S H1 Interim Report 2018

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Nasdaq Copenhagen and the press

23 August 2018

Totalkredit A/S – A subsidiary of Nykredit Realkredit A/S consolidated in the Nykredit Group Financial Statements Interim Report for the period 1 January – 30 June 2018

H1 – summary 

At nominal value, the loan portfolio grew to DKK 650 billion compared with DKK 630 billion at end-2017.



Profit after tax came to DKK 1,127 million against DKK 1,113 million in H1/2017.



Income amounted to DKK 1,678 million in H1/2018 against DKK 1,831 million in H1/2017. Income without the effect of the KundeKroner discount came to DKK 1,781 million. The income reduction is mainly due to the introduction of the KundeKroner benefits programme and lower trading and investment portfolio income.



In H1/2018, DKK 470 million was awarded to the customers as discounts under the KundeKroner benefits programme.



Costs reduced to DKK 338 million against DKK 345 million in H1/2017.



Impairment charges for loans and advances were a net reversal of DKK 2 million in H1/2018 against a charge of DKK 58 million in H1/2017.



Profit (loss) for the period as % of average equity totalled 9.8%.

Own funds 

Equity stood at DKK 27.4 billion at 30 June 2018 against DKK 26.3 billion at end-2017.



The total capital ratio and the Common Equity Tier 1 capital ratio were 29.6% and 23.4%, respectively, against 29.6% and 23.1% at end-2017.



The internal capital adequacy requirement was 11.2% against 10.6% at end-2017.

About Totalkredit A/S Totalkredit's annual and interim reports and further information about Totalkredit are available at totalkredit.dk.

Contact For further comments, please contact Jens Theil, Head of Nykredit Press Relations, at tel +45 44 55 14 50.

Totalkredit A/S Kalvebod Brygge 1-3 DK-1780 Copenhagen V Tel +45 44 55 54 00 www.totalkredit.dk CVR no 21 83 22 78

Totalkredit A/S H1 Interim Report 2018 – Totalkredit A/S

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CONTENTS

MANAGEMENT COMMENTARY Financial Highlights

2 3

H1/2018 – summary Results for Q2/2018 relative to Q1/2018 Capital and capital adequacy Outlook for 2018 Credit ratings Special accounting circumstances Other Business concept Events since the balance sheet date Uncertainty as to recognition and measurement Alternative performance measures

4 5 5 6 6 6 6 7 7 7 7

MANAGEMENT STATEMENT Statement by the Board of Directors and the Executive Board on the Interim Report

8 8

FINANCIAL STATEMENT Statements of income and comprehensive income Balance sheets Statement of changes in euity Notes

9 9 10 11 12

MANAGEMENT COMMENTARY (CONTINUED) Corrections

27 27

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Totalkredit A/S H1 Interim Report 2018 – Totalkredit A/S

FINANCIAL HIGHLIGHTS

DKK million H1/

H1/

Q2/

Q1/

FY/

2018

2017

2018

2018

2017

3,111

BUSINESS PROFIT AND PROFIT FOR THE PERIOD Net interest income

1,509

1,557

758

751

Net fee income

270

249

137

133

510

Net interest from capitalisation

(16)

(37)

(8)

(8)

(62)

(85)

61

(46)

(38)

(15)

1,678

1,831

841

838

3,544

338

345

182

157

726

1,340

1,485

659

681

2,818

Trading, investment portfolio and other income Income Costs Business profit before impairment charges Impairment charges for loans and advances Profit before tax Tax Profit for the period Interest on AT1 equity capital not recognised in profit

SUMMARY BALANCE SHEET

(2)

58

3

(5)

637

1,342

1,427

656

686

2,181

215

314

104

111

428

1,127

1,113

552

575

1,752

94

97

48

47

193

30.06.2018

30.06.2017

30.06.2018

31.03.2018

31.12.2017

Assets Receivables from credit institutions

9,846

11,564

9,846

12,962

9,427

664,852

616,450

664,852

653,595

644,310

Bonds and equities

79,081

77,830

79,081

69,161

80,558

Remaining assets

1,421

1,317

1,421

2,017

1,760

755,199

707,160

755,199

737,735

736,055

Mortgage loans at fair value

Total assets Liabilities and equity Payables to credit institutions

712,700

663,947

712,700

695,406

693,278

Bonds in issue at fair value

8,188

10,016

8,188

8,600

9,104

Remaining liabilities

4,958

5,451

4,958

4,892

5,373

Subordinated debt

2,000

2,000

2,000

2,000

2,000

27,353

25,746

27,353

26,838

26,300

755,199

707,160

755,199

737,735

736,055

Equity Total liabilities and equity

FINANCIAL RATIOS Profit for the period as % pa of average equity¹ Costs as % of income Impairment charges for the period, %

1

9.8

9.5

8.8

9.6

7.5

20.2

18.8

21.6

18.7

20.5

(0.00)

0.01

0.00

(0.00)

0.10

Total capital ratio, %

29.6

30.4

29.6

28.8

29.6

Common Equity Tier 1 capital ratio, %

23.4

23.7

23.4

22.6

23.1

Internal capital adequacy requirement, %

11.2

10.4

11.2

11.1

10.6

Average number of staff, full-time equivalent

106

121

106

106

116

In calculating the return on equity etc, AT1 capital raised in 2016 is treated as a financial liability for accounting purposes, and the dividends for the period thereon for accounting purposes are treated as interest expenses for subordinated debt through profit and loss for the period.

As part of the ongoing adjustment of internal and external financial reporting, as from Q3/2017, various changes have been made to the presentation of profit for the period. For more details, please refer to "Alternative performance measures" on page 7.

Totalkredit A/S H1 Interim Report 2018 – Totalkredit A/S

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H1/2018 – summary

Totalkredit delivered a satisfactory financial performance in H1/2018, which exceeded our expectations and resulted in an upward revision of our outlook, forecasting profit before tax at the high end of the DKK 2,3-2.6 billion range. Again in H1/2018 the activity level was high, and total mortgage lending rose by 3% to DKK 665 billion on end-2017. Totalkredit is focused on further strengthening the alliance with partner banks, and in H1/2018, this resulted in:   

Continued growth in lending across the country Development of joint IT solutions More KundeKroner discounts awarded in H1/2018.

The strong alliance with our partner banks has resulted in increased market share of 42.2% at end-June 2018 against 41.4% at end-2017. 41 banks, representing the majority of partner banks having business customers with mortgage needs, have started offering business mortgages. The Totalkredit alliance is developing a joint future-proof IT platform, which will ensure that the alliance as a whole is better positioned to offer customers the best home financing options in the coming years. All three of the collaborating IT partners have implemented the first part of the platform, offering customers and advisers a better overview of customers' aggregate facilities, including Totalkredit mortgage loans. On 1 January 2018, the KundeKroner discount rate was raised from 0.10% to 0.15% per every million Danish kroner borrowed, resulting in more customer discounts awarded under the KundeKroner benefits programme in H1/2018.

In H1/2018, Totalkredit awarded KundeKroner discounts of DKK 470 million, which is 166 million more than in H2/2017. KundeKroner discounts are awarded to the Company's customers and are funded via contributions from Forenet Kredit, which distributed DKK 367 million to the Company in H1/2018. The distribution is recorded under "Other operating income" in the income statement. Totalkredit's profit after tax came to DKK 1,127 million against DKK 1,113 million in H1/2017, corresponding to a return on average equity of 9.8%. Income Net interest income came to DKK 1,509 million. Excluding KundeKroner discounts awarded, this was an increase of 3.5% on end-2017, mainly driven by growth in lending. Conversely, there is a continued trend towards refinancing into fixed-rate loans and loans with longer refinancing intervals and lower administration margins. Net fee income amounted to DKK 270 million and grew by DKK 21 million on H1/2017 due to increased activity. Trading, investment portfolio and other income was affected by widening yield spreads in H1/2018. Consequently, income declined from DKK 146 million in H1/2017 to a loss of DKK 85 million in H1/2018. Costs Costs came to DKK 338 million, down DKK 7 million on the same period last year, driven by the reduction in the average number of fulltime equivalent staff from 121 in H1/2017 to 106 in H1/2018. Totalkredit's contribution for H1/2018 to the Danish Resolution Fund came to DKK 29 million against DKK 31 million in H1/2017.

