Vestjysk Bank Half-Year Report 2017

Transcription

1 First half 2017 Vestjysk Bank Half-Year Report 2017

2 Contents Summary 3 Introduction 4 Management's Review 5 Financial Highlights 5 Financial Review 7 Management's Statement 15 Financial Statements 16 Statements of Income and Comprehensive Income 16 Statement of Financial Position 17 Statement of Changes in Equity 19 Notes to the financial statements 20 Vestjysk Bank A/S Torvet 4-5, DK-7620 Lemvig Denmark CVR Registered Office: Lemvig, Denmark Telephone (+45) vestjyskbank@vestjyskbank.dk Read or download this report at vestjyskbank.dk. The Vestjysk Bank Half-Year Report 2017 is a translation of the original report in Danish (Vestjysk Bank Halvårsrapport 2017). In case of discrepancies, the Danish version prevails. 2 Half-Year Report

3 Summary H Highlights Capital plan The most important issue in the Bank s action plan has been to strengthen its capital resources. On 12 June 2017, the Bank announced that a group of long-term investors had made a voluntary offer to buy all shares in Vestjysk Bank A/S. The Ministry of Finance accepted the offer on behalf of the Danish State on 18 July The agreement to buy the Danish State s shareholding interest in the Bank was part of an overall solution ensuring a future for Vestjysk Bank as a strong regional bank. The Bank was challenged by low capitalisation, but the contemplated solution will strengthen its total capital considerably. The key elements of the overall plan were: The investor group has submitted a voluntary offer to the shareholders of Vestjysk Bank and will buy shares from those of Vestjysk Bank s shareholders who accept the voluntary offer, including the stake held by the Danish State. The investor group will effect a share issue raising approximately DKK 745 million in fresh equity to Vestjysk Bank and ensuring that the shareholders who decline the investor group s offer will be able to participate in the overall solution on an equal footing with the investor group. The plan will also enable Vestjysk Bank to issue new subordinated debt in the form of additional tier 1 capital for approximately DKK 150 million and tier 2 capital for between DKK 175 million and DKK 225 million. Redemption of DKK 666 million of existing subordinated capital, including approximately DKK million in statefunded capital, which according to the loan terms are redeemable at price 110, equal to approximately DKK 316 million. The overall solution came about after Vestjysk Bank requested Nykredit to lead the efforts to secure a long-term solution to the Bank s capital situation. Nykredit has subsequently arranged for the overall solution and secured the backing of long-term Danish investors. Interim report first half year of 2017 Vestjysk Bank realised a profit after tax of DKK 108 million in the first half of The Bank s core operations are still sound, and a profit before impairment charges of DKK 257 million for H is considered very satisfactory. Impairment losses relating to the Bank s agricultural customers are now at a lower level than they were for the corresponding period of This is the main reason the Bank is reporting profit after tax for the H period in line with the guidance provided at the beginning of the year, making for a satisfactory performance under the circumstances. Profit after tax of DKK 108 million (H1 2016: DKK 10 million) Core income of DKK 512 million (H1 2016: DKK 477 million), including value adjustments of DKK 35 million (H1 2016: DKK 23 million). Cost ratio of 49.9 per cent (H1 2016: 52.4 per cent), corresponding to a decrease of 2.5 percentage points. Core earnings of DKK 257 million before impairment (H1 2016: DKK 227 million). Impairment of loans and receivables, etc. of DKK 142 million (H1 2016: DKK 216 million). Impairment charges on agriculture accounted for the majority of the Bank s impairment charges. The minimum requirements for continued banking operations are 8.0 per cent (total capital ratio) and 4.5 per cent (common equity tier 1 capital ratio), respectively, of weighted risk exposures. At 30 June 2017, the Bank s surplus relative to these requirements was 5.9 percentage points, or DKK 924 million, and 5.2 percentage points, or DKK 811 million, respectively. The total capital ratio stood at 13.9 per cent and the individual solvency need at 12.8 per cent, corresponding to a surplus of 1.1 percentage points or DKK 180 million at 30 June 2017, which equals the gap to the point that will trigger a requirement for the Bank to initiate its recovery plan. Half-Year Report 3

4 Summary Common equity tier 1 capital ratio of 9.7 at 30 June 2017, compared with a requirement of 9.8. That means a shortfall of 0.1 of a percentage point, or DKK 16 million (DKK 116 million at 1 January 2017). As a consequence of the approval by the Danish State and the EU on 18 July of the voluntary offer published on 19 June 2017, the Bank no longer has a capital shortfall effective from 19 July At 30 June 2017 the Bank s LCR was 240 per cent (343 per cent at 30 June 2016). The European Commission In April 2012, the Commission gave temporary approval of state aid to Vestjysk Bank. Further to that approval, the Commission began an investigation in December 2015 of the state aid provided. See company announcements of 25 April 2012 and of 4 December 2015 for more information. As announced in a company announcement of 18 July 2017, the Commission has approved the state aid subject to certain conditions, which include the implementation of the overall solution announced by the Bank in a company announcement of 12 June 2017 and the Bank complying with certain conditions: The Bank must have a capital base corresponding to the higher of (i) 2% of the total risk exposure and (ii) DKK 325 million in addition to the solvency requirement and the combined capital buffer requirement under applicable law. The Bank must maintain an LCR of at least 100%, surplus liquidity coverage of at least 50% and a funding ratio of maximum 1; all measured in compliance with applicable rules. The Bank s 2017 balance sheet cannot be higher than for 2016 and cannot exceed DKK 20,300 million in 2018 and DKK 21,000 million in 2019 (if applicable). The Bank must re-balance its lending with specific caps to lending in respect of real estate (25% of total lending) and agriculture, hunting, forestry and fishery (a total of 20% of all lending). The Bank cannot provide new lending outside the region of Jutland, unless the customer self-finances a specific minimum part at a level to be fixed in the interval between 35-45% and the loan is collateralised. The Bank shall not provide new lending outside Denmark. The Bank cannot assume exposure with new customers constituting on its own more than 10% of the Bank s total capital. The Bank will, with certain limited exceptions, be subject to an acquisition ban and restrictions on advertising. The Bank must restructure its risk management and in relation to pricing comply with certain requirements for average gross income and return on equity pre-tax (at a fixed level in the interval between 8-12% for business customers) for new loans in 2018 and for all customer relationships in 2019 (if applicable). The Bank will be subject to certain restrictions in relation to the size of the Bank s cost base with the effect that ongoing operating costs cannot exceed certain fixed levels in the intervals between DKK million in 2017, DKK million in 2018 and DKK million in 2019 (if applicable). The Bank must redeem its state hybrids within 6 months following the European Commission s decision. The restructuring period ends on 31 December If the Bank generates a return on equity after tax in 2018 in the 7-11 per cent interval, the restructuring period will end on 31 December The European Commission will regularly monitor the terms and the development of the restructuring plan through an independent monitoring trustee to be approved by the Commission. The Bank is pleased that a decision has been made in the matter and finds the terms of the decision to be in line with the Bank s present action plan. As a result, the decision, including the terms, does not give rise to revising the Bank s strategy or profit guidance for Outlook for 2017 maintained Given an unchanged economic climate, the Bank's total business volume is expected to have the capacity to generate core earnings before impairment at around DKK million. Lower impairment losses are expected. Assuming an unchanged economic climate, Management expects that impairment losses can be absorbed by the Bank's core earnings, resulting in a significant improvement of its consolidation in 2017 compared to last year. 4 Half-Year Report

5 Management s Review Financial Highlights Key Figures H H Q Q Q Q Q FY 2016 Statement of Income (DKKm) Net interest income Net fee income Dividends on shares, etc Value adjustments Other operating income Core Income ,004 Staff costs and administrative expenses Other operating expenses as well as depreciation, amortisation and impairment losses; on intangible and tangible assets Operating expenses and operating depreciation and amortisation Core Earnings Before Impairment Impairment of loans and receivables, etc Profit Before Tax Tax Profit After Tax Statement of financial position (DKKm) Assets, total 22,486 20,557 22,486 19,544 19,895 19,878 20,557 19,895 Loans 12,273 13,093 12,273 12,404 12,529 12,920 13,093 12,529 Deposits, including pooled schemes 18,584 17,463 18,584 16,574 16,971 16,939 17,463 16,971 Contingent liabilities 3,431 3,143 3,431 3,319 3,358 3,175 3,143 3,358 Business volume 34,288 33,699 34, ,297 32,858 33,034 33,699 32,858 Equity 1,596 1,411 1,596 1,542 1,487 1,424 1,411 1,487 Half-Year Report 5

6 Management s Review Financial Highlights Financial ratios 1 Solvency H H Total capital ratio 13.9% 12.5% 13.9% 13.6% 13.0% 12.7% 12.5% 13.0% Tier 1 capital ratio 12.2% 10.6% 12.2% 11.8% 11.2% 10.8% 10.6% 11.2% Common equity tier 1 capital ratio 9.7% 8.2% 9.7% 9.3% 8.7% 8.4% 8.2% 8.7% Earnings Return on equity before tax, annually 15.1% 1.6% 14.3% 15.9% 15.0% 4.7% -0.2% 5.7% Return on equity after tax, annually 14.1% 1.5% 13.5% 14.7% 14.8% 4.3% -0.3% 5.5% Income-cost ratio Cost ratio % 52.4% 48.7% 51.1% 47.9% 48.9% 50.3% 50.3% Return on assets 0.5% 0.0% 0.3% 0.3% 0.3% 0.1% 0.0% 0.4% Employees converted to full-time (average) Market Risk Interest rate risk -1.9% -4.1% -1.9% -2.4% -3.0% -3.7% -4.1% -3.0% Foreign exchange position 0.4% 0.9% 0.4% 0.5% 0.3% 0.8% 0.9% 0.3% Foreign exchange risk 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% LCR 239.9% 343.3% 239.9% 327.1% 318.1% 263.6% 343.3% 318.1% Credit Risk Loans plus impairment on loans relative to deposits 82.3% 92.2% 82.3% 92.8% 91.7% 94.1% 92.2% 91.7% Loans relative to equity Growth in loans -2.0% -2.1% -1.1% -1.0% -3.0% -1.3% -1.9% -6.4% Sum of large exposures 28.7% 38.6% 28.7% 32.2% 36.9% 37.8% 38.6% 36.9% Accumulated impairment ratio 16.2% 15.7% 16.2% 16.0% 16.1% 15.9% 15.7% 16.1% Impairment ratio 0.8% 1.1% 0.4% 0.3% 0.5% 0.6% 0.6% 2.2% Vestjysk Bank Share Earnings per share Book value per share Price of Vestjysk Bank shares, end of the period Share price/book value per share The financial ratios are laid down in the Danish FSA's Executive Order on Financial Reports for Credit Institutions and Investment Firms, etc. 2 Operating expenses and operating depreciation and amortisation/core income. 3 The ratios are calculated as though the additional tier 1 capital were a liability. Q Q Q Q Q FY Half-Year Report

