Swedbank preliminary year-end report for 1998

Swedbank preliminary year-end report for 1998 February 11, 1999 Stable development during a period of rapid merger and transformation work -Operating profit rose by 164 percent to SEK 6,326 M (2,400) -Operating profit excluding merger costs rose by 104 percent to SEK 7,433 M (3,635) -Loan losses declined by 34 percent to SEK 1,002 M (1,512) -The Group's problem loans, net, declined by 33 percent to SEK 4,556 million (6,848) -Earnings per share SEK 13.13 (1.07) -Proposed dividend SEK 7 per share (6) -Proposal to raise share capital through bonus issue 1:2 -Merger ahead of schedule in combination with dynamic IT development -Fast-growing demand for services with new technology -Position consolidated as country's leading retail bank -Alliance expanded with independent savings banks -FöreningsSparbanken's rating raised to A-1 by Standard & Poor´s Transformation work progressing faster than planned The Bank's merger work is progressing faster than planned. The conversion to a unified computer system is being moved ahead to May 1999 instead of September, as previously planned. During the first half of the year, the new GP 2000 technical platform was introduced. To date, it has been installed for around 7,900 employees, of whom 2,200 work for independent savings banks and jointly owned banks. A new generation of automated teller machines is also being installed by the Bank and will completely replace the older ATM's by September 1999. To date over 300 ATM's have been installed, of which 90 are located in independent savings banks and jointly owned banks. A new business support system placed in operation at mid-year will, over time, facilitate a new way of working and simplify administration at the branch level. The effect of the new branch system is expected to be fully felt in the year 2000. st New bank for 21 century facilitated by IT investments An important cornerstone in FöreningsSparbanken's vision for the future is to enhance customer value by adding new meeting places and new services. Considerable resources are now being invested in information technology with this in mind. Together with the increased automation of services and introduction of new support systems, this is also gradually freeing up more time for customer-orientated work. An significant step has therefore been taken in the Bank's vision of having branch personnel devote 80 percent of their time to actively servicing customers. Substantial growth in Internet and Telephone banking Both the Internet and Telephone bank reported a substantial increase in customers in 1998. At year-end the Internet bank had approximately 170,000 customers, an increase of 106,000 from the beginning of the year. The number of customers is currently increasing by more than 2,000 per week. In 2000 FöreningsSparbanken via the Internet will have the capacity to serve a million customers, 100,000 of whom will be able to use the service simultaneously. The number of customers who use FöreningsSparbanken via Telephone with personal service rose by about 230,000 from the beginning of 1998 to around 600,000 on December 31. Rapid increase in automated services During 1998 approximately 610,000 customers opened the new private account. The number of giro customers rose during the same period by about 120,000 to slightly over 1.9 million. The launch of electronic billing (E-billing) for the Bank's business customers has progressed faster than expected. Seven business customers currently offer E-billing to the Bank's Internet customers. Installation is under way at another eight companies and around 25 others are currently negotiating whether to introduce e-billing. The number of customers with bank cards rose by 15 percent to over two million. The number of clearing transactions also rose, to slightly over 90 million, up 30 percent. The number of CASH transactions amounted to 950,000. FöreningsSparbanken's CASH function now has around 150,000 users and the number of cards in issue is approximately 400,000, including bank cards