DANSKE BANK PLC GROUP

Transcription

1 DANSKE BANK PLC GROUP INTERIM REPORT Danske Bank Plc is a part of Danske Bank Group, one of the largest financial enterprises in the Nordic region. Danske Bank Plc is the third largest bank in Finland and has nearly 1 million personal customers and about 90,000 corporate and institutional customers. This Interim Report includes Danske Bank Plc and its subsidiaries.

2 DANSKE BANK PLC GROUP S INTERIM REPORT FOR JANUARY-JUNE 2014 Risto Tornivaara, CEO: First half-year characterised by measures to boost customer satisfaction During the first half of the year, Danske Bank Plc Group made significant moves to improve customer satisfaction, particularly in its Personal Banking operations. The new Danske Benefit Programme launched in May offers rewards to Personal Banking customers who use the bank s investment and loan services extensively. Benefits offered by the programme also include for example access to legal services. The cooperation between Personal and Business Banking operations and the insurance company Fennia that was launched during the review period also meets customers non-life insurance needs and Fennia complements the bank s network of partners. We expect these new initiatives to further boost the customer satisfaction that improved during the first half-year. In line with our strategy, we continued to concentrate on developing digital banking and familiarising our customers with our new products, such as MobilePay, that have been launched over the past year. The popularity of mobile and tablet services continues to grow and our goal is to retain our position as a leading digital service solutions provider in the business and personal banking market. Financially, the first half of 2014 was as expected for Danske Bank Plc Group. The challenging economic situation continues to reduce the demand for loans, especially among Personal customers, but in our Business Banking operations we have been able to strengthen our position compared with year end The level of impairments has remained relatively low in spite of the protracted downturn. Changes that were made to the organisational structure and strategy during 2013 have had a considerable impact on the Group s cost structure, as the cost-to-income ratio improved by 8.6 percentage points, i.e per cent, compared with the first half of As a whole, Danske Bank Plc Group s profit after taxes for January-June was EUR 83.2 million, i.e. over 10 per cent higher than it was in the corresponding period in However, the net interest income which continues to decline, and fell by 6 per cent from the previous year, poses challenges to profit performance. Danske Bank Plc Group s solvency remains at a good level. Our capital adequacy ratio is 14.2 per cent (15.6), which clearly exceeds the regulatory requirement. One of the most important factors in 2014 from the business perspective will be the tightening of regulations. As of November 2014 Danske Bank Plc Group will be placed under the direct supervision of the European Central Bank, according to the regulations of the European Single Supervisory Mechanism. Financial highlights 1-6/ / /2013 Total operating income EURm Profit before taxes EURm Total assets at the end of the period EURm Number of staff at the end of the period

3 Operating environment World economic growth remained subdued in the first half of Cold winter slowed down the US economy at the beginning of the year, after which the economy reaccelerated. Several developing economies struggled with a combination of slow growth and a current account deficit. China's maturing economy has gained some speed in June, according to preliminary data. Russia's economy fell into a recession because of weakness in the commodities market and the crisis in Ukraine. The euro area economy continued to grow modestly. Focus of the growth shifted from exports toward domestic consumption and investment, helped by improving business confidence and slowly falling unemployment. Raw material prices remained subdued and inflation low, which made the conduct of accommodative monetary policy in the Western world still necessary. The US Federal Reserve normalized monetary policy by reducing the exceptional measures, which resulted in a modest rise in the bond yields. In the euro area, the modest economic growth and low inflation made the European Central Bank (ECB) to cut its main refinancing rate to 0.15 per cent and cut first time in history the deposit rate to negative territory -0.1 per cent in June. The central bank also announced new long-term financing operations for banks and other liquidity-increasing operations. Low inflation, the fall in policy rate and the decline in other monetary policy measures pushed market rates down during the first half of month euribor fell from 0.56 per cent at the beginning of the year to 0.49 per cent at the end of June. Bond yields of the euro area countries fell during the first half of 2014, as economic growth boosted confidence to the solvency of crisis countries, inflation fell and the ECB was able to convince financial markets of extended period of easy monetary policy. In Finland, loan margins charged by banks decreased slightly and lending rates remained low in the early period of the year. Economic policy integration in the form of a banking union in the euro area advanced. European parliament approved the establishment of a EUR 55 billion fund for rescuing banks in crisis. The funds will be collected from national banks in a period of eight years. One of the fund s purposes is to reduce governmental role and increase mutual responsibility within banking sector. The banking union made the main credit rating agencies to consider a downgrade for bank ratings, because it is feared that the decline in the governments role may lead to higher losses for creditors in crisis banks. The common banking supervision with the ECB is scheduled to start operation in November A comprehensive assessment on banks will be conducted by ECB prior to the actual start of operations. Finland's gross domestic product (GDP) contracted by 0.4 per cent in first quarter of 2014 compared to the previous quarter, and the economy has not seen any growth in 8 quarter. Preliminary data for the second quarter does not indicate a clear pick-up in growth. Retail trade has been negatively affected by weakness in purchasing power, construction investment fell in an uncertain environment and exports showed no improvement yet. Russia's recession hit further the Finnish exports, retail sales and tourism. Despite the long recession, bankruptcies remained more or less unchanged. Rise of new orders across several industries was the most positive development in manufacturing in the spring. Employment developed poorly in the first half of 2014, but the decline in the labour force moderated the rise in the unemployment rate, which rose to 8.6 per cent seasonally adjusted in May. Exceptionally low interest rates remained and eased the financial situation of the households. The rise in earnings moderated to less than two per cent and inflation to less than one per cent in the spring. The housing market activity remained below normal and housing prices slipped slightly. In early summer, the outlook for the Finnish economy still remained weaker than usual. 3

