Spar Nord H1 2018 1 Interim report for H1 2018

Business volume *) In the core earnings format in 2017, an amount was reclassified between the items Net interest income and Impairment of loans, adva...

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Spar Nord H1 2018

Interim report for H1 2018 of Spar Nord Bank Net profit of DKK 630 million and return on equity of 15.3%

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Spar Nord H1 2018

 

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Company announcement no. 9, 2018

Contents MANAGEMENT’S REVIEW Performance indicators and financial ratios – quarterly................. 3 Executive Summary............................................................................................. 5 Management commentary on H1 2018...................................................... 6 Spar Nord shares held by members of the management team..................................................................................... 10 Overview of group companies....................................................................... 10 Alternative performance measures............................................................. 11 INTERIM REPORT H1 2018 SPAR NORD GROUP Performance indicators and financial ratios........................................... 12 Statement by the Board of Directors and the Executive Board... 13 Income statement................................................................................................ 14 Balance sheet........................................................................................................ 15 Capital position..................................................................................................... 16 Cash flow statement........................................................................................... 18 Notes .......................................................................................................................... 19 Notes without reference.................................................................................... 33 INTERIM REPORT FOR H1 2018 SPAR NORD BANK A/S, PARENT COMPANY Performance indicators and financial ratios........................................... 37 Income statement................................................................................................ 38 Balance sheet........................................................................................................ 39 Capital position..................................................................................................... 40 Notes .......................................................................................................................... 42

Spar Nord H1 2018

Performance indicators and financial ratios –

3

Group

Performance indicators and financial ratios – Group CORE EARNINGS – QUARTERLY H1 2018

INCOME STATEMENT DKKm

H1 2017

Change in %

Q2 2018

Q1 2018

Q4 2017

Q3 2017

Q2 2017

Full year 2017

Net interest income *)



773 785

Net fee income



563 573 -2 273 290 279 264 279 1,116

Market value adjustments and dividends



183 285 -36 64 119 102 18 121 404

Other operating income



179 25 - 169 10 15 12 14 51

Income from investments in associates and group enterprises

-2 384 389 373 388 393 1,546

25 20 22 15 9

5 7 7 32

Core income



Salaries



589 602

-2 313 277 316 247 318 1,165

Operating expenses



366 347

6 183 183 195 168 171 710

Depreciation, amortisation and impairment



Costs and expenses



985 977

1 510 474 525 433 502 1,936

Core earnings before impairment



739 711

4 395 344 248 254 312 1,213

Loan impairment charges etc. *)



Profit/loss before tax



Tax



Profit/loss



Of which, share attributable to interest expenses to holders of additional tier 1 (AT1) capital

1,723 1,688

2 905

818

773 688

814 3,150

30 28 5 15 15 14 18 14 61

16 -9 722 720

- 39 -23

13 -42 -10 -38

0 355 367 235 297 322 1,251

93 145 -36 37 56 44 73 64 262 630 575

9 319 311 190 224 258 989

24 24 0 12 12 12 12 12 49

BALANCE SHEET



DKKm



Total assets



83,561 79,595

5 83,561 80,934 80,367 80,372 79,595 80,367

Loans and advances



45,678 42,407

8 45,678 44,866 46,747 45,471 42,407 46,747



Lending, banking and leasing activities



38,336 36,351



Lending, reverse repo transactions



7,342 6,056

5 38,336 37,551 37,272 36,630 36,351 37,272 21 7,342 7,315 9,475 8,841 6,056 9,475

Deposits



64,866 62,782

3 64,866 62,874 64,266 63,296 62,782 64,266



Deposits, banking activities



49,514 47,610

4 49,514 47,765 48,668 48,092 47,610 48,668



Deposits, repo transactions





Deposits in pooled schemes



15,352 15,016

2 15,352 15,110 15,423 15,204 15,016 15,423



1,522 1,089

40 1,522 1,128 1,144 1,086 1,089 1,144

Subordinated debt

Holders of additional tier 1 (AT1) capital instruments Equity



Contingent liabilities



0 156 - 0 0 175 0 156 175

860 863 8,100 7,702 12,095 12,304

0 860 874 861 872 863 861 5 8,100 8,220 8,114 7,920 7,702 8,114 -2 12,095 11,407

11,961 11,742 12,304 11,961

Total risk exposure amount



Tier 1 capital **)



8,235 7,369

12 8,235 8,055 7,924 7,777 7,369 7,924

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

1,894 1,901

0 1,894 1,874 1,616 1,708 1,901 1,616

Contractual non-performing loans



Business volume



51,493 49,672

4 51,493 51,559 49,546 49,243 49,672 49,546

383 401 -5 383 393 341 388 401 341 242,522 236,185

3 242,522 239,196 241,393 238,807 236,185 241,393

*) In the core earnings format in 2017, an amount was reclassified between the items Net interest income and Impairment of loans, advances and receivables, etc., which relates to the share of the discount, recognised as income, on commitments taken over. See note 3. *)

Tier 1 capital for H1 2017 is exclusive of recognition of profit/loss for the period.

***) Spar Nord’s impairment account amounts to DKK 1,894 million (H1 2017: DKK 1,839 million) (note 6) and the discount on commitments taken over amounts to DKK 0 million (H1 2017: DKK 62 million). The 2018 quarterly figures are inclusive of impairment of undrawn maximum.  In accordance with the accounting policies, the comparative figures have not been restated in connection with the implementation of IFRS 9 on financial instruments at 01.01.2018.

Spar Nord H1 2018

Performance indicators and financial ratios –

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Group

Performance indicators and financial ratios – Group CORE EARNINGS – QUARTERLY H1 2018

FINANCIAL RATIOS OWN FUNDS

H1 2017

Q2 2018

Q1 2018

Q4 2017

Q3 2017

Q2 2017

Full year 2017

Own funds ratio *)

18.9 16.9 18.9 17.8 18.2 17.9 16.9 18.2

Tier 1 capital ratio *)

16.0 14.8 16.0 15.6 16.0 15.8 14.8 16.0

Common equity tier 1 capital ratio *)

14.4 13.2 14.4 14.0 14.4 14.2 13.2 14.4





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

0.57 0.58 0.56 0.58 0.68 0.63 0.62 0.61

Cost share of core income



- incl. loan impairment charges, etc.

0.58 0.57 0.61 0.55 0.70 0.57 0.60 0.60

Return on assets, %

0.8 0.7 0.4 0.4 0.2 0.3 0.3 1.2





MARKET RISK AND LIQUIDITY



Interest rate risk, %

0.8 0.2 0.8 0.8 0.7 1.3 0.2 0.7

Foreign-exchange position, %

1.3 3.9 1.3 1.4 3.3 5.2 3.9 3.3

Foreign-exchange risk, %

0.1 0.1 0.1 0.0 0.1 0.1 0.1 0.1

Liquidity Cover Ratio (LCR), %

176 176 176 173 187 165 176 187

Bank and leasing loans relative to bank deposits, %

77.4 76.4 77.4 78.6 76.6 76.2 76.4 76.6





CREDIT RISK



Bank and leasing loans relative to shareholders’ equity

4.7 4.7 4.7 4.6 4.6 4.6 4.7 4.6

Increase in loans and advances for the period, %

3.5 3.6 2.1 1.3 1.8 0.8 1.6 6.2

Sum of large exposures, % ***)

79.1 17.5 79.1 74.1 17.2 18.7 17.5 17.2

Impairment ratio, %

0.0 0.0 0.1 0.0 0.0 -0.1 0.0 -0.1

8.7 9.0 4.3 4.4 2.8 3.6 4.0 15.1 7.6 7.2

3.9 3.7 2.3 2.7 3.2 12.0

EMPLOYEES AND BRANCHES



Number of employees (full-time equivalents, end of period) 1,527 1,555 1,527 1,520 1,538 1,557 1,555 1,538 Number of branches

49 55 49 50 50 51 55 50

SPAR NORD SHARE



DKK PER SHARE OF DKK 10



Share price, end of period

68 85 68 72 72 78 85 72

Net asset value (NAV), **)

66 63 66 67 66 64 63 66

Profit/loss for the period **)

5.0 4.5 2.5 2.5 1.5 1.7 2.0 7.7

Dividend

- - - - - - - 3.5

Return

- - - - - - - -5

Price/earnings **)

- - - - - - - 9

*)

Own funds for H1 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.

***) In 2018, financial ratios are calculated according to new rules. In accordance with the accounting policies, the comparative figures have not been restated in connection with the implementation of IFRS 9 on financial instruments at 01.01.2018.

Spar Nord H1 2018

Executive Summary

5

Executive Summary “A profit after tax of DKK 630 million is on a level with the best half-year results in Spar Nord’s history, and we are of course very pleased with the strong performance. Adding to performance was a decent profit on our shareholdings in Valueinvest Asset Management and BankInvest, but our ordinary banking operations also developed favourably. Net interest and fee income is more or less unchanged from the year-earlier period, and as a result of the favourable economic trends our loan losses remain at a very low level,” said Spar Nord’s CEO Lasse Nyby.

Spar Nord achieved a satisfactory profit after tax of DKK 630 million in H1 2018, which corresponds to an annualised return on equity of 15.3%. The profit marks an increase of DKK 55 million, or 9%, on H1 2017 and is substantially above the Bank’s strategic target of having a return on equity of 9-11% after tax.

BUSINESS VOLUME The Group’s total business volume (deposits, loans, advances and guarantees, mortgage credits arranged and customers’ custodianship accounts) amounted to DKK 242.5 billion at 30 June 2018, which was DKK 1.4 billion higher than at the beginning of 2018.

Core income amounted to DKK 1,723 million, which is 2% higher than in the year-earlier period. Net interest income was DKK 773 million against DKK 785 million in H1 2017, net fee income was DKK 563 million against DKK 573 million, and market value adjustments were DKK 183 million against DKK 285 million. The strong income improvement was thus attributable to an increase in other operating income (sale of shares) in the amount of DKK 155 million.

The increase covers an increase in bank lending of DKK 1.3 billion (3%), an increase in mortgage lending of DKK 2.1 billion (3%) and a DKK 0.8 billion (2%) increase in deposits. Detracting from performance was a decline in customers’ custodian accounts.

Total costs and expenses amounted to DKK 985 million, which is on a level with the same period of last year. As in the preceding periods, costs were affected by investments in the IT area. A reduction in more or less all other cost items has the opposite effect. Core earnings before impairment were DKK 739 million, which is DKK 28 million, or 4%, higher than in H1 last year and higher than expected at the beginning of the year. Loan impairment charges etc. were a net expense of DKK 16 million, which is also better than expected at the beginning of the year.

INCOME FROM BANKINVEST AND VALUEINVEST The financial statements for the first half of 2018 are positively influenced by an income of DKK 154 million concerning the sale of Spar Nord’s shareholding in Valueinvest Asset Management SA to Macquarie. In addition, the financial statements include an extraordinary value adjustment of DKK 82 million with respect to Spar Nord’s ownership interest in BI Holding A/S (BankInvest) as a result of a changed valuation principle in BankInvest. OUTLOOK On the basis of developments and performance in H1, management has resolved to retain the full-year forecast for core earnings before impairment around DKK 1.3 billion, as announced in connection with the news about non-recurring income regarding Valueinvest and BankInvest. The net profit for the year is still expected to be around DKK 1.0 billion.

Spar Nord H1 2018

Management commentary on

6

H1 2018

Management commentary on H1 2018

Spar Nord achieved a profit after tax of DKK 630 million in H1 2018, which corresponds to an annualised return on equity of 15.3%. The profit is DKK 55 million, or 9%, higher than in H1 2017 and is considered satisfactory by management. Core income amounted to DKK 1,723 million, which is 2% higher than in the year-earlier period. Net interest income and net fee income DKKM Net fee income 1,462

401

569

844 H1 2014

Realised net fee income was adversely affected in the amount of DKK 24 million concerning a changed accruals principle. The underlying trends were thus positive, especially due to growth in income from mortgage loans arranged, insurance and pension. On a negative note, there was a small decline in fee income from securities trading.

Net interest income

1,245

NET FEE INCOME AT A SATISFACTORY LEVEL Net fee income was DKK 563 million in H1 2018, against DKK 573 million in the same period of 2017. Net income from fees, charges and commissions thus accounted for 42% of total net interest and fee income in the period.

1,332

1,359

1,336

519

573

563

893

813

785

773

H1 2015

H1 2016

H1 2017

H1 2018

CONTINUED GROWTH IN LENDING AND REDUCED PRESSURE ON INTEREST MARGINS Net interest income was DKK 773 million in H1 2018, against DKK 785 million in the same period of 2017. Compared with the year-earlier period, interest income from loans, bonds, etc. was DKK 24 million lower, while interest expenses were reduced by DKK 12 million. The lending margin was 28 basis points lower in Q2 2018 than it was 1714,285714 in Q2 2017. However, since the fourth quarter, the interest margin has been a mere 7 basis points, covering a fall in the lending margin of 13 1428,571429 basis points and a fall in the deposit margin of 6 basis point.

1142,857143

857,142857 Net interest income for H1 2018 includes DKK 15 million of interest income from previous impairment exposures571,428571 (H1 2017: DKK 21 million). 285,714286

From Q1 to Q2, net interest income fell from DKK 389 million to DKK 384 million, primarily because there was no 0,000000 income due to one-off events in Q2.

MARKET VALUE ADJUSTMENTS AFFECTED BY DIFFICULT BOND MARKET ENVIRONMENT Market value adjustments and dividends amounted to DKK 183 million, which is DKK 102 million, or 36%, lower than in H1 2017. The downward trend is ascribable to a sharp reduction in earnings from bonds and financial instruments. Moreover, there was a negative one-off effect of DKK 12 million concerning value adjustment of derivatives. Market value adjustments and dividends DKKM

311

428

187

285

183 x

H1 2014

H1 2015

H1 2016

H1 2017

H1 2018

On a positive note, market value adjustments and dividends concerning strategic shareholdings in financial sector companies rose by DKK 64 million, especially driven by BankInvest. INCOME OF DKK 154 MILLION FROM DIVESTMENT OF VALUEINVEST Other operating income amounted to DKK 179 million in H1 2018, against DKK 25 million in the same period of 2017. The increase was driven by the sale of Spar Nord’s shareholding in Valueinvest Asset Management SA to Macquarie. Income from investments in associates and group enterprises amounted to DKK 25 million compared with DKK 20 million in 2017.

1714,285714 1428,571429 1142,857143 857,142857 571,428571

600 525

Spar Nord H1 2018

Management commentary on

7

H1 2018

COSTS DRIVEN BY IT INVESTMENTS The Group’s total costs and expenses amounted to DKK 985 million in H1 2018, against DKK 977 million in the same period of 2017. Total costs DKKm 925

964

948

977

985

35

33

35

28

30

Depreciation, amort. and impairment

344

356

327

347

366

Other operating expenses

546

575

586

602

589

Salaries

H1 2014

H1 2015

H1 2016

H1 2017

H1 2018

For Spar Nord, the implementation of the new IFRS 9 rules at 1 January 2018 has resulted in additional impairments of DKK 250 million, and the impact on the Bank’s opening equity after tax is thus DKK 195 million, corresponding to 2.4% of shareholders’ equity.

Wages and salaries accounted for DKK 589 million of total costs and expenses. Realised payroll costs were DKK 13 million, or 2%, lower 1500 than in H1 2017, primarily due to factors of a technical nature. As a re1350 costs for basic salaries sult of pay rises under collective agreements, 1200 were thus slightly higher than in the year-earlier period, although 1050 Spar Nord employed 28 employees fewer at 30 June 2018 than one 900 year before.

