Annual report and consolidated financial statements for 2012 for FOREX BANK AB

Transcription

1 Annual report and consolidated financial statements for 2012 for FOREX BANK AB Org.nr FOREX Annual report

2 2 FOREX Bank Annual report 2012

3 CONTENTS Contents 3 Statutory administration report 4 Consolidated income statement 11 Consolidated statement of comprehensive income 11 Consolidated balance sheet 12 Consolidated statement of changes in equity 13 Consolidated cash flow statement 14 Parent company income statement 15 Parent company statement of comprehensive income 15 Parent company balance sheet 15 Parent company statement of changes in equity 18 Parent company cash flow statement 19 Notees to the financial statements 20 Note 1 Disciosures about Group and Parent Company 20 Note 2 Accounting principles 20 Note 3 Financial risks 31 Note 4 Net interest income/expense 35 Note 5 Dividends received 36 Note 6 Commission income 37 Note 7 Commission expenses 37 Note 8 Net income from financial transactions 38 Note 9 Other operating expenses 39 Note 10 General administrative expenses 40 Note 11 Other operating expenses 47 Note 12 Loan losses, net 47 Note 13 Impairment of financial assets 48 Note 14 Reversal of impairment of financial assets 48 Note 15 Appropriations 48 Note 16 Taxes 49 Note 17 Treasury bills eligible as collateral 52 Note 18 Loans to the credit institutions 52 Note 19 Loans to teh general public 53 Note 20 Bonds and other interest-bearing securities 53 Note 21 Shares and participations in Group companies 54 Note 22 Participations in associated companies 55 Note 23 Other shares and participations 56 Note 24 Intangible assets 57 Note 25 Property, plant and eguipment 59 Note 26 Receivables from and liabilities to Group companies 63 Note 27 Other assets 63 Note 28 Prepaid expenses and accrued income 64 Note 29 Deposits from the general public 64 Note 30 Liabilities to Group companies 64 Note 31 Other creditors 65 Note 32 Accrued expenses and prepaid income 66 Note 33 Provisions 66 Note 34 Untaxed reserves 67 Note 35 Contingent liabilities 67 Note 36 Commitments 67 Note 37 Related parties 68 Note 38 Geographic distribution of income 68 Note 39 Financial assets and liabilities 69 Note 40 Cash flow statement. 76 Note 41 Important estimates and assessments 77 Note 42 Capital adequacy. 77 Signatures of the board of directors 80 Audit report 81 Governance 83 List of branches 84 FOREX Annual report

4 STATUTORY ADMINISTRATION REPORT The Board of Directors and Managing Director of FOREX Bank AB (FOREX) hereby submit the annual report and consolidated financial statements for the 2012 financial year. Ownership FOREX Bank AB, CIN , is one of the family Friberg s wholly owned joint-stock banks. Organization and business activities FOREX is the Parent Company of a Group that is comprised of its bank branches in Finland, Denmark and Norway as well as the wholly owned subsidiary, X-change in Sweden AB (X-change). The Group conducts banking business consisting primarily of loans to and deposits from the general public, remittance services and supplying means of payment in local and foreign currencies. During the year the sub-subsidiary, X-change Valuta Specialisten Europe AB, merged with the subsidiary, X-change in Sweden AB. In addition, during the year the subsidiary, Forex Sweden International Ltd, was liquidated and the subsidiary, Svensk Valutahantering AB, was divested. On September 5, the associated company, Panaxia AB (publ) (Panaxia), listed as NGM Equity, filed for bankruptcy. FOREX owned 27.7 percent of the company at the time of bankruptcy. Significant events during the year The year to a large extent has been affected by the developments within the associated company, Panaxia. During the spring of 2011 the Board of Directors of FO- REX Decided to invest in Panaxia by participating in a new share issue where FOREX subscribed for SEK 38 million, corresponding to 24.7 percent of the company. The purpose of the investment was, together with Sparbanken 1826, to participate in an industrial change in the cash management market while at the same time giving a third party continued possibilities for working in this market. The Board of Directors of FOREX considered it important for strategic reasons to secure value transports as well as the handling of cash through its own Cash Center, which was established on Panaxia s premises. The operations in Panaxia generated a loss during the first six months of 2012, which was compounded by large impairment losses on old, past-due receivables of low quality. Since the Board of Directors of FOREX was committed to keeping Panaxia operational, a new share issue was prepared that was guaranteed by the two primary owners, FOREX and Sparbanken 1826, with SEK 75 million each. Before the new share issue could be executed, Panaxia s bank credit was withdrawn, forcing Panaxia into bankruptcy. Panaxia s losses during the first half of the 2012 burdened Group earnings by SEK 40 million in the form of a negative share in profits from associated companies. Panaxia s bankruptcy has resulted in an additional expense for the Group totaling SEK 134 million since the daily receipts that were submitted to Panaxia for counting were lost. As a result, FOREX prepared an action plan with the aim of strengthening the internal control in the company. The action plan since then has been reported regularly to Finansinspektionen. ANoteher effect of Panaxia s bankruptcy was that the FOREX Cash Center, which was located adjacent to Panaxia s premises, terminated delivery of foreign currency to the Group s branches in Sweden. Following the bankruptcy, Cash Center is exclusively focusing until further Noteice on delivering currency to external customers. The Group s branches once again purchase currency from external parties. The idea of delivering currency to the entire Group via an in-house Cash Center lives on, however, and will continue to be evaluated. Despite the course of events in Panaxia, 2012 was a year of expansion for the Group. The major banks unwillingness to handle cash has increased interest in the FOREX Bank s operations. The Bank s opening hours and wide presence via an extensive network of branches are a competitive advantage. The number of branches increased during the year by 18 and at year-end the operations included 127 (109) bank branches. During the year 16 branches were acquired from Western Union. One of these branches was closed. Of the existing branches that were acquired, one is in Sweden, one is in Finland and thirteen are in Norway. These branches primarily performed remittance services during the year, but in the future they will provide the other services offered by FOREX. Six new branches were also opened during the year and three branches were closed. The reorganization of the subsidiary, X-change, continued in During the year three X-change branches were changed into FOREX branches and two X-change branches were closed. In the future, only branches that are 4 FOREX Bank Annual report 2012

5 located at major travel hubs will be operated as X-change branches. As of January 1, 2012, the subsidiary, X-change, will act as an agent for FOREX with regard to all products and services offered to customers. Efforts to outsource the banking platform and operations of IT-related activities continued during the year. The operation of IT-related activities was taken over in 2011 by a third party. Efforts to outsource the banking platform are in an intensive phase and it is estimated that they will be concluded during Changes in management The Group s CFO and Deputy Managing Director left FO- REX in conjunction with the Panaxia bankruptcy. Thomas Högväg was named Deputy Managing Director in Group results For the financial year, the Group reported an operating profit of SEK 47 million (231) and profit after tax of SEK 8 million (165). The primary explanation for why the operating profit is much lower in 2012 than the previous year is related to the counted daily receipts (SEK 134 million) in conjunction with the bankruptcy of the associated company, Panaxia. Operating income consists mainly of net income from financial transactions (currency exchange for the most part) but also net interest income/expense and net commissions. Operating income during the year totaled SEK 1,284 million (1,223), which is an increase of 5 percent compared to the previous year. Net interest income/expense increased during the year by 34 percent to SEK 149 million (111) due to a combination of growth in the volume of granted loans and an increased interest margin. Net commission increased by 9 percent to SEK 199 million (183). The single largest explanatory factor behind the improved net commission is that the number of foreign transfers increased sharply during the year. This is partly a consequence of the acquisition during the year of all of Western Union s Nordic branches and partly due to the fact that the effects from the change that was made in December 2011 to a new supplier of international remittance services began to be felt during the year. Net income from financial transactions increased during the year by 1 percent to SEK 924 million (916). Consolidated operating expenses during the year totaled SEK 1,163 million (932), which represents an increase of 25 percent. General administrative expenses increased 7 percent to SEK 851 million (796) due to more branches and therefore also more employees, continued large investments in skills development and continued development within IT. Depreciation, amortization and impairment Decreased by 23 percent to SEK 29 million (37) due to the recovery during the year of a previously reported impairment loss of SEK 15 million on property. Other operating expenses increased from SEK 98 million to SEK 283 million. The most important explanation is the loss of counted daily receipts in conjunction with the bankruptcy of Panaxia. ANoteher explanation is increased marketing activities. Loan losses were SEK 74 million (60). Verified loan losses amounted to 1 percent (1) of loans granted. Group position Total assets were SEK 7,240 million (6,574). The increase is due primarily to the continued sharp increase during the period in the volume of both loans to the general public and deposits from the general public. Loans to the general public increased by 35 percent to SEK 3,464 million (2,564). Deposits from the general public increased from SEK 5,513 million to SEK 6,150 million, which is an increase of 12 percent. Cash equivalents in the form of cash, loans to credit institutions, treasury bills eligible as collateral, bonds and other debt securities with a maturity of up to 3 months totaled SEK 3,071 million (2,657). The Group s equity at year-end was SEK 804 million (813). The equity ratio was 11.0 percent (12.4) and the capital adequacy ratio was 1.45 (1.72). Parent Company results For the financial year, the Parent Company reported an operating profit of SEK 68 million (203) and profit after tax of SEK 72 million (145). The lower operating profit is explained by the loss of counted daily receipts in conjunction with the bankruptcy of Panaxia AB (SEK 118 million) and an impairment loss on the shares in the associated company, Panaxia (SEK 43 million). Operating income consists mainly of net income from financial transactions (currency exchange for the most part) but also net interest income/expense and net commissions. Operating income during the year totaled SEK 1,282 million (1,098), which is an increase of 17 percent yearon-year. Net interest income/expense increased during FOREX Annual report

