Net interest income 1,379 1,323 1,223 1,297 1,339 Dividends from shares Fee and commission income (net)

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1 F I N A N C I A L H I G H L I G H T S O F T H E G R O U P Profit and Loss Account (DKKm) Net interest income 1,379 1,323 1,223 1,297 1,339 Dividends from shares Fee and commission income (net) Net interest and fee income 1,698 1,717 1,631 1,759 1,851 Market value adjustments of securities and foreign exchange income (2) 153 Other operating income Costs, amortisation and depreciation 1,414 1,464 1,310 1,332 1,332 Provisions for bad and doubtful debts Profit/(Loss) on holdings in associated and group undertakings 2 (4) (1) (23) 1 Profit on ordinary activities before tax Tax (6) (2) (3) 0 (147) Profit for the year Balance Sheet at 31 st December (DKKbn) ASSETS Due from credit institutions, etc Loans and advances Securities and holdings in associated and group undertakings Other assets Total assets LIABILITIES Due to credit institutions Deposits Other liabilities Subordinated capital (tier 2) Shareholders equity (tier 1) Total liabilities Financial Ratios and Key Figures Pre-tax return on average shareholders equity (%) Income/cost ratio (DKK) Solvency ratio (%) Core capital ratio (tier 1) (%) Profit for the year per share (DKK) Book value per share (DKK) Dividend per share (DKK) Share price/profit for the year per share Share price/book value per share Share price at 31 st December Number of full-time employees at 31 st December 2,217 2,052 1,923 1,907 1,905 3 Financial Highlights

2 F I N A N C I A L R E V I E W Pre-tax profit of DKK 479m an increase of 58% The very satisfactory profit was generated in the light of 3% increase in net interest income Almost 10% improvement in net fee and commission income DKK 153m market value adjustments and foreign exchange income (1998: loss of DKK 2m) Unchanged costs DKK 51m increase in provisions for bad and doubtful debts 9% increase in loans and advances (excl. reverse repos) and 2% increase in deposits With a tax charge of DKK 147m the profit is DKK 332m equal to a return of over 12% on shareholders equity at the beginning of the year. Summary Profit and Loss Account Net interest and fee income Net interest income is up by DKK 42m to DKK 1,339m. The development in net income and interest margin, etc. is illustrated in the table below. In 1999, average interest earning net assets increased whereas the interest margin fell from 3.2% in 1998 to 2.9%. Net interest income and interest margin, etc. DKKm Interest income, etc. Total interest income, etc. 2,625 2,482 Total interest expense, etc. 1,328 1,143 Net interest income 1,297 1,339 Average interest earning assets and liabilities Interest earning assets 39,869 43,480 Interest bearing liabilities 38,731 41,049 Average interest earning net assets 1,138 2,431 Average interest, % p.a. Total interest income, etc./interest earning assets Total interest expense, etc./interest bearing liabilities Interest margin DKKm Net interest income 1,297 1,339 Dividends from shares Fee and commission income Net interest and fee income 1,759 1,851 Market value adjustments of securities and foreign exchange income (2) 153 Other operating income Costs, amortisation and depreciation 1,332 1,332 Provisions for bad and doubtful debts Profit/(Loss) on holdings in associated and group undertakings (23) 1 Profit on ordinary activities before tax Tax Profit for the year Dividends from shares total DKK 33m (1998: DKK 24m). Fee and commission income rose net by DKK 41m to DKK 479m e.g. due to continued growing securities trading and asset management. Thus, total net interest and fee income has increased by DKK 92m or 5% to DKK 1,851m. 4 Financial Review

3 Market value adjustments of securities and foreign exchange income Market value adjustments of securities and foreign exchange income total DKK 153m (1998: loss of DKK 2m). In 1999, market value adjustments excl. pension pools consist mainly of a DKK 8m gain on own shares, a DKK 101m gain on other shares, a DKK 74m gain on foreign exchange, a DKK 15m loss on bonds, and a DKK 18m loss on derivative financial instruments. One essential explanation of the very satisfactory progress in the price adjustment of shares is a generally increased trading activity in Sydbank Markets derived from distinctively increasing customer interest in trading foreign shares. Market value adjustments of securities and foreign exchange income excl. pension pools DKKm Bonds (4) (15) Shares (33) 109 Fixed rate loans and advances 1 3 Foreign exchange Derivative financial instruments (31) (18) Total (2) 153 Reference is made to the section on the Group s market risks. Other operating income Other operating income amounts to DKK 44m (1998: DKK 88m). The fall should be seen in the light of considerable one-off income in 1998, a fall in the net operating income from property because large maintenance projects were advanced, and a general reduction in the average property portfolio. Costs, amortisation and depreciation The Group s overall costs were DKK 1,332m in 1999 and as such they are unchanged compared to The number of employees (full-time equivalent and excl. canteen and cleaning personnel) totalled 1,905 at year-end 1999, i.e. almost unchanged compared to 1998, and staff costs rose by 2%. Other administrative expenses increased by 10%. Among the reasons for this increase are Year 2000 Compliance activities relating to the Bank s systems and installations, the relocation of the Bank s Treasury, Markets and International Divisions to the expanded head office address in Aabenraa, and the move of the Aabenraa regional head office and the SBK/DMK subsidiary undertakings. Amortisation and depreciation decreased by DKK 50m to DKK 58m as the intangible assets were finally written off in Costs, etc. DKKm Staff costs Other administrative expenses Amortisation and depreciation of intangible and tangible assets Other operating expenses 16 1 Total costs 1,332 1,332 At 31 st December Number of full-time employees 1,907 1,905 Number of branches The number of branches remains 122 with 118 in the Danish regions. In Flensburg, Germany, a new branch was set up to support the regional head office in serving our personal customers. In Aabenraa, the main town branch merged with the regional head office and in Kolding a branch moved to a large shopping centre Kolding Storcenter. Provisions for bad and doubtful debts The charge for bad and doubtful debts totals DKK 238m - an increase of DKK 51m compared to This makes up 0.7% of loans and advances (excl. reverse repos), guarantees and provisions (1998: 0.6%). Loan loss and guarantee provisions totalled DKK 1,224m at year-end 1999 (1998: DKK 1,148m) equal to an unchanged 3.6% of loans and advances (excl. reverse repos), guarantees and provisions. Non-interest earning loans and advances totalled DKK 294m (1998: DKK 318m) or 0.9% (1998: 1.0%). A-provisions total DKK 1,016m (1998: DKK 910m) which is equal to 3.0% (1998: 2.9%) of total loans and advances (excl. reverse repos), guarantees and provisions. Reference is made to the section on the Bank s credit risks. 5 Financial Review

