FOREX Bank AB Annual Report 2010

Transcription

1 FOREX Bank AB Annual Report 2010 FOREX Bank Annual Report

2 2 FOREX Bank Annual Report 2010

3 Contents Contents 3 Statutory administration report 4 The group s income statement 10 The group s statement of comprehensive income 10 The group s balance sheet 11 The group s statement of changes in equity 12 The group s cash flow statement 13 The parent company s income statement 14 The parent company s statement of comprehensive income 14 The parent company s balance sheet 15 The parent company s statement of changes in equity 17 The parent company s cash flow statement 18 Notes to the financial statements 19 Note 1 Information about the group and parent company 19 Note 2 Accounting principles 19 Note 3 Financial risks 29 Note 4 Net interest income/expense 32 Note 5 Dividends received 33 Note 6 Commission income 34 Note 7 Commission expenses 34 Note 8 Net profit from financial transactions 35 Note 9 Other operating income 36 Note 10 General administrative expenses 37 Note 11 Other operating expenses 45 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 interestbearing securities 51 Note 20 Shares and participations in group companies 51 Note 21 Other shares and participations 53 Note 22 Intangible assets 54 Note 23 Property, plant and equipment 56 Note 24 Receivables from group companies 60 Note 25 Other assets 60 Note 26 Prepaid expenses and accrued income 61 Note 27 Liabilities to credit institutions 61 Note 28 Deposits from the general public 61 Note 29 Liabilities to group companies 62 Note 30 Other liabilities 62 Note 31 Accrued expenses and prepaid income 63 Note 32 Provisions 63 Note 33 Untaxed reserves 64 Note 34 Contingent liabilities 64 Note 35 Commitments 65 Note 36 Related parties 65 Note 37 Geographic distribution of income 66 Note 38 Financial assets and liabilities 67 Note 39 Cash flow statement 74 Note 40 Acquisitions 75 Note 41 Important estimates and assessments 75 Note 42 Capital adequacy 75 Note 43 Dividends 78 Signatures of the board of directors 79 Audit report 80 Governance 81 List of branches 82 FOREX Bank 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 2010 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 runs banking activities consisting of deposits from and loans to the general public, remittance services, supplying means of payment in Swedish and foreign currencies, etc. The bank is the parent company of the group that is comprised of its bank branches in Finland, Denmark and Norway as well as the wholly-owned subsidiaries, X-change in Sweden AB (with subsidiaries) and FOREX Sweden International Ltd in Great Britain. During the year, the following dormant companies belonging to the group were liquidated: X-change Arlanda AB, X-change Malmö AB, X-change Göteborg AB, X-change in Denmark A/S, FOREX Fastighetsförvaltning AB, FOREX Kapitalförvaltning AB, FOREX Internethandel AB, Traveller Scandinavia AB, FOREX OY Valuutanvaihto, FOREX Valutaveksling A/S and FOREX Norge AS. FOREX Sweden International Ltd is in the process of being liquidated and is expected to be fully liquidated during The business is conducted in the Scandinavian countries and at the end of the year there were 113 (114) bank branches. During 2010 a new branch was opened in Denmark, as well as one in Norway. A new branch belonging to the X-change business was also opened. During 2010, a review was conducted of the group s existing network of branches in order to improve the group s utilization of resources. As a result, three branches were closed down in Sweden along with the branch in Great Britain during 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 other products has increased considerably. The volume of both loans to and deposits from the general public increased substantially, which is an indication of the market s continued confidence in the bank. The trend for the number of bill payments has continued in a positive direction. The volume and number of brokered foreign transfers has also increased in all of the bank s markets. The overview of the group s operations that got underway in prior years has resulted in continued ongoing change efforts. During the year, the business was structured as Retail Sweden and Retail Nordic. Retail Sweden is comprised of all of FOREX Sweden s and X-change in Sweden s branches located in Sweden, as well as FOREX Service Center. Retail Nordic is comprised of all branches in Finland, Denmark and Norway. In conjunction with that, X-change in Sweden was also reorganized. Extensive training efforts were also conducted during the year in order to obtain a higher overall level of competency within the group. Recruitment of new employees to managerial and specialist positions also continued in order to meet the need for specialist expertise within the various business areas. Efforts to outsource the banking platform resulted in a contract with EDB Norway. During autumn 2010, EDB initiated the take over, which is being implemented in stages and is estimated to be fully completed during During the year, the credit card, FOREX Visa was transferred to Nordea. This applies to the existing cards that have been issued as well as the issuance of new cards. Cash Center is being set up as the group s own function for management and supply of foreign currency. Operations are expected to get underway during the first half of The size of the penalty fee (SEK 50 million) handed down by the Swedish Financial Supervisory Authority in 2008 has been appealed by FOREX Bank to the Supreme Administrative Court. Leave to appeal has been announced. The Group s results For the financial year, the group reported an operating profit of SEK 340 (148) million and profit after tax of SEK 255 (107) million. Most of the profit is comprised of the net profit from financial transactions, primarily currency exchange and commission income. Operating income was SEK 1,202 (1,023) million, which is an increase of 17 percent compared to the prior year. Net interest income/expense increased by 66 percent to SEK 88 (53) million due to growth in the volume of loans granted in conjunction with an increased interest margin. Net commissions increased by 15 percent to SEK 180 (156) million 4 FOREX Bank Annual Report 2010