Arrears ratio, mortgage lending ‒ 75 days past due

Impairment charges for loans and advances etc Impairment charges for loans and advances were a gain of DKK 2 million against an impairment charge of DKK 58 million in the same period last year. As in the previous quarters, property market trends were generally positive, which was reflected in relatively low impairment levels. The provisioning rate in H1/2018 equalled 0.0% of lending against 0.1% in H1/2017. Write-offs for the period totalled DKK 224 million, of which DKK 105 million was covered by the partner banks by set-off against commission payable or by guarantees in H1/2018. By comparison, write-offs came to DKK 250 million in H1/2017, of which DKK 110 million was set off against commission payable. Impairment provisions totalled DKK 1,477 million against DKK 1,563 million at end-2017. Impairment provisions equalled 0.22% of lending. At end-2017 this ratio was 0.25%. The arrears ratio measured at the December due date, 75 days past due, was 0.17% against 0.19% at the same time in 2017. The graph shows the 0.17% compared with figures as at 31 December in previous years.

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Totalkredit A/S H1 Interim Report 2018 – Totalkredit A/S

In H1/2018, 234 properties mortgaged by Totalkredit were sold as forced sales by public auction. In the same period, Totalkredit acquired 4 properties by foreclosure and sold 8. The portfolio of properties acquired by foreclosure thus stood at 4 as at 30 June 2018. Lending Totalkredit is Denmark's largest private residential mortgage provider. Measured at fair value, the loan portfolio grew to DKK 665 billion against DKK 644 billion at the beginning of the year. At nominal value, the loan portfolio totalled DKK 650 billion at 30 June 2018 compared with DKK 630 billion at the beginning of the year. Gross new lending was DKK 70 billion, of which around DKK 10 billion was loans offered through Nykredit Realkredit A/S. Broken down by loan type, the share of interest-only loans in the loan portfolio fell from 51.1% at end-2017 to 49.3% at 30 June 2018. The share of variablerate loans dropped from 55.4% to 54.0%. Of these loans, 6.5% had interest rate caps against 7.1% at the beginning of the year. Loan-to-value ratios (LTVs) The average LTV ratio of the loan portfolio, determined as the top part of the loan amount for each property, was 68% at 30 June 2018 against 69% at end-2017. For the part of the loan portfolio which is funded by SDOs (Danish covered bonds) and for which LTV ratios exceed the statutory LTV limits of 80% for owner-occupied dwellings and, from 25 April 2017, 75% for holiday homes, supplementary collateral must be provided to bondholders. The supplementary collateral requirement averaged DKK 8.3 billion in H1/2018.

Totalkredit raises supplementary collateral by investing part of its own funds or borrowed funds, primarily proceeds from senior secured debt in issue, in particularly secure assets. Balance sheet Assets essentially consist of three items: receivables from credit institutions of DKK 9.8 billion, mortgage lending of DKK 664.9 billion and a bond portfolio of DKK 79.1 billion. Liabilities essentially consist of payables to the Parent, Nykredit Realkredit A/S, totalling DKK 712.7 billion, of which DKK 710.7 billion related to the funding of mortgage loans, and DKK 1.7 billion related to supplementary collateral for SDO-funded lending. At end-2017 payables amounted to DKK 693.3 billion. At 30 June 2018 Totalkredit's self-issued covered bonds totalled DKK 8.2 billion compared with DKK 9.1 billion at end-2017. Equity including profit for the period totalled DKK 27.4 billion at 30 June 2018 compared with DKK 26.3 billion at end-2017.

RESULTS FOR Q2/2018 RELATIVE TO Q1/2018 In Q2/2018, profit before tax totalled DKK 656 million compared with 686 million in Q1/2018. Income rose by DKK 3 million from DKK 838 million in Q1/2018 to DKK 841 million in Q2/2018. The period saw a positive development in the underlying business, signified by rising net interest and net fee income.

30.06.2018

31.12.2017

Income from trading, investment portfolio and other income was affected by widening yield spreads in Q2/2018. Consequently, income fell by DKK 8 million to a loss of DKK 46 million.

Credit risk

88,627

86,402

Impairment charges totalled DKK 3 million in Q2/2018, slightly up on Q1/2018.

Market risk

4,613

4,262

Operational risk

6,153

5,642

99,393

96,306

Totalkredit Capital and capital adequacy DKK million

Total REA Equity

27,353

26,300

AT1 capital

(4,048)

(4,048)

(3)

(3)

23,302

22,249

4,000

4,000

27,302

26,249

2,000

2,000

CET1 capital deductions CET1 capital AT1 capital Tier 1 capital Subordinated debt Subordinated debt deductions Own funds

202

272

29,505

28,522

CET1 capital ratio, %

23.4

23.1

Tier 1 capital ratio, %

27.4

27.2

Total capital ratio, %

29.6

29.6

Internal capital adequacy requirement (Pillar I and Pillar II), %

11.2

10.6

Totalkredit A/S H1 Interim Report 2018 – Totalkredit A/S

CAPITAL AND CAPITAL ADEQUACY Totalkredit's own funds include CET1 capital, AT1 capital and Tier 2 capital after deductions. Guarantees provided by Nykredit amounted to DKK 99.4 billion at end-H1/2018 against DKK 96.3 billion at end-2017. The total capital ratio was 29.6% at end-June 2018, which was unchanged on end-2017. The Tier 1 capital ratio was 27.4% compared with 27.2% at end-2017, and the CET1 capital ratio was 23.4% compared with 23.1% at end-2017. Totalkredit's internal capital adequacy requirement was 11.2% at endJune 2018 compared with 10.6% at end-2017.

5/27

OUTLOOK FOR 2018

OTHER

At the presentation of the Annual Report for 2017, our guidance for profit before tax for 2018 was between DKK 1.9 billion and DKK 2.4 billion.

The KundeKroner benefits programme The Committee of Representatives of Forenet Kredit decided on 22 March to make a total capital contribution of DKK 2.4 billion to the companies of the Nykredit Group to be awarded in 2018 and 2019. Totalkredit A/S will receive DKK 1.7 billion and Nykredit Realkredit A/S DKK 0.7 billion.

Based on the rate of lending growth in H1/2018, the resulting positive impact on income and the continued low impairment level, guidance for profit is revised up to DKK 2.3-2.6 billion. The most significant uncertainty factors in respect of our outlook for 2018 relate to movements in interest rate markets and uncertainty about loan impairments.

CREDIT RATINGS The lending activities of Totalkredit and Nykredit Realkredit, Totalkredit's Parent, are jointly funded. Due to the joint funding, Totalkredit and Nykredit Realkredit use the same bond series to fund identical loans. Nykredit Realkredit issues the requisite bonds through capital centres that are rated AAA by S&P Global Ratings. Covered bonds issued by Totalkredit through Capital Centre C are also rated AAA by S&P Global Ratings. Capital Centre C is not open for new lending.

SPECIAL ACCOUNTING CIRCUMSTANCES Change in impairment calculations Totalkredit prepares its Financial Statements in accordance with the provisions set out in the Danish FSA Executive Order on Financial Reports as amended at 1 January 2018 to incorporate key elements from IFRS 9. Reference is made to note 1.

SUPERVISORY DIAMOND

In Totalkredit A/S, the contribution of DKK 1.7 billion will go towards the customer benefits programme, KundeKroner. The contribution will secure the funding of KundeKroner discounts to personal customers having a mortgage loan with Totalkredit, corresponding to an annual discount of DKK 1,500 on their administration margin payments for each million kroner borrowed in 2018 and 2019. As from 1 July 2018, business customers will also receive annual discounts under the KundeKroner programme of DKK 1,500 for each million kroner borrowed. Business customers with mortgage loans exceeding DKK 20 million will only get a discount on their administration margin payments for the first DKK 20 million of their debt outstanding. This means that after deduction of the KundeKroner discount, Totalkredit homeowners with fully mortgaged homes are currently enjoying the lowest administration margins in the market on our main products, including fixed-rate repayment loans, which is Totalkredit's most popular loan. The idea behind the customer discounts is to ensure that the Group's customers feel the benefits of having a financial provider that is owned by its customers. Together with our majority shareholder, Forenet Kredit, we want to share our progress with customers, so when Nykredit performs well, our customers share in the success.