with an integrated cash purchase function. The CASH card, a smart card, was launched nationwide during the first half of 1998. In December FöreningsSparbanken reached a strategic agreement with the trade organization Svensk Handel on terms for retailers' participation in the cash card system. It was agreed that retailers will not have to pay the Bank any compensation when cardholders pay with the CASH card before January 2001, since it is in the interest of both parties that card use reaches a sufficient volume to ensure a high level of service and good availability. Business volumes rose during the year Savings as a whole post stable development During the year the Bank maintained its dominant position in fund investments, insurance savings and individual pension savings, IPS. Household deposits remain stable Deposits from the household sector, after eliminating the effects of the branch transfers, rose by nearly SEK 1 billion during the year. Contributions to individual pension savings accounts rose by over SEK 1 billion to slightly over SEK 5 billion, which corresponds to a market share of 35 percent of managed capital. Fund contributions to Robur rose Net contributions to Robur's funds in 1998 totaled approximately SEK 15 billion, of which approximately SEK 7 billion related to insurance savings in SparFond. Robur's share of net contributions in the fund market was 35 percent during the year. As of December 31, 1998 assets under management amounted to approximately SEK 193 billion, an increase of SEK 35 billion during the year. Robur's share of assets under management in the fund market was 34 percent as of December 31, 1998. Fund-allocated insurance savings in SparFond rose substantially Sales of pension insurance continued to rise substantially. SparFond's assets under management increased by approximately SEK 8 billion during the year to SEK 18 billion on December 31, 1998. On a moving 12-month basis, SparFond's market share for new pension insurance policies was 34 percent as of September 30, 1998, making it the market's largest player. Lending posted 5 percent growth The Group's loans to the public and credit institutions other than banks, excluding repurchase agreements (repos), amounted to SEK 494 billion at year-end, an increase of SEK 13 billion compared with a year earlier. The underlying increase was nearly SEK 24 billion or about 5 percent, since approximately SEK 11 billion in loans was transferred to independent savings banks and jointly owned banks during the year. Loans to the household sector amounted to approximately SEK 236 billion, which represents an increase for both the Bank and Spintab. Approximately SEK 2.4 billion of Spintab's increase is attributable to the acquisition of Folksam's mortgage loan portfolio during the fourth quarter of 1998. Business loans also rose in 1998. Lending, the 199 199 Group, SEK 8 7 billion Households 236 227 .0 .7 Of which Spintab 184 172 Group .7 .7 Real estate 122 118 management .1 .5 Credit 1.1 1.3 institutions excl. banks Retail, hotels, 16. 17. restaurants 3 7 Construction 8.6 9.2 Manufacturing 13. 13. 6 3 Transportation 4.2 5.9 Forestry and 20. 23. agriculture 6 1 Other service 12. 11. businesses 2 0 Other business 30. 25. lending 6 3 Municipalities ** 16. 16. 4 2 Other 12. 11. 4 9 Total before 494 481 transferred loans .1 .1 Less: transferred - - loans 10. 6 Total 494 470 .1 .5* Repurchase 10. 13. agreements 1 2 (repos) Total lending 504 483 .2 .7* *Excluding lending of approximately SEK 11 billion which was transferred in 1998 to independent savings banks and jointly owned banks ** Municipal companies not included Profit rose substantially Operating profit rose The Group's operating profit amounted to SEK 6,326 M (2,400). Excluding merger costs, operating profit was SEK 7,433 M (3,635). An important reason for the increase was the write-down of acquired property of SEK 2,889 million that was charged against 1997 earnings. The return on equity amounted to 16.9 percent (1.4) and earnings per share to SEK 13.13 (1.07), including merger costs. In