Spar Nord Q1 2018 1 Interim report Q1 2018

ters, costs were affected by investments, primarily in the IT area. ... The amount will be recognised on closing of the transaction and is currently e...

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Spar Nord Q1 2018

Interim report Q1 2018 of Spar Nord Bank Net profit of DKK 311 million and return on equity of 15.0%

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Spar Nord Q1 2018

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Company announcement no. 7, 2018

Contents MANAGEMENT’S REVIEW Performance indicators and financial ratios – quarterly................. 3 Executive Summary............................................................................................. 5 Management commentary on Q1 2018..................................................... 6 Spar Nord shares held by members of the management team..................................................................................... 10 Overview of group companies....................................................................... 10 Alternative performance measures.............................................................

11

INTERIM REPORT Q1 2018 SPAR NORD GROUP Performance indicators and financial ratios........................................... 12 Statement by the Board of Directors and the Executive Board............................................................................................ 14 Income statement................................................................................................ 15 Balance sheet........................................................................................................ 16 Capital position..................................................................................................... 17 Cash flow statement........................................................................................... 19 Notes .......................................................................................................................... 20 Notes without reference.................................................................................... 34

Spar Nord Q1 2018

Performance indicators and

3

financial ratios – Group

Performance indicators and financial ratios – Group CORE EARNINGS – QUARTERLY Q1 2018

INCOME STATEMENT DKKm

Q1 2017

Change in %

Q1 2018

Q4 2017

Q3 2017

Q2 2017

Q1 2017

Full year 2017

Net interest income *)



389 392 -0.7 389 373 388 393 392 1,546

Net fee income



290 294 -1.5 290 279 264 279 294 1,116

Market value adjustments and dividends



119 164 -27.3

119 102

18 121 164 404

Other operating income



10

10 15

12 14

Income from investments in associates and group enterprises

9

11 -3.0 13 -26.9

9

5

7

7

11

51

13

32

Core income



818 874 -6.4 818 773 688 814 874 3,150

Salaries



277 285 -2,8 277 316 247 318 285 1,165

Operating expenses



183 176 4.0 183 195 168 171 176 710

Depreciation, amortisation and impairment



Costs and expenses



474 475 -0.1 474 525 433 502 475 1,936

Core earnings before impairment



344 399 -13.8 344 248 254 312 399 1,213

Loan impairment charges etc. *)



-23

Profit/loss before tax



367 398 -7.8 367 235 297 322 398 1,251

Tax



56 81 -31,0 56 44 73 64 81 262

Profit/loss



311 317 -1.8 311 190 224 258 317 989

15 14 3.6 15 14 18 14 14 61

1

- -23 13 -42 -10

1 -38

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



12 12 -1.3 12 12 12 12 12 49

BALANCE SHEET



DKKm



Total assets



80,934 78,329

3.3 80,934 80,367 80,372 79,595 78,329 80,367

Loans and advances



44,866 41,189

8.9 44,866 46,747 45,471 42,407 41,189 46,747



Lending, banking and leasing activities





Lending, reverse repo transactions



37,551 35,761

5,0 37,551 37,272 36,630 36,351 35,761 37,272

7,315 5,428 34.8 7,315 9,475 8,841 6,056 5,428 9,475

Deposits



62,874 60,455

4.0 62,874 64,266 63,296 62,782 60,455 64,266



Deposits, banking activities



47,765 45,581

4,8 47,765 48,668 48,092 47,610 45,581 48,668



Deposits, repo transactions





Deposits in pooled schemes



Subordinated debt



Holders of additional tier 1 (AT1) capital instruments

0 0 - 0 175 0 156 0 175 15,110 14,874 1,128 1,090

1.6 15,110 15,423 15,204 15,016 14,874 15,423 3.5 1,128 1,144 1,086 1,089 1,090 1,144

874 877 -0.3 874 861 872 863 877 861

Equity



8,220 8,071

Contingent liabilities



11,407 11,935

1.8 8,220 8,114 7,920 7,702 8,071 8,114 -4.4 11,407 11,961 11,742 12,304 11,935 11,961

Total risk exposure amount



51,559 47,741

8.0 51,559 49,546 49,243 49,672 47,741 49,546

Tier 1 capital **)



8,055 7,374

9.2 8,055 7,924 7,777 7,369 7,374 7,924

Impairment account and discount on commitments taken over ***) Contractual non-performing loans



Business volume



1,874 1,992 -5.9 1,874 1,616 1,708 1,901 1,992 1,616 393 401 -2.0 393 341 388 401 401 341 239,196 232,335

3.0 239,196 241,393 238,807 236,185 232,335 241,393

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

***) Spar Nord’s impairment account amounts to DKK 1.874 million (Q1 2017: DKK 1,919 million) (note 6) and the discount on commitments taken over amounts to DKK 0 million

(Q1 2017: DKK 73 million).



In Q1 2018, the figure is 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 1 January 2018.

Spar Nord Q1 2018

Performance indicators and

4

financial ratios – Group

Performance indicators and financial ratios – Group CORE EARNINGS – QUARTERLY Q1 2018

FINANCIAL RATIOS OWN FUNDS

Q1 2017

Q1 2018

Q4 2017

Q3 2017

Q2 2017

Q1 2017

Full year 2017

Own funds ratio *)

17.8 17.6 17.8 18.2 17.9 16.9 17.6 18.2

Tier 1 capital ratio *)

15.6 15.4 15.6 16.0 15.8 14.8 15.4 16.0

Common equity tier 1 capital ratio *)

14.0 13.8 14.0 14.4 14.2 13.2 13.8 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

0.58 0.54 0.58 0.68 0.63 0.62 0.54 0.61

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



Return on assets, %

0.4 0.4 0.4 0.2 0.3 0.3 0.4 1.2





MARKET RISK AND LIQUIDITY



Interest rate risk, %

0.8 -0.2

Foreign-exchange position, %

1.4 3.3 1.4 3.3 5.2 3.9 3.3 3.3

Foreign-exchange risk, %

0.0 0.1 0.0 0.1 0.1 0.1 0.1 0.1

Liquidity Cover Ratio (LCR), %

173 168 173 187 165 176 168 187





CREDIT RISK



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



Loans and advances as % of equity

5.5 5.1 5.5 5.8 5.7 5.5 5.1 5.8

Increase in loans and advances for the period, %

1.3 1.9 1.3 1.8 0.8 1.6 1.9 6.2

Sum of large exposures, % ***)

74.1 17.1 74.1 17.2 18.7 17.5 17.1 17.2

Impairment ratio, %

0.0 0.0 0.0 0.0 -0.1 0.0 0.0 -0.1

4.4 4.9 4.4 2.8 3.6 4.0 4.9 15.1 3.7 3.9 3.7 2.3 2.7 3.2 3.9 12.0

0.55 0.54 0.55 0.70 0.57 0.60 0.54 0.60

0.8 0.7 1.3 0.2 -0.2 0.7

74.2 71.3 74.2 75.2 74.5 70.5 71.3 75.2

EMPLOYEES AND BRANCHES



Number of employees (full-time equivalents, end of period) 1,520 1,528 1,520 1,538 1,557 1,555 1,528 1,538 Number of branches

50 56 50 50 51 55 56 50

SPAR NORD SHARE



DKK PER SHARE OF DKK 10



Share price, end of period

72 77 72 72 78 85 77 72

Net asset value (NAV), **)

67 66 67 66 64 63 66 66

Profit/loss for the period **)

2.5 2.5 2.5 1.5 1.7 2.0 2.5 7.7

Dividend

- - - - - - - 3.5

Return

- - - - - - - -5

Price/earnings **)

- - - - - - - 9

*)

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

**)

Financial ratios have been calculated as if the additional tier 1 (AT1) capital were treated as a liability.

