Investor presentation

1
Investor presentation

• IPO of Føroya Banki
• June 2007

2
Important notice

• This presentation has been produced by Føroya
  Banki (or the Company or the Bank) and is
  furnished to you solely for your information and
  may not be reproduced or redistributed to, in
  whole or in part, any other person
• No representation or warranty (expressed or
  implied) is made as to, and no reliance should be
  placed on, the fairness, accuracy or completeness
  of the information contained herein. Accordingly,
  none of the Company, or any of its principal
  shareholders or subsidiary undertakings or any of
  such persons officers or employees or advisors
  (including Handelsbanken Capital Markets) accepts
  any liability whatsoever arising directly or
  indirectly from the use of this document

3
Overview of the offering
Broad international offering with a dual listing
in Reykjavik and Copenhagen
The Financing Fund of 1992 (The Faroese
Government)
Selling shareholder
60 of outstanding shares (66 incl.
overallotment option of 10) secondary shares
only
Offering size
Public offering in the Faroe Islands, Iceland and
Denmark and international offering to
institutional investors
Offering scope
Preferred allocation may be given to Faroese
institutional investors as regards 40 of
offering (subject to no negative price impact)
Soft tranche
20 of offering
Retail offering
Dual listing ICEX and the CSE
Place of listing
DKK 162 189 per share (equal to market cap. of
DKK 1,620m 1,890m)
Price range
Voting restrictions of 10 for all shareholders
(incl. the Fund)
Restrictions
4
The selling shareholder
Influence of the Fund to be significantly reduced
upon listing and to be completely
removed within a few years
Historical background
1992
1992
1993
1994
1998
2006
Established by the Danish and Faroese government
in connection with the financial crisis
Takeover of majority in Føroya Banki
Takeover of Sjóvinnubankin
Merger of Sjóvinnubankin and Føroya Banki
Decision to privatise Føroya Banki
Danish government liquidates its commitment with
the Fund

• Future intentions
• The Fund intends to dispose completely of its
  remaining stake within a few years
• Prior to exiting, the Fund intends to take steps
  to remove quorum requirement of 2/3 in the
  articles of association

• Board composition of the Fund
• 5 board members 4 appointed by the Faroese
  government
• No politicians

5
Timetable and consortium banks
Handelsbanken Capital Markets is Global
coordinator and sole bookrunner of the offering
and acts as listing advisor to the selling
shareholder
Bookbuilding June 11 June 19
Allocation/pricing June 20
Listing June 21

• Global coordinator and sole bookrunner
• Responsible for sale to Danish retail investors
  and institutional investors outside Iceland

• Co-manager
• Responsible for sale to Icelandic retail and
  institutional investors

• Selling agent
• Responsible for sale to Faroese retail investors

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Presentation of management

• Janus Petersen (1959), CEO
• Law Degree and MSc Econ., University of
  Copenhagen
• 18 year background in banking
• Managing director of Føroya Banki 1994-2005
• Previously head of the credit department in
  Føroya Sparikassi, department head in Danish
  mortgage institution BRF Kredit A/S, and
  economist in Carnegie Bank
• Súni Schwartz Jacobsen (1963), Managing Director
• MSc in Business Man. and Accounting, Aarhus
  School of Business
• State Authorised Public Accountant
• Joined Føroya Banki in 2006
• Previously with KPMG in Denmark and partner in
  KPMG, Tórshavn (now SPEKT)

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Agenda
Topic
Speaker
Janus Petersen Janus Petersen Súni Schwartz
Jacobsen Janus Petersen

• The Faroe Islands
• Company and strategy
• Financial highlights
• Investment highlights
• Appendix

8
1. The Faroe Islands
9
The Faroe Islands at a glance
Situated in the Northeast Atlantic, the Faroe
Islands is a modern country benefiting
from abundant sea-based resources

