Interim results for January-September 1998

MeritaNordbanken Group: Interim results for January-September 1998 * Operating profit up 5 per cent at FIM 6.2 billion (SEK 9.1 billion) * Return on equity 21 per cent * Earnings per share FIM 2.17 in Merita Plc, SEK 3.18 in Nordbanken Holding * Rapid progress in the integration of operations * Growth in lending volumes * Third-quarter result eroded by falling share prices and international market turbulence * Net commission income up 9 per cent * Operating expenses unchanged, adjusted for restructuring costs * Loan losses at a low level; new provisions for international risks Since January 1, 1998, the MeritaNordbanken Group has been operating as one single organization under common control. This interim report presents the operating results and position of the MeritaNordbanken Group for the period January-September 1998 with pro forma comparative data for 1997. The MeritaNordbanken Group refers to MeritaNordbanken Plc and its subsidiaries (MeritaNordbanken Plc Group) and the two publicly listed holding companies Merita Plc and Nordbanken Holding AB (publ). The Group plans to adopt the euro as its accounting and reporting currency as soon as practicable. For the time being, the Group's sole reporting currency is the Finnish markka (FIM), while Nordbanken Holding AB continues to use the Swedish krona (SEK) as its accounting and reporting currency. Financial markets hit by global turmoil During the first half of the year, MeritaNordbanken's home markets, Finland and Sweden, witnessed a continued strengthening in economic activity combined with moderate credit expansion, sustained strong demand for savings products, and a decline in short- and long-term interest rates. This favourable picture changed dramatically in the third quarter, reflecting developments in the international environment. Problems emerging on the financial markets notably in Asia and Russia precipitated a serious deterioration in the economic performance of these regions. This, combined with expectations of falling corporate profits in the U.S.A. and Europe, had a negative impact on global stock market developments. Long-term government bond yields continued to decline in the third quarter, while the yields of securities involving a credit risk showed a rising trend. Against this background, economic forecasts for Sweden and Finland have repeatedly been revised downwards but continue to point to a basically healthy rate of GDP growth. Impact on the MeritaNordbanken Group The MeritaNordbanken Group derives the majority of its earnings from its home markets Sweden and Finland, while international business accounts for a minor part of its total income. Commission income from capital market operations and earnings from trading likewise represent a relatively modest proportion of the overall income structure. Even so, the Group's performance in the third quarter did not remain immune to financial market turbulence and the stock market decline. Owing to adverse developments in the global environment it was deemed necessary to review exposures to certain countries and to establish new country risk provisions. Furthermore, commission income from mutual fund management assumed a downward trend. Yet another consequence was the shrinking of unrealized gains in the Group's equity portfolio and the contraction of the surplus accrued in its pension foundations and pension fund. Operating results, return on equity and earnings per share MeritaNordbanken's operating profit for January-September was FIM 6,217 million (SEK 9,068m), an increase of 5 per cent compared with the pro forma result for the same period in 1997. A number of non-recurring items had a net favourable impact of approximately FIM 700 million (SEK 1,000m) on the nine- month result. Even excluding these items, the operating profit rose by 5 per cent from the corresponding 1997 figure, similarly adjusted for one-off items. The return on equity was 21.0 per cent. Adjusted for one-off items, it was approximately 19 per cent. Non-recurring income and expense items, January-September 1998: Capital gain on the disposal of equity +FIM 1.2bn (SEK 1.7bn) holding: Sampo Insurance Company Contribution from Nordisk Renting +FIM 0.3bn (SEK 0.5bn) Loss arising from equity holding: Real -FIM 0.1bn (SEK 0.2bn) estate company Sponda Plc Restructuring expenses -FIM 0.3bn (SEK 0.4bn) Change in accounting principles -FIM 0.4bn (SEK 0.6bn) Earnings per share for the first nine months of the year were FIM 2.17 in Merita Plc and SEK 3.18 in