5 and net income from financial transactions increased by 14 percent to SEK 925 (809) million. General administrative expenses increased 17 percent to SEK 740 (633) million due to significantly increased expenses for skill development and system development. Depreciation/amortization and impairment increased by 45 percent to SEK 38 (69) million. Last year, this item included an impairment charge to property values of SEK 15 million. Other operating expenses decreased by 18 percent to SEK 79 (96) million. Loan losses were SEK 5 (74) million. Verified loan losses amounted to 0 (2) percent of loans granted. The group s position Total assets were SEK 4,879 (3,764) million. Cash equivalents and short-term loans to credit institutions amounted to SEK 1,006 (2,247) million. The decline was due to the fact that SEK 1,691 (-) million of the bank s excess liquidity was invested in interest-bearing securities at year-end. Loans to the general public increased 57 percent to SEK 1,734 (1,105) million. Deposits from the general public increased from SEK 2,983 million to SEK 3,854 million, which is an increase of 29 percent. The group s equity at year-end was SEK 696 (471) million. The equity ratio was 14 (13) percent and the capital adequacy ratio was 1.67 (1.28). The parent company s results The parent company s operating profit increased to SEK 315 (143) million and profit after tax was SEK 255 (103) million. Most of the profit is comprised of the net profit from financial transactions, primarily currency exchange and commission income. Operating income was SEK 1,078 (928) million, which is an increase of 16 percent compared to the prior year. Net interest income/expense increased by 69 percent to SEK 88 (52) million due to growth in the volume of loans granted in conjunction with an increased interest margin. Net commissions increased by 18 percent to SEK 150 (127) million and net income from financial transactions increased by 20 percent to SEK 823 (683) million. General administrative expenses increased 18 percent to SEK 660 (559) million due to significantly increased expenses for skill development and system development. Depreciation/amortization and impairment decreased by 48 percent to SEK 32 (61) million. Last year, this item included an impairment charge to property values of SEK 15 million. Other operating expenses decreased by 14 percent to SEK 68 (79) million. Loan losses were SEK 5 (74) million. Verified loan losses amounted to 0 (2) percent of loans granted. The parent company s position Total assets were SEK 4,787 (3,680) million. Cash equivalents and short-term loans to credit institutions amounted to SEK 865 (2,141) million. The decline was due to the fact that SEK 1,691 (-) million of the bank s excess liquidity was invested in interest-bearing securities at year-end. Loans to the general public increased 57 percent to SEK 1,734 (1,105) million. Deposits from the general public increased from SEK 2,983 million to SEK 3,854 million, which is an increase of 29 percent. The parent company s equity at year-end was SEK 582 (324) million. The equity ratio was 13 (9) percent and the capital adequacy ratio was 1.93 (1.52). 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 cash transactions overall in the society. Various initiatives to achieve a cash-free society enable the group to, because of its accessibility, develop the business as a complement to other banks in the area of cash management. For the Danish, Finnish and Norwegian markets, the goal is to significantly increase market share for currency exchange and remittance services during the next few years. Other banking services might be introduced later on, once FOREX Bank s brand achieves a higher level of recognition in these markets. It was decided to set up new branches in all of the markets where the 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 the various markets where the group currently has operations. This may lead to a relocation or shutdown of certain branches. The decision to set up Cash Center makes it possible for the group to, in the long term, deliver local and foreign curren- FOREX Bank Annual Report

6 cies to all of its own branches. This also means that it will be possible for FOREX Bank to offer other stakeholders the same services, which will bring about new customer segments in need of professional cash management. The group will continue to invest in training to raise the level of employee expertise. This is necessary in order to make possible increased market penetration for the products offered by the bank, as well as ensuring that staff have the requisite knowledge of the routines and regulations pertaining to operations. It should also be noted that massive efforts are continually being made to increase the knowledge of all employees about money laundering. Significant events subsequent to year-end A decision was made to close down X-change in Sweden s branch in Denmark and focus on developing FOREX Bank s brand in the Danish market. 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 Note 3. 6 FOREX Bank Annual Report 2010

7 Five Year Summary The Group Key figures 1) Volume Loans to the general public Change during the year, % 57% 63% 20% 27% 246% Deposits from the general public Change during the year, % 29% -1% 63% 23% 321% Equity Equity ratio 14.3% 12.5% 9.6% 15.8% 17.4% Taxed equity as a % of total assets Capital adequacy ratio 2) Capital base/capital adequacy requirement Net profit Investment margin 2.04% 1.40% 0.72% 0.69% 0.78% Net interest income/expense as a % of average total assets Return on equity 58.2% 35.7% -12.3% 17.9% 1.9% Operating profit as a % of average equity Cost/income ratio before loan losses 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 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 4.3% 6.0% 2.2% 1.9% 1.3% Net doubtful debts as a % of total loans granted to the general public and credit inst. (excluding banks) Loan loss ratio 0.4% 10.6% 2.0% 2.0% 3.8% 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 ) As of 16 April 2007, X-change is included as part of the group 2) The years relate to the parent company s capital adequacy ratio FOREX Bank Annual Report

8 Income statements and balance sheets The 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/loss 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 2010

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 as per the Banking and Financing Act, as well as Chapter 17, Section 3 of the Swedish Companies Act (Prudence Rule). The parent company s capital adequacy ratio, after the proposed appropriation of profits is 1.93 (1.52). The capital adequacy ratio for the group and the financial company group, after the proposed appropriation of profits is 1.67 (1.28). Consideration of the financial position of the group and parent company does not 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 notes to the financial statements. FOREX Bank Annual Report

10 The group s 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 Operating profit Tax Net profit for the year The group s statement of comprehensive income SEK thousands Note Net profit 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 2010

11 The group s balance sheet SEK thousands Note 31 Dec Dec 2009 Assets Cash Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Other shares and participations Intangible assets 22 - Goodwill Other intangible assets Property, plant and equipment 23 - 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 Liabilities to credit institutions 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 for the year Total equity TOTAL LIABILITIES, PROVISIONS AND EQUITY FOREX Bank Annual Report

12 The group s 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 Exchange rate differences Total other comprehensive income Closing balance, 31 Dec Net profit 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 Reserve for fair value Reserve for translation differences Statutory reserve Total reserves Opening balance, 1 Jan Other comprehensive income Exchange rate differences Total other comprehensive income Closing balance, 31 Dec Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Closing balance, 31 Dec FOREX Bank Annual Report 2010

13 The group s cash flow statement SEK thousands Note Operating profit (+) Adjustments for items not included in cash flow - Depreciation/amortization and impairment (+) Loan losses (+) Change in provisions (+/-) Capital gains/losses on intangible assets and property, plant and equipment (+/-) Other items not 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 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 Sale of financial assets (+) Sale of intangible assets (+) - 25 Acquisition of intangible assets (-) Sale of property, plant and equipment (+) Acquisition 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 Loans to credit institutions repayable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Bank Annual Report

14 The parent company s 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 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 2010

15 The parent company s balance sheet SEK thousands Note 31 Dec Dec 2009 Assets Cash Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Shares and participations in group companies Other shares and participations Intangible assets 22 - Goodwill Other intangible assets Property, plant and equipment 23 - Equipment Capitalized reconstruction costs Buildings Receivables from group companies Deferred tax assets Other assets Prepaid expenses and accrued income TOTAL ASSETS Liabilities, provisions and equity Liabilities and provisions Liabilities to credit institutions Deposits from the general public Liabilities to group companies Other creditors Accrued expenses and prepaid income Provisions Total liabilities and provisions Untaxed reserves Equity Restricted equity Share capital Statutory reserve Non-restricted equity Profit brought forward Net profit for the year Total equity TOTAL LIABILITIES, PROVISIONS AND EQUITY FOREX Bank Annual Report