September 1998 FöreningsSparbanken acquired the remaining shares in SparFond, which is therefore consolidated according to the purchase method as of the fourth quarter of 1998. The "glocal" bank with its strength in retail banking Profit per business area RetaiSwedba Asset Oth Grou l nk er p bankiMarket mgmt, ng s incl insura nce Income 12,651,945 2,095 2,6 19,3 6 58 54 Internal sales commissions 1,336-262 -1,074 0 0 Expenses - -1,058 -533 - - 8,416 2,0 12,0 19 26 Profit before loan losses 5,576625 488 639 7,32 8 Loan losses - -8 0 38 - 1,032 1,00 2 Business area profit after loan losses 4,544617 488 677 6,32 6 Estimated shareholders' equity 15,394,837 2,370 4,6 27,2 1 71 69 Return on equity after tax 21.3%9.2% 14.8% - 16.9 % 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 according as per these regulations 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, SparFond and the Bank's discretionary asset management. Other Other comprises income and expenses that do not fall under any of the business areas. This includes, among other things, FöreningsSparbanken Fastighetsbyrå (real estate brokerage), computer services for independent savings banks and jointly owned banks, capital gains and the staff reduction program in the ResourceBank. Group Decline in net interest income halted during the fourth quarter The Group's net interest income amounted to SEK 11,364 M (12,791), a decrease for the year of SEK 1,427 M or 11 percent compared with 1997. Slightly more than half the decrease, or approximately SEK 730 million, is attributable to transfers of deposit and lending volumes to independent savings banks and jointly owned banks. The remaining decrease in net interest income is a result of a lower return on financial investments and slightly lower lending margins. During the fourth quarter the declining trend in net interest income seems to have been broken. Net interest income from local retail banking remained largely unchanged during 1998. Net commission income rose Net commission income amounted to SEK 4,280 M, an increase of SEK 55 M or 1 percent compared with 1997. Taking into account the branch transfers to independent savings banks and jointly owned banks, net commission income rose by SEK 160 or 4 percent. The Group's commissions receivable from fund contributions and SparFond's insurance operations continued to rise, while brokerage commissions declined. Income from card operations also continued to rise, due to a higher number of outstanding cards and increased use of those cards. Net commission income in local retail banking operations rose by 6 percent compared with 1997 after eliminating the effects of the branch transfers. Net profit on financial operations The Group's net profit on financial operations amounted to SEK 827 M (930). Excluding nonrecurring income, net profit rose by SEK 224 M or 65 percent compared with 1997. As of December 31 the Group's holdings of interest-bearing securities had a book value of approximately SEK 60 billion (29), of which approximately SEK 5 billion related to financial fixed assets. The increase in book value stems primarily from the replacement of Bank's holding of Spintab bonds, which is eliminated in the Group accounts, with bonds from other institutions, since bonds issued by Group companies are no longer eligible for refinancing with Sveriges Riksbank. Other operating income rose Other operating income amounted to SEK 2,883 M (1,365). The increase is due mainly to capital gains of approximately SEK SEK 1,000 M from the sale of operating properties and capital gains of approximately SEK 500 M from the sale of financial fixed assets, primarily shares in BG Bank and SparLiv. Expenses declined Expenses decreased by SEK 484 M to SEK 12,026 M, or by 4 percent compared with 1997 including costs for the merger of Föreningsbanken and Sparbanken Sverige. Merger costs amounted to SEK 1,107 M (1,235) and primarily related to staff, IT and premises. The decrease is primarily due to lower staff costs and branch transfers to independent savings banks and jointly