Vestjysk Bank Reason: Company Event

Equity Research - 31 January 2021 21:48 CET

Vestjysk Bank Reason: Company event

DJS merger to boost 2022e EPS by 30% Company sponsored research

 Shareholder friendly merger with DJS has been finalised Not rated Environ. Social. Govern.  We see a 2022 RONAV of 11.4%; DPS yield of 8.7% ABGSC ESG weight 10% 30% 60%  Trading at a 2022e adj. P/E of 5.9x, P/NAV 21e of 0.7x Estimate changes (%) Shareholders rewarded with merger; cost-cutting has begun 2020e 2021e 2022e On 26 November, Vestjysk Bank (VB) announced a merger with Den Total income 0% 130% 77% Jyske Sparekasse (DJS). The merger is shareholder friendly, in our view, Operating costs 3% 112% 69% because it puts a much higher price on the DJS shares (DKK 122.7, P/B Operating profit -4% 146% 78% of 0.72x, P/E ’21e of 12x) than the market was willing to pay (DKK 88 EPS Adj 0% 17% 30% last closing price before the merger), while Vestjysk Bank receives a Source: ABG Sundal Collier 30% boost to 2022e adj. EPS. The merger was finalised on 13 January and a 10% FTE reduction has already been announced. We estimate a Share price (DKK) 29/01/2021 2.7 ROE for the new bank of 11.7% in 2022 (RONAV 11.4%), well above the Fair value range (per share) na new company target of above 9%. We see a 2021 dividend yield of 5.7% (25% payout) increasing to 8.7% in 2022e (50% payout). Financials, Denmark VJBA.CO/VJBA DC Many moving parts and strong capital generation We factor in DKK 135m cost synergies harvested by 2022, making up MCap (DKKm) 3,270 around half of the 78% boost we expect to Vestjysk’s 2022 PTP from the MCap (EURm) 440 merger. In this report, we examine the moving parts of the merger that include CET1 (see overview page 6). We expect the new bank to start with a reported 15.9% CET1 in Q1’21 but believe it could climb sharply No. of shares (m) 1,234 up to 18.7% by the end of 2021 vs. the company target of 14.5%. VB can Free float (%) 100 grow its CET1 ratio by up to 230bp per year before distributions. In our Av. daily volume (k) 23 view, the new bank could see 12% exposure to milk producers and pork farmers but also a large write-down account of DKK 3.3bn to cover agri- Next event Q4 report: 23 Feb risk, COVID-19 effects, Brexit etc. Q4’20e is for the old Vestjysk Bank Performance only, and here we expect moderate loan losses of DKK 10m, NII up 2% q-o-q despite flat lending, while commission down 11% y-o-y could be 5.00 4.50 the main driver for profit before loan losses down 14% y-o-y. 4.00

3.50 Consolidation focus could continue to support the share 3.00

Our estimate for 2022 adj. EPS is up 30% due to the merger with DJS 2.50 (see page 3). This leads to VB trading at a 2022e adj. P/E of 5.9x and a 2.00 0.7x 2021e NAV for a 2022e RONAV above 11%. We believe market 1.50 18 19 20 18 19 20 18 19 20 18 19 20 18 19 20 18 19 20

focus on further consolidation (Arbejdernes Landsbank with 32.4% Jul Jul Jul Jan Jan Jan Mar Mar Mar Nov Nov Nov Sep Sep Sep ownership in the new bank) could support the share. May Vestjysk Bank May OMX CPGN PIMay 1m 3m 12m Analyst(s): [email protected], +45 35 46 30 18 Absolute (%) -5.9 -4.0 -18.2 Source: FactSet DKKm 2018 2019 2020e 2021e 2022e Total Income 909 1,055 864 1,977 1,538 Total operating costs -481 -508 -516 -1,071 -861 2020e 2021e 2022e Operating profit 242 483 335 831 632 P/E Adj (x) 7.7 7.0 5.9 EPS Adj 0.23 0.36 0.35 0.38 0.45 EPS adj growth (%) -4.8 9.7 17.5 BVPS 2.63 3.13 3.46 3.78 4.08 P/BV (x) 0.77 0.70 0.65 NAVPS 2.63 3.13 3.46 3.78 4.07 BVPS growth (%) 10.6 9.4 7.8 DPS 0 0 0 0.15 0.23 P/NAV (x) 0.77 0.70 0.65 Total income growth (%) -3.8 16.1 -18.1 128.7 -22.2 NAVPS growth (%) 10.6 9.3 7.8 Total.op.costs (%) 4.6 -5.8 -1.4 -107.6 19.6 Dividend yield (%) 0 5.7 8.7 Op.profit growth (%) 41.5 99.4 -30.6 148.4 -23.9 ROE (%) 10.5 16.5 11.7 C/I (%) 54.0 56.3 58.7 59.8 56.7 RONAV (%) 10.5 10.3 11.4 Loan losses (%) 1.60 0.59 0.14 0.77 0.26 CET1 ratio (%) 21.2 18.7 19.5 Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

Please refer to important disclosures at the end of this report This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II Vestjysk Bank

Opportunities Risks A significant drop in loan loss provisions due to improved Regulatory risks and credit risk are the biggest risks in the agri conditions has boosted net profits for Vestjysk in Vestjysk investment case. New regulations such as Basel recent years, and if this continues, Vestjysk could return to IV, MREL and IFRS 9 will be implemented over the coming announcing dividends for 2021. Vestjysk was years. As cattle farming and pig farming represents ~12% recapitalisedby a group of investors in 2017 while EU of Vestjysk’s total lending exposure, the future restrictions were removed in April 2019. In November 2020, development in dairy prices and pig prices also present a Vestjysk merged with Den Jyske Sparekasse, leading to a high risk for the bank. large synergy potential in the bank.

