Interim Report. 30 June

Transcription

1 Interim Report 30 June 2017

2 Contents 1 Directors and other information 3 Management discussion 6 Business review 8 Regulatory capital and capital adequacy ratios 11 Events after 30 June Statement of directors responsibilities in respect of the unaudited condensed consolidated interim financial statements 13 Independent review report on the unaudited condensed consolidated interim financial statements 15 Unaudited condensed consolidated interim financial statements 16 Consolidated income statement unaudited 17 Consolidated statement of comprehensive loss unaudited 18 Consolidated statement of financial position unaudited 19 Consolidated statement of changes in equity unaudited 20 Consolidated cash flow statement unaudited 21 Notes to the unaudited condensed consolidated interim financial statements

3 Directors and other information 1 Board of Directors Mr. P. Ryan 1) (Chairman) (resigned 31 March 2017) Mr. S. Winkelmeier 1) (Chairman) (appointed 1 April 2017) Mr. E.-A. Brockhaus 1) (German) (resigned 31 March 2017) Mr. J. Dempsey 1) (appointed 5 April 2017) Ms. F. Flannery Mr. F. Hellwig 1) (German) Dr. H. Horn (German) Mr. C. Müller 1) (German) Dr. C. Pleister 1) (German) Dr. P. Schad (German) Mr. G. Shanley Ms. S. Webb 1) 1) Non-Executive Audit Committee Dr. C. Pleister (Chairman) Mr. C. Müller Ms. S. Webb Board Risk Committee Mr. C. Müller (Chairman) (appointed 1 April 2017) Mr. P. Ryan (Chairman) (resigned 31 March 2017) Mr. E.-A. Brockhaus (resigned 31 March 2017) Dr. C. Pleister Ms. S. Webb Mr. S. Winkelmeier (appointed 1 April 2017) Nomination Committee Mr. P. Ryan (Chairman) (resigned 31 March 2017) Mr. S. Winkelmeier (Chairman) (appointed 1 April 2017) Mr. J. Dempsey (appointed 5 April 2017) Ms. F. Flannery Mr. F. Hellwig (resigned 31 March 2017) Dr. C. Pleister Ms. S. Webb

4 2 Secretary & Registered Office Ms. E. Tiernan 1 Commons Street Dublin 1, Ireland Solicitors Arthur Cox Earlsfort Centre Earlsfort Terrace Dublin 2, Ireland Auditors KPMG Chartered Accountants Statutory Audit Firm 1 Harbourmaster Place IFSC Dublin 1, Ireland Registered Number

5 Management discussion 3

6 4 The Directors of DEPFA BANK plc ( the Bank, the Company or DEPFA ) present their management discussion and the unaudited condensed consolidated interim financial statements ( the Interim Report ) for the six month period ended 30 June Ownership On 19 December 2014 the entire ordinary share capital of the Bank was acquired by FMS Wertmanagement AöR, a German State Agency established by the Federal Republic of Germany and to which DEPFA BANK plc and its subsidiary undertakings ( the DEPFA Group ) transferred non strategic positions in Prior to this date, and since 2 October 2007, the entire ordinary share capital of the Bank was held by Hypo Real Estate Holding AG ( HRE Holding ), the parent entity of the Hypo Real Estate Group ( the HRE Group ). FMS Wertmanagement AöR was established in 2010 as the Federal Republic of Germany s winding up institution for the nationalised HRE Group. FMS Wertmanagement AöR is under the direct ownership of the German Financial Markets Stabilisation Fund/German Finanzmarktstabilisierungsfonds ( SoFFin ), which is managed by the Federal Agency for Financial Market Stabilisation ( FMSA ). There was no change in the ownership of the Bank during the first half of Principal activities The DEPFA Group including DEPFA BANK plc, operating in Ireland and in other parts of the world, provide a range of banking, financial and related services, subject to the conditions imposed by the European Commission s approval, on 18 July 2011, of the state aid in relation to the stabilisation measures granted to the HRE Group by the Federal Republic of Germany. DEPFA BANK plc continues to wind down its portfolios in a manner designed to maintain value. DEPFA BANK plc is regulated by the Central Bank of Ireland and has a full banking licence. Going concern The Directors continue to consider the appropriateness of the going concern assumption in the preparation of the unaudited condensed consolidated interim financial statements. The Directors understand that the DEPFA Group was transferred to FMS Wertmanagement AöR as a going concern and will continue its principal activities, being the wind down of its portfolios in a manner designed to maintain value. The Directors consider that the liquidity position of the DEPFA Group is stable and that it continues to be in a position to meet its own funding requirements. The DEPFA Group is not currently dependent on additional funding from FMS Wertmanagement AöR and is expected to be able to meet its obligations as they fall due for a minimum period of one year from the date of this report. The Directors have also considered that the regulatory capital ratios are currently, and are expected to continue to be, significantly in excess of the required minimum ratios for a minimum period of one year from the date of this report. The Directors have therefore concluded that it is appropriate to prepare these unaudited condensed consolidated interim financial statements on a going concern basis of accounting.

