Press release - KAS BANK

Press release Date:

25 August 2016

Contact:

R.W. Dieker – Secretary to the Managing Board T: +31 20 557 51 80 I: www.kasbank.com



Disappointing decrease of net result of 89% to EUR 0.9 million (H1 2015: EUR 8.3 million); result from operations decreased with 61% to EUR 4.3 million (H1 2015: EUR 10.9 million).



As a result of low profitability we will forego the interim-dividend. Initiatives are implemented to improve net results and to meet our financial objectives, these include adhering to a dividend pay-out ratio of 60-80%. KAS BANK identified potential cost reductions of EUR 20 million in the period up to and including 2019.



Revenues declined by 17% to EUR 51.6 million (H1 2015: EUR 62.4 million) due to lower returns on interest and securities lending, as well as lower result on the investment portfolio. Growth of 7% in commission income in our core services (custody and administration) supports the strategic direction for the growth of our business.



Total operating expenses are 2% lower than last year, at EUR 46.7 million (H1 2015: EUR 47.8 million), being the first results of our cost control program.



Asset under Administration have increased by 8% to EUR 500 billion (Q4 2015: EUR 460 billion).



Capital ratio remains strong at 26% (Q4 2015: 25%) and the liquidity coverage ratio has increased to 171% (Q4 2015: 143%).

Key figures In EUR Result Operational result Revenues

H1 2016

H1 2015

Change

0.9 million

8.3 million

-89%

4.3 million

10.9 million

-61%

51.6 million

62.4 million

-17%

500 billion

460 billion

9%

0.06

0.56

-86%

Assets under Administration Earnings per share Dividend per share

-

0.33

C apital ratio (average)

23%

20%

1

Press release Chairman’s statement “The markets remain challenging. We are disappointed that fee income growth and initiated cost reductions have not yet compensated for the decrease in Treasury income. We are positive about KAS BANK’s continued growth in our core custody and investment accounting services. We also detect greater market demand for our expanding range of back office services for institutional investors. The actions we have initiated have not yet fully impacted, resulting in a lower first half year profitability,” says Sikko van Katwijk, Chairman of KAS BANK’s Managing Board.

General overview In the first half year of 2016 the market conditions were challenging, resulting in lower profitability. Extremely low interest rates and market response following political instabilities have impacted our financial performance. However, the growth in commission income on asset services (administration, data and reporting) supports our strategic ambitions for growth. KAS BANK's cost level needs to change in order to restore better financial performance. To achieve this we have begun executing initiatives we have identified to achieve efficiencies and resulting in lower costs in the future. KAS BANK expects to see the impact of these as of the second half of this year and onwards. KAS BANK has identified a structural annual efficiency potential of EUR 20 million to be implemented in the period up to and including 2019. KAS BANK provides financial services to institutional investors including pension funds, insurance companies, funds and wealth companies. As our clients require full compliance with continuously changing and increasing rules and regulations, it is our mission to support them to be in control. In order to allow our clients to focus on their core objectives of creating maximum asset value for their clients, at KAS BANK we increasingly find ourselves a back office partner to our clients supporting their core activities and providing them a fully continued compliant process. Through this way KAS BANK now facing adds an important new focus to its current range of client activities. Our core markets represent an enormous potential for these investor back office services that is fully aligned with our core competences. In past years we have seen healthy growth in areas related to administration, data and reporting services. It is our ambition to strengthen and expand this administrative role for our clients. In order to achieve this, we will execute plans to adjust our operating model, putting increased focus on this new core of service activities. As we have recently begun a process with ATOS for our IT-services, we intend to collaborate with outsourcing partners to combine the strength of these institutions with the strengths of KAS BANK, enhancing our push for focus on areas where we have the largest added value for our clients.

