Contents. Group management report About us Consolidated financial statements Audit opinion 237. Further information

Transcription

1 Annual Report 2014

2 Contents U3 Key figures at a glance U4 Events 2014 About us The Company 02 It s all about expertise 10 Letter to our shareholders and business partners 13 The Board of Managing Directors 14 Report of the Supervisory Board 19 The Supervisory Board 20 Corporate Governance Report Sustainability 30 Compliance 31 Clients 32 Employees 41 Environmental responsibility 41 Social responsibility 42 The DVB share 42 Equity markets and the DVB share Group management report Fundamental information about the Group 47 A unique business model 50 Competitive strengths setting DVB apart 50 Strategic goals and implementation 52 Commercial planning and management system 54 Report on the economic position 54 Macroeconomic environment 56 Financial position and performance 72 Remuneration 76 Development of the business divisions 76 Shipping Finance 88 Aviation Finance 100 Offshore Finance 108 Land Transport Finance 120 Financial Institutions 124 Corporate Finance 130 Investment Management 137 Report on material events after the reporting date 138 Report on expected developments, opportunities and risks 138 Report on expected developments 142 Report on opportunities and risks 167 Explanatory disclosures under takeover law 167 Report of the Board of Managing Directors on relations with affiliated companies Consolidated financial statements Income statement 169 Appropriation of profits 170 Statement of comprehensive income 171 Statement of financial position 172 Statement of changes in equity 173 Cash flow statement 174 Segment report 175 Notes Audit opinion 237 Further information DVB worldwide 240 Key words 242 Glossary 246 Abbreviations 248 Imprint Symbols Reference to the internet Legal notice Further information

3 Key figures at a glance mn % Earnings data Net interest income Allowance for credit losses Net interest income after allowance for credit losses Net fee and commission income Results from investments in companies accounted for using the equity method Net other operating income/expenses Net income General administrative expenses Consolidated net income before IAS 39 and taxes Net result from financial instruments in accordance with IAS Consolidated net income before taxes Key financial indicators Return on equity (before taxes, %) pp Cost/income ratio (%) pp Economic Value Added ( million) Key items from the statement of financial position Business volume 26, , Customer lending volume 23, , Total assets 24, , Loans and advances to customers 20, , Deposits from customers 7, , Securitised liabilities 11, , Subordinated liabilities Equity 1, , Total capital in accordance with the Capital Requirements Regulation Common equity tier 1 1,222.0 Additional tier Tier 2 capital Modified available capital 1,408.6 Capital ratios Basel III (%) Common equity tier 1 ratio 18.7 Additional tier 1 ratio 18.7 Total capital ratio 21.6 Staff by business division Transport Finance/Investment Management Service areas LogPay Financial Services Total active staff Rating Standard & Poor s Long-term counterparty credit rating A+ A+ A+ Short-term credit rating A-1 A-1 A-1 Outlook stable stable stable Fitch Ratings 1) Long-term issuer default rating A+ A+ A+ Short-term issuer default rating F1+ F1+ F1+ 1) Within the scope of the German Co-operative Financial Services Network s rating

4 Events March Move of DVB s Dutch branch to Amsterdam opening of the Bank s new offices at WTC Schiphol, which are now easier to reach for the Bank s clients. 12 June Annual General Meeting at Deutsche Nationalbibliothek in Frankfurt/Main with 96.67% of capital represented at the meeting, shareholders approved all proposed resolutions with a majority close to 100% (including a dividend of 0.60 per no-par value share). 25 March Annual Accounts Press and Analyst Conference Mr Wolfgang F. Driese, Chairman of the Board of Managing Directors, and Mr Ralf Bedranowsky, Member of the Board of Managing Directors, presented the consolidated financial statements for 2013, outlined the situation on the international transport markets and talked about targets and perspectives. 9 April Client reception in Hamburg Shipping & Offshore Research outlined current and future trends in the shipping industry. 8 May Client event in Korea together with Shipping and Aviation Research colleagues, Mr Driese and Mr Geir Sjurseth, Head of the Offshore Finance division, welcomed about 100 guests; their presentation focused on drivers and expected changes in future market structures. 14 May Client reception in Greece Shipping & Offshore Research informed participants about the cyclicality of the shipping industry, yard capacities and the future of bulk shipping September ISTAT Europe Conference in Istanbul Mr Bertrand Grabowski, Member of the Board of Managing Directors, chaired the Aircraft Finance panel discussion, while Mr Paul da Vall, Aviation Investment Management, chaired the appraisers panel on Valuation trends for different aircraft types. 1 October Client breakfast in the Port of Hamburg At the Hafen-Klub Hamburg Mr Felix Ulbricht was introduced as the new Global Head of DVB s Container, Car Carrier, Intermodal Ferry Group department. Mr Bedranowsky emphasised in his speech that DVB wanted to focus more strongly on the German market in the future. 4 November Placement of DVB s fifth senior unsecured benchmark bond with this five-year, 500 million bond, DVB underscored its strong position on the capital markets whilst diversifying its international investor base. 6 7 November 15th Annual Asia Pacific Airfinance Conference Mr Grabowski chaired the first conference day, and Mr David Goring-Thomas, Global Head of Aviation Finance, moderated a discussion on Arranging, syndicating or clubbing. 8 December GTF Awards Winner in London DVB s Land Transport Finance division wins Rail Finance Innovator of the Year and Rail Finance Deal of the Year Europe.

5 UNTERNEHMEN FINANZ- UND AKTIENMÄRKTE KONZERNLAGEBERICHT KONZERNABSCHLUSS Anhang 1 The leading specialist in international transport finance At DVB, we make deals work. This means striving to seek and develop intelligent and appropriate solutions that meet and even exceed our clients needs and expectations. We go the extra mile to constantly and thoroughly research and study our industry. Often, this leads us to challenge conventional wisdom when offering our focused range of financing services.

6 Shipping Finance In-depth expertise Our in-depth industry, market and asset knowledge ensures that the financing solutions our Shipping Finance provides meet the needs of companies in the shipping industry. Markets showed signs of improvement in 2014 both in specific shipping sectors and international finance. In spite of increasing competition and high prepayments, we remained a reliable partner for our shipping clients. At the same time, we further enhanced our internal process efficiency. In total, Shipping Finance supported its clients with 2.6 billion over 84 new facilities. Our in-depth market expertise and ingrained risk management laid the groundwork for a good financial performance in Source: Odfjell SE, Bergen, Norway

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8 Aviation Finance Integrated platform solutions Although banks and capital markets flooded most segments of the air finance market with liquidity in 2014, our Aviation Finance successfully offered advisory services and loans in all areas of the DVB Aviation platform. Clients trust us to find the best solution for their financing needs because of our cross-platform commercial activities, excellent research and long-standing experience. Demand for our services rose during the second half of the year, resulting in 61 new structured lending transactions with a volume of 2.3 billion. Once again, we served a client base that was highly diversified in terms of credit standing and geographic location with a good mix of new and used aircraft financings and we preserved our market leadership. Photograph by Bert van Leeuwen, Head of Aviation Research, DVB Bank SE, Amsterdam, The Netherlands

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10 Land Transport Finance Consistent client franchise New rolling stock investments in land transport markets remained below pre-crisis levels in 2014, albeit with regional differences. Our Land Transport Finance team serviced clients in Europe, North America and Australia in a consistent fashion with research, advisory and financing activities. Our clearly-defined set-up, cycle-neutral strategy and continuous dialogue with clients continued to pay off in 2014, with 17 new transactions and an aggregate volume of million. In November 2014, the trade magazine Global Transport Finance recognised our activities with its renowned Rail Finance Innovator of the Year and Rail Finance Deal of the Year (Europe) awards. To us, this is evidence that the market appreciates our sustainable specialisation and focus. Photograph by Wouter Radstake, Head of Land Transport Research, DVB Bank SE, Frankfurt/Main

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12 Offshore Finance Highly specialised industry After a good start, the specialised offshore markets began to feel the effects of falling oil prices towards the end of Also global exploration and production spending did not reach the high growth rates registered in previous years. However, as our Offshore Finance team constantly expands its know-how and expertise, our specialists continued to successfully offer advisory services and financings for equipment integral to offshore drilling, exploration, production and field maintenance to a heterogeneous client base. The loan portfolio developed favourably as we stayed true to our conservative risk approach. Against a more challenging market environment during the second half of 2014, the team closed 25 new transactions totalling million. Photograph by Harald M. Valderhaug, Skjongholmen, Norway

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14 10 Letter to our shareholders and business partners Ladies and Gentlemen, We have made it the European Central Bank s Asset Quality Review (AQR) and stress test. Needless to say, we had no doubts that we would pass. But it s still rewarding to get official approval that the quality of our shipping finance portfolio (the only one that was audited) is on a different level compared to some other German institutions. Having gone through a special audit instructed by the German supervisory authority, the regular examinations carried out by our external auditors and the test conducted by the European Central Bank, we would now like to return our focus to our Bank s core tasks: advising and financing our clients. We achieved more more new business (also with new clients), 6.3 billion in Transport Finance volume, a 34.0% increase. Likewise, we were able to further improve net interest margins generated, in line with our planning and without any compromise in terms of our risk exposure. We were flooded, just like the markets with liquidity. As a result, around 32% of our lending book (both scheduled redemptions and early repayments) has been repaid since mid As a consequence, we started into 2014 with excess liquidity of 2 billion and a lower lending volume than we had planned. Significant efforts and money were required to generate additional new business and to reduce the liquidity inventory by the end of the year. We have reached a bottom in the shipping segments burdened by excess capacity with charter rates and vessel values having stabilised on a low level, albeit subject to some volatility during the course of the year. This also reduced the need to recognise allowance for credit losses and impairments in our credit and investment management business. We have reached our targets for 2014 to a large extent. Consolidated net income before IAS 39 and taxes amounted to million up 10.2%. The increase was driven by two factors: a marked increase in net other operating income and expenses, to 30.1 million (largely comprising contributions from Investment Management), and lower allowance for credit losses (decrease of 25.5 million). Wolfgang F. Driese, CEO and Chairman of the Board of Managing Directors Net interest income before allowance for credit losses fell by 11.2%. This was attributable to three reasons: firstly, 13.2 million in costs incurred as a result of the high liquidity reserves; secondly, additional risk costs of 27.6 million which burdened net interest income, and thirdly, a lower average lending volume. Net fee and commission income also failed to fully match the previous year s figure, whereby commission income from the Investment Management business and the capital markets activities showed a negative development. General administrative expenses rose by 5.0% during the past year, once again largely due to increasing regulatory expenses. During the course of the year, we needed to hire eight additional employees for related duties, incurring costs of approximately 0.7 million p.a.). The European Central Bank s AQR and stress test led to an estimated 2.6 million in expenses paid to third parties, for which we had recognised 1.7 million in provisions in We estimate total regulatory costs for 2014 to be close to 30 million roughly one-third of consolidated net income before taxes. At present, there is no end in sight. Compared to the previous year, Investment Management made a significant contribution to net other operating income and expenses. Specifically, we were able to very successfully exit an investment in the cruise business that we held for several years.

15 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY Letter to our shareholders and business partners 11 Ralf Bedranowsky, Member of the Board of Managing Directors Bertrand Grabowski, Member of the Board of Managing Directors Looking at non-operating results, we once again had to deal with the impact of IAS 39. For instance, the IAS 39 accounting rules prohibit the recognition of certain economic hedging relationships related to non-financial assets and/or in connection with crosscurrency swaps used for hedging purposes. This leads to so-called accounting mismatches a year-on-year change in the amount of 31.0 million. Even though we adhere to our Group policy of hedging our commercial foreign exchange and interest rate risks, these accounting rules burdened our consolidated income before taxes compared to the previous year by 20.2 million. We already clearly voiced our significant concerns regarding the viability of such accounting rules in the past. Similar to regulatory issues, we believe that from today s perspective, developments increasingly go into the wrong direction. In fact, this triggers additional volatility in our income statement which cannot be managed commercially and which is virtually impossible to explain. We believe that transparency, reconciliation and comparability for shareholders and investors are being sacrificed in this process. Final judgement of our results for the year is up to our shareholders, to whom we propose to distribute an unchanged dividend of 0.60 per share, equivalent to a dividend yield of 2.43%. As the Bank s management team, we assess the results for the year as quite satisfactory. This is because we are fully aware of the work that has been done in spite of an extreme additional burden caused by the ECB test, which went on for nine months and affected the majority of Head Office departments as well as Shipping & Offshore Credit. It was impossible to anticipate the considerable new business volume, the remarkable reduction of our risk exposure in the lending business, and our ability to acquire new business partners under these circumstances. As in the previous years, Aviation Finance contributed very strongly to the Bank s performance, and the cost of risk in the aviation industry remained at minimum an excellent outcome given the overall turbulences in the markets since Land Transport Finance and Offshore Finance divisions significantly contributed to these good results for the year, once again highlighting their position as robust stabilisers of our business model. Before cost of risk, Shipping Finance is also back on track to returning to the performance of its good years. A diversified, global transport asset finance provider is well supported by several pillars including (and especially) during turbulent times. We have to extend our heartfelt thanks to our staff, for their performance and commitment. They are our key asset, they are the foundation of our strengths, and they make us unique vis-àvis our competitors, and especially in our clients appreciation.

16 12 Letter to our shareholders and business partners Outlook and forecast Global trade will continue to grow throughout 2015 and so will transport volumes. This much is certain. We will continue to pursue our path: resolving remaining exposures subject to higher risk, especially in Shipping Finance; acquiring new clients for the Bank; continuing to grow in our core business of advising on, and financing the transport asset classes we cover; and growing and strengthening profit contributions from the Investment Management business and capital markets activities. In our straightforward endeavours to satisfy our clients and shareholders, the main skill in our activities will be to find the right balance between market volatility, the regulatory environment, and potential black-swan events which might face us unexpectedly. We were sustainably successful in the past and we are confident that we will continue to steer a successful course in the future. Yours sincerely, You can take this as a given. Wolfgang F. Driese CEO & Chairman of the Board of Managing Directors Frankfurt/Main, March 2015 DVB Bank SE Ralf Bedranowsky Member of the Board of Managing Directors Bertrand Grabowski Member of the Board of Managing Directors

17 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY The Board of Managing Directors (since 1 January 2015) 13 Wolfgang F. Driese CEO and Chairman of the Board of Managing Directors and bank director Born 1949 in Berlin, Germany Client areas in business divisions: Shipping & Offshore Credit, Aviation Credit Land Transport Credit Shipping & Offshore Research Aviation Research Land Transport Research Financial Institutions Strategic Management & Restructuring Client areas in affiliates: ITF International Transport Finance Suisse AG LogPay Financial Services GmbH Product/service areas: Group Compliance Office Group Controlling Group Corporate Communications Group Human Resources Group Legal Group Risk Management Ralf Bedranowsky Member of the Board of Managing Directors and bank director Born 1958 in Berlin, Germany Client areas in business divisions: Shipping Finance Offshore Finance DVB Corporate Finance Shipping & Intermodal Investment Management Shipping Execution Management Client areas in affiliates: DVB Capital Markets LLC Product/service areas: Business Process Support Group Finance Information Technology Transaction and Loan Services Bertrand Grabowski Member of the Board of Managing Directors and bank director Born 1956 in Guerche-de-Bretagne, France Client areas in business divisions: Aviation Finance Aviation Asset Management Aviation Financial Consultency Aviation Investment Management Land Transport Finance Client areas in affiliates: DVB Transport Finance Ltd TES Holdings Ltd (40% shareholding) Product/service areas: Group Audit Group Treasury Chairman of the Supervisory Board: DVB Bank America N.V., Willemstad, Curaçao Chairman of the Board of Directors: DVB Group Merchant Bank (Asia) Ltd, Singapore DVB Holding (US) Inc., New York, USA DVB Transport (US) LLC, New York, USA Member of the Board of Directors: DVB Transport Finance Ltd, London, United Kingdom DVB Capital Markets LLC, New York, USA Chairman of the Board of Directors: ITF International Transport Finance Suisse AG, Zurich, Switzerland DVB Invest (Suisse) AG, Zurich, Switzerland Chairman of the Board of Directors: DVB Capital Markets LLC, New York, USA Member of the Board of Directors: DVB Holding (US) Inc., New York, USA DVB Transport (US) LLC, New York, USA Chairman of the Board of Directors: DVB Transport Finance Ltd, London, United Kingdom Member of the Board of Directors: DVB Transport (US) LLC, New York, USA DVB Capital Markets LLC, New York, USA DVB Holding (US) Inc., New York, USA Non-Executive Director: Bravo Passenger Solutions Pte. Ltd, Singapore (since 30 May 2014)

18 14 Report of the Supervisory Board Dear shareholders, From a macroeconomic perspective, the world economy s development showed a very uneven picture in While the US economy managed to recover, growth figures in the euro zone were very heterogeneous. Japan s economy continued to be under pressure, while China recorded relatively solid growth rates according to Western standards. However, the growth rates lacked the momentum to absorb millions of Chinese workers entering the labour market every year. Facing the still weak demand in industrialised countries, the Chinese economy loses momentum. This brings oil prices and other commodity markets under pressure which is not helpful for Asia or any other countries where China has recently emerged as a strong buying power. Central banks tend to react to such momentum weakness by flooding markets with liquidity. Imbalances in terms of income distribution have reached a level where negative repercussions on demand structures are inevitable. During 2014, DVB was confronted with ongoing difficulties in a number of segments of the maritime shipping industry, translating into a persistent oversupply, amongst other things. In the aviation industry, the benefits of our long-lasting efforts in the US could be reaped, while markets in Europe and Asia continued to struggle with their own difficulties. However, the falling oil prices will lead to record results in the aviation industry throughout 2015, across all regions. Compared to its international competitors, DVB again succeeded in generating a stable performance on the transport finance markets, which was reflected in solid results. We would like to express our sincere thanks and appreciation to the Board of Managing Directors and all members of staff for their good performance, and the pleasing results achieved. The Supervisory Board, jointly with its committees, has fulfilled the obligations imposed on it by law, the Memorandum and Articles of Association, and the Bank s Internal Regulations throughout the past business year. The Supervisory Board s focus was on giving detailed advice to the Board of Managing Directors, the continuous supervision of the Company s management as well as decisions on transactions and issues requiring approval. The Supervisory Board and its committees were also consulted by the Board of Managing Directors on decisions of fundamental importance, in good time. In 2014, the entire Supervisory Board once again engaged itself, in depth and on an ongoing basis, with developments on the international transport markets and the risk management of individual transport finance portfolios in particular, with the persistently difficult market conditions in some segments of maritime shipping. Moreover, we advised the Board of Managing Directors with respect to the Bank s strategic direction, the operative corporate planning derived therefrom, and its implementation. An additional focal point in the Supervisory Board s work was to monitor the implementation of the legal changes resulting from the minimum equity requirements and regulatory standards set out in the Basel III regime for banks and securities firms (the CRD IV package). Co-operation with the Board of Managing Directors The 2014 business year was once again characterised by numerous legal and regulatory changes; the processes and requirements of the Comprehensive Assessment carried out by the European Central Bank were particularly important to DVB. The Supervisory Board supported the Board of Managing Directors with the implementation of its strategic objectives, monitored compliance with all legal and regulatory provisions, and offered advice. In 2014, key topics of discussion were again DVB s business and financial performance in a partly challenging environment (particularly in parts of the shipping industry), developments on the international transport markets, as well as the Bank s activities in managing risk, liquidity, and capital. During Supervisory Board meetings, the Board of Managing Directors comprehensively informed us on the development of strategic parameters of DVB s business model, resulting adjustments to future business policy, as well as on company management and planning (including the planning parameters for the Bank s financial resources, budgeted results, liquidity and human resources), on Corporate Governance issues as well as on events, results and transactions that were and still are important to DVB.

19 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY Report of the Supervisory Board 15 Frank Westhoff Chairman of the Supervisory Board Wolfgang Köhler Deputy Chairman of the Supervisory Board Prof Dr h.c. Stephan Götzl Anders Ingebrigtsen Dr Klaus Nittinger Adnan Mohammed Ivo Monhemius Martin Wolfert

20 16 Report of the Supervisory Board Both the Audit Committee and the Credit and Risk Committee discussed, reviewed and monitored in detail DVB s risk situation, risk management, and the respective control mechanisms within the Bank during its meetings. The Board of Managing Directors informed the Supervisory Board in detail during such meetings. The minutes of the Credit and Risk Committee meetings as well as of the Audit Committee meetings were made available to all Supervisory Board members. The Supervisory Board was informed about current events and transactions of fundamental importance without undue delay; subsequent decisions were taken after intense consultation and discussion. Mr Wolfgang Driese, CEO and Chairman of the Board of Managing Directors, and Mr Frank Westhoff, Chairman of the Supervisory Board, held regular discussions which focused on issues specific to the Bank, and on decisions to be made, in a timely and comprehensive manner. The Board of Managing Directors informed the entire Supervisory Board in writing of important developments between Supervisory Board meetings, thus permitting the Supervisory Board members to exercise their control function at any time. Any resolutions that were necessary were adopted between Supervisory Board meetings by way of circulation. The Supervisory Board s activities and co-operation with the Board of Managing Directors were always characterised by mutual trust, and by open and constructive discussions. Meetings of the Supervisory Board The Supervisory Board met during five scheduled plenary meetings in During these meetings, it regularly discussed the Bank s business development in great detail. The Board of Managing Directors gave a detailed account of the sector-specific and macroeconomic environment on the international transport markets, as well as on the specific risk situation concerning ships, aircraft and rolling stock. Main issues during the meeting on 7 March 2014 were a review of the accounting and financial reporting processes of DVB Bank SE as part of the single-entity financial reporting pursuant to the German Commercial Code (HGB), business development during the first months of 2014, as well as an extensive report by Mr Bertrand Grabowski whose responsibilities on the Board of Managing Directors include the Aviation Finance division on the current business development, outlook and risk situation of the aviation industry. At the meeting on 27 March 2014, the Supervisory Board discussed the consolidated financial statements 2013 in accordance with IFRS with the auditors, and approved the consolidated financial statements as recommended by the Audit Committee. The Head of Internal Audit presented her extensive annual report, and informed the Supervisory Board on the involvement of Internal Audit in current projects, as well as on the co-operation with DZ BANK s Internal Audit. The constituting Supervisory Board meeting was held on 12 June 2014 immediately after the Annual General Meeting, in accordance with the Bank s Memorandum and Articles of Association. The Supervisory Board meeting on 29 September 2014 was held in DVB s new premises in Amsterdam. Mr Ralf Bedranowsky whose responsibilities on the Board of Managing Directors include the Shipping Finance division reported on recent developments in Shipping Finance, the current structure of the Shipping Finance portfolio, the risk situation in the various maritime shipping market segments, based on up-to-date research documents, as well as on recent developments in the Bank s Corporate Finance segment. The Supervisory Board was then informed in detail about the new regulatory requirements. The Head of Group Compliance presented the 2014 Compliance Report. The last Supervisory Board meeting during the year under review took place on 27 November Besides the Supervisory Board committees reports and the report of the Board of Managing Directors concerning DVB s current business development, discussions focused on the Bank s short-term and long-term strategic direction. The Supervisory Board approved the planning for the business year 2015, and discussed the medium-term planning until 2019 with the Board of Managing Directors. There were no members of the Supervisory Board who attended less than half of meetings during the period under review. There were no conflicts of interest which would have required disclosure during the year under review. Supervisory Board Committees During its four meetings, the Credit and Risk Committee fulfilled all duties incumbent upon it by law, and the Internal Regulations without undue delay. This included a continuous and careful analysis of all exposures subject to reporting requirements. In addition, the Credit and Risk Committee was involved in approving loan exposures, where such approval was required, by way of circulation. During the meetings, detailed portfolio analyses were used to discuss the structure and performance of the loan portfolio as well as risk issues (business, market price, liquidity, and equity investment risks, as well as operational risks). Regarding the loan portfolio, the value performance of financed transport assets, risk management measures taken, and the specific analysis of individual non-performing exposures were particularly important. In addition, the Committee members intensively discussed the Bank s overall risk appetite, as well as DVB s sub-risk strategies, and supported the Supervisory Board in monitoring these strategies. Discussions on the credit risk strategy formed a focal point of deliberations. Furthermore, the members of the Supervisory Board extensively exchanged their views on the

21 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY Report of the Supervisory Board 17 strategies for managing business, market, liquidity and equity investment risks, as well as on the outsourcing strategy contemplated by the Board of Managing Directors. After intensive discussions, the Committee decided to amend the existing lending policies. The Board of Managing Directors kept the members of the Committee continuously informed about non-performing exposures and those subject to particular risks, and also about unusual events in the lending business. It informed the Committee, without delay, about assets controlled by DVB. The Audit Committee held four meetings during the year under review. During the first meeting, the members of the Committee discussed its future duties and their execution or implementation. In subsequent meetings, the Committee analysed the 2013 singleentity and consolidated financial statements with the external auditors. The members of the Committee also discussed the audit reports and the audit findings, while monitoring the corresponding measures taken by the Board of Managing Directors. In addition, the Committee intensively discussed the so-called SAD lists (summary of unadjusted audit differences identified by the external auditors) in connection with the different financial statements and made recommendations to the Board of Managing Directors. The members of the Audit Committee undertook the necessary independence reviews of external auditors and made a recommendation to the plenary meeting of the Supervisory Board regarding the appointment of the external auditors. During the meeting on 27 July 2014, the interim consolidated financial statements were discussed with the external auditors, and the effects of the ECB s Comprehensive Assessment were acknowledged. In addition, the Head of Internal Audit presented a concept for the future co-operation with the Audit Committee. After her presentation, appropriate reporting lines were established. The Nomination Committee held four meetings during the period under review. Besides the obligations incumbent upon it by law and the Bank s Memorandum and Articles of Association, during 2014 the Committee concerned itself intensively with personnel matters regarding the Board of Managing Directors and made recommendations to the plenary meeting of the Supervisory Board in this context. The Committee also prepared objectives for the promotion of the under-represented gender on the Supervisory Board, and resolved a strategy to achieve such objectives. Moreover, the Committee prepared a job description for future members of the Supervisory Board and discussed next steps in the efficiency review of the Supervisory Board and its members as well as in the performance review of the Board of Managing Directors and DVB s risk takers. The Remuneration Control Committee held three meetings during the period under review. The Committee s members discussed the legal and regulatory requirements regarding the remuneration of members of the Board of Managing Directors and other employees in great detail, and monitored their implementation. Both DVB s remuneration strategy and remuneration principles were extensively discussed with the Bank s Remuneration Officer. Furthermore, the Committee was kept informed by the Board of Managing Directors, always in good time, of the conclusion of employment contracts with executive staff, where the annual remuneration was in excess of a set threshold. The Chairmen of the Committees kept the entire Supervisory Board informed on topics dealt with by the Committees, to the extent that such issues were fundamentally important, or were also discussed in the plenary meetings of the Supervisory Board. DVB s Corporate Governance Implementation of the recommendations of the German Corporate Governance Code was discussed in depth during the Supervisory Board meeting in November Together with the Board of Managing Directors, the Supervisory Board has issued the thirteenth Declaration of Compliance in accordance with section 161 of the German Public Limited Companies Act (referring to the German Corporate Governance Code as amended on 24 June 2014) which was published in the German Federal Gazette and on DVB s website on 5 December All Declarations of Compliance issued by DVB since 2002 are available for download from our website > Investors > Corporate Governance > Declarations of Compliance. The Supervisory Board has determined that, according to its own assessment, a sufficient number of independent members served as Supervisory Board members. Dr Klaus held the position of financial expert on the Supervisory Board until his retirement on 31 October Prof Dr Götzl assumed this position on 1 November Training and continuous professional development DVB continued to support Supervisory Board members during the period under review with respect to training or continuous professional development (CPD) measures, covering various topical areas, helping the Supervisory Board members to perform their duties. The rights and duties of a Supervisory Board member were explained to the new members (who were appointed to the Supervisory Board on 12 June 2014) in a separate informational session. Additionally, a workshop for all members of the Supervisory Board was held in September 2014, providing important news on changes to the Bank s regulatory environment.

