20 08 Highlights of annual report Lending increased by SEK 91bn (44) to SEK 615bn, of which SEK 44bn was attributable to the branch in Norway which was added during the third quarter. Operating profits were SEK 3,682m (3,926). Recoveries exceeded loan losses for the year.
Highlights of Stadshypotek s annual report: January December Performance Stadshypotek s operating profits for the year were SEK 3,682m (3,926), a decrease of SEK 244m, or 6.2%, compared to the previous year. As of August, Stadshypotek s branch in Norway has been included, which had a SEK 108m positive effect on operating profit for the period. Thus, excluding the branch in Norway, operating profits were down by SEK 352m on the previous year. The decrease was chiefly attributable to a negative net result on financial operations of SEK -71m, compared with a positive figure of SEK 360m the previous year. This stemmed mainly from unrealised changes in market value of financial assets and liabilities subject to hedge accounting and derivatives. Unrealised changes in market value were negatively affected, due to falling market interest rates in the second half of the year. On the other hand, during the first half of the year, unrealised changes in the market value were positively affected, due to rising market rates. Net interest income totalled SEK 3,900m. This was an increase of SEK 197m over the previous year, of which SEK 123m was attributable to the branch in Norway. Thus, excluding the branch in Norway, net interest income grew by SEK 74m, chiefly due to higher volumes, as well as favourable funding costs in the prevailing market situation. For a number of years, the competition for private customers mortgage loans has led to sharply reduced margins, which has had a negative impact on net interest income. In, margins on Stadshypotek s lending volume to the private market were down somewhat on the previous year. Loan losses Recoveries exceeded new loan losses and the amount recovered was SEK 75m (70), which corresponds to a loan loss ratio of -0.01% (-0.01) of lending. Bad debts before deduction of the provision for probable loan losses amounted to SEK 193m (267) at the end of. SEK 56m (41) of the bad debts were non-performing loans, while SEK 137m (226) were loans on which the borrowers pay interest and amortisation, but which are considered doubtful in view of the uncertainty as to the borrowers' repayment capacity and the value of the collateral. In addition, there were non-performing loans of SEK 605m (318) that are not assessed as being bad debts. After deductions for specific provisions SEK -73m (-77) and provisions by group for individually assessed loan receivables SEK -12m (-) for probable loan losses, bad debts totalled SEK 108m (190). Growth in lending Stadshypotek s lending volume continued to increase during the period. Lending to the public totalled SEK 615bn. This was an increase of SEK 91bn, of which SEK 44bn was attributable to the branch in Norway which was added during the third quarter. Stadshypotek s share of the private market in Sweden was maintained at around 25%. Stadshypotek retained its strong position as a leading player on the Swedish corporate market, with a market share of some 30%. Capital adequacy On 1 February, new capital adequacy regulations were implemented the Basel II regulations. The new regulations entail major changes in how the capital requirement is to be calculated and how a satisfactory capital base is to be ensured. They will be implemented gradually, since the transitional regulations allow for an adaptation over three years. As at 31 December, the capital ratio in accordance with Basel II was 37.1% (40.3). As at ember, the Tier 1 capital ratio in accordance with Basel II was 25.9% (28.5). Further information concerning capital adequacy is provided in the Capital base and Capital requirement section. Rating Stadshypotek s rating was unchanged, with a stable outlook. Stadshypotek Long-term Short term Moody s Aa1 P-1 Standard & Poor s AA- A-1+ Fitch AA- F1+ Covered bonds Moody s Accounting policies The accounts comply with the IASB accounting standards adopted by the EU. The regulations of the Swedish Annual Accounts Act for Credit Institutions and Securities Companies and the directives issued by the Swedish Financial Supervisory Authority are also applied. Accounting policies are unchanged from the previous annual report. Stockholm, 10 February 2009 Lars Kahnlund Chief executive Aaa Highlights of the annual report january december 1
