Sydbank — Annual Report 2012

Dec 31, 2012

Sydbank

Announcement of the 2012 Financial Statements

Company Announcement No 02/2013
20 February 2013

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS
1/23

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Sydbank

Contents

Financial Review

• Group Financial Highlights 3
• Summary 4
• Performance in 2012 7

Financial Statements – Sydbank Group

• Income Statement 19
• Statement of Comprehensive Income 19
• Balance Sheet 20
• Capital 21
• Supplementary Information 23

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Group Financial Highlights

	Index
	2012	2011	12/11	2010	2009	2008
Income statement (DKKm)
Core income	4,229	4,080	104	4,150	3,999	3,952
Trading income	323	167	193	444	587	273
Total income	4,552	4,247	107	4,594	4,586	4,225
Costs, core earnings	2,482	2,463	101	2,479	2,466	2,484
Core earnings before impairment	2,070	1,784	116	2,115	2,120	1,741
Impairment of loans and advances etc	1,748	1,195	146	1,400	1,195	544
Core earnings	322	589	55	715	925	1,197
Investment portfolio earnings	397	(15)	-	227	430	(385)
Profit before non-recurring items and industry solutions	719	574	125	942	1,355	812
Non-recurring items, net	(82)	(171)	-	-	86	162
Contributions to industry solutions	13	102	13	384	443	163
Profit before tax	624	301	207	558	998	811
Tax	157	113	139	147	217	205
Profit for the year	467	188	248	411	781	606
Balance sheet highlights (DKKbn)
Loans and advances at amortised cost	68.2	68.8	99	73.0	74.5	82.5
Loans and advances at fair value	6.1	7.7	80	10.7	12.9	13.3
Deposits and other debt	65.7	66.7	98	64.2	68.8	75.0
Bonds issued at amortised cost	4.0	7.5	53	11.2	8.6	10.1
Subordinated capital	1.4	2.1	66	2.3	3.1	4.2
Shareholders' equity	10.0	9.6	105	9.6	9.1	7.1
Total assets	152.7	153.4	100	150.8	157.8	156.0
Financial ratios per share (DKK per share of DKK 10)
EPS Basic	6.4	2.6		5.6	11.7	9.5
EPS Diluted	6.4	2.6		5.6	11.7	9.5
Share price at year-end	99.7	90.1		151.3	133.8	64.3
Book value	137.6	131.1		129.8	124.1	112.5
Share price/book value	0.72	0.69		1.17	1.08	0.57
Average number of shares outstanding (in millions)	73.1	73.2		73.5	66.9	63.4
Proposed dividend	-	-		1.0	-	-
Other financial ratios and key figures
Solvency ratio	15.9	16.1		15.4	15.2	14.7
Core capital ratio	15.6	15.2		14.3	13.1	10.8
Pre-tax profit as % of average shareholders' equity	6.4	3.1		6.0	12.3	11.8
Post-tax profit as % of average shareholders' equity	4.8	2.0		4.4	9.6	8.8
Costs (core earnings) as % of total income	54.5	58.0		54.0	53.8	58.8
Interest rate risk	1.8	0.9		1.5	1.0	1.4
Foreign exchange position	0.9	1.6		1.2	1.1	11.4
Foreign exchange risk	0.0	0.1		0.0	0.0	0.0
Loans and advances relative to deposits	0.9	0.9		1.0	1.0	1.0
Loans and advances relative to shareholders' equity	6.8	7.2		7.6	8.2	11.6
Growth in loans and advances for the year	(1.0)	(5.7)		(2.0)	(9.6)	10.7
Excess cover relative to statutory liquidity requirements	127.4	148.7		106.3	94.4	89.4
Total large exposures	21.6	26.3		54.4	17.2	23.8
Accumulated impairment ratio excl PCA	3.8	2.3		2.0	1.7	1.0
Impairment ratio for the year excl PCA	2.2	1.5		1.7	1.3	0.6
Number of full-time staff at year-end	2,132	2,152	99	2,284	2,369	2,479

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Summary

The Sydbank Group has generated a profit before tax for 2012 of DKK 624m, equalling a return of 6.4% on average shareholders' equity. The result is considered to be satisfactory in light of the new tightened impairment rules and weak growth in the economy. As a consequence of considerable impairment charges pre-tax profit is below expectations at the beginning of 2012.

On 2 November 2012 Sydbank took over all activities from Tønder Bank, including employees, clients, branches and all assets and liabilities apart from hybrid capital and supplementary capital.

2012

• 3.7% rise in core income.
• DKK 156m growth in trading income to DKK 323m.
• Unchanged level of costs (core earnings) for the fifth consecutive year.
• Rise in impairment charges for loans and advances of DKK 553m to DKK 1,748m.
• Investment portfolio earnings of DKK 397m.
• Non-recurring items of minus DKK 82m.
• Contributions to industry solutions of DKK 13m.
• 1% reduction in bank loans and advances to DKK 68.2bn.
• 1.6% decline in deposits to DKK 65.7bn.
• Increase in core capital ratio to 15.6%.
• Good liquidity.
• Substantial influx of clients, including via the takeover of Tønder Bank clients.
• Distribution of dividend to shareholders for 2012 will not be recommended.

