Annual Report 2014
Information about the bank Bank A/S Nørresundby Bank Torvet 4 DK-9400 Nørresundby CVR no. 34 79 05 15 Tel. +45 98 70 33 33 Fax +45 98 70 30 19 SWIFT NRSBDK24 direktionssekretariatet@nrsbank.dk www.noerresundbybank.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
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
Financial highlights highlights for five for years five years 2014 2013 2012 2011 2010 Summary income statement items (DKK 1.000) Net interest and fee income 431.923 423.014 424.195 421.431 419.490 Market value adjustments 34.798 22.418 31.637-15.185 25.185 Other operating income 2.697 3.336 3.826 5.369 5.526 Staff costs and administrative expenses 249.328 246.458 256.555 258.494 251.325 Depr., amort. and imp. of intang. and tang. assets 3.901 6.446 5.753 11.629 9.163 Other operating costs *) 13.763 15.305 11.237 15.084 24.616 Imp. losses on loans and advances etc. **) 24.939 59.633 88.193 66.386 88.567 Profit before tax 177.487 120.926 97.920 60.022 76.530 Tax 37.688 31.607 24.446 19.198 17.382 Net profit for the year 139.799 89.319 73.474 40.824 59.148 *) The Depositor Guarantee Fund concerning failing banks / Commission concerning Bank Package I 13.763 15.282 11.237 15.084 24.616 **) Impairment losses concerning Bank Package I, etc. 0 0 0 183 16.762 Key balance sheet figures (DKK 1.000) Loans and advances 5.279.598 5.513.713 5.268.881 5.748.379 6.109.495 Deposits, excluding pooled schemes 6.311.341 6.146.611 6.334.204 5.988.515 5.886.967 Deposits in pooled schemes 969.100 934.976 933.369 835.518 861.638 Subordinated debt 0 0 0 50.000 100.000 Share capital 46.000 46.000 46.000 46.000 46.000 Shareholders' equity 1.556.097 1.432.823 1.342.551 1.281.640 1.254.829 Balance sheet 9.278.844 9.253.141 9.352.389 9.358.656 9.903.173 Contingent liabilities, etc. 1.798.743 1.331.079 1.262.885 1.193.827 1.461.215 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 202 212 249 194 259 Share price 418 206 151 148 182 Equity value per share 344 318 301 287 280 Share price / equity value per share 1,22 0,65 0,50 0,52 0,65 Number of full-time employees (average) 240 249 260 271 279 ***) 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
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 2014. 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 2015. 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
Managerial posts posts Board of Directors Chairman Mads Hvolby Nørresundby Born in 1956. Joined the Board in 2006. * 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 1952. Joined the Board in 2007. * 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 1963. Joined the Board in 2006. Re-elected in 2010 and 2014. ** Housing and Asset Manager, Nørresundby Bank, Securities Finn Aaen Frejlev Born in 1970. Joined the Board in 2014. ** Business advisor, Nørresundby Bank, Corporate Centre North John Chr. Aasted Aalborg Born in 1961. Joined the Board in 2009. * 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 1961. Joined the Board in 2014. * 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
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
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
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 2015. Internal Audit Department Ove Steen Nielsen Chief Auditor 9
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
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 2015. Beierholm State-authorised audit firm - limited partnership company Jens Rytter Andersen State-Authorised Public Accountant 11
Management s review review Best performance since 2007 Nørresundby Bank realised a profit before tax of DKK 177.5 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 2013. In terms of expenses, total operating costs (staff, administrative expenses, depreciation, amortisation and impairment of tangible and intangible assets) amounted to DKK 253.2 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 167.6 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 2013. The need to post impairment losses on loans and advances, etc., followed a declining trend throughout 2014. 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 139.8 million, compared to DKK 89.3 million in 2013. 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
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 263.1 million in 2014, against DKK 273.6 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 285.3 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 2013. 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 158.9 million, corresponding to an increase of DKK 19.2 million compared to 2013. 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. 180 160 140 120 100 80 60 40 20 0 Fee and commission income 2010 2011 2012 2013 2014 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 432.0 million, against DKK 423.0 million last year. Market value adjustments The securities market trends have generally been favourable in 2014. 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 2013. 13
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 2013. Market-value adjustments DKK million 2014 2013 Bonds -10.0-3.2 Sector shares 34.2 4.8 Other shares 8.6 21.3 Other market-value adjustments 2.0-0.5 Total 34.8 22.4 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 253.2 million, compared to DKK 252.9 million in 2013. 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 150 130 110 90 Staff costs/wages and salaries Other administrative expenses 70 50 2010 2011 2012 2013 2014 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
Management s review review These circumstances led to staff reductions over a number of years, from 291 to 240 by the end of 2014. 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 2015. 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 90 80 70 60 50 40 30 20 10 0 Impairment losses on loans, advances, etc. 2010 2011 2012 2013 2014 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
Management s review Management s review The bank s accumulated impairment losses amount to DKK 350.9 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 139.8 million is the best since 2007. 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 28 47 Social housing associations Property management and sale Property developers 5 3 11 6 Agriculture, hunting, forestry and fisheries Other corporate lending 16
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 250 200 150 100 50 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 2015. 17
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 2015. 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 2019. 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 2013. 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 http://alm.nrsbank.dk/media/tilstrækkeligt_kapitalgrundlag_og_solvensbehov_2014.pdf. 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 2019. 18
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 417.5 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 450 400 350 300 250 200 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 2015. 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
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 2015. 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 2014. 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 2015. 20
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 150 170 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
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 2014. 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 http://alm.nrsbank.dk/media/politik_for_mangfoldighed_i 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 http://alm.nrsbank.dk/media/ledelseskodeks_for_god_selskabsledelse_2014.pdf. In addition, the Board of Directors participates in relevant courses and seminars, including courses held at the Danish Financial Sector s Training Centre. 22
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 http://alm.nrsbank.dk/media/det_underrepræsenterede_køn_ 2014.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 58-59. 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
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
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 http://alm.nrsbank.dk/media/lønpolitik.pdf. Company announcements Nørresundby Bank has published the following company announcements in 2014: 11 February 2014 Preliminary Announcement of Financial Statements 2013 11 February 2014 Annual Report 2013 12 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 2014 20 March 2014 Articles of Association 25
Management s review Management s review 24 March 2014 Selling of shares in Nets 11 April 2014 Capital gain and payment of dividends in Sparinvest Holdings SE 29 April 2014 Quarterly Report for Q1 2014 1 May 2014 Re-election of existing members and election of new members of the Board of Directors 27 August 2014 Interim Report for H1 2014 27 August 2014 Report concerning register of insiders 9 October 2014 Merger between Nordjyske Bank and A/S Nørresundby Bank 28 October 2014 Quarterly Report for Q1 Q3 2014 29 October 2014 Merger between Nordjyske Bank and A/S Nørresundby Bank 10 November 2014 Acquisition bid from Spar Nord Bank 11 November 2014 Acquisition bid from Spar Nord Bank 8 December 2014 Spar Nord Bank submits a voluntary, conditional, public acquisition bid to the shareholders of A/S Nørresundby Bank 10 December 2014 The Board of Directors statement concerning Spar Nord Bank s acquisition bid to the shareholders of A/S Nørresundby Bank 17 December 2014 Notice convening an Extraordinary General Meeting 18 December 2014 Acquisition bid from Nordjyske Bank A/S unanimously recommended by the Board of Directors of Nørresundby Bank 22 December 2014 Financial Calendar 2015 30 December 2014 Changes to the bank s Board of Directors Risk factors Risk-taking is a necessary prerequisite for operating a bank. Risk management is consequently also a central focus area for Nørresundby Bank. The various types of risk affecting the bank and the measures taken to control and minimise risks are described in the bank s risk report, which is available (in Danish) at the bank s website on http://alm.nrsbank.dk/media/risikorapport_2014.pdf. The bank has a two-tier management structure with a Board of Directors and a Board of Management. In terms of risk, the Board of Directors has laid down a set of written guidelines for the Board of Management, clearly specifying the responsibilities of each management level. The Board of Directors defines the overall policies and the Board of Management is responsible for the day-to-day management of the bank. Risk management in its various forms is a recurring item on the Board of Directors agenda. In accordance with new rules governing the duties and responsibilities of the Board of Directors, the bank changed the committee structure and established a risk committee for the Board of Directors monitoring of the bank s risks. The committee s composition and responsibilities are described in more detail on page 24 in the Audit and Risk Committee section. Furthermore, the bank has implemented a number of procedures and systems aiming at ensuring that risks are identified and handled expediently, in accordance with applicable law. The Board of Directors aims to safeguard the proper organisation of the bank and to establish risk policies and limits for all material risk types, including the presence of a detailed annual plan for the internal audit as well as the risk and compliance functions. In addition, all major credit facilities must be presented to the Board of Di- 26
Management s review Management s review rectors for approval. The Board of Directors also decides on general principles for risk management and monitoring. Regular reporting is made to the Board of Directors with a view to enabling the Board of Directors to verify whether the overall risk policies and the defined limits for this are complied with. Among those responsible for this reporting to the Board of Directors is the bank s risk manager whose tasks include the bank s risk-prone activities across risk areas and organisational units. The risk manager is responsible for the satisfactory performance of risk management in the bank, including creating an overview of the bank s risks and overall risk exposure. Furthermore, the bank s compliance function is responsible for monitoring compliance with financial legislation, industry standards and the bank s internal guidelines in all areas. Finally, as mentioned on page 24, the bank has set up an audit committee, tasked with monitoring and verifying accounting and audit issues as well as preparing the Board of Directors' treatment of accounting and auditrelated issues. For the individual risk areas, the bank continues its overall policy of only assuming such risks that comply with the business principles governing the operation of the bank and which the bank has the requisite resources to control in terms of competence. Danish banks are required to publish certain risk information (Pillar III information) in consequence of the capital adequacy rules. Some of these disclosures appear in this Annual Report, and the bank has decided to publish the full body of disclosures required in the risk report at the above-mentioned website. A general outline of the risk area is given below. Credit risk The credit risk is the risk of incurring a loss caused by customers failure, in full or in part, to meet their payment obligations. Nørresundby Bank s overarching strategy is to operate a locally rooted bank with a clearly defined market area, mainly comprising the North Denmark Region. Furthermore, the bank aims to obtain a suitable distribution between personal and business customers in its customer portfolio. The bank also emphasises long-term customer relations and does not desire to use risk-taking as a competitive parameter. Nørresundby Bank s credit risk is managed on the basis of the bank s credit policy, one of the aims of which is to ensure that there is a balance between earnings and risk, and any risk-taking must be calculated in advance. The purpose is to ensure clear coherence, from the bank s vision and strategy to its risk profile and daily risktaking, and to ensure that the ratio of the bank s risk profile to the capital base is expedient at all times. 27
