Van Lanschot NV
Annual General Meeting of Shareholders
‘s-Hertogenbosch, 8 May 2008 Item 2a
Report of the Board of Managing Directors for 2007
1 Van Lanschot’s strategy (I)
Distinct positioning Real alternative to the large banks Independence is our distinguishing feature Full-service niche bank Large enough to provide full-service concept to target groups Small enough to ensure genuine personal service Client intimacy The client is key, also in terms of client due diligence Best in class products / full open architecture Private Banking Wealthy private individuals Business Banking Enterprises and entrepreneurs - combined Aligned to private banking
2 Van Lanschot’s strategy (II)
- Objective: to be the best private bank in the Netherlands and Belgium
- Increased focus on asset management and advice for the higher segments
- Specialist teams offering tailor-made solutions
- Emphasis on asset planning
- Deliberate choice for a low risk profile
3 Van Lanschot’s strategy (III)
- The statutory client due diligence requirements demand a great deal from the organisation
- A strict and systematic approach is necessary
- The Board of Managing Directors enforces the importance of risk management and client due diligence in the form of objectives and behaviour
4 Financial targets
2007 Target Growth in EPS (%) 8.4 >10 Growth in income (%) 28.6 >5 Efficiency ratio (%) (1) 64.0 50 – 60 Return on shareholders’ funds (%) 16.9 18.0* BIS total capital ratio (%) 12.0 12.5 BIS Tier I ratio (%) 9.0 9.5 BIS Core Tier I ratio (%) 6.7 7.5 Credit rating A A
(1) Excluding the amortisation of intangible assets arising on the acquisition of Kempen & Co, the efficiency ratio was 61.9%
* On average
5 Net profit
Net profit for 2007 rises 16.7% to € 215.4 million
215,369 CAGR 17.7% 184,488
152,398
119,400 106,664 97,576 90,008 80,759
62,443 49,583
1998 1999 2000**2001** 2002 2003 2004* 2005 2006 2007
* Excluding effects of the acquisition of CenE Bankiers **Excluding extraordinary income
Net profit 1998 – 2007 (€ million)
6 Return on shareholders’ funds
Target: average 18%
17.4 17.0 16.9 16.4 16.1 16.3 15.6 15.7 14.9
13.1
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Return on shareholders’ funds 1998 – 2007 (%)
7 Earnings per share
8.4% growth in EPS in 2007
5.94 Average number of CAGR 14.7% 5.48 outstanding shares +7.9% due to the acquisition of 4.65 Kempen 4.11 3.66 3.33 3.00 2.71
2.12 1.73
1998 1999 2000 2001 2002 2003 2004* 2005 2006 2007
* Excluding effects of the acquisition of CenE Bankiers
Earnings per share 1998 – 2007 (€)
8 Dividend per share
Amount available to shareholders in 2007 € 6.04
3.00 CAGR 15.2% 2.75 Proposed dividend of 2.50 € 3.00 per share (+9.1%)
2.11 1.83 Pay-out ratio: 49.7% 1.63 1.50 1.35
0.94 0.84
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Dividend per share 1998 – 2007 (€)
9 76
Van Lanschot: total return for shareholders (price increase74 + dividend) in 2007 of 6%
72
70
68
66
64 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC VAN LANSCHOT Source: DATASTREAM
10 120
Share110 price Van Lanschot vs SNS, ING and Fortis, January 2007 – to date 100
90
80
70
60
50
40 JFMAMJJ ASONDJFMAM Van Lanschot Bankiers Fortis SNS Reaal ING Groep Source: DATASTREAM
11 160
Van140 Lanschot vs Julius Baer, Vontobel, Credit Suisse and UBS, January 2007 – to date
120
100
80
60
40
20 JFMAMJJ ASONDJFMAM Van Lanschot Bankiers Credit Suisse Julius Baer UBS Vontobel Source: DATASTREAM
12 Annual profit for 2007 climbs 16.7%
- Strong growth in clients and funds entrusted continues
- Income from operating activities rose 28.6% to € 648.0 million in particular thanks to substantially higher commission income
- Net profit up 16.7% to € 215.4 million
- Earnings per share € 5.94, an increase of 8.4%
- Proposed dividend of € 3.00, an increase of 9.1%
13 Net profit for 2007
H2: Gain on sale of Assurantiën of € 20.8 million 113.8 Kempen had an excellent H1 20.8 thanks to the positive stock markets and the Gain on sale performance fees received. Net profit The negative sentiment on the equity markets in H2 led 101.6 93.0 to fewer securities transactions
H1 2007 H2 2007
Net profit for 2007 (€ million)
14 Kempen & Co
- Acquisition of Kempen & Co reinforces private banking profile – Van Lanschot Kempen – Kempen Capital Management - Investment expertise of Kempen used to offer clients a wider range of products and services
