Interim report

Interim report for FöreningsSparbanken (Swedbank) January- March 1998 April 27, 1998 Stable development for FöreningsSparbanken Operating profit amounted to SEK 1,628 M (1,593) Operating profit excluding change-over costs amounted to SEK 1,802 M (1,593) Return on equity was 17.7% (16.4) 215 branches to be coordinated 135 branches were transferred to independent savings banks Sale of two operating properties generated a capital gain of over SEK 400 M which is reported in the second quarter Branch sales Of a total of 144 branches that have been sold, 71 were transferred to independent savings banks and jointly owned banks during the first quarter. The combined deposits in the transferred branches amounted to approximately SEK 8 billion and their lending to approximately SEK 6 billion. The transfers of the deposit and lending volumes negatively impacted the Group's net interest income by approximately SEK 60 M, which was offset in part by the yield on the proceeds of approximately SEK 1.7 billion that have been received. Since March 31, 1998 an additional 64 branches have been transferred. The remaining 9 transfers will take place during the second quarter. Continued coordination of branches In connection with the merger, the branch operations of the former banks will be coordinated in locations where it will not affect the Bank's market presence. To date decisions have been made to eliminate 215 branches, 51 of which were completed during the first quarter. Increased savings The aggregate value of deposits, securities funds, retail market bonds, public savings accounts and the Group's various forms of pension savings rose during the first quarter by SEK 3 billion to SEK 405 billion on March 31, 1998. The decrease in deposits owing to the branch sales amounted to approximately SEK 8 billion, because of which the underlying increase during the first quarteramounted to over SEK 11 billion or 3 percent. During the last 12-month period, total savings in the Group adjusted for the sale of branches increased by approximately SEK 34 billion or 9 percent. Bank deposits from the household sector are continuing to decline at the same time that contributions to Robur's funds and SparLiv/SparFond are rising. Robur's assets under management amounted to SEK 191.4 billion on March 31, 1998, of which SEK 6.8 billion was discretionary funds. Net contributions to Robur's funds amounted to SEK 8.4 billion during the first quarter. Robur´s share of net savings in the fund market during the first quarter of 1998 amounted to 44 percent. The sales increase was particularly high at former Föreningsbanken branches. Sales of pension and life insurance continued to rise substantially. Assets under management by SparLiv/SparFond rose by SEK 9 billion, or 45 percent, compared with the first quarter of 1997, amounting to approximately SEK 20 billion at the end of the first quarter. During the first quarter of the year a new private account was introduced where the Bank's customers are offered a higher interest rate on deposits up to SEK 15,000 provided that they also agree to use at least two of the Bank's automatic payment services. The offer has been well received and is expected to have a positive impact on earnings through higher commission income and lower transaction costs, despite a slight increase in interest payable. Lending The Group's loans to the public and credit institutions other than banks, excluding repurchase agreements, amounted to SEK 475 billion on March 31, 1998, a decrease of SEK 6 billion compared with year-end 1997. The entire decrease is attributable to the branches that were sold. Loans to the household sector amounted to approximately SEK 227 billion which is an increase in the Bank and Spintab when adjusted for the sale of branches. Lending, the Group, SEK March 31, December 31, billion 1998 1997 Households 226.8 227.7 of which