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


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    Table of contents 2 Annual Report Report of the Management Board 3 1 Key figures 3 2 Foreword 4 3 Nationalisation of SNS REAAL 8 4 Profile and brands 15 5 Strategy 17 6 Strategy update 21 7 Outlook 2013 26 8 Financial outlines 30 9 Developments SNS Retail Bank 32 10 Developments Property Finance 46 11 Risk and capital management 51 12 Funding and credit ratings 56 13 Our people 59 Report of the Supervisory Board 66 14 Report of the Supervisory Board 66 Corporate governance 68 15 Corporate governance 68 Financial statements 73 16 Consolidated financial statements 73 17 Accounting principles for the consolidated financial statements 83 18 Segmented financial statement 108 19 Acquisitions and disposals 112 20 Risk management and -organisation 113 21 Financial risk management 123 22 Financial instruments and hedge accounting 147 23 Non-financial risk management 155 24 Capital management 157 25 Notes to the consolidated financial statements 162 26 Company financial statements 195 27 Notes to the company financial statements 197 28 Overview of principal subsidiaries 205 29 Other information 206 30 Pillar III 209


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    SNS Bank Annual report 2012 2


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    Report of the Management Board 1 Key figures Key figures In € millions 2012 2011 2010 2009 2008 Balance Sheet Total assets 81,341 81,272 78,918 80,251 76,695 Loans and advances to customers 61,768 64,797 65,013 67,479 65,794 Of which mortgage loans 50,841 52,920 50,888 50,878 48,684 Loans and advances to banks 1,927 1,682 1,681 2,715 2,783 Amounts due to customers 42,344 40,557 37,880 34,270 32,043 Of which savings 32,815 30,342 27,398 24,435 21,859 Amounts due to credit institutions 8,686 4,716 3,096 7,119 6,491 Debt certificates 21,990 27,361 29,523 30,739 30,282 Shareholders' equity 1,337 1,723 1,580 2,165 2,134 Capital base 1,908 2,961 3,694 3,590 3,495 Net interest income 803 803 871 672 773 Other income 124 239 114 426 183 Of which net commission and management fees 54 86 92 99 116 Net result (719) 38 (431) (99) 144 Net result SNS Retail Bank 94 281 139 120 116 Net result Property Finance (813) (243) (643) (219) 28 Ratios Return on shareholders' equity (ROE) (53.8%) 2.2% (27.3%) (4.6%) 6.7% Efficiency ratio 57.4% 49.9% 57.8% 57.0% 62.8% Core Tier 1 ratio 6.1% 9.2% 8.1% 8.3% 8.1% Tier 1 ratio 7.7% 12.2% 10.7% 10.7% 10.5% BIS ratio 9.3% 14.4% 16.7% 13.9% 14.0% Number of branches SNS Bank 162 155 143 133 140 Number of agencies RegioBank 536 529 537 602 672 Number of cash dispensers 519 507 490 516 571 Number of employees (FTE's, average) 2,236 2,426 2,639 3,270 3,212 As of 1 January 2012, the business units SNS Retail Bank and Property Finance have been regrouped. The business segment SNS SME has been reallocated over the business segments Property Finance and SNS Retail Bank Comparative figures are regrouped accordingly. Core Tier 1 ratio, Tier 1 ratio and BIS ratio are calculated based on Basel II, taking into account the 80% floor of Basel I. SNS Bank Annual report 2012 3


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    2 Foreword The period that now lies behind us leaves us with mixed feelings. For, 2012 was a year of contrast for SNS REAAL and thereby its 100% subsidiary SNS Bank NV (SNS Bank). In the first six months, the focus was still on the execution of our strategic priorities. The second half of the year however, SNS REAAL entered into an intensive period of close cooperation with the Dutch Central Bank (DNB) and the Ministry of Finance to arrive at a comprehensive solution for the credit risks of the Property Finance real estate finance portfolio and the capital base of SNS REAAL. In the end, on 1 February 2013, the Dutch Minister of Finance, after consultation with DNB, decided to nationalise SNS REAAL and her 100% subsidiary SNS Bank and expropriate the shareholders of SNS REAAL and the subordinated creditors of SNS REAAL and SNS Bank. The shareholdings of the Foundation SNS REAAL were also expropriated. This was a drastic decision, with far-reaching consequences for society, for our customers and for our shareholders and subordinated creditors. We feel that going forward modesty is a key word for us. In this report we look back on the year that preceded the nationalisation of SNS REAAL and the expropriation of the subordinated creditors of SNS REAAL and SNS Bank. Much of what has happened in 2012 has meanwhile been caught up by the consequences of this nationalisation. A lot has changed for SNS Bank. Still, we think it is relevant to report on last year’s developments. We are, of course, also aware of our responsibility in finding an answer to the question of how the Dutch tax payer will ultimately be compensated for its support of SNS Bank and how SNS Bank can, in turn, make its contribution to society. LOOKING BACK SNS REAAL started 2012 with the continued execution of its strategic priorities: ‘fixing the foundations’ and ‘building for the future’. The first strategic priority, ‘fixing the foundations’, implied the continued run-off of Property Finance’s real estate finance portfolio, while at the same time working on the strengthening of our capital base. Under ‘building for the future’ we grouped our efforts to win, help and retain customers in a cost-efficient manner. In 2012, we succeeded in reducing the commitments of the real estate finance portfolio of Property Finance by € 1.7 billion, representing an 18% decline compared to year-end 2011. In the first half of 2012 this was still accompanied by a strengthening capital base of SNS Bank as a whole, as measured by the core Tier 1 ratio. The run-off of the real estate finance portfolio could, however, not prevent that increasing impairments and losses at Property Finance led to a substantial deterioration of the capital base of SNS Bank in the second half year of 2012. In spite of all the turbulence, our core activities remained focussed on the needs and interests of our customers. We found ways to more adequately measure the needs and satisfaction levels of our clients. We reduced the diversity of products, made improvements to existing products, and simplified product specifications. We also introduced new products that meet higher corporate responsibility standards. With the (re)introduction of the so-called Zilvervloot Sparen savings account at SNS Bank and RegioBank we promoted the value of saving money among tens of thousands of children and adolescents. Another example is SNS Bank’s promotion of ‘Bouwsparen’ (a sustainable form of home financing, whereby saving precedes borrowing) in response to the public and political discussion regarding the Dutch housing market. In 2012, operating expenses of our activities increased with 4%. However, adjusted for one-off items, we succeeded in further reducing our cost base, by 10%, through employing staff more efficiently, standardisation and alignment of IT systems and sharper procurement. In the second half of 2012, market conditions worsened considerably. Rising unemployment levels, combined with more stringent lending conditions for mortgages, resulted in a weakening housing market. Moreover, the implementation of more prudent risk-assessment models at SNS Bank led to higher risk-weightings for retail mortgages. Commercial real estate markets also worsened and losses at Property Finance subsequently increased, putting pressure on the core Tier 1 ratio of SNS Bank. It became increasingly clear that SNS REAAL would be unable to repay the capital support, obtained from the Dutch State at the end of 2008, before year-end 2013 without creating an unacceptable capital shortage. Although SNS REAAL had explored and discussed alternative scenarios at earlier stages, this meant that it became more and more urgent to find a comprehensive solution to reinforce SNS REAAL’s capital base, and for Property Finance’s real estate finance portfolio. Also, in May 2012, DNB had prescribed SNS REAAL to continue its efforts to strengthen its capital base and to run off the non-core portfolio of Property Finance. Thus, in July 2012, SNS Bank Annual report 2012 4


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    SNS REAAL informed financial markets that SNS REAAL was examining different scenarios. This examination was done in consultation with DNB, the Ministry of Finance and our external auditor. We reviewed a broad range of scenarios aimed at the strengthening and simplification of the capital base, as well as strategic restructuring scenarios, including the sale of parts of the company. In the process, the interests of all stakeholders were continuously taken into account. As the second half of 2012 progressed, the urgency to find a comprehensive solution increased. In November 2012, SNS REAAL restated that its previously announced review of strategic restructuring and capital enhancement and simplification measures was ongoing. In response to public speculation on the future of SNS REAAL, retail savings balances became more volatile, although on balance they were flat in the second half year. In January 2013 however, the outflow of savings increased. SNS Bank ended the year 2012 with a net loss of € 719 million. This included a net loss of Property Finance of € 813 million, driven by sharply higher impairments. In January 2013, SNS REAAL again informed financial markets that its efforts were still focused on finding a comprehensive solution, including a reduction of credit losses at Property Finance. It was also explained that in all scenario's estimates of parties concerned on future losses at Property Finance played an important role. In the same month, DNB concluded in the so-called SREP (Supervisory Review and Evaluation Process) letter, that SNS Bank had a capital deficit. DNB requested a remedy for this deficit by 31 January, or to ensure through a plan to be submitted by the same date that this deficit would be remedied in the short term. Following months of intensive cooperation with all parties involved, SNS REAAL submitted a public-private proposal to DNB on 31 January 2013. In the media, this proposal was called the CVC scenario. This scenario included a capital injection by private parties, giving current shareholders the possibility to participate, burden-sharing by shareholders and subordinated creditors, and a contribution from the Dutch State in the form of a conversion of capital support provided in 2008, a capital injection and a guarantee for the funding of the Property Finance real estate finance portfolio following the separation of this portfolio from SNS REAAL. However, the Minister of Finance considered that the Dutch State had to make a disproportionately large contribution and the viability and financing were not ensured. Consequently, it was concluded that this scenario offered insufficient certainty to remedy the capital deficit of SNS Bank in the short term. Based on this conclusion, the Minister of Finance nationalised SNS REAAL on 1 February 2013, expropriating the shareholders of SNS REAAL as well as the subordinate creditors of SNS REAAL and SNS Bank. CORE ACTIVITIES IN 2012 SNS Retail Bank posted a sharply lower profit excluding one-off items of € 130 million in 2012, in part due to lower gains on the buy-back of own debt and higher impairments on loans, reflecting the weak housing market and rising unemployment rates in the Netherlands. One-off items of € 36 million, mainly consisting of a restructuring charge, limited net profit to € 94 million. The efficiency ratio increased from 48% in 2011 to 57% in 2012, due mainly to the lower buy-back results, pressure on commission income and the restructuring charge. Although as a result of the media attention for SNS Bank the inflow and outflow of retail savings balances became more volatile in the second half of 2012, retail savings did in fact increase by € 2.5 billion for the full year. NATIONALISATION The nationalisation encompasses the recapitalisation of SNS Bank, as well as the isolation of the Property Finance real estate finance portfolio in a separate asset management organisation. This will take place through the transfer of Property Finance. The recapitalisation consists of a € 2.2 billion capital injection by the Dutch State in SNS REAAL and the expropriation of subordinated debt totalling € 1 billion of SNS REAAL and SNS Bank. Moreover, the Dutch State provided a bridge loan to SNS REAAL of € 1.1 billion to redeem senior debt and internal loans. SNS REAAL recapitalised SNS Bank subsequently. The recapitalisation consists of 1.9 billion capital injection and the expropriation of subordinated debt totalling € 780 million of SNS Bank. The transfer of Property Finance to a separate asset management organisation involves € 8.5 billion of gross real estate loans and € 0.5 billion of property assets as per 30 June 2012 (€ 8.3 billion total net exposure after the deduction of loan loss provisions). The bulk of this (over 75%) relates to the Netherlands. As part of the transfer, a write-off of € 2.8 billion is required on the total assets of Property Finance as per 30 June 2012. This € 2.8 billion write-off has been determined SNS Bank Annual report 2012 5


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    by the Dutch State. Therefore, in addition to the € 0.8 billion of impairments at Property Finance in the second half of 2012, an additional provision of € 2.0 billion is taken in the first quarter of 2013. After the additional provisioning, the net exposure of the real estate finance portfolio will amount to € 5 billion. SNS Bank will continue the funding of, this portfolio, also after the intended transfer. The Dutch State intends to provide a guarantee of approximately € 5 billion for the funding of Property Finance. As soon as the guarantee has been obtained, combined with the transfer, SNS Bank will not bear the credit risk on an equivalent amount of funding. Consequently it will not carry the related risk-weighted assets in its capital ratios anymore. In addition, the Dutch State intends to capitalise the asset management organisation. The above-described structure concerning Property Finance (the separation, the guarantee on the funding and the capitalisation of the asset management organisation) is subject to the approval of the European Commission. Taking into account the impact of all the nationalisation measures, the pro forma core Tier 1 ratio of SNS Bank shows a strong improvement. The pro forma core Tier 1 ratio of SNS Bank improves to 14.9%, compared to 6.1% at year-end 2012. OUTLOOK SNS Retail Bank had a good start of the year. For the first quarter of 2013, SNS Retail Bank reported a net profit of € 107 million, including a one-off positive impact from nationalisation measures of € 24 million. Adjusted for one-off items and nationalisation measures, net profit of the activities for the first quarter was € 83 million, compared to € 32 million for the first quarter of 2012. Property Finance reported a net loss of € 1.8 billion for the first quarter of 2013, due to a € 1.8 billion net impact of the € 2 billion provision for the real estate finance portfolio. With this provision, the net exposure has been brought in line with the transfer value as determined by the Dutch State and communicated in a letter from the Dutch Minister of Finance to Parliament. Due to the considerable first quarter loss at Property Finance, SNS Bank will also report a loss for the year 2013 as a whole. In spite of a further weakening of the Dutch housing market, we expect SNS Retail Bank to continue to report satisfactory results in the coming quarters. At the end of the first quarter of 2013, the factual core Tier 1 ratio of SNS Bank had improved to 11.5%, due mainly to the impact of the nationalisation measures that had already been executed in this quarter. The remaining difference between the factual and the (higher) pro forma core Tier 1 ratio of SNS Bank is mainly due to the impact on risk-weighted assets of SNS Bank related to the intended transfer of Property Finance. On 22 February 2013, the European Commission (EC) granted temporary approval for the rescue aid by the Dutch State to SNS REAAL, with the exception of the Property Finance measures for which approval was not requested. The EC's temporary approval is conditional on the presentation by the Dutch Ministry of Finance of a restructuring plan within six months from that date and covers all aid measures, including the intended Property Finance aid measures. The EC will take a final decision on the rescue aid on the basis of this plan. The restructuring plan will be drawn up in close consultation between the Ministry of Finance and SNS REAAL. Recognizing market trends and SNS REAAL’s specific characteristics, this plan will provide the framework for SNS Bank’s future. We intend to provide more clarity on this plan in the course of the year. The legal and financial implementation of the (consequences) of the nationalisation and the preparations for the isolation of the Property Finance portfolio are important steps towards a return of stabilisation for SNS Bank. RESPONSIBILITY The nationalisation of SNS REAAL has far-reaching consequences for society, for the shareholders of SNS REAAL and subordinated creditors, our customers and our organisation, including our staff. We have a responsibility to these parties. Even though this responsibility varies per group, SNS Bank will give meaning to this responsibility to the best of its ability. By pursuing transparency, simplicity and sustainability, or, in other words: by conducting business in a responsible way, in the broadest sense of the word. With our mission of Simplicity in finance and our core value of CARE!, we continue to strive to represent the interests of society, our customers, each other and the result as best as we can. SNS Bank Annual report 2012 6


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    In this effort, SNS Bank will take its responsibility to restore confidence in its own organisation and contribute to restoring confidence in the financial services industry as a whole. The starting point in this endeavour is the integrity and professionalism of our employees. During 2012, doubts have arisen about the integrity of some of our employees at Property Finance. We deeply regret the integrity issues. We do not tolerate norm-exceeding behaviour and, therefore, took corrective measures and started investigations. This integrity incident does, however, mean that we must work even harder to prove that society and our (prospective) customers can entrust us with their financial future. Moreover, putting customers’ interests first should always be paramount in our products, services and processes. As Management Board, we are convinced there is room in the Dutch financial services sector for a player that supports the Dutch economy with a human touch, offers transparent, simple and fairly priced products, is clear and realistic about expected returns and that delivers on promises. In its 200 years of history, SNS Bank has taken its responsibility in our society. We will strive to continue to do so, especially in the new reality in which we find ourselves. Simplicity, transparency and sustainability remain paramount in this effort. Dick Okhuijsen SNS Bank Annual report 2012 7