Net interest income & Net interest margin Costs (excl. one-offs) & Cost/Income ratio

1,000 3.50% 1,000 62.00% 900 900 3.00% 60.00% 800 800 58.00% 2.50% 700 700 56.00% 600 600 2.00% 54.00% 500 500 52.00% 400 1.50% 400 50.00% 300 1.00% 300 200 200 48.00% 0.50% 100 100 46.00% 0 0.00% 0 44.00% 2016 2017 2018 2019 2020e 2021e 2022e 2016 2017 2018 2019 2020e 2021e 2022e Net interest income Costs (excl. one-offs) Net interest margin R.H.S Cost/Income ratio R.H.S

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data Loan losses, net & Loan losses level, yearly Operating profit (excl. one-offs) & Growth y-o-y

450 3.50% 700 120.0% 400 3.00% 600 100.0% 350 2.50% 500 300 80.0% 250 2.00% 400 60.0% 200 1.50% 300 150 40.0% 1.00% 200 100 20.0% 50 0.50% 100 0 0.00% 0 0.0% 2016 2017 2018 2019 2020e 2021e 2022e 2016 2017 2018 2019 2020e 2021e 2022e Loan losses net Operating profit (excl. one-offs) Loan losses level(%) R.H.S Growth y-o-y R.H.S

Source: ABG Sundal Collier, FactSet Source: ABG Sundal Collier, FactSet EPS estimate changes, 2020e, DKK Company description 0.37 Vestjysk bank has a market share in Denmark of ~2% after 0.36 the merger with Den Jyske Sparekasse. Lending exposure 0.35 is concentrated in Jutland while the branch network 0.34 stretches from the west coast over the middle of Jutland to 0.33 the east and south. The bank has ~670 employees. 0.32 Exposure is tilted towards agriculture but this has now been 0.31 reduced to around 15% of lending and guarantees. 0.30 0.29 0.28 0.27 0.26

Jul-20 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 ABGSC FactSet Consensus Mean

Source: ABG Sundal Collier, Company data

31 January 2021 ABG Sundal Collier 2 Vestjysk Bank

Estimates changes Our estimate for 2022 adj. EPS is up by 30% with the 78% increase in our 2022 estimated net profit countered by the number of shares in Vestjysk Bank increasing from 896m to 1,234m because of the merger with DJS. Approximately half of the increase in 2022 PTP is DJS PTP while the other half is merger synergies. The new bank targets a ROE of minimum 9% while we estimate above 11% in 2022. We see a DPS yield of 5.7% in 2021e (8.7% yield in 2022e).

Forecast revisions New forecasts Old forecasts DKKm 2020e 2021e 2022e 2020e 2021e 2022e 2020e 2021e 2022e Net interest income 488 855 873 488 495 498 0 0% 360 73% 375 75% Commission income 315 571 588 315 323 333 0 0% 248 77% 256 77% Trading income 60 60 61 60 36 36 0 0% 24 67% 25 70% Other revenues 1 491 15 1 4 4 0 0% 487 N.M. 11 283% Total revenues 864 1,977 1,538 864 858 871 0 0% 1,119 130% 667 77% Total costs -516 -1,071 -861 -501 -506 -511 -15 3% -565 112% -350 69% Profit before loan losses 349 906 677 364 353 360 -15 -4% 554 157% 317 88% Loan losses -14 -75 -45 -14 -15 -5 0 0% -60 400% -40 800% Core earnings 335 831 632 350 338 355 -15 -4% 494 146% 277 78% Operating profits 335 831 632 350 338 355 -15 -4% 494 146% 277 78% Tax -27 -83 -63 -28 -34 -36 2 -5% -49 146% -28 78% Net profits 308 748 569 322 304 320 -14 -4% 444 146% 249 78% Adjusted net profit 310 468 550 310 292 308 1 0% 177 61% 242 79%

EPS 0.34 0.61 0.46 0.36 0.34 0.36 0.0 -4% 0.27 79% 0.1 29% Adjusted EPS 0.35 0.38 0.45 0.35 0.33 0.34 0.0 0% 0.05 17% 0.1 30% DPS 0.00 0.15 0.23 0.0 0.00 0.18 0.0 n.m. 0.15 n.m. 0.1 29% Source: ABGSC forecasts Vestjysk has communicated total synergies of roughly DKK 150m counting in a DKK 15m initiative taken by DJS before the merger and DKK 20m in capital synergies with full impact in 2024. We are DKK 20m higher in our implementation as we factor in four additional branch cuts during 2022, also connected with the reduced client use of branches. A reduced BEC data platform cost due to a scale discount (becoming a larger bank on BEC) looks to help by DKK 20m (see table below).