- Kempen is specialist in European property and European small and midcap equities; new funds were introduced in 2007: - Kempen Property Hedge Fund - Orange Global High Dividend Fund - Orange European Participations
- Kempen Capital Management positioning itself as asset manager for Dutch institutional parties
15 Van Lanschot capitalises on consolidation battle
Private banking strategy and takeover battle in the Dutch 7.1 financial sector in 2007 led to substantial inflow of new clients and funds entrusted
4.0 Savings accounts and deposits of private clients 3.3 +77.5% to € 7.1 billion 2.4 2.2 Assets under discretionary management for private clients +10.5% to € 6.3 billion 2003 2004 2005 2006 2007 Number of private clients increased by 7.2%
Savings accounts and deposits of private clients 2003 – 2007 (x € billion)
16 Assets under Management and funds entrusted
14.6 29.9 28.1
4.8 11.4 4.4
5.8 5.1 9.8 Funds entrusted: In-house funds private c lients 6.6 Funds entrusted: Institutions corporate
19.3 18.6 Private c lients
4.8 4.8
2006 2007 2006 2007
Total assets under management (x € billion) Funds entrusted (x € billion)
17 Assets under Discretionary Management
15.4 14.7 0.3 1.0 4.8 4.4
In-house funds
4.9 4.0 Institutions 15.4 14.7
Private c lients
5.7 6.3
2006 2007 1-1-2007 Net new Market 31-12-2007 assets performance
Assets under discretionary management Development in 2007 (x € billion) (x € billion)
18 Low risk profile
- Deliberate choice for low risk profile; in line with profile of a private bank
- No direct or indirect investments in subprime sector, no CDOs, no SIVs
- High-quality loans portfolio
- Loans almost exclusively provided to Dutch companies and Dutch and Belgian wealthy private individuals
- No loans to hedge funds
- 138.6% of non-performing loans covered by provision for impairments
- Lending on the interbank market to parties with at least a Single A rating; no loans to independent investment banks
19 Solid liquidity position
Funding ratio in 2007 up from 77.4% to 91.2% 95 Target: further growth in 90 funding ratio in 2008
€ 1.5 billion RMBS 85 securitisation in H1 2007
80 Repayment of € 1 billion in Floating Rate Notes in 2008: - Early repayment of € 600 75 million FRN 2012 - No refinancing of 70 € 400 million FRN 2008 31-12-03 31-12-04 31-12-05 31-12-06 31-12-07
Funding ratio 2003 – 2007 (%)
20 Segment analysis
9% Other activities 25% 11% Corporate Finance and Securities 10% 26% Business Banking
19% Asset Management 17% 12% Private Banking
34% 37%
2006 2007
Operating profit before tax by segment
21 Solid financial position
-- BIS total capital ratio 12.0% 16 (target 12.5%) 14 -- BIS Tier I ratio 9.0% (target 9.5%) 12 -- BIS core Tier I ratio 6.7%
10 (target 7.5%)
8 Basel II: standardised
6 approach per 1-1-2008
4 Risk weighted assets +16.2% to € 13.6 billion 2
0 Return on shareholders’ 2003 2004 2005 2006 2007 funds 16.9% (target average 18%)
Capital ratios 2003 – 2007 (%)
22 Developments in Q1 2008 (I)
- Consolidation battle in the Netherlands provides opportunities for attracting new clients and new private bankers
- Inflow of new clients continued in the first three months of 2008
- Inflow of funds entrusted continues, albeit at a slightly slower pace than last year
- Further increase in funding ratio and capital ratios
23 Developments in Q1 2008 (II)
- Financial markets are still continuing to feel the impact of the credit and confidence crisis
- The unrest on the financial markets is putting pressure on commission income; in the first three months of 2008, commission income lagged strongly behind last year
24 Developments in Q1 2008 (III)
- Interest margins recover slightly, mainly on the asset side
- On the liabilities side, growth in funds entrusted continues, despite fiercer competition
- Impact on profit of improved interest margins will be noticeable with some delay
- In the Netherlands, the bank grants mortgages only as a customised product and to its own clients
25 Outlook for 2008
- Based on the results for the first three months of the year, the bank expects earnings per share for 2008 to be lower compared with that for 2007
- The final amount of earnings per share will depend in part on when the sentiment on the stock markets returns to normal