4 Financial review (The comparison figures in parentheses refer to the first six months of 2013). Danske Bank Plc Group s profit before taxes for January June 2014 was EUR million (100.7 million). The result was EUR 83.2 million (74.8 million). Taxes came down as the corporate tax rate was lowered in the beginning of 2014 to 20 per cent. Return on equity (annualized) amounted to 6.9 per cent end of June 2014 compared to 6.4 per cent last year. Total operating income for the first six months of 2014 declined 1 per cent compared with the same period a year earlier totalling EUR million (306.1 million). The Group s net interest income was EUR million (163.2 million). The continued low interest environment had a negative impact on bank s deposit margins. ECB s deposit rate for banks is for the first time in the history negative. This combined with lower lending volume caused the net interest income to fell 6 per cent year-on-year. The Group s net fee income rose by five per cent to EUR million (112.2 million) reflecting higher activity with corporate customers. Net trading income increased 19 per cent compared to the same period last year despite the challenging market conditions and totalled EUR 18.2 million (15.2 million). The crisis in Ukraine in the beginning of this year resulted challenges in particular in ruble currency trading and ruble interest rate hedging. The Group s other operating income in turn decreased around 19 per cent year-on-year to EUR 12.6 million (15.4 million). This was primarily attributable to end of income from Danske Finance Ltd s service leasing operations. Danske Bank Plc Group s cost to income ratio was 62.5 per cent showing an improvement of 8.6 percentage points compared with last year (71.1 per cent). Group s operating expenses from January-June totalled EUR million (EUR million). Total operating expenses decreased around 13 per cent (EUR 28.6 million) compared to previous year. In particular, staff costs are significantly lower year-on-year showing a decrease of 24 per cent. The consolidated result for the comparison year was burdened by a number of one-off expenses around EUR 15 million - from completion of several projects related to reorganising operations. Bank tax s portion of the years costs is EUR 17.2 million (20.4 million), which has a negative impact on the bank s revenue for at least this and next year. Net impairments on loans and receivables was EUR 9.6 million on (12.1 million on recovery side). Individually assessed impairment charges and final write-offs totalled EUR 15.5 million (32.3 million). EUR 1.0 million (14.9 million reversed) was booked in collective impairments, and recoveries came to EUR 6.9 million (29.6 million). Impairment charges and write offs were mainly from receivables from personal customers. Personal and Business Banking Customer offerings Danske Bank serves Personal customers, Private Banking customers and Corporate customers through 62 branches, a contact centre and online channels. Today, customers are also able to make cash withdrawals at almost 1,000 retail shops. We pursue to be the forerunner in mobile and tablet solutions. Concrete proof of this is the MobilePay application launched in December 2013, which enables easy peer-to-peer payments with smart phones. The app has been positively received and more than 100,000 users have downloaded it. We expect the number to pick up more rapidly as new ways of using the application will be introduced to customers of all banks. 4

5 The online-meeting solution introduced in 2013 has quickly become a very popular way for our customers to meet us concerning their advisory needs. Today, every fifth meeting is held as an online meeting and the figures are increasing. Investments, loans and daily banking solutions are negotiated and later signed in an online environment giving our customers a true easy banking experience. In May 2014, we introduced a new customer programme called the Danske Benefit Programme. The programme has been developed with the customers to meet their preferences and has thus been received in a positive way. The Danske Benefit programme consists of four benefit levels and it offers a wide range of benefits. The programme s value proposition is The more you bank with us, the more you benefit, i.e. customers who concentrate their business volumes (loans, investments, deposits) with Danske Bank, will get most benefits. In connection with the Danske Benefit programme, we announced our cooperation with mutual insurance company Fennia. During the first phase, customers who sign-up for the Danske Benefit Programme will get discounts and other valuable benefits from Fennia. At the end of June, already 20 per cent of current customers entitled to the highest benefit level had signed up for the programme and we expect the sign-up phase to further increase as our customer communication picks up as planned and the awareness of advantages increases. Within our Private Banking area we also continued to grow our business volumes during the first half of Our Private Banking service model based on holistic wealth management is highly valued by our customers. In order to develop the value proposition even further a new Private Banking Access -service was launched as part of the Danske Benefit Programme. For our business customers we have released additional features for our e-banking palette and also our Mobile Banking platform. Business customers are now able to use our Tablet Business app and our Mobile Business app ensuring them 24/7 access to their finances. Online-meetings allow flexible interaction with the bank and have been well received by our customers. Services for entrepreneurs and small businesses have been strengthened by a dedicated team of experts that provides easy access to the full range of Danske Bank s offerings. To our international business customers we have released a fully real-time multi currency cash pool service that allows them to improve working capital efficiency. Customer satisfaction At the end of Q2 2014, customer satisfaction for Personal Banking and Business Banking were below our target of number one or two among our focus customers. However, we saw a positive sign in both areas. According to a study early in 2014 customer satisfaction in Private Banking Finland is on a high level of 24 per cent measured by the net promoter score (NPS). We need further improvement to reach our target of a top-two ranking, however, we believe that our focus on customer relationship and seamless online solutions will improve satisfaction. Financial review Total operating income from Personal and Business Banking decreased by 3.1 per cent on the previous year to EUR million (EUR million). The decrease is largely explained by internal changes: transfer pricing for the deposit book was lowered due to decreasing funding costs, while the lending book will be gradually adjusted. In addition, several customers transferred to the C&I segment during the second half of 2013, which partially accounts for the decrease in income. The average lending margin charged from customers increased year-onyear. However, a decrease in loan and deposit balances offset the positive impact on net interest income. 5

