap Leasing Total interest expense Annual Report 41

41 25 INTEREST PRODUCTIVITY OF THE BALANCE SHEET OF THE BANK 1,2 In thousands of kroons, year ended 31 December Average balance for the year Interest income / expense Effective interest rate Average balance for the year Interest income / expense Effective interest rate Overdraft loans ,6% ,4% Demand deposits with other banks ,8% ,9% Time deposits with other banks ,5% ,5% Total deposits ,1% ,2% Total loans to clients ,1% ,9% Loan loss provisions ,0% ,0% Net loans to clients ,2% ,1% Loans with securities as collateral ,5% ,3% Securities ,1% ,9% Total investments in securities ,1% ,9% Total interest-earning assets ,0% ,6% Other assets ,0% ,0% TOTAL ASSETS ,7% ,2% Demand deposits ,6% ,5% Time deposits ,5% ,1% Borrowings from banks ,9% ,4% Issued debt securities ,0% ,4% Amounts owed to government ,1% ,0% Subordinated liabilities ,2% ,7% Total interest-bearing liabilities ,0% ,3% Other liabilities and owners equity ,0% ,0% TOTAL LIABILITIES AND OWNER S EQUITY ,7% ,0% Managed funds ,0% A 3 Interest incomee / interest-earning assets ,0% ,6% B 3 Interest expense / interest-bearing liabilities ,1% ,5% C 3 Interest expense / interest-earning assets ,9% ,4% Interest spread 2,9% 3,1% Net interest margin of interest-earning assets (A-C) ,1% ,3% Net interest margin 4 2,9% 3,0% 1 Interest income and expense includes interest income and expense recorded in Notes 23 and 24 and interest income in Note 28 and loss from derivatives, because derivatives have been concluded in order to cover interest rate risk. 2 Averages have been calculated based on the monthly average balances. 3 The figure also includes the result of currency swaps. 4 Net interest margin = net interest income / average assets of the period. 42

42 25 INTEREST PRODUCTIVITY OF THE BALANCE SHEET OF THE GROUP 1,2 In thousands of kroons, year ended 31 December Average balance for the year Interest income / expense Average interest rate Average balance for the year Interest income / expense Effective interest rate Overdraft loans ,6% ,4% Demand deposits with other banks ,8% ,9% Time deposits with other banks ,5% ,5% Total deposits ,1% ,2% Total loans to clients ,7% ,8% Loan loss provisions ,0% ,0% Net loans to clients ,9% ,0% Loans with securities as collateral ,5% ,3% Securities ,1% ,0% Total investments in securities ,1% ,0% Total interest-earning assets ,6% ,3% Other assets ,0% ,0% TOTAL ASSETS ,3% ,9% Demand deposits ,6% ,5% Time deposits ,5% ,1% Borrowings from banks ,9% ,4% Issued debt securities ,0% ,4% Amounts owed to government ,6% ,0% Subordinated liabilities ,2% ,7% Total interest-bearing liabilities ,0% ,3% Other liabilities and owners equity ,0% ,0% TOTAL LIABILITIES AND OWNER S EQUITY ,7% ,0% Managed funds ,0% A 3 Interest incomee / interest-earning assets ,6% ,3% B 3 Interest expense / interest-bearing liabilities ,1% ,5% C 3 Interest expense / interest-earning assets ,9% ,3% Interest spread 3,5% 3,8% Net interest margin of interest-earning assets (A-C) ,6% ,0% Net interest margin 4 3,5% 3,7% 1 Interest income and expense includes interest income and expense recorded in Notes 23 and 24 and interest income in Note 28 and loss from derivatives, because derivatives have been concluded in order to cover interest rate risk. 2 Averages have been calculated based on the monthly average balances. 3 The figure also includes the result of currency swaps. 4 Net interest margin = net interest income / average assets of the period Annual Report 43

