SAMPO PANK

COMMENTARY TO FINANCIAL RESULTS



AUDITED BUSINESS RESULTS OF SAMPO BANK GROUP 2000



Balance sheet analysis



At year-end 2000, the Sampo Bank Group had total assets of EEK 4.3 billion,  a

rise  of 23.4 per cent, or EEK 820.0 million, generated largely by an increase

in client deposits and debt securities issued.



Securities and liquid assets



Liquid  assets grew faster than total assets, comprising 38.7 per cent of  the

total  by year-end 2000, compared to 30.1 per cent the prior year. Demand  and

time deposits with other banks rose 56.4 per cent, or EEK 293.7 million, while

claims on the Central Bank increased 56.3 per cent, or EEK 190.2 million.  The

liquidity  buffer  bond portfolio amounted to EEK 272.5  million  at  year-end

2000,  a  gain of EEK 158.5 million, or 138.8 per cent, which mainly  reflects

acquisitions  of  foreign  credit  institution  and  central  government  debt

securities. Total liquid assets increased EEK 618.9 million, or 58.7 per cent,

over the year, amounting to EEK 1.7 billion at year-end 2000.



Group  investments in shares declined in 2000 by 64.9 per cent,  or  EEK  79.4

million, due, largely, to a fall of 65.4 per cent, or EEK 63.8 million, in the

equity investment portfolio.



The  bond  investment portfolio of the Group achieved an increase of 32.8  per

cent,  or EEK 31.8 million. Acquisitions of financial mediator debt securities

comprised   79.1 per cent, or EEK 101.9 million, of the portfolio at  year-end

2000.



Lending



Group  loans to clients represent the largest assets group. At year-end  2000,

the  gross  loan  portfolio accounted for 56.6 per cent  of  interest  earning

assets  (64.5   per cent at year-end 1999) and 52.6 per cent of  total  assets

(55.5 per cent in 1999). The gross loan portfolio had a gain of 17.0 per cent,

or EEK 330.0 million, in 2000 to EEK 2.3 billion.



Outstanding  private company loans totalled EEK 1.9 billion at year-end  2000,

an  increase  of  9.6  per cent, or EEK 163.1 million.  By  economic  sectors,

outstanding  loans  grew fastest in manufacturing and whole  sale  and  retail

trade,  by EEK 199.4 million, or 33.0 per cent, and EEK 42.8 million, or  16.2

per cent, respectively.



Loans to private persons experienced a considerable rise of 53.0 per cent,  or

EEK 116.5 million, to EEK 336.2 million.

At  year-end 2000, the loan portfolio was comprised 82.0 per cent of loans  to

private  companies and 14.8 per cent of loans to private persons. The  leasing

portfolio represented 20.9 per cent of the loan portfolio, increasing  by  EEK

219.8 million, or 86.6 per cent, over the year.



Based  on  loans  outstanding, group credit grants by economic sectors  (incl.

funds  lent to other credit institutions) were largest to the financial sector

(28.6  per cent of total credits), followed by manufacturing (26.1 per  cent),

the  real  estate, rental and financial services sectors (21.6 per cent),  and

wholesale and retail trade (10.0 per cent).



At  year-end  2000, the reserve for possible loan losses represented  4.5  per

cent  of  the  gross loan portfolio, compared to 7.4 per cent in 1999.  During

2000, uncollectible loans were written off at EEK 96.7 million, while EEK 19.5

million  was recovered from the write-offs of previous years. Loan  provisions

made  in  2000 totalled EEK 51.3 million, a decrease of EEK 29.8  million,  or

36.8 per cent, over 1999. The quality of the loan portfolio improved due to  a

fall  in  the  share  of overdue loans, from 3.1 per cent of  the  gross  loan

portfolio  in  1999 to 0.9 per cent by year-end 2000. Overdue loans  comprised

20.9  per  cent of the reserve for possible loan losses in 2000,  compared  to

41.5 per cent at year-end 1999.



Diversification of the loan portfolio improved significantly.  While  clients’

liabilities with high risk concentration represented 173.5 per cent of net own

funds  the prior year, the respective share was only 45.8 per cent at year-end

2000.



Group interest earning assets had a gain of EEK 1.0 billion, or 33.4 per cent.



Other assets



Intangible  assets declined by EEK 107.5 million, explained  largely  by  full

amortisation  of goodwill in 2000. Amortisation of intangible assets  totalled

EEK 110.9 million, with EEK 108.6 relating to the write-off of goodwill.



The  decrease  in tangible assets reflects amortisation as well  as  sales  of

disposable  real estate. Tangible assets declined 21.0 per cent, or  EEK  41.2

million,  over the year. The share of intangible and tangible assets in  group

total  assets fell from 8.8 per cent at year-end 1999 to 3.7 per cent at year-

end 2000.