6 the year by 35 percent to SEK 148 million (110) due to growth in the volume of granted loans in conjunction with an increased interest margin. Dividends received during the year totaled SEK 89 million (-). This amount is comprised of dividends received and Group contributions from the subsidiary, X-change. Net commissions Decreased by 37 percent to SEK 103 million (163). The Decrease is due primarily to the fact that the Parent Company paid commissions during the year to the subsidiary, X-change, for its services as an agent for FOREX. Commission income from international transfers also increased sharply during the year due to the larger number of transfers resulting partly from the acquisition during the year of all of Western Union s Nordic branches and partly to the fact that the effects of the change in December 2011 to a new supplier of international remittance services began to be felt during the year. Net income from financial transactions increased during the year by 15 percent to SEK 926 million (804) primarily as a result of the inflow of income during the year from currency sales in the subsidiary, X- change, via an agent agreement. The Parent Company s operating expenses during the year totaled SEK 1,085 million (836), which represents an increase of 30 percent. General administrative expenses increased 11 percent to SEK 796 million (718) due to more branches and therefore also more employees, continued large investments in skills development and continued development within IT. Depreciation, amortization and impairment Decreased by 14 percent to SEK 27 million (32) primarily due to the recovery during the year of a previously reported impairment loss of SEK 15 million on property. Other depreciation and amortization for the year increased as a result of increased investments in the branch network. Other operating expenses increased from SEK 86 million to SEK 261 million. The explanation is the loss of counted daily receipts in conjunction with the bankruptcy of Panaxia. ANoteher explanation is increased marketing activities. Loan losses were SEK 74 million (60). Verified loan losses amounted to 1 percent (1) of loans granted. The operating profit was also burdened by impairment losses on financial assets of SEK 55 million. These consist of an impairment loss on the shares of the associated company, Panaxia (SEK 43 million), and an impairment loss on shares in subsidiaries (SEK 12 million). Parent Company s position Total assets were SEK 7,201 million (6,477). The increase is due primarily to the continued sharp increase during the period in the volume of both loans to the general public and deposits from the general public. Loans to the general public increased by 35 percent to SEK 3,464 million (2,564). Deposits from the general public increased from SEK 5,513 million to SEK 6,150 million, which is an increase of 12 percent. Cash equivalents in the form of cash, loans to credit institutions, treasury bills eligible as collateral, bonds and other debt securities with a maturity of up to 3 months totaled SEK 2,995 million (2,515). The Parent Company s equity at year-end was SEK 733 million (679). The equity ratio was 10.2 percent (10.5) and the capital adequacy ratio was 1.70 (1.88). Future development The Bank continues to develop its operations in accordance with the current business plan with the establishment of new branches. Decisions have been made to open a total of seven new branches in Four of these will be in Sweden, two in Denmark and one in Finland. The goal is to maintain the high market share in Sweden and enhance the Bank s presence in locations where there is large demand for the Bank s products. Efforts will be made to increase the market share in Finland, Denmark and Norway. Deliveries of currency to the Group s branches in Sweden have been made via the Bank s own Cash Center since This service was terminated in 2012 due to Panaxia s bankruptcy. These operations will most likely be resumed in 2013 with the Bank s new transporter. Consequently, the work to sign contracts for the delivery of currency with suppliers outside of Sweden will continue in Considerable resources were committed for a long period of time to the prevention of money laundering. This work will continue with the same high level of priority. A strategic Decision was made in 2012 to also establish banking operations in the Bank s branches. To date, the operations in Finland, Denmark and Norway only included currency exchange and remittance services. The first phase of this project will be to supplement the operations in Finland with the Pay and Save products. The goal is to be able to offer customers these two products in 2013 and gradually broaden the selection of products. These products will also be offered in the Danish and Norwegian markets in the future. 6 FOREX Bank Annual report 2012

7 Events after the closing date IFollowing the bankruptcy of Panaxia, the cooperation in Sweden with the transporter, Panaxia, was terminated. An agreement with a new supplier was signed in In 2013 an agreement with the same supplier was signed for the operations in Norway. In conjunction with an investigation into the separation funds in Panaxia s bankruptcy, and to avoid extended legal proceedings, FOREX accepted a settlement in 2013 in which it received SEK 15 million. Business risks The Bank is exposed on a daily basis to different types of risks associated with the business, such as credit risks, liquidity risks, market risks (interest rate risks and currency risks) and operational risks. A more detailed description of these risks is provided in Notee 3. FOREX Annual report

8 Key figures Group Key figures Volume Loans to the general public Change during the year, % 35% 48% 57% 63% 20% Deposits from the general public Change during the year, % 12% 43% 29% -1% 63% Equity Equity ratio Taxed equity as a % of total assets Capital adequacy ratio 1) Own funds/capital adequacy requirement Net profit Investment margin Net interest income/expense as a % of average total assets Return on equity Operating profit as a % of average equity Cost/income ratio before loan losses Total expenses excluding loan losses in relation to operating income Cost/income ratio after loan losses Total expenses including loan losses in relation to operating income Doubtful debts and loan losses Percentage doubtful debts Net doubtful debts as a % of total loans granted to the general public Loan loss ratio Loan losses as a % of the opening balance for loans to the general public Other information 11,1% 12,4% 14,3% 12,5% 9,6% 1,42 1,72 1,67 1,28 1,04 2,16% 1,93% 1,62% 1,40% 0,72% 5,9% 30,6% 58,2% 35,7% -12,3% 0,9 0,8 0,7 0,8 1,0 1,0 0,8 0,7 0,9 1,1 4,4% 4,5% 4,3% 6,0% 2,2% 2,7% 3,3% 0,4% 10,6% 2,0% Average number of employees Number of branches FOREX Bank Annual report 2012

9 Income statements and balance sheets Group SEK thousand Income statement Net interest income/expense Dividends received Commissions, net Net income from financial transactions Other operating income Total income General administrative expenses Other operating expenses 1) Credit losses and impairment of financial assets Total expenses Operating profit (loss) Share in profits, associated companies Tax Net profit (loss) for the year Balance sheet Cash Treasury bills eligible as collateral 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 FOREX Annual report

10 Proposal for appropriation of the Parent Company s profit The following earnings are at the disposal of the Annual General Meeting: accumulated profit profit for the year kr The Board proposes that the earnings be carried forward. For further information on the profit and financial position of the Parent Company and the Group, please refer to the accompanying income statement, balance sheet and Notees to the financial statements. 10 FOREX Bank Annual report 2012

11 CONSOLIDATED INCOME STATEMENT SEK thousand Note Interest income Interest expenses Net interest income/expense Dividends received Commission income Commission expenses Net income from financial transactions Other operating income Total operating income General administrative expenses Depreciation/amortization and impairment of PP&E and intangible assets 24, Other operating expenses Total expenses before loan losses Net profit (loss) before loan losses Loan losses, net Impairment of financial assets Operating profit (loss) Share in profits, associated companies Tax Net profit (loss) for the year CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME SEK thousand Note Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Other comprehensive income, net after tax Total comprehensive income FOREX Annual report

12 CONSOLIDATED BALANCE SHEET SEK thousand Note 31 Dec Dec 2011 Assets Cash Treasury bills eligible as collateral Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Participations in associated companies Other shares and participations Intangible assets 24 - Goodwill Other intangible assets PP&E 25 - Equipment Capitalized reconstruction costs Buildings Current tax assets Deferred tax assets Other assets Prepaid expenses and accrued income TOTAL ASSETS Liabilities, provisions and equity Liabilities and provisions Deposits from the general public Deferred tax liabilities Other liabilities Accrued expenses and prepaid income Provisions Total liabilities and provisions Equity Share capital Reserves Earned profits including net profit (loss) for the year Total equity TOTAL LIABILITIES, PROVISIONS AND EQUITY FOREX Bank Annual report 2012

13 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY SEK thousand Share capital 1) Reserves 2) Accrued earnings Total equity Opening balance, Jan 1, Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Dividends Closing balance, Dec 31, Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Dividends Closing balance, Dec 31, ) Specification share capital Number of shares Class A shares Class B shares Total number of shares Quotient value 10 kr All shares have been paid in full 2) Specification Reserves Reserv för verkligt värde Reserv för omräkningsdifferenser Reservfond Totalt reserver Opening balance, 1 Jan Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity 3 3 Closing balance, Dec 31, Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Closing balance, Dec 31, FOREX Annual report

14 CONSOLIDATED CASH FLOW STATEMENT SEK thousand Note Operating profit (loss) (+) Adjustments for non-cash items - Depreciation/amortization and impairment (+) Loan losses (+) Interest Note paid (+) Capital gains/losses on intangible assets and PP&E (+) Other non-cash items (+/-) Taxes paid (-) Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Increase/Decrease in loans to the general public (-/+) Increase/Decrease in bonds and other interest-bearing securities (-/+) Increase/Decrease in deposits from the general public (+/-) Increase/Decrease in other assets and liabilities (+/-) Cash flow from operating activities Investing activities Acquisition of participations in associated companies (-) Sale of intangible assets (+) Acquisition of intangible assets (-) Sale of PP&E (+) Acquisition of PP&E (-) Cash flow from investing activities Financing activities Dividends paid (-) Cash flow from financing activities Cash flow for the year Cash equivalents at the beginning of the year Exchange rate differences on cash equivalents Cash equivalents at year-end Cash and cash equivalents is comprised of the following items: Cash Treasury bills eligible as collateral payable on demand Loans to credit institutions payable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Bank Annual report 2012

15 PARENT COMPANY INCOME STATEMENT SEK thousand Note Interest income Interest expenses Net interest income/expense Dividends received Commission income Commission expenses Net income from financial transactions Other operating income Total operating income General administrative expenses Depreciation/amortization and impairment of PP&E and intangible 24, assets Other operating expenses Total expenses before loan losses Net profit (loss) before loan losses Loan losses, net Impairment of financial assets Reversal of impairment of financial assets Operating profit (loss) Appropriations Tax Net profit (loss) for the year PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME SEK thousand Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Other comprehensive income, net after tax Total comprehensive income FOREX Annual report

16 PARENT COMPANY BALANCE SHEET SEK thousand Note 31 Dec Dec 2011 Assets Cash Treasury bills eligible as collateral Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Shares and participations in Group companies Participations in associated companies Other shares and participations Intangible assets 24 - Other intangible assets PP&E 25 - Equipment Capitalized reconstruction costs Buildings Receivables from Group companies Current tax assets Deferred tax assets Other assets Prepaid expenses and accrued income TOTAL ASSETS Liabilities, provisions and equity Liabilities and provisions Deposits from the general public Liabilities to Group companies Deferred tax liabilities Other liabilities Accrued expenses and prepaid income Provisions Total liabilities and provisions Untaxed reserves Equity Restricted equity Share capital Statutory reserve Non-restricted equity Profit (loss) brought forward Net profit (loss) for the year Total equity TOTAL LIABILITIES, PROVISIONS AND EQUITY FOREX Bank Annual report 2012

17 CONT. PARENT COMPANY BALANCE SHEET SEK thousand Note 31 Dec Dec 2011 Memorandum items Contingent liabilities Commitments FOREX Annual report

18 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY SEK thousand Restricted equity Share capital 1) Statutory reserve Non-restricted equity Profit/loss carryforward Profit/loss carryforward Total equity Opening balance, Jan 1, Appropriation of profits Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Dividends Closing balance, Dec 31, Appropriation of profits Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Dividends Closing balance, Dec 31, ) Specification share capital Number of shares Class A shares Class B shares Total number of shares Quotient value All shares have been paid in full 10 kr 18 FOREX Bank Annual report 2012

19 PARENT COMPANY CASH FLOW STATEMENT SEK thousand Note Operating activities Operating profit (loss) (+) Adjustments for non-cash items - Depreciation/amortization and impairment (+) Loan losses (+) Impairment of financial assets (+) Interest Note paid (+) Capital gains/losses on intangible assets and PP&E (+/-) Dividends Note paid (-) Other non-cash items (+/-) Taxes paid (-) Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Increase/Decrease in loans to the general public (-/+) Increase/Decrease in bonds and other interest-bearing securities (-/+) Increase/Decrease in deposits from the general public (+/-) Increase/Decrease in other assets and liabilities (+/-) Cash flow from operating activities Investing activities Sale of shares in Group companies (+) 35 - Acquisition of shares in Group companies (-) Acquisition of shares in associated companies (-) Sale of intangible assets (+) Acquisition of intangible assets (-) Sale of PP&E (+) Acquisition of PP&E (-) Cash flow from investing activities Financing activities Dividends paid (-) Cash flow from financing activities Cash flow for the year Cash equivalents at the beginning of the year Exchange rate differences on cash equivalents Cash equivalents at year-end Cash and cash equivalents is comprised of the following items: Cash Treasury bills eligible as collateral payable on demand Loans to credit institutions payable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Annual report

