Skjern Bank

Annual Report • Feb 7, 2024

Untitled 1 ANNUAL REPORT 2023 2 BEST YEAR IN THE HISTORY OF THE BANK CORE EARNINGS NET INTEREST AND FEE IN- COME IMPAIRMENT LENDING CAPITAL DIVIDENDS Core earnings increased by 44 % to DKK 335.9 mil- lion, compared with DKK 233.6 million in 2022 Net interest and fee income increased by 28.0 % to DKK 593.5 million Impairment of DKK 27.6 million including in- crease in the management estimate of DKK 30 million to DKK 100 million Lending increased by 23.1 % and amounts to DKK 6,726 million and deposits increased by 5.7 % and amount to DKK 8,284 Capital ratio of 22.8 % and individual solvency re- quirements of 10.1 % Proposal of DKK 5 per share, corresponding to DKK 48 million or 18.7 % of prot after tax for the year EXPECTATIONS FOR 2023 Prot before tax for 2024 is expected to be in the range of DKK 270 – 300 million PROFIT BEFORE TAX Prot before tax increased by 80 % to of DKK 344.1 million compared with DKK 191.1 million in 2022 RETURN IN EQUITY Equity yielded interest of 24.0 % before tax VALUE ADJUSTMENTS Exchange rate adjustments of DKK 47.2 million compared with DKK -30.8 million in 2022 KR KR 3 Content Management’s nancial report for 2023 .................................................. 4 Endorsement of the Annual Report by the Management ..................................... 19 Prot and loss account ............................................................... 20 Statement of comprehensive income .................................................... 20 Proposal for distribution of prot ........................................................ 20 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Information on changes in equity ....................................................... 23 Notes ............................................................................. 25 5 years in summary .................................................................. 62 5 years nancial ratios ................................................................ 63 Financial Calendar 2024 ............................................................... 64 Committee of representatives .......................................................... 65 List of board members’ managerial ofces ................................................ 66 4 Management’s nancial report for 2023 A profit before tax of DKK 344.1 million, which indicates progress in all important areas, is completely satis- factory. The profit has been positively affected by growth in net interest and fee income, which increased by DKK 129.8 million or 28.0 %, as well as positive exchange rate adjustments of DKK 47.2 million, compared with negative exchange rate adjustments of DKK 30.8 million in 2022. Equity yielded a very satisfactory interest of 24.0 % before tax and 17.9 % after tax. The positive development in profit over the year, with increasing interest and fee income as well as positive exchange rate adjustments, has resulted in 3 upward adjustments and was specified at the upper end of the ranges at the end of 2023. Profit before tax was specified in the range of DKK 320 – 340 million and the rea- lised profit marginally exceeds the expectations by DKK 4.1 million. The expectation for core earnings was specified in the range of DKK 330 - 340 million and was realised at DKK 335.9 million. The solid development is expected to continue in 2024, as there is expected to be a profit before tax in the range of DKK 270 – 300 million and a core earnings in the range of DKK 310 - 330 million. In light of the achieved profit, expectations for future earnings and the capital coverage, it is recommended to the Annual General Meeting that dividends of 18.7 % of the profit after tax for the year, corresponding to DKK 3 per share or a total of DKK 48.2 million, be distributed. The distribution is considered justified in light of the highly strengthened earning capacity, which will increase the capital base significantly, despite a solid and capital-consuming growth in lending. The Bank’s development is very satisfactory in all areas and the main economic performance goals in the Bank’s strategic plan up to 2025 have been realised at a satisfactory level. The most important factors in the strategy are high employee satisfaction, high customer satisfaction and earnings at the top of the sector. All 3 factors are absolutely key to maintaining the Bank’s status as a solid and independent local bank that makes a difference for all the Bank’s stakeholders. Customer satisfaction is measured in an independent study conducted by Finanssektorens Uddannelsescen- ter. In the survey, 87 % respond that they are very satisfied with being a customer of Skjern Bank and nearly 9 out of 10 would recommend the Bank to others. We are both proud and humbled by this. Customer satis- faction is thus extremely satisfactory and at the very top of the sector. Employee satisfaction is measured through an anonymous and independent employee satisfaction survey every year. The satisfaction has been extremely high for many years, and the measurement in 2023 was no 5 exception. The satisfaction and pride in being an employee of the Bank was the highest so far with 97.7 %, which is very satisfactory. The Bank’s earnings in the form of return on equity and earnings per cost ratio are 24.0 % and 2.15 respecti- vely, and are also expected to be at the very top once the financial institutions’ annual reports for 2023 have been published. In the Bank’s strategic plan up to 2025, the primary focus areas remain unchanged: maintaining the high employee satisfaction, high customer satisfaction and earnings at the top of the sector. In addition, a num- ber of objectives have also been set in the ESG area, amongst other things. The Bank’s credit provision increased in 2023. Lending increased by DKK 1,262 million or 23.1 %. This is a growth that exceeds the Danish Financial Supervisory Authority’s “Supervisory Diamond”, but the growth has been realised at the same time as the overall credit quality of the portfolio having improved. 70 % of the lending growth, corresponding to DKK 883.0 million, has been realised within the private segment, of which 75 % was established with mortgages on private properties within 80 % loan-to-value. The remaining share of lending growth was realised in other industries, while the exposure to the real estate segment was redu- ced by DKK 115 million or 1.5 percentage points in the industry distribution. The lending growth has been re- alised with good credit quality and the distribution of the growth, primarily with growth in the private seg- ment, provides further risk diversification. The provision of mortgage loans from Totalkredit and DLR Kredit are respectively DKK 13.9 billion and DKK 4.9 billion in total. The customers’ participation in pool schemes is at an unchanged level of DKK 1.6 billion and deposits have grown by DKK 444 million or 5.7 %. Since the second half of 2021, the Bank has established branches in Hørsholm, Ølgod and the Carlsberg City District. The development in all three branches is very acceptable and the customer growth, as in the Bank’s other branches, has been very high. The Bank has since had a total of 10 branches: 6 in South/West Jutland and 4 in the Copenhagen Metropolitan Area. There are no plans to open branches in 2024. The Bank’s solid development in growth in earnings and business volume, combined with a generally positi- ve outlook on bank shares, has contributed to a satisfactory development of the price of the Bank’s shares in 2023. At the beginning of the year, the rate was 122.0 and at the end of the year, this increased to 143.5, meaning an increase of 21.5 percentage points, corresponding to 17.6 %. The increasing interest levels in Danmarks Nationalbank have led to a higher average interest on the Bank’s total lending portfolio. Along with the lending growth, this has meant that the Bank’s interest income on lo- ans has been increased by DKK 147.4 million compared to 2022. In addition, interest rates in Danmarks Nati- onalbank have increased significantly throughout the year, and in 2023, interest income of DKK 69.5 was rea- lised from placement of surplus liquidity in Danmarks Nationalbank. 6 Interest expenses for deposits have increased to DKK 50.8 million, while interest on deposits in 2022 was an income of DKK 25.5 million. The other interest expenses are at the same level as in 2022. Net interest income increased by a satisfactory DKK 148.9 million to DKK 403.3 million, corresponding to an increase of 58.6 %. Fee income decreased by DKK 21.2 million or 10.1 %. The decrease was primarily due to a decline in the number of loan cases in connection with house trading and conversion of credit union loans. This lower acti- vity affects both the loan case fees and earnings on bond trades. Lending fees decreased by a total of DKK 14.8 million, whilst fees for securities trading and deposits were reduced by DKK 4.7 million. The Bank has increased the number of customers significantly in recent years and in light of this, it is expected that in the coming years we will succeed at increasing the non-interest-based income, in part through the increased ac- tivity in the housing, securities, pension and insurance areas. The share of fee income in the total net interest and fee income has decreased from 44 % in 2022 to 31 % in 2023, which is lower than the Bank’s goal for this, but is still considered satisfactory in light of the increa- se in net interest income of 58.6 %. Total net interest and fee income increased by DKK 129.8 million or 28.0 %. Staff and administration expenses etc. increased by DKK 21.5 million, corresponding to 9.2 %, from DKK 234.0 million compared with DKK 255.5 million. The increase follows the expectations and is due to a strate- gic decision to increase the activity level in all branches. Staff costs have increased by DKK 14.5 million as a result of a net of 15 new employees and general collecti- ve bargaining increases. Hirings have largely been in customer-oriented positions, where the Bank is well equipped to handle the strong influx of customers, but internal positions have also been reinforced to ensure management of the continued complicated and highly resource-intensive sets of rules in the sector. The Bank’s administrative expenses have increased by DKK 6.9 million, which is primarily due to higher other ad- ministrative expenses, partly through furnishing of new branches, marketing, etc. The IT expenses alone in- creased by 2 %, which is considered satisfactory. Impairment has increased by DKK 24.9 million to DKK 27.6 million, corresponding to 0.4 % of the Bank’s lo- ans and guarantees. The managerial estimate for countering the uncertainty around rising inflation and inte- rest rates, generally challenged financial prospects and uncertainty around the introduction of a carbon tax on agriculture increased by DKK 30.0 million during the year to DKK 100.0 million at the end of 2023. The Bank has only identified limited impairment and economic challenges with customers in 2023. A few customers, particularly in the construction sector, have found the continued operation has not been possible 7 due to the repayment of COVID-19 loans combined with difficult economic conditions with increasing raw material prices and decreasing demand. The Bank’s other industries are generally doing well and are econo- mically well-cushioned, but the full effect of rising interest rates etc. are not expected to have materialised, so slightly increased impairment will likely be realised. In 2023, no industries have accounted for a larger share of write-downs in isolation. The agricultural industry has generally made it through 2023 satisfactorily, though at a lower level than in 2022. Both the pig prices and milk prices have enabled positive operating profit in the industry in 2023, and the Bank’s expectations for 2024 are that the industry is looking at a year of good terms of trade and reasonable settlement prices. There is uncertainty in relation to the introduction of a carbon tax, but it is estimated that this risk can be contained in the increase in the management estimate of DKK 30.0 million. The Bank’s private customers have been doing well and are characterised by strong creditworthiness. Howe- ver, the proportion of private customers facing financial challenges in 2024 is expected to increase, which has been taken into account in the management estimate of DKK 100.0 million. The expectations for profit before tax for the year have increased over the course of the year and the profit before tax was realised at DKK 344.1 million, which is an improvement of DKK 152.9 million or 80.0 % com- pared to 2022. The expectation for core earnings has increased over the course of the year and the core earnings were rea- lised at DKK 335.9 million, which is an increase of DKK 102.3 million or 43.8 % compared to 2022. The profit for 2023 compared with 2022 is shown below. Both the achieved core earnings and the profit before tax are considered entirely satisfactory. The capital ratio is calculated at 22.8 % and the core capital ratio at 21.3 %. The capital coverage over the course of 2023 was reduced compared with the end of 2022, primarily as a result of high lending growth. A very satisfactory profit has been recognised for the year, and the capital plan shows a satisfactory develop- ment in the capital coverage in the coming years. The surplus coverage relative to the individual solvency re- quirements are at 12.7 percentage points compared with 13.3 points in 2022. With deduction of the capital conservation buffer of 2.5 percentage points, cyclical buffer of 2.5 percentage points and NEP supplement of 4.7 percentage points, the capital coverage at the end of 2023 amounted to 3.0 percentage points. The Bank has a goal of a surplus compared to the capital requirement of min. 4 percentage points, which thus has not been met, but which is accepted in light of the budgeted results in the coming year. The capital base increased by DKK 171.4 million to DKK 1,514.2 million. The increase is due to a profit after tax of DKK 257.9 million less interest on hybrid loans of DKK 5.3 million, the proposed dividends of DKK 48.2 million and also less sectoral shares of DKK 30.8 million due to purchase of shares in DLR Kredit on the ba- sis of increased distribution of credit union loans via DLR Kredit. 8 Despite a satisfactory increase in the capital base of DKK 171.4 million, the capital ratio was reduced by 0.3 percentage points compared to the end of 2022. This is due to the Bank’s lending having increased by DKK 1,261 million, while the Bank’s guarantees have been reduced by DKK 266 million. In addition, the risk-weighted exposures with operational risk increased by DKK 167.2 million as a result of a high increase in the Bank’s income over the last three financial years. Altogether, these conditions mean that the risk-weigh- ted items have increased by DKK 838.8 million, which is the reason the capital ratio has been reduced by 0.3 percentage points, despite the capital base having increased by DKK 171.4 million. The solvency require- ments have been calculated at 10.1 % and overall the Bank’s capital base is considered satisfactory. With regards to the bank’s capital position in general, refer to note 28. FUTURE CAPITAL RESERVES In the coming years, the following regulatory capital buffers will be phased in: • NEP supplement of 5.5 percentage points once fully phased in on 1 January 2024 (The NEP supplement was phased in at 4.7 % at the end of 2023, but increased to 5.5 % on 1 January 2024) • Systemic buffer of 7 % of exposures to real estate companies in percentage of risk-weighted items (The buffer was introduced on 30/6/2024 and the Bank’s preliminary calculations show an addition of 0.6 percentage points) Upon full phasing-in of all known capital requirements, with a solvency requirement of 10.1 % and a syste- mic buffer of 0.6 percentage points, the Bank’s capital requirement will amount to 21.2 % at the end of 2024. The Bank expects that the budgeted and expected results in the coming years will mean that the rest of the known capital requirements can be phased in via consolidation from operating earnings, but will continually weigh the need to possibly raise Tier III capital to partially cover the NEP requirement. EXPECTATIONS FOR 2023 The Bank has had a completely satisfactory 2023, where expectations for all areas have been met and ex- ceeded. In 2024, a core earnings close to the historically high level in 2023 is expected, but also a marginally increa- sing level of impairment. The growth in ordinary operations in 2023 means that very satisfactory profit is also expected in 2024. Profit before tax is expected to be in the range of DKK 270 – 300 million and core earnings are expected to be in the range of DKK 310 – 330 million. In 2024, profit after tax will be negatively affected by the increase in corporate tax from 25.2 % to 26 %, after which the tax rate will not increase further. 