750 600 Other operating expenses came to DKK450 366 million, which is DKK 19 million, or 6%, higher than in 2017. The increase was mainly due to 300 higher costs associated with strategic IT150 projects both with respect to the BEC data centre and in-house projects in Spar Nord. A re0 duction in more or less all other material cost items has the opposite 1500 effect.

1350 1200 The realised core income and costs correspond to a Cost/Income 1050 Ratio of 0.57, which is better than Spar Nord’s strategic target of 900 0.60. 750 600 From Q1 to Q2, costs and expenses rose450 from DKK 474 million to DKK 510 million. The increase was primarily 300 due to higher payroll costs 150 driven by adjustment of holiday pay obligations. 0 LOAN IMPAIRMENTS REMAINING MODERATE 1500 Loan impairment charges etc. was an expense of DKK 16 million, 1350 which compares to an income of DKK1200 9 million in the year-earlier period. Of the total H1 impact – an income 1050 of DKK 23 million in Q1 and an expense of DKK 39 million in Q2900 – there was an income of 750 of DKK 69 million for DKK 11 million for retail customers, an income 600expense of DKK 96 million business customers ex. agriculture and an 450 for agriculture.

300 150 0

Impairment DKKM

The overall positive trends for both retail and business customers reflect the continued improvement of macroeconomic conditions, which have resulted in a lower inflow of impairment exposures and better performance of loans already flagged as having weak credit quality. In the agricultural sector, however, the period was characterised by lower pork prices and more difficult conditions for plant cultivation. Against that background, loan impairment charges for the agricultural sector came to DKK 96 million, of which DKK 40 million is reserved for an anticipated higher liquidity requirement in Q3 for customers for which objective evidence of impairment has been established.

Individual impairment charges (stage 3) amounted to DKK 1,518 million at 30 June 2018, while stage 1 and 2 impairments totalled DKK 376 million. The Group’s loans, advances and guarantees *) Breakdown by industry Loans and guarantees

Industry %

31.12.17 6.1

Fisheries

0.2 0.2 0.0

6.3

34.9

5.3 5.7 4.9 Industry and raw materials extraction Utilities

3.1 2.7 1.3

Construction and engineering

4.8 4.5 4.6

Trade

7.2 7.4 4.4

Transport, hotels and restaurants

3.8 3.9 5.4

Information and communication

0.4 0.4 0.2

Financing and insurance

6.6 6.4 5.7

Real property

11.2 10.8 11.0

Other industries

5.8 6.5 5.4

Total business customers



Public authorities

0 0.0 0.0

Retail customers

45.5 45.2 22.1

Total

100.0 100.0 100.0

54.5 54.8 77.9

*) Excl. reverse repo transactions

Agricultural exposures by production line

Loans, advances and guarantees

30.06.18 DKKm/%

Non-performing loans

Of which impaired

Share impaired

Cattle producers



854

81 486 57.0

Pig producers



680

12 310 45.5

Plant cultivation



766

5 172 22.5

Mink farmers



99

8 39 39.4

Leasing



510

1 20 4.0

Miscellaneous



360

2 19 5.2

Total



3,269

109 1,046 32.0

Agricultural impairment by production line ImpairImpairment ment 2.757 account Written off for the year

DKKm/%

H1 2014

30.06.18

Agriculture, hunting and forestry

30.06.18

160

Impairment account

30.06.18

166

H1 2015

133

H1 2016

Indesign udgave

-9

H1 2017

2.15916

2.239

483

562

H1 2018

1.676

1.677

2011

2012

Cattle producers 863 Pig 723 producers Plant cultivation

315 1.030 202

0

Impairment ratio of exposure

Percentage impaired

8 36.9 64.8

0 46 29.7 65.1

68

0 30

Mink farmers



23

0

7

23 58.5

Leasing



5

0

4

1.0 24.3

0

2

2.2 42.5

Miscellaneous 1.849 Total 2013

8 1.800 1.727 620 2014

2015

8.8 39.4

0 96 19.0 59.3

Spar Nord H1 2018

Management commentary on

8

H1 2018

PROFIT BEFORE TAX OF DKK 722 MILLION AND NET PROFIT OF DKK 630 MILLION The profit before tax was DKK 722 million against DKK 720 million in H1 2017. The Group’s effective tax rate was 13%, bringing the net profit to DKK 630 million, against DKK 575 million in the same period last year. The very low effective tax rate was due to tax exemption for income relating to both Valueinvest and BankInvest in H1.

Lastly, customers’ custodianship accounts have declined by DKK 2.9 billion, or 6%, since 1 January.

BUSINESS VOLUME GROWING TO DKK 243 BILLION The Group’s total business volume (deposits, loans, advances and guarantees, mortgage credits arranged and customers’ custodianship accounts) amounted to DKK 242.5 billion at 30 June 2018, which was DKK 1.4 billion higher than at 1 January 2018.

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

Compared with 1 January 2018, bank and leasing loans rose DKK 1.3 billion, or 3%.

100.0

Strategic liquidity 30.06.18

(DKKbn)

31.03.18

31.12.17

30.09.17

30.06.17

Deposits, banking activities

49.5 47.8 48.7 48.1 47.6

Senior loans/bond issues

0.0 0.0 0.0 0.0 0.0

Equity and subordinated debt

10.5 10.2 10.1 9.9 9.7

Liquidity procurement

60.0 58.0 58.8 58.0 57.3

Lending, banking and leasing activities 38.3 37.6 37.3 36.6 36.4

Total credits arranged (DKKbn) 95.6

STRATEGIC LIQUIDITY OF DKK 21 BILLION 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).

106.5

111.7

117.6

Total

Maturity, senior issued bonds & subordinated debt <1 year



Strategic liquidity, total

21.0 19.8 20.8 21.0 20.5

0.7 0.7 0.7 0.4 0.4

At the end June 2018, Spar Nord’s strategic liquidity amounted to DKK 21.0 billion, up DKK 0.2 billion on end-2017. Spar Nord’s LCR ratio at 30 June 2017 was 176. 60.4

66.1

71.5

75.3

79.3

Lending, mortgage loans

35.2

33.9

35.0

36.4

38.3

Lending, banking and leasing loans

H1 2014

H1 2015

H1 2016

H1 2017

H1 2018

In H1 2018, the volume of mortgage loans arranged grew DKK 2.1 billion to DKK 79.3 billion, equal to 3%. In total, the volume of mortgage loans arranged from Totalkredit amounted to DKK 68.2 billion and from DLR Kredit DKK 11.1 billion. Total deposits (DKKbn) 53.2

56.6

59.6

13.3

62.6

15.0

64.9

Total

15.4

Lending in pooled schemes

10.7

12.5

42.5

44.1

46.3

47.6

49.5

H1 2014

H1 2015

H1 2016

H1 2017

H1 2018

Deposits banking activities

Deposits, banking activities increased by DKK 0.8 billion, or 2%, in H1 while deposits in pooled schemes were unchanged at DKK 15.4 billion.

STRONG CAPITAL POSITION On the capital side, Spar Nord pursues the goal of having a common equity tier 1 (CET1) ratio of 13.0% and an own funds ratio of 16.5%. In connection with the expected assignment of SIFI status (beginning of 2019), Spar Nord expects to raise these targets to 13.5% and 17.5%. At 30 June 2018, the common equity tier 1 (CET1) ratio was 14.4%, while the own funds ratio was 18.9%. This should be viewed relative to the individual solvency need calculated by Spar Nord at 9.3% plus the 1.9% combined buffer requirement, as a result of which the total capital requirement is 11.2%. The excess capital coverage, which is calculated at 7.1 percentage points or DKK 3.7 billion, has been reduced by tier 2 capital of DKK 0.3 billion because Spar Nord currently has more tier 2 capital than what may be included in the excess coverage calculation. In H1 2018, as part of ordinary refinancing initiatives, Spar Nord issued new tier 2 capital of DKK 400 million. PHASING IN OF MREL REQUIREMENTS As Spar Nord is expected to be assigned SIFI status, the Bank must comply with the same requirements regarding eligible liabilities (MREL requirements) as other SIFIs. The requirements will be phased in from the beginning of 2019 to the beginning of 2022, and when they are fully phased in, Spar Nord must have total capital of about 30% of the total risk exposure amount. Over the coming years, the phasing in of the new requirements is expected to lead to a need for issuing subordinated capital (senior non-preferred) to the tune of DKK 6 billion. The first issues are expected to be made in H2 2019, and efforts will be made to ensure an even distribution of issues during the period until the MREL requirements enter into force.

Spar Nord H1 2018

Management commentary on

9

H1 2018

IRB PROJECT STATUS As described in Annual Report 2017, Spar Nord has, among other things due to the expected assignment of SIFI status, resolved to launch a project to facilitate the transition to internal ratings-based models for calculating risk. The preparatory work is progressing according to plan, and Spar Nord has an ambition of transitioning to IRB Advanced for the entire loan portfolio. The time schedule and expected effects are unchanged from the disclosures in our annual report. THE SUPERVISORY AUTHORITY DIAMOND TEST MODEL The Supervisory Authority Diamond Test Model lists a number of reference points stipulating what can basically be 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 June 2018, Spar Nord was comfortably within all threshold values in the Supervisory Authority Diamond Test Model. At 30 June 2018, Spar Nord could report the following values in respect of the defined reference points:

∑ Large

exposures <175%

Lending growth <20%

Spar Nord:

Spar Nord:

5.8 %

79.1 % Funding ratio <1

Property exposure <25%

Spar Nord:

Spar Nord:

0.5

10.6% Liquidity coverage ratio >100% Spar Nord: 187%

OUTLOOK FOR 2018 At the beginning of 2018, Spar Nord forecast core earnings before impairment around the DKK 1.1 billion mark and a net profit of around DKK 0.8 billion. As a result of information on non-recurring income from market value adjustments of BankInvest in Q1 and sales proceeds from Valueinvest Asset Management SA in Q2, Spar Nord upgraded its guidance twice in Q1 for a profit before impairment for the full-year 2018 from “about DKK 1.1 billion” to “about DKK 1.3 billion”. On the basis of the overall financial performance for H1, Spar Nord retains this guidance. The net profit for the year after the two upgrades is still expected to be around DKK 1.0 billion.

Spar Nord H1 2018

Spar Nord shares held by members of the management team

10

Overview of group companies

SPAR NORD SHARES HELD BY MEMBERS OF THE MANAGEMENT TEAM

Board of Directors Kjeld Johannesen Per Nikolaj Bukh Lene Aaen (took office on 19.04.2018) Kaj Christiansen Morten Bach Gaardboe Laila Mortensen Ole Skov (retired on 19.04.2018) Jannie Skovsen Gitte Holmgaard Sørensen John Sørensen

At 30.06.18

At 31.03.18

80,000 60,000 27,200 27,200 2,593 2,431 21,100 21,100 3,620 3,620 0 0 - 7,785 8,151 7,963 2,392 2,183 5,160 5,160

Executive Board

At 30.06.18

At 31.03.18

5 1 , 1 61 74,274 69,431

Lasse Nyby John Lundsgaard Lars Møller

50,143 72,355 68,430

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 2017 and 2018.

Share capital end of period*) DKKm

Equity end of period*) DKKm

27

Profit/loss *) DKKm

402

18

Spar Nord H1 2018

Alternative performance

11

measures

Alternative performance measures Spar Nord’s Management believes that the alternative performance measures (APMs) used in the Management’s review provide valuable information to readers of the financial statements. The APMs provide a more consistent basis for comparing the results of financial periods and for assessing the performance of the Group. They are also an important aspect of the way in which Spar Nord’s Management defines operating targets and monitors performance. Throughout the Management’s review, performance is assessed on the basis of the financial highlights and segment reporting, which represent the financial information regularly provided to Management. The differences between the financial highlights and the IFRS financial statements relate only to certain changes in the presentation. There are no adjusting items, which means that net profit is the same in the financial highlights and in the IFRS income statement. A reconciliation of the correlation between core income in the management commentary and the IFRS financial statements is shown in note 3 Segment information. 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 Cost share of core income - incl. loan impairment charges

Loans and advances plus impairment account and discount hereon as % of deposits Loans and advances relative to shareholders’ equity

Spar Nord uses core earnings as a performance measure. From 2018, there is no difference between “Core earnings before impairment” in the core earnings format and “Profit/loss before loan impairment charges” in the IFRS financial statements, as there is no discount on commitments taken over. In the core earnings format, the recognised share of discount on commitments taken over was previously presented together with loan impairment charges, etc., whereas in the IFRS financial statements it was included in interest income. In previous years, other items in the core earnings format comprised contributions to sector-wide solutions and special merger-related items. Defined below are the additional key indicators shown on page 4 of the management commentary and in the other sections of the management commentary.

Profit/loss before tax in per cent of shareholders’ equity. The average equity is calculated as a simple average of the shareholders’ equity at the beginning of the year and at the end of the year. Profit/loss before tax and shareholders’ equity are calculated as if the additional tier 1 (AT1) capital were treated as a liability. Profit/loss after tax in per cent of shareholders’ equity. The average equity is calculated as a simple average of the shareholders’ equity at the beginning of the year and at the end of the year. Profit/loss after tax and shareholders’ equity are calculated as if the additional tier 1 (AT1) capital were treated as a liability. Total costs/core income. Total costs plus loan impairment charges etc./core income. Loans and advances plus impairment and discount as % of deposits

Bank and leasing loans relative to bank deposits

Loans and advances as % of equity Bank and leasing loans as a percentage of bank deposits

Bank and leasing loans relative to shareholders’ equity

Bank and leasing loans / shareholders’ equity

Spar Nord H1 2018

Performance indicators and financial ratios –

12

Group

Performance indicators and financial ratios – Group THE DANISH FSA’S LAYOUT AND RATIO SYSTEM 5-YEAR OVERVIEW

H1 2018

INCOME STATEMENT DKKm Net income from interest, fees, charges and commissions

H1 2017

Change in %

1,381 1,404

H1 2018

H1 2017

H1 2016

H1 2015

H1 2014

Full year 2017

-2 1,381 1,404 1,409 1,540 1,315 2,716

Market value adjustments



138 267 -48 138 267 138 374 284 381

Staff costs and administrative expenses



951 945

Loan impairment charges etc.



Income from investments in associates and group enterprises



Profit/loss



1 951 945 909 929 878 1,863

16 19 -12 16 19 162 188 194 -7



25 20 22 25 20 15 13 53 32 630 575

9 630 575 383 632 440 989

BALANCE SHEET



DKKm



Loans and advances



Equity



Total assets



45,678 42,407 8,960 8,565 83,561 79,595

8 45,678 42,407 38,531 34,413 36,935 46,747 5 8,960 8,565 7,799 7,618 6,855 8,975 5 83,561 79,595 77,476 77,832 77,933 80,367

In accordance with the accounting policies, the comparative figures have not been restated in connection with the implementation of IFRS 9 on financial instruments at 01.01.2018.

