Untitled

ANNUAL REPORT 2023

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

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

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

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.

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

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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.

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

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

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

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

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

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

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

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.

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

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

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:

• 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

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.

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

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

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.

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.

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

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

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

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.

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

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

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

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

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.

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

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%

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

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

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.

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

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.

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

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

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

3.894

3.075

254

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

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

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

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.

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.

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.

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

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.

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

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

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.

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

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

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

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