7 Management s Review Financial Review Income statement Income from Fees and Commissions (DKKm) Profit after tax For H1 2017, the Bank s profit after tax was DKK 108 million, compared with DKK 10 million for H Securities trading and custody accounts Impairment of loans and receivables, etc. amounted to DKK 142 million in H The impairment ratio for H was 0.8 per cent, against 1.1 per cent in H The level is still above the sector average, but in line with the Bank s expectations for H Core income In H1 2017, Vestjysk Bank realised core income of DKK 512 million, up DKK 35 million compared with H The core income increase was due to higher value adjustments and income from fees and commissions, partly offset by lower interest income. Net interest income totalled DKK 278 million in H1 2017, against DKK 295 million in H The DKK 17 million decline was due to a DKK 55 million drop in interest income due to a lower lending volume and increased price pressure. This has resulted in a greater than expected decline. The Bank s interest expenses fell by DKK 38 million due to lower rates of deposit and the cancelled interest payments on additional tier 1 capital resulting from the shortfall in common equity tier 1 capital. Positive value adjustments represented DKK 35 million, compared with DKK 24 million in H Fee and commission income rose 25 per cent from DKK 166 million in H to DKK 208 million in H The increase in fee and commission income is mainly explained by a high level of securities trading activity and other fees and commissions, especially within property finance. The distribution is shown in the following figure. Payment transfer services Loan processing fees Guarantee commission Other fees and commissions H (in total DKKm 208) H (in total DKKm 166) Other operating income amounted to DKK 4 million in H1 2017, against DKK 7 million in H Operating expenses, depreciation and amortisation Total operating expenses, depreciation and amortisation amounted to DKK 255 million in H1 2017, against DKK 250 million in H The increase in operating expenses seen in the H period were driven by expenses incurred to legal advisers and consultants in the preparation of the Bank s capital plan. When adjusted for these expenses, the Bank managed to reduce its costs for the reporting period. The Bank will continue its committed efforts to reduce the level of expenses and to maintain an expense ratio of around 50. For the first six months of 2017, the cost ratio was a satisfactory 49.9 per cent. With the aim of securing customers the best possible return, not least in light of the upcoming MiFID II regulations, and to further strengthen the Bank's investment concepts, the Bank has actively advised customers to transfer their pension funds from its own Værdipleje product to Sparinvest s Lokal Puljeinvest. Half-Year Report 7

8 Management s Review Financial Review Core earnings before impairment For H1 2017, the Bank s core earnings before impairment stood at DKK 257 million, compared with DKK 227 million in H Adjusted for value adjustments core earnings before impairment in H was DKK 19 million over the H level, which is considered very satisfactory. Impairment charges on loans, advances, guarantees etc. Impairment charges amounted to DKK 142 million, net in H1 2017, compared with DKK 216 million in H The impairment ratio for H was 0.8 per cent, against 1.1 per cent in H The level is within Managements expectation, but is still at a high level and higher than the sector average. Historically and until 2012, the Bank s exposures to the real estate and agricultural sectors were motivated by the Bank's growth strategy. The strategy was successful, but resulted in insufficient focus on credit risk and robustness in the composition of total capital. The Bank s overall exposure to the real estate and agricultural sectors accounts for approximately 33 per cent of total net lending, compared with about 37 per cent a year ago. Milk and pork prices has both improved in 2017 particularly pork prices, but also milk prices. The level and stability on milk prices currently represents the greatest risk of the Banks agricultural exposures. The Bank is consistently working to identify lasting solutions for those of its agricultural customers facing an unsustainable financial situation. The Bank is closely monitoring developments in the agricultural sector and will continue to incorporate the consequences of any changes in the calculation of impairment. Despite the higher settlement prices for the Danish agricultural sector, the Bank also expects to see net impairment losses on agricultural exposures in Agriculture is still a large factor in the sector diversification of the Bank s business loans, and as a result of the market conditions that the sector has experienced in recent years, agriculture also accounts for the largest share of the Bank s accumulated impairment writedowns: 46 per cent or DKK 1.4 billion. The Bank has thus written down approximately 34 per cent of its gross lending to the agricultural sector. The process of adjusting the Bank s involvement in the real estate sector continues, as the Bank focuses on weeding out unprofitable real estate exposures. For some of these property commitments, we are seeing a favourable trend with operating profits and sufficient liquidity to service debt. As a result, the Bank has reduced its exposure to this sector, and the Bank s customers have sold assets at acceptable prices. The Bank continues to implement further measures to improve the process of managing and monitoring the Bank s loans and guarantees and to develop the skills of account managers. The Bank s accumulated impairment ratio at 30 June 2017 stood at 16.2 per cent, compared with 15.7 per cent at 30 June Accumulated Impairments and Provisions by Industry Segment at 30 June 2017 Public authorities Agricult., hunt., forestry Fishing Manufac. indus., raw mat. ext. Energy supply Constr., civil engin. contract. Trade Transp., restaur., hotel busin. Information and comm. Credit/fin. inst., insur. busin. Real estate Other industries Retail 0% 0% 1% 1% 2% 2% 4% 3% 1% 2% 5% 6% 5% 5% 0% 0% 9% 11% 14% 13% 4% 4% 9% 11% Q Q % 42% 8 Half-Year Report

9 Statement of financial position Vestjysk Bank s balance sheet amounted to DKK 22.5 billion at 30 June 2017, against DKK 20.6 billion at 30 June The Bank has seen its balance sheet grow due to an increase in assets related to pooled schemes. Based on its liquidity and funding situation, the Bank will now aim to maintain the current business volume. Loans At 30 June 2017, Vestjysk Bank s net lending amounted to DKK 12.3 billion, against DKK 13.1 billion at 30 June 2016, a DKK 0.8 billion reduction. Relative to 31 December 2016, this represents a decline of DKK 0.3 billion. The distribution of Vestjysk Bank s loans and guarantees by sector is illustrated below. Loans and Guarantees by Industry Segment at 30 June 2017 It is a positive development that loans to retail customers continue to rise, accounting for 31 per cent of the Bank s net loans and guarantees at 30 June The Bank has thus fulfilled the ambition of strengthening the retail segment to achieve a 30/70 distribution between retail and business customers. Agriculture remains an important strategic business area in which the Bank has considerable experience. In isolated terms, at 30 June 2017 the Bank s exposure to agriculture accounted for 16.8 per cent of its total loans and guarantees and was distributed across the various production branches as shown in the figure below. Agricultural Commitments Share of Loans and Guarantees by Production Branches at 30 June ,9% 0,5% Milk producers 2,0% Pork producers Public authorities Agricult., hunt., forestry Fishing Manufac. indus., raw mat. ext. Energy supply Constr., civil engin. contract. Trade Transp., restaur., hotel busin. Information and comm. Credit/fin. inst., insur. busin. Real estate Other industries Retail 0% 0% 2% 3% 4% 3% 4% 5% 3% 3% 7% 7% 5% 4% 0% 0% 6% 6% 5% 4% 17% 18% 16% 19% 31% 28% 6,6% 6,8% Crop production Mink production Other agric. production Large exposures The sum of large exposures, constituting 10 per cent or more of total capital, amounted to 28.7 per cent of total capital at 30 June 2017, distributed on two exposures. The aim is lower concentration and greater diversification of the Bank's portfolio. Difference between deposits and loans Vestjysk Bank s deposits including pooled schemes amounted to DKK 18.6 billion at 30 June 2017, against DKK 17.5 billion at 30 June Deposits excluding pooled schemes amounted to DKK 14.1 billion at 30 June 2017, against DKK 15.3 billion at 30 June Q Q In preparation for the MiFID II regulations, the Bank has begun to transfer a large proportion of customer pension funds to Lokal Puljeinvest. As a result of such pension funds being transferred to Lokal Puljeinvest, the Bank s total deposits grew during the H period. Deducting pooled schemes from deposits reveals a decline in depos- Half-Year Report 9

10 Management s Review Financial Review its, which is consistent with a deliberate strategy by the Bank driven by a declining need for additional net liquidity. The adjustment is being accomplished by way of the interest rates offered on certain deposit products. Business volume Vestjysk Bank s business volume total deposits, loans and contingent liabilities amounted to DKK 34.3 billion at 30 June 2017, against DKK 33.7 billion at 30 June The change in business volume was due to the abovementioned increase in assets related to pooled schemes, which was partly offset by a fall in the Bank s deposits and lending. Capital and liquidity Equity Vestjysk Bank s equity stood at DKK 1,596 million at 30 June 2017, against DKK 1,411 million at 30 June The development in equity since 1 January 2016 is detailed in the statement of changes in equity. Subordinated debt The Bank s subordinated debt stood at DKK 815 million at 30 June 2017, of which state-funded additional tier 1 capital under Bank Package II totalled DKK 315 million. This capital carries interest at per cent. Special statutory rules apply to additional tier 1 capital under Bank Package II. No dilution of the capital is allowed, and buyback programmes aimed at reducing the Bank s share capital are therefore not permitted. Moreover, only 50 per cent of Executive Board salaries will be eligible for tax deduction. Solvency Solvency-related total capital amounted to DKK 2,174 million at 30 June 2017 which, relative to the total risk exposure of DKK 15,624 million, gives a total capital ratio of 13.9 per cent. At 30 June 2016, the Bank s total capital ratio was 12.5 per cent. The minimum total capital ratio requirement for continued banking operations is 8.0 per cent, which for Vestjysk Bank equals DKK 1,250 million at 30 June Based on the Bank's current financial position, this requirement is met with a surplus of 5.9 percentage points, or DKK 924 million. Solvency-related adequate total capital amounted to DKK 1,994 million at 30 June 2017 which, relative to the total risk exposure of DKK million, gives an individual solvency need of 12.8 per cent, corresponding to a solvency need supplement of 4.8 percentage points in addition to the minimum requirement. Relative to the DKK 2,174 million total capital, the surplus solvency was 1.2 percentage points or DKK 180 million at 30 June Common equity tier 1 capital The Bank's common equity tier 1 capital totalled DKK 1,515 million at 30 June 2017 which, relative to the total risk exposure of DKK 15,624 million, gives a common equity tier 1 capital ratio of 9.7 per cent, against 8.2 per cent at 30 June The Bank's tier 1 capital ratio was 12.2 per cent at 30 June 2017, compared to 10.6 per cent at 30 June The minimum common equity tier 1 capital ratio requirement for continued banking operations is 4.5 per cent, which for Vestjysk Bank equals DKK 703 million at 30 June Based on the Bank's current financial position, this requirement is met with a surplus of 5.2 percentage points, or DKK 811 million. In relation to the Bank's common equity tier 1 capital, the aggregate capital requirement, comprising the minimum capital requirement, the capital conservation buffer and the share of the solvency need add-on that may be fulfilled by common equity tier 1 capital, is 9.8 per cent, or DKK 1,531 million, compared to the Bank's common equity tier 1 capital of DKK 1,515 million. The difference between these two amounts constitutes the Bank s common equity tier 1 capital shortfall of 0.1 of a percentage point, or DKK 16 million at 30 June At the end of 2016, the Bank had excess common equity tier 1 capital coverage of DKK 287 million. At 1 January 2017, in accordance with the FSA s guidelines on the calculation of solvency need, the Bank had recognised state-funded additional tier 1 capital of DKK 312 million in the Bank s individual solvency need, in addition to a per cent, or approximately DKK 100 million, increase in the general capital conservation buffer. An alternative calculation of the deficit of DKK 16 million is based on the solvency surplus of 1.2 percentage point or DKK 180 million. From this amount the general capital 10 Half-Year Report