9 We are pleased to note that the private customers still have a satisfactory economy, despite an economic slowdown in society with rising interest rates and general inflation, amongst other things. In recent years, the Bank has experienced high growth in the number of and business volume with private customers. The Bank expects that growth in lending will be reduced in 2024, but that the total business volume will continue to increase, as the Bank still continues to be chosen by a large number of private customers. The Bank still has close ties to the agricultural industry, which represents a significant and valuable customer group. Easily the largest of the Bank’s customer groups in agriculture is milk producers, who have generally had re- asonable profitability in 2023, which is expected to continue in 2024. For pig producers, 2023 was characteri- sed by better terms of trade than was the case in 2022. The Bank expects that 2024 will bring satisfactory terms of trade and thus positive market conditions for pig producers. Lending and guarantees to agriculture account for 10.4 % of the total lending and guarantees, where the di- stribution is 5.4 % to cattle farming, 2.1 % to pig farming, 0.7 % to other forms of production and 0.2 % to mink production. The number of customers in the agricultural segment increased in 2023 and the influx of well-run and well-capitalised agricultural customers is expected to continue in 2024. The real estate segment amounted to 8.0 % and the exposure was reduced by DKK 115 million in 2023. The exposure in real estate is primarily within rental for residential purposes. The general rule for project finan- cing is that sales are documented before the start of the construction and there is adequate equity invest- ment. The other business segments are generally assessed to be in positive development, although the economic slowdown will leave a mark on many markets and business opportunities. The Bank’s liquidity continues to be solid, and there will be an unchanged focus on maintaining a satisfactory liquidity reserve, primarily via a balanced relationship between the total deposit and lending volumes. In the future, the Bank wants to base essentially all of its liquidity provision on customer deposits. The high lending growth in 2023 has naturally reduced the deposit coverage, and in 2024 it will be attempted to increase this more than the lending to secure the Bank’s continued growth opportunities. ACTIVITIES AND BUSINESS VOLUME In 2023, the Bank’s branches in Hørsholm and the Carlsberg City District were established in new locations and the Bank’s branches are now in full operation. The branch network is not planned to be expanded in the coming year. 10 Skjern Bank Leasing offers financial leasing of most types of assets to the Bank’s business customers. The administrative management of this is outsourced to a well-established player in the industry. The business volume in Skjern Bank Leasing is still increasing, and at the end of 2023 there is a volume of just over DKK 205 million, which is expected to increase in 2024. Overall, 2024 is expected to bring strong earnings, based on a moderate increase in overall business volu- me. STRONG DEVELOPMENT IN BUSINESS VOLUME The Bank’s business model and credit policy were essentially unchanged in 2023. The focus is, and will con- tinue to be, to be ready to participate in the customers’ goals for financing etc. when this can be done in a prudent and risk-acceptable manner. In total, lending volume increased by DKK 1,261.9 million, or 23.1 %, to DKK 6,726 million. Deposits from customers increased by DKK 443.8 million or 5.7 % to DKK 8,235 million. The total guarantees for custo- mers decreased by DKK 166.8 to DKK 1,857 million. As shown in figure 3, which shows the number of customers in each lending bracket, the Bank’s lending is distributed amongst many small and medium-sized customers. CAPITAL GOALS AND DIVIDEND POLICY The management will have the utmost focus on ensuring that the Bank has a solid capital base to support the continued development of the Bank’s activities and implementation of current and future regulatory capi- tal requirements. The capital base will continue to be primarily based on actual core capital, but raising foreign capital may also be included in the future capital structure. The Bank has a lower capital coverage at the end of 2023 than the management’s goal for this, though this is still accepted in light of the budgeted results in the coming years and the capital plan’s projection of the futu- re capital coverage. The lower capital coverage is expected as a result of a high lending growth, which has improved the Bank’s overall credit quality distribution in the portfolio and which, as a result of the many smal- ler loans to private customers, has a very high risk diversification. The future earnings will increase in 2023 on the basis of this development, which will improve the future capital coverage. It is the management’s as- sessment that in light of this, there is solid basis for rewarding the Bank’s many shareholders through an ap- propriate percentage of the realised profit in dividends. The Danish Financial Supervisory Authority’s recommendations and the management’s expectations for fu- ture growth and earnings have been taken into account in the assessing the sufficient capital coverage. 11 It is proposed to distribute DKK 5 per share, or DKK 48.2 million, which constitutes 18.7 % of the realised profit after tax in 2023. The dividend level must be assessed on the basis of the management’s position of primarily strengthening the Bank’s solvency through consolidation from operations. The distribution is DKK 19.3 million higher than for the financial year 2022. The Bank’s management has decided to maintain the following capital goals and dividend policy: CAPITAL GOALS It is the Bank’s goal to be well capitalised to ensure the Bank’s strategic goals and to accommodate re- gulatory requirements. The management will continuously assess the adequacy of the capital base, in- cluding the distribution between equity and foreign capital, to ensure the optimal distribution between returns to shareholders and sufficient increase of the bank’s actual core capital. DIVIDEND POLICIES With regard to its capital goal, the Bank wants to be stable in payments of dividends. The goal is for distribution to amount to 30-50 % of the annual profit after tax, either as share buy-backs or cash distributions, which exceeds a return on equity of 6 %. THE BANK’S IMPORTANT STAKEHOLDERS The Bank’s management considers the cooperation with and involvement of the Bank’s many stakeholders and the running of a well-functioning local Bank to be equally important. The focus has always been on creating value for the Bank’s stakeholders, which in 2023 is also considered to have been the most important factor in the solid business development. The Bank’s strategic objective is primarily a controlled organic growth based on long-term relations with all stakeholders. When the customers choose the way the Bank is run, it increases the profits to the benefit of the shareholders. The local community benefits from this in the form of the Bank’s local backing as well as product distribution to local businesses and private customers. The employees benefit from this in the form of job retention and an exciting job where they can develop. The customers clearly express that it is valuable to have a local bank that knows their needs and where they have an advisor who knows them and who back the local community’s activities. SHAREHOLDERS The management recognises the importance of a stable and loyal shareholder community and, taking into account the bank’s capital adequacy, aims to give them competitive returns on their investment. The share- holders’ loyalty and continued backing, from small shareholders to major professional investors, is extremely important to the continued development of the bank. 12 CUSTOMERS The bank is pleased to note that the private customer business is growing rapidly and that the bank is being chosen by new customers from most of the country, primarily on the recommendation of existing custo- mers. The corporate client business is also in solid development with a focus on small and medium-sized customers, primarily in the Bank’s local areas. The experience has been that the close personal knowledge between customer and adviser is crucial for choosing the Bank. This combined with solid advice, living up to the Bank’s key values and the electronic op- tions, such as online meetings and mobile banking, make daily life work smoothly and flexibly. Customer satisfaction with the Bank is paramount, and the external anonymous measurements of satisfacti- on with the Bank are conducted annually. It is very gratifying to note that customer satisfaction with the Bank is extremely high and further improved in 2023, and not least that nearly 9 out of 10 of the Bank’s cust- omers would recommend the Bank to others. The Bank is very grateful and humbled by the trust shown by the customers as they refer their business contacts, family and acquaintances to the Bank in large numbers. EMPLOYEES As of As of 31 December 2023, the Bank employs 210 employees, which is an increase of 15 over the year. All employees are offered employment terms that conform to the market as well as relevant training and continuing education in order to always ensure a high level of professionalism. Employee job satisfaction is very important for the Bank and there are annual measurements of the emplo- yee satisfaction in each department and the Bank as a whole. It is a strategic goal for the Bank to have employees who feel the Bank is a good workplace and who are proud to work at the Bank. There is a very high level of employee satisfaction, which is an important foundation for always being able to offer advice and service at the high level expected by the customers. LOCAL COMMUNITIES The Bank’s goal is to play an important role in the Bank’s local communities, both as a partner for the many business owners, and of course also for the local population in general. It is important for the bank to back local initiatives and the Bank helps a great number of businesses – entrepreneurs and existing customers - with counselling and financing, so that ideas and investment goals have the best chance of being realised. The Bank is also a partner for a very large percentage the local communities’ associations and organisations and supports both sports and culture and associations in general. The bank’s commitment to and support for local communities is largely based on reciprocity, such that financial backing of any size is given in anticipati- on of and is subject to the bank being rewarded with customer referrals and a generally positive attitude towards the bank. The foundation for banking operations in the Bank is the many shareholders, customers, talented employees 13 and the local community. The Bank is aware that all stakeholders play an important role both now and in the future and the Bank views it as an important community role to encourage the many stakeholders to work together for the benefit of both the stakeholders and the Bank. SUSTAINABLE DEVELOPMENT The financial sector has a key role in ensuring that society develops in a more sustainable direction. The Bank is aware of this responsibility and fully supports the points from the Forum for Sustainable Finance (Fo- rum for Bæredygtig Finans), which the Bank is actively working to comply with. In the Bank’s ESG report for 2023, the Bank’s status on compliance with the points is presented, and the goals for the future work are described. From the 2025 Annual Report, the Bank will be covered by the upcoming requirement for sustainability re- porting, cf. the EU reporting directive, CSRD, and has begun the preparations for this. In the Bank, the focus on sustainability can generally be divided into two main tracks: - The Bank’s influence on stakeholders, especially customers. - The Bank as a company. The influence on customers must take place via positive customer dialogue, which must also include a dia- logue on opportunities and threats related to sustainability to a greater extent. Private customers must be presented with relevant opportunities, such as: making their properties more energy efficient, getting attractive financing for electric cars and placing investments to influence sustainable development in line with the customer’s sustainability preferences. Business customers must be made aware of issues relating to the concept of sustainability (ESG), which concerns: Environmental conditions (E – Environment), Social conditions (S – Social) and Management condi- tions (G – Governance). For several years, the Bank has worked to reduce power consumption through energy-reducing measures and in 2023, the Bank installed solar panels at its main headquarters in Skjern. The Bank also compensates for the rest of the power consumption via purchase of certificates of origin for power from Danish wind tur- bines. The bank also supports climate measures in third world countries via its electric bill. The ESG report can be read in full on the Bank’s website. NET INTEREST INCOME Net interest income amounts to DKK 403.3 million, which is an increase of 58.6 % compared to last year, when net interest income was DKK 254.3 million. 14 Interest income on net customer loans has increased by DKK 146.7 to DKK 366.5 million, which is very satis- factory and due to increased lending and due to both increased lending and a higher interest rate level. The Bank’s proportion of lending where there was impairment, but where interest still continues to be accrued, increased and the interest amounts to DKK 7.9 million in 2023 compared with DKK 7.2 million in 2022. Inte- rest income on the Bank’s deposits in Danmarks Nationalbank were at DKK 61.8 million in 2023 and amount to DKK 69.6 million. Bond interest income increased by DKK 13.5 million, while there has been a decrease of DKK 7.5 million on financial instruments. Overall, interest income has thus increased by DKK 214.2 million compared to last year. In terms of accounting, negative interest rates on deposits are placed under interest income in a special line in the statement of profit or loss. The Bank has not had income on this in 2023, compared with DKK 25.5 million in 2022. The interest expenses have increased by DKK 48.1 million to DKK 58.8 million as a result of the increasing interest level on the Bank’s deposits. The Bank’s interest expenses for deposits in Danmarks Nationalbank decreased in 2023 by DKK 8.4 million to DKK 0 million. FEE INCOME Income from fees and commissions has decreased by 10.1 % to DKK 188.6 million. Borrowing fees have de- creased by DKK 14.8 million to a total of DKK 78.4 million and guarantee provisions have decreased by DKK 1.9 to DKK 27.9 million. The customer-driven activity in the loan case area was reduced in 2023 as a result of fewer house deals and significantly fewer conversions of mortgage financing than in previous years. The number of customers has increased satisfactorily in recent years, and it is expected that this will lead to increasing fee income in 2024. DIVIDENDS In 2023, dividends from shareholdings increased by DKK 1.1 million and amounted to DKK 5.6 million. NET INTEREST AND FEE INCOME Net interest and fee income including dividends increased by 28.0 % to DKK 593.5 million, which is very sa- tisfactory. EXCHANGE RATE ADJUSTMENTS The securities markets in 2023 have been characterised by slightly decreasing interest rates, with increasing bond prices as a result, and increasing share prices. A capital gain of DKK 22.8 million was realised in the shareholdings, compared with a loss of DKK 1.5 million 15 in 2022. The Bank wants a continued low share price exposure and the treasury portfolio of shares is thus still of a modest size. Exchange rate adjustments on bond portfolios have been positive by DKK 13.0 million in 2023. The Bank con- tinues to have a cautious investment policy for bonds, which promises a short maturity and low interest risk and the total bond holdings in 2023 were reduced by DKK 109.7 million to DKK 752.0 million. The total exchange rate adjustments amount to DKK 47.2 million and, in addition to the exchange rate adjust- ments on bonds and shares, consist of earnings on currency and financial instruments of a satisfactory DKK 11.3 million. EXPENSES Staff and administration expenses increased by 9.2 % and amount to DKK 255.5 million, compared with DKK 234.0 million in 2022. The increase is as expected in a year in which considerable investment has been made in the expansion of the branch network. Personnel expenses have increased by DKK 14.5 million, cor- responding to 10.3 %, due to an increasing number of employees, collective bargaining wage increases and an increase in payroll tax. Other administrative expenses increased in 2023 by DKK 6.9 million to DKK 99.4 million, which is primarily due to higher other administrative expenses as a result of furnishing of new branches, marketing and other expenses. IT expenses alone increased by DKK 0.8 million, which is very satisfactory. DEPRECIATION AND WRITE-DOWNS In 2023, there was depreciation and impairment on tangible fixed assets of DKK 15.3 million, compared with DKK 6.6 million in 2022. The increase is due to impairment on the Bank’s owner-occupied properties in Bram- ming and Hørsholm, both of which are undergoing renovation. IMPAIRMENT Impairment on loans and customer receivables etc. amounted to 0.4 % of the total loans and guarantees, corresponding to DKK 27.6 million, compared with DKK 2.7 million in 2022. As a result of uncertainty around an upcoming implementation of carbon tax in the agricultural segment, the management estimate was increased by DKK 30.0 to DKK 100.0. Reversal of impairment from previous accounting years amounted to DKK 110.1 million, while recorded los- ses amounted to DKK 16.3 million, of which DKK 9.1 million had not been previously written down. In total, the Bank has provisioned DKK 323.2 million to accommodate future losses, which corresponds to 3.6 % of the Bank’s total lending and guarantees. 