43 26 FEE AND COMMISSION INCOME In thousands of kroons, year ended 31 December operations Cash operations Investment services Arrangement fees from loan and guarantee agreements Card transactions Other services Total fee and commission income FEE AND COMMISSION EXPENSE In thousands of kroons, year ended 31 December operations Cash operations Investment services Arrangement fees from loan and guarantee agreements Card transactions Other services Total fee and commission income NET PROFIT ON FINANCIAL OPERATIONS In thousands of kroons, year ended 31 December Income from forex-operations Interest income from trading securities Loss from debt securities Profit from shares Total income from trading securities Income from available-for-sale securities Dividend income Loss from derivatives Total net profit on financial operations SALARIES EXPENSE In thousands of kroons, year ended 31 December Salaries Bonuses and vacation accrual Fringe benefits Other expenses relating to employees Total salaries expense

44 30 OTHER ADMINISTRATIVE EXPENSES In thousands of kroons, year ended 31 December Rent Business travelling and training Communication and data processing expenses Office equipment and stationery goods Advertising Forms expenses Security expenses Maintenance expenses Transportation expenses Services purchased Other administrative expenses Total other administrative expenses The s development and research outgoings in 2004 totalled 26,7 million kroons (2003: 23,4 million kroons). Future minimum lease payments in 2004 by the following periods: up to 1 year thousand kroons from 1 year to 5 year thousand kroons over 5 years 74 thousand kroons annual lease payments under no-term lease contracts thousand kroons Future minimum lease payments in 2003 by the following periods: up to 1 year thousand kroons from 1 year to 5 year thousand kroons annual lease payments under no-term lease contracts thousand kroons The agreements include premises rent and do not include call options or any other limitations. 31 OTHER OPERATING INCOME AND EXPENSE In thousands of kroons, year ended 31 December Other operating income Advisory services Rent Sale of assets Other operations Total other operating income Other operating expense Membership fees Financial supervision Sale of assets Other operations Total other operating expense Total other operating income and expense Annual Report 45

45 32 EARNINGS PER SHARE Year ended 31 December Weighted average number of shares for the year Profit for the year (in thousands of kroons) Basic earnings per share (in kroons) 3,34 2,68 3,34 2,68 Diluted earnings per share (in kroons) 3,34 2,68 3,34 2,68 As the has no potential ordinary shares, basic earnings per share equal to diluted earnings per share. 33 TRANSACTIONS BETWEEN RELATED PARTIES Transactions between Sampo Pank and parent company In thousands of kroons, as at 31 December Deposits and loans with parent company Other assets Deposits and loans from parent company Subordinated loan from parent company Other liabilities Derivatives (claims) Derivatives (liabilities) Interest income (per year) Interest expense (per year) Sampo plc was the parent company of AS Sampo Pank as at Sampo plc was the parent company of AS Sampo Pank as at Transactions with management In thousands of kroons, as at 31 December 2004 Loans Range of interest Deposits Range of interest Salaries s management ,5-10% ,25-2,05% In thousands of kroons, as at 31 December 2003 Loans Range of interest Deposits Range of interest Salaries s management ,5-4,2% ,25-2,1% Transactions with other companies belonging to consolidation group of Sampo plc In thousands of kroons, as at 31 December Deposits with companies belonging to consolidation group Loans to companies belonging to consolidation group Prepayments and accrued income Deposits and loans from companies belonging to consolidation group Accruals and deferred income Derivatives (claims) Derivatives (liabilities) Interest income from companies belonging to consolidation group (per year) Interest expense from companies belonging to consolidation group (per year) Other income from companies belonging to consolidation group (per year) Other expense from companies belonging to consolidation group (per year) Transactions between related parties were carried out under market conditions. 34 ASSETS MANAGED BY THE GROUP The volume of the client portfolios managed by the as at 31 December 2004 amounted to about 828 million kroons ( : 641 million kroons). The market value of the clients funds kept in the s securities accounts amounted to 1,3 billion kroons as at 31 December 2004 ( : 1,2 billion kroons). The earns a service fee for the management of these portfolios which does not entail any credit or market risks for the. 46