6 Net fee income remained at the same level as the previous year, but there was a decrease in other income, due to the end of income from service leasing operations. Net impairments on loans and receivables to the Personal and Business Banking segment was EUR 12.3 million during H1/2014, while in the previous financial year impairment charges (EUR 5.0 million on recovery side) had a significant positive impact on earnings due to the sale of collection receivables. Total operating expenses in Personal and Business Banking decreased 17.7 per cent on the previous year to EUR million (EUR million). This results from the organisational restructuring program completed in 2013, partially through improved cost efficiency and partially from extraordinary expenses related to the program. Due to lower operating costs the profit before taxes for the segment was slightly better than in the previous year. Corporates & Institutions Corporates & Institutions (C&I) unit includes the Group s Markets business, Corporate and Institutional Banking (CIB) and Transaction Banking business. Total operating income from the C&I unit decreased by 18.7 per cent year-on-year and was EUR 41.8 million (EUR 51.4 million). In the CIB business net interest income increased slightly compared to the same period last year, but in turn there was a decrease in net fee income. As a result the CIB s total income for the period was lower than in the previous year. Even though customers general investments were still relatively low, the refinancing and other restructuring cases kept the loan market active. Still the CIB s profit before taxes during the first half of the year was lower than in the previous year. CIB achieved first place in Prospera s customer satisfaction survey related to cash management and trade finance, both in Finland and in Nordic countries, during the review period. Danske Bank Markets division faced an improving macroeconomic picture in H1 2014, but also saw the emergence of record low market volatilities and zero rates in the euro-zone. Both the total income and profit before taxes was lower than in the comparison period. Despite low market volatility the client activity stayed at a good level in most products and especially FX and new bond issues kept growing. In H Markets received a number of great scores from client satisfaction surveys and has a steady top 2 market share position in all of the major product areas with Finnish corporate and institutional clients. During the review period, Danske Bank Markets arranged bond issues for the Republic of Finland, Kingdom of Sweden, Ireland as well as for Finnvera, the special financing company owned by the State of Finland. In addition, Danske Bank Markets arranged bond issues for major Finnish and Nordic corporations, including Metsä Board, Fingrid, Cargotec, St1 Nordic and Paroc Group. Other activities Other activities include Danske Capital, the Group Treasury, the Group s Service Centre and other support functions. Their total operating income was EUR 33,6 million (EUR 20.7 million). Danske Capital includes asset management activities and operations in Danske Invest Fund Management Ltd. Danske Capital performed well during the financial year, despite the market situation. The business unit s total operating income was EUR 19.0 million (16.6 million). Also the profit before taxes for increased year on year. Danske Capital is responsible for institutional customers, discretionary portfolios in private banking and most of Danske Invest Fund Management s funds. Danske Invest Fund Management Ltd is the third-largest fund management company in Finland with a market share of 12.9 per cent. Assets under management totalled EUR billion at the end of June 2014 (9.6 billion on 30 June 2013). Net subscriptions by fund management companies registered in Finland were EUR 3,

7 million in January-June. In the same period, net subscriptions by Danske Invest Fund Management were EUR million. In the international mutual fund rating survey, done by Morningstar, a total of eight funds of Danske Invest funds received the highest 5-star rating and 11 funds received the 4-star rating. A total of 40 funds reached to the highest of three to five star categories. The comparison included a total of 54 company s mutual funds. Funds average star rating was Citywire chose Danske Capital to be Europe's best asset manager in Russia-portfolio category. Danske Invest Russia Fund was second in its fund class with 8.7per cent annual return measured in 10 years return on funds. Danske Invest performed excellent in comparisons where investment returns were measured over the long-term. Danske Invest Global Tech was the best in its class with a 9.5 per cent annual return on 10-year yield history, as well as five-and one-year yield history with annual income return of 19.9 per cent and 22.2 per cent. In long-term interest funds Danske Invest Emerging Markets Debt was the best in its class, in terms of 10-year return with annual return of 7.7 per cent. Danske Invest Euro High Yield Fund reached the first place measured by threeyears historical yield with an annual return of 9.0 per cent. Other activities include also Group s Treasury activities. Group Treasury is acting as an internal bank for the business segments. In 2014 we have modified the funds transfer pricing model for liquidity costs which improved the net interest income in Treasury. Also the liquidity buffer s revaluation improved Treasury s income. As a consequence, the Treasury s total operating income and profit before taxes increased from the corresponding period of Balance sheet and funding (The comparison figures in parentheses refer to December 2013 figures). Danske Bank Plc Group s balance sheet total was EUR 27,037.4 million (26,679.9 million). Loans and receivables from customers increased by EUR million to a total of EUR 22,625.0 million (22,278.6 million). Deposits decreased by EUR million to a total of EUR 15,281.7 million (16,098.3 million). The financial and liquidity situation remained good, and short-term funding performed well during the period. Danske Bank Plc has in March 2014 prematurely repaid EUR million of a Tier 1 debenture loan. Capital adequacy (The comparison figures in parentheses refer to December 2013 figures that are calculated in accordance with the rules applicable under CRR. In the Solvency table December 2013 figures can be found according with the new and old capital adequacy rules.) Danske Bank Plc Group applies standard method (capital requirement for credit and operational risk) and regulatory approaches (capital requirement for market risks) to capital adequacy calculations. Danske Bank Plc Group s total capital consists of tier 1 capital (common equity tier 1 capital and additional tier 1 capital instruments after deductions). At 30 June 2014, the total capital amounted to EUR 2,475.0 million (2,547.3 million), and the total capital ratio was 14.2 (16.7) per cent. The common equity tier 1 capital ratio stood at 13.7 (15.3) per cent. 7

