Ringkjøbing Landbobank - interim report 2013 NASDAQ OMX

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7 August 2013

Ringkjøbing Landbobank - interim report 2013

Core earnings increased from DKK 206 million in the first half of 2012 to DKK 231 million in 2013, an increase of 12%. The profit before tax was DKK 245 million, representing a return of 19% p.a. on equity, which is considered satisfactory in the current financial situation in society.

The half-year – highlights:

• The result before tax is equivalent to a 19% p.a. return on equity at the beginning of the period after payment of dividend
• Increase of 12% in core earnings from DKK 206 million in 2012 to DKK 231 million in 2013
• The rate of costs improved by 2% to 31.2 - the lowest in the country
• Solvency ratio of 20.7, equivalent to cover of 238%
• Core capital ratio of 19.6
• The bank’s market value increased in 2013 to DKK 4.8 billion
• Highly satisfactory number of new customers in both the branch network and the niche concepts results in the best ever net increase in customers

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

Yours sincerely 

Ringkjøbing Landbobank

John Fisker

Management report

Core income

The net interest income in the first half of 2013 was DKK 304 million against DKK 316 million in 2012, a decrease of 4%. Since the first half of last year the bank has experienced a decrease in volumes and a weakly falling interest margin, and the very low interest level has resulted in a lower return on the bank’s securities portfolio and its liquid resources.

Fees, commissions and foreign exchange earnings amount to net DKK 113 million in the first half of 2013 against net DKK 98 million in 2012, an increase of 15%. There are primarily greater activity and volumes within asset management and pensions, which strengthen earnings relative to 2012, and the income from guarantee commissions has been increasing.

Total core income was 1% higher in the first half of the year, increasing by DKK 6 million from DKK 418 million in 2012 to DKK 424 million in 2013. The bank considers the increase from the 2012 level satisfactory.

Costs and depreciations

Total costs including depreciation on tangible assets were DKK 132 million in the first half of 2013 against DKK 133 million last year, a decrease of 1%. The half-year’s costs include DKK 7 million for the insurance scheme under The Guarantee Fund for Depositors and Investors, under which the bank’s current share is 0.68%.

The rate of costs was computed at 31.2%, which is 2% better than the same period last year. The rate of costs is still the lowest in the country. A low rate of costs is especially important in periods of difficult economic conditions as this provides a high level of robustness in the bank’s results.

Impairment charges for loans

Impairment charges for loans etc. amounted to DKK 61 million in the first half of 2013 against DKK 79 million in 2012. The level of impairments is falling relative to the same period last year and is equivalent to 0.8% p.a. of total average loans and guarantees. The bank’s customers still appear to be coping better with the weak economic conditions than the average in Denmark. 

The bank’s total account for impairment charges for loans and provisions for guarantees amounted to DKK 828 million at the end of the half-year, equivalent to 5.2% of total loans and guarantees. Actual write-offs for loans continue to be very low, and they were exceeded during the period by the income items “Interest concerning the impaired part of loans” and “Receivables previously written-off”, such that the account for impairment charges for loans and provisions for guarantees increased by net DKK 70 million during the half-year.

The portfolio of loans with suspended calculation of interest amounts to DKK 97 million, equivalent to 0.6% of the bank’s total loans and guarantees at the end of the half-year.

Given the low growth in the Danish economy in 2012, which is expected to continue this year, the bank is satisfied with the conservative credit policy on the basis of which it has always operated. As a natural part of the economic cycle, the bank’s losses are expected to remain at a relatively high level in 2013, but with a downward trend relative to the previous year.

Core earnings

Core earnings before impairments for the half-year were DKK 292 million, the best half-year ever in the bank’s history for this figure.

Core earnings were DKK 231 million against DKK 206 million last year, an increase of 12%, and core earnings are now approaching the top of the range of DKK 350-425 million announced previously for the entire year.

Result for portfolio

The result for portfolio for the first half of 2013 was positive by DKK 15 million including funding costs for the portfolio.

The bank’s holding of shares etc. at the end of the half-year amounted to DKK 253 million, DKK 36 million of which was in listed shares, while DKK 217 million was in sector shares etc. The bond portfolio amounted to DKK 3,671 million, and the majority of the portfolio consists of AAA-rated Danish mortgage credit bonds and short-term bank bonds with rated counterparties.

The total interest rate risk, computed as the impact on the result of a one percentage point change in the interest level, was 1.3% of the bank’s core capital after deduction 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 low level. The bank’s risk of losses calculated on the basis of a Value-at-risk model (computed with a 10-day horizon and 99% probability) in the first half of 2013 was as follows:

The bank’s policy remains to keep the market risk at a low level.

Profit after tax

The profit after tax was DKK 184 million for the first half of 2013 against DKK 178 million last year. The profit after tax is equivalent to a return on equity of 14% p.a. after payment of dividend.

