2020 SOLIDARITY. ANNUAL REPORT OUR STRENGTH. CONTENT ANNUAL STATEMENT FOREWORD MANAGEMENT REPORT OF ACCOUNTS NOTES FURTHER INFORMATION SEARCH Overview BUSINESS DEVELOPMENT IN MILLIONS OF € * 2020 2019 Change % Lending business a) Mortgage loans 6,395 6,478 – 1 aa) Residential property financing 4,019 3,716 8 ab) Commercial property financing 2,376 2,762 – 14 b) Loans to public sector and banks 97 45 116 Total 6,492 6,523 0 OVERVIEW OF PORTFOLIOS IN MILLIONS OF € * 2020 2019 Change % Total assets 48,558 42,872 13 Mortgage loans 38,411 35,498 8 Public sector and banks 3,704 4,075 – 9 Pfandbriefe and other bonds 39,576 36,398 9 Liable equity capital 1,676 1,573 7 INCOME STATEMENT IN MILLIONS OF € * 2020 2019 Change % Net interest income and net commission income 238 205 17 Administrative expenses 128 131 – 2 Results from ordinary business activities 95 74 29 Transfer to the Fund for General Banking Risks 20 0 – Net income 38 36 6 EMPLOYEES NUMBER 2020 2019 Change % Average number of employees per year 611 573 7 Apprentices 15 15 0 Employees participating in parental leave, early retirement and partial retirement (non-working phase) 35 36 – 3 * Amounts have been rounded. ANNUAL REPORT 2020 MÜNCHENER HYPOTHEKENBANK EG 2 CONTENT ANNUAL STATEMENT FOREWORD MANAGEMENT REPORT OF ACCOUNTS NOTES FURTHER INFORMATION SEARCH Content 6 Letter from the Board of Management 44 Notes 8 Management Report 45 General information on accounting policies 47 Notes to the balance sheet income statement 9 Economic report 56 Publication in accordance with Section 28 Pfandbrief Act 9 General economic conditions 65 Other disclosures 15 Business development 67 Bodies 18 Financial performance, financial position and net assets 68 Auditing Association 21 Ratings, sustainability and regulatory conditions 68 Other financial obligations 24 Registered office, executive bodies, committees and employees 69 Contigent liability 25 Risk, outlook and opportunities report 70 Independent Auditor’s Report 25 Risk report 75 Affirmation by the Legal Representatives 32 Corporate planning 76 Annex to Annual Financial Statements pursuant to Section 26a Para. 1 33 Outlook – opportunities and risks Sentence 2 of the German Banking Act (KWG) 77 Report of the Supervisory Board 36 Annual Statement of Accounts 80 Further Information 37 Balance sheet 41 Income statement 81 The members of the Delegates Meeting 42 Statement of development in equity capital and cash flow statement 82 Agenda – General (Delegates) Meeting 83 Executive management and bodies 84 Contact 87 Imprint ANNUAL REPORT 2020 MÜNCHENER HYPOTHEKENBANK EG 3 CONTENT ANNUAL STATEMENT FOREWORD MANAGEMENT REPORT OF ACCOUNTS NOTES FURTHER INFORMATION SEARCH IN CONVERSATION: THE KEY ISSUES FOR US IN 2020 ARE COVERED IN OUR ONLINE ANNUAL REPORT: www.muenchenerhyp.de/geschaeftsbericht2020/en/ Digitalisation gathering pace Working from home The future of the property markets What digital processes have proved to be essential How did the sudden switch to working from home The crisis saw uncertainty return to the property market. during the COVID-19 pandemic, and how will things pan out at MünchenerHyp? Dr Phil Zundel, Head of Jan Polland, Thomas Hügler, Heads of Commercial and progress in terms of digitalisation? General Executive Central Services, talks about working from home Private Real-Estate Finance, explain the developments and Manager Ulrich Scheer looks back and into the future. during the COVID-19 crisis, and tells us which reveal whether the opportunities for investors lie. changes are here to stay. SOLIDARITY. OUR STRENGTH. ANNUAL REPORT 2020 MÜNCHENER HYPOTHEKENBANK EG 4 CONTENT ANNUAL STATEMENT FOREWORD MANAGEMENT REPORT OF ACCOUNTS NOTES FURTHER INFORMATION SEARCH DR. LOUIS HAGEN Chairman of the Board of Management DR. HOLGER HORN Member of the Board of Management ANNUAL REPORT 2020 MÜNCHENER HYPOTHEKENBANK EG 5 CONTENT ANNUAL STATEMENT FOREWORD MANAGEMENT REPORT OF ACCOUNTS NOTES FURTHER INFORMATION SEARCH Letter from the Board of Management 2020 was marked by two crises triggered by the COVID-19 Strong new business – further growth in residential shows that we were not able to escape the overall develop- pandemic: an international health emergency and a global property financing ments unscathed. Nevertheless, we consider this to be a posi- economic crisis. In particular, the measures taken to combat tive result, as we were able to exceed our new business target, the pandemic had a huge impact on society and business, and With new mortgage business of EUR 6.4 billion, we only just which had been adjusted to reflect the economic uncertainty. thus also to some extent on MünchenerHyp. fell short, by around EUR 100 million, of the record result achieved in the previous year. All in all, we were able to expand our mortgage portfolios When the first lockdown was imposed back in March 2020, again. Thanks to the encouraging level of new business, they we focused our efforts on two goals: first of all, protecting New private residential property financing business rose by grew by 8 percent to EUR 38.4 billion. the health of our employees