7 Management discussion 5 Closure of subsidiary undertakings San Sabia Capital Corporation ( San Sabia ) was closed during the period with a dissolution date of 22 June San Sabia was a special purpose bankruptcy-remote company incorporated in the State of Delaware in the United States. San Sabia had issued uncollateralised guaranteed investment contracts ( GICs ) to eligible investors, the proceeds of which were invested in reverse repurchase agreements with DEPFA BANK plc. Prior to the dissolution, all remaining GICs were transferred at fair value to DEPFA ACS BANK. The closure of San Sabia had no significant impact on the unaudited condensed consolidated interim financial statements of the DEPFA Group.

8 6 Business review Review of performance The pre-tax loss in the period 1 January to 30 June 2017 was 1 million compared to 54 million in the period from 1 January to 30 June Net interest income in 2017 includes 7 million (2016: nil) relating to the adjustment of the carrying values of certain loans arising from revisions to the estimate of future cash flows. The net trading income of 8 million (2016: 6 million) includes derivative valuation effects relating to counterparty risk parameters including both the credit risk of the counterparty, credit valuation adjustments ( CVA ) of 15 million (2016: 19 million) and the DEPFA Group s own credit risk, debit valuation adjustments ( DVA ) of 10 million (2016: 11 million). General administrative expenses were lower in the current period at 36 million compared to 42 million in 2016 and include 11 million (2016: 13 million) levy in relation to the Single Resolution Fund. Other operating income in 2017 includes 4 million (2016: 4 million) related to fees received to amend the terms of a collateral agreement. The result in 2017 compared with the previous period is detailed in the following table: Consolidated income statement unaudited Half Year ended on Net interest income/expense 22 1 Net fee and commission income/expense 1 1 Net trading income/expense 8 6 Net expense/income from hedge relationships 1 1 Other operating income 4 1 Other operating expense 6 Total operating revenues/losses Reversals of/provisions for allowance for losses on loans and advances 1 1 General administrative expenses Other income 1 Pre-tax loss 1 54 Taxes on income 1 Net loss 2 54 Development in assets, liabilities and equity Total assets of the DEPFA Group amounted to 23.9 billion at 30 June The total assets as at 30 June 2017 have reduced by 3.7 billion compared to the corresponding figure at the end of the previous year (31 December 2016: 27.6 billion). The total DEPFA Group liabilities amounted to 21.9 billion as at 30 June 2017, compared with 25.6 billion as at 31 December The decreases in total assets and total liabilities are mainly attributable to market related changes such as foreign currency exchange rates and interest rates, and by maturities and repayments of assets and liabilities. The DEPFA Group does not currently operate any new business in line with the conditions imposed by the European Commission state aid approval. Equity amounted to 2.0 billion as at 30 June 2017 (31 December 2016: 2.0 billion).

9 Management discussion Business review 7 Future development in earnings, assets, liabilities and equity of the DEPFA Group The DEPFA Group has reported a net loss for the first half of 2017, with a pre-tax loss of 1 million. The 2017 net loss includes net gains of 1 million (2016: net losses of 4 million) from the early repayment of liabilities and a gain of 7 million (2016: nil) relating to the adjustment of the carrying value of certain loans arising from revisions to the estimate of future cash flows. The extent of similar losses and gains in future years will depend on market and other developments. This net loss also includes trading gains of 8 million of which a loss of 10 million (2016: gain of 11 million) relates to the effect of changes in the DEPFA Group s own credit spread on derivative valuations. The DEPFA Group s future position may be negatively affected by further developments in these and other valuation parameters. The DEPFA Group s future position may also be adversely affected by higher additions to provisions for losses on loans and advances, or there may be other adverse factors such as serious turmoil in financial markets or the defaults of sovereign states. Total assets in 2017 decreased by 3.7 billion and total liabilities decreased by 3.7 billion. The decrease in total assets and liabilities includes maturities, repayments and derivative terminations or restructurings as well as net decreases due to changes in foreign exchange rates and interest rates. Apart from changes due to developments in foreign exchange rates and interest rates, it is expected that total assets and liabilities will continue to decline in the second half of 2017 due to the fact that the DEPFA Group is not undertaking any new business. However, the development in total assets is not fully subject to the control of the DEPFA Group. Market-related factors such as changes in foreign currency exchange rates and interest rates can also have an impact on total assets and liabilities. Opportunities, risks and uncertainties The opportunities, risks and uncertainties facing the DEPFA Group for the remainder of the current financial year have not changed significantly from those disclosed in the 2016 Annual Report of the DEPFA Group and are related mainly to European and global economic conditions, rating agency actions and liquidity risks.