Q4 2012

• Profit before tax of DKK 60m.

Summary income statement (DKKm)	2012	2011
Core income	4,229	4,080
Trading income	323	167
Total income	4,552	4,247
Costs, core earnings	2,482	2,463
Core earnings before impairment	2,070	1,784
Impairment of loans and advances etc	1,748	1,195
Core earnings	322	589
Investment portfolio earnings	397	(15)
Profit before non-recurring items and industry solutions	719	574
Non-recurring items, net	(82)	(171)
Contributions to industry solutions	13	102
Profit before tax	624	301
Tax	157	113
Profit for the year	467	188

In terms of the expectations announced during 2012, core income, costs and impairment charges for loans and advances are in line with expectations whereas trading income is significantly higher.

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Core earnings before impairment charges represent DKK 2,070m compared with DKK 1,784m in 2011. The increase of DKK 286m is ascribable to a rise in core income of DKK 149m, growth in trading income of DKK 156m and an increase in costs (core earnings) of DKK 19m.

Impairment charges for loans and advances etc represent DKK 1,748m (2011: DKK 1,195m). The increase is a result of the Group's implementation of the Danish FSA's new tightened impairment rules, especially as regards bank loans and advances secured on real property. The new rules are more cautious than the previous rules.

As a consequence of the new tightened impairment rules the Group recorded considerable additional impairment charges for bank loans and advances to corporate clients secured on real property and reserved substantial amounts in the individual solvency need as regards bank loans and advances to retail clients secured on real property in 1H 2012.

The Bank has subsequently reviewed its portfolio of bank loans and advances to retail clients. In quite a few cases the financial situation of clients is very tight. It is estimated that the disposable amount of these clients will be insufficient if their loans are converted from floating-rate, interest-only loans to fixed-rate loans with repayment.

Consequently further impairment charges for bank loans and advances to retail clients of around DKK 325m were recorded in Q4 2012.

The Group has generated very satisfactory investment portfolio earnings of DKK 397m (2011: minus DKK 15m).

Profit before non-recurring items and industry solutions represents DKK 719m (2011: DKK 574m).

Non-recurring items, net, total minus DKK 82m and mainly relate to integration costs in connection with the takeover of activities from Tønder Bank. Contributions to industry solutions represent DKK 13m.

Profit before tax amounts to DKK 624m (2011: DKK 301m). Less a calculated tax charge of DKK 157m (2011: DKK 113m), the Group's profit stands at DKK 467m compared with DKK 188m in 2011.

Return on shareholders' equity before and after tax constitutes 6.4% and 4.8%, respectively, against 3.1% and 2.0% in 2011. Earnings per share has increased from DKK 2.6 to DKK 6.4.

During the year shareholders' equity grew by DKK 438m to DKK 10,033m.

Since year-end 2011 risk-weighted assets have increased by DKK 0.5bn to DKK 71.2bn. The development consists of an increase in credit risk of DKK 1.6bn – which is exclusively attributable to the takeover of risk-weighted assets from Tønder Bank – as well as an increase in operational risk of DKK 0.3bn and a decrease in market risk of DKK 1.4bn.

At year-end 2012 the solvency ratio stands at 15.9%, of which 15.6 percentage points are ascribable to core capital, compared with 16.1% and 15.2%, respectively, at end-2011. The core capital ratio excluding hybrid core capital has increased from 13.4% to 13.8%.

The Group's internal capital target continues to represent DKK 9,900m, equal to 13.9% of risk-weighted assets (end-2011: 14.0%).

The Group's liquidity is good and constitutes 22.7% at year-end 2012 measured under the 10% statutory requirement. Moody's 12-month liquidity curve shows that the Group is able to withstand a situation in which access to capital markets is cut off for a period exceeding 12 months.

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Distribution of dividend to shareholders for 2012 will not be recommended.

In 2012 Sydbank saw a substantial influx of retail clients as well as corporate clients, partly due to acquisitions. Consequently the foundation for future earnings has been enhanced.

The Group's expectations for 2013:
- Slight decline in core income – primarily as a result of projected increased competition for the best clients and secondarily as a result of an unchanged or slightly decreasing lending volume.
- Unchanged or slight decline in trading income – however highly dependent on financial market developments.
- Modest growth in costs.
- Significantly lower impairment charges for loans and advances albeit still at a high level.

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Performance in 2012

Core income

Total core income has increased by DKK 149m to DKK 4,229m.

Core income (DKKm)	2012	2011
Interest margins etc	2,768	2,799
Mortgage credit	269	188
Payment services	170	156
Remortgaging and loan fees	113	86
Commission and brokerage	308	354
Commission etc investment funds and pooled pension plans	288	234
Asset management	163	143
Custody account fees	70	69
Other operating income	80	51
Total	4,229	4,080

During the year bank loans and advances have decreased by 1% and deposits by 2%. The actual reduction in bank loans and advances is a few per cent higher when adjusted for the influx of bank loans and advances from Tønder Bank in November 2012. In spite of a positive contribution from the interest rate increases implemented since August 2011, this development has caused a reduction in net interest of DKK 31m.

