PRE-TAX PROFITS OF DKK 512 MILLION EQUAL TO A 15.3
% P. A. RETURN ON EQUITY
Presentation of Q2 2014
KEY MESSAGES
1
Core income 12 % up (y/y) driven by sale of Nets and strong commission income
2
Net Interest Income down 8 % (y/y) – but up 5 % q/q
3
Costs up 4 % (y/y) – primarily driven by one-offs related to M&A
4
Loans losses down to DKK 169 million corresponding to impairment ratio of .78 p.a.
5
Negative volume trend has been reversed – bank lending up 2 % (q/q) and back to level of YE 2013
6
Acquisition from FIH Erhvervsbank will contribute to further growth
7
Capital position and strategic liquidity remain strong
page 2
HIGHLIGHTS FROM THE INCOME STATEMENT
H1 Income Statement
SPAR NORD BANK
DKKm
Net interest income
Net fees, charges and commissions
Market-value adjustments
Other income
Core income
Staff costs
Operating expenses etc.
Costs
Core earnings before impairment
Impairments of loans and advances, etc.
Core earnings
Investment income
Profit/loss on ordinary activities
Sector Fund
Cost related to merger
Profit from continuing operations
Profit from discontinued operations
Profit before tax
Key messages
Realized
Realized
YTD 2014
YTD 2013
Change
in pct.
813
400
311
74
1,597
531
359
890
707
169
539
11
550
-52
0
498
14
512
883
372
121
54
1,430
518
342
859
571
203
368
30
398
-58
-39
301
31
332
-8
8
36
12
3
5
4
24
-17
47
-64
38
-11
65
-55
54
 Improvement of ROE
– H1 13: 10.9 % p.a.
– H1 14: 15.3 % p.a.
 Core income 12 % up
– Gain from sale of Nets
– Strong trend in commissions
 Loan losses down 17 %
 Core earnings up 47 %
Page 3
POSITIV TREND IN NII AND LOAN LOSSES IN Q2
Q2 Income Statement
SPAR NORD BANK
DKKm
Net interest income
Net fees, charges and commissions
Market-value adjustments
Other income
Core income
Staff costs
Operating expenses etc.
Costs
Core earnings before impairment
Impairments of loans and advances, etc.
Core earnings
Investment income
Profit/loss on ordinary activities
Sector Fund
Cost related to merger
Profit from continuing operations
Profit from discontinued operations
Profit before tax
Key messages
Realized
Q2 2014
Realized
Q1 2014
Change
in pct.
Realized
Q2 2013
Change
in pct.
416
195
62
43
714
273
178
451
264
79
185
0
185
-27
0
158
5
163
397
205
250
31
883
259
181
439
444
90
354
11
365
-25
0
340
9
349
5
-5
-75
37
-19
5
-1
3
-41
-13
-48
-49
9
432
176
44
30
683
264
169
433
250
95
155
14
169
-27
-23
119
21
139
-4
11
39
43
5
3
6
4
6
-17
19
10
0
-54
-46
-53
 NII up 5 %
– Volume growth
– Repayment of hybrid core capital
 Costs up 3 %
– Driven by one-offs related to
acquisition of FIH portfolio
 Loan losses down 13 %
33
-76
17
Page 4
NEGATIVE TREND IN VOLUME AND NII HAS BEEN REVERSED
Net interest income and volume
 Net interest income of DKK 813 million – 8 %
down on H1 2013
– But 5 % up quarter-on-quarter
 Positive trends
– Lending volume up 2 % (q/q) and back at the level of
YE 2013
– Reduction in interest expenses following repayment
of DKK 1,265 million in hybrid core capital in May
– Pressure on lending margin offset by improvement
of deposit margin
DKKm
750
34.2
34.1
33.8
33.0
33.7
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
500
250
0
Net interest income
 Negative trends
Margin trend
– Continued pressure on volumes and margins
 Outlook
– Portfolio taken over from FIH will contribute to
growth in volumes and income
– Underlying growth remains sluggish
– Competition puts lending margin under pressure
Loans, banking activities
Pct.
