Interim report Swedbank

Interim report for FöreningsSparbanken (Swedbank) January - March 1999 April 27, 1999 Intensive process of change and increased business volumes during first quarter Operating profit rose to SEK 2,458 M (1,628) Net interest income stabilized Loan losses declined by 39 percent Problem loans, net, declined to SEK 3,909 M (6,160 on March 31, 1998) Earnings per share SEK 4.71 (3.31) Strong increase in entire household savings area during first quarter Further increase in both bank and mortgage lending Strong sales of new unit-linked insurance and bank cards Strong growth in FöreningsSparbanken via the Internet and Telephone Additional branch sales to independent savings banks Another jointly owned bank to be established Earlier announced property sales affected profit by SEK 1,350 M Business volumes rose during first quarter Good growth in entire household savings area Savings by customers in FöreningsSparbanken continued to rise during the first quarter of 1999. In total, volume in the savings area increased by approximately SEK 7.5 billion. Household deposits rose Deposits from households amounted to approximately SEK 122 billion on March 31, 1999, an increase of slightly over SEK 3 billion since the beginning of the year. Robur's fund assets the highest ever Assets under management in Robur's funds amounted to SEK 208 billion on March 31, 1999, an increase of approximately SEK 15 billion or slightly over 8 percent since the beginning of the year. The large part of Robur's large broad-market funds outperformed the index by approximately 3 percentage points during the first quarter. Net contributions to Robur's funds during the first quarter of 1999 totaled approximately SEK 4 billion, of which approximately SEK 2 billion was attributable to insurance savings in SparFond. In addition to fund management, the Robur Group includes approximately SEK 30 billion in discretionary asset management. At the end of the first quarter Robur had 2.3 million customers (2.2 million on March 31, 1999). High demand for unit-linked insurance Sales of unit-linked insurance continued to rise substantially. During the first quarter SparFond's assets under management increased by over SEK 3 billion to approximately SEK 21 billion on March 31, 1999. On a moving 12- month basis, SparFond's market share for unit-linked insurance policies was slightly over 33 percent as of December 31, 1998, making it the leader in Sweden. At the end of the first quarter of 1999 SparFond had approximately 272,000 policies, compared with approximately 182,000 on December 31, 1998. Employees covered by the pension plan negotiated between the Swedish Employers' Confederation (SAF) and the Swedish Trade Union Confederation (LO) accounted for approximately 70,000 of the increase. In addition, SparFond has approximately 900,000 group life insurance policyholders. Lending Significant increase in both bank and mortgage lending The Group's loans to the public and credit institutions other than banks, excluding repurchase agreements (repos), amounted to SEK 504 billion at the end of the first quarter of 1999, an increase of approximately SEK 10 billion or 2 percent compared with year-end 1998. Compared with the first quarter of 1998, lending rose by approximately SEK 29 billion or 6 percent. The underlying increase was approximately SEK 34 billion or 7 percent, since approximately SEK 5 billion in loans was transferred to independent savings banks and jointly owned banks after the first quarter of 1998. Loans to the household sector amounted to approximately SEK 241 billion, an increase of SEK 5 billion or 2 percent during the first quarter of 1999. Business loans also rose during the first quarter of 1999. Lending, the Group, SEK billion March 31Dec. 31March 31 X 1999 1998 1998 Households 241.1 236.0 226.8 of which Spintab 190.1 184.7 174.2 Real estate management 122.9 122.1 116.4 Credit institutions excl. banks 0.2 1.1 2.6 Retail, hotels, restaurants 15.7 16.3 17.6 Construction 7.0 8.6 9.4 Manufacturing 12.6 13.6 13.8 Transportation 4.6 4.2 4.0 Forestry and agriculture 20.6 20.6 21.2 Other service businesses 12.4 12.2 11.1 Other business lending 35.6 30.6 27.6 Municipalities * 16.4 16.4 16.9 Other 14.5 12.4 7.7 Total before transferred loans 503.6 494.1 475.1 Less: transferred loans - - - 5.4 Total 503.6 494.1 469.7 Repurchase agreements (repos) 13.5 10.1 26.8 Total lending 517.1 504.2 496.5 *Municipal companies not included Strong demand for convenience services A growing number of customers are benefiting from FöreningsSparbanken's convenience services, such as FöreningsSparbanken via the Internet and FöreningsSparbanken via Telephone, as well as bank cards with integrated CASH functions. 