A partnership built on trust #sharing inspiration Annual Report 2019 S Finanzgruppe Key Performance Indicators at a Glance Excerpt from the Profit and Loss Account 2 2019 2018 Regulatory-law key indicators 31.12.2019 31.12.2018 in € m RWA in € m 9,991 9,215 Net interest income 309.7 315.4 CET1 ratio in % 13.3 13.5 Net commission income 17.8 23.2 Total capital ratio in % 16.0 16.8 Staff expenditure 92.4 83.8 Leverage ratio in % 4.6 4.3 Other operating expenditure 67.5 61.5 of which: Expenditure for bank levy 12.0 10.6 2 After adoption. Write-offs on fixed assets 12.4 5.9 Operating expenditure 172.3 151.2 Other operating result –1.6 –4.4 Issue ratings 31.12.2019 31.12.2018 Risk provisioning –2.2 –37.4 Moody's Valuation result of lending business 7.5 –15.5 Pfandbriefe Aaa (stable) Aaa (stable) Valuation result of securities business –9.7 –21.9 Senior preferred Aa2 (stable) Aa2 (stable) Operating result 155.8 220.4 Senior non-preferred A2 A2 Net income from investments –4.0 1.2 Fitch Provision for general banking risks 90.0 105.0 Pfandbriefe - - Other taxes 0.2 0.2 Senior preferred A+ (stable) A+ (stable) Operating result before income taxes Senior non-preferred A+ (stable) A+ (stable) and profit transfer 61.6 116.4 Profit transfer 61.0 116.4 Net income for the year 0.0 0.0 Cost-income ratio in % 52.9 45.2 Return on equity in % 11.6 18.2 Sustainability ratings oekom Sustainalytics B- (Prime) 86/100 (Leader) Excerpt from the Balance Sheet in € m 31.12.2019 31.12.2018 Balance sheet total 27,021 27,178 Other 31.12.2019 31.12.2018 of which: mortgage loans 21,774 20,223 Number of employees (as at the reporting date) 606 601 NPL1 181 183 1 Screening of NPL portfolio by rating (previously: risk class) in accordance with EBA guidelines from 2017 onwards; comparable figure for previous year adjusted. Business development in € m 2019 2018 New lending 6,253 4,893 Extensions (capital employed ≥ 1 year) 1,023 1,226 11.6 % Return on equity Aaa (Moody's) € 7.3 billion Pfandbrief issue rating New lending (including extensions with capital employed ≥ 1 year) Board of Management and Supervisory Board Management Report Annual Financial Statements Service Bodies of the Bank and Other Important Functions Supervisory Board Helmut Schleweis Siegmar Müller Chair (since 26 March 2018) Chair of the Board of Management of President of Deutscher Sparkassen- und Sparkasse Germersheim-Kandel Giroverband e. V. Landesobmann of the Rhineland-Palatinate Savings Banks Board of Management Jana Pabst Members Deputy Chair Bank employee Reinhard Sager Employee representative President of German Administrative Deputy Chair of the Works Council of District Parliament Berlin Hyp AG County Council Chairman of East Holstein District Joachim Fechteler Bank employee (until 31 December 2019) Andrea Schlenzig Employee representative Bank employee Employee representative Bernd Fröhlich Chair of the Board of Management of Peter Schneider Sparkasse Mainfranken Würzburg President of Savings Banks Association of Baden-Wuerttemberg Gerhard Grandke Managing President of German Savings Walter Strohmaier Banks and Giro Association of Chair of the Board of Management Hesse-Thuringia of Sparkasse Niederbayern-Mitte Bundesobmann of the German savings banks Artur Grzesiek Former Chair of the Board of Management René Wulff of Sparkasse KölnBonn Bank employee (until 31 August 2019) Employee representative Dr. Harald Langenfeld Chair of the Board of Management of Stadt- und Kreissparkasse Leipzig Board of Management Thomas Mang President of Savings Banks Association Sascha Klaus of Lower Saxony Chair Thomas Meister Gero Bergmann Bank employee Employee representative Roman Berninger (until 31 December 2019) Chair of the Works Council of Berlin Hyp AG Chief Representative Alexander Stuwe (from 1st January 2020) 2 Supervisory Board Committees Staff and Strategy Committee Audit Committee (until 17 June 2019) Thomas Mang Presiding and Nomination Committee Chair (since 17 June 2019) Gerhard Grandke Helmut Schleweis Deputy Chair Chair Joachim Fechteler Walter Strohmaier Deputy Chair Siegmar Müller Dr. Harald Langenfeld Peter Schneider Thomas Mang Compensation Control Committee Thomas Meister (since 17 June 2019) Andrea Schlenzig Helmut Schleweis Chair Loans Committee Walter Strohmaier Deputy Chair Walter Strohmaier Chair Thomas Mang Dr. Harald Langenfeld Jana Pabst Deputy Chair Bernd Fröhlich Cover Pool Monitor Artur Grzesiek Christian Ax René Wulff Deputy Cover Pool Monitor Wolfgang Rips Philip Warner 3 Board of Management and Supervisory Board Management Report Annual Financial Statements Service 2019 Supervisory Board Report of Berlin Hyp AG Berlin Hyp is a subsidiary of Landesbank Berlin Management on current business development, Holding AG and an independent commercial including its underlying conditions and projects, real estate financier within the S-Group of the risk situation of Berlin Hyp and the status of the Sparkassen-Finanzgruppe. According the strategic investments. In addition, the Board to the regulations of the German One-Third