Annual Report 2010
Information About the Bank Bank A/S Nørresundby Bank Torvet 4 – DK-9400 Nørresundby CVR no.: 34 79 05 15 Tel. +45 98 70 33 33 Fax: +45 98 70 30 19 SWIFT: NRSBDK 24 E-mail:
[email protected] Internet: www.noerresundbybank.dk
Board of Directors Mads Hvolby, Chairman Poul Søe Jeppesen, Deputy Chairman Bo Bojer Helle Rørbæk Juul Lynge Kresten Skjødt John Chr. Aasted
Board of Management Andreas Rasmussen Finn Øst Andersson
Audit committee Kresten Skjødt, Chairman Mads Hvolby Helle Rørbæk Juul Lynge
Auditors Beierholm State-authorised audit firm – limited partnership company Voergaardvej 2, DK-9200 Aalborg SV
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Contents Page Key Figures ............................................................................................. 4 Financial Ratios ....................................................................................... 5 Statement by the Management and the Board of Directors ..................... 6 Managerial Posts ..................................................................................... 7 Auditors’ Reports ..................................................................................... 8 Management’s Review .......................................................................... 12 Financial statements: Income Statement ................................................................... 29 Distribution of Net Profit ......................................................... 29 Balance Sheet as at 31 December .......................................... 30 Changes in Equity ................................................................... 32 Solvency Statement and Capital Requirement ........................ 33 Cash Flow Statement .............................................................. 34 List of Notes ........................................................................... 35 Notes ....................................................................................... 36 Board of Representatives ...................................................................... 63 Internal Departments ............................................................................. 64 The Bank’s Branches ............................................................................ 65
Please note that Danish number formatting applies to all figures in the financial statements.
This means that the thousands separator is a point (.), and the decimal separator is a comma (,).
The figure one million is written as 1.000.000,00
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Key Figures 2010
2009
2008
2007
2006
Net interest and fee income..............................................
419.490
418.950
386.954
366.511
331.943
Market value adjustments ................................................
25.185
49.000
-23.315
22.162
84.276
Other operating income.....................................................
5.526
3.037
4.358
4.334
4.565
Staff costs and administrative expenses...........................
251.325
242.832
236.653
223.089
205.144
Deprec., amort. and impairment of int. and tang. assets .
9.163
18.202
9.712
-1.634
7.987
Other operating costs *)....................................................
24.616
28.744
8.500
0
0
Impairment losses on loans, advances etc. **) ................
88.567
138.694
81.412
-5.842
-29.613
Summary income statement (DKK 1.000)
0
97
295
3.998
308
Profit before tax…………………………………..……………
76.530
42.612
32.015
181.392
237.574
Tax....................................................................................
17.382
12.159
7.859
36.973
49.962
Net profit for the year........................................................
59.148
30.453
24.156
144.419
187.612
*) Commission concerning Bank Package I, etc. .............
24.616
28.744
8.500
0
0
**) Impairment losses concerning Bank Package I, etc. ..
16.762
18.713
4.647
0
0
Loans and advances.........................................................
6.109.495
5.935.854
7.088.786
6.493.834
5.602.187
Deposits excluding pooled schemes.................................
5.886.967
6.173.385
5.793.985
5.087.360
4.569.434
Deposits in pooled schemes.............................................
861.638
742.387
661.390
888.854
964.475
Share capital.....................................................................
46.000
46.000
46.000
46.000
46.000
Shareholders’ equity.........................................................
1.254.829
1.208.478
1.177.392
1.174.936
1.048.315
Total assets.......................................................................
9.903.173
10.051.309
9.823.438
9.612.798
8.493.604
Guarantees.......................................................................
1.461.215
1.856.256
1.559.648
2.787.743
2.729.111
Number of full-time employees (average).........................
279
284
285
280
271
Profit/loss on investments in group entities.......................
Key balance sheet figures (DKK 1.000)
Nørresundby Bank - Annual Report 2010
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Financial Ratios 2010
2009
2008
2007
2006
losses on loans and advances..........................................
1,49
1,46
1,54
1,67
1,58
Income/cost ratio…………………......................................
1,20
1,10
1,10
1,84
2,29
Return on shareholders’ equity before tax........................
6,2
3,6
2,7
16,3
24,7
Return on shareholders’ equity after tax...........................
4,8
2,6
2,1
13,0
19,5
Profit for the year per share..............................................
12,9
6,6
5,3
31,4
40,8
Equity value per share......................................................
279,7
267,2
260,3
258,0
228,4
Dividend per share............................................................
2,0
0,0
0,0
4,0
4,0
Earnings Core income over costs net of impairment
Return on shares
Share price at year-end.....................................................
182
183
135
370
350
Share price / profit for the year per share (P/E)................
14,2
27,6
25,7
11,8
8,6
Share price / equity value per share.................................
0,7
0,7
0,5
1,4
1,5
Capital adequacy ratio......................................................
15,0
15,2
15,1
13,3
12,9
Core capital ratio...............................................................
14,5
14,6
14,1
12,4
13,1
Interest rate risk (pct.).......................................................
3,2
3,6
3,0
2,6
2,9
Currency position (pct.).....................................................
5,5
3,3
3,4
17,6
4,4
Currency risk (pct.)............................................................
0,0
0,1
0,1
0,0
0,0
94,6
89,4
112,5
110,3
103,5
259,3
269,0
119,0
83,9
51,3
Impairment ratio for the year (pct.)....................................
1,1
1,7
0,9
-0,1
-0,4
Cumulative impairment ratio (pct.)....................................
3,5
3,4
2,0
1,1
1,5
Share of receivables at reduced interest...........................
1,9
2,4
1,7
0,3
0,7
Total large exposures (pct.).............................................. Growth in loans and advances for the year.......................
46,6 2,9
33,0 -16,3
50,7 9,2
103,7 15,9
97,7 23,9
Loans and advances/shareholders’ equity........................
4,9
4,9
6,0
5,5
5,3
Solvency
Market risk
Liquidity Loans and advances plus impairment hereof
as a percentage of deposits, incl. pooled schemes.......... Excess cover as percentage of statutory liquidity
requirements..................................................................... Credit risk
The financial ratios are calculated in accordance with the financial ratio definitions in note 2 on page 43. A 1:10 share split was effected by reducing the denomination from DKK 100 to DKK 10 in 2008. The comparative figures have been adjusted. Total large exposures (pct.) are calculated in accordance with new rules as of 2010. The comparative figures have been adjusted.
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Statement by the Management and the Board of Directors We have discussed and approved the Annual Report for 1 January – 31 December 2010 for A/S Nørresundby Bank on the date written below. The Annual Report is presented in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions etc. Furthermore, the Annual Report is presented in accordance with additional Danish disclosure requirements for annual reports of listed financial companies. It is our opinion that the financial statements give a true and fair view of the bank’s assets and liabilities and financial position as at 31 December 2010 and the results of the bank’s activities and cash flows for the financial year 1 January – 31 December 2010. We consider the Management’s Review to contain a true and fair report on the development in the bank’s activities and financial situation, the profit for the year and the bank’s financial position and a description of the principal risks and uncertainties that the bank is facing. We consider the accounting policies applied appropriate, so that the Annual Report gives a true and fair view of the bank’s assets and liabilities, financial position, profit and cash flows for the year. We recommend that the Annual Report be adopted at the General Meeting. Nørresundby, 8 February 2011. Board of Management Andreas Rasmussen
Finn Øst Andersson /Alma Lund Høj, CFO
Board of Directors
Mads Hvolby chairman Bo Bojer
Poul Søe Jeppesen deputy chairman Helle Rørbæk Juul Lynge
Kresten Skjødt
Nørresundby Bank – Annual Report 2010
John Chr. Aasted
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Managerial Posts Board of Directors Chairman
Helle Rørbæk Juul Lynge
Mads Hvolby
Born in 1963. Joined the Board in 2006.
Born in 1956. Joined the Board in 2006.*)
Re-elected in 2010 **)
Practising surveyor
Asset and Pension Manager
Nørresundby
Vester Hassing
Deputy Chairman
Kresten Skjødt
Poul Søe Jeppesen
Born in 1952. Joined the Board in 2003.*)
Born in 1952. Joined the Board in 2007.*)
General Manager
General Manager
Aalborg
Aalborg
•Andersen & Aaquist A/S (Board member) •Agnes & Magnus Winbergs Foundation (Board member)
•Erhvervsskolernes Forlag (publishing house) (Board member)
Bo Bojer
John Chr. Aasted
Born in 1974. Joined the Board in 2010.**)
Born in 1961. Joined the Board in 2009.*)
Branch Manager
General Manager
Aalborg
Aalborg •Svend Aage Christiansen – Hellum A/S (Chairman of the Board) •System Cleaners A/S (Board member) •Brynje A/S (Board member) •Alsiano A/S (Board member) – resigned from the Board at 29 March 2010 •Graintec A/S (Board member) •Fonden Gisselfeld Kloster (Foundation trustee) *) Elected by the Board of Representatives – up for election yearly. Maximum age of 66 years defined in the Articles of Association. **) Elected by the employees – up for election every fourth year.
Board of Management In accordance with Section 80 (8) of the Danish Financial Business Act, it is hereby disclosed that the Board of Directors have accepted that the Board of Management holds the following directorships:
Andreas Rasmussen Bank Manager
Finn Øst Andersson
•Forvaltningsinstituttet for Lokale Pengeinstitutter (The Danish Management Institute for Local Banks) (Chairman of the Board) •The Association of Local Banks (Board member) •Bankdata (Board member) •Letpension Holding A/S (Board member)
• 4 July committee (Chairman) • C. Nøhr Frandsens Familiefond (Chairman of the Board) •The Danish Maritime and Commercial Court (Expert Judge)
Nørresundby Bank – Annual Report 2010
Bank Manager
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Auditors’ Reports The Bank’s Internal Audit Department We have audited the financial statements for A/S Nørresundby Bank for the financial year 2010, comprising income statement, balance sheet, changes in equity, solvency statement and capital requirement, cash flow statement as well as accounting policies and notes. The financial statements are presented in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies, etc. Furthermore, the financial statements are presented in accordance with additional Danish disclosure requirements for annual reports of listed financial companies. Basis of opinion We conducted our audit on the basis of the Executive Order of the Danish Financial Supervisory Authority on the performance of the audit in financial institutions and in accordance with Danish Auditing Standards. These standards demand that we plan and conduct our audit to obtain reasonable assurance that the financial statements are free of material misstatement. The audit is carried out in accordance with the distribution of duties agreed with the external auditors and has comprised an assessment of established procedures and internal controls, including the risk management arranged by the management, directed towards reporting processes and material business risks. Based on an evaluation of materiality and risk, we examined, on a test basis, evidence supporting the amounts and other disclosures in the financial statements, including an examination of the basis for the amounts stated and disclosures made. The audit also included an assessment of the accounting policies applied and the accounting estimates made by the management together with an evaluation of the overall presentation of the financial statements. We have participated in the audit of the material and risk-exposed areas, and it is our view that the audit evidence obtained is sufficient and provides a suitable basis for our opinion. Our audit has not given rise to any qualifications. Conclusion In our opinion, the established procedures and internal controls, including the risk management arranged by the management, which is directed towards the bank’s reporting processes and material business risks, function satisfactorily. It is also our opinion that the financial statements give a true and fair view of the bank’s assets and liabilities and financial position as at 31 December 2010 and the results of the bank’s activities and cash flows for the 2010 financial year in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies etc., and generally in accordance with Danish disclosure requirements for listed financial companies.
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Auditors’ Reports Statement on the management’s review The management is responsible for preparing a management’s review that contains a true and fair report in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies etc. Our audit has not comprised the management’s review, but we have read the management’s review in accordance with the Danish Financial Business Act. We have not performed any further procedures in addition to our audit of the financial statements. Against this background, we are of the opinion that the disclosures in the management’s review are in accordance with the financial statements. Nørresundby, 8 February 2011. Internal Audit Department
Ove Steen Nielsen Chief Auditor
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Auditors’ Reports Auditor Elected by the General Meeting Independent auditor’s report For the shareholders of A/S Nørresundby Bank We have audited the financial statements for A/S Nørresundby Bank for the financial year 1 January – 31 December 2010, comprising income statement, balance sheet, changes in equity, solvency statement and capital requirement, cash flow statement as well as accounting policies and notes. The financial statements are prepared in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies, etc. Furthermore, the financial statements are presented in accordance with additional Danish disclosure requirements for listed financial companies. The management’s liability for the financial statements The management is responsible for the preparation and fair presentation of financial statements in accordance with the Danish Financial Services Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies, etc., and additional Danish disclosure requirements for listed financial companies. This responsibility includes the design, implementation and maintenance of internal controls relevant to preparing and presenting financial statements without material misstatement, notwithstanding whether such misstatement is due to fraud or errors, and the choice and use of appropriate accounting policies as well as application of accounting estimates which are reasonable under the circumstances. The auditor’s liability and the audit carried out It is our responsibility to express an opinion on the financial statements on the basis of our audit. We have conducted our audit in accordance with Danish auditing standards. Those standards require that we comply with ethical requirements and conduct our audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the assessment made by the auditor, including the assessment of the risk of material misstatement in the financial statements, notwithstanding whether such misstatement is due to fraud or errors. During such risk assessment, the auditor considers internal controls that are relevant to the bank’s preparation and fair presentation of financial statements in order to design audit procedures that are appropriate under the circumstances, but not with the objective of expressing an opinion on the efficiency of the internal control made by the company. An audit also includes an assessment of the appropriateness of the accounting policies applied and the accounting estimates made by the management together with an evaluation of the overall presentation of the financial statements. It is our view that the audit evidence obtained is sufficient and provides an adequate basis for our opinion. Our audit has not given rise to any qualifications. Conclusion It is our opinion that the financial statements give a true and fair view of the bank’s assets and liabilities and financial position as at 31 December 2010 and the results of the bank’s activities and cash flows for the financial year 1 January – 31 December 2010 in accordance with the Danish Financial Business Act, including the
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Auditors’ Reports Executive Order on Financial Reports for Credit Institutions and Investment Services Companies, etc., and additional Danish disclosure requirements for listed financial companies. Statement on the management’s review The management is responsible for preparing a management’s review that contains a true and fair report in accordance with the Danish Financial Business Act, including the Executive Order on Financial Reports for Credit Institutions and Investment Services Companies etc. Our audit has not comprised the management’s review, but we have read the management’s review in accordance with the Danish Financial Business Act. We have not performed any further procedures in addition to our audit of the financial statements. Against this background, we are of the opinion that the disclosures in the management’s review are in accordance with the financial statements. Nørresundby, 8 February 2011. Beierholm State-authorised audit firm - limited partnership company
Jens Rytter Andersen State-Authorised Public Accountant
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Management’s Review Financial performance boosts equity At DKK 139.9 million, the bank’s income from operating activities before value adjustments and impairment losses on loans, advances, etc., is satisfactory and exceeds the budget expectations. The effects of the credit crunch and the recession continued to influence the economy in 2010. For the bank, this means that the market conditions are still difficult, which has affected the trend in the bank’s loans and advances, for instance. Following a handsome rise in consumer spending early in the year, the trend has turned and is now slightly declining again. Even in the face of historically low interest rates and tax cuts, the Danes thus still exercise spending restraint. As a consequence, the bank has noted a limited demand for loans and credits. It is therefore satisfactory to note a positive trend in the bank's loans and advances from DKK 5.9 billion to DKK 6.1 billion. The bank’s deposits, excluding pooled schemes, are at a satisfactory level at DKK 5.9 billion against DKK 6.2 billion in 2009. Despite the economic trends, the bank has been able to realise net interest and fee income well above the original expectations. This has been possible due to a positive securities market and low interest rates which have spurred significant conversion activity, and the influx of new customers was also better than forecast. In addition, the costs of operating the bank have declined, and the bank has thus realised income from operating activities before value adjustments and impairment losses on loans, advances, etc., of DKK 139.9 million, corresponding to the announced upwards adjustment in the company announcement of 26 October 2010. A positive equity market has also contributed to generating a capital gain of DKK 25.2 million on securities, mortgages and currency. Impairment losses on loans, advances, etc., continue to be affected by the difficult economic trends and remain at a comparatively high level of DKK 88.6 million. This amount includes DKK 16.8 million regarding losses under Bank Package I. Compared to 2009, when the impairment losses totalled DKK 138.7 million, this represents a significant reduction. The profit before tax is DKK 76.5 million, compared to DKK 42.6 million in 2009. This financial result includes costs for Bank Package I of a total of DKK 41.4 million.
