Hypo Tirol Bank AG Consolidated Financial Statement 2013

CONSOLIDATED FINANCIAL REPORT 2013 Hypo Tirol Bank AG II Consolidated fi nancial report for the fi scal year ended 31 December 2013

I. Report on business developments and economic situation

I. 1. Hypo Tirol Bank – Our federal state bank fi ce. Head of o� ce Markus Müller and his team make this branch o� ce unique, their commitment has been the reason for success Since its foundation in 1901, Hypo Tirol Bank has been through since its establishment. The bank institution, which has under- some turbulent times. Nevertheless, the Province of the Tyrol stood, liked and infl uenced daily life in this part of Innsbruck for has always been supporting our federal state bank. This is not 40 years, is our “federal state bank”. only proven by the 100 % ownership on the part of the Province of the Tirol, also the increasing number of clients can be taken I. 3. Economic Conditions 2013 – Growing confi dence as evidence that the federal state bank is back on track – or and overcoming recession more precisely - back on track to our clients. The o� ered service concept respectively the initiatives that have been taken in order to better react to customer requirements, obviously meet the Market review 2013 needs of our clients. In times that are economically turbulent, the Since the rise of the subprime crisis in 2007, we have been con- security which is granted by a federal state bank is of utmost sig- fronted with many di� cult years. The year 2013 was marked by nifi cance for corporate and private clients alike. We have already overcoming the results of the crisis. First, the great uncertainties chosen the right track, now we have to follow it consistently by regarding the further development of the “Euro crisis” took a back further tightening the organisational structure, by optimizing ser- seat, and second, in the course of 2013, the euro area managed vice quality, by o� ering need-oriented products and by providing to force its way out of recession, which had started in 2011 and consulting services which focus on the clients. reached its climax at the turn of the year 2012/2013. The increase in GDP with +0.1% in the third quarter of 2013 was lower than in I. 2. Report on the branch o� ces the second quarter (+0.3%). Nevertheless, leading economic in- dicators (e.g. the industry purchasing manager index) and export In 2013, the corporate group once again closed ranks. While Hypo performance improved signifi cantly in the fourth quarter. For that Tirol Bank is represented in all important agglomerations in reason economic recovery gained stability and strength at the end North and East Tyrol with a total of 20 branch o� ces, the Italian of 2013. branch o� ces in Trento and Verona had to be closed as a result of The economy In the USA accelerated signifi cantly – based on an the realignment and the tightening of the branch o� ce network. increase in real estate prices and a decline in the unemployment Now, all business activities concentrate on South Tyrol with its rate. This progress was not even infl uenced by the deadlock in three branch o� ces located in Bolzano, Bressanone and Merano. civil service in October, which lasted for 16 days and was caused Hypo Tirol Italy was reintegrated into the parent company and is by the fi erce fi ghting for a budgetary compromise to be found by now operated as Italian branch o� ce (EU-branch o� ce). In Oc- Republicans and Democrats. The economic situation in Asia in the tober 2013, Mag. Jens Mumelter, started to work as the new head fi rst half of 2013 was observed sorrowfully, because the high speed of the branch o� ce. Reliability and trust combined with utmost growth of the past years slowed down considerably. However, customer orientation and Austrian quality standards represent at the end of the year a stabilisation of the economic situation the central issues of all services that will be o� ered in this context was achieved, in particular in China. The fi nancial year 2013 was in future. also pleasant for investors and consumers, because the danger Outside the core market, Hypo Tirol Bank will continue to be of infl ation decreased substantially. At the beginning of the year, present in Vienna by operating one branch o� ce. In this context, the consumer prices in the eurozone amounted to +2.2% (annual market orders have been adjusted to the orders of the core change), whereas by the end of the year they had declined to market. under 1.0%. In 2013, two branch o� ces of the federal state bank celebrated an First and foremost, stock markets benefi ted from the encouraging anniversary. The branch o� ces in Saggen (district in Innsbruck) economic climate and achieved a positive annual performance and Wörgl celebrated their 40th anniversary, and both o� ces above average. The market situation in the fi eld of bond investing seized the opportunity to enjoy the celebration with clients, sta� presented itself a little bit more di� cult. Government bonds from members and partners in gratitude for the longstanding loyalty. European core countries such as Germany or Austria, which had The Wörgl branch o� ce serves as a good example for being a re- been classifi ed as traditionally secure, su� ered from the increase gional bank. It fulfi ls all requirements a bank is supposed to fulfi l in yields. Due to low money market interest rates, the surplus in and it is a symbol of what Hypo Tirol Bank focuses on: the federal money market investment with 0.0% was rather poor. Raw mate- state bank is close to its clients, in other words on the spot. Eight rials were severely a� ected by the market situation; consequently employees work in the branch o� ce, with three of them being re- 2013 was one of the worst years ever. Within the raw material sponsible for the Wohn-Vision-Centre Lower Inn Valley. The team market, the development of gold was particularly negative. In the members working in the corporate clients centre comprise fi ve course of the year, the price for the precious metal su� ered a loss consultants and three co-consultants. The unique opportunity to of 30% of its value, which represented the fi rst drop to the annual o� er any kind of fi nancial service at the highest level and under basis since the fi nancial year 2000! one roof leads to a decisive additional value for all clients. Within the stock markets, the striking negative development of The Saggen branch o� ce was opened on 15 October 1973 and threshold countries was noticeable. On the one hand, it resulted was the third branch o� ce, which was established subsequent to from low growth dynamics and on the other hand from substanti- the o� ces “Innrain” and “Imst”. At that time, employees working al capital outfl ows on the part of foreign investors. However, stock for the regional administration preferred to live in the Saggen markets in Japan and North America developed positively. Euro- residential area. The close and historically evolved relationship pean stocks, which in the middle of the year still lagged behind between Hypo Tirol Bank and the owner, the Province of the Tyrol, other developed markets, could recover noticeably in the second was also benefi cial to the positive development of the branch of- half of the year due to the economic upswing. Hypo Tirol Bank AG Consolidated fi nancial report for the fi scal year ended 31 December 2013 III

As a result of low infl ation levels and insu� cient lending opera- rates from January 2014 on. tions in the euro area, the European Central Bank (ECB) reduced the main refi nancing rate for credit institutions twice to at last Impact on money, foreign exchange and capital markets 0.25%. In addition, it changed its style of communication and pre- Due to unattractive money market interest rates, investors will sented a clear view of the futu