4.44
4.11
0.33
4.82
3.62
0.50
4.19
0.45
4.71
4.99
5.08
Q1
11
4.92
5.15
4.99
5.03
4.98
4.95
4.92
Q2
11
Q3
11
5.32
5.60
5.83
5.71
5.68
5.55
5.42
5.30
0.11
-0.11 -0.26
Q4
10
4.66
4.12
3.91
0.36
4.88
4.82
4.64
4.27
Q4
11
Q1
12
Interest margin (Deposits)
-0.66 -0.68 -0.68 -0.72 -0.65 -0.57
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Interest margin (Loans)
Q3
13
Q4
13
-0.47 -0.38
Q1
14
Q2
14
Interest margin
Page 5
NET FEE INCOME AT HIGHLY SATISFACTORY LEVEL
 Net fees and commissions of DKK 400 million – 8 %
up on H1 2013
Securities trading etc.
DKKm
 Strong growth in asset management and portfolio
management
– AUM in pooled schemes are up DKK 1.7 billion (24 %)
since YE 2013
– AUM in non-pension funds under mandate are up DKK 1.6
billion since YE 2013
100
Y/Y: 20 pct.
Asset management
75
75
50
50
 Earnings from mortgage-credit arrangements
continues to grow
25
25
– Strong demand for new products launched in Q2
0
Net fee income
DKKm
Q2 Q3
13 13
Q4 Q1
13 14
Q2
14
Y/Y: 5 pct.
100
YTD YTD
13 14
0
Q2 Q3
13 13
Loan transaction fees
DKKm
200
YTD 13/YTD 14: 7 pct.
500
400
Y/Y: 10 pct.
Q4 Q1
13 14
Q2
14
YTD YTD
13 14
Other fees
Y/Y: -3 pct.
200
150
150
100
100
50
50
300
200
100
0
YTD 13
YTD 14
0
0
Q2 Q3
13 13
Q4 Q1
13 14
Q2
14
YTD YTD
13 14
Q2 Q3
13 13
Q4 Q1
13 14
Q2
14
YTD YTD
13 14
Page 6
MARKET-VALUE ADJUSTMENTS AT AN EXTRAORDINARILY
HIGH LEVEL
 Market-value adjustments and dividends of
DKK 311 million (incl. Nets)
 Market developments in Q2 make way for
satisfactory market-value adjustments on bond
and share portfolio
 Slight decrease in customers’ interest and FX
related activities
Market-value adjustments and dividends
DKKm
300
250
200
150
100
50
0
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Breakdown on types
DKKm
Market-valued adjustments in Trading, Financial
Markets & The International Division
Tangible assets
Currency trade and -agio
Dividends on shares, etc.
Total
YTD
2014
YTD
2013
Change
62
186
25
38
311
58
12
30
21
121
4
175
-5
17
190
page 7
COSTS & EXPENSES DEVELOP AS EXPECTED
Costs and C/I Ratio
 Total costs and expenses of DKK 890 million – 4 %
higher than H1 2013
DKKm
 Payroll costs 3 % up on H1 2013
1,000
-
Rising payroll taxes
Group headcount is down 32 last 12 months
 Operating expenses up 6 % (y/y)
-
Primarily due to DKK 12 million in M&A-related one-offs
1,250
-
After the implementation of this decision, Spar Nord will
have 71 branches
43 branches have been closed down since 2008
 Further cost initiatives in the pipeline
-
Process optimization
0.56
750
500
250
0
0.0
YTD
2013
 Efforts to streamline branch network continued in H1
with the closing of 5 branches
-
0.60
YTD
2014
Breakdown on types
Costs
(DKKm)
Staff costs
Operating expenses
Depreciation
Costs
Operating expenses
(DKKm)
Staff-related expenses
Travel expenses
Marketing costs
IT expenses
Cost of premises
Other administrative expenses
Operating expenses
YTD
2014
YTD
2013
531
518
14
326
33
890
307
35
859
19
-2
31
YTD
2014
19
6
50
155
43
53
326
YTD
2013
20
8
50
154
47
29
307
Change
-1
-2
1
0
-3
24
19
Change
page 8
NOTICEABLE DECLINE IN LOAN LOSSES
Profit impact and impairment percentage
 Total impairments of DKK 169 million
corresponding to 0.78 % p.a.
