2017 Annual Report

Sydbank Group

SYDBANK / 2017 Annual Report

A highly satisfactory result ensures a record-high dividend per share and a new share buyback programme of DKK 500m. Total distribution represents 83% of profit for the year after tax.

Sydbank's 2017 financial statements show a profit before tax of DKK 1,956m compared with DKK 1,869m in 2016. The improvement is due to a reversal of impairment charges and very satisfactory investment portfolio earnings. Profit before tax equals a return of 16.8% p.a. on average shareholders' equity. The profit exceeds the expectations presented in the 2016 financial statements.

Profit for the year represents DKK 1,531m against DKK 1,472m in 2016, equal to a return on average shareholders' equity of 13.1% after tax.

CEO Karen Frøsig comments on the year's result:
- As a result of the negative interest rate environment combined with fierce competition in the sector, the Group's net interest income continues to be under pressure. I am therefore very happy that we have succeeded in holding total core income at the same level as in 2016, which is in no small part thanks to the efforts of Sydbank's many competent employees.

Chairman of Sydbank's Board of Directors Torben Nielsen elaborates:
- We have generated a return of 13.1% on shareholders' equity in a highly competitive market and ensured a record-high dividend per share as well as the launch of a new share buyback programme of DKK 500m. After a total distribution of DKK 1,266m, the Bank will continue to be highly capitalised.

2017 highlights

A 1% decrease in total income
A 2% rise in costs (core earnings)
A reversal of DKK 51m in impairment charges
A rise in core earnings of DKK 56m to DKK 1,814m
Investment portfolio earnings of DKK 182m
Bank loans and advances of DKK 64.3bn
Deposits of DKK 82.7bn
A capital ratio of 20.8%, including a Common Equity Tier 1 capital ratio of 17.3%
A proposed dividend of DKK 11.31 per share.

Outlook for 2018

Limited growth is projected for the Danish economy in 2018.

Total income is expected to be on a par with the income generated in 2017.

Costs (core earnings) are projected to rise slightly in 2018.

Impairment charges for 2018 are forecast to be at a low level. The uncertainty surrounding price developments in the agricultural sector may however affect impairment charges.

Non-recurring costs are expected to represent around DKK 75m.

In 2017 very satisfactory investment portfolio earnings and the reversal of impairment charges had a positive effect on profit for the year. However we cannot be sure that this will be the case also in 2018.

As a result profit after tax of DKK 1,200-1,400m is projected for 2018.

The outlook is subject to uncertainty and depends among other things on macroeconomic factors.

2017 Annual Report / SYDBANK

SYDBANK / 2017 Annual Report

2017 Annual Report / SYDBANK

Financial Review

Highlights...6
Group Financial Highlights...8
Summary...9
Performance in 2017...12
Capital Management...22
Investor Relations...24
Mission Statement and Business Goals...25
Organisation and Corporate Governance...30
Corporate Social Responsibility...36

Financial Statements

Financial Statements - contents...41
Income Statement...42
Statement of Comprehensive Income...42
Balance Sheet...43
Statement of Changes in Equity...44
Cash Flow Statement...46
Notes...47

Statements and Reports

Management Statement...110
Auditors' Reports...112

Management, Organisation etc

Notice Convening the Annual General Meeting...116
Board of Directors...118
Group Executive Management...124
Organisation...126

The 2017 Annual Report is available in Danish at sydbank.dk/regnskab and in English at sydbank.com. In case of doubt the Danish version will apply.

A highly satisfactory result ensures a record-high dividend per share and a new share buyback programme

Record-high dividend per share (DKK 11.31 per share)

50%
766 DKKm
Dividend

33%
500 DKKm
Share buyback

Market shares

13%
Corporate (SME)

6%
Retail

We build on relationships

114,000
Meetings with adviser

15,000
Online meetings with adviser

Profit for the year

1,531
DKKm
(+4%)

Return on shareholders' equity

13.1
%

Corre income

4,167
DKKm
(-1%)

Costs (core earnings)

2,637
DKKm
(+2%)

Impairment charges for loans and advances

(51)
DKKm

Customer satisfaction

4th
5th
Corporate Retail
(among the 6 largest banks)

Dividend of DKK 11.31 per share

50
% of profit for the year

Bank loans and advances

64.3
DKKbn

Group Financial Highlights

	Index
	2017	2016	17/16	2015	2014	2013
Income statement (DKKm)
Core income	4,167	4,198	99	4,329	4,319	4,058
Trading income	233	237	98	215	196	229
Total income	4,400	4,435	99	4,544	4,515	4,287
Costs, core earnings	2,637	2,590	102	2,675	2,619	2,514
Core earnings before impairment	1,763	1,845	96	1,869	1,896	1,773
Impairment of loans and advances etc	(51)	87	-	316	707	1,861
Core earnings	1,814	1,758	103	1,553	1,189	(88)
Investment portfolio earnings	182	104	175	(80)	76	319
Profit before non-recurring items	1,996	1,862	107	1,473	1,265	231
Non-recurring items, net	(40)	7	-	-	64	(60)
Profit before tax	1,956	1,869	105	1,473	1,329	171
Tax	425	397	107	325	277	(16)
Profit for the year	1,531	1,472	104	1,148	1,052	187
Balance sheet highlights (DKKbn)
Loans and advances at amortised cost	64.3	77.2	83	74.3	68.5	66.6
Loans and advances at fair value	5.2	6.1	85	10.2	6.9	4.9
Deposits and other debt	82.7	81.1	102	79.9	73.9	70.0
Bonds issued at amortised cost	3.7	3.7	100	3.7	3.7	6.5
Subordinated capital	1.9	2.1	90	2.1	1.4	1.8
Shareholders' equity	11.9	11.8	101	11.4	11.3	10.2
Total assets	138.5	146.7	94	142.7	152.3	147.9
Financial ratios per share (DKK per share of DKK 10)
EPS Basic	22.4	20.9		15.8	14.3	2.5
EPS Diluted	22.4	20.9		15.8	14.3	2.5
Share price at year-end	249.9	219.2		221.8	190.2	144.0
Book value	178.3	169.2		160.2	154.2	139.7
Share price/book value	1.40	1.30		1.38	1.23	1.03
Average number of shares outstanding (in millions)	68.4	70.4		72.5	73.3	73.4
Proposed dividend	11.31	10.46		11.12	7.08	-
Other financial ratios and key figures
Common Equity Tier 1 capital ratio	17.3	16.1		14.5	13.9	13.4
Tier 1 capital ratio	17.7	17.4		15.9	15.5	15.3
Capital ratio	20.8	19.2		17.6	16.0	15.7
Pre-tax profit as % of average shareholders' equity	16.8	16.6		13.3	12.4	1.6
Post-tax profit as % of average shareholders' equity	13.1	13.1		10.2	9.6	1.8
Costs (core earnings) as % of total income	59.9	58.4		58.9	58.0	58.6
Return on assets (%)	1.07	1.02		0.78	0.70	0.12
Interest rate risk	0.8	1.6		2.8	0.0	0.6
Foreign exchange position	1.2	2.2		2.2	1.8	2.1
Foreign exchange risk	0.0	0.0		0.0	0.0	0.0
Loans and advances relative to deposits	0.6	0.8		0.8	0.8	0.8
Loans and advances relative to shareholders' equity	5.4	6.6		6.5	6.1	6.5
Growth in loans and advances for the year	(16.7)	3.9		8.5	2.8	(2.3)
Excess cover relative to statutory liquidity requirements (section 152 of the Danish Financial Business Act)	232.1	186.5		166.8	142.2	179.8
Total large exposures	0.0	0.0		0.0	0.0	25.8
Accumulated impairment ratio	3.6	3.6		4.7	5.1	5.4
Impairment ratio for the year	(0.1)	0.1		0.4	0.8	2.3
Number of full-time staff at year-end	2,064	2,037	101	2,044	2,101	2,231

Financial ratio definitions on page 94.
SYDBANK / 2017 Annual Report

Summary

A highly satisfactory result ensures a record-high dividend per share and a new share buyback programme of DKK 500m. Total distribution represents 83% of profit for the year after tax.

Profit for the year after tax represents DKK 1,531m against DKK 1,472m in 2016, equal to a return on average shareholders' equity of 13.1%.

The 3-year plan "Blue growth"

The plan for the 3-year period 2016-2018 is named "Blue growth". The plan must ensure that the positive development in the Group's profitability is sustained.

Blue growth – financial targets

Realise a return on shareholders' equity of a minimum of 12% after tax or be in the top 3 of the 6 largest banks
Maintain top 3 ranking among the 6 largest banks in terms of customer satisfaction.

Status – targets

Target	Objective	Status at 31 December 2017	Comment
Return on shareholders' equity after tax	Over 12%*	13.1%	Progressing as planned
Customer satisfaction - Corporate	Top 3**	4th - Aalund	Not met in 2017
Customer satisfaction - Retail	Top 3**	5th - EPSI	Not met in 2017
Common Equity Tier 1 capital ratio	Around 14.0%	17.3%	Met from Q3 2013
Capital ratio	Around 18.0%	20.8%	Met from Q1 2015
Dividend	30-50% of profit for the year after tax	50% of profit after tax (proposed)	Met in 2017 (proposed dividend)

or top 3 ranking among the 6 largest banks
** among the 6 largest banks

2017 Annual Report / SYDBANK

Summary

Results for 2017

As a result of the negative interest rate environment combined with fierce competition in the sector, the Group's net interest income remains under pressure. Net interest income has decreased by DKK 330m or 14% to DKK 1,993m. DKK 129m of the decline is attributable to the effects of the amended funding agreement concerning mortgage-like loans. The funding agreement was changed from an offsetting model according to which the Bank covers losses as regards the entire loan to a guarantee model according to which the Bank provides a guarantee for the part of the loan in the LTV range of 60-80%. As a consequence of the amendment of the agreement, funded mortgage-like loans will not be recognised in the balance sheet in future and income will be recognised as mortgage credit income.

Mortgage credit income has increased by DKK 175m or 44% compared with 2016.

Other core income has risen by DKK 124m or 8% compared with 2016.

Total core income has decreased by DKK 31m or 1% compared with 2016.

Trading income has dropped by DKK 4m or 2% compared with 2016.

Total income has declined by DKK 35m or 1% compared with 2016.

Costs (core earnings) have increased by DKK 47m or 2% compared with 2016. The increase is a consequence of general pay rises for the financial sector and a payroll tax increase of 0.5 percentage points.

The Group's impairment charges for loans and advances constitute an income of DKK 51m in 2017.

Core earnings have increased by DKK 56m to DKK 1,814m compared with DKK 1,758m in 2016. The improvement is attributable to the decrease in impairment charges for loans and advances.

Together the Group's position-taking and liquidity handling generated investment portfolio earnings of DKK 182m in 2017 compared with DKK 104m in 2016.

Profit before tax rose to DKK 1,956m in 2017 compared to DKK 1,869m in 2016. Tax has been calculated at DKK 425m.

Profit for the year amounts to DKK 1,531m compared with DKK 1,472m in 2016.

Bank loans and advances decreased by DKK 12.9bn in 2017. DKK 10.0bn of the decline is attributable to funded mortgage-like loans no longer being recognised in the balance sheet.

Return on shareholders' equity before and after tax constitutes 16.8% and 13.1% respectively against 16.6% and 13.1% in 2016.

Earnings per share has increased to DKK 22.4 from DKK 20.9 in 2016.

During the year shareholders' equity grew by DKK 169m to DKK 11,926m.

Less the proposed dividend, the Common Equity Tier 1 capital ratio and the capital ratio stand at 17.3% and 20.8% respectively at year-end 2017 compared to 16.1% and 19.2% at year-end 2016.

At 31 December 2017 the individual solvency need represented 11.0% (2016: 10.2%).

Total credit intermediation

In addition to traditional bank loans and advances the Group arranges for mortgage loans from Totalkredit and DLR Kredit. The Group's total credit intermediation comprises bank loans and advances, mortgage-like loans funded by Totalkredit as well as mortgage loans arranged through Totalkredit and DLR Kredit respectively. At 31 December 2017 credit intermediation totalled DKK 144.0bn – a drop of DKK 3.9bn compared with year-end 2016.

Total credit intermediation

Group – year-end (DKKbn)	2017	2016
Bank loans and advances	64.3	77.2
Funded mortgage-like loans	10.0	-
Arranged mortgage loans – Totalkredit	58.0	58.3
Arranged mortgage loans – DLR	11.7	12.4
Total	144.0	147.9

SIFI

Sydbank has been designated as a SIFI (systemically important financial institution) in Denmark. As a result the Bank is subject to an additional buffer requirement of 0.6% as regards Common Equity Tier 1 capital in 2017. The requirement will gradually rise to 1.0% in 2019.

SYDBANK / 2017 Annual Report

2017 Annual Report / SYDBANK

Capital targets

The Group's capital targets have been raised to a Common Equity Tier 1 capital ratio of around 14.0% and a capital ratio of around 18.0%. Before the change the capital targets were a Common Equity Tier 1 capital ratio of around 13.5% and a capital ratio of around 17.0%.

Proposed dividend for 2017

The Board of Directors proposes – in compliance with the Bank's dividend policy – that a dividend of DKK 11.31 per share, equal to 50% of the Group's profit after tax, be distributed and that DKK 10m be donated to the sponsorship fund Sydbank Fonden.

No dividend will be distributed as regards the shares acquired in connection with the share buyback programme completed in 2017.

Share buyback in 2018

Following distribution of the proposed dividend, the capital ratios will remain above the capital targets. As a result the Board of Directors has resolved to implement a share buyback totalling DKK 500m in 2018.

The Group will continue to be highly capitalised after the proposed dividend distribution and the share buyback.

Outlook for 2018

Limited growth is projected for the Danish economy in 2018.

Total income is expected to be on a par with the income generated in 2017.

Costs (core earnings) are projected to rise slightly in 2018.

Impairment charges for 2018 are forecast to be at a low level. The uncertainty surrounding price developments in the agricultural sector may however affect impairment charges.

Non-recurring costs are expected to represent around DKK 75m.

As a result profit after tax of DKK 1,200-1,400m is projected for 2018.

The outlook is subject to uncertainty and depends among other things on macroeconomic factors.

Performance in 2017

The Sydbank Group has recorded a profit before tax of DKK 1,956m (2016: DKK 1,869m). The performance exceeds the expectations at the beginning of the year. Profit before tax equals a return of 16.8% p.a. on average shareholders' equity.

Profit for the year represents DKK 1,531m against DKK 1,472m in 2016, equal to a return on average shareholders' equity of 13.1% after tax.

The financial statements are characterised by the following:

2017

A 1% decrease in total income
A 2% increase in costs (core earnings)
A reversal of DKK 51m in impairment charges
A rise in core earnings of DKK 56m to DKK 1,814m
Investment portfolio earnings of DKK 182m
Bank loans and advances of DKK 64.3bn (2016: DKK 77.2bn)
Deposits of DKK 82.7bn (2016: DKK 81.1bn)
A capital ratio of 20.8%, including a Common Equity Tier 1 capital ratio of 17.3%
A proposed dividend of DKK 11.31 per share.

Q4

Impairment charges for loans and advances constitute an income of DKK 13m
Profit for the period amounts to DKK 327m.

Income statement

Group (DKKm)	2017	2016
Core income	4,167	4,198
Trading income	233	237
Total income	4,400	4,435
Costs, core earnings	2,637	2,590
Core earnings before impairment	1,763	1,845
Impairment of loans and advances etc	(51)	87
Core earnings	1,814	1,758
Investment portfolio earnings	182	104
Profit before non-recurring items	1,996	1,862
Non-recurring items, net	(40)	7
Profit before tax	1,956	1,869
Tax	425	397
Profit for the year	1,531	1,472

Core income

Total core income has declined by DKK 31m to DKK 4,167m.

Net income from the cooperation with Totalkredit represents DKK 420m (2016: DKK 291m) after a set-off of loss of DKK 27m (2016: DKK 23m). The cooperation with DLR Kredit has generated an income of DKK 152m (2016: DKK 107m). Compared to 2016 mortgage credit income has gone up by a total of DKK 175m to DKK 575m – an increase of 44%. DKK 113m of the DKK 175m increase is attributable to funded mortgage-like loans.

Income from remortgaging and loan fees has risen by DKK 63m to DKK 133m compared to 2016 – a rise of 90%.

Commission and brokerage income has gone up by DKK 11m to DKK 365m – an increase of 3% compared to 2016.

Income from asset management has climbed by DKK 44m to DKK 264m – a rise of 20% compared with 2016. DKK 14m of the income is attributable to performance-related fees.

The remaining income components have risen by DKK 6m compared to 2016, equal to 1%.

SYDBANK / 2017 Annual Report

Core income

Group (DKKm)	2017	2016
Net interest etc	1,993	2,323
Mortgage credit	575	400
Payment services	202	199
Remortgaging and loan fees	133	70
Commission and brokerage	365	354
Commission etc investment funds and pooled pension plans	388	381
Asset management	264	220
Custory account fees	69	71
Other operating income	178	180
Total	4,167	4,198

Trading income

Compared with 2016 trading income has decreased by DKK 4m to DKK 233m and is composed as follows in terms of business units:

Trading income

Group (DKKm)	2017	2016
Fixed Income	143	135
Equities	58	65
Money Market and Foreign Exchange	32	37
Total	233	237

Fixed Income has generated an income of DKK 143m, an increase of DKK 8m compared with 2016. A high level of activity was recorded in Fixed Income in 2017.

Equities has recorded an income of DKK 58m, a fall of DKK 7m compared to 2016.

Money Market and Foreign Exchange has generated an income of DKK 32m, a decrease of DKK 5m compared with 2016.

Costs and depreciation

The Group's costs and depreciation totalled DKK 2,684m, equal to an increase of DKK 63m compared with 2016.

Costs (core earnings) represent DKK 2,637m compared with DKK 2,590m in 2016. The increase is a consequence of general pay rises for the financial sector and a payroll tax increase of 0.5 percentage points.

At year-end 2017 the Group's staff numbered 2,064 (full-time equivalent).

Costs and depreciation

Group (DKKm)	2017	2016
Staff costs	1,561	1,519
Other administrative expenses	976	968
Amortisation/depreciation and impairment of intangible assets and property, plant and equipment	122	115
Other operating expenses	25	19
Total	2,684	2,621
Distributed as follows:
Costs, core earnings	2,637	2,590
Costs, investment portfolio earnings	7	7
Non-recurring costs	40	24

In connection with the opening of the new regional head office in Odense, the number of branches was reduced by 2 in 2017, bringing the number of branches to 62 in Denmark and 3 in Germany.

Core earnings before impairment of loans and advances

Core earnings before impairment charges for loans and advances represent DKK 1,763m – a decrease of DKK 82m compared with 2016.

Impairment of loans and advances etc

Impairment charges for loans and advances represent an income of DKK 51m compared with an expense of DKK 87m in 2016, equal to a fall of DKK 138m.

Impairment charges for the year by industry

Group (DKKm)	2017	2016
Agriculture etc	4	231
Trade	65	14
Real property	(53)	(40)
Other corporate lending	133	37
Total corporate	149	242
Retail	(95)	(38)
Total individual impairment charges	54	204
Collective impairment charges	(105)	(117)
Total impairment charges	(51)	87

In 2017 collective impairment charges fell by DKK 105m (2016: DKK 117m). Collective impairment charges constitute DKK 75m at 31 December 2017. They were positively affected by the reduction in collective impairment charges for agricultural exposures of DKK 75m in 2017 (2016: reduction of DKK 75m).

2017 Annual Report / SYDBANK

Performance in 2017

In 2017 the agricultural sector saw a considerable improvement in earnings compared to the period from 2014 to 2016. However the sector continues to be characterised by an overall large debt burden.

Lower earnings are expected in the agricultural sector for 2018 as a consequence of expectations of lower settlement prices. Reference is made to the separate publication Credit Risk 2017 for further elaboration.

At year-end 2017 the impairment ratio for the year represents minus 0.08% relative to bank loans and advances and minus 0.06% relative to bank loans and advances and guarantees. At year-end 2017 accumulated impairment and provisions amount to DKK 2,887m (2016: DKK 3,289m).

Individually impaired bank loans and advances

During the year impaired bank loans and advances before impairment charges declined by DKK 471m to DKK 4,391m (2016: DKK 4,862m). During the same period individually impaired bank loans and advances after impairment charges decreased by DKK 126m, equal to 6%. Impairment charges for bank loans and advances subject to individual impairment represent 54.2% (2016: 56.1%).

Individually impaired bank loans and advances

Group (DKKm)	2017	2016
Non-defaulted bank loans and advances	3,468	3,637
Defaulted bank loans and advances	923	1,225
Impaired bank loans and advances	4,391	4,862
Impairment charges for bank loans and advances subject to individual impairment	2,381	2,726
Impaired bank loans and advances after impairment charges	2,010	2,136
Impaired bank loans and advances as % of bank loans and advances before impairment charges	6.6	6.1
Impairment charges as % of bank loans and advances before impairment charges	3.6	3.4
Impaired as % of impaired bank loans and advances	54.2	56.1
Impairment charges as % of defaulted bank loans and advances	258.0	222.5

The figure below shows the breakdown of impaired bank loans and advances in terms of defaulted bank loans and advances and non-defaulted bank loans and advances. The bulk of impaired bank loans and advances concern non-defaulted bank loans and advances.

Breakdown of impaired bank loans and advances

Defaulted bank loans and advances declined by DKK 302m in 2017 and non-defaulted bank loans and advances decreased by DKK 169m. The considerable drop in impaired bank loans and advances of DKK 1,087m in Q4 2016 is attributable to a decrease in impaired loans and advances as regards agricultural exposures of DKK 879m. The decline regarding agricultural exposures is primarily a consequence of the conversion of the debt concerning 48 agricultural exposures to subordinated loan capital in Q4 2106. The subordinated loan capital has been written off for accounting purposes.

SYDBANK / 2017 Annual Report

2017 Annual Report / SYDBANK

Core earnings

Core earnings for 2017 represent DKK 1,814m – an increase of DKK 56m compared with 2016.

Investment portfolio earnings

Together the Group's position-taking and liquidity handling generated earnings of DKK 182m in 2017 compared with DKK 104m in 2016.

Investment portfolio earnings

Group (DKKm)	2017	2016
Position-taking	118	100
Liquidity generation and liquidity reserves	52	9
Strategic positions	19	2
Costs	(7)	(7)
Total	182	104

The satisfactory result for 2017 is a consequence of the excess yield on Danish mortgage bonds relative to the risk-free interest rate, a narrowing of the credit spreads on mortgage bonds as well as gains on interest rate fluctuations – notably in the early months of the year.

At year-end 2017 the interest rate risk is composed so that the Group will profit from an interest rate increase.

Margin expenses as regards the Group's senior issues are included under liquidity generation and liquidity reserves and represent DKK 21m in 2017 compared to DKK 35m in 2016.

Non-recurring items, net

Non-recurring items etc total an expense of DKK 40m compared with a net income of DKK 7m in 2016. The item consists of process digitization costs related to Blue growth as well as the establishment of a new mortgage platform. In 2016 this item included one-off income of DKK 31m concerning the adjustment of the purchase sum from the sale of the shares in Nets Holding in 2014 as well as process optimisation costs of DKK 24m.

Profit for the year

Profit before tax amounts to DKK 1,956m (2016: DKK 1,869m). Tax represents DKK 425m (2016: DKK 397m), equivalent to an effective tax rate of 21.7%. Profit for the year amounts to DKK 1,531m (2016: DKK 1,472m).

Return

Return on shareholders' equity before and after tax constitutes 16.8% and 13.1% respectively against 16.6% and 13.1% in 2016. Earnings per share has increased to DKK 22.4 from DKK 20.9 in 2016.

Sydbank – the parent

The Bank's total income before costs and impairment charges for loans and advances represents DKK 4,510m (2016: DKK 4,489m). The income includes the consolidated loss on holdings in associates and subsidiaries of DKK 26m (2016: profit of DKK 71m).

Total costs including non-recurring costs of DKK 40m (2016: DKK 24m) constitute DKK 2,608m (2016: DKK 2,552m).

A reversal of impairment charges for bank loans and advances of DKK 51m (2016: impairment charge of DKK 87m) has been recorded.

Pre-tax profit amounts to DKK 1,947m (2016: DKK 1,839m).

Subsidiaries

Profit after tax of the subsidiaries represents minus DKK 12m (2016: DKK 76m).

Group – Q4 2017

The Group's profit before tax for the quarter represents DKK 412m. Tax represents DKK 85m and profit for the period amounts to DKK 327m.

Compared with Q3 2017 profit before tax shows:

a core income of DKK 1,038m (Q3: DKK 1,036m)
a trading income of DKK 36m (Q3: DKK 58m)
costs (core earnings) of DKK 645m (Q3: DKK 623m)
impairment charges for loans and advances of minus DKK 13m (Q3: minus DKK 29m)
investment portfolio earnings of minus DKK 13m (Q3: DKK 8m).

Performance in 2017

Profit for the period

Group (DKKm)	Q4 2017	Q3 2017	Q2 2017	Q1 2017	Q4 2016
Core income	1,038	1,036	1,040	1,053	1,067
Trading income	36	58	46	93	49
Total income	1,074	1,094	1,086	1,146	1,116
Costs, core earnings	645	623	678	691	632
Core earnings before impairment	429	471	408	455	484
Impairment of loans and advances etc	(13)	(29)	(20)	11	(27)
Core earnings	442	500	428	444	511
Investment portfolio earnings	(13)	8	51	136	63
Profit before non-recurring items	429	508	479	580	574
Non-recurring items, net	(17)	(11)	(6)	(6)	(14)
Profit before tax	412	497	473	574	560
Tax	85	109	104	127	116
Profit for the period	327	388	369	447	444

Total assets

The Group's total assets made up DKK 138.5bn at year-end 2017 against DKK 146.7bn at year-end 2016.

Assets

Group - year-end (DKKbn)	2017	2016
Amounts owed by credit institutions etc	14.6	9.0
Loans and advances at fair value
(reverse transactions)	5.2	6.1
Loans and advances at amortised cost
(bank loans and advances)	64.3	77.2
Securities and holdings etc	28.1	28.3
Assets related to pooled plans	16.5	13.8
Other assets etc	9.8	12.3
Total	138.5	146.7

The Group's bank loans and advances total DKK 64.3bn. Compared to 2016 this constitutes a decrease of DKK 12.9bn. DKK 10.0bn of the decline is attributable to funded mortgage-like loans no longer being recognised in the balance sheet. Corporate lending has declined by DKK 0.7bn and retail lending has decreased by DKK 1.9bn when the effects of the amended funding agreement are taken into account.

Shareholders' equity and liabilities

Group - year-end (DKKbn)	2017	2016
Amounts owed to credit institutions etc	6.0	17.6
Deposits and other debt	82.7	81.1
Deposits in pooled plans	16.5	13.8
Bonds issued	3.7	3.7
Other liabilities etc	15.4	16.2
Provisions	0.4	0.4
Subordinated capital	1.9	2.1
Shareholders' equity	11.9	11.8
Total	138.5	146.7

Amounts owed to credit institutions etc represent DKK 6.0bn, a decrease of DKK 11.6bn compared to 2016. One reason for this is that the funding agreement concerning mortgage-like loans was changed effective 1 January 2017 after which date the funding of mortgage-like loans is no longer recognised in the balance sheet. The funding represented DKK 5.3bn at year-end 2016 and was included in "Amounts owed to credit institutions etc".

The Group's deposits make up DKK 82.7bn. This is an increase of DKK 1.6bn compared to 2016. Deposits have increased due to a rise in time deposits of DKK 2.7bn, a rise in demand deposits of DKK 2.0bn, a decrease in deposits at notice of DKK 2.7bn and a decrease of DKK 0.4bn regarding special categories of deposits.

SYDBANK / 2017 Annual Report

The Sydbank share

Number	2017	2016
Average number of shares outstanding	68,364,550	70,392,671
Number of shares outstanding at year-end	66,900,704	69,501,452
Number of shares issued at year-end	70,361,174	72,240,199

Share capital

As a result of a capital reduction implemented in 2017 the share capital has declined from DKK 722,401,990 at year-end 2016 to DKK 703,611,740 at year-end 2017.

The number of shares outstanding has decreased from 69,501,452 (96.21%) at the end of 2016 to 66,900,704 (95.08%) at the end of 2017. The book value of the Sydbank share represents 178.3 (2016: 169.2). At year-end 2017 the closing price of the Sydbank share stood at 249.9 and the share price/book value at 1.40.

Shareholders' equity

At year-end 2017 shareholders' equity constitutes DKK 11,926m – an increase of DKK 169m since the beginning of the year. The change comprises an addition from profit for the year of DKK 1,531m, net purchases of own shares of DKK 642m as well as dividend distribution etc of DKK 720m.

Capital

The Bank issued Tier 2 capital worth EUR 75m on 2 November 2017. The issue is a 12-year issue with a first call option after 7 years.

The Bank has prepaid Additional Tier 1 capital of EUR 100m and DKK 85m. The prepayments were made on 25 April 2017 and 15 May 2017 respectively.

The Bank implemented a share buyback programme of DKK 664m in 2017. The share buyback commenced on 2 March 2017 and was completed on 29 December 2017. 2,690,220 shares were repurchased.

The share buyback is part of the capital adjustment to optimise the capital structure in accordance with the Group's capital policy.

In 2018 the Bank will continue to optimise the capital structure, possibly by issuing subordinated capital and consequently the possibilities for issuing subordinated capital in the market are monitored on an ongoing basis.

Since year-end 2016 the risk exposure amount (REA) has decreased by DKK 4.7bn to DKK 58.9bn. Credit risk has gone down by DKK 2.8bn predominantly as a result of a net decrease in bank loans and advances and guarantees of DKK 10.7bn since year-end 2016. Market risk has declined by DKK 1.8bn mainly as a result of lower interest rate risk. Other exposures have dropped by DKK 0.1bn.

REA

Group - year-end (DKKbn)	2017	2016
Credit risk	38.9	41.7
Market risk	6.3	8.1
Operational risk	8.0	8.0
Other exposures incl CVA	5.7	5.8
Total	58.9	63.6

The development in the breakdown by rating category from 2015 to 2017 is shown below.

Gross exposure by rating category

The gross exposure consists 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 exposure.

The gross exposure by rating category shows a positive development with an increasing share in the 4 best rating categories and a falling share in the 5 poorest rating categories.

Reference is made to the note on credit risk on page 101 and the separate publication Credit Risk 2017.

2017 Annual Report / SYDBANK

Performance in 2017

Solvency

Group - year-end (DKKm)	2017	2016
REA	58,889	63,607
Common Equity Tier 1 capital	10,167	10,213
Tier 1 capital	10,446	11,044
Total capital	12,240	12,242
Common Equity Tier 1 capital ratio	17.3	16.1
Tier 1 capital ratio	17.7	17.4
Capital ratio	20.8	19.2

At year-end 2017 the Common Equity Tier 1 capital ratio and the capital ratio stand at 17.3% and 20.8% respectively compared to 16.1% and 19.2% at year-end 2016.

