Sydbank s Interim Report Q1 2018

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2 SYDBANK INTERIM REPORT Q /40 Sydbank s Interim Report Q Satisfactory result return on shareholders equity of 14.8% p.a. after tax Sydbank has delivered a satisfactory performance for the first three months of 2018 and maintains a high level of earnings. Core income is at the same high level as in Q Trading income is at a satisfactory level. Due to the good credit quality impairment charges were reversed for the 4th consecutive quarter. The Group s loans and advances have effectively dropped by DKK 0.3bn adjusted for the effect of the funding of mortgage-like loans. CEO Karen Frøsig comments on Sydbank s Q1 result: - I am pleased to note continued high and stable earnings. Profit after tax equals a return on shareholders equity of 14.8% p.a. Karen Frøsig elaborates: - The financial health of the Bank s customers is generally good, which means that the need for impairment charges for loans and advances is limited. As a result of the current level of interest rates combined with relatively low demand for new loans and advances as well as keen competition, net interest income continues to be under pressure. But I am very glad that the drop in net interest income has been offset by a rise in other core income, bringing total core income to the level achieved in the same period in Q highlights Profit of DKK 431m equals a return of 14.8% p.a. on shareholders equity after tax. Core income of DKK 1,053m is on a par with the level in the same period in Impairment charges for loans and advances represent an income of DKK 13m and are DKK 24m lower than in the same period in Bank loans and advances including funded mortgage-like loans have decreased by DKK 0.3bn, equal to 0.5% compared to year-end Bank loans and advances excluding funded mortgage-like loans have declined by DKK 0.8bn, equal to 1.2% in Q The Common Equity Tier 1 capital ratio has decreased by 0.7 percentage points compared to year-end 2017 and constitutes 16.6% excluding profit for the period. When including 50% of profit for the period, the Common Equity Tier 1 capital ratio stands at 17.0%. A share buy-back programme of DKK 500m was commenced on 21 February Outlook for 2018 Limited growth is projected for the Danish economy in Total income is expected to be on a par with the income generated in Costs (core earnings) are projected to rise slightly in Impairment charges for 2018 are forecast to be at a low level. The uncertainty surrounding price developments in the agricultural sector may however affect impairment charges. Non-recurring items, net, are expected to represent around DKK 35m. Profit after tax is expected to be in the range of DKK 1,340-1,540m. The outlook is subject to uncertainty and depends among other things on macroeconomic factors.

3 SYDBANK INTERIM REPORT Q /40 Contents Financial Review Group Financial Highlights... 4 Highlights... 5 Financial Review Performance in Q Income Statement Statement of Comprehensive Income Balance Sheet Financial Highlights Quarterly Capital Cash Flow Statement Segment Reporting etc Notes Management Statement Supplementary Information... 40

4 SYDBANK INTERIM REPORT Q /40 Group Financial Highlights Q1 Q1 Index Full year / Income statement (DKKm) Core income 1,053 1, ,167 Trading income Total income 1,108 1, ,400 Costs, core earnings ,637 Core earnings before impairment ,763 Impairment of loans and advances etc (13) 11 - (51) Core earnings ,814 Investment portfolio earnings (12) Profit before non-recurring items ,996 Non-recurring items, net 105 (6) - (40) Profit before tax ,956 Tax Profit for the period ,531 Balance sheet highlights (DKKbn) Loans and advances at amortised cost Loans and advances at fair value Deposits and other debt Bonds issued at amortised cost Subordinated capital Shareholders equity Total assets Financial ratios per share (DKK per share of DKK 10) EPS Basic ** EPS Diluted ** Share price at end of period Book value Share price/book value Average number of shares outstanding (in millions) Dividend per share Other financial ratios and key figures Common Equity Tier 1 capital ratio Tier 1 capital ratio Capital ratio Pre-tax profit as % p.a. of average shareholders equity Post-tax profit as % p.a. of average shareholders equity Costs (core earnings) as % of total income Return on assets (%) Interest rate risk Foreign exchange position Foreign exchange risk Loans and advances relative to deposits * Loans and advances relative to shareholders equity * Growth in loans and advances for the period * (1.2) (6.9) (16.7) Excess cover relative to statutory liquidity requirements Total large exposures Accumulated impairment ratio Impairment ratio for the period ** (0.02) 0.01 (0.05) Number of full-time staff at end of period 2,088 2, ,064 * Financial ratios are calculated on the basis of loans and advances at amortised cost. ** Quarterly ratios have not been converted to a full-year basis.