Vestjysk merger w ith DJS; Synergy overview ABGSCe DKKm

Cost synergies Branch overlap (3x) 15 Already announced by Vestjysk General Branch reductions (4x) 20 A potential w e see for 2022 execution FTE reduction 80x DKK 1m 80 75 FTE reduction already announced, a bit more for 2022e IT savings (BEC scale discount) 20 Full effect 2022e Cost initiatives already announced by DJS 15 This is double counted in the synergies and DJS PTP Total cost synergies 150 DKK 115m new cost savings in 2022e, DKK 135m in 2022e

Capital synergies Tier 2 re-financed 2022-2023 ~20 Full effect on NII in 2024

Source: ABGSC Research On the loan loss side, the new bank has a write-down account of DKK 3.3bn, which we believe represents good coverage of the overall credit risk, and we have simply added expected loan losses for DJS in 2021-2022 to VB. The loan losses will still largely depend on output prices for milk and pork meat, as we think the new bank could have 12% exposure to milk producers and pork farmers.

31 January 2021 ABG Sundal Collier 3 Vestjysk Bank

Merger overview On 26 November, Vestjysk Bank announced a merger with Den Jyske Sparekasse (DJS). The merger is shareholder friendly, in our view, because it puts a much higher price on the DJS shares (DKK 122.7, P/B of 0.72x, P/E ’21e of 12x) than the market was willing to pay (DKK 88 last closing price before the merger), while Vestjysk Bank receives a 30% boost to 2022e adj. EPS. We see synergies on the costs side from the merger of DKK 150m while capital synergies could help 2024 NII by ~DKK 20m. To put things into perspective, the synergies are around the PTP level we had expected for DJS in 2021 ahead of the merger. The large synergies help our 2022 ROE estimate of 11.7% above the new company ROE target minimum of 9%. Our 2022 ROE estimate would be at the targeted level if we factored in 110bp loan losses in 2022 instead of our 26bp estimate.

The merger was finalised on 13 January by EGMs (extraordinary general meetings) for the merging banks. The new Vestjysk Bank will be the eighth-largest Danish Bank, measured on working capital (DKK 37bn), while lending is DKK 16.7bn pro forma as of Q3’20.

Vestjysk has already announced a 10% FTE reduction after the merger bringing the number of FTEs down to 670 in 2021 (from 744 at time of the merger). Vestjysk has announced that it will merge three branches in 2021, but we believe four more branches could be removed during 2022. Vestjysk targets a cost/income ratio below 55%.

One-off costs of DKK 200m for the merger have been flagged by ~DKK 15m of transaction costs in Q4’20 and DKK 185m in total for 2021.

Comparisons for Vestjysk Bank and Den Jyske Sparekasse per Q3'20

Vestjysk DJS Total Lending, DKKm 9,684 7,028 16,712 Deposits, DKKm 12,968 10,751 23,719 Balance Sheet, DKKm 22,308 16,054 38,362 Shareholder equity, DKKm 3,041 1,696 4,737 CET1* 20% 17.5% 16.7%

Number of FTE's (avg) 399 345 744 Number of core clients 70,000 51,000 121,000 Number of branches 15 19 34

Source: ABGSC Research, *the combined CET1 is now adj. for merger costs, cash paid to DJS shareholders and IFRS9 change

The pro forma CET1 of the merged bank has many moving parts (see details on page 6). DJS will be consolidated into Vestjysk Bank starting from 2021, but will likely never report Q4’20 as the Q4 result will simply go into the equity of VB.

After the merger, CET1 is set to grow quickly from 15.9% in Q1’21e (Q1 and a large badwill gain not consolidated before H2’21) to 18.7% by year-end 2021e; this is far above the new CET1 target of 14.5%. The new Vestjysk Bank has a capacity for increasing its CET1 ratio up to 230bp per year before distributions, and thus we expect Vestjysk to deliver on its new dividend policy of a 25-50% payout already in 2021, with a 25% payout (yield 5.7%) growing to a 50% payout for 2022 (yield

31 January 2021 ABG Sundal Collier 4 Vestjysk Bank

8.7%) and onwards. This obviously depends on COVID-19 (infection rates, lockdowns, other effects) and the Danish FSA stand on distributions.

Vestjysk has communicated total synergies of roughly DKK 150m, counting in a DKK 15m initiative taken by DJS before the merger and DKK 20m in capital synergies with full impact in 2024. We are DKK 20m higher on synergies as we factor in four additional branch cut during 2022, which is connected to the reduced client use of branches.

Vestjysk merger w ith DJS; Synergy overview ABGSCe DKKm

Capital synergies Tier 2 re-financed 2022-2023 ~20 Full effect on NII in 2024

Source: ABGSC Research We see three overlapping branches in Viborg, Esbjerg and Horsens while the cluster of branches in the mid-part of Jutland could be more tight than necessary with new client behaviour post COVID-19.

Branch map of Vestjysk Bank and Den Jyske Sparekasse

Source: ABG Sundal Collier, company data

31 January 2021 ABG Sundal Collier 5 Vestjysk Bank

We see many moving parts around the capital of the new bank. In the table below, we show Q3’20 pro forma, although this is likely never going to be reported by the new bank, which we see starting with a 15.9% CET1 in Q1’21 as Q4’20e refers to the old Vestjysk Bank only.