16 CORE EARNINGS At the beginning of 2023, the Bank expected a core earnings in the range of DKK 225 – 275 million. The pro- fit expectations have been adjusted upwards 3 times during the year, the most recent specification on 21 December 2023 was in the range of DKK 330 – 340 million. The realised core earnings amount to DKK 335.9 million, compared with DKK 233.5 million in 2022, and are considered highly satisfactory. The increase is due to increased net interest income, while fee income was reduced as a result of fewer loan cases. PROFIT BEFORE TAX The expectations for profit before tax for the year in 2023 were in the range of DKK 210 – 250 million at the beginning of the year, and were adjusted upwards three times by the end of 2023. On 21 December 2023, the expectation was specified in the range of DKK 320 – 340 million. The Bank realised a marginally higher profit before tax of DKK 344.1 million compared to DKK 191.1 million in 2022. The profit is considered completely satisfactory. CAPITAL The capital base, which consists of equity and supplemental borrowing, amounted to DKK 1,514.2 million at the end of 2023 and the total risk exposure amounted to DKK 6,641.6 million. The capital ratio is calculated at 22.8 % and the core capital at 21.3 %. The solvency requirement amounted to 10.1 %, whereby there is a satisfactory coverage in relation to the solvency requirement of 12.7 percentage points, corresponding to DKK 841 million. At the end of 2023, in addition to the solvency requirements, the Bank will also add a capital conservation buffer of 2.5 percentage points, a cyclical buffer of 2.5 percentage points and a NEP supplement of 4.7 per- centage points. Including this capital requirement, the solvency coverage relative to the total capital require- ments amounts to 3 percentage points, corresponding to DKK 197 million. The solvency requirements, which are calculated according to the Danish Financial Supervisory Authority’s credit reservation method, are recognised at DKK 531.3 million, corresponding to 8.0 % for the Column 1 re- quirement (Søjle 1-kravet). DKK 40.1 has been allocated on the basis of the Bank’s lending growth, which has exceeded 10 %. In addition, DKK 73.1 million was provisioned for credit risk, including “NPE backstops”, where DKK 12.7 million was reserved, an interest risk of DKK 10.3 million and a credit spread risk of DKK 8.1 million, which in total amounts to DKK 18.4 million under the market risk and DKK 10.0 million for reservati- ons under the operational risk. Overall, the Bank thus has a capital requirement of DKK 672.9 million. The Bank’s goal for capital coverage relative to the calculated solvency requirements plus the current pha- sed-in capital requirements is a minimum of 4 percentage points. In the coming years, the capital require- ments will further increase by 0.8 percentage points in NEP requirements and a calculated 0.6 % for the sy- stemic buffer in the real estate segment. At the same time, the Bank has a goal of organic growth in busi- ness volume at a level of 1-3 % in the coming years, which increases the requirements for the capital base. 17 It is expected that the excess coverage will increase in the coming years based on budgeted results. The management assesses that the Bank has a solid capital base. The decrease in the capital coverage is as expected and is solely due to a solid growth in 2023. The Bank will also continue to have a constant focus on having an appropriate capital structure and capital coverage. For more information on capital and solvency requirements, please refer to the Bank’s website: www.skjern- bank.dk/banken/investor/solvensbehov LIQUIDITY The Bank’s goal is to maintain liquidity reserves at a continued solid level based on deposits from the bank’s customers. In 2023, the goal on deposit growth was met by increasing the total deposits to a total of DKK 8.284 million. The Bank’s lending has increased more than the deposits, which has reduced the liquidity coverage ratio, though this is still considered satisfactory and is expected to expand again in 2024 via depo- sit growth and modest lending growth in the range of 1-3%. The bank’s liquidity reserves are solid. The LCR (Liquidity Coverage Ratio) of DKK 2.012 million exceeds both the regulatory requirements and the stricter liquidity goals established by the Bank’s Board of Directors. The liquidity coverage ratio shows how the bank is able to meet its payment obligations for an upcoming 30-day period without access to market funding. The ratio is calculated by comparing the Bank’s cash reserves and liquid assets with the Bank’s payment obligations for the next 30 days calculated according to certain rules. The Bank has established an internal limit for the minimum liquidity reserves of 175 %, which exceeds the minimum requirements of 100 % from the Danish Financial Supervisory Authority. The Bank achieved the goal and as of 31 December 2023 has an LCR financial ratio of 331 %. The liquidity reserve ratio measured according to NSFR (Net Stable Funding Ratio) is 124 %, while the Bank’s internal limit for this is set to 120 %, and the minimum requirement from the Danish Financial Super- visory Authority is 100 %. The ratio expresses the stability of the Bank’s deposit surplus. MAJOR SHAREHOLDERS As of 31 December 2023, the Bank has four major shareholders, all of whom have 5% of the voting rights: Investeringsselskabet af 15. maj (AP Pension Livsforsikringsaktieselskab, Copenhagen Ø.), which as of the most recent ownership report held 20.75% of the share capital, EURO STEEL 1988 APS, which as of the most recent ownership report held 5.15% of the share capital, Kim Pedersen, who as of the most recent ownership report both personally and via their wholly-owned company Immoinvest.dk ApS held 5.0% of the share capital, and Heine Delbing, who personally and via their wholly-owned companies Olalde Holding ApS, Evostate Invest ApS and Storegade ApS held 5.0 % of the share capital as of the most recent ownership re- port. 18 LIQUIDATION RESERVE In connection with establishing the statutory liquidation reserve, the Bank has prepared business procedu- res and implemented tests to ensure compliance with the special requirements resulting from the legislati- on. This has been done in cooperation with the Bank’s data centre, and it is the management’s assessment that the Bank is in compliance with the requirements. SIGNIFICANT AGREEMENTS If control of the Bank is changed, a number of agreements will cease or terms will be changed. The withdra- wal of the data centre Bankdata, which may result in a severance payment equivalent to 2.5 times last year’s invoicing from Bankdata, will be significant. All other agreements are assessed to be immaterial. EVENTS AFTER 31 DECEMBER 2023 No events have occurred after 31 December 2023 that significantly affect the Bank’s circumstances. AUDIT The Danish version of the Annual Report for 2023 is equipped with internal audit statements and indepen- dent auditors’ statement. The statements are without reservations and complementary information. 19 Endorsement of the Annual Report by the Management We have today discussed and approved the annual report for the period 1 January – 31 December 2023 for Skjern Bank A/S. The annual report has been prepared in accordance with the Danish legislation on nancial activities, including executive order on nancial reports for credit institutes and stock broker companies, etc. Furthermore, the annual report has been prepared in accordance with accordance with the Danish Financial Business Act. The Financial Statements have been pre- pared in accordance with Danish legal requirements for listed nancial companies. It is also our opinion that the annual report has been prepared in accordance with the ESEF regulation in all material respe- cts. We consider the accounting practice chosen to be appropriate so that the annual report gives a correct impression of the bank’s assets, liabilities, nancial position as at the 31st December 2023 and of the result of the bank’s activities for the accounting year 1 January – 31 December 2023. The management report includes a correct presentation of the development of the bank’s activities and nancial conditions together with a description of the material risks and uncertainties by which the bank may be affected. The annual report is recommended for approval by the General Meeting. Skjern, the 7 February 2024 The management of Skjern Bank A/S Per Munck Thomas Baun CEO Bank director The board of Skjern Bank A/S Hans Ladekjær Jeppesen Bjørn Jepsen Chairman Vice-chairman Niels Erik Kjærgaard Finn Erik Kristiansen Ole Strandbygaard Lars Skov Hansen Carsten Jensen Michael Tang Nielsen 20 Prot and loss account Note DKK 1,000 2023 2022 2 Interest receivable 462.134 247.922 Interest receivable deposits 0 25.507 3 Interest payable 58.828 10.684 Interest payable central banks 0 8.421 Net income from interest 403.306 254.324 Dividend on shares and other holdings 5.603 4.485 4 Charges and commission receivable 188.614 209.801 Charges and commission payable 3.989 4.887 Net income from interest and charges 593.534 463.723 5 Value adjustments 47.178 -30.830 Other ordinary income 2.525 2.078 6 Staff costs and administrative expenses 255.532 234.038 Depreciation and write-downs on intangible and tangible assets 15.333 6.620 Other operating expenses 623 477 9 Write-downs 27.638 2.703 Result before tax 344.111 191.133 10 Tax 86.132 40.894 Net-result for the financial year 257.979 150.239 Of which are holders of shares of hybrid core capital instruments etc. 5.287 5.287 PROPOSAL FOR DISTRIBUTION OF PROFIT Dividends 48.200 28.920 Holders of hybrid core capital instruments 5.287 5.287 Transferred to/from retained earnings 204.492 116.032 Total distribution of the amount available 257.979 150.239 STATEMENT OF COMPREHENSIVE INCOME Profit for the financial year 257.979 150.239 Total comprehensive income 257.979 150.239 21 Note DKK 1,000 2023 2022 ASSETS Cash in hand and demand deposits with central banks 2.345.718 2.830.343 11 Receivables at credit institutions and central banks 60.630 54.939 12 Loans and other receivables at amortised cost 6.726.329 5.464.400 13 Bonds at fair value 752.038 861.733 14 Shares etc. 283.275 231.757 15 Shares associated with pool schemes 1.592.836 1.614.083 16 Holdings in associated enterprises and group enterprises 77.553 67.204 Investment properties 3.019 3.019 Owner-occupied properties 55.250 47.868 Owner-occupied properties, leasing 19.284 16.317 17 Other tangible assets 6.532 5.375 Current tax assets 7.486 6.175 Other assets 113.926 92.424 Prepayments 588 60 Total assets 11.966.911 11.228.493 Balance Sheet 22 Note DKK 1,000 2023 2022 LIABILITIES DEBT 18 Debt to credit institutions and central banks 2.385 2.974 19 Deposits and other debts 8.284.256 7.840.474 Deposits in pooled schemes 1.592.836 1.614.083 Other liabilities 382.890 292.451 Prepayments 297 850 Total debt 10.262.664 9.750.832 PROVISIONS 20 Provisions for deferred tax 5.430 3.749 12 Provisions for loss on guarantees 13.416 11.716 Total provisions 18.846 15.465 SUBORDINATED DEBT 21 Subordinated loan capital 99.335 98.835 Total subordinated debt 99.335 98.835 EQUITY 22 Share capital 192.800 192.800 Retained earnings 1.283.918 1.080.626 Proposed dividend 48.200 28.920 Capital owners share of equity 1.524.918 1.302.346 23 Holders of hybrid capital 61.148 61.015 Total equity 1.586.066 1.363.361 Total liabilities 11.966.911 11.228.493 23 Information on changes in equity Share capital Proposed dividends Hybrid capital Retained earnings Total Equity 01.01.2022 192.800 28.920 60.881 964.475 1.247.076 24 Purchase of own funds 90 90 Dividend own shares 30 30 Amortization hybrid capital -28.920 -28.920 Paid interest hybrid capital -131 -131 Dividends proposed 2021 -5.023 -5.023 Profit or loss 28.920 5.287 116.032 150.239 Equity 31.12.2022 192.800 28.920 61.014 1.080.627 1.363.361 24 Purchase of own funds -1.219 -1.219 Dividend own shares 18 18 Dividends paid 2022 -28.920 -28.920 Amortization hybrid capital -131 -131 Paid interest hybrid capital -5.022 -5.022 Prot or loss 48.200 5.287 204.492 257.979 Equity 31.12.2023 192.800 48.200 61.148 1.283.918 1.586.066 24 Notes 1 Accounting policies ............................................................... 25 2 Interest income .................................................................. 35 3 Interest expenses................................................................. 35 4 Fees and commission income ....................................................... 35 5 Value adjustments ................................................................ 35 6 Staff costs and administrative expenses ............................................... 36 7 Incentive and bonus schemes ....................................................... 37 8 Audit fee........................................................................ 37 9 Write-downs on loans and receivables ................................................ 37 10 Tax ............................................................................ 38 11 Receivables at credit institutions and central banks....................................... 38 12 Loans and other debtors at amortised cost price......................................... 39 13 Bonds at fair value ................................................................ 41 14 Shares etc. ...................................................................... 41 15 Shares associated with pool scheme.................................................. 41 16 Land and buildings ................................................................ 41 17 Other tangible assets .............................................................. 42 18 Debt to credit institutions and central banks ............................................ 42 19 Deposits and other debts ........................................................... 42 20 Deferred taxation ................................................................. 42 21 Subordinated debt ................................................................ 43 22 Share capital ..................................................................... 43 23 Holders of hybrid capital............................................................ 43 24 Own capital shares................................................................ 44 25 Contingent liabilities ............................................................... 44 26 Lawsuits etc. .................................................................... 45 27 Related parties ................................................................... 45 28 Capital requirement ............................................................... 46 29 Current value of nancial instruments ................................................. 47 30 Risks and risk management ......................................................... 48 31 Credit Risk ...................................................................... 49 32 Market risks and sensitivity information................................................ 59 33 Derivate nancial instruments ....................................................... 60 34 5 years in summary ............................................................... 62 35 5 years of nancial ratio ............................................................ 63 36 Coperative agreements ............................................................ 