Nykredit Group Annual Report 2017 Contents MANAGEMENT COMMENTARY 2 FINANCIAL STATEMENTS 2017 61 Statement of the Chairman and the Group Chief Executive 3 Income statements 61 Company details 4 Statements of comprehensive income 62 Group chart 5 Balance sheets 63 Financial highlights 6 Statement of changes in equity 65 Nykredit's strategy 8 Cash flow statement 67 Notes 68 2017 – in brief 10 2017 overview 10 MANAGEMENT COMMENTARY (CONTINUED) 149 Results for Q4/2017 12 Financial calendar for 2018 150 Results relative to outlook 12 Directorships and executive positions 151 Outlook for 2018 12 Special accounting circumstances 13 Other 13 Uncertainty as to recognition and measurement 13 Material risks 13 Events since the balance sheet date 13 Business areas 14 Retail 15 Totalkredit Partners 18 Wholesale Clients 20 Wealth Management 22 Group Items 24 Capital, funding and liquidity 25 Equity and own funds 27 Funding 30 Credit ratings 34 Liquidity 35 Lending 37 Mortgage lending 38 Bank lending 42 Organisation, management and corporate responsibility 44 Business concept 44 Organisation and responsibilities 45 The under-represented gender 47 Corporate governance 47 Remuneration 47 Internal control and risk management systems 48 Alternative performance measures 50 New earnings presentation in Management Commentary 50 Group companies 51 Nykredit A/S 51 Nykredit Realkredit A/S 51 Totalkredit A/S 53 Nykredit Bank Group 54 Other subsidiaries 54 Management statement and audit reports 55 Statement by the Board of Directors and the Executive Board on the Annual Report 55 Internal auditors' report 56 Independent auditor's report 57 2/154 Annual Report 2017 – Nykredit Group STATEMENT OF THE CHAIRMAN AND THE GROUP CHIEF EXECUTIVE 2017 – a milestone Our outlook for 2018 is a business profit of DKK 6.5bn-7.5bn, 2017 was an important year for Nykredit. The Group welcomed which is below the profit realised for 2017. The lower profit out- new, well-capitalised shareholders, paid out the first loyalty bo- look assumes the absence of high investment portfolio income, nuses to our customers and delivered the best financial perfor- reversal of impairments and positive value adjustments on swaps mance ever. In this way, the year marks a milestone for the Group currently offered; all factors that had a positive earnings impact and our efforts in recent years to make Nykredit more profitable, in 2017. efficient and customer-centric. Dividend of DKK 3.2bn to Forenet Kredit New, well-capitalised shareholders Based on profit for the year, it is recommended to the Annual A group of Danish pension funds headed by PFA acquired a mi- General Meeting that ordinary dividend of DKK 4bn, or 50% of nority shareholding from Forenet Kredit in November, thereby profit after tax for the year, be distributed. Never before have we expanding Nykredit's group of owners to include new, well-capi- distributed dividend of this magnitude. talised shareholders. Our largest shareholder, Forenet Kredit, will receive DKK 3.2bn, Thanks to our new ownership structure, Nykredit is now able to which it may decide to return in full or in part to Nykredit. Subse- raise new equity, if required in times of crisis or due to new regu- quently, Nykredit may choose to let the customers benefit from lation. This also means that Nykredit's capital requirement is the distribution. Danes in large numbers have placed their pen- lower already today. The sale has stabilised Nykredit's capital po- sion savings with one of Nykredit's new owners, PFA, Pen- sition, and Nykredit now has a firm grip on fundamentals: Costs, sionDanmark, PKA, AP Pension or MP Pension, and they, too, will earnings, distribution and capital. benefit from our success as the pension funds receive dividend in the amount of DKK 676m, corresponding to a total ownership in- Customer loyalty bonuses terest of 16.9%. 2017 was also the year we first paid out customer loyalty bo- nuses (KundeKroner) to our customers. Forenet Kredit made a Looking ahead capital contribution to Totalkredit, which allowed the Group to Our performance in 2017 builds on Nykredit's efforts in recent pay out loyalty bonuses of DKK 304m to homeowners with mort- years aimed at making the Group more profitable, efficient and gage loans in Totalkredit, who all received administration margin customer-centric in alignment with our strategy, Winning the discounts in Q3 and Q4 equal to DKK 1,000 annually for every Double. million Danish kroner borrowed. As to the first strand of our strategy, Totalkredit, we and our Based on the access to capital provided through Forenet Kredit's business partners grew lending and captured market share in sale of shares, the Group has raised the annual discount from 2017 – especially in sparsely populated regions of Denmark. Two DKK 1,000 to DKK 1,500 for every million Danish kroner bor- in three new mortgage loans granted to homeowners in rural dis- rowed and extended the programme to include the Group's busi- tricts in 2017 were arranged by Totalkredit. Extending