Balance sheet

The bank’s balance sheet total at the end of the half-year stood at DKK 17,800 million against last year’s DKK 18,033 million.

The bank’s deposits fell by 2% from DKK 12,939 million in 2012 to DKK 12,654 million at the end of the first half of 2013.

The bank’s loans fell from DKK 12,869 million to DKK 12,570 million, a fall of 2%. In the first half of 2013, the bank enjoyed a very satisfactory underlying growth in new customers from both its branch network and within the niches Private Banking and wind turbine financing. The growth in loans in recent years has been more than absorbed by a bigger return flow on the bank’s loans portfolio, inter alia because of the changed patterns of behaviour in society, with a greater proportion of savings and with customers who want to trim their balance sheets. There was, however, a weak increase of DKK 146 million in the loans portfolio for the first half of 2013 relative to the end of 2012.

The bank’s portfolio of guarantees etc. at the end of the half-year was DKK 2,615 million against DKK 1,687 million at the end of June 2012. The portfolio of guarantees etc. increased by DKK 948 million relative to the end of 2012.

Liquidity

The bank’s liquidity is good, with loans and deposits at the same level. The excess solvency relative to the statutory requirement was 145%. The bank’s short-term funding with term to maturity of less than 12 months amounts to only DKK 929 million, balanced by DKK 4.4 billion in short-term money market placings, primarily in Danish banks and liquid securities. The bank is thus not dependent on the short-term money market.

The bank’s loans portfolio is more than fully financed by deposits and the bank’s equity. In addition, part of the German loans portfolio for wind turbines was refinanced back-to-back with KfW Bankengruppe, and DKK 797 million can thus be disregarded in terms of liquidity. The bank requires no financing for the coming year to meet the minimum requirement that it must always be able to manage for up to 12 months without access to the financial markets.

The Guarantee Fund for Depositors and Investors

The fixed costs of the insurance scheme under The Guarantee Fund are recognised under “Other operating costs”.

As was the case in the first quarter of 2013, an additional amount was imposed on the bank in the second quarter of 2013 by the Winding-up and Restructuring Department of the Guarantee Fund, inter alia from the estate in bankruptcy of Fjordbank Mors. The total costs for the first half of 2013 total DKK 1.6 million, which is recognised under “Expenses for bank packages”.

Share buy-back programme

It was decided at the annual general meeting in February 2013 to cancel 100,000 own shares, and the capital reduction was finally implemented at the end of April 2013.

The bank was further authorised at the general meeting to buy up to 130,000 own shares and set them aside for later cancellation. As of 6 August 2013, 35,000 own shares had been set aside for later cancellation under the new buy-back programme. The bank’s holding of own shares at the end of the first half of 2013 was 36,796.

Capital

The equity at the beginning of 2013 was DKK 2,676 million. To this must be added the profit for the period, while the dividend paid and the value of the own shares bought must be subtracted, after which the equity at the end of the half-year was DKK 2,754 million.

The bank’s solvency ratio (Tier 2) was computed at 20.7 at the end of the first half of 2013. The core capital ratio (Tier 1) was computed at 19.6.

With effect from 2013, the method of calculation of the individual solvency requirement was changed to the so-called 8+ model, where the calculation is based on 8% plus any supplements calculated inter alia for customers with financial problems.

In contrast to the previously used method, the 8+ model takes no account of the bank’s earnings and cost base and its robust business model. Despite this, the bank’s individual solvency requirement at the end of June 2013 was calculated at only 8.7% on the basis of the business model under which the bank operates.

Encouraging increase in customer numbers

The bank implemented several outreach initiatives towards new customers just over three years ago. This was done on the basis that we have both the liquidity and the capital to support growth, that we feel comfortable with the bank’s credit book, and we have a cost structure suitable for the future. The biggest challenge in times of low growth in society is thus creating growth in the bank’s top line.

The bank’s outreach initiatives were intensified in 2012, among other things by investing in further disseminating the bank’s Private Banking platform nationally. The initiatives were continued in 2013, and in the first half of 2013 the bank recorded the best ever net increase in customers in a half-year, with growth in new customers from both its branch network and within the niche concepts. The outreach initiatives at the national level are planned to continue in the second half of 2013, and outreach activities will also be implemented during this period in the branch network in central and western Jutland.

Accounting policies and key figures

The accounting policies applied are unchanged relative to the audited annual report presented for 2013.

Expected result in 2013

The core earnings were DKK 231 million against DKK 206 million last year, an increase of 12%, and core earnings are now approaching the top of the range of DKK 350 - 425 million announced for the entire year.

Main and key figures

Profit and loss account

Core earnings

Balance sheet

Balance sheet

Statement of shareholders’ equity

Notes

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Main figures summary

   Overview - 10 quarters

Danish Financial Supervisory Authority key figures for Danish banks