Information about the bank

Transcription

1 Annual Report 2014

2 Information about the bank Bank A/S Nørresundby Bank Torvet 4 DK-9400 Nørresundby CVR no Tel Fax SWIFT NRSBDK24 direktionssekretariatet@nrsbank.dk Board of Directors Chairman Mads Hvolby Specific competencies Strategy and business development Financial reporting and budgeting Management of a medium-sized company Financial legislation Deputy Chairman Poul Søe Jeppesen Specific competencies Management of a large company Budgeting and resource management HR Communication and marketing Morten Jensen Specific competencies Law, including financial legislation and business law Real property Risk analysis and management Budgeting and financial management Tax law John Chr. Aasted Specific competencies Management of a large company Strategy and business development Agriculture and agro-industry Sales, export and IT Finn Aaen Specific competencies Credit Risks Finance and risk management Properties Helle Rørbæk Juul Lynge Specific competencies Organisation Financial reporting and funding Market risks Board of Management Bank Manager Andreas Rasmussen Bank Manager Finn Øst Andersson Audit and Risk Committee Chairman John Chr. Aasted Committee composition: All members of the Board of Directors Nomination and Remuneration Committee Chairman Mads Hvolby Deputy Chairman Poul Søe Jeppesen Committee composition: All members of the Board of Directors Auditors Beierholm State-authorised audit firm - limited partnership company Voergaardvej 2 DK-9200 Aalborg SV 2

3 Contents Page Financial highlights for five years 4 Statement by the Management and the Board of Directors 5 Managerial posts 6 Internal audit department reports 8 Independent auditor s reports 10 Management s review 12 Financial statements: Income statement including statement of comprehensive income 35 Distribution of net profit 35 Balance sheet 36 Changes in equity 38 Capital base (solvency) 39 Cash flow statement 40 List of notes 41 Notes 42 Board of Representatives 75 Internal departments 76 The bank s branches 77 3

4 Financial highlights highlights for five for years five years Summary income statement items (DKK 1.000) Net interest and fee income Market value adjustments Other operating income Staff costs and administrative expenses Depr., amort. and imp. of intang. and tang. assets Other operating costs *) Imp. losses on loans and advances etc. **) Profit before tax Tax Net profit for the year *) The Depositor Guarantee Fund concerning failing banks / Commission concerning Bank Package I **) Impairment losses concerning Bank Package I, etc Key balance sheet figures (DKK 1.000) Loans and advances Deposits, excluding pooled schemes Deposits in pooled schemes Subordinated debt Share capital Shareholders' equity Balance sheet Contingent liabilities, etc Selected financial ratios Core income over costs ***) 1,63 1,59 1,56 1,50 1,49 Income / cost ratio 1,61 1,37 1,27 1,17 1,20 Return on shareholders' equity before tax 11,9 8,7 7,5 4,7 6,2 Capital ratio / capital adequacy ratio 20,0 19,0 17,5 17,4 16,7 Common equity tier 1 capital ratio 20,0 19,0 17,5 16,7 15,4 Excess cover relative to stat. liquidity requirements Share price Equity value per share Share price / equity value per share 1,22 0,65 0,50 0,52 0,65 Number of full-time employees (average) ***) Core income consists of interest and fee income and other operating income, net of market value adjustments. Costs are net of impairment losses and provisions for losses on guarantees. 4

5 Statement by the Management and of Directors the Board of Directors Statement by the Management and the Board We have discussed and approved the Annual Report for 1 January 31 December 2014 for A/S Nørresundby Bank on the date written below. The Annual Report is presented in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions etc. It is our opinion that the financial statements give a true and fair view of the bank s assets and liabilities and financial position as at 31 December 2014 and the results of the bank s activities and cash flows for the financial year 1 January 31 December We consider the management s review to contain a true and fair report on the development in the bank s activities and financial situation, the profit for the year and the bank s financial position and a description of the principal risks and uncertainties that the bank is facing. We consider the accounting policies applied appropriate, so that the Annual Report gives a true and fair view of the bank s assets and liabilities, financial position, profit and cash flows for the year. We recommend that the Annual Report be adopted at the General Meeting. Nørresundby, 10 February Board of Management Andreas Rasmussen Finn Øst Andersson /Pia Foss Henriksen CFO Board of Directors Mads Hvolby Chairman Poul Søe Jeppesen Deputy Chairman Morten Jensen Helle Rørbæk Juul Lynge Finn Aaen John Chr. Aasted 5