220,000 customers of FöreningsSparbanken via the Internet FöreningsSparbanken via the Internet and FöreningsSparbanken via Telephone attracted a substantial number of customers in 1998. During the first quarter of 1999 the growth rate increased. At the end of April 1999 FöreningsSparbanken via the Internet had approximately 220,000 customers. At present, approximately 3,000 customers are being added a week, compared with an average of just over 2,000 a week in 1998. The number of Internet payments rose substantially during the first quarter of 1999, to 2.8 million from 2.4 million in the fourth quarter of 1998, an increase of 17 percent. In March FöreningsSparbanken's Internet platform was upgraded to serve over a million customers. The number of customers who use FöreningsSparbanken via Telephone with personal assistance has increased thus far in 1999 by around 64,000 or 10 percent and as of March 31 amounted to approximately 663,000 (March 31, 1998: approximately 410,000), making it Sweden's largest telephone bank. The number of customers who use the automated service amounts to approximately 1.7 million (March 31, 1998: approximately 1.6 million). NetTrade FöreningsSparbanken's on-line equity trading service, NetTrade, had approximately 15,000 customers at the end of the first quarter of 1999, an increase of approximately 5,000 customers or 50 percent since the beginning of the year. At present the number of customers is rising by approximately 2,500 a month, many of whom are new to the Bank. The average NetTrade customer made 20 transactions in 1998, compared with an average of less than one securities transaction a year for the Bank's other customers. Major growth in cards The number of customers with bank cards rose by around 90,000 or more than 4 percent during the first quarter of 1999 to slightly over 2.1 million. The number of card transactions also rose, to just over 28 million, an increase of seven million or over 30 percent compared with the first quarter of 1998. The number of CASH function users was around 210,000 on March 31, 1999, an increase of approximately 60,000 during the first quarter of 1999. The number of cards in issue with the CASH function, including bank cards with an integrated CASH function, rose by about 400,000 during the first quarter to 800,000, of which around 700,000 are bank cards with an integrated CASH function. As of March 31, 1999 there were around 30,000 points of sale where the CASH card was accepted, an increase of around 5,000 from the beginning of the year. IT investments level off in 1999 The considerable resources that will be invested in information technology again in 1999 are an important element in the efforts to realize the Bank's vision, that 80 percent of branch employees' time will be devoted to active customer work. In 1999 the Group's IT expenses are expected to remain largely in line with 1998. The first half of the year is expected to bear a higher share of the expenditures than the second. The Group's total IT expenses during the first quarter of 1999 rose by approximately 10 percent compared with the corresponding period of 1998. During the first quarter of 1999 IT expenses before the deduction of income from independent savings banks and jointly owned banks amounted to approximately SEK 650 M, which was in line with the quarterly average for 1998. Because the Bank is temporarily working with three large systems at the same time (the former Föreningsbanken system, the former Sparbanken system and the new shared FöreningsSparbanken system), additional costs will be incurred during the year's first three quarters. At the end of May the conversion to the new shared branch system will be completed, followed during the summer by the implementation of the new shared GP 2000 platform. Profit impacted by capital gains The Group's operating profit rose by SEK 1,172 M compared with the fourth quarter and amounted to SEK 2,458 M for the first quarter of 1999, SEK 1,286 M for the fourth quarter of 1998 and SEK 1,628 M for the first quarter of 1998. Profit includes capital gains of SEK 1,350 M on the sale of the Bank's IT property and the Gallerian complex in Stockholm. Profit in the first and fourth quarter of 1998 was also impacted by nonrecurring income, including capital gains of SEK 338 M and SEK 342 M respectively. The return on equity amounted to 23.3 percent (17.7 during the first quarter of 1998) and earnings per share to SEK 4.71 kronor (3.31 during the first quarter of 1998). Profit per business area X Retai Swed Asset O Gro l bank t up h e r X banki Mark mgmt. ng ets incl. X insur ance SEK M 1999 1998 1999 1 199 1998 1999 1998 1999 1998 9 9 9 8 January - March Income 2,902 3,14 584 4 573 467 1,608 751 5,667 4,840 8 7 4 Internal sales commissions 373 309 -69 - - -252 5 304 7 Expenses - - -277 - - -110 -597 -367 -2,951 -2,787 1,928 2,05 2 149 6 5 4 Profit before loan losses 1,347 1,40 238 1 120 105 1,011 384 2,716 2,053 1 6 3 Loan losses -268 -400 -1 0 11 -25 -258 -425 Profit after loan losses 1,079 1,00 237 1 120 105 1,022 359 2,458 1,628 1 6 3 Estimated share- holders' 18,28 17,4 5,223 4 2,3 1,641 2,589 2,501 28,431 26,376 equity 5 00 , 34 8 3 4 Return on equity after tax 17.0% 16.6 13.1% 9 14. 