Interim Report January-June Nordea Bank Finland Plc

Interim Report January-June 2004 Nordea Bank Finland Plc

Interim Report, January-June 2004 Summary The Finnish economy picked up in the first half of 2004. Private consumption growth remained robust underpinned by a positive income trend and the low interest rate level. The favourable development of the global economy and the pick-up in the Euro area fed through to the fixed income markets in the spring, which led to slightly higher market rates. Focusing and integration Nordea has completed its real estate divestment process by the sale of central district properties in Finland, Norway and Sweden. The transaction includes lease agreements with durations of up to 25 years. Following the completion, Nordea owns no major properties. The anticipated sales losses of the divestment process were mainly booked already in the accounts of NBF in 2003. At the finalisation of the sales in 2004, net sales profits of approximately EUR 30m realised. The integration of Markets derivatives operations, started in the summer 2003, was finalised during the first half of 2004. In connection of the process Markets derivatives portfolios were transferred from the other Nordea banks to NBF. Changes in the group stucture in 2004 In connection of the real estate divestment process, several real estate subsidiaries were sold with a positive result effect of approximately EUR 37m. Nordea Finance Finland Ltd acquired the shares in Nordea Finance Polska S.A. on 30 June 2004 from Nordea Bank AB (publ). The transfer had no major impact on the balance sheet of NBF. The subsidiaries of Nordea Bank AB (publ), Nordea Securities Holding Oy, Nordea Securities Corporate Finance Oy and Nordea Securities Oyj were merged with NBF at the end of June 2004. These mergers had an impact of EUR 6m on the restricted equity and an impact of EUR 15m on the non-restricted equity of NBF. The wholly owned subsidiary of Nordea Finance Finland Ltd, K-Luotto Oy, was merged into Nordea Finance Finland Ltd on 1 June 2004. Result As Nordea Bank Finland sold the shares of Nordea Bank Danmark (NBD), Nordea Bank Norge ASA (NBN) and Nordea Bank Sweden AB (publ) (NBS) to Nordea AB (publ) in June 2003, the comparability of the financial statements for the periods January-June 2004 and 2003 is weakened. The income statements of the banks sold were consolidated in the accounts of NBF until 30 June 2003. The balance sheet of NBN was still included in the consolidated balance sheet at the end of June 2003 as the sale was not finalised by that time. Because the comparison of the first half of 2004 with the second half of 2003 gives a better view of the result development, the income statement figures for the second half of 2003 are shown on page 2. NBF s result for the first six months of 2004 reflects continued strong demand for household mortgages and netbank services, resulting in increased business volumes. Operating profit was EUR 375m (EUR 914m). (The income statement comparison figures in brackets refer to the figures for the first six months of 2003.) Throughout this report, Nordea Bank Finland and NBF refer to the parent company Nordea Bank Finland Plc, business identity code 1680235-8, with its subsidiaries. The registered office of the company is in Helsinki. Nordea Bank Finland Plc is a wholly owned subsidiary of Nordea Bank AB (publ), former Nordea AB (publ), the listed parent company of the whole Nordea Group. The business operations of the Nordea Group have been organised in three business areas, all of which operate across national boundaries: Retail Banking, Corporate and Institutional Banking (CIB) and Asset Management & Life. The consolidated interim report of Nordea Bank AB (publ) embraces all the activities of the Nordea Group and provides the most complete and fair view. This statutory interim report covers the operations of the legal entity Nordea Bank Finland Plc with its subsidiaries. Nordea Bank Finland. January-June 2004 1