Income Statement Net interest and fee income The bank’s main activity is closely associated with the provision of a wide range of deposit and loan products as well as advice on and brokering of securities. Income from these products and activities are mainly reflected in the financial statements under net interest and fee income.
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Management’s Review Net interest income declined by 5% to DKK 305.9 million, against DKK 320.8 million in 2009. The decline is mainly attributable to a lower average level of lending than in 2009. Interest income from the bank’s bond portfolio also declined by DKK 7.0 million despite an increase in the portfolio by DKK 294 million. Net fee income is up DKK 18 million from DKK 93.8 million to DKK 111.8 million. This is a quite impressive development in a stagnant market, which is related to increased trading activities due to positive developments on the securities markets, however, as well as historically low interest rates that have enabled customer mortgage conversions. The total net interest and fee income amounts to DKK 419.5 million, compared to DKK 419.0 million last year. Operating costs The costs of operating the bank (staff, administrative expenses, depreciation, amortisation and impairment of tangible and intangible assets) exclusive of other operating costs declined by DKK 0.5 million to a total of DKK 260.5 million, compared to DKK 261.0 million in 2009. In 2009, the costs were affected by impairment losses of DKK 11.2 million concerning the construction of a building to house the bank’s Vestbjerg branch. Disregarding this expense, the costs increase by 4.3%. In 2010, the bank imposed a hiring freeze which, combined with ordinary retirement, is why salary expenses remain largely unchanged despite salary increases of approximately 4% stipulated by collective labour agreements. The most significant increase is attributable to administrative expenses, which are up by 5.8%. The largest single item is IT expenses which were affected in 2010 by the costs of implementing many new laws and rules imposed on the sector in order to ensure financial stability. The financial item “Other operating costs” consists of DKK 24.6 million for Bank Package I. Bank Packages In line with the majority of the financial sector in Denmark, Nørresundby Bank joined the government guarantee scheme adopted by the Danish Parliament in 2008 (Bank Package I). It was a two-year scheme that expired on 30 September 2010. Under the agreement, the financial sector was required to cover losses of up to DKK 35 billion in failing banks that are wound up through the government’s Winding-Up Company – Finansiel Stabilitet A/S. Bank Package I affected the bank’s profit by DKK 41.4 million in 2010. During the two-year period, the bank’s total contribution to this scheme has been approximately DKK 100 million. On 1 October 2010, Bank Package I was replaced by the “Act on failing banks" (Bank Package III). Under the act, failing banks can transfer continuing assets at their current realisable value to Finansiel Stabilitet A/S for the purpose of quickly winding up the bank. This act is also funded by guarantee commitments from the sector of a total of DKK 3.2 billion.
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Management’s Review The act requires shareholders to decide, at the bank’s General Meeting on 8 March 2011, whether the bank should use the winding-up scheme if the bank should fail. The intentions of the scheme are sensible as it aims to safeguard the customers’ continued possibility of using their debit and credit cards, payment service arrangements and, for companies, overdraft facilities. However, this is a special Danish arrangement that can adversely affect the conditions for obtaining liquidity. In light of this, the Board of Directors recommends that the General Meeting refrain from expressing an opinion on the choice of a winding-up scheme. Market value adjustments The bank realised total capital gains of DKK 25.2 million, compared to DKK 49.0 million last year. Also in 2010, the capital gains were driven by a positive equity market, generating a capital gain of DKK 25.2 million. Of this amount, capital gains on sector shares amount to DKK 10.9 million. Foreign exchange has also generated a small capital gain. The interest rate increase at the end of the year resulted in a capital loss of DKK 4.3 million on the bond portfolio. The bank’s equity portfolio amounted to DKK 246.6 million at the end of the year, broken down as DKK 69.3 million of listed shares and DKK 177.3 million of sector shares. The bond portfolio amounts to DKK 2.153 billion at the end of the year. Impairment losses on loans, advances, etc. Impairment losses on loans and advances, etc., decline to DKK 88.6 million, against DKK 138.7 million in 2009. This amount includes DKK 16.8 million in losses relating to Bank Package I. Impairment losses during the year correspond to 1.1% of the bank’s loans, advances and guarantees, which is considered satisfactory under the current economic trends. Furthermore, it is the bank’s general impression that the vast majority of the bank's customers have been able to navigate reasonably well through the economic decline in recent years. A contributing factor is probably that the North Jutland property market has not been subject to property price increases corresponding to those previously seen in other parts of Denmark and is therefore not currently experiencing corresponding massive declines. The portfolio of loans and advances subject to suspended interest accrual amounts to DKK 149.1 million before impairment losses, equating to DKK 1.9% of the total loans, advances and guarantees. The bank’s accumulated impairment losses amount to DKK 277.2 million, corresponding to 3.5% of the bank’s loans, advances and guarantees. The bank assesses the portfolio of loans and advances to be of a good quality. This assessment is based on a persistent focus on the credit area, an active effort in relation to commitments that have failed to develop as desired and a conservative credit policy. Based on these issues, the bank believes that the requirement for posting impairment losses will decrease, but remain at a fairly high level.
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Management’s Review Net profit for the year The profit before tax is up 80% to DKK 76.5 million, compared to DKK 42.6 million in 2009. The profit for the year includes DKK 41.4 million concerning the bank’s share of expenses for the government guarantee scheme. After payment of tax in the amount of DKK 17.4 million, DKK 59.1 million remains for distribution and consolidation.
Balance Sheet At the end of the year, the bank’s balance sheet amounted to DKK 9.9 billion, which is basically unchanged from the 2009 balance sheet at DKK 10.1 billion. Total loans and advances amount to DKK 6.1 billion, compared to DKK 5.9 billion last year. Due to the current economic trends, the bank notices a hesitant attitude among many personal and business customers, which means that consumer spending and investments are postponed. The bank is therefore satisfied with the positive developments as concerns lending. The bank’s deposits, excluding pooled schemes, decline slightly by DKK 286 million to DKK 5.9 billion against DKK 6.2 billion in 2009. The decline is due to conversion of deposits to securities. Based on the massive media coverage of the possible consequences of the lapse of the unlimited government guarantee, we consider the stable level of the bank’s deposits to be a vote of confidence. With its current balance sheet composition, the bank finds itself in a highly favourable situation in the current climate where liquidity can be scarce. The bank’s lending leverage of 4.9 is in the absolute low end compared to the sector. Given the bank’s strong solvency position, the bank desires – over time and without significantly changing its risk profile – to increase its lending leverage to 5.5, corresponding to additional loans and advances of approx. DKK 1.0 billion. In connection with preparing the financial statements, the management has applied estimates and assessments relating to future situations as the basis for measurement of assets and liabilities for accounting purposes on the balance sheet date. The estimates and assessments rest on assumptions found prudent by the management. However, it may be the case that such estimates and assessments are subject to some uncertainty if things develop differently than expected – in the bank’s external environment or in respect of matters concerning customers or business relations in general. As is shown in the sections ”Credit Risks” and “Accounting Policies”, effective from 2007 the bank has applied a model developed by the Association of Local Banks (Lokale Pengeinstitutter) for determining impairment losses by groups. The model has been and is regularly being further enhanced, for instance in relation to procedures for testing the historical calculations in the model, but some uncertainty may still apply to the calculations for 2010. The measurement of a number of other balance sheet items, including sector shares, land and buildings and provisions includes matters subject to some uncertainty.
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Management’s Review In the overall opinion of the management, the uncertainty of the items mentioned is insignificant in relation to the Annual Report. No events have occurred since the closing of the accounts that could affect the assessment of the bank’s situation. Along with the rest of the Danish banking sector, Nørresundby Bank can expect losses in connection with the Depositor Guarantee Fund’s payments for covered deposits in Amagerbanken. Nørresundby Bank is not exposed to Amagerbanken by means of credit facilities, bonds or shares in Amagerbanken. Nørresundby Bank’s share of the sector’s commitments to the Depositor Guarantee Fund was recently calculated to be 0.63% which means that the bank’s financial position is not significantly affected.
Liquidity The Bank has good liquidity and the excess cover is at 259.3% percent in relation to the statutory requirement. The underlying reason is the ratio of deposits to lending together with funding in foreign and Danish banks until 2012.
Subsidiary - merger Effective 1 January 2010, the bank’s fully owned subsidiary, Ejendomsaktieselskabet af 1. juni 1959 and A/S Nørresundby Bank have merged, with A/S Nørresundby Bank being the continuing company. The merger is based on the subsidiary’s limited activities, and for administrative and financial reasons the management has therefore decided to incorporate the wholly owned subsidiary through a vertical merger.
Individual government guarantee In accordance with the bank’s press release of 2 June 2010, the bank had entered into an agreement with the government about the conditions for a three-year government guarantee for loans of up to DKK 2.0 billion. The purpose of the guarantee commitment was to safeguard the bank against a possible loss of deposits until 30 September 2010 when the general government guarantee lapsed. However, the management assessed that the bank’s good image, robust balance sheet composition and high degree of capitalisation would contribute to retaining the customers’ deposits – an assessment which subsequently proved true. The Board has consequently decided not to take advantage of the guarantee commitment.
Capital Base After allocation of the profit for the year, the shareholders’ equity amounts to DKK 1.255 billion, resulting in a capital adequacy ratio of 15.0 for the bank, compared to the statutory requirement of 8. The bank’s capital adequacy is thus almost twice that required by law. The core capital ratio is calculated at 14.5 at the end of the year.
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16
Management’s Review The Danish financial sector is subject to a requirement for bank capital adequacy ratios to be at least 8. Since 2005, each bank has also been required to calculate an internal solvency requirement. If the internally calculated solvency requirement is less than 8%, the statutory minimum requirement applies. For Nørresundby Bank, the internally calculated solvency requirement is calculated at less than 8% due to the bank’s robust business model, and the individual solvency requirement is thus 8%. Reference is made to the bank’s risk report (in Danish) on http://alm.nrsbank.dk/risikorapport. Based on the bank’s expected profit for 2011 and a moderate growth in risk-weighted assets, the capital adequacy ratio and core capital ratio are expected to maintain the same approximate level as in 2010. The above capital ratios document that the bank has a high capitalisation level. It should be mentioned in relation to this assessment that the bank applies the standardised approach for stating the risk-weighted assets. As a consequence, the bank cannot apply extraordinary down-weighting, as would have been possible when applying the advanced determination method. Furthermore, the shareholders’ equity consists of share capital and retained earnings only, apart from a subordinate loan of DKK 100 million which falls due in the amount of DKK 50 million in 2011 and DKK 50 million in 2012.
Share Capital and Reserves The bank’s share capital was unchanged at DKK 46 million at the end of 2010, distributed among 4,600,000 shares with a nominal value of DKK 10. Since the bank’s founding in 1898, the bank’s Articles of Association have included a provision concerning a limited voting right, scaled according to the number of shares, so that each individual shareholder owning 7000 shares or more can at most be entitled to 11 votes. These protective rules in the Articles of Association have been adopted by the shareholders at the Annual General Meeting and should be perceived as the expression of a wish to keep Nørresundby Bank intact as a, strong, local, independent bank with a wide circle of shareholders for the benefit of all our stakeholders. The bank’s shares are dispersed over more than 21,000 shareholders, the vast majority of whom reside within the bank’s market area. Reference is made to Article 10(2) of the Articles of Association, which are also available (in Danish) at the bank’s website www.noerresundbybank.dk. On 9 March 2010, the General Meeting authorised the Board of Directors – after prior adoption by the Board of Representatives – to increase the share capital through subscription by DKK 52 million to DKK 98 million in one or more issues. This authorisation is valid until 9 March 2015. The 2010 General Meeting also authorised the Board of Directors to acquire own shares up to a cumulative total nominal value of 10% of the bank’s share capital, cf. Section 48 of the Danish Companies Act. The consideration may not deviate by more than 10% from the official price calculated by NASDAQ OMX Copenhagen A/S on the date of acquisition. It is proposed to the General Meeting, to be held on 8 March 2011, that the authorisation be extended for five years until 8 March 2016, cf. Section 198 of the Danish Companies Act.
Nørresundby Bank – Annual Report 2010
17
Management’s Review The price of the bank’s share, which is listed on NASDAQ OMX Copenhagen A/S, was 182 at the end of the year. The market value of the bank thus amounted to DKK 837 million at the turn of the year. Spar Nord Bank A/S, Skelagervej 15, Aalborg, is the only shareholder registered on the list of major shareholders, with an ownership share of 50.2%. In consequence of the restrictions on voting rights, Spar Nord Bank has 11 votes.
Distribution of Profits, Dividends and Annual General Meeting In connection with the expiry of the government guarantee scheme under Bank Package I on 30 September 2010, it is now again possible for Nørresundby Bank to distribute dividends to its shareholders. The Board of Directors consequently proposes to the General Meeting that a dividend of 20% per share be distributed, corresponding to a direct interest rate of 1.10% p.a. The Board recommends that the remainder of the profit be transferred to the reserves. Proposals to change the Articles of Association may be presented by the Board of Representatives, Board of Directors or shareholders of the bank for consideration at the Annual General Meeting. The rules on adoption of proposals are set out in the Articles of Association. However, any proposed resolution to amend the articles of association or dissolve the company requires that at least two-thirds of the share capital is represented at the general meeting and that the resolution is passed by at least two-thirds of the votes cast as well as at least two-thirds of the share capital entitled to vote represented at the general meeting. In the event that the amount of share capital represented at the general meeting is insufficient but the proposed resolution is passed, the Board of Directors convenes a new general meeting within fourteen days, to be held no later than six weeks after the first general meeting. Here, the proposed resolution may be passed by two-thirds of the votes cast without regard to the amount of share capital represented. Proposed resolutions to amend the articles of association, excluding proposed resolutions to dissolve the company or merge with other banks, that have been unanimously adopted by the Board of Representatives may, however, be finally passed at a single general meeting by a majority of at least two-thirds of the votes cast as well as of the share capital entitled to vote represented at the general meeting, without regard to the volume of share capital represented. The next annual general meeting will be held at Aalborg Kongres & Kultur Center, Aalborghallen, Aalborg, Denmark, Tuesday 8 March 2011, at 5.30 p.m.
