FOREX Bank AB. FOREX Annual Report 2011

Transcription

1 FOREX Bank AB Annual Report 2011 FOREX Annual Report

2 2 FOREX Bank Annual Report 2011

3 Contents Contents 3 Statutory administration report 4 Consolidated income statement 10 Consolidated statement of comprehensive income 10 Consolidated balance sheet 11 Consolidated statement of changes in equity 12 Consolidated cash flow statement 13 Parent company income statement 14 Parent company statement of comprehensive income14 Parent company balance sheet 15 Parent company statement of changes in equity 17 Parent company cash flow statement 18 Notees to the financial statements 19 Note 1 Information about Group and parent company 19 Note 2 Accounting principles 19 Note 3 Financial risks 30 Note 4 Net interest income/expense 33 Note 5 Dividends received 34 Note 6 Commission income 35 Note 7 Commission expenses 35 Note 8 Net profit (loss) from financial transactions36 Note 9 Other operating income 37 Note 10 General administrative expenses 38 Note 11 Other operating expenses 46 Note 12 Loan losses, net 45 Note 13 Impairment of financial assets 46 Note 14 Reversal of impairment of financial assets 46 Note 15 Appropriations 46 Note 16 Taxes 47 Note 17 Loans to credit institutions 50 Note 18 Loans to the general public 50 Note 19 Bonds and other interest -bearing securities 51 Note 20 Shares and participations in group companies 51 Note 21 Participations in associated companies 52 Note 22 Other shares and participations 54 Note 23 Intangible assets 55 Note 24 Property, plant and equipment 57 Note 25 Receivables from group companies 61 Note 26 Other assets 61 Note 27 Prepaid expenses and accrued income 62 Note 28 Deposits from the general public 62 Note 29 Liabilities to group companies 63 Note 30 Other creditors 63 Note 31 Accrued expenses and prepaid income 64 Note 32 Provisions 64 Note 33 Untaxed reserves 65 Note 34 Contingent liabilities 65 Note 35 Commitments 66 Note 36 Related parties 66 Note 37 Geographic distribution of income 67 Note 38 Financial assets and liabilities 68 Note 39 Cash flow statement 75 Note 40 Acquisitions 76 Note 41 Important estimates and assessments 76 Note 42 Dividends 76 Note 43 Capital adequacy 76 Signatures of the board of directors 79 Audit report 80 Governance 82 List of branches 83 FOREX Annual Report

4 Statutory administration report The Board of Directors and Managing Director of FOREX Bank AB hereby submit the annual report and consolidated financial statements for the 2011 financial year. Ownership FOREX Bank AB, CIN , is one of the family Friberg s wholly owned joint-stock banks. Organization and business activities FOREX Bank AB conducts banking operations consisting of deposits from and loans to the general public, remittance services and the provision of payment services in SEK and foreign currencies. The bank is the parent company of Group that is comprised of its bank branches in Finland, Denmark and Norway, the wholly-owned subsidiary X-change in Sweden AB (with subsidiaries) and Svensk Valutahantering AB. The subsidiary FOREX Sweden International Ltd in Great Britain is in the process of being liquidated. During the year, 27.7% of Panaxia AB (publ), listed on NGM Equity, was acquired for SEK 43 million. The business is conducted in the Nordic countries and at the end of the year there were 109 (113) bank branches. During 2009, four branches were established in Group, of which three were in FOREX Bank s Swedish organization and one was in the Danish organization. During the year, one branch in Sweden, one branch in Finland and six branches belonging to the X-change business were closed. During 2012, a large number of X-change branches will be transferred to FOREX Bank. The branches that will subsequently remain within X-change will be concentrated in airports and railway hubs. During the year, the volume of currency exchange continued to decline, which, among other things, is due to the increased use of credit cards. The volume of both loans to and deposits from the general public increased substantially, however, which is an indication of the market s continued confidence in the bank. The trend for the number of bill payments continued in a positive direction. The volume and number of brokered foreign transfers, though, decreased in all of the bank s markets. An agreement was entered into during the year entailing the representation of Western Union throughout the entire FOREX group as of 6 December 2011 for remittance services to private individuals. The agreement also entails that all of Western Union s 16 branches in Sweden, Finland and Norway will be taken over in Extensive skills development efforts continued throughout the year in order to obtain a higher overall level of competency within Group. Efforts to outsource the banking platform started in 2010 and continued during the year. The transfer is expected to be completed in An internal function for the management and supply of foreign currency, Cash Center, was established and has been operational since April The function has continued to progress and it is estimated that it will take over the entire supply of Group s need for foreign currency during The appeal regarding the size of the penalty fee (SEK 50 million) handed down by the Swedish Financial Supervisory Authority in 2008 was dismissed by the Supreme Administrative Court during the year and, as a result, Forex settled the payment. In December, the Swedish Financial Supervisory Authority approved an agency agreement between Forex Bank and X-change in Sweden, which entails that, in the future, X-change will be an agent for all of Forex Bank s bank products. Group results For the financial year, Group reported an operating profit of SEK 231 (340) million and profit after tax of SEK 165 (255) million. Most of the operating profit is comprised of the net profit from financial transactions, primarily currency exchange and commission income, but net interest income s share of revenue continued to increase during the year. Operating income was SEK 1,223 (1, 202) million, which is an increase of 2 percent year-on-year. Net interest income increased by 58 percent to SEK 111 (70) million due to growth in the volume of loans granted in conjunction with an increased interest margin. Net income from financial transactions decreased by 1 percent to SEK 916 (925) million due to lower volumes as a result of the increased use of credit cards. Net commissions increased by 8 percent to SEK 183 (198) million. General administrative expenses increased by 8 percent to SEK 796 (740) million due to continued large investments in skill development and IT development. Depreciation/amortization and impairment decreased by 3 percent to SEK 37 (38) million. Other operating expenses 4 FOREX Bank Annual Report 2011

5 increased by 24 percent to SEK 98 (79) million, which is primarily attributable to increased marketing activities. Loan losses were SEK 60 (5) million. Verified loan losses amounted to 1 (0) percent of loans granted. Group position Total assets were SEK 6,574 (4, 879) million. Cash equivalents, which include cash, loans to credit institutions and bonds and other interest-bearing securities with up to a 3-month maturity, were SEK 2, 657 (2, 396) million. Loans to the general public increased by 48 percent to SEK 2,564 (1, 734) million. Deposits from the general public increased from SEK 3,854 million to SEK 5,513 million, which is an increase of 43 percent. Group s equity at year-end was SEK 813 (696) million. The equity ratio was 12 (14) percent and the capital adequacy ratio was 1.67 (1.72). Parent company results For the financial year, the parent company reported an operating profit of SEK 203 (355) million and profit after tax of SEK 145 (285) million. Most of the operating profit is comprised of the net profit from financial transactions, primarily currency exchange and commission income, but net interest income s share of revenue continued to increase during the year. Operating income was SEK 1, 098 (1, 118) million, which is a decrease of 2 percent year-on-year. Net interest income increased by 58 percent to SEK 110 (70) million due to growth in the volume of loans granted in conjunction with an increased interest margin. Net income from financial transactions decreased by 2 percent to SEK 804 (823) million due to lower volumes as a result of the increased use of credit cards. Net commissions increased by 3 percent to SEK 163 (168) million. General administrative expenses increased by 9 percent to SEK 718 (660) million due to significantly larger investments in skill development and system development. Depreciation/amortization and impairment was SEK 32 million and is in line with the prior year. Other operating expenses increased by 27 percent to SEK 86 (68) million, which is primarily attributable to increased marketing activities. Loan losses were SEK 60 (5) million. Verified loan losses amounted to 1 (0) percent of loans granted. Parent company s position Total assets were SEK 6, 477 (4, 787) million. Cash equivalents, which include cash, loans to credit institutions and bonds and other interest-bearing securities with up to a 3-month maturity, were SEK 2,515 (2,255) million. Loans to the general public increased by 48 percent to SEK 2,564 (1, 734) million. Deposits from the general public increased from SEK 3,854 million to SEK 5,513 million, which is an increase of 43 percent. The parent company s equity at year-end was SEK 679 (582) million. The equity ratio was 10 (12) percent and the capital adequacy ratio was 1.93 (1.88). Future development Looking forward, the volume of currency exchange in Sweden is expected to decline even further while the volumes for other bank services continue to increase. In Sweden, there is a downward trend in the overall amount of cash in circulation. Various initiatives to achieve a cashfree society enable Group, because of its accessibility, to develop the business as a complement to other banks in the area of cash management For the Finnish, Danish and Norwegian markets, the goal is to significantly increase market share for currency exchange and remittance services over the next few years. Other banking services will be introduced at a later date, once FOREX Bank s brand achieves a higher level of penetration and recognition in these markets. It was decided to set up new branches in all of the markets where Group currently has operations. Due to developments in the banking sector and the decline in cash transactions in society, it is critical to come up with a new branch structure and design that is adapted to both the various markets where Group currently has operations and the nature of the operations being conducted. This may lead to a relocation or shutdown of certain branches. Due to the takeover of Western Union s 13 branches in Norway, efforts there will to a large extent be focused on adapting these branches to the FOREX standard. The Group will continue to invest in training to raise the level of employee expertise. This is necessary to increase market penetration for the products offered by the bank, as well as to ensure that staff have the requisite knowledge of the routines and regulations pertaining to operations. With regard to money laundering, it should be Noteed in particular that extensive efforts are being made on an ongoing basis to increase both the expertise of all employees and their ability to handle different situations. as well FOREX Annual Report

6 as to ensure that staff have the requisite knowledge of the routines and regulations pertaining to operations. With regard to money laundering, it should be Noteed in particular that extensive efforts are being made on an ongoing basis to increase both the expertise of all employees and their ability to handle different situations. Business risks Each day, the bank is exposed to various types of risks associated with the business, such as credit risks, liquidity risks, market risks (interest rate risks and currency risks) and operational risks. A more detailed description of these risks is provided in Notee 3. 6 FOREX Bank Annual Report 2011

7 Five-year Summary Group Key figures 1) Volume Loans to the general public Change during the year, % 48% 57% 63% 20% 27% Deposits from the general public Change during the year, % 43% 29% -1% 63% 23% Equity Equity ratio 12,4% 14,3% 12,5% 9,6% 15,8% Taxed equity as a % of total assets Capital adequacy ratio 2) 1,72 1,67 1,28 1,04 2,26 Capital base/capital adequacy requirement Net profit Investment margin 1,93% 1,62% 1,40% 0,72% 0,69% Net interest income/expense as a % of average total assets Return on equity 30,1% 58,2% 35,7% -12,3% 17,9% Operating profit as a % of average equity Cost/income ratio before loan losses 0,8 0,7 0,8 1,0 0,9 Total costs excluding loan losses and changes in the value of property taken over in relation to net interest income/expense + operating income Cost/income ratio after loan losses 0,8 0,7 0,9 1,1 0,9 Total costs including loan losses and changes in the value of property taken over in relation to net interest income/expense + operating income Doubtful debts and loan losses Reserve ratio for doubtful debts 100,0% 100,0% 100,0% 100,0% 100,0% Write-down for probable losses as a % of doubtful debts, gross Percentage doubtful debts 4,5% 4,3% 6,0% 2,2% 1,9% Net doubtful debts as a % of total loans granted to the general public and credit inst. (excluding banks) Loan loss ratio 3,3% 0,4% 10,6% 2,0% 2,0% Loan losses as a % of the opening balance for loans granted to the general public and credit institutions. (excluding banks and leasing objects, property taken over and credit guarantees) Other information Average number of employees Number of branches ) The capital adequacy ratio for 2007 refers to the parent company FOREX Annual Report

8 Income statements and balance sheets Group SEK thousands Income statement Net interest income/expense Dividends received Commissions, net Net profit from financial transactions Other income Total income General administrative expenses Other operating expenses 1) Credit losses and impairment of financial assets Total expenses Operating profit (loss) Share in profits from associated companies Tax Net profit/loss for the year Balance sheet Cash Loans to credit institutions Loans to the general public Interest-bearing securities Shares and participations Intangible assets Property, plant and equipment Other assets Total assets Liabilities to credit institutions Deposits from the general public Other liabilities Provisions Total liabilities and provisions Equity Total liabilities, provisions and equity ) Including depreciation/amortization and impairment of property, plant and equipment and intangible assets 8 FOREX Bank Annual Report 2011

9 Proposal for appropriation of the parent company s profit The board of directors proposes that accumulated profit profit for the year SEK is appropriated as follows distributed as dividends to shareholders carried forward SEK The proposal to distribute dividends has been made having considered the rules on buffer capital, limitation of risks and transparency in accordance with the Banking and Financing Act and Chapter 17, Section 3 of the Companies Act (Prudence Rule). The parent company s capital adequacy ratio after the proposed appropriation of profits is 1.88 (1.93). The capital adequacy ratio for Group and the financial group after the proposed appropriation of profits is 1.72 (1.67). Consideration of the financial position of Group and parent company does Note lead to any other assessment than that all short-term and long-term obligations are expected to be fulfilled. The board of directors assessment is that the amount of equity, as reported in the annual report, is adequate in relation to the scope of the business and its risks. For further information on the profit and financial position of the parent company and group, please refer to the accompanying income statement, balance sheet and Notees to the financial statements. FOREX Annual Report

10 Consolidated income statement SEK thousands Note Interest income Interest expense Net interest income/expense Dividends received Commission income Commission expenses Net profit from financial transactions Other operating income Total operating income General administrative expenses Depreciation/amortization and impairment of property, plant and equipment and intangible assets 23, Other operating expenses Total expenses before loan losses Net profit before loan losses Loan losses, net Impairment of financial assets Operating profit Share in profits from associated companies Tax Net profit (loss) for the year Consolidated statement of comprehensive income SEK thousands Note Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Other comprehensive income, net after tax Total comprehensive income FOREX Bank Annual Report 2011

