Interim Results

 

§         Sampo Bank Group's profit before taxes for January-June was EUR 119 million (109)

§         Net interest income grew somewhat to EUR 165 million (151)

§         Sampo Bank Group's total assets at June 30 were EUR 21.6 billion (18.6), up by 16 per cent.

 

 

 

Sampo Bank Group's profit before taxes increased to EUR 119 million (109). The main reason for the profit improvement was an increase in net interest income to EUR 165 million (151). Net investment income increased to EUR 21 million (8), which was due to one-off profits on private equity investments. Operating expenses rose to EUR 195 million (188). The increase was due to higher staff costs in the Baltic operations and costs arising from management's long-term incentive scheme. Reversals of impaired loans and advances exceeded impairment losses, resulting to a positive amount of impairment losses which increased the profits by EUR 7 million (10). Attributable to the increase in operating income, the profit for the period rose to EUR 90 million (77) and the return on equity (RoE) to 18.6 per cent (17.2).

 

In the retail customer segment, net interest income increased particularly as a result of a growth in the loan portfolio. The market share in Finland's housing loan market rose to 15.0 per cent (14.2). Housing loan spreads narrowed further. Fee and commission income arising from sale of investment products also developed favourably. Profit before taxes rose to EUR 38 million (33). Combined with reduced costs, the segment's profitability has improved on the previous year.

 

In the corporate customer segment, net interest income and other income increased slightly. Profit before taxes was boosted particularly by income from equity investments. The market position in the corporate customer segment remained stable.

 

The strong growth of the Baltic operations made a clear improvement in profit before taxes. Although costs also rose, the segment's profitability improved.

 

 

 

Total assets grew by 16 per cent to EUR 21,599 million (18,614), due to strong growth in the loan portfolio. Loans and receivables grew to EUR 17,330 million (15,003). The housing loan portfolio increased by 25 per cent to EUR 7,114 million, due to the rapid expansion of the housing loan market and successful marketing. Growth of other retail loans also accelerated. Corporate loans increased by 13 per cent, although part of this growth was due to short-term loans related to mergers and acquisitions. Credit quality remained excellent. Deposits grew by four per cent to EUR 9,222 million. Part of the growth in banking operations was funded by issuing debt securities. The amount of preferred capital notes rose to EUR 234 million (123) and the total amount of debt securities in issue to EUR 7,312 million (6,201).  Equity decreased slightly to EUR 931 million (939) as a result of dividend payments.

 

 

 

At the end of June, Sampo Bank Group's capital adequacy ratio was 9.9 per cent and the tier 1 ratio was 6.7 per cent. At the end of 2004 the capital adequacy ratio had been 10.7 per cent and the tier 1 ratio 7.3 per cent. The estimated dividends to be distributed for the current year, proportioned to the interim period, have been deducted from the profits for the review period. The total capital included in capital adequacy calculations amounted to EUR 1,524 million at the end of June (EUR 1,474 million at 31 December 2004). The Group's risk-weighted assets at the end of June totalled EUR 15,439 million (EUR 13,755 million).

 

 

                                                            Long-term                   Short-term

                                                            funding                        funding

 

Moody's Investors Service                  A1                                P-1

Standard & Poor's                              A-                                 A-2

Sampo Bank Group's staff numbered 4,014 (3,911) at 30 June 2004 (full-time-equivalent). The number of staff decreased in Finnish banking operations due to the reorganisation of the branch network and increased in the rapidly growing subsidiaries of the Baltic countries.

 

 

ADMINISTRATION

 

Mika Ihamuotila (Chairman), Ilkka Hallavo, Tapani Koskinen, Jarmo Lankinen, Patrick Lapveteläinen, Maarit Näkyvä, Georg Schubiger and Risto Tornivaara are the members of Sampo Bank plc's Board of Directors during the financial year.

 

Ilkka Hallavo is the Managing Director of Sampo Bank plc.

 

Ernst & Young Oy, a firm of Authorised Public Accountants, is the auditor of Sampo Bank plc with Tomi Englund, APA as the principally responsible auditor.

 

The rapid growth in lending will increase net interest income, although the low interest level and narrower spreads caused by competition will restrict an increase in income. The result for the whole year is expected to be good, because fee and commission income is also growing and the impact of the decreased interest rates will no longer affect comparisons. A continuation of rapid growth is expected not only in housing loans, but also in loans granted to other retail customers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

++++++++++++++++++++++++++++++++++++++++++++++++++

 

 

In 2001 the EU Commission issued a Regulation requiring listed companies in the EU area to prepare their consolidated financial statements in accordance with the IAS/IFRS standards from 2005 onwards. The EU Parliament and Council of Ministers adopted the Regulation in June 2002.

 

Sampo Bank as a part of Sampo Group adopted the IFRS in its consolidated financial statements from the beginning of 2005 and will prepare its interim report for 2005 in conformance with the IFRS endorsed by the EU.

 

The adoption of IFRS will increase Sampo Bank Group's equity in the opening balance sheet of the comparison year (1 January 2004) by EUR 6.7 million. The increase is due mainly to the measurement of financial instruments at fair value, in accordance with International Accounting Standard 39 (IAS 39).