22 18 Report of the Supervisory Board Co-operation with external auditors for the 2014 consolidated financial statements The consolidated financial statements and the group management report for the 2014 business year have been examined, following an audit of the accounting records, and certified without qualification, by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, the external auditors appointed by the General Meeting. The Chairman of the Supervisory Board obtained information on the scope of the audit in advance, and discussed focal points with the auditors, in detail. The auditors reports were distributed to the Supervisory Board in good time before the meeting held on 26 March 2015, during which the financial statements were discussed. The auditors who certified the consolidated financial statements took part in this meeting. During this meeting, they gave a detailed account of their audit and provided detailed answers to our questions regarding focal points of the audit. The consolidated financial statements and group management report for the 2014 business year were reviewed and discussed by the Supervisory Board. No objections were raised and the consolidated financial statements prepared by the Board of Managing Directors were approved. The Board of Managing Directors has prepared and submitted the mandatory report on business relationships with affiliated companies during the business year This report has been examined and certified without qualification by the external auditors, as follows: Having duly examined and assessed this report in accordance with professional standards, we confirm that the report is free from factual misrepresentations, and that the company did not pay any excessive consideration with regard to the transactions identified in the report. The Supervisory Board reviewed the mandatory report on business relationships with affiliated companies. Following this review and subsequent examination, the Supervisory Board approved the results of the audit of the financial statements. More specifically, the Supervisory Board had no objections regarding the declaration made by the Board of Managing Directors pursuant to section 312 (3) of the German Public Limited Companies Act. Frankfurt/Main, 26 March 2015 For the Supervisory Board Frank Westhoff Chairman

23 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY The Supervisory Board (since 1 January 2015) 19 Supervisory Board Shareholder representatives Frank Westhoff Chairman Member since 30 June 2006 Wolfgang Köhler Deputy Chairman since 1 November 2014 Member since 21 September 2009 Prof Dr h.c. Stephan Götzl Member since 10 June 2009 Anders Ingebrigtsen Member since 12 June 2014 Dr Klaus Nittinger Member since 10 June 2009 Employee representatives Adnan Mohammed Member since 13 February 2013 Ivo Monhemius Member since 12 June 2014 Martin Wolfert Member since 7 October 2008 Supervisory Board Committees Credit and Risk Committee Frank Westhoff Chairman Anders Ingebrigtsen Martin Wolfert Audit Committee* Prof Dr h.c. Stephan Götzl Chairman Wolfgang Köhler Ivo Monhemius Nomination Committee** Frank Westhoff Chairman Wolfgang Köhler Adnan Mohammed Remuneration Control Committee** Frank Westhoff Chairman Wolfgang Köhler Adnan Mohammed * Established with effect from 14 February 2014 ** Established with effect from 7 March 2014

24 20 Corporate Governance Report 2014 In the following declaration pursuant to Section 3.10 of the German Corporate Governance Code (the Code ) and section 289a (1) of the German Commercial Code ( HGB ), the Board of Managing Directors and Supervisory Board of DVB Bank SE report on the Bank s corporate governance. DVB is a leading global specialist in international Transport Finance. As a listed company, DVB must observe the recommendations and proposals of the Code. The Board of Managing Directors and the Supervisory Board therefore use the Code as a guideline on how to enhance the transparency of business decisions for shareholders, business partners, employees, and the general public. The two Boards review the Code s recommendations as amended by the Government Commission of the German Corporate Governance Code, and how DVB is implementing them, on an annual basis. DVB s corporate governance is shaped by four essential parameters: responsible and effective corporate governance and control by the Board of Managing Directors and the Supervisory Board, respectively; protecting the interests of stakeholder groups such as shareholders, investors, clients, business partners and staff; regular financial reporting and independent audits; and The Corporate Governance Report 2014 in accordance with section 3.10 of the German Corporate Governance Code, the Corporate Governance Statement in accordance with section 289a of the HGB, the Declarations of Compliance, explanations concerning the Bank s governance system, as well as the Memorandum and Articles of Association of DVB Bank SE, in their current version, are available on our website: > Investors > Corporate Governance. DVB s dual-board structure DVB Bank SE opted for a dual-board structure comprising two executive bodies, in addition to the General Meeting: one managing the Bank and its business (managing body: the Board of Managing Directors) and one supervising the management (supervisory body: the Supervisory Board). DVB s dual-board structure is organised in the following manner: The Board of Managing Directors DVB s managing body Pursuant to Article 7 of the Memorandum and Articles of Association of DVB Bank SE, the Board of Managing Directors consists of a minimum of two members who are appointed by the Supervisory Board for a period of no more than five years. During the year 2014, the Board of Managing Directors consisted of three members. transparent communications. Dual-board structure Board of Managing Directors Management body Corporate strategy Controlling Risk Management Compliance Preparation of the financial statements and management reports close co-operation to the benefit of the enterprise reports to advises, approves, controls, appoints, dismisses Supervisory Board Supervising body Examination, confirmation/approval of financial statements and resolutions Members: six shareholder representatives three employee representatives Credit and Risk Committee, Audit Committee, Nomination Committee, Remuneration Control Committee At least four scheduled meetings a year reports to formally approves of reports to formally approves of General Meeting Each share carries one vote. Resolutions on e.g. the profit appropriation, changes of the Memorandum and Articles of Association as well as legal transactions requiring approval Appointment of the shareholder representatives on the Supervisory Board and of the auditor

25 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY Corporate Governance Report The Supervisory Board selects those candidates for appointment as member of the Board of Managing Directors who are most suitable in the context of the Bank s business model: specific expertise in the transport finance business is decisive, whereas criteria such as gender or nationality are less relevant for the sustainable promotion of the Bank s business model (section (1) sentence 2 of the Code). Reappointments, for no more than five years per term, are permitted. In principle, the term of office of a member of the Board of Managing Director ends when reaching the age of 65. In exceptional cases, this term of office may be extended twice, by one year each. The Board of Managing Directors manages the business in the Company s best interests, and in order to achieve a sustained increase in its value. In doing so, the Board of Managing Directors considers the interests of shareholders, investors, clients, and business partners as well as those of the Bank s employees. DVB s business model and its strategic position in the relevant global transport markets is determined and refined by the Board of Managing Directors in co-ordination with the Supervisory Board. In addition, the members of the Board of Managing Directors ensure that the Company is managed in accordance with legal regulations, the Memorandum and Articles of Association, and the Internal Regulations. Moreover, the Board of Managing Directors directs the parent company DVB Bank SE and the DVB Group, using efficient management tools. Specifically, these include financial controls, risk management, and compliance. Regarding the members of the Board of Managing Directors, no conflicts of interest pursuant to section 4.3 of the Code occurred during the 2014 business year. More information on the composition of the Board of Managing Directors and the distribution of responsibilities amongst its members is available on page 13 of this annual report. The Supervisory Board DVB s supervisory body Pursuant to Article 11 (1) of the Memorandum and Articles of Association of DVB Bank SE, the Supervisory Board consists of total of nine members, comprising six shareholder representatives and three employee representatives. On 1 November 2014, Dr Peter Klaus retired from the Supervisory Board, for personal reasons. The vacancy should be filled at DVB s Annual General Meeting The current members of the Supervisory Board are appointed for the period until the conclusion of the General Meeting that passes a resolution on the formal approval for the fourth financial year following the commencement of their term of office (section 11 (2) of the Memorandum and Articles of Association). This will be the Annual General Meeting to be held in Reappointments are permissible. In accordance with section of the Code, since the Annual General Meeting 2014, Supervisory Board elections have been conducted individually for each member. Within the scope of proposals for election to be submitted to the Annual General Meeting, DVB will disclose each candidate s personal or business relations with DVB, its executive bodies, or a major shareholder in DVB, as well as proposals for election to the function of Chairman of the Supervisory Board. With regard to the election of Supervisory Board members it shall be ensured in principle that any such candidate will not attain the age of 70 years during their term of office as a member of the Supervisory Board. In special cases, however, this threshold may be exceeded by one year, in which case the term of office of the respective Supervisory Board member will end upon the close of the Annual General Meeting held after that member s 71 st birthday. Former members of the Board of Managing Directors may only be elected to the Supervisory Board after a period of two years has elapsed since their retirement from the Board of Managing Directors, unless their election is proposed by a shareholder holding a stake exceeding 25% of the voting rights of DVB Bank SE. The Supervisory Board continually advises and supervises the Board of Managing Directors in its management of the business. It is involved in every major business decision. Transactions that require Supervisory Board approval, pursuant to Article 18 of the Memorandum and Articles of Association, include the purchase and sale of companies, the conclusion of inter-company agreements and the development of new (or the discontinuation of existing) business segments, to the extent that the relevant measure has material importance for DVB Group. In addition, the Supervisory Board is responsible for the appointment and removal of members of the Board of Managing Directors. The Supervisory Board conducts its business in accordance with its Internal Regulations. It is directed by the Chairman of the Supervisory Board, who sets the agenda for each meeting, chairs the plenary meetings, and signs the meeting minutes. The Internal Regulations of the Supervisory Board also provide for various methods of casting votes; for each poll, the Chairman of the Supervisory Board selects the most appropriate method from amongst these options.

26 22 Corporate Governance Report 2014 During 2014, the Supervisory Board formed four committees, the Credit and Risk Committee, the Audit Committee, the Nomination Committee and the Remuneration Control Committee. The members of the Credit and Risk Committee are elected by the Supervisory Board from amongst its members. The Committee convenes at least four times per year. The Committee s tasks include advising the Supervisory Board on topics such as the Company s overall propensity to accept risk, and on its risk strategy. The Committee also supports the Company with the related monitoring and implementation. Moreover, it monitors terms and conditions in the lending business and examines whether these are in line with the Company s risk structure. Moreover, the Credit and Risk Committee discusses the incentives provided for in the remuneration system, and reviews whether these incentives take the structure of DVB s risk, capital and liquidity into account. It also deals with all DVB Group exposures which must be submitted to the Supervisory Board for acknowledgement or approval, as well as all major loans and loans subject to higher risks. Where required, the Committee approves any such loans. Moreover, the Board of Managing Directors coordinates the lending policies with the Credit and Risk Committee, and keeps the members of the Committee informed on a regular basis about problem loans, exposures subject to higher risk, and unusual events related to the lending business. The Audit Committee, which comprises three members, supports the Supervisory Board particularly with regard to monitoring the accounting and financial reporting process, the effectiveness of the risk management system, the internal control system, and Internal Audit. The Committee monitors the audit of the financial statements, focusing in particular on ensuring the independence of external auditors and on the swift resolution of any deficiencies determined by the external auditors, by way of suitable measures. The Nomination Committee consists of three Supervisory Board members. The Committee s tasks are defined by law (section 25d of the German Banking Act) and in the Internal Regulations for the Nomination Committee. The Committee is responsible selecting candidates for appointment to the Board of Managing Directors, including preparing resolutions for the conclusion, extension or termination of contracts with the members of the Board of Managing Directors, and regarding their remuneration; the resolutions are passed by the plenary meeting of the Supervisory Board. The Committee also prepares objectives for the promotion of the underrepresented gender on the Supervisory Board, and conceiving a strategy to achieve such objectives. It carries out a review of the structure, size, composition and performance of the Board of Managing Directors and the Supervisory Board at least once a year, examining the skills, professional aptitude and experience of individual members of the Board of Managing Directors and of the Supervisory Board. In this context, the Committee also reviews the principles adhered to by the Board of Managing Directors in identifying and appointing individuals to the Company s upper management level. The Remuneration Control Committee consist of the Chairman of the Supervisory Board, one shareholder representative and one employee representative to the Supervisory Board. The Committee s tasks include monitoring whether remuneration systems for the Board of Managing Directors and for the Bank s employees are appropriate; the Committee supports the Board of Managing Directors in determining the specifications of such remuneration systems. Moreover, the Remuneration Control Committee prepares Supervisory Board resolutions concerning the remuneration of the Board of Managing Directors, focusing in particular on the impact of planned resolutions on the Company s risks and risk management. No committee has been established for the preparation of Supervisory Board meetings. Preparations for these meetings in terms of topics and organisation take place in direct communication between the Chairman of the Supervisory Board and the Board of Managing Directors. The Bank intends to adhere to this wellestablished practice in the future.

27 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY Corporate Governance Report Communications between the managing body and the supervisory body are generally structured as follows: between scheduled Supervisory Board meetings, the Chairman of the Board of Managing Directors informs the Chairman of the Supervisory Board regularly, without delay and always up to date on the Bank s strategy, planning and business development, on risk management and the Bank s risk situation, compliance, as well as on important decisions to be made, and on significant issues. During its meetings, the supervisory body is kept informed, regularly and comprehensively, on developments of strategic parameters pertaining to DVB s business model, resulting adjustments to future business policy, as well as on corporate governance and planning (including financial planning, comprising the planning of DVB s financial position and financial performance, and human resources planning). Moreover, Committee members receive more detailed information concerning their respective areas of responsibility. Remuneration report Pursuant to section 16 of the German Regulation on Remuneration in Financial Institutions, DVB is obliged to disclose information regarding its remuneration policy and practice. DVB s disclosure duties as a bank, as defined in section 1 of the KWG, are based solely on Article 450 of the Regulation 575/2013/EU (Capital Requirements Regulation CRR) which requires that the Bank discloses certain quantitative and qualitative details for groups of employees whose activity has a material impact on the Bank s risk profile ( risk takers ). The remuneration chapter of the group management report (pages 72 75) provides a detailed overview and explanations concerning the legal principles of DVB s remuneration system. For further information, please refer to the Report of the Supervisory Board (on pages of this annual report), which also gives a detailed description of the work of the Supervisory Board and the focal issues discussed during 2014, as well as the processes of communication and coordination between the Board of Managing Directors and the Supervisory Board. The current composition of the Supervisory Board, and of its committees, is shown on page 19 of this annual report. Remuneration of the Board of Managing Directors Total expenses for the remuneration of the Board of Managing Directors, former members of the Board of Managing Directors and their surviving dependants, as well as the Supervisory Board amounted to 4.1 million (2013: 3.8 million). The HGB requires companies to disclose personalised remuneration (and remuneration components) of members of the Board of Managing Directors in the financial statements and consolidated financial statements. Pursuant to sections 286 (5) and 314 (2) sentence 2 of the HGB, a company may waive such personalised disclosure of executive remuneration if the General Meeting adopts a resolution to that effect, with a qualified majority vote of no less than three-quarters of the share capital represented during the passing of the relevant resolution. By virtue of a resolution passed by the Annual General Meeting held on 9 June 2011 (agenda item no. 5), with the requisite majority of the share capital represented, DVB Bank SE has opted to waive the personalised disclosure of remuneration paid to members of the Board of Managing Directors for a period of five years.

28 24 Corporate Governance Report 2014 The Supervisory Board has determined the structure of remuneration for the Board of Managing Directors. In 2014, the total remuneration of the Board of Managing Directors was comprised of a fixed component of 67.9% and a variable bonus of 32.1% (2013: 55.9% fixed/44.1% variable component). Fixed remuneration component The fixed remuneration component of DVB Bank SE s Board of Managing Directors comprises monetary remuneration components, pension commitments and special benefits. In 2014, it totalled 2,289, (2013: 1,765,464.97). Variable remuneration component The variable remuneration component of DVB Bank SE s Board of Managing Directors comprises a cash bonus, and potentially a bonus under DVB s Long-Term Incentive Plan (LTI). In 2014, the Board of Managing Directors received payments of variable remuneration in the amount of 1,080, (2013: 1,392,389.23). Further details with regard to the general principles governing the variable remuneration components for the Board of Managing Directors are provided below: Target bonuses are awarded each year under the respective LTI (LTI Target Awards). The prerequisite for a payment under these awards is that the planned performance of the company is in fact achieved in the respective target years. This performance goal is measured on the basis of a predefined economic valueadded figure and the consolidated net income before taxes. The Supervisory Board may increase the payment under the LTI Target Award above the target amount in case actual company performance exceeds the targeted performance goal. 50% of LTI bonuses are disbursed during the year following the respective target year, with the remaining 50% of each premium subject to a one-year retention period. During the retention period, the value of the retained bonus will be replaced by a remuneration instrument linked to the Bank s performance. Remuneration of the Board of Managing Directors fixed and variable components ( ) % Monetary compensation elements 1,810, ,157, Pension commitments including contributions to pension provisions 202, , Special benefits 276, , thereof allowances for company car or monetary equivalent 51, , thereof rent subsidies 41, , thereof insurance cover and employer contributions to foreign social security schemes 183, , Fixed remuneration component 2,289, ,765, Variable remuneration component 1,080, ,392, Total portfolio 3,370, ,157,

29 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY Corporate Governance Report The cash bonus payments paid to members of the Board of Managing Directors are determined on the basis of agreements on operational targets. These objectives, which are agreed upon between the Supervisory Board and the respective member of the Board of Managing Directors, are related to objective criteria for the relevant financial year (referring to financial indicators such as Economic Value Added and consolidated net income before taxes) as well as to the personal performance of each individual member of the Board of Managing Directors. The amount of the bonus depends on the (measurable) extent to which the targets were achieved. The cash bonus for the business year 2014 will be awarded in four tranches: 40% during 2015, and three tranches of 20% each, awarded during the following business years 2016 to Each deferred bonus tranche is subject to a malus process prior to disbursement, whereby the relevant risk situation and profitability at the respective point in time, compliance with internal guidelines (such as compliance guidelines or lending guidelines) as well as the member s personal conduct are taken into account. For any deferred bonus tranche, this malus process cannot lead to an increase; however, it may reduce the amount and may even lead to the tranche being cancelled altogether. In addition, for all award tranches, 50% of each tranche is subject to an additional one-year retention period. This means that these parts will not be disbursed immediately. During the retention period, the value of the retained amounts will be replaced by a remuneration instrument linked to the Bank s performance. The prerequisite for payment of the two variable remuneration components is, in each case, that no notice of termination has been given with regard to the employment relationship with the member of the Board of Managing Directors concerned as at the time of payment. The sole exception would be where a Board member retires from office for reasons of age, or due to non-renewal of a contract. In the event of measures taken by the German Federal Financial Supervisory Authority or any other competent bank supervisory authority especially under the so-called Single Supervisory Mechanism of the European Central Bank no claims can be asserted under contractual stipulations which would contradict the measures taken by supervisors. Examples for such supervisory measures include the following: The supervisory authority restricts the aggregate amount of variable remuneration components (e.g. pursuant to section 45 (2) sentence 1 no. 5a of the KWG) or voids them in their entirety, or issues a corresponding instruction to this effect. The supervisory authority restricts of prohibits the disbursement of variable remuneration components (e.g. pursuant to section 45 (2) sentence 1 no. 6 of the KWG). The supervisory authority orders that claims on granting variable remuneration components are to be voided, in whole or in part (e.g. pursuant to section 45 (5) sentences 5 et seq. of the KWG). Remuneration of the Supervisory Board The Annual General Meeting of DVB Bank SE held on 12 June 2014 (agenda item 11) adopted new rules for the remuneration of the Supervisory Board, as set out in Article 19 (1) and (2) of the Memorandum and Articles of Association of DVB Bank SE. Accordingly, the Chairman of the Supervisory Board receives 40,000.00; members of the Supervisory Board receive 30,000.00; the members of Supervisory Board committees receive the following additional amounts: members of the Credit and Risk Committee receive 10,000.00; members of the Audit Committee receive 7,500.00; members of the Nomination Committee receive 3,750.00; and members of the Remuneration Control Committee receive 3, The remuneration is paid on the 1 July of each year. Where said remuneration is subject to value-added tax, this tax shall be paid in addition to the remuneration (Article 19 (3) of the Memorandum and Articles of Association). Further details, such as the reimbursement of travelling expenses and other cash expenses, daily allowances and similar issues, are governed by Article 19 (4) of the Memorandum and Articles of Association.

30 26 Corporate Governance Report 2014 Total remuneration expenses paid in 2014 by DVB Bank SE for members of the supervisory bodies amounted to 426, (2013: 272,146.40). Taxes amounting to 56, (2013: 34,793.75) were transferred directly to the tax authorities for the Supervisory Board members domiciled abroad. The members of the Supervisory Board therefore received remuneration of 370, (2013: 237,352.65) for their actions as Supervisory Board and committee members. The marked increase in remuneration was due to the higher Supervisory Board remuneration resolved, and to the establishment and restructuring of Supervisory Board committees. Shareholdings of the Board of Managing Directors and the Supervisory Board As at 31 December 2014, the Board of Managing Directors and the Supervisory Board did not hold, in aggregate, more than 1% of the shares issued by DVB Bank SE. Remuneration of the Supervisory Board 2014 ( ) Supervisory Credit and Risk Audit Committee Nomination Remuneration Value- Total Board Committee remuneration Committee Control added tax remuneration remuneration remuneration Committee 19% remuneration Shareholder representatives: Frank Westhoff, Chairman 40, , , , , , Dr Peter Klaus, Deputy Chairman (until 31 October 2014) 25, , , , , , , Wolfgang Köhler, Deputy Chairman (from 1 November 2014) 30, , , , Prof Dr h.c. Stephan Götzl 30, , , , Anders Ingebrigsten, resident in Norway (from 12 June 2014) 16, , , , Dr Klaus Nittinger 30, , , Carl Erik Steen, resident in Norway (until 12 June 2014) 13, , , , Employee representatives: Dorinus Legters, resident in the Netherlands (until 12 June 2014) 13, , , , , Adnan Mohammed, resident in the United Kingdom 30, , , , , Ivo Monhemius, resident in the Netherlands (from 12 June 2014) 16, , , , Martin Wolfert 30, , , , , Total remuneration 275, , , , , , , Tax deduction for Supervisory Board members resident outside Germany (paid directly to the responsible tax office): VAT 19% 21, Taxes for membership in a supervisory board 30% 33, Solidarity surcharge 5.5% 1, Total tax deductions 56, Remuneration less tax deductions for Supervisory Board members resident outside Germany 370,039.35

31 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY Corporate Governance Report General Meeting protecting shareholders interests DVB s shareholders exercise their rights prior to or during the General Meeting, as provided by law or in the Memorandum and Articles of Association. The Annual General Meeting of DVB Bank SE takes place during the first six months after the end of each financial year (Article 21 of the Memorandum and Articles of Association). Shareholders regular duties include: accepting the financial statements confirmed by the Supervisory Board and the consolidated financial statements approved by the Supervisory Board; passing resolutions on the appropriation of distributable profit; passing resolutions on the formal approval of the members of the Board of Managing Directors and the Supervisory Board; electing shareholders representatives to the Supervisory Board; and passing a resolution on the appointment of the external auditors. The invitation to the General Meeting of DVB Bank SE, including the agenda, is published in the German Federal Gazette. It is additionally sent to shareholders via their custodian banks. In addition, the convening notice and agenda can easily be accessed via the Bank s website as soon as the General Meeting has been convened. For easy reference, a summary agenda is also provided there. > Investors > General Meeting The website also contains information on shareholder rights pursuant to sections 122 (2), 126 (1), 127, 131 (1) of the German Public Limited Companies Act ( AktG ). The Bank offers the additional service of allowing shareholders to appoint one of the proxies named by DVB to exercise their voting rights at the General Meeting. Pursuant to section 134 (3) sentence 4 of the AktG, DVB provides a proxy form which can be used for electronic transmission of a proxy by fax or . The Company s Memorandum and Articles of Association do not currently provide for the casting of votes by post. Regular financial reporting and independent audits Financial reports provide shareholders and the general public with regular information about DVB s financial position and performance. DVB publishes two annual reports for each concluded business year. The annual report of DVB Bank SE comprises the Bank s financial statements in accordance with the HGB, whilst DVB Group s annual report contains its IFRS consolidated financial statements. Both sets of financial statements are prepared by the Board of Managing Directors. They are subjected to a review by the independent external auditors appointed at the Annual General Meeting before being confirmed (single-entity financial statements) by, or receiving final approval (consolidated financial statements) from the Supervisory Board. The single-entity report of DVB Bank SE is only published on the Bank s website, in German. The Group Annual Report is available for download from DVB s website in both English and German. These reports are expected to be available on DVB s website under Investors > Publications > Financial reports at the end of March/beginning of April During the year, DVB also publishes a half-yearly financial report that includes condensed consolidated financial statements and interim management statements during the first and second half of the year, covering key financial data for the first three months and nine months of the business year, respectively. All these financial reports are prepared according to IFRS. The Annual General Meeting on 12 June 2014 appointed Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, as auditors for the 2014 business year. Their mandate covers the audit of the single-entity financial statements and the consolidated financial statements prepared by DVB for the 2014 business year, as well as any review of the condensed financial statements and the interim management report (pursuant to sections 37w (5) and 37y no. 2 of the German Securities Trading Act (WpHG)) as at 30 June 2014; and interim consolidated financial statements (pursuant to section 340i (4) of the HGB) prepared prior to the Annual General Meeting held in More information on the topics discussed during the Annual General Meeting 2014 is available in the chapter DVB share on page 44 of this annual report.

32 28 Corporate Governance Report 2014 Management tools The key tools employed to manage the business are financial controlling, the risk management system, and the compliance function. Financial controlling The Board of Managing Directors has an extensive set of controls at its disposal: it uses them for value-driven and integrated overall management of the Bank taking into account both income and risk parameters. From an ex-ante point of view, the key task is to distinguish beneficial options from disadvantageous ones with a focus on the transparent and consistent design of target systems, alternatives, and forecasts. Ex-post analyses, in contrast, are carried out within the framework of a systematic cycle of planning, management and control. This means identifying concrete measures and management options that are specifically designed to meet the requirements of the respective management areas. The information gained through analysing risk-adjusted profitability provides transparency regarding the value created throughout the Group, and in the various units managed. The metric used internally to assess the performance of each unit is economic value added (EVA ). The indicator measures the performance generated on the risk capital invested. Risk-adjusted profitability data is a key input factor for allocating capital and resources within the enterprise. All of DVB s divisions and areas are covered by a uniform valuedriven management system. Besides income, risk is another key dimension of all ex-ante and ex-post analyses. In essence, the Group s focus is on achieving defined income and cost targets, whilst maintaining its risk-bearing capacity and ensuring compliance with regulatory requirements. In addition to the strategic plan and a detailed one-year plan, the standardised toolbox also provides for regular projections of full-year results carried out over the course of the year. The periodic management information system is built on top of an integrated data warehouse, with ad-hoc studies and analyses used as required. DVB s tools for measuring risk-adjusted profitability are also integrated in the Integrated risk and capital management system used throughout the DZ BANK Group. Risk management DVB s Board of Managing Directors has established an adequate and viable risk management system that fulfils the Bank s own commercial needs and complies with legal requirements. With the methods, models, organisational rules and IT systems implemented, DVB is able to recognise material risks at an early stage, and to respond appropriately by taking suitable measures. The suitability and effectiveness of DVB s risk management system are regularly reviewed by internal and external auditors. DVB operates a Group-wide risk management system, which complies with all statutory and regulatory requirements. This risk management system comprises adequate provisions and measures with respect to risk strategy, risk-bearing capacity, risk management, and risk monitoring, plus a multi-level framework for the early detection of risks. In addition to the structural and procedural organisation, these measures also apply to the processes for identifying, assessing, managing, monitoring and communicating the risks. DVB s (narrowly-defined) risk management system distinguishes between operative and strategic risk management. The Bank defines operative risk management as the implementation of the risk strategy by the various business divisions, as prescribed by the Board of Managing Directors. In addition to defining risk policy guidelines, strategic risk management also coordinates and supports operative risk management processes by crossdivisional committees. The risk control function which is independent from risk management in the narrower sense comprises the identification, quantification, limitation and monitoring of risks, plus risk reporting. A DVB Group Risk Report is submitted to the entire Board of Managing Directors and the Supervisory Board on a quarterly basis, informing the two Boards about the Group s risk exposure. Furthermore, DVB has installed reporting systems for all relevant types of risk. This ensures that the risks are transparent at all times to the authorised persons with responsibility for those risks. For more details regarding risk management, please refer to the report on opportunities and risks on pages of this annual report.

33 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION COMPANY Corporate Governance Report Compliance DVB defines compliance as adherence to the law and the Company s Memorandum and Articles of Association, as well as compliance with internal rules and regulations and voluntary obligations. The Compliance Office has been mandated by the Board of Managing Directors to ensure that regulatory compliance is implemented throughout the Group. Thus, the scope of the function includes but is not limited to money laundering prevention, prevention of market abuse or market manipulation, data protection, conflicts of interest, anti-corruption, and compliance with the Markets in Financial Instruments Directive. In accordance with section 33 (1) sentence 2 no. 5 of the WpHG, the Head of Compliance submits a Compliance Report to the Board of Managing Directors and the Supervisory Board, at least once a year. This report complies with the requirements pursuant to sections 31 et seq. of the WpHG, the MaComp (Minimum Requirements for the Compliance Function and Additional Requirements Governing Rules of Conduct, Organisation and Transparency pursuant to sections 31 et seq. of the WpHG), as well as sectino AT of the MaRisk (Minimum Requirements for Risk Management in Banks). Sustainable conduct both commercially and socially is a key element of DVB s corporate culture. To ensure a professional, uniform and exemplary standard of conduct throughout the Group, the Board of Managing Directors developed a Code of Conduct at the beginning of 2010 (which was extended in 2012). The values enshrined in this Code of Conduct must be observed vis-à-vis our clients and business partners as well as all fellow employees. In this way, the Code of Conduct is also designed to manage ethical and legal challenges arising during day-to-day work, providing guidance in the event of any conflicts. The Code of Conduct is available on via the footer in the lower part of the page (in the Compliance section). Compliance staff have been appointed in each of the Bank s locations, directly reporting in this capacity to the Head of Compliance. Where possible, automated monitoring systems have been implemented, which ensure that any potential breaches are automatically alerted to the central function in Frankfurt/Main. The local Compliance Officers must additionally escalate any potential breach of internal policies/procedures as well as external rules and regulations. All staff attend regular trainings on compliance-related topics. DVB has partnered with an external provider to conduct webbased training sessions. Specifically, mandatory webinars were carried out focused on money laundering prevention, operational risk, data protection and security, conflicts of interest, and the Code of Conduct. In addition, the Bank has conducted regional follow-up group trainings on anti-money laundering and anticorruption measures where it uses a training video covering the topics, provided information concerning special regional requirements, and offered the opportunity to discuss the key learnings. The Code of Conduct outlines DVB s mission statement based on four core values: We offer our clients professional expertise on transport markets and transport assets throughout all market cycles. We support our clients around the world with tailor-made financing solutions and services. Our products meet all relevant legal and ethical standards. Entrepreneurial vision and strength guides our every thought and action. We create a working environment for all DVB staff that promotes expertise, creativity, dedication, teamwork and variety.

34 30 Compliance In 2014, DVB once again achieved good results on the international transport markets, thanks to its focused business model. Our main objective throughout every market situation is to secure and enhance the business model for the long term. Securing the business model for the long term In order to continually and successfully apply our focused business model in cyclical and even in slumping markets, it is crucial that we proactively identify all the risks that we are exposed to. We use Controlling, Risk Management and Compliance to ensure that all legal, regulatory and statutory requirements are being met. Compliance is responsible for preventing money laundering, market abuse or manipulation, ensuring data protection, handling conflicts of interest, and compliance with the Markets in Financial Instruments Directive as well as with the new requirements set out in the MaRisk. All employees receive compliance training on a regular basis to ensure that everyone is aware of and familiar with defined responsibilities and requirements. Fostering fair and transparent competition is a cornerstone of our business philosophy, which is underpinned by clearly defined and strict compliance guidelines: Rules to promote fair competition (Conflict of Interest Policy) Rules to prevent corruption (Anti-Corruption and Bribery Policy) Guidelines relating to accepting gifts and benefits (Gifts and Gratuities Policy) Procedure for reporting any irregularities (Whistleblowing Policy) The Board of Managing Directors implemented a Code of Conduct in spring 2010 in order to secure and deepen employee awareness of, and understanding for, compliant and ethically faultless conduct. We are proud of our experienced and effective team, which maintains exemplary standards of conduct towards clients and investors. Compliance training Our employees receive regular, mandatory training on the following issues: Prevention of money laundering and fraud Code of Conduct Operational Risk Management Data security Handling conflicts of interest In 2014, the ambitious target of a training ratio of 100% amongst employees for whom participation was compulsory was met. Ethics A new development in the field of compliance is emphasis on the conduct of senior managers in financial institutions. Specifically, regulators are looking for managers to ensure that any risk of treating clients unfairly has been identified, mitigated, and necessary enhancements implemented. This is driven by experience during the recent crisis where clients may have not have been sold adequate products, or received information or disclosures. The expectation is that senior managers have full oversight of all activities of the respective units not just the business unit that they may be directly responsible for. DVB has recognised the importance of ensuring that senior managers accept this responsibility, and are accountable for their actions. In addition to existing policies and procedures notably, our Code of Conduct DVB has initiated a specific training programme for senior executives, established customised management information packages, and commenced assessing its business to identify any areas of concern. The Bank will be addressing these proactively. Additionally, the Board of Managing Directors has approved a full-time position to implement this programme at the Bank s London branch, and we are looking to apply the lessons learned at other entities. The Code of Conduct is available on our website via the footer in the lower part of the page (in the Compliance section).