owned banks. Staff costs amounted to SEK 5,760 M, a decrease of SEK 651 M or 10 percent compared with 1997. Excluding merger costs and after eliminating the effects of branch transfers, staff costs decreased by SEK 358 M or 7 percent. The number of full-time positions was 11,734 as of December 31, 1998. Since December 31, 1996 around 700 new employees have been hired and 1,715 have left the Group. This means that a net of 1,015 employees have left the Group since year-end 1996. In addition, approximately 1,500 employees will leave in 1999, which means that the goal in terms of personnel reductions is successfully being met. Loan losses and problem loans reduced by a third Loan losses amounted to SEK 1,002 M during the year. The loan loss level was 0.2 percent (0.3). Compared with 1997, when they amounted to SEK 1,512 M, loan losses declined by SEK 510 M. The Group's problem loans, net, amounted to SEK 4,556 M (6,848), a decrease of 33 percent. A specification of loan losses and problem loans is provided in Notes 3 and 4. 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 exposure by region is provided in an appendix to this report. An increase in market interest rates of one percentage point as of December 31 would have reduced the value of the Group's assets and liabilities with fixed interest rates, including derivatives, by approximately SEK 490 M (614). The decrease in the value of positions in SEK would be approximately SEK 440 M and in foreign currency approximately SEK 50 M (11). An increase in interest rates of one percentage point would reduce the Group's net profit from financial operations by approximately SEK 194 M (98). The low interest rate risk in the Group, with investments in shorter maturities, goes hand in hand with the Bank´s aim to maintain strong liquidity in a time of great uncertainty. Capital adequacy ratio 11.6 percent The capital adequacy ratio amounted to 11.6 percent (11.) on December 31, 1998, of which the primary capital ratio was 6.1 percent (6.1). Market risks as a share of the total capital adequacy ratio amounted to 0.5 percentage points (0.4). SEK M 1998 1997 Primary 23,6 21,6 capital 25 89 Supplementary 23,2 21,4 capital 66 27 Less shares, - - etc. 1,97 1,43 0 3 Capital base 44,9 41,6 21 83 Risk-weighted amount for credit 371, 342, risks 374 704 Risk-weighted amount for market 15,0 11,7 risks 57 10 Total risk- 386, 354, weighted 431 414 amount Capital 11.6 11.8 adequacy ratio, % Primary 6.1 6.1 capital ratio, % As of December 31, 1998 the FöreningsSparbanken financial companies group includes the FöreningsSparbanken Group, Eskilstuna Rekarne Sparbank AB, FöreningsSparbanken Sjuhärad AB, FöreningsSparbanken Söderhamn AB, FöreningsSparbanken Öland AB, Aktia Sparbank Ab in Finland and AS Hansapank in Estonia. The Group's insurance companies are not included. Expanded alliance with independent savings banks During the year 144 branch offices were transferred to independent savings banks and jointly owned banks. Moreover, decisions were made to coordinate 253 branches of FöreningsSparbanken, of which 240 were completed in 1998. Estimated effects of branch sales Deposits Lending Income Expense No. of s employees SEK - 16 bn SEK - SEK - SEK - - 690 11 bn 844 n 426 bn The figures refer to volumes that were transferred in 1998 and changes between 1997 and 1998 with respect to income and expenses. Interest on the purchase price received has also been taken into account. FöreningsSparbanken had previously owned 50 percent of the shares in Eskilstuna Rekarne Sparbank AB and 47.5 percent of the shares in FöreningsSparbanken Sjuhärad AB. During the year other independent savings banks established jointly owned banks together with FöreningsSparbanken as part of their expanded cooperation. FöreningsSparbanken Söderhamn AB During the first quarter of 1998 Söderhamns Sparbank acquired the former Föreningsbanken's branch operations in Söderhamn and Mo from FöreningsSparbanken. To better prepare for the future, the savings bank was converted during the fourth quarter to a banking company