16 Memorandum items Pledged assets - - Contingent liabilities Commitments FOREX Bank Annual Report 2010

17 The parent company s statement of changes in equity SEK thousands Share capital 1) Restricted equity 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 Exchange rate differences Total other comprehensive income Closing balance, 31 dec Appropriation of profits Net profit for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Group contribution received Dividends Closing balance, 31 dec ) Specification of share capital Number of shares Class A shares Class B shares Total number of shares Quotient value All shares have been fully paid 10 kr FOREX Bank Annual Report

18 The parent company s cash flow statement SEK thousands Note Operating activities Operating profit (+) Adjustments for items not 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 (+/-) Other items not 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 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 Sale of financial assets (+) Sale of intangible assets (+) - 25 Acquisition of intangible assets (-) Sale of property, plant and equipment (+) Acquisition 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 Loans to credit institutions repayable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Bank Annual Report 2010

19 Notes to the financial statements Note 1 Information about the group and parent company The annual report as of 31 December 2010 is for the 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. A list of all the wholly-owned subsidiaries is provided in note 20. On 24 February 2011, 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 the 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 (x) of the parent company s accounting principles, below. Unless otherwise stated, the accounting principles (discussed below) were consistently applied to each period that is presented in the financial statements. New and revised accounting standards and interpretations that are obligatory for accounting periods as of 1 January 2010 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 2010 and which apply to FOREX Bank AB, have had, or are expected to have any significant impact on the group s results or financial position. IFRS 3 Business Combinations (revision). Revision of the standard means that the purchase accounting method may still be applied for business combinations, but with certain significant changes. For example, all payments to acquire a business are reported at fair value on the acquisition date, but any additional contingent payments must be classified as liabilities, which are later revalued via the income statement. For holdings without a controlling interest in the acquired business, a choice is made for each acquisition to either value at fair value or at the proportional share of the acquired business net assets as a holding without controlling interest. All transactions costs related to acquisitions must be expensed. The change does not have any effect on acquisitions that were made prior to 1 January IAS 27 Consolidated and separate financial statements (revision). The change means that the effects of all transactions with a non-controlling interest must be reported as part of equity if they do not result in a change to the controlling interest. Furthermore, such transactions no longer result in goodwill or profit/losses. The change also states that when the parent company loses controlling interest, any remaining share must be revalued at fair value and the profit/loss must be reported in the income statement. IFRIC 9 Reassessment of embedded derivatives and IAS 39 Financial instruments: Recognition and measurement (revision) and IFRIC 16 Hedges of a net investment in foreign operations are not expected to have any effect. New and revised accounting standards and interpretations that are obligatory for accounting periods as of 1 January 2011 or later IAS 24 Related party disclosures (revised). The revised standard clarifies and simplifies the definition of a related party. The revised standard means that both the group and parent company will also be required to provide disclosures on all transactions between subsidiaries and between related parties in the group. Furthermore, the revised standard limits government-owned companies disclosure requirements for transactions with the government and for transactions with other government-owned companies. The group will begin applying the revised standard as of 1 January IAS 32 Financial Instruments: The classification of rights, options and warrants (change), IFRIC 19 Extinguishing financial liabilities with equity instruments and IFRIC 14. The FOREX Bank Annual Report

20 limit on a defined benefit asset, minimum funding requirements and their interaction (change) are not expected to have any effect. (b) Functional currency and reporting currency The parent company s functional currency is the Swedish Krona (SEK), which is also the reporting currency for both the parent company and the 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 availablefor-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. 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 41. (e) Changes in accounting principles During the year, no changes have been made to accounting principles that affect the 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 the 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 is 20 FOREX Bank Annual Report 2010

21 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 the group s financial statements. (iii) 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 that is in effect on the transaction date. Functional currency is the currency used in the primary economic environments where the company or its branches run their operations. Monetary assets and liabilities in foreign currency are translated to the functional currency using the exchange rate in effect 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 in effect 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 prevailing 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 to other comprehensive income. When an investment in foreign operations is divested, the group recognizes the accumulated translation differences after the deduction for 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: The group s 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 assign- FOREX Bank Annual Report

22 ment 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. (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 from financial transactions The item, Net profit from financial transactions, includes the realized and unrealized changes in value that have arisen when conducting financial transactions. Net profit 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 purposes - 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 FOREX Bank Annual Report 2010

23 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 receivable 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 receivables 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 FOREX Bank Annual Report

24 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 the 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 the 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. 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 24 FOREX Bank Annual Report 2010

25 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-forsale 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 and the debtor lacks distrainable funds and the collection case has been transferred to a deferred proof of claim. 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 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 the 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 lease. 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. The 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) Depreciation 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 5-10 years or over the duration of the lease agreement - 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, the group has not FOREX Bank Annual Report

26 applied IFRS retroactively. Rather, the carrying amount as of that date will continue to represent the group s cost of acquisition. 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 the 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 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. (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. 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 26 FOREX Bank Annual Report 2010

27 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 audit services, other external services and other external expenses. (t) Provisions A provision is reported in the balance sheet when the 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. (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 The 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 FOREX Bank Annual Report

28 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 has been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL) (1995:1559) and 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 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 EU approved IFRS and IFRIC statements to the extent that this is possible within the framework of ÅRKL and and taking into account the correlation between accounting and taxation. Differences between the accounting principles used by the 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) 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) 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. (iii) Group contributions Group contributions that have been made or received by the parent company in order to minimize the group s total tax are reported directly against retained earnings, less the current tax effect. (iii) 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. (iv) Intangible assets Goodwill 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. 28 FOREX Bank Annual Report 2010

29 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 59 (55) thousand. Of the total amount of loans granted to the general public, SEK 52 (33) 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 items referred for common collection. The gross amount of such items is SEK 109 (64) 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 total risk spread is very good, with a granulation of 0.03 (0.05). Granulation shows the average lending in relation to total lending. A value less than 0.2 is generally considered to be an indication of a well-diversified loan portfolio. 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 2009, the total volume of household credit was SEK ( ) thousand. The volume of loan receivables fallen due, but not yet written off, is provided in the following table: The group and parent company SEK thousands Loan receivables 1-30 days days days days Total FOREX Bank Annual Report