35 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION SUSTAINABILITY Clients 31 Client distribution and client loyalty At the end of 2014, DVB s global client base comprised 608 clients or client groups (previous year: 632). Most of our clients are domiciled in Europe (47.7%), followed by North America (18.8%) and Asia (17.1%). Our clients and client groups are distributed across our business divisions as follows: Shipping Finance accounts for 46.1% of clients (previous year: 46.9%); Aviation Finance accounts for 25.2% of clients (previous year: 25.2%); Offshore Finance accounts for 8.4% of clients (previous year: 8.2%); Land Transport Finance accounts for 7.4% of clients (previous year: 7.4%); ITF Suisse accounts for 7.1% of clients (previous year: 6.6%); Investment Management accounts for 2.1% of clients (previous year: 2.1%); Portfolios no longer in line with the Bank s strategy (which are being phased out, or wound down) account for 3.8% of clients (previous year: 3.6%). DVB pursues a cycle-neutral business model: this is why the Bank has remained a reliable partner to its clients, continuing to provide financing and advice even in a market environment that continues to be challenging. This strengthens trust and deepens the intensity of our client relationships for the long term. Accordingly, we support our Transport Finance and Investment Management clients with their financing projects on a long-term basis: as at 31 December 2014, 51.6% of our clients had been using our range of services for more than five years. Of our client relationships in the Transport Finance and Investment Management business divisions, we have maintained 8.4% for less than one year, 20.9% for between one to three years, 19.1% for between three to five years, 36.2% for between five to ten years, 9.7% for between ten to 15 years, and 5.7% for 15 years and longer. Whilst the average length of client relationships differs between the business divisions, it is worth noting that Investment Management only commenced operations in Offshore Finance has only existed as an independent division since the beginning of 2013; the division covers the offshore financing activities previously handled by Shipping Finance. Transactions Our commitment to transport finance and to a number of transactions was once again awarded during 2014, as follows: Rail Finance Innovator of the Year (Global Transport Finance, December 2014) Rail Finance Deal of the Year Europe (Global Transport Finance, December 2014) Length of client relationship by business division % Less than 1 year 1 to 3 years 3 to 5 years 5 to 10 years 10 to 15 years 15 years and longer Shipping Finance Aviation Finance Offshore Finance Land Transport Finance Investment Management

36 32 Employees Staff numbers Development of the personnel structure After staff levels had risen by nine employees (1.6%) during 2013, the year under review saw an increase in the number of active employees by 14 (2.5%) to 581 staff. This figure does not reflect the twenty employees with inactive employment relationships, in particular the non-working phase of semi-retirement, maternity or parental leave. The staffing numbers for the years shown here also include employees of the LogPay Financial Services GmbH subsidiary. Rising staff numbers over recent years were largely due to a significant increase in workload, in response to greater legal and regulatory requirements that had to be absorbed by additional staff. This trend prevailed during 2014, affecting staffing levels in the service areas in particular: at 221 employees, the number was 3.8% higher than in the previous year (year-end 2013: 213 employees). Distribution of 581 employees by business division Staff levels Number of staff members Transport Finance/Investment Management 304 (+2 staff) 400 Service areas 221 (+8 staff) 300 LogPay Financial Services 56 (+4 staff) Staff members in the active phase of employment Staff members in the passive phase of employment

37 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION SUSTAINABILITY Employees 33 Nationalities and work at international locations DVB s business model is international in every conceivable way. Diversity management has thus been a part of day-to-day life at DVB for quite some time. Once again, this was evident in the structure of our team: DVB Group s employees hailed from a total of 39 different countries in the year under review, and there are 30 different nationalities represented within our core Transport Finance business. Nationalities 2014 Group Transport Finance/ Investment Management Number % Number % German Dutch British Singaporean US-American Greek Norwegian additional nationalities within DVB additional nationalities in Transport Finance/Investment Management Total

38 34 Employees 320 staff members (2013: 315) in active employment worked in our various international locations in 2014; in other words, they are active in those international transport markets where the Bank s clients are located. At 261, the number of staff in active employment at DVB s German offices in Frankfurt/Main and Hamburg showed an increase of 3.6% over the previous year (2013: 252). Demographic management The concept of demographic management means to recognise the ageing of the population as a long-term trend, to accept it as a challenge for the Bank, and to find constructive solutions for it. Changes in the age structure have a comparable impact throughout all the industrialised nations in which DVB is represented. On average, the population and workforce are ageing. At the end of 2014, the breakdown of DVB s staff by age and gender was as follows: Distribution of staff members in active employment by location Group Transport Finance/ Investment Management % % Frankfurt/Main, Hamburg London Amsterdam Rest of Europe Europe New York Curaçao North and South America Singapore Tokyo Asia Total Age structure and gender allocation 2014 Male Female Total Number % Number % Number % Under 30 years to 34 years to 39 years to 44 years to 49 years to 54 years years or older Total

39 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION SUSTAINABILITY Employees 35 Of the total of 581 employees, 350 were men and 231 were women, as at the end of 2014 (2013: 567 employees comprising 342 men and 225 women). 21.9% of employees were 50 years or older (previous year: 21.7%). 36.1% of employees were between 40 and 50 years of age (previous year: 36.5%). 33.4% of employees were between 30 and 40 years of age (previous year: 34.2%). 8.6% of employees were younger than 30 years (previous year: 7.6%). Given the heavy workloads and the new challenges that constantly arise, we are confronting the question of how DVB can motivate these experienced employees for the long term, and secure their loyalty to DVB. This is where our in-house training concept comes in: by establishing a variety of learning options, and integrating them in our corporate environment, we secure the readiness and commitment of our employees. Staff loyalty DVB relies on a very loyal workforce: at 31 December 2014, 367 employees (63.2% of the overall workforce) had been working for DVB for more than five years (2013: 385 employees or 67.9%). Staff loyalty, measured in terms of the length of employment Male Female Total 2014 Number % Number % Number % Less than 5 years More than 5 years More than 10 years More than 15 years More than 20 years More than 25 years More than 30 years Total

40 36 Employees Diversity at management levels At 31 December 2014, the two top management levels below the Board of Managing Directors comprised 109 executives who either reported directly to the Board of Managing Directors or worked as team leaders. Women held 27 (24.8%) of these executive positions, with men accounting for the remaining 82 (75.2%). The share of female executives was up 12.5% year-on-year (2013: 106 employees on the two top management levels; 24 positions held by women equalling 22.6%). Professional experience of our staff Experience in transport finance or in the global transport industry in general is one of the key indicators that characterises the vast expertise of our employees. In DVB s core business (Shipping Finance, Aviation Finance, Offshore Finance, Land Transport Finance, Corporate Finance, Investment Management and ITF Suisse) our employees had an average of 13.2 years of relevant industry-specific experience during the year under review. Of these employees, 37.6% had more than 15, and 20.5% more than 20 years of relevant experience. Relevant professional experience Average relevant professional experience (years) Employees with Average relevant Employees with more than ten years professional more than ten years transport finance experience transport finance experience experience (%) (years) (%) Shipping Finance Aviation Finance Offshore Finance Land Transport Finance Corporate Finance Investment Management ITF Suisse Total

41 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION SUSTAINABILITY Employees 37 Work/life balance One of the goals of our human resources policies is to preserve employee job satisfaction and engagement. To achieve this goal, we have created an environment that makes it possible to reconcile work and family responsibilities. Flexibility is a cornerstone of achieving a work/life balance. Therefore, DVB encourages flexible working hours and part-time arrangements wherever possible and viable. The number of parttime workers rose from 58 to 61 by the end of the year under review, accounting for a total of 10.5% of DVB s workforce (comprising 50 female and eleven male employees previous year: 10.2%, comprising 46 female and twelve male employees). Other options, such as parental leave or semi-retirement, are regulated through in-house agreements. Number of part-time and full-time employees Male Female Total Male Female Total Employees with flexible working hours Part-time employees Full-time employees Total Employees on sabbatical leave Employees in semi-retirement (active) Employees in semi-retirement (passive) 5 2 7

42 38 Employees Sustainable human resources management Our human resources work focused on two main areas during Thanks to largely stable staffing levels, one focal area was the integration of employees who joined DVB since 2013, as well as those colleagues who moved locations within DVB. Another key aspect of our work was to support managers in promoting staff within their area of responsibility, and to enhance their qualification. Recruitment To fill open positions, we first look for experienced specialists, be it for Transport Finance or for one of our service areas. Accordingly, we generally recruit personnel with the help of recruitment consultants. Fortunately, we have increasingly been able to fill positions through referrals from our own employees, or through unsolicited applications. No recruitment measures are necessary for our trainee programme, as there are plenty of qualified candidates who apply directly. DVB s focus on diversity is also reflected in our recruitment activities: to the extent possible within the scope of staff selection, we strive to promote a heterogeneous personnel structure at all of DVB s office locations, in terms of nationality, age and gender. Personnel development DVB s business environment constantly gives rise to new and complex issues that our organisation has to deal with. The goal of human resources development is to equip managers and staff with the skills to deal with these challenges. Annual employee reviews are one of our key development instruments: they provide a platform for open dialogue between manager and employee, regarding the employee s skills, expertise and potential for development. For this purpose, Group Human Resources provides managers with a discussion guideline that is deliberately kept lean. The guideline serves as an orientation for structuring the discussion, leaving scope for further discussion issues. Development measures planned for the employee are noted in the guideline, and are implemented by manager and employee, with support provided by Group Human Resources. The range of development measures is wide including, for instance, learning from colleagues, learning from feedback, or participation in internal and external training courses. We have been conducting in-house trainings on presentation skills, negotiation techniques and project management, amongst others, in order to provide staff and managers with targeted tools and techniques, to help them in their day-to-day work. It is important for us to offer development measures that are made-to-measure and fit the Bank s and the individual employee s needs. Besides the employee review, the determination of the bonus has been deliberately set up as a separate process. Determining bonuses is based on achieving explicit quantitative or qualitative targets that have been mutually agreed between employees and their managers. We have been successfully conducting our trainee programme for many years. The roughly 18-month programme covers all the major aspects of our Transport Finance business, including relationship management and loan management.

43 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION SUSTAINABILITY Employees 39 Leadership DVB s characteristically dynamic approach is embedded in our concept of leadership. Our executive staff need to respond and make decisions quickly and flexibly. DVB s flat hierarchies help decision-makers to respond quickly, precisely and in a targeted manner, even to complex issues or transactions. Managers, as well as the members of the Board of Managing Directors, are also always accessible under our open-door policy in order to engender internal transparency and an open exchange. Being receptive to new ideas and challenging of opinions is at the heart of our concept of management. In an enterprise with a manageable number of employees such as DVB, we believe it is more productive to promote a personal approach, offering a high degree of autonomy rather than a topdown management style. Given this background, employee management, training and development are not administered centrally, and instead are primarily the responsibility of managers. Group Human Resources also provides support. In concrete terms, this means that we are supporting our managers with hands-on tools to analyse the need for development, to structure employee review discussions, as well as with training proposals and customised advice. Executive development DVB conducted a Management Survey amongst all its Senior Vice Presidents and Managing Directors in The results of this survey showed that the ongoing professional development of management staff is a key aspect of our human resources work. For instance, those surveyed expressed their desire for proactive Human Resources development and for new development perspectives, including outside traditional careers. Our aim is not to centralise the work that managers are responsible for in overseeing, training and developing employees, but rather to better equip those managers for their management duties. That is why we developed a training package for managers, to enable them to deploy our development tools in a targeted manner. Encompassing all executive staff below the Board of Managing Directors, the first course took place in 2013, in cooperation with an international business school. The course, which covered several days, focused on the following core topics, and on ways and means to implement them in practice: giving and receiving feedback; discovering talents and promoting them; coaching employees; working on one s own career development. Based on positive feedback from participants, and with the support from the Board of Managing Directors, we expanded this initiative to the next management level. Another training is scheduled for early We see these initiatives as key milestones on the way to qualifying our management team, to develop a corporate culture of open feedback, and to establish a joint vision of management.

44 40 Employees Health and safety at the workplace Promoting the health of our employees at the workplace is a top priority. We established the Committee for Occupational Health and Safety to be responsible for the creation, maintenance and development of safe and ergonomic workplaces, as well as the identification of potential risks and the prevention of accidents and work-related health problems. We contribute to a comfortable working environment with modern and high-quality office facilities that foster effective work. Occupational health consulting is carried out by an external provider in Frankfurt/Main. This company supports the Bank in occupational safety, accident prevention and all other health and safety issues. At a local level, Health and Safety Officers are responsible for risk assessment and management as part of occupational safety and for enacting measures to prevent workrelated health problems. We offer employees at all of our offices a thorough health checkup, and provide assistance with vaccinations when necessary. To protect our employees in the event of illness, disability or accident, we make an extensive insurance programme available at each of our offices, further supplemented by global policies. We also assign great importance to a healthy diet of our staff: DVB has handed over the operation of its employee restaurants in Frankfurt/Main and Amsterdam to external service providers. Environmentally friendly travel policies DVB s Travel Policy stipulates that employees should ideally opt for public transit for business trips, and to get to work every day. We assist in getting job tickets whenever possible and practicable. In order to limit plane trips to those that are truly necessary, DVB believes in using phone and video conferences whenever possible and practical for meetings. These can be convened at all office locations, using state-of-the-art conference technology. Collaborating with the works councils In 2014, we were once again able to swiftly confront new challenges and develop pragmatic solutions. This was only possible thanks to the good co-operation that took place with the SE Works Council, as well as with local Works Councils in Germany and the Netherlands.

45 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION SUSTAINABILITY Environmental responsibility 41 We are partners of AfB gemeinnützige GmbH, the first non-profit IT systems house specialising in collecting/compiling, wiping and remarketing used equipment. Through this co-operation, we managed to avoid creating more than three tonnes of electronic scrap in 2014 and saved considerable amounts of energy, gas and solid material. In total, AfB received 305 IT devices from DVB. These devices were wiped (data destruction certificate) and 96% recycled. This helped us reduce our ecological footprint: By partnering with AfB, we assume responsibility environmentally and socially, since half of AfB s workforce have a disability. The number and quality of IT equipment pieces we hand over to AfB created another job for a disabled employee. Reuseable after refurbishment Raw materialsw extraction through recycling Total volume Quantity % kg Quantity % kg Quantity kg PC Notebook Flat screen Miscellaneous 1) , ,968 Total , ,341 1) Excluding data carriers, software and accessories Iron equivalent Energy CO 2 equivalent kg kwh kg PC 2,920 4,611 1,292 Notebook 1,464 5,390 2,058 Flat screen 682 2, Total 5,066 12,292 4, Social responsibility Social responsibility matters! Therefore, we support internationally active charities through donations on a regular basis. We promote a variety of causes, helping people to help themselves, including at Christmas, sustainable project work and education programmes for children and young people. In 2014, our donation therefore went to the Voluntary Service Overseas, an international and independent charity, whose volunteers work with local organisations in developing countries and help improve health and education services and secure livelihoods. We also engage in projects for equal educational and personal development opportunities, irrespective of social or cultural backgrounds. In 2014, we made another donation to the ISTAT (International Society of Transport Aircraft Trading) Foundation Roundtable Program, which supports a variety of charities all over the globe, providing scholarships and grants to students in aviation-related fields in the amount of US$400,000.

46 42 Equity markets and the DVB share Equities markets on both sides of the Atlantic fail to break free, despite registering all-time highs. Vivid development in the equity markets Equity markets on both sides of the Atlantic showed dynamic performance during the first half of Having remained close to 9,400 index points during the first quarter of the year, the German blue-chip DAX index broke through the 10,000-point level during the second quarter, driven by a strong outlook for the eurozone economy and by the ECB s expansive monetary policy. However, the rally came to an abrupt end at the beginning of the second half of the year: unexpectedly weak economic data from Germany, Europe, and the emerging markets together with rising geopolitical tension dampened the investment climate. In this environment the DAX lost considerable ground, falling to around 8,500 points by mid-october The index then recovered during November, reaching a new all-time high of 10,087 points. Against the background of a government crisis in Greece, with fears of renewed escalation of the euro debt crisis, the DAX then surrendered parts of its gains towards the year-end, closing the year at 9,806 points, up 2.7% for the year. The Dow Jones Industrial Index also finished 2014 with a clear rise, at 17,823 points, it was up 7.5% on year-end Japan s Nikkei-225 Stock Average Index meanwhile ended the year at 17,451 points, up 7.1% year-on-year. DVB s share price was once again encouragingly stable Despite the volatility seen on equity markets throughout the year, DVB s share price proved to be satisfactorily robust under the described market conditions, exhibiting remarkable stability. This performance is attributable to the ongoing and similarly stable development of the Bank s business, and also to the narrow market in which the shares trade, due to the low free float. Over the course of 2014, the volatility of DVB shares was moderate. The highest price for the year of was touched on 21 March The lowest price of was recorded on 13 June The year-end share price was Accordingly, the Bank s market capitalisation was 1.1 billion at the end of The shares of DVB Bank SE (WKN: , ISIN: DE ) are listed in on the Frankfurt Stock Exchange in the General Standard. Since the capital increase conducted in 2008, the share capital pursuant to the Memorandum and Articles of Association amounted to 118,791, and is divided into 46,467,370 notional no-par value shares. It was not all positive a number of European exchanges closed 2014 with significant year-on-year losses: The FTSE 100 (Financial Times Stock Exchange Index, London Stock Exchange) was down 2.7%, to 6,566 points. The CAC 40 (the French benchmark index, NYSE Euronext Paris) dropped 0.5% to 4,273 points. However, in Italy the FTSE MIB Index (Financial Times Stock Exchange, Milano Italia Borsa) gained 0.4% and closed at 19,185 points. Chinese equity markets showed a distinctly positive performance in 2014 the most important indices, the SH COMP (Shanghai Stock Exchange Composite Index) and CSI 300 (China Securities Index) were up 52.9% and 51.6% year-on-year, respectively.

47 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DVB SHARE Equity markets and the DVB share 43 Shareholders were paid a dividend of 0.60 per notional no-par value share from DVB Bank SE s net retained profit for The Board of Managing Directors and the Supervisory Board will propose to the Annual General Meeting on 25 June 2015 that the dividend payment remain unchanged, at 0.60 per notional no-par value share for the 2014 business year. Shareholder structure remained unchanged The shareholder structure was unchanged in the 2014 business year. DZ BANK AG remains DVB s majority shareholder. Its stake did not change in 2014, remaining constant at 95.45% at the end of the year. The remaining 4.55% of shares are held in free float. DVB share data ( ) Business year high Business year low Year-end price Number of shares outstanding at year-end 46,467,370 46,467,370 46,467,370 46,467,370 46,467,370 Market capitalisation at year-end 1,145,420,471 1,143,097,302 1,127,298,396 1,112,893,512 1,161,684,250 Dividends Dividend yield 2.43% 2.44% 2.47% 2.51% 2.40% Payout ratio 32.9% 25.2% 22.0% 26.0% 26.5% Basic earnings per share Share performance DVB share price performance Dow Jones EURO STOXX Bank Index ( ) (points) DVB share s, last price: Dow Jones EURO STOXX Bank Index, last price: points

48 44 Equity markets and the DVB share Shareholders and the General Meeting On 12 June 2014, DVB Bank SE held its 27. Annual General Meeting since 1988 at company headquarters in Frankfurt/Main. On 2 May 2014, the agenda was published on time in the German Federal Gazette and on our website, and distributed in a media bundle throughout Europe as required. Item one on the agenda was the acceptance of the financial statements confirmed by the Supervisory Board and the approved consolidated financial statements. Agenda items 2 to 12 contained the following resolutions proposed by the Board of Managing Directors and/or the Supervisory Board: the appropriation of net retained profit for the 2013 business year; the formal approval of the members of the Board of Managing Directors and the Supervisory Board for the 2013 financial year; the election of new members to the Supervisory Board; the appointment of external auditors for the 2014 fiscal year; the authorisation of higher variable remuneration in accordance with section 25a (5) sentence 5 of the German Banking Act; the cancellation of the existing authorisation to purchase treasury shares, pursuant to section 71 (1) no. 7 of the German Public Limited Companies Act (AktG), and on the granting of a new authorisation to purchase treasury shares pursuant to section 71 (1) no. 7 of the AktG; amendments to Article 4 (2) and (3) of the Company s Memorandum and Articles of Association; changes to the remuneration of the Supervisory Board members and the corresponding amendments to Article 19 (1) and (2) of the Company s Memorandum and Articles of Association; and further amendments to the Company s Memorandum and Articles of Association. In the general debate, shareholders and shareholder representatives asked numerous in-depth questions about agenda items and specific topics relating to the situation on the transport markets and the Bank s business development. Given that DZ BANK currently has a 95.45% stake in the Bank s share capital, voting results and attendance have been stable for many years now. In the final vote, 96.67% of the shares entitled to vote were represented. Shareholders and shareholder representatives approved the individual resolution proposals with a clear majority of between 99.98% and 99.99%. It should be noted in particular that our shareholders voted in favour of the dividend distribution of 0.60 per notional no-par value share that has remained unchanged since 2008, confirming the stable dividend policy of the Board of Managing Directors and the Supervisory Board. Transparent communications Our Investor Relations team strives to provide comprehensive information on business developments and investor relations activities. Therefore, the Bank regularly publishes information relevant to shareholders and the general public, in addition to its annual reports. DVB published an ad-hoc disclosure regarding the Bank s reviewed but not approved consolidated financial statements 2013 on 25 March The Bank published an ad-hoc disclosure regarding substantial income from the sale of a profit participation loan on 12 December These ad-hoc disclosures are available for download on DVB s website under > Investors > Publications> Ad-hoc disclosures. As a listed public company, DVB Bank SE is obliged to issue an annual Declaration of Compliance, in which the Board of Managing Directors and the Supervisory Board provide details on their compliance with the recommendations of the German Corporate Governance Code, and give reasons for any deviations. DVB published its 13 th Declaration of Compliance on 5 December The declaration covers the years 2014 and 2015, and is available on the Bank s website. All Declarations of Compliance issued by DVB since 2002 are available for download from its website Investors > Corporate Governance > Declaration of Compliance. DVB actively uses the internet for all relevant publications to ensure that information is provided to shareholders and the public in a timely, concurrent and comprehensive manner. The Bank s website is the point of contact frequently used by interested financial markets participants. It is continuously adapted to the growing needs of DVB s stakeholders. In-depth information is available on our website: > Investors > General meeting.

49 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DVB SHARE Equity markets and the DVB share 45 DVB compiles the scheduled dates of material recurring events and publications in the financial calendar, which is published on the Bank s website in good time, and is permanently made available there. This allows all those interested to be informed without undue delay. The Bank uses the social media communications channels Twitter (short messages), YouTube (video clips) and Slideshare (presentations and reports) as a targeted means to bring DVB s communications products close to its stakeholders, and to encourage interaction with them. Financial calendar. All relevant dates and events for the 2015 business year are published on > Investors > activities. DVB s website > Media > Social media provides a transparent overview of the Bank s social media Since 2008, DVB has also provided a dedicated information service: the Bank s Investor Relations newsletter, Performance. This is designed to actively relay target groupspecific information about DVB s performance and its business divisions. The Bank also published 18 research videos, in which experts explain the mega trends in the shipping, aviation, offshore and land transport markets. With these webcasts, DVB further strengthens its position as the leading specialist in international transport finance, and gives vivid proof of its longstanding experience and know-how of markets and assets. Within the scope of both regular and ad-hoc events including the Annual General Meeting, the Annual Accounts Press and Analyst Conference, as well as follow-up rating discussions, road shows and one-on-one meetings DVB maintains a continuous, direct and intensive dialogue with shareholders, rating and bank analysts, and with financial journalists. The market analyses can be found on DVB s website > Media > Videos.

50 47 Fundamental information about the Group 47 A unique business model 50 Competitive strengths setting DVB apart 50 Strategic goals and implementation 52 Commercial planning and management system 54 Report on the economic position 54 Macroeconomic environment 56 Financial position and performance 72 Remuneration 76 Development of the business divisions 76 Shipping Finance 88 Aviation Finance 100 Offshore Finance 108 Land Transport Finance 120 Financial Institutions 124 Corporate Finance 130 Investment Management 137 Report on material events after the reporting date 138 Report on expected developments, opportunities and risks 138 Report on expected developments 142 Report on opportunities and risks 167 Explanatory disclosures under takeover law 167 Report of the Board of Managing Directors on relations with affiliated companies Group management report Earnings development mn +6.9% % Total income (before IAS 39) Consolidated net income before IAS 39 and taxes

51 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION FUNDAMENTAL INFORMATION ABOUT THE GROUP A unique business model 47 Unique specialisation of the business model The DVB Group is referred to in this report either as DVB or the DVB Group, whereas the parent European public limited-liability company (Societas Europaea) is referred to by its registered name DVB Bank SE. The leading specialist in international transport finance DVB s mission statement captures both the Bank s real accomplishments and its vision of the future. DVB s business model is characterised by four key aspects: It has a clearly defined focus. It features a unique specialisation. It is geared towards a cycle-neutral approach. It is international in scope. Clearly-defined focus of the business model DVB enjoys a unique position, thanks to its strategic focus on the international transport market, with the submarkets of shipping, aviation, offshore production, and land transport. The Bank s business model is built to reflect this segmentation, comprising the four divisions of Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance. As a highly-specialised niche provider, DVB offers its more than 600 clients and client groups from the international transport sector a broad range of customised solutions. DVB has continuously enhanced its core skills and areas of expertise over recent years. The Bank s financial services can largely be allocated to seven value-adding areas. DVB s Asset & Market Research prepares in-depth analyses of transport assets and markets. Leveraging this business intelligence in its four Transport Finance divisions Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance the Bank supports clients in the key product areas of Structured Asset Financing, Asset Management, Client Account, Risk Distribution, Corporate Finance Solutions, Private Equity Sourcing & Investments, and Loan Participations. Structured Asset Financing Drawing on its Structured Asset Finance core service, the Bank s four Transport Finance divisions Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance offer financing solutions relating to transport assets. In addition to traditional asset finance, we offer our clients tailor-made structured solutions for complex financing projects, often covering multiple jurisdictions. Unique specialisation Shipping Finance Aviation Finance Offshore Finance Land Transport Finance Structured Asset Financing Asset Management Client Account Risk Distribution Corporate Finance Solutions Private Equity Sourcing & Investments Loan Participations Asset & Market Research

52 48 A unique business model Asset Management In 2014, DVB once again demonstrated that, in addition to being a financing and advisory specialist, it provides clients with services that focus closely on their specific assets. Thus, the Bank offers far more than the traditional range of banking services: its asset-focused services close to the metal are available not only to operators and investors, but also to competitors. Based in London, DVB s Aviation Asset Management provides aviation clients with a broad spectrum of services ranging from lease management, lease advisory, technical management and analysis, to remarketing. Client Account Since November 2013, DVB has been offering its borrowing clients the opportunity to open current accounts which are required primarily in conjunction with loan accounts. The service comprises a broad and flexible range of account types, such as income accounts, retained earnings accounts, or accounts for maintenance reserves. The Bank has established a dedicated service centre for this purpose. Alongside loan accounts management, DVB thus offers its customers a comprehensive, one-stop service and a central point of contact. The new product is supplemented by a special online banking portal which is accessible via the internet, 24 hours a day, every day. DVB s clients may use this portal to inquire account balances and movements, download account statements, or send messages to our Frankfurtbased service team. All current accounts are opened under German law, and are thus covered by the deposit insurance scheme of the National Association of German Cooperative Banks (Bundesverband der Deutschen Volksbanken und Raiffeisenbanken). Risk Distribution DVB usually employs its own capital when financing the assets of Transport Finance clients. Notwithstanding this commitment, the Bank syndicates portions of this lending volume which can be substantial to other financial institutions on the international banking market. Both for DVB and its clients, this placement of credit risks is important to ensure sufficient liquidity and adequate risk transfer. Corporate Finance Solutions The DVB Corporate Finance team (DVBCF) provides the Bank s Transport Finance clients with financing solutions and supports them in raising capital via public offerings and private placements of equity, debt securities and structured asset finance products. Specifically, DVBCF offers solutions in the following areas: Mergers & Acquisitions (M&A) In both strong and weak market phases there is demand for M&A related services. We offer traditional sell-side and buyside advisory, alongside divestitures, spin-offs, joint ventures, Management-Buy-Outs/Leveraged-Buy-Outs, privatisations, and valuation and fairness opinions. Corporate Advisory The approach of our advisory services is based on an ongoing strategic dialogue with international transport sector clients and includes balance sheet optimisation, strategic alternatives assessment, restructurings, liquidation management, and deal negotiation support. Equity & Debt Capital Markets The capital markets have emerged as an important alternative for companies seeking to raise capital. Our products include primary and follow-on equity offerings, private equity and debt placements, equity-linked products, mezzanine capital, preferred securities, convertible bonds, and high yield bonds via public issues as well as private placements in accordance with rule 144A of the US Securities Act. Structured Asset Finance Structured Asset Finance involves the repackaging of assets and associated cash flows into marketable securities, typically through bankruptcy-protected structures. Products include asset-backed securities, charter monetization, project bonds, and receivables securitisation (including aircraft finance securitisation). Private Equity Sourcing & Investments Thanks to the extensive analytic output provided by DVB s Asset & Market Research unit, and the resultant superior expertise regarding transport markets, the Bank is an ideal partner for clients requiring equity capital and investors seeking suitable investment projects in the relevant sectors. Our Investment Management division comprises two teams: Shipping & Intermodal Investment Management (SIIM) and Aviation Investment Management (AIM). SIIM comprises NFC Shipping Funds, Intermodal Equipment Funds (investing in container boxes and other transport equipment), and the Stephenson Capital Fund (investing in rolling stock for rail transport). AIM manages the Deucalion Aviation Funds, which comprise a portfolio of several closed-end funds investing in aircraft and aircraft engines.