2

Press release Results Operating expenses Operating income Operating expenses Tax Net result from operations Impairments losses (recovery) Resolution levy and contribution to resolution fund and deposit guarantee scheme Expenses related to the 2014-2017 investment plan Tax Net result - other Net result for the period

First half of 2016 51.6 -46.7 -0.6 4.3

First half of 2015 62.4 -47.8 -3.7 10.9

change -10.8 1.1 3.0 -6.7

-0.0

0.2

-0.3

-1.6 -2.9 1.1 -3.4

-3.7 0.9 -2.6

-1.6 0.8 0.3 -0.8

0.9

8.3

-7.5

% -17% -2% -82% -61%

-89%

KAS BANK realised a net result of EUR 0.9 million (H1 2015: EUR 8.3 million) for H1 2016 and a return on equity of 1% (H1 2015: 8%). Net result from operations decreased with 61% to EUR 4.3 million (H1 2015: EUR 10.9 million). Extremely low interest rates, challenging market conditions and limited sales from the investment portfolio resulted in a 17% decrease of operating income to EUR 51.6 million (H1 2015: EUR 62.4 million). The operating expenses decreased with 2% to EUR 46.7 million (H1 2015: EUR 47.8 million), lower personnel expenses exceeded the increase in mainly the higher IT expenses. The efficiency ratio, based on operating income and operating expenses, amounted to 90% (H1 2015: 77%). Other items Other items as specified above are excluded from the Results from operations. The contribution to the Single Resolution Fund (EUR 1.5 million) and the deposit guarantee scheme (EUR 0.1 million) amounts EUR 1.6 million (H1 2015: nil). This is almost the total of the estimated contribution of EUR 1.7 million. For H2 2016, we estimate the contribution to the deposit guarantee scheme at EUR 0.1 million, there will be no further contributions in 2016 to the Single Resolution Fund. In H1 2016, the expenses related to the 2014-2017 investment plan of EUR 16 million (part of the compensation received from dwpbank in 2014 of EUR 20 million) to improve the operations and to strengthen the strategic approach amounted to EUR 2.9 million (H1 2015: EUR 3.7 million). These expenses were classified as personnel expenses (H1 2016: EUR 1.6 million; H1 2015: EUR 1.7 million) and as general and administrative expenses (H1 2016: EUR 1.3 million; H1 2015: EUR 2.0 million). In the period 2014 till June 2016, we have spent EUR 12.1 million of the total of EUR 16 million. This related to amongst others external employees supporting projects to increase competitiveness and investments in various programs on culture, continuous improvement (LEAN), risk and compliance resulting in higher consultancy costs. In H1 2016 there were no material (reversals of) impairments. In H1 2015, the impairments related to credit facilities (EUR 0.5 million positive) and to investments (EUR 0.3 million negative) with a positive net impact of EUR 0.2 million. The disclosed operating income and operating expenses below are exclusive of the items mentioned as ‘Net result – other’.

3

Press release Operating income Breakdown of income

In millions of euros Net interest result Net commission result Result on investments Other income Total income

First half of 2016 8.0 35.8 7.3 0.5 51.6

First half of 2015 12.7 37.2 12.1 0.5 62.4

change -4.7 -1.4 -4.8 -10.8

First half of 2016 3.1 4.9 8.0

First half of 2015 6.4 6.3 12.7

change -3.3 -1.4 -4.7

% -37% -4% -40% 0% -17%

Interest Breakdown of net interest result In millions of euros Loans and deposits Bonds and non-trading derivatives (hedge) Total net interest result

% -52% -22% -37%

Due to the UK Brexit vote, and other events, the yield curve flattened further in the Eurozone. Total net interest result decreased by 37% to EUR 8.0 million (H1 2015: EUR 12.7 million). Interest relating to loans and deposits decreased by 52%. The increased volume in client deposits could not compensate the decreased margins due to declining spreads. The interest result on KAS BANK’s investment portfolio decreased by 22% to EUR 4.9 million (H1 2015: EUR 6.3 million). The low duration – most investments have a variable interest rate for a maximum of three months – resulted in a decrease of the interest return on the portfolio.

