Skjern Bank

Annual Report • Feb 17, 2015

Annual Report 2014 (Extract)

Unsatisfactory performance and completed an- nual visit from the Danish Financial Supervisory Authority in January 2015

• Profit before tax of DKK -56.7 million compared to DKK 36.2 million in 2013
• Capital ratio of 12.0% and individual capital requirements of 11.9%, corresponding to 0.1% coverage. Coverage for the 8% requirement amounts to 4.0%, corresponding to DKK 162 million.
• On 3 February 2015, the bank sold shares in DLR Kredit A/S for DKK 75 million, which in itself increases the bank's capital ratio by 1.67 percentage points, after which coverage relative to capital requirements can be calculated at 1.77%
• Solid liquidity reserves of DKK 757 million, corresponding to 131.0%
• Core earnings of DKK 111.0 million, compared with DKK 99.1 million in 2013
• The Danish Financial Supervisory Authority held a visit in January 2015, which has resulted in an order to make write-downs in the range of DKK 100 million, which is everything included in the bank's profit for 2014
• Then there was write-downs amounting to DKK 154.4 million, compared to DKK 67.1 million in 2013
• Core earnings, calculated as profit before tax, exchange rate adjustments and write-downs, is expected to be in the range of DKK 115 - 125 million in 2015.

Content

Endorsement of the Annual Report by the Management . 6 Profit and loss account . 7
Statement of comprehensive income . 7
Proposal for distribution of profit . 7
Balance Sheet . 8
Information on changes in equity . 9
Notes . 10
5 years in summary . 29
5 years financial ratios . 30
Financial Calendar 2015 . 30
Committee of representatives . 31
List of board members' managerial offices . 31

Management's financial report for 2014

Principal activities

Skjern Bank's principal activities are to supply bank products to private customers, business customers and institutional customers as well as state-controlled entities. The customers are primarily from West and South Jutland and the Hellerup area north of Copenhagen. The bank wishes to offer its customers a full product range combined with professional consultancy services.

2014 in review

A deficit of DKK 56.7 million before tax is extremely unsatisfactory, especially after a profit before tax of DKK 60.8 million as of 30/09/2014. The bank's 4th quarter was significantly affected by further writedowns, primarily in the agriculture and real estate segments.

At the annual visit in January 2015 which was just completed, the Danish Financial Supervisory Authority has, in the bank's opinion, tightened its rules in the assessment of special securities behind the Bank's real estate lending, particular in relation to the security margins. Where the Danish Financial Supervisory Authority has given an order for further write-downs, these have only been for customer relationships established before 2007.

The increased write-downs in agriculture are due to the ongoing crisis in agriculture, which has sharply reduced the settlement prices of, in particular, pork and milk in the 2nd half of 2014. The bank has made write-downs on the industry based on the new guidelines from the Danish Financial Supervisory Authority from December 2014. The guidelines mean that the concept of "early events" must be taken into consideration. At the same time, in the bank's opinion, there has been a tightening of the rules in relation to the values included in the assessment of the equity of an ailing agriculture. The crisis in agriculture has had a major impact on the earnings in the industry in 2014 and the trend is unfortunately expected to continue in 2015, which has resulted in further write-downs as a consequence of the assessment of "early events."

The total write-downs have increased by DKK 63.5 million compared to last year, to DKK 130.5 million as of 31 December 2014. The level is considered by the management to be far too high and very unsatisfactory.

The increased write-downs mean that the results are significantly worse than in 2013, which is not in accordance with the bank's original outlook for the year. Based on this, on 23 January 2015 the bank issued a stock exchange announcement with a downward adjustment of expected annual profit to a 0 result. Then, two more announcements were issued on the postponement of the date for publication of the Annual Report and clarification of the results. The final feedback from the Danish Financial Supervisory Authority has led to a much higher level of impairment than expected and all write-downs are recognised in net profit or loss for the year.

The management considers the accounts to be very unsatisfactory, but can also state that the bank is in a very satisfactory development in all areas other than impairment.

At the beginning of 2014, the bank expected a base profit in the range of DKK 100 – 110 million. In the interim report, the expectation was adjusted upwards to the level of DKK 105 - 115 million, which was realised at DKK 111.0 million.

In 2014, the bank repaid capital of a total of DKK 200 million, so the loans can no longer be included in the bank's capital base. Instead, the Bank has issued a subordinated loan of about DKK 100 million in May 2014.

The bank has assessed the possibility of continuing to recognise the deferred tax asset. From an overall point of view, it was decided to write down the tax asset by DKK 11.3 million, corresponding to the tax value of the net realised tax losses for the year.

The large write-downs in the 4th quarter of 2014 have meant a reduced capital base, but have simultaneously reduced the bank's capital requirements considerably. The bank's management is not satisfied with the current capital coverage, but is also hopeful with regards to the bank's profitability in the coming years, combined with a marked focus on reducing the solvency requirements, which will bring the bank back up to a sufficiently robust level. The bank's capital ratio can be measured at 12.0%, while the individual capital requirements amount to 11.9%. The bank has coverage of the minimum capital requirements of 8%, corresponding to a loss-absorbency of DKK 162 million compared to the minimum requirements.

Events after the balance sheet date:

To strengthen the bank's capital, on 03/02/2015 a sale was made of part of the bank's ownership interest in the sector company DLR Kredit. According to the rules, ownership interest exceeding 10% of the bank's core capital in companies in the financial sector is directly subtracted from the calculation of the capital base. The bank has sold DKK 75 million out of a total market value of DKK 140 million to another co-owner of DLR Kredit. The sale means that the bank's capital ratio was calculated on 31/12/2014, but after the sale of shares, it can be calculated at 13.7%, compared to the capital ratio of 12.0% calculated in the financial statements. The capital coverage can thus be calculated at 1.74%, corresponding to DKK 71 million.

With regards to the bank's capital position in general, refer to note 29.

There were also targeted efforts in 2014 to maintain a solid liquidity based on stable customer deposits. This is why it is very satisfying to report that at the end of the year, there was a deposit surplus of DKK 842 million. The increase in deposits from customers in 2014 has been DKK 529 million, which contributes positively to the current liquidity reserve of DKK 757 million, corresponding to 131.0%. The Bank is thus thoroughly provisioned in terms of liquidity.

In 2014, there was a solid increase in core earnings of DKK 111.0 million, compared with DKK 99.1 million in 2013 and DKK 81 million in 2012. The bank's profitability was positively affected by increasing fee income and decreasing interest expense as a result of decreasing deposit interest rates in the community as well as in Skjern Bank.

Compared with 2013, the bank's net interest and fee income increased by DKK 17.4 million, while the cost level increased by DKK 7.3 million. In the recently completely annual visit from the Danish Financial Supervisory Authority, all significant areas in the bank were reviewed, including the bank's procedures and policies. On the lending side, the Danish Financial Supervisory Authority has reviewed 233 group commitments with total loans and guarantees of DKK 2,411 million, corresponding to 53% of the bank's total loans and guarantees. The reviews have resulted in an order to write down a total of DKK 100.5 million, which the bank has expensed in 2014. The bank was also ordered to write down the value of owner-occupied properties by DKK 9.1 million. In all other areas, the Danish Financial Supervisory Authority made no significant comments.

Several of the bank's identified weak commitments have developed negatively in the course of 2014, while other commitments showed small signs of improvement. The bank is monitoring the development in agriculture closely and if the crisis is prolonged, further write-downs in agriculture can be expected. In recent years, the bank has settled a number of agricultural customer relationships where it was assessed that the farmer's operator skills were not sufficiently good. These were free sales to a new owner and the bank has never had operating responsibility of a farm. The bank's lending to the agricultural industry thus currently consists of skilled operators who there should be room for – in a profitable way – in the future of agriculture.

The Supervisory Diamond, which is the Danish Financial Supervisory Authority's benchmark for the status of the health of financial institutions, was calculated on 31 December 2014 and still shows that the bank is fully in compliance with the established limit values in all five areas.

Expectations for 2015

The Bank is looking optimistically at 2015 and expects, based on the growing number of customers, decrease in interest expense, the Danish Financial Supervisory Authority's recently completed inspection of the Bank's lending and the greatly improved core earnings, to have solid growth in earnings in 2015.

The bank has established the strategic and profit-related goals for the coming year, of which the most significant are listed below.

