ANNUAL REPORT 2013

MANAGEMENT COMMENTARY & FINANCIAL STATEMENTS

ANNUAL REPORT 2013 1 

Contacts Søren Høgenhaven, CEO, Managing director Johnny Munk, Managing director Jens Bloch Behrendt, CFO

Address KommuneKredit Kultorvet 16 DK-1175 Copenhagen K Telephone +45 33 11 15 12 [email protected] www.kommunekredit.dk

CVR no. 22 12 86 12

Announcement date: 7 March 2014

The annual report comprises 60 pages

The photos depict energy saving projects in Danish municipalities and regions that KommuneKredit has financed.

The English text is a translation of the original ­Danish text. The original Danish text is the gov- erning text for all purposes, and in case of any discrepancy, the Danish wording will be applicable.

2 ANNUAL REPORT 2013 CONTENTS

KommuneKredit in brief ...... 4

Financial summary for KommuneKredit . . . . . 5

Management commentary

Operating review ...... 6

Local governments and the economy ...... 11

Organisation and management ...... 14

Risk management ...... 17 . .

Financial statements

Statement of comprehensive income ...... 20

Statement of financial position ...... 21

Statement of changes in equity ...... 22. .

Statement of cash flows ...... 23

List of notes ...... 24

Statements ...... 53 . .

Management ...... 56. . .

Managerial posts ...... 57

ANNUAL REPORT 2013 3 KommuneKredit in brief

KommuneKredit has the same credit rating as that of the Kingdom of Denmark which is the highest international credit rating

A Board of Directors is responsible for the general management KOMMUNEKREDIT of KommuneKredit . The Board of Directors has ten members, IN BRIEF of which eight are appointed by the municipalities and two by the regions . A Management consisting of one chief executive officer and one managing director is responsible for the day-to- day management . KommuneKredit is an association with the objective to pro­ vide funding and leases to Danish municipalities, regions and KommuneKredit’s lending is financed by the issue of securities companies and institutions against full municipal guarantee . in the Danish and international capital markets . KommuneKredit operates under a special act and is under super­ vision by the Ministry of Economic Affairs and the Interior . KommuneKredit is rated by Moody’s Investors Service and Standard & Poor’s . KommuneKredit’s long-term rating is Aaa/ KommuneKredit’s mission is: AAA, and the short-term rating is P-1/A-1+, which is the same ƒƒ to provide the funding and related services required by Dan­ rating as that of Danish government bonds and the highest inter­ ish municipalities and thereby contribute to greater financial national credit rating . latitude in the Danish society . The high rating is attributable to the joint and several liability KommuneKredit’s vision is: of the municipalities and regions and the fact that they are ƒƒ to be the absolute leading provider of funding to munici­ strong players in the domestic economy, which is also why palities, KommuneKredit can raise funding at attractive prices . More­ ƒƒ to be acknowledged as a professional advisor and trust­ over, Kommune­Kredit’s cost level is low, which means that the worthy cooperative partner, funding raised can be relent at a modest margin . ƒƒ to be an attractive, development-oriented organisation committed to effective processes and high quality achieved KommuneKredit is a modern service organisation based on by dedicated and highly qualified employees . dedicated employees and modern technology . The core values of KommuneKredit are: KommuneKredit’s members are municipalities and regions that have raised loans in or entered into leases with KommuneKredit­ ƒƒ The customer in focus or have guaranteed or are liable for loans raised in or leases en­ ƒƒ Job satisfaction and a positive working environment tered into with KommuneKredit . The members are jointly and ƒƒ Quality in work severally liable for KommuneKredit’s liabilities . All municipalities ƒƒ Openness and a positive working relationship and regions in Denmark are members of KommuneKredit . ƒƒ Delegation and responsibility

4 ANNUAL REPORT 2013 FINANCIAL SUMMARY FOR KOMMUNEKREDIT

NET LENDING AND CONVERSIONS 2004-2013 TOTAL ASSETS AND EQUITY 2004-2013

50 DKKbn 250 Total assets, DKKbn Equity, DKKbn 6

40 200 5

30 150 4

20 100 3

10 50 2

0 0 1 04 05 06 07 08 09 10 11 12 13 04 05 06 07 08 09 10 11 12 13 Conversions Total net lending Total assets Equity

FINANCIAL SUMMARY FOR KOMMUNEKREDIT

DKKm 2013 2013 2012 2011 2010 2009 EUR DKK DKK DKK DKK DKK

Lending, nominal values Bond loans 306 2,286 1,870 2,396 1,373 2,346 Tailor-made loans 3,754 28,009 33,992 23,403 33,478 28,474 Total gross lending 4,061 30,295 35,862 25,799 34,851 30,820 Conversions/refinancing 1,667 12,433 18,837 10,167 13,904 16,007 Total net lending 2,394 17,862 17,025 15,632 20,947 14,813

Leasing Gross lending 204 1,525 813 1,539 756 892 Instalments and repayments 159 1,189 905 847 783 787 Total net lending 45 336 -92 692 -27 105

Key figures Net interest income 67 503 603 611 453 350 Administrative expenses 13 96 100 95 89 91 Value adjustments of financial instruments -10 -75 191 175 47 -4 Profit before tax 44 332 694 691 411 255 Tax on profit for the year 7 53 178 175 102 63 Profit for the year 37 279 516 516 309 192

Profit for the year excl . value adjustments 41 305 378 388 274 195

Lending and lease receivables 19,129 142,711 136,296 128,979 125,136 111,538 Total assets 24,696 184,239 181,885 177,113 166,206 143,207 Debt securities issued 22,663 169,076 166,045 164,751 156,235 133,926 Equity 804 5,995 5,716 5,200 4,684 4,375 Equity in pct . of assets 3 .3 3 .3 3 .1 2 .9 2 .8 3 .1

Number of full-time employees 58 58 59 60 60 57

Exchange rate 31 .12 .2013, EUR 100 = DKK 746,03

ANNUAL REPORT 2013 5 OPERATING REVIEW

As a result of Denmark’s relatively low public debt, investors showed significant interest in Danish high credit quality securities

In line with other financial institutions with a high credit ra­ting, OPERATING REVIEW KommuneKredit has decided to enter into bilateral collateral agreements instead of unilateral collateral agreements (CSA) so that, going forward, apart from receiving collateral, Kom­ In 2013, KommuneKredit again retained its position as the ab­ muneKredit will also post collateral if derivative counterparts solute leading supplier of funding to municipalities . Net lend­ have assumed a risk in respect of KommuneKredit . This is ing increased from DKK 17 .0 billion in 2012 to DKK 17 .9 billion due to the fact that, owing to increased funding costs, Kom­ in 2013, and gross lending decreased from DKK 35 .9 billion in muneKredit may achieve more favourable derivative condi­ 2012 to DKK 30 .3 billion in 2013 . The decrease is due to a re­ tions by posting collateral . In addition, it is expected that an duction of the number of loan conversions as a large number of increased number of counterparts will be able to offer prices, loans had been converted to a lower interest rate in prior years, which will increase competition . and as no interest-rate advantage could be gained from mak­ ing further conversions . KommuneKredit expects to enter into bilateral CSA agree­ ments with all relevant financial counterparts in the course of KommuneKredit’s funding situation in international capital mar­ 2014 . kets remained favourable in 2013 with considerable interest from investors in acquiring securities with a high credit rating . Net interest income amounted to DKK 503 million against DKK 603 million in 2012 . The decrease in net interest income is at­ For the first time, KommuneKredit made two benchmark issues tributable to the less favourable funding prices in 2013 com­ of USD 1 billion and USD 1 .25 billion, respectively, and the con­ pared to 2012 . siderable interest from central banks in many countries in ac­ quiring KommuneKredit’s issues was particularly positive . Of the net interest income of DKK 503 million in 2013, DKK 361 million related to lending activities, whereas DKK 142 million The funding situation was also affected by the gradual reduc­ related to interest income from own portfolio of bonds . Kom­ tion in 2013 of the very favourable swaps rates from USD to muneKredit’s earnings target is based on two principles . First of DKK applicable in 2012 . Mid-2013, KommuneKredit therefore all, it must be ensured that funding is provided to the members had to make minor price adjustments for floating-rate loans . at the most attractive prices . Secondly, it must be ensured that However, KommuneKredit remains the most favourable source the equity ratio is maintained at a solid level of approximately 3 of funding for municipalities, who achieve considerable financial per cent of the assets . latitude by having established their own financial institute . KommuneKredit prepares long-term forecasts for the bal­ Liquidity resources amounted to DKK 25 .5 billion at year end ance sheet development on a regular basis and, on this basis, 2013, which is an increase of DKK 1 .1 billion compared to year determines the earnings target for the individual year . Kom­ end 2012 . KommuneKredit’s refinancing risk is very limited as muneKredit assesses that net interest income for 2013 is at a all binding lending commitments must be fully financed before satisfactory level . the commitment is entered into .

6 ANNUAL REPORT 2013 OPERATING REVIEW

LENDING BY BORROWER LENDING BY TYPE OF PURPOSE

Municipalities and regions 51 % Municipalities 41% Waste, heating and energy 32 % Regions 10 % Water and waste water disposal 13% Guaranteed loans 31% Public transportation and harbours 3 % Partnerships 18% 41+103118z Other purposes 1 % 51+321331z

Value adjustments of financial instruments amounted to total DKK 5 .7 billion at year end 2012, corresponding to 3 .3 per cent negative adjustments of DKK 75 million for 2013 . The nega­ of the assets . KommuneKredit’s long-term objective is for tive adjustments are particularly attributable to negative value equity to amount to approximately 3 per cent of the assets . Under adjustments of the own portfolio of bonds owing to declining the legal framework of KommuneKredit, equity must equal at least prices . In 2012, significant non-recurrent income of DKK 148 1 per cent of KommuneKredit’s total liabilities, i .e . DKK 1 .8 billion . million was realised from buy-backs of securities issued . In 2013, very few buy-backs have been carried out, which is the Lending and leasing main reason for the reduced value adjustments . KommuneKredit has a close dialogue with its members and other customers . Goals for customer visits are set on an annual Administrative expenses amounted to DKK 96 million, which is basis, and satisfaction surveys are made on a regular basis in a decrease of DKK 4 million compared to 2012 . This is due to a order to optimise customer services . KommuneKredit offers decrease in the adjustment of pension obligations as well as a other financial services than lending and leases, including ad­ decrease in amortisation of intangible assets . visory services on municipal borrowing and management of long-term debt as well as refinancing of loans via derivatives The corporation tax rate will be reduced during the period (swaps) . KommuneKredit also develops its website on a regular 2014-2016, and this has resulted in reversal of provisions for basis, including improvements of electronic information about deferred tax, which triggers taxable income of DKK 28 million loan pools and lease portfolios as well as budget tools . for 2013 . In 2013, gross lending amounted to DKK 30 .3 billion against KommuneKredit’s profit was DKK 279 million, which is a de­ DKK 35 .9 billion in 2012 . Net lending amounted to DKK 17 .9 bil­ crease of DKK 237 million compared to 2012 . This corresponds lion against DKK 17 .0 billion in 2012 . to a profit of DKK 305 million, excluding value adjustments, whereas, in the interim report for 2013, a profit of DKK 300 mil­ The decrease in gross lending is attributable to a normalisation lion, excluding value adjustments, was estimated . of the number of conversions following a significant increase in 2012 . Many borrowers have converted KommuneKredit’s bond At year end 2013, KommuneKredit’s total assets amounted to loans to loans with a lower interest rate . Moreover, some bor­ DKK 184 .2 billion, which is an increase of DKK 2 .3 billion com­ rowers have decided to take advantage of the historically low pared to year end 2012 . Lending increased by DKK 6 .0 billion, interest rate levels and refinance their loans from floating-rate and the portfolio of securities increased by DKK 3 .2 billion, to fixed-rate loans . which strengthened the liquidity resources . Derivative financial instruments decreased by DKK 5 .4 billion as a result of changed Gross lending to municipalities amounted to DKK 12 .4 billion, interest and exchange rate conditions . corresponding to 41 per cent of total lending . In 2012, gross lending amounted to DKK 20 .2 billion, corresponding to 57 per In accordance with the articles of association of Kommune­Kredit, cent . Lending to regions amounted to DKK 3 billion or 10 per comprehensive income for the year must be transferred to eq­ cent . In 2012, lending amounted to DKK 3 .7 billion, correspond­ uity . Equity amounted to DKK 6 .0 billion at year end 2013 against ing to 10 per cent . The decrease in lending is primarily due to

ANNUAL REPORT 2013 7 OPERATING REVIEW

LEASE RECEIVABLES YEAR END FUNDING, ADDITIONS BY MARKET

Properties 40 % Cars 20 % Denmark 18 % IT equipment 17 % Europe 49 % Medical-tech. equipment 9 % North & South America 22 % Office equipment 6 % Asia 9 % Vessels 5 % The Middle East & Africa 2% Technical equipment 3 % 40+20179653z 18+492292z

conversions and refinancing of previously raised loans totalling In 2013, no loans were granted in foreign currency . DKK 6 .5 billions for municipalities and regions . Year 2013 showed increased interest in public-private partner­ Lending to municipal-guaranteed enterprises and institutions ships (PPPs) in municipalities as well as regions . In recent years, (partnerships) and municipal companies with joint and several KommuneKredit has financed several PPP projects with public liability amounted to DKK 14 .9 billion, corresponding to 49 per funding, including three schools and one healthcare centre . cent, against DKK 11 .5 billion, corresponding to 33 per cent, KommuneKredit continues its efforts to develop its model and in 2012 . Thereof, DKK 9 .6 billion related to lending for waste, increase the knowledge of KommuneKredit’s possibility of par­ heating and energy purposes, DKK 3 .9 billion related to water ticipating in PPP projects with funding of loans and leases . and sewage discharge, and DKK 1 .3 billion related to harbours, public transport and other purposes . Issue of securities KommuneKredit’s funding is raised by the issues of bonds on Tailor-made loans accounted for 92 per cent and bond loans NASDAQ OMX Copenhagen A/S (OMX) and by the issue of in­ for 8 per cent of total lending . The share of tailor-made loans of ternational debt securities . KommuneKredit carefully diversifies total lending decreased from 95 per cent to 92 per cent of total its issue of securities on different markets and products in or­ lending in 2013 . Most bond loans have been raised to finance der to minimise dependency on specific markets and products . municipal housing for the elderly where total lending in 2013 KommuneKredit’s refinancing risk is very limited as all binding amounted to DKK 2 .1 billion, which is an increase compared to lending commitments must be fully financed when the commit­ total lending of DKK 1 .6 billion in 2012 . ment is entered into .