5 SYDBANK INTERIM REPORT Q /40 Highlights Continued high credit quality and the sale of ValueInvest ensure a satisfactory result for Q Sydbank s financial statements for Q1 show a pre-tax profit of DKK 511m compared with DKK 574m in Q The decline is primarily attributable to a drop in investment portfolio earnings of DKK 148m, an improvement in non-recurring items, net of DKK 111m and a decrease in impairment charges of DKK 24m. Blue growth targets: Realise a return on shareholders equity of a minimum of 12% after tax or be in the top 3 of the 6 largest banks Maintain top 3 ranking among the 6 largest banks in terms of customer satisfaction. Profit before tax equals a return on average shareholders equity of 17.6% p.a. Core income, trading income, costs (core earnings) and impairment charges are in line with the expectations announced in the 2017 Annual Report. Non-recurring items in Q exceed the expectations presented in the 2017 Annual Report. Net interest etc constitutes DKK 460m compared with DKK 519m in 2017 a decline of DKK 59m. DKK 23m of the decline is attributable to the increase in the extent of funded mortgage-like loans. Core income totals DKK 1,053m, ie unchanged compared with To ensure further digitization of processes and the establishment of a new mortgage platform, DKK 75m will be allocated in 2018 to optimise IT systems. The amount will be recognised under Non-recurring items. Total income amounts to DKK 1,108m against DKK 1,146m in Core earnings constitute DKK 418m compared with DKK 444m in 2017 a decrease of DKK 26m. Profit for the period amounts to DKK 431m compared with DKK 447m in 2017 a decline of DKK 16m. Follow-up on the 3-year plan Blue growth The strategy for the 3-year period is named Blue growth. Blue growth means highquality and profitable banking pure and simple. Status targets These funds cover 3 projects: Optimisation of housing loan processes New mortgage platform Streamlining of credit processes. Customers and employees alike will experience considerable improvements as a result of the projects. Customers in the form of shorter response times and case processing times. Employees in the form of smoother procedures and qualitative improvements. The projects will contribute to developing the Bank as well as make it possible to adjust costs also in the years ahead. Target Objective Status at 31 March 2018 Comment Return on shareholders equity after tax Over 12% * 14.8% Progressing as planned Customer satisfaction Corporate Top 3 ** 4th Aalund New survey 2H 2018 Customer satisfaction Retail Top 3 ** 5th EPSI New survey 2H 2018 Common Equity Tier 1 capital ratio Around 13.5% 16.6% Met from Q Capital ratio Around 17.0% 20.2% Met from Q % of profit for the Dividend year after tax * or top 3 ranking among the 6 largest banks ** among the 6 largest banks 50% of profit for the year after tax in 2017 Met in 2017

6 SYDBANK INTERIM REPORT Q /40 Q1 performance Core income totals DKK 1,053m, which is unchanged compared with Q The development in core income is mainly attributable to a decrease in net interest income etc and an increase in mortgage credit income and commission etc concerning investment funds and pooled pension plans. The rise in commission etc concerning investment funds and pooled pension plans is due to a revaluation of the shares in BI Holding A/S of DKK 41m. Trading income constitutes DKK 55m in Q compared with DKK 93m in the same period in The income generated in Q is in line with expectations at the beginning of Total income represents DKK 1,108m, a decrease of DKK 38m compared with Q At Sydbank costs (core earnings) are a constant focus area and the Bank maintained tight control of costs (core earnings) in Q1, which constituted DKK 703m compared with DKK 691m in 2017 an increase of DKK 12m. Compared with Q the Group s impairment charges for loans and advances have declined by DKK 24m to an income of DKK 13m. Together the Group s position-taking and liquidity handling recorded negative investment portfolio earnings of DKK 12m in Q compared with earnings of DKK 136m a year ago. Non-recurring items represent an income of DKK 105m compared with an expense of DKK 6m in Q The item consists of costs of DKK 5m for process digitization related to Blue growth and the establishment of a new mortgage platform as well as an income of DKK 110m in connection with the sale of the shares in ValueInvest Asset Management S.A. Profit before tax for Q amounts to DKK 511m compared with DKK 574m in the same period in Tax represents DKK 80m, equivalent to an effective tax rate of 15.6%. The low level is due to the fact that the income of DKK 110m and DKK 41m respectively concerning ValueInvest and BI Holding is tax-exempt. Profit for the period amounts to DKK 431m compared with DKK 447m in Total credit intermediation (DKKbn) 31 Mar Dec 2017 Bank loans and advances Funded mortgage-like loans Arranged mortgage loans Totalkredit Arranged mortgage loans DLR Total Capital The Bank monitors the subordinated capital market regarding Additional Tier 1 capital as well as Tier 2 capital with a view to optimising its capital structure when the timing is believed to be right. The Bank has initiated a share buy-back programme of DKK 500m. The share buyback commenced on 21 February 2018 and will be completed by 31 December At end-march 363,000 shares worth DKK 84m, made up at the trade date, had been repurchased. The share buyback is part of the capital adjustment to optimise the capital structure in accordance with the Group s capital policy published in the 2017 Annual Report. Outlook for 2018 Limited growth is projected for the Danish economy in Total income is expected to be on a par with the income generated in Costs (core earnings) are projected to rise slightly in Impairment charges for 2018 are forecast to be at a low level. The uncertainty surrounding price developments in the agricultural sector may however affect impairment charges. Non-recurring items, net are expected to represent around DKK 35m. Profit after tax is expected to be in the range of DKK 1,340m-1,540m. The outlook is subject to uncertainty and depends among other things on macroeconomic factors. Credit intermediation In addition to traditional bank loans and advances the Group arranges for mortgage loans from Totalkredit and DLR Kredit. The Group s total credit intermediation comprises bank loans and advances, mortgage-like loans funded by Totalkredit as well as mortgage loans arranged through Totalkredit and DLR Kredit respectively. At 31 March 2018 credit intermediation totalled DKK 143.8bn a drop of DKK 0.2bn since year-end 2017.