Management Information about the management’s posts and the rules for appointing and replacing board members is found on page 7 of the Annual Report and is considered an integral part of the Management’s Review.
Nørresundby Bank – Annual Report 2010
18
Management’s Review Employment agreements between the bank and its management are described in note 8, page 45.
Audit committee Nørresundby Bank has set up an audit committee as required by law. The committee currently consists of three members of the Board of Directors, one of whom is elected by the employees. Kresten Skjødt, chairman of the audit committee, is the independent and expert member. Based on Kresten Skjødt’s professional experience and educational background as a state-authorised public accountant, the bank’s Board of Directors has assessed that Kresten Skjødt possesses the requisite qualifications, cf. the Danish “Executive Order on Audit Committees in Undertakings and Groups subject to Supervision by the Danish Financial Supervisory Authority.” The committee’s tasks include: -
monitoring the presentation of the financial statements;
-
monitoring the efficient functioning of the bank’s internal control system, internal audit and risk management systems;
-
monitoring the statutory audit of financial statements, etc.; and
-
monitoring and control of the auditor’s independence.
The committee meets according to a fixed schedule 4 to 6 times a year, usually just before the meetings of the Board of Directors.
Remuneration committee In late 2010, the bank set up a remuneration committee in accordance with Section 77a of the Danish Financial Business Act. The remuneration committee includes Mads Hvolby, Chairman of the Board of Directors, and Poul Søe Jeppesen, Deputy Chairman. The bank has drawn up a salary policy aimed at ensuring sound and effective risk management. Nørresundby Bank’s strategic management employs salary as an active instrument to reward employee qualifications and functions. The salary policy supports the bank’s business strategy, values and long-term objectives. The salary is determined on the basis of a specific assessment and defined criteria. There are no variable pay elements, neither in the form of salary, shares, options or pensions. The salary policy applies to the Board of Directors, management and major risk-takers.
Nørresundby Bank – Annual Report 2010
19
Management’s Review Company Announcements Nørresundby Bank has published the following company announcements in 2010: 9 February 2010: Preliminary Announcement of Financial Statements 2009 9 February 2010: Annual Report 2009 12 February 2010: Report concerning register of insiders 22 February 2010: Notice convening the Annual General Meeting on 9 March 2010 4 March 2010: Election of employee representative for the bank’s Board of Directors 10 March 2010: Course of events at the Annual General Meeting, 9 March 2010 25 March 2010: Articles of Association of Nørresundby Bank 27 April 2010: Quarterly Report for Q1 2010 10 May 2010: Report concerning register of insiders 2 June 2010: Nørresundby Bank has entered into an agreement with the government about an individual government guarantee 10 August 2010: Interim report H1 2010 10 August 2010: Report concerning register of insiders 13 August 2010: Report concerning register of insiders 20 August 2010: Report concerning register of insiders 1 September 2010: IT partnership between Bankdata and Jyske Bank 26 October 2010: Quarterly Report for Q1–Q3 2010 10 November 2010: Report concerning register of insiders 15 December 2010: Financial Calendar 2011
Outlook for 2011 The last few years have been characterised by an economic downturn in consequence of the financial crisis. Many believe that there is an indication of economic recovery in Denmark and several countries around Denmark. In the bank’s opinion, uncertainty remains about the developments in unemployment rates, interest rates and property prices. These uncertainties need to stabilise before we can definitely say we are emerging from the crisis. It is furthermore assessed that this uncertainty will also in 2011 affect customer behaviour in terms of financial decisions.
Nørresundby Bank – Annual Report 2010
20
Management’s Review The bank’s 2011 budget is consequently based on the assumption that the economic trends are not expected to develop significantly in a positive direction. Furthermore, it is expected that the need to post write-downs for losses will decline, but remain at a comparatively high level. Based on these assumptions, the budget forecasts a profit before market value adjustments and impairment losses on loans, advances, etc., of DKK 130–140 million.
Risk Factors Risk management is a central focus area for Nørresundby Bank. The various types of risk affecting the bank and the measures taken to control and minimise risks are described in the bank’s risk report, which is available (in Danish) at the bank’s website on http://alm.nrsbank.dk/risikorapport. For the individual risk areas, the bank continues its overall policy of only assuming such risks that comply with the business principles governing the operation of the bank and which the bank has the requisite resources to control in terms of competence. The bank’s risks are monitored and managed centrally by the bank’s staff divisions according to a framework set by the Board of Directors, and the two functions operate separately. The results of the monitoring are reported to the bank’s Board of Management and Board of Directors. Danish banks are required to publish certain risk information (Pillar III information) in consequence of the capital adequacy rules. Some of these disclosures appear in this Annual Report, and the bank has decided to publish the full body of disclosures required in a risk report at the above-mentioned website. A general outline of the risk area is given below.
Credit Risks Credit risk is the risk of losses caused by the customers’ failure, in full or in part, to meet their payment obligations. Nørresundby Bank’s overarching strategy is to operate a locally anchored bank with a clearly defined market area, mainly comprising Northern Jutland. Furthermore, the bank aims to obtain a suitable distribution between personal and business customers in its customer portfolio. The bank also emphasises long-term customer relations and does not desire to use risk-taking as a competitive parameter. Nørresundby Bank’s credit risk is managed on the basis of the bank’s credit policy, one of the aims of which is to ensure that there is a balance between earnings and risk and that any risk-taking is calculated in advance. In relation to the bank’s equity, the lending leverage is 4.9, which is absolutely in the low end compared to the average for the sector in Denmark. The bank desires to have a lending leverage of approximately 5.5, which
Nørresundby Bank – Annual Report 2010
21
Management’s Review corresponds to loans and advances of approximately DKK 7.0 billion against the current DKK 6.1 billion with the current capital situation. The bank endeavours to reduce the credit risk as much as possible by accepting security for commitments. The most common types of security for commitments with personal customers are mortgage on real property, securities and vehicles. The most common types of security for commitments with business customers are mortgage on real property, securities, operating equipment, inventories and debtors as well as requests for guarantees. The day-to-day management of credit risk is handled by the customer advisors together with the department managers. If an exposure exceeds the granting allowance of the department, the granting will be handled by the Credit Office, the Board of Management or the Board of Directors. The Credit Office is responsible for the overall monitoring of the bank’s combined credit risk and carries out ongoing creditworthiness controls of the bank's commitment portfolio. As part of this monitoring effort, the bank has in recent years focused on reducing the credit concentration with a view to reducing the bank’s credit risk. The volume of large exposures has thus been reduced to 46.6% over a number of years. In an effort to reduce the credit risk, there has been increasing focus on exposures that have shown signs of weakness throughout the year. This has typically given rise to demands for reducing the exposures, for instance by divesting assets, providing further security and regularly submitting financial statement and budget follow-up materials. The bank’s external and internal auditors perform annual reviews of large exposures and other selected commitments, among other things to assess the need for posting impairment losses. The conclusions are discussed with the Board of Management and the Board of Directors. Loans, advances and receivables are individually assessed in case of significant commitments. An assessment is also made of loans, advances and receivables in cases where individual impairment losses have already been realised or where the commitment is considered to be weak. Furthermore, an individual assessment is made of loans, advances and receivables that are not reasonably attributable to a homogenous group. Loans, advances and receivables not subject to individual impairment losses will be assessed in groups to determine whether objective indication of impairment exists at group level. Finally, an assessment is made of whether loans, advances and receivables must be characterised as weak commitments. This assessment based on signs of weakness comprises loans for which objective indication of impairment does not exist as well as loans that are not fully written down in consequence of expected payments or security provision. In these cases, the loan or the part of the loan that is not written down forms part of the solvency requirement calculation. A continuing effort is made to produce the statistical material to form the basis for calculating impairment by groups, in collaboration with the bank’s data centre. This statistical material is not fully available, and the
Nørresundby Bank – Annual Report 2010
22
Management’s Review impairment by groups has consequently been determined on the basis of the model supplied by the Association of Local Banks. The model applied is a segmentation model based on loss data for the bank sector as a whole, adjusted to reflect local conditions, following which the adjusted estimates form the basis for determining the need for impairment. The basis for the model was adjusted for 2010 on a quarterly basis to incorporate the economic trends in the course of the year. The result of the calculation was subsequently assessed. This assessment resulted in a further adjustment of the model, entailing an increase of impairment by groups. Please refer to Note 28 on pages 52–56.
Market Risks Market risk is the risk that the market value of the bank’s assets and liabilities changes due to altered market conditions. Market risk is a consequence of the bank’s open positions on the financial markets and can be divided into interest rate risk, currency risk, shareholding risk, property risk and liquidity risk. The bank’s policy is to maintain market risks at a low level. For each type of risk, specific risk frameworks have been defined for monitoring and management, and the aim is to obtain a sensible relationship between risk and return. If the bank desires to minimise or reduce the risks to which it is exposed, management and hedging will be effected by means of derivatives. Market risks mainly arise in the Securities Department, which is also where they are hedged. In connection with the management and monitoring of the bank’s market risks, the Board of Management receives daily reports from the Finance Department about the developments in market-value adjustments of bonds and equities in the bank’s own portfolio, including own shares, and currency developments. The reporting also includes the developments in deposits and loans and advances compared to budget expectations. The Board of Management finally receives weekly reports prepared by the Finance Department on the aggregate exposure in securities and foreign exchange and, for the individual instrument and currency position, how much of the authorisation has been exploited, with a comment if authorisation limits have been exceeded. This reporting also includes a statement of market value adjustments to the bank’s own portfolio, interest rate risk and a statement of surplus liquidity since the last statement. The report is presented to the Board of Directors at each board meeting. Please refer to Note 29 on pages 57–59. Interest rate risk The bank’s lending and deposit activities as well as balances with credit institutions are mainly contracted on a floating-rate basis. The interest-rate risk for fixed-rate assets is sought reduced by ongoing hedging.
Nørresundby Bank – Annual Report 2010
23
Management’s Review The bank’s interest rate risk in case of a parallel upward shift of the interest rate curve of 1 percentage point amounts to 3.2% of the bank’s core capital after deductions. The bank’s interest rate risk is managed daily by the Securities Department. Monitoring and reporting of interest rate risk to Board of Directors and Board of Management are performed by the Finance Department. The bank’s interest rate risk was 2.0 -3.2% during the year. Please refer to Note 29 on pages 57-59.
Currency risk The bank desires the currency risk to be low and therefore reduces the currency risk in foreign currencies through hedging. As part of the normal servicing of the bank’s customers, the bank conducts lending and deposit activities in foreign currencies, and the bank has raised loans with other banks, mainly in Euro. The Securities Department performs the daily management of currency positions, and the Finance Department monitors compliance with lines and is responsible for reporting to the bank’s Board of Directors and Board of Management. The bank’s currency risk has been insignificant for a number of years. Please refer to Note 29 on pages 57–59.
Shareholding risk Nørresundby Bank’s total equity portfolio amounts to DKK 246.6 million at the end of 2010, including a shareholding in strategic partners of DKK 177.3 million. The strategic partners include DLR Kredit A/S, PRAS A/S, BankInvest Holding A/S, Sparinvest Holding A/S and Letpension. This shareholding concerns companies that are necessary for the operation of the bank, and these ownership shares are consequently not considered part of the trade portfolio. In several of the sector companies, the shares are redistributed so that the banks’ ownership shares always reflect the volume of the individual bank’s business with the sector company. The redistribution is typically based on the equity value of the sector company. Nørresundby Bank employs this calculation to adjust the recognised value of these shares when new information appears that support a change in valuation. The remaining part is shares in listed companies and only makes up a modest part of the total shareholding, based on a desire to limit the exposure. The Securities Department performs the daily management, whereas monitoring and reporting to Board of Directors and Board of Management is the Finance Department’s responsibility. Please refer to Note 29 on pages 57–59.
Nørresundby Bank – Annual Report 2010
24
Management’s Review Property risk The bank has a policy of owning the premises where it operates. The bulk of the bank’s property portfolio therefore comprises owner-occupied properties, and the volume of investment properties is thus limited. The total property portfolio, which is modest compared to the bank’s balance sheet total, is being regularly assessed by an external appraiser who determines their current fair value. The last appraisal in December 2010 resulted in a write-down of DKK 6.4 million. Please refer to Note 17 on page 48.
Liquidity Risks Liquidity risks include the risk that the bank’s funding costs rise disproportionately, that the bank is prevented from engaging in new business due to insufficient access to liquidity and that the bank cannot meet its payment obligations due to insufficient liquidity resources. In order to meet these risks, the bank has an internal objective of an excess cover of 50% in relation to the liquidity requirement, however at least 20%. The bank’s liquidity management is based on regular monitoring and management of the bank’s short- and longterm liquidity risk, including stress testing The Securities and Finance Department manage and monitor the bank’s liquidity risk. The Board of Management receives daily reports on surplus liquidity and trends in deposits and loans during the past five banking days compared to budget expectations. A statement of surplus liquidity is presented at each board meeting. Furthermore, the management receives liquidity budgets for one year at a time, including a stress test. The report is presented to the Board of Directors each quarter. The deposit surplus provides the bank with a robust foundation in terms of liquidity. In addition, the bank raised loans in 2007 from foreign and Danish banks with maturities until 2012. Also, Danmarks Nationalbank has extended the bank’s loan facility of DKK 463 million until 26 February 2011 in connection with raising loans on the basis of the statutory surplus solvency. Danmarks Nationalbank has also extended the bank’s permission to mortgage unlisted shares until this date. The loan facilities with Danmarks Nationalbank have not been utilised but are included in the calculation of the bank’s surplus liquidity of 259.3% at the end of the year. After these loan facilities have expired, the bank’s liquidity resources remain extremely satisfactory and exceed the statutory requirement by almost 180%.
Nørresundby Bank – Annual Report 2010
25
Management’s Review Operational Risks Operational risks are the risk of direct or indirect losses caused by inadequate or erroneous internal processes, human errors, system defects or losses due to external events. Operational risks also comprise business and reputation risks. The capital adequacy rules require the bank to quantify and recognise an amount for operational risks when determining solvency. The bank applies the basic indicator approach, which involves quantification of an amount based on a calculation of the average net income in the past three financial years. The quantified amount is added to the risk-weighted assets to cover the bank’s operational risks. Operational risks are managed across the organisation by means of a system of comprehensive business procedures and control measures that has been developed with a view to ensuring an optimal process environment. An effort is made to minimise operational risks, for instance by separating execution and control. An area which is important for the assessment of the bank’s operational risks is IT. The bank’s IT department and the management regularly review IT security, including the IT contingency plans in place. In this connection, requirements and levels of accessibility and stability are determined for the IT systems and data used by the bank. The requirements defined apply to the bank’s internal IT department and the bank’s external IT supplier, Bankdata, which the bank owns jointly with a number of other banks.