11 conservation buffer of 1.25 per cent or DKK 196 million is deducted, leading to a deficit of DKK 16 million. The deficit was reduced by approximately DKK 100 million during The following graphic shows the relationship between the bank s common equity tier 1 capital and the related capital requirements at 30 June Capital requirements at 30 June 2017 In accordance with the LCR regulation, the LCR requirement is being gradually phased in, with 80 per cent at 1 January 2017 and 100 per cent at 1 January The Bank s liquidity projections indicate that the Bank will remain in compliance with the LCR requirements when fully phased in. Share capital at 30 June 2017 Vestjysk Bank s share capital totalled DKK 151 million at 30 June The share capital consists of 151,008,121 shares with a nominal value of DKK 1 each. Vestjysk Bank has some 37,000 registered shareholders. The Danish State holds 121,736,671 shares, corresponding to a stake of per cent. Additionally, Finansiel Stabilitet, which is wholly owned by the Danish State, holds 1,291,222 shares in Vestjysk Bank, corresponding to a stake of 0.86 per cent. Including this stake, the Danish State holds per cent of the share capital and voting rights in Vestjysk Bank. After the Danish State, the ten largest shareholders hold 2.98 percent of Vestjysk Bank s share capital. As of 1 January 2018 and 2019 the capital conservation buffer will increase with per cent each year until it reaches per cent by 1 January Due to the shortfall, the Bank has, in compliance with section 125c of the Danish Financial Business Act, prepared a capital conservation plan, which has been assessed and approved by the Danish FSA. As a consequence of the approval by the Danish State and the EU on 18 July 2017 of the voluntary offer published in 19 June 2017, the Bank no longer has a capital shortfall effective at 19 July When completed, the Bank s capital plan will provide excess cover of about 5 percentage points, corresponding to approximately DKK 800 million, after deduction of the capital conservation buffer. Liquidity Vestjysk Bank s liquidity position remains good. At 30 June 2017, the Bank s Liquidity Coverage Ratio (LCR) stood at 240 per cent, relative to the LCR requirement of 80 per cent. The banks shares are listed in Nasdaq OMX Mid Cap index, where it has been on the observation list since 1 March The Financial Supervisory Authority s Supervisory Diamond Vestjysk Bank s objective is to remain within the threshold values for the five indicators set out in the FSA s Supervisory Diamond, which all banks should generally comply with. Vestjysk Bank meets this objective. Vestjysk Bank s values relative to each of these threshold values are set out in the table below. Realised values at 30 June 2017 Realised Supervisory Diamond Benchmarks values Sum of large exposures (< 125%) 28.7 pct. Growth in loans (< 20%) -6.3 pct. Real estate exposure (< 25%) 16.0 pct. Funding ratio (< 1) 0.58 Liquidity surplus (> 50%) 99.4 pct. Half-Year Report 11

12 Management s Review Financial Review Other matters Related parties on 30 June 2017 Vestjysk Bank s related parties comprise the members of the Board of Directors and Executive Board as well as these persons family members. During the year, the Bank has conducted normal trading on arm s-length terms with Kaj Bech A/S, in which board member Anders Bech, exercises control. Another related party is the Danish State, which by virtue of its ownership of per cent of the Bank s share capital and voting rights exercises control. Action plan 2017 In the annual report for 2016, the bank launched a new action plan for 2017 and the following years, comprising the following points: investigating the possibility of raising additional capital in the form of an issue of shares, possibly combined with other capital instruments Maintaining the Bank s current business volume by focusing on the existing customers borrowing and credit needs and adding new good retail customers and solid business customers in the SME segment Reducing the Bank s total agricultural and real estate exposures Continuing working actively with the Bank s weak and impaired customers to reduce the Bank s overall impairment charges Focusing on maintaining a cost ratio of around 50 Increasing earnings, particularly in the investment area, by increasing the customers proportion of pooled and wealth management products Further digitalisation of the Bank through effective internal processes and new options for the customers Maintaining a strong liquidity position by balancing the development of gross lending and deposits The most important issue in the Bank s action plan has been to strengthen its capital resources. On 12 June 2017, the Bank announced that a group of long-term investors had made a voluntary offer to buy all shares in Vestjysk Bank A/S. The Ministry of Finance accepted the offer on behalf of the Danish State on 18 July The agreement to buy the Danish State s shareholding interest in the Bank was part of an overall solution ensuring a future for Vestjysk Bank as a strong regional bank. Currently, the Bank has been challenged of low capitalisation but the contemplated solution will strengthen its total capital considerably. The key elements of the overall plan was: The investor group has submitted a voluntary offer to the shareholders of Vestjysk Bank and will buy shares from those of Vestjysk Bank s shareholders who accept the voluntary offer, including the stake held by the Danish State. The investor group will effect a share issue raising approximately DKK 745 million in fresh equity to Vestjysk Bank and ensuring that the shareholders who decline the investor group s offer will be able to participate in the overall solution on an equal footing with the investor group. The plan will also enable Vestjysk Bank to issue new subordinated debt in the form of additional tier 1 capital for approximately DKK 150 million and tier 2 capital for between DKK 175 million and DKK 225 million. Redemption of DKK 666 million of existing subordinated capital, including approximately DKK million in state-funded capital, which according to the loan terms are redeemable at price 110, equal to approximately DKK 316 million. The overall solution came about after Vestjysk Bank requested Nykredit to lead the efforts to secure a long-term solution to the Bank s capital situation. Nykredit has subsequently arranged for the overall solution and secured the backing of long-term Danish investors. The EU Commission When the EU Commission temporarily approved the state aid in parts of the capital plan for the merger with Aarhus Lokalbank in the spring of 2012, that approval was predicated upon the EU Commission s prior approval of the Bank s restructuring plan. The Bank utilised the state aid facility in the amount of DKK 7,142 million, comprising a capital increase to which the Danish State contributed DKK 167 million, relief of the solvency-related capital charge through the sale of sector shares of DKK 175 million and guarantees in the amount of DKK 6,800 million. The state-guaranteed borrowing facility was repaid in early 2015, 18 months ahead of its expiry. 12 Half-Year Report

13 As announced in a company announcement of 18 July 2017, the Commission has approved the state aid subject to certain conditions, which include the implementation of the overall solution announced by the Bank in a company announcement of 12 June 2017 and the Bank complying with certain conditions: The bank must have a capital base corresponding to the higher of (i) 2% of the total risk exposure and (ii) DKK 325 million in addition to the solvency requirement and the combined capital buffer requirement under applicable law. The bank must maintain an LCR of at least 100%, surplus liquidity coverage of at least 50% and a funding ratio of maximum 1; all measured in compliance with applicable rules. The bank s 2017 balance sheet cannot be higher than for 2016 and cannot exceed DKK 20,300 million in 2018 and DKK 21,000 million in 2019 (if applicable). The bank must re-balance its lending with specific caps to lending in respect of real estate (25% of total lending) and agriculture, hunting, forestry and fishery (a total of 20% of all lending). The bank cannot provide new lending outside the region of Jutland, unless the customer self-finances a specific minimum part at a level to be fixed in the interval between 35-45% and the loan is collateralised. The bank shall not provide new lending outside Denmark. The bank cannot assume exposure with new customers constituting on its own more than 10% of the bank s total capital. The bank will, with certain limited exceptions, be subject to an acquisition ban and restrictions on advertising. The bank must restructure its risk management and in relation to pricing comply with certain requirements for average gross income and return on equity pre-tax (at a fixed level in the interval between 8-12% for business customers) for new loans in 2018 and for all customer relationships in 2019 (if applicable). The bank will be subject to certain restrictions in relation to the size of the bank s cost base with the effect that ongoing operating costs cannot exceed certain fixed levels in the intervals between DKK million in 2017, DKK million in 2018 and DKK million in 2019 (if applicable). The bank must redeem its state hybrids within 6 months following the European Commission s decision. The restructuring period ends on 31 December If the Bank generates a return on equity after tax in 2018 in the 7-11 per cent interval, the restructuring period will end on 31 December The European Commission will regularly monitor the terms and the development of the restructuring plan through an independent monitoring trustee to be approved by the Commission. The Bank is pleased that a decision has been made in the matter and finds the terms of the decision to be in line with the Bank s present action plan. As a result, the decision, including the terms, does not give rise to revising the Bank s strategy or profit guidance for Outlook for 2017 Given an unchanged economic climate, the Bank's total business volume is expected to have the capacity to generate core earnings before impairment at around DKK million. Lower impairment losses are expected. Assuming an unchanged economic climate, Management expects that impairment losses can be absorbed by the Bank's core earnings, resulting in a significant improvement of its consolidation in 2017 compared to last year. This will ensure a continuing bank with an appropriate business platform and with the execution of the capital plan a more adequate capital structure. The impact of a deterioration in the economic climate for the agricultural sector and/or other sectors will thus hamper the Bank's opportunities for consolidation in Significant events after the balance sheet date On 18 July 2017, the Bank said in a company announcement that the European Commission had reached a decision regarding state aid to Vestjysk Bank. The Commission approved the state aid on certain conditions detailed in the announcement, which are shown in this interim report under the heading Summary and in the section heading The EU Commission in Management's Review. On 18 July 2017, the Bank announced in a major shareholder announcement that Forenet Kredit f.m.b.a. holds about 13.99%, Aktieselskabet Arbejdernes Landsbank holds about 11.16% and Novo Nordisk Fonden holds about 8.37% of its shares. As of today s date, the Danish State Half-Year Report 13

14 Management s Review Financial Review holds 0% of the share capital and the voting rights in Vestjysk Bank. On 19 July 2017, the Bank said in a major shareholder announcement that Foreningen AP Pension f.m.b.a. holds about 16,74% of the share capital and the voting rights in Vestjysk Bank. On 8 August 2017, the Bank said in a major shareholder announcement that Forenet Kredit f.m.b.a. increased its ownership to about 16,50% of the share capital and the voting rights in Vestjysk Bank. In light of the European Commission s approval of state aid and the final acceptance of the capital plan by the Danish State and the group of investors, the Bank s Board of Directors has assessed that, effective from 19 July 2017, it was no longer necessary to recognise the state-funded hybrid capital in the Bank s individual solvency need. As a result, effective from 19 July 2017, the Bank is compliant with all current capital requirements including buffer requirements and is no longer subject to a capital preservation plan Financial Calendar With the implementation of the Bank s capital plan, the investor consortium contributed fresh share capital of DKK 607 million effective 8 August 2017 in connection with the issue of 607 million new shares at a price of DKK 1 per share. 22 November Quarterly report for Q1-Q3 14 Half-Year Report

15 Management's Statement The Bank s Board of Directors and Executive Board have today considered and approved the Half-Year Report for the period from 1 January to 30 June 2017 of Vestjysk Bank A/S. view of the Company s assets and liabilities and financial position as at 30 June 2017, and of the results of the Bank's activities for the reporting period from 1 January to 30 June The Half-Year Report is presented in accordance with the Danish Financial Business Act and in accordance with the supplementary Danish disclosure requirements relating to interim reporting for listed financial enterprises. In our opinion, the management s review includes a fair review of the development and performance of the company and a fair description of the principal risks and uncertainty factors that the Bank faces. In our opinion, the accounting policies applied are appropriate and the financial statements present a true and fair The present Half-Year Report has not been audited or reviewed. Lemvig, Denmark, 10 August 2017 Executive Board Jan Ulsø Madsen Chief Executive Officer Michael Nelander Petersen Managing Director Board of Directors.. Vagn Thorsager Chairman of the Board of Directors Lars Holst Deputy Chairman of the Board of Directors Anders Bech Bent Simonsen Jens Erik Christensen Karina Boldsen Jacob Møllgaard Martin Sand Thomsen Palle Hoffmann Half-Year Report 15

16 Financial Statements Statements of Income and Comprehensive Income Note H H Q Q FY 2016 Statement of Income DKK 000 DKK 000 DKK 000 DKK 000 DKK Interest income 340, , , , ,739 3 Interest expenses 62, ,777 23,190 47, ,198 Net interest income 278, , , , ,541 Dividends on shares etc. 3,896 3,243 3,636 3,070 3,384 4 Income from fees and commissions 207, , ,259 81, ,704 Fees and commissions paid 16,304 18,059 9,029 10,950 35,212 Net interest and fee income 473, , , , ,417 5 Value adjustments 34,674 23,497 10,419 16,209 64,951 6 Other operating income 4,339 7,118 3,154 5,991 29,151 7 Staff costs and administrative expenses 235, , , , ,736 Depreciation, amortisation and impairment losses; on tangible and intangible assets 4,769 5,162 2,394 2,599 10,158 8 Other operating expenses 14,896 1,600 12, ,793 9 Impairment of loans and receivables, etc. 141, ,890 80, , ,154 Profit before tax 115,267 10,984 55, ,678 Tax 7, , ,830 Profit after tax 107,780 10,377 52,753-1,146 79,848 Statement of Comprehensive Income Profit after tax 107,780 10,377 52,753-1,146 79,848 Other comprehensive income: Change in the value of owner-occupied properties ,372 Changes in the value of pension obligations 1, , ,110 Other comprehensive income after tax 1, , ,482 Total comprehensive income 109,280 10,377 54,253-1,146 90, Half-Year Report

