Earnings Release • Feb 9, 2017
Earnings Release
Open in ViewerOpens in native device viewer
9 February 2017 Company Announcement No. 1, 2017
Nasdaq Copenhagen
Spar Nord has just published its Annual Report for 2016 – with the following key announcements:
Skelagervej 15 P.O. Box 162 DK-9100 Aalborg
9 February 2017
Cvr. No. 13 73 75 84
Lasse Nyby, Chief Executive Officer of Spar Nord, has the following comment on the financial statements:
"2016 was a busy as well as positive year for Spar Nord, displaying both brisk customer activity and a smooth migration to the new IT platform, plus the so far successful launch of our new strategy. Customers' activities and our employees' dedicated efforts have helped us achieve a net profit of DKK 838 million, equal to a 10.7% return on equity. Given the keen competition on the market, and particularly against the backdrop of the modest economic growth and low interest level, we consider the profit to be highly satisfactory.
Looking forward it is clear that 2017 will be characterized by the work on implementing and embedding the new strategy we put forward in autumn 2016 – and get a head start on both growth and efficiency-enhancing initiatives. Externally, the low interest level and the presumably sustained relatively moderate demand for loans and financing will once more drive us to fight hard for the top line. Nonetheless, it will also be a year where we hopefully take yet another step in the right direction on the credit side".
Should you have any questions in connection with this announcement or the Annual Report as a whole, please contact Ole Madsen, Senior Vice President, Communication & Business Development, at tel. + 45 9634 4010 or at [email protected].
9 February 2017
Cvr. No. 13 73 75 84
Sincerely yours, Spar Nord
Spar Nord Annual Report
Spar Nord focuses on providing comprehensive counselling to retail customers and businesses in the local area. The Bank serves a total of about 368,000 retail customers and approx. 32,000 business customers.
Spar Nord has 1,540 employees, 1,120 of whom work at Spar Nord's Local Banks, 64 at Trading, Financial Markets & the International Division, and 356 in the central functions.
Spar Nord is owned by 112,000 shareholders – 75% of whom are from Denmark and 25% from other countries. Of these, private investors represent 33% and professional and institutional investors 67%.
The Spar Nord chain is composed of 58 local banks (branches), organized into 31 bank regions. Almost all major towns and cities in Denmark have a Spar Nord branch.
Spar Nord's total bank deposits amounted to DKK 46.5 billion. The volume has increased by as much as 11% over the past five years. Spar Nord has bank and leasing loans for a total of DKK 35.1 billion, and mortgagecredit loans arranged through the Bank amounted to DKK 73.6 billion. Bank lending has been under pressure in recent years, while mortgage-credit lending has grown sharply.
Spar Nord is a market leader in North Jutland, with a market share (number of retail and business customers relative to the total population) of around 32%. The Bank's national market share ranges at around 4%.
Customers
1,540
Employees
58
Branches
32%
Market share in North Jutland
4%
National market share
46.5 DKK bn
Bank deposits
35.1 DKK bn
Bank and leasing loans
| 2001 | 2009 | 2016 | |
|---|---|---|---|
| Branches | 65 | 77 | 58 |
| North Jutland | 63 | 48 | 27 |
| Outside North Jutland | 2 | 29 | 31 |
| Lending, banking activities (DKK bn) 14.6 | 30.1 | 31.8 | |
| North Jutland | 12.4 | 21.0 | 13.5 |
| Outside North Jutland | 2.2 | 9.1 | 18.3 |
| Deposits, banking activities (DKK bn) 14.0 | 29.0 | 44.1 | |
| North Jutland | 13.2 | 21.8 | 21.6 |
| Outside North Jutland | 0.8 | 7.2 | 22.5 |
| Customers | 198,000 | 264,000 | 394,000 |
| North Jutland | 190,000 | 193,000 | 192,000 |
| Outside North Jutland | 8,000 | 71,000 | 202,000 |
| Employees | 724 | 995 | 1,057 |
| North Jutland | 668 | 645 | 479 |
| Outside North Jutland | 56 | 350 | 578 |
Note: Spar Nord's local branches
Spar Nord was established in Aalborg in 1824, and North Jutland remains the Bank's home turf. However, since 2001 the Bank's strategy has been to open branches throughout Denmark. Thus, Spar Nord's ambition is to combine the physical and psychological proximity of a local bank with the expertise and economies of scale that flow from being a nationwide player.
During the growth strategy's initial years the Bank pursued geographical growth by establishing new branches in major towns and cities throughout the country. As a result, a total of 18 new branches were established. As from 2008, the strategy also encompassed acquisitions and mergers. First, the Bank took over branches from Roskilde Bank, later it merged with Sparbank and subsequently conducted a series of acquisitions that included FIH Erhvervsbank, Basisbank and Danske Andelskassers Bank. Since 2001, 58 branches have closed down or merged, primarily in the North Jutland region. At end-2016, 31 of the Bank's 58 branches and 61% of the total business volume are located outside North Jutland.
1. 2. Profitable focus on ordinary household customers and local SMEs
4.
Standardized approach to riskweighting – low leverage and low risk
High customer satisfaction and potential for further market share growth
Strong capital position – providing room for substantial profit distribution as well as firepower for M&A 5. 6.
3. Sound credit quality – although agriculture still faces challenges
New strategy plan: The Personal Bank in a Digital World
2016 was a busy as well as positive year for Spar Nord, displaying both brisk customer activity and a smooth migration to the new IT platform, plus the so far successful launch of our new strategy. Customers' activities and our employees' dedicated efforts have helped us achieve a net profit of DKK 838 million, equal to a 10.7% return on equity. Given the keen competition on the market, and particularly against the backdrop of the modest economic growth and a low interest level, we consider the profit to be highly satisfactory.
From a shareholder perspective, Spar Nord's performance in 2016 forms a uniformly positive picture: The Spar Nord share price lifted by 33% compared with the 0.2% seen in the banking index, and combined with a paid dividend of DKK 3 per share, equal to a total dividend yield of 38%, this made the Spar Nord share a good investment in 2016. In fact, the Spar Nord share was one of the past year's best-performing bank shares in the Nordic countries.
2016 proved to be yet another year in the slow yet continuing recovery of the national economy – and thus improvement of the framework conditions for running a bank. Private households' finances are generally solid as a result of factors like rising disposable incomes, relatively low unemployment and the housing market looks generally to be on the verge of a rebound. However, growth remains relatively too muted to spark a real increase in investment and demand for financing.
Combined, these factors put earnings on the traditional deposit and lending business under substantial pressure, although business activities in areas such as mortgage-credit arrangement and asset management are gathering momentum. Spar Nord's financial statements reflect this growth in an increase over the past five years in net income from fees, charges and commissions from 25% to 39% of total net income from interest and fees, charges and commissions. Together with the highly
respectable market-value adjustments, this means that even in the extreme low-interest environment earnings could be generated that by far exceeded forecasts at the beginning of the year.
One of last year's highlights for the Spar Nord organization was the challenging technical migration of our basic IT platform from our old business partner, SDC, to BEC, our new partner. This IT infrastructure revamping project was unequivocally the largest in the Bank's history, involving just about the entire organization in the preparation, the migration proper and ultimately the internal and customer-centric follow-up activities.
Kjeld Johannesen, Chairman of the Board of Directors.
After an 18-month preparatory phase, Spar Nord completed the migration of all its IT systems and data from SDC to BEC at the beginning of May. The migration process as such proved highly satisfactory, and the subsequent efforts to boost a "mind-shift" among employees and customers to familiarize them with the new systems are also proceeding smoothly. So far, the migration has thus proved a generally positive experience for both customers and employees.
Hopefully, the Bank's shareholders will also find the transition positive, as it will fetch annual savings in the amount of DKK 55 million and is likely to provide firepower for our ongoing development, which will put us in good stead in the face of tomorrow's digital challenges.
Fifteen years have passed since we launched our so-called Local Strategy. At the heart of this strategy was an ambitious objective to grow and win market shares beyond the Bank's home turf in North Jutland. To this end, we designed a business model that gave the local branches a good measure of decision-making autonomy and room for manoeuvre.
Lasse Nyby, Chief Executive Officer.
Those 15 years proved a turbulent period for Denmark's financial institutions. More than half the banks that existed before 2000 have closed down. Against this background alone Spar Nord feels cause to be satisfied with the success of its strategy to spread the locally embedded business model from North Jutland to all of Denmark.
Although our field position is good, offering a package with "more of the same" is not the right approach to meeting market needs in the coming years. On the contrary, far-reaching changes that will definitely require a major strategic reshaping are on the horizon: Digitalization is sweeping the globe. Customers are becoming more self-reliant and demanding. Growth remains sluggish, and interest rates are staying low. And, to complete the picture, we continue to be inundated with new regulatory requirements.
Having sketched this "diagnostic" backdrop, in autumn 2016 we launched our new vision to become Denmark's most personal bank and our new strategy plan "The Personal Bank in a Digital World" – a plan we will deploy to conduct our three ''Must Win Battles': Top-notch personalized advice and service, Local ownership and strong central support and Digitalization the Spar Nord way. If we succeed in carrying through all the scheduled initiatives, the plan will also help us generate satisfactory results in the years to come.
Consequently, in 2017 Spar Nord will clearly be characterized by the work of implementing and embedding our new strategy and getting a good head start on both the growth and efficiency-enhancing measures. Externally, the low interest level and the presumably sustained relatively moderate demand for loans and financing will once more drive us to fight hard for the top line. Nonetheless, it will also be a year where we hopefully take yet another step in the right direction on the credit side.
Everything considered, we are therefore confident that operating at the intersection of our own strategic initiatives and the financial framework conditions for our business, we and our 1,500 employees will be able to generate yet another satisfactory profit for our shareholders
Sincerely yours,
Kjeld Johannesen Lasse Nyby Chairman of the Board of Directors Chief Executive Officer
Impairment account and discount on
exposures taken over **)
CORE EARNINGS - YEAR
| INCOME STATEMENT | 2016 | 2015 | Change in | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|---|
| DKK m | % | |||||
| Net interest income *) | 1,621.2 | 1,727.2 | -6.1 | 1,799.5 | 1,849.4 | 1,676.8 |
| Net income from fees, charges and commissions | 1,052.7 | 1,030.3 | 2.2 | 863.3 | 722.6 | 561.6 |
| Market-value adjustments and dividends | 433.7 | 506.9 | -14.4 | 379.5 | 200.8 | 243.8 |
| Other operating income *) | 29.7 | 38.1 | -22.0 | 49.9 | 99.2 | 173.9 |
| Profit/loss on equity investments in associates and group enterprises |
29.6 | 28.3 | 4.6 | 109.7 | 66.4 | 54.8 |
| Core income | 3,166.9 | 3,330.8 | -4.9 | 3,201.9 | 2,938.4 | 2,710.9 |
| Salaries | 1,141.7 | 1,098.2 | 4.0 | 1,052.9 | 1,025.6 | 930.3 |
| Operating expenses | 660.4 | 679.2 | -2.8 | 798.0 | 617.5 | 591.1 |
| Depreciation, amortiz. and impairment | 94.3 | 65.5 | 44.0 | 71.5 | 98.3 | 153.5 |
| Costs | 1,896.4 | 1,842.9 | 2.9 | 1,922.4 | 1,741.4 | 1,674.9 |
| Core earnings before impairment | 1,270.5 | 1,487.9 | -14.6 | 1,279.5 | 1,197.0 | 1,036.0 |
| Impairment of loans, advances and receivables, etc. *) | 242.4 | 315.6 | -23.2 | 493.1 | 404.8 | 661.8 |
| Core earnings | 1,028.1 | 1,172.3 | -12.3 | 786.4 | 792.2 | 374.2 |
| Earnings from investment portfolios | - | - | - | 20.9 | 43.6 | 40.9 |
| Contributions to sector-wide solutions | - | -98.7 | - | -102.3 | -120.2 | -58.4 |
| Special merger-related items | - | - | - | - | -46.1 | -66.6 |
| Profit/loss before tax | 1,028.1 | 1,073.6 | -4.2 | 705.0 | 669.5 | 290.1 |
| Tax | 189.9 | 176.8 | 7.4 | 91.4 | 133.4 | 66.3 |
| Profit/loss | 838.2 | 896.8 | -6.5 | 613.6 | 536.1 | 223.8 |
| Of which, share attributable to interest expenses to holders of Additional Tier 1 (AT1) capital |
26.1 | 13.5 | 93.3 | - | - | - |
| BALANCE SHEET DISCLOSURES DKK m |
||||||
| Total assets | 78,473 | 76,357 | 2.8 | 78,825 | 74,605 | 79,146 |
| Loans and advances | 41,346 | 38,039 | 8.7 | 35,948 | 37,648 | 39,058 |
| Lending, banking activities | 33,131 | 32,630 | 1.5 | 34,352 | 33,772 | 34,916 |
| Lending, reverse repo transactions | 6,253 | 4,155 | 50.5 | 464 | 1,786 | 116 |
| Lending, leasing activities | 1,962 | 1,254 | 56.5 | 1,132 | 2,090 | 4,026 |
| Deposits | 61,005 | 58,116 | 5.0 | 53,090 | 50,883 | 48,923 |
| Deposits, banking activities | 46,464 | 44,366 | 4.7 | 42,236 | 41,831 | 41,922 |
| Deposits, repo transactions | 0 | 370 | - | 0 | 0 | 0 |
| Deposits in pooled schemes | 14,541 | 13,380 | 8.7 | 10,854 | 9,052 | 7,001 |
| Subordinated debt | 1,093 | 1,089 | 0.4 | 1,708 | 3,002 | 2,562 |
| Holders of Additional Tier 1 (AT1) capital instruments | 862 | 412 | 109.2 | - | - | - |
| Shareholders' equity | 7,765 | 7,475 | 3.9 | 7,033 | 6,533 | 5,975 |
| Contingent liabilities | 12,334 | 9,585 | 28.7 | 10,240 | 5,380 | 5,767 |
| Total risk exposure | 47,485 | 46,500 | 2.1 | 49,005 | 42,697 | 46,307 |
| Core capital (Tier 1) | 7,427 | 6,946 | 6.9 | 6,516 | 7,437 | 6,973 |
Contractual non-performing loans Business volume *) As compared to the financial part of the Annual Report, the format of core earnings includes a reclassification of the following items: Net interest 443 514 -13.8 523 672 1,186 220,259 210,658 4.6 195,613 182,387 179,346
1,994 1,998 -0.2 2,149 2,117 2,742
income, Other operating income and Impairment of loans, advances and receivables, etc. The reclassification relates to the share of the discount, recognized as income, on exposures taken over; see note 3.
**) Spar Nord's impairment account amounts to DKK 1,891 million (2015: DKK 1,837 million) (note 51) and the discount on commitments taken over amounts to DKK 103 million (2015: DKK 161 million).
As from 1 January 2015, earnings from investment portfolios are presented as part of the Bank's core earnings, in that the remaining portfolio of securities - previously presented separately - has been reduced substantially.
The definition and breakdown of contributions to sector-wide solutions, etc., which have been recognized separately, appear from note 3.
| 2016 | 2015 | 2014 | 2013 | 2012 | ||
|---|---|---|---|---|---|---|
| OWN FUNDS | ||||||
| Total capital ratio | 17.7 | 17.0 | 15.0 | 19.4 | 15.5 | |
| Core capital (Tier 1) ratio | 15.6 | 14.9 | 13.3 | 17.4 | 15.1 | |
| Common Equity Tier 1 (CET1) ratio | 14.0 | 14.4 | 13.0 | 14.1 | 12.1 | |
| EARNINGS | ||||||
| Return on equity before tax, excl. Additional Tier 1 (AT1) capital *) | % | 13.2 | 14.6 | 10.4 | 10.7 | 5.5 |
| Return on equity after tax, excl. Additional Tier 1 (AT1) capital *) | % | 10.7 | 12.2 | 9.0 | 8.6 | 4.2 |
| Cost share of core income | DKK | 0.60 | 0.55 | 0.60 | 0.59 | 0.62 |
| Cost share of core income, incl. impairment of loans and advances, etc. | DKK | 0.68 | 0.65 | 0.75 | 0.73 | 0.86 |
| Return on assets | % | 1.1 | 1.2 | 0.8 | 0.7 | 0.3 |
| MARKET RISK AND LIQUIDITY | ||||||
| Interest-rate risk | % | 1.2 | 1.8 | 0.6 | -0.3 | -1.1 |
| Foreign-exchange position | % | 3.2 | 3.4 | 2.6 | 3.7 | 1.4 |
| Foreign-exchange risk | % | 0.1 | 0.1 | 0.0 | 0.0 | 0.0 |
| Excess coverage rel. to statutory cash ratio requirement | % | 308.3 | 296.1 | 186.0 | 230.7 | 211.5 |
| Liquidity Coverage Ratio (LCR) | % | 171 | 145 | - | - | - |
| CREDIT RISK | ||||||
| Loans and advances plus impairment account and discount | ||||||
| hereon rel. to deposits | % | 70.9 | 68.8 | 71.7 | 78.1 | 85.4 |
| Loans and advances rel. to shareholders' equity | 5.3 | 5.1 | 5.1 | 5.8 | 6.5 | |
| Increase in loans and advances for the year | % | 3.6 | -4.5 | -1.1 | -7.9 | 1.7 |
| Large exposures as % of own funds | % | 14.5 | 16.1 | 0.0 | 26.2 | 16.5 |
| Impairment ratio | 0.4 | 0.6 | 1.0 | 0.9 | 1.4 | |
| EMPLOYEES AND BRANCHES | ||||||
| Number of employees (full-time, end of year) | 1,540 | 1,538 | 1,507 | 1,512 | 1,653 | |
| Number of branches | 58 | 70 | 71 | 76 | 90 | |
| THE SPAR NORD SHARE | ||||||
| DKK PER SHARE OF DKK 10 | ||||||
| Share price, end of year | 81 | 61 | 58 | 49 | 26 | |
| Net asset value (NAV) *) | 63 | 60 | 56 | 52 | 48 | |
| Profit/loss for the year *) | 6.6 | 7.1 | 4.9 | 4.3 | 1.9 | |
| Dividend | 5.0 | 3.0 | 1.6 | 1.0 | 0.0 | |
| Extraordinary dividend | DKK | - | 2.0 | - | - | - |
| Return | DKK | 38 | 11 | 20 | 88 | 13 |
*) Financial ratios have been calculated as if the Additional Tier 1 (AT1) capital were treated as a liability for accounting purposes, which means that the calculation of the financial ratios has been based on the shareholders' share of profit and equity. The shareholders' share of profit and equity appears from the statement of changes in equity.
%
12 9 12 11 14
The Danish Financial Supervisory Authority's layout and ratio system appear from note 57.
Ratio definitions appear from note 58.
Price/earnings
FINANCIAL RATIOS
CORE EARNINGS - QUARTERLY
| INCOME STATEMENT | 2016 | 2016 | 2016 | 2016 | 2015 |
|---|---|---|---|---|---|
| DKK m | Q4 | Q3 | Q2 | Q1 | Q4 |
| Net interest income *) | 395.3 | 412.9 | 417.2 | 395.8 | 415.8 |
| Net income from fees, charges and commissions | 274.5 | 259.7 | 268.1 | 250.4 | 239.2 |
| Market-value adjustments and dividends | 104.4 | 142.5 | 114.7 | 72.1 | 43.4 |
| Other operating income | 1.4 | 11.0 | 9.7 | 7.6 | 8.0 |
| Profit/loss on equity investments in associates | |||||
| and group enterprises | 7.1 | 7.5 | 7.4 | 7.6 | 7.8 |
| Core income | 782.7 | 833.6 | 817.1 | 733.5 | 714.2 |
| Salaries | 306.9 | 248.5 | 306.9 | 279.4 | 290.8 |
| Operating expenses | 192.6 | 140.5 | 149.1 | 178.2 | 165.3 |
| Depreciation, amortiz. and impairment | 43.4 | 16.5 | 17.3 | 17.1 | 13.3 |
| Costs | 542.9 | 405.5 | 473.3 | 474.7 | 469.4 |
| Core earnings before impairment | 239.8 | 428.1 | 343.8 | 258.8 | 244.8 |
| Impairment of loans, advances and receivables, etc. *) | 54.6 | 54.4 | 78.9 | 54.5 | 75.5 |
| Core earnings | 185.2 | 373.7 | 264.9 | 204.3 | 169.3 |
| Contributions to sector-wide solutions | - | - | - | - | -24.6 |
| Profit/loss before tax | 185.2 | 373.7 | 264.9 | 204.3 | 144.7 |
| Tax | 37.3 | 66.0 | 47.0 | 39.6 | 27.3 |
| Profit/loss | 147.9 | 307.7 | 217.9 | 164.7 | 117.4 |
| Of which, share attributable to interest expenses | |||||
| to holders of Additional Tier 1 (AT1) capital | 7.9 | 6.2 | 6.1 | 5.9 | 6.1 |
DKK m
| Total assets | 78,473 | 78,957 | 77,476 | 79,432 | 76,357 |
|---|---|---|---|---|---|
| Loans and advances | 41,346 | 39,697 | 38,531 | 40,404 | 38,039 |
| Lending, banking activities | 33,131 | 33,332 | 33,398 | 33,635 | 32,630 |
| Lending, reverse repo transactions | 6,253 | 4,591 | 3,528 | 5,400 | 4,155 |
| Lending, leasing activities | 1,962 | 1,774 | 1,605 | 1,369 | 1,254 |
| Deposits | 61,005 | 60,926 | 59,649 | 57,248 | 58,116 |
| Deposits, banking activities | 46,464 | 47,046 | 46,295 | 43,802 | 44,366 |
| Deposits, repo transactions | 0 | 0 | 0 | 364 | 370 |
| Deposits in pooled schemes | 14,541 | 13,880 | 13,354 | 13,082 | 13,380 |
| Subordinated debt | 1,093 | 1,095 | 1,093 | 1,092 | 1,089 |
| Holders of Additional Tier 1 (AT1) capital instruments | 862 | 404 | 397 | 414 | 412 |
| Shareholders' equity | 7,765 | 7,669 | 7,402 | 7,616 | 7,475 |
| Contingent liabilities | 12,334 | 11,885 | 10,847 | 9,373 | 9,585 |
| Total risk exposure | 47,485 | 47,778 | 46,823 | 46,943 | 46,500 |
| Core capital (Tier 1) | 7,427 | 6,943 | 6,875 | 6,803 | 6,946 |
| Impairment account and discount exposures taken over | 1,994 | 2,020 | 2,024 | 2,011 | 1,998 |
| Contractual non-performing loans | 443 | 439 | 468 | 472 | 514 |
| Business volume | 220,259 | 218,173 | 214,107 | 210,442 | 210,658 |
*) As compared to the financial part of the Annual Report, the format of core earnings includes a reclassification of the following items: Net interest income and Impairment of loans, advances and receivables, etc. The reclassification relates to the share of the discount, recognized as income, on exposures taken over; see note 3.
The definition and breakdown of contributions to sector-wide solutions, etc., which have been recognized separately, appear from note 3.
| OWN FUNDS | 2016 Q4 |
2016 Q3 |
2016 Q2 |
2016 Q1 |
2015 Q4 |
RATIOS | |
|---|---|---|---|---|---|---|---|
| Total capital ratio | 17.7 | 16.6 | 16.8 | 16.6 | 17.0 | ||
| Core capital (Tier 1) ratio | 15.6 | 14.5 | 14.7 | 14.5 | 14.9 | ||
| Common Equity Tier 1 (CET1) ratio | 14.0 | 13.9 | 14.0 | 13.8 | 14.4 | ||
| EARNINGS | |||||||
| Return on equity before tax, excl. Additional Tier 1 (AT1) capital *) | % | 2.3 | 4.9 | 3.5 | 2.6 | 1.9 | |
| Return on equity after tax, excl. Additional Tier 1 (AT1) capital *) | % | 1.9 | 4.0 | 2.9 | 2.1 | 1.6 | |
| Cost share of core income | DKK | 0.69 | 0.49 | 0.58 | 0.65 | 0.66 | |
| Cost share of core income, incl. impairment of loans | |||||||
| and advances | DKK | 0.76 | 0.55 | 0.68 | 0.72 | 0.76 | |
| Return on assets | % | 0.2 | 0.4 | 0.3 | 0.2 | 0.2 | |
| MARKET RISK AND LIQUIDITY | |||||||
| Interest-rate risk | % | 1.2 | 0.4 | 0.7 | 1.1 | 1.8 | |
| Foreign-exchange position | % | 3.2 | 3.1 | 3.0 | 3.4 | 3.4 | |
| Foreign-exchange risk | % | 0.1 | 0.0 | 0.1 | 0.0 | 0.1 | |
| Excess coverage rel. to statutory cash ratio requirement | % | 308.3 | 298.8 | 283.1 | 264.0 | 296.1 | |
| Liquidity Coverage Ratio (LCR) | % | 171 | 155 | 161 | 152 | 145 | |
| CREDIT RISK | |||||||
| Loans and advances plus impairment account and | |||||||
| discount hereon rel. to deposits | % | 70.9 | 68.3 | 67.9 | 74.0 | 68.8 | |
| Loans and advances rel. to shareholders' equity | 5.3 | 5.2 | 5.2 | 5.3 | 5.1 | ||
| Increase in loans and advances for the period | % | 0.0 | 0.3 | 0.0 | 3.3 | -1.2 | |
| Large exposures as % of own funds | % | 14.5 | 15.8 | 15.9 | 17.2 | 16.1 | |
| Impairment ratio | 0.1 | 0.1 | 0.2 | 0.1 | 0.2 | ||
| EMPLOYEES AND BRANCHES | |||||||
| Number of employees (full-time, end of period) | 1,540 | 1,548 | 1,556 | 1,551 | 1,538 | ||
| Number of branches | 58 | 66 | 70 | 70 | 70 | ||
| THE SPAR NORD SHARE | |||||||
| DKK PER SHARE OF DKK 10 | |||||||
| Share price, end of period | 81 | 64 | 54 | 63 | 61 | ||
| Net asset value (NAV) *) | 63 | 62 | 60 | 61 | 60 |
*) Financial ratios have been calculated as if the Additional Tier 1 (AT1) capital were treated as a liability for accounting purposes, which means that the calculation of the financial ratios has been based on the shareholders' share of profit and equity. The shareholders' share of profit and equity appears from the statement of changes in equity.
1.2 2.4 1.7 1.3 0.9
Profit/loss for the period *)
In 2016, Spar Nord recorded a pre-tax profit of DKK 1,028 million (2015: DKK 1,074 million), amounting to DKK 838 million after tax (2015: DKK 897 million.) The profit performance yields a post-tax return on equity of 10.7% (2015: 12.2%).
The profit reflects core earnings before impairment in the amount of DKK 1,271 million, which is DKK 217 million, or 15%, down on 2015, although significantly higher than projected at the beginning of the year. Impairment of loans & advances, etc. amounted to DKK 242 million (2015: DKK 316 million), equal to 0.44% of total loans, advances and guarantees.
Total core income for the year ended at DKK 3,167 million, which is somewhat higher than forecast at the beginning of 2016, but DKK 164 million, or 5%, lower than in 2015. Adjusted for the substantial one-off income deriving from the sale of Spar Nord's shareholding in Nørresundby Bank in 2015, this represents a rise in core income of DKK 62 million, or 2%.
Net income from fees, charges and commissions aggregated DKK 1,621 million, corresponding to a decline of DKK 106 million, equal to 6%, compared with 2015. The low interest level resulted in an interest income on the Bank's bond portfolio that was DKK 78 million lower in 2016 than in 2015. At the same time, interest income on loans to customers fell as a result of the narrower lending margin. At end-2016, the lending margin was thus 26 basis points lower than at end-2015. On the upside, during the same period the Bank succeeded in reducing the deposit margin by 14 basis points.
In 2016, net income from fees, charges and commissions amounted to DKK 1,053 million, equal to an advance of DKK 23 million, or 2%, compared with 2015, a year in which performance was already at an all-time high. The background to the highly satisfactory development is growth in income from fees, charges and commissions from securities trading and asset management, rising income from mortgage-credit loans arranged and higher income from the "daily banking" area.
Thus, recent years' declining market rates and pressure on the lending margin has meant that net income from fees, charges and commis-
Net interest income
Net income from fees, charges and commissions
sions, which continues to grow, now represents a steadily increasing share of the Group's core income.
Market-value adjustments and dividends ended at DKK 434 million, which is DKK 73 million, or 14%, down on 2015. When adjusted for the non-recurring income of DKK 226 million in 2015 deriving from the sale of the Nørresundby Bank shareholding, this represents a highly satisfactory increase of as much as 54%.
The underlying growth is attributable to a strong performance in the trading area, particularly in the bond area because the spread between Danish mortgage-credit bonds and government bonds narrowed and interest rates fell.
Market-value adjustments and dividends on strategic shareholdings in financial sector companies fell from 2015 to 2016, reflecting the absence of extraordinary income relating to Nørresundby Bank, while DLR Kredit, Danmarks Skibskredit, Vækst Invest Nordjylland A/S, Erhvervsinvest K/S and Nets (post-adjustment of selling price), contributed with positive results. 800
The Group's total costs and expenses ended at DKK 1,896 million, which is DKK 53 million, or 3%, up on 2015, or in line with 2015 when taking into account the non-recurring expenses of DKK 64 million that were defrayed in 2016 in connection with the implementation of the Bank's new strategy. 200 300 400 500
Wages and salaries accounted for DKK 1,142 million of total costs and expenses for the year. This is 4% higher than in 2015, on the one hand due to pay rises under collective agreements and the extra work connected with complet-0 2.757 2.572 2.663
(DKK m)
ing the IT-migration process, and on the other the successful outcome of a legal action regarding the principles governing payroll tax calculation (DKK 17 million). DKK 20 million of the realized payroll costs is attributable to severance pay, etc. in connection with the implementation of the Bank's new strategy.
At end-2016, the Group employed 1,540 employees.
Other operating expenses came to DKK 660 million, which is DKK 19 million, or 3%, down on 2015. The fall reflects a reduction in several important expense areas including IT and marketing. DKK 23 million of the realized operating expenses derived from non-recurring items related to the new strategy.
Finally, depreciation & amortization and impairment losses amounted to DKK 94 million, equal to a growth of 44% compared with 2015. DKK 21 million of the realized depreciation & amortization charges and impairment losses is attributable to the implementation of the new strategy (closure of branches, IT, etc.).
The core income and costs realized correspond to a cost/ income ratio of 0.60 (2015: 0.55). Adjusted for the divestment of the Nørresundby Bank shareholding in 2015, this represents a growth from 0.59 to 0.60.
Thus, the Group's core earnings before impairment amounted to DKK 1,271 million versus DKK 1,488 million in 2015.
The core earnings realized in 2016 should be viewed against the original projection for core earnings before impairment to end "in the DKK 1.1 billion range" for the full year of 2016.
In connection with the Q3 financial statements, the forecast was adjusted upwards to "in the range of DKK 1.2 billion after non-recurring costs of about DKK 50 million related to a new strategy".
The total profit impact from loan impairment losses, etc. amounted to DKK 242 million in 2016, equal to 0.44% of total loans, advances and guarantees. The realized impairment losses amounted to DKK 74 million, which is 23% down on 2015 and lower than expected at the beginning of the year.
(DKK m)
Agricultural customers account for DKK 121 million, or 50%, of the total impairment losses in the amount of DKK 242 million. This corresponds to an impairment ratio of 3.6% for this customer category. Retail customers contributed with DKK -4 million, equal to an impairment ratio of 0.0%, and DKK 125 million is attributable to business customers, excl. agricultural customers, equal to an impairment ratio of 0.4%. Impairment of loans to business customers is attributable primarily to a few major impairment losses on wind turbine exposures and property exposures. To some extent, the distribution between retail and business customers may have been affected by the implemented IT migration and is thus less accurate than normally.
At end-2016, the accumulated impairment ratio stood at 22 % for the Group's agricultural exposures. The impairment loss ratio for milk producers was 38 %, and 31 % for pig producers.
| Line of business | Loans, advances and guarantees |
and discount on exposures taken over |
||
|---|---|---|---|---|
| % | 31.12.15 | 31.12.16 | 31.12.16 | |
| Agriculture, hunting and forestry | 7.6 | 6.9 | 38.1 | |
| Fisheries | 0.2 | 0.2 | 0.1 | |
| Industry and raw materials extraction | 5.5 | 5.4 | 2.6 | |
| Energy supply | 4.1 | 3.3 | 1.4 | |
| Building and construction | 3.4 | 3.9 | 3.0 | |
| Trade | 7.8 | 7.8 | 4.3 | |
| Transport, hotels and restaurants | 3.3 | 3.4 | 3.2 | |
| Information and communication | 0.3 | 0.4 | 0.3 | |
| Financing and insurance | 5.7 | 5.8 | 5.7 | |
| Real estate | 12.3 | 12.2 | 17.0 | |
| Other business areas | 5.6 | 5.4 | 4.6 | |
| Business customers, total | 55.8 | 54.7 | 80.3 | |
| Public authorities | 0.6 | 0.1 | 0.0 | |
| Retail customers | 43.6 | 45.2 | 19.7 | |
| Total | 100.0 | 100.0 | 100.0 |
*) Excl. reverse repo transactions
| 2016 | Loans, advances and |
Non-accrual | Of which | Share |
|---|---|---|---|---|
| DKK m | guarantees | loans | impaired | impaired |
| Cattle producers | 1,112.7 | 60.4 | 685.0 | 61.6 |
| Pig producers | 798.8 | 60.0 | 414.0 | 51.8 |
| Plant cultivation | 685.3 | 7.9 | 102.6 | 15.0 |
| Mink farmers | 114.1 | 2.5 | 41.4 | 36.3 |
| Leasing | 361.3 | 1.4 | 16.6 | 4.6 |
| Other production lines | 321.8 | 0.2 | 20.7 | 6.4 |
| Total | 3,394.0 | 132.4 | 1,280.3 | 37.7 |
| 2016 | Impair | Impairment | Percent | |||
|---|---|---|---|---|---|---|
| DKK m/% | Impairment account |
Impaired | ment for the year |
ratio of exposure |
age impaired |
|
| Cattle producers | 425.2 | 83.8 | 102.5 | 38.2 | 62.1 | |
| Pig producers | 247.9 | 120.2 | -0.3 | 31.0 | 59.9 | |
| Plant cultivation | 49.9 | 18.3 | 6.5 | 7.3 | 48.6 | |
| Mink farmers | 16.0 | 1.1 | 10.8 | 14.0 | 38.6 | |
| Leasing | 1.9 | 2.7 | -0.1 | 0.5 | 11.4 | |
| Other production lines | 14.2 | 0.0 | 1.8 | 4.4 | 68.6 | |
| Total | 755.1 | 226.1 | 121.2 | 22.2 | 59.0 |
The Group's total impairment account amounted to DKK 1,980 million at the end of the year, which is DKK 7 million lower than at end-2015. The Group's non-accrual loans amounted to DKK 443 million, and the cover ratio can thus be calculated at 4.5.
The profit for the year before tax amounted to DKK 1,028 million compared with last year's DKK 1,074 million. The Group's effective tax rate was 18% in 2016, and, accordingly, post-tax profits can be calculated at DKK 838 million.
The pre-tax profit for Q4 came to DKK 185 million – which should be compared with DKK 374 million in Q3 2016 and DKK 145 million in last year's Q4.
Net interest income in Q4 came to DKK 395 million, which is down DKK 18 million compared with Q3 – in which, however, extraordinary income of DKK 13 million was recorded – and a fall of DKK 21 million compared with Q4 2015.
Net income from fees, charges and commissions ended at DKK 275 million, which is DKK 15 million higher than the previous quarter and up DKK 35 million on Q4 2015. Among other things, the rise is attributable to positive growth in the securities trading and asset management areas.
Costs and expenses came to DKK 543 million against DKK 469 million in Q4 2015.
The increase is due primarily to the fact that in Q4 2016 there were non-recurring costs related to a new strategy totalling DKK 58 million, including severance pay and impairment of properties, IT, etc.
Impairment losses amounted to DKK 55 million, which is in line with the previous quarter and DKK 21 million lower than Q4 the previous year. The positive trend reflects primarily an improvement in the situation of the agricultural sector.
The Group's total business volume (deposits, loans, advances and guarantees, mortgage credits arranged and customers' custodianship accounts) amounted to DKK 220.3 billion at end-2016 – 5% up on the volume at end-2015.
Compared with end-2015, bank and leasing lending was DKK 1.2 billion, or 4% higher. Bank lending to retail customers rose by DKK 0.3
(DKK bn)
billion, bank lending to business customers rose by DKK 0.4 billion, lending to public-sector customers declined by DKK 0.2 billion and lending to leasing customers rose by DKK 0.7 billion.
During 2016, the volume of mortgage-credit loans arranged grew DKK 3.3 billion to DKK 73.6 billion, equal to 5%. In total, the volume of mortgage-credit loans arranged on behalf of retail customers (Totalkredit) amounted to DKK 62.2 billion, and to DKK 11.4 billion for business customers (DLR Kredit) at end-2016.
Thus, total mortgage credit arranged for retail customers (bank lending plus mortgage-credit lending) rose by 4%, while mortgage credit arranged on behalf of business customers (bank and leasing loans + mortgage-credit loans) grew 5%.
Deposits, banking activities increased during the year by DKK 2.1 billion, or 5%, while deposits in pooled schemes climbed DKK 1.2 billion, or 9%. Finally, customers' custodianship accounts have decreased DKK 0.9 billion, or 2%, since end-2015.
45%, or DKK 49.4 billion, of total loans, advances and guarantees, excl. reverse repo transactions, is attributable to retail customers and 55% to business customers.
On the capital side, Spar Nord pursues the goal of having a Common Equity Tier 1 (CET1) ratio of at least 12.0% and a total capital ratio of at least 15.5%.
At end-2016, the Group's Common Equity Tier 1 (CET1) ratio was 14.0%, while the total capital ratio came to 17.7%. This should be viewed relative to the individual solvency need calculated by Spar Nord at 9.5% plus the 0.6% combined buffer requirement. Thus, the Bank has an excess capital coverage of 7.6 percentage points, equal to DKK 3.6 billion.
As an element in the ongoing capital optimization process, Spar Nord issued Additional Tier 1 (AT1) capital in the amount of DKK 450 million in December 2016.
On the basis of fully phased-in CRD IV rules, the current capital position would correspond to a Common Equity Tier 1 (CET1) ratio of 13.7%.
Spar Nord has defined strategic liquidity as the difference between bank and leasing lending and the Group's long-term funding (bank deposits, senior loans, issued bonds, subordinated debt and equity).
(DKK bn)
| DKK bn | End 2016 |
End 2015 |
End 2014 |
End 2013 |
End 2012 |
|---|---|---|---|---|---|
| Deposits, banking activities | 46.5 | 44.4 | 42.2 | 41.8 | 41.9 |
| Senior loans/bond issues | 0.0 | 0.0 | 0.1 | 3.4 | 9.6 |
| Equity & subordinated debt | 9.7 | 9.0 | 8.8 | 9.5 | 8.5 |
| Generation of cash | 56.2 | 53.4 | 51.1 | 54.7 | 60.0 |
| Lending, banking activities | 33.1 | 32.6 | 34.4 | 33.8 | 34.9 |
| Lending, leasing activities | 2.0 | 1.3 | 1.1 | 2.1 | 4.0 |
| Maturity, senior, issued bonds & | |||||
| subordinated debt < 1 year | 0.4 | 0.0 | 0.6 | 1.5 | 6.3 |
| Strategic liquidity, total | 20.7 | 19.5 | 15.0 | 17.3 | 14.8 |
*) See note 53
Subordinated debt, senior loans and issued bonds due within 12 months are not included in the Bank's strategic liquidity.
At the end of 2016, Spar Nord's strategic liquidity amounted to DKK 20.7 billion, up DKK 1.2 billion on end-2015.
As the table shows, at end-2016, Spar Nord was still in a situation where the funding base consisted exclusively of ordinary customer deposits and subordinated loan capital, while the Bank remains independent of funding from capital markets.
Spar Nord's LCR ratio at end-2016 was 171% (2015: 145%).
After an 18-month preparatory phase, Spar Nord finished migrating all its IT systems and data from SDC to BEC at the beginning of May. The migration process as such proved highly satisfactory, and the subsequent efforts to familiarize employees and customers with the new system are also proceeding smoothly.
We continue to expect the migration to BEC's systems to enhance workflow expediency for our staff in the customer-centric units and thus boost efficiency.
Viewed in isolation, financially the migration to BEC will contribute to trimming Spar Nord's annual IT costs by about DKK 55 million. In addition to the initial investment of DKK 139 million, the project costs added up to DKK 45 million, of which DKK 22 million was defrayed in 2016.
Since mid-2015, it has been Spar Nord's policy to distribute at least two-thirds of the net profits for the year by way of dividend, provided that the Bank's objectives of a Common Equity Tier 1 (CET1) ratio of at least 12.0% and a total capital ratio of at least 15.5% have been met.
In view of the profits reported for 2016 and the Bank's strong capital position, the Board of Directors recommends to the shareholders at the general meeting that a cash dividend of DKK 5 per share be distributed, equal to a dividend yield of about 6% and a payout ratio of 75%.
The Supervisory Authority Diamond Test Model lists a number of reference points delineating what can be basically 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 Financial Supervisory Authority.
At end-2016, the Bank was comfortably within all threshold values in the Supervisory Authority Diamond Test Model.
At end-2016, Spar Nord could report the following values in respect of the defined reference points:
With reference to the calculation method for the reference point Large exposures specified by the Danish Financial Supervisory Authority, with the benchmark for the 20 largest exposures being fixed at 175% of the Common Equity Tier 1 (CET1), Spar Nord's 20 largest exposures amounted to 73.5% at end-2016.
| $\sim$ 1.1 | $\,$ $\,$ | $\sim 10$ | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| $\checkmark$ | $\overline{\phantom{a}}$ | $\mathbf{I}$ | ||||||||
| $\overline{1}$ | ||||||||||
| $\checkmark$ | ||||||||||
| I | $\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\$ | $\bar{\mathbb{F}}$ | $\mathbb{R}$ | $\mathbb{R}$ | $\perp$ | $\checkmark$ | $\checkmark$ | $\overline{\phantom{0}}$ | $\overline{\phantom{0}}$ | |
| I | T | $\overline{\phantom{a}}$ | $\mathbb{R}^n$ | $\mathsf I$ | $\mathbb{R}^n$ | $\begin{array}{c} \end{array}$ | $\checkmark$ | $\checkmark$ | ||
| I | $\begin{array}{c} \end{array}$ | $\lvert$ | $\mathbb T$ | $\mathbb{I}$ | $\ $ | $\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\$ | $\mathbb{I}$ | $\checkmark$ | ||
| I | $\mathbb{I}$ | $\mathbb{I}$ | $\mathbb{L}$ | $\mathbb{L}$ | $\bar{\Gamma}$ | $\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\$ | $\mathbb{I}$ | $\ $ | $\checkmark$ | |
| I | $\vert$ | $\ $ | $\mathbb{R}^n$ | $\mathbf{1}$ and $\mathbf{1}$ | $\, \cdot \,$ | $\mathcal{A}$ | $\mathbb{I}$ | $\mathbb I$ | $\checkmark$ | |
| I | $\begin{array}{c} \end{array}$ | $\lvert$ | $\mathbb{I}$ | $\mathsf I$ | $\mathbb{R}$ | $\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\$ | $\mathbb{I}$ | $\ $ | $\mathbb{I}$ | $\ $ |
| I | $\overline{\phantom{a}}$ | $\overline{\phantom{a}}$ | $\begin{array}{c} \hline \end{array}$ | $\ $ | $\mathbb{R}$ | $\vert$ | $\mathbb{I}$ | $\mathbb{I}$ | $\overline{\phantom{a}}$ | $\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\$ |
| L | $\begin{array}{c} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0pt}{2.5ex} \rule{0$ | $\mathord{\mathbb L}$ | $\mathbb I$ | $\ $ | $\mathsf I$ | $\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\bar{\$ | $\perp$ | $\mathbb{I}$ | $\overline{\phantom{a}}$ | $\mathbb T$ |
| I | $\begin{array}{c} \hline \end{array}$ | $\begin{array}{c} \end{array}$ | $\ $ | $\ $ | $\mathbb{L}$ | $\vert$ | $\mathbb{I}$ | $\mathbb{I}$ | $\overline{\phantom{a}}$ | $\ $ |
| L | $\overline{\phantom{a}}$ | $\begin{array}{c} \end{array}$ | $\mathbb{R}^n$ | $\mathbb{R}^n$ | $\mathbb{R}$ | $\mathsf I$ | $\mathbf{1}$ and $\mathbf{1}$ | $\mathbb{R}$ | $\mathbb{L}$ | |
Spar Nord expects 2017 to be a year characterized by moderate but positive growth in the national economy. Lending by Danish banks is expected to continue to be under pressure, but Spar Nord expects that the strategic initiatives planned – bolstered by the Bank's continual strengthening of its market position – will pave the way for moderate, positive growth in lending.
However, due to the competitive situation, the unusually low market interest level and its ensuing negative impact on income related to the Bank's bond portfolio, the Bank does not expect to transform its business growth into growth in net interest income.
2017 is expected to be yet another good year for Spar Nord in terms of income from fees, charges and commissions. Combined with the expected price developments in key product and service areas, the growth seen in recent years in market share and business volume in areas such as mortgage-credit arrangement and asset management is expected to lead to growth in net income from frees, charges and commissions.
In 2017, costs and expenses will be characterized by underlying growth triggered by payroll rises according to collective agreements and increasing payroll taxes. In addition, as was the case in 2016, the 2017 financial year is expected to be characterized by a number of non-recurring events related to the implementation of the Bank's new strategy, including investments in a number of major IT projects. On the one hand, Spar Nord expects to be able to realize gains from efficiency-enhancing measures resulting from the initiatives already initiated.
In this light, core earnings before impairment are expected to hover around the DKK 1.1-1.2 billion mark.
The loan impairment trend seen in H2 2016 is expected to continue. Improved settlement prices for both milk and pork will help bring down the Bank's impairment losses on agricultural loans – and thus total impairment losses.
15 years have passed since we launched our so-called Local Strategy. At the heart of this strategy was an ambitious objective to grow and win market shares beyond the Bank's home turf in North Jutland. To this end, we designed a business model that gave the local branches a good measure of decision-making autonomy and room for manoeuvre.
Those 15 years proved a turbulent period for Denmark's financial institutions. More than half the banks that existed before 2000 have closed down. Against this background alone Spar Nord feels cause to be satisfied with the success of its strategy to spread the locally embedded business model from North Jutland to all of Denmark, and in the process it doubled both the number of customers and the lending volume, while tripling deposits and quadrupling its equity.
