avatar SRH N.V. Finance, Insurance, And Real Estate
  • Location: UTRECHT 
  • Founded: 1987-05-25
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    Annual Report 2010 SNS Bank


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    Annual Report 2010 SNS Bank SNS Bank NV Croeselaan 1 3521 BJ Utrecht PO Box 8000 3503 RA Utrecht Telephone +31 (0)30 29 15 100 www.snsbank.nl Registered at the Trade Register of the Chamber of Commerce in Utrecht under no. 16062338 SNS BANK Annual Report 2010 1


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    Table of contents SNS BANK IN BRIEF 4 8.3 Changes to the risk management organisation 31 8.4 Developments in Capital and solvency 32 1 PROFILE 5 8.5 Capital adequacy: ICAAP 2010 32 1.1 Care for customers and society 5 8.6 SNS Bank funding 32 1.2 Dare to choose 5 8.7 Developments in market risk 32 8.8 Developments in credit risk 33 2 KEY FIGURES 6 8.9 Developments of Basel III 33 8.10 Management of non-financial risks 34 3 MISSION, STRATEGY AND OBJECTIVES 7 3.1 Mission: Simplicity in Finance 7 9 FUNDING AND CREDIT RATINGS 35 3.2 Strengths and weaknesses 7 9.1 Funding 2011 secured 35 3.3 Opportunities and threats 8 9.2 Risk surcharges down 35 3.4 Strategic pillars 9 9.3 Few private placements 36 3.5 Core value: CARE! 10 9.4 Credit ratings 36 3.6 Objectives 10 REPORT OF THE SUPERVISORY BOARD 38 REPORT OF THE MANAGEMENT BOARD 12 10 REPORT OF THE SUPERVISORY BOARD 39 4 STRATEGY UPDATE 13 10.1 Themes 39 4.1 Deserve customers, the approach in 2010 13 10.2 Composition of the Supervisory Board 40 4.2 SNS Bank dares to choose 13 10.3 Meetings of the Supervisory Board 40 4.3 Come out Stronger 14 10.4 Committee meetings 42 4.4 Decisive on Result 15 10.5 Financial statements 43 4.5 Ambitions 15 10.6 Closing words 43 5 OUTLOOK 2011 16 5.1 Financial markets in 2011 16 CORPORATE GOVERNANCE 44 5.2 Product markets in 2011 16 5.3 Simplicity in Finance 17 11 CORPORATE GOVERNANCE 45 11.1 Banking Code 45 6 DEVELOPMENTS SNS RETAIL BANK 18 11.2 Management statements 46 6.1 brand strategy of SNS Retail Bank 18 6.2 Financial developments at SNS Retail Bank 19 6.3 Income slightly down 20 FINANCIAL STATEMENTS 2010 SNS BANK 47 6.4 Significant decline in expenses 20 6.5 Approachable, simple and a human touch 21 12 CONSOLIDATED FINANCIAL STATEMENTS 48 6.6 Service level: decrease in complaints 21 12.1 Adoption of the financial statements 54 6.7 Mortgages market contracting 22 12.2 General information 54 6.8 Market share savings higher 23 12.3 Basis of preparation 54 6.9 Bank savings increasingly popular 24 12.4 Principles of consolidation 57 6.10 Appetite for investment stable 24 12.5 Specific balance sheet principles 59 12.6 Specific income statement accounting 7 DEVELOPMENTS PROPERTY FINANCE 26 principles 65 7.1 Financial developments at Property Finance 26 12.7 Contingent liabilities and commitments 68 7.2 Results 2010 compared to 2009 26 12.8 Cash flow statement 68 7.3 Income declined 27 7.4 Expenses 27 13 SEGMENTED FINANCIAL STATEMENTS 69 7.5 Portfolio development 28 13.1 SNS Bank 69 7.6 Total portfolio reduced 29 7.7 Repositioning 30 14 RISK MANAGEMENT 72 7.8 Credit risk 30 14.1 Key points risk profile SNS Bank 72 14.2 Financial risk management 78 8 RISK AND CAPITAL MANAGEMENT 31 14.3 Non-financial risk management 95 8.1 Key risks for SNS Bank 31 14.4 Disclosures on financial instruments 95 8.2 2010: Risk management in a complex market 14.5 Hedging and hedge accounting 100 situation 31 14.6 Capital management 102 SNS BANK Annual Report 2010 2


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    15 NOTES TO THE CONSOLIDATED 18.2 Provisions regarding profit or loss FINANCIAL STATEMENTS 105 appropriation for core tier 1 capital securities 143 15.1 Cash and cash equivalents 105 18.3 Loss appropriation 143 15.2 Loans and advances to banks 105 15.3 Loans and advances to customers 105 19 INDEPENDENT AUDITOR’S REPORT 144 15.4 Derivatives 107 15.5 Investments 108 15.6 Investment properties 110 PILLAR III 145 15.7 Property projects 110 15.8 Investments in associates and joint ventures 111 20 INTRODUCTION 146 15.9 Property and equipment 113 15.10 Intangible assets 114 21 RISK MANAGEMENT SNS BANK 147 15.11 Deferred tax assets and liabilities 115 15.12 Corporate income tax 116 22 SCOPE OF BASEL II APPLICATIONS 148 15.13 Other assets 116 15.14 Assets held for sale 117 23 REGULATORY CAPITAL REQUIREMENTS 150 15.15 Savings 117 23.1 General 150 15.16 Other amounts due to customers 117 23.2 Capital requirements for credit risk 151 15.17 Amounts due to banks 118 23.3 Capital requirements for market risk 152 15.18 Debt certificates 118 23.4 Capital requirements for operational risk 152 15.19 Other liabilities 119 15.20 provisions 120 24 CREDIT RISK 153 15.21 Participation certificates and subordinated 24.1 General 153 debt 120 24.2 Exposure classes 153 15.22 Equity attributable to shareholders and 24.3 Information about exposures 154 securityholders 121 24.4 Calculation of RWA 160 15.23 Net interest income 125 24.5 Credit risk mitigation 167 15.24 Net fee and commission income 126 24.6 Information about credit risk management, 15.25 Share in result of associates 126 impaired loans and loan losses 169 15.26 Investment income 126 15.27 Result on financial instruments 127 25 MARKET RISK 172 15.28 Other operating income 127 15.29 Staff costs 127 26 OPERATIONAL RISK 173 15.30 Other operation expenses 128 15.31 Impairment charges / (reversals) 128 27 DISCLOSURE OF OFF-BALANCE ITEMS 174 15.32 Taxation 128 27.1 General 174 15.33 Net result per share / security 129 27.2 Risk in derivatives 174 16 COMPANY FINANCIAL STATEMENTS 131 28 SECURITISATIONS 176 28.1 General 176 17 NOTES TO THE COMPANY 28.2 Roles 176 FINANCIAL STATEMENTS 133 28.3 Approaches 176 17.1 Loans and advances to banks 133 28.4 Accounting principles 176 17.2 Loans and advances to customers 134 28.5 Information about securitisation 176 17.3 Loans and advances to group companies 134 17.4 Investments 134 29 INTERNAL CAPITAL ADEQUACY 17.5 Subsidiaries 135 ASSESSMENT PROCESS 179 17.6 Property and equipment 135 17.7 Intangible assets 136 30 LIQUIDITY RISK 180 17.8 Amounts due to customers 136 17.9 Amounts due to banks 137 31 CAPITAL ADEQUACY 181 17.10 Other provisions 137 31.1 General 181 17.11 Equity 138 31.2 Capital base and conditions for items to be included in the capital base 181 OTHER INFORMATION 142 DEFINITIONS AND RATIOS 184 18 PROVISION REGARDING PROFIT OR LOSS APPROPRIATION 143 18.1 Provisions of the Articles of Association regarding profit or loss appropriation for shares 143 SNS BANK Annual Report 2010 3


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    SNS Bank in brief SNS BANK Annual Report 2010 4


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    1 Profile SNS Bank, part of SNS REAAL, is a financial services provider engaged in banking, with a particular focus on the Dutch retail market, including small and medium sized enterprises. The product range consists of two core product groups: mortgages and property finance, and savings and investments. SNS Bank has a balance sheet total of approximately € 79 billion and 2,600 employees (FTEs), which makes it a major player in the Dutch market. SNS Bank has its head office in Utrecht. 1.1 CARE FOR CUSTOMERS AND SOCIETY SNS Bank has a long history of commitment to Dutch society. SNS Bank’s roots date back 200 years to the establishment of regional savings banks with a public utility function. SNS Bank wants to be close to its customers and society. Through customer panels we listen to what drives their needs. Our employees treat customers as they themselves wish to be treated as a customer. We offer them accessible and transparent products: Simplicity in finance. More than ever, we are aware that we must never take our customers’ trust for granted. We want to be the best at winning, helping and retaining clients. We want to deserve customers. We aim for sustainable relationships, not only with customers, but also with other stakeholders in society. 1.2 DARE TO CHOOSE SNS Bank makes transparent, clear choices. We focus on the Dutch market with strong brands and market positions. We espe- cially target private individuals and small and medium-sized enterprises. We deliberately opt for specific products and services, customers and investments. We have chosen a moderate risk profile and, therefore, exclude certain products and services such as trade finance and proprietary trading. SNS Bank provides a broad range of financial services by direct sale to private individuals. SNS Bank is the consumer brand for banking products. In addition, there are two brands for specific product/market combinations. ASN Bank focuses on sustainability and is the market leader in sustainable savings and investments. Property Finance is SNS Bank’s property financing company, which mainly focuses on the Dutch market. SNS BANK Annual Report 2010 5


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    2 Key figures TABLE 1: KEY FIGURES In € millions 2010 2009 2008 2007 2006 Total assets 78,918 80,251 76,695 70,584 64,382 Loans and advances to customers 65,013 67,479 65,794 60,236 56,248 Of which mortgage loans 50,767 50,878 48,684 46,172 44,930 Loans and advances to banks 1,681 2,715 2,783 1,092 3,607 Amounts due to customers 37,880 34,270 32,043 27,025 20,697 Of which savings 27,398 24,435 21,859 19,179 13,678 Amounts due to banks 3,096 7,119 6,491 5,066 7,299 Debt certificates 29,523 30,739 30,282 32,182 30,841 Shareholders’ equity 1,580 2,165 2,134 2,209 2,097 Capital base 3,694 3,590 3,495 3,521 3,190 Net interest income 871 672 773 783 567 Other income 114 426 183 155 201 Of which net commission and management fees 92 99 116 129 120 Net result (431) (99) 144 272 214 Net result SNS Retail Bank 162 120 116 186 208 Net result Property Finance (593) (219) 28 86 6 Ratios Return on shareholders’ equity (27.3%) (4.6%) 6.7% 12.6% 14.1% Efficiency ratio 58.5% 56.6% 62.8% 60.3% 62.6% BIS ratio 1 16.7% 13.9% 14.0% 11.5% 11.2% Tier 1 ratio 1 10.7% 10.7% 10.5% 8.4% 8.2% Number of branches SNS Bank 143 133 140 146 167 Number of agencies RegioBank 537 602 672 727 438 Number of cash dispensers 490 516 571 513 308 Number of employees (FTE’s, average) 2,639 3,270 3,212 3,223 3,197 1) As from 2008, figures are calculated based on Basel II, taking into account the 80% floor of Basel I. SNS BANK Annual Report 2010 6


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    3 Mission, Strategy and Objectives Conditions in the financial markets have changed dramatically over the past few years. Many consumers are disappointed by the effects of the credit crisis. Restoring and retaining confidence in our products and services are therefore vital elements of our mission and strategy. The overall mission, strategy and objectives of SNS Bank as described in this chapter are derived from those of SNS REAAL. 3.1 MISSION: SIMPLICITY IN FINANCE ‘Confidence’ starts with ‘understanding’. SNS Bank’s mission is Simplicity in Finance. We want to contribute to the financial independence of our customers. We do so by providing accessible and transparent standardised products and by offering assistance to make the right choices. SNS Bank focuses primarily – and, in the future, solely – on the Dutch markets for mortgages, property finance, savings and investments. Our key customer groups are private individuals and small and medium-sized enterprises (SME). We want to stand out with: – distinctive retail brands that provide optimal service to their target groups; – our customer focus when developing and offering products and providing assistance, advice and service; – strong market positions based on standardised products with an attractive pricing and quality; – a simple and cost-efficient organisation with shared IT systems and service centres to achieve economies of scale. 3.2 STRENGTHS AND WEAKNESSES Our strategic pillars and objectives are partially based on an analysis of the relative strengths and weaknesses of the organisation and a vision on the opportunities and threats in the market. 3.2.1 Strengths – Focus on the Netherlands, customer groups and core products. This means bundling resources, management focus and expertise in developing, selling and distributing financial products in the Netherlands. SNS Bank is one of the big players in the Dutch markets for retail mortgages, savings and property finance. – Efficient organisation. This refers to our short time-to-market and our relatively low cost base. – Corporate responsibility. We are committed to responsible products, service and operations. ASN Bank is a leading provider of sustainable financial products in the Netherlands. – Distinctive brands. Our broad range of distinctive brands allows us to optimise our services to customers with different customer needs and thus increasing our customer coverage. – Innovation. Our efficient organisation, specialisation in the retail and SME markets and a stimulating business culture frequently lead to distinctive and innovative products and services. Examples include SNS Bank’s Plafondrente Hypotheek (‘Capped Rate Mortgage’), bank savings products and ASN Bank’s interest-bearing current account. 3.2.2 Weaknesses – International property finance. The property markets conditions are particularly difficult in a number of countries, resulting in considerable impairments on property loans. – Capital support. In 2008, our parent company SNS REAAL issued core tier 1 capital securities to the Dutch State and Stichting Beheer SNS REAAL (the ‘Foundation’) in order to increase its core capital. A part of these core tier 1 capital securities was transferred to SNS Bank. Repayment of this capital support has high priority, resulting in reduced strategic flexibility until the moment the capital securities are repurchased in full. SNS BANK Annual Report 2010 7