4 Profit on holdings in associated and group undertakings In 1999, holdings in associated undertakings and other significant holdings yielded a total of DKK 1m. The Bank s holding in Egnsbank Fyn yielded DKK 8m. Tax The year s tax charge is DKK 147m, equal to over 30% of the pre-tax profit. For a number of years, the Bank s tax charge has been low essentially because of deductions due to previous years losses. Profit for the year The year s profit of DKK 332m is equal to a return of 12.2% on shareholders equity at the beginning of the year (1998: 11.8%). Subsidiary undertakings The SBK/DMK/DK-Finans undertakings make a total pre-tax profit of DKK 18m (1998: DKK 12m), whereas the property undertaking, Ejendomsselskabet, records a profit of DKK 4m (1998: DKK 1m). The main activities of the SBK/DMK/DK-Finans undertakings are lending by way of leasing, factoring, car loans and company administration. The undertakings loans and advances rose by DKK 113m and total DKK 1,152m at year-end Balance sheet The Group s balance sheet total was DKK 53.8bn at year-end 1999 (year-end 1998: DKK 47.7bn). The composition of assets in main items: Assets At 31 st December DKKbn Due from credit institutions, etc Loans and advances Securities and holdings Other assets Total Loans and advances total DKK 30.9bn (1998: DKK 25.7bn) of which reverse repos total DKK 3.8bn (1998: DKK 0.8bn). The increase in loans and advances excl. reverse repos is thus DKK 2.2bn, equal to 9%. In respect of the lending structure, reference is made to the section on the Bank s credit risks. The portfolio of securities and holdings of DKK 11.7bn (1998: DKK 10.9bn) consists of unchanged pension pool portfolios of DKK 3.2bn and the Bank s treasury and trading portfolios including own shares of DKK 0.8bn (shares) and DKK 7.7bn (bonds). The interest rate risk was 3.5% at year-end 1999 (1998: 6.8%). The overall property portfolio is DKK 910m (1998: DKK 890m) and is divided into the categories: domicile property, investment property, and property taken over from non-performing loans. The development in the property portfolio: Property portfolio At 31 st December DKKm Domicile property Investment property Property taken over (from non-performing loans) Total The composition of liabilities in main items: Liabilities At 31 st December DKKbn Due to credit institutions Deposits Other liabilities Subordinated capital (tier 2) Shareholders equity (tier 1) Total Deposits total DKK 27.5bn compared to DKK 27.0bn at year-end The increase is mainly attributable to deposits on demand. 6 Financial Review

5 Capital resources Subordinated capital (tier 2) totals DKK 947m at yearend 1999 (1998: DKK 859m). The resolution passed by the AGM to reduce the Bank s share capital from nominally DKK 871.4m to DKK 825.0m was registered in June The capital reduction resulted in a reduction in the shareholders equity of DKK 125m to DKK 2,656m. At 31 st December, the shareholders equity (tier 1) is DKK 2,887m and has increased by DKK 231m following appropriations of DKK 99m of the year s profit for dividends and of DKK 2m for the charity fund - Sydbank Sønderjyllands Fond. The Group s solvency ratio was 10.3% at the end of the year (1998: 10.9%) and the core capital ratio was 7.9% (1998: 8.7%). Solvency At 31 st December DKKbn Risk-weighted items Core capital (tier 1) after deductions Supplementary capital (tier 2) after deductions Core capital ratio (%) Solvency ratio (%) Statutory requirements (%) Off-balance sheet items Guarantees, mainly financial guarantees, have increased by more than DKK 0.5bn to DKK 6.0bn predominantly due to guarantees relative to mortgage credit loans. Resolutions to the Annual General Meeting The Bank s Board of Directors proposes to the AGM that a 12% dividend be declared. Moreover, the Bank s Board of Directors proposes a resolution that the Bank s share capital be reduced by nominally DKK 40m from nominally DKK 825m to nominally DKK 785m. The reduction is effected through payment to Sydbank against the cancellation of nominally DKK 40m of the Bank s portfolio of own shares. If the AGM passes the resolution, the Bank s capital and solvency will change compared to 31 st December 1999 following final registration at the Danish Commerce and Companies Agency. These changes in the capital cannot be made up until the AGM has passed the resolution of the capital reduction. On the basis of a market price of 310 and subject to these assumptions, the shareholders equity will be reduced by DKK 124m whereas the solvency ratios will remain unchanged. Capital and solvency Before capital After capital reduction Change reduction Number of shares of DKK 100 each 8,250, ,000 7,850,000 Shareholders equity (tier 1) (DKKm): Share capital Share premium account Other reserves Profit brought forward from prior years 1,104 1,104 Total shareholders equity (tier 1) 2, ,763 Book value Core capital ratio (tier 1) (%) Solvency ratio (%) Financial Review

