Sydbank — Earnings Release 2011

Feb 22, 2012

Announcement of the 2011 Financial Statements

Company Announcement No 04/2012 22 February 2012

Contents

Financial Review
Group Financial Highlights	3
Summary	4
Performance in 2011	6
Financial Statements - Sydbank Group
Income Statement	16
Statement of Comprehensive Income	16
Balance sheet	17
Capital	18
Supplementary Information	20

Group Financial Highlights

			Index
	2011	2010	11/10	2009	2008	2007
Income statement (DKKm)
Core income excl trading income	3,320	3,304	100	3,320	3,066	2,539
Trading income	927	1,290	72	1,266	1,159	1,488
Total core income	4,247	4,594	92	4,586	4,225	4,027
Costs, core earnings	2,463	2,479	99	2,466	2,484	2,200
Core earnings before impairment	1,784	2,115	84	2,120	1,741	1,827
Impairment of loans and advances etc	1,195	1,400	85	1,195	544	(568)
Core earnings	589	715	82	925	1,197	2,395
Profit/(Loss) on investment portfolios	(15)	227	$\overline{\phantom{a}}$	430	(385)	(193)
Profit before non-recurring items	574	942	61	1,355	812	2,202
Non-recurring items, net	(171)			86	162	55
Profit before contributions to
the Deposit Guarantee Fund and PCA	403	942	43	1,441	974	2,257
Contributions to the Deposit Guarantee Fund
and the Private Contingency Association (PCA)	102	384	27	443	163
Profit before tax	301	558	54	998	811	2,257
Tax	113	147	77	217	205	547
Profit for the year	188	411	46	781	606	1,710
Balance sheet highlights (DKKbn)
Loans and advances at amortised cost	68.8	73.0	94	74.5	82.5	74.5
Loans and advances at fair value	7.7	10.7	72	12.9	13.3	8.6
Deposits and other debt	66.7	64.2	104	68.8	75.0	66.0
Bonds issued at amortised cost	7.5	11.2	67	8.6	10.1	10.1
Subordinated capital	2.1	2.3	92	3.1	4.2	3.8
Shareholders' equity	9.6	9.6	100	9.1	7.1	6.7
Total assets	153.4	150.8	102	157.8	156.0	132.3
Financial ratios per share (DKK per share of DKK 10)
EPS Basic	2.6	5.6		11.7	9.5	25.6
EPS Diluted	2.6	5.6		11.7	9.5	25.6
Share price at year-end	90.1	151.3		133.8	64.3	219.3
Book value	131.1	129.8		124.1	112.5	104.6
Share price/book value	0.69	1.17		1.08	0.57	2.10
Average number of shares outstanding (in millions)	73.2	73.5		66.9	63.4	66.7
Proposed dividend	$\overline{\phantom{m}}$	1.0		$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	3.0
Other financial ratios and key figures
Solvency ratio	16.1	15.4		15.2	14.7	11.9
Core capital ratio	15.2	14.3		13.1	10.8	8.9
Pre-tax profit as % of average shareholders' equity	3.1	6.0		12.3	11.8	34.6
Post-tax profit as % of average shareholders' equity	2.0	4.4		9.6	8.8	26.2
Costs (core earnings) as % of core income	58.0	54.0		53.8	58.8	54.6
Interest rate risk	0.9	1.5		1.0	1.4	2.6
Foreign exchange position	1.6	1.2		1.1	11.4	1.7
Foreign exchange risk	0.1	0.0		0.0	0.0	0.0
Loans and advances relative to deposits	0.9	1.0		1.0	1.0	1.0
Loans and advances relative to shareholders' equity	7.2	7.6		8.2	11.6	11.1
Growth in loans and advances for the year	(5.7)	(2.0)		(9.6)	10.7	13.7
Excess cover relative to statutory liquidity requirements	148.7	106.3		94.4	89.4	103.1
Total large exposures	26.3	54.4		17.2	23.8	46.4
Accumulated impairment ratio excl PCA	2.3	2.0		1.7	1.0	1.0
Impairment ratio for the year excl PCA	1.5	1.7		1.3	0.6	(0.7)
Number of full-time staff at year-end	2,152	2,284	94	2,369	2,479	2,276

Summary

The Sydbank Group has recorded a profit before tax for 2011 of DKK 301m equalling a return of 3.1% on average shareholders' equity. The result is below the expectations at the beginning of the year. Intensified financial turbulence led to overall worsened business conditions. The result is unsatisfactory whereas the development of core income excl trading income is satisfactory.