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    3 Nationalisation of SNS REAAL 3.1 Nationalisation In January 2013, De Nederlandsche Bank (DNB) informed SNS REAAL, being the holding company of SNS Bank of its conclusion that SNS Bank’s capital base was inadequate to guarantee controlled coverage of the company’s current and possible future risks. SNS Bank was obliged to present DNB with a final solution by 31 January 2013. DNB required a solution that would provide sufficient assurance of success and supplement the capital deficit in the short term. In DNB’s opinion SNS REAAL’s proposal offered insufficient certainty that said capital deficit could be supplemented in the short term. DNB subsequently informed the Ministry of Finance that it no longer considered it justified that SNS Bank should continue to carry out its banking operations. On 1 February 2013 the Minister of Finance decreed on the basis of Articles 6:2 and 6:4 of the Financial Supervision Act to expropriate: • all issued shares in the share capital of SNS REAAL NV • all Stichting Beheer SNS REAAL core Tier 1 capital securities issued by SNS REAAL NV (Stichting securities) • all subordinated bonds of SNS REAAL NV and SNS Bank NV • subordinated private debts of SNS REAAL NV and SNS Bank NV In arriving at his decision the Minister set out that he is of the opinion that the stability of the financial system had been placed at serious and imminent risk due to the situation in which SNS REAAL found itself prior to 1 February 2013. SNS REAAL is aware that the decision to expropriate has a profound impact on society, customers, investors and employees. All shares, Stichting securities and subordinated bonds have been expropriated for the benefit of the Dutch State. The expropriation of subordinated private debts has been effected by expropriating the corresponding debts relating to passive capital components of SNS REAAL NV and SNS Bank for the benefit of Stichting Afwikkeling Onderhandse Schulden SNS REAAL (Private Debt Settlement Foundation SNS REAAL). In the decree the Minister indicated that the capital components of the subordinated private debts had been expropriated on behalf of a separate entity (Foundation) in order to avoid these debts being transferred to the Dutch State. The Foundation is responsible for handling the settlement of these matters (most likely by filing for bankruptcy, according to the decree). In line with urgent provisions under Article 6:1 of the Financial Supervision Act, SNS REAAL has been appointed as sole director of the Foundation. The decree concerning expropriation came into effect at 08.30 hrs on 1 February 2013. At this moment the expropriated securities and capital components were legally transferred, respectively, to the Dutch State and to the Private Debt Settlement Foundation SNS REAAL. Two directors of the Executive Board of SNS REAAL, Ronald Latenstein (CEO of SNS REAAL) and Ference Lamp (CFRO of SNS REAAL and also member of the board at SNS Bank) and the Chairman of the Supervisory Board of SNS REAAL and SNS Bank, Rob Zwartendijk, resigned from their positions on 1 February 2013. As of 4 February, the following directors, nominated and appointed by the Dutch State, entered office: Gerard van Olphen as Chairman of the Executive Board of SNS REAAL and Maurice Oostendorp as CFRO of SNS REAAL. Maurice Oostendorp also became member of the Management Board at SNS Bank on 26 April 2013. For the time being, the Vice Chairman of the Supervisory Board, Piero Overmars, has taken on the role of Chairman of the Supervisory Board of SNS REAAL and SNS Bank. SNS Bank Annual report 2012 8


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    In addition to the aforementioned expropriation of the shares, securities, subordinated bonds and private debts, the Minister also decided on the following measures. The financial impact of these measures for SNS Bank NV is explained in section 3.2 Pro forma figures. • Transferring Property Finance to a separate asset management organisation in combination with a State guarantee of around € 5 billion on the temporary loan that SNS Bank will provide to this asset management organisation. • The conversion of core Tier 1 securities issued to the State and the Stichting Beheer into share premium on ordinary shares SNS REAAL. • The expropriation and conversion into equity of subordinated debt of SNS Bank NV and SNS REAAL NV. • A paid-in share premium of € 2.2 billion by the Dutch State in SNS REAAL, € 1.9 billion of which has subsequently been passed through as share premium to SNS Bank. • A bridge loan of € 1.1 billion granted to SNS REAAL. • A release of around € 5.5 billion in risk-weighted assets as a result of the transfer of Property Finance activities to a new, to be established asset management organisation. • SNS Bank’s contribution to the Resolution levy imposed by the Minister. In a decision taken on 22 February 2013 the European Commission provisionally approved the capital injection of € 2.2 billion in SNS REAAL, € 1.9 billion of which SNS REAAL will pass through to SNS Bank, and a bridge loan from the Dutch State to SNS REAAL of € 1.1 billion. The approval remains valid until the European Commission is in a position to make a final decision based on a restructuring plan that the Ministry of Finance is required to have presented on 22 August 2013 at the latest. Under the terms of the decision on 22 February 2013 SNS REAAL and its subsidiaries are prohibited from making any acquisitions (‘acquisition ban’) and payments on hybrid instruments (‘hybrid debt call and coupon ban’). The objective of the restructuring plan to be presented to the European Commission by the Ministry of Finance is to restore the financial stability of SNS REAAL and its subsidiaries and to prevent a future recurrence. It is possible that, after having reviewed the restructuring plan, the European Commission may decide that, as a consequence of State aid, additional measures and/or sanctions are required to counteract unintended distortions in competition. These possible measures and/or sanctions may have an impact on the future strategic positioning of SNS REAAL and SNS Bank. The following sections elaborate on specific aspects of the nationalisation. 3.1.1 Council of State A considerable number of interested parties lodged appeals against the decision with the Administrative Jurisdiction Division of the Dutch Council of State. On 25 February 2013 the Council of State declared the appeals to be largely unfounded and allowed the expropriation legally in expropriating the securities and capital components. This was not the case concerning the related obligations or liabilities of SNS REAAL NV and SNS Bank in respect of expropriated parties insofar as these obligations or liabilities concerned the (former) ownership of the securities referred to. Therefore, any such claims can still be made against SNS REAAL NV and/or SNS Bank NV respectively. 3.1.2 Enterprise Court The holders of the securities and capital components, mentioned above, have a right to compensation at the level of their actual value. The level of compensation is to be established by the Enterprise Court of the Amsterdam Court of Appeal. The Minister’s current offer is compensation of € 0. The Minister’s petition to set compensation at € 0 is under consideration by the Enterprise Court. In the event that the Enterprise Court rules that compensation is due, this will be paid by the Dutch State. This therefore has no consequences for either SNS REAAL NV or SNS Bank NV. SNS Bank Annual report 2012 9


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    3.1.3 Legal procedures It is possible that the original holders of the expropriated securities and capital components may initiate legal proceedings to seek compensation for damages. Currently, it is impossible to make any estimate of the chances that possible legal proceedings may result in liability or the level of financial impact on SNS REAAL NV or SNS Bank NV. For this reason, no provisions have been made in respect of possible legal actions by holders concerning the expropriated securities and capital components. As the outcomes of possible legal proceedings can not be predicted, it is not possible to rule out that a negative outcome may have a material negative financial impact on SNS REAAL NV or SNS Bank NV. 3.1.4 Participation certificates Among the subordinated debts of SNS Bank expropriated by the State are so-called third series participation certificates. The Minister has requested the new management to conduct a fact-finding exercise to ascertain whether there have been irregularities in the offer of and/or advice concerning these certificates in the past, and, if required, for the management to draw up a proposal for compensating those affected. SNS Bank is currently investigating this matter with the aim of clarifying the situation for holders of participation certificates as soon as possible. 3.2 Pro forma figures This section explores the financial implications for SNS Bank following the nationalisation of SNS REAAL. The following pro forma balance sheet provides an insight into the most important financial effects of the nationalisation and the implementation of certain additional steps announced by the Minister in a letter addressed to the Chairman of the House of Representatives of the Dutch Parliament on 1 February 2013. The pro forma balance sheet has been prepared based solely on announced events or actions that influenced the balance as of 31 December 2012 in order to illustrate the overall impact of subsequent steps in the nationalisation. The steps reflected in the pro forma balance sheet do not in all cases represent historic actual transactions. A number of steps are yet to be implemented. Actual performance may therefore differ, for instance as a result of the European Commission response to the restructuring plan, which may influence the presented pro forma figures. The following factors are set out by column in the pro forma balance sheet and are further explained in the following sections: • The write-off of the real estate finance portfolio to the value as determined by the Minister upon transfer of Property Finance to an asset management organisation. The loss on the real estate finance portfolio on separation is € 2.8 billion compared to the book value of June 2012 (refer to section 3.2.1.1). Of this amount, € 776 million is recognised in the second half of 2012. For the remaining loss, a provision of € 2.0 billion has been made in the first quarter of 2013. This provision will lead to a decrease in the risk-weighted assets of SNS Bank as per 1 February 2013, after which the remaining risk-weighted assets will be released at the external transfer of the portfolio (refer to 3.2.1.4). • The expropriation of and conversion into equity of the subordinated debt of SNS Bank NV and incorporation into equity of the results from the reduction of derivatives relating to the expropriated items. • A paid-in share premium of € 2.2 billion by the Dutch State in SNS REAAL, € 1.9 billion of which has passed through as share premium to SNS Bank. • The release of around € 5.5 billion in risk-weighted assets by transferring the activities of Property Finance to a new, to be established asset management organisation in combination with the government guarantee of around € 5 billion for the temporary loan that SNS Bank will provide to this asset management organisation. • The contribution by SNS Bank to the Resolution levy imposed by the Minister. • An estimation of the deferred tax asset resulting from the impairments of Property Finance and the conversion into equity of subordinated debts. SNS Bank Annual report 2012 10


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    3.2.1 Pro forma balance sheet SNS Bank consolidated financial statements Table 2: Pro Forma balance sheet SNS Bank NV after nationalisation In € millions 31-12-2012 PF held for Balance Expropriation of Capital Demerging PF Resolution Pro Forma sale sheet after subordinated injection levy Balance PF at held for debts sheet sale Assets Cash and cash equivalents 6,933 - 6,933 - 1,900 (24) - 8,809 Loans and advances to banks 1,927 - 1,927 - - 4,930 - 6,857 Loans and advances to 61,768 (1,906) 59,862 - - (4,699) - 55,163 customers Property projects 416 (118) 298 - - (298) - - Deferred tax assets 337 233 570 - - (8) - 562 Other assets 9,960 9,960 - - (209) - 9,751 Total assets 81,341 (1,791) 79,550 - 1,900 (308) - 81,142 Equity and liabilities Other liabilities 79,184 79,184 89 - (308) 70 79,035 Participation certificates and 820 - 820 (780) - - - 40 subordinated debt Shareholders' equity 1,337 (1,791) (454) 691 1,900 - (70) 2,067 Total equity 1,337 (1,791) (454) 691 1,900 - (70) 2,067 Total equity and liabilities 81,341 (1,791) 79,550 - 1,900 (308) - 81,142 Core Tier 1 ratio 6.1% (2.9%) 14.9% RWA SNS Bank 20,592 (2,024) 18,568 (5,487) 13,081 3.2.1.1 Property Finance at held for sale The pro forma balance sheet shows the impact of the intended transfer of Property Finance to the asset management organisation. Property Finance is to be separated at a value considerably lower than its book value. Around € 2.8 billion of the total assets of Property Finance are to be written off compared to the book value as of 30 June 2012. The Minister of Finance decided on this write-down. The pro forma figures recognise a gross figure for the write-down of Property Finance amounting to € 2,024 million (€ 1,791 million net). The figure is derived from the total write-down of € 2.8 billion, compared to the book value at 30 June 2012, minus the sum of € 776 million in impairment charges taken in the second half of 2012. Part of the write-down is tax deductible (refer to section 3.2.1.6 for an explanation). The explanation that accompanied the decision to nationalise the company indicated that Property Finance’s property projects have a value of between € 185 million and € 265 million. The pro forma balance sheet therefore includes an impairment charge on the value of property projects to an average value of € 225 million, analogous to the total write-down on Property Finance as a whole based on the average outcome. The portfolio of property projects has increased as a result of foreclosures in the second half of 2012. The average transfer value, taking into account this increase is € 298 million as of 31 December 2012. It is estimated that the write-off recognised in the pro forma balance sheet of € 2,024 million is for around € 1,906 million attributable to the property finance loans provided by Property Finance and for around € 118 million on property projects. In respect of the write-off shown in the pro forma balance sheet a provision has been charged to the result for the first quarter of 2013 because the ministerial decision has effectively created an obligation to transfer Property Finance at the value set. In the valuation of the real estate loan portfolio of Property Finance, there are considerable differences between the transfer value at split off from SNS REAAL, the fair value recognised in section 22.1 and the balance sheet valuation as per 31 December 2012. The balance sheet valuation of the property finance loans is € 6,605 million and has, in accordance with accounting rules, an amortised cost basis. Provisions are only made for this after a downward adjustment of the expected cash flows resulting from an actual loss event on the balance sheet date. This means that the provisions relate only to the items that have been determined to be in default as a result of these events and on which a loss has been incurred. To determine the amount of the provision, the expected cash flows are discounted against the original effective interest rate of the item SNS Bank Annual report 2012 11


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    in question. Thus, discounting the cash flows takes place at an interest rate agreed with the customer at the time the loan was taken out. Losses arising from expected future developments or events no matter how likely are not recognised (expected loss). The fair value of the property finance loans is recognised in the financial statements in section 22.1. The preparation in section 22.1 applies only to the fair value of financial instruments and therefore does include the fair value of the property finance loans, but not the property projects. The fair value is based on the market price, defined as the price established between knowledgeable, willing parties in an arm’s length transaction (no forced transactions). At this time there is no active market for real estate financing and reference prices (derived from comparable transactions) are therefore not available. Management has ruled that the outcome of the internal study into the expected shortfall of the loans is the best estimate for the fair value. This study is based on the run-off strategy used by Property Finance based on value maximisation without time pressure on the run-off. Reference transactions perceptible in the market are taken into account as much as possible in the valuation. Unlike the balance sheet valuation, the study took into account the expected losses on items that were not (yet) in default on 31 December 2012. The discount rate at which the cash flows were discounted also includes surcharges based on the market rate on top of the original effective interest rate to express the increased risk compared to the origination date. Three scenarios (positive, neutral and negative) were calculated for the benefit of the internal study into the value of the portfolio. The outcome based on the neutral scenario has been recognised as fair value. The transfer price at which the real estate finance portfolio will be split off is based on the decision by the Minister subsequent to a study commissioned by him. 3.2.1.2 Expropriation of subordinated bonds and private debts Subordinated bonds The Dutch State injected all expropriated subordinated bonds of SNS REAAL and SNS Bank into SNS REAAL in the form of a share premium, with economic effect from 1 February 2013. Subsequently, with economic effect on the same date, SNS REAAL transferred the expropriated subordinated bonds issued by SNS Bank to SNS Bank in the form of a share premium. The debt instruments shall terminate pursuant to amalgamation, including all ensuing payment obligations to the State. The financial reporting follows accordingly. The value of the expropriated subordinated bonds has been incorporated as equity, for the most part not subject to taxation. The results arising from unwinding hedges relating to the expropriated items, has been incorporated as equity, as a taxable result. Subordinated private debts Subordinated private debts have been expropriated. The passive capital components of SNS Bank corresponding to these debts have also been expropriated on behalf of Stichting Afwikkeling Onderhandse Schulden SNS REAAL. The subsequent release in the balance sheet has been added to the equity as a taxable result. The pro forma balance sheet does not take into account the increase in interest on the expropriated subordinated loans over the period between 31 December 2012 and 25 February 2013 being the date on which the Council of State came to the conclusion that the capital components were lawfully expropriated. The tax effects arising from the expropriation of the subordinated private debts has been taken into account. Although SNS REAAL has been appointed director of the Stichting Afwikkeling Onderhandse schulden SNS REAAL, it is for the time being assumed that, in view of the limited directors’ liability risk, this Foundation is not consolidated in the financial results of SNS REAAL. This is because the only aim of the Foundation is to execute the objective of the Dutch State to reinforce the capital position of SNS REAAL and SNS Bank with the expropriation. SNS Bank Annual report 2012 12