DKKm
Pct.
300
 Impairment percentage incl. Mortgage lending: 0.37
1.5
0.9
250
0.8
200
 Breakdown on segments
– Corporate: 1.0 % p.a.
– Household: 0.5 % p.a.
150
100
50
0
 Full-year loan losses still expected to be lower
than in 2013
-1.5
YTD
2013
YTD
2014
Note: Average loans and guarantees
Profit impact and impairment percentage
DKKm
400
300
0.9
1.0
1.0
0.9
0.7
-0.40
200
100
0
-7.00
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
page 9
BUSINESS VOLUME HAS SWELLED NOTICEABLY IN 2014
 Total business volume has grown by DKK 6.7 billion since YE 2013
 Bank lending of DKK 33.7 billion – same level as YE 2013
– but up 2 % quarter-on-quarter
 Volume of mortgage-credits arranged continues to grow
– Total volume of DKK 60.3 billion, hereof DKK 51.4 billion in Totalkredit and DKK 8.9 billion i DLR Kredit
 Strong demand for asset management products
- AUM in pooled pension schemes and other custodianship account are up DKK 3.3 billion YTD
Bank deposits
Bank lending
Q2 13/Q2 14: -1 pct.
50
50
40
40
30
30
Pooled pension schemes
Q2 13/Q2 14: 0 pct.
Guarantees
Q2 13/Q2 14: 35 pct.
12
12
10
10
8
8
10
10
0
0
Q2 13 Q3 13 Q4 13 Q1 14 Q2 14
Q2 13 Q3 13 Q4 13 Q1 14 Q2 14
Investments
Q2 13/Q2 14: 17 pct.
Q2 13/Q2 14: 3 pct.
70
70
60
60
50
50
40
40
30
30
6
6
4
4
20
20
2
2
10
10
0
0
20
20
Mortgage loans
Q2 13/Q2 14: 5 pct.
0
Q2 13 Q3 13 Q4 13 Q1 14 Q2 14
Q2 13 Q3 13 Q4 13 Q1 14 Q2 14
Q2 13 Q3 13 Q4 13 Q1 14 Q2 14
0
Q2 13 Q3 13 Q4 13 Q1 14 Q2 14
page 10
A PERIOD MARKED BY VALUE-CREATING STRATEGIC INITIATIVES
 Acquisition of customer portfolio from Basisbank
– Strengthened position in the Copenhagen market with 1,000 new household customers
– Easy integration, attractive ROE and C/I
 Acquisition of customer portfolio from FIH Erhvervsbank
– Strengthened position in the corporate market – especially outside North Jutland
– Further business potential in the portfolio and valuable new resources/competences to Spar Nord
– Attractive alternative to organic growth in competitive market
• Repayment of governmental hybrid core capital
– Annual savings of about DKK 70 million
• Divestment of Swedish leasing activities
– Final step in a successful divestment of non-core activity
side 11
STATUS ON THE INTEGRATION OF ACTIVITIES FROM FIH
The acquired portfolio
Customers by size of business
 Approx. 900 commercial customers across Denmark
% of total business
 Total credit and guarantee facilities of DKK 4.0 billion1
DKK 0-5m
FIH offices acquired by Spar Nord
DKK 20-45m
30%
– Loans: DKK 2.4 billion
Offices acquired from FIH
30%
Aarhus
– Advances and guarantees: DKK 1.3 billion
– Market value of derivatives: DKK 0.3 billion
(CPH)
40%
 Risk weighted assets of DKK 2.7 billion
Fredericia
DKK 5-20m
 29 FIH employees to join Spar Nord
 FIH branches in Aarhus and Fredericia and part of
Copenhagen branch will be taken over
 After closing the transaction (1 July) has Spar Nord been
in dialogue with the acquired customers about products,
pricing and potential for expanding business relation
Customers by geography
% of total business
41%
18%
12%
9%
Copenhagen
1In
Aarhus
Vejle
7%
Odense
7%
6%
Herning
Kolding
Other
addition, other related assets and liabilities are included in the transaction
page 12
POSITIVE IMPACT ON KEY FINANCIALS
Financial expectations
Return on equity
 Spar Nord anticipates that in 2014, the FIH
portfolio will add about DKK 35m to Spar Nord’s
core earnings before impairment
0,5%
Cost/Income ratio
0,59
 As from 2015, the annual earnings before
impairment are expected to be around DKK 70m
 The portfolio taken over is assessed to have a risk
level that is slightly lower than Spar Nord’s
existing business customer portfolio (due to first
priority collateral)
0,30
 Non-recurring costs in connection with the
transaction are expected to amount to about DKK
25m before tax, of which the majority is expected
to be defrayed in 2014
2014
Full-year
effect of
acquisition
Pro-forma
after
acquistion
Spar Nord (2013)
FIH portfolio
(incremental)
Note: Earnings are before non-recurring costs in connection with the transaction
page 13
STRONG CAPITAL POSITION – ALSO AFTER ACQUISITIONS
Total capital ratio and subordinated capital
 CET1 ratio of 14.2 and total capital ratio of 16.9
– Total capital ratio reduced by 2.8 pp by the repayment of
DKK 1,265 hybrid core capital at the end of May
Pct.