After taxes and minority interest, the profit for the first half of the year amounted to EUR 265m (EUR 1,153m). Return on equity was 4.9 % (13.0%). Income Net interest income amounted to EUR 551m (EUR 1,876m). Excluding the impact of the structural changes the development was slightly positive. Lending to households continued to grow mainly in mortgage financing. Lending margins to households were stable compared to last year. On the other hand, deposit margins declined following the lower shortterm interest rates. Net commission income decreased to EUR 146m (EUR 601m). Taking into account the changes in the group structure commission income was somewhat higher than in the corresponding period one year earlier. Commissions on lending and on payment transactions increased as a consequence of growth in volumes. Excluding the structural changes commission expenses were significantly higher due to the integrated derivative operations. Net income from securities transactions and foreign exchange dealing amounted to EUR 77m (EUR 152m). Excluding the impact of the structural changes, both net income from securities transactions and net income from foreign exchange dealing increased slightly. Other income (including dividends) decreased to EUR 53m (EUR 158m) mainly due to the structural changes. Excluding the impact of these changes, other income was slightly higher than in the corresponding period last year. Capital gains were higher whereas dividends decreased. Real estate sales profits totalled EUR 29m. Expenses Total expenses decreased to EUR 442m (EUR 1,742m) following the changes in the group structure. Excluding the impact of the changes, expenses grew slightly. Personnel expenses amounted to EUR 233m (EUR 950m). In addition to the structrural changes, reduction in overall headcount by approximately 400 persons from the year-end 2003 had a positive impact on the development of personnel expenses. The aggregate amount of other administrative expenses, operating expenses and depreciation costs was EUR 209m (EUR 792m). The decrease is due to the changes in the group structure. Excluding these changes, the expenses were somewhat higher than in the corresponding period last year. The increase in IT-expenses includes expenses related to the outsourced IT production in the IBM joint-venture. Cost/income ratio was 52 % (59%). Loan losses Net loan losses amounted to EUR 20m (EUR 190m). Last year s losses were mainly booked in other Nordea banks. The overall quality of NBF s loan portfolio remains good. Net impaired loans were at the same level as at year-end and amounted to EUR 0.2bn. The provision for impaired loans remained at the same level as well and amounted to EUR 0.4bn, which accounted for 70% (65 %) of impaired loans (gross). Interim income statement Jan-Jun Jul-Dec EUR million 2004 2003 Net interest income 551 531 Net commission income 146 159 Net income from securities transactions and foreign exchange dealing 77 72 Other income 53 26 Total income 827 788 Personnel expenses -233-255 Other expenses -209-420 1) Total expenses -442-675 Profit before loan losses 385 113 Loan losses, net -20 33 Profit from companies accounted for under the equity method 10-22 Operating profit 375 124 1) Includes EUR 191m one-off capital losses arising from the real estate divestment process. Nordea Bank Finland. January-June 2004 2

Share of profit of companies accounted for under the equity method Lower earnings from companies accounted for under the equity method, EUR 10m (EUR 59m), reflect mainly last year s one-off gain (EUR 30m) on the sale of the real estate brokerage activities of Huoneistokeskus Oy. Extraordinary items and taxes No extraordinary items were booked during the period under review. Previous year s figures related to the sale of the shares in NBD, NBS and NBN. Taxes amounted to EUR 108m (EUR 235m). The deferred tax receivable reflect the expected utilisation of the tax loss carry forward that was originated in 2003. The changes in the Finnish corporate tax laws in 2005 have been taken into account when evaluating the tax receivable. Balance sheet (Comparison figures in brackets refer to December 2003 figures.) Total assets of NBF amounted to EUR 102.6bn (EUR 94.2bn). The increase mainly reflects changes in funding structure as well as growth in lending to the public. Low interest rates supported especially housing loan demand and loans to the public grew by 8%. Due to lending to other Nordea banks claims from credit institutions increased significantly. The same development was seen in liabilities to credit institutions. Deposits from the public fell to EUR 28.1bn (EUR 29.1bn) from the high level at year-end. At 1 January 2004, shareholders equity amounted to EUR 11.2bn of which EUR 875m was utilised for payment of the dividend for 2003. At end June, shareholders equity amounted to EUR 10.6bn, including the profit for the period, EUR 0.3bn. Off-balance sheet commitments The total amount of off-balance sheet commitments decreased to EUR 20.0bn (EUR 26.6bn). The decrease mainly related to guarantees and unused credit lines. The impact of the structural changes on the volumes of derivatives was largely compensated by the transfer of the main part of derivatives of other Nordea banks to NBF after June 2003. Capital adequacy and ratings Capital adequacy remained at a high level and the ratio was 22.4% compared with 22.2% at year-end 2003. Tier 1 capital ratio was 19.3% (19.0%). Profit for the period and the estimated profit distribution have been taken into account in the calculations. The credit ratings of NBF Plc were unchanged during the first half of 2004. IFRS implementation The preparations for the introduction of IFRS principles in 2005 are proceeding according to plan. Uncertainty is attached to the timing and scope of the implication of new valuation principles on financial instruments (IAS 32 and 39) due to delays in the endorsement process. Should IAS 39 be implemented based on the current IASB proposal, it might lead to accounting volatility. In addition to IAS 32 and 39 the major adjustments to be included in NBF s accounting policies in 2005 include implication of IAS 19 on employee benefits and IAS 17 on leases as well as implications on capitalisation of IT development costs according to IAS 38. The implementation of the IFRS principles is not expected to have a material net impact on NBF s figures. Outlook After the end of the financial period there have been no material events that would affect the financial position of NBF. The outlook for economic growth in the Nordic region has improved somewhat, and growth estimates have been adjusted somewhat upwards. Short-term interest rates have been lowered slightly also in the second quarter, and are likely to have bottomed out. Based on the improved growth outlook and a more stable interest rate environment, the comparable total income in 2004 is expected to increase compared to 2003. An increase in overall business volumes is expected, primarily stemming from the household sector. Nordea Bank Finland. January-June 2004 3

