Spar Nord 1 Interim report of Spar Nord Bank Net profit of DKK 311 million and return on equity of 15.0%
Spar Nord 2 Company announcement no. 7, Contents MANAGEMENT S REVIEW Performance indicators and financial ratios quarterly... 3 Executive Summary... 5 Management commentary on... 6 Spar Nord shares held by members of the management team... 10 Overview of group companies... 10 Alternative performance measures... 11 INTERIM REPORT 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 Performance indicators and 3 financial ratios Group Performance indicators and financial ratios Group CORE EARNINGS QUARTERLY INCOME STATEMENT Net interest income *) Net fee income Market value adjustments and dividends Other operating income Income from investments in associates and group enterprises Core income Salaries Operating expenses Depreciation, amortisation and impairment Costs and expenses Core earnings before impairment Loan impairment charges etc. *) Profit/loss before tax Tax Profit/loss Change in % Q4 389 392-0.7 389 373 388 393 392 1,546 290 294-1.5 290 279 264 279 294 1,116 119 164-27.3 119 102 18 121 164 404 10 11-3.0 10 15 12 14 11 51 9 13-26.9 9 5 7 7 13 32 818 874-6.4 818 773 688 814 874 3,150 277 285-2,8 277 316 247 318 285 1,165 183 176 4.0 183 195 168 171 176 710 15 14 3.6 15 14 18 14 14 61 474 475-0.1 474 525 433 502 475 1,936 344 399-13.8 344 248 254 312 399 1,213 Q3 Q2 Full year -23 1 - -23 13-42 -10 1-38 367 398-7.8 367 235 297 322 398 1,251 56 81-31,0 56 44 73 64 81 262 311 317-1.8 311 190 224 258 317 989 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 assets Loans and advances Lending, banking and leasing activities Lending, reverse repo transactions Deposits Deposits, banking activities Deposits, repo transactions Deposits in pooled schemes Subordinated debt Holders of additional tier 1 (AT1) capital instruments Equity Contingent liabilities 80,934 78,329 3.3 80,934 80,367 80,372 79,595 78,329 80,367 44,866 41,189 8.9 44,866 46,747 45,471 42,407 41,189 46,747 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 62,874 60,455 4.0 62,874 64,266 63,296 62,782 60,455 64,266 47,765 45,581 4,8 47,765 48,668 48,092 47,610 45,581 48,668 0 0-0 175 0 156 0 175 15,110 14,874 1.6 15,110 15,423 15,204 15,016 14,874 15,423 1,128 1,090 3.5 1,128 1,144 1,086 1,089 1,090 1,144 874 877-0.3 874 861 872 863 877 861 8,220 8,071 1.8 8,220 8,114 7,920 7,702 8,071 8,114 11,407 11,935-4.4 11,407 11,961 11,742 12,304 11,935 11,961 risk exposure amount Tier 1 capital **) Impairment account and discount on commitments taken over ***) Contractual non-performing loans Business volume 51,559 47,741 8.0 51,559 49,546 49,243 49,672 47,741 49,546 8,055 7,374 9.2 8,055 7,924 7,777 7,369 7,374 7,924 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, 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 is exclusive of recognition of profit/loss for the period. ***) Spar Nord s impairment account amounts to DKK 1.874 million ( : DKK 1,919 million) (note 6) and the discount on commitments taken over amounts to DKK 0 million ( : DKK 73 million). In, 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.
