DJ DGAP-UK-Regulatory: Annual Report 2012, Ringkjoebing Landbobank A/S
Ringkjoebing Landbobank A/S / Annual Financial Report 30.01.2013 10:00 Dissemination of a UK Regulatory Announcement, transmitted by DGAP - a company of EquityStory AG. The issuer is solely responsible for the content of this announcement. =-------------------------------------------------------------------------- Please visit www.landbobanken.com to download the Annual Report 2012 in pdf. Disclaimer: >>The following is a translation of a Danish original document. The original Danish text shall be the governing text for all purposes and in case of any discrepancy the Danish wording shall be applicable.<< Dear shareholder Viewed as a whole, 2012 was a really good year for Ringkjoebing Landbobank. The pre-tax profit improved by 18% to DKK 448 million, equivalent to a 19% return on the bank's equity. The bank's core earnings were DKK 401 million, which is above the expected range reported at the beginning of the year. This result was achieved on the basis of growth in customer numbers, the bank's low rate of costs and a continuing sound credit quality. To this must be added positive exchange rate adjustments, realised because the interest rate fell to a historically low level. The falling interest rate was characteristic of the lack of growth in Denmark and through- out Europe, while the difference between northern and southern Europe became even more marked as the debt crisis took hold. We expect that Denmark will come out of recession in 2013, but without growth rates being high enough to enable us to escape a period of low growth. The price of the bank's shares in 2012 performed better than that of any other Danish bank, with an increase of 35% including the dividend paid, and the market value is now DKK 3.9 billion. It is recommended to the general meeting that the dividend be increased to DKK 14 per share, and that we continue with a new buy-back programme for 130,000 shares. The bank's rate of costs was 32%, and we thus remain the most efficient bank in Denmark in terms of costs per krone earned. We're pleased with this situation because it makes our results highly robust, which benefits all our stakeholders. Robustness, profit and solvency remain important for our customers and their choice of bank. We have noted this during the past year, when we gained many new customers who want their capital managed or placed. We are therefore very satisfied with the bank's solid capitalisation. The bank's solvency is 22%, which should be seen in relation to the statutory requirement of 8%. The high solvency and the bank's earnings mean that Ring- kjoebing Landbobank is one of Denmark's most robust banks. We thus have the strength we need to support our customers and their good investments. This result and our sound basis is also a credit to our competent employees, who again performed fantastically in 2012. Their expertise, stability, loyalty and fighting spirit are an unsurpassed combination. We expect 2013 to be an interesting year, where the main task will be to do even more business with our current customers and continue to increase our market share with ad- ditional customers. We expect core earnings in the range DKK 350 - 425 million, to which must be added the result for the trading portfolio. Finally, we would like to thank our customers and shareholders for the high level of sup- port they give the bank. John Bull Fisker Main figures for the bank (million DKK) 2012 2011 2010 2009 2008 Total core income 823 767 758 753 735 Total costs and depreciations -265 -248 -240 -238 -239 Core earnings before write-downs on loans 558 519 518 515 496 Write-downs on loans -157 -129 -138 -159 -77 Core earnings 401 390 380 356 419 Result for portfolio +49 +1 +38 +56 -73 Expenses for bank packages -2 -11 -80 -107 -28 Profit before tax 448 380 338 305 318 Profit after tax 328 286 257 232 240 Shareholders'equity 2,676 2,483 2,312 2,056 1,785 Deposits 12,867 12,755 11,662 11,187 9,073 Loans 12,424 12,747 13,151 13,047 13,897 Balance sheet total 17,682 17,549 18,247 17,928 18,002 Guarantees 1,667 1,052 1,042 1,486 2,386 Key figures for the bank (per cent) Pre-tax return on equity, beginning of year 18.5 16.9 16.5 17.1 19.6 Return on equity after tax, beginning of year 13.6 12.7 12.5 13.0 14.7 Rate of costs 32.2 32.4 31.6 31.6 32.4 Core capital ratio (Tier 1) 20.9 19.8 18.6 16.6 13.0 Solvency ratio (Tier 2) 22.4 21.4 22.4 20.2 16.3 Solvency requirement 8.0 8.0 8.0 8.0 8.0 Key figures per 5 DKK share (DKK) Core earnings 83 79 75 71 83 Profit before tax 93 77 67 60 63 Profit after tax 68 58 51 46 48 Net asset value 553 503 459 408 354 Price, end of year 770 579 725 609 310 Dividend 14 13 12 0 0 ANNUAL REPORT - HIGHLIGHTS - 18% increase in pre-tax profit from DKK 380 million to DKK 448 million - The result is equivalent to a 19% return on equity after payment of dividends - The rate of costs improved by 1% to 32.2, still the lowest in Denmark - Capital adequacy ratio of 22.4, equivalent to cover of 280% - Core capital ratio 20.9 - Highly satisfactory number of new customers in both the branch network and Private Banking - Positive - 35% - return on the bank's shares - A dividend of DKK 14 per share, equivalent to DKK 70 million, is recommended - Cancellation of 100,000 bought back shares recommended to the general meeting - New buy-back programme for 130,000 shares, equivalent to approximately DKK 105 million, proposed - Expectations for core earnings for 2013 in the range DKK 350 - 425 million Page 6 Financial review 15 Capital structure 18 Risks and risk management 30 Corporate Governance 31 Statutory statement on social responsibility 34 Statutory statement on management 36 Information on listed companies Financial review The bank's pre-tax profit improved by 18% from DKK 380 million to DKK 448 million. This result is equivalent to a 19% return on equity, which is considered highly satisfac- tory in the present economic situation. The core earnings increased by 3% to DKK 401 million, which is above the expected range reported at the beginning of the year. Core income The total core income was 7% higher, with an increase from DKK 767 million in 2011 to DKK 823 million in 2012. Net interest income in 2012 was DKK 615 million, a 1% increase relative to the previous year. The increasing interest income comes primarily from a slightly higher interest mar- gin. Like the rest of the financial sector, the bank increased the interest margin in 2012. The very low level of interest is pulling in the opposite direction, resulting in a lower return on the bank's securities portfolio and its liquid resources. Net fees and commissions and foreign exchange income were derived as follows: Million DKK 2012 2011 Asset management 71 50 Securities trading 24 19 Guarantee commissions 41 35 Foreign exchange income 13 18 Payment handling 18 17 Loan fees 12 6 Other fees and commissions 20 7 Total 199 152 Fees, commissions and earnings on foreign currency amounted to net DKK 199 million in 2012 against net DKK 152 million in 2011, a 31% increase. The higher sums within asset management and the pension area had a positive effect, and there was good activity within conversion of mortgage credit loans. Costs and depreciations The total costs including depreciations of tangible assets were DKK 265 million in 2012, 6% higher than in the previous year. Half of the increase is the new fixed premium payable to the Guarantee Fund for De- positors and Investors which, from 2012, was charged as an expense under costs. It was decided as a part of Bank Package IV to establish an insurance scheme with a premium determined relative to the deposits which are covered. DKK 1,950 million is payable an- nually to the fund, of which the bank's share is currently 0.7%, equivalent to DKK 13.8 million a year. Contributions will be payable to the fund until it has reached DKK 7,500 million. Future costs of the Guarantee Fund for Depositors and Investors will be financed by the payments, so it is not possible to determine how long this charge will continue. On the other hand, the fluctuating costs of bank rescues will disappear in the future. DKK 8.6 million was charged to expenses in 2012, and this will increase to DKK 13.8 million in 2013. The rate of costs improved by 0.2 percentage points to 32.2%, which is an improve- ment of 1%, still the lowest in Denmark. A low rate of costs is particularly important in periods of difficult economic conditions as it gives a high level of robustness to the bank's results, as is also reflected in the calculation of the bank's individual solvency requirements of 8%. Write-downs on loans Write-downs on loans amounted to DKK 157 million against DKK 129 million in 2011. The level of write-downs remains acceptable and corresponds to 1.1% of total average loans, write-downs, guarantees and provisions. The bank's customers appear to be cop- ing better than the average in Denmark in the weak economic period. DKK 33 million was charged as an expense in the fourth quarter against DKK 45 million in the third quarter and DKK 55 million in the second quarter of 2012. The bank's total account for write-downs and provisions was DKK 758 million at the end of 2012, equivalent to 5.1% of total loans and guarantees. The actual write-downs on loans (including interest on the account for write-downs and provisions) remain low at DKK 48 million. The account for write-downs and provisions thus increased by net DKK 109 million net during the year. The portfolio of loans with discontinued calculation of interest was DKK 113 million, equivalent to 0.76% of the bank's total loans and guarantees at the end of the year. The Danish economy slipped back into recession in 2012, but it is expected to return to positive growth rates in 2013, and the bank is satisfied with the conservative credit policy on the basis of which it has always been run. As a
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natural part of the economic cycle, the bank's losses are expected to remain at a relatively high level in 2013, but at a lower level than in 2012. It is also still the bank's judgment that its credit policy, diversi- fied loans portfolio and position in central and western Jutland will have a positive effect on the bank relative to the general level of losses for the banking sector as a whole. Core earnings Million DKK 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 Total core income 823 767 758 753 735 696 609 511 417 368 Total costs etc. -265 -248 -240 -238 -239 -234 -208 -190 -184 -163 Core earnings before write-downs on loans 558 519 518 515 496 462 401 321 233 205 Write-downs on loans -157 -129 -138 -159 -77 +11 +69 +5 +4 -10 Core earnings 401 390 380 356 419 473 470 326 237 195 The bank's expectations for core earnings were originally in the DKK 300 - 400 million range. This was stated more precisely at the end of October at approximately DKK 400 million. The result was realised over the reported interval. Result for portfolio The result for the portfolio for 2012 was positive at DKK 49 million including funding costs. The portfolio of shares etc. was DKK 230 million at the end of 2012, with DKK 29 million in listed shares and DKK 201 million in sector shares etc. The bond portfolio amounted to DKK 3,783 million kroner, and the greater part of the portfolio consists of AAA-rated Danish mortgage credit bonds and short-term bank bonds with rated Nordic counterparties. The total interest rate risk - calculated as the impact on the result of a one percentage point change in the interest rate - was 0.6% of the bank's core capital less deductions at the end of the year. The bank's total market risk within exposures to interest rate risk, listed shares etc. and foreign currency remains at a low level. The bank's risk of losses calculated on the basis of a Value at Risk model (calculated with a ten day horizon and 99% probability) was as follows in 2012: Value at Risk Risk relative to equity Risk in million DKK end of year in % Highest risk of loss: 28.4 1.06% Lowest risk of loss: 3.5 0.13% Average risk of loss: 14.7 0.55% The bank's policy remains to hold the market risk at a low level. Profit after tax The result after tax was DKK 328 million for the year against DKK 286 million in the previous year. The result after tax is equivalent to a return on equity of 14% after payment of dividend. The balance sheet The bank's balance sheet total at the end of the year was DKK 17,682 million against last year's DKK 17,549 million. Deposits increased by 1% from DKK 12,755 million to DKK 12,867 million. The bank's loans fell by 3% to DKK 12,424 million. The bank is continuing to enjoy good underlying growth in new customers from its branch network and within the niches Private Banking and wind turbine financing. The changed patterns of consump- tion with a higher proportion of saving and the general trend under which many custom- ers are reducing their balance sheets are, however, resulting in a greater rate of paying off existing loans than previously. Liquidity The bank's liquidity is good, and the bank's deposits are now DKK 443 million greater than its loans. The excess solvency relative to the statutory requirement is 186%. The bank's short-term funding with a time to maturity of less than 12 months is only DKK 639 million, corresponding to DKK 4.6 billion in short-term money market placements primarily with the National Bank, Nordic banks and liquid securities. The bank is thus not dependent on the short-term money market. Apart from this, a portion of the German loans portfolio for wind turbines is back to back, refinanced with the KfW Bank Group, so that the DKK 829 million in question can be ignored with respect to liquidity. The bank requires no financing in 2013 to comply with the minimum requirement of always being able to continue for up to 12 months without access to the financial markets. The bank's good liquidity is evident in the figure below, showing the liquidity buffer for the next 36 months. For the purpose of further diversifying the bank's funding possibilities, an agreement has just been entered into with BRFkredit on joint funding of the bank's mortgage loans with security within 60% of the property's value. The joint funding will take place in BRFkredit's AAA-rated capital centre and it enables long-term hedging of the bank's commitments. An agreement has also been entered into on the provision of mortgage loans for commercial properties. The two agreements will not result in any change to the bank's existing mortgage credit agreements with Totalkredit/Nykredit and DLR Kredit. Rating Ringkjoebing Landbobank was rated for the first time by the international credit rating bureau Moody's Investors Service in May 2007. Since this beginning, the bank's ratings have been: Moody's ratings: Financial Long-term strenght liquidity Outlook 22 May 2007 C+ A1 Stable End 2010 C+ A1 Negative End 2011 C A3 Stable End 2012 C - Baa1 Stable The bank was downgraded one notch in 2012 on long-term creditworthiness. This was done in connection with a general reassessment of all ratings in Europe. Moody's have had a general fear of the quality of credit in Denmark which also affected Ringkjoebing Landbobank. However, the effect on the bank was modest, as we currently have the best rating among Danish banks on Moody's books. The supervisory diamond The Danish Financial Supervisory Authority has prepared a set of rules with key figures with which the bank must comply. The bank's key figures and the FSA's limit values are given in the table below. There must be compliance with the key figures as of the end of December 2012. Ringkjoebing Landbobank complies with all these values with a good margin. The supervisory diamond Limmit values The bank's key figures Stable funding < 1 0.7 Excess liquidity > 50 185.5 Large exposures < 125 27.2 Growth in loans < 20 -2.5 Exposure to the housing market < 25 12.2 Dividend and share buy-back programme The bank's board of directors will recommend payment of a dividend of DKK 14 per share for the 2012 financial year to the general meeting, equivalent to DKK 70 million. A dividend of DKK 13 was paid in 2011. A hundred thousand shares have also been bought up under the buy-back programme which was approved at last year's general meeting. The recommendation to the general meeting will be that these be cancelled, thus reducing the number of shares in the bank from 4,940,000 to 4,840,000. It will also be proposed for 2013 that a new buy-back program be established under which up to 130,000 shares can be bought for cancellation at a subsequent general meeting. At the current price, this authorisation will reduce the equity by about DKK 105 million. Capital The equity at the beginning of 2012 was DKK 2,483 million. To this must be added the profit for the period, less the dividend paid and the value of the own shares bought, after which the equity at the end of the year was DKK 2,676 million, an increase of 8%. The bank's solvency ratio (Tier 2) was calculated at 22.4% at the end of 2012. The bank's core capital percent (Tier 1) was calculated at 20.9%. Solvency cover 2012 2011 2010 2009 2008 Core capital ratio excl. hybrid core capital (%) 19.6 18.3 17.1 15.1 11.6 Core capital ratio (%) 20.9 19.8 18.6 16.6 13.0 Solvency ratio (%) 22.4 21.4 22.4 20.2 16.3 Individual solvency requirement (%) 8.0 8.0 8.0 8.0 8.0 Solvency cover 280% 268% 280% 253% 204% Ringkjoebing Landbobank's calculated individual capital adequacy requirement was cal culated at 6.7% under the bank's robust business model and was reported at 8%. From 2013, the method of calculation of the individual solvency will be changed to the so-called 8+ model, where the calculation takes its starting base at 8.0%. To this is added any supplements which are calculated inter alia for customers with financial problems which exceed 2% of the bank's capital base. This method of calculation does not take account of the bank's earnings base and robust business model. The individual solvency under this method is expected to be calculated at 8.7%. The bank's shares The bank's share capital at the end of 2012 was DKK 24.7 million in 4,940,000 nom. DKK 5 shares. The bank's shares at the beginning of 2012 were listed on the NASDAQ OMX Copen- hagen at 579. The share price rose during 2012 to 770 at the end of the year and the price was 808 on 25 January 2013, making the current market value DKK 3.9 billion. An investment in the bank's shares at the beginning of 2001 has increased tenfold including dividend. This made an investment in the bank's shares the best bank share investment in Denmark in this period. Increase in customers We intensified our efforts to gain new customers and business in 2012. This was done on the basis that we have both the liquidity and the capital to support growth, we felt comfortable with the bank's credit book, and we have a cost structure suitable for the future. The greatest challenge in a time of low growth is thus to create growth in the bank's top line. The bank's recruitment activities will continue in 2013, where initiatives will include further investment in expanding the bank's Private Banking platform and the market share in the branch network. We are currently experiencing a very positive growth in customer numbers in the branch network within the Private Banking segment, with transfers of deposits, pension and securi- ties customers. On the loans side, growth to date has been swallowed by the paying down of balance sheets. However, our assessment is that we are also currently extending the founda- tion for future earnings. Changes to the articles of association and the board of directors For several years, the bank's board of directors has been evaluating the