The majority of the bond loans are fixed-rate loans . Tailor-made The financial markets continued to be affected by the eu­ loans primarily comprise floating-rate loans where the interest rozone crisis in 2013; however, to a less degree than in prior rate is fixed every third or sixth month . Floating-rate credit con­ years . As a result of Denmark’s relatively low public debt, in­ tracts and fixed-rate tailor-made loans represent a minor share . vestors showed significant interest in Danish high credit qual­ Floating-rate loans with an interest-rate cap are a new type of ity securities . Therefore, KommuneKredit had easy access to loans, which only amount to DKK 0 .7 billion . funding at very favourable prices in 2013, and in the calendar year 2013, two benchmark issues of USD 1 billion and USD 1 .25 In 2013, lending comprised 75 per cent floating-rate loans and billion, respectively, took place for the first time . 25 per cent fixed-rate loans . In 2012, loans comprised 78 per­ cent floating-rate loans and 22 percent fixed-rate loans . Many In 2013, the total issue of securities amounted to DKK 108 .7 floating-rate loans are refinanced by the customers from float­ ing rate to fixed rate by means of derivatives . Members of KommuneKredit 2013 2012

Municipalities 98 98 Lease receivables amounted to DKK 1 .5 billion in 2013, and the Regions 5 5 total lease portfolio amounted to DKK 3 .8 billion, which is an in­ Faroese municipalities 2 4 crease of DKK 0 .3 billion compared to 2012 .

8 ANNUAL REPORT 2013 OPERATING REVIEW

FUNDING, ADDITONS BY CURRENCY FUNDING YEAR END

USD 51 % USD 42 % DKK 24 % DKK 26 % EUR 4 % EUR 8 % CHF 0 % CHF 8 % JPY 4 % JPY 5 % GBP 13 % GBP 4 % Other 4% 51+24+413+z Other 7% 42+268547z

billion against DKK 92 .8 billion in 2012 . The amount is the larg­ Liquidity resources est in KommuneKredit’s history . This is attributable to the sig­ By authorisation of the Ministry of Economic Affairs and the nificant lending in 2013 and the fact that short-term funding Interior, KommuneKredit’s liquidity resources may constitute a is very attractive, which KommuneKredit has put to advantage maximum of 25 per cent of lending . In this way, a high degree of in its cash management . 8 per cent of the funding was issued flexibility is ensured in respect of lending to municipalities and via OMX, and 92 per cent was issued internationally, including regions, and it is also ensured that liquidity resources are availa­ 67 per cent in Europe and 33 per cent in overseas markets . ble during periods when Danish or international capital markets are less liquid . At the end of 2013, utilisation amounted to 18 Issues of debt securities on OMX increased to DKK 8 .7 billion per cent of lending, which is in line with 2012 . from DKK 8 2. billion in 2012 . Issues that finance adjustable- rate loans amounted to DKK 4 .5 billion against DKK 6 .1 billion in The liquidity resources are managed in such a way that invest­ 2012 . The issue of structured bonds increased to DKK 1 .8 billion ments are made in securities that generate satisfactory returns against DKK 0 4. billion in 2012 . The issue of traditional bonds of until the liquidity resources can be used for lending . Focus is on a mortgage credit nature amounted to DKK 2 .5 billion against ensuring investments with low credit risk and on ensuring that DKK 0 .2 billion in 2012 . debt securities may be easily realised . The liquidity resources are mainly invested in short-term debt securities issued by in­ Internationally, short-term debt securities, ECP notes, of DKK ternational financial institutions and central banks . 32 .7 billion were issued in 2013 against DKK 36 .5 billion in 2012 . The issues were primarily made in USd . The maintained Liquidity resources amounted to DKK 25 .5 billion at year end level from 2012 is attributable to the fact that ECP notes could 2013, which is an increase of DKK 1 .1 billion compared to year be issued at attractive prices compared to other markets . In­ end 2012 . ternationally, EMTN notes and private placements were also issued amounting to DKK 49 .8 billion against DKK 36 .3 billion in Outlook for 2014 2012 . The increase is attributable to the fact that EMTN notes The municipal framework for capital investments in 2014 in­ are increasingly used in connection with issues compared to creased by DKK 2 billion to DKK 18 .1 billion . However, the bor­ other types of securities . rowing facilities of municipalities have not increased, and it is therefore assumed that the increased capital investments will A specification of the issues by currency and market is shown be funded through economy in operation or drawings on liquid­ in the above figures . ity . KommuneKredit therefore expects that total lending will be in line with 2013 . KommuneKredit’s Moody’s Standard Members of KommuneKredit 2013 2012 rating Investors Service & Poor’s KommuneKredit furthermore expects that 2014 will also see Municipalities 98 98 Long-term rating Aaa AAA favourable funding opportunities in the international financial markets with considerable interest from investors in issues Regions 5 5 Short-term rating P-1 A-1+ from institutions and countries with a high credit rating . Faroese municipalities 2 4 Outlook Stable Stable

ANNUAL REPORT 2013 9 OPERATING REVIEW

Since KommuneKredit is able to provide loans at very modest margins, it is expected that KommuneKredit will retain its position as the absolute leading supplier of funding to municipalities

Owing to the solid capitalisation, KommuneKredit is able to pro­ At the end 2013, KommuneKredit achieved the goal of a capi­ vide loans at very modest margins . It is therefore expected that talisation of 3 per cent, even with excess cover, and there is KommuneKredit will retain its position as the absolute leading therefore basis for reducing the earnings target for 2014 supplier of funding to municipalities . as there is no need for a further increase of the equity ratio . Profit for the year, excluding value adjustments, is expected to KommuneKredit will also continue to develop systems and pro­ amount to DKK 275 million against DKK 305 million for 2013 . cesses that contribute to further improvements of customer services and streamlining of work processes in order to keep costs at a low level .

10 ANNUAL REPORT 2013 LOCAL GOVERNMENTS AND THE ECONOMY

Due to the impact of municipalities on the economy, they are LOCAL GOVERNMENTS subject to the overall economic policy adopted by the central AND THE ECONOMY government and the national parliament . In connection with annual negotiations between the central government and municipal organisations, the framework for the level of ex­ penditure and for levying taxes is agreed for the municipalities Responsibilities and supervision as a whole . The local government sector plays a very important role in the Danish welfare society as municipalities and regions are responsible Municipal economies as a whole are not affected by economic for most of the public services offered to citizens and enterprises . setbacks as the central government bears the risk of an eco­ nomic downturn . Through a special government grant, addi­ The municipalities are responsible for public schools, elder care, tional expenditure for social transfer payments and decreasing day care facilities for children and young people, employment- revenue from taxation as a result of the economic slowdown creating measures, unemployment benefit, roads, environ­ are compensated for via the block grant . ment, culture and preventive health care services . Funding and equalisation The regions are responsible for hospitals, regional development Income taxes represent the dominant source of income for and specialised social institutions . municipalities and account for approximately half of total mu­ nicipal funding . The income tax rate is fixed by the individual The municipalities’ right to manage their affairs autonomously municipalities . is regulated in section 82 of the Danish Constitutional Act: Moreover, municipalities are funded through block grants and “The municipalities’ right to manage their affairs au- central government reimbursements as well as user fees and tonomously under the supervision of the State is regu- property taxes that are set by the individual municipalities . lated by an Act”. Denmark has one of the most comprehensive equalisation sys­ The municipalities are under supervision by the Ministry of tems in the world . Equalisation of local government resources Economic Affairs and the Interior through the regional state comprises the tax base as well as the service expenditure and administration­ . aims at ensuring consistency in local governments’ ability to provide satisfactory services in all parts of the country . Economic impact The great importance of the local government sector is illus­ Borrowing and debt trated by the fact that municipal expenditure amounts to 32 Municipal borrowing is governed by the Ministry of Economic Af­ per cent of the gross domestic product (GDP), and together fairs and the Interior through the Ministry’s executive order on municipalities and regions pay almost two thirds of the total borrowing . public expenditure .

ANNUAL REPORT 2013 11 LOCAL GOVERNMENTS AND THE ECONOMY

Municipalities and regions are responsible for most of the public services offered to citizens and enterprises

Pursuant to the executive order on borrowing applicable to mu­ In 2013, the long-term debt of municipalities and regions in­ nicipalities, Executive Order no . 68 dated 25 January 2013, the creased by 0 .7 percent to DKK 98 .4 billion from DKK 97 .7 billion municipalities’ automatic access to raise loans is restricted to in 2012 . specific investment purposes such as housing for the elderly and energy-saving measures . Moreover, municipalities may Collateral guarantee loans to most utility companies . In addition, one or Municipalities are a cornerstone of the Danish welfare society, several additional loan pools are created each year from which and ultimately, the central government must be responsible for municipalities may apply for loans for other investment pur­ ensuring that they are able to meet their obligations . Through­ poses . out the history of municipalities, no lenders to municipalities have suffered losses on lending . Owing to the strong regulation in the area, the annual borrow­ ing of municipalities amounted to approximately 1 per cent of Moreover, the Court has ruled that Danish municipalities cannot total funding, and interest expenses amounted to 0 .5 per cent file for restructuring proceedings as it is the responsibility of the of the annual expenses . Accordingly, borrowing costs are of lit­ supervisory authority to ensure that municipalities are able to tle consequence to municipal economies as a whole . meet their financial obligations .

Local government long-term debt and liquidity Economic indicators for 2013 Source: Statistics Denmark (excluding debt regarding assets Source: The Ministry of Finance and the European Commission held under finance leases)

Long-term debt Liquid assets DK EU

Year DKKbn Pct .* DKKbn Pct .* Real growth as a percentage of GDP 0 .4 0 .4 2013 98 .4 11 .2 20 .6 2 .4 Balance of payments surplus as a pct . of GDP 6.1 1 .6

2012 97 .7 11 .9 20 .7 2 .5 Annual increase in consumer prices (percentage) 2 .4 1 .6

2011 95 .2 11 .8 24 .4 3 .0 Government budget balance as a pct . of GDP -0 .2 -3 .5

2010 95 .3 12 .2 18 .6 2 .4 Unemployment rate (percentage) 5 .4 11 .1

2009 91 .0 11 .0 15 .7 1 .9 EMU debt as a percentage of GDP 43 .9 88 .5

*Percentage of tax base

12 ANNUAL REPORT 2013 LOCAL GOVERNMENTS AND THE ECONOMY

Municipal economies business confidence showed signs of improvement, and value In June 2013, LGDK (Local Government Denmark) and the creation now approaches the level prior to the economic set­ central government entered into an agreement on municipal back in 2008-09 . economies for 2014 . The framework for the municipalities’ ser­ vice expenditure was in line with the budget for 2013, taking 2013 saw a GDP growth rate of 0 .4 per cent, which is expected into account a previous agreement to transfer DKK 2 billion to increase to 1 .6 per cent in 2014 and 1 .9 per cent in 2015 . from operating costs to capital expenditure . The framework for capital expenditure amounted to DKK 18 .1 billion, which is an Exports increased, and the surplus on the balance of payments increase of DKK 2 billion compared to 2013 . amounted to 6 .1 per cent of GDP in 2013 against the EU aver­ age of 1 .6 per cent . Under the agreement, funds are released through a number of streamlining and debureaucratisation initiatives, whereas more Danish fiscal policy aims to ensure compliance with the EU funds are made available for implementing the primary and recommendation to permanently reduce the real deficit to lower secondary school reform and strengthening the munici­ below 3 per cent of GDP by 2013 . In 2013, the real public ba­ palities’ preventive and health-promoting measures . lance amounted to a negative 0 .2 per cent of GDP, and for the coming years, it is also expected to be below 3 per cent Municipal budgets for 2014 showed insignificant differences com­ of GDP . pared to the agreed-upon framework, and the central govern­ ment therefore adopted the budget . Before the financial crisis, Denmark recorded a substantial budget surplus . Consequently, the debt level is 43 .9 per cent of Danish economy GDP against the EU average of 88 .5 per cent . According to the central government’s economic report from December 2013, Danish economy improved during 2013 . Dur­ The unemployment rate edged lower in 2013 and is relatively ing the year, Danish production and employment as well as low at 5 .4 per cent against the EU average of 11 .1 per cent .