8 The Tier 1 debenture loan that was repaid in March is excluded from capital at 30 June At 30 June 2014, risk-weighted assets amounted to EUR 17,369.5 million, against EUR 15,209.7 million at 31 December The main reason for the increase was the implementation of CRR/CRD IV at 1 January Profit after taxes for January-June is included in Tier 1 distributable capital with the permission of the Finnish Financial Supervisory Authority. 8

9 SOLVENCY Own funds ) EURm Danske Bank Plc Group Common Equity Tier 1 capital before deductions 2 416, , , ,0 Share capital 106,0 106,0 106,0 106,0 Legal reserve 271,1 271,1 271,1 271,1 Retained earnings 1 955, , , ,0 Total comprehensive income for the period 83,0 145,3 145,3 74,8 Minority interest given recognition in CET1 capital 0,4 0,1 0,1 0,1 Deductions from CET1 capital -41,3-61,3-54,0-2,7 Common Equity Tier 1 (CET1) 2 375, , , ,3 Additional Tier 1 capital (AT1) 2) 100,0 225,0 225,0 225,0 Tier 1capital (T1 = CET1 + AT1) 2 475, , , ,3 Tier 2 capital Total capital (TC = T1 + T2) 2 475, , , ,3 Risk-weighted assets (on-balance sheet , , , ,6 and off-balance sheet) Capital requirement ( 8% of risk-weighted assets) 1 389, , , ,6 Credit and counterparty risk 1 266, , , ,4 Market risk 35,9 20,5 13,9 18,0 Operational risk 87,5 86,7 86,7 87,1 Common equity tier 1 capital ratio (%) 13,7 % 15,3 % - - Tier 1 capital ratio (%) 14,2 % 16,7 % 17,2 % 15,6 % Total capital ratio (%) 14,2 % 16,7 % 17,2 % 15,6 % Group capital adequacy ratio has been calculated in accordance with Credit Institutions Act Sect 5:44-48 and For calculation of credit, market and operational risk's risk-weighted assets, Danske Bank Plc Group applies standard method. 1) Comparison figures of total capital and risk-weighted assets were calculated in accordance with the rules applicable under CRR. 2) Danske Bank Plc Group Tier 1 includes capital securities 4% (9%). 9

10 Employees and organisation The Group had 1,811 employees (1,960) at the end of the reporting period, which was a reduction of 149 persons (8 per cent) year-on-year. Of all the employees, 77.2 per cent were employed in the Personal and Business Banking units, 2.7 per cent in the C&I unit and 20.1 per cent in Other Activities. Credit ratings In May 2014 Moody s changed Danske Bank Plc s long-term debt rating from A2 with stable outlook to A2 with negative outlook. Short-term debt rating remained at P-1. Standard & Poor s long-term debt rating for Danske Bank Plc is at A- with stable outlook and short-term debt rating is at A-2. Danske Bank Plc s Board of Directors and auditors Danske Bank Plc s Board of Directors effective from 27 February 2013 are; Tonny Thierry Andersen (Chairman), Robert Endersby (Vice Chairman), Niels-Ulrik Mousten, Helle Havgaard, Esko Mäkeläinen and Maija Strandberg. Helle Havgaard has left the Danske Bank Plc s Board of Directors effective from 14 April Jeanette Fangel Logstrup was elected as new member on 7 April Risto Tornivaara is the CEO of Danske Bank Plc and Kenneth Kaarnimo is his deputy. The Annual General Meeting of Danske Bank Plc chose KPMG Oy, a firm of authorised public accountants, as its auditor, with Petri Kettunen, APA, as the auditor with principal responsibility. The Board of Directors has decided on 12 June 2014 to establish the following committees; audit, risk, nomination and remuneration committees. The committees will be effective when the new Credit Institutions Act comes into force. Changes in Danske Bank Plc s shares, ownership and group structure Danske Bank Plc Group is part of Danske Bank Group. The parent company of Danske Bank Group is Danske Bank A/S. The parent company of Danske Bank Plc Group is Danske Bank Plc. The following were also Danske Bank Plc Group companies on 30 June 2014: Danske Invest Fund Management Ltd, Danske Finance Ltd, Realty World Ltd, Aurinkopihan Palvelut Oy, MB Equity Partners Oy and MB Mezzanine FUND II Ky. Danske Bank Plc s share capital is EUR 106 million, divided into 106,000 shares. Danske Bank A/S holds the entire stock of Danske Bank Plc. Significant accounting policies The Group has not changed its accounting policies from those followed in the annual financial statements for Accounting policies are explained in the Notes to the Interim report, and are presented in greater detail in the Notes to the 2013 financial statements. Risk management The main objective of risk management is to ensure that the capital base is adequate in relation to the risks arising from the business activities. The Board of Directors of Danske Bank Plc establishes the principles of risk management, risk limits and other general guidelines according to which risk management is organised at Danske Bank Plc. To ensure that the bank s risk management organisation meets both the external and internal requirements, the Board of Directors has set up a Risk Committee, the main objective of which is to ensure 10