Although our field position is good, offering a package with "more of the same" is not the right approach to meeting market needs in the coming years. On the contrary, far-reaching changes that will definitely require a major strategic reshaping are on the horizon.
Digitalization is sweeping the globe and permeating every aspect of customers' lives, while smartphones and social media have radically changed the way people bank. Digitalization also means that large volumes of data are constantly being generated – a development that gives us brand-new possibilities for learning more about customers' needs and behaviour. BRÆNDENDE AMBITION MUST WIN BATTLES
In step with digitalization spreading worldwide, our customers' expectations of us are also changing radically. Young customers, in particular, are used to having their service needs met instantly with just a few taps on their smartphones. At the same time, many customers still expect to get highly qualified personalized advice based on active and attentive exchange with a qualified staff member. BRÆNDENDE AMBITION TENDENSER
Although the financial crisis has blown over, the economic climate remains uneasy. Growth, household consumption expenditure and interest rates are still at historic lows. At the same time, the banks that emerged unscathed from the financial crisis are now operating in a fiercely competitive market, which naturally puts enormous pressure on the prices of banks' core products, viz. deposits and loans. BRÆNDENDE AMBITION MUST WIN BATTLES
Trend #4: Tighter rules and standards
In recent years a deluge of new rules and standards has flooded the banking sector. New capital adequacy rules, new accounting standards, new and tighter rules in the investment area, etc. All these regulatory initiatives will require major resources to implement, thus further squeezing earnings. BRÆNDENDE AMBITION
Developments in the banking market and the ensuing challenges call for a dramatic change in the way we run our bank. To overcome these challenges, we need to further sharpen Spar Nord's ability to remain afloat in a future banking world. This will require not only a new strategy but also a stronger long-term focus embodied in a new vision. BRÆNDENDE AMBITION TENDENSER
In this context it is important to point out that Spar Nord's greatest strength, namely our capacity to be a personal and attentive bank, will remain valuable in future. No matter what tomorrow brings, people will always desire a bank that is close to its customers in every sense of the term, and which knows and understands their needs and wants. MUST WIN BATTLES
Therefore, Spar Nord's new vision – the navigational mark by which staff members should steer every single day – is to become Denmark's most personal bank.
The first step in the journey towards a new vision to become Denmark's most personal bank is to launch a new strategy plan.
The launchpad will be the salient trends in the banking market right now – with digitalization taking an unrivalled centre stage in that perspective. Our competitors are dealing with digitalization in disparate ways. Some are striving to become fully digitized, while others are sticking to traditional bank models.
Spar Nord believes that in future many customers will still wish to speak with a REAL person about their financial affairs. But we also believe that we need to give these customers strong digital offerings to make it in tomorrow's banking world. This is why we want our new strategy to help us become "The Personal Bank in a Digital World".
Being personal means that we retain our local presence and the attentive advice we provide. Being digital means that we need to be better at deploying digital options whenever it makes sense for our customers. In some areas digitalization may actually make us even more personal than we are today. For instance, we can use data to become better acquainted with our customers than we are today. Or we can use digital solutions to make the personal encounter an even more attentive and productive conversational exchange.
Strategy Spar Nord Annual Report 19
The next question is how to implement the strategy. To this end we have defined three so-called 'Must Win Battles', i.e. three 'battles' that we need to win to succeed with our strategy.
We need to make good personal service and expert personalized advice our hallmark in the banking market of the future. In a digital world where customers only rarely set foot in a bank, we need to make sure that they have a first-rate experience whenever they do.
The three paramount strategic projects under this 'Must Win Battle' are:
We will optimize all processes before, during and after the customer meeting so that we can consistently and systematically ensure that customers get maximum benefit from the encounter.
We are now working on redesigning every aspect of the customer-experience ecosystem to enrich the online and in-store customer experience. Good personal service, the layout and decor of bank premises, etc.
We will introduce a new CRM system, among other initiatives, which will be used for mining, sharing and extracting data and insights about each customer across departments and branches.
We need to ensure optimum balance between decentralized decision-making powers and central support. The goal is to hold on to the strength that comes from local banks having a good measure of autonomy – while also offering stronger central support in the areas where it creates value for customers.
The three most important strategic projects under this 'Must Win Battle' are:
We are rethinking how work is to be shared between the local banks and the central customer service function so as to ensure that both Customer Service and advisers create maximum value for customers.
We will build on our success with the regional pension and investments centres and strengthen central support in the wealth management area by establishing a new Private Banking unit.
We will improve the central support function in the business area by investing resources in concept development and strengthening cooperation between the small corporate banking departments and larger ones.
| $\begin{array}{cccccccccccccc} - & - & - & - & - & \times & \times & \times & \times & \times \end{array}$ | |||||
|---|---|---|---|---|---|
| $\begin{array}{cccccccccccccc} - & - & - & - & \times & \times & \times & \times & \times \end{array}$ | |||||
| $\begin{array}{cccccccccccccc} - & & - & & - & & \ddots & & \ddots & & \ddots & & \ddots & & \ddots & \end{array}$ | |||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||
| $\mathbf{1}$ , $\mathbf{1}$ , $\mathbf{1}$ , $\mathbf{1}$ , $\mathbf{1}$ , $\mathbf{1}$ , $\mathbf{1}$ , $\mathbf{1}$ , $\mathbf{1}$ , $\mathbf{N}$ , $\mathbf{N}$ | |||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||
We will exploit every opportunity that digitalization brings. Internally, the great potential lies in automating our processes and work routines and thus streamlining them. Externally, our goal is to offer our customers new, relevant digital services.
The three key strategic projects under this 'Must Win Battle' are:
We will streamline our production flow and automate internal processes to the maximum, from the moment a customer places an order to when the product is delivered.
We will launch a number of new digital services on the market, both within our existing business areas and on their fringes.
We will establish an agile IT development organization that works inclusively – both internally and externally – to boost our digital innovation.
Return on equity of 9-11% after tax (rising in the period) Growth initiatives for DKK 200 million and efficiency-enhancing measures for DKK 100 million Cost/Income Ratio of 0.60
The overarching objective of Spar Nord's communication to investors and analysts is to ensure good and lasting relations. Spar Nord wants to maintain a high level of information and maximum accessibility, and the Bank constantly endeavours to make relevant and timely information available at all times. The Chief Executive Officer primarily manages Spar Nord Bank's communication in cooperation with the Senior Vice President, Communication & Business Development.
The Bank presents financial reports and other information via its IR website, sparnord.com/ir, and also provides ongoing information to investors and analysts at frequent meetings, conferences and roadshows immediately after the publication of the Group's annual and interim reports. In total, about 50 meetings were held in 2016 with the participation of investors from Scandinavia, Great Britain and North America.
In 2016, analysts from five investment banks were covering the Spar Nord share.
Spar Nord is listed on the Nordic exchange, NASDAQ Copenhagen, and belongs to the Large Cap segment as from 1 January 2017.
In 2016, the share capital stood at an unchanged DKK 1,255,299,180, divided into shares in the denomination of DKK 10. During 2016, share repurchase programmes for about DKK 150 million were completed, which means that a recommendation will be submitted at the Annual General Meeting in April 2017 for a reduction of the share capital by DKK 25,273,920 (2,527,392 shares).
The Spar Nord share rose from a price of DKK 61 at end-2015 to DKK 81 at end-2016, equal to 33%. At the end of the year, the market price was thus DKK 10.2 billion compared with DKK 7.7 billion at end-2015.
| 2016 | 2015 | |
|---|---|---|
| Share capital (DKK '000) | 1,255,299 | 1,255,299 |
| Listed price, year-end | 81 | 61 |
| Total market value (DKK m) | 10,168 | 7,657 |
| Earnings per share for the year (DKK) *) | 6.6 | 7.1 |
| Dividend per share (DKK) | 5.0 | 5.0 |
| Net asset value (NAV) per share (DKK) | 63 | 60 |
| Listed price/Nav per share (DKK) | 1.3 | 1.0 |
*) The financial ratio is calculated as if the Additional Tier 1 (AT1) capital were treated as a liability for accounting purposes, which means that the calculation of the financial ratio has been based on the shareholders' share of profit and equity. The shareholders' share of profit and equity appears from the statement of changes in equity.
In 2016, the average daily trading volume amounted to about 167,000 shares compared with 110,000 in 2015. The trend reflects the fact that in recent years Spar Nord's shareholder composition has become more diversified, with institutional investors at home and abroad representing a larger share.
At end-2016, Spar Nord Bank had about 112,000 shareholders. About two-thirds of the share capital is held by foundations and institutional investors, while 32% of the capital is held by shareholders who each own fewer than 20,000 shares. Geographically speaking, 75% of the share capital is owned by Danish investors and 25% by foreign investors.
The Bank has two shareholders who have announced that they hold more than 5% of the share capital. The Spar Nord Foundation, Aalborg, is the largest shareholder, having an interest of 18.5%. Nykredit Realkredit A/S, Copenhagen, is the second largest shareholder, having an interest of 11.1%.
End-2016 - %
| End-2016 | ||
|---|---|---|
| Distribution of shares | Number of registered shareholders |
Shareholders' total share holdings (units) |
| 1-99 | 50,024 | 1,340,350 |
| 100-999 | 53,313 | 17,645,654 |
| 1,000-9,999 | 8,484 | 18,055,500 |
| 10,000-19,999 | 235 | 3,072,169 |
| >20,000 | 271 | 81,700,195 |
| Treasury shares | 1 | 2,591,335 |
| Shares not registered in name | ||
| of shareholder | - | 1,124,715 |
| Total | 112,328 | 125,529,918 |
Spar Nord pursues the goal of generating a competitive return for its shareholders – by way of share price performance and dividends. Thus, the Bank's policy is to distribute dividends to shareholders in years when profits permit.
Since mid-2015, it has been Spar Nord's policy to distribute at least two-thirds of the net profits for the year by way of dividend, provided that the Bank's objectives of a Common Equity Tier 1 (CET1) ratio of at least 12.0% and a total capital ratio of at least 15.5% have been met.
In view of the profits reported for 2016 and the Bank's strong capital position, the Board of Directors recommends to the shareholders at the Annual General Meeting that a cash dividend of DKK 5 per share be distributed, equal to a dividend yield of about 6% and a payout ratio of 75%.
| 26 April | Annual General Meeting |
|---|---|
| 3 May | Interim Report for Q1 |
| 16 August | Interim Report for the first six months |
| 1 November | Interim Report for Q1 - Q3 |
| $-$ - - - $\times$ $\times$ 1 1 1 1 1 | ||||||||
|---|---|---|---|---|---|---|---|---|
| $ -$ | ||||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||||
| $\pm$ | $\label{eq:3.1} \begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ |
Risk assumption is pivotal to banking, and risk management is a key focus area across the Spar Nord organization. The various risk types the Bank assumes and the initiatives taken to manage and monitor them, as well as the development of various risks are described in Spar Nord's Risk Report, which can be accessed at www.sparnord. com/risk. This section gives a general outline of the risk area.
Using Spar Nord's strategic objectives as its point of departure, the Board of Directors determines the Bank's risk profile, which comprises the risk appetite within the Bank's most important risk type areas that the Board of Directors is willing to accept while meeting the objectives set forth in the strategy.
The objective is to ensure cohesion between Spar Nord's vision and strategy and also ensure that at all times Spar Nord's risk profile is appropriate, having regard to the Bank's capital and liquidity situation.
The Bank's risk appetite is incorporated in the ordinary risk reporting, which ensures monitoring of compliance with the Bank's risk profile.
As a supplement to the Bank's risk profile, specific risk policies have been put in place, defining the general guidelines for handling and managing the individual risks. These policies are reviewed and approved by the Board of Directors at least once a year.
The Board of Directors and the Executive Board share overall responsibility for Spar Nord's risk management and control systems when the financial statements are prepared. The Board of Directors and the Executive Board are composed so as to ensure that the appropriate internal control and risk management expertise is present to warrant appropriate financial reporting.
The Board of Directors approves the overarching policies, procedures and control systems, and also prepares a detailed annual plan for the internal audit and compliance functions and for the Risk Review Officer. Policies, manuals and procedures within important areas in connection with the presentation of the financial statements are available, including a business procedure for the presentation of the financial statements, a business procedure for the finance & accounts function and other central functions, and an IT security policy.
The Board of Directors makes an annual review of the organization, its focus areas and resource allocation control systems to manage risk, and also annually assesses the risk of fraud in all business areas.
Spar Nord has a two-tier management structure, with the Board of Directors having drafted written guidelines for the Executive Board, specifying clearly the areas of responsibility and scope of action for each management tier. The Board of Directors lays down general policies, while the Executive Board is responsible for the day-today management of Spar Nord. Spar Nord's management structure reflects statutory requirements for listed Danish companies and the provisions of the Danish Financial Business Act.
The Board of Directors is responsible for ensuring that Spar Nord has an appropriate organization and that risk policies and limits are established for all important risk categories. In addition, all major credit facilities must be submitted to the Board of Directors for approval. The Board of Directors also makes decisions regarding general principles for handling and monitoring risks. Regular reporting to the Board of Directors is undertaken with a view to enabling the Board of Directors to check whether the overarching risk policies and the pre-defined limits are complied with.
The Executive Board is responsible for the day-to-day management of Spar Nord. To this end, the Executive Board passes on specific instructions for Spar Nord's risks and its risk management procedures.
The risk of losses because counterparties fail to meet all or part of their payment obligations. Managed pursuant to the Bank's credit policy, which is geared to strike a balance between earnings and risks, and to ensure that the risk assumption is always quantified.
Market risk is an umbrella heading for the risk of loss caused by fluctuations in exchange rates or prices for financial instruments. Market risks are essentially managed on the basis of an instruction hierarchy having three levels: the Board of Directors, the Executive Board and the business units.
The risk of direct or indirect losses caused by deficient or erroneous internal procedures and processes, human errors, system errors or losses due to external events or incidents. Managed across the Group through a comprehensive system of business procedures and control measures.
Liquidity risk is the risk that the Group's financing costs rise disproportionately, and that the Group is prevented from entering into new transactions because it lacks adequate cash funds. On the basis of the overarching policies and strategic goals for the Group's liquidity risks set by the Board of Directors, it has issued operational frameworks for the Executive Board.
The Executive Board reports regularly to the Board of Directors on Spar Nord's risk exposure.
Spar Nord's Internal Audit Department submits reports to both the Board of Directors and the Executive Board and answers to the Board of Directors. The Internal Audit Department bases its activities on the annual plan adopted by the Board of Directors. These activities include test examinations of business procedures and internal control systems in key areas subject to risk, including in connection with preparing the financial statements.
Spar Nord's independent auditors are elected at the Annual General Meeting for one year at a time. The focus of the auditing team is subject to review by the Board of Directors once a year based on the recommendations of the Audit Committee.
The Executive Board has appointed a number of committees and working parties that contribute to Spar Nord's risk governance in specific areas, and which prepare cases and themes for processing by the Executive Board and Board of Directors.
The Credit Committee, which is composed of representatives of the Executive Board, Credit Rating and Corporate Banking, deals with credit facilities that exceed Credit Rating's authorization limits or involve a matter of principle. The Committee meets three times a week. Frequently, matters that have been dealt with by the Credit Committee will be prepared for subsequent discussion among all members of the Board of Directors.
The Market Risk Committee is composed of representatives of the Executive Board, Finance & Accounts and Trading, Financial Markets & the International Division. The Committee meets every quarter and reviews developments in Spar Nord's positions and risks as well as the liquidity situation and expectations regarding market developments and future plans. In addition, the Committee receives input from a more operationally slanted Capital Market Committee, for example regarding any issues that may require specific discussion in terms of principles.
The Solvency Committee is composed of members of the Executive Board, Credit Rating and Finance & Accounts. The objective of the Committee is to formulate targets and principles for calculating adequate own funds and the individual solvency need. The Solvency Committee prepares a recommendation for the individual solvency need and passes it on to the Board of Directors for approval.
The IT Security Committee is composed of a member of the Executive Board, the head of the IT department, the IT security officer and selected heads of business areas. The Committee is tasked with advising and dealing with any issues that may arise in relation to the IT security policy, IT security rules and procedures and the IT contingency plan. The IT Security Committee holds quarterly meetings.
The Executive Board has set up a Risk Management Function, and a Risk Review Officer with specific responsibility for the Function has been appointed to head it. The Risk Management Function's area of responsibility comprises Spar Nord's risk-prone activities across various risk areas and organizational units and risks deriving from outsourced functions. The Function is responsible for appropriate risk management of Spar Nord's operations, including providing an overview of its risks and the overall risk exposure. The Risk Review Officer is responsible to the Executive Board, submits reports to the Board of Directors and the Executive Board and assists the Board of Directors' Risk Committee in its work. The activities of the Risk Management Function are rooted in the annual plan adopted by the Board of Directors.
Dismissal of the Risk Review Officer is subject to the prior approval of the Board of Directors.
Spar Nord's Compliance Function is charged with overseeing Spar Nord's compliance with financial legislation, banking sector standards and Spar Nord's internal guidelines in all areas. This Function, which answers to the Executive Board, submits reports to the Board of Directors and the Executive Board and is manned by staff members responsible for compliance and representatives of a cross-section of Spar Nord's business areas who are engaged in decentralized compliance tasks. The activities of the Compliance Function are rooted in the annual plan adopted by the Board of Directors.
Dismissal of the Compliance Officer is subject to the prior approval of the Board of Directors.
Spar Nord's Board of Directors and Executive Board consider corporate governance to be a fundamental requirement for maintaining a good relationship with internal and external stakeholders and for meeting the Group's financial and non-financial objectives.
Consequently, Spar Nord's Management backs efforts to promote good corporate governance and has chosen to comply with 46 of the 47 most recent recommendations from the Danish Corporate Governance Committee. A full overview of Spar Nord's position on the recommendations can be seen on its website at https://www. sparnord.com/corporategovernance.
In addition, Spar Nord's Management has considered its position on the management code issued by the Danish Bankers Association and has chosen to comply with all 12 recommendations. In addition to Spar Nord's position on the general recommendations on corporate governance, the Bank's position on the Danish Bankers Association's management code can also be viewed in its entirety on the website, https://sparnord.com/corporategovernance.
Spar Nord's Management considers it fundamental to maintain a good, ongoing dialogue with shareholders – and that the Bank gives professional and private shareholders alike the best possible insight into the Bank's goals and strategies.
Each year Spar Nord holds about 30 shareholders' meetings across the nation, and thus the Bank's Management is in direct contact with a significant portion of its private shareholders. Spar Nord further promotes good shareholder communication by presenting information that is always thorough, updated and accessible on the Bank's website, sparnord.com. The website provides direct access to contacting both IR staff members and the Bank's Executive Board.
Spar Nord regularly issues press releases and company announcements and publishes interim reports and annual reports in order to give all stakeholders an adequate picture of the Bank's position and developments. The consolidated financial statements have been presented in accordance with IFRS as adopted by the EU, and the Parent Company's Financial Statements have been prepared in accordance with the Danish Financial Business Act. All financial statements are published simultaneously in Danish and English.
| - - - - < < \ \ \ \ \ \ \ \ \ \ | ||||||
|---|---|---|---|---|---|---|
| $- - - < - < - < - < - - - - - - - - - - - - - - - - - - - - - - - - - - - -$ | ||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
| $- - - < \ \ < \ \ \ \ \vee \ \ \ \ \ \vee \ \ \ \ \ \vee \ \ \ \ \ \vee \ \ \ \ \ \ \ \ $ | ||||||
| $- - - - - \times \times \times \times \times \times \times \times \times \times \times \times \times \times \times \times \times \$ | ||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
| $\label{eq:3.1} \begin{array}{cccccccccc} \left( \begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ |
Spar Nord follows the recommendations of the Danish Corporate Governance Committee on preparing for annual general meetings, including the recommendations regarding the drafting of the convening notice and the issuing of proxies.
According to the Articles of Association, shareholders' rights to vote at the general meeting are exercised through delegates who are members of the Bank's bank committees. However, shareholders that hold at least 20,000 shares as of the record date one week before the relevant general meeting (major shareholders) are entitled to exercise their voting rights at the general meeting.
Delegates, who are also members of the Bank's bank committees, represent the share capital listed as of the record date one week before the relevant general meeting as belonging to the relevant shareholder region. Each delegate represents equal fractions of the share capital, calculated based on the number of delegates immediately prior to the general meeting. A major shareholder represents the share capital registered, or requested to be registered, as belonging to the relevant major shareholder, as of the record date one week before the relevant general meeting.
Each year the Board of Directors assesses whether the capital and share structure still serves the interests of the shareholders and the Company.
Alterations to the Articles of Association that cannot be made by the Board of Directors pursuant to statutory provisions may be adopted at the general meeting by at least two-thirds of the votes cast as well as of the voting stock represented at the relevant general meeting.
Spar Nord's Board of Directors is composed of nine members, six of whom are elected by the shareholders and the remainder by the employees.
The Bank's Executive Board is not part of the Board of Directors but takes part in all of its meetings. The Board of Directors is confident that the chosen size and composition will effectively contribute to ensuring a constructive dialogue and efficient decision-making processes.
New Directors are recruited through a formal, thorough and transparent process, based on a dialogue between the Board of Directors and the chairmen of the regional bank committees, and the nominees are presented at shareholder meetings prior to the general meeting.
The number of employee-elected Directors and the electoral procedure for employee elections comply with the provisions of the Danish Companies Act. The electoral term is four years.
The members of the Board of Directors are elected for a term of two years at a time, and the age limit for members is 70 years. The members of the Board of Directors serve staggered terms, meaning that three members are up for election every year. Spar Nord has chosen this option - and not the one recommended by the Danish Corporate Governance Committee, viz. an electoral period of 12 months – to ensure better continuity in the Board of Directors' activities.
At least half of the Directors elected at the general meeting must be disinterested in accordance with the recommendation of the Danish Corporate Governance Committee.
The Board of Directors finds it important that all members have the time and energy to actively participate in the Board's work, and believes that a simple calculation of directorships makes no sense, as the workload varies greatly from one company to another. Those of the current Directors who hold senior executive positions or directorships in other companies all hold a number of posts that the Board of Directors finds compatible with the board duties for Spar Nord.
The Spar Nord Board of Directors convenes 11 ordinary meetings a year and holds a strategy seminar and four meetings with the chairmen of the regional bank committees. In 2016, the Board of Directors held a total of 17 physical meetings and telephone conferences. The total Board member attendance rate was 96.7%. In accordance with the Danish Bankers Association's code of conduct, the attendance by each member of the Board of Directors is published on the Bank's website.
Spar Nord's Board of Directors has set up an Audit Committee charged with monitoring and controlling accounting and auditing matters and undertaking the preparatory work concerning the Board of Directors' processing of accounting and auditing issues. The Committee is composed of three members.
In addition, a Risk Committee has been set up, charged with responsibility for arranging the preparatory work leading up to the Board of Directors' decisions regarding the Group's risk management and related issues. The Committee is composed of three members.
Finally, the Board of Directors has set up a Nomination and Remuneration Committee with three members, one of whom has been elected by the employees in compliance with legislation. The Nomination and Remuneration Committee is charged with undertaking the preparatory work concerning the Board of Directors' evaluation and nomination process and the processing of issues regarding remuneration, including the Group's remuneration policy.
The terms of reference of the committees can be seen at https:// www. sparnord.com/committees, which also provides a presentation of the members and their qualifications.
In 2016, the Audit Committee held 5 meetings, while the Risk Committee held 4 and the Nomination and Remuneration Committee also held 4.
Per Nikolaj Bukh, Kaj Christiansen and John Sørensen are up for election to the Board of Directors in 2017. All three of them are prepared to stand for re-election, and the Board of Directors recommends their re-election.
The Board of Directors constantly strives to promote diversity, including in relation to gender, across all managerial levels in the Group. At end-2016, the Board of Directors was composed of three women and six men, and among the six members elected by the shareholders there are one woman and five men.
Consequently, Spar Nord's Board of Directors has decided to introduce a policy to lift the share of the underrepresented gender on both the Board of Directors and at other managerial echelons in the Group.
The policy includes some concrete objectives to the effect that the share of female Directors elected by the shareholders is to amount to at least 33% by 2019. At end-2016, the share was an unchanged 17%.
The number of female Directors was unchanged in 2016 because a male candidate was considered as best matching the defined profile for the single seat to be filled at the Annual General Meeting.
| $- \quad - \quad - \quad - \quad - \quad - \quad - \quad - \quad - \quad - \quad - \quad - \quad - \quad - \$ | |||||||
|---|---|---|---|---|---|---|---|
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ |
As concerns the Group's other managerial echelons, the goal is that there should be at least five qualified applicants to managerial positions in the Bank, and that at least two of these should be women. As the HR area was heavily impacted in 2016 by the major changeover project that the transition from one IT platform to another entailed, there was less focus on initiatives related to gender diversity in the year under review.
These initiatives will be accorded a much higher priority in connection with the implementation of the Bank's new strategy, including more structured initiatives within career paths and leadership development. The long-term objective is to shift the gender breakdown at executive and executive mid-level towards a more equal distribution between men and women – from currently about 20% women in the Bank's executive team (unchanged compared with end-2015) to 25% women by 2019.
The Executive Board is appointed by the Board of Directors and is composed of Lasse Nyby, CEO, John Lundsgaard, Managing Director and Lars Møller, Managing Director.
The Executive Board is the supreme decision-making body as concerns the day-to-day affairs of the Bank, in compliance with the guidelines and directions issued by the Board of Directors. The more specific distribution of duties between the Board of Directors and the Executive Board appears from the rules of procedure under which they both operate.
The remuneration of the Board of Directors and the fees and salaries paid to the Executive Board are shown in the notes to the Annual Report. Directors are paid a fixed annual amount and do not participate in any bonus or option programmes.
The Board of Directors finds that the terms of service of Executive Board members, including severance terms, are in tune with general practice in the area, and they are regularly reviewed. The Board of Directors also finds that the overall remuneration is competitive and fair in light of the Executive Board's performance and having regard to long-term value generation for shareholders.
According to the Group's remuneration policy, the Group does not operate with incentive schemes for the Board of Directors and the Executive Board.
For more information, please refer to the Bank's Corporate Governance Report, which is downloadable from the website, www.sparnord.com/corporategovernance.
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
|---|---|---|---|---|---|---|
| $ -$ | ||||||
| $\overline{\phantom{0}}$ | $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | ||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ |
Chairman of the Board of Directors
2016 - Chairman of the Board of Directors of Spar Nord Bank A/S
1953 - Year of birth
Chairman of the Nomination and Remuneration Committee Member of the Risk Committee
CLK 2016 Holding ApS Kjeld Johannesen Holding ApS
Education BCom (Marketing)
KPC Holding Hamlet Protein A/S New Nutrition ApS New Nutrition Holding ApS
Aktieselskabet Schouw & Co
Management Production and marketing Strategy Business development International business affairs Agriculture and foodstuffs
Shareholding
50,000
Disinterested
Chairman of the Audit Committee Member of the Nomination and Remuneration Committee
Aalborg University
P. N. Bukh ApS Value Spread 1 ApS
MSc Econ. PhD Board of Directors training from Bestyrelsesakademiet
Jurist- & Økonomforbundets Forlag A/S Jurist- & Økonomforbundets Forlagsfond Padborg Ejendomme ApS
Finance and risk management Financial markets Public enterprises Utilities
27,200
Disinterested
Member of the Board of Directors
2012 - Member of the Board of Directors of Spar Nord Bank A/S 1955 - Year of birth
Chairman of the Risk Committee
Frederikshavn Maritime Erhvervspark A/S Dokøen A/S Kommanditaktieselskabet Østre Havn Østre Havn Aalborg ApS Danyard Holding ApS
State-authorized Public Accountant
Frederikshavn Maritime Erhvervspark A/S Dokøen A/S The Spar Nord Foundation
Properties Marketing Finance and risk management
Disinterested
2016 - Member of the Board of Directors of Spar Nord Bank A/S 1968 - Year of birth
Glascom A/S Ejendomsselskabet Hans Egedes vej 29 ApS FEG Invest 2 ApS FEG Invest ApS Ejendomsselskabet Nordvej 10 ApS Gaardboe 2 Holding ApS
Financial services background
Fynboglas ApS P.T.O. Teknik A/S FEG Invest 2 ApS FEG Invest ApS Glascom A/S
The SME segment
3,620
Disinterested
2012 - Member of the Board of Directors of Spar Nord Bank A/S 1965 - Year of birth
Member of the Risk Committee
IndustriPension Holding A/S Industriens Pensionsforsikring A/S Chairman of the executive board of Industriens Pension Service A/S
Graduate in insurance science, IMD business programme (PED)
IP Ejendomme 2013 P/S IP Infrastruktur P/S IP Komplementar ApS IP Infrastruktur Komplementar ApS IP OPP P/S IP Sankt Petri P/S IP Næstved Stråleterapi P/S IP Europahuset ApS
Kapitalforeningen Industriens Pension Portfolio, Deputy Chairman IP Alternative Investments Komplementar ApS IP Finans 1 ApS Forsikringsorganisationernes Fællessekretariat F.M.B.A The Board of Statistics Denmark
Experience in managing a financial business Risk management - including operational risks IT and IT risk
Shareholding
0
Disinterested
Member of the Audit Committee
Senior workplace representative, Spar Nord Bank A/S
Financial services background Financial continuing education Business diploma (accounts & financing) Board of Directors training for financial companies
The Financial Services Union's "Spar Nord Kreds"
Member of the Board of Directors
The Financial Services Union's executive committee
HR Business administration Financial markets
Shareholding
7,054
| 2008 – Employee-elected member of the |
|---|
| Board of Directors of Spar Nord |
| Bank A/S |
| 1965 - Year of birth |
Workplace representative, Spar Nord Bank A/S
Board of Directors training for financial companies Financial services background Financial continuing education Business diploma (marketing)
The Financial Services Union's "Spar Nord Kreds" (Deputy Chairman) The Spar Nord Foundation
Special expertise HR Business administration
7,404
| 2012 – Employee-elected member of the |
|---|
| Board of Directors of Spar Nord |
| Bank A/S |
| 1965 - Year of birth |
Member of the Nomination and Remuneration Committee
Workplace representative, Spar Nord Bank A/S
Board of Directors training for financial companies
Financial services background Financial continuing education Business diploma (financing)
Chairman of the Board of Directors
The Personnel Foundation at Spar Nord
The Financial Services Union's "Spar Nord Kreds"
HR Business administration
2,486
2015 - Member of the Board of Directors of Spar Nord Bank A/S 1957 - Year of birth
Member of the Audit Committee
The Accounts Division of the Ministry of Defence
State-authorized Public Accountant
Accounting and auditing
5,160
Disinterested
2000 - Chief Executive Officer. 1995 - Joined the Executive Board
1986 - Year of employment
1960 - Year of birth
Financial services background BCom (Management Accounting) Executive education from Insead
Aktieselskabet Skelagervej 15 Landsdækkende Banker
AP Pension Livsforsikringsaktieselskab AP Pensionsservice A/S Foreningen AP Pension f.m.b.a. FR I af 16. September 2015 A/S Nykredit Holding A/S PRAS A/S Vækst-Invest Nordjylland A/S FinansDanmark
Shareholding
47,784
2000 - Joined the Executive Board 1986 - Year of employment 1964 - Year of birth
Financial services background MBA
Chairman of the Board of Directors Factor Insurance Brokers A/S
Aktieselskabet Skelagervej 15 - Deputy Chairman Bokis A/S - Deputy Chairman Bankernes EDB Central a.m.b.a. Bolighed A/S Letpension A/S
Shareholding
71,113
2000 - Joined the Executive Board 1984 - Year of employment 1957 - Year of birth
Financial services background Executive education from Insead
BI Asset Management Fondsmæglerselskab A/S BI Holding A/S BI Management A/S
Aktieselskabet Skelagervej 15 DLR Kredit A/S
65,460
Corporate Social Responsibility, or CSR, is something we take seriously at Spar Nord and have done for many years. However, the Bank has traditionally translated this popular term into our own language and reality, because experience shows that this generates better defined and more focused action.
From the point of view of Spar Nord, CSR stands for conduct in the true sense of the word, and not abstract principles. Our basic approach is that Spar Nord's responsibility as a company and a financial institution is anchored in our close involvement with customers and the local community. A responsibility and an involvement that are embedded as given elements in the Bank's history and culture and on which the business depends.
Spar Nord supports the Danish Government's endeavours to put Corporate Social Responsibility at the top of the agenda, and we also support the intentions underlying international initiatives like the UN Global Compact and UN PRI. Nevertheless, we have chosen not to formally commit ourselves to the two UN reporting initiatives, nor does the Bank have formal climate or human rights policies.
This decision should be viewed in light of the fact that we already endeavour to abide by the principles, and also that our activities are very locally slanted.
In order to concentrate efforts and make them explicit and measurable, we regularly single out special CSR themes. This approach is based on our firm belief that the best results are obtained by focusing on one thing at a time. This also means that efforts will evolve over time. We follow up on the themes highlighted one year by measuring them in subsequent years. This ensures that words and headlines are transformed into concrete actions and tangible improvements.
Since 2013, "Understanding finance" has been our special focus area. We chose this particular topic because a number of surveys show that children and young people extensively lack basic insight into financial concepts and issues – and thus the skill sets required to act and make decisions affecting one's personal finances.
Precisely because this topic is so important, the inclusion of financial insight in school curricula has gained widespread interest both politically and in the educational and financial sectors. This will entail a lengthy process, but Spar Nord and other financial institutions can make a vital contribution by developing materials and making them available.
Educationally speaking, various aspects of personal finances notably constitute a highly relevant field of instruction - particularly in maths, but also in social sciences.
In keeping with the Bank's business model, Spar Nord has prepared initiatives based on cooperation with primary and lower secondary schools in the local community. The goal is to develop a series of educational materials jointly with experts in maths and didactics and to make them available free of charge to schools and teachers who want to cover the subject in their lessons.
The first classroom material was a folder titled "Wising up on money", which caters to children aged 13 to 15 (classes 7-8) and addresses topics like interest, savings, loans and currency. This educational folder has now been distributed in 50,000 copies to schools nationwide – and has generally been received very positively.
In January 2014, we published "The Book on Money", which targets the youngest classes and deals with the basics required for understanding finances. The free material is aimed at maths teachers but is also available at Spar Nord's local banks for parents who want to discuss these topics with their children. Finally, Spar Nord's employees offer to give guest lectures to the relevant age brackets and to discuss the main topics contained in the material with them.
In April 2014, the app "Chickenfeed" was launched, the purpose of which is to give kids aged 3-5 some basic understanding of money, coins, prices, etc., via play. From the time it was launched until end-2016, the app had been downloaded more than 50,000 times.
In 2015, Spar Nord entered into a formalized partnership with the local primary and lower secondary schools in the Municipality of Aalborg, and the Bank's employees are therefore dedicating a total of 100 working days each year to introducing senior pupils to a variety of topics related to their personal finances. The cooperation continued in 2016.
Dedicated involvement in local community activities in the areas where the Bank operates is a central element of Spar Nord's strategy and business model. This commitment is manifested both in the way that the Bank participates in and contributes to activities concerning sports and cultural events as well as association activities and in the funding granted by the Bank and the Spar Nord Foundation to worthy causes pursued in local communities. In total, the Bank made contributions of just under DKK 25 million towards the causes mentioned, and the Spar Nord Foundation distributed 800 grants totalling DKK 32 million.
For more information, please refer to the Bank's website at www.sparnord.com/ csr.
The Board of Directors and Executive Board have today reviewed and adopted the 2016 Annual Report of Spar Nord Bank A/S.
The Consolidated Financial Statements have been presented in accordance with International Financial Reporting Standards as adopted by the EU. Moreover, the Annual Report is presented in accordance with additional Danish disclosure requirements regarding annual reports for listed financial institutions.
We consider the accounting policies applied to be appropriate, and in our opinion the Consolidated Financial Statements and the Parent Company's Financial Statements give a true and fair view of the Group's and the Parent Company's financial position at 31 December 2016 and of the results of the Group's and the Parent Company's operations and cash flows for the 2016 financial year.
In addition, we also consider the Management's review to give a fair presentation of the development in the Group's and Parent Company's activities and financial affairs, the results for the year and the Group's and the Parent Company's financial position as a whole, as well as a description of the significant risks and elements of uncertainty that may affect the Group or Parent Company.
We recommend the Annual Report for adoption by the shareholders at the Annual General Meeting.
Aalborg, 9 February 2017
EXECUTIVE BOARD
Lasse Nyby
Chief Executive Officer
John Lundsgaard Managing Director
Lars Møller
Managing Director
BOARD OF DIRECTORS
Kjeld Johannesen Chairman of the Board of
Directors
Kaj Christiansen
Laila Mortensen
Jannie Skovsen Elected by the employees
John Sørensen
Per Nikolaj Bukh Deputy Chairman of the Board
of Directors
Morten Bach Gaardboe
Ole Skov
Elected by the employees
Gitte Holmgaard Sørensen Elected by the employees
We have audited the Consolidated Financial Statements and the Financial Statements of Spar Nord Bank A/S for the financial year 1 January – 31 December 2016, comprising the income statement, balance sheet, statement of changes in equity, cash flow statement, notes and statement of comprehensive income, including accounting policies, for the Group and the Parent Company.
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU, and additional Danish disclosure requirements for listed financial institutions, and the Parent Company's Financial Statements have been prepared in accordance with the Danish Financial Business Act.
In our opinion, the Consolidated Financial Statements and the Parent Company's Financial Statements give a true and fair view of the Group's and the Parent Company's financial position at 31 December 2016 and of the results of the Group's and the Parent Company's operations and cash flows for the financial year 1 January – 31 December 2016 in accordance with International Financial Reporting Standards, as adopted by the EU, and additional Danish disclosure requirements for listed financial institutions in respect of the Consolidated Financial Statements, and in accordance with the Danish Financial Business Act in respect of the Parent Company's Financial Statements.
We conducted our audit in compliance with the Executive Order issued by the Danish Financial Supervisory Authority on the performance of audits in financial institutions, etc. and financial groups and in accordance with international auditing standards regarding the planning and performance of the audit work.
We have planned and performed our audit to obtain reasonable assurance that the Consolidated Financial Statements and the Parent Company's Financial Statements are free from material misstatement. We have participated in the audit of all significant and high-risk areas.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Our opinion on the Consolidated Financial Statements and the Parent Company's Financial Statements does not cover the Management's review, and we do not express any kind of assurance opinion on the Management's review.
In connection with our audit of the Consolidated Financial Statements and the Parent Company's Financial Statements, our responsibility is to read the Management's review and in that connection to consider whether the Management's review is materially inconsistent with the Consolidated Financial Statements or the Parent Company's Financial Statements or our knowledge obtained during the audit, or whether it otherwise appears to contain material misstatement.
Based on the work we have performed, we believe that the Management's review is in accordance with the Consolidated Financial Statements and the Parent Company's Financial Statements and that it has been prepared in accordance with the requirements of the Danish Financial Business Act. We did not detect any material misstatement in the Management's review.
Spar Nord Bank A/S Internal Audit Department
Margit Nicolajsen Head of Internal Audit Department
We have audited the Consolidated Financial Statements and the Financial Statements of Spar Nord Bank A/S for the financial year 1 January – 31 December 2016, comprising the income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and notes, including accounting policies, for the Group and the Parent Company.
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU, and additional Danish disclosure requirements for listed financial institutions, and the Parent Company's Financial Statements have been prepared in accordance with the Danish Financial Business Act.
In our opinion, the Consolidated Financial Statements give a true and fair view of the Group's financial position at 31 December 2016 and of the results of the Group's operations and cash flows for the financial year 1 January – 31 December 2016 in accordance with International Financial Reporting Standards, as adopted by the EU, and additional Danish disclosure requirements for listed financial institutions.
Moreover, in our opinion, the Parent Company's Financial Statements give a true and fair view of the Company's financial position at 31 December 2016, the results of its operations and the cash flow statement for the financial year 1 January - 31 December 2016 in accordance with the Danish Financial Business Act.
We conducted our audit in accordance with international standards on auditing and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the below section, "Auditors' responsibilities for the audit of the Consolidated Financial Statements and the Parent Company's Financial Statements". We are independent of the Group in accordance with the international ethics standards for accountants (the IESBA's Code of Ethics) and the additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these standards and requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the Consolidated Financial Statements and the Parent Company's Financial Statements for the 2016 financial year. These matters were addressed in our audit of the Consolidated Financial Statements and the Parent Company's Financial Statements as a whole and in the wording of our opinion on the Financial Statements. We do not express a separate opinion on these matters. For each of the key audit matters listed below, the description of how we addressed the relevant matter in our audit is given in this context.
We have fulfilled our responsibilities as described in the below section, "Auditors' responsibilities for the audit of the Consolidated Financial Statements and the Parent Company's Financial Statements", including in relation to the key audit matters mentioned below. Our audit included designing and performing audit procedures in response to our assessment of the risk of material misstatement in the Consolidated Financial Statements and the Parent Company's Financial Statements. The results of the audit procedures performed, including the audit procedures aimed at the matters mentioned below, form the basis of our opinion on the Consolidated Financial Statements and the Parent Company's Financial Statements as a whole.
Risk assessment in relation to our audit:
How the matter was addressed (audit performed):
tested the special estimates made by the Bank's Management in connection with loan impairment losses on agricultural customers.
• Moreover, we evaluated whether, in our opinion, the disclosures in the notes regarding loans, impairment and credit risk comply with the relevant accounting rules.
Management is responsible for preparing the Management's review. Our opinion on the Consolidated Financial Statements and the Parent Company's Financial Statements does not cover the Management's review, and we do not express any kind of assurance opinion on the Management's review.
In connection with our audit of the Consolidated Financial Statements and the Parent Company's Financial Statements, our responsibility is to read the Management's review and in that connection to consider whether the Management's review is materially inconsistent with the Consolidated Financial Statements or the Parent Company's Financial Statements or our knowledge obtained during the audit, or whether it otherwise appears to contain material misstatement.
Furthermore, it is our responsibility to consider whether the Management's review provides the information required under the Danish Financial Business Act.
Based on the work we have performed, we believe that the Management's review is in accordance with the Consolidated Financial Statements and the Parent Company's Financial Statements and that it has been prepared in accordance with the requirements of the Danish Financial Business Act. We did not detect any material misstatement in the Management's review.
Management is responsible for the preparation and fair presentation of the Consolidated Financial Statements in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial institutions, and for the preparation and fair presentation of Parent Company Financial Statements in accordance with the Danish Financial Business Act.
Management is also responsible for such internal control as Management determines is necessary to enable the preparation of Consolidated Financial Statements and Parent Company Financial Statements that are free from material misstatement, whether due to fraud or error.
In preparing the Consolidated Financial Statements and the Parent Company's Financial Statements, Management is responsible for assessing the Group's and Parent Company's ability to continue as a going concern, and, when relevant, disclosing matters relating to going concern, and using the going concern basis of accounting when preparing the Consolidated Financial Statements and the Parent Company's Financial Statements, unless Management either intends to liquidate the Group or the Company or to cease operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the Consolidated Financial Statements and the Parent Company's Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report, including our opinion, on the Financial Statements. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with international standards on auditing and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Consolidated Financial Statements and the Parent Company's Financial Statements.
As part of an audit in accordance with international standards on auditing and the additional requirements applicable in Denmark, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
• conclude on the appropriateness of Management's preparation of the Consolidated Financial Statements and the Parent Company's Financial Statements being based on the going concern concept, and – based on the audit evidence obtained – whether a material uncertainty exists related to events or conditions that may cast significant doubt about the Group's and Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the Consolidated Financial Statements and the Parent Company's Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Group and the Company to cease as a going concern;
• evaluate the overall presentation, structure and content of the Consolidated Financial Statements and the Parent Company's Financial Statements, including the disclosures in the notes, and whether the Consolidated Financial Statements and the Parent Company's Financial Statements reflect the underlying transactions and events in a manner that achieves fair presentation;
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during of our audit.
We also make a statement to those charged with governance to the effect that we have complied with relevant ethical requirements as to our independence, and inform them about all relations and other matters that could be reasonably expected to affect our independence and, where relevant, about the associated security measures.
Based on the matters communicated to those charged with governance, we determine which matters were of most significance in the audit of the Consolidated Financial Statements and the Parent Company's Financial Statements for the period under review, and are thus considered key audit matters. We describe these matters in our auditors' report, unless legislation or other regulations prevent us from disclosing the relevant matters to the public or, in very rare cases, where we conclude that the matter should not be disclosed in our auditors' report because the negative consequences of such disclosure could be reasonably expected to carry greater weight than the benefits derived by the general public from such communication.