20
DKKm
1,500
1,200
15
 Individual solvency need of 9.7 %
– Excess coverage of DKK 3.2 billion (7.2 pp)
900
10
600
• Based on fully loaded CRD IV the reported CET1
ratio corresponds to 13.3
5
400
0
• After the end of Q2, CET1 ratio has been reduced
by .8 pp by the FIH-acquisition
2010 2011 2012 2013
Total capital ratio
YTD
14
Core tier 1 ratio
58
0
2014
2015
Hybrid capital
2016
2017
2018
->
Subordinated loan capital
Capital base
 Dividend policy
– Target: Distribution of 33 % of net profits
– Subject to compliance to strategic capital targets
– Possibility of extraordinary dividends and buy-backs, if no
value adding investments can be found
700
550
300
Pct.
Core tier 1 ratio
Hybrid capital
Deductions in hybrid capital
Tier 1 ratio
Subordinated debt
Deductions in own funds
Total capital ratio
Q2
2014
14.2
1.0
-0.5
14.7
2.6
-0.5
16.9
2013
14.1
4.2
-1.0
17.4
2.9
-1.0
19.4
2012
12.1
3.9
-1.0
15.1
1.4
-1.0
15.5
2011
10.4
3.8
-0.9
13.3
1.6
-0.9
14.0
page 14
COMFORTABLE STRATEGIC LIQUIDITY OF DKK 17.6 BILLION
Strategic liquidity
 Strategic liquidity of DKK 17.6 billion – up DKK
0.3 billion YTD
 Independence of funding from capital markets
 No challenges from LCR
YTD
2014
42.5
2.1
8.6
53.2
33.7
1.5
-0.4
17.6
DKKb
Deposits, banking activities
Seniorfunding
Core capital and sub. capital
Stable long term funding
Loans, banking activities
Loans, leasing activities
Maturity < 1 year
Liquidity target
2013
41.8
3.4
9.5
54.7
33.8
2.1
-1.5
17.3
2012
41.9
9.6
8.5
60.0
34.9
4.0
-6.3
14.8
Maturity structure
Loan to deposit ratio
Pct.
DKKb
200
150
121
109
111
107
100
85
78
73
50
2.0
0
2008
2009
2010
2011
2012
2013
YTD 14
2014
Issued bonds
0.0
2015
0.1
2016
2017
2018->
Senior loans
page 15
GUIDANCE AND SHARE PRICE
Guidance for 2014
Share price
 Core earnings before impairments estimated at
about DKK 1,100 million + DKK 175 million
relating to sale of Nets
 Impairment percentage expected to come down
slightly from last years level
 Contribution to sector targeted solutions: DKK
100 million
 Small positive contribution from discontinued
activities
Share price
Market cap
EPS (2013)
EPS (2014)1
P/B
60.00
7.5
3.9
5.6
1,10
DKK
DKKm
DKK
DKK
Note: Based on consensus estimates
page 16