Interim report for Q1-Q3 2017

The first nine months of 2017 was a period in which the Danish economy finally started to show signs of a recovery and thus a more sustainable improve...

0 downloads 47 Views 919KB Size
Interim report for Q1-Q3 2017 of Spar Nord Bank A/S Net profit of DKK 799 million and return on equity of 13.1 %

Spar Nord Q1-Q3 2017

 

Contents

2

Company announcement no. 9, 2017

Contents MANAGEMENT’S REVIEW Performance indicators and financial ratios........................................... 3 Executive Summary............................................................................................. 5 Management commentary on Q1-Q3 2017............................................. 6 Spar Nord shares held by members of the Management team..................................................................................... 11 Overview of group companies....................................................................... 11 INTERIM REPORT FOR Q1-Q3 2017 SPAR NORD GROUP Performance indicators and financial ratios........................................... 12 Management’s statement on the Interim Report................................. 14 Income statement................................................................................................ 15 Balance sheet........................................................................................................ 16 Capital position..................................................................................................... 17 Cash flow statement........................................................................................... 19 Notes .......................................................................................................................... 20 Notes without reference.................................................................................... 28

Contact: Ole Madsen, Senior Vice President, Communication & Business Development, tel.: +45 9634 4010

Spar Nord Q1-Q3 2017

Performance indicators and financial ratios –

3

Group

Performance indicators and financial ratios – Group CORE EARNINGS – QUARTERLY Q1-Q3 2017

INCOME STATEMENT DKKm Net interest income *)



Net income from fees, charges and commissions

Q1-Q3 2016

Change in %

1,173.1 1,225.9 837.1 778.2

-4.3

Q3 2017

Q2 2017

387.6 393.0

Q1 2017

Q4 2016

392.5 395.3

Q3 2016

Full year 2016

412.9 1,621.2

7.6 263.9 278.8 294.4 274.5 259.7 1052.7

Market value adjustments and dividends



Other operating income



Profit/loss on investments in associates and group enterprises



Core income



Salaries



849.7 834.8

1.8 247.2 317.9 284.6 306.9 248.5 1,141.7

Operating expenses



514.9 467.8

10.1 168.2 170.6 176.1 192.6 140.5 660.4

Depreciation, amortization and impairment



Costs and expenses



Core earnings before impairment



302.7 329.3

-8.1

17.6 121.4 163.7 104.4 142.5 433.7

36.3 28.3 28.3 11.8 13.7 10.8 1.4 11.0 29.7 27.3 22.5 21.3 2,376.5 2,384.2

-0.3

7.1 7.3 12.9

688.0

814.2

7.1

782.7

7.5 29.6

833.6 3,166.9

46.3 50.9 -9.0 18.1 13.9 14.3 43.4 16.5 94.3 1,410.9 1,353.5

4.2



965.6 1,030.7

-6.3

Loan impairment charges etc. *)



-50.9 187.8 -127.1 -42.2 -10.2

Profit/loss before tax



Tax



Profit/loss



Of which, share attributable to interest expenses to holders of Additional Tier 1 (AT1) capital

874.3

1,016.5 842.9

433.5 502.4

475.0 542.9 405.5 1,896.4

254.5

399.3

311.8

20.6 296.7 322.0

239.8

428.1 1,270.5

1.5 54.6 54.4 242.4 397.8 185.2 373.7 1,028.1

217.6 152.6 42.6 72.9 63.7 81.0 37.3 66.0 189.9 798.9 690.3

15.7 223.8 258.3 316.8 147.9 307.7 838.2

36.4 18.2 100.0 12.3 12.0

12.1

7.9

6.2

26.1

BALANCE SHEET DKKm Total assets



80,372 78,957

1.8 80,372 79,595 78,329 78,473 78,957 78,473

Loans and advances



45,471 39,697

14.5 45,471 42,407 41,189 41,346 39,697 41,346



Lending, banking and leasing activities



36,630 35,106

4.3 36,630 36,351 35,761 35,093 35,106 35,093



Lending, reverse repo transactions



8,841 4,591 92.6 8,841 6,056 5,428 6,253 4,591 6,253

Deposits



63,296 60,926

3.9 63,296 62,782 60,455 61,005 60,926 61,005



Deposits, banking activities



48,092 47,046

2.2 48,092 47,610 45,581 46,464 47,046 46,464



Deposits, repo transactions





Deposits in pooled schemes



0 0 - 0 156 0 0 0 0 15,204 13,880

9.5 15,204 15,016 14,874 14,541 13,880 14,541

Subordinated debt



Holders of Additional Tier 1 (AT1) capital instruments



Equity



Contingent liabilities



11,742 11,885

-1.2 11,742 12,304 11,935 12,334 11,885 12,334

Total risk exposure amount



49,243 47,778

3.1 49,243 49,672 47,741 47,485 47,778 47,485

Tier 1 capital **)



7,777 6,943 12.0 7,777 7,369 7,374 7,427 6,943 7,427

Impairment account and discount on commitments taken over ***)

1,708 2,020 -15.5 1,708 1,901 1,992 1,994 2,020 1,994



Contractual non-performing loans



Business volume



1,086 1,095 -0.8 1,086 1,089 1,090 1,093 1,095 1,093 873 404 116.1 873 863 876 862 404 862 7,920 7,669

3.3 7,920 7,702 8,072 7,765 7,669 7,765

388 439 -11.6 388 401 401 443 439 443 238,807 228,057

4.7 238,807 236,185 232,335 230,113 228,057 230,113

*) In the core earnings format, an amount was reclassified between the items Net interest income and Loan impairment charges etc., which relates to the part of the discount on commitments taken over recognized as income. See note 3. **)

Tier 1 capital for the first and second quarters of 2017 is exclusive of recognition of profit/loss for the period.

***) Spar Nord’s impairment account amounts to DKK 1,651 million (Q2 2017: DKK 1,839 million) (note 10) and the discount on commitments taken over amounts to DKK 57 million (Q2 2017: DKK 62 million).





Spar Nord Q1-Q3 2017

Performance indicators and financial ratios –

4

Group

Performance indicators and financial ratios – Group CORE EARNINGS – QUARTERLY Q1-Q3 2017

FINANCIAL RATIOS OWN FUNDS

Q1-Q3 2016

Q3 2017

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Full year 2016

Own funds ratio *)

1 7.9 16.6 17.9 16.9 17.6 17.7 16.6 17.7

Tier 1 capital ratio *)

15.8 14.5 15.8 14.8 15.4 15.6 14.5 15.6

Common equity tier 1 capital ratio *)

14.2 13.9 14.2 13.2 13.8 14.0 13.9 14.0

EARNINGS



Return on equity before tax excl. Additional Tier 1 (AT1) capital, % **)



Return on equity after tax excl. Additional Tier 1 (AT1) capital, % **)



Cost share of core income

0.59 0.57 0.63 0.62 0.54 0.69 0.49 0.60

Cost share of core income - incl. loan impairment charges etc.



Return on assets, %

1.0 0.9 0.3 0.3 0.4 0.2 0.4 1.1





MARKET RISK AND LIQUIDITY



Interest rate risk, %

1.3 0.4

Foreign-exchange position, %

5.2 3.1 5.2 3.9 3.3 3.2 3.1 3.2

Foreign-exchange risk, %

0.1 0.0 0.1 0.1 0.1 0.1 0.0 0.1

Liquidity Cover Ratio (LCR), %

165 155 165 176 168 171 155 171





CREDIT RISK



Loans and advances plus impairment account and discount hereon as % of deposits, %



Loans and advances as % of equity

5.7 5.2 5.7 5.5 5.1 5.3 5.2 5.3

Increase in loans and advances for the period, %

4.4 3.6 0.8 1.6 1.9 0.0 0.3 3.6

Sum of large exposures, %

18.7 15.8 18.7 17.5 17.1 14.5 15.8 14.5

Impairment ratio, %

-0.1 0.4 -0.1 0.0 0.0 0.1 0.1 0.4

12.5 10.9 9.8 8.9

3.6 4.0 4.9 2.3 4.9 13.2 2.7 3.2 3.9 1.9 4.0 10.7

0.57 0.65 0.57 0.60 0.55 0.76 0.55 0.68

1.3 0.2 -0.2 1.2 0.4 1.2

74.5 68.3 74.5 70.5 71.3 70.9 68.3 70.9

EMPLOYEES AND BRANCHES



Number of employees (full-time equivalents, end of period)



Number of branches

51 66 51 55 56 58 66 58

1,557 1,548 1,557 1,555 1,528 1,540 1,548 1,540

SPAR NORD SHARE



DKK PER SHARE OF DKK 10



Share price, end of period

78 64 78 85 77 81 64 81

Net asset value (NAV), **)

64 62 64 63 66 63 62 63

Profit/loss for the period **)

6.3 5.4

Dividend

- - - - - - - 5.0

Return

- - - - - - - 38

Price/earnings **)

- - - - - - - 12

1.7 2.0 2.5 1.2 2.4 6.6

*)

Own funds for the first and second quarters of 2017 is exclusive of recognition of profit/loss for the period.

**)

Financial ratios have been calculated as if the Additional Tier 1 (AT1) capital were treated as a liability for accounting purposes.

Spar Nord Q1-Q3 2017

Executive Summary

5

Executive Summary The first nine months of 2017 was a period in which the Danish economy finally started to show signs of a recovery and thus a more sustainable improvement in investment appetite and demand for funding. Interest margins remain under pressure, but we are now witnessing decent growth in lending volumes and good progress in our activity-driven income. Combined with a reversal of impairment charges of some DKK 50 million, this has ensured that our overall financial performance is more than satisfactory, says Spar Nord’s CEO Lasse Nyby.

Spar Nord achieved a profit after tax of DKK 799 million in Q1-Q3 2017, which corresponds to an annualized return on equity of 13.1%. The profit is DKK 109 million, or 16%, higher than in the year-earlier period and is considered satisfactory by Management. Core income amounted to DKK 2,377 million, which is on a level with the same period of last year. Net interest income fell 4% to DKK 1,173 million, net income from fees, charges and commissions rose 8% to DKK 837 million, while market value adjustments fell 8% to DKK 303 million. Net income from fees, charges and commissions developed in line with the preceding quarters, while the decline in market value adjustments from Q2 to Q3 was especially due to non-recurring factors as the value of Spar Nord’s ownership interest in the data centre BEC was adjusted due to impairment of development assets. Total costs and expenses amounted to DKK 1,411 million, which is DKK 57 million, or 4%, higher than in Q1-Q3 2016. As was the case in the first two quarters of the year, costs were affected by investment in strategic measures, including in the IT area, that are intended to lead to the realisation of gains in the upcoming period. Investments have also been made in a refurbishment of the Bank’s branches in accordance with the strategy The Personal Bank in a Digital World.

Impairment of BEC development assets In order to comply with the new guidelines from the Danish FSA triggered by the MREL requirements concerning costs of withdrawal from data centres, the board of directors of Spar Nord’s data centre, BEC, has resolved to carry out an extraordinary write-down in 2017 of BEC’s development assets of DKK 483 million. Furthermore, it was resolved to expense development projects in progress on an accelerated basis. The effect of these matters for Spar Nord is that the Bank’s investments in BEC were written down by DKK 54 million in Q3.

Positive business volume developments At 30 September 2017, Spar Nord’s total business volume was DKK 8.7 billion, or 4%, higher than at end-2016. Of this amount, DKK 1.5 billion was attributable to growth in lending to the Bank’s retail and business customers, which corresponds to a satisfactory 4% increase in lending. The volume of mortgage-credit loans arranged grew DKK 3.1 billion, equal to an increase of 4%.

Outlook Core earnings before impairment were DKK 966 million, which is DKK 65 million, or 6%, lower than in Q1-Q3 2016. Loan impairment charges etc. were a net income of DKK 51 million, which is notably better than expected at the beginning of the year and should be compared with impairments of DKK 188 million in the year-earlier period.