In 2017 the capital ratio was positively affected by profit for the year (+2.4 percentage points), the issue of new Tier 2 capital (+0.9 percentage points) and the reduction in risk exposure (+1.5 percentage points) and negatively affected by the proposed dividend (-1.2 percentage points), the completed share buyback programme (-1.0 percentage points), the repayment of Additional Tier 1 capital (-0.8 percentage points) and other elements (-0.2 percentage points).

Capital ratio in 2017

At 31 December 2017 the individual solvency need represented 11.0% (2016: 10.2%).

Solvency of the parent

At year-end 2017 the Common Equity Tier 1 capital ratio and the capital ratio stand at 16.7% and 20.1% respectively.

Advanced IRB – corporate exposures

Today Sydbank applies the advanced IRB approach to calculate the capital requirement as regards retail exposures and the foundation IRB approach to calculate the capital requirement as regards corporate exposures.

Sydbank is working on a project with the aim of gaining approval to apply the advanced IRB approach to calculate the capital requirement as regards corporate exposures. The objective is to gain approval in 2019.

Capital policy

The Group's capital policy consistently supports the Group's strategy and at the same time takes into account Sydbank's status as a SIFI as well as full implementation of capital regulations. The Group's capital targets have been raised and the current targets are a Common Equity Tier 1 capital ratio of around 14.0% (previously: 13.5%) and a capital ratio of around 18.0% (previously: 17.0%). The capital targets have been set to ensure that the Group complies with all capital requirements, including buffer requirements, once these have been fully implemented.

Reference is made to Capital Management on page 22.

Dividend policy

The Group's dividend policy must contribute to creating long-term shareholder value. The objective is to distribute 30-50% of profit for the year after tax while taking into account growth plans and capital policy.

Interest rate risk etc

The Group's interest rate risk represents minus DKK 86m at 31 December 2017 (2016: DKK 177m). As a result the Group will profit from an interest rate increase.

The Group's exchange rate risk continues to be very low and its equity risk modest as regards its trading portfolio.

Funding and liquidity

The guidelines for calculating the Liquidity Coverage Ratio – LCR – specify a run-off of exposures, while taking into account counterparties, funding size, hedging and duration.

Consequently the most stable deposits are favoured relative to large deposits, in particular large deposits from business enterprises and financial counterparties.

SYDBANK / 2017 Annual Report

As a SIFI in Denmark, Sydbank must fully meet the LCR. The Group's LCR constituted 176% at 31 December 2017 (2016: 166%).

The Group has met the LCR requirement of 100% throughout the year and as can be seen its excess cover is significant at 31 December 2017.

Joint funding

The Bank's agreement on joint funding with Totalkredit was changed effective 1 January 2017. The agreement was changed from an offsetting model according to which the Bank covers losses as regards the entire loan to a guarantee model according to which the Bank provides a guarantee for the part of the loans in the LTV range of 60-80%. The Group no longer has a credit risk as regards the part of the loan in the LTV range of 0-60%. As a consequence of the amendment of the agreement, funded mortgage-like loans are no longer recognised in the Group's balance sheet.

At 31 December 2017 funded mortgage-like loans amount to DKK 10.0bn (31 December 2016: DKK 5.3bn). Had the agreement been effective as of 31 December 2016, bank loans and advances would have been recognised at DKK 5.3bn less at this date and the Bank would instead have registered guarantees for DKK 1.2bn as regards the guarantee amount in the range of 60-80%. At the beginning of 2018 funded mortgage-like loans represent DKK 10.9bn.

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 prove to 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 customers or business relations.

Rating

Moody's most recent rating of Sydbank:

Outlook: Positive

Long-term deposit: A3

Baseline credit assessment: Baa1

Senior unsecured: Baa1

Short-term deposit: P-2.

Shareholders

In 2017 the Sydbank share yielded a return of 14% (2016: minus 1%) as a result of the increase in the share price during the year. Moreover dividend distribution represented DKK 10.46 per share. Consequently the total return in 2017 represented 19% (2016: 4%).

The Board of Directors will propose to the AGM that 50% of the Group's profit after tax, equal to a dividend of DKK 11.31 per share, be distributed and that DKK 10m be donated to the sponsorship fund Sydbank Fonden.

Supervisory Diamond

The Supervisory Diamond sets up a number of benchmarks to indicate banking activities that initially should be regarded as involving a higher risk. Any breach of the Supervisory Diamond is subject to reactions by the Danish FSA.

The calculations at the end of 2017 are shown below:

Supervisory Diamond benchmarks

Group	2017	2016
Sum of large exposures < 125%	0	0
Lending growth < 20% annually	(17)	4
Commercial property exposure < 25%	8	9
Funding ratio < 1	0.69	0.80
Excess cover relative to statutory liquidity requirement > 50% (section 152 of the Danish Financial Business Act)	232	186

At 31 December 2017 the Group as well as the parent comply with all the benchmarks of the Supervisory Diamond.

Leverage ratio

The CRR/CRD IV rules require credit institutions to calculate, report, monitor and disclose their leverage ratio, which is defined as Tier 1 capital as a percentage of total exposures. The European Commission's proposal for a revision of CRR includes a proposal to introduce a minimum leverage ratio requirement of 3%.

The Group's leverage ratio stood at 6.9% at 31 December 2017 (2016: 7.0%) taking into account the transitional rules.

Assuming fully loaded Tier 1 capital under CRR/CRD IV without any refinancing of non-eligible Additional Tier 1 capital, the leverage ratio would be 6.7% (2016: 6.5%).

The introduction of a minimum leverage ratio requirement is not expected to be of significance to the Group.

2017 Annual Report / SYDBANK

Performance in 2017

SIFI

Sydbank has been designated as a SIFI in Denmark and in 2017 there is an additional buffer requirement of 0.6% as regards Common Equity Tier 1 capital. The requirement will gradually rise to 1% in 2019. The intention is to bring Danish SIFI capital requirements on a par with the requirements in other comparable European countries.

IFRS 9

With IFRS 9, which came into force on 1 January 2018, a new impairment model has been introduced according to which impairment charges must be recognised for all loans and advances and guarantees on the basis of expected losses. Under the existing rules impairment charges are recognised only when there is objective evidence of impairment.

Under IFRS 9 exposures are divided into 3 groups for calculating impairment and classified into different stages (1, 2 or 3), depending on the risk of credit loss. The staging assessment and the calculation of expected loss will to a large extent be based on the Group's existing rating models and credit management.

Based on the Danish FSA's national guidelines concerning impairment charges in accordance with IFRS 9 impairment charges are expected to increase by around DKK 200m at 1 January 2018.

In general the projected increase in the Group's impairment charges will reduce the Group's shareholders' equity and will consequently have a corresponding negative impact on regulatory capital. To counter an unintended impact on regulatory capital and hence banks' possibilities of supporting lending, a transitional arrangement has been adopted so that any adverse impact from the new impairment model will be phased in over a number of years. Sydbank has decided to apply the transitional rules.

Bank Recovery and Resolution Directive

The directive, including the bail-in provisions, was implemented in Danish law on 1 June 2015. According to legislation each credit institution must meet a minimum requirement for eligible liabilities (MREL). The Danish FSA has been authorised to set the requirement for Sydbank.

Uncertainty continues to surround the deadline for compliance with the minimum requirement. The final minimum requirement may affect the Group's capital and funding structure.

The general resolution principle for SIFIs is that it should be possible to restructure them and send them back to the market with adequate capitalisation to ensure market confidence. In accordance with this principle the MREL for SIFIs is expected to be set at 2 times the total capital requirement. It is expected that the MREL will have to be met with convertible instruments ("contractual bail-in").

The Danish FSA will have discussions with the industry on phase-in and the specific requirements regarding capital that can be used to comply with the MREL. The discussions will take into consideration international developments in the area.

During 2018 the Danish FSA is expected to set the MREL for the Group effective as of 1 January 2019.

The establishment of a resolution fund began in 2015. Credit institutions must make contributions to the fund according to their relative size and risk in Denmark. The resolution fund must be established and have assets at its disposal equal to at least 1% of the covered deposits of all Danish credit institutions by 31 December 2024.

The Group's contribution to the resolution fund for 2017 represents DKK 18m.

Basel IV

On 7 December 2017 the Basel Committee on Banking Supervision (BCBS) published its recommendations for a number of changes to the calculation of the capital requirements for credit institutions. These recommendations are also known as Basel IV. Among other things, Basel IV proposes to constrain the use of internal models and introduce a permanent floor for the risk exposure amount.

The recommendations are expected to have a limited impact on the Group's capital.

The recommendations must be implemented in the EU before they will apply to Danish institutions. The Group is following developments closely. At present the extent of the changes in relation to the Basel Committee's recommendations when implemented into EU regulation is unknown. The effective date is expected to be 1 January 2022 on which date the floor requirement is also expected to be implemented, starting at 50% and gradually increasing until finally reaching 72.5% at 1 January 2027.

SYDBANK / 2017 Annual Report

2017 Annual Report / SYDBANK

Outlook for 2018

Limited growth is projected for the Danish economy in 2018.

Total income is expected to be on a par with the income generated in 2017.

Costs (core earnings) are projected to rise slightly in 2018.

Impairment charges for 2018 are forecast to be at a low level. The uncertainty surrounding price developments in the agricultural sector may however affect impairment charges.

Non-recurring costs are expected to represent around DKK 75m.

As a result profit after tax of DKK 1,200-1,400m is projected for 2018.

The outlook is subject to uncertainty and depends among other things on macroeconomic factors.

2017 Annual Report / SYDBANK

Capital Management

The Group's capital management ensures efficient deployment of capital relative to the Group's overall capital targets. The Group's risk profile is determined on the basis of the capital targets which ensure first and foremost that there is adequate capital to meet the Group's growth expectations and cover fluctuations in the risks assumed by the Group.

The Group applies internal ratings based approaches to manage the credit risk of the Group's corporate and retail client portfolios. The Group applies the advanced IRB approach as regards retail clients and the foundation IRB approach as regards corporate clients to determine the Group's capital requirements.

The Group applies the Standardised Approach to credit risk in relation to exposures to governments and credit institutions.

Further details, also concerning the risk exposure amount (REA), capital information and capital ratios, are found in note 3.

The Group's capital management focuses on 4 capital elements: minimum capital, adequate total capital, capital requirements including buffers and total capital.

Capital and solvency and capital requirements

% of REA	31 Dec 2017	Fully loaded*
Capital and solvency
Common Equity Tier 1 capital ratio	17.3	17.3
Capital ratio	20.8	20.8
Capital requirements (incl buffers)**
Total capital requirement	12.9	14.5
CET1 capital requirement	8.0	9.7
- of which countercyclical capital buffer	0.0	0.0
- of which capital conservation buffer	1.3	2.5
- of which SIFI buffer	0.6	1.0
Excess capital
Common Equity Tier 1 capital	9.3	7.6
Total capital	7.9	6.3

Based on fully loaded CRR/CRD IV rules and requirements.
** The total capital requirement consists of an individual solvency need and a combined buffer requirement. The fully loaded countercyclical capital buffer is based on the national buffer rate as at 31 December 2017.

Minimum capital represents the necessary capital in compliance with CRR and adequate total capital is the Group's determination

of the capital sufficient to protect depositors against loss under the prevailing economic conditions. The solvency need is defined as adequate total capital in percentage terms of the risk exposure amount.

The capital requirement including buffers is based on the solvency need to which a combined buffer requirement is added. The combined buffer requirement for the Group constitutes 1.9% at 31 December 2017. When fully loaded the combined buffer requirement will represent 3.5% bringing the fully loaded CET1 capital ratio requirement to 9.7%.

In December 2017 the Systemic Risk Council recommended that a countercyclical buffer rate of 0.5% be set in Denmark effective 31 March 2019. If a countercyclical capital buffer is implemented in Denmark the Group's fully loaded CET1 capital ratio requirement will go up by approx 0.4 percentage points.

The committees in the Group's risk organisation report directly to the Group Executive Management. The committees identify, monitor and assess risks within the individual risk areas and ensure that models and principles are formulated to calculate risks. The committees ensure that the Bank's business units proactively carry out their operations and analyse identified risks. The Group's Chief Risk Officer is a member of all committees, see Risk Management on page 100.

A risk assessment is carried out annually to determine the Group's risk profile. The Board of Directors considers the assessment and determines the adequate total capital and the individual solvency need in continuation of this assessment.

The adequate total capital is determined on the basis of the Danish FSA approach (8+). A proposal for the determination of the adequate total capital is prepared by Risk and is presented to the Group Executive Management. The Board of Directors discusses and determines the adequate total capital on the basis of this proposal.

The proposal is based on the capital adequacy rules (Pillar I) with add-ons for any risks deemed not to be sufficiently covered under Pillar I. At year-end 2017 add-ons were allocated in relation to credit risk, market risk and operational risk.

The models used to calculate the Pillar I capital requirement are described in detail in note 3.

SYDBANK / 2017 Annual Report

The adequate total capital/solvency need can be broken down as follows:

Adequate total capital/solvency need

	DKKm	% of REA
Credit risk	4,547	7.7
Market risk	600	1.0
Operational risk	892	1.5
Other exposures	456	0.8
Adequate total capital/solvency need	6,495	11.0

Other exposures include property, plant and equipment and the Group's equity investments.

Total capital is the actual capital that the Group has at its disposal.

Based on the adequate total capital the Group's capital structure can be specified as follows at 31 December 2017:

Capital structure

	DKKm	% of REA
Adequate total capital/solvency need	6,495	11.0
Combined buffer requirement	1,089	1.9
Capital requirement incl combined buffer requirement	7,584	12.9
Excess capital	4,656	7.9
Total capital	12,240	20.8

Stress testing is another important element when determining the adequate total capital.

The object of stress testing is to assess the impact of adverse events on capital needed and income. Stress test calculations show the impact for the coming years in given economic scenarios.

At 31 December 2017 the Group has based its stress test calculations on the following macroeconomic scenarios:

Base case scenario which reflects the Group's forecast of developments in the economy.

Mild recession which reflects deteriorated economic conditions compared with the base case scenario. Annualised GDP is expected to develop positively in 2018 and 2019. Unemployment will remain at its current level in 2018 and 2019.

Global crisis which reflects that the Danish economy will be hit by 2 blows: a domestic blow where confidence among Danish consumers and businesses will weaken significantly and a foreign blow where the international economy will be hit by a new cyclical downturn. This scenario resembles a very deep recession and in terms of GDP it is on a par with the recession during the period 2008-2009. Unemployment will increase substantially. GDP developments will be negative in 2018 and 2019 and house prices will drop sharply during the same period.

Lending freeze which reflects a scenario resembling the global crisis scenario. However Danish households and consumers will be more reluctant to borrow money. This can be construed as a more severe domestic blow to the Danish economy. The recession will be slightly deeper than in the global crisis scenario.

Deflation which reflects that inflation will continue to decrease in Denmark and the euro area leading to deflation where the overall level of prices will drop. Compared with the global crisis scenario, Denmark will see more significant declines in prices and lending.

Interest rate increase which reflects a steep rise in oil prices. In the light of sharply rising inflation the central banks in USA and the euro area will hike interest rates considerably. Danish economic growth will come to a standstill, unemployment will rise slightly and property prices and lending will decline.

Debt crisis which could reflect Greece abandoning the euro, prompting renewed uncertainty as regards other debt-ridden euro area countries. Another scenario could be the bank crisis or the political instability in Italy having a severe adverse impact on the Italian economy. Both scenarios involve a setback for Europe's economy and investors fleeing from debt-ridden countries. Danish economic growth will be slightly negative and unemployment will be higher than in the mild recession scenario. At the same time Denmark, via its status as a safe haven, will attract foreign capital, which will push interest rates lower than in the base case scenario.

The scenarios and their relevance are subject to ongoing assessment and the scenarios are approved by management as the basis for further stress test calculations. The impacts of the scenarios are included in the assessment of the adequate total capital. The stress tests conducted show that the Group is adequately capitalised.

Throughout 2017 the Group has fully complied with external as well as internal capital requirements.

2017 Annual Report / SYDBANK

Investor Relations

To support its strategic goals the Group ensures that stakeholders receive accurate and complete information. This is done by targeting investor communication according to best practice and by maintaining a high degree of professionalism.

The Group strengthens and expands relations with investors and analysts by conducting roadshows when its financial statements are published.

In addition management interacts with analysts, shareholders and potential investors at a number of seminars and conferences where current issues concerning Sydbank are presented and discussed.

In 2017 Sydbank held approximately 150 meetings with investors in Western Europe and USA.

The Sydbank share

The Sydbank share is listed on Nasdaq Copenhagen and forms part of the OMX Copenhagen Large Cap index.

The Sydbank share rose from 219.2 at year-end 2016 to 249.9 at year-end 2017, equal to an increase of 14.0%. Adding dividend distributed in 2017 of DKK 10.46 per share, return to shareholders represented 18.8%. By comparison the bank index rose by 9.5%.

The Sydbank share	2017	2016
Share capital (DKKm)	704	722
Total market capitalisation at year-end (DKKm)	17,583	15,835
Share price at year-end	249.90	219.20
EPS Basic (DKK)	22.40	20.91
Dividend per share (DKK)	11.31	10.46
Book value per share (DKK)	178.26	169.16
Share price/book value per share	1.40	1.30

At the end of 2017 8 analysts covered the Sydbank share.

The average daily turnover of the Sydbank share was DKK 46m in 2017 compared with DKK 35m in 2016. The share was the 24th most traded share on Nasdaq Copenhagen.

Share price developments 2017
1 January 2017 = index 219.2, ie Sydbank's share price

Distribution policy

Sydbank's overall financial goal is to provide its shareholders with a competitive return by way of price increases and dividends.

In 2017 Sydbank distributed a dividend of 50%, cf the Bank's dividend policy, equal to DKK 10.46 per share.

In continuation of the dividend distribution in 2017 Sydbank has acquired 2,690,220 own shares totalling DKK 664m. The share buyback was conducted as part of the adjustment to the Group's capital targets.

The Group's targets are a Common Equity Tier 1 capital ratio of around 14.0% and a capital ratio of around 18.0%.

On the basis of improved income and a strong capital base a new share buyback programme of DKK 500m, in addition to the cash dividend, will be launched with expected implementation in the period from early March to end-2018. Consequently a total of DKK 1,276m, equal to 83% of profit for the year after tax, will be distributed.

SYDBANK / 2017 Annual Report

Mission Statement and Business Goals

Sydbank has a solid financial foundation that offers room for more business with new customers as well as existing customers. Our growth will be built on a firm and sound footing. Sydbank wishes to remain a bank operating on its own terms and we aim to be the preferred business partner. We focus on our own products but use business partners for a wide variety of financial services, for instance mortgage credit, pension and insurance.

As an advisory and service undertaking Sydbank's primary objective is to meet the financial requirements of its customers. Sydbank achieves this objective by striving to be among the absolute top performers in Denmark in terms of operating a bank and providing advisory services to customers based on their unique situation. As a nationwide bank Sydbank is present in all parts of Denmark.

Sydbank's business volume is evenly distributed across 9 Danish regions which form the basis of the direct advisory services to the Bank's customers. The total business volume consists of loans and advances, deposits, guarantees and custody accounts. Depending on customer segment and type of business Sydbank has a market share of between 6 and 13%. The Bank's largest market share is within the SME segment.

Moreover Sydbank has 3 branches in Northern Germany and together they constitute the Bank's 10th region.

Sydbank's business model

Sydbank is a bank operating on its own terms.
Sydbank is a competent and value-creating advisory bank.
Sydbank is a relationship bank and professional relationships are the reason why we can create, maintain and build on long-term customer relationships.
We strive for simplicity in our work.
Sydbank wants to be known for its belief that excellent and committed employees are its most important asset.

Geographical distribution of Sydbank's business volume in Denmark

Mission Statement and Business Goals

Values and attitudes

Sydbank's interaction with its customers and other stakeholders is based on a number of values and business principles and is expressed in the statement: "Excellence and relationships create value". In addition the Bank's stakeholder policy serves as a guideline for its efforts in this respect.

Sydbank's stakeholder policy

Sydbank will act as an open and credible organisation proactively seeking dialogue with its stakeholders and the surrounding community.
Sydbank will treat its stakeholders responsibly, properly and respectfully.
Sydbank will base its decisions on dialogue with significant stakeholders.
Sydbank will communicate based on facts, in due time, comprehensibly and precisely with relevant stakeholders.

Sydbank is convinced that the combination of excellent employees and good relationships creates value for customers – and the Bank. Moreover Sydbank believes that strong relationships with all stakeholders is an important business advantage. At Sydbank we have a simple organisation to ensure high accessibility and easy access to decisions so we can act quickly on behalf of our customers and on our own behalf. Sydbank makes 3 promises – to its customers, to its employees and to its shareholders.

Banking – pure and simple

Sydbank's mission is to be a bank that is close to its customers. We are an advisory bank and find solutions where they are – quickly and efficiently. Sydbank builds on relationships between people. And we focus on what is important – banking and sound business. Banking – pure and simple.

Sydbank is a bank for most people but not the same bank for everyone. We serve our customers on the basis of their requirements and offer digital self-service solutions that enable customers to carry out everyday banking transactions in an easy and flexible manner. Sydbank provides the services in demand by customers and sees technology as a way to bring us even closer to customers.

Sydbank has a large number of online and digital solutions. In NetBank and MobilBank customers can carry out their everyday banking transactions whether they are corporate clients, Private Banking clients or retail clients. For instance Sydbank offers MobilBank Corporate and Online Banking, both of which are fully integrated with the customer's ERP systems. Sydbank is also part of the MobilePay cooperation and part of the Bolighed property portal.

Moreover customers can get in touch with Sydbank via the branches in the Bank's 9 Danish regions, its branches in Germany and its specialist functions at the head office in Aabenraa. Providing full service to all customers, the Danish regions are organised in Corporate, Private Banking and Retail sections and service the Bank's branches.

Sydbank Direct is the Bank's online advisory and service offering using a number of different channels. This enables customers to contact the Bank when and how it suits them best. In addition Sydbank Direct has a special advisory department for young customers aged between 18 and 29.

Sydbank Direct staff have a background in banking. The department is open all weekdays between 8am and 8pm and is only closed on public holidays, 24 and 31 December.

Customers

As a large nationwide bank Sydbank has customers in all categories. Guided by Sydbank's service philosophy "What can we do for you", the Bank wishes to increase the following customer segments:

Sound and well-run SMEs
Retail clients with healthy finances
Young customers undergoing education and training and with a foreseeable potential
Wealthy retail clients.

The Bank aims to have a diversified customer portfolio with only few large exposures and diversification across industries corresponding as far as possible to the Danish corporate structure.

Corporate

Sydbank aims to be the preferred business partner for SMEs and prioritises building and maintaining value-creating relationships with all corporate clients.

Consequently the Bank's corporate clients receive advisory services from a personal adviser who knows the individual enterprise and its situation. When needed the personal adviser draws upon the expertise of the Bank's many specialists in the development of and the collaboration with the enterprise.

Sydbank is a full-scale corporate bank offering all financing solutions tailored to the requirements of the individual enterprise. Our corporate clients have access to efficient international commercial banking services. Sydbank offers payment services and

SYDBANK / 2017 Annual Report

cash management solutions virtually worldwide. This is effected through the Bank's branches in Germany and the Connector banks.

As a rule corporate clients are served by one of the Bank's regional head offices or by special corporate branches. Sydbank wishes primarily to have SMEs with growth potential as customers. The enterprises must have a sound financial footing and use the main part of the Bank's palette of products and services.

Corporate clients are divided into 5 segments and are served by the following entities:

Corporate by Corporate Banking & Finance
Corporate Large by the corporate centres
Corporate Medium by the corporate departments
Corporate Local by retail branches with corporate local departments
Agricultural clients by the agricultural centres.

Private Banking

Private Banking at Sydbank strives to provide qualified advisory services at all times. As a result the Bank focuses on long-term relationships with each customer.

Within Private Banking Sydbank has a physical Private Banking centre in each of the Bank's 9 regions as well as 1 in Northern Germany. Advisory services are provided by dedicated Private Bankers who are assisted by a team of experts tailored to the specific requirements of the individual customer. The team at the customer's disposal provides advisory services on eg investments, wealth management and current financial issues. In addition special experts from the Bank's central functions are called upon as required.

Sydbank's Private Banking concept is offered to wealthy retail clients with investable assets or a household income above a specified level. As an add-on to the Private Banking concept, Sydbank offers its wealthiest customers Sydbank's Private Banking Elite.

The Private Banking concept consists of advisory services as well as a range of benefits, thereby providing customers with attractive terms regarding eg payment cards, insurance, investment products and related services as well as fees and charges.

For many years Sydbank has targeted the investment area and the Bank has primarily focused on providing personal and individual advisory services to its customers. The extent of investment advisory services depends in general on a customer's investment preferences.

Retail

Our loyalty programme Sydbank Favorit is offered to retail clients. The flexible programme lets customers choose the benefits that best suit them from a total of 10 benefits. In addition to Sydbank Favorit's optional benefits we offer our customers a number of fixed benefits, eg a discount on general insurance and a loyalty discount that is a special reward for the customer's years as a customer with Sydbank.

Sydbank cooperates with a number of sub-suppliers to ensure our customers receive competitive quality products. The primary mortgage credit partners are Totalkredit, Nykredit and DLR Kredit and Sydbank's life insurance partners are Letpension and PFA. Sydbank's non-life insurance partner is Topdanmark.

Sydbank Favorit customers with a large business volume have a personal adviser in their branch who acts as the customer's account manager. Sydbank Favorit customers with a limited business volume are mainly served by Sydbank Direct.

The objective is that Sydbank's advisers always provide competent advice to customers on the basis of the Bank's knowledge of a customer's preferences and profile. This is ensured by:

regularly updating advisers' professional qualifications
analysing customers using customer data from the Bank's Data Warehouse as well as customers' choice of Sydbank Favorit benefits.

Asset management

Sydbank offers advice and asset management to for instance investment funds, pooled pension plans, foundations and institutional clients. In addition the Bank offers asset management to wealthy customers through individual portfolio management agreements where the customer is assigned 2 managers responsible for the customer's portfolio.

2017 Annual Report / SYDBANK

Mission Statement and Business Goals

Moreover the Bank offers investment management products to its different customer segments. The Bank cooperates with a number of sub-suppliers in the investment fund area, eg Sydinvest, BankInvest, Valueinvest, Sparinvest and Maj Invest.

Asset Management is also responsible for the Bank's macro, equity and fixed income research activities.

Asset management

DKKbn	2017	2016
Pooled pension plans	17	14
PengePlan®	7	10
PM mandates	13	11
Management agreements	4	4
Investment funds and hedge funds	56	50
Total	97	89

Custody account volume

DKKbn	2017	2016
Retail and corporate clients	113	102
Pooled pension plans	16	14
Financial institutions	6	4
Investment funds and hedge funds	54	48
Total	189	168

Custody account volume distribution – retail and corporate clients

DKKbn	2017	2016
Danish bonds	11	10
Foreign bonds	3	4
Danish shares	39	33
Foreign shares	8	7
Investment funds and hedge funds	52	48
Total	113	102

During 2017 assets under management rose to DKK 97bn at year-end 2017 compared with DKK 89bn at the beginning of the year. The growth is attributable to a combination of significant new sales and increases in value in financial markets as a consequence of generally rising share and bond prices.

The ban on receiving commission on investment products imposed by the MiFID II rules came into effect on 1 July 2017 with the main purpose of creating added price transparency in the investment product market. At Sydbank this first and foremost affected the investment product PengePlan®, for which we have implemented a number of price changes as a result of the amended legislation. The new fee to replace eg the commission payment is however subject to VAT and consequently PengePlan® has generally become slightly more expensive for customers. As a result the overall demand among customers has fallen, which has prompted a decrease in assets under management in PengePlan® of DKK 3bn, part of which has been reallocated to pooled pension plans.

In addition to invested savings the increases in value in financial markets also affect the total custody account volume of the Bank's retail and corporate clients which increased from DKK 168bn at the beginning of 2017 to DKK 189bn at the end of 2017. This relatively sharp rise is especially reflected in the significant portfolio of Danish shares held by many customers in their custody accounts so Danish shares rose about twice as much as global shares in 2017, ie 17% compared with 9%.

Sydbank Markets

Sydbank Markets offers advice and quotes prices as regards bonds, shares and foreign exchange as well as undertakes market-making obligations. Sydbank Markets services institutional clients, central banks, asset managers, foreign clients, major clients, banks as well as Sydbank's investment centres and departments.

Moreover Sydbank Markets is a primary dealer in Danish government bonds and mortgage bonds and the Bank's primary mortgage credit partners are Nykredit, DLR Kredit, Realkredit Danmark and Nordea Kredit.

Human Resources and staff

Sydbank believes that excellent and committed employees are its most important asset. Excellent and dedicated employees are key to ensuring the Bank's continued success and value creation for Sydbank's customers as well as the Bank itself.

By means of training and recruitment the Bank aims to have highly skilled and competent employees who are committed to building relationships. Sydbank wants to be a workplace offering excellent career opportunities and personal development opportunities. Sydbank wants the Bank to be an attractive and socially responsible workplace with a healthy work environment.

The Bank's employees are motivated to improve their skill set on an ongoing basis and Sydbank offers in-house and external education and training activities. The Bank has an introduction programme for new employees.

SYDBANK / 2017 Annual Report

In connection with recruitment Human Resources tests qualified applicants to ensure that vacancies are filled by the most eligible candidates. Every 2 years Human Resources conducts an comprehensive employee satisfaction survey in cooperation with an external supplier. Smaller surveys to gauge the temperature among employees are carried out every 6 months, also in cooperation with an external supplier.

Customer policy

As stated in Sydbank's customer policy each customer should experience being or becoming a customer of Sydbank as something special irrespective of whether the customer is a retail client, a Private Banking client or a corporate client.

Sydbank wants to be seen as a flexible bank putting itself in the customer's place. In its customer contact Sydbank wishes to be known as a bank that is close to its customers and through this closeness build long-term relationships and provide advisory services that create value for the customer and the Bank. Sydbank seeks to ensure high accessibility and gives customers the possibility of contacting the Bank whenever and however it is convenient for them.

IT

IT is an essential part of the Bank's business model. Sydbank adapts its products and services on an ongoing basis to an increasingly digitized everyday life. The Bank's business is thus dynamically adapting to customers' demand for self-service and advisory services outside the traditional branch.

Sydbank has outsourced a considerable part of its IT operations and development to JN Data/Bankdata, which performs these activities on behalf of Sydbank.

Bankdata and Sydbank's own specialists work together to develop new IT systems. Focus is on the digitization of processes, creating a better online customer experience and new capital market systems. Development activities are divided into 3 areas:

IT systems and applications
Process management
Data Warehouse.

In all 3 areas Bankdata as well as Sydbank have a role in terms of development activities.

Sydbank sees technology as a means to bring the Bank closer to the customer and to reduce complexity thus creating a simple and seamless customer experience.

IT security and safety at branches

IT security is a high priority as virtually all the Bank's business transactions involve the use of IT. Sydbank works to ensure that security goes hand in hand with user-friendliness as regards the Bank's IT-based platforms.

IT breakdowns and cybercrime pose considerable risks to banking operations, especially in light of increasing digitization. These risks are minimised via Sydbank's policy in this area, which includes a description of the contingency plans in place according to the type of event and how it is tackled depending on the cause.