ANNUAL REPORT 2013 13 ORGANISATION AND MANAGEMENT

Management is responsible for presenting to the Board of Di­ ORGANISATION AND rectors all significant changes to KommuneKredit’s situation MANAGEMENT and Management’s position on important events of conse­ quence for KommuneKredit’s activities . Management is also responsible for directing to the Board of Directors any financial information and other disclosures that describe developments Corporate governance in KommuneKredit and that are necessary in order to ensure KommuneKredit operates under the authority of Act No . 383 that the Board of Directors complies with its overall managerial of 3 May 2006 on the Credit Institution for Local and Regional responsibility for KommuneKredit . Authorities in Denmark (Lov om kreditforeningen af kommuner og regioner i Danmark) . At board meetings, Management reports on the compliance with the guidelines on financial risk management laid down by KommuneKredit is managed by a Board of Directors and a Man­ the Board of Directors . agement . Until end of May 2014, the Board of Directors has ten members, of which eight are appointed by the municipalities Within the framework of the guidelines laid down by the Board and two are appointed by the regions . The seats on the board of Directors, Management is authorised to make all necessary are distributed between political parties and electoral alliances decisions . Decisions regarding guidelines for lending, funding in accordance with the method of proportional representation and derivative financial instruments require Management’s on the basis of the number of votes cast for a party or candi­ consensus of opinion . date at the latest local elections for the municipal and regional councils . KommuneKredit is under supervision by the Ministry of Eco­ nomic Affairs and the Interior . The Board of Directors is responsible for the general manage­ ment of KommuneKredit and for the proper organisation of its Board of Directors activities . The Board of Directors prepares guidelines for Kom­ Until end of May 2014, KommuneKredit’s Board of Directors muneKredit’s most important activities, in which the segrega­ consists of: tion of duties between the Board of Directors and Management is laid down . The Board of Directors outlines the guidelines for Former mayor Henning G . Jensen, chairman the management of financial risks and the use of derivatives . Former mayor Erik Fabrin, vice chairman Former mayor Kaj Petersen Management is responsible for the day-to-day management Former region council chairman Vibeke Storm Rasmussen of KommuneKredit in accordance with the policy adopted by Mayor Hans Toft the Board of Directors and the guidelines prepared by the Mayor Henrik Zimino Board of Directors . KommuneKredit’s Management, which Mayor Anker Boye consists of one chief executive officer and one managing di­ Mayor Lars Krarup rector, ensures that all the decisions made by the Board of Di­ Council member Mariann Nørgaard rectors are carried out . Region council member Aleksander Aagaard

14 ANNUAL REPORT 2013 ORGANISATION AND MANAGEMENT

At 16 September 2013, former vice chairman Henning G . There were no changes in the composition of the management Jensen was elected chairman, and former chairman Erik Fabrin team in 2013 . was elected vice chairman . Governance and human resources From 1 June 2014, the Board of Directors consists of nine mem­ KommuneKredit’s Management and employees have jointly bers: six members elected by the municipalities, two members outlined KommuneKredit’s core values and the obligation of elected by the regions and one member elected by the Board Management and employees to comply with these values . Fo­ of Directors who is independent of the association and has ac­ cus is on extensive delegation of decision-making competence counting or auditing qualifications . to employees .

KommuneKredit’s Board of Directors is elected by the mem­ KommuneKredit gives high priority to developing the employ­ ber municipalities and member regions for a four-year term . ees’ professional and personal qualifications to enable them to The term is staggered (five months) against the election term meet the demands of the outside world for product develop­ for municipalities and regions . The Board of Directors will be ment and work processes . High priority is also given to in-house elected in the spring of 2014 for the term 1 June 2014 to 31 knowledge sharing and overlapping of job functions in order to May 2018 . maintain stability in operations .

Audit committee KommuneKredit has 58 full-time employees . KommuneKredit has established an audit committee whose du­ ties are carried out by the collective members of the Board of Remuneration Directors . The audit committee has held three meetings in 2013 . KommuneKredit’s remuneration policy is determined by the Board of Directors . Under a bonus plan, a total bonus of up to Management one month’s salary may be paid out . The bonus amount is de­ KommuneKredit’s Management consists of: termined based on the achievement of the overall performance goals set for the year . Chief Executive Officer and Managing Director Søren Høgenhaven Managing director Johnny Munk The members of Management are not included in Kommune­ Kredit’s bonus plan . A management team has been appointed consisting of: Corporate social responsibility Chief Executive Officer and Managing Director Søren Høgenhaven KommuneKredit fills an important function for the Danish so­ Managing director Johnny Munk ciety when it provides funding for investments in the local Senior Vice President and Head of Lending Jette Moldrup government sector . The investments among other things con­ Senior Vice President and Head of Funding and Treasury Eske Hansen tribute to conserving the environment and combating climate Chief Financial Officer Jens Bloch Behrendt change as well as to improving social welfare . Through attrac­ Senior Vice President and Chief Risk Officer Morten Søtofte tive funding, KommuneKredit creates financial resources for lo­ Director Frank Hammer (Leasing) cal and regional services .

ANNUAL REPORT 2013 15 ORGANISATION AND MANAGEMENT

KommuneKredit finances its activities by issuing different types the election process, the political groups nominating the of bonds aimed at institutional as well as private investors . For candidates for KommuneKredit’s Board of Directors will be instance by issuing structured bonds on the Danish market, in informed of the Board of Directors’ goal regarding gender which the return is based on developments in share prices or quotation . exchange rates . In order to protect investors, the bonds are as a minimum repaid at par . Policy for other levels of management KommuneKredit’s levels of management consist of Manage­ KommuneKredit has also established an education fund that ment, heads of department and heads of executive functions . aims to further develop training and education of municipal pol­ The share of the underrepresented gender is 20 per cent . iticians, municipal workers, etc . The contributed capital of the fund amounts to DKK 30 million . KommuneKredit’s policy is to improve the gender balance at all levels of management in KommuneKredit . KommuneKredit KommuneKredit gives high priority to reducing energy consump­ aims to achieve this by indicating in job advertisements and tion and CO2 emissions . In 2013, investments were made in zone when recruiting employees for management positions that management in order to reduce energy consumption . Since contenders for the job should include candidates of the under­ 2008, electricity consumption has been reduced by 15 per cent . represented gender . When filling a vacancy, focus will be on ensuring the inclusion of suitable candidates of the underrep­ Goals and policies regarding gender quotation resented gender for the final selection . on corporate boards On 1 April 2013, new rules were introduced regarding gender It is also important that a culture is created where employees, quotation on corporate boards in large Danish companies and regardless of gender, have the same opportunities to establish reporting thereon . The rules apply to the largest companies in a career at KommuneKredit . Denmark . They are to set goals for the share of the underrep­ resented gender in top management positions . Moreover, they Compliance are to establish a gender equality policy aimed at increasing Management is responsible for ensuring that KommuneKredit the share of the underrepresented gender at all other levels of complies with applicable laws and regulations . In coopera­ management . Formally, KommuneKredit is not subject to the tion with the management team and the compliance func­ rules but has decided to comply with them . tion, Management monitors compliance and initiates necessary measures . KommuneKredit’s Board of Directors consists of ten members, of which two members are of the underrepresented gender . The head of the legal department oversees the compliance The Board of Directors has set a goal of 40/60 for the future function . The compliance function reports directly to the Chief gender quotation on the Board . Executive Officer and reports on relevant compliance issues to Management on a regular basis . The Compliance Officer The Board of Directors is elected in the spring of 2014 for prepares an annual review, which is presented to the Board the term 1 June 2014 to 31 May 2018 . In connection with of Directors .

16 ANNUAL REPORT 2013 RISK MANAGEMENT

out by the Board of Directors and KommuneKredit’s financial RISK MANAGEMENT and operational risks are discussed . On a quarterly basis, the risk management department reports to the supervisory au­ thority on the most important financial risks and the compli­ Financial risks ance with the guidelines . KommuneKredit is exposed to financial risks . These risks are identified, controlled and managed on an ongoing basis so that KommuneKredit distinguishes between the following types of they will correspond to KommuneKredit’s risk tolerance at any financial risks: given time . KommuneKredit’s risk tolerance is low and only ƒƒ Credit risk is the risk that the counterpart to a financial in­ comprises financial risks that are considered absolutely neces­ strument does not settle a liability and thus exposes Kom­ sary for the compliance with KommuneKredit’s mission . muneKredit to a loss . ƒƒ Liquidity risk is the risk that KommuneKredit will not be able KommuneKredit’s overall guidelines for managing finan­ to meet its financial obligations . cial risks, including a definition of risk tolerance, are deter­ ƒƒ Market risk is the risk that changes in market prices will af­ mined by the Board of Directors . Moreover, the Ministry of fect the market value of a financial instrument . Economic Affairs and the Interior has established guidelines for interest rate risk and liquidity resources and is also au­ Financial risk management is disclosed in notes 1 .9, 1 .10 and thorised to make changes to the guidelines adopted by the 1 .11 to the financial statements, to which we refer . Board of Directors . Operational risks Management is responsible for ensuring that the overall KommuneKredit is exposed to operational risks, which are iden­ guidelines are implemented in specific work processes and tified, controlled and managed on an ongoing basis . instructions to the employees . Management has delegated the responsibility for the supervision and control of financial risks to KommuneKredit is exposed to operational risks when losses the risk management department, and the head of department may occur as a result of: reports directly to the Chief Executive Officer . ƒƒ inappropriate or inadequate internal procedures, ƒƒ human errors and/or system errors, The risk management department validates and reports the ƒƒ external events, including legal risks . most important financial risks to Management on a daily basis, and in addition Management receives detailed monthly reports KommuneKredit’s overall guidelines for managing operational on all financial risks . In connection with the meetings of the risks are determined by the Board of Directors . Board of Directors, the Board of Directors receives a report on the most important financial risks, including information about Management is responsible for ensuring that the overall guide­ general compliance with the guidelines . At least once a year, lines are implemented in specific work processes and instruc­ the Chief Risk Officer participates in meetings with the audit tions to the employees . Management has delegated the re­ committee and Board of Directors, at which the guidelines set sponsibility for the supervision and control of operational risks

ANNUAL REPORT 2013 17 RISK MANAGEMENT

to the risk management department, and the head of depart­ maintained on avoiding as many risk events as possible, and ment reports directly to the Chief Executive Officer . at the same time, KommuneKredit is able to systematically im­ prove business procedures and processes . KommuneKredit is highly dependent upon its IT infrastructure, and therefore special focus is on this area via a disaster recov­ The written business procedures describe allocation of re­ ery plan and an IT security policy that includes guidelines in re­ sponsibilities, segregation of duties, process management and spect of access control, assignment of roles and rights, busi­ business practice . KommuneKredit’s policy is to support auto­ ness breakdown, system errors, etc . mation as far as possible, and where appropriate, in order to reduce the risk of human errors . The most significant automatic In order to limit the risk of system failure, a back-up copy is cre­ and manual processes must either be supported by a colleague ated of all production systems and the most significant testing check or by means of objective controls . and development systems on a daily basis . In addition, all ser­ vers, systems and documents are automatically synchronised According to the guidelines set out by the Board of Directors, to the recovery centre every two minutes . the business procedures must also comply with the Danish FSA’s Executive Order on Management and Control of Banks, KommuneKredit’s disaster recovery plan is to ensure that etc ., adapted to the special characteristics of KommuneKredit’s Kommune­Kredit can continue its activities if a situation arises business . which makes it impossible to operate at KommuneKredit’s ad­ dress . The disaster recovery plan is tested annually . All employees of KommuneKredit are responsible for knowing and updating the business procedures that cover their respec­ Each year, KommuneKredit’s auditors conduct an IT audit of tive fields of work . The risk management department carries KommuneKredit’s IT security . The IT security is classified as be­ out and documents spot checks of compliance with the busi­ ing at the highest level . ness procedures on an ongoing basis .

