January March 2017 Interim Report for Sparbanken Skåne AB (publ)

Transcription

1 January March 2017 Interim Report for Sparbanken Skåne AB (publ) Lund, 26 April 2017 Sparbanken Skåne reported a profit excluding goodwill amortisation and before tax of SEK 157m for the first quarter of The bank s transaction volume increased by 2 percent during the period and net interest income gained strength. The Swedish Financial Supervisory Authority approved the bank s application to issue covered bonds.

2 Q1 financial summary, January March 2017 The bank's operating profit for the quarter came in at SEK 50m (39) Operating profit excluding goodwill amortisation for the January March period reached SEK 157m (146) Net interest income increased by 1%, coming in at SEK 208m (206) Net fee and commission income decreased by 8%, totalling SEK 140m (152) The bank s expenses were down 3% in the quarter, ing to SEK 312m (322) Credit losses totalled SEK +5m (SEK 12m) The transaction volume was up 2%, coming in at SEK 187bn (184) The total capital ratio was 19.2% (18.9) The LCR ed to 181% (186) (Comparative figures in parentheses refer to Q4, October December 2016) Key events in Q Profit improved in the quarter. The strong performance of net interest income and continuing low credit losses are the main reasons for this improvement. The transaction volume increased by 2 percent in the quarter driven by a strong stock market trend along with growth in the bank s lending. In late March, the bank received authorisation from the Swedish Financial Supervisory Authority to issue covered bonds. The plan is to conduct the first issue by the end of September. The bank issued SEK 1bn under our ongoing MTN programme with senior bonds. Several new features of our new Internet Bank were presented during the quarter. One new feature is that customers can directly apply for consumer loans online. Sparbanken Skåne s three foundation owners, Sparbanksstiftelsen Färs & Frosta, Sparbanksstiftelsen 1826 and Sparbanksstiftelsen Finn, received project grant applications during the period. The foundations award grants for development projects in the bank s geographic area of operation twice a year. Financial summary, January March 2017 The bank's operating profit for January March 2017 reached SEK 50m (0) Operating profit excluding goodwill amortisation for the period totalled SEK 157m (107) The transaction volume at 31 March 2017 was SEK 187bn (174) The total capital ratio was 19.2% (18.5) The CET1 capital ratio equalled 17.4% (16.7) The leverage ratio reached 7.7% (7.4) The LCR ed to 181% (345) (Comparative figures in parentheses refer to Q1, January March 2016) 2

3 Solid profit and key progress Sparbanken Skåne continues to perform well. In the first quarter of 2017, the bank reported a profit (excluding goodwill amortisation and before tax) of SEK 157m, a 46 percent year-on-year increase. The bank s profit was driven both by strong new sales of products and services and by an improvement in net interest income, which we achieved despite the current extremely low interest rate environment. Credit losses remain at a low level, and the bank reported an operating profit before tax for the first quarter of SEK 50m. Strong financial position The goodwill item from when Sparbanken Skåne was founded in 2014 is amortised over a period of five years. Goodwill amortisation was charged to profit or loss for the quarter in the of SEK 107m. The bank's capital situation is continuously improving. At the end of the period, the total capital ratio was 19.2 percent, the leverage ratio was 7.7 percent and the LCR was 181 percent. In late March, Sparbanken Skåne received authorisation from the Swedish Financial Supervisory Authority to issue covered bonds. We can maintain a low level of risk in terms of liabilities by raising our presence on the capital market and diversifying our borrowing. Low borrowing costs are a key competitive factor for creating attractive customer offerings. The bank plans to conduct its first issue of covered bonds by the end of September. Despite a certain degree of international macroeconomic uncertainty, the stock market posted strong gains early in the year. When combined with growth in the bank's lending, this contributed to two percent growth in the transaction volume, which ed to SEK 187bn at 31 March. Record-low interest rates pose challenges The private market trend is stable. Interest rates are historically low, which means it is cheap to borrow money but increasingly difficult to find interest-bearing savings solutions with any actual yield. The situation poses major challenges for the bank s advisory services. Residential mortgage borrowers are now recommended to lock in the interest rate for at least half of the mortgage to prepare for the future higher interest rates we know are coming. With regard to savings, it is important that customers do not take too great risks with their investments in search of yields. The first months of the year also resulted in an increased focus on ensuring that the bank is fully compliant with the Know Your Customer (KYC) s of government agencies. This involves everything from internal work in the boardroom to practical procedures focusing on customers. Specifically, this means that the bank routinely asks both private and corporate customers questions about money, accounts and. This is an important effort on our part to combat money laundering and other illegal activities, which is being met with great understanding from the public. Positive signs in agriculture We see a somewhat cautious market in the corporate segment. We now operate as a complete full-service bank with specialists in all areas from financing and insurance to capital placement and international transactions. Customer activity is relatively high in housing construction. We have also observed a positive trend in the agricultural sector, where profitability is clearly on the rise. This is especially demonstrated by the Agricultural Barometer (Lantbruksbarometern), a survey measuring economic conditions presented by the bank in late March in collaboration with Swedbank and LRF Konsult. Farmers in southern Sweden in particular showed increasing confidence in the future in the past year. A more effective society Advancements in technology are driving us ever faster toward a digital and cash-free society. In general, digitalisation makes the distribution of products and services easier, cheaper and more environmentally friendly. In the banking industry, this also provides greater security for both employees and customers by reducing the volume of cash handled. Increasingly more people use digital banking services, and today only a small number of customers regularly use manual cash handling services over the counter. We can report that our partnership with UtbildningsForum has further lowered the threshold for getting started with digital services. UtbildningsForum holds free courses on how to use services such as the Internet Bank (Internetbanken), Mobile Bank (Mobilbanken) and digital security. To increase the availability of digital payment services, Sparbanken Skåne is extending an offer to all non-profit associations that are full-service customers to try Swish for six months free of charge. Several new features of our new Internet Bank were presented during the first quarter as well. The new Internet Bank opened in a beta version last year and has been available alongside the previous interface. One new feature is that customers can directly apply for consumer loans online in the Internet Bank. The modern savings bank concept Sparbanken Skåne s three foundation owners, Sparbanksstiftelsen Färs & Frosta, Sparbanksstiftelsen 1826 and Sparbanksstiftelsen Finn, received grant applications during the period. The foundations award grants for development projects in the bank s local area twice a year. The foundations have also received the nominations for this year s amateur sports leader grant recipients in Skåne. In addition, the foundations contributed financially to the Missing People organisation, which is now able to fund its very first locally stationed liaison vehicle for search missions. Furthermore, a new school project was launched in collaboration with Friends, where middle schools in the bank s area of operation get free access to an anti-cyberbullying training package. The foundation owners receive dividends from the bank and use the money for local community development. This is a unique model where our role as a savings bank allows us to make a difference alongside our everyday banking services. Bo Bengtsson CEO 3