Sydbank also gives high priority to safety in its branches. The fact that a growing number of branches are cashierless and/or cashless in response to the change in customer needs increases safety. Furthermore all branches with cashier services are equipped with time locks and other robbery-prevention measures.

National Banks in Denmark

Sydbank is a member of the industry association National Banks in Denmark together with Arbejdernes Landsbank, Nykredit Bank and Spar Nord Bank. The main object of the association is to strengthen members' position in relation to sector policy.

2017 Annual Report / SYDBANK

Organisation and Corporate Governance

Sydbank's management backs and actively addresses corporate governance.

Sydbank's Board of Directors and Group Executive Management consider corporate governance to be a basic prerequisite for meeting the Bank's financial and non-financial targets and maintaining a good dialogue and a good relationship with internal and external stakeholders alike.

The Bank complies with the recommendations of the Committee on Corporate Governance. As a SIFI Sydbank publishes the statutory corporate governance report on the Bank's website. The overall position of the Board of Directors as regards the recommendations appears from Sydbank's Corporate Governance Principles. Read more at sydbank.com.

Sydbank's Board of Directors has also considered the management code of conduct of the Danish Bankers Association and follows all 12 recommendations. The overall position of the Bank as regards the management code of conduct of the Danish Bankers Association is available at sydbank.com.

The management of Sydbank is carried out by:
- the general meeting
- the Shareholders' Committee
- the Board of Directors
- the Group Executive Management.

Shareholders

A positive and ongoing dialogue with shareholders is important for Sydbank so that private and professional investors gain an insight into the Bank's strategy, business model and results.

To promote the dialogue with the Bank's private shareholders, shareholders' meetings are held each year where more than 10,000 of the Bank's private investors can gain insight into the Bank's operations and engage in dialogue with management. Moreover Sydbank takes part in investor presentations, investor conferences and roadshows where institutional investors can engage in dialogue with management and gain an insight into the Bank's development.

All the Bank's shareholders can get a fuller picture of Sydbank via the Bank's website, sydbank.com, where company announcements, interim reports and annual reports are available.

General meeting

Shareholders' voting rights are exercised at the general meeting. Sydbank complies with the recommendations of the Committee on Corporate Governance regarding organising the Bank's general meeting and appointing proxies. Sydbank's Articles of Association contain information on convening the general meeting, the right to submit proposals as well as attendance and voting rights. The Bank's Articles of Association are available at sydbank.com.

Resolutions to amend the Articles of Association and resolutions to dissolve the Bank and/or to merge the Bank with other companies will only be adopted if at least 2/3 of the voting share capital is represented at the general meeting and the resolution is carried by at least 2/3 of the votes cast and of the voting share capital represented at the general meeting.

If at least 2/3 of the voting share capital is not represented at the general meeting but the resolution is carried by at least 2/3 of both the votes cast and the voting share capital represented at the general meeting, the resolution can be adopted at a new general meeting by the majority of votes cast as prescribed above irrespective of the proportion of voting share capital represented.

Resolutions to amend the Articles of Association submitted by the Shareholders' Committee or the Board of Directors may be finally adopted at a single general meeting by at least 2/3 of both the votes cast and the share capital represented at the general meeting.

Sydbank has a voting right limitation according to which no shareholder may cast a vote of more than 20,000 shares on his own behalf.

The Board of Directors may authorise a share capital increase of up to DKK 72,240,199 in one or more issues. The authorisation applies until 1 March 2021. Increases in share capital pursuant to such authorisation may be effected without any pre-emption rights for the Bank's existing shareholders, if effected by an unrestricted public subscription at market price or by conversion of debt.

The general meeting has authorised the Board of Directors to allow the Bank to acquire own holdings within a total nominal value of 10% of the Bank's share capital. At 31 December 2017 the Bank had acquired 4.9% of the Bank's share capital under the current authorisation, which will expire in 2022.

Shareholders' Committee

The Bank's Shareholders' Committee is elected by the general meeting. On the recommendation of the Board of Directors the general meeting determines the total number of Shareholders' Committee members and their distribution by region.

SYDBANK / 2017 Annual Report

The Shareholders' Committee elects the members of the Board of Directors and determines their remuneration.

The Shareholders' Committee is obliged to work for the prosperity of the Bank as well as to represent the Bank to the best of its ability and assist the Board of Directors and the Group Executive Management.

Shareholders' Committee members are elected for a term of 3 years. Members are eligible for re-election.

Board of Directors

The Board of Directors consists of between 6 and 10 members elected by and from among the members of the Shareholders' Committee. Shareholder-elected board members are elected for a term of 3 years. Members are eligible for re-election. If the number of shareholder-elected board members is reduced to less than 6, the Shareholders' Committee will add to the number as soon as possible in order to increase the number to at least 6.

The Bank has no age limit applying to board members in the Articles of Association. The maximum term of office for shareholder-elected board members is 12 years.

The Board of Directors holds at least 11 ordinary meetings each year. In addition an annual strategy seminar is held as well as 2 annual training days. The Board of Directors carries out an annual self-evaluation where the work and results of the Board of Directors and its individual members are assessed. The competences required for the work of the Board of Directors are determined in connection with the evaluation. In continuation hereof the competences present are assessed with a view to identifying any need for further competences. The evaluation is carried out by the Bank's Nomination Committee and every 3rd year external assistance is received. In 2017 the self-evaluation was conducted with external assistance. The conclusions of the Nomination Committee's discussions are presented to the Board of Directors.

On the basis of Sydbank's business model the conclusion of the evaluation of the Board of Directors for 2017 is that the cooperation of the Board of Directors works in a satisfactory manner and that the Board of Directors has the competences required at the present time.

Other directorships held by the Board of Directors can be seen on pp 118-123.

Board committees

Sydbank's Board of Directors has set up 4 committees that supervise special areas or prepare matters for subsequent consideration by the full Board of Directors.

Audit Committee
Risk Committee
Remuneration Committee
Nomination Committee.

The terms of reference of the committees are available at sydbank.dk/organisation (in Danish only), which also contains an introduction to the members and their qualifications.

Audit Committee

The Audit Committee reports to the Board of Directors and convenes as a minimum 4 times a year.

The Audit Committee reviews accounting, auditing and security issues including issues which the Board of Directors, Internal Audit, the Audit Committee or the independent auditors wish to discuss.

The Audit Committee follows up on measures taken to rectify weaknesses in internal controls reported by Internal Audit or independent auditors and ensures that material errors and omissions in the financial statements are corrected. Moreover the Audit Committee monitors the Bank's compliance with orders issued by the Danish FSA.

The Audit Committee supervises the financial reporting process including accounting policies and reviews significant accounting estimates etc before the full-year and interim financial statements are presented to the Board of Directors.

The Audit Committee convened 8 times in 2017.

The Board of Directors has appointed John Lesbo, State Authorised Public Accountant, as the board member who possesses special qualifications. Until his appointment to the Bank's Board of Directors John Lesbo was a partner in KPMG and Ernst & Young. During his many years as an accountant John Lesbo has participated in national and international training programmes, which has placed him in a position to audit and advise large companies with international activities. John Lesbo was on the board of the auditing firm for many years and is a former member of the Expert Opinion Committee of FSR (Danish Auditors).

2017 Annual Report / SYDBANK
31

Organisation and Corporate Governance

The Audit Committee consists of John Lesbo (Chairman), State Authorised Public Accountant; Torben Nielsen, former Central Bank Governor; Jacob Chr. Nielsen, General Manager; and Lars Mikkelgaard-Jensen, Managing Director.

Reference is made to
sydbank.dk/omsydbank/organisation/revisionsudvalg (in Danish only).

Risk Committee

The Risk Committee reports to the Board of Directors and convenes as a minimum 4 times a year.

The Risk Committee must provide the Board of Directors with an overview of the Group's current risk scenario and prepare the determination of the Group's overall risk profile and risk strategy including the risks associated with the Group's business model.

Moreover the Risk Committee must evaluate the Group's internal procedure for risk identification and the correlation with risk reporting and the calculation of the Group's solvency need. The Risk Committee is regularly informed of the models and measurement methods that form the basis of the Group's capital management including trends in and expectations of regulatory requirements.

The Risk Committee ensures that the policies and guidelines of the Board of Directors as regards risk are implemented and function effectively in the Group.

The Group's Chief Risk Officer must assist the committee with information and attend its meetings with a view to discussing the Group's risk management.

The Risk Committee convened 4 times in 2017.

The committee consists of Torben Nielsen (Chairman), former Central Bank Governor; Peder Damgaard, General Manager and former Principal; and Jarl Oxlund, Chairman of Sydbank Kreds.

Reference is made to
sydbank.dk/omsydbank/organisation/risikoudvalg (in Danish only).

Remuneration Committee

The Remuneration Committee reports to the Board of Directors and convenes as a minimum once a year.

The Remuneration Committee formulates the Bank's remuneration policy and decides which of the Bank's functions are covered by the concept of "material risk takers". Following approval by the Board of Directors the remuneration policy is submitted to the general meeting which will make the final decision. The Remuneration Committee ensures that the remuneration policy in force is complied with.

As a result of an amendment to the Danish Financial Business Act in 2016 the requirements as regards the Remuneration Committee were extended. Accordingly the Remuneration Committee must review information about remuneration issues presented to the general meeting, perform assessments and controls of the Bank's remuneration processes and ensure that the use of variable remuneration complies with the rules of the remuneration policy and legislation.

The Remuneration Committee also prepares a recommendation to the Board of Directors concerning the remuneration of the members of the Shareholders' Committee.

The Remuneration Committee convened twice in 2017.

The committee consists of Peder Damgaard (Chairman), General Manager and former Principal; Torben Nielsen, former Central Bank Governor; Janne Moltke-Leth, General Manager; and Alex Slot Hansen, Executive Vice President, Private Banking.

Reference is made to
sydbank.dk/omsydbank/organisation/loenudvalg (in Danish only).

Nomination Committee

The Nomination Committee reports to the Board of Directors and convenes as a minimum 4 times a year.

The Nomination Committee is tasked with evaluating management and must also identify and describe the competences required in the Bank's Board of Directors and assess whether they are present.

Moreover the committee must propose new potential candidates for the Advisory Boards and the Shareholders' Committee so that new members to the Board of Directors may be recruited from the Shareholders' Committee to the widest extent possible.

The Nomination Committee convened 5 times in 2017.

The committee consists of Torben Nielsen (Chairman), former Central Bank Governor; Peder Damgaard, General Manager and former Principal; Jacob Chr. Nielsen, General Manager; and Frank Møller Nielsen, Attorney.

SYDBANK / 2017 Annual Report

Reference is made to
sydbank.dk/omsydbank/organisation/nomineringsudvalg (in Danish only).

Policy and targets for the under-represented gender

Sydbank complies with the recommendation of the Committee on Corporate Governance that once a year the Board of Directors discusses activities to ensure diversity.

The aim of the Board of Directors is that women will represent at least 25% of the shareholder-elected board members in 2019. Following the general meeting in 2017 Sydbank's Board of Directors consisted of 8 shareholder-elected board members including 1 female board member. During the year 1 male board member resigned from the Bank's Board of Directors. The Nomination Committee and the Board of Directors will seek to ensure that new women board members can be recruited to meet the defined target.

Reference is made to Sydbank's CSR Report for 2017 (pp 5 and 28), which is published together with the annual report on Sydbank's website, sydbank.com.

Group Executive Management

Sydbank's Group Executive Management consists of 3 members. The Group Executive Management is appointed by the Board of Directors and consists of Karen Frøsig, CEO, Jan Svarre, Deputy Group Chief Executive, and Bjarne Larsen, Deputy Group Chief Executive.

The Group Executive Management constitutes the top day-to-day management of the Bank in accordance with the guidelines and instructions issued to the Group Executive Management by the Board of Directors. The distribution of duties between the Board of Directors and the Group Executive Management is laid down in the rules of procedure of the Board of Directors.

The Group Executive Management attends the meetings of the Shareholders' Committee and the Board of Directors without any voting rights.

Further information is available at
sydbank.dk/omsydbank/organisation (in Danish only).

Management's remuneration

The Bank's remuneration policy is determined by the Bank's Board of Directors and describes Sydbank's positions on remuneration and the use of variable remuneration components. The Board of Directors is responsible for making any necessary adjustments of the remuneration policy and for submitting the revised remuneration policy to the general meeting for adoption.

The remuneration policy must support the Bank's aim of being a good place to work and being able to attract and retain competent employees. Furthermore the policy must create value for the Bank's shareholders.

The remuneration policy must be consistent with and promote sound and effective risk management which does not encourage excessive risk taking as well as comply with the corporate governance rules on remuneration policies in listed companies.

Members of the Board of Directors receive a fixed fee. Board members are not covered by any type of bonus scheme.

The remuneration of the Group Executive Management is reviewed once a year. The remuneration is determined on the basis of a wish to attract and retain the right profiles in the Group Executive Management so that the Bank's Group Executive Management has the right composition at all times. In connection with the annual review of the remuneration of the Group Executive Management an assessment of the market level is made. In addition the remuneration of the Group Executive Management is adjusted according to the adjustment in the collective agreement concluded by the Danish Employers' Association for the Financial Sector (FA) and the Financial Services Union Denmark (Finansforbundet). No bonus schemes have been agreed as regards the Group Executive Management.

Within the limits of the remuneration policy the Board of Directors fixes the total remuneration of the Group Executive Management, including any severance terms.

The remuneration policy applies to the Sydbank Group. The remuneration of the Board of Directors and the Group Executive Management appears from the notes to the annual report.

Further information is available at
sydbank.dk/omsydbank/undersider/loenpolitik (in Danish only).

2017 Annual Report / SYDBANK
33

Organisation and Corporate Governance

Significant internal controls and risk management systems

Sydbank's risk management and internal controls relating to financial reporting are designed for the purpose of preparing:
- management accounts which make it possible to measure and follow up on the Group's performance
- financial statements which give a true and fair view without material misstatement and which are in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for annual reports of listed financial companies.

The Group Executive Management is responsible for maintaining effective internal controls and a risk management system in connection with financial reporting. The Group Executive Management has designed and implemented controls considered necessary and effective to counter the identified risks relating to financial reporting. The Group's internal controls and risk management systems are updated on an ongoing basis and are designed with a view to identifying and eliminating errors and omissions in the financial statements.

Risk assessment

The Board of Directors and the Group Executive Management regularly assess the risks relating to the Group, including those affecting financial reporting. A description of the most significant identified risks is given in the annual report under "Accounting estimates and judgements" (note 2).

Procedures have been put into place to ensure that Sydbank at all times complies with relevant legislation and other regulations in connection with financial reporting. The Audit Committee is regularly informed of significant changes in legislation.

Monitoring

Analyses and control activities are conducted in connection with the preparation of the annual report to ensure that financial reporting is in compliance with IFRS as described under "Accounting policies" (note 1).

Risk organisation

Sydbank has a formal risk organisation comprising a number of risk committees and a Chief Risk Officer reporting directly to the Bank's Group Executive Management. The Chief Risk Officer is responsible for prudent risk management within the Group and compliance with the requirements of the Danish executive order on management and control of banks etc. The risk committees are headed by a member of the Bank's Group Executive Management and the Chief Risk Officer is a permanent member.

The risk committees identify, monitor and assess risks within the individual risk areas and ensure that models and principles are formulated to calculate risk. The committees ensure that the Bank's business units address identified risks.

Compliance

Compliance is an independent department reporting directly to the Bank's Group Executive Management. The department also comprises the functions Anti-Money Laundering and Data Protection Officer, which are described in further detail in the following.

The department supervises and assesses whether the Bank's business units comply with legislation and internal rules. The objective is to minimise the Bank's compliance risks, for example the risk of financial losses, the loss of good standing or administrative sanctions as a result of non-compliance with rules.

The work is organised so that all the Bank's activities are assessed using a risk-based approach. For each control and assessment carried out by Compliance the conclusion is reported to the relevant business unit managers who are responsible for correcting any errors or omissions identified, including adjusting inadequate systems and procedures. Compliance follows up on the implementation of appropriate measures. Moreover the department follows up on the controls and assessments carried out. The time horizon for this work depends on the risk identified.

In addition Compliance is responsible for the assessment of new products and services in terms of risk. This assessment is made in cooperation with the relevant business units in the Bank as well as the Bank's risk function. The assessment is taken into account by the Group Executive Management in its deliberations on how to launch new products.

The Bank has established a Compliance Committee. The chairman is the Bank's AML Executive (member of the Group Executive Management). The committee also consists of the relevant group executive vice presidents or their representatives. The committee meets at least once every quarter to discuss current compliance risks.

Compliance submits quarterly reports of its most significant activities to Sydbank's Group Executive Management and the Board of Directors.

SYDBANK / 2017 Annual Report

2017 Annual Report / SYDBANK

Anti-money laundering

Compliance with anti-money laundering legislation is an important factor in terms of successfully managing the task of preventing money laundering and terrorist financing. To strengthen these efforts and respond to tougher regulation in this area, Sydbank appointed an AML Executive (member of the Group Executive Management) and established an AML function within Compliance in 2017. In cooperation with the AML function, the AML Executive must ensure that Sydbank complies with all legislation and rules to prevent money laundering and terrorist financing. The AML function works closely with the relevant customer-facing areas within the Bank and contributes to ensuring that all relevant employees receive training in anti-money laundering rules.

The new Danish Anti-Money Laundering Act took effect in 2017, in which great emphasis is placed on the financial sector having a risk-based approach to combat money laundering and terrorist financing. As part of this risk-based approach Sydbank conducted an analysis of the Bank's risk of being used for money laundering or terrorist financing. On the basis of this analysis the Board of Directors has adopted an anti-money laundering policy that sets out the overall framework for procedures, routines, job descriptions and controls to minimise the Bank's risk of being used for money laundering or terrorist financing.

The Bank has established an AML Committee. The chairman is the Bank's AML Executive (member of the Group Executive Management). The committee also consists of the relevant group executive vice presidents or their representatives. The committee meets at least once every quarter to discuss current risks in this area.

In its efforts to prevent the Bank from being used for money laundering or terrorist financing, Sydbank takes appropriate steps to monitor transactions and files the necessary reports with the relevant authorities.

Data Protection Officer

The new General Data Protection Regulation will take effect in May 2018. The General Data Protection Regulation replaces data protection legislation in force and imposes stricter requirements regarding the manner in which businesses store and process personal data.

One of the requirements is that some businesses which store and process personal data of a certain extent must have a Data Protection Officer (DPO). In line with Compliance, the tasks of the DPO are to monitor and assess whether the Bank complies with the rules regarding personal data. The DPO must also report to the Bank's management.

The work is currently in a project phase where efforts seek to prepare the Bank for compliance with the requirements of the General Data Protection Regulation. The DPO will not effectively assume his position until 25 May 2018. Until then the DPO acts as an adviser during the project phase and is also preparing his future role and his future tasks.

Internal Audit

To gain an objective and independent assessment of the adequacy, effectiveness and quality of the Group's internal controls, Sydbank has established an internal audit function reporting to the Bank's Board of Directors.

Internal Audit performs audits focusing, among other factors, on the most significant areas of the Bank's compliance and risk management. In addition Internal Audit oversees that:

the Group has good administrative and accounting practices
there are business procedures and internal controls for all important areas of activity
management's instructions on security and controls are incorporated into business procedures and are observed
there are prudent control and security measures within IT.

Corporate Social Responsibility

Banks play a leading role in ensuring financial stability in society. Sydbank recognises the importance and relevance of ensuring financial stability and many resources are used to undertake this task in our day-to-day work.

A significant part of Sydbank's corporate social responsibility (CSR) is defined in legislation and takes place in close dialogue and collaboration with public supervisory authorities.

As a systemically important financial institution (SIFI), Sydbank is also subject to a number of stringent requirements concerning the Bank's capital base and resilience.

Consequently financial stability is the overall focus of the Bank's CSR efforts and objectives. The other CSR focus areas at Sydbank are:

social responsibility for customers and employees
climate and environment
human rights
anti-corruption and crime-fighting
local engagement.

These focus areas serve as Sydbank's guidelines when setting targets and assessing risks in the area of CSR.

Internal CSR organisation

In 2015 Sydbank started work on enhancing and systematising its CSR efforts, objectives and reporting. This work continued in 2016 and 2017. The objective for 2017 was to expand the Bank's reporting and further improve the basis of reporting.

In organisational terms CSR reporting is the responsibility of the Group Executive Management Secretariat & Communications, which is a support function at Sydbank.

Group Executive Management	Group Executive Management Secretariat	Internal CSR forum	Central and local entities

In 2017 an internal CSR forum, which meets once a year, was established in connection with expanding the Bank's CSR efforts. The purpose of this forum is to align the targets of the business units' CSR contributions for the coming year. After the annual review meeting, central and local entities work on their own activities with Communications as the facilitator for reporting.

Sydbank's approach to CSR

Our CSR objectives and efforts are limited to the areas that are especially relevant for us as a bank. Our report focuses on the areas on which Sydbank has a direct influence. We give an account of these areas in a structured manner. Reference is made to Sydbank's CSR Report for 2017, which is published together with the annual report on Sydbank's website, sydbank.com.

The 2017 report takes into account the new requirements for CSR reporting pursuant to section 99 a of the Danish Financial Statements Act and section 135 b of the Danish Financial Business Act. The Bank's CSR policy is updated on an ongoing basis and at least once a year.

In practice the CSR area is integrated in Sydbank's daily operations and CSR related issues form a natural part of the Bank's formal policies and descriptions of procedures. Reference is made to eg the following documents, all of which are available on Sydbank's website, sydbank.com:

Management Code of Conduct
Code of Conduct
Business Model
Corporate Governance Principles
Conflicts of Interest Policy
Policy for measures against money laundering and terrorist financing.

Sydbank acknowledges and complies with the UN Global Compact's 10 principles and has signed the UN Principles for Responsible Investment (UN PRI) thereby committing the Bank to incorporate environment, social and corporate governance (ESG) issues when selecting equities and corporate bonds in which Sydbank invests.

SYDBANK / 2017 Annual Report

Out of the UN's 17 sustainable development goals, or 'global goals' as they are popularly known, Sydbank has identified the following goals as especially relevant in terms of Sydbank's CSR efforts:

Quality education
Affordable and clean energy
Decent work and economic growth
Industry, innovation and infrastructure
Partnerships for the goals.

Sydbank's stakeholders

As a commercial business and bank, Sydbank's first obligation is to its shareholders. But we are conscious that Sydbank's growth and existence also depend on an ongoing dialogue and interaction with a number of other stakeholders in:

our own organisation
the marketplace
society at large.

At the end of 2017 Sydbank employed a total of 2,273 people. 13% held management positions and the rest were employed in various specialist functions, advisory functions and support functions.

The dialogue with authorities and policymakers is especially important these days given heightened regulation in the sector as a result of the financial crisis in 2008 and globalisation in general. Sydbank recognises the need for common regulation ensuring security, transparency and stability in bank transactions and financial markets in general.

At the same time Sydbank finds it is important that regulation is not introduced without the knowledge of the industry's players but rather in a close dialogue between the authorities, legislators and the sector. The result is rules and regulations which can be implemented and handled effectively in practice.

Compliance

The implementation of new legislation is a significant element in the day-to-day operations of a SIFI. In 2017 Sydbank devoted special focus to its AML efforts as well as preparations ahead of the new MiFID II rules for the investment area which came into force at the turn of the year 2017/2018.

These 2 activities have spurred extensive educational activities. Among other things Sydbank decided that all employees – except for a few employees in internal service functions – were to undergo training in the current AML rules and procedures in November-December 2017.

Moreover Sydbank initiated the preparations for the EU's General Data Protection Regulation, which will take effect in May 2018. For instance an in-house focus campaign on the proper handling of confidential information was developed and implemented. Further training activities in this connection are expected in 2018.

2017 Annual Report / SYDBANK

Corporate Social Responsibility

Employee satisfaction – index score

Employees

2 employee satisfaction surveys were conducted in 2017. The surveys were carried out by Rambøll Management Consulting and showed progress compared with 2016 where the average employee satisfaction index score was 3.9. In January 2017 the corresponding index score was 4.1 and in autumn 2017 4.2. The response rate in the most recent survey was 94%.

The number of reported work-related injuries was 10 – and in this area Sydbank has a zero target also going forward.

Climate and environment

In terms of energy the targeted and systematic improvement efforts yielded further results: heat consumption adjusted for climate variations declined by 2.5% and electricity consumption was reduced by 7%. Sydbank has reduced its heat consumption by 8.5% and its electricity consumption by 18% from 2014 to 2017.

Responsible investment

In 2017 Sydbank continued its collaboration with the consulting business GES to monitor the investment market as regards securities that violate international norms and conventions. 37 companies were on Sydbank's exclusion list in autumn 2017.

In 2017 GES, on behalf of Sydbank, actively engaged with 33 companies in developed countries about 41 different cases. 5 of these cases were sorted out during 2017.

In emerging markets GES' engagement in 2017 resulted in 90 visits and 8 conference calls with businesses in Africa, the Middle East, the Far East and Latin America. These activities are spread across 60 cases. GES has ongoing engagement cases on behalf of Sydbank involving more than 125 businesses in emerging markets.

SYDBANK / 2017 Annual Report

2017 Annual Report / SYDBANK

Safety

As a result of the declining use of cash in general, bank robberies are virtually a thing of the past. In 2017 for the second successive year there were no attempted robberies at Sydbank's branches.

Instead growing resources are allocated to preventing and fighting cyber crime. Each year Sydbank assesses its systems in relation to the risk areas confidentiality, integrity and accessibility. In 2017 a commercial impact assessment of a total of 589 systems was carried out, which was 217 more than in 2016.

Sponsorships

Sydbank's approach to sponsorships is influenced by the Bank's commitment to local relationships and dialogue. Our primary focus is on contributing locally and supporting projects that help create local value and local relationships. Sydbank helps to support and develop local association activities and sports activities in particular via its sponsorships, most of which are given locally via Sydbank's 10 regions.

On the basis of this philosophy Sydbank sponsored around 200 small local activities, 45 large regional activities and a couple of large nationwide projects amounting to a total of around DKK 12 million in 2017.

SYDBANK / 2017 Annual Report

Financial Statements

Income Statement...42
Statement of Comprehensive Income...42
Balance Sheet...43
Statement of Changes in Equity...44
Cash Flow Statement...46

Notes

1 Accounting policies...47
2 Accounting estimates and judgements...55
3 Solvency...57
4 Leverage ratio...58
5 Segment reporting...58
6 Correlation between the Group's performance measures and the income statement according to IFRS...60
7 Interest income...61
8 Interest expense...61
9 Dividends on shares...61
10 Fee and commission income...62
11 Market value adjustments...62
12 Other operating income...62
13 Staff costs and administrative expenses...63
14 Impairment of loans and advances etc...66
15 Profit/(Loss) on holdings in associates and subsidiaries...67
16 Tax...68
17 Amounts owed by credit institutions and central banks...69
18 Loans and advances...70
19 Bonds at fair value...74
20 Shares etc...74
21 Holdings in associates etc...74
22 Holdings in subsidiaries...75
23 Assets related to pooled plans...75
24 Intangible assets...76
25 Owner-occupied property...77
26 Other property, plant and equipment...78
27 Other assets...78

28 Amounts owed to credit institutions and central banks...78
29 Deposits and other debt...79
30 Bonds issued at amortised cost...79
31 Other liabilities...79
32 Provisions...79
33 Subordinated capital...80
34 Own holdings...81
35 Contingent liabilities and other obligating agreements...82
36 Fair value hedging of interest rate risks (macro hedge)...83
37 Collateral...84
38 Related parties...85
39 Fair value disclosure...87
40 Financial liabilities – contractual maturities...90
41 Activity per country...90
42 Financial highlights...91
43 Reporting events occurring after the balance sheet date...93
44 Group holdings and enterprises...93
45 Large shareholders...93
Definitions – Group Financial Ratios & Performance Measures...94
Derivatives...96
Risk Management...100
Credit risk...101
Market risk...104
Liquidity risk...106
Operational risk...108
IT security...108
Total capital...109

2017 Annual Report / SYDBANK

Income Statement

		Sydbank Group		Sydbank A/S
DKKm	Note	2017	2016	2017	2016
Interest income	7	2,174	2,674	2,177	2,677
Interest expense	8	179	281	174	381
Net interest income		1,995	2,393	2,003	2,296
Dividends on shares	9	36	47	36	47
Fee and commission income	10	2,112	1,902	1,983	1,768
Fee and commission expense	10	287	340	233	276
Net interest and fee income		3,856	4,002	3,789	3,835
Market value adjustments	11	727	553	727	553
Other operating income	12	19	31	20	30
Staff costs and administrative expenses	13	2,537	2,487	2,482	2,431
Amortisation, depreciation and impairment of intangible assets and property, plant and equipment		122	115	101	102
Other operating expenses		25	19	25	19
Impairment of loans and advances etc	14	(45)	98	(45)	98
Profit/(Loss) on holdings in associates and subsidiaries	15	(7)	2	(26)	71
Profit before tax		1,956	1,869	1,947	1,839
Tax	16	425	397	416	367
Profit for the year		1,531	1,472	1,531	1,472
Distribution of profit for the year
Profit for the year				1,531	1,472
Total amount to be allocated				1,531	1,472
Proposed dividend				766	736
Proposal for allocation for other purposes				10	10
Transfer to shareholders' equity				755	726
Total amount allocated				1,531	1,472
EPS Basic (DKK)*		22.4	20.9	22.4	20.9
EPS Diluted (DKK)*		22.4	20.9	22.4	20.9
Proposed dividend per share (DKK)		11.31	10.46	11.31	10.46

Calculated on the basis of average number of shares outstanding, see page 17.