• 18 islands - 1,400 km2
• 48,000 inhabitants
• Self-governing part of the Kingdom of Denmark
• Part of the Danish monetary union
• Key sectors ( of wage earners, 2006)
• Service/public admin. 34
• Fishing industry 19 (59 of foreign inc.)
• Commerce 15
• GDP DKK 11bn (2006)
• GDP/capita DKK 229,000 (EU 190,000)

10
Modern economic structure
Modern economy with significant cyclical
resistance
Positive and healthy business environment in
general
and within the fishing industry in particular

• Stable political environment
• Responsible fiscal policy with focus on reducing
  government debt
• Firm monetary regime based on monetary union with
  Denmark
• Trends of liberalisations and privatisations
• Well-developed infrastructure
• Ongoing negotiations regarding membership of EFTA
• Emergence of new business sectors

• Extensive legislative restructurings over the
  last 15 years
• Removal of all subsidies
• Implementation of effective quota systems
  preventing over-fishing
• Extensive industrial restructurings over the last
  15 years
• Diversification on several different species and
  geographies
• Build-up of a significant aquaculture industry
  which following a downturn in 2003-04 is now
  re-born in a more robust form
• Low debt levels
• Strong productivity improvements have reduced the
  work-force in the fishing industry

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Strong state of the economy
Responsible financial development with high GDP
growth and low unemployment
High GDP growth
1)

• Strong current and projected GDP growth
• Average growth 99-06 of 5.5
• Historically low unemployment
• Positive net immigration in 2006
• Government surplus realised in 2006 and budgeted
  for 2007
• Low level of government debt
• Low private indebtedness
• Debt level of households equal to 60 of GDP vs.
  120 in Denmark
• Current account in balance
• Positive outlook recently confirmed by the Danish
  Central Bank and Faroese Central Bank

AVG. 99-06 5.5
1) Updated estimate from the Faroese Governmental
Bank as of June, 2007. Estimate replaces previous
estimate of 4.6 shown in the prospectus.
Historically low unemployment
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Attractive market for banking services
Strong growth opportunities within the financial
sector
Increasing housing prices

• Growing housing prices and building activity
• Motivated by strong underlying GDP growth and
  introduction of new loan types
• Potential for increasing mortgage and consumption
  loans to households
• Growing pension savings
• Motivated by planned implementation of mandatory
  pension scheme
• Potential for increasing commission income from
  asset management services
• Emerging investment culture
• Motivated by change in tax regime and stock
  offerings by Faroese companies
• Potential for increasing investment credits and
  commission income from securities trading
• Increased MA activity
• Motivated by changing mentality among family
  owned companies and emergence of a professional
  investor community
• Potential for increasing MA financing, fees from
  corporate finance activities and asset management
  commissions

Low household debt and pension savings ( of GDP)
13
2. Company and strategy
14
History
With the formulation of the new strategy and the
planned privatisation, Føroya Banki is set for a
new era
IPO
100 years
New strategy
Non-life insurance
Parliament resolution 2006
Merger
The Parliament approves that the Minister of
Finance authorises the Financing Fund of 1992 to
list the shares of Føroya Banki on the Faroese
Securities Market... The revenue from the sale
shall be used to repay public debt and/or be
placed in a financial fund.
Govm. ownership
Sjóvinnubankin
Founded
2006
2007
1906
2005
1994
1932
1992-93
1997
15
Market position
Føroya Banki is positioned as a leading bank in
the Faroe Islands
Market shares and customers
Branch network

• 18,000 retail customers
• 1,700 corporate customers
• Market shares (2006)
• Loans 441)
• Deposits 391)
• Non-life insurance (Trygd) 22
• Competitors
• One large and two small domestic banks
• One Icelandic bank with a physical presence
  other Nordic banks on a case-by-case basis
• Various public funds with restricted operations
• One large domestic insurance company one
  Icelandic planning to start

• 20 branches
• 225 employees (FTE)