and second, maintaining business 8 percent to over EUR 4 billion. On the one hand, this develop- operations that were as close to normal as possible despite all ment was thanks to a very stable German residential property Risk situation remains moderate of the restrictions required to contain the virus. market, which is still considered a safe haven during the crisis, especially among professional investors. On the other, the Our mortgage portfolios have remained largely untouched so To this end, we put extensive measures in place to ensure the sustained low interest rates bolstered demand for residential far by the economic implications of the COVID-19 pandemic. safety of our employees, adapted our business plans and properties. New business brokered by banks in the Cooperative Very few of our customers have made use of the statutory lending criteria to reflect the situation caused by the pandemic Financial Network rose by 10 percent to EUR 3.1 billion. We moratorium on debt repayments for private individuals. The and took flexible action in response to ever-changing chal- are also satisfied with the development of new business in same applies to the voluntary amortisation moratorium for lenges. Thanks to these measures, overall we got through our partnerships with independent financial service providers commercial property financing developed by the Association well through the COVID-19 pandemic in financial year 2020. and PostFinance in Switzerland. of German Pfandbrief Banks (vdp). Those segments of the So far, only a handful of our colleagues have contracted commercial property market that have been hit particularly COVID-19 – all of them were infected outside the Bank and By contrast, the economic consequences of the COVID-19 hard, such as hotels, only account for a very small share of have since recovered. Business-wise, 2020 was a satisfactory pandemic left their mark on the commercial property financ- our overall portfolio. We have analysed our entire portfolio of year despite all of the adversities we faced. ing business. New business fell by 14 percent to EUR 2.4 billion. commercial property financing without identifying any sig- This is slightly less pronounced than the drop in transaction nificant risks from today‘s perspective. volume on the German commercial property market, but also ANNUAL REPORT 2020 MÜNCHENER HYPOTHEKENBANK EG 6 CONTENT ANNUAL STATEMENT FOREWORD MANAGEMENT REPORT OF ACCOUNTS NOTES FURTHER INFORMATION SEARCH Higher earnings – dividend for financial year 2020 The 2020 Delegates Meeting therefore decided to carry for- Success through solidarity ward the retained earnings for 2019 of approximately Net interest income improved by 16 percent to EUR 347.8 mil- EUR 24 million to the 2020 financial year. This year, the ECB The business success stories written in the reporting year are lion, allowing us to continue the successful performance seen is now allowing limited dividend payments to be made for based to an even greater degree than usual on cooperation over the last few years. This means that net interest income the 2020 financial year. At MünchenerHyp, the limit has been with our partners, customers and investors based on trust. In has trebled within the last ten years, largely due to the steady calculated at 1.25 percent per share. The Supervisory Board the face of the stresses resulting from the COVID-19 pandemic, increase in new business. In line with the successful brokered and the Board of Management have proposed a corresponding our members showed considerable solidarity, in line with the new business, commission paid rose again in the year under resolution regarding the appropriation of distributable very spirit of the cooperative banking system, and helped review, although this was more than offset by the stronger income to the Delegates Meeting. MünchenerHyp to stay on track. We would like to thank our growth in net interest income. As a result, net interest and employees for the tremendous commitment and high degree commission income increased by 16.5 percent to EUR 238.3 mil- Pfandbrief proves its value yet again during the crisis of flexibility they have shown despite the pressures and con- lion. We were able to reduce administrative expenses by 2 per- cerns facing them outside of work. This allowed us to maintain cent to EUR 128.4 million despite a renewed increase in reg- The Pfandbrief once again proved itself to be a crisis-proof business operations that were as close to normal as possible, ulatory costs and levies. This results in income from ordinary funding instrument in the environment created by the pan- even under stringent lockdown conditions. business activities of EUR 95.3 million, up by 29 percent demic. Although the issue volume on the primary market fell year-on-year. significantly and investors also adopted a more cautious Looking ahead to the 2021 financial year, we have set our- stance, we were still able to raise funding at good conditions selves the objective of expanding our new business to the With a Common Equity Tier 1 ratio of 20.6 percent, the Bank throughout the year.