17 Financial Statements Statement of Financial Position Note 30 June June Dec 2016 DKK 000 DKK 000 DKK 000 Assets Cash in hand and demand deposits with central banks 398, , ,307 Receivables from credit institutions and central banks 1,314, , ,743 Loans and other receivables at amortised cost 12,273,028 13,092,653 12,528,922 Bonds at fair value 3,035,274 3,453,280 3,128,881 Shares, etc. 285, , ,704 Assets related to pooled schemes 4,489,648 2,163,386 2,411, Intangible assets 3,419 3,741 3,780 Land and buildings, total 322, , , Investment property 7, , Owner-occupied property 314, , ,529 Other property, plant and equipment 1,785 2,903 2,133 Current tax assets 0 4,995 0 Assets held for sale 0 2, Other assets 346, , ,067 Prepayments 16,168 18,953 16,778 Assets total 22,486,455 20,557,238 19,894,640 Half-Year Report 17

18 Financial Statements Statement of Financial Position Note 30 June June Dec 2016 DKK 000 DKK 000 DKK 000 Equity and liabilities Debts Debts to credit institutions and central banks 42,697 32,781 16,066 Deposits and other debt 14,094,505 15,299,627 14,559,276 Deposits with pooled schemes 4,489,648 2,163,386 2,411,815 Current tax liabilities 9, , Other liabilities 1,401, , ,469 Prepayments Debts, total 20,038,054 18,296,912 17,554,307 Provisions Provision for pensions and similar liabilities 16,849 21,075 18,981 Provisions for losses on guarantees 18,112 10,501 17,621 Other provisions 2,737 2,577 2,681 Provisions, total 37,698 34,153 39, Subordinated debt 814, , ,178 Equity 16 Share capital 151, , ,008 Revaluation reserves 61,122 52,543 61,122 Reserves provided for in the Bank s Articles of Association 551, , ,600 Retained earnings 757, , ,142 Shareholder equity, total 1,521,125 1,335,535 1,411,872 Additional tier 1 capital holders 75,000 75,000 75,000 Equity, total 1,596,125 1,410,535 1,486,872 Equity and liabilities, total 22,486,455 20,557,238 19,894,640 Items not recognised in the statement of financial position 17 Contingent assets 618, , , Contingent liabilities 3,430,614 3,142,937 3,357, Other commitments 34,059 58,535 41, Half-Year Report

19 Financial Statements Statement of Changes in Equity DKK 000 Share capital Revaluation reserves Retained earnings Reserves provided for in the Bank s Articles of Association Shareholders equity Additional tier 1 capital holders*) Equity total Equity, 1 January ,008 61, , ,142 1,411,872 75,000 1,486,872 Profit after tax for the period 107, , ,780 Other comprehensive income after tax 1,500 1,500 1,500 Total comprehensive income , , ,280 Interest on additional tier 1 capital 0 0 Additions relating to sale of own shares 49,328 49,328 49,328 Disposals relating to purchase of own shares -49,355-49,355-49,355 Equity, 30 June ,008 61, , ,395 1,521,125 75,000 1,596,125 Equity, 1 January ,008 52, , ,583 1,328,734 75,000 1,403,734 Profit after tax for the period 6,802 6,802 3,575 10,377 Total comprehensive income ,802 6,802 3,575 10,377 Interest on additional tier 1 capital 0-3,575-3,575 Additions relating to sale of own shares 7,902 7,902 7,902 Disposals relating to purchase of own shares -7,903-7,903-7,903 Equity, 30 June ,008 52, , ,384 1,335,535 75,000 1,410,535 Equity, 1 January ,008 52, , ,583 1,328,734 75,000 1,403,734 Profit after tax for the period 72,657 72,657 7,191 79,848 Other comprehensive income after tax 9,372 1,110 10,482 10,482 Total comprehensive income 0 9, ,767 83,139 7,191 90,330 Interest on additional tier 1 capital 0-7,191-7,191 Additions relating to sale of own shares 16,553 16,553 16,553 Disposals relating to purchase of own shares -16,554-16,554-16,554 Transferred to retained earnings Equity, 31 December ,008 61, , ,142 1,411,872 75,000 1,486,872 *) The additional tier 1 capital has been provided for an indefinite term and Vestjysk Bank has full discretion at all times to omit interest payments, and it is consequently accounted for as equity. There is an option of early repayment, subject to approval by the Danish Financial Supervisory Authority, on 1 September The capital accrues interest at per cent. If Vestjysk Bank s common equity tier 1 capital ratio falls below per cent, the loan will be written down. The additional tier 1 capital meets the conditions of CRR/CRD IV. Half-Year Report 19

20 Financial Statements Notes Overview of notes to the financial statements 1 Accounting policies 2 Interest income 3 Interest expenses 4 Income from fees and commissions 5 Value adjustments 6 Other operating income 7 Staff costs and administrative expenses 8 Other operating expenses 9 Impairment of loans and provisions for guarantees, etc. 10 Intangible assets 11 Investment property 12 Owner-occupied property 13 Other assets 14 Other liabilities 15 Subordinated debt 16 Share capital 17 Contingent assets 18 Contingent liabilities 19 Other commitments 20 Capital requirements 21 Security pledged 22 Fair value of financial assets and liabilities 23 Risks and risk management 24 Credit exposure 25 Collateral 26 Loans and guarantees, by industry segments 27 Credit quality of loans and guarantee debtors not delinquent and for which impairment charges/provisions have not been made 28 Overdue receivables on loans that have not been written down, by industry segment 29 Distribution of gross loan and guarantee debtors, individually impaired, by cause 30 Distribution by industry segment of loan and guarantee debtors, individually impaired 31 Collateral for loan and guarantee debtors, individually impaired, by types of collateral 32 Hedge accounting 33 Derivative financial instruments 34 Interest rate risk 35 Foreign exchange risk 36 Share risk 37 Liquidity risk 38 Other risks 39 Pending litigation 40 Financial highlights 20 Half-Year Report

21 Note 1 Accounting policies Vestjysk Bank s Half-Year report for 1 January - 30 June 2017 is presented in accordance with the Danish Financial Business Act, including the Danish Financial Supervisory Authority's executive order on financial reporting for credit institutions and investment companies, et al. as well as the disclosure requirements for listed companies issued by NASDAQ OMX Copenhagen A/S. The accounting policies applied in this report remain unchanged from the 2016 Annual Report, which contains a full description of those policies. Measuring certain assets and liabilities require Management to make an estimate of how future events will affect the value of such assets and liabilities. Estimates considered material in presenting the accounts are, among other things, made by stating impairments of impaired loans, the fair values of unlisted financial instruments as well as provisions, cf. the more detailed discussion in the 2016 Annual Report. The applied estimates are based on assumptions deemed sound by Management but which by their nature are uncertain. The Bank s significant risks and external conditions that may affect the Bank are described in greater detail in the 2016 Annual Report. IFRS 9 Expected accounting effects At present, it is not possible to provide a reasonable estimate of the accounting effect of the first-time adoption of the impairment rules in IFRS 9. Overall, however, the new impairment rules are expected to lead to increased impairment losses and thus larger impairment allowance accounts, as under the new rules a loss allowance will be made for all loans and guarantees at an amount equal to 12-month expected credit losses or, in the event of a significant increase in credit risk, lifetime expected credit losses. See note 1 (Accounting policies) to the 2016 Annual Report for further information on this matter. H H FY 2016 DKK 000 DKK 000 DKK Interest income Receivables from credit institutions and central banks -1, ,384 Loans and other receivables 341, , ,019 Bonds 2,743 5,087 8,466 Other interest income Derivative financial instruments -1,783 3,476 3,572 Total 340, , ,739 There is no interest income originating from reverse repo transactions. 3 Interest expenses Credit institutions and central banks Deposits and other debt 40,458 67, ,402 Subordinated debt 22,073 33,057 65,443 Other interest expenses Total 62, , ,198 There is no interest expense originating from repo transactions. Half-Year Report 21

22 Financial Statements Notes Note H H FY Income from fees and commissions DKK 000 DKK 000 DKK 000 Securities trading and custody services 83,583 50, ,908 Payment services 23,244 24,434 50,338 Loan processing fees 15,407 14,322 31,515 Guarantee commission 22,793 21,738 44,215 Other fees and commissions 62,497 54, ,728 Total 207, , ,704 5 Value adjustments Bonds 13,122 24,502 42,590 Shares, etc. 7,645-3,710 6,237 Investment property 0 0-2,075 Foreign currency 7,692 7,134 13,659 Foreign exchange, interest rate, equity, commodity, and other contracts as well as derivative financial instruments 3,596-11,645-7,249 Assets related to pooled schemes 51,743-19,052 82,506 Deposits with pooled schemes -51,743 19,052-82,506 Other assets -2, Other liabilities 5,008 7,040 12,037 Total 34,674 23,497 64,951 6 Other operating income Gains on sale of property, plant and equipment Other income 4,183 6,770 28,408 Total 4,339 7,118 29,151 7 Staff costs and administrative expenses Salaries and remuneration of the Board of Directors and Executive Board Board of Directors, Fixed remuneration ,650 Executive Board Contractual remuneration 2,878 3,017 5,867 Pension Executive Board 3,023 3,157 6,150 Total 3,848 3,982 7,800 Staff expenses Wages and salaries 113, , ,223 Pensions 14,059 14,135 28,870 Expenses relating to social security contributions, payroll tax etc. 19,578 18,977 36,544 Total 146, , ,637 Other administrative expenses 84,929 88, ,299 Total 235, , , Half-Year Report

23 Note H H FY 2016 DKK 000 DKK 000 DKK Staff costs and administrative expenses (continued) Value of benefits With reference to the terms and conditions for participation in Bank Package II, please note that in the calculation of taxable income, remuneration of the Executive Board was deducted for tax purposes in the amount of. 1,560 1,630 3,184 No agreements have been concluded concerning bonus plans, incentive programmes or similar compensation plans. The Bank is exempt from all pension obligations in respect of the departure of members of the Executive Board, whether as a result of age, illness, disability or any other reason. Average number of fulltime employees (FTE) Other operating expenses Contributions to the Resolution Fund and the Guarantee Funds ,525 Other expenses 14, ,268 Total 14,896 1,600 5,793 9 Impairment of loans and provisions for guarantees, etc. Individual impairment of loans Individual impairment of loans and other receivables, beginning of the reporting period 2,923,237 2,997,232 2,997,232 Impairment charges for the period 329, , ,901 Reversal of impairment charges in prior financial years -177, , ,967 Other movements 39,967 42,495 72,289 Previously individually impaired, now written off -191, , ,218 Individual impairment of loans and other receivables, end of the reporting period 2,924,287 2,905,417 2,923,237 Impact on financial income statement 152, , ,934 Collective impairment of loans Collective impairment of loans and other receivables, beginning of the reporting period 104,872 93,712 93,712 Impairment charges for the period 19,592 27,014 39,289 Reversal of impairment charges in prior financial years -27,602-14,359-32,180 Other movements 2,158 2,300 4,051 Impairment of loans and other receivables in groups, end of the reporting period 99, , ,872 Impact on financial income statement -8,010 12,655 7,109 Impairment of loans, total Impairment of loans and other receivables, beginning of the reporting period 3,028,109 3,090,944 3,090,944 Impairment charges for the period 349, , ,190 Reversal of impairment charges in prior financial years -204, , ,147 Other movements 42,125 44,795 76,340 Previously individually impaired, now written off -191, , ,218 Impairment of loans and other receivables, end of the reporting period 3,023,307 3,014,084 3,028,109 Impact on financial income statement 144, , ,043 Half-Year Report 23