30 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): The group SEK thousands Rating 1 Government Credit institutions Government 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, the bank s total liquidity reserve, which is defined as loans granted to credit institutions, bonds and other interest-bearing securities, was SEK ( ) thousand, which corresponds to 56 (56) percent of total liabilities. At year-end, the parent company s total liquidity reserve was SEK ( ) thousand, which corresponds to 55 (56) 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 three 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 rate 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. 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 8.85 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 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 2 (3) 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 30 FOREX Bank Annual Report 2010

31 currency accounts at other banks. At year-end, the 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 SEK ( ) thousand. At year-end, the parent company s inventory of foreign currencies was SEK ( ) thousand. The bank also has certain other assets/ liabilities in foreign currency associated with the banks branches in the Nordic countries. The 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 for which the group is exposed. At year-end, this was equal to SEK (31 639) thousand. The following is a list of the currencies (in thousands) where there is significant exposure: 2010 Nominal Rate Value in 10% value SEK thousands EUR , USD , NOK , DKK , GBP , THB , Nominal Rate Value in 10% value SEK thousands EUR , Operational risks 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 general clearly defined responsibilities and authorities 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. USD , NOK , DKK , The group s income statement includes exchange rate differences of SEK (14 721) thousand in the net profit (loss) from financial transactions. The corresponding amount reported by the parent company was SEK (16 226) thousand. FOREX Bank Annual Report

32 Note 4 Net interest income/expense The 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 of which: deposit insurance expense and stability fee Other Total interest expenses Total net interest income/expense % Interest margin Investment margin FOREX Bank Annual Report 2010

33 The parent company SEK thousands Interest income Loans to credit institutions Loans to the general public Loans to group companies Other Total interest income Interest expense Liabilities to credit institutions Deposits from the general public of which: deposit insurance expense and stability fee Liabilities to group companies Other Total interest expenses Total net interest income/expense % Interest margin Investment margin 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 The 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

34 Note 6 Commission income The group SEK thousands Commissions from remittance services Commissions from deposit services Fees from charge/credit cards Other commissions Total commission income The parent company SEK thousands Commissions from remittance services Commissions from deposit services Fees from charge/credit cards Other commissions Total commission income Note 7 Commission expenses The group SEK thousands Commissions from remittance services Securities commissions - -1 Other commissions Total commission expenses The parent company SEK thousands Commissions from remittance services Securities commissions - -1 Other commissions Total commission expenses FOREX Bank Annual Report 2010

35 Note 8 Net profit from financial transactions The group SEK thousands Shares and participations Other financial instruments Changes in exchange rates Total net profit from financial transactions Net profit/net loss by type Via IS Via IS 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 from financial transactions The parent company SEK thousands Shares and participations Other financial instruments Changes in exchange rates Total net profit from financial transactions Net profit/net loss by type Via IS Via IS 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 from financial transactions FOREX Bank Annual Report

36 Note 9 Other operating income The group SEK thousands Net profit on disposal of property, plant and equipment Insurance reimbursements Other operating income Total other operating income The parent company SEK thousands Net profit on disposal of property, plant and equipment Management fee, subsidiaries Insurance reimbursements Other operating income Total other operating income FOREX Bank Annual Report 2010

37 Note 10 General administrative expenses The 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 general 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 general administrative expenses Total general administrative expenses FOREX Bank Annual Report

38 Salaries, other remuneration and social security expenses The group SEK thousands Bank mgmt Other employees Bank mgmt Other employees Salaries Bonuses Social security expenses Total Of the group s pension expenses, SEK (2 239) thousand was for the bank management team consisting of 7 (8) 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 Bonuses Social security expenses Total Of the parent company s pension expenses, SEK (2 239) thousand was for the bank management team consisting of 7 (8) individuals. No other outstanding pension obligations exist. All pension expenses are covered through regular pensions payments. Remuneration to senior executives Board of 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 11 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. The Chairman of the Board, Hans Hellquist, also received a fixed salary for work that was not board related. For other participation in committees, projects, etc., board members are compensated at an hourly rate. senior executives have a notice period of 6 months with full salary when termination is handed down by FOREX Bank. For the Managing Director, the notice period with full salary is 12 months. Pensions Pension insurance premiums are paid for the Managing Director and other senior executives in accordance with the pension policy in effect at the bank. No pension obligations exist. Remuneration and other items are reported below. Managing Director and other senior executives Remuneration to the Managing Director is decided by the board of directors. Remuneration to other senior executives is decided by the Managing Director, and in certain instances, this occurs in consultation with the Chairman of the Board. Remuneration to the Managing Director and other senior executives consists of a base salary and pension. All 38 FOREX Bank Annual Report 2010

39 Remuneration and other benefits The group and parent company 2010 SEK thousands Basic salary/ Board fee Variable pay Other benefits Pension expense Other pay Total 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 Previous board members Anders Broström Christer Lundkvist Managing Director and CEO Magnus Cavalli-Björkman Other senior executives Parent company, 7 individuals of which Tom Friberg Total group and parent company FOREX Bank Annual Report

40 Remuneration and other benefits The group and parent company 2009 SEK thousands Basic salary/ Board fee Variable pay Other benefits Pension expense Other pay Total Chairman of the Board Rolf Friberg Board members Beth Friberg 1) Anders Broström Jörgen Holgersson 2) Gunnel Engberg 2) Christer Lundkvist Hans Hellquist Katja Elväng Carl Johan Smith Managing Director and CEO Magnus Cavalli-Björkman Other senior executives Parent company, 7 individuals Total group and parent company ) Board member, Beth Friberg, receives compensation in accordance with her employment agreement. No board fees are paid. 2) As of 2009, fees are paid out on a regular basis during the year. For the prior years, fees were paid in arrears for the entire year. However, in 2009, the board members, Gunnel Engberg and Jörgen Holgersson received compensation for both 2008 and Variable Remuneration No variable remuneration was paid out in For 2009, there was a bonus program for employees of FOREX Bank s branches and variable remuneration was paid out based for achievement of established goals. Information about remuneration in accordance with FFFS 2009:6 Please see the company s website Loans to senior executives As of 31 December 2010, outstanding loans to senior executives were SEK 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. 40 FOREX Bank Annual Report 2010

41 Average number of employees Women Men Total Women Men Total The parent company Sweden Finland branch Denmark branch Norway branch Iceland branch Total number of employees in the parent company Forex Sweden International Ltd., UK X-change in Sweden AB - Sweden Denmark branch Total average number of employees in the group Gender distribution, management The group and parent company Women Men Total Women Men Total Board of directors Other senior executives including the Managing Director and Group Chairman Total FOREX Bank Annual Report