Spintab Group 174.2 172.7 Real estate management 116.4 118.5 Credit institutions, excl. 2.6 1.3 banks Retail, hotels, restaurants 17.6 17.7 Construction 9.4 9.2 Manufacturing 13.8 13.3 Transportation 4.0 5.9 Agriculture and forestry 21.2 23.1 Municipalities 16.9 16.2 Other 46.4 48.2 Total 475.1 481.1 Repurchase agreements 26.8 13.2 (repos) Total lending 501.9 494.3 Operating profit The Group's operating profit amounted to SEK 1,628 M (1,593). Excluding change-over costs, operating profit amounted to SEK 1,802 M (1,593). The return on equity was 17.7 percent (16.4) and earnings per share (after estimated tax) amounted to SEK 3.31 (3.22) including change-over costs. Net interest income affected by branch sales The Group's income during the first quarter of 1998 amounted to SEK 4,840 M (4,721). The Group's net interest income amounted to SEK 3,052 M (3,315), a decrease of 8 percent compared with the first quarter of 1997. The decrease is due to the branch sales to independent savings banks, changes in margins on both deposits and loans, and a lower return on the securities portfolios. Net commission income Net commission income amounted to SEK 1,028 M, an increase of SEK 45 M or 5 percent compared with the first quarter of 1997. The Group's commissions receivable from fund investments and from SparLiv/SparFond's insurance operations continues to rise. Income from payment services continued to rise, primarily due to the increase in the number of cards outstanding and higher card use. Other operating income Other operating income amounted to SEK 605 M (328). The increase is due in large part to a capital gain of SEK 240 M that arose in February, when the Bank sold its shareholding in BG Bank. Net profit on financial operations The Group's net profit on financial operations amounted to SEK 142 M (71). As of March 31, the Group's holdings of interest-bearing securities had a book value of approximately SEK 44 billion, of which approximately SEK 6 billion relates to financial fixed assets. The interest risk in the Group has been reduced compared with year-end 1997. An increase in market interest rates of one percentage point on March 31 would have reduced the value of the Group's assets and liabilities in SEK with fixed interest rates, including derivatives, by approximately SEK 450 M. The corresponding effect on the value of the Group's positions in foreign currency would be approximately SEK 60 M. An increase in interest rates of one percentage point would reduce the Group's net profit from financial operations by approximately SEK 100 M. Expenses Expenses rose by SEK 151 M to SEK 2,787 M, or by 6 percent compared with the corresponding period of 1997. The increase is attributable to costs resulting from the merger of Föreningsbanken and Sparbanken Sverige. Change-over costs amounted to SEK 174 M and related primarily to IT and marketing costs. Excluding change-over costs, expenses declined by 1 percent. Staff costs amounted to approximately SEK 1,379 M, an increase of one percent compared with the first quarter of 1997. Excluding change-over costs, staff costs declined by 4 percent. On March 31, 1998 there were 11,806 full-time employees, 648 less than year- end 1997, of whom 328 are related to the branch sales to independent savings banks during the first quarter. Loan losses and problem loans Loan losses amounted to SEK 425 M (492) during the year's first three months, a decrease of 14 percent compared with the corresponding period of 1997. The loan loss level was 0.3 percent (0.4). The Group's problem loans, net, amounted to SEK 6,160 M (7,596). Specifications of loan losses and problem loans are provided in Notes 3 and 4. Capital adequacy ratio The capital adequacy ratio amounted to 11.8 percent on March 31, 1998, of which the primary capital ratio was 6.2 percent. First-quarter profit is included in the capital base. Market risks as a share of the