• Slight rise in core income excl trading income.
• Market-related decline in trading income.
• Slight reduction of costs (core earnings).
• 14.6% decline in impairment charges for loans and advances.
• Loss on investment portfolios of DKK 15m.
• Non-recurring items, net of minus DKK 171m.
• Contribution to the Deposit Guarantee Fund etc of DKK 102m.
• Q4 2011: profit before tax of DKK 95m.
• 5.7% reduction in bank loans and advances to DKK 68.8bn.
• 3.9% rise in deposits to DKK 66.7bn.
• Increase in core capital ratio to 15.2%.
• · Good liquidity.
• Substantial influx of clients.
• Dividend to shareholders for 2011 will not be recommended.

Summary income statement (DKKm)	2011	2010
Core income excl trading income	3,320	3,304
Trading income	927	1,290
Total core income	4,247	4,594
Costs, core earnings	2,463	2,479
Core earnings before impairment	1,784	2,115
Impairment of loans and advances etc.	1,195	1,400
Core earnings	589	715
Profit/(Loss) on investment portfolios	(15)	227
Profit before non-recurring items	574	942
Non-recurring items, net	(171)
Profit before contributions to the Deposit Guarantee Fund and PCA	403	942
Contributions to the Deposit Guarantee Fund and the Private Contingency Association (PCA)	102	384
Profit before tax	301	558
Tax	113	147
Profit for the year	188	411

Core earnings before impairment represent DKK 1,784m against DKK 2,115m in 2010. The reduction of DKK 331m is ascribable to a decline in trading income. Core income excl trading income grew by DKK 16m and costs (core earnings) dropped by DKK 16m.

Core earnings before impairment are in line with our announcement in the Interim Report - Q1-Q3 2011.

Impairment charges for loans and advances etc represent DKK 1,195m (2010: DKK 1,400m).

In Q4 the Group decided to record additional impairment charges of approximately DKK 200m on the portfolio of cattle farming, pig farming and crop production. The hectare prices applied by the Group since 2009 in connection with the assessment of the exposures in this portfolio correspond to the hectare prices announced by the Danish FSA in December 2011. The reason for the additional impairment charges is the Group's tightened measurement principles as regards agricultural buildings and plant.

The accumulated impairment charges for this portfolio constitute DKK 419m, equal to 7.6% of the portfolio's bank loans and advances and quarantees of DKK 5.5bn.

Investment portfolio earnings represent minus DKK 15m compared with DKK 227m in 2010.

Profit before non-recurring items represents DKK 574m (2010: DKK 942m), equal to a return of 6.0% on average shareholders' equity (2010: 10.1%).

Non-recurring items, net total minus DKK 171m.

Contributions to the Deposit Guarantee Fund and the Private Contingency Association amount to DKK 102m (2010: DKK 384m).

Profit before tax represents DKK 301m (2010: DKK 558m). Less a calculated tax charge of DKK 113m (2010: DKK 147m), the Group's profit stands at DKK 188m compared with DKK 411m in 2010.

Return on shareholders' equity before and after tax constitutes 3.1% and 2.0%, respectively, against 6.0% and 4.4% in 2010. Earnings per share has declined from DKK 5.6 to DKK 2.6.

During the year, shareholders' equity grew by DKK 41m to DKK 9,595m.

At year-end 2011 the solvency ratio stands at 16.1%, including a core capital ratio of 15.2 percentage points compared with 15.4% and 14.3%, respectively, at the end of 2010. The core capital ratio excluding hybrid core capital has increased from 12.7% to 13.4%.

Risk-weighted assets went down from DKK 73.7bn at year-end 2010 to DKK 70.7bn at year-end 2011. The reduction consists of a decrease in credit risk of DKK 5.7bn as well as an increase in market risk and operational risk of DKK 2.0bn and DKK 0.7bn, respectively. The decrease in credit risk is ascribable to a decline in loans and advances and guarantees as well as a positive trend in the average rating of exposures covered by IRB.

The Group's internal capital target continues to represent DKK 9.900m, equal to 14.0% of risk-weighted assets.

The Group's liquidity measured under the 10% statutory requirement constitutes 24.9% at year-end 2011. The Group's liquidity is good. Moody's 12-month liquidity curve shows that the Group is able to withstand a situation in which access to the capital markets is cut off for a period exceeding 12 months.

Dividend to shareholders for 2011 will not be recommended.

In 2011 Sydbank saw a substantial influx of retail clients as well as corporate clients. Consequently the foundation for future earnings has been enhanced.

The Group's expectations as regards core earnings before impairment charges for 2012 compared with $2011:$

• Slight rise in core income excl trading income primarily as a result of interest margin increases.
• Unchanged to slightly increasing trading income however highly dependent on developments in the financial markets.
• Unchanged level of costs.