Based on careful growth in the bank's current departments and business areas, there are established goals for 2015 with a focus on strengthening the bank's earnings and capital provisioning in order to secure the position as the independent and local West and South Jutland bank, which will make a difference in the local areas as well in the long term.

The repressed Danish competitiveness and restrained domestic consumption discourage willingness to invest in both industrial and private consumers. Job creation in the bank's market area is expected to remain at its current level in 2015.

Private customers in the West and South Jutland areas have continued with a very robust economy, which is supported by relatively low and stable housing prices and general economic caution. The bank does not expect significant challenges in lending to private customers in 2015, nor has this been the case in recent years.

The bank has and has always had close ties to the agricultural industry, which represents a significant customer group. Over time, credit lending to the agricultural industry has been relatively unproblematic and has only led to limited losses for the bank.

The ongoing crisis in Danish agriculture is expected to continue, at least in the first half of 2015 and possibly longer. A significant part of Danish agriculture is likely to have problem with achieving profitability in 2015 and here the bank will continue – in loyalty and respect – and in close cooperation with individual farmers, to try to find the best possible solutions. The extremely difficult framework conditions in the industry and the politically induced trade barriers put high demands on individual farmers and we believe that there are only skilled operators amongst the bank's customers.

Loans to agriculture constitute 13.0% of total lending. As with any other industry, the bank has made a careful review of the commitments and in addition, 81% of them have just been reviewed by the Danish Financial Supervisory Authority, which, altogether, makes the management confident about these commitments.

The bank's activities are progressing well, the addition of new customers is solid and existing customers are increasingly entrusting more of their banking transactions.

In recent years, financing of alternative energy has brought in many new customer relationships. The share of loans so far, both for the construction of facilities and for end investors, is also expected to be a significant business area for the bank in 2015.

The focus will be on maintaining a balanced relationship between the total deposit and lending volumes, since in the future the bank also wants to base lending on deposits from customers and only to a lesser extent on loans from other institutes, etc.

Overall, 2015 is expected to lead to a relatively modest increase in the bank's business volume and increased activity in securities and the foreign sector. Interest expense was reduced as a result of lower prices on the bank's deposits

and particularly on high-interest deposits. Administrative expenses are expected to decrease, since several one-time costs occurred in 2014. A very significant factor in recent years - write-downs on trade receivables - is still expected to be high, though significantly less than in 2014, such that a satisfactory result and return on the bank's equity is expected.

In 2015, the bank expects core earnings in the range of DKK 115 - 125 million.

Audit

The Danish version of the Annual Report for 2014 is equipped with internal audit statements and independent auditors' statement. The statements are without reservations and complementary information.

Endorsement of the Annual Report by the Management

We have today discussed and approved the annual report for the period 1 January – 31 December 2014 for Skjern Bank A/S.

The annual report has been prepared in accordance with the Danish legislation on financial activities, including executive order on financial reports for credit institutes and stock broker companies, etc. Furthermore, the annual report has been prepared in accordance with addi-tional Danish requirements regarding information in annual reports for financial companies listed on the Stock Exchange.

We consider the accounting practice chosen to be appropriate so that the annual report gives a correct impression of the bank's assets, liabilities, financial position as at the 31st December 2014 and of the result of the bank's activities for the accounting year 1 January – 31 December 2014.

The management report includes a correct presentation of the development of the bank's activities and financial conditions together with a description of the material risks and uncertain-ties by which the bank may be affected.

The annual report is recommended for approval by the General Meeting.

Skjern, the 17th February 2015 Executed Board of Skjern BankA/S

Per Munck / Thomas Baun Chief Financial Officer

Skjern, the 17th February 2015

The Board of Skjern Bank A/S

Hans L. Jeppesen Jens Okholm Chairman Vice-Chairman

Bjørn Jepsen Finn Erik Kristiansen Søren Dalum Tinggard Lars Skov Hansen Lars Lerke

	Profit and loss account	2014	2013
Note:		(DKK 1,000)	(DKK1,000)
2 I	nterest receivable	244,721	249,506
3 I	nterest payable	84,795	89,001
	Net income from interest	159,926	160,505
D	ividend on shares and other holdings	6,491	8,231
4 C	harges and commission receivable	86,183	66,794
C	harges and commission payable	4,575	4,933
	Net income from interest and charges	248,025	230,597
5 V	alue adjustments	10,770	16,236
O	ther ordinary income	1,195	1,745
6 S	taff costs and administrative expenses	138,473	131,117
D	epreciation and write-downs on intangible and tangible assets	14,118	4,047
O	ther operating expenses total	9,254	9,834
	ontribution to the Guarantee Fund for deposits C	9,018	9,127
	ther operating expenses O	236	707
9	Write-downs	154,386	67,073
10	Profit on equity investments in non-affiliated and affiliated companies	-507	-332
	Result before tax	-56,748	36,175
11 T	ax	-712	11,720
	Net-result for the financial year	-56,036	24,455

Proposal for distribution of profit

Total distribution of the amount available	-56,036	24,455
T ransferred to/from retained earnings	-56,036	24,455
D ividends	0	0

Statement of comprehensive income

Profit for the financial year O ther comprehensive income after tax	-56,036 0	24,455 0
Total comprehensive income	-56,036	24,455

Balance Sheet	2014	2013
Note:	(DKK 1,000)	(DKK 1,000)
Assets
C ash in hand and demand deposits with central banks	460,515	437,505

12 R	eceivables at credit institutions and central banks	28,482	16,573
13 L	oans and other receivables at amortised cost	3,643,989	3,647,129
14	Bonds at fair value	830,645	824,171
15 S	hares etc.	245,966	211,354
16	Holdings in associated enterprises	0	361
16	Holdings in group enterprises	3,026	3,171
17 L	and and buildings (total)	55,341	66,889
	nvestment properties I	6,974	8,361
	wner-occupied properties O	48,367	58,528
18 O	ther tangible assets	5,897	6,517
C	urrent tax assets	717	0
19 D	eferred tax assets	36,002	34,619
O	ther assets	65,010	68,224
	Prepayments	8,530	6,308
	Total assets	5,384,120	5,322,821

Liabilities

	Debt
20 D	ebt to credit institutions and central banks	99,848	416,006
21 D	eposits and other debts	4,485,996	3,956,740
22	Bonds issued at amortised cost	1,351	3,051
C	urrent tax-liabilities	0	2,218
O	ther liabilities	104,444	96,565
	Prepayments	690	444
	Total debt	4,692,329	4,475,024
	Provisions
13	Provisions for loss on guarantees	0	0
	Total provisions	0	0
23	Subordinated debt
	Subordinated loan capital	99,260	199,201
	Hybrid core capital	70,000	70,000
	Total subordinated debt	169,260	269,201
	Equity
24 S	hare capital	192,800	192,800
R	evaluation reserves	417	417
	Proposed dividend	0	0
R	etained earnings	329,314	385,379
	Total equity	522,531	578,596
	Total liabilities	5,384,120	5,322,821

	Information on changes in equity	2014	2013
Note:		(DKK 1,000)	(DKK 1,000)
24 S	hare capital beginning-of-year	192,800	192,800
S	hare issue	0	0
24	Share capital end-of-year	192,800	192,800
R	evaluation reserves beginning-of-year	417	417
	Additions related to reassessed value	0	0
O	ther movements	0	0
	Revaluation reserves end-of-year	417	417

	Total equity	522,531	578,596
	Retained earnings end-of-year	329,314	385,379
25	Purchase of own funds	- 14,725	-21,871
S	ale of own funds	14,696	24,187
25	Profit or loss for the financial year	-56,036	24,455
	Correction equity beginning-of-year 2013	0	4,839
R	etained earnings beginning-of-year	385,379	353,769

Notes

		Page
1 A	ccounting policies .	11
2 I	nterest income .	14
3 I	nterest expenses .	14
4	Fees and commission income .	14
5 V	alue adjustments .	14
6 S	taff costs and administrative expenses .	14
7 I	ncentive and bonus schemes .	15
8 A	udit fee .	15
9	Write-downs on loans and receivables .	16
10	Profit on equity investments in non-affiliated and affiliated companies .	16
11 T	ax .	16
12 R	eceivables at credit institutions and central banks .	16
13 L	oans and other debtors at amortised cost price .	16
14	Bonds at fair value .	17
15 S	hares etc. .	17
16 E	quity investments in non-affiliated and affiliated companies .	17
17 L	and and buildings .	18
18 O	ther tangible assets .	18
19 D	eferred taxation .	18
20 D	ebt to credit institutions and central banks .	18
21 D	eposits and other debts .	18
22	Bonds issued at fair value .	19
23 S	ubordinated debt .	19
24 S	hare capital .	19
25 O	wn capital shares	20
26 C	ontingent liabilities .	20
27 L	awsuits etc. .	21
28 R	elated parties .	21
29 C	apital requirement .	22
30 C	urrent value of financial instruments .	22
31 R	isks and risk management .	23
32 C	redit Risk .	24
33	Market risks and sensitivity information .	26
34 D	erivate financial instruments .	27
35 C	operative agreements .	28
36	5 years in summary .	29
37	5 years of financial ratio .	30

vigour · individual solutions · presence Presence · vigour · individual solutions

1. Accounting Policies

The Financial Statements have been prepared in accordance with the Danish Financial Business Act and the Executive Order on financial reports for credit institutions and investment companies, etc.