ERNST & YOUNG Godkendt Revisionspartnerselskab CVR no. 30 70 02 28
Torben Bender Anne Tønsberg
State-authorized State-authorized Public Accountant Public Accountant
| Income statement | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|
|---|---|---|---|---|---|
| Interest income | 1,815.5 | 1,975.8 | 1,807.1 | 1,967.1 | |
| Interest expenses | 144.7 | 200.5 | 164.9 | 221.1 | |
| Net interest income | 1,670.8 | 1,775.3 | 1,642.2 | 1,746.0 | |
| Dividends on shares, etc. | 47.9 | 54.9 | 41.2 | 34.0 | |
| Fees, charges and commissions received | 1,174.8 | 1,125.9 | 1,174.8 | 1,125.9 | |
| Fees, charges and commissions paid Net income from interest, fees, charges and commissions |
122.1 2,771.4 |
95.6 2,860.5 |
122.1 2,736.1 |
95.6 2,810.3 |
|
| Market-value adjustments | 385.8 | 452.0 | 340.2 | 449.6 | |
| Other operating income | 29.7 | 47.8 | 30.9 | 43.7 | |
| Staff costs and administrative expenses | 1,788.8 | 1,768.2 | 1,795.2 | 1,775.7 | |
| Depreciation, amortization and impairment of intangible assets and property, plant and equipment |
94.3 | 65.5 | 92.7 | 64.9 | |
| Other operating expenses | 13.3 | 107.9 | 13.3 | 107.9 | |
| Impairment of loans, advances and receivables, etc. | 292.0 | 373.4 | 292.0 | 373.4 | |
| 29.6 | 28.3 | 104.5 | 78.9 | ||
| and group enterprises | Profit/loss on equity investments in associates | ||||
| Profit/loss before tax | 1,028.1 | 1,073.6 | 1,018.5 | 1,060.6 | |
| Tax | 189.9 | 176.8 | 179.5 | 163.2 | |
| Profit/loss for the year | 838.2 | 896.8 | 839.0 | 897.4 | |
| Holders of Additional Tier 1 (AT1) capital instruments Profit/loss for the year |
26.1 838.2 |
13.5 896.8 |
26.1 839.0 |
13.5 | |
| Dividend distribution DKK 5.00 per share (2015: DKK 3.00 per share) | |||||
| Extraordinary dividend distribution DKK 0.00 per share | 627.7 | ||||
| Retained earnings | (2015: DKK 2.00 per share – paid at end-April 2015) | - | |||
| Total distribution | Reserve for net revaluation according to the equity method | 104.5 | |||
| 80.7 812.9 |
|||||
| EARNINGS PER SHARE FOR THE YEAR | |||||
| Earnings per share for the year (DKK) | 6.6 | 7.1 | |||
| Diluted earnings per share for the year (DKK) | 6.6 | 7.1 | |||
| STATEMENT OF COMPREHENSIVE INCOME | |||||
| Profit/loss for the year | 838.2 | 896.8 | 839.0 | ||
| Other comprehensive income | |||||
| Items that cannot be reclassified to the income statement: | |||||
| Net revaluation of corporate properties Other capital movements in associates |
-5.0 0.0 |
6.9 -0.8 |
-5.8 0.0 |
||
| Other comprehensive income after tax | -5.0 | 6.1 | -5.8 | ||
| Comprehensive income, total | 833.2 | 902.9 | 833.2 | ||
| Allocated to: | |||||
| The shareholders of the Parent Company, Spar Nord Bank A/S | 807.1 | 889.4 | 807.1 | ||
| Holders of Additional Tier 1 (AT1) capital instruments | 26.1 | 13.5 | 26.1 | 897.4 376.6 251.1 78.9 177.3 883.9 897.4 6.3 -0.8 5.5 902.9 889.4 13.5 |
| Balance sheet | Spar Nord The Group 2016 |
Spar Nord The Group 2015 |
Spar Nord Parent Company |
Spar Nord Parent Company |
|---|---|---|---|---|
| DKK m | DKK m | 2016 | 2015 | |
| DKK m | DKK m |
| Total assets | 78,473.5 | 76,357.2 | 79,757.6 | 77,498.2 |
|---|---|---|---|---|
| Prepayments | 123.5 | 178.1 | 123.5 | 184.2 |
| Other assets | 2,086.3 | 2,483.7 | 2,074.3 | 2,478.7 |
| Temporary assets | 33.9 | 27.4 | 33.9 | 27.4 |
| Deferred tax assets | 0.0 | 6.0 | 0.0 | 0.0 |
| Current tax assets | 17.9 | 91.0 | 20.4 | 86.4 |
| Other property, plant and equipment | 91.1 | 99.6 | 91.1 | 99.6 |
| Land and buildings, total | 653.5 | 691.6 | 486.7 | 514.1 |
| Corporate properties | 518.5 | 547.0 | 416.7 | 443.5 |
| Investment properties | 135.0 | 144.6 | 70.0 | 70.6 |
| Intangible assets | 194.4 | 214.5 | 194.4 | 214.5 |
| Assets linked to pooled schemes | 14,541.5 | 13,380.0 | 14,541.5 | 13,380.0 |
| Equity investments in group enterprises | - | - | 1,583.7 | 1,508.8 |
| Equity investments in associates | 118.4 | 82.4 | 118.4 | 82.4 |
| Shares, etc. | 1,557.2 | 1,658.3 | 1,557.2 | 1,601.1 |
| Bonds at fair value | 14,936.1 | 16,053.6 | 14,936.1 | 16,053.6 |
| Loans, advances and other receivables at amortized cost | 41,345.6 | 38,039.3 | 41,218.6 | 37,912.3 |
| Lending, leasing activities | 1,961.9 | 1,253.7 | 1,961.9 | 1,253.7 |
| Lending, reverse repo transactions | 6,253.4 | 4,155.1 | 6,253.4 | 4,155.1 |
| Lending, banking activities | 33,130.3 | 32,630.5 | 33,003.3 | 32,503.5 |
| Receivables from credit institutions and central banks | 2,178.8 | 2,741.3 | 2,182.5 | 2,744.7 |
| Cash balances and demand deposits with central banks | 595.3 | 610.4 | 595.3 | 610.4 |
| 29 | Payables to credit institutions and central banks | 2,429.8 | 3,739.5 | 2,399.2 | 3,708.5 |
|---|---|---|---|---|---|
| 30 | Deposits and other payables | 46,464.2 | 44,736.3 | 47,787.0 | 45,912.1 |
| 56 | Deposits in pooled schemes | 14,541.5 | 13,380.0 | 14,541.5 | 13,380.0 |
| 20+21 | Other non-derivative financial liabilities at fair value | 2,007.8 | 1,219.7 | 2,007.8 | 1,219.7 |
| 31 | Other liabilities | 3,084.1 | 4,081.4 | 3,080.8 | 4,077.6 |
| Deferred income | 24.0 | 25.7 | 18.2 | 25.7 | |
| Total liabilities other than provisions | 68,551.4 | 67,182.6 | 69,834.5 | 68,323.6 | |
| 32 | PROVISIONS FOR LIABILITIES | ||||
| 33 | Provisions for deferred tax | 108.5 | 122.8 | 109.5 | 122.8 |
| Provisions for losses on guarantees | 67.0 | 42.9 | 67.0 | 42.9 | |
| Other provisions | 26.3 | 33.1 | 26.3 | 33.1 | |
| Total provisions for liabilities | 201.8 | 198.8 | 202.8 | 198.8 | |
| SUBORDINATED DEBT | |||||
| 34 | Subordinated debt | 1,093.2 | 1,088.8 | 1,093.2 | 1,088.8 |
| Total liabilities | 69,846.4 | 68,470.2 | 71,130.5 | 69,611.2 | |
| EQUITY | |||||
| Share capital | 1,255.3 | 1,255.3 | 1,255.3 | 1,255.3 | |
| Revaluation reserves | 91.3 | 96.3 | 88.6 | 94.4 | |
| Statutory reserves | 22.3 | 23.2 | 386.2 | 312.2 | |
| Proposed dividend | 627.7 | 376.6 | 627.7 | 376.6 | |
| Retained earnings | 5,768.1 | 5,723.3 | 5,406.9 | 5,436.2 | |
| Shareholders' equity | 7,764.7 | 7,474.7 | 7,764.7 | 7,474.7 | |
| Holders of Additional Tier 1 (AT1) capital instruments | 862.4 | 412.3 | 862.4 | 412.3 | |
| Total equity | 8,627.1 | 7,887.0 | 8,627.1 | 7,887.0 | |
| Total equity and liabilities | 78,473.5 | 76,357.2 | 79,757.6 | 77,498.2 | |
| OFF-BALANCE-SHEET ITEMS | |||||
| 40 | Contingent assets | 6.9 | 5.2 | 5.1 | 3.4 |
| 41 | Contingent liabilities | 12,334.1 | 9,585.2 | 12,334.1 | 9,585.2 |
| 42 | Other obligating agreements | 500.9 | 540.5 | 529.6 | 576.8 |
| The shareholders of the Parent Company, Spar Nord Bank A/S | ||||||||
|---|---|---|---|---|---|---|---|---|
| EQUITY | Share capital DKK m |
Re valuation reserve DKK m |
Statutory reserves DKK m |
Proposed dividend DKK m |
Retained earnings DKK m |
Total DKK m |
Additional Tier 1 (AT1) capital *) DKK m |
Total DKK m |
| SPAR NORD, THE GROUP | ||||||||
| Total equity 01.01.16 | 1,255.3 | 96.3 | 23.2 | 376.6 | 5,723.3 | 7,474.7 | 412.3 | 7,887.0 |
| Comprehensive income in 2016 | ||||||||
| Profit/loss for the year | - | - | 29.6 | 627.7 | 154.8 | 812.1 | 26.1 | 838.2 |
| Other comprehensive income | ||||||||
| Net revaluation of properties | - | -5.0 | - | - | - | -5.0 | - | -5.0 |
| Other comprehensive income, total | 0.0 | -5.0 | 0.0 | 0.0 | 0.0 | -5.0 | 0.0 | -5.0 |
| Comprehensive income, total | 0.0 | -5.0 | 29.6 | 627.7 | 154.8 | 807.1 | 26.1 | 833.2 |
| Transactions with owners | ||||||||
| Issue of Additional Tier 1 (AT1) capital, net of transaction costs | - | - | - | - | -3.0 | -3.0 | 450.0 | 447.0 |
| Interest paid on Additional Tier 1 (AT1) capital | - | - | - | - | - | - | -24.2 | -24.2 |
| Dividends paid | - | - | - | -376.6 | - | -376.6 | - | -376.6 |
| Dividends received, treasury shares | - | - | - | - | 1.9 | 1.9 | - | 1.9 |
| Disposal upon acquisition of treasury shares and Additional Tier 1 (AT1) capital | - | - | - | - | -658.2 | -658.2 | -1.8 | -660.0 |
| Addition upon sale of treasury shares and Additional Tier 1 (AT1) capital | - | - | - | - | 512.4 | 512.4 | - | 512.4 |
| Revaluation reserves in associates | - | - | 7.1 | - | -7.1 | 0.0 | - | 0.0 |
| Dividends received from associates recognized at net asset value | - | - | -37.6 | - | 37.6 | 0.0 | - | 0.0 |
| Tax | - | - | - | - | 6.4 | 6.4 | - | 6.4 |
| Transactions with owners, total | 0.0 | 0.0 | -30.5 | -376.6 | -110.0 | -517.1 | 424.0 | -93.1 |
| Total equity 31.12.16 | 1,255.3 | 91.3 | 22.3 | 627.7 | 5,768.1 | 7,764.7 | 862.4 | 8,627.1 |
| Total equity 01.01.15 | 1,255.3 | 89.4 | 571.4 | 200.8 | 4,916.1 | 7,033.0 | - | 7,033.0 |
| Comprehensive income in 2015 | ||||||||
| Profit/loss for the year | - | - | 28.3 | 627.7 | 227.3 | 883.3 | 13.5 | 896.8 |
| Other comprehensive income | ||||||||
| Net revaluation of properties | - | 6.9 | - | - | - | 6.9 | - | 6.9 |
| Other capital movements in associates | - | - | -0.8 | - | - | -0.8 | - | -0.8 |
| Other comprehensive income, total | 0.0 | 6.9 | -0.8 | 0.0 | 0.0 | 6.1 | 0.0 | 6.1 |
| Comprehensive income, total | ||||||||
| 0.0 | 6.9 | 27.5 | 627.7 | 227.3 | 889.4 | 13.5 | 902.9 | |
| Transactions with owners | ||||||||
| Issue of Additional Tier 1 (AT1) capital, net of transaction costs | - | - | - | - | -2.9 | -2.9 | 400.0 | 397.1 |
| Dividends paid | - | - | - | -451.9 | - | -451.9 | - | -451.9 |
| Dividends received, treasury shares | - | - | - | - | 0.3 | 0.3 | - | 0.3 |
| Disposal upon acquisition of treasury shares and Additional Tier 1 (AT1) capital | - | - | - | - | -636.3 | -636.3 | -1.2 | -637.5 |
| Addition upon sale of treasury shares and Additional Tier 1 (AT1) capital | - | - | - | - | 639.2 | 639.2 | - | 639.2 |
| Dividends received from associates recognized at net asset value | - | - | -864.3 | - | 864.3 | 0.0 | - | 0.0 |
| Dissolution of revaluation reserves in associates | - | - | 288.6 | - | -288.6 | 0.0 | - | 0.0 |
| Tax | - | - | - | - | 3.9 | 3.9 | - | 3.9 |
| Transactions with owners, total | 0.0 | 0.0 | -575.7 | -451.9 | 579.9 | -447.7 | 398.8 | -48.9 |
| Total equity 31.12.15 | 1,255.3 | 96.3 | 23.2 | 376.6 | 5,723.3 | 7,474.7 | 412.3 | 7,887.0 |
*) See description on page 42.
1,255.3 94.4 312.2 376.6 5,436.2 7,474.7 412.3 7,887.0
| EQUITY | Share capital DKK m |
Re valuation reserve DKK m |
Statutory reserves DKK m |
Proposed dividend DKK m |
Retained earnings DKK m |
Total DKK m |
Additional Tier 1 (AT1) capital*) DKK m |
Total DKK m |
|---|---|---|---|---|---|---|---|---|
| SPAR NORD PARENT COMPANY | ||||||||
| Total equity 01.01.16 | 1,255.3 | 94.4 | 312.2 | 376.6 | 5,436.2 | 7,474.7 | 412.3 | 7,887.0 |
| Comprehensive income in 2016 | ||||||||
| Profit/loss for the year | - | - | 104.5 | 627.7 | 80.7 | 812.9 | 26.1 | 839.0 |
| Other comprehensive income | ||||||||
| Net revaluation of properties | - | -5.8 | - | - | - | -5.8 | - | -5.8 |
| Other comprehensive income, total | 0.0 | -5.8 | 0.0 | 0.0 | 0.0 | -5.8 | 0.0 | -5.8 |
| Comprehensive income, total | 0.0 | -5.8 | 104.5 | 627.7 | 80.7 | 807.1 | 26.1 | 833.2 |
| Transactions with owners | ||||||||
| Issue of Additional Tier 1 (AT1) capital, net of transaction costs | - | - | - | - | -3.0 | -3.0 | 450.0 | 447.0 |
| Interest paid on Additional Tier 1 (AT1) capital | - | - | - | - | - | - | -24.2 | -24.2 |
| Dividends paid | - | - | - | -376.6 | - | -376.6 | - | -376.6 |
| Dividends received, treasury shares | - | - | - | - | 1.9 | 1.9 | - | 1.9 |
| Disposal upon acquisition of treasury shares and Additional Tier 1 (AT1) capital | - | - | - | - | -658.2 | -658.2 | -1.8 | -660.0 |
| Addition upon sale of treasury shares and Additional Tier 1 (AT1) capital | - | - | - | - | 512.4 | 512.4 | - | 512.4 |
| Revaluation reserves in associates | - | - | 7.1 | - | -7.1 | 0.0 | - | 0.0 |
| Dividends received from associates recognized at net asset value Tax |
- - |
- - |
-37.6 - |
- - |
37.6 6.4 |
0.0 6.4 |
- - |
0.0 6.4 |
| Transactions with owners, total | 0.0 | 0.0 | -30.5 | -376.6 | -110.0 | -517.1 | 424.0 | -93.1 |
| Total equity 31.12.16 | 1,255.3 | 88.6 | 386.2 | 627.7 | 5,406.9 | 7,764.7 | 862.4 | 8,627.1 |
| Total equity 01.01.15 | 1,255.3 | 88.1 | 746.0 | 200.8 | 4,742.8 | 7,033.0 | - | 7,033.0 |
| Comprehensive income in 2015 Profit/loss for the year |
- | - | 78.9 | 627.7 | 177.3 | 883.9 | 13.5 | 897.4 |
| Other comprehensive income | ||||||||
| Net revaluation of properties | - | 6.3 | - | - | - | 6.3 | - | 6.3 |
| Other capital movements in associates | - | - | -0.8 | - | - | -0.8 | - | -0.8 |
| Other comprehensive income, total | 0.0 | 6.3 | -0.8 | 0.0 | 0.0 | 5.5 | 0.0 | 5.5 |
| Comprehensive income, total | 0.0 | 6.3 | 78.1 | 627.7 | 177.3 | 889.4 | 13.5 | 902.9 |
| Transactions with owners | ||||||||
| Issue of Additional Tier 1 (AT1) capital, net of transaction costs | - | - | - | - | -2.9 | -2.9 | 400.0 | 397.1 |
| Dividends paid | - | - | - | -451.9 | - | -451.9 | - | -451.9 |
| Dividends received, treasury shares | - | - | - | - | 0.3 | 0.3 | - | 0.3 |
| Disposal upon acquisition of treasury shares and Additional Tier 1 (AT1) capital | - | - | - | - | -636.3 | -636.3 | -1.2 | -637.5 |
| Addition upon sale of treasury shares and Additional Tier 1 (AT1) capital | - | - | - | - | 639.2 | 639.2 | - | 639.2 |
| Dividends received from associates recognized at net asset value | - | - | -864.3 | - | 864.3 | 0.0 | - | 0.0 |
| Dissolution of revaluation reserves in group enterprises | - | - | 63.8 | - | -63.8 | 0.0 | - | 0.0 |
| Dissolution of revaluation reserves in associates | - | - | 288.6 | - | -288.6 | 0.0 | - | 0.0 |
| Tax | - | - | - | - | 3.9 | 3.9 | - | 3.9 |
| Transactions with owners, total | 0.0 | 0.0 | -511.9 | -451.9 | 516.1 | -447.7 | 398.8 | -48.9 |
Total equity 31.12.15
*) See description on page 42.
The Additional Tier 1 (AT1) capital issued by Spar Nord under CRR has a perpetual term, with voluntary payment of interest and repayments of principal, for which reason it is treated as equity for accounting purposes.
| Principal | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|||||
|---|---|---|---|---|---|---|---|---|---|
| Currency | Note DKK m Interest rate | Received | Maturity | ||||||
| DKK | a | 400.0 | 6.052 % | 2015 | Perpetual | 412.7 | 412.3 | 412.7 | 412.3 |
| DKK | b | 450.0 | 5.500 % | 2016 | Perpetual | 449.7 | 0.0 | 449.7 | 0.0 |
| Additional Tier 1 (AT1) capital issued under CRR, total | 862.4 | 412.3 | 862.4 | 412.3 |
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.
With the exception that subsidiaries are included in the Consolidated Financial Statements and recognized at net asset value in the Parent Company's Financial Statements, the accounting policies have been consistently applied.
The difference between the equity and profit or loss in the Group and in the Parent Company is due to properties being classified as investment properties in subsidiaries and as corporate properties in the Group. The difference consists of net depreciation and impairment on such properties; see below:
| PROFIT/LOSS | EQUITY | ||||
|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | ||
| Spar Nord, the Group | 838.2 | 896.8 | 8,627.1 | 7,887.0 | |
| Net depreciation and impairment, the Group's corporate properties | 0.8 | 0.6 | 0.0 | 0.0 | |
| Spar Nord, the Parent Company | 839.0 | 897.4 | 8,627.1 | 7,887.0 |
| Number of shares | Nominal value (DKK m) | ||||
|---|---|---|---|---|---|
| Shares issued | 2016 | 2015 | 2016 | 2015 | |
| 1 January | 125,529,918 | 125,529,918 | 1,255.3 | 1,255.3 | |
| 31 December – fully paid-up | 125,529,918 | 125,529,918 | 1,255.3 | 1,255.3 |
The share capital consists of 125,529,918 shares in the denomination of DKK 10.
No shares have been allocated special rights. There are no restrictions in terms of transferability and no restrictions on voting rights.
A dividend of DKK 627.7 million is proposed to be distributed for 2016 (2015: DKK 627.7 million, of which DKK 251.1 million was proposed to be distributed as extraordinary dividend in March 2015, based on the sale of shares in Nørresundby Bank), of which DKK 12.7 million is to be paid on shares acquired in connection with the share repurchase programme in 2016.
Dividends paid in 2016 amounted to DKK 376.6 million (2015: DKK 451.9 million, of which DKK 200.8 million was proposed to be distributed as ordinary dividend in the 2014 Annual Report and DKK 251.1 million as extraordinary dividend in March 2015 following the sale of shares in Nørresundby Bank).
The distribution of dividend to Spar Nord's shareholders has no tax consequences for Spar Nord.
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|
|---|---|---|---|---|
| NUMBER OF SHARES IN CIRCULATION | ||||
| Beginning of year | 125,390,517 | 125,366,131 | 125,390,517 | 125,366,131 |
| Share repurchase programme | 2,527,392 | 0 | 2,527,392 | 0 |
| Acquisition/sale of treasury shares, trading book | 75,458 | 24,386 | 75,458 | 24,386 |
| End of year | 122,938,583 | 125,390,517 | 122,938,583 | 125,390,517 |
| Shares issued | 125,529,918 | 125,529,918 | 125,529,918 | 125,529,918 |
| Share repurchase programme | 2,527,392 | 0 | 2,527,392 | 0 |
| The Group's holding of treasury shares, trading book | 63,943 | 139,401 | 63,943 | 139,401 |
| Outstanding shares in circulation | 122,938,583 | 125,390,517 | 122,938,583 | 125,390,517 |
| TREASURY SHARE PORTFOLIO | ||||
| Number of shares | 2,591,335 | 139,401 | 2,591,335 | 139,401 |
| Nominal value, DKK m | 25.9 | 1.4 | 25.9 | 1.4 |
| Fair value, DKK m | 209.9 | 8.5 | 209.9 | 8.5 |
| Percentage of share capital | 2.1 | 0.1 | 2.1 | 0.1 |
| TREASURY SHARE PORTFOLIO, FAIR VALUE, DKK M | ||||
| Portfolio, beginning of year | 8.5 | 9.5 | 8.5 | 9.5 |
| Share repurchase programme | 150.0 | 0.0 | 150.0 | 0.0 |
| Acquisition of treasury shares | 508.2 | 636.3 | 508.2 | 636.3 |
| Sale of treasury shares | 512.4 | 639.2 | 512.4 | 639.2 |
| Market-value adjustment | 55.6 | 1.9 | 55.6 | 1.9 |
| Portfolio, end of year | 209.9 | 8.5 | 209.9 | 8.5 |
| TREASURY SHARES DEPOSITED AS COLLATERAL | ||||
| Number of shares | 1,251,144 | 1,491,977 | 1,251,144 | 1,491,977 |
| Nominal value, DKK m | 12.5 | 14.9 | 12.5 | 14.9 |
| Fair value, DKK m | 101.3 | 91.0 | 101.3 | 91.0 |
| Percentage of share capital | 1.0 | 1.2 | 1.0 | 1.2 |
Treasury shares deposited as collateral comprise collateral provided by customers in the form of Spar Nord shares.
The Bank uses treasury shares for trading with customers.
Until the next Annual General Meeting, the Board of Directors is authorized to let the Bank acquire treasury shares of a nominal value of up to 10% of the share capital based on the listed price at the date of acquisition subject to a deviation of up to 10%.
Spar Nord launched a share repurchase programme worth DKK 150 million on 15 February 2016, to be implemented in the period until 31 December 2016. The share repurchase programme was completed on 29 December 2016.
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|
|---|---|---|---|---|
| OWN FUNDS | ||||
| Equity | 8,627.1 | 7,887.0 | 8,627.1 | 7,887.0 |
| Additional Tier 1 (AT1) capital included in equity | 862.4 | 412.3 | 862.4 | 412.3 |
| Proposed dividend, excl. share rel. to share repurchase programme | 615.0 | 376.6 | 615.0 | 376.6 |
| Intangible assets, incl. share recognized in | ||||
| investments in associates | 196.4 | 212.0 | 196.4 | 212.0 |
| Deferred tax assets *) | 0.0 | 6.0 | 0.0 | 0.0 |
| Other regulatory adjustments | 48.3 | 45.7 | 48.2 | 45.7 |
| Deductions, equity investments | 240.4 | 161.1 | 240.4 | 138.0 |
| Common Equity Tier 1 (CET1) | 6,664.6 | 6,673.3 | 6,664.7 | 6,702.4 |
| Additional Tier 1 (AT1) capital **) | 843.0 | 393.0 | 843.0 | 393.0 |
| Other deductions | 80.1 | 120.8 | 80.1 | 103.5 |
| Core capital (Tier 1) | 7,427.5 | 6,945.5 | 7,427.6 | 6,991.9 |
| Subordinated debt (excl. Additional Tier 1 (AT1) capital) **) | 1,079.6 | 1,078.0 | 1,079.6 | 1,078.0 |
| Other deductions | 80.1 | 120.8 | 80.1 | 103.5 |
| Own funds | 8,427.0 | 7,902.7 | 8,427.1 | 7,966.4 |
| Weighted risk exposure, credit risk, etc. | 38,215.5 | 36,550.1 | 39,494.0 | 37,770.4 |
| Weighted risk exposure, market risk | 3,537.7 | 4,162.6 | 3,537.7 | 4,176.1 |
| Weighted risk exposure, operational risk | 5,732.3 | 5,787.2 | 5,662.3 | 5,444.7 |
| Total risk exposure | 47,485.5 | 46,499.9 | 48,694.0 | 47,391.2 |
| Common Equity Tier 1 (CET1) ratio , % | 14.0 | 14.4 | 13.7 | 14.1 |
| Core capital (Tier 1) ratio , % | 15.6 | 14.9 | 15.3 | 14.8 |
| Total capital ratio , % | 17.7 | 17.0 | 17.3 | 16.8 |
*) The Group figure relates to a separate loss in a subsidiary.
**) Incl. portfolio of own bonds.
| NOTE | Cash flow statement | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|---|
| OPERATIONS | |||||
| Profit/loss before tax | 1,028.1 | 1,073.6 | 1,018.5 | 1,060.6 | |
| 25+27 | Fair-value changes, investment properties and temporary assets | 11.1 | 4.0 | 1.1 | 3.0 |
| 13 | Depreciation, amortization and impairment of intangible assets and | ||||
| property, plant and equipment | 94.3 | 65.5 | 92.7 | 64.9 | |
| Gains and losses on the sale of intangible assets and property, plant and equipment | 3.0 | 0.2 | 3.0 | 0.2 | |
| 32+51 | Adjustment of impairment of loans and advances, etc. | 54.4 | -19.0 | 54.4 | -19.0 |
| 32 | Provisions for liabilities | 17.3 | 5.0 | 17.3 | 5.0 |
| 16 | Profit/loss on equity investments in associates and group enterprises | -29.6 | -28.3 | -104.5 | -78.9 |
| Corporate income tax paid | -118.5 | -153.6 | -120.4 | -156.9 | |
| Operations, total | 1,060.1 | 947.4 | 962.1 | 878.9 | |
| WORKING CAPITAL | |||||
| 18+29 | Movement in credit institutions and central banks, net | -1,326.2 | -6,598.5 | -1,322.4 | -6,601.4 |
| 19 | Movement in loans, advances and other receivables at amortized cost | -2,811.2 | -2,072.7 | -2,811.2 | -2,072.7 |
| 20 | Movement in bonds at fair value | 1,117.5 | 4,180.4 | 1,117.5 | 4,180.4 |
| 21 | Movement in equity portfolio | 82.8 | -241.5 | 25.6 | -241.5 |
| Movement in issued bonds at amortized cost | 0.0 | -22.6 | 0.0 | -22.6 | |
| Movement in other assets and other liabilities, net | 241.4 | -484.4 | 248.5 | -480.0 | |
| 30 | Movement in deposits and other payables | 1,727.9 | 2,500.5 | 1,874.9 | 2,516.7 |
| Working capital, total | -967.8 | -2,738.8 | -867.1 | -2,721.1 | |
| Cash generated from operations, total | 92.3 | -1,791.4 | 95.0 | -1,842.2 | |
| INVESTMENTS | |||||
| 45 | Acquisition of activities from FIH Erhvervsbank | -549.5 | 0.0 | -549.5 | 0.0 |
| 22+23 | Acquisition of associates and group enterprises | -25.8 | -0.1 | -25.8 | -0.1 |
| 22+23 | Sale of associates and group enterprises | 0.0 | 22.2 | 0.0 | 76.4 |
| 24 | Acquisition of intangible assets | -5.6 | -6.0 | -5.6 | -6.0 |
| 24 | Sale of intangible assets | 2.5 | 0.0 | 2.5 | 0.0 |
| 25+26+27 | Acquisition of property, plant and equipment | -73.4 | -50.5 | -72.4 | -49.9 |
| 25+26+27 | Sale of property, plant and equipment | 22.9 | 28.6 | 22.9 | 20.6 |
| 22+23 | Dividends from associates and group enterprises | 37.6 | 864.3 | 37.6 | 864.3 |
| Investments, total | -591.3 | 858.5 | -590.3 | 905.3 | |
| FINANCING | |||||
| 34 | Subordinated debt | 4.4 | -619.5 | 4.4 | -619.5 |
| Additional Tier 1 (AT1) capital recognized as equity, purchase/sale, etc. | 445.2 | 395.9 | 445.2 | 395.9 | |
| Additional Tier 1 (AT1) capital recognized as equity, interest paid | -24.2 | 0.0 | -24.2 | 0.0 | |
| Dividends paid, excl. dividends on treasury shares | -374.7 | -451.6 | -374.7 | -451.6 | |
| Share repurchase programme | -150.0 | 0.0 | -150.0 | 0.0 | |
| Acquisition of treasury shares | -508.2 | -636.3 | -508.2 | -636.3 | |
| Sale of treasury shares | 512.4 | 639.2 | 512.4 | 639.2 | |
| Financing, total | -95.1 | -672.3 | -95.1 | -672.3 | |
| Movement in cash and cash equivalents for the year | -594.1 | -1,605.2 | -590.4 | -1,609.2 | |
| Cash and cash equivalents, beginning of year | 3,295.2 | 4,900.4 | 3,295.2 | 4,904.4 | |
| Movement in cash and cash equivalents for the year | -594.1 | -1,605.2 | -590.4 | -1,609.2 | |
| Cash and cash equivalents, end of year | 2,701.1 | 3,295.2 | 2,704.8 | 3,295.2 | |
| Cash and cash equivalents, end of year | |||||
| Cash, cash equivalents and demand deposits with central banks | 595.3 | 610.4 | 595.3 | 610.4 | |
| 18 | Receivables from credit institutions and central banks with less than 3 mths to maturity | 2,105.8 | 2,684.8 | 2,109.5 | 2,684.8 |
| Total | 2,701.1 | 3,295.2 | 2,704.8 | 3,295.2 |
| Note | Page | |
|---|---|---|
| 1 | Accounting policies | 46 |
| 2 Significant accounting estimates and judgments | 54 | |
| 3 Business segments | 55 | |
| 4 Interest income | 58 | |
| 5 Interest expenses | 58 | |
| 6 | Dividends on shares, etc. | 58 |
| 7 Fees, charges and commissions received | 58 | |
| 8 Market-value adjustments | 58 | |
| 9 Net financials, the Spar Nord Group | 59 | |
| 10 Other operating income | 60 | |
| 11 Staff costs and administrative expenses | 60 | |
| 12 Audit fees | 62 | |
| 13 Depreciation, amortization and impairment of intangible | ||
| assets and property, plant and equipment | 62 | |
| 14 Other operating expenses | 62 | |
| 15 Impairment of loans, advances and receivables, etc. | 63 | |
| 16 Profit/loss on equity investments in associates and | ||
| group enterprises | 63 | |
| 17 Tax | 63 | |
| 18 Receivables from credit institutions and central banks | 64 | |
| 19 Loans, advances and other receivables at amortized cost | 64 | |
| 20 Bonds at fair value | 66 | |
| 21 Shares, etc. | 66 | |
| 22 Equity investments in associates | 66 | |
| 23 Equity investments in group enterprises | 67 | |
| 24 Intangible assets | 68 | |
| 25 Land and buildings | 71 | |
| 26 Other property, plant and equipment, total | 73 | |
| 27 Temporary assets | 73 | |
| 28 Other assets | 74 | |
| 29 Payables to credit institutions and central banks | 74 | |
| Note | Page | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 30 Deposits and other payables | 74 | |||||||||||
| 31 Other liabilities | 75 | |||||||||||
| 32 Provisions for liabilities | 75 | |||||||||||
| 33 Provisions for deferred tax | 77 | |||||||||||
| 34 Subordinated debt | 78 | |||||||||||
| 35 Transfer of financial assets | 79 | |||||||||||
| 36 Collateral accepted | 79 | |||||||||||
| 37 Collateral provided and encumbered assets | 79 | |||||||||||
| 38 Offsetting financial assets and financial liabilities | 80 | |||||||||||
| 39 Hedge accounting | 81 | |||||||||||
| 40 Contingent assets | 81 | |||||||||||
| 41 Contingent liabilities | 82 | |||||||||||
| 42 Other obligating agreements | 82 | |||||||||||
| 43 Legal proceedings, etc. | 83 | |||||||||||
| 44 Earnings per share for the year | 83 | |||||||||||
| 45 Business combinations | 83 | |||||||||||
| 46 Related parties | 84 | |||||||||||
| 47 Management's holdings of Spar Nord shares | 85 | |||||||||||
| 48 Post-balance-sheet events | 85 | |||||||||||
| 49 Fair-value information for financial instruments | 85 | |||||||||||
| 50 Risk management | 87 | |||||||||||
| 51 Credit risk | 88 | |||||||||||
| 52 Market risk | 103 | |||||||||||
| 53 Liquidity risk | 105 | |||||||||||
| 54 Operational risk | 112 | |||||||||||
| 55 Capital management | 113 | |||||||||||
| 56 Pooled schemes | 114 | |||||||||||
| 57 Performance indicators and financial ratios | 115 | |||||||||||
| 58 Ratio definitions | 117 | |||||||||||
Spar Nord Bank A/S is a public limited company with its registered office in Denmark.
The Annual Report for the period from 1 January to 31 December 2016 comprises the Consolidated Financial Statements of Spar Nord and its subsidiary as well as the Financial Statements of the Parent Company.
The Consolidated Financial Statements are presented in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU. The Financial Statements of the Parent Company are presented in accordance with the Danish Financial Business Act, including the Danish Executive Order on the Presentation of Financial Statements by Credit Institutions and Stockbrokers, etc.
Moreover, the Annual Report is presented in accordance with additional Danish disclosure requirements for annual reports prepared by listed financial institutions; see the Danish Financial Business Act and the Executive Order regarding the application of IFRS standards in financial institutions issued pursuant to the Danish Financial Business Act.
On 9 February 2017, the Board of Directors and Executive Board reviewed and adopted the 2016 Annual Report of the Spar Nord Group. The Annual Report will be submitted for adoption by the shareholders at the Annual General Meeting on 26 April 2017.
The policies regarding recognition and measurement in the Parent Company are compatible with IFRS. There is a difference between profit or loss in the Parent Company and the Group, which is due to properties being classified as investment properties in subsidiaries and as corporate properties in the Group. The difference consists of net depreciation and impairment on such properties.
The accounting policies, which are set out below, have been applied consistently for the financial year, also with regard to comparative figures, and are thus unchanged compared with last year.
For more details regarding the implementation of new financial reporting standards, please see below. These new standards did not give rise to changes in recognition and measurement in 2016. The comparative figures are not restated for financial reporting standards to be implemented in future reporting periods.
Effective 1 January 2016, Spar Nord implemented the standards and interpretations entering into force for the EU for 2016.
The implementation of the adopted amendments and new standards did not materially affect recognition and measure-
ment in 2016, thus not impacting earnings per share, diluted earnings per share and equity.
The Consolidated Financial Statements cover the Parent Company, Spar Nord Bank, and the group enterprise in which the Group controls financial and operational decisions. The Group has a controlling interest in an investee when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In assessing whether the Group has a controlling interest, it is considered whether the Group has de facto control and potential voting rights that exist and are substantive at the reporting date.
Associates are companies that are not group enterprises but in which the Group holds equity investments and has significant influence, but not a controlling interest. Significant influence is typically obtained when a company, directly or indirectly, owns or holds more than 20 per cent of the voting rights, but less than 50 per cent.
In assessing whether the Group has a controlling interest or significant influence, the voting rights that can be exercised on the reporting date are taken into account.
The following group enterprise is included by means of full consolidation:
• Aktieselskabet Skelagervej 15
The Consolidated Financial Statements are prepared as a condensed version of the financial statements of the Parent Company and the subsidiary, drawn up in accordance with the Group's accounting policies. Intercompany income and expenses, shareholdings, intercompany balances and realized and unrealized gains and losses on transactions between the consolidated enterprises are eliminated in consolidation.
The acquisition of parts of another company is recognized in the Consolidated Financial Statements from the date of acquisition. The date of acquisition is the date on which the Spar Nord Group obtains actual control of the acquired assets and liabilities.
Comparative figures are not adjusted for newly acquired, sold or wound-up companies.
The acquired, identified assets, liabilities and contingent liabilities are measured at their fair value as of the acquisition date. Identifiable intangible assets are recognized if they are separable or arise from a contractual right. Allowance is made for the tax impact of the revaluations made.
Positive differences between the acquisition cost and the fair value of acquired, identified assets and liabilities (goodwill) are recognized under intangible assets. Goodwill is not amortized, but tested for impairment at least once a year.
The initial impairment test is made before the end of the year of acquisition. On acquisition, goodwill is allocated to the cash-generating units that are subsequently subjected to impairment tests.
The purchase sum paid consists of the fair value of the agreed consideration in the form of transferred assets, assumed liabilities and issued equity instruments. Costs allocable to business combinations are recognized directly in profit or loss for the year when incurred.
In case of any uncertainty at the date of acquisition about the identification or measurement of acquired assets, liabilities or contingent liabilities or the determination of the purchase sum, initial recognition is based on amounts preliminarily determined. If the identification or measurement of the purchase sum, acquired assets, liabilities or contingent liabilities proves to be incorrect on initial recognition, the determination is adjusted with retroactive effect, including goodwill, within 12 months after the acquisition, and comparative figures are restated. Subsequently goodwill is not adjusted. Changes to estimates of conditional purchase sums are recognized in profit or loss for the year.
Companies sold or wound up are recognized in the Consolidated Financial Statements until the date of divestment or the date of winding-up. Gains or losses upon the divestment or winding-up of group enterprises and associates are recognized as the difference between the selling price or the winding-up proceeds and the carrying amount of net assets, including goodwill, at the time of sale plus the defrayed and expected costs of divestment or winding-up.
The Consolidated Financial Statements and the Parent Company's Financial Statements are presented in Danish kroner (DKK), rounded to the nearest million DKK with one decimal, which is the functional currency of Spar Nord Bank A/S and the subsidiary Aktieselskabet Skelagervej 15. Transactions denominated in a foreign currency are translated at the rate of exchange ruling at the date of the transaction. Exchange differences that arise between the exchange rate at the date of the transaction and the exchange rate at the payment date are recognized in the income statement under market-value adjustments.
Monetary items in foreign currencies are translated at the exchange rate prevailing at the reporting date. The difference between the exchange rate at the reporting date and the exchange rate at the time the balance arose is recognized in the income statement under market-value adjustments.
Receivables and liabilities are offset when the Group has a legal right to set off the recognized amounts, while at the same time intending to make a net settlement or realize the asset and redeem the liability at the same time.
The fair value is the amount at which a financial asset or liability may be traded between market participants at the time of measurement on the principal market, or, in its absence, the most advantageous market to which the Group has access at such time.
In the Group, the fair value is measured based on the following fair-value hierarchy, which reflects the parameters included in the measurement:
Quoted prices (unadjusted) in active markets for identical financial assets or liabilities.
Valuation techniques based on inputs, apart from quoted prices at Level 1, observable either directly (prices) or indirectly (determined on the basis of prices).
Valuation techniques based on inputs for valuing an asset or liability based on unobservable market data. The valuation is based primarily on generally accepted valuation principles.
At the end of the accounting period, the Group recognizes transfers between levels in the fair-value hierarchy for the whole financial year.
Financial assets are classified in the following categories at the date of recognition:
Financial liabilities are classified in the following categories at the date of recognition:
The Spar Nord Group does not have held-to-maturity investments.
On initial recognition at the settlement date, bonds and shares, etc. are measured at fair value, excluding transaction costs. Subsequently, bonds and shares etc. are measured at fair value. Realized and unrealized gains and losses as well as dividends are recognized in market-value adjustments and in dividends on shares in the income statement.
When an active market exists, the Group measures the fair value of bonds and shares, etc. on the basis of quoted market prices for the relevant financial instruments. A market is considered active when the instrument is traded with sufficient frequency and in sufficient volume to provide a valid pricing basis. The fair value of such instruments is determined on the basis of the most recently observed closing prices on the reporting date (Level 1). In the alternative, accepted models and observable market data for corresponding assets are used to measure the fair value (Level 2).
The Group's acquired strategic shares, which are not included in the trading book, are measured at fair value on the basis of available trading information or accepted valuation principles and current market data, including an assessment of future earnings and cash flows (Level 3). The fair value is also affected by co-ownership, trading with the relevant company and shareholders' agreements.
Securities are removed from the balance sheet on the settlement day.
Derivative instruments and unsettled spot transactions are recognized and measured at fair value at the trade date. Positive fair values are recognized under Other assets. Negative fair values are recognized under Other liabilities.
On initial recognition, derivative instruments and unsettled spot transactions are measured at fair value, excluding transaction costs. Subsequently, derivative instruments and unsettled spot transactions are measured at fair value. Realized and unrealized gains and losses are recognized in market-value adjustments in the income statement. Gains or losses on initial recognition ("day 1 profit/loss") are not recognized for selected derivative instruments, but are amortized over the term of the relevant instrument.
The fair value of derivative instruments with a positive fair value is adjusted for credit risks attaching to counterparties – CVA.
The calculation of fair value is based on accepted models and observable market data (Level 2), including yield curves, exchange rates and volatility curves, for measuring the fair value. The valuation models used comprise swap models, credit pricing models as well as option models, such as Black & Scholes models.
If the sale is made subject to a repurchase agreement, securities sold are recognized in the balance sheet on the settlement day as if the securities were still part of the Group's portfolio. The amount received is recognized as a liability, and the difference between the offered price and the bid price is recognized as interest in the income statement over the term of the relevant instrument. The yield on the securities is recognized in the income statement.
Bought securities are not recognized in the balance sheet and the yield on such securities is not recognized in the income statement if a resale agreement is made simultaneously with the purchase. The purchase sum paid is recognized as a receivable, and the difference between the bid and offered price is recognized as interest in the income statement over the term of the relevant instrument.
Repo transactions and reverse repo transactions are recognized as deposits/loans and advances or receivables/payables from/to credit institutions and are measured at amortized cost.
The Group uses derivative instruments to hedge interest risks attaching to fixed-interest assets and liabilities (fair-value hedging), which are valued at amortized cost. Such hedging instruments are measured at fair value and any changes in value are recognized in market-value adjustments. When the criteria for the application of hedge accounting have been met, the carrying amount of the hedged assets and liabilities is adjusted for changes in fair value regarding the hedged risks (fairvalue hedging). If the criteria for hedging are no longer met, the accumulated value adjustment of the hedged item is amortized over the remaining term to maturity.
Interest income and expenses comprise:
Fees, charges and commissions relating to loans, advances and receivables that are considered an integral part of such loans, etc. are recognized as part of the carrying amount of loans, advances and receivables and are recognized in the income statement over the term of the loans and advances as part of the effective interest rate. Commissions relating to guarantees are carried to income over the term of the guarantees. Income generated upon performing a given transaction, including securities and custodianship fees plus payment services fees, is recognized as income when the transaction has been performed.
Consideration for arranging mortgage-credit loans for Totalkredit and DLR is calculated on the basis of an offset model. Loan origination fees are recognized at the date of loan origination, and consideration for continuous services to the borrower is recognized in step with the Bank rendering such services and thus earning an entitlement to the consideration. Recognized losses that can be offset are treated as an income reduction during the period in which losses are offset.
Market-value adjustments include realized and unrealized market-value adjustments of items in the trading book of securities and derivative instruments as well as other shares at fair value (the fair-value option). In addition, the impact on profits/losses from exchange adjustments and fair-value hedge accounting is also recognized under market-value adjustments.
Other operating income includes items that are secondary to the Group's activities, including gains on the sale of acquired investment and corporate properties, the sale of leased assets, the adjustment of guarantees taken over, etc.
Other operating income also includes lease payments from operating leases and from properties after deducting operating expenses.
Gains on sales are calculated as the difference between the selling price less selling costs and the carrying amount at the date of the sale.
Staff costs and administrative expenses comprise salaries, bonuses, holiday pay, anniversary lump sums, pension costs, etc.
Other operating expenses contain items of a secondary nature relative to the Group's activities, including contributions to the statutory depositors' guarantee scheme (insurance premium), the Guarantee Fund and the Resolution Fund.
Profits or losses on equity investments in associates and group enterprises comprise the proportionate share of the individual companies' results after tax.
Spar Nord Bank is jointly taxed with its Danish subsidiary. The current Danish corporation tax is allocated to the jointly taxed Danish companies in proportion to their respective taxable incomes. Companies that utilize tax losses in other companies pay joint taxation contributions to the Parent Company equivalent to the tax base of the utilized losses, while companies whose tax losses are utilized by other companies receive joint taxation contributions from the Parent Company equivalent to the tax base of the utilized losses (full allocation). The jointly taxed Danish companies are included in the Danish tax prepayment scheme. Spar Nord recognizes a deferred tax liability in respect of the retaxation balance related to international joint taxation in respect of previous activities abroad, where the deducted tax loss on foreign activities continues to be subject to the ten-year period of commitment to the international joint taxation scheme.
Tax for the year, which comprises current tax for the year and any change in deferred tax, is recognized in the income statement with the portion attributable to the profit/loss for the year and in other comprehensive income with the portion attributable to other comprehensive income items, and in equity with the portion attributable to items recognized directly in equity.
Receivables from credit institutions and central banks comprise receivables from other credit institutions and time deposits with central banks. Reverse repo transactions, which involve buying securities to be resold at a later date, and where the counterparty is a credit institution or a central bank, are recognized as Receivables from credit institutions and central banks. The valuation of Receivables from credit institutions and central banks is made as stated under Loans, advances and receivables at amortized cost.
This item comprises loans, advances and receivables, including mortgage deeds, finance leases (see the separate section below) and reverse repo transactions where the counterparty is not a credit institution or a central bank.
Initial recognition is based on fair value plus transaction costs and less fees, charges and commissions received in connection with loan origination. Subsequently, loans, advances and receivables that are not reverse repo transactions are periodically remeasured at amortized cost using the effective interest method, less impairment provisions for bad and doubtful debts. The measurement of reverse repo transactions is described in the section Repo transactions and reverse repo transactions.
Loans, advances and receivables are monitored continuously to assess whether there is any objective evidence of impairment and whether an impairment test shows any losses. This is done by individually assessing all significant and credit-quality flagged loans, advances and receivables. For minor loan exposures of less than DKK 250,000, credit-quality flagged customers are automatically assessed based on the customer data and characteristics recorded. Loans, advances and receivables that are not individually impaired are divided into groups with uniform characteristics with respect to credit risk and assessed on a portfolio basis.
Impairment is based on an individual assessment of exposures when there is objective evidence of impairment of an individual facility.
There is objective evidence of impairment of loans and advances if one or more of the following events have occurred:
Impairment is calculated as the difference between the carrying amount and the discounted value of the expected cash flows. The collateral is deducted at fair value, excluding the costs of realization. Any subsequent increase of the discounted value of the expected cash flows results in full or partial reversal of impairment. For fixed-interest loans and advances, the original effective interest rate is used to calculate the discounted value, while the current effective interest rate is used for floating-rate loans and advances.
If a borrower is in considerable financial difficulty, the loan will be written down to an amount that the borrower is expected to be able to service in future based on a financial restructuring. If restructuring proves impossible, the impairment will be based on the expected proceeds of insolvency or bankruptcy proceedings.