20 NOTES TO THE FINANCIAL STATEMENTS Note 1 Disclosures about the Group and Parent Company The annual report as at December 31, 2012, refers to the Group where FOREX Bank AB, a joint-stock bank, is the Parent Company, with registered office in Stockholm. The head office s address is Kornhamnstorg 4, Stockholm. A list of all wholly-owned subsidiaries is provided in Note 21. On March 19, 2013, 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. 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, the Swedish Financial Supervisory Authority s regulations and guidelines (FFFS 2008:25) on annual reports issued by credit institutions and securities companies, 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 the Annual Accounts Act for Credit Institutions and Securities Companies 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 (v) Parent Company Accounting Principles, below. Unless otherwise stated, the accounting principles (discussed below) were consistently applied to each period presented in the financial statements. New and revised accounting standards and interpretations that are obligatory for accounting periods as of January 1, 2012 (a) New and changed standards applied by the Group None of the IFRS or IFRIC interpretations that are obligatory for the first time for the financial year starting January 1, 2012, have had a significant effect on the Group (b) New standards, amendments and interpretations of existing standards that the Group has not applied in advance. A number of new standards and amendments to the interpretations and existing standards enter into force for financial years commencing after January 1, None of these are expected to have a significant effect on the Group s financial statements with the exception of those listed below: I IAS 1 Presentation of financial statements has introduced amendments with regard to other comprehensive income. The most significant change in the modified IAS 1 is the requirement that the items reported under other comprehensive income be presented in two groups. This breakdown is based on whether or not the items may be reclassified to profit and loss (reclassification adjustments). The amendment does not address the issue of which items should be included in other comprehensive income. The Group intends to apply the amendments in IAS 1 to the financial year commencing January 1, IFRS 10 Consolidated financial statements uses already existing principles when it identifies control as the Deciding factor for determining if a company should be included in the consolidated accounts. The standard provides additional guidance to assist in the determination of control when this is hard to assess. The Group intends to apply IFRS 10 to the financial year starting January 1, 2013, and has not yet evaluated the full effect on the financial statements. IFRS 12 Disclosures of interests in other entities covers disclosure requirements for subsidiaries, joint arrangements, associated companies and unconsolidated structured entities. The Group intends to apply IFRS 12 to the financial year starting January 1, 2013, and has not yet evaluated the full effect on the financial statements. IFRS 13 Fair value measurement aims to make fair value measurements more consistent and less complex by providing an exact definition and a shared framework in IFRS for fair value measurements and related disclosures. The standard provides guidance for fair 20 FOREX Bank Annual report 2012

21 value measurements of all types of assets and liabilities, both financial and non-financial. The requirements do not expand the scope for when fair value should be applied but rather provide guidance regarding how it should be applied in situations where IFRS already requires or permits a fair value measurement. IAS 19 Employee benefits was amended in June Employment costs from previous years will be reported immediately. Interest expenses and expected return on plan assets will be replaced by a net interest rate that is calculated using the discount rate, based on the net surplus or net deficit in the defined-benefit plan. The Group has not yet evaluated the full effect on the financial statements. None of the other IFRS or IFRIC interpretations that have not yet entered into force are expected to have a significant effect on the Group. (b) Functional currency and reporting currency The Parent Company s functional currency is SEK, which is also the reporting currency for both the Parent Company and 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 available-for-sale financial assets. factors that are deemed to be reasonable under the current circumstances. The outcome of these estimates and assumptions is then used when determining the carrying amounts of assets and liabilities when such amounts are not otherwise clearly provided by other sources. The actual results may deviate from these estimates and assessments. These estimates and assumptions are regularly reviewed. Changes to estimates are reported in the period the change was made if the change only affects that period. Otherwise, it is reported in the current period and future periods, if the change affects the current period as well as future periods. Assessments made by the management team when applying IFRS that 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 were made to accounting principles that affect the Group s or Parent Company s financial statements. (f) Consolidation principles The consolidated financial statements include the Parent Company and its branches, subsidiaries and associated companies. (i) Branches The Bank s business activities in other Nordic countries are conducted through bank branches of Forex Bank AB. 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. (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 (ii) Subsidiaries Subsidiaries refer to the companies in which FOREX Bank has 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. Subsidiaries are reported in accordance with the purchase accounting method. Consolidated cost is determined FOREX Annual report

22 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 at 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, this difference is reported directly 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. (iii) Associated companies Associated companies are all companies in which the Group has a significant but not controlling influence, which as a rule applies to shareholdings that include between 20 percent and 50 percent of the votes. Holdings in associated companies are reported using the equity method and are measured initially at cost. The Group s reported value of holdings in associated companies includes goodwill that is identified at the acquisition, net after any impairment losses. When the Group s participation in an associated company s losses totals or exceeds its holding in the associated company, the Group does not report additional losses if the Group has not undertaken any commitments or made payments on behalf of the associated company. (iv) Transactions to be eliminated on consolidation Intra-Group receivables, liabilities, revenues or expenses attributable to intra-group transactions between Group companies are fully eliminated when the consolidated financial statements are prepared. This also applies to the same types of transactions between the Parent Company in Sweden and the foreign branches, as well as such transactions between branches, when preparing the Parent Company s annual report. (g) Foreign currency (i) Transactions in foreign currency Transactions in foreign currency are translated to the functional currency using the exchange rate on the transaction date. Functional currency is the currency primarily used where the company or its branches conduct their operations. Monetary assets and liabilities in foreign currency are translated to the functional currency using the exchange rate on the balance sheet date. Exchange differences that arise upon translation are reported in the income statement. Non-monetary assets and liabilities that are reported at historical cost are translated using the exchange rate on the transaction date. Non-monetary assets and liabilities that are reported at fair value are translated to the functional currency using the prevailing exchange rate at the point in time when valuation to fair value is made. (ii) Financial statements concerning foreign operations The assets and liabilities of foreign operations, including goodwill and other Group surplus values, are translated into SEK using the exchange rate on the closing date. The income 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. (iii) Net investments in foreign operations Translation differences that arise in conjunction with the translation of a net investment in foreign operations are reported directly under other comprehensive income. When an investment in foreign operations is divested, the Group recognizes the accumulated translation differences after the deduction of any currency hedging. Accumulated translation differences are presented in a separate equity category that comprises translation differences as of January 1, Accumulated translation differences from periods prior to January 1, 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 Consolidated Statement of Changes in Equity. 22 FOREX Bank Annual report 2012

23 (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) Income from commissions and fees Income from commissions and fees is recognized when (i) the amount of income can be measured reliably, (ii) it is probable that the future economic benefits that are attributable to the transaction will flow to the company, (iii) the percentage of completion as of the closing date can be measured reliably and (iv) the fees that have arisen and the fees that remain in order to complete the service assignment can be measured reliably. Income is valued at the fair value of the amount that has been received or that is expected to be received. The Bank receives fees and commissions for services rendered. The following two methods are used when recognizing revenue: (ii) 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 income from commissions. This type of income 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 income. (j) Commission expenses These are expenses associated with services that have been received, to the extent that they are not considered interest. For example, they 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 income from financial transactions The item, Net income from financial transactions, includes the realized and unrealized changes in value that have arisen when conducting financial transactions, primarily trade in foreign currency. Net income 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 FFinancial instruments that are reported in the balance sheet and classified as financial assets include: cash, 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 inclu- FOREX Annual report

24 de deposits from the general public and other liabilities. (i) Items reported in or removed from the balance sheet A financial asset or liability is reported in the balance sheet as soon as the Bank has committed to the terms of the contract. A financial asset is removed from the balance sheet when the rights stated in the contract have been realized, have fallen due, or when the company has lost control over them. The same applies to parts of a financial asset. A financial liability is removed from the balance sheet once the obligation under the contract has been fulfilled or otherwise expired. The same applies to parts of a financial liability. Financial assets and liabilities are offset and reported at net amounts in the balance sheet only when there is a legal right to offset the sum and there is an intention to regulate the items with a net sum or at the same time realize the asset and regulate the debt. The acquisition and sale of financial assets are recorded on the trade date, i.e., when the company commits to acquiring or disposing of the asset. Loan commitments are not reported in the balance sheet. Loan receivables are reported in the balance sheet when the loan amount has been paid out to the borrower. (ii) Classification and valuation Financial instruments are initially reported at the instrument s fair value plus transaction costs except for instruments that belong to the category financial assets reported at fair value through the income statement. Such instruments are reported at fair value, excluding transaction costs. A financial instrument is classified the first time it is reported partly based on the purpose for which the instrument was acquired, and partly based on the options available in IAS 39. Financial assets valued at fair value via the income statement This category consists of two sub-categories: financial assets held for trading purposes and other financial assets that the company has initially chosen to put in this category. Financial instruments in this category are adjusted to fair value on a continual basis, with changes in value reported in the income statement. For financial instruments held for trading purposes, both realized and unrealized changes in value are reported in the income statement item, Net income from financial transactions. Items in the balance sheet that are financial assets valued at fair value via the income statement, and which are held for trading purposes, are cash and 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 or associated companies 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 initially included in the cost of acquisition. They are thereafter included in the fair value 24 FOREX Bank Annual report 2012

25 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 income 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 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 deposits from the general public and other liabilities, except derivatives with a negative value. (m) Loan losses and impairment of financial instruments (i) Test of impairment for financial assets At each reporting occasion, the Bank assesses whether there is any objective evidence to suggest that a financial asset or group of assets needs to be written down as the result of one or more events (loss events) having occurred after the asset was reported for the first time and that such loss events have an impact on the estimated future cash flows generated by the asset or group of assets. If there is objective evidence suggesting that the asset has become impaired, the Bank then considers these as doubtful accounts. Objective evidence consists partly of observable events that have occurred that have a negative impact on the possibility to recover the asset s cost and partly of a significant or long-term Decline in the fair value of an investment classified as an available-for-sale financial asset. The Bank evaluates whether there is a need to record an impairment loss and if the loan 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 at each closing by type of demand based on late payments. 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 borrowers due to a 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 (loan 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 loan loss in the income statement. FOREX Annual report

26 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 loan loss or recovery. For loans where the original loan conditions have been renegotiated as a result of the borrower s financial difficulties, a loan 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 (loan losses) are reported as a Decrease in loan losses and these are specified in a note to the financial statements. For held-to-maturity investments along with loan receivables and accounts receivable reported at amortized cost, a reversal of impairment loss is made if a subsequent increase in the recoverable amount can objectively be attributed to an event that occurred after the write-down was performed. Impairment losses on equity instruments that are classified as available-for-sale financial assets, which were previously reported in the income statement, are not reversed via the income statement. The written-down amount is the value from which subsequent revaluations are made, which are reported directly against equity. Impairment losses on interest-bearing instruments, classified as available-for-sale financial assets, are reversed via the income statement if the fair value increases and the increase can objectively be attributed to an event that occurred after the asset was written down. (iii) Write-offs on loan receivables Loan receivables classified as doubtful accounts are removed from the balance sheet when the loan loss is determined with certainty, i.e. when the receiver has submitted an estimate of the dividends in bankruptcy, the composition proposal has been accepted, or the receivable has otherwise been relinquished. Once a loan receivable has been written off, it is no longer reported in the balance sheet. Recovery of any previously reported write-offs is reported as a Decrease in loan 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. 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 is applied to leased assets. The Group reports all of its leasing agreements in accordance with the rules on 26 FOREX Bank Annual report 2012