6 M A R K E T R I S K S Market risks emanate from the recurrent interest rate and price fluctuations on the financial markets. They are stated as the total of the Group s interest rate, foreign exchange and equity price risks. The application of market risks forms part of the Bank s ordinary activities with great importance to total earnings. The Bank s Treasury Division manages the extent of market risks subject to policies and limits as determined and adopted by the Bank s Board of Directors. The Bank s Controllers in the Accounting Department continually monitors the individual risk areas and provides the Bank s General Management with ongoing and extensive reporting thereof. The Settlements Department of the International Division manages the risk areas. Sydbank Markets manages the customers market risks and as such this activity is separated from the management of the Group s own market risks. Interest rate risk The interest rate risk comprises the Group s total risk of loss due to interest rate changes in the financial markets. Interest rate risk by currency Sydbank adopts a cash flow methodology for assessing the interest rate risk of fixed rate assets and liabilities (bonds, etc.), cf. Note 37 for details, and a duration model for calculating the interest rate risk of Danish callable mortgage bonds. By far, the interest rate risk makes up the most significant part of the Group s total market risks. In accordance with the Danish Financial Supervisory Authority s Ratio System, the interest rate risk is calculated as the risk at a parallel shift in the interest rate level of 1 percentage point in all currencies and totals DKK 94m at year-end (1998: DKK 182m) or 3.5% (1998: 6.8%) of the Group s core capital (tier 1) less deductions. A hypothetical loss of DKK 103m (1998: DKK 155m) derives from assets in Danish kroner and a hypothetical net profit of DKK 9m (1998: DKK 27m) from foreign currency assets. Interest rate risk by maturity Maturity DKKm months or less months (4) months (3) months 2 (15) 1 2 years (2) years over 3.6 years Total Currency DKKm DKK EUR 23 (21) USD 2 8 CHF 2 3 SEK 0 1 Total Market Risks

7 Exchange rate risk In 1999, the Group s total exchange rate risks were very modest as in previous years. At year-end 1999, the risk of the uncovered currency position was DKK 1.8m (1998: DKK 1.9m) or unchanged 0.07% of the core capital less deductions. Equity price risk The Group s portfolio of listed shares, i.e. excl. the pension pool portfolios, totals DKK 247m at year-end 1999 (1998: DKK 160m). The portfolio of unlisted shares, stated at the lower of cost or book value, totals DKK 48m at year-end 1999 (1998: DKK 75m). This portfolio comprises primarily investment shares. At year-end 1999, the portfolio of holdings in associated undertakings and other significant holdings totals DKK 284m (1998: DKK 288m). Derivative financial instruments The Bank s customers and the Bank alike use derivative financial instruments for hedging and managing market risks. Sydbank is actively trading derivative financial instruments as illustrated in Note 8 as the extent of unsettled transactions at year-ends 1998 and Making up the Group s market risks include derivative financial instruments as these are attributable to each of the three underlying risk types. Consequently, derivative financial instruments do not entail further independent market risks for the Group. The derivative financial instruments distributed into foreign exchange, interest rate and equity contracts at year-ends 1998 and 1999: Derivative financial instruments At 31 st December DKKm Nominal values Foreign exchange contracts Forwards/futures 108,981 75,200 Options 30,435 8,022 Interest rate contracts Forwards/futures 16,031 6,491 Forward Rate Agreements 254, ,959 Swaps 60,075 82,924 Options 12,942 2,758 Equity contracts Forwards/futures Options Market Risks

8 C R E D I T R I S K S Credit risks arise when an outstanding account is deemed not recoverable due to the debtor s lack of will or ability to repay at the agreed time. Such accounts include loans and advances, guarantees and amounts due from credit institutions. Moreover, credit risks may arise in connection with securities, foreign exchange and derivative financial instruments trading. Total credit risks are managed according to policies and limits as determined and adopted by the Bank s general management. The responsibility of monitoring, overall risk-taking and reporting to the Bank s management is embedded in the Bank s central Credits Department. All corporate customer accounts beyond DKK 1m are re-evaluated, classified according to risk, and re-granted once a year. Critical accounts If the creditworthiness of a customer is questioned and the ability or possibility to pay is deemed uncertain, we shall classify the accounts as critical, intensify the monitoring, and assess the need for taking provisions. Provisions The Group takes individual provisions for all accounts above DKK 100,000, whereas provisions are based on a statistical evaluation of the expected risk of loss for accounts below DKK 100,000. Provisions are divided into A-provisions which indicate a probable risk of loss, and B-provisions which indicate an unavoidable loss. Write-offs If we establish that a customer s ability to pay has ceased, the amount due from the customer will be written off. An account will be partly written off when part of the account undoubtedly will be lost. Distribution by industry/diversification The Bank aims at having a credit portfolio in conformity with the financial sector as a whole in terms of personal and corporate lending and within the different trades. The development in the Bank s loans and advances and guarantees by industry: Loans and advances and guarantees by industry DKKm % DKKm % Agriculture, etc. 1, ,063 5 Fisheries Manufacturing 2, ,517 7 Building and construction 1, ,006 3 Trade, hotels and restaurants 3, , Transport, etc. 2, ,521 7 Finance, insurance, etc. 5, , Administration, purchase and sale of property and various services 4, , Other corporate lending 1, ,511 4 Total corporate lending and guarantees 22, , Public sector Personal customers 8, , Total 31, , Individual provisions are taken if an account is deemed to entail a loss as a consequence of the customer s present and expected financial situation compared with the realisation value of any potential security. The need for taking provisions is assessed at least once every quarter and provisions are increased or reduced to the extent dictated by changes in the customer s financial situation. Statistical provisions are taken annually as one collective provision based on history and at least equivalent to the losses of the three preceding years within this type of accounts. We have distributed by industry as reported to the Danish Financial Supervisory Authority. 70% of the Bank s total loans and advances and guarantees are due from corporate customers, 28% from personal customers and 2% from the public sector. 10 Credit Risks