18.4% 23.3% 17.7% % . 8% 7 % The reported profit per business area includes both external and internal income and expenses. Internal sales commissions refer to market-based compensation paid to customer service units for brokered transactions. Shareholders' equity has been distributed according to capital adequacy regulations, i.e. in relation to risk-weighted assets plus unamortized goodwill in each business area. The return on equity for the business areas is calculated after standard tax and for the Group after reported tax. Retail Banking Retail Banking comprises Local banks, Spintab, FöreningsSparbanken Cards, FöreningsSparbanken Finans and jointly owned banks in Sweden. Swedbank Markets Swedbank Markets comprises the Bank's capital market, international and large corporate customer operations, as well as equity trading and corporate finance. Asset Management Asset Management comprises Robur, including the Group's discretionary asset management, and SparFond from September 30, 1999. Other Other comprises income and expenses that do not fall under any of the business areas. This includes FöreningsSparbanken Fastighetsbyrå (real estate brokerage), computer services for independent savings banks and jointly owned banks, capital gains and expenses for the Resource Bank outplacement program. Group Net interest income rose compared with fourth quarter 1998 The Group's net interest income for the first quarter of 1999 amounted to SEK 2,863 M, an increase of SEK 35 M compared with the fourth quarter of 1998. Net interest income during the first quarter of 1998 amounted to SEK 3,052 M. Relative to the first quarter of 1998, net interest income declined by SEK 189 M, of which SEK 142 M is due to branch transfers. Net commission income rose Net commission income amounted to SEK 1,081 M, an increase of SEK 42 M or 4 percent compared with the fourth quarter of 1998. Relative to the first quarter of 1998, net commission income rose by SEK 53 or 5 percent. Commissions receivable from fund contributions rose by SEK 81 M or 18 percent to SEK 538 M, from insurance savings by SEK 50 M or 179 percent to SEK 78 M, and from payment operations by SEK 40 M or 13 percent to SEK 350 M compared with the first quarter of 1998. Commissions receivable rose by SEK 17 M or 14 percent due to an increase in the Bank's market share for trading on the Stockholm Stock Exchange and a higher turnover on the stock market during the first quarter of 1999. Deposit and lending commissions declined due to, among other things, the abolishment of the tax-subsidized public savings account scheme during the first half of 1998. Deposit commissions declined by SEK 28 M or over 60 percent compared with the first quarter of 1998. Commissions receivable from real estate brokerage operations declined as well. Commissions payable to independent savings banks and jointly owned banks for brokering mortgage loans rose by approximately SEK 25 M or 30 percent to SEK 104 M. Net commission income earned by the local banks rose by 10 percent compared with the fourth quarter of 1998. Net profit on financial operations The Group's net profit on financial operations amounted to SEK 105 M during the first quarter of 1999, SEK 326 M during the fourth quarter of 1998 and SEK 142 M during the first quarter of 1998. The Group's holdings of interest-bearing securities had a book value of approximately SEK 70 billion on March 31, 1999, approximately SEK 60 billion on December 31, 1998 and approximately SEK 44 billion on March 31, 1998. Of the value on March 31, 1999, approximately SEK 5 billion related to financial fixed assets. The increase in book value compared with the first quarter of 1998 primarily stems from the replacement of Bank's holding of Spintab bonds, which is eliminated in the Group, with bonds from other institutions, since bonds issued by Group companies are no longer eligible for refinancing with Sveriges Riksbank. In addition, liquidity was especially high at the end of the first quarter of 1999 pending a large volume of loan refinancings by Spintab in April. Property sales raised other operating income Other operating income amounted to SEK 1,590 M, an increase of SEK 1,020 M compared with the fourth quarter of 1998 and SEK 985 M compared with the first quarter of 1998. The increase is primarily due to capital gains of approximately SEK 1,350 M from the