Management s review Management s review Nørresundby Bank believes that all granting of credit must be based on knowledge of the customers financial situation and that credit-worthiness constitutes a significant parameter for all customers. The bank endeavours to reduce the credit risk as much as possible by requiring security for commitments. The most common types of security for commitments with personal customers are mortgage on real property, securities and vehicles. For business customers, the most common types of security are mortgage on real property, securities, operating equipment, inventories and debtors, as well as guarantees. In relation to the bank s equity, the lending leverage is 3.4, which is at the lowest end of the scale in relation to comparable banks. The bank thus desires to obtain suitable growth in loans and advances within the framework of a lending leverage of 5.0. The day-to-day management of credit risk is handled by the customer advisors together with the department managers. If an exposure exceeds the granting allowance of the department, the granting will be handled by the bank s central credit office, the Board of Management or the Board of Directors, depending on the extent of the exposure. The Credit Office is responsible for the overall monitoring of the bank s combined credit risk and carries out ongoing creditworthiness controls of the bank s exposures. As part of this monitoring effort, the bank has in recent years reduced the credit concentration with a view to reducing the bank s credit risk. The volume of large exposures has thus been reduced in the past years. In an effort to reduce the credit risk, there has been increasing focus on exposures that have shown signs of weakness over the year. This has typically given rise to demands to reduce the exposures, for instance by divesting assets, providing further security and regularly submitting financial statement and budget follow-up material. Based on the bank s exposure in the property segment, focus naturally continues to be brought to bear on the development in the property area in general and on the bank s property exposures in particular. In this connection, regular reassessments are made of the valuations, most recently based on the Danish Financial Supervisory Authority s clarified rules. Through this follow-up procedure, it is ensured that a regular assessment is made of any needs for write-downs. In connection with the Danish Financial Supervisory Authority's ordinary inspection in August/September 2012, the bank received confirmation that the valuation principles on which the bank has based its assessment of the individual property commitments are realistic. Based on lists prepared by the Credit Office, the bank s external and internal auditors perform annual reviews of selected exposures, among other things to assess the need for recognising impairment losses. The conclusions are discussed with the Board of Management and the Board of Directors. This review has included 20% of the bank s total credit exposure (lending, guarantees, frameworks and unused credit facilities). Furthermore, the bank s central Credit Office continuously focuses on whether the industries in which the bank has exposures become subject to challenges. 28
Management s review Management s review The European boycott of Russia has currently resulted in certain sales challenges for agriculture which may translate into lower earnings for some farms. Even though the bank s exposures in the agricultural sector are only approx. 5%, or just under DKK 350 million, a significant part of the loans, advances and guarantees provided to the agricultural sector has been reviewed to determine whether the exposures are assessed on the basis of Appendix 10 to the Executive Order on the Presentation of Financial Statements with associated guidelines from early 2014 and to identify any further need to recognise impairment losses. The review only gave rise to a downward reclassification of the creditworthiness of a few exposures by one class and, consequently, did not prompt the need for further impairment losses. Based on the Danish Financial Supervisory Authority s guidelines from 2014, the bank reviewed the personal customer area at the end of the year to ensure that creditworthiness is assessed in accordance with the new guidelines. The review did not result in an increase of the total expected need to post impairment losses for 2014. In connection with the debate in the daily newspapers on the bank s increased risk of incurring losses on customers holding mortgages with instalment-free (interest-only) periods, analyses of the ensuing consequences were prepared in 2013. The analysis identified only an insignificant need for impairment losses in 2013. Loans, advances and receivables are individually assessed in case of significant exposures. Loans, advances and receivables are also assessed in cases where individual impairment losses have already been realised or where the exposure is considered weak. Finally, an assessment is made of whether loans, advances and receivables must be characterised as weak exposures. This assessment, which is based on signs of weakness, comprises loans for which an objective indication of impairment does not exist as well as loans that are not fully written down in consequence of expected payments or security provision. In these cases, the loan or the part of the loan that is not written down forms part of the solvency requirement calculation. Loans, advances and receivables not subject to individual impairment losses will be assessed in groups to determine whether objective indication of impairment exists at group level. The calculation of impairment losses by groups is based on the segmentation model developed by the Association of Local Banks, based on statistical loss data for the entire banking sector, adjusted to reflect local conditions. The basis for the model was adjusted on a quarterly basis in 2014 to incorporate the economic trends and to take early events into account. Please refer to Note 27 on pages 60-67. Market risks Market risk is the risk of the market value of the bank s assets and liabilities changing due to altered market conditions. Market risk occurs as part of trading in and portfolios of securities, foreign currency and derivative 29
Management s review Management s review financial instruments. Market risk is a consequence of the bank s open positions on financial markets and can be divided into interest-rate risk, currency risk, shareholding risk and property risk. The bank s policy is to maintain market risks at a low level. For each type of risk, specific risk frameworks have been defined for monitoring and management, and the aim is to obtain a sensible ratio between risk and return. If the bank desires to minimise or reduce the risks to which it is exposed, management and hedging will be effected by means of derivatives. Market risks mainly arise in the Securities Department, which is also where they are hedged. In connection with the management and monitoring of the bank s market risks, the Board of Management receives daily reports from the Finance Department about the developments in market-value adjustments of bonds and equities in the bank s own portfolio, including own shares, and currency developments. The reporting also includes the developments in deposits and loans and advances compared to budget expectations. Approximately fortnightly, the Board of Management also receives reports prepared by the Finance Department on the aggregate exposure in securities and foreign exchange and, for the individual instrument and currency position, how much of the authorisation has been exploited, with a comment if authorisation limits have been exceeded. This reporting also includes a statement of market value adjustments to the bank s own portfolio, interest-rate risk and a statement of surplus liquidity since the last statement. The report is presented to the Board of Directors at each board meeting. Please refer to Note 28 on pages 68-69. Interest-rate risk The bank s lending and deposit activities as well as balances with credit institutions are mainly contracted on a floating-rate basis. The primary interest-rate risk is associated with the bank s bond portfolio which is related to the bank s liquidity management. In 2014, the bond portfolio transactions reflected the volatile market so that both the price risk and interest-rate risk were taken into consideration. This investment strategy fully met the objective of ensuring a very limited interest-rate risk. Interest-rate risks are also associated with the bank s fixed-rate positions, which are hedged subject to individual assessments. The bank s interest-rate risk is managed daily by the Securities Department. Monitoring and reporting of the interest-rate risk to Board of Directors and Board of Management are handled by the Finance Department. The bank s interest-rate risk was 0.2 1.5% during the year. Please refer to Note 28 on pages 68-69. Currency risk The bank desires the currency risk to be low and therefore reduces currency transactions through hedging. 30
Management s review Management s review As part of the normal servicing of the bank s customers, the bank conducts lending and deposit activities in foreign currencies. The Securities Department performs the day-to-day management of currency positions, and the Finance Department monitors compliance with lines and is responsible for reporting to the bank s Board of Directors and Board of Management. The bank s currency risk has been insignificant for a number of years. Please refer to Note 28 on pages 68-69. Shareholding risk The bank s total equity portfolio amounts to DKK 376.0 million at the end of 2014, including a shareholding in strategic partners of DKK 274.5 million. The strategic partners include DLR Kredit A/S, PRAS A/S, BankInvest Holding A/S, Sparinvest Holding A/S and Letpension A/S. This shareholding concerns companies that are necessary for the operation of the bank, and these interests are consequently not considered part of the trading portfolio. In several of the sector companies, the shares are redistributed so that the banks ownership shares always reflect the volume of the individual bank s business with the sector company. The redistribution is typically based on the equity value of the sector company. The bank employs this calculation to adjust the recognised value of these shares when new information appears that supports a change in valuation. The remaining part are shares in listed companies, etc., which make up only a modest part of the total shareholding, based on a desire to limit exposure. The Securities Department performs the day-to-day management, whereas monitoring and reporting to Board of Directors and Board of Management is the Finance Department s responsibility. Please refer to Note 28 on pages 68-69. Property risk The bank has a policy of owning the premises where it operates. The bulk of the bank s property portfolio therefore comprises owner-occupied properties, and the volume of investment properties is thus limited. The total property portfolio, which is modest compared to the bank s balance sheet total, is regularly assessed by an external appraiser who determines their current fair value. The assessments have only given rise to small adjustments under the financial statement items depreciation of tangible assets, market-value adjustments and equity. Please refer to Note 16 on page 55. 31
Management s review Management s review Liquidity risk Liquidity risks include the risk of the bank s funding costs rising disproportionately, of the bank being prevented from engaging in new business due to insufficient access to liquidity and of the bank being unable to meet its payment obligations due to insufficient liquid resources. To mitigate these risks, the bank has an internal objective of an excess cover of at least 50% in relation to the liquidity requirement. The bank s liquidity management is based on regular monitoring and management of the bank s short and long-term liquidity risk, including stress testing The Securities and Finance Department manages and monitors the bank s liquidity risk. The Board of Management receives daily reports on surplus liquidity and trends in deposits and loans during the past five banking days compared to budget expectations. A statement of surplus liquidity is presented at each meeting of the Board of Directors. Furthermore, the liquidity budgets prepared cover one year at a time, including a stress test. The report is presented to the Board of Directors each quarter. In Q1 2014, the bank repaid funding that is not subject to a government guarantee. With its deposit surplus, the bank continues to have a robust foundation in terms of liquidity. Operational risks Operational risks are the risk of direct or indirect losses caused by inadequate or erroneous internal processes, human error, system defects or losses due to external events. Operational risks also comprise business and reputation risks. The capital adequacy rules require the bank to quantify and recognise an amount for operational risks when determining the capital base. The bank applies the basic indicator approach, which involves quantification of an amount based on a calculation of the average net income in the past three financial years. The quantified amount is added to the riskweighted assets to cover the bank s operational risks. Operational risks are managed across the organisation by means of a system of comprehensive business procedures and control measures that was developed with a view to ensuring an optimal process environment. An effort is made to minimise operational risks, for instance by separating execution and control. 32