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    3.2.1.3 Capital injection In his letter to the Second Chamber of Parliament, the Minister explained that SNS REAAL requires a capital injection totalling € 2.2 billion, comprising € 1.9 billion for SNS Bank en € 300 million for SNS REAAL NV. A € 2.2 billion paid-in share premium to SNS REAAL NV was made on 11 March 2013. SNS REAAL paid-in the sum of € 1.9 billion as a share premium into SNS Bank on the same day. 3.2.1.4 Demerging Property Finance The Minister’s letter to Parliament announces the intention of Property Finance being transferred in a separate asset management organisation. The Minister has indicated that to ensure the credibility of this solution it is necessary for the asset management organisation to function entirely independently of SNS Bank and SNS REAAL, both financially and operationally. In addition, the Minister has stated that DNB foresees that establishing the asset management organisation will require € 0.5 billion in equity for operational costs at inception and as a buffer for unexpected developments. This would be injected by the State. The receipt of € 0.5 billion in equity is not included in the pro forma balance sheet because the asset management organisation is no longer part of SNS Bank and SNS REAAL. The Minister has also stated that the State has the intention to provide a guarantee for the financing of the asset management organisation of around € 5 billion. Initially, the funding of the asset management organisation will largely continue to be provided by SNS Bank so that SNS Bank retains a share of the credit risk of the portfolio. A State guarantee will subsequently cover the risk for this amount. The aim is to gradually replace this financing with that from third parties. The preparations for establishing the asset management organisation are underway. The table below outlines the effect of demerging Property Finance from SNS REAAL’s and SNS Bank’s financial results. The first column shows the balance sheet of the Property Finance segment. This corresponds to the balance sheet of the legal entity SNS Property Finance BV. In the second column the effects of reclassification and settlements of balance sheet items between group components are included as well as the reversal of eliminations. The largest elimination item for the purpose of consolidation is the offset of the intercompany debt of Property Finance against SNS Bank’s intercompany claim. The column ‘PF Held for Sale’ shows the loss booked on the transfer of Property Finance’s portfolio as outlined in section 3.2.1.1. The deferred tax asset as a result of the split off is recognised by the entity SNS Bank, part of the fiscal unity SNS REAAL. Within the fiscal unity SNS REAAL the deferred tax asset can be offset against future gains. The write down on the portfolio results in the entity Property Finance displaying strongly negative equity. Prior to the separation of Property Finance the negative net asset value will be strengthened, and the intercompany funding provided to Property Finance will be written off. The column 'Demerging PF' shows that after demerging there is an amount of nearly € 5.0 billion for the item 'Loans and advances to banks'. This is the outstanding loan provided by SNS Bank to Property Finance after demerging. The total amount Property Finance needs for funding after demerging is around € 5.1 billion. The difference is caused by the loans that Property Finance has at other banks (€ 170 million) which are presented under the column 'Loans and advances to banks'. SNS Bank Annual report 2012 13


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    Table 1B: Explanation column demerging PF In € millions Segment PF Reclassification PF Held for sale Strengthening Demerging PF 31-12-2012 Equity PF Assets Deferred tax assets (8) - - - (8) Property projects (416) - 118 - (298) Loans and advances to customers (6,605) - 1,906 - (4,699) Loans and advances to banks (10) 7,376 - (2,436) 4,930 Cash and cash equivalents (203) 179 - - (24) Other assets (608) 399 - - (209) Total assets (7,850) 7,954 2,024 (2,436) (308) Equity and liabilities Shareholders' equity 412 - 2,024 (2,436) - Total equity 412 - 2,024 (2,436) - Participation certificates and subordinated debt - - - - - Debt certificates - - - - - Amounts due to banks (8,124) 7,954 - - (170) Other liabilities (138) - - - (138) Total equity and liabilities (7,850) 7,954 2,024 (2,436) (308) 3.2.1.5 Contribution to resolution levy The Minister has requested all banks for a contribution in the form of a one-off Resolution levy. SNS Bank’s contribution is estimated to be € 70 million and is included under Other liabilities. It is anticipated that this will fall due in 2014 and will be charged against the results in that year. 3.2.1.6 Impact corporation tax Measures to be implemented in relation to nationalisation have an influence on the level of corporation tax to be received and paid. Quantification of the impact on the tax position, as presented in the pro forma balance sheet, is based on certain provisional assumptions which are explained in the sections below. The overall impact will be determined in consultation with the Dutch tax authority. The management of SNS Bank believes that the assumptions are correct estimates that adequately reflect the risks and uncertainties. Tax claim due to loss on Property Finance It is estimated that € 934 million of the (gross) write-down on Property Finance of € 2,024 million (refer to explanation in section 3.2.1.1) is tax deductable. The deferred tax asset of € 233 million arising from this (25% x € 934 million) is included in its entirety in the pro forma balance sheet, based on the presumption of there being adequate future taxable profits to realize the associated deferred tax asset. In concluding this, account has been taken of assumptions about future profits as well as uncertainties concerning the future composition of the fiscal unity group of SNS REAAL. Tax impact on expropriation of subordinated debts It is estimated that the capital gains resulting from the expropriated subordinated bonds will largely not be subject to corporation tax. The calculated profit to be processed in 2013 arising from expropriated subordinated loans is fully subject to corporation tax. Taking into account provisions, the taxable profit on the settlement of hedges related to the expropriated bonds there is a net increase in equity of SNS Bank of € 691 million. SNS Bank Annual report 2012 14


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    4 Profile and brands SNS Bank NV (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 € 81.3 billion and 2,236 employees (FTEs), which makes it a major player in the Dutch market. SNS Bank NV has its head office in Utrecht. 4.1 General 4.1.1 Rooted in society SNS Bank is strongly rooted in Dutch society. SNS Bank dates back 200 years when the first savings banks with a public utility function were founded. 4.1.2 Simplicity in finance SNS Bank aims to make banking business simple, understandable and transparent. We do this by actively engaging our customers in developing our products and services. But also with the assistance of committed employees, who believe in these products and services. 4.1.3 Customer focus We work hard to earn our customers, who encompass both private individuals and business customers. By providing a sound service, we favour an optimal relationship with each and every customer - a service that is accessible and fairly priced. Every SNS Bank brand gives shape to this in its own way. We ultimately aim for sustainable relationships with our customers but also with society. 4.2 Our brands There is no such thing as the average customer. Everyone has different desires, needs and preferences. And we want to serve our customers in the way that suits them best. That is why, instead of one brand for all customers, we have opted for different brands that each serve their customers in the way that suits them. Each brand has its own way of working, image, mentality and products, from savings and investments. For example, SNS Bank customers can go to more than 200 shops, ASN Bank is a full online bank, clients choose the coverage that best suits their needs and RegioBank works with personal advisors. 4.2.1 SNS Bank SNS Bank was founded in 1817 with a view to increasing people's financial independence. This assignment and challenge is just as relevant today as it was back then. As a broad, accessible bank for consumers and the small business market, we allow our customers to choose for themselves how they manage their banking business: via the website, over the telephone, with a financial advisor at home or at one of the 200 SNS Shops or via the mobile channel. Products: payments, savings, mortgages, insurance, loans, investments and bank savings. www.snsbank.nl SNS Bank Annual report 2012 15


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    4.2.2 ASN Bank ASN Bank has been one of the leading banks in sustainable banking in the Netherlands for 50 years. Money is invested in projects and companies that respect people, animals and the environment. ASN Bank aims to demonstrate that sustainable banking goes perfectly hand-in-hand with market-based results. Products: savings, payments, investments and asset management. www.asn.nl 4.2.3 RegioBank RegioBank is the SNS Bank regional bank formula to which some 535 independent advisors are affiliated. RegioBank is the local bank without the fuss or hassle. With great personal attention, a sense of service and a full range of banking products all under one roof. Products: mortgages, savings, payments, loans and investments. www.regiobank.nl 4.2.4 BLG Wonen BLG Wonen is a financial services provider whose aim is to allow its customers to live as comfortable as possible. Carefree home ownership makes you feel at home. Now and in the future. We achieve this by making our customers’ living wishes come true via transparent services and professional, personal advice from the best independent advisors. Products: mortgages, savings and insurance. www.blg.nl SNS Bank Annual report 2012 16


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    5 Strategy SNS Bank NV’s (SNS Bank) mission is "Simplicity in Finance". We want to increase the financial independence of our customers. We do so by providing simple and accessible products and by offering assistance in making the right choices. 5.1 Mission, core value and responsibility Our mission Simplicity in finance is in keeping with the origins of our company, which is now nearly 200 years ago. Even then, transparency, simplicity and solidarity were the pillars for our operations. We care about the fundamentals in people’s lives, such as living, education, a buffer for unexpected expenses, compensation in the event of losses and sufficient pension provisions. We endeavour to ensure this with our mission of Simplicity in finance. We also wish to operate responsibly for all our stakeholders and in fact our core value CARE! represents the responsibility we want to take for our customers, for one another and for society. 5.2 Corporate responsibility Dutch financial institutions are subject to an extensive system of laws and regulations safeguarding the quality and security of financial products and services. Proper compliance with those laws and regulations is something that comes naturally to SNS Bank. Corporate responsibility (CR) goes beyond this. On the basis of our conviction, our own responsibility and in consultation with our stakeholders, we aim to add sustainable value by means of: • Responsible service We place our customers' interests first in developing, improving and providing our products and services. ‘Responsible’ also means that we account for (potential) positive and negative impacts on people and the environment of our everyday work. We endeavour to create a chain of responsibility within financial services, in which our business units primarily focus on: • offering useful and valuable products and services with limited risks, based on simplicity and convenience; • using customer experiences and complaints to help us to improve, i.e. based on engagement with customers and other stakeholders; • enable customers to make responsible choices by providing comprehensible product information and/or appropriate advice; • measure and improve customer satisfaction; • responsible lending and responsible investment of customers' funds and our own funds; • with systematic assessment of customer interests and customer integrity as a starting point We believe that responsible services help us win more customers, as well as enabling us to be more commercially successful, but also that they are ultimately better for our customers and for society of which we are all part. Our practical approach to providing services responsibly ties in well with our strategic pillar Winning, helping and retaining our customers. SNS Bank endeavours to achieve a more responsible balance. A portion of that balance sheet, consists of customer investments and our own investments. By making conscious choices and exclusions, we aim to make a difference. SNS Asset Management implements this investment policy. This way, we aim to make a visible contribution to a society that faces great problems such as climate change, pollution and raw materials shortages through a more sustainable investment and distribution chain. Personal leadership of our employees, inspired by our mission and core value, is crucial for the further development of responsible service provision. That, too, is something we are continually working on. SNS Bank Annual report 2012 17


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    • Responsible organisation Providing responsible services and working on customer interests and satisfaction is not possible without consistent attention for our own staff. That is why we want to be a committed employer whom our employees enjoy working for. We want to offer a healthy work-life balance and reward them in a responsible way and we want to encourage our employees to take responsibility for their own work and their career, their development and demonstrating involvement in the community. • Sustainable chain and environment As a large company, SNS Bank forms part of many product and service chains. As a major buyer, we exert influence to make the supply chain more sustainable in co-operation with our partners – think of our suppliers. We do this by focussing on the responsible use of energy, accommodation, waste disposal and mobility. A steering committee, consisting of two members of the Executive Board of SNS REAAL, the management boards of SNS Bank, REAAL and Zwitserleven and a number of Group staff departments, is responsible for carrying out CR. This steering committee, led by the Chairman of the Executive Board of SNS REAAL, met on five occasions in 2012 and topics of discussion included progress in the business units and the further development of Group-wide issues such as our stakeholder engagement and performance indicators. SNS Bank regularly assesses its policy and results against the opinions of its stakeholders. In 2012, we performed a materiality analysis, also known as a stakeholders' consultation. The outcomes of this have improved our ability to (more extensively) discuss precisely those topics that are of importance to our stakeholders and to further improve CR. Main topics that emerged included: financial reporting, involvement in the community, product responsibility, chain responsibility, customer satisfaction, stakeholder engagement, ethics and integrity and our role as an employer. 5.3 Strategy This summer, the Dutch Ministry of Finance will present a restructuring plan for SNS REAAL and her 100% subsidiary SNS Bank to the European Commission. This plan will be drawn up in close consultation with the Ministry and SNS REAAL. The European Commission will assess this. Together with the financial forecasts, this will be the framework within which SNS Bank can develop itself. In view of the situation, it is not possible to provide more information on possible new strategic objectives at this time. We will get more clarity on this in the course of this year. 5.3.1 Market position SNS Bank focuses its activities on the Dutch market for mortgages, savings and investments. Our customers are primary private individuals and small & medium-sized enterprises (SMEs). We want to distinguish ourselves with: • Multiple brands, allowing us to offer our customers the most suitable products through their preferred brand and distribution channel. • Placing the customer and the customer’s interests first by developing and offering simple and accessible products combined with high-quality service and advice. • Strong market positions based on simple, useful products with an attractive price/quality ratio. • A simple and cost-efficient organisation. SNS Bank Annual report 2012 18


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    5.3.2 Strategic priorities 2012 SNS Bank formulated four strategic priorities: Phasing out the property finance loan portfolio, Strong capital management, Winning, helping and retaining customers, and Reducing the cost base. 5.3.2.1 Phasing out Property Finance loan portfolio Up to the moment of nationalisation, SNS Bank focused on phasing out Property Finance’s loan portfolio. However, as a result of the nationalisation, Property Finance will be placed in a separate real estate management organisation as soon as possible. This real estate management organisation will operate financially and operationally on an entirely independent basis and will therefore no longer be part of SNS Bank. SNS Bank will provide the initial funding for this real estate management organisation, but the State will guarantee this loan. Refer to chapter 3 Nationalisation for further information. 5.3.2.2 Capital management The capital and liquidity objectives for 2012 were: • A core Tier 1 ratio of 10%. • A loan-to-deposit ratio of between 125% and 150% over time. As part of nationalisation on 1 February 2013, the subordinated debts of SNS Bank were expropriated and SNS Bank was recapitalised. Refer to chapter 3 Nationalisation. The capital ratios of SNS Bank improved considerably as a result of this. The risk profile of SNS Bank will improve further if Property Finance is transferred to a separate real estate management organisation. Despite the strongly improved capital position, we will continue to give priority to further strengthening financial buffers and capital ratios, both for protection against volatility in the financial markets as well as against a potential impact on the results of our core markets due to the economic downturn. New capital and liquidity objectives will be determined after the completion of the strategic reorientation. 5.3.2.3 Winning, helping and retaining customers By winning, helping and retaining customers, we will increase our brands’ vitality and the scale of our activities to a level that safeguards the implementation of our mission ‘Simplicity in finance’, also in the long term. We aim to provide our customers with useful and valuable products through their preferred distribution channel and brand. A range of brands and channels enable us to increase our effectiveness in sales and marketing and to access our overall target group more easily. Shared IT resources, production and service centres within the Group and staff departments also promote efficiency. In order to win, help and retain our customers, we are paying greater attention to customer interests and customer satisfaction. We achieve this by means of: • Continuous dialogue with our customers, allowing us to continuously improve our services; • Measuring customer satisfaction more effectively; • Improving customer interaction and service levels; • Providing transparent and relevant products and appropriate advice. Customers can easily determine if a product suits their needs either by themselves or with the help of a financial advisor. SNS Bank Annual report 2012 19