11 Consolidated balance sheet SEK thousands Note 31 Dec Dec 2010 Assets Cash Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Participations in associated companies Other shares and participations Intangible assets 23 - Goodwill Other intangible assets PP&E 24 - Equipment Capitalized reconstruction costs Buildings Current tax assets Deferred tax assets Other assets Prepaid expenses and accrued income TOTAL ASSETS Liabilities, provisions and equity Liabilities and provisions Deposits from the general public Deferred tax liabilities Other liabilities Accrued expenses and prepaid income Provisions Total liabilities and provisions Equity Share capital Reserves Earned profits including net profit/loss for the year Total equity TOTAL LIABILITIES, PROVISIONS AND EQUITY FOREX Annual Report

12 Consolidated statement of changes in equity SEK thousands Share capital 1) Reserves 2) Accrued earnings Total equity Opening balance, 1 Jan Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Dividends Closing balance, 31 Dec Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Dividends Closing balance, 31 Dec ) Specification of share capital Number of shares Class A shares Class B shares Total number of shares Quotient value 10 kr All shares have been fully paid 2) Specification of reserves Fair value reserve Translation reserve Statutory reserve Total reserves Opening balance, 1 jan Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Closing balance, 31 Dec Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity 3 3 Closing balance, 31 Dec FOREX Bank Annual Report 2011

13 Consolidated cash flow statement SEK thousands Note Operating profit/loss (+) Adjustments for items Note included in cash flow - Depreciation/amortization and impairment (+) Loan losses (+) Change in provisions (+/-) Capital gains/losses on intangible assets and PP&E (+/-) Interest Note paid (+/-) Other items Note included in cash flow (+/-) Taxes paid (-) Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Increase/decrease in loans to the general public (-/+) Increase/decrease in bonds and other interest-bearing securities (-/+) Increase/decrease in deposits from the general public (+/-) Increase/decrease in liabilities to credit institutions (+/-) Increase/decrease in other assets and liabilities (+/-) Cash flow from operating activities Investing activities Acquisition of participations in associated companies (-) Sale of intangible assets (+) Acquisition of intangible assets (-) Sale of PP&E (+) Acquisition of PP&E (-) Cash flow from investing activities Financing activities Dividends paid (-) Cash flow from financing activities Cash flow for the year Cash equivalents at the beginning of the year Exchange rate differences on cash equivalents Cash equivalents at year-end Cash and cash equivalents is comprised of the following items: Cash Loans to credit institutions repayable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Annual Report

14 Parent company income statement SEK thousands Note Interest income Interest expense Net interest income/expense Dividends received Commission income Commission expenses Net profit from financial transactions Other operating income Total operating income General administrative expenses Depreciation/amortization and impairment of property, plant and equipment and intangible assets 22, Other operating expenses Total expenses before loan losses Net profit before loan losses Loan losses, net Impairment of financial assets Reversal of impairment of financial assets Operating profit Appropriations Tax Net profit for the year The parent company s statement of comprehensive income SEK thousands Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Other comprehensive income, net after tax Total comprehensive income FOREX Bank Annual Report 2011

15 Parent company balance sheet SEK thousands Note 31 Dec Dec 2010 Assets Cash Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Shares and participations in group companies Participations in associated companies Other shares and participations Intangible assets 23 - Other intangible assets Property, plant and equipment 24 - Equipment Capitalized reconstruction costs Buildings Receivables from group companies Current tax assets Deferred tax assets Other assets Prepaid expenses and accrued income TOTAL ASSETS Liabilities, provisions and equity Liabilities and provisions Deposits from the general public Liabilities to group companies Other liabilities Accrued expenses and prepaid income Provisions Total liabilities and provisions Untaxed reserves Equity Restricted equity Share capital Statutory reserve Non-restricted equity Profit/loss brought forward Net profit (loss) for the year Total equity TOTAL LIABILITIES, PROVISIONS AND EQUITY FOREX Annual Report

16 Cont. Parent company balance sheet SEK thousands Note 31 Dec Dec 2010 Memorandum items Pledged assets - - Contingent liabilities Commitments FOREX Bank Annual Report 2011

17 Parent company statement of changes in equity SEK thousands Restricted equity Share capital 1) Statutory reserve Accumulated net profit/ loss Non-restricted equity Year s net profit/ loss Total equity Opening balance, 1 Jan Appropriation of profits Net profit for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Dividends Closing balance, 31 Dec Appropriation of profits Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Dividends Closing balance, 31 Dec ) Specification of share capital Number of shares Class A shares Class B shares Total number of shares Quotient value SEK 10 All shares have been fully paid FOREX Annual Report

18 Parent company cash flow statement SEK thousands Note Operating activities Operating profit/loss (+) Adjustments for items Note included in cash flow - Depreciation/amortization and impairment (+) Loan losses (+) Change in provisions (+/-) Capital gains/losses shares and participations Capital gains/losses on intangible assets and property, plant and equipment (+/-) Interest Note paid (+/-) Dividends Note paid (+/-) - Other items Note included in cash flow (+/-) Taxes paid (-) Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Increase/decrease in loans to the general public (-/+) Increase/decrease in bonds and other interest-bearing securities (-/+) Increase/decrease in deposits from the general public (+/-) Increase/decrease in liabilities to credit institutions (+/-) Increase/decrease in other assets and liabilities (+/-) Cash flow from operating activities Investing activities Acquisition of shares in group companies (-) - Acquisition of shares in associated companies (-) Sale of intangible assets (+) Acquisition of intangible assets (-) Sale of Sale of property, plant and equipment(+) Acquisition of Sale of property, plant and equipment (-) Cash flow from investing activities Financing activities Dividends paid (-) Cash flow from financing activities Cash flow for the year Cash equivalents at the beginning of the year Exchange rate differences on cash equivalents Cash equivalents at year-end Cash and cash equivalents is comprised of the following items: Cash ULoans to credit institutions repayable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Bank Annual Report 2011

19 Notees to the financial statements Note 1 Information about Group and parent company The annual report as of 31 December 2011 is for Group where FOREX Bank AB, a joint-stock bank, is the parent company, with registered office in Stockholm. The main office s address is Kornhamnstorg 4, Stockholm. All of the wholly-owned subsidiaries are listed in note 20. On 21 February 2012, the board of directors approved this annual report for FOREX Bank AB and the annual report will be brought forth for adoption at the bank s annual general meeting on 22 March Note 2 Accounting principles (a) Accordance with norms and legislation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) along with interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) as adopted by the EU. Additions to these standards have also been provided by the Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL), the Swedish Financial Supervisory Authority s regulations and guidelines on annual reports issued by credit institutions and securities companies, FFFS 2008:25, and the Swedish Financial Reporting Board s Supplementary Accounting Rules for Groups, RFR 1, as well as their interpretations, UFR. The parent company applies the same accounting principles as Group, except for situations where ÅRKL limits the ability to apply IFRS to legal entities. Additionally, consideration has been given to the relationship between accounting and taxation. More information is provided in section (y) of the parent company s accounting principles, below. Unless otherwise stated, the accounting principles (discussed below) were consistently applied to each period presented in the financial statements. New and revised accounting standards and interpretations that are obligatory for accounting periods as of 1 January 2011 None of the revisions to existing standards issued by IASB, nor new interpretations issued by IFRIC that apply to accounting periods as of 1 January 2011 and which apply to Forex Bank AB, have had, or are expected to have any significant impact on Group s results or financial position. IAS 24 Related party disclosures (amended). The revised standard clarifies and simplifies the definition of a related party. In accordance with the new definition, related parties also includes associated companies of fellow subsidiaries, companies under the joint deciding influence of the same company/person, companies under the joint deciding influence of the same company that a third company is under the joint deciding influence of and companies controlled by a person who is a member of the key management personnel of another company. Furthermore, the disclosure requirements for transactions with related parties to the Government are limited. IAS 34 Interim Financial Reporting (amended). Provides guidelines regarding how disclosures of significant events or transactions shall be handled in the event these disclosures are required in accordance with other IFRS. Furthermore there are expanded disclosure requirements on conditions that will probably have an effect on the fair value and classification of financial instruments, transfers of financial instruments between different levels in the fair value hierarchy, changes in the classification of financial assets and changes of contingent liabilities and contingent assets. IFRS 7 Financial Instruments Disclosures (amended). Contains mitigations and clarifications of disclosure requirements regarding the maximum credit risk exposure not being required if the carrying amount is the best representation of the maximum credit risk exposure, the carrying amount for renegotiated financial assets not being required, the financial effects of collateral not valued at fair value and that disclosures of collateral taken over only applies to collateral the company still holds at the balance sheet date. IAS 32 Financial Instruments: Classification of Rights Issues (amended), IFRIC 13 Customer Loyalty Programmes, IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (amended) and IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments are not expected to have any effect. New and revised accounting standards and interpretations that are obligatory for accounting periods as of 1 January 2012 or later IFRS 9 Financial Instruments: classification, measurement and reporting of financial assets and liabilities. Replaces the parts of IAS 39 related to classification and measurement of financial instruments. IFRS 9 states that financial assets shall be classified as one of two categories, fair value or amortized cost. Classification FOREX Annual Report

20 is made at the time the financial asset is initially recognized based on the company s business model and the characteristics of the contractual cash flows. No major changes have been made compared to IAS 39 for financial liabilities. The most significant change relates to liabilities identified at fair value. The portion of the change in fair value that is attributable to the credit risk of the liability shall be reported in other comprehensive income instead of profit or loss as long as this does not create a recognition inconsistency (accounting mismatch). Group intends to apply the new standard no later than the financial year starting 1 January 2015 and has not assessed the effects. The standard has not yet been adopted by the EU. IFRS 10 Consolidated Financial Statement. This standard replaces IAS 27 and SIC 12 and builds on existing principles by identifying controls as the determining factor in whether a company should be included in the consolidated financial statements. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. Group intends to apply IFRS 10 as of the financial year starting 1 January The standard has not yet been adopted by the EU. IFRS 12 Disclosure of interest in other entities. Covers disclosure requirements for subsidiaries, joint ventures, associated companies and unconsolidated structured entities. Group has not yet measured the full impact of IFRS 12 on the financial statements. Group intends to apply IFRS 12 for the financial year starting 1 January The standard has not yet been adopted by the EU. IFRS 13 Fair Value Measurement. The purpose of the standard is to make the fair value measurement more consistent and less complex by providing detailed definitions and a single source within IFRS for fair value measurements and related disclosures. The standard will be applied more or less to all assets and liabilities measured at fair value. The requirements do not expand the area of application for when fair value should be applied, but rather provide guidance with regard to how it should be applied when other IFRS already require or allow fair value measurements. Group has not yet measured the full effect of IFRS 13 on the financial statements. Group intends to apply the new standard as of the financial year starting 1 January The standard has not yet been adopted by the EU. None of the other new or amended IFRS or IFRIC interpretations that have not yet entered into force are expected to have a significant impact on Group. (b) Functional currency and reporting currency The parent company s functional currency is SEK, which is also the reporting currency for both the parent company and Group. Accordingly, the financial statements are presented in SEK. Unless otherwise stated, all amounts have been rounded to the nearest thousand. (c) Valuation principles used when preparing the company s financial statements Assets and liabilities are reported at historical cost. Financial assets and liabilities are reported at amortized cost, with the exception of certain financial assets and liabilities that are valued at fair value. Financial assets and liabilities reported at fair value consist of derivative instruments, financial instruments classified as financial assets valued at fair value in the income statement, financial liabilities valued at fair value in the income statement or available-for-sale financial assets. (d) Assessments and estimates used to prepare the financial statements In order to prepare the financial statements in accordance with IFRS, it is necessary for the bank s management team to make assessments and estimates, as well as assumptions that affect how the accounting principles are applied and the reported amounts for assets, liabilities, income and expenses. The estimates and assumptions are based on historical experiences and several other factors that are deemed to be reasonable under the current circumstances. The outcome of these estimates and assumptions is then used when determining the carrying amounts of assets and liabilities when such amounts are not otherwise clearly provided by other sources. The actual results may deviate from these estimates and assessments. These estimates and assumptions are regularly reviewed. Changes to estimates are reported in the period the change was made if the change only affects that period. Otherwise, it is reported in the current period and future periods, if the change affects the current period as well as future periods. Assessments made by the company management team when applying IFRS, which have a significant impact on the financial statements, and estimates that were made that could result in significant adjustment to the next year s financial statements are described in more detail in Note FOREX Bank Annual Report 2011

21 (e) Changes in accounting principles During the year, no changes have been made to accounting principles that affect Group s or parent company s financial statements. (f) Consolidation principles (i) Subsidiaries Subsidiaries are companies in which the parent company is able to exert a controlling influence. A controlling influence means that ownership directly or indirectly exceeds 50 percent or, that there are other conditions entitling the parent company to formulate a company s financial or operating strategies in order to reap financial benefits. An assessment of controlling influence involves determining whether the shares with potential voting rights can be used or converted without delay. Subsidiaries are reported in accordance with the purchase accounting method. Using this method, the acquisition of a subsidiary is treated as a transaction through which Group indirectly acquires the subsidiary s assets and assumes responsibility for its liabilities and contingent liabilities. Consolidated cost is determined through an acquisition analysis in conjunction with the business acquisition. The analysis is used to determine the identifiable assets that have been acquired, as well as the liabilities and contingent liabilities that have been assumed. The cost of acquisition of the subsidiary s shares and its business is determined by the fair value as of the transfer date for the assets, assumed/newly arisen liabilities and newly issued equity instruments that were given as consideration in exchange for the acquired net assets. Any transaction costs that are directly related to the acquisition are directly reported in the income statement. In business acquisitions where the acquisition cost exceeds the net value of the acquired assets and assumed liabilities/contingent liabilities, the difference is shown as goodwill. If the difference is negative, it is directly reported in the income statement. The financial reports of subsidiaries are included in the consolidated financial statements as of the acquisition date and until such time as the controlling influence no longer exists. (ii) Branches The bank s business activities in other Nordic countries are conducted through bank branches of Forex Bank AB in Sweden. The business activities of the branches are consolidated as part of the parent company s business and the parent company s financial statements in the same way as foreign subsidiaries are consolidated as part of Group s financial statements. (iii) Associated companies Associated companies are all companies in which Group holds a significant but not deciding influence, which by rule applies to share holdings consisting of between 20 and 50 percent of the votes. Holdings in associated companies are reported in accordance with the equity method and are initially valued at cost. Group s carrying amount on holdings in associated companies includes goodwill identified at the acquisition, net after any impairment. The Group s share of profits from the associated company after the acquisition is reported in the income statement and its share of the changes in other comprehensive income. Accumulated changes after the acquisition are reported as a change in the holding s carrying amount. When Group s share in an associated company s losses equals or exceeds its holding in the associated company, including any unsecured claims, Group does not report additional losses as long as Group has not undertaken commitments or made payments on behalf of the associated company. Unrealized profits on transactions between Group and its associated companies are eliminated in relation to Group s holding in the associated company. Unrealized losses are also eliminated if the transaction does not constitute evidence of an impairment loss for the transferred asset. Applied accounting principles in the associated company, where relevant, were changed to guarantee consistent application of Group s principles. Dilution profits/losses in participations in associated companies are reported in the income statement. (iv) Transactions to be eliminated on consolidation Intra-group receivables, liabilities, revenues or expenses attributable to intra-group transactions between group companies are fully eliminated when the consolidated financial statements are prepared. This also applies to the same types of transactions between the parent company in Sweden and the foreign branches, as well as such transactions between branches, when preparing the parent company s annual report. (g) Foreign currency Transactions in foreign currency Transactions in foreign currency are translated to the functional currency using the exchange rate on the transaction date. Functional currency is the currency used in the primary economic environments where the company or its branches conduct their operations. Monetary assets and liabilities in foreign currency are translated to the fun- FOREX Annual Report