53 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION FUNDAMENTAL INFORMATION ABOUT THE GROUP A unique business model 49 Loan Participations DVB s wholly-owned, Zurich-based subsidiary ITF International Transport Finance Suisse AG was established in ITF Suisse actively participates in the international interbank market for senior asset-based lending, in the Group s strategic target segments of Shipping Finance, Aviation Finance, Offshore Finance, and Land Transport Finance. Asset & Market Research DVB s Asset & Market Research unit provides the basis for the activities of the Bank s business divisions, leveraging the teams long-standing research know-how to provide financing products and advisory services, as well as optimising the raising of equity finance. Cycle-neutral orientation of the business model As an advisor and finance provider to the international transport sector, DVB itself has become a part of this industry. Hence, the Bank is active in a sector that weathers crises, and remains on a long-term growth path. However, the transport markets are characterised by a high degree of cyclicality, with recurring market sequences and intervals that typically follow a certain pattern. As a market insider, DVB knows this market rhythm in detail, and has designed its business model with a proactive stance and a cycle-neutral approach. This cycle-neutral approach provided DVB with a variety of business opportunities throughout 2014, despite a market environment that continued to be challenging in some maritime shipping segments. International profile of the business model With offices in eleven locations (as at 1 January 2015) Frankfurt/Main, Amsterdam, Athens, Hamburg, London, Oslo and Zurich (Europe), New York and Curaçao (Americas), as well as in Singapore and Tokyo (Asia) DVB s business divisions Shipping Finance, Aviation Finance, Offshore Finance, Land Transport Finance, Financial Institutions, Corporate Finance, Investment Management and ITF Suisse have a worldwide presence in the transport markets and their various segments. This global presence in key transport locations enables the Bank to take into account the international dimension as well as the local specifics of the markets in which its clients operate. The following overview illustrates the legal structure of the DVB Group, including the parent company DVB Bank SE, with its registered office in Frankfurt/Main, the Group s material, fullyconsolidated subsidiaries (shown in yellow shading), and its branches and representative offices (shown in blue shading). DVB s legal structure (updated as at 1 January 2015) Subsidiaries of DVB (each 100%) Branches and representative offices of DVB DVB Holding (US) Inc., New York, USA DVB Capital Markets LLC, New York, USA DVB Transport (US) LLC, New York, USA DVB Bank SE, Amsterdam Branch, The Netherlands DVB Bank SE, London Branch, United Kingdom DVB Bank America N.V., Willemstad, Curaçao DVB Bank SE, Nordic Branch, Oslo, Norway DVB Group Merchant Bank (Asia) Ltd, Singapore DVB Bank SE, Singapore Branch, Singapore DVB Transport Finance Ltd, London, United Kingdom DVB Transport Finance Ltd, Tokyo Branch, Tokyo, Japan DVB Holding GmbH, Frankfurt/Main, Germany DVB Bank SE, Representative Office Greece, Athens, Greece DVB Bank SE, Hamburg Office, Germany ITF International Transport Finance Suisse AG, Zurich, Switzerland LogPay Financial Services GmbH, Eschborn, Germany LogPay Transport Services GmbH, Eschborn, Germany

54 50 Competitive strengths setting DVB apart DVB differentiates itself from other market participants through the following competitive strengths which characterise the Bank, and which DVB consistently implements and deploys on the international transport finance markets: Business model clearly focused, distinctively specialised, cycle-neutral and international in scope Business policy conservative and sustainable Organisation transparent structures, swift information flow and prompt decision-making Human resources highly specialised and experienced Products & services customised and beyond the typical scope of banking Asset & Market Research sophisticated, renowned and award-winning Credit portfolio diversified by multiple criteria and categories Risk management consistent and forward-thinking Funding maturity-matched Own funds strong capital base Over the course of many years, these ten competitive strengths have developed into success factors for DVB, which is thus able to weather the challenges posed by cyclical transport markets, to the benefit of a demanding clientele. Strategic goals and implementation Despite the continued difficult market environment in some maritime shipping segments during 2014, DVB maintained its focus on selected transport markets, and its organisational structure. The Bank strives to further expand this competitive position, through a continued efficiency enhancement of the products and services it offers. Specifically, DVB will pursue the following objectives during 2015: We keep on working intensely on reducing our risk positions in parts of our shipping lending business. We expect a significant contribution from our Investment Management activities. We focus on additional service offers for our clients, with a particular focus on the capital markets business. We continuously expand our funding sources, as well as funding tools and structures. We strive to deliver stable results for the 2015 business year, which should be above the 2014 results. We will further reinforce our new clients approach, particularly in our Shipping Finance division.

55 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION FUNDAMENTAL INFORMATION ABOUT THE GROUP Strategic goals and implementation 51 Enhancing process efficiency the Unity project DVB s Transport Finance divisions offer a vast range of products and services, whereby structured lending is at the core of the client relationship. Some primary performance indicators in the Shipping Finance, Offshore Finance and Aviation Finance divisions have diverged widely over recent years, reflecting a deterioration in the industry, especially maritime shipping markets, which negatively affected the cost/income ratio in Shipping Finance. In order to maintain the Bank s leading position in a constantly changing market environment, DVB launched the Unity project in Its objectives can be detailed as follows: The performance indicators of the Shipping Finance, Offshore Finance and Aviation Finance divisions will converge. Process efficiency in Shipping Finance and Offshore Finance will be enhanced. A new organisational model, designed to optimise the structure of client-facing and service teams, will be implemented in Shipping Finance and Offshore Finance. The Bank successfully realised these changes during the scheduled two-year implementation period until the end of Specifically, the following results were achieved: Cost reduction Unity has delivered the cost savings required to achieve the target reduction in the cost/income ratio for Shipping Finance and Offshore Finance. Market coverage Unity has enabled a sustained optimal market coverage with an economic cost base. Alignment A further degree of alignment has been achieved between the divisions, through the centralising of the European credit team, centralising of the European loan administration for Shipping Finance in Transaction and Loan Services, and the introduction of the successfully-established Aviation Transaction Manager role to the Shipping Finance and Offshore Finance divisions. Execution efficiency Through a multitude of improvement initiatives and process enhancement activities in addition to the centralisation and creation of the European hub in Amsterdam, these measures have culminated in enabling the organisation to make a significant step forward in productivity and overall efficiency. Strengthening DVB s brand profile DVB will take further steps to enhance its unique brand profile in terms of asset know-how and special asset services. To this end, the Bank will pursue the following strategies: DVB will enhance client satisfaction, and will communicate the progress made. Being a part of the global transport industry, DVB will further intensify its contacts with the global transport industry in all areas and on all levels. DVB sharpens its profile at key international transport industry conferences and events, a presence that the Bank expanded significantly during DVB publishes editorial articles, in a targeted manner and in trade media that are relevant for its clients often accompanied by advertising, thus avoiding unnecessary scattering. DVB presents the Bank s success story to investors in round-table discussions, one-on-one meetings and via roadshows. In this way the Bank will build the foundation for capital market transactions in euros and increasingly in US dollars. DVB wins renowned prizes recognising its sustained presence on, and its commitment to, the transport markets. In 2014, the Bank s Land Transport Finance team won two awards from trade magazine Global Transport Finance: Rail Finance Innovator of the Year and Rail Finance Deal of the Year Europe.

56 52 Commercial planning and management system This section describes DVB s commercial planning and management system, as well as its risk-adjusted performance measurement system. The Board of Managing Directors manages the Bank by focusing on the globally-active business divisions Shipping Finance, Aviation Finance, Offshore Finance, Land Transport Finance, Investment Management and ITF Suisse, as well as on other service functions. Logically, management hierarchy and the structure of the entire internal reporting system are geared towards this divisional business model. In view of the growing international regulatory requirements, the Bank has also deployed this divisional management model on a regional basis, for its sales offices. Strategy and planning process DVB carries out a revolving annual strategy and planning process, which includes a revision of the following components: Strategic planning is geared towards a five-year horizon. It consists of an analysis of the economic environment, of market and competitive trends, the Bank s strengths and weaknesses, and of a medium-term financial and capital planning derived from these input factors. Against the background of this multi-year planning, a more detailed operative one-year plan is worked out, which is one of the contributing factors to the Bank s individual targetsetting system (management by objectives). The monthly internal reporting compares one-year projections to actual results, analysing any deviations. In addition, full-year projections are implemented during the second half of each year; these may be used for fine-tuning and as a basis for the planning of future periods. The Bank s business strategy forms the fundamental basis for its risk strategies (in particular, the credit risk strategy), which refer to the business strategy in numerous respects. DVB s strategy process is fully integrated into the strategic planning process of the DZ BANK Group, and coordinated with that process in terms of timing. The annual strategy and planning process commences in late spring; it concludes in November of each year, with the submission of all strategies and planning documents to the Supervisory Board, for information and/or approval. During the months of April and May, the Bank compiles a set of current information concerning the economic environment, competitors behaviour, price and market trends, as well as the Bank s strengths, weaknesses and market share also comprising its own targets and planned measures. A review of the medium-term financial and capital planning is carried out in parallel, on the basis of the information described, using a comprehensive and integrated planning model which provides a full set of projections based on numerous input parameters. This process incorporates the deliberations and requirements of the Board of Managing Directors, as well as the expectations and assumptions of the top management level below the Board. In addition, a macroeconomic model is applied, which helps to estimate the impact of any changes in economic conditions on the Bank s key planning parameters and success factors. This macroeconomic model is also used to estimate the effect of such changes in the Bank s environment upon its risk positions. Moreover, DVB needs to assess the impact of macroeconomic scenarios (as defined by regulatory authorities, for example), and to apply such scenarios to the specific characteristics of its business. Key determining factors for DVB s growth and success are the volume of originated new business, the interest margins generated on new business, the amount of commissions generated on new transactions, and the changes in the risk profile. These parameters are in the focus of any planning deliberations. Operative planning for the subsequent year takes place in the autumn of each year, based on a projection and incorporating the strategic planning. A counter-current method is employed for the purposes of operative planning. Targets set by the Board of Managing Directors can be derived from the medium-term planning (which has been revised by the time operative planning takes place) and used by the business units for their individual projections. These are consolidated and assessed; a second round of planning may be required to revise such individual plans. This process is supported by a web-based planning tool. If need be, medium-term planning will be readjusted using the results of the operative planning process.

57 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION FUNDAMENTAL INFORMATION ABOUT THE GROUP Commercial planning and management system 53 Key performance indicators DVB s objective is to achieve a sustained increase in the Company s value. To this end, we have consistently developed and fine-tuned our management and control systems. Having implemented our EVA concept back in 2008, we have a toolbox at our disposal that permits a comprehensive, value-driven management of the Group and of all divisions. This system supports the creation of enterprise value and ensures Group-wide transparency on all levels. The risk-adjusted Economic Value Added (EVA ) parameter is a key indicator used for the management and assessment of the Bank s business. EVA represents residual profit; it expresses net profit (as an absolute amount) after deduction of costs for risk capital employed. The figure is calculated by deducting risk capital costs from consolidated net income before IAS 39 and taxes. An EVA figure greater than zero represents a positive value contribution. In addition, DVB employs two classic indicators for the assessment of efficiency and performance: the cost/income ratio (CIR), and the return on equity (ROE). The CIR is used to assess efficiency. It compares general administrative expenses to the income generated before allowance for credit losses. It is calculated as follows: general administrative expenses are divided by the total of net interest income before allowance for credit losses, net fee and commission income, net result from financial instruments in accordance with IAS 39, results from investments in companies accounted for using the equity method, and net other operating income/ expenses. ROE, the traditional profitability indicator, shows net income before taxes in relation to share capital and is calculated as follows: consolidated net income before taxes attributable to DVB s shareholders is divided by the total of weighted capital (issued share capital, capital reserve, retained earnings excluding fund for general banking risks, non-controlling interests and deferred taxes, as well as before appropriation of consolidated net income). If the indicator is disclosed for parts of the Group, the issued share capital is shown in proportion to the used risk capital. Regular reporting/management reporting Company management is evident in the regular reporting system. DVB has a monthly reporting system in place, which applies uniform structures to the Group and its divisions. The technical platform employed for this purpose permits separate reports to be generated at every level and for each unit. The reports published on a monthly basis and used by senior management focus on the Group, its strategic business divisions and in some cases on individual departments and teams. The reports generally have the same structure; they incorporate a uniform profit contribution analysis scheme and the same key financial indicators. As a rule, the reports include year-on-year and target/ actual comparisons. The top management reporting package (the Management Report) also contains comments, analyses and assessments of current developments, deviations from projections, and the degree of target achievement. The report is addressed to the Board of Managing Directors, but is made available simultaneously and in full to the entire management team. In addition, regular reports are prepared which cover individual business divisions in greater detail; ad-hoc analyses are carried out frequently in order to analyse specific issues. Based on this internal reporting system, the Board of Managing Directors gives a report on the Group s current economic development to the Supervisory Board during each meeting. Precalculations DVB has defined minimum requirements for the profitability of new business; these are based on the same principles as those applied to measuring performance (minimum EVA ). The Bank uses a special tool to calculate profitability prior to entering into an exposure; the results of this precalculation are a key basis for decisions and must be presented for each lending decision. Technical infrastructure DVB employs uniform, Group-wide SAP systems for accounting, valuation, consolidation and financial reporting, as well as for data inventory and reporting. A smaller online analytical processing database is used for the planning process and its presentation. Except for ROE, the indicators described apply uniformly to all company divisions and are calculated on the same basis. Furthermore, DVB complies with regulatory capital ratios and, where applicable, capital limits within DZ BANK Group. At present, DVB does not employ non-financial indicators for managing the Company.

58 54 Macroeconomic environment Judging by global activity indicators, the global economy clearly lost momentum during the year under review. Besides the impact of the European sovereign debt crisis, which is still evident, global economic growth was burdened by the fallout from geopolitical conflicts. At the same time, the global economy was supported by the upswing in the US economy, with decreasing inflation and falling unemployment, as well as continued strong expansion momentum in the Asian region. Developments on the international transport markets We analyse developments on DVB s core markets, in detail, in the market analyses provided by Shipping Finance (pages 76 77), Aviation Finance (pages 88 90), Offshore Finance (pages ), Land Transport Finance (pages ), as well as in the chapters on Financial Institutions (pages ), Corporate Finance (pages ) and Investment Management (page 131 and 134). Reference is made to these explanations. Development of oil prices Global oil prices are a key operating cost factor for companies of the transport sector. Oil price trends significantly strengthen or weaken the profitability of transport enterprises such as shipping companies or airlines. The market for crude oil and oil products was characterised by extensive excess capacity during Despite the conflicts affecting the most important oil production areas in Arab countries and Russia, falling demand met excess supply. This caused prices of the key crude oil grades to collapse, strengthening the profitability of many transport companies: The spot price for the key European Brent (London) grade closed the year at US$55.27 per barrel on 31 December 2014 a 49.7% decline from the end of the previous year (US$ per barrel). Also on a yearly average, prices for this key grade were down 8.8% year-on-year. The spot price for the US-traded West Texas Intermediate grade also fell significantly, by 45.6% to US$53.45 on 31 December 2014 (31 December 2013: US$98.17 per barrel). Looking at the average for the year, prices were down 4.9% year-on-year. Developments on the financial markets DVB conducts its funding activities on the international financial markets through a multitude of instruments. In this context, the Bank focuses on Germany, the other German-speaking countries and Northern Europe, and is looking to further raise its international profile. That is why developments on the international financial markets are very important for DVB s liabilities. Key developments on the financial markets during 2014 can be summarised as follows: As in the previous year, the European Central Bank (ECB) maintained its expansive monetary policy for the euro zone throughout 2014, against the background of low (and still falling) inflation, combined with a weak economy. Moreover, inflationary pressure within the euro zone eased further, thanks to falling crude oil prices. In this environment, the ECB cut its key interest rates further in June and September 2014, to counter a serious risk of inflation being too low on a sustained basis. Specifically, the ECB cut its main refinancing rate for commercial banks within the euro zone by a total of 20 basis points, to 0.05%. To stimulate euro zone lending, the central bank set a negative rate of 0.2% for overnight deposits, thus charging a penalty rate for funds deposited with the ECB for the first time. These interest rate cuts were accompanied by two further special monetary policy measures: in June, the ECB introduced longer-term refinancing operations (TLTROs), over a window of two years (until 2016), aimed at improving bank lending to the non-financial private sector in the euro zone. Through this scheme, banks may raise funds for maturities of up to four years, subject to certain conditions. In September 2014, the ECB resolved two new purchase programmes for ABS issues and covered bonds, which were launched during the fourth quarter. At the end of the year, ECB President Mario Draghi announced that the ECB has been examining the viability and effect of more extensive monetary policy measures, including broad-based purchases of sovereign bonds. The US Federal Reserve (Fed) exited its third major bond-purchasing programme in 2014 ( Quantitative Easing 3 or QE3), having gradually reduced the volume of monthly purchases of long-term US Treasury bonds (originally US$85 billion a month) since December Against the background of a steadily improving environment for the entire US economy, the Fed ceased its monthly bond purchases altogether in October. The Fed did not make any changes to key interest rates, keeping the target Fed Funds rate unchanged between 0% and 0.25%.

59 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Macroeconomic environment 55 Developments on the equity markets, and of the DVB share price Equity markets on both sides of the Atlantic showed dynamic performance during the first half of Having remained close to 9,400 index points during the first quarter of the year, the German blue-chip index DAX exceeded the 10,000-point level during the second quarter, driven by a strong outlook for the euro zone economy and by the ECB s expansive monetary policy. However, the rally in the DAX came to an abrupt end at the beginning of the second half of the year: unexpectedly weak economic data from Germany, Europe, and the emerging markets together with rising geopolitical tension dampened the investment climate. In this environment the DAX lost considerable ground, falling to around 8,500 points by mid-october The index then recovered during November, reaching a new record of 10,087 points. Against the background of a government crisis in Greece, with fears of renewed escalation of the European sovereign debt crisis, the DAX surrendered parts of its gains towards the year-end, closing the year at 9,806 index points, up 2.7% for the year. The Dow Jones Industrial Average index also posted marked gains during 2014, closing the year at 17,823 index points (up 7.5%). Despite the volatility seen on equity markets throughout the year, the DVB share price was once again gratifyingly stable. This performance is attributable to the ongoing stable development of the Bank s business, and also to the narrow market in which the shares trade, due to the low free float. The DVB share price was only exposed to moderate fluctuations during the course of 2014, reaching its high for the year of on 21 March The lowest price of was recorded on 13 June At the year-end, the DVB share was quoted at 24.65, equivalent to a market capitalisation of 1.1 billion. Euro/US dollar exchange rate developments DVB s income from its international Transport Finance and Advisory businesses is mostly US dollar-denominated, whereas its costs and funding are largely denominated in euros. Accordingly, the development of the euro/us dollar exchange rate is extremely important for the Bank. The euro lost significant value against the US dollar during the course of 2014: having traded above the US$ level during the first half of the year, the single European currency dropped markedly during the second half. The year-end euro/us dollar rate of was 16.5 US cents below the previous year s closing level, mainly on account of diverging monetary policies pursued by the Fed and the ECB. Whilst the Fed exited its purchasing programme for long-term US Treasuries, on the back of promising economic data, thus triggering speculation regarding an end to its low interest rate policy, the ECB adopted a clearly more expansive monetary policy stance for the euro zone. As a result, markets anticipated a continuation of the ECB s expansive monetary policy for 2015 for example, by way of ongoing and extensive purchases of sovereign bonds. DVB s ratings Since December 2011, DVB Bank SE has consistently been rated A+/A-1/stable by ratings agency Standard & Poor s (S&P). The ratings assigned by FitchRatings to the German Cooperative Financial Services Network also remained unchanged in 2014, at A+/F1+. The shares of DVB Bank SE (WKN: , ISIN: DE ) are listed in on the Frankfurt Stock Exchange in the General Standard. Since the capital increase conducted in 2008, the share capital pursuant to the Memorandum and Articles of Association amounted to 118,791, and is divided into 46,467,370 notional no-par value shares.

60 56 Financial position and performance Consolidated net income before IAS 39 and taxes improved by 10.2% over the previous year, from million to million, driven by two main factors: a strong increase in net other operating income and expenses, to 30.1 million which largely comprises contributions from Investment Management and the markedly lower allowance for credit losses, which was reduced by 25.5 million. Figures in the Group management report and in the consolidated financial statements including notes are rounded pursuant to standard business principles. This may result in slight differences when aggregating figures and calculating percentages. DVB s particular strengths were once again clearly visible during the business year under review: a consistent strategic focus on financing transport assets; a highly diversified credit portfolio collateralised by the financed transport assets; DVB s core risk management skills providing the basis for the Bank s lending business; matched-maturity funding; a strong capital base through own funds; highly qualified and experienced staff. Financial assessment of business performance in 2014 DVB assesses its 2014 financial performance by way of the following key financial indicators: Besides the markedly higher consolidated net income before IAS 39 and taxes, net income before IAS 39 also increased by 6.9%, to million (2013: million). Net interest income decreased by 11.2%, to million. DVB closed 187 new transactions, representing a volume of 6.3 billion, in the Transport Finance divisions Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance (2013: 173 new deals representing a volume of 4.7 billion). Based on a generally cycle-neutral lending policy, DVB continued to successfully implement its tried-and-tested strategy of pricing exposures in line with the risks involved. It achieved an average gross interest margin of 260 basis points on new Transport Finance business (2013: 300 basis points). Allowance for credit losses declined by 29.0%, or 25.5 million, to 62.4 million (2013: 87.9 million). Specific allowance for credit losses was recognised in the amount of 75.8 million (2013: 90.0 million), and portfolio-based allowance for credit losses in the amount of 13.4 million was released. No provisions were recognised (2013: release of portfolio-based allowance for credit losses in the amount of 1.0 million; provisions of 0.1 million were released). Net interest income after allowance for credit losses declined by 1.0%, to million (2013: million), despite lower allowance for credit losses due to three reasons. The high level of liquidity reserves, caused by unexpected, early loan repayments burdened net interest income by 13.2 million. Net interest income included additional risk costs of 27.6 million for vessels which are under the Bank s control, as part of restructuring measures. Finally, net interest income was also burdened by a lower average lending volume. Net fee and commission income, which primarily includes fees and commissions from the lending business, as well as asset management and Corporate Finance advisory fees, declined to million, down 15.7% year-on-year (2013: million). In the context of the Bank s Investment Management activities, subsidiary DVB Bank America N.V. sold its participation in a loan agreement with profit-sharing, as well as its legal position under an investment advisory and investment management agreement; this yielded other operating income of approximately 22 million. As a result, net other operating income/expenses rose to 30.1 million (2013: 4.1 million).

61 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Financial position and performance 57 Non-operating net result from financial instruments in accordance with IAS 39 which is always volatile swung to 12.8 million, down 31.0 million (2013: 18.2 million). The IAS 39 accounting rules prevent the recognition of certain economic hedge relationships related to non-financial assets and/or in connection with hedges using cross-currency swaps, thus leading to accounting mismatches. Reflecting the IAS 39 result, consolidated net income before taxes showed a 16.3% decline, to million (2013: million). Net income including IAS 39 also decreased accordingly, to million, down 3.7% (2013: million). The key strategic indicators which DVB Group uses to manage its business reflected the business performance: return on equity before taxes stood at 8.1% (2013: 10.3%), whilst the cost/income ratio was 53.0% (2013: 45.7%) and risk-adjusted Economic Value Added (EVA TM ) totalled 28.5 million (2013: 22.8 million) At 26.2 billion, the volume of business in 2014 was up 6.5% on the previous year (2013: 24.6 billion). Besides total assets of 24.5 billion (2013: 23.4 billion), the figure also includes irrevocable loan commitments of 1.7 billion (2013: 1.2 billion). Financial performance DVB s income after IAS 39 declined by 3.7% in 2014, from million to million. Net interest income after allowance for credit losses Net interest income after allowance for credit losses declined by 1.0%, from million to million, due to three reasons. The high level of liquidity reserves, caused by unexpected, early loan repayments burdened net interest income by 13.2 million. In addition, net interest income included additional risk costs of 27.6 million. Finally, net interest income was also burdened by a lower average lending volume. Net interest income declined by 11.2%, to million (2013: million). Financial performance ( mn) ) % Interest income Current income Interest and similar income Interest expenses Net interest income Allowance for credit losses Net interest income after allowance for credit losses Fee and commission income Fee and commission expenses Net fee and commission income Result from investments in companies accounted for using the equity method Net other operating income/expenses Net result from financial instruments in accordance with IAS Net income ) Retrospective application of IFRS 10 resulted in an adjustment of the previous year s figures. For a more detailed explanation, please refer to the Notes from page 176 onwards.

62 58 Financial position and performance Net interest income in the material business segments Net interest income in the material business segments developed as follows: Shipping Finance: down 15.3%, to 78.0 million (2013: 92.1 million); Aviation Finance: up 1.0%, to 89.7 million (2013: 88.8 million); Offshore Finance: down 15.4%, to 26.3 million (2013: 31.1 million); Land Transport Finance: up 12.8%, to 16.7 million (2013: 14.8 million); Investment Management: down significantly, to 13.3 million (2013: 6.0 million). Consolidated interest income and interest expenses The aggregate of consolidated interest and similar income decreased by 4.8%, from million to million, and was composed of the following items: million ( 0.8% year-on-year; 2013: million) was generated almost exclusively from loans to international transport clients; Average gross interest margins on new business developed as follows in 2014: Basis points Shipping Finance 1) Aviation Finance Offshore Finance Land Transport Finance ITF Suisse ) The figures for the years diverge from those stated in the Annual Report 2012, due to the separation of DVB s Offshore financing activities from the Shipping Finance segment, to establish a stand-alone Offshore Finance division, effective 1 January Interest expenses declined by 2.6%, to million (2013: million), comprising: million ( 3.5% year-on-year; 2013: million) in refinancing costs for the Transport Finance lending business; million (+1.3% year-on-year; 2013: million) in expenses for operating leases which also includes 27.6 million (2013: 23.6 million) in risk costs for vessels under the Bank s control, as part of restructuring measures million (+1.9% year-on-year; 2013: 15.8 million) in expenses for subordinated capital million ( 36.1% year-on-year; 2013: 26.3 million) from finance leases; 10.8 million (+96.4% year-on-year; 2013: 5.5 million) from bonds and other fixed-income securities; 88.7 million ( 27.8% year-on-year; 2013: million) in current income from operating leases, derived largely from those funds managed by the Investment Management division which must be consolidated; 1.2 million ( 45.5% year-on-year; 2013: 2.2 million) in current income from equity investments and other investment securities (such as joint ventures).

63 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Financial position and performance 59 Allowance for credit losses Net allowance for credit losses declined by 29.0%, from 87.9 million to 62.4 million. mn ) % Additions Reversals Direct write-offs Recoveries on loans and advances previously written off Net allowance for credit losses Allowance for credit losses comprised specific as well as portfolio-based allowance for credit losses, and provisions. Specific allowance for credit losses, which is recognised in income, was lower than in the previous year, at 75.8 million (2013: 90.0 million). Specific allowance of 13.4 million was released. No provisions were recognised (2013: release of portfolio-based allowance for credit losses in the amount of 1.0 million; provisions of 0.1 million released). The following tables show the development, broken down by business division, for 2014 and 2013: (see table on page 60) 1) Retrospective application of IFRS 10 resulted in an adjustment of the previous year s figures. For a more detailed explanation, please refer to the Notes from page 176 onwards. Allowance for credit losses by business division 2014 ( mn) Additions Reversals Direct write-offs Recoveries on loans and advances previously written off Total Shipping Finance Aviation Finance Offshore Finance Land Transport Finance Investment Management ITF Suisse Business no longer in line with DVB s strategy Other Total specific allowance for credit losses Shipping Finance Aviation Finance Offshore Finance Land Transport Finance Investment Management ITF Suisse Business no longer in line with DVB s strategy Other Total portfolio-based allowance for credit losses Total provisions Total Business no longer in line with DVB s strategy includes the D-Marketing unit and the Transport Infrastructure Finance portfolio. Other includes the Treasury and DVB LogPay.

64 60 Financial position and performance Allowance for credit losses by business division 2013 ( mn) 1) Additions Reversals Direct write-offs Recoveries on loans and advances previously written off Total Shipping Finance Aviation Finance Offshore Finance Land Transport Finance Investment Management ITF Suisse Business no longer in line with DVB s strategy Other Total specific allowance for credit losses Shipping Finance Aviation Finance Offshore Finance Land Transport Finance Investment Management ITF Suisse Business no longer in line with DVB s strategy Other Total portfolio-based allowance for credit losses Aviation Finance Business no longer in line with DVB s strategy Total provisions Total Business no longer in line with DVB s strategy includes the D-Marketing unit and the Transport Infrastructure Finance portfolio. Other includes the Treasury and DVB LogPay. 1) Retrospective application of IFRS 10 resulted in an adjustment of the previous year s figures. For a more detailed explanation, please refer to the Notes from page 176 onwards. The following developments were recorded for the individual portfolios in 2014: Shipping Finance 38.6 million in new allowance for credit losses, comprising million in new specific and portfolio-based allowance for credit losses, as well as direct write-offs, and 64.6 million in amounts released (comprising specific and portfolio-based allowance for credit losses), or recovered on loans and advances previously written off. Aviation Finance 0.2 million in new allowance for credit losses, comprising 14.7 million in new specific and portfolio-based allowance for credit losses, and 14.5 million in amounts released (comprising specific and portfolio-based allowance for credit losses), or recovered on loans and advances previously written off. Offshore Finance 0.0 million in new allowance for credit losses, comprising 0.7 million in new portfolio-based allowance for credit losses, and 0.7 million in portfolio-based allowance for credit losses released. Land Transport Finance 0.3 million in new allowance for credit losses, comprising 1.7 million in new specific and portfolio-based allowance for credit losses, and 1.4 million in amounts released (comprising specific and portfolio-based allowance for credit losses). Investment Management 5.0 million in new allowance for credit losses, comprising 7.4 million in new specific allowance for credit losses, and 2.4 million in specific allowance for credit losses released.

