2016 Annual report DEXIA CRÉDIT LOCAL Registration document 2016 3 Management report 75 Consolidated financial statements 153 Annual financial statements 191 General information 4 Message from the Chairmen 6 Group profile 9 Highlights 11 Financial results 17 Risk management 28 Information on capital and liquidity 31 Human resources, environmental and social data 43 Terms of office and remuneration of directors and officers 46 Information on non-regulated agreements and commitments in compliance with Article L.225-102-1 of the Commercial Code Management report Message from the Chairmen Dear shareholders, The year 2016 saw the economic cli- mate improve in the United States and in Europe. It was nonetheless marked by severe volatility on the financial markets, Management report associated with major political events such as the vote in favour of the United Kingdom leaving the European Union, the presidential elections in the United States and the rejection of the constitutional reform put forward by Prime Minister Matteo Renzi in Italy. and internal control Corporate governance In such a challenging macroeconomic environment, one of our first priorities was therefore to strengthen our governance. Over the year, we thoroughly reorganised the Management Board, with new appointments and an extension of its composition to the post of Chief Operating Officer, vital for continuity of the bank’s operational transformation, within the framework of its orderly resolution. With this widened and renewed governance we undertook an active policy to adapt our structure to the challenge represented by managing an entity in resolution. Consolidated We successfully completed our project to centralise Dexia’s activities in Spain and Portugal, and this was financial statements reflected on 1 November 2016 by the merger by absorption of Dexia Sabadell by Dexia Crédit Local and by the migration of the management of assets and derivatives to the Dexia Crédit Local platforms in Paris. Furthermore, we broadened our considerations, started in 2015, on the opportunity to outsource certain of the bank’s production activities. This initiative would enable us to respond more efficiently to the issues of our orderly resolution from the viewpoint of managing the decrease of our asset portfolio, controlling operating costs and mitigating risks. Financial statements In view of the numerous external uncertainties and the increased requirements of the supervisors, we continued to manage our solvency position in a proactive manner and in the second half-year we implemented measures to protect our regulatory capital. These measures, aligned in particular to the disposal of assets with a high risk weight and holdings directly deducted from capital, enabled us to strengthen our Total Capital ratio, which was 13.4% as at 31 December 2016. General information 4 Dexia Crédit Local Registration document 2016 We are posting a net income Group share of 442 million euros as at 31 December 2016. This positive result, formed mostly of exceptional elements, strengthens the Group solvency but cannot however constitute an extrapolation basis for the future. These are the figures for a bank in resolution which remains particularly sensitive to the volatility of the macroeconomic context. Just like 2016, with its surprises and its unexpected events, 2017 will doubtless also be marked by economic, political and regulatory uncertainties. For us at Dexia Crédit Local, 2017 will be another very eventful year. Management report We will continue to prepare for the implementation of the IFRS 9 accounting standard on 1 January 2018. Based on the studies performed so far, the introduction of this new methodology could have a positive net impact on capital as at 1 January 2018. That impact is likely to evolve however, particularly depending on market conditions and normative developments. We will also be working to improve the management of our operational risk, due to a complex and often obsolete infrastructure. In this regard, ongoing consideration of the possibility to outsource certain and internal control production activities is vital. Corporate governance At the same time, we will remain attentive to the evolution of the cost base and we will endeavour to improve our efficiency by simplifying our working methods, rationalising processes and reducing duplication. Measures to strengthen our solvency will also be implemented. The conduct of the Dexia Group’s resolution, against an uncertain background and in a constantly changing environment, is only possible with the daily commitment of all our staff members. We thank them most Consolidated sincerely for their unfailing involvement and their dynamism in performing their tasks for Dexia. financial statements We also rely