46 35 STRUCTURE OF INTEREST-BEARING ASSETS AND LIABILITIES BY INTEREST RATE REPRICING DATE In thousands of kroons, as at 31 December 2004 Assets Demand Up to 1month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Debt securities Receivables from forwards and futures Total assets including total amount of fixed interest rate agreements at year-end Liabilities Demand Up to 1month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Issued debt securities Subordinated liabilities Payables from forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities including total amount of fixed interest rate agreements at year-end Gap (Assets-Liabilities) Cumulative Gap Assets Demand Up to 1month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Debt securities Receivables from forwards and futures Total assets including total amount of fixed interest rate agreements at year-end Liabilities Demand Up to 1month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Issued debt securities Subordinated liabilities Payables from forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities including total amount of fixed interest rate agreements at year-end Gap (Assets-Liabilities) Cumulative Gap Claims to clients and accrued income are recorded at net value including allowances. Total assets and liabilities also include assets and liabilities, which are recorded off-balance sheet (including receivables and payables from forwards and futures, the unused limits of credit lines and standby loans and other irrevocable claims and commitments) Annual Report 47

47 35 STRUCTURE OF INTEREST-BEARING ASSETS AND LIABILITIES BY INTEREST RATE REPRICING DATE In thousands of kroons, as at 31 December 2003 Assets Demand Up to 1month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Debt securities Receivables from forwards and futures Total assets including total amount of fixed interest rate agreements at year-end Liabilities Demand Up to 1month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Issued debt securities Subordinated liabilities Payables from forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities including total amount of fixed interest rate agreements at year-end Gap (Assets-Liabilities) Cumulative Gap Assets Demand Up to 1month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Debt securities Receivables from forwards and futures Total assets including total amount of fixed interest rate agreements at year-end Liabilities Demand Up to 1month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Issued debt securities Subordinated liabilities Payables from forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities including total amount of fixed interest rate agreements at year-end Gap (Assets-Liabilities) Cumulative Gap Claims to clients and accrued income are recorded at net value including allowances. Total assets and liabilities also include assets and liabilities, which are recorded off-balance sheet (including receivables and payables from forwards and futures, the unused limits of credit lines and standby loans and other irrevocable claims and commitments). 48

48 36 CONCENTRATION OF EXPOSURES BY GEOGRAPHICAL REGIONS In thousands of kroons, as at 31 December 2004 Region Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Region share (%) Estonia ,66 Finland ,16 Russia ,72 Germany ,70 the United States of America ,55 France ,44 the Netherlands ,37 Italy ,75 the United Kingdom ,70 Denmark ,63 Luxembourg ,63 Greece ,47 Belgium ,32 Ireland ,30 Sweden ,29 Other regions ,29 Total ,00 Region Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Region share (%) Estonia ,67 Finland ,44 Russia ,81 Germany ,77 the United States of America ,63 France ,50 the Netherlands ,43 the United Kingdom ,81 Italy ,78 Denmark ,67 Luxembourg ,66 Greece ,49 Belgium ,33 Sweden ,33 Ireland ,32 Other regions ,35 Total ,00 1 Including loans to credit institutions and loans to customers Annual Report 49

49 36 CONCENTRATION OF EXPOSURES BY GEOGRAPHICAL REGIONS In thousands of kroons, as at 31 December 2003 Region Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Region share (%) Estonia ,42 Finland ,42 the United States of America ,66 Japan ,79 France ,23 Germany ,20 Sweden ,86 the Netherlands ,73 Italy ,70 Belgium ,70 Denmark ,56 Greece ,48 the United Kingdom ,42 Russia ,41 Lithuania ,26 Other regions ,16 Total ,00 Region Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Region share (%) Estonia ,95 Finland ,59 the United States of America ,70 Japan ,82 France ,25 Germany ,21 Sweden ,89 the Netherlands ,74 Italy ,71 Belgium ,71 Denmark ,57 the United Kingdom ,49 Greece ,49 Russia ,43 Lithuania ,27 Other regions ,18 Total ,00 1 Including loans to credit institutions and loans to customers. 50