Income statement Group Jan-Dec Jan-Dec Change % Q4 Q4 Change % Interest income 29 006 21 787 33 8 392 5 969 41 Interest expense -25 106-18 084 39-7 228-5 152 40 Net interest income 3 900 3 703 5 1 164 817 42 Net result on financial operations -71 360-93 41 - Fee and commission income 12 11 9 3 3 0 Fee and commission expense -43-50 -14-11 -12-8 Net fee and commission income -31-39 -21-8 -9-11 Total income 3 798 4 024-6 1 063 849 25 General administrative expenses Staff costs -40-35 14-8 -11-27 Other -149-133 12-44 -34 29 Depreciation according to plan -2 0 - -1 0 - Total expenses -191-168 14-53 -45 18 Profit before loan losses 3 607 3 856-6 1 010 804 26 Net loan losses Note 1 75 70 7-13 12 - Operating profit 3 682 3 926-6 997 816 22 Tax -1 027-1 100-7 -276-229 20 Profit for the year 2 655 2 826-6 721 587 23 Net earnings per share, SEK 16 388 17 447 Balance sheet Group Assets Loans to credit institutions 26 887 5 600 Loans to the public Note 2 615 263 523 758 Fair value changes of the hedged items in portfolio hedge of interest rate risk 144 - Derivatives Note 3 13 374 3 270 Other assets 3 830 8 272 Total assets 659 498 540 900 Liabilities and shareholders equity Due to credit institutions 182 602 103 638 Issued securities 430 404 392 807 Derivatives Note 3 3 231 3 606 Other liabilities and provisions 14 443 12 676 Subordinated loans 8 800 8 300 Total liabilities 639 480 521 027 Shareholders equity Note 4 20 018 19 873 Total liabilities and shareholders equity 659 498 540 900 2 Highlights of the annual report january december
Income statement Parent company Jan-Dec Jan-Dec Change % Q4 Q4 Change % Interest income 29 006 21 787 33 8 392 5 969 41 Interest expense -25 106-18 084 39-7 228-5 152 40 Net interest income 3 900 3 703 5 1 164 817 42 Net result on financial operations -71 360-93 41 - Fee and commission income 12 11 9 3 3 0 Fee and commission expense -43-50 -14-11 -12-8 Net fee and commission income -31-39 -21-8 -9-11 Total income 3 798 4 024-6 1 063 849 25 General administrative expenses Staff costs -40-35 14-8 -11-27 Other -149-133 12-44 -34 29 Depreciation according to plan -2 0 - -1 0 - Total expenses -191-168 14-53 -45 18 Profit before loan losses 3 607 3 856-6 1 010 804 26 Net loan losses Note 1 75 70 7-13 12 - Operating profit 3 682 3 926-6 997 816 22 Appropriations -48 - - -48 - - Profit before tax 3 634 3 926-7 949 816 16 Tax -1 014-1 100-8 -263-229 15 Profit for the year 2 620 2 826-7 686 587 17 Balance sheet Parent company Assets Loans to credit institutions 26 887 5 600 Loans to the public Note 2 615 263 523 758 Fair value changes of the hedged items in portfolio hedge of interest rate risk 144 - Derivatives Note 3 13 374 3 270 Other assets 3 830 8 272 Total assets 659 498 540 900 Liabilities and shareholders equity Due to credit institutions 208 523 113 875 Issued securities etc. 404 483 382 570 Derivatives Note 3 3 231 3 606 Other liabilities and provisions 14 430 12 676 Subordinated loans 8 800 8 300 Total liabilities 639 467 521 027 Untaxed reserves 48 - Shareholders equity Note 4 19 983 19 873 Total liabilities and shareholders equity 659 498 540 900 Highlights of the annual report january december 3
Notes The information in these notes relates to both the Group and the parent company. Note 1 Loan losses Provision for individually assessed loan receivables Jan-Dec Jan-Dec Specific provision for individually assessed loan receivables The year s write-down for actual loan losses -15-10 Write-back of previous provisions for probable loan losses reported as actual loan losses in the year's accounts 9 5 The year s provision relating to probable loan losses -19-11 Write-back from actual loan losses in previous years 98 48 Write-back of provisions for probable loan losses which are no longer necessary 14 38 Total 87 70 Provision by group for individually assessed loan receivables -12 - Net recoveries for the year for individually assessed loan receivables 75 70 As of the third quarter, recoveries on previous loan losses are included in Write-back from actual loan losses in previous years, which had a SEK 31m effect on the year s writeback from actual loan losses in previous years. Up until the end of, the equivalent amount, which during the January to December period totalled SEK 38m, was included in net interest income. Note 2 Loans to the public loans to the public by sector Lending before deduction