total capital adequacy ratio amounted to 0.4 percentage points. Financial companies group SEK M March 31, December 31, 1998 1997 Primary capital 21,677 21,689 Supplementary capital 20,942 21,427 Less shares, etc. - 1,252 -1,433 Capital base 41,367 41,683 Risk-weighted amount for credit 338,973 342,704 risks Risk-weighted amount for market 10,819 11,710 risks Total risk-weighted amount 349,792 354,414 Capital adequacy ratio, percent 11.8 11.8 Primary capital ratio, percent 6.2 6.1 As of March 31, 1998 the financial companies group includes the FöreningsSparbanken Group, Eskilstuna Rekarne Sparbank AB, FöreningsSparbanken Sjuhärad AB (formerly Sparbanken Borås AB) and Aktia Sparbank Ab in Finland. The Group's insurance companies and Mandamus are not included. Highlights after March 31, 1998 AGM approves dividend of SEK 6.00 per share plus shares in Mandamus The Annual General Meeting on April 23 approved the cash dividend of SEK 6.00 per share and the distribution of all the shares in Mandamus to the Bank's shareholders. Sale of operating properties To create greater flexibility at the local level, among other reasons, the Bank has decided to sell the majority of the local properties used in its operations. The sale comprises around 250 properties with a book value of approximately SEK 1.8 billion. The disposals initially were expected to generate capital gains of no less than SEK 300 M during the first half of 1998. On April 21 the Bank's two operating properties in Gothenburg and Malmö were sold, resulting in a capital gain of slightly more than SEK 400 M during the second quarter. The sale of other operating properties is proceeding according to plan and is expected to result in further capital gains in the second quarter. Skills development intensified In order to increase the rate of change within the Bank without affecting the income generated and at the same time raise employees' skills, a decision was made to allocate up to SEK 15,000 per employee, or a maximum of SEK 200 M, within the framework of change-over costs. The allocations will be used to pay for replacement staff in 1998 and 1999 so that employees can receive intensive training in, among other things, customer-oriented IT and sales. Stockholm, April 27, 1998 FöreningsSparbanken AB (publ) Reinhold Geijer President and CEO Key ratios for the Group January-March FöreningsSparbank Sparbanken en Sverige 1998 1997 1997 pro forma Return on equity, % 17.7 16.4 18.2 Earnings per share, SEK 3.31 3.22 3.36 Operating profit per share, 3.33 3.26 3.40 SEK Adjusted equity per share, 72.33 77.45 75.44 SEK I/E ratio before loan 1.74(1.85)* 1.79 1.83 losses I/E ratio after loan losses 1.51(1.59)* 1.51 1.59 Capital adequacy ratio, % 11.8 n. a. 12.4 Primary capital ratio, % 6.2 n. a. 6.8 Loan loss ratio. net, % 0.3 0.4 0.3 * Excluding change-over costs Return on equity has been calculated as profit after estimated tax for the period in relation to average shareholders' equity. Profit and loss Förenings Chan Sparba Förenings Spar accounts January- Sparbanken ge nken - - March, SEK M Group Sverig Sparbanke bank e n en Group Sver ige 1998 1997 % 1997 1998 1997 pro forma Interest receivable 11,350 11,754 - 3 9,658 5,866 3,91 3 Interest payable - 8,298 - - 2 - - 3,746 - 8,439 7,253 2,50 4 Net interest income Note 1 3,052 3,315 - 8 2,405 2,120 1,40 9 Dividends received 13 24 - 46 24 13 24 Commissions receivable 1,276 1,213 5 967 944 630 Commissions payable - 248 - 230 8 - 185 - 156 - 76 Net commissions 1,028 983 5 782 788 564 Net profit on financial operations Note 2 142 71 100 117 111 90 Other operating income 605 328 84 233 589 312 Total income 4,840 4,721 3 3,561 3,621 2,38 9 Administrative expenses - Staff costs 1,379 1,369 1 1,014 1,252 888 - Other 1,239 1,132 9 822 1,123 712 Depreciation and 100 91 10 64 82 46 write-down of tangible assets Amortization of Group 69 44 57 44 25 - goodwill Total