Based on developments in Q3 and due to the negative market value adjustment relating to BEC, Spar Nord forecasts core earnings before impairment of around DKK 1,200 million, against the previous forecast of around DKK 1,250 million. Also, full-year impairment charges are now expected to be around DKK 0, and Spar Nord maintains its full-year pre-tax financial guidance.

Spar Nord Q1-Q3 2017

Management commentary on

6

Q1-Q3 2017

Management commentary on Q1-Q3 2017

Spar Nord achieved a profit after tax of DKK 799 million in Q1-Q3 2017, which corresponds to an annualized return on equity of 13.1%. The profit is DKK 109 million, or 16%, higher than in the year-earlier period and is considered satisfactory by Management. Core income amounted to DKK 2,377 million, which is on a level with the same period of last year.

Net fee income at a satisfactory level Net income from fees, charges and commissions amounted to DKK 837 million, which is DKK 59 million, or 8%, higher than in the year-earlier period. Net income from fees, charges and commissions thus accounted for 42% of total net interest and fee income in the period. The increase was attributable especially to continued growth in income from mortgage loans arranged – driven by both volume growth and price adjustments. In addition, there was a decent increase in net fee income relating to insurance, the “daily banking” area and payment services.

NET INTEREST INCOME AND NET FEE INCOME (DKKM) Net interest income Net income from fees, charges and commissions

1,924

1,947

2,102

2,004

2,010

532

625

791

778

837

Net fee income from securities trading and asset management fell by a total of DKK 13 million relative to the same period of 2016, reflecting lower income from unit trusts, among other things as a consequence of MiFID II. The fall was partly offset by higher income from securities trading and asset management. From Q2 to Q3 net income from fees, charges and commissions fell from DKK 279 million to DKK 264 million. One of the reasons for the decline is that fees regarding Netbank Erhverv are collected in Q2.

1,392

1,322

1,311

1,226

1,173

Market value adjustments marked by BEC writedown

Q1-Q3 2013

Q1-Q3 2014

Q1-Q3 2015

Q1-Q3 2016

Q1-Q3 2017

Market value adjustments and dividends amounted to DKK 303 million, which is DKK 26 million, or 8%, lower than in the same period of 2016.

Persistent pressure on net interest income Net interest income was DKK 1,173 million in Q1-Q3 2017, against DKK 1,226 million in the same period of 2016. Adding to this income was a DKK 1.5 billion (4%) increase in bank and leasing lending since 1 January, while a 34 basis point decline in the lending margin and a 30 basis point decline in the overall interest rate margin since 1 January year weighed on this item. Of the total decline in interest income of DKK 89 million relative to the same period of last year, DKK 31 million was attributable to the Bank’s bond portfolio. Interest expenses on deposits were reduced by DKK 37 million relative to Q1-Q3 2016. The reduction was driven by a lower interest rate on deposits, partly due to the expiry of high-interest deposits, partly due to interest changes implemented. From Q2 to Q3, net interest income fell 1% from DKK 393 million to DKK 388 million. In Q3, net interest income was positively impacted by DKK 10 million in non-recurring income from a previous impairment exposure, against a DKK 9 million impact in Q2.

nteindtægter

MARKET VALUE ADJUSTMENTS AND DIVIDENDS (DKKM)

143

353

464

329

303

Q1-Q3 2013

Q1-Q3 2014

Q1-Q3 2015

Q1-Q3 2016

Q1-Q3 2017

Market value adjustments on the Bank’s equity and bond portfolio improved by DKK 35 million relative to the same period last year. Market value adjustments were adversely impacted by a DKK 54 million writedown on the investment in the BEC data centre (see more on page 9). From Q2 to Q3, market value adjustments and dividends fell from DKK 121 million to DKK 18 million. The decline was primarily attributable to the BEC writedown and lower market value adjustments on bonds.

Nettogebyrindtægter

Spar Nord Q1-Q3 2017

Management commentary on

7

Q1-Q3 2017

Decent increase in other income

Costs and expenses influenced by strategic initiatives

Costs were generally affected by Spar Nord’s implementation of its new strategy launched at the end of 2016, which is still at a stage of investment in measures, including in the IT area, that are intended to lead to the realization of gains in the upcoming period. Investments have also been made in a refurbishment of the Bank’s branches in accordance with the strategy The Personal Bank in a Digital World. From Q2 to Q3, costs fell from DKK 502 million to DKK 434 million. The decline was mainly driven by the usual adjustment of holiday pay obligations during the summer holiday period.

The Group’s total costs and expenses amounted to DKK 1,411 million, which is DKK 57 million, or 4%, higher than in the year-earlier period.

Net reversal of loan impairment charges

Other operating income amounted to DKK 36 million, against DKK 28 million in Q1-Q3 2016 and profit on investments in associates and group enterprises came to DKK 27 million, up from DKK 23 million last year.

Loan impairment charges etc. were an income of DKK 51 million, which compares to an expense of DKK 188 million in the year-earlier period.

TOTAL COSTS (DKKM) 1,290

1,313

1,373

1,354

1,411

72

54

52

51

46

Depreciation, amort. and impairmanet

476

486

514

468

515

Operating expenses

742

773

807

835

850

Wages and salaries

Q1-Q3 2013

Q1-Q3 2014

Q1-Q3 2015

Q1-Q3 2016

Q1-Q3 2017

Wages and salaries accounted for DKK 850 million of total costs and expenses. Realized payroll costs were DKK 15 million, or 2%, higher than in the year-earlier period, which is ascribable to pay rises under collective agreements and increasing payroll taxes and the fact that 2016 included a positive one-off effect of DKK 17 million concerning the outcome of a legal action. At 30 September 2017, the Group employed 1,557 employees, which is 9 more than at the same time in 2016. The Bank has 51 branches, which is 15 fewer than a year ago. The reason the number of employees has not been reduced concurrently with the number of branches is, among other things, that resources have been channelled to areas such as the central customer service centre and IT & Processes as part of the strategic projects referred to below. Other operating expenses came to DKK 515 million, which is DKK 47 million, or 10%, higher than in Q1-Q3 2016. Expenses were favourably impacted by the lack of last year’s non-recurring costs for IT migration and a drop in ongoing IT expenses. Weighing on expenses were a number of new costs related to strategic IT projects in BEC and at sector level and an increase in items such as marketing expenses because customer-facing activities in 2016 were lower than usual because of the efforts to prepare and implement the IT migration from SDC to BEC.

IMPAIRMENTS (DKKM)

311

288

240

188

-51

Q1-Q3 2013

Q1-Q3 2014

Q1-Q3 2015

Q1-Q3 2016

Q1-Q3 2017

Individual impairment charges were an income of DKK 50 million, while collective impairment charges rose by DKK 133 million. The collective impairment charges consist of a decline in rating-based and calculated collective impairment charges totalling DKK 17 million and Management estimates of DKK 85 million concerning retail customers and a total of DKK 65 million concerning agricultural and business customers, of which DKK 40 million relates to Q3. Finally, DKK 132 million was recovered on previously impaired receivables in Q1-Q3 2017, which is notably higher than in the year-earlier period.

THE GROUP’S LOANS, ADVANCES AND GUARANTEES *) BREAKDOWN BY INDUSTRY Loans and guarantees

Industry %

31.12.16

30.09.17

Impairment account and discount on exposures taken over 30.09.17

400 Agriculture, hunting and forestry 6.9 6.5 33.5 360 Fisheries 0.2 0.2 0.0 320 Industry and raw materials extraction 5.4 5.8 3.8 280 Energy supply 3.3 3.1 1.7 240 Construction and engineering 3.9 4.7 3.7 200 Trade 7.8 7.8 3.3 160 Transport, hotels and restaurants 3.4 3.7 5.3 120 Information and communication 0.4 0.4 0.2 80 Financing and insurance 5.8 6.0 6.1 40 Real property 12.2 11.2 14.1 0 industries Other 5.4 5.8 4.2 Total business customers

54.7 55.2 75.9

Public authorities

0.1 0.0 0.0

Retail customers

45.2 44.8 24.1

Total

100.0 100.0 100.0 2.757 2.663 2.572

*) Excl. reverse repo transactions 2.159

2.239

483

562

723

863

1.030

Spar Nord Q1-Q3 2017

Management commentary on

8

Q1-Q3 2017

Business volume growing to DKK 239 billion

AGRICULTURAL EXPOSURES BY PRODUCTION LINE

Loans and advances and guarantees

30.09.17 DKKm

Nonaccrual loans

Of which impaired

Share impaired

Cattle producers



957.0 56.9 605.6 63.3

Pig producers



691.2

Plant cultivation



739.4 3.8 62.0 8.4

Mink farmers



Leasing



Andet



Total



88.3

9.6 338.4 49.0 0.2 33.8 38.3

447.1 0.4 8.6 1.9 334.6 3.4 20.4 6.1 3,257.6

74.3 1,068.8

32.8

AGRICULTURAL IMPAIRMENTS BY PRODUCTION LINE 30.09.17 DKKm/%

Impairment account

Impairment Impaired for the year

Impairment ratio of exposure

Percentage impaired

Cattle producers 356.6 72.3 -6.6 37.3 58.9 Pig producers

160.0 85.8 -10.5

Plant cultivation

26.9 30.3 9.8

23.2 47.3

Mink farmers



9.8 2.2 -4.3 11.1 29.1

Leasing



2.1 0.7 -0.3

0.5 23.9

Andet

17.4 0.0 2.8

5.2 85.4

Total

572.8 191.3 -9.1 17.6 53.6

3.6 43.3

Broken down by customer segment and including the Management estimates, the total impact was DKK 58 million for retail customers, DKK -100 million for business customers ex. agriculture and DKK -9 million for agriculture. Apart from a strong credit quality in Spar Nord’s loan portfolio, the highly positive trends in impairments reflect the continued improvement of macroeconomic conditions, including a lower inflow 99,9999 of impairment exposures and better performance of loans already flagged as having weak credit quality. 85,7142

71,4285

Loan impairment charges etc. in Q3 were an income of DKK 42 mil57,1428 lion, against an income of DKK 10 million in Q2. The positive trend 42,8571 impaired receivawas driven by amounts recovered on previously bles. 28,5714

14,2857

At 30 September 2017, Spar Nord estimated the impact of the new 0,0000 impairment rules that follow from IFRS 9 and how they will affect the Bank’s loan impairment charges etc. when they enter into force at the beginning of 2018. The estimate at 30 September 2017 still shows an effect of about 2-3% of shareholders’99,9999 equity.

