A partnership built on trust #sharinginspiration Annual Report 2017 S Finanzgruppe Key performance indicators Content at a glance Excerpt from the Profit and Loss Account Board of Management and Supervisory Board 2017 2016 in € m Organs of the Bank and Other Important Functions 2 16.9 % Net interest 270.9 255.9 Supervisory Board Report of Berlin Hyp AG 2017 4 Return on equity Net commission income 39.1 42.5 Operating expenditure 134.8 122.3 Corporate Governance Report 8 Risk provisioning 56.2 −35.7 Operating result after risk provisioning 184.4 120.1 Company Provision for general banking risks 70.0 50.0 Milestones 2017 14 Profit transfer 117.0 73.0 Net income for the year 0.0 0.0 What inspires you, Mr Klaus? 16 Cost-income ratio after bank levy in % 51.2 44.0 Digital Age – what does that mean for Berlin Hyp? 20 8.1 bn € Return on equity in % 16.9 11.8 Only Sustainable Action can ensure long-term success 26 Team Spirit which customers appreciate 30 New lending business berlinhyp21 33 (including capital employed ≥ 1 year) Excerpt from the Balance Sheet in € m 2017 2016 Inspiration for Europe: Selected Reference Projects 36 Balance sheet total 27,123 26,354 Mortgage loans 20,081 18,125 Management Report NPL1 256 447 I Principles of the Bank 40 1 Screening of NPL portfolio by rating in accordance with EBA guideline from 2017 onwards (previously: risk class); comparable figure for previous year adjusted. II Economic Report 44 III Opportunities, Forecast and Risk Report 61 IV Accounting-Related Internal Control System Aaa Business Development in € m 2017 2016 and Risk Management System 86 (Moody's) New lending 6,666 5,367 V Remuneration Report 88 Pfandbrief issue rating Extensions (capital employed ≥ 1 year) 1,465 651 VI Corporate Governance Statement Pursuant to Section 289f German Commercial Code 94 VII Non-Financial Statement in Accordance with Section 289b and c German Commercial Code 95 Regulatory law key figures2 2017 2016 RWA in € m 9,151 7,972 Annual Accounts Hard core capital ratio (CET1 ratio) in % 12.5 13.5 Balance Sheet 96 Total capital ratio in % 15.5 17.5 Profit and Loss Account 100 70 Leverage Ratio in % 4.0 3.9 Statement of Changes in Equity and Cash Flow Statement 102 Transactions 2 After adoption Notes 104 with new customers Independent Auditor's Report 132 Issue ratings Moody’s Fitch Senior Unsecured A1 A+ Service Pfandbriefe Aaa – List of Important Abbreviations 137 Sustainability ratings oekom Sustainalytics Addresses 138 B- (Prime) 86/100 (Leader) Contacts 139 Imprint 140 1 Board of Management and Supervisory Board Company Management Report Annual Financial Statements Service Organs of the Bank and Other Important Functions Supervisory Board Andrea Schlenzig Supervisory Board Committees Cover Pool Monitor Thomas Mang Bank employee Chair (since 27 November 2017) Staff and Strategy Committee Christian Ax President of Savings Banks Association of Helmut Schleweis Lower Saxony President of Deutscher Sparkassen- und Thomas Mang Giroverband e. V. Chair (since 27 November 2017) Deputy Cover Pool Monitor Georg Fahrenschon (until 30 November 2017) Chair (until 24 November 2017) Peter Schneider Georg Fahrenschon Wolfgang Rips President of Deutscher Sparkassen- und President of Savings Banks Association of (until 24 November 2017) Giroverband e.V. (ret.) Baden-Württemberg Chair (until 24 November 2017) Philip Warner Jana Pabst Walter Strohmaier Helmut Schleweis Deputy Chair Chair of the Board of Management of Deputy Chair Bank employee Sparkasse Niederbayern-Mitte Chair of the Works Council of Berlin Hyp AG Landesobmann of the Bavarian Savings Dr. Harald Langenfeld Banks Joachim Fechteler Thomas Meister Bank employee René Wulff Member of the Works Council of Berlin Hyp AG Bank employee Andrea Schlenzig Deputy Chair of the Works Council of Berlin Gerhard Grandke Hyp AG Managing President of German Loans Committee Savings Banks and Giro Association of Hesse-Thuringia Board of Management Thomas Mang Sascha Klaus Chair Artur Grzesiek Chair Former Chairman of the Board of Dr. Harald Langenfeld Management of Sparkasse Cologne-Bonn Gero Bergmann Deputy Chair Dr. Harald Langenfeld Roman Berninger Artur Grzesiek Chair of the Board of Management of Stadt-und Kreissparkasse Leipzig Walter Strohmaier Managing Director Thomas Meister Dr. Michael Schieble René Wulff Bank employee (until 31 December 2017) Siegmar Müller Audit Committee Chair of the Board of Management of Sparkasse Germersheim-Kandel Helmut Schleweis Landesobmann of the Rhineland- Palatinate Chair Savings Banks Board of Management Members Gerhard Grandke Deputy Chair Reinhard Sager President of German Administrative District Joachim Fechteler Parliament County Council Chairman of East Holstein Siegmar Müller District Peter Schneider 2 3 Board of