Annual Report 2020 Annual Report 2020 Satisfactory performance in a historically turbulent year Spar Nord Annual Report 2020 1 Annual Report 2020 The Personal Bank in a Digital World Spar Nord is a bank which combines attentive and personal advice with up-to-date digital solutions. 2 Spar Nord Annual Report 2020 Annual Report 2020 Contents 4 - 39 Management’s review Why invest in Spar Nord? ................................................ 4 Key results in 2020 ............................................................... 5 How we do business .......................................................... 7 Letter to our shareholders .............................................. 8 Performance indicators and financial ratios – Group ...................................................................... 11 Results in 2020 .................................................................... 15 Strategy plan 2020-22 ................................................... 21 Investor Relations ............................................................. 25 Corporate responsibility................................................ 26 Organisation and corporate governance ........... 30 Board of Directors ............................................................. 31 Executive Board ................................................................ 34 Risk management ............................................................ 36 Alternative performance measures......................... 39 40 – 155 Consolidated financial statements Management’s statement on the Annual Report ..................................................................................... 40 Report by the Internal Audit Department ............. 41 Independent auditor’s report ..................................... 42 Consolidated financial statements......................... 46 Notes ........................................................................................ 51 156 – 180 Parent company's financial statements Parent Company ............................................................. 156 Notes parent company ................................................. 161 Spar Nord Annual Report 2020 3 Introduction Why invest in Spar Nord? Strong financial performance Ten years of growth Based on a strategy focused on serving retail cus- Spar Nord has experienced ten years of growth in tomers and small and medium-sized enterprises in both the retail and the business customer market. Denmark, Spar Nord has successfully generated Customer volumes grew from 269,000 in 2010 to strong results in a challenging market. Throughout 384,000 in 2020, while credits arranged rose from the current business cycle, the Bank has achieved DKK 78 billion to DKK 137 billion, and the total busi- a satisfactory financial performance, and in recent ness volume from DKK 145 billion to DKK 291 billion. years it has recorded one of the best returns on As a result, Spar Nord currently holds a market equity among the large banks in Denmark. share of around 4% of the total Danish market for bank, leasing and mortgage loans. High customer satisfaction Strong credit quality Spar Nord enjoys a strong reputation and high Spar Nord’s business model is based on decentral- customer satisfaction across customer segments. ised decision-making powers and local ownership. In the retail segment, Spar Nord regularly monitors In the credit area, however, the Bank retains strong customer satisfaction levels via ongoing evaluation centralised management, and coupled with strate- of customer meetings. Customer satisfaction im- gic decisions on matters such as exposure size and proved in 2020 and is at a high level. In the busi- customer segments, this has given the Bank a well- ness customer segment, Spar Nord has – for the diversified loan portfolio and a persistently strong fourth consecutive year – been named the bank credit quality throughout the business cycle. among the six largest banks in Denmark with the most satisfied business customers. Strong capital position – preparing for IRB Investing in digitalisation In recent years, Spar Nord has strengthened its Over the past few years, Spar Nord has invested capital position considerably. Our common equity substantial resources in new digital solutions – tier 1 capital ratio has increased from 9.5% in 2010 both in the form of direct customer-centric solu- to 17.2% in 2020 – primarily because the Bank’s eq- tions, new tools for employees and systems to uity has grown from DKK 4.4 billion to DKK 9.6 billion. streamline production and compliance procedures. In order to ensure more optimum capital applica- Most recently, Spar Nord has implemented tion, Spar Nord has launched a strategic project, Salesforce as its new CEM system and established which, over the course of the coming years, is to a dedicated development unit to strengthen IT facilitate a transition from the standard method to support for advisers in their everyday work. internal ratings-based models (IRB). 