Net income from the cooperation with Totalkredit represents DKK 206m (2011: DKK 150m) after a set-off of loss of DKK 18m (2011: DKK 20m). The cooperation with DLR Kredit has generated an income of DKK 59m (2011: DKK 34m). Total mortgage credit income amounts to DKK 269m (2011: DKK 188m).

The rise in mortgage credit income as well as income from remortgaging and loan fees is ascribable to growing remortgaging activity and increased prices compared to 2011.

Foreign exchange and securities trading by retail clients has declined partly due to an increased use of management agreements. This change in customer behaviour has contributed to rising income from commission etc in relation to investment funds and pooled pension plans.

Consequently commission and brokerage income has declined by DKK 46m compared with 2011. Income from commission etc concerning investment funds and pooled pension plans has increased by DKK 54m compared with 2011.

The remaining income components have increased by a total of DKK 64m, equal to 15% compared to 2011.

Trading income

Compared with 2011 trading income has climbed by DKK 156m to DKK 323m and is composed as follows in terms of business units:

Trading income (DKKm)	2012	2011
Fixed Income	197	129
Equities	56	43
Money Market and Foreign Exchange	70	(5)
Total	323	167

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

As a result Sydbank Markets has seen a very positive development in 2012 with a near-doubling of trading income compared with 2011.

Fixed Income has recorded a rise in performance of 53% as a result of increased remortgaging activity and considerable corporate bond trading. The positive trend in trading with institutional clients has continued with a rise in turnover of 30%.

Equities has delivered a sharp increase in income of 30% in a market where turnover is declining. The impressive performance is a result of excellent risk handling.

Money Market and Foreign Exchange has turned a small negative income in 2011 into a significant positive income in 2012. The level of trading activity with clients is still moderate. In 2H the department saw increased interest in hedging.

Costs and depreciation

The Group's total costs and depreciation recorded DKK 2,571m against DKK 2,687m in 2011. In 2012 DKK 7m can be attributed to investment portfolio earnings.

Costs included in non-recurring items constitute DKK 69m, comprising DKK 78m relating to the integration of Tønder Bank and DKK 9m concerning reversed costs in connection with the winding-up of the subsidiary bank in Switzerland. Costs in connection with the integration of Tønder Bank include an extraordinary payment of DKK 30m in 2012 to clients who had invested in hybrid core capital offered by Tønder Bank in September 2012 as well as salaries of DKK 24m to dismissed employees.

The level of costs (core earnings) remains unchanged for the fifth consecutive year as a result of tight cost control as well as a continued decline in staff.

Costs and depreciation (DKKm)	2012	2011
Staff costs	1,407	1,527
Other administrative expenses	973	936
Amortisation, depreciation and impairment of intangible assets and property, plant and equipment	108	122
Other operating expenses	83	102
Total	2,571	2,687
Distributed as follows:
Costs, core earnings	2,482	2,463
Costs, investment portfolio earnings	7	10
Costs, non-recurring items	69	114
Costs, industry solutions	13	100

Costs (core earnings) as a percentage of total income represent 54.5% (2011: 58.0%).

At year-end 2012 the Group's staff numbered 2,132 (full-time equivalent), including 56 employees taken over from Tønder Bank, compared with 2,152 in 2011.

10 branches have been taken over from Tønder Bank. In connection with the integration eight branches have been closed. In addition nine small branches were closed during 2012 as a consequence of the Bank's ongoing adjustment of its service concept. At year-end 2012 the number of branches totals 95 in Denmark and unchanged five in Germany.

Furthermore net costs to the credit institution department of the Deposit Guarantee Fund represent DKK

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

69m (2011: DKK 0).

Core earnings before impairment of loans and advances

Core earnings before impairment of loans and advances have increased by DKK 286m and represent DKK 2,070m (2011: DKK 1,784m).

Impairment of loans and advances etc

Impairment charges for loans and advances etc represent DKK 1,748m compared with DKK 1,195m in 2011. The increase is a result of the Group's implementation of the Danish FSA's new tightened impairment rules, especially as regards bank loans and advances secured on real property. The new rules are more cautious than the previous rules.

As a consequence the Group recorded considerable additional impairment charges for bank loans and advances to corporate clients secured on real property and reserved substantial amounts in the individual solvency need as regards bank loans and advances to retail clients secured on real property in 1H 2012.

The Bank has subsequently reviewed its portfolio of bank loans and advances to retail clients. In quite a few cases the financial situation of clients is very tight. It is estimated that the disposable amount of these clients will be insufficient if their loans are converted from floating-rate, interest-only loans to fixed-rate loans with repayment.

Consequently further impairment charges for bank loans and advances to retail clients of around DKK 325m were recorded in Q4 2012.

At year-end 2012 the impairment ratio for the year represents 2.40% (2011: 1.70%) relative to bank loans and advances and 2.19% (2011: 1.52%) relative to bank loans and advances and guarantees. At year-end 2012 accumulated impairment and provisions amount to DKK 3,018m (2011: DKK 1,836m).