FINANCIAL RATIOS OWN FUNDS



Own funds ratio *)



18.9 16.9 18.9 16.9 16.8 16.3 16.9 18.2

Tier 1 capital ratio *)



16.0 14.8 16.0 14.8 14.7 14.2 14.7 16.0

EARNINGS



Return on equity before tax, %



Return on equity after tax, %



Income/cost ratio



1.72 1.72 1.72 1.72 1.42 1.62 1.44 1.65

Return on assets, %



0.8 0.7 0.8 0.7 0.5 0.8 0.6 1.2

8.1 8.4 8.1 8.4 6.0 10.1 7.6 14.2 7.1 6.7 7.1 6.7 4.9 8.6 6.6 11.2

MARKET RISK AND LIQUIDITY



Interest rate risk, %



Foreign-exchange position, %



1.3 3.9 1.3 3.9 3.0 3.8 2.4 3.3

Foreign-exchange risk, %



0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.1

Excess coverage relative to statutory liquidity requirement, %

323.0 321.3 323.0 321.3 283.1 268.0 230.2 326.4

Loans and advances as % of deposits

0.8 0.2 0.8 0.2 0.7 0.6 0.5 0.7



70.4 67.5 70.4 67.5 64.6 60.8 69.4 72.7

Loans and advances plus impairment as % of deposits

73.2 70.4 73.2 70.4 67.7 63.9 72.5 75.2

CREDIT RISK Loans and advances relative to equity



5.1 5.0 5.1 5.0 4.9 4.5 5.4 5.2

Increase in loans and advances for the period, %

3.5 3.6 3.5 3.6 3.3 -4.4 -1.9 6.2

Sum of large exposures, % **)



79.1 17.5 79.1 17.5 15.9 16.6 0.0 17.2

Impairment ratio for the period



0.0 0.0 0.0 0.0 0.3 0.4 0.4 0.0

THE SPAR NORD SHARE



DKK PER SHARE OF DKK 10



Profit/loss for the period



5.1 4.7 5.1 4.7 3.1 5.0 3.5 8.0

Net asset value (NAV)



66 63 66 63 60 58 55 66

Dividend



Share price/profit/loss for the period



13.3 18.1 13.3 18.1 17.4 14.8 17.1 9.0

Share price/NAV



1.0 1.3 1.0 1.3 0.9 1.3 1.1 1.1

- - - - - 2.0 - 3.5

*)

Own funds for H1 2017 is exclusive of recognition of profit/loss for the period.

**)

In 2018, financial ratios are calculated according to new rules.

In accordance with the accounting policies, the comparative figures have not been restated in connection with the implementation of IFRS 9 on financial instruments at 1 January 2018.

Spar Nord H1 2018

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 for the period from 1 January to 30 June 2018.

EXECUTIVE BOARD

Lasse Nyby Chief Executive Officer

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 and Parent Company’s financial position at 30 June 2018 and of the results of the Group’s and Parent Company’s operations and the Group’s cash flows for the period from 1 January to 30 June 2018. In addition, we consider the Management’s review to give a fair presentation of the development in the Group’s and Parent Company’s activities and financial affairs as well as a description of the significant risks and elements of uncertainty that may affect the Group or Parent Company.

John Lundsgaard Managing Director

Lars Møller Managing Director

BOARD OF DIRECTORS

Kjeld Johannesen Chairman of the Board of Directors

Per Nikolaj Bukh Deputy Chairman of the Board of Directors

Lene Aaen

Kaj Christiansen

Morten Bach Gaardboe

Laila Mortensen

Jannie Skovsen

Gitte Holmgaard Sørensen

Aalborg, 16 August 2018

John Sørensen

13

Spar Nord H1 2018

Income statement – Group

Income statement – Group NOTE

H1 2018 DKKm

H1 2017 DKKm

Q2 2018 DKKm

14

Q2 2017 DKKm

Full year 2017 DKKm

4.1

Interest income

4.2

Interest expenses

58 71 29 34 141

Net interest income

773 813 384 404 1,577

831 884 413 439 1,719

Dividends on shares, etc. 4.3

Fees, charges and commissions received

4.3

Fees, charges and commissions paid

45 18 39 15 23 640 638 309 314 1,265 77 65 36 35 149

Net income from interest, fees, charges and commissions 1,381 1,404

695

698 2,716

4.4 4.5

Market value adjustments

138 267

Other operating income

179 25 169 14 51

Staff costs and administrative expenses

951 945 493 486 1,863

Amortisation, depreciation and impairment of intangible assets and property, plant and equipment

30 28 15 14 61

Other operating expenses Income from investments in associates and group enterprises Profit/loss before loan impairment charges (core earnings before impairment)

25 107 381

4 5 2 2 13 25 20 15

7 32



739 739 395

323 1,244

6.2.1

Loan impairment charges etc.



16 19 39

1 -7

Profit/loss before tax



722 720 355 322 1,251

Tax

93 145

37

64 262

Profit/loss

630 575 319 258 989







APPROPRIATION:



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



Profit/loss



605 551 306 246 940 24 24 12 12 49 630 575 319 258 989

EARNINGS PER SHARE Earnings per share (DKK)



5.0 4.5 2.5 2.0 7.7

Diluted earnings per share (DKK)

5.0 4.5 2.5 2.0 7.7



STATEMENT OF COMPREHENSIVE INCOME Profit/loss for the period



630 575 319 258 989

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



1 1 0 0 11

Other comprehensive income after tax

1 1 0 0 11

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



630 576

319

259 1,000

606 552 307 247 951 24 24 12 12 49 630 576

319

259 1,000

Spar Nord H1 2018

Balance sheet – Group

Balance sheet – Group

30.06.18 DKKm

15

30.06.17 DKKm

Full year 2017 DKKm

ASSETS

NOTE

6.4

6.3

5.1

Cash balances and demand deposits with central banks 1,352 1,393 1,298 Due from credit institutions and central banks 2,185 2,366 1,437 Lending, banking and leasing activities 38,336 36,351 37,272 Lending, reverse repo transactions 7,342 6,056 9,475 Loans, advances and other receivables at amortised cost, total 45,678 42,407 46,747 Bonds at fair value 14,151 13,826 10,838 Shares, etc. 1,738 1,552 1,626 Investments in associates 64 111 128 Assets linked to pooled schemes 15,352 15,016 15,423 Intangible assets 180 189 184 Investment properties 135 135 135 Domicile property 527 526 487 Land and buildings, total 662 661 621 Other property, plant and equipment 125 106 119 Current tax assets 172 24 45 Temporary assets 9 27 21 Other assets 1,761 1,794 1,763 Prepayments and deferred income 135 125 115 Total assets 83,561 79,595 80,367

LIABILITIES PAYABLES 5.2

5.3

5.4

5.5 5.6 5.7

Due to credit institutions and central banks 3,624 2,821 1,964 Deposits and other payables 49,514 47,766 48,843 Deposits in pooled schemes 15,352 15,016 15,423 Other non-derivative financial liabilities at fair value 1,619 1,232 934 Other liabilities 2,675 2,908 2,866 Prepayments and deferred income 48 21 19 Total payables 72,832 69,765 70,049 PROVISIONS Provisions for deferred tax 139 108 136 Provision for losses on guarantees 74 41 41 Other provisions 34 27 21 Total provisions 247 176 199 SUBORDINATED DEBT Subordinated debt 1,522 1,089 1,144 Total liabilities 74,601 71,030 71,392 EQUITY Share capital 1,230 1,255 1,230 Revaluation reserves 94 92 94 Proposed dividend - - 431 Retained earnings 6,776 6,355 6,359 Equity 8,100 7,702 8,114 Holders of additional tier 1 (AT1) capital instruments 860 863 861 Total equity 8,960 8,565 8,975 Total equity and liabilities 83,561 79,595 80,367 OFF-BALANCE SHEET ITEMS Contingent assets 15 8 13 Contingent liabilities 12,095 12,304 11,961 Other binding commitments 567 501 501

Spar Nord H1 2018

Capital position – Group

Capital position – Group

16

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

STATEMENT OF CHANGES IN EQUITY Share capital DKKm

Revaluation reserve DKKm

Statutory reserves DKKm

Proposed dividend DKKm

Retained earnings DKKm

Total DKKm

Additional tier 1 capital DKKm

Total DKKm

EQUITY AT 30.06.18



Equity at 31.12.17

1,230

Change in accounting policies, IFRS 9. See note 1.1

- - - - -195 -195 - -195

Equity at 01.01.18

1,230

94 94

0 0

431 431

6,359 6,164

8,114 7,919

861 861

8,975 8,780

Comprehensive income in 2018



Profit/loss for the period

- - 25 - 581 605 24 630

Other comprehensive income





- 0 - - 1 1 - 1

Net revaluation of properties

Other comprehensive income, total

- 0 - - 1 1 - 1

Total comprehensive income for the period

-

0

25

- 582 606

24 630

Transactions with owners





Interest paid on additional tier 1 (AT1) capital

- - - - - - -24 -24



Dividends paid

- - - -431 - -431 - -431



Dividends received, treasury shares

- - - - 0 0 - 0



Disposal upon acquisition of treasury shares and additional tier 1 (AT1) capital - - - - -165 -165 -1 -166

Addition upon sale of treasury shares and additional tier 1 (AT1) capital

- - - - 165 165 - 165



Revaluation reserves, associates

- - -23 - 23 0 - 0

Dividends received from associates recognised at net asset value

- - -2 - 2 0 - 0



Tax

- - - - 5 5 - 5

Total transactions with owners

-

-

-25 -431

30 -425

-25 -450

Equity at 30.06.18

1,230

94

0

0

6,776 8,100

860

8,960

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



EQUITY AT 30.06.17



Equity at 01.01.17

1,255

91

22

628

5,768

7,765

862

8,627

Comprehensive income in 2017



Profit/loss for the period

- - 20 - 531 551 24 575

Other comprehensive income





- 1 - - - 1 - 1

Net revaluation of properties

Other comprehensive income, total

- 1 - - - 1 - 1

Total comprehensive income for the period

-

1 20

- 531 552

24 576

Transactions with owners





Interest paid on additional tier 1 (AT1) capital





Dividends paid

- - - -628 -628 - -628



Dividends received, treasury shares

- - - - 13 13 - 13



Disposal upon acquisition of treasury shares and additional tier 1 (AT1) capital - - - - -258 -258 - -258

- - - - 0 -24 -24



Addition upon sale of treasury shares and additional tier 1 (AT1) capital

- - - - 253 253 1 254



Revaluation reserves, associates

- - -14 - 14 0 - 0



Dividends received from associates recognised at net asset value

- - -29 - 29 0 - 0

Tax Total transactions with owners

- - - - 5 5 - 5 -

- -42 -628

56 -614

-23 -638

Equity at 30.06.17 The share capital consists of 125,529,918 shares with a nominal value of DKK 10.

1,255

92

0

0

6,355

7,702

863

8,565

Spar Nord H1 2018

Capital position – Group

17



H1 2018

TREASURY SHARE PORTFOLIO

H1 2017

Number of shares

40,148 2,647,586

Percentage of share capital

0.0

Full year 2017 38,048

2.1

0.0

On 04.09.2017, 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. ADDITIONAL TIER 1 (AT1) CAPITAL

H1 2018 DKKm

Principal

Currency

Note DKKm

DKK



a

DKK



b

Maturity

H1 2017 DKKm

Full year 2017 DKKm

Interest rate

Received

400.0

6.052%

2015

Perpetual

400

400

411

450.0

5.500%

2016

Perpetual

460

463

450

860

863

861

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

a)

Issued on 10.06.2015, with an option of early redemption as from 10.06.2020. The loan carries interest at a rate of 6.052 % p.a. until 10.06.2020, after which date interest will be fixed at CIBOR6 + a 5.400 % margin.

b) Issued on 06.12.2016, with an option of early redemption as from 06.12.2021. The loan carries interest at a rate of 5.500 % p.a. until 06.12.2021, 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. ADDITIONAL TIER 1 (AT1) CAPITAL, SPECIFICATION OF CASH FLOWS Cash flows, beginning of period

767

Movement during the period:



817

817

Change in portfolio of own bonds

-1

Interest paid

-24

-24

-49

-25

-23

-50

Total cash flows for the period

1

-1

Cash flows, end of period

742

794

767



OWN FUNDS



Equity



8,960 8,565 8,975

Phasing in of IFRS 9



185 - -

Result not recognised

- 575

Additional tier 1 (AT1) capital included in equity

860

Proposed dividend, excl. share re. share buyback programme

315

0

431

Intangible assets, incl. share recognised in investments in associates

148

192

188

Other primary deductions

48

40

Deductions, equity investments

379

Common equity tier 1 (CET1) capital

7,396

-

863

861

41

328

331

6,567

7,123

Additional tier 1 (AT1) capital *)

843

Other deductions

4

Tier 1 capital

8,235

843

843

41 7,369

41 7,924

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

1,507

Other deductions

10

Own funds

9,732

1,081

1,133

41 8,409

41 9,016

Weighted risk exposure amount, credit risk etc.

42,152

Weighted risk exposure amount, market risk

3,636

4,108

3,196

Weighted risk exposure amount, operational risk

5,705

5,692

5,692

Total risk exposure amount

51,493

39,873

49,672

40,658

49,546

Common equity tier 1 capital ratio

14.4

13.2

14.4

Tier 1 capital ratio

16.0

14.8

16.0

Own funds ratio

18.9

16.9

18.2

The capital adequacy calculation for H1 2017 is exclusive of recognition of profit/loss for the period. *) Including portfolio of own bonds As Spar Nord has adopted the transition rules according to CRD, any adverse impact of the IFRS 9 impairment rules will not take full effect on the capital base until after five years. Spar Nord has calculated the negative impact of IFRS 9 on own funds at DKK 10 million on entry into force of the rules at 01.01.2018.

Spar Nord H1 2018

Cash Flow Statement - Group

Cash Flow Statement - Group

NOTE

H1 2018 DKKm

18

H1 2017 DKKm

Full year 2017 DKKm

OPERATING ACTIVITIES Profit/loss before tax



Fair value changes, investment properties and temporary assets



722 720 1,251 0 0 0

30 28 61 Amortisation, depreciation and impairment of intangible assets and property, plant and equipment 0 -2 -1 Gains and losses on the sale of intangible assets and property, plant and equipment Gains and losses on sale of associates



Adjustment of loan impairment charges etc.



Provisions



12 -25 -31

Income from investments in associates and group enterprises

-25 -20 -32

13 28 275

Corporate income tax paid



-155 -146 -251

Operating activities, total



442 582 1,273





WORKING CAPITAL



Movement in credit institutions and central banks, net Movement in loans, advances and other receivables at amortised cost

5.4

-154 0 0

1,664 402 -456 841 -1,089 -5,677

Movement in bonds at fair value



Movement in equity portfolio



-111

Movement in other assets and other liabilities, net



505 -663 -965

Movement in deposits and other payables



671 1,302 2,379

Working capital, total



257 1,066 -689





Cash generated from operations, total







INVESTING ACTIVITIES



Acquisition of associates and group enterprises



Sale of associates and group enterprises



Acquisition of intangible assets



Acquisition of property, plant and equipment



Sale of property, plant and equipment



Dividends from associates and group enterprises



2 29 31

Investing activities, total



186 -7 0





FINANCING ACTIVITIES



Subordinated debt



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

-3,313 1,110 4,099 5 -69

699 1,649 583

-3 -3 -14 244 2 5 0 0 -1 -63 -51 -94 6 17 72

378 -4 51 -25 -23 -50

Dividends paid, excluding dividends on treasury shares



-430 -615 -615

Acquisition of treasury shares



-165 -258 -454

Sale of treasury shares



165 253 457

Financing activities, total



-77 -647 -612

Movements in cash and cash equivalents for the period







Cash and cash equivalents, beginning of year



Movements in cash and cash equivalents for the period



Cash and cash equivalents, end of year







Cash and cash equivalents, end of period



Cash, cash equivalents and demand deposits with central banks



1,352 1,393 1,298

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



2,129 2,303 1,374

Total



3,480 3,696 2,672



808 995 -29 2,672 2,701 2,701 808 995 -29 3,480 3,696 2,672

Spar Nord H1 2018

Notes – Group

19

Notes – Group NOTE

1

ACCOUNTING POLICIES The interim report is presented in accordance with IAS 34, “Interim Financial Reporting”, as adopted by the EU, and additional Danish disclosure requirements for interim reports. The application of IAS 34 means that the presentation is limited relative to the presentation of an annual report and that the recognition and measurement principles of the International Financial Reporting Standards (IFRS) have been applied. Other than as set out below, the accounting policies are unchanged from those applied in Annual Report 2017. Annual Report 2017 contains the full description of the accounting policies. Figures in the interim report are presented in millions of Danish kroner, unless otherwise stated. Consequently, rounding differences may occur because grand totals are rounded and the underlying decimal places are not shown to the reader.