The Group’s total business volume (deposits, loans, advances and guarantees, mortgage credits arranged and customers’ custodianship accounts) amounted to DKK 238.8 billion at 30 September 2017, which was DKK 8.7 billion, or 4%, higher than at end-2016. Compared with end-2016, bank and leasing loans rose DKK 1.5 billion, or 4%, and of this increase DKK 0.4 billion was attributable to retail customers and DKK 1.1 billion to business customers. The de-facto increase in lending growth in continuing activities was DKK 1.8 billion, as there was a DKK 0.3 billion drop in the resolution portfolio which Spar Nord took over in connection with the merger with Sparbank. TOTAL CREDITS ARRANGED (DKKBN) Total

95.8

98.4

102.1

107.6

113.2

Lending, mortgage credit

59.2

61.2

67.8

72.5

76.6

36.6

37.2

34.3

35.1

36.6

Q1-Q3 2013

Q1-Q3 2014

Q1-Q3 2015

Q1-Q3 2016

Q1-Q3 2017

Lending, bank loans and leasing loans

In Q1-Q3 2017, the volume of mortgage-credit loans arranged grew DKK 3.1 billion to DKK 76.6 billion, equal to 4%. In total, the volume of mortgage-credit loans arranged from Totalkredit amounted to DKK 65.3 billion and from DLR Kredit DKK 11.3 billion. TOTAL DEPOSITS (DKKBN) Total

50.5

53.2

56.5

60.9

Deposits, pooled schemes

8.5

10.3

12.3

Deposits, banking activities

42.0

42.9

44.2

47.0

48.1

Q1-Q3 2013

Q1-Q3 2014

Q1-Q3 2015

Q1-Q3 2016

Q1-Q3 2017

13.9

63.3

15.2

85,7142 71,4285

Profit before tax of DKK 1,017 million and net profit of 57,1428 DKK 799 million

42,8571

The profit before tax was DKK 1,017 million against DKK 843 million in 28,5714 Q1-Q3 2016. The Group’s effective tax rate was 21%, bringing the net profit to DKK 799 million, up from DKK 69014,2857 million in the same period last year. 0,0000

99,9999 85,7142 71,4285 57,1428 42,8571

Deposits, banking activities increased by DKK 1.6 billion, or 4%, in Q1Q3 while deposits in pooled schemes climbed DKK 0.7 billion, or 5%. Finally, customers’ custodianship accounts have increased DKK 2.4 billion, or 5%, since end-2016.

Spar Nord Q1-Q3 2017

Management commentary on

9

Q1-Q3 2017

Strategic liquidity of DKK 21.0 billion

Impairment of BEC development assets

Spar Nord has defined strategic liquidity as the difference between bank and leasing lending and the long-term funding (bank deposits, senior loans, issued bonds, subordinated debt and equity).

In connection with the new requirements for own funds in Danish banks (MREL), the Danish FSA has prepared an interpretation that stipulates that costs of withdrawal from data centres are considered an obstacle to resolvability in a situation in which a bank fails to comply with its capital requirement, as a result of which resolution measures must be initiated.

Subordinated debt, senior loans and issued bonds due within 12 months are not included in the Bank’s strategic liquidity. STRATEGIC LIQUIDITY (DKKbn)

30.09.16

31.12.16

31.03.17

30.06.17

30.09.17

Deposits, banking activities

47.0 46.5 45.6 47.6 48.1

Senior loans/bond issues

0.0 0.0 0.0 0.0 0.0

Equity and subordinated debt

9.2 9.7 10.0 9.7 9.9

Liquidity procurement



56.2 56.2 55.6 57.3 58.0

Lending, banking and leasing activities

35.1 35.1 35.8 36.4 36.6

Maturity, senior issued bonds &



subordinated debt <1 year

0.0 0.4 0.4 0.4 0.4

Strategic liquidity, total



21.1 20.7 19.4 20.5 21.0

At the end September 2017, Spar Nord’s strategic liquidity amounted to DKK 21.0 billion, up DKK 0.3 billion compared with end-2016.

To comply with the new rules, BEC has resolved to initiate a process aimed at minimizing the future financial obligations of its members in case a member withdraws from the cooperation. The aim of the process is to ensure that banks expense developments costs closer to the period in which such costs were incurred. Specifically, BEC has resolved to carry out an extraordinary writedown in 2017 of its development assets of DKK 483 million, while ongoing development projects of DKK 54 million will be expensed on an accelerated basis. As a result, the cooperative accounts of BEC’s members will be written off. The effect for Spar Nord of these measures is that the Bank’s investments in BEC were written down by DKK 54 million in Q3.

Spar Nord’s LCR ratio at 30 September 2017 was 165%. The Supervisory Authority Diamond Test Model Strong capital position At 30 September 2017, the Common Equity Tier 1 (CET1) ratio was 14.2%, while the own funds ratio was 17.9%. This should be viewed relative to the individual solvency need calculated by Spar Nord at 9.1% plus the 1.3% combined buffer requirement, as a result of which the total capital requirement is 10.4%. Thus, Spar Nord has an excess capital coverage of 7.5 percentage points, equal to DKK 3.7 billion. On the basis of fully phased-in CRD IV rules, the current capital position would correspond to a Common Equity Tier 1 (CET1) ratio of 14.0%.

The Supervisory Authority Diamond Test Model lists a number of reference points delineating what can be basically considered a financial institution with an increased risk profile. Violations of the principles contained in the Supervisory Authority Diamond Test Model are subject to supervisory reactions by the Danish FSA. At 30 September 2017, Spar Nord remained comfortably within all threshold values in the Supervisory Authority Diamond Test Model. At 30 September 2017, Spar Nord could report the following values in respect of the defined reference points:

In Q3, Spar Nord resumed its previous practice of consolidating its profit for the year, which is reflected in the key ratios set out above.

Large exposures <125 %

Udlånsvækst <20 %

In continuation of the description in the most recent interim report about Spar Nord’s expectations of the coming MREL rules, the Danish FSA has now stated that Spar Nord will have to comply with the same MREL as the SIFI institutions. As a result of this and other factors, Spar Nord is in the process of identifying options with a view to a transition to risk-weighting based on internal, rating-based models. Spar Nord expects to be able to provide an update on its preparatory work and expectations of the further process in Annual Report 2017.

Spar Nord:

Spar Nord:

At the beginning of Q4, Spar Nord has issued new Tier 2 capital in the amount of DKK 470 million and cancelled Tier 2 capital for DKK 400 million for repayment in November 2017.

18.7 %

4.7 %

Funding ratio <1

Ejendomseksponering <25%

Spar Nord:

Spar Nord:

0.5

10.7 % Liqudity coverage ratio >50% Spar Nord: 312.3 %

Spar Nord Q1-Q3 2017

Management commentary on

10

Q1-Q3 2017

With reference to the calculation method for the reference point Large exposures specified by the Danish FSA, with the benchmark for the 20 largest exposures being fixed at 175% of the Common Equity Tier 1 (CET1), Spar Nord’s 20 largest exposures amounted to 96.9% at 30 September 2017.

Outlook for 2017 At the beginning of 2017, Spar Nord forecast core earnings before impairment of around the DKK 1.1-1.2 billion mark, and after Q2 this forecast was upgraded to around DKK 1,250 million. At the beginning of the year, loan impairments were expected to be “lower than in 2016”, but after Q2 this forecast was revised to “substantially lower than in 2016”. Based on developments in Q3 and due to the write-down relating to BEC, Spar Nord forecasts core earnings before impairment of around DKK 1,200 million. Also, full-year impairment charges are now expected to be around DKK 0, and Spar Nord maintains its full-year pre-tax financial guidance.

Spar Nord Q1-Q3 2017

Spar Nord shares held by members of the Management team

11

Overview of group companies

Spar Nord shares held by members of the Management team BOARD OF DIRECTORS Kjeld Johannesen Per Nikolaj Bukh Kaj Christiansen Morten Bach Gaardboe Laila Mortensen Ole Skov Jannie Skovsen Gitte Holmgaard Sørensen John Sørensen

At 30.09.17 50,000 27,200 21,100 3,620 0 7,279 7,576 1,756 5,160

At 30.06.17 50,000 27,200 21,100 3,620 0 7,054 7,404 1,566 5,160

EXECUTIVE BOARD

At 30.09.17 48,716 71,496 66,376

Lasse Nyby John Lundsgaard Lars Møller

At 30.06.17 47,784 71,113 65,460

The holdings comprise all shares held by all members of the household.

Overview of group companies Consolidated subsidiaries Aktieselskabet Skelagervej 15, Aalborg *) According to the most recent annual report. The company is a wholly subsidiary in 2016 and 2017.

Share capital end of period*) DKKm 27.0

Equity end of period*)

1,583.7

Profit/loss *) DKKm

74.9

Spar Nord Q1-Q3 2017

Performance indicators and financial ratios –

12

Group

Performance indicators and financial ratios – Group THE DANISH FSA’S LAYOUT AND RATIO SYSTEM Q1-Q3 2017

INCOME STATEMENT DKKm Interest income



Interest expenses



Net interest income



Dividends on shares, etc.



Fees, charges and commissions received



Fees, charges and commissions paid



Net income from interest, fees, charges and commissions Market value adjustments



Other operating income



Staff costs and administrative expenses



Amortization, depreciation and impairment of intangible assets and property, plant and equipment Other operating expenses



Loan impairment charges etc.



Profit/loss on equity investments in associates and group enterprises Profit/loss before tax



Tax



Profit/loss



Q1-Q3 2016

Change in %

1,281.5 1,378.2

Q1-Q3 2017

Q1-Q3 2016

Q1-Q3 2015

Q1-Q3 2014

Q1-Q3 2013

Full year 2016

-7.0 1,281.5 1,378.2 1,498.1 1,732.2 2,145.3 1,815.5

78.9 114.8 -31.3 78.9 114.8 158.4 365.9 506.8 144.7 1,202.6 1,263.4

-4.8 1,202.6 1,263.4 1,339.7 1,366.3 1,638.5 1,670.8

22.6 49.3 -54.2 22.6 49.3 54.6 943.4 867.3

39.1 20.9

47.9

8.8 943.4 867.3 852.2 668.5 577.3 1,174.8

106.3 89.1 19.3 106.3 89.1 61.1 43.4 45.5 122.1 2,062.3 2,090.9 280.1 280.0

-1.4 2,062.3 2,090.9 2,185.4 2,030.5 2,191.2 2,771.4 0.0 280.1 280.0 408.9 335.0 148.1 385.8

36.3 28.3 28.3 36.3 28.3 39.9 36.3 71.0 29.7 1,357.9 1,295.4

4.8 1,357.9 1,295.4 1,315.5 1,247.1 1,243.3 1,788.8

46.3 50.9 -9.0 46.3 50.9 52.2 53.5 87.1 94.3 6.7 7.2 -6.9 6.7 7.2 79.9 84.8 81.0 13.3 -21.4 225.3 -109.5 -21.4 225.3 278.2 334.4 562.4 292.0 27.3 22.5 21.3 27.3 22.5 20.5 79.0 54.7 29.6 1,016.5 842.9

20.6 1,016.5 842.9 928.9 761.0 491.2 1,028.1

217.6 152.6 42.6 217.6 152.6 149.5 125.7 107.8 189.9 798.9 690.3

15.7 798.9 690.3 779.4 635.3 383.4 838.2

BALANCE SHEET DKKm



Total assets



80,372 78,957

1.8 80,372 78,957 79,958 78,816 75,080 78,473

Loans and advances



45,471 39,697

14.5 45,471 39,697 38,223 37,362 37,166 41,346



Lending, banking and leasing activities



36,630 35,106

4.3 36,630 35,106 34,300 37,187 36,624 35,093



Lending, reverse repo transactions



8,841 4,591 92.6 8,841 4,591 3,923

175 542 6,253

Deposits



63,296 60,926

3.9 63,296 60,926 56,986 53,199 50,463 61,005



Deposits, banking activities



48,092 47,046

2.2 48,092 47,046 44,206 42,930 41,998 46,464



Deposits, repo transactions





Deposits in pooled schemes



0 0 - 0 0 464 0 0 0 15,204 13,880

9.5 15,204 13,880 12,316 10,269 8,465 14,541

Subordinated debt



Equity



8,793 8,073

8.9 8,793 8,073 7,768 7,047 6,377 8,627

Contingent liabilities



11,742 11,885

-1.2 11,742 11,885 9,426 8,021 5,435 12,334

1,086 1,095 -0.8 1,086 1,095 1,154 1,711 2,319 1,093

Total risk exposure amount



Tier 1 capital



7,777 6,943 12.0 7,777 6,943 6,865 6,619 7,400 7,427

Loan impairment charges etc.