Individually assessed loans and advances that are not subject to impairment and other loans and advances are classified into categories to assess the need for impairment by group. A portfolio assessment is made on the basis of groups of loans with uniform characteristics with respect to credit risk. Among other things, the portfolio impairment is intended to cover deterioration in the payment behaviour for the relevant portfolio and changes in other conditions that, based on experience, are related to the extent of non-payment in the relevant groups of loans, advances and receivables.
The portfolio assessment is based on the Bank's rating systems, which divide the customers into nine rating classes.
The calculation of groups of impairment losses is based on gross migration. Thus, following a gross addition, the total groups of impairment losses are composed of the sum total of the individual borrowers' deterioration in rating, calculated exclusively for the customers whose rating has deteriorated, with a resulting increase in risk compared to the risk originally expected, where this heightened risk has not been offset by a corresponding increase in the customer's interest rate. Thus, it is not taken into account that other borrowers improved their rating during the period, with a resulting decrease in risk compared to the risk originally expected.
Spar Nord calculates groups of impairment losses as the difference between the present value of the originally expected future losses and the present value of expected future losses after the deterioration in rating for the individual customer. The discount rate used is the weighted average of the agreed-upon effective interest rates on the individual loans and advances.
Groups of impairment losses on leasing loans are based on a writedown of the portfolio that is calculated separately for the industries Transport, Construction, Agriculture, Industry and other areas, as these groups have uniform characteristics with respect to credit risk. The groups of impairment losses are based on a statistical model that incorporates external economic indicators in the form of unemployment rate and an index of consumer sentiment. Moreover, the model incorporates developments in the ratio of down payments and deposits, as a higher ratio of down payments or deposits will reduce group-based impairment losses.
Impairment losses on loans and advances are charged to an impairment account, which is deducted from loans and advances. Any movement in the impairment account is recognized in the income statement under Impairment of loans, advances and receivables, etc. In case of any subsequent events that show that the impairment was not permanent, the impairment is reversed via Impairment of loans, advances and receivables, etc. Loans and advances considered to be uncollectible are written off via the impairment account. Loans and advances are written off when established collection procedures have been observed as follows:
No interest on the written-down portion of the individual loans and advances is carried to income.
Lease contracts are classified as finance leases when all significant risks and returns associated with the title to an asset are transferred to the lessee. All other lease contracts are classified as operating leases.
Finance lease assets, with the Group as lessor, are recognized under loans and advances at the net investment in the leases less depreciation (repayments), calculated according to the annuity method over the term of the lease.
Income from leased assets is recognized based on the effective interest rate in the lease, and is booked in the income statement under Interest income. Profit and loss on the sale of leased assets are booked as Other operating income and Other operating expenses.
Operating lease assets, with the Group as lessor, are recognized under Other property, plant and equipment and are depreciated like the Group's other property, plant and equipment. Rental income from operating leases is recognized on a straight-line basis over the relevant term of the lease, under Other operating income.
Equity investments in associates are recognized at the proportionate share of the net asset value (NAV) on the reporting date plus the carrying amount of goodwill acquired.
Equity investments in group enterprises in the Parent Company are recognized at the proportionate share of the net asset value (NAV) on the reporting date plus the carrying amount of goodwill acquired.
Goodwill is calculated and measured as described above under Business combinations.
The share of profit/loss for the year after tax is recognized in the income statement under Profit/loss on equity investments in associates and group enterprises. In connection with the purchase or sale of group enterprises or associates, the results of such group enterprises or associates are included in the income statement from or until the takeover date, as the case may be.
Any gain or loss upon sale is calculated as the difference between the selling price and the carrying amount at the transfer date, including the carrying amount of goodwill, and is recognized under Other operating income/Other operating expenses.
Assets forming part of pension pools and customers' contributions to pension pools are presented in separate balance-sheet items. The return on pooled assets and contributions is presented together under market-value adjustments and is specified in note 56. Assets and liabilities in pooled schemes are recognized at fair value.
Goodwill acquired is recognized at cost less accumulated writedowns for impairment, as described under Business combinations.
The carrying amount is not systematically amortized.
Goodwill relating to associates is recognized under equity investments in associates.
The carrying amount of goodwill is allocated to the Group's cash-generating units at the acquisition date. The identification of cash-generating units is based on the management structure and internal financial management.
Goodwill is not amortized, but a goodwill impairment test is made at least once a year for each cash-generating unit. Goodwill is written down to the recoverable amount via the income statement if the carrying amount of the cashgenerating unit's net assets exceeds the higher of the net selling price and the value in use that corresponds to the present value of expected future cash flows from the unit.
Customer relations taken over in connection with company acquisitions are recognized at cost and are amortized on a straight-line basis over the expected useful life, which does not exceed ten years. The expected useful life depends on customer loyalty.
Software acquired is recognized at cost, including installation expenses, and amortized according to the straight-line method over the expected useful life of a maximum of five years.
The useful life is reassessed annually. Any changes in amortization as a result of changes in useful life are recognized in future reporting periods as a change in accounting estimates.
Customer relationships and software that are amortized are subjected to an impairment test when there is evidence of impairment. When there is evidence of impairment, they are written down to the value in use.
Properties are recognized at cost upon acquisition and subsequently measured at fair value. Borrowing costs from general borrowing or loans that are directly attributable to the acquisition and construction of qualifying assets (properties) are attributed to the cost of the specific individual asset.
The fair value is calculated on the basis of current market data according to an asset return model that includes the property's rental income, operating expenses, as well as management and maintenance, etc. Operating expenses and maintenance costs are calculated on the basis of the condition of the individual property, construction year, materials used, etc. The fair value of the property is determined based on the calculated return on its operation and the individually determined rate of return. The return rate is fixed on the basis of the location of the individual property, potential use, the state of maintenance, quality, etc. The fair value of the individual property is reassessed annually based on the current market and the interest level.
Corporate properties are properties used by the Group for administrative purposes, as a branch or for other service activities. The carrying amount of corporate properties is systematically depreciated over the expected useful life of 50 years for buildings. Special installations in buildings are depreciated according to the straight-line method over a useful life of 20 years. Allowance is made for the expected residual value when calculating depreciation. The revaluation of corporate properties to fair value is recognized in Other comprehensive income and allocated to a special reserve under equity, Revaluation reserves, while depreciation and impairment are recognized in the income statement under Depreciation, amortization and impairment of intangible assets and property, plant and equipment.
Corporate properties expected to be sold within a 12-month period according to a publicized plan are treated as Temporary assets.
Investment properties are properties held to obtain rental income and/or capital gains, including properties let under operating leases and properties taken over. Investment properties are not depreciated. Changes in fair values are recognized in the Parent Company under Market-value adjustments, while net fair value changes in the Group are recognized under Other operating income. Rental income is recognized in the income statement under Other operating income.
Operating equipment in the form of IT equipment, cars, furniture and fixtures and leasehold improvements are recognized at cost less accumulated depreciation and impairment. Operating lease assets, with Spar Nord as lessor, are also recognized under other property, plant and equipment. The basis of depreciation for property, plant and equipment is the difference between cost and residual value at the end of its useful life, and the residual value is assessed regularly. Leasehold improvements are depreciated over the term of the lease, however maximum ten years. For other operating equipment, depreciation is made on a straight-line basis over the expected useful life of a maximum of five years.
Property, plant and equipment are subjected to an impairment test when there is evidence of impairment, and they are written down to the recoverable amount, which is the higher of the net selling price and the value in use. The impairment losses are recognized in the income statement.
Temporary assets comprise property, plant and equipment, including assets taken over as a result of the liquidation of customer exposures, the intention being to sell the assets within 12 months. Assets taken over are recognized at the lower of carrying amount and fair value, less any selling costs.
The assets are not depreciated as from the time when they are classified as temporary.
Losses on impairment arising upon initial classification as temporary assets and any gains or losses arising on subsequent measurement at the lower of carrying amount and fair value, less any selling costs, are recognized in the income statement under the items to which they relate. Gains and losses are disclosed in the notes.
Assets and related liabilities are presented in separate lines in the balance sheet.
Current tax liabilities and current tax receivables are recognized in the balance sheet as tax calculated on the taxable income for the year, adjusted for tax on taxable incomes relating to prior years, and tax paid on account.
Deferred tax is measured in accordance with the balance sheet liability method on all temporary differences between the carrying amount and tax base of assets and liabilities. However, deferred tax is not recognized in respect of temporary differences regarding goodwill that is not amortizable for tax purposes and other items for which temporary differences have arisen at the time of acquisition without this having an impact on the profit/loss or the taxable income. Where the tax base may be calculated according to different taxation rules, deferred tax is measured based on Management's planned use of the assets, or, as the case may be, the planned repayment of the liability.
Deferred tax is recognized in the balance sheet within the balance sheet headings Deferred tax assets and Deferred tax liabilities and is recognized on the basis of the expected tax rate.
Deferred tax assets, including the tax base of losses qualifying for carryforward trade loss relief, are recognized within Deferred tax assets at the amount at which they are expected to be realized, either by set-off against taxes on future earnings, or through set-off against Deferred tax liabilities within the same taxable entity and jurisdiction.
Deferred tax assets and liabilities are offset if the company has a legal right to offset current tax liabilities and tax assets or intends to either settle current tax liabilities and tax assets on a net basis, or realize the assets and the liabilities at the same time.
Deferred tax is adjusted to reflect eliminations of unrealized intercompany gains and losses.
Deferred tax is measured on the basis of the tax rules and tax rates that will apply when the deferred tax is expected to crystallize as current tax, given the legislation prevailing at the reporting date. Any changes in deferred tax resulting from changed tax rates are recognized in the income statement.
Other assets include capital contributions to Foreningen Bankernes EDB Central a.m.b.a., interest and commissions receivable as well as the positive fair value of derivative instruments. Fair-value measurement of the positive fair value of derivative instruments is described in more detail in the section Derivative instruments. Other items are measured at amortized cost.
Prepayments and deferred income are measured at amortized cost and are recognized under assets (prepayments) and liabilities (deferred income), respectively.
Payables to credit institutions and central banks as well as deposits include amounts received in connection with repo transactions, which involve selling securities to be repurchased at a later date. Payables to credit institutions and central banks as well as deposits are recognized initially at fair value net of the transaction costs incurred. Payables to credit institutions and central banks as well as deposits not classified as repo transactions are subsequently measured at amortized cost using the effective interest method. Thus, the difference between net proceeds and nominal value is recognized in the income statement under Interest expenses over the loan term.
Miscellaneous liabilities are measured at net realizable value.
Other liabilities include interest payable, the negative fair value of derivative instruments and employee benefits payable. Fair-value measurement of the negative fair value of derivative instruments is described in more detail in the section Derivative instruments. Other items are measured at amortized cost.
Provisions for liabilities include mainly guarantee commitments, provisions for losses on irrevocable credit commitments, legal actions and any restructuring costs, etc.
Restructuring costs are recognized as liabilities, provided that a detailed, formal restructuring plan is available at the reporting date.
A provision is recognized when a legal or constructive obligation exists and when it is probable that the obligation will become effective and can be measured reliably.
Provisions are based on Management's best estimate of the amount of the commitments. In measuring provisions for liabilities, the provisions are discounted to net present value where the impact on the financial statements is material.
Subordinated debt consists of liabilities in the form of subordinated loan capital and other capital contributions which, in case of voluntary or compulsory liquidation, whether solvent or insolvent, will not be repaid until the claims of ordinary creditors have been met.
Subordinated debt is recognized at the issue date or the date of borrowing, as the case may be, at fair value less directly attributable transaction costs. Subsequently subordinated debt is measured at amortized cost, using the effective interest method.
Revaluation reserves comprise revaluations of the Group's corporate properties after the recognition of deferred tax. The reserve is dissolved when properties are impaired, sold or otherwise disposed of.
Statutory reserves comprise value adjustments of equity investments in associates and group enterprises according to the equity method. The reserves are reduced by the dividends distributed to the Parent Company and other movements in the equity of group enterprises and associates, or if the equity investments are realized in whole or in part.
Additional Tier 1 (AT1) capital issued with a perpetual term and without a contractual obligation to make repayments of principal and pay interest (additional tier 1 capital under CRR) does not fulfil the conditions for being classified as a financial liability according to IAS 32. Therefore, any such issue of Additional Tier 1 (AT1) capital is considered equity.
The net amount at the time of issue is recognized as an increase in equity. The payment of interest is treated as dividend and recognized directly in equity at the time when the liability arises.
Upon Spar Nord' redemption of the bonds, the equity will be reduced by the redemption amount at the time of redemption. The acquisition cost and selling price on the purchase and sale of Additional Tier 1 (AT1) capital under CRR are recognized directly in equity in the same way as the portfolio of treasury shares.
Proposed dividend is recognized as a liability at the time of adoption at the Annual General Meeting (time of declaration). Dividend proposed to be distributed for the year is included under equity until adoption of the dividend proposal. According to the Bank's dividend policy, proposed dividend may be fixed at two-thirds or more of the net profit for the year, provided that the Bank has met its capital targets and that it has no current value-generating investment options.
Treasury shares and own bonds are not recognized as assets. The acquisition cost and selling price for treasury shares as well as dividends on such shares are recognized directly in Retained earnings under equity. A capital reduction effected by the cancellation of treasury shares reduces the equity by an amount equal to the nominal value of the shares at the time when the capital reduction is registered.
The acquisition of own bonds is recognized directly in Subordinated debt. Upon the acquisition of own bonds, any loss or gain is recognized in the income statement as the difference between the acquisition cost and the carrying amount of the liability.
Contingent assets and contingent liabilities comprise potential assets and liabilities that derive from past events, and whose existence is dependent on the occurrence of future, uncertain events that are beyond the Spar Nord Group's full control.
Contingent assets are disclosed where an inflow of economic benefits is probable.
Contingent liabilities are disclosed if they may, but most probably will not, result in an outflow of resources. In addition, the Group discloses information about current liabilities that have not been recognized because they are unlikely to result in an outflow of resources from the Group or cannot be reliably measured.
The cash flow statement shows cash flows for the year, broken down by operating, investing and financing activities, the year's movements in cash and cash equivalents and the cash and cash equivalents at the beginning and end of the year. Cash generated from operations is calculated according to the indirect method as the profit/loss before tax, adjusted for noncash operating items and any changes in working capital.
Cash generated from investments comprises payments associated with the purchase and sale of intangible assets and property, plant and equipment as well as associates and group enterprises, etc. Cash generated from financing activities comprises dividends paid and movements in the equity, subordinated debt and treasury shares.
Cash and cash equivalents comprise cash balances, demand deposits with central banks and receivables from credit institutions and central banks with less than three months to maturity. These assets can be readily converted into cash and carry only minimal risk of change in value.
Segment information is reported in accordance with the Spar Nord Group's accounting policies and follows the organizational structure as reflected in its internal management reporting.
Transactions between segments are settled on an arm's length basis. Centrally incurred expenses, such as salaries, rent, depreciation, etc. are allocated to the individual segments based on an assessment of the proportionate share of the overall activity level. Segment assets and liabilities are the operating assets and operating liabilities that are used or have arisen in connection with the operation of a segment and which are directly associated with or can be reasonably allocated to the segment. The individual segment includes a calculated share of equity.
Other income and expenses are charged to Other areas, and this item also includes the activities of the subsidiary Aktieselskabet Skelagervej 15.
The Group's performance indicators and financial ratios (Core earnings) appearing from the Management's review differ from the Consolidated Financial Statements format. The relationship between Core earnings and the Consolidated Financial Statements format is shown in note 3, Business segments.
Ratio definitions appear from note 58.
The International Accounting Standards Board (IASB) has published a number of new financial reporting standards (IAS and IFRS) and interpretations (IFRIC), which Spar Nord is not required to observe in preparing the 2016 Annual Report. The standards and interpretations that have been endorsed by the EU and having effective dates that differ from the effective dates required by the standards or interpretations issued by the IASB will be implemented prematurely, if allowed, as of the IASB effective dates for financial years commencing 1 January 2017 or later.
This applies to IFRS 9, 15 and 16 and amendments to IAS 7, 12, IFRS 2 and 4. The EU has approved IFRS 9 and 15, but has not approved any of the remaining future standards and interpretations.
The analysis of the expected impact of the implementation of IFRS 9 has not yet been completed; see below. The remaining new standards and interpretations are not expected to materially affect the Bank's financial reporting.
• IFRS 9 "Financial Instruments", which replaces IAS 39, changes the classification and thus the measurement of financial assets and liabilities.
IFRS 9 introduces a more logical approach to the classification of financial assets that is based on the Bank's business model for managing the assets and their underlying cash flow characteristics. Based on the current business model, IFRS 9 is not expected to materially affect the Bank's financial reporting.
Moreover, the standard introduces a new impairment model for all financial assets. The new impairment model means that impairment losses must be recognized on all the Bank's loans, advances and guarantees based on the losses statistically expected (expected credit loss model). Based on the existing rules, impairment losses are not recognized until there is objective evidence of impairment (incurred loss model). IFRS 9 uses a three-stage impairment approach, meaning that expected credit losses (ECLs) are allocated to either stage 1, 2 or 3, depending on the risk of credit loss. The classification into stages and the calculation of expected credit losses will largely be based on the Bank's existing rating models and credit control. Systems and models for determining impairment in accordance with IFRS 9 are being developed and will be adjusted in step with the Danish Financial Supervisory Authority giving more specific instructions about the interpretation of the standard. The new impairment models are being developed in cooperation with the Bank's data processing centre and support the calculation of expected credit losses according to models based on loss ratios and the concepts of PD (Probability-of-Default), LGD (Loss-Given-Default) and EAD (Exposure-at-Default). Overall, the changed method for determining credit losses is estimated to result in an increase of the Bank's impairment losses. The more precise figures are expected to be published in the Interim Report for the first six months of 2017.
Finally, the standard introduces new rules for hedge accounting. Compared to the existing rules, the new model will provide a better link between an entity's accounting treatment and risk management strategy. The new rules on hedge accounting are not expected to materially affect the Bank's financial reporting.
The standard applies to financial years commencing on 1 January 2018 and beyond.
• IFRS 16 "Leases" was issued in mid-January 2016. The standard, which will enter into force for financial years beginning on 1 January 2019 or later, changes the accounting for leases that are today treated as operating leases.
An analysis of the significance of the new standard for the Spar Nord Group is yet to be made. At end-2016, the Spar Nord Group had operating leases with minimum lease obligations corresponding to not more than 1% of the balance sheet total, which are to be recognized in the balance sheet in future.
In order to determine the carrying amount of certain assets and liabilities, Management has to make a number of estimates and judgments of future circumstances that significantly affect the carrying amount of assets and liabilities.
Management's estimates and judgments are based on assumptions that Management considers appropriate but which are uncertain and unpredictable by their nature. The assumptions may be incomplete or inaccurate, and unexpected future events or circumstances may arise. Consequently, making estimates and judgments is difficult by nature, and when they also involve customer relationships and other counterparties, they will be subject to uncertainty. It may be necessary to change previous estimates as a result of changes in the circumstances forming the basis of such estimates, or due to new knowledge or subsequent events.
Critical estimates and judgments have the most substantial impact on the financial statements in the following areas:
Testing the impairment of individual loans and advances requires estimates of factors subject to great uncertainty. The test involves estimates of the most probable future cash flows that the customer can generate. For loan exposures of less than DKK 250,000, credit-quality flagged customers are automatically assessed based on the customer data and characteristics recorded. Loans, advances and receivables that are not individually impaired are divided into groups with uniform characteristics with respect to credit risk and assessed on a portfolio basis.
Loans for which there is no objective evidence of impairment, or for which evidence of impairment has not been individually identified, are included in a group that is subjected to an impairment test at portfolio level.
In connection with testing a group of loans and advances for impairment, it is essential to identify the events that give objective evidence of losses on the group. The measurement of the present value of cash flows generated by customers in the group is subject to uncertainty when historical data and empirical assessments are used to adjust the assumptions and for the purpose of reflecting the current situation.
Loans are assigned to groups having uniform credit risk properties by using the Bank's rating system. Customers are subjected to ongoing rating, and if calculations show that customers have changed credit risk properties, they will be transferred to new rating groups on an ongoing basis. Thus, the downgrading of a customer to a weaker group serves as an indicator of the deterioration.
If circumstances have occurred that have either worsened or improved the expected future payment pattern, and such circumstances are known but have not been taken into account in the models, the appropriate action will be taken to correct this, based on a qualified Management estimate.
Spar Nord operates with a credit system using statistically based rating models for both retail and business customers. In addition, the rating is based on the flagging of customers that show signs of default risk.
Credit-quality flagging is based on important Management
estimates, particularly affected by such factors as property prices, unemployment rates and demand for various products and services. 2016 saw a minor improvement in the credit quality for retail customers. The average credit quality for business customers decreased slightly, counterbalancing the improvement in credit quality in 2015. The agricultural sector is still under heavy pressure, but was helped by improved settlement prices, particularly for milk producers, at the end of 2016.
The impairment account increased from DKK 1.8 billion at end 2015 to DKK 1.9 billion at end-2016.
To reduce the risk attaching to individual exposures, Spar Nord accepts collateral consisting mainly of mortgages and charges over physical assets, securities and vehicles, of which mortgages on real property are the most common type of collateral. The valuation of such collateral is based on significant estimates made by Management.
Loans and advances amounted to DKK 41,346 million, equal to about 53% of the Group's assets at end-2016. Reference is made to note 19, Loans, advances and other receivables at amortized cost, and to note 51, Credit risk, for further details.
Spar Nord measures a number of financial instruments at fair value, including all derivative instruments as well as shares and bonds.
Assessments are made in connection with determining the fair value of financial instruments in the following areas:
In these situations, the decisions are based on an opinion in accordance with the Group's accounting policies. All such decisions are approved by the relevant group functions.
As part of its day-to-day operations, Spar Nord has acquired strategic equity investments in sector supplier companies.
Strategic equity investments are measured at fair value based on the information available about trading in the relevant company's equity investments or, in the alternative, by using a valuation model based on generally accepted methods and current market data, including an assessment of expected future earnings and cash flows. The valuation will also be affected by co-ownership, trading with the relevant company and shareholders' agreements, etc. If a reliable fair value cannot be determined, the investment will be valued at cost less any write-downs for impairment.
For financial instruments the valuation of which is only to a limited extent based on observable market data, the valuation is subject to estimates. This applies for example to unlisted shares and certain bonds for which no active market exists. More details are provided in the applicable paragraphs of note 1, Accounting policies, and in note 49, Fair-value information, including a sensitivity analysis.
Financial instruments valued on the basis of unobservable inputs amounted to DKK 1,550 million, equal to 2% of the Group's
The Group is organized into different business areas and resource and support functions, according to product and service characteristics. The reporting segments correspond to the Group's organizational units based on customer affiliation, and an internal follow-up is carried on in this regard.
Spar Nord's Local Banks cater to all types of retail and business customers. Corporate Banking provides services to large business customers and high-net-worth personal customers. Spar Nord's Local Banks (the retail bank unit) constitute the largest organizational unit in the Spar Nord Group, consisting of 58 local banks throughout the country. Spar Nord Bank's leasing activities form an integral part of Spar Nord's Local Banks.
Trading, Financial Markets & the International Division is composed of Markets, Shares, Interest & Forex, Asset Management and the International Division. The activities of Trading & Financial Markets centre on forex and securities, including hedging and managing the transactions made by the local banks' customers. Moreover, Trading, Financial Markets & the International Division cooperates with a number of the Bank's largest business customers and retail customers, as well as managing some of the Bank's own positions. The International Division offers products and advice associated with export and import.
Other areas comprise central staff and support functions, unallocated and eliminations.
Unallocated consists of other income and expenses, including the subsidiary Aktieselskabet Skelagervej 15.
Reclassifications comprise the share of the discount, recognized as income, on exposures taken over from Sparbank in connection with the merger in 2012. In its internal follow-up and control, Spar Nord includes this item in Impairment of loans and advances and also presents it as such in the core earnings format in the Management's review.
According to the Group's accounting policies, adjustments of the discount on exposures taken over from Sparbank are included under Interest income in the income statement. The item is included under Other interest income in the note relating to interest income.
Other items after core earnings comprised Contributions to sector-wide solutions and Special merger-related items in previous years.
Contributions to sector-wide solutions consisted of Spar Nord's payments to the Guarantee Fund for Depositors and Investors and the value adjustment of claims.
An internal interest rate is calculated for all business segments. The internal interest rate is used to equalize differences between assets and liabilities (surplus/deficit of liquidity) among the business segments. The internal interest rate is calculated per currency on the basis of market rates plus a liquidity premium.
Centrally incurred costs and a few income items are basically allocated internally between the individual business segments on the basis of cost. An allocation is made from the unit paying the costs based on an assessment of each individual unit's proportionate share of the overall activity level.
Other income and costs are allocated to the business segments to whose operation they are directly related or can reasonably be allocated.
The assets and liabilities of the business segments are the operating assets and operating liabilities that are employed by a segment for its operations and that are either directly attributable to the segment or can reasonably be allocated to the segment. The individual business segment includes allocated capital equal to 12% of the average risk-weighted items of the business area. In the business segment Other areas, the difference between allocated capital and equity is presented.
As in previous years, the Group uses core earnings as its profit target.
The Group's business areas are organized according to differences in products and services, and products and services are uniform within the individual business areas.
Income from the business area Spar Nords Local Banks mainly comprises income from interest, fees, charges and commissions related to products within lending and deposits as well as leasing activities. The customers consist of retail, business and public-sector customers.
Income from the business area Trading, Financial Markets & the International Division comprises interest and market-value adjustments on forex and trading products as well as interest income and market-value adjustments on the Bank's portfolio of securities.
| DKK m | Spar Nord's Local Banks |
Trading, Financial Markets & the Intern. Division |
Other areas | Core earnings*) | Reclas. and Other items after core earnings**) |
The Group, total |
|---|---|---|---|---|---|---|
| INCOME STATEMENT | ||||||
| Net interest income | 1,474.0 | 53.2 | 94.0 | 1,621.2 | 49.6 | 1,670.8 |
| Net income from fees, charges and commissions | 1,043.6 | 9.8 | -0.7 | 1,052.7 | 0.0 | 1,052.7 |
| Market-value adjustments and dividends | 135.2 | 228.7 | 69.8 | 433.7 | 0.0 | 433.7 |
| Other operating income | 17.4 | 0.6 | 11.7 | 29.7 | 0.0 | 29.7 |
| Profit/loss on equity investments in associates | ||||||
| and group enterprises | 0.0 | 0.0 | 29.6 | 29.6 | 0.0 | 29.6 |
| Core income/revenue, total | 2,670.2 | 292.3 | 204.4 | 3,166.9 | 49.6 | 3,216.5 |
| Operating expenses, depreciation and amortization | 1,575.5 | 49.7 | 271.2 | 1,896.4 | 0.0 | 1,896.4 |
| Core earnings before impairment | 1,094.7 | 242.6 | -66.8 | 1,270.5 | 49.6 | 1,320.1 |
| Impairment of loans, advances and receivables, etc. | 244.6 | 3.5 | -5.7 | 242.4 | 49.6 | 292.0 |
| Profit/loss before tax | 850.1 | 239.1 | -61.1 | 1,028.1 | 0.0 | 1,028.1 |
*) 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 and Other items after core earnings. Reclassifications have impacted the items Net interest income and Impairment of loans, advances and receivables, etc. with an amount of DKK 49.6 million.
| Spar Nord's Local Banks |
Trading, Financial Markets & the Intern. Division |
Other areas | The Group, total |
|
|---|---|---|---|---|
| BALANCE SHEET | ||||
| Loans, advances and other receivables at amortized cost | 34,942.0 | 6,255.9 | 147.7 | 41,345.6 |
| Equity investments in associates and group enterprises | 0.0 | 0.0 | 118.4 | 118.4 |
| Intangible assets and property, plant and equipment *) | 256.0 | 0.1 | 682.9 | 939.0 |
| Miscellaneous assets **) | 15,945.5 | 18,824.6 | 1,300.4 | 36,070.5 |
| Total allocated assets | 51,143.5 | 25,080.6 | 2,249.4 | 78,473.5 |
| Deposits and other payables | 45,560.9 | 399.5 | 503.8 | 46,464.2 |
| Equity (allocated capital) | 4,592.1 | 664.9 | 3,370.1 | 8,627.1 |
| Miscellaneous liabilities | 14,908.9 | 5,198.9 | 3,274.4 | 23,382.2 |
| Allocated equity and liabilities, total | 65,061.9 | 6,263.3 | 7,148.3 | 78,473.5 |
| Disclosures - total income/revenue | ||||
| Internal income/revenue | -121.7 | 54.1 | 621.7 | 554.1 |
| Internal income and eliminations offset against costs | 0.0 | -45.4 | -508.7 | -554.1 |
| Income/revenue, external customers | 2,791.9 | 283.6 | 141.0 | 3,216.5 |
| Income/revenue, total | 2,670.2 | 292.3 | 254.0 | 3,216.5 |
| Disclosures, cash flow statement | ||||
| Depreciation, amortization and impairment ***) | 18.6 | 0.3 | 75.4 | 94.3 |
| Additions, intangible assets and property, plant & equipment *) | 47.4 | 0.0 | 31.6 | 79.0 |
| Non-cash oper. items excl. depr., amort. and imp. of int. assets and prop., plant & equipm. | 0.0 | 0.0 | -119.7 | -119.7 |
| Impairment and reversal of impairment losses on loans and advances, etc. | 54.4 | 0.0 | 0.0 | 54.4 |
| Financial ratios | ||||
| Return on equity , % ****) | 19.5 | 37.8 | - | - |
| Cost share of core income | 0.59 | 0.17 | - | - |
| Total risk exposure, end of year | 38,266 | 6,827 | 2,392 | 47,485 |
| Number of employees (full-time, end of year) | 1,120 | 64 | 356 | 1,540 |
*) All assets are located in Denmark.
**) Temporary assets amount to DKK 33.9 million, of which DKK 14.1 million relates to leasing activities and DKK 19.8 million relates to Other areas.
***) No significant writedowns for impairment have been made.
****) The rate of return on equity per annum has been calculated on allocated capital, which amounts to 12% of the average total risk exposure.
| DKK m | Spar Nord's Local Banks |
Trading, Financial Markets & the Intern. Division |
Other areas | Core earnings*) | Reclas. and Other items after core earnings**) |
The Group, total |
|---|---|---|---|---|---|---|
| INCOME STATEMENT | ||||||
| Net interest income | 1,530.0 | 132.1 | 65.1 | 1,727.2 | 48.1 | 1,775.3 |
| Net income from fees, charges and commissions | 1,000.9 | 13.4 | 16.0 | 1,030.3 | 0.0 | 1,030.3 |
| Market-value adjustments and dividends | 139.1 | 94.7 | 273.1 | 506.9 | 0.0 | 506.9 |
| Other operating income | 22.4 | 0.2 | 15.5 | 38.1 | 9.7 | 47.8 |
| Profit/loss on equity investments in associates | ||||||
| and group enterprises | 0.0 | 0.0 | 28.3 | 28.3 | 0.0 | 28.3 |
| Core income/revenue, total | 2,692.4 | 240.4 | 398.0 | 3,330.8 | 57.8 | 3,388.6 |
| Operating expenses, depreciation and amortization | 1,540.3 | 42.2 | 260.4 | 1,842.9 | 98.7 | 1,941.6 |
| Core earnings before impairment | 1,152.1 | 198.2 | 137.6 | 1,487.9 | -40.9 | 1,447.0 |
| Impairment of loans, advances and receivables, etc. | 318.5 | 0.0 | -2.9 | 315.6 | 57.8 | 373.4 |
| Core earnings | 833.6 | 198.2 | 140.5 | 1,172.3 | -98.7 | 1,073.6 |
| Contributions to sector-wide solutions | - | - | -98.7 | -98.7 | 98.7 | 0.0 |
| Profit/loss before tax | 833.6 | 198.2 | 41.8 | 1,073.6 | 0.0 | 1,073.6 |
*) 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 and Other items after core earnings. Reclassifications and Other items after core earnings of DKK 98.7 million consist of Contributions to sector-wide solutions. Reclassifications have impacted the items Net interest income, Other operating income and Impairment of loans, advances and receivables, etc. with an amount of DKK 57.8 million.
| Financial Markets Spar Nord's & the Local Banks Intern. Division Other areas BALANCE SHEET 33,859.6 4,191.2 -11.5 Loans, advances and other receivables at amortized cost Equity investments in associates and group enterprises 0.0 0.0 82.4 Intangible assets and property, plant and equipment ) 253.1 0.5 752.1 13,604.0 20,561.0 3,064.8 Miscellaneous assets *) Total allocated assets 47,716.7 24,752.7 3,887.8 |
The Group, total 38,039.3 82.4 1,005.7 37,229.8 76,357.2 44,736.3 7,887.0 23,733.9 |
|---|---|
| 44,700.2 763.9 -727.8 Deposits and other payables |
|
| Equity (allocated capital) 4,217.3 735.9 2,933.8 |
|
| 11,996.5 3,664.4 8,073.0 Miscellaneous liabilities |
|
| Allocated equity and liabilities, total 60,914.0 5,164.2 10,279.0 |
76,357.2 |
| Disclosures - total income/revenue | |
| -125.3 63.4 618.3 Internal income/revenue |
556.4 |
| Internal income and eliminations offset against costs 0.0 -56.6 -499.8 |
-556.4 |
| 2,817.7 233.6 337.3 Income/revenue, external customers |
3,388.6 |
| Income/revenue, total 2,692.4 240.4 455.8 |
3,388.6 |
| Disclosures, cash flow statement | |
| Depreciation, amortization and impairment ***) 20.7 0.4 44.4 |
65.5 |
| Additions, intangible assets and property, plant & equipment *) 4.9 0.1 51.5 |
56.5 |
| 0.0 0.0 -172.9 Non-cash oper. items excl. depr., amort. and imp. of int. assets and prop., plant & equipm. |
-172.9 |
| Impairment and reversal of impairment losses on loans and advances, etc. -19.0 0.0 0.0 |
-19.0 |
| Financial ratios | |
| Return on equity , % ****) 19.1 25.7 |
- - |
| Cost share of core income 0.57 0.18 |
- - |
| 35,144 6,133 5,223 Total risk exposure, end of year |
46,500 |
| Number of employees (full-time, end of year) 1,100 64 374 |
1,538 |
*) All assets are located in Denmark.
**) Temporary assets amount to DKK 27.4 million, of which DKK 1.7 million relates to leasing activities and DKK 25.7 million relates to Other areas.
***) No significant writedowns for impairment have been made.
****) The rate of return on equity per annum has been calculated on allocated capital, which amounts to 12% of the average total risk exposure.
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
||
|---|---|---|---|---|---|
| 4 | INTEREST INCOME | ||||
| Receivables from credit institutions and central banks | 2.8 | 6.4 | 2.8 | 6.4 | |
| Loans, advances and other receivables | 1,688.3 | 1,798.4 | 1,679.9 | 1,789.7 | |
| Bonds | 117.9 | 195.6 | 117.9 | 195.6 | |
| Foreign-exchange contracts | 3.2 | -22.9 | 3.2 | -22.9 | |
| Interest-rate contracts | -69.9 | -51.8 | -69.9 | -51.8 | |
| Derivative instruments, total | -66.7 | -74.7 | -66.7 | -74.7 | |
| Other interest income | 73.2 | 50.1 | 73.2 | 50.1 | |
| Total interest income | 1,815.5 | 1,975.8 | 1,807.1 | 1,967.1 | |
| Of which, income from genuine purchase and resale transactions booked under | |||||
| Receivables from credit institutions and central banks | -9.8 | -14.9 | -9.8 | -14.9 | |
| Loans, advances and other receivables | -10.0 | -3.7 | -10.0 | -3.7 | |
| 5 | 5 INTEREST EXPENSES | ||||
| Credit institutions and central banks | -4.1 | -10.7 | -4.1 | -10.9 | |
| Deposits and other payables | 95.7 | 142.8 | 115.9 | 163.6 | |
| Subordinated debt | 52.4 | 67.8 | 52.4 | 67.8 | |
| Other interest expenses | 0.7 | 0.6 | 0.7 | 0.6 | |
| Total interest expenses | 144.7 | 200.5 | 164.9 | 221.1 | |
| Of which, interest expenses from genuine sale and repo transactions booked under | |||||
| Payables to credit institutions and central banks | -11.0 | -16.9 | -11.0 | -16.9 | |
| Deposits and other payables | -0.2 | -0.2 | -0.2 | -0.2 | |
| 6 | DIVIDENDS ON SHARES, ETC. | ||||
| Shares, etc. in the trading book | 5.6 | 11.3 | 5.6 | 11.3 | |
| Shares at fair value (the fair-value option) | 42.3 | 43.6 | 35.6 | 22.7 | |
| Dividends on shares, etc., total | 47.9 | 54.9 | 41.2 | 34.0 | |
| 7 | FEES, CHARGES AND COMMISSIONS RECEIVED | ||||
| Securities trading and custody accounts | 454.8 | 450.8 | 454.8 | 450.8 | |
| Payment services | 140.5 | 90.2 | 140.5 | 90.2 | |
| Loan transaction fees | 458.2 | 485.1 | 458.2 | 485.1 | |
| of which, mortgage credit institutions | 339.1 | 310.4 | 339.1 | 310.4 | |
| Guarantee commissions | 35.5 | 31.9 | 35.5 | 31.9 | |
| Other fees, charges and commissions | 85.8 | 67.9 | 85.8 | 67.9 | |
| Total fees, charges and commissions received | 1,174.8 | 1,125.9 | 1,174.8 | 1,125.9 | |
| Total fees, charges and commissions paid | 122.1 | 95.6 | 122.1 | 95.6 | |
| Total net fees, charges and commissions received | 1,052.7 | 1,030.3 | 1,052.7 | 1,030.3 | |
| 8 | MARKET-VALUE ADJUSTMENTS | ||||
| Other loans, advances and receivables at fair value | -2.9 | 0.1 | -2.9 | 0.1 | |
| Bonds | 163.3 | -68.1 | 163.3 | -68.1 | |
| Shares, etc. | 131.7 | 355.1 | 86.0 | 355.1 | |
| Investment properties | - | - | 0.1 | -2.4 | |
| Currency | 51.8 | 113.9 | 51.8 | 113.9 | |
| Foreign-exchange, interest, share, commodity and other | |||||
| contracts and derivative instruments | 39.5 | 44.2 | 39.5 | 44.2 | |
| Assets linked to pooled schemes | 380.6 | 1,107.4 | 380.6 | 1,107.4 | |
| Deposits in pooled schemes | -380.6 | -1,107.4 | -380.6 | -1,107.4 | |
| Miscellaneous assets | 0.2 | 0.0 | 0.2 | 0.0 | |
| Miscellaneous commitments | 2.2 | 6.8 | 2.2 | 6.8 | |
| Total market-value adjustments | 385.8 | 452.0 | 340.2 | 449.6 | |
| Trading book | 275.2 | 136.9 | 275.3 | 134.5 | |
| Other shares at fair value (the fair-value option) | 110.6 | 315.1 | 64.9 | 315.1 | |
| Total market-value adjustments | 385.8 | 452.0 | 340.2 | 449.6 |
| 2016 Net financials at amortized cost |
Interest income DKK m |
Interest expenses DKK m |
Net interest DKK m |
Market value adjustments DKK m |
Dividend DKK m |
Total DKK m |
|---|---|---|---|---|---|---|
| Receivables from and payables to credit institutions and central banks | 22.6 | 7.1 | 15.5 | 0.0 | 0.0 | 15.5 |
| Lending and deposits, banking activities | 1,688.3 | 95.7 | 1,592.6 | 0.0 | 0.0 | 1,592.6 |
| Repo and reverse repo transactions | -19.8 | -11.2 | -8.6 | 0.0 | 0.0 | -8.6 |
| Subordinated debt | 0.0 | 52.4 | -52.4 | 2.2 | 0.0 | -50.2 |
| Other interest | 73.2 | 0.7 | 72.5 | 0.0 | 0.0 | 72.5 |
| Total | 1,764.3 | 144.7 | 1,619.6 | 2.2 | 0.0 | 1,621.8 |
| Net financials at fair value | ||||||
| Trading book | 51.2 | 0.0 | 51.2 | 273.0 | 5.6 | 329.8 |
| Other financial investment assets | 0.0 | 0.0 | 0.0 | 110.6 | 42.3 | 152.9 |
| Total | 51.2 | 0.0 | 51.2 | 383.6 | 47.9 | 482.7 |
| Total net income from financials | 1,815.5 | 144.7 | 1,670.8 | 385.8 | 47.9 | 2,104.5 |
| 2015 | Interest income DKK m |
Interest expenses DKK m |
Net interest DKK m |
Market value adjustments DKK m |
Dividend DKK m |
Total DKK m |
|---|---|---|---|---|---|---|
| Net financials at amortized cost | ||||||
| Receivables from and payables to credit institutions and central banks | 25.0 | 6.4 | 18.6 | 0.0 | 0.0 | 18.6 |
| Lending and deposits, banking activities | 1,798.4 | 142.8 | 1,655.6 | 0.0 | 0.0 | 1,655.6 |
| Repo and reverse repo transactions | -18.6 | -17.1 | -1.5 | 0.0 | 0.0 | -1.5 |
| Subordinated debt | 0.0 | 67.8 | -67.8 | 6.8 | 0.0 | -61.0 |
| Other interest | 50.1 | 0.6 | 49.5 | 0.0 | 0.0 | 49.5 |
| Total | 1,854.9 | 200.5 | 1,654.4 | 6.8 | 0.0 | 1,661.2 |
| Net financials at fair value | ||||||
| Trading book | 120.9 | 0.0 | 120.9 | 130.1 | 11.3 | 262.3 |
| Other financial investment assets | 0.0 | 0.0 | 0.0 | 315.1 | 43.6 | 358.7 |
| Total | 120.9 | 0.0 | 120.9 | 445.2 | 54.9 | 621.0 |
| Total net income from financials | 1,975.8 | 200.5 | 1,775.3 | 452.0 | 54.9 | 2,282.2 |
The Spar Nord Group had no held-to-maturity investments in 2015 and 2016.
10
11
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|
|---|---|---|---|---|
| OTHER OPERATING INCOME | ||||
| Gain on sale of properties | 0.5 | 0.0 | 0.5 | 0.0 |
| Gain on sale of other property, plant and equipment | 0.2 | 0.3 | 0.2 | 0.3 |
| Payments under operating leases and other rental income | 8.7 | 13.9 | 8.7 | 13.9 |
| Other income | 17.0 | 25.9 | 17.2 | 26.0 |
| Operation of investment properties | ||||
| Rental income | 16.6 | 14.8 | 7.3 | 6.7 |
| Operating expenses | 2.9 | 3.1 | 2.5 | 2.6 |
| Maintenance | 0.4 | 0.7 | 0.4 | 0.6 |
| Changes in value, investment properties | -9.9 | -3.3 | - | - |
| Net interest expenses | 0.1 | 0.0 | 0.1 | 0.0 |
| Other operating income, total | 29.7 | 47.8 | 30.9 | 43.7 |
| STAFF COSTS AND ADMINISTRATIVE EXPENSES Staff costs |
1,141.7 | 1,098.2 | 1,141.7 | 1,098.1 |
| Administrative expenses | 647.1 | 670.0 | 653.5 | 677.6 |
| Total staff costs and administrative expenses | 1,788.8 | 1,768.2 | 1,795.2 | 1,775.7 |
| Staff costs: | ||||
| Salaries | 933.3 | 876.0 | 933.3 | 875.9 |
| Share-based payment | - | - | - | - |
| Pensions | 106.9 | 98.8 | 106.9 | 98.8 |
| 101.5 | 123.4 | 101.5 | 123.4 | |
| Social security costs |
Of which, remuneration to present and previous members of
the Executive Board and Board of Directors and material risk takers amounts to:
| The Board of Directors | ||||
|---|---|---|---|---|
| Number | 9 | 9 | 9 | 9 |
| Fixed pay | 3.2 | 3.1 | 3.2 | 3.1 |
| Pension | - | - | - | - |
| Total remuneration | 3.2 | 3.1 | 3.2 | 3.1 |
| Breakdown of remuneration to Board of Directors | ||||
| Kjeld Johannesen | 0.5 | 0.3 | 0.5 | 0.3 |
| Per Nikolaj Bukh | 0.4 | 0.4 | 0.4 | 0.4 |
| Kaj Christiansen | 0.4 | 0.3 | 0.4 | 0.3 |
| Torben Fristrup (retired on 20 April 2016) | 0.3 | 0.6 | 0.3 | 0.6 |
| Morten B. Gaardboe (took office on 20 April 2016) | 0.1 | - | 0.1 | - |
| Laila Mortensen | 0.3 | 0.3 | 0.3 | 0.3 |
| Fritz Dahl Pedersen (retired on 22 April 2015) | - | 0.1 | - | 0.1 |
| Ole Skov | 0.3 | 0.3 | 0.3 | 0.3 |
| Jannie Skovsen | 0.3 | 0.2 | 0.3 | 0.2 |
| Gitte Holmgaard Sørensen | 0.3 | 0.3 | 0.3 | 0.3 |
| John Sørensen (took office on 22 April 2015) | 0.3 | 0.2 | 0.3 | 0.2 |
| Hans Østergaard (retired on 22 April 2015) | - | 0.1 | - | 0.1 |
| Total fees earned and paid | 3.2 | 3.1 | 3.2 | 3.1 |
| - Of which, committee fees | 0.7 | 0.6 | 0.7 | 0.6 |
The Board of Directors' remuneration in the Parent Company and the Group is identical.
The subsidiary's board of directors is composed of persons employed by Spar Nord Bank, the Parent Company, and none of them have received remuneration as members of the subsidiary's board of directors. The remuneration of the Board of Directors is based on intragroup management agreements.
The members of the Board of Directors receive a fixed fee. In addition, a fixed fee is paid to members of the Audit Committee, the Risk Committee and the Nomination and Remuneration Committee. The Board of Directors receives no variable pay.
The members of the Board of Directors are not covered by any corporate pension schemes.
| Total remuneration earned and paid | 19.3 | 18.9 | 19.3 | 18.9 |
|---|---|---|---|---|
| Pension | 2.4 | 2.3 | 2.4 | 2.3 |
| Variable pay (lower threshold limit) | 0.8 | 0.8 | 0.8 | 0.8 |
| Fixed pay *) | 16.1 | 15.8 | 16.1 | 15.8 |
| Number | 16 | 14 | 16 | 14 |
| Material risk takers |
*) The amount includes the value of a company-provided car, etc. The comparative figures have been restated.