1.1

CHANGES IN ACCOUNTING POLICIES The following amendments to IFRS were implemented effective 1 January 2018: l IFRS 9 Financial instruments l IFRS 15 Revenue from Contracts with Customers Of these, only IFRS 9 has affected recognition and measurement in the interim report. Shown below is the impact in connection with the transition at 1 January 2018.

1.1.1

Impact of IFRS 9 IFRS 9 ”Financial Instruments”, which replaces IAS 39, changes the classification and related measurement of certain financial assets and liabilities and, to some extent, the rules on hedge accounting. The standard is effective for financial years beginning on or after 1 January 2018, from which date Spar Nord is going to implement it. In accordance with the transition requirements of IFRS 9, comparative figures are not restated as retrospective application of the impairment requirements is not possible without the use of hindsight. The accounting impact is shown below:

IAS 39 Amount 31.12.17 DKKm

Financial assets

Effect of changed measurement *) DKKm

IFRS 9 Amount 01.01.18 DKKm

Cash in hand and demand deposits with central banks



1,298

0 1,298

Due from credit institutions and central banks



1,437

-1 1,437

Lending, banking and leasing activities



Lending, reverse repo transactions



Loans, advances and other receivables at amortised cost, total



37,272 9,475 46,747

-216 37,056 0 9,475 -216 46,531

Non-financial assets



Current tax assets



Total assets



45 55 100 49,528

-162 49,367

Financial liabilities



Due to credit institutions and central banks



Deposits and other payables



Subordinated debt



1,964 48,843 1,144

0 1,964 0 48,843 0 1,144

Non-financial liabilities



Provisions for losses on guarantees



Other provisions (provision for undrawn maximum)



Total liabilities



41 27 68 15 7 21 52,007

33 52,041

One-off effect which is recognised in shareholders’ equity at 01.01.18

-195

Off-balance sheet items



Guarantees



11,961

Undrawn maximum and loan commitments



20,802

-7 20,795

Total



32,763

-33 32,730

-27 11,934

*) Recognised in retained earnings in shareholders’ equity at 01.01.18. As shown, the changed method for determining credit losses is estimated to result in an increase of the Bank’s impairment losses and provisions at 01.01.18 of DKK 250 million. Reduced by the tax impact of 22 per cent, this equals a one-off effect of DKK -195 million, or a reduction in shareholders’ equity of 2.4% The effect after tax has been recognised as a reduction of shareholders’ equity at 01.01.18.

Spar Nord H1 2018

Notes – Group

20

General provisions in IFRS 9 on classification and measurement In accordance with IFRS 9, a more logical approach to classification and measurement of financial assets is introduced, driven by Spar Nord’s business model and the underlying contractual cash flows related to the characteristics of the financial assets: l Amortised cost l Fair value through other comprehensive income (FVOCI) l Fair value through profit or loss (FVPL) Subsequent to initial recognition, financial assets held with the objective of collecting contractual cash flows, and where the contractual cash flows are solely payments of principal and interest on the principal amount outstanding, are measured at amortised cost. Spar Nord’s loans and advances at amortised cost and receivables from credit institutions are part of this classification. Subsequent to initial recognition, financial assets held within a combined business model where some financial assets are held with the objective of collecting contractual cash flows and other financial assets are held with the objective of selling before expiry, and where the contractual cash flows from the financial assets in the combined business model are solely payments of principal and interest on the principal amount outstanding, are measured at fair value through other comprehensive income. When the financial asset is derecognised in the balance sheet, the cumulative gains and losses recognised in other comprehensive income are reclassified to the income statement. Subsequent to initial recognition, financial assets that do not meet the above-mentioned business model criteria, or where the contractual cash flows are not solely payments of principal and interest on the principal amount outstanding, are measured at fair value through profit or loss. This residual category includes financial assets held for trading. The use of the IFRS 9 measurement categories for financial assets on the basis of the business model and on the basis of the contractual cash flows characteristics has led to insignificant changes in measurement principles relative to those applied in Spar Nord’s 2017 Annual Report. The principles applicable to financial liabilities are largely unchanged from IAS 39. Generally, financial liabilities are still measured at amortised cost with bifurcation of embedded derivatives not closely related to a host contract. Financial liabilities recognised at fair value consist of derivatives and the trading book. Impairment model IFRS 9 introduces a new model for impairment of certain financial assets, stipulating that impairments must be recognised for expected credit losses for all financial assets recognised at amortised cost or at fair value through other comprehensive income, lease receivables and certain loan commitments and financial guarantees. For financial assets recognised at amortised cost, the impairment for expected credit losses is recognised in the income statement and set off against the asset in the balance sheet. However, on loan commitments and financial guarantee contracts impairments are recognised as a liability. The above impairment model implies that impairment losses must be recognised on all Spar Nord’s credit exposures measured at amortised cost based on statistically expected credit losses (“expected loss” model). Based on the previous rules, impairment losses were not recognised until there was objective evidence of impairment (“incurred loss” model). In addition, forward-looking information will be taken into consideration. Under the new expected loss model, on initial recognition of a financial asset, a loss allowance will be recognised in an amount equivalent to the 12-month expected credit losses (stage 1). If, on measurement subsequent to initial recognition, the credit risk increases significantly, a loss allowance will be recognised in an amount equivalent to the lifetime expected credit losses of the asset (stage 2). Where it is established that the asset is credit-impaired (stage 3), a loss allowance will be recognised in an amount equivalent to the lifetime expected credit losses of the asset, while revenue will be recognised in the income statement using the effective interest method relative to the recognised impairment loss.. The classification into stages and the calculation of expected credit losses are largely based on Spar Nord’s rating models. The expected credit loss is measured for each facility. Newly developed impairment models support the calculation of expected credit losses based on loss ratios and the concepts of PD (Probability-of-Default), LGD (Loss-Given-Default) and EAD (Exposure-at-Default). The calculation of the expected credit losses on exposures in stages 1 and 2 is based on a model calculation, whereas the calculation in respect of exposures from the weak part of stage 2 as well as stage 3 exposures is made as a combination of an individual assessment and a modal calculation. For the above exposures exceeding DKK 250,000, the Bank performs an individual assessment of the expected credit losses and the pertaining probabilities. For facilities below DKK 250,000, model-based calculations will be used.. The model calculation is based on the Bank’s model, which has been part of the basis for Spar Nord’s credit control for a number of years, supplemented by a macro-economic module, which adjusts the calculated PD values. A smaller, delimited portfolio is classified as being exposed to low credit risk. Exposures to these counterparties are maintained in stage 1.

Spar Nord H1 2018

Notes – Group

21

On transition from stage 1 to stage 2, a substantial increase in the credit risk is defined as follows: The credit risk is assessed based on the development in the customers’ PD level. Accordingly, the credit risk has increased significantly subsequent to initial recognition in the following situations: l A 100% increase in the PD for the expected remaining life of the financial asset and a 0.5 % point increase in the 12-month PD where the 12-month PD was below 1% on initial recognition. l A 100% increase in the PD for the expected remaining life of the financial asset or a 2.0% point increase in the 12-month PD where the 12-month PD was 1% or higher on initial recognition. l The credit quality department oversees changes in the credit quality of exposures and undertakes systematic credit quality control of the credit portfolio. A “weak list” for high-risk customers is used for credit control purposes. If a customer is marked “weak”, the customer’s PD will be re-calculated. l If a financial asset has been in arrears for more than 30 days, the credit risk will be considered to have increased significantly as well. Exposures with customers whose ability to pay shows considerable signs of weakness will be categorised as the weak part of stage 2. Generally, a customer's ability to pay in this category shows a PD that exceeds 5.0 per cent. The prospective information which is part of the calculation of expected losses is based on macroeconomic forecasts. The model is structured around a number of regression models determining the historical correlation between default and a number of explanatory macroeconomic variables such as unemployment, GDP, house price trends, industry indices, etc. Stress scenarios are used as the underlying basis for calculating the weighed expected losses. Macroeconomic scenarios are created: worst case, base case, best case, including an assessment of the probability for each scenario. The scenarios are approved by the Credit Committee with the involvement of specialists. An exposure to a counterparty is considered to have defaulted if              l The counterparty’s exposures are credit-impaired, and the counterparty is not considered to be able to settle its credit liabilities as agreed. l The counterparty's liabilities have been put on hold, or significantly relaxed terms have been granted with respect to interest rate, repayment profile or respite l The counterparty’s exposure has for a long period of time (90 days) been in arrears or overdrawn and the amount concerned is considered to be significant. The lifetime expected credit losses cover the expected remaining lifetime of the facility. For most facilities, the expected lifetime is limited to the remaining contractual maturity, however, capped at five years. For facilities comprising both a loan and an undrawn loan commitment, Spar Nord’s exposure to credit losses is not limited to the contractual notice period. For such facilities, the expected lifetime is assumed to be the period during which Spar Nord expects to be exposed to credit losses. For facilities, for which the expected lifetime is longer than the remaining contractual maturity, an expected maturity of one year has been applied. This includes for example credit cards and overdraft facilities.   All impairments will be allocated to individual impairments and Spar Nord will cease to recognise collective impairments under IFRS 9. Existing collective impairments aimed at capturing specific high-risk areas are incorporated as forward-looking elements and used in the expected credit losses of the individual exposures. Hedge accounting The new rules on hedge accounting widen the scope for hedge accounting in order to align business entities’ financial reporting with its actual risk management. As Spar Nord has not adopted the changed rules on hedge accounting, they do not affect Spar Nord’s financial reporting. Capital phasing in As Spar Nord has decided to adopt the transition rules according to CRD, any adverse impact of the IFRS 9 impairment rules will not take full effect on the capital base until after five years. The impact of IFRS 9 on Spar Nord’s own funds was DKK 10 million when the rules became effective on 1 January 2018, while the impact on the own funds going forward will be slightly adverse as the transition rules are being phased out.

Spar Nord H1 2018

NOTE

Notes – Group

22

1.1.2

Impact of IFRS 15 IFRS 15 Revenue from Contracts with Customers replaces existing revenue standards (IAS 11 and 18) and relevant interpretations. IFRS 15 introduces a new model for recognition and measurement of revenue concerning sales contracts with customers. The new model comprises five steps that must be applied to all contracts with customers to determine when and how revenue is to be recognised in the income statement. The standard does not change the recognition and measurement of Spar Nord’s sales contracts with customers and will therefore not have any impact.

1.2

Information about standards not yet effective IFRS 16 – Leasing IFRS 16 Leasing, which is approved by the EU, is effective for financial years beginning on or after 1 January 2019. The standard changes the accounting for those leases which are today treated as operating leases. The analysis of the implications of the new standard for Spar Nord has still not been completed. At 30.06.2018, Spar Nord had operating leases with minimum lease liabilities corresponding to maximum 1.0% of the balance sheet total, which are to be recognised in the balance sheet going forward.

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 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 2017. However, there have been changes to financial assets and financial liabilities due to the transition to IAS 39 and IFRS 9. See note 1. Significant estimates related to classification and measurement of financial assets, including in particular Spar Nord’s bond portfolio and shares in sector-related companies, concern the use of the fair value option. In accordance with both IAS 39 and IFRS 9, Spar Nord applies the fair value option concerning shares and bonds, where returns are managed and reported consistently for all bonds on a daily, weekly and monthly basis irrespective of trading volume in the individual ISIN codes. Spar Nord’s business model has not been changed, and Spar Nord continues to recognise and measure bonds and shares at fair value through profit or loss.

Spar Nord H1 2018

NOTE

3 3.1

Notes – Group

23

Segment information BUSINESS SEGMENTS H1 2018

Trading, Spar Nord’s Financial Markets Local Banks & the Int. division

DKKm

Other Areas

Core earnings *) and Group

INCOME STATEMENT Net interest income



705 23 45 773

Net fee income



564

Market value adjustments and dividends



Other operating income



Income from investments in associates and group enterprises



Core income/revenue, total



Operating expenses, depreciation and amortisation



787 35 163 985

Core earnings before impairment



665 -15 88 739

Loan impairment charges etc.



Profit/loss before tax



*)

0 -1 563

171 -4 16 183 12

1 166 179

0 0 25 25 1,452

20 251 1,723

16 1 -1 16 649 -16 89 722

The core earnings column corresponds to the Group figures in the Management’s review.

Trading, Spar Nord’s Financial Markets Local Banks & the Int. division

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

Other Areas

38,184 7,481

Group, total

13 45,678

0 0 64 64 249 0 718 967

Other assets **)



16,797 18,673 1,382 36,852

Allocated assets, total



55,230 26,154 2,177 83,561

Deposits and other payables

48,593

380

541 49,514

Equity (allocated capital)



Other liabilities



15,833 5,830 3,424 25,087

Allocated equity and liabilities, total

69,885 7,177 6,499 83,561

5,459

967 2,534 8,960

Disclosures – income/revenue, total Internal income/revenue



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



-79 35 313 269 0 -23 -246 -269 1,531

8 184 1,723

1,452

20 251 1,723

Financial ratios



Return on equity, % ***)



24.5 -3.5

-

-

Cost share of core income



0.54 1.73

-

-

Total risk exposure, end of period

41,991 7,435 2,067 51,493

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

1,030

74 423 1,527

As in previous years, the Group uses core earnings as a performance measure. The reporting segments correspond to the Group’s organisational 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 57 of Annual Report 2017. - 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 9 million, of which DKK 1 million relates to the Group’s leasing activities and DKK 8 million relates to Other areas. ***) The rate of return on equity per annum has been calculated on allocated capital, which amounts to 13% of the average total risk exposure amount.