1,651 1,904 -13.3 1,651 1,904 1,877 1,776 1,557 1,891

Contractual non-performing loans



49.243 47,778

3.1 49,243 47,778 47,507 48,698 43,111 47,485

388 439 -11.6 388 439 672 624 761 443

Spar Nord Q1-Q3 2017

Performance indicators and financial ratios –

13

Group

Performance indicators and financial ratios – Group THE DANISH FSA’S LAYOUT AND RATIO SYSTEM Q1-Q3 2017

FINANCIAL RATIOS Own funds

Q1-Q3 2016

Q1-Q3 2017

Q1-Q3 2016

Q1-Q3 2015

Q1-Q3 2014

Q1-Q3 2013

Full year 2016

Own funds ratio



1 7.9 16.6 17.9 16.6 16.5 15.5 17.4 17.7

Tier 1 capital ratio



15.8 14.5 15.8 14.5 14.5 13.6 17.2 15.6

Earnings



Return on equity before tax, %



Return on equity after tax, %



9.2 8.7 9.2 8.7 10.5 9.4 6.2 10.2

Income/cost ratio



1.73 1.53 1.73 1.53 1.54 1.44 1.25 1.47

Return on assets, %



11.7 10.6 11.7 10.6 12.6 11.2 8.0 12.5

1.0 0.9 1.0 0.9 1.0 0.8 0.5 1.1

Market risk and liquidity



Interest rate risk, %



1.3 0.4 1.3 0.4 1.2 1.9 0.1 1.2

Foreign-exchange position, %



5.2 3.1 5.2 3.1 4.0 3.4 3.4 3.2

Foreign-exchange risk, %



0.1 0.0 0.1 0.0 0.1 0.0 0.0 0.1

Excess coverage relative to statutory liquidity requirement, %

313.4 298.8 313.4 298.8 263.7 194.3 211.8 308.3

Credit risk



Loans and advances as % of deposits, %



71.8 65.2 71.8 65.2 67.1 70.2 73.7 67.8

Loans and advances plus impairment as % of deposits, %

74.4 68.2 74.4 68.2 70.3 73.6 76.7 70.7

Loans and advances as % of equity, %



Increase in loans and advances for the period, %

5.2 4.9 5.2 4.9 4.9 5.3 5.8 4.8 4.4 3.6 4.4 3.6 -3.3 3.7 -6.0 3.6

Sum of large exposures, %



18.7 15.8 18.7 15.8 15.9 30.9 16.8 14.5

Impairment ratio for the period



0.0 0.4 0.0 0.4 0.6 0.7 1.3 0.5

THE SPAR NORD SHARE



DKK per share of DKK 10



Profit/loss for the period



6.5 5.5 6.5 5.5 6.2 5.1 3.1 6.8

Net asset value (NAV)



64 62 64 62 59 56 51 63

Dividend



Share price/profit/loss for the period



Share price/NAV



- - - - 2.0 - - 5.0 12.0 11.6 12.0 11.6 12.3 11.8 13.5 11.9 1.2 1.0 1.2 1.0 1.3 1.1 0.8 1.3

Spar Nord Q1-Q3 2017

Management’s statement on the Interim Report

Management’s statement on the Interim Report

The Board of Directors and the Executive Board have today discussed and adopted the Interim Financial Statements of Spar Nord Bank A/S for the period from 1 January to 30 September 2017. The Consolidated Interim Financial Statements are presented in accordance with IAS 34 “Interim Financial Reporting”, as adopted by the EU. Moreover, the Interim Financial Statements are presented in accordance with additional Danish disclosure requirements regarding interim financial statements of listed financial institutions. The interim financial statements are unaudited and have not been reviewed, but the external auditor has verified the profit. This verification included procedures consistent with the requirements relating to a review. Hence, it was ascertained that the conditions for ongoing recognition of the profit for the period in own funds were met. In our opinion, the Interim Financial Statements give a true and fair view of the Group’s financial position at 30 September 2017 and of the results of the Group’s operations and cash flows for the period from 1 January to 30 September 2017. In addition, we consider the Management’s review to give a fair presentation of the development in the Group’s activities and financial affairs as well as a description of the significant risks and elements of uncertainty that may affect the Group.

EXECUTIVE BOARD

Lasse Nyby Chief Executive Officer

John Lundsgaard Managing Director

Lars Møller Managing Director

BOARD OF DIRECTORS

Kjeld Johannesen Chairman

Per Nikolaj Bukh Deputy Chairman of the Board of Directors

Kaj Christiansen

Morten Bach Gaardboe

Laila Mortensen

Ole Skov Elected by the employees

Jannie Skovsen Elected by the employees

Gitte Holmgaard Sørensen Elected by the employees

Aalborg, 1 November 2017

John Sørensen

14

Spar Nord Q1-Q3 2017

Income statement – Group

Income statement – Group NOTE

4

Interest income

5

Interest expenses Net interest income

Q1-Q3 2017 DKKm

Q1-Q3 2016 DKKm

1,281.5 1,378.2

15

Q3 2017 DKKm

Q3 2016 DKKm

414.5

460.4 1,815.5

Full year 2016 DKKm

78.9 114.8 24.9 38.5 144.7 1,202.6 1,263.4

389.6

421.9 1,670.8

Dividends on shares, etc.

22.6 49.3

4.4

0.4 47.9

6

Fees, charges and commissions received

943.4 867.3 305.2 295.9 1,174.8

6

Fees, charges and commissions paid

106.3 89.1 41.3 36.2 122.1

Net income from interest, fees, charges and commissions 2,062.3 2,090.9

657.9

682.0 2,771.4

7

Market value adjustments Other operating income

8

Staff costs and administrative expenses Amortization, depreciation and impairment of intangible assets and property, plant and equipment Other operating expenses

10

Loan impairment charges etc. Profit/loss on investments in associates and group enterprises Profit/loss before tax

280.1 280.0 36.3 28.3 1,357.9 1,295.4

13.2

142.1 385.8

11.8 413.3

11.0 29.7 386.7 1,788.8

46.3 50.9 18.1 16.5 94.3 6.7 7.2 2.1 2.3 13.3 -21.4 225.3 -40.2 27.3 22.5

7.1

63.4 292.0 7.5 29.6

1,016.5 842.9 296.7 373.7 1,028.1

Tax

217.6 152.6

72.9

66.0 189.9

Profit/loss

798.9 690.3 223.8 307.7 838.2



APPROPRIATION:



The shareholders of the Parent Company Spar Nord Bank A/S Holders of Additional Tier 1 (AT1) capital instruments



Profit/loss



762.5 672.1 211.5 301.5 812.1 36.4 18.2 12.3

6.2 26.1

798.9 690.3 223.8 307.7 838.2

EARNINGS PER SHARE



Earnings per share (DKK)



6.3 5.4 1.7 2.4 6.6

Diluted earnings per share (DKK)

6.3 5.4 1.7 2.4 6.6



STATEMENT OF COMPREHENSIVE INCOME Profit/loss for the period



798.9 690.3 223.8 307.7 838.2

Other comprehensive income Items that cannot be reclassified to the income statement: Net revaluation of domicile property



Other comprehensive income after tax

1.2 1.2 0.4 0.4 -5.0 1.2 1.2 0.4 0.4 -5.0

Total comprehensive income







Appropriation:



The shareholders of the Parent Company Spar Nord Bank A/S Holders of Additional Tier 1 (AT1) capital instruments



Total comprehensive income



800.1 691.5 224.2 308.1 833.2

763.7 673.3

211.9 301.9 807.1

36.4 18.2 12.3

6.2 26.1

800.1 691.5 224.2 308.1 833.2

Spar Nord Q1-Q3 2017

Balance sheet – Group

Balance sheet – Group

30.09.17 DKKm

16

30.09.16 DKKm

Full year 2016 DKKm

ASSETS

NOTE

9

11

Cash balances and demand deposits with central banks 1,346.8 744.3 595.3 Due from credit institutions and central banks 1,823.7 2,679.5 2,178.8 Lending, banking and leasing activities 36,630.4 35,105.9 35,092.2 Lending, reverse repo transactions 8,840.8 4,591.5 6,253.4 Loans, advances and other receivables at amortized cost, total 45,471.2 39,697.4 41,345.6 Bonds at fair value 11,980.0 16,908.9 14,936.1 Shares, etc. 1,518.5 1,627.3 1,557.2 Investments in associates 120.4 82.0 118.4 Assets linked to pooled schemes 15,203.9 13,879.8 14,541.5 Intangible assets 186.1 206.4 194.4 Investment properties 135.1 145.4 135.0 Domicile property 523.9 539.4 518.5 Land and buildings, total 659.0 684.8 653.5 Other property, plant and equipment 107.5 101.0 91.1 Current tax assets 0.0 0.0 17.9 Temporary assets 23.1 16.0 33.9 Other assets 1,820.3 2,224.5 2,086.3 Prepayments 111.7 104.9 123.5 Total assets 80,372.2 78,956.8 78,473.5

EQUITY AND LIABILITIES DEBT 12

13

14

15 16 17

Due to credit institutions and central banks 2,855.0 3,671.7 2,429.8 Deposits and other payables 48,092.1 47,046.3 46,464.2 Deposits in pooled schemes 15,203.9 13,879.8 14,541.5 Other non-derivative financial liabilities at fair value 1,400.5 1,946.2 2,007.8 Current tax liabilities 45.0 16.7 0.0 Other liabilities 2,694.7 3,019.7 3,084.1 Deferred income 19.3 17.6 24.0 Total debt 70,310.5 69,598.0 68,551.4 PROVISIONS Provision for deferred tax 108.3 118.1 108.5 Provision for losses on guarantees 49.4 64.5 67.0 Other provisions 25.1 8.0 26.3 Total provisions 182.8 190.6 201.8 SUBORDINATED DEBT Subordinated debt 1,086.4 1,094.7 1,093.2 Total liabilities 71,579.7 70,883.3 69,846.4 EQUITY Share capital 1,230.0 1,255.3 1,255.3 Revaluation reserves 92.5 97.5 91.3 Statutory reserves 0.0 8.1 22.3 Proposed dividend 0.0 0.0 627.7 Retained earnings 6,597.6 6,308.2 5,768.1 Equity 7,920.1 7,669.1 7,764.7 Holders of Additional Tier 1 (AT1) capital instruments 872.4 404.4 862.4 Total equity 8,792.5 8,073.5 8,627.1 Total equity and liabilities 80,372.2 78,956.8 78,473.5 OFF-BALANCE SHEET ITEMS Contingent assets 7.5 5.4 6.9 Contingent liabilities 11,741.9 11,884.6 12,334.1 Other binding commitments 500.9 469.5 500.9

Spar Nord Q1-Q3 2017

Capital position – Group

Capital position – Group

17

The shareholders of the Parent Company Spar Nord Bank A/S

CHANGES IN EQUITY Share capital DKKm

Revaluation reserve DKKm

Equity 30.09.17



Equity 01.01.17

1,255.3

Statutory reserves DKKm

91.3

Proposed dividend DKKm

22.3

Retained earnings DKKm

Total DKKm

Additional Tier 1 (AT1) capital *) DKKm

Total DKKm

627.7 5,768.1 7,764.7 862.4 8,627.1

Comprehensive income in 2017



Profit/loss for the period

- - 27.2 - 735.3 762.5 36.4 798.9

Other comprehensive income





- 1.2 - - - 1.2 - 1.2

Net revaluation of properties

Other comprehensive income, total

- 1.2 - - - 1.2 - 1.2

Total comprehensive income for the period

-

1.2 27.2

- 735.3 763.7 36.4 800.1

Transactions with owners



Interest paid on Additional Tier 1 (AT1) capital

- - - - - - -24.2 -24.2

Dividends paid

- - - -627.7 - -627.7 - -627.7

Dividends received, treasury shares

- - - - 12.8 12.8 - 12.8

Reduction of share capital

-25.3 - - - 25.3 0.0 - 0.0

Disposal upon acquisition of treasury shares and Additional Tier 1 (AT1) capital - - - - -348.9 -348.9 -2.2 -351.1 Addition upon sale of treasury shares and Additional Tier 1 (AT1) capital

- - - - 347.5 347.5 - 347.5

Revaluation reserves, associates

- - -18.5 - 18.5 0.0 - 0.0

Dividends received from associates recognized at net asset value

- - -31.0 - 31.0 0.0 - 0.0

Tax

- - - - 8.0 8.0 - 8.0

Total transactions with owners

-25.3

-

-49.5

-627.7

94.2 -608.3

-26.4 -634.7

Equity 30.09.17

1,230.0

92.5

0.0

0.0

6,597.6

7,920.1

872.4

8,792.5

The share capital consists of 123,002,526 shares with a nominal value of DKK 10.