Spar Nord Performance indicators and 4 financial ratios Group Performance indicators and financial ratios Group CORE EARNINGS QUARTERLY FINANCIAL RATIOS OWN FUNDS Own funds ratio *) Tier 1 capital ratio *) Common equity tier 1 capital ratio *) Q4 17.8 17.6 17.8 18.2 17.9 16.9 17.6 18.2 15.6 15.4 15.6 16.0 15.8 14.8 15.4 16.0 14.0 13.8 14.0 14.4 14.2 13.2 13.8 14.4 Q3 Q2 Full year 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 Cost share of core income - incl. loan impairment charges, etc. Return on assets, % 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 0.58 0.54 0.58 0.68 0.63 0.62 0.54 0.61 0.55 0.54 0.55 0.70 0.57 0.60 0.54 0.60 0.4 0.4 0.4 0.2 0.3 0.3 0.4 1.2 MARKET RISK AND LIQUIDITY Interest rate risk, % Foreign-exchange position, % Foreign-exchange risk, % Liquidity Cover Ratio (LCR), % 0.8-0.2 0.8 0.7 1.3 0.2-0.2 0.7 1.4 3.3 1.4 3.3 5.2 3.9 3.3 3.3 0.0 0.1 0.0 0.1 0.1 0.1 0.1 0.1 173 168 173 187 165 176 168 187 CREDIT RISK Loans and advances plus impairment account and discount hereon as % of deposits Loans and advances as % of equity Increase in loans and advances for the period, % Sum of large exposures, % ***) Impairment ratio, % 74.2 71.3 74.2 75.2 74.5 70.5 71.3 75.2 5.5 5.1 5.5 5.8 5.7 5.5 5.1 5.8 1.3 1.9 1.3 1.8 0.8 1.6 1.9 6.2 74.1 17.1 74.1 17.2 18.7 17.5 17.1 17.2 0.0 0.0 0.0 0.0-0.1 0.0 0.0-0.1 EMPLOYEES AND BRANCHES Number of employees (full-time equivalents, end of period) Number of branches 1,520 1,528 1,520 1,538 1,557 1,555 1,528 1,538 50 56 50 50 51 55 56 50 SPAR NORD SHARE DKK PER SHARE OF DKK 10 Share price, end of period Net asset value (NAV), **) Profit/loss for the period **) Dividend Return Price/earnings **) 72 77 72 72 78 85 77 72 67 66 67 66 64 63 66 66 2.5 2.5 2.5 1.5 1.7 2.0 2.5 7.7 - - - - - - - 3.5 - - - - - - - -5 - - - - - - - 9 *) Own funds for the first and second quarters of 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, 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.
Spar Nord 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, which corresponds to an annualised return on equity of 15.0%. On a level with, the profit is considered satisfactory by Management. Core income amounted to DKK 818 million in, 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. 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. 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 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. OUTLOOK As a result of information on non-recurring income from market value adjustments of BI Holding A/S in and sales proceeds from Valueinvest Asset Management SA in Q2, Spar Nord has twice in upgraded its guidance for a profit before impairment for the fullyear from about DKK 1.1 billion to about DKK 1.3 billion. On the basis of the overall financial performance for, 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, which was DKK 6.9 billion higher than at 31 March. 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 Management commentary 6 on Management commentary on Spar Nord achieved a profit after tax of DKK 311 million in, which corresponds to an annualised return on equity of 15.0%. On a level with, the profit is considered satisfactory by Management. Core income amounted to DKK 818 million in, which is 6% lower than in the year-earlier period. NET FEE INCOME AT SATISFACTORY LEVEL Net fee income was DKK 290 million in, against DKK 294 million in the same period of. 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. NET INTEREST INCOME AND NET FEE INCOME (DKKM) Net interest income Net fee income 620 764 646 686 679 The underlying trends were thus positive, especially due to growth in income from mortgage loans arranged, insurance and pension. 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. 206 312 250 294 290 MARKET VALUE ADJUSTMENTS AND DIVIDENDS (DKKM) 414 452 396 392 389 2014 2015 2016 250 359 72 164 119 2014 2015 2016 CONTINUED GROWTH IN LENDING AND REDUCED PRESSURE ON INTEREST MARGINS Net interest income was DKK 389 million in, against DKK 392 million in the same period of. Adding to this income was continued growth in bank and leasing loans, which at 31 March 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. The lending margin was 37 basis points lower in than it was in. 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 includes DKK 15 million of interest income from previous impairment exposures ( : DKK 12 million). 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). 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, 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.