Totalkredit complies with all Supervisory Diamond benchmark limits as at 30 June 2018. See table below.

Supervisory Diamond for mortgage lenders Benchmark Lending growth in segment Personal customers Borrower's interest rate risk Loans to private individuals and for residential rental Interest-only loans Personal customers

Definition Annual lending growth may not exceed 15%. The proportion of lending where the LTV ratio exceeds 75% of the LTV limit and where the loan rate is fixed for up to two years only may not exceed 25% of the total loan portfolio. The proportion of IO loans for owner-occupied and holiday housing with an LTV above 75% of the statutory LTV limit may not exceed 10% of total lending.

30 June 2018

Limit value

7.0%

15.0%

12.4%

25.0%

9.5%

10.0%

12.7%

25.0%

4.5%

13.0%

5.1%

100.0%

Loans with short-term funding Refinancing (annually)

The proportion of loans to be refinanced must be below 25% per year and below 12.5% per quarter.

Refinancing (quarterly) Large exposures Loans and advances:equity

6/27

The sum of the 20 largest exposures must be less than equity.

Totalkredit A/S H1 Interim Report 2018 – Totalkredit A/S

Change in Totalkredit's Executive Board Troels Bülow-Olsen, Managing Director of Totalkredit, turned 60 in April and wished to retire after having served the Company for almost 29 years. He retired at the end of April 2018. From 1 May 2018, Camilla Holm took over the role of CEO of Totalkredit A/S. As of 1 October 2018, Totalkredit welcomed Jan Schmidt as Managing Director. Jan Schmidt most recently served as Head of Market Areas at Danske Bank's Personal Banking unit. Jan Schmidt will become a member of the Executive Board of Totalkredit A/S, serving alongside Camilla Holm, CEO.

BUSINESS CONCEPT Totalkredit is a wholly-owned subsidiary of Nykredit Realkredit A/S. Totalkredit provides property loans through its partner banks – Danish local and national banks – as well as through Nykredit Realkredit A/S. Lending is funded through the issuance of bonds by means of intercompany funding between Totalkredit A/S and Nykredit Realkredit A/S. Totalkredit's business concept is based on partner banks being responsible for customer services and covering a proportion of the risk of loss relating to the loan portfolio. The loss risk relating to personal loans is hedged by agreement with the partner banks. Under the agreement, incurred losses corresponding to the cash part of a loan exceeding 60% of the mortgageable value at the time of granting are offset against future commission payments from Totalkredit to the partner banks. Since 2014, a minor part of the right of set-off has been replaced by a loss guarantee provided by the partner banks.

EVENTS SINCE THE BALANCE SHEET DATE No other events have occurred in the period up to the presentation of the H1 Interim Report 2018 which materially affect the Company's financial position.

UNCERTAINTY AS TO RECOGNITION AND MEASUREMENT Measurement of certain assets and liabilities is based on accounting estimates made by the Company's Management. The areas in which assumptions and estimates significant to the financial statements have been made include determination of the fair value of certain financial instruments, valuation of loans and advances as well as provisions. Uncertainty as to recognition and measurement is described in detail in the accounting policies (note 1 in the Annual Report 2017), to which reference is made.

ALTERNATIVE PERFORMANCE MEASURES Earnings presentation in Management Commentary The Management Commentary is based on the Group's internal financial reporting. In the opinion of Management, the Management Commentary should be based on the internal management and business reporting, which forms part of financial governance. Readers of the financial reports are thus provided with information that is relevant to their assessment of Nykredit's financial performance. As part of the Group's ongoing adjustment of its internal and external reporting, various changes have been made relative to the H1 Interim Report 2017. The change has no earnings impact. The most important change is that income will be broken down into several items going forward, differentiating more clearly between stable types of income and relatively more volatile income, such as trading and investment portfolio income. Furthermore, investment portfolio income is recognised in "Income" as opposed to previously, when investment portfolio income was recognised as a separate item. "Income" comprises the items "Net interest and fee income", "Value adjustments" and "Other operating income" in the income statement. "Net interest income" comprises interest income and administration margin income from mortgage lending, including KundeKroner discounts and contributions from Forenet Kredit recorded under "Other operating income" in the income statement. "Net fee income" includes refinancing and activity income. "Net interest from capitalisation" comprises the risk-free interest attributable to equity and net interest from subordinated debt. Supplementary financial ratios etc. The financial highlights of the Management Commentary include a number of internal income statement items. It should be noted in particular that "Net interest income" in the financial highlights is based on net interest income from deposit and lending activities and is thus not directly comparable with "Net interest income" in the income statement. The presentation is based on the same recognition and measurement principles that apply to the Financial Statements. This consequently means that key concepts such as "Profit (loss)", "Balance sheet" and "Equity" correspond to the items in the Financial Statements. In relation to the internal presentation of income, a number of supplementary financial ratios are included in the Management Commentary. "Profit (loss) for the period after tax as a % of average equity". Interest expenses for Additional Tier 1 (AT1) capital have been deducted from profit (loss), and Additional Tier 1 capital is considered a financial liability and is therefore not recognised in equity. Average equity is calculated on the basis of the value at the beginning of the period, at end-Q1 and at end-H1. "Costs as % of income" is calculated as the ratio of "Costs" to "Income".

Totalkredit A/S H1 Interim Report 2018 – Totalkredit A/S

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MANAGEMENT STATEMENT

STATEMENT BY THE BOARD OF DIRECTORS AND THE EXECUTIVE BOARD ON THE INTERIM REPORT The Board of Directors and the Executive Board have today reviewed and approved the Interim Report for the period 1 January – 30 June 2018 of Totalkredit A/S. The Interim Report is prepared in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Firms, etc. The Interim Report is furthermore prepared in accordance with additional Danish disclosure requirements for annual reports of issuers of listed bonds.

In our opinion, the Financial Statements give a true and fair view of the Company's assets, liabilities, equity and financial position at 30 June 2018 and of the results of its operations for the financial period 1 January– 30 June 2018. Further, in our opinion, the Management Commentary gives a fair review of the development in the operations and financial circumstances of the Company as well as a description of the material risk and uncertainty factors which may affect the Company. The Interim Report has not been subject to audit or review.

Copenhagen, 23 August 2018

Executive Board

Board of Directors

Camilla Holm

Michael Rasmussen Chairman

Claus E. Petersen Deputy Chairman

Petter Blondeau

John Christiansen

John Fisker

Karen Frøsig

David Hellemann

Gert Jonassen

Lasse Nyby

8/27

Totalkredit A/S H1 Interim Report 2018 – Totalkredit A/S

STATEMENTS OF INCOME AND COMPREHENSIVE I NCOME

DKK million H1/

H1/

Q2/

Q2/

2018

2017

2018

2017

INCOME STATEMENT

Interest income

2

7,306

7,833

3,652

3,917

Interest expenses

3

4,700

4,898

2,343

2,424

2,606

2,935

1,309

1,493

Net interest income Fee and commission income

4

256

235

119

120

Fee and commission expenses

5

1,605

1,507

800

763

1,257

1,663

628

850 30

Net interest and fee income Value adjustments

55

168

28

Other operating income

6

367

-

185

-

Staff and administrative expenses

338

345

181

182

Other operating expenses Impairment charges for loans, advances and receivables etc

7

Profit before tax Tax Profit for the period

8

-

1

-

-

(2)

58

3

56

1,342

1,427

656

642

215

314

104

142

1,127

1,113

552

501

1,127

1,113

552

501

-

-

-

-

1,127

1,113

552

501

STATEMENT OF COMPREHENSIVE INCOME

Comprehensive income Profit for the period Other comprehensive income Comprehensive income for the period