Performance in 2011

Core income excl trading income

Total core income excl trading income increased by DKK 16m to DKK 3,320m.

Core income excl trading income (DKKm)	2011	2010
Interest margins etc	2,799	2,757
Mortgage credit	188	210
Payment services	156	153
Remortgaging and loan fees	86	90
Other commission	67	71
Other operating income	24	23
Total	3,320	3,304

Despite a 5.7% decline in bank loans and advances and a 3.9% rise in deposits compared with 2010, net interest has increased by DKK 42m due to the positive effects of the interest margin increases in 2H.

Net income from the cooperation with Totalkredit represents DKK 150m (2010: DKK 167m) after a set-off of loss of DKK 20m (2010: DKK 17m). The cooperation with DLR Kredit has generated an unchanged income of DKK 34m. Total mortgage credit income amounts to DKK 188m (2010: DKK 210m).

Compared with 2010 the remaining income components are unchanged.

Trading income

Total trading income decreased by 28% - from DKK 1,290m in 2010 to DKK 927m in 2011.

The development must be seen in light of the influence on income in 2010 by a more favourable market whereas income in 2011 was adversely affected by lower investment appetite and trading activity among clients as well as high volatility in the financial markets in the wake of the debt crisis. As a result it has been highly difficult to balance the fluctuations in the derivatives activities. In contrast asset management has remained stable.

Trading income (DKKm)	2011	2010
Bonds	168	273
Shares	182	273
Foreign exchange	193	217
Money market	(33)	107
Asset management	417	420
Total	927	1,290

Costs and depreciation

The Group's total costs and depreciation recorded DKK 2,687m against DKK 2,717m in 2010. An unchanged amount of DKK 10m can be attributed to investment portfolio earnings.

Costs – comprised by non-recurring items – constitute DKK 114m comprising DKK 63m, partly for severance pay etc to about 100 employees, partly for the restructuring of line functions – as well as DKK 51m for the winding-up and sale of activities regarding the subsidiary bank in Switzerland.

Finally, contribution to the Deposit Guarantee Fund amounts to DKK 100m in connection with the takeover by the Financial Stability Company of Amagerbanken, Fjordbank Mors and Max Bank. In 2010 costs included an expense of DKK 227m to the Private Contingency Association.

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

Costs and depreciation (DKKm)	2011	2010
Staff costs	1,528	1,453
Other administrative expenses	935	900
Depreciation and impairment of property, plant and equipment	122	153
Other operating expenses	102	211
Total costs and depreciation	2,687	2,717
Distributed as follows:
Costs, core earnings	2.463	2,479
Costs, investment portfolio earnings	10	10
Costs, non-recurring items	114
Costs, the Deposit Guarantee Fund and the Private Contingency Association	100	227

Costs (core earnings) as a percentage of total core income represent 58.0% (2010: 54.0%).

At year-end 2011 the Group's staff numbered 2,152 (full-time equivalent) compared with 2,284 in 2010.

During the autumn the Bank's service concept was adjusted so that many of the Bank's branches are open for cashier services only in the afternoon hours.

Sydbank closed three small branches in 2011. As part of the Bank's ambition to continue expanding in Zealand, 2011 saw the opening of two new branches in Amager – in Amagerbrogade and in Dragor – as well as a new branch in Hørsholm. At year-end 2011 the number of branches totals 102 in Denmark and unchanged three in Germany.

As at 1 January 2012 the Group has strengthened its German operations by taking over the private banking activities of Gries & Heissel Bankiers AG. The agreement concerns just over 1,000 clients and the main part of the business volume consists of custody accounts. The Group is represented in the following cities in Germany: Berlin, Flensburg, Hamburg, Kiel and Wiesbaden.

In light of the changed market conditions the Group decided towards year-end to enhance the efficiency of and reorganise its foreign private banking activities, which are now based in Flensburg. As a consequence the activities of Sydbank PBI in Gråsten have been transferred to Flensburg, the subsidiary bank in Switzerland is being wound up and the ownership interest in Value-Call has been reduced.

Core earnings before impairment of loans and advances

Core earnings before impairment of loans and advances decreased by DKK 331m and represents DKK 1,784m (2010: DKK 2,115m).

Impairment of loans and advances etc

Impairment charges for loans and advances represent DKK 1,195m against DKK 1,400m in 2010. The level exceeds the Group's expectations at the beginning of 2011.