27 operating leases. 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. (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. (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 (based on the duration of the rental agreement) (iv) Amortization principles Depreciation is made on a straight-line basis and is determined based on the cost of the asset, where applicable after impairment reductions, and useful lives. Expected useful life for different types of assets; - Equipment 5 years - Capitalized reconstruction costs 5-10 years (based on the duration of the rental agreement) - Buildings 50 years No depreciation is made on land. (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. Goodwill is shown at cost less any accumulated impairment losses. Goodwill is allocated among cash-generating units and it is not amortized. Instead, it is tested annually for impairment. Cash-generating unit refers to X-change in Sweden AB. 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 consist of rental agreements. These are reported at cost less accumulated amortization and impairment losses. (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. 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. At each closing an assessment is made to determine if a previously reported impairment loss is no longer justified. If there is an indication that an asset increased in value, the impairment loss is reversed. Note 41 contains the assessments made with regard to the recoverable amounts for property, plant and equipment and intangible assets. FOREX Annual report

28 (q) 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. (iv) Pay related to notice of termination Costs related to payment in conjunction with termination of employment are reported as a provision only if the company is demonstrably committed and lacking any realistic possibilities to withdraw such notice and when there is a formal, detailed plan to terminate employment before it would otherwise expire. When payment is made as an offer to encourage voluntary termination, a cost is recognized if it is likely that the offer will be accepted and if the number of employees likely to accept the offer can be reliably estimated. (iii) Short-term payments When short-term payments are made to employees, they are calculated without being discounted and recognized as an expense as soon as the associated services have been delivered. (r) General administrative expenses General administrative expenses are comprised of personnel costs, which includes salaries and fees, pension expenses, employer s contributions and other social security contributions. This is also where the expenses for the following items are reported: facilities, education, IT, telecommunications, travel and entertainment, audit services, other external services and other external expenses. (s) 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. (t) 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. 28 FOREX Bank Annual report 2012

29 (u) 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, lending to credit institutions and short-term investments that mature in three months or less from the acquisition date and that can easily be converted to cash and where there is little risk of value fluctuations. The balance sheet items that may be classified at belonging to cash equivalents are: cash, loans to credit institutions, treasury bills eligible as collateral, bonds and other interest-bearing securities. (v) Parent Company accounting principles The Parent Company s annual report is prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies (1995:1559) and Finansinspektionen s regulations and general guidelines regarding annual reports issued by credit institutions and securities companies (FFFS 2008:25 and updated via FFFS 2011:54) and the Swedish Financial Reporting Board s recommendation RFR 2.2, 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 its annual accounts to the extent that this is possible within the framework of ÅRKL and taking into account the correlation between accounting and taxation. Differences between the accounting principles used by 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) Group contributions The Parent Company applies RFR 2 for the accounting of Group contributions. This means that Group contributions paid by the Parent Company to subsidiaries are reported in the Parent Company as an increase in participations in subsidiaries. The tax effect of Group contributions paid are reported in accordance with IAS 12 in the income statement. In the disclosures in the note, the tax effect of the Group contribution is reported in its own line, Group contributions paid to subsidiaries, in the account of the difference between reported and estimated tax expense based on current tax rates. In cases where the Parent Company receives Group contributions from subsidiaries, the Parent Company reports the Group contribution received in accordance with the principles for customary dividends from subsidiaries, i.e. as financial income. Tax on the Group contribution received is reported in the income statement in accordance with the rules set out in IAS 12. (ii) Subsidiaries Participations in subsidiaries are reported by the Parent Company at cost less any impairment losses. 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. Dividends received are reported as revenue when the right to accept the dividend is adopted at the subsidiary s Annual General Meeting. When there is an indication that participations in subsidiaries depreciated in value, the recoverable amount is calculated. If the recoverable amount is lower than the reported amount, an impairment loss is recorded. The impairment loss is reported in the row Impairment loss on financial assets. (iii) Associated companies Andelar i intresseföretag redovisas i Parent Company till Participations in associated companies are reported by the Parent Company at cost less any impairment losses. Dividends received are reported as income only if they derive from earnings accrued after the acquisition. When there is an indication that participations in associated companies depreciated in value, the recoverable amount is calculated. If the recoverable amount is lower than the reported amount, an impairment loss is recorded. The impairment loss is reported in the row Impairment loss on financial assets..(iv) Taxes The Parent Company reports untaxed reserves including deferred tax liability, when such exists. In the consolidated financial statements, untaxed reserves are classified as either deferred tax liability or equity. (v) Additional depreciation The Parent Company reports additional depreciation, as FOREX Annual report

30 allowed by Swedish legislation, as appropriations in the income statement. Additional depreciation is included in the balance sheet as part of untaxed reserves. (vi) Intangible assets 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.. 30 FOREX Bank Annual report 2012

31 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 of Directors has distributed the responsibility for managing risks to different functions in policy documents. 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 and that procedures are followed. 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 contractual obligations. Credit risk from counterparties arises in conjunction with granting loans to the general public and when making cash investments. Risks associated with payment commitments arise in conjunction with the purchase and sale of notes as well as accounts receivable. Special limits have been established for these risks. The Board of Directors has the overall responsibility for the Bank s credit risk exposure. The Board of Directors has a special policy that distributes responsibility for management of this risk to the Credit Committee. This committee provides regular reports to the Board. Before granting any loans to the general public, a creditworthiness rating is made using scoring models (advanced statistical models). The Bank regularly evaluates and changes its scoring models in order to reflect the creditworthiness of borrowers as accurately as possible. The Bank s granting of credit to customers consists entirely of loans to the general public in the form of unsecured loans and credit facilities. The maximum amount is limited to SEK 400 thousand per borrower. At year-end, the average credit amount per loan was SEK 54 thousand (58). Of the total amount of loans granted to the general public, SEK 96 million (66) had a 100 percent risk weight as per the capital adequacy rules. The remaining portion had a risk weight of 75 percent. The higher risk weight relates to the carrying amount of loans that are more than 90 days past due. The gross amount of such items is SEK 226 million (155). Loans to the general public are only granted to persons residing in Sweden. There is no significant concentration risk related to geographic distribution or age of loans. The Bank s routines for monitoring payments that have fallen due and receivables that have not yet been settled is aimed at minimizing loan losses by, at an early stage, identifying any problems that the borrower is having with making payment and then ensuring that claims are quickly administered. All loans that are more than 90 days overdue are submitted to a collection agency at which point 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 most recent scoring model. This is supplemented with a living allowance calculation and the Bank s own credit rules. As of December 31, 2012, the total volume of household credit was SEK 3,463,807 thousand (2,563,679). The volume of loan receivables fallen due, but not yet written off, is provided in the following table: Group och Parent Company SEK thousand Loan receivables 1-30 days days days days Total 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: Treasury bills eligible FOREX Annual report

32 Liquidity risk as collateral 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): 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 and liabilities. Group SEK thousand Rating Govern- Credit in- Govern- Credit in- ment stitutions ment stitutions AA- through AA A- through A under A AAA Total investments and account balances The Bank s risk management practices focus on achieving a spread on the maturity dates and the degree of liquidity in its holdings. This 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. Parent Company SEK thousand Rating 1 AAA Govern- Credit in- Govern- Credit in- ment stitutions ment stitutions AA- through AA A- through A under ATotal 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. FOREX Bank fulfills the current requirements on liquidity reserves and future requirements on LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio). LCR, FOREX s short-term measure of liquidity, requires that the Bank s liquidity buffer exceeds its net outflow during 30 days of a stressed scenario. NSFR, the Bank s long-term measure of liquidity, requires that the Bank s stable funding exceeds the Bank s need for stable funding for a period of one year. The diagram shows how liquidity will be affected during a stress scenario in the coming year. The following parameters, among others, have been taken into consideration: 20% outflow of deposits, year 1 No access to the financial markets FOREX Bank continues to operate in accordance with its business plan Deposits from the general public are entirely comprised of current accounts. The Bank s loans to credit institutions, treasury bills eligible as collateral and bonds and other interest-bearing securities mature within three months. 32 FOREX Bank Annual report 2012

33 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. 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 attributable to its fixed term investments (longer than one day), for which the volume at year-end was SEK 1,300,039 thousand (2,538,288). At year-end, the total interest rate risk for all of maturity schedules given a 2 percent change in interest rates was SEK 3,116 thousand (2,101). (i) 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 10 percent of own funds given a 1 percent change in the market rate of interest for all of the maturity schedules. (ii) 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. The Bank also has balances in currency accounts in other banks and certain assets and liabilities in foreign currency associated with the Bank s branches in the Nordic countries. Forex Bank uses derivative instruments to Decrease the currency risk. Currency derivatives to hedge major exposures are used in particular for currency positions in the Bank s five largest currencies based on the Bank s reporting currency, SEK: EUR, USD, DKK, NOK and GBP. The Bank s calculation shows that the currency risk on average during the year is around 5 percent of the net position. The risk is calculated as the maximum outcome of currency changes (99 percent confidence interval) during a 10-day period using historical values for 13 years. The exposure (stated in thousands) is as follows: Currency/2012 Total gross currency position Less currency derivatives Net currency position Max currency risk 5% EUR DKK NOK USD 1) GBP Other Summa Currency/2011 Total gross currency position Less currency derivatives Net currency position Max currency risk 5% EUR DKK NOK USD 1) GBP Other Summa ) As at December 31, 2012, there were currency derivatives in USD that at that point in time exceeded the gross currency position in USD. The reason for this was that currency positions in currencies other than USD that price-wise follow USD were also hedged through currency derivatives in USD. Thus, there was a net currency position of 0 on The portion of currency derivatives in excess of the total gross currency position in USD in the above table was placed under currency derivatives for other currencies. FOREX Annual report

34 The Group s income statement includes exchange rate differences of SEK 18,422 thousand (10,475) in Net income from financial transactions. The corresponding amount reported by the Parent Company was SEK 19,292 thousand (9,774). 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 well adapted internal controls 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 other reasons. The Bank therefore places a great deal of emphasis on how these types of risk are managed. 34 FOREX Bank Annual report 2012

35 Note 4 Net interest income/expense Group SEK thousand Interest income Loans to credit institutions Loans to the general public Other Total interest income Interest expenses Liabilities to credit institutions Deposits from the general public Other Total interest expenses Total net interest income/expense % Interest margin 1,82 1,53 Investment margin 2,16 1,93 FOREX Annual report

36 Parent Company SEK thousand Interest income Loans to credit institutions Loans to the general public Loans to Group companies Other Total interest income Interest expenses Liabilities to credit institutions Deposits from the general public Other Total interest expenses Total net interest income/expense ) Deposits from the general public in the Group and Parent Company include fees for the deposit insurance and the stabilization fund totaling SEK 9,381 thousand (5,607). % Interest margin 1,82 1,57 Investment margin 2,16 1,95 Definitions (i) Interest rate 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. (ii) Investment margin Net interest income/expense as a percentage of average total assets Note 5 Dividends received Group SEK thousand Shares and participations 1 1 Total dividends received 1 1 Parent Company SEK thousand Shares and participations 1 1 Shares and participations in Group companies Group contribution Total dividends received FOREX Bank Annual report 2012