Funding



The  Group’s  business  is principally funded through  client  deposits,  debt

securities  issued,  and  loans from other banks. In the  year  under  review,

client deposits and debt securities issued rose by EEK 519.0 million, or  35.8

per  cent, and EEK 229.1 million, or 45.2 per cent, respectively, while  loans

from  other  banks  decreased by EEK 248.7 million, or 32.5  per  cent.  Total

interest bearing liabilities increased by EEK 485.2 million, or 16.1 per cent,

amounting to EEK 3.501 billion at year-end 2000.



Group  profit earning possibilities are significantly influenced by the  type,

maturity,  and stability of funds borrowed. Group interest bearing liabilities

were  comprised  56.2  per cent, or EEK 2.0 billion, of client  deposits,  the

largest  funding  source,  21.0  per cent,  or  EEK  735.4  million,  of  debt

securities  issued, 14.7 per cent, or EEK 515.7 million, of loans  from  other

banks and 5.6 per cent, or EEK 194.5 million, of subordinated debts.



Client deposits



Client  deposits  have  achieved highest growth for two years  running.  Group

client deposits total jumped by EEK 519.0 million, or 35.8 per cent, over  the

year, compared to a rise of EEK 590.2 million, or 68.6 per cent, in 1999.



While in 1999 increase mainly resulted from an upswing in demand deposits, the

rise  in 2000 reflects a strong inflow of time deposits. Time deposits  gained

89.2  per cent, or EEK 445.2 million, with demand deposits rising by  7.8  per

cent, or EEK 73.8 million.



The  significant rise in interest rates in the US and Euro areas in 2000 added

attractiveness to long-term saving. Which explains the expressive rise in time

deposits,  a  popular facility in 2000 among individuals as  well  as  private

companies. Growth in deposits was principally generated by time deposits  held

by  individuals and private companies, jumping 116.6 per cent,  or  EEK  200.8

million, and 57.4 per cent, or EEK 150.8 million, respectively, over the year.



Private  company deposits represented the largest weight of 64.0 per  cent  of

the  total in 2000, compared to 75.6 per cent in 1999. The fall in the overall

importance of these deposits (with growth of 15.0 per cent over the  year)  is

explained  by  a  higher  rise of 92.5 per cent in deposits  held  by  private

persons.



Growth  in client current account balances slowed down from EEK 417.2 million,

or  78.1  per  cent,  in 1999 to EEK 73.8 million in 2000,  reflecting  a  hgh

increase in time deposits.



Private person demand deposits gained 51.6 per cent, or EEK 52.3 million,  and

private company demand deposits climbed 1.6 per cent, or EEK 13.3 million.



Of  total deposits, 52.0 per cent, or EEK 1.0 billion, was derived from demand

deposits and 48.0 per cent, or EEK 944.1. million, from time deposits.



Debt securities issued and loans from other banks



During  the year, total debt securities issued by the companies of  the  Group

increased  by  45.2 per cent, or EEK 229.1 million, to EEK 735.4 million.  The

average  remaining  maturity was one year at year-end  2000.  Debt  securities

issued  formed  the  second largest interest bearing liabilities  group  after

client deposits, representing 21.0 per cent of this total at year-end 2000.



Deutsche  Bank  arranged Sampo Bank’s EUR 30 million  issue  of  1-year  bonds

towards  the end of 2000. The coupon rate is the 3-month Euribor +  110  basis

points.



Sampo  Bank  repaid DEM 11.25 million and USD 30 million of previously  issued

debt securities at the beginning of 2000 due to redemption dates.



At year-end 2000, loans from other banks totalled EEK 511.1 million, a decline

of  EEK  210.6 million, or 29.2 per cent, over the year, reflecting expiration

dates and the related regular payments.



Equity restructuring

A  prerequisite  for  the  Sampo Group in carrying out  its  strategic  goals,

meeting  its  clients’  demands  for financial  services,  and  realising  its

development ambitions is sufficient capitalisation. The balance sheet goodwill

total  was  fully written off towards the end of 2000 in line with  an  equity

restructuring  plan  approved by the Supervisory Board  of  Sampo  Bank.  Full

amortisation of goodwill will improve the Bank’s 2001 profitability by EEK  28

million.



The  Extraordinary  Meeting of the Shareholders of the Bank  on  18  December,

2000,  decided  to cover the loss for previous periods by reducing  the  share

capital by EEK 172.4 million and by using the accumulated share premium in the

amount of EEK 60.6 million.



At year-end 2000, group equity stood at EEK 240.4 million, or 5.6 per cent, of

total  assets,  compared to 9.1 per cent in December 1999.  Capital  adequacy,

which  represents sufficiency of bank own funds for covering  banking  related

risks, was 13.4 per cent at the end of the year.





Income Statement analysis



The  Sampo  Bank  Group  reported  a  loss of  EEK  77.0  million,  reflecting

finalisation  of goodwill amortisation in 2000. Group operating profit  before

amortisation of goodwill amounted to EEK 31.7 million in 2000.



Group  return on equity in the year under review was -24.4 percent  (-6.1  per

cent  in 1999) and group return on assets was -2.1 per cent (-0.6 per cent  in

1999).