H1 Interim Report 2018 – Totalkredit A/S

9/27

BALANCE SHEET

DKK million

30.06.2018

31.12.2017

ASSETS

Receivables from credit institutions and central banks

9

9,846

9,427

Loans, advances and other receivables at fair value

10

664,852

644,310

Loans, advances and other receivables at amortised cost

10

84

77

Bonds at fair value

11

79,081

80,558

305

182

Current tax assets Deferred tax assets

0

-

Assets in temporary possession

12

15

9

Other assets

13

1,003

1,485

Prepayments

15

6

Total assets

755,199

736,055

LIABILITIES AND EQUITY Payables to credit institutions and central banks

14

712,700

693,278

Bonds in issue at fair value

14

8,188

9,104

Other liabilities

15

4,953

5,362

725,840

707,744

Provisions for obligations

6

6

Provisions for deferred tax

-

5

Total provisions

6

11

2,000

2,000

848

848

Total payables

Subordinated debt

16

Equity Share capital Reserves - series reserves

1,646

1,646

- other reserves

20,812

19,758

Shareholder of Totalkredit A/S

23,306

22,252

Holders of Additional Tier 1 capital Total equity

Total liabilities and equity

OFF-BALANCE SHEET ITEMS

4,048

4,048

27,353

26,300

755,199

736,055

17

Contingent liabilities

-

-

Other commitments

0

2

Total

0

2

10/27

H1 Interim Report 2018 – Totalkredit A/S

STATEMENT OF CHANGES IN EQUITY

DKK million Holders of Share capital

Series reserves

Retained earnings

848

1,646

19,758

22,252

4,048

26,300

Profit for the period

-

-

1,127

1,127

-

1,127

Total comprehensive income for the period

-

-

1,127

1,127

-

1,127

Interest on Additional Tier 1 capital

-

-

(94)

(94)

-

(94)

Tax on Additional Tier 1 capital

-

-

21

21

-

21

Equity, 30 June 2018

848

1,646

20,812

23,306

4,048

27,353

Equity, 1 January 2017

848

1,646

18,167

20,661

4,012

24,674

Profit for the period

-

-

1,113

1,113

48

1,161

Total comprehensive income for the period

-

-

1,113

1,113

48

1,161

Interest paid on Additional Tier 1 capital

-

-

(97)

(97)

-

(97)

Tax on Additional Tier 1 capital

-

-

21

21

(12)

9

848

1,646

19,204

21,698

4,048

25,746

Equity, 1 January 2018

Equity, 30 June 2017

Shareholder of Totalkredit A/S

AT1 capital

Total

The share capital consists of 8,480,442 shares of DKK 100 each. There is only one share class. The entire share capital is owned by Nykredit Realkredit A/S.

Totalkredit is included in the Consolidated Financial Statements of this company and the Consolidated Financial Statements of Forenet Kredit, Kalvebod Brygge 1-3, Copenhagen, Denmark, which owns 78.9% of Nykredit Realkredit A/S. The Financial Statements [in Danish] of Forenet Kredit may be obtained from the same.

Series reserves consist of a non-distributable reserve fund established pursuant to section 220 of the Danish Financial Business Act in connection with Totalkredit's conversion into a public limited company in 2000. The capital is used to cover regulatory capital requirements and may otherwise only be used to cover losses not covered by amounts distributable as dividend in the public limited company.

At the beginning of 2017 reclassification was made between equity and subordinated debt of DKK 4,000 million, the reason being that, in 2016, AT1 capital was classified as subordinated debt rather than as equity.

H1 Interim Report 2018 – Totalkredit A/S

11/27

NOTES

1. Accounting policies

13

2. Interest income

16

3. Interest expenses

16

4. Fees and commission income

16

5. Fee and commission expenses

16

6. Value adjustments

16

7. Impairment charges for loans, advances and receivables etc

17

8. Tax

19

9. Receivables from credit institutions and central banks

20

10. Loans, advances and other receivables

20

11. Bonds at fair value

21

12. Assets in temporary possession

21

13. Other assets

21

14. Payables to credit institutions and central banks

22

15. Other liabilities

22

16. Subordinated debt

23

17. Off-balance sheet items

23

18. Related party transactions and balances

24

19. Capital and capital adequacy

25

20. Five-year financial highlights

26

12/27

H1 Interim Report 2018 – Totalkredit A/S

NOTES

1. ACCOUNTING POLICIES

Calculations of mortgage loan impairment measured at fair value involve some adjustments relative to loans and advances measured at amortised cost. For

GENERAL

loans and advances measured at fair value, the probability of increased credit

The H1 Interim Report 2018 has been prepared in accordance with the Danish

losses (in the form of a risk premium) will thus be assessed, even if the loans

Financial Business Act and the Executive Order on Financial Reports for Credit

are not credit impaired at the date of measurement. Furthermore, loans are not

Institutions and Investment Firms, etc. (the Danish Executive Order on Financial

subject to impairment in stage 1 (12-month expected losses) already at the time

Reports) issued by the Danish Financial Supervisory Authority (FSA).

of initial recognition, as this would go against the principles of fair value measurement.

Moreover, the Interim Report has been prepared in accordance with additional Danish disclosure requirements for interim reports of issuers of listed bonds.

Classification and measurement The general principles for measurement of financial assets and liabilities have

All figures in the H1/2018 Interim Report are rounded to the nearest million Danish kroner (DKK). The totals stated are calculated on the basis of actual figures. Due to the rounding-off to the nearest whole million Danish kroner, the sum of

changed following amendments to the Danish Executive Order on Financial Reports. But for Totalkredit, the implementation has not given rise to significant changes in the presentation and classification.

individual figures and the stated totals may differ slightly. After initial recognition, financial assets must continue to be measured at amorChanges to the Executive Order on Financial Reports The international financial reporting standards IFRS 9 "Financial Instruments" entered into force on 1 January 2018. The standard includes new provisions

tised cost, fair value through other comprehensive income or fair value through profit or loss. The measurement is based on classification of the individual financial assets in accordance with the Company's business model.

governing "classification and measurement of financial assets", "impairment of financial assets" and "hedge accounting".

Going forward, classification of financial instruments will be based on the following business models:

In connection with the implementation of IFRS 9, the Danish Financial Supervi-



sory Authority has issued amendments to the IFRS-compatible Executive Order on Financial Reports. The amended Executive Order includes significant IFRS 9

The asset is held to collect cash flows from payments of principal and interest (hold to collect business model). Measured at amortised cost.



elements, including provisions governing impairment of loans and advances at

The asset is held to collect cash flows from payments of principal and interest and moderate sales activity (hold to collect and sell business model).

amortised cost as well as classification of financial assets.

Measured at fair value with changes recognised through other comprehensive income with reclassification to the income statement on realisation of

Totalkredit does not prepare its Financial Statements in accordance with IFRS, but the Danish FSA's Executive Order on Financial Reports, and as the basic principles for measurement of mortgage lending at fair value remain unchanged, the change of policies at 1 January 2018 has not had an impact on the Company's provisions, balance sheet and equity.

the assets (FVOCI). 

Other financial assets are measured at fair value through profit or loss (FVPL). These include assets managed on a fair value basis or held in the trading book or assets where contractual cash flows do not solely comprise interest and principal of the receivable. It is also still possible to measure financial assets at fair value with value adjustment through profit or loss,

So far, Totalkredit has recorded impairment of loans and advances at fair value applying the same principles as are used when recording impairment of loans and advances measured at amortised cost, see IAS 39. In accordance with

when such measurement significantly reduces or eliminates an accounting mismatch that would otherwise have occurred on measurement of assets and liabilities or recognition of losses and gains on different bases.

amendments to the Danish Executive Order on Financial Reports, Totalkredit will, in line with its Parent, Nykredit Realkredit A/S, continue to record impair-

The principles of financial liabilities follow the accounting policies applied so far.

ment of mortgage lending applying the same principles as are used for impairment of loans and advances at amortised cost and within the framework of the Danish Executive Order on Financial Reports (see the principles set out in IFRS 9).

The Company's financial assets and business models were reviewed in 2017 to ensure correct classification thereof. The review included an assessment of whether collecting cash flows is a significant element, including whether the cash flows only consist of interest and principal.

Therefore, already in the Financial Statements for 2017, Totalkredit made a new accounting estimate of the impairment impact on mortgage lending and resolved to recognise the earnings impact in 2017. As this is an accounting estimate and not a change in accounting policies, the amount was charged to the income

This assessment is based on the assumption that ordinary rights to prepay loans and/or extend loan terms fulfil the condition that the cash flow is based on collection of interest and principal payments.

statement. The impact led to increased impairment provisions for mortgage lending of approx DKK 561 million, which was charged to the income statement. The earnings impact after tax totalled about DKK 438 billion in 2017.

H1 Interim Report 2018 – Totalkredit A/S

The assessment has not led to changes to the measurement and classification of financial assets.