50 37 CONCENTRATION OF EXPOSURES BY ECONOMIC SECTORS In thousands of kroons, as at 31 December 2004 Economic sector Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Sector share (%) Real estate, renting and business activities ,46 Financial intermediation ,95 Manufacturing ,81 Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods ,12 Public administration and defence ,36 Private persons ,15 Hotels and restaurants ,96 Transport, storage and communication ,73 Other community, social and personal service activities ,47 Construction ,88 Electricity, steam, gas and water supply ,74 Education ,68 Agriculture, hunting and forestry ,40 Healthcare and social work ,15 Mining ,08 Fishing ,06 Total ,00 Economic sector Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Sector share (%) Real estate, renting and business activities ,06 Financial intermediation ,40 Manufacturing ,76 Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods ,56 Private persons ,86 Public administration and defence ,63 Transport, storage and communication ,80 Hotels and restaurants ,22 Other community, social and personal service activities ,03 Construction ,58 Agriculture, hunting and forestry ,98 Electricity, steam, gas and water supply ,89 Education ,74 Healthcare and social work ,22 Mining ,21 Fishing ,08 Total ,00 1 Including loans to credit institutions and loans to customers. 2 Private persons housing loans are included in real estate, renting and business activities sectors Annual Report 51

51 37 CONCENTRATION OF EXPOSURES BY ECONOMIC SECTORS In thousands of kroons, as at 31 December 2003 Economic sector Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Sector share (%) Financial intermediation ,52 Real estate, renting and business activities ,33 Manufacturing ,12 Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and ,41 household goods Public administration and defence ,19 Private persons ,27 Hotels and restaurants ,07 Construction ,93 Transport, storage and communication ,40 Agriculture, hunting and forestry ,14 Other community, social and personal service activities ,91 Education ,87 Electricity, steam, gas and water supply ,46 Healthcare and social work ,25 Fishing ,15 Mining ,00 Total ,00 Economic sector Loans 1 Balance sheet exposures Securities Interest receivable o/w overdue and uncollectible loans Irrevocable liabilities Sector share (%) Real estate, renting and business activities ,15 Manufacturing ,25 Financial intermediation ,08 Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and ,34 household goods Private persons ,43 Public administration and defence ,41 Transport, storage and communication ,51 Hotels and restaurants ,36 Construction ,85 Other community, social and personal service activities ,11 Agriculture, hunting and forestry ,89 Education ,04 Electricity, steam, gas and water supply ,68 Healthcare and social work ,52 Fishing ,22 Mining ,15 Private households ,01 Total ,00 1 Including loans to credit institutions and loans to customers. 2 Private persons housing loans are included in real estate, renting and business activities sectors. 52

52 38 GROUP FINANCIAL LEASE GROSS AND NET INVESTMENTS In thousands of kroons, as at 31 December Net investments Gross investments Interest income expexted in coming periods Net investments Gross investments Interest income expexted in coming periods Up to 1 year From 1 year to 5 years Over 5 years Total As at 31 December 2004 unguaranteed residual value of leased assets totalled thousand kroons ( : thousand kroons). 39 IRREVOCABLE TRANSACTIONS AND DERIVATIVES In thousands of kroons, as at 31 December Contractual value Market value Contractual value Market value Claims Liabilities Assets Liabilities Claims Liabilities Assets Liabilities Irrevocable transactions Guarantees and other similar irrevocable transactions Credit lines and overdrafts (unused limits) Derivatives Currency related derivatives Interest rate related derivatives Shares related derivatives Contractual value Market value Contractual value Market value Claims Liabilities Assets Liabilities Claims Liabilities Assets Liabilities Irrevocable transactions Guarantees and other similar irrevocable transactions Credit lines and overdrafts (unused limits) Derivatives Currency related derivatives Interest rate related derivatives Shares related derivatives Annual Report 53