Spar Nord Management commentary on 7 COSTS IN LINE WITH The Group s total costs and expenses amounted to DKK 474 million in, against DKK 475 million in the same period of. TOTAL COSTS (DKKM) 456 484 475 475 18 17 17 14 474 15 Depreciation, amort. and impairment 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. 170 191 178 176 268 277 279 285 183 277 Operating expenses Wages and salaries IMPAIRMENTS (DKKM) 2014 2015 2016 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. 89 98 55 1-23 At 31 March, Spar Nord employed 1,520 people (FTE), against 1,538 at year-end and 1,528 at the same time last year. Relative to Q4, payroll costs were DKK 39 million lower in, 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. 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 ( : 0.54). Implementation of the new IFRS 9 rules at 1 January 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, 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, while stage 1 and 2 impairments totalled DKK 332 million. THE GROUP S LOANS, ADVANCES AND GUARANTEES *) BREAKDOWN BY INDUSTRY Industry % Agriculture, hunting and forestry Fisheries Industry and raw materials extraction Utilities Construction and engineering Trade Transport, hotels and restaurants Information and communication Financing and insurance Real property Other industries business customers Public authorities Retail customers 2014 *) Excl. reverse repo transactions 2015 2016 Loans and guarantees 31.12.17 31.03.18 Impairment account 31.03.18 6.1 6.1 32.9 0.2 0.2 0.0 5.3 5.7 5.5 3.1 2.5 1.2 4.8 4.7 4.4 7.2 7.7 4.2 3.8 4.0 5.7 0.4 0.4 0.2 6.6 6.6 5.4 11.2 11.0 11.6 5.8 6.1 5.8 54.5 55.0 76.9 0.0 0.0 0.0 45.5 45.0 23.1 100.0 100.0 100.0
Spar Nord Management commentary on 8 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. 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, which was DKK 2.0 billion lower than at 1 January. Compared with 1 January, bank and leasing loans rose DKK 0.5 billion, or 1%. TOTAL CREDITS ARRANGED (DKKBN) Deposits, banking activities fell by DKK 0.9 billion, or 2%, in 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-. 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 (DKKbn) Deposits, banking activities Senior loans/bond issues Equity and subordinated debt Liquidity procurement Lending, banking and leasing activities Maturity, senior issued bonds & subordinated debt <1 year Strategic liquidity, total 31.03.18 31.12.17 30.09.17 30.06.17 31.03.17 47.8 48.7 48.1 47.6 45.6 0.0 0.0 0.0 0.0 0.0 10.2 10.1 9.9 9.7 10.0 58.0 58.8 58.0 57.3 55.6 37.6 37.3 36.6 36.4 35.8 0.7 0.7 0.4 0.4 0.4 19.8 20.8 21.0 20.5 19.4 94.6 99.2 105.8 110.4 116.1 At the end March, Spar Nord s strategic liquidity amounted to DKK 19.8 billion, down DKK 1.0 billion compared with end-. The decline was attributable to the reduction in deposits, banking activities. Spar Nord s LCR ratio at 31 March was 173. 59.9 64.5 70.8 74.6 78.5 34.7 34.7 35.0 35.8 37.6 Lending, mortgage loans Lending, banking and leasing loans 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%. 2014 2015 2016 In, 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 kredit amounted to DKK 67.4 billion and from DLR Kredit DKK 11.1 billion. At 31 March, 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. TOTAL DEPOSITS (DKKBN) 52.3 9.9 55.1 12.1 56.9 13.1 60.5 62.9 14.9 15.1 Lending in pooled schemes IRB PROJECT STATUS As described in Annual Report, Spar Nord has, among other things due to the expected assignment of SIFI status, resolved to launch a project to facilitate the transition to internal ratings-based models for calculating risk. The preparatory work is progressing according to plan, and Spar Nord has an ambition of transitioning to IRB Advanced for the entire loan portfolio. The time schedule and expected effects are unchanged from the disclosures in our annual report. 42.4 43.0 43.8 45.6 47.8 Deposits banking activities 2014 2015 2015 2016
Spar Nord Management commentary on 9 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, Spar Nord remained comfortably within all threshold values in the Supervisory Authority Diamond Test Model. At 31 March, Spar Nord could report the following values in respect of the defined reference points: Large exposures taken over <175 % Spar Nord: 74.1% Lending growth <20% Spar Nord: 5.4% OUTLOOK FOR At the beginning of, 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 and sales proceeds from Valueinvest Asset Management SA in Q2, Spar Nord has twice in upgraded its guidance for a profit before impairment for the fullyear from about DKK 1.1 billion to about DKK 1.3 billion. On the basis of the overall financial performance for, 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. Funding ratio <1 Spar Nord: 0.5 Property exposure <25% Spar Nord: 10.8% Liquidity coverage ratio >50% Spar Nord: 310.1 %
Spar Nord 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 At 31.03.18 At 31.12.17 EXECUTIVE BOARD At 31.03.18 At 31.12.17 Kjeld Johannesen Per Nikolaj Bukh Lene Aaen (took office on 19 April ) Kaj Christiansen Morten Bach Gaardboe Laila Mortensen Ole Skov (retired on 19 April ) Jannie Skovsen Gitte Holmgaard Sørensen John Sørensen 60,000 60,000 27,200 27,200 2,431-21,100 21,100 3,620 3,620 0 0 7,785 7,533 7,963 7,770 2,183 1,970 5,160 5,160 Lasse Nyby John Lundsgaard Lars Møller 50,143 49,100 72,355 71,926 68,430 67,404 The holdings comprise all shares held by all members of the household. OVERVIEW OF GROUP COMPANIES Share capital end of period*) Equity end of period*) Profit/loss *) Consolidated subsidiaries Aktieselskabet Skelagervej 15, Aalborg 27 402 18 *) According to the most recent annual report. The company is a wholly subsidiary in and.