37 Note 6 Commission income Group SEK thousand Commissions from remittance services Commissions on loans granted Commissions from deposit services Fees from charge/credit cards Other commissions Total commission income Parent Company SEK thousand Commissions from remittance services Commissions on loans granted Commissions from deposit services Fees from charge/credit cards Other commissions Total commission income Note 7 Commission expenses Group SEK thousand Commissions from remittance services Other commissions Total commission expenses Parent Company SEK thousand Commissions from remittance services Commissions, subsidiary X-change in Sweden AB Other commissions Total commission expenses FOREX Annual report

38 Note 8 Net income from financial transactions Group SEK thousand Shares and participations 28 - Other financial instruments Changes in exchange rates Total net income from financial transactions Net profit/net loss by type Via RR Via RR Financial assets, held for trading purposes Loan receivables and accounts receivable Available-for-sale financial assets 28 - Financial liabilities, held for trading purposes Other financial liabilities Total net income from financial transactions Parent Company SEK thousand Shares and participations 28 - Other financial instruments Changes in exchange rates Total net income from financial transactions Net profit/net loss by type Via RR Via RR Financial assets, held for trading purposes Loan receivables and accounts receivable Available-for-sale financial assets 28 - Financial liabilities, held for trading purposes Other financial liabilities Total net income from financial transactions FOREX Bank Annual report 2012

39 Note 9 Other operating income Group SEK thousand Net profit (loss) on disposal of PP&E and immaterial assets Insurance reimbursements Other operating income Total other operating income Parent Company SEK thousand Net profit (loss) on disposal of PP&E Management fee, subsidiaries Insurance reimbursements Other operating income Total other operating income FOREX Annual report

40 Note 10 General administrative expenses Group SEK thousand Personnel costs - salaries and fees social security contributions pension premium expenses other personnel costs Total personnel costs Other general administrative expenses - rent and other facility expenses postage and telephone audit other external services other external expenses Total other administrative expenses Total general administrative expenses Parent Company SEK thousand Personnel costs - salaries and fees social security contributions pension premium expenses other personnel costs Total personnel costs Other general administrative expenses - rent and other facility expenses postage and telephone audit other external services other external expenses Total other administrative expenses Total general administrative expenses FOREX Bank Annual report 2012

41 Salaries, other remuneration and social security expenses Group SEK thousand Senior executives Other employees Senior executives Other employees Salaries Social security expenses Total Payroll tax! Parent Company SEK thousand Senior executives Other employees Senior executives Other employees Salaries Social security expenses Total Of the Group s and Parent Company s pension expenses, SEK 3,771 thousand (3,427) was for the Bank management team consisting of 8 (7) individuals. No other outstanding pension obligations exist. All pension expenses are covered through regular pensions payments. Remuneration to senior executives (i) Board of Directors FRemuneration 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 15 meetings. There are no fixed fees for participating in the Board. Rather, compensation is based on the number of meetings attended by each Board member. For other participation in committees, projects, etc., Board members are compensated at an hourly rate. executives consists of a base salary and pension. Senior executives, excluding the Managing Director and CEO, have a notice period of 6 months with full salary when the Bank terminates the employment. The Managing Director and CEO is entitled to full salary up until retirement if the Bank terminates the employment. The Managing Director and CEO is entitled to retire at 60. Pension insurance premiums are paid for the Managing Director and CEO and other senior executives in accordance with the pension plan in effect at the Bank. No pension obligations exist. (ii) Managing Director and other senior executives Remuneration to the Managing Director and Deputy Managing Director is Decided by the Board of Directors. Remuneration to the Managing Director and other senior FOREX Annual report

42 Remuneration and other benefits Group and Parent Company 2012 SEK thousand Basic salary Board fee Variable pay Other benefits Pension expense Other pay Total Chairman of the Board Hans Hellquist Board members Katja Elväng Beth Friberg Jörgen Holgersson Ingrid Jonasson Blank Olof Söderberg Stefan Zadik Managing Director and CEO Magnus Cavalli-Björkman Other senior executives Parent company, 6 individuals of which Tom Friberg Total Group and Parent Company FOREX Bank Annual report 2012

43 Remuneration and other benefits Group and Parent Company 2011 SEK thousand Chairman of the Board Basic salary Board fee Variable pay Other benefits Pension expense Other pay Hans Hellquist Total Board members Katja Elväng Beth Friberg Jörgen Holgersson Ingrid Jonasson Blank Olof Söderberg Stefan Zadik Previous Board members Gunnel Engberg Marie-Louise Lind Carl Johan Smith Managing Director and CEO Magnus Cavalli-Björkman Other senior executives Parent company, 6 individuals of which Tom Friberg Total Group and Parent Company Variable Remuneration No variable remuneration was paid out in 2011 and Information about remuneration in accordance with FFFS 2011:1 Please see the company s website Loans to senior executives As of December 31, 2010, outstanding loans to senior executives were SEK 486 thousand (380). 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. FOREX Annual report

44 Average number of employees Parent Company Women Men Total Women Men Total Sweden Finland branch Denmark branch Norway branch Total Parent Company X-change in Sweden AB, Sweden Total average number of employees in the Group Gender distribution, management Group and Parent Company Women Men Total Women Men Total Directors Other senior executives including the Managing Director Total FOREX Bank Annual report 2012

45 Fees and expense reimbursements to auditors Group PricewaterhouseCoopers AB Audit engagements Audit activities in addition to the audit assignment Tax consultation Other services Total fees and expense reimbursements to auditors Parent Company PricewaterhouseCoopers AB Audit engagements Audit activities in addition to the audit assignment Tax consultation Other services Total fees and expense reimbursements to auditors The audit engagement includes the audit of the annual report, accounting records and the administration of the Board of Directors and the Managing Director, as well as other duties that the company s auditor is obliged to conduct and advice or other assistance resulting from observations made during the audit or performance of these other duties. Any other services provided are included in other fees. Operating lease agreements The Group leases a number of branch facilities, offices, warehouses and cars with operating lease agreements. The leasing periods vary from 2 to 10 years and most of the leasing agreements may be extended at the end of the lease term for a fee that is consistent with prevailing market rates. Other operating leases are negligible. During the year, the Group s leasing expenses for rented facilities was SEK 81,453 thousand (72,700) and for cars was SEK 1,627 thousand (633). In the Parent Company, the corresponding expenses were SEK 70,277 thousand (59,592) and SEK 1,627 thousand (633), respectively. The total future minimum lease payments for operating lease agreements that may not be cancelled are as follows: FOREX Annual report

46 Group Within 1 year Between 1 and 5 years More than 5 years Total Parent Company Within 1 year Between 1 and 5 years More than 5 years Total FOREX Bank Annual report 2012

47 Note 11 Other operating expenses Group SEK thousand Insurance expenses Security expenses Marketing expenses Capital loss on disposal of PP&E and intangible assets Other operating expenses Total other operating expenses Parent Company SEK thousand Insurance expenses Security expenses Marketing expenses Capital loss on disposal of PP&E and intangible assets Other operating expenses Total other operating expenses Note 12 Loan losses, net Group och Parent Company SEK thousand Individually assessed loan receivables Write-off for the year on verified loan losses Net expense for the year for individually assessed loan receivables Loan receivables assessed as a Group Paid for prior years verified loan losses Year s provision for the allowance for loan losses Net expense for the year for loan receivables assessed as a Group Net expense for the year for loan losses All loan losses are related to loan receivables and accounts receivable. FOREX Annual report

48 Note 13 Impairment of financial assets Group SEK thousand Shares and participations Tenant-owner rights, Brf Gråbjörnen 11, Malmö Total impairment of financial assets Parent Company SEK thousand Shares and participations Shares in the subsidiary, X-change in Sweden AB Shares in the associated company, Panaxia AB Tenant-owner rights, Brf Gråbjörnen 11, Malmö Total impairment of financial assets Note 14 Reversal of impairment of financial assets Parent Company SEK thousand Receivables from Group companies Forex Sweden International Ltd Total impairment of financial assets Note 15 Appropriations Parent Company SEK thousand Reversal of tax allocation reserve Excess depreciation/amortization Total appropriations FOREX Bank Annual report 2012

49 Note 16 Taxes Reported in the income statement Group SEK thousand Current tax expense Tax expense for the period Other taxes Deferred tax expense Deferred tax Total reported tax expense Parent Company SEK thousand Current tax expense Tax expense for the period Other taxes Deferred tax expense Deferred tax Total reported tax expense Reconciliation of effective tax Group SEK thousand 2012 (%) (%) 2011 Profit before tax Tax according to the applicable tax rate 26,30% ,30% Effect of foreign tax credit 8,03% ,22% 504 Non-deductible expenses 12,52% ,69% Non-taxable income -81,36% ,22% 490 Tax related to prior years 10,61% ,77% Temporary differences 53,91% ,07% 163 Effect of modified tax rate -42,02% Other taxes -0,50% 39 0,09% -196 Standard interest on tax allocation reserve 3,30% ,21% -489 Reported effective tax -9,21% ,55% FOREX Annual report

50 Parent Company SEK thousand 2012 (%) (%) 2011 Profit before tax Tax according to the applicable tax rate 26,30% ,30% Effect of foreign tax credit 0,91% ,25% 504 Non-deductible expenses 6,02% ,63% Non-taxable income -36,22% ,20% 397 Tax related to prior years 1,12% ,83% Temporary differences 6,11% ,11% 215 Tax on untaxed reserves 3,67% Other taxes -0,06% 39 0,10% -196 Standard interest on tax allocation reserve ,17% -335 Reported effective tax 8,11% ,52% Deferred tax assets Group och Parent Company 31 Dec Dec 2011 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 thousand 31 Dec Dec 2011 Tax effect of temporary differences: Tax loss Impairment of building Impairment of financial assets Pension liability Total deferred tax assets FOREX Bank Annual report 2012

51 Deferred tax liabilities Group SEK thousand 31 Dec Dec 2011 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 thousand 31 Dec Dec 2011 Cash Property, plant and equipment Intangible assets Untaxed reserves 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, the tax effect on consolidated acquisition values and the tax effect on different values in the accounts for and taxation of property, plant and equipment. Deferred tax is reported at the rate of 22 percent (26.3). Parent Company SEK thousand 31 Dec Dec 2011 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 thousand 31 Dec Dec 2011 Property, plant and equipment Total deferred tax liabilities FOREX Annual report

52 Note 17 Treasury bills eligible as collateral Group och Parent Company SEK thousand 31 Dec Dec 2011 Cost Carrying amount Cost Carrying amount Issued by the Swedish State Total treasury bills eligible as collateral All holdings of treasury bills were acquired as hold-to-maturity investments and are therefore reported at amortized cost. The carrying amount is a good approximation of the fair value since all holdings have a term of no more than three months. Note 18 Loans to credit institutions Group SEK thousand 31 Dec Dec 2011 Loans to credit institutions - Swedish currency foreign currency Total loans to credit institutions Parent Company SEK thousand 31 Dec Dec 2011 Loans to credit institutions - Swedish currency foreign currency Total loans to credit institutions FOREX Bank Annual report 2012