65 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Financial position and performance 61 ITF Suisse subsidiary 12.0 million in new allowance for credit losses, comprising 14.8 million in new specific and portfolio-based allowance for credit losses, as well as direct write-offs, and 2.8 million in amounts released (comprising specific and portfolio-based allowance for credit losses), or recovered on loans and advances previously written off. Total allowance for credit losses (composed of specific and portfolio-based allowance for credit losses, and provisions) increased by 7.0% as at 31 December 2014, from million to million, comprising mainly the following items: million for the Shipping Finance portfolio; 41.7 million for the Aviation Finance portfolio; 19.0 million for the ITF Suisse portfolio; 16.6 million for the Investment Management portfolio; 16.0 million for business that is no longer in line with DVB s strategy; 1.9 million for the Land Transport portfolio; 1.5 million for the Offshore Finance portfolio. For details on the development of allowance for credit losses please see the report on opportunities and risks (pages ). It portrays the changes by business division and region, among other things. As in the previous year, no country risk provisions were required. The Structured Asset Financing s credit exposures of DVB s Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance business divisions are almost exclusively collateralised by the transport assets we finance; thus, at only 0.8% in terms of net risk exposure, the share of commitments that involve a high degree of country risk was once again very low, and in line with the previous year. Net fee and commission income Consolidated net fee and commission income, which primarily includes fees and commissions from lending business, asset management and Corporate Finance advisory fees, amounted to million (2013: million, down 15.7%). Broken down by business division, net fee and commission income developed as follows: Shipping Finance: down 8.2%, to 41.3 million (2013: 45.0 million); Aviation Finance: down 11.4%, to 34.2 million (2013: 38.6 million); Offshore Finance: down 2.1%, to 18.6 million (2013: 19.0 million); Land Transport Finance: up 12.5%, to 7.2 million (2013: 6.4 million); Investment Management: down significantly, to 0.8 million (2013: 7.5 million). Total fee and commission income declined to million (2013: million, down 14.6%). A 7.2% decline was seen in fee and commission income generated in the lending business to 93.0 million, as a result of lower commitment commissions achievable on the market during the course of the year. Other fee and commission income decreased by 43.4%, to 16.4 million (2013: 29.0 million). Fee and commission expenses of 6.3 million (2013: 5.7 million, up 10.5%) included, in particular, 1.6 million in expenses for payment transactions and 0.8 million in expenses for the lending business. Result from investments in companies accounted for using the equity method Results from investments accounting for using the equity method rose from 5.1 million to 12.4 million. Net other operating income/expenses Net other operating income/expenses rose from 4.1 million to 30.1 million. Other operating income was up 81.1%, from 39.6 million to 71.7 million. In the context of the Bank s Investment Management activities, subsidiary DVB Bank America N.V. sold its participation in a loan agreement with profit-sharing, as well as its legal position under an investment advisory and investment management agreement. Other operating expenses declined by 4.8%, to 41.6 million (2013: 43.7 million).

66 62 Financial position and performance General administrative expenses General administrative expenses were up 5.0%, to million. Staff expenses Staff expenses of million were up 3.0% year-on-year (2013: million), due to a 3.2% increase in wages and salaries, to 95.5 million. Staffing levels developed as follows: The number of employees rose by 14 (+2.5%), to 581 persons at the 2014 year-end. With 304 employees, staff levels in our core Transport Finance and Investment Management business divisions during 2014 showed an increase of two over the previous year s level (2013: 302 employees). With 221 employees, staffing levels in the products and service units rose by eight staff members (+3.8% compared to the year-end 2013), predominantly due to new tasks imposed by regulatory requirements. The number of employees at DVB s LogPay Financial Services GmbH subsidiary increased by 7.7% to 56 staff members (year-end 2013: 52 employees). Non-staff expenses At 74.3 million, non-staff expenses were up 8.8% on the previous year (2013: 68.3 million), mainly comprising the following items: advisory expenses of 25.0 million (2013: 23.6 million), which break down as follows: 8.6 million for legal and audit expenses (including 2.6 million for the audit of the financial statements and other advisory services); as well as 16.4 million for other advisory services (including IT consultancy expenses); ancillary labour costs of 18.2 million (2013: 17.5 million); occupancy expenses of 8.3 million (2013: 7.3 million); as well as contributions and fees of 9.1 million (2013: 6.4 million), particularly for the bank levy and the deposit insurance scheme of the National Association of German Cooperative Banks (Bundesverband der Deutschen Volksbanken und Raiffeisenbanken). Depreciation, amortisation, impairment and write-ups Consolidated net income before IAS 39 and taxes Consolidated net income before IAS 39 and taxes rose by 10.2%, from million to million. Consolidated net income before taxes Consolidated net income before taxes declined by 16.3%, from million to million. mn ) % Consolidated net income before IAS 39 and taxes Trading result Hedge result Result from the application of the fair value option Result from derivatives entered into without intention to trade Result from investment securities Net result from financial instruments in accordance with IAS Consolidated net income before taxes ) Retrospective application of IFRS 10 resulted in an adjustment of the previous year s figures. For a more detailed explanation, please refer to the Notes from page 176 onwards. Net income from financial instruments in accordance with IAS 39 swung from 18.2 million to 12.8 million. Strong volatility in the interest rate and foreign exchange markets throughout 2014 was reflected in the following items: The trading result amounted to 9.4 million (2013: 2.9 million), including standalone derivatives in the trading portfolio. Conversely, the hedge result (hedge accounting) was down to 11.2 million (2013: 2.2 million); this figure comprises underlying transactions and derivatives with effective hedge relationships. The result from derivatives entered into without intention to trade changed from 16.2 million to 11.9 million. The result from investment securities amounted to 0.9 million (2013: 1.3 million). Net depreciation, amortisation, impairment and write-ups declined by 6.3%, from 4.8 million to 4.5 million.

67 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Financial position and performance 63 Development of consolidated net income Consolidated net income declined by 23.6%, from million to 84.9 million. mn ) % Consolidated net income before taxes Income taxes Consolidated net income thereof: consolidated net income attributable to non-controlling interests thereof: consolidated net income attributable to shareholders of DVB ) Retrospective application of IFRS 10 resulted in an adjustment of the previous year s figures. For a more detailed explanation, please refer to the Notes from page 176 onwards. Consolidated net income before taxes ( million) was subject to an income tax burden of 19.1 million, including current taxes in the amount of 15.9 million and deferred income taxes of 3.2 million. Distributable profit and appropriation of profits Distributable profit remained stable, at 27.9 million million ( 31.5% year-on-year; 2013: 83.2 million) was transferred from current operations to retained earnings. mn ) % Consolidated net income Profit carried forward Consolidated net income attributable to non-controlling interests Transfer to retained earnings Distributable profit ) Retrospective application of IFRS 10 resulted in an adjustment of the previous year s figures. For a more detailed explanation, please refer to the Notes from page 176 onwards. DVB Bank SE s Annual General Meeting, which will be held on 25 June 2015, will be proposed to pay a dividend of 0.60 per notional no-par value share for the 2014 business year, to be paid from DVB Bank SE s net retained profit. This represents a dividend yield of 2.43% based on the year-end share price of Accordingly, consolidated net income totalled 84.9 million (2013: million). Consolidated net income attributable to noncontrolling interests changed to 0.0 million (2013: 0.5 million). This reflects the share of results economically attributable to non-controlling shareholders in consolidated entities. Consolidated net income attributable to shareholders of DVB was down 23.6%, from million to 84.9 million.

68 64 Financial position and performance Financial position DVB s total assets rose by a total of 4.7%, to 24.5 billion (2013: 23.4 billion). Liabilities on the statement of financial position Deposits from other banks were down 18.4%, from 3.8 billion to 3.1 billion. Deposits from customers increased by 16.4%, from 6.1 billion to 7.1 billion. Securitised liabilities rose by 1.8%, from 11.1 billion to 11.3 billion as at the reporting date, whilst subordinated liabilities increased by 25.0%, to 0.5 billion (2013: 0.4 billion). Total liabilities were denominated in the following currencies: Development of own funds Own funds as defined by the Capital Requirements Regulation (CRR) totalled 1,408.6 million. Common equity tier 1 capital totalled 1,222.0 million. Reserves amounted to 1,327.3 million. Subordinated liabilities totalled million. Tier 2 capital totalled million. The Bank had adequate own funds as defined by the CRR available throughout Moreover, it complied with regulatory capital requirements pursuant to Article 72 in conjunction with Article 25 of Regulation 575/2013/EU (CRR) at all times during the year under review. bn % Swiss franc Euro Japanese yen Norwegian krone US dollar Total Own funds as defined by the CRR ( mn) 1) 2014 Paid-up capital instruments Capital reserve plus other reserves eligible for inclusion 1,327.3 Deductions from common equity tier 1 capital Transitional provisions regarding common equity tier 1 capital Common equity tier 1 capital 1,222.0 Transitional provisions regarding additional tier 1 capital Transfer of shortfall to common equity tier 1 capital Additional tier 1 capital 0.0 Subordinated liabilities Transitional provisions regarding tier 2 capital 83.4 Tier 2 capital Modified available equity 2) 1, ) Due to legal changes, this breakdown of own funds cannot be compared to the previous year s values, which were calculated in accordance with the German Banking Act. No reference values in accordance with the CRR are available as at 31 December ) Taking into consideration reserves and transfers to reserves from net income

69 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Financial position and performance 65 To ensure compliance with the Basel I floor rule pursuant to Article 500 of the CRR, which was once again extended, DVB raised subordinated funds in the amount of million in September The Bank raised an additional million in subordinated liabilities in January Capital ratios after appropriation of profits (Basel III) 1) 2014 Common equity tier 1 ratio 18.7 Additional tier 1 ratio 18.7 Total capital ratio ) Due to legal changes, this breakdown of own funds cannot be compared to the previous year s values, which were calculated in accordance with the German Banking Act. No reference values in accordance with the CRR are available as at 31 December DVB discloses capital ratios determined in accordance with the Basel III regime (Advanced Approach) and after appropriation of profits; on this basis, the common equity tier 1 ratio amounted to 18.7% whilst the total capital ratio was 21.6%. DVB s capitalisation remained above the minimum requirements stipulated by the CRR at all times during the year under review. Its capital ratios were always significantly higher than the requirements set out in Article 92 (1) of the CRR, as well as Article 465 (1) of the CRR in conjunction with section 23 of the German Solvency Regulation. Key Group management indicators The Bank employs three financial indicators to assess and manage its business: return on equity before taxes (ROE), the cost/income ratio (CIR) and the risk-adjusted Economic Value Added (EVA ). The ROE (before taxes) calculated in accordance with International Financial Reporting Standards declined by 2.2 percentage points, from 10.3% to 8.1%. The ROE was calculated as follows: consolidated net income before taxes attributable to DVB s shareholders of million was divided by the total of the weighted capital (issued share capital, capital reserve and retained earnings, excluding the fund for general banking risks, non-controlling interests and deferred taxes, and before appropriation of consolidated net income) of 1,280.0 million. The CIR in accordance with IFRS stood at 53.0% (2013: 45.7%). The CIR is calculated as follows: the general administrative expenses figure of million was divided by million (being the total of net interest income (before allowance for credit losses), net fee and commission income, net result from financial instruments in accordance with IAS 39, results from investments in companies accounted for using the equity method and net other operating income/expenses). Risk-adjusted EVA, which has major importance for the management and assessment of the Bank s business, was up 25.0% in 2014, to 28.5 million (2013: 22.8 million). EVA represents residual profit; it expresses net profit (as an absolute amount) after deduction of costs for risk capital employed. The figure was calculated by deducting risk capital costs of 88.3 million from consolidated net income before IAS 39 and taxes of million. Management indicators ) Return on equity before taxes 8.1% 10.3% 12.9% 14.0% 13.9% Cost/income ratio 53.0% 45.7% 46.5% 47.8% 49.0% Economic Value Added 28.5 million 22.8 million 67.9 million 66.8 million 23.8 million 1) Retrospective application of IFRS 10 resulted in an adjustment of the previous year s figures. For a more detailed explanation, please refer to the Notes from page 176 onwards.

70 66 Financial position and performance Refinancing The Frankfurt-based Group Treasury is responsible for securing refinancing throughout the Group. The unit also manages DVB s trading activities at a centralised level, and hedges the market risk exposure of direct and indirect subsidiaries, thus indemnifying these entities against market risks. DVB conducts trading activities in risk management products for its own positions and on behalf of its clients. It does so in order to hedge against market risk exposure from the customer lending business, and to hedge profit contributions which are predominantly generated in currencies other than the euro against exchange rate fluctuations. With a diversified range of funding products, Group Treasury targets a broad spectrum of domestic and international investors. The product range represents an attractive offer to existing and new investors. Funding activities: DVB extended its euro benchmark curve, broadening the investor base DVB has emphasised matched-maturity funding for many years a goal the Bank consistently adhered to in 2014 as well. DVB continued to broaden its investor base throughout 2014, through the placement of promissory note loans, bonds and the ship covered bonds outside the Volksbanken Raiffeisenbanken cooperative financial network. In detail, funding consisted of the following amounts and instruments: placement of promissory note loans in an aggregate amount of 1.2 billion; issue of senior unsecured bearer bonds totalling 0.8 billion under the Debt Issuance Programme. This included DVB s fifth euro benchmark issue ( million) as well as a 75.0 million subordinated bearer bond; a 75.0 million ship covered bond issue. Liquidity profile bn > 2025 Assets Liabilities

71 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Financial position and performance 67 Refinancing volume maturity breakdown As in the previous years, we adhered to our principle of matchedmaturity funding in Thanks to this conservative approach, we already complied with future structural liquidity requirements under the Basel III regime which are currently being discussed (Liquidity Coverage Ratio and Net Stable Funding Ratio). At year-end, the funding base included 94.5% long-term funds (2013 1) : 95.7%). The structure of the funding mix is analysed as follows: 51.6% unsecured bearer bonds (2013: 52.0%); 38.3% promissory note loans/long-term deposits (2013: 40.9%); 2.4% ship covered bonds (2013: 3.5%); 2.2% interest-bearing equity as defined by the KWG (2013: 1.5%). Short-term funding only accounts for 5.5% (2013 1) : 4.3%) and mainly comprises short-term deposits from clients as well as cash collateral received for interest rate and foreign exchange derivatives entered into for hedging purposes. In addition, DVB holds short-term bank deposits which are exclusively used for fine-tuning purposes. 1) The figures shown here for the previous year differ from those published previously, since cash collateral was retrospectively included as a means of short-term funding for the first time. Refinancing volume structure of refinancing vehicles A structural comparison of the individual refinancing vehicles portrays the following scenario: unsecured bearer dept securities (long-term bond issues under the medium-term note programme) rose by 6.8%, to 11.0 billion (2013: 10.3 billion). Long-term promissory note loans and term deposits were unchanged, at 8.1 billion. The volume of outstanding ship covered bonds declined by 24.4%, to 0.5 billion (2013: 0.7 billion). Driven by an inflow of cash collateral, the level of short-term funding increased to 1.2 billion (2013: 0.9 billion). Structure of refinancing vehicles bn +45.8% +34.7% 24.4% 0.0% +6.8% Interest-bearing equity Short-term deposits Ship covered bonds Promissory note Unsecured as defined by the KWG from other banks/clients loans/long-term deposits bearer bonds

72 68 Financial position and performance Net assets Business volume At 26.2 billion, the volume of business in 2014 was 6.5% higher than the previous year (2013: 24.6 billion). Besides total assets of 24.5 billion, the figure also includes irrevocable loan commitments of 1.7 billion. Lending volume over time Lending volume of 25.9 billion was up 16.1% on the previous year. bn ) % Nominal volume of customer lending by business division DVB s nominal volume of customer lending (comprising loans and advances to customers, guarantees and indemnities, irrevocable loan commitments and derivatives) includes structured asset finance in Transport Finance, the fund management activities in Investment Management, the activities on the interbank market of our subsidiary ITF Suisse and the exposures no longer in line with DVB s strategy held by Transport Infrastructure and D-Marketing. Customer lending rose by 12.0%, to 23.3 billion (2013: 20.8 billion). This was distributed across the business divisions as follows: Customer lending by business division Loans and advances to banks Loans and advances to customers Securities (including equity investments) Financial guarantee contracts from guarantees Contingent liabilities from irrevocable loan commitments Derivatives Lending volume Shipping Finance 43.3% ( 1.0 pp) 1) Retrospective application of IFRS 10 resulted in an adjustment of the previous year s figures. For a more detailed explanation, please refer to the Notes from page 176 onwards. Aviation Finance 30.5% ( 0.3 pp) Loans and advances to banks rose from 0.2 billion to 1.5 billion. Loans and advances to customers increased by 9.0%, to 20.6 billion (2013: 18.9 billion). The volume of securities (including equity investments) totalled 0.5 billion (2013: 0.7 billion). Financial guarantee contracts from guarantees were slightly higher year-on-year, to 0.3 billion (2013: 0.2 billion). Contingent liabilities from irrevocable loan commitments rose to 1.7 billion (2013: 1.2 billion). As in previous years, DVB employed derivative instruments for hedging purposes, offering them (to a limited extent) to its clients as well. The volume of these derivatives held rose from 1.1 billion to 1.3 billion. Offshore Finance 9.9% (+0.3 pp) Land Transport Finance 8.6% (+0.9 pp) ITF Suisse 4.3% (+0.5 pp) Investment Management 2.6% (+0.2 pp) Business no longer in line with DVB s strategy 0.8% ( 0.6 pp)

73 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Financial position and performance 69 Portfolio analysis Volume trends In order to detail the effects of the exchange rate on the portfolios, we have analysed the development of lending volume by segment over a five-year period, both in euro and US dollar terms. The Shipping Finance portfolio declined by 3.1% in US dollar terms, to US$12.3 billion (2013: US$12.7 billion). Due to currency effects, it grew in euro terms, by 9.8% to 10.1 billion (2013: 9.2 billion). The Aviation Finance portfolio declined by 3.4% in US dollar terms, to US$8.6 billion (2013: US$8.9 billion). In euro terms, it rose from 6.4 billion to 7.1 billion (up 10.9%). Earnings contributions Earnings were analysed by comparing the development of the Transport Finance portfolios in the years 2013 and 2014, breaking down the portfolio into total and new exposures, and then differentiating data further by key ratios and indicators. Lending volume over time bn % % % % % Shipping Finance 1) Aviation Finance Offshore Finance Land Transport Finance Investment Management ITF Suisse Business no longer in line with DVB s strategy Total US$ bn % % % % % Shipping Finance 1) Aviation Finance Offshore Finance Land Transport Finance Investment Management ITF Suisse Business no longer in line with DVB s strategy Total /US$ reference rate published by the ECB (31 Dec) ) The figures for the years diverge from those stated in the Annual Report 2012, due to the separation of DVB s Offshore financing activities from the Shipping Finance segment, to establish a stand-alone Offshore Finance division, effective 1 January 2013.

74 70 Financial position and performance New business 187 new Transport Finance transactions, representing a volume (final take) of 6.3 billion, were concluded during 2014 (2013: 173 new deals with a volume of 4.7 billion). New business volumes in the Transport Finance divisions developed as follows: new business in Shipping Finance rose from 2.0 billion to 2.6 billion; new business in Aviation Finance rose from 1.8 billion to 2.3 billion; new business in Offshore Finance rose from 0.5 billion to 0.8 billion; and new business in Land Transport Finance rose from 0.4 billion to 0.6 billion. DVB played a leading role in 84.4% (2013: 84.2%) of the new deals in the four Transport Finance divisions. At 260 basis points, the gross average interest margin for new Transport Finance business decreased year-on-year (2013: 300 basis points). Taking into account the total volume of DVB s new business, including Investment Management and the business activities of ITF Suisse, 213 new transactions with an aggregate volume of 6.8 billion (2013: 195 new deals with an aggregate volume of 5.0 billion) were concluded, achieving an average margin of 256 basis points (2013: 298 basis points). Total portfolio The LTV ratio expresses the relation between loans granted and the market value of the financed transport assets. It represents the ratio of the loan amount to the market value of the financed asset, and is quoted as a percentage. The lower the LTV ratio percentage, the lower the Bank s potential risk exposure in the event of the borrower s default (in which case the lender would need to realise collateral). The ratio for the overall portfolio improved, falling by 5.9 percentage points, to 66.7% (2013: 72.6%). The development of LTV ratios in the various Transport Finance portfolios showed a differentiated development: whilst in Shipping Finance, the LTV ratio declined by 8.8 percentage points, to 68.2%, in Aviation Finance, it increased by 0.1 percentage points, to 70.9%, in Offshore Finance, it rose by 0.4 percentage points, to 54.4%, and in Land Transport Finance, it was up by 2.5 percentage points, to 72.6%. The development of the CIR in the four Transport Finance divisions also showed a mixed picture. It was up by 1.2 percentage points in Shipping Finance, to 32.9%, up by 1.2 percentage points in Offshore Finance, to 11.3%, and up by 0.4 percentage points in Land Transport Finance, to 16.1%. In Aviation Finance, the CIR was down by 0.1 percentage points, to 15.6%. The CIR in Investment Management rose by 29.1 percentage points, to 59.6%. Likewise, the development of ROE differed. It was up by a marked 9.9 percentage points in Shipping Finance, to 12.3%, up by 8.5 percentage points in Aviation Finance, to 65.9%, and up by 3.4 percentage points in Land Transport Finance, to 66.7%. In Offshore Finance, ROE was down by 43.1 percentage points, to 138.9%. ROE in Investment Management fell by 8.5 percentage points, to 1.5%. It should be noted that the ROE and CIR indicators are determined excluding overheads; hence, they are not comparable to the ratios for the entire Bank.

75 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Financial position and performance 71 Earnings contributions ( mn) Shipping Finance Aviation Finance Offshore Finance Land Transport Finance Investment Management ITF Suisse Total % Total portfolio Customer lending 10, , , , , , , , , , , Loans and advances to customers 9, , , , , , , , , , Loan commitments, guarantees and indemnities , , Number of customers (primary obligor groups) Leading role (%) pp Average loanto-value ratio (%) n.a. n.a pp CIR (%) 1) pp ROE (%) 2) pp New business Number of new transactions Underwritten 2, , , , , , Syndicated Final take 2, , , , , , Leading role (%) pp Average gross interest margin (bp) ) Determined in accordance with IFRS excluding the allocation of overhead expenses and before allowance for credit losses 2) Determined in accordance with IFRS excluding the allocation of overhead expenses, after allowance for credit losses, and before taxes

76 72 Remuneration Regulatory requirements for remuneration systems With the revised German Regulation on Remuneration of Financial Institutions (referred to in this section as the Regulation ) which came into effect on 16 December 2013, the German Federal Ministry of Finance has detailed the requirements for remuneration systems implemented by financial institutions, in the context of the German Banking Act. The Regulation applies to all employees of DVB, at all locations. In particular, the Board of Managing Directors is responsible for compliance with the requirements pursuant to the Regulation by subordinated enterprises, to which neither section 64b of the German Act on the Supervision of Insurance Companies is applicable, in conjunction with the Regulation on Remuneration in Insurance Companies, nor section 37 of the German Capital Investment Act in conjunction with Annex II to Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations 1060/2009/EC and 1095/2010/EU (O.J. EC No. L 174; 01 Jul 2011, p. 1). DVB Bank SE and its affiliated companies together constitute the companies of the DVB Group. Intermediary companies without any operational activities of their own serve merely to optimise the Group s organisational or economic structure. The Company s remuneration systems are based on a remuneration strategy that sets out uniform guidelines for Group-wide remuneration management. Subordinated enterprises compliance with the requirements of the Regulation is ascertained through uniform, Group-wide regulations governing the remuneration strategy, remuneration systems, and annual targets. Frameworks and principles The remuneration of employees is a key staff management tool for DVB. The objectives of DVB Group s remuneration structure are: to motivate each member of staff to sustainably implement the targets derived from company strategy (and, therefore, the individual targets pertaining to divisions, departments and teams), and thus to make a personal contribution towards achieving the Company s strategic objectives; to reward staff performance without giving incentives for taking on undesired risk; to attract, motivate and retain talented employees for the Bank. To achieve these objectives, DVB offers a fixed salary, plus if applicable a variable remuneration component, which is in a reasonable proportion to the fixed remuneration, and must not exceed it. (For specific employee groups, the variable remuneration must not exceed twice the fixed remuneration.) During the course of regular management discussions with employees, managers discuss individual performance (covering all aspects of skills and performance). They assess any need for development derived from this analysis, and agree upon suitable support measures such as professional or personal training. Depending on national customs, the DVB Group grants non-cash ancillary payments in addition to the salary.

77 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Remuneration 73 General requirements of the Regulation The following legal requirements apply, and have been incorporated in DVB Group s remuneration systems: Senior management is responsible for the appropriate structure of employees remuneration systems. The supervisory body is responsible for the appropriate structure of senior management s remuneration systems. The structure of the remuneration systems and the remuneration strategy must be aligned with the Company s strategic objectives. Remuneration must be appropriate. There must be no incentive to enter into excessive risks. There must be no significant dependence on variable remuneration. Variable remuneration must provide an effective behavioural incentive. Negative contributions to success must impact on the amount of remuneration. Severance payments must not remain unchanged in the event of negative individual contributions to success, or misconduct. The remuneration of control units and organisational units under control must not be materially measured using the same parameters if there is any risk of a conflict of interest. A guaranteed variable remuneration is only permissible upon commencement of employment, and for a maximum of one year. A corresponding guarantee is restricted in the event that (regulatory) requirements governing capital and liquidity cannot be met. In principle, variable remuneration is capped at 100% (or 200%) of the respective fixed remuneration. Determining the total amount of the variable remuneration must take into account the institution s risk-bearing capacity, multi-year capital planning and financial performance; ensure the institution s ability to maintain or restore adequate capitalisation and liquidity; and guarantee that the institution s ability to maintain or restore the combined capital buffer requirements in accordance with section 10i of the German Banking Act is not compromised. The risk orientation of the remuneration must not be restricted or neutralised by way of hedging or other counter-measures. Appropriate compliance structures are mandatory. The control units staff receives an appropriate remuneration, whereby the emphasis lies on fixed remuneration. Remuneration of members of the Board of Managing Directors must be in line with performance and duties, and may not exceed a normal level unless there are special reasons. The assessment basis for variable remuneration components must extend over several years. Sufficient information must be made available about the remuneration systems. The institution shall set out principles governing the remuneration systems in its organisational guidelines. Certain disclosure requirements must be observed. The Supervisory Board must be informed at least once a year about the remuneration systems and has a right to obtain information from senior management. A Remuneration Control Committee must be established.

78 74 Remuneration Specific requirements of the Regulation Since DVB is a significant institution, as defined by the Regulation, the following principles also apply: For the purposes of determining variable remuneration, targets set for risk takers must incorporate the overall performance of the institution, the organisational unit and the individual; individual performance for risk takers must also be measured on the basis of non-financial parameters; remuneration parameters have to be used to determine the overall performance; these take into account the objective of long-term success, in particular the risks incurred, their duration, and capital and liquidity costs; at least 40% of the variable remuneration for risk-takers must be spread over a minimum three-year period where remuneration must not be vested faster than on a pro rata temporis basis; at least 60% of the variable remuneration for members of the Board of Managing Directors and risk takers among first-level management must be deferred; at least 50% of the cash bonus and at least 50% of the deferral at least must depend on the institution s sustainable performance, and feature a withholding period; negative contributions to results must reduce the amount of the variable remuneration; Extended disclosure obligations must be observed; Special provisions apply for discretionary pension benefits. Organisation and responsibilities DVB s Remuneration Strategy is reviewed (and adjusted if necessary) at least once a year. Especially in the case of any change to the business or risk strategy, the remuneration strategy and the structure of the remuneration systems must be reviewed and adjusted if necessary. DVB s remuneration systems DVB applies a consistent remuneration system. The remuneration of tariff employees in Germany is governed by the collective wage agreements for private and public-sector banks. As a rule, the remuneration of employees covered by collective wage agreements comprises 13 fixed monthly salaries (incl. special payments in accordance with Section 10 of the collective wage agreements for private banks) and a variable share. Outside Germany, employees in similar functions and positions receive a discretionary bonus, which is based on the same rules. Non-tariff employees in Germany and comparable staff outside Germany receive a fixed, contractually agreed annual salary. In addition, a variable remuneration is granted on the basis of defined criteria. The variable remuneration is paid in April of each year for the previous year. This structure and the corresponding bonus regulations apply to all entities within the DVB Group. The objective of the remuneration systems is to adequately honour employee performance and to provide effective incentives. They are structured so as to fulfil the applicable regulatory requirements. The Remuneration Control Committee of the Supervisory Board, in cooperation with the Remuneration Officer, reviews whether DVB s remuneration systems are appropriate, on an annual basis. The variable remuneration component for members of the Board of Managing Directors is determined by the Supervisory Board; it is partly disbursed immediately and partly deferred, with retention periods applicable as well. DVB s remuneration system thus ensures that legal requirements regarding sustainability are fulfilled, and that negative performance contributions are taken into account. As a first step, the consistency of the remuneration strategy with the Bank s business strategy is ascertained in coordination with Controlling. The remuneration strategy is then adopted by DVB s Board of Managing Directors, in its capacity as the Group s management body; finally, it is submitted to the Supervisory Board s Remuneration Control Committee for information, and discussed if necessary.