4 Financial information At Sparbanken Skåne we have a clear philosophy To be there for the people, businesses and communities of our customers. With this clear goal driving us, we created our new bank by bringing together the best of Sparbanken 1826, Färs & Frosta Sparbank and parts of Sparbanken Öresund. Ownership structure Sparbanken Skåne AB (publ) s company registration number is The ownership structure of Sparbanken Skåne AB is shown below: Sparbanksstiftelsen Färs & Frosta 26% Sparbanksstiftelsen % Sparbanksstiftelsen Finn 26% Swedbank AB (publ) 22% The board is headquartered in Lund. The administrative centre is based in Kristianstad. Transaction volume The comparative figures are for the volume at 31 December The bank s total transaction volume at 31 March 2017 was SEK 187,339m (183,966). The transaction volume increased by 1.8 percent for the period from January to March. Deposits from the general public were down slightly in the first quarter of 2017 (SEK -63m). Deposits from the general public at 31 March 2017 totalled SEK 45,608m (45,671). The market value of total brokered fund and insurance volumes was SEK 40,817m (38,491). The stock market performed well in the first quarter of Along with positive net savings in both funds and insurance, this had a positive effect on volumes. The positive performance of loans to the general public for the entirety of 2016 continued throughout the first quarter of Deposits from the general public at 31 March 2017 totalled SEK 52,774m (51,058). This increase is the result of moving residential mortgages from brokered volumes to the bank s loans to the general public and of issuing new loans to both private and corporate customers. The bank's loans continue to maintain excellent credit quality. The total loan portfolio brokered to Swedbank Hypotek at 31 March 2017 ed to SEK 27,894m (28,878). Borrowing and liquidity The bank s liquidity is solid. The bank s main source of funding is deposits. To diversify its funding, the bank has a medium term note (MTN) borrowing programme for long-term funding and a certificate of deposit programme for short-term funding. The bonds are listed on the Nasdaq OMX Nordic Stockholm. More information about the MTN programme can be found at The bank filed an application with the Swedish Financial Supervisory Authority in early October 2016 for authorisation to issue covered bonds as a further step in our efforts to strengthen our position on Skåne's residential mortgage market. This authorisation was approved on 24 March. The bank expects to commence the bond programme within 6 months. The bank s issued bonds at 31 March 2017 totalled SEK 6,700m (total programme of SEK 10,000m), and its issued certificates of deposit ed to SEK 1,550m (total programme SEK 4,000m) The bank issued SEK 1,000m in bonds during the quarter. Outstanding certificates of deposit increased by SEK 600m during the quarter. Subordinated liabilities, in the form of fixed-term subordinated loans, totalled SEK 500m at 31 March The bank s liquidity reserves at 31 March 2017 ed to SEK 6,635m (6,031). The liquidity reserves consist of assets that can generate liquidity quickly at predictable values and meet the Liquidity Coverage Ratio (LCR) eligibility s of the Swedish Financial Supervisory Authority (FFFS 2012:6). These assets include short-term loans to credit institutions, funds deposited in tax accounts and interest-bearing securities. The liquidity reserves combined with agreed borrowing limits give the bank excellent payment readiness. The loan-to-deposit ratio at 31 March 2017 came in at 116 percent (112 percent at year-end 2016). More information about liquidity reserves and liquidity management is provided in periodic disclosures at Rating Sparbanken Skåne is rated A- with a negative outlook by credit rating agency S&P Global. Profit The comparative figures refer to the January March 2016 period. Operating profit for the first quarter of 2017 reached SEK 50m (0). Goodwill amortisation continues to impact profit in the of SEK 107m per quarter, and profit is in line with expectations. Goodwill arising on the merger of the three banks in 2014 resulted in a goodwill item of SEK 2,140m. The bank prepares its financial statements in accordance with IFRS subject to restrictions under Swedish law (lagbegränsad IFRS). Under these restrictions, goodwill is amortised over a period of five years. The goodwill item thus impacts profit in the of SEK 428m per year. Net interest income improved by 14 percent in the first quarter of 2017, reaching SEK 208m (183). The lending volume gains have had a positive impact on net interest income during the quarter, while the historically low interest rates have negatively affected net interest income, with a lower liquidity reserve yield and lower margins on deposits. The resolution fee and deposit insurance were charged to net interest income in the of SEK 16m (12). Net fee and commission income for the period came in at SEK 140m (123). Loan commissions ed to SEK 46m (46) and are mainly attributable to commissions from Swedbank Hypotek. Securities fees came in at SEK 54m (47). We saw positive net savings in our funds in the first quarter of Other fee and commission income reached SEK 55m (49). Fee and commission expenses totalled SEK -15m (-19). Other income ed to SEK 1m (4). General administrative expenses for the first quarter of 2017 were up 5% year-on-year, totalling SEK 182m (173). Higher IT expenses were mainly responsible for this increase. Personnel 4

