Report of the Managing Board RESULTS The net profit for 2002 was 38.6 million, which was therefore 9.2 million higher than in 2001, when a net profit of 29.4 million was recorded. This growth was largely attributable to higher net interest income and lower transfers to provisions. In the year under review, net interest income including commission income was 4.0 million higher than net interest income for 2001, which was due to a larger average portfolio in 2002 relative to 2001. At 21.3 million, operating expenses were 1.3 million higher than in 2001, which was mainly due to the increase in other operating expenses by 1.0 million. Personnel costs and other administrative expenses rose by just 0.2 million, in spite of substantial pay and price growth during the preceding year. The decline in the number of personnel and more intensive cost control made a substantial contribution to this result. In the wake of less favourable economic conditions, and the effect that this has had on the real estate market, the portfolio declined in 2002. On a number of occasions, FGH Bank was confronted with continuity problems of some of its customers. At 17.1 million, the tax charge was significantly higher than for 2001 as a result of an improved operating result relative to 2001, when the tax charge was 14.1 million. The loan portfolio fell by 68 million (-1.5%) to 4.406 billion, compared with growth of 11.7% in 2001. Including renewals/extensions of facilities, new lending was just over 1.2 billion, compared with 1.7 billion in 2001. The volume of repayments (including renewals/extensions) was virtually unchanged in 2002 (2001: 1.3 billion). Shareholders' equity, expressed as a percentage of risk- weighted assets (BIS ratio), was 11.4% at the end of 2002 (2001: 11.5%). OUTLOOK ECONOMIC TRENDS 2002 was a difficult year for the global economy, and the Dutch economy was no exception to this trend. Prices fell sharply on the stock markets and exports and business investment declined. The fact that economic growth was recorded in spite of this was therefore mainly due to the continued growth in consumer spending. Against a background of falling purchasing power, rising unemployment and cuts in government expenditure, it remains to be seen whether consumption will again be the driving force behind the economy in 2003. In 2002, consumer prices rose sharply relative to prices in other European countries. Nevertheless, inflation has fallen and an economy, which has cooled down, will allow inflation to fall further. Inflation is expected to be about 2.5% for 2002. The weakening of its competitiveness is a major cause for concern for the Dutch economy. Unit costs are high relative to other countries and a reduction in these costs will contribute to an economic recovery. In 2003 FGH Bank expects to see a slight improvement in the economy relative to 2002. The much-hoped-for economic recovery will probably take some time to materialize. OFFICE MARKET Supply in the office market increased rapidly, while the demand for office space contracted. The rapid increase in supply is due to two self-reinforcing factors. First, a large number of speculative developments were under construction in 2002. Secondly, many companies in the ICT sector, and to a lesser extent, companies from the financial and other commercial services sectors, have leased too much space over the last few years in anticipation of growth. A large proportion of this space is now being offered for subletting. A third factor is that the high levels of take-up in previous years often represented demand for replacement space. Owing to the fact that virtually no new speculative developments were started in 2002, the increase in supply has gradually levelled off. Due to the increase in the supply of space on the market, average rents have fallen slightly and incentives are increasingly being offered on leases. The office market responds to economic trends with a time lag and therefore FGH Bank is not expecting a strong recovery in the take-up of office space for the time being. Since there is less speculative development under construction, supply could stabilize in 2003. The amount of space on the market is placing rents under slight downward pressure. RETAIL MARKET In spite of the weakening of economic conditions, the retail market continued to grow slowly in 2002, but the differentials between locations have been widening. In A1 locations, where the retail chains are still competing for space, there is a shortage of high-quality space and rents are still growing slowly. Elsewhere in town centres, for example, in the B locations and the approach routes, there is evidence of an increase in supply. The increase in scale in edge-of- town locations is continuing, but even here there are signs of an increase in supply. Over the next few years, quality and size of the various locations will increasingly determine the likelihood of their survival. FGH Bank expects consumers to become more cautious in 2003. The main reasons for this are falling purchasing power, an increase in unemployment and the decline in wealth of private investors. There are challenging times ahead for retail sales growth.

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Jaarverslagen Friesch-Groningsche Hypotheekbank / FGH Bank | 2002 | | pagina 9