53 40 BUSINESS SEGMENTS In thousands of kroons, income and expense year ended 31 December 2004, assets and liabilities as at 31 December ing Leasing Asset management Other Elimination Interest revenue Interest revenue from other segment Interest expense Interest expense from other segment Fee and commission income Fee and commission income from other segment Profit on financial operations Bad and doubtful debts expense Profit from segment Unallocated interest expense Other unallocated revenue Other unallocated expense Net profit for the year Segment assets Total assets Segment liabilities Unallocated liabilities and related interest payable Total liabilities Acquisiton of tangible and intangible assets Depreciation Other non-cash expenses BUSINESS SEGMENTS In thousands of kroons, income and expense year ended 31 December 2003, assets and liabilities as at 31 December ing Leasing Asset management Other Elimination Interest revenue Interest revenue from other segment Interest expense Interest expense from other segment Fee and commission income Fee and commission income from other segment Income from securities Profit on financial operations Bad and doubtful debts expense Profit from segment Unallocated interest expense Other unallocated revenue Other unallocated expense Net profit for the year Segment assets Total assets Segment liabilities Unallocated liabilities and related interest payable Total liabilities Acquisiton of tangible and intangible assets Depreciation Other non-cash expenses As the entire operations of the take place within Estonia, no separate information has been presented about the secondary segment. The prices used in cross-segment transactions do not differ largely from market prices. 54

54 41 CAPITAL ADEQUACY In thousands of kroons, as at 31 December ORIGINAL OWN FUNDS Paid-in share capital Other reserves Retained earnings Intangible fixed assets (with the minus) ADDITIONAL (SURPLUS) OWN FUNDS TOTAL GROSS OWN FUNDS (1+2) DEDUCTIONS FROM THE TOTAL GROSS OWN FUNDS NET OWN FUNDS (3-4) OWN FUNDS FOR COVERING THE MARKET RISKS OF THE TRADING BOOK RISK WEIGHED ASSETS Category I Category II Category III Category IV RISK WEIGHED DERIVATIVES AND OTHER IRREVOCALBE TRANSACTIONS I II CAPITAL REQUIREMENT AGAINST CURRENCY RISK CAPITAL REQUIREMENT AGAINST THE RISKS ASSOCIATED WITH THE TRADING BOOK Capital requirement against interest position risks Capital requirement against equity risks CAPITAL REQUIREMENT AGAINST THE POSITIONS OF TRADING BOOK INSTRUMENTS EXCEEDING THE RISK EXPOSURE LIMITS 12. CAPITAL ADEQUACY (5+6)/ (7+8+9x10+10x12,5+11x12,5) ,58% 12,48% 11,82% 12,56% 42 EXPOSURES In thousands of kroons, as at 31 December Number/ Amount % of net own funds Number/ Amount % of net own funds Number/ Amount % of net own funds Number/ Amount % of net own funds Number of large exposure customers Loans granted to customers with large exposure Loans granted to persons associated with credit institution ,83% ,98% ,08% ,65% ,19% ,60% ,19% ,60% Maximum credit risk exposure as at 31 December 2004 of the totalled 11,1 billion kroons and of the 10,7 billion kroons ( : 7,8 billion kroons, 7,8 billion kroons) Annual Report 55