5 expenses ed to SEK 111m (113), and IT expenses were SEK 44m (34). The total for both depreciation of tangible assets and for impairment of intangible assets was SEK 114m (114), and amortisation of intangible assets (goodwill) accounted for SEK 107m (107) of this item. Credit losses for the first quarter resulted in revenue of SEK 5m (+2). See Note 7, Net credit losses, for more information. Profit/loss for the period after appropriations and tax came in at SEK 36m (-3). ratio The bank strengthened its capital base by adding SEK 100m during the quarter, resulting in the total value of the capital base reaching SEK 5,355m (5,255) at 31 March Goodwill is deducted from the bank's capital base. Fixed-term subordinated loans totalled SEK 500m and are included in Tier 2 capital. Common Equity Tier 1 (CET1) capital was bolstered during the quarter via a lower deduction for goodwill. The Risk Exposure Amount (REA) was SEK 27,827m (27,761). The REA for s secured by mortgages on immovable property increased during the quarter as residential mortgages were transferred from brokered loans to loans in the bank's own portfolio. The REA for institutions increased during the quarter due to higher excess liquidity. The REA for credit risk at 31 March 2017 totalled SEK 25,688m. SEK 9,347m of this item was calculated using the Internal Ratings- Based (IRB) approach to credit risk and SEK 16,341m was calculated using the standardised approach to credit risk. The REA for operational risk at 31 March was SEK 2,132m (2,325) and the REA for credit valuation adjustment was equal to SEK 7m (2). The total capital ratio was thus 19.2 percent at 31 March 2017 (18.9) and the CET1 capital ratio was 17.4 percent (17.1). The bank's capital situation thus gained strength during the quarter. The leverage ratio reached 7.7 percent (7.8) at 31 March For more information about capital adequacy calculations, see Note 13, adequacy analysis. Risks and uncertainties The bank's business is exposed to various risks such as credit risk, market risk, liquidity risk and operational risk. The bank's board, which has ultimate responsibility for the bank s internal controls, has put policies and instructions in place for the bank s business to limit and monitor risk-taking in its operations. The bank s level of risk-taking should be low and limited to what is financially sustainable in relation to the bank's capital buffer and long-term capital targets. The board has adopted a separate policy which describes the risk appetite which will shape the bank's activities and the risk limits applicable in each risk area. The bank's direct losses attributable to operational risk remained low in the first quarter of The bank commands a satisfactory level of capital, which is suited to the risks posed by the bank's activities and which exceeds the minimum statutory s. The bank s covered bond launch plans are progressing, and on 24 March, we received approval from the Swedish Financial Supervisory Authority to conduct these types of operations within Sparbanken Skåne. The bank has begun adapting its internal rules and has set a number of risk appetites for covered bond operations. Events after the reporting period No events of material significance have taken place after the end of the reporting period. 5

6 Financial ratios 3/ /2016 9/2016 6/2016 3/2016 Volume Transaction volume, millions of SEK 187, , , , ,204 and liquidity CET1 capital ratio 17.4% 17.1% 16.9% 16.6% 16.7% Total capital ratio 19.2% 18.9% 18.7% 18.4% 18.5% Leverage ratio 7.7% 7.8% 7.8% 7.2% 7.4% Loan-to-deposit ratio LCR 181% 186% 197% 407% 345% NSFR 141% 143% 144% 149% 149% Profit Cost/income ratio before credit losses Cost/income ratio after credit losses Cost/income ratio after credit losses excluding dividends, capital gains and goodwill amortisation Return on equity Return on equity excluding dividends, capital gains and goodwill amortisation Impaired loans and credit losses Loan loss ratio excluding brokered volumes 0.0% 0.0% 0.0% 0.0% 0.0% Loan loss ratio including brokered volumes 0.0% 0.0% 0.0% 0.0% 0.0% Percentage of impaired loans 0.2% 0.3% 0.2% 0.2% 0.3% Other disclosures Average number of employees The financial ratios are defined on page 20. 6

7 Quarterly comparison Income statement Q Q Q Q Q Net interest income 207, , , , ,611 Dividends received 500 4,400-7, Net fees and commissions 140, , , , ,063 Net gain/loss from financial transactions 6,899 9, ,964-6,874 Other operating income 937 1,891 1,699 2,011 4,363 Total net interest income and operating income 356, , , , ,713 General administrative expenses -182, , , , ,158 Depreciation and amortisation -114, , , , ,376 Other expenses -15,290-16,822-11,803-14,546-17,387 Credit losses 4,909-12, ,505 1,567 Impairment losses on financial assets ,786 - Total expenses -307, , , , ,354 Operating profit/loss 49,621 38,799 42,526 31, Appropriations - -4, Taxes -13,914-10,416-12,710-5,762-3,808 Profit/loss for the period 35,707 24,183 29,816 25,346-3,449 Balance sheet 31/03/ /12/ /9/ /6/ /3/2016 Loans to credit institutions 1,564, ,340 1,200,947 3,899,512 3,091,957 Loans to the general public 52,773,784 51,058,129 49,080,451 46,868,563 43,969,492 Interest-bearing securities 4,466,090 4,684,788 4,706,713 4,702,648 5,159,381 Goodwill 912,936 1,019,898 1,126,859 1,233,821 1,340,783 Other assets 1,517,129 1,565,331 1,464, , ,286 Total assets 61,234,356 59,097,486 57,579,155 57,240,377 54,059,899 Liabilities to credit institutions 633,100 77, , , ,917 Deposits from the general public 45,608,373 45,671,408 45,076,560 44,356,313 42,603,292 Debt securities issued and subordinated liabilities 8,744,141 7,144,597 6,146,190 6,445,315 4,946,477 Other liabilities 352, , , , ,921 Equity 5,896,511 5,898,184 5,871,604 5,835,059 5,800,292 Total liabilities, provisions and equity 61,234,356 59,097,486 57,579,155 57,240,377 54,059,899 7

8 Income statement Income statement Note Q Q Full year 2016 Change SEK thousand Interest income 236, , ,067 13% Interest expenses -28,660-25, ,135 10% Net interest income 3 207, , ,932 14% Dividends received ,890-9% Fee and commission income 4 155, , ,836 9% Fee and commission expenses 5-14,938-19,302-73,978-23% Net gain/loss from financial transactions 6 6,899-6,874 13,560 - Other operating income 937 4,363 9,964-79% Total net interest income and operating income 356, ,713 1,351,204 17% General administrative expenses -182, , ,995 5% Depreciation of tangible assets and amortisation of intangible assets -114, , ,578 0% Other operating expenses -15,290-17,387-60,558-12% Total expenses before credit losses -311, ,921-1,222,131 2% Profit/loss before credit losses 44,712-1, ,073 - Net credit losses 7 4,909 1,567-9,295 - Impairment losses on financial assets ,986 Operating profit/loss 49, ,792 - Appropriations ,200 - Tax on profit for the period -13,914-3,808-32,696 - Profit/loss for the period 35,707-3,449 75,896 - Statement of comprehensive income Q Q Full year 2016 Change Profit/loss for the period 35,707-3,449 75,896 - Other comprehensive income Items that are or may be reclassified to profit or loss for the period Net change in fair value of available-for-sale financial assets -4,335 10,332 37,273 - Change in fair value of available-for-sale financial assets reclassified to profit or loss for the period Tax attributable to financial assets that may be reclassified to profit or loss for the period , ,273-7,504 - Other comprehensive income for the period -3,381 8,059 26,606 - Comprehensive income for the period 32,326 4, ,502-8