7 SYDBANK INTERIM REPORT Q /40 Financial Review Performance in Q The Sydbank Group has recorded a profit before tax of DKK 511m (Q1 2017: DKK 574m). Profit before tax equals a return on average shareholders equity of 17.6% p.a. Profit for the period after tax amounts to DKK 431m compared with DKK 447m in Profit after tax equals a return on average shareholders equity of 14.8% p.a. The satisfactory result for Q exceeds expectations at the beginning of the year. The result is characterised by: Q1 Unchanged core income of DKK 1,053m A drop in trading income of DKK 38m A 1.7% increase in costs (core earnings) to DKK 703m A decline in impairment charges for loans and advances of DKK 24m A decrease in core earnings of DKK 26m to DKK 418m Negative investment portfolio earnings of DKK 12m Bank loans and advances of DKK 63.5bn (yearend 2017: DKK 64.3bn) Bank deposits of DKK 81.5bn (year-end 2017: DKK 82.7bn) A capital ratio of 20.2%, including a Common Equity Tier 1 capital ratio of 16.6% An individual solvency need of 11.2% (year-end 2017: 11.0%). Income statement Q1 (DKKm) Core income 1,053 1,053 Trading income Total income 1,108 1,146 Costs, core earnings Core earnings before impairment Impairment of loans and advances etc (13) 11 Core earnings Investment portfolio earnings (12) 136 Profit before non-recurring items Non-recurring items, net 105 (6) Profit before tax Tax Profit for the period Core income Core income of DKK 1,053m is unchanged compared with Net interest has decreased by DKK 59m to DKK 460m. DKK 23m of the decline is attributable to the increase in the extent of funded mortgage-like loans. Net income from the cooperation with Totalkredit represents DKK 115m (2017: DKK 93m) after a setoff of loss of DKK 6m (2017: DKK 9m). The cooperation with DLR Kredit has generated an income of DKK 30m (2017: DKK 37m). Compared with 2017 total mortgage credit income has climbed by DKK 15m to DKK 146m an increase of 11%. DKK 18m of the increase of DKK 15m is attributable to the increase in the extent of funded mortgage-like loans. Income from remortgaging and loan fees has gone up from DKK 32m in 2017 to DKK 38m an increase of 19%. Compared with 2017 income from asset management has gone up by DKK 11m to DKK 67m a rise of 20%. Income from commission etc concerning investment funds and pooled pension plans has increased by DKK 41m compared with 2017 to DKK 143m as a result of the revaluation of Sydbank s ownership interest in BI Holding A/S of DKK 41m. The remaining income components have decreased by DKK 11m compared to 2017 a decline of 7%. Core income Q1 (DKKm) Net interest etc Mortgage credit Payment services Remortgaging and loan fees Commission and brokerage Commission etc investment funds and pooled pension plans Asset management Custody account fees Other operating income Total 1,053 1,053 Trading income Trading income constitutes DKK 55m in Q compared with DKK 93m in the same period in The income generated in Q is in line with expectations at the beginning of 2018.

8 SYDBANK INTERIM REPORT Q /40 In Fixed Income considerable trading activity was recorded in mortgage bonds in Q In Equities income was affected by the negative market trend in Q Trading income Q1 (DKKm) Bonds Shares 6 22 Foreign exchange, interest etc 10 8 Total Costs and depreciation The Group s costs and depreciation totalled DKK 710m, equal to an increase of DKK 12m compared with The increase is a consequence of general pay rises for the financial sector and a payroll tax increase of 0.5%. Costs and depreciation Q1 (DKKm) Staff costs Other administrative expenses Amortisation/depreciation and impairment of intangible assets and property, plant and equipment Other operating expenses 5 5 Total costs and depreciation Distributed as follows: Costs, core earnings Costs, investment portfolio earnings 2 2 Non-recurring costs 5 6 Costs (core earnings) represent DKK 703m compared with DKK 691m in At the end of Q the Group s staff numbered 2,088 (full-time equivalent) compared with 2,062 at 31 March The number of branches is unchanged compared with year-end 2017: 62 in Denmark and 3 in Germany. Core earnings before impairment Core earnings before impairment charges for loans and advances represent DKK 405m a decrease of DKK 50m or 11% compared with the same period in Impairment of loans and advances etc Impairment charges for loans and advances represent an income of DKK 13m compared with an expense of DKK 11m in the same period in The decline constitutes DKK 24m. Additional impairment charges for agricultural exposures represent DKK 75m at 31 March 2018 unchanged compared with year-end The chart below shows impairment charges for loans and advances in the last 4 quarters as regards agriculture etc, trade, real property, other corporate lending as well as retail clients. Individual impairment charges quarterly DKKm Agriculture etc Trade Real property Other corporate lending Q2-17 Q3-17 Q4-17 Q1-18 Retail clients At 31 March 2018 the impairment ratio represents minus 0.02% relative to bank loans and advances and minus 0.02% relative to bank loans and advances and guarantees. At end-march 2018 accumulated impairment and provisions amount to DKK 3,233m a decline of DKK 74m compared with 1 January In Q reported losses amount to DKK 119m (Q1 2017: DKK 180m). Of the reported losses DKK 71m has previously been written down. As a result of IFRS 9, which became effective on 1 January 2018, impairment charges for expected credit losses are recorded as regards all financial assets recognised at amortised cost and similar provisions are made for expected credit losses as regards undrawn credit lines and financial guarantees. Impairment charges for expected credit losses depend on whether the credit risk of a financial asset has increased significantly since initial recognition and are divided into 3 stages: Stage 1 facilities with no significant increase in credit risk. The asset is written down by an amount equal to the expected credit loss as a result of the probability of default over the coming 12 months Stage 2 facilities with a significant increase in credit risk. The asset changes to stage 2 and is written down by an amount equal to the expected credit loss over the lifetime of the asset Stage 3 facilities where the financial asset is in default or is otherwise credit impaired.

