BayernLB Annual Report and Accounts Consolidated financial statements BayernLB Group at a glance Income statement (IFRS) EUR million Jan- Dec Jan- Dec Change in % Net interest income , , (.) Risk provisions . Net interest income after risk provisions , , . Net commission income . Gains or losses on fair value measurement () – Gains or losses on hedge accounting () () (.) Gains or losses on derecognised financial assets () – Gains or losses on financial investments > Administrative expenses (,) (,) . Expenses for the bank levy and deposit guarantee scheme () () . Other income and expenses > Gains or losses on restructuring () – Profit/loss before taxes (.) Income taxes () () > Profit/loss after taxes (.) Cost/income ratio (CIR) .% .% . pp Return on equity (RoE) .% .% (.) pp Balance sheet (IFRS) EUR million Dec Dec Change in % Total assets , , . Business volume , , . Credit volume , , . Total deposits , , . Securitised liabilities , , (.) Subordinated capital , , . Equity , , . Banking supervisory capital and ratios under CRR/CRD IV (as per consolidated financial statements) EUR million Dec Dec Change in % Common Equity Tier capital (CET capital) , , . Own funds , , . Total RWAs , , (.) Common Equity Tier (CET) capital ratio .% .% . pp Total capital ratio .% .% . pp Employees Dec Dec Change in % Number of employees , , . Current ratings Short term, Issuer rating unsecured Pfandbriefs Fitch Ratings A- F AAA Moody’s Investors Service Aa P- Aaa For financial assets measured at amortised cost. Percentage points. Applies to public Pfandbriefs (Fitch and Moody's) and mortgage Pfandbriefs (Moody's). BayernLB · Annual Report and Accounts Contents Board of Management and Supervisory Board BayernLB Group management report Foreword by the Board of Management Overview of the BayernLB Group Report by the Supervisory Board Report on the economic position Report on expected developments and on opportunities and risks BayernLB Group’s consolidated financial statements Supplementary information Statement of comprehensive income Combined non-financial report Balance sheet of the BayernLB Group for 2019 Statement of changes in equity Independent Practitioner’s Report Cash flow statement on a Limited Assurance Engagement Notes Responsibility statement by the Board of Management Independent Auditor’s Report Country by Country Reporting BayernLB · Annual Report and Accounts Foreword by the Board of Management Dear customers and business partners, ladies and gentlemen, Despite some challenging conditions, BayernLB produced a satisfactory profit before taxes of EUR million for the past financial year. Financial year was very much a year of one-off gains, even though they were much lower than in the previous year. Given the tough market environment, we were nevertheless pleased that we were able to keep our net interest income and net commission income steady, at around EUR billion. Because our core markets enjoyed stable economic growth, our risk profile im- proved again compared with the previous year, so that the NPL ratio, which reflects the share of non-performing loans in relation to the overall lending volume, fell to . percent. Rigorous management of our risk positions coupled with a stable ratings in our credit portfolio were among the factors that ensured our Group had a solid capital base as at December . Even though we had to significantly increase our pension provisions because of historically low re- turns on the capital market, the (fully loaded) CET ratio at the end of the year was ..x per- cent before appropriation of profit. Our operational profitability coupled with our very solid capital base and liquidity means we are ready and able to support our customers flexibly and cooperatively in this very tense situation caused by the corona pandemic. Nobody can make a serious prediction of how severe the eco- nomic fallout of the corona pandemic will be and how hard it will hit our Bank. But we will do everything in our power to make sure BayernLB remains a reliable, stable partner to its custom- ers, even in difficult times. Our major strategic realignment will also play a role here, which we decided on, regardless of the Bank’s still satisfactory performance in , with a view to the persistent adverse conditions on the market and the huge challenges for the banking sector. We are now systematically im- plementing this plan. Our goal over the next few years is to evolve from our current status as a universal bank to be a focused specialised and innovative digital bank. We began this transfor- mation process early on and on our own terms. There are three key components to our Fokus transformation programme: • Double our customer base in DKB’s retail customer business and build on our already strong position in real estate financing, while focusing on the business with corporate customers and capital market business. • Significantly cut our cost base, especially in the core Bank. We will do this by investing a high three-digit million sum in infrastructure and IT within the BayernLB