Statement of Comprehensive Income

Profit for the year	1.531	1.472	1.531	1.472
Other comprehensive income
Items that may be reclassified to the income statement:
Translation of foreign entities	(20)	1	(20)	1
Hedge of net investment in foreign entities	20	(1)	20	(1)
Property revaluation	15	3	15	3
Other comprehensive income after tax	15	3	15	3
Comprehensive income for the year	1.546	1.475	1.546	1.475

SYDBANK / 2017 Annual Report

Balance Sheet

	Sydbank Group			Sydbank A/S
DKKm	Note	2017	2016	2017	2016
Assets
Cash and balances on demand at central banks		2,115	2,047	2,114	2,047
Amounts owed by credit institutions and central banks	17	12,479	6,981	12,476	6,977
Loans and advances at fair value	18	5,248	6,092	5,248	6,092
Loans and advances at amortised cost	18	64,312	77,191	64,513	77,358
Bonds at fair value	19	25,860	26,331	25,860	26,299
Shares etc	20	2,118	1,838	2,118	1,838
Holdings in associates etc	21	157	162	157	162
Holdings in subsidiaries	22	-	-	2,329	2,351
Assets related to pooled plans	23	16,541	13,817	16,541	13,817
Intangible assets	24	281	303	280	300
Owner-occupied property	25	1,075	986	857	816
Other property, plant and equipment	26	71	69	71	69
Current tax assets		29	11	31	13
Deferred tax assets		46	57	12	16
Assets in temporary possession		1	2	1	1
Other assets	27	8,099	10,742	8,095	10,737
Prepayments		62	57	60	56
Total assets		138,494	146,686	140,763	148,949
Shareholders' equity and liabilities
Amounts owed to credit institutions and central banks	28	5,960	17,556	6,184	17,800
Deposits and other debt	29	82,690	81,109	84,754	83,138
Deposits in pooled plans		16,541	13,825	16,541	13,825
Bonds issued at amortised cost	30	3,722	3,714	3,722	3,714
Current tax liabilities		-	38	1	41
Other liabilities	31	15,363	16,187	15,345	16,176
Deferred income		4	3	4	3
Total liabilities		124,280	132,432	126,551	134,697
Provisions	32	434	373	432	371
Subordinated capital	33	1,854	2,124	1,854	2,124
Shareholders' equity:
Share capital		704	722	704	722
Revaluation reserves		97	82	97	82
Other reserves:
Reserves according to articles of association		425	425	425	425
Reserve for net revaluation according to equity method		2	13	2	13
Retained earnings		9,922	9,769	9,922	9,769
Proposed dividend etc		776	746	776	746
Total shareholders' equity		11,926	11,757	11,926	11,757
Total shareholders' equity and liabilities		138,494	146,686	140,763	148,949

2017 Annual Report / SYDBANK

Statement of Changes in Equity

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 2017	722	82	425	13	9,769	746	11,757
Profit for the period				(11)	766	776	1,531
Other comprehensive income
Translation of foreign entities					(20)		(20)
Hedge of net investment in foreign entities					20		20
Property revaluation		15			0		15
Total other comprehensive income	-	15	-	-	0	-	15
Comprehensive income for the year	-	15	-	(11)	766	776	1,546
Transactions with owners
Purchase of own shares					(1,785)		(1,785)
Sale of own shares					1,555		1,555
Reduction of share capital	(18)				(394)		(412)
Dividend etc paid						(746)	(746)
Dividend, own shares					11		11
Total transactions with owners	(18)	-	-	-	(613)	(746)	(1,377)
Shareholders' equity at 31 Dec 2017	704	97	425	2	9,922	776	11,926
Shareholders' equity at 1 Jan 2016	742	79	425	13	9,355	813	11,427
Profit for the period				0	726	746	1,472
Other comprehensive income
Translation of foreign entities					1		1
Hedge of net investment in foreign entities					(1)		(1)
Property revaluation		3			0		3
Total other comprehensive income	-	3	-	0	0	-	3
Comprehensive income for the year	-	3	-	0	726	746	1,475
Transactions with owners
Purchase of own shares					(1,384)		(1,384)
Sale of own shares					1,487		1,487
Reduction of share capital	(20)				(425)		(445)
Dividend etc paid						(813)	(813)
Dividend, own shares					10		10
Total transactions with owners	(20)	-	-	-	(312)	(813)	(1,145)
Shareholders' equity at 31 Dec 2016	722	82	425	13	9,769	746	11,757

SYDBANK / 2017 Annual Report

Sydbank A/S

DKKm	Share capital	Revaluation revenues	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 2017	722	82	425	13	9,769	746	11,757
Profit for the period				(11)	766	776	1,531
Other comprehensive income
Translation of foreign entities					(20)		(20)
Hedge of net investment in foreign entities					20		20
Property revaluation		15			0		15
Total other comprehensive income	-	15	-	-	0	-	15
Comprehensive income for the year	-	15	-	(11)	766	776	1,546
Transactions with owners
Purchase of own shares					(1,785)		(1,785)
Sale of own shares					1,555		1,555
Reduction of share capital	(18)				(394)		(412)
Dividend etc paid						(746)	(746)
Dividend, own shares					11		11
Total transactions with owners	(18)	-	-	-	(613)	(746)	(1,377)
Shareholders' equity at 31 Dec 2017	704	97	425	2	9,922	776	11,926
Shareholders' equity at 1 Jan 2016	742	79	425	13	9,355	813	11,427
Profit for the period				0	726	746	1,472
Other comprehensive income
Translation of foreign entities					1		1
Hedge of net investment in foreign entities					(1)		(1)
Property revaluation		3			0		3
Total other comprehensive income	-	3	-	0	0	-	3
Comprehensive income for the year	-	3	-	0	726	746	1,475
Transactions with owners
Purchase of own shares					(1,384)		(1,384)
Sale of own shares					1,487		1,487
Reduction of share capital	(20)				(425)		(445)
Dividend etc paid						(813)	(813)
Dividend, own shares					10		10
Total transactions with owners	(20)	0	0	0	(312)	(813)	(1,145)
Shareholders' equity at 31 Dec 2016	722	82	425	13	9,769	746	11,757

Reserves according to the articles of association equal the undistributable savings bank reserve in accordance with Article 4 of the Articles of Association.

The share capital comprises 70,361,174 shares at a nominal value of DKK 10 or a total of DKK 703.6m. The Bank has only one class of shares as all shares carry the same rights.

2017 Annual Report / SYDBANK

Cash Flow Statement

Sydbank Group

DKKm	2017	2016
Operating activities
Pre-tax profit for the year	1,956	1,869
Taxes paid	(431)	(245)
Adjustment for non-cash operating items:
Profit/(Loss) on holdings in associates	12	(2)
Amortisation and depreciation of intangible assets and property, plant and equipment	122	115
Impairment of loans and advances/guarantees	(45)	98
Other non-cash operating items	74	80
	1,688	1,915
Changes in working capital:
Credit institutions and central banks	(15,754)	(945)
Trading portfolio	191	(71)
Other financial instruments at fair value	(234)	(533)
Loans and advances	13,768	1,078
Deposits	1,581	1,208
Other assets/liabilities	2,016	1,647
Cash flows from operating activities	3,256	4,299
Investing activities
Purchase of holdings in associates	(6)	0
Sale of holdings in associates	0	1
Purchase and sale of intangible assets	0	0
Purchase of property, plant and equipment	(213)	(979)
Sale of property, plant and equipment	19	28
Cash flows from investing activities	(200)	(68)
Financing activities
Purchase and sale of own holdings	(642)	(342)
Dividends etc	(735)	(803)
Raising of subordinated capital	558	-
Redemption of subordinated capital	(828)	-
Issue of bonds	-	3,718
Redemption of bonds	-	(3,731)
Cash flows from financing activities	(1,649)	(1,158)
Cash flows for the year	1,407	3,073
Cash and cash equivalents at 1 Jan	7,561	4,488
Cash flows for the year (changes during the year)	1,407	3,073
Cash and cash equivalents at 31 Dec	8,968	7,561
Cash and cash equivalents at 31 Dec
Cash and balances on demand at central banks	2,115	2,047
Fully secured cash and cash equivalent balances on demand with credit institutions and insurance companies	1,641	1,198
Unencumbered certificates of deposit	5,212	4,316
Cash and cash equivalents at 31 Dec	8,968	7,561

SYDBANK / 2017 Annual Report

Notes

Note 1 Accounting policies

Basis of preparation

The consolidated financial statements of Sydbank are prepared in compliance with International Financial Reporting Standards (IFRS) as adopted by the EU. The financial statements of the parent, Sydbank A/S, are prepared in compliance with the Danish Financial Business Act, including the Danish executive order on financial reporting of credit institutions and brokerage firms etc, which is in compliance with the provisions on recognition and measurement according to IFRS.

Furthermore the annual report is prepared in compliance with additional Danish disclosure requirements for annual reports of listed financial companies.

On 20 February 2018 the Board of Directors and the Group Executive Management reviewed and approved the 2017 Annual Report of Sydbank A/S. The Annual Report will be submitted for adoption by the AGM on 14 March 2018.

New accounting policies

The following amendments to IFRS have been implemented effective as from 1 January 2017:

Amendments to IAS 7 in relation to the reconciliation of the opening and closing balances of interest-bearing debt
Amendments to IAS 12 in relation to deferred tax on holdings
Amendments to different standards pursuant to "Annual Improvements to IFRSs".

Sydbank's implementation of the new or amended standards has not had any effect on recognition and measurement in the consolidated financial statements and consequently it has had no impact on EPS Basic.

Apart from the above the accounting policies applied are consistent with those adopted in the previous year.

Recognition and measurement

Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the Group and the value of the asset can be measured reliably. Liabilities are recognised in the balance sheet when they are probable and can be measured reliably.

On initial recognition assets and liabilities are measured at fair value. Subsequent measurement of assets and liabilities is as described for each item below.

Recognition and measurement take into account gains, losses and risks arising before the presentation of the financial statements and which confirm or invalidate circumstances existing at the balance sheet date.

Income is recognised in the income statement as earned. Costs incurred to earn the year's income are recognised in the income statement. Value adjustments of financial assets, financial liabilities and derivatives are recognised in the income statement apart from value adjustments of derivatives used to provide foreign currency hedge of net investments in foreign subsidiaries and associates. The latter value adjustments are recognised in the statement of comprehensive income. Purchase and sale of financial instruments are recognised on the settlement date.

Significant recognition and measurement principles

Consolidated financial statements

The consolidated financial statements include the parent, Sydbank A/S, as well as subsidiaries in which Sydbank A/S exercises control over financial and operating policies. Group holdings and enterprises (note 44) lists the consolidated entities.

The consolidated financial statements combine the financial statements of the parent and the individual subsidiaries in accordance with the Group's accounting policies, in which intragroup income, costs, shareholdings, balances and dividends as well as realised and unrealised gains on intragroup transactions have been eliminated.

Entities acquired are included from the acquisition date.

The assets (including identifiable intangible assets), liabilities and contingent liabilities of entities acquired are recognised at the acquisition date at fair value in accordance with the acquisition method.

Where the cost of acquisition exceeds the fair value of the net assets of the entity acquired, the difference is recognised as goodwill. Goodwill is recognised in the functional currency of the entity acquired at the exchange rate on the date of transaction. Costs in connection with acquisition are recognised in the income statement when incurred.

Entities disposed of are included until the transfer date.

Foreign currency translation

The consolidated financial statements are presented in DKK, the functional currency of the parent. Transactions in foreign

2017 Annual Report / SYDBANK

Notes

Note 1 Accounting policies – continued

currencies are translated at the exchange rate on the date of transaction. Balances in foreign currencies are translated at the closing rate.

Offsetting

The Group sets off assets and liabilities only when the Group has a legally enforceable right to set off the recognised amounts and intends to settle on a net basis or to realise the asset and settle the liability simultaneously.

Income criteria

Income and expenses, including interest income and interest expense, are accrued over the periods to which they relate and are recognised in profit or loss at the amounts relevant to the accounting period. Fees and commission concerning loans and advances and amounts owed are recognised in the carrying amounts of loans and advances and amounts owed and are recognised in profit or loss over the life of the loans as part of the effective interest rate. Guarantee commission is recognised as income over the life of the guarantees.

Income for implementing a given transaction, including securities fees and payment service fees, is recognised as income when the transaction has been implemented.

Guarantee scheme

Contributions to the Guarantee Fund and the Resolution Fund, for instance to cover losses related to the winding-up or bankruptcy of banks, are recognised under "Other operating expenses".

Repo and reverse transactions

Securities sold under agreements to repurchase the same remain on the balance sheet. Consideration received is recognised as a debt and the difference between selling and buying prices is recognised over the life as interest in the income statement. Gains or losses on securities are recognised in the income statement.

Securities bought under agreements to resell the same are not recognised in the balance sheet and gains or losses on securities are not recognised in the income statement. Consideration paid is recognised as a receivable and the difference between buying and selling prices is recognised over the life as interest in the income statement.

Repo and reverse transactions are recognised and measured at fair value as they are regarded as an integral part of the trading portfolio and form part of ongoing risk management and determination of gains thereon.

Transfer of loans

The Group transfers certain loans secured on real property to a mortgage credit institution under the joint funding provisions of the Danish Financial Business Act. As of the transfer date the loans are no longer recognised in the Group's balance sheet because the Group has transferred control and a certain share of the risks and benefits associated with the loans to the mortgage credit institution. The Group provides a guarantee for part of the risk associated with the loans for which it receives guarantee commission. Moreover the Group receives fee income from the mortgage credit institution for ongoing servicing of the loans transferred.

Amounts owed and loans and advances

Initial recognition of amounts owed by credit institutions and central banks as well as loans and advances is at fair value plus transaction costs and less origination fees received.

Subsequent measurement of amounts owed by credit institutions etc and loans and advances that are not reverse transactions is at amortised cost less impairment charges.

Amounts owed by credit institutions etc and loans and advances at amortised cost are all assessed to determine whether objective evidence of impairment exists. Amounts owed and loans and advances of a significant size are all assessed individually to determine whether objective evidence of impairment exists.

There is objective evidence of impairment of amounts owed and loans and advances if one or more of the following events have occurred:

Considerable financial difficulties on the part of the debtor.
Breach of contract by the debtor, for instance by way of failure to fulfil the payment obligations as regards instalments and interest.
Terms granted to the debtor by the Group which would otherwise not have been considered if the debtor had not been experiencing financial difficulties.
The likelihood of bankruptcy or other financial restructuring on the part of the debtor.

Impairment charges are determined individually when there is objective evidence of impairment at an individual level.

Individually assessed loans and advances without impairment as well as other loans and advances are subsequently assessed at portfolio level. If there is objective evidence of impairment at portfolio level an impairment test is carried out where the expected future cash flows are estimated on the basis of the historical loss experience adjusted for the effects of prevailing

SYDBANK / 2017 Annual Report

Note 1 Accounting policies – continued

conditions. The impairment charge for the portfolio is calculated via a ratings based approach where loans and advances are grouped according to client ratings at the balance sheet date. Where migration to lower rating categories is registered, impairment charges are made on a net basis.

Impairment charges calculated via the ratings based approach are supplemented by management's estimates and the effect of events unaccounted for by the approach.

Impairment charges are determined as the difference between amortised cost and the discounted value of expected future cash flows, including the realisable value of any collateral.

Individual impairment charges are determined on the basis of the most likely outcome of the cash flows. Any subsequent increase in the discounted value of expected future cash flows will result in reversal in full or in part of the impairment charge. Determination of the discounted value is based on the original effective interest rate as regards fixed-rate loans and advances and the current effective interest rate as regards floating-rate loans and advances.

Interest is recognised as income on the basis of the impaired value from the time when impairment charges for loans and advances are recognised.

Leasing

Leased assets in connection with finance leases in which the Group is the lessor are recognised under loans and advances at the net investment in the leases less amortisation (repayment) which is computed according to the annuity method over the lease term. Income from the leased assets is recognised on the basis of the agreed effective interest rate of the leases and is recognised in profit or loss under "Interest income". Sales proceeds from leased assets are recognised under "Other operating income".

Bonds and shares etc

Bonds and shares etc are recognised and measured at fair value. The fair value option is applied to shares outside the trading portfolio as they form part of a portfolio which is managed and measured at fair value. The fair value is the amount for which a financial asset can be exchanged between knowledgeable, willing parties.

In an active market, fair value is expressed by quoted prices or alternatively by a model value, based on recognised models and observable market data, which corresponds to fair value.

In a less active or inactive market, fair value is a model value based on recognised models and observable market data for similar assets.

A limited number of bonds and shares are measured on the basis of models and available data that only to a limited extent are observable market data.

Determination of fair value of unlisted shares and other holdings is based on available information about trades etc or alternatively on expected cash flows. If a reliable fair value cannot be determined, measurement will be at cost less any impairment charges.

Purchase and sale of securities are recognised on the settlement date.

Holdings in subsidiaries

Subsidiaries are entities in which the parent has control. Holdings in subsidiaries are recognised and measured in the financial statements of the parent according to the equity method. The proportionate share of the profit or loss after tax of the entities is recognised under "Profit/(Loss) on holdings in associates and subsidiaries".

Holdings in associates

Associates are entities in which the Group has holdings and significant influence but not control. Holdings in associates are recognised and measured according to the equity method. The proportionate share of the profit or loss after tax of the entities is recognised under "Profit/(Loss) on holdings in associates and subsidiaries".

Derivatives and hedge accounting

Derivatives are recognised and measured at fair value. Positive market values are recognised under "Other assets". Negative market values are recognised under "Other liabilities".

Market value adjustment of derivatives concluded for the purpose of hedging the interest rate risk of fixed-rate loans and advances generates immediate asymmetry in the financial statements as fixed-rate loans and advances are measured at amortised cost. The macro hedging rules (fair value hedging) of IFRS eliminate this asymmetry. The calculated change in the fair value of the loans and advances effectively hedged is recognised in the balance sheet under "Other assets" or under "Other liabilities" and is recognised in the income statement under "Market value adjustments".

2017 Annual Report / SYDBANK

Notes

Note 1 Accounting policies – continued

Pooled plans

All pooled assets and deposits are recognised in separate balance sheet items. Return on pooled assets and distribution to holders of pooled assets are recognised under “Market value adjustments”. The assets in which holders’ savings are placed are measured at fair value.

The portfolio of shares and bonds issued by the Group has been reduced in equity and bonds issued respectively. Consequently “Deposits in pooled plans” exceed “Assets related to pooled plans”.

Intangible assets

Intangible assets concern the value of customer relationships acquired in connection with acquisitions as well as goodwill.

The value of customer relationships acquired is measured at cost less accumulated amortisation and impairment charges. The value of customer relationships acquired is amortised over the expected useful life of 5-15 years.

Initial recognition of goodwill is at cost in the balance sheet. Subsequent measurement of goodwill is at cost less accumulated impairment charges. Goodwill is not amortised. Goodwill is tested for impairment annually and is written down to its recoverable amount through profit or loss if the carrying amount is higher. The recoverable amount is determined as the present value of the future net cash flows expected to be derived from the activity to which goodwill is related. The determination of cash-generating units follows the management structure and management control. Management assesses the lowest level of cash-generating units to which the carrying amount of goodwill may be allocated.

Impairment charges for goodwill are not reversed.

Owner-occupied property

Owner-occupied property is property mainly used by the Group to operate its banking business.

Owner-occupied property is recognised on acquisition at cost and subsequently carried at a revalued amount corresponding to the fair value at the date of revaluation less depreciation and impairment charges. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date.

Any decrease in the carrying amount as a result of the revaluation of owner-occupied property is charged to the income statement except where the decrease reverses previously recognised increases. Any increase as a result of the revaluation of owner-occupied property is recognised in other comprehensive income and transferred to revaluation reserves under equity except where an increase reverses previously recognised impairment charges as regards the property in question.

Owner-occupied property is depreciated on a straight-line basis over the expected useful life of 50 years, taking into account the expected residual value at the expiry of the useful life.

As regards ongoing measurement of land and buildings, the value of the individual property is measured on the basis of the return method.

The underlying assumptions, return and rate of return are assessed by external valuers.

Depreciation and impairment charges are recognised in the income statement under “Depreciation and impairment of property, plant and equipment”.

Other property, plant and equipment

Other property, plant and equipment is measured at cost less depreciation and impairment charges. Depreciation is provided on a straight-line basis over the expected useful life, typically 3-5 years. Leasehold improvements are depreciated over the term of the lease.

Depreciation and impairment charges are recognised in the income statement under “Depreciation and impairment of property, plant and equipment”.

Other assets

This item includes assets not recognised under other asset items, eg positive market values of spot transactions and derivatives, cash collateral provided in connection with CSA agreements as well as interest receivable.

Dividend

Proposed dividend is recognised as a liability at the date of adoption by the AGM. Proposed dividend for the year is recognised as a separate item in equity until adoption.

Own shares

Consideration paid or received in connection with the Group’s purchase and sale of Sydbank shares is recognised directly in equity.

Other liabilities

This item includes negative market values of spot transactions and derivatives, cash collateral received in connection with CSA

SYDBANK / 2017 Annual Report

Note 1 Accounting policies – continued

agreements, negative portfolios in connection with reverse transactions, interest payable as well as provisions for employee benefits.

Negative portfolios in connection with reverse transactions arise when the Group resells assets received as collateral in connection with reverse transactions. The assets received are not recognised in the balance sheet and any resale will therefore result in a negative portfolio.

Wages and salaries, payroll tax, social security contributions as well as paid absences are recognised in the financial year in which the related service has been rendered by the Group's employees. Costs relating to the Group's long-term employee benefits are accrued and follow the service rendered by the employees in question. Pension contributions are paid into the employees' pension plans on a continuing basis and are charged to the income statement.

Employee shares

When the Group's employees are given an option to subscribe for shares at a price below the market price, the bonus element is recognised from the grant date as a cost under staff costs. The set-off is recognised directly in equity as an owner's transaction. The bonus element is expensed successively during the vesting period as the difference between the fair value and the subscription price of the shares subscribed.

Provisions

Provisions include provisions for guarantees, provisions for onerous contracts as well as legal actions etc. Initial recognition of financial guarantees is at fair value which is often equal to the guarantee premium received. Subsequent measurement of guarantees is at the higher of the guarantee premium received amortised over the guarantee period and any provision made.

A provision for a guarantee or an onerous contract is recognised if claims for payment under the guarantee or contract are probable and the size of the liability can be measured reliably. Provisions are based on management's best estimates of the size of the liabilities. Measurement of provisions includes discounting when significant.

Financial liabilities

Deposits, bonds issued, subordinated capital and amounts owed to credit institutions etc are recognised initially at fair value less transaction costs incurred.

Subsequent measurement of deposits, bonds issued, subordinated capital and amounts owed to credit institutions etc that are not repo transactions is at amortised cost using the effective interest rate method whereby the difference between net proceeds and nominal value is recognised in the income statement under "Interest expense" over the loan period.

Other liabilities are measured at net realisable value.

Assets in temporary possession

Assets in temporary possession include property, plant and equipment and disposal groups held for sale. Assets are classified as being in temporary possession when their carrying amount will be recovered principally through a sale transaction within 12 months in accordance with a formal plan. Assets or disposal groups in temporary possession are measured at the lower of the carrying amount and fair value less costs to sell. Assets are not depreciated or amortised from the time when they are classified as being in temporary possession.

Impairment losses arising at initial classification as assets being in temporary possession and gains or losses at subsequent measurement at the lower of the carrying amount and fair value less costs to sell are recognised in the income statement under the items they concern.

Tax

Danish consolidated entities are subject to compulsory joint taxation. The Group has not opted for international joint taxation. Sydbank A/S has been appointed the management company of the joint taxation entity. Corporation tax on income subject to joint taxation is fully distributed on payment of joint taxation contributions between the Danish consolidated entities. Tax for the year includes tax on taxable income for the year, adjustment of deferred tax as well as adjustment of prior year tax charges. Tax for the year is recognised in the income statement as regards the elements attributable to profit for the year, in other comprehensive income as regards the elements attributable thereto and directly in equity as regards the elements attributable to items recognised directly in equity.

Current tax liabilities and current tax assets are recognised in the balance sheet as calculated tax on taxable income for the year adjusted for tax on prior year taxable income as well as for tax paid on account.

Provisions for deferred tax are based on the balance sheet liability method and include temporary differences between the carrying amounts and the tax base of the balance sheets of each consolidated entity as well as tax loss carryforwards that

2017 Annual Report / SYDBANK

Notes

Note 1 Accounting policies – continued

are expected to be used. Deferred tax is measured on the basis of the tax rules and tax rates that, according to the rules in force at the balance sheet date, are applicable at the time the deferred tax is expected to crystallise as current tax.

Changes in deferred tax due to changes in tax rates are recognised in the income statement.

Fair value measurement

The Group uses the concept of fair value in connection with certain disclosure requirements as well as for recognition and measurement of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

Fair value is a market-based measurement, not an entity-specific measurement. The entity uses the assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. As a result the entity's intention to hold an asset or to settle a liability is not considered when measuring fair value.

Fair value measurement is based on the principal market. If there is no principal market the most advantageous market is used as a basis, ie the market achieving the highest price for the asset or liability less transaction costs.

Fair value measurement is based to the widest extent possible on market values in active markets or alternatively on values derived from observable market data.

In so far as such observations are not available or cannot be used without significant modifications, acknowledged valuation techniques and reasonable estimates are used as the basis of fair values.

Cash flow statement

The cash flow statement presents the cash flows from operating, investing and financing activities as well as cash and cash equivalents at the beginning and end of the year. The cash flow statement is presented using the indirect method based on profit before tax.

The cash flow effect of the acquisition and disposal of entities is reported separately under cash flows from investing activities. The cash flow statement recognises cash flows concerning entities acquired from the acquisition date and cash flows concerning entities disposed of until the transfer date.

Cash flows from operating activities are determined as profit before tax for the year adjusted for non-cash operating items, taxes paid as well as changes in working capital.

Cash flows from investing activities include purchase and sale of property, plant and equipment, intangible assets as well as holdings in associates.

Cash flows from financing activities include dividends paid as well as changes in equity, subordinated capital and bonds issued.

Cash and cash equivalents comprise cash and balances on demand at central banks, fully secured cash and cash equivalent balances on demand with credit institutions and insurance companies as well as unencumbered certificates of deposit.

Segment reporting

The Group consists of a number of business units and central functions. The business units are segmented according to product and service characteristics and comprise Banking, Asset Management, Sydbank Markets, Treasury and Other. Further details of the business units are provided in note 5. The correlation between the income statement according to IFRS and the Group's performance measures are shown in note 6.

Segment reporting as regards the business units complies with the Group's accounting policies as regards recognition and measurement. Inter-segment transactions are settled on an arm's length basis. Centrally incurred costs are allocated to the business units in accordance with their estimated proportionate share of overall activities.

The following performance measures are used in connection with the Group's management control, see segment information stated in note 5.

Core income

Core income comprises income from clients serviced by the Group's branch network, including interest, commission, investment fund commission, custody account fees and asset management fees.

Trading income

Trading income only comprises income from clients affiliated with Sydbank Markets as well as income from flows and market-making as regards securities and other financial instruments as well as related position-taking.

SYDBANK / 2017 Annual Report

Note 1 Accounting policies – continued

Core earnings before impairment

Core earnings before impairment charges for loans and advances etc represent core income and trading income less costs relating to these activities.

Impairment of loans and advances etc

Impairment of loans and advances etc represent impairment charges for bank loans and advances, provisions for guarantees as well as credit valuation adjustment of derivatives.

Core earnings

Core earnings represent core income and trading income less costs and impairment charges for loans and advances etc relating to these activities.

Investment portfolio earnings

Investment portfolio earnings represent the return on the portfolios of shares, bonds, derivatives and holdings managed by Treasury, a department within the business unit Sydbank Markets. Investment portfolio earnings are less funding charges and administrative costs.

Forthcoming standards and interpretations

The International Accounting Standards Board (IASB) has issued the following new International Financial Reporting Standards (IFRS) and Interpretations (IFRIC) which are not mandatory for the Group in connection with the preparation of the 2017 financial statements. These include IFRS 9, 15, 16 and 17 as well as amendments to IAS 28, 40, IFRS 2, 4 and 9. IFRS 9 and 15 have been adopted by the EU whereas none of the other forthcoming standards and interpretations have been adopted by the EU.

The Group does not plan to implement the new standards and interpretations until they become mandatory. The expected impact of the implementation of IFRS 9 is described below. The other new standards and interpretations are not expected to have any significant impact on the Group's financial reporting.

IFRS 9 Financial Instruments, which will replace IAS 39, will change the classification and the resulting measurement of financial assets and financial liabilities.

IFRS 9 introduces a new approach for the classification of financial assets based on the entity's business model and the underlying cash flows of the asset. The implementation of IFRS 9 is not expected to change the classification or measurement of the Group's financial assets except for the below change in principles for the impairment of exposures (loans and advances and guarantees).

With IFRS 9, coming into force on 1 January 2018, a new impairment model will be implemented according to which impairment charges must be recognised for all exposures on the basis of expected losses. Under the existing rules impairment charges are recognised only when there is objective evidence of impairment.

Based on the Danish FSA's national guidelines concerning impairment charges in accordance with IFRS 9 impairment charges are expected to increase by around DKK 200m based on the portfolio at 31 December 2017.

The projected increase in the Group's impairment charges will reduce the Group's shareholders' equity and will therefore generally have a corresponding negative impact on regulatory capital. To counter the impact on regulatory capital and hence banks' possibilities of supporting lending, a transitional arrangement has been adopted so that any adverse impact from the new impairment model will be phased over the next 5 years.

At a later date new hedge accounting rules will be introduced. The changes are not expected to have any significant impact on the Group's financial reporting.

2017 Annual Report / SYDBANK

Notes

Note 1 Accounting policies – continued

IFRS 15 Revenue from Contracts with Customers, which will replace the current revenue standards (IAS 11 and 18) and interpretations, introduces a new model for the recognition and measurement of revenue concerning sales contracts with customers. The new model is based on a 5-step process to be followed as regards all sales contracts with customers to determine when and how revenue is to be recognised in the income statement. The Group does not believe that the standard will be of material significance to the Group. The standard is mandatory for financial years beginning on or after 1 January 2018.

IFRS 16 Leases will replace IAS 17 and related interpretations. IFRS 16 changes the accounting treatment of the Group's operating lease assets. The current distinction between finance leases and operating leases will be eliminated as regards lessees. The Group does not expect that the standard will be of material significance to the Group. The standard is mandatory for financial years beginning on or after 1 January 2019.

SYDBANK / 2017 Annual Report

Note 2 Accounting estimates and judgements

Management's estimates and judgements are based on assumptions considered reasonable by management but which by their nature are uncertain and unpredictable. These assumptions may be incomplete or inaccurate and unexpected future events or circumstances may occur. Consequently it is by nature difficult to make estimates and judgements and since 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 basis of previous estimates or because of new knowledge or subsequent events.

The areas where critical estimates and judgements have the most significant effect on the financial statements are:
- Measurement of loans and advances and guarantees
- Fair value of financial instruments
- Fair value of owner-occupied property.

Measurement of loans advances and guarantees

Impairment charges for loans and advances are made to take into account any impairment after initial recognition. Impairment charges are recorded as a combination of individual and collective impairment charges and are subject to a number of estimates, including which loans and advances or portfolios of loans and advances are subject to objective evidence of impairment.

Impairment testing of individual loans and advances involves estimates of conditions associated with considerable uncertainty. The assessment involves estimates as regards the most likely future cash flow which the client is expected to generate.

Loans and advances for which there is no objective evidence of impairment or which are not subject to individual impairment charges form part of a group for which impairment is assessed at portfolio level.

The essential aspect of impairment testing as regards a group of loans and advances is to identify events that provide objective evidence of losses suffered by the group. The assessment of the present value of cash flows generated by clients in the group is associated with uncertainty when historical data are used to mirror the current situation.

Loans and advances with similar credit risk characteristics are grouped according to the Group's rating model. Clients are rated on an ongoing basis and clients whose credit risk characteristics have changed are assigned to new rating categories on an ongoing basis. Consequently clients' migration to lower rating categories is an indicator of deterioration.

If on the balance sheet date the Group is aware that events unaccounted for by the models have occurred that either aggravate or improve the future payment performance, adjustments are made on the basis of a qualified management estimate.

To mitigate the risk on individual exposures in the Group, collateral is accepted mainly by way of charges over physical assets, securities and rolling stock, of which mortgages on real property represent the most significant form of collateral. The valuation of collateral involves significant management estimates.