The impairment charges for the year for bank loans and advances of DKK 1,748m comprise DKK 469m regarding real property, DKK 256m regarding finance and insurance, DKK 574m regarding other corporate clients and DKK 449m regarding retail clients. Reference is made to the separate publication "Credit Risk 2012" for further elaboration.

Individually impaired bank loans and advances

Impaired bank loans and advances
Individual impairment charges for bank loans and advances
Impaired bank loans and advances, net
Impaired bank loans and advances as % of bank loans and advances

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Compared with 2011 impaired bank loans and advances before impairment charges have increased by DKK 2,247m to DKK 5,388m, equal to 72%. DKK 1,855m of the increase concerns non-defaulted bank loans and advances and DKK 392m concerns defaulted bank loans and advances. During the same period individually impaired bank loans and advances after impairment charges have increased by DKK 1,122m, equal to 75%. Impairment charges for bank loans and advances subject to individual impairment represent 51.4% (2011: 52.3%).

Individually impaired bank loans and advances (DKKm)	2012	2011
Non-defaulted bank loans and advances	4,038	2,183
Defaulted bank loans and advances	1,350	958
Impaired bank loans and advances	5,388	3,141
Impairment charges for bank loans and advances subject to individual impairment	2,769	1,644
Impaired bank loans and advances after impairment charges	2,619	1,497
Impaired bank loans and advance as % of bank loans and advances before impairment charges	7.6	4.4
Impairment charges as % of bank loans and advances before impairment charges	3.9	2.3
Impaired as % of impaired bank loans and advances	51.4	52.3
Impairment charges as % of defaulted bank loans and advances	205.1	171.6

The following chart shows the quarterly developments in impaired bank loans and advances broken down into defaulted bank loans and advances and non-defaulted bank loans and advances in 2011 and 2012. The quarterly development in defaulted bank loans and advances is relatively constant whereas the corresponding development in non-defaulted bank loans and advances shows a rising trend in the most recent five quarters.

Breakdown of impaired bank loans and advances

Core earnings
Core earnings have decreased by 45% and represent DKK 322m compared with DKK 589m in 2011.

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Investment portfolio earnings

Less funding charges and less related costs of DKK 7m, investment portfolio earnings constitute DKK 397m compared to minus DKK 15m in 2011 and can be specified as follows:

Investment portfolio earnings (DKKm)	2012	2011
Position-taking	255	(54)
Liquidity generation and liquidity reserves	97	21
Mandates (CDO)	54	32
Winding-up portfolio	(10)	(12)
Strategic shares	8	8
Costs	(7)	(10)
Total	397	(15)

Together the Group's position-taking and liquidity handling recorded earnings of DKK 352m in 2012 compared to minus DKK 33m in 2011. The result has almost exclusively been achieved via positions in the Danish mortgage market hedged by various derivatives. During the period Treasury has undertaken very active risk handling.

Margin expenses as regards the Group's senior issues are included under liquidity generation and liquidity reserves and represent DKK 91m in 2012 compared to DKK 77m in 2011. After the redemption of one of the senior issues in September 2012 expenses have been reduced significantly and amount to DKK 12m in Q4 2012.

In view of the fact that the bond portfolio must be eligible for inclusion in the calculation of liquidity according to the forthcoming rules, the Group reallocated large parts of its bond portfolio during 2012. At the same time a considerable part of small and illiquid bond portfolios have been sold so that the Group's position is far more transparent and liquid today. This process will continue in 2013.

Just as in 2011 the CDO portfolio has contributed positively to investment portfolio earnings, both via coupon payments and capital gains. During 2012 the CDO portfolio was reduced by DKK 35m to DKK 80m at year-end. The remaining portfolio is expected to be sold in 2013.

Profit before non-recurring items and industry solutions

Profit before non-recurring items and industry solutions has increased by DKK 145m and represents DKK 719m (2011: DKK 574m).

Non-recurring items, net

Non-recurring items, net, total minus DKK 82m (2011: minus DKK 171m).

Non-recurring items (DKKm)	2012
Integration costs, Tønder Bank	78
Reversed costs, Sydbank (Schweiz) AG	(9)
Non-recurring costs	69
Interest expense, Tønder Bank	2
Reversed sales income etc, Sydbank (Schweiz) AG	11
Total	82

Contributions to industry solutions

In 2012 an adjustment of DKK 13m was made regarding the industry solution eg relating to Fjordbank Mors. Contributions totalled DKK 102m in 2011.

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

The Group's total costs relating to the Deposit Guarantee Fund and the Private Contingency Association amount to DKK 1.2bn since autumn 2008.

Profit for the year

Profit before tax represents DKK 624m (2011: DKK 301m). Less a calculated tax charge of DKK 157m (2011: DKK 113m), the Group's profit stands at DKK 467m compared with DKK 188m in 2011.

Return

Return on shareholders' equity before and after tax constitutes 6.4% and 4.8%, respectively, against 3.1% and 2.0% in 2011. Earnings per share has increased from DKK 2.6 to DKK 6.4.

Subsidiaries

The subsidiary bank, Sydbank (Schweiz) AG, which has entered into solvent liquidation and which is expected to be finally wound up on 1 March 2013, recorded a loss after tax of DKK 6m (2011: loss of DKK 30m).