Spar Nord 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, 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 Return on equity after tax excl. additional tier 1 (AT1) capital Cost share of core income Cost share of core income - incl. loan impairment charges Loans and advances plus impairment account and discount as % of deposits Loans and advances as % of equity Profit/loss before tax in per cent of shareholders equity. The average equity is calculated as a simple average of the shareholders equity at the beginning of the year and at the end of the year. Profit/loss before tax and shareholders equity are calculated as if the additional tier 1 (AT1) capital were treated as a liability. Profit/loss after tax in per cent of shareholders equity. The average equity is calculated as a simple average of the shareholders equity at the beginning of the year and at the end of the year. Profit/loss after tax and shareholders equity are calculated as if the additional tier 1 (AT1) capital were treated as a liability. costs/core income. costs plus loan impairment charges etc./core income. Loans and advances plus impairment and discount as % of deposits Loans and advances as % of equity
Spar Nord Performance indicators and 12 financial ratios Group Performance indicators and financial ratios Group THE DANISH FSA S LAYOUT AND RATIO SYSTEM 5-YEAR OVERVIEW INCOME STATEMENT Interest income Interest expenses Net interest income Dividends on shares, etc. Fees, charges and commissions received Fees, charges and commissions paid Net income from interest, fees, charges and commissions Market value adjustments Other operating income Staff costs and administrative expenses Amortisation, depreciation and impairment of intangible assets and property, plant and equipment Other operating expenses Income from investments in associates and group enterprises Profit/loss before loan impairment charges Loan impairment charges etc. Profit/loss before tax Tax Profit/loss Change in % 2016 2015 2014 Full year 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 2,716 113 160-29.5 113 160 71 351 249 381 10 11-3.0 10 11 8 10 16 51 458 458-0.2 458 458 456 467 438 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 32 344 416-17.2 344 416 265 645 459 1,244-23 18 - -23 18 61 111 109-7 367 398-7.8 367 398 204 533 349 1,251 56 81-31.0 56 81 40 69 38 262 311 317-1.8 311 317 165 464 312 989 BALANCE SHEET assets Loans and advances Lending, banking and leasing activities Lending, reverse repo transactions Deposits Deposits, banking activities Deposits, repo transactions Deposits in pooled schemes Subordinated debt Equity Contingent liabilities 80,934 78,329 3.3 80,934 78,329 79,432 78,184 76,026 80,367 44,866 41,189 8.9 44,866 41,189 40,404 35,089 35,778 46,747 37,551 35,761 5.0 37,551 35,761 35,004 34,737 34,748 37,272 7,315 5,428 34.8 7,315 5,428 5,400 352 1,030 9,475 62,874 60,455 4.0 62,874 60,455 57,248 55,106 52,292 64,266 47,765 45,581 4.8 47,765 45,581 43,802 42,955 42,427 48,668 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 risk exposure amount Tier 1 capital *) Loan impairment charges etc. Contractual non-performing loans 51,559 47,741 8.0 51,559 47,741 46,943 47,601 44,672 49,546 8,055 7,374 9.2 8,055 7,374 6,803 6,463 7,738 7,924 1,846 1,919-3.8 1,846 1,919 1,861 1,868 1,657 1,616 393 401-2.0 393 401 472 502 708 341 *) Tier 1 capital for 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.