In accordance with the Danish Financial Business Act, Spar Nord's remuneration policy defines the group of persons who are material risk takers. No variable remuneration components over and above the statutorily allowed lower threshold limit (DKK 100,000 per year) are paid to material risk takers and internal control functions. The remuneration paid to Group Management (Board of Directors and Executive Board) does not include any variable components or discretionary pension benefits. The remuneration policy was adopted at the Annual General Meeting on 20 April 2016. The remuneration policy is available at the website sparnord.com/om-spar-nord/investor/organisation-ledelse.
According to the remuneration policy, the Board of Directors and the Executive Board are included in the group of material risk takers. The Board of Directors' and Executive Board's remuneration and number of members, etc. are not included in the above specification. The specifications of the Board of Directors' and Executive Board's remuneration, etc. must be included in the total calculation and specification of the Bank's material risk takers.
| Executive Board | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|
| Number | 3 | 3 | 3 | 3 |
| Base salary | 11.0 | 10.8 | 11.0 | 10.8 |
| - less fees received from directorships | 1.4 | 1.3 | 1.4 | 1.3 |
| The Bank's expense, base salary | 9.6 | 9.5 | 9.6 | 9.5 |
| Pension, ordinary contribution | 1.6 | 1.6 | 1.6 | 1.6 |
| Total remuneration earned and paid | 11.2 | 11.1 | 11.2 | 11.1 |
Breakdown of remuneration to Executive Board
| Lasse Nyby | ||||
|---|---|---|---|---|
| Base salary *) | 4.1 | 4.0 | 4.1 | 4.0 |
| - less fees received from directorships | 0.4 | 0.5 | 0.4 | 0.5 |
| The Bank's expense, base salary | 3.7 | 3.5 | 3.7 | 3.5 |
| Pension, ordinary contribution | 0.6 | 0.6 | 0.6 | 0.6 |
| Total remuneration earned and paid | 4.3 | 4.1 | 4.3 | 4.1 |
| John Lundsgaard | ||||
| Base salary | 3.5 | 3.4 | 3.5 | 3.4 |
| - less fees received from directorships | 0.4 | 0.2 | 0.4 | 0.2 |
| The Bank's expense, base salary | 3.1 | 3.2 | 3.1 | 3.2 |
| Pension, ordinary contribution | 0.5 | 0.5 | 0.5 | 0.5 |
| Total remuneration earned and paid | 3.6 | 3.7 | 3.6 | 3.7 |
| Lars Møller | ||||
| Base salary *) | 3.4 | 3.4 | 3.4 | 3.4 |
| - less fees received from directorships | 0.6 | 0.6 | 0.6 | 0.6 |
| The Bank's expense, base salary | 2.8 | 2.8 | 2.8 | 2.8 |
| Pension, ordinary contribution | 0.5 | 0.5 | 0.5 | 0.5 |
| Total remuneration earned and paid | 3.3 | 3.3 | 3.3 | 3.3 |
*) The amount includes the value of a company-provided car, etc. The comparative figures have been restated.
The former Executive Board member Bent Jensen stepped down from his position on 20 May 2015. The expense in 2015 amounted to DKK 12.5 million, including remuneration of DKK 11.9 million. Out of the DKK 12.5 million, DKK 8.5 million was provided as a liability at end-2015 for later payment. The amount of DKK 8.5 million provided at end-2015 was paid in full in 2016, of which remuneration accounted for DKK 8.3 million (end 2015: DKK 4.0 million paid, including remuneration of DKK 3.6 million).
The Executive Board receives remuneration for its Group executive board duties based on the management agreement with the subsidiary.
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.
Like the other employees, members of the Executive Board and material risk takers are comprised by defined-contribution pension plans.
No new share-option schemes were established for any of the Bank's staff groups.
Other operating expenses, total
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|||
|---|---|---|---|---|---|---|
| The amount of loans, mortgages, pledges, sureties or guarantees and the associated | ||||||
| collateral provided on behalf of the below-mentioned board members: | ||||||
| Loans, advances and loan commitments, etc.: | Interest rates 2016 Interest rates 2015 | |||||
| Executive Board | 2.25 - 2.50 | 2.03 - 2.40 | 11.1 | 8.7 | 11.1 | 8.7 |
| Board of Directors | 0.65 - 8.95 | 0.01 - 8.88 | 42.8 | 41.3 | 42.8 | 41.3 |
| Of which, unutilized loan commitments and sureties, Executive Board | 6.3 | 7.6 | 6.3 | 7.6 | ||
| Of which, unutilized loan commitments and sureties, Board of Directors | 33.3 | 22.7 | 33.3 | 22.7 | ||
| Employee-elected Directors are eligible for bank staff loans/credits. Mastercard debit balances are interest free for the Bank's customers, as well as for the Executive Board and Board of Directors. |
||||||
| Deposits: | ||||||
| Executive Board | 6.0 | 4.3 | 6.0 | 4.3 | ||
| Board of Directors | ||||||
| 54.6 | 18.5 | 54.6 | 18.5 | |||
| Collateral provided: | ||||||
| Executive Board | 7.5 | 5.4 | 7.5 | 5.4 | ||
| Board of Directors | 20.9 | 22.6 | 20.9 | 22.6 | ||
| Number of employees: | ||||||
| The average number of employees during the financial year in terms of full-time employees | 1,547.8 | 1,518.0 | 1,547.8 | 1,518.0 | ||
| Administrative expenses: | ||||||
| IT expenses | 332.9 | 338.6 | 332.9 | 338.6 | ||
| Marketing costs | 90.6 | 95.0 | 90.6 | 95.0 | ||
| Cost of premises | 85.8 | 83.8 | 92.2 | 91.5 | ||
| Staff costs and travelling expenses | 55.5 | 54.2 | 55.5 | 54.2 | ||
| Office expenses | 24.2 | 30.6 | 24.2 | 30.6 | ||
| Other administrative expenses | 58.1 | 67.8 | 58.1 | 67.7 | ||
| Total | 647.1 | 670.0 | 653.5 | 677.6 | ||
| 12 AUDIT FEES | ||||||
| Fees to the audit firm elected at the General Meeting | 1.5 | 1.9 | 1.4 | 1.8 | ||
| Fees to other audit firms for services other than audit | 0.7 | 1.1 | 0.7 | 1.1 | ||
| Total audit fees | 2.2 | 3.0 | 2.1 | 2.9 | ||
| Total fees to the audit firm elected at the General Meeting break down as follows: | ||||||
| Statutory audit | 0.9 | 1.0 | 0.8 | 0.9 | ||
| Other assurance engagements | 0.3 | 0.3 | 0.3 | 0.3 | ||
| Tax and VAT advice | 0.0 | 0.4 | 0.0 | 0.4 | ||
| Other services | 0.3 | 0.2 | 0.3 | 0.2 | ||
| Total fees to the audit firm elected at the General Meeting | 1.5 | 1.9 | 1.4 | 1.8 | ||
| DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT |
||||||
| Intangible assets | ||||||
| Customer relations, amortization | 6.8 | 6.8 | 6.8 | 6.8 | ||
| Other intangible assets, amortization | 16.8 | 9.1 | 16.8 | 9.1 | ||
| Property, plant and equipment | ||||||
| Corporate properties, depreciation | 15.4 | 15.1 | 13.8 | 13.5 | ||
| Corporate properties, net impairment | 11.5 | -3.5 | 11.5 | -2.5 | ||
| Temporary property portfolio, impairment | 2.1 | 1.0 | 2.1 | 1.0 | ||
| Other property, plant and equipment, depreciation | 41.7 | 37.0 | 41.7 | 37.0 | ||
| Total depreciation, amortization and impairment of intangible assets | ||||||
| and property, plant and equipment | 94.3 | 65.5 | 92.7 | 64.9 | ||
| OTHER OPERATING EXPENSES | ||||||
| Contributions to sector-wide solutions | 8.9 | 102.3 | 8.9 | 102.3 | ||
| Miscellaneous operating expenses | 4.4 | 5.6 | 4.4 | 5.6 |
Contributions to sector-wide solutions comprise payments to the Guarantee Fund and the Resolution Fund, which form part of the national restructuring and resolution scheme. No contributions were paid to the Guarantee Fund, whereas contributions to the Resolution Fund in the amount of DKK 8.9 million were expensed in 2016.
13.3 107.9 13.3 107.9
In 2015, this item consisted of contributions to the previous statutory depositors' guarantee fund in Denmark under which the participating institutions pay a fixed annual contribution of 2.5‰ of the guaranteed deposits ("insurance-based model"), as well as contributions to the Resolution Fund in the amount of DKK 3.6 million – equal to six months' contributions.
NOTE
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|||
|---|---|---|---|---|---|---|
| NOTE | 15 | IMPAIRMENT OF LOANS, ADVANCES AND RECEIVABLES, ETC. | ||||
| Receivables from credit institutions | 2.9 | 0.0 | 2.9 | 0.0 | ||
| Loans, advances and receivables, etc. | 265.0 | 364.4 | 265.0 | 364.4 | ||
| Guarantees | 24.1 | 9.0 | 24.1 | 9.0 | ||
| Total impairment of loans, advances and receivables, etc. | 292.0 | 373.4 | 292.0 | 373.4 | ||
| The impairment accounts for loans & advances and guarantees, respectively, are shown in note 51. | ||||||
| 16 | PROFIT/LOSS ON EQUITY INVESTMENTS IN ASSOCIATES AND GROUP ENTERPRISES | |||||
| Profit/loss on equity investments in associates | 29.6 | 28.3 | 29.6 | 28.3 | ||
| Profit/loss on equity investments in group enterprises | 0.0 | 0.0 | 74.9 | 50.6 | ||
| Total profit/loss on equity investments in associates and group enterprises | 29.6 | 28.3 | 104.5 | 78.9 | ||
| 17 | TAX | |||||
| Tax for the year can be broken down as follows: | ||||||
| Tax on profit/loss for the year | 189.9 | 176.8 | 179.5 | 163.2 | ||
| Tax on other comprehensive income | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Tax on changes in equity | -6.4 | -3.9 | -6.4 | -3.9 | ||
| Total tax | 183.5 | 172.9 | 173.1 | 159.3 | ||
| Tax on the profit/loss for the year breaks down as follows: | ||||||
| Current tax | 198.5 | 215.3 | 194.5 | 215.3 | ||
| Deferred tax for the year | -3.3 | -39.2 | -9.5 | -52.9 | ||
| Deferred tax, effect after reduction of Danish corporate tax rate | 0.0 | -0.7 | 0.0 | -0.6 | ||
| Post-adjustment of deferred tax, prior years | -5.0 | 50.4 | -3.8 | 50.6 | ||
| Post-adjustment of current tax for prior years | -0.3 | -49.0 | -1.7 | -49.2 | ||
| Tax on profit/loss for the year | 189.9 | 176.8 | 179.5 | 163.2 | ||
| The effective tax rate results as follows: | ||||||
| Current Danish tax rate, % | 22.0 | 23.5 | 22.0 | 23.5 | ||
| Reduction of Danish corporate tax rate to 22.0% in the period until 2016, % | 0.0 | -0.1 | 0.0 | -0.1 | ||
| Profit/loss on equity investments and market-value adjustment of shares, % | -2.7 | -7.1 | -3.4 | -8.3 | ||
| Non-deductible costs and non-taxable income, % | -0.3 | 0.1 | -0.5 | 0.2 | ||
| Adjustment of taxes relating to prior years, % | -0.5 | 0.1 | -0.5 | 0.1 | ||
| Total effective tax rate, % | 18.5 | 16.5 | 17.6 | 15.4 |
| Tax on other comprehensive income | 2016 Tax income/ |
2015 Tax income/ |
||||
|---|---|---|---|---|---|---|
| The Spar Nord Group | Before tax | expense | After tax | Before tax | expense | After tax |
| Adjustment relating to associates | 0.0 | 0.0 | 0.0 | -0.8 | 0.0 | -0.8 |
| Net revaluation of properties | -5.0 | 0.0 | -5.0 | 6.9 | 0.0 | 6.9 |
| Tax on other comprehensive income, total | -5.0 | 0.0 | -5.0 | 6.1 | 0.0 | 6.1 |
| Tax on changes in equity | 2016 Tax income/ |
2015 Tax income/ |
||||
| The Spar Nord Group | Before tax | expense | After tax | Before tax | expense | After tax |
| Interest, Additional Tier 1 (AT1) capital | -26.1 | 5.7 | -20.4 | -13.5 | 3.2 | -10.3 |
| Expenses for issue of Additional Tier 1 (AT1) capital | -3.0 | 0.7 | -2.3 | -2.9 | 0.7 | -2.2 |
| Tax on changes in equity | -29.1 | 6.4 | -22.7 | -16.4 | 3.9 | -12.5 |
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|||
|---|---|---|---|---|---|---|
| NOTE | 18 | RECEIVABLES FROM CREDIT INSTITUTIONS AND CENTRAL BANKS | ||||
| Receivables from central banks, subject to notice | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Receivables from credit institutions | 2,178.8 | 2,741.3 | 2,182.5 | 2,744.7 | ||
| Total receivables from credit institutions and central banks | 2,178.8 | 2,741.3 | 2,182.5 | 2,744.7 | ||
| Of which, subordinated receivables | 0.0 | 6.5 | 0.0 | 6.5 | ||
| Shown by term to maturity | ||||||
| Demand deposits | 126.0 | 303.7 | 129.7 | 307.1 | ||
| Up to 3 months | 1,979.8 | 2,381.1 | 1,979.8 | 2,381.1 | ||
| Over 3 months and up to 1 year | 0.0 | 50.0 | 0.0 | 50.0 | ||
| Over 1 year and up to 5 years | 73.0 | 0.0 | 73.0 | 0.0 | ||
| Over 5 years | 0.0 | 6.5 | 0.0 | 6.5 | ||
| Total | 2,178.8 | 2,741.3 | 2,182.5 | 2,744.7 | ||
| Of which, genuine purchase and resale transactions | ||||||
| Reverse repo transactions | 1,452.8 | 1,340.6 | 1,452.8 | 1,340.6 | ||
| 19 | LOANS, ADVANCES AND OTHER RECEIVABLES AT AMORTIZED COST | |||||
| Loans and advances, banking activities *) | 33,130.3 | 32,630.5 | 33,003.3 | 32,503.5 | ||
| Loans and advances, reverse repo transactions | 6,253.4 | 4,155.1 | 6,253.4 | 4,155.1 | ||
| Loans and advances, leasing activities | 1,961.9 | 1,253.7 | 1,961.9 | 1,253.7 | ||
| Loans, advances and other receivables at amortized cost, total | 41,345.6 | 38,039.3 | 41,218.6 | 37,912.3 |
*) The item "Loans and advances, banking activities" comprises all loans and advances except those classified as reverse repo transactions and leasing activities, and includes loans and advances in the business areas Spar Nord's Local Banks and Trading, Financial Markets & the International Division.
| Broken down by category | ||||
|---|---|---|---|---|
| Overdraft facilities | 19,833.9 | 19,908.7 | 19,833.9 | 19,908.7 |
| Lease contracts | 1,881.4 | 1,233.8 | 1,881.4 | 1,233.8 |
| Mortgage deeds | 9.1 | 25.7 | 9.1 | 25.7 |
| Other loans and advances | 19,621.2 | 16,871.1 | 19,494.2 | 16,744.1 |
| Total | 41,345.6 | 38,039.3 | 41,218.6 | 37,912.3 |
| Of which, subordinated receivables | 0.0 | 0.0 | 0.0 | 0.0 |
| Shown by term to maturity | ||||
| Demand deposits | 5,384.5 | 3,847.6 | 5,384.5 | 3,847.6 |
| Up to 3 months | 5,658.5 | 5,720.8 | 5,658.5 | 5,720.8 |
| Over 3 months and up to 1 year | 9,621.7 | 9,786.8 | 9,494.7 | 9,659.8 |
| Over 1 year and up to 5 years | 7,788.1 | 7,077.1 | 7,788.1 | 7,077.1 |
| Over 5 years | 12,892.8 | 11,607.0 | 12,892.8 | 11,607.0 |
| Total | 41,345.6 | 38,039.3 | 41,218.6 | 37,912.3 |
| Loans and advances, leasing activities | ||||
| Lease contracts, etc. | 1,881.4 | 1,233.8 | 1,881.4 | 1,233.8 |
| Sales contracts | 80.5 | 19.9 | 80.5 | 19.9 |
| Total loans and advances, leasing activities | 1,961.9 | 1,253.7 | 1,961.9 | 1,253.7 |
Finance lease assets, with the Group as lessor, comprise agricultural equipment, passenger cars and trucks, industrial machinery, contractor's equipment, etc.
The lease contracts are entered into for a term of 0-8 years, with individually agreed lease payments.
The lease contracts are in Danish and foreign currency.
The contracts can be terminated during the lease term.
Spar Nord
| The Group 2016 DKK m |
The Group 2015 DKK m |
Parent Company 2016 DKK m |
Parent Company 2015 DKK m |
|---|---|---|---|
| 468.6 | 430.6 | 468.6 | 430.6 |
| 1,364.4 | 798.0 | 1,364.4 | 798.0 |
| 173.4 | 92.9 | 173.4 | 92.9 |
| 2,006.4 | 1,321.5 | 2,006.4 | 1,321.5 |
| 125.0 | 87.7 | 125.0 | 87.7 |
| 1,881.4 | 1,233.8 | 1,881.4 | 1,233.8 |
Spar Nord
| Total | 1,881.4 | 1,233.8 | 1,881.4 | 1,233.8 |
|---|---|---|---|---|
| Over 5 years | 168.2 | 90.7 | 168.2 | 90.7 |
| 1 – 5 years | 1,289.7 | 746.0 | 1,289.7 | 746.0 |
| Up to 1 year | 423.5 | 397.1 | 423.5 | 397.1 |
*) The Group's lease contracts consist mainly of finance leases and are recognized in the balance sheet under lending, leasing activities.
| Accumulated impairment of uncollectible minimum lease payments receivable | 17.6 | 27.6 | 17.6 | 27.6 |
|---|---|---|---|---|
| Rental income recognized in the income statement under the item "Interest income" | 50.4 | 47.0 | 50.4 | 47.0 |
| Average remaining term of the lease contracts (years) | 3.5 years | 2.7 years | 3.5 years | 2.7 years |
| Public authorities | 0.1 | 0.5 | 0.1 | 0.5 |
|---|---|---|---|---|
| Business customers | ||||
| Agriculture, hunting, forestry and fisheries | 6.3 | 7.2 | 6.3 | 7.2 |
| Industry and raw materials extraction | 4.8 | 5.1 | 4.8 | 5.1 |
| Energy supply | 3.1 | 4.0 | 3.1 | 4.1 |
| Building and construction | 3.5 | 3.1 | 3.5 | 3.1 |
| Trade | 6.9 | 7.2 | 7.0 | 7.2 |
| Transport, hotels and restaurants | 3.0 | 3.1 | 3.0 | 3.1 |
| Information and communication | 0.3 | 0.2 | 0.3 | 0.2 |
| Financing and insurance | 16.2 | 13.4 | 16.0 | 13.2 |
| Real estate | 10.8 | 11.1 | 10.8 | 11.1 |
| Other business areas | 4.8 | 5.1 | 4.8 | 5.1 |
| Business customers, total | 59.7 | 59.5 | 59.6 | 59.4 |
| Retail customers | 40.2 | 40.0 | 40.3 | 40.1 |
| Total | 100.0 | 100.0 | 100.0 | 100.0 |
Spar Nord
Spar Nord
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|||
|---|---|---|---|---|---|---|
| NOTE | 20 | BONDS AT FAIR VALUE | ||||
| Mortgage-credit bonds | 12,989.7 | 13,683.0 | 12,989.7 | 13,683.0 | ||
| Government bonds | 603.3 | 366.0 | 603.3 | 366.0 | ||
| Other bonds | 1,343.1 | 2,004.6 | 1,343.1 | 2,004.6 | ||
| Bonds at fair value, total | 14,936.1 | 16,053.6 | 14,936.1 | 16,053.6 | ||
| Of which, subordinated receivables | 41.8 | 45.6 | 41.8 | 45.6 | ||
All bonds form part of the Bank's trading book.
21
| Other non-derivative financial liabilities at fair value | 2,005.9 | 1,217.4 | 2,005.9 | 1,217.4 |
|---|---|---|---|---|
| SHARES, ETC. | ||||
| Shares/unit trust certificates listed on Nasdaq OMX Copenhagen A/S | 164.9 | 121.1 | 164.9 | 121.1 |
| Shares/unit trust certificates listed on other stock exchanges | 39.7 | 10.7 | 39.7 | 10.7 |
| Unlisted shares at fair value | 1,352.6 | 1,526.5 | 1,352.6 | 1,469.3 |
| Total shares, etc. | 1,557.2 | 1,658.3 | 1,557.2 | 1,601.1 |
| Trading book | 211.4 | 142.3 | 211.4 | 142.3 |
| Other shares at fair value using the fair-value option | 1,345.8 | 1,516.0 | 1,345.8 | 1,458.8 |
| Total shares | 1,557.2 | 1,658.3 | 1,557.2 | 1,601.1 |
| Other non-derivative financial liabilities at fair value | 1.9 | 2.3 | 1.9 | 2.3 |
Securities that are not included in the Group's trading book are measured at fair value with the ensuing changes in value in the income statement using the fair-value option.
The securities form part of a portfolio that is managed – and on which the returns are measured on the basis of fair value - in accordance with a documented risk management and investment strategy.
| Carrying amount, end of year | 118.4 | 82.4 | 118.4 | 82.4 |
|---|---|---|---|---|
| Revaluations and impairment, end of year | 22.3 | 23.2 | 22.3 | 23.2 |
| Reversal of revaluations and impairment losses | 0.0 | -288.6 | 0.0 | -288.6 |
| Other capital movements recognized in other comprehensive income | 0.0 | -0.8 | 0.0 | -0.8 |
| Dividend | 37.6 | 864.3 | 37.6 | 864.3 |
| Profit/loss | 29.6 | 28.3 | 29.6 | 28.3 |
| Reclassified to/from shares, etc. | 7.1 | 0.0 | 7.1 | 0.0 |
| Revaluations and impairment, beginning of year | 23.2 | 571.4 | 23.2 | 571.4 |
| Total purchase price, end of year | 96.1 | 59.2 | 96.1 | 59.2 |
| Disposals | 0.1 | 310.8 | 0.1 | 310.8 |
| Additions | 25.8 | 0.1 | 25.8 | 0.1 |
| Reclassified to/from shares, etc. | 11.2 | 0.0 | 11.2 | 0.0 |
| Total purchase price, beginning of year | 59.2 | 369.9 | 59.2 | 369.9 |
In 2016 and 2015, Spar Nord had no equity investments in associates that were individually significant for the Spar Nord Group. Spar Nord sold its shares in Nørresundby Bank A/S in 2015.
| DKK m | ||
|---|---|---|
| 31.12.16 | 31.12.15 | |
| The Spar Nord Group's share of: | ||
| Profit/loss for the year | 29.6 | 28.3 |
| Other comprehensive income | 0.0 | -0.8 |
| Comprehensive income, total | 29.6 | 27.5 |
| Reconciliation of carrying amount at 31 December DKK m |
31.12.16 | 31.12.15 |
| The Spar Nord Group's share of equity in significant associates | 0.0 | 0.0 |
| Goodwill relating to associates | 37.0 | 37.0 |
| Carrying amount of equity investments in individually insignificant associates | 81.4 | 45.4 |
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|
|---|---|---|---|---|
| EQUITY INVESTMENTS IN GROUP ENTERPRISES | ||||
| Total purchase price, beginning of year | - | - | 1,219.8 | 1,337.8 |
| Additions | - | - | 0.0 | 0.0 |
| Disposals | - | - | 0.0 | 118.0 |
| Total purchase price, end of year | - | - | 1,219.8 | 1,219.8 |
| Revaluations and impairment, beginning of year | - | - | 289.0 | 174.6 |
| Profit/loss | - | - | 74.9 | 50.6 |
| Dividend | - | - | 0.0 | 0.0 |
| Other capital movements | - | - | 0.0 | 0.0 |
| Reversal of revaluations and impairment losses | - | - | 0.0 | -63.8 |
| Revaluations and impairment, end of year | - | - | 363.9 | 289.0 |
| Carrying amount, end of year | - | - | 1,583.7 | 1,508.8 |
The company was a wholly owned subsidiary in 2015 and 2016.
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|||
|---|---|---|---|---|---|---|
| NOTE | 24 | 24 INTANGIBLE ASSETS | ||||
| Goodwill | ||||||
| Total purchase price, beginning of year | 160.4 | 160.4 | 160.4 | 160.4 | ||
| Additions | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Disposals | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Total purchase price, end of year | 160.4 | 160.4 | 160.4 | 160.4 | ||
| Impairment, beginning of year | 1.7 | 1.7 | 1.7 | 1.7 | ||
| Impairment for the year | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Reversal of impairment on disposals | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Impairment, end of year | 1.7 | 1.7 | 1.7 | 1.7 | ||
| Carrying amount, end of year | 158.7 | 158.7 | 158.7 | 158.7 | ||
| Customer relations | ||||||
| Total purchase price, beginning of year | 64.6 | 64.6 | 64.6 | 64.6 | ||
| Additions | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Disposals | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Total purchase price, end of year | 64.6 | 64.6 | 64.6 | 64.6 | ||
| Amortization and impairment, beginning of year | 32.0 | 25.2 | 32.0 | 25.2 | ||
| Amortization for the year | 6.8 | 6.8 | 6.8 | 6.8 | ||
| Amortization and impairment, end of year | 38.8 | 32.0 | 38.8 | 32.0 | ||
| Carrying amount, end of year | 25.8 | 32.6 | 25.8 | 32.6 | ||
| Other intangible assets | ||||||
| Total purchase price, beginning of year | 62.8 | 56.8 | 62.8 | 56.8 | ||
| Additions | 5.6 | 6.0 | 5.6 | 6.0 | ||
| Disposals | 7.7 | 0.0 | 7.7 | 0.0 | ||
| Total purchase price, end of year | 60.7 | 62.8 | 60.7 | 62.8 | ||
| Amortization and impairment, beginning of year | 39.6 | 30.5 | 39.6 | 30.5 | ||
| Amortization for the year | 16.8 | 9.1 | 16.8 | 9.1 | ||
| Reversal of amortization on disposals | 5.6 | 0.0 | 5.6 | 0.0 | ||
| Amortization and impairment, end of year | 50.8 | 39.6 | 50.8 | 39.6 | ||
| Carrying amount, end of year | 9.9 | 23.2 | 9.9 | 23.2 | ||
| Total intangible assets | 194.4 | 214.5 | 194.4 | 214.5 |
The remaining amortization periods are 2-6 years (2015: 2-7 years) for customer relations and 1-5 years (2015: 1-5 years) for other intangible assets. Goodwill had an indefinite useful life in both 2016 and 2015.
Impairment
Carrying
| DKK m | Purchase price 01.01.16 |
Disposals 2016 |
Purchase price 31.12.16 |
Impairment 01.01.16 |
Impairment 2016 |
on disposals 2016 |
Impairment 31.12.16 |
amount 31.12.16 |
|---|---|---|---|---|---|---|---|---|
| Banking activities, Roskilde Bank branches | 86.8 | 0.0 | 86.8 | 0.0 | 0.0 | 0.0 | 0.0 | 86.8 |
| Banking activities, Sparbank | 35.2 | 0.0 | 35.2 | 0.0 | 0.0 | 0.0 | 0.0 | 35.2 |
| Banking activities, branches, Other | 38.4 | 0.0 | 38.4 | 1.7 | 0.0 | 0.0 | 1.7 | 36.7 |
| Goodwill, total | 160.4 | 0.0 | 160.4 | 1.7 | 0.0 | 0.0 | 1.7 | 158.7 |
Additions/
| Goodwill - 2015 DKK m |
Purchase price 01.01.15 |
Additions/ Disposals 2015 |
Purchase price 31.12.15 |
Impairment 01.01.15 |
Impairment 2015 |
Impairment on disposals 2015 |
Impairment 31.12.15 |
Carrying amount 31.12.15 |
|---|---|---|---|---|---|---|---|---|
| Banking activities, Roskilde Bank branches | 86.8 | 0.0 | 86.8 | 0.0 | 0.0 | 0.0 | 0.0 | 86.8 |
| Banking activities, Sparbank | 35.2 | 0.0 | 35.2 | 0.0 | 0.0 | 0.0 | 0.0 | 35.2 |
| Banking activities, branches, Other | 38.4 | 0.0 | 38.4 | 1.7 | 0.0 | 0.0 | 1.7 | 36.7 |
| Goodwill, total | 160.4 | 0.0 | 160.4 | 1.7 | 0.0 | 0.0 | 1.7 | 158.7 |
The impairment test compares the carrying amount with the estimated present value of the anticipated future cash flows (value in use). The special debt structure in financial groups means that the calculation basis for the present value of future cash flows is based on a simplified equity model.
The equity model is based on approved strategies and earnings estimates for the cash-generating business areas for the next five years.
The share of equity has been fixed at 12% (2015: 12%) of total risk exposure.
The impairment test in 2016 did not give rise to any writedowns for impairment of intangible assets.
The Spar Nord Group's goodwill with an indefinite useful life is tested annually for impairment. The activities are tested on the identified cash-generating unit to which the assets have been allocated.
Goodwill is included in the cash-generating business area - Spar Nord's Local Banks - which is the business area comprising the branch network. For a more detailed description of Spar Nord's Local Banks, reference is made to note 3.
Cash flow during the budget period (five years) is impacted by the expected interest level and the impact on the lending and deposit margins at Spar Nord's Local Banks.
The assumptions used in the impairment test are conservative with respect to the future profit impact from the implementation of Spar Nord's strategy.
Growth during the budget period is projected at 1.0% (2015: 1.0%). The average annual growth reflects the targets incorporated into the Bank's outlook for the future.
The deposit and lending margins reflect the earnings margin, which is calculated as the difference between the interest rate towards the customers of Spar Nord's Local Banks and an internal funding rate based on the Bank's funding costs.
Primary assumptions; see above:
The interest margin is estimated on the basis of current lending rates and Management's expectations for future competition. The interest margin is expected to decline slightly.
The expectations for the development in deposits and lending reflect the Bank's estimate for the next few years. A marginal increase is expected in both lending and deposits.
The expectations for income from fees, charges and commissions are based on historical data, adjusted to reflect the current situation. Income from fees, charges and commissions is expected to reach a slightly higher level than in 2016.
Expectations as to costs and expenses are based on a projection of the cost base and anticipated changes in activities as well as pay increases according to collective agreements, changes in taxes and duties, etc.
Expectations as to the impairment of loans and advances are based on the Bank's estimate for the next few years. These expectations are based on historical data, adjusted to reflect the current situation.
The impairment of loans and advances is expected to reach a lower level than in 2016.
Cash flow during the terminal period represents earnings in the preceding years, growing at a constant rate. Growth is projected at 1.0% (2015: 1.0%).
Growth has been projected on the basis of the expectations for macroeconomic growth.
The discount rate used to calculate the discounted value of future cash flows is 11.5% (2015: 11.5%) before tax based on a tax rate of 22%.
After tax, the discount rate is 9.0% (2015: 9.0%).
The discount rate has been fixed on the basis of a CAPM model. The discount rate used in 2016 was unchanged compared to 2015.
| 2016 | 2015 | |
|---|---|---|
| Goodwill acquired, DKK m | 158.7 | 158.7 |
| Budget period | 5 years | 5 years |
| Average annual growth during the budget period | 1.0 % | 1.0 % |
| Average annual growth during the terminal period | 1.0 % | 1.0 % |
| Discount rate before tax | 11.5 % | 11.5 % |
| Discount rate after tax | 9.0 % | 9.0 % |
| Share of equity in total risk exposure | 12.0 % | 12.0 % |
Management assesses that probable changes in basic assumptions will not cause the carrying amount of goodwill to exceed its recoverable amount.
Sensitivity analyses show that the goodwill relating to Spar Nord's Local Banks is robust to changes in assumptions.
The following matters do not lead to impairment:
| 31.12.16 | 31.12.15 | |
|---|---|---|
| Increase in the discount rate (pre-tax) up to | 18 % | 15 % |
| Reduction in pre-tax profit/loss (change in net interest income, fee income, | ||
| cost ratio or impairment) up to | 37 % | 25 % |
| Negative growth in balance-sheet items possible | Yes | Yes |
Projections for the budget period mean that about 68% of the present value of expected cash flows in Spar Nord's Local Banks relates to the terminal period (2015: 69%).
The carrying amount of customer relations recognized in connection with:
The assumptions used for recognizing customer relations have been compared with the corresponding realized results – primarily income in excess of net interest income and the cost ratio.
The realized results are in line with expectations, for which reason there is no evidence of impairment.
Management has not identified factors showing any need for carrying out an impairment test in respect of other intangible assets. Other intangible assets comprise software used by the Bank and are amortized at the rates stated in the accounting policies.
| NOTE | 25 | LAND AND BUILDINGS | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 |
Spar Nord Parent Company 2015 |
|---|---|---|---|---|---|---|
| Investment properties | DKK m | DKK m | ||||
| Fair value, beginning of year | 144.6 | 147.7 | 70.6 | 64.7 | ||
| Reclassifications from temporary assets | 0.0 | 7.6 | 0.0 | 7.6 | ||
| Additions, incl. improvements | 1.0 | 0.6 | 0.0 | 0.7 | ||
| Disposals | 0.7 | 8.0 | 0.7 | 0.0 | ||
| Unrealized fair-value adjustment | -9.9 | -3.3 | 0.1 | -2.4 | ||
| Fair value, end of year | 135.0 | 144.6 | 70.0 | 70.6 | ||
| Required rate of return used in calculating the fair value , % | 5.8 - 8.0 | 5.8 - 9.0 | 5.8 - 8.0 | 5.8 - 9.0 |
The unrealized fair-value adjustment is recognized in the item Market-value adjustments in the Parent Company's Financial Statements and in Other operating income in the Consolidated Financial Statements.
The fair-value method (Level 3 in the fair-value hierarchy) has been chosen for measuring investment properties. Investment properties consist mainly of business rental units. The periods of non-terminability for Spar Nord in the leases do not exceed 20 years.
As concerns information regarding return on investment properties, please refer to note 10.
| Note 10 includes operating expenses relating to investment properties | ||||
|---|---|---|---|---|
| that did not generate any rental income during the year for: | 0.0 | 0.0 | 0.0 | 0.0 |
| Corporate properties | ||||
| Total purchase price, beginning of year | 674.1 | 659.8 | 545.6 | 531.9 |
| Transferred to temporary assets | -10.1 | 0.0 | -10.1 | 0.0 |
| Additions | 9.1 | 14.3 | 9.1 | 13.7 |
| Disposals | 0.0 | 0.0 | 0.0 | 0.0 |
| Total purchase price, end of year | 673.1 | 674.1 | 544.6 | 545.6 |
| Value adjustment, beginning of year | 127.1 | 122.5 | 102.1 | 97.4 |
| Transferred to temporary assets | -5.2 | 0.0 | -5.2 | 0.0 |
| Depreciation for the year | 15.4 | 15.1 | 13.7 | 13.5 |
| Net impairment via the income statement | 11.5 | -3.5 | 11.5 | -2.5 |
| Changes in value recognized in other comprehensive income | 5.8 | -6.3 | 5.8 | -6.3 |
| Depreciation and impairment on disposals | 0.0 | 0.7 | 0.0 | 0.0 |
| Value adjustement, end of year | 154.6 | 127.1 | 127.9 | 102.1 |
| Fair value, end of year | 518.5 | 547.0 | 416.7 | 443.5 |
| Most recent official property valuation | 479.6 | 499.6 | 375.0 | 382.6 |
| Required rate of return used in calculating the fair value , % | 5.8 - 10.0 | 5.8 -10.0 | 5.8 - 10.0 | 5.8 -10.0 |
| Carrying amount if corporate properties were measured according | ||||
| to the depreciated cost method | 429.9 | 451.6 | 328.1 | 349.1 |
An amount of DKK 0.0 million was recognized in 2016 (2015: DKK 0.6 million) in the Spar Nord Group under additions, corporate properties, regarding improvements to properties in the subsidiary Aktieselskabet Skelagervej 15.
No borrowing costs were recognized in 2016 and 2015.
The fair value method (Level 3 in the fair-value hierarchy) is used for measuring corporate properties. The fair value has been determined based on observable prices and other valuation methods.
An external valuation of all properties has been obtained from a real estate agent to support the calculation of fair value, including the rental rates and rates of return used. An expected residual value of 20-40% of the purchase price is recognized in the depreciation base of properties acquired.
The annual review of the Bank's investment and corporate properties did not give rise to any significant changes in the required rates of return. The required rates of return remained within the 5.8-10.0% range (2015: 5.8-10.0%) for corporate properties and the 5.8-8.0% range (2015: 5.8-9.0%) for investment properties.
| Breakdown of required rates of return | 31.12.16 | ||||||
|---|---|---|---|---|---|---|---|
| Spar Nord, the Group | Corporate properties | Investment properties | |||||
| Required rates of return in % | No. of properties |
Fair value end of year |
No. of properties |
Fair value end of year |
|||
| -> 7.00 | 8 | 133.4 | 2 | 21.0 | |||
| 7.00 - 8.00 | 16 | 260.4 | 2 | 85.0 | |||
| 8.00 - 9.00 | 9 | 117.8 | 6 | 29.0 | |||
| 9.00 -> | 3 | 6.9 | 0 | 0.0 | |||
| Total | 36 | 518.5 | 10 | 135.0 | |||
| Breakdown of required rates of return | 31.12.15 | |||||
|---|---|---|---|---|---|---|
| Spar Nord, the Group | Corporate properties | Investment properties | ||||
| Required rates of return in % | No. of properties |
Fair value end of year |
No. of properties |
Fair value end of year |
||
| -> 7.00 | 9 | 143.3 | 3 | 95.7 | ||
| 7.00 - 8.00 | 17 | 272.1 | 1 | 20.1 | ||
| 8.00 - 9.00 | 14 | 129.0 | 4 | 28.0 | ||
| 9.00 -> | 2 | 2.6 | 3 | 0.8 | ||
| Total | 42 | 547.0 | 11 | 144.6 |
| -> 7.00 | Properties in major towns and cities with a good location, making the properties attractive to tenants and buyers. |
|---|---|
| 7.00 - 8.00 | Properties on the outskirts of attractive towns and properties with a good location in smaller towns. |
| 8.00 - 9.00 | Properties located in small towns and villages. |
| 9.00 -> | Properties in towns where they are expected to be difficult to sell. |
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|
|---|---|---|---|---|
| Security furnished to mortgage-credit institutions in the form | ||||
| of mortgages on land and properties has a carrying amount of | 83.2 | 89.9 | 18.3 | 24.4 |
The most important assumptions used in calculating the fair value of corporate and investment properties are the required rate of return and the rental level.
All other things being equal, an 0.5 percentage point increase in the required rate of return will reduce the fair value by DKK 42.8 million (2015: DKK 45.4 million).
Everything else being equal, a decrease of the rental level of 5% will reduce the fair value by DKK 29.4 million (2015: DKK 30.8 million).
26
| OTHER PROPERTY, PLANT AND EQUIPMENT | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|
| Total purchase price, beginning of year | 387.5 | 419.0 | 387.5 | 419.0 |
| Transferred from/to finance leases | 0.0 | -4.9 | 0.0 | -4.9 |
| Additions | 41.4 | 22.9 | 41.4 | 22.9 |
| Disposals | 34.0 | 49.5 | 34.0 | 49.5 |
| Total purchase price, end of year | 394.9 | 387.5 | 394.9 | 387.5 |
| Depreciation and impairment, beginning of year | 287.9 | 299.0 | 287.9 | 299.0 |
| Transferred from/to finance leases | 0.0 | -3.7 | 0.0 | -3.7 |
| Depreciation and impairment for the year | 41.7 | 37.0 | 41.7 | 37.0 |
| Reversal of depreciation and impairment for the year | 25.8 | 44.4 | 25.8 | 44.4 |
| Depreciation and impairment, end of year | 303.8 | 287.9 | 303.8 | 287.9 |
| Carrying amount, end of year | 91.1 | 99.6 | 91.1 | 99.6 |
The figures at end-2016 include various fully written-off assets used for the Spar Nord Group's and Parent Company's operations. The original purchase price of these assets amounts to DKK 233.6 million (2015: DKK 147.7 million).
| Operating lease assets are recognized at | 19.9 | 6.5 | 19.9 | 6.5 |
|---|---|---|---|---|
The lease contracts were entered into for a term of 0-8 years, with individually agreed lease payments.
The contracts can be terminated during the lease term.
27
| Up to 1 year | 6.4 | 5.8 | 6.4 | 5.8 |
|---|---|---|---|---|
| 1 - 5 years | 13.0 | 0.7 | 13.0 | 0.7 |
| Over 5 years | 0.5 | 0.0 | 0.5 | 0.0 |
| Total | 19.9 | 6.5 | 19.9 | 6.5 |
| Lease payments relating to operating lease assets recognized in the income | ||||
| statement under Other operating income | 4.9 | 4.0 | 4.9 | 4.0 |
| Average remaining term of the lease contracts (years) | 4.3 | 0.7 | 4.3 | 0.7 |
| TEMPORARY ASSETS | ||||
| Total purchase price, beginning of year | 64.6 | 87.6 | 64.6 | 87.6 |
| Transferred from corporate properties | 10.1 | 0.0 | 10.1 | 0.0 |
| Transferred from investment properties | 0.0 | -10.7 | 0.0 | -10.7 |
| Additions | 21.9 | 12.7 | 21.9 | 12.7 |
| Disposals | 23.5 | 25.0 | 23.5 | 25.0 |
| Total purchase price, end of year | 73.1 | 64.6 | 73.1 | 64.6 |
| Depreciation and impairment, beginning of year | 37.2 | 46.4 | 37.2 | 46.4 |
| Transferred from corporate properties | 5.2 | 0.0 | 5.2 | 0.0 |
| Transferred from investment properties | 0.0 | -3.1 | 0.0 | -3.1 |
| Movements for the year | -3.2 | -6.1 | -3.2 | -6.1 |
| Depreciation and impairment, end of year | 39.2 | 37.2 | 39.2 | 37.2 |
| Carrying amount, end of year | 33.9 | 27.4 | 33.9 | 27.4 |
Temporary assets comprise properties taken over and leased assets in connection with non-performing loans held by Spar Nord. Properties expected to be sold within a 12-month period according to a publicized plan are treated as Temporary assets.
Leased assets include trucks, agricultural machinery and heavy construction machinery.
Both properties and leased assets are expected to be disposed of within 12 months.
Properties are sold through estate agents, while leased assets are sold on the usual marketplace for the individual types of assets - primarily by auction or through dealers.
If, contrary to expectation, the assets are not sold within 12 months, they are reclassified to investment properties or, as the case may be, other property, plant and equipment.
