Ringkjoebing Landbobank A/S : Ringkjøbing Landbobank’s interim report 2017 - Upward adjustment of expectations for the full year

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2 August 2017

Profit before tax was DKK 391 million, the equivalent of a return of 23% p.a. on equity at the beginning of the period, which is considered highly satisfactory. The bank's core earnings increased by 11% to a total of DKK 348 million, which is above budget for the first half-year.

The half-year - highlights:

• Upward adjustment of expectations for core earnings to the range DKK 600 - 665 million

• 11% increase in core earnings to DKK 348 million

• Profit before tax was DKK 391 million, equivalent to a return of 23% p.a. on equity at the beginning of the period

• The rate of costs for the half-year was 30.6%, which is still the lowest in Denmark

• Decrease in impairment charges to DKK 10 million, the equivalent of 0.1% p.a.

• Increase in the bank's loans of 7% and an increase in deposits of 11%

• Continued highly satisfactory increases in customer numbers in both the branch network and the niche concepts

Please do not hesitate to contact the bank's management if you have any questions.

Net interest income was DKK 320 million in the first half of 2017 compared to DKK 331 million in 2016, a fall of 3%. This should be compared to a 7% increase in lending volumes, which underlines the fact that interest income is strongly influenced by the competition in the sector. The item is also influenced by a changed mix of loans and the continuing low interest rate level.

Fee, commission and foreign exchange income amounted to DKK 159 million net in the first half of 2017 compared to DKK 129 million net in 2016, a net increase of 23%. The primary reason for the increase in fee income in the half-year is a positive development in the income from asset management and securities trading resulting from increasing volumes and customer numbers.

Earnings from sector shares increased by DKK 9 million to DKK 34 million in the first half of 2017. The earnings derive primarily from return on the bank's ownership interests in DLR Kredit, BankInvest Holding and PRAS.

Total core income in the first half-year increased by 6% from DKK 488 million in 2016 to DKK 516 million in 2017.

Total costs including depreciation of tangible assets amounted to DKK 158 million in the first half of 2017 compared to DKK 150 million last year, an increase of 5%.

The net increase compared to the first half of 2016 is related to a DKK 5 million increase in staff costs, a DKK 6 million increase in other administration costs, including in particular IT costs, and a net decrease of DKK 3 million in depreciation and write-downs on tangible assets and other operating expenses.

The rate of costs was marginally lower than the 2016 level and was computed at 30.6% for the first half of 2017, which continues to be the lowest in Denmark.

The bank expects total costs to increase by 3-4% for the year as a whole.

Impairment charges for loans for the half-year decreased from DKK 24 million in 2016 to DKK 10 million in 2017 and are now equivalent to 0.1% p.a. of the total average loans and guarantees etc. compared to 0.2% p.a. in the first half of 2016.

The bank's total account for impairment charges and provisions was DKK 958 million at the end of the half-year, equivalent to 4.2% of total loans and guarantees. Actual losses and write-offs on loans etc. continue to be very low, and they were exceeded during the half-year by the items "Interest on the impaired part of loans" and "Receivables previously written off", such that the total account for impairment charges and provisions increased by DKK 23 million net during the first half of 2017.

The portfolio of loans with suspended calculation of interest amounted to DKK 51 million, equivalent to 0.2% of the bank's total loans and guarantees at the end of the half-year.

On the basis of the quality of the bank's loan portfolio and prospects for economic development in the coming year, the bank still expects total impairment charges in 2017 to be lower than in 2016.

Core earnings totalled DKK 348 million compared to last year's DKK 314 million. The core earnings for the first half-year are the best in the bank's history and above the budget for the half-year.

The result for the portfolio for the first half of 2017 was DKK 43 million including funding costs for the portfolio.

Shares etc. at the end of the half-year amounted to DKK 514 million, DKK 20 million of which was in listed shares etc. and DKK 494 million in sector shares etc. The bond portfolio amounted to DKK 2,743 million, most of which consists of AAA-rated Danish government and mortgage credit bonds.

The total interest risk - calculated as the impact on the profit of a 1 percentage point change in the interest level - was 0.8% of the bank's tier 1 capital at the end of the half-year.

The bank's total market risk within exposures to interest rate risk, listed shares etc. and foreign currency remains at a moderate level, and this policy will continue.

The bank's risk of losses based on a Value at Risk model (computed with a 10-day horizon and 99% probability) was as follows in the first half of 2017:

Profit after tax was DKK 312 million for the first half of 2017, compared to DKK 269 million last year.

The profit after tax is equivalent to a return on equity at the beginning of the period of 18% p.a. after payment of dividend.

The bank's balance sheet at the end of the half-year stood at DKK 25,474 million compared to last year's DKK 23,191 million.

The bank's deposits increased by 11% from DKK 17,365 million at the end of June 2016 to DKK 19,267 million at the end of June 2017. The bank's loans increased by 7% from DKK 17,744 million to DKK 19,066 million in the same period. Loans have increased by 9% since the end of 2016.

The bank's portfolio of guarantees at the end of the half-year was DKK 2,746 million compared to DKK 2,259 million at the end of June 2016 and DKK 2,460 million at the end of 2016.

The bank's liquidity situation is good. The bank's short-term funding with term to maturity of less than 12 months amounts to DKK 0.6 billion, balanced by DKK 5.4 billion primarily in short-term investments in the Danish central bank and in liquid securities.

The bank's deposits at the end of the half-year exceeded its loans by DKK 201 million. The loan portfolio is thus more than fully financed by the bank's deposits and equity. In addition, part of the loan portfolio for wind turbines in Germany is refinanced back-to-back with KfW Bankengruppe, which means that DKK 975 million can be disregarded in terms of liquidity.

In terms of liquidity, the bank must comply with the LCR (Liquidity Coverage Ratio) requirement. On 1 January 2017, the minimum LCR requirement for non-SIFI banks increased to 80%, and on 1 January 2018 it will increase by an additional 20 percentage points, which means that by that date the LCR must be at least 100%.

Since the introduction of the LCR in 2015, Ringkjøbing Landbobank has sought to follow the same rules that apply to SIFI banks, viz. a minimum LCR of 100%.

On 30 June 2017 the bank's LCR was 192%, which thus met the target.

On 31 December 2016, the LCR requirement replaced the statutory Section 152 requirement, which was phased out on the same date. However, the latter must still be disclosed, and the figure at the end of June 2017 was 115%.

Equity at the beginning of 2017 was DKK 3,555 million. To this must be added the profit for the period, while the dividend paid and the value of the bank's own shares bought must be subtracted, after which the equity at the end of the half-year was DKK 3,619 million.

The bank's total capital ratio was computed at 18.7% at the end of the first half of 2017, and the tier 1 capital ratio at 17.2%.