Introduction, update on financial performance, credit and capital
Debt investor roadshow, Stockholm, 4 October 2017 Executive summary
● We are here today, because we are contemplating an issue of Tier 2 capital denominated in SEK
● Part of our ongoing efforts to optimize capital structure ● Refinancing of DKK 400 million Tier 2 capital in November 2017 ● Part of getting ready for the implementation of the MREL regime and the new capital requirements that come with that
● We believe that Spar Nord is a strong debt investment case
● Our asset quality is sound – well diversified low-risk loan book ● We have a strong financial performance track record – profitable also through the challenging years ● Our business strategy is clear and understandable – we want to be The Personal Bank in a Digital World ● A purely Danish play: Danish economy is healthy and our market outlook is strong
2 Agenda
1. Introduction to Spar Nord
2. Update on financial performance
3. Credit update
4. Capital and liquidity update
3 1. Introduction Spar Nord is a robust Danish retail bank focusing on household customers and local SMEs
Brief history Strategy and business model • Founded in 1824 – one of the oldest financial 1 Focus on households and local SMEs 2 Strong customer satisfaction institutions in the country StarPLUS loyalty program • Focus on attracting and Epsi rating 2017 • Spar Nord aims to offer Arbejdernes Landsbank 79,6 retaining attractive private PenSam 79,3 ”top-notch service and • Since 2001, we have focused exclusively on Handelsbanken 76,8 and SME customers Spar Nord 74,5 advise” Øvrige 74,3 ordinary household customers and local SMEs • Focus on loyalty benefits Sparekassen Kronjylland 73,9 • Ongoing efforts project to Danske Bank 71,6 for customers who buy the Nykredit Bank 71,2 refurbish physical branches • We offer a full range of products and services whole package Sector 71,1 and train staff Jyske Bank 70,4 (both own and distributed) to our core segments. Sydbank 68,3 Nordea 64,6 • We enjoy high customer satisfaction and loyalty - 3 Investment in digital solutions 4 Robust credit quality potential for further growth in market-share New CRM system • Focus optimizing work Impairment percentage • Through the cycle, Spar • Our credit quality is very sound – agriculture has processes, e.g. through 493 Nord’s performance has implementation of new IT been strong been a headache but is improving 316 • In-house focus on 242 • Key challenge has been • Our standardized approach to risk weighting developing new digital agriculture 1.30% 0.80% 0.60% 0% makes for lower leverage and lower risk solutionsr 2014 2015 2016 Q2 2017 • Following recent news about MREL, we are Shareholders considering moving to IRB models • Spar Nord Foundation is the largest • Several non-domestic investors hold a total of 25 %
shareholder with 19% • Professional and institutional investors (incl. Spar • Nykredit Realkredit A/S holds 11% Nord Foundation) hold a total of 66 %
5 Since 2001, we have created a nationwide retail network focused on bigger cities
Branch network Our retail bank in numbers
Branches Employees
77 65 995 1,005 2 29 6 50 724 350 56 570 28 63 48 668 645 435 22
2001 2009 Q2 2017 2001 2009 Q2 2017 Outside North Jutland North Jutland Outside North Jutland North Jutland Customers Lending (DKK billion)
387,000 2 32.5 30.1 264,000 203,000 9.1 198,000 71,000 19.0 8,000 14.6 2.2 190,000 193,000 184,000 21.0 12.4 13.5
2001 2009 Q2 2017 2001 2009 Q2 2017 Outside North Jutland North Jutland Outside North Jutland North Jutland
6 Thanks to our unique strategy, we have grown profitably and kept credit quality sound
Comments Financial performance last 5 years