All operational risk events in KommuneKredit are registered in a Each month, the risk management department prepares a re­ database and presented to the relevant head of department and port on operational events, including any losses, to Manage­ Management and are recorded specified by type of risk event . ment . In connection with board meetings, the Board of Direc­ tors is informed of important operational events . KommuneKredit is exposed to operational risks in most of its activities . By registering risk events in a database, focus is

18 ANNUAL REPORT 2013 FINANCIAL STATEMENTS statement of comprehensive income

STATEMENT OF COMPREHENSIVE INCOME

DKKm Note 2013 2012

Interest income 1 .1 3,741 3,805 Interest expense 1 .2 3,238 3,202 Net interest income 503 603

Value adjustments of financial instruments 1 .3, 1 .4 -75 191 Administrative expenses 2 .1-2 .3 96 100 Profit before tax 332 694

Tax on profit for the year 3 .1 53 178 Profit for the year 279 516

Other comprehensive income Actuarial gains and losses 0 0 Comprehensive income for the year 279 516

Appropriation: Transferred to equity 279 516 Total 279 516

20 ANNUAL REPORT 2013 STATEMENT OF FINANCIAL POSITION

STATEMENT OF FINANCIAL POSITION

Assets

DKKm Note 2013 2012

Receivables from credit institutions 1 .4 367 2,292 Lending 1 .4, 1 .5 138,929 132,850 Lease receivables 1 .6 3,782 3,446 Portfolio of securities 1 .4, 1 .7 31,709 28,453 Derivative financial instruments 1 .4 9,292 14,687 Other assets 147 148 Current tax assets 3 .2 13 9 Total assets 184,239 181,885

Liabilities and equity

DKKm Note 2013 2012

Liabilities Due to credit institutions 1 .4 8 0 Debt securities issued 1 .4, 1 .8 169,076 166,045 Derivative financial instruments 1 .4 8,386 9,342 Other liabilities 476 443 Pension obligations 2 .3 62 65 Deferred tax liabilities 3 .3 236 274 Total liabilities 178,244 176,169

Equity 5,995 5,716

Total liabilities and equity 184,239 181,885

ANNUAL REPORT 2013 21 STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CHANGES IN EQUITY

DKKm Note 2013 2012

Equity Equity at 1 January 5,716 5,200 Comprehensive income for the year 279 516 Equity at 31 December 5,995 5,716

The comprehensive income for the year is transferred to equity in accordance with the articles of association of KommuneKredit .

Equity increased to DKK 6 .0 billion at year end 2013 from DKK 5 .7 billion at year end 2012 . At year end 2013, equity amounted to 3 .3 per cent of the assets against 3 .1 per cent at year end 2012 . Equity consists in its entirety of retained earnings .

KommuneKredit’s long-term objective is for equity to amount to approx . 3 per cent of total assets, which is considered adequate to support KommuneKredit’s activities . Under the legal framework of KommuneKredit, equity must equal at least 1 per cent of KommuneKredit’s­ total liabilities, i .e . DKK 1 .8 billion .

22 ANNUAL REPORT 2013 STATEMENT OF CASH FLOWS

STATEMENT OF CASH FLOWS

DKKm Note 2013 2012

Cash flows for the year

Cash flows from operations Profit before tax 332 694 Adjustment for non-cash operating items 4 .1 -92 ­233 Total cash flows from operations 240 461

Cash flows from operating activities Other assets ­4 -1 Other liabilities 33 62 Receivables from credit institutions 200 ­139 Portfolio of securities ­3,256 394 Lending and derivative financial instruments ­1,020 ­4,646 Debt securities issued and derivative financial instruments 2,074 4,247 Total cash flows from operating activities -1,973 -83

Total cash flows for the year -1,733 378

Cash and cash equivalents at 1 January 2,092 1,714 Cash and cash equivalents at 31 December 359 2,092

Cash and cash equivalents 367 2,092 Due to credit institutions -8 0 Receivables from credit institutions, term to maturity over 3 months 0 200 Total receivables from credit institutions 359 2,292

ANNUAL REPORT 2013 23 List of notes

LIST OF NOTES

Note Note

Notes in general ...... 25 Administrative expenses 2 .1 Administrative expenses ...... 46 Financial instruments 2 .2 Management’s remuneration ...... 47 Core earnings 2 .3 Pension obligations ...... 48 1 .1 interest income ...... 26 1 .2 interest expense ...... 26 Tax 3 .1 Tax on profit for the year ...... 49 Fair value adjustments and lease receivables 3 .2 Current tax assets ...... 49 1 .3 Value adjustments of financial instruments ...... 26 3 .3 deferred tax liabilities ...... 50 1 .4 Fair value of financial instruments ...... 27 1 .4 1. Specification of fair value of financial instruments .. 28 Statement of cash flows 1 .4 2. Specification of level 3 for fair value of financial 4 .1 Adjustment for non-cash operating items ...... 51 instruments ...... 29 1 .4 3. Monetary effect of credit spread on fair value Other notes adjustments ...... 29 5 .1 Contingent assets and liabilities ...... 52 1 .4 4. Set -off of financial assets and financial liabilities . . . 30 5 .2 Related party disclosures ...... 52 1 .5 Lending ...... 31 5 .3 Events after the reporting period ...... 52 1 .6 Lease receivables ...... 31 5 .4 Future accounting regulation ...... 52 1 .7 Portfolio of securities ...... 32 5 .5 Exchange rates at year end ...... 52 1 .8 debt securities issued ...... 32

Risk management of financial instruments 1 .9 Credit risk ...... 34 1 .9 1. Credit risk rating ...... 35 1 .9 2. Credit quality ...... 37 1 .9 .3 Collateral ...... 38 1 .10 Liquidity risk ...... 39 1 .10 .1 distribution of maturity according to remaining term ...... 40 1 .10 .2 Financial position regarding distribution of maturity according to remaining term ...... 41 1 .10 .3 Liquidity resources ...... 42 1 .11 Market risk ...... 43 1 .11 .1 Currency risk ...... 43 1 .11 .2 interest rate risk ...... 45 1 .11 .3 Other price risk ...... 45

24 ANNUAL REPORT 2013 NOTES IN GENERAL

NOTES IN GENERAL

General the statement of cash flows . These changes have no effect in The annual report of the credit association KommuneKredit monetary terms . for 2013 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU . In Date of recognition addition, the annual report has been prepared in compliance Financial assets are recognised at the settlement date, and with IFRSs as issued by the International Accounting Standards financial liabilities are recognised at the trade date . Unsettled Board (IASB) . trade is value adjusted and recognised . Derecognition of both financial assets and financial liabilities is made at the settle­ The financial year follows the calendar year . The annual report ment date . is presented in DKK million . Offsetting New standards and amendments to standards. Positive and negative fair values of financial instruments are in­ In 2013, KommuneKredit implemented the following new cluded in separate items in the statement of financial position, standards and interpretations (IAS and IFRS) and interpre­tations and set-off of positive and negative values is only made when (IFRIC) as adopted by the EU effective for the financial year the Association has the right and the intention to settle several starting on 1 January 2013: The new standard IFRS 13, amend­ financial instruments net . Transaction costs and income are ments to IFRS 1, IFRS 7, IAS 1, IAS 19 and “Annual improvements measured on initial recognition . to IFRSs 2009-2011” as well as the new interpretation IFRIC 20 . Moreover, KommuneKredit has early adopted these five stand­ Determination of the value of financial instruments by ards: IFRS 10, IFRS 11, IFRS 12 and the revised IAS 27 and IAS 28 . application of fair value option The implemented standards have the following effect on the The fair value option comprises financial instruments desig­ financial statements . nated at fair value with value adjustment in the statement of comprehensive income . KommuneKredit has decided to use the IFRS 13 clarifies that, going forward, adjustment for the develop­ fair value option under IAS 39 to ensure consistent accounting ment in credit spread is to be made . The standard is imple­ treatment of receivables from credit institutions, lending, port­ mented prospectively from 2013 with no restatement of the folio of securities, issued securities and derivative financial comparative figures for 2012 . The monetary effect of the im­ instruments in respect of risk and matching hedges . This implies plementation of IFRS 13 is described in note 1 .4 .3 . The effect that lending, securities and derivative financial instruments are of the amendment of IFRS 7 is shown in note 1 .4 .4 . The amend­ measured at fair value with value adjustment in the statement ment of IAS 19 has entailed that actuarial gains and losses are of comprehensive income . The fair value option is also applied recognised in other comprehensive income rather than in the as the Association’s measurement of investment returns is income statement . based on fair values, and the disclosures to Management and the Board of Directors are based on fair values . Unless market Foreign currency translation prices or other observable market data are used, losses or gains The financial statements are presented in Danish kroner (DKK) . cannot be recognised in connection with or immediately after Items denominated in foreign currencies are translated at the the conclusion of transactions with financial instruments . exchange rates at the balance sheet date . Realised and unreal­ ised foreign currency translation adjustments are recognised in Segment information the statement of comprehensive income . The annual report of KommuneKredit does not include informa­ tion on operating segments as the Association solely operates Change in presentation in one reportable business segment . Minor adjustments have been made to the statement of com­ prehensive income, the statement of financial position and

ANNUAL REPORT 2013 25 NOTES TO FINANCIAL INSTRUMENTS

NOTES TO FINANCIAL INSTRUMENTS

CORE EARNINGS

Note 1.1 Interest income and note 1.2 Interest expense Interest income and interest expense are accrued and recognised over the time to maturity . Interest income and interest expense comprise interest on financial instruments, lease receivables as well as administrative fees, fees for advisory services and fees paid .

Interest income and interest expense regarding financial instruments determined at fair value with value adjustments in the state­ ment of comprehensive income are recognised as net interest income .

DKKm 2013 2012

Interest income Lending 3,173 3,307 Lease receivables 51 65 Receivables from credit institutions 1 3 Portfolio of securities 494 409 Administrative fees 22 21 Total interest income 3,741 3,805

Interest expense Debt securities issued on OMX 1,139 1,292 Debt securities issued internationally 2,090 1,902 Fees paid 9 8 Total interest expense 3,238 3,202

FAIR VALUE ADJUSTMENTS AND LEASE RECEIVABLES

Note 1.3 Value adjustments of financial instruments Value adjustments comprise realised and unrealised translation and value adjustments of financial instruments .

DKKm 2013 2012

Value adjustments of financial instruments Lending -3,301 744 Portfolio of securities ­190 -26 Debt securities issued 1,011 ­582 Derivative financial instruments 2,405 55 Total value adjustments of financial instruments -75 191

26 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

Note 1.4 Fair value of financial instruments In accordance with IFRS 7 regarding further disclosure requirements for financial instruments, financial instruments measured at fair value are to be classified in a fair value hierarchy ranging from level 1 to 3 depending on how the fair value has been determined and the data on which it is based .

Fair value level 1 This level is used when the fair value is based on quoted prices in active markets for identical assets and liabilities . The level is used for listed securities and issues traded in an active market as well as receivables from and payables to credit institu­ tions in the form of bank account deposits .

Fair value level 2 This level is used if there is no quoted price in an active market as a valuation based on observable market data is to be applied sub­ sequently if possible . Examples of this are valuation models such as discounted cash flow models where all estimated and fixed cash flows are discounted using zero-coupon yield curves or option models .

The level is used for deposits, lending, illiquid securities, unlisted securities and derivative financial instruments . Bonds issued on OMX are all listed, but the market price does not reflect the fair value due to the fact that the bonds are illiquid . Consequently, the fair value of securities issued on OMX is calculated by an unbiased calculation agent and, in some cases, also based on own valuation models . The valuation includes listed prices of similar issues adjusted for liquidity and credit risk . In connection with callable bonds, prices are also adjusted for the right of early redemption at par . Bond loans are based on the fair value of the underlying issued bonds . The fair value adjustment of the bond loans essentially offsets the fair value adjustment of the issued bonds .

Fair value level 3 This level is used if there is no quoted price in an active market and the valuation is based partly or wholly on non-observable market data .

The level is used for structured issues on OMX and international securities and the related hedging by means of derivative financial instruments . The fair value of structured, illiquid and unlisted issues and related derivative financial instruments is calculated based on valuation models such as yield curve models or option models . The expected cash flows of the individual contracts are based on observable market data, e .g . yield curves, exchange rates as well as share and raw material prices, and on unobservable data, e .g . currency correlations and volatilities in currency, shares, raw materials and interest rate swap options .

The calculation of non-observable market data is based on assumptions and estimates . Changes to these assumptions and estimates may have a significant gross effect on the estimated fair value of unlisted and illiquid financial assets and liabilities . KommuneKredit follows a risk management strategy with the purpose of eliminating market risk by applying derivative financial instruments (see notes 1 .9 – 1 .11) . The total net effect on the statement of comprehensive income and the statement of financial position of changes in estimates and assumptions when assessing the fair value is therefore considered to be limited .