9 Balance sheet Balance sheet Note 31/03/ /12/ /3/2016 Assets Cash 29,452 34,176 28,185 Treasury bills and other bills eligible for refinancing with central banks 1,430,810 1,482,361 1,474,260 Loans to credit institutions 1,564, ,340 3,091,957 Loans to the general public 8 52,773,784 51,058,129 43,969,492 Bonds and other interest-bearing securities 3,035,280 3,202,427 3,685,121 Shareholdings and investments 46,646 44,712 61,883 Shareholdings and investments in group companies ,086 Derivatives Intangible assets 912,936 1,019,898 1,340,783 Tangible assets 211, , ,684 Current tax assets 1,055,416 1,049,628 37,776 Other assets 6,954 5,467 12,972 Prepaid expenses and accrued income 166, , ,009 Total assets 61,234,356 59,097,486 54,059,899 Liabilities, provisions and equity Liabilities to credit institutions 633,100 77, ,917 Deposits from the general public 9 45,608,373 45,671,408 42,603,292 Debt securities issued and related items 8,244,141 6,644,597 4,446,477 Derivatives 77,906 87, ,867 Deferred tax liabilities 9,777 10,804 11,580 Other liabilities 64,549 68,242 90,849 Accrued expenses and deferred income 154,440 93, ,471 Provisions 45,560 45,055 47,154 Subordinated liabilities 500, , ,000 Total liabilities and provisions 55,337,845 53,199,302 48,259,607 Equity Restricted equity Share capital (16,683,364 shares and quotient value SEK 100) 1,668,336 1,668,336 1,668,336 Statutory reserve 109, , ,196 Total 1,777,532 1,777,532 1,777,532 Non-restricted equity Share premium reserve 3,188,631 3,188,631 3,188,631 Fair value reserve -2, ,936 Retained earnings 897, , ,514 Profit/loss for the period 35,707 75,896-3,449 Total 4,118,978 4,120,652 4,022,760 Total equity 5,896,510 5,898,184 5,800,292 Total liabilities, provisions and equity 61,234,356 59,097,486 54,059,899 Other notes Accounting policies 1 Operating segments 2 Derivatives 10 Financial assets and liabilities 11 Pledged assets, contingent liabilities and commitments 12 adequacy analysis 13 Disclosures on related parties and other significant relationships 14 9

10 Statement of changes in equity Restricted equity Non-restricted equity Total equity Share capital Statutory reserve Share premium reserve Fair value reserve Retained earnings Profit/loss for the period Balance at 1 January ,668, ,196 3,188,631-25, , ,072 5,829,903 Appropriation of profit as per AGM resolution Amount carried forward ,851-79,851 - Transactions with owners in the form of dividends ,221-34,221 Profit/loss for the period ,449-3,449 Other comprehensive income for the period , ,059 Comprehensive income for the period ,610 Balance at 31 March ,668, ,196 3,188,631-17, ,514-3,449 5,800,292 Balance at 1 January ,668, ,196 3,188,631-25, , ,072 5,829,903 Appropriation of profit as per AGM resolution Amount carried forward ,851-79,851 - Transactions with owners in the form of dividends ,221-34,221 Profit/loss for the year ,896 75,896 Other comprehensive income for the year , ,606 Comprehensive income for the year ,502 Balance at 31 December ,668, ,196 3,188, ,514 75,896 5,898,184 Balance at 1 January ,668, ,196 3,188, ,514 75,896 5,898,184 Appropriation of profit as per AGM resolution Amount carried forward ,896-41,896 - Transactions with owners in the form of dividends ,000-34,000 Profit/loss for the period ,707 35,707 Other comprehensive income for the period , ,381 Comprehensive income for the period ,326 Balance at 31 March ,668, ,196 3,188,631-2, ,410 35,707 5,896,510 Restricted equity Restricted equity may not be decreased by dividends. Statutory reserve The purpose of the statutory reserve was to save a share of the net profit not used to cover losses carried forward. The statutory reserve also includes s added to the share premium reserve before 1 January Non-restricted equity Share premium reserve When shares are issued at a premium, i.e. the paid for the shares exceeds their quotient value, the received in excess of the quotient value of the shares is transferred to the share premium reserve. Amounts transferred to the share premium reserve on 1 January 2006 or later are included in non-restricted equity. Fair value reserve The fair value reserve includes the accumulated net change in the fair value of available-for-sale financial assets until the asset is derecognised from the balance sheet. Retained earnings Retained earnings comprise the non-restricted equity of previous years after any dividends are paid. When combined with profit or loss for the year and the fair value reserve, this is equal to the total non-restricted equity, i.e. the available for distribution to shareholders. 10