9 Loans and advances and guarantees by size Amount due (from customer) Number % DKKm % Number % DKKm % Below DKK 1m 77, , , , DKK 1m-10m 3, , , , DKK 10m-100m , , DKK 100m and above , , Total 80, , , , Provisions The movements in the Group s provisions taken in 1998 and 1999: Provisions DKKm Provisions at 1st January 1,183 1,147 Of which charged as loss during the year (251) (160) Net increase in provisions for the year Other net increase 5 (3) Provisions at 31st December 1,147 1,224 Of which A-provisions 910 1,016 Of which B-provisions Of the total provisions taken, A-provisions make up DKK 1,016m which is 3.0% (1998: 2.9%) of loans and advances (excl. reverse repos), guarantees and provisions saw an increase of A-provisions from 79% to 83% of total provisions. Loans and guarantees DKKm Loans and advances (excl. reverse repos) 24,927 27,151 Reverse repos 814 3,789 Guarantees 5,449 5,991 Provisions 1,147 1,224 Loans and advances (incl. reverse repos), guarantees and provisions 32,337 38,155 Breakdown of the year s losses and provisions: Provisions for bad and doubtful debts DKKm Net increase in provisions for the year Directly booked as loss without previous provisions Recovered from debt previously written off Provisions for bad and doubtful debts Non-interest earning loans and advances The development in the Group s non-interest earning loans and advances at year-ends 1998 and 1999: Non-interest earning loans and advances DKKm Non-interest earning loans and advances As % of loans and advances (excl. reverse repos), guarantees and provisions Provisions for non-interest earning loans and advances As % of non-interest earning loans and advances Legal risks Sydbank is party to a number of legal proceedings some of which concern fraudulent asset stripping. The proceedings are currently assessed and the necessary provisions are taken on the basis of the assessed risk of loss. The development in the individual provision percentages compared to loans and advances, guarantees and provisions, incl. and excl. reverse repos: Provision percentages % As % of loans and advances (excl. reverse repos), guarantees and provisions A-provisions B-provisions Total provisions As % of loans and advances (incl. reverse repos), guarantees and provisions A-provisions B-provisions Total provisions Credit Risks

10 E C O N O M I C B A C K G R O U N D In 1999 the Danish economy saw predominantly favorable development trends. At the turn of 1998/1999, recent years tendency of a heavy fall in the trade balance surplus changed and the surplus rose throughout This development is mainly caused by falling domestic growth to more than 1%, but it also reflects increasing economic growth of our trading partners. These aspects contribute to reducing Danish imports and improving export conditions. The improving trade balance is favourably reflected in the current account. From a deficit of DKK 13.3bn in 1998, the current account is now expected to record a minor surplus of DKK 1bn in 1999 and is expected to further improve in 2000 and Through 1999 unemployment continued its fall, i.e. from 6% to 5.4%. Thus, the unemployment rate is at its lowest since 1980 and is expected to stay around 5.5% in future years. The falling unemployment contributes to the continued favourable development of the public budget balance. For 1999, Sydbank forecasts a public sector surplus of approx. DKK 34bn compared to DKK 10.3bn in For 2000 we expect a surplus of almost DKK 30bn which will reduce the overall public debt to below 50% of total production which is low compared to several other European countries. The preceding year, however, also saw a continued increasing inflation rate reaching 3.2% at year-end. Thus, the domestic inflation rate is twice the average price increase rates of Denmark s ten largest export markets. The additional inflation rate in Denmark compared to abroad can be attributed to average Danish growth rates of approx. 3.25% since 1994 which is approx. 1 percentage point above the Euroland rates. The relatively high Danish growth rate has caused the higher wage increase rate compared to most other European countries. In the years ahead we expect the inflationary differences between Denmark and Euroland to narrow, because the growth in Denmark will be just below 2% whereas the growth in Euroland will accelerate to approx. 3%. Through 1999, the Danish krone was traded at a stable level against the euro. In the year ahead we expect a continued stable EUR/DKK rate primarily due to increasing confidence that Denmark will eventually join the EMU as a full member, and secondarily due to the favourable current account development Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec In the spring/summer of 2000, the 10-year Danish bond yield is expected to rise from its present level of approx. 6.0% to %. The interest rate increase is primarily expected to be spurred by interest rate increases in the USA and Euroland due to continued high growth in the USA and by increasing fear of rising inflation in Euroland. In twelve months, Sydbank forecasts that the 10-year bond yield will fall again to approx % following a slow-down in the growth in the USA and reduced fear of inflation in Euroland Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sydbank expects that the Danish KFX index will be at year-end 2000 the same as at 1 st January. The 10-year bond yield KFX index 1999 % p.a. 10-year govt bond index 1st Jan 1983 = Economic Background