63 25 1. ACCOUNTING POLICIES The Financial Statements have been prepared in accordance with the Danish Financial Business Act and the Executive Order on nancial reports for credit institutions and investment companies, etc. The Financial Statements have been prepared in accordance with additional Danish legal requirements for Fi- nancial Statements for listed nancial companies. The Financial Statements are presented in DKK and rounded to the nearest DKK 1,000. General information on recognition and measurement Assets are recognised in the statement of nancial position when it is probable that future economic benets will ow to the Bank and the asset’s value can be measured reliably. Liabilities are recognised in the statement of nancial position when they are likely and can be measured re- liably. Assets and liabilities are initially recognised at fair value. However, tangible assets are measured at cost at the time of initial recognition. Measurement after initial recognition occurs as described for each item below. Foreseeable risks and losses which may arise before the Financial Statements are reported and which conrm or invalidate conditions existing on the balance date are taken into account in recognition and measurement. Income is recognised in the statement of prot or loss and other comprehensive income as it is earned, while expenses are recognised at the amounts which relate to the nancial year. Purchases and sales of nancial instruments are recognised on the transaction date and are no longer recog- nised when the right to receive/deliver cash to or from the nancial asset or liability has expired or, if it is trans- ferred, the Bank has transferred all signicant risks and rewards of ownership. The bank has not used the rules for reclassication of certain nancial assets at fair value to amortised cost. Determination of fair value The fair value is the amount to which an asset can be converted or at which a liability can be settled in a transa- ction under normal conditions between knowledgeable, willing and independent parties. The fair value of nancial instruments for which there is an active market is usually determined as the closing price on the Balance Sheet date or, if not available, another published price considered to best correspond to this. For nancial instruments for which there is an active market, fair value is established using generally accepted valuation techniques which are based on relevant observable market data. 26 Accounting estimates When determining the carrying amount of certain assets and liabilities, discretion is used as to how future events will affect the value of the assets and liabilities on the balance date. The estimates used are based on assumptions which the management considers to be reasonable, but which are associated with some uncertainty. Therefore, the actual nal results may differ from the estimates used, because the Bank is affected by risk and uncertainty, which can affect this. The areas which involve a greater degree of assessments/assumptions and estimates are impairment of loans and receivables, determination of fair value of unlisted nancial instruments, corporate and investment proper- ties and provisions. Although the carrying amounts are calculated in accordance with the Danish Executive Order on the Presen- tation of Financial Statements, particularly including appendices 9 and 10 and related guidelines, there is un- certainty and estimates associated with these carrying amounts, as they are based on a number of assumpti- ons. If these assumptions change, the nancial reporting may be affected and the impact may be signicant. Changes may occur through a change in practice or interpretation by the authorities and amended principles from the management - for example, the value of collateral may entail changes to the calculations. Foreign currency Assets and liabilities in foreign currencies are recognised on the balance date at the National Bank of Denmark’s listed rates. Foreign currency spot transactions are adjusted on the balance date based on the spot rate. Cur- rency translation adjustments are recognised on an ongoing basis in the statement of prot or loss and other comprehensive income. General When determining the carrying amount of certain assets and liabilities, discretion is used as to how future events will affect the value of the assets and liabilities in question on the balance date. The estimates used are based on assumptions which the management considers to be reasonable, but which are uncertain and unpredictable. Therefore, the actual nal results may differ from the estimates used, becau- se the Bank is affected by risk and uncertainty, which can affect this. Model uncertainty In addition to establishing expectations for the future, write-downs in stages 1 and 2 are also subject to uncer- tainty because the model does not account for all relevant circumstances. As there is still limited historical data as a basis for the models, it has been necessary to supplement the model’s calculations with management estimates. Assessment of the effect of the long-term probability of default on customers and segments th- rough improved and deteriorated outcomes of macroeconomic scenarios is associated with estimates. Please 27 refer to the more detailed description in note 31. Statement of collateral values To reduce the risk on the individual exposures in the Bank, collaterals have been received, primarily in the form of mortgages on physical assets (of which mortgages on real estate are the most signicant form), securities etc. Signicant management estimates are included in the valuation of the collateral. For a more detailed de- scription of matters relating to collateral, see also note 31. Fair values of owner-occupied properties The return method is used to measure owner-occupied properties at fair value. Future cash ows are based on the Bank’s best estimate of future ordinary prot and required rate of return for each property, taking into ac- count factors such as location and maintenance. A number of these assumptions and estimates have a signi- cant impact on the calculations. Changes in these parameters as a result of a change in market conditions affect the expected returns and thus the owner-occupied properties’ fair value. Also refer to the discussion in note 1 “Accounting policies used etc.” under the section “Land and buildings” and note 16 “Land and buildings”. Practice for writing off nancial assets from the statement of nancial position Financial assets that are measured at amortised cost are wholly or partially written off from the statement of nancial position if the Bank no longer has reasonable expectations that the outstanding amount will be whol- ly or partially covered. Recognition ceases based on specic, individual assessment of each exposure. For pri- vate and corporate customers, the Bank will typically write off losses when the pledged collateral is realised and the residual receivable is unsustainable. When a nancial asset is written off from the statement of nan- cial position in whole or in part, the impairment on the nancial asset is removed from the calculation of accumu- lated impairment, cf. note 9. The bank continues its collection efforts after the assets have been written off, with the measures depending on the specic situation. The bank essentially tries to enter a voluntary agreement with the customer, including renegotiation of terms or reconstruction of a business, such that debt collection or bankruptcy proceedings are only put to use when other measures have been tried. STATEMENT OF PROFIT OR LOSS Interest, fees and commissions, etc. Interest income and expenses are recognised in the statement of prot or loss and other comprehensive in- come in the period to which they relate. Interest income from deposits and interest expense to central banks are presented separately in the statement of prot or loss. Received interest on credit-impaired loans on which impairment has occurred are passed to the impaired part 28 of the loan in question under the item “Impairment of loans and receivables” and are thus offset in impairment for the year. Commissions and fees which are an integral part of the effective interest rate of a loan are recognised as part of the amortised cost and are therefore part of interest income under loans. Commissions and fees which are part of an ongoing service are accrued over the loan period. Other fees and commissions and dividends are recognised in the statement of prot or loss and other com- prehensive income when the rights to them are acquired. Staff and administration expenses Staff and administration expenses include wages and salaries, social costs, pensions, IT costs and administra- tive and marketing costs. Pension schemes The bank has entered into dened contribution schemes with the employees. In dened contribution schemes, xed contributions are paid to an independent pension fund. The bank has no obligation to make further con- tributions. Ta x Tax for the year, which consists of current tax for the year and movements in deferred tax, is recognised in the statement of prot or loss and other comprehensive income as the portion which is attributable to the net pro- t for the year and directly in equity as the portion which is attributable to items in equity. Current tax liabilities and current tax receivables are recognised in the Balance Sheet as tax calculated on ta- xable income for the year adjusted for tax paid on account. Deferred tax is recognised on all temporary differences between carrying values and tax values of assets and liabilities. Any deferred tax assets, including the tax value of tax loss carry forwards, are recognised in the statement of nancial position at the value at which the asset is expected to be realised, either against deferred tax liabiliti- es or as net assets. STATEMENT OF FINANCIAL POSITION Classication and measurement According to the IFRS 9-compatible accounting regulations, classication and measurement of nancial assets is done based on the business model for the nancial assets and the contractual cash ows relating to the - nancial assets. This means that nancial assets must be classied into one of the following two categories: 29 • Financial assets that are held to generate the contractual payments, and where the contractual payments exclusively consist of interest and repayments on the outstanding amount, are measured at amortised cost after the date of rst recognition. This category includes loans at amortised cost and receivables from credit institutions. • Financial assets that do not meet the above criteria for the business model or where the contractual cash ows do not exclusively consist of interest and repayments on the outstanding amount are initially recognised at fair value through the statement of prot or loss. Skjern Bank does not have nancial assets that are included in the measurement category for recognition of nancial assets at fair value through other comprehensive income. Instead, the Bank’s bond portfolio is mea- sured at fair value through the statement of prot or loss because they are included in a trading portfolio. Cash holdings and demand deposits with central banks Cash holdings and demand deposits with central banks are initially recognised at fair value and then at amor- tised cost. Receivables from credit institutions and central banks Receivables from credit institutions and central banks include receivables from other credit institutions. Initial- ly recognised at fair value plus transaction costs and minus origination fees, etc. and subsequently measured at amortised cost. Loans The accounting item consists of loans disbursed directly to the borrower. Loans are measured at amortised cost, which usually corresponds to the nominal value minus origination fees etc. and minus provisions for los- ses expected but not yet realised. Model for impairment for expected credit losses In accordance with the IFRS 9-compatible impairment rules, impairment is done for expected credit losses on all nancial assets that are recognised at amortised cost and provisions are made according to the same rules for expected credit losses on unused credit lines, loan commitments and nancial guarantees. The impairment rules are based on an expectation-based model. For nancial assets recognised at amortised cost, impairment for expected credit losses is recognised in the statement of prot or loss and the value of the asset is reduced in the statement of nancial position. Provisi- ons for losses on unused credit lines, loan commitments and nancial guarantees are recognised as a reserved liability. (See also under contingent liabilities). Stages of development in credit risk 30 The expectation-based impairment rules means that a nancial asset etc. at the time of rst recognition is im- paired by an amount corresponding to the expected credit loss over 12 months (stage 1). If there is subse- quently a signicant increase in the credit risk compared to the time of rst recognition, the nancial asset is impaired by the amount corresponding to the expected credit loss in the asset’s remaining life (stage 2). If impaired credit (stage 3) is discovered for the instrument, the asset is written down by an amount correspon- ding to the expected credit loss in the asset’s remaining life, and interest income is recognised in the statement of prot or loss according to the effective interest method based on the impaired amount. Financial assets where the customer has signicant nancial difculties or where the Bank has offered easier terms due to the customer’s nancial difculties are kept at stage 2 if losses are not expected in the most li- kely scenario. Placement in stages and calculation of the expected loss is based on the Bank’s rating models, which were developed by the data centre Bankdata and the Bank’s internal credit management. Assessment of signicant increase in credit risk In the assessment of the development of credit risk, it is assumed that a signicant increase in credit risk has occurred in relation to the time of initial recognition when a downwards adjustment of the Bank’s internal ra- ting of the debtor corresponds to one rating class in the Danish Financial Supervisory Authority’s rating classi- cation guidelines. If the credit risk on the nancial asset is considered to be low on the reporting date, the asset is kept at stage 1, where a signicant increase in credit risk has not occurred. Skjern Bank considers the credit risk to be low when the Bank’s internal rating of the customer corresponds to 2a or better, though an overdraft for more than 30 days for a customer with an internal rating of 2a will lead to a signicantly impaired credit risk. The catego- ry of assets with low credit risk also includes lending and receivables that meet the rating criterion, as well as receivables from Danish credit institutions. New customers are always placed in stage 1 unless they are credit impaired. Denition of credit impairment and default An exposure is dened as being impaired and as being in default if it meets at least one of the following crite- ria: • The borrower is experiencing signicant nancial difculties, and the Bank assesses that the borrower will not be able to honour their obligations as agreed. • The borrower has committed a breach of contract, such as in the form of non-compliance with payment ob- ligations for principal and interest or repeated overdrafts. • The bank has granted the borrower easier terms than it would have granted were it not for the borrower’s nancial difculties. • It is likely that the borrower will go bankrupt or be subject to other nancial reorganisation. • The exposure has been in arrears/overdrawn for more than 90 days by an amount that is considered signi- cant. 31 The denition of credit impairment and default that the Bank uses when measuring the expected credit loss and for transfer to stage 3 is in line with the denition used for internal risk management purposes. Calculation of expected loss The calculation of impairment on exposures in stages 1 and 2, except for the weakest exposures in stage 2, are made on a portfolio-based calculation model, while the impairment on the rest of the exposures are made through a manual, individual assessment based on three scenarios (basic scenario, a more positive scenario and a more negative scenario) with the associated likelihood that the scenarios will occur. The portfolio model calculation is based on the Bank’s division of customers into different rating classes and an assessment of the risk of loss in each rating class. The calculation occurs in a setup that is developed and maintained in Bankdata, supplemented with a predictive macroeconomic module, which is developed and maintained by LOPI, and which forms the basis for the incorporation of management’s expectations for the future. The macroeconomic module is based