We believe the tricky parts to look for are the removal of the IFRS9 phase-in for DJS (not applied by Vestjysk Bank), the cash (DKK 28.17 per share) paid to DJS shareholders (DKK 280m) and the fact that neither of the banks has consolidated Q3 net profit into CET1 (done bi-annually).

Vestjysk is set to receive a DKK 476m badwill gain in Q1’21e other income but will also have to mark down the equity of DJS to the purchase price (drag on equity).

Pro forma CET1 Q3'20 w ith moving parts DKKm Vestjysk DJS Total Q3'20 reported CET1 starting point, DKKm 2,636 1,717 4,353

DKK 476m merger badw ill in P&L post 10% tax 428 DJS equity marked dow n -476 Cash paid to DJS shareholder -280 DJS IFRS9 transition removed -150 Q3'20 net profit not counted in Q3 CET1 108 44 152 DKK 200m one-off merger costs post 10% tax -180

CET1 Q3'20 proforma merged, DKKm 3,847

REA Q3'20, DKKm 13,210 9,793 23,003

Q3'20 Proforma CET1 ratio 16.7%

Source: ABGSC Research

Before the EGM votes on 13 January, 66.1% of the shares in Vestjysk Bank and 54.9% of the shareholders in DJS had committed to support the merger.

The boards of Vestjysk Bank and DJS have agreed that the current CEO of Vestjysk Bank, Jan Ulsø Madsen, will continue as CEO of the new bank while the current CEO of DJS, Claus E. Petersen will be deputy CEO. The chairman of the Vestjysk Bank board, Kim Duus, is to continue as chair of the board of the new bank with Niels Fessel (current DJS chairman) as vice-chair.

Arbejdernes Landsbank has bought the 12.5% Finansiel Stabilitet stake in DJS in connection with the merger and, combined with other shares bought, it is able to maintain a 32% ownership of the new bank (as it previously had in Vestjysk Bank).

AP Pension is also continuing as a large shareholder in the new bank, with an expected stake of more than 15%, while Nykredit is expected to have more than 10% of the shares in the new bank. The DJS foundations will shrink to 2-3% ownership.

31 January 2021 ABG Sundal Collier 6 Vestjysk Bank

Most of the Danish banks participate in one of the three dataplatform co-operations shown below. The banks share the basic data infrastructure with their platform partners. Exit costs for merging into a bank on another platforms is up to five years of platform costs, thus it is both easier (same infrastructure) as well as financially more attractive to do mergers on the same platform.

We see potential for the BEC platform partner Arbejdernes Landsbank (AL) expanding its interest in Vestjysk Bank (based on its 32.4% ownership) at some point (ownership close to the 33% limit for a mandatory bid), while a new partnership with AL on production and cost sharing could be coming up in 2021- 2022.

Another potential combination on the BEC dataplatform is Danske Andelskassers Bank (DAB), which has large synergy potential with the new Vestjysk Bank. We observe that while DAB is currently under siege by Spar Nord, a potential merger could also help Vestjysk expand its geographical reach to Funen.

Danish banks: Mapping of dataplatforms Bankdata BEC SDC Djursland Bank Andelskassen Fælleskassen Andelskassen Oikos Jyske Bank Arbejdernes Landsbank BankNordik Kreditbanken BIL Danmark Basisbank A/S Nordfyns Bank Citi Borbjerg Sparekasse Ringkjøbing Landbobank Coop Bank Broager Sparekasse Skjern Bank Danske Andelskassers Bank Dragsholm Sparekasse Sparekassen Sjælland-Fyn Den Jyske Sparekasse Dronninglund Sparekasse Sydbank Faster Andelskasse Fanø Sparekasse Fortis Bank Folkesparekassen Frørup Andelskasse Forbrugsforeningen Frøslev-Mollerup Sparekasse Frøs Sparekasse Fynske Bank Ikano Bank GrønlandsBANKEN Jutlander Bank A/S Handelsbanken Klim Sparekasse Hvidbjerg Bank Lån & Spar Bank A/S Københavns Andelskasse Langå Sparekasse Lægernes Bank Middelfart Sparekasse Lollands Bank Rise Flemløse Sparekasse Maj Bank Rønde Sparekasse Merkur Andelskasse Saxo Privatbank A/S Møns Bank Sønderhå-Hørsted Sparekasse Nykredit Bank Sparekassen Balling PenSam Bank Sparekassen Bredebro PFA Bank Sparekassen Den lille Bikube SEB Sparekassen Djursland Spar Nord Sparekassen for Nørre Nebel og Omegn Sw edbank Sparekassen Kronjylland Totalbanken Sparekassen Thy VestjyskBANK Sparekassen Vendsyssel Stadil Sparekasse Østervrå Andelskasse