with FöreningsSparbanken as co-owner of 40 percent of the shares. FöreningsSparbanken Öland AB In December Ölands Sparbank acquired the former Föreningsbanken's branch operations on the island of Öland, including in Borgholm, Färjestaden, Mörbylånga and Löttorp. In connection with this acquisition - and in part to meet capital adequacy requirements - Ölands Sparbank at the same time was converted to a banking company under the name FöreningsSparbanken Öland AB with FöreningsSparbanken as co-owner of 60 percent of the shares. Färs & Frosta Sparbank In December an agreement was reached between FöreningsSparbanken and Färs & Frosta Sparbank on the latter's acquisition of FöreningsSparbanken's branch operations in Lund, Staffanstorp, Löddeköpinge and Svalöv. Färs & Frosta Sparbank plans to convert to a banking company at the end of 1999 with FöreningsSparbanken as co-owner of 30 percent of the shares. Year 2000 compliance FöreningsSparbanken's year 2000 preparations are progressing according to plan. The majority of FöreningsSparbankens central IT systems have already been analyzed, modified and returned to production. Moreover, the systems are being tested in a separate year 2000 environment. Nordic/Baltic strategy The European banking market is undergoing major change. The importance of national borders is being erased and new media are opening up to competition from new players. This in turn is driving the trend toward superregional banks, which have the opportunity to lead the market's technical development and be cost-effective in their defined regions. FöreningsSparbanken has defined its priority region as the Nordic countries and the countries around the Baltic Sea. This area has a total population of around 90 million and is facing a period of very expansive economic development. In 1998 FöreningsSparbanken took a number of important steps on the road to realizing its Nordic/Baltic strategy. Norway During the year FöreningsSparbanken reached agreement to acquire 25 percent of Norway's SpareBank 1 Group. Sparebank 1 Group is a holding company for banking services owned by a group of Norwegian savings banks. These savings banks together have around 1.3 million private customers, slightly over 100,000 business customers and a market share for deposits of approximately 15 percent. Baltic region On December 31, 1998 FöreningsSparbanken held nearly 50 percent of the voting rights in Hansapank. This investment, which is long-term in nature, is fully in line with the Bank's Nordic/Baltic strategy. The prospects of further enhancing long-term business operations are considered very good in light of Hansapank's strong position in the Baltic states and the region's growing commerce with Sweden. Hansapank has around 500,000 customers and a market share for deposits of 58 percent. Finland During the year FöreningsSparbanken and Aktia Sparbank in Finland established a cooperation to sell each other's funds to their customers. Aktia is a central bank for 39 independent savings banks and 44 local cooperative banks. The group together has around 700,000 customers and a market share for deposits of 10 percent. Poland Poland's Bank Handlowy, a commercial bank focused on businesses, has as its goal to grow in the household sector. This could be of major strategic importance against the backdrop of the Polish economy's size and growth rate. Bank Handlowy has around 12,000 business customers and great potential to grow in the household market. Its market share for deposits is 4 percent. Highlights after December 31, 1998 Sale of Gallerian and Bank's IT property In December an agreement in principle was reached between FöreningsSparbanken and AMF Pension on the sale of the Gallerian office and retail complex and the Bank's IT property in Stockholm for a total of SEK 4,260 M. In February 1999, after completing due diligence, an agreement was reached between the two parties whereby AMF Pension will take over the properties on April 1, 1999. As previously announced, FöreningsSparbanken's Board of Directors also intends to divest during the first quarter the Bank's property commitments in London and Luxembourg. These transactions are expected to add a net gain of SEK 1,350 M to first-quarter profit in 1999. Following the sales, the Bank will have only three properties, all of which are of historical interest, as well as its training center and the properties owned by jointly owned banks. Proposed dividend and bonus issue As previously announced, the Bank's Board of Directors will propose 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. 