Supervisiory Diamond In order to ensure financial stability and confidence in financial undertakings, the Danish Financial Supervisory Authority introduced the so-called Supervisory Diamond on 25 June 2010. The diamond is based on a number of common features identified by the Danish FSA in the course of its work as characteristic of banks experiencing problems during the financial crisis. The Danish FSA has pointed out special risk areas – the “Supervisory Diamond” – based on these common characteristics indicating threshold values that should be observed by the individual banks from the end of 2012. There are five areas, which were recently adjusted in December 2010:
Large exposures should total less than 125% of the core capital. For Nørresundby Bank, the large exposures total 47%.
Growth in loans and advances of less than 20% Nørresundby Bank’s loan growth over the past 12 months is positive at 3%.
Property exposure of less than 25%. Nørresundby Banks property exposure amounts to 23%, of which 9% concerns the social housing sector.
Nørresundby Bank – Annual Report 2010
26
Management’s Review
Funding stability, including a funding ratio of less than 1.0. Nørresundby Bank currently has a funding ratio of 0.75.
The excess liquidity cover must exceed 50%. Nørresundby Bank’s excess liquidity cover is 259% at present.
As is apparent, the bank already meets the defined threshold values.
CSR and statutory account of social responsibility The bank’s account of corporate social responsibility (CSR) is available at the website http://alm.nrsbank.dk/samfundsansvar (in Danish).
Corporate governance and statutory account of corporate governance The bank’s account of corporate governance is available at the website http://alm.nrsbank.dk/virksomhedsledelse (in Danish).
Nørresundby Bank – Annual Report 2010
27
Income Statement Note
2010
2009
(DKK 1.000)
(DKK 1.000)
498.270
4
Interest income ......................................................................................................
394.135
5
Interest expense.....................................................................................................
88.199
177.482
Net interest income ...............................................................................................
305.936
320.788
Dividends from shares etc. ....................................................................................
1.724
4.405
Fee and commission income ................................................................................
122.894
102.889
Fees and commissions paid ..................................................................................
11.064
9.132
Net interest and fee income ..................................................................................
419.490
418.950
Market value adjustments .....................................................................................
25.185
49.000
6
7
8 9
28
Other operating income .........................................................................................
5.526
3.037
Staff costs and administrative expenses ...............................................................
251.325
242.832
Depreciation, amortisation and impairment of intangible and tang. assets ...........
9.163
18.202
Other operating costs ............................................................................................
24.616
28.744
Impairment losses on loans, advances and other receivables etc. .......................
88.567
138.694
Profit/loss on investments in group entities................................................. Profit before tax ..................................................................................................... 10
0
97
76.530
42.612
Tax ........................................................................................................................
17.382
12.159
Net profit or loss for the year .................................................................................
59.148
30.453
Distribution of Net Profit 2010
2009
(DKK 1.000)
(DKK 1.000)
Net profit for the year.............................................................................................
59.148
30.453
Available for distribution ........................................................................................
59.148
30.453
Dividend allocation ................................................................................................
9.200
0
Allocated to statutory reserves, net revaluation subsidiary ...................................
0
97
Transferred to “Retained earnings” .......................................................................
49.948
30.356
Total amount allocated...........................................................................................
59.148
30.453
Nørresundby Bank - Annual Report 2010
29
Balance Sheet as at 31 December Note
2010
2009
(DKK 1.000)
(DKK 1.000)
Assets Cash on hand and demand deposits with central banks .......................................
59.529
57.643
Receivables from credit institutions and central banks .........................................
156.810
939.117
12+28 Loans, advances and other receivables at amortised cost ...................................
11
6.109.495
5.935.854
13
Bonds at fair value ................................................................................................
2.153.443
1.859.364
14
Shares etc. ............................................................................................................
246.569
196.805
Investments in group entities ................................................................................
0
9.357
15
Assets related to pooled schemes ........................................................................
853.929
728.471
16
Intangible assets ...................................................................................................
1.733
2.310
17
Land and buildings, total .......................................................................................
201.025
203.519
distributed between:
18
Investment property ..........................................................................................
60.600
55.049
Owner-occupied property ..................................................................................
140.425
148.470
Other tangible assets ............................................................................................
9.081
10.510
Current tax assets .................................................................................................
4.876
22.753
Assets in temporary possession ...........................................................................
21.794
2.840
Other assets ..........................................................................................................
77.453
73.700
Prepayments .........................................................................................................
7.436
9.066
Total assets ........................................................................................................... 9.903.173
10.051.309
Nørresundby Bank - Annual Report 2010
30
Balance Sheet as at 31 December Note
2010
2009
(DKK 1.000)
(DKK 1.000)
Liabilities and equity Payables 19
Payables to credit institutions and central banks ..................................................
1.552.265
1.622.930
20
Deposits and other payables.................................................................................. 5.886.967
6.173.385
Deposits in pooled schemes ................................................................................. 21
861.638
742.387
Issued bonds at amortised cost ............................................................................
6.142
6.142
Other liabilities .......................................................................................................
218.446
148.282
Deferred income ....................................................................................................
1.347
1.076
Total payables ....................................................................................................... 8.526.805
8.694.202
Provisions
22
Provisions for pension benefits and similar obligations .........................................
8.520
8.126
Deferred tax provisions .........................................................................................
7.167
11.381
Provisions for losses on guarantees .....................................................................
1.849
26.082
Other provisions ....................................................................................................
4.003
3.040
Total provisions .....................................................................................................
21.539
48.629
100.000
100.000
Share capital .........................................................................................................
46.000
46.000
Revaluation reserve ..............................................................................................
24.228
27.968
Statutory reserves..................................................................................................
0
3.137
Retained earnings ................................................................................................. 1.175.401
1.131.373
Subordinated debt 23
Subordinated debt .................................................................................................
Equity: 24
Proposed dividend ................................................................................................
25
9.200
0
Total equity ............................................................................................................ 1.254.829
1.208.478
Total equity and liabilities ...................................................................................... 9.903.173
10.051.309
Contingent liabilities .............................................................................................. 1.461.215
1.856.256
Nørresundby Bank - Annual Report 2010
31
Changes in Equity 2010 (DKK 1.000)
Share capital
Reval. reserves
Statutory reserves
Retained earnings
Dividends etc.
Total
Opening shareholders’ equity....................................... 46.000 Dividends paid.................................................................. 0 Shareholders’ equity after dividend distribution……… 46.000
27.968 0 27.968
3.137 0 3.137
1.131.373 0 1.131.373
0 0 0
1.208.478 0 1.208.478
Net profit for the year........................................................
0
0
0
49.948
9.200
59.148
Reserve, subsidiary……………………............................. Value adjustment of owner-occupied property ................ Tax conc. value adjustment of owner-occupied property Charged directly to equity, total .......................................
0 0 0 0
0 -3.836 96 -3.740
-3.137 0 0 -3.137
3.137 804 0 3.941
0 0 0 0
0 -3.032 96 -2.936
Total income ....................................................................
0
-3.740
-3.137
53.889
9.200
56.212
Purchase of treasury shares ………………………........... Sale of treasury shares................................................ Tax conc. treasury shares ………………………............... Total treasury shares .......................................................
0 0 0 0
0 0 0 0
0 0 0 0
-24.268 17.936 -3.529 -9.861
0 0 0 0
-24.268 17.936 -3.529 -9.861
Closing shareholders’ equity........................................ 46.000
24.228
0
1.175.401
9.200
1.254.829
2009 (DKK 1.000)
Share capital
Reval. reserves
Statutory reserves
Retained earnings
Dividends etc.
Total
Opening shareholders’ equity....................................... 46.000 Dividends paid.................................................................. 0 Shareholders’ equity after dividend distribution……… 46.000
26.992 0 26.992
3.335 0 3.335
1.101.065 0 1.101.065
0 0 0
1.177.392 0 1.177.392
Net profit for the year........................................................
0
0
97
30.356
0
30.453
Reserve, subsidiary……………………............................. Value adjustment of owner-occupied property ................ Tax conc. value adjustment of owner-occupied property Charged directly to equity, total .......................................
0 0 0 0
0 1.000 -24 976
-295 0 0 -295
295 0 0 295
0 0 0 0
0 1.000 -24 976
Total income ....................................................................
0
976
-198
30.651
0
31.429
Purchase of treasury shares ………………………........... Sale of treasury shares................................................ Tax conc. treasury shares ………………………............... Total treasury shares .......................................................
0 0 0 0
0 0 0 0
0 0 0 0
-24.640 24.231 66 -343
0 0 0 0
-24.640 24.231 66 -343
Closing shareholders’ equity ....................................... 46.000
27.968
3.137
1.131.373
0
1.208.478
Nørresundby Bank - Annual Report 2010
32
Solvency Statement and Capital Requirement 2010
2009
(DKK 1.000)
(DKK 1.000)
Shareholders’ equity.......................................................................................................................................... 1.254.829
1.208.478
Attributable to revaluation reserves ..................................................................................................................
-24.228
-27.968
Core capital....................................................................................................................................................... 1.230.601
1.180.510
Less proposed dividend ...................................................................................................................................
-9.200
0
Less intangible assets.......................................................................................................................................
-1.733
-2.310
-88.899
-83.404
Core capital after deductions......................................................................................................................... 1.130.769
1.094.796
Less half the sum of investments etc. >10 pct. pursuant to Section 131(2)(ii) of the Danish Financial Business Act......................................................................................................................................
Subordinated debt included...............................................................................................................................
100.000
Revaluation reserves included .........................................................................................................................
24.228
27.968
Capital base before deductions......................................................................................................................... 1.254.997
1.222.764
100.000
Less half the sum of investments etc. >10 pct. pursuant to Section 139(1)(iii) of the Danish Financial Business Act......................................................................................................................................
-88.899
-83.404
Capital base after deductions........................................................................................................................ 1.166.098
1.139.360
Capital base requirements pursuant to Section 124(1) of the Danish Financial Business Act (8% of total weighted items)……………...….................................................................................................
622.155
601.073
Risk-weighted items with credit, counterparty and delivery risks...................................................................... 6.290.844
6.131.456
Risk-weighted items with market risk................................................................................................................
722.192
651.504
Risk-weighted items with operational risk.........................................................................................................
785.471
749.697
Groups of impairment losses under the standardised approach.......................................................................
-21.574
-19.244
Total risk-weighted items................................................................................................................................... 7.776.933
7.513.413
Core capital ratio.............................................................................................................................................
14,5
14,6
Capital adequacy ratio....................................................................................................................................
15,0
15,2
Stated in accordance with the Danish Financial Supervisory Authority’s Executive Order on capital adequacy for banks, etc. The bank applies the standardised approach for credit and market risks and the basic indicator approach for operational risks.
Nørresundby Bank - Annual Report 2010
33
Cash Flow Statement 2010
2009
(DKK 1.000)
(DKK 1.000)
59.148
30.453
Operating activity:
Profit for the period................................................................................................. Adjustment for amounts in the profit for the year without cash flow effect: Depreciation, amortisation and impairment of intangible and tangible assets .......
9.163
18.203
Impairment of loans and advances and provisions for losses on guarantees .......
2.077
98.069
Other income statement items without cash flow effect .........................................
-4.015
11.785
Operating profit adjusted for non-cash items..........................................................
66.373
158.510
Loans and advances...............................................................................................
-191.723
1.073.506
Deposits .................................................................................................................
-283.717
379.400
Net receivables from credit institutions, etc., not on demand.................................
-50.107
-330.045
Change in working capital:
Other working capital .............................................................................................
45.249
-53.115
Cash flows from operating activities ......................................................................
-413.925
1.228.256
-23.593
Investment activity:
Investment in fixed assets: Intangible and tangible fixed assets .......................................................................
-2.095
Fixed asset investments ........................................................................................
0
294
Cash flows from investment activities ....................................................................
-2.095
-23.299
Financing activity:
Dividends paid................................................ .......................................................
0
0
Cash flows from financing activities .......................................................................
0
0
gg g p Aggregate cash flow effect for the period...............................................................
-416.020
1.204.957
Opening cash and cash equivalents ...................................................................... 2.759.769
1.554.812
Closing cash and cash equivalents ......................................................................
2.759.769
2.343.749
Breakdown of closing cash and cash equivalents:
Cash on hand and demand deposits with Danmarks Nationalbank.......................
59.529
57.643
Receivables from credit institutions, demand, etc., ...............................................
94.453
799.006
Readily negotiable and non-pledged securities .....................................................
2.189.767
1.903.120
Total ....................................................................................................................... 2.343.749
2.759.769
Additional loan commitments and loan facilities ....................................................
1.253.054
1.151.130
Liquidity in accordance with Section 152 of the Danish Financial Business Act … 3.596.803
3.910.899
The cash flow statement cannot be directly inferred on the basis of this Annual Report.
Nørresundby Bank - Annual Report 2010
34
Contents Note Accounting Policies ................................................................... 1 Financial Ratio Definitions ......................................................... 2 Financial Highlights for Five Years ............................................ 3 Notes to the Income Statement: Interest Income .................................................................... 4 Interest Expense .................................................................. 5 Fee and Commission Income .............................................. 6 Market Value Adjustments ................................................... 7 Staff Costs and Administrative Expenses….. ....................... 8 Depreciation, Amortisation and Impairment of Intangible and Tangible Assets ............................................................ 9 Tax ..................................................................................... 10 Notes to the Balance Sheet: Receivables from Credit Institutions and Central Banks .... 11 Loans, Advances and Other Receivables at Amortised Cost ................................................................................... 12 Bonds at Fair Value ........................................................... 13 Shares, etc. ....................................................................... 14 Assets Related to Pooled Schemes ................................... 15 Intangible Assets................................................................ 16 Land and Buildings ............................................................ 17 Other Tangible Assets ....................................................... 18 Payables to Credit Institutions and Central Banks ............. 19 Deposits and Other Payables ............................................ 20 Issued Bonds at Amortised Cost ........................................ 21 Deferred Tax Provisions .................................................... 22 Subordinated Debt ............................................................. 23 Share Capital ..................................................................... 24 Contingent Liabilities ............................................................... 25 Related Parties ........................................................................ 26 Risk Management.................................................................... 27 Credit Risks and Impairment Losses ....................................... 28 Market Risks, Including Sensitivity .......................................... 29 Derivatives ............................................................................... 30 Unsettled Spot Transactions.................................................... 31 Fair Value of Derivatives ......................................................... 32
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35
Notes 1. Accounting Policies General The 2010 Annual Report is presented in accordance with the Danish Financial Business Act and the Executive Order on Financial Reports for Credit Institutions, etc. (Danish Executive Order on the Presentation of Financial Statements). Furthermore, the Annual Report is presented in accordance with additional Danish disclosure requirements for annual reports of listed financial companies. The Annual Report is presented in Danish kroner (DKK) rounded off, unless otherwise indicated, to the nearest DKK 1,000. The presentation of the Annual Report follows the same accounting polices as last year. However, a few notes have been adjusted slightly, including adjustment of comparative information. The business categories in the breakdown of loans, advances and guarantees, etc., by industry in note 28 have been changed in accordance with Section 93 of the Danish Executive Order on the Presentation of Financial Statements, and comparative information has been adjusted. The coming changes to the executive order on presentation of financial statements for 2011 have also been implemented in part. This applies in respect of the requirement for information about “the carrying amount of the part of the loans whose terms have been renegotiated”, previously Section 93a (2), which has been revoked, and publication of an account of corporate governance, Section 134, and an account of corporate social responsibility, Section 135, which are presented at the bank’s website and consequently no longer form part of the Management’s Review. The financial ratio ”Total large exposures (pct.)” has also been changed in relation to the rules in the executive order on large exposures, and comparative figures have been adjusted.