***) 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 Q1 2018

Executive Summary

5

Executive Summary Spar Nord is pleased to report the first-quarter profit of DKK 311 million and return on equity of 15%. Obviously, the strong performance is partly attributable to the non-recurring income from BankInvest of DKK 74 million, but other than that we are pleased that our net interest income would appear to have stabilised following an extended period of high pressure. The reason is that the interest margin fall has finally levelled off, and also that we have recorded decent growth in our lending volume. We continue to see strong developments in our net fee income – not because we have raised our prices but because we keep on winning market share. Finally, we are pleased that our customers are so financially sound that we recorded income of DKK 23 million in our impairment account, said Spar Nord’s CEO Lasse Nyby.

Spar Nord achieved a profit after tax of DKK 311 million in Q1 2018, which corresponds to an annualised return on equity of 15.0%. On a level with Q1 2017, the profit is considered satisfactory by Management. Core income amounted to DKK 818 million in Q1 2018, which is 6% lower than in the year-earlier period. At DKK 389 million, net interest income was on a level with the year-earlier period, and the same goes for net fee income at DKK 290 million. The lower core income is thus ascribable to a DKK 45 million (27%) reduction in market value adjustments, which amounted to DKK 119 million. Total costs and expenses amounted to DKK 474 million, which is on a level with the same period of last year. As in the preceding quarters, costs were affected by investments, primarily in the IT area. A reduction in more or less all other cost items had the opposite effect. Core earnings before impairment were DKK 344 million, which is DKK 55 million, or 14%, lower than in Q1 2017. Loan impairment charges etc. were a net income of DKK 23 million, which is better than expected at the beginning of the year and should be compared with impairments of DKK 1 million in the year-earlier period.

INCOME FROM BANKINVEST AND VALUEINVEST The Q1 financial statements are positively influenced by an extraordinary value adjustment of DKK 74 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. Moreover, Spar Nord has announced that a sale of the company Valueinvest Asset Management SA to Macquarie would result in income of approximately DKK 150 million. The amount will be recognised on closing of the transaction and is currently expected to affect Spar Nord’s financial statements for Q2 2018.

OUTLOOK As a result of information on non-recurring income from market value adjustments of BI Holding A/S in Q1 and sales proceeds from Valueinvest Asset Management SA in Q2, Spar Nord has twice in Q1 upgraded its guidance for a profit before impairment for the fullyear 2018 from “about DKK 1.1 billion” to “about DKK 1.3 billion”. On the basis of the overall financial performance for Q1, Spar Nord retains its guidance. The net profit for the year after the two upgrades is still expected to be around DKK 1.0 billion.  

The Group’s total business volume (deposits, loans, advances and guarantees, mortgage credits arranged and customers’ custodianship accounts) amounted to DKK 239.2 billion at 31 March 2018, which was DKK 6.9 billion higher than at 31 March 2017. The increase covers an increase in bank lending of 5% and in mortgage lending of 5%, while deposits rose 5%, deposits under pooled schemes rose 2%, and customers’ custodianship accounts fell 2%.

Spar Nord Q1 2018

Management commentary

6

on Q1 2018

Management commentary on Q1 2018

Spar Nord achieved a profit after tax of DKK 311 million in Q1 2018, which corresponds to an annualised return on equity of 15.0%. On a level with Q1 2017, the profit is considered satisfactory by Management. Core income amounted to DKK 818 million in Q1 2018, which is 6% lower than in the year-earlier period. NET INTEREST INCOME AND NET FEE INCOME (DKKM)

NET FEE INCOME AT SATISFACTORY LEVEL Net fee income was DKK 290 million in Q1 2018, against DKK 294 million in the same period of 2017. Net income from fees, charges and commissions thus accounted for 43 % of total net interest and fee income in the period. Realised net fee income was adversely affected in the amount of DKK 18 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.

Net interest income Net fee income 620

764

646

686

679

206

312

250

294

290

LOWER MARKET VALUE ADJUSTMENTS DESPITE POSITIVE ONE-OFF ITEMS Market value adjustments and dividends amounted to DKK 119 million, which is DKK 45 million, or 27 %, lower than in the same period of 2017. MARKET VALUE ADJUSTMENTS AND DIVIDENDS (DKKM)

414

452

396

392

389

Q1 2014

Q1 2015

Q1 2016

Q1 2017

Q1 2018

CONTINUED GROWTH IN LENDING AND REDUCED PRESSURE ON INTEREST MARGINS Net interest income was DKK 389 million in Q1 2018, against DKK 392 million in the same period of 2017. Adding to this income was continued growth in bank and leasing loans, which at 31 March 2018 were DKK 1.8 billion (5%) higher than at the same time last year and DKK 0.5 billion (1%) higher than at 1 January 2018. The lending margin was 37 basis points lower in Q1 2018 than it was in Q1 2017. However, since the turn of the year the interest margin has been stable, covering a fall in the lending margin of just 2 basis points and a fall in the deposit margin of 1 basis point. Net interest income for Q1 2018 includes DKK 15 million of interest income from previous impairment exposures (Q1 2017: DKK 12 million).

500 400

72

164

119

Q1 2015

Q1 2016

Q1 2017

Q1 2018

A sharp drop in market value adjustments on the Bank’s share and bond portfolio due to less favourable market conditions had the opposite effect. SMALL DECLINE IN OTHER INCOME Other operating income amounted to DKK 10 million, against DKK 11 million in Q1 2017, and profit on investments in associates and group enterprises came to DKK 9 million, down from DKK 13 million last year. Later this year, when the sale of Valueinvest Asset Management SA has been finalised, the latter item is expected to be reduced to a very moderate level.

700 500

600

359

Q1 2014

Market value adjustments and dividends on the Bank’s shareholdings in financial sector companies rose DKK 90 million, driven by an extraordinary value adjustment of DKK 74 million with respect to BI Holding A/S (see company announcement no. 3).

600

700

250

400 300 200 100

Spar Nord Q1 2018

Management commentary on

7

Q1 2018

COSTS IN LINE WITH 2017 The Group’s total costs and expenses amounted to DKK 474 million in Q1 2018, against DKK 475 million in the same period of 2017. TOTAL COSTS (DKKM) 456

484

475

475

474

18

17

17

14

15

170

191

178

176

183

268

277

279

285

277

Q1 2014

Q1 2015

Q1 2016

Q1 2017

Q1 2018

Depreciation, amort. and impairment Operating expenses

Wages and salaries

NET REVERSAL OF LOAN IMPAIRMENT CHARGES Loan impairment charges etc. were an income of DKK 23 million, which compares to an expence of DKK 1 million in the year-earlier period. Apart from a general strong credit quality in Spar Nord’s loan portfolio, the highly positive trends in impairments reflect the continued improvement of macroeconomic conditions, including a lower inflow of impairment exposures and better performance of loans already flagged as having weak credit quality. IMPAIRMENTS (DKKM)

Wages and salaries accounted for DKK 277 million of total costs and expenses. Realised payroll costs were DKK 8 million, or 3%, lower than in Q1 2017. At 31 March 2018, Spar Nord employed 1,520 people (FTE), against 1,538 at year-end 2017 and 1,528 at the same time last year.

Relative to Q4 2017, payroll costs were DKK 39 million lower in Q1, among other things because of a Q4 provision of DKK 17 million for payroll costs and termination benefits in connection with organisational changes. Other operating expenses came to DKK 183 million, which is DKK 7 million, or 4%, higher than in Q1 2017. The increase was mainly due to higher costs associated with strategic IT projects both with respect to the BEC data centre and in-house projects in Spar Nord. The increase was partly offset by lower costs of premises and marketing expenses. The realised core income and costs corresponded to a Cost/Income Ratio of 0.58 (Q1 2017: 0.54).