Management s review Management s review An area which is important for the assessment of the bank s operational risks is IT. The bank s IT department and the management regularly review IT security, including the IT contingency plans in place. In this connection, requirements and levels of accessibility and stability are determined for the IT systems and data used by the bank. The requirements defined apply to the bank s internal IT department and the bank s external IT supplier, Bankdata, which the bank co-owns with a number of other banks. Supervisory diamond The Danish Financial Supervisory Authority sets out a number of special risk areas with defined threshold values that should generally be observed by banks. As shown in the table below, the bank maintains a good margin to the defined threshold values, but the bank has a property-segment exposure of 21%. Approximately 6 percentage points are attributable to loans to the social housing sector where the risk scenario is significantly lower than for general property financing because of the special financing model that applies to social housing. Total large exposures must be < 125% of the capital base. Growth in loans and advances must be < 20% p.a. Nørresundby Bank 42% Nørresundby Bank -4% Property exposure must be < 25% of loans and advances Funding ratio must be < 1.0 Nørresundby Bank 21% Nørresundby Bank 0.60 Excess liquidity cover must be > 50% Nørresundby Bank 202% CSR and statutory accounting of social responsibility The bank s report on corporate social responsibility (CSR) is available (in Danish) on http://alm.nrsbank.dk/media/samfundsansvar_2014.pdf Corporate governance and statutory accounting of corporate governance The bank s report on corporate governance is available (in Danish) on http://alm.nrsbank.dk/media/virksomhedsledelse_2014.pdf 33
34
Income statement Income statement 2014 2014 Note (DKK 1.000) (DKK 1.000) 2 Interest income 309.913 334.389 3 Interest expense 46.770 60.783 Net interest income 263.143 273.606 Dividends from shares, etc. 9.886 9.668 4 Fee and commission income 174.852 155.257 Fees and commissions paid 15.958 15.517 Net interest and fee income 431.923 423.014 6 Market value adjustments 34.798 22.418 Other operating income 2.697 3.336 7 Staff costs and administrative expenses 249.328 246.458 8 Deprec., amort. and impairment of intang. and tangible assets 3.901 6.446 Other operating costs 13.763 15.305 27 Impairm. losses on loans, advances and other receivables, etc. 24.939 59.633 Profit before tax 177.487 120.926 9 Tax 37.688 31.607 Net profit for the year 139.799 89.319 Statement of total comprehensive income: Net profit for the year 139.799 89.319 Value adjustment of owner-occupied property -2.593 1.802 Tax concerning value adjustment of owner-occupied property 57 55 Provisions for pension benefits 682-381 Tax conc. provisions for pension benefits -262 0 Other comprehensive income after tax -2.116 1.476 Comprehensive income for the year 137.683 90.795 Distribution of net profit Distribution of net profit Net profit for the year 139.799 89.319 Proposed dividend 0 23.000 Allocated to shareholders' equity 139.799 66.319 Total amount allocated 139.799 89.319 35
#### Balance sheet Balance sheet 31.12.2014 31.12.2013 Note (DKK 1.000) (DKK 1.000) ASSETS Cash on hand and demand deposits with central banks 153.928 84.774 10 Receivables from credit institutions and central banks 22.101 135.627 11 Loans, advances and other receivables at amortised cost 5.279.598 5.513.713 12 Bonds at fair value 2.196.700 2.051.134 13 Shares, etc. 376.021 265.672 14 Assets related to pooled schemes 966.231 927.959 15 Intangible assets 1.398 1.864 16 Land and buildings, total 173.490 179.450 distributed between: Investment property 46.900 49.200 Owner-occupied property 126.590 130.250 17 Other tangible assets 2.644 3.488 Current tax assets 7.234 0 22 Deferred tax assets 1.618 1.752 Other assets 90.230 80.994 Prepayments 7.651 6.714 Total assets 9.278.844 9.253.141 36
Balance sheet sheet 31.12.2014 31.12.2013 Note (DKK 1.000) (DKK 1.000) EQUITY AND LIABILITIES Payables 18 Payables to credit inst. and centr. banks 252.796 526.395 19 Deposits and other payables 6.311.341 6.146.611 Deposits in pooled schemes 969.100 934.976 20 Issued bonds at amortised cost 2.914 6.142 Actual tax liabilities 0 1.752 Other liabilities 162.203 180.636 Deferred income 2.599 1.652 Total payables 7.700.953 7.798.164 Provisions 21 Provisions for pension benefits and similar obligations 6.513 7.883 Provisions for losses on guarantees 2.863 2.690 Other provisions 12.418 11.581 Total provisions 21.794 22.154 Equity 23 Share capital 46.000 46.000 Revaluation reserve 18.860 21.396 Retained earnings 1.491.237 1.342.427 Proposed dividend 0 23.000 Total equity 1.556.097 1.432.823 Total equity and liabilities 9.278.844 9.253.141 24 Contingent liabilities, etc. 1.798.743 1.331.079 37
Changes in in equity equity 31.12.2014 31.12.2013 (DKK 1.000) (DKK 1.000) Share capital: Opening share capital 46.000 46.000 Capital injection or reduction 0 0 Closing share capital 46.000 46.000 Revaluation reserve: Opening revaluation reserve 21.396 20.910 Other comprehensive income: Value adjustment of owner-occupied property -2.593 431 Tax concerning value adjustment of owner-occupied property 57 55 Closing revaluation reserve 18.860 21.396 Retained earnings: Opening retained earnings 1.342.427 1.266.441 Net profit for the year 139.799 66.319 Dividend received on treasury shares 403 275 Purchase and sale of treasury shares 8.188 8.402 Other comprehensive income: Value adjustm. of owner-occ. property, realised revaluation reserve 0 1.371 Provisions for pension benefits 682-381 Tax conc. provisions for pension benefits -262 0 Closing retained earnings 1.491.237 1.342.427 Proposed dividend: Opening proposed dividend 23.000 9.200 Dividends paid -23.000-9.200 Distribution of net profit, proposed devidend 0 23.000 Closing proposed dividend 0 23.000 Closing shareholders' equity 1.556.097 1.432.823 Statement of total comprehensive income: Profit for the year after tax 139.799 89.319 Value adjustment of owner-occupied property -2.593 1.802 Tax concerning value adjustment of owner-occupied property 57 55 Provisions for pension benefits 682-381 Tax conc. provisions for pension benefits -262 0 Other comprehensive income after tax -2.116 1.476 Total comprehensive income 137.683 90.795 38
Capital base base (solvency) (solvency) 31.12.2014 31.12.2013 (DKK 1.000) (DKK 1.000) Shareholders' equity 1.556.097 1.432.823 Deductions Proposed dividend 0-23.000 Deferred tax assets -1.618-1.752 Intangible assets -1.398-1.864 Non-material investments in financial sector entities -113.649-25.319 Other deductions -35.371-19.965 Common equity tier 1 capital after deductions 1.404.061 1.360.923 Core capital after deduction 1.404.061 1.360.923 Capital base 1.404.061 1.360.923 Capital requirement acc. to Article 92 of EU Regulation no. 575/2013 562.160 573.483 Risk exposure: Credit risk, etc. 5.562.212 5.776.881 Market risk 608.764 566.628 Operational risk 856.027 825.034 Total risk exposure 7.027.003 7.168.543 Common equity tier 1 capital ratio 20,0 19,0 Core capital ratio 20,0 19,0 Capital ratio 20,0 19,0 Capital and capital requirements are stated in accordance with Regulation (EU) No. 575/2013 of the European Parliament and of the Council and Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013. Comparative figures have been adjusted with the exception of the total risk exposure which has been stated in accordance with the previously applying rules in the Executive Order on capital adequacy. It has not been possible to provide data for adjusting the total risk exposure in the comparative figures. The bank applies the standardised approach for credit and market risks and the basic indicator approach for operational risks. 39
Cash flow flow statement 2014 2013 (DKK 1.000) (DKK 1.000) Operating activity: Comprehensive income for the year 137.683 90.795 Adj. for amounts in compr. income for the year without cash flow effect: Deprec., amort. and value adjustments of intang. and tangible assets 8.737 8.648 Impairment of loans and adv. and provisions for losses on guarantees 7.126 28.494 Unrealised market value adjustments on securities -25.031-26.545 Other income statement items without cash flow effect -1.179-1.167 Tax charged to income statement 37.688 31.607 Tax paid -46.745-41.038 Comprehensive income adjusted for non-cash items 118.279 90.794 Change in working capital: Loans and advances 227.999-271.843 Deposits 164.730-187.593 Net receivables from credit institutions, etc., not on demand -322.641-25.028 Other working capital -26.375 11.964 Cash flow from operating activities 161.992-381.706 Investment activity: Investment in fixed assets: Net intangible and tangible fixed assets -1.523 4.472 Cash flow from investment activities -1.523 4.472 Financing activity: Dividends paid -23.000-9.200 Cash flow from financing activities -23.000-9.200 Aggregate cash flow effect for the period 137.469-386.434 Opening cash and cash equivalents 2.264.376 2.650.810 Closing cash and cash equivalents 2.401.845 2.264.376 Breakdown of closing cash and cash equivalents: Cash on hand and demand deposits with Danmarks Nationalbank 153.928 84.774 Demand deposits with credit institutions 20.370 130.003 Readily negotiable and non-pledged securities 2.227.547 2.049.599 Total 2.401.845 2.264.376 Additional loan commitments and loan facilities 473.604 586.906 Liquidity in acc. with S. 152 of the Danish Financial Business Act 2.875.449 2.851.282 The cash flow statement cannot be directly inferred on the basis of the official annual report. 40
List of of notes Full year Note Accounting policies 1 Notes to the income statement: Interest income 2 Interest expense 3 Fee and commission income 4 Turnover, etc. 5 Market value adjustments 6 Staff costs and administrative expenses 7 Deprec., amort. and impairment of intang. and tangible assets 8 Tax 9 Notes to the balance sheet: Receivables from credit institutions and central banks 10 Loans, advances and other receivables at amortised cost 11 Bonds at fair value 12 Shares, etc. 13 Assets related to pooled schemes 14 Intangible assets 15 Land and buildings 16 Other tangible assets 17 Payables to credit inst. and centr. banks 18 Deposits and other payables 19 Issued bonds at amortised cost 20 Provisions for pension benefits and similar obligations 21 Deferred tax assets / Deferred tax provisions 22 Share capital 23 Contingent liabilities, etc. 24 Related parties 25 Risk management 26 Credit risks and impairment losses 27 Market risks, including sensitivity 28 Derivatives 29 Fair value of derivatives 30 Financial ratio definitions 31 Financial highlights for five years 32 41
Notes Note 1 Accounting policies General The 2014 financial statements are presented in accordance with the Danish Financial Business Act and the Executive Order on Financial Reports for Credit Institutions, etc. (Danish Executive Order on the Presentation of Financial Statements). The financial statements are presented in Danish kroner (DKK) rounded off, unless otherwise indicated, to the nearest DKK 1,000. The presentation of the financial statements follows the same accounting polices as last year. However, a few notes and statements have been adjusted slightly, including adjustment of comparative information. Capital and capital requirements are stated in accordance with the new rules following from Regulation (EU) No. 575/2013 of the European Parliament and of the Council and Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013. Comparative figures have been adjusted with the exception of the total risk exposure which has been stated in accordance with the previously applying rules in the Executive Order on capital adequacy. It has not been possible to provide data for adjusting the total risk exposure in the comparative figures. General information on recognition and measurement Assets are recognised in the balance sheet when a previous event renders it probable that future economic benefits will flow to the bank and the value of the asset can be measured reliably. Liabilities are recognised in the balance sheet when the bank, as a consequence of a previous event, has a legal or constructive liability which renders it probable that future economic benefits will flow from the bank and the value of the liability can be measured reliably. Assets and liabilities are measured at fair value when initially recognised. However, tangible and intangible assets are measured at cost when initially recognised. Measurement subsequent to initial recognition is made as described for each individual item below. Anticipated risks and losses that arise before the time of presentation of the financial statements and that confirm or invalidate affairs and conditions existing at the balance sheet date are taken into consideration at recognition and measurement. Income is recognised in the income statement as and when earned, whereas costs are recognised at the amounts attributable to the financial year. Appreciations of owner-occupied properties are recognised directly in equity, however, unless the adjustment corresponds to a decrease in value previously recognised in the income statement. Purchase and sale of financial instruments are recognised at fair value at the trade date and derecognised when the contractual rights to the cash flows from the financial asset or liability expire or the financial asset 42