9 SYDBANK INTERIM REPORT Q /40 The Group s loans and advances and impairment charges at 31 March 2018 divided into these 3 stages are shown in the table below. 31 Mar 2018 (DKKm) Loans/ advances before impairment charges Impairment charges Loans/ advances after impairment charges Stage 1 58, ,810 Stage 2 5,644 1,672 3,972 Stage 3 credit impaired 1,924 1, Total 66,498 2,978 63, Mar 2018 (%) Stage 1 Stage 2 Stage 3 Impairment charges as % of bank loans and advances Share of bank loans and advances before impairment charges (%) Share of bank loans and advances after impairment charges (%) Investment portfolio earnings Q1 (DKKm) Position-taking (4) 89 Liquidity generation and liquidity reserves (1) 39 Strategic positions (5) 10 Costs (2) (2) Total (12) 136 Margin expenses as regards the Group s senior issues are included under liquidity generation and liquidity reserves and represent DKK 5m in Q compared with DKK 7m in Q Non-recurring items etc, net Non-recurring items etc, net represent an income of DKK 105m compared with an expense of DKK 6m in Q The item consists of costs of DKK 5m for process digitization related to Blue growth and the establishment of a new mortgage platform as well as an income of DKK 110m in connection with the sale of the shares in ValueInvest Asset Management S.A. Credit impaired bank loans and advances stage 3 represent 2.9% of total bank loans and advances before impairment charges and 1.2% of total bank loans and advances after impairment charges. Impairment charges concerning credit impaired bank loans and advances as a percentage of credit impaired bank loans and advances at 31 March 2018 stand at 61.6%. In compliance with the transitional provisions comparative figures for 2017 have not been restated. Core earnings Core earnings represent DKK 418m a decrease of DKK 26m or 5.9% compared with the same period in Investment portfolio earnings Together the Group s position-taking and liquidity handling recorded negative investment portfolio earnings of DKK 12m in Q compared with investment portfolio earnings of DKK 136m a year ago. The negative investment portfolio earnings in Q are a consequence of widening credit spreads on mortgage bonds as well as a drop in interest rates. The risk continues to be composed so that the Bank will profit from an interest rate increase.

10 SYDBANK INTERIM REPORT Q /40 Profit for the period Q1 Q4 Q3 Q2 Q1 (DKKm) Core income 1,053 1,038 1,036 1,040 1,053 Trading income Total income 1,108 1,074 1,094 1,086 1,146 Costs, core earnings Core earnings before impairment Impairment of loans and advances etc (13) (13) (29) (20) 11 Core earnings Investment portfolio earnings (12) (13) Profit before non-recurring items Non-recurring items, net 105 (17) (11) (6) (6) Profit before tax Tax Profit for the period Profit for the period Profit before tax amounts to DKK 511m (Q1 2017: DKK 574m). Tax represents DKK 80m, equal to an effective tax rate of 15.6%. The low level is due to the fact that the income of DKK 110m and DKK 41m respectively concerning ValueInvest and BI Holding is tax-exempt. Profit for the period amounts to DKK 431m compared with DKK 447m in Return Profit for the period equals a return on average shareholders equity of 14.8% p.a. after tax against 15.5% p.a. in Q Earnings per share stands at DKK 6.5 compared with DKK 6.4 in Subsidiaries Ejendomsselskabet recorded a profit after tax of DKK 2m (Q1 2017: DKK 1m). Profit after tax in DiBa A/S and Syd Fund Management A/S represents DKK 6m (Q1 2017: DKK 0m) and DKK 6m (Q1 2017: DKK 4m) respectively. Q compared with Q Profit before tax for the quarter represents DKK 511m. Compared with Q profit before tax reflects: a decline in net interest etc of DKK 13m a rise in core income of DKK 15m a rise in trading income of DKK 19m a rise in costs (core earnings) of DKK 58m unchanged impairment charges for bank loans and advances a decline in core earnings of DKK 24m to DKK 418m investment portfolio earnings of minus DKK 12m (Q4 2017: minus DKK 13m). Total assets The Group s total assets made up DKK 134.3bn at 31 March 2018 against DKK 138.5bn at year-end Assets (DKKbn) 31 Mar Dec 2017 Amounts owed by credit institutions etc Loans and advances at fair value (reverse transactions) Loans and advances at amortised cost (bank loans and advances) Securities and holdings etc Assets related to pooled plans Other assets etc Total The Group s bank loans and advances made up DKK 63.5bn at end-march 2018 against DKK 64.3bn at year-end 2017 and DKK 71.9bn at end-march Shareholders equity and liabilities (DKKbn) 31 Mar Dec 2017 Amounts owed to credit institutions etc Deposits and other debt Deposits in pooled plans Bonds issued Other liabilities etc Provisions Subordinated capital Shareholders equity Total The Group s deposits make up DKK 81.5bn, equal to a decrease of DKK 1.2bn compared to the level at year-end 2017.