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|
|---|---|---|---|---|
| OTHER ASSETS | ||||
| Positive fair value of derivative instruments, etc. | 1,284.2 | 1,423.6 | 1,284.2 | 1,423.6 |
| Miscellaneous receivables | 194.0 | 420.7 | 186.0 | 419.7 |
| Interest and commissions receivable | 229.0 | 250.3 | 225.0 | 246.3 |
| Capital contribution to Bankernes EDB Central a.m.ba. | 316.0 | 316.0 | 316.0 | 316.0 |
| Miscellaneous assets | 63.1 | 73.1 | 63.1 | 73.1 |
| Other assets, total | 2,086.3 | 2,483.7 | 2,074.3 | 2,478.7 |
| PAYABLES TO CREDIT INSTITUTIONS AND CENTRAL BANKS | ||||
| Payables to central banks | 36.5 | 50.5 | 36.5 | 50.5 |
| Payables to credit institutions | 2,393.3 | 3,689.0 | 2,362.7 | 3,658.0 |
| Total payables to credit institutions and central banks | 2,429.8 | 3,739.5 | 2,399.2 | 3,708.5 |
| Shown by term to maturity | ||||
| On demand | 231.2 | 685.9 | 231.2 | 685.9 |
| Up to 3 months | 2,104.8 | 2,990.0 | 2,104.9 | 2,990.0 |
| Over 3 months and up to 1 year | 45.0 | 0.0 | 45.0 | 0.0 |
| Over 1 year and up to 5 years | 4.5 | 7.5 | 4.5 | 7.5 |
| Over 5 years | 44.3 | 56.1 | 13.6 | 25.1 |
| Total | 2,429.8 | 3,739.5 | 2,399.2 | 3,708.5 |
| Of which, genuine sale and repo transactions | ||||
| Repo transactions | 1,399.7 | 2,197.5 | 1,399.7 | 2,197.5 |
| Mortgage debt on real property | 44.2 | 47.3 | 13.6 | 16.3 |
| The carrying amount of the mortgaged properties amounts to | 83.2 | 89.9 | 18.3 | 24.4 |
| DEPOSITS AND OTHER PAYABLES | ||||
| On demand | 39,798.2 | 36,807.4 | 41,121.0 | 36,983.2 |
| Subject to notice | 1,410.2 | 2,111.8 | 1,410.2 | 2,111.8 |
| Time deposits | 1,714.1 | 2,104.0 | 1,714.1 | 3,104.0 |
| Special types of deposit | 3,541.7 | 3,713.1 | 3,541.7 | 3,713.1 |
| Deposits and other payables, total | 46,464.2 | 44,736.3 | 47,787.0 | 45,912.1 |
| Shown by term to maturity | ||||
| On demand | 39,798.2 | 36,807.4 | 41,121.0 | 36,983.2 |
| Up to 3 months | 2,133.5 | 2,268.3 | 2,133.5 | 2,268.3 |
| Over 3 months and up to 1 year | 349.5 | 1,242.9 | 349.5 | 2,242.9 |
| Over 1 year and up to 5 years | 545.6 | 1,628.3 | 545.6 | 1,628.3 |
| Over 5 years | 3,637.4 | 2,789.4 | 3,637.4 | 2,789.4 |
| Total | 46,464.2 | 44,736.3 | 47,787.0 | 45,912.1 |
| Of which, genuine sale and repo transactions | ||||
| Repo transactions | 0.0 | 369.6 | 0.0 | 369.6 |
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 |
Spar Nord Parent Company 2015 |
|
|---|---|---|---|---|
| OTHER LIABILITIES | DKK m | DKK m | ||
| Miscellaneous payables | 1,856.8 | 2,234.5 | 1,854.3 | 2,231.3 |
| Negative fair value of derivative instruments, etc. | 865.5 | 1,476.5 | 865.5 | 1,476.5 |
| Interest and commissions payable | 18.8 | 45.1 | 18.8 | 45.1 |
| Miscellaneous liabilities | 343.0 | 325.3 | 342.2 | 324.7 |
| Other liabilities, total | 3,084.1 | 4,081.4 | 3,080.8 | 4,077.6 |
| PROVISIONS FOR LIABILITIES | ||||
| Provisions for deferred tax (see separate note 33) | 108.5 | 122.8 | 109.5 | 122.8 |
| Provisions for losses on guarantees | 67.0 | 42.9 | 67.0 | 42.9 |
| Provisions for losses in connection with legal proceedings | 0.8 | 2.9 | 0.8 | 2.9 |
| Other provisions for liabilities | 10.7 | 18.1 | 10.7 | 18.1 |
| Provisions for unutilized credit lines Total provisions for liabilities |
14.8 201.8 |
12.1 198.8 |
14.8 202.8 |
12.1 198.8 |
| Provisions for losses on guarantees Beginning of year |
42.9 | 43.7 | 42.9 | 43.7 |
| New provisions | 45.8 | 22.6 | 45.8 | 22.6 |
| Reversal of provisions | 21.7 | 13.6 | 21.7 | 13.6 |
| Reversal of provisions taken over in connection with the merger with Sparbank | 0.0 | 9.8 | 0.0 | 9.8 |
| Provisions for losses on guarantees, end of year | 67.0 | 42.9 | 67.0 | 42.9 |
| Losses on guarantees recognized in the income statement New provisions |
45.8 | 22.6 | 45.8 | 22.6 |
| Reversal of provisions | 21.7 | 13.6 | 21.7 | 13.6 |
| Recognized in the income statement | 24.1 | 9.0 | 24.1 | 9.0 |
| Provisions for losses in connection with legal proceedings | ||||
| Beginning of year | 2.9 | 0.9 | 2.9 | 0.9 |
| New provisions | 1.5 | 2.4 | 1.5 | 2.4 |
| Reversal of provisions | 1.4 | 0.3 | 1.4 | 0.3 |
| Definitively lost | 2.2 | 0.1 | 2.2 | 0.1 |
| End of year | 0.8 | 2.9 | 0.8 | 2.9 |
| Provisions for losses in connection with legal proceedings recognized in the income statement | ||||
| New provisions | 1.5 | 2.4 | 1.5 | 2.4 |
| Reversal of provisions | 1.4 | 0.3 | 1.4 | 0.3 |
| Recognized in the income statement | 0.1 | 2.1 | 0.1 | 2.1 |
| Other provisions for liabilities | ||||
| Beginning of year | 18.1 | 15.2 | 18.1 | 15.2 |
| New provisions | 4.8 | 6.5 | 4.8 | 6.5 |
| Reversal of provisions | 6.8 | 2.2 | 6.8 | 2.2 |
| Applied to cover liabilities | 5.4 | 1.4 | 5.4 | 1.4 |
| End of year | 10.7 | 18.1 | 10.7 | 18.1 |
| Other provisions for liabilities recognized in the income statement | ||||
| New provisions | 4.8 | 6.5 | 4.8 | 6.5 |
| Reversal of provisions | 6.8 | 2.2 | 6.8 | 2.2 |
| Recognized in the income statement | -2.0 | 4.3 | -2.0 | 4.3 |
| Provisions for unutilized credit lines | ||||
| Beginning of year | 12.1 | 11.2 | 12.1 | 11.2 |
| New provisions | 14.8 | 12.1 | 14.8 | 12.1 |
| Reversal of provisions | 12.1 | 11.2 | 12.1 | 11.2 |
| End of year | 14.8 | 12.1 | 14.8 | 12.1 |
| Provisions for unutilized credit lines recognized in the income statement | ||||
| New provisions | 14.8 | 12.1 | 14.8 | 12.1 |
| Reversal of provisions | 12.1 | 11.2 | 12.1 | 11.2 |
| Recognized in the income statement | 2.7 | 0.9 | 2.7 | 0.9 |
| Provisions for liabilities recognized in the income statement | ||||
| New provisions | 66.9 | 43.6 | 66.9 | 43.6 |
| Reversal of provisions | 42.0 | 27.3 | 42.0 | 27.3 |
| Provisions for liabilities recognized in the income statement | 24.9 | 16.3 | 24.9 | 16.3 |
| Broken down by term to maturity, shown by category for the Spar Nord Group |
Up to3 months DKK m |
3 months and up to 1 year DKK m |
Over 1 year and up to 5 years DKK m |
Over 5 years DKK m |
Total DKK m |
|---|---|---|---|---|---|
| 31.12.16 | |||||
| Provisions for deferred tax | 0.0 | 3.4 | -4.8 | 109.9 | 108.5 |
| Provisions for losses on guarantees | 11.8 | 2.5 | 38.7 | 14.0 | 67.0 |
| Provisions for losses in connection with legal proceedings | 0.0 | 0.8 | 0.0 | 0.0 | 0.8 |
| Other provisions for liabilities | 0.7 | 1.3 | 6.0 | 2.7 | 10.7 |
| Provisions for unutilized credit lines | 14.8 | 0.0 | 0.0 | 0.0 | 14.8 |
| Total provisions for liabilities | 27.3 | 8.0 | 39.9 | 126.6 | 201.8 |
| Up to3 months DKK m |
3 months and up to 1 year DKK m |
Over 1 year and up to 5 years DKK m |
Over 5 years DKK m |
Total DKK m |
|
|---|---|---|---|---|---|
| 31.12.15 | |||||
| Provisions for deferred tax | 0.0 | 6.8 | 2.7 | 113.3 | 122.8 |
| Provisions for losses on guarantees | 6.1 | 0.6 | 22.5 | 13.7 | 42.9 |
| Provisions for losses in connection with legal proceedings | 0.0 | 2.9 | 0.0 | 0.0 | 2.9 |
| Other provisions for liabilities | 6.5 | 1.9 | 7.0 | 2.7 | 18.1 |
| Provisions for unutilized credit lines | 12.1 | 0.0 | 0.0 | 0.0 | 12.1 |
| Total provisions for liabilities | 24.7 | 12.2 | 32.2 | 129.7 | 198.8 |
Uncertainty attaches to the due dates of liabilities for which provision has been made.
Provisions for deferred tax are specified in note 33.
Provisions for losses on guarantees have been made based on an individual assessment.
Provisions for losses in connection with legal proceedings have been made based on an individual assessment.
Other provisions for liabilities include provisions for rent commitments and anniversary lump sums.
Provisions for unutilized credit lines relate to provisions for losses on unutilized credit lines.
| PROVISIONS FOR DEFERRED TAX | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|
| Beginning of year | 116.8 | 106.3 | 122.8 | 125.7 |
| Deferred tax for the year recognized in the profit/loss for the year | -8.3 | 10.5 | -13.3 | -2.9 |
| Deferred tax for the year recognized in other comprehensive income | 0.0 | 0.0 | 0.0 | 0.0 |
| End of year | 108.5 | 116.8 | 109.5 | 122.8 |
| Deferred tax assets | 0.0 | -6.0 | 0.0 | 0.0 |
| Provisions for deferred tax | 108.5 | 122.8 | 109.5 | 122.8 |
| Deferred tax, net (liability) | 108.5 | 116.8 | 109.5 | 122.8 |
| SPAR NORD, THE GROUP Changes in deferred tax in 2016 |
Beginning of year |
Recognized in the profit/loss for the year |
Recognized in other compre hensive income, etc. |
End of year |
|---|---|---|---|---|
| Intangible assets | 31.2 | -2.3 | 0.0 | 28.9 |
| Property, plant and equipment, incl. leased assets | 97.5 | 5.1 | 0.0 | 102.6 |
| Loans, advances and other receivables at amortized cost | -18.5 | -0.9 | 0.0 | -19.4 |
| Receivables from credit institutions and central banks | 0.0 | 0.0 | 0.0 | 0.0 |
| Miscellaneous assets | 66.5 | -66.5 | 0.0 | 0.0 |
| Payables and subordinated debt | 14.3 | -0.2 | 0.0 | 14.1 |
| Provisions for liabilities | -86.2 | 68.4 | 0.0 | -17.8 |
| Retaxation balance | 2.9 | 1.2 | 0.0 | 4.1 |
| Tax loss *) | -6.0 | 6.0 | 0.0 | 0.0 |
| Miscellaneous | 15.1 | -19.1 | 0.0 | -4.0 |
| Total | 116.8 | -8.3 | 0.0 | 108.5 |
| Intangible assets | 35.3 | -4.1 | 0.0 | 31.2 |
|---|---|---|---|---|
| Property, plant and equipment, incl. leased assets | 115.4 | -17.9 | 0.0 | 97.5 |
| Loans, advances and other receivables at amortized cost | -42.1 | 23.6 | 0.0 | -18.5 |
| Receivables from credit institutions and central banks | 3.3 | -3.3 | 0.0 | 0.0 |
| Miscellaneous assets | 74.1 | -7.6 | 0.0 | 66.5 |
| Payables and subordinated debt | 0.0 | 14.3 | 0.0 | 14.3 |
| Provisions for liabilities | -95.6 | 9.4 | 0.0 | -86.2 |
| Retaxation balance | 3.2 | -0.3 | 0.0 | 2.9 |
| Tax loss *) | -19.4 | 13.4 | 0.0 | -6.0 |
| Miscellaneous | 32.1 | -17.0 | 0.0 | 15.1 |
| Total | 106.3 | 10.5 | 0.0 | 116.8 |
| SPAR NORD, PARENT COMPANY | Beginning | Recognized in the profit/loss |
Recognized in other compre hensive |
End |
|---|---|---|---|---|
| Changes in deferred tax in 2016 | of year | for the year | income, etc. | of year |
| Intangible assets | 31.2 | -2.3 | 0.0 | 28.9 |
| Property, plant and equipment, incl. leased assets | 97.5 | 6.1 | 0.0 | 103.6 |
| Loans, advances and other receivables at amortized cost | -18.5 | -0.9 | 0.0 | -19.4 |
| Receivables from credit institutions and central banks | 0.0 | 0.0 | 0.0 | 0.0 |
| Miscellaneous assets | 66.5 | -66.5 | 0.0 | 0.0 |
| Payables and subordinated debt | 14.3 | -0.2 | 0.0 | 14.1 |
| Provisions for liabilities | -86.2 | 68.4 | 0.0 | -17.8 |
| Retaxation balance | 2.9 | 1.2 | 0.0 | 4.1 |
| Miscellaneous | 15.1 | -19.1 | 0.0 | -4.0 |
| Total | 122.8 | -13.3 | 0.0 | 109.5 |
| Changes in deferred tax in 2015 | ||||
| Intangible assets | 35.3 | -4.1 | 0.0 | 31.2 |
| Property, plant and equipment, incl. leased assets | 115.4 | -17.9 | 0.0 | 97.5 |
| Loans, advances and other receivables at amortized cost | -42.1 | 23.6 | 0.0 | -18.5 |
| Receivables from credit institutions and central banks | 3.3 | -3.3 | 0.0 | 0.0 |
| Miscellaneous assets | 74.1 | -7.6 | 0.0 | 66.5 |
| Payables and subordinated debt | 0.0 | 14.3 | 0.0 | 14.3 |
| Provisions for liabilities | -95.6 | 9.4 | 0.0 | -86.2 |
| Retaxation balance | 3.2 | -0.3 | 0.0 | 2.9 |
| Miscellaneous | 32.1 | -17.0 | 0.0 | 15.1 |
| Total | 125.7 | -2.9 | 0.0 | 122.8 |
*) The tax loss in the Spar Nord Group in 2015 of DKK 6.0 million related to the joint taxation loss expected to be utilized by the subsidiary Aktieselskabet Skelagervej 15 within the next three years. At 31 December 2016, the tax loss had been utilized in full.
| Deferred tax assets not recognized in the balance sheet in 2016 Deferred tax assets not recognized relate to: |
Beginning of year |
Recognized in the profit/loss for the year |
Additions and disposals |
End of year |
|---|---|---|---|---|
| Ring fence losses on properties | 2.3 | 0.0 | 1.1 | 3.4 |
| Tax loss abroad | 2.9 | 0.0 | 0.6 | 3.5 |
| Deferred tax assets not recognized, total | 5.2 | 0.0 | 1.7 | 6.9 |
| Deferred tax assets not recognized in the balance sheet in 2015 | Beginning | Recognized in the profit/loss |
Additions and |
End |
|---|---|---|---|---|
| Deferred tax assets not recognized relate to: | of year | for the year | disposals | of year |
| Ring fence losses on properties | 4.0 | 0.0 | -1.7 | 2.3 |
| Tax loss abroad | 2.8 | 0.0 | 0.1 | 2.9 |
| Deferred tax assets not recognized, total | 6.8 | 0.0 | -1.6 | 5.2 |
All deferred tax liabilities are recognized in the balance sheet.
The temporary differences in 2016 and 2015 relating to ring fence losses on properties arose on the realization of properties.
Subordinated debt consists of liabilities in the form of subordinated debt and Additional Tier 1 (AT1) capital which, in case of the Bank's voluntary or compulsory liquidation, whether solvent or insolvent, will not be repaid until the claims of the ordinary creditors have been met. Additional Tier 1 (AT1) capital ranks junior to subordinated debt. Premature redemption of subordinated debt is subject to the approval of the Danish Financial Supervisory Authority. Subordinated debt is included in own funds, etc. pursuant to the Danish Financial Business Act.
In 2015 and 2016, Spar Nord issued Additional Tier 1 (AT1) capital under CRR with a perpetual term and with voluntary payment of interest and repayments of principal, for which reason it is treated as equity for accounting purposes.
For further details, please see the statement of changes in equity.
Spar Nord is the borrower with respect to all loans.
| Principal | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|||||
|---|---|---|---|---|---|---|---|---|---|
| Currency Note DKK m | Interest rate | Received | Maturity | ||||||
| DKK | a | 400.0 | 6.043 % | 2012 | 28.11.2022 | 403.1 | 404.5 | 403.1 | 404.5 |
| DKK | b | 700.0 | 3.695 % | 2013 | 18.12.2023 | 698.4 | 697.6 | 698.4 | 697.6 |
| Tier 2 capital (T2) contributions, total | 1,101.5 | 1,102.1 | 1,101.5 | 1,102.1 | |||||
| Portfolio of own bonds relating to subordinated debt | -8.3 | -13.3 | -8.3 | -13.3 | |||||
| Subordinated debt, total | 1,093.2 | 1,088.8 | 1,093.2 | 1,088.8 | |||||
| Interest on subordinated debt | 50.8 | 66.0 | 50.8 | 66.0 | |||||
| Costs of raising subordinated debt | 1.6 | 1.8 | 1.6 | 1.8 |
a Redeemable as from 28.11.2017, after which date interest is fixed at CIBOR3 + a 5.00% margin.
b Redeemable as from 18.12.2018.
NOTE
| TRANSFER OF FINANCIAL ASSETS | Spar Nord The Group |
Spar Nord The Group |
Spar Nord Parent |
Spar Nord Parent |
|---|---|---|---|---|
| Spar Nord has transferred the following financial assets | 2016 DKK m |
2015 DKK m |
Company 2016 |
Company 2015 |
| that continue to be recognized in the balance sheet | DKK m | DKK m | ||
| Carrying amount of transferred financial assets | ||||
| Bonds in repo transactions | 1,403.3 | 2,609.8 | 1,403.3 | 2,609.8 |
| Carrying amount of transferred financial liabilities | ||||
| Payables to credit institutions, repo transactions | 1,399.7 | 2,567.1 | 1,399.7 | 2,567.1 |
| Interest payable | 0.0 | -10.9 | 0.0 | -10.9 |
| Total | 1,399.7 | 2,556.2 | 1,399.7 | 2,556.2 |
| Net position | -3.6 | -53.6 | -3.6 | -53.6 |
Spar Nord has entered into agreements regarding the sale of securities as genuine sale and repo transactions. When it lends or sells securities subject to a repurchase agreement, Spar Nord receives cash or other financial assets upon the transfer of the securities to the counterparty. The counterparty is entitled to sell or repledge the securities lent or sold according to the repurchase agreements, but the counterparty is obliged to return the securities upon expiry of the contract. If the value of the securities increases or decreases, Spar Nord may make or receive a demand for payment of additional cash collateral in specific circumstances. Spar Nord has decided that it will essentially retain all the risks and benefits attaching to these securities, and therefore it has not ceased recognizing them. In addition, Spar Nord recognizes a financial liability for the cash received as collateral.
Spar Nord has not entered into agreements regarding the sale of assets where such assets cease to be recognized in the balance sheet, but where the seller has continued involvement after the sale.
| In connection with reverse repo transactions and agreements regarding securities-based loans, collateral that can be sold or repledged pursuant to the terms of the appropriate agreement is accepted. |
Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|
| Reverse repo transactions | ||||
| Collateral accepted that can be repledged or sold | 7,732.5 | 5,488.2 | 7,732.5 | 5,488.2 |
| Of which, repledged or sold | 2,096.1 | 1,348.7 | 2,096.1 | 1,348.7 |
| Agreements regarding securities-based loans | ||||
| Collateral accepted that can be repledged or sold | 6.3 | 19.9 | 6.3 | 19.9 |
| Of which, repledged or sold | 1.8 | 2.3 | 1.8 | 2.3 |
| COLLATERAL PROVIDED AND ENCUMBERED ASSETS | Spar Nord The Group |
Spar Nord The Group |
Spar Nord Parent |
Spar Nord Parent |
|---|---|---|---|---|
| Collateral provided through clearing systems, with central counterparties and other infrastructure institutions: |
2016 DKK m |
2015 DKK m |
Company 2016 DKK m |
Company 2015 DKK m |
| Bonds | 0.0 | 0.0 | 0.0 | 0.0 |
| Deposits, clearing | 122.3 | 91.1 | 122.3 | 91.1 |
| Collateral provided for the market value of derivatives transactions | 523.2 | 990.0 | 523.2 | 990.0 |
| Positive market value of derivative contracts subject to netting | 249.8 | 387.9 | 249.8 | 387.9 |
| Collateral provided as part of sale and repo transactions | 1,403.3 | 2,609.8 | 1,403.3 | 2,609.8 |
| Other collateral provided | 44.3 | 47.3 | 13.6 | 16.3 |
| Total | 2,342.9 | 4,126.1 | 2,312.2 | 4,095.1 |
Assets are treated as encumbered if they have been provided as collateral or if they are subject to any agreement to secure, act as collateral for or improve the credit quality of any on- or off-balance-sheet transaction from which they cannot be freely withdrawn. Assets that have been provided as collateral and are subject to restrictions as concerns withdrawal, e.g. assets for which prior approval is required to withdraw or replace them with other assets, are considered to be encumbered.
Assets placed in unutilized facilities and which can be freely withdrawn are not considered to be encumbered.
Securities sold as an element in sale and repurchase agreements (repo transactions) remain on the balance sheet. The counterparty is entitled to sell the securities or deposit them as collateral for other loans.
Assets deposited as collateral for own liabilities towards Danmarks Nationalbank (the central bank), Danish and foreign clearing centres and banks with which the Bank has concluded CSA agreements are all based on standard agreements customarily used by financial market participants.
Assets and liabilities are offset when Spar Nord and the counterparty have a legal right to offset, while at the same time having agreed to make a net settlement or realize the asset and redeem the liability at the same time. Positive and negative fair values of derivates with the same counterparty are offset if it has been agreed to make a net settlement of the contractual payments, and if cash payment or provision of collateral for changes in the fair value takes place on a daily basis. Master netting agreements and corresponding agreements provide a further right to offset when a counterparty is in default, which additionally reduces the exposure to a counterparty in default, but this does not meet the criteria for offsetting for accounting purposes according to IFRS.
| Related amounts not offset in the balance sheet | |||||||
|---|---|---|---|---|---|---|---|
| Financial assets | Gross recognized assets |
Liabilities offset in the balance sheet |
Net amount of financial liabilities presented in the balance sheet |
Financial collateral |
Cash collateral |
Net amount | |
| Derivative instruments | 1,399.6 | 115.4 | 1,284.2 | 249.8 | 13.3 | 1,021.1 | |
| Reverse repo transactions | 7,706.2 | 0.0 | 7,706.2 | 7,732.5 | - | -26.3 | |
| Total | 9,105.8 | 115.4 | 8,990.4 | 7,982.3 | 13.3 | 994.8 |
| Related amounts not offset in the balance sheet | |||||||
|---|---|---|---|---|---|---|---|
| Gross recognized liabilities |
Assets offset in the balance sheet |
Net amount of financial liabilities presented in the balance sheet |
Financial collateral |
Cash collateral |
Net amount | ||
| Financial liabilities | |||||||
| Derivative instruments | 1,421.6 | 556.1 | 865.5 | 249.8 | 438.3 | 177.4 | |
| Repo transactions | 1,399.7 | 0.0 | 1,399.7 | 1,403.3 | - | -3.6 | |
| Total | 2,821.3 | 556.1 | 2,265.2 | 1,653.1 | 438.3 | 173.8 |
| Related amounts not offset in the balance sheet | ||||||
|---|---|---|---|---|---|---|
| Gross recognized assets |
Liabilities offset in the balance sheet |
Net amount of financial liabilities presented in the balance sheet |
Financial collateral |
Cash collateral |
Net amount | |
| Financial assets | ||||||
| Derivative instruments | 1,433.0 | 9.4 | 1,423.6 | 387.9 | 0.0 | 1,035.7 |
| Reverse repo transactions | 5,495.7 | 0.0 | 5,495.7 | 5,484.7 | - | 11.0 |
| Total | 6,928.7 | 9.4 | 6,919.3 | 5,872.6 | 0.0 | 1,046.7 |
| Related amounts not offset in the balance sheet | ||||||
|---|---|---|---|---|---|---|
| Gross recognized liabilities |
Assets offset in the balance sheet |
Net amount of financial liabilities presented in the balance sheet |
Financial collateral |
Cash collateral |
Net amount | |
| Financial liabilities | ||||||
| Derivative instruments | 1,682.6 | 206.1 | 1,476.5 | 387.9 | 880.6 | 208.0 |
| Repo transactions | 2,567.1 | 0.0 | 2,567.1 | 2,565.8 | - | 1.3 |
| Total | 4,249.7 | 206.1 | 4,043.6 | 2,953.7 | 880.6 | 209.3 |
Reverse repo transactions are classified as Receivables from credit institutions and central banks or as Loans, advances and other receivables at amortized cost in the balance sheet.
Repo transactions are classified as Payables to credit institutions and central banks or as Deposits and other payables in the balance sheet.
Repo transactions and reverse repo transactions are recognized in the balance sheet on a gross basis; see notes 35 and 36.
| The Spar Nord Group | |||
|---|---|---|---|
| Carrying amount | Fair value | Nominal value | |
| 31.12.16 | DKK m | DKK m | DKK m |
| Assets | |||
| Loans and advances | 80.3 | 80.3 | 75.0 |
| Interest-risk-hedged financial instruments | |||
| Derivatives (swap contracts) | -5.3 | -5.3 | 75.0 |
| Liabilities | |||
| Subordinated debt | 401.0 | 403.8 | 400.0 |
| Interest-risk-hedged financial instruments | |||
| Derivatives (swap contracts) | 3.8 | 3.8 | 400.0 |
| 31.12.15 | |||
| Assets | |||
| Loans and advances | 83.2 | 83.2 | 75.0 |
| Interest-risk-hedged financial instruments | |||
| Derivatives (swap contracts) | -8.3 | -8.3 | 75.0 |
| Liabilities | |||
| Subordinated debt | 394.5 | 406.0 | 400.0 |
| Interest-risk-hedged financial instruments | |||
| Derivatives (swap contracts) | 6.2 | 6.2 | 400.0 |
The Spar Nord Group hedges the interest-rate risk attaching to selected fixed-interest assets and liabilities.
The effectiveness of such hedging is measured on a continuing basis.
The table below shows the value adjustment of hedged assets and liabilities as well as hedging derivatives recognized under market-value adjustments.
| Hedging of fixed-interest assets | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|
| Hedged loans and advances | -2.9 | -2.5 | -2.9 | -2.5 |
| Hedging derivatives | 2.9 | 2.5 | 2.9 | 2.5 |
| Impact on profit/loss | 0.0 | 0.0 | 0.0 | 0.0 |
| Hedging of fixed-interest liabilities | ||||
| Hedged deposits | 2.2 | 6.9 | 2.2 | 6.9 |
| Hedging derivatives | -2.3 | -6.5 | -2.3 | -6.5 |
| Impact on profit/loss | -0.1 | 0.4 | -0.1 | 0.4 |
| Unrecognized deferred tax assets | 6.9 | 5.2 | 5.1 | 3.4 |
|---|---|---|---|---|
For more details, please see note 33.
Spar Nord is party to pending legal proceedings regarding tax and duties. If Spar Nord is successful in these proceedings, it will have a positive profit impact.
41
| CONTINGENT LIABILITIES | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|
| Financial guarantees | 3,999.8 | 3,243.7 | 3,999.8 | 3,243.7 |
| Loss guarantees for mortgage-credit loans | 4,568.5 | 3,978.4 | 4,568.5 | 3,978.4 |
| Registration and refinancing guarantees | 2,885.3 | 1,514.8 | 2,885.3 | 1,514.8 |
| Other contingent liabilities | 880.5 | 848.3 | 880.5 | 848.3 |
| Total contingent liabilities | 12,334.1 | 9,585.2 | 12,334.1 | 9,585.2 |
Financial guarantees largely consist of payment guarantees.
Loss guarantees for mortgage-credit loans have been granted for the highest-risk portion of mortgage-credit loans to personal customers and on business properties. The guarantee lies within 80% of the property value for personal customers, and within 60-80% of the value of business properties.
Registration and refinancing guarantees are furnished in connection with Land Registry processing upon the arrangement and refinancing of mortgage-credit loans.
Other contingent liabilities relate mainly to performance bonds and letters of credit. This item also includes the liabilities set out below. Reference is made to note 11 regarding the Executive Board's notice of termination and the associated compensation.
Spar Nord is taxed jointly with its Danish subsidiary in the Spar Nord Group. As the management company, Spar Nord has unlimited, joint and several liability together with its subsidiary for the Danish corporate income tax payable. Due to the payment of tax on account, no tax was payable at 31 December 2016 and 31 December 2015. The corporate income tax receivable within the group of jointly taxed companies amounted to DKK 17.9 million at 31 December 2016 (2015: DKK 91.0 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 the retaxation balance 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.
The Guarantee Fund covers depositors' eligible deposits in the Bank under EUR 100,000 (see section 9(1) of the Danish Act on a Depositor and Investor Guarantee Scheme). The Bank made no contributions to the Guarantee Fund in 2016, as the Guarantee Fund's assets exceed its target level of 0.8% of the covered deposits in the sector. The Bank may be required to pay contributions in future if the Guarantee Fund's assets fall below 0.8% of the covered deposits in the sector.
The Resolution Fund covers the costs associated with the possible winding-up of financial institutions under the auspices of Finansiel Stabilitet (the Winding-Up Company). The Bank's contributions to 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 the deposits covered by the Guarantee Fund, adjusted by a risk factor.
The Bank's contributions to the Resolution Fund for 2016 amounted to DKK 8.9 million, of which DKK 0.2 million represents an adjustment of the contributions for 2015 (2015: DKK 3.6 million – equal to 6 months' contributions).
Uncertainty attaches to the amount of the contingent liabilities and the possible due dates, for which reason this information has not been disclosed.
| OTHER OBLIGATING AGREEMENTS | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|
| Irrevocable credit commitments | 0.0 | 0.0 | 0.0 | 0.0 |
| Miscellaneous | 500.9 | 540.5 | 529.6 | 576.8 |
| Other obligating agreements, total | 500.9 | 540.5 | 529.6 | 576.8 |
Miscellaneous is composed of:
42
Lease obligations, with the Group as lessee
Spar Nord is the lessee under a number of operating leases. Operating leases are lease agreements under which Spar Nord has the right to use an asset for an agreed term against the payment of rental, without taking over the most significant risks and gains associated with the asset. The lease agreements concern the rental of properties and operating equipment. The lease agreements are not recognized in the balance sheet. The minimum lease payments are broken down by lease term below:
Operating lease obligations
| Total | 114.9 | 83.5 | 143.6 | 119.8 |
|---|---|---|---|---|
| Over 5 years | 31.0 | 14.2 | 31.0 | 14.1 |
| 1 – 5 years | 57.5 | 45.1 | 78.0 | 73.5 |
| Up to 1 year | 26.4 | 24.2 | 34.6 | 32.2 |
Lease payments of DKK 27.1 million (2015: DKK 25.6 million) are recognized for the Group under Staff costs and administrative expenses. The Group has not entered into finance leases as a lessee.
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. This liability is included under Miscellaneous above. In addition, a capital contribution to BEC a.m.b.a. has been included under Other assets.
44
Spar Nord is party to several legal proceedings. The cases are assessed continuously and the necessary provisions are made based on the estimated risk of loss. The pending legal proceedings are not expected to materially affect the Group's financial position.
| Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
|
|---|---|---|
| EARNINGS PER SHARE FOR THE YEAR | ||
| The profit/loss of shareholders of the Parent Company, Spar Nord Bank A/S | 812.1 | 883.3 |
| Tax effect of interest on Additional Tier 1 (AT1) capital (see note 17) | 5.7 | 3.2 |
| Total | 817.8 | 886.5 |
| Average number of shares | 125,529,918 | 125,529,918 |
| Average number of treasury shares | 1,365,368 | 151,594 |
| Average number of shares in circulation | 124,164,550 | 125,378,324 |
| Average dilutive effect of outstanding share options | 0 | 0 |
| Average number of outstanding shares (diluted) | 124,164,550 | 125,378,324 |
| Earnings per share for the year (DKK) | 6.6 | 7.1 |
| Diluted earnings per share for the year (DKK) | 6.6 | 7.1 |
The issued share capital is divided into shares in the denomination of DKK 10. The Bank has only one share class.
Earnings per share for the year have been calculated as if the Additional Tier 1 (AT1) capital were treated as a liability, which means that the calculation of the financial ratio has been based on the shareholders' share of profit and equity. The shareholders' share of profit and equity appears from the statement of changes in equity. The comparative figures have been restated.
No business combinations were completed in 2016.
In January 2016, Spar Nord entered into an agreement with FIH Erhvervsbank A/S regarding the acquisition of 34 business customer facilities with total loans of DKK 526 million, gross guarantees amounting to DKK 319 million, equal to net guarantees of DKK 64 million, and derivatives of DKK 30 million.
The acquisition of the portfolio has been recognized in accordance with the rules stipulated in IAS 39, according to which the loans acquired have been recognized at the agreed acquisition cost, equal to the fair value, which corresponds to an average price of the assets taken over of 100% of face value.
46
| Parties with significant influence |
Associates | Group enterprises |
Board of Directors |
Executive Board | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| RELATED PARTIES Spar Nord, the Group |
2016 DKK m |
2015 DKK m |
2016 DKK m |
2015 DKK m |
2016 DKK m |
2015 DKK m |
2016 DKK m |
2015 DKK m |
2016 DKK m |
2015 DKK m |
| Loans, advances and loan commitments |
- | - | 10.1 | 10.6 | - | - | 31.3 | 34.0 | 8.0 | 7.5 |
| Deposits | 28.7 | 23.8 | 105.3 | 76.9 | - | - | 54.6 | 18.5 | 6.0 | 4.3 |
| Guarantees issued | - | - | - | - | - | - | 3.4 | 0.1 | 3.0 | 1.1 |
| Other obligating agreements | - | - | - | - | - | - | 8.1 | 7.2 | 0.1 | 0.1 |
| Collateral accepted | - | - | - | - | - | - | 20.9 | 22.6 | 7.5 | 5.4 |
| Interest income | - | - | 0.5 | 0.5 | - | - | 0.4 | 0.5 | - | - |
| Interest expenses | - | - | 0.1 | 0.1 | - | - | 0.0 | 0.1 | - | - |
| Fees, charges & commissions received | - | - | - | - | - | - | 0.1 | 0.3 | - | - |
| Dividends received recognized under associates |
- | - | 37.6 | 864.3 | - | - | - | - | - | - |
| Other income | 3.4 | 3.4 | 0.0 | 0.1 | - | - | - | - | - | - |
| Other expenses | - | - | - | - | - | - | - | - | - | - |
| Spar Nord, Parent Company Loans, advances and loan commitments |
||||||||||
| - | - | 10.1 | 10.6 | - | - | 31.3 | 34.0 | 8.0 | 7.5 | |
| Deposits | 28.7 | 23.8 | 105.3 | 76.9 | 1,322.8 | 1,175.8 | 54.6 | 18.5 | 6.0 | 4.3 |
| - | - | - | - | - | - | 3.4 | 0.1 | 3.0 | 1.1 | |
| Guarantees issued | - | - | - | - | - | - | 8.1 | 7.2 | 0.1 | 0.1 |
| Other obligating agreements Collateral accepted |
- | - | - | - | - | - | 20.9 | 22.6 | 7.5 | 5.4 |
| Interest income | - | - | 0.5 | 0.5 | - | - | 0.4 | 0.5 | - | - |
| Interest expenses | - | - | 0.1 | 0.1 | 20.1 | 20.8 | 0.0 | 0.1 | - | - |
| Fees, charges & commissions received | - | - | - | - | - | - | 0.1 | 0.3 | - | - |
| Dividends received recognized | ||||||||||
| under associates Other income |
- 3.4 |
- 3.4 |
37.6 0.0 |
864.3 0.1 |
- - |
- - |
- - |
- - |
- - |
- - |
Related parties with significant influence are shareholders with holdings exceeding 20% of Spar Nord Bank A/S, or where significant influence is considered to exist due to other factors. Note 23 contains a list of group enterprises.
The Danish companies in the Group are jointly taxed, which means that the Parent Company is liable for the payment of Danish corporate income tax. In 2016, joint tax contributions in the amount of DKK 3.3 million (2015: DKK 3.3 million) were transferred between the companies.
In 2016, the interest rate for loans and advances to associates ranged from 4.35-5.13% (2015: 4.13-5.86%). A demand balance exists, and a fixed-term deposit previously existed, between Aktieselskabet Skelagervej 15 and the Spar Nord Parent Company, both carrying interest at the market rate.
Commitments and transactions with members of the Board of Directors and Executive Board comprise personal commitments of such parties and of their related parties. Commitments and transactions with retired and new members of the Board of Directors and Executive Board have been recognized up to and including the date of retirement and as from the date of appointment, as the case may be.
The interest rate for loans and advances to the Board of Directors ranged from 0.65-8.95% in 2016 (2015: 0.01–8.88%) and from 2.25-2.50% (2015: 2.03–2.40%) for loans and advances to the Executive Board.
| The Group and the Parent Company | Executive Board | Board of Directors | ||
|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | |
| Loans and advances | 1.8 | 0.0 | 6.1 | 18.5 |
| Unutilized loan and surety commitments | 6.3 | 7.6 | 33.3 | 22.7 |
| Guarantees issued | 3.0 | 1.1 | 3.4 | 0.1 |
| Total loans and advances, loan commitments and guarantees | 11.1 | 8.7 | 42.8 | 41.3 |
No transactions were concluded during the year with members of the Board of Directors, the Executive Board or executive staff members, other than transactions involving salary, emoluments, etc., securities trading and loans and provision of collateral. More details regarding the remuneration of the Board of Directors, the Executive Board and executive staff members appear from note 11.
The respective shareholdings of the Executive Board and the Board of Directors appear from note 47.
Transactions between related parties, including credit facilities, are concluded on an arm's length basis.
Related parties holding at least 5% of the Bank's share capital at end-2016 comprised the Spar Nord Foundation, Aalborg, with a holding of 18.5% (2015: 18.5%) and Nykredit Realkredit A/S, Copenhagen, with a holding of 11.1% (2015: 11.1%).
The figures above do not include any bonds issued by Spar Nord that rank as debt, subordinated debt or Additional Tier 1 (AT1) capital, as such bonds are bearer securities. In such cases, Spar Nord Bank does not know the identity of the holders. Spar Nord Bank shares may be registered in the name of the holder.
| MANAGEMENT'S HOLDINGS OF SPAR NORD SHARES *) | 31.12.16 Number of shares |
31.12.15 Number of shares |
|---|---|---|
| Board of Directors | ||
| Kjeld Johannesen | 50,000 | 30,000 |
| Per Nikolaj Bukh | 27,200 | 27,200 |
| Kaj Christiansen | 21,100 | 7,800 |
| Torben Fristrup (retired on 20 April 2016) | - | 38,300 |
| Morten Bach Gaardboe (took office on 20 April 2016) | 3,620 | - |
| Laila Mortensen | 0 | 0 |
| Ole Skov | 7,054 | 7,054 |
| Jannie Skovsen | 7,404 | 7,404 |
| Gitte Holmgaard Sørensen | 2,486 | 2,486 |
| John Sørensen | 5,160 | 5,160 |
| Executive Board | ||
| Lasse Nyby | 47,784 | 47,784 |
| John Lundsgaard | 71,113 | 69,133 |
|---|---|---|
| Lars Møller | 65,460 | 65,460 |
*) The holdings include all shares held by all members of the household.
No significant events have occurred after 31 December 2016.
Financial instruments are recognized in the balance sheet either at fair value or amortized cost. The table below breaks down the individual financial instruments by valuation method.
| 31.12.16 | 31.12.16 Amortized |
31.12.15 | 31.12.15 Amortized |
|
|---|---|---|---|---|
| Fair value DKK m |
cost DKK m |
Fair value DKK m |
cost DKK m |
|
| Financial assets | ||||
| Cash balances and demand deposits with central banks | - | 595.3 | - | 610.4 |
| Receivables from credit institutions and central banks | - | 2,178.8 | - | 2,741.3 |
| Loans, advances and other receivables at amortized cost | - | 41,345.6 | - | 38,039.3 |
| Bonds at fair value | 14,936.1 | - | 16,053.6 | - |
| Shares, etc. | 1,557.2 | - | 1,658.3 | - |
| Assets linked to pooled schemes | 14,541.5 | - | 13,380.0 | - |
| Positive fair value of derivative instruments | 1,284.2 | - | 1,423.6 | - |
| Total | 32,319.0 | 44,119.7 | 32,515.5 | 41,391.0 |
| Financial liabilities | ||||
| Payables to credit institutions and central banks | - | 2,429.8 | - | 3,739.5 |
| Deposits and other payables | - | 46,464.2 | - | 44,736.3 |
| Deposits in pooled schemes | 14,541.5 | - | 13,380.0 | - |
| Other non-derivative financial liabilities at fair value | 2,007.8 | - | 1,219.7 | - |
Negative fair value of derivative instruments
Subordinated debt
Total
The fair value is the amount at which a financial asset may be traded between knowledgeable, willing parties in an arm's length transaction. If there is an active market, the market price is used by way of a listed price or price quotation. If a financial instrument is quoted in a market that is not active, the Bank bases its valuation on the most recent transaction price. Adjustment is made for subsequent changes in market conditions, for instance, by including transactions in similar financial instruments that are assumed to be motivated by normal business considerations. For a number of financial assets and liabilities, no effective market exists. In this case, the Group uses an estimated value, taking into account recent transactions in similar instruments and using discounted cash flows or generally accepted estimation and valuation techniques based on market conditions at the reporting date.
The most frequently used valuation models and estimation and valuation techniques include the pricing of transactions with future settlement and swap models that apply present value calculations, credit pricing models as well as options models, such as Black & Scholes models. In most cases, valuation is based substantially on observable inputs.
Unlisted shares recorded at fair value, see note 21, comprise unlisted shares that are not included in the Group's trading book. These unlisted shares are recognized 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. 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 CVA amounted to DKK 9.9 million at end-2016 against DKK 18.6 million at end-2015.
When valuing unlisted derivative instruments, the initial customer margin, etc. is amortized over the remaining term to maturity. At the end of 2016, the customer margin, etc. not yet amortized amounted to DKK 68.8 million (2015: DKK 61.2 million).
| Day-1 gains or losses | 2016 | 2015 | ||
|---|---|---|---|---|
| DKK m | DKK m | |||
| Unamortized customer margin at 1 January | 61.2 | 63.1 | ||
| Net development in amortization of customer margin | 7.6 | -1.9 | ||
| Unamortized customer margin at 31 December | 68.8 | 61.2 | ||
| Breakdown of financial instruments relative to the fair-value hierarchy classification and the carrying amount |
Listed prices Level 1 |
Observable prices Level 2 |
Unobservable prices Level 3 |
Total |
| 31.12.16 | DKK m | DKK m | DKK m | DKK m |
| Financial assets | ||||
| Bonds at fair value | 12,321.0 | 2,615.1 | 0.0 | 14,936.1 |
| Shares, etc. | 204.6 | 1.1 | 1,351.5 | 1,557.2 |
| Assets linked to pooled schemes | 10,663.3 | 3,679.6 | 198.6 | 14,541.5 |
| Positive fair value of derivative instruments | 0.0 | 1,284.2 | 0.0 | 1,284.2 |
| Financial assets, total | 23,188.9 | 7,580.0 | 1,550.1 | 32,319.0 |
| Financial liabilities | ||||
| Deposits in pooled schemes | 0.0 | 14,541.5 | 0.0 | 14,541.5 |
| Other non-derivative financial liabilities at fair value | 1,327.0 | 680.8 | 0.0 | 2,007.8 |
| Negative fair value of derivative instruments | 0.0 | 865.5 | 0.0 | 865.5 |
| Financial liabilities, total | 1,327.0 | 16,087.8 | 0.0 | 17,414.8 |
| 31.12.15 | ||||
| Financial assets | ||||
| Bonds at fair value | 11,234.8 | 4,818.8 | 0.0 | 16,053.6 |
| Shares, etc. | 131.8 | 0.3 | 1,526.2 | 1,658.3 |
| Assets linked to pooled schemes | 10,685.7 | 2,694.3 | 0.0 | 13,380.0 |
| Positive fair value of derivative instruments | 0.0 | 1,423.6 | 0.0 | 1,423.6 |
| Financial assets, total | 22,052.3 | 8,937.0 | 1,526.2 | 32,515.5 |
| Financial liabilities | ||||
| Deposits in pooled schemes | 0.0 | 13,380.0 | 0.0 | 13,380.0 |
| Other non-derivative financial liabilities at fair value | 1,055.6 | 164.1 | 0.0 | 1,219.7 |
| Negative fair value of derivative instruments | 0.0 | 1,476.5 | 0.0 | 1,476.5 |
| Financial liabilities, total | 1,055.6 | 15,020.6 | 0.0 | 16,076.2 |
Bonds, assets linked to pooled schemes, derivative instruments and other non-derivative financial liabilities are valued according to the following principles: - In case of listed prices, the fair value is fixed at the listed price or the price quoted by a recognized 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 unobservable inputs, the calculation includes inputs based on the Bank's own valuations of individual elements, and also market data in some cases.
Shares are valued according to the following principles:
In case of listed prices, the fair value is fixed at the price quoted by a recognized exchange or another 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 unobservable inputs, the calculation includes shares valued according to generally accepted valuation principles, e.g., the discounting of future expected cash flows and market expectations as to the required rate of return on equity. 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 unobservable inputs.
The fair value has been determined reliably for all shares, and accordingly no shares have been recognized at cost.
A transfer is made between the categories in the valuation hierarchy if an instrument is classified differently on the reporting date as compared to the beginning of the financial year. Any reclassification is considered to have been made as of the reporting date. In 2016, shares recognized under assets linked to pooled schemes were transferred from a valuation category based on listed prices (Level 1) to a valuation category based on unobservable inputs (Level 3). In 2015, some types of bonds were transferred from a valuation category based on yield curves (Level 2) to a valuation category based on price quotation (Level 1). The adjustment to fair value is included in market-value adjustments.
The fair values recommended by Lokale Pengeinstitutter (Lopi) (the Association of Local Banks, Savings Banks and Cooperative Banks in Denmark) are based on shareholders' agreements for the individual companies and share trades completed. The fair value is often based on the companies' book equity (net asset value), which is used as a basis for the transaction price between shareholders. Spar Nord makes an independent assessment of the prices recommended, and verifies their consistency with the transactions made and financial statements as presented.
| 31.12.16 DKK m |
31.12.15 DKK m |
|||||
|---|---|---|---|---|---|---|
| Level 3 | Fair value based on net asset value from Lopi |
Fair value based on other value from Lopi |
Other | Fair value based on net asset value from Lopi |
Fair value based on other value from Lopi |
Other |
| Shares | 981.5 | 6.2 | 363.8 | 1,182.5 | 5.8 | 337.9 |
| Assets linked to pooled schemes | 0.0 | 0.0 | 198.6 | 0.0 | 0.0 | 0.0 |
| Sensitivities | ||||||
| Change in the fair value of shares if |
8.7 - - 5.7 - -
the results of the companies change by 10%
A substantial portion of the shares included under "Other" are valued based on the discounting of selling prices and future expected cash flows from dividends or market expectations as to the required rate of return on equity.
| Carrying amount at 31 December | 1,550.1 | 1,526.2 |
|---|---|---|
| Transferred to/from Level 3 | 198.6 | 4.8 |
| Sale | 320.1 | 83.2 |
| Purchase | 37.8 | 211.6 |
| Market-value adjustments in other comprehensive income | 0.0 | 0.0 |
| Market-value adjustments in the income statement | 107.6 | 88.1 |
| Carrying amount at 1 January | 1,526.2 | 1,304.9 |
64.9 69.4 Market-value adjustments in the income statement of assets held at the reporting date
Market-value adjustments in the income statement are recognized under the item Market-value adjustments.
Dividends on shares are recognized in the income statement under Dividends on shares, etc. and are not included in the above statement.
| Financial instruments recognized at amortized cost – fair value information |
31.12.16 Carrying amount DKK m |
31.12.16 Fair value DKK m |
31.12.15 Carrying amount DKK m |
31.12.15 Fair value DKK m |
|---|---|---|---|---|
| Financial assets | ||||
| Cash balances and demand deposits with central banks *) | 595.3 | 595.3 | 610.4 | 610.4 |
| Receivables from credit institutions and central banks *) | 2,178.8 | 2,178.8 | 2,741.3 | 2,741.3 |
| Loans, advances and other receivables at amortized cost *) | 41,345.6 | 41,446.0 | 38,039.3 | 38,157.9 |
| Total | 44,119.7 | 44,220.1 | 41,391.0 | 41,509.6 |
| Total | 49,987.2 | 50,048.9 | 49,564.6 | 49,631.9 |
|---|---|---|---|---|
| Subordinated debt **) | 1,093.2 | 1,138.5 | 1,088.8 | 1,152.9 |
| Deposits and other payables *) | 46,464.2 | 46,480.4 | 44,736.3 | 44,738.3 |
| Payables to credit institutions and central banks *) | 2,429.8 | 2,430.0 | 3,739.5 | 3,740.7 |
*) Level 3 in the fair-value hierarchy
**) Level 1 in the fair-value hierarchy amounts to DKK 721.5 million (2015: DKK 719.9 million), and Level 3 in the fair-value hierarchy amounts to DKK 417.0 million (2015: DKK 433.0 million).