Notes Note 1 Accounting policies - continued is transferred and the bank has transferred substantially all risks and rewards of ownership. The bank does not apply the rules on reclassification of some financial assets from fair value to amortised cost. In the determination of the fair value, etc., of shares and bonds, valuation categories in accordance with the IFRS 7 hierarchy are applied, consisting of three levels: Level 1: Listed prices in an active market for the same type of instrument, i.e. without modification or repackaging, including listed shares and bonds. Level 2: Listed prices in an active market for similar assets or other valuation techniques where all material inputs are based on observable market data. Level 3: Valuation techniques where any material inputs are not based on observable market data. Fair value determination Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm s length transaction. The fair value of financial instruments traded on an active market is determined at the closing price on the balance sheet date or, where this is not available, another published price deemed to best correspond to this price. The fair value of financial instruments not traded on an active market is determined using generally accepted valuation methods based on observable current market prices. Accounting estimates The financial statements are prepared under certain special assumptions that require the use of accounting estimates. Such estimates are made by the bank s management in accordance with the accounting policies and on the basis of historical experience as well as assumptions considered prudent and realistic by the management. Determining the carrying amounts of some assets and liabilities requires estimation of the effects of future events on the value of those assets and liabilities. The most important estimates concern impairment losses on loans and advances, provisions on guarantees, determination of fair value of properties and measurement of unlisted financial instruments and provisions. As concerns impairment losses on loans and advances, significant estimates are associated with the quantification of the risk of not receiving all future payments. If it can be ascertained that not all future payments will be received, the determination of the amount of expected payments, including realisable values of any security provision and expected dividend payments from estates, is also subject to significant estimates. The fair value measurement of unlisted shares and other financial instruments, assets in temporary possession as well as investment and owner-occupied properties is also subject to significant 43
Notes Note 1 Accounting policies - continued estimates. Provisions, etc., are subject to significant estimates in relation to the determination of future employee turnover. The estimates and assessments are based on assumptions found prudent by the management. It naturally follows that the assumptions are uncertain and characterised by being unpredictable. Also, the bank is affected by risks and uncertainties that may cause the actual results to deviate from the estimates. Translation of foreign currencies On initial recognition, transactions in foreign currencies are translated using the exchange rate prevailing on the transaction date. Balances in foreign currencies which are not settled at the balance sheet date, are translated using the closing price at the end of the financial year. Exchange rate differences arising between the rate prevailing at the date of the transaction and the rate at the payment date or the exchange rate at the balance sheet date, respectively, are recognised in the income statement as translation adjustments. Income statement Interest, fees and commission, etc. Interest income and expenses are accounted on an accruals basis together with commission income and the proportion of fee income which is an integral part of the effective interest rate on loans and advances. Accruals are based on the effective interest rate method and the recognition as income is thus made at the determined effective interest rate applied to the current volume of lending. Fees earned over a period of time are accrued over the period, in so far as possible. Transaction fees are recognised as income at the date of transaction. Interest income from loans and advances that are fully or partially written down is carried under the item Impairment losses on loans, advances and other receivables, etc. as concerns the interest on the part of the loans and advances that has been written down. Market value adjustments Market value adjustments consist of market value adjustments of bonds, equities and derivative financial instruments. In addition, exchange rate adjustments, fair value hedge accounting and value adjustments of investment properties are recognised. Other operating income Other operating income mainly consists of rental income concerning those owner-occupied properties of the bank that are also used for leasing purposes, and the profit on the operation of the bank s investment properties. 44
Notes Note 1 Accounting policies - continued Staff costs and administrative expenses Staff costs cover salaries and wages and social costs and pensions, etc., for the bank s staff. Costs of payments and benefits to employees, including anniversary bonuses, are recognised as and when the employees render the services vesting such payments and benefits. The bank has entered into defined contribution pension plans with all current employees. The bank has no obligation to pay further contributions. Costs incurred concerning the processing of the announced acquisition bids for the bank have also been recognised under staff costs and administrative expenses. Other operating costs Other operating costs include costs of a secondary nature to the bank's activities, including contributions to sector solutions concerning bankrupt/failing banks. Impairment losses on loans, advances and other receivables, etc. Impairment losses on loans, advances and other receivables, etc., comprise losses and write-downs on loans and advances and unused credit facilities, losses and write-downs concerning Bank Package I, losses and provisions for losses on guarantees as well as losses and write-downs in respect of assets in temporary possession. Tax The tax for the year, consisting of the current tax for the year and the change in deferred tax for the year, is recognised in the income statement by the portion attributable to the profit for the year and in other comprehensive income or directly in equity by the portion attributable to entries in other comprehensive income and entries directly in equity, respectively. Current tax liabilities and current tax receivables, respectively, are recognised in the balance sheet as calculated tax of the year s taxable income adjusted for tax paid on account. When calculating the current tax for the year, the tax rates and rules in effect on the balance sheet day are applied. Deferred tax is recognised for temporary differences between the carrying amount and tax-based value of assets and liabilities. Deferred tax assets are recognised in the balance sheet at the expected realisable value of the asset. Deferred tax liabilities are provided for in the balance sheet under Provisions. Deferred tax is determined net. Balance sheet Receivables from credit institutions and central banks Receivables from credit institutions and central banks comprise receivables from other credit institutes and time deposits with central banks. Receivables are measured at fair value. 45
Notes Note 1 Accounting policies - continued Loans, advances and other receivables at amortised cost Loans, advances and other receivables are initially recognised at fair value. Fees, including front-end fees, etc., that are considered an integral part of the effective interest rate on the loan, are equated with a continuing interest payment and recognised over the life of the individual loan. Loans, advances and other receivables are subsequently measured at amortised cost less write-downs for losses. Impairment losses on loans, advances and other receivables are made in groups and individually. Writedowns for losses are made when an objective indication of impairment losses exists. For individual impairment losses, objective indication is deemed to apply if one or more of the following events have occurred: the borrower is experiencing considerable financial difficulties; a breach of contract by the borrower, for instance in the form of non-compliance with an obligation to effect repayments or interest payments; the bank relaxes the terms for the borrower, and such relaxation would not have been considered if the borrower was not experiencing financial difficulties; and/or it is probable that the borrower will be declared insolvent or be comprised by other financial reorganisation. The impairment loss is effected at the difference between the carrying amount before the impairment loss and the present value of the expected future payments. The expected future payments have been determined based on the most probable future payments, including the realisable value of any security granted. The bank applies the currently fixed, weighted interest rate as the discount rate. Loans, advances and other receivables that are not subject to individual impairment losses will form part of groups of impairment losses and assessed in such groups to determine whether objective indication of impairment exists at group level. The assessment in groups is made on the basis of homogenous groups of loans, advances and other receivables. Twelve groups are used, distributed between one group of public authorities, one group of personal customers and ten groups of business customers, with a sub-division into sector groups. The assessment in groups is made using a segmentation model developed by the Association of Local Banks, which is also responsible for regular maintenance and development. The segmentation model lays down the relation in the individual groups between losses established and a number of significant, explanatory macroeconomic variables using linear regression analysis. Among the explanatory macro- 46
Notes Note 1 Accounting policies - continued economic variables are jobless numbers, housing prices, interest rates, number of bankruptcies/compulsory sales, etc. The macroeconomic segmentation model is basically calculated on the basis of loss data for the entire bank sector. The result of the calculation was subsequently assessed as to whether the model estimates should be adjusted to reflect the bank s own lending portfolio, including an assessment of early events that the model cannot consider. This assessment has resulted in an adjustment of the model estimates to reflect local conditions, following which the adjusted estimates form the basis for calculating the impairment by groups. For each group of loans, advances and other receivables, an estimate is arrived at, expressing as a percentage the impairment loss attributable to a given group of loans, advances and other receivables at the balance sheet date. The contribution of the individual loan to the group of impairment losses is arrived at by making a comparison with the individual loan s original exposure to loss and its exposure to loss at the start of the current accounting period. The impairment loss is determined as the difference between the carrying amount and the discounted value of the expected future payments. Bonds at fair value Listed bonds are measured at fair value determined on the basis of the closing price at the balance sheet date (level 1). Unlisted bonds are measured at fair value based on the issuer s price data (levels 2 and 3). Shares etc. Listed shares are measured at fair value determined on the basis of the closing price at the balance sheet date (level 1). Unlisted shares are measured at fair value, stated on the basis of the transaction price in an arm s length transaction. The measurement basis is available trading data, published announcements of financial statements or, in the alternative, capital value calculations (levels 2 and 3). For unlisted shares in the form of shares in sector-owned companies whose shares are redistributed, redistribution is considered to constitute the primary market for the shares. The fair value is determined as the redistribution price, and the shares are included as level 2 shares. Unlisted shares for which a reliable fair value cannot be determined are measured at cost less write-downs (level 3). Assets related to pooled schemes All pool assets and deposits are recognised in separate balance sheet items. Returns on pool assets and distribution to pool participants are recognised in the income statement under Market value adjustments. 47
Notes Note 1 Accounting policies - continued Intangible assets Intangible assets include software and goodwill and are measured at cost less accumulated depreciation, which is calculated on a straight-line basis over an estimated useful life of five years. Land and buildings Land and buildings comprise the two items Investment property and Owner-occupied property. Properties mainly used for bank operations (the branches of the bank) are categorised as owner-occupied properties, and all other properties are considered investment properties. Investment property is measured at fair value determined on the basis of a return-based model which incorporates an external expert s estimate of the price per square meter and the required rate of return within a short period of time with an active sales effort. Ongoing value adjustments of investment properties are recognised in the income statement under Market value adjustments. Investment properties are not subject to depreciation. Owner-occupied property is measured at revalued amounts, which is the fair value determined on the basis of a return-based model which incorporates the external expert s estimate of the price per square meter and the required rate of return within a short period of time with an active sales effort, less accumulated depreciation. The depreciation is made on a straight-line basis subject to an estimated useful life of 50 years with due consideration of the expected scrap value of the buildings. Depreciation and impairment losses are recognised in the income statement under Depreciation, amortisation and impairment of intangible and tangible assets, whereas increases in the revalued amounts are recognised directly in equity under Revaluation reserves, unless the increase corresponds to a decrease in value previously recognised in the income statement. Other tangible assets Other tangible assets, comprising equipment and improvements of leased premises, are measured at cost less accumulated depreciation and impairment losses. Straight-line depreciation is applied, based on the expected useful lives of the assets; for IT equipment this amounts to a maximum of three years and for other tangible assets a maximum of five years. Current tax assets / current tax liabilities Current tax assets comprise current tax receivables stated as tax paid on account, reduced by the tax on the year s taxable income. Current tax liabilities comprise current tax payables stated as the tax on the year s taxable income, reduced by the tax paid on account. Assets in temporary possession Assets in temporary possession comprise tangible assets taken over as a result of settlement of failing customer commitments with the intention of divesting the assets as quickly as possible. Assets taken over are recognised at fair value on acquisition and subsequently measured at the expected realisable value. Any value adjustment of assets in temporary possession is recognised in the income statement under "Impairment losses on loans, advances and other receivables etc.. Other assets Other assets include assets not belonging to any other asset items. This item comprises the positive market value of derivative financial instruments and income that will not fall due for payment until after the end of 48