In Q4 the Group decided to record additional impairment charges of approximately DKK 200m on the portfolio of cattle farming, pig farming and crop production. The hectare prices applied by the Group since 2009 in connection with the assessment of the exposures in this portfolio correspond to the hectare prices announced by the Danish FSA in December 2011. The reason for the additional impairment charges is the Group's tightened measurement principles as regards agricultural buildings and plant.

The accumulated impairment charges for this portfolio constitute DKK 419m, equal to 7.6% of the portfolio's bank loans and advances and guarantees of DKK 5.5bn.

The Group's reported losses on the portfolio in the period 2008-2011 total DKK 81m.

At year-end 2011 the impairment ratio for the year represents 1.70% (2010: 1.89%) relative to bank loans and advances and 1.52% (2010: 1.67%) relative to bank loans and advances and guarantees. At year-end 2011 accumulated impairment and provisions amount to DKK 1,836m (2010: DKK 1,763m).

The impairment charges for the year of DKK 1,195m comprise DKK 333m on the portfolio of cattle farming, pig farming and crop production, DKK 209m on real property, DKK 498m on other corporate lending and DKK 154m on retail lending. Reference is made to the separate publication "Credit Risk 2011" for further elaboration.

Compared with 2010 impaired bank loans and advances before impairment charges decreased by DKK 121m to DKK 3,141m, equal to 4%. During the same period individually impaired bank loans and advances after impairment charges increased by DKK 42m, equal to 3%. Impairment charges for bank loans and advances subject to individual impairment represent 52.3% (2010: 51.8%).

Individually impaired bank loans and advances (DKKm)	2011	2010
Non-defaulted bank loans and advances	2,183	1.731
Defaulted bank loans and advances	958	1,289
Impaired bank loans and advances	3.141	3.020
Impairment charges for bank loans and advances subject to individual impairment	1.644	1,565
Impaired bank loans and advances after impairment charges	1.497	1,455
Impaired bank loans and advances as % of bank loans and advances before impairment charges Impairment charges as % of bank loans and advances before impairment charges	4.4 2.3	4.0 2.1
Impaired as % of impaired bank loans and advances	52.3	51.8

In terms of bank loans and advances before impairment charges, impaired bank loans and advances and accumulated impairment charges represent 4.4% and 2.3%, respectively, equal to an impairment ratio of 52.3%.

In terms of the portfolio of bank loans and advances – for cattle farming, pig farming and crop production – before impairment charges the corresponding impaired bank loans and advances and the corresponding accumulated impairment charges represent 14.5% and 7.9%, respectively, equal to an impairment ratio of 54.8%.

Core earnings

Core earnings decreased by 18% and represent DKK 589m compared with DKK 715m in 2010.

Investment portfolio earnings

Less funding charges and less related costs of DKK 10m, investment portfolio earnings constitute minus DKK 15m (2010: DKK 227m).

Profit before non-recurring items

Profit before non-recurring items represents DKK 574m (2010: DKK 942m) equal to a return of 6.0% on average shareholders' equity (2010: 10.1%).

Non-recurring items, net

Non-recurring items, net total minus DKK 171m comprising: DKK 57m concerning the dismissal of employees in Denmark, costs and income from the winding-up and sale of activities in the subsidiary bank in Switzerland of DKK 51m and DKK 24m, respectively, the restructuring of line functions etc of DKK 19m and a loss of DKK 68m on the sale of 24.9% of the share capital in Value-Call S.A. in Luxembourg (the remaining portion of the share capital represents 25.0% and has been recognised at DKK 7m).

Contributions to the Deposit Guarantee Fund and the Private Contingency Association

The expense for 2011 totals DKK 102m (2010: DKK 384m) comprising costs of DKK 100m for the Deposit Guarantee Fund and impairment charges of DKK 2m for the Private Contingency Association concerning Amagerbanken.

The Group's total costs relating to the Deposit Guarantee Fund and the Private Contingency Association has amounted to DKK 1.1bn since autumn 2008.

Profit for the year

Profit before tax represents DKK 301m (2010: DKK 558m). Less a calculated tax charge of DKK 113m (2010: DKK 147m), the Group's profit stands at DKK 188m compared with DKK 411m in 2010.

Return

Return on shareholders' equity before and after tax constitutes 3.1% and 2.0%, respectively, against 6.0% and 4.4% in 2010. Earnings per share has declined from DKK 5.6 to DKK 2.6.

Q4 2011

Profit before tax for Q4 2011 makes up DKK 95m. Compared with Q3 2011 profit before tax shows:

• A rise in income from interest margins and mortgage credit.
• A normalisation of trading income.
• A decrease in costs of DKK 14m.
• An increase in impairment charges for loans and advances of DKK 215m.
• A profit on investment portfolios of DKK 10m (Q3: loss of DKK 38m).
• A reversal of contribution to the Deposit Guarantee Fund etc of DKK 34m (Q3: DKK 25m).