Ejendomsselskabet recorded a loss after tax of DKK 1m (2011: loss of DKK 13m).

As part of the Tønder Bank transaction Sydbank took over the subsidiary of Tønder Bank, TB Leasing ApS. The company posted a loss after tax for 2012 of DKK 16,000. The company's equity amounts to DKK 1m at end-2012 and the company is expected to be wound up by solvent liquidation before the end of Q1 2013.

Profit for the period (DKKm)	2012				2011
	Q4	Q3	Q2	Q1	Q4
Core income	1,067	1,021	1,070	1,071	1,060
Trading income	71	84	59	109	49
Total income	1,138	1,105	1,129	1,180	1,109
Costs, core earnings	575	605	652	650	573
Core earnings before impairment	563	500	477	530	536
Impairment of loans and advances etc	550	223	678	297	460
Core earnings	13	277	(201)	233	76
Investment portfolio earnings	132	139	5	121	10
Profit before non-recurring items and industry solutions	145	416	(196)	354	86
Non-recurring items, net	(82)	-	-	-	(25)
Contributions to industry solutions	3	5	-9	14	(34)
Profit before tax	60	411	(187)	340	95
Tax	16	103	(47)	85	43
Profit for the period	44	308	(140)	255	52

Q4 2012

Profit before tax for Q4 stands at DKK 60m, including profit on the activities taken over from Tønder Bank since 2 November 2012. Compared with Q3 2012 profit before tax reflects:

• A rise in income from interest margins of DKK 46m.
• A decline in trading income of DKK 13m.
• A fall in costs of DKK 30m.
• An increase in impairment charges for loans and advances of DKK 327m.
• Investment portfolio earnings of DKK 132m (Q3: DKK 139m).
• Net non-recurring items of minus DKK 82m (Q3: DKK 0m).
• A reduction in contributions to industry solutions of DKK 2m.

Profit for the period amounts to DKK 44m in Q4.

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Balance sheet

The Group's total assets made up DKK 152.7bn at year-end 2012 against DKK 153.4bn at year-end 2011.

Assets year-end (DKKbn)	2012	2011
Amounts owed by credit institutions etc	8.4	9.5
Loans and advances at fair value (reverse transactions)	6.1	7.7
Loans and advances at amortised cost (bank loans and advances)	68.2	68.8
Securities and holdings etc	39.6	40.0
Assets related to pooled plans	9.8	8.6
Other assets etc	20.6	18.8
Total	152.7	153.4

The Group's bank loans and advances total DKK 68.2bn after taking over bank loans and advances from Tønder Bank of almost DKK 1.5bn. Compared to 2011 this is a reduction of 1.0%, which consists of a decline in corporate lending and a slight increase in retail lending.

Intangible assets include the value of customer relations acquired in connection with the takeover of the activities from Tønder Bank which amounted to DKK 57m at the date of acquisition. The value of these customer relations is amortised over 10 years.

Shareholders' equity and liabilities year-end (DKKbn)	2012	2011
Amounts owed to credit institutions etc	38.6	38.8
Deposits and other debt	65.7	66.7
Deposits in pooled plans	9.8	8.6
Bonds issued	4.0	7.5
Other liabilities etc	23.0	19.8
Provisions	0.2	0.3
Subordinated capital	1.4	2.1
Shareholders' equity	10.0	9.6
Total	152.7	153.4

The Group's deposits make up DKK 65.7bn after taking over deposits of approximately DKK 1.9bn from Tønder Bank. This is a reduction of 1.6% compared to 2011. The volume of deposits has been strengthened via an increase in demand deposits of DKK 8.8bn and a reduction in time deposits of DKK 10.1bn.

Subordinated capital

During the year the Group prepaid subordinated loan capital of EUR 100m, after which subordinated capital consists exclusively of hybrid Tier 1 capital of DKK 1,387m (2011: DKK 2,125m).

Share capital

The share capital is unchanged at DKK 742,499,990 at year-end 2012.

Sydbank share year-end (number)	2012	2011
Average number of shares outstanding	73,055,617	73,246,496
Number of shares outstanding at year-end	72,913,955	73,192,644
Number of shares issued at year-end	74,249,999	74,249,999

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

The number of shares outstanding has decreased from 73,192,644 (98.58%) at the end of 2011 to 72,913,955 (98.20%) at the end of 2012. The Sydbank share's book value represents 137.6 (2011: 131.1). At year-end 2012 the closing price of the Sydbank share stood at 99.7 and the share price/book value at 0.72.

Shareholders' equity

At year-end 2012 shareholders' equity constitutes DKK 10,033m – an increase of DKK 438m since 1 January. The change comprises additions from profit for the year of DKK 467m and the adjustment of revaluation reserves of DKK 2m as well as disposals deriving from the net purchase of own shares of DKK 24m and the payment of DKK 7m to the sponsorship fund “Sydbank Fonden”.

Capital

Risk-weighted assets have increased by DKK 0.5bn to DKK 71.2bn since year-end 2011. The development consists of an increase in credit risk of DKK 1.6bn – which is attributable to risk-weighted assets taken over from Tønder Bank – as well as an increase in operational risk of DKK 0.3bn and a decrease in market risk of DKK 1.4bn.