6 Managerial posts posts Board of Directors Chairman Mads Hvolby Nørresundby Born in Joined the Board in * Practising surveyor Nellemann Survey A/S (Chairman of the Board) Landinspektørernes gensidige Erhvervsansvarsforsikring (LgE) (General Manager) Landinspektørfirmaet LE34 A/S (Partner) Deputy Chairman Poul Søe Jeppesen Aalborg Born in Joined the Board in * Director, Aalborg Commercial College Forlaget Praxis (Vice-chairman) Sosu-Randers (Board member) Blegkildekollegiet Aalborg (Board member) Handelskollegiet Aalborg (Board member) Aalborg Studenterkursus (Board member) Helle Rørbæk Juul Lynge Vester Hassing Born in Joined the Board in Re-elected in 2010 and ** Housing and Asset Manager, Nørresundby Bank, Securities Finn Aaen Frejlev Born in Joined the Board in ** Business advisor, Nørresundby Bank, Corporate Centre North John Chr. Aasted Aalborg Born in Joined the Board in * General Manager, Aasted Consult Aalborg Svend Aage Christiansen Hellum A/S (Chairman of the Board) FirstFarms A/S (Board member) System Cleaners A/S (Board member) Graintec A/S (Board member) SKIOLD A/S (Board member) Fonden Gisselfeld Kloster (Foundation trustee) Morten Jensen Aalborg Born in Joined the Board in * Attorney-at-Law, partner, Advokatfirmaet Børge Nielsen Andersen & Aaquist A/S (Chairman of the Board) Felix Arden A/S (Chairman of the Board) Dansk Bilglas A/S (Chairman of the Board) Kevin A/S (Chairman of the Board) Skandia Kalk Holding ApS (Chairman of the Board) Novagraf A/S (Chairman of the Board) Ejendomsselskabet Nordtyskland Kommanditaktieselskab (Board member) Desmi Contracting A/S (Board member) H.F. Transport & Fiskehandel A/S (Board member) Saga Shipping A/S (Board member) Dansk Facility Service Holding A/S (Board member) joined on 20 October 2014 C. Flauenskjold A/S (Board member) joined on 6 may 2014 Ergonomic Solutions Manufacturing A/S (Board member) Ergonomic Solutions Nordic A/S (Board member) Munkholm Consult A/S (Board member) Square Holding A/S (Board member) Square Oil A/S (Board member) Tribodan A/S (Board member) Micodan Holding A/S (Board member) Micodan A/S (Board member) Miljø-Art A/S (Board member) Micodan Ejendomme A/S (Board member) Micodan Norge AS (Board member) Mesterbyg Klokkerholm A/S (Board member) Hadsundvej 33 A/S (Board member) Ergonomic Solutions International Ltd. (Board member) Vibeke Emborg Holding ApS (Board member and General Manager) Vibeke Emborg Invest ApS (Board member and General Manager) Komplementaranpartsselskabet Langebjergvej 1 (General Manager) Badehotellerne Pepita og Sandvig Havn ApS (General Manager) Lundagergaard Holding ApS (General Manager) * Elected by the Board of Representatives up for election yearly. Maximum age of 66 years defined in the Articles of Association. The members of the Board of Directors are considered to be independent. ** Elected by the employees up for election every fourth year. Neither of the members of the Board of Directors has assumed any demanding organisational tasks. 6

7 Managerial posts posts Board of Management In accordance with Section 80 (8) of the Danish Financial Business Act, it is hereby disclosed that the Board of Directors have accepted that the Board of Management holds the following directorships: Andreas Rasmussen Bank Manager Bankdata (Board member) Erhvervsklub KUNSTEN (Business Club) (Board member) Vækst-Invest Nordjylland A/S (Board member) Finn Øst Andersson Bank Manager 4 July committee (Chairman) C. Nøhr Frandsens Familiefond (Chairman of the Board) The Danish Maritime and Commercial Court (Expert Judge) 7

8 Internal audit Audit department Department reports reports For the shareholders of A/S Nørresundby Bank Audit report on the financial statements We have audited the financial statements for A/S Nørresundby Bank for the financial year 1 January 31 December 2014, comprising income statement, statement of comprehensive income, balance sheet, changes in equity, capital base, cash flow statement as well as notes, including accounting policies. The financial statements are prepared in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies, etc. Basis of opinion We conducted our audit on the basis of the Executive Order of the Danish Financial Supervisory Authority on the performance of the audit in financial institutions, etc., and financial groups and in accordance with international standards on audit. This requires that we plan and conduct our audit to obtain reasonable assurance that the financial statements are free of material misstatement. The audit is carried out in accordance with the distribution of duties agreed with the external auditors and has comprised an assessment of established procedures and internal controls, including the risk management arranged by the management, directed towards reporting processes and material business risks. Based on an evaluation of materiality and risk, we have also examined, on a test basis, evidence supporting the amounts and other disclosures in the financial statements. The audit also included an assessment of the appropriateness of the accounting policies chosen by the management and the accounting estimates made by the management and an evaluation of the overall financial statement presentation. We have participated in the audit of the material and risk-exposed areas, and it is our view that the audit evidence obtained is sufficient and provides a suitable basis for our opinion. Our audit has not given rise to any qualifications. Conclusion In our opinion, the established procedures and internal controls, including the risk management arranged by the management, which is directed towards the bank s reporting processes and material business risks, function satisfactorily. It is also our opinion that the financial statements give a true and fair view of the bank s assets and liabilities and financial position as at 31 December 2014 and the results of the bank s activities and cash flows for the financial year 1 January 31 December 2014 in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies, etc. 8