sale of the Gallerian complex and the Bank's IT property, after provisions for the ongoing sale of the Bank's property commitments in London and Luxembourg. The first and fourth quarters of 1998 include nonrecurring income of SEK 338 M and SEK 342 M, respectively. As a result, other income during the first quarter of 1999, excluding nonrecurring income, was in line with both the first and fourth quarters of 1998. Expenses declined compared with fourth quarter 1998 Expenses declined by SEK 500 M to SEK 2,951 M compared with the fourth quarter of 1998. Compared with the first quarter of 1998, expenses rose by SEK 164 M. Expenses incurred by the local banks decreased by 13 percent compared with the fourth quarter of 1998. Staff costs affected by Resource Bank Staff costs, including the costs of the Resource Bank outplacement program, declined by SEK 136 M to SEK 1,419 M compared with the fourth quarter of 1998. Compared with the first quarter of 1998, staff costs rose by SEK 40 M. The number of full-time positions was 11,539 as of March 31, 1999, a decrease of 1,210 since December 31, 1996. Since that date 2,175 employees have left the Group in connection with the merger and 690 have left due to branch transfers and other eliminated operations. During the same period 860 new employees have been hired and 180 have been added to the Group as the result of acquisitions, including SparFond and FöreningsSparbanken Öland.. The number of temporary employees rose during the same period by 615 to 1,014 on March 31, 1999. Temporary staff have been hired in part to give full-time staff the time to train in using the new systems. The current staff includes around 350 individuals who have agreed to retire in 1999. The aim is to reduce the number of temporary employees by around 400 by the start of 2000. The Resource Bank is FöreningsSparbanken's support organization to help find jobs for employees who have agreed to leave the Bank by December 31, 1999. As of March 31, 1999 there were 1,059 people in the Resource Bank, a decrease of 299 since the Resource Bank was established in mid-1998. During the first quarter of 1999 141 people left the Resource Bank for new employment outside FöreningsSparbanken. Other employees who are utilizing the Resource Bank will be leaving over the course of the year. Staff costs for the Resource Bank amounted to SEK 133 M during the first quarter of 1999. Depreciation Depreciation of properties declined by SEK 33 M during the first quarter of 1999 compared with the first quarter of 1998. The decrease was attributable to the sale of operating properties. Equipment depreciation rose, however, due to investments in ATM's, personal computers and other computer equipment owing to the new GP 2000 technical platform. Other expenses Other expenses amounted to SEK 1,354 M, compared with SEK 1,709 M during the fourth quarter of 1998 and SEK 1,239 M during the first quarter of 1998. The portion of IT expenses included in other expenses, i.e. for consultants, machine rentals, licensing fees, etc., rose by SEK 92 M or approximately 40 percent compared with the first quarter of 1998. On the other hand, corresponding expenses decreased by SEK 49 M or approximately 13 percent compared with the fourth quarter of 1998. Data communications expenses rose due to the use of three parallel communications systems, while marketing expenses declined. Other expenses during the first quarter of 1999 include expenses for the strategic launch of the CASH card of approximately SEK 30 M and for the personal activation and security devices for the Internet bank of approximately SEK 10 M. Continued decline in loan losses and problem loans Loan losses amounted to SEK 258 M during the first quarter of 1999, SEK 26 M during the fourth quarter of 1998 and SEK 425 M during the first quarter of 1998. The loan loss level was 0.2 percent (0.3 during the first quarter of 1998). The Group's problem loans, net, amounted to SEK 3,909 M on March 31, 1999, SEK 4,556 M on December 31, 1998 and SEK 6,160 M on March 31, 1998. A specification of loan losses and problem loans is provided in Notes 3 and 4. Tax charge 32 percent in first quarter The tax charge for the first quarter of 1999 was almost 32 percent, instead of the usual 28 percent. This is primarily because the taxable value of the properties sold during the quarter was lower than book value. Low international risk exposure and low interest rate risk FöreningsSparbanken's risk exposure in Asia, Eastern Europe and Latin America is low. A specification of the exposure in specific countries and regions is provided in an appendix to this report. An increase in market interest rates of one percentage point as of March 31, 1999 would have reduced the value of the Group's assets and liabilities