Ringkjøbing Landbobank - interim report 2011

Core earnings were DKK 198 million and they are continuing to move towards the upper part of the announced DKK 300-400 million range.

The half-year – highlights:

• The DKK 179 million profit is equivalent to a return on equity of 16% p.a. after payment of dividend
• 15% fall in write-downs to DKK 54 million
• Rate of costs computed at 32.8 – the lowest in Denmark.
• Substantial increase of 11% in deposits and modest growth in loans
• Free of all government schemes - but payment to The Deposit Guarantee Fund of net DKK 18 million
• Capital adequacy ratio of 20.2, equivalent to cover of 253%
• Core capital ratio of 18.7
• Highly satisfactory increase in customers in both branch network and Private Banking.
• The expectations for core earnings remain in the DKK 300-400 million range, but core earnings are moving towards the most satisfactory part of the range.

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

Management Report

Core income

Core income was 4% lower in the first half of 2011 with a decrease from DKK 389 million in 2010 to DKK 375 million.

Net interest income decreased by 3% from DKK 300 million to DKK 290 million. The underlying trend in the figures and the intake of new customers is positive, but the item was negatively affected by a lower interest margin and the low interest level. Like the rest of the financial sector, the bank will increase its interest rates during the third quarter of 2011. Combined with continued growth in the figures, this is expected to have a positive effect on the net interest income in the coming quarters.

Fees, commissions and foreign exchange earnings amounted to net DKK 79 million in the first half of 2011 against net DKK 82 million in 2010, a fall of 4%. The half-year was characterised by relatively low trading and conversion activity and the larger figures therefore did not result in a corresponding increase in income.

Costs and depreciations

Total costs including depreciations on tangible assets amounted to DKK 123 million in the half-year, 3% higher than last year.

The rate of costs was computed at 32.8, still the lowest in the country. A low rate of costs is especially important in periods of difficult economic conditions as the bank’s results are thus very robust, which is also reflected in the computation of the bank’s individual solvency requirement.

Write-downs on loans

Write-downs on loans showed a fall of 15% to net DKK 54 million in the half-year against DKK 63 million last year. The write-downs are equivalent to 0.7% of the total average of loans, write-downs, guarantees and provisions. The bank’s customers appear to be coping better with the weak economic conditions than the average in Denmark. The present level of write-downs is considered satisfactory.

The bank’s total account for write-downs and provisions amounted to DKK 616 million at the end of the half-year, equivalent to 4.2% of total loans and guarantees. Actual write-downs on loans (including interest on the account for write-downs) this half-year continue to be low at a mere DKK 4 million, such that the account for write-downs and provisions increased by net DKK 50 million in the first half-year.

The portfolio of loans with zeroed interest amounts to DKK 68 million, equivalent to 0.46% of the bank’s total loans and guarantees at the end of the half-year. This is at the same level as last year.

Core earnings

Core earnings were DKK 198 million against last year’s DKK 206 million, a decrease of 4%. The realised earnings continue to move towards the upper part of the announced DKK 300-400 million range.

Result for the portfolio

The result for the portfolio for the first half-year was DKK -0.3 million including funding costs for the portfolio.

The bank’s holding of shares etc. at the end of the half-year amounted to DKK 286 million, DKK 49 million of which was in listed shares etc. while DKK 237 million was in sector shares etc. The bond portfolio at the end of the half-year amounted to DKK 2,283 million, and the great majority of the portfolio consists of AAA-rated Danish mortgage credit bonds and bonds guaranteed by the Danish government.

The total interest rate risk, computed as the impact on the result of a one percentage point change in the interest level, was 0.2% of the bank’s core capital after deduction at the end of the half-year.

The bank’s total market risk within exposure to interest rate risk, exposure in listed shares etc. and foreign exchange exposure 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) was as follows in the first half of 2011:

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

Result after tax

The result after tax was DKK 135 million for the first half of 2011 against DKK 144 million last year. The result after tax is equivalent to a return on equity of 12% p.a. after payment of dividend.

The balance sheet

The bank’s balance sheet total at the end of the half-year stood at DKK 18,440 million against last year’s DKK 18,544 million. Deposits increased by 11% from DKK 11,194 million to DKK 12,404 million. The bank’s loans increased slightly to DKK 13,131 million. The underlying growth in new customers from the branch network and within the niches Private Banking and wind turbine financing remains good. However, the changed pattern of consumption with a higher savings ratio is generally resulting in greater repayments on the bank’s existing loans portfolio than previously, and part of the growth is therefore consumed by these repayments.

