Highlights OF ANNUAL REPORT 2004 Operating profit increased by SEK 145m to SEK 5,150m Net interest income rose by SEK 197m to SEK 5,183m, an increase of 4% Most satisfied corporate customers in the mortgage market Stadshypotek s position as the leading player in the corporate market was reinforced Largest proportion of satisfied private customers of the major banks mortgage institutions New features launched for the private market have been warmly welcomed Higher rating by Moody s and Standard & Poor s
STADSHYPOTEK S ANNUAL REPORT JANUARY DECEMBER 2004 Highlights of Stadshypotek s annual report January December 2004 Performance and income Stadshypotek s operating profit increased by SEK 145m to SEK 5,150m (5,005), Stadshypotek s best performance ever. The improvement in profits compared to the previous year is due to improved net interest income and lower costs. The increase in net interest income by SEK 197m or 4% to SEK 5,183m (4,986) is mainly due to higher lending volumes. A continued increase in the share of private market lending has more than compensated continuing pressure on prices as a consequence of strong competition. Favourable market conditions have also contributed to a positive debt management trend. Lower shareholders equity combined with low interest rates, which fell even more during the year, have affected net interest income in a negative direction. Return on shareholders' equity was 16.0% (15.4). Expenses Expenses decreased by 10% to SEK 150m (166). The reduction is entirely due to the SEK 17m in agent s commissions which Handelsbanken Hypotek paid to Handelsbanken until the merger with Stadshypotek in March 2003. Excluding these commissions, expenses compared to the previous year have been kept virtually unchanged, despite continuing IT investments which are partly a consequence of new products. Loan losses Recoveries exceeded new loan losses and the net amount recovered was SEK 170m (232), which corresponds to a loan loss ratio of -0.04% (-0.06) of lending. As at 31 December 2004, Stadshypotek s bad debts before deduction of the reserve for probable loan losses amounted to SEK 958m (1,446). Of the bad debts, SEK 87m (207) were nonperforming loans and SEK 871m (1,239) are loans on which the borrowers pay interest and amortisation but which are considered doubtful in view of the borrowers' repayment capacity and due to uncertainty as to the value of the collateral. After deduction of the provision for probable loan losses, the volume of bad debts was SEK 710m (1,075). Lending Stadshypotek s lending to the general public again showed a strong growth in 2004 and at the end of the year it was more than SEK 413bn (386). Of a total increase in volumes of SEK 27bn (20), loans to the private market represented SEK 23bn (17) and loans to the corporate market SEK 4bn (3). Growth in the corporate market has led to increased market share and a further reinforced position in this market segment. In the private market, the increase in lending has grown and peaked in December. Satisfied customers The Swedish Quality Index survey of customer satisfaction showed that Stadshypotek has the most satisfied corporate customers in the sector and the most satisfied private customers among the bank-owned mortgage institutions. This customer evaluation is very gratifying and is the result of solid and committed work and the high level of skills and competence of all staff in the branch operations. Increased product range A new loan where the interest rate is fixed for three months at a time was launched on the private market in the spring. In a market with continued strong demand for loans with short-term fixed interest rates, this product has received a very warm welcome. The volume growth for this loan has been good and it is the loan product which has developed most in amount terms this year. An increasing number of customers have used the opportunity to sign up for the Loan protection with security capital product and it has been an important factor behind the higher growth in the private market. The improvements made in the e-bud property bidding service, where buyers and sellers can receive an e-mail, or an SMS text message direct to their mobile with information about the last bid submitted, has been greatly appreciated and has contributed to a continued increase in use of the e-bud service. Changeover to IAS/IFRS standards Starting in 2005, the EU requires that listed companies in Europe adapt their consolidated accounts to IASB s