22 ctional currency using the exchange rate on the balance sheet date. Exchange differences that arise upon translation are reported in the income statement. Non-monetary assets and liabilities that are reported at historical cost are translated using the exchange rate on the transaction date. Non-monetary assets and liabilities that are reported at fair value are translated to the functional currency using the prevailing exchange rate at the point in time when valuation to fair value is made. Financial reports concerning foreign operations The assets and liabilities of foreign operations, including goodwill and other group surplus values, are translated into SEK using the exchange rate on the closing date. The revenue and expenses of foreign operations is translated to SEK using the average exchange rate. Translation differences that arise from currency translations of foreign operations are reported as part of other comprehensive income. Net investments in foreign operations Translation differences that arise in conjunction with the translation of a net investment in foreign operations are reported directly under other comprehensive income. When an investment in foreign operations is divested, Group recognizes the accumulated translation differences after the deduction of any currency hedging. Accumulated translation differences are presented in a separate equity category that comprises translation differences as of 1 January Accumulated translation differences from periods prior to 1 January 2006 are allocated to other equity categories and are not reported separately. For information on the reconciliation of the change in translation differences that is reported as part of equity, please see: Consolidated statement of changes in equity. (h) Interest income, interest expenses and dividends Interest income on receivables and interest expense on liabilities are calculated and reported using the effective interest method. The effective rate is the interest rate that renders the present value of all future cash receipts and disbursements during the anticipated remaining fixed interest term equal to the carrying amount of the receivable or liability. Interest income and interest expense includes the accrued amounts of any fees that have been received that have been included in the effective interest rate, transaction expenses and any discounts, premiums and any differences between the original value of the receivable/ liability and the amount that is settled on the due date. Interest expenses include the direct transaction costs associated with entering into new loan agreements. The interest income and interest expenses that are presented in the income statement consist of: - Interest on financial assets and liabilities valued at amortized cost using the effective interest method, including interest on doubtful debts - Interest on financial assets that are classified as available-for-sale Dividends from shares and participations are recognized when the right to receive payment has been established. (i) Revenue from commissions and fees Revenue from commissions and fees is recognized when (i) the amount of revenue can be measured reliably, (ii) it is probable that the future economic benefits that are attributable to the transaction will flow to the company, (iii) the percentage of completion as of the closing date can be measured reliably and (iv) the fees that have arisen and the fees that remain in order to complete the service assignment can be measured reliably. Revenue is valued at the fair value of the amount that has been received or that is expected to be received. Revenue recognition is in accordance with the percentage of completion method, which means that revenue is recognized based on the assignment s or service s percentage of completion on the closing date. The bank receives fees and commissions for services rendered. The following two methods are used when recognizing revenue: (i) Commissions and fees that are calculated using the effective interest rate Commissions and fees that are an integrated portion of the effective interest rate are not recognized as revenue from commissions. This type of revenue is recognized by adjusting the effective interest rate on the profit/loss item, interest income. These types of fees primarily consist of the fees associated with setting up new loans. (ii) Commissions and fees that are earned through rendering a particular service These types of fees and commissions consist of administration fees, charge/credit card fees in instances when the service is performed over a period of time that does not extend past the quarterly closing, payment for remittance services, money transfers and commissions for counting daily receipts, etc. These commissions and fees are typically related to a completed transaction and they are immediately recognized as revenue. 22 FOREX Bank Annual Report 2011

23 (j) Commission expenses These are expenses associated with services that have been received, to the extent that they are not considered as interest. For example, these consist of the expenses associated with clearing and bankgiro, charge/credit cards, payment to loan brokers and fees to UC (credit information agency). Transaction costs that are taken into consideration when calculating the effective interest rate are not reported here. (k) Net profit (loss) from financial transactions The item, Net profit (loss) from financial transactions, includes the realized and unrealized changes in value that have arisen when conducting financial transactions. Net profit (loss) from financial transactions consists of: - Realized and unrealized changes in the fair value of the assets and liabilities that are held for trading purposes - Capital gains/losses from the disposal of financial assets and liabilities that are held for trading purposesl - Capital gains/losses from available-for-sale financial assets - Changes in exchange rates (l) Financial instruments Financial instruments that are reported in the balance sheet and classified as financial assets include: cash and bank balances, treasury bills eligible as collateral, loans granted to credit institutions, loans granted to the general public, bonds and other interest-bearing securities, other shares and participations and other assets. Financial liabilities include liabilities to credit institutions, deposits from the general public and other liabilities. (i) Items reported in or removed from the balance sheet A financial asset or liability is reported in the balance sheet as soon as the bank has committed to the terms of the contract. A financial asset is removed from the balance sheet when the rights stated in the contract have been realized, have fallen due, or when the company has lost control over them. The same applies to parts of a financial asset. A financial liability is removed from the balance sheet once the obligation under the contract has been fulfilled or otherwise expired. The same applies to parts of a financial liability. Financial assets and liabilities are offset and reported at net amounts in the balance sheet only when there is a legal right to offset the sum and there is an intention to regulate the items with a net sum or at the same time realize the asset and regulate the debt. The acquisition and sale of financial assets are recorded on the trade date, i.e., when the company commits to acquiring or disposing of the asset. Loan commitments are not reported in the balance sheet. Loan receivables are reported in the balance sheet when the loan amount has been paid out to the borrower. (ii)classification and valuation Financial instruments are initially reported at the instrument s fair value plus transaction costs except for instruments that belong to the category financial assets reported at fair value through the income statement. Such instruments are reported at fair value, excluding transaction costs. A financial instrument is classified the first time it is reported partly based on the purpose for which the instrument was acquired, and partly based on the options available in IAS 39. Financial assets valued at fair value via the income statement This category consists of two sub-categories: financial assets held for trading purposes and other financial assets that the company has initially chosen to put in this category. Financial instruments in this category are adjusted to fair value on a continual basis, with changes in value reported in the income statement. For financial instruments held for trading purposes, both realized and unrealized changes in value are reported in the income statement item, Net profit (loss) from financial transactions. Items in the balance sheet that are classified as financial assets valued at fair value via the income statement, and which are held for trading purposes, are cash and bank balances, as well as derivatives with a positive value that are part of other assets. At the end of the financial year, there were no other financial assets that the company initially chose to value at fair value via the income statement. Loan receivables and accounts receivabler Loan receivables and accounts receivable are financial assets that are not derivatives, and which have fixed or determinable payments and are not quoted in an active market. These assets are valued at cost. Accounts receivable and loan receivables are reported at net realizable value, i.e. after the allowance for doubtful accounts. Items in the balance sheet that are classified as loan re- FOREX Annual Report

24 ceivables and accounts receivable are: loans granted to credit institutions, loans granted to the general public and other assets, except derivatives with a positive value. Held-to-maturity investments Held-to-maturity investments are financial assets consisting of interest-bearing securities with fixed or determinable payments and fixed maturity that the company intends and is able to hold to maturity. Assets in this category are valued at amortized cost. Items in the balance sheet classified at held-to-maturity investments are: treasury bills eligible as collateral, bonds and other interest-bearing securities. Available-for-sale financial assets Available-for-sale assets are financial assets that are not classified in any other category and financial assets that the company has initially chosen to classify in this category. Holdings of shares and participations that are not reported as subsidiaries, associated companies or joint ventures are reported here. Assets in this category are adjusted to fair value on a continual basis. Changes in value are reported directly against equity, except for changes in value that are the result of impairment (see accounting principles) or exchange rate differences for monetary items, which are reported in the income statement. In accordance with the effective interest method, the interest on interest-bearing instruments is reported in the income statement. The same applies to dividends on shares. For these instruments, any transaction costs are included in the cost of acquisition for first-time reporting. Afterwards, they are included in the fair value reserve when regular adjustments to fair value are made. This is done until the time when the instrument falls due or is disposed of. Upon disposal of the asset, the accumulated profit/loss is reported in the income statement (which was previously reported as part of equity). Items in the balance sheet classified as available-for-sale financial assets are other shares and participations. Financial liabilities valued at fair value via the income statement This category consists of two sub-categories: financial liabilities that are held for trading purposes and financial liabilities that are classified in this category when reported for the first time (Fair Value Option). Financial instruments in this category are adjusted to fair value on a continual basis, with changes in value reported in the income statement. The first sub-category includes derivatives with a negative fair value. For financial instruments held for trading purposes, both realized and unrealized changes in value are reported in the income statement item, Net profit (loss) from financial transactions. Items in the balance sheet classified as financial liabilities valued at fair value via the income statement are derivatives with a negative value that are included as part of other liabilities. Other financial liabilities The category, other financial liabilities, includes financial liabilities that have not been classified in any other category, such as borrowings, deposits and other liabilities. Liabilities in this category are valued at amortized cost. Items in the balance sheet that are classified as other financial liabilities are: liabilities to credit institutions, deposits from the general public and other liabilities, except derivatives with a negative value. (m)loan losses and impairment of financial instruments (i) Test of impairment for financial assets At each reporting occasion, the bank assesses whether there is any objective evidence to suggest that a financial asset or group of assets needs to be written down as the result of one or more events (loss events) having occurred after the asset was reported for the first time and that such loss events have an impact on the estimated future cash flows generated by the asset or group of assets. If there is objective evidence suggesting that the asset has become impaired, the bank then considers these as doubtful accounts. Objective evidence consists partly of observable events that have occurred that have a negative impact on the possibility to recover the asset s cost and partly of a significant or long-term decline in the fair value of an investment classified as an available-for-sale financial asset. The bank evaluates whether there is a need to record an impairment loss and if the credit loss should be reported on an individual basis for all significant loans. For loans where impairment is assessed on an individual basis and where it has not been possible to identify any write-down requirement, these are included in future assessments along with other loans that have similar credit risk characteristics in order to determine whether a write-down requirement exists at Group level. For loans where it has been assessed that the individual amount is not significant, the bank groups such loans and tests for impairment at Group level, without making any individual assessments. The method used by the bank for such write downs is to categorize loans by type of demand at each closing. The write-down is then based on the change for each type of demand. Loans that have been submitted to a collection agency are valued by an external party. 24 FOREX Bank Annual Report 2011

25 As objective evidence of whether a write-down requirement exists, the bank calculates migration between the different categories. Other items considered as objective evidence are information about significant financial difficulties that the bank has become aware of through its analysis of financial statements, tax filings or other means of continually assessing the customer s creditworthiness, which are included as an integrated part of the bank s systems and routines for managing credit risk. Concessions given to the bank s borrower due to the borrower s financial difficulties may also be considered as objective evidence of a doubtful account. For its customers utilized credit facilities, the bank makes calculations at each closing to ensure that there is an impairment allowance equal to two percent of utilized credit facilities. For utilized credit facilities that have been submitted to a collection agency, valuation is performed by an external party. Valuation is performed by sorting into subclasses based on when credit facilities fall due (by year). Credit facilities for each year of maturity are then assigned a write-down level that is a percentage of the total value of the credit facilities for each class. Impairment (credit loss) is calculated as the difference between the discounted present value of future cash flows, which is discounted using the loan s original effective interest rate and its carrying amount. The impairment loss is reported as a credit loss in the income statement. For doubtful loan receivables, when the carrying amount after any impairment losses is estimated as the total discounted value of future cash flows, the change in the written-down amount is reported as interest to the extent that the increase is not based on a new assessment of the expected future cash flows. However, when there is a change in the assessment of the expected future cash flows from a doubtful loan receivable between two assessment occasions, the difference is reported as a credit loss or recovery. For loans where the original loan conditions have been renegotiated as a result of the borrower s financial difficulties, a credit loss is reported if the discounted present value of the future cash flows, in accordance with the renegotiated loan conditions, discounted by the loan s original effective rate of interest, is lower than the loan s carrying amount. If, after restructuring, it is expected that the loan will be paid back in accordance with the renegotiated terms, the loan is then no longer classified as a doubtful account. The carrying amount after impairment losses on assets belonging to the category held-to-maturity, as well as loan/ accounts receivable that are reported at amortized cost, the present value of future cash flows is discounted using the effective rate of interest that applied when the asset was reported for the first time. Short-term assets are not discounted. Impairment losses are recorded in the income statement. (ii) Reversal of impairment losses An impairment loss is reversed if there is evidence that a write-down requirement no longer exists and there has been a change in the assumptions that formed the basis for calculating the written-down amount. Impairment of a loan receivable is reversed if the borrower is expected to make the contractual payments in accordance with the original or restructured loan conditions. Reversal of impairment losses on loan receivables (credit losses) are reported as a decrease in credit losses and these are specified in a note to the financial statements. For held-to-maturity investments along with loan receivables and accounts receivable reported at amortized cost, a reversal of impairment loss is made if a subsequent increase in the recoverable amount can objectively be attributed to an event that occurred after the write-down was performed. Impairment losses on equity instruments that are classified as available-for-sale financial assets, which were previously reported in the income statement, are not reversed via the income statement. The written-down amount is the value from which subsequent revaluations are made, which are reported directly against equity. Impairment losses on interest-bearing instruments, classified as available-for-sale financial assets, are reversed via the income statement if the fair value increases and the increase can objectively be attributed to an event that occurred after the asset was written down. (iii) Write-offs on loan receivables Loan receivables classified as doubtful accounts are written off (removed from the balance sheet) if the credit loss can be determined with certainty, i.e. when the receiver has submitted an estimate of the dividends in bankruptcy, the composition proposal has been accepted, or the receivable has otherwise been relinquished. Once a loan receivable has been written off, it is no longer reported in the balance sheet. Recovery of any previously reported write-offs is reported as a decrease in credit losses in the income statement item: Loan losses, net. (n) Property, plant and equipment (i) Owned assets Property, plant and equipment are reported as assets in FOREX Annual Report