11 SYDBANK INTERIM REPORT Q /40 Capital At 31 March 2018 shareholders equity constitutes DKK 11,349m a decline of DKK 577m since yearend The change comprises an addition from profit for the period of DKK 431m less actual distribution of DKK 765m and net purchases of own shares etc of DKK 75m as well as the effect of DKK 168m after tax of the amended impairment principles regarding loans and advances etc as a consequence of IFRS 9 taking effect at 1 January In 2018 the Bank will continue to optimise its capital structure, possibly by issuing subordinated capital and consequently the market for issuing subordinated capital is monitored on an ongoing basis. The Bank has initiated a share buy-back programme of DKK 500m. The share buyback commenced on 21 February 2018 and will be completed by 31 December At end-march 363,000 shares worth DKK 84m, made up at the trade date, had been repurchased. The share buyback is part of the capital adjustment to optimise the capital structure in accordance with the Group s capital policy published in the 2017 Annual Report. REA 31 Mar 31 Dec (DKKbn) Credit risk Market risk Operational risk Other exposures incl CVA Total % Gross exposure by rating category Mar Dec Mar 2018 The gross exposure consists of loans and advances, undrawn credit lines, interest receivable, guarantees and counterparty risk on derivatives. The graph comprises exposures treated according to IRB. Exposures relating to clients in default are not included in the breakdown of rating categories. Impairment charges for exposures have not been deducted from the exposure. The Group s capital ratio stands at 20.2%, of which the Tier 1 capital ratio represents 17.0% compared with 20.8% and 17.7% respectively at year-end The Common Equity Tier 1 capital ratio stands at 16.6% (31 December 2017: 17.3%). The development in the Group s capital ratio from 31 December 2017 to 31 March 2018 is illustrated below. Capital ratio in Q1 The risk exposure amount represents DKK 57.5bn (year-end 2017: DKK 58.9bn). The change is mainly attributable to a decrease in market risk of DKK 0.5bn and a decline in credit risk of DKK 0.6bn. The development in the gross exposure by rating category at 31 March 2017, 31 December 2017 and 30 September 2017 appears below. Compared with 31 December 2017 the gross exposure by rating category shows a mildly negative development with a slightly declining share in the 4 best rating categories. Profit for the period is not included in the calculation of capital ratios at 31 March If 50% of profit for the period after tax had been recognised the capital ratios would have been 0.4 percentage points higher. At 31 March 2018 the individual solvency need represents 11.2% (31 December 2017: 11.0%). The parent s capital ratio stands at 19.5%, of which the Tier 1 capital ratio represents 16.4% compared with 20.1% and 17.2% respectively at year-end The Common Equity Tier 1 capital ratio stands at 16.0% (31 December 2017: 16.7%).

12 SYDBANK INTERIM REPORT Q /40 Capital requirements The Group s capital management is anchored in the Internal Capital Adequacy Assessment Process (ICAAP), a review conducted to identify risks and determine the individual solvency need. At end-march 2018 the individual solvency need represented 11.2%. The solvency need consists of a minimum capital requirement of 8% under Pillar I and a capital add-on under Pillar II. Approximately 56% of the solvency need must be covered by Common Equity Tier 1 capital, equal to 5.6% of the risk exposure amount. In addition to the solvency need the Group must meet a combined buffer requirement of 2.7% at 31 March When fully loaded the combined buffer requirement will represent 3.5% bringing the fully loaded CET1 capital ratio requirement to 9.8%. Capital and solvency and capital requirements (% of REA) 31 Mar 2018 Fully loaded* Capital and solvency Common Equity Tier 1 capital ratio Capital ratio Capital requirements (incl buffers)** Total capital requirement CET1 capital requirement of which countercyclical capital buffer of which capital conservation buffer of which SIFI buffer Excess capital Common Equity Tier 1 capital Total capital * Based on fully loaded CRR/CRD IV rules and requirements. ** The total capital requirement consists of an individual solvency need and a combined buffer requirement. The fully loaded countercyclical capital buffer is based on the national buffer rate as at 31 March Market risk At 31 March 2018 the Group s interest rate risk represents DKK 92m. The Group s exchange rate risk continues to be very low and its equity position modest. Funding and liquidity The guidelines for calculating the Liquidity Coverage Ratio LCR specify a run-off of exposures, while taking into account counterparties, funding size, hedging and duration. Consequently the most stable deposits are favoured relative to large deposits, in particular large deposits from business enterprises and financial counterparties. The Group s LCR constituted 181% at 31 March 2018 (31 December 2017: 176%). LCR (DKKbn) 31 Mar Dec Mar 2017 Total liquidity buffer Net cash outflows LCR (%) The Group met the LCR requirement throughout the period and as can be seen, its excess cover is significant at 31 March Funding ratio (DKKbn) Shareholders equity and subordinated capital Senior loans with maturities over 1 year 31 Mar Dec Mar Stable deposits Total stable funding Loans and advances (excl reverse and mortgage-like loans funded via external counterparties) Funding ratio (%) As shown above the Group s stable funding exceeds the Group s loans and advances by DKK 21.5bn at 31 March 2018 (31 December 2017: DKK 21.7bn). Rating Moody s most recent rating of Sydbank: Outlook: Long-term deposit: Baseline Credit Assessment Senior unsecured: Short-term deposit: Positive A3 Baa1 Baa1 P-2. Supervisory Diamond The Supervisory Diamond sets up a number of benchmarks to indicate banking activities that initially should be regarded as involving a higher risk. Any breach of the Supervisory Diamond is subject to reactions by the Danish FSA. Sydbank A/S complies with all the benchmarks of the Supervisory Diamond. Supervisory Diamond Sum of 20 largest exposures < 175% 31 Mar Dec Mar Lending growth < 20% annually (11) (17) (6) Commercial property exposure < 25% Funding ratio < Excess cover relative to statutory liquidity requirements > 50% (section 152 of the Danish Financial Business Act)