of provisions Provisions for probable loan losses Lending after deduction of provisions Lending before deduction of provisions Provisions for probable loan losses Lending after deduction of provisions Households 453 674-16 453 658 380 839-15 380 824 Public sector, municipal companies 8 974-8 974 5 732-5 732 Housing co-operative associations 90 386-28 90 358 82 992-35 82 957 Other legal entities 62 314-29 62 285 54 272-27 54 245 Total loans to the public, before collective provisions 615 348-73 615 275 523 835-77 523 758 Collective provision -12-12 - - Total loans to the public 615 348-85 615 263 523 835-77 523 758 Of which in the Norwegian operations Households 36 612-36 612 Public sector, municipal companies - - - Housing co-operative associations 4 975-4 975 Other legal entities 2 610-2 610 Total loans to the public in the Norwegian operations 44 197-44 197 4 Highlights of the annual report january december
loans to the public by type of property Lending before deduction of provisions Provisions for probable loan losses Lending after deduction of provisions Lending before deduction of provisions Provisions for probable loan losses Lending after deduction of provisions Single-family housing 340 637-11 340 626 284 693-7 284 686 Housing co-operative apartments 90 695-1 90 694 77 109-1 77 108 Owner-occupied apartments * 4 070-4 070 - - - Private market 435 402-12 435 390 361 802-8 361 794 Multi-family housing 159 474-51 159 423 144 708-65 144 643 Offices and commercial buildings 20 472-10 20 462 17 325-4 17 321 Corporate market 179 946-61 179 885 162 033-69 161 964 Total loans to the public, before collective provisions 615 348-73 615 275 523 835-77 523 758 Collective provision -12-12 - - Total loans to the public 615 348-85 615 263 523 835-77 523 758 Of which in the Norwegian operations Single-family housing 32 473-32 473 Housing co-operative apartments 68-68 Owner-occupied apartments * 4 070-4 070 Private market 36 611-36 611 Multi-family housing 6 964-6 964 Offices and commercial buildings 622-622 Corporate market 7 586-7 586 Total loans to the public in the Norwegian operations 44 197-44 197 * Owner-occupied apartments entail individual ownership of a specific apartment in a multi-family dwelling and a share in an association for joint management of the property. Non-performing loans by borrower Non-performing loans which are not bad debts Non-performing loans which are included in bad debts Non-performing loans which are not bad debts Non-performing loans which are included in bad debts Households 512 29 277 14 Public sector, municipal companies - - - - Housing co-operative associations 44 3 2 3 Other legal entities 49 24 39 24 Total 605 56 318 41 Non-performing loans by type of property Non-performing loans which are not bad debts Non-performing loans which are included in bad debts Non-performing loans which are not bad debts Non-performing loans which are included in bad debts Single-family housing 417 22 223 9 Housing co-operative apartments 98 2 54 0 Private market 515 24 277 9 Multi-family housing 81 23 32 31 Offices and commercial buildings 9 9 9 1 Corporate market 90 32 41 32 Total 605 56 318 41 Highlights of the annual report january december 5
Bad debts by borrower Bad debts Provision for probable losses Bad debts net Bad debts Provision for probable losses Bad debts net Households 39-16 23 33-15 18 Public sector, municipal companies - - - - - - Housing co-operative associations 89-28 61 120-35 85 Other legal entities 65-29 36 114-27 87 Total 193-73 120 267-77 190 Bad debts by type of property Bad debts Provision for probable losses Bad debts net Bad debts Provision for probable losses Bad debts net Single-family housing 27-11 16 18-8 10 Housing co-operative apartments 3-1 2 0 0 0 Private market 30-12 18 18-8 10 Multi-family housing 142-51 91 185-65 120 Offices and commercial buildings 21-10 11 64-4 60 Corporate market 163-61 102 249-69 180 Total 193-73 120 267-77 190 Non-performing loans and bad debts relating in their entirety to the Swedish operations. The reserved amount for probable losses in the tables showing non-performing loans and bad debts consists of a specific provision for individually assessed receivables. Note 3 Derivative instruments Interest-rate related instruments Currency-related instruments Total Fair value Book value Fair value Book value Fair value Book value Positive values 6 140 6 140 7 234 7 234 13 374 13 374 Negative values 2 460 2 460 771 771 3 231 3 231 Interest-rate related instruments Currency-related instruments Total Fair value Book value Fair value Book value Fair value Book value Positive values 2 095 2 095 1 175 1 175 3 270 3 270 Negative values 3 490 3 490 116 116 3 606 3 606 Stadshypotek mainly uses interest rate swaps and caps as instruments to hedge against changes in value due to changes in market interest rates. Hedge accounting is applied for these hedges in accordance with the company s accounting policies. Interest rate swaps and currency futures are also used as hedges for fair value changes without hedge accounting being applied. 