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Annual Report 2009 Eik Banki Has No Systematic Procedures for the Re-Pur- 27 March 2010 Annual General Meeting Chasing of Own Shares

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Annual Report 2009 Eik Banki Has No Systematic Procedures for the Re-Pur- 27 March 2010 Annual General Meeting Chasing of Own Shares Annual Report 2009 www.eikbank.com 2 2 Eik Banki Group Eik Banki Group consists of the parent company Eik Banki P/F in the Faroe Islands and the Copenhagen based wholly owned subsidiary Eik Bank Danmark A/S, which is the largest internet bank in Denmark. The Group also includes the wholly owned subsidiary P/F Inni, which is the largest real estate broker in the Faroe Islands. The parent company was established in 1832 as a savings bank. More on the Group in the Operational Review. Our Mission is to benefit our customers by providing financial services, with security and user friendliness as cornerstones. Our Vision is to be the most user friendly bank. With our Mission, Vision and Values to guide us, we seek to continuously seize every opportunity to grow, to become more professional, and to improve and enhance our financial products and services. 3 Contents 2009 in brief 4 Key Figures and Financial Ratios 5 Management Review 7 Management Statement 35 Annual Accounts 37 Auditor’s Statement 114 4 4 2009 in brief 2009 in brief • Net interest income shows an increase of 1.3 per Eik Banki Group presents a deficit of 297 million for cent to DKK 518 million 2009 after taxes. Impairments were high, especially in corporate real estate in Denmark, but nevertheless • Net fee and commissions have decreased 45 per lower than in 2008. Solvency as well as liquidity is cent to DKK 113 million good. The Group has secured a state guarantee frame of DKK 9.1 billion. In 2010, Eik Banki Group expects a • Market value adjustments on securities are a loss positive result with lower impairments. of DKK 51 million compared to a loss of DKK 257 million last year Marner Jacobsen, CEO comments: • Core income for 2009 increased by 17 per cent to “The result is far from satisfactory. The Group’s DKK 599 million challenges are related to our exposure to corporate real estate on the Danish market. The Bank’s focus is • Total impairments are DKK 526 million, a decrease to work actively on proper solutions for the real estate of 13 per cent to 2008. involved, in order to recover parts of the impairments in the future. We have no exposure to agricultural • The total cost of Credit Package I was DKK 114 or small and medium size enterprises in Denmark. million compared to DKK 25 in 2008 Retail and other operations in Denmark as well as the Faroese operation are running satisfactory.” • Results before taxes is a loss of DKK 386 million compared to a loss of DKK 511 million in 2008 Furthermore, Marner Jacobsen, CEO says: “Although the 2009 impairments are lower than • Result after taxes amounts to a loss of DKK 297 in 2008, and DKK 47 million of the impairments in million compared to DKK 403 million last year 2009 can be ascribed to other banks’ impairments through Credit Package I, we are still looking at high • Solvency ratio is 11.6 per cent compared to 10.4 impairments on our part. The Danish corporate real per cent in 2008, and core capital ratio is 8.6 at estate market seems to have hit rock bottom, and the end of the period therefore, we expect lower impairments in 2010 than in 2009, although they will remain relatively high.” • Liquidity is DKK 5.1 billion, an excess cover of 140.5 per cent over statutory requirement • As of 29 October 2009, Eik Banki has been granted hybrid core capital of DKK 327 million under Credit Package II • Total loans have decreased by 1.4 per cent to DKK 15.4 billion compared to 2008. • Total deposits increased 2.1 per cent to DKK 14.4 billion compared to DKK 14.1 billion in 2008 • Loans, advances and impairments in proportion to deposits is 113.7 per cent compaired to 115.3 per cent in 2008. Outlook 2010 Eik Banki Group expects a positive result for the year 2010. 