11 Danske Bank Plc s compliance with the risk management guidelines issued by the Board of Directors and that Danske Bank Plc monitors all types of risk and provides reports to the appropriate parties. The Board has also established an Asset and Liability Committee (ALCO), which is responsible for monitoring and directing the management of structural balance sheet interest rate risk positions in accordance with Danske Bank Plc s policies and delegated limits. ALCO also determines the operating target levels for liquidity risk management and oversees the management of liquidity risk. The Risk Management unit monitors daily business operations. In addition to the capital adequacy calculation, risks in the Danske Bank Plc Group are described and assessed through economic capital indicators based on internal ratings, which describe the amount of capital needed to bear different kinds of risks. The capital requirement must be adequately covered by equity, capital securities and debenture loans. The principal risks associated with the Danske Bank Plc Group s activities are credit risk, interest rate and liquidity risks of banking book, operational risks and various business risks. From the different risk types the credit risk exposure is the most important. The Group s risk position remained at a good level. The principal risks associated with the Group s business operations involve developments in the general economic operating environment and investment market and future changes in financial regulations. In relation to the loan and guarantee portfolio, non-performing loans were at a low level. There was an increase in the volume of non-performing loans in comparison with the previous year end due to the new definition given by EBA. Non-performing loans amounted to EUR million (189.9 million) or 1.6 per cent (0.90) of the loan and guarantee portfolio. Net impairment charges were 9.6 million euros. The Danske Bank Plc Group has not invested in the bonds of GIIPS countries. A more detailed account of risks and risk management can be found in the 2013 financial statements. Events after the reporting period No material events after the reporting period. Outlook The Finnish economy continued to be a bit gloomy in H1 2014, but we still expect a modest export-led recovery in the second half of 2014 driven by growth in Western markets. The emerging recession in Russia and the political uncertainty cast a shadow on Finnish exports. Domestic demand is weak, and low activity on the housing market can be observed, as real wages are stagnating and there is uncertainty about unemployment. As the ECB recently cut its rates, interest rates are expected to remain low also for the rest of the year. This combined with low demand for new lending will have a negative impact on the Group s income in 2014 compared to Expenses are expected to be lower in 2014 compared to previous year, because the reduction of our branch net work resulted non-recurring costs for Therefore we expect that our net profit for 2014 will be at the same level as 2013, despite the fact that loan impairment charges are expected to be a bit higher as the recorded level in 2013 was very low. This guidance is generally subject to uncertainty and depends on economic conditions. Our trading income and loan loss impairments are particularly uncertain. 11

12 Helsinki, 24 July 2014 Danske Bank Plc Board of Directors ************************************************************************************************************ Further information: Risto Tornivaara, CEO Tel Laura Sepponen, Head of Accounting Tel The figures in this interim report have not been audited. Danske Bank Plc Group s financial statement for January December 2014 will be released on 3 February Releases and other company information can be found on Danske Bank Plc s website at 12

13 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME EURm Note 1-6/ / /2013 Interest income 249,0 273,5 524,9 Interest expense -95,4-110,3-206,6 Net interest income 1 153,6 163,2 318,3 Fee income 149,4 141,7 288,7 Fee expenses -31,6-29,5-58,8 Net trading income 18,2 15,2 34,9 Other operating income 12,5 14,5 37,6 Net income from investments 0,1 0,9 1,0 Total operating income 302,1 306,1 621,7 Staff costs -64,3-84,1-149,8 Other operating expenses -120,2-125,7-262,4 Amortisation, depreciation and impairment charges -4,4-7,6-12,4 Total operating expenses -188,9-217,5-424,7 Loan impairment charges 2-9,6 12,1 2,7 Profit before taxes 103,6 100,7 199,7 Taxes -20,4-25,9-54,4 Total comprehensive income for the year 83,2 74,8 145,3 Attributable to Equity holders of parent company 83,0 74,8 145,3 Non-controlling interest 0,3 0,0 0,0 13

14 CONSOLIDATED BALANCE SHEET EURm Note 6/2014 6/ /2013 Assets Cash and balances at central banks 1 355,2 759, ,2 Loans and receivables , , ,6 Trading portfolio assets 5, , , ,1 Investments in associated undertakings 6,8 10,9 8,0 Intangible assets 3,0 2,7 3,6 Property, plant and equipment 11,9 16,3 13,2 Other assets 245,8 244,3 161,0 Current tax assets 0,0 1,7 15,7 Defferred tax assets 10,7 22,8 12,6 Total assets , , ,9 Liabilities Due to credit institutions and central banks , , ,6 Amounts owed to customers and public entities , , ,3 Debt securities in issue , , ,0 Financial liabilities at fair value through p/l 5, 8 889,8 221,5 307,7 Trading portfolio liabilities 5, , , ,5 Other liabilities 462,6 326,6 347,3 Current tax liabilities 6,1 4,6 11,1 Deferred tax liabilities 0,0 0,0 0,0 Total liabilities , , ,4 Equity Share capital 106,0 106,0 106,0 Reserves 271,1 271,1 271,1 Retained earnings 2 038, , ,3 Equity attributable to parent company's equityholders 2 416, , ,4 Non-controlling interest 0,4 0,1 0,1 Total equity 2 416, , ,5 Total equity and liabilities , , ,9 14

