Alternative performance measures

Alternative Performance Measures (APM) are financial measures of historical or future financial performance, financial position or cash flows, other than a financial measure defined or specified in the applicable financial framework IFRS (International Financial Reporting Standards) or current capital adequacy rules.

Management believes that inclusion of these measures provides information to the readers that enable comparability between periods and they facilitate both management and analysts in the analysis and evaluation of the Group and its development.

The use and defintions of the different measures, together with a total reconciliation, are provided below. Other companies can define or calculate these measures in different ways. The Group’s definitions remain unchanged compared with prior periods.

To increase transparency, management has chosen to also show the underlying measures, this so that calculation and reconciliation can be done in a good way.

Since the Group comprises both banking and insurance operations, we follow interest income minus interest expense, operating expenses and operating income and expenses before credit losses for the banking operations separately (meaning excluding Insurance) to provide better understanding of the earnings generation in the banking operations.

The Group also evaluate the operation in relation to average equity excluding intangible assets, which comprises adjusted equity that is reduced by goodwill and other intangible assets. This measure is used to evaluate the use of equity. Further the Group also evaluate the operation with this measures by excluding nonrecurring costs and other nonrecurring items like shareholder contribution, when applicable.

To be able to see the actual increase in Lending to the public the Group follow increases in local currency by excluding exchange rate differences in the measure Lending to the public.

One of the Group’s financial target is that the Common Equity Tier 1 ratio should exceed 12.5%. In order to evaluate and compare the operations in the consolidated situation, alternative performance measures have been developed where the Common Equity Tier 1 ratio has been estimated to the lowest level of 12.5%.

Performance measures

Term Definition
Capital base  The sum of Tier 1 capital and Tier 2 capital.
Common Equity Tier 1 ratio, % Common Tier 1 capital in relation to risk-weighted amount as per the Swedish Financial Supervisory Authority’s directive; see Note G4.
Lending to the public Total lending to the public less reserves for expected credit losses.
Tier 1 capital The sum of Common Equity Tier 1 capital and other Tier 1 capital.
Tier 2 capital Mainly subordinated loans that cannot be counted as Tier 1 capital.

Alternative performance measures

Term Definition
C/I before credit losses, % Expenses before credit losses in relation to operating income.
C/I before credit losses (excl. Insurance), % Expenses before credit losses exclusive of the Insurance segment in relation to operating income exclusive of the Insurance segment.
Credit loss ratio, % Net credit losses in relation to the average balance of loans to the public.
Lending to the public, excl. exchange rate differences Total lending to the public in local currency, excl. exchange rate differences.
NBI margin, % Operating income exclusive of the Insurance segment in relation to the average balance of loans to the public.
Net interest income/expense (excl. Insurance) Interest income less interest expenses less interest income and expenses Insurance segment.
NIM, % Interest income less interest expense exclusive of the Insurance segment in relation to the average balance of loans to the public.
Nonrecurring costs Items deemed to be of a one-off nature, meaning individual transactions that are not a part of normal business activities. To facilitate the comparison of profit between periods, items are identified and cognized separately since they are considered to reduce comparability.
Operating income (excl. Insurance) Operating income less operating income Insurance segment.
Return on equity excl. intangible assets, (RoTE), % Net profit for the period as a percentage of average equity less intangible assets.
Return on equity excl. intangible assets, given 12.5% Common Equity Tier 1 ratio (RoTE), % Net profit for the period as a percentage of average equity less intangible assets when the Common Equity Tier 1 ratio level is 12.5%.
Risk adjusted NBI margin, % NBI margin adjusted for credit loss ratio.