79 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION REPORT ON THE ECONOMIC POSITION Remuneration 75 Remuneration system for risk takers The definition of the term risk takers was updated on the basis of amendments to the Regulation as at 16 December 2013, and the technical standards defined by the European Banking Authority. Within the identified business divisions, all divisional heads are defined as risk takers. Further employees have been identified as risk takers below the (functional) level of divisional heads, in particular the heads of regional business units with a significant business volume. The disbursement of bonus payments has been modified in accordance with the Regulation: only 20% of the bonus achieved will be paid out directly in the following year. The remaining 80% of the bonus will be deferred over a period of up to four years, taking into account the deferral and retention periods. All amounts deferred are linked to the long-term performance of DVB and, where applicable, the relevant business unit. Negative performance contributions are also taken into account when determining the bonus as well as the pro-rata deferral which may lead to the variable remuneration being reduced or refused. In the event of any material changes to the organisational structure (such as the creation or merger of divisions), DVB will review whether the number and definition of risk takers need to be changed. Long-Term Incentive Plan Remuneration Officer Pursuant to section 15 of the Regulation, DVB appointed a Remuneration Officer. The Officer s duties and procedures are documented in the organisational guidelines. Remuneration Control Committee Pursuant to section 15 of the Regulation, DVB established a Remuneration Control Committee. The Committee s duties and procedures are documented in its internal regulations. Disclosure Pursuant to section 16 of the Regulation, DVB is obliged to disclose information regarding its remuneration policy and practice. DVB s disclosure duties, as a bank subject to Regulation 575/2013/EU (Capital Requirements Regulation CRR), as defined in section 1 of the KWG, are based solely on Article 450 of the CRR which requires that the Bank discloses certain quantitative and qualitative details for groups of employees whose activity has a material impact on the Bank s risk profile ( risk takers ). We will comply with this disclosure duty in a separate report, which will be made available on our website > Investors > Corporate Governance during the second quarter of The Long-Term Incentive Plan (LTIP) is an additional (potential) component of the remuneration system. It is a growth-oriented component with a strong long-term focus. Two LTIP schemes are currently active, potentially resulting in payments. With the LTIP, employees participate in DVB s long-term and sustained success. At the same time, the three-year waiting period ties them to the company and its success. The Bank intends to launch further LTIPs.

80 76 Shipping Finance 2014 has been characterised by a cautious improvement in market conditions for most shipping sectors and the financial markets. Despite the increased financing competition and client prepayment levels, we have maintained support for our clients by working in partnership with them, whilst applying our in-depth market expertise, and an ingrained risk management approach, in order to sustain a firm financial performance for the year. Shipping Finance Market review Sections of maritime shipping continued to be characterised by excess capacity during This mainly affected container carriers, crude oil tankers and dry bulk carriers measured in terms of transport volumes and services, these are the three most important segments in maritime shipping. The persistent excess capacity was caused by the fact that rising demand was countered by even stronger supply growth, due to new tonnage pushing onto the market although the crude oil tanker segment saw a decline in tonnage. As a result, charter and freight rates as well as asset values remained under pressure. Container ships In 2014, global sea container transport volumes increased by approximately 5% (2013: approximately 4%). Liner operators continued to adopt a cautious stance when chartering tonnage in 2014, which is reflected in the development of time charter rates. The Clarksons time charter rate index for container carriers, which has been calculated since 1993, remained steady at 47 index points on a monthly basis throughout the year 2014 (average 2013: 46 index points). The business environment for container shipping deteriorated significantly since the global financial crisis in The container vessel time charter index still averaged 92 index points during 2008 but, triggered by the collapse of Lehman Brothers in September 2008, it tumbled to an average of just 35 index points for Having recovered to average 51 index points for 2010 and 63 index points for 2011, the index value has fallen back to an annual average of 42 index points to 47 index points between 2012 and Container subsector charter rates Time charter rate (US$/day) Time charter rate index (points) 60, , , , , , Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Feedermax 725 TEU Handymax 1,700 TEU Sub-Panamax 2,750 TEU Panamax 4,400 TEU Time Charter Rate Index Source: Clarkson Research Services Ltd, January 2015

81 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Shipping Finance 77 Crude oil tankers As per the International Energy Agency s mid-term 2015 report, world oil demand grew 1.1% year-on-year. Demand from emerging markets remained higher, while energy demand in Europe and the Americas declined. Despite positive developments in demand for tanker shipping, and fleet oversupply has eased during 2014 while ordering has also been slowing down, the recorded influx of vessels delivered during still maintains pressure on the crude tanker market. Dry bulk carriers The year started with huge optimism for a much awaited recovery in the dry bulk market, especially after the positivity of Unfortunately, as cautioned by DVB in its multiple reports, it was a false hope and the year ended in despair. The global macroeconomic picture was not much supportive with downward revisions made to gross domestic product (GDP) growth rates for almost all major economies except the US and India. GDP growth in China, the biggest driver of dry bulk market, is expected to slow down to 7.4% during Preliminary figures indicated that overall dry bulk demand grew at a robust pace of 4.6% although it was significantly lower than the 9.0% growth seen in At the same time, the dry bulk fleet grew by 7% leading to further deterioration of demand-supply fundamentals. As a result, the Baltic Exchange Dry Index (BDI) the freight rate index for the transportation of dry bulk goods continued to slide lower throughout the year. The year started on 2 January 2014 at 2,113 points which was also the high point of the year. The BDI closed out the year on 24 December 2014, the last day of index quotation, at a mere 782 points. This was very close to the low point of the year of 723 points reached on 22 July Due to the positivity at the beginning of the year, the average for the BDI for the whole of 2014 was 1,105 points. In spite of all the negative sentiment near the year end, the whole year was not much worse than 2013 in earning terms. The dry bulk market has struggled to remain profitable on a sustained basis since The extent of the current shipping crisis is illustrated by a comparison of yearly BDI averages: after 6,413 index points for 2008, the BDI fell to an average of just 2,617 index points in An average level of 2,758 index points for 2010 was followed by further decreases in 2011 (1,549 index points) and 2012 (920 index points). There was some respite in 2013 where the BDI averaged 1,206 index points over the year. Unfortunately, the troubles of the dry bulk market continue to be driven by supply in spite of improving demand fundamentals. Thus, vessel values once again failed to recover, and even faced further downward pressure for some asset types. Given the importance of these three market segments for world transportation volumes, the fact that container, crude oil and bulk carriers represented less than 60% of DVB Group s broadly-diversified Shipping Finance portfolio made the exposure quite balanced. Further details on shipping market developments in 2014 can be found on DVB s website > Business & Expertise > Shipping Finance > Markets.

82 78 Shipping Finance Shipping Finance Strategy DVB s shipping client base consists of both public and private companies varying from large multinational enterprises to smaller single-purpose asset-owning companies. It also comprises financial investors with established track records in the shipping sphere. To these clients, our Shipping Finance division offers specialised financing solutions based on our in-depth knowledge of the assets, sectors and industry drivers. During 2014, the business division has pursued its strategic objectives of enhancing the quality of its client base and portfolio through its ongoing critical approach to client selection and risk management; and utilising the core of asset-secured lending together with an understanding of corporate credit, and thus developing financing solutions that draw upon a broader product tool kit. This enables Shipping Finance to offer clients a seamless onestop shop and further improve sustainable revenue diversification. Accordingly, our Shipping Finance clients can today readily draw upon the following range of products in order to fulfil their differing requirements: Corporate Finance Solutions, supporting our clients in identifying new and diverse sources of funds in the capital markets, and accessing those funds on favourable terms; as well as providing M&A and restructuring advice as well as arranging debt and equity financings; Private Equity Sourcing & Investments via Shipping & Intermodal Investment Management, managing investment in shipping companies and assets; and Asset & Market Research, with a core focus on the shipping market, producing high-quality independent research to support our strategy and activities. Since 1 January 2014 the Shipping Finance division has consisted of three sector teams: the Container, Car Carrier, Intermodal & Ferry Group, the Tanker Group (through the combination of the Chemical, LPG & Product Tanker Group with the Crude Oil & LNG Tanker Group to realise synergy benefits), and the Dry Bulk Group. The Cruise Group portfolio will be run down, meaning that DVB no longer originates new business in this sector. The three existing client coverage teams are strategically located in Amsterdam, Athens, Hamburg, London, New York, Oslo/Bergen and Singapore. Structured Asset Financing, comprising traditional asset-/ project-based financing mostly post-delivery financings with full recourse to a substantial obligor; Risk Distribution, syndicating portions of the lending volume to other financial institutions on the international banking market; Shipping Finance Three global sectors 1 Container, Car Carrier, Intermodal & Ferry Group (container vessels, container boxes, car carriers, reffers, ferries and RoRo s) 2 Tanker Group (crude oil and LNG 1) tankers as well as chemical, specialist, LPG 2), product and asphalt/bitumen tankers) 3 Dry Bulk Group (dry cargo, combination and bulk carriers) 1) Liquefied Natural Gas 2) Liquefied Petroleum Gas

83 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Shipping Finance 79 DVB launched the Unity project in 2012, in order to enhance process efficiency in the Shipping Finance and Offshore Finance business. The principle aim of Unity was to implement a mode of operation that would enable a greater alignment between the key performance indicators of the Aviation Finance, Shipping Finance and Offshore Finance divisions. The Unity project was successfully completed at the end of As a result, a European hub was created in Amsterdam, to centralise the European credit team, and in London, to centralise the Shipping Finance and Offshore Finance loan administration in Transaction & Loan Services. Also execution managers and transaction managers were introduced who support the client coverage teams in Europe and individually focus on managing our clients transactions. Our in-depth industry, market and asset knowledge shapes the strategy and activities we pursue in Shipping Finance. The Shipping & Offshore Research department supports and enhances this course: it provides valuable, up-to-date market intelligence, and produces high-quality, independent research all of which enable DVB to anticipate market changes and adjust the business segment and portfolio strategy in a flexible and timely fashion. This focus on research underpins our sector-oriented client coverage teams working in unison. As a result, our relationship managers have a profound understanding of our clients strategic financing needs, in addition to specific sector asset, industry driver and value chain knowledge. Risk management is central to Shipping Finance s client selection strategy and extension of loans. DVB s risk management platform constantly monitors and proactively manages risk whilst continuously strengthening its early warning and risk management policies and procedures for its 10.1 billion portfolio of shipping loans. The Bank has significant expertise with restructuring and work-out situations. Those cases have been successfully managed by the Strategic Management and Restructuring Team, which reports directly to the Chairman of the Board of Managing Directors and which is aligned with the Shipping Credit department. A prerequisite for DVB s continued success is co-operation amongst a team of professionals with a multi-disciplined background. As well as staff experienced in banking and structured finance, Shipping Finance employs individuals with specific shipping industry expertise gathered from a prior background with shipping companies, lessors, ship management companies, sale and purchase/chartering brokers, manufactures and export credit agencies. An asset-based focus, market knowledge, coupled with our commitment to long-term relationships, bring us closer to our clients and solidify our reputation as a trusted partner in Shipping Finance.

84 80 Shipping Finance Shipping Finance Portfolio analysis DVB is known as a leading arranger, underwriter and provider of asset-based capital in shipping finance. During a year of increased bank and capital market liquidity in most segments resulting in increased prepayments, DVB has maintained its lending volumes whilst undertaking a prudent risk posture. Total loan portfolio In 2014 the euro-based Shipping Finance customer lending volume increased by 9.8%, to 10.1 billion (previous year: 9.2 billion). Due to the fact that 93.3% of its customer lending is denominated in US dollars though, a year-on-year comparison in US dollar terms reflects the business development of Shipping Finance more accurately. Here the loan portfolio decreased by 3.1%, to US$12.3 billion (previous year: US$12.7 billion). Despite very strong loan production the portfolio shrank because of higher pre- and repayments amounting to 32%. The granularity of the Shipping Finance portfolio was good, with the average lending exposure per client standing at 36.1 million ( 30.9 million in 2013). The number of clients where exposure exceeded 50 million totalled 64 at year-end 2014 versus 56 clients at year-end Shipping Finance portfolio by vessel type Tankers 43.4% thereof: 13.0% Crude oil tankers 11.3% Product tankers 10.7% Gas tankers 8.4% Chemical tankers Bulk carriers 25.4% Container carriers 16.8% Container boxes 3.7% Cruise ships 3.0% Ferries/ passenger vessels 2.9% Others 4.8% thereof: 3.1% Car carriers 0.5% General cargo 0.1% Reefers 0.1% Roll-on/Roll-off vessels 1.0% Miscellaneous

85 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Shipping Finance 81 Diversification in the portfolio is a key pillar of Shipping Finance s risk management philosophy: the Shipping Finance portfolio thus remained well diversified across the shipping spectrum, in terms of sector/subsector, asset, geographic exposure, client concentration and types of financing. Additionally, based on Shipping Research s input, the portfolio is managed away from perceived higher risk areas. Looking at the financed vessel types, for instance, the overall Shipping Finance portfolio demonstrates a high degree of diversification. The tanker exposure, accounting for 43.4% of the overall portfolio, grew from 4.0 billion in 2013 to 4.4 billion in 2014 mainly due to an increase in financed crude oil and gas tankers which resulted from financing opportunities in the improved oil market during the second half of 2014 and a continued strong gas market. At the same time, Shipping Finance decreased exposure to chemical tankers from 10.0% in 2013 to 8.4% in 2014 as a proportion of the overall Shipping Finance portfolio due to limited viable deal opportunities resulting from a relatively flat chemical tanker market. The bulk carrier exposure increased to 25.4% (+2.7 percentage points), while the container carrier/container box exposures remained stable at 20.5% (+0.2 percentage points). Geographically, the portfolio is also well diversified, being mainly oriented towards Europe (50.6% in 2014, compared to 49.0% in 2013). Of this European exposure, the exposure to British and German clients further increased to 16.1% and 7.1% (+2.0 percentage points and +1.4 percentage points), respectively. Norwegian exposures shrank further to 5.8% ( 1.3 percentage points). Client exposure towards North and South America grew by 1.5 percentage points to 19.2%, and is mainly allocated to the USA (18.9%). The Australia/Asia exposure declined 1.2 percentage points, to 18.9%, and the Middle East region decreased 1.0 percentage points to 4.4%. Shipping Finance portfolio by country risk Europe 50.6% thereof: 16.1% United Kingdom 7.1% Germany 5.8% Norway 4.0% Switzerland 2.6% Cyprus 1.5% Greece 0.8% The Netherlands 12.7% Others North and South America 19.2% thereof: 18.9% USA 0.3% Others Asia/Australia 18.9% thereof: 6.1% Singapore 4.8% South Korea 2.7% China 2.4% Hong Kong 0.5% India 0.1% Japan 2.3% Others Middle East 4.4% Offshore 4.2% Central America/ Carribbean 2.7%

86 82 Shipping Finance New business Loan portfolio development During 2014, Shipping Finance realised 84 new transactions with shipping clients representing a strong new final-take volume of 2.6 billion (previous year: 85 new transactions with a final-take volume of 2.0 billion). New financings in 2014 were well diversified by client and obligor, as well as by vessel type. Almost half (48.2%) of new business was for the financing of tankers, with an almost even share of between gas (LPG and LNG) and crude oil tankers (17.9% and 17.7%, respectively). This slightly biased weighting towards the tanker segment which only accounted for 32.8% of new financings in 2013 is due to improved conditions in the crude oil tanker market during the second half of 2014 and a continuously strong gas market. Although the bulk and container markets are still problematic, there are signs of improvement on the horizon. Some of our clients were ready to place new orders mostly for new and more fuel-efficient assets, at low prices. Thus, bulk carrier new business grew to 27.6% from 24.7% in 2013, and the container carrier/container box origination decreased to 19% from 25.4% in We concluded these new deals with both established and firsttime clients. Some significant 2014 transaction highlights were: Oceanus Sole arranger of a syndicated facility (with Export Credit Agency ECA support) for the financing of four newbuilding LNG carriers ordered by Oceanus, a joint venture holding company owned 14.3% by George Economou and 85.7% by the US private equity firm Matlin Patterson. The facility consists of a commercial tranche, a KEXIM funded tranche and a KEXIM guaranteed tranche. The Oceanus deal is unique: it was the first transaction whereby the ECAs in Korea accepted no fixed employment for LNG carriers from the draw-down of the transaction. D8 Product Tanker Investment Arranger and co-ordinator of a club deal for a post-delivery senior debt financing of the first eight LR2 product tankers (out of total 30 new building LR1/2 product tankers) ordered by D8 Product Tanker Investment LLC a Navig8 joint venture company. DVB s Shipping & Intermodal Investment Management has invested 6.15% as part of the joint venture and Navig8 is one of our Tanker Group s longest standing clients. Caravel DVB in its capacity as Facility Agent and Security Trustee was mandated by AM Nomikos to lead a sizeable, high-profile transaction for Caravel. The transaction was in relation to the financing of five vessels, namely one Supramax bulk carrier built in Japan in 2012 and four newbuilding Ultramax bulk carriers currently under construction in China, with deliveries in This transaction enables us to further strengthen our excellent relationship with an internationally recognised shipowner and one of the most prominent names in Greek shipping.

87 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Shipping Finance 83 Shipping Finance Deal of the Year 2014 Deal of the Year 2014 China Shipping Container Lines (CSCL) is the seventh-largest container liner operator globally. Listed in Shanghai and Hong Kong, CSCL is controlled by China Shipping Group, which is the second-largest shipping conglomerate in China and whollyowned by the Chinese government. CSCL started as a coastal and short-sea liner service provider in 1997, and developed steadily through continuous organic growth to become a world container shipping giant. Today, CSCL domestic and international liner services cover more than 100 countries whilst maintaining a strong cornerstone footing in the domestic market. China Shipping Group and its subsidiaries including CSCL are amongst DVB s key clients. In September 2014, our Shipping Finance division structured and lead-arranged a senior debt post-delivery financing facility for CSCL to finance 70% of two 19,000 TEU new building container vessels. The vessel deliveries were scheduled for November and December The entire facility is 95% covered by K-sure with full repayment in twelve years. Whilst DVB acts as facility co-ordinator, arranger, facility agent and ECA agent in the transaction, we invited Credit Suisse to join as arranger and underwriter of 50% of the facility. In addition, this ECA-covered transaction is evidence of ongoing good co-operation between DVB and DZ BANK s export finance team. The vessels themselves have an overall length of 400 metres each, and beam of 59 metres thus making them the largest container vessels ever built. These vessels were ordered in 2013 at lower cost than CSCL s competitors. As shipping lines reach for economies of scale, there is an industry-wide shift to larger vessels. The financed vessels consume 20% less fuel than common 10,000 TEU container vessels currently afloat. The move towards larger and more fuel-efficient vessels is also being driven by expanded alliances that allow liners to boost yields by sharing share space on each other s vessels. The 19,000 TEU vessels provide CSCL and its alliance partners with the necessary assets to operate in the current, highly competitive market environment. This is the second high-profile transaction we lead-arranged for CSCL, after the syndicated container box sale-and-lease-back facility in December The successful closing of the recent transaction further strengthened our close relationship with CSCL and its parent company China Shipping Group. In addition, it enhances our sound track record as a leading shipping financier in Asia as we were mandated amidst strong competition from international banks including Citigroup, Bank of America, DNB, BNP Paribas, Australia and New Zealand Banking Group, etc.

88 84 Shipping Finance Earnings contributions Despite the positive development of new business, net interest income was down 15.3%, to 78.0 million (previous year: 92.1 million), as a result of risk-adequate, yet much lower interest margins (2014: 269 basis points; 2013: 316 basis points). The need to recognise impairments reduced thanks to slowly stabilising market conditions in some segments of the maritime shipping industry. Allowance for credit losses thus amounted to 37.8 million, a decrease of 49.5%. Total allowance for credit losses in Shipping Finance was million in 2014, compared to million at the end of This level of provisioning still represents a necessary cushion for potential losses. Due to lower allowance for credit losses and slightly decreased administrative expenses, results and net segment income before taxes both went up to 85.6 million and 38.5 million, respectively. Extract from Shipping Finance s segment report mn % Net interest income 1) Allowance for credit losses 1) Net interest income after allowance for credit losses Net fee and commission income Results (excluding the IAS 39 result) 1) General administrative expenses 2) Net segment income before taxes ) The retrospective first-time application of IFRS 10 led to an adjustment of the previous year s figure. 2) Only those costs are allocated to DVB s operating business divisions for which they are directly responsible. General costs of operations, overheads, or, for example IT costs, are not allocated to the operating business divisions. Risk management Shipping Finance has built a strong risk culture, which starts with our client-facing relationship managers and continues through each stage (including Shipping & Offshore Credit, Shipping & Offshore Research and Credit Committee assessments) until a new commitment is granted and continues thereafter throughout the term of the relevant exposure through constant vigilance, thorough loan management and continuous monitoring of the overall portfolio health. At the heart of our consideration for each new exposure is the New Deal Committee, which meets to discuss each possible new transaction at an early stage, with a view to spotting risk and structural deficiencies finally arriving at a consensus, be it positive or negative. The committee comprises the Member of the Board of Managing Directors responsible for Shipping Finance and Offshore Finance, the Head of Shipping & Offshore Credit and the Head of Shipping & Offshore Research. The research department is fully involved in the credit process, providing market research, commentary and research on all the technical aspects of the respective assets, in order to flag any possible negative effects on the tradability and value of the assets under consideration for financing. Only those transactions authorised by the New Deal Committee will move to the next stage, being presented to Shipping & Offshore Credit Committee. Over certain thresholds, some deals will require further approval from the Board of Managing Directors and (in few cases) from the Supervisory Board s Credit and Risk Committee. Once a transaction has been booked, it is monitored for any required action on an ongoing basis by the respective relationship manager and credit officer, and through the review and stress test process. Frequent client calls take place with the obligatory involvement of credit officers in order to further elevate the risk dialogue with our clients. We undertake the stress testing procedure (stressing probability of default and valuations) on a quarterly basis, with the results feeding into discussion with clients. In addition, there are continuous event-driven rating updates and reviews of the portfolio to refresh ratings and values.

89 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Shipping Finance 85 The Strategic Management & Restructuring Team of restructuring and work-out specialists is fully involved in the stress testing of the portfolio. If appropriate, an exposure is taken on to Early Warning List, Closely Monitored List, or Watch List reporting. In addition to the rigid call report discipline in place, the ongoing management of risk is aided by a full portfolio review by Shipping Finance senior management, to proactively identify concrete actions to be taken. The Strategic Management & Restructuring Team provided dedicated support on all stressed/distressed loans, and managed all exposures on the Watch List report. The above-mentioned protocols are geared towards flagging possible problems early, and allocating adequate resources to assess, quantify, qualify and formulate an appropriate and swift response. In 2014 we have taken swift action in response to any covenant breaches (value maintenance clauses and otherwise). The vessel values were monitored diligently to establish impending VMC breaches quickly. To further illustrate the point: during 2014 a total of 36 transactions had a VMC breach. Of those, twelve transactions were repaired, 19 transactions were waived, and five still had an outstanding value maintenance clause breach. The total funds required to repair the outstanding value maintenance clause breaches equal 15.6 million. At the end of 2014, 3.3% of the loan portfolio was on the Closely Monitored List (2013: 4.3%). 11.0% of the portfolio was on the Watch List (2013: 11.6%), and 1.9% of the portfolio was classified as special credits (2013: 2.3%) subject to close monitoring and a formal monthly review. Moreover, 5.1% of the portfolio is being discussed by the Early-Warning Risk Management Forum. The loan-to-value ratio, one key metric of loan performance, developed in Shipping Finance as follows: the average ratio at the end of 2014 was 68.2% compared to 77.0% at the end of With DVB s risk management infrastructure, Shipping Finance will continue to take whatever steps are necessary to safeguard its position as a secured lender in all cases. Shipping Finance Outlook 2015 Market outlook 2015 In 2015, excess supply is expected to persist for the three major maritime shipping segments, since the increase in capacity is set to once again outpace demand growth. We expect to see an increase in deliveries this year which will add to the pressure being faced by container, crude oil tanker and dry bulk markets. The outlook for container shipping demand is jittery, with 2015 unlikely to mimic the double-digit demand growth seen in The Asia-Europe trade route, which is the largest cash generator for liner operators and thus the most important trade route, faces uncertainty over trade prospects amid bearish economic news in both Asia and Europe. The 18-nation euro zone is hovering on the brink of recession with the euro at a multi-year low against Asian currencies. China s economy is slowing though it is still above 7%, according to 2015 forecasts but crucially for liners, new export orders are contracting and manufacturers are looking inward to the domestic market. Given the general uncertainty, liners will be wary of chartering in tonnage, specifically Post Panamax and smaller ships, for long periods of time. The uncertainty surrounding Panamax and smaller tonnage is compounded by Panama Canal s expansion, expected to be completed early The expansion will result in Panamax vessels being cascaded out on Asia-East coast US routes by Super Post Panamax and larger vessels. As a result, time charter rates of smaller tonnage are expected to remain around low levels for most of The weak market situation during 2015 will be exacerbated by the supply of new larger capacity vessels coming into service which were ordered in previous years. The new built Super Post Panamax and smaller VLCS are expected to be deployed not only in long-haul routes but also in mediumhaul routes such as Asia-Middle East. Liners will remain focused on lowering their unit slot costs on all possible routes by moving in larger ships and cascading out smaller ships. However, barriers such as port restrictions and need for frequent port calls in short-haul trades will limit deployment of larger vessels in all trade routes and provide marginal relief to owners of smaller tonnage. It is to be noted that in case of smaller tonnage the

90 86 Shipping Finance combined impact of low contracting, high levels of scrapping and trade growth had resulted in brief periods of positive sentiment for certain smaller segments in 2014, a phenomenon likely to repeat in For instance, new regions for Panamax tonnage include trade routes to/from West Africa where ports can now accommodate gearless tonnage as well as Chinese coastal trades. At the end of 2014 and in early 2015, the ratio of capacity on order to aggregate existing fleet capacity measured in Twenty-foot Equivalent Units (TEU) was 18%. In other words, the total order backlog for new container carriers was equivalent to 18% of the existing fleet (see chart ). Given the low average age of the worldwide container carrier fleet 70.6% of the aggregate TEU capacity is younger than ten years the potential for scrapping is lower than in other maritime shipping segments. Also with bunker prices at relatively low levels, owners of older fuel-inefficient tonnage will postpone their demolition plans. Hence, scrapping is not expected to provide any significant relief on the supply side. The tanker market is currently experiencing a temporary rebound, benefitting by the low oil price which is leading to contango, stocking up of oil reserves and use of tankers as floating storage which eventually is leading to a stronger demand for crude tankers than supported by fundamentals. This temporary situation will decrease with an increase in oil prices and should therefore be considered as a temporary chock to the fundamental supply demand balance. Nevertheless, although fleet oversupply has eased during 2014 while ordering of new vessels has been slowing down and deliveries have decreased, the recorded influx of vessels delivered during the economic boom still maintains pressure on the crude tanker market. According to the International Energy Agency, world crude oil demand increased by nearly 1% over the last year. Whilst imports from emerging markets rose, demand from Europe and the Americas declined. Despite slippage of some scheduled deliveries, the low scrapping rate combined with new deliveries continued to be a setback with the increase in capacity exceeding the growth in demand. The tonnage expansion during the past half decade has reduced the average age of the fleet tremendously that 63% of the current fleet is younger than ten years of age. Even though the ordering decreased in the past couple of years, oversupply is expected to continue for The excess in crude tanker supply will maintain pressure on freight and time charter rates as well as on crude tanker asset values. Freight rates continued to show great volatility, especially during the last quarter of the year. This is most likely to be repeated in Despite the slowing down in ordering activities, fleet oversupply remains one of the causes that will keep freight rates under pressure. Asset values have slightly increased during 2014, and it is expected to increase marginally in the coming year. The outlook for the dry bulk market remains challenging, with an anticipated decline in demand as the Chinese economy rebalances and at the same time an acceleration in the newbuilds entering the market. The scheduled deliveries for 2015 stand at close to 76 million dwt followed by another 60 million dwt in This is the highest number of newbuild deliveries scheduled to enter the market since Although there will be slippage, a substantial amount of tonnage is still likely to enter the market. Coupled with slowing demand, we do not expect the fortunes of dry bulk owners to improve substantially, seasonal spikes notwithstanding. The ratio of capacity on order to aggregate existing fleet capacity measured in dwt increased from 18.5% in 2013 to 21.1% in 2014 (see chart ). In this context, it is worth noting that there is significant upsizing across all subsectors with bigger and more fuel-efficient designs within Ship orders ratio of order backlog to existing fleet capacity Ratio of capacity on order to aggregate existing fleet Container vessels Current 18,210, % (capacity in TEU) Ordered 3,279,500 Crude oil tankers Current 390,700 (capacity in 000 s dwt) Ordered 50, % Bulk carriers Current 731,600 (capacity in 000 s dwt) Ordered 154, % Source: DVB Shipping Research, December 2014

91 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Shipping Finance 87 the Ultramax and Newcastlemax segments continuing to attract the most interest. It remains to be seen if these more expensive vessels will be able to give the expected return on equity to the owners, especially given the current low-price environment which is expected to persist in the near term. The average age of the dry bulk fleet is 9.5 years, with more than 70% of the vessels less than ten years of age. Possibly reducing demand, persistent oversupply of young tonnage coupled with a large orderbook is likely to keep the overall asset values and earnings low during We do expect some improvement in the second half due to seasonality. Portfolio outlook 2015 During 2014 we have seen an influx of increased liquidity from banks (including regional banks) and the capital markets. The tendency for many of our competitors remains towards a flight to quality and a focus on corporate-based lending which has caused pressure on pricing and other terms. We anticipate this will continue into In its Structured Asset Finance activity for 2015, Shipping Finance targets further modest growth, whilst maintaining the quality of loan assets and without compromising the risk-reward profile. As a result, we will still continue to consider more project-related transactions, conservatively structured and with cash flow visibility these deals will be pursued on a selective basis to maintain our lending franchise. The average loan margin of such business may indeed decline further, based on continuing costof-liquidity improvements and an expectation of increased competition persisting throughout the year. However, we are confident of an increasing level of demand for our shipping services, most notably our advisory and capital markets services, that will further strengthen our franchise. Into 2015, Shipping Finance will further optimise its resources and continue to monitor its risk positions relentlessly. The business division continues to strive to be a strategic partner to its clients for the mutual benefit to the Bank and its clients. DVB continues to experience a healthy level of demand for its risk capital and services. Shipping Finance will continue to utilise its expertise to steer deployment of our resources a theme which will continue into It is this expertise that will guide our decisions on where to employ our risk-weighted assets going forward. We will continue to pursue our strategy of enhancing our client base, and being a partner of choice for clients when developing financial solutions to meet their needs. Therefore, each of the sector groups will continue to focus on predetermined reputable clients and prospects covering the top 20 companies in each segment.