• Since we adopted our growth strategy, we SPAR NORD BANK have adhered to a principle of not taking on DKKm 2012 2013 2014 2015 2016 Net interest income 1,677 1,849 1,800 1,727 1,621 large single credit exposures Net fees, charges and commissions 562 723 863 1,030 1,053 Market-value adjustments 244 201 380 507 434 • While decentralising much of decision making, Other income 229 166 160 66 59 we have kept the underwriting policy and Core income 2,711 2,938 3,202 3,331 3,167 credit processes centralised Costs 1,675 1,741 1,922 1,843 1,896 Core earnings before impairment 1,036 1,197 1,280 1,488 1,271 • Through the cycle, our cost of risk has been Impairments of loans and advances, etc. 662 405 493 316 242 satisfactory compared to peers – only serious Profit before tax 290 670 705 1,074 1,028 Tax 66 133 91 177 190 challenge has been agriculture Profit 224 536 614 897 838 • Taken together, our growth in market share and our strong credit performance have SPAR NORD BANK DKKb/Pct. 2012 2013 2014 2015 2016 meant that we have made it through tough Lending, banking and leasing activities 38.9 35.9 35.5 33.9 35.1 times with black numbers Deposits, banking activities 41.9 41.8 42.2 44.4 46.5 Shareholder's equity 6.0 6.5 7.0 7.5 7.8 ROE 4.2 8.6 9.0 12.2 10.7 Lending, banking and leasing activities 6.5 5.5 5.0 4.5 4.5 / shareholder's equity 7 Pressure on net interest income has been mitigated by strong growth in fee income
Comments Core income
2,758 ● In recent years, net income from fees and commissions has come 2,572 2,663 2,674 2,238 to make up an ever larger proportion of our core income 1,727 1,621 1,849 1,800 ● Net interest income has been squeezed due to both volume and 1,677 margin pressure 1,030 1,053 562 723 863 ● Net fee income has grown thanks to increasing market share and DKKm 2012 2013 2014 2015 2016 bigger share-of-wallet Net interest income Net fees, charges and commissions
● Fees related to mortgage-distribution are up 17 % CAGR last five years ● Fees related to asset management and securities trading are up by 19 % CAGR last five years 63% 61% 75% 72% 68%
37% 39%
25% 28% 32% Pct. 2012 2013 2014 2015 2016 Net interest income Net fees, charges and commissions 8 The Danish Mortgage-distribution model
Comments The Totalkredit model
● In Denmark, banks from Sydbank’s and Spar Nord’s size and down do not keep mortgage loan on their own balance sheet Advice + Service ● Instead, what we do is originate the loans and transfer them to our Transfer of loan partner for funding and shared risk Origination fee and running fees
● For that, we receive an origination fee as well as a running fee for Compensation for losses in 60-80 % LTV our advice and services
● On mortgage loans to household customers (Totalkredit), we Typical composition of household mortgage receive approx. half the running margin and cover losses in the 60- 80 % LTV bracket 95-100% Own equity 80-95% Spar Nord
60-80% Totalkredit – Spar Nord covers losses
LTV
60% Totalkredit
9 In a period with declining lending in the sector, we have steadily gaining market share
Spar Nord’s bank lending and mortgage-distribution compared to sector lending DKKb DKKb Total lending DKKb Lending, banking activities Mortgage 150 50 100 125 -1.0 % 6.8 % 40 75 13.2 % 100 30 75 50 20 50 25 25 10 0 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 DKKb DKKb DKKb Total lending, sector Lending, sector Mortgage, sector 5,000 2,000 4,000 0.1 % -3.8 % 2.4 % 4,000 1,500 3,000 3,000 1,000 2,000 2,000 1,000 500 1,000 0 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 10 Our strategy: The Personal Bank in a Digital World
Comments Key challenges facing our industry as we view it • After 15 years with ”The Local Strategy”, we recently launched our revised strategy ”The Personal Bank in a Digital World” More Low growth Tighter rules • With this strategy revision, we aim to address Digitization demanding and interest and the challenges we have identified for the customers rates standards industry in general and for Spar Nord specifically
• The vision is to combine the best of Our answer is our new strategy The Personal Bank in a Digital World digitization with the best of traditional Vision Strategic bearing banking – and to become Denmark’s most personal bank Denmark’s most personal bank The personal bank in a digital world • To succeed with that, we must make Top-notch personal advice Local ownership and strong Digitization progress on three concrete ”must win and service central support the Spar Nord way battles”
• The good customer meeting • Customer service of the future • More efficient processes battles” • Financial targets (2017-19): • The good banking experience • Improved wealth management • New digital solutions