24 Financial Statements Notes Note H H FY DKK 000 DKK 000 DKK 000 Impairment of loans and provisions for guarantees, etc. (continued) Provisions for losses on guarantees and unused credit commitments Provisions for losses on guarantees and unused credit commitments, beginning of the reporting period 20,301 17,155 17,155 Impairments for the period 5,189 4,986 15,131 Reversal of provisions in prior financial years -4,641-9,064-11,985 Provisions for losses on guarantees and unused credit commitments, end of the reporting period 20,849 13,077 20,301 Impact on financial income statement 548-4,078 3,146 Accumulated impairment ratio 16,2% 15,7% 16,1% Impact on operations, total 144, , ,189 Loans with no prior individual impairment/provisions, written off 3,345 15,850 27,157 Recovered on previously written-off debts -6,548-4,377-9,192 Impairment of loans and guarantee debtors, etc., total 141, , ,154 Interest income on impaired loans is offset against impairment in the amount of 42,125 44,795 76,340 Receivables for which accrual of interest has been discontinued, end of the reporting period 1,489,477 1,353,794 1,491,621 Total impairment charge thereon 1,225,624 1,016,605 1,170,546 Receivables for which accrual of interest has been discontinued, as a percentage of loans before impairment 9.7% 8.4% 9.6% 30 June June Dec 2016 DKK 000 DKK 000 DKK Intangible assets Customer relationships Total acquisition cost, beginning of the reporting period 14,964 14,964 14,964 Total acquisition cost, end of the reporting period 14,964 14,964 14,964 Depreciation and impairment, beginning of the reporting period 11,971 10,475 10,475 Depreciation and impairment for the period ,496 Depreciation and impairment, end of the reporting period 12,719 11,223 11,971 Recognised holding, end of the reporting period 2,245 3,741 2,993 Other intangible assets Total acquisition cost, beginning of the reporting period Additions Total acquisition cost, end of the reporting period 1, Depreciation and impairment, beginning of the reporting period Depreciation and impairment for the period Depreciation and impairment, end of the reporting period Recognised holding, end of the reporting period 1, Total 3,419 3,741 3, Half-Year Report

25 Note 30 June June Dec 2016 DKK 000 DKK 000 DKK Investment property Fair value, beginning of the reporting period 7,386 29,900 29,900 Transferred from owner-occupied property 0 0 9,461 Disposals 0 29,900 29,900 Fair value adjustment for the reporting period 0 0-2,075 Fair value at the end of the reporting period 7, , Owner-occupied property Revalued amount, beginning of the period 317, , ,531 Additions Disposals 0 0 9,461 Depreciations 2,828 2,827 5,667 Changes in value recognised in other comprehensive income 0 0 9,372 Changes in value recognised in the statement of income Revalued amount, end of the period 314, , ,529 External valuation experts have been involved in measuring the most important owner-occupied properties. 13 Other assets Positive market value of derivative financial instruments 29,036 56,069 35,242 Interest and commission receivable 79,627 42,453 65,423 Investments in BEC 201, , ,081 Other assets 36,678 99,900 19,321 Total 346, , ,067 The comparative figure for 30 June 2016 has been restated to reflect that the classification of clearing accounts has been changed from Receivables from credit institutions and central banks to Other assets. 14 Other liabilities Negative market value of derivative financial instruments 36,345 60,853 52,278 Various creditors 1,291, , ,807 Interest and commission payable 42,168 66,870 7,900 Other liabilities 32,028 21,967 23,484 Total 1,401, , ,469 The comparative figure for 30 June 2016 has been restated to reflect that the classification of clearing accounts has been changed from Debts to credit institutions and central banks to Other liabilities. Half-Year Report 25

26 Financial Statements Notes Note 30 June June Dec Subordinated debt DKK 000 DKK 000 DKK 000 Tier 2 capital 349, , ,697 A nominal DKK 200 million will fall due on 28 June 2020 with an option for early repayment on 28 June 2017 subject to the Financial Supervisory Authority's approval. The capital accrues interest at 9.500% with no step-up clause. The capital meets the conditions of CRR/CDR IV. A nominal DKK 150 million will fall due on 1 September 2022 with an option for early repayment on 1 September 2019 subject to the Financial Supervisory Authority's approval. The capital accrues interest at a floating rate 7.278% with no stepup clause. The capital meets the conditions of CRR/CDR IV. Total 349, , ,697 Additional tier 1 capital Additional tier 1 capital of DKK 100 million. 100, , ,000 The capital accrues interest at a floating rate 2.270%. There is an option of early repayment, subject to the approval of the Danish Financial Supervisory Authority, at par, at any interest payment date with 30 calendar days notice. The capital does not meet the conditions of CRR/CRV IV. Additional tier 1 capital of DKK 50 million. 50,000 50,000 50,000 The capital accrues interest at a floating rate 2.580%. There is no due date. The capital does not meet the conditions of CRR/CRV IV. Additional tier 1 capital of DKK million. 315, , ,481 The capital accrues interest at a fixed 9.561%. There is no due date. There is an option of early repayment, subject to the approval of the Danish Financial Supervisory Authority, at a price of DKK 110. Premiums are recognised and amortised according to their expected repayment date. The capital does not meet the conditions of CRR/CRV IV, but is included in the Bank's total capital under the transitional provisions. Total 465, , ,481 Subordinated debt, total 814, , ,178 Charged as an expense under interest expenses/subordinated debt: Interest expenses 17,057 31,869 62,676 Costs related to incurrence and repayment Value adjustments, etc. 4,722 1,047 2,484 Total 22,073 33,057 65,443 Subordinated debt that can be included in the total capital 584, , , Half-Year Report

27 Note 30 June June Dec 2016 DKK 000 DKK 000 DKK Share capital Share capital, beginning of the period 151, , ,008 Number of shares (units) 151,008, ,008, ,008,121 of DKK 1 of DKK 1 of DKK 1 Number of own shares, beginning of the period Number of own shares (thousands) Nominal value DKK Percentage of the share capital 0.1% 0.1% 0.1% Additions Purchase of own shares (thousands) 3, ,834 Nominal value DKK 000 3, ,834 Percentage of the share capital 2.5% 0.6% 1.2% Total purchase price DKK ,355 7,903 16,554 Disposals Sold own shares (thousands) 3, ,834 Nominal value DKK 000 3, ,834 Percentage of the share capital 2.5% 0.6% 1.2% Total selling price DKK ,328 7,902 16,553 Number of own shares, end of reporting period Number of own shares (thousands) Nominal value DKK Percentage of the share capital 0.1% 0.1% 0.1% Own shares are intermediated, purchased and sold through the securities exchange as part of Vestjysk Bank's normal customer banking transactions. The Bank is not a direct counterparty in such transactions. Vestjysk Bank has a constant holding of own shares. The Bank receives state-funded additional tier 1 capital and issues bonds under the individual government guarantee and is therefore not allowed to pay out dividends. 17 Contingent assets Deferred tax asset at a tax rate of 22 per cent 618, , ,178 The deferred tax asset is primarily related to carry forward taxable deficits. The Bank estimates that there s no evidence for partial or fully capitalization of the deferred tax asset 18 Contingent liabilities Financial guarantees 499, , ,417 Loss guarantees on mortgage loans 1,994,454 1,848,698 1,933,799 Other contingent liabilities 936, , ,711 Total 3,430,614 3,142,937 3,357,927 Other contingent liabilities include, among other things, performance bonds, delivery guarantees as well as provisions of indemnity in relation to the Guarantee Fund. Half-Year Report 27

28 Financial Statements Notes Note 30 June June Dec 2016 DKK 000 DKK 000 DKK Other commitments Irreversible credit commitments 11,451 34,543 18,428 Other liabilities 22,608 23,992 22,906 Total 34,059 58,535 41, Capital requirements Shareholders equity 1,521,125 1,335,535 1,411,872 Intangible assets -3,419-3,741-3,780 Prudent valuation -3,122-3,593-3,234 Common equity tier 1 capital 1,514,584 1,328,201 1,404,858 Additional tier 1 capital 390, , ,481 Tier 1 capital 1,904,651 1,714,955 1,792,339 Tier 2 capital 269, , ,757 Total capital 2,174,117 2,027,772 2,083,096 Total risk exposure 15,624,468 16,235,642 16,066,451 Common equity tier 1 capital ratio 9.7% 8.2% 8.7% Tier 1 capital ratio 12.2% 10.6% 11.2% Total capital ratio 13.9% 12.5% 13.0% 21 Security pledged Credit institutions: Margin accounts pledged as security in relation to financial derivatives 31,025 40,879 31,995 Deposited in the Danish Growth Fund Other accounts pledged as security 0 10,000 0 Bonds: Pledged as security for credit facility with Danmarks Nationalbank Total nominal value 1,102,052 1,273,799 1,129,959 Total market value 1,111,765 1,274,911 1,132, Half-Year Report

29 Note 22 Fair value of financial assets and liabilities Financial assets and liabilities are measured in the statement of financial position at their fair value or at amortised cost. Fair value is the amount for which a financial asset can be traded or a financial liability settled between parties in an arm's-length transaction. For financial instruments measured at fair value, the basis for determining fair value is: Level 1: Listed prices in an active market for identical assets or liabilities. Level 2: Valuation model based primarily on observable market data. Level 3: Valuation model that, to a significant degree, is based on non-observable market data. Shares, bonds, assets in pooled schemes and derivative financial instruments have been measured at their fair value in the financial statements so that the recognised values correspond to fair values. For listed shares and bonds, the fair value is determined as the officially listed price at the reporting date. For unlisted shares in the form of shares in sector-held enterprises where the shares are redistributed, the fair value is determined as the redistribution price and the shares are included in level 2 (observable). For other unlisted shares in sector-held enterprises, with no observable market data, the valuation is involving estimates, based on financial reports from the enterprise, previous trading of shares in the enterprise and input from qualified external party. A change of 10 percent in the market value of sector-held enterprises in level 3 will result in an income and equity impact before tax of DKK 9.7 million. For other financial instruments, the fair value is computed - to the greatest extent possible - based on generally accepted valuation methods based on observable market data. The valuation is based on non-observable market data only in exceptional cases. Impairment of loans and advances is assessed to correspond to changes in credit quality. The difference relative to fair values is computed as received fees and commissions, interest receivable, not falling due until after the end of the financial reporting period, and, for fixed-rate loans, interest rate-dependent value adjustments. If the loan portfolio is transferred in full or in part, the fair value will be lower. The fair value of receivables from credit institutions and central banks is determined by applying the same method as for loans, although the bank has not made impairments of receivables from credit institutions and central banks. Debt securities in issue and subordinated debt are measured at amortised cost. The difference between the carrying amount and the fair value is assessed to be interest payable not falling due until after the end of the financial reporting period as well as costs and premiums amortised over the term of the loan and for fixed-rate debt securities in issue, also interest rate-dependent value adjustments. For floating-rate financial liabilities in the form of deposits and debt to credit institutions measured at amortised cost, the difference relative to fair values is estimated to be interest payable not falling due until after the end of the financial reporting period. For fixed-rate financial liabilities in the form of deposits and debt to credit institutions measured at amortised cost, the difference relative to fair values is estimated to be interest payable not falling due until after the end of the financial reporting period and the interest rate-dependent value adjustments. Half-Year Report 29

30 Financial Statements Notes Note 22 Fair value of financial assets and liabilities (continued) 30 June 2017 (DKK 000) Carrying amount Fair value Listed Prices level 1 Observable prices level 2 Nonobservable prices level 3 Financial assets Cash on hand and demand deposits with central banks 398, ,262 74, ,163 0 Receivables from credit institutions and central banks 1,314,804 1,314, ,314,937 0 Loans at amortised cost 12,273,028 12,316, ,316,222 Bonds at fair value 3,035,274 3,035,274 2,980,086 55,188 0 Shares, etc. 285, ,372 21, ,815 98,181 Assets related to pooled schemes 4,489,648 4,489,648 4,489, Derivative financial instruments 29,036 29, ,036 0 Total 21,825,424 21,868,751 7,565,209 1,889,139 12,414,403 Financial liabilities Debts to credit institutions and central banks 42,697 42, ,697 0 Deposits 14,094,505 14,130, ,130,582 Deposits in pooled schemes 4,489,648 4,489, ,489,648 Subordinated debt 814, , ,000 Derivative financial instruments 36,345 36, ,345 0 Total 19,477,773 19,494, ,042 19,415,230 Shares measured at fair value based on non-observable inputs (level 3) Carrying amount, beginning of the period 92,539 Additions 26 Disposals 0 Value adjustment 5,616 Value, end of the period 98,181 Period's value adjustments relating to financial assets in the portfolio, total 5, Half-Year Report