Spar Nord Performance indicators and financial ratios 13 Group Performance indicators and financial ratios Group THE DANISH FSA S LAYOUT AND RATIO SYSTEM 5-YEAR OVERVIEW FINANCIAL RATIOS Own funds Own funds ratio *) Tier 1 capital ratio *) 2016 2015 2014 Full year 17.8 17.6 17.8 17.6 16.6 15.6 19.4 18.2 15.6 15.4 15.6 15.4 14.5 13.6 17.3 16.0 Earnings Return on equity before tax, % Return on equity after tax, % Income/cost ratio Return on assets, % 4.1 4.5 4.1 4.5 2.6 7.3 5.2 14.2 3.5 3.6 3.5 3.6 2.1 6.4 4.7 11.2 1.81 1.81 1.81 1.81 1.38 1.86 1.59 1.65 0.4 0.4 0.4 0.4 0.2 0.6 0.4 1.2 Market risk and liquidity Interest rate risk, % Foreign-exchange position, % Foreign-exchange risk, % Excess coverage relative to statutory liquidity requirement, % 0.8-0.2 0.8-0.2 1.1 1.7 0.1 0.7 1.4 3.3 1.4 3.3 3.4 3.5 2.2 3.3 0.0 0.1 0.0 0.1 0.0 0.1 0.0 0.1 310.8 306.5 310.8 306.5 264.0 243.3 252.6 326.4 Credit risk Loans and advances as % of deposits Loans and advances plus impairment as % of deposits Loans and advances relative to equity Increase in loans and advances for the period, % Sum of large exposures, % **) Impairment ratio for the period 71.4 68.1 71.4 68.1 70.6 63.7 68.4 72.7 74.2 71.2 74.2 71.2 73.7 67.0 71.6 75.2 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 74.1 17.1 74.1 17.1 17.2 0.0 13.4 17.2 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 Net asset value (NAV) Dividend Share price/profit/loss for the period Share price/nav 2.5 2.6 2.5 2.6 1.3 3.7 2.5 8.0 67 66 67 66 61 60 55 66 - - - - - 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 is exclusive of recognition of profit/loss for the period. **) In, 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.
Spar Nord Management s statement 14 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. EXECUTIVE BOARD The Consolidated Interim Financial Statements are presented in accordance with IAS 34 Interim Financial Reporting, as adopted by the EU. Lasse Nyby Chief Executive Officer 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. John Lundsgaard Managing Director BOARD OF DIRECTORS Lars Møller Managing Director In our opinion, the Interim Financial Statements give a true and fair view of the Group s financial position at 31 March and of the results of the Group s operations and cash flows for the period from 1 January to 31 March. Kjeld Johannesen Chairman of the Board of Per Nikolaj Bukh Deputy Chairman of the Board of Directors 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. Lene Aaen Kaj Christiansen Aalborg, 2 May Morten Bach Gaardboe Laila Mortensen Jannie Skovsen Gitte Holmgaard Sørensen John Sørensen
Spar Nord Income statement Group 15 Income statement - Group Full year NOTE 4.1 4.2 Interest income Interest expenses Net interest income 407 436 1,680 18 27 103 389 409 1,577 4.3 4.3 Dividends on shares, etc. Fees, charges and commissions received Fees, charges and commissions paid Net income from interest, fees, charges and commissions 6 3 23 331 324 1,265 41 30 149 686 707 2,716 4.4 4.5 Market value adjustments Other operating income Staff costs and administrative expenses 113 160 381 10 11 51 458 458 1,863 Amortisation, depreciation and impairment of intangible assets and property, plant and equipment Other operating expenses Income from investments in associates and group enterprises 15 14 61 2 2 13 9 13 32 Profit/loss before loan impairment charges (core earnings before impairment) 344 416 1,244 6.2.1 Loan impairment charges etc. -23 18-7 Profit/loss before tax 367 398 1,251 Tax 56 81 262 Profit/loss 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) Diluted earnings per share (DKK) 2.5 2.5 7.7 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 Other comprehensive income after tax 0 0 11 0 0 11 comprehensive income 311 317 1,000 Appropriation: The shareholders of the Parent Company Spar Nord Bank A/S Holders of additional tier 1 (AT1) capital instruments comprehensive income 299 305 951 12 12 49 311 317 1,000