9 Internal audit department reports Internal Audit Department reports Statement on the management s review The management is responsible for preparing a management s review that contains a true and fair report in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies etc. In accordance with the Danish Financial Business Act, we have read the management s review. We have not performed any further procedures in addition to our audit of the financial statements. Against this background, we are of the opinion that the disclosures in the management s review are in accordance with the financial statements. Nørresundby, 10 February Internal Audit Department Ove Steen Nielsen Chief Auditor 9

10 Independent auditor s auditor s reports reports For the shareholders of A/S Nørresundby Bank Audit report on the financial statements We have audited the financial statements for A/S Nørresundby Bank for the financial year 1 January 31 December 2014, comprising income statement, statement of comprehensive income, balance sheet, changes in equity, capital base, cash flow statement as well as notes, including accounting policies. The financial statements are prepared in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies, etc. The management s liability for the financial statements The management is responsible for the preparation and fair presentation of financial statements in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies etc. The management is also responsible for internal controls deemed necessary by the management to prepare financial statements that are free from material misstatement, whether due to fraud or errors. The auditor s liability It is our responsibility to express an opinion on the financial statements on the basis of our audit. We have conducted our audit in accordance with international auditing standards and additional requirements under Danish legislation on auditing. This requires that we comply with ethical requirements and plan and conduct our audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit includes performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The audit procedures selected depend on the assessment made by the auditor, including the assessment of the risk of material misstatement in the financial statements, whether due to fraud or errors. During such risk assessment, the auditor considers internal controls that are relevant to the bank s preparation and fair presentation of financial statements. The purpose of this is to design audit procedures that are appropriate under the circumstances but not to express an opinion on the efficiency of the bank s internal control. An audit also includes an assessment of the appropriateness of the accounting policies chosen and the accounting estimates made by the management and an evaluation of the overall financial statement presentation. It is our view that the audit evidence obtained is sufficient and provides an adequate basis for our opinion. Our audit has not given rise to any qualifications. Conclusion It is our opinion that the financial statements give a true and fair view of the bank s assets and liabilities and financial position as at 31 December 2014 and the results of the bank s activities and cash flows for the financial year 1 January 31 December 2014 in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies, etc. 10

11 Independent auditor s reports Independent auditor s reports Statement on the management s review The management is responsible for preparing a management s review that contains a true and fair report in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies etc. In accordance with the Danish Financial Business Act, we have read the management s review. We have not performed any further procedures in addition to our audit of the financial statements. Against this background, we are of the opinion that the disclosures in the management s review are in accordance with the financial statements. Aalborg, 10 February Beierholm State-authorised audit firm - limited partnership company Jens Rytter Andersen State-Authorised Public Accountant 11

12 Management s review review Best performance since 2007 Nørresundby Bank realised a profit before tax of DKK million in 2014, equivalent to an increase of DKK 56.6 million or 47% in relation to the 2013 profit. Among the best in the history of the bank, this result provides a return on equity of 11.9%. As a consequence of the Board of Directors unanimous recommendation to accept the acquisition bid submitted by Nordjyske Bank A/S, no dividend will be proposed at the General Meeting for distribution. Also in 2014, the bank s income was affected by the uncertain economic trends and low interest rates. Against this backdrop therefore, it is satisfactory that the 2014 financial statements display both an overall income increase and unchanged cost levels, despite extraordinary expenses incidental to processing the conditional, public acquisition bids for the bank s shares from Spar Nord Bank A/S and Nordjyske Bank A/S. In terms of income, it is satisfactory that the bank s top line performance, mainly comprising net interest and fee income, is once again on the rise, as are the bank s capital gains, which were higher in 2014 than in In terms of expenses, total operating costs (staff, administrative expenses, depreciation, amortisation and impairment of tangible and intangible assets) amounted to DKK million, which is on a par with last year. The operating expenses were influenced by non-recurring expenses approximating DKK 4.1 million concerning the processing of the acquisition bids for shares from Spar Nord Bank A/S and Nordjyske Bank A/S as mentioned previously. The comparative figures for 2013 include non-recurring expenses approximating DKK 4 million related to the implemented adjustments of the branch network and staff. The positive developments in the individual elements of the bank s financial statements mean that the profit before market value adjustments and impairment losses on loans, advances, etc., is DKK million, which is in the upper range of the previously announced expectations of the operating income. For the year as a whole, the securities markets saw favourable developments, resulting in overall capital gains of DKK 34.8 million against DKK 22.4 million in The need to post impairment losses on loans and advances, etc., followed a declining trend throughout Total impairment losses on loans, advances, etc., thus declined by DKK 34.7 million, or 58%, to DKK 24.9 million, against DKK 59.6 million last year. The tax payable on the earnings attained for the year amounted to DKK 37.7 million, providing a profit after tax of DKK million, compared to DKK 89.3 million in Overall, the management believes that the results achieved in 2014 should be characterised as satisfactory in light of the market conditions and the organisational adjustments launched and implemented by the bank in recent years. 12