5 Key Figures and Financial Ratios Basic Income Statement Change Change Group in 4Q 4Q in DKK Million 2009 2008 per cent 2009 2008 per cent Basic Income Statement Net interest income 518 512 1 122 138 -12 Net fee income 113 204 -45 40 51 -22 Dividends on shares, etc. 2 27 -93 -0 -0 - Market value adjustments -51 -257 80 -93 -134 31 Other operating income 17 26 -35 3 18 -83 Core income 599 512 17 72 73 -1 Operating expenses, depreciation and impairments 386 392 -2 111 97 14 Core earnings before impairments 213 120 78 -39 -24 -63 Impairments of loans and claims 481 598 -20 193 414 -53 Core earnings -268 -478 44 -232 -438 47 Income from associated and subsidiary undertakings -4 -8 50 7 -8 - Profit on ordinary operations -272 -486 44 -225 -446 49 Credit Package I, guarantee cost 69 19 - 19 19 - Credit Package I, impairments 45 6 - 11 6 - Profit before taxes -386 -511 24 -255 -471 46 Taxes -89 -108 - -58 -101 - Net profit for the period -297 -403 26 -197 -370 47 The tabulation of Income Statement deviates from the tabulation used previously. However, the different tabulation has no effect whatsoever on the result which corresponds to the regular tabulation on page 38. 6 6 Key Figures and Financial Ratios Selected Figures Group DKK Million 2009 2008 2007 2006 2005 Balance Sheet Total assets 21,591 21,687 21,576 11,828 8,621 Loans and other claims 15,420 15,637 15,570 8,271 6,551 Deposits and other dept 14,431 14,135 13,263 6,116 4,483 Issued bonds 1,967 1 0 0 0 Subordinated dept, incl hybrid core capital 1,073 454 448 150 0 Equity 1,344 1,635 2,092 1,209 917 Ratios Solvency and capital Solvency ratio 11.6% 10.4% 13.5% 11.0% 11.0% Core capital ratio 8.6% 7.3% 10.6% 10.8% 13.3% Earnings ratios Return on equity after tax ROE -20.0% -21.6% 24.4% 23.6% 14.5% Income / cost ratio 0.61 0.50 2.21 2.38 1.81 Shares Share price end period 80.00 95.00 520.00 502.00 184.50 Book value per share BVPS 165.33 201.16 274.55 171.60 135.00 Price to book P/B 0.48 0.47 1.89 2.93 1.37 Liquidity ratios Loans, advances and impairments in proportion to deposits 113.7% 115.3% 119.2% 138.7% 152.5% Excess liquidity cover relative to statutory requirement 140.5% 164.4% 103.4% 125.1% 80.1% Credit risk ratios Large loans as percentage of capital base 179.6% 235.4% 144.1% 224.9% 102.6% Write-offs and impairments during the period 2.9% 3.3% -0.1% -0.3% 0.1% Total loans in proportion to equity 11.5 9.6 7.4 6.8 7.1 Increase in loans -1.4% 0.4% 88.8% 26.3% 29.7% Comparative figures for 2005-2006 have not been adjusted according to the new accounting principles, but 2007 figures have been partly adjusted. Se page 110-112 for a complete overview of key figures 7 Management Review 8 8 Management Review Dear Shareholder Company (Finansiel Stabilitet), enabling the Group to In your hands, you are holding the 2009 Annual Report take on loans backed by state guarantee. of Eik Banki, and it is with regret that we present this far from satisfactory result. Several steps have been taken to further ensure the Group a strong strategic platform from which The result for 2009 was a loss of DKK 297 million. to continue to build and grow its business, when The shareprice, which at year-end 2008 was 95 fell to the financial and economic crisis retreats and the 80 by year-end 2009. Hence, 2009 did not meet our economy begins to grow again. expectations and the Management acknowledges that this is by no means sufficient for our shareholders. In the Faroese market, where Eik Banki has its roots, However, the strategic platform of Eik Banki Group is we will continue to provide all our customers with strong. Consequently, despite the challenges, we see high standard banking products and services on a full positive aspects on the horizon. service basis. We will also focus on optimising and rationalising operations. Eik Banki Group is the largest financial group in the Faroe Islands. The corporation has a market share of Outside of the Faroe Islands, we strive to provide more than half of the Faroese market, and our results unique services established complementary to our from this market are highly favourable. We own the internetbank, which will be developed further and largest internetbank in Denmark, and the majority become our core competence. Internetbanking of our activities in the Danish market are successful. activities benefit from economies of scale, and Based on these pillars, we are confident that Eik Banki therefore, our Danish internet bank will be established Group will create good results in the years to come. in the Faroese market. The contemporary challenges of the Group are in the Furthermore, emphasis will be on harvesting Danish market where the Group has impaired vast synergies within the Group. The Bank has appointed amounts on corporate real estate. Our focus is on Group personnel responsible for exploiting any reaching proper solutions for the real estate involved. possible synergy. This work has already resulted in Some cases still need to be solved. When this tangible savings.
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