6 Highlights of the annual report january december
Note 4 Change in shareholders equity Group Parent Opening shareholders equity 19 873 19 872 19 873 19 872 Group contribution -3 480-3 925-3 480-3 925 Tax on group contribution 974 1 100 974 1 100 Change in exchange difference -4 - -4 - Profit for the year 2 655 2 826 2 620 2 826 Closing shareholders equity 20 018 19 873 19 983 19 873 Cash flow statement Jan Dec Jan Dec Cash flow from operating activities 52 404-1 223 Cash flow from investing activities* -47 981-2 Cash flow from financing activities -3 425 197 Cash flow for the year 998-1 028 Liquid funds at beginning of year 434 1 462 Cash flow for the year 998-1 028 Exchange rate difference on liquid funds 7 - Liquid funds at end of year 1 439 434 * As of 1 August, Stadshypotek s branch in Norway (Handelsbanken Eiendomskreditt NUF) acquired mortgage loans from Svenska Handelsbanken s branch in Norway. Turnover own debt instruments Stadshypotek issues and repurchases debt instruments which it has issued on its account. This is for the purposes of financing its operations. Turnover during the year was as follows: Issued (sold): SEK 298bn Repurchased: SEK 35bn Maturity: SEK 229bn Segment information Jan Dec Private Corporate Total Private Corporate Total Net interest income 2 744 1 156 3 900 2 744 959 3 703 Net result on financial operations -50-21 -71 267 93 360 Net fee and commission income -22-9 -31-29 -10-39 Total income 2 672 1 126 3 798 2 982 1 042 4 024 Administrative expenses -136-55 -191-125 -43-168 Profit before loan losses 2 536 1 071 3 607 2 857 999 3 856 Loan losses 64 11 75 34 36 70 Operating profit 2 600 1 082 3 682 2 891 1 035 3 926 Private market is defined as lending secured by mortgages in single-family or two-family houses, second homes, housing co-operative apartments or residential farms. Corporate market is lending secured by mortgages in multi-family dwellings, family farms, commercial and office buildings or state and municipal loans. Highlights of the annual report january december 7
Quarterly performance Q 4 Q 3 Q 2 Q 1 Q 4 Interest income 8 392 7 678 6 618 6 318 5 969 Interest expense -7 228-6 678-5 753-5 447-5 152 Net interest income 1 164 1 000 865 871 817 Net result on financial operations -93-184 268-62 41 Net fee and commission income -8-8 -7-8 -9 Total income 1 063 808 1 126 801 849 General administrative expenses Staff costs -8-10 -11-11 -11 Other -44-38 -33-34 -34 Depreciation according to plan -1 0-1 0 0 Total expenses -53-48 -45-45 -45 Profit before loan losses 1 010 760 1 081 756 804 Loan losses -13 60 17 11 12 Operating profit 997 820 1 098 767 816 Related party transactions Group Parent Company Group claims/group liabilities BALANCE SHEET Group receivables Loans to credit institutions 26 851 5 569 26 851 5 569 Derivatives 12 814 3 079 12 814 3 079 Other assets 47 41 47 41 Total 39 712 8 689 39 712 8 689 Group liabilities Due to credit institutions 171 853 91 979 197 774 102 216 Derivatives 3 036 3 545 3 036 3 545 Other liabilities 6 319 4 177 6 319 4 177 Subordinated loans 8 800 8 300 8 800 8 300 Total 190 008 108 001 215 929 118 238 INCOME STATEMENT Interest income 700 332 700 332 Interest expense -6 401-4 110-6 869-4 787 Fee and comission expense -21-24 -21-24 Other administrative expenses -122-106 -122-106 Total -5 844-3 908-6 312-4 585 Inter-company transactions are reported under the above headings in the balance sheet and income statement, either between the companies in the Stadshypotek Group or between these and other companies in the Handelsbanken Group. 8 Highlights of the annual report january december