accounting standards (IFRS or IAS). However, an accounting standard issued by the IASB will not be valid until the EU has approved it for application within the EU. In 2005, harmonisation will be made with recommendations applying within the EU on 1 January 2005. With the purpose of achieving uniform accounting standards at the Handelsbanken Group, Stadshypotek will apply IFRS from 1 January 2005. The effect of the changeover to new accounting standards will be a reduction in shareholders equity of SEK 0.6bn. Capital ratio and rating As at 31 December 2004, the capital ratio was 8.1% (9.0). The lower capital ratio compared to last year is due to an increased lending volume and dissolved untaxed reserves. On 1 January 2005, a subordinated loan of SEK 3,500m was raised, after which the capital ratio is 9.3%. In March 2004, Stadshypotek s long term rating was raised by Moody s rating agency from Aa2 to Aa1. In November, Standard & Poor s rating agency upgraded Stadshypotek s long term rating from A+ to AA- and the short term rating from A-1 to A-1+. Thus, Stadshypotek has the same rating as its parent company Handelsbanken, which is the highest rating of all Swedish and Nordic banks. Stockholm, 22 February 2005 Claes Norlén Chief executive
Profit and loss account Change SEK m Jan - Dec Jan - Dec % Interest income 18,412 19,801-7% Interest expense -13,229-14,815-11% Net interest income 5,183 4,986 4% Comission income 12 12 0% Comission expense -65-59 10% Total income 5,130 4,939 4% General administrative expenses Staff costs -20-21 -5% Agent's commission - -17-100% Other -130-128 2% Depreciation according to plan 0 0 - Total expenses -150-166 -10% Profit before loan losses 4,980 4,773 4% Loan losses, net 1) 170 232-27% Operating profit 5,150 5,005 3% Taxes -1,442-1,381 4% Net profit for the period 3,708 3,624 2% Net earnings per share, SEK 22.89 22.37 1) Loan losses Specific provision for individually assessed loan receivables Jan - Dec Jan - Dec The period's write-down for actual loan losses -54-97 Writeback of previous provisions for probable loan losses reported as actual loan losses in the period's accounts 42 66 The period's provision relating to probable loan losses -18-46 Recovered from actual loan losses in previous years 101 111 Write-back of provisions for probable loan losses which are no longer necessary 99 198 Net expense for the period for individually assessed loan receivables 170 232
STADSHYPOTEK S ANNUAL REPORT JANUARY DECEMBER 2004 Balance sheet SEK m 31 dec 31 dec Assets Lending to credit institutions 2,270 1,542 Lending to the general public Note 1 413,233 386,224 Tangible assets 0 1 Other assets 5,623 4,257 Total assets 421,126 392,024 Liabilities and shareholders' equity Liabilities to credit institutions 173,572 124,665 Issued securities etc. 215,649 234,483 Other liabilities and provisions 12,856 13,181 Total liabilities 402,077 372,329 Shareholders' equity Note 2 19,049 19,695 Total liabilities and shareholders' equity 421,126 392,024 Note 1 Lending to the general public Lending to the general public by sector Lending before Provisions for Lending after deduction probable deduction SEK m of provisions loan losses of provisions Household 270,468-49 270,419 Municipalities 10,040-10,040 Housing co-operatives 71,018-97 70,921 Other legal entities 61,955-102 61,853 Total lending to the general public 413,481-248 413,233 Bad debts and/or non-performing loans, by sector Bad debts of which non-performing Non-performing loans which are not included Book value* Book value* Provisions in bad debts Household 90 16 49 328 Municipalities - - - - Housing co-operatives 299 2 97 11 Other legal entities 321 21 102 122 Total 710 39 248 461 *With account taken of provisions.the reserved amount for probable losses refers to a specific provision for individually assessed receivables. Note 2 Change in shareholders equity SEK m 31 dec 31 dec Opening shareholders' equity 19,695 20,149 Group contribution -6,047-5,664 Tax on paid group contribution 1,693 1,586 Net profit for the period 3,708 3,624 Closing shareholders' equity 19,049 19,695 Other information The accounting follows the regulations of the Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL), the Swedish Financial Accounting Standards Council s recommendations, and the directives issued by Finansinspektionen (the Swedish Financial Supervisory Authority, FFFS 2002:22). The same accounting principles are applied in the interim report as were applied in the latest annual report.