Management and Supervisory Board Company Management Report Annual Financial Statements Service Supervisory Board Report of Berlin Hyp AG 2017 Berlin Hyp is a subsidiary of Landesbank Berlin the Board of Management and the auditor. In the meeting on 18 September 2017, the Continuing Education for the Supervisory Holding AG and an independent commercial Moreover, the annual audit report, the annual Supervisory Board defined the key audit issues Board real estate financer within the Savings Banks compliance report, the report on the efficacy of for the financial year 2017 based on a proposal The Supervisory Board of Berlin Hyp took part Finance Group. The Supervisory Board – which, the internal control system (ICS) and a report from the Audit Committee. Adjustments to the in a continuing education seminar in June 2017 apart from the five employee representatives, is on security measures to defend against cyber risk strategy were also discussed and adopted. that focused on regulation, the period of low made up entirely of representatives of the Sav- risks were acknowledged in this meeting. The The Board of Management’s plans to acquire a interest rates and digitalisation. In Septem- ings Banks Finance Group and a representative Supervisory Board Report and the German Cor- strategic stake in BrickVest Ltd. were presented ber 2017, the Supervisory Board discussed of the local authorities – advises and monitors porate Governance Code Report were adopted. to the Supervisory Board and discussed in challenges, strategies and priorities for the real the Board of Management. It also supports the The Supervisory Board also passed the neces- detail. The Chairman of the Supervisory Board estate bank of the future following an expert talk. Board of Management, particularly in the crea- sary resolutions on the agenda of the Annual presented a summary report of the findings tion of a network with savings banks throughout General Meeting of Berlin Hyp. It discussed the from the efficiency and suitability review of the Supervisory Board Committees Germany. attainment of non-monetary targets in 2016 in Supervisory Board and the Board of Management. The work of the Supervisory Board of Berlin Hyp line with the 2015/2016 business strategy and The review revealed that the Supervisory is supported by three committees − the Audit In light of the fierce competition in commercial adjustments to the risk strategy. In addition, the Board’s work is effective and that the members Committee (PA), the Staff and Strategy Commit- real estate financing, the ongoing phase of Supervisory Board addressed the new require- of the Board of Management and Supervisory tee (PSA) and the Loans Committee (KA) − each low interest rates and tough regulatory require- ments under the German Act Reforming the Board possess the necessary expertise, skills of which convenes approximately 10 to 14 days ments, Berlin Hyp is extremely pleased with the Audit of Annual Financial Statements (AReG), and experience. prior to Supervisory Board meetings. After- development of and result from the financial adopted a catalogue of permissible non-audit wards, written committee reports are presented year 2017. The Supervisory Board regards services and adjusted the rules of procedures In the meeting on 27 November 2017, a new in the Supervisory Board meetings. Berlin Hyp’s performance and its ability to hold for the Audit Committee accordingly. chair was elected as the first order of business, its own in a difficult market environment while after the previous chair, Georg Fahrenschon, The main objective of the PA is to assist in the adhering to a conservative risk strategy as In accordance with the provisions of the had stepped down from this position. The review and preparation of the adoption of the highly favourable. Institutional Remuneration Ordinance (IVV), Board of Management’s periodic reports were annual accounts. Moreover, it is responsible for the Supervisory Board took note of the overall then supplemented to include a presentation monitoring the accounting process, the efficacy In accordance with the legal requirements, the bonus pool for employees set by the Board of on Treasury activities. The Super visory Board of the risk management system, the internal Supervisory Board once again concerned itself Management and established the total amount took note of the updated strategy document, management and controlling system, and the promptly, regularly and comprehensively with of variable remuneration for the Board of Man- especially with regard to measures for achiev- functionality of the Internal Audit division. It is the position and the development of Berlin Hyp, agement. The Supervisory Board then reviewed ing strategic targets and enhancing efficiency