expenses 2,787 2,636 6 1,944 2,482 1,64 6 Of which change-over 174 - - 170 - costs Profit before loan 2,053 2,085 - 2 1,617 1,139 743 losses Loan losses, net Note 3 - 422 - 425 - 1 - 309 - 292 - 147 Change in value of property taken over Note 3 - 3 - 67 - 96 7 0 7 Operating profit 1,628 1,593 2 1,315 847 603 Appropriations - 2 - 2 0 - 2 - 2 - 2 Tax on profit for the - 460 - 457 1 - 379 - 210 34 period Profit for the period 1,166 1,134 3 934 635 635 Note 1. of which charge for 151 169 - 11 113 151 113 deposit guarantee Note 2. Specification of net profit on financial operations FöreningsSpa Sparb Fören Spar banken Group anken ingsS banke Sveri parba n ge nken Sveri Group ge SEK M 1998 1997 1997 1998 1997 pro forma Capital gains/losses Shares and - 3 131 123 - 19 103 participations Interest-bearing 112 73 89 88 88 securities Other financial 1 2 2 2 1 instruments Total 110 206 214 71 192 Unrealized changes in value Shares and 66 17 26 66 43 participations Interest-bearing - 85 - 222 - 166 - 81 - 188 securities Other financial - - 3 - 3 0 - 4 instruments Total - 19 - 208 - 143 - 15 - 149 Change in exchange rates 51 73 46 55 47 Total 142 71 117 111 90 Note 3. Specification of loan losses, net, and the change in the value of property taken over Förenings Sparbanken Förenings- Spar-banken Sparbanken Sverige Sparbanken Sverige Group Group 1998 1997 1997 1998 1997 pro forma Claims assessed individually The period's 656 1,063 736 448 513 write-down for established loan losses Reversal of - 457 - 863 - 598 - 321 - 470 provisions previously made for anticipated loan losses The period's 662 572 468 355 310 provisions for anticipated loan losses Recoveries - 101 - 107 - 85 - 48 - 64 from previous years' established loan losses Recovered - 320 - 254 - 226 - 177 - 160 provisions for anticipated loan losses The period's 440 411 295 257 129 net expense for individually assessed claims Claims assessed collectively The period's 21 23 23 21 22 established loan losses Recoveries - 3 - 4 - 4 - 3 - 1 from previous years' Allocations/wi - 44 - 1 - 1 1 1 thdrawals from loan loss reserve The period's - 26 18 18 19 22 net expense for collectively assessed claims Contingent liabilities The period's 8 - 4 - 4 16 - 4 net expense for other contingent liabilities The period's net loan loss expense 422 425 309 292 147 Change in the 3 67 - 7 0 - 7 value of property Loan losses, 425 492 302 292 140 net, and change Note 4. Group The Bank Problem loans as of March 31 1998 1997 1997* 1998 1997* SEK M pro forma Doubtful claims, gross 11,690 13,872 10,705 6,483 5,579 Provisions for anticipated loan 6,050 7,296 5,696 3,955 3,689 losses Doubtful claims, net 5,640 6,576 5,009 2,528 1,890 Claims with interest concessions 520 1,020 727 270 418 Problem loans, net 6,160 7,596 5,736 2,798 2,308 Unsettled claims for which 2,398 1,994 1,508 261 234 accrued interest has been entered as income Property taken over to protect claims: - Buildings and land 3,011 6,185 46 41 36 - Shares and participations 29 442 84 16 84 - Other 5 11 6 5 6 Total 3,045 6,638 136 62 126 Provision ratio for doubtful 52% 53% 53% 61% 66% claims Doubtful claims as % of total 1.1% 1.3% 1.3% 1.1% 1.3% lending * Refers to the former Sparbanken Sverige Quarterly profit trend for the Group SEK M Q1, 1998 Q4, Q3, Q2, 1997Q1, 1997 Q4, 1997 1997 1996 pro forma pro forma Net interest income 3,052 3,143 3,027 3,306 3,315 3,699 * Commissions, net 1,028 1,106 1,037 1,099 983 945 Financial 142 110 96 653 71 329 operations, net Other income 618 227 284 502 352 402 Total income 4,840 4,586 4,444 5,560 4,721 5,375 Staff costs 1,379 2,066 1,509 1,467 1,369 1,406 Other expense 1,408 1,949 1,412 1,471 1,267 1,502 Total expenses** 2,787 4,015 2,921 2,938 2,636 2,908 Of which change-over 174 871 297 67 - - costs Profit before loan 2,053 571 1,523 2,622 2,085 2,467 losses Loan losses, incl. - 425 - 12 - 477 - 531 - 492 - 677 change in value Write-down