89

98

55

1

-23

Q1 2014

Q1 2015

Q1 2016

Q1 2017

Q1 2018

Implementation of the new IFRS 9 rules at 1 January 2018 has resulted in additional impairments of DKK 250 million in Spar Nord. This impact is recognised directly in the Bank’s equity at 1 January 2018, which is thus reduced by DKK 195 million after tax, equal to 2.4% of shareholders’ equity. Individual impairment charges (stage 3) amounted to DKK 1,542 million at 31 March 2018, while stage 1 and 2 impairments totalled DKK 332 million. THE GROUP’S LOANS, ADVANCES AND GUARANTEES *) BREAKDOWN BY INDUSTRY Loans and guarantees

Industry %

31.12.17

Agriculture, hunting and forestry Fisheries 150

Impairment account

31.03.18

6.1

31.03.18

6.1

32.9

0.2 0.2 0.0

5.3 5.7 5.5 Industry and raw materials extraction Utilities 120

3.1 2.5 1.2

Construction and engineering

4.8 4.7 4.4

Trade 90

7.2 7.7 4.2

Transport, hotels and restaurants

3.8 4.0 5.7

Information and communication 60

0.4 0.4 0.2

Financing and insurance

6.6 6.6 5.4

Real 30 property

11.2 11.0 11.6

Other industries

5.8 6.1 5.8

Total 0 business customers

54.5 55.0 76.9

Public authorities

0.0 0.0 0.0

Retail customers

45.5 45.0 23.1

Total



100.0 100.0 100.0

*) Excl. reverse repo transactions 2.572

2.663

2.757

863

1.030

2.159

2.239

483

562

723

1.676

1.677

1.849

1.800

1.727

2011

2012

2013

2014

2015

Indesign udgave

Spar Nord Q1 2018

Management commentary on

8

Q1 2018

Broken down by customer segment, the total impact was an income of DKK 10 million for retail customers and an income of DKK 13 million for business customers. PROFIT BEFORE TAX OF DKK 367 MILLION AND NET PROFIT OF DKK 311 MILLION The profit before tax was DKK 367 million against DKK 398 million in Q1 2017. The Group’s effective tax rate was 15%, bringing the net profit to DKK 311 million, against DKK 317 million in the same period last year. The relatively low tax rate is attributable to the tax-exempt income concerning BankInvest. TOTAL BUSINESS VOLUME OF DKK 239 BILLION The Group’s total business volume (deposits, loans, advances and guarantees, mortgage credits arranged and customers’ custodianship accounts) amounted to DKK 239.2 billion at 31 March 2018, which was DKK 2.0 billion lower than at 1 January 2018. Compared with 1 January 2018, bank and leasing loans rose DKK 0.5 billion, or 1%. TOTAL CREDITS ARRANGED (DKKBN) 94.6

99.2

105.8

110.4

116.1

Total

Lending, mortgage loans

Deposits, banking activities fell by DKK 0.9 billion, or 2%, in Q1 while deposits in pooled schemes fell DKK 0.3 billion, or 2%. Lastly, customers’ custodianship accounts have declined by DKK 2.0 billion, or 4%, since end-2017. STRATEGIC LIQUIDITY OF DKK 19.8 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). Subordinated debt, senior loans and issued bonds due within 12 months are not included in the Bank’s strategic liquidity. STRATEGIC LIQUIDITY 31.03.18

31.12.17

30.09.17

30.06.17

31.03.17

(DKKbn) Deposits, banking activities

47.8 48.7 48.1 47.6 45.6

Senior loans/bond issues

0.0 0.0 0.0 0.0 0.0

Equity and subordinated debt

10.2 10.1 9.9 9.7 10.0

Liquidity procurement

58.0 58.8 58.0 57.3 55.6

Lending, banking and leasing activities 37.6 37.3 36.6 36.4 35.8 Maturity, senior issued bonds & subordinated debt <1 year



Strategic liquidity, total

19.8 20.8 21.0 20.5 19.4

0.7 0.7 0.4 0.4 0.4

At the end March 2018, Spar Nord’s strategic liquidity amounted to DKK 19.8 billion, down DKK 1.0 billion compared with end-2017. The decline was attributable to the reduction in deposits, banking activities. Spar Nord’s LCR ratio at 31 March 2018 was 173.

59.9

64.5

70.8

74.6

78.5

34.7

34.7

35.0

35.8

37.6

Q1 2014

Q1 2015

Q1 2016

Q1 2017

Q1 2018

Lending, banking and leasing loans

In Q1 2018, the volume of mortgage loans arranged grew DKK 1.3 billion to DKK 78.5 billion, equal to 2%. In total, the volume of mortgage loans arranged from Totalkredit amounted to DKK 67.4 billion and from DLR Kredit DKK 11.1 billion. TOTAL DEPOSITS (DKKBN) 52.3

9.9

55.1

12.1

56.9

13.1

60.5

14.9

62.9

Total

15.1

Lending in pooled schemes

85,7142 43.0

43.8

45.671,428547.8

Q1 2014

Q1 2015

Q1 2015

Q1 Q1 201642,85712017

57,1428 28,5714 14,2857 0,0000

At 31 March 2018, the common equity tier 1 (CET1) ratio was 14%, while the own funds ratio was 17.8%. This should be viewed relative to the individual solvency need calculated by Spar Nord at 9.2% plus the 1.9 % combined buffer requirement, as a result of which the total capital requirement is 11.1%. Thus, Spar Nord has an excess capital coverage of 6.6 percentage points, equal to DKK 3.4 billion. 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 IRB2011 Advanced for the entire loan portfolio. The time schedule and expected effects are unchanged from the disclosures in our annual report.

99,9999 42.4

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, Spar Nord expects to raise these targets to 13.5% and 17.5%.

Deposits banking activities

Spar Nord Q1 2018

Management commentary on

9

Q1 2018

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 31 March 2018, Spar Nord remained comfortably within all threshold values in the Supervisory Authority Diamond Test Model. At 31 March 2018, Spar Nord could report the following values in respect of the defined reference points: ∑ Large exposures

taken over <175 %

Lending growth <20%

Spar Nord:

Spar Nord:

5.4%

74.1% Funding ratio <1

Property exposure <25%

Spar Nord:

Spar Nord:

0.5

10.8% Liquidity coverage ratio >50% Spar Nord: 310.1

%

OUTLOOK FOR 2018 At the beginning of 2018, Spar Nord forecast a profit before impairment of 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 BI Holding A/S in Q1 and sales proceeds from Valueinvest Asset Management SA in Q2, Spar Nord has twice in Q1 upgraded its guidance for a profit before impairment for the fullyear 2018 from “about DKK 1.1 billion” to “about DKK 1.3 billion”. On the basis of the overall financial performance for Q1, Spar Nord retains its guidance. The net profit for the year after the two upgrades is still expected to be around DKK 1.0 billion.

Spar Nord Q1 2018

Spar Nord shares held by members of

10

the management team 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 April 2018) Kaj Christiansen Morten Bach Gaardboe Laila Mortensen Ole Skov (retired on 19 April 2018) Jannie Skovsen Gitte Holmgaard Sørensen John Sørensen

At 31.03.18 60,000 27,200 2,431 21,100 3,620 0 7,785 7,963 2,183 5,160

At 31.12.17 60,000 27,200 21,100 3,620 0 7,533 7,770 1,970 5,160

EXECUTIVE BOARD

At 31.03.18

At 31.12.17

50,143 72,355 68,430

Lasse Nyby John Lundsgaard Lars Møller

49,100 71,926 67,404

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 Q1 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.

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.

Return on equity before tax, excl. additional tier 1 (AT1) capital

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.

Return on equity after tax excl. additional tier 1 (AT1) capital

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.