Notes Note 1 Accounting policies - continued the financial year, including interest payments and dividends receivable. Apart from derivative financial instruments that represent a positive value on the balance sheet date and are measured at fair value, this item is initially recognised at cost and subsequently at amortised cost. Prepayments and deferred income Prepayments recognised under assets include expenses paid concerning subsequent financial years. Deferred income recognised under liabilities includes income concerning subsequent financial years. Prepayments and deferred income are measured at cost. Payables to credit institutions and central banks Payables to credit institutions and central banks are measured at amortised cost, which usually corresponds to the nominal value. Deposits and other payables as well as deposits in pooled schemes Deposits and other payables as well as deposits in pooled schemes are measured at amortised cost, which usually corresponds to the nominal value. Issued bonds at amortised cost Issued bonds comprise employee bonds and are measured at amortised cost. Other liabilities Other liabilities comprise liabilities not belonging to any other liability items. This item comprises the negative market value of derivative financial instruments and expenses that will not fall due for payment until after the end of the financial year, including interest payments payable. Apart from derivative financial instruments that represent a negative value on the balance sheet date and are measured at fair value, this item is initially recognised at cost and subsequently at amortised cost. Provisions Liabilities whose size or settlement time is uncertain are carried as provisions when the liability is likely to result in an outflow from the bank of resources embodying economic benefits, and the liability can be measured reliably. The liability is stated at the present value of the expenses required for discharging the liability. Unfunded pension commitments concerning former members of management are provided for in the balance sheet under Provisions for pension benefits and similar obligations. The obligation is stated as the capitalised value of the expected future pension payments. This item also includes liabilities relating to anniversary bonuses, which are provided for on the basis of previous experience. Provisions for losses on guarantees and unused credit facilities are recognised under provisions in the balance sheet. Subordinated debt Subordinated debt is measured at amortised cost. Revaluation reserve The revaluation reserve comprises revaluation of the bank s owner-occupied properties after recognition of deferred tax. The reserve will be cancelled when the properties are subject to impairment losses or sold. 49
Notes Note 1 Accounting policies - continued Proposed dividend Dividends are recognised as a debt at the time of adoption at the general meeting. The dividends proposed for the period are stated as a separate item under equity. No dividend distribution is proposed for 2014. Treasury shares Acquisition costs and consideration for purchases and sales of treasury shares as well as dividends from own shares are recognised directly in equity. In accordance with the Executive Order on the Presentation of Financial Statements, the treasury share portfolio is carried at DKK 0 under equity. Contingent liabilities Contingent liabilities comprise guarantees granted by the bank. The guarantees are reviewed and assessed on a continuous basis to identify whether there is an objective indication of impairment. Provisions for losses on guarantees are recognised under provisions in the balance sheet. Disclosure about security provided against the bank's assets and information about any pending litigations is also made under contingent liabilities. Derivatives and hedge accounting Forward contracts, currency and interest rate swaps and other derivatives are measured at fair value on the balance sheet date, usually based on listed market prices. For unlisted instruments, the fair value is stated in accordance with generally accepted principles applying market-based parameters. Positive market values are included in other assets, and negative market values are included in other liabilities. In the event that the bank has an offsetting contract with the counterparty, the market value is stated as a net market value in certain cases. The currency risk is largely limited by hedging currency loans through forward exchange transactions, and the interest risk is largely limited through interest-rate swap hedging. Interest rate swaps qualifying as hedge accounting of fixed-rate loans are recognised as hedge transactions, as the value adjustment is made on the fixed-rate loan and other assets/other liabilities. The value adjustments determined for the hedged items are recognised in the income statement under the items Market value adjustments other loans, advances and receivables and Market value adjustments interest rate contracts. All value adjustments relating to derivatives are carried under Market value adjustments in the income statement. Cash flow statement The cash flow statement is presented using the indirect method, showing cash flows from operations, investments and financing and the bank s liquid assets at year-start and year-end. Cash and cash equivalents comprise cash on hand and demand deposits with central banks and credit institutions and the portfolio of secure, readily negotiable and non-pledged securities, cf. Section 152 of the Danish Financial Business Act. 50
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 2 Interest income: Receivables from credit institutions and central banks 303 723 Loans, advances and other receivables 285.322 296.938 Bonds 26.760 39.617 Total derivatives -2.491-2.891 distributed between: Foreign exchange contracts -14-156 Interest rate contracts -2.477-2.735 Other interest income 19 2 Total interest income 309.913 334.389 3 Interest expense: Credit institutions and central banks 1.763 3.744 Deposits and other payables 44.663 56.107 Issued bonds 108 284 Other interest expense 236 648 Total interest expense 46.770 60.783 4 Fee and commission income: Securities trading and deposits 68.873 65.464 Payment services 32.362 28.759 Loan application fees 53.322 40.445 Guarantee commissions 8.467 8.979 Other fees and commissions 11.828 11.610 Total fee and commission income 174.852 155.257 5 Turnover, etc. As required by section 124a, Nørresundby Bank declares that it operates traditional banking activities in the North Denmark Region and is headquartered in Nørresundby. No branches have been established in other countries, and no public subsidies have been received. Other information required under section 124a can be directly inferred from the annual report. Interest income 309.913 334.389 Fee and commission income 174.852 155.257 Other operating income 2.697 3.335 Total turnover 487.462 492.981 6 Market value adjustments: Other loans, advances and receivables (hedge) 68-3.803 Bonds -10.029-3.164 Shares, etc. 42.805 26.092 Investment property -2.300-3.900 Currency 4.339 1.068 Total derivatives -39 6.187 distributed between: Foreign exchange contracts -12 2.346 Interest rate contracts -26 3.842 Equity contracts -1-1 Assets related to pooled schemes 62.522 95.625 Deposits in pooled schemes -62.568-95.688 Total market value adjustments 34.798 22.418 Market value adjustments of currency and foreign exchange contracts should be considered as a whole as the bank hedges currency positions on an ongoing basis to minimise any currency risk. 51
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 7 Staff costs and administrative expenses: Salaries and remuneration for Board of Directors, Board of Management and Board of Representatives: Board of Management (two members) 6.413 6.359 Board of Directors (six members) 1.257 1.126 Board of Representatives (25 members) 550 550 Total 8.220 8.035 Staff expenses: Wages and salaries 114.792 117.223 Pensions 12.734 12.996 Social security costs 1.460 1.428 Charges based on payroll cost 15.372 14.175 Total 144.358 145.822 For remuneration of Board of Directors, Board of Management and other employees having influence on the risk profile, see Note 25 (related parties). Other administrative expenses: Other administrative expenses 96.750 92.601 Total staff costs and administrative expenses 249.328 246.458 Number of employees: Average number of imployees in the period translated into full-time jobs amounts to 240 full-time jobs (249 full-time jobs in 2013). Auditors' remuneration: Statutory audit of the financial statements 832 668 Fee for other assurance reports 31 29 Fee for tax counselling 25 73 Total auditors' remuneration 888 770 52
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 8 Depreciation, amortisation and impairment of intangible and tangible assets: Amortisation of intangible assets 466 1.044 Depreciation of owner-occupied properties 224 223 Impairment and reversed impairment losses on owner-occupied properties 922 1.729 Depreciation of other tangible assets 2.289 3.450 Total depreciation, amortisation and impairment 3.901 6.446 9 Tax: Distribution of tax for the year: Tax on the profit for the year 37.688 31.607 Tax on other comprehensive income (changes in equity) 205-55 Total tax 37.893 31.552 Breakdown of tax charged to income statement: Current tax 37.766 32.752 Change in deferred tax due to changed tax rate 0 178 Change in deferred tax -36-1.303 Adjustment of tax calculated for previous years -42-20 Tax on the profit for the year 37.688 31.607 Current tax rate 24,5% 25,0% Non-taxable income and non-deductible expenses etc -3,3% 0,9% Effect of changed tax rate 0,0% 0,2% Effective tax rate 21,2% 26,1% The effective tax rate is tax on the profit for the year relative to the profit before tax 53
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 10 Receivables from credit institutions and central banks: Receivables from credit institutions 22.101 135.627 Residual maturities Demand 20.370 130.003 Over three months and up to and including one year 1.600 1.660 Over one year and up to and including five years 0 1.464 Over five years 131 2.500 Total receivables from credit institutions and central banks 22.101 135.627 11 Loans, advances and other receivables at amortised cost: Residual maturities: Demand 1.061.362 1.034.801 Up to and including three months 230.500 226.615 Over three months and up to and including one year 1.518.178 1.664.794 Over one year and up to and including five years 1.390.981 1.452.116 Over five years 1.078.577 1.135.387 Total loans and advances 5.279.598 5.513.713 12 Bonds at fair value: Listed bonds at fair value (level 1) 2.100.877 1.957.850 Unlisted bonds at fair value (level 2, DKK 93,323t / level 3, DKK 2,500t) 95.823 93.284 Total bonds 2.196.700 2.051.134 13 Shares, etc.: Listed shares, etc., at fair value (level 1) 97.491 71.022 Unlisted shares at fair value (level 2, DKK 216,196t / level 3, DKK 60,304t) 276.500 192.553 Unlisted shares, etc., at cost less impairment (level 3) 2.030 2.097 Total shares etc. 376.021 265.672 14 Assets related to pooled schemes: Index bonds 3.070 8.065 Other bonds 514.501 513.724 Shares, etc. 251.451 229.307 Investment fund shares 197.209 176.863 Total assets related to pooled schemes 966.231 927.959 54
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 15 Intangible assets: Total opening cost 8.881 6.551 Additions during the year 0 2.330 Total closing cost 8.881 8.881 Opening depreciation and impairment losses 7.017 5.974 Amortisation and impairment for the year 466 1.044 Closing depreciation and impairment losses 7.483 7.017 Total intangible assets 1.398 1.864 16 Land and buildings: Investment property: Opening fair value 49.200 52.654 Additions during the year 0 1.477 Disposals during the year 0 930 Value adjustment at fair value for the year -2.300-4.001 Closing fair value 46.900 49.200 Owner-occupied property: Opening revalued amount 130.250 138.519 Additions during the year, including improvements 79 0 Disposals during the year 0 8.319 Depreciation 224 223 Change in value for the year, recognised in other comprehensive income -2.593 2.002 Change in value for the year, recognised in the income statement -922-1.729 Closing revalued amount 126.590 130.250 Total land and buildings 173.490 179.450 External experts participate in the measurement of investment property and owner-occupied property. 17 Other tangible assets: Total opening cost 40.493 46.469 Additions during the year, including improvements 1.444 1.265 Disposals during the year 1.340 7.242 Total closing cost 40.596 40.493 Opening depreciation and impairment losses 37.005 40.722 Depreciation for the year 2.289 3.450 Reversal of depreciation 1.340 7.167 Closing depreciation and impairment losses 37.954 37.005 Total other tangible assets 2.644 3.488 55