The Financial Statements have been prepared in accordance with additional Danish legal requirements for Financial Statements for listed financial companies.

The Financial Statements are presented in DKK and rounded to the nearest DKK 1,000.

The accounting practice used is unchanged compared to the previous year.

General notes on recognition and measurement

Assets are recognised in the statement of financial position when it is probable that future economic benefits will flow to the bank and the asset's value can be measured reliably.

Liabilities are recognised in the statement of financial position when they are likely and can be measured reliably.

Assets and liabilities are initially recognised at fair value. However, intangible and 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 confirm or invalidate conditions existing on the balance date are taken into account in recognition and measurement.

Income is recognised in the statement of profit or loss and other comprehensive income as it is earned, while expenses are recognised at the amounts which relate to the financial year.However, value increases in owner-occupied properties are recognised directly in equity.

Purchases and sales of financial instruments are recognised on the transaction date and are no longer recognised when the right to receive/deliver cash to or from the financial asset or liability has expired or if it is transferred and the bank has transferred all significant risks and rewards of ownership. The bank has not used the rules for reclassification of certain financial assets at fair value to amortised cost.

Change in opening equity

In connection with the presentation of the Annual Report for 2014, the bank has discovered an error in the accounting treatment of accrued income on commissions.

The amount adds up to DKK 6,204 thousand before tax and DKK 4,839 thousand after tax. The entire amount has been corrected in opening equity for 2013 and in other assets as of 31 December 2014. The bank's profit or loss for 2013 and 2014 is thus not affected by the change.

The bank's financial ratios have changed for 2013 with regards to return on equity before tax and return on equity after tax.

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 transaction under normal conditions between knowledgeable, willing and independent parties. The fair value of financial 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 financial 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.

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 final 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 include impairment of loans and receivables, determination of fair value of unlisted financial instruments, tangible fixed assets, deferred tax assets and provisions.

Foreign currencies

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.

Currency translation adjustments are recognised on an ongoing basis in the statement of profit or loss and other comprehensive income.

Income statement

Interest, fees and commissions, etc.

Interest income and expenses are recognised in the statement of profit or loss and other comprehensive income in the period to which they relate.

Received interest on loans on which a write down has occurred are passed to the written-down part of the loan in question under the item "Impairment of loans and receivables" and are thus offset in net write-downs.

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 profit or loss and other comprehensive income when the rights to them are acquired.

Staff and administrative expenses

Staff and administration expenses include wages and salaries, social costs, pensions, EDB costs and administrative and marketing costs.

Pension plans

The bank has entered into defined contribution schemes with the employees.

In defined contribution schemes, fixed contributions are paid to an independent pension fund. The bank has no obligation to make further contributions.

Tax

Tax for the year, which consists of current tax for the year and movements in deferred tax, is recognised in the statement of profit or loss and other comprehensive income as the portion which is attributable to the net profit 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 statement of financial position as tax calculated on taxable 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.

Deferred tax assets, including the tax value of tax loss carry forwards, are recognised in the statement of financial position at the value at which the asset is expected to be realised, either against deferred tax liabilities or as net assets.

The bank is jointly taxed with all Danish companies in which it exercises a controlling interest. The current Danish corporation tax is allocated between jointly taxed Danish companies in proportion to their taxable income (full allocation with tax relief for losses).

Balance sheet

Receivables from credit institutions and central banks

Initially 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 losses incurred but not yet realised.

Loans, etc. are written down either individually or on a group basis when there are objective indications of poor credit quality which result in a reduction in the expected future series of payments based on an assessment of the most probable outcome.

For loans and receivables which are not individually written down, a group assessment is made of whether there are objective indications of impairment in the group.

The collective assessment is made for groups of loans and receivables which have similar characteristics in terms of credit risk.

The bank operates with 11 groups: a group of public authorities, a group of private customers and 9 groups of commercial customers, where the commercial customers are divided by industry.

The collective assessment is based on a segmentation model developed by the association Lokale Pengeinstitutter, which is responsible for ongoing maintenance and development. The segmentation model establishes the relationship in each group between recognised loss and a number of significant explanatory macroeconomic variables via a linear regression analysis. The explanatory macroeconomic variables include unemployment, housing prices, interest rates, number of bankruptcies/foreclosures, etc.

The macroeconomic segmentation model is initially calculated based on loss data for the entire banking sector.

The bank has therefore assessed that the model estimates reflect the credit risk for the bank's own lending portfolio.

For each group of loans and receivables, an estimate is made which reflects the percentage of impairment related to a specific group of loans and receivables on the balance date. By comparing the individual loan's current risk of loss with the loan's original risk of loss and the loan's risk of loss at the beginning of the current accounting period, the individual loan's contribution to the group impairment is shown. Impairment is calculated as the difference between the carrying value and the discounted value of expected future payments.

Changes in write-downs made are adjusted in the statement of profit 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 official 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 financial reports or on a return model which is based on cash flows and other available information. The Executive Board takes an active approach to the calculation of fair value.

Value adjustments on bonds and shares, etc. are recognised on an ongoing basis in the statement of profit or loss and other comprehensive income under the item "Exchange rate adjustments."

Investments in subsidiaries and associates

Equity investments in associated and group enterprises are recognised and measured according to the book value method, which means that the equity investments are measured at the proportionate share of the companies' book value at the end of the year.

The bank's share of the companies' profit after tax is recognised in the statement of profit or loss and other comprehensive income.

Land and buildings

Land and buildings include

• "Owner-occupied properties," which consist of the properties from which the bank conducts banking activities, and

• "Investment properties," which consist of all other properties the bank owns.

Owner-occupied properties are measured in the statement of financial position at revalued amount, which is the fair value determined based on the return method with a rate of return in the range of 5-7% minus accumulated depreciation and any impairment loss. Depreciation is recognised in the statement of profit or loss and other comprehensive income. Revaluation is done so frequently that there are no significant differences in fair value.

Increases in the owner-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 profit or loss and other comprehensive income in a previous year, the increase is recognised in the statement of profit or loss and other comprehensive income.

A decrease in the revalued amount is recognised in the statement of profit 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 adjusted for any value adjustments where residual values are not used. Investment properties are measured in the statement of financial position at fair value determined based on the return method. Ongoing changes in fair value of investment properties are recognised in the statement of profit or loss and other comprehensive income.

Other tangible fixed assets

Other tangible fixed 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. Linear depreciation is carried out over 3-5 years, based on the cost.Depreciation and loss of impairment are recognised in the statement of profit or loss and other comprehensive income.

Other assets

Other assets include interest receivable and provisions and positive market value of derivative financial instruments.

Assets in temporary possession

Assets in temporary possession include assets which the bank possess and has for sale for a short period. The assets are measured at fair value.

Prepayments and accrued income

Prepayments and accrued income recognised under assets include costs relating to subsequent financial years.

Prepayments and accrued income recognised under liabilities include prepaid interest and guarantee provisions relating to subsequent financial years.

Payables to credit institutions and central banks/deposits and other debt/issued bonds/subordinated capital contributions

The items are measured at amortised cost.

Other liabilities

Other liabilities include interest payable and provisions and negative market value of derivative financial instruments.

Provisions

Commitments, guarantees and other liabilities which are uncertain in terms of size or time of settlement are recognised as provisions when it is probable that the liability will result in a drain on the Bank's financial resources and the liability can be measured reliably. The liability is calculated at the present value of the costs required to settle the liability.