Cost share of core income

Total costs/core income. Total costs plus loan impairment charges etc./core income. Loans and advances plus impairment and discount as % of deposits

Cost share of core income - incl. loan impairment charges Loans and advances plus impairment account and discount as % of deposits Loans and advances as % of equity

Loans and advances as % of equity

Spar Nord Q1 2018

Performance indicators and

12

financial ratios – Group

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

Q1 2018

INCOME STATEMENT DKKm Interest income



Interest expenses



Net interest income



Dividends on shares, etc.



Fees, charges and commissions received



Fees, charges and commissions paid



Net income from interest, fees, charges and commissions

Q1 2017

Change in %

Q1 2018

Q1 2017

Q1 2016

Q1 2015

Q1 2014

Full year 2017

407 436 -6.6 407 436 443 532 573 1,680 18 27 -34.7 18 27 41 66 139 103 389 409 -4.7 389 409 402 466 434 1,577 6 3 75,0 6 3 1 8 12 23 331 324 2.0 331 324 270 330 219 1,265 41 30 35.9 41 30 19 18 13 149 686 707 -3.0 686 707 654 785 652 2,716

Market value adjustments



113 160 -29.5 113 160

Other operating income



10 11 -3.0 10 11 8 10 16 51

Staff costs and administrative expenses



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



Income from investments in associates and group enterprises

71 351 249 381

458 458 -0.2 458 458 456 467 438 1,863 15 14 3.6 15 14 17 17 18 61 2 2 -9.4 2 2 2 25 24 13 9 13 -26.9 9 13 8 7 21 32

Profit/loss before loan impairment charges



344 416 -17.2 344 416 265 645 459 1,244

Loan impairment charges etc.



-23 18 - -23 18 61 111 109 -7

Profit/loss before tax



367 398 -7.8 367 398 204 533 349 1,251

Tax



56 81 -31.0 56 81 40 69 38 262

Profit/loss



311 317 -1.8 311 317 165 464 312 989

BALANCE SHEET



DKKm



Total assets



80,934 78,329

3.3 80,934 78,329 79,432 78,184 76,026 80,367

Loans and advances



44,866 41,189

8.9 44,866 41,189 40,404 35,089 35,778 46,747



Lending, banking and leasing activities



37,551 35,761

5.0 37,551 35,761 35,004 34,737 34,748 37,272



Lending, reverse repo transactions



7,315 5,428 34.8 7,315 5,428 5,400 352 1,030 9,475

Deposits



62,874 60,455

4.0 62,874 60,455 57,248 55,106 52,292 64,266



Deposits, banking activities



47,765 45,581

4.8 47,765 45,581 43,802 42,955 42,427 48,668



Deposits, repo transactions





Deposits in pooled schemes



Subordinated debt



Equity



Contingent liabilities



0 0 - 0 0 364 0 0 175 15,110 14,874

1.6 15,110 14,874 13,082 12,151 9,865 15,423

1,128 1,090

3.5 1,128 1,090 1,092 1,352 2,992 1,144

9,094 8,948

1.6 9,094 8,948 8,030 7,498 6,854 8,975

11,407 11,935 -4.4 11,407 11,935 9,373 9,270 5,312 11,961

Total risk exposure amount



51,559 47,741

8.0 51,559 47,741 46,943 47,601 44,672 49,546

Tier 1 capital *)



8,055 7,374

9.2 8,055 7,374 6,803 6,463 7,738 7,924

Loan impairment charges etc.



1,846 1,919 -3.8 1,846 1,919 1,861 1,868 1,657 1,616

Contractual non-performing loans



*)

393 401 -2.0 393 401 472 502 708 341

Tier 1 capital for Q1 2017 is exclusive of recognition of profit/loss for the period.

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 Q1 2018

Performance indicators and financial ratios –

13

Group

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

Q1 2018

FINANCIAL RATIOS Own funds

Q1 2017

Q1 2018

Q1 2017

Q1 2016

Q1 2015

Q1 2014

Full year 2017

Own funds ratio *)



17.8 17.6 17.8 17.6 16.6 15.6 19.4 18.2

Tier 1 capital ratio *)



15.6 15.4 15.6 15.4 14.5 13.6 17.3 16.0

Earnings



Return on equity before tax, %



4.1 4.5 4.1 4.5 2.6 7.3 5.2 14.2

Return on equity after tax, %



3.5 3.6 3.5 3.6 2.1 6.4 4.7 11.2

Income/cost ratio



1.81 1.81 1.81 1.81 1.38 1.86 1.59 1.65

Return on assets, %



0.4 0.4 0.4 0.4 0.2 0.6 0.4 1.2

Market risk and liquidity



Interest rate risk, %



0.8 -0.2 0.8 -0.2

Foreign-exchange position, %



1.4 3.3 1.4 3.3 3.4 3.5 2.2 3.3

Foreign-exchange risk, %



0.0 0.1 0.0 0.1 0.0 0.1 0.0 0.1

Excess coverage relative to statutory liquidity requirement, %

310.8 306.5 310.8 306.5 264.0 243.3 252.6 326.4

1.1 1.7 0.1 0.7

Credit risk



Loans and advances as % of deposits



71.4 68.1 71.4 68.1 70.6 63.7 68.4 72.7

Loans and advances plus impairment as % of deposits

74.2 71.2 74.2 71.2 73.7 67.0 71.6 75.2

Loans and advances relative to equity



Increase in loans and advances for the period, %

4.9 4.6 4.9 4.6 5.0 4.7 5.2 5.2 1.3 1.9 1.3 1.9 3.3 -2.1 -3.1 6.2

Sum of large exposures, % **)



74.1 17.1 74.1 17.1 17.2 0.0 13.4 17.2

Impairment ratio for the period



0.0 0.0 0.0 0.0 0.1 0.2 0.3 0.0

THE SPAR NORD SHARE



DKK per share of DKK 10



Profit/loss for the period



2.5 2.6 2.5 2.6 1.3 3.7 2.5 8.0

Net asset value (NAV)



67 66 67 66 61 60 55 66

Dividend



Share price/profit/loss for the period



Share price/NAV



- - - - - 2.0 - 3.5 28.8 29.6 28.8 29.6 48.5 18.1 24.0 9.0 1.1 1.2 1.1 1.2 1.0 1.1 1.1 1.1

*)

Own funds for the first and second quarters of 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 Q1 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 the Spar Nord Bank Group for the period from 1 January to 31 March 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 financial position at 31 March 2018 and of the results of the Group’s operations and cash flows for the period from 1 January to 31 March 2018. In addition, we consider the Management’s review to give a fair presentation of the development in the Group’s activities and financial affairs as well as a description of the significant risks and elements of uncertainty that may affect the Group.

John Lundsgaard Managing Director

Lars Møller Managing Director

BOARD OF DIRECTORS

Kjeld Johannesen Chairman of the Board of

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, 2 May 2018

John Sørensen

14

Spar Nord Q1 2018

Income statement – Group

Income statement - Group NOTE

Q1 2018 DKKm

15

Q1 2017 DKKm

Full year 2017 DKKm

4.1

Interest income



4.2

Interest expenses



Net interest income







Dividends on shares, etc.



4.3

Fees, charges and commissions received



4.3

Fees, charges and commissions paid



Net income from interest, fees, charges and commissions 4.4 4.5

407

436 1,680

18 27 103 389 409 1,577 6 3 23 331 324 1,265 41 30 149 686

707 2,716





Market value adjustments



Other operating income



Staff costs and administrative expenses



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



Other operating expenses



2 2 13

Income from investments in associates and group enterprises

9 13 32

Profit/loss before loan impairment charges (core earnings before impairment)

113 160 381 10 11 51 458 458 1,863 15 14 61



344

416 1,244

6.2.1

Loan impairment charges etc.