11 Statement of cash flows Indirect method 31/03/ /12/ /3/2016 Cash flows from operating activities Operating profit/loss 49, , Net change in accrued cost for the period 4,526 12,610 3,815 Unrealised share of net gain from financial transactions -2,880 11,686-12,040 Depreciation and amortisation 114, , ,376 Credit losses -4,265 12, Group contributions - -4,200 - Tax paid -19,775-1,065,955-18,871 Cash flows from operating activities before changes in working capital 141, ,063 86,887 Cash flow from changes in working capital Increase/decrease in loans to the general public (-/+) -1,714,927-9,811,996-2,688,684 Increase/decrease in securities (-/+) 207, , ,304 Increase/decrease in deposits from the general public (+/-) -63,035 3,164,095 95,979 Increase/decrease in liabilities to credit institutions (+/-) 555, ,448 29,639 Net change in other assets and liabilities 101,813-78, ,778 Net cash used in operating activities -771,989-6,637,385-2,134,097 Cash flows from investing activities Disposal/redemption of financial assets -1,329 44,292 29,220 Sale of tangible assets 200 1, Acquisition of tangible assets -1,388-34,796-4,545 Net cash from (used in) investing activities -2,517 11,254 24,825 Cash flows from financing activities Issue of interest-bearing securities 2,048,885 8,444,018 2,648,048 Redemption of interest-bearing securities -450,026-4,495, ,754 Dividends paid -34,000-34,222-34,222 Net cash from financing activities 1,564,859 3,914,305 1,714,072 Cash flow for the period 790,353-2,711, ,200 Cash and cash equivalents at beginning of period 803,516 3,515,342 3,515,342 Cash and cash equivalents at end of period 1,593, ,516 3,120,142 The following subcomponents are included in cash and cash equivalents Cash 29,452 34,176 28,185 Loans to credit institutions 1,564, ,340 3,091,957 Balance sheet total 1,593, ,516 3,120,142 Short-term investments have been classified as cash and cash equivalents on the basis of the following criteria They have an insignificant risk of changes in value They are easily convertible to cash They have a maximum term of three months from their acquisition date Interest paid and dividends received included in net cash from operating activities Interest received 236, , ,569 Interest paid including cost of deposit insurance and resolution/stability fee -28, ,135-25,958 Dividends received ,

12 Notes to the income statement and balance sheet Note 1 Accounting policies This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting. In addition, the contents of the interim report are in compliance the Annual Accounts Act for Credit Institutions and Securities Companies (1995:1559), the Swedish Financial Supervisory Authority s Regulations and General Guidelines (FFFS 2008:25) on Annual Accounts for Credit Institutions and Securities Companies, and the Swedish Financial Reporting Board's Recommendation RFR 2 Accounting for Legal Entities. Swedish savings banks (sparbank) thus apply adopted IFRS subject to restrictions under Swedish law (lagbegränsad IFRS), namely RFR 2 and FFFS 2008:25. This means that all IFRS adopted by the EU are applied to the extent possible within the scope of the Swedish Annual Accounts Act and in consideration of the relationship between accounting and taxation. The accounting policies and estimates and judgements applied in this interim report are in accordance with those applied in the 2016 Annual Report. Note 2 Operating segments The bank s business is not divided into operating segments in the bank s internal reporting to its highest decision-making body (the CEO) given that its business is concentrated in banking activities within the bank s geographic area. For more information about operating profit in banking activities, please see Sparbanken Skåne s income statement. Note 3 Net interest income Q Q Full year 2016 Change Interest income Loans to credit institutions % Loans to the general public 249, , ,804 12% Interest-bearing securities -1, ,062 - Derivatives -11,430-13,320-52,055-14% Other interest expenses 0-1 2,734 - Total 236, , ,067 13% Share of interest income from financial items not measured at fair value through profit or loss 248, , ,122 12% Share of interest income from impaired loans 2,289 2,893 8,194-21% Interest expenses Liabilities to credit institutions -2,397-2,997-12,918-20% Deposits from the general public -16,404-15,722-59,141 4% expenses for deposit insurance -12,313-9,628-38,057 28% Interest-bearing securities -4,353-2,896-15,046 50% Subordinated liabilities -1,730-2,001-7,786-14% Other interest expenses -3,776-2,342-6,244 61% Total -28,660-25, ,135 10% Share of interest expenses from financial items not measured at fair value through profit or loss -28,660-25, ,135 10% Total net interest income 207, , ,932 14% Note 4 Fee and commission income Q Q Full year 2016 Change Payment intermediation fees 22,201 19,409 90,431 14% Loan commissions 46,488 46, ,692 0% Deposit commissions 14,902 12,418 58,941 20% Commissions for financial guarantees issued ,013 19% Securities fees 54,091 47, ,683 15% Other fees and commissions 16,814 16,330 64,076 3% Total 155, , ,836 9% 12

13 Note 5 Fee and commission expenses Q Q Full year 2016 Change Payment intermediation fees -7,536-8,576-39,408-12% Securities fees -6,301-5,086-21,853 24% Other fees and commissions -1,101-5,640-12,717-80% Total -14,938-19,302-73,978-23% Note 6 Net gain/loss from financial transactions Q Q Full year 2016 Change Shareholdings/investments 34-1,360-4,672 - Interest-bearing securities -1, ,503 - Other financial instruments 6,907-6,337-3,424 - Exchange rate fluctuations 1, ,153 44% Total 6,899-6,874 13,560 - Q Q Full year 2016 Change Net gain/net loss by valuation category Financial assets at fair value through profit or loss -1,227-1,360 10,668-10% gain on available-for-sale financial assets ,163 - Ineffective portion of fair value hedge Derivatives intended for risk management, no hedge accounting 6,663-6,337-4,326 - Change in fair value of derivatives used as hedging instruments in a fair value hedge 3,537-4,092 17,405-14% Change in fair value of hedged item attributable to the hedged risk in fair value hedges -3,537 4,092-17,405-14% Exchange rate fluctuations 1, ,153 44% Total 6,899-6,874 13,560 - Note 7 Net credit losses Q Q Full year 2016 Change Specific impairment, individually assessed loans Write-off of realised credit losses for the period -3,847-11,126-60,181-65% Reversal of previous impairment of credit losses recognised as realised losses in the financial statements for the period 3,544 10,654 48,305-67% Impairment of credit losses for the period -1,881-15,189-82,945-88% Amount received for previously realised credit losses ,888-31% Reversal of impairment of credit losses no longer necessary 5,457 14,276 80,989-62% Net cost for the period for individually assessed loans 3, ,944 - Homogeneous groups of loans assessed in groups with a limited value and similar credit risk Write-off of realised credit losses for the period ,070-4,508-36% Amount received for previously realised credit losses Allocation to/release of credit loss reserve % Net cost for the period for homogenous loans assessed in groups ,399-53% Contingent liabilities Net cost for the period for settlement of guarantees and other contingent liabilities 1,191 2,367 5,048-50% Net cost for the period for credit losses 4,909 1,567-9,295-13