92 88 Aviation Finance Against the background of heightened competition across the capital spectrum, the Aviation Finance division was up to the challenge, and posted sound financial results. A good performance in 2014 was based upon the completion of 2.3 billion of new structured lending business, and contained valuable contributions from our advisory and aircraft asset management businesses. Aviation Finance Market review Traffic growth and airline profitability After an already positive previous year, the state of the commercial aviation industry remained strong in Despite economic uncertainties, political unrest and unfortunately some tragic incidents, the industry once more enjoyed relatively strong traffic growth. The International Air Transport Association reported a 5.9% growth in total revenue passenger kilometres for 2014 on a year-on-year basis. This compares favourably to its projections of 4.1% average annual growth in demand for air connectivity during the coming 20 years. Even air cargo made a comeback during 2014, with a growth in revenue tonne kilometres of 4.4% (previous year: 1.4%). In terms of the 2014 financial results, the International Air Transport Association adjusted its projections upwards from US$18 billion net profit in June to US$19.9 billion in the adjusted December outlook. Clearly, the main driver for this improvement was the fairly spectacular drop in the price of crude oil. Longer term, airlines should benefit from a low oil price environment but short term several carriers reported sometimes significant book losses on their fuel hedges. Despite traffic growth figures and the aggregated financial results looking strong, not all airlines are doing well. Traditional European flag carriers continued to feel the pressure of strong Middle Eastern competitors and from local low-cost carriers. Cost reduction programmes proved difficult to implement and some flag carriers seem to fundamentally review their business models. North America had a banner year, with airline consolidation resulting in only a limited number of major carriers surviving. These clearly control the market. Despite existence of a Traffic growth per region Year-on-year Regional order book traffic growth as % of regional (%) in-service fleet Africa Asia/Pacific Europe Latin America Middle East North America Total Total freight tonne kilometres 2014 vs Total revenue passenger kilometres 2014 vs Regionla jet backlog as % of in-service fleet Source: International Air Transport Association, February 2015

93 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Aviation Finance 89 few low-cost carriers, a tight capacity control allows almost all carriers to report good profitability. In Asia, expanding low-cost carriers for the first time experienced the limits to their ambitious plans and some airlines cancelled or deferred a number of jet deliveries. Towards the end of the year, Russian carriers entered the danger zone as a result of the economic and political pressure on their country. In various regions airlines made another attempt to exploit the concept of long-haul low-cost passenger transport, albeit the results reported so far are not very encouraging. Aircraft orders and technology The commercial jet market had another banner year in According to the Ascend database, a record of circa 3,600 new commercial jets were ordered (excluding type swaps) by all civil category operators, exceeding the volume of just under 3,500 ordered during the year With a total of 1,496 in 2014 vs. 1,413 in 2013, the record was broken in terms of commercial jet deliveries as well. The backlog for commercial jets increased from slightly over 11,500 at the end of 2013 to almost 13,200 a year later, representing almost 60% of the size of the commercial jet fleet in service today or almost nine years of aircraft production at the 2014 level. With both the air traffic business cycle and the financial investment cycle going through a phase of strength, the technology cycle also rolled forward during Almost by definition, new technology has the potential to undermine the popularity and value of older generation equipment. New technology aircraft such as the twin-aisle Airbus A XWB and Boeing 787 are now in daily airline service but in the mainstream single-aisle market, the generation change has not started yet in day-to-day operations. In the near future however, the new Airbus A320neo and the Boeing 737MAX will make their debut and eventually replace the current generation Airbus A320 and Boeing 737. In addition, new Chinese and Russian designs are aimed at the same market segment. In the regional jet market, Bombardier s CRJs and Embraer s ERJs and E-Jets will be replaced by a new generation of Mitsubishi MRJs, Embraer E2s and Bombardier CSeries. More new twin-aisle designs are on the horizon as well, including a re-engined version of the Airbus A330 that was launched in Although still a few years away, the Airbus A XWB and Boeing 777X for the majority of operators seem excellent alternatives for the Boeing ER and even for the big twin-aisle quads, such as the Boeing 747 and Airbus A380. The drop in oil prices triggered an industrywide debate about the impact on the commercial jet market but the continuing order boom during the second half of 2014 does not indicate a cooling-off of the new jet market.

94 90 Aviation Finance Used equipment The used equipment market prospered during 2014 as well. Demand for older aircraft was stimulated by the long lead times for new planes. Mid-life aircraft and even aircraft part-out projects continued to be increasingly popular with investors and financiers looking for yield and higher interest margins, respectively. What may have helped the popularity of used aircraft was the fact that many top-tier airlines no longer shied away from adding used aircraft to the fleet. During the year 2014 lease rates of mid-life popular single-aisle aircraft, such as a ten-year old Airbus A320 or a Boeing increased by about 15%. Similar age twin-aisle aircraft showed varying results: Boeing ER lease rates dropped up to 4%; however, the Airbus A saw lease rates increase by 20% or more over the same period. Large freighter aircraft such as the Boeing F suffered and lost over 20%. Aircraft values generally showed more moderate changes. Ten-year old Airbus A320s recovered about 2 3%, while the Boeing was fairly stable. The same can be said about twin-aisle values, except for the Boeing Freighter that dropped in value by at least 25%. Further details on aviation market developments in 2014 can be found on DVB s website > Business & Expertise > Aviation Finance > Markets. Aviation Finance Strategy DVB features a unique Aviation Finance platform, which has been meticulously built with a view to being a constant provider of aviation capital and services during different economic cycles. This strategy is a true reflection of our Aviation Finance mission statement: As a hybrid institution, we provide our customers with the most efficient blend of capital and services at any period in time and at any point along the industry cycle. Today, DVB is one of the largest providers worldwide of recourse and non-recourse commercial debt to passenger and cargo airlines, and to aircraft lessors, with a total loan exposure standing at 7.1 billion, financing 696 aircraft and 50 spare engines. We view the continuing development of our asset-based lending activity as a way of further (and profitably) expanding our business in the sector. Specifically, we consider our willingness to finance used equipment, and to assume residual value risk on the sales proceeds of aircraft, as a competitive advantage. As such, DVB will continue to adopt a proactive approach to maintaining and growing its portfolio, in line with well-established lending guidelines and principles. Aviation Finance Integrated Platform Solutions

95 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Aviation Finance 91 In order to build on this core business, Aviation Finance maintains a strong network of relationships with clients and industry partners, who perceive DVB as a bank that understands their business and assets, whilst possessing the expertise to provide value-added financial solutions. Our scope of products and services is positioned to offer a cradle-to-grave approach to aircraft and related equipment, ranging from, at one end of the life spectrum, providing pre-delivery finance for aircraft still to be delivered, to a tear-down solution for aircraft and spare engines, at the other end. Within this spectrum DVB provides a range of finance, advisory, research and asset management services, following the lifecycle of aero equipment. Our Aviation Finance clients can today readily draw upon the following range of expertise, in order to fulfil their differing requirements: Structured Asset Financing, comprising recourse and nonrecourse lending and all related activities, including structuring, arranging, underwriting and loan agency; Private Equity Sourcing & Investments, via the Aviation Investment Management team, managing the Deucalion Aviation Funds (aircraft, aero engines, airline equity, asset-backed bonds, etc.); Aviation Asset Management, providing third-party aircraft remarketing, lease management as well as technical and general consultancy services; A prerequisite for DVB s success is co-operation amongst a team of professionals with a multi-disciplined background. As well as staff experienced in banking and structured finance, Aviation Finance employs individuals with very specific aviation industry expertise, gathered from prior backgrounds with airlines, manufacturers, aircraft/engine lessors and asset managers. The biggest differentiator between DVB and its competitors is the fact that Aviation Finance offers far more than the traditional range of banking services. We provide the best choice of structures and services at the crossroads of money and metal, supported by a strong research team. Our aim is to ensure that these distinctive features are fully recognised and valued by our clients and prospects. In the past few years, DVB s activities have been externally recognised with several industry awards. Into 2015, and indeed beyond, Aviation Finance will further optimise its resources and continue to monitor its risk positions relentlessly. It has available capital for new business, as well as a platform and staff skill sets to which others can only aspire. The Division has consistently demonstrated the achievement of its goal of a cycle-neutral business model: one which will enable DVB to be equally active (and therefore profitable) in a market downturn as in an upturn. What Aviation Finance now strives for is to further increase efficiency across the board, for the mutual benefit of the Bank and its clients, and thus to stay ahead of the competition. Advisory Services, including arranging debt and equity financings, sale-and-lease-back transactions and providing M&A and restructuring advice; and Asset & Market Research, with a core focus on the equipment market, producing high-quality independent research to support our strategy and activities.

96 92 Aviation Finance Aviation Finance Portfolio analysis DVB is a market leader in commercial and asset-based financing for aircraft and related equipment. Aviation Finance does not provide export credit loans, and, as such, we consider that each dollar we loan is in demand commercial finance. The Bank has remained consistently active through industry cycles, and has thereby proved a reliable partner to its clients in difficult times. Reputation drives success The air finance market in 2014 was certainly not short of bank and capital market liquidity in most segments. The financing of new equipment remained comparably easy, given the healthy appetite for such (new) assets from all providers. The stellar credits among the airline and leasing companies had plentiful options to secure their funding requirements, be it for new or used equipment, and building on the trend of the previous year a growing number of borrowers/issuers were able to take advantage of the capital markets, both public and private. For others though it was harder work to secure their aircraft financing/ refinancing needs, in particular for used equipment, or to raise financing for pre-delivery payments (PDP). DVB s Aviation Finance division was active across the board, although the focus of our origination activity was as always to identify those situations where our lending was deemed relatively scarce, and hence more valuable to our clients. After a fairly slow start to the year, demand for our services increased steadily to an incredible end of year, when for the last two months alone of 2014 we closed new loan business of over US$1 billion, to cap an excellent year. There is no doubt that the foundation of our continued success is our track record built over many years of activity, which encourages clients to come to DVB to secure their requirements, when an assured and efficient delivery of funds is of paramount importance. Total loan portfolio At the end of 2014, the Aviation Finance portfolio stood at 7.1 billion, representing a 10.9% increase from the level of 6.4 billion at the end of The portfolio was, however, 99.0% US dollar-denominated: in US dollar terms the portfolio size actually decreased by 3.4% during the year from US$8.9 billion at the end of 2013 to US$8.6 billion at the end of 2014, driven by the impact of significant loan prepayments during the year. In line with DVB s business model, the portfolio is 99.8% collateralised. Focusing on the manufacturers, our portfolio shows a slight bias towards the financing of Boeing-manufactured equipment, at 52.4% (previous year: 50.6%) of the portfolio, with Airbus aircraft standing at 41.3% (previous year: 43.6%), while other (mainly Embraer and ATR-manufactured) equipment amounts to 6.3% (previous year: 5.7%). Narrowbody aircraft remain the dominant aircraft class at 51.3% of the portfolio, up from the 2013 level of 49.4%, with the proportion of widebody aircraft standing at 34.3% (2013: 36.8%). The balance of new business in 2014 was comparatively in favour of narrowbody aircraft transactions (at 44.4%, versus widebody at 33.8%), which in turn is a function of where we have observed/originated the better transaction-by-transaction risk-reward profiles. In general we do expect (and indeed target) that narrowbody aircraft will be the majority class: our strategy is to favour aircraft in this class, since they represent the most liquid aircraft type from a security perspective (i.e. ease of remarketing to other operators). The portfolio breakdown saw the proportions of financed freighter aircraft and regional jets reduce slightly to 8.0% and 4.7% respectively, while the share of turboprop aircraft a new class, following our decision in 2013 to selectively target the financing of such aircraft stands at 1.7%.

97 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Aviation Finance 93 Aviation Finance portfolio by aircraft type Aviation Finance portfolio by country risk Narrowbody pax 51.3% thereof: 26.8% Boeing/McDonnell Douglas 24.5% Airbus Widebody pax 34.3% thereof: 18.2% Boeing/McDonnell Douglas 16.1% Airbus Europe 35.1% North America 27.4% Asia 24.9% South and Central America 4.9% Middle East/Africa 4.2% Freighters 8.0% thereof: 7.4% Boeing/McDonnell Douglas 0.6% Airbus Offshore 2.2% Australia/Oceania 1.3% Regional jets 4.7% thereof: 4.1% Embraer 0.5% Bombardier 0.1% Airbus Turboprops 1.7% thereof: 1.6% ATR 0.1% Bombardier Risk is also geographically well diversified, with a healthy balance between Europe, the Middle East and Africa, at 39.3% of the portfolio, and the Americas, at 32.3%. Client exposure in Asia and Australia/Oceania has increased, reaching 26.2% in 2014 (previous year: 22.1%): this region has historically been underrepresented in our portfolio a reflection of both client profile and the competitive landscape but in recent years this has been clearly changing. In terms of the vintage of aircraft financed, 44.1% of the portfolio is three years old or less and 63.3% of the portfolio is less than six years old. Whilst Aviation Finance is experienced in financing aircraft across the full age spectrum, and indeed this is often a competitive edge, generally younger aircraft (as well as narrowbody aircraft) are more readily sold or leased in case of need (i.e. a client default). So this age profile of the portfolio represents a very solid base. The Aviation Finance portfolio is also well diversified by client, with 51.3% being airlines, 44.3% operating lessors and 4.4% logistics companies. A total of 153 aviation clients equates to an average lending exposure of 46.3 million per client. There are 52 clients for whom our committed exposure is in excess of 50.0 million.

98 94 Aviation Finance New business Loan portfolio development During 2014 Aviation Finance realised 61 new lending transactions with aviation clients, comprising a strong new final-take volume of 2.3 billion a significant increase over 2013 s volume of 1.8 billion with a good mix of new and used aircraft financings, for a diversified group of clients in terms of geographical location and credit standing. New business was concluded with established clients such as Aircastle, AWAS, Jazeera Airways, Lion Air and SAS. In addition, DVB attracted eight new clients, including BoComm Leasing, Elix Aviation Capital, MG Aviation and Minsheng Financial Leasing. DVB acted as arranger and/or agent bank (i.e. leading role) in all of its newly acquired business transactions. New financings in 2014 were well diversified by client and obligor, as well as by aircraft type. 58.4% of new business was for the financing of Boeing equipment (new and used aircraft), with Airbus equipment standing at 32.2%: this is a slightly unusual weighting towards Boeing equipment, and we typically expect the split between Airbus and Boeing aircraft to be about even. In line with our new lending policy to finance certain turboprop aircraft, we completed our first three new transactions in this asset class for an aggregate financing volume of approximately 123 million. Some of the 2014 transaction highlights were: United Airlines Arranger of a bilateral term loan facility to finance one new Boeing aircraft. Based on the strength of our relationship with the airline, we were able to secure this mandate for what was the only commercial bank financing which United Airlines undertook in 2014 for this attractive new generation widebodied aircraft. Other aircraft were financed in the US capital markets. Several lessor clients Arranger and underwriter of a variety of limited recourse financings. These included: for AWAS, one new A aircraft on lease to Air Asia X; for Oman Brunei Investment Company, two B ER aircraft on lease to Oman Air; and for Merx Aviation Finance, one B LRF on lease to Lan Cargo. SAS Arranger and agent of a PDP financing in respect of six A320neo and two A aircraft which will be delivered in the period 2015 to We believe this transaction to be the first ever PDP financing involving A320neos with Leap-X1A engines. Other PDP financings were concluded for Air Europa (two B s), Intrepid Aviation (two A s) and Norwegian Air Shuttle (one B787-8 and three B s).

99 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Aviation Finance 95 Aviation Finance Deal of the Year 2014 Deal of the Year 2014 We have, however, selected a mandate from Apollo Aviation Group (Apollo) as the most important Aviation Finance deal concluded in the year: On 12 August 2014, DVB closed its third senior debt portfolio financing facility for Sciens Aviation Special Opportunities Investment Fund II (SASOF II). SASOF II, a closed-ended fund, was launched, and is managed by, Apollo after raising US$595 million from a diverse group of investors in SASOF II s objective is to invest in aircraft and aircraft engines, primarily mid-/end-oflife equipment, with the intention to lease and eventually partout these assets. Apollo has had a very good track record in this space over the past few years. The US$129.4 million financing was arranged and co-underwritten by DVB and Goldman Sachs on a 50:50 basis, and is secured by a pool of 13 aircraft consisting of Airbus A319s/A320s/A321s, A330s and Boeing s/800s on operating lease to a diverse group of eight airlines based in the US, Europe and Asia. DVB acted as Administrative Agent. The transaction was a follow-on to two Apollo/SASOF II facilities we had solely underwritten and closed within the past year: a US$102.7 million, 13-aircraft portfolio financing closed in November 2013, and a US$71.8 million nine-aircraft portfolio financing closed in April Unlike the two earlier-term financings, this latest facility was structured as a short-term, twelve-month bridge, with a term-out option, which would give Apollo the flexibility to consider and pursue certain capital market refinancing options for some or all of the aircraft without incurring significant prepayment penalties. The three facilities arranged by DVB financed in total 35 aircraft, making us the largest lender to SASOF II, which is testimony to our excellent relationship with Apollo. DVB is a natural financing partner for Apollo-managed funds, given their focus on mid-/endof-life equipment, and in view of our ability (through the Aviation Asset Management team) to analyse and project the physical condition, maintenance cash position and any lessor contributions for each aircraft until lease maturity. The due diligence Aviation Asset Management performed on the three portfolios provided us with a better understanding of Apollo s business model; in turn, we were able to structure and tailor a deal which worked well for both the client and for DVB.

100 96 Aviation Finance Aviation services The success of Aviation Finance in 2014 contained strong contributions from our aviation services activities, i.e. those which are non-balance sheet-consuming. The Aviation Asset Management (AAM) and Advisory teams have continued to enhance the reputation of DVB s aviation business as the leading aviation merchant bank. These teams were engaged in a wide range of mandates, each leading to healthy non-risk fee earnings. Some of the highlights were: During 2014 AAM managed 155 aircraft for third parties 73 aircraft under lease management, 51 aircraft under technical management and 31 aircraft under remarketing contracts and continues to be one of the key players in today s industry for aircraft asset management services. AAM managed major aircraft sale programmes during the year, most notably the sale of 16 aircraft on behalf of Philippine Airlines and two aircraft on behalf of Air New Zealand, as part of their respective fleet management plans. On behalf of third party owners, AAM leased five aircraft to a Mexican carrier on behalf of Republic Airways in US, two aircraft on behalf of Sahaab Leasing in the Middle East, and two aircraft into Brazil following their re-delivery from Australia. The Advisory team arranged junior debt for Korean Air to finance a portfolio of six used aircraft. Advisory was appointed by a Middle Eastern carrier to arrange PDP financing for its new B787-8 aircraft. The commitment by DVB to patiently develop its service capability and resources is expected to yield further rewards in the coming period, as a key component of DVB s cycle-neutral business approach. Earnings contributions The significantly lower average interest margin, in comparison to the prior year, of 250 basis points (2013: 284 basis points) was largely a reflection of the generally falling cost of liquidity during the year, though this was amplified by competitive pressure experienced in some segments of the market. Nevertheless, Aviation Finance was able to slightly increase net interest income to 89.7 million (2013: 88.8 million). Allowance for credit losses was a minimal amount of 0.4 million (2013: net release of 1.1 million). Also taking into consideration the euro/ US-dollar exchange rate development, total allowance for credit losses in Aviation Finance stood at 41.7 million in 2014, compared to 41.3 million at the end of We believe that this level of allowance for credit losses provides a necessary and adequate cushion against possible losses. Net fee and commission income, at 34.2 million declined from the 2013 level of 38.6 million, and was the result of competitive pressure. This resulted in results decreasing by 4.4%, and net segment income before taxes by 4.7%. Extract from Aviation Finance s segment report mn % Net interest income Allowance for credit losses Net interest income after allowance for credit losses Net fee and commission income Results (excluding the IAS 39 result) General administrative expenses 1) Net segment income before taxes ) Only those costs are allocated to DVB s operating business divisions for which they are directly responsible. General costs of operations, overheads or, for example IT costs, are not allocated to the operating business divisions.

101 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Aviation Finance 97 Risk management A lot of hard work to build a profitable loan portfolio can be undone as a result of loan losses in the business. With this factor in mind, Aviation Finance has built a strong risk culture over many years, which starts with our client-facing relationship managers and continues through each stage (including Aviation Credit, Aviation Research and the Credit Committee) until a new commitment is granted, and continues thereafter throughout the term of the relevant exposure. At the heart of our consideration for each new exposure is the Deal Committee, which meets to discuss at an early stage possible new transactions, with a view to spotting risk and structural deficiencies, finally arriving at a consensus, be it positive or negative. The committee comprises all teams of Aviation Finance, and includes the Member of the Board of Managing Directors responsible for Aviation Finance, the Head of Industry, the Heads of Aviation Credit, Aviation Research and Aviation Asset Management, and each Regional Head of Aviation Finance. As a tribute to its efficiency, the failure (or decline) rate at the Deal Committee is significant, a tribute to our culture of risk selectivity and consensus-building. Only those transactions authorised by the Deal Committee will move to the next stage, and subsequently be presented to the Divisional and/or Group Credit Committee for approval. Transactions exceeding a certain exposure threshold do also need to be presented to the Supervisory Board s Credit and Risk Committee for approval. The Aviation platform has been built in such a manner as to be optimally prepared for a downturn and to deal with any stress scenarios in the loan portfolio, including restructurings and aircraft repossessions. The management quality of such stressed transactions is clearly enhanced by our dedicated Aviation Special Projects team, which takes responsibility, working alongside Aviation Credit, for relevant work-out cases. The team may also be supported by AAM and/or TES Aviation Group as aircraft/ engine asset managers. During 2014, we had a small number of transactions requiring restructuring or remedial action. However, under the leadership of Aviation Special Projects, we have been able to conclude loan amendments and restructurings, successfully mitigating losses otherwise anticipated for future years. In general, we believe that our proactive approach to risk management gives us excellent visibility over potential trouble spots within the loan portfolio, and we remain alert to opportunities to conclude defensive new financings, where we can simultaneously improve our risk position on existing exposure to a client, through cross-collateralisation for example. In all cases, Aviation Finance will continue to take whatever steps necessary to safeguard its position as a secured lender. Once a transaction has been booked, it is monitored for any required action on an ongoing basis by the respective relationship manager and credit officer, and through the review and stress test processes. If appropriate, an exposure is taken on to Early Warning List, Closely Monitored List, or Watch List reporting. The ongoing management of risk is aided by a rigid call report discipline and through a regular full portfolio review by Aviation Finance senior management, to proactively identify concrete actions to be taken.

102 98 Aviation Finance Aviation Finance Outlook 2015 Market outlook 2015 The interaction of three business cycles will determine the state of the commercial jet market; the airline market cycle (demand and supply of transport capacity), the financial cycle (demand and supply of liquidity) and the aircraft technology cycle (introduction of new, superior aircraft designs). Some observers say that during 2014, it was as good as it will get in commercial aviation. However, without any major external shock, 2015 should be another good year for our industry. The outlook for the global economy remains that of an uneven recovery, with the International Monetary Fund forecasting a modest 3.5% growth for the world economy, despite the positive impulses of the lower oil price and the depreciation of the euro and the yen. Risks include geopolitical tensions, stagnation of growth in advanced economies and a decline in growth of emerging markets. The International Monetary Fund expresses concerns that markets are underpricing risks, taking into account the uncertainties of the macroeconomy. Based on the above, the International Air Transport Association expects that the net (post-tax) profitability of the global airlines will increase further, from US$19,9 billion in 2014 to US$25 billion in This does not imply all airlines are doing well. Around year-end 2014 and the first weeks of 2015, a number of wellknown airline names disappeared into bankruptcy. Even flag carriers that were once stellar credits are coming under severe pressure. After taking write-offs for fuel hedges, most airlines will benefit from the low oil price. According to the US Energy Information Administration, crude oil (West Texas Intermediate) should only modestly increase to on average US$55 per barrel in 2015 and US$71 per barrel in Maybe more relevant for aircraft investors and financiers will be the impact on the equipment market, especially in terms of aircraft tradability and value stability. At the end of 2014, the ratio of capacity on order to aggregate existing fleet capacity was 59.7% (13,173 aircraft see chart ). For the time being, it looks like this very low oil price may be a temporary anomaly without consequences for the viability of the new generation of fuelefficient jetliners. We believe the production cost of the new generation aircraft, such as the Airbus A320neo, Boeing 737MAX and Embraer E-Jets E2 should not be much different compared to old generation planes. Therefore, we do not see negative implications for the viability of the new aircraft types. With the fuel-cost savings offered by the new technology jets, what may be needed is a reduction in the lease rate premiums the new technology aircraft initially seemed able to attract. However, new technology aircraft continue to offer superior performance characteristics as well as better environmental characteristics and a built-in insurance against fuel price increases. Short term, used aircraft may benefit from the lower fuel price as there will be less pressure to replace them. The abundant availability of liquidity for aircraft investments seems another factor that will support used equipment values during For mainstream Boeing 737NGs and Airbus A320/321s we expect the strong market to continue in Even undervalued aircraft like the Airbus A319 or Boeing may find some opportunistic operators. We believe there is less optimism for most used widebodies, such as the Airbus A , Boeing ER and obviously the quads. Overall 2015 should still bring prosperity to aircraft lessors and investors. Our concerns are focused on the later years. If fuel returns to more normal levels, the impact of the generation change may start to hit during the second half of the decade in what we fear will be more than the usual cyclical downturn for the out-of-production generation aircraft. Aircraft orders ratio of order backlog to existing fleet capacity Aircraft In service 22,062 (western-built jets) Ordered 13,173 Ratio of capacity on order to aggregate exisiting fleet 59.7% Source: Ascend, January 2015

103 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Aviation Finance 99 Portfolio outlook 2015 DVB is one of the few consistently active players in global air finance, unlike some of our competitors, who come and go through the industry cycles. We are in a period of the cycle where there is no shortage of liquidity chasing investment in, or financing of, aircraft assets, since providers of capital have been lured to the sector by the expectation of a superior risk-versus-reward balance versus competing applications for their liquidity. This means greater competition for a long-term player like DVB. Nevertheless, the tendency of many of our competitors remains towards a flight-to-quality, and as such, pressure on pricing and other terms will be limited to certain client/equipment combinations only, some of them away from DVB s core franchise. The result is that in some segments of our Structured Asset Financing activity, competition remains limited. We do not expect there to be any shortage of liquidity to finance the new aircraft delivery requirements, though it is good that we now see a more level playing field given the significant increase in the cost of export credit agency-supported debt, which has driven more borrowers to consider what is on offer in the commercial banking market. More specifically, liquidity should remain abundant for the US airlines and the public lessors, in view of the sustained interest from the US capital markets, and for many of the Asian, European and Middle Eastern flag and mega carriers, based on their continued deep access to the commercial banking market. We do, however, expect there to be continuing funding challenges in the used/second-hand equipment market, which presents a clear opportunity for DVB, given that the used market is a core activity and strength of Aviation Finance. DVB continues to experience a healthy level of demand for its risk capital and services. The need to carefully select how Aviation Finance will deploy its resources will persist in the year ahead. Making the right decisions, particularly on where and how to deploy risk-weighted assets, will be the key to achieving another profitable period. Aviation Finance has assembled a team that boasts a wealth of experience and multi-disciplined backgrounds; in short, a team which is more than capable of ensuring that good decisions will be made and delivering on a promise of performance. The Bank will be open for business throughout 2015 and beyond, but will use its deep knowledge of the underlying assets to avoid hidden risks often seen in transactions. Our cycle-neutral approach, allied to a discipline that balances commercial pressure with the requirement to maintain a quality portfolio, will be the key ingredients ensuring that Aviation Finance enjoys continued success. As mentioned, current demand for the Bank s capital and services is good: indeed we have entered 2015 with a strong pipeline. In its Structured Asset Financing activity for 2015, Aviation Finance targets further modest portfolio growth, whilst more crucially maintaining the quality of loan assets, and without compromising the risk-reward profile. In 2014, our average net loan margin was stable, even increasing in some areas, and we expect this to continue through 2015, notwithstanding the aforementioned competition. Finally, we are confident of an increasing level of demand for our aviation services, most notably advisory and asset management. Our strong reputation in these activities is evenly distributed across all client categories: airlines, lessors and investors alike.