of Management regularly reported on S-Group Participation Act, its Supervisory Board business development and on the external comprises five members on the staff side and audits currently being carried out at Berlin Hyp. ten on the shareholder side. Apart from the five employee representatives, the Supervisory Following the reports made by the Board Board is made up entirely of representatives of Management and the auditors and after of the Sparkassen-Finanzgruppe and a rep- intensive consultation and review, the annual resentative of the local authorities. It advises accounts and Management Report as at and monitors the Board of Management and 31 December 2018 were approved and adopted particularly supports the Board of Management in the balance sheet meeting of the Super- in the networking with savings banks through- visory Board on 28 March 2019. In the course out Germany. of this meeting, the annual reports of Internal Audit and the Compliance Officer as well as Berlin Hyp was able to continue its successful the report on the effectiveness of the Internal business development in 2019. Despite the Control System (IKS) were also discussed and persistently low level of interest rates, the acknowledged. intense competition in commercial real estate financing and the continuing high regulatory The Supervisory Board’s Report, the C orporate requirements combined with the need to Governance Report and the Non-Financial further strengthen equity, Berlin Hyp is satisfied Statement (sustainability report) were with the course and results of the 2019 financial discussed and adopted. year. The Supervisory Board regards Ber- lin Hyp’s performance and its ability to hold its The Supervisory Board also passed the neces- own ground in a difficult market environment sary resolutions regarding the agenda of the while adhering to a conservative risk strategy Annual General Meeting of Berlin Hyp. Adjust- and culture as steadfast and highly favourable. ments to the risk strategy were discussed and acknowledged by the Supervisory Board. In accordance with the legal requirements, the In accordance with the provisions of the German Supervisory Board once again concerned itself Remuneration Ordinance for Institutions (IVV), promptly, regularly and comprehensively with the Supervisory Board took note of the overall the position and the development of Berlin Hyp, bonus pool for employees set by the Board of the planning situation, the risk situation, risk Management and established the total amount management as well as compliance, both orally of variable remuneration for the Board of and in writing, in 2019. It constantly monitored Management. Subsequently, on the basis of the the actions of the Board of Management and individual achievement of targets, a decision satisfied itself that it was acting properly, delib- was made on the individual target bonuses erated on all relevant aspects in this context of the individual members of the Board of and provided recommendations. In particular, Management and on the payment of conditional the Supervisory Board intensively discussed bonuses. The Supervisory Board also dealt with and reviewed the plausibility of business regulatory issues and their effects on the Bank. transactions of importance to the company In this context, the separation of the Nomination on the basis of written and oral reports of the Committee and Remuneration Control Commit- Board of Management. tee was discussed and prepared. Focus of the Supervisory Board’s Activities Due to the expiry of Roman Berninger’s The subject of all Supervisory Board meetings in employment contract as a member of the 2019 was the detailed reporting of the Board of Board of Management on 31 December 2019, 4 the Supervisory Board discussed the further examination of the Supervisory Board and the procedure. The Staff and Strategy Committee Board of Management. The review revealed that was instructed to act as an Appointment the Supervisory Board’s work is effective and Committee to identify suitable candidates for that the members of the Board of Management the succession. and Supervisory Board possess the necessary expertise, skills and experience. In its meeting on 17 June 2019, the Supervisory Board took note of reports on donations and Subject to ECB’s approval, the Supervisory sponsorships as well as on the status of imple- Board appointed Alexander Stuwe to succeed mentation of the SAP-HANA IT project, on the Roman Berninger as a full member of the strategic resource planning project and on the Board of Management and approved his targeted management of risk-weighted assets appointment as Chief Representative for the (RWA management) in addition to the regular induction period. In the course of the impend- reports (current business development, risk ing change in the composition of the Board of situation, S-Group business, status update on Management, the Supervisory Board took note various audits), all of which it discussed with the of the reallocation of Board responsibilities in Board of Management.