Key figures Jan Dec Jan Dec Overall interest margin, % 0.66 0.72 C/I ratio before loan losses, % 5.1 4.2 C/I ratio after loan losses, % 3.1 2.4 Loan loss ratio, % -0.01-0.01 Proportion of bad debts, % 0.02 0.04 Bad debt provision ratio, % 37.8 28.7 Return on shareholders equity, % 12.2 12.6 Capital ratio in accordance with Basel II, % 37.1 40.3 Tier 1 capital ratio, in accordance with Basel II, % 25.9 28.5 Disclosures Risk Stadshypotek s operations are conducted with a controlled low level of risk. Stadshypotek s risks are credit risk, market risk, liquidity risk, operational risk and business risk. Credit risk is the risk that an individual borrower cannot fulfil his or her commitments. Market risk is the risk of price changes in the financial markets. The market risks affecting Stadshypotek are interest rate risk and currency risk. Liquidity risk is the risk that Stadshypotek will not be able to meet its payment obligations when they fall due. Operational risk is the risk of human errors and errors in procedures and systems and business risk is the risk of unexpected changes in financial performance. The credit risk is considered to be the most significant risk for Stadshypotek. The Stadshypotek board establishes policy documents and instructions describing how various risks should be managed and reported. Stadshypotek s risk management aims to ensure that the strict approach to risk that the board has established is guaranteed. Stadshypotek s lending operations and treasury function are integrated with those of Handelsbanken, which means that Stadshypotek s lending is carried out via the Bank s branch network. A collaboration agreement regulates the overall relationship between the parties and relates to the services which the branches are to perform on behalf of Stadshypotek. Thus the business operations at Stadshypotek are conducted according to the same fundamental principles which apply at Handelsbanken. The Bank s culture is based on the responsibility of each employee who makes business decisions. The person who best knows the customer and the market conditions is also in the best position to assess the risk. The branch responsible for the customer carries the entire risk and in the Bank s decentralised organisation the positive and negative outcomes of each branch are evaluated, which provides a natural risk limitation and caution in business operations. The responsibility of those who make business decisions is supplemented by checking that excessive risks are not taken in individual transactions or local operations. In lending this means that limits are set for large loans and these loans are assessed in a special credit organisation. Decisions on limits are made at branch, regional or central level, depending on the size of the credit limit. For market risks and liquidity risks, the corresponding control at Stadshypotek implies that the board of the company establish limits which restrict these risks. There is also independent risk control at Stadshypotek s Control and Accounting Department which is responsible for regular followup and monitoring of the market risks, liquidity risks and counterparty risks. The risk control function carries out daily measurements and checks to ensure that risk exposure remains within the limits set. Limit utilisation is reported internally within the company, and to the parent company s central risk control function. In addition, limit utilisation is reported regularly to the chief executive and board of the company. Stadshypotek is also covered by the central risk control at Handelsbanken, which is designed to identify the Group s risks, gauge them, and ensure that management of these risks complies with the Group s low risk tolerance. Moreover Stadshypotek has a procedure for daily capital planning to ensure that Stadshypotek has a sufficient amount of capital to secure the company s survival if a serious loss were to occur, despite the measures taken to manage the risks. The method for calculating economic capital ensures that all risks are considered in a uniform manner when the need for capital is assessed. Information about credit risks regarding loan losses and nonperforming loans and bad debts can be found in note 2 of this report. As at ember, Stadshypotek s interest rate risk in the case of a parallel increase in the yield curve of one percentage point was SEK -183m (-226). Capital-related matters At the start of the transition to Basel II, Stadshypotek entered into a guarantee facility relating to mortgages for housing co-operative properties, to speed up the transition. In June, Stadshypotek utilised the guarantee, which had a 0.50 percentage point effect on the Tier 1 ratio as at ember. The transaction affects only capital adequacy in accordance with the transitional rules. Highlights of the annual report january december 9