Nordbanken Holding AB. Excluding one-off items, the corresponding figures were FIM 1.92 and SEK 2.81, respectively. Impact of exchange rate movements on the result and financial position The Group's reporting currency is the Finnish markka, while a significant part of its income, expenses and balance sheet volume is generated and reported in Swedish kronor. The exchange rate between the Swedish krona and the Finnish markka therefore has an impact on the Group's performance. During the third quarter, the Swedish krona continued to depreciate against the Finnish markka. From June 30 to September 30 the exchange rate fell by 5.7 per cent. Simultaneously the average exchange rate applicable to the translation of income statement items dropped by 1 per cent. Exchange rate movements during the third quarter as compared to the second one thus had a negative impact of over FIM 50 million on the operating result. Smooth and speedy progress in the integration of operations The integration of the Group's banking operations in Sweden and Finland continues. Coordination projects completed to date include, for example, joint funding and market risk management within the Treasury function and a harmonized credit policy and decision-making process within the Credits function. The integration of the international network has also been completed, and all units now operate under the name of the MeritaNordbanken Group. The Group further has a single, centralized financial control and capital allocation function, with coordinated financial reporting. The estimates announced in autumn 1997 regarding merger-related income and cost synergies and restructuring expenses remain unchanged. Increase in income During January-September 1998, the Group's total income rose by 4 per cent to FIM 14,826 million (SEK 21,625m). Third-quarter income amounted to FIM 4,075 million, which was somewhat less than in the preceding quarter. Net interest income Net interest income for January-September amounted to FIM 8,099 million (SEK 11,813m), a drop of 1 per cent compared with the same period in 1997. From the second to the third quarter net interest income declined by FIM 119 million mainly as a result of exchange rate movements and lower yields on financial investments. The stabilization of margins noticeable on the Swedish market since the first half-year continued. In Finland margins remained under pressure, notably in housing loans. Improvement in net commission income Net commission income for the first nine months of the year amounted to FIM 3,256 million (SEK 4,749m), an increase of 9 per cent compared with the same period in 1997. The steep rise in net commission income as compared with the preceding year levelled off somewhat in the third quarter as the decline in stock prices eroded the value of mutual fund assets under management. Towards the end of the third quarter the net inflow of investments in Swedish and Finnish equity funds also began to decelerate. However, regular monthly saving in mutual funds was not materially affected. Net result from financial operations Thanks to the first-quarter capital gain of almost FIM 1.2 billion (SEK 1.7bn) posted from the disposal of the Group's equity holding in the Sampo Insurance Company, the net result from financial operations for the nine months under review remained strong and amounted to FIM 1,724 million (SEK 2,515m). The net result from financial operations in the third quarter was lower than in the preceding quarter, mainly reflecting the weaker performance of the Group's bond portfolio and the negative result of money market trading. However, currency-related earnings developed favourably, and Trading as a whole reported a positive result. The negative impact exerted by the third- quarter stock market slide on the Group's equity holdings was cushioned in part by index-related put options acquired earlier. Increase in other operating income Other income for January-September was up 15 per cent at FIM 1,747 million (SEK 2,548m). Other income in July-September was lower than in the preceding two quarters, which had benefited from dividends received, for example, in connection with the ownership restructuring of Nordisk Renting. Expenses under control The Group's total expenses for January-September, including merger-related restructuring costs, increased by 3 per cent to FIM 8,162 million (SEK 11,905m). Excluding restructuring costs, overall expenses remained more or less unchanged compared with the corresponding period last year. Third-quarter expenses were lower than