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. Shareholders who wish to attend must be recorded in the Bank's share register by April 19. Stockholm, February 11, 1999 FöreningsSparbanken AB (publ) Reinhold Geijer President and CEO Key ratios for 199 199 the Group 8 7 Return on 16. 1.4 equity, % 9 Earnings per 13. 1.0 share, SEK 13 7 Operating profit 12. 4.9 per share, SEK 94 1 Equity per 81. 77. share, SEK 96 80 I/E ratio before 1.6 1.5 loan losses 1 4 I/E ratio after 1.4 1.1 loan losses 9 4 Capital adequacy 11. 11. ratio, % 6 8 Primary capital 6.1 6.1 ratio, % Loan loss ratio, 0.2 0.3 net, % Profit and loss Group Chang Bank accounts e SEK M 1998 1997 % 1998 1997 Interest receivable 44,3 46,34 - 4 22,7 21,7 04 8 25 02 Interest payable - - - 2 - - 32,9 33,55 15,3 12,7 40 7 68 30 Net interest income Note 11,3 12,79 - 11 7,35 8,97 1 64 1 7 2 Dividends received 155 232 - 33 6,20 3,17 4 8 Commissions 5,36 5,173 4 4,03 3,90 receivable 4 5 6 Commissions payable - - 948 14 - - 1,08 672 631 4 Net commissions 4,28 4,225 1 3,36 3,27 0 3 5 Net profit on Note 827 930 - 11 758 881 financial operations 2 Other operating 2,72 1,133 2,77 897 income 8 9 Total income 19,3 19,31 0 20,4 17,2 54 1 61 03 Administrative expenses - Staff costs - - - 10 - - 5,76 6,411 5,22 5,75 0 2 4 - Other - - 2 - - 5,59 5,503 5,04 4,89 8 0 6 Depreciation and write-down of tangible assets - - 361 4 - - 374 333 286 Amortization of - -235 25 - - 98 Group goodwill 294 101 Total expenses - - - 4 - - 12,0 12,51 10,6 11,0 26 0 96 34 Of which merger - - - 10 - - costs 1,10 1,235 1,05 1,16 7 6 2 Expenses excluding - - - 3 - - merger costs 10,9 11,27 9,64 9,87 19 5 0 2 Profit before loan 7,32 6,801 8 9,76 6,16 losses 8 5 9 Loan losses, net Note - - - 27 - - 3 987 1,349 735 739 Change in value of Note - 15 - 163 - 91 - 2 - 2 property taken over 3 Write-down of - - - - - acquired property 2,889 2,88 9 Write-down of - - - - 43 - financial assets 430 Operating profit 6,32 2,400 164 8,98 2,10 6 5 9 Result from acquired - 32 - 666 - - operations 786 Appropriations 44 6 - - 933 1,08 6 Tax - - 23 - - 1,71 1,398 1,91 1,22 9 6 5 Profit for the year 4,61 342 6,13 - 9 6 988 Note 1. of which charge for deposit guarantee - - 680 - 13 - - 594 590 680 Note 2. Specification of net profit on financial operations Group Bank SEK M 199 199 199 199 8 7 8 7 Capital gains Shares and participations 180 428 152 396 Interest-bearing securities 278 698 236 694 Other financial instruments 2 1 5 4 Total 460 1,1 393 1,0 27 94 Unrealized changes in value Shares and participations 220 - 207 - 183 167 Interest-bearing securities -86 - - - 320 72 361 Other financial instruments 1 0 1 0 Total 135 - 136 - 503 528 Exchange rate fluctuations 232 306 229 315 Total 827 930 758 881 Note 3. Specification of loan losses, net, and change in the value of property taken over Group Bank SEK M 1998 1997 1998 1997 Claims assessed individually The year's write-down for established loan losses 3,43 4,84 2,42 3,51 2* 6 4* 5 Reversal of earlier provisions for anticipated loan - - - - losses 2,32 3,16 1,64 2,38 5 9 3 9 The year's provisions for anticipated loan losses 1,78 3,32 895 1,99 2 5 3 Recoveries from previous years' established loan losses - -499 - - 411 208 276 Recovered provisions for anticipated loan losses - - - - 1,54 1,57 830 926 6 0 The year's net expense for individually assessed claims 932 2,93 638 1,91 3 7 Claims assessed collectively The year's established 94 129 93 108 loan losses Recoveries from previous years' established loan losses -13 -12 -11 -4 Allocations/withdrawals