STADSHYPOTEK S ANNUAL REPORT JANUARY DECEMBER 2004 Cash flow statement SEK m jan - dec jan - dec Cash flow on operating activities 6,611 5,083 Cash flow on investing activities 0-1 Cash flow on financing activities -5,664-5,505 Cash flow for the period 947-423 Liquid funds at beginning of period 1,053 1,476 Cash flow for the period 947-423 Liquid funds at end of period 2,000 1,053 Derivatives Interest-rate related instruments Currency-related instruments 31 December 2004 Fair Book Fair Book SEK m value value value value Positive values 4,015 1,583 - - Negative values 5,746 2,027 473-3 Stadshypotek uses derivatives in order to hedge against risks on its own balance sheet and therefore applies hedge accounting with acquisition valuation. This means that the book values stated here only express the accrued interest amounts on the instruments. The differences between the fair values of the derivatives and the book values above correspond to equally large, but opposite, differences between the fair values and the book values of the items on the balance sheet which are hedged by the derivatives. Quarterly performance for the Stadshypotek Group Q4 Q3 Q2 Q1 Q4 SEK m 2004 2004 2004 Interest income 4,534 4,547 4,566 4,765 4,815 Interest expense -3,232-3,298-3,286-3,413-3,579 Net interest income 1,302 1,249 1,280 1,352 1,236 Other operating income -14-14 -14-11 -12 Total income 1,288 1,235 1,266 1,341 1,224 General administrative expenses Staff costs -5-5 -5-5 -5 Other -33-32 -33-32 -33 Depreciation according to plan 0 0 0 0 0 Total expenses -38-37 -38-37 -38 Profit before loan losses 1,250 1,198 1,228 1,304 1,186 Loan losses 35 39 44 52 76 Operating profit 1,285 1,237 1,272 1,356 1,262 Key financial figures and ratios 2004 2004 Full year Full year Overall interest margin, % 1.28 1.30 C/I ratio before loan losses, % 2.9 3.4 C/I ratio after loan losses, % -0.4-1.3 Loan loss ratio, % -0.04-0.06 Proportion of bad debts, % 0.2 0.3 Bad debt provision ratio, % 25.9 25.7 Return on shareholders' equity, % 16.0 15.4 Capital ratio, % 8.1 9.0 Tier 1 capital ratio, % 8.1 9.0
Profit and loss account Parent company SEK m Full year Full year Interest income 18,412 19,801 Interest expense -13,229-14,815 Net interest income 5,183 4,986 Operating income 12 12 Operating expense -65-59 Total income 5,130 4,939 General administrative expenses Staff costs -20-21 Other -130-145 Depreciation and write-downs of tangible fixed assets 0 0 Total expenses -150-166 Profit before loan losses 4,980 4,773 Net loan losses 170 232 Operating profit 5,150 5,005 Appropriations 897 729 Taxes on the period's profit -1,693-1,585 Net profit for the period 4,354 4,149 Balance sheet Parent company SEK m 31 Dec 31 Dec Assets Lending to credit institutions 2,270 1,542 Lending to the general public 413,233 386,224 Tangible assets 0 1 Other assets 5,623 4,257 Total assets 421,126 392,024 Liabilities and shareholders' equity Liabilities to credit institutions 189,442 151,252 Issued securities etc. 199,779 207,896 Other liabilities and provisions 12,856 13,826 Total liabilities 402,077 372,974 Shareholders' equity 19,049 19,050 Total liabilities and shareholders' equity 421,126 392,024 The interim report for the first three months of 2005 will be published on 25 April 2005. The interim report for the first six months of 2005 will be published on 23 August 2005. The interim report for the first nine months of 2005 will be published on 25 October 2005. SE-103 70 Stockholm, Sweden, Telephone +46 8-701 54 00, www.stadshypotek.se 2005 Stadshypotek Handelsbanken Capital Markets Research Publishing Photos: Pelle Nilsson