10 8 Regulatory capital and capital adequacy ratios Regulatory capital and capital adequacy ratios have been produced in accordance with the Capital Requirements Directives 2013/36/EU and the Capital Requirements Regulation No 575/2013 (transcribed into Irish law under the European Union (Capital Requirements) Regulations 2014 (S.I. 158/2014 and S.I. 159/2014)). These directives and regulations are together referred to as CRD IV. Following the introduction of CRD IV on 1 January 2014 a number of transitional provisions apply both to the eligibility of capital instruments ( Grandfathering ) and the phasing-in of deductions. Where figures are noted as transitional basis the transitional provisions have been applied, in comparison to the fully loaded basis where all figures reflect the fully implemented CRD IV rules. The DEPFA Group is regulated by the Central Bank of Ireland, which applies a capital/risk framework for measuring capital adequacy based on the CRD IV. The DEPFA Group uses the CRD IV standardised approach to calculate the risk weighted assets ( RWA ). CRD IV, on a fully loaded basis, requires a minimum total capital ratio of 8%, with a minimum common equity Tier 1 ( CET1 ) ratio of 4.5% and a minimum tier 1 capital ratio of 6.0%. A number of capital buffers have been established under CRD IV. Of these, the capital conservation buffer is phased in from 2016 (0.625% for 2016 and increasing to 2.5% by 2019). The capital conservation buffer of 2.5% is designed to enable the Bank to withstand future periods of stress bringing the CET1 requirement to 7.0% and the total capital ratio requirement to 10.5%. In addition, the local regulators can require countercyclical capital and systemic risk buffers to be held. These buffers aim to ensure that the capital requirements take account of the macrofinancial environment in which banks operate. The countercyclical capital buffer ranges from 0% to 2.5% of RWA. The systemic risk buffer will range from 0% to 3% of RWA, but can be higher in certain circumstances. These additional buffers do not currently have any impact on the DEPFA Group. Following a Supervisory Review and Evaluation Process ( SREP ) in 2016, the Central Bank of Ireland has imposed additional requirements on the DEPFA Group resulting in a requirement for DEPFA Group to maintain a minimum CET1 ratio of 11.50% and a minimum total capital ratio of 15.00%, calculated on a transitional basis. The additional requirements are based on a combination of the Pillar One calculations and certain individual economic risk calculations. The Bank is required to meet the CRD IV minimum capital requirements including the capital conservation buffer. There were no breaches by the Bank of minimum capital ratios in the period to 30 June 2017 (2016: no breaches). At 30 June 2017 the Bank s total capital ratio exceeds the minimum required ratio at 44.07% (31 December 2016: 35.51%).

11 Management discussion Regulatory capital and capital adequacy ratios 9 At 30 June 2017, with a tier 1 capital ratio of 70.31% (31 December 2016: 65.26%) and a total capital ratio of % (31 December 2016: %), the DEPFA Group exceeds the minimum required ratios at group level on a transitional basis. Regulatory capital CRD IV transitional basis Common Equity Tier 1 capital ( CET1 ) Total Tier 1 capital 1,177 1,334 Tier 2 capital Total regulatory capital 1,869 2,097 Capital adequacy ratios CRD IV transitional basis Risk weighted assets () 1,674 2,044 CET1 capital ratio (%) 51.62% 42.27% Tier 1 capital ratio (%) 70.31% 65.26% Total capital ratio (Tier 1 + 2) % % CRD IV introduced new eligibility requirements for inclusion of capital instruments in CET1, additional Tier 1 and Tier 2 capital. The DEPFA Group has Alternative Capital Instruments ( ACIs ) which are non-standard forms of capital that are generally referred to in the market as hybrid capital instruments. The hybrid capital instruments of the DEPFA Group are recognised as equity instruments in the financial statements in accordance with IAS The classification of financial instruments as capital instruments or debt instruments depends on whether the DEPFA Group has a contractual obligation to make payments on an issued financial instrument. These instruments are subordinated debt issued in the form of undated bonds via the issuance vehicles DEPFA Funding II LP, DEPFA Funding III LP and DEPFA Funding IV LP on which the DEPFA Group has no contractual obligation to make principal or interest payments. Under CRD IV these hybrid instruments no longer qualify for inclusion in Tier 1 regulatory capital. CRD IV contains transitional provisions which permit the grandfathering of existing instruments with amounts phased out of Tier 1 capital from 1 January 2014 to 1 January 2022.

12 10 The following table outlines the CRD IV fully loaded capital/capital ratios with the transitional capital/capital ratios as above for comparison. Regulatory capital CRD IV basis CRD IV basis Transitional Fully loaded Transitional Fully loaded CET1 capital Total Tier 1 capital 1, , Tier 2 capital 692 1, Total capital 1,869 1,865 2,097 1,770 Capital adequacy ratios CRD IV basis CRD IV basis Transitional Fully loaded Transitional Fully loaded Risk Weighted Assets () 1,674 1,674 2,044 2,044 CET1 capital ratio (%) 51.62% 51.46% 42.27% 42.11% Tier 1 capital ratio (%) 70.31% 51.46% 65.26% 42.11% Total capital ratio (%) % % % 86.61%

13 Events after 30 June 2017 Management discussion Regulatory capital and capital adequacy ratios Events after 30 June There have been no notable events after 30 June 2017.