However, guarantees are not measured lower than the provision which is received for the guarantee, accrued over the guarantee period.

Treasury shares

Acquisition and disposal and dividends from treasury shares are recognised directly under equity.

Derivative financial instruments

All derivative financial instruments, including forward contracts, futures and options in bonds, shares or currency, 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 profit 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 liability 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 profit or loss and other comprehensive income under "Impairment of loans and receivables, etc."

Financial highlights

Key figures and ratios are presented in accordance with the requirements in the Danish Executive Order on the Presentation of Financial Statements.

Note
		2014	2013
		(DKK 1,000)	(DKK 1,000)
2	Interest income
R	eceivables at credit institutions and central banks	32	47
L	oans and other receivables	238,463	237,774
L	oans (interest conc. the written-down part of loans)	-9,600	-9,000
	Bonds	15,455	18,518
O	ther derivative financial instruments, total	371	167
	of which urrency contracts C	-840	-778
	nterest-rate contracts I	1,211	945
	Other interest income	0	0
	Total	244,721	249,506
3	Interest expenses
C	redit institutions and central banks	773	1,225
D	eposits	66,430	70,159
	Bonds, issued	61	596
S	ubordinated debt	17,427	17,014
O	ther interest expenses	104	7
	Total	84,795	89,001
	No income or expenses are entered from genuine purchase or repurchase contracts in notes 2 and 3.
4	Fees and commission income
S	ecurities trading and custody accounts	25,309	19,278
	Payment services	7,176	6,476
L	oan fees	30,460	22,209
G	uarantee commission	7,881	8,742
O	ther fees and commission	15,357	10,089
	Total	86,183	66,794
5	Value adjustments
	Bonds	-7,689	482
T	otal shares	14,597	14,220
	- Shares in sectorcompanies etc.	9,919	6,952
	- Other shares	4,678	7,268
	Foreign currency	3,896	1,504
O	ther financial instruments	-34	30
	Total	10,770	16,236
	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.
6	Staff costs and administrative expenses
	Salaries and remuneration of board of directors, audit committee, managers etc.
	Board of managers (1 person)*	2,830	2,830
	Fixed fees.	2,790	2,790
	Pension contributions	40	40
	Management board	869	697
A	udit Committee	50	50
C	ommittee of representatives	172	176
	Total salaries and remuneration of board etc.	3,921	3,753
	*The Board of manager has a company car
	Board of Directors' remuneration
	Hans Ladekjær Jeppesen	233	145
	Jens Okholm	172	133
	Bjørn Jespsen	100	93
	Finn Erik Kristiansen	109	103
S	øren Dalum Tinggaard	98	77

Lars Skov Hansen ........................................................................... 109 103 Lars Lerke .................................................................................... 98 93

Total ........................................................................................ 921 747

Note
		2014	2013
		(DKK 1,000)	(DKK 1,000)
6	Staff costs and administrative expenses (continued)
	Staff costs
	Wages and salaries	62,829	60,318
	Pensions	6,922	6,751
S	ocial security costs	942	869
	Payroll tax	8,357	7,757
	Total staff costs	79,050	75,695
S	alary to special risk takers (10 persons in 2014, 6 persons in 2013)	7,122	4,705
	Pensions to special risk takers (10 persons in 2014, 6 persons in 2013)	770	504
	Other administrative expenses
	IT expenses	24,436	23,540
R	ent, electricity, heating etc.	4,550	4,453
	Postage, telephony etc.	972	1,201
O	ther administrative expenses	25,544	22,475
	Total other administrative expenses	55,502	51,669
	Total staff costs and administrative expenses	138,473	131,117

Pension and severance terms for the executive board

The management receives 11% of salary grade 31 in annual pension, which is contribution-based through a pension company. Therefore, Skjern Bank has no pension obligations to the management, since there is regular payment to a pension company as indicated. Upon retirement, Skjern Bank pays a severance payment equivalent to 6 months' salary. The management may retire at 62 years and must retire at 70 years in accordance with the applicable contract.

Skjern Bank's notice period to the management is 36 months, but may be 48 months in special circumstances. The management'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% of their respective salary grades in annual pen-sion, which is contribution-based through a pension company in which the payments are expensed continually.

E	mployed in credit institution business	125	122
E	mployed in other business	0	1
	Total	125	123

7 Incentive and bonus schemes

The bank does not have any incentive or bonus schemes.

8 Audit fee

T otal fee to the firm of accountants, elected by the annual meeting,
that perform the statutory audit	679	966
Honorariums for statutory audits of financial statements	563	513
Honorariums for tax services	20	0
Honorariums for assurance services	40	295
Honorariums for other services	56	158

Note

		2014	2013
		(DKK 1,000)	(DKK 1,000)
9	Write-downs on loans and receivables
R	Write-downs and provisions during the year eversal of write-downs made in previous years	180,308 -20,369	99,995 -28,535
	Finally lost, not previously written down	6,269	5,799
I	nterest on the written-down portion of loans	-9,600	-9,000
R	ecoveries of previously written off debt	-2,222	-1,186
	Total	154,386	67,073
10
	Profit on equity investments in non-affiliated and affiliated companies Profit on equity investments in non-affiliated companies	-361	-271
	Profit on equity investments in affiliated companies	-146	-61
	Total	-507	-332
11 C	Tax alculated tax of income of the year	672	3,278
A	djustment of deferred tax	-1,384	7,512
A	djustment of tax calculated in previous years	0	930
	Total	-712	11,720
T	ax paid during the year	735	1,060
	Effective tax-rate	(Pct.)	(Pct.)
C	urrent tax rate	24.50	25.00
N	on-deductible expenses and non-taxable income	-2.70	-0.88
A	djustment of prior years' taxes	0.00	2.57
R	eduction in future tax rate	-0.30	5.22
O	ther adjustments	-1.20	0.49
	Total effective tax rate	20.30	32.40
12 D	Receivables at credit institutions and central banks eposits with central banks	0	0
R	eceivables at credit institutions	28,482	16,573
	Total	28,482	16,573
	Remaining period
D O	emand ver 1 year and up to 5 years	27,913 569	15,463 1,110
	Total	28,482	16,573
N	o assets related to genuine purchase and resale transactions included.
13	Loans and other debtors at amortised cost price
	Remaining period
C	laims at call	1,525,278	1,612,387
U	p to 3 months	95,859	58,628
O	ver 3 months and up to 1 year	268,209	375,123
O	ver 1 year and up to 5 years	771,026	673,327
O	ver 5 years	982,835	927,664
	Total loans and other debtors at amortised cost price	3,643,207	3,647,129
N	o assets related to genuine purchase and resale transactions included
	Individual write-downs and provisions
	Write-downs beginning of the year	221,447	223,512
	Write-downs during the year	174,192	91,499
R	eversal of write-downs made in previous years	-15,380	-28,535
	Write-downs in previous years - now lost	-42,708	-65,029
	Write-downs end of year	337,551	221,447
	Group write-downs and provisions
	Write-downs - beginning of the year	21,689	12,883
	Write-downs during the year	1,213	8,806
	Group write-downs - end of year	22,902	21,689
	Total write-downs	360,453	243,136

Note
		2014 (DKK 1,000)	2013 (DKK 1,000)
13	Loans and other debtors at amortised cost price (continued)
	Guarantees
	Provisions beginning of the year	0	10,517
	Provisions during the year*	0	12
L	oss on guarantees	0	-10,000
T	ransferred to liabilities	0	-529
	Guarantees end of year	0	0
	*) Provisions to the Guarantee Fund for deposits represents 0 TDKK in 2014 and 0 TDKK in 2013.
	Loans etc. with suspended calculation of interest	186,576	187,895
	Loans and other debtors with an objective indication of impairment
	included in the balance sheet at a book value greater than zero
	Individual written-down loan
	Balance for loans and other debtors before write-downs	703,745	623,703
	Write-downs	-337,551	-221,447
	Balance for loans and other debtors after write-downs	366,194	402,256
	Group written-downs loans
	Balance for loans and other debtors before write-downs	3,299,915	3,266,562
	Write-downs Balance for loans and other debtors after write-downs	-22,902 3,277,013	-21,689 3,244,873
T	here are no write-downs of receivables from credit institutions, or any other receivables.
14	Bonds at fair value Mortgage credit bonds	610,728	656,713
O	ther bonds	219,917	167,458
	Total bonds at fair value	830,645	824,171
T	he bank has no held-to-maturity assets
15	Shares etc
	Quoted on Nasdaq OMX Copenhagen A/S	36,924	29,095
	Quoted on other stock exchanges	14,217	14,024
S	ectorshares recorded at fair value	194,825	166,211
O	ther shares	0	2,024
	Total shares etc.	245,966	211,354
16	Equity investments in associated and affiliated companies	2014	2014
A		ssociated A	ffliated
		companies	companies
		(DKK 1,000)	(DKK 1,000)
	Total cost price beginning-of-year	505	6,988
A	cquisitions during the year	0	0
R	eduction during the year	0	0
	Total cost price end-of-year	505	6,988
	Total write-ups/downs and depreciations beginning-of-year	-143	-3,816
R	esult	-362	-146
D	isposals during the year	0	0
	Total write-ups/downs and depreciations end-of-year	-505	-3,962
	Book value end-of-year	0	3,026
	of this credit institutions	0	0
	Book value beginning-of-year	361	3,171
	of this credit institutions	0	0

All agreements and transactions with affiliated undertakings is entered into on market terms.