53 Note 19 Loans to the general public Group och Parent Company SEK thousand 31 Dec Dec 2011 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 thousand Loan receivables assessed as a Group Total impairment losses Loan receivables assessed as a Group Total impairment losses Opening balance, January Impairment loss for the year, loan losses Ending balance on December Note 20 Bonds and other interest-bearing securities Group och Parent Company SEK thousand Issued by other borrowers 31 Dec 2012 Fair value Carrying amount Fair value 31 Dec 2011 Carrying amount - other financial companies Total bonds and other interestbearing securities Of which: Listed securities on an exchange Unlisted securities All holdings of bonds and other interest-bearing securities were acquired as hold-to-maturity investments and are therefore reported at amortized cost. The carrying amount is a good approximation of the fair value since all holdings have a term of no more than three months. FOREX Annual report

54 Note 21 Shares and participations in Group companies Shares and participations in Group companies at year-end are comprised of shares in X-change in Sweden AB, which is an unlisted company. During the year, X-change Valutaspecialisten Europe AB merged with X-change in Sweden AB and the subsidiary, Svensk Valutahantering AB, was divested. SEK thousand 31 Dec Dec 2011 Accumulated cost Opening balance, January Acquisitions for the year - 50 Sales for the year Impairment losses for the year Ending balance on December Group companies 2012 Net profit Equity Share of capital SEK thousand Number of shares Carrying amount X-change in Sweden AB, , % Stockholm Total shares in Group companies In 2012 an impairment loss was recorded totaling SEK 12 million on the shares of the subsidiary, X-change in Sweden AB. Since the acquisition of X-change in Sweden AB in 2007, the number of branches has gradually Decreased from 20 at the time of acquisition to 10 at the end of When calculating the recoverable amount of the shares in X-change based on the expected number of branches in the future and the estimated earnings over the next 10 years, and when taking into consideration the financial structure of the subsidiary, it was determined that the recoverable amount was less than the carrying amount of the shares. An impairment loss was therefore recorded for the amount corresponding to the difference between the recoverable amount and the carrying amount. 54 FOREX Bank Annual report 2012

55 Group companies 2011 Net profit Equity Share of capital SEK thousand X-change in Sweden AB, , Stockholm - X-change ValutaSpecialisten Europe AB, , Stockholm FOREX Sweden International Ltd, , London Number of shares Carrying amount % % % Svensk Valutahantering AB, % Total shares in Group companies Note 22 Participations in associated companies Group SEK thousand 31 Dec Dec 2011 Accumulated cost Opening balance, January Acquisitions for the year Share in profits Ending balance on December All shares and participations in associated companies consist of listed securities in Panaxia AB. Panaxia AB filed for bankruptcy on September 5, The Group s share in net profit in associated companies and the Group s share in income, assets (including goodwill) and liabilities in 2011 was as follows: Associated companies Net profit Income Assets Liabilities SEK thousand 1) 1) 1) 1) Number of shares Share of capital Carrying amount Panaxia AB, (publ), Stockholm ,74% Total shares in associated companies ) Based on amounts in Panaxia AB s published quarterly report, January-September The value of Forex Bank AB s holdings in Panaxia AB at year-end, based on the closing price in 2011, was SEK 44,931 thousand (-). FOREX Annual report

56 Parent Company SEK thousand 31 Dec Dec 2011 Accumulated cost Opening balance, January Acquisitions for the year Impairment loss for the year Ending balance on December All shares and participations in associated companies consist of listed securities in Panaxia AB. The company filed for bankruptcy on September 5, 2012, at which time the shares in the associated company Panaxia AB were written down to zero. The Parent Company s share in net profit of associated companies and the Group s share in income, assets (including goodwill) and liabilities in 2011 were as follows: Associated companies 2011 Net profit Income Assets Liabilities SEK thousand 1) 1) 1) 1) Number of shares Share of capital Carrying amount Panaxia AB, (publ), Stockholm ,74% Total shares in Group companies ) Based on amounts in Panaxia AB s published quarterly report, January-September Note 23 Other shares and participations Group och Parent Company SEK thousand 31 Dec Dec 2011 Available-for-sale financial assets, listed below - Listed securities, shares - USA Unlisted securities Total available-for-sale financial assets SEK thousand 31 Dec 2012 Antal Redovisat värde Antal 31 Dec 2011 Redovisat värde Shares in Visa Inc Tenant-owner rights in Brf Gråbjörnen11, Malmö Total FOREX Bank Annual report 2012

57 Note 24 Intangible assets Group SEK thousand Accumulated cost Goodwill Acquired intangible assets Rights of tenancy Opening balance Acquisitions for the year Sales for the year Disposals for the year Exchange rate differences for the year Closing balance Total Opening balance Acquisitions for the year Disposals for the year Exchange rate differences for the year Closing balance Accumulated depreciation Opening balance Sales for the year Disposals for the year Depreciation for year Exchange rate differences for the year Closing balance Opening balance Disposals for the year Depreciation for year Exchange rate differences for the year Closing balance Carrying amounts As of As of As of As of FOREX Annual report

58 Parent Company SEK thousand Accumulated cost Goodwill Acquired intangible assets Rights of tenancy Opening balance Acquisitions for the year Sales for the year Disposals for the year Exchange rate differences for the year Closing balance 31 Dec Total Opening balance Acquisitions for the year Disposals for the year Exchange rate differences for the year Closing balance 31 Dec Accumulated depreciation Opening balance 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 Depreciation for year Exchange rate differences for the year Closing balance 31 Dec Carrying amounts As of 1 jan As of 31 Dec As of 1 jan As of 31 Dec FOREX Bank Annual report 2012

59 Note 25 Property, plant and equipment Group SEK thousand Equipment Capitalized reconstruction costs Accumulated cost Buildings Opening balance Acquisitions for the year Sales for the year Disposals for the year Exchange rate differences Closing balance 31 Dec Total Opening balance 1 jan Acquisitions 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 1 jan Disposals for the year Depreciation for year Exchange rate differences Closing balance 31 Dec FOREX Annual report

60 Cont. Property, plant and equipment Group SEK thousand Equipment Capitalized reconstruction costs Accumulated impairment losses Buildings Opening balance 1 jan Closing balance 31 Dec Total Opening balance 1 jan Reversal of impairment losses Impairment losses 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 2012

61 Parent Company SEK thousand 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 1 jan Acquisitions for the year Taken over from Group companies Disposals for the year Exchange rate differences Closing balance 31 Dec Ackumulerade avskrivningar Opening balance 1 jan Sales for the year Disposals for the year Depreciation for year Exchange rate differences Closing balance 31 Dec Opening balance 1 jan Taken over from Group companies Disposals for the year Depreciation for year Exchange rate differences Closing balance 31 Dec FOREX Annual report

62 cont. Parent Company SEK thousand Equipment Capitalized reconstruction costs Accumulated impairment losses Buildings Opening balance 1 jan Closing balance 31 Dec Total Opening balance 1 jan Reversal of impairment losses Impairment losses 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 2012

63 Note 26 Receivables from and liabilities to Group companies Parent Company SEK thousand 31 Dec Dec 2011 X-change in Sweden AB Total receivables from Group companies Note 27 Other assets Group SEK thousand 31 Dec Dec 2011 Positive value on derivative instruments Credit card receivables Other assets Total other assets Parent Company SEK thousand 31 Dec Dec 2011 Positive value on derivative instruments Credit card receivables Other assets Total other assets FOREX Annual report

64 Note 28 Prepaid expenses and accrued income Group SEK thousand 31 Dec Dec 2011 Prepaid expenses Accrued interest income Other accrued interest Total prepaid expenses and accrued income Parent Company SEK thousand 31 Dec Dec 2011 Prepaid expenses Accrued interest income Other accrued interest Total prepaid expenses and accrued income Note 29 Deposits from the general public Group och Parent Company SEK thousand 31 Dec Dec 2011 General public Total deposits from the general public Deposits per customer category SEK thousand 31 Dec Dec 2011 Corporate sector Household sector Total deposits from the general public All deposits are in SEK. Of deposits from the household sector, 1,122 (1, 094) refer to deposits from sole proprietorships. Note 30 Liabilities to Group companies Parent Company SEK thousand 31 Dec Dec 2011 X-change ValutaSpecialisten Europe AB - 58 Total liabilities to Group companies FOREX Bank Annual report 2012

65 Note 31 Other creditors Group SEK thousand 31 Dec Dec 2011 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 Parent Company SEK thousand 31 Dec Dec 2011 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 Annual report

66 Note 32 Accrued expenses and prepaid income Group SEK thousand 31 Dec Dec 2011 Accrued personnel costs Other accrued expenses Prepaid income - 44 Total accrued expenses and deferred income Parent Company SEK thousand 31 Dec Dec 2011 Accrued personnel costs Other accrued expenses Prepaid income - 44 Total accrued expenses and deferred income Note 33 Provisions Group och Parent Company SEK thousand Pension provision Restructuringexpenses Total provisions Opening balance, January 1, Reported in the income statement - additional provision Utilized during the year Closing balance 31 December Reported in the income statement --additional provision Utilized during the year Closing 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 AThe 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 until the premises are transferred and other costs that are directly related to the closing down of operations. The premises were transferred in 2011 and no additional costs are expected to arise in the future since the company was formally liquidated at the beginning of FOREX Bank Annual report 2012

67 Note 34 Untaxed reserves Parent Company SEK thousand 31 Dec Dec 2011 Accumulated excess depreciation Opening balance, January Excess depreciation for the year Ending balance 31 December Tax allocation reserves Tax Assessment Tax Assessment Tax Assessment Tax Assessment Ending balance 31 December Total untaxed reserves Note 35 Contingent liabilities Group SEK thousand (nominal amt) 31 Dec Dec 2011 Warranties - Warranty obligations other Total contingent liabilities Parent Company SEK thousand (nominal amt) 31 Dec Dec 2011 Warranties - Warranty obligations other Total contingent liabilities Note 36 Commitments Group och Parent Company SEK thousand (nom belopp) 31 Dec Dec 2011 Other commitments - Credit and loan commitments Total commitments FOREX Annual report

68 Note 37 Related parties Related party relationships, Group companies PIn 2012 the Parent Company invoiced the subsidiary, X- change in Sweden AB, for management fees totaling SEK 7,500 thousand (10,000), rent for premises totaling SEK 88 thousand (-) and SEK 684,030 thousand (147,442) for delivered currency. During the period, the Parent Company invoiced SEK 72 thousand (72) as reimbursement for a delivered POS system and was charged SEK 91,619 thousand (2,071) for cash and product service commissions by the subsidiary, X-change in Sweden AB. During the period the Parent Company received dividends of SEK 70,000 thousand (-) and Group contributions of SEK 18,600 thousand (-) from the subsidiary, X-change in Sweden AB. In 2011, the Parent Company invoiced interest of SEK 13 thousand to the now liquidated subsidiary, FOREX Sweden International Ltd. During the period, the associated company, Panaxia AB, including its subsidiaries, invoiced the Parent Company SEK 10,847 thousand (5,839) and X-change in Sweden AB SEK 859 thousand (142) for transport costs. The costs for the comparable year only refer to the period starting from the date of the acquisition of Panaxia AB, July 1, 2011, and onward. For other information, please refer to Note 26 and Note 30. Transactions with key management personnel For information about salaries, 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 16,500 thousand (48,000). Dividends are reported as a liability as soon as the dividend has been approved at the Bank s Annual General Meeting. Note 38 Geographic distribution of income Group SEK thousand Sweden Other countries Interest income Dividends received Commission income Net income from financial transactions Other operating income Geographic distribution of total income Parent Company SEK thousand Sweden Other countries Interest income Dividends received Commission income Net income from financial transactions Other operating income Geographic distribution of total income FOREX Bank Annual report 2012