core Bank and DKB. This investment will create the conditions needed to considerably improve the effi- ciency of the platform in Munich and to support the further growth of our subsidiary, DKB. • Remain the principal bank to the Free State of Bavaria and the central bank to the Bavar- ian savings banks. Our intention in the next five years is to double DKB’s customer base from some million today to around million, making it BayernLB Group’s main growth engine. DKB is therefore set to consolidate its position as a tech bank and digital companion to its customers. BayernLB · Annual Report and Accounts BayernLB will also significantly expand its commercial real estate finance business and its busi- ness with Real I.S. over the next few years. This growth is expected to take place in Germany and in selected foreign markets, especially in western Europe, the UK and the US. We are relying here on our expertise built up over many years and our dense network of customers and investors to achieve this. As a specialised bank for the challenges of tomorrow and an innovation partner to the Bavarian and German economy, we will use our structuring expertise in finance and selected capital mar- ket products to provide advice and support, especially to companies from five innovative sectors of the future – energy, mobility, technology, mechanical and plant engineering, construction and basic materials. BayernLB will also continue to be the principal bank for the Free State of Bavaria and the central bank to the Bavarian savings banks and to act as a partner supporting our association institu- tions with a competitive and, compared with today, more focused range of products. In the fu- ture, as a key customer group all financial institutions will be served from the Savings Banks Business Area. As we transform we will be focusing on the areas where our strengths lie and where we can offer our customers the greatest added value. We will continue to build on these strengths. Just as we have done for DKB and the commercial real estate business, making them key earnings pillars for the BayernLB Group for years. In focusing on five innovative sectors of the future, we will be able to systematically tap our “home advantage” in one of the most economically strong regions and build on the services we offer by consistently focusing on sustainable themes. In doing so we will be building on success- ful foundations: our subsidiary, DKB, and BayernInvest are pioneers in developing sustainable products and integral components and therefore drivers of the respective business model. And BayernLB itself was once again one of the TOP -rated banks in the world in ISS's sustainability rating at the start of . We have a strong portfolio in renewable energy, are pioneers, and are leading arrangers of green Schuldschein note loans. Back in we placed the first green Schuldschein in the world and have helped arrange nearly half of all sustainable Schuldscheins since then. During the past year we co-arranged a green Schuldschein for Porsche AG. With a volume of EUR billion, it was the largest green Schuldschein ever placed in the market. The BayernLB bank of the future is building on firm foundations. We do not need to completely reinvent ourselves to do this. But we are making a lot of changes to ensure BayernLB remains financially healthy for the long term and because we want it to continue to be one of Germany’s independent banks with a long-term successful future. This transformation process, which we are pushing ahead with in an exceptionally challenging and extremely tense climate for everyone in the Bank and for all our customers due to corona, is only possible with motivated and dedicated employees. We would like to thank them most sin- cerely for their hard and successful work in the past year and we continue to rely on their com- mitment going forward to steer the BayernLB bank of the future safely through these stormy waters. BayernLB · Annual Report and Accounts We would also like to thank you, our customers and business partners, for the trust you have placed in BayernLB and very much look forward to continue working with you in the future. Sincerely, Stephan Winkelmeier Dr Edgar Zoller Dr Markus Wiegelmann Marcus Kramer Michael Bücker BayernLB · Annual Report and Accounts Report by the Supervisory Board Ladies and gentlemen, Over the past financial year, we advised the Board of Management on the administration of the company and continually monitored its management activities. In , BayernLB’s Board of Management kept the Supervisory Board and its committees informed of key developments at the Bank and within the Group at regular intervals, both promptly and comprehensively, in writing and orally. This included its supervisory duty to disclose deficiencies detected by the internal Audit Division. We held detailed discussions with the Board of Management on BayernLB’s business policy and fundamental issues relating to corporate planning, especially in its financial, investment and personnel aspects.