win concept • ROE: 9-11 % after tax • Better grip on customer relation • New agile development • New business customer organisations • Cost/Income Ratio: 0.60 ”Must concept
1 2 3 11
Outlook for Danish economy is sound
Comments Key macro indicators
• We are back to positive albeit modest GDP Unemployment growth in the general economy 1.9 2.0 1.8 8 0.9 1.3 0.9 1.7 1.6 1.7 7 • Unemployment is relatively low and 0.2 6 5 4
-0.5 Pct. disposable income is growing Pct. 3 2 1 • In most areas housing prices have -4.9 0 07 08 09 10 11 12 13 14 15 16 17 rebounded well – in big cities prices are 07 08 09 10 11 12 13 14 15 16 17 18 above pre-crisis levels
• The economy is “urbanizing” Housing prices Household leverage
• Danish households tend to have relatively 120 110 253 261 270 264 266 263 254 264 243 241 high leverage due to mortgage loans – 100 90 but also very high savings and pension 80 Pct. 70 savings 60 Index (2006 Index (2006 = 100) 50 07 08 09 10 11 12 13 14 15 16 06 07 08 09 10 11 12 13 14 15 16 17 Danish household debt to income Single-family house Owner-occupied flat
12 2. Update on recent financial performance H1 2017: Net profit of DKK 575 million and ROE of 14.4 %
Comments Headlines from the income statement
SPAR NORD BANK Realized Realized Realized Realized ● NII remained under pressure DKKm YTD 2017 YTD 2016 Index Q2 2017 Q1 2017 Index Net interest income 786 813 97 393 393 100 ● Net fee income kept growing Net fees, charges and commissions 573 519 111 279 294 95 ● Market value adjustments were strong Market-value adjustments 285 187 153 121 164 74 Other income 45 32 138 21 24 89 ● Cost growth of 3 % Core income 1,689 1,551 109 814 874 93 Staff costs 603 586 103 318 285 112 ● Core earnings before impairments up 18 % Operating expenses etc. 375 362 104 185 190 97 Costs 977 948 103 502 475 106 ● Net reversal of loan impairment charges Core earnings before impairment 711 603 118 312 399 78 Impairments of loans and advances, etc. -9 133 -7 -10 2 -680 Profit before tax 720 469 153 322 398 81 Tax 145 87 167 64 81 79 Profit 575 383 150 258 317 82
14 Guidance for 2017
● Core earnings before impairments amounted to DKK 711 million in H1 2017 – which should be viewed in the context of an original full-year guidance of DKK 1.1-1.2 billion
● Strong core income driven by fees and market value adjustments ● Net interest income remains under pressure – but stable for three quarters
● Upward revision of full-year guidance: Core earnings before impairments now expected to be around DKK 1,250 million
● Loan impairment charges was an income of DKK 9 million in H1 2017 – original guidance was ”lower than in 2016”
● Household and corporate segments show robust credit quality ● Outlook for agriculture improving
● Loan impairment charges now expected to be ”significantly lower than in 2016”
15 3. Credit update Maintaining strong credit quality is a very important ambition
Comments Underwriting hierarchy
● Firm focus on household segment and local SMEs BoD ● Loan book is 45 % personal customers and 55 % corporate customers DKK 100 million* ● Corporate portfolio is very diversified in terms of business sectors Executive ● Formal targets for industry diversification Board ● No credit exposures exceeding DKK 500 million DKK 50 million*
● Unsecured portion normally never above DKK 250 million Head of Credit Department
● Centralised monitoring of credit risk exposures (including DKK 15 million*
systematic control of the entire portfolio) in Credit Quality Credit Department
Department DKK 2-10 million*
Area manager
Account Manager
*half amount on new customer 17 Our loan book is well-diversified in terms of industries
Comments Loan book broken down by industry
● Our loan book is generally very well diversified on industries
● No abnormal exposure to any business sectors ● No exposure to oil or shipping
● Exposure to household segment accounts for 45 % of loan book – against a sector average of approx. 1/3
● Agriculture has a been major challenge in recent years – but things are improving
18 Our loan book is well-diversified in terms of sizes
Comments Loan book broken down by sizes