1) Among domestic banks
16
Company structure
Føroya Banki comprises three principal business
units as well as non-life insurance and real
estate brokerage
Business areas
Retail Banking
Corporate Banking
Markets Treasury
Customers Loans (Q1) / mkt. share (06) Deposits
(Q1) / mkt. share (06) Employees
18,000 DKK 2.9bn (41) DKK 2.4bn (40) 122
(FTEs)
1,700 DKK 2.9bn (48) DKK 2.5bn (37) 35 (FTEs)
14 (FTEs)
Assets under management DKK 800m
Subsidiaries and associates
Temporary ownership
Non-life insurance
Real estate broker
Aquaculture To be divested in 2007
Currently no assets To be liquidated
IT provider
Investment company
Aquaculture To be divested
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P/F Trygd
Føroya Banki owns and operates the second largest
non-life insurance company on the Faroe Islands

• Full-service provider of non-life insurance
  products within the segments
• Private
• Commercial
• Marine
• Municipal/governmental
• Controlled by Føroya Banki since 1997
• Prior to that, Trygd had been dormant for more
  than 50 years due to restrictions in local
  insurances laws
• Distribution of products through the branch
  network of Føroya Banki
• Profit on ordinary activities before tax of DKK
  7m in 2006
• Long-term market share target of 35

Gross premiums DKK 72m 22 market share
Combined ratio (net) 94
Equity DKK 97m Total assets DKK 183m
26 employees
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Strengths and core competences
Føroya Banki believes that it has a number of
core competences and strengths that will drive
the process of implementing its strategic
objectives
Strong home market position

• 20 branches nationwide and 44 market share in
  lending
• Strong customer loyalty and brand recognition

Expertise in financing of fishing industries

• The fishing industry plays an important role in
  the Faroese business environment
• Føroya Banki has built up considerable expertise
  within financing of fishing and aquaculture
  industries

Strong cost consciousness

• Cost conscious culture
• For years, cost income ratios have been below the
  average level for eg. Danish local and regional
  banks

Strongly positioned for growth

• Føroya Banki benefits from a strong operational
  platform resting on cost efficient processes
• Growth will be further supported by recent
  organisational capacity build-up and solid
  capital base

Loyal, committed and highly qualified staff

• Experienced management team and employee base
  with strong commitment
• 17 years average seniority indicating a low
  level of staff turnover

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New strategy
With an outset in its strategy, Føroya Banki aims
to reinforce its position as a modern Nordic bank
and increase long-term shareholder value

• Growing housing prices and building activity
• Growing pension savings
• Emerging investment culture
• MA activity and growing corporate inv.

Exploitation of growth potential in domestic
market
Introduction of new products and business areas

• New asset man. products, corporate finance and
  real estate brokerage
• International opportunities subject to strong
  synergy case

Optimisation of the use of fees and commissions

• Limited historic use of fees
• Reformation of fee policy initiated

• Strong basis for growth
• Reduction of solvency as a consequence of
  increased activities or payout!

Optimisation of capital structure
Continuous training and education of employees

• Focus on upgrading local expertise level at
  branch offices
• Focus on further development of competences of
  management, specialists and other key employees

Vision
We aim to be the leading bank on the Faroe
Islands and internationally to provide our
customers with selected financial services
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Financial objectives
Clear financial objectives signalling the
beginning of a new era as a listed company
Growth in core revenues of 10 annually

• Average organic growth in net interest, fee and
  commission income is targeted at 10 annually in
  the period until 2010

Cost/income ratio below 50

• Strong commitment to return to historic low cost
  levels
• Growth based reduction of C/I ratio expected

• In absolute terms the aim is to have a minimum
  tier 1 capital of DKK 1.2 billion
• Subordinated and hybrid capital may be considered

Solvency ratio of 12
Return on equity after tax of 12

• Should be viewed in connection with the solvency
  ratio with a lower solvency facilitating a higher
  return on equity and visa versa

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Board of directors
The board of directors comprises 6 members,
chaired by Jóhan Páll Joensen and Jens Erik
Christensen

• Føroya Banki complies with good corporate
  governance as recommended in the Icelandic
  Guidelines on Corporate Governance and as
  recommended by the Danish CSE Corporate
  Governance Committee
• except that remuneration and compensation and
  audit committees have not been established