Note		2014 (DKK 1,000)	2013 (DKK 1,000)
17	Land and buildings
I	nvestment properties
	Fair value - end of previous financial year	8,361	9,361
A	cquisitions during the year incl. improvements	13	52
D	isposals during the year	0	0
A	djustment of fair value for the year	-1,400	-1,052
	Fair value end-of-year	6,974	8,361
	Owner occupied properties
R	eassessed value - end of previous financial year	58,528	60,068
A	cquisitions during the year incl. improvements	357	166
D D	isposals during the year epreciations	0 -1,420	-935 -1,420
	Adjustment of fair value for the year	-9,098	0
C	hanges in value recognized in income	0	649
	Reassessed value end-of-year	48,367	58,528
	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 5-7 %.
18	Other tangible assets
T	otal cost price beginning-of-year	40,633	40,154
A	cquisitions during the year incl. Improvements	2,242	479
R	eduction during the year	-1,105	0
	Total cost price beginning-of-year	41,770	40,633
T	otal write-ups/downs and depreciations beginning-of-year	34,116	31,878
D	epreciations during the year	2,199	2,238
R	eversal of depreciations	-442	0
	Total write-ups/downs and depreciations end-of-year	35,873	34,116
	Book value end-of-year	5,897	6,517
19	Deferred taxation
	(Tax amount)
T	angible assets	2,002	1,164
L O	oans and other receivables ther	2,113 -164	1,843 -176
O	ther deficits carried forward	32,051	31,789
	Total deferred taxation	36,002	34,619
	The activated deficit is expected to be utilised within the next 3-5 years.
20	Debt to credit institutions and central banks
	Debt to credit institutions and central banks Debt to central banks	31,857	250,701
D	ebt to credit institutions	67,991	165,305
	Total debt to credit institutions and central banks	99,848	416,006
	Term to maturity
D	emand	99,848	85,305
	Over 3 months and up to 1 year	0	80,000
O	ver 1 year and up to 5 years	0	250,701
	Total debt to credit institutions and central banks	99,848	416,006

No liabilities related to genuine sale and repurchase transactions included.

Note		2014 (DKK 1,000)	2013 (DKK 1,000)
21	Deposits and other debts
D	emand	3,684,779	3,105,816
A	t notice	17,841	18,818
T	ime deposits	183,424	196,256
S	pecial types of deposits	599,952	635,850
	Total deposits and other debts	4,485,996	3,956,740
	Term to maturity
D	emand	3,701,757	3,119,267
D	esposits redeemable at notice:
U	p to 3 months	118,295	97,685
O	ver 3 months and up to 1 year	130,061	63,310
O	ver 1 year and up to 5 years	89,805	211,279
O	ver 5 years Total deposits and other debts	446,078 4,485,996	465,199 3,956,740
	No liabilities related to genuine sale and repurchase transactions included.
22	Bonds issued at fair value
	Term to maturity
	Up to 3 months	1,351	1,700
O	ver 3 months and up to 1 year	0	0
O	ver 1 year and up to 5 years	0	1,351
	Total bonds issued at amortised cost	1,351	3,051
23	Subordinated debt
	Supplementary capital DKK 100 mio	99,260	0
R	ate	6.595%	0%
D	ue date	21.05.2024
	xx
	xx
	xx
	xx
	xx
	Supplementary capital DKK 100 mio	0	100,000
R	ate		3.26%
D	ue date		03.12.2015
T	he loan is repaid 3 June 2014.
	Supplementary capital DKK 100 mio	0	99,201
R	ate		8.00%
D	ue date		14.12.2017
T	he loan is repaid 14 December 2014.
	Hybrid core capital DKK 70 mio	70,000	70,000
R	ate	6.09%	6.09%
D	ue date N	o due date N	o due date
T O	he loan can be repaid prematurely by the bank on the 1st May 2016. n May 1 2016, the interest rate is changed to a quarterly variable coupon rate equal to the CIBOR rate published by .Nasdaq OMX for a maturity of three months plus 2.73% pa.
	Subordinated debt total	169,260	269,201
S	ubordinated debt that may be included in the capital base	169,260	219,201
C	osts related to admission	852	0
I	nterest on subordinated liabilities recognised in income	17,427	17,014

Note		2014 (DKK 1,000)	2013 (DKK 1,000)
24 N	Share capital umber of shares is 9,640,000 at DKK 20 each	192,800	192,800

The bank has pr. 31. December 2014 16,387 registered shareholders. 98.09 % of the share capital are registered on name.

25 Own capital shares

Purchase and sales of own shares

Holdings beginning of the year

N	umber of own shares	8,850	79,890
N	ominal value of holding of own shares (DKK 1,000)	177	1,598
O	wn shares proportion of share capital	0.09	0.83
	Addition
N	umber of own shares	340,119	714,411
N	ominal value of holding of own shares (DKK 1,000)	6,802	14,288
O	wn shares proportion of share capital	3.53	7.41
	Purchase price (DKK 1,000)	14,726	21,871
	Disposal
N	umber of own shares	339,990	785,451
N	ominal value of holding of own shares (DKK 1,000)	6,800	15,709
O	wn shares proportion of share capital	3.53	8.15
S	ale price (DKK 1,000)	14,696	21,187
	Holdings end of the year
N	umber of own shares	8,979	8,850
N	ominal value of holding of own shares (DKK 1,000)	180	177
O	wn shares proportion of share capital	0.09	0.09

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 (finansloven), 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 2014 are a consequence of this.

26 Contingent liabilities

Contingent liabilities

Finance guarantees	41,157	55,338
uarantees against losses on mortgage credit loans	192,268	164,208
egistration and conversion guarantees	45,411	81,976
ther contingent liabilities	274,475	283,191
Total	553,311	584,713
Other binding engagements
rrevocable credit-undertakings	108,958	77,767
Total	108,958	75,767

Assets pledged as collateral

From the security portfolio, the bank has pr. 31. December 2014 put as collateral for clearing with Danmarks Nationalbank, securities with a total market value of DKK 170 million. In addition, there is pledged bonds for a total of DKK 10 million.

Contract Legal obligations

As a member of Bankdata, the bank is due to a possible resgination required to pay a withdrawal benefit.

Note ^{2014 2013} (DKK 1,000) (DKK 1,000) 26 Contingent liabilities (continued)

Like other Danish financial 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 0.423 %.

The Bank is a tenant in three leases, two of which can be terminated with 6 months' notice, the yearly lease is 870 TDKK. The third lease is irrevocable until 31 December 2021, and the yearly lease is 1,865 TDKK.

27 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.