Equity 30.09.16



Equity 01.01.16

1,255.3

96.3

23.2

376.6

5,723.3

7,474.7

412.3

7,887.0

Comprehensive income in 2016



Profit/loss for the period

- - 22.5 - 649.6 672.1 18.2 690.3

Other comprehensive income





- 1.2 - - - 1.2 - 1.2

Net revaluation of properties

Other comprehensive income, total

- 1.2 - - - 1.2 - 1.2

Total comprehensive income for the period



-

1.2 22.5

- 649.6 673.3 18.2 691.5

Transactions with owners





Interest paid on Additional Tier 1 (AT1) capital

- - - - - - -24.2 -24.2



Dividends paid

- - - -376.6 - -376.6 - -376.6



Dividends received, treasury shares

- - - - 1.9 1.9 - 1.9



Disposal upon acquisition of treasury shares and Additional Tier 1 (AT1) capital - - - - -418.2 -418.2 -1.9 -420.1



Addition upon sale of treasury shares and Additional Tier 1 (AT1) capital

- - - - 310.0 310.0 - 310.0



Dividends received from associates recognized at net asset value

- - -37.6 - 37.6 0.0 - 0.0

Tax

- - - - 4.0 4.0 - 4.0

Total transactions with owners

-

- -37.6 -376.6 -64.7 -478.9 -26.1 -505.0

Equity 30.09.16

1,255.3

97.5

8.1

0.0

6,308.2

7,669.1

404.4

8,073.5

The share capital consists of 125,529,918 shares with a nominal value of DKK 10. Q1-Q3 2017

TREASURY SHARE PORTFOLIO Number of shares



Percentage of share capital



Q1-Q3 2016

Full year 2016

81,678 2,044,851 2,591,335 0.0 1.6 2.1

On 04.09.17, the share capital was reduced by a nominal value of DKK 25,273,920 through the cancellation of 2,527,392 shares of the bank’s treasury share portfolio. These shares were bought back under the bank’s buyback programme for 2016.

Spar Nord Q1-Q3 2017

Capital position – Group

18



Additional Tier 1 (AT1) capital

Q1-Q3 2017 DKKm

Principal

Q1-Q3 2016 DKKm

Full year 2016 DKKm

Currency

Note DKKm Interest rate Received Maturity

DKK

a

400.0

6.052%

2015

Perpetual

403.2

404.4

412.7

DKK

b

450.0

5.500%

2016

Perpetual

469.2

-

449.7

872.4

404.4

862.4

Additional Tier 1 (AT1) capital issued under CRR, total

a

Issued on 10.06.15, with an option of early redemption as from 10.06.20. The loan carries interest at a rate of 6.052% p.a. until 10.06.20,



after which date interest will be fixed at CIBOR6 + a 5.400% margin.

b Issued on 06.12.16, with an option of early redemption as from 06.12.21. The loan carries interest at a rate of 5.500% p.a. until

06.12.21, after which date interest will be fixed at CIBOR6 + a 5.166% margin.

If Spar Nord’s Common Equity Tier 1 (CET1) ratio falls below 5 1/8%, the loans will be written down. The loans can be written up again based on the rules laid down in CRR. Q1-Q3 2017 DKKm

Additional Tier 1 (AT1) capital, specification of cash flows

Q1-Q3 2016 DKKm

Full year 2016 DKKm

Cash flows, beginning of period

816.9

395.9

395.9

Movement during the period: Issue of Additional Tier 1 (AT1) capital

-

Net transaction costs

-

Change in portfolio of own bonds

-2.2

Interest paid

-24.2

-24.2

-24.2

-26.4

-26.1

421.0

Total cash flows for the period

- 450.0 - -3.0 -1.9

-1.8

Cash flows, end of period

790.5

369.8

816.9

Spar Nord Q1-Q3 2017

Cash Flow Statement - Group

Cash Flow Statement - Group

NOTE

Q1-Q3 2017 DKKm

Q1-Q3 2016 DKKm

19

Full year 2016 DKKm

OPERATING ACTIVITIES Profit/loss before tax



Fair value changes, investment properties and temporary assets

1,016.5 842.9 1,028.1 0.3 1.0 11.1

46.3 50.9 94.3 Amortization, depreciation and impairment of intangible assets and property, plant and equipment -2.3 -0.5 3.0 Gains and losses on the sale of intangible assets and property, plant and equipment Adjustment of loan impairment charges etc.



240.2 67.9 54.4

Provisions



-18.8 -3.5 17.3

Profit/loss on investments in associates and group enterprises

-27.3 -22.5 -29.6

Corporate income tax paid



-146.9 -40.0 -118.5

Operating activities, total



1,108.0 896.2 1,060.1





WORKING CAPITAL



Movement in credit institutions and central banks, net

546.4

-63.5 -1,326.2

-4,478.5 -1,176.4 -2,811.2 Movement in loans, advances and other receivables at amortized cost

14

Movement in bonds at fair value



Movement in equity portfolio



Movement in other assets and other liabilities, net



-723.4 -9.4 241.4

Movement in deposits and other payables



1,627.9 2,310.0 1,727.9

Working capital, total



-32.8 236.4 -967.8





Cash generated from operations, total







INVESTING ACTIVITIES



Acquisition of activities from FIH Erhvervsbank



Acquisition of associates and group enterprises



Sale of associates and group enterprises



Acquisition of intangible assets



Sale of intangible assets



Acquisition of property, plant and equipment



Sale of property, plant and equipment



Dividends from associates and group enterprises



Investing activities, total







FINANCING ACTIVITIES



Subordinated debt



Additional Tier 1 (AT1) capital recognized in equity (see specification in Capital position)



Dividends paid, excluding dividends on treasury shares



Share buyback programme



Acquisition of treasury shares



Sale of treasury shares



Financing activities, total





2,956.1 -855.3 1,117.5 38.7 31.0 82.8

1,075.2 1,132.6

92.3

0.0 -549.5 -549.5 -8.2 -14.8 -25.8 2.4 0.0 0.0 -0.3 -5.6 -5.6 0.0 1.6 2.5 -69.5 -43.8 -73.4 23.8 21.4 22.9 31.0 37.6 37.6 -20.8 -553.1 -591.3

-6.8 5.9 4.4 -26.4 -26.1 421.0 -614.9 -374.7 -374.7 0.0

0.0 -150.0

-348.9 -418.2 -508.2 347.5 310.0 512.4 -649.5 -503.1 -95.1

Movements in cash and cash equivalents for the period







Cash and cash equivalents, beginning of period



Movements in cash and cash equivalents for the period



Cash and cash equivalents, end of period







Cash and cash equivalents, end of period



Cash, cash equivalents and demand deposits with central banks



Due from credit institutions and central banks within less than 3 months



1,759.2 2,627.3 2,105.8

Total



3,106.0 3,371.6 2,701.1



404.9 76.4 -594.1 2,701.1 3,295.2 3,295.2 404.9 76.4 -594.1 3,106.0 3,371.6 2,701.1

1,346.8 744.3 595.3

Spar Nord Q1-Q3 2017

Notes – Group

20

Notes to the financial statements NOTE

1

ACCOUNTING POLICIES The Interim Financial Statements of the Spar Nord Group covering the period from 1 January to 30 September 2017 have been prepared in accordance with IAS 34, “Interim Financial Reporting”, as adopted by the EU, and additional Danish disclosure requirements for interim reports of listed financial institutions. Other than as set out below, the Group has not changed its accounting policies from those followed in Annual Report 2016, which provides a full description of the Group’s accounting policies. Accounting policy changes The Spar Nord Group has implemented the IFRS standards and interpretations taking effect in the EU for 2017. The implementation of these standards and interpretations has not materially affected recognition and measurement. Information about standards not yet in force The analysis of the expected effect of implementing IFRS 9 has not yet been completed. IFRS 9 “Financial Instruments”, replacing IAS 39, changes the classification and related measurement of financial assets and liabilities. IFRS 9 introduces a more logical approach to the classification of financial assets that is based on the Bank’s business model and the characteristics of the underlying cash flows. Based on the current business model and management of returns, IFRS 9 is not expected to materially affect the Bank’s financial reporting. Moreover, the standard introduces a new impairment model for all financial assets. The new impairment model means that impairment losses must be recognized on all the Bank’s loans, advances and guarantees based on the losses statistically expected (expected credit loss model). Based on the existing rules, impairment losses are not recognized until there is objective evidence of impairment (incurred loss model). IFRS 9 uses a three-stage impairment approach, meaning that expected credit losses (ECLs) are allocated to either stage 1, 2 or 3, depending on the risk of credit loss. The classification into stages and the calculation of expected credit losses will largely be based on the Bank’s existing rating models and credit control. Systems and models for determining impairment in accordance with IFRS 9 are being developed and will be adjusted in step with the Danish FSA giving more specific instructions about the interpretation of the standard. The new impairment models are being developed in cooperation with the Bank’s data processing centre and support the calculation of expected credit losses according to models based on loss ratios and the concepts of PD (Probability-of-Default), LGD (Loss-Given-Default) and EAD (Exposure-at-Default). Overall, the changed method for determining credit losses is estimated to result in an increase of the Bank’s impairment account for loans, advances and provisions on guarantees in the region of DKK 200-300 million, corresponding to a reduction of shareholders’ equity after tax of 2-3%. The effect after tax will be recognised as a reduction of shareholders’ equity at 1 January 2018. Finally, the standard introduces new rules for hedge accounting. Compared to the existing rules, the new model will provide a better link between an entity’s accounting treatment and risk management strategy. The new rules on hedge accounting are not expected to materially affect the Bank’s financial reporting.

2

JUDGMENTS AND ESTIMATES Measuring certain assets and liabilities requires Management to make an estimate of how future events will affect the value of such assets and liabilities. Estimates considered material in presenting the financial statements are, among other things, those made when determining loan impairments, the fair values of unlisted financial instruments as well as provisions. The applied estimates are based on assumptions deemed reasonable by Management but which are inherently uncertain. In the presentation of the condensed condensed Interim Financial Statements, the critical judgments made by Management in the application of the Group’s accounting policies, and the considerable uncertainty related thereto, are identical to those applying to the presentation of the Financial Statements at 31 December 2016.

Spar Nord Q1-Q3 2017

NOTE

3

Notes – Group

21

Segment information BUSINESS SEGMENTS – Q1-Q3 2017 Spar Nord’s Local Banks

DKKm

Trading, Financial Markets & the International Division

Other Areas

Core earnings*)

Reklassifications**)

Group, total

INCOME STATEMENT Net interest income



1,092.0

31.7

49.4 1,173.1

29.5 1,202.6

Net income from fees, charges and commissions

841.4 -0.9 -3.4 837.1 0.0 837.1

Market value adjustments and dividends

114.0 183.7

Other operating income



Profit/loss on investments in associates and group enterprises Core income/revenue, total

5.0 302.7

0.0 302.7

14.3 0.8 21.2 36.3 0.0 36.3 0.0 0.0 27.3 27.3 0.0 27.3 2,061.7

Operating expenses, depreciation and amortization

1,174.7

Core earnings before impairment

215.3

99.5 2,376.5

29.5 2,406.0

43.2 193.0 1,410.9

0.0 1,410.9

887.0 172.1 -93.5 965.6 29.5 995.1

Loan impairment charges etc.