Profit after tax amounts to DKK 52m in Q4 2011.

		2011			2010
Profit for the period (DKKm)	Q4	Q3	Q 2	Q1	Q4
Core income excl trading income	880	852	789	799	812
Trading income	229	164	235	299	239
Core income	1,109	1,016	1,024	1,098	1,051
Costs, core earnings	573	587	653	650	610
Core earnings before impairment	536	429	371	448	441
Impairment of loans and advances etc	460	245	240	250	456
Core earnings	76	184	131	198	(15)
Profit/(Loss) on investment portfolios	10	(38)	(62)	75	(8)
Profit before non-recurring items	86	146	69	273	(23)
Non-recurring items, net	(25)	(146)
Profit before contributions to the Deposit Guarantee Fund and PCA	61	$\Omega$	69	273	(23)
Contributions to the Deposit Guarantee Fund and the Private Contingency Association (PCA)	(34)	(25)	63	98
Profit before tax	95	25	6	175	(23)
Tax	43	25		44	2
Profit for the period	52	0	5	131	(25)

Subsidiaries

The subsidiary bank, Sydbank (Schweiz) AG, which is being wound up, recorded a loss after tax of DKK 30m (2010: profit of DKK 3m). The result is affected by winding-up costs charged to the income statement.

Ejendomsselskabet recorded a loss after tax of DKK 13m (2010: loss of DKK 10m).

Balance sheet

The Group's total assets made up DKK 153.4bn at year-end 2011 against DKK 150.8bn at year-end 2010.

Assets at year-end (DKKbn)	2011	2010
Amounts owed by credit institutions etc.	9.5	8.4
Loans and advances at fair value (reverse transactions)	7.7	10.7
Loans and advances at amortised cost (bank loans and advances)	68.8	73.0
Securities and holdings etc.	40.0	37.2
Assets related to pooled plans	8.6	7.9
Other assets etc	18.8	13.6
Total	153.4	150.8

The Group's bank loans and advances total DKK 68.8bn - a decrease of 5.7% which consists of a decline in corporate lending and a slight increase in retail lending.

Shareholders' equity and liabilities at year-end (DKKbn)	2011	2010
Amounts owed to credit institutions etc.	38.8	40.2
Deposits and other debt	66.7	64.2
Deposits in pooled plans	8.6	7.9
Bonds issued	7.5	11.2
Other liabilities etc	19.8	15.1
Provisions	0.3	0.3
Subordinated capital	2.1	2.3
Shareholders' equity	9.6	9.6
Total	153.4	150.8

The Group's deposits make up DKK 66.7bn against DKK 64.2bn at year-end 2010. The 3.9% rise is predominantly ascribable to an increase in demand deposits.

Subordinated capital

During the year the Group has prepaid supplementary capital amounting to DKK 200m. Supplementary capital and hybrid Tier 1 capital represent DKK 743m and DKK 1,382m, respectively. Subordinated capital totals DKK 2,125m (2010: DKK 2,329m).

Share capital

Share capital is unchanged at DKK 742,499,990 at year-end 2011.

The Sydbank share at year-end (number)	2011	2010
Average number of shares outstanding	73.246.496	73.522.284
Number of shares outstanding at year-end	73.192.644	73,588,089
Number of shares issued at year-end	74.249.999	74.249.999

The number of shares outstanding decreased from 73,588,089 (99.11%) at year-end 2010 to 73,192,644 (98.58 %) at year-end 2011. The Sydbank share's book value represents 131.1 (2010: 129.8). At year-end 2011 the closing price of the Sydbank share stood at 90.1 and share price/book value at 0.69.

Shareholders' equity

At year-end 2011 shareholders' equity constitutes DKK 9,595m - an increase of DKK 41m since the beginning of the year. The change comprises additions from profit for the year of DKK 188m and disposals deriving from a DKK 13m adjustment of revaluation reserves, net purchase of own shares of DKK 54m as well as dividend distribution etc of DKK 80m.

Solvency and capital

The capital structure was strengthened during the year and core capital currently accounts for 94.0% of the total capital base against 93.2% at the beginning of the year.