of - - - - - - acquired assets 2,889 Operating profit 1,628 - 1,046 2,091 1,593 1,790 2,330 *Of which deposit 151 170 171 170 169 86 guarantee fee **Expenses excl. 2,613 3,144 2,624 2,871 2,636 2,908 change-over costs Balance sheets Group The Bank SEK M 3/31 12/31 3/31 3/31 12/31 3/31 1998 1997 1997* 1998 1997 1997* Loans to the public 503,779 499,11 389,39 210,896 210,401 135,708 0 2 Loans to credit 98,903 89,202 86,094 111,997 101,075 89,552 institutions Interest-bearing 44,237 29,295 18,671 51,637 46,097 42,701 securities - Financial fixed 5,919 5,954 8,544 8,324 8,823 17,413 assets - Financial current 38,318 23,341 10,127 43,313 37,274 25,288 assets Other assets 48,892 50,768 48,114 52,044 57,683 44,456 Total assets 695,811 668,37 542,27 426,574 415,256 312,417 5 1 Deposits and 205,403 216,94 156,89 203,393 217,008 154,882 borrowings from the 1 3 public Amounts owed to 114,800 99,900 76,277 119,579 105,377 78,186 credit institutions Debt securities in 275,047 251,29 222,34 29,965 17,758 17,963 issue 4 2 Subordinated 22,741 23,321 17,097 15,374 15,655 9,967 liabilities Other liabilities 52,445 49,542 48,677 40,115 38,779 36,059 Shareholders' equity 25,375 27,377 20,985 18,148 20,679 15,360 Total liabilities, 695,811 668,37 542,27 426,574 415,256 312,417 provisions and 5 1 shareholders' equity * Refers to the former Sparbanken Sverige Derivatives The Group uses derivatives in the normal course of business and for the purpose of hedging certain positions with regard to the value of equities, interest rates and currencies. The following specification is prepared in accordance with the directives of the Swedish Financial Supervisory Authority and includes all derivatives in the Group. As a chief rule, derivatives are reported at fair value. Exceptions are made for derivatives that are accounted for as hedges. Deviations between book and fair value reported below correspond to opposite deviations for other positions that are included in the portion of the Group's operations which are covered by hedging accounting. Specification of the Group's derivatives as of March 31, 1998 Derivatives with positive fair values or nil value Interest- Currency- Equity- related related related SEK M Fair Book Fair Book Fair Book value value value value value value Derivatives reported entirely 7,850 7,079 7,185 5,010 1,682 1,242 or in part in the balance sheet Derivatives not reported in - - 79 - - - the balance sheet Derivatives with negative fair values Interest- Currency- Equity- related related related SEK M Fair Book Fair Book Fair Book value value value value value value Derivatives reported entirely 8,857 8,656 7,935 5,959 1,888 1,447 or inpart in the balance sheet Derivatives not reported in 18 - 68 - - - the balance sheet Financial information The Group's financial reports can be accessed on FöreningsSparbanken's home page on the Internet at www. foreningssparbanken.se or ordered by telephone at +46-20-22 11 22 (press 3# followed by 60#) or at the nearest branch of FöreningsSparbanken. Current financial information is also published in Sweden on TV4's text-TV, page 182. The next issue of the Swedish shareholder magazine Banktidningen will be published in September 1998. For further information, please contact: Nils-Fredrik Nyblæus, Executive Vice President, Accounting and Financial Control, telephone +46-8-5859 2532 Roland Petersson, Investor Relations, telephone +46-8-5859 2968 Statement by President and CEO Reinhold Geijer: "I am very pleased to see the stable development we are reporting, despite that we are in the midst of an intensive stage of our merger work. The measures we are now taking are laying the foundation for the Bank's positive long-term development." ------------------------------------------------------------ http://www.bit.se/bitonline/1998/10/20/19981020BIT00350/0427dele.doc

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