on a series of regression models that establish the historical correlation between impairment for the year within a number of sectors and industries and a number of explanatory ma- croeconomic variables. Estimates are then applied to the regression models for the macroeconomic variables based on forecasts from consistent sources such as Det Økonomiske Råd [The Danish Economic Council], Danmarks Nationalbank etc. where the forecasts are generally for two years in the future and include variables such as increase in public consumption, increase in GDP, interest rates etc. The expected impairment is thereby calculated for up to two years in the future for each sector and industry. For maturities longer than two years and up to year 10, a pro- jection of the impairment percentage is made such that it converges towards a normal level in year 10. Matu- rities longer than 10 years are given the same impairment percentage as in year 10. Finally, the calculated im- pairment percentages are converted into adjustment factors that correct the data centre’s estimates in the individual sectors and industries. The Bank makes adjustments to these based on its own expectations for the future and based on the loan composition. Changes in write-downs are adjusted in the statement of prot or loss and other comprehensive income under the item “Impairment of loans and receivables etc”. Bonds and shares, etc. Bonds and shares traded on a listed stock exchange are measured at fair value. Fair value is usually determined as the ofcial closing price on the balance date. Unlisted securities and other equity investments (including level 3 assets) are also recognised at fair value, calculated based on what the transaction price would be in a trade between independent parties. If there is no current market data, the fair value is determined based on the published nancial reports or on a return 32 model which is based on cash ows and other available information. Value adjustments on bonds and shares, etc. are recognised on an ongoing basis in the statement of prot or loss and other comprehensive income under the item “Exchange rate adjustments”. Pool activities All pool assets and deposits are recognised in separate balance sheet items. Returns on pool assets and di- stributions to pool participants are entered under the item “exchange rate adjustments”. Land and buildings Land and buildings include • “Owner-occupied properties”, which consist of the properties from which the bank conducts banking activi- ties • “Leased company domiciles”, which consist of the leased properties from which the Bank conducts • “Investment properties”, which consist of all other properties the bank owns and possess in order to obtain rental income. Owner-occupied properties are measured in the statement of nancial position at revalued amount, which is the fair value determined based on the return method with a rate of return in the range of 5.6 - 7 % less accumu- lated depreciation and any impairment loss. Depreciation is recognised in the statement of prot or loss and revaluation is done so frequently that there are no signicant differences in fair value. Increases in the ow- ner-occupied properties’ revalued amount are recognised under revaluation reserve in equity. If an increase in the revalued amount corresponds to an earlier case and is thus recognised in the statement of prot or loss in a previous year, the increase is recognised in the statement of prot or loss. A decrease in the revalued amount is recognised in the statement of prot or loss and other comprehensive income, unless there is a reversal of previous revaluations. Owner-occupied properties are depreciated linearly over 50 years based on the cost ad- justed for any value adjustments where residual values are not used. Leased company domiciles All lease agreements must be recognised by the lessee in the form of a leasing asset that represents the value of the right of use. The asset is initially recognised at present value of the lea- se liability including costs and any prepayments. After initial recognition, lease contracts for domicile properti- es are measured in the same way as other domicile properties. At the same time, the present value of the agreed lease payments are recognised as a liability. Assets leased on short-term contracts and leased assets of low value are excluded from the requirement for recognition of a lease asset. In calculating the properties’ value, an internal interest rate in the range of 5 % - 7 % was used. Investment properties are measured in the statement of nancial position at fair value determined based on 33 the return method. Ongoing changes in fair value of investment properties are recognised in the statement of prot or loss and other comprehensive income. Establishment of the revalued amount of owner-occupied properties and the fair value of investment properti- es are associated with signicant estimates. The estimates particularly relate to the establishment of required rate of return. Other tangible xed assets Other tangible xed assets, including plant and machinery, are recognised at the acquisition at cost. Then, other tangible assets and conversion of rented premises are recognised at cost minus accumulated depreciation. A linear amortisation is done over 3-5 years based on the cost and amortisations and impairment losses recog- nised in the statement of prot or loss. Other assets Other assets include interest receivable and provisions and positive market value of derivative nancial instru- ments. Prepayments and accrued income Prepayments and accrued income recognised under assets include costs relating to subsequent nancial years. Prepayments and accrued income recognised under liabilities include prepaid interest and guarantee provisions relating to subsequent nancial years. Liabilities to credit institutions and central banks Items are measured at amortised cost. Deposits and other payables Items are measured at amortised cost. Subordinated debt Items are measured at amortised cost. Hybrid core capital under equity Hybrid core capital that meets the rules in CRR to be classied as additional tier I capital with indenite matu- rity and where the payment of interest is voluntary is classied as equity. Interest on hybrid core capital is deducted from equity. The tax effect of the interest is recognised under current tax in the statement of prot or loss. 34 Other liabilities Other liabilities include interest payable and provisions and negative market value of derivative nancial instru- ments and debt to Danmarks Nationalbank. Provisions Assurances, guarantees and other liabilities which are uncertain in terms of size or time of settlement are re- cognised as provisions when it is probable that the liability will result in nancial resources owing out from the bank and the liability can be measured reliably. The liability is calculated at the present value of the costs required to settle the liability. Treasury shares Acquisition and disposal and dividends from treasury shares are recognised directly under equity. Derivative nancial instruments All derivative nancial instruments, including forward contracts, futures and options in bonds, shares or cur- rency, as well as interest and currency swaps, are measured at fair value on the balance date. Exchange rate adjustments are included in the statement of prot or loss and other comprehensive income. Positive market values are recognised under other assets, while negative market values are recognised under other liabilities. Contingent liabilities The bank’s outstanding guarantees are disclosed in the notes under the item “Contingent liabilities”. The liabi- lity relating to outstanding guarantees which are assessed to lead to a loss for the bank is provisioned under the item “provisions for loss on guarantees”. The liability is expensed in the statement of prot or loss under “Impairment of loans and receivables etc”. Non-nancial guarantees, cf. IFRS 9, are not included in stages 1 and 2. Financial highlights Key gures and ratios are presented in accordance with the requirements in the Danish Executive Order on the Presentation of Financial Statements. 35 Note DKK 1,000 2023 2022 2 INTEREST INCOME Centralbanks 69.572 7.723 Loans and other receivables 374.407 226.970 Loans (interest conc. the written-down part of loans) -7.933 -7.154 Bonds 20.130 6.642 Other derivative nancial instruments, total of which 5.948 13.471 Interest-rate contracts -192 -373 Currency contracts 6.140 13.844 Other interest income 10 270 Total 462.134 247.922 3 INTEREST EXPENSES Deposits 50.848 3.081 Subordinated debt 6.592 6.615 Other interest expenses 1.388 988 Total 58.828 10.684 No income or expenses are entered from genuine purchase or repurchase contracts in notes 2 and 3. 4 FEES AND COMMISSION INCOME Securities trading and custody accounts 23.609 28.344 Payment services 17.286 16.322 Loan fees 78.394 93.162 Guarantee commission 27.872 29.806 Other fees and commission 41.453 42.167 Total 188.614 209.801 5 VALUE ADJUSTMENTS Bonds 13.049 -38.467 Total shares 22.833 -1.518 - Shares in sectorcompanies etc 18.100 9.236 - Other shares 4.733 -10.754 Foreign currency 11.320 8.888 Other financial instruments -24 267 Assets linked to pooled schemes -100.970 104.331 Deposits in pooled shemes 100.970 -104.331 Total 47.178 -30.830 As the bank essentially operates deposits and lending activity in its local areas, the division of market areas is not specified for notes 2-5. Notes 36 Note DKK 1,000 2023 2022 6 STAFF COSTS AND ADMINISTRATIVE EXPENSES Salaries and remuneration of audit committee, managers etc. Management incl. pensioncontribution) 4.904 - Of which fixed remuneration incl. pensioncontribution 4.904 - Management board 1.477 1.425 Audit Committee 96 92 Risk Committee 80 - Committee of representatives 183 181 Total salaries and remuneration of board etc 6.740 1.698 ) In the period 1/1 2023 - 30/6 2023 there is only one member of the management. From 1/7 2023 - 31/12 2023 there are two members of the management. Both members have a company car. Staff costs Wages and salaries 114.919 108.224 Pensions 13.329 12.154 Social security costs 1.839 1.706 Payroll tax 19.232 17.749 Total staff costs 149.319 139.833 Salary to management and special risk takers (11 persons in 2023, 11 persons in 2022) 11.962 10.744 Pensions to management and special risk takers (11 persons in 2023, 11 persons in 2022) 1.036 919 The bank has no employees with variable salary shares. Other administrative expenses IT expenses 52.177 51.324 Rent, electricity, heating etc 3.392 3.759 Postage, telephony etc 1.027 848 Other administrative expenses 42.877 36.576 Total other administrative expenses 99.473 92.507 Total staff costs and administrative expenses 255.532 234.038 37 Note DKK 1,000 2023 2022 Pension and severance terms for the executive board Managing Director: Pension is not paid. In the event of resignation as a result of retirement, Skjern Bank pays a severance payment equivalent to 6 months of salary. Skjern Bank’s notice of termination to the Managing Director is 12 months, but up to 48 months in the event of a change in ownership. The Managing Director’s notice period to the bank is 6 months. Bank Director: 11.65 % is paid in annual pension, which is contribution-based through a pension company in which the payments are expensed continually. Skjern Bank’s notice of termination to the Bank Manager is 12 months, but up to 24 months in the event of a change of ownership. The Bank Director’s notice period to the bank is 6 months. The Board’s pension terms No pension is paid to the Board Special risk takers’ pension terms The special risk takers receive 11,25 % of their respective salary grades in annual pension, which is contributionbased through a pension com- pany in which the payments are expensed continually. Average number of employees during the financial year converted into full-time employees Employed in credit institution business 190 181 Total 190 181 7 INCENTIVE AND BONUS SCHEMES The bank does not have any incentive or bonus schemes. 8 AUDIT FEE Total remuneration to the auditors appointed by the Annual General Meeting who perform the statutory audit 630 748 Honorariums for statutory audits of nancial statements 475 564 Honorariums for assurance services 55 65 Honorariums for tax advice 0 0 Honorariums for other services 100 119 Honorariums for other declarations of certainty concerning statutory declarations to public authorities and Nets. Honorariums for tax advice concerning advice on tax matters. Other services relating to review in connection with the recognition of current profits in the capital base and accounting advice. 9 WRITE-DOWNS ON LOANS AND RECEIVABLES Write-downs and provisions during the year 139.865 140.742 Reversal of write-downs made in previous years -110.100 -130.784 Finally lost, not previously written down 7.206 764 Interest on the written-down portion of loans -7.933 -7.154 Recoveries of previously written off debt -1.400 -865 Total 27.638 2.703 38 Note DKK 1,000 2023 2022 10 TAX Calculated tax of income of the year 84.722 40.782 Adjustment of deferred tax 1.000 803 Adjustment of tax calculated in previous years 410 -691 Total 86.132 40.894 Tax paid during the year 85.160 42.610 EFFECTIVE TAX RATE (%) (Pct.) (Pct.) Tax rate currently paid by the bank 25,20 22,00 Non deductable costs and not taxable income -0,41 -0,40 Adjustment of tax calculated for previous years 0,12 -0,36 Other adjustments 0,12 0,16 Effective tax rate 25,02 21,40 11 RECEIVABLES AT CREDIT INSTITUTIONS AND CENTRAL BANKS Receivables at credit institutions 60.630 54.939 Total 60.630 54.939 Remaining period Demand 60.630 54.939 Total 60.630 54.939 No assets related to genuine purchase and resale transactions included. 39 Note DKK 1,000 2023 2022 12 LOANS AND OTHER DEBTORS AT AMORTISED COST PRICE Remaining period Claims at call 2.621.799 2.061.586 Up to 3 months 141.872 145.101 Over 3 months and up to 1 year 686.260 618.456 Over 1 year and up to 5 years 1.165.872 1.001.882 Over 5 years 2.110.526 1.637.375 Total loans and other debtors at amortised cost price 6.726.329 5.464.400 DEVELOPMENT IN WRITE-DOWNS AND PROVISIONS RELATING TO FINANCIAL ASSETS AT AMORTIZED COST AND OTHER CREDIT RISKS STAGE 1 IMPAIRMENT CHARGES Stage 1 impairment charges at the end of the previous financial year 18.030 12.597 Stage 1 impairment charges / value adjustment during the period 39.593 12.437 Stage 1 impairment reversed during the period -12.716 -7.005 Cummulative stage 1 impairment total 44.907 18.030 STAGE 2 IMPAIRMENT CHARGES Stage 2 impairment charges at the end of the previous financial year 149.203 100.028 Stage 2 impairment charges / value adjustment during the period 35.758 87.041 Stage 2 impairment reversed during the period -67.747 -37.866 Cummulative stage 2 impairment total 117.214 149.203 STAGE 3 IMPAIRMENT CHARGES Stage 3 impairment charges at the end of the previous financial year 123.522 168.566 Stage 3 and impairment charges / value adjustment during the period 60.910 39.287 Reversal of stage 3 impairment charges during the period -27.733 -81.161 Recognised as a loss, covered by stage 3 impairment charges -9.052 -3.169 Cummulative stage 3 impairment total 147.647 123.522 Total cumulative impairment charges IFRS9 309.768 290.755 40 Note DKK 1,000 2023 2022 PROVISIONS Provisions beginning of the year 11.716 14.423 Provisions during the year 3.604 2.045 Reversal af provisions -1.904 -4.752 Provisions for losses 0 0 Guarantees end of year 13.416 11.716 Total cumulative impairment charges IFRS9 and guarantees 323.184 302.471 Stage 1 Stage 2 Stage 3 Beginning Impairment 18.030 149.202 123.523 - in % of total impairment 6% 51% 42% Maximum credit risk 11.356.470 1.266.093 309.258 - in % of maximum credit risk 88% 10% 2% Rating, weighted average 2,5 6,9 10,0 End Impairment 44.907 117.213 147.648 - in % of total impairment 14% 38% 48% Maximum credit risk 12.432.169 1.337.371 349.054 - in % of maximum credit risk 88% 9% 2% Rating, weighted average 2,6 6,5 10,0 The continued uncertainty around the development of society, including increased interest rates and fluctuating energy prices etc., leads to in- creased uncertainty for both the business community and private households. As a result of this, as of 31 December 2023 the Bank has reserved an extra amount as a management estimate of DKK 100.00 million compared with DKK 70.0 million. 