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management's and the board of directors' expertise and working relationship, and there is a good basis for the chosen business model. The FSA also decided for group I and II banks in 2012 that the board of directors must include a member who has relevant experience managing a bank. The shareholders' committee decided on this basis to recommend a change in the bank's articles of association such that the committee can elect members directly to the board of directors.The committee will now elect former bank manager Joergen Lund, age 63, of Skanderborg, who has just retired from Jyske Bank. Mr Lund will replace Keld Hansen, grocer, of Soendervig, who is resigning at the general meeting after 11 years on the board. Expected result in 2013 The bank's core earnings in 2012 were DKK 401 million, which is above the range given at the beginning of the year. Ringkjoebing Landbobank's market share is about 50% in that part of West Jutland where the bank's old branches are located. The bank also has well-established branches in Herning, Holstebro and Viborg which are continuing to operate positively. The bank's plan is to retain and develop this portion of the customer portfolio with good and competitive products and with focus on the employees' expertise and work in advis- ing customers of the options in a changing financial world. In 2013, the bank expects a continuing positive inflow of customers to its branches in central and western Jutland because of its long-term outreach sales and consolidation in the sector. The activities in the bank's Distance Customer Department and its niche concepts, including the Holte branch, are expected to develop positively as a whole in the coming year. Focus will be placed on serving the bank's current customers and further devel- oping the portfolio within wind turbine financing, medical practitioners and affluent customers. Core earnings in 2013 are expected to be in the range DKK 350 - 425 million. To this must be added the result for the bank's trading portfolio. Events after the end of the financial year There have been no events after the balance sheet date and to date which would change the assessment of the bank's 2012 annual report. Capital structure The bank's management has specified a general objective for the bank's capital. The objective is that the bank must have a solidly based capital structure in comparison with both equivalent and bigger banks. The objective is also that the bank must have adequate capital for future growth, and there must also be adequate capital to cover any on-going fluctuations in the risks which the bank has assumed. The bank's capital ratios as of the end of December 2012 were as follows: Capital ratios - Core capital ratio excl. hybrid core capital 19.6% - Core capital ratio 20.9% - Solvency ratio 22.4% With respect to the calculation of the bank's Tier 1 capital, capital base and core capital ratio excluding hybrid Tier 1 capital, core capital ratio and capital adequacy ratio at the end of 2011, reference is made to the calculation of solvency requirement on page 49. The above capitalisation makes Ringkjoebing Landbobank one of Denmark's best capi- talised banks. The bank's objective is to retain this ranking in 2012. In the bank's assess- ment, this can be done on the basis of the expected result for 2012. The bank's board of directors will recommend to the general meeting that a dividend of DKK 14 per share, equivalent to DKK 70 million, be paid for the 2012 financial year. A dividend of DKK 13 was paid in 2011. Ninety thousand shares to a value of DKK 66 million were also bought during 2012. A further 10,000 were also transferred in Janu- ary 2013. Cancellation of 100,000 shares will be recommended to the general meet- ing, such that the number of shares in the bank will be reduced from 4,940,000 to 4,840,000. A proposal will also be made that a new buy-back programme be established for 2013 under which up to 130,000 shares can be bought for cancellation at a future general meeting. At the current price, this authorisation will reduce the share capital by DKK 105 million kroner. The maturity structure of the bank's external subordinated debt is presented in the fol- lowing overview. Subordinate capital - maturity structure Subordinated loan capital - Nom. EUR 27 million taken up on 30 June 2008, term 13 years to 30 June 2021, option of early redemption from 30 June 2018 if approved by the Danish Financial Supervisory Authority. Hybrid core capital - Nom. DKK 200 million taken up on 2 March 2005, indefinite term, option of early redemption from 2 March 2015 if approved by the Danish FSA. - Of which nom. DKK 28 million bought in the fourth quarter of 2012. The bank uses the capital adequacy rules implemented in 2007 for the calculation and stating of weighted items with credit and counterparty risks and market and operational risks. Reference is made to the following summary for further information on the methods used by the bank for the various types of risk. Calculation of capital adequacy - methods used The bank uses the following methods for the calculation of capital adequacy: - Credit risk outside the trading portfolio Standardised Approach - Counterparty risk Mark-to-Market Method - Credit risk reducing method - financial collaterals Comprehensive Method - Market risk Standardised Approach - Operational risk Basic Indicator Method As will be evident from the above, the bank uses the standard method for calculation of its credit risk and therewith the risk-weighted items. This method uses fixed solvency weightings. As a result of this method, the bank has not had the same lowering of sol- vency weighting as those banks which are using more advanced methods. On the other hand, the bank does not experience increasing solvency weightings in periods of reces- sion. Relative to the advanced methods, use of the standard method means that there is significantly greater robustness in the calculated capital percentages and a smaller volatility in the risk-weighted items. The transfer to the new Basel III rules is therefore not expected to have a significant ef- fect on the bank's risk-weighted assets, and as the bank's capital base is adequate, the bank is prepared for the transfer to the new rules on capital. Ringkjoebing Landbobank also focuses on its internally calculated individual solvency requirement, defined as an adequate capital base as a percentage of the bank's risk- weighted items. The adequate capital base is assessed on the basis of an internal model and calculated as the amount which is appropriate to cover the bank's current and future risks. The individual solvency requirement is calculated at 6.7%, which reflects the bank's solid earnings, low credit risk and modest market risk. The computed adequate capital base is reassessed on a regular basis, and reports to the Danish FSA are also made on a regular basis. The reporting of the individual solvency requirement to the FSA is given as 8% as the individual solvency requirement calculated by the bank at less than 8% can- not be less than 8% under Section 124(4) of the act on financial activities. The FSA most recently reviewed the bank's calculation of its individual solvency requirement in spring 2012. For further information on the calculation of the individual solvency requirement of Ringkjoebing Landbobank, please see the bank's website at: www.landbobanken.dk. Although there is a minimum solvency requirement of 8% which the bank must use as its individual requirement, the bank has a considerable excess solvency as indicated in the following summary. Solvency cover 2012 2011 2010 2009 2008 Solvency ratio (%) 22.4 21.4 22.4 20.2 16.3 Individual solvency requirement (%) 8.0 8.0 8.0 8.0 8.0 Excess solvency (%) 14.4 13.4 14.4 12.2 8.3 Solvency cover 280% 268% 280% 253% 204% It can be concluded that throughout 2012, Ringkjoebing Landbobank has complied with both external and internal capital requirements, and the actual capital base has continu- ally been considerably above the adequate level. From 2013, the method of calculating the individual solvency will be changed to the so-called 8+ model, where the calculation is based on 8.0% of the bank's risk-weighted items. This 8% covers the most common risks, plus any weighting for risks and cir- cumstances which are not reflected in the calculation of the risk-weighted items, in the assessment of which the bank takes account inter alia of the following: - Credit risks on major customers with financial problems - Concentration risks in the loans book - Market risks - Liquidity risks - Operational risks Unlike the method of calculation used to date, the 8+ model does not take account of the bank's strong earnings base and robust business model. The changed method will therefore result in an increase in the individual solvency requirements from 6.7% to 8.7%. Risks and risk management Ringkjoebing Landbobank is exposed to various types of risk in connection with its opera- tions: credit risk, market risk, liquidity risk and operational risk. The credit risk is defined as the risk that payments owing to the bank are not judged to be recoverable because of lack of either ability or willingness to make payment at the agreed time. The market risk is defined as the risk that the market value of the bank's assets and liabilities will change as a result of changes in market conditions. The bank's total market risk includes interest rate risks, foreign currency risks, share risks and property risks. The liquidity risk is defined as the risk that the bank's obligations to make payments cannot be honoured under the bank's cash flow position. Finally, the operational risk is defined as the risk of either direct or indirect financial loss- es as a result of faults in internal processes and systems, human error or external events.
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Policy for risk taking and management The framework for the bank's risk taking is specified by the board of directors, which has adopted a policy for each individual risk area, which inter alia defines the bank's risk profile in the area. Each policy is reviewed and reassessed by the board at least once a year in connection with the board's position on the bank's general business model and risk profile. The bank's general principle for assuming a risk is that the bank will only assume risks within a moderate risk profile which the bank has the expertise to manage. The basis for the board of directors' review of the bank's business model and associated policies for each individual risk area is a general risk report prepared by the bank's risk manager. The report covers the various risks to which the bank is exposed, and gives the board a complete picture of the bank's general risk profile. In comparison with the market possibilities, the board than assesses whether the bank's business model and risk profile should be adjusted. The report also acts as a basis for any adaptation of the poli- cies in the various risk areas. Apart from the strategic risk management, there is an on-going operational central management and monitoring of the bank's risks in each area. This monitoring is re- ported to the bank's management and board of directors. The management and control and reporting functions are separate, and the work is performed by several of the bank's central staff functions. The bank's risk manager ensures full reporting of risks and pro- vides a meaningful picture of the bank's actual risk taking. The various types of risk are subsequently described in more detail. Credit risks - loans Over the years, Ringkjoebing Landbobank has developed to its present status as primarily a regional bank in central and western Jutland and a niche bank within selected areas. This development has been a part of the bank's strategy, and the bank's management notes with satisfaction that the bank has achieved a significant diversified portfolio of loans, including a wide geographic distribution of branches. In general, Ringkjoebing Landbobank assumes credit risks on the basis of a policy, the objectives of which are to have a well-balanced relationship between assumed risks and the return gained by the bank, that the bank's losses must be at an acceptable level rela- tive to the Danish financial sector, and finally, losses suffered even in extreme situations must be able to be accommodated within the bank's results. The gearing of loans relative to the bank's subordinated capital is about 4.5, and the bank's objective is that the results must be achieved with a lesser or the same credit gearing as that of the country's major banks. Historically, the bank has always had a healthy and conservative credit policy, and focus will remain on ensuring an efficient management and monitoring of the bank's total portfolio of loans via its central credit department. Apart from the normal following up and management of credit in the bank's central credit department, where there is regular reviewing of and following up on all major commitments, the bank has developed a set of credit evaluation models which are used to assess the quality of the exposure to credit. Statistical models are used for private and small business customers, while an expert model is used for major businesses. The sta- tistical model has 7-10 different factors, including information on the customer's assets and a quantity of behavioural data. The expert model for business customers is based on information on the customer's creditworthiness and earning capacity. Using these models, the bank's judgment is that the credit quality for those loans which have not been written down is generally unchanged relative to 2011. As in previ- ous years, the bank is, however, aware of the risks which the economic conditions are imposing on the bank's customers. A particular problem is the challenge posed to the bank's private customers by a weak property market and potentially rising interest rates. The bank's customers are, however, judged to be relatively less vulnerable to these chal- lenges, among other reasons because of a relatively low home loan burden in the bank's core area. Actual net losses In DKK 1,000 Loans with Write-downs Year Actual net losses Actual net losses after interest suspended calculation of interest on loans and provisions for guarantees Total loans and guarantees etc. Percentage loss before interest *) Percentage loss after interest *) 1988 -14,205 -5,205 4,522 93,900 1,408,830 -1.01% -0.37% 1989 -18,302 -5,302 13,107 117,270 1,468,206 -1.25% -0.36% 1990 -15,867 -1,867 47,182 147,800 1,555,647 -1.02% -0.12% 1991 -11,429 3,571 47,626 170,000 1,805,506 -0.63% 0.20% 1992 -32,928 -14,928 43,325 177,900 1,933,081 -1.70% -0.77% 1993 -27,875 -6,875 30,964 208,700 1,893,098 -1.47% -0.36% 1994 -14,554 4,446 33,889 223,500 1,938,572 -0.75% 0.23% 1995 -10,806 10,194 27,292 238,800 2,058,561 -0.52% 0.50% 1996 -19,802 -1,802 18,404 233,400 2,588,028 -0.77% -0.07% 1997 -31,412 -12,412 39,846 236,600 3,261,429 -0.96% -0.38% 1998 -2,914 18,086 4,905 263,600 3,752,602 -0.08% 0.48% 1999 -442 21,558 18,595 290,450 5,148,190 -0.01% 0.42% 2000 -405 27,595 12,843 316,750 5,377,749 -0.01% 0.51% 2001 -8,038 20,962 14,222 331,950 6,113,523 -0.13% 0.34% 2002 -8,470 20,530 26,290 382,850 7,655,112 -0.11% 0.27% 2003 -22,741 2,259 23,412 394,850 8,497,124 -0.27% 0.03% 2004 -14,554 9,446 18,875 404,855 11,523,143 -0.13% 0.08% 2005 -22,908 192 35,796 357,000 15,522,264 -0.15% 0.00% 2006 -13,531 7,028 20,578 295,000 17,858,787 -0.08% 0.04% 2007 -15,264 4,888 13,190 289,097 19,227,573 -0.08% 0.03% 2008 -34,789 -10,237 22,110 356,083 16,475,975 -0.21% -0.06% 2009 -73,767 -47,658 62,649 467,025 14,890,027 -0.50% -0.32% 2010 -69,428 -40,207 66,237 565,035 14,758,234 -0.47% -0.27% 2011 -78,813 -43,073 61,419 649,856 14,448,638 -0.55% -0.30% 2012 -90,022 -48,337 113,312 758,363 14,849,702 -0.61% -0.33% 25-year average (1988 - 2012) -0.54% -0.02% 10-year average (2003 - 2012) -0.30% -0.11% *) Actual net losses relative to total loans, guarantees, write-downs on loans and provisions for guarantees. Explanation: The percentage losses were computed as the actual net losses for the year before and after interest on the written-down part of loans as a percentage of total loans, guarantees and write-downs on loans and provisions for guarantees. A minus sign before a percentage loss indicates a loss, while a positive percentage loss means that the interest on the written-down part of loans was greater than the actual net losses for the year. All the above figures are exclusive amounts regarding the national bank package I etc. The above table documents the bank's healthy credit policy. As will be evident, the bank's average percentage loss after interest over the last 25 years (1988 - 2012) was -0.02%, with -0.77% (1992) the highest loss and +0.51% (2000) the most positive figure. The average percentage loss before interest over the last 25 years is -0.54%, with -1.70 percent (1992) the highest loss and -0.01% (1999 and 2000) the lowest loss. The average percentage loss after interest over the last ten years (2003 - 2012) was -0.11%; the average percentage loss before interest was -0.30%. The regional section of the bank is run partly via branches in the bank's original core area in West Jutland and partly via branches in the three big central and western Jutland cities Herning, Holstebro and Viborg. The most important niches within the bank's niche section are financing of medical practitioners' purchases of private practices, a Private Banking department covering affluent private customers, and financing of securities and loans for the financing of wind turbines. The financing of wind turbines is for Danish investors' purchases of wind turbines erected in Denmark, Germany and France. An important common factor in the niche areas is that the bank attempts to obtain a first mortgage, and therewith satisfactory security in the mortgaged assets, which is an important part of the bank's business philosophy. Concentration of credit As indicated in the summary below, total large exposures amount to 27.2%. This figure includes a good quality commitment of 10.4% with adequate security and a commit- ment with a well-consolidated financial counterparty which will be redeemed in 2013. Concentration of credit 2012 2011 2010 2009 2008 Total large exposures 27.2% 11.8% 0.0% 0.0% 12.1% Explanation: The Danish Financial Supervisory Authority key figure >>Total large exposures<<. Explanation: Distribution of the bank's loans and guarantee portfolio before write-downs and provisions by customer addresses. Geographic spread of the bank's loans and guarantee portfolio As is evident from the figure, a significant geographic diversification of the bank's port- folio of loans and guarantees has been achieved via both the regional section and the niche section. The loans via the bank's niche section have also helped to ensure a major diversification in the bank's loans portfolio, so that this portfolio is not correlated with the economic cycle to the same extent as if the bank were run exclusively as a regional bank. Credit risk on financial counterparties Exposure to financial counterparties, and therewith a credit risk, including a settlement risk, arises in connection with the bank's trading in securities, foreign currency and de- rivative financial instruments, the bank's loans to other banks, and the bank's possession of bonds and transfer of funds. The settlement risk is the risk that in connection with the settlement of trades in securities and/or currency, the bank will not receive payment or securities