-23 18 -7

Profit/loss before tax







Tax







Profit/loss



367 398 1,251 56

81 262

311 317 989







APPROPRIATION:



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



Holders of additional tier 1 (AT1) capital instruments



Profit/loss



299 305 940 12 12 49 311 317 989

EARNINGS PER SHARE



Earnings per share (DKK)



2.5 2.5 7.7

Diluted earnings per share (DKK)



2.5 2.5 7.7



STATEMENT OF COMPREHENSIVE INCOME



Profit/loss for the period



311 317 989

Other comprehensive income



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



0 0 11

Other comprehensive income after tax



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



311

317 1,000

299 305 951 12 12 49 311

317 1,000

Spar Nord Q1 2018

Balance sheet – Group

Balance sheet – Group

31.03.18 DKKm

16

31.03.2017 DKKm

Full year 2017 DKKm

ASSETS

NOTE

6.4

6.3

5.1

Cash balances and demand deposits with central banks 451 1,146 1,298 Due from credit institutions and central banks 1,316 2,199 1,437 Lending, banking and leasing activities 37,551 35,761 37,272 Lending, reverse repo transactions 7,315 5,428 9,475 Loans, advances and other receivables at amortised cost, total 44,866 41,189 46,747 Bonds at fair value 14,336 14,242 10,838 Shares, etc. 1,705 1,530 1,626 Investments in associates 140 105 128 Assets linked to pooled schemes 15,110 14,874 15,423 Intangible assets 182 192 184 Investment properties 135 135 135 Domicile property 522 516 487 Land and buildings, total 657 651 621 Other property, plant and equipment 119 87 119 Current tax assets 202 86 45 Temporary assets 13 23 21 Other assets 1,711 1,889 1,763 Prepayments and deferred income 127 117 115 Total assets 80,934 78,329 80,367

LIABILITIES PAYABLES 5.2

5.3

5.4

5.5 5.6 5.7

Due to credit institutions and central banks 4,065 2,592 1,964 Deposits and other payables 47,765 45,581 48,843 Deposits in pooled schemes 15,110 14,874 15,423 Other non-derivative financial liabilities at fair value 1,025 2,542 934 Other liabilities 2,452 2,497 2,866 Prepayments and deferred income 44 27 19 Total payables 70,460 68,113 70,049 PROVISIONS Provisions for deferred tax 136 109 136 Provision for losses on guarantees 82 43 41 Other provisions 33 27 21 Total provisions 251 178 199 SUBORDINATED DEBT Subordinated debt 1,128 1,090 1,144 Total liabilities 71,839 69,381 71,392 EQUITY Share capital 1,230 1,255 1,230 Revaluation reserves 95 92 94 Proposed dividend 431 628 431 Retained earnings 6,465 6,097 6,359 Equity 8,220 8,071 8,114 Holders of additional tier 1 (AT1) capital instruments 874 877 861 Total equity 9,094 8,948 8,975 Total equity and liabilities 80,934 78,329 80,367 OFF-BALANCE SHEET ITEMS Contingent assets 13 7 13 Contingent liabilities 11,407 11,935 11,961 Other binding commitments 567 501 501

Spar Nord Q1 2018

Capital position – Group

Capital position - Group

17

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

STATEMENT OF CHANGES IN EQUITY SPAR NORD GROUP 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 31.03.18 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

- - 9 - 290 299 12 311

Other comprehensive income





- 0 - - - 0 - 0

Net revaluation of properties

Other comprehensive income, total

- 0 - - - 0 - 0

Total comprehensive income for the period

-

0

9

- 290 299

12 311

Transactions with owners



Disposal upon acquisition of treasury shares and additional tier 1 (AT1) capital - - - - -78 -78 - -78

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

- - - - 77 77 1 78



Revaluation reserves, associates

- - -9 - 9 0 - 0

Tax Total transactions with owners

- - - - 3 3 - 3 - - -9 - 11 2 1 3

Equity at 31.03.18

1,230

95

0

431

6,465 8,220

874

9,094

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



Equity at 31.03.17



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

- - 13 - 292 305 12 317

Other comprehensive income





- 0 - - - 0 - 0

Net revaluation of properties

Other comprehensive income, total

- 0 - - - 0 - 0

Total comprehensive income for the period

-

0

13

- 292 305

12 317

Transactions with owners





Disposal upon acquisition of treasury shares and additional tier 1 (AT1) capital - - - - -102 -102 - -102



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

- - - - 101 101 2 103



Revaluation reserves, associates

- - -6 - 6 0 - 0



Dividends received from associates recognised at net asset value

- - -29 - 29 0 - 0

Tax Total transactions with owners

- - - - 3 3 - 3 - - -35 - 37 2 2 4

Equity at 31.03.17 The share capital consists of 125,529,918 shares with a nominal value of DKK 10.

1,255

92

0

628

6,097

8,071

877

8,948

Spar Nord Q1 2018

Capital position – Group

18



Q1 2018

TREASURY SHARE PORTFOLIO

Q1 2017

Number of shares

49,048 2,603,399

Percentage of share capital

0.0

Full year 2017 38,048

2.1

0.0

On 4 September 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

Q1 2018 DKKm

Principal Received

Maturity

Q1 2017 DKKm

Full year 2017 DKKm

Currency

Note DKKm

Interest rate

DKK



a

400.0

6.052%



2015

Perpetual

417

419

411

DKK



b

450.0

5.500%



2016

Perpetual

457

458

450

874

877

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



Q1 2018 DKKm

Q1 2017 DKKm

Full year 2017 DKKm



767 817 817





Change in portfolio of own bonds



1 2 -1

Interest paid

0

0

1

2 -50

Movement during the period:

Total cash flows for the period

-49

Cash flows, end of period

768

819

767



Equity

9,094 8,948 8,975

Phasing in of IFRS 9

185

Result not recognised

-

317

Additional tier 1 (AT1) capital included in equity

874

877

861

Proposed dividend, excl. share re. share buyback programme

586

615

431

Intangible assets, incl. share recognised in investments in associates

186

194

188

Other primary deductions

47

Deductions, equity investments

370

Common equity tier 1 (CET1) capital

7,217

OWN FUNDS

-

-

46

41

327

331

6,572

7,123

Additional tier 1 (AT1) capital *)

843

Other deductions

5

Tier 1 capital

8,055

843

843

41 7,374

41 7,924

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

1,114

Other deductions

11

Own funds

9,159

1,080

1,133

41 8,414

41 9,016

Weighted risk exposure amount, credit risk etc.

41,124

38,572

Weighted risk exposure amount, market risk

4,730

3,478

3,196

Weighted risk exposure amount, operational risk

5,705

5,692

5,692

Total risk exposure amount

51,559

47,741

40,658

49,546

Common equity tier 1 capital ratio

14.0

13.8

14.4

Tier 1 capital ratio

15.6

15.4

16.0

Own funds ratio

17.8

17.6

18.2

The capital adequacy calculation for Q1 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 1 January 2018.

Spar Nord Q1 2018

CASH FLOW STATEMENT – GROUP

Cash Flow Statement - Group

NOTE

Q1 2018 DKKm

Q1 2017 DKKm

19

Full year 2017 DKKm

OPERATING ACTIVITIES Profit/loss before tax



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

367 398 1,251 15 14 61

0 0 -1 Gains and losses on the sale of intangible assets and property, plant and equipment Adjustment of loan impairment charges etc.