from loan loss reserve -52 -36 -4 -7 The year's net expense for collectively assessed claims 29 81 78 97 Contingent liabilities 26 16 19 7 The year's net expense for discharged guarantees and other contingent liabilities The year's net loan loss expense 987 3,03 735 2,02 0 1 Change in the value of property taken over 15 2,52 2 2 8 Total 1,00 5,55 737 2,02 2 8 3 Less: transferred to acquisition analysis - - 4,04 1,28 6 2 Loan losses, net, and change in value of property taken 1,00 1,51 737 741 over 2 2 * In addition to the year's write-down for established loan losses, SEK 78 M has been transferred to the acquisition analysis. This amount relates to loan losses attributable to branches that were sold. Note 4. Problem loans Group Bank SEK M 1998 1997 199 199 8 7 Doubtful claims, gross 8,06 12,5 4,1 7,1 0 11 15 91 Provisions for anticipated 3,94 6,28 2,3 4,1 loan losses 2 9 12 76 Doubtful claims, net 4,11 6,22 1,8 3,0 8 2 03 15 Claims with interest 438 626 212 327 concessions Problem loans, net 4,55 6,84 2,0 3,3 6 8 15 42 Unsettled claims for which accrued interest has been entered as income 1,88 1,87 583 154 5 2 Property taken over to protect claims: * - Buildings and land 25 3,03 19 40 2 - Shares and participations 26 31 16 19 - Other 5 8 5 5 Total 56 3,07 40 64 1 Doubtful claims as % of 0.8 1.3 0.8 1.4 total lending Provision ratio for 49% 50% 56% 58% doubtful claims * The change from the beginning of the year is attributable to the demerger of Mandamus from the Group. Quarterly profit trend for the Group SEK M Q4/9 Q3/9 Q2/ Q4/9 Q3/ 8 8 98 Q1/9 7 97 8 Net interest income * 2,82 2,69 2,7 3,05 3,14 3,0 8 4 90 2 3 27 Commissions, net 1,03 1,12 1,0 1,02 1,10 1,0 9 7 86 8 6 37 Financial operations, 326 62 297 142 110 96 net Other income 570 378 1,3 618 227 284 17 Total income 4,76 4,26 5,4 4,84 4,58 4,4 3 1 90 0 6 44 Staff costs 1,55 1,39 1,4 1,37 2,06 1,5 5 0 36 9 6 09 Other expenses 1,89 1,43 1,5 1,40 1,94 1,4 6 1 31 8 9 12 Total expenses 3,45 2,82 2,9 2,78 4,01 2,9 1 1 67 7 5 21 Of which merger costs 441 194 298 174 871 297 Profit before loan 1,31 1,44 2,5 2,05 571 1,5 losses 2 0 23 3 23 Loan losses, incl. -26 -266 - -425 -12 - changes in value 285 477 Write-down of acquired - - - - - - assets 2,88 9 Operating profit 1,28 1,17 2,2 1,62 - 1,0 6 4 38 8 2,33 46 0 Operating profit 1,72 1,36 2,5 1,80 - 1,3 excluding merger costs 7 8 36 2 1,45 43 9 Expenses excluding 3,01 2,62 2,6 2,61 3,14 2,6 merger costs 0 7 69 3 4 24 *Of which deposit 146 146 150 152 170 171 guarantee fee Balance sheets Group Bank SEK M 1998 1997 1998 1997 * * Loans to the 516, 499, 209, 210, public 909 110 758 401 Loans to credit 71,4 89,2 91,5 101, institutions 62 02 73 075 Interest- 60,2 29,2 66,8 46,0 bearing 22 95 85 97 securities - Financial 5,30 5,95 6,68 8,82 fixed assets 7 4 5 3 - Financial 54,9 23,3 60,1 37,2 current assets 15 41 98 74 Other assets 71,3 50,7 63,2 57,6 55 68 20 83 Total assets 719, 668, 431, 415, 948 375 436 256 Deposits and borrowings from the public 190, 216, 187, 217, 355 941 308 008 Amounts owed to credit institutions 120, 99,9 131, 105, 755 00 137 377 Debt securities 290, 251, 36,5 17,7 in issue 778 294 28 58 Subordinated 24,7 23,3 17,0 15,6 liabilities 54 21 70 55 Other 64,4 49,5 37,8 38,7 liabilities 68 42 73 79 Shareholders' 28,8 27,3 21,5 20,6 equity 38 77 20 79 Total liabilities, provisions and 719, 668, 431, 415, shareholders' 948 375 436 256 equity * Excluding deposits of approximately SEK 16 billion and lending of approximately SEK 11 billion that were transferred to independent savings banks and jointly owned banks. Change in accounting principle Group contributions have been accounted for in accordance with the September 1998 pronouncement of the Swedish Financial Accounting Standards Council's so-called acute group. The pronouncement covers both group contributions and shareholders' equity. Its purpose is to account for both types of contributions in a way that reflects their financial impact. Comparable figures from previous year have been recalculated. 