with fixed interest rates, including derivatives, by approximately SEK 470 M. As of December 31, 1998 the corresponding figure was approximately SEK 490 M and as of March 31, 1998 it was approximately SEK 510 M. The decrease in value for positions in SEK would have amounted to approximately SEK 450 M as of March 31, 1999, approximately SEK 440 M as of December 31, 1998 and approximately SEK 450 M as of March 31, 1998. The corresponding decrease for positions in foreign currency would have been approximately SEK 20 M as of March 31, 1999, approximately SEK 50 M as of December 31, 1998 and approximately SEK 60 M as of March 31, 1998. An increase in interest rates of one percentage point would have reduced the Group's net profit from financial operations by approximately SEK 200 M as of March 31, 1999, approximately SEK 190 M as of December 31, 1998 and approximately SEK 100 M as of March 31, 1998. Capital adequacy ratio 11.3 percent The capital adequacy ratio amounted to 11.3 percent on March 31, 1999 (11.8), of which the primary capital ratio was 6.2 percent (6.2). Market risks as a share of the total capital adequacy ratio amounted to 0.3 percentage points (0.4). Profit for the first quarters of 1998 and 1999 is not included in the capital base. X March 31 Dec. 31 March 31 SEK M 1999 1998 1998 Primary capital 24,137 23,625 21,677 Supplementary capital 22,312 23,266 20,942 Less shares, etc. - 2,801 - 1,970 - 1,252 Capital base 43,648 44,921 41,367 Risk-weighted amount for credit risks 376,595 371,374 338,973 Risk-weighted amount for market risks 10,933 15,057 10,819 Total risk-weighted amount 387,528 386,431 349,792 Capital adequacy ratio, % 11.3 11.6 11.8 Primary capital ratio, % 6.2 6.1 6.2 As of March 31, 1999 the FöreningsSparbanken financial companies group includes the FöreningsSparbanken Group, Eskilstuna Rekarne Sparbank AB, FöreningsSparbanken Sjuhärad AB, FöreningsSparbanken Söderhamn AB, Aktia Sparbank Ab in Finland, Sparebank 1 Group in Norway and AS Hansapank in Estonia. The Group's insurance companies are not included. Year 2000 compliance The Group's year 2000 preparations are progressing according to plan. The work is now at a stage where external tests and contingency plans are the most important aspects. On March 31, 1999 100 percent of systems were analyzed, 98 percent modified and 92 percent returned to production. The goal, that IT compliance will be completed by June 30, 1999, remains unchanged. Alliance with independent savings banks and jointly owned banks In connection with the merger between Föreningsbanken and Sparbanken Sverige, independent savings banks and jointly owned banks were offered the opportunity to acquire the branches of the former Föreningsbanken within their respective operating areas. Four of the savings banks that at the time declined acquisitions have now signed agreements on branch transfers since the start of the year. Kinda Sparbank has acquired the branch operations in Kisa and Rimforsa. During the second quarter of 1999 Södra Hestra Sparbank will acquire the branch operations in Hyltebruk and Torup. Skurups Sparbank will acquire the branch operations in Skurup and Rydsgård during the same period. Consideration for the transfers is included in the acquisition analysis and therefore does not impact profit for the period. An additional jointly owned savings bank will be formed; see below. Nordic/Baltic strategy Norway In 1998 FöreningsSparbanken reached an agreement to acquire shares in Norway's SpareBank 1 Group. The acquisition, which was completed during the first quarter of 1999, means that the alliance between FöreningsSparbanken and SpareBank 1 Group is entering a new stage. In February SEK 740 M was paid for approximately 25 percent of the shares in Sparebank 1 Group. Baltic region At the end of the first quarter FöreningsSparbanken held shares corresponding to 49.9 percent in Estonia's Hansapank, the leading bank in the Baltic region. Concurrent with an economic improvement in the Baltic states, Hansapank was able to increase its profit for the first quarter of 1999. Finland On March 25, 1999 SparFond filed an application with the Ministry of Social Welfare and Health Care in Finland for a concession for a wholly owned subsidiary to sell unit-linked insurance in Finland. Highlights after March 31, 1999 Agreement with Bergslagens Sparbank An agreement has been reached with Bergslagens Sparbank on the savings bank's acquisition of the branch operations in Kopparberg. In addition, provided approval is received from the savings bank's principals and the Financial Supervisory Authority, an agreement has been reached to convert Bergslagens Sparbank to a limited company with FöreningsSparbanken as co- owner of 48 percent of the capital and voting rights. The