13/27

NOTES

Receivables from credit institutions as well as other receivables etc previously

Irrespective of the fact that a number of financial assets and liabilities must gen-

measured at amortised cost are still measured according to this principle.

erally be measured at amortised cost, measurement at fair value is possible if the fair value measurement eliminates or reduces an accounting mismatch that

The Company does not have any financial assets that are measured at fair

would otherwise follow from different type measurement of one or more financial

value and value adjusted through other comprehensive income (FVOCI).

instruments. Financial liabilities may also be measured at fair value if the instrument is part of an investment strategy or a risk management system based on

Mortgage loans are still measured at fair value (FVPL). The same applies to the

fair values and is continuously stated at fair value in the reporting to Manage-

liabilities that are issued for the purpose of funding these loans. Generally, mort-

ment.

gage loans are not transferred during their term, and the business model is based on holding the portfolio in order to collect the cash flows. However, the

Derivative financial instruments (derivatives), which are assets or liabilities, are

Danish Executive Order on Financial Reports (and IFRS 9 and previously IAS

measured at fair value through profit or loss, and this is unchanged compared

39) allows measurement at fair value through profit or loss. Mortgage loans

with current practice.

granted in accordance with Danish mortgage legislation are funded by issuing listed covered bonds of uniform terms. Such mortgage loans may be prepaid by

Impairment for expected credit losses

delivering the underlying bonds, and the Company buys and sells self-issued

For Totalkredit, an important feature of the new Executive Order on Financial

covered bonds on a continuing basis, as they constitute a significant part of the

Reports is the new principles for calculation of impairment, especially in relation

Danish money market.

to mortgage loans at fair value. Other financial assets measured at amortised cost constitute an insignificant part of the Company's balance sheet and there-

If mortgage loans and covered bonds in issue were measured at amortised cost,

fore, the impact is insignificant.

the purchase and sale of self-issued covered bonds would lead to a timing difference between the recognition of gains and losses in the Financial Statements.

According to previous practice, impairment was based on objective impairment

Thus, the purchase price of the portfolio would not equal the amortised cost of

criteria. Implementation of the new impairment rules means that going forward

the bonds in issue. If the portfolio of self-issued covered bonds was subse-

impairment of loans and advances will be based on expected credit losses and

quently sold, the new amortised cost of the "new issue" would not equal the

that already at the time of granting (stage 1), loans and advances are subject to

amortised cost of the matching mortgage loans, and the difference would be

impairment corresponding to the expected credit losses arising from default

amortised over the remaining term-to-maturity.

within 12 months. This has led to increased impairment provisions. Mortgage lending measured at fair value is not subject to impairment for credit losses al-

In order to avoid the consequently inconsistent earnings impact, mortgage loans

ready at initial recognition in accordance with the above.

are measured at fair value involving an adjustment for the market risk based on the value of the underlying bonds and an adjustment for credit risk based on the

Loans are impaired in three stages depending on whether the credit risk has in-

impairment need.

creased significantly since initial recognition: 

Stage 1 covers loans and advances etc without significant increase in credit

Other financial assets, including securities in the form of bonds, will be meas-

risk. These are subject to impairments corresponding to expected credit

ured at fair value through profit or loss after initial recognition. In relation to the

losses in the event of default within the next 12 months. Loans and ad-

bond portfolio, this should in the Company's assessment not be subject to the

vances etc measured at amortised cost are subject to impairment already at

two business models that form the basis for measurement at amortised cost or measurement at fair value or measurement at fair value and value adjusted

the time of granting. 

through other comprehensive income.

Stage 2 covers loans and advances etc with significant increase in credit risk. These are subject to impairment corresponding to expected credit losses during the time-to-maturity.

The reason is that the business model behind the portfolio is not intrinsically



Stage 3 covers loans and advances etc in default or otherwise impaired.

based on collecting cash flows from payments of principal and interest but is

These are subject to impairment according to the same principles as loans

based on, for example, short-term trading activity and investments focused on

and advances in stage 2 based on expected credit losses during the time-to-

cost minimisation, where contractual cash flows do not constitute a central ele-

maturity, but with the difference that interest income attributable to the im-

ment but follow solely from the investment.

paired part of loans and advances etc measured at amortised cost, is not recognised through profit or loss.

Measurement at fair value is otherwise performed according to unchanged principles.

Impairment calculations are based on further development of existing methods and models for impairment, taking into account forward-looking information and

Generally, financial liabilities should continue to be measured at amortised cost

scenarios. The definition of default has not been changed and will continue be-

after initial recognition and separated from the embedded derivative financial in-

ing dictated by the customer's financial position and payment behaviour (90-day

struments, if these are not closely related to the host contract. However, finan-

arrears).

cial liabilities, which are issued with a view to funding mortgage lending, are measured at fair value through profit or loss, corresponding to previous practice.

14/27

H1 Interim Report 2018 – Totalkredit A/S

NOTES

In expected loss calculations, time-to-maturity corresponds to the contractual

Stage 3 includes loans and advances/facilities where observations indicate that

maturity as a maximum, as adjustments are made for expected prepayments, as

the asset is credit impaired. Most often, this is where

required. Nevertheless, for credit-impaired financial assets, the determination of



expected losses should be based on contractual maturity.

a borrower is experiencing considerable financial difficulties owing to eg changes in income, capital and wealth, leading to the assumption that the customer is unable to fulfil their obligations

Model-based impairment in stages 1 and 2 is based on transformations of PD



borrowers fails to meet their payment obligations

and LGD values to short-term (12 months) or long term (remaining life of the



there is an increased probability of bankruptcy or similar associated with a

product/cyclicality). The parameters are based on Nykredit's IRB models, and forward-looking information is determined according to the same principles as

borrower 

a borrower is offered more lenient contractual terms (for example, interest

apply to regulatory capital and stress tests. For a small fraction of portfolios with

rate and loan term) due to deterioration in the borrower's financial circum-

no IRB parameters, simple methods are used based on appropriate loss ratios.

stances.

A key element of the determination of impairment is establishing when a finan-

Relative to stage 3 exposures, the credit loss is determined using a portfolio

cial asset should be transferred from stage 1 to stage 2. The following principles

model according to the same principles as are used in an individual assessment.

apply: 



For assets/facilities with 12-month PD <1% at the time of granting: Increased

Model-based impairment is still subject to management judgement according to

PD for expected time-to-maturity of the financial asset of 100% and an in-

the same principles as are applied under the previous rules and is supple-

crease in 12-month PD of 0.5 percentage points.

mented with an assessment of an improved/worsened macro scenario for the

For assets/facilities with 12-month PD >1% at the time of granting: Increased

long-term Probability of Default (PD).

PD for expected time-to-maturity of the financial asset of 100% or an in

crease in 12-month PD of 2.0 percentage points.

Impairments are offset against the relevant assets (loans, advances and receiv-

The Group considers that a significant increase in credit risk has occurred no

ables etc as well as bonds). Impairment provisions for guarantees and loan

later than when an asset is more than 30 days past due, unless special cir-

commitments are recognised as a liability.

cumstances apply. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSESSMENTS In stages 1 and 2, impairments are based on a number of potential outcomes

Measurement of certain assets and liabilities is based on accounting estimates

(scenarios) of a customer's financial situation. In addition to past experience, the

made by the Company's Management.

models should reflect current conditions and expectations at the balance sheet date. The inclusion of scenarios must be probability-weighted and unbiased.

The areas in which assumptions and estimates significant to the financial statements have been made include provisions for loan and receivable impairment,

The choice of macro scenarios is significant to total impairments which are very

unlisted financial instruments and provisions of the Annual Report 2017.

sensitive to the choice of scenarios and probability weights. OTHER INFORMATION Generally, three scenarios are applied:

Apart from the above changes made due to the implementation of the new Ex-



scenario reflecting the best estimate of the Company (baseline)

ecutive Order on Financial Reports, the accounting policies are otherwise un-



scenario reflecting high expected credit losses

changed compared with the Annual Report 2017. For a full description of the ac-



scenario with minor expected credit losses to cover an appropriate number

counting policies, please refer to note 1 of the Annual Report 2017, which is

of likely losses based on the best estimate of the Company. Due to the cur-

available at nykredit.com/reports.

rently favourable economic trends and the financial strength of our customers, the baseline and a fairly positive scenario currently seem to coincide. In case of changed economic trends, a scenario with an improved future outlook will be part of the calculation method.