14 12 Statement of directors responsibilities in respect of the unaudited condensed consolidated interim financial statements Each of the Directors, whose names and functions are listed on page 1, confirm our responsibility for preparing the unaudited condensed consolidated interim financial statements in accordance with the Transparency (Directive 2004 /109 /EC) Regulations 2007, the Transparency Rules of the Central Bank of Ireland and with IAS 34 Interim Financial Reporting, as adopted by the EU, and to the best of each person s knowledge and belief: (a) the unaudited condensed consolidated interim financial statements comprising the unaudited consolidated income statement, the unaudited consolidated statement of comprehensive loss, the unaudited consolidated statement of financial position, the unaudited consolidated statement of changes in equity, the unaudited consolidated cash flow statement and related notes 1 to 41 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. (b) the interim management discussion includes a fair review of the information required by: (i) Regulation 8 (2) of the Transparency (Directive 2004 /109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (ii) Regulation 8 (3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. On behalf of the Board Fiona Flannery Gearóid Shanley Christopher Pleister Elaine Tiernan Director Director Director Company Secretary 24 August 2017

15 Independent review report on the unaudited condensed consolidated interim financial statements 13 Introduction We have been engaged by DEPFA BANK plc ( the Bank ) to review the unaudited condensed consolidated financial statements in the Interim Report for the six months ended 30 June 2017 which comprises the unaudited consolidated income statement, unaudited consolidated statement of comprehensive loss, unaudited consolidated statement of financial position, unaudited consolidated statement of changes in equity, unaudited consolidated cash flow statement and the related explanatory notes 1 to 41. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards as adopted by the EU ( IFRSs ). Our review was conducted in accordance with the Financial Reporting Council s ( FRCs ) International Standard on Review Engagements ( ISRE ) (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the unaudited condensed set of consolidated financial statements in the Interim Report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU, the TD Regulations and the Transparency Rules of the Central Bank of Ireland. Basis of our report, responsibilities and restriction on use The Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the TD Regulations and the Transparency Rules of the Central Bank of Ireland. As disclosed in note 1, the annual financial statements of the Bank are prepared in accordance with IFRSs as adopted by the EU. The Directors are responsible for ensuring that the unaudited condensed consolidated set of financial statements included in this Interim Report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. Our responsibility is to express to the Bank a conclusion on the unaudited condensed set of consolidated financial statements in the Interim Report based on our review. We conducted our review having regard to the Financial Reporting Council s International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. We read the other information contained in the Interim Report to identify material inconsistencies with the information in the unaudited condensed set of consolidated financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the review. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

16 14 This report is made solely to the Bank in accordance with the terms of our engagement to assist the Bank in meeting the requirements of the Transparency (Directive 2004/109/EC) Regulations 2007 as amended ( the TD Regulations ) and the Transparency Rules of the Central Bank of Ireland. Our review has been undertaken so that we might state to the Bank those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Bank for our review work, for this report, or for the conclusions we have reached. Ian Nelson for and on behalf of KPMG Chartered Accountants, Statutory Audit Firm 1 Harbourmaster Place IFSC Dublin 1, Ireland 24 August 2017

17 Unaudited condensed consolidated interim financial statements

18 16 Consolidated income statement unaudited Consolidated income statement unaudited Half Year ended on Note Interest income and similar income Interest expense and similar expenses Net income/loss from early repayment of liabilities 1 4 Net interest income/expense Fee and commission income 8 Fee and commission expense 7 1 Net fee and commission income/expense Net trading income/expense Net expense/income from hedge relationships Other operating income Other operating expense 10 6 Total operating revenues/losses Reversals of/provisions for allowance for losses on loans and advances General administrative expenses Other income 12 1 Of which: restructuring 1 Pre-tax loss 1 54 Taxes on income 13 1 Net loss 2 54 Attributable to: Equity holders of the parent 2 54 The notes on pages 21 to 61 are an integral part of these unaudited condensed consolidated interim financial statements.

19 Consolidated statement of comprehensive loss unaudited 17 Consolidated statement of comprehensive loss unaudited Half Year ended on Half Year ended on Before tax Tax Net of tax Before tax Tax Net of tax Net loss for the period Other comprehensive income Items that are or may be reclassified subsequently to income statement AfS reserve movement net 1 1 Exchange differences 2 2 Total other comprehensive income 3 3 Total comprehensive loss Attributable to: Equity holders of the parent Disclosure of components of comprehensive loss unaudited Half Year ended on Net loss for the period 2 54 Other comprehensive income 3 Items that are or may be reclassified subsequently to income statement AfS reserve movement net 1 Reclassification adjustments for gains/losses included in net income 1 Exchange differences 2 Total comprehensive loss 2 51 The notes on pages 21 to 61 are an integral part of these unaudited condensed consolidated interim financial statements.