ANNUAL REPORT 2013 27 NOTES TO FINANCIAL INSTRUMENTS

Note 1.4.1 Specification of fair value of financial instruments

DKKm

Specification of fair value of financial instruments Level 1 Level 2 Level 3 Total 2013 Assets Receivables from credit institutions 7 360 0 367 Lending 0 138,929 0 138,929 Portfolio of securities 20,380 11,329 0 31,709 Derivative financial instruments 0 7,789 1,503 9,292 Total assets 20,387 158,407 1,503 180,297

Liabilities Due to credit institutions 8 0 0 8 Debt securities issued on OMX 0 42,261 4,076 46,337 Debt securities issued internationally 12,170 87,604 22,965 122,739 Derivative financial instruments 0 6,337 2,049 8,386 Total liabilities 12,178 136,202 29,090 177,470

2012 Assets Receivables from credit institutions 320 1,972 0 2,292 Lending 0 132,850 0 132,850 Portfolio of securities 19,783 8,670 0 28,453 Derivative financial instruments 0 11,881 2,806 14,687 Total assets 20,103 155,373 2,806 178,282

Liabilities Debt securities issued on OMX 0 43,511 4,214 47,725 Debt securities issued internationally 5,767 84,756 27,797 118,320 Derivative financial instruments 0 6,160 3,182 9,342 Total liabilities 5,767 134,427 35,193 175,387

In determining the carrying amount of certain financial instruments, estimates are required of the effect of future events on the value of these financial instruments at the reporting date . The estimates used are based on assumptions that Management finds reasonable but which are inherently uncertain and unpredictable . The assumptions may be incomplete or inaccurate, and unexpected events or circumstances may arise . Moreover, the Association is subject to risks and uncertainties that may cause actual results to deviate from these estimates .

Financial risks for KommuneKredit are disclosed in notes 1 .9, 1 .10 and 1 .11 .

28 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

Note 1.4.2 Specification of level 3 for fair value of financial instruments

DKKm

Specification of level 3 Assets and liabilities Assets Liabilities

2013 Balance at 1 January 2,806 35,193 Additions 18 15,264 Disposals 573 20,352 Included in comprehensive income ­748 ­1,015 Balance at 31 December 1,503 29,090

2012 Balance at 1 January 4,256 40,688 Additions 40 15,732 Disposals 1,122 15,905 Included in comprehensive income ­368 ­5,322 Balance at 31 December 2,806 35,193

There is no effect of level 3 issues on net profit, and the fair value calculation will only affect the recognition of the value in the state­ ment of financial position . As a consequence, a sensitivity analysis is not presented .

Note 1.4.3 Monetary effect of credit spread on fair value adjustments The monetary effect of credit spread on fair value adjustments of the statements of comprehensive income and financial position is shown below . The calculations are based on a model based on the future positive and negative exposure adjusted for the probability of default and losses given default .

Information about the monetary effect of developments in credit spread on fair value adjustments of derivative financial instruments

DKKm 1 Jan 2013 31 Dec

Statement of comprehensive income Value adjustments of financial instruments -15 5 -10 Total effect on statement of comprehensive income -15 5 -10

Statement of financial position Assets ­31 19 -12 Liabilities ­16 14 ­2 Total effect on statement of financial position -15 5 -10

ANNUAL REPORT 2013 29 NOTES TO FINANCIAL INSTRUMENTS

Note 1.4.4 Set-off of financial assets and financial liabilities KommuneKredit has entered into master netting agreements and related unilateral collateral agreements for derivative financial instruments where KommuneKredit receives collateral . The received collateral is solely comprised of high-quality bonds . Kommune­ Kredit is in negotiations regarding bilateral agreements, which will mean that, in the future, KommuneKredit will also be posting col­ lateral .

The effect of master netting agreements and collateral agreements is shown in the table .

Financial assets and financial liabilities subject to offsetting, enforceable master netting agreements or similar agreements

DKKm

Derivative financial instruments presented in the statement of financial position

Amounts offset Amounts not offset Net Financial 31 Dec 2013 Carrying amount Offset book value instruments Collateral Net amount Assets 9,292 0 9,292 -5,664 -2,754 874 Liabilities 8,386 0 8,386 -5,664 0 2,722 Total 906 0 906 0 -2,754 -1,848

31 Dec 2012 Assets 14,687 0 14,687 -7,102 -5,327 2,258 Liabilities 9,342 0 9,342 -7,102 0 2,240 Total 5,345 0 5,345 0 -5,327 18

The table shows that derivative financial instruments are not subject to offsetting in the statement of financial postition .

The amount of derivative financial instruments that are not offset has been limited to the lesser amount of assets and liabilities respectively and is calculated per counterparty . The amount is included in both assets and liabilities . The amount of collateral is calculated per counterparty and has been limited to the calculated net asset amount . Accordingly, the amount is different from the amounts presented in notes 1 .9 .1 and 1 .9 .3, which represent the actually received collateral .

Had the derivative financial instruments held by KommuneKredit qualified for offsetting, both assets and liabilities would have been reduced by DKK 5,664 million as at year end 2013, while the corresponding reduction amounted to DKK 7,102 million at year end 2012 . Furthermore, the asset value of derivative financial instruments would likewise have been reduced by 2,754 million as at year end 2013, while the corresponding reduction would have amounted to DKK 5,327 million at year end 2012, and the value of the portfolio of securities would have increased by a similar amount .

Net amounts represent the potential effect of offsetting on the financial statements .

30 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

Note 1.5 Lending Lending is measured at fair value with value adjustment in the statement of comprehensive income .

DKKm No. of loans 2013 2012

Lending Balance at 1 January 5,417 132,850 125,441 Additions 750 26,816 35,136 Disposals 495 20,737 27,727 Total lending 5,672 138,929 132,850

Bond loans 2,640 35,191 35,440 Tailor-made loans 3,032 103,738 97,410 Total lending 5,672 138,929 132,850

Note 1.6 Lease receivables Lease receivables are not covered by the fair value option . KommuneKredit is the lessor of finance leases . Finance leases are rec­ ognised in the statement of financial position as a receivable at an amount corresponding to the future minimum lease payments discounted at the interest rate implicit in the lease . Subsequently, lease receivables are measured at amortised cost in accordance with the effective interest rate method . The difference­ between the value on initial recognition and nominal value is amortised over the term to maturity and is recognised as “lease receivables” under interest income .

DKKm No. of loans 2013 2012

Lease receivables Balance at 1 January 6,758 3,446 3,538 Additions 2,087 1,525 813 Disposals 2,167 1,189 905 Total lease receivables 6,678 3,782 3,446

Net investments in finance leases by lease term Up to 1 year 800 773 From 1 to 5 years 2,099 2,109 Over 5 years 883 564 Total lease receivables 3,782 3,446

Gross investments in finance leases by lease term Up to 1 year 842 808 From 1 to 5 years 2,210 2,177 Over 5 years 1,014 592 Total gross lease receivables 4,066 3,577

Unearned finance income 284 131

ANNUAL REPORT 2013 31 NOTES TO FINANCIAL INSTRUMENTS

Note 1.7 Portfolio of securities The portfolio of securities is measured at fair value with value adjustment in the statement of comprehensive income .

DKKm 2013 2012

Portfolio of securities Danish government bonds 454 1,303 International bonds 11,636 12,824 Danish mortgage credit bonds 10,647 5,656 CP notes 8,972 8,670 Total portfolio of securities 31,709 28,453

Note 1.8 Debt securities issued Debt securities issued are measured at fair value with value adjustment in the statement of comprehensive income .

DKKm 2013 2012

Debt securities issued Debt securities issued on OMX 46,337 47,725 Debt securities issued internationally 122,739 118,320 Total debt securities issued 169,076 166,045

Debt securities issued on OMX 46,337 47,725 Fair value adjustment ­2,435 ­3,767 Debt securities issued on OMX at nominal value 43,902 43,958

Debt securities issued internationally 122,739 118,320 Fair value adjustment ­196 ­952 Debt securities issued internationally at nominal value 122,543 117,368

32 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

DKKm

Debt securities issued on OMX per instrument Nominal value Disposals and 1 January Additions adjustments 31 December 2013 Callable bonds 3,138 2,459 770 4,827 Index-linked bonds 6,189 0 575 5,614 Rate adjustable bonds 19,846 4,486 5,002 19,330 Non-callable bonds 10,770 0 390 10,380 Structured bonds 4,015 1,801 2,065 3,751 Total debt securities issued on OMX 43,958 8,746 8,802 43,902

2012 Callable bonds 6,124 189 3,175 3,138 Index-linked bonds 6,812 0 623 6,189 Rate adjustable bonds 16,900 6,059 3,113 19,846 Non-callable bonds 11,210 1,500 1,940 10,770 Structured bonds 6,003 425 2,413 4,015 Total debt securities issued on OMX 47,049 8,173 11,264 43,958

Debt securities issued internationally per instrument Nominal value

2013 Short-term bank loans 168 17,446 17,614 0 ECP 11,602 32,731 33,249 11,084 Short-term EMTN 12,850 5,010 10,616 7,244 Long-term bank loans 1,915 0 241 1,674 Long-term EMTN 86,206 44,626 32,806 98,026 Private Placements 4,627 186 298 4,515 Total debt securities issued internationally 117,368 99,999 94,824 122,543

2012 Short-term bank loans 340 11,795 11,967 168 ECP 9,682 36,543 34,623 11,602 Short-term EMTN 16,768 5,149 9,067 12,850 Long-term bank loans 2,104 0 189 1,915 Long-term EMTN 80,124 30,788 24,706 86,206 Private Placements 4,640 372 385 4,627 Total debt securities issued internationally 113,658 84,647 80,937 117,368

ANNUAL REPORT 2013 33 NOTES TO FINANCIAL INSTRUMENTS

RISK MANAGEMENT OF FINANCIAL INSTRUMENTS

KommuneKredit distinguishes between the following types of financial risks: ƒƒ Credit risk is the risk that the counterpart to a financial instrument does not settle a liability and thus exposes KommuneKredit to a loss . ƒƒ Liquidity risk is the risk that KommuneKredit will not be able to meet its financial obligations . ƒƒ Market risk is the risk that changes in market prices will affect the market value of a financial instrument .

Note 1.9 Credit risk Policies and procedures Credit risk accounts for the majority of KommuneKredit’s financial risks as, in spite of the low risk tolerance, credit risks are most likely to occur in relation to the compliance with KommuneKredit’s mission .

Loans are secured as follows: ƒƒ Loans are only granted to Danish municipalities and regions or against a 100 per cent guarantee from these authorities . ƒƒ Previously granted loans to Faroese municipalities, totalling DKK 4 .5 million, are 100 per cent guaranteed by the Faroese home rule government and reguaranteed by the Danish central government with 100 per cent of interest and contributions and 75 per cent of instalments . ƒƒ The members are jointly and severally liable for KommuneKredit’s liabilities . ƒƒ All Danish municipalities and regions are members of KommuneKredit .

KommuneKredit’s policy is to reduce the credit risk associated with derivative financial instruments by entering into as many collateral agreements as possible with other counterparts . According to the instructions on the posting of collateral, the agreements must among other things meet the following requirements: ƒƒ The agreements must have daily exchange and low threshold values . ƒƒ Collateral received under the agreements must be high-quality liquid bonds .

In order to further reduce the credit risk on other counterparts, the credit risk instructions include strict requirements as to the credit quality, both in relation to the type of counterpart and the rating of the counterpart by credit rating agencies . As a result, financial instruments may only be entered into with the following types of counterparts: ƒƒ Central governments, regions, municipalities and other public authorities . ƒƒ Multilateral development banks and international organisations that carry a risk weight of zero in the Danish Financial Supervisory Authority’s Executive Order on Capital Adequacy . ƒƒ Banks, other financial institutions and issuers of covered bonds .

These counterparts must be based in the EU or in a country that is a fully-fledged member of the OECD and also have a rating of at least AA- from Standard & Poor’s or a similar rating from Moody’s Investors Services and/or Fitch Ratings . If a collateral agreement has been entered into with the counterpart, ratings may not be below A­ . Finally, based on a concrete assessment, Management may permit agreements with lower-rated Danish banks .

Counterparts that meet these requirements may be assigned a credit risk line by Management; see the guidelines set out by the Board of Directors .

As opposed to previous years, the daily utilisation of credit risk lines on financial instruments is now calculated as the unexpected credit risk loss . This calculation method is based on the way in which so-called IRB banks are to reserve capital for unexpected credit risk losses in accordance with Basel II and iii . The expected credit risk loss is recognised in comprehensive income on an ongoing basis .

34 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

KommuneKredit assigns lines for concentration of credit risk based on section 145 of the Danish Financial Business Act . Accordingly, the exposure related to a counterpart or a group of correlated counterparts less credit enhancements such as collateral must not exceed 25 per cent of the base capital, which in KommuneKredit almost corresponds to equity .

Management and the heads of department for risk management and funding meet at least once a month in a credit committee and assess the current credit risk .