69 Note 39 Financial assets and liabilities Group Financial assets assessed as belonging to this category Held for trading purposes 31 Dec 2012 Financial assets valued Loan receivables and accounts receivable I Held-tomaturity investmentsl Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Holdings for trading purposes Other financial liabilities Total carrying amount Cash Treasury bills eligible as collateral Fair value Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Other shares and participations Other assets Prepaid expenses and at fair value via the income statement accrued income Total financial assets Deposits from the general public Other liabilities Accrued expenses and prepaid income Total financial liabilities FOREX Annual report

70 Financial assets assessed as belonging to this category Held for trading purposes 31 Dec 2011 Financial assets valued Loan receivables and accounts receivable investmentsl I Held-tomaturity Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Holdings for trading purposes Other financial liabilities Total carrying amount Cash Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Other shares and participations Other assets Prepaid expenses and at fair value via the income statement accrued income Total financial assets Deposits from the general public Other liabilities Accrued expenses and prepaid income Total financial liabilities Fair value 70 FOREX Bank Annual report 2012

71 Parent Company Financial assets assessed as belonging to this category Held for trading purposes 31 Dec 2012 Financial assets valued Loan receivables and accounts receivable I Held-tomaturity investmentsl Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Holdings for trading purposes Other financial liabilities Total carrying amount Cash Treasury bills eligible as collateral Fair value Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Other shares and participations Other assets Prepaid expenses and at fair value via the income statement accrued income Total financial assets Deposits from the general public Other liabilities Accrued expenses and prepaid income Total financial liabilities FOREX Annual report

72 Financial assets assessed as belonging to this category Held for trading purposes 31 Dec 2011 Financial assets valued Loan receivables and accounts receivable I Held-tomaturity investmentsl Availablefor-sale financial assets Financial liabilities valued at fair value via the income statement Holdings for trading purposes Other financial liabilities Total carrying amount Cash Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Other shares and participations Other assets Prepaid expenses and at fair value via the income statement accrued income Total financial assets Deposits from the general public Other liabilities Accrued expenses and prepaid income Total financial liabilities Fair value 72 FOREX Bank Annual report 2012

73 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 in 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 in 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 in an active market. 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) Financial instruments that are not quoted in an active market The fair value of loan receivables has been calculated by discounting the value of expected future cash flows. The current lending rate is used as the discount rate. For accounts receivable and accounts payable with a remaining useful life that is less than six months, it is assumed that the carrying amount also reflects the fair value. Customer and accounts payable with maturities in excess of six months are discounted in conjunction with establishing fair value. The fair value of borrowings is calculated using current market rates of interest, holding constant the original credit spread, unless there is clear proof that a change in the Bank s credit rating has resulted in an observable change in the Bank s credit spread. Cash is valued using the closing day rates provided by the Swedish Central Bank (Sveriges Riksbank). The revised IFRS 7 is applied as of January 1, 2009, for financial instruments measured at fair value in the balance FOREX Annual report

74 The following table shows the Bank s assets and liabilities valued at fair value as of December 31, Group SEK thousand Carrying amount Description 31 Dec 2012 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 December 31, Group SEK thousand Carrying amount Description 31 Dec 2011 Level 1 Level 2 Level 3 Financial assets valued at fair value via the income statement - Cash and bank balances held for trading purposes Derivatives held for trading purposes Available-for-sale financial assets Fair value valuation at the end of the period based on: Fair value valuation at the end of the period based on: - Shares and participations Total FOREX Bank Annual report 2012

75 The following table shows the Bank s assets and liabilities valued at fair value as of December 31, Parent Company SEK thousand Carrying amoun Description 31 Dec 2012 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 Fair value valuation at the end of the period based on: 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 December 31, Parent Company SEK thousand Carrying amount Description 31 Dec 2011 Level 1 Level 2 Level 3 Financial assets valued at fair value via the income statement - Cash and bank balances held for trading purposes Derivatives held for trading purposes Available-for-sale financial assets Fair value valuation at the end of the period based on: - Shares and participations Total FOREX Annual report

76 Note 40 Cash flow statement Group Cash and cash equivalents SEK thousand 31 Dec Dec 2011 Cash and cash equivalents is comprised of the following items: Cash Treasury bills eligible as collateral 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 thousand Dividends received 1 1 Interest received Interest paid Parent Company Cash and cash equivalents SEK thousand 31 Dec Dec 2011 Cash and cash equivalents is comprised of the following items: Cash Treasury bills eligible as collateral 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 thousand Dividends received 1 1 Interest received Interest paid FOREX Bank Annual report 2012

77 Note 41 Important estimates and assessments Amortization of loan losses is typically based on an individual assessment of each claim. 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. After a comprehensive assessment of the entire loan portfolio, the Bank believes that the carrying amount for doubtful debts and the verified losses together provide an accurately valued loan portfolio. 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. The budgeted cash flow for 2013 was used for the calculation. For subsequent years, the calculation is based on the assumption that there will be 7 X-change branches left from 2014 onward. This calculation applied a discount rate of 14 percent and an assessed rate of negative growth of up to 1 percent. Based on this calculation, it was determined that the carrying amount for goodwill is justified. On September 5, 2012, Panaxia AB and its subsidiaries filed for bankruptcy. At the time of bankruptcy, client funds that were received but not yet re-reported were in Panaxia s possession for counting, in transit and in bank accounts. These funds were not fully covered by the bankruptcy estate. Therefore, a receivable arose in the FOREX Bank Group to the bankruptcy estate for SEK 176 million. Part of this receivable was held in Panaxia s bookkeeping account with Sparbanken There is currently a consensus that the FOREX Bank Group and the other creditors in bankruptcy have a right of separation to the client funds in the bankruptcy estate and Sparbanken FOREX Bank believes that it has a right of separation to its share, which corresponds to around SEK 42 million. The bankruptcy trustee has confirmed the right of separation and supports this decision with a legal opinion from Professor Mikael Möller in which he takes the position that a right of separation exists since the real separation principle is met. The trustee in Panaxia s bankruptcy announced on March 1, 2013, that payment will occur in the near future for an amount corresponding to 25 percent of the Bank s claim on Panaxia, less any liabilities. Given this background, the Bank believes that the correct way to handle this matter in the annual accounts for 2012 is to reduce the previously reported loss of SEK 176 million by the Bank s share of the remaining separation funds totaling SEK 42 million. Therefore, a reported loss remains in the FOREX Bank Group s accounts for 2012 of SEK 134 million. It is the Bank s assessment that there are no grounds for recovering additional losses from Panaxia s bankruptcy estate. In conjunction with the Bank s plans to relocate the Bank s head office within Stockholm, an external evaluation of the property Cerberus 2, Kornhamnstorg 4 was obtained. This evaluation states that the market price is SEK 80 million. During the holding period, extensive renovations were made to the property and depreciation, amortization and impairment losses were recorded. In conjunction with the 2012 annual accounts and the forthcoming sale of the property, the carrying value of the property was adjusted. The net difference in profit from the reversal of previously reported impairment losses and adjustments to depreciation in accordance with the original plan is SEK 14 million. Carrying value on the property at the end of 2012 was SEK 78 million Note 42 Capital adequacy FOREX Bank aims to have good capital adequacy that exceeds statutory requirements by a comfortable margin. FOREX Bank s own funds consist entirely of core capital. The Bank s risk and capital management is governed by policies that are annually adopted by the Board of Directors and contain guidelines for FOREX Bank s risk profile - Methods for identifying and valuing risks in FOREX Bank s procurement of capital - FOREX Bank s risk management - FOREX Bank s risk reporting 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 adequacy assessment process (ICAAP) is carried out each year when the business plan is updated in order to ensure that the FOREX Annual report

78 risks have been correctly considered and that they reflect FOREX Bank s actual capital requirements. ICAAP also takes into consideration all risk assessments conducted during the year that were compiled in a comprehensive risk map for the Group. The capital need is calculated for the risks in the risk map and for stress tests. During the year assessments are also regularly made regarding whether changes to products, processes, etc., need additional capital under Pillar II. The Bank s statutory 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: Group Capital adequacy on 31 December As per the Capital Adequacy and Large Exposures Act (2006:1371) SEK thousand Risk Credit risk as per the standardized approach weight Exposure with government risk % Volume Risk-weighted amount Capital requirements Percentage Exposure towards credit institutions % % Household exposure % % Non-regulated items % % Other %/100% % Total Credit risk Currency risk % Operational risk: basic indicator Income indicator approach % Total capital requirement Own funds Equity as per the annual accounts Less intangible assets Less deferred tax assets Less the Board s proposed appropriation of profits Total tier 1 capital Total own funds Capital adequacy ratio 1,45 1,72 78 FOREX Bank Annual report 2012

79 Parent Company Capital adequacy on 31 December As per the Capital Adequacy and Large Exposures Act (2006:1371) SEK thousand Risk Credit risk as per the standardized approach weight Exposure with government risk % Volume Risk-weighted amount Capital requirements Procentsats 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 Total capital requirement Own funds Equity as per the annual accounts Untaxed reserves, 78.0/73.7% thereof Less deferred tax assets Less the Board s proposed appropriation of profits Total tier 1 capital Tier 2 capital - - Total own funds Capital adequacy ratio 1,70 1,88 FOREX Annual report

80 SIGNATURES OF THE BOARD OF DIRECTORS Stockholm den 21 februari 2012 Hans Hellquist Katja Elväng Beth Friberg Chairman of the Board Jörgen Holgersson Ingrid Jonasson Blank Olof Söderberg Stefan Zadik Employee representative Magnus Cavalli-Björkman Managing Director We hereby declare that, to the best of our knowledge, the annual report was prepared in accordance with generally accepted accounting standards. The information submitted corresponds to the actual business conditions and no significant items have been omitted that could alter the true and fair picture of 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 The Group s and the Bank s income statement and balance sheet will be brought forth for adoption at the Annual General Meeting. Our audit report was submitted on PricewaterhouseCoopers AB Peter Nilsson Certified Public Accountant Chief Auditor 80 FOREX Bank Annual report 2012