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    In order to win, help and retain our customers, we also strive to ensure the sustainable growth of our brands. We are achieving this by means of: • New, simple and useful products. Transparent product features and rates are essential. These are achieved by listening attentively to our customers and involving them in the product development process. Before launching new products, we make carefully assessment of customer value, return and risk. We also aim to guarantee the provision of reliable and appropriate advice, including that provided by our distribution partners. This is how we are working to create long-term added value for our customers. • Multi-brand strategy. We serve our customers with brands that vary broadly from one another. Each brand is geared towards its own target group. The brands are linked to one another via SNS Bank NV and benefit from shared product development, processes and systems. This enables the brands to make the most effective contribution towards the overall performance of SNS Bank. • Winning 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 behaviour and timely notification of (potentially) relevant products. 5.3.2.4 Reducing the cost base Structural cost reduction is necessary for reasons including the following: the increasing demand for cheap, simple products, new market entrants, increased market transparency and higher capital and liquidity requirements. It is our aim to further reduce the operating costs. In doing so, the loss of jobs cannot be ruled out. We will achieve this through greater efficiency in all Core activities, including lean programmes. In addition, we will reduce costs by hiring less external staff, reducing the number of office locations and structurally adjusting the terms and conditions of employment to the social requirements of today. SNS Bank Annual report 2012 20


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    6 Strategy update SNS Bank NV (SNS Bank) formulated four strategic priorities for 2012. In 2012, we structurally worked toward the execution of this strategy. This chapter covers the progress we made in 2012. In 2012, SNS Bank aimed to strengthen its foundation with the priorities of Phasing out Property Finance and a Strong capital management. We are building for the future with the priorities of Winning, helping and retaining customers and Reducing the cost base. We are doing this in a way that we believe is responsible, which we will explain in relation to each business unit in chapters 9 and 10. 6.1 Phasing out Property Finance The phase-out of Property Finance was continued in 2012, despite the extremely difficult circumstances. The phase-out of the portfolio resulted in a reduction of the total commitments (gross loans including undrawn commitments) of € 9.6 billion to € 8.0 billion (-18%) at the end of 2012. The risk-weighted assets were also significantly reduced. Refer to chapter 10 Property Finance for further details. It is our intention to place Property Finance in a separate real estate management organisation whose operations and finances are separate from SNS Bank. Refer to chapter 3 Nationalisation of SNS Bank for further information. 6.2 Strategic restructuring and capital restructuring On 22 February 2013, the European Commission (EC) decided to give temporary approval for the capital injection of € 2.2 billion in SNS REAAL, for SNS REAAL to downstream part of this capital, i.e. € 1.9 billion, to SNS Bank. The approval is valid until the EC takes a final decision based on the restructuring plan to be presented by the Ministry of Finance on August 22 2013 at the latest. The decision on 22 February 2013 stipulates, inter alia, that until the moment of the EC’s final decision, SNS Bank is not to conduct any acquisitions (‘acquisition ban’) and payments on hybrid instruments (‘hybrid debt call and coupon ban’). For the capital restructuring, reference is made to chapter 3 Nationalisation. 6.3 Winning, helping and retaining customers In 2012, turmoil in the financial markets continued. Apart from this, SNS Bank had to deal with a great deal of negative publicity, especially due to the uncertainty surrounding Property Finance. This meant that, after an increase in savings deposits in 2012, a material part of the savings at SNS Bank was withdrawn in 2013. Customer satisfaction, nevertheless, remained stable at the 2011 level, supported by new initiatives taken in 2012. Winning, helping and retaining customers ensures that our brands are full of vitality and provides us with the economies of scale and cost base that enable us to ensure the execution of our mission, also in the longer term. It is always our objective to: • improve our services, with the meaning of customers’ interests for our brands in mind, which we do in consultation with our customers; • achieve greater customer satisfaction; • create sustainable growth of our brands. SNS Bank Annual report 2012 21


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    6.3.1 Customers' interests and satisfaction In our view, putting customers’ interests first is about orientation towards the customer. This seems obvious, but is not always so. When weighing interests between our various stakeholders, customers and their interests are always key. It is not about doing everything the customer wants. It is about giving substance to the actual needs of the customer in an appropriate and responsible way. In order to do so, we need to embed this in our working methods and procedures and pay steady attention to this. Our brands systematically assess customers' interests in all new products and product adjustments. On the basis of a Group-wide standards framework within the scope of the Product Approval and Review Process (PARP), products are assessed against so-called CUSC criteria: cost-efficient, usefulness, secure and comprehensible. Customers’ interests also formed a guiding principle in the many improvements carried out by SNS Bank in the service they provided to customers. SNS Bank improved its online support for self-managed products via interactive calculation modules and Q&A sections. Many initiatives were geared towards making information more accessible, for instance by simplifying product terms and conditions and use of language, as well as by referring customers to intermediaries for advice and providing support in this regard. These improvements make it easier for customers to choose the products that are appropriate to their situation and their objectives. Putting customers’ interests first is a key objective for us, as it is for the Netherlands Authority for the Financial Markets (AFM). Criteria of the AFM closely correspond with SNS Bank’s mission, core value and vision with regard to corporate responsibility (CR). After the AFM and the Executive Board of SNS REAAL discussed SNS REAAL’s stance on the issue of putting customers’ interests first to gain an insight into the background situation and to enable a better comparison of the various market players, SNS Bank was evaluated internally. Through a sharper discussion of the matter in the assessment of our employees we aim to emphasise customers' interest more. Despite the considerable challenges in relation to the capital position and the issues concerning Property Finance, SNS Bank has made progress in some important aspects in the view of the AFM, namely as a result of: • devoting explicit attention to CR and the aim to become the most customer-friendly financial services provider in the Netherlands by 2015 by putting customers’ interests first; • greater coordination and consistency between the various initiatives geared towards putting customers’ interests first; • A self-critical stance adopted by the Management Board, which has been expressed by acknowledging that the level of ambition with regard to putting customers’ interests first was initially too low and by a proactive attitude, evidenced by the active efforts to act upon recommendations of the AFM. There areas for attention that the investigations of the AFM specifically highlighted were: sharing best practices across the entire Group more often, strict implementation of procedures and making greater use of modern technology to prevent anticipated disappointment among customers. 6.3.1.1 Improved and more focused measurement All brands give shape to such recommendations and invested in systems and/or procedures to gather, analyse and utilise customer data more effectively. This information is essential in order to continue to improve the service and customer satisfaction. Our management places emphasis on this subject by using instruments such as the KBC dashboard. SNS Bank’s retail brands are using the NPS method (Net Promotor Score) to measure customer satisfaction. This method is used to measure the number of customers who feel so positive about a brand that they would recommend it to family and friends. From this figure we deduct the number of customers who would advise family and friends against the brand. Uniform NPS statistics, based on a representative sample, are gathered twice a year by an external agency. Customer satisfaction in the entire financial services sector has come under increased pressure in recent years as a result of the developments relating to the financial crisis. Among all surveyed Dutch banks and insurers, a limited number had a positive NPS score in 2012, including ASN Bank. Statistics also show that customers who recently had contact with the brand, via the helpdesk for instance, were on average more satisfied than other customers. Measurements at the business units confirmed this outcome. The brands therefore strive to intensify customer interaction, also by means SNS Bank Annual report 2012 22


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    of various forms for dialogue such as panel discussions. SNS Bank’s NPS score fell slightly from -33 at year-end 2011 to -35 at year-end 2012. The explanation for this is mainly attributable to the publicity around Property Finance. This also affected the SNS Bank brand. ASN Bank’s score went from +33 at year-end 2011 to +22 at year-end 2012. RegioBank’s score went from -18 at year-end 2011 to -9 at year-end 2012. In 2012, SNS Bank expanded their customer satisfaction surveys by conducting them more often and in more sub-areas. 6.3.1.2 Learning from the client dialogues SNS Bank NV brands use a variety of media and/or events to enter into dialogue with their customers. SNS Bank used the SNS Community to improve products and product information. The number of ways to provide feedback via web pages, Twitter and Facebook increased significantly. A wide range of fundamental and current topics were discussed with SNS Bank’s Customer Council, which meets four times a year. ASN Bank is making a discussion platform called 'For tomorrow’s world’ available to customers and interested parties. ASN Bank also involved its customers in some sustainability initiatives by means of various events. RegioBank advisors placed considerable emphasis on personal interaction and maintaining and developing their local network. 6.3.1.3 Improving customer contact and service levels In 2012, statistics showed that most service levels of our brands had improved. SNS Bank refined its systems in order to record and analyse feedback, queries and complaints from customers even more effectively. The level of contactability of SNS Customer Service was 89%. The number of complaints fell by 21%. 6.3.1.4 Simple, relevant products and appropriate advice Offering simple products is the mission of SNS Bank. However, simplification is a process that takes time, and it is often problematic or not possible to apply to products already sold. We also use the feedback from our customers for the benefit of the Product Approval Process of existing and new products when developing new simple products and services. The most important improvements achieved in 2012 were: • further simplification of SNS Bank’s range of savings products; • All brands also paid attention to simplifying and clarifying product information, making it easier for customers to make responsible choices. 6.3.2 Sustainable growth of our brands 6.3.2.1 Multi-brand strategy SNS Bank distinguishes itself in the Dutch market through its multi-brand strategy. This allows us to respond to new market developments efficiently and effectively. We manage performance using common indicators, minimise brand overlap and take direct advantage of market opportunities. This strategy also enables us to gain a more detailed understanding of the needs and perception of our customers, as a result of which they feel more comfortable with their brand. In 2012, the positioning of brands in relation to one another was further refined, so that they better complement one another in the market of potential customers. The total customer coverage is thus extended whilst the overlap is reduced. The differences between the brands focus on three main aspects: personal values, social status and the level of financial self-reliance. SNS Bank creates value with its multi-brand strategy aimed at well-defined target groups in three ways: by expanding more rapidly than would be the case with a single brand, by means of more effective and therefore cheaper marketing and by means of price differentiation. In 2012, this strategy made a significant contribution to the (profitable) growth in savings and in the strong growth of sales of REAAL insurance products via SNS Bank. SNS Bank Annual report 2012 23


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    6.3.2.2 Winning new customers The total number of customers of our retail banking brands fell by more than 64,500 customers to over 3 million. The total savings deposits entrusted to us rose and the market share in savings increased from 10% to 10.3%. Each brand developed its own tailor-made commercial initiatives to optimally reach their target group. SNS Bank restrained itself in the sale of its own new mortgages due to the deterioration to solvency as a result of the losses of Property Finance in the property finance loan portfolio. Consequently, the market share in new mortgages decreased from 5.7% to 2.0%. Sales of third-party mortgages rose strongly, however, from 8% in 2011 to 29% in 2012, which meant we were able to welcome many new customers. 6.3.2.3 Retaining clients and offering a broader range of products SNS Bank further expanded the range of third-party mortgages, improving its position in the market of first-home buyers. The retention rate of existing mortgages was high. The fall in new sales had a limited effect on the size of the total mortgage portfolio, which fell from € 52.8 billion to € 50.6 billion (-4.3%). Sales of insurance from REAAL via SNS Bank rose sharply. In 2012, we were once again able to take advantage of the growing bank savings market. SNS Bank and RegioBank cooperate closely in the field of product development and distribution. Bank savings and savings deposits entrusted to us rose by 6.6% to € 35.4 billion. 6.3.2.4 Successful new products The introduction of the Zilvervlootsparen, a savings account for children aged 0-18, was a major success. Since its launch in September, more than 32,000 accounts were opened at SNS Bank and RegioBank. The interest-bearing current account attracted many new customers. SNS Bank was the first major bank to introduce such an account at the end of 2011. 6.4 Reducing the cost base Reducing the cost base of our organisation contributes towards improving the company's competitiveness and capital position. The total adjusted operating expenses decreased from € 229 million to € 205 million (-10%) compared to 2011. An important factor was a reduction in the average number of FTEs from 2,426 to 2,236 (-8%). The reduction at SNS Retail Bank amounted to € 11 million and Property Finance € 3 million. Programmes to increase efficiency in the administration systems of SNS Bank also significantly contributed towards the reduction. SNS Bank also benefited from the run off and closure of old SNS branches, the opening of cost-efficient SNS shops and further automation of transaction processes. Other important contributions to the cost reductions were cost synergy through the harmonisation and standardisation of IT systems, tightened procurement and adjustment of the terms of employment. Investments made by SNS Bank were mainly aimed at further cost base improvements in the coming years, but also at long-term ICT solutions. The main investments in 2012 were: • The New World of Work (NWW); more than 1,000 employees switched to NWW. • For SNS Bank (and the other banking brands) a migration took place to a modern platform making it future proof. SNS Bank Annual report 2012 24


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    6.5 Realisation of ambitions 6.5.1 Net result In November 2011, SNS Bank abandoned its medium-term profit target due to the situation in the financial markets, deteriorating economic outlooks, stagnating or falling sales volumes and greatly changing laws and regulations. A substantial loss of € 719 million was reported for 2012. However, it continues to be our objective to be an organisation that will return to a healthy level of profitability. 6.5.2 Capital and liquidity ratios SNS Bank publishes its solvency ratios using the risk-weighted assets as calculated under Basel II, taking in account the Basel I 80% Floor rules. In the second half of 2012 the implementation of more stringent risk assessment models for loans in combination with a deteriorating credit risk environment led to an increase in the level of risk-weighted assets under Basel II, which surpassed the level of Basel I with an 80% floor. As a consequence, solvency ratios are since then calculated using Basel II risk-weighted assets, whereas for previous periods Basel I with an 80% floor was used. Basel II risk-weighted assets increased from € 19.2 billion at year-end 2011 to € 20.6 billion. The use of more stringent risk assessment models for retail mortgages led to an increase of € 3.5 billion in Basel II risk-weighted assets, which were also impacted by the redemption of debt securities issued under securitisation programmes. This was partly compensated by the decline of the total exposure at Property Finance. Due to the net loss at SNS Bank and the increase in risk-weighted assets, the core Tier 1 ratio dropped from 9.2% at the end of 2011 to 6.1%, which was below the internal and the DNB requirements. As a result of the increase in savings balances and the decrease in loans and advances to customers, the loan-to-deposit ratio of SNS Bank improved from 159% at year-end 2011 to 142%. Excluding Property Finance, the pro forma loan-to-deposit amounted to 126%. 6.5.3 Performance management SNS Bank wants to enhance management based on performance by means of quantifiable results. Four new CR performance indicators were developed in 2012 that will be effective from 2013. At SNS Bank management based on customer satisfaction was enhanced. The number of measurement moments and measurement areas was increased. For capital and liquidity ratios, refer to 6.5.2. For other realised financial ratio’s, refer to key figures. For customer satisfaction scores, refer to 6.3.1. For employee satisfaction and absenteeism, refer to 13.8. SNS Bank Annual report 2012 25


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    7 Outlook 2013 The Netherlands and the rest of the eurozone are faced with an ongoing recession. Although the euro crisis seems to be under control, the scarcity in the capital market is persisting and there is great uncertainty and risk of volatility in the financial markets. Corporate financials are retaining ample liquidity and capital because of precaution and more strict requirements. With regard to capital, these markets are still not entirely open, other than for cash. The Dutch housing market remains weak and the number of mortgage holders experiencing payment difficulties is steadily increasing. Unemployment is rising and the number of bankruptcies is increasing. These conditions are placing profitability in our sector under even greater pressure. 7.1 Financial markets in 2013 7.1.1 General explanation Stimulus measures for the global economy will primarily need to come from the United States of America, China and other emerging markets. It seems likely that growth in the USA will continue, despite new taxation measures being introduced by the federal government. The delay in the growth of the Chinese economy seems to have passed and the demand for products from Europe, particularly Germany, will probably pick up. The eurozone is still dealing with the burden of the recovery of government finances, the necessary shrinking of the financial sector and loss absorption due to the depreciation of collateral and increasing risk of default (unemployment and bankruptcy). The permanent threat of crisis has diminished however, due to the willingness of the ECB to purchase government bonds without limit at sharply rising interest rates, but under conditions. The pressure upon southern European countries is likely to ease somewhat. The mild recession being experienced in the Netherlands and in many other European countries will continue in 2013. 7.1.2 Interest rates low, risk surcharges volatile In February 2013, the ECB lowered its growth forecast for the eurozone to zero and kept its most important interest rates at the same low level. Due to the low growth forecast, the ECB will possibly keep the interest rate low. The low inflation forecast makes it possible for the ECB to apply a stimulus policy. The interest rate spreads of southern European countries in particular have recently fallen sharply. However, due to the continuing poor economic conditions, the risk of increasing credit spreads remains, which could cause a repetition of the sovereign debt turmoil in the eurozone 7.2 Impact of laws and regulations New laws and regulations give rise to higher costs in the financial sector, in relation to maintaining capital, risk management, internal organisation, resolution levy and/or taxation. A bank tax entered into force from October 2012 and this cost SNS Bank € 9 million in 2012. The Dutch Ministry of Finance and De Nederlandsche Bank (the Dutch Central Bank – DNB) are working to establish a fund to finance the deposit guarantee scheme, into which banks must deposit funds in advance. The capital requirements and the timing of Basel III is still creating a great deal of uncertainty, but are indicating higher costs, including for lending activities. The plans include a reduction of the Tier 1 leverage ratios and much more stringent capital requirements in the resell of securitised mortgage loans. Securitisation is an important source of funding for mortgage lending by Dutch banks under favourable financial market conditions. A mandatory bankers' oath applies to board members and supervisory board members since January 2013. This may be extended to other positions. SNS Bank is supportive of the underlying idea that this will help employees to feel able to call their managers to account over (alleged) unethical conduct. A discussion of ethical issues in our sector contributes towards the continued efforts to develop a modern, customer-oriented and socially desirable corporate culture. SNS Bank Annual report 2012 26