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 18 Payables to credit inst. and centr. banks: Paybles to credit institutions 252.796 526.395 Residual maturities: Demand 194.643 197.073 Up to and including three months 58.153 329.322 Total payables to credit institutions and central banks 252.796 526.395 19 Deposits and other payables: Demand 4.372.011 4.005.800 Subject to notice 1.099.339 1.178.632 Time deposits 197.562 240.553 Special deposits 642.429 721.626 Total deposits 6.311.341 6.146.611 Residual maturities: Demand 4.372.011 4.005.800 Up to and including three months 718.191 665.370 Over three months and up to and including one year 291.380 226.459 Over one year and up to and including five years 520.182 792.982 Over five years 409.577 456.000 Total deposits 6.311.341 6.146.611 Deposits covered by the Depositor Guarantee Fund: Share of deposits, incl. pooled schemes, covered by the Depositor Guarantee Fund 84% 86% In addition, the bank's ten largest deposit customers make up less than 10% of total deposits. 20 Issued bonds at amortised cost: The bonds were issued in 2009. Residual maturities: Up to and including three months 2.914 3.228 Over one year and up to and including five years 0 2.914 Total bonds issued 2.914 6.142 21 Provisions for pension benefits and similar obligations: A change in the calculated pension obligation for a former member of management is recognised in other comprehensive income under equity. The total pension obligation is stated at DKK 3,080t (DKK 4,272t in 2013) and is recognised under Provisions in the balance sheet. 56
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 22 Deferred tax assets / Deferred tax provisions: Deferred tax relates to the following balance sheet items: Loans, advances and other receivables -3.846-3.651 Securities and financial instruments 999 1.160 Tangible assets 2.486 2.220 Intangible assets 271 338 Provisions -1.528-1.819 Total deferred tax -1.618-1.752 Recognised in the balance sheet as follows: Deferred tax assets 1.618 1.752 23 Share capital: Number of shares of DKK 10 making up the share capital at year-end 4.600.000 4.600.000 Share price at year-end 418 206 Treasury shares: Start of period: Number of treasury shares (quantity) 100.613 143.866 Nominal value (DKK 1,000) 1.006 1.439 Treasury shares in percent of share capital 2,19 3,13 Purchase: Number of treasury shares (quantity) 240.026 166.569 Nominal value (DKK 1,000) 2.400 1.666 Treasury shares in percent of share capital 5,22 3,62 Total purchase prise (DKK 1,000) 71.637 29.216 Sale: Number of treasury shares (quantity) 270.751 209.822 Nominal value (DKK 1,000) 2.708 2.098 Treasury shares in percent of share capital 5,89 4,56 Total selling price (DKK 1,000) 79.825 37.618 Year-end: Number of treasury shares (quantity) 69.888 100.613 Nominal value (DKK 1,000) 699 1.006 Treasury shares in percent of share capital 1,52 2,19 Market value at year-end (DKK 1,000) 29.178 20.726 The purchase and sale of treasury shares has been effected as part of the Nørresundby Bank s usual share trading. In 2012, the bank entered into a market-marker agreement with a regional bank that functions as market-maker for the bank s shares on Nasdaq OMX. Spar Nord Bank, Skelagervej 15, Aalborg, is the only shareholder registered on the list of major shareholders. The ownership share of Spar Nord Bank amounts to 54.8% In consequence of restrictions on voting rights, Spar Nord Bank has 11 votes. 57
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 24 Contingent liabilities, etc.: Financial guarantees 1.418.716 988.064 Guarantees against losses on mortgage loans 157.578 108.305 Other guarantees, etc. 222.449 234.710 Total contingent liabilities, etc. 1.798.743 1.331.079 As security for clearing, etc., Nørresundby Bank has pledged bonds with Danmarks Nationalbank at a market value of Deposit on cover-for-liabilities account as security for a loss framework with the Danish Growth Fund in consequence of Nørresundby Bank s ownership share of Landbrugets Finansieringsbank 1.283.210 1.232.056 131 0 Nørresundby Bank is a party to a few litigation cases that are regularly evaluated, and requisite provisions are made based on an assessment of the risk of losses. These litigations are not expected to materially affect the bank's financial position. 25 Related parties Nørresundby Bank does not have any related parties exercising control over the bank. Other related parties include the bank's Board of Directors, Board of Management and senior employees. No transactions have been conducted with this circle of persons, apart from salaries and renumeration, stock exchange transactions and loans and securities Remuneration earned by Board of Management: Managing Director Andreas Rasmussen: Contractual remuneration 3.910 3.587 Remuneration refunded to the bank concerning Board positions 50 50 Total 3.860 2.013 Bank Manager Finn Øst Andersson Contractual remuneration 2.835 2.808 Remuneration refunded to the bank concerning Board positions 0 0 Total 2.835 2.808 Total remuneration earned for the Board of Management 6.695 6.345 The contractual remuneration includes DKK 292t paid as an anniversary bonus to Andreas Rasmussen in 2014 corresponding to one month s salary in accordance with usual practice. The amount is accounted for in prior years in provisions for pension benefits and similar obligations. The disclosed remuneration to the Board of Management is exclusive of the value of employee benefits, including company car and phone etc., as well as adjustment of calculated holiday pay obligations. The Board of Management is not paid on the basis of incentives, and there are no pension obligations. The Board of Management s terms of employment, including severance terms, are assessed as complying with general practice in this area and are evaluated on an ongoing basis. If the bank enters into a merger agreement with another bank, and the Board of Management does not want to or cannot continue their employment with the continuing company, the members of the Board of Management are entitled to receive severance compensation corresponding to 24 months salary in addition to the salary in the notice period. 58
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 25 Related parties - continued Remuneration to the Board of Directors: Mads Hvolby, chairman, and chairman of the Nomination and Remuneration Committee 356 299 Poul Søe Jeppesen, deputy chairman 191 172 Kresten Skjødt, chairman of the Audit Committee until resigning on 1 May 2014 74 220 John Chr. Aasted, chairman of the Audit and Risk Committee as from 1 209 150 May 2014 Morten Jensen (joined on 1 May 2014) 113 0 Bo Bojer, elected by the employees (resigned on 30 December 2014) 155 136 Helle R.J. Lynge, elected by the employees 159 149 Finn Aaen, elected by the employees (joined on 30 December 2014) 0 0 Total remuneration to the Board of Directors 1.257 1.126 Members of the Board of Directors are paid a fixed fee and receive a fee for the chairmanship of the Audit and Risk Committee and the Nomination and Remuneration Committee, respectively. As from 1 May 2014, all members of the Board of Directors are members of the mentioned committees. Members of the Board of Directors do not participate in option programmes and have no retirement benefit plans.there are no pension obligations towards the members of the Board of Directors. Remuneration of major risk-takers and control functions : Contractual remuneration 3.866 2.514 Pension 426 254 Total 4.292 2.768 Number of full-time employees 5 3 The disclosed remuneration to material risk-takers and control functions is exclusive of the value of employee benefits, including paid phone, etc., as well as adjustment of calculated holiday pay obligations. Material risk-takers and employees in control functions are comprised by ordinary defined contribution pension plans under which payments are charged as and when incurred. Board of Directors and Board of Management: Loans, pledges, securities or gurarantees established for members of the Board of Management 0 0 Board of Directors 43.330 10.682 Value of security provided for members of the Board of Management 0 0 Board of Directors 3.140 500 The exposures have been entered into at arm s length at interest rates of 3.28% - 7.95%. For members of the Board of Directors elected by the employees, the exposures have been entered into subject to the bank's general terms for employees. 59
Notes Note 26 Risk management As a financial institution, Nørresundby Bank is exposed to sundry types of risk: - Credit risk - Market risk - Liquidity risk - Operational risk Credit risk is the risk of losses caused by the customers failure, in full or in part, to meet their payment obligations. Market risk is the risk of the market value of the bank s assets and liabilities changing due to altered market conditions. Market risk is a consequence of the bank s open positions on financial markets and can be divided into interest-rate risk, currency risk, shareholding risk and property risk. Liquidity risks include the risk of the bank s funding costs rising disproportionately, of the bank being prevented from engaging in new business due to insufficient access to liquidity and of the bank being unable to meet its payment obligations due to insufficient liquid resources. Operational risks are the risk of direct or indirect losses caused by inadequate or erroneous internal processes, human error, system defects or losses due to external events. Operational risks also comprise business and reputation risks. The bank has an overall policy of only assuming such risks that comply with the business principles governing the operation of the bank and which the bank has the requisite resources to control in terms of competence. Please refer to the sections Risk factors, Credit risks, Market risks, Liquidity risks and Operational Risks on pages 26 to 33 in the management s review in the Annual Report for further details of risks, policies and risk management goals. The following notes to the Annual Report contain quantitative information in respect of the bank s credit and market risks. 27 Credit risks and impairment losses 2014 2013 (DKK 1.000) (DKK 1.000) Maximum credit exposure distributed among balance-sheet items and off-balance sheet items Cash on hand and demand deposits with central banks 153.928 84.774 Receivables from credit institutions and central banks 22.101 135.627 Loans, advances and other receivables at amortised cost 5.279.598 5.513.713 Bonds at fair value 2.196.700 2.051.134 Shares, etc. 376.021 265.672 Assets related to pooled schemes 966.231 58 Current tax assets 7.234 0 Other assets 34.892 100 9.036.705 9.004.550 Off-balance sheet items Guarantees and other contingent liabilities 1.798.743 1.331.079 Maximum credit exposure, excl. unused credit facilities 10.835.448 10.335.629 Unused credit facilities, including frameworks 2.958.357 2.716.481 Maximum credit exposure, incl. unused credit facilities 13.793.805 13.052.110 60
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 27 Credit risks and impairment losses - continued Loans, advances and guarantees, before impairment losses, by sector and industry Public authorities 325 518 Trade and industry: Agriculture, hunting, forestry and fisheries 344.599 324.037 Manufacturing and raw material extraction 122.551 145.162 Energy utilities 65.289 35.724 Building and construction 270.529 352.095 Trade 589.924 676.327 Transport, hotels and restaurants 149.361 211.885 Information and communications 15.969 28.394 Finance and insurance 531.369 468.510 Real property *) 1.508.470 1.599.802 Other corporate lending 321.514 313.816 Total corporate lending 3.919.575 4.155.752 Personal customers 3.496.945 3.020.737 Total 7.416.845 7.177.007 *) With respect to real property, please note that the social housing sector amounts to DKK 451,483t in 2014 (DKK 559,866t in 2013) and that loans, advances and guarantees in respect of real property in general amounts to DKK 1,056,987t in 2014 (DKK 1,039,936t in 2013). The distribution by industry is determined on the basis of the industry code for the individual exposure. If several industry codes are associated with the exposure, the predominant one is used. 2014 2013 percent percent Loans, advances and guarantees, before impairment losses, by sector and industry Public authorities 0 0 Trade and industry: Agriculture, hunting, forestry and fisheries 5 5 Manufacturing and raw material extraction 2 2 Energy utilities 1 0 Building and construction 4 5 Trade 8 9 Transport, hotels and restaurants 2 3 Information and communications 0 0 Finance and insurance 7 7 Real property *) 20 22 Other corporate lending 4 5 Total corporate lending 53 58 Personal customers 47 42 Total 100 100 *) With respect to real property, please note that the social housing sector amounts to 6% in 2014 (8% in 2013) and that loans, advances and guarantees in respect of real property in general amounts 14% in 2014 (14% in 2013). 61
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 27 Credit risks and impairment losses - continued Maximum credit exposure (mainly loans, advances, guarantees and loan commitments) by sector and industry Public authorities 352 558 Trade and industry: Agriculture, hunting, forestry and fisheries 495.554 470.050 Manufacturing and raw material extraction 199.955 226.653 Energy utilities 73.674 41.384 Building and construction 417.941 552.419 Trade 825.788 815.802 Transport, hotels and restaurants 313.204 325.756 Information and communications 30.745 43.220 Finance and insurance 588.650 477.926 Real property 1.985.739 1.993.746 Other corporate lending 501.103 507.524 Total corporate lending 5.432.353 5.454.480 Personal customers 4.963.492 4.493.370 Total 10.396.197 9.948.408 Recognised in the balance sheet before impairment losses 5.615.239 5.843.238 Maximum credit exposure (mainly loans, advances, guarantees and loan commitments) by sector and industry 2014 2013 percent percent Public authorities 0 0 Trade and industry: Agriculture, hunting, forestry and fisheries 5 5 Manufacturing and raw material extraction 2 2 Energy utilities 1 1 Building and construction 4 6 Trade 8 8 Transport, hotels and restaurants 3 3 Information and communications 0 0 Finance and insurance 5 5 Real property 19 20 Other corporate lending 5 5 Total corporate lending 52 55 Personal customers 48 45 Total 100 100 62