28 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:
L oans Bid Bond	30 0	0 0
R ate of interest	6.00-6.75%	0.00%
Board of directors:
L oans	3,029	3,155
Bid Bond	2,240	2,240
R ate of interest/interest range	2.2511-8.00%	2.206-6.7325%
Holding of shares in Skjern Bank:
T he board of managers
Per Munck	28,545	28,545
T he board of directors
Hans Ladekjær Jeppesen	11,115	11,115
Jens Okholm	13,022	13,022
Bjørn Jepsen	4,536	4,536
Finn Erik Kristiansen	2,748	2,748
S øren Dalum Tinggaard	3,234	955
L ars Sov Hansen	710	710
L ars Lerke	9,882	10,382

Note		2014 (DKK 1,000)	2013 (DKK 1,000)
29	Capital requirement
E C	quity orrection equity beginning of the year	522,531 0	578,596 -4,839
	Corrected equity	522,531	573,757
R D	evaluation reserve eferred tax assets	0 -36,002	-417 -35,984
D	eduction for the sum of equity investments etc. above 10 %	-36,377	0
D	eduction of trading framework for own sharers Core tier 1 capital (excl. hybrid core capital)	-916 449,236	0 537,356
	Hybrid core capital	56,000	70,000
D D	eduction for equity investments etc. above 10 % eduction for the sum of equity investments etc. above 10 %	0 -56,000	0 -43,383
	Tier 1 capital	449,236	563,973
S	Revaluation reserve ubordinated loan capital	0 99,260	417 149,200
D	eduction for the sum of equity investments etc. above 10 %	-61,584	-43,383
	Capital base	486,912	670,207
	Weighted items
	Credit risk	3,318,100	3,285,186
	Market risk	276,513	285,537
O	perational risk	457,193	429,598
	Weigthed items total	4,051,806	4,000,321
	Core tier 1 capital ratio (excl. hybrid core capital)	11.1	13.4
	Tier 1 capital ratio	11.1	14.1
	Solvency ratio - Tier 2	12.0	16.8

30 Current value of financial instruments

Financial instruments are measured in the statement of financial 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 financial assets and liabilities valued on active markets, the fair value is calculated based on observable market prices on the market date. For financial instruments valued on active markets, the fair value is calculated based on generally accepted valuation methods.

Shares, etc. and derivative financial instruments are measured in the accounts at fair value so that recognised values correspond to fair value. Loans are recorded in the bank's statement of financial 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 first due for payment after the end of the financial year and for fixed-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 floating rate financial 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 first due for payment after the end of the financial year.

For fixed-rate financial 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 first due for payment after the end of the financial year and the variable interest rate.

30 Current value of financial instruments (continued)

	31. december 2014 31. december 2013
	Book value (DKK 1,000)	Fair value (DKK 1,000)	Book value (DKK 1,000)	Fair value (DKK 1,000)
Financial assets
C ash in hand+claims at call on central banks	460,515	460,515	437,505	437,505
C laims on credit institutes and central banks 1)	28,482	28,482	16,573	16,573
L oans and other debtors at amort. costprice 1)	3,651,327	3,669,918	3,654,827	3,666,891
Bonds at current value 1) .	834,535	834,535	829,219	829,219
S hares etc. .	245,966	245,966	219,516	219,516
C apital shares in associated companies .	0	0	361	361
C apital shares in group companies .	3,026	3,026	3,137	3,137
D erivative financial instruments .	36,526	36,526	40,177	40,177
Total financial assets	5,260,377	5,278,968	5,201,315	5,213,379
Financial liabilities
D ebt to credit institutions and central banks 1)	99,857	99,857	416,095	416,396
D eposits and other debts .	4,524,677	4,590,526	3,989,220	4,063,490
I ssued bonds at amortised cost price 1) 2) .	1,402	1,402	3,136	3,136
D erivative financial instruments .	9,838	9,839	14,828	14,828
S ubordinated debt 1) 2) .	176,205	176,205	272,630	273,630
Total financial liabilities .	4,811,980	4,877,829	4,695,909	4,771,480

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

31 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 financial 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 financial instruments and derivative financial instruments fluctuating due to changes in market prices. Skjern Bank classifies three types of risk for the market risk area: Interest rate risk, equity risk and currency risk.

Liquidity risk:

Risk of losses due to financing costs rising disproportionately, the risk that Skjern Bank is prevented from maintaining the adopted business model due to a lack of financing/funding or ultimately, the risk that Skjern Bank cannot honour incoming payment obligations when due as a result of a lack of financing/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 90 TDKK - 125 TDKK. In the real-estate sector is used return requirement in the range 5% - 9%. 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.

Capital reserves

On page 8 in the Annual Report, the bank referred to an unsatisfactory capital surplus of 0.1% points on 31/12/2014, corresponding to a surplus of 0.84%. The bank's actual core capital is about 11.1% and is thus robust and sufficient in relation to the legal minimum requirements for core capital of 4.0% points. Overall, there is a surplus in the capital base of DKK 162 million, down to the hard requirement in the Danish Executive Order on Capital Adequacy of 8% points. The bank's management has adjusted the capital plan with the realised deficit after tax in 2014 of DKK 56.0 million. The capital plan for the next 5 years until 2019, when the new capital buffer has been fully implemented, contains the following assumptions:

31 Risks and risk management (continued)

• In 03/02/2015, the bank sold shares in DLR Kredit of DKK 75 million, which by itself increases the capital ratio by 1.7%.

• Expected positive results in upcoming years.
• Expected reductions in the solvency requirements as a result of both higher capital base and reduction of the risk of identifying weak commitments over 2% of the core capital.
• The bank's management will continually assess the need for issue of hybrid loan capital.

The bank's management will continually monitor and assess the development in capital reserves very closely and will assess the need for further strengthening of the capital base via various measures containing in the bank's procedures for capital plans. The bank believes that the implementation of the bank's capital plan is realistic and that capital coverage will thus be restored through future operation, but is aware that the implementation of this is subject to uncertainty.

32 L	Credit risks oans and guarantees distributed on sectors	2014 (Pct)	2013 (Pct)
	Public authorities	1.6	2.4
	Business:
A	griculture, hunting, forestry & fishing
	- Plant production	1.5	1.4
	- Cattle farming	7.4	6.7
	- Pig farming	2.5	2.4
	- Mink production	0.9	1.1
	- Other agriculture	0.7	0.6
I	ndustry and mining	3.8	5.3
E	nergy	6.6	5.5
	Building and constructions	5.6	6.9
	Wholesale	8.2	8.4
T	ransport, hotels and restaurants	1.8	1.8
I	nformation and communication	0.3	0.2
	Financial and insurance business	7.4	7.7
R	eal-esate	14.1	15.5
O	ther business	7.3	4.1
	Total business	68.1	67.6
	Private persons	30.3	30.0
	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. From the above sectoral distribution represents alternative energy 8.6 % in 2014 and 8.0 % in 2013.

Maximum credit exposure classified by loan, guarantees and credit-undertakings

	2014	2014	2014
	(DKK 1,000)	(DKK 1,000)	(DKK 1,000)
L	oans G		uarantees Credit-undertakings
Public authorities	55,634	16,436	0
Business - agriculture	552,182	12,601	0
Business - other	2,081,918	380,157	108,958
Private persons	954,255	144,117	0
	3,643,989	553,311	108,958
Which recognized in the balance after deduction of depreciation	3,643,989
	2013	2013	2013
	(DKK 1,000)	(DKK 1,000)	(DKK 1,000)
L	oans G		uarantees Credit-undertakings
Public authorities	92,955	14,075	0
Business - agriculture	524,562	21,752	0
Business - other	2,088,073	395,194	0
Private persons	941,539	153,691	75,767
	3,647,129	584,713	75,767

Which recognized in the balance after deduction of depreciation ... 3,647,129

32 Credit risks (continued)

Description of collateral

S ecurity distributed by type	2014	2014	2014	2014
	(1,000 kr.)	(1,000 kr.)	(1,000 kr.)	(1,000 kr.)
	Public	Business,	Business,	Private
	authorities	agriculture	other
S ecurities	4,411	16,489	161,914	58,461
R eal property	20,265	350,587	760,764	336,924
C hattels, vehicles and rolling stock.	5,099	40,719	328,295	166,873
G uarantees	371	30,665	44,751	20,443
O ther forms of security	14,279	33,640	331,852	151,277
	44,425	472,100	1,627,576	733,978
Security distributed by type	2013	2013	2013	2013
	(1,000 kr.)	(1,000 kr.)	(1,000 kr.)	(1,000 kr.)
	Public	Business,	Business,	Private
	authorities	agriculture	other
S ecurities	3,622	23,073	127,056	73,934
R eal property	22,292	255,940	678,077	254,707
C hattels, vehicles and rolling stock.	7,138	36,139	274,487	156,087
G uarantees	186	27,007	46,018	18,728
O ther forms of security	20,613	25,761	349,066	107,393
	53,851	367,920	1,474,704	610,849

.As a general rule, the bank is secured through financed assets. It is also secured in the form of sureties and mortgages on equity and shares. The above listings reflect the collateral value which can be attributed to individual commitments. The bank wants to reduce the estimated credit in blank of the entire customer portfolio. In 2014, this led to a reduction of estimated credit in blank of DKK 350 million.