The calculation of macro-economic scenarios is based on the assumptions of eg interest rates and property prices used to determine the internal capital adequacy requirement. The baseline scenario is considered best estimate and is included in the transaction matrices. The low scenario which is based on high expected credit losses corresponds to a "mild" stress in the capital model (used to determine the internal capital adequacy requirement).

H1 Interim Report 2018 – Totalkredit A/S

15/27

NOTES

DKK million

H1/2018

H1/2017

2. INTEREST INCOME

Receivables from credit institutions and central banks

(14)

(20)

Loans, advances and other receivables

4,719

4,870

Administration margin income

2,532

2,871

of which KundeKroner benefits programme

(470)

-

Bonds - self-issued covered bonds (SDOs, ROs) - other covered bonds - government bonds

0

1

41

85

-

-

25

24

Derivative financial instruments - interest rate contracts Other interest income Total Set-off of interest from self-issued covered bonds Total

4

3

7,306

7,834

(0)

(1)

7,306

7,833

3. INTEREST EXPENSES Mortgage loan funding through Nykredit Realkredit A/S

4,605

4,736

Bonds in issue

63

89

Other payables to Nykredit Realkredit A/S

15

55

Subordinated debt

18

19

Other interest expenses Total Set-off of interest from self-issued covered bonds

0

1

4,700

4,899

(0)

(1)

4,700

4,898

Loan fees, new lending

150

132

Trading commission and other fees

106

103

Total

256

235

Total Subordinated debt is exclusive of interest relating to AT1 capital reclassified in Q4/2017.

4. FEES AND COMMISSION INCOME

5. FEE AND COMMISSION EXPENSES Loan arrangement fees Commission to loan arrangers Trading commission and other fees Total

119

101

1,389

1,313

96

92

1,605

1,507

22

1,772

6. VALUE ADJUSTMENTS

Mortgage loans Bonds Foreign exchange, interest rate and other contracts as well as derivative financial instruments Other liabilities Bonds in issue etc¹ Total

191

244

(142)

(130)

6

54

(22)

(1,772)

55

168

¹ Bonds in issue, including payables to Nykredit Realkredit A/S relating to bonds issued by Nykredit Realkredit A/S in connection with the funding of mortgage loans granted by Totalkredit A/S.

16/27

H1 Interim Report 2018 – Totalkredit A/S

NOTES

DKK million

7. IMPAIRMENT CHARGES FOR LOANS, ADVANCES AND RECEIVABLES ETC Loans and advances

Loans and advances

Credit institutions and other

Loans and advances

Loans and advances

2018

2017

2018

2018

2017

Beginning of period

1,563

1,130

-

1,563

1,130

Balance, 1 January 2018

1,563

-

1,563

Total impairment provisions

New impairment provisions as a result of additions and change in credit risk

820

304

8

828

304

Releases as a result of redemptions and change in credit risk

743

178

-

743

178

Impairment provisions written off

162

170

-

162

170

1

19

-

1

19

1,477

1,067

8

1,485

1,067

-

126

-

-

126

Transferred to "Impairment provisions for properties acquired by foreclosure" Total provisions for impairment of loans, advances and receivables, and for guarantees Earnings impact Change in impairment provisions for loans and advances (individual and collective) Change in impairment provisions for loans and advances (stages 1-3)

77

-

8

85

-

Write-offs for the period, not previously provided for

59

56

-

59

56

Recoveries on claims previously written off

12

13

-

12

(13)

Total

124

169

8

132

169

Value adjustment of assets in temporary possession

(17)

7

-

(17)

7

Value adjustment of claims previously written off

(11)

(8)

-

(11)

(8)

(106)

(110)

-

(106)

(110)

(10)

58

8

(2)

58

Stage 1 (12 months expected credit losses)

Stage 2 (Lifetime expected credit losses)

Stage 3 (Lifetime expected credit losses)

Total

447

840

276

1,563

Transfer of impairments at the beginning of the period to stage 1

51

(51)

-

-

Transfer of impairments at the beginning of the period to stage 2

(29)

42

(13)

-

Transfer of impairments at the beginning of the period to stage 3

-

(23)

23

-

Losses offset, in accordance with partnership agreement Earnings impact, H1/2018

Total impairment provisions by stage as at 30.06.2018

Total impairment provisions, end-2017 (Annual Report for 2017) Total at 1 January 2018

1,563

Impairment provisions at 1 January 2018 determined according to IFRS 9 principles

Impairment provisions for new loans and advances (additions)

23

28

49

100

Additions as a result of change in credit risk

199

417

112

728

Releases as a result of change in credit risk

298

327

118

743

Previously written down for impairment, now written off

-

-

162

162

Other changes

-

-

1

1

Total impairment provisions, end of period

392

926

166

1,485

Earnings impact, H1/2018

(76)

118

43

85

H1 Interim Report 2018 – Totalkredit A/S

17/27

NOTES

DKK million

7 A. IMPAIRMENT CHARGES FOR LOANS, ADVANCES AND RECEIVABLES ETC (CONTINUED)

Individual impairment provisions

Collective impairment provisions

Total

Impairment provisions, beginning of period

554

576

1,130

Additions as a result of new loans and advances and change in credit risk

265

-

265

(178)

40

(138)

Total impairment provisions by stage at 30.06.2017

Releases as a result of change in credit risk Other changes Previously written down for impairment, now written off Total impairment provisions, end of period

Earnings impact, H1/2017

Total impairment provisions by loans and advances etc at 30.06.2018

(19)

(19)

(170)

(170)

451

616

1,067

87

40

126

Stage 1 (12 months expected credit losses)

Stage 2 (Lifetime expected credit losses)

Stage 3 (Lifetime expected credit losses)

Total

648,713

17,003

530

666,245

109

1,173

195

1,477

648,603

15,831

335

664,769

Individual impairment provisions

Collective impairment provisions

Guarantees etc

Total

3,366

41,148

-

44,513

451

616

-

1,067

2,915

40,532

-

43,447

Loans and advances etc Mortgage lending etc, gross Total impairment provisions, end of period Loans and advances etc, carrying amount

Total impairment provisions by loans and advances etc 30.06.2017

Loans and advances etc Mortgage lending etc, gross Total impairment provisions, end of period Loans and advances etc, carrying amount

18/27

H1 Interim Report 2018 – Totalkredit A/S

NOTES

DKK million

H1/2018

H1/2017

7. IMPAIRMENT CHARGES FOR LOANS, ADVANCES AND RECEIVABLES ETC (CONTINUED)

Individual impairment provisions for properties acquired by foreclosure Impairment provisions, beginning of period Transfer from impairment provisions for loans and advances Impairment provisions for the period

25

69

1

19

2

13

Impairment provisions reversed

(20)

(5)

Impairment provisions written off

(5)

(24)

3

71

Impairment provisions, end of period

8. TAX Current tax rates, % Non-deductible costs, % Effective tax rate, %

H1 Interim Report 2018 – Totalkredit A/S

22.0

22.0

6.0

(0.0)

16.0

22.0

19/27

NOTES

DKK million

30.06.2018

31.12.2017

Receivables from credit institutions

9,846

9,427

Total

9,846

9,427

664,852

644,310

9. RECEIVABLES FROM CREDIT INSTITUTIONS AND CENTRAL BANKS

10. LOANS, ADVANCES AND OTHER RECEIVABLES Loans, advances and other receivables at fair value Loans, advances and other receivables at amortised cost Total

84

77

664,936

644,387

664,769

644,174

Loans, advances and other receivables at fair value Mortgage loans Arrears and outlays Total

83

136

664,852

644,310

629,502

590,959

Mortgage loans Balance, beginning of period, nominal value New loans

70,348

139,243

Ordinary principal payments

(5,728)

(10,314)

Prepayments and extraordinary principal payments

(43,634)

(90,386)

Balance, end of period, nominal value

650,488

629,502

Loans transferred relating to properties in temporary possession Adjustment for interest rate risk etc

(5)

(10)

15,681

16,138

Adjustment for credit risk Total Balance, end of period, fair value

(1,395)

(1,457)

664,769

644,174

As collateral for loans and advances, Nykredit has received mortgages over real estate and: Arrears before impairment provisions

123

97

Outlays before impairment provisions

41

146

Impairment provisions for arrears

(50)