The sharp attention on cost management will be maintained. countries, the loan loss ratio is expected to be at the recent low level. Based on the overall quality of the credit portfolio, and the present economic outlook for the Nordic Stockholm, 16 August 2004 Board of Directors Auditors review report We have reviewed the interim report of Nordea Bank Finland Plc for the period January-June 2004 in accordance with the standards issued by the Finnish Institute of Authorized Public Accountants. In our review nothing came to our attention that would indicate non-compliance of the interim report with the rules and regulations covering the preparation of such reports. A review is significantly more limited in scope than an audit. Helsinki, 18 August 2004 KPMG WIDERI OY AB Mauri Palvi Authorized Public Accountant Nordea Bank Finland. January-June 2004 4

Income statements Jan-Jun Jan-Jun Jan-Dec EUR million 2004 2003 1) 2003 1) Interest income 2) 1 106 4 878 5 925 Interest expenses -555-3 002-3 518 Net interest income 551 1 876 2 407 Income from equity investments 3 29 21 Commission income 223 725 933 Commission expenses -77-124 -173 Net income from securities transactions and foreign exchange dealing 77 152 224 Other operating income 50 129 163 Total income 827 2 787 3 575 Personnel expenses -233-950 -1 205 Other administrative expenses -116-479 -611 Depreciation and write-downs on tangible and intangible assets -28-134 -163 Other operating expenses -65-179 -438 Total expenses -442-1 742-2 417 Profit before loan losses 385 1 045 1 158 Loan and guarantee losses -20-190 -157 Write-downs on securities held as financial fixed assets - - - Profit from companies accounted for under the equity method 10 59 37 Operating profit 375 914 1 038 Extraordinary items - 475 463 Income taxes -108-235 55 Minority interest -2-1 -2 Net profit for the period 265 1 153 1 554 Financial ratios Return on equity, % 4.9 13.0 3) 7.5 Income/cost ratio 1.7 1.6 1.4 Average number of employees during the year - full-time 8 990 29 084 19 725 - part-time 1 170 5 414 3 060 1) The figures for 2003 include half year's income statements of NBD, NBS and NBN. 2) Includes net income from leasing EUR 31m (45, 77). 3) Equity does not include the balance sheet item "Capital loans". Formulas used Return on equity, %: 100 x (Operating profit after taxes) / (Shareholders equity + minority interest (average for beginning and end of year)) Income/cost ratio: (Net interest income + income from equity investments + commission income + net income from securities transactions and foreign exchange dealing + other operating income) / (Commission expenses + administrative expenses + other operating expenses + depreciation) Nordea Bank Finland. January-June 2004 5