Source: ABGSC research & company data

31 January 2021 ABG Sundal Collier 7 Vestjysk Bank

ESG profile

Company ESG activities Key issues* ABGSC weight Employee turnover in Vestjysk was 8.7% in 2019 vs. 2015, when it was over 15%. Vestjysk has undertaken a range of ESG initiatives related to Environment 10% Carbon emissions energy consumption, pre-sorting of waste and limiting transportation via Natural resources video conferencing. The bank is also engaged in local communities Pollution and waste through the sponsoring of sports, culture and charitable causes. Like Social 30% many other banks, Vestjysk makes a point of giving young people an Privacy and data security opportunity to find employment in the financial sector by offering trainee Financial product safety positions. Responsible investment Governance 60% Likely more focus on ESG after a decade of fighting for Corruption and instability survival Corporate behaviour We view Vestjysk as a bank that seeks an ethical relationship with its Business ethics clients and emphasises product and advisory governance. We believe it Previous ESG incidents is natural for Vestjysk to be modest about its ESG efforts relative to None peers, as the last decade has seen it preoccupied by fighting to survive Exposure to ESG Trends the consequences of the financial crisis. In our view, current management have now driven a successful turnaround of the bank, and Money laundering, responsible lending, product governance, women in finance this could lead to more management time allocated to ESG efforts. We also note the massive local customer support for Vestjysk in the challenging aftermath of the financial crisis; the bank is perceived as making a positive difference to people in the north-western part of Jutland. As a small- to mid-sized domestic Danish bank, we see very limited risk of a large international money laundering case involving Vestjysk. The proportion of women in management seems to be growing, and women make up 42% of the bank’s workforce.

Social and governance data ESG Data 2017 2018 2019 2017 2018 2918 Women in workforce % na 40 42 CO2 emission, tonnes na na na Women in management % 32 29 27 Energy consumption, MWh na na na Women in board % 20 33 33 Waste, tonnes na na na CEO salary, DKKm p.a. 3.3 3.6 3.7 Share recycled or reused, % na na na Employee turnover % na 8.7 8.7 Employee absence % na 4.8 5.7

Person responsible for sustainability: na Senior management: ESG quantified targets Today Target By Women in management positions, % 34 40 2025

*based on the MSCI framework but not using all the parameters.

31 January 2021 ABG Sundal Collier 8 Vestjysk Bank