Solvency (DKKm)	2011	2010
Risk-weighted assets	70,659	73,716
Core capital (excl hybrid core capital)	9,476	9,336
Core capital	10,706	10,559
Capital base	11,392	11,329
Core capital ratio (excl hybrid core capital)	13.4	12.7
Core capital ratio	15.2	14.3
Solvency ratio	16.1	15.4

Risk-weighted assets went down from DKK 73.7bn at year-end 2010 to DKK 70.7bn at year-end 2011. The reduction consists of a decrease in credit risk of DKK 5.7bn as well as an increase in market risk and operational risk of DKK 2.0bn and DKK 0.7bn, respectively. The decrease in credit risk is ascribable to a decline in loans and advances and guarantees as well as a positive trend in the average rating of the exposures covered by IRB. The development in the breakdown by rating category from 2009 to 2011 appears below.

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

Gross exposures by rating category show a positive development and account for an increasing share of the two best rating categories.

The transition to IRB of exposures relating to corporate and retail clients in Germany took place in 1H 2011. As a result more than 98% of the Group's exposures as regards corporate and retail clients are now covered by IRB.

At year-end 2011 the solvency ratio stands at 16.1%, including a core capital ratio of 15.2 percentage points compared with 15.4% and 14.3%, respectively, at year-end 2010. The core capital ratio excluding hybrid core capital has increased from 12.7% to 13.4%.

At 31 December 2011 the individual solvency need constitutes 9.4% (2010: 9.6%).

The Group's internal capital target continues to represent DKK 9,900m, equal to 14.0% at year-end 2011 (year-end 2010: 13.4%) of risk-weighted assets.

In July 2011 Sydbank and 89 other banks from EU countries participated in a stress test conducted at the request of the European Banking Authority (EBA). The stress test sought to assess the resilience of the European banking sector to a significant deterioration in the macro-economy. The test showed that Sydbank's capital position is among the strongest in Europe.

Moreover Sydbank and other major banks from EU countries participated in a capital test as at 30 September 2011 – also at the request of the EBA. The purpose of the capital test was to assess the European banking sector's potential need for recapitalisation. Also this test showed that Sydbank's capital position is among Europe's strongest in relative terms.

Sydbank has a strong capital structure and the Group has no exposure to government bonds with poor credit ratings.

Interest rate risk etc

The Group's interest rate risk comprises minus DKK 95m at 31 December 2011 (2010: DKK 156m). The Group's exchange rate risk continues to be very low and its equity risk modest.

Funding and liquidity

The Group's liquidity measured under the 10% statutory requirement constitutes 24.9% at year-end 2011.

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

The decrease in the Group's liquidity after eight months can be ascribed to repayment of existing senior loans of EUR 1bn.

Since spring 2011 the Group has contemplated issuing senior loans, however the market for long-term funding has been very limited and terms have been unsatisfactory. Given its good liquidity the Group is awaiting a normalisation of markets.

As at 1 October 2011 Danmarks Nationalbank increased the banks' access to raise loans against security. The collateral basis has been expanded to include good quality credit claims. The Group does not plan to draw liquidity under the facility but has included the possibility in its strategic contingency resources.

On 7 February 2012 Sydbank and BRFkredit concluded an agreement on the joint funding of the Bank's housing loans. In future Sydbank can finance loans to retail clients via covered bonds (SDO) against registered mortgages on owner-occupied homes and recreational dwellings within the framework of joint funding legislation.

The agreement provides Sydbank with flexible and competitive access to long-term funding of housing loans on market terms via BRFkredit's triple A rated covered bond (SDO) issues.

The Danish FSA has given its approval in principle of the joint funding model.

The existing agreement on mortgage credit lending via Totalkredit and DLR Kredit will continue.

Rating

On 19 May 2011 Moody's assigned the following ratings to Sydbank: $A2$

• Long-term debt:
• $P-1$ • Short-term debt:
• $\overline{C}$ • Bank financial strength:

On 16 February 2012 Moody's announced that Sydbank's long-term debt, short-term debt and bank financial strength had been changed from "stable outlook" to "review for downgrade".

Shareholders

In 2011 the Sydbank share yielded a return of minus 40% (2010: 13%) as a result of the share price decline during the year. The Board of Directors recommends to the general meeting that no dividend be distributed, but that DKK 7m be paid to the sponsorship fund SydbankFonden.

Supervisory Diamond

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

The Group's calculations of the benchmarks of the Supervisory Diamond at year-end 2011 are shown below:

Supervisory Diamond benchmarks	2011	2010
Sum of large exposures < 125%	26%	54%
Funding ratio $<$ 1	0.88	0.87
Commercial property exposure $<$ 25%	11%	11%
Growth in loans and advances < 20%*	(9%)	(4% )
Excess liquidity cover relative to 10% requirement $> 50\%$	149%	106%

*incl reverse transactions

As at 31 December 2011 the Group complies with all the benchmarks of the Supervisory Diamond.