Capital base and capital requirement capital base capital adequacy analysis Shareholders equity 20 018 19 873 Special reduction for IRB institutions -105-190 Tier 1 capital 19 913 19 683 Perpetual subordinated loans 5 300 4 800 Fixed-term subordinated loans 3 500 3 500 Special reduction for IRB institutions -105-190 Tier 2 capital 8 695 8 110 Capital base 28 608 27 793 capital requirement Credit risk according to standardised approach 53 118 Credit risk according to IRB approach 5 493 4 776 Operational risk 615 630 1 Total capital requirement according to Basel II 6 161 5 524 Adjustment according to transitional rules 18 100 18 327 Capital requirement according to Basel II, transitional rules 24 261 23 851 Capital requirement in Basel II compared to Basel I 23% 22% Capital requirement in Basel II compared to transitional rules 25% 23% Capital ratio according to Basel II 37.1% 40.3% Capital ratio according to Basel I 8.5% 8.9% Capital ratio according to transitional rules 9.4% 9.3% Tier 1 ratio according to Basel II 25.9% 28.5% Tier 1 ratio according to Basel I 5.9% 6.3% Tier 1 ratio according to transitional rules 6.6% 6.6% Capital base in relation to capital requirement Basel II 464% 503% Capital base in relation to capital requirement Basel I 106% 111% Capital base in relation to capital requirement according to transitional rules 118% 117% Figures reported in this section refer to the minimum capital requirements under Pillar 1 of the new capital adequacy rules. In the table, According to Basel II means that the figures are based on the minimum capital requirements in 2010, that is after the transitional rules have ceased to apply. Stadshypotek intends to use the advanced IRB method for corporate exposures in 2010 and this is expected to further reduce the minimum capital requirement. Risk-weighted assets according to Basel I 339 871 313 824 Capital requirement according to Basel I 27 190 25 106 (8% of risk-weighted assets) Risk-weighted volume in accordance with transitional rules 303 259 298 133 Transitional rules result in lowest permitted capital requirement 24 261 23 851 Capital requirement according to Basel I (8% of risk-weighted assets) 77 013 69 050 Operational risk, according to Basel II 615 666 1 Operational risk, reduced in accordance with transitional rules. CREDIT RISKS IRB Standardised approach IRB approach Capital requirement Exposure after credit risk protection (EAD) Average risk weight Capital requirement Institutions 40 - - - Companies - 166 054 26.4% 3 511 Households 12 433 891 5.7% 1 982 Other 1 - - - Total IRB 53 599 945 11.4% 5 493 CREDIT RISKS IRB. Standardised approach IRB approach Capital requirement Exposure after credit risk protection (EAD) Average risk weight Capital requirement Institutions 104 - - - Companies - 147 374 29.2% 3 440 Households 14 364 715 4.6% 1 336 Other - - - - Total IRB 118 512 089 11.4% 4 776 The capital requirement according to Basel II is 77% (78) lower than the requirement in accordance with Basel I. Households represent some 85% (87) of the reduction and companies approximately 15% (13). A large proportion of credits to households with property as collateral mean that the capital requirement is lower. Capital requirements for credits to companies will also be lower and the average risk weight was 26% (29) of the exposure. EAD. The capital requirement is lower because Stadshypotek has a selective customer base and high-quality borrowers. 10 Highlights of the annual report january december
Facts about the company Registered name: Stadshypotek AB (publ). Corporate identity number: 556459-6715. Ownership: A subsidiary of Svenska Handelsbanken AB (publ), corporate identity number 50-7862. The Bank publishes consolidated annual accounts in which Stadshypotek AB is included. Annual general meeting of shareholders: 23 April 2009. Next interim report: Published 28 April 2009. Annual report: Available on Stadshypotek s website (www. stadshypotek.se) at the beginning of April. ADDRESS Stadshypotek AB Street address: Torsgatan 12 Postal address: SE-103 70 Stockholm Telephone: +46 8 701 54 00, Fax +46 8 701 55 40 Website: www.stadshypotek.se Highlights of the annual report january december 11
Notes 12 Highlights of the annual report january december