General Information on Recognition and Measurement Assets are recognised in the balance sheet when a previous event renders it probable that future economic benefits will flow to the bank and the value of the asset can be measured reliably. Liabilities are recognised in the balance sheet when the bank, as a consequence of a previous event, has a legal or constructive liability which renders it probable that future economic benefits will flow from the bank and the value of the liability can be measured reliably. Assets and liabilities are measured at fair value when initially recognised. However, tangible and intangible assets are measured at cost when initially recognised. Measurement subsequent to initial recognition is made as described for each individual item below. Anticipated risks and losses that arise before the time of presentation of the Annual Report and that confirm or invalidate affairs and conditions existing at the balance sheet date are considered at recognition and measurement. Income is recognised in the income statement as and when earned, whereas costs are recognised at the amounts attributable to the financial year. Appreciations of owner-occupied properties are recognised directly in equity, however, unless the adjustment corresponds to a decrease in value previously recognised in the income statement. Purchase and sale of financial instruments are recognised at fair value at the trade date and derecognised when the contractual rights to the cash flows from the financial asset or liability expire or the financial instrument is
Nørresundby Bank – Annual Report Report 2010
36
Notes transferred and the bank has transferred substantially all risks and rewards of ownership. The Bank does not apply the rules on reclassification of some financial assets from fair value to amortised cost.
Fair value determination Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction. The fair value of financial instruments traded on an active market is determined at the closing price on the balance sheet date or, where this is not available, another published price deemed to best correspond to this price. The fair value of financial instruments not traded on an active market is determined using generally accepted valuation methods based on observable current market prices.
Accounting Estimates The Annual Report is prepared under certain special assumptions that require the use of accounting estimates. Such estimates are made by the bank’s management in accordance with the accounting policies and on the basis of historical experience as well as assumptions considered prudent and realistic by the management. Determining the carrying amounts of some assets and liabilities requires estimation of the effects of future events on the value of those assets and liabilities. The most important estimates concern impairment losses on loans and advances, provisions on guarantees, determination of fair value of properties and measurement of unlisted financial instruments and provisions. As concerns impairment losses on loans and advances, significant estimates are associated with the quantification of the risk of not receiving all future payments. The fair value measurement of unlisted shares and other financial instruments, assets in temporary possession as well as investment and owner-occupied properties is also subject to significant estimates. Provisions, etc., are subject to significant estimates in relation to the determination of future employee turnover. The estimates and assessments are based on assumptions found prudent by the management. It naturally follows that the assumptions are uncertain and characterised by being unpredictable. Also, the bank is affected by risks and uncertainties that may cause the actual results to deviate from the estimates.
Translation of Foreign Currencies On initial recognition, transactions in foreign currencies are translated using the exchange rate prevailing on the transaction date. Balances in foreign currencies which are not settled at the balance sheet date, are translated using the closing price at the end of the financial year. Exchange rate differences arising between the rate prevailing at the date of the transaction and the rate at the payment date or the exchange rate at the balance sheet date, respectively, are recognised in the income statement as translation adjustments.
Income Statement Interest, fees and commission, etc. Interest income and expenses are accounted on an accruals basis together with commission income and the proportion of fee income which is an integral part of the effective interest rate on loans and advances. Accruals are based on the effective interest rate method and the recognition as income is thus made at the determined effective interest rate applied to the current volume of lending. Fees earned over a period of time are accrued over the period, in so far as possible.
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Notes Transaction fees are recognised as income at the date of transaction. Interest income from loans and advances that are fully or partially written down is carried under the item “Impairment losses on loans, advances and other receivables, etc.” Other operating income Other operating income mainly consists of rental income concerning those owner-occupied properties of the bank that are also used for leasing purposes, and the profit on the operation of the bank’s investment properties. Staff costs and administrative expenses Staff costs cover salaries and wages and social costs and pensions, etc., for the bank’s staff. Costs of payments and benefits to employees, including anniversary bonuses, are recognised as and when the employees render the services vesting such payments and benefits. Other operating costs Other operating costs comprise guarantee commission concerning the State Guarantee Scheme. Impairment losses on loans, advances and other receivables, etc. Impairment losses on loans, advances and other receivables, etc., comprise losses and write-downs on loans and advances and unused credit facilities, losses and write-downs concerning Bank Package I, losses and provisions for losses on guarantees as well as losses and write-downs in respect of assets in temporary possession. Pension schemes The bank has entered into defined contribution pension plans with all current employees. The bank has no obligation to pay further contributions. Tax The tax for the year, consisting of the current tax for the year and the change in deferred tax for the year, is recognised in the income statement by the portion attributable to the profit for the year and directly in equity by the portion attributable to entries directly in equity. Current tax liabilities and current tax receivables, respectively, are recognised in the balance sheet as calculated tax of the year’s taxable income adjusted for tax paid on account. Deferred tax is recognised for temporary differences between the carrying amount and tax-based value of assets and liabilities. Deferred tax assets are recognised in the balance sheet at the expected realisable value of the asset. Deferred tax liabilities are provided for in the balance sheet under “Provisions”. Deferred tax is determined net.
Balance Sheet Receivables from and payables to credit institutions and central banks Receivables from credit institutions and central banks comprise receivables from other credit institutes and time deposits with central banks. Payables to credit institutions and central banks comprise payables to other credit institutions. Receivables are measured at fair value. Payables are measured at amortised cost.
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Notes Loans, advances and other receivables Loans, advances and other receivables are initially recognised at fair value. Fees, including front-end fees, etc., that are considered an integral part of the effective interest rate on the loan, are equated with a continuing interest payment and recognised over the life of the individual loan. Loans, advances and other receivables are subsequently measured at amortised cost less write-downs for losses. Impairment losses on loans, advances and other receivables are made in groups and individually. Write-downs for losses are made when an objective indication of impairment losses exists. For individual impairment losses, objective indication is deemed to apply if one or more of the following events have occurred: •
the borrower is experiencing considerable financial difficulties;
•
a breach of contract by the borrower, for instance in the form of non-compliance with an obligation to effect repayments or interest payments;
•
the bank relaxes the terms for the borrower, and such relaxation would not have been made if the borrower was not experiencing financial difficulties; and/or
•
it is probable that the borrower will be declared insolvent or be comprised by other financial reorganisation.
The impairment loss is effected at the difference between the carrying amount before the impairment loss and the present value of the expected payments. The expected future payments have been determined based on the most probable future payments, including the realisable value of any security granted. The bank applies the currently fixed, weighted interest rate as the discount rate. Loans, advances and other receivables that are not subject to individual impairment losses will form part of groups of impairment losses and assessed in such groups to determine whether objective indication of impairment exists at group level. The assessment in groups is made on the basis of homogenous groups of loans, advances and other receivables. Ten groups are used, distributed between one group of public authorities, one group of personal customers and eight groups of business customers, with a sub-division into sector groups. The assessment in groups is made using a segmentation model developed by the Association of Local Banks, which is also responsible for regular maintenance and development. The segmentation model lays down the relation in the individual groups between losses established and a number of significant, explanatory macroeconomic variables using linear regression analysis. Among the explanatory macro-economic variables are jobless numbers, housing prices, interest rates, number of bankruptcies/compulsory sales, etc. The macroeconomic segmentation model is basically calculated on the basis of loss data for the entire bank sector. The result of the calculation was subsequently assessed as to whether the model estimates should be adjusted to reflect the bank’s own lending portfolio. This assessment has resulted in an adjustment of the model estimates to reflect local conditions, following which the adjusted estimates form the basis for calculating the impairment by groups. For each group of loans, advances and other receivables, an estimate is arrived at, expressing as a percentage the impairment loss attributable to a given group of loans, advances and other receivables at the balance sheet date. The contribution of the individual loan to the group of impairment losses is arrived at by making a comparison with the individual loan’s original exposure to loss and its exposure to loss at the start of the current accounting period. The
Nørresundby Bank – Annual Report Report 2010
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Notes impairment loss is determined as the difference between the carrying amount and the discounted value of the expected future payments. Securities Listed bonds and shares are measured at fair value determined on the basis of the closing price at the balance sheet date. Unlisted securities are also measured at fair value, stated on the basis of the transaction price in an arm’s length transaction. The measurement basis is available trading data, published announcements of financial statements or, in the alternative, capital value calculations. Unlisted securities for which a reliable fair value cannot be determined are measured at cost less write-downs. Pool assets All pool assets and deposits are recognised in separate balance sheet items. Returns on pool assets and distribution to pool participants are carried under the item “Market value adjustments”. Investments in group entities As of 1 January 2010, the subsidiary is merged into the bank using the acquisition method under which all assets and liabilities in the subsidiary are carried at fair value, corresponding to the values recognised in the subsidiary‘s 2009 annual report. Investments in the bank’s subsidiary are measured at equity value in 2009. Consolidated accounts have not been prepared in 2009, as the subsidiary only conducted minor activities that are insignificant in relation to the bank. Intangible assets Intangible assets include software and goodwill and are measured at cost less accumulated depreciation, which is calculated on a straight-line basis over an estimated useful life of five years. Land and buildings Land and buildings comprise the two items “Investment property” and “Owner-occupied property”. Properties used for bank operations (the branches of the bank) are categorised as owner-occupied properties, and all other properties are considered investment properties. Investment property is measured at fair value determined on the basis of a return-based model which incorporates the external expert’s estimate of the price per square meter and the required rate of return. Ongoing value adjustments of investment properties are recognised in the income statement under “Market value adjustments”. Investment properties are not subject to depreciation. Owner-occupied property is measured at revalued amounts, which is the fair value determined on the basis of a return-based model which incorporates the external expert’s estimate of the price per square meter and the required rate of return, less accumulated depreciation. The depreciation is made on a straight-line basis subject to an estimated useful life of 50 years with due consideration of the expected scrap value of the buildings. Depreciation and impairment losses are recognised in the income statement under “Depreciation, amortisation and impairment of intangible and tangible assets”, whereas increases in the revalued amounts are recognised directly in equity under “Revaluation reserves”, unless the increase corresponds to a decrease in value previously recognised in the income statement.
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Notes Other tangible assets Other tangible assets, comprising equipment and improvements of leased premises, are measured at cost less accumulated depreciation and impairment losses. Straight-line depreciation is applied, based on the expected useful lives of the assets; for IT equipment this amounts to a maximum of three years and for other tangible assets a maximum of five years. Assets in temporary possession Assets in temporary possession comprise assets taken over as a result of settlement of customer commitments with the intention of divesting the assets as quickly as possible. Assets taken over are recognised at fair value on acquisition and subsequently measured at the expected realisable value. Other assets Other assets include items such as interest payments and commission receivable and the positive market value of derivative financial instruments. Prepayments and deferred income Prepayments recognised under assets include expenses paid concerning subsequent financial years. Deferred income recognised under liabilities includes income concerning subsequent financial years. Prepayments and deferred income are measured at cost. Financial liabilities, including deposits and payables to credit institutions, etc., as well as subordinated debt Financial liabilities are measured at amortised cost, which usually corresponds to the nominal value. Issued bonds at amortised cost Issued bonds comprise employee bonds issued in 2008 and 2009, measured at amortised cost. Provisions Liabilities whose size or settlement time is uncertain are carried as provisions when the liability is likely to result in an outflow from the bank of resources embodying economic benefits, and the liability can be measured reliably. The liability is stated at the present value of the expenses required for discharging the liability. Unfunded pension commitments for former members of management are provided for in the balance sheet under “Provisions for pension benefits and similar obligations”. The obligation is stated as the capitalised value of the expected future pension payments. This item also includes liabilities relating to anniversary bonuses, which are provided for on the basis of previous experience. Provisions for losses on guarantees and unused credit facilities are recognised under provisions in the balance sheet. Revaluation reserve The revaluation reserve comprises revaluation of the bank’s owner-occupied properties after recognition of deferred tax. The reserve will be cancelled when the properties are subject to impairment losses or sold. Dividends Dividends are recognised as a debt at the time of adoption at the general meeting. The dividends proposed for the period are stated as a separate item under equity.
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Notes Treasury shares Acquisition costs and consideration for purchases and sales of treasury shares as well as dividends from own shares are recognised directly in equity. In accordance with the Executive Order on the Presentation of Financial Statements, the treasury share portfolio is carried at DKK 0 under equity. Guarantees The bank’s guarantees granted are disclosed in the note “Contingent liabilities”. The guarantees are reviewed and assessed on a continuous basis to identify whether there is an objective indication of impairment. Provisions for losses on guarantees are recognised under provisions in the balance sheet. Derivatives and hedge accounting Forward contracts, currency and interest rate swaps and other derivatives are measured at fair value on the balance sheet date. Positive market values are included in other assets, and negative market values are included in other liabilities. The currency risk is largely limited by hedging currency loans through forward exchange transactions, and the interest risk is largely limited through interest-rate swap hedging. Interest rate swaps qualifying as hedge accounting of fixed-rate loans are recognised as hedge transactions, as the value adjustment is made on the fixed-rate loan and other assets/other liabilities. The value adjustments determined for the hedged items are recognised in the income statement under the items “Market value adjustments – other loans, advances and receivables” and “Market value adjustments – interest rate contracts”. All value adjustments relating to derivatives are carried under “Market value adjustments” in the income statement. Cash flow statement The cash flow statement is presented using the indirect method, showing cash flows from operations, investments and financing and the bank’s liquid assets at year-start and year-end. Cash and cash equivalents comprise cash on hand and demand deposits with central banks and credit institutions and the portfolio of secure, readily negotiable and non-pledged securities, cf. Section 152 of the Danish Financial Business Act.