Spar Nord H1 2018

Notes – Group

24

Segment information

NOTE 3.2

BUSINESS SEGMENTS H1 2017 DKKm

Trading, Spar Nord’s Financial Markets Local Banks & the Int. division

Other Areas

Core earnings*)

Reclassifications**)

Group, total

INCOME STATEMENT Net interest income



732 20 33 785 28 813

Net fee income



571 0 2 573 0 573

Market value adjustments and dividends

83 151 51 285

Other operating income

10 1 14 25 0 25



Income from investments in associates and group enterprises Core income/revenue, total

0 285

0 0 20 20 0 20 1,397

172 120 1,688

28 1,716

Operating expenses, depreciation and amortisation

798 29 150 977

Core earnings before impairment

599 143 -30 711 28 739

Loan impairment charges etc. Profit/loss before tax

*) **)



0 977

-8 0 -1 -9 28 19 607 143 -29 720

0 720

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 28 million. Trading, Spar Nord’s Financial Markets Local Banks & the Int. division

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

Other Areas

36,181 6,077

Group, total

148 42,407

0 0 111 111 257

0 698 955

Other assets **)



16,424 18,331 1,368 36,123

Allocated assets, total



52,862 24,408 2,325 79,595

Deposits and other payables

46,757

495

514 47,766

Equity (allocated capital)



Other liabilities



15,397 4,578 3,289 23,264

Allocated equity and liabilities, total

66,950 5,743 6,902 79,595

4,797 670 3,099 8,565

Disclosures – income/revenue, total Internal income/revenue



-65 35 298 269

Internal income and eliminations, offset against costs



0 -26 -243 -269

Income/revenue, external customers

1,462 162 92 1,716

Income/revenue, total

1,397 172 148 1,716



Financial ratios



Return on equity, % ***)



26.3 45.6

-

-

Cost share of core income



0.57 0.17

-

-

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

39,971 7,374 2,327 49,672 1,067

74 414 1,555

As in previous years, the Group uses core earnings as a performance measure. The reporting segments correspond to the Group’s organisational 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 57 of Annual Report 2017. - 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 27 million, of which DKK 13 million relates to the Group’s leasing activities and DKK 14 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 H1 2018

NOTE

4

4.1

Notes – Group

Notes to the Income Statement

H1 2018 DKKm

25

H1 2017 DKKm

Full year 2017 DKKm

INTEREST INCOME Due from credit institutions and central banks



Loans, advances and other receivables



2 1 3

Bonds





Foreign-exchange contracts





Interest-rate contracts



-23 -30 -59

Derivative financial instruments, total



-20 -28 -56

Other interest income



Total interest income after offsetting negative interest income



Negative interest income offset against interest income



18 12 30

Negative interest expenses offset against interest expenses



10 8 15

Total interest income before offsetting negative interest income







Of which, income from genuine reverse repo transactions booked under



Due from credit institutions and central banks



Loans, advances and other receivables



785 821 1,611 36 42 84 4 2 3

0 28 31 804 864 1,674

831 884 1,719

-3 -5 -9 -14 -7 -20

Negative interest income amounts to DKK 18 million (30.06.2017: DKK 12 million, 2017: DKK 30 million) and relates to repo transactions. In the table above, negative interest income is offset against interest income. In the income statement, negative interest income is presented as interest expenses, and negative interest expenses are presented as interest income. 4.2

INTEREST EXPENSES



Credit institutions and central banks



Deposits and other payables



12 25 47

Subordinated debt



18 26 52

Other interest expenses



Total interest expenses after offsetting negative interest expenses



30 51 97

Negative interest expenses offset against interest expenses



10 8 15

Negative interest income offset against interest income



18 12 30

Total interest expenses before offsetting negative interest expenses

58 71 141

-1 -1 -3

1 1 1

Of which, interest expenses from genuine repo transactions booked under



Due to credit institutions and central banks



-5 -4 -8

Negative interest expenses amount to DKK 10 million (30.06.2017: DKK 8 million, 2017: DKK 15 million) and relate partly to deposits, partly to repo transac tions. In the table above, negative interest expenses are offset against interest expenses. In the income statement, negative interest expenses are presented as interest income, and negative interest income is presented as interest expenses. 4.3

FEES, CHARGES AND COMMISSIONS RECEIVED Securities trading and custody accounts



Payment services



83 76 166

Loan transaction fees



256 238 493





198 187 380

of which mortgage credit institutions

Guarantee commission



Other fees, charges and commissions



Total fees, charges and commissions received



Total fees, charges and commissions paid



Total net fees, charges and commissions received



208 215 439

13 15 30 81 94 138 640 638 1,265 77 65 149 563 573 1,116

4.4

MARKET VALUE ADJUSTMENTS



Other loans, advances and receivables at fair value



Bonds



-7 43 91

Shares, etc.



131 115 165

Foreign currency



27 16 36

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



Assets linked to pooled schemes



-228 503 566

Deposits in pooled schemes



228 -503 -566

Total



138 267 381



-2 0 0

-11 93 89

Spar Nord H1 2018

Notes – Group

H1 2018 DKKm

NOTE

4.5

26

H1 2017 DKKm

Full year 2017 DKKm

STAFF COSTS AND ADMINISTRATIVE EXPENSES Staff costs



589 603 1,165

Administrative expenses



362 342 698

Total



951





Staff costs:



Salaries



Pensions



51 53 106

Social security costs



67 68 129

Total







945 1,863

471 481 930

589 603 1,165

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



Fixed pay



Pension



Total remuneration







Executive Board



Number



Base salary *)



6.0 5.7 11.4

– less fees received from directorships



0.5 0.4 1.5

The Bank’s expense, base salary



5.5 5.3 9.9

9 9 9 1.9 1.6 3.5 - - 1.9 1.6 3.5

3 3 3

Pension, ordinary contribution

0.9 0.7 1.7

Total remuneration earned and paid



6.4 6.0 11.6





Breakdown of remuneration to Executive Board



Lasse Nyby



Base salary*)



2.2 2.1 4.2

– less fees received from directorships



0.2 0.1 0.5

The Bank’s expense, base salary



2.1 2.0 3.7

Pension, ordinary contribution



0.3 0.3 0.6

Total remuneration earned and paid



2.4 2.3 4.3

John Lundsgaard



Base salary



1.9 1.8 3.6

– less fees received from directorships



0.1 0.1 0.4

The Bank’s expense, base salary



1.8 1.7 3.2

Pension, ordinary contribution



0.3 0.2 0.5

Total remuneration earned and paid



2.1 1.9 3.7

Lars Møller



Base salary*)



1.9 1.8 3.6

– less fees received from directorships



0.2 0.2 0.6

The Bank’s expense, base salary



1.7 1.6 3.0

Pension, ordinary contribution



0.3 0.2 0.5

Total remuneration earned and paid



2.0 1.8 3.5

*)

The amount includes the value of a company car etc.



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: The average number of employees converted into full-time equivalents 1,524 1,538 1,546





Spar Nord H1 2018

Notes – Group

NOTE 4.5

H1 2018 DKKm

STAFF COSTS AND ADMINISTRATIVE EXPENSES, CONTINUED

27

H1 2017 DKKm

Full year 2017 DKKm

Administrative expenses:

5

IT expenses

203

Marketing costs

51

55

111

Cost of premises

40

48

99

Staff and travelling expenses

27

26

56

Office expenses

11

12

21

Other administrative expenses

31

34

57

Total

362

Notes to the balance sheet



167

342

354

698

5.1

OTHER ASSETS



Positive fair value of derivative instruments, etc.

922

1,056

1,030

Miscellaneous receivables

296

150

296

Interest and commissions receivable

45

205

51

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

445

316

316

Other assets

53

Total

1,761

67 1,794

70 1,763

5.2

DEPOSITS AND OTHER PAYABLES



Demand deposits

44,113

Subject to notice

1,735

1,548

Time deposits

377

1,169

Special types of deposits

3,289

Total

49,514

41,392

3,657 47,766

43,132 1,456 896 3,359 48,843

5.3

OTHER LIABILITIES



Miscellaneous payables

1,708

Negative fair value of derivative financial instruments, etc.

627

Interest and commissions payable

22

46

Other liabilities

318

311

Total

2,675

1,873 679

2,908

1,799 691 12 365 2,866

5.4

SUBORDINATED DEBT



Currency

Principal Note DKKm Interest rate

DKK

a

400

SEK

b

600

Floating

2017 18.10.27

426

DKK

c

700

Floating

2013 18.12.23

DKK

d

400

2012

2.535 %

6.043 %

Received 2018

Supplementary capital contributions, total

Maturity 19.06.28

-

400 -

-

-

452

700

699

699

-

402

1,525

1,100

1,151

Portfolio of own bonds relating to subordinated debt

-3

Subordinated debt, total



-11

-7

1,522 1,089 1,144

Interest on subordinated debt

18

Costs of raising subordinated debt

1

25 1

50 2

a The loan is redeemable as from 19.06.2023. If the loan is not redeemed, interest will remain fixed at CIBOR3 + a 2.100% margin. b Redeemable as from 18.10.2022. If the loan is not redeemed, interest will remain fixed at STIBOR3 + a 2.500 % margin. c

Redeemable as from 18.12.2018. If the loan is not redeemed, interest will remain fixed at CIBOR3 + a 3.900 % margin.

d

Redeemed at 28.11.2017





Subordinated debt, specification of cash flows Beginning of period Movement during the period:

1,144

1,093

1,093



New loans

400

-

Redeemed

-

-

Change in exchange rate adjustments

-26

-

-12

Change in interest rate hedging

0

-2

-4

Change in amortised costs

1

1

-1

Change in portfolio of own bonds

4

-3

378

-4

Total cash flows for the period

466 -400

1 51

Carrying amount, end of period

1,522

1,089

1,144

Spar Nord H1 2018

Notes – Group

28

NOTE 5.5

CONTINGENT ASSETS Deferred tax assets not recognised in the balance sheet amounted to DKK 15 million at 30.06.2018 (30.06.2017: DKK 8 million, 2017: DKK 13 million).

5.6

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



H1 2018 DKKm

H1 2017 DKKm

Full year 2017 DKKm

Financial guarantees

4,604

4,563

4,092

Loss guarantees for mortgage loans

5,158

4,817

4,983

Registration and refinancing guarantees

1,500

1,928

2,011

Other contingent liabilities

834

Total

12,095

996

876

12,304

11,961

Reference is made to note 4.5 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. Due to the payment of tax on account, no tax was payable at 30.06.2018 and 30.06.2017. The corporate income tax receivable within the group of jointly taxed companies amounted to DKK 172 million at 30.06.2018 (30.06.2017: DKK 24 million; 2017: DKK 45 million). 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 2018 have been included as a pro-rata share of the annual contributions. The Bank’s costs for the Resolution Fund at 30.06.2018 amounted to DKK 4 million (30.06.2017: DKK 4 million, 2017: DKK 8 million.). The amount of the contingent liabilities and the possible due dates are subject to uncertainty.

5.7

Other binding commitments

H1 2018 DKKm

H1 2017 DKKm

Full year 2017 DKKm

Miscellaneous

567

501

501

Total

567

501

501

Miscellaneous 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 recognised in the balance sheet. The leases represent an amount of DKK 115 million until the legal notice of termination. Data-processing centre Spar Nord has entered into an agreement with BEC a.m.b.a. regarding the provision of IT services. Spar Nord’s membership of BEC a.m.b.a. 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 BEC a.m.b.a. has been recognised under Other assets. The Spar Nord Group has no other significant binding agreements. *)

According to the most recent annual report.

Spar Nord H1 2018

NOTE

6

6.1 6.1.1

Notes – Group

29

Credit risk IMPAIRMENTS – TRANSITION FROM IAS 39 TO IFRS 9 IMPAIRMENTS – TRANSITION FROM IAS 39 TO IFRS 9 BY EXPOSURE CATEGORY Individual impairments 31.12.17 DKKm

Collective impairments 31.12.17 DKKm

Change IAS 39 to IFRS 9 01.01.18 DKKm

Total 31.12.17 DKKm

Total 01.01.18 DKKm

Loans and advances at amortised cost

1,323

Due from credit institutions and central banks

0 0 0 1 1

Guarantees

41 0 41 27 68

Undrawn maximum and loan commitments

15 0 15

Total

1,379

251 1,575

251 1,631

216 1,791

7 21

250 1,881

The increase in impairments from IAS 39 to IFRS 9 is explained by the fact that impairments under IFRS 9 must be recognised on all Spar Nord’s credit exposures measured at amortised cost based on statistically expected credit losses (“expected loss” model). Based on the previous rules under IAS 39, impairment losses were not recognised until there was objective evidence of impairment (“incurred loss” model). In future, forward-looking information will be taken into consideration.

6.1.2

6.1.3

Stage 1 Lack of significant increase in credit risk 01.01.18 DKKm

IMPAIRMENTS AT 01.01.18 UNDER IFRS 9 BY STAGES

Stage 3 Credit impaired 01.01.18 DKKm

Total 01.01.18 DKKm

Loans and advances at amortised cost

79 279 1,433 1,791

Due from credit institutions and central banks

1 0 0 1

Guarantees

13 7 48 68

Undrawn maximum and loan commitments

4 5 12 21

Total

96

EXPOSURES BEFORE IMPAIRMENTS AT 01.01.18 UNDER IFRS 9 BY STAGES



6.2 6.2.1

Stage 2 Significant increase in credit risk 01.01.18 DKKm

Stage 1 Lack of significant increase in credit risk 01.01.18 DKKm

291 1,494 1,881

Stage 2 Significant increase in credit risk 01.01.18 DKKm

Stage 3 Credit impaired 01.01.18 DKKm

Total 01.01.18 DKKm

Loans and advances at amortised cost

35,592

Due from credit institutions and central banks

1,437 0 0 1,437

Guarantees

10,978

763

261 12,002

Undrawn maximum and loan commitments

19,472

1,159

171 20,802

Total

67,479 11,590 3,510 82,579

EXPOSURES AT 30.06.18 SUMMARY OF ACCOUNTING VALUE OF EXPOSURES AND RECOGNISED IMPAIRMENTS ETC.

9,667

Exposure before impairments, see 6.2.3 DKKm

3,078 48,337

Impairments, see 6.2.2 DKKm

Recognised impairments DKKm

Loans and advances at amortised cost (note 6.3)

47,467

Due from credit institutions and central banks (note 6.4)

2,185

Guarantees (note 6.5)

12,169

74

6

Drawn maximum and loan commitments (note 6.3)

22,200

30

8

Total

84,021

1,894

16

1,790

3

1

0

Recognised impairments etc. are specified in notes 6.3, 6.4.1 and 6.5. 6.2.2

Stage 1 Lack of significant increase in credit risk 30.06.18 DKKm

IMPAIRMENTS AT 30.06.18 BY STAGES

Stage 2 Significant increase in credit risk 30.06.18 DKKm

Stage 3 Creditimpaired 30.06.18 DKKm

Total 30.06.18 DKKm

Loans and advances at amortised cost

87 263 1,440 1,790

Due from credit institutions and central banks

1 0 0 1

Guarantees

13 5 55 74

Undrawn maximum and loan commitments

4 3 22 30

Total

105 271 1,518 1,894

Spar Nord H1 2018

NOTE

6.2.3

Notes – Group

EXPOSURES BEFORE IMPAIRMENTS AT 30.06.18 BY STAGES

Stage 1 Lack of significant increase in credit risk 30.06.18 DKKm

30

Stage 2 Significant increase in credit risk 30.06.18 DKKm

Stage 3 Creditimpaired 30.06.18 DKKm

Total 30.06.18 DKKm

Loans and advances at amortised cost

33,777 10,509

Due from credit institutions and central banks

2,185 0 0 2,185

Guarantees

11,324

516

329 12,169

Undrawn maximum and loan commitments

20,229

1,820

151 22,200

Total

67,515 12,845 3,661 84,021

3,181 47,467

Spar Nord does not have the categories “Financial assets at fair value through other comprehensive income” and “Loans at fair value through profit or loss”.

6.3

LOANS AT AMORTISED COST AND UNDRAWN MAXIMUM AND LOAN COMMITMENT IMPAIRMENTS AND PROVISIONS FOR LOSSES Analysis of changes in impairments for the period broken down by stages and correlated to recognised impairments, etc. Summary of combined recognised impairments, etc. is provided in note 6.2.1.