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    – Dependence on mortgages. The strong market position in this product group means that a disappointing performance could have a relatively strong adverse effect on the overall results. – Brand recognition. Compared to the brands of the major players market, some of SNS Bank’s brands are lesser-known. 3.3 OPPORTUNITIES AND THREATS 3.3.1 Opportunities – Personal responsibility for wealth creation for the future. As a result of cutbacks in group benefits, private individuals and entrepreneurs will increasingly have to build up capital themselves. SNS Bank can capitalise on this development, for example by offering bank savings products. – SME market. The SME market is a steadily growing market with often attractive margins on account of the specific services provided. SNS Bank can build on its leading position in SME property finance. – Sustainability. ASN Bank, the largest sustainable bank in the Netherlands, can respond well to the growing demand for sustainable products. – Risk spreading and customer diversification. Growing numbers of customers purchase their financial products from different providers and brands. They do not always stick to the same brand and/or distribution channel. Our strategy of various brands and distribution channels allows us to capitalise on this aspect. – Distribution of third-party products. The sale of third-party banking and insurance products in some product groups is unique in the Dutch market. This enhances our total product range and profitable growth and does not make any additional demands on capital. 3.3.2 Threats – Lack of confidence in financial institutions. Many consumers have lost faith in financial institutions. If we do not succeed in restoring trust, the demand for financial products will decline even further. – Development of the economy and property markets. The recovery of the economy and the financial markets is fragile, whilst property markets are still predominantly weak. – Vulnerability in the event of unfavourable capital market developments. Banks are dependent on the developments in the money and capital markets and are exposed to changes in interest rates, risk surcharges and share prices. These markets could be severely disrupted by declining confidence in the euro due to the high debts of the Southern European euro countries and Ireland. – Capital requirements. Regulations of regulatory authorities and developments in the financial markets are expected to lead to stricter requirements with regard to the amount and the quality of the required capital. This will lead to higher capital costs, increasing funding requirements and lower returns. – Increasingly legislative and regulatory requirements. Legislative and regulatory requirements in the financial sector have been tightened significantly over the past few years and no change is expected in the short term. The increased amount of laws and regulations puts material pressure on the financial sector, including SNS Bank. In this respect think for instance of regular adjustments to products and product terms and conditions, data management, the risk management framework and reports and further education and training of employees. This leads to increased staff and IT costs and could have an adverse affect on the financial results of SNS Bank. The increasing regulatory pressure and the current climate in which the financial sector now finds itself, has resulted in a more (pro)active approach of the regulators (national and international) in question. This too, has consequences for the financial sector and thus for SNS Bank. Think for instance of an increased number of (stress) tests and questions from and contact moments with regulators. This could come at the expense of SNS Bank’s productivity and hence put its financial results under pressure. Moreover, the risk of legal claims is increasing. – Products sold in the past are evaluated on current standards. In the past, financial institutions sold a number of products that, if judged by today’s standards, one could deem to be non-transparent, too expensive and/or ill-suited. SNS BANK Annual Report 2010 8


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    3.4 STRATEGIC PILLARS SNS Bank determined its strategy in part on the basis of the strength/weakness analysis and the opportunities and threats. One of the main guiding principles in executing our mission – Simplicity in Finance – and our strategy is restoring our customers’ trust. The strategy has four pillars: – Deserve Customers; – Dare to Choose; – Come out Stronger; – Decisive on Result. 3.4.2.1 Strategic pillar: Deserve Customers SNS Bank is seeking to increase customer satisfaction for all brands. Above all, we want to deserve customers by: – Listening attentively to our customers. We collect and analyse our customers’ needs, wishes, opinions and ideas. We use this information to improve our products. – Improving customer contact and service levels. We develop methods to improve contact with individual customers and our level of service. – Providing transparent and relevant products advice. We develop working methods resulting in accessible and transparent products. Customers can easily determine if a product suits their needs either by themselves or with the help of a financial advisor. 3.4.2.2 Strategic pillar: Dare to Choose SNS Bank seeks to make the most effective use of its limited resources and management focus. We, therefore, choose to focus on: – The Dutch market; – Private individuals and small and medium-sized enterprises; – Strong, distinctive retail brands; – Simple products. 3.4.2.3 Strategic pillar: Come out Stronger SNS Bank is aiming to retain and reinforce its market positions. Its market share targets are the following: TABLE 2: MARKET SHARE TARGETS Product group Expected market development 2010 Target Savings Modest growth 9.5% 10% 1 Bank savings Growth 15.0% 15% Mortgages (new inflow) Small growth 6.3% 8-10% 1) Market share bank savings is SNS Bank’s own estimate. We aim to achieve these targets by: – Attracting new customers. This requires clear brand positioning and targeted marketing and sales efforts. – Retaining customers and offering them a wider range of products and services. This requires a high level of service, knowledge of individual customer conduct and timely notification of (potentially) relevant products. – Simple, successful new products. Transparent product features and rates are crucial and are achieved by listening attentively to our customers and involving them in the product development process. Before launching new products, we make a careful estimate of customer value, return and risks. – More cross-selling. We aim to provide our customers with the most suitable products through their preferred distribution channels and brands. Multiple brands and channels create high returns on our sales and marketing efforts and ensure maximum coverage of our entire target group. In this process, we use IT resources and production and service centres shared within SNS REAAL. 3.4.2.4 Strategic pillar: Decisive on Result To improve our results we must first and foremost have a simple and result-oriented organisation in which mutual cooperation, synergy and sharing knowledge and capacity is encouraged. SNS REAAL’s Management Committee (MC) plays a guiding and central role in this process. As of 1 January 2011, the MC comprises the Executive Board, the chairmen of the Management Boards of the business units, the Chief Information Officer and the director of Human Resources. SNS BANK Annual Report 2010 9


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    The centralised staff departments, including IT & Change, support both SNS REAAL Group and the individual business units. The business units focus on marketing, sales and distribution. Production, pricing and mid-office activities are organised per product group and managed by the most relevant business unit. 3.5 CORE VALUE: CARE! Every pillar has a quantitative objective and qualitative objectives attached to it. The foundation supporting these pillars is a tight-knit and effective organisation, filled with committed and ambitious employees who share the same core value: CARE! Care about customers, care about each other, care about the result and care about society. We put a great deal of effort into embedding this core value CARE! in our corporate culture for a better execution of our mission and strategy. CARE! is also our guiding principle in corporate responsibility – which has been in our genes since the formation of the first savings banks and insurance companies almost 200 years ago. For more information, please refer to the Annual Report on Corporate Responsibility of SNS REAAL. 3.6 OBJECTIVES SNS Bank has the following objectives: – Strong risk and capital management; – Solid, independent capital position; – Aiming for measurable results. Strong risk and capital management SNS Bank pursues a moderate risk profile and efficient capital management to stimulate a stable development of returns. Its current capital management priorities are: – Phasing out the activities of Property Finance; – Repayment of the capital support to the State and Foundation (via SNS REAAL); – Meeting the Basel III requirements by the end of 2015. Solid, independent capital position We aim at gradually reducing our dependence on capital support from the Dutch State and the Foundation (via SNS REAAL) in a responsible manner and as quickly as possible. This will put pressure on our profitability in the short term, but will increase our profit potential in the long term as a result of lower interest charges and improved strategic flexibility. Aiming for measurable results SNS Bank wants to adequately safeguard and monitor its progress in achieving its targets. The business units primarily focus on financial, commercial, HR, operational, compliance and strategic targets. Besides the net profit and capital ratios, the key performance indicators are: the efficiency ratio, operating expenses and FTEs, market shares, customer satisfaction, employee satisfaction and absenteeism. SNS BANK Annual Report 2010 1�


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    Supervisory and Management Board Supervisory Board Management Board R. Zwartendijk (chairman) M.W.J. Hinssen H.M. van de Kar (vice-chairman) H.K. Kroeze P. Overmars F.K.V. Lamp R.J. van de Kraats D.J. Okhuijsen J.E. Lagerweij H. Muller H.W.P.M.A. Verhagen J.A. Nijhuis C.M. Insinger L.J. Wijngaarden SNS BANK Annual Report 2010 11


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    Report of the Management Board SNS BANK Annual Report 2010 12


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    4 Strategy update SNS Bank is continuously working on the implementation of its strategy. In 2009 we developed a new strategy and mission, which officially came into force 2010. This chapter gives an overview of the progress made and initiatives taken in 2010. 4.1 DESERVE CUSTOMERS, THE APPROACH IN 2010 It is our ambition to increase customer satisfaction for all retail brands. Customer satisfaction is indicative of our ability to deserve customers. Moreover, these initiatives further enhance our core value to put our customers interests first, which is in line with the recommendations of the Banking Code. Our main methods to deserve customers are: 4.1.1 Listening attentively to our customers – SNS Bank organised customer contact programmes to bring more employees into contact with our customers. Thus, employees who, due to the nature of their jobs, do not have daily contact with customers visited shops or listened in on conversations of customer contact centre employees. – Products under development were tested on appreciation and understandability more frequently and more intensely through customer panels. – SNS Bank restructured its website and customer contact centre to better survey service levels and collect and analyse customer opinions. In addition to its Customer Advisory Board set up in 2009, SNS Bank introduced SNS Community, an on-line platform allowing customers to voice their opinion, comments and queries. SNS Bank can use this information to adapt its products and services. – ASN Bank investigated its customers’ theme preferences to donate part of its net interest income to charity. The four themes are: sustainable energy, the fight against child labour, the fight against arms, and fair trade. As from January 2011, customers can indicate to which charities ASN Bank should donate part of the net interest income earned on their savings. 4.1.2 Improving customer contact and service levels – SNS Bank improved the turnaround times for processing questions and complaints and the response times at its customer contact centre and the administration directly related to it. IT improvements have made it even easier and less time-consuming to apply for current and savings accounts on www.snsbank.nl . – Our new mortgages production is now the responsibility of a single central management team. After standardisation and process optimisation, this will improve service levels. 4.1.3 Providing transparent, relevant products and appropriate advice – SNS Bank and ASN Bank have thoroughly simplified and improved their range of savings products. SNS Bank reduced the number of savings products from several dozens to six and informed its customers who still had outdated products that they could switch to savings products with more favourable terms and conditions. For 90% of these customers this meant an improvement of the terms and conditions, for the other customers nothing changed at all. ASN Bank reduced its five regular savings accounts to a single simple and transparent product without restrictive conditions. At ASN Bank, too, most customers received better conditions and no one was worse off. For more information on these changes, see the chapter on Developments SNS Retail Bank/Savings. – SNS Bank, RegioBank and BLG Hypotheken cancelled the different rates for existing and new customers for their mortgages. When renewing their mortgage, existing customers can benefit from the same (special offer) rates as new customers. – In 2010, SNS Bank, RegioBank and BLG Hypotheken discontinued the sale of unit linked mortgages. It is often difficult for customers to gain a comprehensive view of the properties of this hybrid product and the possible consequences of develop- ments on the financial markets. A separate mortgage and separate investments give our customers more clarity, flexibility and lower costs. 4.2 SNS BANK DARES TO CHOOSE We seek to make the most effective use of our limited resources and management focus. We, therefore, choose to focus on: 4.2.1 The Dutch market We concentrate our activities on the Dutch market. Property Finance continued to phase out its international property finance portfolio. The total international outstanding loans, net of provisions, declined from € 3.6 billion at year-end 2009 to € 2.5 billion (−31%). SNS BANK Annual Report 2010 13


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    4.2.2 Phasing out Property Finance At the end of 2010, we decided to split Property Finance in two separate units as of 1 January 2011. The ‘run-off’ segment contain- ing the international loan portfolio and part of the Dutch loan portfolio of Property Finance will be phased out over the next two to four years. The remaining part of Property Finance’s Dutch portfolio will be combined with the existing SME activities of SNS Retail Bank, in the new unit SNS SME. This unit is targeting growth in selected areas of savings and deposits, payment services and insurance. 4.2.3 Strong and distinctive retail brands We reinforced our retail brands’ distinctive positions with the following initiatives in particular: – SNS Bank started renewing and expanding its range of insurance products, thereby strengthening its position as a consumer brand for banking and individual insurance products. Its ‘SNS Bank of .....’ advertising campaign highlights SNS Bank’s accessibility and human touch. – SNS Regio Bank was renamed RegioBank effective January 2011, which improves its ability to present itself as a distinctive banking formula. Local marketing, local customer loyalty and personal advice are key in this respect, as RegioBank has a particularly strong presence in small municipalities outside the Randstad conurbation. The RegioBank brand is carried by intermediaries that purchase payment and savings products from SNS Bank and can also purchase other products from third parties. – BLG Hypotheken expanded its mortgage range, living up even more to its position of a committed mortgage specialist for intermediaries. – ASN Bank introduced the ASN Credit Card and attracted 46,000 new customers, strengthening its position as the largest sustainable bank in the Netherlands. 4.2.4 A simple product range SNS Bank introduced harmonisations, eliminations and simplifications in all core product groups. This improved the price- quality ratio, service and transparency to customers and contributed to cost-efficient production and distribution. This also further enhanced our core value to put customers interests first, which is in line with the recommendations of the Banking Code. The improvements comprised in particular: – A significant reduction of the number of SNS Bank savings products; – Simpler SNS Bank non-life insurance products and improved adjustment to on-line selling; – Strict criteria for simplicity and transparency in all new products introduced in 2010. These originated from the product approval process adjusted in 2009 and the SNS REAAL Group-wide reference process for product development. 4.2.5 Strategic property finance adjustment Allocating the property finance activities to two separate parts will give customers, employees and investors clarity about the future of property finance at SNS Bank and will intensify management focus. As at 1 January 2011, Property Finance comprises the international loan portfolio, supplemented with part of the Dutch loan portfolio (exposure including property projects and assets held for sale € 6.3 billion). This unit will be phased out over the next two to four years. The remaining part of Property Finance’s Dutch portfolio (exposure including property projects and assets held for sale € 5.6 billion) is combined with the existing SME activities of SNS Retail Bank in the new unit SNS SME. 4.3 COME OUT STRONGER SNS Bank is aiming to retain and reinforce its market positions by: 4.3.1 Attracting new customers The total number of customers of SNS Bank, RegioBank and ASN Bank rose. These brands were particularly successful in attract- ing customers for payment and savings products, boosting their total deposited savings from € 24.4 billion to € 27.4 billion (+12.1%). This increase was largely driven by the further improvement of the websites’ quality and on-line marketing. Each brand developed its own commercial initiatives tailored to the customers’ needs in order to achieve maximum coverage. In the mortgage market, SNS Bank preferred margins and risk control over growth. As a result, its market share in new mortgages dropped from 7.9% to 6.1%. 4.3.2 Retaining customers and offering them a wider range of products and services It is easier to retain satisfied customers than unsatisfied customers. The retail bank brands put much effort into measuring and analysing customer satisfaction, improving and preserving brand reputations and increasing service levels. SNS Bank further fine-tuned the individual approach to customers through its personal website environment Mijn SNS Bank, improving the proper timing and relevance of product offers. These initiatives contributed to a growth of total savings. SNS BANK Annual Report 2010 14