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corresponding to the securities and/or payments which the bank had made and delivered. The bank's board of directors grants lines of credit for credit risks and the risk of wind- ing up against financial counterparties. When granting lines of credit, account is taken of the individual counterparty's risk profile, rating, size and financial circumstances, and there is constant follow-up on the lines of credit which were granted. The bank's policy is to keep the credit risk on financial counterparties at a balanced level relative to the bank's size, and against credit institutions with good creditworthiness. Claims on central banks and credit institutions One of the two major items concerning the credit risk with financial counterparties is credit bal- ances with central banks and credit institutions. The bank has assumed only a moderate risk on this item, and in the total credit balances with central banks and credit institutions, only 72% is thus due within three months. The bond portfolio The second of the two major items concerning the credit risk with financial counterparties is the bank's bond portfolio. Bonds distributed by rating classes A1/A+ 10% A2/A 3% Aaa/AAA 41% A3/A- 22% Baa1/BBB+ 7% Baa2/BBB 4% Ikke rated 11% Ba1/BB+ 1% Baa3/BBB- 1% Explanation: The bond portfolio distributed by rating classes. Ratings from the credit rating bureaus Moody's Investors Service, Standard & Poor's and Fitch were used in the specification. As will be evident in the figure below, the bond portfolio consists mainly of AAA-rated Danish mortgage credit bonds and bank bonds. There is also a modest holding of com- mercial bonds. The portfolio of bank bonds consists chiefly of bonds with short terms issued by rated Nordic banks. These bonds have a good credit quality, but their market value can vary over time in connection with general changes in credit spread in the market, and company-specific circumstances can also affect the value of these bonds. The credit spreads on these bonds were reduced throughout 2012, resulting in a capital gain for the bank. On the other hand, a later extension of the spreads could trigger a loss. Given the relatively short term, the risk involved is, however, manageable. The bank's bond portfolio does not involve any exposure to southern European countries. Market risks The bank's basic policy with respect to market risks is that the bank wishes to keep such risks at a relatively low level. The bank has determined a concrete framework for each type of market risk, and the risk assessment includes the objective that there must be a sensible and balanced rela- tionship between risk and return. The bank uses derivatives to cover and manage the various market risk types to the extent to which the bank wishes to reduce the extent of, or eliminate, the market risks which the bank has assumed. To supplement the more traditional measures of market risk, the bank has a mathemati- cal/statistical model to compute market risks. The model is used to compute Value at Risk (VaR), which is regularly reported to the bank's management. VaR is a measure of risk which describes the bank's risk under normal market conditions. An isolated VaR is calculated for interest rate, foreign exchange and listed share posi- tions, and a total VaR is also calculated for all of the bank's market risks consisting of interest rate, foreign exchange and listed share positions. This possibility of calculating a total VaR for the bank's market risks is one of the major advantages of the VaR model compared with more traditional measures of risk. The reader is referred to the following section 'Value at Risk' for the specific results etc. under the VaR model. Interest rate risk The bank's loan and deposit business and accounts with credit institutions are mostly entered into on a variable basis. The bank's fixed interest financial assets and liabilities are monitored continuously, and hedging transactions are entered into as needed with a consequent reduction of the interest rate risk. Ringkjoebing Landbobank's policy is to maintain a low interest rate risk, and the bank thus does not assume high levels of exposure to movements in interest rates. The bank's interest rate risk is monitored and managed daily by the bank's securities department, and the bank's service and support department controls maintenance of the limits for assumption of interest rate risk, and reports to the bank's board of direc- tors and management. Interest rate risk 6 5 4 3 2 1 0 Explanation: The interest rate risk shows the effect on the result as a percentage of the core capital after deductions of one percentage point change in the interest level. As will be evident from the figure, the bank has maintained a low interest risk over the last five years in accordance with the bank's policy for this type of risk Foreign exchange risk The bank's principal currency is the Danish krone, but the bank has also entered into loan and deposit arrangements in other currencies. The bank's policy is to maintain a minimal foreign exchange risk, and the bank thus reduces on-going positions in foreign currencies via hedging. The bank's positions in foreign exchange are managed daily by the foreign department, while the bank's service and support department monitors maintenance of lines of credit and reports to the board of directors and management. As in previous years, the bank's foreign exchange risk in 2012 was at an insignificant level. Share risk The bank is co-owner of various industrial companies via equity interests in DLR Kredit A/S, PRAS A/S, BankInvest Holding A/S, SparInvest Holding A/S, EgnsInvest Holding A/S, Letpension Holding A/S, Nets Holding A/S, Swift, Bluegarden A/S, Vaerdipapircentralen A/S, Bankernes Kontantservice A/S, Landbrugets Finansieringsbank A/S and Bankdata. These holdings are comparable with the wholly owned subsidiaries of major banks, and the equity interests are thus not deemed to be a part of the bank's share risk. The bank also holds a small portfolio of listed shares. The bank's policy is to maintain a low share risk. The daily management of the bank's share portfolio is undertaken by the securities department, while monitoring of the lines of credit and reporting to management and the board of directors are performed by the service and support department. The bank's portfolio of listed shares etc. amounted to DKK 29 million at the end of 2012 against DKK 12 million at the end of 2011. The portfolio of sector and capital shares at the end of 2012 was DKK 201 million against DKK 237 million at the end of 2011. As will be evident from the figure below, the bank's exposure to shares (excluding sector and capital shares) as a percentage of the bank's equity has been modest, therewith documenting the bank's goal of maintaining a low risk on shares. Share exposure 8 7 6 5 4 3 2 1 0 Explanation: The share exposure is computed as the bank's holding of shares (excluding sector shares and other holdings) as a percentage of the shareholders' equity. Property risk The bank primarily wishes to possess only properties for use in banking operations, and also to maintain minimal property risks. The bank's portfolio of both domicile and investment properties is thus quite modest relative to the bank's balance sheet total. Value at Risk The bank's total Value at Risk at the end of 2012 was DKK 5.8 million. This sum is an expression of the maximum loss in a statistical perspective which the bank could risk losing with 99% probability if all market positions were retained unchanged for a period of 10 days. VaR summary In DKK million Average Min. Max. End of year Risk VaR figure VaR figure* VaR figure* VaR figur Interest 15.0 3.1 28.9 5.7 Foreign currency 0.3 0.1 0.2 0.1 Share 2.7 2.6 2.4 2.2 Diversification -3.3 -2.3 -3.1 -2.2 Total VaR figure 14.7 3.5 28.4 5.8 * Determined by the total VaR figure As indicated in the table, the bank's total VaR throughout 2012 varied from DKK 3.5 million to DKK 28.4 million. The average VaR figure has been DKK 14.7 million, a small increase relative to last year. Reference is made to note 41 on page 74 for the VaR figures for the years 2008 - 2012. The model in brief The model is a parametric VaR model based on a historical analysis of the covariation (correlations) between the prices of various financial assets etc., including different share indices, various official interest rates and interest swap rates, and different exchange rate indices. By combining the historical knowledge of the covariation for the financial markets with the bank's current positions, the model can calculate a risk of losses for a forthcoming ten-day period. All of the bank's interest rate positions, foreign currency positions and listed share positions etc. are included in the calculation, while positions in sector shares and unlisted ownership interests are not included. The model does not take account of credit spread risks on the bank's bond portfolio. The model is unchanged relative to last year. Back tests and stress tests So-called 'back tests' are made to document that the VaR model provides a sensible picture of the bank's risk. The test compares the calculated loss under the model with the losses which the bank would actually have suffered if the positions in question had been retained for a ten-day period. A number of stress tests are also carried out to indi- cate the bank's risk of loss in abnormal market situations. Back tests of the model were performed throughout the year with satisfactory results. Liquidity risk In general with respect to the bank's liquidity management, it is the bank's objective not to have uncovered net funding requirements and not to be dependent on the short- term money market. An objective is thus that the bank
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may not be affected by a total shutdown of the money market for a period of 12 months. The bank's loans portfolio is funded primarily via a range of sources, namely the bank's deposits, by taking out long-term loans with other credit institutions, via issuing bonds, and finally via the subordinated capital taken up by the bank, and the bank's equity. The bank's deposit base consists primarily of core deposits and deposits from customers with a long-term relationship with the bank. Ringkjoebing Landbobank has also entered into longer-term bilateral loan agreements with European banks. It should, however, be noted that the bank's funding situation is not comprised such that the bank is dependent on the institutions in a single country or on single institutions. The bank entered into an agreement with BRFkredit during 2012 on joint funding. This agreement means that the bank can procure liquidity by letting BRFkredit issue SDO bonds against security in the loans which the bank has provided to customers with secu- rity in real estate. The bank has not yet availed itself of this setup, but the bank expects that the option can act as a supplementary source of funding for the bank in the longer term. Deposits and other debts Distribution of funding 73% Other liabilities 1% 5% 17% 2% Issued bonds - term to maturity over 1 year 1% Issued bonds - term to maturity under 1 year 1% Debt to credit institutions - term to maturity over 1 year Total capital base Debt to credit institutions - term to maturity under 1 year DKK 1,000 The short-term funding (term to maturity under 1 year): Issued bonds - term to maturity under 1 year 224,583 Debt to credit institutions and central banks - term to maturity under 1 year 414,472 Total 639,055 Is covered as follows: Cash in hand etc. 36,776 Deposits on demand with central banks - certificates of deposit 622,414 Claims on credit institutions - term to maturity under 1 year 92,578 Listed bonds and listed shares etc. at current value 3,812,362 Total 4,564,130 Excess cover 3,925,075 As will be evident from the above, the short-term funding (time to maturity less than one year) is supported via the bank's portfolio of certificates of deposit and demand de- posits with the Danish National Bank, short-term loan arrangements with other banks, and the bank's portfolio of liquid securities. It should be noted that the excess liquidity cover at the end of 2012 was DKK 3.9 billion, while the corresponding figures at the end of 2011 and 2010 were DKK 3.7 billion and DKK 3.3 billion respectively. To ensure diversification in funding, the bank established an EMTN bond programme of EUR 2 billion in 2008. The programme helps to ensure alternative funding sources for the bank. The bank has made issues under the programme in 2010 and 2011, but has not done so in 2012. Operational risk The capital adequacy rules require the banks to quantify and include an amount for operational risks when computing their capital adequacy. The bank uses the so-called basic indicator method where, on the basis of calculation of an average of the most recent three financial years' net incomes, a sum is quantified and ascribed to the risk-weighted items to cover the bank's operational risks. The bank regularly produces reports on the losses and events which are judged to be attributable to operational risks. An assessment is made on the basis of the reports of whether procedures etc. can be adjusted and improved in order to avoid or minimise any operational risks, and the bank's procedures are also regularly reviewed and as- sessed by the bank's internal and external auditors. An important area in assessment of the bank's operational risks is IT. The bank's IT organisation and management are always concerned about IT security, including preparation of IT emergency plans, in connection with which the bank speci- fies requirements and levels for availability and stability of the IT systems and data used by the bank. These requirements apply to both the bank's internal IT organisation and its external IT supplier Bankdata, which the bank owns together with a number of other banks. Further information of the bank's risks With the implementation of the Basel II rules in Danish legislation on capital adequacy, Danish banks were also required to publish certain information on risks (popularly also called Column 3 information). Some of the required risk information is given in this an- nual report, but for a full overview of the bank's duty to provide information, the reader is referred to the bank's website at www.landbobanken.dk. Corporate governance Corporate governance in Ringkjoebing Landbobank concerns the objectives which gov- ern the bank's management and the general principles and structures governing the interplay with the bank's primary interested parties: the bank's shareholders and cus- tomers, the bank's management and employees, and the local areas in which the bank has branches. Since 2002, the bank's management has taken an active approach to the recommenda- tions issued on corporate governance, and the bank's attitude to corporate governance has been minuted in the annual reports since that year. When preparing the 2012 annu- al report, the bank's board of directors and management assessed the bank's positions on the individual recommendations. The bank's management supports the efforts in the area of corporate governance, and the bank's management and board of directors have elected to adopt almost all of the recommendations in this area. In individual areas, the bank's management has, however, elected either not to follow the recommendations or to follow them only in part. The bank currently follows 74 of the 79 recommendations. Please note in this respect that election periods and procedures for the periods served by members of the shareholders' committee and the board of directors are considered appropriate. The board of directors does, however, believe that the procedure for elec- tion to the board can usefully be changed so that candidates can be found both among and beyond the membership of the shareholders' committee. This point is expected to be put to the general meeting for approval. The detailed statement concerning corpo- rate management required in the management report under current accounting rules is published on the bank's website. See www.landbobanken.dk/god-selskabsledelse. The statement in question also indi- cates the bank's management's position on the supplementary recommendations on good corporate governance etc. issued by the Danish Bankers' Association. For information on the board members' other managerial activities, see pages 85 and 86. Statutory statement on social responsibility Throughout its long history, Ringkjoebing Landbobank has always been strongly an- chored in the local communities in which the bank is represented, and the bank has considered it an entirely natural part of its business basis to support the local area's development. Via the management's implementation of and position on the recommen- dations on good corporate governance, the bank is also focused on those matters which govern the interaction with the bank's primary stakeholders, namely its shareholders and customers, its management and employees, and the local areas in which the bank's branches are situated. The bank's policy in the area of social responsibility is based on a desire to run a responsible and value-creating bank which works consciously to create the best results for shareholders, customers, employees, the local community and the surrounding environment and the bank as a financial institution. The bank's policy in the area of social responsibility is given on its website, www.landbobanken.dk/samfundsan- svar. Some of the bank's activities in 2012 for its main stakeholders are described below. Customers During the year, the bank continued its work on development of its advisory service for customers. This includes: - Further development of the bank's concept within the area of advice on pensions, where the bank's advisers give the customer a general view of pension saving schemes and cover in the event of invalidity and death. The bank has a concept which, in a simple and clear way, gives the customer a sound understanding in a highly complex area, and where the customer is then in a position to make some decisions which are especially critical for his or her financial situation. On the basis of this concept, the bank is systematically proceeding to contact those customers who could have a need for advice in this area. - Implementation of the concept of all-inclusive advice where, in cooperation with the customer, the bank prepares a review of the customer's total financial situation, including loans, insurances, pension etc. - Development of means of communication between the bank and its customers, in- cluding development of easily understandable elements on the bank's website which give the customer a solid insight into some of the bank's products. The banks Mobile Bank offer is also being extended to include iPad. - The strength of Private Banking advice, where the bank's asset advisers provide spe- cialised advice to customers with complex financial situations. Employees The bank initiated the following in 2012 in relation to employees: - Signing a new collective agreement with the possibility of flexible arrangements. - Held employee development interviews with all employees. - Certification of advisers in financial products to ensure their provision of competent advice. - Training of all advisers in advising on pensions. - In-service training for a large number of employees in provision of all-round advice. - Appointment of a total of 15 employees, including two new trainees in 2012 and seven new trainees in 2013. Apart from appointing the new trainees, the
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bank held a career day to give secondary school students a basis for making a rational career choice. - Implementation of new routines and systems to increase the efficiency of the bank's administrative processes. This also includes continuation of the campaign 'Overview means profit', which ensures employees a better overview of their own duties. In the bank's experience, this ensures happier employees, less stress and better provision of advice to the bank's customers. - Supported social activities in the bank, including financial support for the bank's staff association. The environment As a bank and a workplace, the bank accepts shared responsibility for the environment. In 2012 this included: - New loans of about DKK 400 million for wind turbine financing and major solar cell systems. - Development of a concept for financing solar cell systems for private homes. - Financing of energy-saving initiatives. - Established a partnership with interactive web portal to help the bank's customers to identify energy-saving initiatives in their homes. As a workplace, the environmental initiatives included: - Focus on conversion of procedures to electronic case handling. This will reduce the bank's environmental impact on an on-going basis. - Replacement of air conditioning system in the bank's head office. - Holding of video meetings with Bankdata to the greatest possible extent to reduce driving to Bankdatas headquater in Fredericia. - Planning of training and meeting activities and coordination to reduce the associated travel as much as possible. Local community Given its position in the local area, the bank has a natural wish to support the area's development. Activities in 2012 included the following: - Total payment of DKK 151 million in corporation tax and wages, of which DKK 138 million was corporation tax. - Allocation of a total of about DKK 1 million from the following funds: - Sdr. Lem Andelskasses Fond - Tarm Banks Jubilaeumsfond - Bankens Resultatfond - Sponsorship agreements with more than 700 clubs and associations in the bank's lo- cal area. This includes subsidies for cultural activities, general and elite sports in order to support the goal of putting the local community on the map. Major activities dur- ing the year included support for: - Biopartner - Ringkoebing cinema - Artificial grass pitch for SG-Skjern - Generator - music venue in Ringkoebing - New swimming facility in Ringkoebing - and many more The bank's website - www.landbobanken.dk/samfundsansvar - provides a detailed ac- count of the bank's social responsibility. Statutory statement on management The board of directors and the shareholders' committee The bank's shareholders' committee has 25 members elected for four years at a time. The bank's board of directors has eight members - six elected by shareholders and two elected by employees. The bank's management does not sit on the board, but takes part in board meetings. The board holds 10 - 12 meetings a year. The board of directors is elected by the bank's shareholders' committee and is comprised in a manner which ensures a broad range of expertise and compliance with a special expertise profile speci- fied by the board. Board members are elected for four-year terms. In accordance with the recommendation of the committee on