Reference is made to the notes on risk management for a more detailed description of impairment charges for loans and advances. Loans and advances constitute 50.2% of the Group's assets at the end of 2017.

Provisions for guarantees etc issued in connection with client exposures are made according to the same principles as those applying to the impairment of loans and advances and involve the same elements of uncertainty.

Fair value of financial instruments

The Group measures a number of financial instruments at fair value, including all derivatives as well as shares and bonds.

Judgements are made in connection with the determination of the fair value of financial instruments in the following areas:
- Choice of valuation technique
- Determination of when available quoted prices do not represent fair value
- Calculation of fair value adjustments to take into account relevant risk factors such as credit risk, model risk and liquidity risk
- Assessment of which market parameters must be observed
- Estimate of future cash flows and required rates of return as regards unlisted shares.

2017 Annual Report / SYDBANK

Notes

Note 2 Accounting estimates and judgements – continued

Management estimates are based on an assessment in accordance with the Group's accounting policies and generally accepted valuation techniques.

As part of its operations the Group has acquired strategic holdings. Strategic holdings are measured at fair value on the basis of available information on trades in the relevant entity's holdings or alternatively a valuation model based on recognised methods and current market data, including a judgement of projected future earnings and cash flows. Measurement will also be influenced by co-ownership, trade and shareholders' agreements etc.

As regards financial instruments where measurement is only to a limited extent based on observable market data, measurement is affected by estimates. This is the case as regards for instance unlisted shares and certain bonds for which there is no active market. Measurement of illiquid bonds is affected by the assumption of the relevant credit spread.

Reference is made to "Accounting policies" (note 1) and to "Fair value disclosure" (note 39) for a more detailed description. Financial instruments measured on the basis of unobservable inputs represent DKK 1,822m, equivalent to 1.3% of the Group's assets at the end of 2017.

Fair value of owner-occupied property

The return method is used to measure owner-occupied property at fair value.

Future cash flows are based on the Group's best estimate of the future income or loss from ordinary activities and required rate of return as regards each property taking into account factors such as location and condition. An external assessment supporting this estimate is obtained. A number of these assumptions and estimates have a significant impact on calculations and include parameters such as inflation, developments in rent, costs and required rates of return. Changes in these parameters as a result of changed market conditions affect the expected returns and consequently the fair value of owner-occupied property.

Reference is made to "Owner-occupied property" (note 25).

SYDBANK / 2017 Annual Report

Note 3 Solvency

The Group uses the following methods and approaches to calculate solvency:

Credit risk outside trading portfolio, retail clients	Advanced IRB
Credit risk outside trading portfolio, corporate clients	Foundation IRB
Credit risk outside trading portfolio, financial counterparties	Standardised Approach
Counterparty risk	Mark-to-Market Method
Valuation of collateral	Financial Collateral Comprehensive Method
Market risk	Standardised Approach
Operational risk	Standardised Approach
Credit valuation adjustment	Standardised Approach

The Group's portfolio of equity investments primarily comprises strategic sector shares etc and in the Group's solvency calculation it is included under other exposures incl credit valuation adjustment.

Various types of collateral are used to mitigate the risk of the Group's lending portfolio. The most significant types of collateral comprise charges and guarantees.

Charges include deposit accounts and financial assets in the form of bonds and shares. The Group ensures that the items charged are separate from clients' right of disposal and that the charge is of legal validity. Valuation is ensured via the requirements of the Financial Collateral Comprehensive Method according to the Capital Requirements Regulation and Directive (CRR/CRD IV) which reduces the value of collateral on the basis of issuer, maturity and liquidity.

The Group has concluded netting agreements with all significant counterparties.

	Sydbank Group
DKKm	2017	2016
Common Equity Tier 1 capital ratio	17.3	16.1
Tier 1 capital ratio	17.7	17.4
Capital ratio	20.8	19.2
Total capital
Shareholders' equity	11,926	11,757
Prudent valuation	(59)	(65)
Proposed dividend	(776)	(746)
Intangible assets and capitalised deferred tax assets	(271)	(299)
Significant investments in financial sector	(653)	(434)
Common Equity Tier 1 capital	10,167	10,213
Additional Tier 1 capital	279	831
Tier 1 capital	10,446	11,044
Tier 2 capital	1,575	961
Difference between expected losses and accounting impairment charges	219	237
Total capital	12,240	12,242

2017 Annual Report / SYDBANK

Notes

Note 3 Solvency – continued	Sydbank Group
DKKm	2017	2016
Credit risk	38,933	41,683
Market risk	6,239	8,075
Operational risk	8,023	8,025
Other exposures incl credit valuation adjustment	5,694	5,824
Risk exposure amount	58,889	63,607
Pillar 1 capital requirement (8%)	4,711	5,089
Note 4 Leverage ratio	Sydbank Group
---	---	---
DKKm	2017	2016
Exposure for computation of leverage ratio
Total assets	138,494	146,686
Of which pooled assets	(16,541)	(13,817)
Correction derivatives etc	5,531	2,801
Guarantees etc	13,562	11,385
Undrawn credit commitments etc	11,235	11,338
Other adjustments	(887)	(482)
Total	151,394	157,911
Tier 1 capital – current (transitional rules)	10,446	11,044
Tier 1 capital – fully loaded	10,167	10,213
Leverage ratio (%) – current (transitional rules)	6.9	7.0
Leverage ratio (%) – fully loaded	6.7	6.5

Note 5 Segment reporting

Operating segments

The Group's segment statements are divided into the following business units: Banking, Asset Management, Sydbank Markets, Treasury and Other.

Banking serves all types of retail and corporate clients.

Asset Management primarily comprises the Bank's advisory-related income from clients and investment funds.

Sydbank Markets comprises trading income as well as a share of the income from clients with decentral affiliation calculated on the basis of the market price thereof. The share represents the payment by Banking for Sydbank Markets' facilities, including advisory services and administration.

Treasury comprises the Group's return on positions handled by Treasury, including liquidity allocation.

Other includes non-recurring items, costs to the Group Executive Management etc as well as return on strategic shareholdings that are not allocated to Banking or Sydbank Markets.

Inter-segment transactions are settled on an arm's length basis. Centrally incurred costs are allocated to the business units in accordance with their estimated proportionate share of overall activities.

Surplus liquidity is settled primarily at short-term money market rates whereas other balances are settled on an arm's length basis.

SYDBANK / 2017 Annual Report

Note 5 Segment reporting - continued
Sydbank Group

DKKm	Banking	Asset Management	Sydbank Markets	Treasury	Other	Total
Operating segments 2017
Core income	3,805	265	97	-	-	4,167
Trading income	-	-	233	-	-	233
Total income	3,805	265	330	-	-	4,400
Costs, core earnings	2,399	78	99	-	61	2,637
Impairment of loans and advances etc	(51)	-	-	-	-	(51)
Core earnings	1,457	187	231	0	(61)	1,814
Investment portfolio earnings	7	-	-	175	-	182
Profit before non-recurring items	1,464	187	231	175	(61)	1,996
Non-recurring items, net	(40)	-	-	-	-	(40)
Profit before tax	1,424	187	231	175	(61)	1,956
Depreciation and impairment of property, plant and equipment	113	3	5	-	1	122
Full-time staff at 31 Dec	1,906	46	84	4	24	2,064

Operating segments 2016

Core income	3,884	220	94	-	-	4,198
Trading income	-	-	237	-	-	237
Total income	3,884	220	331	-	-	4,435
Costs, core earnings	2,364	74	90	-	62	2,590
Impairment of loans and advances etc	87	-	-	-	-	87
Core earnings	1,433	146	241	-	(62)	1,758
Investment portfolio earnings	2	-	-	102	-	104
Profit before non-recurring items	1,435	146	241	102	(62)	1,862
Non-recurring items, net	(24)	-	-	-	31	7
Profit before tax	1,411	146	241	102	(31)	1,869
Depreciation and impairment of property, plant and equipment	107	2	5	-	1	115
Full-time staff at 31 Dec	1,883	44	83	4	23	2,037

The Sydbank Group's internal financial reporting is not made on the basis of products and services. Reference is made to notes 7 and 10 for the distribution of interest income as well as fee and commission income.

2017 Annual Report / SYDBANK

Notes

Note 5 Segment reporting – continued
Sydbank Group

DKKm	Total income	2017 Assets	Total income	2016 Assets
Geographical segments
Denmark	4,196	1,531	4,239	1,462
Abroad	204	53	196	58
Total	4,400	1,584	4,435	1,520

Income from external clients is broken down by organisational affiliation within the Sydbank Group. Assets, comprising only intangible assets, land and buildings, other property, plant and equipment as well as holdings in associates, are broken down by location.

The geographical breakdown of the Group's income and assets is disclosed in compliance with IFRS and does not reflect the Group's management structure. Management is of the opinion that operating segmentation provides a more informative description of the Group's activities.

Note 6 Correlation between the Group's performance measures and the income statement according to IFRS Sydbank Group

DKKm	Core Income	Trading Income	Costs, core earnings	Impairment of loans and advances etc	Core earnings	Investment portfolio earnings	Non-recurring items, net	Profit before tax
2017
Net interest and fee income	3,804	35			3,839	17		3,856
Market value adjustments	351	198		20	569	158		727
Other operating income	19				19			19
Income	4,174	233	-	20	4,427	175	-	4,602
Staff costs and administrative expenses			(2,490)		(2,490)	(7)	(40)	(2,537)
Amortisation and depreciation and impairment of intangible assets and property, plant and equipment			(122)		(122)			(122)
Other operating expenses			(25)		(25)			(25)
Impairment of loans and advances etc				31	31	14		45
Profit/(Loss) on holdings in associates and subsidiaries	(7)				(7)			(7)
Profit before tax	4,167	233	(2,637)	51	1,814	182	(40)	1,956
2016
Net interest and fee income	4,060	(63)			3,997	5		4,002
Market value adjustments	105	300		7	412	110	31	553
Other operating income	31				31			31
Income	4,196	237	-	7	4,440	115	31	4,586
Staff costs and administrative expenses			(2,456)		(2,456)	(7)	(24)	(2,487)
Amortisation and depreciation and impairment of intangible assets and property, plant and equipment			(115)		(115)			(115)
Other operating expenses			(19)		(19)			(19)
Impairment of loans and advances etc				(94)	(94)	(4)		(98)
Profit/(Loss) on holdings in associates and subsidiaries	2				2			2
Profit before tax	4,198	237	(2,590)	(87)	1,758	104	7	1,869

SYDBANK / 2017 Annual Report

Note 7 Interest income
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
Reverse transactions with credit institutions and central banks	(10)	(9)	(10)	(9)
Amounts owed by credit institutions and central banks	(28)	(19)	(28)	(19)
Reverse loans and advances	(30)	(24)	(30)	(24)
Loans and advances and other amounts owed	2,188	2,580	2,192	2,583
Bonds	147	281	146	281
Total derivatives	(94)	(141)	(94)	(141)
comprising:
Foreign exchange contracts	60	67	60	67
Interest rate contracts	(154)	(208)	(154)	(208)
Other contracts	0	0	0	0
Other interest income	1	6	1	6
Total	2,174	2,674	2,177	2,677
Fair value, designated at initial recognition	(40)	(33)	(40)	(33)
Fair value, held for trading	53	140	52	140
Assets recognised at amortised cost	2,161	2,567	2,165	2,570
Total	2,174	2,674	2,177	2,677

The Group's cash resources are primarily placed in Danish mortgage bonds. The interest rate risk concerning these positions has been reduced via derivatives. As a result the Group's external income statement is affected in terms of interest income and the market value adjustment of bonds and derivatives. The same applies to the Group's position-taking as regards bonds as well as shares. The breakdown by income statement item does not disclose income independently and consequently these items must be regarded as one as they are in "Segment reporting" (note 5) as well as in the Group's financial review, which also takes funding of the positions into account.

Note 8 Interest expense

Repo transactions with credit institutions and central banks	(11)	(35)	(11)	(35)
Credit institutions and central banks	20	39	20	39
Repo deposits	(11)	(6)	(11)	(6)
Deposits and other debt	140	193	135	293
Bonds issued	11	55	11	55
Subordinated capital	28	34	28	34
Other interest expense	2	1	2	1
Total	179	281	174	381
Fair value, designated at initial recognition	(22)	(41)	(22)	(41)
Liabilities recognised at amortised cost	201	322	196	422
Total	179	281	174	381

Note 9 Dividends on shares

Fair value, designated at initial recognition	35	43	35	43
Fair value, held for trading	1	4	1	4
Total	36	47	36	47

2017 Annual Report / SYDBANK

Notes

Note 10 Fee and commission income	Sydbank Group		Sydbank A/S
DKKm	2017	2016	2017	2016
Securities trading and custody accounts	1,070	1,024	941	890
Payment services	306	307	306	307
Loan fees	142	118	142	118
Guarantee commission	141	115	141	115
Income concerning funded mortgage-like loans	113	-	113	-
Other fees and commission	340	338	340	338
Total fee and commission income	2,112	1,902	1,983	1,768
Total fee and commission expense	287	340	233	276
Net fee and commission income	1,825	1,562	1,750	1,492

Note 11 Market value adjustments

Other loans and advances and amounts owed at fair value	0	1	0	1
Bonds	188	278	188	278
Shares etc	189	161	189	161
Foreign exchange	175	195	175	195
Derivatives	175	(81)	175	(81)
Assets related to pooled plans	582	636	582	636
Deposits in pooled plans	(583)	(636)	(583)	(636)
Other assets/liabilities	1	(1)	1	(1)
Total	727	553	727	553
Fair value, held for trading, trading portfolio	586	472	586	472
Fair value, designated at initial recognition, equity investments	141	81	141	81
Total	727	553	727	553

Note 12 Other operating income

Rental income - real property	11	14	12	14
Other operating income	8	17	8	16
Total	19	31	20	30

SYDBANK / 2017 Annual Report

Note 13 Staff costs and administrative expenses
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
Salaries and remuneration
Group Executive Management	16	15	16	15
Board of Directors	6	6	6	6
Shareholders’ Committee	3	3	3	3
Total	25	24	25	24
Staff costs
Wages and salaries	1,240	1,207	1,226	1,192
Pensions	124	121	123	120
Social security contributions	14	15	14	15
Payroll tax	158	152	156	150
Total	1,536	1,495	1,519	1,477
Other administrative expenses
IT	633	626	615	612
Rent etc	114	121	125	127
Marketing and entertainment expenses	71	72	67	59
Other costs	158	149	131	132
Total	976	968	938	930
Total	2,537	2,487	2,482	2,431
Audit fees
Statutory audit	2	1	2	1
Assurance engagements	0	1	0	1
Tax consultancy	0	0	0	0
Fees for other services	0	0	0	0
Total	2	2	2	2

In addition to the statutory audit, services provided by the Bank's independent auditor have comprised statutory reports, audit services in connection with bond issues as well as accounting advice.
In addition to fees paid to the independent auditor, operating expenses have been incurred as regards the Group's Internal Audit.

Staff

Average number of staff (full-time equivalent)	2,104	2,078	2,085	2,058

2017 Annual Report / SYDBANK

Notes

Note 13 Staff costs and administrative expenses – continued
Sydbank Group

DKK thousand
	Directors' remuneration	Committee fees	2017 Total	2016 Total
Directors' remuneration
Torben Nielsen (Chairman)	1,002	366	1,368	1,232
Peder Damgaard (Vice-Chairman)	584	236	820	767
Svend Erik Busk (resigned as of 23 March 2017)	83	32	115	441
Alex Slot Hansen	334	54	388	367
John Lesbo (member as of 23 March 2017)	251	98	349	-
Erik Bank Lauridsen (resigned as of 17 March 2016)	-	-	-	100
Janne Moltke-Leth (member as of 17 March 2016)	334	54	388	287
Lars Mikkelgaard-Jensen	334	98	432	409
Frank Møller Nielsen	334	84	418	395
Jacob Chr. Nielsen	334	181	515	471
Jarl Oxlund	334	97	431	409
Bo Normann Rasmussen (resigned as of 19 July 2017)	194	57	251	409
Margrethe Weber	334	-	334	313
Total	4,452	1,357	5,809	5,600
Of which committee fees
Audit Committee (4 members) – of which fee to the chairman DKK 130,000			423	415
Risk Committee (4 members) – of which fee to the chairman DKK 130,000			382	415
Remuneration Committee (4 members) – of which fee to the chairman DKK 54,000			217	213
Nomination Committee (4 members) – of which fee to the chairman DKK 84,000			335	329

Sydbank's Board of Directors receive fixed remuneration.
In addition board committee members receive a fixed committee fee.

SYDBANK / 2017 Annual Report

Note 13 Staff costs and administrative expenses – continued
Sydbank Group

DKKm	Karen Frøsig	Bjarne Larsen	Jan Svarre
Remuneration of the Group Executive Management
2017
Fixed remuneration	6.4	4.9	4.9
Of which fees received in connection with directorships	(0.3)	-	(0.1)
Group costs	6.1	4.9	4.8
2016
Fixed remuneration	6.0	4.7	4.7
Of which fees received in connection with directorships	(0.4)	-	(0.1)
Group costs	5.6	4.7	4.6

The Group Executive Management receives no variable remuneration.

Group Executive Management – severance terms

Karen Frøsig, Bjarne Larsen and Jan Svarre

The notice of termination is 6 and 12 months for the Group Executive Management member and the Bank respectively. In respect of dismissal by the Bank, the Group Executive Management member is entitled to receive severance pay equal to 12 months' salary.

Further details about the Bank's remuneration policy are available at the Bank's website sydbank.dk/omsydbank/organisation/loenpolitik (in Danish only).

	Sydbank Group		Sydbank A/S
DKKm	2017	2016	2017	2016
Remuneration to material risk takers and control functions
Fixed remuneration	42.3	39.3	40.4	37.4
Variable remuneration	0.3	1.0	0.3	1.0
Total	42.6	40.3	40.7	38.4
Number of full-time staff (average)	31.8	30.6	30.8	29.6

Material risk takers and control functions only receive variable remuneration below the minimum threshold, cf the Danish executive order on remuneration.

2017 Annual Report / SYDBANK

Notes

Note 14 Impairment of loans and advances etc	Sydbank Group		Sydbank A/S
DKKm	2017	2016	2017	2016
Impairment of loans and advances recognised in the income statement
Impairment and provisions	(58)	(77)	(58)	(77)
Write-offs	148	342	148	342
Recovered from debt previously written off	135	167	135	167
Impairment of loans and advances etc	(45)	98	(45)	98
Impairment and provisions at 31 Dec (allowance account)
Individual impairment and provisions	2,587	2,904	2,587	2,904
Collective impairment and provisions	300	385	300	385
Impairment and provisions at 31 Dec	2,887	3,289	2,887	3,289
Individual impairment of loans and advances and provisions for guarantees
Impairment and provisions at 1 Jan	2,904	3,687	2,904	3,687
Exchange rate adjustment	0	0	0	0
New individual impairment charges	1,061	1,206	1,061	1,206
Reversal of individual impairment charges	866	998	866	998
Other movements	0	0	0	0
Impairment charges previously recorded, now finally written off	512	991	512	991
Impairment and provisions at 31 Dec	2,587	2,904	2,587	2,904
Individual impairment of loans and advances	2,381	2,726	2,381	2,726
Individual provisions for undrawn credit commitments	34	52	34	52
Individual provisions for guarantees	172	126	172	126
Impairment and provisions at 31 Dec	2,587	2,904	2,587	2,904
Collective impairment of loans and advances and provisions for guarantees
Impairment and provisions at 1 Jan	385	495	385	495
Impairment and provisions during the year	(85)	(110)	(85)	(110)
Impairment and provisions at 31 Dec	300	385	300	385
Sum of loans and advances and amounts owed subject to collective impairment and provisions	5,490	12,861	5,490	12,861
Collective impairment and provisions	300	385	300	385
Loans and advances and amounts owed after collective impairment and provisions	5,190	12,476	5,190	12,476
Individual impairment of loans and advances subject to objective evidence of impairment
Balance before impairment of individually impaired loans and advances	4,391	4,862	4,391	4,862
Impairment of individually impaired loans and advances	2,381	2,726	2,381	2,726
Balance after impairment of individually impaired loans and advances	2,010	2,136	2,010	2,136

Interest recognised concerning individually and collectively impaired loans and advances represents DKK 333m for 2017 (2016: DKK 577m).

SYDBANK / 2017 Annual Report

Note 14 Impairment of loans and advances etc – continued
Sydbank Group

DKKm	Allowance account		Impairment of loans/advances etc
	2017	2016	2017	2016
Industry breakdown of the Group's allowance account and impairment of loans and advances recognised in the income statement
Corporate lending
Agriculture, hunting, forestry and fisheries	467	704	4	231
Manufacturing and extraction of raw materials	229	225	27	20
Energy supply etc	24	10	9	(2)
Building and construction	116	79	38	(1)
Trade	325	316	65	14
Transportation, hotels and restaurants	148	137	10	37
Information and communication	13	15	(1)	(1)
Finance and insurance	169	134	22	(18)
Real property	302	342	(53)	(40)
Other corporate lending	162	165	14	6
Total corporate lending	1,955	2,127	135	246
Public authorities	-	-	-	-
Retail clients	632	777	(95)	(38)
Collective impairment charges	300	385	(85)	(110)
Total	2,887	3,289	(45)	98

Note 15 Profit/(Loss) on holdings in associates and subsidiaries
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
Profit/(Loss) on holdings in associates etc	(7)	2	(7)	2
Profit/(Loss) on holdings in subsidiaries	-	-	(19)	69
Total	(7)	2	(26)	71

2017 Annual Report / SYDBANK

Notes

Note 16 Tax	Sydbank Group		Sydbank A/S
DKKm	2017	2016	2017	2016
Tax calculated on income for the year	377	329	375	329
Deferred tax	49	64	42	34
Adjustment of prior year tax charges	(1)	4	(1)	4
Total	425	397	416	367
Effective tax rate
Current tax rate of Sydbank	22.0	22.0	22.0	22.0
Permanent differences	(0.3)	(1.0)	(0.6)	(2.3)
Adjustment of prior year tax charges	0.0	0.3	0.0	0.3
Effective tax rate	21.7	21.3	21.4	20.0
Deferred tax
Deferred tax at 1 Jan	108	44	147	113
Deferred tax for the year recognised in profit for the year	49	64	42	34
Deferred tax at 31 Dec, net	157	108	189	147
Deferred tax assets	46	57	12	16
Deferred tax liabilities	203	165	201	163
Deferred tax at 31 Dec, net	157	108	189	147

SYDBANK / 2017 Annual Report

Note 16 Tax – continued
Sydbank Group

DKKm
	2017			2016
	1 Jan	Recognised in profit for the year	31 Dec	1 Jan	Recognised in profit for the year	31 Dec
Deferred tax
Loans and advances at amortised cost	170	31	201	137	33	170
Land and buildings	2	0	2	(1)	3	2
Property, plant and equipment	(18)	(2)	(20)	(18)	0	(18)
Intangible assets	4	16	20	(10)	14	4
Other assets	9	(1)	8	13	(4)	9
Provisions	(2)	1	(1)	(1)	(1)	(2)
Other liabilities	(35)	4	(31)	(33)	(2)	(35)
Capitalised losses, jointly taxed income	(22)	0	(22)	(43)	21	(22)
Deferred tax at 31 Dec, net	108	49	157	44	64	108

Note 17 Amounts owed by credit institutions and central banks
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
Amounts owed at notice by central banks	5,211	4,316	5,211	4,316
Amounts owed by credit institutions	7,268	2,665	7,265	2,661
Total	12,479	6,981	12,476	6,977
On demand	1,650	940	1,647	936
3 months or less	10,829	6,033	10,829	6,033
Over 3 months not exceeding 1 year	0	8	0	8
Over 1 year not exceeding 5 years	0	0	0	0
Over 5 years	0	0	0	0
Total	12,479	6,981	12,476	6,977
Of which reverse transactions	4,892	1,652	4,892	1,652

2017 Annual Report / SYDBANK

Notes

Note 18 Loans and advances
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
On demand	13,820	13,926	14,021	14,094
3 months or less	6,501	7,327	6,501	7,327
Over 3 months not exceeding 1 year	23,454	24,489	23,454	24,489
Over 1 year not exceeding 5 years	15,031	15,823	15,031	15,822
Over 5 years	10,754	21,718	10,754	21,718
Total	69,560	83,283	69,761	83,450
Of which reverse transactions (loans and advances at fair value)	5,248	6,092	5,248	6,092
Loans and advances and guarantees by sector and industry (%)
Agriculture, hunting, forestry and fisheries	5.5	5.3	5.5	5.3
Manufacturing and extraction of raw materials	10.8	8.5	10.7	8.5
Energy supply etc	3.2	2.9	3.1	2.9
Building and construction	5.1	4.0	5.1	4.0
Trade	14.7	12.9	14.7	12.9
Transportation, hotels and restaurants	4.0	3.7	3.9	3.7
Information and communication	0.6	0.4	0.6	0.4
Finance and insurance	12.9	12.4	12.9	12.4
Real property	6.9	7.0	7.1	7.2
Other industries	4.0	4.2	4.2	4.1
Total corporate lending	67.7	61.3	67.8	61.4
Public authorities	0.4	0.8	0.4	0.8
Retail clients	31.9	37.9	31.8	37.8
Total	100.0	100.0	100.0	100.0
Collateral received and types of collateral
Loans and advances at fair value	5,248	6,092	5,248	6,092
Loans and advances at amortised cost	64,312	77,191	64,513	77,358
Guarantees	13,562	11,385	13,562	11,385
Credit exposure for accounting purposes	83,122	94,668	83,323	94,835
Collateral value	44,161	51,016	44,161	51,016
Total unsecured	38,961	43,652	39,162	43,819
Types of collateral
Real property*	12,187	20,532	12,187	20,532
Financial collateral	10,803	11,708	10,803	11,708
Leased assets, mortgages etc	5,428	5,096	5,428	5,096
Floating charges, operating equipment etc	6,227	6,366	6,227	6,366
Guarantees	1,188	1,294	1,188	1,294
Other items of collateral	262	233	262	233
Total collateral used	36,095	45,229	36,095	45,229
Particularly secured transactions (mortgage guarantees)	8,066	5,787	8,066	5,787
Total	44,161	51,016	44,161	51,016

In the event that the Group uses collateral that is not immediately convertible into liquid holdings, it is the Group's policy to dispose of such assets as quickly as possible. Real property is handed over to an estate agent. Repossessed leased equipment is sold as quickly as possible. In 2017 repossessed equipment as well as real property taken over in connection with non-performing exposures amounted to DKK 13m (2016: DKK 62m). Leased assets are assessed and depreciated on an ongoing basis. As a result the calculated collateral as regards the Group's leasing activities will decline during periods of lower leased asset prices.
* Mortgages on real property have fallen by DKK 8,345m from DKK 20,532m in 2016 to DKK 12,187m in 2017. The decrease is primarily attributable to the amended funding agreement.

SYDBANK / 2017 Annual Report

Note 18 Loans and advances – continued
Sydbank Group

DKKm	Loans/advances	Guarantees	Collateral value	2017 Unsecured	Loans/advances	Guarantees	Collateral value	2016 Unsecured
Collateral by rating category
Rating category
1	8,003	3,841	9,364	2,480	14,206	2,185	12,706	3,685
2	20,037	3,504	13,220	10,321	21,714	2,219	12,759	11,174
3	16,847	2,654	8,631	10,870	19,504	2,114	10,328	11,290
4	9,367	1,079	4,642	5,804	11,139	878	4,805	7,212
5	5,677	809	2,924	3,562	6,028	554	2,807	3,775
6	3,004	365	1,574	1,795	3,434	309	1,581	2,162
7	1,292	88	414	966	1,235	149	489	895
8	380	48	142	286	664	164	345	483
9	4,889	467	2,172	3,184	5,261	332	2,142	3,451
Default	1,355	179	639	895	1,655	180	767	1,068
NR/STD	1,390	528	439	1,479	1,554	2,301	2,287	1,568
Total	72,241	13,562	44,161	41,642	86,394	11,385	51,016	46,763
Individual impairment of loans and advances	2,381			2,381	2,726			2,726
Collective impairment of loans and advances	300			300	385			385
Total	69,560	13,562	44,161	38,961	83,283	11,385	51,016	43,652

Sydbank Group

DKKm	Retail	Corporate	2017 Total	Retail	Corporate	2016 Total
Past due amounts not impaired*
0-30 days	47	44	91	43	39	82
31-60 days	5	1	6	2	1	3
61-90 days	1	0	1	0	0	0
Total	53	45	98	45	40	85
Rating category
1	15	1	16	0	3	3
2	10	6	16	13	3	16
3	9	7	16	11	6	17
4	8	6	14	9	9	18
5	5	12	17	4	5	9
6	1	3	4	2	5	7
7	0	1	1	1	1	2
8	1	0	1	1	0	1
9	3	6	9	1	8	9
NR/STD	1	3	4	3	0	3
Total	53	45	98	45	40	85

Past due amounts concerning loans and advances etc not subject to individual impairment. Loans and advances and amounts owed payable beyond 90 days are treated as impaired.
As shown above a limited share of past due amounts concerns high credit risk clients.

2017 Annual Report / SYDBANK

Notes

Note 18 Loans and advances – continued
Sydbank Group

DKKm	Loans/advances	Impaired loans/advances	Past due loans/advances	2017 Loans/advances neither impaired nor past due	Loans/advances	Impaired loans/advances	Past due loans/advances	2016 Loans/advances neither impaired nor past due
Loans and advances not impaired, by rating category
1	8,003		16	7,987	12,026		3	12,023
2	20,037		16	20,021	19,955		16	19,939
3	16,847		16	16,831	17,351		17	17,334
4	9,367		14	9,353	11,139		18	11,121
5	5,677		17	5,660	6,028		9	6,019
6	3,004		4	3,000	3,434		7	3,427
7	1,292		1	1,291	1,235		2	1,233
8	380		1	379	664		1	663
9	4,889	3,468	9	1,412	5,261	3,637	9	1,615
Default	1,355	923	0	432	1,655	1,225	0	430
NR/STD	1,390		4	1,386	1,554		3	1,551
	72,241	4,391	98	67,752	80,302	4,862	85	75,355
Impairment charges	2,681	2,381		300	3,111	2,726		385
Total	69,560	2,010	98	67,452	77,191	2,136	85	74,970

Sydbank Group

DKKm	Gross Investments	Unearned Interest	2017 Net Investments	Gross Investments	Unearned Interest	2016 Net Investments
Lease payment receivables - finance leases
1 year or less	1,647	85	1,562	1,528	99	1,429
Over 1 year not exceeding 5 years	3,859	156	3,703	3,595	158	3,437
Over 5 years	404	10	394	423	11	412
Total	5,910	251	5,659	5,546	268	5,278

Lease payment receivables comprise receivables on leasing of various operating equipment under non-cancellable leases. The leases are fixed-rate and floating-rate leases in foreign and Danish currencies.
Loans and advances at amortised cost include finance lease payment receivables of DKK 5,659m at year-end 2017 (2016: DKK 5,278m).
Impairment charges for uncollectible lease payment receivables represent DKK 0m for 2017 (2016: DKK 0m).