26 the balance sheet if it is probable that future economic benefits will flow to the bank and if the asset s acquisition cost can be measured reliably. Property, plant and equipment, as well as reconstructions and extensive renovations to owned or leased facilities are reported by Group at cost less accumulated depreciation and any impairment losses or revaluations. Cost includes the purchase price and any costs directly attributable to the asset in order to bring it to working condition for its intended use. Examples of what are included as directly attributable costs are delivery, handling and installation. The carrying amount of an item of property, plant and equipment is removed from the balance sheet when it is disposed of or when no additional future economic benefits are expected from its use or the disposal/sale of the asset. Any profit or loss from the sale or disposal of an asset is calculated as the difference between the asset s sales price and its carrying amount less any direct sales costs. The profit or loss is reported as part of other operating income/operating expenses. (ii) Leased assets IAS 17 has been applied for all leased assets. Leases are classified as either operating or finance leases in the consolidated financial statements. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership to the lessee. If such is not the case, the lease is classified as an operating lease. For operating leases, the leasing fees are expensed over the term of the lease based on usage, which may differ from what has actually been paid as leasing fees during the year. Group reports all of its leasing agreements in accordance with the rules on operating leases. (iii) Additional expenses Additional expenses are included in the carrying amount only if it is probable that the future economic benefits that are attributable to the asset will flow to the company and the cost of the asset can be measured reliably. All other additional expenses are expensed in the period in which they arise. Repairs are expensed as incurred. (iv) Amortization principles Depreciation is made on a straight-line basis over the asset s useful life. No depreciation is made on property. Expected useful life for different types of assets; - Buildings 50 years - Capitalized reconstruction costs agreement 5-10 years or over the duration of the lease - Equipment 5-10 years At each year-end closing, the depreciation methods that were used, along with the residual value and expected useful life for each type of asset is reassessed. (o) Intangible assets (i) Goodwill Goodwill represents the difference between the acquisition value of the acquired business and the fair value of the acquired assets, assumed liabilities and contingent liabilities. In conjunction with the transition to IFRS, for goodwill that was acquired before 1 January 2006, Group has not applied IFRS retroactively. Rather, the carrying amount as of that date will continue to represent Group s acquisition cost. Goodwill is shown at cost less any accumulated impairment losses. Goodwill is allocated amongst cash-generating units and it is not amortized. Instead, it is tested annually for impairment. Companies or branches are considered as cash-generating units. In business acquisitions where the acquisition cost is less than the net value of the acquired assets and assumed liabilities/contingent liabilities, the difference is taken up directly in the income statement (ii) Other intangible assets Other intangible assets that are acquired by Group are shown at cost less accumulated amortization (see below) and any impairment loss. (iii) Amortization principles Amortization is calculated on a straight-line basis over the useful life of the intangible asset, provided the duration of such useful life can be assessed. Goodwill and other intangible assets with an uncertain useful life are assessed annually to see if there has been any impairment or as soon as there is any indication that the value of the asset has diminished. Amortization of intangible assets begins as soon as the asset is available for use. The estimated useful life for each type of intangible asset is shown below: - rental agreements 5 years or over the duration of the lease agreement (p)impairment of property, plant and equipment and intangible assets (i) Test of impairment The carrying amounts of the company s assets are tested at each closing of the books in order to determine whether 26 FOREX Bank Annual Report 2011

27 there are any indications of a write-down requirement. If there is any indication of a write-down requirement, the asset s recoverable amount is calculated in accordance with IAS 36 (see below). For goodwill and other intangible assets that have an indeterminate useful life, the recoverable amount is calculated on a yearly basis. If, when testing for impairment, the future expected cash flow for a particular asset can not be determined with reasonable certainty, then the test is made on the cash generating unit, i.e., the smallest group of assets to which that asset belongs. Impairment loss is recorded whenever the carrying amount for an asset or cash generating unit (group of units) exceeds the recoverable amount. Impairment losses are recorded in the income statement. Any impairment loss on assets that belong to a cash generating unit (or group of units) are allocated first to goodwill. Then, a proportional write-down is made on the other assets belonging to the cash generating unit (group of units). The recoverable amount on other assets is either the fair value less selling expenses or the value-in-use (whichever is higher). In calculating the fair value, future expected cash flows are discounted by a factor that takes into consideration the risk-free interest rate along with the risk associated with that particular asset. The recoverable amount for the cash generating unit is calculated for essentially independent assets belonging to the unit that do not generate an expected future cash flow of their own. (q) Share capital Dividends Dividends are reported as a liability as soon as the dividend has been approved at the bank s annual general meeting. The bank s obligations related to fees for defined contribution pension plans are recognized in the income statement during the same period in which the employee has rendered services to the bank. Premiums are paid based on actual salaries. The year s expenses for these types of insurance premiums are specified in Note 10. The bank does not have any defined benefit pension plans. (ii) Pay related to notice of termination Costs related to payment in conjunction with termination of employment are reported as a provision only if the company is demonstrably committed and lacking any realistic possibilities to withdraw such notice and when there is a formal, detailed plan to terminate employment before it would otherwise expire. When payment is made as an offer to encourage voluntary termination, a cost is recognized if it is likely that the offer will be accepted and if the number of employees likely to accept the offer can be reliably estimated. (iii) Short-term payments When short-term payments are made to employees, they are calculated without being discounted and recognized as an expense as soon as the associated services have been delivered. (s) General administrative expenses General administrative expenses are comprised of employee benefit expenses, which includes salaries and fees, pension expenses, employer s contributions and other social security contributions. This is also where the expenses for the following items are reported: facilities, education, IT, telecommunications, travel and entertainment, audit services, other external services and other external expenses. (r) Employee benefits (i) Post-employment benefits The bank s pension plans for employees are covered by regular premium payments. In accordance with IAS 19, under a defined contribution plan, the company pays fixed contributions into a fund (separate legal entity) but has no legal or informal obligation to make further payments if the fund (separate legal entity) does not have sufficient assets to pay all of the employees entitlements to post-employment benefits related to the employees service during the current period or previous periods. (t) Provisions A provision is reported in the balance sheet when Group has an existing legal or informal obligation resulting from an event that has occurred, and when it is probable that there will be an outflow of financial resources in order to settle the obligation, and when the amount can be reliably estimated. When the effect of the timing of the payment is significant, provisions are then calculated by discounting the expected future cash flow using a discount rate before tax that reflects the actual market assessments of the time value of money and, when appropriate, the risks associated with the obligation as well. FOREX Annual Report

28 (u) Taxes Income taxes are comprised of current tax and deferred tax. Income taxes are reported in the income statement, except when the underlying transaction is reported directly to equity, in which case the associated tax effect is also reported to equity. Current tax is tax that must be paid or that will be received for the current year, using the tax rates that have been decided or announced at year-end. Current tax also includes adjustments to taxes paid in prior periods. Deferred tax is calculated using the balance sheet approach. This involves determining the tax base of assets and liabilities in order to calculate temporary differences. The following temporary differences are not taken into account: for temporary differences arising from the initial recognition of goodwill, initial recognition of assets and liabilities that are not business acquisitions and which, at the time of the transaction, affect neither the accounting nor the taxable profit. Neither are temporary differences recognized that are related to participations in subsidiaries/associated companies that are not expected to reverse in the foreseeable future. Valuation of deferred tax is based on how the carrying amounts of assets or liabilities are expected to be realized or regulated. Deferred tax is calculated using the tax rates and tax regulations that have been decided or announced at year-end. Deferred tax assets are recognized for deductible temporary differences, loss or credit carryforwards to the extent that it is probable they can be utilized. The carrying amount of deferred tax assets is reduced when it is no longer probable that they can be utilized. Tax on profit for the year includes current tax, deferred tax and tax related to prior years. (v) Contingent liabilities A contingent liability is reported when there is a possible commitment deriving from events that have occurred whose existence can only be confirmed if one or more uncertain future events occur. A contingent liability is also reported when there is a commitment that has not been reported as a liability or entered as a provision because it is not certain that an outflow of resources will be required. (x) Cash flows Group s cash flows are reported in accordance with the indirect method. The indirect method means that the profit (loss) from operating activities is adjusted for: transactions that are not associated with payments made or received, accrued or prepaid items that are related to prior or future periods and any income or expenses that are associated with the cash flows for investing or financing activities. Cash equivalents is comprised of the following: cash, bank balances and short-term investments that mature in three months or less from the acquisition date and that can easily be converted to cash and where there is little risk of value fluctuations. The balance sheet items that may be classified at belonging to cash equivalents are: cash, loans to credit institutions, treasury bills eligible as collateral, bonds and other interest-bearing securities. (y) The parent company s accounting principles The parent company s annual report was prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies (1995:1559) (ÅRKL) and the Swedish Financial Supervisory Authority s regulations and general guidelines (FFFS 2008:25 and amended via FFFS 2011:54) regarding annual reports issued by credit institutions and securities companies and the Swedish Financial Reporting Board s recommendation RFR 2, Accounting for Legal Entities. As a result of RFR 2, the parent company, as the legal entity, must apply all of the EUapproved IFRS and IFRIC statements to the extent that this is possible within the framework of ÅRKL and taking into account the correlation between accounting and taxation. Differences between the accounting principles used by Group and those used by the parent company are specified below. The accounting principles described have been consistently applied to all periods that are reported in the parent company s financial statements. (i) Changes in accounting principles Group contribution The Swedish Financial Reporting Board has withdrawn UFR 2 Group contributions and shareholders contributions that previously regulated the rules regarding group contributions. The new rules regarding group contributions pursuant to RFR 2 apply for financial years starting or later. The new rules entail that group contributions paid from the parent company to the subsidiary are reported in the parent company as an increase in participations in subsidiaries. The tax effect of group contributions paid 28 FOREX Bank Annual Report 2011

29 are reported in accordance with IAS 12 in the income statement. The tax effect of Group contribution is reported in the notes on its own line, Group contributions paid to subsidiaries when reporting for the difference between reported tax expense and estimated tax expense based on the applicable tax rate. Where the parent company receives group contributions from subsidiaries, the parent company reports group contributions received in accordance with the principles for customary dividends from subsidiaries, i.e. as financial income. Tax on group contributions received are reported in accordance with the rules set out in IAS 12, i.e. in the income statement. The new amended rules regarding group contributions are applied retroactively for the comparison year, (ii)subsidiaries Participations in subsidiaries are reported by the parent company at cost less any impairment losses. Dividends received are reported as revenue only if they derive from earnings accrued after the acquisition. Dividends exceeding these accrued earnings are regarded as repayment of investments and reduce the carrying amounts. The cost of acquisition of the subsidiary s shares and its business is determined by the fair value as of the transfer date for the assets, assumed/newly arisen liabilities and newly issued equity instruments that were given as consideration in exchange for the acquired net assets plus any transaction costs that are directly related to the acquisition. (ii) Associated companies Participations in associated companies are reported by the parent company at cost less any impairment losses. Dividends received are reported as revenue only if they derive from earnings accrued after the acquisition. In the event there is an indication that the value of participations in associated companies has diminished, the recoverable amount is calculated. If the recoverable amount is lower than the carrying amount, an impairment loss is made. The impairment is reported in the item Shares and participations under the line Net profit from financial transactions. (iv) Taxes The parent company reports untaxed reserves including deferred tax liability, when such exists. In the consolidated financial statements, untaxed reserves are classified as either deferred tax liability or equity. (v) Additional depreciation The parent company reports additional depreciation, as allowed by Swedish legislation, as appropriations in the income statement. Additional depreciation is included in the balance sheet as part of untaxed reserves. (vi) Intangible assets Goodwilll Goodwill arising from the purchase of the net assets of a business that is reported in the financial statements of the parent company or its branches is amortized over a period ranging between 5 and 10 years. Such amortization is then taken up in the consolidated financial statements. FOREX Annual Report