The vast majority of amounts due to the Group, loans and advances, and deposits may not be assigned without the prior consent of customers, and an active market does not exist for such financial instruments. Consequently, the Group bases its fair-value estimates on data showing changes in market conditions after the initial recognition of the individual instrument that affects the price that would have been fixed if the terms had been agreed at the reporting date. Other parties may make other estimates.
The Group discloses information about the fair value of financial instruments recognized at amortized cost on the basis of the following assumptions: - For a number of the Group's deposits, loans and advances, the interest rate depends on interest developments.
Spar Nord is exposed to a number of risks in various categories.
The most important categories of risks are as follows:
The following notes to the Annual Report contain the quantitative information regarding Spar Nord's credit, market, liquidity and operational risks. For more details, please refer to the unaudited Risk Report at www.sparnord.com/risk.
2016 2015 DKK m DKK m
Credit risk is the risk of loss as a result of borrowers or other counterparties defaulting on their payment obligations, including the risks attaching to customers having financial difficulties, large exposures, concentration risks and risks attaching to granted, unutilized credit facilities.
In 2016, Spar Nord made no major changes in assumptions, objectives, policies, exposures and calculation methods, etc. as compared to the year before.
sent.
Spar Nord's overall credit risk is controlled on the basis of its credit policy, which the Board of Directors determines in conjunction with the overarching policies and frameworks for risk assumption. The pivotal objective of Spar Nord's credit policy is to ensure that earnings and risks are balanced, and that the assumption of risk is always quantified.
Spar Nord's policy is to have full insight into the customers' financial health and paying behaviour before granting credit facilities. Also, creditworthiness – the customers' ability and willingness to meet current and future obligations – is a key parameter in all customer relations.
Spar Nord aims to develop long-term relationships with customers and does not want to use risk appetite as a competitive parameter. Spar Nord only wants to conclude transactions that conform to good banking practice and do not jeopardize the Group's reputation and professional profile. Moreover, it is Spar Nord's principle not to grant loans and credit facilities based on collateral alone. Thus, the customer should show the will and have the ability to repay loans and credits without Spar Nord having to realize the collateral.
In its endeavours to ensure sound risk diversification of its credit exposure, Spar Nord has introduced a number of internal targets. The Group does not want to be exposed to individual customers or industries that might solely and separately jeopardize the Bank's independence. Consequently, Spar Nord has introduced a cap on credit facilities at DKK 500 million, of which the unsecured share of credit exposure generally may not exceed DKK 175 million in respect of any facility.
Exposures to financial institutions under supervision and repo transactions and reverse repo transactions are not comprised by this restriction.
In determining the amount of exposure, generally accepted credit risk adjustments are made, as appears from the section regarding Large exposures in the CRR Regulation. The statutory limitations apply to trading partners in the financial sector with an external credit rating at investment grade level, and a DKK 700 million cap has been fixed internally for other trading partners in the financial sector.
Spar Nord has set targets for the industry diversification of the Bank's loans, advances and guarantees, which means that brackets have been fixed for the desired share of total exposure that significant industries may repre-
| Share of total exposure *) | |
|---|---|
| (%) | |
| Agricultural customers | 5 - 10 |
| Real estate | 10 - 15 |
| Financing and insurance | 5 - 10 |
| Industry and raw materials development | 5 - 10 |
| Trade | 5 - 15 |
| Energy supply | 4 - 8 |
| Retail customers | 30 - 40 |
*) Excl. reverse repo transactions
The credit facility process at Spar Nord is centrally managed. The decentralized credit authorization limits go up to DKK 10 million for existing customers. As concerns new customers, the facility authorization rights are typically half of that for existing customers. The powers of authority in the credit area are governed by two factors: the individual local managers' ability and requirements and the wish that a certain share of authorizations from the local banks is to be dealt with by Credit Rating.
Customer advisers, in consultation with local managers, handle day-today management of Spar Nord's credit risks. If a credit facility exceeds the local loan approval limits, it will be passed on and dealt with by the Credit Rating Department, the Credit Committee or the Board of Directors.
Credit Rating may authorize facilities up to DKK 50 million for existing customers and DKK 25 million for new customers. The Credit Committee may authorize all facilities up to DKK 100 million, and up to DKK 50 million for new facilities. All facilities exceeding DKK 100 million and all new facilities exceeding DKK 50 million are subject to approval by the Board of Directors. However, the Credit Committee may authorize a credit facility extension of up to DKK 50 million relative to the most recent authorization from Management.
Overall monitoring of Spar Nord's credit risk exposure is managed by the Credit Quality Department and the Analysis & Process Department. These departments oversee changes in the credit quality of all exposures and undertake systematic credit quality control of the entire portfolio.
The Credit Quality Department reviews all new exposures to retail customers above DKK 100,000 and to business customers above DKK 300,000. New customers with weak credit quality are registered on an ongoing basis.
Spar Nord has developed IT tools for controlling and monitoring credit risks. The Bank's credit analysis system is used for monitoring purposes, and key data regarding credit facilities and customers' financial affairs is recorded in it. This is done to detect danger signals at an early stage as well as to monitor changes in the credit quality of portfolios and organizational units.
Every month a statistically-based rating of both retail and business customers is performed, and this tool is used at the local level to grant credit facilities. Thus, customers in the rating groups accorded the least risk exposure are likelier to be given higher credit lines or extensions than those with the greatest risk exposure. In addition, the systems are used for managing overdrafts and for pricing purposes.
No rating models have been developed for leasing arrangements.
Whenever a credit rating is made, it is essential to ensure that the customer can pay interest and repay the debt without collateral having to be realized. Based on this approach, loan and credit facilities are granted primarily on the basis of ability and willingness to pay interest and repay the debt, and secondarily on the basis of the collateral provided. Mortgages on real property, securities and vehicles make up the most common type of collateral.
Spar Nord has defined a long list of risks that constitute objective evidence of impairment. Some risks are registered automatically in the systems, while others are registered manually by customer advisers and credit staff members.
All significant exposures and those slated for credit quality review are re-evaluated individually. Credit-flagged exposures of less than DKK 250,000 are automatically reviewed using an algorithm based on the customer's financial key figures and Spar Nord's rating systems. All exposures that have not been impaired on an individual basis are assigned to groups having uniform credit risk exposure. If the review discloses objective evidence of impairment, an impairment loss is recognized. Impairment is calculated as the difference between the expected loss on the exposure at the time of establishment and the present value of expected future losses on the exposure. An exposure need not be in default before impairment is recognized and approval procedures regarding any new extension of credit are tightened.
As an important element in its risk management procedures, Spar Nord flags all credit facilities showing any signs of default risk. Steps are taken to normalize or wind up flagged exposures. Exposures are primarily flagged as a result of local initiatives, but action may also be taken at central level. Lists with candidates for flagging are sent to the individual advisers twice a year.
Groups of impairment losses are recognized when objective evidence shows that expected future losses exceed the loss expected upon loan establishment. This means that, in addition to objective evidence for a group, impairment on a group basis is basically triggered when customers are transferred to other groups with a higher credit risk exposure.
Interim impairment takes place on all exposures handed over to the Bank's internal debt-collection department, but the portion of an exposure covered by sound, easily realizable collateral is not subjected to interim impairment.
Doubtful exposures – loans for which interest accruals have been suspended because full collection of the principal is unlikely or because no interest has been paid for an extensive period of time – are subject to special scrutiny, and if repayment is considered doubtful and loss unavoidable, the exposure is categorized as partially or fully impaired and uncollectible. Interest on the parts of exposures that have been written down for impairment is not recognized as income. If lenient terms are granted to customers in financial difficulty, this will be considered objective evidence of impairment, and it will be determined whether individual impairment is necessary.
For more details, please refer to the unaudited Risk Report at www.sparnord.com/risk.
| $ -$ | |||||||
|---|---|---|---|---|---|---|---|
| $\begin{array}{ccccccccccccccccc} - & & - & & - & & - & & - & & - & & - & & - & & - & & - & & - & & - & & - & &$ | |||||||
| $ -$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\mathcal{A} = \mathcal{A} = \mathcal{A} \times \mathcal{A} \times \mathcal{A} \times \mathcal{A} \times \mathcal{A} \times \mathcal{A} \times \mathcal{A}$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ | |||||||
| $\begin{array}{cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc$ |
| Spar Nord The Group 31.12.16 DKK m |
Spar Nord The Group 31.12.15 DKK m |
|
|---|---|---|
| CREDIT EXPOSURE (CARRYING AMOUNT) | ||
| The Group's credit exposure (carrying amount) is composed of the following balance-sheet items | ||
| and off-balance-sheet items | ||
| Credit risk, loans, advances and guarantees | ||
| Balance-sheet items | ||
| Loans, advances and other receivables at amortized cost | 41,345.6 | 38,039.3 |
| Impairment account for loans, advances and other receivables | 1,809.9 | 1,783.1 |
| Off-balance-sheet items | ||
| Guarantees, etc. | 12,334.1 | 9,585.2 |
| Impairment account for guarantees | 67.0 | 42.9 |
| Credit exposure (carrying amount), loans, advances and guarantees, total | 55,556.6 | 49,450.5 |
| Financial credit risk | ||
| Bonds at fair value | 14,936.1 | 16,053.6 |
| Receivables from credit institutions and central banks | 2,178.8 | 2,741.3 |
| Positive fair value of derivative instruments, financial institutions | 285.3 | 427.3 |
| Credit exposure (carrying amount), financial credit risk, total | 17,400.2 | 19,222.2 |
| Breakdown of Spar Nord's exposures by business area | ||
| The customer portfolio is divided into five groups as part of the ongoing risk monitoring: | ||
| 1) Retail customers – Local banks |
||
| 2) Business customers – Local banks |
||
| 3) Public-sector customers |
||
| 4) Financial customers |
||
5) Leasing activities
The Group's total loans, advances and guarantees before offsetting of impairment amounted to DKK 55.6 billion (2015: DKK 49.5 billion). The development appears from figure 1.
As appears from figure 1, retail customers' exposures increased by DKK 2.6 billion in 2016, or 13.2%. During the same period, the amount of mortgage-credit loans arranged through Totalkredit increased by DKK 2.9 billion. Thus, the overall growth in exposures to retail customers amounted to DKK 5.5 billion in 2016, equal to 7.0%.
Exposures to business customers rose by DKK 1.0 billion in 2016, breaking down into a DKK 0.5 billion increase in lending and a DKK 0.5 billion increase in guarantees.
The total realized increase in exposures to business customers, incl. leasing and mortgage-credit loans arranged, amounted to DKK 2.2 billion, equal to 6.1%.
Lending to public-sector customers decreased by DKK 0.2 billion in 2016.
Spar Nord has developed methods and IT tools for controlling and monitoring credit risks. One tool used for monitoring purposes is the Bank's credit analysis system, in which key data regarding credit exposures and customers' financial affairs is recorded. The aim is to detect danger signals from individual exposures at an early stage, while also monitoring portfolios and organizational units.
Rating systems are used at the local level to grant credit facilities. Thus, customers in the rating groups accorded the least risk exposure are likelier to be given higher credit limits or extensions than those with the greatest risk exposure. In addition, the systems are used for managing overdrafts and for pricing purposes.
As an element in Spar Nord's credit processing, all non-defaulting customers are risk-classified according to the probability that the individual customer defaults within the next 12 months. Customers are divided into groups 1 to 9, with group 9 containing customers subject to the highest risk. The probability of default is estimated statistically by means of the Bank's rating systems which are based on various models for the different customer segments.
The model applied to business customers employs three components: An accounting component used to risk classify the customer based on his most recent financial statements. A behavioural component that classifies the customer based on his account behaviour and credit authorization history. The third component is a cyclical element that is used to adjust the classification based on cyclical trends.
For retail customers, the model is exclusively based on a behavioural component and a cyclical component.
New retail customers are risk-classified according to an application scoring model that is based on classical credit performance indicators, such as assets, pay, disposable income, etc. This model is based on a combination of a statistical and an expert model. After six months, customers are subjected to a behavioural scoring scrutiny, and the results obtained using the two models are co-weighted in the transitional period until the twelfth month, after which the rating is based on the behavioural model exclusively.
New business customers are classified based on the accounting component and the cyclical component until the sixth month, at which time the behavioural component is also applied.
Moreover, Spar Nord applies a qualitative risk classification, in which the Spar Nord adviser flags the credit quality as weak if a customer shows signs of default risk. For retail customers, these signs of default risk may for instance be divorce, unemployment, etc., and for business customers they could be marketing difficulties, the loss of key employees or suppliers, etc.
Retail customers flagged as having a weak credit quality and not being in default will be downgraded by one rating group; it should be noted that a customer flagged as having a weak credit quality does not qualify for rating in the best rating groups (one and two). Business customers are rated based on two categories, customers flagged as having a weak credit quality and customers not flagged, using two different models. However, both models are based on the same components.
Public-sector customers and financial customers are not subject to risk classification.
New business customers with no available financial statements (primarily newly established companies) are not rated for the first six months. Likewise, some new retail customers will not be subjected to application scoring, and thus not rated, for the first six months.
EXPOSURES TO RETAIL CUSTOMERS BY RISK GROUP *) (%)
| 2014 | 2015 | 2016 | |
|---|---|---|---|
| Average risk group | 2.7 | 2.8 | 2.7 |
*) Exposure after impairment Figure 3
As appears from figure 3, the average credit quality of retail customers improved slightly from 2015 to 2016. The average rating has been calculated at 2.7, a minor decline on 2015.
2016 saw an increase in retail customers not rated, which is due to the Group's migration to the platform of a new data-processing centre. After the migration, the credit models could not operate for a few months, but are now back to normal operation.
| 2014 | 2015 | 2016 | |
|---|---|---|---|
| Average risk group | 4.1 | 4.0 | 4.1 |
*) Exposure after impairment and excl. public-sector customers Figure 5
Figure 4 shows the development in the rating of business customers, from which it appears that the average credit quality declined slightly. The average rating group was calculated at 4.1 at end-2016. The deterioration is mainly attributable to a minor increase in customers in default.
Loans, advances and guarantees to the agricultural sector totalled DKK 3.4 billion at end-2016, equal to 6.1%. At end-2015, the exposure to the sector was DKK 3.5 billion, equal to 7.0%. Thus, the overall exposure to the agricultural sector diminished by DKK 0.1 billion from end-2015 to end-2016. This development reflects a minor decline in lending and a slight increase in guarantees.
Leasing loans amounted to DKK 0.4 billion at end-2016 against DKK 0.3 billion at end-2015.
| AVERAGE RISK LEVEL – AGRICULTURE *) |
|||
|---|---|---|---|
| 2014 | 2015 | 2016 | |
| Average risk group | 6.0 | 6.6 | 6.3 |
| *) Exposure after impairment | Figure 7 |
As appears from figure 7, the average credit quality improved in 2016, primarily because the default group shrank.
Spar Nord pursues the principle that if agricultural customers fail to deliver positive returns at the breakeven prices of DKK 9.50/kg (without supplementary payment) fixed by the Bank for pork, and DKK 2.20/kg (without supplementary payment) for milk, this is defined as OEI. Breakeven prices are calculated based on financing at a 4% fixed interest rate for all the interest-bearing debt, regardless of the concrete financing chosen for a specific exposure. If realistic results cannot be obtained on these conditions, the exposure will be subjected to an impairment calculation. Spar Nord anticipates that in 2017 the settlement prices for milk will improve slightly compared to the average for 2016. Spar Nord expects the settlement prices for pork in 2017 to be on a par with the prices fetched in 2016.
Spar Nord's calculation of collateral values of agricultural properties is in accordance with the Danish Financial Supervisory Authority's most recent guidelines, i.e. that the land values in Spar Nord's primary market area range between DKK 125,000 and DKK 160,000 per hectare. Farm buildings are assessed in relation to their age, condition, etc. Farm buildings are measured at their fair value, which means that obsolete buildings are measured at DKK 0. Other agricultural assets such as livestock, stocks, equipment, etc. are recognized at 80% of their carrying amount. A 5% haircut is applied to all of the above-mentioned values.
Spar Nord's total impairment of agricultural loans amounted to DKK 755.1 million, compared to DKK 831.5 million at end-2015, equal to 22.2% for 2016 and 24.1% for 2015.
In 2016, the profit impact from loan impairment amounted to DKK 121.2 million in 2016 (2015: DKK 310.4 million), and losses of DKK 226.1 million (2015: DKK 130.9 million) were recognized.
The agricultural sector has been operating under harsh conditions in recent years, which has necessitated major writedowns for impairment. The sector was still considered to face major debt repayment problems at end 2016. However, the higher settlement prices currently fetched will lessen the liquidity challenges faced by this business sector.
Despite the respectable increase in settlement prices, it will still be necessary to wind up a number of agricultural holdings that have severe problems in coping with either low efficiency or high debt. Overall, the portfolio of agricultural customers is still considered to be spread satisfactorily across production lines.
Exposure to individual customers or a group of related customers, after adjusting for the impact of credit risk reduction and exceptions, etc., may not exceed 25% of the adjusted own funds according to CRR. Based on the Danish Financial Supervisory Authority's Diamond Test Model, the sum total of exposures amounting to 10% or more of the adjusted own funds may not exceed 125% of own funds. However, this calculation may exclude exposures to financial institutions that do not exceed EUR 150 million after adjustments.
Spar Nord reports Large exposures to the Danish Financial Supervisory Authority and the EBA on a quarterly basis to comply with these rules.
Spar Nord has internally introduced a more conservative cap on exposures of DKK 500 million. Exposures to trading partners in the financial sector and repo transactions and reverse repo transactions are not included for the purpose of calculating the Group's cap of DKK 500 million.
The Spar Nord Group has not had exposures to non-financial businesses or groups that exceed these limits.
The table below shows credit exposures to groups totalling 10% or more of adjusted own funds calculated according to CRR, adjusted for the impact of credit reduction and exceptions, etc.
| Credit exposure *) The Spar Nord Group |
2016 No. |
2016 DKK m |
2016 % |
2015 No. |
2015 DKK m |
2015 % |
|---|---|---|---|---|---|---|
| DKK m | Number of Groups |
Exposure | Exposure | Number of Groups |
Exposure | Exposure |
| Exposures > 10 % of adjusted own funds calculated according to CRR |
1 | 1,220.7 | 14.5 | 1 | 1,273.1 | 16.1 |
*) Total exposure has been calculated in accordance with the Danish Financial Supervisory Authority's guidelines on the reporting of financial statements.
Exposures > 10% consist of exposures to trading partners in the financial sector.
In relation to the Danish Financial Supervisory Authority's benchmark for large exposures, which may not exceed 175% of the institution's Common Equity Tier 1 (CET1), Spar Nord's large exposures amounted to 73.5% at end-2016.
| DKK m | Number 2016 |
Number 2015 |
Share in % 2016 |
Share in % 2015 |
|---|---|---|---|---|
| 0 - 0.1 | 50,124 | 51,827 | 1.3 | 1.5 |
| 0.1 - 0.5 | 34,992 | 34,920 | 11.2 | 12.3 |
| 0.5 - 1.0 | 12,445 | 11,490 | 11.9 | 11.9 |
| 1.0 - 5.0 | 8,017 | 6,985 | 26.4 | 23.7 |
| 5.0 - 10.0 | 891 | 851 | 9.5 | 8.9 |
| 10.0 - 20.0 | 388 | 406 | 8.7 | 8.9 |
| 20.0 - 50.0 | 248 | 233 | 12.1 | 11.5 |
| 50.0 - 100.0 | 66 | 73 | 7.2 | 8.3 |
| 100.0 - | 47 | 46 | 11.7 | 13.0 |
| Total | 107,218 | 106,831 | 100.0 | 100.0 |
*) Excl. reverse repo transactions and SparXpres Figure 8
A breakdown by exposure size shows that Spar Nord's portfolio of loans, advances and guarantees is well-diversified, as 60.3% (2015: 58.3%) is attributable to exposures of less than DKK 10 million, and as Spar Nord only has 47 exposures (2015: 46) of more than DKK 100 million.
Spar Nord wants to reduce the risk attaching to individual exposures by accepting collateral, such as mortgages and charges over physical assets, securities and guarantees, etc. whenever possible. Mortgages on real property and charges over securities and vehicles make up the most common type of collateral, of which mortgages on real property are by far the most important collateral type provided to Spar Nord. Mortgages on real property consist mainly of mortgages on private housing.
| Total | 23,311.3 | 100.0 | 22,395.5 | 100.0 |
|---|---|---|---|---|
| Other | 3,253.3 | 14.0 | 2,934.6 | 13.1 |
| Agriculture | 3,757.3 | 16.1 | 3,498.1 | 15.6 |
| Offices and businesses | 2,434.3 | 10.4 | 2,874.1 | 12.9 |
| Summer cottages | 953.2 | 4.1 | 922.5 | 4.1 |
| Private housing | 12,913.2 | 55.4 | 12,166.2 | 54.3 |
| 2016 DKK m |
2016 Share in % |
2015 DKK m |
2015 Share in % |
|
Figure 9
| GEOGRAPHICAL BREAKDOWN OF MORTGAGES | % 2016 |
% 2015 |
|---|---|---|
| The Capital Region | 14.4 | 14.0 |
| Mid-Jutland Region | 20.5 | 20.3 |
| North Jutland Region | 40.1 | 42.0 |
| Region Zealand | 9.5 | 9.2 |
| Region South Denmark | 11.9 | 11.6 |
| International activities | 3.6 | 2.9 |
| Total | 100.0 | 100.0 |
Figure 10
Spar Nord monitors the value of the collateral furnished on an ongoing basis. If the risk attaching to a counterparty increases, the collateral is subjected to particularly critical scrutiny. The value is assessed based on the expected price to be fetched in a compulsory sale of the collateral less any expenses arising from its realization.
Spar Nord's evaluation of mortgages on rental properties is based on the capacity of the properties to generate a return. Various requirements are made with regard to the rate of return, depending on the use of the property, the condition of the buildings and the physical location in Denmark. Residential rental property is valued on the basis of a required rate of return in the 4.5-10.0% range (2015: 4.5-10.0%).
| Unsecured share of credit exposure, % | Spar Nord The Group 2016 |
Spar Nord The Group 2015 |
|---|---|---|
| < 10 | 43.8 | 38.7 |
| 10 - 50 | 20.8 | 21.5 |
| 50 - 75 | 9.4 | 10.7 |
| > 75 | 26.0 | 29.1 |
| Average unsecured share of credit exposure | 37.2 | 41.2 |
The decline in the unsecured share of credit exposure is primarily attributable to a major increase in reverse repo transactions (lending) of DKK 2.1 billion, which singly reduces the unsecured share by 1.4 percentage points.
| 2016 | 2015 | ||||
|---|---|---|---|---|---|
| Line of business | DKK m | % | DKK m | % | |
| Public authorities | 36.8 | 99.6 | 259.9 | 99.8 | |
| Agriculture, hunting and forestry | 1,141.6 | 33.6 | 1,130.6 | 32.8 | |
| Fisheries | 46.3 | 43.3 | 53.8 | 52.9 | |
| Industry and raw mat. extraction | 908.4 | 34.3 | 878.3 | 35.0 | |
| Energy supply | 536.2 | 30.7 | 636.7 | 31.8 | |
| Building and construction | 708.8 | 36.8 | 627.6 | 41.0 | |
| Trade | 1,846.7 | 47.9 | 1,766.2 | 49.9 | |
| Transport, hotels and restaurants | 487.6 | 29.1 | 485.9 | 31.8 | |
| Information and communication | 91.9 | 47.1 | 61.4 | 49.8 | |
| Financing and insurance | 1,764.1 | 19.6 | 1,656.7 | 25.1 | |
| Real estate | 2,386.2 | 39.7 | 2,548.1 | 46.4 | |
| Other business areas | 1,184.2 | 44.8 | 1,374.2 | 54.5 | |
| Business customers, total | 11,138.8 | 33.5 | 11,479.4 | 38.7 | |
| Retail customers, total | 9,508.0 | 42.6 | 8,877.2 | 44.9 | |
| Total | 20,646.8 | 37.2 | 20,356.6 | 41.2 |
Figure 11
In the event that Spar Nord calls up collateral that cannot easily be converted to cash, Spar Nord pursues the policy of attempting to dispose of such assets as soon as possible.
In 2016, the Group repossessed equipment and took over properties worth DKK 23.7 million (2015: DKK 15.9 million) in connection with non-performing loans.
The leased assets are valued and depreciated on an ongoing basis. Thus, in periods of declining prices for leased assets, the collateral calculated for the Bank's leasing activities is reduced.
| Collateral accepted | 2016 DKK m |
2015 DKK m |
|---|---|---|
| Credit exposure, carrying amount | 55,556.6 | 49,450.5 |
| Value of collateral | 34,909.8 | 29,093.9 |
| Unsecured, total | 20,646.8 | 20,356.6 |
| Type of collateral | ||
| Properties | 14,246.4 | 13,771.2 |
| Custody accounts / securities | 7,318.6 | 5,042.2 |
| Guarantees / suretyships | 486.5 | 370.7 |
| Vehicles | 655.8 | 708.8 |
| Cash | 507.8 | 511.1 |
| Other collateral | 4,092.7 | 3,687.0 |
| Collateral used, total | 27,307.8 | 24,091.0 |
| Spec. secured trans. (mortgage-credit inst. guarantees) | 5,926.9 | 3,785.9 |
| Total collateral accepted, excl. Spar Nord Leasing | 33,234.7 | 27,876.9 |
| Collateral accepted, leasing activities | 1,675.1 | 1,217.0 |
| Total | 34,909.8 | 29,093.9 |
Figure 12
The reason that the property value under mortgages broken down by property type is calculated at DKK 23.3 billion (2015: DKK 22.4 billion) and that only DKK 14.2 billion (2015: DKK 13.8 billion) is recorded as collateral on the properties in the table above is that DKK 23.3 billion (2015: DKK 22.4 billion) is the amount mortgaged to Spar Nord and recorded as collateral, while DKK 14.2 billion (2015: DKK 13.8 billion) is the share actually used for calculating collateral regarding an exposure. Some exposures are smaller than the collateral value, and collateral has also been provided by customers who do not currently have any loans and credit facilities.
| Impairment account | Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|
| Individual impairment of loans and advances | ||||
| Individual impairment, beginning of year | 1,645.6 | 1,648.5 | 1,645.6 | 1,648.5 |
| New individual impairment | 600.7 | 623.0 | 600.7 | 623.0 |
| Reversal of individual impairment losses | 318.9 | 334.6 | 318.9 | 334.6 |
| Previously written down, now definitively lost | 304.2 | 374.7 | 304.2 | 374.7 |
| Other movements | 63.1 | 83.4 | 63.1 | 83.4 |
| Individual impairment, end of year | 1,686.3 | 1,645.6 | 1,686.3 | 1,645.6 |
| Groups of impairment losses, loans and advances | ||||
| Groups of impairment losses, beginning of year | 137.5 | 162.6 | 137.5 | 162.6 |
| New groups of impairment losses | 0.0 | 9.6 | 0.0 | 9.6 |
| Reversal of groups of impairment losses | 15.2 1.3 |
34.7 0.0 |
15.2 1.3 |
34.7 0.0 |
| Other movements Groups of impairment losses, end of year |
123.6 | 137.5 | 123.6 | 137.5 |
| Total impairment of loans and advances | ||||
| Impairment, beginning of year | 1,783.1 | 1,811.1 | 1,783.1 | 1,811.1 |
| New impairment | 600.7 | 632.6 | 600.7 | 632.6 |
| Reversal of impairment losses | 334.1 | 369.3 | 334.1 | 369.3 |
| Previously written down, now definitively lost | 304.2 | 374.7 | 304.2 | 374.7 |
| Other movements | 64.4 | 83.4 | 64.4 | 83.4 |
| Impairment, end of year | 1,809.9 | 1,783.1 | 1,809.9 | 1,783.1 |
| Impairment recognized in the income statement | ||||
| New impairment | 600.7 | 632.6 | 600.7 | 632.6 |
| Reversal of impairment losses | 334.1 | 369.3 | 334.1 | 369.3 |
| Losses without prior impairment | 114.3 | 168.3 | 114.3 | 168.3 |
| Carried to income, previously written off | 115.9 | 67.2 | 115.9 | 67.2 |
| Recognized in the income statement | 265.0 | 364.4 | 265.0 | 364.4 |
| Provisions for losses on guarantees | ||||
| Provisions, beginning of year | 42.9 | 33.9 | 42.9 | 33.9 |
| New provisions | 45.8 | 22.6 | 45.8 | 22.6 |
| Reversal of provisions | 21.7 | 13.6 | 21.7 | 13.6 |
| Provisions for losses on guarantees, end of year | 67.0 | 42.9 | 67.0 | 42.9 |
| Provisions for losses on guarantees recognized in the income statement | ||||
| New provisions | 45.8 | 22.6 | 45.8 | 22.6 |
| Reversal of provisions | 21.7 | 13.6 | 21.7 | 13.6 |
| Recognized in the income statement | 24.1 | 9.0 | 24.1 | 9.0 |
| Impairment account for loans, advances and provisions for guarantees, total | 1,876.9 | 1,826.0 | 1,876.9 | 1,826.0 |
| Impairment, other credit risks | ||||
| Impairment, other credit risks, beginning of year | 10.5 | 10.5 | 10.5 | 10.5 |
| New impairment | 3.5 | 0.0 | 3.5 | 0.0 |
| Reversal of impairment losses | 0.6 | 0.0 | 0.6 | 0.0 |
| Other movements | 0.6 | 0.0 | 0.6 | 0.0 |
| Impairment, other credit risks, total | 14.0 | 10.5 | 14.0 | 10.5 |
| Impairment account for loans, advances, provisions for guarantees | ||||
| and other credit risks, total | 1,890.9 | 1,836.5 | 1,890.9 | 1,836.5 |
| Impairment of loans, advances and receivables, etc. | ||||
| The total recognition in the income statement under impairment of loans, | ||||
| advances and receivables, etc. can be broken down as follows: | ||||
| Impairment of loans, advances and receivables | 265.0 | 364.4 | 265.0 | 364.4 |
| Provisions for losses on guarantees | 24.1 2.9 |
9.0 0.0 |
24.1 2.9 |
9.0 0.0 |
| Impairment, credit institutions Total impairment of loans, advances and receivables, etc. |
292.0 | 373.4 | 292.0 | 373.4 |
| Non-performing loans | 176.9 | 281.3 | 176.9 | 281.3 |
| Interest on impaired receivables is calculated on the impaired balance only | ||||
| Interest on impaired loans and advances taken to income | 65.0 | 83.4 | 65.0 | 83.4 |
| Exposures and impairment | 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| by industry | |||||||||
| Loans, advances and guarantees |
impairment | Total | Loans, advances and guarantees |
Total impairment |
|||||
| Business customers | DKK m | % | DKK m | % | DKK m | % | DKK m | % | |
| Public authorities | 36.9 | 0.1 | 0.0 | 0.0 | 260.5 | 0.5 | 0.0 | 0.0 | |
| Agriculture, hunting, forestry and fisheries | 3,500.8 | 6.3 | 757.1 | 40.3 | 3,551.9 | 7.2 | 833.6 | 45.6 | |
| Industry and raw materials extraction | 2,645.8 | 4.8 | 46.4 | 2.5 | 2,506.0 | 5.1 | 50.8 | 2.8 | |
| Energy supply | 1,746.3 | 3.1 | 28.2 | 1.5 | 1,999.7 | 4.0 | 13.7 | 0.8 | |
| Building and construction | 1,925.4 | 3.5 | 56.7 | 3.0 | 1,527.3 | 3.1 | 57.1 | 3.1 | |
| Trade | 3,856.6 | 6.9 | 83.0 | 4.4 | 3,539.3 | 7.2 | 90.8 | 5.0 | |
| Transport, hotels and restaurants | 1,672.9 | 3.0 | 62.7 | 3.4 | 1,524.1 | 3.1 | 44.2 | 2.4 | |
| Information and communication | 195.2 | 0.3 | 5.7 | 0.3 | 123.2 | 0.2 | 0.9 | 0.0 | |
| Financing and insurance | 8,995.8 | 16.2 | 97.9 | 5.2 | 6,617.7 | 13.4 | 48.5 | 2.7 | |
| Real estate | 6,008.1 | 10.8 | 278.1 | 14.8 | 5,496.0 | 11.1 | 228.8 | 12.5 | |
| Other business areas | 2,642.5 | 4.8 | 82.6 | 4.4 | 2,523.8 | 5.1 | 55.9 | 3.1 | |
| Business customers, total | 33,226.3 | 59.8 | 1,498.4 | 79.8 | 29,669.5 | 60.0 | 1,424.3 | 78.0 | |
| Retail customers, total | 22,330.3 | 40.2 | 378.5 | 20.2 | 19,781.0 | 40.0 | 401.7 | 22.0 | |
| Loans, advances and guarantees, total | 55,556.6 | 100.0 | 1,876.9 | 100.0 | 49,450.5 | 100.0 | 1,826.0 | 100.0 | |
| Of which groups of impairment losses | |||||||||
| Retail customers | 22.1 | 17.2 | 29.5 | 21.5 | |||||
| Business customers | 101.5 | 82.8 | 108.0 | 78.5 |
In connection with Spar Nord's ongoing credit risk management, groups of impairment losses are not allocated to various industries but instead recognized as a combined item, broken down by retail and business customers, as groups of impairment losses have been calculated based on rating models.
123.6 100.0 137.5 100.0
Groups of impairment losses
The Spar Nord Group/Spar Nord Parent Company
| Loans, advances and receivables | 2016 DKK m |
2015 DKK m |
|---|---|---|
| Sum total of loans, advances and receivables for which individual impairment has been recognized | 3,740.2 | 3,567.3 |
| Impairment of loans, advances and receivables | 1,686.3 | 1,645.6 |
| Carrying amount of loans, advances and receivables | 2,053.9 | 1,921.7 |
| Guarantees | ||
| Sum total of guarantees for which individual provisions have been made | 247.8 | 152.4 |
| Provisions for guarantees | 67.0 | 42.9 |
| Carrying amount of guarantees | 180.8 | 109.5 |
| 2016 | 2015 | |||
|---|---|---|---|---|
| shown by cause of impairment Individual impairment of loans, advances, receivables and guarantees |
Credit exposure before impairment DKK m |
Impairment DKK m |
Credit exposure before impairment DKK m |
Impairment DKK m |
| Insolvent liquidation and bankruptcy | 199.1 | 141.9 | 100.7 | 72.5 |
| Collection or suspension of payments | 186.6 | 123.3 | 255.0 | 156.6 |
| Other financial difficulties | 3,602.3 | 1,488.1 | 3,364.0 | 1,459.4 |
| Individual impairment of loans, advances, receivables | ||||
| and guarantees, total | 3,988.0 | 1,753.3 | 3,719.7 | 1,688.5 |
Virtually all cases of insolvent liquidation and bankruptcy are attributable to business facilities.
The collateral for individually impaired loans and for loans in default that have not been individually impaired does not differ significantly from Spar Nord's other collateral.
A loan facility is defined as being subject to forbearance if the conditions regarding interest payments and/or repayments have been relaxed on account of the borrower's financial difficulties, or if the loan has been refinanced on more lenient terms.
At Spar Nord, forbearance is considered objective evidence of impairment (OEI), and the terms are deemed to have been relaxed if business customers with OEI are granted an interest rate of less than 3%. For retail customers, the terms are considered to have been relaxed if they are granted an interest rate of less than 3.5%. Moreover, repayment terms are considered to be relaxed for retail customers if the term to maturity exceeds 20 years. The terms of a home loan will typically have been fixed prior to any OEI and will therefore not be included for the purpose of identifying facilities with relaxed terms, regardless of whether the above criteria have been met.
Non-performing loans (NPL) are defined as the category of exposures that are in default (in terms of the Basel criteria) and/or impaired, i.e. exposures towards customers whose balances have been written off, written down or are past due by 90 days.
Figure 13 below shows a breakdown of loans and advances for which the terms have been relaxed.
| Loand and advances subject to forbearance | 2016 | |||||
|---|---|---|---|---|---|---|
| (DKK m) | Business customers |
Agricultural customers |
Retail customers |
Total | ||
| Non-Performing | 591.3 | 616.6 | 186.5 | 1,394.4 | ||
| Performing | 84.7 | 5.4 | 22.1 | 112.2 | ||
| Total | 676.0 | 622.0 | 208.6 | 1,506.6 |
| Loand and advances subject to forbearance | 2015 | |||||
|---|---|---|---|---|---|---|
| (DKK m) | Business customers |
Agricultural customers |
Retail customers |
Total | ||
| Non-Performing | 582.2 | 524.8 | 244.2 | 1,351.2 | ||
| Performing | 123.2 | 26.6 | 22.8 | 172.6 | ||
| Total | 705.4 | 551.4 | 267.0 | 1,523.8 |
| The Group | ||
|---|---|---|
| Total | |||||||
|---|---|---|---|---|---|---|---|
| DKK m | In default 31.12.16 |
Collateral 31.12.16 |
In default 31.12.15 |
Collateral 31.12.15 |
|||
| 0 - 30 days | 120.7 | 116.0 | 126.4 | 117.0 | |||
| 31 - 60 days | 5.8 | 5.7 | 10.5 | 10.3 | |||
| 61 - 90 days | 2.3 | 2.3 | 1.4 | 1.4 | |||
| > 90 days | 8.5 | 8.2 | 5.5 | 5.4 | |||
| Total | 137.3 | 132.2 | 143.8 | 134.1 | |||
Figure 14
Developments in unauthorized overdrafts are monitored on an ongoing basis at the Bank. The development can be seen from figures 15 and 16 below, which include a trendline for developments from month to month in the past two years. Retail customers' unauthorized overdrafts remained at a stable low level of less than 0.6% during the year. The unauthorized overdrafts of business customers, excl. agricultural customers, also remained at a low level throughout the period, averaging about 0.3% of the loans and advances granted by Spar Nord's Local Banks. This is considered satisfactory.
(%) BUSINESS CUSTOMERS – LOCAL BANKS - DEVELOPMENT IN UNAUTHORIZED OVERDRAFTS/EXP. IN DEFAULT
Figure 16
As part of its trading in and holding of securities, foreign currency and derivative instruments and its payment services, etc., Spar Nord will experience credit risk exposure to financial counterparties.
Spar Nord's Management allocates lines for credit risk exposure to financial counterparties, based on the particular counterparty's risk profile, rating, amount of exposure and solvency. The risks and lines of financial instruments are monitored constantly.
| FINANCIAL CREDIT RISK | 31.12.16 Carrying |
31.12.15 Carrying |
31.12.16 Risk |
31.12.15 Risk |
|---|---|---|---|---|
| THE GROUP | amount DKK m |
amount DKK m |
portfolio DKK m |
portfolio DKK m |
| AAA | 14,786.9 | 15,244.8 | 14,036.7 | 15,843.5 |
| AA | 350.0 | 944.8 | 350.0 | 944.8 |
| A | 1,336.3 | 1,534.3 | 1,335.9 | 1,534.3 |
| BBB | 591.8 | 1,190.8 | 591.8 | 1,190.8 |
| BB | 75.1 | 61.7 | 75.1 | 61.8 |
| B | 14.8 | 16.9 | 14.8 | 16.9 |
| CCC | 0.8 | 0.8 | 0.8 | 0.8 |
| Unrated | 244.5 | 227.7 | 239.8 | 226.1 |
| Unallocated | 0.0 | 0.4 | 0.0 | 0.4 |
| Total | 17,400.2 | 19,222.2 | 16,644.9 | 19,819.4 |
Overall, Management's assessment is that Spar Nord's credit risk exposure to financial counterparties remains at a moderate level, as 94.5% (2015: 92.4%) of the financial credit risk is attributable to counterparties with a rating of A or higher.
The Group's bond portfolio is the most significant source of financial credit risk.
| BOND PORTFOLIO BY ISSUER TYPE | 31.12.16 Carrying |
31.12.15 Carrying |
31.12.16 Risk |
31.12.15 Risk |
|---|---|---|---|---|
| THE GROUP | amount DKK m |
amount DKK m |
portfolio DKK m |
portfolio DKK m |
| Mortgage-credit bonds | 12,989.7 | 13,683.0 | 12,299.4 | 14,319.4 |
| Financial issuers | 1,072.6 | 1,700.0 | 1,068.2 | 1,700.0 |
| Corporate bonds | 270.5 | 304.6 | 270.5 | 303.1 |
| Government bonds | 603.3 | 366.0 | 542.7 | 328.3 |
| Total | 14,936.1 | 16,053.6 | 14,180.8 | 16,650.8 |
Calculated as risk portfolio, Spar Nord's bond portfolio is composed of 86.8% mortgage-credit bonds (2015: 86.0%), 7.5% bonds from financial issuers (2015: 10.2%) and 5.7% from corporate bonds (2015: 3.8%).
| BOND PORTFOLIO BY RATING | 31.12.16 Carrying |
31.12.15 Carrying |
31.12.16 Risk |
31.12.15 Risk |
|---|---|---|---|---|
| THE GROUP | amount DKK m |
amount DKK m |
portfolio DKK m |
portfolio DKK m |
| AAA | 13,334.2 | 13,904.2 | 12,584.0 | 14,502.9 |
| AA | 158.0 | 316.1 | 158.0 | 316.1 |
| A | 824.6 | 624.9 | 824.2 | 624.9 |
| BBB | 388.1 | 1,017.0 | 388.1 | 1,017.0 |
| BB | 73.2 | 60.2 | 73.2 | 60.3 |
| B | 14.8 | 16.9 | 14.8 | 16.9 |
| CCC | 0.8 | 0.8 | 0.8 | 0.8 |
| Unrated | 142.4 | 113.5 | 137.7 | 111.9 |
| Total | 14,936.1 | 16,053.6 | 14,180.8 | 16,650.8 |
The other major source of financial credit risk is receivables from credit institutions and central banks. In this area, Spar Nord's exposure is typically to central banks with a triple A rating or Danish banks with which the Bank's Trading, Financial Markets & the International Division has a customer relationship.
| THE GROUP | 31.12.16 Carrying amount DKK m |
31.12.15 Carrying amount DKK m |
31.12.16 Risk portfolio DKK m |
31.12.15 Risk portfolio DKK m |
|---|---|---|---|---|
| Reverse repo transactions | 1,452.8 | 1,340.6 | 1,452.8 | 1,340.6 |
| Deposits and unlisted bonds | 73.0 | 50.0 | 73.0 | 50.0 |
| Subordinated loans | 0.0 | 6.5 | 0.0 | 6.5 |
| Current accounts | 125.9 | 303.7 | 125.9 | 303.7 |
| CSA accounts, etc. | 527.1 | 1,020.2 | 527.1 | 1,020.2 |
| Commercial foreign business | 0.0 | 20.3 | 0.0 | 20.3 |
| Total | 2,178.8 | 2,741.3 | 2,178.8 | 2,741.3 |
| Positive fair value of derivative instruments, | ||||
| financial institutions | 285.3 | 427.3 | 285.3 | 427.3 |
| Total | 2,464.1 | 3,168.6 | 2,464.1 | 3,168.6 |
| RECEIVABLES FROM CREDIT INSTITUTIONS BY RATING | ||||
|---|---|---|---|---|
| THE GROUP | 31.12.16 Carrying amount DKK m |
31.12.15 Carrying amount DKK m |
31.12.16 Risk portfolio DKK m |
31.12.15 Risk portfolio DKK m |
| AAA | 1,452.7 | 1,340.6 | 1,452.7 | 1,340.6 |
| AA | 192.0 | 628.7 | 192.0 | 628.7 |
| A | 511.7 | 909.4 | 511.7 | 909.4 |
| BBB | 203.7 | 173.8 | 203.7 | 173.8 |
| BB | 1.9 | 1.5 | 1.9 | 1.5 |
| Unrated | 102.1 | 114.2 | 102.1 | 114.2 |
| Unallocated | 0.0 | 0.4 | 0.0 | 0.4 |
| Total | 2,464.1 | 3,168.6 | 2,464.1 | 3,168.6 |
87.5% (2015: 90.9%) of Spar Nord's receivables from credit institutions concerns institutions with an A rating or higher. Of the total receivables from credit institutions of DKK 2.5 billion (2015: DKK 3.2 billion), 58.9% (2015: 42.3%) is attributable to institutions with an AAA rating, 7.8% (2015: 19.9%) to institutions with an AA rating, and 20.8% (2015: 28.7%) to institutions with an A rating.
Receivables from credit institutions with no rating are mainly attributable to Danish financial institutions.
Market risk is defined as the risk that volatility in market conditions will change the market value of Spar Nord's assets and liabilities. Market risks are a consequence of Spar Nord's open positions in the financial markets and may be categorized as interest-rate risk, equity risk, foreign-exchange risk and liquidity risk. Market risks are managed and hedged primarily by Spar Nord's Trading, Financial Markets & the International Division.
In 2016, Spar Nord made no major changes in assumptions, objectives, policies, exposures and calculation methods, etc. as compared to the year before.
Spar Nord's Board of Directors determines the overarching policies, frameworks and principles for risk management. The policies are concerned with identifying and estimating various types of market risk.
The frameworks indicate specific limits on the extent of risk the Bank is ready to assume. The principles establish the methodology to be used in calculating the various risk targets. The Board of Directors receives continuous reporting on risk developments and the utilization of allocated risk limits.
The aim of Spar Nord's market risk policy is to ensure that Spar Nord has a market risk that at all times bears an appropriate relation to its capital base. Moreover, the market risk policy must ensure that Spar Nord continuously handles and manages its market risks on the basis of appropriate and updated procedures.
For its management of market risks, Spar Nord has established a three-tier instruction hierarchy. At the first tier, the Board of Directors defines the limits for Spar Nord to the Executive Board. At the second tier, the Executive Board delegates limits to the entities of Spar Nord, with the Trading, Financial Markets & the International Division being the distinctly largest entity. At the third and last tier, the executives of the Trading, Financial Markets & the International Division are granted the limits within which they may operate.
The Middle Office function of the Finance & Accounts Department is responsible for estimating, monitoring, controlling and reporting market risks to the Board of Directors and the Executive Board. Market risks are controlled and monitored through an integrated risk management system. Procedures for ongoing follow-up on all types of market risk are in place for all entities that are subject to the instructions and any failure to adhere to these instructions is reported further up in the hierarchy. To ensure independence, the Middle Office function has no position-taking authority. All trades are settled by Spar Nord's Back Office Department according to the guidelines issued by the Danish Financial Supervisory Authority regarding functional separation.
As part of the instruction hierarchy, a number of limits have been set that are used to manage risks. In the long term, these limits are influenced by Spar Nord's business development.