(19)

Impairment provisions for outlays

(32)

(88)

83

136

Mortgage loans

13

16

Other loans and advances

71

61

Total

84

77

Supplementary guarantees in addition to mortgages on real estate

34,142

31,288

Statutory guarantees for interim loans

20,508

18,732

Guarantees for loans disbursed before obtaining a registered mortgage

20,228

25,699

Balance, end of period, nominal value

74,878

75,719

Total Mortgage arrears up to and including the June 2018 due date, for which no provisions have been made, amounted to DKK 0. Loans, advances and other receivables at amortised cost

Measured at fair value, the item amounted to DKK 84 million at end-H1/2018 and DKK 77 million at end-2017. For mortgage loans, the following bank guarantees have been received:

20/27

H1 Interim Report 2018 – Totalkredit A/S

NOTES

DKK million

30.06.2018

31.12.2017

11. BONDS AT FAIR VALUE

Self-issued covered bonds

75

81

Other covered bonds

79,081

80,558

Total

79,155

80,639

Transferred to set-off against "Bonds in issue at fair value" – note 15 Total bonds

(75)

(81)

79,081

80,558

12. ASSETS IN TEMPORARY POSSESSION Debt outstanding, end of period

5

7

Outlays

13

13

Impairment provisions, end of period

(3)

(11)

Total

15

9

13. OTHER ASSETS

Positive market value of derivative financial instruments etc

14

9

Interest and commission receivable on loans and advances

798

900

Interest receivable from bonds and credit institutions

132

524

Other assets Total

H1 Interim Report 2018 – Totalkredit A/S

57

52

1,003

1,485

21/27

NOTES

DKK million

30.06.2018

31.12.2017

14. PAYABLES TO CREDIT INSTITUTIONS AND CENTRAL BANKS

Payables to credit institutions

285

332

1,699

4,486

Payables to Nykredit Realkredit A/S concerning funding of mortgage lending

710,716

688,460

Total

712,700

693,278

Balance, beginning of period, nominal value

672,904

626,799

Additions

107,467

203,297

Redemptions and prepayments

(81,914)

(149,206)

Payables to Nykredit Realkredit A/S concerning supplementary collateral for SDO-funded mortgage lending

Of which payables to Nykredit Realkredit A/S concerning the funding of mortgage loans

Prepayments and extraordinary principal payments Balance, end of period, nominal value Fair value adjustment Total

(2,880)

(7,986)

695,577

672,904

15,139

15,557

710,716

688,460

Bonds in issue at fair value Covered bonds issued against mortgages on real estate Balance, beginning of period, nominal value

8,604

10,845

Redemptions and prepayments

(864)

(2,130)

Prepayments and extraordinary principal payments

(19)

(111)

7,721

8,604

Set-off of self-issued covered bonds

(75)

(81)

Fair value adjustment

542

581

8,188

9,104

334

461

4,303

4,518

Balance, end of period

Total ROs maturing at next creditor payment date

15. OTHER LIABILITIES

Interest and commission payable Negative market value of derivative financial instruments etc Other payables Total

22/27

49

37

601

807

4,953

5,362

H1 Interim Report 2018 – Totalkredit A/S

NOTES

DKK million

30.06.2018

31.12.2017

Nominal DKK 2,000 million raised on 21 December 2015. The loan falls due at par (100) on 1 January 2026. The loan carries an interest rate of 2.1% above 3M Cibor

2,000

2,000

Total subordinate loan capital

2,000

2,000

16. SUBORDINATED DEBT Subordinated debt consists of financial liabilities in the form of subordinate loan capital which, in case of voluntary or compulsory liquidation, will not be repaid until the claims of ordinary creditors have been met. Nykredit Realkredit A/S is creditor on the loans. Subordinated debt that may be included in own funds totalled DKK 2,000 million against DKK 2,000 million at end-2017. Subordinate loan capital

No costs were incurred in connection with the redemption or raising of subordinate loan capital. Measured at fair value, subordinated debt amounted to about DKK 2,100 million. In Q4/2017, a reclassification of DKK 4,000 million was made from subordinated debt to equity.

17. OFF-BALANCE SHEET ITEMS

Other commitments Contingent liabilities

-

-

Other liabilities

0

2

Off-balance sheet items

0

2

Other contingent liabilities Owing to its size and business scope, Totalkredit is continuously involved in le-

The Company is jointly taxed in Denmark with Forenet Kredit f.m.b.a as the ad-

gal proceedings and litigation. The cases are subject to ongoing review, and

ministration company. Pursuant to the Danish Corporation Tax Act, the Com-

necessary provisions are made based on an assessment of the risk of loss.

pany is liable as from the financial year 2013 for income taxes etc payable by

Pending cases are not expected to have a significant effect on the Company's

the jointly taxed companies and, as from 1 July 2012, for any obligations to with-

financial position.

hold tax at source on interest, royalties and dividends of these companies. The total known net obligation to the Danish tax authorities (SKAT) of jointly taxed

Totalkredit participates in the Danish resolution scheme, implying that a resolu-

companies is stated in the Financial Statements of Forenet Kredit f.m.b.a.

tion fund must be built up at sector level (banks and mortgage lenders, etc), the purpose of which is to issue guarantees and provide loans, etc, to credit institutions in connection with restructuring and resolution measures.

The Resolution Fund was established on 1 July 2015 and must amount to at least 1% of the sector's covered deposits. The Resolution Fund will be based on annual contributions from the participating businesses and must be in place by end-2024. Totalkredit's gross contribution to the Danish Resolution Fund came to about DKK 29 million for H1/2018 and DKK 31 million for the same period in 2017. Of this amount Totalkredit further pays Nykredit Realkredit an amount corresponding to the part of the Group's contribution attributable to joint funding. In H1/2018 the amount totalled DKK 28 million against DKK 30 million in H1/2017.

H1 Interim Report 2018 – Totalkredit A/S

23/27

NOTES

18. RELATED PARTY TRANSACTIONS AND BALANCES

The Parent Nykredit Realkredit A/S, Copenhagen, Group enterprises and asso-

Agreements between Totalkredit A/S and Nykredit Realkredit A/S

ciates of Nykredit Realkredit A/S as well as Totalkredit A/S's Board of Directors

Totalkredit's mortgage lending is funded through a joint funding agreement with

and Executive Board and related parties thereof are regarded as related parties.

Nykredit Realkredit A/S, specified in note 15.

Transactions with Nykredit are based on agreements, and no unusual related

Totalkredit A/S has raised loans with Nykredit Realkredit A/S serving as collat-

party transactions occurred in 2018.

eral in Totalkredit's capital centres. The loans totalled DKK 1.7 billion at 30 June 2018 against DKK 4.5 billion at 31 December 2017.

Agreements include intercompany funding, loan capital and supplementary collateral, referral commission, IT support and development, payroll and staff ad-

Totalkredit A/S has raised loans with Nykredit Realkredit A/S in the form of sub-

ministration, asset and risk management, and other administrative tasks. Inter-

ordinated debt and Additional Tier 1 capital. As at 30 June 2018, Totalkredit has

company trading in goods and services took place on an arm's length or on a

received DKK 6 billion from Nykredit Realkredit A/S in the form of subordinated

cost reimbursement basis.

debt of DKK 2 billion and AT1 capital of a total of DKK 4 billion.

Transactions with Totalkredit's Board of Directors, its Executive Board and re-

Agreements between Totalkredit A/S and Nykredit Mægler A/S

lated parties thereof exclusively include mortgage loans granted on the terms

Agreement on commission payable in connection with referral of lending busi-

stated in Totalkredit's price list.

ness.