good corporate governance, at least half the board members must be independent. Members of the board of directors and members of the shareholders' committee must retire from the shareholders' committee at the latest at the first annual general meeting after they have reached the age of 67. Committee of the board of directors The bank's board of directors has appointed an audit committee to monitor and check accounting and auditing matters and prepare the board's processing of matters related to accounting and auditing. The committee consists of the bank's full board of directors. The board has also appointed an independent board member (the chairman of the au- diting committee) who possesses the requisite qualifications within accounting, includ- ing the process of presenting the financial statements, internal controls and risk man- agement etc. Other committees, including the remuneration committee, also comprise the full board of directors. Presentation of the financial statements The board of directors, management and the audit committee regularly ensure that the bank's control and risk management are functioning satisfactorily in connection with the process of presentation of the financial statements. The object is to ensure reasonable, but not absolute, assurance that unlawful use of assets, losses and/or material errors and omissions are avoided in connection with the presentation of the financial statements. Management regularly monitors compliance with relevant legislation, other regula- tions and provisions in connection with the presentation of the financial statements and reports regularly to the board of directors. Evaluation etc. The board of directors made a comprehensive self-evaluation during 2012. As a basis for the evaluation, the board first identified the expertise which it should possess in order to be able to perform its activities in a competent way. This was done on the basis of the bank's business model and a comprehensive analysis of the risks associated therewith. The general expertise required includes a knowledge of the following matters: - Credit - Market risk - Liquidity - Operations - Accounting and capital - Statutory framework for financial activities Each individual board member assessed his or her own qualifications on the basis of the specified requirements. The result was discussed by the board, and its assessment was that as a whole, it possesses all the required expertise and qualifications. In July 2012, the FSA issued new guidelines on the work of the board of directors etc. An expectation was expressed to the effect that for banks in groups I and II, there should be at least one board member with relevant experience in managing a bank. Ringkjoebing Landbobank's current board of directors has extensive managerial experi- ence and insight, but none of its members has the formal qualifications as prescribed by the FSA. Proposed change to the board of directors Although the current board of directors is fully qualified with respect to its duties, it is very much wished that in future, the board can comply with the expectation of at least one member with managerial experience in the financial sector. Board member Keld Hansen has advised that he wishes to retire in connection with the next general meeting and election of the board of directors. The board wishes that the vacancy be filled by a member with managerial experience in the financial sector. The bank has accordingly had some discussions with Joergen Lund, age 63, who, after a long career in a number of managerial posts in Jyske Bank, elected to retire from his permanent position with the latter bank. Mr Lund has declared his willingness to accept a position on the board of directors of Ringkjoebing Landbobank. Mr Lund will replace Keld Hansen, grocer, of Soendervig, who is retiring at the next general meeting after 11 years on the bank's board of directors. Proposed change to election procedure for the board of directors The bank's articles of association currently prescribe that members of the board of direc- tors be elected by the shareholders' committee from among the committee's members. This procedure can make it difficult to ensure that the board has members with special expertise - e.g. members with managerial experience from a financial company. The board of directors and the shareholders' committee have therefore decided to recom- mend a change in the articles of association for approval by the general meeting in 2013 to enable the shareholders' committee to elect board members who are not mem- bers of the committee. Payment policy The remuneration policy for management and the board of directors of Ringkjoebing Landbobank is that the bank's management is paid remuneration which is both in line with the market and reflects the management's achievements for the bank. It has also been decided that the remuneration paid to management and the board of directors should be a fixed amount without any form of incentive component. Neither will others involved in risk taking and employees in control functions be paid variable salary com- ponents outside the framework of the collective agreement which was entered into Supplementary information on members of management, including other managerial activities Reference is made to pages 85 - 87 of this annual report for supplementary information on the bank's management, including information on their other managerial activities. Information on listed companies In accordance with Section 133a of the statutory order on financial reports for credit institutions etc., we advise as follows: The bank's share capital on 31 December 2012 was DKK 24.7 million in 4,940,000 nom. DKK 5 shares. The bank has only one share class, and the entire share capital, and thus all shares, are listed on the NASDAQ OMX Copenhagen. There are no restrictions on the shares' nego- tiability. ATP, Hilleroed and Parvus Asset Management (UK) LLP have advised that they own more than 5% of the bank's share capital. The following applies to exercising the right to vote: Each shareholding up to and including nom. DKK 500 carries one vote, and sharehold- ings above this level carry a total of two votes, which is the highest number of votes a shareholder can exercise when the shares are listed in the company's register of share- holders or when the shareholder has reported and documented his or her right. The members of the bank's board of directors are elected by and from among the mem- bers of the bank's shareholders' committee.
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The following applies to changes to the bank's articles of association: A decision to change the articles of association is only valid if the proposal is agreed upon by at least two thirds of votes cast and of the share capital with voting rights rep- resented at the general meeting. The board of directors has the following powers with respect to the possibility of issuing shares (as per the articles of association): Following consultation with the shareholders' committee, the board of directors is authorised to increase the share capital by nom. DKK 14,210,980 to nom. DKK 38,910,980 in one or more rounds. This authorisation is currently valid until 24 February 2017. The board of directors has the following powers with respect to the possibility of acquir- ing own shares: The bank's annual general meeting of 29 February 2012 has authorised the board of directors, before the next annual general meeting and in accordance with applicable law, to permit the bank to acquire its own shares to a total nominal value of 10% of the bank's share capital, such that the shares can be acquired at the current listed price +/- 10%. At last year's general meeting, the board was also authorised to buy 100,000 shares. This authorisation is expected to be fully used before this year's general meeting. ST A TEMEN T , REPORT S AND ACCOUNT S Page 40 Management's statement 41 Auditors' reports 44 Profit and loss account 44 Proposed distribution of profit 45 Core earnings 46 Balance sheet 48 Statement of shareholders' equity 49 Capital adequacy computation 50 Cash flow statement 51 Accounting policies 55 Notes to the annual report 78 Five year main figures 80 Five year key figures Statement by management and the board of directors The board of directors and management have today considered and approved the annual report of Ringkjoebing Landbobank A/S for the financial year 1 January - 31 December 2012. The annual financial statements was prepared in accordance with the provisions of the Act on Financial Activities and other Danish requirements regarding information in the annual financial statements of listed financial companies. We consider the chosen accounting policies to be appropriate and the esti- mates made to be responsible, so that the annual report provides a true and fair picture of the bank's assets, liabilities and financial position as of 31 December 2012 and the result of the bank's activities and cash flows for the financial year 1 January - 31 December 2012. We also believe that the manage- ment report contains a true and fair account of the bank's activities and financial position as well as a description of the most important risks and uncertainties which can affect the bank. The annual report is recommended for approval by the general meeting. Ringkoebing, 30 January 2013 Management: John Bull Fisker CEO Ringkoebing, 30 January 2013 Board of directors: Jens Lykke Kjeldsen Gravers Kjaergaard Chairman Deputy Chairman Gert Asmussen Inge Sandgrav Bak Keld Hansen Martin Krogh Pedersen Bo Bennedsgaard Gitte E. S. Vigsoe Employee board member Employee board member Internal auditor's declarations To the shareholders of Ringkjoebing Landbobank A/S Certification of the annual financial statements I have audited the annual financial statements of Ringkjoebing Landbobank A/S for the financial year 1 January - 31 December 2012, covering the profit and loss account and the statement of total income, core result, balance sheet, statement of changes in equity, statement of capital adequacy, cash flow statement and notes, including accounting policies and five years' main and key figures. The annual financial statements were prepared in accordance with the Danish Act on Financial Activities. The audit The audit was performed on the basis of the Danish FSA's statutory order on the auditing of financial companies etc. and in accordance with international auditing standards. This requires that the audit be planned and performed to achieve a high degree of assurance that the financial statements do not contain material misstatements. The audit was performed in accordance with the division of labour agreed with the external auditor, and included an assessment of established procedures and internal checks and balances, including the risk management set by management with respect to reporting processes and material business risks. I have made a random sampling of the basis for amounts and other information in the financial state- ments on grounds of probability and risk. The audit also included an assessment of whether manage- ment's choice of accounting policies is appropriate, whether management's accounting estimates are reasonable, and the total presentation of the financial statements. I participated in the audit of all material and risk areas, and I believe that the basis for the audit is ad- equate and appropriate for my conclusion. Our audit did not give rise to any qualifications. Conclusion I believe that the established procedures and internal controls, including the risk management chosen by management for the bank's reporting processes and material business risks, are functioning satisfac- torily. I also believe that the annual financial statements provide a true and fair picture of the bank's assets, liabilities and financial position as of 31 December 2012 and of the result of the bank's activities and cash flows for the financial year 1 January - 31 December 2012 in accordance with the Danish act on financial activities. Statement on management report As required under the act on financial activities, I have read management's report. I have not performed any further actions in addition to the audit of the annual financial statements. On this basis, I believe that the information in management's report is in agreement with the annual financial statements. Ringkoebing, 30 January 2013 Henrik Haugaard Chief auditor The independent auditor's declaration To the shareholders of Ringkjoebing Landbobank A/S Endorsement of the annual financial statements We have audited the annual financial statements for Ringkjoebing Landbobank A/S for the financial year 1 January -31 December 2012, covering the profit and loss account and the statement of total gains and losses, the core earnings, balance sheet, statement of equity, the capital adequacy ratio, the cash flow statement and notes, including the accounting policy and five years' main and key figures. The an- nual financial statements were prepared in accordance with the Danish act on financial activities. Management's responsibility for the annual financial statements Management is responsible for the preparation of annual financial statements which provide a true and fair picture in accordance with the act on financial activities. Management is also responsible for the internal controls deemed necessary to prepare annual financial statements without material misstate- ments, whether attributable to fraud or error. The auditor's responsibility Our responsibility is to express a conclusion on the annual financial statements on the basis of our audit. We performed the audit in accordance with international auditing standards and additional require- ments under Danish auditing law. These require that we observe ethical requirements and plan and perform the audit in order to achieve a high degree of assurance that the annual financial statements do not contain material misstatements. An audit covers the performance of auditing actions to gain evidence for amounts and information in the financial statements. The chosen actions depend on the auditor's assessment, including an assess- ment of risks of material misstatements in the financial statements whether attributable to fraud of error. In the risk assessment, the auditor considers internal controls that are relevant for the company's preparation of annual financial statements which provide a true and fair picture. The object is to design audit actions which are appropriate under the circumstances, but not to express a conclusion on the effectiveness of the company's internal controls. An audit also includes an assessment of whether management's choice of accounting policies is appropriate and whether management's estimates are reasonable, as well as an assessment of the total presentation of the financial statements. We believe that the evidence we obtained for our audit is an appropriate basis for our conclusion. Our audit did not give rise to any qualifications. Conclusion We believe that the annual financial statements provide a true and fair picture of the company's assets, liabilities and financial position as of 31 December 2012 and of the result of the company's activities and cash flows for the financial year 1 January-31 December 2012 in accordance with the act on finan- cial activities. Statement on the management report In accordance with the act on financial activities, we have read the management report. We have not performed any further actions in addition to the audit of the annual financial statements. We believe on this basis that the information in the management report is in accordance with the annual financial statements. Ringkoebing, 30 January 2013 PricewaterhouseCoopers State-authorised partnership H. C. Krogh Alex Nyholm State-authorised State-authorised public accountant public accountant Note no. 2012 DKK 1,000 2011 DKK 1,000 1 Interest receivable 834,021 858,257 2 Interest payable 200,764 245,291 Net income from interest 633,257 612,966 3 Dividend on capital shares etc. 1,463 1,111 4 Income from fees and commissions 210,516 158,303 4 Fees and commissions paid 24,029 24,312 Net income from interest and fees 821,207 748,068 5 Value adjustments +46,957 +16,386 Other operating income 3,303 4,535
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6,7,8,9 Staff and administration costs 252,796 244,068
11 Amortisation, depreciation and write-downs on intangible and tangible assets
3,233
4,375
Other operating costs
Miscellaneous other operating costs 133 381
Costs Deposit Guarantee Fund 10,281 11,178
15 Write-downs on loans and other debtors -156,844 -128,799
Result of capital shares in associated companies +5 +11
Profit before tax 448,185 380,199
12 Tax 120,188 94,128
Profit after tax 327,997 286,071
Other comprehensive income 0 0
Total comprehensive income 327,997 286,071
P ROPOSED DISTRIBUTION OF PROFIT
2012
DKK 1,000 2011
DKK 1,000
Profit after tax 327,997 286,071
Total amount available for distribution 327,997 286,071
Dividend 69,160 65,520
Charitable purposes 500 500
Transferred to reserve for net revaluation under the intrinsic value method
+5
+11
Appropriation to own funds 258,332 220,040
Total distribution of the amount available 327,997 286,071
2012
DKK 1,000 2011
DKK 1,000
Net income from interest 614,617 606,576
Net income from fees and provisions excl. commission 162,371 115,200
Income from sector shares 5,939 4,437
Foreign exchange income 12,591 17,914
Other operating income etc. 3,303 4,535
Total core income excl. trade income 798,821 748,662
Trade income 24,116 18,791
Total core income 822,937 767,453
Staff and administration costs 252,796 244,068
Amortisations, depreciations and write-downs on intangible and tangible assets
3,233
4,375
Other operating costs 8,705 381
Total costs etc. 264,734 248,824
Core earnings before write-downs on loans 558,203 518,629
Write-downs on loans and other debtors -156,844 -128,799
Core earnings 401,359 389,830
Result for portfolio +48,535 +1,547
Expenses for bank packages 1,709 11,178
Profit before tax 448,185 380,199
Tax
Profit after tax 120,188
327,997 94,128
286,071
Note End Dec. 2012 End Dec. 2011
no. DKK 1,000 DKK 1,000
Assets
Cash in hand and claims at call on central banks 483,188 33,935
13 Claims on credit institutions and central banks
Claims at notice on central banks 176,002 186,989
Money market operations and bilateral loans - term to
maturity under 1 year 92,578 536,453
Bilateral loans - term to maturity over 1 year 104,720 590,876
14,15,16 Loans and other debtors at amortised cost price 12,424,139 12,746,560
Loans and other debtors at amortised cost price 11,594,880 11,938,197
Wind turbine loans with direct funding 829,259 808,363
17 Bonds at current value 3,783,258 2,755,912
18 Shares etc. 229,541 249,054
Capital shares in associated companies 543 538
19 Land and buildings total 75,830 74,722
Investment properties 8,165 6,681
Domicile properties 67,665 68,041
20 Other tangible assets 3,981 4,893
Actual tax assets 40,370 12,255
Temporary assets 1,400 1,382
21 Other assets 259,351 348,567
Periodic-defined items 6,645 6,887
Total assets 17,681,546 17,549,023
Note no. End Dec. 2012
DKK 1,000 End Dec. 2011
DKK 1,000
Liabilities and equity
22 Debt to credit institutions and central banks
Money market operations and bilateral credits - term to maturity under 1 year
294,208
285,028
Bilateral credits - term to maturity over 1 year 74,604 148,684
Bilateral credits from the KfW Bankengruppe 829,259 808,363
23 Deposits and other debts 12,866,748 12,755,415
24 Issued bonds at amortised cost price 340,809 338,958
25 Other liabilities 190,830 301,813
Periodic-defined items 205 183
Total debt 14,596,663 14,638,444
26
Provisions for pensions and similar liabilities
0
5,146
27 Provisions for deferred tax 15,151 4,789
15 Provisions for losses on guarantees 10,958 5,038
Total provisions for liabilities 26,109 14,973
28
Subordinated loan capital
199,607
198,014
28 Hybrid core capital 183,027 214,472
Total subordinated debt 382,634 412,486
29
Share capital
24,700
25,200
Reserve for net revaluation under the intrinsic value method 192 187
Profit carried forward 2,581,588 2,391,713
Proposed dividend etc. 69,660 66,020
Total shareholders' equity 2,676,140 2,483,120
Total liabilities and equity 17,681,546 17,549,023
30
Own capital shares
31 Contingent liabilities etc.
Reserve for net revalua- tion under the intrin-
Profit
Proposed
Total
Share sic value carried dividend shareholders'
DKK 1,000 capital method forward etc. equity
2012
Shareholders' equity at the end of the previous financial year
25,200
187
2,391,713
66,020
2,483,120
Reduction of share capital -500 500 0
Dividend etc. paid -66,020 -66,020
Dividend received on own shares 1,326 1,326
Shareholders' equity after allocation of dividend etc.