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Notes 2. Financial Ratio Definitions Market risk Earnings Core income over costs, net of impairment losses on loans and advances: (Staff costs and adm. expenses + Depreciation, amortisation and impairment of intangible and tangible assets + Other operating costs)
Currency position (pct.): Currency indicator 1 as a percentage of core capital after deductions Currency risk (pct.):
Income/cost ratio: interest
Interest rate risk as a percentage of core capital after deductions
(Net interest and fee income + Other operating income) /
(Net
Interest rate risk (pct.):
Currency indicator 2 as a percentage of core capital and
fee
income
+
Market
value
after deductions
adjustments + Other operating income + Profit/loss on investments in group entities)/(Staff costs and adm. expenses + Depreciation, amortisation and impairment of intangible and tangible assets + Other operating costs + Impairment losses on loans, advances and other receivables etc.) Return on shareholders’ equity before tax: Profit before tax as a percentage of average shareholders’ equity (simple average of year-start and year-end) Return on shareholders’ equity after tax; Profit after tax as a percentage of average shareholders’ equity (simple average of year-start and year-end)
Liquidity Loans and advances plus impairment hereof as a percentage of deposits, incl. pooled schemes: Loans and advances + impairment as a percentage of deposits, incl. pooled schemes: Excess cover as a percentage of statutory liquidity requirements: Cash on hand + Demand deposits with Danmarks Nationalbank + Fully secure and liquid demand deposits with credit institutions and insurance companies + Nonpledged certificates of deposit issued by Danmarks Nationalbank + Secure readily negotiable (listed) nonpledged securities as a percentage of 10 percent of
Return on shares
Reduced debts and guarantee obligations
Profit for the year per share: Net profit or loss for the year/average number of shares
Credit risk
(simple average of year-start and year-end)
Impairment ratio for the year (pct.):
Equity value per share: Shareholders’ equity/no. of shares net of own shares Dividend per share: Proposed dividend/no. of shares Share price at year-end: Closing price at year-end Share price/profit for the year per share (P/E): Share price/profit for the year per share Share price/equity value per share: Share price/equity value per share
Impairment losses during the year as a percentage of loans and advances + guarantees + impairment losses Cumulative impairment ratio: Cumulative impairment losses during the year as a percentage of loans and advances + guarantees + impairment losses Share of receivables at reduced interest: Receivables at reduced interest (before impairment losses) as a percentage of loans and advances + guarantees + impairment losses Total large exposures:
Solvency
Total large exposures as a percentage of capital base
Capital adequacy ratio:
excluding commitments with credit institutions of less
Capital base as a percentage of risk-weighted assets Core capital ratio: Core capital as a percentage of risk-weighted assets
than DKK 1 billion Growth in loans and advances for the year: Growth in loans and advances from year-start to yearend (pct.) Loans and advances/shareholders’ equity (leverage): Loans and advances/shareholders’ equity
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43
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
5.721 328.484 58.763 555
12.954 406.936 65.716 11.837
4.070 -3.515 612 394.135
14.314 -2.477 827 498.270
Interest expense: Credit institutions and central banks.............................................................................. Deposits and other payables......................................................................................... Issued bonds ............................................................................................................... Subordinated debt......................................................................................................... Other interest expense.................................................................................................. Total interest expense...................................................................................................
17.104 68.260 284 2.389 162 88.199
40.744 132.175 185 4.128 250 177.482
Fee and commission income: Securities trading and deposits..................................................................................... Payment services.......................................................................................................... Loan application fees..................................................................................................... Guarantee commissions................................................................................................ Other fees and commissions......................................................................................... Total fee and commission income ................................................................................
47.624 25.738 19.360 23.746 6.426 122.894
39.464 19.429 13.632 22.692 7.672 102.889
1.759 -4.349 25.175 -1.548 104.566 -100.318
307 23.202 19.109 550 928 5.143
-99.734 -584
3.403 1.740
80.107 -80.207 25.185
116.430 -116.669 49.000
Note 3
Financial Highlights for Five Years Please refer to pages 4 and 5 of the Annual Report.
Notes to the Income Statement 4
5
6
7
Interest income: Receivables from credit institutions and central banks.................................................. Loans, advances and other receivables........................................................................ Bonds............................................................................................................................ Total derivatives........................................................................................................…… distributed between: Foreign exchange contracts...................................................................................... Interest rate contracts................................................................................................ Other interest income ................................................................................................... Total interest income.....................................................................................................
Market value adjustments: Other loans, advances and receivables (Hedge).......................................................... Bonds............................................................................................................................ Shares etc. ................................................................................................................... Investment properties at fair value ............................................................................... Currency........................................................................................................................ Total derivatives........................................................................................................…… distributed between: Foreign exchange contracts...................................................................................... Interest rate contracts................................................................................................
Assets related to pooled schemes ................................................................................ Deposits in pooled schemes.......................................................................................... Total market value adjustments..................................................................................... Market value adjustments of currency and foreign exchange contracts should be considered whole as the bank hedges currency positions on an ongoing basis to minimise any currency risk.
Nørresundby Bank - Annual Report 2010
44
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
6.144 1.056 550 7.750
5.727 970 561 7.258
Staff costs: Wages and salaries....................................................................................................... Pensions........................................................................................................................ Social security costs...................................................................................................... Total...............................................................................................................................
120.554 14.091 13.581 148.226
118.792 13.674 12.981 145.447
Other administrative expenses: Other administrative expenses......................................................................................
95.349
90.127
Total staff costs and administrative expenses...............................................................
251.325
242.832
Board of Directors and Board of Management: Loans, pledges, securities or guarantees established for members of the Board of Management................................................................................................... Board of Directors..........................................................................................................
0 10.210
640 11.374
Value of security provided for members of the Board of Management................................................................................................... Board of Directors..........................................................................................................
0 591
186 625
Auditors’ remuneration: Total remuneration to the auditing company elected by the General Meeting which carries out the statutory auditing......................................................................... Amount attributable to non-auditing services................................................................
677 142
679 114
Number of employees: Average number of employees in the period translated into full-time jobs...........................................................................................
279
284
Note
Notes to the Income Statement 8
Staff costs and administrative expenses: Salaries and remuneration for Board of Directors, Board of Management and Board of Representatives: Board of Management................................................................................................... Board of Directors.......................................................................................................... Board of Representatives.............................................................................................. Total............................................................................................................................... In addition, company cars are made available to the Board of Management. The Board of Management is not paid on the basis of incentives. The Board of Management’s terms of employment, including severance terms, are assessed as complying with general practice in this area and are evaluated on an ongoing basis.The Board of Management’s retirement benefit plans are not deemed to be significant information for assessing the bank’s liabilities and obligations. Members of the Board of Directors are paid a fixed fee and do not participate in option programmes. The Board of Directors has no retirement benefit plans.
The commitments have been entered into at arm’s length at interest rates of 3.5% -10.5%. For members of the Board of Directors elected by the employees, the commitments have been entered into subject to the bank's general terms for employees.
Nørresundby Bank - Annual Report 2010
45
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
Depreciation, amortisation and impairment of intangible and tangible assets Amortisation of intangible assets .................................................................................. Depreciation of owner-occupied properties................................................................... Impairment and reversed impairment losses on owner-occupied properties .............. Depreciation of other tangible assets ........................................................................... Total depreciation, amortisation and impairment ..........................................................
578 243 2.451 5.891 9.163
1.310 235 10.846 5.811 18.202
10 Tax: Distribution of tax for the year: Tax on the profit for the year......................................................................................... Tax on changes in equity .............................................................................................. Total tax.........................................................................................................................
17.382 3.258 20.640
12.159 -42 12.117
Breakdown of tax charged to income statement: Current tax .................................................................................................................... Deferred tax .................................................................................................... Adjustment of tax concerning previous years................................................................ Tax on the profit for the year.........................................................................................
25.000 -7.621 3 17.382
1.655 10.504 0 12.159
Current tax rate.............................................................................................................. Non-taxable income and non-deductible expenses etc................................................. Adjustment of tax concerning previous years................................................................ Effective tax rate.......……..............................................................................................
25,0% -2,3% 0,0% 22,7%
25,0% 3,5% 0,0% 28,5%
Note
Notes to the Income Statement 9
The effective tax rate is tax on the profit for the year relative to the profit before tax.
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46
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
Receivables at notice with central banks....................................................................... Receivables from credit institutions……………………………....................................... Total receivables from credit institutions and central banks .........................................
0 156.810 156.810
719.848 219.269 939.117
Residual maturities: Demand......................................................................................................................... Up to and including three months.................................................................................. Over three months and up to and including one year.................................................... Over one year and up to and including five years......................................................... Over five years.............................................................................................................. Total receivables from credit institutions and central banks .........................................
64.453 34.360 8.700 33.638 15.659 156.810
101.482 774.589 9.457 36.567 17.022 939.117
952.427 462.619 1.997.558 1.273.585 1.423.306 6.109.495
1.101.094 652.940 1.707.935 1.223.562 1.250.323 5.935.854
2.099.851 53.592 2.153.443
1.848.720 10.644 1.859.364
69.305 175.550
40.285 137.507
Note
Notes to the Balance Sheet 11 Receivables from credit institutions and central banks:
12 Loans, advances and other receivables at amortised cost: Residual maturities:
Demand......................................................................................................................... Up to and including three months.................................................................................. Over three months and up to and including one year.................................................... Over one year and up to and including five years......................................................... Over five years.............................................................................................................. Total loans and advances.............................................................................................. 13 Bonds at fair value: Listed bonds at fair value............................................................................................... Unlisted bonds at fair value........................................................................................... Total bonds.................................................................................................................... 14 Shares etc.: Listed shares etc. at fair value ...................................................................................... Unlisted shares at fair value ......................................................................................... Unlisted shares etc. at cost less write-downs................................................................
1.714
19.013
Total assets etc. ...........................................................................................................
246.569
196.805
28.199 464.831 199.178 161.721 853.929
34.583 391.213 160.311 142.364 728.471
15 Assets related to pooled schemes: Index bonds................................................................................................................... Other bonds .................................................................................................................. Shares etc..................................................................................................................... Investment fund shares................................................................................................. Total assets related to pooled schemes........................................................................
Nørresundby Bank - Annual Report 2010
47
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
16 Intangible assets: Total opening cost......................................................................................................... Additions during the year............................................................................................... Disposals during the year.............................................................................................. Total closing cost...........................................................................................................
6.551 0 0 6.551
3.664 2.887 0 6.551
Opening amortisation and impairment losses............................................................... Amortisation and impairment for the year ..................................................................... Reversal of amortisation and impairment ..................................................................... Closing amortisation and impairment losses.................................................................
4.241 577 0 4.818
2.931 1.310 0 4.241
Total intangible assets...................................................................................................
1.733
2.310
17 Land and buildings Investment property: Opening fair value......................................................................................................... Additions during the year (by merger with subsidiary) .................................................. Disposals during the year.............................................................................................. Value adjustment at fair value for the year.................................................................... Closing fair value...........................................................................................................
55.049 7.100 0 -1.549 60.600
54.499 0 0 550 55.049
Owner-occupied property: Opening fair value......................................................................................................... Additions during the year............................................................................................... Disposals during the year.............................................................................................. Depreciation.................................................................................................................. Changes in value for the year, recognised directly in equity......................................... Changes in value for the year, recognised in the income statement............................. Closing fair value...........................................................................................................
148.470 0 2.963 243 -3.032 -1.807 140.425
139.950 18.600 0 235 1.001 -10.846 148.470
Total land and buildings.................................................................................................
201.025
203.519
18 Other tangible assets: Total opening cost......................................................................................................... Additions during the year............................................................................................... Disposals during the year.............................................................................................. Total closing cost...........................................................................................................
48.179 4.476 3.467 49.188
49.203 2.105 3.129 48.179
Opening depreciation and impairment losses............................................................... Depreciation for the year............................................................................................... Reversal of depreciation................................................................................................ Closing depreciation and impairment losses.................................................................
37.669 5.891 3.453 40.107
34.987 5.811 3.129 37.669
Total other tangible assets............................................................................................
9.081
10.510
Note
Notes to the Balance Sheet
External experts have participated in the measurement of investment property and owner-occupied property.
Nørresundby Bank - Annual Report 2010
48
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
19 Payables to credit institutions and central banks: Payables to credit institutions........................................................................................
1.552.265
1.622.930
Residual maturities: Demand......................................................................................................................... Up to and including three months.................................................................................. Over three months and up to and including one year.................................................... Over one year and up to and including five years......................................................... Over five years.............................................................................................................. Total payables to credit institutions and central banks .................................................
424.796 393.225 0 734.244 0 1.552.265
511.206 227.913 149.954 733.857 0 1.622.930
20 Deposits and other payables: Demand......................................................................................................................... Subject to notice............................................................................................................ Time deposits................................................................................................................ Special deposits............................................................................................................ Total deposits................................................................................................................
3.549.954 986.097 528.721 822.195 5.886.967
3.448.810 875.230 903.055 946.290 6.173.385
Residual maturities: Demand......................................................................................................................... Up to and including three months.................................................................................. Over three months and up to and including one year.................................................... Over one year and up to and including five years......................................................... Over five years.............................................................................................................. Total deposits................................................................................................................
3.549.954 673.821 486.476 639.442 537.274 5.886.967
3.448.810 1.147.933 780.267 149.297 647.078 6.173.385
Residual maturities: Demand......................................................................................................................... Up to and including three months.................................................................................. Over three months and up to and including one year.................................................... Over one year and up to and including five years......................................................... Over five years.............................................................................................................. Total bonds....................................................................................................................
0 0 0 6.142 0 6.142
0 0 0 3.228 2.914 6.142
22 Deferred tax provisions: The deferred tax liability relates to the following balance sheet items: Receivables from credit institutions .............................................................................. Loans, advances and other receivables........................................................................ Securities and financial instruments.............................................................................. Tangible assets............................................................................................................. Intangible assets............................................................................................................ Payables to credit institutions........................................................................................ Provisions...................................................................................................................... Total deferred tax provisions ........................................................................................
9.258 -3.668 826 2.878 228 75 -2.430 7.167
8.817 -3.607 5.009 3.069 331 151 -2.389 11.381
Note
Notes to the Balance Sheet
21 Issued bonds at amortised cost: The bonds were issued in 2008 and 2009
Nørresundby Bank - Annual Report 2010
49
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
100.000 100.000
100.000 100.000
Share capital: Number of shares of DKK 10 making up the share capital at the end of the period...... Share price at year-end.................................................................................................
4.600.000 182
4.600.000 183
Treasury shares: Start of period: Number of treasury shares (quantity)………………………............................................ Nominal value (DKK 1,000)........................................................................................... Treasury shares in percent of share capital………………………..................................
77.133 771 1,68
77.124 771 1,68
Purchase: Number of treasury shares (quantity)………………………............................................ Nominal value (DKK 1,000)........................................................................................... Treasury shares in percent of share capital……………………….................................. Total purchase price (DKK 1,000).................................................................................
139.677 1.397 3,04 24.268
159.257 1.593 3,46 24.640
Sale: Number of treasury shares (quantity)………………………............................................ Nominal value (DKK 1,000)........................................................................................... Treasury shares in percent of share capital……………………….................................. Total selling price (DKK 1,000)......................................................................................
103.570 1.036 2,25 17.936
159.248 1.592 3,46 24.231
Year-end: Number of treasury shares (quantity)………………………............................................ Nominal value (DKK 1,000)........................................................................................... Treasury shares in percent of share capital………………………..................................