Regulation

In July 2011 the EU Commission proposed a major revision of the Capital Requirements Directive (CRD IV) which will implement Basel III in the EU. As part of the political negotiations over the proposal with the EU with a view to implementing the general rules in early 2013, the Danish presidency has submitted a compromise based on the EU Commission's proposal, which it seeks to implement in the first half of 2012.

The original proposal as well as the compromise suggests a wider definition of liquid assets in the shortterm Liquidity Coverage Ratio (LCR) compared with the Basel III definition. The compromise does not stipulate the weight of Level 1 assets (of extremely high liquidity and credit quality) and Level 2 assets (of high liquidity and credit quality) in the calculation of the liquidity buffer. According to the Basel III rules Level 2 assets may comprise a maximum of 40% of the total liquidity buffer.

The long-term Net Stable Funding Ratio (NSFR) has been postponed for the time being and will be reconsidered at a later point.

The Group estimates that its current core capital ratio (excl hybrid core capital) of 13.4% will be impacted only marginally when the new capital requirements have been fully phased in. The Group thus already complies with the future minimum capital requirements. Similarly the Group expects to be able to meet the stricter liquidity requirements.

Outlook for 2012

The 2012 outlook is based on the central assumption that the Danish economy is in a recession. The outlook for economic growth in 2012 is more uncertain than usual but increasingly suggests zero growth. Realistically the Danish economy will not start to grow again before 2013 – among other things due to considerable weakening of the Danish competitiveness over the past many years. Moreover Denmark is also affected by the debt crisis in Southern Europe, which is reflected in lacking confidence among businesses and consumers alike

Core income excl trading income is expected to rise slightly – primarily as a result of interest margin increases and secondarily as a result of increasing contributions as regards mortgage credit income.

Trading income is projected to remain unchanged or rise slightly relative to income for 2011 but is very dependent on developments in the financial markets.

Costs are expected to remain unchanged.

The prospects for the Danish and the international economy remain bleak, which will involve a continued large need for impairment charges as regards the Group's lending portfolio. Nevertheless the Group projects a decline in losses and other things being equal an unchanged level of impairment compared with 2011.

Investment portfolio earnings will depend on financial market developments. At the beginning of 2012 the Bank's position-taking is characterised by positions in Danish floating-rate mortgage bonds involving limited interest rate risk.

The Group's tax is budgeted at 25%.

Income Statement - Sydbank Group

DKKm	2011	2010
Interest income	4,363	4,189
Interest expense	1,235	971
Net interest income	3,128	3,218
Dividends on shares	28	22
Fee and commission income	1,304	1,330
Fee and commission expense	219	184
Net interest and fee income	4,241	4,386
Market value adjustments	(26)	420
Other operating income	48	23
Staff costs and administrative expenses	2,463	2,353
Depreciation and impairment of property, plant and
equipment	122	153
Other operating expenses	102	211
Impairment of loans and advances etc	1,198	1,556
Profit/(Loss) on holdings in associates and
subsidiaries	(77)	$\overline{2}$
Profit before tax	301	558
Tax	113	147
Profit for the year	188	411
Distribution of profit for the year
Profit for the year	188	411
Total amount to be allocated	188	411
Proposed dividend		74
Proposal for allocation for other purposes	7	10
Transfer to shareholders' equity	181	327
Total amount allocated	188	411
EPS Basic (DKK)	2.6	5.6
EPS Diluted (DKK)	2.6	5.6
Proposed dividend per share (DKK)		1.0

Statement of Comprehensive Income - Sydbank Group

Profit for the year	188	411
Other comprehensive income
Translation of foreign entities	6	40
Hedge of net investment in foreign entities	(6)	(40)
Property revaluation (reversal)	(13)
Other comprehensive income after tax	(13)
Total comprehensive income for the year	175	410