42 Sick leave The group Total sick leave as a percentage of regular working hours 4.1% 3.9% Percentage of total sick leave that represents at least 60 consecutive sick leave days or more 14.8% 22.3% Sick leave as a percentage of each group's regular working hours gender distribution: Men 2.6% 2.6% Women 4.5% 4.3% Sick leave for various age categories: 29 years old or younger 4.3% 3.4% years 4.1% 4.7% 50 years old and above 2.9% 1.8% Information about the group s employees in Sweden. The parent company 2010 Totalt Total sick leave as a percentage of regular working hours 3.9% 4.0% Percentage of total sick leave that represents at least 60 consecutive sick leave days or more 14.2% 24.0% Sick leave as a percentage of each group's regular working hours gender distribution Men 2.5% 2.6% Women 4.1% 4.3% Sick leave for various age categories: 29 years old or younger 4.0% 3.3% years 3.8% 4.8% 50 years old and above 2.9% 1.8% Information about the parent company s employees in Sweden. 42 FOREX Bank Annual Report 2010

43 Fees and expense reimbursements to auditors The group Pricewaterhouse Coopers AB Audit engagements Audit activities in addition to the audit assignment Tax consultation Other services Grant Thornton Sweden AB Audit engagements 32 - Audit activities in addition to the audit assignment Tax consultation Other services KPMG Bohlins AB Other services Oury Clark Audit engagements - 45 Other services Myrdahl og Sveen AS Audit engagements - 23 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 Grant Thornton Sweden AB Audit engagements 32 - Audit activities in addition to the audit assignment Tax consultation Other services Oury Clark Other services KPMG Bohlins AB Other services Total fees and expense reimbursements to auditors FOREX Bank Annual Report

44 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 The group leases a number of branch facilities, offices and inventory facilities in accordance with operating lease agreements. The leasing periods vary from 3 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, the group s leasing expenses for leased facilities was SEK (70 479) thousand. The corresponding amount for the parent company was SEK (56 231) thousand. The total future minimum lease payments for operating lease agreements that may not be cancelled are as follows: The group 2010 Within 1 year Between 1 and 5 years More than 5 years Total The parent company 2010 Within 1 year Between 1 and 5 years More than 5 years Total FOREX Bank Annual Report 2010

45 Note 11 Other operating expenses The group SEK thousands Insurance expenses Security expenses Marketing expenses Capital loss on disposal of properety, plant and equipment 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 properety, plant and equipment and intangible assets Other operating expenses Total other operating expenses Note 12 Loan losses, net The group and 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 Bank Annual Report

46 Note 13 Impairment of financial assets The group SEK thousands Shares and participations Condominium, Brf Gråbjörnen 11, Malmö Total impairment of financial assets The parent company SEK thousands Shares and participations Condominium, Brf Gråbjörnen 11, Malmö Receivables from group companies Forex Sweden International Ltd 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 Provision to tax allocation reserve Reversal of tax allocation reserve Excess depreciation/amortization Total appropriations FOREX Bank Annual Report 2010

47 Note 16 Taxes Reported in the income statement The group SEK thousands Current tax expense Tax expense for the period Deferred tax expense Deferred tax Total reported tax expense The parent company SEK thousands Current tax expense Tax expense for the period Tax effect of group contributions Deferred tax expense Deferred tax Total reported tax expense Reconciliation of effective tax The group SEK thousands 2010 (%) (%) 2009 Profit before tax Tax according to the applicable tax rate 26.30% % Effect of foreign tax credit -0.70% % -99 Non-deductible expenses 0.70% % Non-taxable income -0.88% % 30 Tax related to prior years -0.52% % 4 Temporary differences -0.13% % Standard interest on tax allocation reserve 0.19% % -413 Reported effective tax % FOREX Bank Annual Report

48 The parent company SEK thousands 2010 (%) (%) 2009 Profit before tax Tax according to the applicable tax rate 26.30% % Effect of foreign tax credit -0.72% Non-deductible expenses 0.61% % Non-taxable income -3.46% % Tax related to prior years -0.63% % 4 Temporary differences -0.11% % Standard interest on tax allocation reserve 0.14% % -296 Reported effective tax 22.13% % Deferred tax assets The group 31 Dec Dec 2009 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 2009 Tax effect of temporary differences: Depreciation on property, plant and equipment 78 - Impairment of building Impairment of financial assets Pension liability Total deferred tax receivables FOREX Bank Annual Report 2010

49 The parent company 31 Dec Dec 2009 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 2009 Tax effect of temporary differences: Impairment of building Impairment of financial assets Pension liability Total deferred tax receivables Deferred tax liabilities The group 31 Dec Dec 2009 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 2009 Cash Property, plant and equipment Intangible assets Tax allocation reserve Total deferred tax liabilities The 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 the group and legal entities. Deferred tax is reported at the rate of 26.3%. FOREX Bank Annual Report

50 Note 17 Loans to credit institutions The group SEK thousands 31 Dec Dec 2009 Loans to credit institutions - Swedish currency foreign currency Total loans to credit institutions The parent company SEK thousands 31 Dec Dec 2009 Loans to credit institutions -Swedish currency foreign currency Total loans to credit institutions Note 18 Loans to the general public The group and parent company SEK thousands 31 Dec Dec 2009 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 January Impairment loss for the year, credit losses Ending balance 31 December FOREX Bank Annual Report 2010

51 Note 19 Bonds and other interest-bearing securities The group and parent company SEK thousands 31 Dec Dec 2009 Fair value Carrying amount Fair value Carrying amount Issued by other borrowers - other finance companies Total bonds and other interest-bearing 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 2009 Accumulated cost Opening balance, 1 January Sales for the year Ending balance 31 December of which: Unlisted securities 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 FOREX Bank Annual Report

52 Group companies 2009 SEK thousands Net profit Equity Share of capital Number of shares Carrying amount X-change in Sweden AB, , % Stockholm - X-change Arlanda AB, , % Stockholm - X-change Malmö AB, , Stockholm % X-change Göteborg AB, , Stockholm % X-change ValutaSpecialisten Europe AB, , Stockholm % X-change in Denmark A/S, , Copenhagen % FOREX Fastighetsförvaltning AB, , Stockholm % FOREX Kapitalförvaltning AB, , Stockholm % FOREX Internethandel AB, , Stockholm % Traveller Scandinavia AB, , Stockholm % FOREX OY Valuutanvaihto, , Helsingfors % FOREX Valutaveksling AS, , Köpenhamn % FOREX Norge AS, , Oslo % FOREX Sweden International Ltd, , London % Total shares in group companies FOREX Bank Annual Report 2010