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    4.3.3 Successful new products All new products were launched on the basis of the SNS REAAL Group-wide reference process, also called product approval process, established in 2009 in line with the Dutch Banking Code, which focuses on customer value and a good risk/return ratio for SNS REAAL. Strategic considerations for the long term are also important when selecting new products. SNS Bank takes particular account of the cost structure, the knowledge available and distribution opportunities within the organisation. Successful introductions in 2010 included additional bank savings products, offered through SNS Bank and RegioBank, the ASN Current Account and the ASN Credit Card. 4.3.4 More cross-selling In 2010 the ties between SNS REAAL’s business units to sell each other’s products were tightened, especially between SNS Bank, RegioBank and REAAL. Sometimes it is necessary to modify product aspects or their presentation if they are to fit in well with the specific distribution channel and brand. Especially sales of bank savings products and mortgages through one or several distribution channels of non-producing business units saw a sharp increase. 4.4 DECISIVE ON RESULT In November 2010, we aligned our financial long-term ambitions with changing market conditions and the repositioning of Property Finance. Major factors in achieving our ambitions are: 4.4.1 Strong risk and capital management SNS Bank is making progress in achieving its priorities as follows: – Reduction of the negative impact of Property Finance. The phase-out of the international portfolio is on schedule. The total amount of commitments (gross loans including undrawn commitments) was reduced from € 14.6 billion to € 12.6 billion (−14%) and the risk-weighted assets declined sharply. – Basel III requirements. SNS Bank is of the opinion that it currently meets the new Basel III standards leading to stricter capital and solvency requirements. SNS Bank reinforced its risk management in line with the Banking Code recommendations. The main indicators are: – The low credit risk of the Dutch residential mortgage portfolio, with low impairments despite weak economic conditions. – Property Finance’s credit risk management was reinforced. This was achieved by significantly reinforcing the Risk & Restructuring department, which improves management of complex finance loans and resulting losses are limited. – The solid solvency of SNS Bank: Core Tier 1 ratio at 8.1% and Tier 1 ratio at 10.7%. 4.4.2 Solid, independent capital position SNS Bank aims to improve its profitability within the framework of a solid – and eventually independent – capital position. It is our goal to repurchase the capital support received from the Dutch State and the Foundation (via SNS REAAL). 4.4.3 Aiming for measurable results SNS Retail Bank’s efficiency ratio sharply improved from 67.5% to 61.7%. In 2010 SNS Bank aimed for positive customer satisfac- tion ratings more than ever. 4.5 AMBITIONS It is our goal that the Core Tier 1 ratio is at least 8%. SNS Bank is one of the most efficient financial services provider in the Netherlands and it strives for further fine-tuning of its processes. SNS BANK Annual Report 2010 15


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    5 Outlook 2011 Expectations are that the global economic recovery will continue. The Netherlands and most other European countries will experience a relatively low economic growth, largely driven by cuts in government spending and low consumer spending. Going forward, SNS Bank is particularly committed to restoring its profitability and improving its capital position and risk profile, which it aims to achieve with the continued phase-out of property finance, savings growth, simple accessible products and excellent service, lower costs and higher yields on sales and marketing efforts. 5.1 FINANCIAL MARKETS IN 2011 5.1.1 Stock markets encouraging There are fundamental reasons to be optimistic about the stock markets in 2011. Many companies’ profits are continuing their upward trend, which will be reflected in the share prices. This growth is likely to slow down during the year: as the economic rebound progresses, it will become increasingly difficult to improve profit margins, partly because the largest cost reductions have already been achieved. However, the forecast increase in sales looks promising. The growth rates of American and European companies with sales in emerging markets will exceed the growth rates of their local economies by far. This development also is expected to be reflected in the share prices. 5.1.2 Interest rates remain relatively low The European and US central banks will keep interest rates at a low level to stimulate the economy. The risk of inflation is still relatively small in view of the fragile economic recovery, but it is very difficult to predict the interest rates on the capital market. In 2010 uncertainties about the weak euro countries fuelled great volatility, and such sudden crisis situations may strongly affect the interest rates on the capital market in 2011 as well. 5.2 PRODUCT MARKETS IN 2011 SNS Bank anticipates growth particularly in the savings and bank savings markets. The investment, mortgage and property finance markets are not likely to experience any increase. 5.2.1 Mortgages relatively stable We believe that the mortgage market will stabilise in 2011. Residential property prices will likely decrease slightly and the number of transactions will stay at a low level. How the market will develop depends in addition to economic developments partly on the government’s decisions regarding mortgage interest tax relief and maximum-value mortgages. SNS Bank has a high-quality mortgage portfolio with a risk profile in line with the Dutch market. Profitability may develop positively as a result of cost base improvement and containment of credit losses. Higher interest rate levels and a slightly larger difference between short-term and long-term interest rates may likewise have a positive impact on profitability. We mainly aim to increase profitability and growth by: – More direct sales through SNS Bank; – More collaboration with REAAL by cross-selling mortgages and term insurance policies; – Increased focus on SME mortgages by pooling the knowledge of Property Finance and SNS Bank in the new business unit SNS SME. 5.2.2 Strong growth in bank savings The recovery of the Dutch economy is still fragile and consumer spending remains low. We therefore expect the savings market to continue its growth in 2011. The bank savings products are a tax-friendly, simple and low-risk solution for long-term wealth creation. Investment appetite among private investors will probably not show any strong increase, despite favourable equity prospects, as the 2008/2009 financial crisis still leads to risk aversion. We mainly aim to increase profitability and growth in savings, bank savings and investments by: – Positioning SNS Bank, RegioBank and ASN Bank more clearly as distinctive brands and tailoring their marketing more accurately to their target groups; SNS BANK Annual Report 2010 16


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    – Improving the advisory strengths of SNS Bank and RegioBank in the area of bank savings; – SNS Bank, RegioBank and BLG Hypotheken teaming up to further improve the production and distribution of bank savings products; – Collaborating with BinckBank for more insight, overview and ease for investors. 5.2.3 No revival business property projects In 2011 we anticipate continuously challenging circumstances in most property markets in which Property Finance operates. In January 2011 part of Property Finance’s Dutch loan portfolio, totalling € 5.6 billion, was transferred to the new business unit SNS SME. All remaining Dutch and foreign loans will be phased out in two to four years. 5.3 SIMPLICITY IN FINANCE Mindful of our mission ‘Simplicity in Finance’ – by which we want to contribute to our customers independence – our efforts to provide transparent products, better service, appropriate advice, compliance with integrity standards and customer satisfaction continue unabated. In 2010 we mainly simplified our range of savings products. In 2011 we will particularly focus on increased simplicity in payment and mortgage products and investment services. We will adjust a number of aspects of product development to warrant the transparency of products even more. Customer interests and target group definition will be our starting points of the product approval process. We will intensify the periodic maintenance of products, which will also allow us to better verify the value for money and customer interest of older products. Customers will always have a say in the development of products through consumer panels, such as SNS Community. With a view to creating even more simplicity, we test the simplicity of product information in various ways among consumers, SME clients and consultants. We have drawn up quality standards for product information on the basis of best practices. We aim for maximum simplicity and understandability without compromising accuracy and completeness. These initiatives also give meaning to putting clients’ interests first, in line with the Dutch Banking Code recommendations. 5.3.1 Improvement customer contact management We continue working towards improved customer contact management and we will enhance the monitoring of compliance with integrity standards for products and customers. Our aim is to further improve customer satisfaction levels. We will strengthen the link between SNS advisors’ compensation and customers’ interests in the long run. We will ask even more customers to give their views on our services on a permanent basis. We are working on specific targets and a harmonisation of methods for measuring customer satisfaction. The initiatives mentioned above also give meaning to putting clients’ interests first, in line with the Dutch Banking Code recommendations. SNS BANK Annual Report 2010 17


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    6 Developments SNS Retail Bank SNS Retail Bank’s net profit increased considerably to €162 million (+35%). Strong growth in net interest income, improving the quality of income. Margin improved in both mortgages and savings. Lower operating expenses due to the implementation of new distribution strategy: efficiency ratio improved to 61.7%. Upward trend in savings market share. 6.1 BRAND STRATEGY OF SNS RETAIL BANK SNS Retail Bank comprises the brands SNS Bank, RegioBank, ASN Bank and BLG Hypotheken. Its customers are private individu- als in the Netherlands and its core product groups are mortgages, savings and investments. SNS Retail Bank aims to simplify finance for its customers by offering them accessible, transparent products and good service. Its shared IT infrastructure serves to achieve efficiency and economies of scale in management and administration. 6.1.1 Distinctive customer values The SNS Retail Bank brands are developing their own independent positions and distinctive customer values in order to best meet the needs of their target groups. – SNS Bank is the broad and accessible consumer brand for banking and insurance products with an emphasis on sales and information over the internet and telephone. It provides additional information and advice through its own shops, franchisers’ shops and location-independent advisors. SNS Bank also sells its mortgages through third-party websites and retail chains. – ASN Bank is the brand for sustainable savings, investment and payments and sells its products solely over the internet. – RegioBank is the bank formula for intermediaries in provinces, focusing on local and personal service. – BLG Hypotheken is the specialist intermediary brand for mortgages. SNS Retail Bank seeks to reinforce its distribution capabilities. Its key objectives are to further develop on-line sales, collabora- tion within SNS REAAL in the areas of distribution and production, a nationwide network of compact SNS Shops and RegioBank intermediaries, a complete range based on its own standardised products as well as third-party products, and continued growth of ASN Bank. 6.1.2 SNS SME As from 1 January 2011, small and medium-sized enterprise (SME) customers are transferred to the new business unit SNS SME, which combines the former SME activities of SNS Retail Bank and part of Property Finance’s Dutch investment finance loan portfolio. All of Property Finance’s other activities are being phased out. SNS SME aims to use its size, network and knowledge of the Dutch property and SME markets to achieve profitable growth. It has a moderate risk profile and focuses on corporate loans secured by property collateral and based on limited contracts. SNS SME is also engaged in payments, savings and insurance in the SME segment. In view of the considerable growth of the SME savings market, SNS SME eventually aims to finance its own lending activities. SNS BANK Annual Report 2010 18


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    6.2 FINANCIAL DEVELOPMENTS AT SNS RETAIL BANK TABLE 3: SNS RETAIL BANK In € millions 2010 2009 Change Result Net interest income 634 391 62% Net fee and commission income 92 99 (7%) Investment income 47 161 (71%) Result on financial instruments 9 181 (95%) Other operating income 1 −− −− Total income 783 832 (6%) Impairment charges to loans and advances 79 86 (8%) Other impairment charges 4 12 (67%) Total operating expenses 483 562 (14%) Total expenses 566 660 (14%) Result before tax 217 172 26% Taxation 55 51 8% Minority interests −− 1 −− Net result for the period 162 120 35% One-off items −− (40) −− Adjusted net result for the period 162 160 1% Efficiency ratio 61.7% 67.5% Impairment charges to loans and advances as a % of gross outstanding loans to customers 0.15% 0.16% Risk-weighted assets Basel I (100%) 16,216 18,690 (13%) Savings 27,398 24,435 12% Loans and advances to customers 53,635 54,283 (1%) 6.2.1 Results 2010 compared to 2009 SNS Retail Bank’s net profit increased by € 42 million to € 162 million (+35%), mainly due to the absence of one-off items that had reduced the 2009 net result. Adjusted for one-off items, net profit was up slightly but the quality of earnings improved considerably. The improvement in the quality of earnings was driven by sharply higher net interest income, lower operating expenses and lower impairments. This more than compensated for the lower gains on investments and financial instruments following the exceptionally high levels in 2009. SNS BANK Annual Report 2010 19


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    6.3 INCOME SLIGHTLY DOWN SNS Retail Bank’s total income declined by 6% as strongly higher net interest income did not fully compensate for the absence of exceptionally high levels of investment income and result on financial instruments that had supported income in 2009 (gains on fixed income investments and from the buy-back of own funding paper were much lower in 2010). Interest income increased sharply to € 634 million, driven by improved margins on both mortgages and savings. 6.3.1 Interest income up Interest income on savings was up in 2010, as the last 12-month term deposits offered in 2009 with high interest rates matured in the first quarter of 2010. Many of these deposits were retained at lower interest rates. In mid-September, SNS Bank successfully launched a new corporate marketing campaign using a variety of different advertising channels. This campaign shows how SNS Bank interacts with customers in their daily activities and how SNS Bank focuses on client’s needs and wishes. As part of the overall marketing campaign, SNS Bank introduced a savings campaign in the fourth quarter of 2010, which includes alerting customers about new SNS Bank savings products with higher interest rates compared to those on SNS Bank products already held by the customer. This, as well as SNS Bank’s competitive interest rates and the excellent performance of savings products at ASN Bank, contributed to a steady inflow of savings and led to an increase of the savings portfolio by € 3.0 billion. This included the continued growth of bank savings balances by € 449 million to € 703 million at year-end 2010. SNS Retail Bank’s market share in savings increased to 9.5% (2009: 8.7%). 6.3.2 Mortage portfolio stable SNS Retail Bank’s market share in new mortgages of 6.1% was lower than year end 2009 (7.9%). In 2010, the amount of total mortgages in the Dutch housing market declined by 3%. The Plafondrente Hypotheek (‘capped rate mortgage’) is still successful and was highlighted in the SNS Bank corporate campaign. Despite the sale of € 0.9 billion retail mortgages to the Insurance activities of SNS REAAL, SNS Retail Bank’s residential mortgage portfolio remained stable at € 49.3 billion. In 2010, the proportion of new mortgages covered by the Nationale GRAPH 1: RESIDENTIAL MORTGAGES Hypotheek Garantie-scheme (NHG) continued to be high at 48%. SNS RETAIL BANK Since 2009, SNS Bank has sold mortgages and insurance products (In € millions) from third parties and sales in this category showed a steady increase in 2010. 60,000 50,000 6.3.3 Commission income improved Net fee and commission income remained stable, as fees for pay- 40,000 ments and insurance products were lower and commission income was higher. In 2010, stock markets picked up again and ASN and 30,000 SNS funds increased by € 526 million in total, driven by good net 20,000 inflows and improved market values. Also, SNS Fundcoach performed well, recording a 26% increase in assets under management. 10,000 Compared to 2009, total investment income decreased sharply. 0 2006 2007 2008 2009 2010 In 2009, volatile interest rates enabled exceptionally high realised gains on the fixed income portfolio and improved trading results on Residential mortgage Other mortgages fixed income investments. In 2010, these gains fell to lower, more normalised levels. The result on financial instruments decreased sharply by € 172 million, largely driven by lower buy-back results on own funding paper and the absence of positive results on hybrid tier 1 exchange offers (in total € 26 million in 2010 compared to € 152 million in 2009). In addition, in 2009 the result on financial instruments had been impacted by volatile and decreased short-term interest rates resulting in gains related to value movements in derivatives held for hedging purposes. 6.4 SIGNIFICANT DECLINE IN EXPENSES SNS Retail Bank’s operating expenses decreased significantly by € 79 million, due to the benefits of the implementation of the new distribution strategy, stringent cost control and the absence of € 53 million one-off and restructuring costs in 2009. The one-off costs in 2009 had consisted of the provisioning for the savings guarantee scheme related to DSB Bank (€ 38 million), and the additional expense relating to SNS Retail Bank’s share in the Icesave claim (€ 5 million), with restructuring charges amounting to € 10 million. Adjusted for these costs, total operating expenses decreased by € 26 million (−5.1%). SNS BANK Annual Report 2010 2�


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    The implementation of the new distribution strategy resulted in lower operating expenses and a reduction in FTEs. As a result, the efficiency ratio improved from 67.5% in 2009 to 61.7% in 2010. Impairment charges to loans and advances declined markedly to € 79 million. The impairment charges to loans and advances as a percentage of outstanding gross loans in 2010 were 15 basis points, a decrease of 1 basis point compared to 2009. The other impairment charges decreased by € 8 million due to lower impairments of furniture and fixtures. 6.5 APPROACHABLE, SIMPLE AND A HUMAN TOUCH On-line banking has become even easier and simpler for our customers. The personal Mijn SNS banking environment was fine- tuned based on products as well as each customer’s browsing behaviour. The number of applications and changes that are processed automatically was further enhanced. Applications became available for mobile banking and locating the nearest SNS Shop and SNS cash dispenser by mobile phone. Last year, the average number of unique visitors per month rose over one and a half million, which is considerably higher than in 2009 (approximately 1 million unique visitors per month). SNS Bank received various awards for its personal, innovative and customer-friendly communications on the website and for its commercially successful on-line marketing: the CRM Innovator Award and a Dutch Interactive Award, respectively. SNS Bank also received an SIDN Internet Award for no-threshold banking. SNS Bank considers it important for the physically and mentally impaired and the elderly to feel confident about using on-line banking as well. The website layout, the tools available on the website and the internet assistance provided at the SNS Shops contribute to achieving this. SNS Bank is the only bank in the Netherlands to have received the title ‘Drempelvrij’ by Stichting Waarmerk Drempelvrij, which testifies to the accessibility of its website. In this manner we also give meaning to putting clients’ interests first, in line with the Dutch Banking Code recommendations. 6.5.1 March of SNS shops In 2010 the number of old SNS offices was further reduced to 54 and the number of modern SNS Shops rose to 89, compared to 57 at year-end 2009. 47 of those shops were managed by franchisees. SNS Bank’s target is to have 200 shops at the end of 2011. The shops provide information, internet workstations plus assistance and have longer opening hours. Customers can obtain advice from advisors, either by telephone or at their own homes, at one of the SNS Shops or elsewhere. 6.5.2 Simplified product range SNS Bank’s and ASN Bank’s range of savings products was much simplified. SNS Bank renewed and enhanced its range of direct insurance products for private individuals. The terms and conditions were better geared to the needs of internet-focused consumers. Taking out policies has become easier and prices are now more competitive. Sales were up approximately 20%. Expiring policies formerly taken out at SNS offices translated, on balance, into a decline of SNS Bank’s insurance portfolio, which could not yet be set off by the growth of on-line sales. 6.5.3 Own identity RegioBank The branches of the 538 intermediaries operating under the RegioBank bank formula are a valuable addition to the network of SNS Shops. RegioBank (known as SNS Regio Bank prior to 1 January 2011) focuses on consumers in small municipalities who prefer local and personal contacts and a traditional way of banking. With a new corporate identity, RegioBank will be positioning itself more explicitly as a distinctive and unique brand as from 2011. As many other banks are leaving the smaller municipalities, RegioBank meets a growing need for local bank branches that provide service, including teller services. RegioBank has a flexible and low cost structure, in part because of its good alignment with SNS Retail Bank’s central systems. 6.5.4 ASN Bank leading provider in sustainability ASN Bank again reinforced its leading position in the sustainable-banking market. Its total number of customers rose by 46 thousand (+10%). ASN Bank connects people who wish to help build a sustainable society and offers products that contribute to just such a society. Years of consistency in product policy, customer service and marketing have created a strong brand reputa- tion. ASN Bank introduced the ASN Credit Card. Part of each transaction sum is donated to a sustainable project. ASN Bank also introduced sustainable investment management for high-net-worth customers and institutions. 6.6 SERVICE LEVEL: DECREASE IN COMPLAINTS The accessibility and service levels of the SNS customer services saw considerable improvement. The number of telephone contacts increased by approximately 8% from 2009, partly as a result of proactive personal messages addressed to customers on the website, which prevented much uncertainty. The number of complaints fell by approximately 24%. There is a widely accepted increase on various parts in customer satisfaction: customer contact, telephony, e-mail processsing, internet and advice. SNS Bank intensified measuring customer satisfaction and now permanently monitors all types of contact. Points for SNS BANK Annual Report 2010 21


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    improvement are the accuracy of processes performed for non-automated customer applications and administrative alignment with the REAAL systems when it comes to cross-selling. 6.6.1 High customer satisfaction ASN Bank According to a consumer survey conducted by research agency MarketResponse, ASN Bank was the most customer-friendly bank in the Netherlands in 2010. Surveys conducted by the Dutch Consumers’ Association and the website Independer also awarded ASN Bank high scores. 6.6.2 More efficient and effective SNS Bank largely completed its reorganisation. The key objective in this process is to enhance the efficiency and effectiveness of the direct channel (internet, telephone, SNS shops and franchise shops). 6.6.3 Centralisation service centers Standardising IT systems enables the retail banks to develop and distribute their products at the lowest possible cost. In 2010 SNS Retail Bank centralised the mortgage production and service centres. The processes of the service centers for mortgages and payments are optimised and where possible STP made. BLG Hypotheken and SNS Retail Bank have already made extensive standardization in the IT landscape mortgages. Next year further steps will made with RegioBank. Furthermore, in 2011 all brands will move on to the new Internet chassis already in use at SNS Bank. 6.6.4 Communications with nationwide campaigns SNS Bank launched a new nationwide campaign themed ‘SNS Bank of…’. The long-running campaign presents SNS Bank from the customers’ perspective. Commercials highlight SNS Bank’s approachability and its property of being a people’s bank. Listening attentively to its customers is important to SNS Bank to maintain its approachability, simplicity and human touch. That is why SNS Bank introduced SNS Community, an on-line platform whose members are SNS Bank customers. Our board members and marketing experts regularly join the on-line chats to gain more insight into what moves our customers. In this way we also give meaning to putting clients’ interests first, in line with the recommendations of the Dutch Banking Code. ASN Bank invested in an informative brand campaign aimed at the target group in which customers explained why they opt for ASN Bank. In 2010 ASN Bank celebrated its 50th anniversary and organised a party also attended by a large number of customers. They engaged in conversation with each other and enjoyed presentations and entertainment on the subject of sustainability. 6.7 MORTGAGES MARKET CONTRACTING Volumes in the Dutch new mortgages market remained practically stable compared to 2009 and mutated from € 66 billion to € 67 billion. The number of transactions decreased slightly (around 3%) but the average price increased slightly. The number of defaults increased slightly, but remained below 2009 and write-offs on these defaults remained stable. SNS Bank’s risk profile showed slight improvement as a result of the high rate of new mortgages covered by the National Mortgage Guarantee Scheme (NHG). 6.7.1 Sound foundations The foundations of the Dutch mortgage market continue to be sound due to the structural housing shortage, the mortgage inter- est tax relief and government regulation. The lower and middle segments of the residential property market, in which SNS Bank is well represented, have limited exposure to price drops. The average amount of register new mortgage loans extended by SNS Bank in 2010 was € 223,000 compared to a nationwide average of € 261,000. SNS Bank aims to provide simple mortgage products that are subject to clear and fair terms and conditions. It is for this reason that SNS Bank has stopped using different rates for new and existing customers. Since early 2010, customers renewing their mortgages have been able to benefit from the same rates as new customers. In this way we also give meaning to putting clients’ interests first, in line with the Dutch Banking Code recommendations. 6.7.2 Capped rate mortgage favourite The SNS Plafondrente Hypotheek (‘capped rate mortgage’) positively capitalises on customers’ current need for a limitation of risks. Customers taking out this mortgage benefit from interest rate drops, but are also assured that interest rates will never exceed the agreed interest rate cap. Approximately half of new mortgages concerned this type of mortgage. SNS Bank further enhanced its range of third-party mortgages and currently is the only bank to sell mortgages developed by other companies. The volume share of third-party mortgages rose to approximately 6% of total sales through the SNS Bank distribution channel. 6.7.3 Most mortgages through RegioBank and BLG Hypotheken The indirect channel was responsible for the majority of sales, approximately 83%, 23% of which were achieved by RegioBank intermediaries and 77% by intermediaries carrying our intermediary brand BLG Hypotheken. Certification centralisation SNS BANK Annual Report 2010 22


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    slowed BLG Hypotheken sales in early 2010, leading in practice to a tightening of acceptance conditions. A surge in sales was reported in the course of 2010, particularly driven by the success of the BLG Plafondrente Hypotheek (‘capped rate mortgage’). BLG Hypotheken is unique for the flexibility it offers, allowing intermediaries to develop optimum products for their customers even for specific situations or residential property, such as holiday homes. In 2010 the product range was reinforced by REAAL term insurance products. 6.8 MARKET SHARE SAVINGS HIGHER The total Dutch savings market grew from € 285 billion to € 291 billion (+2.2%). The steady growth of the past few years continued, raising SNS Retail Bank’s market share from 8.7% to 9.5%. Year-end 2010 total savings (including SME) amounted to € 31.1 billion, representing an organic growth of approximately 50% in three years. In 2007 total savings were still € 19.2 billion. The retail finance rate rose to 70% as a result, further limiting the capital market’s dependence on financing provided by the bank. SNS Retail bank succeeded to gain a considerably part of the new net savings inflow market, demonstrating that the joint growth of SNS Bank, ASN Bank and RegioBank is considerably larger than the average growth of other banks. Simple and transparent products and good pricing take centre stage at all three brands. Each brand also developed its own initiatives to reach its target group efficiently and effectively. SNS Bank rigorously simplified its range of savings products, reducing its range to five internet savings accounts. Four of those accounts have variable interest rates: one basic savings account without conditions and three savings accounts that are subject to varying conditions. The other two have fixed interest rates. In this way we also give meaning to the principle of putting clients’ interests first, in line with the recommendations of the Dutch Banking Code. 6.8.1 Savings advisor SNS Bank SNS Bank aims to be a simple, approachable bank, a people’s bank, and a bank that helps its customers choose the products that best suit their individual circumstances. In the last six months of 2010, some hundreds of thousands of customers with out-of-date products were offered savings accounts with better terms and conditions. All customers with out-of-date products received at least equal interest rates and, in 90% of cases, higher interest rates than they received before the offer. SNS Bank is the first bank in the Netherlands to actively approach its customers with more attractive savings products. In the future as well, SNS Bank will continue to suggest to its customers how they can get the most out of their savings. For example, if a customer reaches a particular balance limit, he will be informed of another product that may offer him higher interest rates. In this way we also give meaning to the principle of putting clients’ interests first, in line with the Dutch Banking Code recommendations. SNS Bank introduced new improvements to its website. Increased automation has made it still easier for customers to apply for savings accounts. Additional improvements to on-line marketing contributed to higher retention rates and a sharp increase of the number of new visitors to the savings website. 6.8.2 Customer retention high at RegioBank RegioBank contributed approximately 28% to the net savings growth at SNS Retail Bank. Customer retention was very high once again, partly as a result of its local and personal service. 6.8.3 Again strong growth ASN Bank ASN Bank contributed approximately 51% to the net savings growth, mainly driven by yet another strong increase in the number of customers (approximately 46,000) and high customer loyalty. ASN Bank mainly focuses on the retail market. In addition, ASN Bank also accepts social organisations and companies as customers if they do not conduct business conflicting with the business principles of ASN Bank. Sustainable investment objectives and conditions of savings accounts and attractive interest rates are not the only reasons why customers opt for ASN Bank: ASN Bank’s sustainable nature as a financial institution is also a key motivator. As from 1 January 2011, ASN Bank reduced its five regular savings accounts to a single simple and transparent product that is not subject to restrictive conditions: ASN Ideaalsparen. All customers who did not yet have an ASN Ideaalsparen account consequently received an account subject to better terms and conditions. In addition to this standard savings account, ASN Bank maintained its special young people savings account, its account for combined savings and investment, fixed-term deposit account and its life-course and salary savings account. ASN Bank furthermore maintained the 1% interest rate on its current account. ASN Bank is the only bank in the Netherlands to pay interest on current accounts. In this way we also give meaning to the principle of putting clients’ interests first, in line with the recommendations of the Dutch Banking Code. As from January 2011, customers can indicate to which charities ASN Bank should donate part of its net interest income earned on their savings. The four themes are: renewable energy, the fight against child labour, the fight against arms, and fair trade. As for customers who do not select a particular theme, ASN Bank divides its contribution equally among the four themes. SNS BANK Annual Report 2010 23


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    6.9 BANK SAVINGS INCREASINGLY POPULAR Bank savings is a fast-growing wealth creation product in the Netherlands. Bank savings products are simple, transparent products with low risks and low costs enabling our customers to benefit from tax exemption to the greatest possible extent. This explains their growing popularity, which was a reason for SNS Bank to further expand its product range and marketing efforts. Sales of pension related products and severance pay were up approximately 177%. SNS Bank develops and produces its bank savings products centrally and in close collaboration with REAAL and RegioBank, which sell these products under their own brand names. 6.9.1 Three products Bank savings products can be divided into three categories: – Capital growth for owner-occupied homes; – Capital growth for top-up pension; – Capital distribution for top-up pension. The SNS Spaarrekening Hypotheek is used to (partly) redeem mortgages. This product is a simple and cost-efficient alternative to savings mortgages. In contrast to savings mortgages, the SNS Spaarrekening Hypotheek does not include term insurance. SNS Lijfrente Sparen (for capital build-up) and SNS Lijfrentenieren (for benefits based on previously accrued capital) likewise showed healthy growth. These products provide our customers with a tax-friendly supplement to their pensions. 6.9.2 New annuity and severance pay In October SNS Bank, together with REAAL and RegioBank, introduced a new wealth creation product for top-up pensions: SNS Uitgesteld Lijfrentenieren. It is the first product on the Dutch market that allows customers to continue to further build up accrued life annuity capital before receiving monthly benefits as from a personally selected date. The interest rate for the entire term, however, is fixed beforehand. Accordingly, this product combines certainty with convenience and flexibility. Under the tax rules, customers can personally change the commencement date and therefore the amount of the monthly benefits up to two months prior to the first payment. 6.9.3 Own situation In March SNS Bank, together with REAAL and RegioBank, introduced a Golden Handshake account (Gouden Handdruk-rekening) for severance pay. Using this product, customers can easily capitalise on their own situation. The severance pay can first be tied up for a longer period of time to build up additional returns, but customers can also commence regular benefits immediately. This product takes advantage of a legislative amendment of December 2009 and offers various benefits over severance pay insurance. 6.10 APPETITE FOR INVESTMENT STABLE Our customers’ appetite for investment remained stable. Saving continued to be the preferred choice in view of uncertain economic conditions. On balance, commission and management fees, which are related to volumes, fell a shade below the level of 2009. SNS Bank customers can invest independently through SNS Fundcoach or SNS Effectenrekening. Fundcoach offers a selection of more than 250 major international and more specialist investment fund providers. The Effectenlijn gives customers the opportunity to invest in shares, bonds, options and a limited number of investment funds. The option of advice-based investing is offered by SNS and ASN investment funds and by the Effectenlijn. 6.10.1 SNS Fundcoach and SNS Effectenlijn SNS Fundcoach’s total assets under management rose from € 607 million to € 763 million (+26%). The number of customers increased. The number of transactions effected over the SNS Effectenlijn fell slightly. SNS Bank aims to provide simple and accessible products in the area of investing as well. For that reason, investment management and advice-based investing were transferred to SNS Securities, the specialist SNS Bank unit for investments, loans and transactions. SNS Bank decided to terminate investments in non-registered funds on account of the associated risks, a decision that was taken partly in view of the summonses served on SNS Bank in 2010. 6.10.2 Cooperation with BinckBank In September 2010, SNS Bank entered into a cooperation agreement with BinckBank. The securities processing procedures will be outsourced to BinckBank as from mid 2011. In 2011 investors will receive more information and more options for building their portfolios on the investment site, which will include a single securities account for securities and investment funds that will provide the extensive selection and analysis tools with which the Fundcoach customers are already familiar. The collaboration will also result in better cost prices for SNS Bank on account of joint purchasing from third parties such as brokers and custodians. 6.10.3 Nederlands Aandelenfonds popular SNS Nederlands Aandelenfonds has been one of the most popular SNS investment funds for many years. In 2010 its volume grew to € 428 million, compared to € 397 million in 2009. SNS Nederlands Aandelenfonds’ fund manager is Corné van Zeijl, who won SNS BANK Annual Report 2010 24