55 43 ASSETS AND LIABILITIES BY REMAINING MATURITIES In thousands of kroons, as at 31 Decemebr 2004 Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Trading securities Available-for-sale securities Derivatives Shares of subsidiary undertakings Other assets Prepayments and accrued income Receivables from forwards and futures Total assets Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Derivatives Issued debt securities Other liabilities Accruals and deffered income Subordinated liabilities Payables from forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities Gap (Assets-Liabilities) Cumulative Gap Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Trading securities Available-for-sale securities Derivatives Other assets Prepayments and accrued income Receivables from forwards and futures Total assets Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Derivatives Issued debt securities Other liabilities Accruals and deffered income Subordinated liabilities Payables from forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities Gap (Assets-Liabilities) Cumulative Gap Claims to clients and accrued income are recorded at net value including allowances. Total assets and liabilities also include assets and liabilities, which are recorded off-balance sheet (including receivables and payables from forwards and futures, the unused limits of credit lines and standby loans and other irrevocable claims and commitments). 56

56 43 ASSETS AND LIABILITIES BY REMAINING MATURITIES In thousands of kroons, as at 31 Decemebr 2003 Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Trading securities Available-for-sale securities Derivatives Shares of subsidiary undertakings Other assets Prepayments and accrued income Receivables from forwards and futures Total assets Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Derivatives Issued debt securities Other liabilities Accruals and deffered income Subordinated liabilities Payables from forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities Gap (Assets-Liabilities) Cumulative Gap Assets Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Total Cash and claims to Central Claims and loans to credit institutions Claims and loans to clients Trading securities Available-for-sale securities Derivatives Other assets Prepayments and accrued income Receivables from forwards and futures Total assets Liabilities Demand Up to 1 month 1-3 months 3-6 months 6-12 months 1-2 years 2-5 years Over 5 years Overdue Total Amounts owed to credit institutions Amounts owed to clients Amounts owed to government Derivatives Issued debt securities Other liabilities Accruals and deffered income Subordinated liabilities Payables from forwards and futures Credit lines and standby loans Other irrevocable commitments Total liabilities Gap (Assets-Liabilities) Cumulative Gap Claims to clients and accrued income are recorded at net value including allowances. Total assets and liabilities also include assets and liabilities, which are recorded off-balance sheet (including receivables and payables from forwards and futures, the unused limits of credit lines and standby loans and other irrevocable claims and commitments) Annual Report 57

57 44 CURRENCY NET POSITIONS In thousands of kroons, as at 31 December 2004 Common position of EEK and EUR USD Other Total Common position of EEK and EUR USD Other Total Total assets Total liabilities Balance sheet position Off-balance sheet position CURRENCY NET POSITIONS In thousands of kroons, as at 31 December 2003 Common position of EEK and EUR USD Other Total Common position of EEK and EUR USD Other Total Total assets Total liabilities Balance sheet position Off-balance sheet position

58 DECLARATION OF THE MANAGEMENT BOARD OF AS SAMPO PANK The Management Board of AS Sampo Pank is responsible for the preparation of the 2004 Financial Statements presented on pages and confirms that: a) the Financial Statements have been compiled in accordance with the International Financial Reporting Standards; b) the Financial Statements present a true and fair view of the financial situation, business results and cash flows of the and the ; c) AS Sampo Pank is a going concern. Härmo Värk Chairman of the Management Board 23 February 2005 Ivar Pae Member of the Management Board 23 February 2005 Margus Zhuravljov Member of the Management Board 23 February Annual Report 59

59 APPROVAL OF THE SUPERVISORY BOARD On 04 April 2005 the Supervisory Board of AS Sampo Pank approved the Annual Report for 2004 complied by the Management Board. Georg Schubiger 04 April 2005 Gintautas Galvanauskas 04 April 2005 Petri Kalervo Niemisvirta 04 April 2005 Jukka Edvin Ohls 04 April 2005 Markku Pehkonen 04 April 2005 Risto Tornivaara 04 April

60

61 PROPOSAL FOR THE DISTRIBUTION OF PROFIT On 23 February 2005, Sampo Pank s Management Board confirmed the Financial Statements and the Management Report for Sampo Pank s Management Board proposes to distribute the profit for the financial year 2004 in the amount EEK as follows: a) to carry an amount of EEK to the reserve capital under the balance sheet item Reserve ; b) to carry an amount EEK to the next periods under the balance sheet item Retained earnings. 62