30 Note 3 Financial risks There are various types of risks associated with the bank s business, such as credit risks, liquidity risks, market risks and operational risks. In order to limit and control risktaking in the organization, the bank s board of directors, which has the ultimate responsibility for the bank s internal controls, has established policies about the types of risks the bank is willing to take along with how such risks should be managed. The bank s board of directors has the overall responsibility for the bank s risk management practices. The board has issued specific instructions when delegating responsibility to other functions. Such functions are then required to regularly provide reports to the board of directors. The bank has a separate function for independent risk control. The function is responsible for supporting and developing the bank s organization such that it actively takes responsibility for risks. The independent risk control function reports to the board of directors and Managing Director on the bank s overall risk situation, along with the outcome of risks that have a predetermined risk tolerance. The bank s policy is to identify, measure, manage, control and report on all of its risks. The risks are continually monitored through regular controls to ensure that they remain within the established limits. Risk management policies, processes and systems are regularly reviewed in order to ensure that they are correct and appropriate, that they reflect the existing market conditions and cover all of the products and services that are offered by the bank. The bank creates the prerequisites for good risk control through training and clear processes, where every employee understands his/her role and responsibilities. Credit risk Credit risk is the risk that losses will occur as the result of counterparties not being able to fulfill their obligations. Credit risk arises in conjunction with granting loans to the general public and when making cash investments. The board of directors has the overall responsibility for the bank s credit risk exposure. The board has issued specific instructions to delegate this responsibility to the Credit Committee. This committee provides regular reports to the board. Before granting any loans to the general public, an assessment is made of the credit quality using scoring models (advanced statistical models). The bank regularly evaluates and changes its scoring models in order to reflect the credit quality of borrowers as accurately as possible. The bank s granting of credit consists entirely of loans to the general public in the form of unsecured loans and credit facilities. The maximum amount is SEK 400 thousand per borrower. At year-end, the average credit amount per loan was SEK 58 (59) thousand. Of the total amount of loans granted to the general public, SEK 66 (52) million had a 100 percent risk weight as per the capital adequacy rules. The remaining portion had a risk weight of 75 percent. The higher risk weight relates to the carrying amount of loans that are more than 90 days past due. The gross amount of such items is SEK 155 (116) million. Loans to the general public are only granted to persons residing in Sweden. There is no significant concentration risk related to geographic distribution or age of loans. The bank s routines for monitoring payments that have fallen due and receivables that have not yet been settled is aimed at minimizing loan losses by, at an early stage, identifying any problems that the borrower is having with making payment and then ensuring that claims are quickly administered. All loans that are more than 90 days overdue are submitted to a collection agency and all credit granted to the borrower is then cancelled. Collection activities are conducted in cooperation with other market participants. All credit is assessed using the UC s (Sweden s largest and leading business and credit information agency) most recent scorecard. This is supplemented with a living allowance calculation and policies. As of 31 December 2011, the total volume of household credit was SEK 2, 563, 679 (1, 733, 854) thousand. The volume of loan receivables fallen due, but not yet written off, is provided in the following table: Group and parent company SEK thousands Loan receivables 1-30 days days days days Total FOREX Bank Annual Report 2011

31 In addition to the bank s loans to the general public, it is also exposed to credit risk for its account balances at other banks and for its cash investments. This pertains to the following balance sheet items: Loans to credit institutions and Bonds and other interest-bearing securities. The board has established limits for these types of investments and the term may not exceed one year. The distribution of the bank s investments and account balances at various types of banks is provided in the table below (SEK thousands): Group SEK thousands Rating 1 Government Government AAA AA- through AA A- through A Below A Total investments and account balances ) The rating level is provided in the S&P scale regardless of which institution affixed the rating. In cases where institutions have affixed different rating levels, the lowest one is used. Parent company SEK thousands Rating 1 Government Government Credit institutions Credit institutions Credit institutions Credit institutions AAA AA- through AA A- through A Below A Total investments and account balances ) The rating level is provided in the S&P scale regardless of which institution affixed the rating. In cases where institutions have affixed different rating levels, the lowest one is used. Liquidity risk Liquidity risk is the risk that the bank will not be able to meet its payment obligations when payment falls due without the costs associated with obtaining the means of payment increasing significantly. It is also possible to define liquidity risk as the risk of incurring a loss or worsened earnings potential as a result of the bank not being able to meet its payment obligations on time. The bank s liquidity situation is exposed to variations in the lending and depositing patterns of the general public, along with the bank s other risks, primarily credit and reputation risks. Liquidity risks also arise due to differences in the maturities of assets. The bank s risk management practices focus on achieving a spread on the maturity dates and liquidity quality of its holdings. That means that investments are only made in liquid securities, i.e. securities that are traded on an active market or in short-term deposits at other credit institutions. Liquidity is continually monitored. At year-end, Group s total liquidity reserve, which is defined as loans granted to credit institutions, bonds and other interest-bearing securities, was SEK 3, 100,315 (2, 345, 068) thousand, which corresponds to 54 (56) percent of total liabilities. At year-end, the parent company s total liquidity reserve was SEK 3, 001,266 (2, 279, 645) thousand, which corresponds to 52 (55) percent of total liabilities. All of the bank s financial liabilities fall due within 30 days. The bank s loans to credit institutions, bonds and other interest-bearing securities mature within six months. Market risk Market risk is the risk of negative effects on the bank s net interest income/expense, or on the financial value of equity as a result of fluctuations in interest and exchange rates. Interest risk The bank defines interest rate risk as the risk that the fair value of future cash flows from a financial instrument will vary due to changes in market rates of interest. The risk arises when the fixed-interest terms on the bank s assets do not correspond to the fixed-interest terms on its liabilities. For the bank, this primarily applies to the fixed interest terms on its loans to, and deposits from the general public, as well as investments. When the difference between the fixed-interest terms for assets in relation to the fixed-interest terms for liabilities increases, the interest rate risk also increases. FOREX Annual Report

32 In accordance with the bank s risk policy, the organization s financial risks are controlled through the setting of limits and policy documents. For interest rate risks, the total risk may not exceed SEK 31.6 million when there is a 1 percent change in the market rate of interest for all of the various maturity schedules. The bank s deposits from/loans to the general public all have variable interest rates, which reduces the interest rate risk. The bank s interest rate risk is primarily related to its time-bound investments (longer than one day), for which the volume at year-end was SEK 2, 538,288 (SEK 300, 000) thousand. At year-end, the total interest rate risk for all of the various maturity schedules given a 1 percent change in interest rates was SEK 3,116 (2) thousand. Currency risk The bank defines currency risk as the risk of incurring a loss due to fluctuations in exchange rates. The bank is exposed to different types currency risks. Primarily, this type of risk comes from the purchase and sale of foreign currencies and the inventory of currencies held by the bank for these activities, as well as the balance of currency accounts at other banks. At year-end, Group s inventory of various types of foreign currencies, for which the exchange rate fluctuations, to a certain extent, level out the total change in value against the SEK currency, was SEK308,474 (248, 324) thousand. At year-end, the parent company s inventory of foreign currencies was SEK 275,835 (192, 239) thousand. The bank also has certain other assets/liabilities in foreign currency associated with the banks branches in the Nordic countries. Group s currency risk is calculated as the change in value of the inventory of foreign currency when the SEK currency increases 10 percentage points against the other currencies to which Group is exposed. At year-end, this was equal to SEK 30,874 (24, 832) thousand. The following is a list of the currencies (in thousands) where there is significant exposure: 2011 Nominal value Rate Value in ksek 10% EUR , USD , NOK , DKK , GBP , THB , Nominal value Group s income statement includes exchange rate differences of SEK 10,475 (18, 335) thousand in the net profit (loss) from financial transactions. The corresponding amount reported by the parent company was SEK 9,774 (18, 973) thousand. Operational risks Rate Value in ksek Operational risk is the risk of incurring losses due to inappropriate or deficient internal processes, human error, faulty systems, irregularities or external events. Such risk arises if the bank s internal processes and/or systems do not support the organization, are faulty, or result in incorrect decisions, downtime, etc. that have a negative impact on the bank s income statement and balance sheet. According to the bank s policy, the following are required in order to manage operational risks: clear policies and instructions about the bank s various types of risks that are updated annually well-documented processes, reporting lines and control systems for the bank, in generalt clearly defined responsibilities and authorities 10% EUR , USD , NOK , DKK , GBP , THB , a well-documented and communicated continuity plan a well-documented and communicated emergency plan for crisis situations systems that are adapted to the organization s needs a well-documented process for managing operational risk information security and physical security in order to protect the assets of the bank and its customers Operational risk is a significant type of risk, due to the rather large scope of the bank s cash management activities, among others. For this reason, the bank places a great deal of emphasis on how these types of risk are managed. 32 FOREX Bank Annual Report 2011

33 Note 4 Net interest income/expense Group SEK thousands Interest income Loans to credit institutions Loans to the general public Other Total interest income Interest expense Liabilities to credit institutions Deposits from the general public Other Total interest expenses Total net interest income/expense Deposits from the general public includes the deposit insurance expense and stability fee of SEK -5, 607 (-4, 916) thousand. % Interest margin 1,53 1,44 Investment margin 1,93 1,62 FOREX Annual Report

34 The parent company SEK thousands Interest income Loans to credit institutions Loans to the general public Loans to credit institutions Other Total interest income Interest expense Liabilities to credit institutions Deposits from the general public Liabilities to group companies Other Total interest expenses Total net interest income/expense Deposits from the general public includes the deposit insurance expense and stability fee of SEK -5, 607 (-4, 916) thousand. % Interest margin 1,57 1,48 Investment margin 1,95 1,66 Definitions Interest margin: Total interest income as a percentage of average total assets less total interest expenses as a percentage of average total assets, less average equity and untaxed reserves. Investment margin: Net interest income/expense as a percentage of average total assets Note 5 Dividends received Group SEK thousands Shares and participations Total dividends received The parent company SEK thousands Shares and participations Shares and participations in group companies Total dividends received FOREX Bank Annual Report 2011

35 Note 6 Commission income Group SEK thousands Commissions from remittance services Lending commissions Commissions from deposit services Fees from charge/credit cards Other commissions Total commission income The parent company SEK thousands Commissions from remittance services Lending commissions Commissions from deposit services Fees from charge/credit cards Other commissions Total commission income Note 7 Commission expenses Group SEK thousands Commissions from remittance services Other commissions Total commission expenses The parent company SEK thousands Commissions from remittance services Other commissions Total commission expenses FOREX Annual Report

36 Note 8 Net profit (loss) from financial transactions Group SEK thousands Shares and participations Other financial instruments Changes in exchange rates Total net profit (loss) from financial transactions Net profit/net loss by type Via RR Via RR Financial assets, held for trading purposes Loan receivables and accounts receivable Available-for-sale financial assets Financial liabilities, held for trading purposes Other financial liabilities Total net profit (loss) from financial transactions The parent company SEK thousands Shares and participations Other financial instruments Changes in exchange rates Total net profit (loss) from financial transactions Net profit/net loss by type Via RR Via RR Financial assets, held for trading purposes Loan receivables and accounts receivable Available-for-sale financial assets Financial liabilities, held for trading purposes Other financial liabilities Total net profit (loss) from financial transactions FOREX Bank Annual Report 2011

37 Note 9 Other operating income Group SEK thousands Net profit (loss) on disposal of property, plant and equipment/intangible assets Insurance reimbursements Other operating income Total other operating income The parent company SEK thousands Net profit (loss) on disposal of property, plant and equipment Management fee, subsidiaries Insurance reimbursements Other operating income Total other operating income FOREX Annual Report

38 Note 10 General administrative expenses Group SEK thousands Employee benefit expenses - salaries and fees social security contributions pension premium expenses other employee benefit expenses Total employee benefit expenses Other general administrative expenses - rent and other facility expenses postage and telephone audit other external services other external expenses Total other administrative expenses Total general administrative expenses The parent company SEK thousands Employee benefit expenses - salaries and fees social security contributions pension premium expenses other employee benefit expenses Total employee benefit expenses Other general administrative expenses - rent and other facility expenses postage and telephone audit other external services other external expenses Total other administrative expenses Total general administrative expenses FOREX Bank Annual Report 2011

39 Salaries, other remuneration and social security expenses Group SEK thousands Bank mgmt Other employees Bank mgmt Other employees Salaries Social security expenses Total Of Group s pension expenses, SEK 3,427 (2, 572) thousand was for the bank management team consisting of 7 (7) individuals. No other outstanding pension obligations exist. All pension expenses are covered through regular pensions payments.. The parent company SEK thousands Bank mgmt Other employees Bank mgmt Other employees Salaries Social security expenses Total Of the parent company s pension expenses, SEK 3,427 (2, 572) thousand was for the bank management team consisting of 7 (7) individuals. No other outstanding pension obligations exist. All pension expenses are covered through regular pensions payments. Remuneration to senior executives Directors Remuneration to the members of the board is established at the FOREX Bank Annual General Meeting. At year-end, the Board of Directors had 7 members and it held 16 meetings. There are no fixed fees for participating in the board. Rather, compensation is based on the number of meetings attended by each board member. For other participation in committees, projects, etc., board members are compensated at an hourly rate. Managing Director and other senior executives Remuneration to the Managing Director and the Deputy Managing Director is decided by the board of directors. Remuneration to the Managing Director and other senior executives consists of a base salary and pension. All senior executives have a notice period of 6 months with full salary when termination is handed down by FOREX Bank. For the Managing Director and the Deputy Managing Director, the notice period with full salary is 12 months. Pension insurance premiums are paid for the Managing Director and other senior executives in accordance with the pension plan in effect at the bank. No pension obligations exist. Remuneration and other items are reported below. FOREX Annual Report

40 Remuneration and other benefits Group and parent company 2011 SEK thousands Chairman of the Board Basic salary/ Board fee Variable pay Other benefits Pension expense Other pay Hans Hellquist Total Board members Katja Elväng Beth Friberg Jörgen Holgersson Ingrid Jonasson Blank Olof Söderberg Stefan Zadik Previous board members Gunnel Engberg Marie-Louise Lind Carl Johan Smith Managing Director and Group Chairman Magnus Cavalli-Björkman Other senior executives The parent company, 6 individuals of which Tom Friberg Total group and parent company FOREX Bank Annual Report 2011

41 Remuneration and other benefits Group and parent company 2010 SEK thousands Basic salary/ Board fee Variable pay Other benefits Pension expense Other pay Chairman of the Board Hans Hellquist Previous Chairman of the Board Rolf Friberg Board members Katja Elväng Gunnel Engberg Beth Friberg 1) Jörgen Holgersson Marie-Louise Lind Carl Johan Smith Total Previous board members Anders Broström Christer Lundkvist Managing Director and Group Chairman Magnus Cavalli-Björkman Other senior executives The parent company, 7 ndividuals of which Tom Friberg Total group and parent company ) Board member, Beth Friberg, receives compensation in accordance with her employment agreement. No board fees are paid. Variable Remuneration No variable remuneration was paid out in 2011 and Loans to senior executives As of 31 December 2011, outstanding loans to senior executives were SEK 380 (445) thousand. These loans are in the form of unsecured credit and the loan conditions are the same as what are typically used when granting credit to the general public and other employees. Information about remuneration in accordance with FFFS 2011:1 Please see the company s website FOREX Annual Report