Notes Note 27 Credit risks and impairment losses - continued Description of security and other issues related to the credit exposure The bank continuously monitors the quality of loans and advances and related security and counters any warning signs based on analysis and stress testing as early as possible, including by following up on and managing overdrafts. The bank assumes a very cautious and conservative position on assessment of security, and the valuation of security is based on a cautious assessment of the market value, less a safety margin (haircut). Different safety margins are applied, depending on the type of security. The most common types of security for commitments with personal customers are mortgage on real property, securities and vehicles. The most common types of security for exposures with business customers are mortgage on real property, securities, operating equipment, inventories and debtors as well as requests for guarantees. 2014 2013 percent percent Total security distributed by type in percent of the calculated security value Mortage deeds in owner-occupied housing, summer houses, farms and commercial properties 52 53 Guarantees against losses and guarantees provided 14 11 Operating equipment 10 11 Securities and cash 21 22 Other security 3 3 Total security provided 100 100 Total security distributed by sector and industry in percent of the calculated security value Public authorities 0 0 Trade and industry: Agriculture, hunting, forestry and fisheries 6 6 Manufacturing and raw material extraction 1 2 Energy utilities 0 0 Building and construction 5 5 Trade 5 5 Transport, hotels and restaurants 3 4 Information and communications 0 0 Finance and insurance 13 12 Real property 22 21 Other corporate lending 4 4 Total corporate lending 59 59 Personal customers 41 41 Total 100 100 63
Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 27 Credit risks and impairment losses - continued Loans, advances and guarantees distributed across four quality criteria, corresponding to the Danish FSA's categorisation model Credit quality category 2a, of normal quality 6.243.705 5.969.919 Credit quality category 2b, of slightly impaired quality 212.559 236.154 Credit quality category 2c, with significant weaknesses 253.865 289.087 Credit quality category 1, with impairment losses/provisions 706.716 681.847 Total loans, advances and guarantees before impairment losses 7.416.845 7.177.007 Loans, advances and guarantees of normal quality thus amount to 84% of the total portfolio in 2014 and 83% in 2013. The above credit quality categories are also applied to the statement of the bank's solvency requirement. Amount of arrears on loans and advances etc.: Arrears on loans and advances that are not impaired amounted to DKK 44.4 million at the end of the year, against DKK 47.2 million in 2013. Breakdown of arrears duration: 0-90 days 37.985 38.774 > 90 days 6.441 8.385 44.426 47.159 Amount of arrears in relation to total loans, advances and guarantees before imp. losses 1% 1% Loans and advances where an objective indication of impairment has occurred, which is recognised in the balance sheet with a carrying amount greater than zero Individual impairment losses on loans and advances: Value before impairment losses 606.368 601.078 Impairment losses 260.290 262.224 Value after impairment losses 346.078 338.854 Groups of impairment losses on loans and advances: Value before impairment losses 4.809.644 4.979.124 Impairment losses 25.263 23.565 Value after impairment losses 4.784.381 4.955.559 64
Notes Note 27 Credit risks and impairment losses - continued Loans, advances and guarantees for which individual impairment losses have been realised, distributed by reason 2014 (DKK 1.000) Credit exp. Impairment Significant financial difficulties 576.275 236.335 Breach of contract 10.205 3.933 Unusual terms 13.807 10.650 Bankruptcy, suspension of payments, etc., (insolvency procedures) 106.429 74.741 Total 706.716 325.659 Of which attributable to the value of security 247.800 2013 (DKK 1.000) Credit exp. Impairment Significant financial difficulties 556.271 235.509 Breach of contract 6.608 3.453 Unusual terms 14.717 11.296 Bankruptcy, suspension of payments, etc., (insolvency procedures) 104.251 69.973 Total 681.847 320.231 Of which attributable to the value of security 194.428 The securities are usually associated with the customers total exposures with the bank. It is therefore not possible to attribute the securities to specific loans and advances. 65
Notes Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 27 Credit risks and impairment losses - continued Impairment of loans and advances and provisions for losses on guarantees Individual impairment losses on loans and advances: Accumulated impairment losses at year-start 317.541 291.205 Impairment losses during the year 95.065 103.685 Reversal of impairment losses recognised in previous financial years 76.427 47.820 Interest on loans, adv. with recogn. imp. losses 15.218 13.774 Items finally written off for which individ. imp. losses were prev. recogn. 28.601 43.303 Accumulated impairment losses at year-end 322.796 317.541 Groups of impairment losses on loans and advances: Accumulated impairment losses at year-start 23.565 19.501 Impairment losses during the year 4.628 5.340 Reversal of impairment losses recognised in previous financial years 2.930 1.276 Accumulated impairment losses at year-end 25.263 23.565 Total individual and groups of impairment losses on loans and advances: Accumulated impairment losses at year-start 341.106 310.706 Impairment losses during the year 99.693 109.025 Reversal of impairment losses recognised in previous financial years 79.357 49.096 Interest on loans, adv. with recogn. imp. losses 15.218 13.774 Items finally written off for which individ. imp. losses were prev. recogn. 28.601 43.303 Accumulated impairment losses at year-end 348.059 341.106 Provisions for losses on guarantees: Accumulated impairment losses at year-start 2.690 4.596 Provisions during the year 702 767 Reversal of provisions made in previous financial years 529 2.673 Accumulated provisions at year-end 2.863 2.690 Total impairment of loans and advances and provisions for losses on guarantees: Accumulated impairment losses and provisions at year-start 343.796 315.302 Impairment losses and provisions during the year 100.395 109.793 Reversal of imp. losses and provisions recogn. in prev. financial years 79.886 51.769 Interest on loans, adv. with recogn. imp. losses 15.218 13.774 Items finally written off subject to previous indiv. imp. losses/provisions 28.601 43.303 Accumulated impairment losses and provisions at year-end 350.922 343.796 Impairment losses have not been recognised for receivables from credit institutions or other receivables. Effect on operations of impairment losses: Net changes to impairment losses, etc. 35.727 71.797 Items written off without prev. recogn. of imp. losses 8.849 5.114 Recoveries of claims previously written off 4.419 3.504 Interest on loans, adv. with recogn. imp. losses 15.218 13.774 Impairment losses, etc., for the year in the income statement 24.939 59.633 66
Notes Note 27 Credit risks and impairment losses - continued 2014 2013 2012 2011 2010 Accumulated impairment losses on loans, advances and provisions for losses on guarantees (DKK m) Accumulated impairment losses etc. at year-start 343,8 315,3 284,3 277,2 275,1 Changes in impairment losses etc. (net) 35,7 71,8 86,7 73,5 61,8 Value adjustment of assets acquired 0,0 0,0 0,0 0,4 7,3 Items written off with prev. recogn. of imp. losses, etc. 28,6 43,3 55,7 66,8 67,0 Accumulated impairment losses etc. at year-end 350,9 343,8 315,3 284,3 277,2 Effect on operations relating to impairment losses etc. (DKK m): Changes in impairment losses etc. (net) 35,7 71,8 86,7 73,5 61,8 Value adjustment of assets acquired 0,0 0,0 0,0 0,4 7,3 Items written off without prev. recogn. of imp. losses 8,8 5,1 18,6 3,1 28,3 Recoveries of claims previously written off 4,4 3,5 4,9 3,1 2,1 Interest on loans, adv. with recogn. imp. losses 15,2 13,8 12,2 7,5 6,7 Impairment losses etc. for the year 24,9 59,6 88,2 66,4 88,6 Non-performing loans and advances (DKK m): Non-performing loans and advances 97,6 112,6 103,8 131,6 149,1 Impairment hereof 76,9 83,1 85,2 110,7 133,0 67
Notes Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 28 Market risks, including sensitivity The bank's policy is to maintain market risks at a low level. For each type of risk, the bank has set out specific risk limits for monitoring and management. In relation to the bank's monitoring of market risks, the following sensitivity calculations are made, covering the risk types interest rate risk, currency risk and shareholding risk. The sensitivity calculations express the bank's assessment of how reasonably possible changes in the listed risk variables may affect the bank's profit and equity. Interest rate risk: Interest rate risk by foreign currency with highest interest rate risk: DKK 5.658 815 EUR 893 1.239 CHF 0-7 USD -4-7 Other 1 0 Total interest rate risk on positions 6.548 2.040 Interest rate risk (pct.) of capital base 0,5 0,2 The interest rate risk is an expression of expected losses on interest rate positions in consequence of a change in the interest rate of 1 percentage point. The interest rate risk financial ratio is reported to the Danish Financial Supervisory Authority. Due to an unusually low interest rate level, the bank assesses that interest rates are likely to increase by 2%. Effect on the year's profit before tax of an interest rate increase of 2% -13.096 2.013 Effect on the equity of an interest rate increase of 2% -9.887-3.060 Currency risk: Assets in foreign currencies 431.129 509.390 Liabilities in foreign currencies 155.715 326.677 Exchange rate indicator 1 57.047 53.401 Exchange rate indicator 1 in percent of core capital 4,1 3,9 Exchange rate indicator 2 297 214 Exchange rate indicator 2 in percent of core capital 0,0 0,0 The currency risk is an expression of losses on the bank s positions in foreign currencies due to changes in exchange rates. Exchange rate indicator 1 is calculated as the largest sum of positions in currencies that represent a net receivable for the bank and the sum of positions that represent a net payable for the bank. The financial ratio is reported to the Danish Financial Supervisory Authority. The risk is also calculated and reported by currency. Exchange rate indicator 2 is based on statistical method using historical data calculated by the Danish authorities and is an expression of the total exposure to loss. If the bank does not make changes to its currency positions in the following 10 days, there is a 1% chance that the bank will suffer a loss greater than the indicator's value. The financial ratio is reported to the Danish Financial Supervisory Authority. 68
Notes Notes 2014 2013 Note (DKK 1.000) (DKK 1.000) 28 Market risks, including sensitivity - continued Based on the bank's positions in Euro and other currencies, the exchange rate sensitivity has been assessed in relation to a probable exchange rate risk. The exchange rate sensitivity in Euro is minimal and is estimated to be 2.25%. The exchange rate sensitivity in other currencies is greater and is estimated to be 12%. Currency positions in Euro 35.300 40.451 Currency risk 2.25% 794 910 Currency positions in other currencies 21.747 12.950 Currency risk 12% 2.610 1.554 Effect on the year's profit before tax at the stated currency risk -3.404-2.464 Effect on the equity at the stated currency risk -2.570-1.848 Shareholding risk: Listed shares and unlisted shares, excl. sector shares 101.481 75.079 Sector shares 274.540 190.593 Total share portfolio 376.021 265.672 Share exposure in percent of core capital 7,2 5,5 The bank's shareholding exposure is stated as the bank's portfolio of listed shares as a percentage of the bank's core capital after deductions. Unlisted shares are not included in the statement of shareholding exposure, but affect the bank's shareholding risk and are included in the statement below. The shareholding risk is an expression of the risk of losses on the bank's share portfolio when share prices change. Based on the share portfolio, the bank assesses that the probable shareholding risk can be stated in relation to a price decline of 30% for listed shares and unlisted shares, excl. sector shares, and 15% for sector shares. Price change, 30%, listed shares and other unlisted shares 30.444 22.524 Price change, 15%, sector shares 41.181 28.589 Effect on the year's profit before tax at the stated shareholding risk 71.625 51.113 Effect on the equity at the stated shareholding risk 54.077 38.335 Hedge accounting: The bank applies the rules on hedge acconting to avoid the inconsistency of measuring fixed-rate loans at amortised cost while the hedging instruments (interest rate swaps) are measured at fair value. When the creteria for applying the rules on hedge accounting have been met, the carrying amount of the hedged loans are adjusted in the income statement for changes in the fair value of the hedged risks. The following fixed-rate assets are hedged against interest rate risks: Nominal value of loans and advances 80.411 81.996 Adjustment at fair value (hedge) 6.927 6.858 Carrying amount of loans and advances 87.338 88.854 Method of hedging: Interest rate swaps (Synthetic principal) 79.657 81.317 Marked value -6.927-6.858 69