113.240 1.132 2,46
77.133 771 1,68
Note
Notes to the Balance Sheet 23 Subordinated debt: Loans in DKK................................................................................................................. Total subordinated debt................................................................................................. A loan of DKK 50,000t was raised on 23 December 2005 and is due for repayment in full on 1 November 2014. Nørresundby Bank has an option to redeem the loan on or after 1 November 2011. The loan carries interest at three months’ CIBOR +1.03 percentage points until 1 November 2011. Subsequently, the loan carries interest at three months’ CIBOR +2.53 percentage points until 1 November 2014. A loan of DKK 50,000t was raised on 22 December 2006 and is due for repayment in full on 1 May 2015. Nørresundby Bank has an option to redeem the loan on or after 1 May 2012. The loan carries interest at three months’ CIBOR +1.10 percentage points until 1 May 2012. Subsequently, the loan carries interest at three months’ CIBOR +2.60 percentage points until 1 May 2015. Three months’ CIBOR amounts to 1.2450% at the last interest rate determination. The loans are included in the statement of the capital base.
24
Any purchase and sale of treasury shares has been effected as part of the bank’s usual share trading. Spar Nord Bank, Skelagervej 15, Aalborg, is the only shareholder registered on the list of major shareholders. The ownership share of Spar Nord Bank amounts to 50.2%. In consequence of restrictions on voting rights, Spar Nord Bank has 11 votes.
Nørresundby Bank - Annual Report 2010
50
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
Contingent liabilities: Financial guarantees..................................................................................................... Guarantees against losses on mortgage loans............................................................. Other contingent liabilities ............................................................................................ Total contingent liabilities .............................................................................................
1.087.727 127.642 245.846 1.461.215
1.516.200 137.863 202.193 1.856.256
As security for clearing etc., Nørresundby Bank has pledged bonds with Danmarks Nationalbank at a market value of................................
1.027.780
994.078
Note 25
Contingent Liabilities
Nørresundby Bank is a party to a few litigation cases that are regularly evaluated, and requisite provisions are made based on an assessment of the risk of losses. These litigations are not expected to materially affect the bank’s financial position.
26
Related Parties Related parties: Nørresundby Bank does not have any related parties exercising control over the company.
27
Risk Management As a financial institution, Nørresundby Bank is exposed to sundry types of risk: - Credit risk - Market risk - Liquidity risk - Operational risk Credit risk is the risk of a loss due to counterparties’ lack of ability or willingness to meet their payment commitments. Market risk is the risk of a loss due to changes to the bank’s assets and liabilities in consequence of changed market conditions. Liquidity risk is the risk of a loss due to the bank’s failure to meet its own payment commitments using normal liquidity reserves. Operational risk is the risk of a loss due to errors in internal processes, human errors, system defects or losses due to external events. The bank has an overall policy of only assuming such risks that comply with the business principles governing the operation of the bank and which the bank has the requisite resources to control in terms of competence. Please refer to the sections “Risk Factors", “Credit Risks”, “Market Risks”, "Liquidity Risks" and "Operational Risks" on pages 21 to 26 in the management’s review in the Annual Report for further details of risks, policies and risk management goals. The following notes to the Annual Report contain quantitative information in respect of the bank’s credit and market risks.
Nørresundby Bank - Annual Report 2010
51
Notes Note 28
2010
2009
percent
percent
Credit Risks and Impairment Losses Loans, advances and guarantees by sector and industry:
Public authorities........................................................................................................... Trade and industry: Agriculture, hunting, forestry and fisheries................................................................ Manufacturing and raw material extraction ............................................................... Energy utilities .............................................................................. Building and construction.......................................................................................... Trade................................................................................................... Transport, hotels and restaurants.............................................................................. Information and communications .............................................................................. Finance and insurance ............................................... Real property *) ........................................................... Other corporate lending............................................................................................. Total corporate lending..................................................................................................
0
0
6 3 1 4 9 3 1 5 23 6 61
6 3 1 3 9 3 1 4 19 8 57
Personal customers.......................................................................................................
39
43
Total...............................................................................................................................
100
100
*) With respect to real property, please note that the social housing sector amounts to 9% in 2010 and that loans, advances and guarantees in respect of real property in general amount to 14% in 2010.
2010
2009
Maximum credit exposure (mainly loans, advances, guarantees and loan commitments) by sector and industry: Public authorities........................................................................................................... Trade and industry: Agriculture, hunting, forestry and fisheries................................................................ Manufacturing and raw material extraction ............................................................... Energy utilities ............................................................ Building and construction.......................................................................................... Trade.................................................................................. Transport, hotels and restaurants.............................................................................. Information and communications .............................................................................. Finance and insurance ............................................... Real property .............................................................. Other corporate lending............................................................................................. Total corporate lending..................................................................................................
(DKK 1.000)
(DKK 1.000)
84.121
32.818
582.190 288.568 101.727 431.211 897.197 247.488 108.572 877.408 2.359.880 603.991 6.498.232
584.042 260.599 100.638 403.086 976.780 263.445 62.843 1.822.113 1.758.740 721.115 6.953.401
Personal customers.......................................................................................................
4.140.469
4.344.352
Total...............................................................................................................................
10.722.822
11.330.571
The business categories in the industry distributions have been changed in 2010 in accordance with Section 93 of the Danish Executive Order on the Presentation of Financial Statements, and comparative figures have been adjusted. The maximum credit exposure is calculated in accordance with the Danish Executive Order on Capital Adequacy in 2010, and comparative figures have been adjusted.
Nørresundby Bank - Annual Report 2010
52
Notes Note 28
2010
2009
(DKK 1.000)
(DKK 1.000)
6.788.244 425.220 178.211 452.220 7.843.895
6.966.753 587.437 44.091 468.941 8.067.222
61.971 10.773 72.744
52.718 10.374 63.092
1%
1%
Credit Risks and Impairment Losses Security: The most common types of security for commitments with personal customers are mortgage on real property, securities and vehicles. The most common types of security for commitments with business customers are mortgage on real property, securities, operating equipment, inventories and debtors as well as requests for guarantees. The credit quality for the part of loans and advances that are neither in arrears or impaired etc.: The bank continuously monitors the quality of loans and advances and related security and counters any warning signs based on analysis and stress testing and risk indicators as early as possible, including by following up on and managing overdrafts. The presentation below shows the bank’s loans, advances and guarantees distributed across four quality criteria, corresponding to the Danish FSA's categorisation model. Loans, advances and guarantees distributed by credit quality categories:
Credit quality category 2a, of normal quality ................................................................ Credit quality category 2b, of slightly impaired quality .................................................. Credit quality category 2c, with significant weaknesses ............................................... Credit quality category 1, with impairment losses/provisions ....................................... Total loans, advances and guarantees before impairment losses .............................. Loans, advances and guarantees of normal quality thus amount to 87% of the total portfolio in both 2009 and 2010. The above credit quality categories are also applied to the statement of the bank’s solvency requirement. Amount of arrears on loans and advances etc.: Arrears on loans and advances that are not impaired amounted to DKK 72.7 million at year-end compared to DKK 63.1 million in 2009. Breakdown of arrears duration:
0-90 days ...................................................................................................................... > 90 days ......................................................................................................................
Amount of arrears in relation to total loans, advances and guarantees before impairment losses .............................................................................................................. The securities are usually associated with the customers’ total commitments with the bank. It is therefore not possible to attribute the securities to specific loans and advances.
Nørresundby Bank - Annual Report 2010
53
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
229.785 77.282 16.920 7.265 43.647 253.765
162.623 113.662 7.592 0 38.908 229.785
19.244 4.952 2.622 21.574
7.878 12.028 662 19.244
249.029 82.234 19.542 7.265 43.647 275.339
170.501 125.690 8.254 0 38.908 249.029
26.082 0 873 23.360 1.849
6.541 19.541 0 0 26.082
Accumulated impairment losses and provisions at year-start....................................... Impairment losses and provisions during the year........................................................ Reversal of imp. losses recognised and provisions made in previous financial years.. Value adjustment of assets acquired ............................................................................ Items finally written off for which imp. losses/provisions were previously recog./made
275.111 82.234 20.415 7.265 67.007
177.042 145.231 8.254 0 38.908
Accumulated impairment losses and provisions at year-end........................................
277.188
275.111
61.819 28.289 2.151 6.655 7.265 88.567
136.975 9.516 2.689 5.108 0 138.694
Note 28
Credit Risks and Impairment Losses Impairment of loans and advances and provisions for losses on guarantees Individual impairment losses on loans and advances:
Accumulated impairment losses at year-start................................................................ Impairment losses during the year................................................................................ Reversal of impairment losses recognised in previous financial years......................... Value adjustment of assets acquired ............................................................................ Items finally written off for which indiv. imp. losses were previously recognised........... Accumulated impairment losses at year-end................................................................. Groups of impairment losses on loans and advances:
Accumulated impairment losses at year-start................................................................ Impairment losses during the year................................................................................ Reversal of impairment losses recognised in previous financial years......................... Accumulated impairment losses at year-end................................................................. Total individual and groups of impairment losses on loans and advances:
Accumulated impairment losses at year-start................................................................ Impairment losses during the year................................................................................ Reversal of impairment losses recognised in previous financial years......................... Value adjustment of assets acquired ............................................................................ Items finally written off for which indiv. imp. losses were previously recognised........... Accumulated impairment losses at year-end................................................................. Provisions for losses on guarantees: *)
Accumulated impairment losses at year-start................................................................ Provisions during the year............................................................................................. Reversal of provisions made in previous financial years............................................... Items finally written off for which provisions have previously been made .................... Accumulated provisions at year-end............................................................................. *) Please note that losses concerning Bank Package I are included in provisions for losses on guarantees.
Total impairment of loans and advances and provisions for losses on guarantees:
Impairment losses have not been recognised for receivables from credit institutions or other receivables.
Effect on operations of impairment losses:
Net changes to impairment losses, etc. ........................................................................ Items finally written off for which imp. losses have not previously been recognised **) Recoveries of claims previously written off.................................................................... Interest on loans and advances for which impairment losses have been recognised... Value adjustment of assets acquired ............................................................................ Impairment losses, etc., for the year in the income statement ..................................... **) Losses concerning Bank Package I amount to DKK 16,762 tkr. in 2010.
Nørresundby Bank - Annual Report 2010
54
Notes Note 28
2010
2009
(DKK 1.000)
(DKK 1.000)
412.413 238.771 173.642
364.348 228.326 139.022
Credit Risks and Impairment Losses Loans and advances where an objective indication of impairment has occurred, which is recognised in the balance sheet with a carrying amount greater than zero:
Value before impairment losses.................................................................................... Impairment losses ........................................................................................................ Value after impairment losses.......................................................................................
2010 (DKK 1.000) Reasons for individual impairment of loans, advances and guarantees: Credit exp.
Impairment
Significant financial difficulties ...................................................................................... Breach of contract ........................................................................................................ Unusual terms .............................................................................................................. Bankruptcy, suspension of payments, etc., (insolvency procedures) ...........................
336.987 12.922 3.967 98.344 452.220
160.652 6.304 3.257 85.401 255.614
Of which attributable to the value of security ................................................................
131.672 2009 (DKK 1.000) Credit exp.
Impairment
Significant financial difficulties ...................................................................................... Breach of contract ........................................................................................................ Unusual terms .............................................................................................................. Bankruptcy, suspension of payments, etc., (insolvency procedures) ...........................
260.130 19.207 47.826 141.778 468.941
109.036 10.348 46.824 89.659 255.867
Of which attributable to the value of security ................................................................
100.677
Nørresundby Bank - Annual Report 2010
55
Notes 2010
2009
2008
2007
2006
Accumulated impairment losses etc. at year-start..............................
275,1
177,0
101,7
127,5
165,7
Changes in impairment losses etc. (net)............................................
61,8
137,0
84,1
0,3
-23,5
Value adjustment of assets acquired .................................................
7,3
0,0
0,0
0,0
0,0
67,0
38,9
8,8
26,1
14,7
277,2
275,1
177,0
101,7
127,5
Changes in impairment losses etc. (net)............................................
61,8
137,0
84,1
0,3
-23,5
Value adjustment of assets acquired .................................................
7,3
0,0
0,0
0,0
0,0
28,3
9,5
6,0
1,7
3,3
2,1
2,7
2,8
2,9
2,9
6,7
5,1
6,1
4,9
6,5
88,6
138,7
81,2
-5,8
-29,6
Non-performing loans and advances..................................................
149,1
195,1
148,2
29,6
56,7
Provisions...........................................................................................
133,0
157,9
78,8
28,5
40,9
Note 28
Credit Risks and Impairment Losses Accumulated impairment losses on loans, advances and provisions for losses on guarantees (DKK m):
Items finally written off for which impairment losses were previously recognised, etc............................................................... Accumulated impairment losses etc. at year-end...............................
Effect on operations relating to impairment losses etc. (DKK m):
Items finally written off for which impairment losses have not previously been recognised, etc.*) …......................................... Recoveries of previously written-off claims...................................... Interest on loans and advances for which impairment losses have been recognised ....................................................................... Impairment losses etc. for the year (minus = income)........................
Non-performing loans and advances (DKK m):
*) Items finally written off for which impairment losses have not previously
been recognised, etc. consist of a loss of DKK 16.8 million concerning Bank Package I and a loss of DKK 11.5 million concerning own loans, advances and guarantees.
Nørresundby Bank - Annual Report 2010
56
Notes 2010
2009
(DKK 1.000)
(DKK 1.000)
Interest rate risk: Interest rate risk by foreign currency with highest interest rate risk: DKK.............................................................................................................. EUR.............................................................................................................. CHF.............................................................................................................. USD.............................................................................................................. JPY............................................................................................................... CZK.............................................................................................................. Other currencies........................................................................................... Total interest rate risk on debt instruments etc............................................
36.085 -92 -27 8 -3 0 0 35.971
39.816 -14 -106 -1 -3 -1 1 39.692
Interest rate risk as a percentage of core capital after deductions...............
3,2
3,6
Effect on the year’s profit before tax of an interest rate increase of 2%..................... Effect on the equity of an interest rate increase of 2%...............................................
-71.942 -53.957
-79.384 -59.538
Currency risk: Exchange rate indicator 1............................................................................ Exchange rate indicator 1 in percent of core capital after deductions..........
62.568 5,5
36.667 3,3
Exchange rate indicator 2............................................................................ Exchange rate indicator 2 in percent of core capital after deductions..........
307 0,0
729 0,1
Note 29
Market Risks, Including Sensitivity The bank’s policy is to maintain market risks at a low level. For each type of risk, the bank has set out specific risk limits for monitoring and management. In relation to the bank’s monitoring of market risks, sensitivity calculations are made, covering the risk types interest rate risk, currency risk and shareholding risk. The sensitivity calculations express the bank’s assessment of how reasonably possible changes in the listed risk variables may affect the bank’s profit and equity.
The interest rate risk is an expression of expected losses on interest rate positions in consequence of a change in the interest rate of 1 percentage point. The interest rate risk financial ratio is reported to the Danish Financial Supervisory Authority. Due to an unusually low interest rate level, the bank assesses that interest rates are likely to increase by 2%.
The currency risk is an expression of the risk of losses on the bank’s position in foreign currencies due to changes in exchange rates. Exchange rate indicator 1 is calculated as the largest sum of positions in currencies that represent a net receivable for the bank and the sum of positions that represent a net payable for the bank. The financial ratio is reported to the Danish Financial Services Authority. The risk is also calculated and reported by currency. Exchange rate indicator 2 is based on a statistical method using historical data calculated by the Danish authorities and is an expression of the total exposure to loss. If the bank does not make changes to its currency positions in the following 10 days, there is a 1% chance that the bank will suffer a loss greater than the indicator’s value. The financial ratio is reported to the Danish Financial Services Authority.