26 The bank continues to invest (I)
IT project - 2008 is the year for testing and training - 2009 will see the roll-out of the core banking system - The new IT system will free up more time to be spent serving clients - Progress is satisfactory - Less satisfactory are the obstacles encountered within the IT department – reason to upgrade the quality of IT expertise by outsourcing a major part of the IT activities
27 The bank continues to invest (II)
Investing in the recruitment, training and retention of quality employees
- Dedicated recruitment campaign in recent months has led to a large number of experienced and expert private bankers joining the bank
- Successful introduction of employee share plan – 34% of workforce have participated in the plan
- Training budget increased further
28 Van Lanschot NV
Annual General Meeting of Shareholders
‘s-Hertogenbosch, 8 May 2008 Earnings per share / Amount available to shareholders
(in millions of euros) 2007 Net profit 215.4 Interest on Perpetual loan -10.7 Net profit for calculation of EPS 204.7 Average number of ordinary shares (x1,000) 34,422 Earnings per share €5.94
Net profit 215.4
Interest on Perpetual loan -10.7
Net effect of amortisation of acquired surplus 3.4
Net profit available to shareholders 208.1
Average number of ordinary shares (x1,000) 34,422
Amount available to shareholders €6.04
Dividend of € 3.00 compared with amount available to shareholders of € 6.04 represents a pay-out ratio of 49.7%
30 Van Lanschot NV
Annual General Meeting of Shareholders
‘s-Hertogenbosch, 8 May 2008 Item 7
Remuneration policy for members of the Board of Managing Directors
32 Director remuneration package
In putting together the remuneration package for the Board of Managing Directors in 2004, the aim was to create a package that: - “Is balanced in composition
- Measures up to remuneration packages offered by financial enterprises and businesses of similar size and market positioning
The nature of the remuneration packages is meant to: - Encourage the Board of Managing Directors to allocate Van Lanschot’s capital as efficiently as possible - Support optimal profit growth in the long term - Avoid chasing the highest possible profit in the short term without regard for the long term”
The methodology is found to be satisfactory. The remuneration package has been adjusted in some respects to become more in line with market and comply with the recommendations of the Corporate Governance Code Monitoring Committee (chaired by Professor Frijns).
33 Director remuneration package
Base salaries are revised twice a year based on: - Development and performance of the Company - Development and performance of the Managing Director - Remuneration trends in the Dutch banking sector - Developments in the CPI index
Short-term variable benefits are based on: - The budgeted RAROC rate - Individual short-term targets Long-term variable benefits are linked to the average increase in earnings per share (EPS) for a three-year period and are comprised of the conditional award of: - Performance shares (50%) - Performance options (50%) Pension contributions are defined. A final-pay scheme was offered until 2004. From that year onwards, the defined contribution plan has been in operation.
34 Remuneration package 2004 to 2008 (short-term benefits)
Short-term variable benefits are based on the defined RAROC target rate: - RAROC more than 0.5% below target: no benefits - RAROC less than 0.5% below target: 20% of base salary - RAROC between target and 0.5% above target: 40% of base salary - RAROC more than 0.5% above target: 60% of base salary
Short-term variable benefits that are linked to individual targets are based on the extent to which predefined targets have been achieved. Partial achievement of targets results in proportionate benefits. - Performance at target: 10% of base salary - Exceptional performance relative to target: up to 15% of base salary
2005 2006 2007
Difference with 0.6% -0.4% 0.5% RAROC target
Benefit 60% 20% 60%
35 Remuneration package 2004 to 2008 (long-term benefits)
The target used for calculating long-term variable benefits is an average increase in EPS by 10% per year for a three-year period. If EPS rises by less than 5%, no benefits are awarded. A sliding scale applies to increases above 5%.