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    7.3 Change in the distribution landscape Laws and regulations combined with social trends have also had an impact on the distribution landscape in the financial services sector. The most important changes are outlined below. 7.3.1 Fixed advisors' fee From January 2013, a ban on commissions will apply to complex financial products. Instead of this commission, the advisory body (bank, insurer, or intermediary) will receive a fee based on an agreement with the customer. The separation between product price and advisors’ fee creates greater transparency in the total cost price for the customer. Even so, all parties, the provider, advisor and customer, need to get used to the new situation. Advisors are able to use different advice models and different types of rates. The price of advisory services will also often depend on the information that customers are able to gather and contribute themselves. In this respect, the market for complex products will therefore not become transparent immediately as far as consumers are concerned. Furthermore, many consumers will try to save on costs by purchasing a complex product without seeking advice, which can result in the wrong choices being made. Self-managed products are gaining ground. The regulatory requirements imposed on advisory services providers are being tightened. As a result of these developments, combined with falling volumes, the number of intermediaries will fall sharply, particularly in the field of pensions, life insurance and bank savings. In the new market conditions, providers of both products and advisory services will need to adopt a flexible and very precise approach in anticipating the opportunities and limitations of the different distribution channels. SNS Bank is in a favourable position in this regard due to: • an in-house banking distribution and advisory channel for a large portion of the complex insurance products; • the multi-brand strategy with a mix of direct and indirect distribution channels, a variety of service models and brands that make it possible to provide different direct sales offers and product advice combinations; • SNS Bank being the only bank in the Netherlands to sell third-party mortgages and provide independent mortgage advice. 7.3.2 Increase in direct sales of simple products The trend in which consumers are increasingly purchasing products without the intervention of an intermediary has already existed for a long time in relation to simple products, such as savings and non-life insurance for private individuals. This trend is continuing. Gathering information and comparing products oneself has become easier as a result of the improvement and expansion of websites. SNS Bank is responding effectively to this development with its multi-brand strategy and diversification of distribution channels. 7.3.3 Tax benefits on bank savings Until 2008, only life insurers were permitted to offer products for wealth creation with tax incentives. However, since the introduction of bank savings in 2008, the consumer has alternatives available via the banks. Bank savings products have grown strongly since then, at the expense of more complex life insurance products that combined asset growth with guarantees and/or insurance policies. Bank savings products are often combined with life insurance products, such as term insurance policies and immediate annuities. SNS Bank is well positioned in this market with its combination of banking and insurance activities. The tax advantage of bank savings has been restricted with effect from 2013. Although growth will decline, this market will continue to have a healthy growth potential for the time being. SNS Bank Annual report 2012 27


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    7.3.4 Ban on the distribution fee for investment funds The Dutch Ministry of Finance intends to put a ban on the distribution fee paid by investment fund providers to distribution partners by 2014. The current fee model includes the possibility that investment advice from distributors is (partly) based on financial gain and therefore takes less account of customers' interests. Financial institutions must therefore develop a new earnings model for distribution of investment funds. SNS Bank is already leading the way in this development in 2013. In February 2013, SNS Bank introduced five new profile funds without a distribution fee. The risk profiles vary widely from very defensive to very offensive investments. The distribution fees no longer form part of the so-called Total Expense Ratio (TER) of the investment funds, but are charged to the customer separately. 7.4 Product markets 2013 SNS Bank primarily anticipates growth in the (bank) savings market. Under the influence of the weak economy and new regulations, the other markets will see no or negligible growth and some markets are expected to contract (further). • Mortgage market remains weak • Further growth (bank) savings 7.4.1 Mortgage market will remain weak The Ministry of Finance will restrict the tax deductibility of interest of new and existing residential mortgages over the coming years by 0.5% per year from a maximum of 52% to a maximum of 42%. Furthermore, from 2013 interest on a new mortgage is only tax deductible if it is an annuity mortgage, whereby a portion is repaid each year. The temporary cut in transfer tax to 2% will become permanent. Interest payments on a debt remaining after selling a property for less than the mortgage value will remain tax-deductible for 10 years. These measures will actually result in higher monthly costs for first-home buyers. The housing agreement reached in February 2013 between the government and an ad hoc coalition in the Second Chamber of Dutch Parliament resulted in partial set-off against the monthly costs for first-home buyers and better flow through of the residential property market. Even so, we expect persistent stagnation and lower prices in the housing market in 2013. However, in the longer term, the measures may contribute towards improving the health of the housing market and reducing excessive debts amongst Dutch consumers. The number of mortgage holders with payment arrears will further increase. The reasons for this may be: lower income (due to unemployment, for example), double mortgage payments when the old property remains unsold, and/or a residual part of the debt, a mortgage value that is higher than the price realised when the house is sold (foreclosure). Losses on loans are therefore expected to increase. These losses will need to be controlled through the high percentage of mortgages guaranteed under the National Mortgage Guarantee scheme and the vigilant and proactive management of mortgages with payment arrears. The focus of SNS Bank lies on retaining the existing portfolio and assisting existing customers. SNS Bank is also providing impartial advice for new mortgages and is selling both its own mortgages and those of third parties. The margin on mortgages remains at a healthy level. 7.4.2 Continued growth of (bank) savings The uncertain economic situation encourages the inclination to save, but shrinking incomes in many households will restrict the total growth of the savings market. However, maturing unit-linked insurance policies will provide a positive stimulus, particularly for the bank savings market. These will continue to grow, although at a decreasing pace compared with previous years. As a banc-assurer with a robust distribution network, we are able to consolidate our strong market position in the bank savings market. The willingness of private individuals to invest was limited over the past few years. This situation is not yet expected to change in 2013. SNS Bank Annual report 2012 28


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    7.5 First quarter 2013 SNS Retail Bank had a good start of the year. For the first quarter of 2013, SNS Retail Bank reported a net profit of € 107 million, including a one-off positive impact from nationalisation measures of € 24 million. Adjusted for one-off items, net profit of SNS Retail Bank for the first quarter was € 83 million, compared to € 32 million for the first quarter of 2012. Property Finance reported a net loss of € 1.8 billion for the first quarter of 2013, due to a € 1.8 billion net impact of the € 2 billion write-down of the real estate finance portfolio. With this write-down the net exposure has been brought in line with the held for sale valuation as determined by the Dutch State. Due to the considerable first quarter loss at Property Finance, SNS Bank will also report a loss for the year 2013 as a whole. In spite of a further weakening of the Dutch housing market, we expect SNS Retail Bank to continue to report satisfactory results in the coming quarters. SNS Bank Annual report 2012 29


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    8 Financial outlines 8.1 Result 8.1.1 Changes in segmentation In 2012 SNS Bank took further steps to enhance its capital position and reduce ist risk profile. SNS Bank decided to withdraw from the commercial property finance market for SME's in the second half of 2012. As a result SNS SME's loan portfolio will be phased out. The core real estate finance portfolio, part of the total loan portfolio, will be phased out under the direction and responsibility of Property Finance. This announcement was among onther things made in the trading update for the third quarter 2012. SNS SME's other activities (the SME mortgage and savings portfolio) will be continued and transferred to SNS Retail Bank. The SME mortgage portfolio of € 1.3 billion and SME savings of € 2.9 billion have been combined with those of SNS Retail Bank. Comparative figures for 2011 have been adjusted accordingly. As a result of this transfer, the reporting segment SNS SME will cease to exist. The change in segmentation is in alignment with the new business activities decision model and also creates more transparency in respect of the net result from SNS Bank's continued activities in the future, and results relating to the phase out (and isolation) of the Property Finance portfolio in a separate asset management organisation in 2013. 8.1.2 Results 2012 compared to 2011 For the year 2012, SNS Bank reported a net loss of € 719 million, compared to a net profit of € 38 million for the year 2011. This negative result was mainly driven by a significant loss at Property Finance of € 813 million. Excluding Property Finance, SNS Bank posted a net profit of € 94 million compared to a € 281 million net profit for the year 2011. SNS Retail Bank’s net profit decreased sharply. The main factors behind this decrease were the absence of a gain from a lower Tier 2 exchange transaction, sharply higher loan impairments, restructuring charges and lower commission income. Furthermore, the 2012 result included a charge for the new banking tax. Adjusting for the impact of one-off items, the net profit of SNS Retail Bank amounted to € 130 million compared to € 301 million for the year 2011. At Property Finance, the net loss increased sharply, driven by sharply higher impairments on loans and property projects reflecting the further weakening of real estate markets and an impairment of the remaining goodwill. Impairment charges on loans and property projects based on incurred losses increased from € 284 million in 2011 to € 941 million, of which € 776 million occurred in the second half of 2012 (including € 654 million in the fourth quarter). 8.2 Impact of one-off items At SNS Retail Bank, the net impact of one-off items amounted to € 36 million negative. Of this, € 9 million consisted of a loss on the exchange of Greek government bonds in the first half year. In the second half, the net impact of one-off items was € 27 million negative, consisting of a restructuring charge of SNS Retail Bank which was announced at the Investor Day on 15 November 2012. The restructuring charge was taken for plans which aim to deliver a reduction of approximately 200 FTEs by the end of 2014 (-8%) and further improve operational efficiency. At Property Finance, the net impact of one-off items of € 47 million negative consisted of an impairment of the remaining goodwill from the acquisition of Property Finance in 2006 as a result of the repositioning of SNS SME and the integration of the former core portfolio into Property Finance and its subsequent run off objective. One-off items in 2011 consisted of an impairment of Greek government bonds of € 20 million net at SNS Retail Bank. SNS Bank Annual report 2012 30


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    Impact of one-off items on SNS Bank's net result In € millions 2012 2011 Net result for the period at SNS Retail Bank 94 281 Net result for the period at Property Finance (813) (243) Total net result for the period (719) 38 Impact of one-off items at SNS Retail Bank (36) (20) Impact of one-off items at Property Finance (47) - Total one-off items (83) (20) Adjusted net result for the period at Retail Bank 130 301 Adjusted net result for the period at Property Finance (766) (243) Total adjusted net result for the period (636) 58 8.3 Operating expenses Total operating expenses in 2012 increased by € 12 million (+4%), influenced by one-off expenses. These included restructuring charges of € 43 million gross, mainly consisting of € 37 million costs at SNS Retail Bank and € 6 million at Property Finance. Other one-off expenses were the winding down of the portfolio at Property Finance (€ 67 million). These one-off expenses were partly compensated by a release of € 15 million related to the final calculations of SNS Retail Bank’s share in the savings guarantee scheme for DSB Bank and Icesave. Total operating expenses SNS Bank In € millions 2012 2011 Change Total operating expenses 300 288 4% Adjustments Restructuring charge at SNS Bank 43 4 SNS Retail Bank's share in savings guarantee scheme (15) (1) Expenses related to winding down portfolio Property Finance 67 56 Total adjustments 95 59 Total adjusted operating expenses SNS Bank 205 229 (10%) Total adjusted operating expenses decreased by € 24 million (-10%), supported by a decrease in the number of internal staff by 74 FTEs. All business units contributed to the decrease: SNS Retail Bank (- € 11 million) and Property Finance (- € 3 million). SNS Bank will strive for a further reduction of costs driven by ongoing efficiency programmes and a structural moderation of collective labour agreements. SNS Bank Annual report 2012 31


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    9 Developments SNS Retail Bank SNS Retail Bank net result decreased from € 281 million to € 94 million (-67%), driven by higher loan impairments, lower commission income, a restructuring charge and lower gains on the buy-back of own debt. The higher impairment charges to loans, reflecting the weak housing market and the implementation of a new risk model. SNS Retail Bank In € millions 2012 2011 Change SNS Retail Bank 94 281 (67%) 9.1 SNS Retail Bank strategy SNS Retail Bank brands want to help people to be financially fit and aim to achieve this with simple and accessible products, a customer-friendly, efficient and robust organisation and sound services. Our core value CARE! and our Manifesto encourage employees to put customers’ interests first when providing financial services. The main themes in SNS Retail Bank Manifesto are: • Sustainability: our contribution to society • Utility: our value for the customer • People to people: our view on banking • Financial self-reliance: our key objective in providing financial services SNS Retail Bank’s Manifesto describes the connection between the brands of ASN Bank, RegioBank, BLG Wonen and SNS Bank. From a number of common values, the different brands focus on specific target audiences. In this way, SNS Retail bank gives substance to the multi-brand strategy. The four brands of SNS Retail Bank mainly serve individual clients and self-employed persons in the Netherlands. The brands differ from one another in terms of primary target audience, product range, distribution channels and brand experience, but at the same time they enjoy efficiency benefits by using shared service centres, IT and facilities and staff services. This multi-brand strategy allows us to remain close to our customers. Each brand gives shape to this in its own way: • SNS Bank is the broad and accessible consumer brand for banking and insurance products for people who want to manage their banking business in a modern way. SNS Bank serves its customers with service, advice and sales via snsbank.nl, mobile phone, SNS Customer Service, SNS Shops and financial advisors. • ASN Bank is the brand for sustainable savings, investments and payments. Services are provided via the Internet, over the telephone and by mail. ASN Bank focuses primarily on private individuals, but also accepts social organisations and companies as customers provided they operate in accordance with the ASN Bank principles of corporate social responsibility. • RegioBank is the bank formula for independent advisors outside the major cities, with a focus on local and personal service without fuss. • BLG Wonen is the brand for the independent advisor who gives broad house and home-related financial advice to clients. In 2012, it was decided to transfer the small SME mortgages and business insurance, savings and payments of SNS SME to SNS Retail Bank. The remaining SNS SME loans were transferred to the activities of Property Finance that are to be run off. SNS Bank Annual report 2012 32