Balance Sheet - Sydbank Group

DKKm	2011	2010
Assets
Cash and balances on demand
at central banks	939	855
Amounts owed by credit institutions and central banks	8,526	7,527
Loans and advances at fair value	7,658	10,724
Loans and advances at amortised cost	68,847	73,028
Bonds at fair value	38,622	35,021
Shares etc	1,281	1,894
Holdings in associates etc	192	307
Assets related to pooled plans	8,553	7,923
Intangible assets	12	13
Total land and buildings	1,015	1,045
investment property
owner-occupied property	1,015	1,045
Other property, plant and equipment	85	105
Current tax assets	13	82
Deferred tax assets	5	11
Assets in temporary possession	$\mathbf 1$	1
Other assets	17,641	12,256
Prepayments	51	51
Total assets	153,441	150,843
Shareholders' equity and liabilities
Amounts owed to credit institutions and central banks	38,767	40,250
Deposits and other debt	66,724	64,161
Deposits in pooled plans	8,557	7,923
Bonds issued at amortised cost	7,500	11,242
Current tax liabilities		8
Other liabilities	19,911	15,084
Deferred income	6	11
Total liabilities	141,465	138,679
Provisions	256	281 2,329
Subordinated capital	2,125
Shareholders' equity:
Share capital	742 95	742
Revaluation reserves		110
Other reserves:
Reserves according to articles of association Reserve for net revaluation according to the equity	425	423
method	26	26
Retained earnings	8,300	8,169
Proposed dividend etc	7	84
Total shareholders' equity	9,595	9,554
Total shareholders' equity and liabilities	153,441	150,843

Capital - Sydbank Group

			Reserves	Reserve for
				acc to net revaluation		Proposed
	Share	Revaluation	articles of	acc to	Retained	dividend
DKKm	capital			reserves association equity method	earnings	etc	Total
Shareholders' equity at 1 Jan 2011	742	110	423	26	8,169	84	9,554
Profit for the period			$\overline{c}$		179	7	188
Other comprehensive income
Translation of foreign entities					6		6
Hedge of net investment in foreign
entities					(6)		(6)
Property revaluation (reversal)		(13)					(13)
Adjustment concerning property
sold		(2)			2	$\overline{a}$
Total other comprehensive income Comprehensive income for the		(15)	$\overline{\phantom{a}}$	$\overline{\phantom{0}}$	$\overline{c}$	-	(13)
year		(15)	$\overline{2}$		181	$\overline{7}$	175
Transactions with owners
Purchase of own shares					(2,030)		(2,030)
Sale of own shares					1,976		1,976
Adopted dividend etc						(84)	(84)
Dividend, own shares					4
							4
Total transactions with owners	$\overline{\phantom{0}}$	$\overline{\phantom{0}}$		$\qquad \qquad -$	(50)	(84)	(134)
Shareholders' equity at 31 Dec 2011	742	95	425	26	8,300	7	9,595
Shareholders' equity at 1 Jan 2010	742	112	418	33	7,813		9,118
Profit for the period			5	(7)	329	84	411
Other comprehensive income
Translation of foreign entities					40		40
Hedge of net investment in foreign
entities					(40)		(40)
Property revaluation (reversal)		(1)					(1)
Adjustment concerning property
sold		(1)			1
Total other comprehensive income	$\overline{\phantom{0}}$	(2)			1		(1)
Comprehensive income for the			5	(7)	330	84
year	$\overline{\phantom{0}}$	(2)					410
Transactions with owners
Purchase of own shares
Sale of own shares					(2,464) 2,490		(2,464) 2,490
Total transactions with owners Shareholders' equity at 31 Dec					26	$\overline{\phantom{0}}$	26
2010	742	110	423	26	8,169	84	9,554

Capital - Sydbank Group

DKKm	2011	2010
Solvency
Solvency ratio	16.1	15.4
Core capital ratio	15.2	14.3
Capital base after deductions
Shareholders' equity	9,595	9,554
Revaluation reserves	(95)	(110)
Proposed dividend	(7)	(84)
Intangible assets and capitalised tax assets	(17)	(24)
Core capital (excl hybrid core capital)	9,476	9,336
Hybrid core capital	1,382	1,384
50% of holdings in associates	(4)
50% of holdings $>10\%$	(148)	(161)
Core capital (incl hybrid core capital) after deductions	10,706	10,559
Subordinated loan capital	743	945
Revaluation reserves	95	110
Capital base before deductions	11,544	11,614
50% of holdings in associates	(4)
50% of holdings $>10\%$	(148)	(161)
Holdings in associates		(124)
Capital base after deductions	11,392	11,329
Credit risk	52,303	58,040
Market risk	10.288	8,298
Operational risk	8,068	7,378
Risk-weighted assets	70,659	73,716
Capital requirement under Pillar I	5,653	5,897

Supplementary Information

Financial calendar

In 2012 Sydbank's financial statements will be announced as follows:

• Annual General Meeting
• 15 March 2012
• Interim Report Q1 2012
• 30 April 2012
• Interim Report First Half 2012 20 August 2012
• Interim Report Q1-Q3 2012
• 29 October 2012

Contacts

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

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

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

Address

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

Relevant links

sydbank.dk sydbank.com

For further information, reference is made to Sydbank's 2011 Annual Report at sydbank.com.