those for the preceding three quarters. Personnel expenses Personnel expenses amounted to FIM 3,715 million (SEK 5,419m). This includes FIM 135 million (SEK 197m) of restructuring expenses, of which FIM 45 million in the third quarter. Adjusted for the impact of restructuring, personnel expenses rose by 4 per cent. The number of banking employees within the Group continues to decrease. At the end of September it was 18,500, a net fall of approximately 600 persons since the announcement of the merger plan. Other expenses Other expenses declined by 1 per cent to FIM 4,447 million (SEK 6,488m). This included one-off restructuring expenses of FIM 150 million (SEK 219m), of which FIM 50 million was booked in the third quarter. Loan losses Net loan losses for the nine-month period under review totalled FIM 597 million (SEK 871m). Loan losses represented 0.2 per cent of total lending, as earlier. The above amount included a provision of somewhat over FIM 200 million charged in the third quarter for international credit risks, primarily in respect of Russian banks, and a separate charge of slightly under FIM 150 million for country risks, based on a rating model focusing primarily on countries outside the OECD. This increase in the country risk provision resulted from the harmonization of loan-loss-allowance principles within the Group. In the same connection, the remaining part of the provision charged for Asian risks at the end of 1997 was unwound. The Group's international exposures arise principally in the normal course of business from the financing of Nordic trade, Nordic investments and payment services. In view of developments in the international markets during the third quarter, the Group's lending exposures to certain countries and regions are summarized below. The table shows the net amounts after customer-specific provisions for possible loan losses. Approximately 70 per cent of the exposures consist of short-term receivables. mFIM, Sep 30, 1998 Net exposure (after Of which: specific provisions) Banks Asia, excl. Japan 3,681 2,644 of which: China 1,018 837 Thailand 440 162 Indonesia 368 176 South Korea 260 259 Malaysia 152 91 Japan 1,955 1,955 Latin America 2,054 1,332 of which: Brazil 1,298 916 Russia 114 82 Apart from customer-specific provisions, the general country risk provision at the end of September amounted to FIM 890 million (SEK1,369m). Continued decrease in problem loans The net volume of problem loans, including low-interest-rate receivables, continued to decrease in the third quarter and at the end of September amounted to FIM 6.6 billion (SEK 9.6bn), which was 23 per cent less than at the end of 1997. Provisions against these exposures at the end of September represented 67 per cent of the total volume. Interest-bearing securities At the end of September, interest-bearing securities classified as financial current assets and carried at market value totalled FIM 60 billion (SEK 92bn). Securities held as financial fixed assets, carried at amortized acquisition value totalled FIM 25 billion (SEK 38bn). Unrealized appreciation in this portfolio was FIM 0.6 billion (SEK 0.9bn). Shares and participations At the end of September, the market value of the Group's actively traded equity portfolios was FIM 0.3 billion (SEK 0.5bn). Other equity holdings classified as financial current assets and valued at the lower of cost or market amounted to FIM 2.8 billion (SEK 4.3bn), with respective unrealized gains totalling FIM 1.3 billion (SEK 2.0bn). The unrealized appreciation in the portfolio fell by 38 per cent during the third quarter. In late October the unrealized appreciation was more or less unchanged. Other unrealized gains The surplus in the Group's pension foundations and pension fund, i.e. the difference between the market value of their assets and their pension liabilities, at the end of September was FIM 1.8 billion (SEK 2.7bn), having shrunk by 36 per cent during the third quarter. In late October the surplus was FIM 1.9 billion (SEK 2.9bn). Real estate The book value of the Group's real estate holdings at the end of September was FIM 21.5 billion (SEK 33.0bn). During the nine months under review, the effective yield of Merita Real Estate's commercial real estate portfolio rose to 4.7 per cent. Strategies are being developed to facilitate the envisaged long-term disposal of a major part of the Finnish real estate portfolio, and a new real estate organization will be introduced in November. Under the new organization, major office premises in Helsinki and other large