Spar Nord Balance sheet Group 16 Balance sheet Group 31.03.18 31.03. Full year NOTE ASSETS 6.4 6.3 5.1 Cash balances and demand deposits with central banks Due from credit institutions and central banks Lending, banking and leasing activities Lending, reverse repo transactions Loans, advances and other receivables at amortised cost, total Bonds at fair value Shares, etc. Investments in associates Assets linked to pooled schemes Intangible assets Investment properties Domicile property Land and buildings, total Other property, plant and equipment Current tax assets Temporary assets Other assets Prepayments and deferred income 451 1,146 1,298 1,316 2,199 1,437 37,551 35,761 37,272 7,315 5,428 9,475 44,866 41,189 46,747 14,336 14,242 10,838 1,705 1,530 1,626 140 105 128 15,110 14,874 15,423 182 192 184 135 135 135 522 516 487 657 651 621 119 87 119 202 86 45 13 23 21 1,711 1,889 1,763 127 117 115 assets 80,934 78,329 80,367 LIABILITIES 5.2 5.3 PAYABLES Due to credit institutions and central banks Deposits and other payables Deposits in pooled schemes Other non-derivative financial liabilities at fair value Other liabilities Prepayments and deferred income payables 4,065 2,592 1,964 47,765 45,581 48,843 15,110 14,874 15,423 1,025 2,542 934 2,452 2,497 2,866 44 27 19 70,460 68,113 70,049 PROVISIONS Provisions for deferred tax Provision for losses on guarantees Other provisions provisions 136 109 136 82 43 41 33 27 21 251 178 199 5.4 SUBORDINATED DEBT Subordinated debt 1,128 1,090 1,144 liabilities 71,839 69,381 71,392 EQUITY Share capital Revaluation reserves Proposed dividend Retained earnings Equity Holders of additional tier 1 (AT1) capital instruments equity 1,230 1,255 1,230 95 92 94 431 628 431 6,465 6,097 6,359 8,220 8,071 8,114 874 877 861 9,094 8,948 8,975 equity and liabilities 80,934 78,329 80,367 5.5 5.6 5.7 OFF-BALANCE SHEET ITEMS Contingent assets Contingent liabilities Other binding commitments 13 7 13 11,407 11,935 11,961 567 501 501
Spar Nord Capital position Group 17 Capital position - Group The shareholders of the Parent Company Spar Nord Bank A/S STATEMENT OF CHANGES IN EQUITY SPAR NORD GROUP Share capital Revaluation reserve Statutory reserves Proposed dividend Retained earnings Additional tier 1 capital EQUITY AT 31.03.18 Equity at 31.12.17 Change in accounting policies, IFRS 9. See note 1.1 Equity at 01.01.18 1,230 94 0 431 6,359 8,114 861 8,975 - - - - -195-195 - -195 1,230 94 0 431 6,164 7,919 861 8,780 Comprehensive income in Profit/loss for the period - - 9-290 299 12 311 Other comprehensive income Net revaluation of properties Other comprehensive income, total - 0 - - - 0-0 - 0 - - - 0-0 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 Addition upon sale of treasury shares and additional tier 1 (AT1) capital Revaluation reserves, associates Tax transactions with owners - - - - -78-78 - -78 - - - - 77 77 1 78 - - -9-9 0-0 - - - - 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 Profit/loss for the period - - 13-292 305 12 317 Other comprehensive income Net revaluation of properties Other comprehensive income, total - 0 - - - 0-0 - 0 - - - 0-0 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 Addition upon sale of treasury shares and additional tier 1 (AT1) capital Revaluation reserves, associates Dividends received from associates recognised at net asset value Tax transactions with owners - - - - -102-102 - -102 - - - - 101 101 2 103 - - -6-6 0-0 - - -29-29 0-0 - - - - 3 3-3 - - -35-37 2 2 4 Equity at 31.03.17 1,255 92 0 628 6,097 8,071 877 8,948 The share capital consists of 125,529,918 shares with a nominal value of DKK 10.