13 SYDBANK INTERIM REPORT Q /40 Bank Recovery and Resolution Directive The directive, including the bail-in provisions, was implemented in Danish law on 1 June According to legislation each credit institution must meet a minimum requirement for eligible liabilities (MREL). In March 2018 the Danish FSA set the MREL for Sydbank at 12.4% of the Bank s total liabilities and total capital, equal to 27.3% of the risk exposure amount. The MREL must be met by 1 July This will result in changes in the Group s capital and funding structure. The general resolution principle for SIFIs is that it should be possible to restructure them and send them back to the market with adequate capitalisation to ensure market confidence. In accordance with this principle the MREL for SIFIs has been set at 2 times the total capital requirement. The MREL must be met with convertible instruments ( contractual bail-in ). The establishment of a resolution fund has commenced. Credit institutions must make contributions to the fund according to their relative size and risk in Denmark. The resolution fund must be established and have assets at its disposal equal to at least 1% of the covered deposits of all Danish credit institutions by 31 December The Group s contribution to the resolution fund for 2018 is expected to represent DKK 18m. Leverage ratio The CRR/CRD IV rules require credit institutions to calculate, report, monitor and disclose their leverage ratio, which is defined as Tier 1 capital as a percentage of total exposure. The European Commission s proposal for a revision of CRR includes a proposal to introduce a minimum leverage ratio requirement of 3%. The Group s leverage ratio stood at 6.5% at 31 March 2018 (year-end 2017: 6.9%) taking into account the transitional rules. Assuming fully loaded Tier 1 capital under CRR/CRD IV without any refinancing of non-eligible Additional Tier 1 capital, the leverage ratio would be 6.7% (yearend 2017: 6.7%). The introduction of a minimum leverage ratio requirement is not expected to be of significance to the Group. IFRS 9 transitional effect As a result of IFRS 9 taking effect at 1 January 2018 the Group s allowance account was increased by DKK 216m. Following the tax effect of DKK 48m due to the increased allowance account, the Group s shareholders equity has been reduced by DKK 168m at 1 January To counter an unintended impact on regulatory capital and hence banks possibilities of supporting lending, a transitional arrangement has been adopted so that an adverse impact from the new impairment model will be phased in over a 5-year period. Sydbank has decided to apply the transitional rules. Basel IV On 7 December 2017 the Basel Committee on Banking Supervision (BCBS) published its recommendations for a number of changes to the calculation of the capital requirements for credit institutions. These recommendations are also known as Basel IV. Among other things, Basel IV proposes to constrain the use of internal models and introduce a permanent floor for the risk exposure amount. The recommendations are expected to have a limited impact on the Group s capital. The recommendations must be implemented in the EU before they will apply to Danish institutions. The Group follows developments closely. At present the extent of the changes in relation to the Basel Committee s recommendations to be implemented as EU regulation is unknown. The effective date is expected to be 1 January 2022 on which date the floor requirement is also expected to be implemented, starting at 50% and gradually increasing until finally reaching 72.5% on 1 January Focus on agriculture In January 2018 SEGES published a forecast for earnings in the agricultural sector in 2017 and According to the SEGES report, the total operating profit after owners wages etc of full-time farms is expected to rise from a loss of DKK 1.6bn in 2016 to a profit of DKK 4.5bn in The final earnings figures for 2017 are not yet available but preliminary figures confirm the estimate. The significantly improved prices of pork as well as milk are mainly due to increased demand from China and other Asian countries but also due to larger crops as a result of the agricultural package adopted in Consequently an average farm is projected to record an operating profit after owners wages of DKK 0.7m as regards milk producers and DKK 1.3m as regards pig producers. Currently settlement prices for pork and milk alike have dropped considerably compared with As a result a substantial decline in earnings in the agricultural sector is projected for 2018 compared with The current settlement price for pork is DKK 8.90 per kg. The SEGES forecast from January 2018 estimates an average settlement price of DKK 9.06 per kg in This means that pig producers can look forward to an unsatisfactory result and for many

