Information about the bank
BankA/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
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
Bank Manager
Andreas Rasmussen Bank ManagerFinn Øst Andersson
Board of Management Board of Directors
Contents
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
Financial highlights for five years
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
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
*) The Depositor Guarantee Fund concerning failing banks / Commission concerning Bank Package I
***) 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.
Statement by the Management
and the Board of Directors
Statement by the Management and the Board
of Directors
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
Managerial posts
Managerial 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.
Managerial posts
Managerial 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)
Internal audit department reports
Internal Audit Department 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.
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
Independent auditor’s reports
Independent auditor’s 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.
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
Management’s review
Management’s 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 submit-ted 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 in-crease 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 im-pairment 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 men-tioned previously. The comparative figures for 2013 include non-recurring expenses approximating DKK 4 mil-lion 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 mil-lion, 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.
Management’s review
Management’s 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 finan-cial services, mainly consisting of deposit and loan products and securities trading. Income from these activi-ties 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 depos-its, which declined by DKK 11.4 million to DKK 44.7 million. Again, declining rates are underlying this develop-ment.
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 de-clined 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 conver-sion 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.
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.
0 20 40 60 80 100 120 140 160 180 2010 2011 2012 2013 2014
DKK Million. Fee and commission income
Other fee and commission income Guarantee commission
Loan application fees Payment services
Management’s review
Management’s 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 ac-counting for DKK 24.7 million. For the bond portfolio, the negative atmosphere, mainly in Q4, resulted in nega-tive 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
ad-justments 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 securi-ties 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.
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 trans-actions from “their own desk”. This has made it possible to restructure parts of the bank’s branch network.
50 70 90 110 130 150 2010 2011 2012 2013 2014
DKK million Staff costs and administrative expenses
Staff costs/wages and salaries
Other administrative expenses
Management’s review
Management’s 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 mil-lion for 2014, compared to DKK 15.3 milmil-lion last year.
The bank’s total expenses for failing banks and the Depositor Guarantee Fund during the crisis amount to ap-proximately 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 cov-ered 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 fur-ther notable decline can be expected. The current need to post impairment losses can also be seen as an indi-cator 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.
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.
0 10 20 30 40 50 60 70 80 90 2010 2011 2012 2013 2014
DKK million Impairment losses on loans, advances, etc.
Impairment losses concerning Bank Package I, etc. Impairment losses on loans, advances and other receivables, etc. "regular customers"
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 uncer-tainty 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 conver-sions. A bigger loan is frequently offered in connection with these converconver-sions. 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%.
47 6 11 3 5 28
Sector breakdown in pct.
Personal customers Social housing associations Property management and saleProperty developers Agriculture, hunting, forestry and fisheries
Other corporate lending
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 mort-gage-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.
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. 0 50 100 150 200 250 300 Mar
2013 June 2013 2013Sep 2013Dec 2014Mar June 2014 2014Sep 2014Dec
pct.
Excess cover as a percentage of statutory liquidity repuirements
Excess cover as a percentage of statutory liquidity requirements The bank’s objective
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 state-ments 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 re-quirements 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 au-thorisation, so far until 11 March 2019.
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. Sec-tion 198 of the Danish Companies Act. The consideraSec-tion 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.
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 share-holders, 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
200 250 300 350 400 450
Price Price trends
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 com-pany 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 repre-sented, however.
The annual general meeting, which was previously announced to be held on 10 March 2015, has been post-poned 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 acquisi-tion 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 com-pany announcement no. 15.
Spar Nord Bank A/S presented a public, conditional, voluntary acquisition bid for the bank’s shares on 8 De-cember 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.
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 de-clined. Inflation is low, among other things due to lower oil prices, and interest rates have reached new histori-cal 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 de-mand 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 assess-ments 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-Management’s review
Management’s review
ment losses by groups. The model has been and is regularly being improved, for instance in relation to proce-dures 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 build-ings 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 DirectorsPursuant 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 Rep-resentatives, 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
bestyrel-sen_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 assis-tance) 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 com-petencies 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.
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 fig-ures for the gender composition of the Board of Directors and on the policy for increasing the share of the un-der-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 de-velopment 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 accord-ingly – 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.
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 qualifi-cations, cf. the Danish “Executive Order on Audit Committees in Undertakings and Groups subject to Supervi-sion 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 man-agement 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 Re-muneration 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;
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 pol-icy 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
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 con-trol and minimise risks are described in the bank’s risk report, which is available (in Danish) at the bank’s web-site 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 com-mittee’s composition and responsibilities are described in more detail on page 24 in the Audit and Risk Com-mittee section. Furthermore, the bank has implemented a number of procedures and systems aiming at ensur-ing 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-Management’s review
Management’s review
rectors for approval. The Board of Directors also decides on general principles for risk management and moni-toring. 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 respon-sible 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 verify-ing accountverify-ing and audit issues as well as preparverify-ing the Board of Directors' treatment of accountverify-ing and audit-related 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 capi-tal adequacy rules. Some of these disclosures appear in this Annual Report, and the bank has decided to pub-lish 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 pay-ment 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 cus-tomer 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 ad-vance.
The purpose is to ensure clear coherence, from the bank’s vision and strategy to its risk profile and daily risk-taking, and to ensure that the ratio of the bank’s risk profile to the capital base is expedient at all times.
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 frame-work 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 connec-tion, regular reassessments are made of the valuations, most recently based on the Danish Financial Supervi-sory 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 conclu-sions 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.
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 mil-lion, a significant part of the loans, advances and guarantees provided to the agricultural sector has been re-viewed 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 im-pairment 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 cus-tomers 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 ex-pected 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
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 re-ceives 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 report-ing 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 Depart-ment on the aggregate exposure in securities and foreign exchange and, for the individual instruDepart-ment and cur-rency 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 portfo-lio, 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 individ-ual 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.
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 De-partment 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 nec-essary 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 share-holding, 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.