SYDBANK / 2017 Annual Report

Note 18 Loans and advances – continued
Sydbank Group

DKKm	Loans/advances before impairment charges	Individual impairment charges	2017 Book value	Loans/advances before impairment charges	Individual impairment charges	2016 Book value
Non-performing loans and advances
Impaired non-defaulted loans and advances	3,468	1,654	1,814	3,637	1,811	1,826
Impaired defaulted loans and advances	923	727	196	1,225	915	310
Individually impaired loans and advances	4,391	2,381	2,010	4,862	2,726	2,136
Non-impaired defaulted loans and advances	432		432	430		430
Non-impaired loans and advances in arrears > 90 days	2		2	5		5
Total	4,825	2,381	2,444	5,297	2,726	2,571

In the table above loans and advances are defined as non-performing if they meet at least one of the following criteria:
- An individual impairment charge has been registered as regards the loan/advance
- It is considered unlikely that the debtor will fully meet his payment obligations without realising collateral
- The loan/advance has been in arrears for more than 90 days where the amount exceeds DKK 1,000 and at the same time represents more than 1% of the loan/advance. The loan/advance is only included here if it is not included in one of the other items.

Sydbank Group

DKKm	Loans/advances and guarantees before impairment charges	Individual impairment charges	2017 Book value	Loans/advances and guarantees before impairment charges	Individual impairment charges	2016 Book value
Forborne loans and advances and guarantees
Impaired non-defaulted loans and advances and guarantees	107	52	55	187	105	82
Impaired defaulted loans and advances and guarantees	162	132	30	237	181	56
Individually impaired loans and advances and guarantees	269	184	85	424	286	138
Non-impaired non-defaulted loans and advances and guarantees	41		41	130		130
Non-impaired defaulted loans and advances and guarantees	606		606	589		589
Total	916	184	732	1,143	286	857
Due to financial difficulties:
- Interest rates have been reduced	338	107	231	467	133	334
- Interest-only terms have been granted	74	35	39	124	58	66
- The debt cannot be refinanced on usual terms	428	26	402	443	59	384
- Other special terms have been granted	76	16	60	109	36	73
Total	916	184	732	1,143	286	857

Forborne loans and advances and guarantees are defined as loans and advances and guarantees where:
- there has been a change in loan terms that would not have been granted if the borrower had not been experiencing financial difficulties
- there has been a complete or partial refinancing of a loan contract that would not have been carried out if the borrower had not been experiencing financial difficulties.

It should be noted that individually impaired loans and advances subject to forbearance measures are also included in non-performing loans and advances.

2017 Annual Report / SYDBANK

Notes

Note 19 Bonds at fair value	Sydbank Group		Sydbank A/S
DKKm	2017	2016	2017	2016
Mortgage bonds	25,525	24,155	25,525	24,123
Government bonds	58	1,891	58	1,891
Other bonds	277	285	277	285
Total	25,860	26,331	25,860	26,299
Government bonds – by country
Denmark	58	1,891	58	1,891
Total	58	1,891	58	1,891
Note 20 Shares etc
---	---	---	---	---
Listed on Nasdaq Copenhagen A/S	245	262	245	262
Listed on other exchanges	1	1	1	1
Unlisted shares recognised at fair value	1,872	1,575	1,872	1,575
Total	2,118	1,838	2,118	1,838
Trading portfolio	182	231	182	231
Portfolio of equity investments	1,936	1,607	1,936	1,607
Total	2,118	1,838	2,118	1,838
Note 21 Holdings in associates etc
---	---	---	---	---
Carrying amount at 1 Jan	162	163	162	163
of which credit institutions	-	-	-	-
Cost at 1 Jan	150	151	150	151
Exchange rate adjustment	0	0	0	0
Additions	6	-	6	-
Disposals	-	1	-	1
Cost at 31 Dec	156	150	156	150
Revaluations and impairment charges at 1 Jan	12	12	12	12
Dividend	(5)	(2)	(5)	(2)
Revaluations and impairment charges for the year	(6)	2	(6)	2
Reversal of revaluations and impairment charges	-	-	-	-
Revaluations and impairment charges at 31 Dec	1	12	1	12
Carrying amount at 31 Dec	157	162	157	162

SYDBANK / 2017 Annual Report

Note 22 Holdings in subsidiaries
Sydbank A/S

DKKm	2017	2016
Carrying amount at 1 Jan	2,351	2,281
Cost at 1 Jan	2,713	2,712
Exchange rate adjustment	(33)	1
Additions	25	-
Disposals	-	-
Cost at 31 Dec	2,705	2,713
Revaluations and impairment charges at 1 Jan	(362)	(431)
Exchange rate adjustment	14	(1)
Profit/(Loss)	(19)	69
Dividend	(6)	-
Other capital movements	(3)	1
Revaluations and impairment charges for the year	0	0
Reversal of revaluations and impairment charges	0	0
Revaluations and impairment charges at 31 Dec	(376)	(362)
Carrying amount at 31 Dec	2,329	2,351

Note 23 Assets related to pooled plans
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
Cash deposits	696	593	696	593
Indexed bonds	733	638	733	638
Other bonds	8,978	7,644	8,978	7,644
Other shares etc	6,132	4,953	6,132	4,953
Units	0	0	0	0
Other assets	2	(11)	2	(11)
Total	16,541	13,817	16,541	13,817

2017 Annual Report / SYDBANK

Notes

Note 24 Intangible assets

Intangible assets

The Group's intangible assets comprise the value of customer relationships as well as goodwill acquired in connection with acquisitions. Activities acquired are allocated to the operating segments Banking, Asset Management and Sydbank Markets. Goodwill represents DKK 170m at year-end 2017 (2016: DKK 170m) and primarily concerns Banking. Goodwill is tested for impairment annually. The impairment test carried out in 2017 did not result in impairment of goodwill.

The value of customer relationships represents DKK 110m at year-end 2017 (2016: DKK 130m). Customer relationships are amortised on a straight-line basis over the expected useful life of 5-15 years.

Impairment test

The Group's goodwill is tested for impairment annually and where there is any indication of impairment.

The impairment test compares the carrying amount and the estimated present value of expected future cash flows. As a consequence of the special capital structure of financial groups, calculation of the present value of future cash flows is based on an equity model/ dividend discount model.

Future cash flows are determined on the basis of approved strategies and earnings estimates for the budget period. Earnings for the budget period are based on the budget for 2018 as approved by management which involve a steady positive development in the Bank's core income. Earnings at the end of the budget period are subsequently projected on the basis of expected long-term growth. Annualised growth in the terminal period is assumed to represent 1.5%.

Expected future cash flows are discounted at the Group's risk-adjusted required rates of return which constitute 11.5% before tax and 9.0% after tax at year-end 2017 (2016: 11.5% before tax and 9.0% after tax). The required rate of return and consequently the discount rate are based on current market data and external benchmarks.

The impairment test conducted does not indicate any impairment at 31 December 2017.

An increase in the Group's risk-adjusted required rate of return from 11.5% to for instance 15% would not result in a goodwill impairment. Correspondingly a decline in estimated growth in the terminal period of 1 percentage point would not result in impairment. In addition a decrease in earnings of 20% for the terminal period would not result in impairment.

SYDBANK / 2017 Annual Report

Note 24 Intangible assets – continued
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
Carrying amount at 1 Jan	303	324	300	321
Cost at 1 Jan	389	389	384	384
Additions	-	-	-	-
Disposals	-	-	-	-
Cost at 31 Dec	389	389	384	384
Amortisation and impairment charges at 1 Jan	86	65	84	63
Amortisation and impairment charges for the year	22	21	20	21
Amortisation and impairment charges at 31 Dec	108	86	104	84
Carrying amount at 31 Dec	281	303	280	300

The value of customer relationships is amortised over 5-15 years.

Note 25 Owner-occupied property

Carrying amount at 1 Jan	986	1,012	816	831
Exchange rate adjustment	0	0	0	0
Additions, including improvements	120	23	48	10
Disposals	18	26	18	12
Depreciation for the year	7	7	5	6
Value adjustment recognised directly in equity	15	3	18	3
Value adjustment recognised in the income statement	(21)	(19)	(2)	(10)
Carrying amount at 31 Dec	1,075	986	857	816
Required rate of return of return applied to calculate fair value (%)	4.5-11.0	5.0-10.0	4.5-11.0	5.0-10.0

Sensitivity analysis: Other things being equal an increase of 0.5 percentage points in the required rate of return will reduce fair value by DKK 69m (2016: DKK 61m).

2017 Annual Report / SYDBANK

Notes

Note 26 Other property, plant and equipment
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
Carrying amount at 1 Jan	69	68	69	68
Cost at 1 Jan	470	435	470	435
Exchange rate adjustment	0	0	0	0
Additions	76	71	76	71
Disposals	27	36	27	36
Cost at 31 Dec	519	470	519	470
Amortisation and impairment charges at 1 Jan	401	367	401	367
Exchange rate adjustment	0	0	0	0
Depreciation for the year	73	68	73	68
Reversal of depreciation and impairment charges	26	34	26	34
Amortisation and impairment charges at 31 Dec	448	401	448	401
Carrying amount at 31 Dec	71	69	71	69

Note 27 Other assets

Positive market value of derivatives etc	5,275	7,289	5,275	7,289
Sundry debtors	432	440	428	434
Interest and commission receivable	159	178	159	178
Cash collateral provided, CSA agreements	2,230	2,834	2,230	2,834
Other assets	3	1	3	2
Total	8,099	10,742	8,095	10,737

Note 28 Amounts owed to credit institutions and central banks

Amounts owed to central banks	47	36	47	36
Amounts owed to credit institutions	5,913	17,520	6,137	17,764
Total	5,960	17,556	6,184	17,800
On demand	1,476	803	1,700	1,046
3 months or less	4,474	10,955	4,474	10,955
Over 3 months not exceeding 1 year	10	374	10	374
Over 1 year not exceeding 5 years	0	17	0	17
Over 5 years	0	5,407	0	5,408
Total	5,960	17,556	6,184	17,800
Of which repo transactions	2,538	8,019	2,538	8,019

SYDBANK / 2017 Annual Report

Note 29 Deposits and other debt
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
On demand	67,803	65,717	69,867	67,746
At notice	2,518	5,237	2,518	5,237
Time deposits	7,617	4,945	7,617	4,945
Special categories of deposits	4,752	5,210	4,752	5,210
Total	82,690	81,109	84,754	83,138
On demand	68,207	66,157	70,271	68,186
3 months or less	8,436	9,222	8,436	9,222
Over 3 months not exceeding 1 year	2,248	1,185	2,248	1,185
Over 1 year not exceeding 5 years	486	877	486	877
Over 5 years	3,313	3,668	3,313	3,668
Total	82,690	81,109	84,754	83,138
Of which repo transactions	2,460	2,288	2,460	2,288

Note 30 Bonds issued at amortised cost

Over 3 months not exceeding 1 year	3,722	-	3,722	-
Over 1 year not exceeding 5 years	-	3,714	-	3,714
Total	3,722	3,714	3,722	3,714

Note 31 Other liabilities

Negative market value of derivatives etc	5,342	7,589	5,342	7,589
Sundry creditors	3,940	4,236	3,927	4,225
Negative portfolio, reverse transactions	5,295	3,355	5,295	3,355
Interest and commission etc	35	34	30	34
Cash collateral received, CSA agreements	751	973	751	973
Total	15,363	16,187	15,345	16,176

Note 32 Provisions

Provisions for pensions and similar obligations	3	3	3	3
Provisions for deferred tax	203	165	201	163
Provisions for guarantees	172	126	172	126
Other provisions	56	79	56	79
Total	434	373	432	371

2017 Annual Report / SYDBANK

Notes

Note 32 Provisions – continued
Sydbank Group

DKKm					2017
	Provisions for pensions and similar obligations	Provisions for deferred tax	Provisions for guarantees	Other provisions	Total provisions
Carrying amount at 1 Jan	3	165	126	79	373
Additions	-	38	140	1	179
Disposals	0	-	94	24	118
Carrying amount at 31 Dec	3	203	172	56	434

Other provisions mainly concern provisions for onerous contracts and legal actions.

Note 33 Subordinated capital
Sydbank Group
Sydbank A/S

Interest rate	Note		Nominal (m)	Maturity	2017	DKKm 2016	2017	DKKm 2016
2.13 (fixed)	1	Bond loan	EUR 100	11 Mar 2027	740	738	740	738
1.52 (floating)	2	Bond loan	EUR 75	2 Nov 2029	556	-	556	-
Total Tier 2 capital					1,296	738	1,296	738
Redeemed loans					-	828	-	828
1.03 (floating)	3	Bond loan	EUR 75	Perpetual	558	558	558	558
Total Additional Tier 1 capital					558	1,386	558	1,386
Total subordinated capital					1,854	2,124	1,854	2,124

1) Optional redemption from 11 March 2022 after which the interest rate will be fixed at 1.72% above 5Y Mid-Swap.
2) Optional redemption from 2 November 2024 after which the interest rate will be fixed at 1.85% above 3M EURIBOR.
3) The interest rate follows a 10Y Mid-Swap plus a premium of 0.2%.

Over 1 year not exceeding 5 years	740	-	740	-
Over 5 years	1,114	2,124	1,114	2,124
Total	1,854	2,124	1,854	2,124
Costs relating to the raising and redemption of subordinated capital	0	0	0	0

Correlation between subordinated capital and financing activities in cash flow statement

DKKm	1 Jan 2017	Cash flows		Non-cash changes		31 Dec 2017
		Raising	Redemption	Exchange rate	Other
Subordinated capital	2,124	558	(830)	4	(2)	1,854

Fair value changes comprise the impact of market value adjustments and transaction costs. Cash flows from raised and redeemed debt are based on the exchange rate on the date of transaction. The note shows changes in the nominal value of subordinated capital. Raising and redemption amounts are based on the exchange rate at the balance sheet date.

SYDBANK / 2017 Annual Report

Note 34 Own holdings
Sydbank Group
Sydbank A/S

DKKm	2017	2016	2017	2016
Nominal portfolio of own holdings	35	27	35	27
Nominal portfolio of own holdings as % of share capital	4.9	3.8	4.9	3.8
Shares outstanding (number)	66,900,704	69,501,452	66,900,704	69,501,452
Holding of own shares (number)	3,460,470	2,738,747	3,460,470	2,738,747
Total share capital (number)	70,361,174	72,240,199	70,361,174	72,240,199
Own holdings purchased during the year
Number of shares	7,248,347	7,166,590	7,248,347	7,166,590
Nominal value	72	72	72	72
Consideration paid	1,785	1,384	1,785	1,384
Number of shares as % of share capital	10.3	9.9	10.3	9.9
Own holdings sold during the year
Number of shares	6,526,624	7,343,125	6,526,624	7,343,125
Nominal value	65	73	65	73
Consideration received	1,555	1,487	1,555	1,487
Number of shares as % of share capital	9.3	10.2	9.3	10.2

Within the share buyback programme 2,690,220 shares totalling DKK 664m were purchased during the period from 6 March to 29 December 2017. In addition the Bank has purchased and sold own holdings as part of the ordinary banking transactions of Sydbank A/S.

2017 Annual Report / SYDBANK

Notes

Note 35 Contingent liabilities and other obligating agreements	Sydbank Group		Sydbank A/S
DKKm	2017	2016	2017	2016
Contingent liabilities
Financial guarantees	3,793	3,880	3,793	3,880
Mortgage finance guarantees	2,904	2,550	2,904	2,550
Mortgage-like loan guarantees	1,745	-	1,745	-
Registration and remortgaging guarantees	3,417	3,237	3,417	3,237
Other contingent liabilities	1,703	1,718	1,703	1,718
Total	13,562	11,385	13,562	11,385
Other obligating agreements
Irrevocable credit commitments	1,285	895	1,285	895
Other liabilities*	40	30	88	43
Total	1,325	925	1,373	938
* Including intra-group liabilities in relation to rented premises	-	-	48	13

Totalkredit loans arranged by Sydbank are comprised by an agreed right of set-off against future current commission which Totalkredit may invoke in the event of losses on the loans arranged.

Sydbank does not expect that this set-off will have a significant impact on Sydbank's financial position.

As a result of the Bank's membership of Bankdata, the Bank will be obligated to pay an exit charge in the event of exit.

As a result of the statutory participation in the deposit guarantee scheme, the industry has paid an annual contribution of 2.5‰ of covered net deposits until the Banking Department's capital exceeds 1% of total covered net deposits, which was reached at year-end 2015. The Banking Department will cover the direct losses in connection with the winding-up of distressed financial institutions under Bank Package III and Bank Package IV which are attributable to covered net deposits. Any losses as a result of the final winding-up will be covered by the Guarantee Fund via the Winding-up and Restructuring Department as regards which Sydbank is currently liable for 6.84% of any losses.

As a result of the statutory participation in the resolution financing arrangement (the Resolution Fund), credit institutions will pay an annual contribution over a 10-year period to reach a target funding level totalling 1% of covered deposits. Credit institutions must make contributions to the fund according to their relative size and risk in Denmark. Sydbank expects that contributions will total approximately DKK 200m over a 10-year period.

The Group is party to a number of legal actions. These actions are under continuous review and the necessary provisions made are based on an assessment of the risk of loss. Pending legal actions are not expected to have any significant impact on the financial position of the Group.

SYDBANK / 2017 Annual Report

Note 36 Fair value hedging of interest rate risks (macro hedge)

Sydbank adopts a cash flow model for managing interest rate risk on all positions other than Danish callable mortgage bonds. The model is updated daily with all the Bank's positions. These are allocated to portfolios according to responsibility and product.

One of these portfolios consists of the Bank's positions in fixed-rate loans and advances, including leasing, fixed-rate deposits and related hedging transactions. To ensure interest rate risk management of this portfolio, the model generates a synthetic cash flow to describe the Bank's risk position at selected interest rate points.

The Bank's basis for concluding hedging transactions – primarily interest rate swaps – is thus a synthetic net cash flow based on the actual cash flow of loans and advances, deposits and previously concluded hedging transactions in the relevant portfolio. The aim is to keep the interest rate risk in this portfolio at a minimum as the Bank wishes to place its interest rate risk in other portfolios containing bonds and other cash equivalent positions.

The Group applies the rules on macro hedge which aim to ensure symmetry between income and expense in the financial statements. Symmetry is achieved by making a hedge adjustment corresponding to the part of the market value adjustment of derivatives which concerns future periods. This hedge adjustment is recorded under "Other assets" and represents DKK 32m as at 31 December 2017 (2016: DKK 38m).

During the year a net loss on hedging transactions of DKK 7m (2016: net gain of DKK 1m) was recorded. The loss eliminates a corresponding net gain on hedged items.

	Sydbank Group		Sydbank A/S
DKKm	2017	2016	2017	2016
Fixed-rate loans and advances
Carrying amount	2,351	2,232	2,351	2,232
Fixed-rate deposits
Carrying amount	1,316	3,901	1,316	3,901
The following derivatives are used to hedge the above:
Swaps
Principal	3,641	2,615	3,641	2,615
Fair value	49	31	49	31

2017 Annual Report / SYDBANK

Notes

Note 37 Collateral

At the end of 2017 the Group had deposited as collateral securities at a market value of DKK 4,769m with Danish and foreign exchanges and clearing centres etc in connection with margin calls and securities settlements etc. In addition the Group has provided cash collateral in connection with CSA agreements of DKK 2,230m.

In connection with repo transactions, which involve selling securities to be repurchased at a later date, the securities remain on the balance sheet and consideration received is recognised as a debt. Repo transaction securities are treated as assets provided as collateral for liabilities. Counterparties are entitled to sell the securities or deposit them as collateral for other loans.

In connection with reverse transactions, which involve purchasing securities to be resold at a later date, the Group is entitled to sell the securities or deposit them as collateral for other loans. The securities are not recognised in the balance sheet and consideration paid is recognised as a receivable.

Assets received as collateral in connection with reverse transactions may be sold to a third party. In such cases a negative portfolio may arise as a result of the accounting rules. This is recognised under "Other liabilities".

	Sydbank Group		Sydbank A/S
DKKm	2017	2016	2017	2016
Assets sold as part of repo transactions
Bonds at fair value	4,982	10,435	4,982	10,435
Assets purchased as part of reverse transactions
Bonds at fair value	10,082	7,763	10,082	7,763

SYDBANK / 2017 Annual Report

Note 38 Related parties

DKKm	Associates	Board of Directors	2017 Group Executive Management	Associates	Board of Directors	2016 Group Executive Management
Loans and advances and loan commitments	249	8	-	257	15	-
Deposits and other debt	1	16	5	1	10	6
Guarantees issued	-	-	2	-	-	-
Collateral received	-	2	-	-	2	-
Interest income	2	0	0	0	0	0
Interest expense	0	0	0	0	0	0
Fee and commission income	0	0	0	0	0	0
Other expenses	463	-	-	443	-	-

Interest rates 2017:
Group Executive Management: No loans and advances
Board of Directors: 0.50-7.65% p.a.*
* Interest rates concern loans in different currencies.

There are no parties with significant influence over Sydbank A/S (ownership share of at least 20%). The Board of Directors and the Group Executive Management columns comprise the Group's exposures to and transactions with members of the Board of Directors and the Group Executive Management as well as their dependants. Further information on the remuneration of management appears from note 13.

Other expenses include primarily IT costs to Bankdata.

Transactions with related parties are settled on an arm's length basis and are subject to the terms and conditions in force. No unusual transactions took place with related parties in 2017.

	Sydbank Group		Sydbank A/S
DKKm	2017	2016	2017	2016
Amounts owed by and to subsidiaries etc
Amounts owed by credit institutions and central banks	-	-	-	-
Loans and advances at amortised cost	-	-	201	167
Total asset items	-	-	201	167
Amounts owed to credit institutions	-	-	224	244
Deposits and other debt	-	-	2,064	2,030
Total liability items	-	-	2,288	2,274

2017 Annual Report / SYDBANK

Notes

Note 38 Related parties – continued
Sydbank Group

Number	1 Jan 2017	On appointment/ resignation	Additions	Disposals	31 Dec 2017
Sydbank A/S shares held by Board of Directors (personal holdings)
Torben Nielsen (Chairman)	4,000		1,500		5,500
Peder Damgaard (Vice-Chairman)	966				966
Svend Erik Busk	1,500	(1,500)			0
Alex Slot Hansen	57				57
John Lesbo	0	208			208
Lars Mikkelgaard-Jensen	2,000				2,000
Janne Moltke-Leth	51		42		93
Frank Møller Nielsen	1,537		199		1,736
Jacob Chr. Nielsen	77				77
Jarl Oxlund	1,200				1,200
Bo Normann Rasmussen	401	(401)			0
Margrethe Weber	2,106				2,106
Total	13,895	(1,693)	1,741	-	13,943
Board of Directors (own holdings and holdings by dependants)
Torben Nielsen (Chairman)	4,000		1,500		5,500
Peder Damgaard (Vice-Chairman)	1,016				1,016
Svend Erik Busk	1,500	(1,500)			0
Alex Slot Hansen	57				57
John Lesbo	0	208			208
Lars Mikkelgaard-Jensen	2,000				2,000
Janne Moltke-Leth	51		42		93
Frank Møller Nielsen	1,537		199		1,736
Jacob Chr. Nielsen	77				77
Jarl Oxlund	1,200				1,200
Bo Normann Rasmussen	401	(401)			0
Margrethe Weber	2,106				2,106
Total	13,945	(1,693)	1,741	-	13,993
Group Executive Management (own holdings and holdings of dependants)
Karen Frøsig	3,766				3,766
Bjarne Larsen	1,967				1,967
Jan Svarre	2,300				2,300
Total	8,033	-	-	-	8,033
Total	21,978	(1,693)	1,741	-	22,026

SYDBANK / 2017 Annual Report

Note 39 Fair value disclosure

Financial instruments are included in the balance sheet either at fair value or at amortised cost. The table below breaks down financial instruments by valuation technique.

Sydbank Group

DKKm	Fair value	2017 Amortised cost	Fair value	2016 Amortised cost
Financial assets
Cash and balances on demand at central banks	-	2,115	-	2,047
Amounts owed by credit institutions and central banks	4,892	7,587	1,652	5,329
Loans and advances at fair value	5,248	-	6,092	-
Loans and advances at amortised cost	-	64,312	-	77,191
Bonds at fair value	25,860	-	26,331	-
Shares etc	2,118	-	1,838	-
Assets related to pooled plans	16,541	-	13,817	-
Other assets	5,352	2,747	7,382	3,360
Total	60,011	76,761	57,112	87,927
Undrawn credit facilities	-	43,569	-	44,772
Maximum credit risk, collateral not considered	60,011	120,330	57,112	132,699
Financial liabilities
Amounts owed to credit institutions and central banks	2,538	3,422	8,019	9,537
Deposits and other debt	2,460	80,230	2,288	78,821
Deposits in pooled plans	16,541	-	13,825	-
Bonds issued at amortised cost	-	3,722	-	3,714
Other liabilities	10,638	4,725	10,945	5,242
Subordinated capital	-	1,854	-	2,124
Total	32,177	93,953	35,077	99,438

Financial instruments recognised at fair value

Measurement of financial instruments is based on quoted prices from an active market, on generally accepted valuation models with observable market data or on available data that only to a limited extent are observable market data.

Measurement of financial instruments for which prices are quoted in an active market or which is based on generally accepted valuation models with observable market data is not subject to significant estimates.

As regards financial instruments where measurement is based on available data that only to a limited extent are observable market data, measurement is subject to estimates. Such financial instruments appear from the column unobservable inputs below and include primarily unlisted shares, including shares in DLR Kredit A/S.

The fair value of unlisted shares and other holdings is calculated on the basis of available information on trades etc – including to a very significant extent on shareholders' agreements based on book value. To an insignificant extent fair value is calculated on the basis of expected cash flows.

A 10% change in the calculated market value of financial assets measured on the basis of unobservable inputs will affect profit before tax by DKK 182m.

2017 Annual Report / SYDBANK

Notes

Note 39 Fair value disclosure – continued
Sydbank Group

DKKm
	Quoted prices	Observable inputs	Unobservable inputs	Total fair value
2017
Financial assets
Amounts owed by credit institutions and central banks	-	4,892	-	4,892
Loans and advances at fair value	-	5,248	-	5,248
Bonds at fair value	-	25,860	-	25,860
Shares etc	246	50	1,822	2,118
Assets related to pooled plans	6,132	10,409	-	16,541
Other assets	30	5,322	-	5,352
Total	6,408	51,781	1,822	60,011
Financial liabilities
Amounts owed to credit institutions and central banks	-	2,538	-	2,538
Deposits and other debt	-	2,460	-	2,460
Deposits in pooled plans	-	16,541	-	16,541
Other liabilities	36	10,602	-	10,638
Total	36	32,141	-	32,177
2016
---	---	---	---	---
Financial assets
Amounts owed by credit institutions and central banks	-	1,652	-	1,652
Loans and advances at fair value	-	6,092	-	6,092
Bonds at fair value	-	26,331	-	26,331
Shares etc	263	18	1,557	1,838
Assets related to pooled plans	4,953	8,864	-	13,817
Other assets	30	7,352	-	7,382
Total	5,246	50,309	1,557	57,112
Financial liabilities
Amounts owed to credit institutions and central banks	-	8,019	-	8,019
Deposits and other debt	-	2,288	-	2,288
Deposits in pooled plans	-	13,825	-	13,825
Other liabilities	17	10,928	-	10,945
Total	17	35,060	-	35,077

SYDBANK / 2017 Annual Report

Note 39 Fair value disclosure – continued
Sydbank Group

DKKm	2017	2016
Assets measured on the basis of unobservable inputs
Carrying amount at 1 Jan	1,557	1,493
Additions	160	9
Disposals	33	25
Market value adjustment	138	80
Value at 31 Dec	1,822	1,557
Recognised in profit for the year
Interest income	-	-
Dividend	28	38
Market value adjustment	138	80
Total	166	118

To take into account changes in credit risk concerning derivatives with positive fair value, an adjustment is made – CVA. CVA is a function of the risk of counterparty default (PD), the expected positive exposure and the loss ratio in the event of default. PD is determined on the basis of the Group's credit models – default probability in 12 months. PD beyond 12 months is adjusted on the basis of market data of exposures with a similar PD level. At year-end 2017 CVA constitutes DKK 37m compared to DKK 56m at year-end 2016.

Client margins recognised in connection with derivatives are amortised over the life of the transaction. At year-end 2017 client margins presently not recognised as income total DKK 34m compared to DKK 36m at year-end 2016.

Financial instruments recognised at amortised cost

The vast majority of the Group's amounts owed, loans and advances and deposits cannot be transferred without the prior consent of clients and no active market exists for trading in such financial instruments. Consequently fair value disclosures are solely based on circumstances where market conditions have changed after the initial recognition of the instrument, including in particular changes in interest rates. Fair value disclosures on financial instruments recognised at amortised cost are based on the assumptions below:

As regards financial instruments for which a quoted price exists in the market, such a price is applied. This applies to bonds issued and subordinated capital. In the absence of a market price, the value is determined on the basis of estimates of the market's existing required rate of return.
As regards loans and advances, impairment charges are presumed to equal the fair value of the credit risk.
As regards financial instruments with a maturity of less than 6 months, amortised cost is presumed to equal fair value.
As a rule the interest rate risk of fixed-rate deposits and loans and advances with a maturity exceeding 6 months is hedged by derivatives, primarily interest rate swaps. The hedge is treated as a fair value hedge for accounting purposes. As a result of the application of these rules this portfolio, taken as a whole, is recognised at fair value in the balance sheet. The portfolio comprises loans and advances, deposits and swaps, see note 36.

Based on the above it is the overall assessment that the fair value of loans and advances and deposits corresponds to the carrying amount at 31 December 2017 in all material respects.

Sydbank Group

DKKm	2017		2016
	Carrying amount	Fair value	Carrying amount	Fair value
Bonds issued at amortised cost	3,722	3,726	3,714	3,714
Subordinated capital	1,854	1,833	2,124	1,867

2017 Annual Report / SYDBANK

Notes

Note 40 Financial liabilities – contractual maturities
Sydbank Group

DKKm
	On demand	3 months or less	Over 3 months not exceeding 1 year	Over 1 year not exceeding 5 years	Over 5 years
2017
Amounts owed to credit institutions and central banks	1,476	4,474	10	-	-
Deposits and other debt	68,207	8,436	2,248	486	3,313
Bonds issued at amortised cost	-	-	3,722	-	-
Subordinated capital	-	-	-	740	1,114
Total	69,683	12,910	5,980	1,226	4,427
Contingent liabilities (guarantees)	8,237	3,724	980	394	227
2016
Amounts owed to credit institutions and central banks	802	10,955	374	17	5,408
Deposits and other debt	66,157	9,222	1,185	877	3,668
Bonds issued at amortised cost	-	-	-	3,714	-
Subordinated capital	-	-	-	-	2,124
Total	66,959	20,177	1,559	4,608	11,200
Contingent liabilities (guarantees)	6,558	3,431	713	444	239
Amounts are exclusive of interest.