31 Note 22 Fair value of financial assets and liabilities (continued) 30 June 2016 (DKK 000) Carrying amount Fair value Listed Prices level 1 Observable prices level 2 Nonobservable prices level 3 Financial assets Cash on hand and demand deposits with central banks 542, ,400 81, ,881 0 Receivables from credit institutions and central banks 394, , ,765 0 Loans at amortised cost 13,092,653 13,116, ,116,279 Bonds at fair value 3,453,280 3,453,280 3,375,320 77,960 0 Shares, etc. 178, ,570 23,199 61,037 94,334 Assets related to pooled schemes 2,163,386 2,163,386 2,163, Derivative financial instruments 56,069 56, ,069 0 Total 19,881,123 19,904,749 5,643,424 1,050,712 13,210,613 Financial liabilities Debts to credit institutions and central banks 32,781 32, ,781 0 Deposits 15,299,627 15,358, ,358,764 Deposits in pooled schemes 2,163,386 2,163, ,163,386 Subordinated debt 815, , ,673 Derivative financial instruments 60,853 60, ,853 0 Total 18,372,285 18,409, ,634 18,315,823 Shares measured at fair value based on non-observable inputs (level 3) Carrying amount, beginning of the period 92,021 Additions 214 Disposals 0 Value adjustment 2,099 Value, end of the period 94,334 Period's value adjustments relating to financial assets in the portfolio, total 2,397 Half-Year Report 31

32 Financial Statements Notes Note 22 Fair value of financial assets and liabilities (continued) 31 Dec 2016 (DKK 000) Carrying amount Fair value Listed Prices level 1 Observable prices level 2 Nonobservable prices level 3 Financial assets Cash on hand and demand deposits with central banks 398, ,307 81, ,788 0 Receivables from credit institutions and central banks 524, , ,743 0 Loans at amortised cost 12,528,922 12,572, ,572,803 Bonds at fair value 3,128,881 3,128,881 3,032,863 96,018 0 Shares, etc. 254, ,678 17, ,343 92,539 Assets related to pooled schemes 2,411,815 2,411,815 2,411, Derivative financial instruments 35,242 35, ,242 0 Total 19,282,588 19,326,469 5,543,993 1,117,134 12,665,342 Financial liabilities Debts to credit institutions and central banks 16,066 16, ,066 0 Deposits 14,559,276 14,560, ,560,891 Deposits in pooled schemes 2,411,815 2,411, ,411,815 Subordinated debt 814, , ,125 Derivative financial instruments 52,278 52, ,278 0 Total 17,853,613 17,841, ,344 17,772,831 Shares measured at fair value based on non-observable inputs (level 3) Carrying amount, beginning of the period 92,021 Additions 0 Disposals 1,290 Value adjustment 1,808 Value, end of the period 92,539 Period's value adjustments relating to financial assets in the portfolio, total 5, Half-Year Report

33 Note 23 Risk and risk management Vestjysk Bank is exposed to various types of risk. These risks as well as the Bank s policies and goals for managing such risks are described in Annual report for June June Dec 2016 DKK 000 DKK 000 DKK Credit exposure The Bank's credit exposure is composed of the following assets and items not recognised in the statement of financial position: Receivables from central banks 1,555, , ,258 Receivables from credit institutions 83, ,564 74,743 Bonds 3,035,274 3,453,280 3,128,881 Loans 15,296,335 16,106,736 15,557,031 Items not recognised in the statement of financial position Financial guarantees 2,506,917 2,249,273 2,458,212 Credit commitments 5,309,895 4,830,345 4,850,359 Total 27,787,388 27,508,080 26,843,484 Of which recognised in the statement of financial position 19,970,576 20,428,462 19,534,913 Credit institutions The item 'Receivables from central banks' solely pertains to Danmarks Nationalbank. The item 'Receivables from credit institutions' pertains to receivables from a number of credit institutions located in Denmark and abroad. Receivables from Non-Danish credit institutions is very limited in amount. Receivables from individual institutions in excess of DKK 5 million Credit institutions or their subsidiaries rated, at a minimum, A+ 21,346 31,459 30,924 Credit institutions or their subsidiaries rated A or lower 43,280 36,824 35,162 Unrated credit institutions or their subsidiaries 0 10,000 0 Total 64,626 78,283 66,086 Half-Year Report 33

34 Financial Statements Notes Note 30 June June Dec 2016 DKK 000 DKK 000 DKK Credit exposure (continued) Bonds by rating categories AAA 2,980,086 3,299,757 3,032,863 A+ to A- 0 75,563 0 No rating 55,188 77,960 96,018 Total 3,035,274 3,453,280 3,128,881 Bonds by issuer Mortgage-credit bonds 2,774,399 3,192,663 2,867,886 Other bonds 260, , ,995 Total 3,035,274 3,453,280 3,128,881 Loans, financial guarantees and credit commitments by industry segments Public authorities Business: Agriculture, hunting, forestry and fishery 5,220,861 5,139,736 5,103,535 Manufacturing industry and raw material extraction 817, , ,380 Energy supply 854,187 1,047, ,607 Construction and civil engineering contractors 702, , ,621 Trade 1,704,206 1,758,304 1,765,812 Transportation, hotels and restaurant businesses 994, , ,940 Information and communication 99,889 88,662 91,707 Credit and financing institutes and insurance businesses 1,145,318 1,280,973 1,168,028 Real estate 3,335,861 3,877,164 3,557,519 Other business 1,126,477 1,117,323 1,097,896 Business, total 16,001,188 16,693,214 16,106,045 Retail 7,111,959 6,493,139 6,759,557 Total 23,113,147 23,186,354 22,865, Half-Year Report

35 Note 25 Collateral The Bank holds a charge on the financed asset for most of its business exposures, which is the reason the most common types of collateral are mortgages secured in real property, ships, wind turbines, motor vehicles, movable property, securities as well as floating charges. Owner s sureties and personal insurance also constitute a large share of the collateral held by the Bank. For the majority of retail customer exposures it is also the case that the Bank holds a charge in the financed asset which is the reason the most common types of collateral are mortgages secured in real property and in motor vehicles. The Bank continuously performs assessments of pledged collateral. Valuations are performed based on the fair value of the asset, less the margin for covering costs related to realisation, selling period costs as well as rebates. Some collateral is assessed for precautionary and practical reasons not to have any value; thus the figures listed below should not necessarily be taken to represent the actual value of the collateral. A number of exposures are secured by collateral in excess of the amount of the exposure. The excess collateral is not included in the calculation below. Collateral by type 30 June 2017 (DKK 000) Mortgages on properties and wind turbines Right of subrogation for mortgages secured in real property Charges held in movable property, motor vehicles, operating equipment, ships etc. Securities Bank accounts Others Business: Agriculture, hunting, forestry and fishery 2,508, , ,647 80,058 8, ,505 3,358,876 Manufacturing industry and raw material extraction 105,160 26, ,850 3,172 2,601 9, ,913 Energy supply 410,372 79,574 7,142 69,545 1,295 6, ,810 Construction and civil engineering contractors 174,498 39, ,383 17,464 5,897 8, ,238 Trade 250,857 91, ,736 15,940 4,460 17, ,258 Transportation, hotels and restaurant businesses 260, , ,095 2,466 6,579 21, ,975 Information and communication 31,051 9,832 10, , ,503 Credit and financing institutes and insurance businesses 309,174 13,038 6, ,281 5,908 71, ,358 Real estate 1,853, ,287 7, ,200 22,799 65,008 2,545,487 Other business 235,363 99, ,649 39,531 22,084 5, ,336 Business, total 6,139,179 1,107,055 1,710, ,112 81, ,338 9,971,754 Retail 2,341,653 1,158, , ,409 32,859 16,476 4,132,489 Total 8,480,832 2,265,847 1,923, , , ,814 14,104,243 Total Half-Year Report 35

36 Financial Statements Notes Note 25 Collateral (continued) Collateral by type (continued) 30 June 2016 Mortgages (DKK 000) on properties and wind turbines Right of subrogation for mortgages secured in real property Charges held in movable property, motor vehicles, operating equipment, ships etc. Securities Bank accounts Others Business: Agriculture, hunting, forestry and fishery 2,533,926 70, ,212 70,969 11, ,186 3,321,475 Manufacturing industry and raw material extraction 87,263 41, ,191 2, , ,150 Energy supply 528,044 93,825 13,205 75,977 5,630 4, ,730 Construction and civil engineering contractors 147,272 41, ,366 7,741 4,623 8, ,527 Trade 167,585 95, ,540 19,474 6,476 33, ,528 Transportation, hotels and restaurant businesses 211, , ,352 13, , ,151 Information and communication 20,997 7,997 10,291 1, ,580 Credit and financing institutes and insurance businesses 376,758 14,798 2, ,262 13,001 37, ,581 Real estate 2,433, ,841 4, ,511 55,730 58,496 3,161,729 Other business 200,580 97,907 99,155 27,446 31,207 6, ,242 Business, total 6,707,449 1,114,306 1,574, , , ,186 10,413,693 Retail 2,157, , , ,551 85,921 43,779 3,637,619 Total 8,865,052 2,051,296 1,754, , , ,965 14,051,312 Total 36 Half-Year Report

37 Note 25 Collateral (continued) Collateral by type (continued) 31 Dec 2016 Mortgages (DKK 000) on properties and wind turbines Right of subrogation for mortgages secured in real property Charges held in movable property, motor vehicles, operating equipment, ships etc. Securities Bank accounts Others Business: Agriculture, hunting, forestry and fishery 2,516, , ,355 68,546 8, ,625 3,374,739 Manufacturing industry and raw material extraction 80,170 25, ,249 2, , ,910 Energy supply 454,068 83,541 11,153 91,819 1,685 3, ,900 Construction and civil engineering contractors 156,591 40, ,496 9,212 4,573 8, ,616 Trade 193,804 96, ,414 14,852 5,886 34, ,501 Transportation, hotels and restaurant businesses 197, , ,609 12, , ,027 Information and communication 27,422 9,527 11, , ,429 Credit and financing institutes and insurance businesses 414,333 14,415 2, ,196 5,838 32, ,029 Real estate 2,324, ,244 4, ,982 60,873 38,864 3,018,125 Other business 210,100 98, ,872 29,059 22,321 5, ,506 Business, total 6,574,908 1,091,571 1,699, , , ,771 10,335,782 Retail 2,190,508 1,087, , ,234 68,157 42,014 3,917,147 Total 8,765,416 2,178,667 1,876, , , ,785 14,252,929 Total Half-Year Report 37