-35.7 -14.0 -1.2 -50.9 29.5 -21.4

Profit/loss before tax

922.7 186.1 -92.3 1,016.5

*) **)



0.0 1,016.5

The core earnings column corresponds to the Group figures in the Management’s review. The relation to the Group is specified in the column Reclassifications. Reclassifications have impacted the items Net interest income and Loan impairment charges etc. in the amount of DKK 29.5 million.

BALANCE SHEET



Loans, advances and other receivables at amortized cost Investments in associates and group enterprises Intangible assets and property, plant and equipment *) Other assets **)



Allocated assets, total



Trading, Financial Markets & Spar Nord’s the International Division Local Banks

Other Areas

36,469.6 8,975.2

Group, total

26.4 45,471.2

0.0 0.0 120.4 120.4 252.5

0.1 700.0 952.6

16,607.9 15,992.2

1,227.9 33,828.0

53,330.0 24,967.5 2,074.7 80,372.2

Deposits and other payables Equity (allocated capital)



Other liabilities



Allocated equity and liabilities, total

47,322.3

268.3

501.5 48,092.1

5,191.2 933.0 2,668.3 8,792.5 15,612.3 4,835.2 3,040.1 23,487.6 68,125.8 6,036.5 6,209.9 80,372.2

Disclosures – income/revenue, total Internal income/revenue



Internal income and eliminations, offset against costs Income/revenue, external customers

-99.6 52.8 444.4 397.6 0.0 -37.4 -360.2 -397.6 2,161.3

199.9

44.8 2,406.0

2,061.7

215.3

129.0 2,406.0

Income/revenue, total



Financial ratios



Return on equity, % ***)



25.6 34.6

-

-

Cost share of core income



0.57 0.20

-

-

Total risk exposure, end of period Number of employees (full-time equivalents, end of period)

39,932 7,177 2,134 49,243 1,066

75 416 1,557

As in previous years, the Group uses core earnings as a performance measure. The reporting segments correspond to the Group’s organizational entities, and an internal follow-up is carried out in this regard. DESCRIPTION OF BUSINESS AREA ACTIVITIES: - For a description of the activities of Spar Nord’s Local Banks and Trading, Financial Markets & the International Division, please see page 55 of 2016 Annual Report. - The activities of the Local Banks include the Group’s leasing activities, and the activities of Other areas include central staffs and support functions. Intra-group settlement is determined based on the same principles as in previous years and expresses contributions to earnings from the activities carried out by the respective business areas. Internal management takes place based on a net-interest consideration, and accordingly interest income and expenses are not disclosed. *) All assets are located in Denmark. **) Temporary assets amount to DKK 23.1 million, of which DKK 10.1 million relates to the Group’s leasing activities and DKK 13.0 million relates to Other areas. ***) The rate of return on equity per annum has been calculated on allocated capital, which amounts to 12% of the average total risk exposure amount until and including 30.06.17, and 13% after this date.

Spar Nord Q1-Q3 2017

NOTE

3

Notes – Group

22

Segment information BUSINESS SEGMENTS – Q1-Q3 2016 DKKm

Trading, Financial Markets & Spar Nord’s the International Division Local Banks

Other Areas

Core earnings*)

Reklassifications**)

Group, total

INCOME STATEMENT Net interest income



1,112.5

Net income from fees, charges and commissions

776.6

Market value adjustments and dividends Other operating income

37.5 1,263.4

12.3 0.3 15.7 28.3 0.0 28.3

Profit/loss on investments in associates and group enterprises

0.0 0.0 22.5 22.5 0.0 22.5 2,012.6

Operating expenses, depreciation and amortization

1,179.6

Core earnings before impairment

833.0

Loan impairment charges etc. Profit/loss before tax

60.9 1,225.9

4.0 -2.4 778.2 0.0 778.2

111.2 157.1 61.0 329.3 0.0 329.3



Core income/revenue, total

52.5



213.9

157.7 2,384.2

37.5 2,421.7

39.4 134.5 1,353.5 174.5

0.0 1,353.5

23.2 1,030.7

185.8 -0.2

37.5 1,068.2

2.2 187.8 37.5 225.3

647.2 174.7 21.0 842.9

0.0 842.9

*) The core earnings column corresponds to the Group figures in the Management’s review. **) The relation to the Group is specified in the column Reclassifications. Reclassifications have impacted the items Net interest income and Loan impairment charges etc. in the amount of DKK 37.5 million. Trading, Financial Spar Nord’s Markets & Local Banks the International Other Areas Group, total Division

BALANCE SHEET

Loans, advances and other receivables at amortized cost Investments in associates and group enterprises Intangible assets and property, plant and equipment *) Other assets **)



Allocated assets, total



34,948.5 4,668.6

80.3 39,697.4

0.0 0.0 82.0 82.0 250.2

0.2 741.8 992.2

15,272.2 21,697.7 1,215.3 38,185.2 50,470.9 26,366.5

2,119.4 78,956.8

Deposits and other payables

46,101.5

480.7

464.1 47,046.3

Equity (allocated capital)



Other liabilities



14,277.0 6,566.4 2,993.6 23,837.0

Allocated equity and liabilities, total

64,774.2 7,722.0 6,460.6 78,956.8

4,395.7

674.9 3,002.9 8,073.5

Disclosures – income/revenue, total Internal income/revenue



Internal income and eliminations, offset against costs

-89.9 37.8 469.6 417.5 0.0 -33.6 -383.9 -417.5

Income/revenue, external customers

2,102.5 209.7 109.5 2,421.7

Income/revenue, total

2,012.6 213.9 195.2 2,421.7



Financial ratios



Return on equity, % ***)



20.2 35.8

-

-

Cost share of core income



0.59 0.18

-

-

Total risk exposure, end of period Number of employees (full-time equivalents, end of period)

36,630 5,625 5,523 47,778 1,113

65 370 1,548

As in previous years, the Group uses core earnings as a performance measure. The reporting segments correspond to the Group’s organizational entities, and an internal follow-up is carried out in this regard. DESCRIPTION OF BUSINESS AREA ACTIVITIES: - For a description of the activities of Spar Nord’s Local Banks and Trading, Financial Markets & the International Division, please see page 55 of 2016 Annual Report. - The activities of the Local Banks include the Group’s leasing activities, and the activities of Other areas include central staffs and support functions. Intra-group settlement is determined based on the same principles as in previous years and expresses contributions to earnings from the activities carried out by the respective business areas. Internal management takes place based on a net-interest consideration, and accordingly interest income and expenses are not disclosed. *) Al assets are located in Denmark. **) Temporary assets amount to DKK 16.0 million, of which DKK 1.6 million relates to the Group’s leasing activities and DKK 14.4 million relates to Other areas. ***) The rate of return on equity per annum has been calculated on allocated capital, which amounts to 12% of the average total risk exposure amount.

Spar Nord Q1-Q3 2017

Notes – Group

NOTE

Q1-Q3 2017 DKKm

4

5

23

Q1-Q3 2016 DKKm

Full year 2016 DKKm

INTEREST INCOME Due from credit institutions and central banks



Loans, advances and other receivables



1.7 1.9 2.8

Bonds





Foreign-exchange contracts





Interest-rate contracts



-44.1 -55.5 -69.9

Derivative financial instruments, total



-41.3 -52.3 -66.7

Other interest income



Total interest income







Of which, income from genuine reverse repo transactions booked under



Due from credit institutions and central banks



Loans, advances and other receivables







INTEREST EXPENSES



Credit institutions and central banks



Deposits and other payables



41.7 78.7 95.7

Subordinated debt



38.8 39.3 52.4

Other interest expenses



Total interest expenses



1,227.3 1,277.2 1,688.3 64.0 94.6 117.9 2.8 3.2 3.2

29.8 56.8 73.2 1,281.5 1,378.2 1,815.5

-7.4 -7.3 -9.8 -13.0 -7.5 -10.0

-2.2 -3.5 -4.1

0.6 0.3 0.7 78.9 114.8 144.7

Of which, interest expenses from genuine repo transactions booked under



Due to credit institutions and central banks



-6.6 -8.5 -11.0

Deposits and other payables



0.0 -0.2 -0.2

6

FEES, CHARGES AND COMMISSIONS RECEIVED



Securities trading and custody accounts



Payment services



121.9 101.6 140.5

Loan transaction fees



365.7 338.8 458.2





284.3 247.4 339.1

of which mortgage credit institutions

316.7 327.0 454.8

Guarantee commission



22.6 28.9 35.5

Other fees, charges and commissions



116.5 71.0 85.8

Total fees, charges and commissions received



943.4 867.3 1,174.8

Total fees, charges and commissions paid



106.3 89.1 122.1

Total net fees, charges and commissions received



837.1

778.2 1,052.7

7

MARKET VALUE ADJUSTMENTS



Other loans, advances and receivables at fair value



0.6 -2.0 -2.9

Bonds



88.3 148.5 163.3

Shares, etc.



97.8 105.3 131.7

Foreign currency



24.3 195.2 51.8

Foreign exchange, interest, share, commodity and other contracts and derivative financial instruments



Assets linked to pooled schemes



Deposits in pooled schemes



Other assets



Other liabilities



Total market value adjustments





69.1 -168.5

39.5

569.7 -33.7 380.6 -569.7

33.7 -380.6

0.0 0.2 0.2 0.0 1.3 2.2 280.1 280.0 385.8

Spar Nord Q1-Q3 2017

Notes – Group

NOTE

Q1-Q3 2017 DKKm 8

24

Q1-Q3 2016 DKKm

Full year 2016 DKKm

STAFF COSTS AND ADMINISTRATIVE EXPENSES Staff costs



849.6 834.8 1,141.7

Administrative expenses



508.3 460.6 647.1

Total staff costs and administrative expenses



1,357.9 1,295.4 1,788.8

Staff costs:



Salaries



Pensions



80.9 78.8 106.9

Social security costs



100.2 72.1 101.5

Total staff costs



849.6 834.8 1,141.7





668.5 683.9 933.3

Remuneration to members of the Executive Board and Board of Directors amounts to: Board of Directors



Number



Fixed pay



Pension



Total remuneration



9 9 9 2.5 2.4 3.2 - - 2.5 2.4 3.2

Executive Board



Number



Base salary *)



8.6 8.3 11.0

– less fees received from directorships



0.8 0.7 1.4

The Bank’s expense, base salary



7.8 7.6 9.6

3 3 3

Pension, ordinary contribution

1.2 1.0 1.6

Total remuneration earned and paid



9.0 8.6 11.2





Breakdown of remuneration to Executive Board



Lasse Nyby



Base salary*)



3.2 3.1 4.1

– less fees received from directorships



0.2 0.2 0.4

The Bank’s expense, base salary



3.0 2.9 3.7

Pension, ordinary contribution



0.4 0.4 0.6

Total remuneration earned and paid



3.4 3.3 4.3

John Lundsgaard



Base salary



2.7 2.6 3.5

– less fees received from directorships



0.2 0.2 0.4

The Bank’s expense, base salary



2.5 2.4 3.1

Pension, ordinary contribution



0.4 0.3 0.5

Total remuneration earned and paid



2.9 2.7 3.6

Lars Møller



Base salary*)



2.7 2.6 3.4

– less fees received from directorships



0.4 0.3 0.6

The Bank’s expense, base salary



2.3 2.3 2.8

Pension, ordinary contribution



0.4 0.3 0.5

Total remuneration earned and paid



2.7 2.6 3.3

*)

The amount includes the value of a company car, etc. (comparative figures for Q1-Q3 2016 have been restated)