42 Average number of employees The parent company Women Men Total Women Men Total Sweden Finland branch Denmark branch Norway branch Total parent company X-change in Sweden AB - Sweden Denmark branch Total average number of employees in Group Gender distribution, management Group och The parent company Women Men Total Women Men Total Directors Other senior executives including the Managing Director and Group Chairman Total FOREX Bank Annual Report 2011

43 Fees and expense reimbursements to auditors Group Pricewaterhouse Coopers AB Audit engagements Audit activities in addition to the audit assignment Tax consultation Other services Total fees and expense reimbursements to auditors The parent company PricewaterhouseCoopers AB Audit engagements Audit activities in addition to the audit assignment Tax consultation Other services Total fees and expense reimbursements to auditors The audit engagement includes the audit of the annual report, accounting records and the administration of the Board of Directors and the Managing Director, as well as other duties that the company s auditor is obliged to conduct and advice or other assistance resulting from observations made during the audit or performance of these other duties. Any other services provided are included in other fees. Operating lease agreements Group leases a number of branch facilities, offices, inventory facilities and cars in accordance with operating lease agreements. The leasing periods vary from 2 to 10 years and most of the leasing agreements may be extended at the end of the lease term for a fee that is consistent with prevailing market rates. Other operating leases are negligible. During the year, Group s leasing expenses for leased facilities was SEK 72,700 (67, 331) thousand for cars SEK 633 (-) thousand. The corresponding amount for the parent company was SEK 59,592 (52, 871) thousand and SEK 633 (-) thousand, respectively. The total future minimum lease payments for operating lease agreements that may not be cancelled are as follows: FOREX Annual Report

44 Group Within 1 year Between 1 and 5 years More than 5 years Total The parent company Within 1 year Between 1 and 5 years More than 5 years Total FOREX Bank Annual Report 2011

45 Note 11 Other operating expenses Group SEK thousands Insurance expenses Security expenses Marketing expenses Capital loss on disposal of PPE and intangible assets Other operating expenses Total other operating expenses The parent company SEK thousands Insurance expenses Security expenses Marketing expenses Capital loss on disposal of PPE and intangible assets Other operating expenses Total other operating expenses Note 12 Loan losses, net Group och The parent company SEK thousands Individually assessed loan receivables Write-off for the year on verified credit losses Net expense for the year for individually assessed loan receivables Loan receivables assessed as a group Paid for prior years' verified credit losses Year's provision for the allowance for credit losses Net expense for the year for loan receivables assessed as a group Net expense for the year for credit losses All credit losses are related to loan receivables and accounts receivable. FOREX Annual Report

46 Note 13 Impairment of financial assets Group och The parent company SEK thousands Shares and participations Condominium, Brf Gråbjörnen 11, Malmö Total impairment of financial assets Note 14 Reversal of impairment of financial assets The parent company SEK thousands Receivables from group companies Forex Sweden International Ltd Total impairment of financial assets Note 15 Appropriations The parent company SEK thousands Reversal of tax allocation reserve Excess depreciation/amortization Total appropriations FOREX Bank Annual Report 2011

47 Note 16 Taxes Reported in the income statement Group SEK thousands Current tax expense Tax expense for the period Other taxes Deferred tax expense Deferred tax Total reported tax expense The parent company SEK thousands Current tax expense Tax expense for the period Other taxes Deferred tax expense Deferred tax Total reported tax expense Reconciliation of effective tax Group SEK thousands 2011 (%) (%) 2010 Profit before tax Tax according to the applicable tax rate 26,3% ,30% Effect of foreign tax credit -0,22% 504-0,70% Non-deductible expenses 0,69% ,70% Non-taxable income -0,22% 490-0,88% Tax related to prior years 0,77% ,52% Temporary differences -0,07% 163-0,13% 450 Other taxes 0,09% ,00% - Standard interest on tax allocation reserve 0,21% ,19% -641 Reported effective tax 27,55% , FOREX Annual Report

48 The parent company SEK thousands 2011 (%) (%) 2010 Profit before tax Tax according to the applicable tax rate 26,3% ,30% Effect of foreign tax credit -0,25% 504-0,72% Non-deductible expenses 0,63% ,61% Non-taxable income -0,20% 397-3,46% Tax related to prior years 0,83% ,63% Temporary differences -0,11% 215-0,11% 372 Other taxes 0,10% ,00% - Standard interest on tax allocation reserve 0,17% ,14% -448 Reported effective tax 27,52% ,13% Deferred tax assets Group SEK thousands 31 Dec Dec 2010 Carrying amount at the beginning of the period Net change during the period Carrying amount at the end of the period Reported deferred tax receivables Deferred tax receivables are related to the following: SEK thousands 31 Dec Dec 2010 Tax effect of temporary differences: Depreciation on property, plant and equipment - 78 Impairment of building Impairment of financial assets Pension liability Total deferred tax assets FOREX Bank Annual Report 2011

49 The parent company SEK thousands 31 Dec Dec 2010 Carrying amount at the beginning of the period Net change during the period Carrying amount at the end of the period Reported deferred tax receivables Deferred tax receivables are related to the following: SEK thousands 31 Dec Dec 2010 Tax effect of temporary differences: Impairment of building Impairment of financial assets Pension liability Total deferred tax assets Deferred tax liabilities Group SEK thousands 31 Dec Dec 2010 Carrying amount at the beginning of the period Net change during the period Carrying amount at the end of the period Reported deferred tax liabilities Deferred tax liabilities are related to the following: SEK thousands 31 Dec Dec 2010 Cash Property, plant and equipment Intangible assets Tax allocation reserve Total deferred tax liabilities Group s provision for deferred tax liabilities relates to the tax effect on untaxed reserves in certain legal entities belonging to the group, as well as the tax effect on consolidated acquisition values and the tax effect on different inventory values in Group and legal entities. Deferred tax is reported at the rate of 26.3%. FOREX Annual Report

50 Note 17 Loans to credit institutions Group SEK thousands 31 Dec Dec 2010 Loans to credit institutions - swedish currency foreign currency Total loans to credit institutions The parent company SEK thousands 31 Dec Dec 2010 Loans to credit institutions - swedish currency foreign currency Total loans to credit institutions Note 18 Loans to the general public Group och The parent company SEK thousands 31 Dec Dec 2010 Outstanding receivables, gross - Swedish currency Total outstanding receivables, gross Of which: doubtful Impairment loss on loan receivables assessed as a group Carrying amount of loans to the general public, net Change in impairment losses SEK thousands Loan receivables assessed as a group Total impairment losses Loan receivables assessed as a group Total impairment losses Opening balance 1 Jan Impairment loss for the year, credit losses Ending balance on 31 Dec FOREX Bank Annual Report 2011

51 Note 19 Bonds and other interest-bearing securities Group och The parent company SEK thousands Fair value 31 Dec 2011 Carrying amount Fair value 31 Dec 2010 Carrying amount Issued by other borrowers - other finance companies Total bonds and other interestbearing securities Of which: Listed securities on an exchange Unlisted securities Note 20 Shares and participations in group companies The parent company SEK thousands 31 Dec Dec 2010 Accumulated cost Opening balance, 1 Januari Acquisitions for the year 50 - Sales for the year Ending balance on 31 December of which: Unlisted securities Group companies 2011 SEK thousands Net profit Equity Share of capital Number of shares Carrying amount X-change in Sweden AB, , Stockholm % X-change ValutaSpecialisten Europe AB, % , Stockholm FOREX Sweden International Ltd, , London % Svensk Valutahantering AB, % Total shares in group companies FOREX Annual Report

52 Group companies 2010 SEK thousands Net profit Equity Share of capital Number of shares Carrying amount X-change in Sweden AB, , Stockholm % X-change ValutaSpecialisten Europe AB, % , Stockholm FOREX Sweden International Ltd, , % London Total shares in group companies Note 21 Participations in associated companies Group SEK thousands 31 Dec Dec 2010 Accumulated cost Opening balance 1 Januari - - Acquisitions for the year Share in profits Ending balance on 31 December of which: Listed securities Group s share of profits in associated companies and Group s share of income, assets (including goodwill) and liabilities are as follows: Associated companies 2011 Net profit Income Assets Liabilities Share of capital Number of shares Carrying amount SEK thousands 1) 1) 1) 1) 1) 1) 1) Panaxia AB, (publ), Stockholm ,74% Total shares in group companies ) Based on the values in Panaxia AB s published quarterly report for January-September FOREX Bank Annual Report 2011

53 The parent company SEK thousands 31 Dec Dec 2010 Accumulated cost Opening balance, 1 January - - Acquisitions for the year Ending balance on 31 December of which: Listed securities The parent company s share of profits in associated companies and the parent company s share of income, assets (including goodwill) and liabilities are as follows: Associated companies 2011 Net profit Income Assets Liabilities Share of capital SEK thousands 2) 2) Number of shares Carrying amount Panaxia AB, (publ), Stockholm ,74% Total shares in group companies ) 2) Based on the values in Panaxia AB s published quarterly report for January-September FOREX Annual Report

54 Note 22 Other shares and participations Group and parent company SEK thousands 31 Dec Dec 2010 Available-for-sale financial assets, listed below - Listed securities, shares - USA Unlisted securities Total available-for-sale financial assets List of other shares and participations SEK thousands 31 Dec 2011 Antal Redovisat värde 31 Dec 2010 Antal Redovisat värde Shares in Visa Inc Condominium, Brf Gråbjörnen11, Malmö Total FOREX Bank Annual Report 2011

55 Note 23 Intangible assets Group SEK thousands Goodwill Acquired intangible assets Rights of tenancy Other Accumulated cost Opening balance 1 Jan Disposals for the year Exchange rate differences for the year Closing balance 31 Dec Total Opening balance 1 Jan Acquisitions for the year Sales for the year Disposals for the year Exchange rate differences for the year Closing balance 31 Dec Accumulated depreciation Opening balance 1 Jan Disposals for the year Depreciation for year Exchange rate differences for the year Closing balance 31 Dec Opening balance 1 Jan Sales for the year Disposals for the year Depreciation for year Exchange rate differences for the year Closing balance 31 Dec Carrying amounts As of 1 Jan As of 31 Dec As of 1 Jan As of 31 Dec FOREX Annual Report

56 The parent company SEK thousands Goodwill Acquired intangible assets Rights of tenancy Other Ackumulerade anskaffningsvärden Opening balance 1 Jan Acquisitions from group companies for the year Disposals for the year Exchange rate differences for the year Closing balance 31 Dec Total Opening balance 1 Jan Acquisitions for the year Sales for the year Disposals for the year Exchange rate differences for the year Closing balance 31 Dec Accumulated depreciation Opening balance 1 Jan Acquisitions from group companies for the year Disposals for the year Depreciation for year Exchange rate differences for the year Closing balance 31 Dec Opening balance 1 Jan Sales for the year Disposals for the year Depreciation for year Exchange rate differences for the year Closing balance 31 Dec Carrying amounts As of 1 Jan As of 31 Dec As of 1 Jan As of 31 Dec FOREX Bank Annual Report 2011

57 Note 24 Property, plant and equipment Group SEK thousands Equipment Capitalized reconstruction costs Buildings Accumulated cost Opening balance Acquisitions for the year Sales for the year Disposals for the year Reclassifications Exchange rate differences Closing balance 31 Dec Total Opening balance 1 Jan Acquisitions for the year Sales for the year Disposals for the year Exchange rate differences Closing balance 31 Dec Accumulated depreciation Opening balance 1 Jan Sales for the year Disposals for the year Reclassifications Depreciation for year Exchange rate differences Closing balance 31 Dec Opening balance 1 Jan Sales for the year Disposals for the year Depreciation for year Exchange rate differences Closing balance 31 Dec FOREX Annual Report

58 cont. Property, plant and equipment Group Acquired intangible assets SEK thousands Equipment Capitalized reconstruction costs Buildings Accumulated impairment losses Opening balance 1 Jan Closing balance 31 Dec Total Accumulated impairment losses Opening balance 1 Jan Closing balance 31 Dec Carrying amounts As of 1 Jan As of 31 Dec As of 1 Jan As of 31 Dec FOREX Bank Annual Report 2011

59 The parent company SEK thousands Equipment Capitalized reconstruction costs Buildings Total Accumulated cost Opening balance 1 Jan Acquisitions for the year Acquisitions from group companies for the year Sales for the year Disposals for the year Exchange rate differences Closing balance 31 Dec Opening balance 1 Jan Acquisitions for the year Sales for the year Disposals for the year Exchange rate differences Closing balance 31 Dec Accumulated depreciation Opening balance 1 Jan Acquisitions from group companies for the year Sales for the year Disposals for the year Depreciation for year Exchange rate differences Closing balance 31 Dec Opening balance 1 Jan Sales for the year Disposals for the year Depreciation for year Exchange rate differences Closing balance 31 Dec FOREX Annual Report

60 cont. The parent company SEK thousands Equipment Capitalized reconstruction costs Buildings Total Accumulated impairment losses Opening balance 1 Jan Closing balance 31 Dec Opening balance 1 Jan Closing balance 31 Dec Carrying amounts As of 1 jan As of 31 Dec As of 1 jan As of 31 Dec FOREX Bank Annual Report 2011

61 Note 25 Receivables from group companies The parent company SEK thousands 31 Dec Dec 2010 X-change in Sweden AB Total receivables from group companies Note 26 Other assets Group SEK thousands 31 Dec Dec 2010 Positive value on derivative instruments Credit card receivables Other assets Total other assets The parent company SEK thousands 31 Dec Dec 2010 Positive value on derivative instruments Credit card receivables Other assets Total other assets FOREX Annual Report

62 Note 27 Prepaid expenses and accrued income Group SEK thousands 31 Dec Dec 2010 Prepaid expenses Accrued interest income Other accrued interest Total prepaid expenses and accrued income The parent company SEK thousands 31 Dec Dec 2010 Prepaid expenses Accrued interest income Other accrued interest Total prepaid expenses and accrued income Note 28 Deposits from the general public Group och The parent company SEK thousands 31 Dec Dec 2010 General public - Swedish currency Total deposits from the general public All deposits are deposits from the household sector. Note 29 Liabilities to group companies The parent company SEK thousands 31 Dec Dec 2010 X-change Valutaspecialisten Europe AB 58 - Total liabilities to group companies FOREX Bank Annual Report 2011