Income Statement (DKKm) Q1 2020 Q2 2020 Q3 2020 Q4 2020e Q1 2021e Q2 2021e Q3 2021e Q4 2021e Net interest income 118 123 122 125 206 212 217 220 Net commission income 84 77 78 76 146 156 130 139 Trading income -4 27 28 9 15 15 15 15 Insurance income 0 0 0 0 0 0 0 0 Other operating income 0 0 0 1 482 3 3 3 Total income 198 227 228 211 849 386 365 377 Personnel costs -73 -74 -79 -73 -130 -121 -125 -120 Other operating costs -53 -48 -53 -63 -178 -127 -137 -133 Total operating costs -126 -122 -131 -136 -308 -248 -263 -252 Profit before loan losses 72 105 97 75 542 138 102 125 Loan losses -12 -12 20 -10 -25 -20 -15 -15 Core earnings 60 93 117 65 517 118 87 110 Investment portfolio 0 0 0 0 0 0 0 0 Other items 0 0 0 0 0 0 0 0 Operating profit 60 93 117 65 517 118 87 110 Tax -3 -8 -9 -7 -52 -12 -9 -11 Other items after tax 0 0 0 0 0 0 0 0 Net profit 57 85 108 59 465 106 79 99 Tax rate (%) 5.0 8.6 7.7 10.0 10.0 10.0 10.0 10.0 EPS 0.06 0.09 0.12 0.07 0.48 0.10 0.07 0.08 Net Profit Adj 54 82 105 56 104 133 106 126 EPS Adj 0.06 0.09 0.12 0.06 0.11 0.13 0.10 0.11 Key balance sheet data Q1 2020 Q2 2020 Q3 2020 Q4 2020e Q1 2021e Q2 2021e Q3 2021e Q4 2021e Net lending 9,966 9,507 9,684 9,684 16,795 16,879 16,964 17,049 Goodwill and intangibles 0 0 0 0 5 5 5 5 Total assets 21,102 21,871 22,308 22,308 38,343 38,427 38,511 38,596 Shareholders equity 2,855 2,937 3,041 3,097 4,397 4,498 4,571 4,665 Net asset value 2,855 2,937 3,041 3,097 4,392 4,493 4,566 4,660 Capital adequacy Q1 2020 Q2 2020 Q3 2020 Q4 2020e Q1 2021e Q2 2021e Q3 2021e Q4 2021e Tier 1 Capital, excl.hybrids 2,501 2,649 2,636 2,797 3,668 4,229 4,229 4,396 Tier 1 Capital, reported 2,656 2,804 2,791 2,952 3,923 4,484 4,484 4,651 Capital base 3,003 3,151 3,139 3,300 4,519 5,079 5,079 5,247 Risk exposure amount 13,593 13,548 13,210 13,210 23,118 23,234 23,350 23,467 Asset quality Q1 2020 Q2 2020 Q3 2020 Q4 2020e Q1 2021e Q2 2021e Q3 2021e Q4 2021e Problem loans, gross 5,151 4,562 4,416 4,548 7,008 7,218 7,435 7,658 Provisions for problem loans -2,390 -2,280 -2,255 -2,265 -3,289 -3,309 -3,324 -3,339 Problem loans, net 2,761 2,282 2,161 2,283 3,719 3,909 4,111 4,319 Key figures Profitability Q1 2020 Q2 2020 Q3 2020 Q4 2020e Q1 2021e Q2 2021e Q3 2021e Q4 2021e Net interest margin (%) 2.18 2.29 2.21 2.24 2.72 2.21 2.26 2.28 ROE (%) 2.0 2.9 3.6 1.9 12.4 2.4 1.7 2.1 RONAV (%) 1.9 2.8 3.5 1.8 2.8 3.0 2.3 2.7 ROREA (%) 1.6 2.5 3.2 1.8 10.2 1.8 1.3 1.7 Cost efficiency Q1 2020 Q2 2020 Q3 2020 Q4 2020e Q1 2021e Q2 2021e Q3 2021e Q4 2021e Cost/income Core (%) 64.7 54.5 58.3 58.1 61.8 56.0 63.3 58.4 Costs/assets Core (%) 2.34 2.27 2.38 2.17 3.00 2.22 2.37 2.25 Financial position Q1 2020 Q2 2020 Q3 2020 Q4 2020e Q1 2021e Q2 2021e Q3 2021e Q4 2021e Net lending/deposits (%) 82.5 75.0 74.7 74.7 70.8 71.2 71.5 71.9 REA/assets (%) 64.4 61.9 59.2 59.2 60.3 60.5 60.6 60.8 Common equity tier 1 ratio (%) 18.4 19.6 20.0 21.2 15.9 18.2 18.1 18.7 Tier 1 ratio, reported (%) 19.5 20.7 21.1 22.3 17.0 19.3 19.2 19.8 Capital adequacy (%) 22.1 23.3 23.8 25.0 19.5 21.9 21.8 22.4 Equity ratio Core (%) 11.9 12.1 11.8 12.5 9.6 11.0 11.0 11.4 Asset quality Q1 2020 Q2 2020 Q3 2020 Q4 2020e Q1 2021e Q2 2021e Q3 2021e Q4 2021e Problem loans, gross/lending (%) 28.8 27.9 27.2 27.5 25.5 25.8 26.1 26.4 Problem loans, net/lending (%) 27.7 24.0 22.3 23.6 22.1 23.2 24.2 25.3 Provision ratio (%) 46.4 50.0 51.1 49.8 46.9 45.8 44.7 43.6 Loan losses, net/lending (%) 0.47 0.48 -0.84 0.41 1.03 0.48 0.36 0.35 Source: ABG Sundal Collier, Company data