20 18 Consolidated statement of financial position unaudited Consolidated statement of financial position unaudited Assets Note Cash reserve Trading assets 15 7,023 7,968 Loans and advances to other banks 16 2,647 3,120 Loans and advances to customers (including amounts due from parent entity) 17 4,452 5,873 Allowance for losses on loans and advances Financial investments 19 8,143 8,619 Property, plant and equipment 2 3 Intangible assets 2 2 Other assets 20 1,437 1,716 Income tax assets Current tax assets 3 3 Deferred tax assets Total assets 23,867 27,596 Liabilities Liabilities to other banks 22 2,456 3,180 Liabilities to customers (including amounts due to parent entity) 23 3,755 3,845 Liabilities evidenced by certificates 24 7,003 8,763 Trading liabilities 25 7,020 7,985 Provisions Other liabilities 27 1,253 1,436 Income tax liabilities Current tax liabilities 1 Deferred tax liabilities 6 6 Subordinated capital Total liabilities 21,912 25,639 Equity Equity attributable to equity holders Share capital Share premium 30 1,142 1,142 Capital reserve 31 1,500 1,500 Preferred securities 32 1,067 1,067 Retained earnings 33 1,856 1,854 Other reserves AfS 4 4 Currency translation and other Total equity 1,955 1,957 Total equity and liabilities 23,867 27,596 The notes on pages 21 to 61 are an integral part of these unaudited condensed consolidated interim financial statements.

21 Consolidated statement of changes in equity unaudited 19 Consolidated statement of changes in equity unaudited Share capital Share premium Capital reserve Preferred securities Retained earnings Unrealised gains/losses on availablefor-sale investments Other reserves Accumulated effects of currency translations and other Balance at 1 January ,142 1,500 1,067 1, ,879 Net loss for the period Net changes in available-for-sale investments, net of tax 1 1 Net changes in currency translation reserve 2 2 Total recognised comprehensive loss Balance at 30 June ,142 1,500 1,067 1, ,828 Balance at 1 January ,142 1,500 1,067 1, ,957 Net loss for the period 2 2 Net changes in available-for-sale investments, net of tax Net changes in currency translation reserve Total recognised comprehensive loss 2 Balance at 30 June ,142 1,500 1,067 1, ,955 The notes on pages 21 to 61 are an integral part of these unaudited condensed consolidated interim financial statements. Total equity

22 20 Consolidated cash flow statement unaudited Consolidated cash flow statement unaudited Cash flows from operating activities Note Half Year ended on Pre-tax loss for the period 1 54 Adjustments for non-cash movements: Depreciation and amortisation of tangible and intangible assets 1 2 Foreign exchange losses 2 Net change in accrued interest income and expense Reversals of/provisions for allowance for losses on loans and advances 1 1 Net income/loss from early repayment of liabilities 1 4 Other non cash items (including amortisations) Net decrease in loans and advances to other banks Net decrease/(increase) in loans and advances to customers 1,319 1,009 Net decrease/(increase) in other assets 3 1 Net (decrease)/increase in liabilities to other banks Net increase in liabilities to customers Net decrease in liabilities evidenced by certificates 1,405 1,300 Net increase/(decrease) in other liabilities 3 3 Net (decrease)/increase in derivatives and trading liabilities Tax paid Net cash from operating activities 1) Cash flows from investing activities Net purchase/sale/maturity of investment securities Net cash from investing activities Cash flows from financing activities Repayment of subordinated liabilities 2 Net cash from financing activities 2 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Included in the cash flows from operating activities for the period are the following amounts: Interest income received Interest expense paid ) Included in net cash from operating activities are net cash flows with FMS Wertmanagement AöR under various transactions. The notes on pages 21 to 61 are an integral part of these unaudited condensed consolidated interim financial statements.

23 Notes to the unaudited condensed consolidated interim financial statements (1) General information Accounting policies 23 (2) Summary of significant accounting policies 25 (3) Critical accounting estimates and judgements 25 (4) Transfer of non strategic positions to FMS Wertmanagement AöR Segment reporting 26 (5) Business segments Notes to the consolidated income statement 29 (6) Net interest income/expense 30 (7) Net fee and commission income/expense 30 (8) Net trading income/expense 31 (9) Net expense/income from hedge relationships 31 (10) Other operating income/other operating expense 32 (11) General administrative expenses 32 (12) Other income 32 (13) Taxes on income Notes to the financial instruments 45 (35) Derivative financial instruments 46 (36) Transfers of financial assets and collateral pledged or held 48 (37) Fair values of financial assets and liabilities Other notes 58 (38) Contingent liabilities 58 (39) Exchange rates as at 30 June (40) Related party transactions 61 (41) Events after the reporting date Notes to the consolidated statement of financial position 33 (14) Cash reserve 33 (15) Trading assets 34 (16) Loans and advances to other banks 35 (17) Loans and advances to customers 36 (18) Allowance for losses on loans and advances 36 (19) Financial investments 37 (20) Other assets 37 (21) Income tax assets 37 (22) Liabilities to other banks 38 (23) Liabilities to customers 39 (24) Liabilities evidenced by certificates 39 (25) Trading liabilities 40 (26) Provisions 40 (27) Other liabilities 41 (28) Income tax liabilities 41 (29) Subordinated capital 42 (30) Share capital and share premium 42 (31) Capital reserve 43 (32) Preferred securities 44 (33) Retained earnings 44 (34) Other reserves