31 December 2022. The Bank made an estimate of increased impairment rates for the private, business and agriculture segments in the event of an economic down- turn. The Bank has updated macro-factors, benchmark calculations etc. In light of the government platform, a carbon tax is expected to be introduced for agriculture. This is expected to have a major impact on the Bank’s agricultural customers, which is why the Bank has increased the management estimate by DKK 30.0 million to DKK 100.0 million in the fu- ture. The total management estimates are divided by DKK 34.5 million in stage 1 (2022: DKK 0 million), by DKK 52.1 million in stage 2 (2022: DKK 70.0 million) and by DKK 13.4 in stage 3 (2022: DKK 0 million). Refer to note 31 for a description of ratings. Loans etc. with suspended calculation of interest 79.762 48.534 41 Note DKK 1,000 2023 2022 13 BONDS AT FAIR VALUE Treasuries 740.509 841.192 Mortgage credit bonds 0 8.918 Other bonds 11.529 11.623 Total bonds at fair value 752.038 861.733 The bank has no held-to-maturity assets 14 SHARES ETC Quoted on Nasdaq OMX Copenhagen A/S 19.511 17.266 Quoted on other stock exchanges 15.688 12.807 Sectorshares recorded at fair value 248.076 201.683 Total shares etc 283.275 231.756 15 SHARES ASSOCIATED WITH POOL SCHEMES Investment units 1.590.630 1.612.015 Cash deposits etc. 2.206 2.068 I alt 1.592.836 1.614.083 16 LAND AND BUILDINGS Investment properties Fair value - end of previous nancial year 3.019 3.019 Fair value end-of-year 3.019 3.019 Owner occupied properties 47.868 45.895 Reassessed value - end of previous nancial year 17.770 4.494 Acquisitions during the year incl. improvements -1.677 -1.496 Depreciations -8.711 -1.025 Reassessed value end-of-year 55.250 47.868 External experts have not been involved by measurement of investment- and owner-occupied properties. Return method is used for measurement of investment and owner-occupied properties where used required rate of return between 5.6-7 %. Owner-occupied properties (leasing) Beginning of the year 16.317 18.685 Acquisitions during the year incl. improvements 5.616 0 Depreciations -2.649 -2.368 End of the year 19.284 16.317 42 Note DKK 1,000 2023 2022 17 OTHER TANGIBLE ASSETS Total cost price beginning-of-year 29.255 23.027 Acquisitions during the year incl. Improvements 3.453 1.479 Reduction during the year -306 0 Total cost price beginning-of-year 32.402 24.506 Total write-ups/downs and depreciations beginning-of-year 23.880 17.401 Depreciations during the year 2.296 1.730 Reversal of depreciations -306 0 Total write-ups/downs and depreciations end-of-year 25.870 19.131 Book value end-of-year 6.532 5.375 18 DEBT TO CREDIT INSTITUTIONS AND CENTRAL BANKS Debt to credit institutions 2.385 2.974 Total debt to credit institutions and central banks 2.385 2.974 Term to maturity Demand 2.385 2.974 Total debt to credit institutions and central banks 2.385 2.974 No liabilities related to genuine sale and repurchase transactions included 19 DEPOSITS AND OTHER DEBTS Demand 7.015.907 7.147.965 At notice 16.365 18.063 Time deposits 611.866 71.050 Special types of deposits 640.118 603.396 Total deposits and other debts 8.284.256 7.840.474 Term to maturity Demand 7.036.192 7.171.507 Desposits redeemable at notice: Up to 3 months 303.414 80.515 Over 3 months and up to 1 year 402.991 80.189 Over 1 year and up to 5 years 65.748 59.387 Over 5 years 475.911 448.876 Total deposits and other debts 8.284.256 7.840.474 No liabilities related to genuine sale and repurchase transactions included. 20 DEFERRED TAXATION (Tax amount) Tangible assets 10.533 7.106 Loans and other receivables -5.368 -3.721 Other 265 364 Total deferred taxation 5.430 3.749 43 Note DKK 1,000 2023 2022 21 SUBORDINATED DEBT Supplementary capital DKK 100 mio 99.335 98.835 Rate 6,4573% 6,4573% Due date 20.05.2030 20.05.2030 The loan may be paid early with the Danish Financial Supervisory Authority’s approval starting on 20 May 2025 and then on each interest payment date. The interest rate is determined as the 6-year swap rate plus a premium of 6.3 percentage points, valid for 6 years from date of issue. Subordinated debt total 99.335 98.835 Subordinated debt that may be included in the capital base 99.335 98.835 Interest on subordinated liabilities recognised in income 6.592 6.615 22 SHARE CAPITAL 192.800 192.800 Number of shares is 9,640,000 at DKK 20 each The bank has pr. 31. December 2022 13,541 registered shareholders. 93,21 % of the share capital are registered on name 23 HOLDERS OF HYBRID CAPITAL Hybrid core capital 61.148 61.015 Rate 8,6632% 8,6632% Due date No date No date The hybrid core capital has an innite maturity and payment of interest is voluntary, which is why it is treated as equity for accounting purposes. The loan can be repaid early on 14 September 2026 with the approval of the Danish Financial Supervisory Authority. As of 14 September 2026, the interest rate will be changed to a half-year variable coupon rate corresponding to the CIBOR rate published by Nasdaq OMX for a term of 6 months with the addition of 8.80 % annually. 44 Note DKK 1,000 2023 2022 24 OWN CAPITAL SHARES Purchase and sales of own shares Holdings beginning of the year Number of own shares 4.713 4.725 Nominal value of holding of own shares (DKK 1,000) 94 95 Own shares proportion of share capital 0,05 0,05 Addition Number of own shares 82.400 47.000 Nominal value of holding of own shares (DKK 1,000) 1.648 940 Own shares proportion of share capital 0,85 0,49 Purchase price (DKK 1,000) 11. 0 01 5.216 Disposal Number of own shares 80.652 47.012 Nominal value of holding of own shares (DKK 1,000) 1.613 940 Own shares proportion of share capital 0,84 0,49 Sale price (DKK 1,000) 12.650 5.188 Holdings end of the year Number of own shares 6.461 4.713 Nominal value of holding of own shares (DKK 1,000) 129 94 Own shares proportion of share capital 0,07 0,05 At the Annual General Meeting, the bank requests that shareholders be allowed to acquire up to a total nominal value of 3% of the bank’s share capital, cf. the provisions in the Danish Budget Act (nansloven), Section 13, paragraph 3. The bank has asked the Danish Financial Supervisory Authority for a framework for holding of treasury shares of 0.25% of the bank’s total share capital. The bank wants this authorisation in order to always be able to meet customers’ and investors’ demand for purchasing and selling Skjern Bank shares and the net acquisitions in 2023 are a consequence of this. 25 CONTINGENT LIABILITIES Guarantees Finance guarantees 384.934 397.280 Guarantees against losses on mortgage credit loans 753.010 811.308 Registration and conversion guarantees 562.309 684.593 Other contingent liabilities 157.165 131.026 Total 1.857.418 2.024.207 Other binding engagements Irrevocable credit-undertakings 437.263 370.096 Total 437.263 370.096 45 Note DKK 1,000 2023 2022 Assets pledged as collateral The bank has pledged cash for a total of DKK 10 million. Contract Legal obligations If the control of the bank changes, there will be a number of agreements that will end or the terms will be changed. Withdrawal from the data center Bankdata, where, depending on the given change, a severance allowance corresponding to 5 times the last year’s bill for Bankdata may be applied. All other agreements are considered to be immaterial. Like other Danish nancial institutions, Skjern Bank is liable for loss sustained by the Deposit Guarantee Fund. The most recent calculation of Skjern Bank’s share of the industry’s assurances to the Deposit Guarantee Fund is DKK 26,1 million, which is 0,82 %. In 2023, Skjern Bank paid 0,6 mio DKK to Afviklingsformuen (Settlement Assets). The Bank is a tenant in one leases, which can be terminated with 12 months’ notice, the yearly lease is 173 TDKK. 26 LAWSUITS ETC. As part of ordinary operations, the bank is involved in disputes and lawsuits. The bank´s risk in these cases are evaluated by the bank´s soliciters and management on an ongoing basis, and provisions are made on the basis of an evaluation of the risk of loss. 27 RELATED PARTIES Loans and warranties provided to members of the bank’s management board, board of directors and committee of representatives are on marked-based terms. Transactions with related parties There have during the year not been transactions with related parties, apart from wages and salaries, etc. and loans and similar. Wages and considerations to the bank’s management board, board of directors, audit commitee and committee of representatves can be found in note no. 6. There are no related with control of the bank. Amount of loans, mortgages, guarantees, with accompanying security for members of the management and related parties mentioned below: Management: 2023 2022 Loans 1.486 400 Bid Bond 1. 10 0 400 Rate of interest 5,9 - 7,06% 5,30% Board of directors: Loans 4.039 5.086 Bid Bond 2.683 2.683 Rate of interest 3,9 - 7,95% 0,95-16,10% 46 Note DKK 1,000 2023 2022 Holding of shares in Skjern Bank: The board of managers 33.878 32.862 Per Munck 9.526 - Thomas Baun The board of directors Hans Ladekjær Jeppesen 11.115 11.115 Bjørn Jepsen 5.286 5.286 Niels Erik Kjærgaard 300 300 Finn Erik Kristiansen 1.941 1.941 Ole Strandbygaard 2.585 2.085 Lars Skov Hansen 74 4 704 Carsten Jensen 2.549 2.415 Michael Tang Nielsen 1.088 140 28 CAPITAL REQUIREMENT Equity 1.580.909 1.357.788 Proposed dividend -48.200 -28.920 Holders of hybrid capital -61.148 -61.015 Deduction for the sum of equity investments etc. above 10 % -105.241 -74.426 NPE -7.470 -4.159 CVA deduction -1.038 -1.097 Deduction of trading framework for own sharers -3.458 -575 Core tier 1 capital 1.354.354 1.187.596 Holders of hybrid capital 61.148 61.015 Tier 1 capital 1.415.502 1.248.611 Deduction for the sum of equity investments etc. above 10 % 99.335 98.835 Subordinated loan capital -629 -4.604 Capital base 1.514.208 1.342.842 Weighted items Credit risk 5.496.142 4.788.415 Market risk 219.126 255.266 Operational risk 926.343 759.073 Weigthed items total 6.641.611 5.802.754 Core tier 1 capital ratio (excl. hybrid core capital) 20,4 20,5 Tier 1 capital ratio 21,3 21,5 Solvency ratio - Tier 2 22,8 22,2 47 Note 29 CURRENT VALUE OF FINANCIAL INSTRUMENTS Financial instruments are measured in the statement of nancial position at either fair value or at cost. Fair value is the price which would be received from the sale of an asset or which will be paid to transfer a liability in a normal transaction between market participants on the measurement date. For nancial assets and liabilities valued on active markets, the fair value is calculated based on ob- servable market prices on the market date. For nancial instruments valued on active markets, the fair value is calculated based on generally ac- cepted valuation methods. Shares, etc. and derivative nancial instruments are measured in the accounts at fair value so that recognised values correspond to fair value. Lo- ans are recorded in the bank’s statement of nancial position at amortised cost. The difference to fair value is calculated as fees and commissions received, expenses incurred through lending transactions, interest receivable which is rst due for payment after the end of the nancial year and for xed-rate loans, also the variable interest rate, which is calculated by comparing the current market rate with the loans’ nominal interest rate. The fair value of receivables from credit institutions and central banks is determined by the same method as for loans, since the bank does not currently recognise impairments on receivables from credit institutions and central banks. Bonds issued and subordinated liabilities are measured at amortised cost. The difference between the carrying amount and fair value is calculated based on rates in the market of its own listed emissions. For oating rate nancial liabilities in the form of lending and payables to credit institutions measured at amortised cost, the difference fair value is estimated to be interest payable which is rst due for payment after the end of the nancial year. For xed-rate nancial liabilities in the form of lending and payables to credit institutions measured at amortised cost, the difference to fair value is estimated to be interest payable which is rst due for payment after the end of the nancial year and the variable interest rate. DKK 1,000 2023 2022 Book value Fair value Book value Fair value Financial assets Cash in hand+claims at call on central banks 2.345.718 2.345.718 2.830.343 2.830.343 Claims on credit institutes and central banks 1) 60.630 66.829 54.939 54.939 Loans and other debtors at amort. costprice 1) 6.726.792 6.740.185 5.465.049 5.475.070 Total nancial assets 9.133.140 9.152.732 8.350.331 8.360.352 Financial liabilities Debt to credit institutions and central banks 1) 2.385 2.385 2.974 6.258 Deposits and other debts 1) 8.281.555 8.281.542 7.840.730 7.840.713 Subordinated debt 1) 2) 102.514 102.514 100.445 100.445 Total nancial liabilities 8.386.454 8.386.441 7.944.149 7.947.416 1) The entry includes calculated interest on the balance sheet date, which is included in ”Other assets” and ”Other liabilities”. 2) Applied the latest quoted trading price at the balance sheet date 48 Note DKK 1,000 30 RISKS AND RISK MANAGEMENT Skjern Bank is exposed to various types of risks which are controlled at various levels within the organisation. Skjern Bank’s nancial risks consist of: Credit risk: Risk of losses due to debtors’ or counterparties’ default on payment obligations. Market risk: Risk of losses resulting from the fair value of nancial instruments and derivative nancial instruments uctuating due to changes in market prices. Skjern Bank classies three types of risk for the market risk area: Interest rate risk, equity risk and currency risk. Liquidity risk: Risk of losses due to nancing costs rising disproportionately, the risk that Skjern Bank is prevented from maintaining the adopted business model due to a lack of nancing/funding or ultimately, the risk that Skjern Bank cannot honour incoming payment obligations when due as a result of a lack of nancing/funding. Evaluation of securities: The bank is exposed to the sectors agriculture and real-estate. The Bank has in the assessment of collateral in agricultural exposures used acres of arable land prices in the range of 125 TDKK - 160 TDKK. In the real-estate sector is used return requirement in the range 5% - 10%. Valuations in both agricultural exposures as real-estate exposures are made in accordance with the FSA’s current guidance. The Bank notes that estimating the value of collateral is generally associated with uncertainty. The following notes to the annual report contain some additional information and a more detailed description of the bank’s credit- and market risks. 49 Note Figures in pct. 2023 2022 31 CREDIT RISKS Loans and guarantees distributed on sectors Public authorities 0,0 0,0 Business: Agriculture, hunting, forestry & shing 10,4 8,5 - Plant production 2,0 1,3 - Cattle farming 5,4 4,9 - Pig farming 2,1 1,1 - Mink production 0,2 0,4 - Other agriculture 0,8 0,8 Industry and mining 3,9 4,4 Energy 1,1 1,2 Building and constructions 6,0 6,6 Wholesale 7, 4 7, 6 Transport, hotels and restaurants 0,7 1,4 Information and communication 0,1 0,1 Financial and insurance business 6,5 6,2 Real-esate 8,0 9,5 Other business 2,4 2,7 Total business 46,4 48,2 Private persons 53,6 51,8 Total 100,0 100,0 The industry breakdown is based on Danmarks Statistik’s industry codes etc. Furthermore, an individual assessment is made of the individual exposures, which has resulted in some adjustment. Earmarked credit limit divided by exposure, guarantees and credit commitments 2023 2023 2023 (DKK 1,000) (DKK 1,000) (DKK 1,000) Exposure Guarantees Credit-under- takings Public authorities 0 0 0 Business - agriculture 1.058.214 157.200 0 Business - other 4.009.403 454.358 366.670 Private persons 4.897.638 1.245.861 70.593 Total 9.965.255 1.857.419 437.263 Which recognized in the balance after deduction of depreciation 6.726.329 50 Note 2022 2022 2022 (DKK 1,000) (DKK 1,000) (DKK 1,000) Exposure Guarantees Credit-under- takings Public authorities 0 0 0 Business - agriculture 816.049 153.689 13.700 Business - other 3.719.060 474.209 330.772 Private persons 3.803.422 1.396.309 25.624 Total 8.338.531 2.024.207 370.096 Which recognized in the balance after deduction of depreciation 5.464.400 Description of collateral 2023 2023 2023 Security distributed by type (DKK 1,000) Business, agriculture Business, other Private Securities 34.097 128.463 114.499 Real property 653.685 1.286.753 2.696.517 Chattels, vehicles and rolling stock 27.701 920.248 720.706 Guarantees 4.389 64.375 481 Other forms of security 190.988 567.115 925.669 Total 910.860 2.966.954 4.457.872 2022 2022 2022 Security distributed by type (DKK 1,000) Business, agriculture Business, other Private Securities 14.541 306.322 78.705 Real property 571.653 1.120.234 1.985.922 Chattels, vehicles and rolling stock 33.893 754.257 588.075 Guarantees 7.808 69.186 701 Other forms of security 181.636 557.557 1.055.786 Total 809.531 2.807.556 3.709.189 As a general rule, the bank receives security in the funded asset. In addition, security is taken in the form of guarantees and mortgagesin parts and shares. The above list reects the loan value attributable to the individual exposures. The loan value reects the fair value calculated in accordance with the bank’s business process with a security margin of 10 - 60%,though less by government bonds. The bank strives to reduce the calculated balance (maximum credit exposure excluding credit commitments less value of collateral andtotal wri- te-downs) across the entire customer portfolio. In 2023, this resulted in a blank of DKK 3.177,20 million. This is a rise of DKK 431,5 million compared to 2022. 