Main impacts deriving from transition to IFRSs

 

Sampo Bank Group comprises companies engaged in banking business in Finland and the Baltic countries. The IFRS changes derive mostly from IAS 39: Financial Instruments: Recognition and Measurement.

 

A significant portion of the financial assets and liabilities of banking business were already, under the previous accounting practice, measured in accordance with IAS 39, so the transition will not cause any material impact on the opening balance sheet for 1 January 2004. Sampo Bank applies IAS 39 in the form endorsed by the EU. Sampo Bank does not intend to hedge demand deposits in the way enabled in this form, and hence the regulation has no impact on its profit or loss or equity.

 

The major change in accounting policies is the measurement of all hedging derivative instruments at fair value. There will also be a change in hedge accounting by which, in fair value hedging, the hedged item is also measured at fair value, even though it is otherwise measured at cost. The change will cause no material impact on Group profit or loss or equity.

 

In accordance with IAS 17 Leases, the treatment of leases differs from earlier practice.

Sampo Bank Group engages in the leasing business both domestically through Sampo Bank and abroad through the Baltic subsidiaries. The treatment of finance leases in accordance with IAS 17 will change the accounting treatment of the lessor, for the lease will be treated as a receivable and not as a tangible asset as in the previous accounting practice. Although the change in accounting treatment causes changes between items in the income statement and balance sheet, they will have no effect on the Group profit or loss or equity. Those leases under which substantially all the risks and rewards of an asset incidental to legal ownership remain in the Group are treated as operating leases. These assets (e.g. full service leases for cars) are included in Group property, plant and equipment and the income received from them is treated as lease income.

 

With respect to the impairment of financial assets, the major change is the recognition of interest income on an impaired loan. Under the previous accounting practice, the interest income already included in profit or loss was reversed when a loan became non-performing.  In accordance with IAS 39, after an impairment loss, interest income continues to be recognised on the impaired amount at the original effective interest rate.  Furthermore, a change in the impairment of loans has no material impact on the Group profit or loss or equity.

 

 

 

In its first-time adoption of IFRSs, Sampo Bank Group will apply the following exemptions referred to in IFRS 1:

 

The Group will not apply IFRS 3 retrospectively to business combinations that occurred prior to 1 January 2004. The impairment tests required by IAS 36 have been performed with respect to goodwill that arose earlier. No impairment losses have been recorded in the opening balance sheet on the basis of the tests.

 

The Group will use the exemption permitted by IFRS 1 and will not, at the date of transition to IFRSs, present translation differences arising from consolidation as a separate component of equity, but will deem the translation differences to be zero.

 

The cost model referred to in IAS 40 will be applied to the accounting of investment property for the time being. Information on fair values will be disclosed in the Notes to the Financial Statements.

           

Defined employee benefit plans leave the company with obligations after the balance sheet date. In such cases the magnitude of the obligations will be defined by actuarial techniques.

 

Sampo's long-term employee benefits include the disability pension that is part of the Finnish statutory employee pension insurance (TEL). Despite the fact that the disability pension is a defined benefit plan, it is not a cumulative benefit that depends on the employee's length of service. Instead, an obligation arises only when an event occurs that causes a disability.  Thus, the procedure mentioned in paragraph 130 of IAS 19, in which the cost of a benefit is recognised when the disability occurs, will be applied in the accounting. Thus the disability pension will not cause an IFRS adjustment in the opening balance sheet.

 

 

The basis for the new reporting model of the Sampo Group is a simplified presentation as is generally used internationally. The balance sheet items have been classified under the IFRS in accordance with their purpose. The model presents the Group assets and liabilities, as well as income and expenses, in such a way that it shows directly how the Group assets, liabilities, income and expenses are divided between segments.

 

Resulting from the change in the Sampo Group reporting model some changes has been made also in the presentation of the financial statements of the Sampo Bank Group. The main changes are described below. In comparison with the previous model, in the Income statement, changes have been made primarily in Net interest income, Net income from financial transactions and foreign exchange dealing and in Net investment income. In the balance sheet, securities have been classified, according to IFRS, as Trading assets, Other financial assets at fair value through profit or loss and Investments.

 

In addition to the above mentioned securities, Investments include investment properties and investments in associates.

 

Assets and liabilities arising from the changes in the fair values of financial derivative instruments are included in the items Trading assets and financial derivative instruments and Trading liabilities and financial derivative instruments, respectively.

 

Differences between the figures in the IFRS-reconciliations and the new reporting model for the periods 1 January - 30 June 2004 and 1 January - 31 December 2004, arising from the changes in the formats, are as follows:

 

Income statement

 

In the new format, instead of Net interest income, the interest income from debt securities and interest rate derivatives held for trading and debt securities designated at fair value through profit or loss is included in Net income from financial transactions and foreign exchange dealing, and the interest income from debt securities held-to-maturity and held as available-for-sale financial assets is included in Net income from investments.

 

Dividend income from available-for-sale equity instruments, previously included in Dividend income, which was a separate item in Income statement, is now included in Net income from investments. Income from investments in associates, also previously a separate item in Income statement, is included in Net income from investments.

 

Provisions for bad and doubtful debts are presented in the new format under item Impairment losses on loans and receivables.

 

 

 

 

BALANCE SHEET