13 Management s review review Income statement Net interest and fee income Being locally anchored, the bank s purpose is to service the market area and provide advice concerning financial services, mainly consisting of deposit and loan products and securities trading. Income from these activities is typically reflected in the financial statements under net interest and fee income. Net interest income totalled DKK million in 2014, against DKK million in 2013, which represents a decline of DKK 10.5 million. Interest income on the bank s loans, advances and guarantees declined by DKK 11.6 million to DKK million, due to a lower lending rate. A corresponding decline is seen for the bank s interest expenses for deposits, which declined by DKK 11.4 million to DKK 44.7 million. Again, declining rates are underlying this development. The total net income from the bank s lending and deposits is thus as the same level as in Declining market rates also affected the bank s considerable bond portfolio, the interest income for which declined by DKK 12.8 million in 2014 to DKK 26.8 million against DKK 39.6 million last year. The net fee income landed at DKK million, corresponding to an increase of DKK 19.2 million compared to The higher fee income is attributable to the low interest rates which gave rise to considerable conversion activity as well as to rising income from securities and asset management activities as many customers chose a more active asset-management approach as an alternative to passive deposits. DKK Million Fee and commission income Other fee and commission income Guarantee commission Loan application fees Payment services Securities trading and deposits The total net interest and fee income, including share dividends, etc., thus rose by DKK 9.0 million to DKK million, against DKK million last year. Market value adjustments The securities market trends have generally been favourable in Overall, the bank s positive market value adjustments are up DKK 12.4 million to a total of DKK 34.8 million against DKK 22.4 million in

14 Management s review review For the share portfolio, the positive market-value adjustments amount to DKK 42.8 million, compared to DKK 26.1 million last year. Of this, DKK 34.2 million is attributable to the portfolio of sector shares, with positive market value adjustments on shares in Sparinvest Holdings SE and the disposal of shares in Nets A/S accounting for DKK 24.7 million. For the bond portfolio, the negative atmosphere, mainly in Q4, resulted in negative market-value adjustments in the amount of DKK 10.0 million. The bank realised positive market-value adjustments of DKK 2.0 million on currency, financial instruments, etc., compared to negative market-value adjustments of DKK 0.5 million in Market-value adjustments DKK million Bonds Sector shares Other shares Other market-value adjustments Total As a result of the volatile bond market, the bank based its actions on its desire to pursue a conservative securities policy. This is reflected in the interest-rate risk, which amounts to 0.5% of the bank s tier 1 capital as at 31 December 2014, stated as the impact on performance of a one percentage-point change in interest-rate levels. Operating costs The total costs of operating the bank (staff, administrative expenses, depreciation, amortisation and impairment of intangible and tangible assets), excluding other operating costs, amounted to DKK million, compared to DKK million in Disregarding the non-recurring expenses of DKK 4.1 million due to acquisition bids from Spar Nord Bank A/S and Nordjyske Bank A/S, the costs are at a very satisfactory level. DKK million Staff costs and administrative expenses Staff costs/wages and salaries Other administrative expenses In recent years, the bank has been keenly focused on organisational optimisation. One area of focus has been technology where various self-service systems have resulted in many customers now handling far more transactions from their own desk. This has made it possible to restructure parts of the bank s branch network. 14

15 Management s review review These circumstances led to staff reductions over a number of years, from 291 to 240 by the end of In general, costs are developing as expected. Other operating costs/depositor Guarantee Fund This item expresses the bank s share of the sector s expenses for failing banks and amounts to DKK 13.8 million for 2014, compared to DKK 15.3 million last year. The bank s total expenses for failing banks and the Depositor Guarantee Fund during the crisis amount to approximately DKK 160 million so far. The annual expenses for the collective scheme are expected to amount to DKK 13.7 million in The amount of subsequent payments is uncertain as the payments will be fixed in relation to the losses to be covered by the Depositor Guarantee Fund, combined with the possibility of implementation of new EU rules in Denmark. Impairment losses on loans, advances, etc. The total effect on operations from impairment losses on loans, advances, etc., was DKK 24.9 million in 2014, thus declining by 58% or DKK 34.7 compared to last year. Impairment losses are now at a level where no further notable decline can be expected. The current need to post impairment losses can also be seen as an indicator that the bank and the bank s customers have probably emerged from the crisis and that the bank has realised the impairment losses that were necessary and adequate during the recent crisis. DKK million Impairment losses on loans, advances, etc Impairment losses concerning Bank Package I, etc. Impairment losses on loans, advances and other receivables, etc. "regular customers" It is assessed that the bank s lending portfolio is robust and adequately dispersed among sectors. It should be mentioned in this connection that the challenges experienced by the agricultural sector due to Europe s sanctions against Russia are not expected to affect the bank s need to post any notable impairment losses, as the bank s total loans, advances and guarantees to the agricultural sector only amount to DKK 345 million or approximately 5% of the bank s loans, advances and guarantees. The impairment losses for the year equate to 0.3% of the bank s loans, advances and guarantees. The portfolio of loans and advances subject to suspended interest accrual amounts to DKK 97.6 million before impairment losses. The impairment losses on these exposures amount to DKK 76.9 million. 15