Risk-weighted assets (DKKbn)	2012	2011
Credit risk	63.9	52.3
Market risk	8.9	10.3
Operational risk	8.4	8.1
Total	71.2	70.7

The development in the breakdown by rating category from 2010 to 2012 appears below.

Gross exposure by rating category, excluding default

Gross exposures consist of loans and advances, undrawn credit commitments, interest receivable, guarantees and counterparty risk on derivatives. The graph comprises exposures treated according to IRB. Exposures relating to clients in default are not included in the breakdown of rating categories. Impairment charges for exposures have not been deducted from the exposures.

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Gross exposures by rating category show a positive development and account for an increasing share of the three best rating categories. The tightened impairment rules have generated a rise in the number of clients with objective evidence of impairment (OEI). The Group assigns all exposures to clients with OEI to rating category 9 and consequently exposures in this rating category have risen. Migration has predominantly taken place from rating categories 5-8.

At year-end 2012 the Group changed its PD scale as regards the assignment of retail clients to rating categories. The breakdown by rating for 2010 and 2011 has been adjusted in accordance with this scale.

The capital structure was strengthened during the year and core capital currently accounts for 98% of the total capital base against 94% at the beginning of the year.

Solvency (DKKm)	2012	2011
Risk-weighted assets	71,170	70,659
Core capital (excl hybrid core capital)	9,854	9,476
Core capital	11,080	10,706
Capital base	11,305	11,392
Core capital ratio (excl hybrid core capital)	13.8	13.4
Core capital ratio	15.6	15.2
Solvency ratio	15.9	16.1

At year-end 2012 the solvency ratio stands at 15.9%, including a core capital ratio of 15.6 percentage points, compared to 16.1% and 15.2%, respectively, at year-end 2011. The core capital ratio excluding hybrid core capital has increased from 13.4% to 13.8%.

At 31 December 2012 the individual solvency need constitutes 8.9% (2011: 9.4%).

The Group's internal capital target continues to represent DKK 9,900m, equal to 13.9% of risk-weighted assets (end-2011: 14.0%).

In Q3 2012 Sydbank and other major banks from EU countries participated in the EU-wide capital test conducted at the request of the European Banking Authority (EBA). The purpose of the capital test was to establish the European banking sector's potential need for recapitalisation.

In order to pass the test banks had to post a core Tier 1 capital ratio of a minimum of 9% fixed by the EBA. According to the test Sydbank's core Tier 1 capital ratio represented 12.8% at 30 June 2012. Sydbank was therefore 3.8 percentage points above the EBA's minimum requirement.

Interest rate risk etc

The Group's interest rate risk comprises minus DKK 198m at 31 December 2012 (2011: minus DKK 95m). The Group's exchange rate risk continues to be very low and its equity risk modest.

Funding and liquidity

The Group's liquidity measured under the 10% statutory requirement constitutes 22.7% at year-end 2012.

The Group's liquidity is good. Moody's 12-month liquidity curve shows that the Group is able to withstand a situation in which access to capital markets is cut off for a period exceeding 12 months.

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Moody's 12-month liquidity curve

In February 2012 the Group issued a 2-yr senior loan of EUR 0.5bn and in 2012 the Group redeemed senior loans of EUR 1.0bn.

During 1H 2013 the Group will decide whether to issue senior loans with longer maturities. The considerations will be based on the Group's satisfactory liquidity situation, developments in loans and advances and deposits as well as its expectations for the coming period.

Accounting estimates

Estimates in relation to the measurement of assets and liabilities are based on assumptions considered reasonable by management but which by their nature are uncertain. They may be incomplete or inaccurate as a result of developments differing from projections in the external environment in which the Group operates or in other respects relating to clients or business relations.

Rating

At end-May 2012 Moody's lowered Sydbank's ratings as follows:

• Long-term debt: Baa1
• Short-term debt: P-2
• Bank financial strength: C- with stable outlook.

Shareholders

In 2012 the Sydbank share yielded a return of 11% (2011: minus 40%) as a result of the share price increase during the year. The Board of Directors recommends to the general meeting that no dividend be distributed but that DKK 7m be paid to the sponsorship fund "Sydbank Fonden".

Supervisory Diamond

The Supervisory Diamond sets up a number of benchmarks to indicate banking activities which initially should be regarded as involving a higher risk. After the end of 2012 any breach of the Supervisory Diamond will be subject to reactions by the Danish FSA.

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The Group's calculations of the benchmarks of the Supervisory Diamond at year-end 2012 are shown below:

Supervisory Diamond benchmarks	2012	2011
Sum of large exposures < 125%	22%	26%
Funding ratio < 1	0.84	0.88
Commercial property exposure < 25%	12%	11%
Growth in loans and advances < 20%*	(1%)	(6%)
Excess liquidity cover relative to 10% requirement > 50%	127%	149%

*incl reverse transactions

As at 31 December 2012 the Group as well as the parent comply with all the benchmarks of the Supervisory Diamond.