Provisions



-6 28 275 19 -23 -31

Income from investments in associates and group enterprises

-9 -13 -32

Corporate income tax paid



-155 -147 -251

Operating activities, total



230 257 1,272





WORKING CAPITAL



Movement in credit institutions and central banks, net

2,105 173 -456

1,672 Movement in loans, advances and other receivables at amortised cost

5.4

129 -5,677

Movement in bonds at fair value



Movement in equity portfolio



Movement in other assets and other liabilities, net



-256 155 -965

Movement in deposits and other payables



-1,079 -883 2,379

Working capital, total



-1,135 294 -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



0 29 31

Investing activities, total



-41 34 0





FINANCING ACTIVITIES



Subordinated debt



Additional Tier 1 (AT1) capital recognised in equity (see specification in Statement of changes in equity)

-3,498 694 4,099 -79 27 -69

-904 550 583

-2 -2 -14 0 0 5 0 0 -1 -40 -5 -94 0 12 72

-16 -4 51 1

2 -50

0

0 -615

Dividends paid, excluding dividends on treasury shares



Acquisition of treasury shares



Sale of treasury shares



77 101 457

Financing activities, total



-16 -3 -612

-78 -102 -454

Movements in cash and cash equivalents for the period







Cash and cash equivalents, beginning of year



2,672 2,701 2,701

Movements in cash and cash equivalents for the period



-962 581 -29

Cash and cash equivalents, end of year



1,711 3,283 2,672





Cash and cash equivalents, end of period



Cash, cash equivalents and demand deposits with central banks



451 1,146 1,298

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



1,260 2,137 1,374

Total



1,711 3,283 2,672



-962 581 -29

Spar Nord Q1 2018

Notes – Group

20

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

Financial assets

Effect of changed measurement *)

IFRS 9 Amount 01.01.18

Cash balances 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 1 January 2018

-195

Off-balance sheet items



Guarantees



Undrawn maximum and loan commitments



20,802

-7 20,795

Total



32,763

-33 32,730

11,961

-27 11,934

*) Recognised in retained earnings in shareholders’ equity at 1 January 2018. 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 1 January 2018 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 1 January 2018.

Spar Nord Q1 2018

Notes – Group

21

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 future, 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 Q1 2018

Notes – Group

22

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 Q1 2018

NOTE

Notes – Group

23

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.

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. 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 Q1 2018

NOTE

3 3.1

Notes – Group

24

Segment information BUSINESS SEGMENTS – Q1 2018 Spar Nord’s Local Banks

DKKm

Trading, Financial Markets & the International division

Other Areas

Core earnings *) and Group

INCOME STATEMENT Net interest income



355 12 22 389

Net fee income



292

Market value adjustments and dividends



Other operating income



5 1 5 10

Income from investments in associates and group enterprises



0 0 9 9

Core income/revenue, total



771

Operating expenses, depreciation and amortisation



389 20 66 474

Core earnings before impairment



383 -15 -24 344

Loan impairment charges etc.



-24

Profit/loss before tax



406 -16 -24 367

*)

1 -3 290

119 -9 9 119

5 42 818

1

0 -23

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

Spar Nord’s Local Banks

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



Allocated assets, total



Trading, Financial Markets & the International division

Other Areas

37,389 7,452

Group, total

25 44,866

0

0 140 140

245

0 712 958

16,570 17,106 1,294 34,970 54,205 24,558

2,171 80,934

Deposits and other payables

46,812

430

523 47,765

Equity (allocated capital)



Other liabilities



15,572 5,647 2,857 24,075

Allocated equity and liabilities, total

67,632 6,995 6,308 80,934

5,286 1,117 2,691 9,094

Disclosures – income/revenue, total Internal income/revenue



Internal income and eliminations, offset against costs

-39 17 161 139 0 -11 -128 -139

Income/revenue, external customers

811 -2 9 818

Income/revenue, total

771



5 42 818

Financial ratios



Return on equity, % ***)



31.7 -7.0

-

-

Cost share of core income



0.50 4.21

-

-

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

40,664 8,593 2,302 51,559 1,027

75 418 1,520

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 13 million, of which DKK 2 million relates to the Group’s leasing activities and DKK 11 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 Q1 2018

Notes – Group

25

Segment information

NOTE 3.2

BUSINESS SEGMENTS – Q1 2017 Spar Nord’s Local Banks

DKKm

Trading, Financial Markets & the International division

Other Areas

Core earnings*)

Reclassifications**)

Group, total

INCOME STATEMENT Net interest income



368 9 16 393 16 409

Net fee income



295 0 -1 294 0 294

Market value adjustments and dividends Other operating income



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

39 107 18 164 0 164 5 0 6 11 0 11 0 0 13 13 0 13 706 116 52 874 16 891

Operating expenses, depreciation and amortisation

398 18 60 475

Core earnings before impairment

308 98 -8 399 16 416

Loan impairment charges etc. Profit/loss before tax

*) **)



0 475

2 0 -1 1 16 18 307 98 -7 398

0 398

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 17 million.

BALANCE SHEET



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

Spar Nord’s Local Banks

Trading, Financial Markets & the International division

Other Areas

35,596 5,437

Group, total

156 41,189

0

0 105 105

252

0 677 929

Other assets **)



16,271 18,470 1,365 36,106

Allocated assets, total



52,119 23,908 2,302 78,329

Deposits and other payables

44,705

369

507 45,581

Equity (allocated capital)



4,592 804 3,552 8,948

Other liabilities



15,246 5,709 2,844 23,800

Allocated equity and liabilities, total

64,543 6,882 6,904 78,329

Disclosures – income/revenue, total Internal income/revenue



Internal income and eliminations, offset against costs

-32 18 150 136 0 -13 -123 -136

Income/revenue, external customers

738 112 41 891



706 116 68 891

Income/revenue, total

Financial ratios



Return on equity, % ***)



27.1 64.2

-

-

Cost share of core income



0.57 0.16

-

-

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

38,619 6,776 2,346 47,741 1,079

74 375 1,528

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 23 million, of which DKK 11 million relates to the Group’s leasing activities and DKK 12 million relates to Other areas. ***) The rate of return on equity per annum has been calculated on allocated capital, which amounts to 12% of the average total risk exposure amount.

Spar Nord Q1 2018

NOTE

4

4.1

4.2

Notes – Group

Notes to the income statement

Q1 2018 DKKm

26

Q1 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



-14 -17 -59

Derivative financial instruments, total



-11 -17 -56

Other interest income



Total







Of which, income from genuine reverse repo transactions booked under



Due from credit institutions and central banks



-1 -3 -9

Loans, advances and other receivables



-7 -3 -20





INTEREST EXPENSES



Credit institutions and central banks



-1 -1 -3

Deposits and other payables



10 15 53

Subordinated debt



9 13 52

Other interest expenses



0 0 1

Total







Of which, interest expenses from genuine repo transactions booked under



Due to credit institutions and central banks



398 414 1,617 18 21 84 3 0 3

0 17 31 407 436 1,680

18 27 103

-3 -3 -8

4.3

FEES, CHARGES AND COMMISSIONS RECEIVED



Securities trading and custody accounts



111 107 439

Payment services



40 38 166

Loan transaction fees



127 117 493





99 92 380

of which mortgage credit institutions

Guarantee commission



7 7 30

Other fees, charges and commissions



46 55 138

Total fees, charges and commissions received



Total fees, charges and commissions paid



Total net fees, charges and commissions received



331 324 1,265 41 30 149 290 294 1,116

4.4

MARKET VALUE ADJUSTMENTS



Other loans, advances and receivables at fair value



-1 -1 0

Bonds



-10 28 91

Shares, etc.