38 Financial Statements Notes Note 26 Loans and guarantees, by industry segments 30 June June Dec 2016 Business: Agriculture, hunting, forestry and fishery 19% 20% 20% Manufacturing industry and raw material extraction 4% 3% 3% Energy supply 4% 5% 5% Construction and civil engineering contractors 3% 3% 3% Trade 7% 7% 7% Transportation, hotels and restaurant businesses 4% 5% 4% Information and communication 0% 0% 0% Credit and financing institutes and insurance businesses 6% 6% 6% Real estate 16% 19% 17% Other business 6% 4% 5% Business, total 69% 72% 70% Retail 31% 28% 30% Total 100% 100% 100% 27 Credit quality of loans and guarantee debtors not delinquent and for which impairment writedowns/provisions have not been made 'Loan and guarantee debtors with signs of weakness' refers to loans and guarantee debtors for which no individual impairment charges have been realised but which display signs of weakness. 'Signs of weakness' refers to conditions that affect the credit risk assessment of the loan negatively. These are loan and guarantee debtors whose credit rating is impaired and therefore closer to being written down. 30 June 2017 (DKK 000) Loan + guarantee debtors with material weaknesses, but without impairment/provision Loan + guarantee debtors with slightly impaired credit quality, some signs of weakness Loan + guarantee debtors with normal credit quality Amortised cost, total Business: Agriculture, hunting, forestry and fishery 374,263 1,013, ,486 1,806,826 Manufacturing industry and raw material extraction 38, , , ,893 Energy supply 44, , , ,758 Construction and civil engineering contractors 67, , , ,577 Trade 67, , , ,011 Transportation, hotels and restaurant businesses 87, , , ,590 Information and communication 3,852 33,726 19,248 56,826 Credit and financing institutes and insurance businesses 273, , , ,592 Real estate 461, , ,847 1,656,873 Other business 78, , , ,200 Business, total 1,497,487 3,766,785 2,353,874 7,618,146 Retail 365,704 2,467,657 1,886,860 4,720,221 Total 1,863,191 6,234,442 4,240,734 12,338, Half-Year Report

39 Note 27 Credit quality of loans and guarantee debtors not delinquent and for which impairment writedowns/provisions have not been made (continued) 30 June 2016 (DKK 000) Loan + guarantee debtors with material weaknesses, but without impairment/provision Loan + guarantee debtors with slightly impaired credit quality, some signs of weakness Loan + guarantee debtors with normal credit quality Amortised cost, total Business: Agriculture, hunting, forestry and fishery 518, , ,930 1,943,402 Manufacturing industry and raw material extraction 56, , , ,959 Energy supply 115, , , ,774 Construction and civil engineering contractors 65, , , ,079 Trade 120, , , ,838 Transportation, hotels and restaurant businesses 106, , , ,619 Information and communication 3,904 25,419 17,512 46,835 Credit and financing institutes and insurance businesses 178, , , ,002 Real estate 577, , ,223 1,723,558 Other business 71, , , ,700 Business, total 1,814,041 3,642,506 2,263,219 7,719,766 Retail 467,186 2,105,532 1,698,232 4,270,950 Total 2,281,227 5,748,038 3,961,452 11,990,717 Half-Year Report 39

40 Financial Statements Notes Note 27 Credit quality of loans and guarantee debtors not delinquent and for which impairment writedowns/provisions have not been made (continued) 31 Dec 2016 (DKK 000) Loan + guarantee debtors with material weaknesses, but without impairment/provision Loan + guarantee debtors with slightly impaired credit quality, some signs of weakness Loan + guarantee debtors with normal credit quality Amortised cost, total Business: Agriculture, hunting, forestry and fishery 340, , ,253 1,659,554 Manufacturing industry and raw material extraction 45, , , ,748 Energy supply 70, , , ,850 Construction and civil engineering contractors 62, , , ,161 Trade 101, , , ,673 Transportation, hotels and restaurant businesses 114, , , ,462 Information and communication 3,448 27,540 19,055 50,043 Credit and financing institutes and insurance businesses 300, , , ,287 Real estate 572, , ,155 1,717,707 Other business 92, , , ,106 Business, total 1,702,700 3,559,442 2,255,449 7,517,591 Retail 414,568 2,289,513 1,899,696 4,603,777 Total 2,117,268 5,848,955 4,155,145 12,121, Half-Year Report

41 Note 28 Amounts in arrears on loans that are not impaired, by industry segment 30 June 2017 DKK days days days > 90 days Total Business: Agriculture, hunting, forestry and fishery 4, ,804 Manufacturing industry and raw material extraction 2, ,461 Energy supply Construction and civil engineering contractors 5, ,878 Trade 4, ,200 Transportation, hotels and restaurant businesses 9, ,036 Information and communication Credit and financing institutes and insurance businesses 2, ,541 Real estate 12, ,190 Other business 5, ,569 Business, total 48, ,205 49,538 Retail 21, ,166 Amounts in arrears, total 69, ,443 71,704 Loans in arrears, total 840,146 4, , , June 2016 DKK days days days > 90 days Total Business: Agriculture, hunting, forestry and fishery 13,461 1, ,789 Manufacturing industry and raw material extraction ,076 Energy supply 1, ,196 Construction and civil engineering contractors 3, ,381 Trade 5, ,299 Transportation, hotels and restaurant businesses 2, , ,874 Information and communication Credit and financing institutes and insurance businesses 2, ,876 Real estate 14, , ,382 Other business 4,806 2, ,108 8,313 Business, total 48,626 5,835 7,346 2,998 64,805 Retail 22,771 2, ,001 26,647 Amounts in arrears, total 71,397 7,961 8,095 3,999 91,452 Loans in arrears, total 1,086,063 38,233 44,581 28,386 1,197,263 Half-Year Report 41

42 Financial Statements Notes Note 28 Amounts in arrears on loans that are not impaired, by industry segment (continued) 31 Dec 2016 DKK days days days > 90 days Total Business: Agriculture, hunting, forestry and fishery 10,178 1,848 1, ,111 Manufacturing industry and raw material extraction 1,907 1, ,051 Energy supply Construction and civil engineering contractors 3, ,499 Trade 7,686 5,153 1, ,185 Transportation, hotels and restaurant businesses 5, ,765 Information and communication Credit and financing institutes and insurance businesses 11, ,906 Real estate 8, ,933 Other business 9, ,862 Business, total 58,250 10,450 3,461 1,304 73,465 Retail 13,998 1, ,288 Amounts in arrears, total 72,248 11,947 3,633 1,925 89,753 Loans in arrears, total 794,135 39,552 25,395 12, , Gross loan and guarantee debtors, individually impaired, by cause 30 June 2017 DKK June 2016 DKK Dec 2016 DKK 000 Reconstruction/bankruptcy 283, , ,663 Rescheduling of debts 6,342 9,095 14,815 Debt collection 1,103,260 1,112,870 1,090,263 Customer deceased 6,382 5,276 4,513 Easing of terms 1,944,300 1,910,632 2,098,291 Other causes 2,182,824 2,804,188 2,474,309 Total 5,526,655 6,072,194 5,939, Half-Year Report

43 Note 30 Loan and guarantee debtors individually impaired, by industry 30 June 2017 (DKK 000) Gross Loan value of collaterals Unsecured component before impairments Impairments/provisio ns Unsecured component after impairments Business: Agriculture, hunting, forestry and fishery 2,497,881 1,175,292 1,322,589 1,366,962 0 Manufacturing industry and raw material extraction 112,770 45,145 67,625 58,368 9,257 Energy supply 270, , , ,121 46,799 Construction and civil engineering contractors 91,316 41,619 49,697 38,989 10,708 Trade 268,058 95, , ,814 20,606 Transportation, hotels and restaurant businesses 358, , , ,098 11,438 Information and communication 3, ,722 3, Credit and financing institutes and insurance businesses 363,166 76, , ,149 18,529 Real estate 1,011, , , ,525 0 Other business 153,092 27, , ,965 17,223 Business, total 5,131,321 2,418,302 2,713,019 2,669, ,118 Retail 395,334 71, , ,244 50,597 Total 5,526,655 2,489,795 3,036,860 2,942, , June 2016 (DKK 000) Gross Loan value of collaterals Unsecured component before impairments Impairments/provisio ns Unsecured component after impairments Business: Agriculture, hunting, forestry and fishery 2,433,084 1,166,728 1,266,356 1,241,868 24,488 Manufacturing industry and raw material extraction 136,171 68,446 67,725 61,745 5,980 Energy supply 250, , ,010 90,911 39,099 Construction and civil engineering contractors 103,097 42,927 60,170 50,805 9,365 Trade 274,156 88, , ,451 16,073 Transportation, hotels and restaurant businesses 347, , , ,767 17,403 Information and communication 4, ,809 3, Credit and financing institutes and insurance businesses 620, , , ,494 62,939 Real estate 1,317, , , ,589 20,233 Other business 157,614 30, , ,367 20,716 Business, total 5,643,987 2,807,885 2,836,102 2,619, ,450 Retail 428, , , ,842 26,311 Total 6,072,194 2,910,939 3,161,255 2,918, ,761 Half-Year Report 43

44 Financial Statements Notes Note 30 Loan and guarantee debtors individually impaired, by industry (continued) 31 Dec 2016 (DKK 000) Gross Loan value of collaterals Unsecured component before impairments Impairments/provisio ns Unsecured component after impairments Business: Agriculture, hunting, forestry and fishery 2,675,231 1,336,060 1,339,171 1,329,187 9,984 Manufacturing industry and raw material extraction 104,126 42,453 61,673 53,412 8,261 Energy supply 283, , ,345 85,661 77,684 Construction and civil engineering contractors 102,272 45,625 56,647 45,270 11,377 Trade 256, , , ,564 6,964 Transportation, hotels and restaurant businesses 323, , , ,410 19,803 Information and communication 3, ,613 3, Credit and financing institutes and insurance businesses 393,861 68, , ,233 31,171 Real estate 1,240, , , ,958 10,642 Other business 143,563 27, ,150 99,323 16,827 Business, total 5,527,107 2,681,763 2,845,344 2,652, ,833 Retail 412,747 71, , ,346 53,040 Total 5,939,854 2,753,124 3,186,730 2,940, , Half-Year Report

45 Note 31 Collateral for loan and guarantee debtors, individually impaired, by types 30 June 2017 (DKK 000) Securities Mortgages on properties and wind turbines Right of subrogation for mortgages secured in real property Charges held in movable property, motor vehicles, operating equipment, ships etc. Bank accounts Others Hereof not utilized Total Business: Agriculture, hunting, forestry and fishery 1,029,670 44,975 6,335 2,584 2,362 90, ,175,292 Manufacturing industry and raw material extraction 9,263 4,236 28, , ,145 Energy supply 85, , , ,541 Construction and civil engineering contractors 34,557 1,417 4, ,619 Trade 32,930 19,537 41, , ,638 Transportation, hotels and restaurant businesses 37,898 61,643 75, , ,433 Information and communication Credit and financing institutes and insurance businesses 27,875 1, , , ,488 Real estate 569,269 67,094 2,776 1, ,689-1, ,002 Other business 17, , , ,904 Business, total 1,845, , ,578 37,824 4, ,255-2,379 2,418,302 Retail 48,543 15,904 2,974 3, ,493 Total 1,893, , ,552 40,950 4, ,149-2,379 2,489,795 Half-Year Report 45

46 Financial Statements Notes Note 31 Collateral for loan and guarantee debtors, individually impaired, by types (continued) 30 June 2016 (DKK 000) Securities Others Mortgages on properties and wind turbines Right of subrogation for mortgages secured in real property Charges held in movable property, motor vehicles, operating equipment, ships etc. Bank accounts Hereof not utilized Total Business: Agriculture, hunting, forestry and fishery 1,016,641 19,738 23,796 6,451 2,325 97, ,166,728 Manufacturing industry and raw material extraction 18,434 19,987 28, ,446 Energy supply 105, ,700 7,478 2,846 1, ,945 Construction and civil engineering contractors 34,257 1,134 6, ,927 Trade 27,748 7,355 37, , ,632 Transportation, hotels and restaurant businesses 65,600 74,368 28,068 1, ,155 Information and communication Credit and financing institutes and insurance businesses 156,628 1,992 1,275 45, , ,740 Real estate 823,908 82, , ,529 Other business 15, ,661 2, , ,531 Business, total 2,265, , ,814 66,370 5, , ,807,885 Retail 78,309 13,623 2, ,622 2, ,054 Total 2,343, , ,286 66,828 11, , ,910, Half-Year Report