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    9.2 Financial developments SNS Retail Bank SNS Retail Bank In € millions 2012 2011 Change Result Net interest income 705 680 4% Net fee and commission income 54 86 (37%) Investment income 23 45 (49%) Result on financial instruments 52 155 (66%) Other operating income 9 2 350% Total income 843 968 (13%) Impairment charges to loans and advances 224 95 136% Other impairment charges 4 31 (87%) Total operating expenses 479 467 3% Other expenses 8 - 0% Total expenses 715 593 21% Result before tax 128 375 (66%) Taxation 33 94 (65%) Minority interests 1 - Net result for the period 94 281 (67%) One-off items (36) (20) (80%) Adjusted net result for the period 130 301 (57%) Efficiency ratio 57.4% 49.9% Impairment charges to loans and advances as a % of gross outstanding loans to customers 0.40% 0.15% Risk-weighted assets Basel II 13,081 9,460 38% Savings 32,815 30,342 8% Loans and advances to customers 55,163 55,907 (1%) 9.2.1 Result 2012 compared to 2011 SNS Retail Bank continued to focus on its commercial performance in 2012. Retail savings balances grew by € 2.5 billion (+ 8%) despite ongoing news flow in the media related to the future of SNS REAAL in the second half of 2012. Overall customer satisfaction levels improved or remained stable. ASN Bank continued to have one of the highest customer satisfaction levels in the industry and won the ‘Most customer-friendly bank of The Netherlands’ award. SNS Bank’s and RegioBank’s new “Zilvervloot Sparen” savings account, launched in September 2012, attracted 32 thousand customers. BLG Wonen (formerly BLG Hypotheken), has been repositioned as a complete financial services provider for homeowners, whereas the focus was previously solely on mortgages. The repositioning of RegioBank has been completed and its increased presence in smaller communities continues to pay off and is reflected in increasing customer satisfaction. SNS Retail Bank has developed plans to further improve the efficiency of its operations. The implementation should result in a reduction of approximately 200 FTEs by the end of 2014. Despite SNS Retail Bank’s commercial achievements, net profit decreased by 67% to € 94 million. The 2012 result included a net loss of € 9 million on the exchange of Greek government bonds in the first half of 2012 and restructuring charges of € 27 million net related to the repositioning of SNS Retail Bank in the second half. The 2011 results had been impacted by an impairment on Greek government bonds of € 20 million net. Adjusted for these one-off items net profit fell by € 153 million. This was due to the to the absence of a net gain of € 84 million from a lower Tier 2 exchange transaction in 2011, higher loan impairments, lower commission income and charges related to the new banking tax in 2012. SNS Bank Annual report 2012 33


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    9.3 Income Net interest income showed a modest increase of € 25 million (+4%) driven by higher interest income from mortgages. SNS Retail Bank’s residential mortgage portfolio decreased to € 49.4 billion (year-end 2011: € 51.4 billion), due to redemptions in combination with limited sales of new mortgages. Redemptions were slightly lower compared to 2011. SNS Retail Bank’s market share in new mortgages of 2.1% was down compared to 2011 (5.8%), due to the focus on the reduction of risk-weighted assets. However, despite the reduction of the mortgage portfolio, total risk-weighted assets under Basel II increased by € 3.6 billion to € 13.1 billion due to the implementation of more prudent risk assessment models (Internal Rating Based approach) for loans in combination with a deteriorating credit risk environment and due to the redemption of debt securities issued under securitisation programmes. As a result of the sharp increase, risk-weighted assets under Basel II surpassed the level of Basel I with an 80% floor. Retail savings balances increased by € 2.5 billion to € 32.8 billion (+8%), including bank saving balances, which grew by € 1.1 billion to € 2.4 billion (+85%). SNS Bank, ASN Bank and RegioBank all contributed to the increase in savings balances. SNS Retail Bank’s market share in savings increased to 10.3% (year-end 2011: 10.0%). However, SME savings included in ‘Other amounts due to customers’, were significant lower at € 2.9 billion compared to year-end 2011 (€ 3.6 billion), due to the media attention for SNS REAAL and the increased liquidity needs at our customers. The loan-to-deposit ratio of SNS Retail Bank improved to 126% from 137% at year-end 2011. Net fee and commission income was € 32 million lower, mainly driven by the transfer of SNS Beleggingsfondsen Beheer BV from SNS Retail Bank to SNS REAAL Group activities as per 1 January 2012, increased fees paid on securitisation transactions following credit rating downgrades and lower asset management transactions and fees. Furthermore, insurance fees on mortgage-related products were lower. Investment income decreased by € 22 million mainly due to a loss of € 13 million gross on the exchange of Greek government bonds and lower trading results on fixed income investments. The result on financial instruments decreased sharply by € 103 million, due to a decline in buy-back results on own funding paper to € 49 million compared to € 156 million in 2011 (which included a gain on a lower Tier 2 exchange transaction of € 112 million gross). This was partly compensated by higher fair value movements of the DBV mortgage portfolio, which had adversely impacted the 2011 result. 9.4 Expenses Total operating expenses increased by € 12 million. This included a restructuring charge of € 37 million pre-tax related to the plans to further improve the efficiency of operations, including a more centralised use of office facilities. The higher expenses were partly compensated by a release of € 15 million related to the final calculations of SNS Retail Bank’s share in the savings guarantee scheme for DSB Bank and Icesave. Costs in 2011 had included a release of € 1 million. Adjusted for these items, total operating expenses decreased by € 11 million (-2%) driven by a reduction in the number of staff following completion of the repositioning programme in 2011. The efficiency ratio increased from 49.9% in 2011 to 57.4% due to lower income in the absence of the gain on the Tier 2 exchange in 2011 and the above mentioned one-off expenses. Adjusted for these items, the efficiency ratio improved from 56.8% to 54.7% because of lower operating expenses. Impairment charges to loans and advances increased by € 129 million to € 224 million. This equates to 40 basis points of gross outstanding loans compared to 17 basis points in 2011. Both retail and SME loans contributed to this increase. Impairment charges to retail loans increased by € 99 million to € 181 million. This equates to 33 basis points of gross outstanding loans compared to 15 basis points in 2011 (residential mortgages: 31 basis points compared to 14 basis points in 2011). Impairment charges in 2012 included an amount of € 11 million due to the default of one major debtor and € 40 million related to the implementation of more stringent risk assessment models. Impairment charges in 2011 had included a charge of € 22 million related to increased prudence in credit risk models to reflect the market environment. Excluding the impact of the default of one major debtor and the impact of risk models, impairment charges increased by € 70 million. This increase reflects the weakening economic situation in the Netherlands and lower recovery amounts on mortgages as a result of pressure on housing prices. SNS Bank Annual report 2012 34


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    Impairment charges to SME loans increased by € 30 million to € 43 million driven by the weakening economic situation and lower recovery amounts as a result of pressure on prices of collateral. Other impairment charges of € 4 million consisted of impairments on tangible fixed assets compared to impairments of € 31 million in 2011 related to Greek government bonds (€ 27 million) and tangible fixed assets. Other expenses of € 8 million consisted of SNS Retail Bank’s share in the 2012 full year charge for the new banking tax (in total € 10 million of which the remainder has been included in the result of Property Finance). 9.5 Credit risk Housing prices continued to decrease in 2012. The price index of existing home sales fell 6.3% year-on-year and the number of homes sold was down again, by approximately 3%. The weak housing market lengthens the recovery period of loans in default and limits recovery amounts. Rising unemployment and declining disposable incomes are important drivers for the development of loans in arrears. Loans in arrears increased from € 2.0 billion at year-end 2011 to € 2.2 billion. As a percentage of gross loans they rose from 3.56% to 3.94%. Under current market circumstances, SNS Retail Bank proactively contacts mortgage clients with higher risk mortgages, for instance due to high Loan to Values and provide information and tips to avoid consecutive missed payments, if necessary in combination with a personal budget coach. The quality of new mortgage inflows is, however, improving thanks to stricter standards and an increase in mortgages covered by the Dutch Mortgage Guarantee Scheme (NHG). At SNS Bank, 72% of the mortgage production of new clients in 2012 was covered by the NHG. Of the total mortgage portfolio, 20% is now covered by NHG. At the end of 2012 the weighted average indexed Loan-to-Foreclosure-Value (LtFV) of the retail mortgages stood at 99% compared to 93% at year-end 2011. For the year 2013 the outlook remains very challenging. Macroeconomic indicators suggest that economic activity in the Netherlands will remain subdued. Consumers' purchasing power is expected to decrease further, while unemployment is set to increase. We expect the conditions in the housing market to remain weak and therefore loan impairments to be at historically high levels. At SNS Retail Bank, we expect risk-weighted assets to increase due to the future redemption of debt securities issued under securitisation programmes. Furthermore, the further implementation of more stringent risk assessment models for retail mortgages could have an upward impact on risk-weighted assets. 9.6 Organisation and distribution 9.6.1 Customer focus and efficiency The SNS Retail Bank brands and shared service centres implemented various improvements with a view to customer interest and efficiency. These two aspects are inextricably linked because only with an efficient organisation can the bank brands offer a good price/quality ratio to its customers. All bank brands contributed to cost savings, in part through further development of the shared services centres, IT and product development. One example of central product development was the platform for mobile payments which was made available to SNS Bank customers at the end of 2012. ASN Bank and RegioBank are to follow at the start of 2013. Although SNS Retail Bank welcomed many new customers in 2012, the number of unique customers showed a decrease of 64,500 (2%). This was because customers with just a salary savings account left. The fiscally attractive salary savings scheme was abolished in 2012. Moreover, the publications on the developments at Property Finance affected the number of people with savings accounts. SNS Bank Annual report 2012 35


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    9.6.2 SNS Bank: close to the customer both online and offline SNS Bank continued to invest in developing the provision of services and the brand: the objective is greater simplicity and convenience for people who want to manage their banking business in a contemporary way. That is why SNS Bank is expanding the number of SNS Shops in the Netherlands to better help and advice its new and existing customers in a personal way in line with its strategy. Apart from personal contact via the telephone and in SNS Shops, SNS Bank also seeks interaction and engagement with its customers in a targeted manner via the Internet. It has become easier for customers to respond online to how they experience SNS Bank’s services. In 2012, customers on average provided feedback via the website 31,000 times per month. In addition, open feedback was given on average well over 2,500 times per month, including tips on how to improve the website. We also notice that our customers increasingly make use of the SNS Community and of Twitter and Facebook. In many cases, the webcare team is able to respond to questions and discussions within a matter of minutes. There was a sharp increase in the number of customers responding via online channels. For actual improvement actions, refer to Listening better to your customers, better customer service. In order to increase the accessibility of its services, the SNS Bank website also offers aids to customers with a visual impairment, such as a ‘talking digipass’. In 2012, SNS Bank was the only bank in the Netherlands to retain the zero threshold title from the 'Stichting Waarmerk Drempelvrij', the Dutch foundation that provides quality labels for accessible websites for people with a disability Customers who are not yet familiar with online banking can attend a course for SNS online banking in an SNS Shop nearby. 9.6.2.1 Added products strengthen customer relationships For many customers, simplicity in finance means having as many of your financial products as possible with just one bank and managing them via a single website. Therefore SNS Bank has further expanded its range of insurance products. Sales of new insurance policies rose significantly, by about 61%. SNS Bank aims to further strengthen the relationship with its customers by offering additional products such as the CZ Zorg-op-maat policy that was introduced in November. The CZ policy offers exclusive discounts and is only available to existing SNS Bank customers. 9.6.2.2 Handling money in a responsible way Through its products and service, SNS Bank aims to make it easy for its customers to manage expenditure and income and to achieve their financial objectives, but that is not enough. People also need to have the personal knowledge, motivation and encouragement to be able to handle money sensibly. SNS Bank is actively promoting this in society. Every year, many employees from SNS Bank, RegioBank, ASN Bank, BLG Wonen and others devote themselves to explaining financial matters to children aged 6 to 12 during the national Money Smart Week. In total, employees of SNS REAAL delivered about 1,200 guest lectures, more than any other institution in our sector. SNS Bank and SNS REAAL are among the initiators and partners of the Stay on Top of Your Spending Foundation (WWJB). WWJB focuses on increasing financial self-reliance among young people aged between 12 and 25. To this end, WWJB engages with young people, both offline and online. Key activities include interactive and target audience-focused workshops, support for schools with teaching materials and guest teachers as well as special events. Events organised by WWJB in 2012 included MoneySkills to test and improve financial skills, the 2nd Young People & Money Event and Edgie The Movie, a crowd-sourced film featuring Wouter Bos, who gets young people thinking about money and the dilemmas it brings. SNS Bank and SNS REAAL not only made a financial contribution in 2012, but also contributed by enabling their employees to give guest lectures and workshops. For more information, see the website of WWJB. SNS Bank became involved in the social debate on the stagnating housing market and burden of debt that homeowners have built up and the risks that they are facing. According to a recent survey almost 70% would prefer to finance their home from their own savings as much as possible in order to minimise their mortgage expenses. At the same time, research revealed that only 3% are saving to purchase a home. SNS Bank therefore argued via various media in favour of a system of bouwsparen (home savings) based on the German Bauspar system. To make this initiative happen, the government and other parties involved in the housing market need to take action. Saving rather than borrowing needs to be (fiscally) encouraged. On 31 October 2012, SNS Bank organised a symposium on bouwsparen for politicians, the SNS Bank Annual report 2012 36


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    government, regulatory bodies, the construction sector, banks, insurance companies and interest groups such as FNV Young (a trade union), the Dutch Association of Estate Agents and the Dutch National Homeowners Association. With the reintroduction of Zilvervloot Sparen in September 2012, SNS Bank and RegioBank aim to encourage the habit of saving among children. This objective, in the form of an educational role and in accordance with the Manifesto, is more important than immediately realising returns for SNS Bank and RegioBank. Through Zilvervloot Sparen, parents and grandparents also have a positive involvement in their (grand) childrens’ habit of saving. 9.6.2.3 Better listening to customers, improving service SNS Bank refined its systems to further improve the recording and analysis of customer responses, enquiries and complaints, among other things through more interaction on the website. As a result of these analyses, a lot of improvements were made. In addition, customer satisfaction was measured more frequently and across more sub-areas. The availability of SNS Customer Service was 89%. In July, SNS Customer Service abolished the system of phone key selection for customers telephoning the bank. Customers are now connected to an employee immediately. Employees were trained in advance to be able to answer the majority of questions in a single call. Calls need to be transferred far less frequently than previously. Waiting times for customers have not increased as a result. The total number of complaints declined significantly, by approximately 21%. For SNS Bank, this is evidence that products have become simpler and easier to understand and that service delivery has improved. Of all the complaints, 25% for example related to customer care and service, 16% to service delivery and 13% to the cashier function. SNS Bank also improved the complaints handling itself. This was done by focusing more on directly finding a suitable solution with more authority for the staff member to solve the complaint and to prevent new complaints, instead of finding out who was wrong or right. The SNS Customer Council acts as a sounding board for the Management Board of SNS Bank. The council is made up of some 20 customers who meet at least four times a year with the members of the SNS Bank Management Board for an open dialogue on numerous topics. Agenda items in 2012 included: the SNS Participation Certificates, marketing campaigns, the role of the SNS Shops in relation to customer service, advice and the Internet, the role of SNS Bank in getting the housing market back on track and SNS Bank’s brand identity. The number of members of the SNS Community rose from approximately 900 members at the end of 2011 to approximately 1,500 at the end of 2012. Members actively think along about improvements of services such as the development process of the mobile app for instance when user tests, research results and discussions had a real influence on the final design of the mobile app. Tips about the revised My SNS Investment environment, the new functionality where a balance deficit is automatically topped up and the method of providing information about changes in interest on savings helped SNS Bank to implement improvements too. Also, the idea for the service card that was introduced in 2012 originated from the SNS Community. Following criticism from the SNS Community regarding the rate of interest on the SNS Jeugdspaarrekening (savings account for youngsters), which was below the rate for adults, the two interest rates were brought in line. SNS Bank also used the responses, questions and complaints from customers via other channels, in particular SNS Customer Service and the web pages, to make improvements. Other improvements implemented in 2012 included: • the elimination of the charge for a replacement card • the keuzedeposito retail savings account is now terminated by definition rather than extended on the expiry date • reduced response time for mortgage applications and a range of improvements with respect to extensions and changes of the mortgage • less frequent submission of costly certificates of inheritance by surviving relatives and easier submission of changes. SNS Bank Annual report 2012 37