11 C U S T O M E R S A N D A C T I V I T I E S Sydbank s overall business objective is to meet and satisfy the customers needs for financial services in a competent, reliable, obliging and competitive manner. The viability of this business objective is supported by Sydbank s top performance in various independent customer satisfaction and customer trend analyses. Sydbank has approx. 310,000 customers, of which approx. 20,000 are corporate customers. The number of customers is growing and in 1999 the Bank welcomed almost 20,000 new customers a very satisfactory development in a highly competitive banking market. Available bank Being the large Danish local bank, closeness and availability are obvious key words in the Sydbank philosophy. Using Sydbank should be a straightforward experience to our customers. The Bank focuses on close customer contact personally and electronically. Therefore, Sydbank aims at covering our customers financial needs both via personal service and via offers and ongoing development of relevant self-service solutions. Branches At year-end 1999, Sydbank has a total of 122 branches 118 in the Danish regions, 3 in Flensburg/Hamburg, Germany, and Private Banking International which offers asset management to our foreign customers. More than 100 of the branches are situated in the Bank s core areas in the counties of Soenderjylland, Ribe and Vejle plus in Aarhus and the South of Funen. Adapting the branch network is primarily achieved through an adjustment of our business and service hours. Sydbank has 20 part-time branches an aspect which helps us maintaining a presence at a profitable level even in smaller suburban communities. In 1999, Sydbank opened a new branch in Rote Straße in Flensburg to supplement the town s regional head office. In Aabenraa the main town branch merged with the regional head office at the former s address in downtown Aabenraa and finally, one of the branches in Kolding moved to a close-by shopping centre Kolding Storcenter. Self-service In relation to self-service, Sydbank has installed its PC-Bank in 28,000 homes an increase of 7,500 in Sydbank s Online Banking system was installed with over 1,000 corporate customers over the year and now counts 6,000 corporate customers. One of the elements of both systems is an opportunity of buying and selling securities from our customers homes and offices at up-to-the-minute prices. In the spring of 2000, Sydbank will launch its NetBank the Internet version of the personal customer PC- Bank. The NetBank has been improved in terms of function compared to the PC-Bank and in addition it is highly flexible as the customers may now go to the bank from dusk till dawn every day of the week everywhere in the world. The only requirement is Internet access. Sydbank s NetBank as well as our Danish website ( will be continuously upgraded. A cellular phone version is on the drawing board as a supplement to the NetBank and Sydbank plans to launch it already in the late summer of Today, payment and withdrawal cards, used in the retail sector and in ATMs, are the epitome of classic self-service banking. 140,000 Sydbank customers have a Dankort card. More than 50,000 of these cards are combined with the international VISA-facility and approx. 20,000 cards have the extra credit facility offered by Sydbank s BlueCard an efficient, customer-friendly and inexpensive payment card which clearly matches the cards of other issuers in this area. In 1999, the Dankort card was introduced as an Internet means of payment, and we expect that this new application will be further modernised in the years ahead. Sydbank has installed a total of 120 ATMs through which 3.3m cash withdrawals were made in The Bank s fleet of ATMs will be expanded by half a dozen in Customers 13 and Activities

12 Business areas Sydbank s range of products and delivery channels match the customer needs, the Bank s market position and the sector level. Thus, Sydbank attaches importance to running the Bank in an old-fashioned manner, i.e. with emphasis on own production of banking products and services. To the extent that we offer products and services outside the scope of the classic bank palette investment unit products, insurance, mortgage credit we prefer having several business partners and sub-suppliers to give our customers a real choice. Sydbank s primary business partners in the mortgage credit area are Totalkredit, Nykredit and DLR. In the insurance area our partners are Topdanmark and PFA. Investments In 1999, the investment area continued recent years very favourable business development and it is characterised by high growth rates. Broad knowledge of our customers investment needs and 16 strong, locally embedded investment centres and departments have supported this development. The Bank s investment centres and departments offer highly qualified and customer-orientated analysis capacity such as in-depth equity analyses, bond analysis tools and advanced portfolio optimisation systems. At year-end 1999, the Bank manages pension savings funds totalling almost DKK 10bn on behalf of 64,000 customers. 35% of the pension funds are placed in pools and 50% in individual custody accounts. The Bank s working relationship of more than 10 years with the open-ended investment fund, Syd Invest, is still successful, and the investment fund, which manages assets of approx. DKK 10bn, is the fifth largest in the country. In 1999, Syd Invest opened new equity funds Euroland and MegaTrends and a new bond unit aimed at investing in high coupon countries will be launched in March Moreover, Sydbank works with the open-ended investment fund, BankInvest. Corporate customers Sydbank appears as a natural choice for small, mediumsized and large companies in the Bank s business area. The Bank produces and delivers competitive finance products by way of loans, credits, guarantees, leasing and factoring. Moreover, Sydbank is particularly competent in the field of cash management nationally and internationally. Our own branches in Germany support the latter. Also, at the end of 1999 Sydbank joined Connector an international co-operation for efficient cross-border cash management between 14 major financial institutions in Europe and the USA. The Connector banks represent a total branch network of 9,500 and a total staff of approx. 150,000. In March 1999, Sydbank launched a new lending facility by way of loan capital to the business community. Under the name of SydMezzanin the Bank has earmarked DKK 25m for a specific loan pool to inject subordinated capital into small and medium-sized businesses. This initiative must be seen in the light of distinctively increased consciousness with our customers of the opportunities of benefiting from the special terms and conditions that apply when healthy companies receive subordinated capital in connection with development, expansion and ownership transfers. The Sydbank share At year-end 1999, Sydbank had more than 101,000 shareholders representing a growth of over 6,000 in The number of shareholders has more than doubled in the period Bank index Sydbank Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The Sydbank share price was 305 at the end of the year 32 points higher than at the beginning of the year. The price development, particularly in the middle of the year, was more favourable than the general bank share development. Share price development Customers and Activities