31 January 2021 ABG Sundal Collier 9 Vestjysk Bank

Income Statement (DKKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Net interest income 813 699 644 595 573 548 510 488 855 873 Net commission income 262 290 305 312 338 297 329 315 571 588 Trading income 139 62 19 68 27 47 214 60 60 61 Insurance income 0 0 0 0 0 0 0 0 0 0 Other operating income 20 4 21 29 7 17 2 1 491 15 Total income 1,234 1,055 989 1,004 945 909 1,055 864 1,977 1,538 Personnel costs -334 -321 -336 -311 -300 -311 -285 -299 -496 -491 Other operating costs -269 -239 -233 -194 -204 -170 -223 -217 -575 -370 Total operating costs -603 -560 -569 -505 -504 -481 -508 -516 -1,071 -861 Profit before loan losses 631 495 420 499 441 428 547 349 906 677 Loan losses -1,073 -683 -370 -416 -270 -186 -64 -14 -75 -45 Core earnings -442 -188 50 83 171 242 483 335 831 632 Investment portfolio 0 0 0 0 0 0 0 0 0 0 Other items 0 0 0 0 0 0 0 0 0 0 Operating profit -442 -188 50 83 171 242 483 335 831 632 Tax 0 0 -1 -3 -8 54 -5 -27 -83 -63 Other items after tax 0 0 0 0 0 0 0 0 0 0 Net profit -442 -188 49 80 163 296 478 308 748 569 Tax rate (%) 0 0 2.0 3.6 4.7 22.3 1.0 7.9 10.0 10.0 EPS -0.49 -0.21 0.32 0.53 0.31 0.33 0.53 0.34 0.61 0.46 Net Profit Adj -442 -188 49 80 157 207 326 310 468 550 EPS Adj -0.49 -0.21 0.32 0.53 0.30 0.23 0.36 0.35 0.38 0.45 Key balance sheet data 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Net lending 17,402 14,756 13,379 12,529 11,629 10,797 10,221 9,684 17,049 17,390 Goodwill and intangibles 7 6 4 4 2 0 0 0 5 5 Total assets 26,112 21,804 21,114 19,895 21,902 21,198 22,192 22,308 38,596 38,937 Shareholders equity 887 1,362 1,329 1,412 2,285 2,359 2,801 3,097 4,665 5,028 Net asset value 880 1,356 1,324 1,408 2,283 2,358 2,801 3,097 4,660 5,023 Capital adequacy 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Tier 1 Capital, excl.hybrids 824 1,276 1,320 1,405 2,280 2,240 2,514 2,797 4,396 4,662 Tier 1 Capital, reported 1,195 1,783 1,756 1,792 2,510 2,470 2,669 2,952 4,651 4,917 Capital base 2,291 2,169 2,091 2,083 2,871 2,803 3,016 3,300 5,247 5,512 Risk exposure amount (BIS II) 20,335 17,927 16,739 16,066 14,969 14,226 14,316 13,210 23,467 23,936 Asset quality 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Problem loans, gross 7,457 7,091 6,455 5,940 5,293 6,392 5,241 4,548 7,658 7,887 Provisions for problem loans -3,662 -3,448 -3,014 -2,941 -3,001 -2,648 -2,398 -2,265 -3,339 -3,356 Problem loans, net 3,794 3,643 3,440 2,999 2,292 3,744 2,843 2,283 4,319 4,532 KEY FIGURES Profitability 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Net interest margin (%) 2.76 2.92 3.00 2.90 2.74 2.54 2.35 2.19 2.81 2.25 ROE (%) -46.9 -16.7 3.6 5.8 8.8 12.7 18.5 10.5 16.5 11.7 RONAV (%) -47.3 -16.8 3.7 5.9 8.5 8.9 12.6 10.5 10.3 11.4 ROREA (%) -1.9 -1.0 0.3 0.5 1.1 2.0 3.3 2.2 4.1 2.4 Cost efficiency 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Cost/income Core (%) 48.9 53.1 57.5 50.3 53.7 54.0 56.3 58.7 59.8 56.7 Costs/assets Core (%) 2.05 2.34 2.65 2.46 2.41 2.23 2.34 2.25 2.91 2.22 Financial position 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Net lending/deposits (%) 106.8 86.6 83.7 86.1 86.1 83.7 78.4 74.7 71.9 73.3 REA/assets (%) 77.9 82.2 79.3 80.8 68.3 67.1 64.5 59.2 60.8 61.5 Common equity tier 1 ratio (%) 4.1 7.1 7.9 8.7 15.2 15.7 17.6 21.2 18.7 19.5 Tier 1 ratio, reported (%) 5.9 9.9 10.5 11.2 16.8 17.4 18.6 22.3 19.8 20.5 Capital adequacy (%) 11.3 12.1 12.5 13.0 19.2 19.7 21.1 25.0 22.4 23.0 Equity ratio Core (%) 3.2 5.9 6.3 7.1 10.4 10.6 11.3 12.5 11.4 12.0 Asset quality 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Problem loans, gross/lending (%) 26.0 27.8 27.7 27.7 27.5 30.5 28.6 27.5 26.4 26.5 Problem loans, net/lending (%) 21.8 24.7 25.7 23.9 19.7 34.7 27.8 23.6 25.3 26.1 Provision ratio (%) 49.1 48.6 46.7 49.5 56.7 41.4 45.8 49.8 43.6 42.5 Loan losses, net/lending (%) 5.17 3.92 2.51 3.11 2.16 1.60 0.59 0.14 0.77 0.26 Source: ABG Sundal Collier, Company data

31 January 2021 ABG Sundal Collier 10 Vestjysk Bank

Analyst certification I/We, Mads Thinggaard, the author(s) of this report, certify that not withstanding the existence of any such potential conflicts of interests referred to below, the views expressed in this report accurately reflect my/our personal view about the companies and securities covered in this report. Analyst valuation methods ABG Sundal Collier analysts may publish valuation ranges for stocks covered under Company Sponsored Research. These valuation ranges rely on various valuation methods. One of the most frequently used methods is the valuation of a company by calculation of that company's discounted cash flow (DCF). Another valuation method is the analysis of a company's return on capital employed relative to its cost of capital. Finally, the analysts may analyse various valuation multiples (e.g. the P/E multiples and the EV/EBITDA multiples) relative to global industry peers. In special cases, particularly for property companies and investment companies, the ratio of price to net asset value is considered. Valuation ranges may be changed when earnings and cash flow forecasts are changed. They may also be changed when the underlying value of a company's assets changes (in the cases of investment companies, property companies or insurance companies) or when factors impacting the required rate of return change. Important Company Specific Disclosure The following disclosures relate to the relationship between ABG Sundal Collier and its affiliates and the companies covered by ABG Sundal

Collier referred to in this research report.

Unless disclosed in this section, ABG Sundal Collier has no required regulatory disclosures to make in relation to an ownership position for the analyst(s) and members of the analyst's household, ownership by ABG Sundal Collier, ownership in ABG Sundal Collier by the company(ies) to whom the report(s) refer(s) to, market making, managed or co-managed public offerings, compensation for provision of certain services, directorship of the analyst, or a member of the analyst's household, or in relation to any contractual obligations to the issuance of this research report. ABG Sundal Collier has undertaken a contractual obligation to issue this report and receives predetermined compensation from the company covered in this report.

mo ABG Sundal Collier is not aware of any other actual, material conflicts of interest of the analyst or ABG Sundal Collier of which the analyst knows or has reason to know at the time of the publication of this report. Production of report: 31/01/2021 21:49 CET. All prices are as of market close on 29 January, 2021 unless otherwise noted.