Nørresundby Bank - Annual Report 2010
57
Notes Note 29
2010
2009
(DKK 1.000)
(DKK 1.000)
Market Risks, Including Sensitivity Based on the bank’s positions in Euro and other currencies, the exchange rate sensitivity has been assessed in relation to a probable exchange rate risk. The exchange rate sensitivity in Euro is minimal and is estimated to be 2.25%.The exchange rate in other currencies is greater and is estimated to be 12%.
Currency positions in Euro........................................................................... Currency risk 2.25%.....................................................................................
62.568 1.408
36.667 825
Currency positions in other currencies ........................................................ Currency risk 12%.......................................................................................
13.375 1.605
30.082 3.610
Effect on the year’s profit before tax at the stated currency risk .................
-3.013
-4.435
Effect on the equity at the stated currency risk ...........................................
-2.260
-3.326
Shareholding risk: Listed shares etc. ........................................................................................ Unlisted shares and other investments........................................................ Total share portfolio ....................................................................................
69.305 177.264 246.569
40.285 156.520 196.805
6,1
3,7
Price decline, 30%, listed shares etc. ......................................................... Price decline, 15%, unlisted shares and other investments ........................ Effect on the year’s profit before tax at the stated shareholding risk ..........
-20.792 -26.590 -47.382
-12.086 -23.478 -35.564
Effect on the equity at the stated shareholding risk ....................................
-35.537
-26.673
Shareholding exposure as a percentage of core capital after deductions The bank’s shareholding exposure is stated as the bank's portfolio of listed shares as a percentage of the bank's core capital after deductions. Unlisted shares are not included in the statement of shareholding exposure, but affect the bank’s shareholding risk and are included in the statement below. The shareholding risk is an expression of the risk of losses on the bank’s share portfolio when share prices change. Based on the share portfolio, the bank assesses that the probable shareholding risk can be stated in relation to a price decline of 30% for listed shares and 15% for other shares.
Nørresundby Bank - Annual Report 2010
58
Notes Note 29
2010
2009
(DKK 1.000)
(DKK 1.000)
Market Risks, Including Sensitivity Hedge accounting: The bank applies the rules on hedge accounting to avoid the inconsistency of measuring fixed-rate loans at amortised cost while the hedging instruments (interest rate swaps) are measured at fair value. When the criteria for applying the rules on hedge accounting have been meet, the carrying amount of the hedged loans are adjusted in the income statement for changes in the fair value of the hedged risks.
The following fixed-rate assets are hedged against interest rate risks: Nominal value of loans and advances......................................................... Adjustment at fair value (hedge).................................................................. Carrying amount of loans and advances......................................................
102.253 4.613 106.866
103.566 2.854 106.420
Method of hedging: Interest rate swaps (synthetic principal)....................................................... Market value.................................................................................................
102.253 -4.613
103.566 -2.854
Nørresundby Bank - Annual Report 2010
59
Notes 2010
30
Derivatives Foreign exchange contracts, forwards/futures, purchase Foreign exchange contracts, forwards/futures, sale......... Foreign exchange contracts, swaps................................. Foreign exchange contracts, options acquired................. Foreign exchange contracts, options issued.................... Interest rate contracts, forwards/futures, purchase.......... Interest rate contracts, forwards/futures, sale.................. Interest rate contracts, swaps.......................................... Equity contracts, forwards/futures, purchase................... Equity contracts, forwards/futures, sale........................... Equity contracts, options acquired................................... Equity contracts, options issued....................................... Total net market value......................................................
Foreign exchange contracts, forwards/futures, purchase Foreign exchange contracts, forwards/futures, sale......... Foreign exchange contracts, swaps................................. Foreign exchange contracts, options acquired................. Foreign exchange contracts, options issued.................... Interest rate contracts, forwards/futures, purchase.......... Interest rate contracts, forwards/futures, sale.................. Interest rate contracts, swaps.......................................... Equity contracts, forwards/futures, purchase................... Equity contracts, forwards/futures, sale........................... contracts, options acquired................................... Equity contracts acquired Equity contracts, options issued....................................... Total gross market value..................................................
Foreign exchange contracts, forwards/futures, purchase Foreign exchange contracts, forwards/futures, sale......... Foreign exchange contracts, swaps................................. Foreign exchange contracts, options acquired................. Foreign exchange contracts, options issued.................... Interest rate contracts, forwards/futures, purchase.......... Interest rate contracts, forwards/futures, sale.................. Interest rate contracts, swaps.......................................... Equity contracts, forwards/futures, purchase................... Equity contracts, forwards/futures, sale........................... Equity contracts, options acquired................................... Equity contracts, options issued....................................... Total average gross market value.................................... *)
2009
(DKK 1.000)
Note
(DKK 1.000)
Nominal
Net
Nominal
Net
value
market value
value
market value
188.847 963.733 86.067 0 0 18 18 447.838 0 0 0 0
4.278 -29.907 9 0 0 94 -67 -5.550 0 0 0 0 -31.143
183.894 1.051.922 252.827 0 0 12 12 353.996 0 0 0 0
-455 -5.348 12 0 0 68 -42 -4.452 0 0 0 0 -10.217
Positive
Negative
Positive
Negative
market value
market value
market value
market value
7.166 2.834 6.942 0 0 166 69 12.329 0 0 0 0 29.506
2.888 32.741 6.933 0 0 72 136 17.879 0 0 0 0 60.649
3.434 4.762 11.415 0 0 76 19 7.651 0 0 0 0 27.357
3.889 10.110 11.403 0 0 8 61 12.103 0 0 0 0 37.574
Positive ave. *)
Negative ave. *)
Positive ave. *)
Negative ave. *)
market value
market value
market value
market value
8.636 5.168 9.641 43 0 120 45 13.691 1 0 0 0 37.345
3.305 23.049 10.340 0 43 40 95 21.397 0 0 0 0 58.269
4.843 9.642 10.797 264 0 117 10 7.551 0 0 0 0 33.224
5.044 9.699 10.819 0 265 7 91 13.445 5 0 0 0 39.375
The average market value of derivatives is calculated on the basis of monthly statements as the average value of the positive and negative market values, respectively.
Nørresundby Bank - Annual Report 2010
60
Notes 2010 (DKK 1.000)
Note 31
Unsettled Spot Transactions Unsettled spot transactions: Foreign exchange transactions, purchase....................... Foreign exchange transactions, sale................................ Interest rate transactions, purchase................................. Interest rate transactions, sale......................................... Equity transactions, purchase.......................................... Equity transactions, sale.................................................. Total unsettled spot transactions......................................
Nominal
Positive
Negative
Net
value
market value
market value
market value
20.299 111.456 11.160 11.948 19.077 19.030 192.970
23 323 13 30 132 122 643
30 1 2 8 81 76 198
-7 322 11 22 51 46 445
2009 (DKK 1.000)
Unsettled spot transactions: Foreign exchange transactions, purchase....................... Foreign exchange transactions, sale................................ Interest rate transactions, purchase................................. Interest rate transactions, sale......................................... Equity transactions, purchase.......................................... Equity transactions, sale.................................................. Total unsettled spot transactions......................................
Nørresundby Bank - Annual Report 2010
Nominal
Positive
Negative
Net
value
market value
market value
market value
108.715 208.633 362.111 47.396 27.542 27.622 782.019
210 2 217 120 143 112 804
24 215 606 11 80 104 1.040
186 -213 -389 109 63 8 -236
61
Notes Note 32
2010
2009
(1.000 kr. )
(1.000 kr. )
Fair value of derivatives Carrying
Carrying
amount
Fair value
amount
Fair value
Cash on hand and demand deposits with central banks ............ 59.529 Receivables from credit institutions and central banks *)………… 156.810 Loans, advances and other receivables at amortised cost *)...... 6.109.495 Bonds at fair value*)……………………………...………………… 2.153.443 Shares, etc. *).............................................................................. 246.569 Investments in group entities …………….……………………….. 0 Assets related to pooled schemes ............................................. 853.929 Derivatives.................................................................................. 30.149 Total financial assets .................................................................. 9.609.924
59.529 156.810 6.147.975 2.153.443 246.569 0 853.929 30.149 9.648.404
57.643 939.117 5.935.854 1.859.364 196.805 9.357 728.471 28.161 9.754.772
57.643 939.117 5.957.507 1.859.364 196.805 9.357 728.471 28.161 9.776.425
1.552.265 5.900.853 861.638 6.142 60.847 100.000 8.481.746
1.622.930 6.173.385 742.387 6.142 38.614 100.000 8.683.458
1.622.930 6.187.954 742.387 6.142 38.614 100.000 8.698.027
Financial assets:
Financial liabilities: Payables to credit institutions and central banks *)..................... 1.552.265 Deposits and other payables *)…………………...………………… 5.886.967 Deposits in pooled schemes ...................................................... 861.638 Issued bonds at amortised cost …………………….…………….. 6.142 Derivatives.................................................................................. 60.847 Subordinated debt *)................................................................... 100.000 Total financial liabilities ............................................................... 8.467.859
*) The carrying amount does not include interest calculated as at the balance sheet date. In the balance sheet, the calculated interest is recognised in the balance sheet items “Other assets" and “Other liabilities”.
Shares, etc., and derivatives are measured at fair value in the annual report, and recognised amounts thus correspond to the fair values. For loans and advances, etc., the impairment losses are assessed to correspond to changes in the credit quality. The fair value difference is assessed to be fees and commission received and, for fixed-rate loans, the interest-rate dependent value adjustment is calculated by comparing the current market rate of interest with the nominal interest rate of the loans and advances. For floating-rate financial liabilities in the form of deposits and payables to credit institutions measured at amortised cost, the carrying amount is assessed to correspond to the fair values.
Nørresundby Bank - Annual Report 2010
62
Board of Representatives Chairman
Peter Dengsø Kjærsgaard *)
Keld Ramlov
Helge Søgaard
Mads Hvolby
Car Dealer
Electrician
Tourism Director
Practising surveyor
Aalborg
Aalborg
Skørping
Jørn Munkholt Kristensen
Jørn Rosenmeier, jun.*)
Hans Chr. Sørensen
Master Carpenter
General Manager
Veterinarian
Hjallerup
Aalborg
Biersted
General Manager
Lars Krull
Torben Røgild
Karl Erik Thygesen *)
Aalborg
General Manager
Economist
General Manager
Aalborg
Nørresundby
Hals
Kathrine Sandeløv
Niels-Erik Østergaard
General Manager
Registered Public Accountant
Skørping
Brønderslev
Søren Gyldenhof Schilder
John Chr. Aasted
Nørresundby Deputy Chairman Poul Søe Jeppesen
Ole Lykkegaard Andersen Farm Owner Gjøl
Susanne Bruun Ladefoged Dentist
Hardy Jacobsen
Aalborg
General Manager Klarup
Jesper Nyborg Radio and TV Dealer
Kim Jacobsen *)
Vodskov
State-Authorised Estate Agent Aalborg
Henning Pedersen General Manager Nørresundby
Poul Jensen Master Butcher Gjøl
Anette Pilgaard *) Shop Owner Nørresundby
Nørresundby Bank – Annual Report 2010
CFO
General Manager
Aalborg
Aalborg
Kresten Skjødt
*) Up for election
General Manager Aalborg Peter Sloth Wholesale Merchant Nibe
63
Internal Departments Torvet 4 – DK-9400 Nørresundby - Tel. +45 98 70 33 33
Credit Office
Finances
Manager:
Manager:
Leif Dahl Jensen
Alma Lund Høj
Securities
HR
Manager:
Manager:
Lars Eriksen
Marian Andreasen
IT and Marketing Manager: Palle Skyum IT Manager: Henrik Eske Jensen
e-Banking Manager: Kristian Simonsen Secretariat Manager: Hanne Fynbo Internal Audit Department Manager: Ove Steen Nielsen
Nørresundby Bank – Annual Report 2010
64
The Bank’s Branches Bredegade branch
Løvvang branch
Vestbjerg branch
Bredegade 3
Løvvang Centret
Bakkelyvej 2A
DK-9000 Aalborg
DK-9400 Nørresundby
DK-9380 Vestbjerg
Manager: Søren Gade Svendsen
Manager: Bent Gregersen
Manager: Paw Winther
Tel. +45 98 70 46 00
Tel. +45 98 70 58 00
Tel. +45 98 70 49 00
[email protected]
[email protected]
[email protected]
Brønderslev branch
Nibe branch
Vesterbro branch
Algade 39-41
Grønnegade 42
Vesterbro 79
DK-9700 Brønderslev
DK-9240 Nibe
DK-9000 Aalborg
Manager: Thomas Jørgensen
Manager: Tom Solvang
Manager: Jacob Jensen
Tel. +45 98 70 45 00
Tel. +45 98 70 61 00
Tel. +45 98 70 59 00
[email protected]
[email protected]
[email protected]
Grønlands Torv branch
Nr. Uttrup branch
Vestre Allé branch
Grønlands Torv
Nr. Uttrup Torv
Vestre Allé 29
DK-9210 Aalborg SØ
DK-9400 Nørresundby
DK-9000 Aalborg
Manager: Per Christensen
Manager: Henrik Korsgaard
Manager: Michael Thoft
Tel. +45 98 70 42 00
Tel. +45 98 70 53 00
Tel. +45 98 70 43 00
[email protected]
[email protected]
[email protected]
Hjallerup branch
Nørresundby branch
Vodskov branch
Hjallerup Centret 5
Torvet 4
Vodskovvej 43
DK-9320 Hjallerup
DK-9400 Nørresundby
DK-9310 Vodskov
Manager: Christian Pedersen
Manager: Carl Pedersen
Manager: Gert Zinndorff
Tel. +45 98 70 51 00
Tel. +45 98 70 50 00
Tel. +45 98 70 55 00
[email protected]
[email protected]
[email protected]
Kastetvej branch
Vadum branch
Aabybro branch
Kastetvej 87
Ellehammersvej 51
Østergade 12
DK-9000 Aalborg
DK-9430 Vadum
DK-9440 Aabybro
Manager: Bo Bojer
Manager: Jørgen Maibom
Manager: Bruno Jensen
Tel. +45 98 70 41 00
Tel. +45 98 70 56 00
Tel. +45 98 70 54 00
[email protected]
[email protected]
[email protected]
Lindholm branch Viaduktvej 16
Vejgaard branch
DK-9400 Nørresundby
DK-9000 Aalborg
Manager: Allan Nielsen
Manager: Ove Andersen
Tel. +45 98 70 52 00
Tel. +45 98 70 44 00
[email protected]
[email protected]
Nørresundby Bank – Annual Report 2010
Vejgaard Bymidte
65
NØRRESUNDBY BANK Torvet 4 · 9400 Nørresundby · Tlf: 98 70 33 33 · Fax: 98 70 30 19 ·
[email protected] · www.noerresundbybank.dk · SWIFT: NRSBDK 24 · CVR-nr.: 34 79 05 15