Performance at target results in a benefit corresponding with 40% of a managing director’s base salary. The maximum benefit is 60% of the base salary.
The rates applicable to the Chairman of the Board of Managing Directors are 50% and 75% respectively.
Developments in earnings per share (EPS)
6
5 2004 2005 2006 2007
4 10% target relative to 3.96 4.36 4.8 5.28 2004 3 10% target relative to 2004 EPS achievement EPS achievement 3.96 4.55 5.38 5.85 2 Average increase in 14.9% 16.6% 13.9% 1 EPS since 2004
0 2004 2005 2006 2007
36 Competitiveness of remuneration package
Towers Perrin conducted a benchmark study in 2007 involving:
- Base salaries - Short-term variable benefits - Long-term variable benefits
A proposal to amend the remuneration package was drafted based on the outcome of the benchmark
37 Competitiveness of remuneration package (benchmark)
Van Lanschot Labour market peer group ABN AMRO BU NL ABN AMRO N.V. ING Retail Banking Fortis Bank Retail Banking Fortis Bank Merchant Banking Rabobank Nederland NIBC SNS Bank Friesland Bank KAS Bank Oyens en van Eeghen UBS NL Petercam Citibank NL Deutsche Bank NL Delta Lloyd Fortis ASR Nedeland Nationale Nederlanden (ING) Onderlinge 's Gravenhage SNS Reaal
38 Findings from benchmark study
Chairman: current total direct compensation is between the 25th percentile and median market level. Both base salary and variable benefits are below median level.
Members of the Board of Managing Directors: current total direct compensation is above median level, both where base salary and variable benefits are concerned. Member of Board of Managing Directors (Mr Sevinga): current total direct compensation is below median market level. This also applies to all remuneration components separately.
Member of Board of Managing Directors (Mr Idzerda): position not separately benchmarked.
39 Interpretation and adjustments (general)
Labour market benchmarks are based on peer groups.
The members of the Board of Managing Directors are benchmarked against the median; the Chairman is benchmarked against the Q3 of the labour market peer group.
A benchmark study is conducted every two years to review whether the remuneration package requires revision.
The point of departure is that all members of the Board of Managing Directors are put on a par.
Discretionary room in short-term variable benefits is on the increase.
There will be an option for awarding a discretionary bonus of up to 25% of the base salary for short-term performance, to be applied exclusively in highly exceptional circumstances (to be established by the Supervisory Board, on the recommendation of the Remuneration Committee).
Long-term variable benefits are paid exclusively in the form of performance shares. Performance options have been abolished.
The calculation cycle for average EPS will continue to be three years. The lock-up period will remain unchanged at five years.
The proposed salary changes will take retroactive effect from 1 January 2008, subject to the approval of the Annual General Meeting.
40 Adjustments to base components
Base salary component from:to: Chairman Deckers € 500,000 € 550,000 Sevinga € 325,000 € 330,000 Loven, Zwart € 310,000 € 330,000 Idzerda (to 1-10-2008) € 340,000 € 340,000
Pension contributions from:to: basic/disability cover basic/disability cover Chairman 23.6%/3.2% 27%/3.33% Members 27%/3.33% 27%/ 3.33%
The members of the Board of Managing Directors self-administer their pensions
41 Adjustments to variable components
Short-term variable component from:to: at target/maximum at target/maximum Chairman 50%/75% 75%/100% Members 50%/75% 50%/75%
Ratio Individual vs. RAROC 20/80 40/60
Discretionary element: up to 25% of base salary
Long-term variable component from:to: at target/maximum at target/maximum Chairman 50%/75% 100%/125% Members 40%/60% 50%/75% (Sevinga 75%/100%)
42 Adjustments to base and variable components (financial impact in 2008 at target)
from:to:
Salaries € 1,700,000 € 1,795,000
Short-term variable benefits € 850,000 € 1,035,000
Long-term variable benefits € 730,000 € 1,170,000
Pension contributions + disability € 480,625 € 542,377 ______
Total € 3,760,625 € 4,542,377
43 Van Lanschot NV
Annual General Meeting of Shareholders
‘s-Hertogenbosch, 8 May 2008