15 STATEMENT OF CHANGES IN EQUITY EURm Share capital Legal reserve Retained earnings Total Noncontrolling interest Total Equity at 1 Jan ,0 271, , ,1 0, ,8 Total comprehensive income 74,8 74,8 0,0 74,8 Total income and expenses recognised for the period 74,8 74,8 0,0 74,8 Dividend distribution -140,0-140,0-140,0 Change in non-controlling interest -0,5-0,5 Equity at 30 June ,0 271, , ,9 0, ,0 Equity at 1 Jan ,0 271, , ,1 0, ,8 Total comprehensive income 145,3 145,3 0,0 145,3 Total income and expenses recognised for the period 145,3 145,3 0,0 145,3 Dividend distribution -140,0-140,0-140,0 Change in non-controlling interest -0,5-0,5 Equity at 31 December ,0 271, , ,4 0, ,5 Equity at 1 Jan ,0 271, , ,4 0, ,5 Total comprehensive income 83,0 83,0 0,3 83,2 Total income and expenses recognised for the period 83,0 83,0 0,3 83,2 Dividend distribution -50,4-50,4-50,4 Change in non-controlling interest 0,0 0,0 Equity at 30 June ,0 271, , ,9 0, ,3 15

16 CASH FLOW STATEMENT EURm 1-6/ / /2013 Cash flow from operations Profit before tax 103,6 100,7 199,7 Adjustment of income from associated undertakings -0,1-0,6-0,5 Amortisation and impairment charges for intangible assets 0,9 0,1 0,4 Depreciation and impairment charges for tangible assets 3,5 8,7 12,0 Loan impairment charges 9,6-12,1-2,7 Tax paid -23,5-23,7-41,7 Other non-cash operating items 10,9-1,2-10,3 Total 105,0 72,0 157,0 Changes in operating capital Cash in hand and demand deposits with central banks 400,1-819, ,8 Trading portfolio -67,4-460,5-464,9 Loans and receivables -2,6 505, ,7 Deposits -816,6 430,0-364,7 Other assets/liabilities 658, , ,0 Cash flow from operations 277, , ,7 Cash flow from investing activities Acquisition of intangible assets -0,4-0,1-1,3 Acquisition of tangible assets -2,2-4,5-5,9 Sale of tangible assets 0,7 3,9 4,9 Cash flow from investing activities -1,9-0,7-2,3 Cash flow from financing activities Redemption of subordinated debt and hybrid core capital -128,1-81,2-96,2 Dividends -50,4-140,0-140,0 Change in non-controlling interests 0,3-0,5-0,5 Cash flow from financing activities -178,3-221,7-236,7 Cash and cash equivalents, beginning of period 4 443, , ,5 Change in cash and cash equivalents 97, , ,7 Cash and cash equivalents, end of period 4 540, , ,8 Cash in hand and demand deposits with central banks 1 355,2 759, ,2 Amounts due from credit institutions and central banks within 3 months 3 185, , ,6 Total 4 540, , ,8 Amount in row Other assets/liabilities, end of June 2014, is mainly caused by net change in certificates of deposits (582.0 million euros) compared to year end

17 SEGMENT INFORMATION Segment principles The Group consists of number of business units and resource and support functions. The Group's activities are segmented into business units according to Danske Bank Group's organisational structure in Inter-segment transactions are settled on an arm's-length basis. Expenses incurred centrally, including expenses incurred by support, administrative and back-office functions, are charged to the business units according to consumption and activity at calculated unit prices or at market prices, if available. Segment assets and liabilities are assets and liabilities that are used to maintain the operating activities of a segment or have come into existence as a result of such activities and that are either directly attributable to or may reasonably be allocated to a segment. A calculated share of sharelholders' equity is allocated to each segment. In the consolidated financial statements the inter-segment transactions, assets and liabilities have been eliminated. Segment results are reported after eliminations. Operating Segments Danske Bank Plc Group consists of the following units: Personal and Business Banking Corporates & Institutions Other activities (incl. Danske Capital) Personal and Business Banking serves personal and private banking customers as well as small and medium-sized businesses (sme). The unit focuses on offering first-class self-service products and proactive advice to customers with more complex finances. The strategy is to concentrate efforts on mass affluent customers, private banking customers, young customers and sme's. For sme's are offered strategic financial advisory services and other business banking products. Danske Finance Ltd is part of the segment. Corporates & Institutions serves the largest institutional clients and corporate customers in the Nordic region. Products and services include cash management services and trade finance solutions. Corporates & Institutions also offers fixed-income and foreign exchange products for hedging purposes. Other activities encompasses Group Treasury, expenses for the Group s support functions and eliminations. Group Treasury is responsible for the Group s strategic fixed income, foreign exchange and equity portfolios and serves as the Group s internal bank. Danske Capital is included in the Other activities segment and will continue to offer asset management products to private individuals and businesses. 17

18 OPERATING SEGMENTS - tables JANUARY-JUNE 2014 Personal and Business Banking Corporates and Institutions Other Eliminations Danske Bank Plc Group EURm Total operating income 226,7 41,8 33,6 0,0 302,1 Total operating expenses -145,9-23,9-19,0 0,0-188,9 Loan impairment charges -12,3 2,7 0,0 0,0-9,6 Profit before taxes 68,5 20,6 14,6 0,0 103,6 JUNE 30, 2014 TOTAL ASSETS of which loans and advances to credit inst. & customers TOTAL LIABILITIES AND EQUITY of which liabilities to credit inst. & customers JANUARY-JUNE 2013 Personal and Business Banking Corporates and Institutions Other Eliminations Danske Bank Plc Group EURm Total operating income 233,9 51,4 20,7 0,0 306,1 Total operating expenses -177,2-23,3-17,0 0,0-217,5 Loan impairment charges 5,0 6,5 0,6 0,0 12,1 Profit before taxes 61,7 34,6 4,3 0,0 100,7 JUNE 30, 2013 TOTAL ASSETS of which loans and advances to credit inst. & customers TOTAL LIABILITIES AND EQUITY of which liabilities to credit inst. & customers In accordance with IFRS 8, Danske Bank Plc Group is required to disclose business with a single external customer that generates 10% or more of the combined revenue. The Group has no such customers. 18