Commission Breakdown of net commission result In millions of euros Asset Servicing Transaction Servicing Treasury Total net commission result

First half of 2016 19.4 11.4 5.0 35.8

First half of 2015 18.2 11.7 7.3 37.2

change 1.2 -0.3 -2.3 -1.4

% 7% -3% -32% -4%

Net commission result decreased with 4% to EUR 35.8 million (H1 2015: EUR 37.2 million). The decrease was mainly affected by the lower commission income relating to securities lending. The result of Asset Servicing commission (mainly Custody, Investment Management Services and Depositary Services) increased by 7% to EUR 19.4 million (H1 2015: EUR 18.2 million). Client wins and higher asset values resulted in an increase of Assets under Administration by 9% to EUR 500 billion at 30 June 2016 (June 2015: EUR 460 billion). Furthermore services like tax reclaim and the regulatory reporting line (services related to Alternative Investment Fund Managers Directive (AIFMD), European Market Infrastructure Regulation (EMIR), look through and Financial Assessment Framework (Financieel Toetsingskader)) contributed to this increase.

4

Press release Lower volumes resulted in a slight decrease of the result of Transaction Servicing commission to EUR 11.4 million (H1 2015: EUR 11.7 million). The result of Treasury commission, mainly consisting of securities lending, decreased by 32% to EUR 5.0 million (H1 2015: EUR 7.3 million). The high liquidity in the market resulted in pressure on the prices and lower volumes within the securities lending services.

Result on investments Breakdown of result on investments

In millions of euros Trading - foreign exchange transactions Trading - securities and derivatives Investments - investment portfolio Result on investments

First half of 2016 6.4 1.0 -0.1 7.3

First half of 2015 6.7 3.0 2.4 12.1

change -0.3 -2.0 -2.5 -4.8

% -4% -67% -104% -40%

In 2016, the main part of the result on investments consisted of client-driven foreign exchange transactions. These results showed a decrease of 4% to EUR 6.4 million in H1 2016 in comparison with H1 2015 (EUR 6.7 million). The trading results on securities and derivatives consist of duration overlay services (Institutional Risk Management) to clients and interest rate hedging transactions. The result on investments of the investment portfolio consisted mainly of sales of bonds (H1 2016: EUR 0.6 million; H1 2015: EUR 2.2 million) and changes in the fair value of two distressed bonds (H1 2016: EUR 0.7 million negative; H1 2015: EUR 0.2 million positive). The revaluation reserve of KAS BANK’s investment portfolio decreased in 2016 by EUR 5.9 million to EUR 6.7 million (December 2015: EUR 12.6 million), mainly due to a widening between the interest rates of the mortgages and the hedge instruments in the first half of 2016.

Operating expenses Breakdown of operating expenses

In millions of euros Personnel expenses General and administrative expenses - IT General and administrative expenses - other Depreciation and amortisation Total operating expenses

First half of 2016 32.2 8.6 4.3 1.6 46.7

First half of 2015 32.9 7.6 5.5 1.8 47.8

change -0.7 1.0 -1.2 -0.2 -1.1

% -2% 13% -22% -11% -2%

Personnel expenses Personnel expenses decreased by 2% to EUR 32.2 million (H1 2015: EUR 32.9 million). This decrease is mainly due to a lower number of external employees. Pension expenses increased with EUR 0.8 million to EUR 5.4 million (H1 2015: EUR 4.6 million) mainly due to an additional contribution to the pension fund relating to 2015 of EUR 0.5 million. General and administrative expenses The general and administrative expenses decreased with EUR 0.2 million to EUR 12.9 million (H1 2015: EUR 13.1 million). The increase of data requests to provide

5

Press release KAS BANK’s services to clients and investments in the investment accounting platform resulted in an increase of the IT expenses with EUR 1.0 million. The other general and administrative expenses decreased with 20% as a result of the cost restructuring program and lower advisory costs.