Notes Notes Note 29 Derivatives Nominal value Net market value 2014 (DKK 1.000) Positive market value Negative market value Foreign exchange contracts: Up to and including three months 319.460 1.602 7.095 5.493 Over three months and up to and including one year 197.404 16 6.898 6.882 Over one year and up to and including five years 46.895-5 1.310 1.315 Over five years 0 0 0 0 Average market value *) 7.773 6.887 Interest rate contracts: Up to and including three months 53.260 44 170 126 Over three months and up to and including one year 6.358 2 58 56 Over one year and up to and including five years 405.339-6.927 19.899 26.826 Over five years 224.950 0 21.398 21.398 Average market value *) 42.197 49.577 Equity contracts: Up to and including three months 18.774 37 122 85 Over three months and up to and including one year 0 0 0 0 Over one year and up to and including five years 0 0 0 0 Over five years 0 0 0 0 Average market value *) 1 0 Nominal value Net market value 2013 (DKK 1.000) Positive market value Negative market value Foreign exchange contracts: Up to and including three months 271.580 852 4.252 3.400 Over three months and up to and including one year 129.769 17 895 878 Over one year and up to and including five years 47.000-1 2.070 2.071 Over five years 0 0 0 0 Average market value *) 7.249 5.961 Interest rate contracts: Up to and including three months 18.700 27 77 50 Over three months and up to and including one year 20.000 0 163 163 Over one year and up to and including five years 373.878-3.345 22.056 25.401 Over five years 307.392-3.514 17.205 20.719 Average market value *) 45.282 53.867 Equity contracts: Up to and including three months 22.170 33 206 173 Over three months and up to and including one year 0 0 0 0 Over one year and up to and including five years 0 0 0 0 Over five years 0 0 0 0 Average market value *) 0 0 *) The average market value of derivatives is calculated on the basis of monthly statements as the average value of the positive and negative market values, respectively. 70
Notes Notes Note 30 Fair value of derivatives 2014 2013 (DKK 1.000) (DKK 1.000) Carrying amount Fair value Carrying amount Fair value Financial assets: Cash on hand, demand dep., centr. banks 153.928 153.928 84.774 84.774 Receivables, credit inst. and centr. banks *) 22.101 22.101 135.627 135.627 Loans, adv. and other receiv. at amort. cost *) 5.281.376 5.310.661 5.515.737 5.546.410 Bonds at fair value 2.196.700 2.196.700 2.051.134 2.051.134 Shares, etc. 373.991 373.991 263.575 263.575 Assets related to pooled schemes 966.231 966.231 927.959 927.959 Derivatives 56.950 56.950 46.924 46.924 Total financial assets 9.051.277 9.080.562 9.025.730 9.056.403 Financial liabilities: Payables to credit inst. and centr. banks *) 252.800 252.800 526.515 526.515 Deposits and other payables *) 6.312.956 6.328.404 6.148.888 6.171.329 Deposits in pooled schemes 969.100 969.100 934.976 934.976 Issued bonds 2.914 2.914 6.142 6.142 Derivatives 62.180 62.180 52.853 52.853 Total financial liabilities 7.599.950 7.615.398 7.669.374 7.691.815 *) The carrying amount include interest calculated as at the balance sheet date. In the balance sheet, the calculated interest is recognised in the balance sheet items "Other assets" and "Other liabilities". Shares and bonds, etc., and derivatives are measured at fair value in the annual report, and the recognised amounts thus correspond to the fair values. However, this does not apply to unlisted shares, for which a reliable fair value cannot be determined. They are measured at cost less write-downs and are recognised in the balance sheet at an amount of DKK 2.030t (DKK 2.097t in 2013). For loans and advances, etc., the impairment losses are assessed to correspond to changes in the credit quality. The fair value difference is assessed to be fees and commission received and, for fixed-rate loans, the interest-rate dependent value adjustment is calculated by comparing the current market rate of interest with the nominal interest rate of the loans and advances. For floating-rate financial liabilities in the form of deposits and payables to credit institutions measured at amortised cost, the carrying amount is assessed to correspond to the fair values. The fair value difference for fixed-rate deposits is the interest-level dependent value adjustment which is calculated by comparing the current market rate of interest with the nominal interest rate of the deposits. 71
Notes Notes Note 31 Financial ratio definitions Core income over costs, net of impairment losses on loans and advances: Income/cost ratio: Return on assets: Return on shareholders equity before tax: Return on shareholders equity after tax; Profit for the year per share: Equity value per share: Dividend per share: Share price at year-end: Share price relative to the profit for the year per share (P/E): Share price relative to the equity value per share: Capital ratio: Common equity tier 1 capital ratio: Interest rate risk (pct.): Currency position (pct.): Currency risk (pct.): Loans and advances plus impairment hereof as a percentage of deposits, incl. pooled schemes: Excess cover relative to the statutory liquidity requirements: Impairment ratio for the year (pct.): Cumulative impairment ratio: Share of receivables at reduced interest: Total large exposures: Growth in loans and advances for the year: Loans and advances/shareholders equity Net interest and fee income and Other operating income as a percentage of Staff costs and administrative expenses, Depreciation, amortisation and impairment of intangible and tangible assets and Other operating costs Net interest and fee income, Market value adjustments, Other operating income and Profit/loss on investments in group entities as a percentage of Staff costs and administrative expenses, Depreciation, amortisation and impairment of intangible and tangible assets, Other operating costs and Impairment losses on loans, advances and other receivables, etc. Profit for the year as a percentage of total assets Profit before tax as a percentage of average shareholders equity. The average shareholders equity is calculated as a simple average of year-start and year-end Profit after tax as a percentage of average shareholders equity. The average shareholders equity is calculated as a simple average of year-start and year-end Net profit or loss for the year/average number of shares. The average number of shares is calculated as a simple average of year-start and year-end. Shareholders equity/no. of shares net of treasury shares Proposed dividend/no. of shares Closing price at year-end Share price/profit for the year per share Share price/equity value per share Capital base as a percentage of total risk exposure Tier 1 capital after deductions as a percentage of total risk exposure Interest rate risk as a percentage of core capital after deductions Currency indicator 1 as a percentage of core capital after deductions Currency indicator 2 as a percentage of core capital after deductions Loans and advances plus impairment hereof as a percentage of deposits, incl. pooled schemes Cash on hand, Demand deposits with Danmarks Nationalbank, Fully secure and liquid demand deposits with credit institutes and insurance companies, Nonpledged certificates of deposit issued by Danmarks Nationalbank and Secure readily negotiable (listed) non-pledged securities relative to 10 percent of Reduced debts and guarantee obligations Impairment losses during the year as a percentage of loans and advances plus impairment losses on loans and advances plus guarantees plus provisions on guarantees. Cumulative impairment losses as a percentage of loans and advances plus impairment losses on loans and advances plus guarantees plus provisions on guarantees. Receivables at reduced interest before impairment losses as a percentage of loans and advances plus impairment losses on loans and advances plus guarantees plus provisions on guarantees. Total large exposures/tier 1 capital after deductions (pct.) Adjusted for exposures with credit institutions of less than DKK 1 billion. Growth in loans and advances from year-start to year-end (pct.) Loans and advances/shareholders equity 72
Notes Notes 32 Financial highlights for five years 2014 2013 2012 2011 2010 Summary income statement items (DKK 1.000) Net interest and fee income 431.923 423.014 424.195 421.431 419.490 Market value adjustments 34.798 22.418 31.637-15.185 25.185 Other operating income 2.697 3.336 3.826 5.369 5.526 Staff costs and administrative expenses 249.328 246.458 256.555 258.494 251.325 Depr., amort. and imp. of intang. and tang. assets 3.901 6.446 5.753 11.629 9.163 Other operating costs *) 13.763 15.305 11.237 15.084 24.616 Imp. losses on loans and advances etc. **) 24.939 59.633 88.193 66.386 88.567 Profit before tax 177.487 120.926 97.920 60.022 76.530 Tax 37.688 31.607 24.446 19.198 17.382 Net profit for the year 139.799 89.319 73.474 40.824 59.148 *) The Depositor Guarantee Fund concerning failing banks / Commission concerning Bank Package I 13.763 15.282 11.237 15.084 24.616 **) Impairment losses concerning Bank Package I, etc. 0 0 0 183 16.762 Key balance sheet figures (DKK 1.000) Loans and advances 5.279.598 5.513.713 5.268.881 5.748.379 6.109.495 Deposits, excluding pooled schemes 6.311.341 6.146.611 6.334.204 5.988.515 5.886.967 Deposits in pooled schemes 969.100 934.976 933.369 835.518 861.638 Subordinated debt 0 0 0 50.000 100.000 Share capital 46.000 46.000 46.000 46.000 46.000 Shareholders' equity 1.556.097 1.432.823 1.342.551 1.281.640 1.254.829 Balance sheet 9.278.844 9.253.141 9.352.389 9.358.656 9.903.173 Contingent liabilities, etc. 1.798.743 1.331.079 1.262.885 1.193.827 1.461.215 73
Notes Notes Full year 2014 2013 2012 2011 2010 32 Financial highlights for five years - continued Financial ratios Earnings 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 Afkastningsgrad, p.a. 1,51 0,97 0,79 0,44 0,60 Return on shareholders' equity before tax 11,9 8,7 7,5 4,7 6,2 Return on shareholders' equity after tax 9,4 6,4 5,6 3,2 4,8 Return on shares Profit for the year per share 30,4 19,4 16,0 8,9 12,9 Equity value per share 343,5 318,4 301,3 287,4 279,7 Dividend per share 0,0 5,0 2,0 2,0 2,0 Closing share price 418 206 151 148 182 Share price / profit for the year per share (P/E) 13,7 10,6 9,4 16,7 14,2 Share price / equity value per share 1,22 0,65 0,50 0,52 0,65 Capital base Capital ratio 20,0 19,0 17,5 17,4 16,7 Core capital ratio 20,0 19,0 17,5 16,7 15,4 Market risk Interest rate risk (pct.) 0,5 0,2 2,1 1,5 3,0 Currency position (pct.) 4,1 3,9 6,4 3,7 5,2 Currency risk (pct.) 0,0 0,0 0,0 0,0 0,0 Liquidity Loans and advances plus impairment herof as a percentage of deposits, incl. pooled scheemes 77,3 82,7 76,8 88,3 94,6 Excess cover relative to stat. liquidity requirements 202,0 211,6 248,8 193,7 259,3 Credit risk Impairment ratio for the year (pct.) 0,3 0,8 1,3 0,9 1,1 Cumulative impairment ratio (pct.) 4,7 4,8 4,6 3,9 3,5 Share of receivables at reduced interest (pct.) 1,5 1,8 1,8 1,9 1,9 Total large exposures (pct.) 42,2 43,6 31,7 32,4 40,8 Growth in loans and advances for the year (pct.) -4,2 4,6-8,3-5,9 2,9 Loans and advances / shareholders' equity 3,4 3,8 3,9 4,5 4,9 The financial ratios are calculated in accordance with the financial ratio definitions in note 31 on page 72. The sum total of large exposures (pct.) and the capital and tier 1 capital ratios are stated in accordance with applicable Executive Orders. The comparative figures have been adjusted, cf. note 1 on accounting policies. Core income consists of interest and fee income and other operating income, excluding market-value adjustments. The costs are exclusive of impairment of loans and advances and provisions for losses on guarantees. 74
Board of Representatives Chairman Mads Hvolby Practising surveyor Nørresundby Lars Krull General Manager Aalborg Søren Gyldenhof Schilder Head of Secretariat Aalborg Deputy Chairman Poul Søe Jeppesen General Manager Aalborg Susanne Bruun Ladefoged Dentist Aalborg Yvonne Skagen General Manager Aalborg Ole Lykkegaard Andersen ** Farm Owner Gjøl Thomas O. Larsen Veterinarian Aalborg Kresten Skjødt General Manager Aalborg Ib Bergkjær Managing Director Aalborg Jesper Nyborg Radio and TV dealer Vodskov Peter Sloth Wholesale Merchant Nibe Kim Jacobsen State-Authorised Estate Agent Aalborg Anette Pilgaard Shop Owner Nørresundby Karl Erik Thygesen ** Managing Director Hals Morten Jensen Attorney-at-Law Aalborg Keld Ramlov * Electrician Aalborg Niels-Erik Østergaard Registered Public Accountant Brønderslev Søren Faurholt Jensen Farmer Tylstrup Jørn Rosenmeier, jun. Managing Director Aalborg John Chr. Aasted General Manager Aalborg Torben Gyde Jensen State-Authorised Public Accountant Vodskov Torben Røgild * Economist Nørresundby Peter Dengsø Kjærsgaard Car Dealer Aalborg Kathrine Sandeløv General Manager Skørping *) Up for election **) Retiring under the age limit provisions 75
Internal departments Torvet 4, DK-9400 Nørresundby. Tel. +45 98 70 33 33 Credit Manager Leif Dahl Jensen Securities Manager Lars Eriksen Finances Manager Pia Foss Henriksen HR and IT Manager Marian Andreasen Sales and Marketing Manager Palle Skyum IT Manager Henrik Eske Jensen Management Secretariat Manager Hanne Fynbo Internal Audit Department Manager Ove Steen Nielsen 76
The bank s branches Bredegade Bredegade 3 DK-9000 Aalborg Branch manager Anders Tetsche Tel. +45 98 70 46 00 bredegade@nrsbank.dk Brønderslev Algade 39-41 DK-9700 Brønderslev Branch manager Thomas Jørgensen Tel. +45 98 70 45 00 broenderslev@nrsbank.dk Hjallerup Hjallerup Centret 5 DK-9320 Hjallerup Branch manager Christian Pedersen Tel. +45 98 70 51 00 hjallerup@nrsbank.dk Kastetvej Kastetvej 87 DK-9000 Aalborg Branch manager Michael Kristensen Tel. +45 98 70 41 00 kastetvej@nrsbank.dk Nibe Grønnegade 42 DK-9240 Nibe Branch manager Tom Solvang Tel. +45 98 70 61 00 nibe@nrsbank.dk Nr. Uttrup Nr. Uttrup Torv DK-9400 Nørresundby Branch manager Michael Larsen Tel. +45 98 70 53 00 nr.uttrup@nrsbank.dk Nørresundby and Corporate Centre North Torvet 4 DK-9400 Nørresundby Branch manager Carl Pedersen Tel. +45 98 70 50 00 Business customer manager Allan Nielsen Tel. +45 98 70 50 50 noerresundby@nrsbank.dk Vejgaard Vejgaard Bymidte DK-9000 Aalborg Branch manager Jesper Nielsen Tel. +45 98 70 44 00 vejgaard@nrsbank.dk Vestbjerg Bakkelyvej 2A DK-9380 Vestbjerg Branch manager Paw Winther Tel. +45 98 70 49 00 vestbjerg@nrsbank.dk Vesterbro and Corporate Centre South Vesterbro 79 DK-9000 Aalborg Branch manager Jacob Jensen Tel. +45 98 70 59 00 vesterbro@nrsbank.dk Vestre Alle Vestre Alle 29 DK-9000 Aalborg Branch manager Michael Thoft Tel. +45 98 70 43 00 vestre.alle@nrsbank.dk Vodskov Vodskovvej 43 DK-9310 Vodskov Branch manager Gert Zinndorff Tel. +45 98 70 55 00 vodskov@nrsbank.dk Aabybro Østergade 12 DK-9440 Aabybro Branch manager Tommy Kristensen Tel. +45 98 70 54 00 aabybro@nrsbank.dk 77
Torvet 4 DK-9400 Nørresundby Tel. +45 98 70 33 33 Fax +45 98 70 30 19 direktionssekretariatet@nrsbank.dk www.noerresundbybank.dk CVR no. 34 79 05 15