14 SYDBANK INTERIM REPORT Q /40 also a loss in The break-even price for most pig producers is DKK per kg. The majority of milk producers are expected to break even in The SEGES forecast from January 2018 estimates an average settlement price of DKK 2.51 per kg milk. At the beginning of 2018 the settlement price for conventional milk was DKK 2.76 per kg. The current settlement price of milk with ARLA is DKK 2.42 per kg. For most milk producers the break-even price is in the range of DKK per kg. According to SEGES crop producers recorded better yields in 2017 than in However average earnings remain negative after owners wages. And negative earnings after owners wages are also projected for In other words it still seems that 2018 will be a challenging year for Danish farmers, in particular pig producers, most of whom are currently selling pork at a price lower than the cost price. A breakdown by industry of bank loans and advances to the agricultural sector is shown below. Credit impaired bank loans and advances to agriculture represent DKK 389m at 31 March 2018, equal to 9.4% of total loans and advances to agriculture. Of total loans and advances to agriculture an impairment charge of 14.0% has been recorded at 31 March 2018 against 11.1% at year-end However the satisfactory earnings for 2017 do not change the fact that the agricultural sector overall has too large debts and is consequently very vulnerable to developments in settlement prices and interest rates. In Q individual impairment charges of DKK 43m were recorded on agricultural exposures. Individual impairment charges during the quarter were as expected. The management estimate of DKK 75m remains unchanged at 31 March Mar 2018 (DKKm) Pig farming Cattle farming Crop production Other agriculture Total loans and advances Loans and advances - stage ,890 Loans and advances - stage Loans and advances - stage 3 - credit impaired Bank loans and advances before impairment charges 1, ,091 1,005 4,154 Impairment of loans and advances - stage Impairment of loans and advances - stage Impairment of loans and advances - stage Management estimates Total impairment charges for bank loans and advances Bank loans and advances after impairment charges , ,571 Credit impaired as % of bank loans and advances Impairment as % of credit impaired bank loans and advances Impairment as % of bank loans and advances Dec 2017 (DKKm) Pig farming Cattle farming Crop production Other agriculture Total loans and advances Bank loans and advances before impairment charges 1,216 1,061 1,110 1,010 4,352 Individual impairment charges Management estimates Bank loans and advances after impairment charges 1, , ,869 Impaired bank loans and advances Impaired as % of bank loans and advances Impairment as % of impaired bank loans and advances Impairment as % of bank loans and advances

15 SYDBANK INTERIM REPORT Q /40 Income Statement Q1 Q1 Full year DKKm Note Interest income ,174 Interest expense Net interest income ,995 Dividends on shares Fee and commission income ,112 Fee and commission expense Net interest and fee income ,856 Market value adjustments Other operating income Staff costs and administrative expenses ,537 Amortisation/depreciation and impairment of intangible assets and property, plant and equipment Other operating expenses Impairment of loans and advances etc 9 (7) 22 (45) Profit on holdings in associates and subsidiaries (7) Profit before tax ,956 Tax Profit for the period ,531 EPS Basic (DKK) * EPS Diluted (DKK) * Dividend per share (DKK) * Calculated on the basis of average number of shares outstanding, see page 18. Statement of Comprehensive Income Profit for the period ,531 Other comprehensive income Items that may be reclassified to the income statement: Translation of foreign entities (2) 1 (20) Hedge of net investment in foreign entities 2 (1) 20 Property revaluation Other comprehensive income after tax Comprehensive income for the period ,546

16 SYDBANK INTERIM REPORT Q /40 Balance Sheet 31 Mar 31 Dec 31 Mar DKKm Note Assets Cash and balances on demand at central banks 2,165 2,115 1,991 Amounts owed by credit institutions and central banks 12 12,212 12,479 6,591 Loans and advances at fair value 4,412 5,248 7,075 Loans and advances at amortised cost 63,520 64,312 71,890 Bonds at fair value 24,070 25,860 22,526 Shares etc 2,234 2,118 1,858 Holdings in associates etc Assets related to pooled plans 16,331 16,541 14,412 Intangible assets Land and buildings owner-occupied property 1,064 1, Other property, plant and equipment Current tax assets Deferred tax assets Assets in temporary possession Other assets 13 7,586 8,099 9,490 Prepayments Total assets 134, , ,552 Shareholders equity and liabilities Amounts owed to credit institutions and central banks 14 5,321 5,960 8,569 Deposits and other debt 15 81,455 82,690 80,946 Deposits in pooled plans 16,331 16,541 14,421 Bonds issued at amortised cost 3,725 3,722 3,716 Current tax liabilities 2-1 Other liabilities 16 13,887 15,363 15,962 Deferred income Total liabilities 120, , ,620 Provisions Subordinated capital 18 1,856 1,854 2,124 Shareholders equity: Share capital Revaluation reserves Other reserves: Reserves according to articles of association Other reserves Retained earnings 10,121 9,922 10,164 Proposed dividend etc Total shareholders equity 11,349 11,926 11,406 Total shareholders equity and liabilities 134, , ,552