53 Note 21 Other shares and participations The group and parent company SEK thousands 31 Dec Dec 2009 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 31 Dec Dec 2009 Number Carrying amount Number Carrying amount Shares in Visa Inc Condominium, Brf Gråbjörnen11, Malmö Total FOREX Bank Annual Report

54 Note 22 Intangible assets The group SEK thousands Accumulated cost Acquired intangible assets Goodwill Rights of tenancy 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 Other Total Opening balance 1 Jan Disposals for the year Exchange rate differences for the year Closing balance 31 Dec Accumulated depreciation 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 Opening balance 1 Jan Disposals for the year amortization 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 2010

55 The parent company SEK thousands Acquired intangible assets SEK thousands Goodwill Rights of Other Total tenancy Accumulated cost 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 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 Accumulated amortization Opening balance 1 Jan Sales for the year Disposals for the year Amortization for year Exchange rate differences for the year Closing balance 31 Dec Opening balance 1 Jan Acquisitions from group companies for the year Disposals for the year Amortization 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

56 Note 23 Property, plant and equipment The group SEK thousands Equipment Capitalized reconstruction costs Buildings Accumulated cost Opening balance 1 Jan 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 Reclassifications 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 Reclassifications Depreciation for year Exchange rate differences Closing balance 31 Dec FOREX Bank Annual Report 2010

57 Accumulated impairment losses Opening balance 1 Jan Impairment losses for the year 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 Tax assessment value 31 Dec Dec 2009 Tax assessment value, buildings -Rörbäcksnäs 20:70, Sälen Disposed Cerberus 2, Kornhamnstorg 4, Stockholm Not affixed FOREX Bank Annual Report

58 The parent company SEK thousands Equipment Capitalized reconstruction costs Buildings Total Accumulated cost Opening balance 1 Jan Acquisitions for the year Sales for the year Disposals for the year Exchange rate differences Closing balance 31 Dec Opening balance 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 Accumulated depreciation Opening balance 1 Jan Sales for the year Disposals for the year Depreciation for year Exchange rate differences Closing balance 31 Dec Opening balance 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 FOREX Bank Annual Report 2010

59 Accumulated impairment losses Opening balance 1 Jan Impairment losses for the year 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 Tax assessment value 31 Dec Dec 2009 Tax assessment value, buildings -Rörbäcksnäs 20:70, Sälen Disposed Cerberus 2, Kornhamnstorg 4, Stockholm Not affixed FOREX Bank Annual Report

60 Note 24 Receivables from group companies The parent company SEK thousands 31 Dec Dec 2009 X-change in Sweden AB Forex Sweden International Ltd Forex Norge AS Total receivables from group companies Note 25 Other assets The group SEK thousands 31 Dec Dec 2009 Positive value on derivative instruments Credit card receivables Other assets Total other assets The parent company SEK thousands 31 Dec Dec 2009 Positive value on derivative instruments Credit card receivables Other assets Total other assets FOREX Bank Annual Report 2010

61 Note 26 Prepaid expenses and accrued income The group SEK thousands 31 Dec Dec 2009 Prepaid expenses Accrued interest income Other accrued income Total prepaid expenses and accrued income The parent company SEK thousands 31 Dec Dec 2009 Prepaid expenses Accrued interest income Other accrued income Total prepaid expenses and accrued income Note 27 Liabilities to credit institutions The group and parent company SEK thousands 31 Dec Dec 2009 Liabilities to credit institutions - Swedish currency Total liabilities to credit institutions Approved limit Of which: overdraft - - Note 28 Deposits from the general public The group and parent company SEK thousands 31 Dec Dec 2009 General public - Swedish currency Total deposits from the general public All deposits are deposits from the household sector. FOREX Bank Annual Report

62 Note 29 Liabilities to group companies The parent company SEK thousands 31 Dec Dec 2009 Forex OY Valuutanvihto Forex Valutaveksling A/S Forex Internethandel AB - 69 Forex Kapitalförvaltning AB Forex Fastighetsförvaltning AB Traveller Scandinavia AB Total liabilities to group companies Note 30 Other liabilities The group SEK thousands 31 Dec Dec 2009 Negative value on derivative instruments Preliminary tax, interest Employee withholding tax Advance payments from customers Accounts payable - trade Income tax liability Other liabilities Total other liabilities The parent company SEK thousands 31 Dec Dec 2009 Negative value on derivative instruments Preliminary tax, interest Employee withholding tax Advance payments from customers Accounts payable - trade Income tax liability Other liabilities Total other liabilities FOREX Bank Annual Report 2010

63 Note 31 Accrued expenses and prepaid income The group SEK thousands 31 Dec Dec 2009 Accrued employee benefit expenses Other accrued expenses Total accrued expenses and prepaid income SEK thousands 31 Dec Dec 2009 Accrued employee benefit expenses Other accrued expenses Total accrued expenses and prepaid income Note 32 Provisions The group and parent company SEK thousands Pension provision Restructuring expenses Total provisions Opening balance, 1 Jan 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 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 obligated by contract to pay along with other costs that are directly related to the closing down of operations. The provision is expected to be utilized during FOREX Bank Annual Report

64 Note 33 Untaxed reserves The parent company SEK thousands 31 Dec Dec 2009 Accumulated excess depreciation Opening balance, 1 January Excess depreciation for the year Ending balance on 31 December Tax allocation reserves Tax Assessment Tax Assessment Tax Assessment Tax Assessment Tax Assessment Tax Assessment Ending balance on 31 December Total untaxed reserves Note 34 Contingent liabilities The group SEK thousands (nominal amt) 31 Dec Dec 2009 Warranties - Warranty obligations other Total contingent liabilities The parent company SEK thousands (nominal amt) 31 Dec Dec 2009 Warranties - Warranty obligations other Total contingent liabilities FOREX Bank Annual Report 2010

65 Note 35 Commitments The group and parent company SEK thousands (nominal amt) 31 Dec Dec 2009 Other commitments - Unutilized portion of granted credit Credit and loan commitments Total commitments Not 36 Related parties Related party relationships, group companies In 2010, the parent company invoiced interest of SEK 70 (607) thousand to the subsidiary, X-change in Sweden AB and SEK 53 (110) thousand to the subsidiary, Forex Sweden International Ltd. During the year, the parent company was charged SEK 535 (1 271) in interest from the subsidiary, Forex Valutaväxling AS. The parent company also invoiced management fees during 2010 of SEK (6 000) thousand to the subsidiary, X-change in Sweden AB. During 2009, management fees of SEK 300 thousand were invoiced to the subsidiary, Forex Sweden International Ltd and in return, the parent company was incurred a management fee of SEK thousand from Forex Sweden International Ltd. During 2010, there were no corresponding management fees charged between the parent company and Forex Sweden International Ltd. During the year, the parent company paid commissions in the amount of SEK (1 274) thousand to the subsidiary, X-change in Sweden AB for cash services rendered. For other information, please refer to Note 24 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 thousand. No dividends were paid in FOREX Bank Annual Report