on the support of the States, which guarantee part of our funding, and on our shareholders, but also on a close collaboration with the various stakeholders in the Dexia Group’s resolution. We would like to express our gratitude to them. Financial statements Wouter Devriendt Robert de Metz Chief Executive Officer Chairman of the Board of Directors Chairman of the Management Board General information Registration document 2016 Dexia Crédit Local 5 Dexia Crédit Local Group profile Dexia and Dexia Crédit Local managed under an orderly reso- A Group in orderly resolution lution plan since the end of 2011. Approved by the European Management report Commission in December 2012, Dexia’s orderly resolution plan HHeadquartered in France, where it maintains a banking aims to avoid the Group’s bankruptcy and liquidation which, license, Dexia Crédit Local(1) is the Group’s main operating given its residual size, could be destabilising to the entire entity, carrying the majority of its assets. Dexia Crédit Local European banking sector. In order to enable the orderly res- also still has an international presence through its branches olution, the Belgian, French and Luxembourg States granted in Ireland, the United States, Spain, Portugal and subsidiar- a liquidity guarantee for a maximum principal amount of ies in Germany, Italy and Israel. These entities also hold local EUR 85 billion to Dexia Crédit Local, which is consequently banking licences. the issuer of Dexia Group under the State guarantee format. The Dexia Crédit Local Group has 1,065 members of staff as Dexia Crédit Local no longer has any commercial activities at 31 December 2016. and is now solely focused on managing its assets in run-off, The Group’s parent company, Dexia, is a public limited com- mainly public sector and sovereign assets, while protecting and internal control pany (société anonyme) and financial company governed by the interests of the Group’s State shareholders and guaran- Corporate governance Belgian law whose shares are listed on Euronext Brussels. The tors. To meet this objective, Dexia and Dexia Crédit Local have Belgian and French States own 94.4% of the Group since established three strategic goals: the end of 2012 when they made a EUR 5.5 billion capital • Maintain the ability to refinance its balance sheet through- injection reserved for them. As a significant bank(2), Dexia has out its resolution plan; been under the direct prudential supervision of the European • Preserve its capital base in order to comply with regulatory Central Bank within the framework of the Single Supervisory ratios; Mechanism (SSM) since 4 November 2014, as is Dexia Crédit • Ensure operational continuity by retaining the necessary Local Group and the French outer scope. expertise and resources and developing appropriate informa- tion systems. Consolidated financial statements Financial statements General information (1) Throughout this reference document Dexia Crédit Local refers to Dexia Crédit Local S.A. and Dexia refers to Dexia SA/NV. (2) Regulation (EU) No. 468/2014 of the European Central Bank of 16 April 2014. 6 Dexia Crédit Local Registration document 2016 Group profile Simplified structure Belgian Federal State through French State Institutional, individual and Management report the Federal Holding and employee shareholders Investment Company 44.40% 50.02% 5.58% Dexia and internal control Dexia Crédit Local Corporate governance 100% Including branches in the United States, Ireland, Spain and Portugal Dexia Crediop Dexia Kommunalbank Dexia Israel 70% Deutschland 65.31% Consolidated 100% financial statements Management board(1) Financial statements CEO Wouter Devriendt Finance & Assets Risk Funding Operations & IT Communication & Markets Aline Bec Guy Cools Véronique Hugues Johan Bohets Benoît Debroise Executive Executive Executive Executive Executive Vice-President Vice-President Vice-President Vice-President Vice-President General information (1) As at 1 January 2017. Registration document 2016 Dexia Crédit Local 7 Group profile Key figures MEMBERS OF STAFF AS AT 31 DECEMBER 2016 Spain 31 Germany 81 North 119 America Total 1,065 639 114 Management report Italy France 56 Other countries RESULTS 2014 2015 2016 (in EUR million) Net banking income (34) 982 711 Costs (369) (451) (410) and internal control Gross operating income (403) 531 301 Corporate governance Cost of risk (63) (175) 138 Net income Group share (478) 327 442 BALANCE SHEET 31/12/2014 31/12/2015 31/12/2016 (in EUR billion) Balance sheet total 246 229 212 Consolidated financial statements SOLVENCY 31/12/2014 01/01/2015 31/12/2016 (in EUR million except where indicated) Common Equity Tier 1 7,372 6,426 5,676 Total Capital 7,624 6,436 5,802 Risk-weighted assets 51,379 51,111 43,206 Common Equity