• CEO of Maru Seafood Group
• Among others
• Chairman of the Faroese Employers Association

Jóhan Páll Joensen Chairman

• CEO of Faroe Petroleum plc (listed on
  LSEs AIM list)
• Former CFO of Dana Petroleum plc (listed on LSE
  main list)

Graham Duncan Stewart

• CEO of Dansk Merchant Capital A/S
• Former CEO of Codan A/S)
• Among others
• Chairman of SPEAS A/S
• Board member of SAS and Falck A/S

Jens Erik Christensen Deputy chairman

• Senior bank clerk in Føroya Banki

Sigmar Brynjolfson Jacobsen Employee
representative

• Partner in the law firm Sp/F Teirin og Skaalum
• Board member of the Financing Fund of 1992

Eyðhild Skaalum

• Network adm. in Føroya Banki
• Member of the Faroese Parliament for
  Sambandsflokkurin (liberal unionist party)

Olav Enomoto Employee representative
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3. Financial highlights
23
Lending activity
Føroya Banki has a sound loan composition and is
experiencing high lending growth
Loans and deposits, 2004-06

• 33 total lending growth in 2006
• Corporate and public segment 52
• Private segment 19
• Well-diversified loan portfolio (2006)
• Private segment 51
• Corporate segment 41
• Public segment 8
• Strong focus on credit risk management
• Stringent credit application process
• Strict internal limits on individual customer
  commitments
• Conservative provisioning policy

Composition of loans, 2006
24
Adjustments for non-recurring items
Two highly unusual items have negatively affected
the 2006 result

• Jumbo dividend payout
• A dividend of DKK 600m, for the financial year
  2005, was paid out in 2006
• As a consequence, net interest income was
  negatively affected
• In the following, relevant figures for 2004 and
  2005 are adjusted for interest income received on
  the dividend
• Non-recurring costs
• Celebration and marketing events related to the
  banks 100-year anniversary
• DKK 6.0m in 2005 (bonus provision equal to one
  months salary for each employee)
• DKK 6.6m in 2006
• In the following, relevant figures for 2005 and
  2006 are adjusted for these non-recurring costs

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Income
Solid growth in revenues during 2006 effects of
new strategy starting to show
Net interest development

• Adjusted net interest income increased 11 in
  2006
• Realised from a combination of lending growth and
  higher interest margins
• Fee and commission income increased by 69 in
  2006
• Increase is a consequence of generally higher fee
  levels combined with a change in strategy
  concerning investments

Fee and commission development
26
Expenses
Føroya Banki is characterised by a highly cost
conscious culture, and has an ambition of further
improving its cost ratio over the coming years
Expense development

• Cost conscious culture
• Cost/income ratio below peers
• In 2006, the cost base has temporarily increased
  due to the build-up of staff capacity and IT
  enhancement
• Strong focus on bringing cost/income ratio below
  50
• Q1 actual level of 0.49

C/I compared to benchmark
Q1-07 0.49
27
Provisions
Føroya Banki conducts a cautious provisioning
policy
Provisions development

• Føroya Banki is diligent about spreading its
  lending risks, and avoiding concentrations of the
  loan portfolio
• Close assessment of the Banks need for reversals
  each quarter
• All important exposures examined annually by the
  credit department and management
• Significant reversals in 2005 and 2006
• Reversals of DKK 68m in 2006 and DKK 34m in 2005
  mainly due to decreased credit risk in
  aquaculture companies under restructuring
• At year end 2006, accumulated provisions were DKK
  302m
• Equal to 6 of total lending
• Non-performing loans amounted to DKK 22m in 2006
  equal to a coverage ratio of 1,400

Provision ratios
28
Profitability
Solid financial performance
Profit before provisions

• In 2006, profit before provisions has increased
  20, when adjusting for
• No non-recurring costs in 2005 and 2006
• Interest on extraordinary dividend payout in 2006
• Increase in profit levels are in line with
  lending growth in 2006