24,700
187
2,393,539
0
2,418,426
Purchase and sale of own shares -70,283 -70,283
Total comprehensive income 5 258,332 69,660 327,997
Shareholders' equity on the balance sheet date
24,700
192
2,581,588
69,660
2,676,140
2011
Shareholders' equity at the end of the previous financial year
25,200
176
2,225,988
60,980
2,312,344
Dividend etc. paid -60,980 -60,980
Dividend received on own shares 168 168
Shareholders' equity after allocation of dividend etc.
25,200
176
2,226,156
0
2,251,532
Purchase and sale of own shares -58,391 -58,391
Other shareholders' equity items 3,908 3,908
Total comprehensive income 11 220,040 66,020 286,071
Shareholders' equity on the balance sheet date
25,200
187
2,391,713
66,020
2,483,120
Calculated pursuant to the Executive order on Capital Adequacy issued by the
Danish Financial Supervisory Authority.
End Dec. 2012 End Dec. 2011
DKK 1,000 DKK 1,000
Weighted items with credit and counterpart risks 10,601,717 11,041,407
Market risk 1,219,598 750,457
Operational risk 1,483,500 1,396,138
Total risk-weighted items 13,304,815 13,188,002
Share capital 24,700 25,200
Reserve for net revaluation under the intrinsic value method 192 187
Profit carried forward 2,651,248 2,457,733
Core capital 2,676,140 2,483,120
Proposed dividend etc. -69,660 -66,020
Addition to/deduction from the core capital -192 -187
Core capital after deductions 2,606,288 2,416,913
Hybrid core capital 172,000 200,000
Core capital after deductions incl. hybrid core capital 2,778,288 2,616,913
Subordinated loan capital 201,431 200,723
Addition to/deduction from the capital base 192 187
Capital base after deductions 2,979,911 2,817,823
Core capital ratio excl. hybrid core capital (%) 19,6 18.3
Core capital ratio (%) 20,9 19.8
Solvency ratio (%) 22,4 21.4
Capital base requirements under Section 124 (2,1) of the
Danish Financial Business Act 1,064,385 1,055,040
2012
DKK 1,000 2011
DKK 1,000
Operation activities
Profit for the financial year 327,997 286,071
Amortisations, depreciations and write-downs on intangible and tangible assets
3,233
4,375
Write-downs on loans and debtors etc. 198,529 164,539
Items not affecting liquidity 11,135 5,127
Adjusted result of operations 540,894 460,112
Changes in operating capital
Claims on and debt to credit institutions etc., net 909,261 -1,478,199
Loans and other debtors at amortised cost price 123,892 240,117
Securities, not liquid and pledged 234,305 100,393
Deposits and other debts 111,333 1,093,761
Issued bonds at amortised cost price 1,851 1,341
Subordinated capital -29,852 -284,513
Other assets and liabilities, net -48,862 -161,852
Cash flows from operating activities 1,842,822 -28,840
Investment activities
Intangible and tangible assets -4,207 -4,268
Cash flows from investment activities -4,207 -4,268
Financing activities
Paid dividend, net -64,694 -60,812
Own shares etc. -70,283 -58,391
Cash flows from financing activities -134,977 -119,203
Total effect on liquidity for the year
1,703,638
-152,311
Cash and cash equivalents, beginning of year 2,660,366 2,812,677
Cash and cash equivalents, end of year 4,364,004 2,660,366
Cash and cash equivalents, end of year specified thus:
Cash in hand and claims at call on central banks 483,188 33,935
Claims on credit institutions and central banks 217,146 204,899
Securities, unpledged 3,663,670 2,421.532
Total cash and cash equivalents, end of year 4,364,004 2,660,366
The cash flow statement cannot be derived from this annual report, and the
statement has also been adapted
to the special statement of accounts etc. for banks.
Basis for preparing the annual report
General
The annual report is prepared in accordance with the provisions of the Danish
Financial Business Act
and the applicable Executive Order on Financial Reports for Credit Institutions
and Investment Compa-
nies etc. The annual report is also prepared in accordance with the disclosure
requirements of NASDAQ
OMX Copenhagen (Copenhagen Stock Exchange), to the extent to which the Danish
Financial Business
Act, the Executive Order on Financial Reports for Credit Institutions and
Investment Companies etc.
or other Executive Orders from the Danish Financial Supervisory Authority do
not specify a different
practice.
The annual report is presented in DKK rounded to the nearest 1,000 kroner. The
accounting policies are unchanged relative to last year.
Inclusion and measuring - general
Assets are included in the balance sheet when it is probable that future
financial advantages will accrue
to the bank and the value can be measured reliably. Liabilities are included in
the balance sheet, when
they are probable, and that they can be measured reliably.
Income is included in the profit and loss account in step with its earning.
Costs paid to achieve the income for the year are included in the profit and
loss account, and value adjustments made to financial assets, financial
liabilities and derivative financial instruments are also included in the
profit and loss account.
Regarding the criteria for inclusion and the basis of measurement we refer to
the following sections.
Accounting estimates
In computing the book value of certain assets and liabilities, an estimate has
been made of how future
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events will affect the value of the assets and liabilities on the balance sheet date. The estimates made are based on assumptions which management judges to be responsible, but which are not certain. The final actual results may thus deviate from the estimates as the bank is subject to risks and uncertainties which can affect the results. The most important estimates concern write-downs on loans and debtors, computation of current values for unlisted financial instruments, and provisions for liabilities. The most important estimates on write-downs on loans and debtors are associated with quantification of the risk that no future payments will be received. Foreign currency Assets and liabilities in foreign currency are converted to Danish kroner at the closing exchange rate for the currency on balance sheet date, corresponding to the rate published by the Central Bank of Den- mark. Income and expenses are converted continuously at the exchange rate on the transaction date. Financial instruments - general In general, the bank measures financial assets and liabilities at current value on first inclusion. Measuring is subsequently made at current value unless otherwise specifically emerges from the following sections on the individual accounts items. The bank uses the date of payment as the date of entry for financial instruments. Derivative financial instruments Forward transactions, interest rate swaps and other derivative financial instruments are included at cur- rent value on balance sheet date. Hedging transactions which, under the terms of the Danish Financial Supervisory Authority's Executive Order on Financial Reports for Credit Institutions and Investment Companies etc. are regarded as hedg- ing at current value for accounting purposes are included at current value on the balance sheet date with respect to both the hedging instrument and the hedged part of the financial instrument. All value adjustments concerning derivative financial instruments and items subject to hedging for ac- counting purposes are entered under the item >>Value adjustments<< in the profit and loss account. The profit and loss account Interest income Interest income is included on the basis of the effective interest method, under which interest income also includes the allocated portion of establishment fees etc. which are considered to be a part of the effective interest on the loan. On loans which in full or in part have been written down, the interest income relating to the written- down part is entered under the item >>Write-downs on loans and debtors etc.<<. Income from fees and commissions, net Fees and commissions relating to loans and receivables are recognized as part of the carrying amount of loans and receivables and are recognized in the profit and loss account over the term of the loans and receivables as part of the effective interest rate on the loans as interest income, as referred to in the above section >>Interest income<<. Commissions relating to garantees are carried to income over the term of the garantees. Income generated upon performing a given transaction, including securities and custodianship fees plus payment handling fees, are recognised as income when the transaction has been performed. Staff and administration costs Staff and administration costs comprise among other things salaries, pension costs, IT-costs, etc. Write-downs on loans and debtors etc. This item includes losses and write-downs on loans and other debtors and losses and provisions on guarantees. The item also includes losses and write-downs on claims on credit institutions and losses and provisions on the national bank package I. Tax Tax on the profit for the year is booked as a cost in the profit and loss account. Net deferred tax is calculated on the items which cover the temporary differences in accounting and booking of taxable income and expenses at the tax rate applicable on the balance sheet date. Core earnings The core earnings show a statement of the bank's income and costs. In total, the core earnings contain the same items as the profit and loss account but with a different degree of specification. The statement divides the year's result into three main elements; core earnings, result for the portfolio, and costs of the Guarantee Fund for Depositors and Investors. Interest and dividends are included in the result for the portfolio and funding costs for the bank's trading portfolio and extraordinary adjustments to sector shares are deducted. The balance sheet Claims on credit institutions and central banks The first inclusion is made at current value plus transactions costs, less establishment fees etc., and subsequent measurement is at amortised cost price, but reference is made to the section >>Derivative financial instruments<< with respect to hedging for accounting purposes. Loans and other debtors The first inclusion is made at current value plus transaction costs, less establishment fees etc., and subsequent measurement is at amortised cost price. Establishment fees etc. which are comparable with ongoing interest payments, and are thus deemed to be an integral part of the effective interest on the loan, are accrued over the life of the individual loan. If an objective indication of impairment is found on an individually assessed loan, a write-down is made to cover the bank's loss on the basis of expected future payments series based on an assessment of the most likely outcome. With respect to loans and receivables which have not been written down individually, a group-wise as- sessment is made of whether there is an objective indication of impairment in value for the group. This group-wise assessment is made on groups of loans and debtors with uniform characteristics with respect to credit risk. 12 groups are used, one of public clients, one of private clients and 10 of business clients, the latter further grouped by sector. The group-wise assessment is made on the basis of a segmentation model developed by the Association of Local Banks, Savings Banks and Cooperative Savings Banks in Denmark, which undertakes the ongoing maintenance and development. The segmentation model sets the relationship in the individual groups between losses suffered and a number of significant explanatory macroeconomic variables via a linear regression analysis. The explanatory macroeconomic variables include unemployment, house prices, interest rates, number of bankruptcies/forced auctions etc. The macroeconomic segmentation model is initially calculated on the basis of loss data for the entire banking sector. The bank has therefore made an assessment of whether the model estimates reflect the credit risk for the bank's own loan portfolio. This assessment has resulted in an adaptation of the estimates under the model to the bank's own circumstances, under which the adapted estimates form the basis for calculation of the group write- downs. The adjusted estimates were further corrected to take account of the changed economic conditions. For each group of loans and debtors, there is an estimate which expresses the percentage decrease in value associated with a given group of loans and debtors on the balance sheet date. A comparison of the individual loan's current risk of loss with the loan's original risk of loss and its risk of loss at the beginning of the current accounting period provides the individual loan's contribution to the group write-downs. The write-down is calculated as the difference between the book value and the discounted value of the expected future payments. Changes in write-downs which have been made are adjusted in the profit and loss account under the item >>Write-downs on loans and debtors etc.<<. Bonds and shares Securities which are listed on a stock exchange are included at current value, determined on the basis of the closing price on balance sheet date. Unlisted securities are also included at current value, computed on the basis of what the price would be in a transaction between independent parties. The management takes an active approach to the calculation of this market value. All ongoing value adjustments to listed and unlisted securities are entered in operations under the item >>Value adjustments<<. Capital shares in associated companies Capital shares in associated companies are entered in the balance sheet under the intrinsic value method. Land and buildings Land and buildings cover the two items >>Investment properties<< and >>Domicile properties<<. The prop- erties which house the bank's branches are included under domicile properties, while other properties are considered to be investment properties. Investment properties are included in the balance sheet at current value, computed under the yield method. Ongoing changes in value concerning investment properties are included in the profit and loss account. Domicile properties are included in the balance sheet at reassessed value, which is the current value computed on the basis of the yield method less cumulative depreciation and any loss due to impairment. Depreciation is calculated on the basis of expected useful life, which is 50 years, on the basis of depreciation computed as cost price less scrap value. Depreciations and losses due to impairment are included in the profit and loss account, while increases in the reassessed value are included directly on the shareholders' equity under the item >>Provisions for revaluation<< unless the increase corresponds to a reduction in value which was previously included in the profit and loss account. Other tangible assets Other tangible assets including operating equipment are included in the balance sheet at cost price less cumulative depreciation and write-downs for any loss due to impairment. Depreciations are calculated on the basis of the assets' expected lives, which are 1-5 years, on the basis of depreciation computed as cost price less scrap value. Depreciations and losses due to impairment are
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included in the profit and loss account. Temporary assets Temporary assets comprise assets taken over as a result of the unwinding of customer engagements, the intention being to sell off the assets as soon as possible. Temporary assets are included at cost price on transfer and will subsequently be written down to a possibly lower realisation value. Other assets Other assets include interest and commissions receivable as well as the positive market value of deriva- tive financial instruments. Tax Actual tax assets and actual tax liabilities are recognized in the balance sheet as tax calculated on the taxable income for the year, adjusted for tax paid on account. A deferred tax liability is allocated under the item >>Provisions for deferred tax<< and if a deferred tax as- set is booked under the item >>Deferred tax assets<< following a cautious assessment of the asset's value. Debt to credit institutions and central banks / Deposits and other debts / Issued bonds at amor- tised cost price / Subordinated debt Measurement is at amortised cost price, but reference is made to the section >>Derivative financial in- struments<< with respect to hedging for accounting purposes. Other liabilities Other liabilities include interest and commissions payable and the negative marked value of derivative financial instruments. Provisions for liabilities Provisions for liabilities include mainly provisions for pensions, deferred tax and losses on guarantees. A provision is recognized in respect of a guarantee or an irrevocable credit commitment if it is likely that the guarantee or the credit commitment will be exercised and the amount of the commitment can be reliably determined. Provisions are based on Management's best estimate of the amount of the commitments. In measuring provisions for liabilities, discounting to net present value is made where deemed material. Various informations Contingent liabilities/guarantees The bank's outstanding guarantees are given in the notes under the item >>Contingent liabilities<<. If it is considered likely that an outstanding guarantee will incur a loss to the bank, the liability is given under the item >>Provisions for losses on guarantees<< and booked under costs in the profit and loss account under the item >>Write-downs on loans and debtors etc.<< Cash flow statement The cash flow statement is presented in accordance with the indirect method on the basis of the result for the year, adjusted for non-liquid items. The statement shows net changes in the balance sheet, and on some points it will therefore not provide the full picture of the actual cash flows. The cash flows from the operating activity are computed as the result for the year, adjusted for non- liquid items and changes in operating capital. Cash flows from the investment activity cover purchases and sale of fixed assets etc. Cash flows from the financing activity cover movements and allocations in subordinated debt and in shareholders' equity. Liquid assets cover cash in hand, claims at call on the Central Bank of Denmark, fully secured and liquid claims at call on banks, unpledged certificates of deposit issued by the Central Bank of Denmark, and secure and easily saleable listed unpledged securities, under Section 152 of the Danish Financial Business Act. Information and key figures >>Total capital base<< on page 3 under >>Main figures for the bank<< is computed as the banks capital base after deductions. The >>Pre-tax return on equity at the beginning of the year<<, and the >>Return on equity after tax at the beginning of the year<< as given on page 3 under >>Key figures for the bank<< were calculated after deduction of dividend etc., net. >>Key figures per DKK 5 share<< on page 3 were calculated on the basis of 2012: 4,840,000 shares, 2011: 4,940,000 shares and 2008 to 2010: 5,040,000 shares. All calculations etc. concerning write-downs on pages 3, 8 and 20 were made exclusive of amounts under the national bank package I etc. With effect from 2008, the bank changed the calculation of the key figure >>Rate of costs<<. The key figure is now calculated as >>Total costs etc.