Note 1.9.1 Credit risk rating Measurement The rating is based on Moody’s Investors Services, Standard & Poor’s and/or Fitch Ratings . If the counterpart is rated by two credit rating agencies, the lower rating of the two credit ratings is used . If the counterpart is rated by three credit rating agencies, the middle rating of the three credit ratings is used . When investing in securities, the rating of the securities is used, and for all financial instru­ ments covered by a guarantee, the rating of this guarantee is used .

In respect of the counterparts who post collateral for their liabilities to KommuneKredit, the value of the collateral is classified based on the counterpart’s rating . Thus, the classification does not reflect the rating of the collateral .

As the credit risk at counterpart level cannot be negative, an adjustment in this respect has been made in the column “Correction for neg . MV per counterpart” .

The credit risk may be divided into two key components . The first component is credit risk on cash and cash equivalents as well as receivables from credit institutions and securities, collectively called investment credit risk . The other component is credit risk on de­ rivative financial instruments and related collateral, collectively called derivative credit risk .

The majority of the total credit risk relates to investments made using means from the liquidity resources and the own portfolio of bonds as the credit risk on derivatives is limited by collateral agreements; cf . KommuneKredit’s business model .

The total credit risk decreased by DKK 0 .1 billion from DKK 32 .6 billion in 2012 to DKK 32 .5 billion in 2013 . The credit risk on invest­ ments increased by DKK 1 .1 billion, while the credit risk on derivatives decreased by DKK 1 .2 billion .

The decrease in the total credit risk on derivative financial instruments is primarily attributable to the development in the general market conditions, including a decrease in the exchange rate of USd . The changed market conditions have contributed to the mar­ ket value of KommuneKredit’s portfolio of derivative financial instruments, before deduction for the value of collateral agreements, decreasing by DKK 4 .3 billion . However, this decrease was only partly counterbalanced by a decrease of DKK 3 .1 billion in the value of collateral agreements . Thus, 87 per cent of the market value of the portfolio of derivative financial instruments at year end 2013 had been collateralised against 78 per cent in 2012 .

With the received collateral, the credit risk on derivative financial instruments at year end 2013 amounted to DKK 0 .4 billion, which corresponds to a decrease of DKK 1 .2 billion compared to the already low level in 2012 . This illustrates KommuneKredit’s limited credit risk on counterparts with derivative financial instruments .

Credit risk is not measured on clients .

ANNUAL REPORT 2013 35 NOTES TO FINANCIAL INSTRUMENTS

DKKm

Credit risk rating at market value

Investment credit risk Derivative credit risk Total

Cash and Receivables Derivative financial Correction for Collateral Net cash equi- from credit­ Portfolio of instruments neg. MV per after credit Rating valents institutions securities Total Positive Negative counterparty haircut Total risk

2013 AAA 0 0 21,870 21,870 9 -1 0 0 8 21,878 AA+ 0 0 5,901 5,901 117 -53 0 0 64 5,965 AA 0 0 0 0 0 0 0 0 0 0 AA- 361 0 3,396 3,757 2,145 -2,353 395 0 187 3,944 A+ 3 0 542 545 871 -1,571 737 -19 18 563 A 3 0 0 3 3,003 -2,101 871 -1,634 139 142 A- 0 0 0 0 2,564 -1,534 205 -1,235 0 0 BBB+ 0 0 0 0 123 -396 273 0 0 0 Total 367 0 31,709 32,076 8,832 -8,009 2,481 -2,888 416 32,492

2012 AAA 0 0 21,978 21,978 24 0 0 0 24 22,002 AA+ 0 0 3,464 3,464 100 -1 0 0 99 3,563 AA 0 0 1,524 1,524 0 0 0 0 0 1,524 AA- 1 0 1,622 1,623 3,187 -2,548 112 -112 639 2,262 A+ 1 33 75 109 4,957 -2,094 766 -3,319 310 419 A 9 0 0 9 3,397 -649 294 -2,503 539 548 A- 1,150 167 0 1,317 1,883 -2,089 269 0 63 1,380 BBB+ 931 0 0 931 192 -567 375 0 0 931 Total 2,092 200 28,663 30,955 13,740 -7,948 1,816 -5,934 1,674 32,629

36 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

Note 1.9.2 Credit quality To limit concentration risk, the geographical distribution of KommuneKredit has never incurred a loss as a result of a coun­ credit risk on counterparties was at year end 2013, as at year terpart not settling an obligation . end 2012, widely diversified . Compared to 2012 there has been a reduction in concentration risk due to credit risk placed with 67 per cent of the total credit risk relates to counterparts with other European countries being relocated to multilateral coun­ the highest rating, 31 per cent has a credit rating between AA+ terparts . Due to the continued financial turmoil in some Euro­ and AA-, and only 2 per cent has a lower credit rating . The credit pean countries, in 2013, KommuneKredit decided to maintain quality of KommuneKredit’s counterparts is thus very good . prior decisions that agreements are not to be entered into on financial instruments with counterparts in Ireland and Southern The share of counterparts with high credit quality must be seen Europe in spite of the counterparts’ ratings . in the context of the general weakening of the counterparts’ rating in 2013 . KommuneKredit’s continued strict requirements as to rating has entailed that a larger share of the credit risk is now placed in bonds issued by governments or in mortgage credit institutions rather than in bank deposits .

CREDIT RISK BY EXTERNAL RATING CREDIT RISK BY AREA

70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% AAA AA+ AA AA- A+ A A- BBB+ Denmark The other Rest of Rest of Multilateral Nordic countries Europe the world counterparts

2013 2012 2013 2012

CREDIT RISK BY TYPE OF COUNTERPARTY CREDIT RISK BY TYPE OF INSTRUMENT

70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% Central governments/ Multilateral Mortgage Banks Bank deposit CP Covered bonds Bonds Derivatives public authorities counterparts credit institutions 2013 2012 2013 2012

ANNUAL REPORT 2013 37 NOTES TO FINANCIAL INSTRUMENTS

Note 1.9.3 Collateral of activity reflects the low threshold values and the daily ex­ All KommuneKredit’s collateral agreements have been con­ change ensuring that as large a part of the credit risk as pos­ cluded as annexes to ISDA agreements . In order to ensure as sible is collateralised on an ongoing basis . high a credit risk reduction as possible, low threshold values have been established as well as daily valuations and exchange In order to further reduce the credit risk, the collateral agree­ of collateral . ments also include strict requirements as to the quality of the provided collateral . Under the collateral agreements, collateral When the counterparts post collateral, a haircut (deduction) of must be highly rated mortgage bonds or government bonds is­ the collateral is calculated dependent on the type of security, sued by highly rated countries . At year end 2013, 82 percent rating and remaining term . This haircut is a buffer safeguard­ of the received collateral was Danish, German, French or Eng­ ing KommuneKredit against fluctuations in market values if the lish government bonds . The remaining 18 per cent was Danish collateral is to be realised . mortgage bonds with the highest credit quality . Thus, all collat­ eral received is high-quality liquid bonds . Moreover, collateral is During 2013, there were 1,008 transfers of collateral at a to­ received as tranfer of title . tal nominal value of more than DKK 53 .2 billion . The high level

DKKm

Specification of collateral received Market value Type of security Rating Market value after haircut 2013 Danish government bonds AAA 22 22 Danish mortgage credit bonds AAA 524 513 German government bonds AAA 306 292 French government bonds AA+ 545 529 French government bonds, short-term treasuries Not rated 1,100 1,099 English government bonds AA+ 456 433 Total 2,953 2,888

2012 Danish mortgage credit bonds AAA 56 53 German government bonds AAA 1,860 1,781 French government bonds AAA 101 100 French government bonds AA+ 1,335 1,290 English government bonds AAA 2,567 2,461 Belgian government bonds AA- 228 221 American government bonds AAA 30 28 Total 6,177 5,934

38 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

Note 1.10 Liquidity risk Policies and procedures KommuneKredit’s willingness to accept liquidity risk is very low as it is not necessary to accept liquidity risks to comply with Kom­ muneKredit’s mission . The liquidity risk instructions distinguishes between short-term and long-term liquidity .

According to the short-term liquidity instructions, the total holding of high-quality unrestricted liquid assets must exceed the accu­ mulated liquidity outflows in a 30-day stress scenario . The instructions are inspired by the preliminary principles of the international standards on liquidity, including Liquidity Coverage Ratio (LCR) known from Basel III and CRD IV .

According to the long-term liquidity instructions, the stable medium-term and long-term funding, i .e . more than one year, must ex­ ceed the liquidity needs in a stressed scenario . The instructions are also inspired by the preliminary principles of the international standards on liquidity, including Net Stable Funding Ratio (NSFR) known from Basel III and CRD IV .

Due to its high credit rating, it is easy for KommuneKredit to obtain funding in both the Danish and the international capital markets, e g. . by means of issuing ECP notes or EMTN notes via existing programmes .

In order to ensure that the investments are highly liquid, KommuneKredit has strict requirements for the rating of the investments . This means that 68 per cent of all investments at year end 2013 were AAA rated, 30 per cent were rated from AA+ to AA-, and under 2 per cent were rated A+ . Therefore, there are restrictions on the remaining term as short-term investments are more liquid . At year end 2013, the remaining term of the majority of KommuneKredit’s investments was very short, which ensures a high degree of liquidity .

ANNUAL REPORT 2013 39 NOTES TO FINANCIAL INSTRUMENTS

Note 1.10.1 Distribution of maturity according to remaining term Distribution of maturity according to remaining term is measured in nominal values .

DKKm

Distribution of maturity 0-3 months 3-12 months 1-5 years Over 5 years Total

2013 Financial assets Receivables from credit institutions 367 0 0 0 367 Portfolio of securities 20,041 6,248 5,070 0 31,359 Lending 49,376 25,143 35,322 25,611 135,452 Lease receivables 156 643 2,100 883 3,782 Total recognised financial assets 69,940 32,034 42,492 26,494 170,960 Loan commitments received 2,376 2,376 Total financial assets 72,316 32,034 42,492 26,494 173,336

Financial liabilities Due to credit institutions 8 0 0 0 8 Debt securities issued on OMX 1,294 7,057 22,702 12,849 43,902 Debt securities issued internationally 14,326 28,196 60,301 19,719 122,542 Derivative financial instruments 160 ­465 ­1,194 ­678 ­2,177 Total recognised financial liabilities 15,788 34,788 81,809 31,890 164,275 Loan commitments made 3,538 3,538 Total financial liabilities 19,326 34,788 81,809 31,890 167,813

2012 Financial assets Receivables from credit institutions 2,292 0 0 0 2,292 Portfolio of securities 18,696 4,834 4,403 0 27,933 Lending 40,681 20,708 40,631 24,045 126,065 Lease receivables 170 603 2,109 564 3,446 Total recognised financial assets 61,839 26,145 47,143 24,609 159,736 Loan commitments received 2,433 2,433 Total financial assets 64,272 26,145 47,143 24,609 162,169

Financial liabilities Debt securities issued on OMX 4,564 1,904 26,362 11,128 43,958 Debt securities issued internationally 18,497 23,261 48,072 27,537 117,367 Derivative financial instruments 452 ­534 ­2,474 ­5,614 ­8,170 Total recognised financial liabilities 23,513 24,631 71,960 33,051 153,155 Loan commitments made 9,062 9,062 Total financial liabilities 32,575 24,631 71,960 33,051 162,217

40 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

Note 1.10.2 Financial position regarding distribution of maturity according to remaining term

DKKm 2013 2012

Assets Under 1 year Over 1 year Under 1 year Over 1 year Receivables from credit institutions 367 0 2,292 0 Lending 76,540 62,389 64,693 68,157 Lease receivables 800 2,982 774 2,672 Portfolio of securities 26,631 5,078 23,968 4,485 Derivative financial instruments 3,429 5,863 3,221 11,466 Other assets 64 83 67 81 Current tax assets 13 0 9 0 Total assets 107,844 76,395 95,024 86,861

Liabilities and equity Due to credit institutions 8 0 0 0 Debt securities issued 52,520 116,556 48,804 117,241 Derivative financial instruments 3,094 5,292 3,712 5,630 Other liabilities 476 0 443 0 Pension obligations 3 59 3 62 Deferred tax liabilities 0 236 0 274 Total liabilities 56,101 122,143 52,962 123,207

Equity 0 5,995 0 5,716

Total liabilities and equity 56,101 128,138 52,962 128,923

The distribution of fair values is based on a distribution scale .

ANNUAL REPORT 2013 41 NOTES TO FINANCIAL INSTRUMENTS

Note 1.10.3 Liquidity resources The Ministry of Economic Affairs and the Interior allows for KommuneKredit to build up liquidity resources of up to 25 per cent of total lending at the end of the previous quarter . The upper limit amounted to DKK 35 .5 billion at the end of 2013, and KommuneKredit’s liquidity resources amounted to DKK 25 .5 billion . The utilisation of the limit fluctuated throughout 2013, and the highest level of liquid­ ity resources at month end amounted to 22 per cent .

Liquidity resources are calculated as debt securities issued less total lending at book value . Debt securities issued are adjusted for the total net value of derivative financial instruments .