120 54 165

Foreign currency



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



Assets linked to pooled schemes



-317 466 566

Deposits in pooled schemes



317 -466 -566

Other liabilities



Total





9 7 36 -5 72 89

0 1 0 113 160 381

Spar Nord Q1 2018

Notes – Group

Q1 2018 DKKm

NOTE

4.5

27

Q1 2017 DKKm

Full year 2017 DKKm

STAFF COSTS AND ADMINISTRATIVE EXPENSES Staff costs



Administrative expenses



Total







Staff costs:



Salaries



220 225 930

Pensions



25 27 106

Social security costs



Total







277 285 1,165 181 174 698 458 458 1,863

31 33 129 277 285 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 *)



– less fees received from directorships



0.1 0.1 1.5

The Bank’s expense, base salary



2.8 2.7 9.9

Pension, ordinary contribution

0.5 0.4 1.7

Total remuneration earned and paid



3.2 3.1 11.6





Breakdown of remuneration to Executive Board



9 9 9 1.0 0.8 3.5 - - 1.0 0.8 3.5

3 3 3 2.9 2.8 11.4

Lasse Nyby



Base salary*)



1.1 1.0 4.2

– less fees received from directorships



0.0 0.0 0.5

The Bank’s expense, base salary



1.1 1.0 3.7

Pension, ordinary contribution



0.2 0.2 0.6

Total remuneration earned and paid



1.2 1.2 4.3

John Lundsgaard



Base salary



0.9 0.9 3.6

– less fees received from directorships



0.0 0.0 0.4

The Bank’s expense, base salary



0.9 0.9 3.2

Pension, ordinary contribution



0.1 0.1 0.5

Total remuneration earned and paid



1.0 1.0 3.7

Lars Møller



Base salary*)



– less fees received from directorships



0.1 0.1 0.6

The Bank’s expense, base salary



0.8 0.8 3.0

Pension, ordinary contribution



0.1 0.1 0.5

Total remuneration earned and paid



1.0 0.9 3.5

0.9 0.9 3.6

*)

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 1,522 1,533 1,546

Spar Nord Q1 2018

Notes – Group

NOTE 4.5

STAFF COSTS AND ADMINISTRATIVE EXPENSES, CONTINUED

Q1 2018 DKKm

28

Q1 2017 DKKm

Full year 2017 DKKm

Administrative expenses:

5

IT expenses

103

79

Marketing costs

27

31

111

Cost of premises

19

26

99

Staff and travelling expenses

13

15

56

Office expenses

7

6

21

Other administrative expenses

11

18

57

Total

181

Notes to the balance sheet



174

354

698

5.1

OTHER ASSETS



Positive fair value of derivative instruments, etc.

959

1,146

1,030

Miscellaneous receivables

338

148

296

Interest and commissions receivable

51

218

51

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

316

316

316

Other assets

47

Total

1,711

61 1,889

70 1,763

5.2

DEPOSITS AND OTHER PAYABLES



Demand deposits

42,261

Subject to notice

1,561

1,480

Time deposits

606

1,226

Special types of deposits

3,336

3,598

Total

47,765

39,276

45,581

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

5.3

OTHER LIABILITIES



Miscellaneous payables

1,498

Negative fair value of derivative financial instruments, etc.

630

Interest and commissions payable

16

Other liabilities

309

Total

2,452

1,466 672 40 320 2,497

1,799 691 12 365 2,866



SUBORDINATED DEBT



Currency

Note

SEK

a



Principal DKKm Interest rate Received

18.10.27

433

-

452

DKK b 700 Floating 2013 18.12.23

699

699

699

DKK

-

402

c

600 400

2.078 % 6.043 %

2017

Maturity

2012

-

Supplementary capital contributions, total

1,132

Portfolio of own bonds relating to subordinated debt

-5

Subordinated debt, total

1,128

1,101 -11 1,090

1,151 -7 1,144

Interest on subordinated debt

8

12

50

Costs of raising subordinated debt

0

1

2

a

Redeemable as from 18.10.2022

b

Redeemable as from 18.12.2018, after which date interest is fixed at CIBOR3 + a 3.900 % margin.

c

Redeemed at 28.11.2017





Subordinated debt, specification of cash flows





Beginning of period

1,144

Movement during the period:



1,093

1,093

New loans

-

-

466

Redeemed

-

-

-400

Change exchange rate adjustments

-19

-

-12

Change in interest rate hedging

-

-1

-4

Change in amortised costs

0

0

-1

Change in portfolio of own bonds

2

-3

-16

-4

Total cash flows for the period

1 51

Carrying amount, end of period

1,128

1,090

1,144

Spar Nord Q1 2018

Notes – Group

29

NOTE 5.5

CONTINGENT ASSETS Deferred tax assets not recognised in the balance sheet amounted to DKK 13 million at 31 March 2018 (31 March 2017: DKK 7 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.

Q1 2018 DKKm

Q1 2017 DKKm

Full year 2017 DKKm

Financial guarantees

4,082

4,029

4,092

Loss guarantees for mortgage loans

5,126

4,719

4,983

Registration and refinancing guarantees

1,407

2,285

2,011

Other contingent liabilities

791

Total

11,407

902 11,935

876 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 31.03.18 and 31.03.17. The corporate income tax receivable within the group of jointly taxed companies amounted to DKK 202 million at 31 March 2018 (31 March 2017: DKK 86 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 31.03.2018 amounted to DKK 2 million (31.03.2017: DKK 2 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

Q1 2018 DKKm

Q1 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 Q1 2018

NOTE

6

6.1 6.1.1

Notes – Group

30

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

6.2 6.2.1

IMPAIRMENTS AT 01.01.18 UNDER IFRS 9 BY STAGES

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

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

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

9,667

3,078 48,337

EXPOSURES AT 31.03.18 SUMMARY OF ACCOUNTING VALUE OF EXPOSURES AND RECOGNISED IMPAIRMENTS ETC. Exposure before impairment see 6.2.3 DKKm

Impairment see 6.2.2 DKKm

Recognised impairment etc. DKKm

Loans and advances at amortised cost (note 6.3)

46,628

Due from credit institutions and central banks (note 6.4)

1,317

Guarantees (note 6.5)

11,489

Drawn maximum and loan commitments (note 6.3)

22,825

29

7

Total

82,260

1,874

-23

1,763

-45

1 82

0 14

Recognised impairments etc. are specified in notes 6.3.1, 6.4.1 and 6.5.1 6.2.2

IMPAIRMENTS AT 31.03.18 BY EXPOSURE CATEGORY

Stage 1 Lack of significant increase in credit risk 31.03.18 DKKm

Stage 2 Significant increase in credit risk 31.03.18 DKKm

Stage 3 Creditimpaired 31.03.18 DKKm

Total 31.03.18 DKKm

Loans and advances at amortised cost



Due from credit institutions and central banks

1 0 0 1

61 246 1,457 1,763

Guarantees

11 6 65 82

Undrawn maximum and loan commitments

4 3 21 29

Total



77 255 1,542 1,874

Spar Nord Q1 2018

NOTE

6.2.3

Notes – Group

EXPOSURE BEFORE IMPAIRMENT 31.03.18 BY EXPOSURE CATEGORY

Stage 1 Lack of significant increase in credit risk 31.03.18 DKKm

31

Stage 2 Significant increase in credit risk 31.03.18 DKKm

Stage 3 Creditimpaired 31.03.18 DKKm

Total 31.03.18 DKKm

Loans and advances at amortised cost

33,317 10,404 2,908 46,628

Due from credit institutions and central banks

1,317 0 0 1,317

Guarantees

10,402

857

Undrawn maximum and loan commitments

21,410

1,157

Total

66,445 12,418

230

11,489

259 22,825 3,397 82,260

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 31.03.18 DKKm

Stage 2 Significant increase in credit risk 31.03.18 DKKm

Stage 3 Creditimpaired 31.03.18 DKKm

Total 31.03.18 DKKm

Recognised impairments DKKm

Impairments at 1 January 2018 under IFRS 9, loans at amortised cost 79 279 1,433 1,791

-

Impairments at 1 January 2018 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 4 13 32 50 50 Reversed impairments re. repaid accounts

-4 -6 -33 -43 -43

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

42 -30 -12

-

-

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

-5 15 -11

-

-

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

-14 -41 55

-

-

Impairments during the year due to change in credit risk

-42

Previously impaired, now finally lost

0 0 -4 -4 -

Other movements (interest rate correction etc.)