13 O R G A N I S A T I O N A N D S T A F F The Bank s customer-orientated activities are performed in 15 Danish regions, in Sydbank in Germany, in Private Banking International, in the SBK subsidiary undertakings and in Sydbank Markets. 15 regions The 15 Danish regions provide full service to all customers. The regions are organised into corporate, investment and personal customer departments to which the Bank s many approx. 85 small branches belong. When possible, the administrative tasks not centralised in the Bank s head office are performed in the regional head offices customer secretariats. Sydbank in Germany Since the end of 1997, the originally corporate customerorientated business concept of Sydbank in Germany has been supplemented by a favourable Border account - an offer to personal customers, such as the many daily commuters crossing the Danish-German border. Following the success of this new concept, Sydbank opened another personal customer branch in Flensburg on 1 st February SBK undertakings In addition to partnership share administration, the SBK/DMK/DK-Finans undertakings carry out leasing in Sydleasing, car finance in DK-Finans and factoring in Sydfactoring. In 1999, the undertakings performed highly satisfactorily in the acquisitive business areas. Sydbank Markets Sydbank Markets undertakes the customer-orientated tasks in relation to advisory services about and trading in the securities and foreign exchange markets. Organised in fixed income, money market, equity, foreign exchange, portfolio management and analysis departments Sydbank Markets co-ordinates the professional tasks of the regional investment centres and departments. The Bank s head office is the working place for approx. 90 employees in Sydbank Markets and a similar number of advisers are employed in the regions. The Treasury Division manages the Bank s own liquidity. The administrative tasks, including settlement, reconciliation and control in relation to the securities and foreign exchange trading are undertaken by the International Division s Settlements Department. One address Sydbank Markets, the Treasury and International Divisions and their approx. 180 employees used to be located at the original head office premises at the centre of Aabenraa. In the Easter of 1999 these Divisions plus Syd Invest moved into an extension of more than 4,000 square metres at the Bank s head office address. Since then approx. 425 employees in the Bank s joint functions business-orientated and administrative have been gathered in one complex and profit from the many inherent practical advantages. Staff The number of employees (full-time equivalent) was reduced from 1,907 to 1,905 during the year. Thus, recent years rather heavy adaptation of the number of employees has levelled off particularly in the light of the Bank s favourable performance. When reviewing the staff development in 1999, please note that 32 junior bank clerks were taken on, and in 2000 we plan to take on a team of similar size. In 1999, the Bank implemented a poll of the employee satisfaction the third of its kind. The outcome was a very high level of satisfaction. Organisational and technological developments The Bank s staffing at year-end 2000 is budgeted at 1,865 (full-time equivalent). Streamlining the organisation will enable a net staff reduction of more than 2%. Moreover, the Bank s investments in a bank-wide NT-based Intranet and in new work stations for all employees expected to be completed in 2000 will make daily routines more rational. Organisation 15 and Staff

14 O U T L O O K Training From the Bank implemented extensive supplementary training of the Bank s advisers, a coordinated management development programme, and an upgrading of secretariat and customer service staff. These programmes are now supplemented and updated on an ongoing basis. IT A number of basis systems such as the systems handling accounts, computing interest and calculating fees are in the process of being upgraded by Sydbank s main data supplier, Bankdata, which also provides services to a group of almost 20 small Danish financial institutions. The interest module was implemented in 1998 and the fee module in Concurrently with these new projects, our data supplier is working on further developments in the treasury and self-service systems including future Internet versions of the existing, highly functional electronic home and office banking systems. Regional Bankers Association Sydbank has a year-long tradition of participating in sector co-operation, primarily in the Danish Bankers Association, but also on a regional level. Together with previous partners Amagerbanken, Amtssparekassen Fyn, Midtbank and Spar Nord and Jyske Bank Sydbank widened the co-operation of these mediumsized financial institutions by setting up the association Regionale Bankers Forening (RBF) in The object of the association is to strengthen the members position in relation to sector policy and Mr Carsten Andersen, Chief Executive of Sydbank, was elected the first Chairman. The association has set up a secretariat in Copenhagen. In the light of the prospects of a slow-down in the Danish economy in 2000, Sydbank s budget for this year assumes falling growth in loans and advances, slightly falling interest margin and modest continued growth in fee income. On the basis of clear signs of increased economic activity in Euroland and continued uncertainty about the duration of the American economic boom, we expect moderately increasing European and thus Danish interest rate levels throughout For 2000 and on the basis of the above assumptions we budget total financial earnings at the level of DKK bn. Total costs are budgeted at the level of DKK 1,350bn, equal to a minor increase compared to Based on expectations of a so-called soft landing of the Danish economy, we budget unchanged loan loss provisions compared to In 2000, we expect the Bank s improved performance to continue. 16 Organisation and Staff

15 O B J E C T S A N D S T R A T E G I E S The Bank s strategy is to pursue recent years improvement in ordinary earnings while at the same time maintaining the line of consolidation. The Bank s aim is to produce financial profits implying a return on shareholders equity to the satisfaction of the shareholders long-term return expectations and exceeding the average of comparable Danish financial institutions. With a growth of more than 6,000 to more than 101,000 shareholders, the Bank s objective of increasing the number of private shareholders was fulfilled in Our twofold goal is to widen the group of shareholders and to increase the holding of Sydbank shares of each Danish shareholder. The Bank s largest Danish shareholders are Nykredit (11.3%), Topdanmark (5.7%), and PFA Pension (5.6%). The foreign investor groups Fidelity and Silchester each have a holding of more than 5% of the Bank s share capital. The objective of the Bank is to maintain a solvency ratio of 10% and a core capital ratio (tier 1) of 8-9%. The Bank s policy aims at paying dividends at a minimum of 30% of the post-tax profit. It is Sydbank s vision to continue on our own terms as a money-making, well-consolidated and wellrenowned Bank for the benefit of our customers, local communities, shareholders and employees. Aabenraa, 22 nd February 2000 EXECUTIVE MANAGEMENT Carsten Andersen (Chief Executive) Preben Lund Hansen Bent Andersen BOARD AF DIRECTORS Vagn Jacobsen (Chairman) Jytte Jensen Christen Jessen (Vice-Chairman) Jørgen L. Jensen Torben M. Andersen Helmuth Kirsten Harry Max Friedrichsen Henning Laursen Erik Galsgaard Alice Madsen Kim Gildsig Kresten Philipsen Margrethe Weber Objects 17 and Strategies