17 SYDBANK INTERIM REPORT Q /40 Financial Highlights Quarterly Income statement (DKKm) Q1 Q4 Q3 Q2 Q Core income 1,053 1,038 1,036 1,040 1,053 Trading income Total income 1,108 1,074 1,094 1,086 1,146 Costs, core earnings Core earnings before impairment Impairment of loans and advances etc (13) (13) (29) (20) 11 Core earnings Investment portfolio earnings (12) (13) Profit before non-recurring items Non-recurring items, net 105 (17) (11) (6) (6) Profit before tax Tax Profit for the period Balance sheet highlights (DKKbn) Loans and advances at amortised cost Loans and advances at fair value Deposits and other debt Bonds issued at amortised cost Subordinated capital Shareholders equity Total assets Financial ratios per share (DKK per share of DKK 10) EPS Basic EPS Diluted Share price at end of period Book value Share price/book value Average number of shares outstanding (in millions) Dividend per share Other financial ratios and key figures Common Equity Tier 1 capital ratio Tier 1 capital ratio Capital ratio Pre-tax profit as % p.a. of average shareholders equity Post-tax profit as % p.a. of average shareholders equity Costs (core earnings) as % of total income Return on assets (%) Interest rate risk Foreign exchange position Foreign exchange risk Loans and advances relative to deposits * Loans and advances relative to shareholders equity * Growth in loans and advances for the period * (1.2) (3.7) (5.3) (1.8) (6.9) Excess cover relative to statutory liquidity requirements Total large exposures Accumulated impairment ratio Impairment ratio for the period (0.02) (0.02) (0.03) (0.02) 0.01 Number of full-time staff at end of period 2,088 2,064 2,069 2,092 2,062 * Financial ratios are calculated on the basis of loans and advances at amortised cost.

18 SYDBANK INTERIM REPORT Q /40 Capital DKKm Share capital Revaluation reserves Reserves acc to articles of association* Reserve for net revaluation acc to equity method Retained earnings Proposed dividend etc Total Shareholders equity at 1 Jan , ,926 Amendment to accounting policies, IFRS (216) - (216) Tax effect, IFRS Adjusted shareholders equity 1 Jan , ,758 Profit for the period Other comprehensive income Translation of foreign entities (2) - (2) Hedge of net investment in foreign entities Property revaluation Total other comprehensive income Comprehensive income for the period Transactions with owners Purchase of own shares (287) - (287) Sale of own shares Dividend etc paid (776) (776) Dividend, own shares Total transactions with owners (64) (776) (840) Shareholders equity at 31 Mar ,121-11,349 Shareholders equity at 1 Jan , ,757 Profit for the period Other comprehensive income Translation of foreign entities Hedge of net investment in foreign entities (1) - (1) Property revaluation Total other comprehensive income Comprehensive income for the period Transactions with owners Purchase of own shares (343) - (343) Sale of own shares Dividend etc paid (746) (746) Dividend, own shares Total transactions with owners (52) (746) (798) Shareholders equity at 31 Mar ,164-11,406 * Reserves according to the articles of association equal the undistributable savings bank reserve in accordance with Article 4 of the Articles of Association. 31 Mar Full year 31 Mar The Sydbank share Share capital (DKK) 703,611, ,611, ,401,990 Shares issued (number) 70,361,174 70,361,174 72,240,199 Shares outstanding at end of period (number) 66,580,457 66,900,704 69,248,667 Average number of shares outstanding (number) 66,835,351 68,364,550 69,458,941 The Bank has only one class of shares as all shares carry the same rights.

19 SYDBANK INTERIM REPORT Q /40 Capital 31 Mar 31 Dec 31 Mar DKKm Solvency Common Equity Tier 1 capital ratio Tier 1 capital ratio Capital ratio Total capital Shareholders equity 11,349 11,926 11,406 Expected maximum dividend based on dividend policy (431) - (447) Capital deduction based on prudence concept (56) (59) (56) Actual or contingent obligations to purchase own shares (424) - (581) Proposed dividend - (776) - Intangible assets and capitalised deferred tax assets (266) (271) (294) Significant investments in financial sector (792) (653) (523) Transitional arrangement IFRS Common Equity Tier 1 capital 9,543 10,167 9,505 Additional Tier 1 capital Tier 1 capital 9,767 10,446 9,783 Tier 2 capital 1,632 1,575 1,017 Difference between expected losses and accounting impairment charges Total capital 11,613 12,240 11,030 Credit risk* 38,328 38,933 40,677 Market risk 5,815 6,239 6,682 Operational risk 8,023 8,023 8,025 Other exposures incl credit valuation adjustment 5,351 5,694 5,571 Risk exposure amount 57,517 58,889 60,955 Pillar 1 capital requirement 4,601 4,711 4,876 * Credit risk Corporate clients, IRB 27,522 28,131 29,459 Retail clients, IRB 8,080 8,271 8,931 Corporate clients, STD Retail clients, STD Credit institutions etc 1,640 1,387 1,154 Total 38,328 38,933 40,677

20 SYDBANK INTERIM REPORT Q /40 Cash Flow Statement Q1 Full year Q1 DKKm Operating activities Pre-tax profit for the period 511 1, Taxes paid (190) (431) (205) Adjustment for non-cash operating items (43) Cash flows from working capital (2,443) 1, Cash flows from operating activities (2,165) 3,256 1,006 Investing activities Purchase and sale of holdings in associates - (6) - Purchase and sale of intangible assets and property, plant and equipment (174) (194) (17) Cash flows from investing activities (174) (200) (17) Financing activities Purchase and sale of own holdings (75) (642) (63) Dividends etc (765) (735) (735) Raising of subordinated capital Redemption of subordinated capital - (830) 2 Cash flows from financing activities (840) (1,649) (795) Cash flows for the period (3,179) 1, Cash and cash equivalents at 1 Jan 8,968 7,561 7,561 Cash flows for the period (3,179) 1, Cash and cash equivalents at end of period 5,789 8,968 7,755