47 Note 31 Collateral for loan and guarantee debtors, individually impaired, by types (continued) 31 Dec 2016 (DKK 000) Securities Others Mortgages on properties and wind turbines Right of subrogation for mortgages secured in real property Charges held in movable property, motor vehicles, operating equipment, ships etc. Bank accounts Hereof not utilized Total Business: Agriculture, hunting, forestry and fishery 1,175,658 46,150 18,377 1,582 5,654 90,380-1,741 1,336,060 Manufacturing industry and raw material extraction 9,211 5,212 27, ,453 Energy supply 111, ,700 4, ,532 Construction and civil engineering contractors 35,446 1,767 7, ,625 Trade 34,822 20,229 31, , ,017 Transportation, hotels and restaurant businesses 50,759 58,625 23,666 1, , ,792 Information and communication Credit and financing institutes and insurance businesses 49,939 1, , , ,457 Real estate 714,110 83, , , ,061 Other business 16, ,552 1, , ,413 Business, total 2,198, , ,736 23,869 7, ,418-2,100 2,681,763 Retail 49,831 15,063 3,008 1, , ,361 Total 2,248, , ,744 25,629 7, ,395-2,614 2,753,124 Half-Year Report 47

48 Financial Statements Notes Note 30 June June Dec Hedge accounting To manage interest rate risk, the following are hedged (fair value hedge): DKK 000 DKK 000 DKK 000 Bonds 244, , ,015 Hedged with interest rate swaps, maturity : Notional principal 240, , ,000 Fair value -1,803-10,486-7,716 Loans at amortised cost 119, , ,538 Hedged with interest rate swaps, maturity : Notional principal 107, , ,318 Fair value -7,022-10,637-8,647 Hedged with interest rate cap, maturity 2024: Notional principal 5,290 5,869 5,583 Fair value Deposits 0 1,151,958 0 Hedged with interest rate swaps: Notional principal 0 1,150,000 0 Fair value 0 1,958 0 Total fair value adjustment of hedging instruments 2,419-11,218-3,936 Total fair value adjustment of the hedged items -1,972 7,703 3,294 Ineffectiveness recognised in the statement of income 447-3, Derivative financial instruments Derivative financial instruments are utilised by both the Bank's customers and the Bank to hedge and manage financial risks and positions. 48 Half-Year Report

49 Note 34 Interest rate risk Interest rate risk is the risk of losses incurred in the event of change in the general interest rate level. Vestjysk Banks interest rate risk is related to activities involving normal banking business such as deposits, loans, trading and positiontaking in interest-related products. The interest rate risk is divided into risks inside and outside the Bank s trading book, see below. All else being equal, the direct impact on the income statement from a change in the general interest level will only be related to the interest rate risk inside the trading book. An increase in the interest rate of 1 percentage point would result in an loss before tax of DKK 2.4 million at 30 June Outside the trading book a change in the general interest rate level will have an impact on the future earnings and equity, as a change in interest rates will impact the alternative funding and investment options. Interest rate risk is calculated applying the Financial Supervisory Authority s guidelines. 30 June June Dec 2016 DKK 000 DKK 000 DKK 000 Interest rate risk inside the Bank s trading book: Securities 10,821 21,461 23,130 Futures/forward contracts/forward rate agreements -1,815-1, Swaps -6,597-13,661-16,227 Total 2,409 6,090 6,940 Interest rate risk outside the Bank s trading book: Loans 4,300 6,569 4,996 Debts to credit institutions Deposits -31,719-62,887-46,927 Subordinated debt -6,606-17,523-14,782 Equity -3,694-2,268-4,093 Total -37,719-76,111-60,806 Total interest rate risk -35,310-70,021-53,866 Measured in relation to the tier 1 capital, the interest rate risk corresponds to -1.9% -4.1% -3.0% Interest rate risk, by modified duration Up to 1 year -6,230-3,200-7,237 1 year to 2 years -14,166-23,487-19,183 2 year to 3.6 years -14,588-56,085-31,234 More than 3.6 years ,751 3,786 Total -35,310-70,021-53, Foreign exchange risk Foreign exchange risk is the risk of losses on foreign exchange positions because of changes in foreign exchange rates. Foreign exchange Indicator 1 expresses a simplified measure of the scope of the institution's positions in foreign currency and is calculated - according to the guidelines of the Danish Financial Supervisory Authority - as the greater of the sum of the foreign currency positions in which the Bank has net payables (short foreign exchange positions) and the sum of all the currencies in which the Bank has a net receivable (long foreign exchange positions). Half-Year Report 49

50 Financial Statements Notes Note 30 June June Dec 2016 DKK 000 DKK 000 DKK Foreign exchange risk (continued) Assets in foreign currency, total 1,144,831 1,980,424 1,977,457 Liabilities in foreign currency, total 90,678 73,444 60,481 Foreign exchange indicator 1 7,190 15,941 5,684 Foreign exchange indicator 1 in percent of tier 1 capital 0.4% 0.9% 0.3% The foreign exchange position consists primarily of positions in CAD, CHF, EUR, GBP, NOK, SEK, TRY and USD. A change unfavourable to the Bank of 2% in EUR and of 10% in other foreign currencies will result in a profit/loss and equity impact before tax of , Share risk The Bank s share risk is derived from shares and derivatives in the Bank s investment and trading books. 30 June June Dec 2016 DKK 000 DKK 000 DKK 000 Shares, etc. Shares/unit trust certificates listed on NASDAQ OMX Copenhagen A/S 11,353 10,326 9,987 Shares/unit trust certificates listed on other exchanges 8,779 12,873 7,809 Unlisted shares recognised at fair value 265, , ,882 Unlisted shares, etc. recognised at cost 0 1, Total 285, , ,704 Of which, sector shares 262, , ,206 Sensitivity An increase in share prices of 10 percentage points will result in a profit/loss and equity impact before tax of 28,538 17,959 25,471 of which sector shares 26,233 15,225 23,521 of which other shares 2,305 2,734 1,950 A decrease in share prices of 10 percentage points will result in a profit/loss and equity impact before tax of -28,538-17,959-25,471 of which sector shares -26,233-15,225-23,521 of which other shares -2,305-2,734-1, Half-Year Report

51 Note 37 Liquidity risk At 31 December 2016, the liquidity requirement of section 152 of the Danish Financial Business Act was phased out. However, the Danish FSA has stated that the Supervisory Diamond s liquidity benchmark will for a period continue to be based on the section 152 liquidity requirement. Pursuant to Regulation (EU) No 575/2013 of 26 June 2013, the LCR requirement will be phased in with 80% at 1 January 2017 and 100% at 1 January Vestjysk Bank bases its liquidity risk management on the LCR requirement and in 2017 has an objective of maintaining a LCR of at least 100% on a day-to-day basis. The liquidity buffer is determined on the basis of the Bank's objective of maintaining a LCR of 125% month by month under a chosen 12-month stress scenario. The stress scenario is based on a standard LCR-based stress situation for the first 30 days and a specific Vestjysk Bank stress scenario for the remaining 11 months. The liquidity buffer consists of liquid government and mortgage bonds categorised as level 1a, level 1b or level 2a assets and deposits held with the Danish central bank. 30 June June Dec 2016 DKK 000 DKK 000 DKK 000 Liquidity buffer Demand deposits with Danmarks Nationalbank as well as demand deposits with other credit institutions 1,681, , ,600 Liquid securities 3,053,555 4,185,698 3,925,210 Total 4,735,141 5,084,326 4,815,810 Excess coverage in relation to the 10%-requirement set out in section 152 of the Danish Financial Business Act. 99.4% 134.3% 127.4% LCR values 4,369,239 3,933,592 3,642,258 LCR values after adjustment on level 1a assets 4,369,239 3,538,083 3,610,370 Net outflow 1,821,052 1,030,255 1,134,877 Liquidity Coverage Ratio - LCR 239.9% 343.4% 318.1% Half-Year Report 51

52 Financial Statements Notes Note 38 Other risks Operational risks General responsibility for operational risks resides with the Bank's Risk Management. Vestjysk Bank considers its reliance on key employees to be a focus area. There are ongoing efforts to minimise the Bank's reliance on key employees, among other things in the form of written business procedures, centralisation of tasks, and the outsourcing of areas that are not significant to the Bank's competitiveness. Vestjysk Bank is continuously working on policies and contingency plans for physical catastrophes and IT-related disaster recovery. The Bank is a member of Bankernes EDB Central (BEC), which handles the day-to-day operations of its IT systems. The Bank follows the directions and recommendations issued by BEC and it does not perform any independent IT system development. The Bank's contingency plans for the IT area cover service interruptions at headquarters and parts of the department network. In the event of interruptions in one or more departments, operations can still take place from the other departments and in the event of prolonged interruptions at headquarters, vital functions can be carried out from a department. The Bank's contingency plan is reviewed by the Board of Directors at least once a year. The operational risk is minimised by ensuring, among other things, that the execution of activities is organisationally separated from the control of such activities. Risk related to total capital The total capital is monitored on an ongoing basis, and the Board of Directors receives monthly reports based on established guidelines. Compliance Vestjysk Bank has a compliance function, whose area of responsibility is to monitor compliance with financial legislation. Instructions and an annual plan for this area, approved by the Executive Board, have been drawn up. 39 Pending litigation Vestjysk Bank is a party to various lawsuits. The proceedings are evaluated on an ongoing basis, and requisite provisions are made based on an assessment of the risk of losses. The pending proceedings are not expected to have material influence on the Bank s financial position. 52 Half-Year Report

53 Note H H FY 2016 DKK 000 DKK 000 DKK Financial highlights Key figures Statement of income (DKKm) Net interest income Net fee income Dividends on shares etc Value adjustments Other operating income Core income ,004 Staff costs and administrative expenses Other operating expenses as well as depreciation, amortisation and impairment losses; on intangible and intangible assets Operating expenses and operating depreciation and amortisation Core earnings before impairment Impairment of loans and receivables, etc Profit before tax Tax Profit after tax June June Dec 2016 Statement of financial position (DKKm) Assets, total 22,486 20,557 19,895 Loans 12,273 13,093 12,529 Deposits, including pooled schemes 18,584 17,463 16,971 Contingent liabilities 3,431 3,143 3,358 Business volume 34,288 33,699 32,858 Equity 1,596 1,411 1,487 Half-Year Report 53

54 Financial Statements Notes Note 30 June June Dec Financial highlights (continued) Financial ratios 1 Solvency Total capital ratio 13.9% 12.5% 13.0% Tier 1 capital ratio 12.2% 10.6% 11.2% Common equity tier 1 capital ratio 9.7% 8.2% 8.7% Earnings Return on equity before tax, annually 15.1% 1.6% 5.7% Return on equity after tax, annually 14.1% 1.5% 5.5% Income/cost ratio Cost Ratio % 52.4% 50.3% Return on assets 0.5% 0.0% 0.4% Employees converted to full-time (average) Market risk Interest rate risk -1.9% -4.1% -3.0% Foreign exchange position 0.4% 0.9% 0.3% Foreign exchange risk 0.0% 0.0% 0.0% LCR 239.9% 343.3% 318.1% Credit risk Loans plus impairment of loans relative to deposits 82.3% 92.2% 91.7% Loans relative to equity Growth in loans -2.0% -2.1% -6.4% Sum of large exposures 28.7% 38.6% 36.9% Accumulated impairment ratio 16.2% 15.7% 16.1% Impairment ratio 0.8% 1.1% 2.2% Vestjysk Bank share Earnings per share Book value per share Price of Vestjysk Bank shares, end of the period Share price/book value per share The financial ratios are laid down in the Danish FSA's Executive Order on Financial Reports for Credit Institutions and Investment Firms, etc. 2 Operating expenses and operating depreciation and amortisation/core income 3 The ratios are calculated as though the additional tier 1 capital were a liability. 54 Half-Year Report

55 vestjyskbank.dk Vestjysk Bank A/S, Torvet 4-5, 7620 Lemvig, CVR