63 Note 30 Other creditors Group SEK thousands 31 Dec Dec 2010 Negative value on derivative instruments Preliminary tax, interest Employee withholding tax Advance payments from customers Accounts payable - trade Income tax liability Other creditors Total other liabilities The parent company SEK thousands 31 Dec Dec 2010 Negative value on derivative instruments Preliminary tax, interest Employee withholding tax Advance payments from customers Accounts payable - trade Income tax liability Other creditors Total other liabilities FOREX Annual Report

64 Note 31 Accrued expenses and prepaid income Group SEK thousands 31 Dec Dec 2010 Accrued employee benefit expenses Other accrued expenses Prepaid income 44 - Total accrued expenses and deferred income The parent company SEK thousands 31 Dec Dec 2010 Accrued employee benefit expenses Other accrued expenses Prepaid income 44 - Total accrued expenses and deferred income Note 32 Provisions Group och The parent company SEK thousands Pension provision Restructuring expenses Accumulated excess depreciation expenses Total provisions Total provisions Opening balance, 1 January Reported in the income statement additional provision Ending balance on 31 December Reported in the income statement - additional provision Utilized during the year Ending balance on 31 December Pension provision All of the bank s pension plans are defined contribution plans. For certain management personnel, pensions have been secured via endowment insurance. The pension provision is comprised of the value of the endowment insurance plus estimated payroll tax. Restructuring The provision for restructuring pertains to the costs associated with closing down operations in Great Britain. The item consists of rent that the bank is contractually obligated to pay until it may leave the premises along with other costs that are directly related to the closing down of operations. The bank left the premises in 2011 and no additional costs are expected to arise in the future since the company was formally wound down at the start of FOREX Bank Annual Report 2011

65 Note 33 Untaxed reserves The parent company SEK thousands 31 Dec Dec 2010 Accumulated excess depreciation Opening balance, 1 Januari Excess depreciation for the year Ending balance on 31 December Tax allocation reserves Tax Assessment Tax Assessment Tax Assessment Tax Assessment Tax Assessment Ending balance on 31 December Total untaxed reserves Note 34 Contingent liabilities Group SEK thousands (nom belopp) 31 Dec Dec 2010 Warranties - Warranty obligations other Total contingent liabilities The parent company SEK thousands (nom belopp) 31 Dec Dec 2010 Warranties - Warranty obligations other Total contingent liabilities FOREX Annual Report

66 Note 35 Commitments Group och The parent company SEK thousands (nom belopp) 31 Dec Dec 2010 Other commitments - Credit and loan commitments Total commitments Note 36 Related parties Related party relationships, group companies In 2011, the parent company invoiced interest of SEK 13 (53) thousand to the subsidiary, Forex Sweden International Ltd, and SEK - (70) thousand to the subsidiary, X- change in Sweden AB. During 2010, the parent company incurred a cost of SEK 535 thousand for interest for the subsidiary, Forex Valutaväxling AS. During 2011, the parent company also invoiced a management fee of SEK 10,000 (10, 000) thousand and SEK 147, 442 (-) thousand for delivered currency to the subsidiary, X-change in Sweden AB. During the year the parent company invoiced SEK 72 (72) thousand for compensation for the provision of a POS (Point of Sale) system and incurred a cost of SEK 2, 071 (2, 244) thousand for commissions for cash services with respect to the subsidiary, X-change in Sweden AB. For other information, please refer to Note 25 and Note 29. Transactions with key management personnel For information about salary, other remuneration and pensions for key management personnel, please see note 10. There have otherwise not been any transactions with key management personnel. Transactions with the owners During the year, dividends were paid to the owners in the amount of SEK 48,000 (16, 020) thousand. 66 FOREX Bank Annual Report 2011

67 Note 37 Geographic distribution of income Group SEK thousands Sweden Other countries Interest income Dividends received Commission income Net profit from financial transactions Other operating income Geographic distribution of total income The parent company SEK thousands Sverige Övriga länder Interest income Dividends received Commission income Net profit from financial transactions Other operating income Geographic distribution of total income FOREX Annual Report

68 Note 38 Financial assets and liabilities Group 31 Dec 2011 Financial assets valued at fair value via the income statement Loan receivables and accounts receivable Financial assets assessed as belonging to this category Held for trading purposes Held-tomaturity investments Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Held for trading purposes Other financial liabilities Total carrying amount Cash and bank balances Loans to credit institutions Loans to the general public Fair value Bonds and other interestbearing securities Other shares and participations Other assets Prepaid expenses and accrued income Total financial assets Deposits from the general public Other creditors Accrued expenses and prepaid income Total financial liabilities FOREX Bank Annual Report 2011

69 31 Dec 2010 Financial assets valued at fair value via the income statement Loan receivables and accounts receivable Financial assets assessed as belonging to this category Held for trading purposes Held-tomaturity investments Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Held for trading purposes Other financial liabilities Total carrying amount Cash and bank balances Loans to credit institutions Loans to the general public Fair value Bonds and other interest-bearing securities Other shares and participations Other assets Prepaid expenses and accrued income Total financial assets Deposits from the general public Other creditors Accrued expenses and prepaid income Total financial liabilities FOREX Annual Report

70 The parent company 31 Dec 2011 Financial assets valued at fair value via the income statement Loan receivables and accounts receivable Financial assets assessed as belonging to this category Held for trading purposes Held-tomaturity investments Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Other creditors Other financial liabilities Total carrying amount Cash and bank balances Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Other shares and participations Other assets Fair value Prepaid expenses and accrued income Total financial assets Deposits from the general public Other creditors Accrued expenses and prepaid income Summa finansiella skulder FOREX Bank Annual Report 2011

71 31 Dec 2010 Financial assets valued at fair value via the income statement Loan receivables and accounts receivable Financial assets assessed as belonging to this category Held for trading purposes Held-tomaturity investments Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Holdings for trading purposes Other financial liabilities Total carrying amount Cash and bank balances Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Other shares and participations Other assets Prepaid expenses and accrued income Fair value Total financial assets Deposits from the general public Other creditors Accrued expenses and prepaid income Total financial liabilities FOREX Annual Report

72 Calculation of fair value The following is a summary of the methods and assumptions that were primarily used in order to establish the fair value for the financial instruments reported in the table above. Financial instruments quoted on an active market For financial instruments quoted in an active market, fair value is assessed based on the asset s quoted bid price on the closing date, excluding any transaction expenses (such as courtage) at the time of acquisition. A financial instrument is considered as being quoted on an active market if the listed price can easily be obtained from a stock market, trader, broker, trade association, company that provides current price information or supervisory authority and if these prices represent actual and regularly occurring market transactions with commercial terms. Any future transaction expenses associated with a sale have not been considered. For financial liabilities, fair value is based on the quoted ask price. Such instruments are included in the balance sheet item, Shares and participations, as well as in the item, Bonds and other interest-bearing securities. The majority of the company s financial instrument have been affixed a fair value using prices quoted on an active market. Financial instruments that are not quoted in an active market The fair value of loan receivables has been calculated by discounting the value of expected future cash flows. The current lending rate is used as the discount rate. For accounts receivable and accounts payable with a remaining useful life that is less than six months, it is assumed that the carrying amount also reflects the fair value. Customer and accounts payable with maturities in excess of six months are discounted in conjunction with establishing fair value. The fair value of borrowings is calculated using current market rates of interest, holding constant the original credit spread, unless there is clear proof that a change in the bank s credit rating has resulted in an observable change in the bank s credit spread. Cash is valued using the closing day rates provided by the Swedish Central Bank (Sveriges Riksbank). The revised IFRS 7 is applied as of 1 January 2009 for financial instruments measured at fair value in the balance sheet. This requires disclosures on fair value measurement at each of the following levels in the fair value hierarchy: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) Other observable input on assets or liabilities are quoted prices included in level 1, either directly (i.e. as quotations) or indirectly (i.e. derived from quotations) (level 2) Input on assets or liabilities that is not based on observable market data (i.e. non-observable data) (level 3) 72 FOREX Bank Annual Report 2011

73 The following table shows the bank s assets and liabilities valued at fair value as of 31 December Group SEK thousands Carrying amount Fair value valuation at the end of the period based on: Description 31 Dec 2011 Level 1 Level 2 Level 3 Financial assets valued at fair value via the income statement - Cash and bank balances held for trading purposes Derivatives held for trading purposes Available-for-sale financial assets - Shares and participations Total The following table shows the bank s assets and liabilities valued at fair value as of 31 December Group SEK thousands Carrying amount Fair value valuation at the end of the period based on: Description 31 Dec 2010 Level 1 Level 2 Level 3 Financial assets valued at fair value via the income statement - Cash and bank balances held for trading purposes Derivatives held for trading purposes Available-for-sale financial assets - Shares and participations Total FOREX Annual Report

74 The following table shows the bank s assets and liabilities valued at fair value as of 31 December The parent company SEK thousands Carrying amount Fair value valuation at the end of the period based on: Description 31 Dec 2011 Level 1 Level 2 Level 3 Financial assets valued at fair value via the income statement - Cash and bank balances held for trading purposes - Derivatives held for trading purposes Available-for-sale financial assets Shares and participations Total The following table shows the bank s assets and liabilities valued at fair value as of 31 December The parent company SEK thousands Carrying amount Fair value valuation at the end of the period based on: Description 31 Dec 2010 Level 1 Level 2 Level 3 Financial assets valued at fair value via the income statement - Cash and bank balances held for trading purposes - Derivatives held for trading purposes Available-for-sale financial assets Shares and participations Total FOREX Bank Annual Report 2011

75 Note 39 Cash flow statement Group Cash and cash equivalents SEK thousands 31 Dec Dec 2010 Cash and cash equivalents is comprised of the following items: Cash Loans to credit institutions Bonds and other interest-bearing securities Cash equivalents at year-end Interest paid and dividends received that are included in cash flow from operating activities SEK thousands Dividends received Interest received Interest paid The parent company Cash and cash equivalents SEK thousands 31 Dec Dec 2010 Cash and cash equivalents is comprised of the following items: Cash Loans to credit institutions Bonds and other interest-bearing securities Cash equivalents at year-end Interest paid and dividends received that are included in cash flow from operating activities SEK thousands Dividends received Interest received Interest paid FOREX Annual Report

76 Note 4o Acquisitions During the year FOREX Bank acquired shares in Panaxia AB corresponding to an ownership of 27.7%. All of the share in Svensk Valutahantering AB were also acquired. Note 41 Important estimates and assessments Amortization of loan losses is typically based on an individual assessment of each claim in default. For receivables from the general public, a loss reserve has been calculated based on the entire group of such receivables, since the portfolio is comprised of a homogenous group. The method used by the bank for such write downs is to categorize loans by type of demand at each closing. The write-down is then based on the change for each type of demand. Loans that have been submitted to a collection agency are valued by an external party. X-change in Sweden AB was acquired on 15 April The acquisition was of strategic importance to FOREX Bank AB. This enabled Group to widen the scope of its network of branches at the same time as its fundamental business activities were achieving higher volumes. Group benefits from economies of scale for currency purchases and logistics. It also has a wider recruiting base, more efficient marketing, joint training activities, higher efficiency in the overall network of branches and a broader sales channel for FOREX Bank AB s products. The carrying amount for goodwill was tested on the balance sheet date by calculating its recoverable amount. The calculation was based on the budgeted cash flow for For subsequent years, the calculation was based on the assumption that there will be 7 branches left in X-change from 2013 onwards. This calculation applied a discount rate of 14 percent and an assessed rate of growth of up to 1 percent. Based on this calculation, it was determined that the carrying amount for goodwill was motivated. Note 43 Capital adequacy The bank s risk management and capital management practices are governed by the board s policies on these items, which provides the framework for capital planning and other items based on: the bank s risk profile, identified risks taking into consideration probabilities and financial effects, stress tests and scenario analyses, anticipated expansion of loans and financing possibilities and new legislation, the behavior of competitors and other changes in the surrounding world. Capital planning is an integrated part of efforts associated with the bank s annual business plan. The plan is monitored on an ongoing basis. An Internal Capital Evaluation is made each year when the business plan is updated in order to ensure that the risks have been correctly considered and that they reflect the bank s actual risk profile and capital requirements. Just like all important credit and investment decisions, any revisions made to the board s established policies and strategies must relate to the banks current and future capital requirements. The bank s legislated minimum capital requirements as per pillar I of the capital adequacy rules are shown in the table below. For more information about pillar III, please see the bank s website: Note 42 Dividends The board of directors proposed dividends are SEK 16, 500,000, which corresponds to SEK 2.75 per share. Dividends policy When determining dividends, consideration is given to the company s earnings trend, investment needs, financial position and other factors that the board of directors considers to be of importance. 76 FOREX Bank Annual Report 2011

77 Group Capital adequacy on 31 December As per the Capital Adequacy and Large Exposures Act (2006:1371) Volume Risk-weighted amount Capital requirement SEK thousands Risk Procentsats weight Credit risk as per the standard method Exposure with government risk % Exposure towards credit institutions % % Household exposure % % Non-regulated items % % Other %/100% % Total Credit risk Currency risk % Operational risk: basic indicator Income indicator approach % Total capital requirement Own funds Equity as per the annual accounts Less intangible assets Less deferred tax assets Less the board's proposed appropriation of profits Total Tier 1 capital Total own funds Capital adequacy ratio 1,72 1,67 FOREX Annual Report

78 The parent company Capital adequacy on 31 December As per the Capital Adequacy and Large Exposures Act (2006:1371) Volym Risk-weighted amount Capital requirement SEK thousands Risk Procentsats weight Credit risk as per the standard method Exposure with government risk % Exposure towards credit institutions % % Household exposure % % Non-regulated items % % Other %/100% % Total Credit risk Currency risk % Operational risk: basic Income indicator indicator approach % Total capital requirement Own funds Equity as per the annual accounts Untaxed reserves, 73.7% of that Less intangible assets Less deferred tax assets Less the board's proposed appropriation of profits Total Tier 1 capital Tier 2 capital - - Total own funds Capital adequacy ratio 1,88 1,93 78 FOREX Bank Annual Report 2011