Stage 1 Lack of significant increase in credit risk 30.06.18 DKKm

Stage 2 Significant increase in credit risk 30.06.18 DKKm

Stage 3 Creditimpaired 30.06.18 DKKm

Total 30.06.18 DKKm

Recognised impairments DKKm

Impairments at 01.01.18 under IFRS 9, loans at amortised cost

79 279 1,433 1,791

Impairments at 01.01.18 under IFRS 9, undrawn maximum and loan commitment

4 5 12 21 -

-

Impairments re. new exposures during the year, including new accounts to existing customers 13 21 45 79 79 Reversed impairments re. repaid accounts

-6 -16 -55 -77 -77

Change in impairments at 1 January, transfer to/from stage 1

90 -53 -37

-

-

Change in impairments at 1 January, transfer to/from stage 2

-12 35 -22

-

-

Change in impairments at 1 January, transfer to/from stage 3

-8 -33 41

-

Impairments during the year due to change in credit risk

-69

Previously impaired, now finally lost

0

Other movements (interest rate correction etc.)

0 0 19 19 -

Loss without prior impairment

- - - - 23

Amounts recovered on previously impaired receivables

- - - - -40

Impairments at 30.06.18



29

66

25

0 -40 -40

91 266 1,462 1,819

25 -

11

Impairments at 30.06.18 under IFRS 9, loans at amortised cost



87 263 1,440 1,790

3

Impairments at 30.06.18 under IFRS 9, undrawn maximum and loan commitment 4 3 22 30 8 Impairments at 30.06.18



91 266 1,462 1,819

11

The change in portfolio impairments was driven by an increase in gross lending and movements between the stages as illustrated in the table, which is the result of a change in customers’ credit risk. In addition, impairments are affected by impaired macroeconomic factors. The figures concerning newly established and repaid accounts may include administrative movements in which the balance is moved between two accounts for the same customer.

Spar Nord H1 2018

NOTE

6.4 6.4.1

Notes – Group

31

DUE FROM CREDIT INSTITUTIONS AND CENTRAL BANKS IMPAIRMENTS Analysis of changes in impairments for the period broken down by stages and correlated to recognised impairments, etc. Summary of combined recognised impairments, etc. is provided in note 6.2.1. Stage 1 Lack of significant increase in credit risk 30.06.18 DKKm Impairments at 01.01.18 under IFRS 9

Stage 2 Significant increase in credit risk 30.06.18 DKKm

Stage 3 Creditimpaired 30.06.18 DKKm

Total 30.06.18 DKKm

Recognised impairments DKKm

1 0 0 1 -

Impairments re. new exposures during the year, including new accounts to existing customers 0 0 0 0 0

6.4.2

6.5

Reversed impairments re. repaid accounts

0 0 0 0 0

Change in impairments at 1 January, transfer to/from stage 1

0 0 0 - -

Change in impairments at 1 January, transfer to/from stage 2

0 0 0 - -

Change in impairments at 1 January, transfer to/from stage 3

0 0 0 - -

Impairments during the year due to change in credit risk

0 0 0 0 0

Impairments at 30.06.18

1 0 0 1 0

H1 2018 DKKm

DUE FROM CREDIT INSTITUTIONS AND CENTRAL BANKS, OTHER SPECIFICATIONS

H1 2017 DKKm

Full year 2017 DKKm

Balances at notice with central banks

0

Due from credit institutions

2,185

1,941

425

1,437

0

Total

2,185

2,366

1,437

GUARANTEES PROVISIONS FOR LOSSES Analysis of changes in provisions for losses during the period broken down by stages and correlated to recognised impairments, etc. Summary of combined recognised impairments, etc. is provided in note 6.2.1. Stage 1 Lack of significant increase in credit risk 30.06.18 DKKm

Stage 2 Significant increase in credit risk 30.06.18 DKKm

Stage 3 Creditimpaired 30.06.18 DKKm

Total 30.06.18 DKKm

Recognised impairments DKKm

Provisions for losses at 01.01.18 under IFRS 9

13 7 48 68 -

Provisions for losses re. new exposures during the year

6

Reversed provision for losses re. repaid exposures

-3

1 47 54 54 -3

-9

-15 -15

Change in provisions for losses at 1 January, transfer to/from stage 1 7 -5 -2 0 Change in provisions for losses at 1 January, transfer to/from stage 2 0

1 -1 0 -

Change in provisions for losses at 1 January, transfer to/from stage 3 -1 -1 2

0 -

Provisions for losses during the year due to change in credit risk



Provisions for losses at 30.06.18

13 5 55 74 6

-7

4

-31

-33 -33

The change in portfolio impairments was driven by an increase in gross lending and movements between the stages as illustrated in the table, which is the result of a change in customers’ credit risk. In addition, impairments are affected by impaired macroeconomic factors.

Spar Nord H1 2018

Notes – Group

NOTE 6.6

H1 2018 DKKm

IMPAIRMENT ACCOUNT AT 30.06.17 AND 31.12.17 (IAS 39) Individual loan impairment charges

32

H1 2017 DKKm

Full year 2017 DKKm

Individual impairment, beginning of period

-

1,686

New individual impairment charges

-

204

1,686 310

Reversal of individual impairment charges

-

216

326

Previously impaired, now finally lost

-

135

383

Other movements

-

23

36

Individual impairment, end of period

-

1,562

1,323

Collective loan impairment charges



Collective impairment, beginning of period

-

124

124

New collective impairment charges

-

98

128

Reversal of collective impairment charges

-

4

9

Other movements

-

4

9

Collective impairment, end of period

-

221

251

Total loan impairment charges, etc.



Impairment, beginning of year

-

1,810

1,810

New impairment charges

-

301

438

Reversed impairment charges

-

220

334

Previously impaired, now finally lost

-

135

383

Other movements

-

27

44

Impairment, end of period

-

1,783

1,575

Impairment recognised in the income statement



New impairment charges

-

301

438

Reversed impairment charges

-

220

334

Loss without prior impairment

-

23

96

Amounts recovered on previously impaired receivables

-

59

167

Recognised in the income statement

-

45

33

Provisions for losses on guarantees



Provisions, beginning of period

-

67

New provisions

-

7

19

Reversed provisions

-

33

45

Provisions for losses on guarantees, end of period

-

41

41

67

Provisions for losses on guarantees recognised in the income statement



New provisions

-

7

19

Reversed provisions

-

33

45

Recognised in the income statement

-

-26

-26

-

1,825

1,616

Impairment, other credit risks, beginning of period

-

14

14

Reversed impairment charges

-

1

14

Other movements

-

1

-

Impairment, other credit risks, total

-

14

0

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

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

-

1,839

1,616

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

-

45

33

Provision for losses on guarantees

-

-26

-26

Impairment, credit institutions

-

-1

-14

Total impairment of loans and receivables etc.

-

19

-7

Loans with suspended interest payments

-

127

143



6.7

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



Recognised interest on impaired loans and receivables

-

CREDIT RISK POLICY Spar Nord’s credit policy is unchanged relative to the description in note 51 in the annual report for 2017.

28

44

Spar Nord H1 2018

NOTE 7 7.1

Notes without reference – Group

33

Notes without reference – Group FAIR-VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS Financial instruments recognised 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 recognised 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 recognised 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. In addition, fair value adjustments are made of derivative financial instruments based on counter party PD (Probability of Default). 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 million at 30.06.2018 (30.06.2017: DKK 4 million; end-2017: DKK 4 million).

Spar Nord H1 2018

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

Notes without reference – Group

Quoted prices Level 1 DKKm

Observable input Level 2 DKKm

34

Nonobservable Input Level 3 DKKm

Total DKKm

30.06.18 Financial assets Bonds at fair value

11,353

2,798

0 14,151

Shares, etc.

205

35

1,498 1,738

Assets linked to pooled schemes

10,767

Positive fair value of derivative financial instruments



Total

22,325

4,258

0

906 7,996

328 15,352 16 922 1,841 32,162

Financial liabilities



Deposits in pooled schemes

0 15,352 Other non-derivative financial liabilities at fair value 1,388 231

0 15,352

Negative fair value of derivative financial instruments



0 627

Total

1,388 16,209

0

627

0 1,619 0 17,597

30.06.17



Financial assets Bonds at fair value

10,896 2,930 0 13,826

Shares, etc.



Assets linked to pooled schemes

10,118

4,595

Positive fair value of derivative financial instruments



1,056

Total

21,201

187

13

0

8,593

1,352 1,552 304 15,016 0 1,056 1,656 31,450

Financial liabilities



Deposits in pooled schemes



0

15,016

0 15,016

Other non-derivative financial liabilities at fair value 927 306

0 1,232

Negative fair value of derivative financial instruments



0 679

Total





0 927

679

16,001

0 16,928



31.12.17 Financial assets Bonds at fair value

8,732

Shares, etc.



Assets linked to pooled schemes

10,604

4,508

Positive fair value of derivative financial instruments



1,030

Total

19,534

2,106

197

0 10,838

21 1,408 1,626

0

7,663

310 15,423 0 1,030 1,719 28,916

Financial liabilities



Deposits in pooled schemes



0

15,423

Other non-derivative financial liabilities at fair value 476 458 Negative fair value of derivative financial instruments



Total



0 476

691

16,571

0 15,423 0 934 0 691 0 17,047



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 recognised 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 recognised 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, market expectations as to required rate of return on equity and comparable transactions. 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 values 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. The fair value has been reliably measured for all shares, and accordingly no shares have been recognised 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 2018, assets recognised under positive fair value of derivative financial instruments were transferred observable inputs (Level 2) to non-observable inputs (Level 3). The adjustment to fair value is recognised in market value adjustments.

Spar Nord H1 2018

Notes without reference – Group

NOTE

30.06.18 DKKm Level 3

Equities Assets linked to pooled schemes

30.06.18 DKKm

Fair value based on net asset value, cf. shareholders’ agreements

35

30.06.17 DKKm

30.06.17 DKKm

Fair value based on net asset value, cf. shareholders’ agreements Other

Other

1,136 362 995 358 - 328 - 304

Positive fair value of derivative financial - 16 - instruments Sensitivities Change in fair value of shares if the profit/loss of the companies 12 - 9 changes by 10% (annualised) 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. H1 2018 DKKm

Financial instruments measured at fair value based on non-observable inputs (Level 3)

H1 2017 DKKm

Full year 2017 DKKm

Carrying amount, beginning of period

1,719

Value adjustments through profit or loss

121

Market value adjustments in other comprehensive income

0

Purchase

29

109

131

Sale

62

96

99

Transferred to/from Level 3

35

0

Carrying amount, end of period

1,841

1,550 93 0

1,656

1,550 136 0

0 1,719

Market-value adjustments in the income statement of assets held at



the reporting date

117

48

91

Dividends on shares are recognised in the income statement and are not included



in the above statement.



7.2

COLLATERAL PROVIDED Collateral provided through clearing systems, with central counterparties and other infrastructure institutions: Deposits, clearing

97

Collateral provided for the market value of derivatives transactions

319

452

424

Positive market value of derivative contracts subject to netting

196

200

215

Collateral provided as part of repo transactions

1,313

Other collateral provided

0

Total

1,925

114

1,375 44 2,185

105

729 30 1,503

Spar Nord H1 2018

NOTE

7.3

HEDGE ACCOUNTING Assets

Notes without reference – Group

H1 2018 DKKm

H1 2017 DKKm

36

Full year 2017 DKKm

Loans and advances Carrying amount

75

79

Fair value

75

79

77

Nominal value

75

75

75

77

Interest risk-hedging financial instruments



Derivatives (swap contracts) Carrying amount

0

-4

-2

Fair value

0

-4

-2

Synthetic principal/nominal value

75

75

75

Liabilities



Subordinated debt Carrying amount

-

394

-

Fair value

-

402

-

Nominal value

-

400

-

Interest risk-hedging financial instruments



Derivatives (swap contracts)

7.4

Carrying amount

-

2

-

Fair value

-

2

-

Synthetic principal/nominal value

-

400

-

OWNERSHIP AT 30.06.18 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.

Spar Nord H1 2018

Performance indicators and financial ratios –

37

Parent Company

Performance indicators and financial ratios – Parent Company THE DANISH FSA’S LAYOUT AND RATIO SYSTEM 5-YEAR OVERVIEW H1 2018

INCOME STATEMENT DKKm

H1 2017

Change in %

H1 2018

H1 2017

H1 2016

H1 2015

H1 2014

Full year 2017

Net interest and fee income



Market value adjustments



138 266 -48 138 266 115 374 106 379

Staff costs and administrative expenses



953 948

Loan impairment charges etc.



Income from investments in associates and group enterprises



Profit/loss



1,381 1,401

-1 1,381 1,401 1,388 1,504 1,293 2,711 1 953 948 913 933 881 1,869

16 19 -12 16 19 162 188 194 -7



30 30 -1 30 30 61 47 251 51 630 576

9 630 576 383 633 441 991

BALANCE SHEET



DKKm



Loans and advances



Equity



Total assets



45,678 42,280 8,960 8,565 83,690 79,686

8 45,678 42,280 38,404 34,286 36,808 46,747 5 8,960 8,565 7,799 7,618 6,855 8,975 5 83,690 79,686 78,632 80,941 78,678 80,597

In accordance with the accounting policies, the comparative figures have not been restated in connection with the implementation of IFRS 9 on financial instruments at 01.01.2018. FINANCIAL RATIOS OWN FUNDS Own funds ratio *)



18.9 16.9 18.9 16.9 16.5 16.1 16.7 18.1

Tier 1 capital ratio *)



16.0 14.8 16.0 14.8 14.4 14.0 14.6 15.9

EARNINGS



Return on equity before tax, %



Return on equity after tax, %



7.1 6.7 7.1 6.7 4.9 8.6 6.6 11.3

Income/cost ratio



1.72 1.72 1.72 1.72 1.42 1.61 1.43 1.65

Return on assets, %



0.8 0.7 0.8 0.7 0.5 0.8 0.6 1.2

8.1 8.4 8.1 8.4 5.9 10.0 7.6 14.2

MARKET RISK AND LIQUIDITY



Interest rate risk, %



Foreign-exchange position, %



1.3 3.9 1.3 3.9 3.0 3.6 2.3 3.3

Foreign-exchange risk, %



0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.1

Excess coverage relative to statutory liquidity requirement, % Loans and advances as % of deposits

0.8 0.2 0.8 0.2 0.7 0.3 0.4 0.7

322.4 320.8 322.4 320.8 277.6 263.1 227.0 325.2



70.3 67.2 70.3 67.2 63.1 59.4 68.1 72.4

Loans and advances plus impairment as % of deposits

73.0 70.0 73.0 70.0 66.1 62.4 71.2 74.9

CREDIT RISK Loans and advances relative to equity



5.1 4.9 5.1 4.9 4.9 4.5 5.4 5.2

Increase in loans and advances for the period, %

3.5 3.6 3.5 3.6 3.3 -4.4 -2.3 6.6

Sum of large exposures, % **)



79.1 14.0 79.1 14.0 14.6 15.3 0.0 17.2

Impairment ratio for the period



0.0 0.0 0.0 0.0 0.3 0.4 0.4 0.0

THE SPAR NORD SHARE



DKK PER SHARE OF DKK 10



Profit/loss for the period



5.1 4.7 5.1 4.7 3.1 5.0 3.5 8.1

Net asset value (NAV)



66 63 66 63 60 58 55 66

Dividend



Share price/profit/loss for the period



Share price/NAV



- - - - - 2.0 - 3.5 13.3 18.1 13.3 18.1 17.4 14.8 17.1 8.9 1.0 1.3 1.0 1.3 0.9 1.3 1.1 1.1

*)

Own funds for H1 2017 are exclusive of recognition of profit/loss for the period.