remaining 52 percent will be owned by Sparbanksstiftelsen Bergslagen, a savings bank foundation. The new banking company intends to acquire the banking operations in Lindesberg, Fellingsbro, Nora and Frövi. Dividend and bonus issue The Bank's Board of Directors is proposing that the Annual General Meeting approve a cash dividend of SEK 7 (6) per share and a bonus issue of 1:2 through a transfer of restricted funds to the share capital. The last day for trading in the Bank's share with the right to the dividend is April 29, 1999. The proposed record day for the right to participate in the bonus issue is June 4, 1999. The last day for trading in the Bank's share with the right to participate in the bonus issue is June 1, 1999. Annual General Meeting FöreningsSparbanken's Annual General Meeting will be held at 1:00 p.m. on April 29, 1999 at the Royal Dramatic Theater in Stockholm. Stockholm, April 27, 1999 FöreningsSparbanken AB (publ) Reinhold Geijer President and CEO This interim report has not been reviewed by the Bank's auditors. Statement by President and CEO Reinhold Geijer: "The final stage of the merger to one bank has now begun at the same time that the pace of change is increasing as we go from the old to the new world. Against this backdrop, I feel that our profit is fairly good." Key ratios for the Group, January - March 1999 1998 Return on equity, % 23.3 17.7 Earnings per share, SEK 4.71 3.31 Operating profit per share, SEK 5.03 3.33 Equity per share, SEK 79.64 72.11 I/E ratio before loan losses 1.92 1.74 I/E ratio after loan losses 1.77 1.51 Capital adequacy ratio, % 11.3 11.8 Primary capital ratio, % 6.2 6.2 Loan loss ratio, net, % 0.2 0.3 Profit and loss accounts Group The Bank SEK M 1999 1998 1998 1999 1998 1998 Q1 Q4 Q1 Q1 Q4 Q1 Interes 10,012 10,707 11,350 4,973 5,448 5,866 t receiva ble Interes 7,149 7,879 - 8,298 3,219 3,761 - 3,746 t payable Net Note 1 2,863 2,828 3,052 1,754 1,687 2,120 interes t income Dividen 28 0 13 28 6,016 13 ds receive d Commiss 1,382 1,294 1,276 1,028 991 944 ions receiva ble Commiss - 301 - 255 - 248 - 174 - 158 - 156 ions payable Net 1,081 1,039 1,028 854 833 788 commiss ion income Net profit on financi al operati Note 2 105 326 142 107 284 111 ons Other 1,590 570 605 1,539 552 589 operati ng income Total 5,667 4,763 4,840 4,282 9,372 3,621 income Adminis trative expense s - Staff - 1,419 - 1,555 - 1,379 - 1,310 - 1,421 - 1,252 costs - Other - 1,354 - 1,709 - 1,239 - 1,195 - 1,554 - 1,123 Depreci ation and write- down of tangibl - 94 - 104 - 100 - 85 - 90 - 82 e assets Amortiz - 84 - 83 - 69 - 25 - 26 - 25 ation of goodwil l Total - 2,951 - 3,451 - 2,787 - 2,615 - 3,091 - 2,482 expense s Profit 2,716 1,312 2,053 1,667 6,281 1,139 before loan losses Loan Note 3 - 259 - 12 - 422 - 235 - 101 - 292 losses, net Change in value of propert y taken Note 3 1 - 14 - 3 0 - 3 0 over Write- - 43 down of financi al assets Operati 2,458 1,286 1,628 1,432 6,134 847 ng profit Appropr - 22 50 - 2 iations Tax - 777 - 309 - 460 Profit 1,659 1,027 1,166 for the period Note 1. of which deposit guarantee fee- 143- 146 - 152- 140- 145 - 151 Note 2. Specification of net profit on financial operations Group Bank SEK M 1999 1998 1998 1999 1998 1998 Q1 Q4 Q1 Q1 Q4 Q1 Capital gains Shares and participations - 16 - 45 - 3 - 26 - 54 - 19 Interest-bearing securities - 56 - 45 112 - 54 - 59 88 Other financial instruments - 1 1 1 1 1 2 Total - 73 - 89 110 - 79 - 112 71 Unrealized changes in value Shares and participations 88 193 66 77 172 66 Interest-bearing securities - 14 148 - 85 3 176 - 81 Other financial instruments 3 1 0 3 1 0 Total 77 342 - 19 83 349 - 15 Exchange rate fluctuations 101 73 51 103 47 55 Total 105 326 142 107 284 111 Note 3. Specification of loan losses, net, and change in the value of property taken over Group Bank SEK M 1999 1998 1998 1999 1998 199 8 Q1 Q4 Q1 Q1 Q4 Q1 Claims assessed individually The period's write-down for 371 1,321 656 234 918 448 established loan losses Reversal of - 266 - 714 - 457 - 182- 445 - provisions previously made for 321 anticipated loan losses The period's provisions for 920 223 662 376 137 355 anticipated loan losses Recoveries from previous - 130 - 114 - 101 - 56 - 66 - years'established loan losses 48 Recovered provisions for - 650 - 645 - 320 - 100- 389 - anticipated loan losses 177 The period's net expense for 245 71 440 272 155 257 individually assessed claims Claims assessed collectively The period's established loan 20 35 21 20 34 21 losses Recoveries from previous - 3 - 3 - 3 - 3 - 3 - 3 years'established loan losses Allocations/withdrawals from loan0 - 23 - 44 - 6 - 18 1 loss reserve The period's net expense for 17 9 - 26 11 13 19 collectively assessed claims Contingent liabilities The period's net expense for - 3 10 8 - 48 11 16 discharged