cities - representing approximately 45 per cent of the total value of the portfolio - will be grouped under a new unit, Aleksia Real Estate, which is scheduled to be transferred to a separate company at the end of the year. Shareholders' equity As at September 30, 1998 MeritaNordbanken's shareholders' equity was FIM 29.4 billion (SEK 45.2bn). The Tier 1 ratio at the end of September was 7.7 per cent and the total capital ratio 10.4 per cent. The profit for the first half- year, after deduction of a standard dividend, is included in the calculation. Savings market: progress despite stock market volatility Household savings under management with MeritaNordbanken at the end of September totalled nearly FIM 242 billion (over SEK 380bn). This comprises all types of savings products, including bank deposits, mutual funds, insurance, retail bonds and share-index-linked bonds. Deposits from the Finnish public remained unchanged during the third quarter. The Group's deposit market share in Finland in August was 41.5 per cent. The market share of household deposits in Finland was 38.0 per cent and that of corporate deposits 49.4 per cent. In Sweden, deposits developed favourably. The Group's deposit market share in the household sector at the end of September was 22.6 per cent and that in the corporate sector 18.6 per cent. The net inflow of savings to the Group's mutual funds during the third quarter totalled FIM 1.0 billion. In the bearish stock market environment, mutual fund savings decreased in the latter part of the third quarter, and savings were diverted from equity funds to mixed and bond funds. Total fund assets under management at the end of September amounted to FIM 66.7 billion. This excluded discretionary management of assets for the account of municipalities and foundations. The Group's premium income from life assurance in the third quarter totalled FIM 1.0 billion. Unit-linked insurance accounted for FIM 0.5 billion of this. In June the Group started selling unit-linked insurance products of Merita Life Assurance Ltd through the Swedish distribution network. By the end of September, premium income from these new products in Sweden amounted to SEK 706 million. Lending market The Group's market share of total lending in Finland was 41.3 per cent and that in Sweden 14.6 per cent. In the Swedish household sector, the Group's market share of housing loans continued to increase, approaching 14 per cent. In Finland, the Group registered a rise in its lending to households while its market share declined marginally to 35.6 per cent. Expansion of network banking services Since its establishment, MeritaNordbanken has launched a number of new payment products, some of which are available in both Sweden and Finland. For example, in January it offered its customers free Visa-card withdrawals from cash dispensers in Finland and Sweden. Later the Group introduced a more favourable valuation practice for corporate payments between the two countries, another innovation well received by customers. The number of card users continued to rise vigorously, and at the end of September the total number of MeritaNordbanken ATM and debit cards in issue was 3.7 million. The use of network banking services is rapidly gaining ground among the Group's customers. In Finland the number of network customers already exceeds 500,000. In Sweden the number of customers using the Internet banking service is approaching 50,000 and the number of telephone banking customers has risen to 368,000. More than 400 Internet vendors in Finland already accept payments for Web purchases via the Group's electronic payment facility. An Internet- based invoicing and payment service, the first of its kind, was made available to the 1.8 million mobile phone customers of the Finnish telecommunications operator Sonera. A similar service is being developed for the Swedish market. Legal proceedings On September 1, 1998, the Stockholm District Court dismissed the action brought against Nordbanken by the Swedish company Yggdrasil. High rating In October, Moody's Investors Service assigned a long-term debt rating of Aa3 to Nordbanken Hypotek AB. Share price development During the third quarter, the price of the Merita A-share fell by 28 per cent to FIM 25.90 and the share price of Nordbanken Holding by 22 per cent to SEK 45.50. Simultaneously the bank and insurance index in Sweden dropped by 27 per cent, a trend paralleled by Finland. The combined market capitalization of the MeritaNordbanken Group at the end of September was FIM 59 billion / SEK 91 billion. Stockholm / Helsinki, October 27, 1998 Hans Dalborg President and Group Chief Executive Officer This interim report has not been subject to summary review by the auditors. Further information: Hans Dalborg, President and Group CEO, tel. (+46 8) 614 7800 Arne Liljedahl, EVP, Accounting and Control, tel. (+46 8) 614 7996 Björn Westberg, Investor Relations, tel. (+46 8) 614 7850 Timo Nikinmaa, Corporate Communications, tel. (+358 9) 165 42471 www.meritanordbanken.com Tables MeritaNordbanken Group Income Statements Balance Sheets Financial ratios Share-related indicators Problem loans Group structure Appendices Interim reports for January-September 1998 A. Merita Plc B. Nordbanken Holding AB (publ) MeritaNordbanken reporting dates 1999 Report on operations in 1998 February 23 General Meeting, Nordbanken Holding AB March 25 General Meeting, Merita Plc March 29 Interim results, January-March 1999 April 28 Interim report, January-June 1999 August 25 Interim results, January-September 1999 October 26 Income statement Change Jan - Sep Pro forma FIM million 1998 1997 % Net interest income, Note 1 8 099 8 204 -1 Net commission income, Note 2 3 256 2 978 9 Net result from financial 1 724 1 584 9 operations, Note 3 Other operating income, Note 1 747 1 522 15 4 Total operating income 14 826 14 288 4 Personnel expenses -3 715 -3 431 8 Other operating expenses, -4 447 -4 480 -1 Note 5 Total expenses -8 162 -7 911 3 Profit before loan losses 6 664 6 377 5 Loan losses, net -597 -530 13 Profit from companies accounted for under the equity method 150 86 74 Operating profit 6 217 5 933 5 Refund of the surplus in the 98 Pension Fund Taxes -1 554 -1 097 42 Minority interest -23 -27 -15 Net profit for the period 4 640 4 907 -5 Note 1: Net interest income Change Jan - Sep FIM million 1998 1997 % Interest income 22 805 21 518 6 Interest expenses 14 706 13 314 10 Net interest income 8 099 8 204 -1 Note 2: Net commission income Change Jan - Sep FIM million 1998 1997 % Securities operations 1 306 1 131 15 Payment transmission 786 758 4 Lending 901 919 -2 Deposits 129 132 -2 Other commission income 414 332 25 Total commission income 3 536 3 272 8 Commission expenses -280 -294 -5 Net commission income 3 256 2 978 9 Note 3: Net result from financial operations Change Jan - Sep FIM million 1998 1997 % Equity-related items Realized gains/losses 1 237 1 692 -27 Unrealized gains/losses -6 -177 -97 1 231 1 515 -19 Interest-rate-related items Debt redemption -11 Other realized gains/losses 719 331 117 Unrealized gains/losses -530 -449 18 189 -129 Exchange rate changes 304 198 54 Total 1 724 1 584 9 Note 4: Other income Jan Change - Sep FIM million 1998 1997 % Dividends 488 173 182 Real estate income 770 833 -8 Sale of real estate 17 87 -80 Other 472 429 10 Total 1 747 1 522 15 Note 5: Other expenses Change Jan - Sep FIM million 1998 1997 % Administrative expenses 2 356 2 032 16 Depreciation 793 719 10 Write-downs on real estate 260 Real estate expenses 414 467 -11 Other 884 1 002 -12 Total 4 447 4 480 -1 Quartely income statement Pro forma Q 3 Q 2 Q 1 * Q 4 Q 3 FIM million 1998 1998 1998 1997 1997 Net interest income 2 638 2 757 2 704 2 798 2 821 Net commission income 1 067 1 154 1 035 1 114 1 010 Net result from 20 194 1 510 330 376 financial operations Other income 350 601 796 348 545 Total operating income 4 075 4 706 6 045 4 590 4 752 Personnel expenses -1 -1 262 -1 192-1 163 -1 166 261 Other operating expenses -1 -1 566 -1 522-2 198 -1 351 359 Total expenses -2 -2 828 -2 714-3 361 -2 517 620 Profit before loan 1 455 1 878 3 331 1 229 2 235 losses Loan losses, net -196 -170 -231 -917 -76 Profit from companies accounted for under the equity method 53 64 33 10 36 Operating profit 1 312 1 772 3 133 322 2 195 Refund from pension - - - 1 447 98 foundation/funds Taxes -328 -443 -783 -322 -417 Minority interest -6 -9 -8 -9 -6 Net profit for the 978 1 320 2 342 1 438 1 870 period Balance Sheet Pro forma Sep 30 Dec 31 FIM million 1998 1997 Loans to financial institutions 64 964 79 662 and central banks Loans to the public 346 860 339 867 Interest-bearing securities Current assets 60 113 61 378 Financial fixed assets 24 943 29 403 Shares and participations 3 381 4 530 Shares and participations in * subsidiaries and associated companies 3 899 3 521 Real estate holdings 21 488 22 560 Other assets 38 157 41 963 Total assets 563 805 582 884 Due to financial institutions 104 269 106 864 and central banks Deposits from the public 236 348 233 309 Other borrowing from the public 9 154 15 649 Debt instruments outstanding 