Disclaimer This document has been prepared by ABG Sundal Collier which is the marketing name referring to all or any of ABG Sundal Collier ASA, ABG Sundal Collier AB or ABG Sundal Collier Partners LLP and any of their affiliated or associated companies and their directors, officers, representatives and employees.

This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II.

This research product has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination.

This report is provided solely for the information and use of professional investors, who are expected to make their own investment decisions without undue reliance on this report. The information contained herein does not apply to, and should not be relied upon by, retail clients. This report is for distribution only under such circumstances as may be permitted by applicable law. Research reports prepared by ABG Sundal Collier are for information purposes only. ABG Sundal Collier accepts no liability whatsoever for any losses arising from any use of this report or its contents. This report is not to be used or considered as an offer to sell, or a solicitation of an offer to buy. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable, but ABG Sundal Collier makes no representation as to its accuracy or completeness and it should not be relied upon as such. All opinions and estimates herein reflect the judgment of ABG Sundal Collier on the date of this report and are subject to change without notice. Past performance is not indicative of future results.

This research report does not, and does not attempt to contain everything material that there is to be said about Vestjysk Bank.

The compensation of our research analysts is determined exclusively by research management and senior management, but not including investment banking management. Compensation is not based on specific investment banking revenues, however, it is determined from the profitability of the ABG Sundal Collier Group, which includes earnings from investment banking operations and other business. Investors should assume that ABG Sundal Collier is seeking or will seek investment banking or other business relationships with the companies in this report. The research analyst(s) responsible for the preparation of this report may interact with trading desk and sales personnel and other departments for the purpose of gathering, synthesizing and interpreting market information. From time to time, ABG Sundal Collier and its affiliates and any shareholders, directors, officers or employees thereof may (I) have a position in, or otherwise be interested in, any securities directly or indirectly connected to the subject of this report, or (II) perform investment banking or other services for, or solicit investment banking or other services from, a company mentioned in this report. ABG Sundal Collier relies on information barriers to control the flow of information contained in one or more areas of ABG Sundal Collier, into other areas, units, groups or affiliates of ABG Sundal Collier.

Norway: ABG Sundal Collier ASA is regulated by the Financial Supervisory Authority of Norway (Finanstilsynet); Sweden: ABG Sundal Collier AB is regulated by the Swedish Financial Supervisory Authority (Finansinspektionen); UK: This report is a communication made, or approved for communication in the UK, by ABG Sundal Collier Partners LLP, authorised and regulated by the Financial Conduct Authority in the conduct of its business. US: This report is being distributed in the United States in accordance with FINRA Rule 1050(f)(3)(B) by ABG Sundal Collier Inc., a FINRA member which accepts responsibility for its content. Research analysts are not registered/qualified as research analysts with FINRA or the NYSE, and are not associated persons of ABG Sundal Collier Inc. and therefore not subject to FINRA Rule 2241, the research analyst conflict rules. Research reports distributed in the U.S are intended solely for “major institutional investors”, as defined under Rule 15a-6 of the Securities Exchange Act of 1934. Each U.S major institutional investor that receives a copy of this research report by its acceptance represents that it agrees it will not distribute this research report to any other person. Any U.S. major institutional investor receiving this report who wishes to effect transactions in any securities referred to herein should contact ABG Sundal Collier Inc., not its affiliates. Further information on the securities referred to herein may be obtained from ABG Sundal Collier Inc., on request.

31 January 2021 ABG Sundal Collier 11 Vestjysk Bank

Singapore: This report is distributed in Singapore by ABG Sundal Collier Pte Ltd, which is not licensed under the Financial Advisers Act (Chapter 110 of Singapore). In Singapore, this report may only be distributed to institutional investors as defined in Section 4A(1)(c) of the Securities and Futures Act (Chapter 289 of Singapore) (“SFA”), and should not be circulated to any other person in Singapore.

This report may not be reproduced, distributed or published by any recipient for any purpose whatsoever without the prior written express permission of ABG Sundal Collier.

Additional information available upon request. If reference is made in this report to other companies and ABG Sundal Collier provides research coverage for those companies details regarding disclosures may be found on our website www.abgsc.com.

Norway Sweden Denmark United Kingdom USA Germany Singapore Pb. 1444 Vika Regeringsgatan 25, 8th floor Forbindelsesvej 12, 10 Paternoster Row, 5th fl 850 Third Avenue, Suite 9-C Schillerstrasse 2, 5. OG 10 Collyer Quay NO-0115 OSLO SE-111 53 STOCKHOLM DK-2100 COPENHAGEN LONDON EC4M 7EJ NEW YORK, NY 10022 DE-60313 FRANKFURT Ocean Financial Center Norway Sweden Denmark UK USA Germany #40-07, Singapore 049315 Tel: +47 22 01 60 00 Tel: +46 8 566 286 00 Tel: +45 35 46 61 00 Tel: +44 20 7905 5600 Tel. +1 212 605 3800 Tel +49 69 96 86 96 0 Tel +65 6808 6082 Fax: +47 22 01 60 60 Fax: +46 8 566 286 01 Fax: +45 35 46 61 10 Fax: +44 20 7905 5601 Fax. +1 212 605 3801 Fax +49 69 96 86 96 99

31 January 2021 ABG Sundal Collier 12