The members of the Executive Board receive no variable pay. Members of the Executive Board receive remuneration for their Group executive board duties based on the management agreement with the subsidiary. Termination rules The members of the Executive Board have a term of notice of 12 months and will receive compensation on termination of employment corresponding to two years’ pay. Pension obligation Like the other employees, members of the Executive Board are comprised by defined contribution pension plans. Number of employees: Average number of employees in the financial year converted into full-time equivalents

1,545.3 1,550.4 1,547.8

Spar Nord Q1-Q3 2017

Notes – Group

NOTE

Q1-Q3 2017 DKKm

25

Q1-Q3 2016 DKKm

Full year 2016 DKKm

Administrative expenses: IT expenses

251.5

Marketing costs

79.1

64.5

90.6

Cost of premises

75.7

61.5

85.8

Staff and travelling expenses

41.0

37.2

55.5

Office expenses

16.4

17.7

24.2

Other administrative expenses

44.6

Total administrative expenses

508.3

238.7

41.0 460.6

332.9

58.1 647.1

9

DUE FROM CREDIT INSTITUTIONS AND CENTRAL BANKS



Balances at notice with central banks

393.0

Due from credit institutions

1,430.7

Total due from credit institutions and central banks



0.0 2,679.5

0.0 2,178.8

1,823.7 2,679.5 2,178.8

10

IMPAIRMENT ACCOUNT



Individual loan impairment charges



Individual impairment, beginning of period

1,686.3

New individual impairment charges

230.2

633.6

Reversal of individual impairment charges

279.7

500.7

318.9

Previously impaired, now finally lost

323.3

193.2

304.2

Other movements

31.4

Individual impairment, end of period

1,344.9 1,636.3 1,686.3

1,645.6

51.0

1,645.6 600.7

63.1

Collective loan impairment charges



Collective impairment, beginning of period

123.6

137.5

New collective impairment charges

132.9

54.4

Reversal of collective impairment charges

6.0

Other movements

6.0

Collective impairment, end of period

256.5

0.0 1.3 193.2

137.5 0.0 15.2 1.3 123.6

Total impairment of loans and advances



Impairment, beginning of period

1,809.9

New impairment charges

363.1

688.0

Reversed impairment charges

285.7

500.7

334.1

Previously impaired, now finally lost

323.3

193.2

304.2

Other movements

37.4

Impairment, end of period

1,601.4

1,783.1

52.3 1,829.5

1,783.1 600.7

64.4 1,809.9

Impairment recognized in the income statement



New impairment charges

363.1

688.0

600.7

Reversed impairment charges

285.7

500.7

334.1

Loss without prior impairment

64.8

101.5

Amounts recovered on previously impaired receivables

131.9

84.6

115.9

Recognized in the income statement

10.3

204.2

265.0

114.3

Provision for losses on guarantees



Provisions, beginning of period

67.0

42.9

42.9

New provisions

18.0

42.7

45.8

Reversed provisions

35.7

21.1

21.7

Provisions for losses on guarantees, end of period

49.3

64.5

67.0

Provisions for losses on guarantees recognized in the income statement



New provisions

18.0

42.7

Reversed provisions

35.7

21.1

Recognized in the income statement

-17.7

21.6

45.8 21.7 24.1

Impairment account for loans and provisions for losses on guarantees, total

1,650.7

1,894.0

1,876.9

Impairment, other credit risks



Impairment, other credit risks, beginning of period

14.0

New impairment charges

0.0

0.0

3.5

Reversed impairment charges

14.0

0.5

0.6

Other movements

0.0

0.3

0.6

Impairment, other credit risks, total

0.0

10.3

14.0

10.5

10.5

Impairment account for loans, provisions for losses on guarantees and other credit risks, total

1,650.7

1,904.3

1,890.9

Spar Nord Q1-Q3 2017

Notes – Group

Loan impairment charges etc.

NOTE

Q1-Q3 2017 DKKm

The total recognition in the income statement under impairment of loans and reivables etc. can be broken down as follows:

26

Q1-Q3 2016 DKKm

Full year 2016 DKKm

Loan impairment charges etc.

10.3

204.2

265.0

Provision for losses on guarantees

-17.7

21.6

24.1

Impairment, credit institutions

-14.0

-0.5

2.9

Total impairment of loans and receivables etc.

-21.4

225.3

292.0

Loans with suspended interest payments

147.0

191.0

176.9

Interest on impaired receivables is calculated on the impaired balance only.



Recognised interest on impaired loans and receivables

37.4

52.6

65.0

11

OTHER ASSETS



Positive fair value of derivative instruments, etc.

1,066.8

Miscellaneous receivables

308.7

186.8

194.0

Interest and commissions receivable

65.3

277.5

229.0

Capital contribution to Bankernes EDB Central a.m.b.a.

316.0

316.0

316.0

Other assets

63.5

Total other assets

1,820.3

1,381.6

62.6 2,224.5

1,284.2

63.1 2,086.3

12

DEPOSITS AND OTHER PAYABLES



Demand deposits

41,971.9

Subject to notice

1,701.8

Time deposits

952.1

2,334.0

Special types of deposits

3,466.3

3,520.3

Total deposits and other payables

48,092.1

39,696.7 1,495.3

47,046.3

39,798.2 1,410.2 1,714.1 3,541.7 46,464.2

13

OTHER LIABILITIES



Miscellaneous payables

1,609.0

Negative fair value of derivative financial instruments, etc.

682.7

921.7

Interest and commissions payable

58.3

108.0

Other liabilities

344.7

355.6

Total other liabilities

2,694.7

1,634.4

3,019.7

1,856.8 865.5 18.8 343.0 3,084.1

14

SUBORDINATED DEBT



Principal

Currency

Note DKKm

Interest rate

Received

DKK

a

400.0

6.043 %

2012

DKK

b

700.0

Floating

Maturity



28.11.22



2013 18.12.23

Supplementary capital contributions, total

400.7 403.8 403.1

699.0 1,099.7

698.2 1,102.0

698.4 1,101.5

Portfolio of own bonds relating to subordinated debt

-13.3

Subordinated debt, total

1,086.4 1,094.7 1,093.2

-7.3

-8.3

Interest on subordinated debt

37.6

Costs of raising subordinated debt 1.2



38.1 1.2

50.8 1.6



a The loan is redeemable as from 28.11.17. If the loan is not redeemed, interest will be fixed at CIBOR3 + a 5.000% margin. In accordance with a stock exchange announcement dated 26.10.17, the loan is expected to be repaid on 28.11.17.



a The loan is redeemable as from 18.12.18. If the loan is not redeemed, interest will remain fixed at CIBOR3 + a 3.900% margin. Subordinated debt, specification of cash flows



Beginning of period

1,093.2

1,088.8

1,088.8

Movement during the period:



Change in interest rate hedging

-3.0

Change in amortized costs

1.2

1.2

1.6

Change in portfolio of own bonds

-5.0

6.0

5.0

-6.8

5.9

4.4

Total cash flows for the period

-1.3

-2.2

Carrying amount, end of period

15

CONTINGENT ASSETS Deferred tax assets not recognized in the balance sheet amounted to DKK 7.5 million at 30.09.17 (30.09.16: DKK 5.4 million, 2016: DKK 6.9 million).

1,086.4

1,094.7

1,093.2

Spar Nord Q1-Q3 2017

NOTE

16

Notes – Group

27

CONTINGENT LIABILITIES The Bank and its wholly-owned subsidiary are jointly registered for payroll tax and VAT and are jointly and severally liable for the payroll tax and VAT payable.

Q1-Q3 2017 DKKm

Q1-Q3 2016 DKKm

Full year 2016 DKKm

Financial guarantees

4,196.7

3,989.1

3,999.8

Loss guarantees for mortgage loans

4,878.6

4,415.7

4,568.5

Registration and refinancing guarantees

1,706.7

2,610.2

2,885.3

Other contingent liabilities

959.9

Total contingent liabilities

11,741.9

869.6 11,884.6

880.5 12,334.1

Reference is made to note 8 regarding the Executive Board’s notice of termination and the associated compensation. In addition, the Spar Nord Group has contingent liabilities and other binding agreements corresponding to the relative ownership interest in associates. Spar Nord is taxed jointly with its Danish subsidiary in the Spar Nord Group. As management company, Spar Nord has unlimited, joint and several liability together with the other jointly taxed companies for the Danish corporate income tax payable. The corporate income tax payable within the group of jointly taxed companies amounted to DKK 45.0 million at 30.09.17 (30.09.16: DKK 16.7 million; end-2016: DKK 0.0 million) and tax receivable within the group of jointly taxed companies amounted to DKK 17.9 million at 31.12.16. Any adjustments to the taxable income subject to joint taxation might entail an increase in the Parent Company’s liability. Spar Nord has made provisions for a deferred tax liability in respect of recaptured losses related to international joint taxation. The Bank participates in the national restructuring and resolution scheme, with separate contributions being paid to the Guarantee Fund and the Resolution Fund. For both funds, separate target levels have been set, based on the sector’s total deposits that are covered by the guarantee limit of EUR 100,000 (section 9(1) of the Act on a Depositor and Investor Guarantee Scheme). The Guarantee Fund covers customers’ deposits and securities pursuant to the Act on a Depositor and Investor Guarantee Scheme. The Bank’s costs for the Guarantee Fund are calculated based on the Bank’s pro-rata share. In future, the amount of the contribution will be adjusted by an individual risk factor. The Resolution Fund is to be used pursuant to the Act on Restructuring and Resolution of Certain Financial Enterprises for the purpose of covering the associated costs. The Bank’s costs for the Resolution Fund are calculated based on the Bank’s pro-rata share of the sector’s total equity and liabilities less own funds and covered deposits. This contribution will also be adjusted by an individually determined risk factor. The Bank’s costs for the Resolution Fund for 2017 have been included as a pro-rata share of the annual contributions. The Bank’s costs for the Resolution Fund at 30.09.17 amounted to DKK 5.9 million (30.09.16: DKK 6.7 million, 2016: DKK 8.9 million.). The amount of the contingent liabilities and the possible due dates are subject to uncertainty.

17

Other binding commitments

Q1-Q3 2017 DKKm

Q1-Q3 2016 DKKm

Full year 2016 DKKm

Miscellaneous

500.9

469.5

500.9

Other binding commitments, total

500.9

469.5

500.9

Other is composed of: Lease obligations, with the Group as lessee *) Spar Nord is the lessee in a number of operating leases. Under such leases, Spar Nord has the right of use of an asset for a specific period of time against lease payments without assuming the significant risks and rewards of ownership of the asset. The leases concern the lease of properties and operating equipment. The leases are not recognized in the balance sheet. The leases represent an amount of DKK 114.9 million until the legal notice of termination. Data-processing centre *) Spar Nord has entered into an agreement with Bankernes EDB Central a.m.b.a. regarding the provision of IT services. Spar Nord’s membership means that in case of termination of the Bank’s membership, it is liable to pay an exit fee. In addition, a capital contribution to Bankernes EDB Central a.m.b.a. has been recognized under Other assets. The Spar Nord Group has no other significant binding agreements. *) According to the most recent annual report.

Spar Nord Q1-Q3 2017

Notes without reference – Group

28

Notes without reference Acquisition of businesses and customer portfolios There were no acquisitions of businesses or customer portfolios in Q1-Q3 2017. FIH Erhvervsbank In January 2016, Spar Nord entered into an agreement with FIH Erhvervsbank A/S regarding the acquisition of 34 business customer exposures with total loans of DKK 526 million, gross guarantees amounting to DKK 319 million, equal to net guarantees of DKK 64 million, and derivatives of DKK 30 million. The acquisition of the portfolio has been recognized in accordance with the rules stipulated in IAS 39, according to which the loans acquired have been recognized at the agreed acquisition cost, equal to the fair value, which corresponds to an average price of the assets taken over of 100.