Regulation

The awaited amendment of the Capital Requirements Directive (CRD IV), which will implement Basel III, has not yet been adopted by the EU.

In the beginning of 2013 the Basel III requirements as regards liquidity were reassessed and revised significantly. The size of the necessary liquidity has been reduced via lower requirements as to the run-off rates of certain types of liabilities, and the range of assets eligible for inclusion in Level 2 assets has been expanded to include eg rated corporate bonds, for instance Junior Covered Bonds. Moreover transitional rules have been introduced which require 60% compliance in 2015. Full implementation will take place in 2019. Overall the requirements have been relaxed considerably.

Basel III still divides liquid assets into Level 1 assets and Level 2 assets with a Level 2 cap of 40%. According to the latest amended version Danish mortgage products may only be included in Level 2 assets, which will constitute a problem for the Danish mortgage model.

The most recent proposals for CRD IV do not include requirements for a division of liquid assets and consequently there are no requirements as regards the maximum share of Danish mortgage products. The latest proposal was presented before the amended Basel III requirements were published but expectations are that Danish mortgage products will be accommodated.

CRD IV will include new regulatory solvency requirements to risk-weighted assets (RWA) and capital alike. It is projected that the new requirements to RWA will affect the calculation of the Group's solvency whereas the new capital requirements will not have any significant impact on the calculation. However the uncertainty surrounding the coming rules is so great that it is impossible to state conclusively what the effects will be. This uncertainty has been provided for in the Group's capital planning.

Outlook for 2013

The outlook for economic growth in 2013 remains very uncertain and increasingly suggests zero growth or perhaps even continued negative growth. The Danish economy is not expected to grow again before 2014. Moreover Denmark will continue to be affected by the debt crisis in Southern Europe, which is reflected in lacking confidence among businesses and consumers alike.

Core income is expected to decline slightly – primarily as a result of projected increased competition for the best clients and secondarily as a result of an unchanged or slightly decreasing lending volume.

Trading income is expected to remain unchanged or decline slightly relative to income for 2012 but is highly dependent on financial market developments.

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Sydbank

In spite of expectations of reduced IT costs and a continued reduction in staff, costs are expected to rise slightly as a result of the takeover of activities from Tønder Bank, growing contributions to the Deposit Guarantee Fund and increasing payroll tax.

The continued bleak prospects for the Danish and international economy will involve a continued large need for impairment charges as regards the Group's lending portfolio. The Group's impairment level for 2012 has been influenced by the Danish FSA's new tightened impairment rules, for instance as regards bank loans and advances secured on real property. Given the current economic prospects the Group projects considerably lower impairment charges in 2013 albeit still at a high level.

Investment portfolio earnings will depend on financial market developments. At the beginning of 2013 the Bank's position-taking is characterised by positions in Danish mortgage bonds and a limited negative interest rate risk.

The Group's tax is expected to constitute 25%.

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS
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Income Statement – Sydbank Group

DKKm	2012	2011
Interest income	3,949	4,363
Interest expense	841	1,235
Net interest income	3,108	3,128
Dividends on shares	23	28
Fee and commission income	1,443	1,304
Fee and commission expense	213	219
Net interest and fee income	4,361	4,241
Market value adjustments	558	(26)
Other operating income	14	48
Staff costs and administrative expenses	2,379	2,463
Amortisation, depreciation and impairment of intangible assets and property, plant and equipment	108	122
Other operating expenses	84	102
Impairment of loans and advances etc	1,748	1,198
Profit/(Loss) on holdings in associates and subsidiaries	10	(77)
Profit before tax	624	301
Tax	157	113
Profit for the year	467	188
Distribution of profit for the year
Profit for the year	467	188
Total amount to be allocated	467	188
Proposed dividend	-	-
Proposal for allocation for other purposes	7	7
Transfer to shareholders’ equity	460	181
Total amount allocated	467	188
EPS Basic (DKK)	6.4	2.6
EPS Diluted (DKK)	6.4	2.6
Proposed dividend per share (DKK)	-	-

Statement of Comprehensive Income – Sydbank Group

Profit for the year	467	188
Other comprehensive income
Translation of foreign entities	2	6
Hedge of net investment in foreign entities	(2)	(6)
Property revaluation	2	(13)
Other comprehensive income after tax	2	(13)
Comprehensive income for the year	469	175

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Balance Sheet – Sydbank Group