**)

In 2018, financial ratios are calculated according to new rules.

In accordance with the accounting policies, the comparative figures have not been restated in connection with the implementation of IFRS 9 on financial instruments at 01.01.2018.

Spar Nord H1 2018

Income statement – Parent Company

Income statement – Parent Company NOTE

H1 2018 DKKm

H1 2017 DKKm

Q2 2018 DKKm

Q2 2017 DKKm

38

Full year 2017 DKKm

2.1

Interest income

2.2

Interest expenses

58 71 29 34 141

Net interest income

773 809 384 402 1,572

831 880 413 437 1,713

Dividends on shares, etc. 2.3

Fees, charges and commissions received

2.3

Fees, charges and commissions paid

45 18 39 15 23 640 638 309 314 1,265 77 65 36 35 149

Net income from interest, fees, charges and commissions 1,381 1,401

696

696 2,711

2.4 2.5

Market value adjustments

138 266

Other operating income

175 20 167

Staff costs and administrative expenses

953 948 495 488 1,869

Amortisation, depreciation and impairment of intangible assets and property, plant and equipment Other operating expenses 4.2.1

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

25 107 379 11 42

29 27 14 14 59 4 5 2 2 13 16 19 39

1 -7

30 30 18 12 51 722 718 355

321 1,249

Tax

91 142 36

62 258

Profit/loss

630 576 319 259 991







APPROPRIATION: The shareholders of the Parent Company Spar Nord Bank A/S Holders of additional tier 1 (AT1) capital instruments



Profit/loss



606 552 307 247 942 24 24 12 12 49 630 576 319 259 991



STATEMENT OF COMPREHENSIVE INCOME Profit/loss for the period



630 576 319 259 991

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



0 0 0 0 9

Other comprehensive income after tax

0 0 0 0 9

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



630 576

319

259 1,000

606 552 307 247 951 24 24 12 12 49 630 576

319

259 1,000

Spar Nord H1 2018

Balance sheet – Parent Company

39

Balance sheet – Parent Company ASSETS

NOTE

4.4

4.3

3.1

3.3

3.4 3.5

30.06.17 DKKm

Full year 2017 DKKm

Cash balances and demand deposits with central banks 1,352 1,393 1,298 Due from credit institutions and central banks 2,184 2,366 1,435 Lending, banking and leasing activities 38,336 36,224 37,272 Lending, reverse repo transactions 7,342 6,056 9,475 Loans, advances and other receivables at amortised cost, total 45,678 42,280 46,747 Bonds at fair value 14,151 13,826 10,838 Shares, etc. 1,738 1,552 1,626 Investments in associates 64 111 128 Investments in group enterprises 307 394 402 Assets linked to pooled schemes 15,352 15,016 15,423 Intangible assets 180 189 184 Investment properties 70 70 70 Domicile property 411 424 384 Land and buildings, total 481 494 454 Other property, plant and equipment 125 106 119 Current tax assets 177 27 50 Temporary assets 9 27 21 Other assets 1,754 1,782 1,756 Prepayments and deferred income 138 125 116 Total assets 83,690 79,686 80,597

LIABILITIES PAYABLES 3.2

30.06.18 DKKm

3,624 2,791 1,934 Due to credit institutions and central banks 49,642 47,891 49,105 Deposits and other payables 15,352 15,016 15,423 Deposits in pooled schemes 1,619 1,233 934 Other non-derivative financial liabilities at fair value 2,675 2,907 2,864 Other liabilities 48 18 19 Prepayments and deferred income 72,959 69,854 70,278 Total payables PROVISIONS 140 109 137 Provisions for deferred tax 74 41 41 Provision for losses on guarantees 34 26 21 Other provisions 248 177 199 Total provisions SUBORDINATED DEBT 1,522 1,089 1,144 Subordinated debt 74,729 71,120 71,622 Total liabilities EQUITY 1,230 1,255 1,230 Share capital 89 89 90 Revaluation reserves - - 431 Proposed dividend 6,781 6,358 6,364 Retained earnings 8,100 7,702 8,114 Equity 860 863 861 Holders of additional tier 1 (AT1) capital instruments 8,960 8,565 8,975 Total equity 83,690 79,686 80,597 Total equity and liabilities OFF-BALANCE SHEET ITEMS 13 6 11 Contingent assets 12,095 12,304 11,961 Contingent liabilities 584 530 518 Other binding commitments

Spar Nord H1 2018

Capital position – Parent Company

Capital position – Parent Company

40

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

STATEMENT OF CHANGES IN EQUITY Share capital DKKm

Revaluation reserve DKKm

Statutory reserves DKKm

Proposed dividend DKKm

Retained earnings DKKm

Total DKKm

Additional tier 1 capital DKKm

Total DKKm

EQUITY AT 30.06.18



Equity at 31.12.17

1,230

Change in accounting policies, IFRS 9. See note 1.1

- - - - -195 -195 - -195

Equity at 01.01.18

1,230

90 90

0 0

431 6,364 431

6,169

8,114 7,919

861 861

8,975 8,780

Comprehensive income in 2018



Profit/loss for the period

- - 30 - 576 606 24 630

Other comprehensive income





- -1 - - 1 0 - 0

Net revaluation of properties

Other comprehensive income, total

- -1 - - 1 0 - 0

Total comprehensive income for the period

-

-1 30

- 577 606 24 630

Transactions with owners



Interest paid on additional tier 1 (AT1) capital

- - - - - - -24 -24

Dividends paid

-

Dividends received, treasury shares

- - - - 0 0 - 0

-

- -431

- -431

- -431

Disposal upon acquisition of treasury shares and additional tier 1 (AT1) capital - - - - -165 -165 -1 -166 Addition upon sale of treasury shares and additional tier 1 (AT1) capital

- - - - 165 165 - 165

Dissolution of revaluation reserves in group enterprises

- - 95 - -95 0 - 0

Revaluation reserves, associates

- - -23 - 23 0 - 0

Dividends received from group enterprises

- - -100 - 100 0 - 0

Dividends received from associates recognised at net asset value

- - -2 - 2 0 - 0

Tax

- - - - 5 5 - 5

Total transactions with owners

-

- -30 -431

36 -425 -25 -450

Equity at 30.06.18

1,230

89

0

0

6,781

8,100

860

8,960

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



EQUITY AT 30.06.17



Equity at 01.01.17

1,255

89

386

628 5,407

7,765

862

8,627

Comprehensive income in 2017



Profit/loss for the period

- - 30 - 521 552 24 576

Other comprehensive income Net revaluation of properties Other comprehensive income, total

- 0 - - - 0 - 0 - 0 - - - 0 - 0

Total comprehensive income for the period

-

0 30

- 521 552 24 576

Transactions with owners



Interest paid on additional tier 1 (AT1) capital

- - - - - - -24 -24

Dividends paid

-

Dividends received, treasury shares

- - - - 13 13 - 13

-

- -628

- -628

- -628

Disposal upon acquisition of treasury shares and additional tier 1 (AT1) capital - - - - -258 -258 - -258 Addition upon sale of treasury shares and additional tier 1 (AT1) capital

- - - - 253 253 1 254

Dissolution of revaluation reserves in group enterprises

- - 826 - -826 0 - 0

Revaluation reserves, associates

- - -14 - 14 0 - 0

Dividends received from group enterprises

- - -1,200 - 1,200 0 - 0

Dividends received from associates recognised at net asset value

- - -29 - 29 0 - 0

Tax

- - - - 5 5 - 5

Total transactions with owners



-

0 -417 -628 430 -614 -23 -638

Equity at 30.06.17 The share capital consists of 125,529,918 shares with a nominal value of DKK 10.

1,255

89

0

0 6,358

7,702

863

8,565

Spar Nord H1 2018

Capital position – Parent Company

41

The Parent Company applies the same accounting policies as the Group. The difference between the profit or loss in the Group and in the Parent Company is due to properties being classified as investment properties in subsidiaries and as domicile properties in the Group. The difference consists of depreciation on such properties. See below.

PROFIT/LOSS

EQUITY H1 2017 DKKm

H1 2018 DKKm

H1 2017 DKKm

H1 2018 DKKm

Spar Nord Bank Group

630 575 8,960 8,565

Depreciation, domicile property

1 1 0 0

Spar Nord Bank, Parent Company

630 576 8,960 8,565 H1 2018

TREASURY SHARE PORTFOLIO

H1 2017

Full year 2017

Number of shares



Percentage of share capital

0.0 2.1 0.0

40,148 2,647,586

38,048

On 04.09.2017, 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. Additional tier 1 (AT1) capital

H1 2018 DKKm

Principal

Currency

Note DKKm

DKK



a

DKK



b

Maturity

H1 2017 DKKm

Full year 2017 DKKm

Interest rate

Received

400.0

6.052%

2015

Perpetual

400

400

411

450.0

5.500%

2016

Perpetual

460

463

450

860

863

861

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

a

Issued on 10.06.2015, with an option of early redemption as from 10.06.2020. The loan carries interest at a rate of 6.052% p.a. until 10.06.2020,



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

b Issued on 06.12.2016, with an option of early redemption as from 06.12.2021. The loan carries interest at a rate of 5.500% p.a. until

06.12.2021, 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.

OWN FUNDS Equity

8,960

Phasing in of IFRS 9

185

Result not recognised

- 576

Additional tier 1 (AT1) capital included in equity

860

Proposed dividend, excl. share re. share buyback programme

315

0

431

Intangible assets, incl. share recognised in investments in associates

148

192

188

Other primary deductions

48

40

Deductions, equity investments

379

Common equity tier 1 (CET1) capital

7,396

8,565

8,975

-

-

863

861

41

328

331

6,566

7,123

Additional tier 1 (AT1) capital *)

843

Other deductions

4

Tier 1 capital

8,235

843

843

41 7,368

41 7,924

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

1,507

Other deductions

10

Own funds

9,732

1,081

1,133

41 8,408

41 9,016

Weighted risk exposure amount, credit risk etc.

42,275

39,961

Weighted risk exposure amount, market risk

3,636

4,108

3,196

Weighted risk exposure amount, operational risk

5,639

5,605

5,605

Total risk exposure amount

51,551

49,674

40,886

49,687

Common equity tier 1 capital ratio

14.3

13.2

14.3

Tier 1 capital ratio

16.0

14.8

15.9

Own funds ratio

18.9

16.9

18.1

The capital adequacy calculation for H1 2017 is exclusive of recognition of profit/loss for the period. *) Including portfolio of own bonds As Spar Nord has adopted the transition rules according to CRD, any adverse impact of the IFRS 9 impairment rules will not take full effect on the capital base until after five years. Spar Nord has calculated the negative impact of IFRS 9 on own funds at DKK 10 million on entry into force of the rules at 01.01.2018.

Spar Nord H1 2018

Notes – Parent Company

42

Notes – Parent Company NOTE

1

ACCOUNTING POLICIES The interim report is presented in accordance with IAS 34, “Interim Financial Reporting”, as adopted by the EU, and additional Danish disclosure requirements for interim reports. The application of IAS 34 means that the presentation is limited relative to the presentation of an annual report and that the recognition and measurement principles of the International Financial Reporting Standards (IFRS) have been applied. Other than as set out below, the accounting policies are unchanged from those applied in Annual Report 2017. Annual Report 2017 contains the full description of the accounting policies. Figures in the interim report are presented in millions of Danish kroner, unless otherwise stated. Consequently, rounding differences may occur because grand totals are rounded and the underlying decimal places are not shown to the reader.

1.1

CHANGES IN ACCOUNTING POLICIES The following amendments to IFRS were implemented effective 1 January 2018: l IFRS 9 Financial instruments l IFRS 15 Revenue from Contracts with Customers Of these, only IFRS 9 has affected recognition and measurement in the interim report. For a description of the effect in connection with the transition to IFRS 9 and IFRS 15 at 1 January 2018, please see the Group's accounting policies in note 1.

Spar Nord H1 2018

NOTE

2

Notes – Parent Company

NOTES TO THE INCOME STATEMENT H1 2018 DKKm

2.1

43

H1 2017 DKKm

Full year 2017 DKKm

INTEREST INCOME Due from credit institutions and central banks

2

Loans, advances and other receivables

785

Bonds

36



Foreign-exchange contracts

4



Interest-rate contracts

-23

-30

-59

Derivative financial instruments, total

-20

-28

-56

Other interest income

0

Total interest income after offsetting negative interest income

804

Negative interest income offset against interest income

18

12

Negative interest expenses offset against interest expenses

10

8

Total interest income before offsetting negative interest income

831





Of which, income from genuine reverse repo transactions booked under



Due from credit institutions and central banks

-3

-5

Loans, advances and other receivables

-14

-7

1 817

3 1,606

42

84

2

3

28 860

880

31 1,669 30 15 1,713

-9 -20

Negative interest income amounts to DKK 18 million (30.06.2017: DKK 12 million, 2017: DKK 30 million) and relates to repo transactions. In the table above, negative interest income is offset against interest income. In the income statement, negative interest income is presented as interest expenses, and negative interest expenses are presented as interest income. 2.2

INTEREST EXPENSES



Credit institutions and central banks

-1

-1

Deposits and other payables

12

25

47

Subordinated debt

18

26

52

Other interest expenses

1

Total interest expenses after offsetting negative interest expenses

30

Negative interest expenses offset against interest expenses

10

8

15

Negative interest income offset against interest income

18

12

30

Total interest expenses before offsetting negative interest expenses

58

71

141

-3

1

1

51

97

Of which, interest expenses from genuine repo transactions booked under



Due to credit institutions and central banks

-5

-4

-8

Negative interest expenses amount to DKK 10 million (30.06.2017: DKK 8 million, 2017: DKK 15 million) and relate partly to deposits, partly to repo transactions. In the table above, negative interest expenses are offset against interest expenses. In the income statement, negative interest expenses are presented as interest income, and negative interest income is presented as interest expenses. 2.3

FEES, CHARGES AND COMMISSIONS RECEIVED Securities trading and custody accounts



Payment services

83

Loan transaction fees

256

238

493



198

187

380

of which mortgage credit institutions

208 215 439 76

166

Guarantee commission

13

15

30

Other fees, charges and commissions

81

94

138

Total fees, charges and commissions received

640

Total fees, charges and commissions paid

77

Total net fees, charges and commissions received

563

638

1,265

65 573

149 1,116

2.4

MARKET VALUE ADJUSTMENTS



Other loans, advances and receivables at fair value

-2

0

0

Bonds

-7

43

91

Shares, etc.