Loans, advances and Number of Share of ● Loans and guarantees below DKK 100 million account for guarantees broken down by size exposures exposure in pct. 88,3 % of total exposure – considerably below sector of exposure* 2016 2015 2016 2015 0 - 0,1 50,124 51,827 1.3 1.5 average 0,1 - 0,5 34,992 34,920 11.2 12.3 ● 20 largest exposures amount to 96 % of CET1 – FSA 0,5 - 1,0 12,445 11,490 11.9 11.9 1,0 - 5,0 8,017 6,985 26.4 23.7 threshold is 175 % 5,0 - 10,0 891 851 9.5 8.9
Dkkm 10,0 - 20,0 388 406 8.7 8.9
20,0 - 50,0 248 233 12.1 11.5 50,0 - 100,0 66 73 7.2 8.3 100,0 - 47 46 11.7 13.0 Total 107,218 106,831 100.0 100.0 * Excl. reverse repo transactions and SparXpres
19 Large ordinary FSA inspection in May 2017 confirms strong credit quality and low-risk nature
Positive key conclusions from the FSA ● Spar Nord’s credit quality is better than in comparable financial institutions ● Spar Nord has adequate provisions on both households, corporates and agriculture - fourth FSA inspection in a row, where the FSA hasn’t had remarks to our provisioning ● Spar Nord’s calculated solvency need is adequate ● No remarks to areas such as the compliance and risk management functions, IT or audit
Enforcement orders ● A number of primarily administrative and reporting related enforcement orders related to areas such as credit risk, market risk and operational risk – all issues that can be resolved within very short time
Recommendation from the FSA ● The FSA recommends that Spar Nord revises its dividend policy and capital targets (from minimum targets to absolute numbers)
Note: FSA report can be found on FSA website 20 Long-term trend in credit quality
DKKb Lending Comments 50 40 30 ● Strong credit performance through the financial crisis 20 10 ● Losses were elevated, but lower than what our peers experienced 0 ● Relatively low losses key driver for profitability also in the tough years 2000 2002 2004 2006 2008 2010 2012 2014 2016
● In recent years, agriculture has been our main concern DKKm Loan impairment 800 ● Crisis for pig and milk producers visible in the P/L 600 400 ● Most recently, outlook has improved for most customer 200 segments 0 -200 -400 2000 2002 2004 2006 2008 2010 2012 2014 2016
Percent Impairment percentage 2.00% 1.50% 1.00% 0.50% 0.00% -0.50% -1.00% 2000 2002 2004 2006 2008 2010 2012 2014 2016 21 Bond Portfolio
Broken down by products Broken down by rating
B Corporate bonds BBB BB Government bonds 0% 2% 3% 1% 5% A Not rated 12% 1% Financial issuers 9% AA 1%
Mortgage-credit bonds AAA 84% 82%
Bond portfolio DKKm AAA AA A BBB BB B Not rated Total Government bonds 462 159 0 0 0 0 0 621 Mortgage-credit bonds 10,050 0 744 0 0 1 6 10,801 Financial issuers 30 12 808 248 7 0 4 1,109 Corporate bonds 2 1 3 62 68 11 120 267 Total 10,544 173 1,555 310 75 12 130 12,799
22 4. Capital and liquidity In recent years, we have significantly strengthened our capital position
CET1 ratio Risk exposure amount
+16% +55% 13.8
8.9 13.2 42,813 49,672
2008 Q2 2017 2008 Q2 2017 Equity (DKKbn) Loans and guarantees (DKKbn)
+93%
+9%
4.0 7.7 50.0 54.4
2008 Q2 2017 2008 Q2 2017 24 In spite of standard risk weights and lower capital efficiency, our profitability is in line with larger peers
CET1 ratio Q2 2017 REA in percentage of total assets Q2 2017
16.5 16.3 16.2 13.8
16.5 15.6 16.2 62% 13.2 43% 32% 22%
Spar Nord Jyske Bank Sydbank Danske Bank Spar Nord Jyske Bank Sydbank Danske Bank Incl. net profit Q1-Q2 2017
ROE Q2 2017 Leverage ratio Q2 2017
14.4 14.2 13.5 7.9 10.4 6.3 5.4 4.1
Spar Nord Jyske Bank Sydbank Danske Bank Spar Nord Jyske Bank Sydbank Danske Bank
Jyske Bank: 2016 25 Capital targets, expected MREL demands and IRB considerations
Recent news from the authorities ● Capital targets
● CET1 Ratio: 13.0
● Total capital ratio: 16.5
● Dividend policy
● 40-50 % of net profit paid out as ordinary dividends
● Possibility of extraordinary dividends and/or buy-backs
● Based on initial discussions with the Danish resolution authorities, we expect to be met with MREL demands on the same level as SIFI banks
● MREL demand of twice the calculated capital demand
● Phase in expected to be successive over the course of five years
● Strategic considerations of switching to IRB methods
26