24 22 (1) General information The unaudited condensed consolidated interim financial statements for the six months ended 30 June 2017 are unaudited but have been reviewed by the auditor whose report is set out on pages 13 and 14. The financial information presented herein does not amount to statutory financial statements that are required by the Companies Act 2014 to be annexed to the annual return of DEPFA BANK plc ( the Bank, the Company or DEPFA ). The statutory financial statements for the financial year ended 31 December 2016 will be filed with the Registrar of Companies along with the annual return by 13 September The audit report on those statutory financial statements was unqualified and did not contain any matters to which attention was drawn by way of emphasis of matter. DEPFA BANK plc is a provider of financial services to public sector clients worldwide. The Bank and its subsidiary undertakings ( the DEPFA Group ), operating in Ireland and in other parts of the world, provide a range of banking, financial and related services, subject to the conditions imposed by the European Commission s approval, on 18 July 2011, of the state aid in relation to the stabilisation measures granted to the Hypo Real Estate Group ( the HRE Group ) by the Federal Republic of Germany. The DEPFA Group is regulated by the Central Bank of Ireland. Debt issued by the DEPFA Group is listed on exchanges in Dublin, Frankfurt, London, Luxembourg and Zurich. On 19 December 2014 the entire ordinary share capital of the Bank was acquired by FMS Wertmanagement AöR, a German State Agency established by the Federal Republic of Germany and to which the DEPFA Group transferred non strategic positions in Prior to this date, and since 2 October 2007, the entire ordinary share capital of the Bank was held by Hypo Real Estate Holding AG ( HRE Holding ), the parent entity of the HRE Group. FMS Wertmanagement AöR was established in 2010 as the Federal Republic of Germany s winding up institution for the nationalised HRE Group. FMS Wertmanagement AöR is under the direct ownership of the German Financial Markets Stabilisation Fund/German Finanzmarktstabilisierungsfonds ( SoFFin ), which is managed by the Federal Agency for Financial Market Stabilisation ( FMSA ). There was no change in the ownership of the Bank during the first half of DEPFA BANK plc continues to wind down its portfolios in a manner designed to maintain value. DEPFA BANK plc is regulated by the Central Bank of Ireland and has a full banking licence. The consolidated annual financial statements of DEPFA BANK plc (its statutory financial statements as referred to above) are prepared in accordance with International Financial Reporting Standards ( IFRSs ) as adopted by the European Union ( EU ).

25 Accounting policies Unaudited condensed consolidated interim financial statements Notes to the unaudited condensed consolidated interim financial statements Accounting policies 23 (2) Summary of significant accounting policies Basis of preparation The unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The financial information contained in the unaudited condensed consolidated interim financial statements has been prepared in accordance with the accounting policies set out in the last financial statements, included in the 2016 Annual Report available at These unaudited condensed consolidated interim financial statements are prepared on a going concern basis. The Directors continue to consider the appropriateness of the going concern assumption in the preparation of the unaudited condensed consolidated interim financial statements. The Directors understand that the DEPFA Group was transferred to FMS Wertmanagement AöR as a going concern and will continue its principal activities, being the wind down of its portfolios in a manner designed to maintain value. The Directors consider that the liquidity position of the DEPFA Group is stable and that it continues to be in a position to meet its own funding requirements. The DEPFA Group is not currently dependent on additional funding from FMS Wertmanagement AöR and is expected to be able to meet its obligations as they fall due for a minimum period of one year from the date of this report. The Directors have also considered that the regulatory capital ratios are currently, and are expected to continue to be, significantly in excess of the required minimum ratios for a minimum period of one year from the date of this report. The Directors have therefore concluded that it is appropriate to prepare the unaudited condensed consolidated interim financial statements on a going concern basis of accounting. Initially adopted standards, interpretations and amendments Standards, interpretations and amendments adopted with an initial application date of 1 January 2017 comprise the Annual Improvements to IFRSs Cycle, Disclosure Initiative (Amendments to IAS 7) and Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12). These amendments have no impact on these unaudited condensed consolidated interim financial statements.