14 Note 8 Loans to the general public 31/03/ /12/ /3/2016 Gross loans public sector 31,488 31,736 32,895 corporate sector 15,617,805 15,418,106 15,123,746 retail sector 37,240,880 35,728,748 28,954,876 sole proprietors 10,946,087 10,778,571 9,675,990 other sectors - - 8,029 Total 52,890,173 51,178,590 44,119,546 Sub-items of gross revenue: Unsettled loans included in impaired loans 106, , ,729 corporate sector 69,153 63, ,548 retail sector 37,236 39,091 56,181 Impaired loans 280, , ,631 corporate sector 233, , ,224 retail sector 47,292 53,702 62,407 Subtracted by: Specific impairment, individually assessed loans 158, , ,230 corporate sector 133, , ,760 retail sector 25,013 27,022 31,470 Impairment of homogeneous groups of loans assessed in groups 3,993 4,482 3,976 retail sector 3,993 4,482 3,976 Loans, net carrying 52,727,666 51,008,474 43,898,340 Change in fair value of hedged in portfolio hedge 46,118 49,655 71,152 Total 52,773,784 51,058,129 43,969,492 Definitions: Unsettled loans are loans for which interest, repayments and overdrafts have been overdue for more than 60 days. Impaired loans are loans for which it is probable that the payments stipulated in the contract terms and conditions will not be met, and for which the value of the collateral does not sufficiently cover both the principal and interest, including late fees. Note 9 Deposits from the general public 31/03/ /12/ /3/2016 The general public Swedish currency 45,376,133 45,361,528 42,235,239 foreign currency 232, , ,053 Total 45,608,373 45,671,408 42,603,292 Deposits per customer category, excluding bank cheques Public sector 1,032,755 1,091,190 1,086,307 Corporate sector 8,604,313 8,596,321 7,205,961 Retail sector 35,346,589 35,286,339 33,578,856 sole proprietors 5,808,097 5,948,002 5,700,107 Other interest expenses 553, , ,052 Total 45,537,508 45,593,979 42,531,176 14

15 Note 10 Derivatives 31/03/ /12/2016 Sparbanken Skåne uses financial hedges to protect itself from interest rate and currency risks. Derivative instruments comprise interest rate swaps, interest rate caps and currency forwards. SEK thousand Nominal Fair value Nominal Fair value Derivative instruments with positive fair values Fixed-income contracts 499, , Total derivative instruments with positive fair values 499, , Derivative instruments with negative fair values Fixed-income contracts 2,149,650 77,906 2,114,025 87,643 Currency contracts 489, ,834 - Total derivative instruments with negative fair values 2,639,122 77,906 2,510,859 87,643 The bank has entered into interest rate swap contracts to a large extent in order to protect itself from the interest rate risk associated with the fixed-interest loans provided by the bank. Interest rate cap contracts have been used as reinsurance for loans with floating interest rates for which the bank has guaranteed the customer a maximum interest rate. Currency forwards are used in operations involving bank customers, where the currency risk is covered using reverse currency forwards with Swedbank. Note 11 Financial assets and liabilities 31/03/ /12/2016 Fair value Carrying Difference Fair value Carrying Difference Cash 29,452 29,452-34,176 34,176 - Treasury bills and other bills eligible for refinancing with central banks 1,430,810 1,430,810-1,482,361 1,482,361 - Loans to credit institutions 1,564,417 1,564, , ,340 - Loans to the general public 53,078,203 52,773, ,419 51,386,766 51,058, ,637 Bonds and other interest-bearing securities 3,035,280 3,035,280-3,202,427 3,202,427 - Shareholdings and investments 46,646 46,646-44,812 44,812 - Derivatives Accrued income 147, , , ,173 - Other financial assets 6,955 6,955-5,469 5,469 - Total 59,339,017 59,034, ,419 57,096,742 56,768, ,637 Liabilities to credit institutions 633, ,100-77,830 77,830 - Deposits from the general public 45,617,739 45,608,373 9,366 45,683,959 45,671,408 12,551 Debt securities issued and related items 8,244,141 8,244,141-6,644,597 6,644,597 - Derivatives 77,906 77,906-87,643 87,643 - Other financial liabilities 52,287 52,287-50,882 50,882 - Accrued expenses 127, ,952-90,182 90,182 - Subordinated liabilities 500, , , ,000 - Total 55,253,125 55,243,759 9,366 53,135,093 53,122,542 12,551 The tables below disclose the fair value measurement approach for the financial instruments measured at fair value in the balance sheet. Fair value measurement is categorised into the following three levels: Level 1: Quoted prices in active markets for identical instruments Level 2: Inputs other than quoted market prices included within Level 1 that are observable for the instrument, either directly or indirectly Level 3: Unobservable inputs for the instrument 15 CONTINUED ON PAGE 16.