16 Management s review Management s review The bank s accumulated impairment losses amount to DKK million, corresponding to 4.7% of the bank s loans, advances and guarantees. The bank regularly assesses its need for write-downs. The assessments are based on the bank s policy in the area and applicable rules. Net profit for the year The profit after tax of DKK million is the best since Compared to 2013, this is an increase of 56.5%. The calculated tax amounts to DKK 37.7 million, corresponding to an effective tax rate of 21.2%, which is mainly attributable to non-taxable market value adjustments of DKK 32.0 million for sector shares, etc. Balance sheet The bank s overall business volume (deposits including pooled schemes, loans, advances and guarantees) amounts to DKK 14.4 billion, against DKK 13.9 billion in 2013, equivalent to a 3% increase. At the end of the year, the bank s loans, advances and guarantees amounted to DKK 5,280 million, compared to DKK 5,514 million last year. The lower lending activity is due to several circumstances. The continued uncertainty about economic trends negatively impacts demand in general. Furthermore, declining interest rates have made it attractive for many homeowners to convert existing mortgages into lower-interest loans. In addition, there are the discussions in the daily newspapers and signals from politicians and economists combined with higher prices on floating-rate loans with annual refinancing (F1) that have also affected the number of conversions. A bigger loan is frequently offered in connection with these conversions. In many cases, the proceeds of this have been used to reduce/repay bank loans. Finally, some major credit lines, for instance for financing of youth housing units, have been repaid in connection with completion and prioritisation. Lending consequently declined by DKK 234 million, corresponding to 4%. Sector breakdown in pct. Personal customers Social housing associations Property management and sale Property developers Agriculture, hunting, forestry and fisheries Other corporate lending 16

17 Management s review Management s review Due to the low interest rates, there was keener interest in investing deposited funds in securities. However, many of the bank s customers continue to rely more on cash deposits. For this reason, the bank s deposits, excluding pooled schemes, increased by DKK 165 million to DKK 6,311 million. As lending-activity trends mentioned above show, advice on and provision of mortgage credit is an important part of the business. The bank mainly provides loans from Totalkredit to personal customers and DLR loans to the corporate sector. The total lending arranged by the bank amounts to DKK 10,696 million. Of this, DKK 9,513 million is attributable to Totalkredit which increased by DKK 679 million in 2014, corresponding to 8%. The arrangement of corporate loans increased by 10% or DKK 108 million to DKK 1,183 million. The bank s provision of guarantees amounts to a total of DKK 1,799 million, compared to DKK 1,331 million last year. The guarantees were provided in connection with customers property transactions, including mortgage-loan conversions, and business customers need for performance bonds. Liquidity The bank s excess liquidity cover in terms of statutory requirements is specified at 202% and is consequently at a highly robust and satisfactory level. pct. 300 Excess cover as a percentage of statutory liquidity repuirements Excess cover as a percentage of statutory liquidity requirements The bank s objective 0 Mar 2013 June 2013 Sep 2013 Dec 2013 Mar 2014 June 2014 Sep 2014 Dec 2014 After the repayment in March 2014 of loans totalling DKK 100 million raised without a government guarantee, the robust liquidity situation is attributable to the bank s strong equity of DKK 1,556 million and the fact that the bank s deposits, excluding pooled schemes, exceed the bank s lending by more than DKK 1,000 million. The bank s lending portfolio is consequently fully funded by the bank s deposits in isolation. Currently, the bank does not have to procure additional liquid resources and does not expect to raise liquid resources in