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 December 31, 1998 Derivatives with positive fair values or nil value Interest- Currency- Equity Other related related - relate d SEK M Fair Book Fair Bo Fa Bo Fa Bo ok ir ok ir ok value value value va va va va va lu lu lu lu lu e e e e e Derivatives reported entirely or in part on the balance 10,817 9,435 8,610 5, 1, 1, 2 2 sheet 89 52 29 8 5 9 Derivatives not reported on the balance sheet 197 - 170 - - - - - Derivatives with negative fair values SEK M Interest- Currency- Equity- Other related related related Fair Book Fair Bo Fair Bo Fa Bo ok ok ir ok value value value va value va va va lu lu lu lu e e e e Derivatives reported 12,555 11,770 6,511 6, 1,641 1, - - entirely or in part on 36 41 the balance sheet 6 5 Derivatives not reported - - 345 - - - - - on the balance sheet FöreningsSparbanken 's rating S&P Moody Bankwatch FitchIB Jap ´s CA an R/I Short LongShortLong BFSR* Short Long Issu Sho Lon Lon er rt g g 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´ Ban Fit s kwa chI tch BCA Short Long Short Long Sho Lon Iss Sho rt g uer rt Long A-1 - P-1 Aa3 TBW- AA- B/C F- AA- 1 1+ Financial information The Group's financial reports can be accessed on FöreningsSparbanken's home page on the Internet at www.foreningssparbanken.se or at the nearest branch of FöreningsSparbanken. Current financial information is also published in Sweden on TV4's text-TV, page 182. The printed annual report is expected to be available in mid-March 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 Statement by President and CEO Reinhold Geijer: "I am very gratified to say that FöreningsSparbanken is pursuing a steady course in the face of a fairly uncertain market." Appendix to FöreningsSparbanken's year-end report for 1998 FöreningsSparbanken's exposure in specific countries and regions as of December 31, 1998 Lendi Deriv Inves Guara Other Tota PerceOf Change ng 1) ative tment nties 5) l nt whic in Q4 s 2) s 3) 4) h cred it inst itut ions 6) Sweden 495,3 9,190 57,51 10,56 422 573, 91.2 71,3 17,602 26 8 4 020 13 OECD 7) 29,65 11,99 1,728 161 841 44,3 7.1 36,1 13,817 9 9 88 50 Latin America 8) 580 0 39 0 189 808 0.1 291 68 Of which Brazil 9) 406 0 0 0 1 407 34 -28 Baltic region 10) 808 4 0 0 3,094 3,90 0.6 3,75 2,150 6 2 Russia 0 0 0 0 0 0 - 0 -17 Japan 2,502 125 589 0 16 3,23 0.5 3,23 -835 2 2 Rest of East Asia 935 1 0 235 127 1,29 0.2 413 -77 11),12) 8 Of which South 226 0 0 0 66 292 292 20 Korea 13) Of which China 19 0 0 0 40 59 59 -166 Other countries 1,372 2 0 87 456 1,91 0.3 624 -169 12),14) 7 1)Including the public and credit institutions. Excluding repos. Book value in SEK M. 2)Including clearing institutions. Primarily forward contracts and swaps in interest rates and currencies. Market value in SEK M. 3)Holdings in securities excluding trading portfolios in stocks. Book value in SEK M. 4)Loan guaranties, construction guaranties and performance guaranties. Book value in SEK M. 5)Letters of credit, endorsed acceptances and shareholdings in, among others, Hansapank, Aktia Sparbank, Bank Handlowy and Erste Bank. The Sparebank 1 Group is not included. 6)Including National Debt Office. For countries outside the categories OECD, Japan and Sweden, the exposure is with credit institutions and is primarily trade-related. 7)Excluding Sweden, Japan, Hungary, Mexico, Poland, Turkey, South Korea and the Czech Republic. 8)Of which with subsidiaries of listed Swedish companies SEK 446 M. 9)Of which with subsidiaries of listed Swedish companies SEK 363 M. 10) Estonia, Latvia, Lithuania and Poland. 11) China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. 12) Of which shipping: Rest of East Asia, SEK 843 M, other countries according to definition in point 14, SEK 982 M. These commitments do not entail any true country risk, since they are merely the countries in which ship-owners are registered. 13) Of which SEK 226 M with state guaranty. 14) Algeria, 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/1999/02/11/19990211BIT00330/bit0001.pdf http://www.bit.se/bitonline/1999/02/11/19990211BIT00330/bit0002.doc