Note 41 Activity per country
Sydbank Group

DKKm
	Turnover	Number of employees	Profit/(Loss) before tax	Tax	Public subsidies received
2017
Denmark, banking and leasing	4,070	1,998	1,908	408	-
Germany, banking	185	66	50	17	-
Switzerland, in liquidation	-	-	(2)	0	-
Total	4,255	2,064	1,956	425	-
2016
Denmark, banking and leasing	4,423	1,968	1,790	374	-
Germany, banking	184	69	80	23	-
Switzerland, in liquidation	-	-	(1)	0	-
Total	4,607	2,037	1,869	397	-

Turnover is defined as interest income, fee and commission income and other operating income.

SYDBANK / 2017 Annual Report

Note 42 Financial highlights
Sydbank Group

	2017	2016	2015	2014	2013
Income statement highlights (DKKm)
Net interest and fee income	3,856	4,002	4,170	4,297	4,165
Market value adjustments	727	553	251	391	474
Staff costs and administrative expenses	2,537	2,487	2,455	2,497	2,314
Impairment of loans and advances etc	(45)	98	311	692	1,861
Profit/(Loss) on holdings in associates etc	(7)	2	5	9	2
Profit for the year	1,531	1,472	1,148	1,052	187
Balance sheet highlights (DKKbn)
Loans and advances	69.6	83.3	84.4	75.3	71.5
Shareholders' equity	11.9	11.8	11.4	11.3	10.2
Total assets	138.5	146.7	142.7	152.3	147.9
Financial ratios per share (DKK per share of DKK 10)
EPS Basic	22.4	20.9	15.5	14.2	2.5
Book value	178.3	169.2	160.2	154.2	139.7
Dividend	11.31	10.46	11.12	7.08	-
Share price/EPS	11.2	10.5	14.3	13.4	56.7
Share price/book value	1.40	1.30	1.38	1.23	1.03
Other financial ratios and key figures
Capital ratio	20.8	19.2	17.6	16.0	15.7
Tier 1 capital ratio	17.7	17.4	15.9	15.5	15.3
Pre-tax profit as % of average shareholders' equity	16.5	16.1	13.0	12.3	1.7
Post-tax profit as % of average shareholders' equity	12.9	12.7	10.1	9.8	1.8
Income/cost ratio (DKK)	1.74	1.69	1.49	1.39	1.04
Interest rate risk	0.8	1.6	2.8	0.0	0.6
Foreign exchange position	1.2	2.2	2.2	1.8	2.1
Foreign exchange risk	0.0	0.0	0.0	0.0	0.0
Loans and advances relative to deposits	0.7	0.8	1.0	0.8	0.9
Loans and advances relative to shareholders' equity	5.8	6.6	7.4	6.7	7.0
Growth in loans and advances for the year	(16.7)	3.9	8.5	2.8	(3.7)
Excess cover relative to statutory liquidity requirements (section 152 of the Danish Financial Business Act)	232.1	186.5	166.8	142.2	179.8
Total large exposures	0.0	0.0	0.0	0.0	25.8
Impairment ratio for the year	(0.1)	0.1	0.3	0.7	2.2
Return on assets (%)	1.07	1.02	0.78	0.70	0.12

Financial highlights and financial ratios are specified in the Danish FSA's executive order on financial reporting of credit institutions etc.

2017 Annual Report / SYDBANK

Notes

Note 42 Financial highlights – continued
Sydbank A/S

	2017	2016	2015	2014	2013
Income statement highlights (DKKm)
Net interest and fee income	3,789	3,835	4,116	4,302	4,160
Market value adjustments	727	553	252	391	474
Staff costs and administrative expenses	2,482	2,431	2,413	2,505	2,316
Impairment of loans and advances etc	(45)	98	311	692	1,861
Profit/(Loss) on holdings in associates etc	(26)	71	(23)	7	(69)
Profit for the year	1,531	1,472	1,148	1,052	187
Balance sheet highlights (DKKbn)
Loans and advances	69.8	83.5	84.6	75.5	69.3
Shareholders' equity	11.9	11.8	11.4	11.3	10.2
Total assets	140.8	148.9	144.9	152.8	143.8
Financial ratios per share (DKK per share of DKK 10)
EPS Basic	22.4	20.9	15.5	14.2	2.5
Book value	178.3	169.2	160.2	154.2	139.7
Dividend	11.31	10.46	11.12	7.08	-
Share price/EPS	11.2	10.5	14.3	13.4	56.7
Share price/book value	1.40	1.30	1.38	1.23	1.03
Other financial ratios and key figures
Capital ratio	20.1	18.7	17.2	16.0	16.0
Tier 1 capital ratio	17.2	16.8	15.5	15.4	15.8
Pre-tax profit as % of average shareholders' equity	16.4	15.9	12.8	12.2	1.9
Post-tax profit as % of average shareholders' equity	12.9	12.7	10.1	9.8	1.8
Income/cost ratio (DKK)	1.76	1.69	1.50	1.39	1.04
Interest rate risk	0.8	1.6	2.8	0.0	0.7
Foreign exchange position	1.2	2.2	2.2	1.8	2.1
Foreign exchange risk	0.0	0.0	0.0	0.0	0.0
Loans and advances relative to deposits	0.7	0.9	0.9	0.9	1.0
Loans and advances relative to shareholders' equity	5.8	7.1	7.4	6.7	6.8
Growth in loans and advances for the year	(16.6)	3.9	8.5	6.5	(6.8)
Excess cover relative to statutory liquidity requirements (section 152 of the Danish Financial Business Act)	226.8	182.0	162.8	141.4	175.2
Total large exposures	0.0	0.0	0.0	0.0	15.3
Impairment ratio for the year	(0.1)	0.1	0.3	0.7	2.3
Return on assets (%)	1.06	1.00	0.77	0.71	0.13

Financial highlights and financial ratios are specified in the Danish FSA's executive order on financial reporting of credit institutions etc.

SYDBANK / 2017 Annual Report

Note 43 Reporting events occurring after the balance sheet date

No matters of significant impact on the financial position of the Group have occurred after the expiry of the financial year.

Note 44 Group holdings and enterprises

Sydbank Group

31 December 2017	Activity	Share capital (m)	Shareholders' equity (DKKm)	Profit/(Loss) (DKKm)	Ownership share (%)
Sydbank A/S		DKK 704
Consolidated subsidiaries
DiBa A/S, Aabenraa	Investment	DKK 300	2,032	(4)	100
Ejendomsselskabet af 1. juni 1986 A/S, Aabenraa	Real property	DKK 11	11	(14)	100
Syd Fund Management A/S, Aabenraa	Administration	DKK 40	48	8	100
Sydbank (Schweiz) AG in Liquidation, St. Gallen, Switzerland*	-	CHF 40	226	(2)	100
Holdings in associates
Foreningen Bankdata, Fredericia**	IT	DKK 510	510	(34)	32
Komplementarselskabet Core Property Management A/S, Copenhagen**	Real property	DKK 10	29	15	20
Core Property Management P/S, Copenhagen	Real property	DKK 10	10	-	20

With no significant activity at 31 December 2017.
** Financial information according to the companies' most recently published annual reports (2016).

Note 45 Large shareholders

On 21 July 2017 Silchester International Investors LLP, London, announced that the company has reduced its holding of shares in Sydbank A/S to below 5%. Subsequently Sydbank has no large shareholders.

2017 Annual Report / SYDBANK

Definitions – Group Financial Ratios & Performance Measures

Financial ratio/performance measure	Definition
EPS Basic (DKK)	Profit for the year divided by average number of shares outstanding.
EPS Diluted (DKK)	Profit for the year divided by average number of shares outstanding, including dilutive effect of share options and restricted shares.
Share price at year-end	Closing price of the Sydbank share at year-end.
Book value per share (DKK)	Shareholders' equity at year-end divided by number of shares outstanding at year-end
Common Equity Tier 1 capital ratio	Common Equity Tier 1 capital divided by risk exposure amount.
Tier 1 capital ratio	Tier 1 capital divided by risk exposure amount.
Capital ratio	Total capital divided by risk exposure amount.
Pre-tax profit as % of average shareholders' equity	Pre-tax profit divided by quarterly average shareholders' equity calculated as an average of shareholders' equity of the year's 4 quarters at year-end.
Post-tax profit as % of average shareholders' equity	Post-tax profit divided by quarterly average shareholders' equity calculated as an average of shareholders' equity of the year's 4 quarters at year-end.
Return on assets (%)	Profit for the year divided by total average assets.
Loans and advances relative to deposits	Loans and advances at amortised cost divided by deposits (deposits and other debt and deposits in pooled plans).
Loans and advances relative to shareholders' equity	Loans and advances at amortised cost divided by shareholders' equity.
Growth in loans and advances for the year	Calculated on the basis of loans and advances at amortised cost.
Accumulated impairment ratio	Impairment charges and provisions at year-end (allowance account) divided by loans and advances at amortised cost and guarantees before impairment charges and provisions.
Impairment ratio for the year	Impairment charges for loans and advances etc divided by loans and advances at amortised cost and guarantees before impairment charges and provisions.
Number of full-time staff at year-end	Number of full-time equivalent staff (part-time staff translated into full-time staff) at year-end.

Reference is made to "Accounting policies" (note 1) for a definition of core income and investment portfolio earnings.

SYDBANK / 2017 Annual Report

2017 Annual Report / SYDBANK
95

Notes – Derivatives

Distribution by maturity

DKKm	3 months or less	Over 3 months not exceeding 1 year	Over 1 year not exceeding 5 years	Over 5 years	Total 2017	Total 2016
Nominal values
Foreign exchange contracts:
Spot, bought	2,303	-	-	-	2,303	2,843
Spot, sold	3,963	-	-	-	3,963	1,121
Forwards/futures, bought	18,557	3,046	255	0	21,858	28,008
Forwards/futures, sold	17,157	3,452	289	0	20,897	29,205
Swaps	67	7	146	630	850	1,374
Options, acquired	1,430	835	100	0	2,365	3,851
Options, written	1,207	644	50	0	1,900	3,157
Interest rate contracts:
Spot, bought	4,541	-	-	-	4,541	4,330
Spot, sold	3,261	-	-	-	3,261	4,105
Forwards/futures, bought	5,429	2,445	0	0	7,874	2,756
Forwards/futures, sold	6,799	328	210	0	7,337	4,277
Forward Rate Agreements, bought	0	0	0	0	0	400
Forward Rate Agreements, sold	0	0	0	0	0	2,400
Swaps	14,130	23,836	42,145	45,034	125,146	141,515
Options, acquired	1,042	5,422	1,830	558	8,853	10,671
Options, written	372	3,745	6,670	814	11,602	11,333
Equity contracts:
Spot, bought	264	-	-	-	264	133
Spot, sold	304	-	-	-	304	165
Forwards/futures, bought	2	0	0	0	2	3
Forwards/futures, sold	2	0	0	0	2	6
Options, acquired	421	1	0	0	422	1
Options, written	421	1	0	0	422	1
Other derivative contracts:
Futures commodities, bought	0	0	0	0	0	0
Futures commodities, sold	0	0	0	0	0	0
Options, acquired	0	0	0	0	0	0
Options, written	0	0	0	0	0	0
Credit Default Swaps	0	0	0	0	0	0

SYDBANK / 2017 Annual Report

Distribution by maturity

DKKm	3 months or less	Over 3 months not exceeding 1 year	Over 1 year not exceeding 5 years	Over 5 years	Total 2017	Total 2016
Net market values
Foreign exchange contracts:
Spot, bought	(3)	-	-	-	(3)	9
Spot, sold	(3)	-	-	-	(3)	3
Forwards/futures, bought	145	(18)	(6)	0	121	349
Forwards/futures, sold	68	40	8	0	116	(195)
Swaps	2	3	0	30	34	82
Options, acquired	37	22	7	0	66	27
Options, written	(24)	(6)	(1)	0	(31)	(28)
Interest rate contracts:
Spot, bought	(1)	-	-	-	(1)	6
Spot, sold	0	-	-	-	0	(4)
Forwards/futures, bought	(1)	0	0	0	0	15
Forwards/futures, sold	4	0	0	0	4	0
Forward Rate Agreements, bought	0	0	0	0	0	0
Forward Rate Agreements, sold	0	0	0	0	0	1
Swaps	(48)	45	(328)	(70)	(401)	(624)
Options, acquired	1	11	212	3	228	328
Options, written	1	(19)	(175)	(3)	(197)	(267)
Equity contracts:
Spot, bought	0	-	-	-	0	(1)
Spot, sold	0	-	-	-	0	1
Forwards/futures, bought	(1)	0	0	0	(1)	0
Forwards/futures, sold	2	0	0	0	2	0
Options, acquired	13	1	1	0	15	2
Options, written	(13)	(1)	(1)	0	(15)	(2)
Other derivative contracts:
Futures commodities, bought	0	0	0	0	0	0
Futures commodities, sold	0	0	0	0	0	0
Options, acquired	0	0	0	0	0	0
Options, written	0	0	0	0	0	0
Credit Default Swaps	0	0	0	0	0	0
Total net market values					(67)	(299)

2017 Annual Report / SYDBANK

Notes – Derivatives

DKKm	Total contracts 2017*			Total contracts 2016*
	Positive	Negative	Net	Positive	Negative	Net
Market values
Foreign exchange contracts:
Spot, bought	2	(5)	(3)	14	(4)	9
Spot, sold	7	(11)	(3)	5	(2)	3
Forwards/futures, bought	254	(133)	121	466	(117)	349
Forwards/futures, sold	199	(83)	116	187	(382)	(195)
Swaps	38	(4)	34	112	(30)	82
Options, acquired	66	0	66	27	0	27
Options, written	0	(31)	(31)	0	(28)	(28)
Interest rate contracts:
Spot, bought	3	(4)	(1)	7	(1)	6
Spot, sold	2	(2)	0	1	(5)	(4)
Forwards/futures, bought	7	(7)	0	17	(2)	15
Forwards/futures, sold	7	(3)	4	2	(2)	0
Forward Rate Agreements, bought	0	0	0	0	0	0
Forward Rate Agreements, sold	0	0	0	1	0	1
Swaps	4,436	(4,837)	(401)	6,106	(6,730)	(624)
Options, acquired	229	(1)	228	328	0	328
Options, written	4	(202)	(197)	6	(273)	(267)
Equity contracts:
Spot, bought	2	(2)	0	3	(5)	(1)
Spot, sold	2	(2)	0	4	(3)	1
Forwards/futures, bought	0	(1)	(1)	0	0	0
Forwards/futures, sold	2	0	2	0	0	0
Options, acquired	15	0	15	2	0	2
Options, written	0	(15)	(15)	0	(2)	(2)
Other derivative contracts:
Futures commodities, bought	0	0	0	0	0	0
Futures commodities, sold	0	0	0	0	0	0
Options, acquired	0	0	0	0	0	0
Options, written	0	0	0	0	0	0
Credit Default Swaps	0	0	0	0	0	0
Total market values	5,275	(5,342)	(67)	7,289	(7,589)	(299)

All contracts are non-guaranteed.

SYDBANK / 2017 Annual Report

DKKm	Total contracts 2017			Total contracts 2016
	Positive	Negative	Net	Positive	Negative	Net
Average market values
Foreign exchange contracts:
Spot, bought	10	(9)	1	17	(9)	8
Spot, sold	8	(13)	(5)	11	(22)	(11)
Forwards/futures, bought	311	(185)	126	358	(183)	175
Forwards/futures, sold	258	(247)	10	213	(264)	(51)
Swaps	71	(16)	55	122	(34)	88
Options, acquired	58	0	58	23	0	23
Options, written	0	(32)	(32)	0	(23)	(23)
Interest rate contracts:
Spot, bought	4	(7)	(3)	16	(8)	9
Spot, sold	7	(2)	5	8	(14)	(6)
Forwards/futures, bought	10	(5)	5	17	(11)	6
Forwards/futures, sold	5	(4)	1	12	(13)	0
Forward Rate Agreements, bought	0	0	0	0	(6)	(6)
Forward Rate Agreements, sold	0	0	0	6	0	6
Swaps	5,183	(5,686)	(503)	7,070	(7,788)	(718)
Options, acquired	267	(1)	267	362	(1)	361
Options, written	4	(236)	(232)	8	(291)	(284)
Equity contracts:
Spot, bought	5	(5)	(1)	7	(5)	2
Spot, sold	5	(4)	1	4	(7)	(3)
Forwards/futures, bought	0	0	0	5	(3)	1
Forwards/futures, sold	0	0	0	7	(8)	(1)
Options, acquired	5	0	5	1	0	1
Options, written	0	(5)	(5)	0	(1)	(1)
Other derivative contracts:
Futures commodities, bought	0	0	0	0	0	0
Futures commodities, sold	0	0	0	0	0	0
Options, acquired	0	0	0	0	0	0
Options, written	0	0	0	0	0	0
Credit Default Swaps	0	0	0	5	(5)	0
Total average market values	6,213	(6,458)	(245)	8,272	(8,697)	(425)

Average market value calculations are based on monthly statements.

DKKm	Market values		Collateral		Exposure by counterparty
	Positive	Negative	Received	Provided	Amount due	Amount owed
2017
Exposure
Counterparties with CSA agreements	3,758	5,042	751	2,230	271	76
Counterparties without CSA agreements	1,517	300	-	-	1,452	235
Total	5,275	5,342	751	2,230	1,723	311
2016
Exposure
Counterparties with CSA agreements	5,426	7,127	973	2,834	819	657
Counterparties without CSA agreements	1,863	462	-	-	1,593	192
Total	7,289	7,589	973	2,834	2,412	849

2017 Annual Report / SYDBANK

Notes – Risk Management

On the basis of the strategic objectives for the Group, the Board of Directors has issued guidelines for the Group Executive Management and has adopted policies as regards credit risk, liquidity risk, market risk, operational risk, insurance and IT security.

The Board of Directors has set up a Risk Committee to address risk management in greater detail. The chairman of the Board of Directors is the chairman of the Risk Committee, which also consists of the vice-chairman of the Board of Directors, 2 ordinary board members, the Bank's CEO, the Bank's Group Executive Vice President responsible for risk management as well as the Group's Chief Risk Officer (CRO). The committee convenes as a minimum every quarter where ongoing reporting to the Board of Directors is reviewed and current issues are discussed. At subsequent board meetings the contents and conclusions of the Risk Committee meetings are presented to the full Board of Directors.

Credits is responsible for the day-to-day handling of credit risk whereas Sydbank Markets is responsible for the day-to-day handling of liquidity and market risks. The individual business units are each responsible for the day-to-day handling of operational risk. Accounting is responsible for handling the Group's insurances and IT & Development is responsible for the Group's IT security.

Overall risk management, including ongoing reporting to the Group Executive Management and the Board of Directors, is performed by Risk of which the Group Executive Vice President is also the CRO of the Sydbank Group.

Risk management is supported by the Group's risk organisation, see the chart below.

The relevant business units are represented in the committees, each headed by a Group Executive Management member. The CRO is a member of all committees.

It is the responsibility of the committees, within their respective risk areas, to identify, assess and follow up on the Group's risks including principles to determine risk, models applied, and to assess whether exposures and risks comply with the Group's intended profile and policy.

The committees convene as a minimum every quarter and prepare as a minimum once a year a risk analysis which is included as an important element in the annual risk assessment of the Group.

The risk assessment at 31 December 2017 together with the Group's 2017 financial statements, Credit Risk 2017, the Group's Internal Liquidity Adequacy Assessment Process (ILAAP) at 31 December 2017 and the Group's Internal Capital Adequacy Assessment Process (ICAAP) at 31 December 2017 constitute the main elements of Risk Committee and Audit Committee meetings as well as board meetings at the beginning of 2018. On the basis of the discussions at these meetings the Board of Directors will subsequently update the Group's policies and guidelines.

SYDBANK / 2017 Annual Report

Credit risk

Credit and client policy

The Group's overall credit risk is managed according to policies and limits determined and adopted by the Board of Directors.

The Board of Directors lays down the general framework for credit granting and the largest exposures are submitted on a regular basis to the Board of Directors for approval or information.

Employees with a written lending authority may grant approvals. Such authority is adjusted to the employee's client portfolio and the individual client's rating. In connection with new clients employees have limited lending authority.

Retail clients

Credit granting to retail clients is based on the client's disposable amount, wealth and leverage (defined as total household debt divided by household personal income) as well as knowledge of the client.

The objective is that the majority of retail client exposures are approved by the client's branch and that the remaining client exposures are approved by specially appointed heads of credit. Consequently exposures where the client has negative assets of more than DKK 100,000 are approved by heads of credit. Major exposures and highly leveraged exposures are approved centrally by Credits.

Corporate clients

As a rule corporate clients are serviced by the regional head office or by special corporate departments. The Group's largest and most complex exposures are handled by Corporate Banking & Finance. The objective is that all small corporate exposures with satisfactory credit quality are approved at regional level. Medium-size and major exposures are approved centrally by Credits, the Group Executive Management or the Board of Directors.

The Group's credit-related decisions are based on a systematic and structured review of the client's circumstances and industry affiliation. The review is based on all accessible information, including industry analyses and financial statements, and also comprises an assessment of the client's forward-looking business plan and its feasibility.

Credit activities

Credit activities are conducted partly in the retail and corporate departments and partly centrally in Credits. As described below, the Group has developed rating models to assess risks to retail clients, corporate clients and investment clients.

The Group's credit activities are an active element in the Group's efforts to increase its earnings by:

maintaining and increasing the portfolio of profitable and promising retail, corporate and investment clients
maintaining and increasing clients' business volume with the Group through a balanced composition of:
loans and advances and guarantees
deposits
payment services transactions
trading in securities etc
financial instruments
avoiding/reducing risk of loss by implementing action plans for weak exposures. These action plans involve reducing the Group's exposure as well as hedging risks by securing additional collateral.

Risks in connection with lending must be precalculated on an informed and well-founded basis.

The Group's credit exposure is in particular to clients in Denmark and Northern Germany.

Particular focus is given to weak exposures. The objective is to ensure that the Group's action plans for these exposures are evaluated and adjusted on an ongoing basis to reduce the risk of loss.

Moreover Credits has a department which is assigned to exposures with a significant risk of loss. These exposures are closely monitored and Credits is actively involved in preparing solutions to mitigate the Group's credit risk.

Risk Follow-up

Risk Follow-up is part of the division Risk.

By means of analyses, random sampling and inspections at branches and departments and centrally, Risk Follow-up monitors the credit quality of credit exposures, registrations, impairment charge calculations as well as the compliance with policies and business procedures in general.

This process involves research and analyses using information from the Group's database on all exposures.

Moreover Risk Follow-up conducts regular credit quality analyses of the Group's new exposures as well as regular random sampling of the retail and corporate client portfolios.

Finally Risk Follow-up evaluates on the basis of a credit expert assessment whether the Group's rating models rank clients correctly.

2017 Annual Report / SYDBANK

Notes – Risk Management

Collateral

The Group aims to mitigate the risk on individual exposures by way of charges on assets, netting agreements and guarantees.

The most frequent types of charges include mortgages and charges on financial assets (shares, bonds and units).

The Group receives different kinds of guarantees for exposures. Many of these are provided by companies or individuals who have a group relationship with the debtor.

The Group assesses on an ongoing basis the value of collateral provided. The value is determined as the expected net proceeds on realisation.

The 2 tables below illustrate the breakdown of collateral by type and rating category respectively.

Collateral received and types of collateral

DKKm	2017	2016
Loans and advances at fair value	5,248	6,092
Loans and advances at amortised cost	64,312	77,191
Guarantees	13,562	11,385
Credit exposure for accounting purposes	83,122	94,668
Collateral value	44,161	51,016
Total unsecured	38,961	43,652
Types of collateral
Real property	12,187	20,532
Financial collateral	10,803	11,708
Leased assets, mortgages etc	5,428	5,096
Floating charges, operating equipment etc	6,227	6,366
Guarantees	1,188	1,294
Other items of collateral	262	233
Total collateral used	36,095	45,229
Particularly secured transactions (mortgage guarantees)	8,066	5,787
Total	44,161	51,016

In the event that the Group uses collateral that is not immediately convertible into liquid holdings, it is the Group's policy to dispose of such assets as quickly as possible. In 2017 repossessed equipment as well as real property taken over in connection with non-performing exposures amounted to DKK 13m (2016: DKK 62m). Leased assets are assessed and depreciated on an ongoing basis. As a result the calculated collateral as regards the Group's leasing activities will decline during periods of lower leased asset prices.

Mortgages on real property have fallen by DKK 8,345m from DKK 20,532m in 2016 to DKK 12,187m in 2017. The decrease is primarily attributable to the amended funding agreement.

Financial collateral has decreased by DKK 905m from DKK 11,708m in 2016 to DKK 10,803m in 2017, which is primarily attributable to the decline in loans and advances at fair value which have gone down by DKK 844m.

Loans and advances at fair value are repo loans and advances with financial collateral.

SYDBANK / 2017 Annual Report

The table below shows the size of loans and advances, guarantees as well as collateral according to rating category. The value of collateral is assessed relative to loans and advances and guarantees. Excess collateral is not included in the calculation of collateral. 53.1% (2016: 53.9%) of the Group's loans and advances is covered via collateral.

Collateral by rating category

DKKm	Loans/advances	Guarantees	Collateral value	2017 Unsecured
1	8,003	3,841	9,364	2,480
2	20,037	3,504	13,220	10,321
3	16,847	2,654	8,631	10,870
4	9,367	1,079	4,642	5,804
5	5,677	809	2,924	3,562
6	3,004	365	1,574	1,795
7	1,292	88	414	966
8	380	48	142	286
9	4,889	467	2,172	3,184
Default	1,355	179	639	895
NR/STD	1,390	528	439	1,479
Total	72,241	13,562	44,161	41,642
Individual impairment of loans and advances	2,381			2,381
Collective impairment of loans and advances	300			300
Total	69,560	13,562	44,161	38,961

Financial counterparties

Trading in securities, currencies and derivatives as well as payment services etc involve exposure to financial counterparties in the form of delivery risk or credit risk.

Delivery risk is the risk that the Group does not receive payments or securities in connection with the settlement of securities or currency transactions equalling the securities or payments delivered by the Group.

Management grants delivery risk lines and credit risk lines to financial counterparties based on the risk profile of the individual counterparty which is assessed in terms of rating, earnings, capital position as well as the size of the financial counterparty. Risks and lines to financial counterparties are monitored continuously.

The Group participates in an international foreign exchange settlement system, CLS®, which aims to reduce delivery risk. In CLS® payment is made on the net position for each currency, and only 1 amount for each currency is paid or received. In addition this net exposure is only to 1 counterparty, who is the Group's partner in the system.

The Group aims to mitigate credit risk to financial counterparties in many ways, eg by concluding netting agreements (ISDA agreements). Moreover the Group has entered into agreements (CSA agreements) with all significant counterparties to ensure credit risk mitigation of derivatives. Exposures are calculated on a daily basis after which the parties settle collateral. Consequently exposures are reset in all material respects on a daily basis. The agreements are managed by Securities & International Transactions.

2017 Annual Report / SYDBANK

Notes – Risk Management

Market risk

Market risk is the risk that the market value of the Group's assets and liabilities will be affected as a result of changes in market prices.

Assuming market risk is considered a natural and integral part of all-round banking. Assuming risk must be on a conscious and well-documented basis. To the extent possible, risk should be assumed in products which offer a possibility of eliminating or mitigating risk at short notice.

Interest rate and foreign exchange risks deriving from deposits by and loans and advances to the Group's clients are hedged on an ongoing basis and are consequently not used for positioning.

The Group operates with the following types of market risk:

Interest rate risk
Equity risk
Foreign exchange risk
Other market risks.

For security and control reasons, the Board of Directors emphasises that the Group's market risk is subject to central decision-making and management. Consequently the Group's most significant interest rate, foreign exchange and equity risks must be assumed by the parent.

The Board of Directors has determined the Group's risk tolerance as follows: medium as regards interest rate risk and low as regards the other types of market risk.

Market risk is managed by Sydbank Markets according to policies and limits determined and adopted by the Bank's Board of Directors. The Group Executive Management has passed on the overall limits from the Board of Directors to Sydbank Markets and Treasury. Sydbank Markets manages trading and market-making as regards the Group's clients and financial counterparties. Treasury manages the Group's long-term interest rate positions and hedging, including the Group's primary liquidity positions as well as liquidity generation. The Group's returns in Sydbank Markets and Treasury appear from "Segment reporting" (note 5). Apart from interest rate risks, Treasury does not have any other significant market risks.

Middle Office in Securities & International Transactions as well as Risk continuously monitor the individual risk areas and provide management with extensive reporting on a regular basis.

Interest rate risk

Interest rate risk comprises the Group's total risk of loss resulting from interest rate changes in financial markets.

The Group uses a cash flow model to determine the interest rate risk of fixed-rate positions. A duration model is used to calculate the interest rate risk of Danish callable mortgage bonds. Interest rate risk makes up the bulk of the Group's overall market risk.

In accordance with the Danish FSA's method of calculation, interest rate risk is calculated as the change in market values at a parallel shift in the interest rate level of plus 1 percentage point in all currencies and at 31 December 2017 it represents minus DKK 86m or 0.8% of the Group's Common Equity Tier 1 capital.

Interest rate risk by duration and currency

DKKm	0-1 yr	1-2 yrs	2-3 yrs	> 3 yrs	Total 2017	Total 2016
DKK	36	5	47	(24)	64	292
EUR	1	0	7	(157)	(149)	(116)
EUR/DKK	37	5	54	(181)	(85)	176
Other	(3)	1	0	1	(1)	1
Total 2017	34	6	54	(180)	(86)
Total 2016	35	21	30	91		177

The bulk of the Group's interest rate risk is attributable to positions with a duration exceeding 3 years. The Group has no significant interest rate risk apart from EUR/DKK.

The Group's interest rate risk is negative, ie the Group's profit will be favourably affected by an interest rate increase, in this case particularly in the event of a rise in long-term interest rates (> 3 years).

The method of calculation of the Danish FSA allows full set-off between different currencies, maturities and yield curves. The Group is aware of the risk of these assumptions and monitors these risks separately on an ongoing basis.

The Group has established an internal interest rate risk scenario where set-off between currencies is not allowed – apart from EUR and DKK. Moreover the scenario allocates the interest rate risk to underlying curves (the government curve, the Danish mortgage curve and the swap curve) and the scenario risk cannot be lower than the numerically highest risk of the individual curves. In addition a premium is included for options. At 31 December 2017 this risk measure constitutes DKK 146m (2016: DKK 490m).

SYDBANK / 2017 Annual Report

The scenario is used eg in connection with the calculation of the Group's solvency need.

The bulk of the Group's interest rate risk at 31 December 2017 is attributable to the Group's positions in Treasury.

Interest rate risk – Sydbank Markets and Treasury

DKKm	2017			2016
	Sydbank Markets	Treasury	Total	Sydbank Markets	Treasury	Total
DKK	83	(19)	64	126	166	292
EUR	(26)	(123)	(149)	(71)	(45)	(116)
EUR/DKK	57	(142)	(85)	55	121	176
Other	(2)	1	(1)	(1)	2	1
Total	55	(141)	(86)	54	123	177

Equity risk

The Group's portfolio of shares and holdings in associates represents DKK 2,275m at 31 December 2017 (2016: DKK 2,000m), including equity investments totalling DKK 1,936m (2016: DKK 1,607m).