Until we became a quasi-SIFI, we considered our current capital position to be solid
Leverage ratio Subordinated capital ● At 30 June 2017, our CET 1 ratio was 13.2 % and the DKKm 10 1,500 total capital ratio 16.9 % 9 1,200
● The total capital ratio of 16.9 should be viewed relative to the individual 8 900 solvency need of 9,0 % and the 1.3 % combined buffer requirement 600 7
● Excess capital coverage of 6.6 percentage points or 700 300 6 400 400 450 DKK 3.3 billion 0 5 2017 2018 2019 2020 2020 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 -> Hybrid capital ● Compared to our peers, we run the bank with very 15 16 17 Subordinated loan capital low leverage (because we apply the standard Capital base
approach to REA) Q2 Pct. 2016 2015 2014 2017 ● As from 2017, the ongoing consolidation is no longer Core tier 1 ratio 13.2 14.0 14.4 13.0 Hybrid capital 1.7 1.8 0.8 0.9 Deductions in hybrid capital -0.1 -0.2 -0.3 -0.6 included in own funds on a quarterly basis Tier 1 ratio 14.8 15.6 14.9 13.3 Subordinated debt 2.2 2.3 2.3 2.3 ● If we had opted for ongoing consolidation, CET 1 ratio would have been Deductions in own funds -0.1 -0.2 -0.3 -0.6 Total capital ratio 16.9 17.7 17.0 15.0
13.8 27
Capital requirement and MREL
Capital requirement and MREL – Non SIFI
23.0 20.7 18.4 15.9 11.5 9.2 12.9 6.9
11.5 4.4 Pct. Pct. 10.3 10.9 Capital conservation 2.1 1.3 1.9 2.5 buffer 1.0 1.0 1.0 MREL Pillar II 10.9 11.5 11.5 11.5 11.5 8.0 8.0 8.0 Capital requirement Minimum capital 2017 2018 2019 requirement 2018 2019 2020 2021 2022 MREL assumption: 5 year linear phase-in Capital requirement and MREL – SIFI
25.0 22.5 20.0 17.3 12.5 10.0 SIFI buffer 14.1 12.5 7.5
11.3 11.9 4.8 Pct. 1.0 Pct. 2.3 1.0 1.0 Capital conservation 1.3 1.9 2.5 1.0 1.0 1.0 buffer Pillar II 11.9 12.5 12.5 12.5 12.5 MREL 8.0 8.0 8.0 Minimum capital Capital requirement requirement 2017 2018 2019 2018 2019 2020 2021 2022 MREL assumption: 5 year linear phase-in 28 Our liquidity position is historically strong with strategic liquidity of DKK 20.5 billion
Strategic liquidity LCR
Pct.
185
183
179
178
177 177
176
173
171 171
169
168
165
161
160
158
155
152 152
151
150
148
145
145 145
DKKb YTD2017 2016 2015 142
138 133 Deposits, banking activities 47.6 46.5 44.4 131 80 80 80 80 80 Seniorfunding 0.0 0.0 0.0 70 70 70 70 70 70 70 70 70 70 70 70 60 60 60 60 60 6060 60 60 60 60 60 Core capital and sub. capital 9.7 9.7 9.0 Stable long term funding 57.3 56.2 53.4 Loans, banking and leasing activities 36.4 35.1 33.9 Maturity < 1 year 0.4 0.4 0.0 Apr May Jun jul aug sep oct nov dec jan feb mar Apr May Jun jul aug sep oct nov dec jan feb mar Apr May Jun jul aug Liquidity target 20.5 20.7 19.5 2015 2016 2017 LCR LCR - regulation requirment Loan to deposit ratio
Pct.
111 107 85 78 72 69 71 71
2010 2011 2012 2013 2014 2015 2016 YTD 17 29 Legal disclaimer
Certain statements in today’s presentation are based on the beliefs of our management as well as assumptions made by and information currently available to the management. Forward-looking statements (other than statements of historical fact) regarding our future results of operations, financial condition, business strategy and future objectives can generally be identified by terminology such as “targets”, “beliefs”, “expects” “intends”, “plans”, “assumes”, “will”, “may”, ”anticipates”, “continues” or similar expressions.
A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in the presentations including but not limited to general economic developments, changes in the competitive environment, developments in the financial markets, extraordinary events such as natural disasters or terrorist attacks and changes in legislation.
We urge you to read our financial reports available on sparnord.com for a discussion of some of the factors that could affect our future performance and the industry in which we operate.
Should one or more of these risks or uncertainties materialise or should nay underlying assumptions prove to be incorrect, our actual financial condition or results could materially differ from that presented as anticipated, believed, estimated or expected.
Please note that we are not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law.