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    a Gouden Stier (‘Golden Bull’) award in the category ‘Best Investment Expert’ of Belegger.nl. SNS Wereld Aandelenfonds and SNS Duurzaam Aandelenfonds were nominated for this award. 6.10.4 ASN Bank for a sustainable society When investing for investment funds and savings accounts, ASN Bank selects only companies, organisations and governments that meet the investment criteria for a sustainable society. The bank uses unequivocal admission and exclusion criteria that can be found at www.asnbank.nl . Topics such as child labour, animal suffering, climate, human rights and genetic engineering play a decisive role in all investments. Obviously, ASN Bank also strives for optimal financial return. The ASN Bank funds again delivered good results. Particularly appreciating the transparency and clarity of the investment fund range, the Belegger.nl panel chose ASN Bank as best fund house of the year. The ASN Milieu & Waterfonds won the Groene Stier (‘Green Bull’) award – the public award for the best sustainable investment product – for the fourth year in a row. In addition for the second time in a row, the ASN Milieu & Waterfonds also received a Lipper Fund Award in the category Global Small and Midcap (investment funds investing in small and medium-sized business around the globe). Also, three ASN funds finished in the top five of the most profitable sustainable funds. 6.10.5 Expansion ASN Asset Management ASN Bank added ASN Asset Management to its product range, for which purpose it joined forces with NBC Duurzaam Vermogensbeheer, a company that has dozens of years of experience in the area of sustainable investment management. ASN Asset Management composes portfolios on the basis of ASN Bank’s special investment criteria, so that customers can rest assured that their capital is only invested in companies, countries and projects that take people and the environment into account. ASN Asset Management was created in particular for private individuals, foundations, associations and social institutions with investable assets of € 250,000 or more. 6.10.6 Profit contribution SNS Securities SNS Securities decreased its contribution to profits, because of standardisation of income in the corporate bond trade compared to 2009 when profits were extremely high because of volatile interest rates. In October 2010 SNS Securities acquired SNS Bank’s investment management and investment advice services. SNS Securities provides securities services (shares, bonds and deriva- tives) to national and international professional investors. In addition, it supports companies in private and public capital market transactions and gives advice to high-net-worth private investors in the fields of investment management and securities. The securities research conducted by SNS Securities mainly focuses on Dutch small-cap and mid-cap funds. The macroeconomic research is also used for SNS Bank’s risk management. SNS BANK Annual Report 2010 25


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    7 Developments Property Finance Net loss of € 593 million mainly due to exceptionally high impairments on loans and goodwill. Total commitments declined by € 2.0 billion to € 12.6 billion (−14%) compared to year-end 2009. Repositioning of Property Finance; run-off portfolio defined and to be managed separately. 7.1 FINANCIAL DEVELOPMENTS AT PROPERTY FINANCE TABLE 4: PROPERTY FINANCE In € millions 2010 2009 Change Result Net interest income 237 281 (16%) Result on financial instruments (29) (12) (142%) Other operating income (6) (3) (100%) Total income 202 266 Total operating expenses 93 64 45% Result before impairment charges and tax 109 202 (46%) Impairment charges 790 418 89% Impairment charges goodwill 68 55 24% Result before tax (749) (271) (176%) Taxation (156) (52) (200%) Net result for the period (593) (219) (171%) One-off items (68) (55) (24%) Adjusted net result for the period (525) (164) (220%) Efficiency ratio 46.0% 24.1% Impairment charges as a % of gross outstandings to customers 6.21% 2.97% Risk-weighted assets Basel I (100%) 11,448 13,666 (16%) Loans and advances 11,388 13,196 (14%) Property projects 467 599 (22%) Held for sale 121 −− −− 7.2 RESULTS 2010 COMPARED TO 2009 Property Finance posted a net loss of € 593 million compared to a net loss of € 219 million in 2009. Adjusted for one-off items, consisting both in 2009 and 2010 of goodwill impairments, the net loss increased from € 164 million to € 525 million. In the international operations, excluding a € 68 million goodwill impairment, a net loss of € 495 million was recorded compared to a net loss of € 256 million in 2009. This was mainly the consequence of the strengthening of the coverage ratio leading to higher SNS BANK Annual Report 2010 26


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    loan impairments, though lower net interest income, a lower result on financial instruments and higher operating expenses also had a negative impact. In contrast to 2009, the Dutch portfolio posted a net loss of € 30 million. This net loss was wholly due to the strengthening of the coverage ratio, leading to higher impairments on Dutch project finance loans in the fourth quarter. In November was announced to split Property Finance into two separate units with effect from 1 January 2011. Property Finance retains the international loan portfolio and part of its Dutch loan portfolio, consisting of project finance loans and other Dutch loans not compatible with SNS SME. This unit will be phased out over the next two to four years and consequently provisioning levels for non-performing loans have been strengthened in order to facilitate the run-off. The remaining part of Property Finance’s Dutch portfolio has been combined with the existing small and medium-sized enterprise (SME) activities of SNS Retail Bank in the new unit SNS SME as of 1 January 2011. This part of the portfolio posted a pro forma net profit of € 50 million in 2010 (excluding SNS Retail Bank’s SME portfolio). TABLE 5: OVERVIEW DUTCH AND INTERNATIONAL ACTIVITIES In € millions 2010 2009 Overview Dutch Portfolio Total income 179 179 Operating expenses 39 38 Impairment charges 180 22 Adjusted net result for the period (30) 92 Overview International Portfolio Total income 23 87 Operating expenses 55 29 Impairment charges 610 396 Adjusted net result for the period (495) (256) 7.3 INCOME DECLINED Total net interest income declined by 16% compared to 2009, due to higher funding costs and a lower loan portfolio, which also led to lower interest-related fee and commission income. The negative result on financial instruments was due to the sale of non-provisioned loans at a discount. Other operating income was lower due to lower results on participations. 7.4 EXPENSES Total operating expenses increased by € 29 million to € 93 million, due to € 40 million advisory and restructuring costs in relation to winding down the portfolio in 2010 compared to € 6 million in 2009. In 2010, this included a redundancy provision of € 6 million. Adjusted for expenses related to reducing the international loan portfolio of Property Finance, operating expenses declined by 9% due to a decrease in FTEs related to the reduction in the portfolio. Total impairment charges increased by € 372 million to € 790 million for the year 2010, in particular due to exceptionally high impairment charges of € 413 million in the fourth quarter. This consisted of € 628 million of impairments on loans, € 117 million of impairments on property projects and € 45 million of impairments on participations. Impairments on property projects and participations were necessary as continued pressure on real estate markets adversely impacted the net realisable value. The € 628 million of impairments on loans led to a strengthening of provisioning levels, while € 150 million of the provision was used for the run down of the loan portfolio during the year. As a result, the coverage ratio (provisions as a percentage of non- performing loans) improved from 14.9% at year end 2009 to 41.7%. SNS BANK Annual Report 2010 27


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    As a consequence of the exceptionally high level of impairments, impairment charges as a percentage of total gross loans outstanding increased from 297 basis points in 2009 to 621 basis points in 2010. In the international portfolio, impairment charges increased by € 214 million to € 610 million, including realised losses related to the sale of provisioned loans. This increase related mainly to international projects in the USA and to a lesser extent to a number of loans in other countries. Impairment charges on loans in the Dutch portfolio increased by € 158 million to € 180 million, mainly due to higher impairments in project financing in the fourth quarter. 7.5 PORTFOLIO DEVELOPMENT TABLE 6: OVERVIEW PORTFOLIO PROPERTY FINANCE December December In € millions 2010 2009 Total portfolio Commitments 12,554 14,567 Undrawn commitments 426 1,133 Outstanding loan portfolio (gross) 12,128 13,434 Loan provision 739 238 Outstanding loan portfolio 11,389 13,196 Property projects 467 599 Held for sale 121 −− Total exposure 11,977 13,795 Non performing loans 1,773 1,598 Non performing loans as % of loans outstanding 14.6% 11.9% Coverage ratio 41.7% 14.9% Average loan-to-value (LtV) 82.7% 77.7% Dutch portfolio Commitments 9,477 10,202 Undrawn commitments 314 543 Outstanding loan portfolio (gross) 9,163 9,659 Loan provision 233 58 Outstanding loan portfolio 8,930 9,601 Property projects 11 13 Held for sale 28 −− Total exposure 8,969 9,614 Non performing loans 800 623 Non performing loans as % of loans outstanding 8.7% 6.4% Coverage ratio 29.2% 9.3% Average loan-to-value (LtV) 78.7% 74.3% SNS BANK Annual Report 2010 28


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    OVERVIEW PORTFOLIO PROPERTY FINANCE (CONTINUED) December December In € millions 2010 2009 International portfolio Commitments 3,077 4,365 Undrawn commitments 112 590 Outstanding loan portfolio (gross) 2,965 3,775 Loan provision 506 180 Outstanding loan portfolio 2,459 3,595 Property projects 456 586 Held for sale 94 −− Total exposure 3,009 4,181 Non performing loans 973 975 Non performing loans as % of loans outstanding 32.8% 25.8% Coverage ratio 52.0% 18.5% Average loan-to-value (LtV) 97.6% 86.6% 7.6 TOTAL PORTFOLIO REDUCED Total commitments (gross loans including undrawn commitments) declined from € 14.6 billion to € 12.6 billion (−14%). Total outstanding loans, net of provisions, declined from € 13.2 billion at year-end 2009 to € 11.4 billion (also −14%). The absolute decline in total commitments was higher than the decline in loans outstanding due to draw-downs on existing commitments. Since mid-2009, when the plans to phase out the international portfolio were announced, total commitments have declined by 21% and net loans by 18%. In 2011, a further decline of commitments of approximately € 2 billion is expected. 7.6.1 Property projects decreased Compared to year-end 2009, property projects (real estate projects where Property Finance has taken control) decreased by € 132 million to € 467 million mainly due to € 117 million impairments and the reclassification of two projects to held for sale for an amount of € 79 million, partly offset by necessary investments and a € 44 million new inflow. Together with € 42 million reclassifications from gross loans, the held for sale portfolio amounted to € 121 million as at year-end 2010, consisting of projects expected to be sold in 2011. These properties are stated at the lower of cost and net realisable value, which is the estimated selling price less applicable variable selling expenses. Due to a lower portfolio and to a lesser extent an increase of non-performing loans, total non-performing loans as a percentage of gross loans outstanding increased from 11.9% at year-end 2009 to 14.6%. The net increase in non-performing loans was related to both the Dutch portfolio and the international portfolio. 7.6.2 International portfolio reduced by 31% Total international outstanding loans, net of provisions, declined from € 3.6 billion at year-end 2009 to € 2.5 billion (−31%). As well as repayments of loans, the international exposure was also reduced through the sale of a number of loans, most notably in the USA. This was partly compensated by movements in foreign exchange rates, which had an impact of € 124 million. Since mid 2009, when the plans to phase out the international portfolio were announced, commitments of the international portfolio have declined by 41% and net loans by 37%. Due to an increase of non-performing loans and a lower portfolio, total non-performing loans as a percentage of gross loans outstanding increased from 25.8% at year-end 2009 to 32.8%. Non-performing loans were stable in 2010 despite the sale of non-performing loans. This was mostly due to new inflows of non-performing loans, mainly related to the USA and Spain. SNS BANK Annual Report 2010 29


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    7.7 REPOSITIONING As announced in November 2010, Property Finance will be split into two separate units as from 1 January 2011. Property Finance will retain its international loan portfolio and part of its Dutch loan portfolio. This ‘run-off’ unit will be phased out over the next two to four years. The remaining part of Property Finance’s Dutch portfolio will be combined with the existing small and medium-sized enterprise (SME) activities of SNS Retail Bank in the new unit SNS Zakelijk (SNS SME). TABLE 7: PRO FORMA BREAKDOWN PORTFOLIOS NEW REPORTING SEGMENTS AS PER 1 JANUARY 2011 SNS Retail In € millions PF run-off PF SME Bank SME SNS SME Commitments 6,840 5,714 1,440 7,154 Undrawn commitments 329 97 −− 97 Outstanding loan portfolio (gross) 6,511 5,617 1,440 7,057 Loan provision 728 11 68 79 Outstanding loan portfolio 5,783 5,606 1,372 6,978 Property projects 456 11 −− 11 Held for sale 94 27 −− 27 Total exposure 6,333 5,644 1,372 7,016 Non performing loans 1,761 12 205 217 Non performing loans as % of loans outstanding 27.0% 0.2% 14.2% 3.1% Coverage ratio 41.3% 91.7% 33.2% 36.4% The pro forma gross loan portfolio of Property Finance’s run-off activities as per 1 January 2011 amounted to € 6.5 billion, pre- dominantly consisting of international and Dutch project finance loans. The pro forma gross loan portfolio of the new reporting segment SNS SME as per 1 January 2011 amounted to € 7.1 billion, predominantly consisting of Dutch investment finance loans and SME mortgage loans. 7.8 CREDIT RISK Real estate values remain under pressure, reflecting the current difficult market circumstances and increased risks especially in the international real estate markets where Property Finance is active. The unfavourable environment and outlook translate into lower rental income for real estate investors and challenging conditions for project developers to sell projects. These trends, increased risk and uncertainty, are reflected in high impairments on loans and a higher percentage of non-performing loans. As of the fourth quarter of 2010, this development impacted the Dutch portfolio as well, mainly relating to Dutch project finance loans, which are now part of the run-off portfolio. 7.8.1 Underlying assets Impairments reflect the changes in the expected cash flow profile of the underlying assets. Expected cash flows are driven by projections, based on defined exit plans, of rental income, price per square metre, construction costs, interest costs and exit values as reflected in reports provided by professional appraisers. Market circumstances have led to a reduction of recent and comparable transactions, with recent transactions sometimes reflecting sellers in financial difficulties. Accordingly, although recent valuations reflect careful interpretations of comparable transactions, valuation ranges have become significantly wider with increased uncertainty. During 2010 many re-appraisals were conducted, which on average resulted in lower collateral values and hence a higher aver- age loan-to-value (LtV). The average LtV of the total portfolio increased from 77.7% at year-end 2009 to 82.7%. The increased LtV, in combination with sharply higher impairment charges, illustrates the increased credit risk Property Finance is exposed to. However, the coverage ratio (loan provisions as a percentage of non-performing loans) of the total portfolio increased from 14.9% at the end of 2009 to 41.7%. SNS BANK Annual Report 2010 3�


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    8 Risk and capital management Risk levels rose sharply in 2010, reflected in the increase of credit risk provisions of Property Finance as the uncertainties became apparent. Other major causes were uncertainties in Europe – particularly regarding the euro – and falling interest rates. 8.1 KEY RISKS FOR SNS BANK – Quality of Property Finance’s loan portfolio. Property Finance’s credit losses prevailed this year. Credit risk reflected overall macroeconomic developments. At the same time, the results on individual items set the tone. – Regulatory risks. Regulators became more stringent after the crisis, setting additional requirements for capital positions and liquidity levels, in anticipation of the new rules that take effect in coming years. In addition, the regulators apply the existing rules more strictly. Regulatory rules and their implementation by regulators are a source of growing uncertainty. – Risks concerning SNS Bank’s capital-generating capacity. The losses at Property Finance have an adverse effect on SNS Bank’s capital-generating capacity, resulting in a capital posi- tion as at year-end 2010 that was weaker than expected. It is still unclear to what extent this factor will reduce SNS Bank’s capital-generating capacity in the years ahead. 8.2 2010: RISK MANAGEMENT IN A COMPLEX MARKET SITUATION Lately, numerous external developments have affected the choice for more or less risk tolerance: – As from the end of 2009, risk in the investment portfolio of government bonds increased substantially as from the end of 2009, because bankruptcies of sovereign European States are no longer considered impossible. Some market parties also question the viability of the euro in its present form. As a consequence these portfolios required additional risk indicators and limits, which have been implemented, meaning a decreased risk appetite for this type of risk. – Being one of the main themes of SNS Bank’s strategy, Property Finance’s outstanding exposure was considerably reduced. This, in itself, is a reflection of a lower risk appetite, although the loan to value deteriorated due to decreasing collateral prices. This external component caused the risk increase. – As is known, Property Finance’s main objective for 2010 was to reduce the loan portfolio. As a result, hardly any new business was acquired and the policy and authorisation powers remained unchanged in 2010. – The method for calculating the Earnings-at-Risk, the volatility in results of SNS Bank, was adjusted. This did not have any material impact on the risk appetite. – The liquidity limits were not adjusted. Focus was on improving the ratio of assets (mortgages and loans) and liabilities (savings and current accounts) at SNS Retail Bank. 8.3 CHANGES TO THE RISK MANAGEMENT ORGANISATION The governance structure introduced in 2009 was further developed in 2010. The basic principles of the governance structure remained unaltered: – Management of SNS Bank is divided into two business units: SNS Retail Bank and Property Finance. – A system of risk committees operates under the responsibility of SNS REAAL’s Management Committee. – Operating under SNS REAAL’s Executive Board’s authority, these risk committees establish risk-control frameworks. – Within the frameworks for risk policy, the business unit management boards achieve the corporate objectives by choosing the best possible products, services, product/market combinations, labelling and distribution channels. – Asset & Liability Management is managed by SNS REAAL Group. Changes within the organisation affecting the structure of the risk management organisation are: – Property Finance was reorganised. The portion of the portfolio to be retained was transferred to SNS SME on 1 January 2011 as a result. Property Finance’s risk management organisation now focuses on phasing out the international and Dutch project financing portfolios and, to a lesser extent, on the phase out of the Dutch investment portfolio. SNS BANK Annual Report 2010 31


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    – More activities were centralised in 2010. – All local internal control and internal audit departments were incorporated in SNS REAAL. – All local staff departments for operational risk management and compliance were centralised and transferred to SNS REAAL. 8.4 DEVELOPMENTS IN CAPITAL AND SOLVENCY SNS Bank’s solvency ratios remained above internal standards (10% for the Tier 1 ratio and 8% for the Core Tier 1 ratio). The Tier 1 ratio was stable at 10.7% as at year-end 2010. The limited growth of SNS Retail Bank’s loan portfolios and the phasing out at Property Finance played a role in this process. Within the context of SNS Bank’s active de-risking policy, risk exposure was also reduced by selling the highest-risk tranches of Hermes 14 through 17 and by selling a sub-portfolio of mortgages in the amount of € 0.9 billion. The Core Tier 1 and Tier 1 ratios were 8.1% and 10.7%, respectively, as at year-end 2010. The BIS ratio amounted to 16.7%. SNS Bank’s intention is to expeditiously continue the phase-out of Property Finance’s loan portfolio in 2011 and subsequent years, for which purpose a radical restructuring process has already been initiated. As a result, a constant further improvement of SNS Bank’s solvency ratios is expected. For reasons of prudence, it is assumed that the regulators will maintain the Basel II transition floor as currently applicable. 8.5 CAPITAL ADEQUACY: ICAAP 2010 SNS Bank periodically assesses its capital adequacy by applying the Internal Capital Adequacy Assessment Process (ICAAP). In the ICAAP, the required amount of capital is determined by the statutory directors of SNS Bank and the SNS REAAL Executive Board. Points of departure are the balance sheet, strategy, risk appetite and existing risks. The assessment includes the questions of how risks are dealt with and whether the capitalisation of SNS Bank in current and possibly future circumstances is sufficiently robust to absorb the risks. Risks are identified using the business strategy and are tested against risk tolerance levels within the risk appetite framework defined. This also enables the integration of risk management according to the recommendations of the Dutch Banking Code. The robustness of capital levels is tried by performing stress tests. SNS Bank performed an internal stress test in 2010. For this stress test a thorough analysis of the risks involved was performed. SNS Bank composed her own specific economic scenarios. The Economic Capital and Regulatory Capital (Basel II, pillar 1) are part of the ICAAP as well and the capital management process is reviewed. In 2010, SNS Bank improved its ICAAP process. The results of this ICAAP show that SNS Bank remains above internal standards in a stressed scenario. With reference to the Supervisory Review and Evaluation Process (SREP) SNS Bank is in dialogue with the Dutch Central Bank on the ICAAP results. 8.6 SNS BANK FUNDING In 2010, SNS Bank was able to successfully attract funding on both the financial markets and the retail market. In the financial markets, this involved primarily public EMTN funding, covered bonds and securitisations, with an emphasis on longer maturities (5, 7 and 10 years). SNS Bank also placed a public subordinated transaction with a 10-year maturity on the market. In the retail market, SNS Bank was funded through savings and loans. The total liquidity of SNS Bank remained at a high level. For more details, please refer to the chapter on Funding and credit ratings. 8.7 DEVELOPMENTS IN MARKET RISK 8.7.1 Duration The yield curve dropped during the first half of 2010, followed by a sharp increase in the last few months of 2010. The duration of equity was lowered to a value between 2 and 3 as of mid-2010, lowering the interest rate sensitivity of the fair value of shareholders’ equity as a result of increases in interest rates. At year-end 2010 the duration of equity was 2.3. 8.7.2 Earnings-at-Risk The calculation method for the Earnings-at-Risk (EaR) was improved in March 2010. The volatility of interest rate scenarios in the old method no longer proved to be representative of current market volatility. The new method comprises a limited number of intelligible interest rate scenarios of major interest rate shocks, thus providing better insight into interest rate risks and possible actions that can be taken to limit such risks. At the same time, the EaR limit was adjusted to € 56 million as the old € 25 million SNS BANK Annual Report 2010 32


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    limit was too conservative in proportion to the absolute level of net interest income. In 2010, the EaR averaged € 15 million. At its highest point in June 2010 the EaR was € 29 million according to the new method. The increase of the limit corresponds to a decrease of the risk of exceeding the limit from 5% to 1%. 8.7.3 PIIGS Driven by increased credit risks, spreads on the PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) widened in 2010. These developments sparked a further reduction of the exposure to these countries in the course of 2010. The position and spread development are evaluated on a highly frequent basis. 8.7.4 Trading risk SNS Bank has a small trading portfolio in line with its risk profile. In accordance with this profile, the total limit in terms of VaR (99% confidence on day-to-day basis) was set at € 2.4 million. The permitted limit was used to only a moderate extent in 2010. 8.8 DEVELOPMENTS IN CREDIT RISK SNS Bank’s total loan portfolio amounted to € 65.0 billion at year-end 2010. Most of the loan portfolio (79%) consists of residential mortgages provided in the Netherlands. Property Finance’s loan portfolio decreased further from € 13.2 billion to € 11.4 billion as at year-end 2010. The international portfolio decreased from € 3.6 billion at year-end 2009 to € 2.5 billion at year-end 2010. The main developments in the field of credit risk in 2010 were the slightly falling house prices and the stagnating market for both existing and new owner-occupied homes in the Netherlands. The market for national and international property projects continued to deteriorate as well. 8.8.1 SNS Retail Bank SNS Retail Bank’s loan portfolio amounted to € 53.6 billion at year-end 2010, € 49.4 billion of which comprised residential mortgages. 13.3% of these residential mortgages is covered by the National Mortgage Guarantee. The market for owner-occupied residential property is experiencing a downturn, just as in 2009, with the number of housing transactions remaining at a historic low and house prices falling for the second consecutive year. However, in 2010 the drop in house prices was more gradual than in 2009. The falling house prices and stagnating residential property market led to longer foreclosure periods and larger losses on foreclosure. 8.8.2 Property Finance The national and international property markets went through another difficult year in 2010 with continued pressure on property values, which adversely affected the cash flow – and thus the repayment capacity – of property developers. Increasing vacancy rates and falling market rents, with the exception of property at category-A locations, also accounted for a decline in property investors’ rental income. These developments led Property Finance clients (property investors and developers) to default on payments, which translated into an increase of loans in default and of provisions. The strategy adapted in 2009 was continued in 2010. In 2009 the strategy of Property Finance was attuned to the changing cir- cumstances and credit management was tightened. In this respect, the four R’s were introduced: repricing, repayment, revision and restructuring. As a result the reduction of outstandings, the reduction of Risk Weighted Assets (‘RWA’), increased margins and intensified revisions and restructurings. The Early Warning System was reinforced and the phasing-out of the international portfolio was intensified further. The portfolio (commitments) decreased in 2010 from € 14.6 billion (€ 4.4 billion of which related to international activities) to € 12.6 billion (€ 3.6 billion of which related to international activities). 8.9 DEVELOPMENTS OF BASEL III In 2010 the Basel Committee announced additional capital and liquidity requirements that will apply across the globe. This tightening of requirements is also referred to Basel III. The main changes are: – The minimum levels for the Core Tier 1 and Tier 1 ratios have been raised to 4.5% and 6%, respectively. – There is a 2.5% Capital Conservation Buffer that imposes restrictions on the extent to which dividend and bonuses can be distributed. – There is a maximum Countercyclical Buffer of 2.5% that can be used by national regulators in times of excessive credit growth. The Dutch Central Bank did not express any views on this. – There is an extensive grandfathering arrangement. – There is a long transition period (until 1 January 2019), which will commence on 1 January 2013. – Introduction of a Tier 1 leverage ratio of 3% on 1 January 2018, which may be recalibrated. On this, the Dutch Central Bank also did not express any views. SNS BANK Annual Report 2010 33


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    – The Liquidity Coverage Ratio (LCR) will be implemented effective 1 January 2015 and the Net Stable Funding Ratio (NSFR) effective 1 January 2018. The observation period will commence in 2011. – Systemically important financial institutions (SIFIs) should have a higher loss absorption capacity than other banks. The Basel Committee and the Financial Stability Board are as yet to prepare rules for SIFIs. At the end of 2010, SNS Bank met the minimum Tier 1 capital requirements (including the Capital Conservation Buffer), the leverage ratio and the liquidity requirements. The Countercyclical Buffer and the additional requirements for systemic banks have not yet been established. 8.10 MANAGEMENT OF NON-FINANCIAL RISKS The importance of managing non-financial risks is stressed once again by the current market conditions. The crisis of public confidence with regard to the financial sector yielded numerous initiatives, ranging from new legislation and regulations and reviews of business models to roll-outs of cultural programmes both at supervised institutions and at the regulator. In 2010 the non-financial risks advisory and oversight roles were combined at Group level to form the staff department Compliance, Security and Operational Risk Management (‘CS&O’). This centralisation of disciplines within a central staff department enables SNS REAAL to better perform Group-wide analyses to manage non-financial risks preventively. 8.10.1 Existing factors The main existing factors for management of non-financial risks are: – A clear governance structure, including a transparent assignment of duties and responsibilities and escalation procedures. For this purpose SNS REAAL implemented the ‘Three Lines of Defence’ model, making line management primarily responsible for recognising and managing risks and taking decisions in that respect. Along with several other Group staff departments, CS&O has an important role to play in the second Line of Defence. Its responsibilities are partly determined by means of a compliance monitoring programme to be established and implemented each year, the results of which are included in CS&O’s quarterly report to the Executive Board, the Risk Committee and the Supervisory Board. The third Line of Defence is formed by Group Audit, which tests the set-up and operation of the system as a whole. – Within the governance structure, the Group Governance, Operational Risk and Compliance Committee (GORCC) was estab- lished for the whole Group. This Committee is chaired by the chairman of the Executive Board and its members comprise the Chief Financial Risk Officer, Chief Executive officers of the business units, CS&O Director, Corporate Responsibility Director, Group Audit Director and Legal Affairs Director. CS&O is responsible for managing the agenda of the Committee, which meets on a monthly basis. In addition to adopting policies, the meeting discusses specific risks and how they will be mitigated. 8.10.2 New developments Major new developments for management of non-financial risks are: – As from mid-2010, the Executive and Supervisory Boards receive integrated non-financial risks quarterly reports containing overviews of the main action items and providing insight into their follow-up status. – The basic principles for integrity are included in a Group-wide, fully rolled-out standards framework that underlies the development of new products and services and the formation of joint ventures, but that also imposes clear requirements on the organisational structure in terms of business process integrity and the integrity requirements applicable to employees. – In 2010 SNS Bank conducted a study of the integrity environment at the Company supported by KPMG. The study was based on eight organisational qualities (clarity, exemplary conduct, ability to impose sanctions, visibility, commitment, openness for discussion, approachability, feasibility) that are guiding in creating an integrity-based company culture. The overall conclusion is that, on average, SNS Bank performs slightly better than similar financials in the benchmark. Based on the results of the study, several action items were formulated with regard to awareness of integrity issues in order to recognise relevant issues in good time, make them the subject of discussion and follow up on them. CS&O monitors the progress achieved with the action items as formulated and reports to the Executive and Supervisory Boards and the Risk Committee on their status every three months. The integrity assessment will be repeated every year. – Following from the above, CS&O annually prepares and executes an awareness programme, consisting of a set of courses, workshops, e-learning programs and means of communication aimed at influencing conduct and culture, taking the know- how of specific groups of employees to the required level and maintaining that level. CS&O draws for the contents of this programme on the roll-out of the CARE! core value within the Group. – The product development process was fine-tuned in 2010, particularly on the basis of current social insights. SNS Bank also performed a product analysis, testing all selling and non-selling products against the product standard framework. – By means of semi-annual in-control statements (ICSs), senior management reports about the extent to which operational, integrity and financial reporting risks are managed. The management statement is partly based on this ICS. – GORCC monitors whether action items ensuing from audits by Group Audit, the external auditor and regulators are followed up. – A social development that has consequences for SNS Bank is the growing threat of cyber crime. Appropriate measures are taken to avert this threat. – Cutbacks, restructuring and the economic environment put pressure on the entire risk management organisation. SNS BANK Annual Report 2010 34


