ANNUAL REPORT 2018 PRUDENCE CREATES STABILITY ANNUAL REPORT 2018 HYPO VORARLBERG HYPO 2018 REPORT ANNUAL KEYFIGURES 2018 Keyfigures of Hypo Vorarlberg Bank AG (Hypo Vorarlberg) – Group reporting per IFRS: TEUR 31.12.2018 31.12.2017 Change Change (adjusted) in TEUR in % Total assets 13,754,610 13,182,520 572,090 4.3 Loans and advances to customers (across all categories) 9,652,675 9,405,453 247,222 2.6 Customer deposits (across all categories) 5,682,356 5,338,730 343,626 6.4 Securitised liabilities 5,257,582 4,698,952 558,630 11.9 Own funds 1,379,763 1,328,358 51,405 3.9 thereof Tier 1 capital 1,179,866 1,093,275 86,591 7.9 Total capital ratio 17.79 % 18.01 % -0.22 % -1.2 TEUR 2018 2017 Change Change (adjusted) in TEUR in % Net interest income 167,428 158,185 9,243 5.8 Net fee and commission income 31,914 34,833 -2,919 -8.4 Administrative expenses -97,734 -96,316 -1,418 1.5 Earnings before taxes 48,657 94,602 -45,945 -48.6 TEUR 2018 2017 Change Change absolut in % Cost-Income-Ratio (CIR) 61.22 % 55.98 % 5.24 % 9.4 Return on Equity (ROE) 4.43 % 8.60 % -4.17 % -48.5 Employees 727 737 -10 -1.4 The shareholders of Hypo Vorarlberg Bank AG (Hypo Vorarlberg) as at 31 December 2018 are: Shareholders Voting rights Vorarlberger Landesbank-Holding 76.8732 % Austria Beteiligungsgesellschaft mbH 23.1268 % - Landesbank Baden-Württemberg 15.4179 % - Landeskreditbank Baden-Württemberg Förderbank 7.7089 % Share capital 100.0000 % Rating* Standard & Poor‘s Moody’s Long-term senior debt A+ A3 Short-term A-1 P-2 Outook stable stable *As of May 2018, Standard & Poor’s (S&P) has awarded Hypo Vorarlberg an “A+” rating. In February 2018, Moody’s published an update and awarded the Bank a credit rating of “A3”. This makes Hypo Vorarlberg one of the best-rated banks in Austria. ANNUAL REPORT 2018 PRUDENCE CREATES STABILITY COMPANY OVERVIEW TABLE OF CONTENTS 04 20 VISION GROWS OPENNESS ON TRUST. RESULTS IN VISION. HYPO VORARLBERG GROUP MANAGEMENT REPORT Foreword 06 Economic environment 22 Questions to Michel Haller Austrian banking sector 2018 25 (CEO) Chairman of the Managing Board, Risk Management 08 Hypo Vorarlberg as a strong brand 26 Questions to Johannes Hefel Business development 2018 27 Managing Board, Private Customers, Private Banking and Asset Management 10 Development by segment 32 Questions to Wilfried Amann Major subsidiaries 36 Managing Board, Corporate Customers 12 Outlook for 2019 38 Organisational chart 14 Risk Management 39 Managing Board | Supervisory Board 16 Disclosure regulation for remuneration policy in 2018 42 Advisory Board 18 Mindful business 43 02 TABLE OF CONTENTS 44 146 FINDING A NEW FOOT- ACHIEVING GREAT HOLD WITH PRUDENCE. THINGS TOGETHER. CONSOLIDATED FINANCIAL BRANCHES AND CONTACT STATEMENTS (IFRS) I. Income statement 48 Branch offices and subsidiaries 148 II. Balance sheet 31. December 2018 49 Banking locations 150 III. Statement of changes in shareholders’ equity 50 Imprint 151 IV. Cash flow statement 51 V. Notes 52 VI. Managing Board | Supervisory Board 136 VII. Subsidiaries | Holdings 137 Managing Board declaration 140 Report of the Supervisory Board 141 Auditor’s report 142 TABLE OF CONTENTS 03 VISION GROWS ON TRUST. WILFRIED AMANN HYPO VORARLBERG MEMBER OF THE MANAGING BOARD Doing business in a circumspect manner means that goals are not high, but far-reaching. They can be big, they should be ambitious, but they have to be chosen with a vision that guarantees stability and enables gradual progress to be made. This creates security. This creates trust. This creates sustainability. JOHANNES HEFEL MICHEL HALLER MEMBER OF THE MANAGING BOARD CHAIRMAN OF THE MANAGING BOARD A CLEAR LINE FOREWORD Thanks to its focus on customer business, 2018 was a successful year for operations at Hypo Vorarlberg. Even in a difficult regulatory environment, we succeeded in systemically going down our chosen path - and in keeping with our corporate motto we are achieving great things together with our customers, business partners and employees. Dear customers, business partners, It is clear that many customers no longer go into a branch for shareholder representatives and employees, standard transactions such as transfers etc., but handle these transactions conveniently and quickly from home or on the go. The past financial year was characterised by negative and low For this reason, we are aligning our branch structure even more interest rates, new regulations and advancing digitalisation of on consulting and are focusing on bundling the many years of the banking business. Among other things, the global political expertise of our consultants in competence centres. Especially developments resulted in a challenging year for investors on the capital markets. In this environment, Hypo Vorarlberg continued to concentrate on its core competencies - the financing and invest- ment business - and thus concluded 2018 very successfully on an operating basis in line with the Austrian Corporate Code. New accounting policies “Our pledge: However, on 1 January 2018, the “rules” for group accounting virtually changed overnight. The first-time application of the new The best consulting IFRS requirements in the consolidated financial statements shows a somewhat different picture: IFRS 9 has an impact not only on for those the balance sheet structure and thus makes a comparison with the previous year almost impossible, but also now includes risk with purpose.” provisions for completely healthy loans. In addition, amortisation and impairment on investments were required in 2018. As a result IFRS earnings before taxes finally amounted to EUR 48.7 million (2017: EUR 94.6 million). However, the development of interest and commission income as the most important earnings basis of our business shows that we are very well positioned with our focus on the customer business and a risk-conscious business policy. when it comes to complex issues such as investing assets or real estate financing, personal contact, dealing with customers’ needs Personal consulting and digital services. in a circumspect manner and mutual trust is important. In line with our promise “the best consulting for those with pur- pose”, we focus on continuing to provide comprehensive personal consulting to private and corporate customers and supplement the support at our locations with digital services where we con- sider it appropriate. 06 HYPO VORARLBERG Circumspection connects Achieving great things together Not only us, but also many people and companies in our area Our customers and business partners have placed their trust in of activity approach their projects in a circumspect manner. This us for another year and have been loyal to us for many years. also forms the basis for the motto for this year‘s annual report. Together we have succeeded in implementing many great A great example of forward-thinking, circumspective activity is projects. This works only with excellent employees and consult- the Schneider family: In their five-star superior hotel in the heart ants. For this reason, we would like to give special thanks to the of Lech, their values are visible and tangible. We have chosen this almost 900 people for their ambition and commitment. Thanks special place as a backdrop for some of our images in this year’s to the support of all these people, Hypo Vorarlberg is very well annual report, because similar to Hypo Vorarlberg, changes here positioned and well equipped for the future – meaning we can are handled with the necessary circumspection and trust and achieve great things together again! personal contact between people is the basis for the success of the business. The members of the Managing Board In dialogue between architects, community representatives and citizens the “Georunde Rindberg” in Sibratsgfäll shows how not dealing with our environment in a circumspective way can be experienced. You can read the background information to these two very different stories in our VORHABEN #2 / 2018 magazine. Michel Haller Johannes Hefel Wilfried Amann Chairman of the Managing Board Member of the Managing Board Member of the Managing Board HYPO VORARLBERG 07 CREATING STABILITY INTERVIEW WITH MICHEL HALLER What is your summary for the 2018 financial year? Were there any other regulations that had to be implemented? All in all, it was a successful year for Hypo Vorarlberg in operating terms. MiFID II, GDPR and PSD 2 came into force in 2018. Not only major inter- This is reflected in the positive development of interest and commission national banks, but also smaller regional banks are required to implement income in the annual financial statements in line with the Austrian Cor- these guidelines smoothly. From our point of view, the general idea of porate Code. We further expanded our core segments - the financing MiFID II is correct in principle, but it makes it a change of the investment and the investment business with private and corporate customers - and culture more difficult for private investors, something which would be are thus a strong, reliable partner in our market areas. However, there particularly important in times of negative interest rates. The initial eco- was also extraordinary income due to the termination of fixed interest nomic effects of the new regulations are also already noticeable. In the rate agreements in the Corporate Customers segment and early loan previous financial year, fee and commission income decreased as a result repayments. Given this positive economic development, it is unfortunate of factors including the introduction of MiFID II (Markets in Financial that the income statement and balance sheet in line with IFRS reflect Instruments Directive) in January 2018. Nevertheless, owing to the on- a slightly different picture. Since our bonds are traded on the stock ex- going lower interest rates, the significance of commission income for change and since we consolidate several companies as a Group, we are the economic success of Hypo Vorarlberg is growing.