121 228 133 294 Other liabilities 46 940 41 795 Subordinated debt 16 052 23 694 Minority interest 398 420 Shareholders' equity 29 416 27 859 Total liabilities and 563 805 582 884 shareholders' equity Contingent liabilities 59 496 58 528 - of which on behalf of 0 66 associated companies Capital adequacy Capital base 38 641 40 693 Risk-weighted amount 371 566 361 720 Total capital ratio, % 10.4 11.3 Tier 1 ratio, % 7.7 7.4 * Subsidiaries accounted for under the equity method in accordance with the regulations issued by the Finnish Financial Supervision Authority. Exchange rates applied 1998 1997 1997 SEK 1 = FIM Jan - Sep Jan - Sep Jan - Sep Income statement 0.6856 0.6751 0.6782 (average) Balance sheet (at 0.6502 0.6966 0.6863 the end of period) Pro forma Financial ratios 1998 1997 1997 Jan - Sep Jan - Sep Jan - Dec Return on equity, % 21.0 26.0 18.9* Income/cost ratio - before loan losses 1.8 1.8 1.7 - after loan losses 1.7 1.7 1.5 Loan losses/ lending at the beginning 0.2 0.2 0.4 of the year, % *) Including refund of the surplus in the Pension Fund, 24.8%. Share-related indicators Pro forma 1998 1997 1997 Jan - Sep Jan - Sep Jan - Dec Number of shares at the end of period, mill. Merita Plc 832.0 830.5 830.5 - after full conversion 859.1 859.3 859.3 Nordbanken Holding AB 1 275.3 1 279.2* 1 275.3 Earnings/share (EPS) Merita Plc FIM 2.23 FIM 2.32 FIM 2.31** - after full conversion FIM 2.17 FIM 2.25 FIM 2.25** Nordbanken Holding AB SEK 3.18 SEK 3.34 SEK 3.33** Equity/share at the end of period Merita Plc FIM 14.14 FIM 12.68 FIM 13.42 - after full conversion FIM 14.13 FIM 12.71 FIM 13.43 Nordbanken Holding AB SEK 21.29 SEK 17.72 SEK 19.10 Market price at the end of period Merita Plc, A share FIM 25.90 FIM 25.10 FIM 29.80 Merita Plc, B share FIM 25.80 FIM 24.60 FIM 28.70 Nordbanken Holding AB SEK 45.50 SEK 36.90 SEK 44.80 * The number of Nordbanken shares multiplied by seven. ** Excl. refund of the surplus in the Pension Fund. Problem loans Pro forma Sep 30 June 30 March 31 Dec 31 FIM million 1998 1998 1998 1997 * Doubtful receivables, 19 639 20 860 22 383 gross Loan loss provision -13 199 -13 591 -14 431 Doubtful receivables, 6 440 7 269 7 952 net Low-yielding 142 158 234 receivables Problem loans, total 6 582 7 427 8 186 8 598 Loan loss provision/ doubtful receivables, 67.2 % 65.2 % 64.4 % gross Doubtful 1.9 % 2.1 % 2.3 % receivables/lending * Problem loans have been reclassified; the figures for previous years are therefore not comparable. Group structure [REMOVED GRAPHICS] Merita Plc (Finland) and Nordbanken AB (publ) (Sweden) are the sole owners of MeritaNordbanken Plc, the Finnish parent company of the MeritaNordbanken Plc Group. The two holding companies together form a transparent channel for investment in the MeritaNordbanken Group. Pursuant to mutual agreement, the MeritaNordbanken Group is managed as a single unit. Shareholders of Merita Plc are entitled to 40 per cent of the Group's capital and shareholders of Nordbanken Holding to 60 per cent. The number of Merita Plc shares as at September 30, 1998 was 832,020,744. During the first nine months, the number of shares increased by 1,566,838 (of which 600 have not been registered). Of this, 1,483,438 shares resulted from the exercise of equity warrants expiring on March 12, 1998. A further increase of 83,400 shares stemmed from the conversion into equity of convertible bonds issued in 1992. Assuming conversion of all convertible bonds still outstanding, the number of shares can increase by a maximum of 27,099,000 shares to a total of 859,119,744. The number of Nordbanken Holding AB (publ) shares issued and outstanding is 1,275,267,441. Merita Plc's share (40 per cent) of the profit for the period was FIM 1,856 million representing FIM 2.17* per share. Equity per share was FIM 14.13*. Nordbanken Holding's share (60 per cent) of the profit for the period was SEK 4,061 million, representing SEK 3.18 per share. Equity per share was SEK 21.29. *Assuming conversion of all convertible bonds. Appendix A 1 (3) Merita Plc and its associated companies Interim report for January-September 1998 This review, together with the interim results of the MeritaNordbanken Group, constitutes the interim report of Merita Plc. The holding companies Merita Plc and Nordbanken Holding AB (publ) are the sole owners of MeritaNordbanken Plc, the parent company of the MeritaNordbanken Plc Group. Together, the MeritaNordbanken Plc Group and the two holding companies form the MeritaNordbanken Group. On March 31, 1998 Merita Plc transferred all its business