18 Management s review Management s review Capital position The new rules under the CRR Regulation require that the Danish Financial Supervisory Authority approves the inclusion of the profit for the period in the capital base (quarterly or annual profit) before the financial statements are approved by the General Meeting. The bank received the Danish Financial Supervisory Authority s approval of this on 15 January After allocation of the profit for the year, the shareholders equity amounts to DKK 1,556 million. The equity consists of share capital of DKK 46 million and retained earnings of DKK 1,510 million. The satisfactory capital position leaves the bank with a capital ratio and a common equity tier-1 capital ratio, both of which are at 20.0%. The bank consequently already meets the common equity tier-1 capital ratio requirements which will apply after the CRD IV Directive is fully implemented in The bank s solvency need, specified in accordance with the 8 + method, was at 9.5% at the end of the year, against 10.6% at the end of The favourable development is attributable to a decline in the number and size of large customers in difficulty and higher impairment losses on these customers. The bank consequently has excess coverage of 10.5% or DKK 735 million, corresponding to the difference between the current solvency need and the actual capital base (solvency). For further details, reference is made to the bank s solvency report for 2014 (in Danish) on Share capital and reserves The bank s share capital was unchanged at DKK 46 million at the end of 2014, distributed among 4,600,000 shares with a nominal value of DKK 10. Since the bank s founding in 1898, the bank s articles of association have included a provision concerning a limited voting right, scaled according to the number of shares, so that each individual shareholder owning 7,000 shares or more may at most be entitled to 11 votes. These protective rules in the articles of association were adopted by shareholders at an annual general meeting and should be perceived as the expression of a wish to keep Nørresundby Bank intact as a strong, local, independent bank with a wide circle of shareholders for the benefit of all our stakeholders. The restrictions on voting rights are set out in article 10(2) of the articles of association, which are available at the bank s website. The bank s shares are distributed over almost 24,000 shareholders, the vast majority of whom reside within the bank s market area. On 11 March 2014, the General Meeting authorised the Board of Directors after prior adoption by the Board of Representatives to increase the share capital by 25% through subscription, i.e. by DKK 11.5 million to DKK 57.5 million in one or more issues. The General Meeting furthermore approved an extension of the authorisation, so far until 11 March

19 Management s review Management s review The General Meeting held on 8 March 2011 also authorised the Board of Directors effective until 8 March 2016 to acquire treasury shares up to a cumulative nominal value of 10% of the bank s share capital, cf. Section 198 of the Danish Companies Act. The consideration may not deviate more than 10% from the official price calculated by NASDAQ OMX Copenhagen A/S on the date of acquisition. Acquisition of treasury shares requires the approval of the Danish Financial Supervisory Authority. The price of the bank s share was listed at at the end of the year. The market value of the bank thus amounted to just above DKK 1,900 million at the end of the year. Price Price trends In order to ensure greater transparency in respect of pricing of the bank s shares, the bank has entered into a market-maker scheme with a regional bank. Spar Nord Bank A/S, Skelagervej 15, Aalborg, is the only shareholder registered on the list of major shareholders, with an ownership share of 54.8%. In consequence of the restrictions on voting rights, Spar Nord Bank A/S has 11 votes. Distribution of profits, dividends and Annual General Meeting Nørresundby Bank reports a highly satisfactory result for the 2014 financial year. Nordjyske Bank presented a recommended, public, conditional voluntary acquisition bid for the bank s shares on 14 January As one of the conditions of the acquisition bid, the Board of Directors may not recommend to the General Meeting that dividends be distributed to the shareholders. The Board of Directors consequently recommends that the profit for the year be transferred to the reserves. Proposals to change the articles of association may be presented by the Board of Representatives, Board of Directors or shareholders of the bank for consideration at the Annual General Meeting. The rules on adoption of proposals are set out in the articles of association. However, any proposed resolution to amend the articles of association or dissolve the company requires at least two-thirds of the share capital to be represented at the general meeting and requires the resolution to be 19

20 Management s review Management s review passed by at least two-thirds of the votes cast as well as at least two-thirds of the share capital eligible to vote being represented at the general meeting. In the event that the amount of share capital represented at the general meeting is insufficient but the proposed resolution is otherwise adopted, the Board of Directors will convene a new general meeting within fourteen days, to be held no later than six weeks after the first general meeting. Here, the proposed resolution may be passed by two-thirds of the votes cast without regard to the amount of share capital represented. Proposed resolutions to amend the articles of association, excluding proposed resolutions to dissolve the company or merge with other banks, which have been unanimously passed by the Board of Representatives may be finally adopted at a single general meeting by a majority of at least two-thirds of the votes cast and of the share capital entitled to vote represented at the general meeting, without regard to the share capital represented, however. The annual general meeting, which was previously announced to be held on 10 March 2015, has been postponed to Monday 20 April 2015 at 5.30 p.m. in accordance with the updated financial calendar for The reason for this is that an extraordinary general meeting has been convened due to Nordjyske Bank s acquisition bid, to be held at Aalborg Kongres & Kultur Center, Aalborghallen, on Thursday 26 February 2015 at 7 p.m. The result of this extraordinary general meeting will decide where and how the ordinary general meeting will be held. Material events after the balance sheet date, including acquisition bid for the Nørresundby Bank share. On 9 October 2014, the bank briefed about the pending merger negotiations with Nordjyske Bank A/S in company announcement no. 15. Spar Nord Bank A/S presented a public, conditional, voluntary acquisition bid for the bank s shares on 8 December In this connection, Spar Nord Bank A/S asked the bank to convene an extraordinary general meeting to be held on 15 January 2015 for the purpose of repealing the provisions in the articles of association on the restriction of voting rights. On 14 January 2015, Nordjyske Bank presented a competing public, conditional, voluntary acquisition bid, recommended by the bank s management. Spar Nord Bank A/S cancelled its acquisition bid and the request for an extraordinary general meeting that same day. By means of company announcement no. 2 of 14 January 2015, the bank, following the acquisition bid from Nordjyske Bank, announced that an extraordinary general meeting will be convened on Thursday, 26 February 2015 at 7 p.m. in Aalborg Kongres og Kultur Center, Aalborghallen, for the purpose of repealing the restrictions on voting rights set out in articles 10(2) of the articles of association. In consequence of the significant Swiss Franc exchange rate increases in mid-january 2015, the bank has reviewed customer exposures in this currency with a view to identifying any further needs to post impairment losses. The review does not change the expectations of the bank s budgeted impairment losses for