<< (including depreciation on tangible fixed assets) divided by >>Total core income<< multiplied by 100. The comparative figures on the pages 3 and 7 have been adjusted for the change method of calculation. The key figure 'Total large exposures' have been corrected for 2011 and 2010 so that outstanding accounts of less than one billion kroner with credit institutions are not included under major commit- ments as per the Danish Financial Supervisory Authority guideline on the reporting of accounts. It is noted, that the individual solvency requirement (reported at page 12, 16 and 17) not is audited. Note 2012 2011 no. DKK 1,000 DKK 1,000 1 Interest receivable Claims on credit institutions and central banks 10,943 38,712 Loans and other debtors 769,656 775,891 Loans - interest concerning the written-down part of loans -41,685 -35,740 Bonds 86,941 58,993 Total derivatives financial instruments, 8,016 20,069 of which Currency contracts 4,880 9,205 Interest-rate contracts 3,136 10,864 Other interest receivable 150 332 Total interest receivable 834,021 858,257 2 Interest payable Credit institutions and central banks 27,163 44,311 Deposits and other debts 146,108 169,174 Issued bonds 11,496 12,887 Subordinated debt 15,828 18,605 Other interest payable 169 314 Total interest payable 200,764 245,291 3 Dividend on capital shares etc. Shares 1,463 1,111 Total dividend on capital shares etc. 1,463 1,111 4 Fees and commissions Gross income from fees and commissions Securities trading 28,279 24,117 Asset management 75,271 53,997 Payment handling 20,898 19,679 Loan fees 14,578 7,817 Guarantee commissions 41,371 34,898 Other fees and commissions 30,119 17,795 Total gross income from fees and commissions 210,516 158,303 Fees and commissions paid Securities trading 4,163 5,326 Asset management 4,289 4,110 Payment handling 2,462 2,061 Loan fees 2,514 1,765 Other fees and commissions 10,601 11,050 Total fees and commissions paid 24,029 24,312 Net income from fees and commissions Securities trading 24,116 18,791 Asset management 70,982 49,887 Payment handling 18,436 17,618 Loan fees 12,064 6,052 Guarantee commissions 41,371 34,898 Other fees and commissions 19,518 6,745 Total net income from fees and commissions 186,487 133,991 Foreign exchange income 12,591 17,914 Total net income from fees, commissions and foreign exchange income 199,078 151,905 Note 2012 2011 no. DKK 1,000 DKK 1,000 5 Value adjustments Loans and other debtors at current value* 6,433 6,746 Bonds 78,318 2,619 Shares etc. -25,862 -1,276 Investment properties -415 -579 Foreign exchange income 12,591 17,914 Total derivative financial instruments, -26,497 -10,050 of which Interest-rate contracts -26,497 -10,050 Issued bonds 1,041 -744 Other liabilities 1,348 1,756 Total value adjustments 46,957 16,386 * Cf. note 36. 6 Staff and administration costs Payments to board of managers, board of directors and shareholders' committee Board of managers*/**: John Fisker: Fixed payment 3,870 3,274 Bent Naur: Fixed payment 1,317 3,963 Total payment 5,187 7,237 Board of directors***: Jens Lykke Kjeldsen, chairman 243 242 Gravers Kjaergaard, deputy chairman 162 162 Gert Asmussen 126 125 Keld Hansen 126 125 Martin Krogh Pedersen 126 83 Inge Sandgrav Bak 126 83 Bo Bennedsgaard 126 125 Gitte E. S. Vigsoe 126 104 Total payment 1,161 1,049 Shareholders committee: Total payment 318 336 Total 6,666 8,622 Staff costs Salaries 111,848 111,030 Pensions 11,478 11,522 Social security expenses 917 900 Costs depending on number of staff 14,978 14,719 Total 139,221 138,171 Other administration costs 106,909 97,275 Total staff and administration costs 252,796 244,068 * Management does not receive variable payment. ** The management has a company car. *** The board of directors' fee is fixed. Note 2012 2011 no. DKK 1,000 DKK 1,000 7 Number of employees Average number of employees during the financial year converted into full-time employees 244 252 8 Payment to major risk takers and control functions Fixed salary 4.136 - Variable salary 150 - Pension 454 - Total 4.740 - Number of full-time employees 5 - 9 Incentive programmes The bank has no incentive programmes. 10 Fee to the auditor elected by the general meeting Statutory audit 610 603 Other declarations with security 131 27 Advice on tax 5 19 Other services 0 13 Total fee to the auditor elected by the general meeting 746 662 It is noted, that the bank has an internal auditor. 11 Amortisations, depreciations and write-downs on intangible and tangible assets Tangible assets Domicile properties, depreciations 684 1,353 Other tangible assets, depreciations 2,549 3,022 Total amortisations, depreciations and write-downs on intangible and tangible assets 3,233 4,375 12 Tax Tax calculated on the years profit 109,075 93,159 Adjustment of deferred tax 10,362 860 Adjustment of tax calculated for previous years 751 109 Total tax 120,188 94,128 Effective tax rate (%): The current tax rate of the bank 25.0 25.0 Permanent deviations 1.6 -0.2 Adjustment of tax calculated for previous years 0.2 0.0 Total effective tax rate 26.8 24.8 13 Claims on credit institutions and central banks End Dec. 2012 End Dec. 2011 DKK 1,000 DKK 1,000 Claims at call 41,144 17,910 Up to and including 3 months 226,002 661,989 More than 3 months and up to and including 1 year 1,434 43,543 More than 1 year and up to and including 5 years 104,220 590,876 More than 5 years 500 0 Total claims on credit institutions and central banks 373,300 1,314,318 Distributed as follows: Claims at notice on central banks 176,002 186,989 Claims on credit institutions 197,298 1,127,329 373,300 1,314,318 Note no. End Dec. 2012 DKK 1,000 End Dec. 2011 DKK 1,000
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14 Loans and other debtors at amortised cost price At call 2,027,476 2,689,793 Up to and including 3 months 597,833 476,999 More than 3 months and up to and including 1 year 1,354,204 2,016,455 More than 1 year and up to and including 5 years 4,300,538 3,666,432 More than 5 years 4,144,088 3,896,881 Total loans and other debtors at amortised cost price 12,424,139 12,746,560 15 Write-downs on loans and other debtors and provisions for losses on guarantees Individual write-downs Cumulative individual write-downs on loans and other debtors at the end of the previous financial year 577,352 532,441 Write-downs/value adjustments during the year Reverse entry - write-downs made in previous financial years 243,459 -124,433 205,130 -110,870 Booked losses covered by write-downs Cumulative individual write-downs on loans and other debtors on the balance sheet date -63,849 632,529 -49,349 577,352 Group write-downs Cumulative group write-downs on loans and other debtors at the end of the previous financial year 67,466 31,211 Write-downs/value adjustments during the year Cumulative group write-downs on loans and other debtors on the balance sheet date 47,410 114,876 36,255 67,466 Total cumulative write-downs on loans and other debtors on the balance sheet date 747,405 644,818 Provisions for losses on guarantees Cumulative individual provisions for losses on guarantees at the end of the previous financial year 5,038 1,383 Provisions/value adjustments during the year Reverse entry - provisions made in previous financial years 10,009 -3,835 4,605 -885 Booked losses covered by write-downs Cumulative individual provisions for losses on guarantees on the balance sheet date -254 10,958 -65 5,038 Total cumulative write-downs on loans and other debtors and provisions for losses on guarantees on the balance sheet date 758,363 649,856 16 Suspended calculation of interest Loans and other debtors with suspended calculation of interest on the balance sheet date 113,312 61,419 17 Bonds at current value Listed on the stock exchange* 3,783,258 2,755,912 Total bonds at current value 3,783,528 2,755,912 * See page 22 of the management report, where the rating is stated. Note no. End Dec. 2012 DKK 1,000 End Dec. 2011 DKK 1,000 18 Shares etc. Listed on NASDAQ OMX Copenhagen 29,104 12,033 Unlisted shares at current value 1,505 1,460 Sector shares at current value 182,101 214,583 Other holdings 16,831 20,978 Total shares etc. 229,541 249,054 19 Land and buildings Investment properties Current value at the end of the previous financial year 6,681 7,261 Acquisitions during the year, including improvements 2,184 0 Disposals during the year -206 0 Value adjustments to current value for the year -494 -580 Current value on the balance sheet date 8,165 6,681 Domicile properties Reassessed value at the end of the previous financial year 68,041 68,401 Acquisitions during the year, including improvements 308 993 Depreciations for the year -559 -553 Value adjustments to current value for the year -125 -800 Total reassessed value on the balance sheet date 67,665 68,041 When measuring investment and domicile properties a rate of return between 6% and 8% is used. No external experts were involved in the valuation of investment and domicile properties. 20 Other tangible assets Cost price Cost price at the end of the previous financial year without depreciations and write-downs 28,824 28,399 Acquisitions during the year, including improvements 2,218 3,557 Disposals during the year -1,525 -3,132 Total cost price on the balance sheet date 29,517 28,824 Write-downs and depreciations Write-downs and depreciations at the end of the previous financial year 23,931 23,969 Depreciations for the year 2,548 3,022 Reverse entry of previous years' write-downs during the year and reverse entry of total depreciations and write-downs on assets which were sold or taken out of operation during the year -943 -3,060 Total depreciations and write-downs on the balance sheet date 25,536 23,931 Total other tangible assets on the balance sheet date 3,981 4,893 21 Other assets Interest and commissions receivable 51,425 58,383 Positive market value of derivative financial instruments 172,253 267,853 Miscellaneous receivables and other assets 35,673 22,331 Total other assets 259,351 348,567 Note no. End Dec. 2012 DKK 1,000 End Dec. 2011 DKK 1,000 22 Debt to credit institutions and central banks Debt payable on demand 214,603 210,686 Up to and including 3 months 30,726 26,619 More than 3 months and up to and including 1 year 169,143 150,127 More than 1 year and up to and including 5 years 516,937 583,111 More than 5 years 266,662 271,532 Total debt to credit institutions and central banks 1,198,071 1,242,075 Distributed as follows: Debt to credit institutions 1,198,071 1,242,075 1,198,071 1,242,075 The bank has undrawn long-term committed revolving credit facilities equivalent to: Term to maturity under 1 year 74,604 100,000 Term to maturity over 1 year 0 74,342 Total 74,604 174,342 23 Deposits and other debts On demand* 7,536,906 6,372,268 Deposits and other debts at notice: Up to and including 3 months 1,487,572 2,166,283 More than 3 months and up to and including 1 year 908,664 1,175,194 More than 1 year and up to and including 5 years 1,414,739 1,561,041 More than 5 years 1,518,867 1,480,629 Total deposits and other debts 12,866,748 12,755,415 Distributed as follows: On demand 6,557,380 5,822,693 At notice 175,268 146,889 Time deposits 2,921,952 3,740,496 Long-term deposit agreements 1,906,942 1,805,129 Special types of deposits* 1,305,206 1,240,208 12,866,748 12,755,415 * Special types of deposits are entered under the item >>On demand<< pending payment, while in the specification of the different types of deposits, the sum is instead included under >>Special types of deposits<<. 24 Issued bonds at amortised cost price Up to and including 3 months 4,583 2,955 More than 3 months and up to and including 1 year 220,000 0 More than 1 year and up to and including 5 years 116,226 336,003 Total issued bonds at amortised cost price 340,809 338,958 Distributed as follows: Issues in Danish kroner Nom. DKK 220 million 220,000 220,000 Issues in Norwegian kroner Nom. NOK 100 million* 101,670 95,880 Regulation at amortised cost price and adjustment to current value of issues in Norwegian kroner 8,256 9,241 Other issues 10,883 13,837 * Cf. note 36. 340,809 338,958 Note End Dec. 2012 End Dec. 2011 no. DKK 1,000 DKK 1,000 25 Other liabilities Interest and commissions payable 41,469 56,166 Negative market value of derivative financial instruments 55,635 159,683 Micellaneous payables and other liabilities 93,726 85,964 Total other liabilities 190,830 301,813 26 Provisions for pensions and similar liabilities* The provisions concern conditional pension commitments to current members of the board of managers and a pension com- mitment to a former member of the board of managers from a merged bank. 0 5,146 * The sum was paid in 2012. 27 Provisions for deferred tax The calc. provisions for defer. tax relates to the balance sheet items: Loans and other debtors -2,177 -1,446 Tangible assets -670 -644 Provisions for liabilities 0 -1,287 Other assets/liabilities 17,998 8,166 Total provisions for deferred tax 15,151 4,789 Deferred tax is calculated at (%) 25.0 25.0 28 Subordinated debt Possible Interest early rate Cur- Due redemption Type (%) rency Mill. date date Subordinated loan capital Bilateral agreement** Floating EUR 27 30 June 2021 30 June 2018 201,431 200,723 Total subordinated loan capital 201,431 200,723 Hybrid core capital Bond loan***/**** 4.795 DKK 200 Indefinite 2 March 2015 200,000 200,000 Total hybrid core capital 200,000 200,000 Subordinated debt included in the calculation of the capital base (before deduction of own holding) 401,431 400,723 Regulation at amortised cost price and adjustment to current value 9,203 11,763 Own holding of subordinated loan capital -28,000 0 Total subordinated debt 382,634 412,486 ** The interest rate will change on 30 June 2018 to a quarterly variable rate equivalent to the EURIBOR rate for a term of three months plus 3.50% p.a. Interest - 2012: tDKK 6,332 / 2011: tDKK 7,634 *** The interest rate will change on 2 March 2015 to a quarterly variable coupon rate equivalent to the CIBOR rate published by the Central Bank of Denmark for a term of three months plus 2.16% p.a. Interest - 2012: tDKK 9,496 / 2011: tDKK 9,720 **** Admitted for listing on NASDAQ OMX Copenhagen. Note no. End Dec. 2012 DKK 1,000 End Dec. 2011 DKK 1,000 29 Share capital Number of shares at DKK 5 each: Beginning of year 5,040,000 5,040,000 Cancellation of shares during the year -100,000 0 End of year 4,940,000 5,040,000 Reserved for subsequent cancellation* 90,000 100,000 Share capital 24,700 25,200 The whole share capital has been admitted for listing on NASDAQ OMX Copenhagen. * A further 10,000 were also transferred in January 2013 for later cancellation. 30 Own capital shares Own capital shares included in the balance sheet at 0 0 The market value is 73,978 58,395 Number of own shares: Beginning of year 100,855 9,517 Purchase of own shares during the year 335,686 263,030 Sale of own shares during the year -240,466 -171,692 Cancellation of shares during the year -100,000 - End of year 96,075 100,855 Nominal value of holding of own shares, end of year 480 504 Own shares' proportion of share capital end of year (%): Beginning of year 2.0 0.2 Purchase of own shares during the year 6.8 5.2 Sale of own shares during the year -4.9 -3.4 Cancellation of shares during the year -2.0 - End of year 1.9 2.0 Total purchase price for shares acquired during the year 245,185 226,968
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Total sales price for shares sold during the year 174,902 168,577
The transactions for the year in own shares were made on the basis
of the bank's ordinary trading with shares.
31 Contingent liabilities etc.
Contingent liabilities
Finance guarantees 693,774 653,353
Guarantees for foreign loans 5,595 5,576
Guarantees against losses on mortgage credit loans 51,951 50,138
Guarantees against losses Totalkredit 122,797 118,540
Registration and conversion guarantees 70,999 55,361
Sector guarantees 46,816 39,413
Other contingent liabilities 675,168 129,841
Total contingent liabilities 1,667,100 1,052,222
32 Assets furnished as security
First mortgage loans were provided for German wind turbine
projects. The loans are funded directly by KfW Bankengruppe,
to which security in the associated loans has been provided.
Each reduction of the first mortgage loans is deducted directly
from the funding at the KfW Bankengruppe. 829,259 808,363
As security for clearing and any debt, the bank has pledged
securities from its holding to the Central Bank of Denmark
to a total market price of 250,623 269,005
Note no.
33 Legal proceedings, etc.
The bank is not party to any legal proceedings that are estimated to result in
major losses and in
that way to a substantial change of the accounts.
34 Related parties
Related parties are among others the bank's board of directors and board of
managers, manage-
rial employees and their relatives. Ringkjoebing Landbobank advises that it has
no related parties
with a controlling influence on the bank (defined as control of at least 20% of
the voting rights).
There were no transactions during the year with the board of directors and
board of manag- ers or managerial employees apart from the payment of salaries
and compensation etc., stock exchange business and the provision of loans and
guarantees.
It is also noted that all of the transactions performed in 2012 and 2011 with
related parties, including credit facilities, were carried out on market terms
or a cost-cover basis.
Information on the remuneration made to the board of directors and board of
managers is given in note 6.
Information on the size of loans, mortgages, sureties and guarantees provided
to members of the bank's board of directors and board of managers and the
security received is given in this note. The information in the note covers
these parties' personal engagements and those of their relatives.
Information on the shareholdings held by the board of directors and board of
managers is given in this note.
The amount of loans issued to and mortgages, sureties or guarantees issued for
the members
of the bank's: Interest rates 2012
End Dec. 2012 End Dec. 2011
DKK 1,000 DKK 1,000
Board of managers (Mastercard) 250 250
Board of directors, incl. elected by the staff 1.0%-10.0% 19,012
29,510
All engagements are performed under market terms, including both interest and
guarantee commission rates.