Tax expenses Due to a positive outcome of a settlement of previous tax years we record a tax benefit in H1 2016. As a result, the effective tax rate differs substantially from the statutory tax rate of 25%. In H1 2015 the statutory and effective tax rate was 25%.

Quality of the investment portfolio The table below shows the credit rating of the investment portfolio securities which are classified as Investments available for sale and Investments at fair value through profit or loss (based on Moody’s Investor Services).

In millions of euros Aaa - Aa3 A1 - A3 Baa1 - Baa3 Ba1 - Ba3 < Ba3 Total bonds

30 June 2016 341 122 45 30 1 539

Mortgage fund Shares Total

Percentage of bond portfolio 63% 23% 8% 6% 0% 100%

233 2 774

31 December 2015 339 146 54 46 4 589

Percentage of bond portfolio 59% 25% 9% 8% 1% 100%

225 2 816

As per 2014 KAS BANK invests in a high quality mortgage fund which does not have a credit rating. This mortgage fund mainly invests (at least 75%) in new mortgages which are guaranteed by the Dutch government (NHG hypotheken) and the fund therefore has the characteristics of an investment with a high credit rating.

Capital adequacy 30 June 2016

In millions of euros C ash and balances with central banks Due from banks Loans Reverse repurchase agreements Derivative financial instruments Financial assets designated at fair value Financial investments available-for-sale Other assets

Carrying amount 1.858 632 605 755 426 774 79 5.129

Market risk Operational risk Other off-balance sheet risk Total of the risk-weighted items Capital and ratios C ommon equity tier 1 C apital ratio

Riskweighted value 128 30 42 180 80 460

31 December 2015 RiskCarrying weighted amount value 799 418 82 561 29 1.091 326 37 56 760 203 93 97 4.103 449

10 200 82 752

2 200 89 740

35

Capital 192 192

6

Ratio

35

Capital 26% 26%

183 183

Ratio 25% 25%

Press release The high capital ratio reflects KAS BANK’s low risk profile. KAS BANK’s common equity tier 1 and capital ratio, excluding interim profits, are 26% at the end of June 2016 (31 December 2015: 25%).

Liquidity At the end of June 2016, 83% of KAS BANK’s financial assets have a maximum maturity of three months (at the end of December 2015: 78%). As of October 2015 a new liquidity ratio, the liquidity coverage ratio, has been initiated for KAS BANK. Under the Capital Requirement Regulation, financial institutions are required to hold an amount of high quality liquid assets equal to or greater than their outflow over a 30 day period (having at least 100% coverage). As per 30 June 2016 the Liquidity Coverage Ratio of KAS BANK amounts to 171% (31 December 2015: 143%).

Dividend KAS BANK will not distribute interim dividend (interim dividend 2015: EUR 0.33 per ordinary share). KAS BANK’s policy is to pay out an interim dividend based on actual performance in the first half year. In light of the first half year results, we will forego the interim-dividend. We repeat the bank’s aim to meet our long term external financial objectives, including adhering to a dividend pay-out ratio of 60-80%.

Outlook In the second half of 2016 KAS BANK expects an improvement in the bank’s net result in comparison to the first half of 2016, supported by a stable level of income and a lower cost level. In addition, we have non-recurring expenses related to IT outsourcing (substantial part of the transition costs of EUR 10 million will impact the result of 2016). Furthermore, the bank investigates the sale of its office building in Amsterdam in H2 2016, with an expected gain when effectuated. In the second half of 2016 KAS BANK will also finalise plans to realise a structural annual cost reduction of EUR 20 million in the period up to and including 2019 (based on the current income level). Part of these plans is the adjustment of the operating model, resulting in improving the quality and efficiency of the processes. This adjustment is expected to result in nonrecurring expenses in H2 2016.