DKKm	2012	2011
Assets
Cash and balances on demand at central banks	1,375	939
Amounts owed by credit institutions and central banks	7,006	8,526
Loans and advances at fair value	6,082	7,658
Loans and advances at amortised cost	68,163	68,847
Bonds at fair value	38,087	38,622
Shares etc	1,392	1,281
Holdings in associates etc	160	192
Assets related to pooled plans	9,799	8,553
Intangible assets	66	12
Total land and buildings	1,061	1,015
investment property	28	-
owner-occupied property	1,033	1,015
Other property, plant and equipment	89	85
Current tax assets	-	13
Deferred tax assets	9	5
Assets in temporary possession	9	1
Other assets	19,365	17,641
Prepayments	50	51
Total assets	152,713	153,441
Shareholders’ equity and liabilities
---	---	---
Amounts owed to credit institutions and central banks	38,592	38,767
Deposits and other debt	65,662	66,724
Deposits in pooled plans	9,804	8,557
Bonds issued at amortised cost	3,986	7,500
Current tax liabilities	16	-
Other liabilities	23,035	19,911
Deferred income	7	6
Total liabilities	141,102	141,465
Provisions	191	256
Subordinated capital	1,387	2,125
Shareholders’ equity:
Share capital	742	742
Revaluation reserves	98	95
Other reserves:
Reserves according to articles of association	425	425
Reserve for net revaluation according to equity method	2	26
Retained earnings	8,759	8,300
Proposed dividend etc	7	7
Total shareholders’ equity	10,033	9,595
Total shareholders’ equity and liabilities	152,713	153,441

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Capital – Sydbank Group

DKKm	Share capital	Revaluation reserves	Reserves acc. to articles of association	Reserve for net revaluation acc. to equity method	Retained earnings	Proposed dividend etc	Total
Shareholders’ equity at 1 Jan 2012	742	95	425	26	8,300	7	9,595
Profit for the period	-	-	-	(24)	484	7	467
Other comprehensive income
Translation of foreign entities	-	-	-	-	2	-	2
Hedge of net investment in foreign entities	-	-	-	-	(2)	-	(2)
Property revaluation	-	2	-	-	-	-	2
Adjustment conc. property sold	-	0	-	-	-	-	0
Total other comprehensive income	-	2	-	-	-	-	2
Comprehensive income for the year	-	2	-	(24)	484	7	469
Transactions with owners
Purchase of own shares	-	-	-	-	(1,413)	-	(1,413)
Sale of own shares	-	-	-	-	1,389	-	1,389
Adopted dividend etc	-	-	-	-	-	(7)	(7)
Total transactions with owners	-	-	-	-	(24)	(7)	(31)
Shareholders’ equity at 31 Dec 2012	742	97	425	2	8,760	7	10,033
Shareholders’ equity at 1 Jan 2011	742	110	423	26	8,169	84	9,554
Profit for the period	-	-	2	-	179	7	188
Other comprehensive income
Translation of foreign entities	-	-	-	-	6	-	6
Hedge of net investment in foreign entities	-	-	-	-	(6)	-	(6)
Property revaluation (reversal)	-	(13)	-	-	-	-	(13)
Adjustment conc. property sold	-	(2)	-	-	2	-	-
Total other comprehensive income	-	(15)	-	-	2	-	(13)
Comprehensive income for the year	-	(15)	2	-	181	7	175
Transactions with owners
Purchase of own shares	-	-	-	-	(2,030)	-	(2,030)
Sale of own shares	-	-	-	-	1,976	-	1,976
Adopted dividend etc	-	-	-	-	-	(84)	(84)
Dividend, own shares	-	-	-	-	4	-	4
Total transactions with owners	-	-	-	-	(50)	(84)	(134)
Shareholders’ equity at 31 Dec 2011	742	95	425	26	8,300	7	9,595

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Capital – Sydbank Group

DKKm	2012	2011
Solvency
Solvency ratio	15.9	16.1
Core capital ratio	15.6	15.2
Capital base after deductions
Shareholders’ equity	10,033	9,595
Revaluation reserves	(97)	(95)
Proposed dividend	(7)	(7)
Intangible assets and capitalised tax assets	(75)	(17)
Core capital (excl hybrid core capital)	9,854	9,476
Hybrid core capital	1,387	1,382
50% of holdings in associates	-	(4)
50% of holdings > 10%	(161)	(148)
Core capital (incl hybrid core capital) after deductions	11,080	10,706
Subordinated loan capital	-	743
Revaluation reserves	97	95
Difference between expected loss and accounting impairment charges	289	-
Capital base before deductions	11,466	11,544
50% of holdings in associates	-	(4)
50% of holdings > 10%	(161)	(148)
Capital base after deductions	11,305	11,392
Credit risk	53,906	52,303
Market risk	8,877	10,288
Operational risk	8,387	8,068
Risk-weighted assets	71,170	70,659
Capital requirement under Pillar I	5,694	5,653

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS

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Sydbank

Supplementary Information

Financial calendar

In 2013 Sydbank will announce the Group's financial statements as follows:

• Annual General Meeting
  14 March 2013
• Interim Report – Q1 2013
  1 May 2013
• Interim Report – First Half 2013
  21 August 2013
• Interim Report – Q1-Q3 2013
  29 October 2013

Contacts

Karen Frøsig, CEO
Tel: +45 74 37 20 00

Mogens Sandbæk, CFO
Tel: +45 74 37 24 00

Niels Møllegaard, Group Executive Vice President
Tel: +45 74 37 20 50

Address

Sydbank A/S
Peberlyk 4
DK-6200 Aabenraa
Tel: +45 74 37 37 37
CVR No: DK 12626509

Relevant links

sydbank.dk
sydbank.com

For further information, reference is made to Sydbank's 2012 Annual Report at www.sydbank.com.

ANNOUNCEMENT OF THE 2012 FINANCIAL STATEMENTS