In the event of a 10% change in share prices, profit before tax will be affected by DKK 228m (2016: DKK 200m), including equity investments totalling DKK 201m (2016: DKK 177m).

Foreign exchange risk

As in previous years the Group's foreign exchange risk was insignificant in 2017 and consequently a 10% change in foreign exchange rates against DKK at 31 December 2017 will not affect profit before tax significantly.

Other market risks

The Group does not have any other significant market risks at 31 December 2017.

2017 Annual Report / SYDBANK

Notes – Risk Management

Liquidity risk

Liquidity risk is the risk that the Group either cannot meet its payment obligations as they mature or is only able to do so via disproportionately large funding costs.

The Bank's Board of Directors has adopted a liquidity risk policy which sets out the framework for the Group's liquidity management, including operational targets for the Group's risk tolerance as well as requirements for the funding structure, liquidity buffer calculations and stress tests. Moreover the liquidity risk policy sets out requirements for employee competences, contingency plans and reporting as well as determines the framework for asset encumbrance and allocation of the Group's liquidity costs.

Targets and policies:

Consistently strong and stable deposit base which ensures stability in the long-term funding of the Group's lending activities.
Prudent funding of long-term loans and advances.
Maintenance of high ratings.
Active participation in international money markets as well as access to international capital markets through the application of loan programmes. Coupled with a high rating this ensures that the Group has uninterrupted access to a diversified and competitive funding basis.
Maintenance of a liquidity buffer which together with prudent management of the run-off profile of funding ensures that the Group's operating activities do not depend on capital market funding.

In other words the liquidity buffer may counterbalance the effects of an adverse liquidity situation in the short and medium term.

The Bank's Board of Directors determines the Group's risk tolerance as regards liquidity risk. Operational targets for the Group's risk tolerance comprise:

A minimum share of stable funding by way of deposits from non-financial counterparties and shareholders' equity
A funding ratio (stable funding incl senior issues with maturities in excess of 1 year relative to loans and advances)
Liquidity Coverage Ratio (LCR)
6-month and 12-month stress scenarios (LCR6 and LCR12)
Liquidity Coverage Ratio euro (LCR EUR).

The LCR, LCR6 and LCR12 are based on a regulatory cautiously determined liquidity buffer involving specific requirements as regards Danish mortgage bonds and the share thereof. The buffer must be sufficient to survive a 30-day stress scenario (LCR) according to regulatory guidance as well as a 6-month and a 12-month stress scenario according to the Group's guidance (LCR6 and LCR12).

The LCR's 30-day horizon specifies a run-off of the Group's exposures, while taking into account counterparties, funding size, hedging and duration. Consequently the most stable deposits (small deposits covered by a guarantee scheme) are favoured relative to large deposits, in particular large deposits from business enterprises and financial counterparties.

LCR (DKKbn)	2017	2016
Total liquidity buffer	29.4	28.0
Net cash outflows	16.7	16.9
LCR (%)	176	166

The regulatory LCR requirement is 100% and consequently the Group's excess cover is significant at 31 December 2017.

Funding ratio (DKKbn)	2017	2016
Shareholders' equity and subordinated capital	13.8	13.9
Senior loans with maturities over 1 year	-	3.7
Stable deposits	72.2	74.0
Total stable funding	86.0	91.6
Loans and advances (excl reverse and mortgage-like loans funded via external counterparties)	64.3	71.9
Funding ratio (%)	134	127

As shown above the Group's stable funding exceeds the Group's loans and advances by DKK 21.7bn at 31 December 2017 (2016: DKK 19.7bn).

The maturity profiles of the Group's debt exposures appear from note 40.

The Board of Directors' requirements regarding the funding structure are based on the following:

The Group's funding must be diversified so as to minimise to the greatest extent possible reliance on individual sources.
Compliance with the LCR and the funding ratio target ensures a prudent funding profile and an adequate level of stable non-market-based funding and longer-term market-based funding.

SYDBANK / 2017 Annual Report

The LCR and the funding ratio ensure that the higher the level of stable deposits, the lower the necessary level of long-term senior funding. In contrast a falling level of stable deposits will increase the need for long-term senior funding.
Short-term market funding and funding from financial counterparties must predominantly be used to fund short-term placements and investments in securities which can be realised or which are eligible as collateral with Danmarks Nationalbank or the repo market.

The Group's risk policy states that:
- asset encumbrance may only occur as part of ordinary banking operations and includes securities provided as collateral with the central bank and in the repo market, collateral for clearing transactions as well as collateral under CSA agreements
- asset encumbrance may be by way of deposits with credit institutions or securities
- moreover asset encumbrance may be by way of funding of mortgage-like loans via external counterparties.

The asset encumbrance appears from note 37.

The Group issued senior loans of EUR 500m (DKK 3.7bn) in Q2 2016 with a maturity of 2 years. When the coming requirements as regards senior issues have been determined in accordance with MREL the Group expects to make issues with longer maturities.

The Group is considering 1 or 2 senior issues in the course of 2018.

2017 Annual Report / SYDBANK
107

Notes – Risk Management

Operational risk

Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.

The Group collects data on all operational events and classifies them in 4 main groups:

Operational events without loss
Operational events, IT
Operational events, internal
Operational events, compensation.

Management receives reporting on the basis of these data. Furthermore they form the basis for analyses and research for the purpose of identifying systematics as well as improving on an ongoing basis internal controls, business procedures and routines to minimise the number of errors and the risk of loss.

Moreover the system for collecting data on operational events ensures compliance with the Group's business procedures for approval, information, accounting and payment, if any.

The Group reviews all business units annually with the aim of identifying, describing and analysing the largest individual risks where the Group may incur significant losses as well as the relevant business procedures and routines for the purpose of minimising such risks.

A risk analysis was conducted in September 2017 as regards operational risks, which shows that the Group has a number of scenarios in which the risk of loss exceeds DKK 5m. At the same time it must be expected that such scenarios – despite risk mitigation by way of for instance business procedures and control environment, requirements as regards access and authorisation as well as insurance cover – will occur within a foreseeable time horizon.

The Group's management has reviewed the extent of such loss scenarios and related risks.

The Group applies the Standardised Approach to calculate the capital requirement in accordance with Basel III.

IT security

IT supports a large part of the systems and tools used by the Bank's clients and advisers. This function is strengthened by the increased digitization in Sydbank which clients experience by way of increased self-service and improved online services.

Consequently IT security is a significant aspect of the Bank's operational risk.

The Group regularly reviews this area – on a strategic level, on an operational level and on a system level if the system is business-critical. As a result requirements have been specified as regards confidentiality, accessibility and integrity of the individual elements of IT security. These requirements are adjusted on an ongoing basis to new statutory requirements and regulations. Currently there is considerable focus on the additional requirements that will apply when the General Data Protection Regulation comes into force in May 2018.

The Board of Directors specifies and formulates requirements as regards IT risk management in the IT security policy and IT contingency policy and these policies form the basis of the IT security efforts. As part of the IT security efforts a risk analysis is prepared annually in which the objectives regarding the confidentiality, accessibility and integrity of each system are assessed in terms of probability, maturity of preventive and corrective administrative and technical measures, as well as implications. As a result of this assessment a risk score is assigned to each system. The Board of Directors reviews, updates and approves the 2 policies on the basis of the risk analysis.

In the policies the Board of Directors assesses the current risk scenario and against this background specifies the requirements for eg accessibility and reliability in terms of the different elements of IT supply, including systems and data. As a result of these requirements, a significant part of the Group's use of IT has been mirrored to minimise the risk of operational disruptions.

The IT security policy as well as the IT contingency policy apply to all aspects of the Bank's IT use and consequently also where IT or parts of it has been outsourced. As a result Sydbank's collaboration with Bankdata, including JN Data, which is responsible for the day-to-day operations, is also comprised by this IT security process.

Contingency exercises are performed on a regular basis to ensure that the Bank is able to tackle any events that may arise.

In accordance with current anti-terrorism and anti-money laundering rules the Bank must ensure that proof of identity of its clients exists. Moreover the Bank performs routine testing of transactions submitted through the Bank's systems. Suspicious transactions are reported.

SYDBANK / 2017 Annual Report

Notes – Total capital

The Bank is a licensed financial services provider and must therefore comply with the capital requirements determined by the EU.

The capital adequacy rules require a minimum capital level of 8.0% of the risk exposure amount plus any additional individual capital needed. Detailed rules regulate the calculation of capital as well as the risk exposure amount.

Total capital is made up of Tier 1 capital and Tier 2 capital. Tier 1 capital comprises shareholders' equity and Additional Tier 1 capital.

The difference between shareholders' equity and total capital is shown in note 3.

The Group's subordinated capital, Additional Tier 1 capital and Tier 2 capital may, subject to certain conditions, be included in total capital. The conditions are specified in CRR. The Group's subordinated capital is shown in note 33.

The Group has determined capital targets and considers a Common Equity Tier 1 capital ratio of 14.0% as well as a capital ratio of 18.0% as being satisfactory for the years ahead.

The international rating agency Moody's regularly assesses the Group's ability to honour its payment obligations. The rating targets are an essential part of the Group's capital targets because good ratings give the Group access to the capital markets.

In 2017 the Group met regulatory capital requirements as well as internal capital targets.

2017 Annual Report / SYDBANK
109

Management Statement

We have reviewed and approved the 2017 Annual Report of Sydbank A/S.

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the parent company financial statements are prepared in accordance with the Danish Financial Business Act. Furthermore, the annual report is prepared in compliance with Danish disclosure requirements for listed financial companies.

In our opinion the consolidated financial statements and the financial statements give a true and fair view of the Group's and the company's assets, shareholders' equity and liabilities and financial position at 31 December 2017 and of the results of the Group's and the company's operations and consolidated cash flows for the financial year 1 January – 31 December 2017. Moreover it is our opinion that the management's review includes a fair review of the developments in the Group's and the parent company's operations and financial position as well as a description of the most significant risks and elements of uncertainty which may affect the Group and the parent company.

We propose that the Annual Report be submitted for adoption by the AGM.

Aabenraa, 20 February 2018

Group Executive Management

Karen Frøsig
CEO

Bjarne Larsen

Jan Svarre

Board of Directors

Torben Nielsen (Chairman)
Peter Damgaard (Vice-Chairman)
Alex Slot Hansen

John Lesbo

Lars Mikkelgaard-Jensen

Janne Moltke-Leth

Frank Møller Nielsen

Jacob Chr. Nielsen

Jarl Oxlund

Margrethe Weber

SYDBANK / 2017 Annual Report

2017 Annual Report / SYDBANK
111

SYDBANK / 2017 Annual Report

Auditors' Reports

Internal Audit

To the shareholders of Sydbank A/S

Opinion

We have audited the consolidated financial statements and the parent company financial statements of Sydbank A/S for the financial year 1 January – 31 December 2017, which comprise an income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including a summary of significant accounting policies, for the Group and the Company, as well as a cash flow statement for the Group. 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 financial statements have been prepared in accordance with the Danish Financial Business Act.

In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group's and the Company's assets, liabilities and financial position at 31 December 2017 and of the results of the Group's and the Company's operations and the Group's cash flows for the financial year 1 January – 31 December 2017 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 financial statements.

Basis for opinion

We conducted our audit in accordance with the Danish Financial Supervisory Authority's Executive Order on Auditing Financial Undertakings etc. as well as Financial Groups and in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark.

We planned and performed our audit to issue an auditor's report that includes a reasonable assurance conclusion about whether the consolidated financial statements and the parent company financial statements as a whole are free from material misstatement, whether due to fraud or error. We have participated in the audit of all material and risky areas.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Statement on the Management's review

Our opinion on the consolidated financial statements and the parent company financial statements does not cover the Management's review, and we do not express any assurance conclusion thereon.

In connection with our audit of the consolidated financial statements and the parent company financial statements we have read the Management's review and, when doing so, considered whether the Management's review is materially inconsistent with the consolidated financial statements or the parent company financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated.

Based on the work we have performed, we concluded that the Management's review is in accordance with the consolidated financial statements and the parent company financial statements and has been prepared in accordance with the requirements in the Danish Financial Business Act. We did not identify any material misstatements of the Management's review.

Aabenraa, 20 February 2018

Ole Kirkbak
Head of Internal Audit

Independent Auditors' Report

To the shareholders of Sydbank A/S

Opinion

We have audited the consolidated financial statements and the parent company financial statements of Sydbank A/S for the financial year 1 January – 31 December 2017, which comprise income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including accounting policies, for the Group and the Parent Company, and a consolidated cash flow statement. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of listed financial companies, and the parent company financial statements are prepared in accordance with the Danish Financial Business Act.

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group at 31 December 2017 and of the results of the Group's operations and cash flows for the financial year 1 January – 31 December 2017 in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of listed financial companies.

Further, in our opinion the parent company financial statements give a true and fair view of the financial position of the Parent Company at 31 December 2017 and of the results of the Parent Company's operations for the financial year 1 January – 31 December 2017 in accordance with the Danish Financial Business Act.

Our opinion is consistent with our long-form audit report to the Audit Committee and the Board of Directors.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the "Auditor's responsibilities for the audit of the consolidated financial statements and the parent company financial statements" (hereinafter collectively referred to as "the financial statements") section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these rules and requirements.

To the best of our knowledge, we have not provided any prohibited non-audit services as described in article 5(1) of Regulation (EU) no. 537/2014.

Appointment of auditor

We were initially appointed as auditor of Sydbank A/S on 10 May 1990 for the financial year 1990. We have been reappointed annually by resolution of the general meeting for a total consecutive period of 28 years up until and including the financial year 2017.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the financial year 2017. These matters were addressed during our audit of the financial statements as a whole and in forming our opinion thereon. We do not provide a separate opinion on these matters.

We have fulfilled our responsibilities described in the "Auditor's responsibilities for the audit of the financial statements" section, including in relation to the key audit matters below. Our audit included the design and performance of procedures to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.

Measurement of loans and guarantees

Risk: A substantial amount of the company's assets consist of loans to customers (46% of the consolidated assets) which are subject to impairment risks due to the customer's lack of ability to pay. In addition, the company offers guarantees and other financial products that also imply risk of losses.

2017 Annual Report / SYDBANK

Auditors' Reports

Independent Auditors' Report

Our audit focused on impairment charges of loans and guarantees since this implies significant amounts and a high level of judgement applied by Management. This concerns especially the assessment of impairment events identification, collateral valuation and the customer's ability to pay in case of default on loans.

Large loans are evaluated individually while impairment of smaller loans for private customers is based on models and portfolio level considerations. Furthermore the measurement of collective impairments is subject to judgements made by Management regarding assumptions and parameters applied.

Audit approach: Our audit comprises processes for impairment events identification and monitoring of loans. We have performed analyses and risk-based test of loans and by review of the company's procedures verified, that loan impairments are recognized in accordance with the accounting policies.

The review has comprised the largest and most risky loans. For collective impairments we have evaluated the assumptions and methodology applied, including the judgements applied by Management in relation to loans to agriculture.

Also we have reviewed and tested that the disclosures on loans, impairment charges and credit risk meet the relevant accounting rules (note 14 and 18).

Statement on the Management's review

Management is responsible for the Management's review.

Our opinion on the financial statements does not cover the Management's review, and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the Management's review and, in doing so, consider whether the Management's review is materially inconsistent with the financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated.

Moreover, 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 conclude that the Management's review is in accordance with the financial statements and has been prepared in accordance with the requirements of the Danish Financial Business Act. We did not identify any material misstatement of the Management's review.

Management's responsibilities for the financial statements

Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of listed financial companies and for the preparation of parent company financial statements that give a true and fair view in accordance with the Danish Financial Business Act.

Moreover, Management is responsible for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, Management is responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting in preparing the financial statements unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and 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 the financial statements.

As part of an audit conducted in accordance with ISAs and additional requirements applicable in Denmark, we exercise

SYDBANK / 2017 Annual Report

Independent Auditors' Report

professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and the Parent Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
Conclude on the appropriateness of Management's use of the going concern basis of accounting in preparing the financial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent 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 auditor's report to the related disclosures in the 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 auditor's report. However, future events or conditions may cause the Group and the Parent Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and contents of the financial statements, including the note disclosures, and whether the financial statements represent the underlying transactions and events in a manner that gives a true and fair view.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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 our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent company financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Aabenraa, 20 February 2018

Ernst & Young

Godkendt Revisionspartnerselskab

CVR no. 30 70 02 28

Lars Rhod Søndergaard

State Authorised Public Accountant

MNE no. 28632

Klaus Skovsen

State Authorised Public Accountant

MNE no. 30204

2017 Annual Report / SYDBANK

Notice Convening the Annual General Meeting

Notice Convening the Annual General Meeting of Sydbank A/S

Sydbank's Annual General Meeting will be held on Wednesday 14 March 2018 at 3:00pm in Sønderjyllandshallen, H.P. Hanssensgade 7, 6200 Aabenraa, Denmark.

Agenda according to Article 8 of the Articles of Association:

Report of the Board of Directors on the Bank's activities in 2017.
Submission of the audited annual report including the auditors' report for adoption.
Motion for the allocation of profit or cover of loss according to the adopted annual report.
Election of members to the Shareholders' Committee.
Appointment of auditors. The Board of Directors proposes the reappointment of Ernst & Young, Godkendt Revisionspartnerselskab in accordance with the recommendation of the Audit Committee. The Audit Committee has in no way been influenced by third parties or been subjected to any agreement with a third party which would limit the general meeting's appointment of certain auditors or audit firms.
Motions submitted by the Board of Directors or shareholders: The Board of Directors proposes that the Bank's share capital be reduced by DKK 26,902,200 to DKK 676,709,540. The capital reduction will be effected as a payment to shareholders and will be implemented by cancelling 2,690,220 shares of DKK 10 each, purchased during the Bank's share buyback programme in 2017. Payment will be at a premium of 246.82 corresponding to the average repurchase price during the share buyback programme. A resolution will imply the following amendment to Article 2 (1) of the Articles of Association: "The share capital of the Bank is DKK 676,709,540 divided into shares in denominations of DKK 10. The share capital is fully paid up."
Any other business.

The agenda, complete proposals and audited annual report including the auditors' report will be available for inspection by the shareholders at sydbank.dk/generalforsamling and sydbank.com/generalmeeting and at Sydbank's branches no later than three weeks before the general meeting.

The Bank's share capital totals DKK 703,611,740.00. As regards shareholders' voting rights, reference is made to Article 10 of the Bank's Articles of Association.

Shareholders are entitled to attend and to raise questions at the general meeting and to vote according to the number of shares held by a shareholder on the date of registration, which is 7 March 2018.

Admission cards for the general meeting can be ordered at any of Sydbank's branches or at sydbank.dk/generalforsamling and sydbank.com/generalmeeting no later than Thursday 8 March 2018.

If a shareholder wishes to vote by postal vote or to issue an instrument of proxy to the Board of Directors or others, the necessary documents are available at the Bank's websites. Instruments of proxy must have been received by the Bank no later than 8 March 2018 and postal votes must have been received by the Bank no later than 4:00pm, 12 March 2018.

Aabenraa, 13 February 2018

The Board of Directors of Sydbank A/S
Torben H. Nielsen
Chairman

SYDBANK / 2017 Annual Report

2017 Annual Report / SYDBANK
117

Board of Directors

Chairman
Former Central Bank Governor
Torben Nielsen
Haslev
Born: 2 November 1947
Education: Banking, Graduate Diploma in Organisation, Industrial Sociology, Credits and Finance. Adjunct professor at CBS
Elected to Board of Directors: 2013
Expiry of current term of office: 2019
Independent: Yes

Committee memberships: Chairman of Nomination Committee and Risk Committee, member of Audit Committee and Remuneration Committee.

Directorships and other offices:
Tryg A/S, Vice-Chairman
Tryg Forsikring A/S, Vice-Chairman
DLR Kredit A/S, Board member
Investeringsforeningen Sparinvest, Chairman
EIK banki p/f, Færøerne, Chairman
Sampension KP Livsforsikring A/S, Board member
Sampension Administrationsselskab A/S, Board member
Museum Sydøstdanmark, Board member
Vordingborg Borg Fond, Board member
Sømandsstiftelsen Bombebøssen, Board member.

Specific competences: Management, macroeconomics, monetary policy, financial regulation, credit risks and general banking sector conditions.

Attendance record in 2017: 12/12
Number of Sydbank shares at year-end 2017: 5,500
Movement for the year in number of shares: +1,500

Vice-Chairman
General Manager, former Principal
Peder Damgaard
Kruså
Born: 13 December 1956
Education: MSc (Agriculture)
Elected to Board of Directors: 2006
Expiry of current term of office: 2020
Independent: Yes

Committee memberships: Chairman of Remuneration Committee, member of Risk Committee and Nomination Committee.

Directorships and other offices:
BoligSyd, Executive Board
BHJ Fonden, Chairman
Grænseforeningen, Board member
A/S Plantningsselskabet Sønderjylland, Board member
Sydbank Sønderjyllands Fond, Board member
Sydbank Fonden, Board member.

Specific competences: Management, accounting, economics, mortgage credit and agriculture.

Attendance record in 2017: 12/12
Number of Sydbank shares at year-end 2017: 966
Movement for the year in number of shares: -

SYDBANK / 2017 Annual Report

State Authorised Public Accountant
John Lesbo
Esbjerg
Born: 15 January 1954
Education: State Authorised Public Accountant
Elected to Board of Directors: 2017
Expiry of current term of office: 2020
Independent: No

Committee memberships: Chairman of Audit Committee.

Directorships and other offices:
Business Region Esbjerg, Chairman
Good Food Group A/S, Board member
Strandbygaard Grafisk A/S, Board member
Emballagegruppen A/S, Board member.

Specific competences: Management, accounting, auditing, risk management and stratgy.

Attendance record in 2017: 10/10
Number of Sydbank shares at year-end 2017: 208
Movement for the year in number of shares: -

Managing Director, Board Chairman
Lars Mikkelgaard-Jensen
Rungsted Kyst
Born: 5 August 1954
Education: MSc (Economics)
Elected to Board of Directors: 2015
Expiry of current term of office: 2018
Independent: Yes

Committee memberships: Member of Audit Committee.

Directorships and other offices:
IBM Danmark ApS, Managing Director, Chairman
M.J. Grønbech & Sønner Holding A/S, Board member
Industripension Holding A/S, Board member
Industriens Pensionsforsikring A/S, Board member.

Specific competences: IT/Digital, robotics, management, strategy and business development and macroeconomics.

Attendance record in 2017: 12/12
Number of Sydbank shares at year-end 2017: 2,000
Movement for the year in number of shares: -

2017 Annual Report / SYDBANK
119

Board of Directors

General Manager
Janne Moltke-Leth
Copenhagen
Born: 4 August 1966
Education: Graduate Diploma in Business Administration, MSc (International Business Administration and Modern Languages)
Elected to Board of Directors: 2016
Expiry of current term of office: 2019
Independent: Yes

Committee memberships: Member of Remuneration Committee.

Directorships and other offices:
Kolpin Hotels ApS, Board member.

Specific competences: Management, strategy, business development, innovation, change management and optimisation.

Attendance record in 2017: 11/12
Number of Sydbank shares at year-end 2017: 93
Movement for the year in number of shares: +42

Danish High Court Attorney
Frank Møller Nielsen
Næstved
Born: 23 October 1956
Education: LLM
Elected to Board of Directors: 2015
Expiry of current term of office: 2018
Independent: No

Committee memberships: Member of Nomination Committee.

Directorships and other offices:
ROPOX Holding A/S, Chairman
ROPOX A/S, Chairman
H. Nielsen & Søn A/S, Chairman.

Specific competences: Strategy, compliance/law, management and banking.

Attendance record in 2017: 12/12
Number of Sydbank shares at year-end 2017: 1,736
Movement for the year in number of shares: +199

SYDBANK / 2017 Annual Report

General Manager
Jacob Chr. Nielsen
Haderslev
Born: 7 June 1973
Education: Graduate Diploma in Business Administration, MBA
Elected to Board of Directors: 2014
Expiry of current term of office: 2020
Independent: Yes

Committee memberships: Member of Nomination Committee and Audit Committee.

Directorships and other offices:
E 3-Gruppen A/S, Chairman
E 3 Spedition-Transport A/S, Chairman
Proflex Kemi A/S, Chairman.

Specific competences: Management, accounting, insurance, industry, finance and auditing.

Attendance record in 2017: 12/12
Number of Sydbank shares at year-end 2017: 77
Movement for the year in number of shares: -

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Board of Directors

Executive Vice President, Private Banking
Alex Slot Hansen

Vejle

Born: 26 February 1978

Education: Banking, Graduate Diploma in Business Administration

Elected to Board of Directors: 2014

Expiry of current term of office: 2018

Independent: No

Elected by the employees

Committee memberships: Member of Remuneration Committee.

Directorships and other offices: -

Specific competences: Management, economics, investment and accounting.

Attendance record in 2017: 12/12

Number of Sydbank shares at year-end 2017: 57

Movement for the year in number of shares: -

Chairman of Sydbank Kreds
Jarl Oxlund

Kolding

Born: 29 April 1967

Education: Banking, Graduate Diploma in Business Administration, MSc (Organisational Psychology)

Elected to Board of Directors: 2014

Expiry of current term of office: 2018

Independent: No

Elected by the employees

Committee memberships: Member of Risk Committee.

Directorships and other offices:

Financial Services Union Denmark, member of executive council.

Specific competences: Accounting, bank products, credit risks and organisation.

Attendance record in 2017: 12/12

Number of Sydbank shares at year-end 2017: 1,200

Movement for the year in number of shares: -

SYDBANK / 2017 Annual Report

Bank Clerk
Margrethe Weber
Aabenraa
Born: 8 July 1956
Education: Banking, Holder of Business Diploma
Elected to Board of Directors: 1993
Expiry of current term of office: 2018
Independent: No
Elected by the employees

Committee memberships: -
Directorships and other offices: -
Specific competences: Bank products and credit risks.
Attendance record in 2017: 12/12
Number of Sydbank shares at year-end 2017: 2,106
Movement for the year in number of shares: -

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123

Group Executive Management

CEO
Karen Frøsig
Bramming
Born: 23 September 1958
Group Executive Management member since: 2008
CEO since: 2010

Directorships:

Ejendomsselskabet af 1. juni 1986 A/S, Chairman
DiBa A/S, Chairman
Foreningen Bankdata, Chairman
National Banks in Denmark, Vice-Chairman
PRAS A/S, Board member
Finance Denmark, Board member
DLR Kredit A/S, Board member
Totalkredit A/S, Board member
BI Holding A/S, Board member
Musikhuset Esbjerg, Fond, Board member
FRI af 16. september 2015 A/S, Board member
Sydbank Sønderjyllands Fond, Board member
Sydbank Fonden, Board member
Komitéen for god Selskabsledelse, member.
Number of Sydbank shares at year-end 2017: 3,766
Movement for the year in number of shares: -

Deputy Group Chief Executive
Jan Svarre
Fredericia
Born: 6 January 1963
Group Executive Management member since: 2013

Directorships:

Ejendomsselskabet af 1. juni 1986 A/S, Board member
DiBa A/S, Board member
BOKIS A/S, Board member
Letpension A/S, Board member
e-nettet A/S, Vice-Chairman.
Number of Sydbank shares at year-end 2017: 2,300
Movement for the year in number of shares: -

SYDBANK / 2017 Annual Report

Deputy Group Chief Executive
Bjarne Larsen
Vamdrup
Born: 5 November 1963
Group Executive Management member since: 2013

Directorships:
Ejendomsselskabet af 1. juni 1986 A/S, Board member
DiBa A/S, Vice-Chairman.

Number of Sydbank shares at year-end 2017: 1,967
Movement for the year in number of shares: -

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125

Organisation

| | Group Executive Management | | Audit
Ole Kirkbak |
| --- | --- | --- | --- |
| | Karen Frøsig
Jan Svarre
Bjarne Larsen | | |
| Group Executive Management Secretariat & Communications
Bjørn Schwarz | | | Compliance
Lone Frederiksen |
| | | | Legal Department
Walter Borge Nielsen |
| | | | Risk
Bjørn S. Clausen |
| | | | |

Central functions

| Corporate Banking & Finance
Steen S. Hansen | Corporate Clients
Morten Barsballe Nielsen | Securities & International Transactions
Niels Skylvad | IT & Development
Jacob Flohr Kristiansen |
| --- | --- | --- | --- |
| Asset Management
Michael Andersen | Credits
Per Klitt Jensen | Customer Service Direct
Torben Bruun Jørgensen | Sydbank Markets
Lars Bolding |
| Human Resources
Else Guldager | Retail Clients & Private Banking
Steen Sandager | Sales & Marketing
Nicolai Fl. Frederiksen | Accounting & IR
Jørn Adam Møller |

Line functions

| Odense Region
Claus Braad Hansen | Copenhagen Region
Søren Gadeberg | Kolding Region
Dennis Vibjerg | Herning Region
Claus Brændstrup |
| --- | --- | --- | --- |
| Næstved Region
Jesper Lund Wimmer | Aabenraa Region
Launds Kudsk | Esbjerg Region
Frank Bondorph | Vejle Region
Tina K. Lyngsø |
| Aarhus Region
Torben R. Rasmussen | | Sydbank in Germany
Kim Møller Nielsen | Sydbank Agriculture
Arne Jørgensen |

SYDBANK / 2017 Annual Report

Sydbank A/S
Peberlyk 4
6200 Aabenraa
Denmark
Tel +45 74 37 37 37
sydbank.com
[email protected]
CVR No DK 12626509
Sydbank

AI assistant

Sydbank — Annual Report 2017

3387_rns_2018-02-20_812279ca-e57c-4388-b49e-41d698e2f1bc.pdf

2017 Annual Report

2017 highlights

Outlook for 2018

Contents

Financial Review

Financial Statements

Statements and Reports

Management, Organisation etc

Group Financial Highlights

Summary

The 3-year plan "Blue growth"

Blue growth – financial targets

Summary

Results for 2017

Total credit intermediation

Total credit intermediation

SIFI

Capital targets

Proposed dividend for 2017

Share buyback in 2018

Outlook for 2018

Performance in 2017

2017

Q4

Income statement

Core income

Trading income

Costs and depreciation

Core earnings before impairment of loans and advances

Impairment of loans and advances etc

Performance in 2017

Core earnings

Investment portfolio earnings

Investment portfolio earnings

Non-recurring items, net

Profit for the year

Return

Sydbank – the parent

Subsidiaries

Group – Q4 2017

Performance in 2017

Profit for the period

Total assets

Assets

Shareholders' equity and liabilities

Performance in 2017

Solvency of the parent

Advanced IRB – corporate exposures

Capital policy

Dividend policy

Interest rate risk etc

Funding and liquidity

Joint funding

Accounting estimates

Rating

Shareholders

Supervisory Diamond

Leverage ratio

Performance in 2017

SIFI

IFRS 9

Bank Recovery and Resolution Directive

Basel IV

Outlook for 2018

Capital Management

Investor Relations

The Sydbank share

Distribution policy

Mission Statement and Business Goals

Sydbank's business model

Mission Statement and Business Goals

Values and attitudes

Sydbank's stakeholder policy

Banking – pure and simple

Customers

Corporate

Private Banking

Sydbank Annual Report 2017