The bank’s portfolio of guarantees at the end of the half-year was DKK 1,044 million against DKK 1,357 million in 2010.

Liquidity

The bank’s liquidity is good, and the excess liquidity relative to the statutory requirement is 172%. The bank’s short-term funding with term to maturity of less than 12 months amounts to only DKK 1.5 billion, balanced by DKK 4.6 billion in short-term money market placing, primarily in Danmarks Nationalbank, Danish banks and liquid securities. The bank is thus not dependent on the short-term money market.

The bank’s loans portfolio is thus 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 the DKK 853 million in question 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 deposit guarantee scheme

Ringkjøbing Landbobank has a liability to the mandatory deposit guarantee scheme in Denmark in connection with Amagerbanken’s collapse in February 2011 and Fjordbank Mors’s collapse in June 2011. The bank’s share of these losses is 0.6%. With the most recently announced dividend rate, Amagerbanken has cost the bank DKK 11.9 million while Fjordbank Mors has cost DKK 8.2 million. The bank has previously overprovided by DKK 1.5 million, and the total expense in the first half-year was thus computed at DKK 18.6 million.

Capital

The bank’s equity at the beginning of 2011 was DKK 2,312 million, to which must be added the profit for the period and from which must be deducted the dividend paid and the shares purchased, after which the equity at the end of the first half of 2011 was DKK 2,360 million.

The bank’s holding of own shares at the end of the half-year was 50,202, equivalent to 1.0 % of the share capital.                 

The bank’s capital adequacy ratio (Tier 2) was computed at 20.2 at the end of the first half of 2011. The core capital ratio (Tier 1) was computed at 18.7.

The individual solvency requirement for Ringkjøbing Landbobank is calculated at 6.9% because of the bank’s robust business model, and the ratio was thus reported at 8%.

Rating

The bank is rated by the international credit rating agency Moody’s. Following Amagerbanken's collapse, the Danish banking and mortgage credit sector was downgraded such that Ringkjøbing Landbobank's stand alone rating was lowered from A2 with negative outlook to A3 with stable outlook in May 2011. This also applies to the bank’s long-term rating.

Encouraging increase in customer numbers

The bank implemented several outreach initiatives towards new customers just over a year ago. The basis was the fact that the bank has both the liquidity and the capital to support growth, that we felt comfortable about the bank’s credit facilities, and that our cost structure is suitable for the future. The biggest challenge in times of low growth in society is thus creating growth in the bank’s top line.

A highly positive increase in customers is currently being seen in the branch network and within the Private Banking segment, with transfer of deposits, pension and securities customers. The majority of the growth in lending to date has been swallowed up by repayments on the loans portfolio. In the bank’s judgment, we are, however, currently enhancing the foundation for future earnings.

Accounting policies and key figures

The accounting policies applied are unchanged relative to the audited annual report presented for 2010.

Expectations for earnings in 2011

The bank’s core earnings for the first half of 2011 were DKK 198 million, which is in line with the announced expectations at the beginning of the year. The realised earnings thus continue to move towards the upper part of the announced DKK 300-400 million range.

Main and key figures for the bank

Profit and loss account

Core earnings

Balance sheet

Balance sheet

Statement of shareholders’ equity

Notes

Notes

Notes

Notes

Notes

Notes

Notes

Main figures summary

Danish Financial Supervisory Authority
key figures for Danish banks

           
Statement by management and board of directors

The board of directors and management have today considered and approved the half-yearly report for Ringkjøbing Landbobank A/S for the period 1 January - 30 June 2011.

The half-year report was prepared in accordance with the provisions of the Danish Act on Financial Activities and further Danish requirements on listed financial companies concerning disclosure. We consider the accounting policies to be appropriate and the accounting estimates made to be responsible such that the half-yearly report provides a true and fair view of the bank’s assets, liabilities and financial position as of 30 June 2011 and of the bank’s activities for the period 1 January-30 June 2011. We also believe that the management report etc. contain a true and fair review of the developments in the bank’s activities and financial circumstances, and a description of the most important risks and uncertainty factors which could affect the bank.

The half-yearly report was not audited or reviewed, but the external auditors have checked that the conditions for ongoing inclusion of the earnings for the period in the Tier 1 capital have been met.

Ringkøbing, 3 August 2011