79 Signatures of the board of directors Stockholm, 21 February 2012 Hans Hellquist Katja Elväng Beth Friberg Chairman of the Board Jörgen Holgersson Olof Söderberg Ingrid Jonasson Blank Stefan Zadik Employee representative Magnus Cavalli-Björkman Managing Director We hereby declare that, to the best of our knowledge, the annual report was prepared in accordance with generally accepted accounting standards. The information submitted corresponds to the actual business conditions and no significant items have been omitted that could alter the true and fair picture of Group and parent company that is given in the annual report. As stated above, the annual report was approved for issue by the board of directors on 21 February Group s and bank s income statement and balance sheet will be brought forth for adoption at the annual general meeting Our audit report was submitted on 21 February PricewaterhouseCoopers AB Bertil Johanson Certified Public Accountant Chief Auditor FOREX Annual Report

80 Audit report To the AGM of FOREX Bank AB CIN: Report on the annual report and consolidated financial statements We have audited the annual report and consolidated financial statements for FOREX Bank AB for Responsibility of the board of directors and the managing director for the annual report and consolidated financial statements The board of directors and the managing director are responsible for preparing an annual report that presents a true and fair view in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and consolidated financial statements that present a true and fair view in accordance with the IFRS international accounting standards, as adopted by the EU, and the Annual Accounts Act for Credit Institutions and Securities Companies, and for the internal control that the board of directors and managing director deem to be necessary to prepare an annual report and consolidated financial statements that are free of material misstatement, whether such are the result of falsifications or errors. Responsibility of the auditors Our responsibility is to, based on our audit, express an opinion on the annual report and the consolidated financial statements. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. These standards require that we apply professional moral requirements and plan and carry out the audit in such a manner as to assure reasonable certainty that the annual report and consolidated financial statements are free of material misstatement. An audit entails obtaining through different measures audit evidence regarding amounts and other information in the annual report and consolidated financial statements. The auditor decides the measures that will be conducted, in part by assessing the risks for material misstatement in the annual report and consolidated financial statements, regardless whether these misstatements are due to falsifications or error. When conducting this risk assessment, the auditor takes into account the areas of internal control that are relevant for how the company prepares its annual report and consolidated financial statements in order to present a true and fair view, with the intention of designing auditing measures that are appropriate given the circumstances, but not with the intention of making a statement regarding the efficiency of the company s internal control. An audit also entails evaluating the appropriateness of the accounting principles applied and the plausibility of the estimations made by the board of directors and the managing director in the report, as well as evaluating the overall presentation of the annual report and consolidated financial statements. We believe the audit evidence we obtained to provide a sufficient and appropriate base for our statement. Statement It is our opinion that the annual report was prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and presents in all material aspects a fair and true view of the parent company s financial position as of 31 December 2011 and its financial results and cash flow for the year in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies, and that the consolidated financial statements were prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and present in all material aspects a true and fair view of Group s financial position as of 31 December 2011 and its results and cash flows in accordance with international accounting standards, as adopted by the EU and the Annual Accounts Act for Credit Institutions and Securities Companies. The statutory administration report is consistent with the other parts of the annual report and the consolidated financial statements. We therefore recommend to the annual general meeting that the income statement and the balance sheet for both the parent company and group be adopted. Report on other requirements pursuant to laws and other regulations In addition to our audit of the annual report and consolidated financial statements, we also audited the proposed appropriations regarding the company s profit and the administration of the board of directors and the managing director with regard to FOREX Bank AB for FOREX Bank Annual Report 2011

81 Responsibility of the board of directors and the managing director The board of directors is responsible for the proposed appropriations regarding the company s profit, and the board of directors and the managing director are responsible for the administration in accordance with the Companies Act. Statement We recommend that the annual general meeting distribute the profit in accordance with the proposal in the administration report and we discharge the members of the board of directors and the managing director from liability for the financial year. Responsibility of the auditors Our responsibility is to make a statement with reasonable certainty on the proposed appropriations regarding the company s profit and the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our statement on the board of director s proposed appropriations regarding the company s profit, we audited the board of director s reasoned opinion and a sample of the data underlying this opinion in order to asses if the proposal is in compliance with the Companies Act. As the basis of our statement regarding discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the possible liability to the company of any board member or the managing director in addition to the audit of the annual report and consolidated financial statements. We also examined whether any board member or the managing director has, in any other way, acted in contravention of the Companies Act, the Banking and Financing Act, the Annual Accounts Act for Credit Institutions and Securities Companies, or the Articles of Association. We believe the audit evidence we obtained provides a sufficient and appropriate base for our statement. Stockholm, 21 February 2012 PricewaterhouseCoopers AB Bertil Johanson Certified Public Accountant FOREX Annual Report

82 Governance FOREX Bank AB is a private company and as such, it is not required to apply the Swedish Code of Corporate Governance. Given the bank s profile as a public company and the fact that, to a great extent, its activities are based on the instilled confidence of the general public and other stakeholders in the society, the bank has designed routines for governance and control of the organization using the Swedish Code of Corporate Governance as its model, where applicable. Appointment of the board, auditors and executive management The AGM of FOREX Bank is responsible for appointing the board of directors that will serve until the next annual general meeting. The AGM also appoints the auditors and term that auditors will serve. Furthermore, the AGM is responsible for granting discharge from liability to the board of directors and managing director for the financial year, as well as deciding on the appropriation of profits. The size of the board of directors and its composition must be appropriate to the bank and what is required for its future development. Information about the composition of the board of directors is provided in the annual report. For the 2011 financial year, there were 7 regular board members and 2 deputy board members. Three of the board members are women. The chairman of the board organizes and heads the work done by the board. The chairman is also responsible for making sure that the board has access to necessary information, for sending out notices of board meetings and for preparing for the board meetings, in consultation with the managing director. The board is responsible for appointing/dismissing the managing director/group chairman, as well as the deputy managing director (in consultation with the managing director). The board of directors held 16 meetings in Each year, the board establishes a formal work plan to regulate the board s role and how it will work, as well as issuing any specific instructions to the board s committees. The board has overall responsibility for Group s business activities and it decides on the direction of the business, strategies and goals. Furthermore, the board is responsible for ensuring that the business is organized such that its risks are identified and managed in a satisfactory manner and that the organization s controls for reporting and financial monitoring are also adequate. The board has appointed a special committee for Audit, Risk and Compliance. The chairman of the committee is Katja Elväng and its members are Jörgen Holgersson and Beth Friberg. On behalf of the board, this committee is responsible for preparing and conducting in-depth analyses of items having to do with audit, risk and compliance. During the year, the board dealt with such issues as the bank s strategies, business plan, policies, instructions, the annual review and audit of rules and regulations, budget, major investments and acquisitions, interim/annual reports and Group s risks and risk-taking. Disclosures on remuneration and other benefits, as well as pensions for the board and managing director are provided in Note 10. Internal audit unit The internal audit unit has been assigned by the board of directors the task of auditing the bank s internal controls. The internal audit review includes ensuring that the scope of the business and its direction is in accordance with internal regulations. The audit also involves an evaluation of the bank s organization and its work processes. 82 FOREX Bank Annual Report 2011

83 List of branches Forex Bank AB Sweden Arlanda Sky City Box Arlanda Arlanda, Terminal 2 Box Arlanda Arlanda Terminal 5 Nord Box Arlanda Borås Österlånggatan 48 A Borås Eskilstuna Kriebsensgatan Eskilstuna Gävle Drottninggatan Gävle Gothenburg, Kungsbacka Kungsmässan Kungsbacka Gothenburg, Avenyn Avenyn Göteborg Gothenburg, Central Station Central Station Göteborg Gothenburg, Frölunda torg Frölunda Torg, Västra Frölunda Göteborg Gothenburg, Kungsportsplatsen Östra Larmgatan Göteborg Gothenburg, Nordstan Postg Göteborg Gothenburg, Partille Gamla Kronv Partille Halmstad Storgatan Halmstad Helsingborg, Järnvägsgatan Järnvägsgatan Helsingborg Helsingborg, Knutpunkten level 1 Kungstorget 8, Box Helsingborg Helsingborg, Väla Centrum Väla Centrum Ödåkra Jönköping Västra Storgatan Jönköping Kallax Flygstationsvägen Luleå Kalmar Fiskaregatan Kalmar Karlstad Drottninggatan Karlstad Kristianstad Östra Storgatan Kristianstad Landvetter Transithall Box Göteborg Landvetter Internationalhall Box Landvetter Linköping Storgatan Linköping Luleå Storgatan Luleå Lund, Bangatan Bangatan Lund Lund, Botulfsplatsen Västra Mårtensgatan Lund Malmö/Arlöv Toftanäs Terminalgatan Malmö/Arlöv Malmö, Central Station Centralstationen, Lokgatan Malmö Malmö, Davidshallsgatan 27 Davidhallsgatan Malmö Malmö, Gustav Adolfs Torg 47 Gustav Adolfs Torg Malmö Malmö, Hamngatan 2 Hamngatan Malmö Malmö, Mobila Shopping Center Stadiongatan 3B Malmö Malmö, Point Hylle Hyllie Stationstorg Malmö FOREX Annual Report

84 Norrköping Drottninggatan Norrköping Skavsta Flplterminalen, Box Nyköping Stockholm, Arlanda Express Östra Järnvägsgatan Stockholm Stockholm, Centralen Centralstation Stockholm Stockholm, Cityterminalen Klarabergsviadukten Stockholm Stockholm, Farsta Centrum Farstagången Farsta Stockholm, Forum Nacka Forumvägen Nacka Stockholm, Gallerian Hamngatan Stockholm Stockholm, Gamla Stan Kornhamnstorg Stockholm Stockholm, Götgatan Götgatan Stockholm Stockholm, Jakobsberg Tornérplatsen Järfälla Stockholm, Klarabergsgatan Klarabergsgatan Stockholm Stockholm, Kungsgatan Kungsgatan Stockholm Stockholm, NK NK Stockholm Stockholm, Ringvägen Ringvägen Stockholm Stockholm, Sickla Köpkvarter Siroccogatan Nacka Stockholm, Sveavägen Sveavägen Stockholm Stockholm, Sollentuna Sollentunavägen Sollentuna Stockholm, Täby Centrum Västantorget 261 B Täby Stockholm, Vasagatan Vasagatan Stockholm Stockholm, Vällingby Centrum Solursgången Vällingby Sundsvall Köpmangatan Sundsvall Trelleborg C B Friisgatan Trelleborg Umeå Renmarkstorget Umeå Uppsala Fyristorg Uppsala Västerås, Smedjegatan Smedjegatan Västerås Västerås, Stora gatan Stora gatan Västerås Växjö Västergatan Växjö Ystad, Catamaran Terminal Hamntorget Ystad Örebro, Drottninggatan Drottninggatan Örebro Örebro, Marieberg Säljarevägen Örebro Östersund Prästgatan Östersund FOREX Bank Annual Report 2011

85 Finland Esbo Sampotorget, Hagalund FI Esbo Helsingfors, Alexandersgatan Alexandersgatan 52B FI Helsinki Helsingfors, Järnvägstationen Railway Station, Pl 118 FI Helsinki Helsingfors, Östra Centrum Kauppakeskus Itäkeskus FI Helsinki Jyväskylä Kauppakatu 27 FI Jyväskyla Tammerfors Hämeenkatu 14B FI Tammerfors Tammerfors, Stockmanns Stockmanns, level 2 FI Tammerfors Uleåborg Kauppurienkatu 13 FI Uleåborg Vanda Valutagatan 2 FI Vanda Åbo Eriksgatan 13 FI Åbo Denmark Aalborg Ved Stranden 22 DK-9000 Aalborg Frederiksberg Falconer Allé 12b DK-2000 Frederiksberg Helsingør Jernbanevej 4 DK-3000 Helsingør København, Hovedbanegården Hovedbanegården butik 18 DK-1570 København V København, Nørreport Nørre. Voldgade 90 DK-1358 København K København, Østerbrogade Østerbrogade 19, DK-2100 København Odense Banegårdscentret DK-5000 Odense C Århus Banegårdsplatsen 20 DK-8000 Århus C København, Hovedbanegården Hovedbanegården butik 51 DK-1570 København V Norway Lillestrom Lillest. St., Jonas Lies gt 4 N-2000 Lillestrom Oslo Brugata Brugata 8 N-0186 Oslo Oslo, Egertorget Øvre Slottsgate 12 N-0157 Oslo Oslo, Fridtjof Nansens plass Fridtjof Nansens Square 6 N-0160 Oslo Oslo, Central Station - Airport Express T Jernbanetorget 1 N-0114 Oslo Oslo, Central Station - Central Hall Jernbanetorget 1 N-0114 Oslo Stavanger Klubbgaten 1 N-4013 Stavanger Trondheim Central Station, Fosenkaia 1 N-7010 Trondheim FOREX Annual Report

86 X-change in Sweden AB Sweden Arlanda, Arrival Terminal 2 (arrivals) Arlanda Arlanda, Departure Terminal 5 (departures) Arlanda Arlanda, Departure (new office) Terminal 5 (departure info) Arlanda Gothenburg, Angered Angered Centrum Angered Gothenburg, Central Station Drottningtorget Göteborg Gothenburg, Kungsportsplatsen Kungsportsplatsen Göteborg Helsingborg Järnvägsgatan Helsingborg Landvetter Landvetter Utrikeshallen Landvetter Malmö, Triangeln Södra Förstadstagatan Malmö Stockholm, Central Station Centalstationen,Centralplan Stockholm Stockholm, Farsta Storforsplan Farsta Stockholm, Kungsgatan Kungsgatan Stockholm Stockholm, Skärholmen Storholmsgatan Skärholmen Södertälje Södertälje Central Station Södertälje Uppsala, Gränby Centrum Gränby Centrum Uppsala FOREX Bank Annual Report 2011

87 FOREX Annual Report

88 88 FOREX Bank Annual Report 2011