Security pledged from members of the bank's:
Board of managers 0 0
Board of directors, incl. elected by the staff 2,234 1,206
New loans have been granted for 1,162 -
The board of directors' and the board of managers' share- holdings* in
Ringkjoebing Landbobank at the end of the year The board of directors:
End Dec. 2012 End Dec. 2011
Number of shares Number of shares
Jens Lykke Kjeldsen 5,865 5,815
Gravers Kjaergaard 6,663 6,663
Gert Asmussen 4,528 4,528
Keld Hansen 16,636 16,636
Inge Sandgrav Bak 2,448 2,488
Martin Krogh Pedersen 6,501 6,501
Bo Bennedsgaard 530 530
Gitte E. S. Vigsoe 30 30
The board of managers:
John Fisker 15,192 15,192
Bent Naur** - 16,944
* Stated in accordance with the rules on insiders.
** Resigned from management on 30 April 2012.
Note
Eno.
35 Current value of financial instruments
Financial instruments are measured in the balance sheet at either current value
or amortised cost
price (with consideration to risk cover that fulfil the conditions applying to
hedging).
The current value is the amount at which a financial asset can be sold or the
amount at which a financial liability can be redeemed between agreed
independent parties. The current values of financial assets and liabilities
valued on active markets are calculated on the basis of observed market prices
on the balance sheet date. The current values of financial instruments which
are not valued on active markets are calculated on the basis of generally
recognised methods of valuation.
Shares etc. and derivative financial instruments are measured in the accounts
at market value
such that included book values correspond to current values.
The write-downs on loans are assessed such that they correspond to changes in
credit quality. The difference from current value is assessed as fees and
commissions received, costs incurred in lending activities, and, for
fixed-interest loans, the value adjustment which is independent of the interest
level and which can be calculated by comparing the actual market interest rate
with the nominal rate applying to the loans.
The current value of claims on credit institutions and central banks is
determined under the same method as for loans, but the bank has not currently
made any write-downs on claims on credit institutions and central banks.
Issued bonds and subordinated debt are measured at amortised cost price. The
difference be- tween book and current values is calculated on the basis of
prices on the market for own listed issues.
For variable-interest financial liabilities in the form of deposits and debts
to credit institutions measured at amortised cost price, it is estimated that
the book value corresponds to the current value.
For fixed-interest financial liabilities in the form of deposits and debts to
credit institutions measured at amortised cost price, the difference from
current values is estimated to be the value adjustment which is independent of
interest level.
Financial assets
End Dec. 2012 End Dec. 2011
Book value Current value Book value Current value
DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000
Cash in hand + claims at call on central banks 483,188 483,188 33,935 33,935
Claims on credit institut. and central banks* 373,612 373,612 1,318,375
1,318,376
Loans and other debtors at amort. cost price* 12,452,751 12,508,615
12,777,305 12,828,656
Bonds at current value* 3,799,528 3,799,528 2,774,316 2,774,316
Shares etc. 230,084 230,084 249,592 249,592
Derivative financial instruments 172,253 172,253 267,853 267,853
Total financial assets 17,511,416 17,567,280 17,421,376 17,472,728
Financial liabilities
Debt to credit institutions and central banks* 1,198,895 1,198,472
1,243,364 1,242,551
Deposits and other debts* 12,893,489 12,934,285 12,798,121 12,835,712
Issued bonds at amortised cost price*/** 345,475 337,219 343,374 334,133
Derivative financial instruments 55,635 55,635 159,683 159,683
Subordinated debt*/** 390,660 372,857 420,519 396,256
Total financial liabilities 14,884,154 14,898,468 14,965,061 14,968,335
* The item includes calculated interest on the balance sheet date. The
calculated interest in the balance sheet is included under the items >>Other
assets<< and >>Other liabilities<<.
** Using the most recently listed transaction price before the balance sheet
date, irrespective of the liquidity in the security in question.
Note End Dec. 2012 End Dec. 2011
no. DKK 1,000 DKK 1,000
36 Hedging
The following are hedged:
Fixed interest claim on a credit institution, fixed interest loans,
fixed interest deposits, issued bonds at amortised cost price,
floating interest subordinated loan capital and fixed interest
hybrid core capital
Risk cover:
Interest rate risk and foreign exchange risk
Book values:
Claim on a credit institution 0 30,077
Loans 44,785 54,291
Deposits 0 306,726
Issued bonds at amortised cost price 109,926 105,121
Subordinated loan capital 199,607 198,014
Hybrid core capital 183,027 214,472
Cover is thus:
Interest swaps - total synthetic principal 198,542 512,368
Currency swaps - total synthetic principal 303,101 296,603
Total current value 11,113 22,355
37 Risks and risk management
As described in the section on risk >>Risks and risk management<< in
the
management report con-
tained in the annual report, Ringkjoebing Landbobank is exposed to various types
of risk. See the
section on risks on pages 18 - 29 of the management report for a description of
financial risks
and policies and objectives for their management:
- Credit risks - page 19
- Interest rate risk - page 24
- Foreign exchange risk - page 24
- Share risk - page 25
- Liquidity risk - page 27
The following notes to the annual report contain some additional information
and a more de- tailed description of the bank's credit and market risks.
Note no. End Dec. 2012
DKK 1,000 End Dec. 2011
DKK 1,000
38 Credit risk
Maximum credit exposure classified by balance sheet and off-balance sheet items
Balance sheet items
Cash in hand and claims at call on central banks
483,188
33,935
Claims on credit institutions and central banks 373,300 1,314,318
Loans and other debtors at amortised cost price 12,424,139 12,746,560
Bonds at current value 3,783,258 2,755,912
Shares etc. 229,541 249,054
Capital shares in associated companies 543 538
Other assets, including derivative financial instruments 299,721 360,822
17,593,690 17,461,139
Off-balance sheet items
Guarantees (contingent liabilities)
1,667,100
1,052,222
1,667,100 1,052,222
Maximum credit exposure excluding unutilsed credit facilities 19,260,790
18,513,361
Unutilised credit facilities 4,026,576 3,338,861
Total maximum credit exposure 23,287,366 21,852,222
A more detailed division of the items >>Loans and other outstanding debts at
amortised cost price<<,
>>Guarantees<< and >>Unutilised credit facilities<< are
given below. There is also
a classification covering
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only the items >>Loans made and other outstandings at amortised cost
price<< and
>>Guarantees<<.
* The bank has made unused credit facilities to a total of DKK 4 billion
available. Most of this sum comprises uncommitted credits in the legal sense,
and the bank will be able to terminate them with immediate effect.
Loans, guarantees and unutilised credit facilities by sector
Loans and guarantees in percent, end of year,
classified by sector/business
End Dec. 2012 End Dec. 2011
Per cent Per cent
Public authorities 0.1 0.0
Business
Agriculture, hunting and forestry
Cattle farming etc. 2.8 3.2
Pig farming etc. 2.5 2.8
Other agriculture, hunting and forestry 4.2 4.6
Fishing 1.6 1.5
Mink production 1.2 1.2
Industry and raw materials extraction 2.1 2.9
Energy supply - Demnark 6.0 6.8
Energy supply - foreign 13.0 12.6
Building and construction 1.5 1.6
Trade 4.3 4.7
Transport, hotels and restaurants 1.4 1.9
Information and communication 0.2 0.2
Financing and insurance 10.7 7.3
Real estate 10.2 10.1
Other business 9.8 8.0
Total business 71.5 69.4
Private 28.4 30.6
Total 100.0 100.0
Note no. End Dec. 2012
Per cent End Dec. 2011
Per cent
38 Credit risk - continued
Loans and guarantees by sectors
Loans and guarantees in percent, end of year,
by sector/business
Public authorities 0.0 0.0
Business
Agriculture, hunting and forestry
Cattle farming etc.
3.0
3.5
Pig farming etc. 2.6 2.9
Other agriculture, hunting and forestry 4.2 4.4
Fishing 1.8 1.7
Mink production 1.1 1.3
Industry and raw materials extraction 2.0 2.9
Energy supply - Demnark 6.8 7.6
Energy supply - foreign 14.7 14.2
Building and construction 1.3 1.5
Trade 3.6 3.9
Transport, hotels and restaurants 1.5 2.1
Information and communication 0.1 0.2
Financing and insurance 11.7 7.0
Real estate 12.2 11.4
Other business 7.8 7.3
Total business 74.4 71.9
Private 25.6 28.1
Total 100.0 100.0
The classification by business was made on the basis of Statistics Denmark's
sector codes etc.
Comments on distribution by business
In historical terms, Ringkjoebing Landbobank has always been run on the basis of
a conservative
credit policy. In the bank's judgment, this is reflected in the quality of the
bank's loans, which
is generally judged to be high. Solvency among the bank's customers is
generally good, and
in combination with the bank's robust covering of many commitments, the result
is low credit
risks.
Private customers comprise a total of 25.6% of Ringkjoebing Landbobank's total
loans and guarantees. Most of these customers are in the bank's core area in
central and western Jutland, and the quality of their credit is good. This good
quality is attributable among other things to
a moderately negative trend in the prices of real estate and a lower proportion
of income spent on housing - lower than in eastern Jutland and the capital city
area. The primary security given by private customers consists of security in
real estate (private homes).
The bank has a well-diversified agricultural portfolio with 2.6% of total loans
and guarantees on
pig farmers, 3.0% on cattle and 4.2% on others.
The economic conditions for agriculture as a whole remain difficult, and
although the bank's farming customers have relatively less debt than the
agricultural sector as a whole, it is a difficult situation. Some segments
have, however, experienced improved terms of trade in 2012 relative to the
previous years.
In general, earnings in agriculture are, however, still weak, and the bank has
set aside consider- able provisions for this sector.
Note no.
38 Credit risk - continued
The security consists primarily of mortgages in the farms (land, buildings and
the other produc- tion equipment) plus transfer of hectare support and other
payments etc.
Loans to energy supply companies total 21.5%. This is thus the sector with the
greatest propor- tion of the bank's loans. Most of the exposure in this sector
is on the financing of wind turbines, which has been a core area in the bank
for more than 20 years. Exposure to energy supply companies abroad is mostly to
wind turbines erected in Germany.
The bank's concept for financing wind turbines is based on senior financing.
The concept includes a legal and commercial due diligence, which provides a
high degree of security. Fixed payment prices on the German market provide
additional security that the bank can be repaid. The losses suffered by the
bank in this sector have been minimal, and the financial crisis has confirmed
that the risk in this sector is limited. Security is primarily provided by a
first preferred mortgage in the turbines and transfer of electricity payments
and any subsidies.
Real estate accounts for a total of 12.2% of the bank's total loans and
guarantees. This is a rela- tively modest proportion compared with other
financial institutions, and this reflects the bank's cautious approach to this
sector. The loan and the security are mainly in the following groups:
- Loans with first preferential security in the property (most of the loans)
- Loans with second preferential security in the property and strong tenant
with irrevocable
lease.
In connection with other mortgage financing, the bank places weight on the
project's ability to
pay off the debt before termination of the lease.
Both types of loan have demonstrated their strength during the financial
crisis, and the bank is
comfortable with them.
Financing and insurance account for a total of 11.7% of the bank's total loans
and guarantees, and cover, among other things, exposure to financially solid
counterparties and the bank's con- cept for lending on securities. The primary
security under this concept consists of listed securi- ties. The concept has
clearly demonstrated its strength in the particularly volatile periods on the
financial markets occasioned by the financial crisis
Security
Ringkjoebing Landbobank wishes, to the greatest possible extent, to reduce the
risk in connec- tion with business transactions entered into with the bank's
customers by taking security in the form of a mortgage in physical assets,
securities, bank balances etc. and guarantees, sureties and letters of
subordination. The most commonly used security is securities and cash, mortgage
in real estate and chattels personal.
The bank monitors the value of securities which have been received. The bank
takes a conserva- tive approach to assessing the loan value of security
received. A deduction in the value is thus always made to cover the realisation
risk, costs etc. The following table shows nominal secu-
rity values, i.e. the value of the nominal mortgage without any reduction. A
reduction can be relevant if the actual value of an asset is insufficient to
ensure the full value of a mortgage in the event of realisation.
2012
Nominal securities by sector and business for commitments which have not been
written down
Securities
and cash Real estate Movable Total
DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000
Public authorities 0
3,295 1,800 5,095
Business:
Agriculture, forestry and fishing 286,334 1,282,299
496,955 2,065,588
Industry and raw materials extraction 41,928 66,839
138,551 247,318
Energy supply 138,534
469,212 1,991,750 2,599,496
Building and construction 10,041 82,058
95,606 187,705
Trade 48,129
176,558 165,773 390,460
Transport, hotels and restaurants 7,019 64,838
183,510 255,367
Information and communication 2,595 22,144
8,700 33,439
Financing and insurance 748,291 336,507
18,026 1,102,824
Real estate 117,238
1,250,680 16,572 1,384,490
Other business 662,820
1,111,270 122,499 1,896,589
Total business 2,062,929
4,862,405 3,237,942 10,163,276
Private 939,739
2,793,760 313,079 4,046,578
Total 3,002,668
7,659,460 3,552,821 14,214,949
2011
Nominal securities by sector and business for commitments which have not been
written down
Public authorities 0
3,445 0 3,445
Business:
Agriculture, forestry and fishing 271,178 1,263,812
455,128 1,990,118
Industry and raw materials extraction 45,443 75,814
232,302 353,559
Energy supply 69,991
501,561 1,957,750 2,529,302
Building and construction 9,780 104,304
111,423 225,507
Trade 56,909
204,426 146,766 408,101
Transport, hotels and restaurants 68,165 71,053
182,959 322,177
Information and communication 2,767 11,280
5,213 19,260
Financing and insurance 751,015 390,014
19,196 1,160,225
Real estate 120,791
1,290,412 22,424 1,433,627
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DJ DGAP-UK-Regulatory: Annual Report 2012, -15-
Other business 460,337
592,821 112,471 1,165,629
Total business 1,856,376
4,505,497 3,245,632 9,607,505
Private 745,870
2,720,083 268,890 3,734,843
Total 2,602,246
7,229,025 3,514,522 13,345,793
The nominal collateral values are not necessarily indicative of the actual
collateral value.
Note no.
38 Credit risk - continued
The credit quality of loans and guarantees which are neither in arrears nor
have been writ-
ten down
The bank has credit ratings on a large number of customers. For private and
small business customers, the rating is based on statistical models (based on
the probability of default), while there is an expert model for major
customers.
The statistical models include 7 - 10 different factors, including information
on the customer's assets and a quantity of behavioural data. These items are
selected from a large number of pos- sible factors which best describe
previously unsatisfied commitments.
The expert model for business customers is based on information on the
customer's creditwor- thiness and earning capacity. The model is a general
model used for business as a whole. The model has three variants which are
particularly to exposure to credit for wind turbines, agricul- ture and real
estate.
As indicated in the figure below, 62% of loans and guarantees without
write-downs or arrears have a high credit quality as against 57% in 2011. The
proportion of customers with low credit quality increased from 7% to 12% via a
reduction in the unclassified commitments, and the middle-ranking group was
reduced. The year has thus seen a certain polarisation of customers without
write-downs or arrears, but in general the bank finds the total quality stable.
Unclassified commitments amount to DKK 0.5 billion. These consist mainly of
small business
customers and they cover a wide range of sectors.
Distribution of loans and guarantees without write-downs or arrears
70
60 2012 2011
50
40
30
20
10
0
High Medium Low Not classified
Credit quality
Total loans and quarantees without write-downs or arrears (DKK 1,000)
2012 12,943
2011 11,578
Distribution by time from the due date for loans without write-downs in arrears
Under Over
90 days 90 days Total
DKK 1,000 DKK 1,000 DKK 1,000
Public authorities 47 0 47
Business:
Agriculture, forestry and fishing 14,193 1,259 15,452
Industry and raw materials extraction 1,761 108 1,869
Energy supply 3,666 11 3,677
Building and construction 1,078 656 1,734
Trade 3,756 622 4,378
Transport, hotels and restaurants 1,013 184 1,197
Information and communication 293 164 457
Financing and insurance 2,910 1,313 4,223
Real estate 2,306 4,005 6,311
Other business 10,515 1,222 11,737
Total business 41,491 9,544 51,035
Private 32,078 8,797 40,875
Total 2012 73,616 18,341 91,957
Total 2011 59,118 2,669 61,787
Note no.