0 0 10 10 -

Loss without prior impairment

- - - - 11

Amounts recovered on previously impaired receivables

- - - - -22

Impairment losses at 31.03.2018

65 249 1,477 1,791 -37

15

-6 -33 -33

Impairments at 31.03.2018 under IFRS 9, loans at amortised cost

61 246 1,457 1,763 -45

Impairments at 31.03.2018 under IFRS 9, undrawn maximum and loan commitment



Impairment losses at 31.03.2018

65 249 1,477 1,791 -37

4 3 21 29 7

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 Q1 2018

NOTE

6.4 6.4.1

Notes – Group

32

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 31.03.2018 DKKm Impairments at 1 January 2018 under IFRS 9

Stage 2 Significant increase in credit risk 31.03.2018 DKKm

Stage 3 Credit impaired 31.03.2018 DKKm

Total 31.03.2018 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 -

Impairment losses at 31.03.2018

1 0 0 1 0

Q1 2018 DKKm

DUE FROM CREDIT INSTITUTIONS AND CENTRAL BANKS, OTHER SPECIFICATIONS

Q1 2017 DKKm

Full year 2017 DKKm

Balances at notice with central banks

0

Due from credit institutions

1,316

2,199

0

1,437

0

Total

1,316

2,199

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 31.03.2018 DKKm

Stage 2 Significant increase in credit risk 31.03.2018 DKKm

Stage 3 Credit impaired 31.03.2018 DKKm

Total 31.03.2018 DKKm

Recognised impairments DKKm

Provisions for losses at 1 January 2018 under IFRS 9

13 7 48 68 -

Provisions for losses re. new exposures during the year

2

1 43

46 46

Reversed provision for losses re. repaid exposures

-2

-1 -5

-8 -8

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

- -

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

- -

1 0

Change in provisions for losses at 1 January, transfer to/from stage 3 -2 0

2

- -

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

-4

1

Provisions for losses at 31 March 2018

11

6 65 82 14

-21

-24 -24

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 Q1 2018

Notes – Group

NOTE 6.6

Q1 2018 DKKm

IMPAIRMENT ACCOUNT AT 31.03.17 AND 31.12.17 (IAS 39) Individual loan impairment charges

33

Q1 2017 DKKm

Full year 2017 DKKm

Individual impairment, beginning of period

-

1.686

New individual impairment charges

-

140

1.686 310

Reversal of individual impairment charges

-

170

326

Previously impaired, now finally lost

-

28

383

Other movements

-

16

36

Individual impairment, end of period

-

1.644

1.323

Collective loan impairment charges



Collective impairment, beginning of period

-

124

124

New collective impairment charges

-

94

128

Reversal of collective impairment charges

-

2

9

Other movements

-

2

9

Collective impairment, end of period

-

218

251

Total loan impairment charges, etc.



Impairment, beginning of year

-

1.810

1.810

New impairment charges

-

234

438

Reversed impairment charges

-

172

334

Previously impaired, now finally lost

-

28

383

Other movements

-

17

44

Impairment, end of period

-

1.861

1.575

Impairment recognised in the income statement



New impairment charges

-

234

438

Reversed impairment charges

-

172

334

Loss without prior impairment

-

13

96

Amounts recovered on previously impaired receivables

-

33

167

Recognised in the income statement

-

42

33

Provisions for losses on guarantees



Provisions, beginning of period

-

67

New provisions

-

4

19

Reversed provisions

-

28

45

Provisions for losses on guarantees, end of period

-

43

41

67

Provisions for losses on guarantees recognised in the income statement



New provisions

-

4

19

Reversed provisions

-

28

45

Recognised in the income statement

-

-24

-26

-

1.904

1.616

Impairment, other credit risks, beginning of period

-

14

14

Reversed impairment charges

-

0

14

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

-

1.919

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.

-

42

33

Provision for losses on guarantees

-

-24

-26

Impairment, credit institutions

-

0

-14

Total impairment of loans and receivables etc.

-

18

-7

Loans with suspended interest payments

-

123

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.

18

44

Spar Nord Q1 2018

NOTE

7

7.1

Notes without reference

34

Notes without reference 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 2 million at 31 March 2018 (31 March 2017: DKK 7 million; end-2017: DKK 4 million).

Spar Nord Q1 2018

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

Notes without reference

Quoted prices Level 1 DKKm

Observable input Level 2 DKKm

35

Nonobservable Input Level 3 DKKm

Total DKKm

31.03.18 Financial assets Bonds at fair value

11,843

Shares, etc.



Assets linked to pooled schemes

10,343

Positive fair value of derivative financial instruments



Total

22,367

2,493

182

35 4,441

0

939 7,908

0 14,336 1,488 1,705 326 15,110 20 959 1,835 32,110

Financial liabilities



Deposits in pooled schemes



15,110

0 15,110

Other non-derivative financial liabilities at fair value 814 211

0

0 1,025

Negative fair value of derivative financial instruments



Total



0 814

630 15,950

0 630 0 16,764

31.03.2017



Financial assets Bonds at fair value

11,593 2,649 0 14,242

Shares, etc.



Assets linked to pooled schemes

9,879

Positive fair value of derivative financial instruments



Total

21,635

164

1 4,793

0

1,146 8,589

1,366 1,530 202 14,874 0 1,146 1,568 31,792

Financial liabilities



Deposits in pooled schemes



0

14,874

0 14,874

Other non-derivative financial liabilities at fair value 1,102 1,440

0 2,542

Negative fair value of derivative financial instruments



0 672

Total





0

1,102

672

16,985

0 18,087



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 Q1 2018

Notes without reference

NOTE

31.03.2018 DKKm Level 3

31.03.2018 DKKm

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

36

31.03.2017 DKKm

31.03.2017 DKKm

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

Other

Equities

1,129

Assets linked to pooled schemes

- 326

Positive fair value of derivative financial instruments



Sensitivities



Change in fair value of shares if the profit/loss of the companies changes by 10% (annualised)



359

999

367

- 202

- 20 - -

14

-

8

-

A substantial portion of the shares included under “Other” are valued based on the discounting of expected future cash flows from dividends, selling prices or market expectations as to the required rate of return on equity.

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



Q1 2018 DKKm

Q1 2017 DKKm

Full year 2017 DKKm

Carrying amount, beginning of period

1,719

Value adjustments through profit or loss

115

Market value adjustments in other comprehensive income

0

0

Purchase

18

7

131

Sale

51

28

99

Transferred to/from Level 3

35

0

Carrying amount, end of period

1,835

1,550 39

1,568

1,550 136 0

0 1,719

Market-value adjustments in the income statement of assets



held at the reporting date

112

37

91

138

105

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

116

Collateral provided for the market value of derivatives transactions

348

428

424

Positive market value of derivative contracts subject to netting

196

241

215

Collateral provided as part of repo transactions

2,507

1,462

729

Other collateral provided

30

Total

3,198

44 2,313



30 1,503

Spar Nord Q1 2018

NOTE

7.3

HEDGE ACCOUNTING Assets

Notes without reference

Q1 2018 DKKm

37

Q1 2017 DKKm

Full year 2017 DKKm

Loans and advances Carrying amount

76

80

Fair value

76

80

77

Nominal value

75

75

75

Interest risk-hedging financial instruments



Derivatives (swap contracts)



Carrying amount

-1

-5

-2

Fair value

-1

-5

-2

Synthetic principal/nominal value

75

75

75

Liabilities



77



7.4

Subordinated debt



Carrying amount

-

396

-

Fair value

-

403

-

Nominal value

-

400

-

Interest risk-hedging financial instruments



Derivatives (swap contracts)



Carrying amount

-

3

-

Fair value

-

3

-

Synthetic principal/nominal value

-

400

-

OWNERSHIP at 31.03.2018 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 Bank A/S Skelagervej 15 P. O. Box 162 DK-9100 Aalborg

Spar Nord Q1 2018

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.

38