21 Management s review Management s review No other matters have arisen after the balance sheet date up until the present which alter the assessment of the bank s 2014 Annual Report. Outlook for 2015 There are several positive indicators that economic trends are moving in the right direction. The labour market shows favourable developments. Employment rates have increased significantly, and unemployment has declined. Inflation is low, among other things due to lower oil prices, and interest rates have reached new historical lows. When looking at the EU as a whole, retail sales are at their highest level since the 2008 crisis. These circumstances are generally expected to affect private consumption and turnover of real property. Despite this, the investment rate in Danish companies is low while savings are high. For private households, consumption is correspondingly restrained in combination with low investments. Against this background, the bank s income is expected to come under pressure due to a continued low demand for lending and a slightly declining interest-rate margin, among other things due to keener competition, particularly in the area of corporate lending. In terms of costs, a minor increase is expected after the significant declines of the past few years. Furthermore, the bank s costs will be subject to expenses in relation to the acquisition bid for the bank. The bank consequently forecasts a profit before market-value adjustments and impairment losses on loans, advances, etc., of DKK million. This amount includes expenses of approximately DKK 13.7 million for the insurance scheme for failing banks. The expectations are based on Nørresundby Bank being an independent bank. If the merger with Nordjyske Bank A/S is realised, the market will be informed about the expectations of the new bank. Uncertainty in relation to recognition and measurement In connection with preparing the financial statements, the management has applied estimates and assessments relating to future situations as the basis for measuring assets and liabilities for accounting purposes on the balance sheet date. The estimates and assessments rest on assumptions found prudent by the management. However, it may be the case that such estimates and assessments are subject to some uncertainty if things develop differently than expected in the bank s external environment or in respect of matters of customers or business relations in general. As is shown in the section Credit Risks and note 1 Accounting Policies, effective from 2007, the bank has applied a model developed by the Association of Local Banks (Lokale Pengeinstitutter) for determining impair- 21

22 Management s review Management s review ment losses by groups. The model has been and is regularly being improved, for instance in relation to procedures for testing the historical calculations in the model, but some uncertainty may still apply to the calculations for The measurement of a number of other balance sheet items, including lending, sector shares, land and buildings and provisions includes matters subject to some uncertainty. It is the overall opinion of the management, however, that the uncertainty of the items mentioned is insignificant in relation to the Annual Report. Management Board of Directors Pursuant to the articles of association, the Board of Directors is elected by the Board of Representatives. The Executive Committee, which consists of four members of the Board of Directors elected by the Board of Representatives, encourages the Board of Representatives to propose members. The proposals are discussed by the Executive Committee who subsequently recommends candidates for election to the Board of Directors at a meeting of the Board of Representatives. The recommendation is based on a desire to ensure that the Board of Directors meets the competency requirements in accordance with the bank s business model. The bank has adopted a policy for diversity on the Board of Directors, taking issues such as experience, gender, age, etc., into consideration. The bank has furthermore established a Nomination and Remuneration Committee. The remit for this committee includes elements from the policy for diversity on the Board. The policy is available at the bank s website (in Danish) on bestyrelsen_2014.pdf. The Board of Directors has discussed the range of competencies it should cover in order to best perform its tasks. In this connection, the Board of Directors has reviewed the existing requirements on the competencies of the Board of Directors. Based on the bank s business model, the Board of Directors (with external assistance) has performed its annual self-evaluation and, based on their CVs, each Board member has made a description of their specific competencies in relation to the tasks of the bank s Board of Directors. Based on the results of the evaluation process completed, the Board of Directors is of the opinion that its competencies support the bank s business model and the individual members complement each other so that the Board of Directors aggregate skill-sets meet the requirements inherent in the business model. The Board of Directors has also considered the Danish Bankers Association s management code for good corporate governance. The report is presented in accordance with the comply or explain principle and is available on the bank s website (in Danish) on In addition, the Board of Directors participates in relevant courses and seminars, including courses held at the Danish Financial Sector s Training Centre. 22