26 24 IFRS 9 Financial instruments IFRS 9, Financial instruments is the new accounting standard for financial instruments. It is effective from 1 January 2018 and replaces IAS 39 from that date. IFRS 9 introduces a number of very significant changes which will impact on the performance and financial position of the DEPFA Group. It will change the rules for classification and measurement, hedge accounting and impairment. Unless early adopted, the standard is effective for accounting periods beginning 1 January The principal changes between IFRS 9 and IAS 39, which are of relevance to the DEPFA Group as well as a description of the DEPFA Group s approach to the determination of Expected Credit Losses are set out on pages 72 to 74 of the 2016 Annual Report. The DEPFA Group established a programme during 2015 which is jointly led by the Finance and Risk functions. The governance structure includes a Steering Committee responsible for overseeing the impact assessment and implementation of the requirements of the standard and is mandated to approve key decisions, model change specifications and implementation strategies. The project Steering Committee reports to the Executive Director Committee on a regular basis and updates are regularly provided to the Board and Audit Committee. The IFRS 9 programme is sponsored jointly by the Chief Executive Officer and Chief Risk Officer. In relation to classification and measurement, the DEPFA Group has identified that certain assets which are currently measured at amortised cost are likely to be required to be measured at fair value based on their contractual cash flow characteristics. An assessment of the business models in which the assets are held has been completed and will be updated prior to the effective date of the new standard. However, the extent of the impact on the DEPFA Group s financial statements due to changed classifications arising from the classification and measurement requirements will depend on changes in the portfolio, market conditions and the business models in place at the date of transition. Consequently, the quantitative impact arising from the classification and measurement requirements cannot be reliably estimated at this phase of the implementation programme. In 2017, the development of a bespoke IT solution for calculating the Expected Credit Losses under IFRS 9 was largely completed and is currently in testing and is running parallel to the IAS 39 provision calculation process. Reporting will commence using the new solution in Depending on the development of both the DEPFA Group s asset portfolio and credit conditions, it can be expected that impairment charge calculations under IFRS 9 could be more volatile than under IAS 39. There may also be an increase in the total level of impairment allowances, since all financial assets in scope of the impairment calculation will be assessed for at least 12-month Expected Credit Loss and the population of financial assets to which lifetime Expected Credit Losses applies is likely to be larger than the population for which there is objective evidence of impairment in accordance with IAS 39. However, the scale of these impacts should be considered in the context of the overall high credit quality of the DEPFA Group s portfolio. Given the certain judgmental areas remaining to be concluded upon and also the remaining development activity required during the testing phase, the quantitative impact of transition to the impairment requirements cannot be reliably estimated at this phase of the implementation programme. The DEPFA Group will provide more detailed and specific disclosures as the programme progresses and reliable estimates become available. The DEPFA Group does not expect changes in hedge accounting rules to have a significant effect on the DEPFA Group s financial statements.

27 Unaudited condensed consolidated interim financial statements Notes to the unaudited condensed consolidated interim financial statements Accounting policies 25 (3) Critical accounting estimates and judgements There has been no significant change since the last annual financial statements to the policies and estimates which may involve a higher degree of judgement and complexity (as disclosed on pages 89 to 90 of the DEPFA Group 2016 Annual Report). (4) Transfer of non strategic positions to FMS Wertmanagement AöR In 2010, as part of the stabilisation measures granted by the Federal Republic of Germany to the HRE Group of which the DEPFA Group was then a part, the DEPFA Group transferred certain non strategic financial instrument positions to FMS Wertmanagement AöR, the German State Agency established in 2010 as the Federal Republic of Germany s winding up institution for the nationalised HRE Group and which is now the direct parent of the DEPFA Group. The transfer, which was accounted for as a transaction between companies under common control, consisted of the direct sale or sub-participation of certain positions to FMS Wertmanagement AöR which led to the derecognition of those positions as well as other partial transfer methods which did not achieve immediate derecognition under IAS 39. Transfers not achieving derecognition include the concluding of back to back derivative transactions to transfer the market risk of derivatives but where the DEPFA Group retained the counterparty risk. The transferred positions for which derecognition was not achieved led to greater volumes of positions reported on the statement of financial position than would have been the case if full derecognition had been achieved. An upgrade process of the transfer methods for these positions has continued since 2010 and most positions have since been derecognised by the DEPFA Group following their full transfer to FMS Wertmanagement AöR. However, as at 30 June 2017, certain positions still remain on the DEPFA Group statement of financial position. As at 30 June 2017 and 31 December 2016 these statement of financial position counter effects, comprised back-to-back derivatives and related cash collateral. The following table summarises the statement of financial position items which include counter effects at 30 June 2017 and 31 December 2016: FMS Wertmanagement AöR counter effects Assets Trading assets 1) Loans and advances to other banks Total Liabilities Liabilities to customers 2) Trading liabilities 3) Total ) Including 333 million (2016: 384 million) directly with FMS Wertmanagement AöR 2) Including 282 million (2016: 343 million) directly with FMS Wertmanagement AöR 3) Including 64 million (2016: 71 million) directly with FMS Wertmanagement AöR

