DEUTSCHE POSTBANK AG, BONN ANNUAL FINANCIAL STATEMENTS (HGB) AS OF DECEMBER 31, 2014 DEUTSCHE POSTBANK AG, BONN ANNUAL FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2014 AND MANAGEMENT REPORT FOR FISCAL YEAR 2014 MANAGEMENT REPORT 2 BALANCE SHEET AS OF DECEMBER 31, 2014 44 INCOME STATEMENT FOR THE PERIOD JANUARY 1, 2014 TO DECEMBER 31, 2014 46 NOTES 48 AUDITOR‘S REPORT 81 POSTBANK MANAGEMENT REPORT In addition to retail banking, Postbank is involved in the cor- porate banking business. As a mid-sized market player in BUSINESS AND ENVIRONMENT this area, it focuses particularly on German SMEs. Postbank’s most significant competitors also in this business area are Corporate profile providers from the sector of savings banks and cooperative banks as well as several major banks. Business model of Postbank Deutsche Postbank AG (Postbank) provides financial services Management at Postbank for retail and corporate customers as well as for other finan- Postbank is responsible for the management of the entire cial service providers primarily in Germany. The focus of its Postbank subgroup. business activities is retail banking and corporate banking (payment transactions and financing). The Bank’s work is Non-financial key performance indicators at Postbank rounded out by money market and capital market activities. In its corporate management, Postbank makes use of financial On December 3, 2010, Postbank became part of the Deut- as well as non-financial key performance indicators. Essen- sche Bank Group, Frankfurt am Main, which directly and in- tial non-financial key performance indicators measure em- directly holds 94.1 % of the shares in Deutsche Postbank AG. ployee and customer satisfaction. In 2014, both of these non-financial key performance indicators, which are Group The Annual General Meeting of Deutsche Postbank AG on targets within the target system, were relevant to the remu- June 5, 2012, approved a control and profit and loss transfer neration of all Management Board members. agreement between DB Finanz-Holding GmbH, Frankfurt am Main (a wholly-owned subsidiary of Deutsche Bank AG), Employee satisfaction is measured by evaluating the results and Deutsche Postbank AG. The agreement came into force of the annual people survey. It poses a number of questions on entry into the commercial register on June 20, 2012. On related to commitment, leadership, business success/targets, September 11, 2012, the Cologne Higher Regional Court customer orientation and professionalism. Employees indi- confirmed the validity of the agreement. cate on a five-point scale their approval ratings. Employee satisfaction is derived from the results of the “commitment” With its business activities, Postbank plays a significant role dimension, consisting of various questions for determining in the Private & Business Clients (PBC) corporate division at workforce loyalty to the Company. Deutsche Bank. It acts as a supporting pillar of the business with private and corporate customers, and makes a substan- Customer satisfaction is measured quarterly in telephone tial contribution to the implementation and execution of interviews using questionnaires that are mostly identical in Deutsche Bank’s strategy to intensify its activities on the structure. The underlying random sample is representative domestic market. Postbank views itself as a financial services of the Postbank customer population. The research design provider that is oriented on the needs of a broad base of makes it possible to conduct systematic time series analyses customers thanks to its simple, standardized products. With and causal analyses. The questions probe both the overall its IT units, Postbank is also realizing a large portion of the satisfaction of customers with the Postbank products joint retail target platform (RTP) for Postbank and Deutsche and services as well as satisfaction with the Bank’s central Bank. performance factors (accessibility, speed, friendliness, pro- priety, professional advice, satisfaction with sales channels, Key locations complaints management, etc.). Satisfaction is measured using The head office of Postbank is located in Bonn. In addition, a verbalized scale from one to five (1=completely satisfied, Postbank operates a national network of branches that had 5=dissatisfied). The study is conducted with due regard for 1,076 locations in Germany at the end of 2014, as well as quality standards by a renowned external market research a branch in Luxembourg, which took over the customer institute. business of PB International S.A. effective July 1, 2014. The target system for executive employees also includes The subsidiary BHW Bausparkasse Aktiengesellschaft is do- target dimensions that make it possible to derive targets for miciled in Hameln. Postbank executives from the non-financial key performance indicators at the Group level. Apart from the cost/finance Key sales markets and competitive position dimension as an individual financial target, each executive In retail banking, Postbank conducts its business almost employee is assigned targets for the dimensions markets/ exclusively in Germany and is the largest single-entity institu- customers, process/quality, and employees/team, which are tion in terms of the number of customers. Its major product relevant to the individual’s own area of responsibility. fields are savings, checking accounts, private mortgage This creates a consistent system that facilitates Group-wide lending and home savings. Postbank is among the leaders management in accord with essential non-financial key in Germany in each of these areas, based on balance-sheet performance indicators. volumes. Private retirement provision solutions, personal loans and the securities business round out the product range for retail customers. In these areas, Postbank offers some products and services as part of partnerships with other banks and insurance companies. One key aspect of this activity is the close collaboration with Deutsche Bank AG that is continuously being intensified. Postbank’s major competitors in the retail banking business in Germany are providers from the sector of savings banks and cooperative banks as well as several major banks. 2 MANAGEMENT REPORT BUSINESS AND ENVIRONMENT Financial key performance indicators risk-adjusted capital – RoRaC) is also provided at the overall Management at Postbank is based on an integrated and bank, segments and management portfolio levels. The consistent system of key performance indicators that is used economic capital requirement is determined by the relevant throughout the Group. The system links targets, planning, types of risk depending on the management level (e. g., credit operational management, performance measurement, and risk, market risk, operational risk). Both resources – regula- remuneration. The objective of this management approach tory capital and economic capital – are expected to yield an is to optimize profitability and efficiency. appropriate return in the form of hurdle rates, which are derived from the return expectations of the capital market The central profitability target for the capital market-oriented and are to be generated by both Postbank as a whole and management of Postbank is the expectation of returns on the individual business units. equity in accordance with IFRSs, as measured by return on equity (RoE) before and after tax. The value is calculated on The variable remuneration of Management Board members, the basis of the ratio of profit before tax and after tax to executives and employees at Postbank is closely linked to the average time-weighted equity in the reporting period. this management system. It is based on individual targets, divisional targets and Postbank Group targets as expressed Efficiency is measured by the cost/income ratio (CIR) – the in profit/loss before tax and CIR. As a result of regulatory ratio of administrative expenses plus other expenses to total requirements and the company goal of sustainable success, income (including other income) before the allowance for a sustainability factor is used to calculate the long-term losses on loans and advances – as the central metric for in- portion of the variable remuneration of our executives, risk come and productivity management. takers and the Management Board (long-term components). Additional details are provided in the section “Remunera- Total income, as the most important metric used to judge tion of the Management Board and the Supervisory Board” and manage earnings power, includes net interest income or in the Notes to the Annual Financial Statements. and net fee and commission income in particular as the key income indicators in the Postbank customer business. The sustainability factor is based on the concept of Eco- nomic Value Added and anchors value-focused sustainability Management process thinking in the incentive system of Postbank. On the segment level, Postbank directs its activities on the basis of a management information system whose core component is management accounting by business division. In general, management is performed much the way it is on the Postbank Group level, in which expectations for returns are measured on the basis of RoE before tax. The alloca- tion of equity to the segments is based on their risk capital requirements. The above-mentioned indicators serve as operational management parameters on the segment level. In the core business, the income drivers of volume, margins and risk as well as the contribution margins are also taken into