loans in ness customers with mortgage loans. In total, the Group's cus- regions of Denmark where other lenders tend to hold back is a tomers will receive discounts of more than DKK 1bn in 2018. The priority at Nykredit. discounts will remain fixed until end-2019. Future discounts and their size will depend in part on the size of contributions received As to the second strand of the strategy, Nykredit Bank, a growing from Forenet Kredit. number of homeowners have opted for our homeowner banking programme, BoligBank, and have entrusted us with all of their Business customers will receive their first discounts in H2/2018, banking business. We see the same trend in the business seg- while the higher discounts are paid to Totalkredit homeowner ment. The number of wealth clients is growing at Nykredit Private customers already from the beginning of the year. This means Banking, which has been named best private banking provider in that after deduction of the KundeKroner discount, homeowners Denmark by its customers. Our investment fund has been named with fully mortgaged homes are currently enjoying the lowest ad- best investment fund in Denmark for the fourth time in five ministration margins in the market on our main products, includ- years. All of the above has put Nykredit Bank in a position to sig- ing fixed-rate repayment loans, our most popular loan. nificantly increase its lending and assets under management and capture market share. Best results ever In 2017 Nykredit delivered a business profit of DKK 8.6bn and Nykredit must continue to run an efficient and profitable business profit before tax of DKK 10.1bn. This is very satisfactory and also in future. However, with a firm grip on our fundamentals, we builds on strong performances across the Group. Also, Nykredit are now able to put more energy into providing excelled cus- has one of the lowest cost:income ratios in the industry today. tomer experiences, strengthening the Group's competitiveness and developing and improving digital solutions to the benefit of Profit for the year was influenced by a series of isolated events. our customers. These are the key priorities of the Board of Direc- Property sales in Copenhagen and the divestment of the com- tors and the Executive Board in the years to come. mercial estate agency business Nybolig Erhverv had a positive earnings impact, whereas there was a negative impact from the Steffen Kragh Michael Rasmussen coming mortgage loan impairment rules, IFRS 9, which was Chairman Group Chief Executive charged to the income statement in 2017. Annual Report 2017 – Nykredit Group 3/154 COMPANY DETAILS Nykredit A/S See pages 151-154 for directorships and executive positions Kalvebod Brygge 1-3 of the members of the Board of Directors and the Executive DK-1780 Copenhagen V Board. Denmark AUDIT BOARD Website: nykredit.com Per W. Hallgren, Chairman Tel: +45 44 55 10 00 Helge Leiro Baastad Merete Eldrup CVR no: 12 71 92 48 Bent Naur Financial year: 1 January – 31 December Municipality of registered office: Copenhagen RISK BOARD Merete Eldrup, Chairman External auditors Michael Demsitz Deloitte Per W. Hallgren Statsautoriseret Revisionspartnerselskab Bent Naur Weidekampsgade 6 DK-2300 Copenhagen S NOMINATION BOARD Steffen Kragh, Chairman Annual General Meeting Merete Eldrup The Annual General Meeting of the Company will be held on Nina Smith 22 March 2018. REMUNERATION BOARD BOARD OF DIRECTORS Steffen Kragh, Chairman Steffen Kragh, Chief Executive Officer Merete Eldrup Chairman Nina Smith Leif Vinther Merete Eldrup, Chief Executive Officer Deputy Chairman EXECUTIVE BOARD Michael Rasmussen Nina Smith, Professor Group Chief Executive Deputy Chairman Kim Duus Helge Leiro Baastad, Chief Executive Officer Group Managing Director Hans Bang-Hansen, Farmer Olav Bredgaard Brusen, Deputy Chairman of NYKREDS* David Hellemann Michael Demsitz, Chief Executive Officer Group Managing Director Per W. Hallgren, Chief Executive Officer Marlene Holm, Personal Banking Adviser* Søren Holm Vibeke Krag, former Chief Executive Officer Group Managing Director Allan Kristiansen, Chief Relationship Manager* Bent Naur, former Chief Executive Officer Anders Jensen Lasse Nyby, Chief Executive Officer Group Managing Director Claus E. Petersen, Chief Executive Officer Erling Bech Poulsen, Farmer Inge Sand, Senior Agricultural Adviser* Lars Peter Skaarup, Personal Adviser* Leif Vinther, Chairman of Staff Association* * Staff-elected member At nykredit.com you may read more about the Nykredit Group and download the following reports: • Annual Report 2017 • CSR Report 2017 • Risk and Capital Management 2017 Information on corporate governance is available at nykredit.com/organisation 4/154 Annual Report 2017 – Nykredit Group GROUP CHART Nykredit Group Nykredit A/S Profit for the year: DKK 7,766m Equity: DKK 75,005m Nykredit Realkredit A/S Profit for the year: DKK 8,074m Equity: DKK 78,847m Totalkredit A/S Profit for the year: DKK 1,752m Equity: DKK 26,300m Nykredit Bank A/S Nykredit Portefølje Adm.