operations to MeritaNordbanken Plc as a contribution in kind in consideration of shares in the company. At the same time Merita Plc ceased to be the parent company of the Merita Group. Similarly, on April 1, 1998, Nordbanken Holding AB transferred its holding of Nordbanken shares in its entirety to MeritaNordbanken Plc as a contribution in kind in consideration of shares in the company. The MeritaNordbanken Plc Group was created as a result of these transfers. The respective increases in the share capital of MeritaNordbanken Plc were entered in the Finnish Trade Register on April 18, 1998. Pursuant to the Cooperation Agreement of October 13, 1997, Merita Plc, Nordbanken Holding AB and the MeritaNordbanken Plc Group are managed as one single entity. For this purpose its is provided in the Agreement, inter alia, that differences in the holding companies' capital structure or assets and liabilities, including liquid funds, shall not financially affect the respective shareholder communities and that Merita Plc and Nordbanken Holding AB shall, where necessary, arrange a transfer of funds between MeritaNordbanken and its holding companies. Merita Plc shareholders are entitled to 40 per cent of the Group's capital and Nordbanken Holding shareholders to 60 per cent. The interim results of the MeritaNordbanken Group, including income statements and balance sheets, constitute an integral part of the interim report of Merita Plc. In order to illustrate the financial development and position of Merita Plc strictly from the company's own point of view, the attached material also comprises the income statements and balance sheets of Merita Plc including its associated company MeritaNordbanken. The profit includes part of the capital gain (FIM 782 million) from the sale of the equity holding in the Sampo Insurance Company. Merita Plc's share (40 per cent) of the consolidated profit of the MeritaNordbanken Plc Group is reported under "Profit from companies accounted for under the equity method", together with an adjustment of FIM 404 million pursuant to the Cooperation Agreement. After these items, the profit of Merita Plc for the period under review represents 40 per cent of the profit of the entire MeritaNordbanken Group and amounts to FIM 1,856 million. Including the equity interest in the associated company and an adjustment in accordance with the Cooperation Agreement, the shareholders' equity of Merita Plc, representing 40 per cent of the shareholders' equity of the entire MeritaNordbanken Group, is FIM 11,766 million. Appendix A 2 (3) Merita Plc Interim Report Income statement Merita Plc, incl. the associated company Merita Plc Jan - Jan - Jan - Jan - Jan - Jan - FIM million 1998 1997 1997 1998 1997 1997 Net interest income -34 -74 -142 -34 -74 -142 Dividends received 16 27 0 480 707 Net income from 792 114 114 792 114 114 Other income 3 9 11 3 9 11 Total income 761 64 9 761 529 689 Refund of the surplus 39 618 631 Expenses -71 -24 -56 -71 -24 -56 Total expenses -71 15 562 -71 -24 575 Profit from companies for under the equity 1 573 1 873 2 028 Adjustment in the Cooperation -404 Operating profit 1 859 1 952 2 599 690 505 1 264 Group contribution 457 Direct taxes, Note 1 -3 11 -61 -3 11 -251 Profit for the period 1 856 1 963 2 538 687 515 1 470 Turnover 858 654 902 Balance sheet Merita Plc, incl. the associated company Merita Plc Pro forma Sep 30 Sep 30 Dec 31 Sep 30 Sep 30 Dec 31 FIM million 1998 1997 1997 1998 1997 1997 Shares in subsidiaries and associated companies 10 817 12 042 11 828 9 811 11 377 11 536 Shares and 1 887 887 1 887 887 participations Debt securities 906 905 905 906 905 905 Other receivables 980 392 1 108 980 392 1 108 Other assets 29 20 20 29 20 20 Total assets 12 733 14 246 14 747 11 727 13 582 14 455 Shareholders' equity, 11 766 10 528 11 144 10 761 9 864 10 852 Note 2 Statutory provisions 27 21 23 27 21 23 Debt securities issued to the public and 903 2 935 2 680 903 2 935 2 680 subordinated liabilities Other liabilities 37 761 900 37 761 900 Total liabilities and 12 733 14 246 14 747 11 727 13 582 14 455 shareholders' equity Contingent liabilities 8 83 8 8 83 8 Derivative 301 303 301 303 instruments, nominal value - credit equivalent 24 24 24 24 Appendix A 3 (3) Merita Plc Interim Report Note 1. Taxes Allowance for loss equalization has been taken into The taxes for the MeritaNordbanken Group are reported Note 2. Shareholders' equity Merit Pro forma Sep Sep Dec FIM million 1998 1997 1997 Shareholders' equity 10 9 864 10 Share of sharehold. 