51 Note DKK 1,000 31.12.2023 Financial assets, loan commitments and nancial guarantees. Instruments without signicant increase in credit risk (stage 1) Rating classication 1 2 3 4 5 6 7 8 9 10 Total Industry group Public authorities 2.000 0 0 0 0 0 0 0 0 0 2.000 Agriculture 154.698 226.766 150.359 162.083 331.220 8.786 7.443 23.768 27.307 0 1.092.431 Property 217.657 275.874 201.012 75.218 63.668 15.719 5.794 1.878 10.175 0 866.996 Other 1.114.684 472.097 675.956 400.918 355.285 132.719 34.245 91.086 36.620 0 3.313.610 Private 1.787.300 1.122.821 377.885 760.305 976.557 45.557 33.364 47.138 54.587 0 5.205.514 Deposits at Danmarks Nation- albank 2.233.180 0 0 0 0 0 0 0 0 0 2.233.180 Accounts with other banks 0 60.000 95.700 0 0 0 0 0 0 0 155.700 Instruments without signicant increase in credit risk (stage 2) 5.509.519 2.157.558 1.500.913 1.398.524 1.726.731 202.782 80.847 163.869 128.688 0 12.869.432 Instruments for which impairment has been recognised corresponding to expected credit losses in their lifetime (stages 2 and 3) Rating classication 1 2 3 4 5 6 7 8 9 10 Total Industry group Agriculture 0 0 0 12.175 27.741 8.545 14.811 4.327 7.871 0 75.470 Property 0 0 0 10.703 5.714 35.633 3.395 1.493 19.689 0 76.627 Other 0 0 2 108.741 82.094 95.652 14.578 20.244 24.846 0 346.157 Private 0 50 27 190.479 223.830 46.844 6.422 12.739 58.101 0 538.492 Accounts with other banks 0 0 0 2.750 3.000 420 0 0 0 0 6.170 Instruments with signicant increase in credit risk (stage 2) 0 50 29 324.848 342.378 187.094 39.206 38.803 110.507 0 1.042.915 Industry group Agriculture 0 0 0 0 0 0 0 0 0 125.787 125.787 Property 0 0 0 0 0 0 0 0 0 100.379 100.379 Estate agents and other property administration 0 0 0 0 0 0 0 0 0 8.377 8.377 Other 0 0 0 0 0 0 0 0 258.949 258.949 Private 0 0 0 0 0 0 0 0 0 150.019 150.019 Credit-impaired instruments (stages 3 and 2 weak) 0 0 0 0 0 0 0 0 0 643.511 643.511 Instruments for which impair- ment has been recognised cor- responding to expected credit losses in their lifetime) 0 50 29 324.848 342.378 187.094 39.206 38.803 110.507 643.511 1.686.426 Total nancial assets, loan commitments and nancial guarantees. 5.509.519 2.157.608 1.500.941 1.723.372 2.069.109 389.875 120.053 202.673 239.195 643.511 14.555.857 Work guarantees etc. not covered by IFRS9 Rating classication 1 2 3 4 5 6 7 8 9 10 Total Total 148.214 167.901 62.140 133.070 111.450 15.675 6.565 3.315 6.378 23.727 678.436 Total 5.657.733 2.325.509 1.563.082 1.856.442 2.180.560 405.551 126.618 205.988 245.574 667.237 15.234.293 52 Note DKK 1,000 31.12.2022 Financial assets, loan commitments and nancial guarantees. Instruments without signicant increase in credit risk (stage 1) Rating classication 1 2 3 4 5 6 7 8 9 10 Total Industry group 2.250 0 0 0 0 0 0 0 0 0 2.250 Agriculture 112.418 79.608 166.926 2.605 287.985 11.614 4.899 75.017 24.644 0 765.715 Property 236.316 476.859 32.108 167.007 72.580 16.170 24.556 20.420 4.023 0 1.050.039 Other 764.914 925.090 185.000 255.763 195.759 26.530 59.824 204.655 28.211 0 2.645.746 Private 1.345.642 988.599 389.879 780.612 623.101 77.840 25.705 46.652 62.598 0 4.340.629 Deposits at Danmarks Nation- albank 2.760.630 0 0 0 0 0 0 0 0 0 2.760.630 Accounts with other banks 1.527 40.000 114.130 0 0 0 0 0 0 0 155.656 Instruments without signicant increase in credit risk (stage 2) 5.223.698 2.510.156 888.042 1.205.987 1.179.425 132.155 114.984 346.744 119.475 0 11.720.666 Instruments for which impairment has been recognised corresponding to expected credit losses in their lifetime (stages 2 and 3) Rating classication 1 2 3 4 5 6 7 8 9 10 Total Industry group Agriculture 0 0 0 18.171 48.378 28.991 15.627 7.109 20.846 0 139.122 Property 0 0 0 39.354 25.034 19.423 22.430 2.600 14.791 0 123.632 Other 0 0 1 126.920 56.531 67.455 19.464 27.166 75.671 0 373.208 Private 132 0 2.043 92.327 101.313 32.981 10.353 20.090 65.711 0 324.950 Accounts with other banks 0 0 0 2.250 3.000 2 0 0 0 0 5.252 Instruments with signicant increase in credit risk (stage 2) 132 0 2.045 279.022 234.257 148.851 67.875 56.965 177.018 0 966.165 Industry group Agriculture 0 0 0 0 0 0 0 0 0 138.725 138.725 Property 0 0 0 0 0 0 0 0 0 56.537 56.537 Estate agents and other property administration 0 0 0 0 0 0 0 0 0 8.383 8.383 Other 0 0 0 0 0 0 0 0 0 277.637 277.637 Private 0 0 0 0 0 0 0 0 0 133.805 133.805 Credit-impaired instruments (stages 3 and 2 weak) 0 0 0 0 0 0 0 0 0 615.087 615.087 Instruments for which impair- ment has been recognised cor- responding to expected credit losses in their lifetime) 132 0 2.045 279.022 234.257 148.851 67.875 56.965 177.018 615.087 1.581.251 Total nancial assets, loan commitments and nancial guarantees. 5.223.830 2.510.156 890.087 1.485.008 1.413.682 281.006 182.859 403.709 296.493 615.087 13.301.918 Work guarantees etc. not covered by IFRS9 Rating classication 1 2 3 4 5 6 7 8 9 10 Total Total 188.575 194.615 69.196 129.900 113.810 17.799 1.855 2.400 16.713 27.878 762.740 Total 5.412.405 2.704.770 959.283 1.614.908 1.527.492 298.805 184.715 406.109 313.206 642.965 14.064.657 53 Note Credit-quality on loans which are neither in arrears not written down * ) Calculated based on the guidelines for accounting reports for credit institutions and investment companies, etc. regarding thresholds for repor- ting credit quality classes. Where high credit quality is the classes 3 and 2a, medium credit quality is class 2b and low credit quality is class 2c. Reasons for individual write-downs and provisions incl stage 2 weak 2023 2023 2023 Exposure before write-down Write-downs Securities Signicant nancial difculties 399.691 120.010 306.733 Breach of contract 4.045 3.435 1.089 Reductions in terms 3.864 2.308 1.043 Probability of bankruptcy 78.418 52.635 57.052 Total 486.018 178.388 365.917 2022 2022 2022 Exposure before write-down Write-downs Securities Signicant nancial difculties 401.907 138.047 285.956 Breach of contract 5.026 4.222 398 Reductions in terms 7.164 3.703 2.363 Probability of bankruptcy 57.864 27.840 37.916 Total 471.961 173.812 326.633 4.479 3.616 220 0 3.894 3.075 254 0 0 500 1.000 1.500 2.000 2.500 3.000 3.500 4.000 4.500 5.000 High Medium Low Not classified DKK 1,000 Credit quality Credit-quality on loans which are neither in arrears not written down 2023 2022 54 Note DKK 1,000 2023 2022 The calculation of securities does not include the value of guarantees and transports. Collateral is calculated at the customer level. The collateral value of securities in the above table reects the fair value calculated in accordance with the Bank’s business process with a securi- ty margin of 10 - 60 %. In connection with the calculation of expected loss, other haircuts are used for security values that reect the estimated fair value at the time the security is expected to be sold, depending on the type of security. There will thus be differences between the collateral value of securities and the valuation of securities when calculating expected loss. Management estimates are not included in the calculation of impairment losses. Arrears amount for loans, which have not been written down 0-90 days 27.386 13.270 >90 days 2.017 125 Total 29.403 13.395 Loans and arrears amount for loans, which have not been written down 0-90 days 226.246 111.060 >90 days 2.438 2.600 Total 228.684 113.660 Practice for managing credit risk The bank’s credit risk is managed by debtors and other counterparties being rated based on various models that are mainly based on the debtor’s/ counterparty’s nancial capacity. In addition to the models, a number of checks are made to ensure a correct rating. The ratings, both in the models and the checks, are largely ba- sed on the Danish Financial Supervisory Authority’s guidelines on risk classication. However, the bank uses a 10-step rating scale that can be compared with the Danish Financial Supervisory Authority’s scale in the following way: The bank’s rating class 1 2 3 4 5 6 7 8 9 10 The Danish Financial Supervisory Authority’s risk class 3/2A 3/2A 3/2A 2B 2B 2B 2B 2B 2C 1 Rating 1 is assets with very good credit quality, while rating 10 is impaired assets. The credit risk is assessed to have increased signicantly if the rating has deteriorated since initial recognition corresponding to one step on the Danish Financial Supervisory Authority’s risk scale. However, this does not apply to assets with low credit risk, which are dened as the Danish Financial Supervisory Authority’s risk classes 3 and 2A. Whether or not it is an asset with a low credit risk, the credit risk is considered to have increased signicantly if the asset is overdrawn for more than 30 days, though arrears on loans are essentially considered an impairment. Examples of assets with and without signicantly impaired credit risk: Example 1 Example 2 Example 3 Starting risk class 3 2A 2A Current risk class 2A 2A 2B Overdrawn for 30 days No Ye s No Signicantly impaired credit risk No Ye s Ye s 55 Note The bank’s exposures are grouped by industry in the following groups based on DS industries: Industry Government Agencies Agriculture etc. Industry and raw materials Energy Building and construction Transport Information and communication Financing Property etc. PI and mortgage Other industries Private At least once a year, all assets with a rating of 9 (the Danish Financial Supervisory Authority’s risk class 2C) are reviewed to assess whether the asset is impaired. In addition to this, a sample is taken from the other rating classes once a year for the same purpose. All loan options that are handled in the Credit Department by the bank’s Executive Board or Board of Directors are also assessed for any impairment. A nancial asset is considered impaired if one or more events have occurred that have a negative impact on the expected cash ows from the asset. Common to the assets is that the following factors are included in the assessment: • Arrears, overdrafts and/or the bank has discontinued repayment for the asset • Other creditors have granted a deferment or other easier terms • The customer is only in this nancial context due to a variable-interest loan or repayment freedom, or because the loan has otherwise been offered on easier terms • The customer is in RKI (Ribers Credit Information), has signicant tax debt or distraint has been levied • The customer is associated with other customers who have impaired credit When assessing business customers, the following factors are included: • Negative or fragile equity ratio • Negative or decreasing consolidation • Tight liquidity • Uncertain/negative future • The customer applies for reconstruction or an agreement to avert bankruptcy • The customer is bankrupt When assessing private customers, the following factors are included: • Negative assets and/or small available amount • Uncertain future e.g. due to unemployment, divorce or illness • The customer takes out loans to cover expenditures • The customer applies for debt relief or an agreement to avert bankruptcy 56 Note Information base, assumptions and assessment methods in assessing expected credit loss Assets with or without signicant increase in credit risk The bank’s credit losses are measured based on the following formula: ECL = PD x LGD x EAD Where: • PD is the probability that the asset will impaired • LGD is the expected loss, provided the asset is impaired • EAD is the expected exposure in terms of loss The probability that the asset will be impaired (PD) is composed of several factors: • PD at 12 months of credit loss = PD - 12 months x macro factors • PD in the asset’s lifetime = PD - 12 months x macro factors x extension factors Calculation of 12 months of credit loss or credit loss in the asset’s lifetime is determined as described in ”Practice for managing credit risk”. Three factors are used for this: Starting risk class, current risk class and overdraft for 30 days. Information base, assumptions and assessment methods for each factor are described in the overview below. Factor Information base Assumptions Assessment methods PD - 12 months The bank's statistics on cus-tomers for 01.01.2017 - 30.06.2023 distrib- uted by rating class and private and business by DS industry codes The proportion of custom-ers with impaired credit during the period and the selected groups are repre-sentative of the upcoming 12 months. However, see "Macro factors". PD is the proportionate num-ber of customers in the men-tioned groups who have impaired credit during the period. Extension factors Calculated extension factors from BankData The factors are representa-tive of the bank's custom-ers. The bank has provided data for the calcula- tions. Calculated based on histori-cal PD gures from 6 small nancial institu- tions in the years 2010-2016. The asset's lifetime Settlement agreements for assets, as well as calculated average matur- ities from BankData Loans are settled as agreed (other- wise the loan is impaired). Credits with renegotiation typically run longer than the initial negotiation. A loan with a calculated residual maturity of 8 years will have loss estimated for 8 years, with the balance ex-pected for each year. A credit with renegotiation of 10 months will be calculated with the size of the credit on the reporting date in 5 years. 57 Note Factor Information base Assumptions Assessment methods Macro factors Factors calculated with Lokale Pengeinstitutter's (The Association of Local Banks, Savings Banks and Coopera-tive Banks in Denmark) mac-ro-tools based on forecasts. The factors are representa-tive of the bank's custom-ers in the near future. The factors were phased out of the model over 10 years, as the extension factors are considered to contain suf-cient cyclical balancing. The two variables that must be entered in the tool were selected based on the bank’s historical loss data in the years 2011-2022. Factor 1 will limit the increase in the macro from year to year. Factor 1 was chosen based on the greatest increase experienced during the period, so there is not actually a limitation. Factor 2 is a conversion factor between the bank’s impairment and realised loss. Factor 2 is set to 100, as there are indications, but not documentation, that the bank’s impairment have historically been greater than the realised loss. Both are thus determined based on a principle of caution. LGD The bank's statistics for realised loss on assets that were impaired during the period 1/1/2012 to 30/06/2023. The loss rates are divided into private and business according to DS indus- try codes. The loss rate is representa-tive of the future loss in the mentioned groups. The loss rate is the realised loss in relation to EAD. To the degree possi- ble, EAD is cal-culated based on the expo-sure one year before the asset was found to be im-paired, and the value of the collateral is not deduct- ed so that it is consistent with the application of the loss calculation. EAD EAD is calculated based on expo- sures divided by type. Each type is multiplied by a Credit Conversion Factor, which is determined based on the principles of article 11 of CRR. The value of collat-eral is not deduct- ed when calculating expected loss. EAD in relation to the expo-sure's size divided by type of asset is expected to remain unchanged in the future For example, EAD for a credit will be calculated as: Used part x 100% + unused part x 20%. All exposures except for non-nan- cial guarantees are included in the calculation of EAD. 58 Note Factor Information base Assumptions Assessment methods Starting risk class The as the asset’s initial recognition date is the exposure’s establish- ment date or the date the exposure is subsequently extended by 50% or more. Since June 2017, assets have been labelled with a starting rating. To the degree possible, previous labels are entered based on the bank’s methods for rating on the date of initial recognition. The return on the asset reects the risk on the date of establishment (and when there are major increas- es). Ratings over time are care-fully converted to the current 10-step scale. If there is no initial rating, the loss is recognised in the asset's lifetime, except for assets with low risk (Rating class 1-3) Current risk class The customer's rating class on the reporting date The rating reects the credit risk See "Practice for managing credit risk" Overdrawn for 30 days The facility's balance and credit facility If the facility is overdrawn for more than 30 days, the credit risk has increased signicantly There is no minimum thresh-old for overdrafts or offset-ting of any deposits on the customer's other facilities When using the mentioned macro factors, predictive information is taken into account. No changes to important assumptions and assessment methods have occurred during the accounting period. Assets that are impaired See “Practice for managing credit risk” regarding assessment of whether the asset is impaired. When calculating the credit loss, the available existing information on the reporting date is used, as well as expectations for future development. The credit loss on impaired exposures is calculated based on the following criteria: Exposure in thousands of DKK Industry Calculation 0-150 Everyone The entire exposure is written off as a credit loss 150 - Private The credit loss is calculated weighted based on a minimum of 3 scenarios determined by the cause of the credit impairment 150- Industries except agriculture The credit loss is calculated weighted based on a minimum of 3 scenarios determined by the cause of the credit impairment 150- Agriculture The credit loss is calculated weighted based on a minimum of 3 scenarios The calculations include the following parameters: Cause of credit impairment, scenario weight, EAD, value of collateral, expected settlement ability/dividends. Information base, assumptions and assessment methods for each parameter are described in the overview below. 