A partnership built on trust Annual Report 2018 S Finanzgruppe Key performance indicators at a glance Excerpt from the Profit and Loss Account 2018 2017 in € m 18.2 % Net interest 315.4 270.9 Net commission income 23.2 39.1 Return on equity Operating expenditure 151.2 134.8 Risk provisioning –37.4 –56.2 Operating result 220.4 184.4 Provision for general banking risks 105.0 70.0 Profit transfer 116.4 117.0 Net income for the year 0.0 0.0 Cost-income ratio after bank levy in % 45.2 51.2 6.1 € billion Return on equity in % 18.2 16.9 New lending business (including capital employed ≥ 1 year) Excerpt from the Balance Sheet in € m 2018 2017 Balance sheet total 27,178 27,123 Mortgage loans 20,223 20,081 NPL1 183 256 1 Screening of NPL portfolio by rating in accordance with EBA guideline from 2017 onwards (previously: risk class); comparable figure for previous year adjusted. Aaa Business Development in € m 2018 2017 (Moody's) New lending 4,893 6,666 Pfandbrief issue rating Extensions (capital employed ≥ 1 year) 1,226 1,464 Regulatory law key figures2 2018 2017 RWA in € m 9,215 9,151 Hard core capital ratio (CET1 ratio) in % 13.5 12.5 Total capital ratio in % 16.8 15.5 Leverage Ratio in % 4.3 4.0 2 After adoption Issue ratings Moody’s Fitch Hypothekenpfandbriefe Aaa (stable) - Senior Preferred Aa2 (stable) A+ (stable) Senior Non-Preferred A2 A+ (stable) Sustainability ratings oekom Sustainalytics B- (Prime) 86/100 (Leader) Board of Management and Supervisory Board Management Report Annual Financial Statements Service Organs of the Bank and Other Important Functions Supervisory Board Helmut Schleweis Siegmar Müller Chair (since 26 March 2018) Chair of the Board of Management of President of Deutscher Sparkassen- und Sparkasse Germersheim-Kandel Giroverband e. V. Landesobmann of the Rhineland-Palatinate Savings Banks Board of Management Thomas Mang Members Chair (from 27 November 2017 to Reinhard Sager 25 March 2018) President of German Administrative President of Savings Banks Association District Parliament of Lower Saxony County Council Chairman of East Holstein District Jana Pabst Deputy Chair Andrea Schlenzig Bank employee Bank employee Deputy Chair of the Works Council of Berlin Hyp AG Peter Schneider President of Savings Banks Association of Joachim Fechteler Baden-Wuerttemberg Bank employee Member of the Works Council of Walter Strohmaier Berlin Hyp AG Chair of the Board of Management of Sparkasse Niederbayern-Mitte Bernd Fröhlich (since 28 March 2018) Bundesobmann of the German savings banks Chair of the Board of Management of Sparkasse Mainfranken Würzburg René Wulff Bank employee Gerhard Grandke Member of the Works Council of Managing President of German Savings Berlin Hyp AG Banks and Giro Association of Hesse-Thuringia Artur Grzesiek Board of Management Former Chair of the Board of Management of Sparkasse KölnBonn Sascha Klaus Chair Dr. Harald Langenfeld Chair of the Board of Management of Gero Bergmann Stadt- und Kreissparkasse Leipzig Roman Berninger Thomas Meister Bank employee Chair of the Works Council of Berlin Hyp AG 2 Supervisory Board Committees Staff and Strategy Committee Audit Committee Helmut Schleweis Thomas Mang (since 26 March 2018) Chair (since 26 March 2018) Chair Deputy Chair (until 26 March 2018) Helmut Schleweis (until 26 March 2018) Thomas Mang Chair Chair (from 27 November 2017 to 25 March 2018) Gerhard Grandke Deputy Chair Walter Strohmaier (since 26 March 2018) Deputy Chair Joachim Fechteler Dr. Harald Langenfeld Siegmar Müller Thomas Meister Peter Schneider Andrea Schlenzig Loan Committee Trustee Walter Strohmaier Christian Ax Chair (since 9 March 2018) Thomas Mang (until 19 April 2018) Chair (until 9 March 2018) Deputy Trustees Dr. Harald Langenfeld Wolfgang Rips Deputy Chair Philip Warner Bernd Fröhlich (since 20 April 2018) Artur Grzesiek René Wulff 3 Board of Management and Supervisory Board Management Report Annual Financial Statements Service 2018 Supervisory Board Report of Berlin Hyp AG Berlin Hyp is a subsidiary of Landesbank Berlin In a telephone conference held on 2 February Holding AG and an independent commercial real 2018, the Supervisory Board was informed by estate financier within the S-Group of the Spar- the Board of Management prior to the prepa- kassen-Finanzgruppe. According to the regula- ration of the 2017 annual financial statements tions of the German One-Third Participation Act, about significant items affecting the annual its Supervisory Board comprises five members financial statements. on the staff side and ten on the shareholder side. Apart from the five employee representatives, At the balance sheet meeting of the Supervi- the Supervisory Board is made up entirely of sory Board on 26 March 2018, a new Chair was representatives of the Sparkassen-Finanzgruppe elected. Thomas Mang, who had temporarily and a representative of the local authorities. It assumed the chair in November 2017, had advises and monitors the Board of Management previously resigned as planned. In addition, a and particularly promotes the networking with by-election was held