4 4 Spar Nord Annual Report 2020 Financial performance Key results in 2020 3,167 3,150 3,190 3,338 3,326 1,896 1,936 1,924 2,014 2,099 2016 2017 2018 2019 2020 2016 2017 2018 2019 20202020 Core income Costs and expenses Spar Nord generated core income of DKK 3,326 million in Spar Nord’s total costs and expenses amounted to DKK 2020, which was DKK 12 million lower than in 2019. Net inter- 2,099 million, against DKK 2,014 million in 2019. In 2020, costs est income and net fee income both rose by 1%, while market and expenses were affected by one-off costs for redundan- value adjustments were up by 14%. Lastly, other income was cies, and IT costs (data processing centre) were higher. reduced by 56%, primarily because of extraordinary income from Spar Nord’s ownership interest in Danske Andelskassers Bank in 2019. 242 -38 173 22 309 838 989 920 1,059 737 2016 2017 2018 2019 20202020 2016 2017 2018 2019 2020 Loan impairment Profit/loss after tax Loan impairment charges amounted to DKK 309 million, Spar Nord’s profit before tax amounted to DKK 918 million in against DKK 22 million in 2019. The increase was to a large 2020 compared with DKK 1,302 million in 2019. Profit after tax extent attributable to the recognition of a management es- was DKK 737 million in 2020. timate of DKK 320 million due to COVID-19. 230.1 243.0 246.1 272.4 291.3 10.7 12.0 10.8 11.7 7.4 2016 2017 2018 2019 20202020 2016 2017 2018 2019 20202020 Business volume Return on equity The total business volume grew 7% in 2020 to DKK 291.3 bil- Return on equity after tax stood at 7.4% in 2020, down from lion at the end of the year. The facilitation of mortgage 11.7% in 2019. loans rose 7% to DKK 94.5 billion, while bank and leasing loans fell 2% to DKK 42.5 billion. 5.0 3.5 3.5 0 1.5 10,168 8,856 6,396 7,995 7,356 2016 2017 2018 2019 2020 2016 2017 2018 2019 20202020 Dividend Market capitalisation For the 2020 financial year, the Danish FSA generally recom- Spar Nord’s market capitalisation fell 8% in 2020 to DKK 7.4 mends limited dividend payments by Danish banks. billion at the end of the year. The Board of Directors will therefore recommend to the shareholders at the Annual General Meeting that a dividend of DKK 1.5 per share be distributed for 2020. Spar Nord did not disburse the planned DKK 3.5 per share from 2019 because the Danish FSA recommended the sus- pension of dividend payments. Spar Nord Annual Report 2020 5 Financial performance 66 SparSpar NordNord AnnualAnnual ReportReport 20202020 FinancialBusiness modelperformance How we do business Decentralised ownership and strong central support The core of Spar Nord’s business model is local commitment combined with strong central support. Spar Nord consists of local entities with extensive decision-making powers in areas such as customer service, market canvassing and employee condi- tions. The philosophy underlying the business model is that the work undertaken by the centralised sup- port and development functions should be deter- mined by customer requirements for the decentral- ised customer-facing entities. In the credit area, the Bank applies centralised management and monitoring. Spar Nord Annual Report 2020 7 Introduction Letter to our shareholders Dear shareholders In 2020, our retail customers once again demon- strated strong credit quality and robust finances, and they only experienced slight problems caused 2020 was a historically turbulent year for Spar Nord by the corona crisis. Despite a reduced level of ac- and for the whole world. In spite of the COVID-19 tivity in society as a whole, business carried on in pandemic, Spar Nord made it through 2020 with a the housing market, in securities trading and in the satisfactory performance, as a result of which our asset management area. Board of Directors proposes a dividend of DKK 1.50 per share. However, a high level of uncertainty still attaches to the longer-term societal effects and consequences Reporting a net profit of DKK 737 million and a re- of the crisis, and especially the implications for Spar turn on equity of 7.4% for 2020, Spar Nord ranks Nord’s business customers. among the top-performing large Danish banks. Because of a macroeconomic slowdown and focus In the retail customer area, we experienced a sur- on internal efficiency, we adjusted our employee prisingly high level of activity in 2020, especially in headcount on two occasions in 2020, partly the housing area with remortgaging and house through a voluntary severance programme in mid- sales. In a volatile year, we managed to create 2020, and partly