30 Contact us at
Lasse Nyby Carsten Levring Jakobsen Jan Frølund Poulsen Telephone: +45 96 34 40 11 Telephone: +45 96 34 43 54 Telephone: +45 96 34 42 09
Mail: [email protected] Mail: [email protected] Mail: [email protected]
LinkedIn Appendix Net profit of DKK 575 million and ROE of 14.4 %
Presentation of Spar Nord’s results for H1 2017 Net profit of DKK 575 million and ROE of 14.4 %
● Net interest income remains under pressure but has been stable for three quarters
● Very satisfactory net fee income driven by mortgage-distribution and transaction banking
● Strong growth in market value adjustments driven by fixed income operations and (sector) shares
● Cost growth of 3 % (y/y) – primarily driven by investments related to new strategy
● Core earnings before impairments 18 % up on H1 last year
● DKK 9 million net reversal of loan impairment charges – strong performance immediately following an FSA inspection
● Loan growth of 4 % and growth in total business volume of 3 % YTD
● Full-year guidance for core earnings before impairments is hiked and guidance for impairments is lowered
● Revision of capital targets and dividend policy
● It looks likely that in connection with MREL Spar Nord will be treated as a SIFI bank – makes IRB look more appealing
34 Headlines from the income statement
SPAR NORD BANK Realized Realized Realized Realized DKKm YTD 2017 YTD 2016 Index Q2 2017 Q1 2017 Index Net interest income 786 813 97 393 393 100 Net fees, charges and commissions 573 519 111 279 294 95 Market-value adjustments 285 187 153 121 164 74 Other income 45 32 138 21 24 89 Core income 1,689 1,551 109 814 874 93 Staff costs 603 586 103 318 285 112 Operating expenses etc. 375 362 104 185 190 97 Costs 977 948 103 502 475 106 Core earnings before impairment 711 603 118 312 399 78 Impairments of loans and advances, etc. -9 133 -7 -10 2 -680 Profit before tax 720 469 153 322 398 81 Tax 145 87 167 64 81 79 Profit 575 383 150 258 317 82
35 Net interest income stabilized due to lending growth and more interest days
● Net interest income was DKK 786 million in H1 2017 Net interest income and lending volume against DKK 813 million in H1 last year DKKm 750
● Bank and leasing lending is up by DKK 1.3 billion (4 %) 35.0 35.1 35.1 35.8 36.4 year-to-date 500
● Households: DKK 0.4 billion 250 ● Corporates: DKK 0.9 billion
● Interest income from bond portfolio was DKK 26 million 0 lower in H1 2017 than in the same period last year Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017
● Net interest income has been stable for three quarters Net interest income Lending, banking and leasing activities
● Lending growth and more interest days contributed positively (q/q) ● Margin-pressure and lower one-off income had negative impact
36 Continued pressure on lending margin in competitive market
● In Q2 2017, the total interest margin was 20 basis points lower than in Q4 2016
● Lending margin has declined by 24 basis points year-to-date – 19 basis points in Q1 and 5 basis points in Q2
● In the same period, deposit margin has been lowered by 4 basis points – not much more to come for
Trend in interest margin Pct. 4.89 4.74 4.66 4.51 4.50 4.47 4.53 4.36 4.33
5.20 5.03 4.92 4.78 4.71 4.69 4.66 4.47 4.42 0.31 0.29 0.27 0.26 0.22 0.22 0.13 0.11 0.09
Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Interest rate (Deposits) Interest rate (Loans) Interest margin
37 Strong trend in net fee income driven by mortgage distribution and transaction banking
● Net income from fees, charges and commissions amounted to DKK Net fee income DKKm 573 million in H1 2017 – up DKK 55 million (11 %) on H1 last year YTD 16/YTD 17: 11 % 600 ● Income from mortgage-distribution grew by 21 % driven by both volume growth and price hikes 400 ● Strong growth in other fees driven by transaction banking, insurance distribution etc. 200 ● Small decline in fee income related to securities trading and asset management attributable to slightly lower trading activity 0 YTD 16 YTD 17
38 Strong trend in net fee income driven by mortgage distribution and transaction banking
Mortgage Other loan Securities trading Other fees transaction fees and asset management
DKKm Y/Y: 21 % Y/Y: -26 % Y/Y: -3 % Y/Y: 41 % 250
200
150
100
50