In 2000, group fees and commissions income achieved highest growth of 27.4 per

cent, or EEK 16.1 million, while foreign exchange income gained 22.1 per cent,

or  EEK  8.2  million,  and interest income rose 9.2 per  cent,  or  EEK  21.2

million.  Group total income in 2000 was EEK 380.9 million, a decline  of  5.1

per  cent  compared  to  the  prior year, owing  to  a  fall  in  income  from

transactions in securities.



Of 2000 total income, 65.7 per cent was derived from interest income, 19.6 per

cent   from  fees  and  commissions,  11.9  per  cent  from  foreign  exchange

transactions,  and 3.6 per cent from other sources. In 2000,  transactions  in

securities resulted in a loss of EEK 3.4 million.



Of  the  Group’s  companies, AS Sampo Liising and AS  Optiva  Kinnisvara  made

highest profits of EEK 9.5 million and EEK 6.0 million, respectively. AS Sampo

Liising  offers  its  clients financing facilities through  traditional  lease

products. AS Optiva Kinnisvara manages the Group’s real estate.



Interest income and expenses



In  2000,  total  interest income of the Sampo Bank Group totalled  EEK  250.4

million,  a rise of 9.2 per cent over the year. Interest income on  loans  and

interest  income on capital and operating leases accounted for 61.4  per  cent

and  18.0  per  cent,  respectively, of earned interest income.  The  rise  in

interest  income mainly resulted from an increase in interest earning  assets.

Average interest earning assets had a gain of 18.1 per cent over the year.  In

2000,  average interest return on interest earning assets was 8.2 per cent,  a

decline  of 0.7 percentage points, reflecting the fall in the average interest

rate in Estonia due to positive developments of the economic environment.



In  2000, interest expenses totalled EEK 126.8 million, a decline of  6.7  per

cent,  explained  by changes in the structure of interest bearing  liabilities

(i.e.  a  rise  in the share of funds payable on demand) and  a  fall  in  the

interest rate paid on funds borrowed. Given that the jump in time deposits and

debt  securities issued only took place toward the end of 2000, the  share  of

demand  deposits  in average interest bearing liabilities was 11.3  percentage

points  higher. Interest paid on demand deposits, thus, rose to 10.9 per  cent

of  interest expenses (from 7.9 per cent in 1999), while the share of interest

paid  on fixed-term funds experienced a decline. Interest expenses on interest

bearing liabilities were 4.5 per cent (compared to 5.1 per cent in 1999).



Net  interest income totalled EEK 123.7 million in 2000, compared to EEK  93.4

million, an increase of 32.4 per cent. In 2000, group interest spread was  3.7

per  cent  and  group interest margin represented 3.4 per cent.  Net  interest

margin after provisions was 2.0 per cent in 2000, compared to 0.3 per cent  in

1999.



Non-interest income



Group  non-interest income totalled EEK 130.5 million in 2000,  a  decline  of

24.2  per  cent, or EEK 41.7 million, over the year, reflecting  smaller  than

1999 income from securities transactions.



In   1999,   the   Group  earned  an  extraordinary  income  from   securities

transactions. Making use of advantageous changes in the market, the Group made

a  prior repurchase of issued debt securities at a profit. In 2000, the short-

term  securities investment and trading portfolio yielded a profit of EEK  6.1

million  (EEK 45.5 million in 1999), while the long-term investment  portfolio

produced a loss of EEK 9.1 million (compared to a profit of EEK 3.5 million in

1999).



The  non-interest income structure of the Group experienced a rise  in  income

from traditional banking businesses. In 2000, fees and commissions income  and

foreign  exchange income represented the biggest shares of 57.2 per  cent  and

34.8  per cent, respectively, of total non-interest income (compared  to  34.0

per  cent  and  21.6 per cent in 1999). In the year under review,  these  non-

interest  income sources also produced highest growth rates of 27.4  per  cent

and  22.1  per cent, respectively. Income growth was generated by  a  rise  in

clients’ business activity as well as by an increase in the number of  clients

and their banking operations.



Non-interest expenses



Group non-interest expenses grew in line with increasing business volumes.  In

2000, non-interest expenses rose 9.6 per cent to EEK 14.4 million.



Fees  and  commissions expenses increased EEK 5.7 million, or 38.0  per  cent,

over the year, reflecting a rise in clients’ operations.



Group operating expenses increased 6.4 per cent, or EEK 8.6 million, over  the

year.  Personnel  expenses, including salaries, bonuses, fringe  benefits  and

social  security  payments,  totalled EEK 74.2  million  and  represented  the

biggest share in group non-interest expenses in 2000. Group personnel expenses

were 6.8 per cent, or EEK 4.7 million, higher than the prior year.

The  largest expense items in other administrative expenses were communication

and data processing expenses (comprising 32.6 per cent of this total) and room

rent  and administration expenses (23.8 per cent of this total). Communication

and  data processing expenses increased EEK 2.3 million, or 14.0 per cent, and

room  rent and administration expenses grew EEK 2.5 million, or 22.5 per cent,

over the year.





Ruth Laidvee

Turukommunikatsiooni direktor

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