Figures in this press release have not been audited by an external auditor. Appendixes - Consolidated Income statement - Consolidated Balance sheet

Profile KAS BANK N.V. KAS BANK is a leading European provider of custodian and fund administration services to institutional investors and financial institutions. We view the market from the perspective of our clients – tailor-made services and complete transparency are paramount in helping them to meet their business objectives. Our core focus is on keeping assets safe and secure. KAS BANK operates as a “pure player”, maintaining integrity through our neutral approach. We stay independent; working directly for institutional clients, avoiding conflicts of interest. We concentrate on what we do best - providing added-value services to national and international organisations active in the pensions and securities industries. Therefore, our clients can concentrate on performing “Best in Class”. KAS BANK has branches in Amsterdam, London and Frankfurt am Main and is listed at Euronext Amsterdam.

7

Press release Annex 1: Consolidated income statement First half of 2016

In thousands of euros

First half of 2015

INCOME Interest income Interest expense Net interest result

16,300 8,264 8,036

21,375 8,658 12,717

C ommission income C ommission expense Net commission result

43,090 7,339 35,751

44,823 7,667 37,156

7,468 -144 482 51,593

9,686 2,413 461 62,433

33,794 14,233 1,613 49,640 5 1,586 51,231

34,585 15,159 1,771 51,515 -200 51,315

362 -511 873

11,118 2,811 8,307

Attributable to: KAS BANK shareholders Non-controlling interests

873 -

8,290 17

EARNINGS PER SHARE - basic (in euros) - diluted (in euros)

0.06 0.06

0.56 0.56

Net trading income Result from financial transactions Other income Total operating income EXPENSES Personnel expenses General and administrative expenses Depreciation and amortisation Total operating expenses Impairment losses (recovery) Resolution levy and contribution to resolution funds Total expenses Result before tax Tax expense Net result for the period

2

Disclaimer: Although the information in this press release is drawn up with the utmost precision and in KAS BANK’s judgement is a true reproduction of the state of affairs at the time of publication of this release, KAS BANK cannot guarantee that this information is or continues to be correct and/or complete. KAS BANK does not accept any liability for losses as a consequence of the use of, the trust in the information in this release or acting or refraining as a result of the information in this press release.

Press release Annex 2: Consolidated balance sheet In thousands of euros Assets C ash and balances with central banks Due from banks Loans Reverse repurchase agreements Derivative financial instruments Financial assets designated at fair value Financial investments available-for-sale of which pledged as collateral C urrent tax assets Other assets Property and equipment Intangible assets Deferred tax assets Total assets Equity and liabilities Due to banks Due to customers Repurchase agreements Derivative financial instruments Financial liabilities designated at fair value C urrent tax liabilities Other liabilities Deferred tax liabilities Total liabilities Issued capital Treasury shares Share premium Revaluation reserve Other reserves (including profit for the period) Equity attributable to KAS BANK shareholders Non-controlling interests Total equity Total equity and liabilities C ontingent liabilities Irrevocable facilities

30 June 2016

3

4

31 December 2015

1,858,288 631,549 604,812 755,010 425,762 774,221 468,243 6,689 29,008 32,538 2,789 7,882 5,128,548

798,754 418,009 561,310 1,091,034 325,539 56,659 759,759 315,060 2,042 46,263 33,345 2,736 7,515 4,102,965

428,388 3,960,344 361 447,400 2,760 83,024 6,299 4,928,576

270,121 3,180,146 240 334,293 60,853 1,947 37,526 8,325 3,893,451

15,699 -21,980 21,569 18,655 166,028 199,971 199,971

15,699 -22,444 21,569 24,733 169,957 209,514 209,514

5,128,548

4,102,965

20,873 14,100

20,665 14,100

Disclaimer: Although the information in this press release is drawn up with the utmost precision and in KAS BANK’s judgement is a true reproduction of the state of affairs at the time of publication of this release, KAS BANK cannot guarantee that this information is or continues to be correct and/or complete. KAS BANK does not accept any liability for losses as a consequence of the use of, the trust in the information in this release or acting or refraining as a result of the information in this press release.