38 Credit risk - continued
The value of loans where individual write-downs have been made
Major Total Individual
financial Breach Relaxation Probable credit write-
difficulties of contract of terms bankruptcy exposure downs
DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000
Credit exposure by reason for write-down
Public authorities 0 0 0 0 0 0
Business:
Agriculture, forestry and fishing 123,592 100,332 86,139 78,370 388,433
290,516
Industry and raw materials
extraction 16,475 2,157 323 2,851 21,806 15,640
Energy supply 0 2,311 0 0 2,311 1,018
Building and construction 12,221 5,447 16,790 0 34,458 21,420
Trade 8,410 8,461 1,355 2,647 20,873 14,391
Transport, hotels and restaurants 11,647 1,416 8,442 2,158 23,663 16,828
Information and communication 2 328 265 33 628 367
Financing and insurance 570 3,699 0 2,816 7,085 5,783
Real estate 24,362 32,258 31,285 2,662 90,567 45,989
Other business 25,015 15,089 8,824 8,690 57,618 47,082
Total business 222,294 171,498 153,423 100,227 647,442 459,034
Private 141,633 105,450 32,374 28,896 308,353 184,451
Total credit exposure 2012 363,927 276,948 185,797 129,123 955,795
Total credit exposure 2011 342,670 374,134 99,301 98,381 914,486
2012
Major
financial Breach Relaxation Probable-
difficulties of contract of terms bankruptcy Total
DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000
Individual write-downs 242,600 174,863 98,186 127,837 643,486
Security values for commitments
which have been written down 69,773 55,858 17,232 64,305 207,168
2011
Individual write-downs 219,842 224,671 78,541 59,336 582,390
Security values for commitments
which have been written down 63,604 71,807 25,139 24,158 184,708
The bank is particularly focused on covering the risk on commitments which have
been written down. Under the bank's credit policy, these commitments must be
covered to the greatest possible extent
by securities. When determining the need for a write-down, the value of
securities is included at the prudently expected net realisation value. The
bank only includes the ability to make payments over and above the value of
securities to a modest extent when determining the need for a write-down.
Loans and other debtors with an objective indication of impairment included in
the balance sheet at a book value greater than zero
Individual written-down loans
Balance for loans and other debtors before write-downs 909,961 835,803
Write-downs -586,017 -503,289
Balance for loans and other debtors after write-downs 323,944 332,514
Group written-down loans
Balance for loans and other debtors before write-downs 11,908,553 12,143,747
Write-downs -114,876 -67,466
Balance for loans and other debtors after write-downs 11,793,677 12,076,281
Credit risk on derivative financial instruments
Positive market value (by counterpart risk) after netting
Counterpart riskweight 20% 140,002 203,886
Counterpart riskweight 75% 65,836 78,344
Counterpart riskweight 100% 49,812 106,426
Total counterpart riskweight 255,650 388,656
39 Foreign exchange risk
Total assets in foreign currency 5,252,363 6,473,073
Total liabilities in foreign currency 3,119,494 3,189,031
Foreign exchange indicator 1 16,838 23,602
Foreign exchange indicator 1 in %
of core capital after deductions (%) 0.6 0.9
Foreign exchange indicator 2 212 586
Foreign exchange indicator 2 in %
of core capital after deductions (%) 0.0 0.0
40 Interest rate risk
Total interest rate risk 17,102 17,530
Total interest rate risk (%) 0.6 0.7
Interest rate risk by the foreign currencies:
DKK 18,710 17,097
NOK -2,453 -3,437
EUR 996 3,941
CHF -202 -261
USD 105 193
GBP -45 0
SEK 0 8
Other currencies -9 -11
Total 17,102 17,530
Note no.
41 Value at Risk/Market risk
Ringkjoebing Landbobank uses a Value at Risk (VaR) model as a sensitivity
analysis for market risks. The model is a parametric VaR model based on a
historic analysis of the covariation (the correlations) between the prices of
various fi nancial assets etc. The model combines the histori- cal knowledge of
the covariation on the fi nancial markets with the bank's current positions,
and on this basis calculates the risk of losses for a forthcoming ten-day
period. The calculation includes the bank's positions with respect to interest,
foreign currencies and listed shares, while positions in sector shares and
unlisted capital shares are not included. The calculated VaR thus
indicates the bank's sensitivity to losses on the basis of its positions. The
model is used as one of a number of tools in the bank's management of market
risks.
Reference is made to pages 26 - 27 of this annual report for further
description of the model etc.
DKK million
Average
Minimum
Maximum
End of year
Year/Risk VaR-figure VaR-figure* VaR-figure* VaR-figure
2012
Interest
15.0
3.1
28.9
5.7
Foreign currency 0.3 0.1 0.2 0.1
Share
Diversifi cation 2.7
-3.3 2.6
-2.3 2.4
-3.1 2.2
-2.2
Total VaR-figure 14.7 3.5 28.4 5.8
* Determined by the total VaR-fi gure.
Sensitivity analysis of sector shares (DKK 1,000)
Sector shares cf. note 18 182,101
Effect of a 10% price change on the result 18,210
Development in Value at Risk
25
Interest Foreign currency
20 Share Total
15
10
5
0
42 Derivative financial instruments
By residual maturity
DKK 1,000 Over 3 month
Up to 3 month and up to 1 year
Nominal value Net market value
Nominal value Net market value
Foreign-exchange contracts
Spot, purchase
41,976
99
Spot, sale 23,902 -115
Forward transactions/futures, purchase 1,041,877 3,662 178,436 -465
Forward transactions/futures, sale 3,531,774 6,096 175,165 14,410
Swaps
Options, purchase
Options, sale 46,396 35 99,732 188
Interest-rate contracts
Spot, purchase
321,330
791
Spot, sale 110,704 -1,551
Forward transactions/futures, purchase 6,822 63 5,000 149
Forward transactions/futures, sale 2,919 -19 88,176 -672
Swaps 51,065 -277 38,056 46
Options, purchase 5,521 47
Options, sale 5,521 -47
Share contracts
Spot, purchase
46,054
-264
Spot, sale 47,816 310
Forward transactions/futures, purchase 62 31
Forward transactions/futures, sale 62 -31
Foreign-exchange contracts
Spot, purchase
Spot, sale
Forward transactions/futures, purchase
Forward transactions/futures, sale
Over 1 year
and up to 5 years Over 5 years
Net Net
Nominal market Nominal market
value value value value
Swaps 101,670 22,079 208,408 -514
Options, purchase
Options, sale
Interest-rate contracts
Spot, purchase
Spot, sale
Forward transactions/futures, purchase
Forward transactions/futures, sale
Swaps 982,454 -31,582 513,357 18,979
Options, purchase 146,001 4,400 65,093 6,865
Options, sale 146,001 -4,400 65,093 -6,865
Other derivative contracts
Credit Default Swaps 74,606 -931
42 Derivative financial instruments - continued
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DKK 1,000 Total net Total nominal value market value Foreign-exchange contracts 2012 2011 2012 2011 Spot, purchase 41,976 48,090 99 -27 Spot, sale 23,902 41,733 -115 -12 Forward transactions/futures, purchase 1,220,313 2,856,039 3,197 56,869 Forward transactions/futures, sale 3,706,939 6,666,368 20,506 13,824 Swaps Options, purchase Options, sale 456,206 500,694 21,788 16,698 Interest-rate contracts Spot, purchase 321,330 214,579 791 712 Spot, sale 110,704 63,956 -1,551 -603 Forward transactions/futures, purchase 11,822 10,763 212 219 Forward transactions/futures, sale 91,095 33,022 -691 -360 Swaps 1,584,932 2,597,399 -12,834 3,886 Options, purchase 216,615 466,077 11,312 14,711 Options, sale 216,615 466,077 -11,312 -14,711 Share contracts Spot, purchase 46,054 13,249 -264 702 Spot, sale 47,816 12,704 310 -708 Forward transactions/futures, purchase 62 31 Forward transactions/futures, sale 32 -31 Other derivative contracts Credit Default Swaps 74,606 -931 Net market value, total 30,517 91,200 42 Derivative financial instruments - continued DKK 1,000 Foreign-exchange contracts Market value Average market value Positive Negative Positive Negative 2012 2011 2012 2011 2012 2011 2012 2011 Spot, purchase 119 63 20 90 203 323 2,932 4,329 Spot, sale 16 83 131 95 147 450 266 479 Forward transactions/ futures, purchase Forward transactions/ futures, sale 16,843 32,756 63,253 52,693 13,646 12,250 6,384 38,869 25,534 34,903 52,194 130,140 10,263 16,594 62,825 63,283 Swaps Options, purchase Options, sale 43,057 43,498 21,269 26,800 38,472 50,275 23,388 35,833 Interest-rate contracts Spot, purchase 1,823 1,051 1,032 339 1,043 598 1,129 369 Spot, sale Forward transactions/ futures, purchase 507 212 133 219 2,058 736 846 307 205 109 1,228 64 612 8 Forward transactions/ futures, sale 528 1,219 360 179 25 1,021 340 Swaps 64,339 91,293 77,173 87,407 77,363 71,042 72,198 79,150 Options, purchase Options, sale Share contracts Spot, purchase 11,312 211 14,711 774 11,312 475 14,711 72 14,130 769 13,558 1,145 14,130 436 13,558 396 Spot, sale Forward transactions/ futures, purchase 499 31 82 189 790 451 35 395 746 48 3,889 Forward transactions/ futures, sale 31 12 35 Other derivative contracts Credit Default Swaps 931 348 Total 172,253 267,853 141,736 176,653 194,394 320,459 144,826 265,071 Provision of security under CSA agreement 0 0 -86,101 -16,970 Total other shares/ other liabilities 172,253 267,853 55,635 159,683 All contracts of derivative financial instruments are non-guanteed contracts. Summary DKK 1,000 2012 2011 2010 2009 2008 Profit and loss account Interest receivable 834,021 858,257 836,339 993,756 1,221,165 Interest payable 200,764 245,291 241,954 377,728 669,149 Net income from interest 633,257 612,966 594,385 616,028 552,016 Dividend on capital shares etc. 1,463 1,111 1,219 3,243 1,491 Income from fees and commissions 210,516 158,303 170,389 149,628 176,118 Fees and commissions paid 24,029 24,312 25,996 23,823 28,464 Net income from interest and fees 821,207 748,068 739,997 745,076 701,161 Value adjustments +46,957 +16,386 +52,159 +58,130 -43,577 Other operating income 3,303 4,535 3,893 5,351 4,863 Staff and administration costs 252,796 244,068 236,374 235,604 236,056 Amortisations, depreciations and write-downs on intangible and tangible assets 3,233 4,375 3,219 2,424 2,420 Other operating costs 133 381 195 56 86 Costs bank packages and Deposit Guarantee Fund 10,281 11,178 46,590 55,785 16,148 Write-downs on loans an other debtors -156,844 -128,799 -138,217 -158,600 -77,223 Write-downs on national bank package I etc. 0 0 -33,152 -51,173 -12,016 Result of capital shares in associated companies +5 +11 +14 -59 -5 Profit before tax 448,185 380,199 338,316 304,856 318,493 Tax 120,188 94,128 81,443 72,775 78,495 Profit after tax 327,997 286,071 256,873 232,081 239,998 Summary DKK 1,000 End 20012 End 2011 End 2010 End 2009 End 2008 Balance sheet Assets Cash in hand and claims on credit institutions and central banks 856,488 1,348,253 2,714,304 2,534,722 2,087,959 Loans and other debtors at amortised cost price 12,424,139 12,746,560 13,151,216 13,047,212 13,897,101 Securities 4,013,342 3,005,504 1,804,062 1,936,663 1,553,741 Tangible assets 79,811 79,615 80,092 79,644 77,730 Other assets 307,766 369,091 497,530 329,715 385,222 Total assets 17,681,546 17,549,023 18,247,204 17,927,956 18,001,753 Liabilities and equity Debt to credit institutions and central banks Term to maturity under 1 year 294,208 285,028 636,326 699,732 2,077,112 Term to maturity over 1 year 903,863 957,047 1,995,864 2,294,991 3,224,050 Deposits and other debts 12,866,748 12,755,415 11,661,654 11,187,470 9,072,875 Issued bonds 340,809 338,958 337,617 557,337 478,341 Other liabilities 191,035 301,996 593,153 365,021 652,505 Provisions for liabilities 26,109 14,973 13,247 72,238 21,096 Subordinated debt 382,634 412,486 696,999 695,394 690,984 Share capital 24,700 25,200 25,200 25,200 25,200 Reserves 2,651,440 2,457,920 2,287,144 2,030,573 1,759,590 Total shareholders' equity 2,276,140 2,483,120 2,312,344 2,055,773 1,784,790 Total liabilities and equity 17,681,546 17,549,023 18,247,204 17,927,956 18,001,753 Contingent liabilities etc. Contingent liabilities 1,667,100 1,052,222 1,041,983 1,485,676 2,386,213 Total contingent liabilities etc. 1,667,100 1,052,222 1,041,983 1,485,676 2,386,213 Solvency: 2012 2011 2010 2009 2008 Solvency ratio % 22.4 21.4 22.4 20.2 16.3 Core capital ratio % 20.9 19.8 18.6 16.6 13.0 Solvency requirement % 8.0 8.0 8.0 8.0 8.0 Earnings: Pre-tax return on equity % 17.4 15.9 15.5 15.9 17.9 Return on equity after tax % 12.7 11.9 11.8 12.1 13.5 Income/cost ratio DKK 2.06 1.98 1.74 1.61 1.93 Market risk: Interest rate risk % 0.6 0.7 0.1 0.6 1.2 Foreign exchange position % 0.6 0.9 0.5 3.4 5.6 Foreign exchange risk % 0.0 0.0 0.0 0.1 0.0 Liquidity risk: Excess cover relative to statutory liquidity requirements % 185.5 140.5 231.8 205.6 139.1 Loans and write-downs thereon relative to deposits % 102.4 105.0 117.6 120.8 157.1 Credit risk: Loans relative to shareholders' equity 4.6 5.1 5.7 6.3 7.8 Growth in loans for the year % -2.5 -3.1 0.8 -6.1 -1.7 Total large exposures % 27.2 11.8 0.0 0.0 12.1 Cumulative write-down percentage % 5.1 4.5 3.8 3.1 2.1 Write-down percentage for the year % 1.06 0.89 0.94 1.16 0.48 Proportion of debtors at reduced interest % 0.8 0.4 0.4 0.4 0.1 Share return: Profit for the year after tax per share*/*** DKK 1,340.1 1,146.6 1,019.3 921.0 933.8 Book value per share*/** DKK 11,049 10,055 9,193 8,172 7,382 Dividend per share* DKK 280 260 240 0 0 Share price relative to profit for the year per share*/*** 11.5 10.1 14.2 13.2 6.6 Share price relative to book value per share*/** 1.39 1.15 1.58 1.49 0.84 * Calculated on the basis of a denomination of DKK 100 per share. ** Calculated on the basis of number of shares outstanding at the end of the year. *** Calculated on the basis of the average number of shares. The average number of shares is calcu- lated as a simple average of the shares at the beginning of the year and at the end of the year. Definitions of the official key figures/ratios from the Danish Financial Supervisory Authority Solvency ratio Capital base after deductions in per cent of total risk weighted assets. Core capital ratio Core capital after deductions (incl. hybrid core capital) in per cent of total risk weighted assets. Pre-tax return on equity Profit before tax in per cent of average shareholders' equity. The average shareholders' equity is calculated as a simple average of the shareholders' equity at the beginning of the year and at the end of the year. Return on equity after tax Profit after tax in per cent of average shareholders' equity. The average shareholders' equity is calculated as a simple average of the shareholders' equity at the beginning of the year and at the end of the year. Income/cost ratio Net income from interest and fees, value adjustments, other operating income and result of capital shares in associated companies in per cent of staff and administration costs, amortisation, depreciation and write-downs on intangible and tangible assets, other operating costs and write-downs on loans and debtors etc. Interest rate risk Interest rate risk in per cent of core capital after deductions (incl. hybrid core capital). Foreign exchange position Foreign exchange indicator 1 in per cent of core capital after deductions (incl. hybrid core capital). Foreign exchange risk Foreign exchange indicator 2 in per cent of core capital after deductions (incl. hybrid core capital). Excess coverage relative to statutory liquidity requirements Cash in hand, demand deposits with the Danish National Bank, fully secured and liquid on-demand credit balance in credit institutions and insurance companies, unencumbered certificates of deposit issued by the Danish National Bank, secure readily negotiable listed unencumbered securities, loan framework in the Danish National Bank against security in sector shares valid for the time being with 30 days notice of termination. The total of all elements measured in percent relative to 10% of the reduced debt and guarantee liabilities. Loans and write-downs thereon relative to deposits Loans + write-downs thereon in per cent of deposits. Loans relative to shareholders' equity Loans/shareholders' equity. Growth in loans for the year Growth in loans from the beginning of the year to the end of the year, in per cent. Total large exposures The total sum of large exposures in per cent of the capital base after deductions. Cumulative write-down percentage
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