Highlights of Stadshypotek s Annual report JANUARY DECEMBER Operating profits rose by 9% to SEK 5,599m (5,150) Net interest income rose by 1% to SEK 5,237m (5,183) Expenses decreased by 11% to SEK 134m (150) Recoveries exceeded new loan losses Lending increased by 8% to SEK 445bn (413) The most satisfied corporate customers in the mortgage market Largest proportion of satisfied private customers of the major banks mortgage institutions Application submitted to the Finansinspektionen for permission to issue covered bonds
Highlights of Stadshypotek s annual report January December Continued profit improvement with a strong third quarter In, Stadshypotek s operating profits rose by 9% till SEK 5,599m (5,150) its highest ever figure. The improvement in profits was attributable to both higher income and slightly lower expenses. Return on shareholders equity increased to 18.1% (16.0). Higher income Income totalled SEK 5,600m (5,130), a 9% increase from the figure. Of the SEK 470m improvement in income, net interest income accounted for an increase of SEK 54m, while Net gains/losses on financial items accounted for an increase of SEK 414m. The rise in net interest income to SEK 5,237m, (5,183) was mainly due to an increased proportion of private market lending. This shift offset the reduced amount of shareholders equity and the lower interest earned, due to falling interest rates during the year. Lower expenses and low loan losses Expenses, excluding loan losses, decreased to SEK 134m (150). Staff costs dropped by 15% and other administrative expenses by 10%. This decrease stemmed from continuing efficiency improvements. Recoveries exceeded new loan losses and the net amount recovered was SEK 133m (170), which corresponds to a loan loss ratio of -0.03% (-0.04) of lending. As at ember, Stadshypotek s bad debts before deduction of the provision for probable loan losses amounted to SEK 600m (958). Of the bad debts, SEK 54m (87) were non-performing loans and SEK 546m (871) were loans on which the borrowers pay interest and amortisation but which are considered doubtful in view of the borrowers repayment capacity and uncertainty as to the value of the collateral. After deduction of the provision for probable loan losses, the volume of bad debts was SEK 454m (710). Growth in lending Loans to the public continued to exhibit strong growth, rising by SEK 32bn to SEK 445bn (413). The whole increase was attributable to private market lending. Stadshypotek strengthened its position as the leading player on the Swedish corporate market, increasing its share of this market segment compared with the corresponding period of the previous year. Capital cover As at ember, the capital ratio was 8.8% (8.1). The rise stemmed from the fact that the company issued a debenture loan of SEK 3.5bn in January with the parent company as lender. The Tier 1 capital ratio was 7.4% (8.1). Covered bonds In September, Stadshypotek submitted an application to the Finansinspektionen (the Swedish Financial Supervisory Authority) for permission to issue covered bonds pursuant to the new law in Sweden on issuing covered bonds (2003:1223). Covered bonds are bonds with priority in the issuing institution s collateral. The collateral in Stadshypotek will mainly consist of loans to private individuals and companies granted against mortgages such as single-family houses, second homes and multi-family dwellings and with a loan-to-value ratio of 75% of the market value. One precondition for Stadshypotek s issuing of covered bonds is that it obtains the highest ranking, AAA. This new type of funding will replace the current form of institutional bond funding in Stadshypotek. Provided that the Finansinspektionen grants permission, the issuing of covered bonds is planned to commence during the first half of 2006. The bonds which Stadshypotek then has outstanding will be converted into covered bonds. New issues under these bond loans and under new loans issued afterwards will be in the form of covered bonds, with the exception of retail bonds. However, Stadshypotek s other debt, such as other funding from credit institutions and funding in the various commercial paper markets will not be converted into covered bonds. Stadshypotek s rating Long-term Short-term Moody s Aa1 P-1 Standard & Poor s AA- A-1+ Accounting principles The accounting follows the regulations of the Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL) and the directives issued by the Finansinspektionen (FFFS :20). These directives imply that the Swedish Financial Accounting Standards Council s recommendation 32 is applied and that the accounting as far as possible complies with IFRS through what is known as statutory IFRS. Stockholm, 21 February 2006 Frank Vang-Jensen Chief executive