81 REVISIONSBERÄTTELSE To the AGM of FOREX Bank AB CIN: Report on the annual report and consolidated financial statements We audited the annual report and consolidated financial statements for FOREX Bank AB for Responsibility of the Board of Directors and the Managing Director for the annual report and the consolidated financial statements The Board of Directors and the Managing Director are responsible for preparing an annual report that presents a true and fair view in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and consolidated financial statements that present a true and fair view in accordance with the IFRS international financial reporting standards, as adopted by the EU, and the Annual Accounts Act for Credit Institutions and Securities Companies, and for the internal control that the Board of Directors and the Managing Director deem to be necessary to prepare an annual report and consolidated financial statements that are free from material misstatement, whether such are the result of falsifications or errors. Responsibility of the auditors Our responsibility is to express, based on our audit, an opinion on the annual report and consolidated financial statements. We conducted our audit in accordance with the International Standards on Auditing and generally accepted auditing standards in Sweden. These standards require that we apply professional moral requirements and plan and carry out the audit in such a manner as to ensure with reasonable certainty that the annual report and consolidated financial statements are free of material misstatement. An audit entails obtaining through different measures audit evidence regarding amounts and other information in the annual report and consolidated financial statements. The auditor selects which measures shall be carried out, in part by assessing the risks for material misstatements in the annual report and consolidated financial statements, whether such are the result of falsifications or errors. When conducting this risk assessment, the auditor takes into consideration the parts of the internal control that are relevant for how the company prepares its annual report and consolidated financial statements to present a true and fair view with the aim of designing audit measures that are appropriate to the circumstances, but not for the aim of making a statement on the effectiveness of the company s internal control. An audit also includes an evaluation of the appropriateness of the accounting principles that were used and the fairness of the Board s and the Managing Director s estimates in the annual accounts, as well as an evaluation of the overall presentation of the annual report and the consolidated financial statements. We believe that the obtained audit evidence is sufficient and appropriate to serve as a basis for our statements. Statements It is our opinion that the annual report was prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and presents a true and fair view of the Parent Company s financial position as at December 31, 2012, and of its financial results and cash flow for the year in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies, and that the consolidated financial statements were prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and presents in all material respects a true and fair view of the Group s financial position as at December 31, 2012, and its results and cash flow in accordance with the international accounting standards as adopted by the EU and in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies. The statutory administration report is consistent with the other parts of the annual report and the consolidated financial statements. We thereby recommend to the Annual General Meeting to adopt the income statements and balance sheets of the Parent Company and of the Group. Report on other requirements in accordance with laws and other regulations In addition to our audit of the annual report and consolidated financial statements, we also audited the proposed appropriations of the company s profit and the administration of the Board of Directors and the Managing Director of FOREX Bank AB for FOREX Annual report

82 Responsibility of the Managing Director The Board of Directors is responsible for the proposed appropriations of the company s profits, and the Board of Directors and the Managing Director are responsible for the administration of the company in accordance with the Swedish Companies Act. Statements We recommend to the Annual General Meeting to appropriate the profit in accordance with the proposal in the statutory administration report and to grant the members of the Board of Directors and the Managing Director discharge from liability for the financial year. Responsibility of the auditors Our responsibility is to express an opinion with reasonable certainty on the proposed appropriations of the company s profit and the administration of the company based on our audit. We conducted the audit in accordance with generally accepted auditing practices in Sweden. As a basis for our opinion on the Board of Director s proposed appropriations of the company s profit, we audited the Board s explanatory statement and a selection of the documents underlying this statement in order to be able to assess if the proposal is in line with the Swedish Companies Act. As the basis of our statement regarding discharge from liability, in addition to our audit of the annual report and the consolidated financial statements, we also 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 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 the obtained audit evidence is sufficient and appropriate to serve as a basis for our statements. Stockholm, PricewaterhouseCoopers AB Peter Nilsson Certified Public Accountant 82 FOREX Bank Annual report 2012

83 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. The governance of the Bank occurs via a number of bodies. Annual General Meeting The Annual General Meeting of FOREX Bank is responsible for appointing the Board of Directors that will serve until the next Annual General Meeting. The Annual General Meeting also appoints the auditors and term that auditors will serve. Furthermore, the Annual General Meeting 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. Directors The size of the Board of Directors and its composition must be appropriate to the Bank and meet the requirements for its future development. Information about the composition of the Board of Directors is provided in the annual report. For the 2012 financial year, there were seven regular Board members and two deputy Board members. Three of the Board members are women. The Chairman of the Board organizes and heads the work done by the Board. The Chairman is also responsible for making sure that the Board has access to necessary information, for sending out notices of Board meetings and for preparing for the Board meetings, in consultation with the Managing Director. The Board is responsible for appointing/dismissing the Managing Director, who is also the CEO, as well as the Deputy Managing Director (in consultation with the Managing Director). The Board of Directors held 15 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. 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. Audit, Risk and Compliance Committee The Board has appointed a special committee for Audit, Risk and Compliance. The chair 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. Internal audit unit IThe 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. Disclosures on remuneration, other benefits and pensions for the Board of Directors and the Managing Director are provided in Note 10 as well as in disclosures published on FOREX Bank s website. FOREX Annual report

84 LIST OF BRANCHES Forex Bank AB Sweden Arlanda, Sky City Box Arlanda Arlanda, Terminal 2 Box Arlanda Arlanda Terminal 5 Nord Box Arlanda Borås Österlånggatan 48 A Borås Eskilstuna Kriebsensgatan Eskilstuna Gävle Drottninggatan Gävle Gothenburg, Kungsbacka Kungsmässan Kungsbacka Gothenburg, Avenyn Avenyn Göteborg Gothenburg, Angered Angereds Centrum Angered Gothenburg, Central Station Central Station Göteborg Gothenburg, Frölunda torg Frölunda Torg, Västra Frölunda Göteborg Gothenburg, Kungsportsplatsen Östra Larmgatan Göteborg Gothenburg, Nordstan Postg Göteborg Gothenburg, Partille Gamla Kronv Partille Halmstad Storgatan Halmstad Helsingborg, Järnvägsgatan Järnvägsgatan Helsingborg Helsingborg, Knutpunkten level1 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 Kungsbacka Kungsmässan Kungsbacka Kungälv Västra Gatan Kungälv Landvetter Transit Hall Box Göteborg Landvetter International Hall Box Landvetter Linköping Storgatan Linköping Luleå Storgatan Luleå Lund, Bangatan Bangatan Lund Lund, Botulfsplatsen Västra Mårtensgatan Lund Malmö/Arlöv Toftanäs Terminalgatan Malmö/Arlöv Malmö, Central Station Centralstationen, Lokgatan Malmö Malmö, Gustav Adolfs Torg 47 Gustav Adolfs Torg Malmö Malmö, Hamngatan 2 Hamngatan Malmö FOREX Bank Annual report 2012

85 Malmö, Mobila Shopping Center Stadiongatan 3B Malmö Malmö, Point Hylle Hyllie Stationstorg Malmö Malmö, Triangeln Rådmansgatan Malmö Norrköping Drottninggatan Norrköping Skavsta Flplterminalen, Box Nyköping Stockholm, Central Station Centralstation Stockholm Stockholm, Cityterminalen Klarabergsviadukten Stockholm Stockholm, Farsta Centrum Farstagången Farsta Stockholm, Flemmingatan Flemminggatan Stockholm Stockholm, Forum Nacka Forumvägen Nacka Stockholm, Gallerian Hamngatan Stockholm Stockholm, Gamla Stan Kornhamnstorg Stockholm Stockholm, Götgatan Götgatan Stockholm Stockholm, Jakobsberg Tornérplatsen Järfälla Stockholm, Klarabergsgatan Klarabergsgatan Stockholm Stockholm, Kungsgatan Kungsgatan Stockholm Stockholm, Liljeholmen Liljeholmstorgets Galleria Stockholm Stockholm, NK NK Stockholm Stockholm, Ringvägen Ringvägen Stockholm Stockholm, Sickla Köpkvarter Siroccogatan Nacka Stockholm, Skärholmen Storholmsgatan Skärholmen Stockholm, Sollentuna Sollentunavägen Sollentuna Stockholm, Sveavägen Sveavägen Stockholm Stockholm, Södertälje Storgatan Södertälje Stockholm, Tensta Tenstagången Spånga 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, Gränby Centrum Marknadsgatan Uppsala Uppsala, Kungsgatan Kungsgatan Uppsala Västerås, Smedjegatan Smedjegatan Västerås Västerås, Stora gatan Stora gatan Västerås Växjö Västergatan Växjö Ystad, Catamaranterminalen Hamntorget Ystad FOREX Annual report

86 Örebro, Drottninggatan Drottninggatan Örebro Örebro, Marieberg Säljarevägen Örebro Östersund Prästgatan Östersund Finland Esbo Sampotorget, Hagalund FI Esbo Helsinki, Stockmanns Alexandersgatan 52B FI Helsinki Helsinki, Railway Station Järnvägsstationen, Pl 118 FI Helsinki Helsinki, Mikaelsgatan Mikaelsgatan 11 FI Helsingfors Helsinki, Östra Centrum Kauppakeskus Itäkeskus FI Helsinki Jyväskylä Kauppakatu 27 FI Jyväskyla Tammerfors, Rautatienkatu Rautatienkatu 14B FI Tammerfors Tammerfors, Stockmanns Stockmanns, plan 2 FI Tammerfors Uleåborg Kauppurienkatu 13 FI Uleåborg Vanda Stockmanns varuhus, plan 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, Amagerbrogade Amagerbrogade 55 DK-2300 København S Copenhagen, Hovedbanegården Hovedbanegården, butik 18 DK-1570 København V Copenhagen, Hovedbanegårdsp. Hovedbanegårdsp., butik 51 DK-1570 København V Copenhagen, Nørreport Nørre Voldgade 90 DK-1358 København K Copenhagen, Østerbrogade Østerbrogade 19, DK-2100 København Odense Banegårdscentret DK-5000 Odense C Århus Banegårdsplatsen 20 DK-8000 Århus C Norway Bergen, Olav Kyrresgate Olav Kyrresgate 39 N-5014 Bergen Bergen, Strømgaten Strömgaten 4 N-5015 Bergen Drammen Blichsgate 4 N-3044 Drammen Fredrikstad (WU) Storgaten 10 N-1607 Fredrikstad Kristiansand Vestre Strandgate 32 N-4311 Kristiansand Lillestrom Lillest. St., Jonas Lies gt 4 N-2000 Lillestrom Oslo, Brugata Brugata 8 N-0186 Oslo Oslo, Ruseløkkveien (WU) Ruselökkveien 1 N-0162 Oslo FOREX Bank Annual report 2012

87 Oslo, Egertorget Øvre Slottsgate 12 N-0157 Oslo Oslo, Fridtjof Nansens Square Fridtjof Nansens Square 6 N-0186 Oslo Oslo, Karl Johansgate Karl Johansgate 2 N-0154 Oslo Oslo, Scweigaards Gt Scweigaards Gt 6, Galleriet N-0186 Oslo Oslo Central Station - Airport Express T Jernbanetorget 1 N-0157 Oslo Oslo Central Station - Central Hall Jernbanetorget 1 N-0157 Oslo Oslo, Smalgangen Smalgangen 10 N-0188 Olso Olso, Stovner Stovner Senter 3 N-0186 Oslo Oslo, Trygve Liew Plass (WU) Trygve Lies Plass 1 N-0186 Oslo Stavanger, Jernbaneveien Jernbaneveien 3 N-4005 Stavanger Stavanger, Klubbgaten Klubbgaten 1 N-4013 Stavanger Trondheim, Dronningensgate (WU) Dronningensgate 15 N-7407 Trondheim Trondheim, Central Station Sentralstasjon, Fosenkaia 1 N-7010 Trondheim X-change in Sweden AB Sweden Arlanda, Arrival Terminal 2 (arrivals) Arlanda Arlanda, Departure Terminal 5 (departures) Arlanda Arlanda, Departure (new office) Terminal 5 (departure info) Arlanda Gothenburg, Central Station Drottningtorget Göteborg Gothenburg, Kungsportsplatsen Kungsportsplatsen Göteborg Landvetter Landvetter Utrikeshallen Landvetter Malmö, Triangeln Davidshallsgatan 27 A Malmö Stockholm, Central Station Centalstationen,Centralplan Stockholm Stockholm, Kungsgatan Kungsgatan Stockholm Södertälje Södertälje Centralstation Södertälje FOREX Annual report

88 88 FOREX Bank Annual report 2012