Significant related party transactions prevailing/entered into in H1/2018 include

Agreements between Totalkredit A/S and Nykredit Bank A/S

Additional Tier 1 capital of DKK 4,000 million received from Nykredit Realkredit

Agreement on commission payable in connection with referral of lending busi-

A/S in 2016 as well as interest in the amount of DKK 95 million in H1/2018 and

ness. Nykredit Bank A/S may transfer secured homeowner loans to Totalkredit

DKK 97 million in H1/2017. Interest is recorded as dividend for accounting pur-

A/S.

poses. In addition, the following should be mentioned:

24/27

H1 Interim Report 2018 – Totalkredit A/S

NOTES

DKK million

30.06.2018

31.12.2017

19. CAPITAL AND CAPITAL ADEQUACY

Own funds Equity, end of period

27,353

26,300

Additional Tier 1 capital

(4,048)

(4,048)

Difference between expected credit losses and impairment charges

(3)

(3)

Other deductions

-

-

Transitional adjustments

-

-

23,302

22,249

CET1 capital Additional Tier 1 capital

4,000

4,000

Tier 1 capital

27,302

26,249

Tier 2 capital

2,000

2,000

202

272

Tier 2 capital additions/deductions Transitional adjustment of deductions Own funds

-

-

29,505

28,522

Capital requirement Credit risk

7,090

6,912

Market risk

369

341

Operational risk

492

451

7,951

7,704

-

19,940

99,393

96,306

Total capital requirement Total capital requirement subject to transitional rule¹ Total REA Financial ratios Common Equity Tier 1 capital ratio, %

23.4

23.1

Total capital ratio, %

29.6

29.6

Required own funds and internal capital adequacy requirement Pillar I – primary risks Credit risk

7,090

6,912

Market risk

369

341

Operational risk

492

451

7,951

7,704

Total Pillar I Pillar II – other risks Weaker economic climate

989

1,088

Other factors

2,236

1,464

Total Pillar II

3,225

2,552

Total required own funds

11,176

10,256

Total REA

99,393

96,306

11.2

10.6

Internal capital adequacy requirement, % ¹ Total capital requirement subject to transitional rules was phased out on 1 January 2018.

Capital and capital adequacy have been determined in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013. Nykredit Realkredit A/S has been designated as a systemically important financial institution (SIFI) by the Danish authorities. As a result, a special SIFI CET1 capital buffer requirement applies to Totalkredit A/S. The requirement of 2% is being phased in and currently constitutes 1.6%. To this should be added the phase-in of the permanent buffer requirement, currently 1.9%, applicable to all financial institutions.

H1 Interim Report 2018 – Totalkredit A/S

25/27

NOTES

DKK million H1/

H1/

H1/

H1/

H1/

2018

2017

2016

2015

2014

2,136

20. FIVE-YEAR FINANCIAL HIGHLIGHTS

Summary income statement Net interest income

2,606

2,935

2,396

2,508

Net fee income etc

(1,349)

(1,272)

(1,023)

(974)

(856)

1,257

1,663

1,373

1,534

1,280 (54)

Net interest and fee income Value adjustments

55

168

79

13

Other operating income

367

-

2

-

-

Staff and administrative expenses

338

345

320

269

199

Other operating expenses Impairment charges for loans, advances and receivables etc Profit before tax Tax

-

1

1

-

-

(2)

58

44

309

138

1,342

1,427

1,089

969

889

215

314

240

228

218

Profit for the period

1,127

1,113

849

741

671

Total comprehensive income

1,127

1,113

849

741

671

30.06.2018

30.06.2017

30.06.2016

30.06.2015

30.06.2014

SUMMARY BALANCE SHEET, END OF PERIOD Assets Cash balances and receivables from credit institutions and central banks Mortgage loans Bonds and equities etc Remaining assets Total assets

9,846

11,564

17,230

22,048

15,677

664,852

616,450

590,239

559,804

548,474

79,081

77,830

53,644

79,278

53,325

1,421

1,317

1,647

2,915

3,506

755,199

707,160

662,760

664,045

620,982

Liabilities and equity Payables to credit institutions and central banks

712,700

663,947

622,514

613,545

551,044

Bonds in issue

8,188

10,016

12,816

22,018

43,079

Remaining liabilities

4,958

5,451

5,967

7,528

7,435

Subordinated debt

2,000

2,000

2,000

3,100

3,100

Equity

27,353

25,746

19,462

17,854

16,325

755,199

707,160

662,760

664,045

620,982

Return on equity before tax, %

5.0

5.7

5.7

5.5

5.6

Return on equity after tax, %

4.2

4.4

4.5

4.2

4.2

Loans and advances:equity

24.3

23.9

30.3

31.4

33.6

Total liabilities and equity

Growth in loans and advances for the period, %

3.3

2.5

1.6

0.7

0.1

(0.00)

0.01

0.01

0.05

0.03

Income:cost ratio

4.99

4.54

3.97

2.68

3.63

Total capital ratio, %

29.6

30.4

23.2

21.4

20.4

Common Equity Tier 1 capital ratio, %

23.4

23.7

21.0

19.0

17.8

Foreign exchange position, %

0.0

0.2

1.7

0.3

0.5

Total impairment provisions, %

0.0

0.2

0.2

0.2

0.2

Average number of staff, full-time equivalent

106

121

129

115

126

Return on capital employed, %

0.1

0.2

0.1

0.1

0.1

Impairment charges for the period, %

26/27

H1 Interim Report 2018 – Totalkredit A/S

MANAGEMENT COMMENTAR Y (CONTINUED)

Reclassification between subordinated debt and equity was made in 2017. At the same time, treated as dividend for accounting purposes, the associated interest expenses ceased to be recognised through profit or loss. The reclassification resulted in the below restatement of the 2017 interim reports. The earnings impact on the Annual Report 2016 was insignificant, as the loan was not raised until December 2016. DKK million Q1/

Q1/

Q2/

Q2/

Q3/

Q3/

original

restated

original

restated

original

restated

Interest income

3,916

3,916

7,833

7,833

11,619

11,619

Interest expenses

2,523

2,474

4,994

4,898

7,477

7,331

Net interest income

1,394

1,442

2,839

2,935

4,142

4,288

Net fee income etc

(630)

(630)

(1,272)

(1,272)

(1,925)

(1,925)

Net interest and fee income

764

813

1,566

1,663

2,217

2,362

Value adjustments

137

137

168

168

208

208

-

-

-

-

150

150

163

163

345

345

528

528

Other operating expenses

1

1

1

1

1

1

Impairment charges for loans, advances and receivables etc

2

2

58

58

95

95

Profit before tax

736

785

1,330

1,427

1,950

2,096

Tax

162

173

293

314

396

428

Profit for the year

574

612

1,037

1,113

1,554

1,667

Total comprehensive income

574

612

1,037

1,113

1,554

1,667

31.03.2017

31.03.2017

30.06.2017

30.06.2017

30.09.2017

30.09.2017

Corrections per quarter (YTD) Q1-Q3/2017 Summary income statement

Other operating income Staff and administrative expenses

SUMMARY BALANCE SHEET, END OF PERIOD Assets Receivables from credit institutions and central banks Loans, advances and other receivables at fair value Loans, advances and other receivables at amortised cost

17,558

17,558

11,564

11,564

10,905

10,905

607,036

607,036

616,450

616,450

632,922

632,922

73

73

77

77

79

79

69,609

69,609

77,830

77,830

71,168

71,168

Deferred tax assets

7

7

6

6

6

6

Assets in temporary possession

9

9

12

12

23

23 1,663

Bonds at fair value

Remaining assets

1,495

1,495

1,205

1,205

1,663

Prepayments

12

12

16

16

12

12

Total assets

695,798

695,798

707,160

707,160

716,777

716,777

652,885

652,885

663,947

663,947

673,487

673,487

10,311

10,311

10,016

10,016

9,549

9,549

Current tax liabilities

45

45

176

176

279

279

Remaining liabilities

5,315

5,254

5,317

5,269

5,241

5,192

668,556

668,496

679,456

679,408

688,556

688,507

Liabilities and equity Payables to credit institutions and central banks Bonds in issue at fair value

Total payables Provisions for pensions and similar obligations Subordinated debt

6

6

6

6

6

6

6,000

2,000

6,000

2,000

6,000

2,000

848

848

848

848

848

848

Equity Share capital Reserves - series reserves

1,646

1,646

1,646

1,646

1,646

1,646

- other reserves

18,741

18,741

19,204

19,204

19,721

19,721

Shareholders' capital

21,235

21,235

21,698

21,698

22,215

22,215

Additional Tier 1 capital Total equity Total liabilities and equity

4,061

4,048

4,049

21,235

25,296

21,698

25,746

22,215

26,264

695,798

695,798

707,160

707,160

716,777

716,777

This document is an English translation of the original Danish text. In the event of discrepancies between the original Danish text and the English translation, the Danish text shall prevail.

H1 Interim Report 2018 – Totalkredit A/S

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