The most important limits applicable at the end of 2016 allow Spar Nord to:
The interest-rate risk is the risk of loss due to fluctuating interest rates. The majority of Spar Nord's interest-rate risks derive from activities involving ordinary banking transactions, such as deposits and lending, as well as trade and position-taking in a number of interest-related products. Most of these activities incorporate simple interest-rate products such as interest swaps, bonds, futures and standard interest-rate options.
The interest-rate risk is calculated on the basis of the target duration and agreed cash flow. For managing the portfolio of Danish mortgage-credit bonds, the Bank uses model-based key risk indicators that provide for the inherent option element. For interest-rate options, the above-mentioned key indicators are supplemented by the most important risk factors expressing the sensitivity of the option premium based on the underlying parameters.
The interest-rate risk is assessed on a daily basis and decisions are made in light of expectations for the macroeconomic situation and market developments. Spar Nord converts the interest-rate risk in foreign currencies into Danish kroner and offsets the negative interest-rate risk against the positive one to calculate the net interest-rate risk.
The interest-rate risk broken down by currency and duration is shown below, where the interest-rate risk denotes the expected loss on interest-rate positions due to a change in the interest rate of one percentage point.
| 2016 | Less than 3 mths | 3 mths - 1 year | 1 - 3 years | 3 - 7 years | Over 7 years | Total |
|---|---|---|---|---|---|---|
| DKK | 12.8 | -7.8 | 5.5 | 13.5 | 55.0 | 79.0 |
| EUR | 2.7 | 4.3 | -12.9 | -1.4 | 7.2 | -0.1 |
| USD | 1.4 | 0.1 | 0.4 | 0.3 | 0.0 | 2.2 |
| GBP | 0.0 | 0.0 | 0.0 | 0.1 | 0.0 | 0.1 |
| NOK | -0.1 | 0.0 | 0.0 | 0.0 | 0.0 | -0.1 |
| CHF | 0.4 | -0.1 | 0.0 | 0.0 | 0.0 | 0.3 |
| JPY | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| SEK | 0.5 | -0.1 | -0.7 | 0.1 | 0.0 | -0.2 |
| Miscellaneous | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Total | 17.7 | -3.6 | -7.7 | 12.6 | 62.2 | 81.2 |
| 2015 | Less than 3 mths | 3 mths - 1 year | 1 - 3 years | 3 - 7 years | Over 7 years | Total |
|---|---|---|---|---|---|---|
| DKK | 7.0 | 21.2 | 5.5 | 19.0 | 46.8 | 99.5 |
| EUR | 0.6 | 6.1 | -6.7 | -5.0 | 10.5 | 5.5 |
| USD | -0.2 | -1.0 | 0.1 | 4.1 | 0.6 | 3.6 |
| GBP | 0.0 | 0.1 | 0.1 | 0.3 | 0.0 | 0.5 |
| NOK | -0.1 | 0.0 | 0.0 | 0.1 | 0.0 | 0.0 |
| CHF | 0.1 | -0.4 | -0.3 | 0.0 | 0.0 | -0.6 |
| JPY | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| SEK | 0.3 | -0.1 | 0.7 | -0.3 | 0.0 | 0.6 |
| Miscellaneous | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Total | 7.7 | 25.9 | -0.6 | 18.2 | 57.9 | 109.1 |
As appears from the table, Spar Nord is mainly exposed to DKK (2015: DKK). It also appears that since end-2015, the interest-rate risk has gone from being positive in the amount of DKK 109.1 million to being positive in the amount of DKK 81.2 million at end-2016.
If the yield curves are displaced parallel to each other upwards by one percentage point, a positive interest-rate risk would impact the equity negatively. In 2016, the interest-rate risk would, as a maximum, have impacted the equity negatively by 2.1% (2015: positively by 0.4% and negatively by 2.1%) if interest rates had increased by one percentage point.
The foreign-exchange risk is the risk of loss on positions in currencies due to exchange-rate fluctuations. Foreign-exchange options are included in the calculation of the Delta-adjusted position.
The foreign-exchange risk is illustrated by the table below. The calculation is based on the assumption that all exchange rates develop unfavourably for Spar Nord by 2%.
| FOREIGN-EXCHANGE RISK | Spar Nord | Spar Nord | Spar Nord | Spar Nord |
|---|---|---|---|---|
| The Group | The Group | Parent | Parent | |
| 31.12.16 | 31.12.15 | Company | Company | |
| DKK m | DKK m | 31.12.16 | 31.12.15 | |
| Assets denominated in foreign currencies, total Liabilities denominated in foreign currencies, total |
8,601.8 997.1 |
5,495.9 2,536.1 |
DKK m 8,601.8 997.1 |
DKK m 5,495.9 2,536.1 |
Foreign-exchange risk broken down by currency:
| Foreign-exchange risk regarding financial instruments, etc., total | -2.2 | -6.2 | -2.2 | -6.2 |
|---|---|---|---|---|
| Other currencies | -0.4 | -0.3 | -0.4 | -0.3 |
| JPY | 0.0 | -0.2 | 0.0 | -0.2 |
| NOK | -0.2 | -0.3 | -0.2 | -0.3 |
| CHF | -0.1 | -0.2 | -0.1 | -0.2 |
| GBP | -0.1 | -0.5 | -0.1 | -0.5 |
| USD | -0.6 | -1.9 | -0.6 | -1.9 |
| SEK | 0.0 | -0.5 | 0.0 | -0.5 |
| EUR | -0.8 | -2.3 | -0.8 | -2.3 |
As appears from the table, the overall foreign-exchange risk for Spar Nord was DKK -2.2 million at end-2016, which is DKK 4.0 million less than at end-2015.
This development was caused by a reduced foreign-exchange exposure to all the currencies mentioned in the table above, while the exposure to Other currencies increased.
The equity risk is the risk of loss due to fluctuating share prices, calculated as the net value of long and short positions in shares and share-related instruments.
| The equity positions have been determined depending on whether they are included in the trading book or not. | Spar Nord The Group 31.12.16 DKK m |
Spar Nord The Group 31.12.15 DKK m |
|---|---|---|
| Equity risk in the trading book: | ||
| Listed shares in the trading book | 204.6 | 131.8 |
| Unlisted shares in the trading book | 6.8 | 10.5 |
| Total shares in the trading book | 211.4 | 142.3 |
The shares in the trading book are shares acquired with a view to trading.
| Equity risk in the banking book: | ||
|---|---|---|
| Shares in credit and financing institutions | 1,135.4 | 1,109.2 |
| Shares in unit trust management companies | 78.0 | 82.1 |
| Shares in pension institutions | 2.1 | 2.1 |
| Shares in data supplier | 42.0 | 233.9 |
| Shares in payment services business | 0.0 | 5.1 |
| Other shares | 88.3 | 83.6 |
| Shares in strategic partners, total | 1,345.8 | 1,516.0 |
| Realized gains *) | 45.8 | 245.8 |
| Unrealized gains | 64.8 | 69.3 |
| Total associates | 118.4 | 82.4 |
|---|---|---|
| Total shares in the banking book | 1,464.2 | 1,598.4 |
*) Of which the gain on the sale of shares in Nørresundby Bank in 2015 amounted to DKK 225.6 million, which has been included in market-value adjustments.
Shares in the banking book are characterized in that they have not been acquired with a view to trading. In addition, a distinction is made between shares in associates and shares in strategic partners.
Spar Nord's most important shareholding included under associates at end-2016 was Valueinvest Asset Management SA (2015: Valueinvest Asset Management SA).
Shares in strategic partners in the financial sector are shares in companies whose purpose is to support bank transactions in the fields of mortgage credit, payment services, unit trusts, etc. Participation in the companies in question is considered a prerequisite for Spar Nord's operations.
In several of the sector companies, the shares are reallocated such that the ownership interest of the banks will reflect the business volume of the relevant institution with the sector company. Typically, this reallocation is made based on the net asset value of the sector company in question. In light of this, Spar Nord adjusts the recognized value of these shares when new information is available that warrants a change of valuation. The shares in other sector companies are not reallocated, but are measured based on a fair value, which is equal to the net asset value, or another recognized valuation method (such as discounting of cash flows and market expectations as to the required rate of return on equity). The adjustments of the values of the shares in these companies are also recognized in the income statement.
| Shares included in the trading book: | Spar Nord The Group 31.12.16 DKK m |
Spar Nord The Group 31.12.15 DKK m |
Spar Nord Parent Company 31.12.16 DKK m |
Spar Nord Parent Company 31.12.15 DKK m |
|---|---|---|---|---|
| Long positions | 211.4 | 142.3 | 211.4 | 142.3 |
| Short positions | 1.9 | 2.3 | 1.9 | 2.3 |
| Gross portfolio | 213.3 | 144.6 | 213.3 | 144.6 |
Reference is made to note 21 regarding the amount of shares recognized according to the fair-value option.
The sensitivity information shows the impact of isolated changes in interest rates and prices of shares in the trading book, while the impact of changes in exchange rates is shown for positions both
in the trading and banking books.
| Impact on equity | Impact on the income statement | |||||
|---|---|---|---|---|---|---|
| 31.12.16 % |
31.12.15 % |
31.12.16 DKK m |
31.12.15 DKK m |
|||
| - | Interest increase of 1 percentage point | -0.8 | -1.3 | -66.1 | -95.9 | |
| - | Interest decrease of 1 percentage point | 0.8 | 1.3 | 66.1 | 95.9 | |
| - | Share price decrease of 10% | -0.2 | -0.1 | -16.5 | -10.9 | |
| - | Exchange-rate fluctuation of 2% in unfavourable direction | 0.0 | -0.1 | -1.7 | -4.7 |
The impact on the income statement has been calculated after tax.
The impact on equity is equal to the impact on profit or loss, calculated after tax. There is no direct impact on the equity, as there are no held-to-maturity investments.
The percentage changes in interest rate, share prices and foreign-exchange rates shown in the sensitivity analysis have been calculated in relation to the equity at the end of the year.
The sensitivity to interest-rate changes has been calculated based on changes in the net interest-rate risk relative to equity.
The sensitivity to share price decreases has been calculated based on the Bank's equity portfolio.
In 2016, Spar Nord made no major changes in calculation methods, policies and exposures, etc. as compared to the year before.
Spar Nord is generally exposed to liquidity risks when lending, investment and funding activities result in a cash flow mismatch.
Liquidity risk means that Spar Nord cannot meet its payment obligations, while also meeting the statutory liquidity requirements. Moreover, a liquidity risk exists if the lack of financing/funding prevents Spar Nord from adhering to the adopted business model, or if Spar Nord's costs for procurement of liquidity rise disproportionately.
Spar Nord performs cash management by currently monitoring and controlling short-term and long-term liquidity risks, based on four elements:
Other elements are:
On the basis of the policies, objectives and contingency plans set up by the Board of Directors, the Executive Board has defined operational frameworks and specific limits for Trading, Financial Markets & the International Division, which is responsible for managing the Group's short-term liquidity, and for the Finance & Accounts Department, which is responsible for managing Spar Nord's long-term funding.
Spar Nord calculates strategic liquidity as deposits excl. repo transactions, senior loans, issued bonds, subordinated debt and equity, less lending excl. reverse repo transactions. However, subordinated debt, senior loans and issued bonds due within 12 months are not included in the calculation of strategic liquidity.
Spar Nord's strategic liquidity is used to measure the long-term liquidity position.
(DKK bn)
At end-2016, Spar Nord had strategic liquidity of DKK 20.7 billion, a DKK 1.2 billion increase on end-2015 when strategic liquidity was determined at DKK 19.5 billion.
The increase in strategic liquidity is mainly attributable to a DKK 2.1 billion growth in bank deposits, to some extent counterbalanced by a DKK 1.2 billion increase in lending to banking and leasing activities. In December 2016, Spar Nord floated Additional Tier 1 (AT1) capital of DKK 0.45 billion, which – together with consolidation – contributes positively to strategic liquidity in the amount of DKK 0.7 billion. However, DKK 0.4 billion of the subordinated debt that falls due within 12 months has impacted strategic liquidity negatively.
Subsequently, the strategic liquidity has been specified for the individual constituent parts for end-2016 and -2015, respectively.
| STRATEGIC LIQUIDITY | Spar Nord The Group 31.12.16 DKK m |
Spar Nord The Group 31.12.15 DKK m |
|---|---|---|
| Deposits, banking activities | 46,464.2 | 44,366.7 |
| Senior loans | 48.8 | 63.6 |
| Subordinated debt | 1,093.2 | 1,088.8 |
| Equity | 8,627.1 | 7,887.0 |
| Generation of cash | 56,233.3 | 53,406.1 |
| Loans and advances, banking activities | 33,130.3 | 32,630.5 |
| Loans and advances, leasing activities | 1,961.9 | 1,253.7 |
| Loans and advances (banking and leasing activities) | 35,092.2 | 33,884.2 |
| Senior loans and subordinated debt | ||
| having a term to maturity of less than 12 months | 401.0 | 0.0 |
| Strategic liquidity | 20,740.1 | 19,521.9 |
Figure 18
Section 152 of the Danish Financial Business Act was phased out at end-2016, and the last statement pursuant to that section was made as of 31 December 2016. At end-2016, there were thus two statutory requirements for calculating the liquidity reserve, section 152 and LCR.
Spar Nord's management of short-term liquidity is intended to ensure adequate, free liquidity in order that Spar Nord can at all times live up to the minimum excess liquidity coverage pursuant to section 152 of the Danish Financial Business Act and observe the 50% threshold value determined in the Diamond Test Model. Free liquidity is defined as uncollateralized highly liquid investment securities, deposits on demand with credit institutions, certificates of deposit, and cash balances.
Pursuant to section 152 of the Danish Financial Business Act, a bank's free liquidity must amount to at least 15% of its on-demand payables and at least 10% of the reduced liabilities (other than provisions) and guarantee commitments. As concerns Spar Nord, the excess coverage relative to the requirement that the free liquidity must at least amount to 15% of the Bank's on-demand payables has always been somewhat larger than the excess coverage relative to the 10% requirement. The compliance ratio relative to the requirement that the free liquidity must amount to at least 10% of the reduced liabilities (other than provisions) and guarantee commitments constituted 40.8% at end-2016 (2015: 39.6%).
Liquidity reserve pursuant to the LCR Regulation
Following the introduction of LCR at 1 October 2015, LCR has become an integral part of short-term liquidity management in Spar Nord's liquidity management function.
At end-2016, LCR was calculated at 171% (2015: 145%), which is comfortably above Spar Nord's target LCR of at least 100%. The excess coverage of 71 percentage points corresponds to surplus liquidity of DKK 6.6 billion. The excess coverage is 101 percentage points relative to the statutory requirement of 70%.
The liquidity reserve buffer pursuant to LCR basically consists of sovereign claims (Level 1A assets) and high-liquidity mortgage-credit bonds with a particularly high credit quality (Level 1B assets).
| DKK bn | 2016 | 2015 |
|---|---|---|
| Liquidity reserve | 16.3 | 15.9 |
| Liquidity requirements | 9.5 | 10.9 |
| LCR, % | 171 | 145 |
Spar Nord has prepared an emergency liquidity plan pursuant to the Danish Executive Order on Management and Control with Financial Institutions. This plan contains a catalogue of possible courses of action to strengthen Spar Nord's liquidity in a critical situation. The catalogue contains a more detailed description of the expected impact and time span of the individual actions.
The emergency liquidity plan enters into force if Spar Nord can only meet the predetermined liquidity instructions with difficulty and with resulting sharply increased funding costs.
In addition to liquidity management models, Spar Nord prepares internal stress tests. The stress tests span a 12-month period and are calculated using three permanently defined scenarios: A business-specific, a market-specific and a mixed scenario.
In addition, Spar Nord performs a stress test corresponding to Moody's "12-month scenario with no access to funding". This scenario operates on the assumption that Spar Nord has no access to capital markets during the period of calculation, for which reason senior loans, issued bonds and subordinated debt cannot be refinanced on maturity. On the other hand, the stable deposits base remains an accessible financing source, while only a moderate reduction in Spar Nord's assets is assumed.
As appears from the figure, Spar Nord has positive liquidity for the full 12-month period.
Spar Nord's operations are predominantly funded through four funding sources:
Overall, Spar Nord's funding at end-2016 increased by DKK 1.2 billion compared with 2015. The most significant change in Spar Nord's funding is a DKK 1.7 billion increase in deposits, which includes repurchase transactions with customers. Moreover, the floating of new Additional Tier 1 (AT1) capital of DKK 0.45 billion in December 2016 contributed to the strengthened funding. A drop in the use of repos and repurchases and the debt owing to central banks and credit institutions slightly reduced the growth in funding at the end of 2016. Deposits remain Spar Nord's largest funding source, at end-2016 amounting to 79.2% (2015: 77.9%) of total funding, which is 1.3 percentage points up on end-2015.
In total, long-term funding (funding with a term to maturity of more than one year) amounts to 91.7%, which is 4.2 percentage points up on end-2015.
| DKK m/% | 2016 | 2015 | 2016 | 2015 |
|---|---|---|---|---|
| Central banks and credit inst. | 981.3 | 1,478.4 | 1.7 | 2.6 |
| Repos & repurch. with centr. banks' | ||||
| and credit inst. | 1,399.7 | 2,197.5 | 2.4 | 3.8 |
| Senior loans <1 yr | 0.0 | 0.0 | 0.0 | 0.0 |
| Issued bonds <1 yr | 0.0 | 0.0 | 0.0 | 0.0 |
| Deposits <1 yr | 2,483.0 | 3,511.2 | 4.2 | 6.1 |
| Deposits >1 yr | 43,981.2 | 41,225.1 | 75.0 | 71.8 |
| Senior loans >1 yr | 48.8 | 63.6 | 0.1 | 0.1 |
| Issued bonds >1 yr | 0.0 | 0.0 | 0.0 | 0.0 |
| Subordinated debt | 1,093.2 | 1,088.8 | 1.9 | 1.9 |
| Equity | 8,627.1 | 7,887.0 | 14.7 | 13.7 |
| Total | 58,614.3 | 57,451.6 | 100.0 | 100.0 |
Figure 23
| Balance-sheet items broken down by expected time to maturity | 31.12.16 | 31.12.16 | 31.12.15 | 31.12.15 |
|---|---|---|---|---|
| <1 year DKK m |
>1 year DKK m |
<1 year DKK m |
>1 year DKK m |
|
| Assets | ||||
| Cash balances and demand deposits with central banks | 595.3 | 0.0 | 610.4 | 0.0 |
| Receivables from credit institutions and central banks | 2,105.8 | 73.0 | 2,734.8 | 6.5 |
| Loans, advances and other receivables at amortized cost | 20,664.7 | 20,680.7 | 19,355.2 | 18,684.1 |
| Bonds at fair value | 532.1 | 14,404.0 | 3,167.2 | 12,886.4 |
| Shares, etc. | 204.6 | 1,352.6 | 131.8 | 1,526.5 |
| Equity investments in associates | 0.0 | 118.4 | 0.0 | 82.4 |
| Assets linked to pooled schemes | 1,889.5 | 12,652.0 | 1,643.6 | 11,736.4 |
| Intangible assets | 13.6 | 180.8 | 15.9 | 198.6 |
| - Investment properties | 0.0 | 135.0 | 0.0 | 144.6 |
| - Corporate properties | 15.4 | 503.1 | 15.1 | 531.9 |
| Land and buildings, total | 15.4 | 638.1 | 15.1 | 676.5 |
| Other property, plant and equipment | 48.0 | 43.1 | 42.8 | 56.8 |
| Current tax assets | 17.9 | 0.0 | 91.0 | 0.0 |
| Deferred tax assets | 0.0 | 0.0 | 6.0 | 0.0 |
| Temporary assets | 33.9 | 0.0 | 27.4 | 0.0 |
| Other assets | 790.7 | 1,295.6 | 1,034.7 | 1,449.0 |
| Prepayments | 123.5 | 0.0 | 178.1 | 0.0 |
| Total | 27,035.0 | 51,438.3 | 29,054.0 | 47,303.2 |
| Liabilities | ||||
| Payables to credit institutions and central banks | 2,381.0 | 48.8 | 3,675.9 | 63.6 |
| Deposits and other payables | 2,483.0 | 43,981.2 | 3,511.2 | 41,225.1 |
| Deposits in pooled schemes | 1,889.5 | 12,652.0 | 1,643.6 | 11,736.4 |
| Other non-derivative financial liabilities at fair value | 2,007.8 | 0.0 | 1,219.7 | 0.0 |
| Other liabilities | 2,332.9 | 751.2 | 3,058.4 | 1,023.0 |
| Deferred income | 24.0 | 0.0 | 25.7 | 0.0 |
| Total liabilities other than provisions | 11,118.2 | 57,433.2 | 13,134.5 | 54,048.1 |
| Provisions for deferred tax | 3.4 | 105.1 | 6.8 | 116.0 |
| Provisions for losses on guarantees | 14.3 | 52.7 | 6.7 | 36.2 |
| Other provisions | 17.6 | 8.7 | 23.4 | 9.7 |
| Subordinated debt | 401.0 | 692.2 | 0.0 | 1,088.8 |
| Total | 11,554.5 | 58,291.9 | 13,171.4 | 55,298.8 |
Deposits comprise fixed-term deposits and demand deposits, etc. Fixed-term deposits are recognized at the maturity date. Contractually, demand deposits have ultra-short maturity, but are considered a stable funding source with an expected time to maturity of more than one year.
Bonds are broken down by duration.
| 31.12.16 | |
|---|---|
| Carrying amount DKK m |
Contractual cash flows DKK m |
Within 1 year DKK m |
1 - 5 years DKK m |
More than 5 years DKK m |
|
|---|---|---|---|---|---|
| Non-derivative instruments | |||||
| Payables to credit institutions and central banks | 2,429.8 | 2,432.7 | 2,381.5 | 5.7 | 45.5 |
| Deposits and other payables | 46,464.2 | 46,814.9 | 42,308.0 | 650.2 | 3,856.7 |
| Deposits in pooled schemes | 14,541.5 | 14,541.5 | 1,889.5 | 3,581.0 | 9,071.0 |
| Other non-derivative financial instruments | 2,007.8 | 2,007.8 | 2,007.8 | 0.0 | 0.0 |
| Other liabilities, excl. derivative instruments | 2,218.6 | 2,218.6 | 2,157.8 | 60.8 | 0.0 |
| Subordinated debt | 1,093.2 | 1,164.0 | 445.5 | 718.5 | 0.0 |
| Irrevocable credit commitments and contingent liabilities | 12,334.1 | 12,334.1 | 4,954.3 | 3,826.1 | 3,553.7 |
| Derivative instruments | |||||
| Fair value of derivative instruments | 865.5 | 781.2 | 173.2 | 216.1 | 391.9 |
| Total | 81,954.7 | 82,294.8 | 56,317.6 | 9,058.4 | 16,918.8 |
| Carrying amount DKK m |
Contractual cash flows DKK m |
Within 1 year DKK m |
1 - 5 years DKK m |
More than 5 years DKK m |
|
|---|---|---|---|---|---|
| Non-derivative instruments | |||||
| Payables to credit institutions and central banks | 3,739.5 | 3,744.5 | 3,676.7 | 10.1 | 57.7 |
| Deposits and other payables | 44,736.3 | 45,171.0 | 40,373.6 | 1,755.3 | 3,042.1 |
| Deposits in pooled schemes | 13,380.0 | 13,380.0 | 1,643.6 | 3,255.9 | 8,480.5 |
| Other non-derivative financial instruments | 1,219.7 | 1,219.7 | 1,219.7 | 0.0 | 0.0 |
| Other liabilities, excl. derivative instruments | 2,604.9 | 2,604.9 | 2,604.9 | 0.0 | 0.0 |
| Subordinated debt | 1,088.8 | 1,211.8 | 50.8 | 1,161.0 | 0.0 |
| Irrevocable credit commitments and contingent liabilities | 9,585.2 | 9,585.2 | 3,381.0 | 3,129.1 | 3,075.1 |
| Derivative instruments | |||||
| Fair value of derivative instruments | 1,476.5 | 1,415.3 | 440.1 | 495.4 | 479.8 |
| Total | 77,830.9 | 78,332.4 | 53,390.4 | 9,806.8 | 15,135.2 |
The maturity analysis shows the contractual, undiscounted cash flows and comprises agreed payments, including principal and interest.
As concerns liabilities with variable cash flow, such as floating-rate financial liabilities, the information is based on the conditions existing on the reporting date.
Subordinated debt is deemed to fall due at the time when the Spar Nord Group may choose between redeeming the debt or paying an increased interest rate/increased redemption price. If Spar Nord instead chooses to extend the loans, interest of DKK 49.8 million (2015: DKK 50.8 million) falls due for payment within 1 year, DKK 199.4 million (2015: DKK 203.4 million) within 1-5 years, and DKK 1,163.9 million including repayments of DKK 1,091.7 million (2015: DKK 1,211.7 million including repayments of DKK 1,086.7 million) after 5 years. Spar Nord has no subordinated debt with a perpetual term.
As regards deposits in pension pools, only the customers' deposits in the pension pools are allocated, as future yields for pension pool participants depend on the return on pooled assets. The dates when the obligations fall due are correlated to the assets in the pension pools.
Payments regarding irrevocable credit commitments and guarantees fall due if a number of predetermined conditions have been met. Such payment obligations have been recognized at the time when the agreements expire.
Under the agreements made, customers can usually demand repayment of their deposits at short notice. However, in practice they are considered a stable funding source, as amounts disbursed largely equal deposits received.
The above-mentioned breakdown by term to maturity has been based on the earliest date when a demand for payment can be made.
Operational risk is understood as the risk of loss that results from inefficient or deficient internal procedures, from human or systemic errors or from external events, including legal risks.
Model risk, which is the risk of loss as a consequence of decisions based mainly on output from internal models and occurring due to errors in the development, implementation or use of such models, is also defined as operational risk.
All activities in the organization are subject to operational risks. The Bank strives to limit the operational risk level to the extent possible. Operational risks are categorized on the basis of the seven event types defined by Basel III: employment practices and workplace safety; external fraud; business disruption and systems failures; internal fraud; clients, products and business practice; execution/delivery and process management; and damage to physical assets.
Spar Nord's Board of Directors has introduced a policy for operational risk, the aim of which is to provide an overview of Spar Nord's operational risks, minimize the number of errors and thus reduce Spar Nord's losses incurred from operational errors.
Operational risk is managed across Spar Nord through a comprehensive system of business procedures and control measures developed to ensure an optimum process environment. Efforts to minimize operational risks include separating the execution and the control of activities.
The Group's Legal Department is charged with handling operational risks, a responsibility that includes the role as risk facilitator.
Responsibility for dealing with risks lies with the unit responsible for the relevant business activities, the risk owners.
Throughout Spar Nord, events that result in a loss of more than DKK 10,000 are recorded and categorized, and identified risks are recorded on an ongoing basis, followed up by reporting to the Risk Review Officer, the Executive Board and the Board of Directors.
Reports are submitted quarterly to the Executive Board and risk owners, and one annual risk report is submitted to the Board of Directors. Actual and potential loss events exceeding DKK 1 million are reported on an ongoing basis to both the Executive Board and the Board of Directors.
In the quarterly reports, the risk owners are informed about the loss events and new risks identified for the relevant business area during the period under review. Scenarios are created for risks that may result in potential losses of more than DKK 10 million.
The systematic registration and categorization of loss events provide an overview of loss sources and the experience base which the Bank uses proactively in its management of operational risks.
Spar Nord's operational loss events are primarily caused by external fraud; clients, products and business practice; and execution/delivery and process management.
External fraud accounted for 54%; clients, products and business practice represented 28%; and execution/delivery and process management made up 18% of the Bank's loss events. The breakdown on these loss events was 40%, 33% and 26%, respectively, in 2015. The majority of loss events consist of events with a minor financial impact.
External fraud is defined as such events as the misuse of cards and Internet bank fraud.
The total loss in 2016 amounted to DKK 6.9 million (2015: DKK 23.1 million), of which external fraud accounts for DKK 2.6 million.
In view of the regular reporting provided to Spar Nord's Board of Directors and Executive Board, it is Management's opinion that the Bank has a satisfactory level of measures to counter the risk of being exposed to fraud.
In 2016, Spar Nord migrated to BEC's data platform, which has increased the operational risk level on account of several systems and work procedures being changed.
The change of data processing centre was effected gradually, but involved a decrease in efficiency and skills among the employees.
In step with experience in the new systems and work procedures being accumulated, the operational risk level will be reduced.
Spar Nord is experiencing an increase in external fraud, which includes card misuse and Internet bank fraud, primarily in the form of phishing of information from customers by means of false emails and text messages.
For Spar Nord, digitalization means a steady increase in the use of electronic information, which contributes to a heightened risk of external fraud.
The majority of attempts at fraud are countered by the Bank's control environment and the employees' watchfulness.
The capital required to cover Spar Nord's operational risks is calculated using the basic indicator approach.
In 2016, the operational risk amounted to 12.1% (2015: 12.4%) of total risk exposure, ending at DKK 5,732.3 million at end-2016 (2015: DKK 5,787.2 million), which results in a capital requirement of DKK 458.6 million (2015: DKK 463.0 million).
Spar Nord's objectives of capital management are:
In 2016, Spar Nord made no major changes in assumptions, objectives and policies compared to the year before.
During the year under review, Spar Nord met all statutory capital adequacy ratios.
Spar Nord's internal targets are:
Among other things, the capital targets have been fixed to ensure that any deep cyclical recession, unexpectedly heavy credit losses or major interest-rate fluctuations will not cause the total capital ratio to drop below the statutory minimum requirement.
During the year under review, Spar Nord's Common Equity Tier 1 (CET1) ratio ranged from 13.8-14.0% (2015: 13.5-14.4%) and thus exceeded Spar Nord's current internal target of 12.0%. Correspondingly, the internal target of a total capital ratio of 15.5% has been met, as it remained within the 16.6-17.7% band during the year (2015: 15.6-17.0%).
Capital management is based on the methods of accounting and financial ratios developed by the Basel Committee, which have been incorporated into Danish legislation. Management currently monitors the Bank's capital adequacy. The figures calculated at the end of each quarter for Spar Nord's own funds, total risk exposure and capital adequacy ratios, including the calculation of the Bank's solvency need ratio, are reported to the Danish Financial Supervisory Authority in accordance with existing rules.
Spar Nord's individual solvency need is an expression of its own assessment as to how high the total capital ratio should be to safeguard depositors against losses. Since the end of 2012, Spar Nord has based the calculation of its individual solvency need on the so-called 8+ method. This method is based on the statutory minimum requirement of 8.0% of the total risk exposure (Pillar I) plus add-ons for risks and matters not fully reflected in the calculation of total risk exposure. Thus, it is assumed that ordinary risks are covered by the 8% requirement, and that it must therefore be determined which additional risks Spar Nord may have that warrant an add-on to the capital requirement (Pillar II); see the guidelines from the Danish Financial Supervisory Authority in this respect.
Spar Nord's Common Equity Tier 1 (CET1) consists of its share capital, proposed dividend and retained earnings. Additional Tier 1 (AT1) capital and Tier 2 capital (T2) in the form of subordinated debt are included in the calculation of Spar Nord's own funds. A number of deductions are made in connection with calculating Spar Nord's Common Equity Tier 1 (CET1), core capital (Tier 1) and own funds. A number of deductions are made in connection with calculating Spar Nord's Common Equity Tier 1 (CET1), core capital (Tier 1) and own funds. Such deductions consist primarily of proposed dividend, share repurchase programme, intangible assets and equity investments in other credit institutions as well as subordinated loan capital provided to other credit institutions.
The total risk exposure is the calculated risk associated with Spar Nord's business areas. Total risk exposure is calculated as follows: assets, items subject to a market risk, and exposures in the form of guarantees are weighted on the basis of standard weights that depend on the type of the individual items and counterparty, with due provision being made for any collateral provided. To this should be added a supplement to cover Spar Nord's operational risks.
Own funds are specified in the statement of changes in equity.
The maturity profile for Spar Nord's subordinated debt appears from note 34.
Spar Nord continuously assesses the need for adapting the capital structure, including its goals, policies and processes.
For more details, please refer to the unaudited Risk Report at www.sparnord.com/risk.
| NOTE | 56 | POOLED SCHEMES | Pension pools 2016 DKK m |
Other pools 2016 DKK m |
Spar Nord The Group 2016 DKK m |
Spar Nord The Group 2015 DKK m |
Spar Nord Parent Company 2016 DKK m |
Spar Nord Parent Company 2015 DKK m |
|---|---|---|---|---|---|---|---|---|
| INCOME STATEMENT DISCLOSURES | ||||||||
| Interest income/premium on forward transactions: | ||||||||
| Cash deposits | 1.6 | 0.1 | 1.7 | 2.5 | 1.7 | 2.5 | ||
| Other bonds | 82.6 | 1.0 | 83.6 | 93.6 | 83.6 | 93.6 | ||
| Total interest income | 84.2 | 1.1 | 85.3 | 96.1 | 85.3 | 96.1 | ||
| Dividends on: Shares, etc. |
||||||||
| Unit trust certificates | 106.2 5.3 |
1.2 0.1 |
107.4 5.4 |
92.9 12.3 |
107.4 5.4 |
92.9 12.3 |
||
| Total dividends | 111.5 | 1.3 | 112.8 | 105.2 | 112.8 | 105.2 | ||
| Market-value adjustments of: | ||||||||
| Other bonds, etc. | 34.0 | 0.5 | 34.5 | -156.6 | 34.5 | -156.6 | ||
| Shares, etc. | 88.9 | 1.0 | 89.9 | 978.2 | 89.9 | 978.2 | ||
| Unit trust certificates | 51.4 | 0.7 | 52.1 | -51.4 | 52.1 | -51.4 | ||
| Currency | 140.2 | 1.5 | 141.7 | 278.1 | 141.7 | 278.1 | ||
| Derivative instruments | 31.6 | 0.3 | 31.9 | 0.0 | 31.9 | 0.0 | ||
| Total market-value adjustments | 346.1 | 4.0 | 350.1 | 1,048.3 | 350.1 | 1,048.3 | ||
| Fees, charges and commissions paid | 165.7 | 1.9 | 167.6 | 142.2 | 167.6 | 142.2 | ||
| Profit/loss for the pools | 376.1 | 4.5 | 380.6 | 1,107.4 | 380.6 | 1,107.4 |
| Assets |
|---|
| -------- |
| Cash deposits | 941.0 | 12.3 | 953.3 | 1,103.6 | 953.3 | 1,103.6 |
|---|---|---|---|---|---|---|
| Other bonds | 6,392.7 | 81.4 | 6,474.1 | 4,636.9 | 6,474.1 | 4,636.9 |
| Other shares, etc. | 5,967.6 | 66.0 | 6,033.6 | 6,661.3 | 6,033.6 | 6,661.3 |
| Unit trust certificates | 1,025.7 | 13.9 | 1,039.6 | 940.8 | 1,039.6 | 940.8 |
| Other assets | 40.4 | 0.5 | 40.9 | 37.4 | 40.9 | 37.4 |
| Total assets | 14,367.4 | 174.1 | 14,541.5 | 13,380.0 | 14,541.5 | 13,380.0 |
| Liabilities | ||||||
| Total deposits | 13,906.3 | 168.6 | 14,074.9 | 12,256.6 | 14,074.9 | 12,256.6 |
| Other liabilities | 461.1 | 5.5 | 466.6 | 1,123.4 | 466.6 | 1,123.4 |
| Total liabilities | 14,367.4 | 174.1 | 14,541.5 | 13,380.0 | 14,541.5 | 13,380.0 |
The Danish Financial Supervisory Authority's layout and ratio system
| PERFORMANCE INDICATORS DKK m |
2016 | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|
| INCOME STATEMENT | |||||
| Net income from interest, fees, charges and commissions | 2,771.4 | 2,860.5 | 2,809.9 | 2,902.7 | 2,259.3 |
| Market-value adjustments | 385.8 | 452.0 | 363.1 | 192.8 | 232.8 |
| Staff costs and administrative expenses | 1,788.8 | 1,768.2 | 1,837.9 | 1,667.2 | 1,573.8 |
| Impairment of loans, advances and receivables, etc. | 292.0 | 373.4 | 602.9 | 726.4 | 667.2 |
| Profit/loss on equity investments in associates and group enterprises | 29.6 | 28.3 | 104.1 | 77.6 | 86.7 |
| Profit/loss for the year | 838.2 | 896.8 | 613.6 | 536.1 | 223.8 |
| Loans and advances | 41,346 | 38,039 | 35,948 | 37,648 | 39,058 |
|---|---|---|---|---|---|
| Equity | 8,627 | 7,887 | 7,033 | 6,533 | 5,975 |
| Total assets | 78,473 | 76,357 | 78,825 | 74,605 | 79,146 |
| Own funds | ||||||
|---|---|---|---|---|---|---|
| Total capital ratio, % | 17.7 | 17.0 | 15.0 | 19.4 | 15.5 | |
| Core capital (Tier 1) ratio, % | 15.6 | 14.9 | 13.3 | 17.4 | 15.1 | |
| Earnings | ||||||
| Return on equity before tax | % | 12.5 | 14.4 | 10.4 | 10.7 | 5.5 |
| Return on equity after tax | % | 10.2 | 12.0 | 9.0 | 8.6 | 4.2 |
| Income/cost ratio | 1.47 | 1.46 | 1.27 | 1.26 | 1.12 | |
| Return on assets | % | 1.1 | 1.2 | 0.8 | 0.7 | 0.3 |
| Market risk and liquidity | ||||||
| Interest-rate risk | % | 1.2 | 1.8 | 0.6 | -0.3 | -1.1 |
| Foreign-exchange position | % | 3.2 | 3.4 | 2.6 | 3.7 | 1.4 |
| Foreign-exchange risk | % | 0.1 | 0.1 | 0.0 | 0.0 | 0.0 |
| Excess coverage rel. to statutory cash ratio requirement | % | 308.3 | 296.1 | 186.0 | 230.7 | 211.5 |
| Credit risk | ||||||
| Loans and advances relative to deposits | % | 67.8 | 65.5 | 67.7 | 74.0 | 79.8 |
| Loans and advances plus impairment rel. to deposits | % | 70.7 | 68.5 | 71.1 | 77.1 | 82.5 |
| Loans and advances rel. to equity | 4.8 | 4.8 | 5.1 | 5.8 | 6.5 | |
| Increase in loans and advances for the year | % | 3.6 | -4.5 | -1.1 | -7.9 | 1.7 |
| Large exposures as % of own funds | % | 14.5 | 16.1 | 0.0 | 26.2 | 16.5 |
| Impairment ratio for the year | % | 0.5 | 0.8 | 1.3 | 1.6 | 1.4 |
| DKK per share of DKK 10 | |||||
|---|---|---|---|---|---|
| Earnings for the year | 6.8 | 7.2 | 4.9 | 4.3 | 2.5 |
| Net asset value (NAV) | 63 | 60 | 56 | 52 | 48 |
| Dividend | 5.0 | 5.0 | 1.6 | 1.0 | 0.0 |
| Share price/earnings for the year | 11.9 | 8.5 | 11.8 | 11.4 | 10.4 |
| Share price/NAV | 1.3 | 1.0 | 1.0 | 0.9 | 0.5 |
Ratio definitions appear from note 58.
The Danish Financial Supervisory Authority's layout and ratio system
| PERFORMANCE INDICATORS DKK m |
2016 | 2015 | 2014 | 2013 | 2012 | |
|---|---|---|---|---|---|---|
| INCOME STATEMENT | ||||||
| Net income from interest, fees, charges and commissions | 2,736.1 | 2,810.3 | 2,769.6 | 2,877.6 | 2,259.8 | |
| Market-value adjustments | 340.2 | 449.6 | 183.4 | 176.5 | 232.9 | |
| Staff costs and administrative expenses | 1,795.2 | 1,775.7 | 1,844.1 | 1,673.0 | 1,576.3 | |
| Impairment of loans, advances and receivables, etc. | 292.0 | 373.4 | 602.9 | 726.4 | 667.1 | |
| Profit/loss on equity investments in associates and group enterprises | 104.5 | 78.9 | 332.1 | 108.7 | 86.9 | |
| Profit/loss for the year | 839.0 | 897.4 | 613.3 | 537.5 | 224.1 |
| Loans and advances | 41,219 | 37,912 | 35,821 | 37,648 | 39,058 |
|---|---|---|---|---|---|
| Equity | 8,627 | 7,887 | 7,033 | 6,533 | 5,975 |
| Total assets | 79,758 | 77,498 | 79,950 | 75,453 | 80,188 |
| Own funds | ||||||
|---|---|---|---|---|---|---|
| Total capital ratio, % | 17.3 | 16.8 | 14.8 | 19.1 | 15.5 | |
| Core capital (Tier 1) ratio, % | 15.3 | 14.8 | 13.1 | 17.2 | 15.0 | |
| Earnings | ||||||
| Return on equity before tax | % | 12.3 | 14.2 | 10.3 | 10.6 | 5.5 |
| Return on equity after tax | % | 10.2 | 12.0 | 9.0 | 8.6 | 4.2 |
| Income/cost ratio | 1.46 | 1.46 | 1.27 | 1.25 | 1.12 | |
| Return on assets | % | 1.1 | 1.2 | 0.8 | 0.7 | 0.3 |
| Market risk and liquidity | ||||||
| Interest-rate risk | % | 1.1 | 1.6 | 0.3 | -0.4 | -1.1 |
| Foreign-exchange position | % | 3.2 | 3.4 | 2.6 | 3.7 | 1.3 |
| Foreign-exchange risk | % | 0.1 | 0.1 | 0.1 | 0.0 | 0.0 |
| Excess coverage rel. to statutory cash ratio requirement | % | 301.9 | 290.4 | 182.1 | 226.7 | 207.3 |
| Credit risk | ||||||
| Loans and advances relative to deposits | % | 66.1 | 63.9 | 66.0 | 72.7 | 78.2 |
| Loans and advances plus impairment rel. to deposits | % | 69.0 | 66.9 | 69.4 | 75.8 | 80.9 |
| Loans and advances rel. to equity | 4.8 | 4.8 | 5.1 | 5.8 | 6.5 | |
| Increase in loans and advances for the year | % | 3.6 | -4.5 | -1.4 | -7.9 | 1.6 |
| Large exposures as % of own funds | % | 0.0 | 14.8 | 0.0 | 26.1 | 16.1 |
| Impairment ratio for the year | % | 0.5 | 0.8 | 1.3 | 1.6 | 1.4 |
| DKK per share of DKK 10 | |||||
|---|---|---|---|---|---|
| Earnings for the year | 6.8 | 7.2 | 4.9 | 4.3 | 2.5 |
| Net asset value (NAV) | 63 | 60 | 56 | 52 | 48 |
| Dividend | 5.0 | 5.0 | 1.6 | 1.0 | 0.0 |
| Share price/earnings for the year | 11.9 | 8.5 | 11.8 | 11.4 | 10.4 |
| Share price/NAV | 1.3 | 1.0 | 1.0 | 0.9 | 0.5 |
Ratio definitions appear from note 58.
Own funds in per cent of total risk exposure.
Core capital (Tier 1) in per cent of total risk exposure.
Common Equity Tier 1 (CET1) in per cent of total risk exposure.
Profit/loss before tax in per cent of average equity. The average equity is calculated as a simple average of the equity at the beginning of the year and at the end of the year.
Profit/loss after tax in per cent of average equity. The average equity is calculated as a simple average of the equity at the beginning of the year and at the end of the year.
Net income from interest, fees, charges and commissions, Market-value adjustments, Other operating income and Profit/loss on equity investments in associates and group enterprises in per cent of Staff costs and administrative expenses, Depreciation, amortization and impairment of intangible assets and property, plant and equipment, Other operating expenses and Impairment of loans, advances and receivables.
Profit/loss after tax in per cent of total assets.
Interest-rate risk in per cent of core capital (Tier 1) after deductions.
Foreign-exchange indicator 1 in per cent of core capital (Tier 1) after deductions.
Foreign-exchange indicator 2 in per cent of core capital (Tier 1) after deductions.
Loans and advances + impairment in per cent of deposits.
Loans and advances in per cent of deposits.
Cash balances, Demand deposits with Danmarks Nationalbank (the central bank), Absolutely secure and liquid demand deposits with credit institutions and insurance companies, Uncollateralized certificates of deposit issued by Danmarks Nationalbank and Secure and liquid (listed) uncollateralized securities in per cent of 10% of Reduced liabilities (other than provisions) and guarantee commitments.
Liquid assets in per cent of the net value of cash inflows and cash outflows viewed over a 30-day period of heightened corporate financial stress.
Sum total of large exposures in per cent of own funds, adjusted for exposures to credit institutions, etc. below EUR 150 million after making allowance for credit risk reduction and exceptions, etc.
Impairment for the year in per cent of loans and advances + guarantees + impairment.
Increase in loans and advances from the beginning of the year to the end of the year, excl. repos, in per cent.
The profit/loss for the year after tax/average number of shares. The average number of shares is calculated as a simple average of the shares at the beginning of the year and at the end of the year.
Shareholders' equity/number of shares, excl. treasury shares. Shareholders' equity is calculated as if the Additional Tier 1 (AT1) capital were treated as a liability.
Proposed dividend/number of shares.
Share price/earnings per share for the year.
Share price/NAV per share.
Profit/loss before tax in per cent of average shareholders' equity. The average shareholders' equity is calculated as a simple average of the shareholders' equity at the beginning of the year and at the end of the year.
The 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 average shareholders' equity. The average shareholders' equity is calculated as a simple average of the shareholders' equity at the beginning of the year and at the end of the year.
The profit/loss after tax and shareholders' equity are calculated as if the Additional Tier 1 (AT1) capital were treated as a liability.
Operating expenses, depreciation and amortization/Core income.
Operating expenses, depreciation and amortization + Impairment of loans and advances, etc./Core income.
Year-end price – year-end price the year before + dividend the year before + extraordinary dividend for the year in per cent of the year-end price the year before.
Year-end price/Earnings per share for the year (calculated as if the Additional Tier 1 (AT1) capital were treated as a liability).
The profit/loss for the year/period after tax/average number of shares in circulation, excl. treasury shares. The average number of shares is calculated as a simple average of the shares at the beginning of the year and at the end of the year.
The profit/loss after tax for the year/period is calculated as if the Additional Tier 1 (AT1) capital were treated as a liability.
Profit/loss for the year after tax/average number of shares in circulation, incl. dilutive effect of share options and contingently issuable shares.
*) The Danish Financial Supervisory Authority's ratio system.
| Skelagervej 15 P.O. Box 162 DK-9100 Aalborg |
118Spar Nord Bank A/S | Spar Nord Annual Report | www.sparnord.dk | Tel. +45 9634 4000 Fax +45 9634 4560 [email protected] |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| CVR no. 13 73 75 84 | ||||||||||
| The Annual 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 trans lation, the Danish text shall prevail. |
||||||||||
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.