DKKm 2013 2012

Liquidity resources Debt securities issued 169,076 166,045 Derivative financial instruments 8,386 9,342 Derivative financial instruments ­9,292 ­14,687 Debt securities issued and derivative financial instruments 168,170 160,700

Lending 138,929 132,850 Lease receivables 3,782 3,446 Total lending 142,711 136,296

Total liquidity resources 25,459 24,404

Liquidity resources as a percentage of total lending 18 18

The limit for liquidity recources is calculated as 25 per cent of total lending at the end of the previous quarter

Limit for liquidity resources, 25 per cent of lending at the end of the previous quarter 35,541 33,652 Total lending at 30 September 142,164 134,607

Total liquidity resources also comprise the part of the portfolio of securities financed by equity .

42 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

Note 1.11 Market risk KommuneKredit distinguishes between three types of market risks: ƒƒ Currency risk is the risk that changes in exchange rates will affect the market value of a financial instrument . ƒƒ Interest rate risk is the risk that changes in interest rates will affect the market value of a financial instrument . ƒƒ Other price risk is the risk that other changes in market prices than those attributable to the interest rate risk or currency risk, e .g . a share index, will affect the market value of a financial instrument .

Note 1.11.1 Currency risk Policies and procedures KommuneKredit’s willingness to accept a currency risk is very low as it is not necessary to accept currency risks to comply with KommuneKredit’s­ mission.

KommuneKredit is exposed to insignificant currency risks when minor amounts in foreign currency are deposited in currency accounts .

According to the currency risk instructions, funding must be translated by the use of financial instruments to the same currency as the currency in which loans were granted . Similarly, placement of liquidity resources must be made in the same currency as funding . In practice, all funding is translated into DKK, EUR or USd . Subsequently, when funding is to finance lending or investments, funding is translated into the relevant currency .

According to the instruction, the net position calculated as the present value of future payments in EUR must not exceed DKK 1,000 million, and the net position for all other currencies combined must not exceed DKK 100 million . So far, these limits have only been used to a very limited extent .

Measurement The currency position is presented separately for receivables and liabilities as well as derivative financial instruments . The distribution shows how derivative financial instruments are used to hedge the resulting currency position from receivables and liabilities .

At the end of 2013, KommuneKredit’s currency position was close to 0, which was also the case at year end 2012 . This reflects Kommune­Kredit’s low willingness to accept currency risks .

ANNUAL REPORT 2013 43 NOTES TO FINANCIAL INSTRUMENTS

DKKm

Currency risk Derivative financial Currency Market values Receivables Liabilities instruments position

2013 Australian dollar AUD 383 3,531 3,148 0 Swiss franc CHF 2,904 14,755 11,851 0 Euro EUR 10,058 14,627 4,569 0 British pounds GBP 1,504 6,787 5,283 0 Hong Kong dollar HKD 0 1,007 1,007 0 Japanese yen JPY 145 8,274 8,129 0 Norwegian kroner NOK 261 4,105 3,844 0 Swedish kroner SEK 174 1,548 1,374 0 American dollar USD 8,465 66,317 57,850 -2 Other currencies* 0 1,561 1,561 0 Total 23,894 122,512 98,616 -2

2012 Australian dollar AUD 0 4,058 4,058 0 Swiss franc CHF 3,171 19,295 16,124 0 Euro EUR 17,366 10,818 ­6,547 1 British pounds GBP 383 802 419 0 Hong Kong dollar HKD 0 1,108 1,108 0 Japanese yen JPY 208 13,606 13,398 0 Norwegian kroner NOK 0 4,768 4,768 0 Swedish kroner SEK 187 1,267 1,080 0 American dollar USD 6,027 59,112 53,087 2 Other currencies* 194 2,287 2,093 0 Total 27,536 117,121 89,588 3

* Other currencies comprise CAD, HUF, MXN, NZD, RON, TRY, ZAR .

44 ANNUAL REPORT 2013 NOTES TO FINANCIAL INSTRUMENTS

Note 1.11.2 Interest rate risk Policies and procedures KommuneKredit’s willingness to accept interest rate risks is limited but it is deemed necessary to accept certain interest rate risks to comply with KommuneKredit’s mission .

KommuneKredit primarily accepts interest rate risks when equity is invested in bonds . Interest rate risks are accepted in order to en­ sure a return that contributes to the necessary return on equity and thus to the capitalisation of KommuneKredit . Interest rate risks are accepted to a lesser degree between lending and funding when floating-rate loans and floating-rate funding are fixed at varying dates .

According to the interest rate risk instructions, interest rate risks may not be accepted in respect of fixed-rate lending, funding or in­ vestments of the liquidity resources . This is complied with by hedging all fixed-rate transactions of a certain amount at the agreement date by applying financial instruments . Similarly, fixed-rate funding and investments of excess liquidity are converted to floating-rate funding and investments at the agreement date . According to the interest rate risk instructions, interest rate risks must not exceed 4 .5 per cent of equity at year end, corresponding to DKK 257 million . The risk management department calculates the interest rate risk on the basis of a one per cent parallel shift of the yield curve .

Measurement At year end 2013, KommuneKredit utilised 88 per cent of the interest rate risk limit determined by the supervisory authority, and this utilisa­ tion was the highest for the year . On average, the utilisation of the interest rate risk increased in 2013 compared to 2012 . The increase in utilisation is primarily due to the fact that, in connection with investments of the portfolio financed by equity, KommuneKredit has made investments with longer duration .

DKKm 2013 2012

Interest rate risk Average Maximum 31 Dec Average Maximum 31 Dec

Core business 6 25 ­2 5 -19 14 Portfolio of securities financed by equity* ­130 ­223 ­223 -87 ­163 -59 Total interest rate risk -225 -45

Equity, 1 January 5,716 5,200 Interest rate risk limit 257 234 Utilisation of the limit in per cent 88 19

*The calculations of average and maximum are based on figures at month end .

Note 1.11.3 Other price risk Policies and procedures KommuneKredit’s willingness to accept other price risks is very low as it is not necessary to accept other price risks to comply with KommuneKredit’s mission .

Other price risk may, for instance, occur when KommuneKredit issues bonds related to a commodity index or the like . According to the instructions, other price risks related to issues must be completely hedged at the issue date . This is complied with by hedging the price risk by applying financial instruments at the issue date . KommuneKredit does not offer loans and does not invest in securities that involve other price risks .

ANNUAL REPORT 2013 45 NOTES TO ADMINISTRATIVE EXPENSES

NOTES TO ADMINISTRATIVE EXPENSES

Note 2.1 Administrative expenses Administrative expenses comprise staff costs, other administrative expenses, adjustment of pension obligations, and amortisation of intangible assets and depreciation on property, plant and equipment .

Intangible assets and property, plant and equipment are measured at cost less accumulated amortisation, depreciation and impair­ ment losses .

Cost comprises the acquisition price and any costs directly attributable to the acquisition until the date when the asset is available for use . Where individual components of an intangible asset or an item of property, plant and equipment have different useful lives, they are accounted for as separate items, which are amortised/depreciated separately .

Development costs regarding software comprise salaries and other costs attributable to the Association’s development activities . Development projects that comply with the relevant accounting requirements are recognised as intangible assets .

Amortisation and depreciation are provided on a straight-line basis over the expected useful lives of the assets/components . The expected useful lives are as follows:

Intangible assets (software, etc .) ...... 3 years Properties ...... 75 years Equipment (IT equipment, etc .) ...... 3 years Cars ...... 3 to 4 years Leasehold improvements ...... 5 years Land is not depreciated .

The carrying amount is tested annually for indications of impairment . When there is an indication that assets may be impaired, the recoverable amount of the asset is determined . The recoverable amount is the higher of an asset’s fair value less expected costs to sell and its value in use .

DKKm 2013 2012

Administrative expenses Administrative expenses 47 46 Salaries, remuneration, etc. 39 39 Pension contributions 5 5 Adjustment of pension obligations 0 3 Amortisation of intangible assets and depreciation on property, plant and equipment 5 7 Total administrative expenses 96 100

Number of full-time employees 58 59

46 ANNUAL REPORT 2013 NOTES TO ADMINISTRATIVE EXPENSES

Note 2.2 Management’s remuneration Remuneration of the Board of Directors comprises fixed remuneration for KommuneKredit as well as remuneration of the audit com­ mittee .

Management is not included in KommuneKredit’s bonus plan . Management is covered by a defined benefit plan . The pension obligation has been calculated on the basis of actuarial assumptions .

DKK’000 2013 2012

Management’s remuneration

Remuneration of the Board of Directors Hennning G . Jensen, chairman 144 116 Erik Fabrin, vice chairman 185 211 Kaj Petersen 70 70 Vibeke Storm Rasmussen 70 70 Hans Toft 70 70 Henrik Zimino 70 70 Anker Boye 70 70 Lars Krarup 70 70 Mariann Nørgaard 70 70 Aleksander Aagaard 70 70 Total remuneration of the Board of Directors 889 887

Remuneration of Management Søren Høgenhaven 1,693 1,668 Johnny Munk 1,430 1,399 Total remuneration of Management 3,123 3,067

Management pension provision for the year Søren Høgenhaven 100 300 Johnny Munk 200 300 Total management pension provision for the year 300 600

ANNUAL REPORT 2013 47 NOTES TO ADMINISTRATIVE EXPENSES

Note 2.3 Pension obligations recognised in the statement of financial position under pension KommuneKredit has entered into pension plans with the obligations . ­majority of the employees . Adjustments to the calculated present value attributable to Contributions to defined contribution plans are recognised in changes in actuarial assumptions are recognised in other com­ the statement of comprehensive income in the period to which prehensive income . The calculations are based on the insur­ they relate, and any contributions outstanding are recognised ance technical basis of calculation G82 with a computation rate in the statement of financial position as other liabilities . of interest of 1 .5 per cent .

KommuneKredit has entered into defined benefit plans with a If changes in benefits relating to services rendered by employ­ few present and former employees . For defined benefit plans, ees in previous years result in changes in the actuarial present an annual actuarial calculation is made of the present value of value, the changes are recognised as historical costs . Such future benefits under the defined benefit plan . The present costs are recognised immediately, provided that the employees value is determined on the basis of assumptions about the have already earned the changed benefits . If employees have future development in variables such as salary levels, interest not earned the benefits, the historical costs are recognised in rates, inflation and mortality . The present value is determined the statement of comprehensive income for the period in which only for benefits already earned by employees from their em­ the changed benefits are earned by the employees . ployment with the Association . The actuarial present value is

DKKm 2013 2012

Pension obligations Balance at 1 January 65 65 Additions 0 3 Disposals 3 3 Total pension obligations 62 65

Including remuneration of Management 26 25

48 ANNUAL REPORT 2013 NOTES TO TAX

NOTES TO TAX

KommuneKredit computes tax on financial instruments based on the market-value principle . The current corporation tax rate is 25 per cent .

On 27 June 2013, the Danish Parliament passed a bill entailing a gradual reduction of the corporation tax rate from 25 per cent to 22 per cent in the period 2014-2016 . Current tax for the year has been computed on the basis of the applicable tax rate of 25 per cent . The measurement of deferred tax on all temporary differences between the carrying amount and the tax value of assets and liabili­ ties depends on the expected date of realisation of those differences . On this basis, the average tax rate is calculated at 16 per cent, and a tax gain of DKK 28 million was recognised in 2013 .

Note 3.1 Tax on profit for the year Tax for the year comprises current tax for the year, changes in deferred tax for the year and adjustments regarding previous years .

DKKm 2013 2012

Tax on profit for the year Corporation tax for the year 92 186 Adjustment due to change in tax rate -28 0 Deferred tax for the year -9 -12 Adjustment regarding previous years -2 4 Total tax on profit for the year 53 178

Tax on profit for the year relates to: Computed tax on profit for the year before tax 83 174 Adjustment due to change in tax rate -28 0 Adjustment regarding previous years -2 4 Total tax on profit for the year 53 178

Effective tax rate 16 26

Note 3.2 Current tax assets Current tax assets and tax liabilities are recognised in the statement of financial position as the sum of current tax, tax receivable or tax payable from previous years and tax paid for the year .

DKKm 2013 2012

Current tax assets Balance at 1 January 9 -52 Current tax -92 -186 Adjustment regarding previous years -5 4 Corporation tax paid for the year 101 243 Total current tax assets 13 9

ANNUAL REPORT 2013 49 NOTES TO TAX

Note 3.3 Deferred tax liabilities Deferred tax assets and tax liabilities are measured on all temporary differences between the carrying amount and the tax value of assets and liabilities . Deferred tax is measured according to the tax rules applicable for the reporting period when the deferred tax is expected to crystallise as current tax . The change in deferred tax as a result of changes in tax rates is recognised in the statement of comprehensive income .