19 DANSKE BANK PLC GROUP'S FINANCIAL HIGHLIGHTS 1-6/ / /2013 Total operating income EURm Total operating expenses EURm Impairment charges on loans and receivables 1) EURm Profit before taxes EURm Cost to income ratio % 62,5 71,1 68,3 Total amount of balance sheet at the end of the period EURm Equity at the end of the period EURm Return on equity 2) % 6,9 6,4 6,1 Group solvency ratios % 14,2 15,6 17,2 Number of staff at the end of the period Return on assets 2) % 0,6 0,5 0,5 Equity/assets ratio % 8,9 8,2 8,9 1) Impairment on loans and receivables includes impairment charges, reversals of them, write-offs and recoveries. 2) Annualized CALCULATION OF FINANCIAL HIGHLIGHTS Cost to income ratio, % : Staff costs + other operating expenses x Net interest income + net trading income + net fee income + net income from investments + other operating income Return on equity, % : Profit before taxes - taxes x 100 Equity + non-controlling interests (average) Return on assets, % : Profit before taxes - taxes x 100 Average total assets Equity/assets ratio, % : Equity + non-controlling interests x 100 Total assets 19

20 NOTES TO THE INTERIM REPORT SIGNIFICANT ACCOUNTING POLICIES Danske Bank Plc Group is part of the Danske Bank Group. Danske Bank Plc Group presents its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and IFRIC interpretations issued by IFRS Interpretations Committee, as endorsed by the EU. Certain additional requirements in accordance with Finnish Accounting Act, Finnish Act on Credit Institutions and Finnish Financial Supervision standards have also been applied. In preparing the Interim Report, Danske Bank Plc has applied all the new or amended standards and interpretations relating to its business and effective at 30 June 2014 as the parent company. Danske Bank Plc Group's Interim Report January - June 2014 has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by EU. Danske Bank Plc Group has not changed its significant accounting policies from those followed in Annual Report Annual Report 2013 provides a full description of the Group's significant accounting policies. Accounting estimates and assessments Management s estimates and assumptions of future events that will significantly affect the carrying amounts of assets and liabilities underlie the preparation of the Group s consolidated financial statements. The estimates and assumptions that are deemed critical to the consolidated financial statements are described in Notes to the Annual Report The consolidated interim report is presented in euro (EUR), in million euros with one decimal, unless otherwise stated. Figures in notes are rounded so combined individual figures might differ from the presented total amount. The interim report has not been audited. The financial statements for 2013 are available on Danske Bank Plc s web site Danske Bank Plc Group publishes one interim report during the financial year Annual report and accounts for January-December 2014 will be published 3rd February

21 1 NET INTEREST INCOME 1-6/ / /2013 EURm Interest income Loans and receivables to credit institutions 15,7 13,5 23,3 Loans and receivables to customers and public entities 196,2 218,3 417,6 Debt securities 10,0 6,8 17,1 Derivatives 21,7 29,4 58,2 Other interest income 5,3 5,4 8,7 Total 249,0 273,5 524,9 Interest expenses Amounts owed to credit institutions -9,2-9,2-16,2 Amounts owed to customers and public entities -25,2-33,9-59,3 Debt securities in issue -57,9-61,4-120,3 Subordinated liabilities -2,5-5,5-9,8 Other interest expenses -0,7-0,3-0,9 Total -95,4-110,3-206,6 Net interest income 153,6 163,2 318,3 21

22 2 LOAN IMPAIRMENT CHARGES EURm Individual impairment charges Collective impairment charges Recoveries Total From loans and receivables to credit institutions - From loans and receivables to customers -impairment charges -34,9-1,1-36,0 -write-offs -15,6 6,9-8,7 -reversals 34,0 34,0 From guarantees and other off-balance sheet items -impairment charges - - -write-offs -reversals 1,1 0,1 1,1 Total 1-6/ ,5-1,0 6,9-9,6 EURm Individual impairment charges Collective impairment charges Recoveries Total From loans and receivables to credit institutions - From loans and receivables to customers -impairment charges -58,6-58,6 -write-offs -61,1 29,6-31,5 -reversals 87,4 14,7 102,1 From guarantees and other off-balance sheet items -impairment charges -0,9-0,9 -write-offs -reversals 0,8 0,2 1,0 Total 1-6/ ,4 14,9 29,6 12,1 Total 1-12/ ,6 13,6 38,6 2,7 22