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 reporting credit quality classes.

32 Credit risks (continued) Reasons for individual write-downs and provisions

	2014 Exposure before	2014	2014
	write-down	Write-downs	Securities
S ignificant financial difficulties	428,000	178,518	177,599
Breach of contract	38,309	25,621	10,631
R eductions in terms	74,010	17,098	42,313
Probability of bankruptcy	. 286,187	116,314	168,276
Total	826,506	337,551	398,819

According to the bank's credit policy, all commitments, particularly including commitments which are subject to individual impairment, must be covered by collateral to the greatest extent possible. When determining impairment need, the value of the pledged collateral is compared to the expected net realisable value.

Also refer to the relevant section on the bank's credit risk in the Management's Review, page 9.

	2013	2013	2013
	Exposure before
	write-down	Write-downs	Securities
ignificant financial difficulties	341,871	110,831	132,170
Breach of contract	. 30,987	19,664	9,134
eductions in terms	. 39,349	11,325	17,432
Probability of bankruptcy	. 251,277	79,627	130,213
Total	663,484	221,447	288,949
		2014	2013
		(DKK 1,000)	(DKK 1,000)
Arrears amount for loans, which have not been written down 0-90 days >90 days		11,974 66	23,081 374
Total		12,040	23,455
Loans and arrears amount for loans, which have not been written down
0-90 days >90 days		84,862 751	149,626 1,841

33 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

I nterest rate risk on debt instruments etc - total I nterest rate risk in pct of core capital after deductions	-9,648 -2,0	-7,356 -1.3
I nterest rate risk split in currencies with highest risk:
D KK C HF	-10,890 1,402	-9,158 -142
EUR	-158	1,989
JPY	-2	-43
USD	2	0
O thers	-2	-2
Total	-9,648	-7,356

Note

		2014	2013
		(DKK 1,000)	(DKK 1,000)
33	Market risks and sensitivity information (continued)
	Foreign currency risk
	Total assets in foreign currency	599,114	653,569
T	otal liabilities in foreign currency	43,975	36,212
I	n the event of a general change in exchange rates of 10%, and in the euro of 2.25%,
C	urrency Indicator 1 will also be increased	11,197	903
C	urrency indicator 1 in pct of core capital after deductions	-2,1	0.2
I	n the event of a general change in exchange rates of 10%, and in the euro of 2.25%,
C	urrency Indicator 2 will also be increased	42	4
C	urrency indicator 2 in pct of core capital after deductions	2,5	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 profit and equity.

Equity Risk

Total shares etc.	24,596	21,134
O ther shares	0	202
U nquoted shares recorded at fair value	19,482	16,621
Quoted on other stock exchanges	1,422	1,402
Quoted on Nasdaq OMX Copenhagen A/S	3,692	2,909
If stock prices change by 10 percentage points, equity is affected as shown below.

34 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.

		2014	2014	2014	2014	2013	2013	2013	2013
N			et	Market-	Market- N		et	Market-	Market-
N		ominal	market-	value	value N	ominal	market-	value	value
		value	value	positive	negative	value	value	postive	negative
	Currency-contracts
	Up to 3 months	854,386	25,542	29,767	4,225	918,741	24,325	28,502	4,177
	Over 3 months and up to 1 year	13,133	1,503	1,570	67	39,233	1,111	1,326	215
	Over 1 year and up to 5 years
O	ver 5 years
	Average market value			29,234	2,228			27,821	3,547
	Interest-rate contracts
	Up to 3 months						2	20	18
	Over 3 months and up to 1 year	80,363	7	1,508	1,501	58,293	-108	3,277	3,385
	Over 1 year and up to 5 years	51,993		2,630	2,630	133,063	8	6,193	6,185
O	ver 5 years	5,443	-1	926	927	5,730	-2	670	672
	Average market value			7,533	7,542			10,882	11,012
	Share contracts
	Up to 3 months
	Over 3 months and up to 1 year
	Over 1 year and up to 5 years

Over 5 years

Average market value 6

Note		2014	2013
34	Derivate financial instruments (continued)	(DKK 1,000)	(DKK 1,000)
	Credit risk on derivative financial instruments
	Positive market value, counterparty with risk weighting of 0 %	0	0
	Positive market value, counterparty with risk weighting of 20%	4,270	1,598
	Positive market value, counterparty with risk weighting of 100%	32,257	38,579
	Total	36,526	40,177
	Unsettled spot transactions

DKK 1,000 Foreign-exchange transactions, purchase	Nominal value 2,283	Market- value Positive 2	Market- value Negative 369	Net market- value -367
Foreign-exchange transactions, sale	2,464	-	2	-2
I nterest-rate transactions, purchase	26,537	16	3	13
I nterest-rate transactions, sale	9,825	1	7	-6
S hare transactions, purchase	2,285	23	81	-58
S hare transactions, sale	2,249	78	20	58
Total 2014	45,640	120	482	-362
Total 2013	15,296	126	130	-4

35 Coperative agreements

Skjern Bank cooperates with, receives commission relating to paymnet transfers from, and is co-owner of some of the following companies:

Totalkredit A/S, Nykredit, DLR Kredit A/S, Privatsikring A/S, Eurocard, PFA Pension, SparInvest, A/S,

Valueinvest Asset Management S.A., BI Asset Management Fondsbørsmæglerselskab A/S, Jyske Invest, Forvaltningsinstituttet for Lokale Pengeinstitutter, Sydinvest A/S, Garanti Invest A/S, Investeringsforeningen Egns-Invest, HP Fondsbørsmæglerselskab A/S, Investeringsforeningen Danske Invest, Investeringsforeningen Maj Invest, Codan, Dankort A/S, Nets A/S, Bluegarden A/S, Visa International, Dansk Lokalleasing A/S and Deltaq A/S.

Note
	5 years in summary (DKK 1,000)	2014	2013	2012	2011	2008
	Profit and loss account
	et income from interest	159,926	160,505	153,006	161,046	158,120
	ividend on shares	6,491	8,231	5,414	3,287	2,053
	harges and commission, net	81,608	61,861	55,296	49,725	48,654
	Income from core business	248,025	230,597	213,716	214,048	208,827
	alue adjustments	10,770	16,236	8,096	94	21,835
	ther ordinary income	1,195	1,745	1,131	1,683	1,199
	taff cost and admin. expenses	138,473	131,117	132,557	134,124	131,507
	epreciation of intangible and tangible assets	14,118	4,047	3,709	3,578	2,535
	ther operating expenses	9,254	9,834	5,292	1,052	19,434
	- Contribution to the Guarantee Fund for deposits	9,018	9,127	4,843	1,052	6,148
	- Other operating expenses	236	707	449	0	13,286
	Write-downs on loans etc. (net)	154,386	67,073	69,204	52,181	73,085
	- Write-downs on loans and outstanding accounts etc. 154,386		67,073	69,204	52,181	62,831
	- Write-downs regarding first guarantee scheme	0	0	0	0	10,254
	Profit on equity investments in non-	-507	-332	91	-14,208	-1,117
	affiliated and affiliated companies
	Operating result	-56,748	36,175	12,272	10,692	4,183
	axes	-712	11,720	2,433	5,838	982
	Profit for the year	-56,036	24,455	9,839	4,854	3,201
	Balance as per 31st December
	summary
	otal assets	5,384,120	5,322,821	6,009,319	5,253,979	5,500,888
	oans and other receivables	3,643,989	3,647,129	3,498,499	3,526,544	3,623,212
	uarantees etc	553,311	584,713	482,156	484,656	465,178
	Bonds	830,645	824,171	1,270,360	887,607	843,058
	hares etc.	245,966	211,354	203,258	167,857	185,014
	eposits and other debts.	4,485,996	3,956,740	4,499,426	3,509,897	6,569,671
	ubordinated debt	169,260	269,201	358,475	357,521	356,546
	Total equity	522,531	578,596	551,825	385,556	385,260
	- of which proposed dividend	0	0	0	0	0
	Capital Base	486,912	670,207	747,407	610,283	612,597