16 CONTINUED FROM PAGE /03/2017 Level 1 Level 2 Level 3 Total Treasury bills and other bills eligible for refinancing with central banks 1,430, ,430,810 Bonds and related items 2,982,327 24,010 28,943 3,035,280 Shareholdings and investments ,646 46,646 Other assets derivatives Total 4,413,137 24,191 75,589 4,512,917 Other liabilities derivatives - 77,906-77,906 Total - 77,906-77,906 31/12/2016 Level 1 Level 2 Level 3 Total Treasury bills and other bills eligible for refinancing with central banks 1,482, ,482,361 Bonds and related items 3,136,194 35,640 30,593 3,202,427 Shareholdings and investments ,812 44,812 Other assets derivatives Total 4,618,555 35,858 75,405 4,729,818 Other liabilities derivatives - 87,643-87,643 Total - 87,643-87,643 The level 3 heading Shareholdings and investments includes endowment insurance which is subject to change due to changes in value and to inflows and outflows of cash. The level 3 heading Bonds includes small-cap liquid bonds. The bank sees these holdings as long-term investments. These bonds are measured by calculating discounted future cash flows. The bank did not have any bonds recognised at amortised cost (HTM) at 31 March Effect (before tax) of 10 percent increase/decrease in the USD/SEK exchange rate and long-term bond interest rates Change in fair value, thousands of SEK + 10% - 10% USD/SEK exchange rate 2,894-2,894 Discount rate The table below presents a breakdown of opening and closing balances of financial instruments measured at fair value in the balance sheet on the basis of a valuation technique based on unobservable inputs (level 3). Bonds Shareholdings and investments Total Opening balance at 1 January ,593 44,812 75,405 Disposals Cost acquisitions - 1,834 1,834 Total gains and losses recognised recognised in profit or loss -1, ,650 Closing balance at 31 March ,943 46,646 75,589 Gains and losses recognised in profit or loss for assets included in the closing balance at 31 March ,650 1, Fair value measurement The main methods and assumptions used to measure the fair value of the financial instruments reported in the table above are summarised as follows: Financial instruments quoted in active markets For financial instruments quoted in active markets, fair value measurement is based on the asset s listed bid price on the balance sheet date less transaction expenses (e.g. brokerage) at the time of acquisition. A financial instrument is deemed quoted in an active market if quoted prices are easily available on a stock market, from a trader, broker, trade association or company providing current price information or regulatory authority, and these prices represent actual and regularly occurring market transactions on commercial terms. Any future transaction expenses on disposal are not taken into account. Such instruments can be found in the following balance-sheet items: Shareholdings and investments, and Bonds and other interest-bearing securities. 16 CONTINUED ON PAGE 17.

17 CONTINUED FROM PAGE 16. Financial instruments not quoted in active markets Derivative instruments are measured at the fair value received from the counterparty where the fair value is measured using a valuation model established in the market for measuring the type of derivative instrument in question. Fair value measurement of OTC instruments generally uses valuation models based on observable market data. The present value of the cash flows associated with the financial instrument is calculated for measurement of fixed-interest and currency derivatives without option components. The yield curve used for discounting cash flows is based on observable market data, i.e. it is derived from quoted relevant interest rates for the respective term when the cash flows are received or paid. Options are measured using generally accepted valuation models, such as Black-Scholes. The models are updated with observable market data relevant to the measurement of the option. This observable market data includes interest rates, currencies, credit risk, volatility, correlations and market liquidity. The fair value of financial instruments classified lower is also measured using valuation models mainly based on observable market data, but with some estimates the entity makes on its own which are considered significant for the fair value measurement. Structured products are measured at fair value through profit or loss. They are not traded daily in active markets. Instead, the fair values are obtained from counterparties and measured on the basis of the performance of the underlying indexes/prices of the respective instrument at the balance sheet date. The fair value of financial instruments which are not derivative instruments is measured on the basis of future cash flows of principal and interest discounted to current market interest rates at the balance sheet date. In cases where discounted cash flows have been used, future cash flows are calculated using the best estimate of the bank s management. The fair value of loans with fixed interest rates was measured by discounting expected future cash flows with the discount rate set at the current lending rate applicable. The carrying is deemed to reflect the fair value of trade receivables and payables with a remaining useful life of less than six months. The fair value of borrowings is measured on the basis of current market interest rates where the original credit spread has been kept constant if there is no evidence that a change in the bank's credit rating has led to an observable change in the bank's credit spread. The fair value of loans and deposits was measured by discounting expected future cash flows with the discount rate set at the current lending or deposit rate applicable. However, the fair value of a liability that is redeemable on demand is not recognised at an lower than the to be paid on demand, and is discounted from the first date that payment of this could be demanded. Note 12 Pledged assets, contingent liabilities and commitments 31/03/ /12/ /3/2016 In the form of pledged assets for internal liabilities and provisions Endowment insurance for pension obligations 39,288 37,351 34,847 Contingent liabilities 600, , ,590 Commitments 6,058,169 6,327,173 5,911,611 Note 13 adequacy analysis base 31/03/ /12/ /3/2016 CET1 capital 4,855,105 4,755,203 4,397,815 Tier 2 capital 500, , ,000 Net capital base 5,355,105 5,255,203 4,897,815 s and Risk Exposure Amounts IRB approach 747,743 9,346, ,127 8,901, ,183 8,364,793 standardised approach 1,307,285 16,341,061 1,322,630 16,532,870 1,256,773 15,709,662 for operational risk 170,532 2,131, ,988 2,324, ,988 2,324,849 Credit valuation adjustment 599 7, , ,700 Total capital s and Risk Exposure Amounts 2,226,159 27,826,984 2,220,916 27,761,455 2,112,880 26,411,004 CET1 capital ratio 17.4% 17.1% 16.7% Tier 1 capital ratio 17.4% 17.1% 16.7% Total capital ratio 19.2% 18.9% 18.5% Buffer 4.5% 100,177 1,252, % 88,837 1,110, % 73, ,385 capital conservation buffer 2.5% 55, , % 55, , % 52, ,275 countercyclical capital buffer 2.0% 44, , % 33, , % 21, ,110 CET1 capital available for use as buffer 11.2% 3,128, % 3,034, % 2,784,935 Total internally assessed capital (excluding buffer ) 3,020,421 2,896,409 2,737, CONTINUED ON PAGE 18.

18 CONTINUED FROM PAGE 17. base The board's proposed appropriation of profit is included in the capital base. 31/03/ /12/ /3/2016 CET1 capital: Instruments and reserves Share capital 1,668,336 1,668,336 1,668,336 Statutory reserve 109, , ,196 Share premium reserve 3,188,631 3,188,631 3,188,631 Fair value reserve -2, ,936 Retained earnings 897, , ,514 Verified profit less proposed appropriation of profit and predictable expenses - 41,896 - CET1 capital before regulatory adjustments 5,860,804 5,863,573 5,803,741 CET1 capital: regulatory adjustments Intangible assets, deferred tax assets and value adjustments -927,194-1,033,862-1,340,783 Deduction of IRB provisions (see disclosure below) -78,505-74,508-65,143 Total regulatory adjustments to CET1 capital -1,005,699-1,108,370-1,405,926 CET1 capital 4,855,105 4,755,203 4,397,815 Tier 2 capital: Instruments Fixed-term subordinated loans 500, , ,000 Tier 2 capital 500, , ,000 base 5,355,105 5,255,203 4,897,815 Special disclosures IRB Provisions excess(+)/shortfall(-) -78,505-74,508-65,143 Total IRB provisions (+) 29,870 31,547 23,075 IRB Expected loss (-) -108, ,055-88,218 s and Risk Exposure Amounts 31/03/ /12/ /3/2016 Credit risk under standardised approach Central government and central bank s Regional government and local authority s Institutional s 4,999 62,485 5,058 63,222 6,054 75,670 Corporate s 327,552 4,094, ,232 4,165, ,319 4,728,986 Retail s 454,036 5,675, ,491 6,306, ,434 5,617,920 Exposures secured by mortgages on immovable property 510,788 6,384, ,539 5,856, ,608 5,032,598 Defaulted items 9, ,875 11, ,365 15, ,966 Exposures in the form of units or shares in collective investment undertakings (funds) ,362 54, CONTINUED ON PAGE 19.