Income statement Group Change % Interest income 16 989 18 412-8% Interest expense -11 752-13 229-11% Net interest income 5 237 5 183 1% Net gain/losses on financial items 414 - - Fee and commission income 11 12-8% Fee and commission expense -62-65 -5% Total income 5 600 5 130 9% General administrative expenses Staff costs -17-20 -15% Other -117-130 -10% Depreciation according to plan 0 0 - Total expenses -134-150 -11% Profit before loan losses 5 466 4 980 10% Loan losses, net Note 1 133 170-22% Operating profit 5 599 5 150 9% Taxes -1 568-1 442 9% Net profit for the period 4 031 3 708 9% Net earnings per share, SEK 24.87 22.89 Note 1 Loan losses SEKm Specific provision for individually assessed loan receivables The period s write-down for actual loan losses -45-54 Writeback of previous provisions for probable loan losses reported as actual loan losses in the period s accounts 29 42 The period s provision relating to probable loan losses -8-18 Recovered from actual loan losses in previous years 76 101 Writeback of provisions for probable loan losses which are no longer necessary 81 99 Net expense for the period for individually assessed loan receivables 133 170 HIGHLIGHTS OF STADSHYPOTEK S ANNUAL REPORT JANUARY DECEMBER
Balance sheet Group Assets Loans to credit institutions 962 2 270 Loans to the public Note 2 445 361 413 233 Derivatives Note 3 3 004 1 601 Property, plant and equipment 0 0 Other assets 5 747 4 022 Total assets 455 074 421 126 Liabilities and shareholders equity Liabilities to credit institutions 166 214 173 572 Issued securities etc. 251 999 215 649 Derivatives Note 3 4 893 2 041 Other liabilities and provisions 9 419 10 815 Subordinated loans 3 500 - Total liabilities 436 025 402 077 Shareholders equity Note 4 19 049 19 049 Total liabilities and shareholders equity 455 074 421 126 Note 2 Lending by type of property Lending before deduction of provisions Provisions for probable loan losses Lending after deduction of provisions Household 302 504-35 302 469 Municipalities 8 319-8 319 Housing co-operatives 73 187-69 73 118 Other legal entities 61 497-42 61 455 Total loans to the public 445 507-146 445 361 loans by borrower loans for which interest has been accrued loans which are included in bad debts loans for which interest has been accrued loans which are included in bad debts Household 289 18 328 32 Municipalities - - - - Housing co-operatives 5 9 11 10 Other legal entities 31 27 122 45 Total 325 54 461 87 debts by borrower debts Provision for probable losses debts net debts Provision for probable losses debts net Household 97-35 62 139-49 90 Municipalities - - - - - - Housing co-operatives 286-69 217 396-97 299 Other legal entities 217-42 175 423-102 321 Total 600-146 454 958-248 710 The provision for probable losses refers to a specific provision for individually valued claims. HIGHLIGHTS OF STADSHYPOTEK S ANNUAL REPORT JANUARY DECEMBER
Note 3 Derivatives Derivatives for fair value hedges Fixed income contracts Nominal amount/maturity up to 1 yr > 1 yr 5 yrs over 5 yrs Total Positive fair value Negative fair value options 825 3 465-4 290 13 - swaps 76 893 91 784 22 045 190 722 2 971 4 698 Currency-related contracts forwards 13 165 - - 13 165 20 195 Total derivatives for fair value hedges 90 883 95 249 22 045 208 177 3 004 4 893 Note 4 Change in shareholders equity Opening shareholders equity 19 049 19 695 Group contribution -4 703-6 047 Tax on group contribution 1 317 1 693 Restatement according to IAS39-645 - Net profit for the period 4 031 3 708 Closing shareholder equity 19 049 19 049 Cash flow statement Cash flow from operating activities 2 153 6 612 Cash flow from investing activities - 0 Cash flow from financing activities -3 192-5 664 Cash flow for the period -1 039 948 Liquid funds at beginning of period 2 001 1 053 Cash flow for the period -1 039 948 Liquid funds at end of period 962 2 001 HIGHLIGHTS OF STADSHYPOTEK S ANNUAL REPORT JANUARY DECEMBER
Quarterly performance Q4 Q3 Q2 Q1 Q4 Interest income 4 070 4 120 4 267 4 532 4 534 Interest expense -2 820-2 812-2 985-3 135-3 232 Net interest income 1 250 1 308 1 282 1 397 1 302 Net gain/losses on financial items 124 250 59-19 - Net operating income -14-12 -13-12 -14 Total income 1 360 1 546 1 328 1 366 1 288 General administrative expenses Staff costs -4-4 -4-5 -5 Other -27-30 -32-28 -33 Depreciation according to plan 0 0 0 0 0 Total expenses -31-34 -36-33 -38 Profit before loan losses 1 329 1 512 1 292 1 333 1 250 Loan losses 58 20 26 29 35 Operating profit 1 387 1 532 1 318 1 362 1 285 Key figures Overall interest margin, % 1.23 1.28 C/I ratio before loan losses, % 2.4 2.9 C/I ratio after loan losses, % 0.0-0.4 Loan loss ratio, % -0.03-0.04 Proportion of bad debts, % 0.1 0.2 debt provision ratio, % 24.3 25.9 Return on shareholders equity, % 18.1 16.0 Capital ratio, % 8.8 8.1 Tier 1 capital ratio, % 7.4 8.1 Parent company Total income for the period was SEK 5,600 m (5,130). Profit before appropriations and tax was SEK 5,599 m (5,150). LENDING PERFORMANCE Jan Sep Jan Jun Jan Mar Full year Loans to credit institutions 962 666 1 060 959 2 270 Loans to the public 445 361 435 750 426 992 419 675 413 233 Total 446 323 436 416 428 052 420 634 415 503 BORROWING PERFORMANCE Jan Sep Jan Jun Jan Mar Full year Liabilities to credit institutions 177 658 175 398 186 411 171 072 189 442 Issued securities 240 556 231 866 219 292 232 583 199 779 Subordinated loans 3 500 3 500 3 500 3 500 - Total 421 714 410 764 409 203 407 155 389 221 103 70 Stockholm, Telephone +46 8 701 54 00, www.stadshypotek.se 2006 Stadshypotek Production: Börstryck Photos: Håkan Flank