28 26 Segment reporting (5) Business segments The internal reporting structure of the DEPFA Group is organised into the following reportable primary business segments which reflect the basis on which the DEPFA Group is managed by the Board of Directors (being the chief operating decision maker) during 2017 and 2016: --DEPFA ACS BANK --DEPFA Pfandbrief Bank International S.A. (formerly Hypo Pfandbrief Bank International S.A.) --DEPFA BANK plc and other The business segment DEPFA ACS BANK includes the assets and liabilities in the DEPFA ACS BANK cover pool as well as other ancillary business in that entity. The business segment DEPFA Pfandbrief Bank International S.A. includes the assets and liabilities in the DEPFA Pfandbrief Bank International S.A. cover pool as well as other ancillary business in that entity. DEPFA BANK plc and other includes all other business in the DEPFA Group including asset servicing provided by the DEPFA Group on the positions transferred to FMS Wertmanagement AöR and group consolidation effects. The segment report of the DEPFA Group is based on the management information provided to the chief operating decision maker, which is prepared in accordance with IFRSs. Income and expenses are allocated to appropriate cost centres, whereby portfolio structures are used as the basis for allocating income. General administrative expenses are allocated to the appropriate cost centres in the segment. Other than the following items, the segments generated only the DEPFA Group external income and did not generate any income with other segments of the DEPFA Group. Accordingly, there are no further issues of consolidation between the segments. --Included in the line item Net interest income/expense for the segment DEPFA ACS BANK is 40 million (2016: 108 million) relating to net derivative interest and other interest payable to and receivable from the segment DEPFA BANK plc and other. The corresponding net expense is also reported in the line item Net interest income in the segment DEPFA BANK plc and other. --Included in the line item Net interest income/expense for the segment DEPFA Pfandbrief Bank International S.A. is nil (2016: 16 million) relating to net derivative interest and other interest payable to and receivable from the segment DEPFA BANK plc and other. The corresponding net expense is also reported in the line item Net interest income in the segment DEPFA BANK plc and other. --Gains or losses included in the line item Net expense/income from financial investments from inter segment transfers for the segment DEPFA ACS BANK amounted to nil (Nominal: JPY1.7 billion) (2016: nil (Nominal: nil)). --Gains or losses included in the line item Net expense/income from financial investments from inter segment transfers for the segment DEPFA Pfandbrief Bank International S.A. amounted to 1 million (Nominal: 75 million) (2016: nil (Nominal: nil)).

29 Unaudited condensed consolidated interim financial statements Notes to the unaudited condensed consolidated interim financial statements Segment reporting 27 --Included in the line item General administrative expenses for the segment DEPFA ACS BANK is 9 million (2016: 10 million) relating to charges from the segment DEPFA BANK plc and other. The corresponding income is also reported in the line item Other operating income/expense in the segment DEPFA BANK plc and other. --Included in the line item General administrative expenses for the segment DEPFA Pfandbrief Bank International S.A. is 2 million (2016: 2 million) relating to charges from the segment DEPFA BANK plc and other. The corresponding income is also reported in the line item Other operating income/expense in the segment DEPFA BANK plc and other. The management information is based on the accounting and valuation methods of the consolidated financial statements, prepared in accordance with IFRSs. Accordingly, reconciliation with the accounting and valuation methods used in the consolidated financial statements is not necessary. Income/expense by segments DEPFA ACS BANK DEPFA Pfandbrief Bank International S.A. DEPFA BANK plc and other Net interest income Net fee and commission income 1 1 Net trading expense/income Net expense/income from financial investments 1 1 Net expense/income from hedge relationships Other operating income Other operating expense Total operating revenues/losses Reversals of allowance for losses on loans and advances 1 1 General administrative expenses Other income Pre-tax income/loss Taxes on income 1 1 Net income/loss Material non-cash items other than depreciation and amortisations Net change in accrued interest income and expense Statement of financial position by segments Assets 14, ,107 23,867 Liabilities 13, ,024 21,912 Group

30 28 Income/expense by segments DEPFA ACS BANK DEPFA Pfandbrief Bank International S.A. DEPFA BANK plc and other Net interest income/expense Net fee and commission expense 1 1 Net trading income/expense Net expense from financial investments Net income from hedge relationships 1 1 Other operating income 1 1 Other operating expense 6 6 Total operating revenues/losses Provisions for allowance for losses on loans and advances 1 1 General administrative expenses Other income 1 1 Pre-tax loss Taxes on income 1 1 Net loss Material non-cash items other than depreciation and amortisations Net change in accrued interest income and expense Statement of financial position by segments Assets 16, ,692 27,596 Liabilities 15, ,767 25,639 Group

31 Notes to the consolidated income statement Unaudited condensed consolidated interim financial statements Notes to the unaudited condensed consolidated interim financial statements Segment reporting Notes to the consolidated income statement 29 (6) Net interest income/expense Net interest income/expense Half Year ended on Interest income and similar income Lending and money-market business and government subscribed debt Derivatives (net interest income) Interest expense and similar expenses Deposits and liabilities evidenced by certificates Subordinated capital Net income/loss from early repayment of liabilities 1 4 Total 22 1 Total interest income for financial assets that are not at fair value through profit or loss, amount to 124 million in 2017 (2016: 203 million). Total interest expense for financial liabilities that are not at fair value through profit or loss amount to 164 million in 2017 (2016: 347 million). Net interest income/expense includes 7 million (2016: nil) relating to the adjustment of the carrying value of certain loans arising from revisions to the estimate of future cash flows. Net interest income in 2017 includes gains from the buyback and other early repayment of liabilities before maturity of 1 million (2016: loss of 4 million). These liabilities were included on the statement of financial position in Liabilities to customers and Liabilities evidenced by certificates.