16 A U D I T O R S R E P O R T S Sydbank s Internal Audit Department We have audited the consolidated accounts and annual accounts presented by the Board of Directors and the Executive Management of Sydbank A/S for the year ended 31 st December Basis of opinion We have conducted our audit on the basis of the executive order by the Danish Financial Supervisory Authority on the performance of the audit in financial institutions and financial groups and in accordance with generally accepted auditing standards as applied in Denmark. During the audit, based on an evaluation of materiality and risk, we assessed procedures and verified the basis for the amounts and disclosures in the annual accounts. Our audit has not resulted in any qualification. Opinion In our opinion, the consolidated accounts and the annual accounts have been presented in accordance with the accounting provisions of Danish legislation and give a true and fair view of the Group s and the Company s assets and liabilities, financial position and profit for the year. Aabenraa, 22 nd February 2000 Ole Kirkbak (Head af Internal Audit Department) Auditors elected by the the Annual General Meeting We have audited the consolidated accounts and annual accounts presented by the Board of Directors and the Executive Management of Sydbank A/S for the year ended 31 st December Basis of opinion We have planned and conducted our audit in accordance with generally accepted auditing standards. Our audit has been conducted with a view to obtaining reasonable assurance that the annual accounts are free from material misstatement. Based on an evaluation of essentiality and risk we have, during the audit, tested the basis and documentation of the amounts and disclosures in the consolidated accounts and annual accounts. Our audit included an assessment of the accounting policies applied and the accounting estimates made by the Board of Directors and the Executive Management. In addition, we have evaluated the overall adequacy of the presentation of information in the annual accounts. Our audit has not resulted in any qualification. Opinion In our opinion, the consolidated accounts and the annual accounts have been presented in accordance with the accounting provisions of Danish legislation and give a true and fair view of the Group s and the Company s assets and liabilities, financial position and profit for the year. Aabenraa, 22 nd February 2000 KPMG C. Jespersen Sven Jørgensen (State-Authorised Public Accountant) H. Martinsen Statsautoriseret Revisionsaktieselskab Svend Aage Nissen (State-Authorised Public Accountant) 18 Auditors Reports

17 A C C O U N T I N G P O L I C I E S Basis of accounts The annual accounts of Sydbank have been prepared in compliance with the Danish Banking Act, the Executive Order on Bank Accounts and the accounting standards issued by the Danish Financial Supervisory Authority. Moreover, the accounts have been prepared in compliance with the Copenhagen Stock Exchange guidelines for disclosure of information by issuers of listed securities including Danish accounting standards to the extent that legislation does not provide otherwise. The policies applied remain unchanged compared to last year, apart from the following changes: Compared to previously published ratios the Danish Financial Supervisory Authority s definitions and methods of calculating the ratios have been changed. Also, new ratios have been added and others have been deleted. The Income/cost ratio has undergone an essential change and now includes all income and costs in the profit and loss account (except tax). The return on shareholders equity has also been changed compared to previously as it is now calculated on the basis of the average shareholders equity. According to the Danish Financial Supervisory Authority s definition the credit risk ratios are calculated on the basis of loans and advances (incl. reverse repos), guarantees and provisions. Consolidated accounts The consolidated accounts include the annual accounts of the parent company and its subsidiary undertakings. Undertakings operated temporarily in settlement of non-performing loans or with a view to participating in restructuring are not consolidated. The Group Structure lists the consolidated undertakings as well as non-consolidated undertakings operated temporarily. The consolidated accounts are all prepared in accordance with the Group s accounting policies. The consolidated accounts are prepared by summing up the consolidated undertakings income, expenses, assets and liabilities. The book value of the consolidated undertakings holdings in subsidiary undertakings is eliminated by the proportional share of the subsidiary undertakings shareholders equity. In addition, intra-group balances and income and expenses are eliminated. Intra-group transactions Transactions between the Group s undertakings are subject to market terms or settlement at cost. Essential accounting and valuation policies Basis of preparation Income and expenses have been accrued with the exception of a number of fees which the Bank takes to the profit and loss account at maturity. Interest income from non-performing loans and advances is not taken to the profit and loss account. Assets, loans and advances and guarantees The Group s amounts due from credit institutions, etc., loans and advances and guarantees are subject to continuous examination and critical evaluation with a view to identifying potential risk of loss. The necessary amounts have been charged to the profit and loss account either as directly realised losses or as loss provisions. When a loss is considered realised, the corresponding provisions are transferred from the provisions account and the loss is written off. Provisions for bad and doubtful debts have been deducted in the underlying assets. Lease assets The Group s lease assets are finance leases included in the balance sheet under Loans and advances. The lease assets are valued at cost less depreciation according to an annuity principle and according to the useful lives of the individual assets, such that cost less any residual value is written off over the lease term. Lease rentals received less deduction of the year s instalments are disclosed under Interest income. Accounting 19 Policies