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    9.6.2.4 Customer satisfaction SNS Bank intensified its control of customer satisfaction by measuring more frequently and across more sub-areas. In addition to the Net Promoter Score (NPS), SNS Bank also measures customer assessments in report scores. Once a customer had given a score, SNS Bank’s advisors, sales advisors and employees of SNS Customer Service started in 2012 to randomly call back these customers. This gives the employee in question insight into why the score was given. The outcome of this conversation with the customer is recorded, discussed with the manager and used to make improvements. Nevertheless, customer satisfaction of SNS Bank, based on the NPS, fell from -33 at the end of 2011 to -35 at the end of 2012, a limited deterioration. 9.6.3 ASN Bank: number of customers rises to 588,000 The number of ASN Bank customers rose from 575,000 to 588.000 (+2%), although the growth was driven down by the outflow of customers who only had a salary savings account. Years of consistent sustainability policy, product policy, customer service and marketing ensure a strong brand reputation and a high level of customer satisfaction. ASN Bank attaches great value to engagement with its customers and other stakeholders with respect to its mission and issues of sustainability. ASN Bank is keen to ensure that these discussions with customers are more concerned with this issue than with quality of the service. That simply has to be good. According to research conducted by MarketResponse, ASN Bank was again very successful in doing so. As in 2011, ASN Bank was acclaimed most customer-friendly bank in the Netherlands. In addition, ASN Bank was again a frontrunner in responsible banking according to the Fair Bank Guide. The number of employees (FTEs) increased by approximately 10% due to the increase in the number of customers and in the expansion of sustainable credit management. 9.6.3.1 Engagement supports policy and strengthens loyalty ASN Bank’s investment policy is of great importance in performing its mission. The principles of this are set out in issue papers. These are updated not just in the light of new scientific publications, but also via crowd sourcing among customers, NGOs and other stakeholders. The Climate issue paper concept is ready and will be approved by the management board in 2013. On the Ethical Investment Day organised by the ASN Bank in December, the issue of climate change was also the main topic. In addition to presentations by the Management Board and external experts as well as discussions, the day also provided scope for relaxation around this topic. ASN Bank also organises involvement in sustainability via the online platform Voor de Wereld van Morgen (For Tomorrow’s World). This platform is open to both customers and other stakeholders. By the end of 2012, the number of members increased to 51,500. For many customers and for the Management Board, the Annual General Meeting of Shareholders of ASN Beleggingsfondsen (ASN Investment Funds) is an important platform to discuss the bank's policy. The central topics in 2012 were the policy and changing regulations with respect to the ASN-Novib Microkredietfonds (ASN-Novib Micro Loans Fund). If ASN Bank performs well, its social partners will benefit too. Contributions to them, including those of the ASN Foundation, amounted to € 2.6 million, i.e. 7.4% (2011: 4.0%) of the net profit. 9.6.3.2 Customer satisfaction When it comes to service, customers have high expectations of ASN Bank. Especially the initial experience of new customers is, therefore, of key importance. ASN Bank attaches great value to the Net Promoter Score, because customers who are so positive that they will recommend the bank to other people will make a bigger contribution to the bank’s growth than a large group that is only reasonably positive. ASN Bank is one of the few Dutch banks to get a positive rating on customer satisfaction based on the NPS method. Nevertheless, it fell from 34 at year-end 2011 to 22 at year-end 2012. The most likely explanation for this is the negative attention in the media for SNS REAAL and the financing of homes via SNS Bank. SNS Bank Annual report 2012 38


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    9.6.4 RegioBank: exploit opportunities ignored by other banks The number of RegioBank customers rose from 511,000 to 530,000 (+4%). At the same time, the number of branches remained more or less stable at 535. Because a lot of other banks are withdrawing from less densely populated regions, RegioBank is serving a growing need for local bank branches offering a personal service and a cashier function. RegioBank has a flexible and low cost structure. Advisors may also broker products from other providers, but savings and payment products are exclusively RegioBank products. RegioBank is continuing to further strengthen its position as a local bank in the region. In addition to national radio advertising, there were radio ads in Friesian and in seven regional dialects across the Netherlands. The campaigns were well received and made a direct contribution to the growth in the number of customers and the number of sales. RegioBank has good growth potential. Advisors learned how to turn potential customers into actual customers and how to better discuss banking products with their customers. Organised mutual contact between advisors was increased, allowing them to learn more from one another. 9.6.4.1 Customer satisfaction Customer satisfaction at RegioBank, based on the NPS measurement method, increased from -18 at the end of 2011 to -9 at the end of 2012. Customers are particularly satisfied with the personal approach, commitment and customer care. Areas for improvement according to customers were communication and the website. Satisfaction among advisors with respect to the RegioBank formula and organisation rose from 75% at the end of 2011 to 87% at the end of 2012. 9.6.5 BLG Wonen: theme brand with new growth opportunities BLG Wonen started with the transformation from mortgage advice to house and home-related advice in 2012. That is why BLG Hypotheken became BLG Wonen in 2012. This gave the brand for intermediaries a new positioning which will be further developed in the years ahead. BLG Wonen currently offers three types of products: home loans, home savings and home insurance. At the end of 2012, bank savings were also added to the portfolio. BLG Wonen was present at home and lifestyle events to raise awareness of its home and housing-related services which will be further expanded in the years ahead. BLG Wonen will start customer satisfaction research in 2013 using the NPS method of measurement. 9.6.6 Testing customer interest The products and services offered by the SNS Retail Bank brands constantly evolve due to changes in customer needs and changes in laws and regulations. In 2012, the brands also tested all their products for new sales using the Group-wide SNS REAAL standards. They measured whether customers’ interests are sufficiently put first in accordance with the following criteria: cost-effectiveness, usefulness, security and clarity. The brands also carry out tests to find out if marketing and product communication comply with all internal and external regulations. 9.6.7 Awards Once again, our retail bank brands won several awards in areas such as customer service, best retail bank website, most flexible current account, best sustainable investment funds and best travel insurance. See GRI 2.10 of the annual report of SNS REAAL for an overview. SNS Bank Annual report 2012 39


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    9.7 Commercial developments SNS Retail Bank 9.7.1 Savings and payments 9.7.1.1 Further market share growth The total Dutch savings market, including bank savings, increased from € 306 billion to € 324 billion (+5.9%). SNS Retail Bank's market share again grew and increased from 10.0% to 10.3%. At the end of 2012, the total savings amounted to € 32.8 billion. This further limited the bank’s funding dependence on the capital market. Especially in the first half of 2012, savings deposits increased. In the second half of the year, reports about the increased losses in the real estate loan portfolio and speculation on the future of SNS REAAL had a negative impact on growth. SNS Bank’s range of savings products has been further simplified. SNS Bank restricted the number of on demand savings products to two: Internetsparen (online saving) for unlimited deposits and Maxisparen for a monthly deposit. Other types with a higher interest rate for a minimum deposit plus a bonus after temporarily not making any withdrawals were abolished. The introduction of the Zilvervloot Sparen was a great success. From the start of September, around 32,000 accounts were opened at SNS Bank and RegioBank. With Zilvervloot Sparen, both banks are restoring this very popular type of savings for children and young people that dates back to the second half of the last century. At the time, the government offered a maximum premium of 10% on completion of the total saving period. Now, SNS Bank and RegioBank do this. Because they believe it is important that children learn to save. Money can be paid in from birth through to the age of 18, and you can start saving any time up to the age of 16. The maximum deposit is € 600 per annum and the interest payment at year-end 2012 was 2.3%. For each full year of saving, savers receive a premium of 1% on the amount paid in, up to a maximum of 10%. At the end of 2011, SNS Bank was the first major bank to introduce the current account with interest. It attracted a lot of new customers. A new service is the SNS Servicepas (service card) which allows customers whose bank card has been broken, stolen or lost can temporarily withdraw cash or make payments. SNS Bank is the only bank in the Netherlands offering this service. SNS Bank introduced a functionality whereby a balance deficit can automatically topped up from the savings account on a weekly basis if the customer wishes. The customer can also choose to be alerted when the account is in the red in which case he could possibly take action himself. A lot of SNS Shops sponsor local activities or devote themselves to good causes. Here are some examples: a marketing campaign around SNS Betalen, in co-operation with Stichting Jarige Job, raised nearly € 50,000 for the birthdays of children aged 4 -12 who grow up in families who are dependent on the Food Bank; a Santa Claus afternoon for disadvantaged children in Oss and participation in the Serious Request campaign in the Enschede region. 9.7.1.2 Successful savings campaign for ASN Bank and Bio Vakantieoord ASN Bank contributed approximately 30% to total net growth of the savings deposits within the retail banking brands by growing the number of customers. In spring, ASN Bank introduced an exceptionally successful marketing savings campaign for Bio Vakantieoord. This institution aims to offer disabled children and their parents a wonderful, care-free holiday. ASN Bank donated € 5 for every customer that opened an ASN Ideaalsparen account and for every customer that paid at least € 1,500 in savings into this account. This resulted in a donation from ASN Bank of € 323,785. Part of the money goes towards energy efficient buildings and part towards providing more facilities for the guests. SNS Bank Annual report 2012 40


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    9.7.1.3 Spaar-op-Maat and Zilvervloot Sparen popular at RegioBank ASN Retail Bank contributed approximately 24% to total net growth of the savings deposits of SNS Retail Bank, in part due to a growing number of customers. As with SNS Bank, introduction of Zilvervloot Sparen savings account for children was a great success. This also contributed to a positive brand experience, customer loyalty and additional sales opportunities. In addition to personal contact, many RegioBank customers also value the cashier function at the branches. Approximately 80% of the branches have a cashier function. In 2012 once again, the RegioBank savings products scored well in various surveys, such as various highest scores during the year for the Spaar-op-MaatVrij savings account in the Dutch Consumers' Association Money Guide. 9.7.1.4 Sustained growth in bank savings Bank savings increased by € 1.3 billion to € 2.4 billion. The figures do not include bank savings for mortgage redemptions. Bank savings products are simple, transparent products with relatively low risks and low costs, which allow our customers to benefit from fiscal exemptions to the maximum. This explains their growing popularity. Sales of pension-related and severance pay products increased by about 67% in 2012. All the bank savings products are on the balance sheets of SNS Bank or RegioBank. 9.7.2 Mortgages 9.7.2.1 Mortgage portfolio remains stable The market volume for new residential mortgages in the Netherlands fell again, from € 66 billion in 2011 to € 47 billion in 2012. The number of mortgage transactions dropped by approximately 19.7% to 200,000 and the average transaction volume was down by around 11%. The change in fiscal regulations for mortgage deductions that entered into force in 2013 brought a short-term revival in sales at the end of the year. The total mortgage portfolio of SNS Bank, RegioBank and BLG Wonen, amounting to € 50.6 billion, fell only slightly by 4%, due to a high retention rate. The new mortgages market share fell sharply, from 5.7% in 2011 to 2.0% in 2012. First of all because SNS Bank increased its focus on selling third-party mortgages, which fits in with the aim of strengthening the distribution function and developing independent mortgage advice as a paid service. And secondly because SNS Bank implemented a conservative policy with respect to its own new mortgages in order to limit the capital requirement, due the bank's solvency that came under pressure following the losses on Property Finance’s real estate loans portfolio. Expert advice, taking into account customers’ individual interests, is essential in providing responsible financial services. At the end of 2011, SNS Bank was the first bank in the Netherlands to introduce a fixed fee for advisory services. With effect from 2013, this applies to all complex financial products. SNS Bank is the only bank in the Netherlands to offer its customers a choice of different brands depending on the mortgage advice given. SNS Bank also brokers mortgages from other providers such as Delta Lloyd and Aegon. In 2012, Syntrus Achmea was added to the product range. As a result, SNS Bank strengthened its position in the market for mortgages with a National Mortgage Guarantee (NMG). The share of new third-party mortgages as part of total sales rose from 8% in 2011 to 29% in 2012. As a result, the total distribution share fell by only 2.8%. The further deterioration of the housing market, coupled with rising unemployment, left more people facing financial difficulties. The number of people in arrears increased and the level of the impairments rose too. The number of impairments rose sharply from € 40 million in 2011 to € 98 million in 2012. The number of mortgages in arrears rose by 9.3%. A high proportion of new mortgages are covered by the National Mortgage Guarantee (NMG). In 2012, this proportion was 48.8%. SNS Bank Annual report 2012 41


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    9.7.2.2 Preventing problems and helping to solve problems At the end of 2012, SNS Bank and RegioBank set up a new service called ‘Special Attention’, to prevent customers from having potential payment problems. Based on customer profiles, SNS Bank and RegioBank contact high-risk customers because their mortgage costs are forming too big a part of their disposable income, such as customers with a high LTV (loan-to-value) mortgage or in arrears. In addition, customers whose fixed interest period was about to expire were informed of the risk of rising interest rates from 2013. RegioBank draw customers attention to the risks of (maintaining) too high a mortgage via the Oplossing voor uw Aflossing (Resolve your redemption) campaign. RegioBank points its customers to various options to secure redemption, for example via an annuity mortgage, a linear mortgage or via bank savings. The best solution varies from customer to customer. Following the initiative, 2% of the customers redeemed (part of) their mortgage. The Special Credits department focuses on customers who want to pay their mortgage, but are no longer able to do so. Account managers try to help and offer solutions. SNS Bank is keen to differentiate between people with a poor payment attitude and people who act entirely in good faith. SNS Bank account managers visit customers in their homes, find out more about the financial situation, make suggestions for reducing expenditure and/or increasing income and then seek to find a solution together with the customer. Such a solution is always more beneficial for both parties than the forced sale of the house at an auction. The number of forced sales was 988 in 2012 compared with 906 in 2011. 9.7.3 Investments Customers' appetite for investments remained low due to the weak economic environment and volatility on the financial markets. The preference for saving increased. Expiring unit-linked insurance policies and investment-linked mortgages also played a part in this. Nevertheless, the total assets under management in the SNS investment funds increased to € 5.1 billion (+8.1%), mainly due to gains on bonds and next to that to gains on shares. 9.7.3.1 Enabling customers to make responsible choices SNS Bank strives for a well-ordered range of investment opportunities and helps customers to make their own choices that best suit their needs as well as their knowledge and experience. Customers can test which form of investment best suits them via the website. Subsequently, they gain insight in the various options and cost structures per investment method. At SNS Bank, customers can invest independently via SNS Fundcoach or SNS Zelf Beleggen. SNS Fundcoach offers a choice of around three hundred large international and specialist investment fund providers. Via SNS Zelf Beleggen, customers invest in stocks, bonds, options and a limited number of investment funds. The number of transactions via SNS Zelf Beleggen fell slightly. 9.7.3.2 Responsible investments and responsible performance SNS investment funds are actively managed funds. This means that they do not automatically track the index for the sectors in which they invest. SNS Asset Management (SNS AM), the manager of the SNS Investment Funds, thus aims to achieve two key objectives: • by adhering to our Fundamental Investment Principles, we exclude non-sustainable investments. That is to say, we do not invest in companies that violate the so-called ESG (Environment, Social, Governance) criteria and, therefore, do not sufficiently respect SNS AM's principles in the area of human rights, the environment and corporate governance; • a better average performance than so-called index funds, justifying the slightly higher costs for active management. SNS Bank Annual report 2012 42