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    9 Funding and credit ratings Access to the money and capital markets improved. SNS Bank secured its funding until the end of 2011, provided that market conditions are normal, and improved the redemption profile for its debts. With SNS Bank’s high-quality SME and residential mortgage portfolio as collateral, we were able to issue large and long-term bonds. Our public funding strategy is aimed at funding the activities of SNS Bank at a competitive level, i.e. at minimal cost while limiting risks. This strategy is based on two pillars. The first pillar is to secure adequate and timely liquidity, thus avoiding the risk that at a late stage funding must be obtained at unfavourable terms. The second pillar is diversification in terms of funding instruments, type of investor and geographic area. SNS Bank can thus opt for the most suitable instrument in various market conditions and depending on its funding requirements and the qualifications required by the Dutch Central Bank. Our customers’ savings play an increasingly important role in the total funding, which limits our dependence on the public money and capital markets. 9.1 FUNDING 2011 SECURED SNS Bank secured its funding until the end of 2011, provided that GRAPH 2: FUNDING INSTRUMENTS AS market conditions are normal. In 2010, a larger part of the funding AT YEAR-END 2010 was obtained through savings compared to 2009, which reduces SNS Bank’s dependence on the capital market conditions. During the 1% financial crisis SNS Bank was forced to contract relatively more short- 8% term loans, thereby weakening the redemption profile. Several sizeable long-term loans contirbuted to a considerable improvement of the 16% redemption profile in 2010. Our refinancing focus is now mainly on 2012 and 2014. In those years the loans under the guarantee scheme of 51% the Ministry of Finance will mature. The Basel III regulations, which will take effect in stages from 2013 to 2018, imply that the banks’ capital buffers must be of higher and better quality. In anticipation of Basel III, 19% SNS Bank adjusted its issue policy in 2010. SNS Bank raised €500 mil- lion with a lower Tier 2 loan under the new Basel III conditions, with 5% no step-up or call option included in the terms. SNS Bank kept the liquidity position at a high level throughout the Retail Funding Medium Term Notes Covered Bonds Government guaranteed year. The liquidity position at year-end 2010 amounted to € 14.5 bil- Securisation Other lion compared to € 13.8 billion at year-end 2009. The cash position also remained high. 9.2 RISK SURCHARGES DOWN At the end of 2009 the risk surcharges for most funding instruments were already down considerably from the levels attained during the financial crisis and mostly remained stable in 2010. In 2010, not a single Dutch bank was forced to issue bonds that were guaranteed by the Ministry of Finance. The surcharges paid by SNS Bank ranged from 70 to 90 basis points (depending on the maturity), or 0.7 to 0.9%, on the issue of covered bonds in September, to 140 basis points, or 1.4%, on the issue of unsecured bonds in January. Although lower than during the crisis, these levels are still well above the levels achieved before the financial crisis, reflecting increased caution among investors and a lower number of market parties, such as the SPV’s used by banks before the financial crisis. Market transparency has increased as a result, which will eventually contribute to improved performance of the international money and capital markets. 9.2.1 Successful issue bonds In early 2010, SNS Bank benefited from positive market conditions with the issue of € 600 million in unsecured bonds with a 3.5-year maturity. In February SNS Bank restructured an existing securitisation dating from September 2007 that was previously included on the balance sheet, placing an amount of € 1.4 billion in Senior Mortgage-Backed Floating Rate Notes with institutional investors. This successful issue of bonds with residential mortgages as collateral signalled increased confidence. At the time of issue, SNS Bank was the second party to succeed in issuing securitised bonds since the financial crisis erupted. On top of this, this loan was the largest of its kind since the financial crisis. SNS BANK Annual Report 2010 35


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    March saw the issue of a € 1.0 billion covered bond with a seven-year maturity. The double coverage associated with this type of bond provides investors with additional security and facilitates a low risk surcharge and a long term to maturity. The double coverage consists of the bank’s own creditworthiness and the mortgage collateral, which is at least equal to the value of the issued loan. 9.2.2 Mortgages with and without guarantee Following this issue, the investment climate changed due to concerns about the high debts of peripheral euro countries, resulting in a rush out of these countries’ sovereign bonds. This development as well as low interest rates in the US suppressed interest rates on sovereign bonds issued by the safe European countries and created the option of issuing the securitised bonds SNS Bank placed in June and July at relatively low interest rates. The increased uncertainty in the market was nevertheless reflected in higher risk surcharges, amounting to 130 basis points (1.3%) for the June 2010 bond loan on the basis of ordinary mortgages and 90 basis points (0.9%) for the July loan on the basis of NHG mortgages. The first bond loan amounted to € 1.5 billion and had a five-year maturity. The second – € 0.6 billion – bond had a five-year maturity as well, but, as required by SNS Bank’s Pearl programme, only contained NHG-guaranteed residential mortgages. In September SNS Bank issued another covered bond, this time in the amount of € 1.0 billion, a ten-year maturity and a risk surcharge of 85 basis points (0.85%). In October SNS Bank issued a lower Tier 2 bond loan in the amount of € 500 million, with a term to maturity of 10 years and a risk surcharge of 360 basis points (3.6%). Especially the issues of the covered bond loans and subordinated loan resulted in a significant increase, thereby improving, the maturity profile of SNS Bank. TABLE 8: BENCHMARK BONDS OUTSTANDING AT YEAR-END 2010 Date € 0.6 billion 3.625% unsecured July 2013 € 1.4 billion RMBS February 2039 € 1.0 billion 3.625% covered bond March 2017 € 1.5 billion RMBS June 2015 € 0.6 billion RMBS Pearl July 2015 € 1.0 billion 3.50% covered bond September 2020 € 0.5 billion 6.25% subordinated debt October 2020 9.3 FEW PRIVATE PLACEMENTS There were only a few direct, private placements with a limited number of institutional investors. Particularly the EMTN (Euro Medium Term Note) programme – which constitutes a framework within which individual bonds are issued – hardly resulted in any placements. Bonds with a value of approximately € 310 million and extremely long terms to maturity were placed under the covered bond programme. SNS Bank has two commercial paper programmes in place – one European and one French programme – each with a maximum volume of € 4 billion. Commercial paper has a maturity of one to twelve months. As SNS Bank does not want to be dependent on short-term money programmes, it again used these programmes only to a very limited extent in 2010. The amount outstanding on the European programme was approximately € 200 million at year-end 2010, whereas funding through the French programme amounted to some € 600 million. All of SNS Bank’s issues in 2010 were benchmark bonds. Issues of liquid benchmark bonds, which can be actively traded on the European exchanges, contribute to a broadening of the investor base. Liquid bonds also make it more attractive for institutional investors to invest in SNS Bank bonds. 9.4 CREDIT RATINGS On 23 February 2010, credit rating agency Moody’s downgraded the rating for SNS Bank by one notch to A3 and maintained its ‘negative outlook’. Believing that SNS Bank’s capital structure and profit capacity were sufficient to absorb the problems at Property Finance, Fitch lifted the rating ‘watch negative’ and replaced it by a ‘negative outlook’ on 12 April. SNS BANK Annual Report 2010 36


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    On 28 May, Standard & Poor’s lowered the credit rating of SNS Bank from ‘stable outlook’ to ‘negative outlook’, as the agency was of the opinion that high credit losses at Property Finance might more than offset any improved operational performance of SNS Retail Bank. The most recent reports by Standard & Poor’s, Moody’s and Fitch can be viewed and downloaded at the Investors section of www.snsreaal.nl . TABLE 9: CREDIT RATINGS S&P Moody’s Fitch Long term A- (negative) A3 (negative) A- (negative) Short term A2 P-2 F2 SNS BANK Annual Report 2010 37


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    Report of the Supervisory Board SNS BANK Annual Report 2010 38


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    10 Report of the Supervisory Board The year 2010 was characterised by the first signs of economic recovery as well as by low interest rates, considerable focus on pensions, euro concerns, changing legislation and regulations and a changing political and regulatory climate. In 2010 the Supervisory Board regularly discussed the way in which SNS Bank was forced to adjust to these ever-changing circumstances. The Supervisory Board is convinced that the choices made in 2010 and the course chosen have geared up SNS Bank to face the challenges it will encounter and to achieve its strategy. SNS Bank is on the right track to regain the trust of customers, investors, employees and other stakeholders, which will continue to be a key issue in 2011. 10.1 THEMES Major themes discussed by the Supervisory Board in 2010 are risk management and risk appetite, investment policy, Property Finance’s strategic position, SNS REAAL’s capital position, including redemption of the support received from the State and Stichting Beheer SNS REAAL, and the implementation of the Banking Code (customer focus, remuneration policy, permanent education). 10.1.1 Collaboration between Committees and the Supervisory Board Given the materiality and complexity of these topics, proper preparations by the various committees before they could commence discussions with the plenary Supervisory Board were especially important. This combined effort undertaken by the Supervisory Board and its Committees was further developed en optimised during the year. In line with this approach, during the year the Supervisory Board also repeatedly discussed its own performance and that of the Committees in particular. In doing so, the overlap of topics discussed in the different Committees and/or the Supervisory Board and the Committees’ composition were examined as well. Based on these evaluations, it was decided to make the Committees smaller. 10.1.2 Collaboration between the Supervisory Board and management Collaboration between the Board and the management was also smooth. In order to obtain internal information, the Supervisory Board benefits from the relationship of trust built with the Executive Board and the management boards of the business units and staff departments. Open and critical debate is not avoided in the pleasant and efficient talks between management and the Supervisory Board. Furthermore, the Supervisory Board is aware that additional information from external experts is indispensable to the proper performance of its supervisory duties. Apart from the regular contact that the Supervisory Board, and particularly the Audit and Risk Committees, maintained with the external auditor and actuary, the Board also talked to external advisors who are engaged in the drafting of the phase-out plans for Property Finance. 10.1.3 Personnel 2010 was not an easy year for many SNS Bank employees, including those employed in the activities that have performed well. The incessantly difficult financial market conditions, cost savings, changes in regulations and increasingly active regulators are all factors that considerably impacted work and performance pressure. Unfortunately, this year, too, many had to find another position, either inside or outside the company. Despite these circumstances, the open and direct culture within SNS Bank remained intact and the employees achieved good results. The Supervisory Board is aware that the good relationship it has with the works councils and trade unions are of the essence, and supports SNS REAAL’s Executive Board in this relationship wherever possible and also keeps in touch with the Central Works Council on its own behalf. This year, too, the Supervisory Board or the appropriate committee regularly assessed HR policy, including Management Development. The Supervisory Board therefore trusts that the SNS Bank employees will continue to build on the execution of SNS Bank’s mission, strategy and core values. 10.1.4 Financial climate The credit crunch and the ensuing developments highly impacted the world in which financial institutions operate. Clients, investors, legislators, regulators and other stakeholders all set requirements with regard to the way in which financial institutions perform their activities. European governmental bodies impose many additional rules, such as Basel III. In the Netherlands, this tendency is expressed in the Banking Code. Following up on the measures initiated in late 2009 and early 2010 in respect of governance and remuneration policy, the Supervisory Board continued in 2010 to implement these recommendations and closely SNS BANK Annual Report 2010 39


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    monitor SNS REAAL’s Executive Board’s activities in this area. This resulted in the first common training session for members of the Supervisory Board and top management, detailed discussions of customers and customer interests, remuneration policy and risk management, and the further expansion of expertise within the Supervisory Board. 10.1.5 Performance of the Supervisory Board The last item was part of the extensive evaluation performed by the Supervisory Board under expert, external supervision in 2010. Further reinforcement of banking and insurance knowledge resulted in the appointment of Piero Overmars in 2010. The effects of the addition to the Supervisory Board and the collaboration between the Board and its committees were also topics of discussion, resulting in a more efficient agenda and smaller committees with improved performance. Finally, within the context of its evaluation the Supervisory Board expressed its preference for ending the situation in which two members of the Supervisory Board are on the board of Stichting Beheer SNS REAAL, the majority shareholder in SNS REAAL. In that light, Bas Kortmann’s retirement on 7 October 2010 was a first step. At the Annual General Meeting of Shareholders of SNS REAAL in April 2011, Henk Muller will retire as well. All members of the Supervisory Board will then be independent within the meaning of the Dutch Corporate Governance Code. An internal assessment of the performance of the Supervisory Board and its committees was commenced at the end of 2010. This evaluation reveals that the members of the Supervisory Board are satisfied with the changes to the composition and procedures of the committees made in 2010, but that the Board size continues to be an issue. The open and critical discussions are appreciated, just like the openness with which the Executive Board provides information. 10.2 COMPOSITION OF THE SUPERVISORY BOARD In October 2010 an Extraordinary General Meeting of Shareholders was held in connection with the retirement of Bas Kortmann as Supervisory Board member and the appointment of Piero Overmars. With the appointment of Piero Overmars, the knowledge and experience in the areas of banking and financial services were further expanded on the Supervisory Board. At the AGM of April 2011, Hans van der Kar and Henk Muller will retire. 10.3 MEETINGS OF THE SUPERVISORY BOARD In 2010 the Supervisory Board convened 9 times: in January, February, March, April, May, August, September, November and December. None of the Supervisory Board members were frequently absent in 2010. 10.3.1 Presence of the Executive Board In principle, the Supervisory Board meets in the presence of the members of SNS REAAL’s Executive Board. In 2010 the Supervisory Board convened twice – in January and March – without the members of the Executive Board. The performance of the Executive Board and its individual members and the performance of the Supervisory Board (evaluation 2009) were discussed at these meetings. The CEO of SNS REAAL attended part of the Supervisory Board meetings in August and December. On those occa- sions, too, the performance of the Executive Board and its individual members and the performance of the Supervisory Board (evaluation 2010) were discussed. 10.3.2 Presence of the external auditor The external auditor was represented when the management letter, the annual report and the results were discussed at the meetings in January, February, March and August. 10.3.3 Main agenda items per month The main topics discussed at the various meetings are listed below. January – Feedback on the previous meetings held by the different Supervisory Board committees, being the Remuneration Committee, the Audit Committee, the Risk Committee and the Nomination Committee – KPMG’s management letter 2009 – Performance of the different Supervisory Board committees, also in relation to the Supervisory Board itself – Summary of reports by investments analysts about SNS REAAL – Group Risk Management’s quarterly report – Performance of SNS REAAL’s Executive Board and its individual members February – Feedback on the previous meetings held by the different Supervisory Board committees, being the Remuneration Committee, the Audit Committee and the Risk Committee – Credit ratings by rating agencies – Annual results, internal management report, audit report, litigation statement and annual report SNS BANK Annual Report 2010 4�


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    – Progress in the execution of the mission Simplicity in Finance – Permanent education of Supervisory Board members within the context of the Banking Code – Performance of the Supervisory Board March – Feedback on the previous meetings held by the Remuneration Committee – Feedback on roadshow for annual results – Status per business unit April – Feedback on the previous Annual General Meeting of Shareholders of SNS REAAL – Variable remuneration of SNS REAAL’s Executive Board May – Feedback on the previous meetings held by the different Supervisory Board committees, being the Audit Committee and the Risk Committee – Status Property Finance – Regulations of the Supervisory Board and its committees – Q1 figures and internal management report – Developments within IT and Human Resources – Presentation by SNS Bank Management Board – Performance of the Supervisory Board August – Feedback on the previous meetings held by the different Supervisory Board committees, being the Remuneration Committee, the Audit Committee and the Risk Committee – Developments in financial markets, including low interest rates, stress tests, activities by the Banking Code Monitoring Committee and the parliamentary inquiry into financial market developments (De Wit Committee) – Status per business unit – Half-year results, internal management report, audit report, interim dividend and litigation statement – Focus on customer interests – Performance of the Supervisory Board and its committees September (strategy session) – Various strategic topics, such as capital position, consolidation, strategy strengthening and Property Finance November – Feedback on the previous meetings held by the different Supervisory Board committees, being the Remuneration Committee, the Audit Committee, the Risk Committee and the Nomination Committee – Status per business unit – Presentation on bank savings – Q3 figures, internal management report – Preliminary discussions for Investor Day of SNS REAAL – Feedback on strategy session December – Feedback on the previous meetings held by the different Supervisory Board committees, being the Remuneration Committee, the Audit Committee, the Risk Committee and the Credit Committee – Status per business unit – Operational plan for 2011-2013, capitalisation, funding and investment plan for 2011 – Presentation on CAR model (Customer-Agreed Remuneration) – Management Letter 2010 KPMG – Performance of SNS REAAL’s Executive Board and its individual members – Performance of the Supervisory Board SNS BANK Annual Report 2010 41


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    10.4 COMMITTEE MEETINGS The Supervisory Board has five committees: the Audit Committee, Credit Committee, Nomination Committee, Risk Committee and Remuneration Committee. Below please find a description of the activities of each committee. More detailed information on the composition of the com- mittees and the regulations of each committee can be found on www.snsreaal.nl . Every committee prepares the decision-making process for the Supervisory Board in respect of the tasks assigned to it and reports to the Supervisory Board. 10.4.1 Audit Committee (AC) The composition of the Audit Committee did not change in 2010. When evaluating the AC’s performance, its relationship with the newly installed Risk Committee received particular attention. The Committee convened seven times in 2010. The AC mainly discussed and assessed the structure and operation of SNS Bank’s financial reporting and the corresponding audits. SNS REAAL’s CEO, CFRO, Group Audit director and Group Finance director and the external auditor attended all meetings. 10.4.2 Credit Committee (CC) Bas Kortmann’s departure reduced the CC’s size, as he was not replaced in the CC. When the CC was evaluated, it was decided to increase the meeting frequency from two to four times a year, effective 2011. The CC meetings will be attended by the Bank COO of the Executive Board. The committee convened twice in 2010. The regular CC meetings discuss the loan proposals exceeding € 100 million. Moreover, the CC is consulted about major loans in writing. 10.4.3 Nomination Committee (NC) The composition of the NC did not change in 2010. This Committee’s meetings are attended by the HR director and the CEO. The committee convened three times in 2010. The NC focuses on the selection and appointment of members of SNS REAAL’s Executive Board and the management boards and examines succession planning. It also prepares the nomination of new members of the Supervisory Board. In 2010 the NC was, among other things, engaged in the change in the Management Board of SNS Retail Bank and the selection of Piero Overmars. 10.4.4 Remuneration Committee (RemunCo) The RemunCo was reduced to three members in 2010. When Bas Kortmann left the company he was not replaced and Henk Muller and Charlotte Insinger retired as members of the RemunCo. The RemunCo meetings are attended by SNS REAAL’s HR Director and CEO, and fairly regularly also by the CFRO. The committee convened six times in 2010. The RemunCo prepares decision-making with regard to the remuneration policy applicable to SNS REAAL’s Executive Board members, senior management, and the remuneration policy principles for other employees. In 2010 the RemunCo held several meetings about the remuneration policy applicable to the Company’s senior management in connection with new European regulations in this area. The Executive Board’s pension scheme was discussed and prepared as well. 10.4.5 Risk Committee (RC) The RC’s composition changed in 2010 as Jos Nijhuis and Ludo Wijngaarden stepped down and Piero Overmars joined the RC. In principle, the RC meetings are attended by SNS REAAL’s CEO, CFRO and Group Audit director. The Group Risk Management director and the director of Compliance, Security and Operational Risk Management also regularly attend the RC meetings. The external auditor is in attendance at least once a year for part of the meeting. The committee convened six times in 2010. The RC is primarily engaged in preparing and monitoring the financial and non-financial risk policies and the operation of the risk management organisation. As stated, the risk management, risk appetite and investment policy required quite some attention from the Supervisory Board – and therefore the RC – in 2010. Consequently, this Committee took a great leap forward right in its first year. SNS BANK Annual Report 2010 42


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    10.5 FINANCIAL STATEMENTS The Supervisory Board discussed the 2010 financial statements at the meetings of February and March 2011. The annual figures were already published in February 2011 and, prior to their publication, discussed at the meeting of February 2011. KPMG, the external auditor, issued an unqualified opinion on the financial statements. The financial statements will be presented to the shareholders on 20 April 2011. 10.6 CLOSING WORDS The Supervisory Board explicitly wishes to express its gratitude and appreciation for the work performed by all employees. This has not always been easy in the economic and financial conditions of 2010 and, therefore, the Supervisory Board does not take this commitment for granted. The Supervisory Board is also very satisfied with and grateful for the collaboration with manage- ment over the past year. Finally, the Supervisory Board wishes to express its gratitude for the work performed by Bas Kortmann, Hans van der Kar and Henk Muller in their many years of service as Supervisory Board members and for the work performed by Renz de Wit during his years as secretary to the Executive Board and the Supervisory Board of SNS REAAL. Utrecht, 7 March 2011 On behalf of the Supervisory Board, Rob Zwartendijk, chairman SNS BANK Annual Report 2010 43


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    Corporate governance SNS BANK Annual Report 2010 44


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    11 Corporate governance In this chapter, the Banking Code is discussed. For discussion of the Frijns Code (applicable to companies listed on the Dutch stock exchange) and the Insurance Code and information on the Executive Board, Supervisory Board, shareholders, shares and core tier 1 capital securities of SNS REAAL, reference is made to SNS REAAL’s Annual Report of 2010. The chapter concludes with the statements required pursuant to the Frijns Code and the law. 11.1 BANKING CODE 11.1.1 Mission, core value and strategy of SNS Bank emphasise Banking Code principles The mission, core value and strategy of SNS Bank confirm the principles of the Banking Code. Right after publication of the report Restoring Trust – the report drawn up by the Maas Committee, which constitutes the basis for the Banking Code – in April 2009, SNS Bank started implementing the recommendations within its organisation where appropriate. 11.1.2 SNS Bank makes a contribution to restore trust in the financial sector The Banking Code is aimed towards restoring trust in the financial sector. Naturally this is also the commitment of SNS Bank. In applying this Code and her mission, core value and strategy, SNS Bank makes a contribution to restore trust in the Dutch financial sector and the improvement of its proper functioning 11.1.3 SNS Bank immediately started applying the Banking Code The Banking Code applies to all of SNS Bank’s activities and came into force on 1 January 2010. Prior to this date, SNS Bank started applying the Banking Code. SNS Bank applies the Banking Code to the extent possible, but continues – together with her employees – to improve its application. This is realised every day with the pursuit of Simplicity in Finance and acting in accordance with the core value CARE! 11.1.4 Application of the Banking Code On the website of SNS REAAL, an up-to-date overview is provided of the manner in which SNS REAAL and its business units implement and apply the recommendations of the Banking Code. 11.1.5 Compliance with the Banking Code SNS Bank applies the Banking Code. This will be improved during 2011 on the following points: – Recommendations 2.1.8 and 3.1.3 (recommendations regarding the availability of a permanent education programme for members of the Supervisory Board and the Executive Board): the members of the Supervisory Board and the Executive Board of SNS REAAL and the management boards of the business units are encouraged to keep their expertise up to date and, if necessary, improve it by participating in internal and external training programmes. This recommendation has been largely met. Several members of the Supervisory Board attended the Banker’s Course during 2010. A programme as prescribed by the Banking Code was being set up in 2010, and will be optimised during 2011. – Recommendation 2.1.9 (the assessment of the effectiveness of permanent education is part of the annual evaluation of the Supervisory Board): as the permanent education programme was under construction in 2010, this programme was limited evaluated. In the 2011 evaluation this will be extended. – Recommendations 6.2.1 and 6.2.2: In 2010 no material retention, exit or welcome packages were granted. The existing policy on such packages will be formalised and included in the amendment of the total remuneration policy. – Recommendation 6.3.3: In light of the CRD III regulation coming into force and related regulations, SNS REAAL is currently adjusting its remuneration policy. 11.1.6 Clients’ interest first The Banking Code recommendations aimed at the culture of SNS Bank, such as putting the client first and safeguarding the interests of all of SNS Bank’s stakeholders concerned (section 3.2 of the Banking Code) are abstract and not specifically worded. Implementation and compliance with these recommendations can – by definition – only be objectively verified to a limited extend. SNS Bank is convinced that these recommendations are embedded in her culture. One of the pillars of SNS Bank’s strategy is putting clients and the interests of clients first, which is rooted in the mission Simplicity in Finance and the core value CARE! The interests of all of SNS Bank’s stakeholders are considered with due care. Putting clients first is part of the assessment of employees, the product approval process (for existing and new products) and business units must report on how they put the interests of clients first. SNS BANK Annual Report 2010 45


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    The implementation of these recommendations from the Banking Code is discussed more elaborate in other sections of this annual report. 11.1.7 Permanent education of the Executive Board and management board Over the past year, members of the Executive Board of SNS REAAL and the management boards of the business units participated in various courses, in-house and externally. SNS REAAL’s company secretary and HR together organise a range of in-house training courses, with HR assisting the members in following external courses. HR keeps track of the members’ attendance of in-house and external courses. The expertise of the members of the Executive Board and the management boards of the business units is part of the assessment procedure. 11.2 MANAGEMENT STATEMENTS The member of the Management Board of SNS Bank state the following: 11.2.1 In-control statement The SNS Bank Management Board states it has reasonable assurance that, structurally, the main risks are recognised and adequately controlled. The basis for this is provided by SNS Bank’s risk management organisation, as described in the chapter on Risk management. The operation of essential control measures is assessed on a regular basis. This process of internal in- control statements and the accompanying evaluation by management has led to the following relevant areas of management attention for SNS Bank as a whole: – In the area of SNS Bank’s capitalisation, the (timely) repayment of the support provided by the Dutch State and the Foundation (via SNS REAAL), the phase-out and restructuring of Property Finance, and management of the consequences of the low interest rates are given priority. – Society is increasingly faced with the threat of cybercrime. SNS Bank is closely monitoring this development and takes the appropriate measures where necessary. – In 2010 SNS Bank further tightened its product management process compared to 2009 as the integrity of financial products will continue to receive public attention. Progress is visible in the area of the active product portfolio. As a result of advice given in the past, changing legislation and regulations and changing public opinion, the non-active product portfolio will also continue to be a point of focus. 11.2.2 Managing financial reporting The financial reporting management and control systems are an integral part of SNS Bank’s overall risk management and control systems. Its key elements in respect of the control of financial reporting are the following: – The Financial Committee, which is responsible for setting policy frameworks as well as outlining the organisation of financial and actuarial administrations and processes. – The business units and staff departments which are responsible for carrying out the work, and thus for an accurate and faithful recording of the transactions and the reporting thereon. – A system of financial key controls within the financial accounting and reporting departments, in order to monitor the sound- ness of financial reporting management and control systems. – The Financial Committee’s assessment of financial accountability partly based on the key controls’ results. After approval by the Executive Board of SNS REAAL, the findings of the financial reporting process together with the financial accountability is discussed in the Audit Committee. – The assessment of this system’s operation performed by the internal and external auditors. The external auditor reports to this extend as part of his audit of the financial statements. The findings are discussed with the Financial Committee, the Executive Board and the Audit Committee. 11.2.3 Transparency statement The members of the Management Board state the following: ‘SNS Bank prepares the consolidated and company financial statements 2010 of SNS Bank NV in accordance with International Financial Reporting Standards (IFRS), as adopted within the European Union (EU) and with Title 9 Book 2 of the Dutch Civil Code. To the best of our knowledge they give a true and fair view of the assets, liabilities, composition of equity, financial position as per 31 December 2010 and financial result of the entity and its consolidated companies. The annual report gives, to the best of our knowledge, a true and fair view of the position as per the balance sheet date and the development during the financial year. The principal risks SNS Bank NV faces are described in the annual report.’ Utrecht, 7 March 2011 Rien Hinssen Henk Kroeze Ference Lamp Dick Okhuijsen SNS BANK Annual Report 2010 46


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    Financial Statements 2010 SNS Bank SNS BANK Financial Statements 2010 47


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    12 Consolidated financial statements SNS BANK Financial Statements 2010 48


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    TABLE 10: CONSOLIDATED BALANCE SHEET In € millions 31-12-2010 31-12-2009 Assets Cash and cash equivalents 1 3,833 2,554 Loans and advances to banks 2 1,681 2,715 Loans and advances to customers 3 65,013 67,479 Derivatives 4 2,317 1,169 Investments 5 4,249 4,517 Investment properties 6 1 1 Property projects 7 467 599 Investments in associates 8 6 33 Property and equipment 9 110 114 Intangible assets 10 164 243 Deferred tax assets 11 267 297 Corporate income tax 12 102 2 Other assets 13 587 528 Assets held for sale 14 121 −− Total assets 78,918 80,251 Equity and liabilities Savings 15 27,398 24,435 Other amounts due to customers 16 10,482 9,835 Amounts due to customers 37,880 34,270 Amounts due to banks 17 3,096 7,119 Debt certificates 18 29,523 30,739 Derivatives 4 2,880 2,247 Deferred tax liabilities 11 323 320 Corporate income tax 12 −− 90 Other liabilities 19 1,317 1,420 Provisions 20 41 53 Participation certificates and subordinated debt 21 2,022 1,559 Share capital 381 381 Other reserves 1,630 1,883 Retained earnings (431) (99) Shareholders’ equity 22 1,580 2,165 Equity attributable to securityholders 22 256 260 Minority interests −− 9 Total equity 1,836 2,434 Total equity and liabilities 78,918 80,251 The references next to the balance sheet items relate to the notes starting on page 105. Some of the comparative figures have been restated for comparison purposes. Reference is made to the notes in subsection 12.3.4 of the accounting principles for the consolidated financial statements. SNS BANK Financial Statements 2010 49

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