18 Fixed asset investments Fixed asset investments include shares in associated and group undertakings, other significant holdings of shares, shares in undertakings jointly owned by the Group and other banks, etc. as defined by the Executive Order on Bank accounts, and shares acquired in connection with formal co-operation agreements concluded with other financial institutions. Holdings in group and associated undertakings are stated according to the equity method in the accounts of the parent undertakings. Shares in Sydbank are included at the market price at 31 st December. Shares in Egnsbank Fyn A/S and Foreningen Bankdata are included according to the equity method. Other fixed asset investments are included at the lower of cost or estimated value, however, not exceeding the book value. Repurchase agreements/ reverse repurchase agreements Securities sold under agreements to repurchase the same at a fixed price at a later date (repos) remain in the balance sheet. The purchase price received is stated as a liability to the transferee. The securities carry interest and are revalued, and the profit or loss is stated in the profit and loss account as if the securities were still in the Bank s portfolio. Securities purchased under agreements to resell the same at a fixed price at a later date (reverse repos) are not stated in the balance sheet and any profit or loss arising thereon is not taken to the profit and loss account. The purchase price paid is included as an asset and carries interest as agreed. Derivative financial instruments Derivative financial instruments comprise outstanding forward transactions and futures, interest rate and currency swaps, forward rate agreements (FRAs) as well as interest rate and currency options, etc. Current asset investments Listed securities are included at market prices at the balance sheet day. Derivative financial instruments are included at market value at the balance sheet date. Market value adjustments are included in the profit and loss account. Bonds scheduled for redemption on 2 nd January 2000 are valued at par. Bonds scheduled for redemption at later dates are stated at prices based on yield and remaining term to maturity. Interest on forward transactions based on securities, foreign exchange, and on interest rate and currency swaps is included as a net figure in the profit and loss account. Unlisted securities are included at the lower of cost or estimated value, however, not exceeding the book value. Fixed rate assets are written down so that, as a minimum, the return corresponds to the market interest rates of similar assets at the balance sheet date. Fixed rate assets whose interest rate risks have been hedged by derivative financial instruments are not subject to market value adjustments. Derivative financial instruments held for the purpose of hedging the interest rate risk of certain fixed rate assets and liabilities are not subject to market value adjustment. Foreign exchange translation Foreign exchange income and expenses have been translated to Danish kroner at the rate applicable at the time of booking. Assets and liabilities denominated in foreign currencies are included at the Danish central bank s official exchange rates at 31 st December. Currencies, the exchange rates of which are not published by the Danish central bank, are included at estimated rates. 20 Accounting Policies

19 Intangible assets Intangible assets including leasehold improvements are fully charged to the profit and loss account in the year of acquisition. Tangible assets The Bank values property, plant and machinery and equipment at cost plus any improvements less deductions and write-offs. If the value of these assets is lower for reasons which are not considered temporary, the assets in question are stated at the lower value. The assets are depreciated according to a prudent assessment of the useful lives of the assets and any scrap value. Buildings are subject to straight-line depreciation for a maximum period of 70 years whereas land is not depreciated. Machinery and equipment are subject to systematic depreciation for a maximum period of 5 years. Assets with a cost of acquisition of less than DKK 9,200 are fully depreciated in the year of acquisition. Other assets Capitalised financial contracts less future administrative expenses are valued at the net present value of the expected future payments. Taxes The Bank is taxed on a pooled basis with its subsidiary undertakings and pays the total tax charge of the year s pooled tax basis (parent company method) such that the tax charge calculated on the year s taxable income is taken to the profit and loss account and stated as debt in the accounts. The calculated deferred tax resulting from the timing differences between accounting and tax treatment is charged to the profit and loss account and is recorded in the balance sheet under allocation for deferred tax. The Bank has signed up for the account tax scheme. Cash flow statement Based on the year s profit, adjusted for non-cash items, the cash flows are shown indirectly. The year s change in cash items is added to the adjusted profit and the change of assets and liabilities from 1 st January to 31 st December. Cash items include cash at hand, demand deposits with central banks, instruments of debt re-financeable with central banks, demand and day-to-day balances with credit institutions plus liquid securities. The liquid securities are adjusted for bonds used and received in repurchase agreements. Pension commitments Pension contributions are paid into the employees pension schemes on a continuous basis and are charged to the profit and loss account. Accounting 21 Policies

20 P R O F I T A N D L O S S A C C O U N T Sydbank Group Sydbank A/S DKK 1,000 Note Interest income Interest expense Net interest income ,625,488 2,481,681 2,604,818 2,459,265 1,328,339 1,143,277 1,325,878 1,141,184 1,297,149 1,338,404 1,278,940 1,318,081 Dividends from shares Fee and commission income Fees and commissions payable Net interest and fee income 16 24,423 33,240 24,346 33, , , , ,529 63,829 65,010 59,104 61,594 1,759,213 1,850,899 1,723,251 1,812,206 Market value adjustments of securities and foreign exchange income Other operating income Staff costs and administrative expenses Amortisation and depreciation of intangible and tangible assets Other operating expenses Provisions for bad and doubtful debts Profit/(Loss) on holdings in associated and group undertakings Profit on ordinary activities before tax Tax Profit for the year (1,858) 152,753 (1,310) 154,442 87,530 44,206 74,106 24,953 1,207,867 1,272,987 1,187,245 1,251, ,162 57, ,280 54,768 15,819 1,376 8, , , , ,378 (22,875) 1,738 (10,491) 24, , , , , , , , , , ,189 Allocation of profits Profit for the year 302, ,189 Transferred from reserves 277,550 0 Total amount to be allocated 580, ,189 Dividends 87,136 99,000 Allocated for other purposes 1,400 2,000 Allocated to shareholders equity 491, ,189 Total amount allocated 580, , Profit and Loss Account