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    SNS Bank sets out the social and environmental aspects of its investment policy on its website. SNS Bank also demonstrates on its website to what extent its investment funds comply with the ESG criteria: 100%, 100-85%, 85-65% or less than 65%. The ESG criteria cannot be 100% guaranteed for every fund given that SNS AM purchases part of its investment management from third parties. SNS Bank publishes a quarterly report on its website regarding excluded companies and active shareholdership. In 2012, the reports – also within the scope of putting customers’ interests first - were better tailored to meet private interested parties by making them more compact and by publishing them in Dutch for the first time. The Fair Bank Guide raised the scores of SNS Bank and RegioBank compared to the previous year due to tightening of the policy for investments for own account and business funding in the areas of climate and biodiversity. This led to improvements in the scores for nature, health, transparency and the forestry industry. The Fair Bank Guide compares the eleven largest providers of individual current and savings accounts in the Dutch market. It looks at the banks' own investments and funding as well as the asset management for customers. SNS investment funds performed well in 2012, with high absolute returns for stock, bond and mixed funds. Particularly in the second half of the year, following calming statements made by the president of the ECB, equity markets rose and capital market interest rates decreased sharply, causing the prices of bond fund to rise. Of the sixteen funds, thirteen funds - more than 80% - achieved a return of 10% or more. For example, SNS Euro Mixfonds, the largest of them, with invested assets of € 1.9 billion, achieved a return of 15.6% based on intrinsic value and net of costs. The funds also performed well compared to relevant benchmarks. Of the sixteen funds, twelve funds - or 75% - performed better than the benchmark on the basis of intrinsic value net of costs. Thus, SNS Euro Share Fund outperformed the benchmark by 2.5%. Research agency Morningstar gives investment funds a rating based on stars for their yield-to-risk ratio. SNS investment funds scored well at this rating scale at year-end: • three funds with the maximum of five stars; • seven funds with four stars; • four funds with three stars; • one fund with two stars. The SNS High Dividend Equity Fund did not get a rating. This is because of the specific regional weight of this fund (60% Europe versus 40% US) and the hedging of all currencies against the euro. The risk-return characteristics of this fund are therefore not comparable to that of the benchmark. 9.7.3.3 Participation Certificates On 1 February, the Minister of Finance decided to nationalise SNS REAAL and to expropriate, inter alia, the third series of SNS Participation Certificates. The first possible maturity date of this series was 23 June 2013. The Council of State subsequently determined inter alia that the nationalisation and expropriation of the third series of SNS Participation Certificates irrevocably remains in force. The Enterprise Chamber of the Amsterdam Court is currently dealing with a lawsuit to determine the compensation amount. The State proposed € 0 as compensation amount for the SNS Participation Certificates. The Minister of Finance has requested SNS Bank to investigate if the bank may have acted or advised improperly with respect to the certificates in the past and, if necessary, to make a compensation proposal. Further to the Minister’s request, SNS Bank gives preferential treatment to this investigation. The Minister has requested the Netherlands Authority for the Financial Markets (AFM) to monitor the investigation. SNS Bank will provide more information as soon as possible. SNS Bank Annual report 2012 43


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    9.7.3.4 ASN Bank specialist in sustainable investments Interest in the ASN investment funds remained more or less stable. The outflow was around 0.5%. ASN Bank's criteria for sustainable investments go a step beyond the criteria of SNS Bank, REAAL and Zwitserleven. ASN Bank sets out the exclusion and inclusion criteria on its website. The bank also makes every effort to encourage responsible investment in general, in part through the Groenberaad Banken, the Association of Investors for Sustainable Development, the United Nations Environment Programme Finance Initiative (UNEP FI) and the Carbon Disclosure Project. In 2012, ASN Bank remained one of the frontrunners in the Fair Banking Guide’s assessment. ASN Bank measures the carbon dioxide emissions from companies in which its investment funds invest. ASN Bank measures the effectiveness of its climate policy by calculating the carbon dioxide emissions of the equity funds. In 2012, ASN Bank developed a new calculation method. This method no longer starts from the relative, but from the absolute carbon dioxide emissions. Because ASN Bank calculates the average absolute carbon dioxide emissions per fund, it measures the real impact of its investments on the earth’s carrying capacity. After the formal adjustment of the investment policy, ASN Bank will implement this calculation method of the carbon dioxide emissions in 2013. 9.7.3.5 Exclude but still exercise influence Sustainable investment has its dilemmas. Should you invest in companies that do not (fully) adhere to responsible principles so that you can aim for improvements through a voting policy and engagement? Or should you exclude these companies from your investments, preferably together with other parties, and try to enforce changes via the media or political lobbying? Both methods can prove successful. ASN Bank opts for exclusions more frequently than other banks. Thus, ASN Bank paid attention to Philips in its portfolio. Philips had an interest in DutchAero which is involved in the production of the Joint Strike Fighter. ASN Bank excludes all companies that are involved in arms production, via trade or distribution. ASN Bank repeatedly put across its point of view at shareholders' meetings via the Dutch Association of Investors for Sustainable Development. Philips reduced its share in DutchAero by 20% in the beginning of 2012. Philips now forms part of the ASN Bank investment universe. 9.7.3.6 More ASN Bank loans for companies In 2012, Dutch banks, in line with the majority of European banks, adopted a defensive loan policy with regard to the economic crisis, the poorly accessible capital market and the increasing requirements for buffer capital. Bucking this trend, ASN Bank was able to increase its sustainable loans for project development in 2012. The number of new loans rose from € 138 million in 2011 to € 174 million (+26%). Of this, € 110 million was loaned directly by ASN Bank and € 64 million was loaned via the ASN Groenprojectenfonds, ASN Green Projects Fund in which private customers can invest. The total ASN Bank loan portfolio for project development thus increased from € 287 million to € 366 million (+ 27.5%) at the end of 2012. ASN Bank tests projects for loans against the sustainability criteria of human rights, climate and biodiversity. Large projects are also tested against the international Equator Principles. In addition to the loans, a further € 219 million was invested in private loans and € 89 million in corporate bonds. ASN Bank also invests in affordable housing via NMG mortgages or private mortgages with comparable features. These mortgages give people on a moderate income the chance to live pleasantly. ASN Bank believes that people in the sustainable society of the future want to live in good, affordable, energy-efficient homes. Although ASN Bank seeks to invest in mortgages for energy-efficient homes that are built with sustainable materials, in practice this is not yet possible on a large scale. ASN, therefore, places emphasis on the social aspect: ASN Bank primarily invests in mortgages for people with lower and middle income. As with all investments, ASN Bank continuously strives to make its investments in residential mortgages more sustainable. To this, ASN Bank will give further substance in the coming years in the context of its long-term objective for the climate. Along with SNS Bank, BLG Wonen and RegioBank, ASN Bank is working on a policy document in which all aspects of a social, sustainable housing policy is further elaborated on. In 2012, € 250 million in new loans was extended for these mortgages. At the end of 2012, approximately € 4.5 billion was outstanding in loans for mortgages. According to ASN Bank risk standards, the value of the mortgages for the entire mortgage portfolio may not exceed 110% of the foreclosure value. At the end of 2012, this percentage was 77.9%. SNS Bank Annual report 2012 44


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    The investment arm of ASN Bank became manager of the Energy Fund Overijssel. This fund aims to invest € 250 million in energy savings and new energy over the next years. It enables entrepreneurs to invest in sustainable energy such as biomass, solar and geothermal through loans, participations and guarantees and provides information to help them along the way. This objective fits in well with ASN Bank's mission to encourage sustainability in society. ASN Bank collaborates on this assignment with Royal HaskoningDHV and Start Green Venture Capital which contribute technical knowledge and management of the shareholders’ equity. 9.7.3.7 Positive profit contribution SNS Securities Although profit contribution from SNS Securities declined due to the challenging market environment, it remained positive. SNS Securities retained its strong position and achieved growth in the corporate bonds market. SNS Securities also provides individual asset management and investments with advice for assets from € 250,000. This market came under severe pressure. On 19 December 2012, SNS Securities signed a letter of intent to sell its private banking activities to Bank ten Cate & Cie in the second half of 2013. Other activities of SNS Securities are securities services (shares, bonds and derivatives) for national and international professional investors and support to SMEs and larger businesses with respect to private and public capital market transactions. The securities research carried out by SNS Securities focuses in particular on the Dutch small and midcap funds. The macro-economic research is also used for risk management purposes within SNS REAAL. SNS Bank Annual report 2012 45


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    10 Developments Property Finance 10.1 Financial developments at Property Finance Property Finance In € millions 2012 2011 Change Result Net interest income 98 123 (20%) Result on financial instruments (12) (36) 67% Other operating income (2) (9) 78% Total income 84 78 8% Impairment charges to loans and advances 941 284 231% Impairment charges goodwill 47 - 0% Total operating expenses 116 106 9% Other expenses 1 - 0% Result assets and liabilities held for sale - 4 (100%) Total expenses 1,105 394 180% Result before tax (1,021) (316) (223%) Taxation (208) (73) (185%) Net result for the period (813) (243) (235%) One-off items (47) - Adjusted net result for the period (766) (243) (215%) Impairment charges as a % of average gross outstandings 10.27% 2.50% Risk-weighted assets Basel II 7,511 9,724 (23%) Total net exposure 7,031 9,413 (25%) Property projects 416 512 (19%) 10.2 Result 2012 compared to 2011 The net loss of Property Finance increased sharply to € 813 million, mainly driven by sharply higher loan impairments, reflecting the further weakening of real estate markets and an impairment of the remaining goodwill. Impairment charges increased to € 941 million, of which € 772 million occurred in the second half of 2012. Furthermore, net interest income was lower, operating expenses were up and the effective tax rate was lower due to non tax-deductable losses on some international loans. 10.3 Income Net interest income declined by € 25 million (-20%) due to the run off of the loan portfolio. The lower loan portfolio also entailed lower interest-related fee and commission income included in net interest income. The result on financial instruments of € 12 million negative improved with € 24 million compared to 2011 due to lower discounts on the sale of performing loans, reflecting the slowdown to sell non-default loans to third parties. Other operating income amounted to € 2 million negative compared to € 9 million negative in 2011, due to a narrowing loss on participations, following the sale of a North American property project in 2011. SNS Bank Annual report 2012 46


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    10.4 Expenses Impairment charges increased by € 657 million to € 941 million and consisted mainly of impairments on loans (€ 718 million; 2011: € 196 million). Impairments on property projects rose to € 210 million (2011: € 91 million). Impairments on participations were € 13 million (2011: a reverse of € 3 million). Impairment charges on the Dutch portfolio rose to € 569 million compared to € 156 million in 2011, due to the weakening of Dutch real estate markets. Impairment charges on the international portfolio increased to € 372 million from € 128 million in 2011 mainly driven by higher impairment charges on loans and property projects in Spain and France. Impairment charges on Property Finance’s portfolio increased substantially compared to 2011 and also in the second half compared to the first half of 2012. This was the result of several developments. First of all, it became increasingly clear that the economic recovery was taking longer than expected. At the end of 2012 and early 2013, several influential parties subsequently adjusted their expectations further downward. This was also clearly reflected in the further deterioration in the outlook on the real estate markets, including the Dutch market. Due to this and to the lack of reference transactions, appraisers have become more cautious. In addition, in some countries, including the Netherlands and Spain, the refinancing market shrank further or is now practically closed. In the valuation of the portfolio with the estimation of future cash flows, transactions are used which can be observed in the market and which are to a certain extent comparable. Due to the increasing lack of liquidity in current markets, appraisers had difficulty to test a large part of the portfolio against recent relevant comparable market transactions. This meant that the assumptions and estimates made by Property Finance in the valuation of loans were exposed to significant uncertainties, greater than under normal market conditions, resulting in a broader bandwidth for the valuations. All this was reflected in a perceptible decline in the pace of the run-off, in lower estimates of expected future cash flows and, in some cases, in a necessary adjustment to the exit strategy. As a result of the aforementioned developments the number of loans in default increased during the second half of 2012 and consequently, provisions were made. Moreover, the collateral of the total portfolio was reappraised during the year, including a major part of the portfolio that was in default during the third and fourth quarter of 2012. On top of these valuations, based on the developments in the real estate markets, an additional reassessment was executed of the valuations of a number of (critical) property projects at the end of the fourth quarter and in the beginning of 2013. Finally, due to the postponement of the publication date of SNS Bank’s Annual Report 2012 subsequent to the nationalisation, events have – more than in previous years – taken place after the balance sheet date. Thus, pursuant to the regular review process in 2013, we received more updated appraisals resulting in a lower valuation compared to the original balance sheet valuation, due to the previously outlined unfavourable economic developments and further declining real estate markets. This lower valuation as per 31 December 2012, resulting from new insights of the updated appraisals in 2013, also affected the level of loan impairments. Goodwill impairments of € 47 million related to the remaining goodwill from the acquisition of Property Finance in 2006 and reflected the repositioning of SNS SME, the integration of the former core portfolio into Property Finance and the subsequent objective to run it off. Operating expenses increased by € 10 million to € 116 million due to higher legal and advisory costs related to the run off of the loan portfolio and higher restructuring charges. SNS Bank Annual report 2012 47


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    10.5 Portfolio development Table 14: Breakdown Property Finance portfolio In € millions 2012 2011 Total portfolio Commitments 7,880 9,626 Undrawn commitments 48 88 Outstanding loan portfolio (gross) 7,832 9,538 Loan provision 1,217 637 Outstanding loan portfolio 6,615 8,901 Property projects 416 512 Total net exposure 7,031 9,413 Non-performing loans 2,649 1,769 Non-performing loans as % of loans outstanding 33.8% 18.5% Coverage ratio 45.9% 36.0% Average loan-to-value (LtV) 100.9% 88.6% Dutch portfolio Commitments 6,348 7,469 Undrawn commitments 66 61 Outstanding loan portfolio (gross) 6,282 7,408 Loan provision 867 366 Outstanding loan portfolio 5,415 7,042 Property projects 106 36 Total net exposure 5,521 7,078 Non-performing loans 1,899 1,171 Non-performing loans as % of loans outstanding 30.2% 15.8% Coverage ratio 45.7% 31.3% Average loan-to-value (LtV) 101.3% 87.0% International portfolio Commitments 1,532 2,157 Undrawn commitments (18) 27 Outstanding loan portfolio (gross) 1,550 2,130 Loan provision 350 271 Outstanding loan portfolio 1,200 1,859 Property projects 310 476 Total net exposure 1,510 2,335 Non-performing loans 750 598 Non-performing loans as % of loans outstanding 48.4% 28.1% Coverage ratio 46.7% 45.3% Average loan-to-value (LtV) 99.4% 94.4% Breakdown international portfolio (geographical) Germany 333 592 Spain 198 403 France 145 206 Other Europe 634 703 North America 200 431 Total net exposure 1,510 2,335 SNS Bank Annual report 2012 48


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    10.6 Total portfolio Total net exposure declined by € 2.4 billion to € 7.0 billion (-25%) compared to year-end 2011. This decline was due to impairment charges of € 0.9 billion and transactions (sales, redemptions) of € 1.5 billion. Total commitments declined by € 1.7 billion to € 7.9 billion (-18%). Non-performing loans increased by more than € 0.9 billion to € 2.6 billion. The new inflow, of which 69% related to Dutch loans, was partly offset by the sale of non-performing loans and the foreclosure and reclassification to property projects. Total non-performing loans as a percentage of gross loans increased from 19% to 34%. Total loan provisions increased by € 580 million to € 1,217 million due to additions, partly offset by the reduction of the loan portfolio and the foreclosure and reclassification of non-performing loans to property projects. The coverage ratio increased from 36.0% to 45.9%. The average LtV of the total loan portfolio increased from 88.6% at year-end 2011 to 100.9%. Property projects (real estate projects where Property Finance has taken control) decreased from € 512 million to € 416 million mainly due to impairments. Foreclosures in 2012 consisted of two domestic projects and two projects in Spain. 10.7 Dutch portfolio The total Dutch net exposure declined by € 1.5 billion to € 5.5 billion compared to year-end 2011 (-22%), mainly through impairments and redemptions. Total commitments declined from € 7.5 billion to € 6.3 billion (-15%). Non-performing Dutch loans increased sharply by € 728 million due mainly to new inflows reflecting the further weakening of domestic real estate markets. Total non-performing loans as a percentage of gross loans outstanding increased from 16% to 30%. The coverage ratio increased from 31% to 46%. The average LtV of the Dutch portfolio increased sharply from 87.0% to 101.3%. Net of provisions, the average LtV of the Dutch portfolio amounted to 87.0% (year-end 2011: 82.7%). 10.8 International portfolio The total international net exposure declined from € 2.3 billion at year-end 2011 to € 1.5 billion (-36%). The exposure was reduced through redemptions, the sale of loans, movements in foreign exchange rates and impairments. Total commitments declined from € 2.2 billion to € 1.5 billion (-29%). Non-performing international loans increased strongly from € 0.6 million to € 0.8 billion. New inflow of non-performing loans related to Spain, Italy, Germany and France. The outflow mainly related to North America and Germany. As a percentage of gross loans outstanding, non-performing loans increased from 28% to 48%. In North America the coverage ratio increased from 54% to 74% due to a decline in non-performing loans resulting from partial redemptions. The coverage ratio in Europe increased from 38% to 41%. The average LtV of the international portfolio increased from 94.4% to 99.4%. Net of provisions, the average LtV of the international portfolio amounted to 77.3% (year-end 2011: 82.4%). SNS Bank Annual report 2012 49

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