Note
		2014	2013	2012	2011	2010
37	Financial ratio (figures in pct.)
S	olvency ratio	12.0	16.9	19.6	15.8	16.1
C	ore capital ratio	11.1	14.2	15.7	11.1	11.2
R	eturn on equity before tax	-10.3	6.5	2.7	2.8	1.1
R	eturn on equity after tax	-10.2	4.4	2.1	1.3	0.9
R	eturn on assets	-1.0	0.5	0.2	0.1	0.1
E	arning/expense ratio in DKK	0.82	1.17	1.06	1.06	1.02
I	nterest rate risk	-2.1	-1.3	-2.8	0.0	1.0
	Foreign currency position	2.5	0.2	0.9	2.6	1.5
	Foreign currency risk	0.0	0.0	0.0	0.0	0.0
L	oans etc. against deposits	89.3	98.3	83.0	108.7	109.3
S	tatutory liquidity surplus	131.0	144.6	265.6	159.8	198.3
T	otal large commitments	38.4	23.2	13.1	34.8	38.5
L	oans and debtors at reduced interest	4.1	4.2	4.5	4.7	5.2
A	ccumulated impairment ratio	7.9	5.4	5.8	6.8	6.4
I	mpairment ratio for the year	3.4	1.5	1.6	1.2	1.7
I	ncrease in loans etc. for the year	-0.1	4.1	-0.8	-1.8	-1.5
R	atio between loans etc. and capital funds	7.0	6.4	6.4	9.4	9.5
	(value per share 100 DKK)
E	arnings per share	-29.1	12.7	5.1	21.15	14.2
	Book value per share	271	298	286	1,847	1,778
R	ate on Copenhagen Stock Exchange	190	220	120	403	800
D	ividend per share	0	0	0	0	0
	Market value/net income per share	-6.5	17.3	23.5	18.7	56.4
	Market value/book value	0.70	0.74	0.42	0.22	0.45

Financial Calendar 2015

17th February:	Announcement of Annual Report 2015
17th March:	General Meeting – Skjern Kulturcenter
30th April:	Announcement of quarterly report 1st quarter 2015
13th August:	Announcement of half-yearly report 2015
29th Ocotber:	Announcement of quarterly report 3rd quarter 2015

Committee of representatives

Hans Ladekjær Jeppesen, Skjern, lawyer, boardchairman Ole Strandbygaard, Ringkøbing, printer, vice-head of the committee of representatives Jørgen Søndergaard Axelsen, Skjern, real estate agent Ole Bladt-Hansen, Ribe, city manager Jens Bruun, Viby J, Manager Kaj Eriksen, Vemb, police officer Jens Chr. Fjord, Skjern, former bicycle dealer Poul Frandsen, Herning sales manager Børge Lund Hansen, Skjern, manager Orla Varridsbøl Hansen, Tarm, manufacturer Tom Jacobsen, Tarm, manager Mike Jensen, Skjern, bookseller Niels Erik Kjærgaard, Skjern, city manager Dorte H. Knudsen, Hviding, Ribe, hospital nurce Tommy Noer, Esbjerg, technical teacher Torben Ohlsen, Tjæreborg, manager Jens Christian Ostersen, Stauning, farmer Jens Kirkegaard Pedersen, Hemmet self-employee Niels Chr. Poulsen, No, Ringkøbing, mink farmer Jesper Ramskov, Esbjerg, manager Birte Bruun Thomsen, Esbjerg, manager Bente Tang, Hanning, Skjern, farmer Poul Thomsen, Skjern, trader in men's clothing Carsten Thygesen, Skjern, manager Jesper Ørnskov, Århus, manager

Audit Committee

Jens Okholm, Ribe, adviser Finn Erik Kristiansen, Varde, bookseller Lars Skov Hansen, Esbjerg, advisor, employee-selected

Board of directors *)

Hans Ladekjær Jeppesen, 50 years old, Skjern, lawyer, board chairman.

Elected in the board of directors in 2011, re-elected in 2013, up for election in 2015.

Jens Okholm, 66 years old, Ribe, adviser, board vicechairman.

Elected in the board of directors in 2010, re-elected in 2012 and 2014, up for election in 2016.

Bjørn Jepsen, 51 years old, Borris, farmer. Elected in the board of directors in 2012, re-elected in 2014, up for election in 2016.

Finn Erik Kristiansen, 45 years old, Varde, bookseller. Elected in the board of directors in 2010, re-elected in 2012 and 2014, up for election in 2016.

Søren Dalum Tinggaard, 45 years old, Randers, vice manager. Elected in the board of directors in 2013, up for election in 2015.

Lars Skov Hansen, 41 years old, Esbjerg, advisor, employee-selected. Elected in the board of directors in 2011, up for election in 2015.

Lars Lerke, 38 years old, Skjern, head of finance, employee-selected. Elected in the board of directors in 2012, up for election in 2015.

Management

Per Munck, 60 years old, banking executive. Employed 1st November 1999

List of board members' managerial offices

in companies as per December 31, 2014 Lawyer Hans Ladekjær Jeppesen: Manager of BVLHLJ Holding ApS Boardchairman of Gråkjær Retail A/S Boardchairman of PE Trading A/S Boardchairman of Skautrup Holding A/S Boardchairman of Grønbjerg Grundinvest A/S Boardchairman of Byggefirmaet Ivan V. Mortensen A/S Boardchairman of LHI Invest A/S Boardchairman of Grey Holding 1 A/S Boardchairman of Grey Holding 2 A/S Boardchairman of Grey Partner A/S Boardchairman of Krogsgaard Kompagni A/S Boardchairman of Specialfabrikken Vinderup A/S Boardchairman of AP Company A/S Board member of Skjern Håndbold A/S Board member of Gråkjær A/S Board member of Gråkjær Ejendomme A/S Board member of Gråkjær Industribyg A/S Board member of Gråkjær Staldbyg A/S Board member of BS Invest af 1992 A/S Board member of Carl C A/S Board member of Carl C Ejendomme ApS Board member of Actona Company A/S Board member of AA Holding, Herning A/S Board member of Dahlholm Holding ApS Board member of Grønbjerg Ejendomsselskab A/S Board member of Spizy A/S Board member of AA Properties A/S Board member of AA Ejendomme 1 A/S Board member of A/S VQX af 8. november 1986 Board member of Advokatpartnerselskabet Kirk Larsen & Ascanius

Consultant Jens Okholm: Boardchairman af CN Maskinfabrik A/S Boardchairman of Logitrans A/S Boardchairman of Hansen & Bay Byg A/S Board member of it-craft A/S

Bookseller Finn Erik Kristiansen: Manager of Varde Erhverv- og Turistråd S/I Manager and board member of Kristiansen Ejendomme A/S

Manager of Bordin Holding ApS Boardchairman of Kristiansen Bog & Idé A/S Boardchairman of Flensborg A/S

Farmer Bjørn Jepsen Board member of Arla Foods AmbA Board member of Kvægafgiftsfonden Board member of Kvægbrugets Forsøgscenter Board member of Videnscenter for Landbrug - kvæg

Vice manager Søren Dalum Tinggaard Board member of AP Pension A/S Board member of Dan-list A/S

Banking executive Per Munck, Boardchairman of Knud Eskildsen Ejendomme A/S Board member of BankData Board member of Dansk Lokalleasing A/S, Bogense Board member of Value Invest Luxembourg S.A. Board member of Forvaltningsinstituttet for Lokale Pengeinstitutter Board member of Den erhvervsdrivende Fond Ringkøbing Fjord Innovationscenter

CVR NR. 45 80 10 12

Skjern Bank, Skjern: Banktorvet 3 · 6900 Skjern Ph. +45 9682 1333

Skjern Bank, Ribe: J. Lauritzens Plads 1 · 6760 Ribe Ph. +45 9682 1600

Skjern Bank, Bramming: Storegade 20 · 6740 Bramming tlf. 9682 1580

Skjern Bank, Esbjerg: Kongensgade 58 · 6700 Esbjerg Ph. +45 9682 1500

Skjern Bank, Varde: Bøgevej 2 · 6800 Varde tlf. 9682 1640

Skjern Bank, Hellerup: Strandvejen 143 · 2900 Hellerup tlf. 9682 1450