66 Note 37 Geographic distribution of income The 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 Sweden Other countries Interest income Dividends received Commission income Net profit from financial transactions Other operating income Geographic distribution of total income FOREX Bank Annual Report 2010

67 Note 38 Financial assets and liabilities The group Financial assets valued at fair value via the income statement Financial Held for assets assessed as purposes trading belonging to this category 31 Dec 2010 Loan receivables and accounts receivable Held-tomaturity investments Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Other financial liabilities Total carrying amount Fair value Held for trading purposes Cash and bank balances Loans to credit institutions Loans to the general public Bonds and othe interest-bearing securities r Other shares and participations Other assets Prepaid expenses and accrued income Total financial assets Deposits from the general public Otherl iabilities Accrued expenses and prepaid income Total financial liabilities FOREX Bank Annual Report

68 at fair value via the income statement Financial assets assessed trading Held for as belonging purposes to this category 31 Dec 2009 Financial assets valued Loan receivables and accounts receivable Availablefor-sale liabilities va- Financial financial assets value via lued at fair the income statement Held for trading purposes Other Total carrying Fair value financial amount liabilities Cash and bank balances Loans to credit institutions Loans to the general public Other shares and participations Other assets Prepaid expenses and accrued income Total financial assets Liabilities to credit institutions Deposits from the general public Other liabilities Accrued expenses and prepaid income Total financial liabilities FOREX Bank Annual Report 2010

69 fair value via the income statement Financial Held for assets assessed as purposes trading belonging to this category The parent company 31 Dec 2010 Financial assets valued at Loan receivables and accounts receivable Held-tomaturity investments Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Other financial liabilities Total carrying amount Fair value Held for trading purposes 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 Total financial assets Deposits from the general public Other liabilities Accrued expenses and prepaid income Total financial liabilities FOREX Bank Annual Report

70 31 Dec 2009 Financial assets valued Loan recei- at fair value via vables and the income statement accounts receivable Financial assets assessed trading Held for as belonging purposes to this category Availablefor-sale liabilities va- Financial financial assets value via lued at fair the income statement Held for trading purposes Other financial liabilities Total carrying Fair value amount Cash and bank balances Loans to credit institutions Loans to the general public Other shares and participations Other assets Prepaid expenses and accrued income Total financial assets Liabilities to credit institutions Deposits from the general public Other liabilities Accrued expenses and prepaid income Total financial liabilities FOREX Bank Annual Report 2010

71 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. Currency inventories are 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) FOREX Bank Annual Report

72 The following table shows the bank s assets and liabilities valued at fair value as of 31 December The 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 The following table shows the bank s assets and liabilities valued at fair value as of 31 December The group SEK thousands Carrying amount Fair value valuation at the end of the period based on: Description 31 Dec 2009 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 2010

73 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 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 2009 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

74 Note 39 Cash flow statement The group Cash and cash equivalents SEK thousands 31 Dec Dec 2009 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 2009 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 Bank Annual Report 2010

75 Note 4o Acquisitions No companies or businesses were acquired in 2009 or 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 the group to widen the scope of its network of branches at the same time as its fundamental business activities were achieving higher volumes. The 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. 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 well motivated. During 2008, the Swedish Financial Supervisory Authority initiated an investigation into FOREX Bank s measures to prevent money laundering and the financing of terrorism. Swedish Financial Supervisory Authority s investigation identified several deficiencies causing it to issue both a warning and penalty fee of SEK 50 million. As a result, the bank has implemented changes throughout its organization. The size of the penalty fee has been appealed. Leave to appeal has been announced and a final decision will be handed down by the Supreme Administrative Court. However, for reasons of prudence, no adjustment has been made to the prior reserve of SEK 50 million. The size of the penalty fee has negatively impacted the bank s capital base. Note 42 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: FOREX Bank Annual Report

76 The group Capital adequacy on 31 December As per the Capital Adequacy and Large Exposures Act (2006:1371) Volyme Risk-weighted amount Capital requirment SEK thousands Risk weight Credit risk as per standard method Percentage 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 Capital base Equity as per annual accounts Less intangible assets Less deferred tax assets Less the board's proposed appropriation of profits Total preliminary capital Supplementary capital - - Total capital base Capital adequacy ratio 1,67 1,28 76 FOREX Bank Annual Report 2010

77 The parent company Capital adequacy on 31 December As per the Capital Adequacy and Large Exposures Act (2006:1371) SEK thousands Risk weight Credit risk as per standard method Volyme Risk-weighted amount Capital requirment Percentage 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 Capital base Equity as per annual accounts Untaxed reserves, 72% of that Less intangible assets Less deferred tax assets Less the board's proposed appropriation of profits Total preliminary capital Supplementary capital - - Total capital base Capital adequacy ratio 1,93 1,52 FOREX Bank Annual Report

78 Note 43 Dividends The board of directors proposed dividends are SEK , which corresponds to SEK 8 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. 78 FOREX Bank Annual Report 2010

79 Signatures of the board of directors Stockholm, 24 February 2011 Hans Hellquist Katja Elväng Gunnel Engberg Chairman of the Board Beth Friberg Jörgen Holgersson Carl Johan Smith Stefan Zadik Deputy to the employee representative, Marie-Louise Lind 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 the 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 24 February The 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 28 February PricewaterhouseCoopers AB Bertil Johanson Certified Public Accountant Chief Auditor FOREX Bank Annual Report