131

114

163

Foreign currency

27

16

36

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



Assets linked to pooled schemes

-228

503

566

Deposits in pooled schemes

228

-503

-566

Total



-11

93

89

138 266 379

Spar Nord H1 2018

Notes – Parent Company

H1 2018 DKKm

NOTE

2.5

44

H1 2017 DKKm

Full year 2017 DKKm

STAFF COSTS AND ADMINISTRATIVE EXPENSES Staff costs



589 603 1,165

Administrative expenses



364 345 704

Total



953

948 1,869

Staff costs:



Salaries



Pensions



51 53 106

Social security costs



67 68 129

Total







471 481 930

589 603 1,165

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 1.9 1.6 3.5 - - 1.9 1.6 3.5

Executive Board



Number



Base salary *)



6.0 5.7 11.4

– less fees received from directorships



0.5 0.4 1.5

The Bank’s expense, base salary



5.5 5.3 9.9

3 3 3

Pension, ordinary contribution

0.9 0.7 1.7

Total remuneration earned and paid



6.4 6.0 11.6





Breakdown of remuneration to Executive Board



Lasse Nyby



Base salary*)



2.2 2.1 4.2

– less fees received from directorships



0.2 0.1 0.5

The Bank’s expense, base salary



2.1 2.0 3.7

Pension, ordinary contribution



0.3 0.3 0.6

Total remuneration earned and paid



2.4 2.3 4.3

John Lundsgaard



Base salary



1.9 1.8 3.6

– less fees received from directorships



0.1 0.1 0.4

The Bank’s expense, base salary



1.8 1.7 3.2

Pension, ordinary contribution



0.3 0.2 0.5

Total remuneration earned and paid



2.1 1.9 3.7

Lars Møller



Base salary*)



1.9 1.8 3.6

– less fees received from directorships



0.2 0.2 0.6

The Bank’s expense, base salary



1.7 1.6 3.0

Pension, ordinary contribution



0.3 0.2 0.5

Total remuneration earned and paid



2.0 1.8 3.5

*)

The amount includes the value of a company car etc.



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: The average number of employees converted into full-time equivalents 1,524 1,538 1,546

Spar Nord H1 2018

Notes – Parent Company

NOTE 2.5

H1 2018 DKKm

STAFF COSTS AND ADMINISTRATIVE EXPENSES, CONTINUED

45

H1 2017 DKKm

Full year 2017 DKKm

Administrative expenses: IT expenses

203

Marketing costs

51

55

111

Cost of premises

43

51

105

Staff and travelling expenses

27

26

56

Office expenses

11

12

21

Other administrative expenses

30

34

57

Total

364

167

345

354

704

3

Notes to the balance sheet

3.1

OTHER ASSETS



Positive fair value of derivative instruments, etc.

922

1,056

1,030

Miscellaneous receivables

289

142

289

Interest and commissions receivable

45

201

51

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

445

316

316

Other assets

53

Total

1,754

67 1,782

70 1,756

3.2

DEPOSITS AND OTHER PAYABLES



Demand deposits

44,241

41,517

Subject to notice

1,735

1,548

Time deposits

377

1,169

Special types of deposits

3,289

Total

49,642

3,657 47,891

43,393 1,456 896 3,359 49,105

3.3

OTHER LIABILITIES



Miscellaneous payables

1,709

Negative fair value of derivative financial instruments, etc.

627

Interest and commissions payable

22

Other liabilities

317

Total

2,675

1,872 679

1,798 691

46 310 2,907

12 364 2,864

3.4

CONTINGENT LIABILITIES



The Bank and all major wholly-owned subsidiaries are jointly registered for payroll tax and VAT and are jointly and severally liable for the payroll tax and VAT payable. Financial guarantees



Loss guarantees for mortgage loans

5,158

4,817

4,983

Registration and refinancing guarantees

1,500

1,928

2,011

Other contingent liabilities

834

Total

12,095

4,604 4,563 4,092

996 12,304

876 11,961

3.5

OTHER BINDING AGREEMENTS Miscellaneous

584

Total



530

518

584 530 518

Miscellaneous is composed of: Lease obligations, with the Parent 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 recognised in the balance sheet. The leases represent an amount of DKK 132 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 H1 2018

NOTE

4

4.1 4.1.1

Notes – Parent Company

46

Credit risk IMPAIRMENTS – TRANSITION FROM IAS 39 TO IFRS 9 IMPAIRMENTS – TRANSITION FROM IAS 39 TO IFRS 9 BY EXPOSURE CATEGORY Individual impairments 31.12.17 DKKm

Collective impairments 31.12.17 DKKm

Change IAS 39 to IFRS 9 01.01.18 DKKm

Total 31.12.17 DKKm

Total 01.01.18 DKKm

Loans and advances at amortised cost

1,323

Due from credit institutions and central banks

0 0 0 1 1

Guarantees

41 0 41 27 68

Undrawn maximum and loan commitments

15 0 15

Total

1,379

251 1,575

251 1,631

216 1,791

7 21

250 1,881

The increase in impairments from IAS 39 to IFRS 9 is explained by the fact that impairments under IFRS 9 must be recognised on all Spar Nord’s credit exposures measured at amortised cost based on statistically expected credit losses (“expected loss” model). Based on the previous rules under IAS 39, impairment losses were not recognised until there was objective evidence of impairment (“incurred loss” model). In future, forward-looking information will be taken into consideration.

4.1.2

4.1.3

Stage 1 Lack of significant increase in credit risk 01.01.18 DKKm

IMPAIRMENTS AT 01.01.18 UNDER IFRS 9 BY STAGES

Stage 3 Creditimpaired 01.01.18 DKKm

Total 01.01.18 DKKm

Loans and advances at amortised cost

79 279 1.433 1.791

Due from credit institutions and central banks

1 0 0 1

Guarantees

13 7 48 68

Undrawn maximum and loan commitments

4 5 12 21

Total

96

291 1.494 1.881

EXPOSURES BEFORE IMPAIRMENTS AT 01.01.18 UNDER IFRS 9 BY STAGES



4.2 4.2.1

Stage 2 Significant increase in credit risk 01.01.18 DKKm

Stage 1 Lack of significant increase in credit risk 01.01.18 DKKm

Stage 2 Significant increase in credit risk 01.01.18 DKKm

Stage 3 Creditimpaired 01.01.18 DKKm

Total 01.01.18 DKKm

Loans and advances at amortised cost

35,592

Due from credit institutions and central banks

1,437 0 0 1,437

Guarantees

10,978

763

261 12,002

Undrawn maximum and loan commitments

19,472

1,159

171 20,802

Total

67,479 11,590 3,510 82,579

EXPOSURES AT 30.06.18 SUMMARY OF ACCOUNTING VALUE OF EXPOSURES AND RECOGNISED IMPAIRMENTS ETC.

9,667

Exposure before impairments, see 4.2.3 DKKm

3,078 48,337

Impairments, see 4.2.2 DKKm

Recognised impairments DKKm

Loans and advances at amortised cost (note 4.3)

47,467

Due from credit institutions and central banks (note 4.4)

2,184

Guarantees (note 4.5)

12,169

74

6

Drawn maximum and loan commitments (note 4.3)

22,200

30

8

Total

84,021

1,894

16

1,790

3

1

0

Recognised impairments etc. are specified in notes 4.3, 4.4.1 and 4.5. 4.2.2

Stage 1 Lack of significant increase in credit risk 30.06.18 DKKm

IMPAIRMENTS AT 30.06.18 BY STAGES

Stage 2 Significant increase in credit risk 30.06.18 DKKm

Stage 3 Creditimpaired 30.06.18 DKKm

Total 30.06.18 DKKm

Loans and advances at amortised cost



Due from credit institutions and central banks

1 0 0 1

Guarantees

13 5 55 74

Undrawn maximum and loan commitments

4 3 22 30

Total

105 271 1,518 1,894

87 263 1,440 1,790

Spar Nord H1 2018

NOTE

4.2.3

Notes – Parent Company

EXPOSURE BEFORE IMPAIRMENT 30.06.18 BY STAGES

Stage 1 Lack of significant increase in credit risk 30.06.18 DKKm

Stage 2 Significant increase in credit risk 30.06.18 DKKm

47

Stage 3 Creditimpaired 30.06.18 DKKm

Total 30.06.18 DKKm

Loans and advances at amortised cost

33,777 10,509

Due from credit institutions and central banks

2,184 0 0 2,184

Guarantees

11,324

Undrawn maximum and loan commitments

20,229

Total

67,514 12,845 3,661 84,021

3,181 47,467

516

329 12,169

1,820

151 22,200

Spar Nord does not have the categories “Financial assets at fair value through other comprehensive income” and “Loans at fair value through profit or loss”.

4.3

LOANS AT AMORTISED COST AND UNDRAWN MAXIMUM AND LOAN COMMITMENT IMPAIRMENTS AND PROVISIONS FOR LOSSES Analysis of changes in impairments for the period broken down by stages and correlated to recognised impairments, etc. Summary of combined recognised impairments, etc. is provided in note 4.2.1. Stage 1 Lack of Stage 2 significant Significant Stage 3 increase increase Creditin credit risk in credit risk impaired 30.06.18 30.06.18 30.06.18 DKKm DKKm DKKm

Total 30.06.18 DKKm

Recognised impairments DKKm

Impairments at 01.01.18 under IFRS 9, loans at amortised cost

79 279 1,433 1,791

Impairments at 01.01.18 under IFRS 9, undrawn maximum and loan commitment



-

4 5 12 21 -

Impairments re. new exposures during the year, including new accounts to existing customers 13 21 45 79 79 Reversed impairments re. repaid accounts

-6 -16 -55 -77 -77

Change in impairments at 1 January, transfer to/from stage 1

90 -53 -37

-

-

Change in impairments at 1 January, transfer to/from stage 2

-12 35 -22

-

-

Change in impairments at 1 January, transfer to/from stage 3

-8 -33 41

-

Impairments during the year due to change in credit risk

-69

Previously impaired, now finally lost

0

Other movements (interest rate correction etc.)

0 0 19 19 -

Loss without prior impairment

- - - - 23

Amounts recovered on previously impaired receivables

- - - - -40

Impairments at 30.06.18



Impairments at 30.06.18 under IFRS 9, loans at amortised cost



Impairments at 30.06.18 under IFRS 9, undrawn maximum and loan commitment



Impairments at 30.06.18



29

66

25

0 -40 -40

91 266 1,462 1,819

25 -

11

87 263 1,440 1,790

3

4 3 22 30 8 91 266 1,462 1,819

11

The change in portfolio impairments was driven by an increase in gross lending and movements between the stages as illustrated in the table, which is the result of a change in customers’ credit risk. In addition, impairments are affected by impaired macroeconomic factors. The figures concerning newly established and repaid accounts may include administrative movements in which the balance is moved between two accounts for the same customer.

Spar Nord H1 2018

NOTE

4.4 4.4.1

Notes – Parent Company

48

DUE FROM CREDIT INSTITUTIONS AND CENTRAL BANKS IMPAIRMENTS Analysis of changes in impairments for the period broken down by stages and correlated to recognised impairments, etc. Summary of combined recognised impairments, etc. is provided in note 4.2.1. Stage 1 Lack of significant increase in credit risk 30.06.18 DKKm Impairments at 01.01.18 under IFRS 9

Stage 2 Significant increase in credit risk 30.06.18 DKKm

Stage 3 Creditimpaired 30.06.18 DKKm

Total 30.06.18 DKKm

Recognised impairments DKKm

1 0 0 1 -

Impairments re. new exposures during the year, including new accounts to existing customers 0 0 0 0 0

4.4.2

4.5

Reversed impairments re. repaid accounts

0 0 0 0 0

Change in impairments at 1 January, transfer to/from stage 1

0 0 0 - -

Change in impairments at 1 January, transfer to/from stage 2

0 0 0 - -

Change in impairments at 1 January, transfer to/from stage 3

0 0 0 - -

Impairments during the year due to change in credit risk

0 0 0 0 0

Impairments at 30.06.18

1 0 0 1 0

H1 2018 DKKm

DUE FROM CREDIT INSTITUTIONS AND CENTRAL BANKS, OTHER SPECIFICATIONS

H1 2017 DKKm

Full year 2017 DKKm

Balances at notice with central banks

0

Due from credit institutions

2,184

1,941

425

1,435

0

Total

2,184

2,366

1,435

GUARANTEES PROVISIONS FOR LOSSES Analysis of changes in provisions for losses during the period broken down by stages and correlated to recognised impairments, etc. Summary of combined recognised impairments, etc. is provided in note 4.2.1. Stage 1 Lack of significant increase in credit risk 30.06.18 DKKm

Stage 2 Significant increase in credit risk 30.06.18 DKKm

Stage 3 Creditimpaired 30.06.18 DKKm

Total 30.06.18 DKKm

Recognised impairments DKKm

Provisions for losses at 01.01.18 under IFRS 9

13 7 48 68 -

Provisions for losses re. new exposures during the year

6

Reversed provision for losses re. repaid exposures

-3

1 47 54 54 -3

-9

-15 -15

Change in provisions for losses at 1 January, transfer to/from stage 1 7 -5 -2 0 Change in provisions for losses at 1 January, transfer to/from stage 2 0

1 -1 0 -

Change in provisions for losses at 1 January, transfer to/from stage 3 -1 -1 2

0 -

Provisions for losses during the year due to change in credit risk



Provisions for losses at 30.06.18

13 5 55 74 6

-7

4

-31

-33 -33

The change in portfolio impairments was driven by an increase in gross lending and movements between the stages as illustrated in the table, which is the result of a change in customers’ credit risk. In addition, impairments are affected by impaired macroeconomic factors.

Spar Nord H1 2018

Notes – Parent Company

NOTE 4.6

H1 2018 DKKm

IMPAIRMENT ACCOUNT AT 30.06.17 AND 31.12.17 (IAS 39) Individual loan impairment charges

49

H1 2017 DKKm

Full year 2017 DKKm

Individual impairment, beginning of period

-

1,686

New individual impairment charges

-

204

310

Reversal of individual impairment charges

-

216

326

Previously impaired, now finally lost

-

135

383

Other movements

-

23

36

Individual impairment, end of period

-

1,562

1,323

1,686

Collective loan impairment charges



Collective impairment, beginning of period

-

124

124

New collective impairment charges

-

98

128

Reversal of collective impairment charges

-

4

9

Other movements

-

4

9

Collective impairment, end of period

-

221

251

Total loan impairment charges, etc.



Impairment, beginning of year

-

1,810

1,810

New impairment charges

-

301

438

Reversed impairment charges

-

220

334

Previously impaired, now finally lost

-

135

383

Other movements

-

27

44

Impairment, end of period

-

1,783

1,575

Impairment recognised in the income statement



New impairment charges

-

301

438

Reversed impairment charges

-

220

334

Loss without prior impairment

-

23

96

Amounts recovered on previously impaired receivables

-

59

167

Recognised in the income statement

-

45

33

Provisions for losses on guarantees



Provisions, beginning of period

-

67

New provisions

-

7

19

Reversed provisions

-

33

45

Provisions for losses on guarantees, end of period

-

41

41

67

Provisions for losses on guarantees recognised in the income statement



New provisions

-

7

19

Reversed provisions

-

33

45

Recognised in the income statement

-

-26

-26

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

-

1,825

1,616

Impairment, other credit risks Impairment, other credit risks, beginning of period

-

14

14

Reversed impairment charges

-

1

14

Other movements

-

1

-

Impairment, other credit risks, total



- 14 0

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

-

1,839

1,616

Loan impairment charges etc.



The total recognition in the income statement under impairment of loans and receivables etc.



can be broken down as follows:



Loan impairment charges etc.

-

45

33

Provision for losses on guarantees

-

-26

-26

Impairment, credit institutions

-

-1

-14

Total impairment of loans and receivables etc.



- 19 -7

Loans with suspended interest payments

-

127

143



4.7

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



Recognised interest on impaired loans and receivables

-

CREDIT RISK POLICY Spar Nord’s credit policy is unchanged relative to the description in note 51 in the annual report for 2017.

28

44

Spar Nord H1 2018 Spar Nord Bank A/S Skelagervej 15 P.O. Box 162 DK-9100 Aalborg, Denmark

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

The Interim 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.

50