Balance sheets EUR million June 30, 2004 June 30, 2003 1) Dec 31, 2003 Liquid assets 2 404 6 219 777 Debt securities eligible for refinancing with central banks 1 975 2 093 2 160 Loans to credit institutions 39 071 28 089 32 123 Loans to the public and public sector organisations 37 311 59 636 34 639 Leased assets 1 292 1 250 1 238 Debt securities 2 696 4 976 2 835 Shares and participations 61 200 80 Participating interests and shares and participations in group companies 244 348 244 Intangible assets 36 401 44 Tangible assets 80 876 276 Other assets 16 569 9 073 18 657 Prepaid expenses and accrued income 565 1 130 795 Deferred tax receivables 288 173 377 Total assets 102 592 114 464 94 245 Due to credit institutions and central banks 20 277 25 117 12 566 Due to the public and public sector organisations 29 635 41 174 31 157 Debt securities outstanding 22 035 22 188 16 734 Other liabilities 17 337 10 688 19 813 Accrued expenses and prepaid income 695 1 140 815 Provisions 77 174 71 Subordinated liabilities 1 910 2 312 1 864 Deferred tax liabilities 17 19 17 Minority interest 3 10 8 Share capital 2 319 2 319 2 319 Share premium account 599 593 593 Other restricted reserves - - - Capital securities - 842 - Non-restricted reserves 2 884 2 889 2 884 Profit carried forward from previous years 4 539 3 846 3 850 Net profit for the period 265 1 153 1 554 Total liabilities and shareholder's equity 102 592 114 464 94 245 Off-balance-sheet commitments Commitments on behalf of customers in favour of third parties 8 855 13 953 12 014 Irrevocable commitments in favour of customers 11 186 12 684 9 305 Impaired loans and property taken over for protection of claims 2) EUR million June 30, 2004 June 30, 2003 1) Dec 31, 2003 Impaired loans, gross 580 1 482 604 Provision for impaired loans 406 951 393 Impaired loans, net 174 531 211 Provisions / impaired loans, gross, % 70 64 65 Impaired loans, net / lending, % 0.5 0.9 0.6 Property taken over for protection of claims, EUR million 1 27 1 1) The balance sheet items of NBN are still included in the June 30, 2003 figures. 2) Excluding country risk provisions. Nordea Bank Finland. January-June 2004 6

Off-balance sheet commitments EUR million June 30, 2004 June 30, 2003 1) Dec 31, 2003 Contingent liabilities Guarantees 7 980 13 344 11 353 Stand-by facilities 4 944 4 229 4 337 Unused credit lines 4 975 7 540 3 823 Other commitments 2 142 1 524 1 806 Total 20 041 26 637 21 319 Of which on behalf of associated companies 18 63 26 Pledged assets Assets pledged as collateral for own liabilities - debt securities eligible for refinancing with central banks 2 101 4 124 1 895 - leased assets - - - - debt securities 109 151 888 - other 876 87 290 Total 3 086 4 362 3 073 The above collateral has been pledged for the following liability items - due to credit institutions and central banks 2 462 3 189 2 438 - due to the public and public sector organisations - - - - debt securities outstanding - 627 - - other liabilities and commitments 566 217 333 Total 3 028 4 033 2 771 The parent company has not pledged assets as collateral for liabilities of the group companies or associated undertakings of the Nordea Bank Finland group. Assets as collateral for liabilities for other Nordea group companies have been pledged in the amount of EUR 203m. Derivative instruments (nominal values) Contracts made for hedging purposes Interest-rate-related derivatives 28 740 16 031 27 512 Currency-related derivatives 13 143 7 693 15 392 Equity-related derivatives 5 2 139 1 205 Other derivatives 9 0 3 002 Contracts made for other than hedging purposes Interest-rate-related derivatives 952 224 209 322 791 283 Currency-related derivatives 384 920 85 908 272 283 Equity-related derivatives 3 403 442 1 184 Other derivatives 10 292 284 4 255 Total Interest-rate-related derivatives, credit equivalents 50 375 40 Currency-related derivatives, credit equivalents 234 1 108 418 Equity-related derivatives, credit equivalents 8 99 0 Other derivatives, credit equivalents 4 1 2 1) Includes the off-balance sheet items of NBN. Nordea Bank Finland. January-June 2004 7

Capital adequacy EUR million June 30, 2004 June 30, 2003 Dec 31, 2003 Total Tier 1 (incl. profit for the period and estimated profit distribution) 10 360 9 572 10 287 Total Tier 2 1 722 2 202 1 770 Deductions -82-163 -79 Total own funds 12 000 11 611 11 978 Capital securities included in Tier 1-42 - Risk-weighted items 53 568 63 917 54 005 Total capital ratio, % 22.4 17.6 22.2 Tier 1 ratio, % 19.3 14.5 19.0 Nordea Bank Finland. January-June 2004 8