1 114 664 292 Adjustment in the Cooperation -108 Shareholders' equity 11 10 11 Key ratios including associated companies, see page 14 Appendix B 1 (2) Nordbanken Holding AB (publ) and its associated companies Interim report for January-September 1998 This review, together with the interim results of the MeritaNordbanken Group, constitutes the interim report of Nordbanken Holding AB. The holding companies Nordbanken Holding AB (publ) and Merita Plc are the sole owners of MeritaNordbanken Plc, the parent company of the MeritaNordbanken Plc Group. Together, the MeritaNordbanken Plc Group and the two holding companies form the MeritaNordbanken Group. On April 1, 1998 Nordbanken Holding transferred its equity holding in Nordbanken to MeritaNordbanken Plc as a contribution in kind in consideration of shares in the company. Similarly, on March 31, 1998, Merita Plc transferred all its businesses to MeritaNordbanken Plc as a contribution in kind in consideration of shares in the company. The MeritaNordbanken Plc Group was created as a result of these transfers. The respective increases in the share capital of MeritaNordbanken Plc were entered in the Finnish Trade Register on April 18, 1998. Pursuant to the Cooperation Agreement of October 13, 1997, Nordbanken Holding AB, Merita Plc and the MeritaNordbanken Plc Group are managed as one single entity. For this purpose its is provided in the Agreement, inter alia, that differences in the holding companies' capital structure or assets and liabilities, including liquid funds, shall not financially affect the respective shareholder communities and that Nordbanken Holding AB and Merita Plc shall, where necessary, arrange a transfer of funds between MeritaNordbanken and its holding companies. Nordbanken Holding shareholders are entitled to 60 per cent of the Group's capital and Merita shareholders to 40 per cent. The interim results of the MeritaNordbanken Group, including income statements and balance sheets, constitute an integral part of the interim report of Nordbanken Holding AB. In order to illustrate the financial development and position of Nordbanken Holding strictly from the company's own point of view, the attached material also comprises the income statements and balance sheets of Nordbanken Holding including its associated company MeritaNordbanken. The profit of Nordbanken Holding for the period under review, excluding earnings from the associated company, was SEK 31 million. Its share (60 per cent) of the consolidated profit of the MeritaNordbanken Plc Group is reported under "Profit from companies accounted for under the equity method", together with an adjustment of SEK 589 million pursuant to the Cooperation Agreement. After these items, the profit of Nordbanken Holding AB for the period under review represents 60 per cent of the profit of the entire MeritaNordbanken Group and amounts to SEK 4,061 million. Including the equity interest in the associated company and an adjustment in accordance with the Cooperation Agreement, the shareholders' equity of Nordbanken Holding, representing 60 per cent of the shareholders' equity of the entire MeritaNordbanken Group, is SEK 27,145 million. Appendix B 2(2) Nordbanken Holding AB (publ) Interim Report Income statement Nordbanken including the Nordbanken Jan -Jan -Jan -Jan -Jan -Jan - SEK million 1998 1997 1997 1998 1997 1997 Anticipated dividends 4 934 Net interest income 51 51 Expenses -8 -8 Profit from companies for under the equity 3 441 4 3615 614 Adjustment in the Cooperation 584 Profit before taxes 4 0734 3615 614 43 4 934 Taxes -12 -12 Profit for the period 4 0614 3615 614 31 4 934 Balance sheet Nordbanken including the Nordbanken Sep Sep Dec Sep Sep Dec SEK million 1998 1997 1997 1998 1997 1997 Shares in the 25 20 13 13 Long-term receivables 1 981 1 981 Short-term receivables 2 042 1 9142 042 1 914 Total assets 27 24 15 16 411 407 281 948 Shareholders' equity , 27 22 24 15 16 Short-term liabilities 266 51 266 51 Total liabilities and 27 24 15 16 shareholders' equity 411 407 281 948 * Nordbanken Holding AB was registered on October 8, 1997. the period from October 8, Note 1. Shareholders' equity Sep Sep Dec SEK million 1998 1997 1997 Shareholders' equity 15 16 Share of sharehold. eq. 11 227 459 Adjustment in the Cooperation 166 Shareholders' equity 27 22 24 Key ratios including associated companies, see page 14 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are ready for download: http://www.bit.se/bitonline/1998/10/27/19981027BIT00110/bit0001.doc http://www.bit.se/bitonline/1998/10/27/19981027BIT00110/bit0002.pdf