Profit after tax
ROE after tax
29
Q1 financials
Strong Q1 results

• 23 increase in net interest and fee income y-o-y
  to DKK 79m
• 33 increase in loans and advances y-o-y to DKK
  5,804m (7 since year-end 2006)
• 6 decrease in deposits y-o-y to DKK 4,909m (6
  since year-end 2006)
• Transfer of funds from ordinary deposit accounts
  to investment products
• Funding supplemented by syndication term loan of
  EUR 155m
• Improvement of cost/income ratio to 0.49
• Annualised return on equity after tax of 14

30
Expectations for 2007
are expected to lay the grounds for a record
high 2007 performance
2006 DKKm
2007E DKKm

• Lending is expected to increase by approximately
  DKK 1.2bn
• Net interest and fee income
• Expenses are expected to increase compared to
  2006, however expenses as a percentage of income
  is forecasted to decrease
• Profit before provisions and tax
• Profit before tax
• Potential capital gains from the sale of Vestlax
  have not been included in the forecasts

• 5,408
• 275
• C/I 56
• 125
• 193

• 6,600
• 320-340
• C/I lt56
• 145-165
• 135-155

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Capital structure
Føroya Banki will continuously evaluate its
capital base in order to secure the most
optimal capital structure given its strategy

• For historical reasons Føroya Banki has operated
  with a high solvency
• The capital base has recently been reduced by an
  jumbo dividend payout
• The existing strong solvency provides Føroya
  Banki with the flexibility to
• Pursue its strategic growth ambitions
• Enter into larger loan agreements if deemed
  optimal (min. tier 1 capital of DKK 1.2bn)
• The solvency can potentially be further adjusted
  due to a conservative lending composition
• compared to comparable banks with lower
  solvency though larger exposure to corporate
  banking
• In case of lack of strategic opportunities,
  potential surplus capital will be returned to the
  shareholders
• Going forward, Føroya Banki has a target solvency
  ratio of 12

Solvency
Lending composition
32
4. Investment highlights
33
Investment highlights
Strong company, strong market surroundings,
strong investment opportunity!
The Faroe Islands
Strong growth opportunities in the financial
sector
Strong economic outlook
Modern economic structure
Strong market position
Strong cost consciousness
Strongly positioned for growth
Expertise in financing of fishing industries
Loyal and committed organisation
The Listing
Interesting addition to ICEX and the CSE
34
Attractive listing characteristics
Interesting addition to ICEX/CSE

• Large free float and liquidity expected
• One ISIN code one currency one securities
  register one share!
• Voting restrictions significantly more flexible
  than for other listed banks on CSE
• Largest privatisation IPO on CSE since TDC in
  1994
• Second largest real IPO on CSE since 2000
  (after TrygVesta)
• Expected to be subject to inclusion in the
  ICEX-15 index
• Already approved for the CSE Midcap index

35
Appendix
36
Appendix Financial development
37
Appendix - Strong state of the economy
Low household debt as percentage of GDP
Strong GDP per capita approaching Danish level
Low level of governmental debt as percentage of
GDP
Increasing housing prices
Equilibrium on the balance of payments
Increasing sector diversification
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Appendix - Strong state of the economy
Faroese Governmental Bank
(Landsbanki Føroya) Economic Analysis February
6, 2007
Danish Central Bank Monetary Review 3Q06

• clear signs that the Faroese economy is strong
  and that a significant structural framework is in
  place and developing
• the pattern of consumption and investment will
  remain unchanged, compared to 2006 estimates
• in the near term, public revenues should grow
  much faster than public expenditures.

• The economic upswing is likely to continue in
  the next couple of years, e.g. because the
  sea-farming industry is gradually being
  reconstructed and the level of building activity
  appears to be rising.
• a number of business acquisitions are currently
  taking place, with family-owned enterprises being
  taken over by investors with more financial
  clout. Presumably this will enhance the
  competitiveness and growth opportunities of these
  enterprises. The government's plans to privatise
  large government-owned enterprises will support
  this process