DKKm 2013 2012

Deferred tax liabilities Balance at 1 January 274 275 Adjustment due to change in tax rate -28 0 Adjustment regarding previous years -1 11 Deferred tax for the year -9 -12 Total deferred tax liabilities 236 274

Deferred tax liabilities relate to: Property, plant and equipment and intangible assets 7 8 Lease assets 243 282 Pension obligations ­14 -16 Total deferred tax liabilities 236 274

50 ANNUAL REPORT 2013 NOTES TO THE STATEMENT OF CASH FLOWS

NOTES TO THE STATEMENT OF CASH FLOWS

The statement of cash flows shows cash flows from operations and operating activities for the year, total cash flows for the year, the year’s changes in cash and cash equivalents and cash and cash equivalents at the beginning and end of the year .

Cash flows from operations Cash flows from operations are determined as profit before tax adjusted for non-cash operating items .

Cash flows from operating activities Cash flows from operating activities comprise cash flows from lending and funding activities, payments in connection with acquisi­ tions and disposals of intangible assets and property, plant and equipment as well as acquisition and disposal of securities if the term to maturity exceeds three months at the date of conclusion . Receivables from credit institutions comprise deposits with fixed matu­ rity and ECP notes with a term to maturity of more than three months at the date of conclusion .

Cash flows for the year Cash flows for the year comprise cash flows from operations and cash flows from operating activities .

Cash at hand and in bank The item comprises deposits on demand with credit institutions and ECP notes with a term to maturity of less than three months at the date of conclusion .

Note 4.1 Adjustment for non-cash operating items

DKKm 2013 2012

Adjustment for non-cash operating items Pension obligations -3 0 Depreciation and provisions, etc. 5 10 Adjustment regarding previous years 7 0 Corporation tax paid ­101 ­243 Total adjustment for non-cash operating items -92 -233

ANNUAL REPORT 2013 51 other notes

OTHER NOTES

Note 5.1 Contingent assets and liabilities Note 5.4 Future accounting regulation Pursuant to section 81(4) of the Danish Securities Trading Act, The IASB has issued the following new international financial KommuneKredit together with other custodian institutes is li­ reporting standards (IAS and IFRS) and interpretations (IFRIC) able for compensation for losses resulting from mistakes in the which are not compulsory for KommuneKredit in the prepara­ reporting, etc ., to VP Securities A/S . KommuneKredit’s liability is tion of the annual report for 2013: Amendments to IAS 19, IAS maximised to DKK 1 .5 million . 32, IAS 36 . Moreover, the IASB has issued a new version of IFRS 9 for which the effective date has not yet been determined . Pursuant to section 82 of the Danish Securities Trading Act, In addition, the IASB has issued an exposure draft for a new KommuneKredit together with other custodian institutes guar­ standard on leases for which the effective date is expected to antees the liabilities of VP Securities A/S . KommuneKredit’s be 2017 at the earliest . guarantee is maximised to DKK 3 .3 million . The adopted standards and interpretations which have not yet Note 5.2 Related party disclosures come into effect will be implemented as they become com­ KommuneKredit has no related parties exercising control over pulsory for KommuneKredit . The new standards and interpre­ KommuneKredit . KommuneKredit’s related parties exercising tations are not expected to significantly affect the financial significant influence comprise the members of the institution’s statements . However, it is too soon to assess the impact on the Board of Directors and Management and their family mem­ financial statements of the new IFRS 9 and the new standard bers . Further, related parties comprise companies in which the on leases as the standards have not yet been finalised . above-mentioned persons have significant interests . The standards and interpretations that are adopted with a dif­ Board of Directors and Management ferent effective date in the EU than the corresponding effec­ For information on remuneration, reference is made to note tive dates from the IASB will generally be early adopted so that 2 .2 . For information on managerial posts, reference is made to the adoption follows the IASB’s effective dates . pages 57-58 . Apart from this, no other transactions have been carried out with the Board of Directors, Management or other Note 5.5 Exchange rates at year end related parties during the year . Official exchange rates at year end 2013 quoted by Danmarks Nationalbank . Note 5.3 Events after the reporting period No events have occurred after the reporting period that have a DKK per 100 units of foreign currency . significant effect on KommuneKredit’s results . Currency Australian dollar AUD 480 .69 Swiss franc CHF 608 .56 Euro EUR 746 .03 British pounds GBP 891 .95 Hong Kong dollar HKD 69 .80 Japanese yen JPY 5 .14 Norwegian kroner NOK 88 .54 Swedish kroner SEK 83 .56 American dollar USD 541 .27

52 ANNUAL REPORT 2013 STATEMENTs

STATEMENTS

Statement by the Board of Directors and Management

The Board of Directors and Management have today discussed and of the comprehensive income of the Association’s ope­ and approved the annual report of KommuneKredit for the rations and cash flows for the financial year 1 January – ­31 ­financial year 1 January to 31 December 2013 . December 2013 .

The annual report has been prepared in accordance with Interna­ Further, in our opinion, the Management commentary gives a tional Financial Reporting Standards (IFRS) as adopted by the EU . fair review of the development in the Association’s operations and financial matters, the comprehensive income for the year It is our opinion that the financial statements give a true and fair and the Association’s financial position and describes the mate­ view of the Association’s financial position at 31 December 2013 rial risks and uncertainties affecting the Association .

Copenhagen, 7 March 2014

Management:

Søren Høgenhaven Johnny Munk /Jens Bloch Behrendt Chief Executive Officer, Managing Director Managing Director Chief Financial Officer

Board of Directors:

Henning G . Jensen Erik Fabrin Chairman Vice chairman

Kaj Petersen Vibeke Storm Rasmussen Hans Toft

Henrik Zimino Anker Boye Lars Krarup

Mariann Nørgaard Aleksander Aagaard

ANNUAL REPORT 2013 53 STATEMENTs

Independent auditors’ report To the Board of Directors of KommuneKredit

Independent auditors’ report on the financial statements judgement, including the assessment of the risks of material We have audited the financial statements of KommuneKredit misstatement of the financial statements, whether due to for the financial year 1 January – 31 December 2013 . The finan­ fraud or error . In making those risk assessments, the auditors cial statements comprise statement of comprehensive income, consider internal control relevant to the Association’s prepa­ statement of financial position, statement of changes in eq­ ration of financial statements that give a true and fair view in uity, statement of cash flows and notes, including a summary order to design audit procedures that are appropriate in the cir­ of significant accounting policies . The financial statements are cumstances, but not for the purpose of expressing an opinion prepared in accordance with International Financial Reporting on the effectiveness of the Association’s internal control . An Standards as adopted by the EU . audit also includes evaluating the appropriateness of account­ ing policies used and the reasonableness of accounting esti­ Management’s responsibility for the financial statements mates made by Management, as well as evaluating the overall Management is responsible for the preparation of financial presentation of the financial statements . statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the We believe that the audit evidence we have obtained is suffi­ EU . Management is also responsible for such internal control cient and appropriate to provide a basis for our opinion . that Management determines is necessary to enable the prep­ Our audit has not resulted in any qualification . aration of financial statements that are free from material mis­ statement, whether due to fraud or error . Opinion In our opinion, the financial statements give a true and fair view Auditors’ responsibility of the Association’s financial position at 31 December 2013 and Our responsibility is to express an opinion on the financial state­ of the result of the Association’s operations and cash flows for ments based on our audit . We conducted our audit in accord­ the financial year 1 January – 31 December 2013 in accordance ance with International Standards on Auditing and additional with International Financial Reporting Standards as adopted by requirements under Danish audit regulation . This requires that the EU . we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the finan­ Statement on the Management commentary cial statements are free from material misstatement . We have read the Management commentary . We have not per­ formed any further procedures in addition to the audit of the An audit involves performing procedures to obtain audit evi­ financial statements . On this basis, it is our opinion that the in­ dence about the amounts and disclosures in the financial formation provided in the Management commentary is consist­ statements . The procedures selected depend on the auditors’ ent with the financial statements .

Copenhagen, 7 March 2014

KPMG Statsautoriseret Revisionspartnerselskab

Torben Bender Anders Duedahl-Olesen State Authorised Public Accountant State Authorised Public Accountant

54 ANNUAL REPORT 2013 STATEMENTs

Report by the auditor appointed by the Ministry of Economic Affairs and the Interior To the Board of Directors of KommuneKredit

As auditor appointed by the Ministry of Economic Affairs and the During my review, I did not identify any non-compliance with nei­ Interior, I have reviewed the financial statements of Kommune­ ther the Act on KommuneKredit nor the articles of association of Kredit for the financial year 1 January – 31 December 2013, KommuneKredit . The audit procedures carried out by KPMG did ­prepared by the Board of Directors and Management . In addition, not give rise to any comments on my part . I have read the Management commentary .

Copenhagen, 7 March 2014

Emil le Maire Former Prefect

ANNUAL REPORT 2013 55 MANAGEMENT

MANAGEMENT

Board of Directors Former mayor Henning G . Jensen, Aalborg, chairman Former mayor Erik Fabrin, Rudersdal, vice chairman Former mayor Kaj Petersen, Guldborgsund Former region council chairman Vibeke Storm Rasmussen, Capital Region of Denmark Mayor Hans Toft, Gentofte Mayor Henrik Zimino, Tårnby Mayor Anker Boye, Odense Mayor Lars Krarup, Herning Council member Mariann Nørgaard, Aalborg Region council member Aleksander Aagaard, Central Denmark Region

Management Chief Executive Officer and Managing director Søren Høgenhaven Managing director Johnny Munk

Departments

Lending Senior Vice President and Head of Lending Jette Moldrup

Funding and Treasury Senior Vice President and Head of Funding and Treasury Eske Hansen

Finance Chief Financial Officer Jens Bloch Behrendt

Risk management and support Senior Vice President and Chief Risk Officer Morten Søtofte

Leasing Director Frank Hammer

Auditors KPMG, appointed by the Board of Directors Former Prefect Emil le Maire, appointed by the Ministry of Economic Affairs and the Interior

56 ANNUAL REPORT 2013 MANAGERIAL POSTS

MANAGERIAL POSTS

Board of Directors

Former mayor Henning G. Jensen, Aalborg Mayor Henrik Zimino, Tårnby Year of birth: 1950 Year of birth: 1950 Joined the Board of Directors: 1 January 2001 Joined the Board of Directors: 1 January 1995 Directorships: Directorships: Grønlandshavnens Ejendomme A/S (chairman) I/S Amager Ressourcecenter (vice chairman) Aalborg Havn A/S Aalborg Havn Logistic A/S (chairman) Mayor Anker Boye, Odense Aalborg Lufthavn A .m .b .A (chairman) Year of birth: 1950 Danske Havne Joined the Board of Directors: 1 January 2004 AaB A/S Directorships: KL (chairmanship) Former mayor Erik Fabrin, Rudersdal KOMBIT A/S (vice chairman) Year of birth: 1941 Joined the Board of Directors: 1 January 2004 Mayor Lars Krarup, Herning Directorships: Year of birth: 1972 KOMBIT A/S (chairman) Joined the Board of Directors: 1 January 2007 Nærum Gymnasium (chairman) Directorships: PREFA A/S (chairman) Sport Event Danmark (chairman) KL (vice chairman) KL (chairmanship) Kommunernes Lønningsnævn KL (Committee for Children and Culture) KOMBIT A/S Former mayor Kaj Petersen, Guldborgsund Profilværktøj A/S Year of birth: 1942 Realdania Joined the Board of Directors: 19 October 1992 Fagkomité for Byudviklings Forum, Realdania (chairman) Olympisk Idrætsforum Former region council chairman Vibeke Storm Rasmussen, Capital Region of Denmark Council member Mariann Nørgaard, Aalborg Year of birth: 1945 Year of birth: 1961 Joined the Board of Directors: 1 January 1995 Joined the Board of Directors: 1 January 2007 Directorships: Directorships: Vækstforum (chairman) NTC Ejendomme A/S Danske Regioner Aalborg Havn A/S

Mayor Hans Toft, Gentofte Region council member Aleksander Aagaard, Year of birth: 1947 Central Denmark Region Joined the Board of Directors: 1 January 1995 Year of birth: 1946 Directorships: Joined the Board of Directors: 1 January 2010 I/S Vestforbrænding (vice chairman) Directorships: HMN I/S Det Danske Hedeselskab/Dalgas Group Movia Copenhagen Capacity Wonderful Copenhagen Gentofte Idrætsfond (chairman) Svenske Villa Fonden (chairman)

ANNUAL REPORT 2013 57 MANAGERIAL POSTS

Management

Søren Høgenhaven Year of birth: 1949 Joined Management: 1 February 1992 Directorships: European Association of Public Banks (vice chairman)

Johnny Munk Year of birth: 1951 Joined Management: 1 June 2000

58 ANNUAL REPORT 2013 MANAGERIAL POSTS

ANNUAL REPORT 2013 59 MANAGERIAL POSTS

KommuneKredit Kultorvet 16 kk@kommunekredit .dk DK-1175 Copenhagen K www .kommunekredit .dk 60 ANNUALTelephone REPORT +45 332013 11 15 12 CVR no . 22 12 86 12