0 Q2 Q3 Q4 Q1 Q2 YTD YTD Q2 Q3 Q4 Q1 Q2 YTD YTD Q2 Q3 Q4 Q1 Q2 YTD YTD Q2 Q3 Q4 Q1 Q2 YTD YTD 16 16 16 17 17 16 17 16 16 16 17 17 16 17 16 16 16 17 17 16 17 16 16 16 17 17 16 17
Note: Change of IT provider in Q2 2016 has lead to changes in classification impacting ”other loan transaction fees” and ”other fees”39 Very strong growth in market value adjustments driven by fixed income operations
● Market value adjustments amounted to DKK 285 million Market-value adjustments DKKm in H1 2017 – up DKK 98 million (53 %) on H1 last year 200
● Market value adjustments in the Trading & Markets 150 Division grew by DKK 60 million 100 ● Strong performance on fixed income operations ● Positive adjustments on share portfolio 50
● Market value adjustments on strategic shareholdings in 0 Q2 Q3 Q4 Q1 Q2 the financial sector grew by DKK 46 million 2016 2016 2016 2017 2017 ● Positive adjustments on BankInvest, Erhvervsinvest II K/S and PRAS (lack of one-off gain on Nets) DKKm YTD2017 YTD 2016 Change Market-valuedDKKm adjustments in YTD2017178 YTD 2016118 Change60 ● Lower dividends from BankInvest and Danmarks Skibskreditt TangibleMarket-valued assets adjustments in 17893 11847 4660 DividendsTangible assets on shares, etc. 930 470 460 CurrencyDividends tradeon shares, and -agioetc. 140 220 -80 TotalCurrency trade and -agio 28514 18722 98-8 Total 285 187 98 40 Costs and expenses influenced by strategic initiatives
DKKm Costs and C/I Ratio 1,500 ● Total costs and expenses amounted to DKK 977 million which is DKK 29 0.61 0.58 million (3 %) higher than in H1 last year. 1,000
● Wages and salaries grew by DKK 16 million (3 %) due to collective 500 agreements, increasing payroll taxes and lack of last year’s positive 0 0.0 YTD YTD2017 one-offs 2016
● At 30 June 2017, the Group employs 1,555 employees – unchanged from 30 June 2016 Break-down on types ● Efficiency remains lower than before IT migration Costs (DKKm) YTD2017 YTD 2016 Change Staff costs 603 586 16 ● Other operating expenses came to DKK 347 million which is DKK 20 Operating expenses 347 327 19 million (6 %) higher than in H1 2016. Depreciation 28 34 -6 Costs 977 948 29 ● Lack of last year’s one-off expenses related to IT migration Operating expenses ● Decline in running IT expenses (DKKm) YTD2017 YTD 2016 Change ● New projects and investments triggered by new strategy Staff-related expenses 19 17 2 Travel expenses 8 8 -1 ● Beginning roll-out of new branch concept Marketing costs 55 47 8 IT expenses 167 167 0 Cost of premises 48 39 9 Other administrative expenses 50 49 1 41 Operating expenses 347 327 19
Net reversal of loan impairment charges – very satisfactory following FSA inspection
● Loan impairment charges was an income of DKK 9 million, which compares to an expense of DKK 133 million in H1 last year Loan impairment and impairment percentage
DKKm ● Incl. management estimates made in Q1 (DKK 85 Pct. 200 million related to households and DKK 25 million related to agriculture), profit impact was: 150 0.6 0.4 0.4 ● Households: DKK 64 million 100 0.0 -0.1
● Corporates excl. agriculture: DKK -75 million 50 ● Agriculture: DKK 2 million 0 ● Explanations behind positive development -50 ● Continued improvement of macroeconomic conditions Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017 ● Better outlook for agriculture ● Lower inflow of impairment exposures and better performance of loans already flagged as having weak credit quality ● Following inspection in Spar Nord, the FSA noted that the Bank’s credit quality is better than those of relevant peers 42
Business volume growing 3 % to DKK 236 billion
● Positive trend in credit distribution to both households and corporates
● Bank and leasing lending is up by DKK 1.3 billion (4 %) and volume of distributed mortgage loans is up by DKK 1.7 (2 %) YTD ● Bank deposits have grown by DKK 1.1 billion (2 %) year-to-date
● Customers’ AuM is up by DKK 1.5 billion (3 %) year-to-date
Bank lending Mortgage Guarantees Deposits Pooled schemes Investment AUM
DKKb Q2 16/Q2 17: 4 % DKKb Q2 16/Q2 17: 5 % DKKb Q2 16/Q2 17: 13 % DKKb Q2 16/Q2 17: 3 % DKKb Q2 16/Q2 17: 12 % DKKb Q2 16/Q2 17: 9 % 80 80 80 80 80 80
70 70 70 70 70 70
60 60 60 60 60 60
50 50 50 50 50 50
40 40 40 40 40 40
30 30 30 30 30 30
20 20 20 20 20 20
10 10 10 10 10 10