23 Management s review Management s review The Board of Directors has four members who are elected by the Board of Representatives and two members elected by the employees. Just under 20% are women and 80% are men, aged 44 to 62. In accordance with the Danish Financial Business Act, the bank has implemented a policy and an objective of equal gender distribution in the bank s managerial positions. The Act requires the bank to report on target figures for the gender composition of the Board of Directors and on the policy for increasing the share of the under-represented sex at the other executive levels in the bank. For further details, reference is made to the bank s report for 2014 (in Danish) on pdf. Information about the management s posts is provided on page 6 of the Annual Report and is considered an integral part of the Management s Review. Board of Management and general management The bank s Board of Management has two members. The bank s management has an objective of ensuring diversity in the management in relation to factors such as qualifications, experience and gender. Diversity at managerial level is endeavoured by investing in the development of managers, for instance. As a general rule, managerial positions are advertised in-house in the bank, and priority is given to selecting the most qualified candidate, regardless of gender. Employees meeting the requirements are encouraged to apply for vacant manager positions. This allows for promotion of women employees interested in managerial duties when managerial vacancies are announced internally. The combined management comprises 25% women and 75% men aged 39 to 67. Employment agreements between the bank and its executive management are described in note 25, pages Committee structure on the Board In connection with the transposition of the CRD IV Directive into Danish law as at 31 March 2014, the bank s Board of Directors has reviewed the procedures for establishing new Board committees. The Board has consequently updated the committee structure and established two new committees accordingly an Audit and Risk Committee and a Nomination and Remuneration Committee, including adoption of remits for the committee work. In this connection, the Board of Directors also discussed how the committees should be composed. These discussions resulted in the decision to include all members of Board of Directors in the committees. 23

24 Management s review Management s review Audit and Risk Committee The chairman of the Audit and Risk Committee, John Chr. Aasted, is the independent and qualified member. Based on John Chr. Aasted s professional experience and his membership of the audit committee of another listed company, the bank s Board of Directors assessed that John Chr. Aasted possesses the requisite qualifications, cf. the Danish Executive Order on Audit Committees in Undertakings and Groups subject to Supervision by the Danish Financial Supervisory Authority. Scope of the committee s responsibilities in the audit area: monitoring the presentation of the financial statements; monitoring the efficient functioning of the bank s internal control system, internal audit and risk management systems; monitoring the statutory audit of the annual report; monitoring and control of the auditor s independence; recommending election of auditor to the general meeting. In the risk area, the responsibilities include: monitoring and approving the bank s overall risk profile and risk strategy; ensuring the correct implementation of the risk strategy in the organisation; processing the bank s solvency need statement; assessing whether the remuneration structure takes account of risk, capital and liquidity; assessing whether products and services comply with the business model and risk profile; approving, subject to the Board of Management s recommendation, decisions to select, appoint or dismiss the risk manager. The committee meets according to a fixed schedule four to six times a year, usually just before the meetings of the Board of Directors. As the committees include all members of the Board of Directors, some matters may be discussed by the committee and Board at the same time. Nomination and Remuneration Committee The Board of Directors has appointed Mads Hvolby, Chairman of the Board, to chair the Nomination and Remuneration Committee. The committee s nomination-related responsibilities include: describing the qualifications required by the joint Board of Directors; assessing the Board of Directors skills in relation to the Financial Supervisory Authority guidelines; approving a procedure for the Board of Directors self-evaluation; 24

25 Management s review Management s review evaluating the composition of the Board of Management; identifying candidates for the Board of Representatives, Board of Directors and Board of Management; arranging for the election of existing and new members of the Board of Representatives and Board of Directors; arranging for the relevant training of members of the Board of Directors; setting up target figures for the under-represented gender on the Board of Directors; describing comments to the Danish Bankers Association s management code. The remuneration committee s responsibilities include: determining and monitoring a remuneration policy; ensuring that the remuneration policy and practice support the bank s strategy, values, etc.; recommending remuneration of the Board of Representatives and Board of Directors; deciding on the remuneration of the Board of Management. The bank has drawn up a salary policy aimed at ensuring sound and effective risk management. Nørresundby Bank s strategic management employs salary as an active instrument to reward employee qualifications and functions. The salary policy supports the bank s business strategy, values and long-term objectives. The salary is determined on the basis of a specific assessment and defined criteria. There are no variable pay elements, neither in the form of salary, shares, options or pensions. The salary policy applies to the Board of Directors, management and major risk-takers. In accordance with the salary policy, the remuneration committee has ensured that the remuneration of the above group of persons complies with the salary policy. Meetings are held when required. For further details, reference is made to the bank s website Company announcements Nørresundby Bank has published the following company announcements in 2014: 11 February 2014 Preliminary Announcement of Financial Statements February 2014 Annual Report February 2014 Report concerning register of insiders 14 February 2014 Report concerning register of insiders 14 February 2014 Notice convening the Annual General Meeting 11 March 2014 Report concerning register of insiders 11 March 2014 Minutes of Annual General Meeting, 11 March March 2014 Articles of Association 25