guarantees and other contingent liabilities The period's net loan loss 259 90 422 235 179 292 expense Change in the value of property - 1 14 3 0 3 0 taken over Total 258 104 425 235 182 292 Less: transferred to acquisition x - 78 x x - 78 x analysis Loan losses, net, and change in 258 26 425 235 104 292 value of property taken over Note 4. Problem loans Group Bank X 1999 1998 1998 1999 1998 1998 SEK M 3/31 12/3 3/31 3/31 12/3 3/31 1 1 Doubtful claims, gross 7,43 8,06 11,690 4,14 4,11 6,48 9 0 3 5 3 Provisions for anticipated loan 3,91 3,94 6,050 2,39 2,31 3,95 losses 6 2 7 2 5 Doubtful claims, net 3,52 4,11 5,640 1,74 1,80 2,52 3 8 6 3 8 Claims with interest concessions 386 438 520 150 212 270 Problem loans, net 3,90 4,55 6,160 1,89 2,01 2,79 9 6 6 5 8 Unsettled claims for which 1,57 1,88 2,398 460 583 261 accrued interest has been 6 5 entered as income Property taken over to protect claims: - Buildings and land * 25 25 3,011 19 19 41 - Shares and participations 10 26 29 0 16 16 - Other 5 5 5 5 5 5 Total 40 56 3,045 24 40 62 Doubtful claims as % of total lending 0.7% 0.8% 1.1% 0.7% 0.8% 1.1% Provision ratio for doubtful 53% 49% 52% 58% 56% 61% claims * The change from the first quarter of 1998 is primarily attributable to the demerger of Mandamus from the Group. Quarterly profit trend for the Group X 1999 1998 1998 1998 1998 1997 SEK M Q1 Q4 Q3 Q2 Q1 Q4 Net interest income * 2,863 2,828 2,694 2,790 3,052 3,14 3 Commissions, net 1,081 1,039 1,127 1,086 1,028 1,10 6 Financial operations, net 105 326 62 297 142 110 Other income 1,618 570 378 1,317 618 227 Total income 5,667 4,763 4,261 5,490 4,840 4,58 6 Staff costs 1,419 1,555 1,390 1,436 1,379 2,06 6 Other expenses 1,532 1,896 1,431 1,531 1,408 1,94 9 Total expenses 2,951 3,451 2,821 2,967 2,787 4,01 5 Profit before loan losses 2,716 1,312 1,440 2,523 2,053 571 Loan losses, incl. changes in value - 258 - 26 - 266 - 285 - 425 - 12 Write-down of acquired assets - 2,889 Operating profit 2,458 1,286 1,174 2,238 1,628 - 2,33 0 * Of which deposit guarantee fee143 146 146 150 152 170 Balance sheets Group Bank X 1999 1998 1998 1999 1998 1998 SEK M 3/31 12/31 3/31 3/31 12/31 3/31 Loans to the 522,958 516,909 503,779 211,539 209,758 210,896 public Loans to 86,912 71,462 98,903 130,581 91,573 111,997 credit institutions Interest- 69,884 60,222 44,237 73,514 66,885 51,637 bearing securities - Financial 4,751 5,307 5,919 5,854 6,687 8,324 fixed assets - Financial 65,133 54,915 38,318 67,660 60,198 43,313 current assets Other assets 81,315 71,355 48,892 65,470 63,220 52,044 Total assets 761,069 719,948 695,811 481,104 431,436 426,574 Deposits and 195,394 190,355 205,403 192,606 187,308 203,393 borrowings from the public Amounts owed 121,135 120,755 114,800 146,879 131,137 119,579 to credit institutions Debt 311,931 290,778 275,047 54,628 36,528 29,965 securities in issue Subordinated 23,493 24,754 22,741 15,812 17,070 15,374 liabilities Other 81,094 64,468 52,445 51,219 37,873 40,115 liabilities Shareholders' 28,022 28,838 25,375 19,960 21,520 18,148 equity Total 761,069 719,948 695,811 481,104 431,436 426,574 liabilities, provisions and shareholders' equity Condensed statement of cash flows Group Bank January - March, SEK M 1999 1998 1999 1998 Liquid assets at 54,486 40,785 54,819 39,921 the beginning of the period * Operating activities Operating profit 2,458 1,628 1,432 847 Adjustments for - 2,403 347 123 2,871 items not included in cash flow including taxes paid Increase/decrease 10,671 - 5,465 - 13,162 - 6,376 in short-term investments Increase/decrease - 10,097 - 4,124 - 5,697 233 in loans to the public Increase/decrease - 3,758 - 611 - 4,046 8,028 in holdings of securities classified as current assets Increase/decrease 279 - 8,838 578 - 11,016 in deposits and borrowings from the public including retail bonds Increase/decrease 10,068 - 7,322 25,345 - 8,022 in amounts owned to credit institutions Change in other assets and 1,464 - 679 3,685 - 165 liabilities, net Cash flow from 8,682 - 25,064 8,258 - 13,600 operating activities Investing activities Purchase of fixed assets - 1,366 - 4,087 - 1,360 - 2,866 Sale of fixed assets 4,986 1,468 5,583 846 Branch transfers 17 1,621 17 1,621 Cash flow from 3,637 - 998 4,240 - 399 investing activities Financing activities Issuance of interest-bearing 54,216 57,975 5,509 1,783 securities Repayment of interest- - 51,684 - 50,117 - 1,258 - 440 bearing securities Increase in other funding 11,330 14,789 6,523 10,166 Cash flow from 13,862 22,647 10,774 11,509 financing activities Cash flow for the period 26,181 - 3,415 23,272 - 2,490 Liquid assets 80,667 37,370 78,091 37,431 at the end of the period * * of which securities pledged for OM, etc. at beginning of period 4,769 1,523 4,769 1,523 at end of period 2,948 1,276 2,948 1,276 Liquid assets include cash and balances with central banks, for net claims the net of demand loan receivables and demand loan liabilities with maturities up to five days, and Treasury bills, other bills and mortgage bonds eligible for refinancing with Sveriges Riksbank, taking into account repos and short-selling. 