to fill the committees and savings banks throughout Germany. a nomination was made for a new member of the Supervisory Board. In view of the intense competition in commer- cial real estate financing, the persistently low Following the reports made by the Board level of interest rates, the volatile environment of Management and the auditors and after of the capital and financial markets and the intensive consultation and review, the annual continuing high regulatory requirements financial statements and the Management combined with the need to further strengthen Report as at 31 December 2017 were approved equity, Berlin Hyp is very satisfied with the and thus adopted. In the course of this meet- course and results of the 2018 financial year. ing, the annual reports of Internal Audit and The Supervisory Board regards Berlin Hyp’s the Compliance Officer as well as the report on performance and its ability to hold its own the effectiveness of the Internal Control System ground in a difficult market environment while (IKS) were also discussed and acknowledged. adhering to a conservative risk strategy and culture as steadfast and highly favourable. The Supervisory Board’s Report, the Corporate Governance Report and, for the first time, the In accordance with the legal requirements, the Sustainability Report were adopted. Supervisory Board once again concerned itself promptly, regularly and comprehensively with The Supervisory Board also passed the neces- the position and the development of Berlin sary resolutions regarding the agenda of the Hyp, the planning situation, the risk situation, Annual General Meeting of Berlin Hyp. risk management as well as compliance, both orally and in writing, in 2018. It constantly The Supervisory Board discussed with the monitored the actions of the Board of Man- Board of Management the achievement of agement and satisfied itself that it was acting the 2017 targets as well as regulatory issues properly, deliberated on all relevant aspects in and their impact on the Bank. In addition, the this context and provided recommendations. Supervisory Board was informed about external consultancy costs incurred in 2017. Focus of the Supervisory Board’s Activities The subject-matter of all Supervisory Board In accordance with the provisions of the meetings in 2018 was the Board of Manage- German Remuneration Ordinance for Institu- ment’s detailed reporting on the current busi- tions (IVV), the Supervisory Board took note ness development, including the environment of the overall bonus pool for employees set and projects, and the risk situation of Berlin by the Board of Management and established Hyp. The Board of Management also reported the total amount of variable remuneration regularly on the development of S-Group busi- for the Board of Management. Subsequently, ness, as well as on the external audits currently on the basis of the individual achievement of underway at Berlin Hyp. targets, a decision was made on the individual 4 target bonuses of the individual members of review revealed that the Supervisory Board’s the Board of Management and on the payment work is effective and that the members of the of conditional bonuses. New targets for 2018 Board of Management and Supervisory Board were agreed. In addition, the remuneration possess the necessary expertise, skills and guidelines for the Board of Management experience. were adapted to the IVV version amended in the second half of 2017 and the Supervisory In the meeting on 30 November 2018, the Board was informed about the procedure for Board of Management’s periodic reports were identifying risk-takers in the company in the supplemented by a presentation on Treasury past year. activities. On a regular basis, the strategy doc- uments were discussed in accordance with the In the meeting on 25 June 2018, the Supervi- Minimum Requirements for Risk Management sory Board took note of reports on donations (MaRisk). Berlin Hyp’s remuneration systems and sponsorships as well as on the status of were also reviewed on a regular basis and implementation of the SAP-HANA IT project, considered appropriate. The Supervisory Board in addition to the regular reports (current then took a closer look at the projections for business development, risk situation, S-Group 2018 and the medium-term planning for 2019 business, status update on various audits), all to 2023. At the same time, the Supervisory of which it discussed with the Board of Man- Board updated the Declaration of Compliance agement. The Supervisory Board updated the in accordance with the German Corporate selection and diversity strategy, as well as job Governance Code (Deutscher Corporate descriptions and applicant profiles for future Governance Kodex, DCGK). The targets for 2019 members of the Supervisory Board and the were agreed for the Board of Management, Board of Management. In addition, the Supervi- and it was decided to appoint Sascha Klaus as sory Board decided on the procedure for its a member of the Board of Management for a efficiency review and suitability examination.