0 0 0 0 0 0 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 43 Solid capital position in spite of growth in REA and lack of ongoing consolidation
● At 30 June 2017, CET 1 ratio was 13.2 % and the total capital ratio 16.9 % ● Reduction in capital ratios primarily attributable to growth in Capital base REA (lending growth and increase in reservations to certain Q2 types of exposure) Pct. 2016 2015 2014 2017 ● The total capital ratio of 16.9 should be viewed Core tier 1 ratio 13.2 14.0 14.4 13.0 Hybrid capital 1.7 1.8 0.8 0.9 relative to the individual solvency need of 9,0 % and Deductions in hybrid capital -0.1 -0.2 -0.3 -0.6 Tier 1 ratio 14.8 15.6 14.9 13.3 the 1.3 % combined buffer requirement Subordinated debt 2.2 2.3 2.3 2.3 Deductions in own funds -0.1 -0.2 -0.3 -0.6 ● Excess capital coverage of 6.6 percentage points or DKK 3.3 Total capital ratio 16.9 17.7 17.0 15.0 billion
● As from 2017, the ongoing consolidation is no longer included in own funds on a quarterly basis ● If we had opted for ongoing consolidation, CET 1 ratio would have been 13.8
44
New capital targets, expected MREL demands, IFRS 9 and IRB considerations
● Revised capital targets
● CET1 Ratio: 13.0 (previously ”12 % minimum”) ● Total capital ratio: 16.5 (previously ”15.5 % minimum”) Capital percentage and subordinated capital ● Revised dividend policy Pct. DKKm ● 40-50 % of net profit paid out as ordinary dividends 20 1,500 ● Possibility of extraordinary dividends and/or buy-backs 1,200 ● Based on initial discussions with the Danish resolution authorities, Spar 15 Nord expects to be met with MREL demands on the same level as SIFI 900 10
banks 600
● MREL demand of twice the calculated capital demand 5 700 300 ● Phase in expected to be successive over the course of five years 400 400 450
0 0 ● Expected impact of IFRS 9: 2-3 % of equity 2013 2014 2015 2016 YTD 17 2017 2018 2019 2020 2020 Total capital ratio -> Hybrid capital ● Strategic considerations of switching to IRB methods Core tier 1 ratio Subordinated loan capital
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Strategic liquidity of DKK 20.5 billion
Strategic liquidity Pct. Loan to deposit ratio
DKKb YTD2017 2016 2015 111 107 Deposits, banking activities 47.6 46.5 44.4 85 78 Seniorfunding 0.0 0.0 0.0 72 69 71 71 Core capital and sub. capital 9.7 9.7 9.0 Stable long term funding 57.3 56.2 53.4 Loans, banking and leasing activities 36.4 35.1 33.9 Maturity < 1 year 0.4 0.4 0.0 Liquidity target 20.5 20.7 19.5 2010 2011 2012 2013 2014 2015 2016 YTD 17
46 Implementation of new strategy
Core initiatives in H1 Plans for H2 ● Since launching the strategy, we have worked hard on a number ● Implementation of new customer interaction concept of preconditions in the IT and process area ● Continued roll-our of new branch concept - Work on production flows (in-house + BEC) ● First deliveries from CEM project - Changed distribution of tasks between branches and HQ ● In general: Further work with all initiatives – beginning realization of ● Adjustment of branch network and beginning implementation of benefits new branch concept
● All team members through training in great customer service
● Implementation of new concept and new segmentation in the business banking area
● Launch of Private Banking as separate organisational unit ● Launch of first digital innovation project SubHub ● Customer Engagement Management: Vendor selection made and implementation project launched
47 Guidance for 2017
● Core earnings before impairments amounted to DKK 711 million in H1 2017 – which should be viewed in the context of an original full-year guidance of DKK 1.1-1.2 billion
● Strong core income driven by fees and market value adjustments ● Net interest income remains under pressure – but stable for three quarters
● Upward revision of full-year guidance: Core earnings before impairments now expected in the DKK 1,250 million range
● Loan impairment charges was an income of DKK 9 million in H1 2017 – original guidance was ”lower than in 2016”
● Household and corporate segments show robust credit quality ● Outlook for agriculture improving
● Loan impairment charges now expected to be ”significantly lower than in 2016”
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