FAIR-VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS Financial instruments recognized at fair value The fair value is the amount at which a financial asset can be exchanged between knowledgeable, willing parties in an arm’s length transaction. If an active market exists, the market price in the form of a listed price or price quotation is used. If a financial instrument is quoted in a market that is not active, the measurement is based on the most recent transaction price. Adjustment is made for subsequent changes in market conditions, for instance by including transactions in similar instruments that are assumed to be motivated by normal business considerations. For a number of financial assets and liabilities, no effective market exists. In such situations, an estimated value is used instead, taking account of recent transactions in similar instruments, and discounted cash flows or other recognized estimation and valuation techniques based on the market terms existing at the balance sheet date. The most frequently used valuation models and estimation and valuation techniques include the pricing of transactions for future settlement and swap models that apply present value calculations, credit pricing models as well as option models, such as Black & Scholes models. In most cases, the valuation is largely based on observable input. Unlisted shares recorded at fair value comprise unlisted shares that are not included in the Group’s trading portfolio. These unlisted shares are recognized at fair value, using the Fair Value Option (FVO), and are measured in accordance with provisions in shareholders’ agreements and generally accepted valuation methods, etc. As regards derivative instruments with a positive fair value, the Bank makes a credit valuation adjustment (CVA) to allow for changes in the associated credit risk. The calculation of CVA is based on the customer’s PD (Probability of Default), LGD (Loss Given Default) and EPE (Expected Positive Exposure). In the event that the customer has no external rating, the customer’s PD is based on the Bank’s own credit models. The credit valuation adjustment (CVA) amounted to DKK 3.7 million at 30.09.17 (30.09.16: DKK 15.9 million; end-2016: DKK 9.9 million).

Spar Nord Q1-Q3 2017

Breakdown of financial instruments relative to the fair-value hierarchy classification and carrying amount. 30.09.17

Notes without reference – Group

Quoted prices Level 1 DKKm

Observable input Level 2 DKKm

Nonobservable Input Level 3 DKKm

Fair value Total DKKm

29

Carrying amount DKKm

Financial assets Bonds at fair value

8,864.0

Shares, etc.



Assets linked to pooled schemes

10,243.1

4,652.9

Positive fair value of derivative financial instruments



1,066.8

Total financial assets

19,264.8

3,116.0

157.7

17.1

0.0

8,852.8

0.0 11,980.0 11,980.0 1,343.7 1,518.5 1,518.5 307.9 15,203.9 15,203.9 0.0 1,066.8 1,066.8 1,651.6 29,769.2 29,769.2

Financial liabilities



Deposits in pooled schemes



0.0

15,203.9

0.0 15,203.9 15,203.9

Other non-derivative financial liabilities at fair value 838.7 561.8 0.0 1,400.5 1,400.5 Negative fair value of derivative financial instruments



Total financial liabilities



0.0

682.7

838.7 16,448.4

0.0 682.7 682.7 0.0 17,287.1 17,287.1

30.09.16



Financial assets



Bonds at fair value

14,373.1

Shares, etc.



Assets linked to pooled schemes

10,073.8

Positive fair value of derivative financial instruments



Total financial assets

24,644.3

2,535.8

197.4

0.0 3,609.3

0.0

1,381.6 7,526.7

0.0 16,908.9 16,908.9 1,429.9 1,627.3 1,627.3 196.7 13,879.8 13,879.8 0.0 1,381.6 1,381.6 1,626.6 33,797.6 33,797.6

Financial liabilities



Deposits in pooled schemes



0.0

13,879.8

0.0 13,879.8 13,879.8

Other non-derivative financial liabilities at fair value 1,408.1 538.1 0.0 1,946.2 1,946.2 Negative fair value of derivative financial instruments



Total financial liabilities

1,408.1



0.0

921.7

15,339.6

0.0 921.7 921.7 0.0 16,747.7 16,747.7



31.12.16



Financial assets



Bonds at fair value

12,321.0

Shares, etc.

204.6

Assets linked to pooled schemes

10,663.3

3,679.6

Positive fair value of derivative financial instruments



1,284.2

Total financial assets

23,188.9

0.0

2,615.1 1.1

7,580.0

0.0 14,936.1 14,936.1 1,351.5 1,557.2 1,557.2 198.6 14,541.5 14,541.5 0.0 1,284.2 1,284.2 1,550.1 32,319.0 32,319.0

Financial liabilities



Deposits in pooled schemes



0.0

14,541.5

0.0 14,541.5 14,541.5

Other non-derivative financial liabilities at fair value 1,327.0 680.8 0.0 2,007.8 2,007.8 Negative fair value of derivative financial instruments



Total financial liabilities

1,327.0

0.0

865.5 16,087.8

0.0 865.5 865.5 0.0 17,414.8 17,414.8



Bonds, assets linked to pooled schemes, derivative financial instruments and other non-derivative financial liabilities are valued according to the following principles: - In case of quoted prices, the fair value is fixed as a quoted price or a price quotation by a recognized exchange or another external party. - In case of pricing based on observable inputs, the fair value is calculated by means of a market-based yield curve plus/minus a credit spread, which is also calculated based on market prices. - In case of pricing based on non-observable inputs, the calculation includes inputs based on the Bank’s own valuations of individual components, and also market data in some cases. Shares are valued according to the following principles: - In case of quoted prices, the fair value is fixed as a price quoted by a recognized exchange or an external party. - In case of pricing based on observable inputs, the fair value is calculated based on available prices for shares that are not listed. - In case of pricing based on non-observable inputs, the calculation includes shares valued according to generally accepted valuation principles, e.g., the discounting of expected future cash flows and market expectations as to required rate of return on equity. Shares that are priced on the basis of the prices recommended by Lokale Pengeinstitutter (the Association of Local Banks, Savings Banks and Cooperative Banks in Denmark) are included as non-observable inputs. The fair value has been reliably measured for all shares, and accordingly no shares have been recognized at cost. If an instrument is classified differently at the reporting date as compared to the beginning of the financial year, it is transferred to another category in the valuation hierarchy. Any reclassification is considered to have been made as of the reporting date. In 2016, shares recognized under assets linked to pooled schemes were transferred from a valuation category based on quoted prices (Level 1) to a valuation category based on non-observable inputs (Level 3). The adjustment to fair value is recognised in market value adjustments. The fair values recommended by Lokale Pengeinstitutter (Lopi) (the Association of Local Banks, Savings Banks and Cooperative Banks in Denmark) are based on shareholders’ agreements for the individual companies and share transactions completed. The fair value is often based on the companies’ book equity (intrinsic value), which is used as a basis for the transaction price between shareholders. Spar Nord makes an independent assessment of the prices recommended and verifies their consistency with the transactions made and official financial statements.

Spar Nord Q1-Q3 2017

Notes without reference – Group

30.09.17 DKKm Level 3

Fair value based on net asset value from Lopi

Shares

1,016.4

30

30.09.16 DKKm

Fair value based on other value from Lopi 6.2

Fair value based on net asset value Other from Lopi 321.1

968.4

Fair value based on other value from Lopi 6.2

Other 455.3

- - 307.9 - - 196.7 Assets linked to pooled schemes Sensitivities Change in fair value of shares if the profit/loss 8.8 - - 9.2 - of the companies changes by 10% (annualized) A substantial portion of the shares included under “Other” are valued based on the discounting of expected future cash flows from dividends, selling prices or market expectations as to the required rate of return on equity. Financial instruments measured at fair value based on non-observable inputs (Level 3) Q1-Q3 Q1-Q3 Full year At 30.09.17, there were unrealized market value adjustments of DKK 24.2 million 2017 2016 2016 (30.09.2016: DKK 65.4 million, 2016: DKK 64.9 million) regarding unlisted shares valued DKKm DKKm DKKm on the basis of non-observable input Carrying amount, beginning of period

1,550.1

Value adjustments through profit or loss

69.2

87.7

Purchase

128.6

37.6

Sale

96.3

221.7

Transferred to/from Level 3

0.0

Carrying amount, end of period

1,651.6

1,526.2

196.8 1,626.6

1,526.2 107.6 37.8 320.1 198.6 1,550.1



OWN FUNDS Equity

8,792.5

Additional Tier 1 (AT1) capital included in equity

872.4

404.4

862.4

Proposed dividend, excl. share as % of share repurchase programme

399.5

460.2

615.0

Intangible assets, incl. share recognized in investments in associates

189.9

205.7

196.4

Other primary deductions

41.7

46.3

Unutilized portion of DKK 150 million share buyback facility

0.0

43.4

Deductions, equity investments

315.6

Common Equity Tier 1 (CET1) capital

6,973.4

8,073.5

272.9 6,640.6

8,627.1

48.3 0.0 240.4 6,664.6

Additional Tier 1 (AT1) capital *)

843.0

Other deductions

39.5

Tier 1 capital

7,776.9

393.0 91.0 6,942.6

843.0 80.1 7,427.5

Subordinated debt, excl. Additional Tier 1 (AT1) capital *)

1,080.9

Other deductions

39.5

Own funds

8,818.3

1,079.3 91.0 7,930.9

1,079.6 80.1 8,427.0

Weighted risk exposure amount, credit risk etc.

39,673.8

Weighted risk exposure amount, market risk

3,877.1

4,022.1

3,537.7

Weighted risk exposure amount, operational risk

5,691.6

5,732.3

5,732.3

Total risk exposure amount

49,242.5

38,023.9

47,778.3

38,215.5

47,485.5

Common Equity Tier 1 (CET1) ratio, %

14.2

13.9

14.0

Tier 1 capital ratio

15.8

14.5

15.6

Own funds ratio

17.9

16.6

17.7

*)

Including portfolio of own bonds

Spar Nord Q1-Q3 2017

Notes without reference – Group

COLLATERAL PROVIDED

Q1-Q3 2017 DKKm

Collateral provided through clearing systems, with central counterparties

Q1-Q3 2016 DKKm

31

Full year 2016 DKKm

and other infrastructure institutions: Bonds

0.0

Deposits, clearing

102.5

0.0 126.1

0.0 122.3

Collateral provided for the market value of derivatives transactions

427.4

635.6

523.2

Positive market value of derivative contracts subject to netting

195.8

259.4

249.8

Collateral provided as part of repo transactions

1286.0

2,173.2

1,403.3

Other collateral provided

38.2

Total

2,049.9

46.9 3,241.2

44.3 2,342.9

HEDGE ACCOUNTING Assets Loans and advances Carrying amount

77.8

81.2

80.3

Fair value

77.8

81.2

80.3

Nominal value

75.0

75.0

75.0

Interest risk-hedging financial instruments



Derivatives (swap contracts)



Carrying amount

-2.8

-6.2

-5.3

Fair value

-2.8

-6.2

-5.3

Synthetic principal/nominal value

75.0

75.0

75.0

Liabilities



Subordinated debt



Carrying amount

392.6

399.6

401.0

Fair value

400.8

404.7

403.8

Nominal value

400.0

400.0

400.0

Interest risk-hedging financial instruments



Derivatives (swap contracts) Carrying amount

0.8

4.8

Fair value

0.8

4.8

Synthetic principal/nominal value

400.0

400.0

OWNERSHIP at 30.09.17 Spar Nord Fonden, Aalborg, and Nykredit Realkredit A/S, Copenhagen, have disclosed that they each own more than 5% of the share capital of Spar Nord Bank A/S.

3.8 3.8 400.0

Spar Nord Bank A/S Skelagervej 15 P.O. Box 162 DK-9100 Aalborg

Spar Nord Q1-Q3 2017

Tel. +45 9634 4000 Fax +45 9634 4560 www.sparnord.dk [email protected] CVR no. 13 73 75 84

The Annual Report has been prepared in a Danish and an English version. In case of discrepancy between the Danish-language original text and the English-language translation, the Danish text shall prevail.

32