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. Generally, derivatives are reported at fair value. Exceptions are made for derivatives that are accounted for as hedges. The 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 covered by hedging accounting. Specification of derivatives in the Group as of March 31, 1999 Derivatives with positive fair values or nil value Interest-related Currency-related Equity- related Other SEK M Fair Book Fair Boo Fai Boo Fai Boo k r k r k valu valu valu val val val val val e e e ue ue ue ue ue Derivative 12,1 10,6 12,6 9,5 1,4 1,2 4 4 s 63 00 88 44 45 71 reported entirely or in part on the balance sheet Derivative 120 s not reported on the balance sheet Derivatives with negative fair values Interest-related Currency-related Equity- related Other SEK M Fair Book Fai Boo Fai Boo Fai Boo r k r k r k valu valu val val val val val val e e ue ue ue ue ue ue Derivative 14,4 13,3 9,8 8,7 1,4 1,2 1 1 s 33 05 08 99 83 99 reported entirely or in part on the balance sheet Derivative 1 s not reported on the balance sheet FöreningsSparbanken's rating S&P Moody Bankw Fitch Japan ´s atch IBCA R/I Short Long Short Long BFSR* Short Long Issue Short Long Long r A-1 A P-1 A1 C+ TBW-1 AA- B/C F-1 A+ AA- *Bank Financial Strength Rating Spintab's rating S&P Moody´s Bankwatch FitchIBCA Short Long Short Long Short Long Issuer Short Long A-1 - P-1 Aa3 TBW-1 AA- B/C F-1+ AA- 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 1999. FöreningsSparbankens financial reports will be released preliminary on the following dates: August 24, interim report for January - June 1999 and October 20, interim report for January - September 1999. For further information, please contact: Nil-Fredrik Nyblæus, Executive Vice President, telephone +46-8-5859 2532 Staffan Salén, Investor Relations, telephone +46-8-5859 2779 Appendix to FöreningsSparbanken's interim report for January - March 1999 FöreningsSparbanken's exposure in specific countries and regions as of March 31, 1999 SEK M Lending Deriv Inv Gua Oth Tota Per- Of Cha a- est ran er l whic nge - - h 1) tives men tie 5) cent credi in 2) ts s t Q4 3) 4) institu- tions 6) Sweden 500,656 11,74 64, 10, 933 588, 91.3 75,1 15, 9 915 018 271 62 251 OECD 7) 25,336 14,41 3,5 170 1,2 44,7 6.9 37,4 319 1 36 54 07 87 Latin 518 0 61 83 4 666 0.1 147 - America 8) 142 Of which 335 0 0 0 2 337 26 - Brazil 9) 70 Baltic 832 6 0 7 3,0 3,94 0.6 3,73 34 region 10) 95 0 4 Russia 0 0 0 0 0 0 0 0 Japan 3,304 130 398 0 2 3,83 0.6 3,83 602 4 4 Rest of 941 0 0 241 211 1,39 0.2 503 95 East Asia 3 11),12) Of which 232 0 0 0 60 292 292 South Korea 13) Of which 19 0 0 0 70 89 89 30 China Other 1,495 0 0 81 420 1,99 0.3 723 79 countries 6 12),14) Including the public and credit institutions. Excluding repos. Book value in SEK M. Including clearing institutions. Primarily forward contracts and swaps in interest rates and currencies. Market value in SEK M. Holdings in securities excluding trading portfolios in stocks. Book value in SEK M. Loan guaranties, construction guaranties and performance guaranties. Book value in SEK M. Letters of credit, endorsed acceptances and shareholdings in, among others, Hansapank, Aktia Sparbank, Bank Handlowy, Erste Bank and Sparebank 1 Group. Including National Debt Office. For countries outside the categories OECD, Japan and Sweden, the exposure is with credit institutions and is primarily trade-related. Excluding Sweden, Japan, Hungary, Mexico, Poland, Turkey, South Korea and the Czech Republic. Of which with subsidiaries of listed Swedish companies SEK 380 M. Of which with subsidiaries of listed Swedish companies SEK 294 M. Estonia, Latvia, Lithuania and Poland. China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. Of which shipping: Rest of East Asia, SEK 853 M, other countries according to definition in point 14, SEK 938 M. These commitments do not entail any true country risk, since they are merely the countries in which ship-owners are registered. Of which SEK 232 M with state guaranty. A lgeria, Bahamas, Bermuda, British Virgin Islands, Croatia, Cyprus, Czech Republic, Egypt, Gibraltar, Hungary, Iran, Israel, Jordan, Kenya, Lebanon, Liberia, Malta, Monaco, Netherlands Antilles, Oman, Saudi Arabia, Slovenia, South Africa, Tunisia, Turkey, United Arab Emirates, Vanuatu and Zimbabwe. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/27/19990427BIT00270/bit0001.doc http://www.bit.se/bitonline/1999/04/27/19990427BIT00270/bit0002.pdf