Spar Nord Capital position Group 18 TREASURY SHARE PORTFOLIO Number of shares Percentage of share capital Full year 49,048 2,603,399 38,048 0.0 2.1 0.0 On 4 September, 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 Principal Currency Note Interest rate Received Maturity DKK a 400.0 6.052% 2015 Perpetual DKK b 450.0 5.500% 2016 Perpetual Additional tier 1 (AT1) capital issued under CRR, total Full year 417 419 411 457 458 450 874 877 861 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 Full year Cash flows, beginning of period 767 817 817 Movement during the period: Change in portfolio of own bonds Interest paid cash flows for the period 1 2-1 0 0-49 1 2-50 Cash flows, end of period 768 819 767 OWN FUNDS Equity Phasing in of IFRS 9 Result not recognised Additional tier 1 (AT1) capital included in equity Proposed dividend, excl. share re. share buyback programme Intangible assets, incl. share recognised in investments in associates Other primary deductions Deductions, equity investments Common equity tier 1 (CET1) capital 9,094 8,948 8,975 185 - - - 317-874 877 861 586 615 431 186 194 188 47 46 41 370 327 331 7,217 6,572 7,123 Additional tier 1 (AT1) capital *) Other deductions Tier 1 capital 843 843 843 5 41 41 8,055 7,374 7,924 Subordinated debt, excl. Additional Tier 1 (AT1) capital *) Other deductions Own funds 1,114 1,080 1,133 11 41 41 9,159 8,414 9,016 Weighted risk exposure amount, credit risk etc. Weighted risk exposure amount, market risk Weighted risk exposure amount, operational risk risk exposure amount 41,124 38,572 40,658 4,730 3,478 3,196 5,705 5,692 5,692 51,559 47,741 49,546 Common equity tier 1 capital ratio Tier 1 capital ratio Own funds ratio 14.0 13.8 14.4 15.6 15.4 16.0 17.8 17.6 18.2 The capital adequacy calculation for 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.
Spar Nord CASH FLOW STATEMENT GROUP 19 NOTE Cash Flow Statement - Group Full year OPERATING ACTIVITIES Profit/loss before tax Amortisation, depreciation and impairment of intangible assets and property, plant and equipment Gains and losses on the sale of intangible assets and property, plant and equipment Adjustment of loan impairment charges etc. Provisions Income from investments in associates and group enterprises Corporate income tax paid Operating activities, total 367 398 1,251 15 14 61 0 0-1 -6 28 275 19-23 -31-9 -13-32 -155-147 -251 230 257 1,272 WORKING CAPITAL Movement in credit institutions and central banks, net Movement in loans, advances and other receivables at amortised cost Movement in bonds at fair value Movement in equity portfolio Movement in other assets and other liabilities, net Movement in deposits and other payables Working capital, total 2,105 173-456 1,672 129-5,677-3,498 694 4,099-79 27-69 -256 155-965 -1,079-883 2,379-1,135 294-689 Cash generated from operations, total -904 550 583 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 Investing activities, total -2-2 -14 0 0 5 0 0-1 -40-5 -94 0 12 72 0 29 31-41 34 0 5.4 FINANCING ACTIVITIES Subordinated debt Additional Tier 1 (AT1) capital recognised in equity (see specification in Statement of changes in equity) Dividends paid, excluding dividends on treasury shares Acquisition of treasury shares Sale of treasury shares Financing activities, total -16-4 51 1 2-50 0 0-615 -78-102 -454 77 101 457-16 -3-612 Movements in cash and cash equivalents for the period -962 581-29 Cash and cash equivalents, beginning of year Movements in cash and cash equivalents for the period Cash and cash equivalents, end of year 2,672 2,701 2,701-962 581-29 1,711 3,283 2,672 Cash and cash equivalents, end of period Cash, cash equivalents and demand deposits with central banks Due from credit institutions and central banks within less than 3 months 451 1,146 1,298 1,260 2,137 1,374 1,711 3,283 2,672
Spar Nord Notes Group 20 NOTE 1 Notes - Group 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. Annual Report 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 : IFRS 9 Financial instruments 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. 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 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: Financial assets Cash balances and demand deposits with central banks Due from credit institutions and central banks Lending, banking and leasing activities Lending, reverse repo transactions Loans, advances and other receivables at amortised cost, total IAS 39 Amount 31.12.17 Effect of changed measurement *) IFRS 9 Amount 01.01.18 1,298 0 1,298 1,437-1 1,437 37,272-216 37,056 9,475 0 9,475 46,747-216 46,531 Non-financial assets Current tax assets 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 0 1,964 48,843 0 48,843 1,144 0 1,144 Non-financial liabilities Provisions for losses on guarantees Other provisions (provision for undrawn maximum) liabilities 41 27 68 15 7 21 52,007 33 52,041 One-off effect which is recognised in shareholders equity at 1 January -195 Off-balance sheet items Guarantees Undrawn maximum and loan commitments 11,961-27 11,934 20,802-7 20,795 32,763-33 32,730 *) Recognised in retained earnings in shareholders equity at 1 January. 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 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.
Spar Nord 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: Amortised cost Fair value through other comprehensive income (FVOCI) 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 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.