23 3 THE BALANCE SHEET CLASSIFICATION AND MATURITY ANALYSIS EUR m Financial assets Derivatives Amortised at fair value held for ASSETS cost through p/l hedging Total Cash and balances with central banks 1 355, ,2 Loans and receivables to customers and public entities , ,6 Loans and receivables to credit institutions 3 257, ,4 Trading portfolio assets Debt securities 851,0 851,0 Shares and participations 64,6 64,6 Derivatives 1 359,8 503, ,4 Holdings in associated undertakings 6,8 6,8 Intangible assets 3,0 3,0 Tangible assets 11,9 11,9 Other assets 256,5 256,5 Total , ,2 503, ,4 EUR m Financial assets Derivatives Amortised at fair value held for ASSETS cost through p/l hedging Total Cash and balances with central banks 1 599, ,2 Loans and receivables to customers and public entities , ,6 Loans and receivables to credit institutions 2 904, ,0 Trading portfolio assets Debt securities 835,6 835,6 Shares and participations 59,0 59,0 Derivatives 1 161,9 531, ,5 Holdings in associated undertakings 8,0 8,0 Intangible assets 3,6 3,6 Tangible assets 13,2 13,2 Other assets 189,3 189,3 Total , ,5 531, ,9 23

24 3 THE BALANCE SHEET CLASSIFICATION AND MATURITY ANALYSIS (cont.) EUR m Financial liabilities Derivatives Amortised at fair value held for LIABILITIES cost through p/l hedging Total Due to credit institutions and central banks 1 730, ,0 Amounts owed to customers and public entities , ,7 Debt securities in issue -> Bonds 4 457, ,2 Financial liabilities at fair value through p/l -> Certificates 889,8 889,8 Derivatives and other financial liabilities held for trading 1 579,1 89, ,6 Subordinated liabilities 125,3 125,3 Other liabilities 468,6 468,6 Total , ,8 89, ,1 EUR m Financial liabilities Derivatives Amortised at fair value held for LIABILITIES cost through p/l hedging Total Due to credit institutions and central banks 1 317, ,6 Amounts owed to customers and public entities , ,3 Debt securities in issue -> Bonds 4 415, ,3 Financial liabilities at fair value through p/l -> Certificates 307,7 307,7 Derivatives and other financial liabilities held for trading 1 417,6 126, ,5 Subordinated liabilities 254,6 254,6 Other liabilities 358,4 358,4 Total , ,4 126, ,4 24

25 MATURITY ANALYSIS OF THE BALANCE SHEET EUR m Assets Total < 1 year > 1 year Cash and balances with central banks 1 355, ,2 - Loans and receivables to credit institutions 3 257, ,2 92,2 Loans and receivables to customers and public entities , , ,6 Trading portfolio assets 2 778,9 995, ,9 Holdings in associated undertakings 6,8 0,0 6,8 Intangible assets 3,0 2,3 0,7 Tangible assets 11,9 0,0 11,9 Other assets 256,5 256,5 - Total , , ,2 Liabilities Total < 1 year > 1 year Due to credit institutions and central banks 1 730, ,2 115,8 Amounts owed to customers and public entities , ,9 61,8 Debt securities in issue 5 346,9 967, ,2 Derivatives and other financial liabilities held for trading 1 668,6 437, ,9 Other liabilities 468,6 468,6 - Subordinated debt 125,3 125,3 - Equity 2 416,3 0, ,3 Total , , ,0 25

26 MATURITY ANALYSIS OF THE BALANCE SHEET (cont.) EUR m Assets Total < 1 year > 1 year Cash and balances with central banks 1 599, ,2 - Loans and receivables to credit institutions 2 904, ,6 32,5 Loans and receivables to customers and public entities , , ,9 Trading portfolio assets 2 588,1 899, ,1 Holdings in associated undertakings 8,0-8,0 Intangible assets 3,6-3,6 Tangible assets 13,2-13,2 Other assets 189,4 189,4 - Total , , ,2 Liabilities Total < 1 year > 1 year Due to credit institutions and central banks 1 317, ,5 90,1 Amounts owed to customers and public entities , ,7 92,6 Debt securities in issue 4 723,1 430, ,9 Derivatives and other financial liabilities held for trading 1 544,5 360, ,8 Other liabilities 358,5 358,5 - Subordinated debt 254,6 254,6 - Equity 2 383, ,5 Total , , ,9 Maturity analysis of past due financial assets*) EUR m 6/ /2013 Assets past due days 50,5 80,8 Unlikely to pay 137,8 - Nonperforming assets past due at least 90 days but not more than 180 days 61,4 41,6 Nonperforming assets past due at least 180 days - 1 year 50,2 130,7 Nonperforming assets more than 1 year 89,2 - Nonperforming assets of companies in bankruptcy and guarantee claims - 17,6 *) The 2014 figures are presented according to EBA's new definition. Comparative figures have not been restated to reflect the new presentation. 26

27 4 LOANS AND RECEIVABLES EURm 6/ /2013 6/2013 Loans and receivables to customers and public entities By type of loan Home loans , , ,4 Consumer loans 1 182, , ,8 Other retail loans 1 154, , ,5 Finance lease assets 583,0 584,9 540,6 Other commercial loans 5 910, , ,6 Impairment charges -255,7-253,3-279,8 Total , , ,1 Loans and receivables to credit institutions Deposits 749,1 995, ,9 Repo agreements 921, , ,6 Other loans 1 586,6 166,0 181,1 Impairment charges Total 3 257, , ,6 Total loans and receivables , , ,7 5 FINANCIAL INSTRUMENTS 6/ /2013 EURm Assets Liabilities Assets Liabilities Assets/liabilities held for trading 915,6-894,6 - Derivative financial instruments (note 6) 1 863, , , ,5 Debt securities at fair value - 889,8-307,7 Financial instruments, total 2 779, , , ,2 Financial instruments, total 6/ , ,1 27