59 Note Factor Information base Assumptions Assessment methods Cause of credit impairment The cause of the customer's credit impairment registered by the bank The probability of each scenario is the same for each cause: Probability of bankruptcy, breach of contract, easier terms and signi- cant nancial difculties When stating the reason the guidelines in Appendix 10 of the Executive Order are followed Scenario weight Exposures that have impaired credit during the period 1/1/2013 – 30/06/2023 where the case has been closed The historical distribution of scenar- ios is representative of the credit loss on customers with similar causes and industries. The number of zero-losses uctu- ates with the economic trend. The distribution of exposures by percentage is calculated based on a placement in one of the three sce- narios: Zero-loss, Sale and Collapse. The percentage of zero-losses is then reduced in relation to a cyclical factor calculated based on the bank’s impairment and provisions during the period 2007-2023. EAD Exposure on the reporting date See under EAD in the table above See under EAD in the table above Value of collateral Current assessments less costs and expected reductions. There are generally greater reductions for a collapse scenario than a sales scenario. The actual assessment is the clos- est we can get to a real selling price until the sale is nal. Less reduc- tions are expected if the customer cooper-ates with a sale than if it is a forced sale For agriculture, reductions are used based on histori-cal documentation. There are little experience with oth- er exposures. Reduc-tions are thus estimated based on a precautionary principle. Expected settlement abil- ity/dividends Availability calculations for private customers, operating prot and budgets/periodic results for busi- ness custom-ers, dividend state- ments from bankruptcies The basis indicates something about the ability to settle the expo-sure Great caution is taken with recog- nition. If the customer is no longer cooperating with the bank, the settlement ability is generally not recognised When using the cyclical factors under “Scenario weight”, predictive information is taken into account. 32 MARKET RISKS AND SENSITIVITY INFORMATION In connection with Skjern Bank’s monitoring of market risk, a number of sensitivity calculations, which include market risk variables, have been carried out. Interest rate risk In the event of a general increase in interest rates by 1 percentage point in the form of a parallel shift of the yield curve, equity is affected as shown below 60 Note DKK 1,000 2023 2022 Interest rate risk on debt instruments etc - total 6.531 11.476 Interest rate risk in pct of core capital after deductions 0,5 0,9 Interest rate risk split in currencies with highest risk: DKK 6.677 11.619 EUR -118 -54 CHF -22 -38 JPY 0 0 USD -19 -68 Other 13 17 Total 6.531 11.476 Foreign currency risk Total assets in foreign currency 166.524 196.163 Total liabilities in foreign currency 145.441 159.118 In the event of a general change in exchange rates of 10%, and in the euro of 2.25%, Currency Indicator 1 will also be increased 1.295 871 Currency indicator 1 in pct of core capital after deductions 0,1 0,1 In the event of a general change in exchange rates of 10%, and in the euro of 2.25%, Currency Indicator 2 will also be increased 14 9 Currency indicator 2 in pct of core capital after deductions 0,0 0,0 Currency Indicator 1 represents the sum of the respective positions in the currencies in which the bank has a net asset position, and currencies where the bank has net debt. Currency Indicator 2 expresses the bank’s currency risk more accurately than indicator 1, as it takes into account the different currencies’ volatility and covariation. A value of indicator 2 of TDKK 25 means that as long as the bank does not change its currency positions in the following 10 days, there is a 1% chance that the institution will get a capital loss greater than TDKK 25, which will affect the bank’s prot and equity. Equity Risk If stock prices change by 10 percentage points, equity is affected as shown below: Quoted on Nasdaq OMX Copenhagen A/S 1.951 1.727 Quoted on other stock exchanges 1.569 1.281 Unquoted shares recorded at fair value 24.808 20.168 Total shares etc. 28.328 23.176 33 DERIVATE FINANCIAL INSTRUMENTS Derivatives are used solely to hedge the bank’s risks. Currency and interest rate contracts are used to hedge the bank’s currency and interest rate risks. Cover may not be matched 100%, so the bank has own risk. However, this risk is minor. 61 Note DKK 1,000 2023 2023 2023 2023 2022 2022 2022 2022 Net Market- Market- Net Market- Market- Nominal market- value- value- Nominal market- value- value- value value positive negative value value positive negative Currency-contracts Up to 3 months 267.226 59 131 72 245.808 -27 396 423 Over 3 months and up to 1 year 142.390 -93 0 93 88.799 0 0 0 Average market value 1.874 1.776 2.363 2.345 Interest-rate contracts Up to 3 months 208.691 -222 1.072 1.294 270.659 299 594 295 Over 3 months and up to 1 year 28.910 -35 235 270 38.908 50 69 19 Over 5 years 1.089 1.382 5.047 5.748 Average market value Shares contracts 0 0 0 0 13 2 7 5 Up to 3 months 0 0 2 3 Average market value 0 0 12 0 DKK 1,000 2023 2022 Credit risk on derivative nancial instruments Positive market value, counterparty with risk weighting of 20 % 3.370 3.614 Positive market value, counterparty with risk weighting of 50% 772 537 Positive market value, counterparty with risk weighting of 75% 1.031 1.586 Positive market value, counterparty with risk weighting of 100% 3.735 1. 015 Positive market value, counterparty with risk weighting of 150% 5 56 Total 8.913 6.808 Unsettled spot transactions Market- Market- Market- Nominal value- value- value- value positive negative net Foreign-exchange transactions, purchase 658 1 - 1 Foreign-exchange transactions, sale 388 1 - 1 Interest-rate transactions, purchase 30.942 149 14 135 Interest-rate transactions, sale 23.331 33 118 -85 Share transactions, purchase 5.784 35 56 -21 Share transactions, sale 5.784 57 33 24 Total 2023 66.887 276 221 55 Total 2022 50.574 219 150 69 62 Note DKK 1,000 2023 2022 2021 2020 2019 34 5 YEARS IN SUMMARY Prot and loss account Net income from interest 403.306 254.324 205.575 190.244 185.287 Dividend on shares 5.603 4.485 2.657 2.089 5.863 Charges and commission, net 184.625 204.914 172.738 155.181 143.257 Income from core business 593.534 463.723 380.970 347.514 334.407 Value adjustments 47.178 -30.830 20.181 26.513 40.225 Other ordinary income 2.525 2.078 3.487 1.977 1.945 Staff cost and admin. expenses 255.532 234.038 207.517 193.929 191.861 Depreciation of intangible and tangible assets 15.333 6.620 7.337 5.195 2.821 Other operating expenses 623 477 480 234 112 Write-downs on loans etc. (net) 27.638 2.703 -15.227 32.874 16.831 Operating result 344.111 191.133 204.531 143.772 164.952 Taxes 86.132 40.894 41.230 28.131 29.469 Prot for the year 257.979 150.239 163.301 115.641 135.483 Of which are holders of shares of hybrid core capital instruments etc. 5.287 5.287 5.289 6.487 6.626 Balance as per 31st December Summary Total assets 11.966.911 11.228.493 9.978.498 8.974.467 7.614.080 Loans and other receivables 6.726.329 5.464.400 4.719.737 4.224.773 4.325.613 Guarantees etc 1.857.418 2.024.207 2.690.680 2.630.139 2.379.168 Bonds 752.038 861.733 941.900 959.506 1.045.717 Shares etc 283.275 231.757 208.217 201.220 225.094 Deposits and other debts 8.284.256 7.840.474 7.027.670 6.463.735 6.223.604 Subordinated debt 99.335 98.835 98.334 97.834 97.334 Total equity 1.586.066 1.363.361 1.247.077 1.108.059 1.026.569 - of which proposed dividend 48.200 28.920 28.920 19.280 28.920 Capital Base 1.514.208 1.342.842 1.262.458 1.135.869 1.032.679 Weighted items 6.641.611 5.802.754 5.683.653 5.370.562 5.551.264 63 Note 2023 2022 2021 2020 2019 35 FINANCIAL RATIO (FIGURES IN PCT.) Solvency ratio 22,8 23,1 22,2 21,2 18,6 Core capital ratio 21,3 21,5 20,5 19,3 16,9 Return on equity before tax 24,0 15,0 1 7, 9 13,7 1 7, 3 Return on equity after tax 1 7, 9 11,7 14,2 10,9 14,1 Return on assets 2,2 1,3 1,6 1,3 1,8 Earning/expense ratio in DKK 2,15 1,78 2,02 1,62 1,78 Interest rate risk 0,5 0,9 1,1 1,3 1,6 Foreign currency position 0,1 0,1 0,1 0,1 0,2 Foreign currency risk 0,0 0,0 0,0 0,0 0,0 Loans etc. against deposits Statutory liquidity surplus 71,2 60,8 60,0 60,9 74,6 NSFR 1,24 1,35 1,42 - - LCR 331 352 353 351 357 Total large commitments 120,6 106,9 114,4 118,3 136,5 Loans and debtors at reduced interest 0,9 0,6 0,6 0,9 1,2 Accumulated impairment ratio 3,6 3,8 3,8 4,9 4,7 Impairment ratio for the year 0,4 0,1 -0,2 0,4 0,2 Increase in loans etc. for the year 23,1 15,8 11,7 -2,3 -0,8 Ratio between loans etc. and capital funds 4,2 4,0 3,8 3,8 4,2 (value per share 100 DKK) Earnings per share 131,1 75,3 103,4 56,8 66,8 Book value per share 791 676 616 544 502 Rate on Copenhagen Stock Exchange 718 610 518 352 3 11 Dividend per share 25 15 15 10 15 Market value/net income per share 5,5 8,1 5,0 6,2 4,7 Market value/book value 0,91 0,90 0,84 0,65 0,62 (value per share 20 DKK) Earnings per share 26,2 15,1 20,7 11,4 13,4 Book value per share 158 135 123 109 100 Rate on Copenhagen Stock Exchange 143,5 122,0 103,5 70,4 62,2 ) Key ratios are calculated as if the hybrid core capital is accounted for as an obligation with which the key gures are calculated based on the shareholders’ share of earnings and equity. Shareholders’ share of earnings and equity is stated in the equity statement. 64 FINANCIAL CALENDER 2024 19 January Deadline for submission of items for the agenda for the Annual General Meeting 7 February Announcement of Annual Report 2023 4 March General Meeting – Ringkøbing-Skjern Kulturcenter 8 May Announcement of quarterly report 1st quarter 2024 15 August Announcement of half-yearly report 2024 24 Ocotober Announcement of quarterly report 3rd quarter 2024 65 COMMITTEE OF REPRESENTATIVES Name Jobposition City Elected Born Hans L. Jeppesen (board chairman) Lawyer Skjern 2011 1964 Ole Strandbygaard (board vice-chairman) Printer Ringkøbing 2008 1972 Jørgen Søndergaard Axelsen Real estate agent Skjern 2002 1960 Ebbe Storgaard Bendixen Manager Bramming 2020 1981 Britta Boel Manager Varde 2022 1976 Heine Delbing Manager Odense 2019 1953 Poul Frandsen Manager Herning 2012 1967 Peter Sehested Glargaard Manage Skjern 2023 1971 Bjarke Hansen Manager Ringkøbing 2020 1977 Ole Blach Hansen Manager Gørding 2021 1971 Merete Lundøe Hillmann Vice President Vedbæk 2023 1969 Tom Jacobsen Manager Tarm 2010 1970 Mike Jensen Bookseller Skjern 2005 1966 Bjørn Jepsen Farmer Borris 2011 1963 Niels Erik Kjærgaard Former city manager Skjern 2002 1954 Birgitte Kloster Nordic logisticdirector Ribe 2018 1966 Dorte H. Knudsen Nurse Hviding 2006 1956 Finn Erik Kristiansen Manager Varde 2020 1969 Karsten Larsen Manager Dejbjerg 2020 1979 Mads Sand Madsen Manager Charlottenlund 2022 1965 Tommy Noer Technical teacher Esbjerg 2005 1954 Torben Ohlsen Manager Esbjerg 2020 1965 Niels Christian Poulsen Mink farmer No 2006 1963 Jesper Ramskov Manager Esbjerg 2005 1964 Dina Reffstrup Sales Manager Esbjerg 2022 1973 Bente Tang Farmer Hanning 2006 1969 Birte Bruun Thomsen Manager Esbjerg 2014 1966 Poul Thomsen Former trader Skjern 1993 1952 Torben Tobiasen Manager Videbæk 2020 1977 *Members of the board of directors 66 Hans Ladekjær Jeppesen, lawyer, Skjern Board chairman Born 11th September 1964 Elected on the board in 2011 Current term expires in 2025 Other management duties: Manager of KLA 2010 ApS Board chariman of Ide Huse A/S Board chariman of Grey Holding 2 A/S Board chariman of Grønbjerg Grundinvest A/S Board chariman of LHI Invest A/S Board chariman of PE Trading A/S Board chariman of Roslev Trælasthandel A/S Board chariman of Specialfabrikken Vinderup A/S Board chariman of Kjeld Andreas Ingvardsens Familiefond Board chariman of Elin Marie Ingvardsens Familiefond Board member of Advokatpartnerselskabet Kirk Larsen & Ascanius Board member of Carl C A/S Board member of Carl C Ejendomme ApS Board member of Gråkjær A/S Board member of Gråkjær Holding A/S Board member of Gråkjær Aqua A/S Board member of GråkjærA/S Board member of Gråkjær Landbrug A/S Board member of Gråkjær Erhverv A/S Board member of Grønbjerg Ejendomsselskab A/S Board member of IFN Denmark ApS Board member of Kastrup A/S Board member of Kastrup Ejendomme ApS Board member of Skanva Group A/S Board member of Skjern Håndbold A/S Board member of Vinduesgrossisten ApS BOARD OF DIRECTORS Bjørn Jepsen, farmer, Borris Vice board chariman Born 17 October 1963 Elected on the board in 2012 Current term expires in 2024 Other management duties: Vice board chairman of Mejeriforeningen Danish Dairy Bo- ard Board member of Arla Foods AmbA Board member of Kvægafgiftsfonden Board member of Mælkeafgiftsfonden Board member of Landbrug & Fødevarer, kvæg Niels Erik Kjærgaard, former city manager, Skjern Born on 3 July 1954 Elected on the board in 2019 Current term expires in 2024 Other management duties: Board chairman of Investeringsselskabet Lionek A/S Board chairman of Iværksætterselskabet K&S ApS Board member of Ejendomsselskabet Husumparken A/S Board member of Ejendomsselskabet Husumparken af 2000 A/S Board member of Fonden Remisen 67 Finn Erik Kristiansen Born 23 April 1969 Elected on the board 2020 Current term expires 2025 Other management duties: Manager of ProVarde S/I Manager of i Bordin Holding ApS Board chairman of Bog & Idé Aalborg Storcenter ApS Board chairman of Kristiansen Bog & Idé A/S BOARD OF DIRECTORS Ole Strandbygaard Born 21 February 1972 Elected on the board 2022 Current term expires 2024 Other management duties: Manager of Strandbygaard A/S Board member of Strandbygaard A/S Board member of MOGIS A/S Board member of OSBH Invest ApS Board member of SH Invest, Skjern A/S Board member of SH 1ApS Board member of SH 2 ApS Board member of SH 3 ApS Board member of Lokalvækst Board member of PrinfoDenmark A/S Board member of Prinfo Holding A/S Board member of Dejbjerglund Efterskole Board member of KOSS Ejendomme ApS Lars Skov Hansen, advisor, Esbjerg Employee-selected Born 17 May 1973 Elected on the board in 2011 Current term expires in 2027 Michael Tang Nielsen, finance manager, Velling Employee-selected Born 17 December 1977 Elected on the board in 2019 Current term expires in 2027 BOARD OF DIRECTORS Carsten Jensen, advisor, Skjern Employee-selected Born 29 April 1980 Elected on the board in 2015 Current term expires in 2027 Per Munck, CEO, Skjern Born 12 November 1954 Hired 1 November 1999 Other management duties: Boardmember of Foreningen Bankdata Boardmember of Forvaltningsinstituttet for Lokale Pengeinstitutter Boardmember of Fonden Remisen MANAGEMENT Thomas Baun, bank director, Varde Born 12 May 1976 Hired 15 August 2009 Joined the executive board 1 July 2023 AUDIT COMMITTEE SKJERN BANK Name Jobposition City Niels Erik Kjærgaard Former city manager Skjern (Chairman) Finn Erik Kristiansen Manager Varde Lars Skov Hansen Advisor Esbjerg RISK COMMITTEE SKJERN BANK Name Jobposition City Bjørn Jepsen Farmer Borris (Chairman) Finn Erik Kristiansen Manager Varde Michael Tang Nielsen Finance manager Velling SKJERN ESBJERG RIBE VIRUM ØLGOD Banktorvet 3 Kongensgade 58 J. Lauritzens Plads 1 Kongevejen 159 Storegade 16-18 6900 Skjern 6700 Esbjerg 6760 Ribe 2830 Virum 6870 Ølgod Tlf. 9682 1333 Tlf. 9682 1500 Tlf. 9682 1600 Tlf. 9682 1480 Tlf. 9682 1540 VARDE BRAMMING HELLERUP HØRSHOLM CARLSBERGBYEN Bøgevej 2 Storegade 20 Strandvejen 143 Lyngsø Allé 3 Ny Carlsbergvej 14 6800 Varde 6740 Bramming 2900 Hellerup 2970 Hørsholm 1799 København V Tlf. 9682 1640 Tlf. 9682 1580 Tlf. 9682 1450 Tlf. 9682 1420 Tlf. 9682 1680