19 CONTINUED FROM PAGE 18. Credit risk under IRB approach Institutional s 49, ,358 31, , ,166 1,327,073 Corporate s 381,612 4,770, ,073 4,600, ,130 3,576,626 Retail s 289,146 3,614, ,919 3,548, ,488 3,118,601 mortgage loans 164,955 2,061, ,125 2,026, ,547 1,756,842 other loans 124,190 1,552, ,794 1,522, ,941 1,361,759 Non-credit obligation asset s 27, ,959 28, ,078 27, ,493 Total 2,055,028 25,687,852 2,034,756 25,434,456 1,925,956 24,074,455 Credit valuation adjustment 599 7, , ,700 Operational risk 31/03/ /12/ /3/2016 Standardised approach 170,532 2,131, ,988 2,324, ,988 2,324,849 Total capital for operational risk 170,532 2,131, ,988 2,324, ,988 2,324,849 Total capital s and Risk Exposure Amounts 2,226,159 27,826,984 2,220,916 27,761,455 2,112,880 26,411,004 Note 14 Disclosures on related parties and other significant relationships The bank s subsidiary 1826 Försäkra AB was discontinued in The insurance activities previously conducted in the subsidiary were transferred from the subsidiary to the bank effective 1 October 2015 and are now an integral part of the bank. The bank s related key personnel are board members, senior executives and close family members of these individuals. Transactions with related key personnel have been made on market terms. The bank collaborates on a large scale with Swedbank AB. This collaboration is governed by a collaboration agreement which is currently valid until 30 June The agreement covers brokering of mortgage loans to Swedbank Hypotek and brokering of fund & insurance savings, shares, international services and the procurement of IT services. The three savings bank foundations, 1826, Färs & Frosta and Finn, along with Swedbank, provided credit loss guarantees for the loan portfolios included in the new bank when Sparbanken Skåne was formed. This interim report has not been audited by the bank s auditors. Lund, 25 April 2017 Bo Bengtsson CEO 19

20 Definitions Transaction volume The bank s transaction volume mainly consists of loans to the general public, brokered loans and credit that has been granted but not yet utilised. Transaction volume also includes savings volumes in the form of deposits from the general public, brokered funds & insurance and customer custody accounts. CET1 capital ratio The bank s Common Equity Tier 1 (CET1) capital ratio is the CET1 capital of the bank expressed as a percentage of the Risk Exposure Amount (REA). The CET1 capital is equal to the bank s equity less goodwill and IRB provisions. Total capital ratio The bank s total capital ratio is the capital base of the bank expressed as a percentage of the REA. The capital base comprises the CET1 capital and subordinated liabilities. The regulatory including capital conservation and countercyclical buffers for 2017 is 12.5%. Leverage ratio The bank s leverage ratio is the CET1 capital of the bank expressed as a percentage of the bank s total assets, pledged assets and contingent liabilities. As opposed to the CET1 capital ratio and the total capital ratio, risk weighting of certain assets and memorandum items is not taken into consideration. Instead, all s are recognised at their nominal s. Loan-to-deposit ratio Loans to the general public expressed as a percentage of deposits from the general public. LCR The Liquidity Coverage Ratio (LCR) is calculated according to the Requirements Regulation (CRR) and Directive (CRD IV). The regulatory for 2017 is 80%, but it is being increased gradually and will be 100% starting in The LCR measures the bank s unencumbered high-quality liquid assets (liquidity reserves) expressed as a percentage of the bank s estimated liquidity needs in a 30-calendar day liquidity stress scenario. NSFR The Net Stable Funding Ratio (NSFR) assigns a weight to the bank s assets and funding based on their maturity. Less liquid assets have a more negative impact on the ratio than those that are more liquid. Funding with a longer maturity has a more positive effect on the ratio than funding with a shorter maturity. The main aim of the ratio is to measure the bank s ability to cope with a stress scenario over a one-year time horizon. If the ratio is over 100%, it means that long-term less liquid assets are funded satisfactorily with stable long-term borrowing. Cost/income ratio before credit losses The bank s costs (excluding credit losses) expressed as a percentage of the bank s income. Cost/income ratio after credit losses The bank s costs (including credit losses) expressed as a percentage of the bank s income. Cost/income ratio after credit losses excluding dividends, capital gains, impairment losses and goodwill amortisation The bank s costs excluding impairment losses on financial assets and goodwill amortisation expressed as a percentage of the bank s income excluding dividends and capital gains on disposal of branch offices. Return on equity Operating profit net of tax (22%) expressed as a percentage of average equity. Return on equity excluding dividends, capital gains, impairment losses and goodwill amortisation The bank s operating profit net of tax (22%), excluding dividends, capital gains on the disposal of branch offices, impairment losses on financial assets and goodwill amortisation, expressed as a percentage of average equity. Loan loss ratio excluding brokered volumes Credit losses as a percentage of the opening balance of loans to the general public. Loan loss ratio including brokered volumes Credit losses as a percentage of the opening balance of loans to the general public and brokered volumes. Percentage of impaired loans Net impaired loans (i.e. taking into account provisions recognised as expenses) as a percentage of loans to the general public. Average number of employees The average number of employees (1,730 hours per employee) has been calculated on the basis of the number of hours worked for the bank. 20

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