80 Audit report To the AGM of FOREX Bank AB CIN: We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of FOREX Bank AB for the year These accounts and the administration of the company are the responsibility of the board of directors and the managing director. They are also responsible for application of the Annual Accounts Act for Credit Institutions and Securities Companies when drawing up the annual accounts and the IFRS international accounting standards as adopted by the EU and the Annual Accounts Act for Credit Institutions and Securities Companies when drawing up the consolidated accounts. Our responsibility is to, based on our audit, express an opinion on the annual report, the consolidated financial statements and the administration of the company. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable, but not absolute, assurance that the annual report and consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director and significant estimates made by the board of directors and the managing director when preparing the annual accounts and consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. 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. We have also examined whether any board member or the managing director has, in any other way, acted in contravention of the Swedish Companies Act, the Banking and Financing Act, the Annual Accounts Act for Credit Institutions and Securities Companies, or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. in Sweden. The consolidated financial statements have been prepared in accordance with international financial reporting standards IFRSs as adopted by the EU and the Annual Accounts Act for Credit Institutions and Securities Companies, and give a true and fair view of the group s financial position and results of operations. The statutory administration report is consistent with the other parts of the annual report and the consolidated financial statements. We recommend to the annual general meeting that the income statements and balance sheets of the parent company and the group be adopted, that the profit for the parent company be dealt with as proposed in the statutory administration report, and that the members of the board of directors and the managing director be discharged from liability for the financial year. Stockholm, 28 February 2011 PricewaterhouseCoopers AB Bertil Johanson Certified Public Accountant The annual report has been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies, and it gives a true and fair view of the company s financial position and results of operations in accordance with generally accepted accounting principles 80 FOREX Bank Annual Report 2010

81 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 managing director 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 2010 financial year, there were 7 regular board members and 2 deputy board members. Four of the board members are women. During 2010, Rolf Friberg stepped down as board member and chairman of the board. Hans Hellquist replaced Rolf Friberg as chairman. 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 11 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 the 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 the 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. FOREX Bank Annual Report

82 List of branches Forex Bank AB Sweden Arlanda Sky City Box Arlanda Arlanda, Terminal 2 Box Arlanda Arlanda Terminal 5 Box Arlanda Borås Österlånggatan 48 A Borås Eskilstuna Kriebsensgatan Eskilstuna Gävle Drottninggatan Gävle Gothenburg Kungsbacka Kungsmässan Kungsbacka Gothenburg, Avenyn Avenyn Gothenburg Gothenburg, Central Station Central Station Gothenburg Gothenburg, Frölunda torg Frölunda Torg, Västra Frölunda Gothenburg Gothenburg, Kungsportsplatsen Östra Larmgatan Gothenburg Gothenburg, Nordstan Postg Gothenburg 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 Transit Hall Box Gothenburg Landvetter International Hall Box Landvetter Linköping Storgatan Linköping Luleå Storgatan Luleå Lund, Bangatan Bangatan Lund Lund, Botulfsplatsen Västra Mårtensgatan Lund 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/Arlöv Toftanäs Terminalgatan Malmö/Arlöv Norrköping Drottninggatan Norrköping FOREX Bank Annual Report 2010

83 Skavsta Flplterminalen, Box Nyköping Stockholm, Arlanda Express Östra Järnvägsgatan Stockholm Stockholm, Centralen Central Station Stockholm Stockholm, Cityterminalen Klarabergsviadukten Stockholm Stockholm, Farsta Centrum Farstagången Farsta Stockholm, Gallerian Hamngatan Stockholm Stockholm, Gamla Stan Kornhamnstorg Stockholm Stockholm, Götgatan Götgatan Stockholm Stockholm, Klarabergsgatan Klarabergsgatan Stockholm Stockholm, Kungsgatan Kungsgatan Stockholm Stockholm, Forum Nacka Forumvägen Nacka Stockholm, NK NK Stockholm Stockholm, Ringvägen Ringvägen Stockholm Stockholm, Sicka Köpkvarter Siroccogatan Nacka Stockholm, Sveavägen Sveavägen Stockholm Stockholm, Sollentuna Centrum 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 Ystad, Ferry Terminal Bornholmsgatan Ystad Örebro, Drottninggatan Drottninggatan Örebro Örebro, Marieberg Säljarevägen Örebro Östersund Prästgatan Östersund FOREX Bank Annual Report

84 Finland Esbo Sampotorget, Hagalund FI Esbo Helsinki, Alexandersgatan Alexandersgatan 52B FI Helsinki Helsinki, Railway Station Railway Station, Pl 118 FI Helsinki Helsinki, Esplanaden Pohjoisesplanadi 27 FI Helsinki Helsinki, 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 Copenhagen, Hovedbanegården Hovedbanegården DK-1570 Copenhagen V Copenhagen, Kongens Nytorv Gothersgade 8 DK1123 Copenhagen K Copenhagen, Norreport N. Voldgade 90 DK-1358 Copenhagen K Copenhagen, Østerbrogade Østerbrogade 19, DK-2100 Copenhagen Odense Banegårdscentret DK-5000 Odense C Århus Ryesgade 28 DK-8000 Århus C Norway Lillestrom Lillest. St., Jonas Lies gt 4 N-2000 Lillestrom Oslo Brugata Brugata 8 N-0186 Oslo Oslo, Egertorget Ovre Slottsgate 12 N-0157 Oslo Oslo, Fridtjof Nansens Square Fridtjof Nansens Square 6 N-0186 Oslo Oslo Central Station - Airport Express T Jernbanetorget 1 N-0157 Oslo Oslo Central Station - Central Hall Jernbanetorget 1 N-0157 Oslo Stavanger Klubbgaten 1 N-4013 Stavanger Trondheim Central Station, Fosenkaia 1 N-7010 Trondheim FOREX Bank Annual Report 2010

85 X-change in Sweden AB Sweden Arlanda, Terminal 2 Box Arlanda Arlanda Terminal 5 Box Arlanda Arlanda Terminal 5 Box Arlanda Gothenburg, Angered Angered Centrum Angered Gothenburg, Central Station Drottningtorget Gothenburg Gothenburg, Kungsportsplatsen Kungsportsplatsen Gothenburg Helsingborg Järnvägsgatan Helsingborg Landvetter Landvetter International Hall Landvetter Malmö, Hamngatan Hamngatan Malmö Malmö, Mobilia Per Albin Hanssons V Malmö Malmö, Triangeln Södra Förstadstagatan Malmö Stockholm, Central Station Cental Station,Centralplan Stockholm Stockholm, Farsta Storforsplan Farsta Stockholm, Kungsgatan Kungsgatan Stockholm Stockholm, PUB PUB, Drottninggatan Stockholm Stockholm, Skärholmen Storholmsgatan Skärholmen Södertälje Södertälje Central Station Södertälje Uppsala, Forumgallerian Forumgallerian Uppsala Uppsala, Gränby Centrum Gränby Centrum Uppsala Denmark Copenhagen, Hovedbanegård Hovedbanegården, 1 Hall DK-1570 Copenhagen V FOREX Bank Annual Report

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