104 100 Offshore Finance By continuing to develop our know-how and expertise in 2014, we were able to finance offshore vessels, drilling rigs and other highly specialised offshore equipment integral to exploration, production and field maintenance. In light of this, the Offshore Finance division has been successful, with 2014 representing a very satisfactory year irrespective of tougher market conditions in the second half. Offshore Finance Market review After several years of relatively stable oil prices, volatility returned to the market. While the offshore markets fared well for most of the year, the decline in oil price started to have an impact towards the end of the year. In 2014, world oil demand increased by 1.1%. Meanwhile, world oil supply was boosted by oil production from unconventional fields in North America which witnessed a 6% increase year-on-year. Offshore oil production, which accounts for 29% of crude oil production, grew by 2.5% to 25.3 million barrels per day in Lower than expected world oil demand, combined with underestimation of oil supply in North America contributed to trigger a decrease in oil price, which deepened as the Organisation of the Petroleum Exporting Countries openly refused to adjust supply to protect the oil price from sliding. As expected, global exploration and production spending (E&P Capex) the key demand driver for offshore assets slowed down from the high levels witnessed over the past few years, with a modest increase of 3.5% in Growth in offshore E&P spending was slightly higher at close to 5%. The lower E&P Capex growth rate in 2014 was notably the result of oil and gas companies cash flow constraints, related to the fact that E&P spending followed a continuing increasing trend since 2011, while oil and gas prices remained stable. The drop in oil price in the second half of the year exacerbated the costcutting efforts of oil and gas companies. Lower E&P spending started to affect primarily offshore activities associated to the early stages of offshore field developments such as seismic and exploration activities. Drilling programmes were delayed or cancelled, resulting in lower demand for rigs. This progressively filtered through to offshore support vessels. Meanwhile, on the supply side, the numerous orders placed during the past few years started to be delivered. Despite slippage of scheduled deliveries later into 2014 and 2015, fleet growth was higher than 5% for some asset types such as jack-ups, drillships and platform supply vessels. Offshore E&P Capex year-on-year growth Year-on-year growth (%) Source: Rystad Energy, January 2015

105 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Offshore Finance 101 While at the start of the year most asset types were still benefitting from employments contracted when the oil price was still high, as the year progressed competition for employment increased, leading to a decrease in fleet utilisation for all asset types. Day rates came under pressure and decreased to different extents depending on region of operation and asset type, ranging on average from a 10% to 35% decrease. Further details on offshore market developments in 2014 can be found on DVB s website > Business & Expertise > Offshore Finance > Markets. Offshore Finance Strategy When DVB decided to separate its existing offshore financing franchise from Shipping Finance into a separate business division at the start of 2013, it was not only with the clear intention of capitalising on the offshore sector s growth potential; the Bank also intended to further enhance its visibility in the market and to tackle the ever changing and challenging market conditions, thereby ensuring that a market-leading position is maintained. Today, DVB s Offshore Finance division is well positioned to provide tailor-made financings to companies that primarily own and operate offshore support vessels (platform supply vessels and anchor-handling tug and supply vessels), subsea and construction vessels, seismic vessels, accommodation units, drilling units (jack-ups, semi-submersibles, drillships), and Floating Production Storage & Offloading (FPSO) units. Similar to Shipping Finance, these clients are public and private companies varying from large multinational enterprises to smaller single-purpose assetowning entities, as well as experienced financial investors within the offshore sphere. Given the complexity of the offshore industry it is highly fragmented, specialised and capital intensive, with high entrance barriers we only target clients with a high level of technical and operational expertise, and a proven track-record in the market. The Offshore Finance division is run on a few basic principles; namely, an in-depth knowledge of the offshore industry together with an ability to respond quickly to a changing market environment, proximity to clients, maintaining and developing highly qualified staff, as well as a flat hierarchy. These principles continue to shape the Offshore Finance division and the way the business is steered. Firstly, our asset-based focus coupled with our commitment to long-term client relationships translates into a broad and profound coverage, enabling us to amass in-depth knowledge of the assets we finance, of our clients, and about value-chains and networks in the distinct offshore sectors. Our front-line staff and decision-makers continue to be supported by the Bank s Shipping & Offshore Research department which provides valuable, up-to-date and high-quality market intelligence. This expert knowledge allows us to recognise and understand developments in particular subsectors and the general market quickly enough to act proactively, and flexibly adjust the business segment and portfolio strategy when required. Furthermore, it brings us closer to our clients, solidifying our reputation as a trusted partner in the offshore industry. Secondly, we also offer our clients a geographical proximity. Contrary to the shipping industry, the offshore hubs are more geographically condensed. With offices in Hamburg, New York, Oslo/Bergen and Singapore, DVB s relationship managers service our offshore client base in all offshore hubs where they have earned a high market reputation for tailoring financial solutions to meet our clients specific business requirements. This has resulted in Offshore Finance being mandated to act as Mandated Lead Arranger and Agent on large syndicated loans as well as for the smaller bilateral transactions integral to the offshore industry. Thirdly, great effort has been put into attracting, retaining and developing the best offshore finance professionals. Our relationship managers and researchers are technically proficient, and

106 102 Offshore Finance possess experience that is both broad and deep. There is also strong support from execution and transaction managers, who provide an individual focus on managing our client s transactions through internal processes and approvals. In addition, our highly specialised credit department, with its in-depth knowledge of the offshore and shipping industries, adds value to DVB s long standing brand and track record of offshore financing activities. Fourthly, DVB continues to maintain a flat hierarchy with no more than two organisational layers between client point of contact and top management. Although the offshore franchise was separated from Shipping Finance in 2013, the underlying credit principles remain the same and the respective divisions continue to answer to the same New Deal Committee and Credit Committee. However, the overall separation makes it easier to differentiate the two different businesses for all value-added purposes, including that of reporting and controlling. In 2012 DVB launched the Unity project, in order to enhance process efficiency in the Shipping Finance and Offshore Finance business. The principle aim of Unity was to implement a mode of operation that would enable a greater alignment between the key performance indicators of the Aviation Finance, Shipping Finance and Offshore Finance divisions. The Unity project was successfully completed at the end of As a result, a European hub was created in Amsterdam to centralise the European Credit team, and in London to centralise the Shipping Finance and Offshore Finance loan administration in Transaction & Loan Services. Also, execution managers and transaction managers were introduced who support the client coverage teams in Europe and individually focus on managing our clients transactions. During 2014 the Offshore Finance division has pursued strategic objectives of enhancing the quality of its client base and portfolio through an ongoing critical approach to client selection and risk management; and utilising the core of asset-secured lending, together with an understanding of corporate credit, and thus developing financing solutions that draw upon a broader product tool kit. This enables Offshore Finance to offer clients a seamless one-stop shop and further improve sustainable revenue diversification. Thus, our Offshore Finance clients can today readily draw upon the following range of expertise in order to fulfill their differing requirements: Structured Asset Financing, comprising traditional asset-/ project-based financing mostly post-delivery finance with full recourse to a substantial obligor; Risk Distribution, syndicating portions of the lending volume to other financial institutions on the international banking market; Corporate Finance Solutions, supporting our clients in the identification of new and diverse sources of funds in the capital markets, and accessing those funds on favourable terms; as well as providing M&A and restructuring advice as well as arranging debt and equity financings; Private Equity Sourcing & Investments, via Shipping & Intermodal Investment Management, managing investment in offshore companies and assets; and Asset & Market Research, with a core focus on the offshore market, producing high-quality independent research to support our strategy and activities. Offshore Finance Portfolio analysis Thanks to our industry-specific expertise, our Offshore Finance division has been able to consistently offer its clients integrated financing solutions. In 2014, the loan portfolio developed favorably and thus generated solid financial results, while constantly maintaining a conservative risk approach. Total loan portfolio Offshore Finance serves 51 offshore customers in all global offshore hubs. In 2014, the portfolio comprised 246 assets with a total exposure of 2.3 billion (previous year: 250 assets with a volume of 2.0 billion). Due to the fact that 88.0% of customer lending is denominated in US dollars, a year-on-year comparison in US dollar terms reflects the business development of Offshore Finance more accurately. Here the loan portfolio remained stable at US$2.8 billion (previous year: US$2.8 billion), despite heavy re- and prepayments on the portfolio amounting to 34%. The average lending exposure per client stood at 44.7 million (an increase of 16.7% from 38.3 million in 2013). The number of clients whose exposure exceeded 50 million totaled 15 at yearend 2014 (15 clients at year-end 2013).

107 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Offshore Finance 103 Since granularity in the portfolio is the key pillar of our risk management philosophy, the Offshore Finance customer lending volume which is 100% collateralised is not only diversified from an exposure amount perspective but also highly diversified across the offshore spectrum itself. Looking at the financed vessel types, for instance, the platform supply vessel exposure accounts for the largest share of 25.6%. At the same time, Offshore Finance reduced its exposure to anchor handlers from 30.9% in 2013 to 24.6% in 2014, partly on the back of reduced drilling demand and a more strategically selective approach to this sector. The share of rigs and offshore construction vessels in the portfolio grew to 15.1% and 10.0% in 2014 (previous year: 9.2% and 4.8%, respectively) on the basis of conservative terms and conditions and underlying charter contracts to reputable counterparties. Geographically, the portfolio also shows a high level of diversification, while clearly reflecting the regional hubs of the global offshore industry and the new drilling and field activities that have taken place in these regions. Exposure to Europe increased from 54.8% to 56.4%, favouring Norway which has seen a significant growth in the number of new oil finds, investments and production. The Middle East and Asia/Pacific exposures declined from 25.6% to 18.9%, mainly due to loan repayments. The Americas increased marginally, from 11.2% to 13.0%, mainly caused by opportunities for new deal generation in these regions. Offshore Finance portfolio by country risk Offshore Finance portfolio by vessel type Platform supply vessels 25.6% Anchor handlers 24.6% Rigs 15.1% Offshore construction vessels 10.0% Multi-function service vessels 5.9% Seismic survey vessels 4.9% Europe 56.4% thereof: 40.0% Norway 5.0% Denmark 3.7% France 0.9% Cyprus 6.8% Others Asia/Australia 15.7% thereof: 8.0% India 4.6% Singapore 1.0% Japan 2.1% Others Drillships 3.1% FPSO 1.4% Others 9.4% North and South America 13.0% thereof: 7.3% Brazil 5.2% USA 0.5% Others Offshore 8.6% thereof: 5.3% Bahamas 3.3% Bermuda Middle East/Africa 3.2% Central America/Carribbean 3.1%

108 104 Offshore Finance New business Loan portfolio development Over the recent years, the credit quality of the Offshore Finance portfolio has increased significantly. We enjoy a larger spread across top clients and have been able to add about 20 new clients in the last four years. In 2014, Offshore Finance closed 25 new loan finance and guarantee transactions at an average new business margin of 271 basis points and totaling million (previous year: 24 transactions with a new business margin of 330 basis points and totaling million). The new loan production numbers were countered by high pre- and repayments. Prepayments hit the drilling sector in particular, prompted by thriving bond markets and brisk appetite from investors seeking incremental yields and finding the offshore sector a compelling and growing industry. In terms of diversification, our new transactions with established and new clients were spread across offshore support vessels as well as subsea and drilling equipment, with platform supply vessels accounting for 21.0% ( 5.4 percentage points) of the new business volume, followed by anchor handlers with 17.5% ( 20.2 percentage points) and rigs with 4.4% ( 8.0 percentage points). This shift resulted from large prepayments involving these asset types. A new asset type offshore construction vessels made its first appearance in the 2014 new business portfolio, accounting for 17.2%. An important objective is to achieve a more diversified mix of transactions, all pertaining to a high level of equipment complexity, employment cover and corporate recourse. More than half of new business was executed in Europe (mainly Norway), while 28.7% emanated from the Americas and the Far East. Most of these transactions were bilateral, reflecting the more fragmented offshore support vessel market where transaction amounts in general are smaller than in the drilling and FPSO sectors. The interest in club deals, involving at least one other bank, has been growing, while participation in larger syndicates has declined. Offshore Finance is tracking some 130 companies worldwide. About half of these market participants are either directly or indirectly part of DVB s existing client base, but we enjoy good relations and close contacts with far more offshore enterprises, also actively discussing and positioning ourselves to execute corporate finance services. Some of the DVB credit-approved transaction highlights during 2014 include: DOF Subsea DVB acted as Mandated Lead Arranger and Underwriter on the senior secured term loan for refinancing of the 2008-built offshore construction vessel Skandi Seven. The vessel is on long-term charter to Subsea 7, one of the largest and most integrated subsea companies in the world. Toisa DVB will provide a senior term loan to Toisa Limited secured by a DP3 offshore construction vessel (Toisa Perseus) and a DP2 well testing vessel, both initially working in Mexico on time charters to Grupo Diavaz. Petroserv DVB participated in a senior secured facility divided into the a commercial term loan, a non-amortising revolver and a Norwegian ECA term loan. The proceeds are being used to refinance existing indebtedness, including a facility in which DVB also participates.

109 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Offshore Finance 105 Offshore Finance Deal of the Year 2014 Deal of the Year 2014 On 31 March, DVB (acting as Agent) together with participating lenders Swedbank, ABN Amro, KEXIM and GIEK/EKN Norway signed a six-year senior loan agreement alongside a similar junior loan agreement, thus cementing a DVB structured transaction involving commercial, ECA and junior lenders. The purpose of the loans was to assist long-term DVB client Songa Offshore in part-financing the first two (of a series of four) new generation, harsh environment, semi-submersible drilling rigs, all of which were to be built at South Korean shipyard DSME, with estimated delivery during The rigs have already obtained long-term drilling charters with the Norwegian oil company Statoil (each drilling contract is eight-year firm with additional twelve years of options). The deal was very challenging to conclude, due to many moving parts, including certain cost overruns in relation to yard-outages of Songa s five-unit existing fleet causing a serious liquidity squeeze, and initial downgrading by Songa Offshore rating agencies. Yet it was ultimately brought together through equity contributions from Songa s majority shareholder Fredrik Mohn, increased charter rates by Statoil, a willingness by the commercial lenders to underwrite a larger loan amount than initially intended, alongside a continued push by DVB towards both ECA providers and the junior loan provider. The successful closing of the transaction and by extension the key assistance provided by DVB has allowed Songa Offshore to continue its quest for change from being an owner/operator of primarily older drilling equipment to being the leading drilling operator and partner of Statoil on the Norwegian Continental Shelf. Earnings contributions In 2014, Offshore Finance experienced a good year in terms of profitability, capitalising on attractive opportunities but was also impacted by an increase in loan prepayments caused by many large listed companies refinancing in the international bond markets (predominantly in Oslo and New York). Against this background, net interest income was down 15.4%, to 26.3 million (previous year: 31.1 million), as a result of risk-adequate, yet declining interest margins (2014: 271 basis points; 2013: 330 basis points). No allowance for credit losses had to be recognised. Total allowance for credit losses in Offshore Finance was 1.5 million (previous year: 1.3 million). This increase is solely caused by exchange rate effects. The level of provisioning represents a necessary cushion for potential losses. Net fee and commission income remained at a stable level of 18.6 million (previous year: 19.0 million). Overall, results and net segment income before taxes both decreased by 9.5% and 9.8%, respectively.

110 106 Offshore Finance Extract from Offshore Finance s segment report mn % Net interest income Allowance for credit losses Net interest income after allowance for credit losses Net fee and commission income Results (excluding the IAS 39 result) General administrative expenses 1) Net segment income before taxes ) Only those costs are allocated to DVB s operating business divisions for which they are directly responsible. General costs of operations, overheads, or, for example IT costs, are not allocated to the operating business divisions. Risk management Offshore Finance has built a strong risk culture, which starts with our client-facing relationship managers and continues through each stage (including Shipping & Offshore Credit, Shipping & Offshore Research and Credit Committee assessments) until a new commitment is granted, and continues thereafter throughout the term of the relevant exposure through constant vigilance, thorough loan management and continuous monitoring of the overall portfolio health. At the heart of our consideration for each new exposure is the New Deal Committee, which meets to discuss each possible new transaction at an early stage, with a view to spotting risk and structural deficiencies finally arriving at a consensus, be it positive or negative. The committee comprises the Member of the Board of Managing Directors responsible for Shipping Finance and Offshore Finance and the Head of Shipping & Offshore Credit. Shipping & Offshore Research is fully involved in the credit process, providing market research, commentary and research on all the technical aspects of the respective assets, in order to flag any possible negative effects on the tradability and value of the assets under consideration for financing. Only those transactions authorised by the New Deal Committee will move to the next stage, and will subsequently be presented to the Shipping & Offshore Credit Committee. Over certain thresholds, some deals will require further approval of the Board of Managing Directors and in a few cases, the Supervisory Board s Credit and Risk Committee. Once a transaction has been booked, it is monitored for any required action on an ongoing basis by the respective relationship manager and credit officer, and through the review and stress test process. Frequent client calls take place with the obligatory involvement of credit officers in order to further elevate the risk dialogue with our clients. The stress testing procedure (stressing probability of default and valuations) is undertaken on a quarterly basis, with the results feeding into discussion with clients. In addition, there are continuous event-driven rating updates and reviews of the portfolio to refresh ratings and values. The Strategic Management & Restructuring Team of restructuring and work-out specialists is fully involved in the stress testing of the portfolio. If appropriate, an exposure is taken on to the Early Warning List, the Closely Monitored List, or Watch List reporting. In addition to the rigid call report discipline in place, the ongoing management of risk is supported by a full portfolio review from the Offshore Finance senior management, to proactively identify concrete actions to be taken. The Strategic Management & Restructuring Team provides dedicated support on all stressed/ distressed loans, and manages all exposures on the Watch List report. The above-mentioned protocols are geared towards early flagging of possible problems, and allocating adequate resources to assess, quantify, qualify and formulate an appropriate and swift response. With DVB s risk management infrastructure, Offshore Finance will continue to take whatever steps are necessary to safeguard its position as a secured lender in all cases. During 2014 no value maintenance clause breaches occurred in the Offshore Finance portfolio, and provisions for critical exposures were not needed. At the end of 2014, no loans were on the Closely Monitored List (2013: 3.5%). Some 1.9% of the portfolio was on the Watch List (2013: 2.0%) and no loans were classified as special credits requiring close monitoring and a formal monthly review. Finally, 2.4% of the portfolio is being discussed by the Early-Warning Risk Management Forum. All of this monitoring materially decreases the likelihood of unpleasant surprises. To further illustrate the point: the loan-to-value ratio, one key metric of loan performance, has remained relatively constant over the last few years, currently standing at 54.4% (previous year: 54.0%). In total, 96.1% of the portfolio has a loan-to-value ratio below 60%. DVB s risk management infrastructure, its special offshore approach, and Offshore Research s market know-how and technical expertise, provide the Bank with exclusive positioning in the market, and is a source of lasting competitive advantage.

111 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Offshore Finance 107 Offshore Finance Outlook 2015 Market outlook 2015 The low oil price environment prevailing at the end of 2014 and the beginning of 2015 is having a negative impact on E&P spending, with oil and gas companies cutting costs even more than expected. While we expect the oil market to remain demand driven in 2015, we see upward potential from the US$40 50/bbl oil price level observed at the start of the year. Although a slowdown in E&P spending was expected for 2014, the extent of the reduction in spending was greater than anticipated. As a consequence, demand for all offshore asset types is expected to be even lower than previously forecasted. Demand in regions with comparatively higher oil price breakevens such as the North Sea, West Africa or Brazil is likely to be more affected than lower-cost regions such as the Middle East. Drilling units and anchor handling units are expected to suffer the most as exploration activities continue to be postponed or cancelled. Meanwhile, large orders were placed in previous years on the back of higher demand growth assumptions. Fleet growth is thus expected to outpace demand growth in 2015 for most offshore sectors. Competition is anticipated to be strongest in the sectors with large order books such as jack-ups, floaters and platform supply vessels. In order to mitigate the influx of new tonnage in the fleet, shipowners are to take supply adjustment measures, such as scrapping or idling of older units, as well as delaying of new deliveries. However, these supply adjustment measures will not be sufficient to match the decrease in demand, hence fleet utilisation is still expected to decrease. This will put downward pressure on day rates and asset values. Older assets are expected to suffer the most, as they will compete with more sophisticated units which will settle for lower day rates to maintain utilisation. Portfolio outlook 2015 An important driver for the offshore industry is the oil companies exploration and production spending, which in 2013 was already falling in terms of gross numbers. This reduction in spending continued throughout 2014, and accelerated with the sharp reduction in the oil price during the second half of 2014 and first quarter of Against this background, Offshore Finance s future agenda is: Being among the world s highest ranking and most integrated providers of debt financing, advisory services, participant/ underwriter of bond issues, as well as market, industry and product intelligence; Having a market presence in those regions of the world where the major owners are based; Enjoying a high level of reputation and visibility in global offshore hubs and forums, and being recognised as a financial solutions-oriented lender with the highest level of business integrity; Adequately expanding the existing loan portfolio by financing modern and diversified assets, all based on a conservative but acceptable loan-to-value ratio and repayment mainly through fixed cash flow/employment; Fully securing loans, both by the assets mentioned and assignments of charter hire etc.; and Focusing more on the arranging and leading roles of offshore transactions, ideally concluded as bilateral or club deal transactions, rather than a pure participating role. The Offshore Finance portfolio is expected to grow modestly in the coming year, during which the Bank will apply a cautious approach when assessing the relevant market segments and new finance transactions. The offshore market is well entertained by the banking industry and other energy specialty financiers, as well as other capital markets sources. We expect some downward pressure on loan margins for tier-one clients but the level of loan prepayments and refinancing caused by the capital markets such as high-yield bonds will slow down. Furthermore, we fully expect 2015 to offer good opportunities for full-recourse transactions, structured debt financings, advisory and capital markets business tailor-made for current market conditions. Getting into the year, we will strive to further optimise our resources, enhance the credit quality of the portfolio, and continue to monitor our risk positions relentlessly. This can partly be achieved by doing business with existing clients, and by sourcing business opportunities within a target group of new clients. The Division will continue to strengthen its capabilities of providing added-value services in order to diversify and increase its non-lending and non-capital binding revenues. This will confirm us as a long-term strategic partner, for the mutual benefit of the Bank and our clients.

112 108 Land Transport Finance In a market environment characterised by economic conditions which were not always positive, our Land Transport Finance division was active throughout 2014 on all our target markets, and once again achieved very good results. To us, this is a clear signal that our sustained specialisation and focus continues to be recognised and appreciated by the market. Land Transport Finance Market review 2014 gave a positive picture across the board: the most recent preliminary statistics indicate strong growth in the North American and Australian rail markets and slow growth in the European rail market, following the GDP development on these continents. Equipment orders more or less followed the same pattern, although a slower growth path led to significantly lower rail freight rolling stock investments in Australia. Lease rates and utilisation rates went up in North America, but stayed flat in Europe and Australia. Compared to other transportation modes, the rail business experiences some headwinds from higher costs of infrastructure usage and the introduction of new regulations and taxes, although rail is the least polluting of all transport modes. Rail freight Europe Although full-year statistics are lacking, company results do suggest that 2014 was another year on the road of recovery. However, the rail freight business was still 5.5% below its peak in On the merger and acquisition front, the incumbent railway companies kept fairly quiet. Only Poland-based PKP Cargo acquired 80% of Czech Republic-based Advanced World Transport, one of the largest privately owned railway companies. Some large acquisition transactions showed the attractiveness of the European rolling stock leasing business, also to foreign investors. The challenging situation of the rail freight market was again reason enough for a sustained and healthy aversion to placing (speculative) orders. Planned standard gauge freight car deliveries were still at a level half of the replacement need. New locomotive deliveries slightly increased, to 62.8% of the replacement need. 24.7% of these locomotives were destined for leasing companies, leading to an increasing market share of the locomotive lessors. Rail freight North America The number of carloads increased significantly by 3.7% and intermodal transport was again thriving with a growth of 5.4% according to the Association of American Railroads. In Canada and the US, total carloads were still down 9.6% from the 2006 record level, but the intermodal business achieved a new record at 12.2% more shipments compared to the pre-recession record level of Coal is to blame for most of the carload decline in the US the 22.0% lower level compared to its peak in 2008 is predominantly due to reduced demand from coal-fired power plants resulting from lower natural gas prices and more stringent environmental regulations. Locomotive manufacturers built 40.2% more locomotives above the replacement need, thereby reaching the pre-crisis levels of 2006 and Freight car manufacturers still have a full tank car order book for the next two and a half years, due to the oil exploration boom and expected stricter tank car regulations that will mandate safer tank cars in flammable liquids service, although the exact new rules have not been set yet.

113 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Land Transport Finance 109 Rail freight Australia For their reporting year 2013/2014 (ending on 30 June 2014), Australia s two largest nationwide operating rail freight companies reported on average a year-on-year increase of 6.4% in moved tonnage, especially because of growth in the transport of coal, iron ore and steel. However, less other freight commodities were transported. In its financial year 2013/2014, the Australian Rail Track Corporation reported a year-on-year increase of 1.8% in volume on the interstate network. Coal volumes in the Hunter Valley continued to grow with 8.7%. Passenger rail Europe Statistics from Destatis in Germany and the rail regulator UTK in Poland show that there was a slight increase of 0.9% of passenger train kilometres for the first three quarters of 2014 compared with For the same period, the Office of Rail Regulation in the UK reported an increase of 0.7% in timetabled passenger train kilometres. This reflects the improved economic development. Especially at the end of the year, there was considerably more open-access, commercial passenger train competition to be seen in the Czech Republic, Slovakia, Romania and France, all performed by existing companies. However, Ostseeland-Verkehr GmbH had to cease its intercity trains in Germany because of fierce competition by the newly introduced long-distance bus services. Passenger rail North America For the third year in a row, the American Public Transportation Association recorded a ridership increase across the board in the US. Amtrak carried 0.2% more passengers in its 2014 fiscal year that ended 30 September 2014, the most the railroad has ever carried since its creation in All Aboard Florida, the first privately-owned intercity passenger rail project in the US in modern times, announced it will start operating via existing rail infrastructure in Florida in Further details on land transport market developments in 2014 can be found on DVB s website > Business & Expertise > Land Transport Finance > Markets. US freight car deliveries Units 100,000 85,612 80,000 77,000 60,000 63,156 60,145 47,346 58,902 52,879 67,027 40,000 20,000 22,004 16, f* *2015 figures forecasted Source: Rail Theory Forecasts, January 2015

114 110 Land Transport Finance Land Transport Finance Strategy Our internationally unique Land Transport Finance platform forms a sound and competent base for our leading market position. Our business model encompasses research, advisory and financing activities on the international transport markets specifically in the three developed core regions of Europe, North America and Australia. Once again, during 2014 we were one of the few financiers that consistently supported market participants reliably, and across regions. This business approach has proven very positive for our clients as well as for the Bank. From a strategic perspective, our Transport Finance business is focused on our strengths, relying on material asset-finance principles as matter of course. The following aspects are derived from our business model and represent key success factors, both individually and in combination with each other: Internal factors The flat hierarchy within DVB, which allows for short and direct decision-making processes; the conservative risk approach, which benefits us considerably for credit assessment and in managing our exposure; the consistent and reliable responsibility taken by the Land Transport Finance team for transaction execution; our cost discipline and careful consideration of the risk-return ratio. Market factors Our flexibility and ability to quickly act on the markets we cover; our detailed and profound knowledge of markets, financed assets, clients, trends, and current and expected transport asset performance; our commitment and creativity in structuring transactions for clients; the close integration with DVB Corporate Finance and Advisory, to optimise the range of products and services we offer to our clients. Supported by the factors outlined above, and thanks to the consistent dialogue and close co-operation with our clients, we once again successfully originated new business throughout We aim to further expand our market presence in our three mature target regions. In a rail sector that is increasingly global, we are in a position to offer synergy effects to our clients. At the same time, the diverging momentum in the three regions further helps to diversify our portfolio. Our relationship managers in Frankfurt/Main and New York continued to support our clients throughout 2014, working with them to originate tailor-made financing solutions. We will maintain this regional team structure. Clients and our financing partners continued to appreciate our specialist focus on asset finance and related services. They value the commitment and know-how of all our team members, which translates into a real competitive advantage for us. Our Land Transport Research supports us, with strategic and operational intelligence, in every loan approval and risk decision we take. In the context of key projects, our Research also provides market analysis directly to clients. Collaboration with the Bank s other service teams is increasingly important, especially with DVB Corporate Finance and the Financial Institutions team. We successfully acquired Corporate Finance mandates in Europe and North America during the year under review. Moreover, we took on board various new approaches as well as some very promising projects that we intend to develop into new business in the years ahead.

115 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Land Transport Finance 111 Overall, our Land Transport Finance clients can readily draw upon the following range of specialised products and services, in order to fulfil their differing requirements: Structured Asset Financing, providing asset-based lending, secured by rolling stock, by means of various financing structures, be it of a shorter nature (such as bridging facilities) or complex, structured mid- to long-term asset financing solutions; Despite various challenges, we see good opportunities in the markets we cover: we will master future developments with flexibility and broad-based know-how. Against this background, we are confident that we will continue to command a prominent position in the Land Transport Finance markets, to the benefit of our clients, the diversification of our portfolio and ultimately, for the Bank s profitability. Risk Distribution, syndicating portions of the lending volume to other financial institutions on the international banking market; Corporate Finance Solutions, supporting our clients in the identification of new and diverse sources of funds in the capital markets, and accessing those funds on favourable terms; as well as providing M&A and restructuring advice as well as arranging debt and equity financings; Private Equity Sourcing & Investments, via the Shipping & Intermodal Investment Management team, managing the Stephenson Capital Funds (invests in rolling stock); Asset & Market Research, supporting our strategy and financing activities with a core focus on the land transport market. We still firmly believe that the clearly advanced maturity of the markets we cover is a positive aspect. We recognise the growing cyclicality of the market segments: thanks to our research we are able to better identify new business opportunities. Our clearly defined set-up in the asset finance world, and our cycle-neutral strategy, have both yielded good results over the past years. The continuity of our market approach and our proven competence keep paying off. Land Transport Finance Mission Statement We value our client relationships highly. The goal is to increase our client franchise as the leading financing partner in the rail asset markets in our core regions. Based on our unique understanding of the market, business focus, a continuous capacity to execute transactions, and flexibility, we offer added value by advising on intelligent asset finance solutions; and taking on appropriate risk exposures that capitalise on the cyclical nature of the underlying sectors.

116 112 Land Transport Finance Land Transport Finance Portfolio Analysis Total loan portfolio Total customer lending amounted to 2.0 billion at the end of 2014 (2013: 1.6 billion). 54.6% of the lending exposure was to European clients (down 2.6 percentage points), whilst loans to clients domiciled in North America accounted for 41.2% (up 3.4 percentage points year-on-year). Accounting for 2.9% of the total portfolio, lending to Australian clients was marginally lower than in the previous year (down 0.6 percentage points). Clients from Central America had a 1.3% share, down 0.2 percentage points year-on-year. collateral has the extra benefit of high operational and technical efficiency. This makes the asset class attractive, even in the event of potential collateral recovery if fleets are repossessed or remarketed/redeployed. The portfolio share of locomotives rose to 20.2% (2013: 14.9%), whilst the share of regional trainsets remained stable, at 15.4% (2013: 15.5%). The market for road assets is still saturated in many segments, given the size of existing fleets. The portfolio share of road vehicles declined to 8.7% (2013: 9.4%), due to repayments. Land Transport Finance portfolio by asset type Land Transport Finance portfolio by country risk Europe 54.6% North America 41.2% Australia/Occeania 2.9% On rail 91.3% thereof: 54.6% Freight cars 20.2% Locomotives 15.4% Regional passenger train sets 0.9% Passenger coaches 0.2% City/commuter traffic Cental America 1.3% In respect of the overall portfolio, 91.3% of the transactions (2013: 90.2%) related to rail assets. 54.6% of the rail portfolio was attributable to the freight car asset class (2013: 58.2%). Not only is this high percentage unproblematic, it is in fact desired: thanks to their granularity, freight cars are an asset class with an excellent risk profile moreover, one that is diversified in many ways, by borrower, lessee, rail car type, vintage and region. While being a rather low-tech vehicle having no self-propulsion or signalling equipment the freight car as equipment and On road 8.7% thereof: 8.4% Container chasis 0.3% Tank container Due to some larger-sized transactions during 2014, the average lending exposure per client moved up to 43.4 million (2013: 34.3 million). With 13 clients (2013: 10 clients) having exposures in excess of 50 million. We do not perceive any indications for elevated cluster risk.

117 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Land Transport Finance 113 New business Loan portfolio development During 2014, our Land Transport Finance business developed very favourably. Land Transport Finance was thus able to close 17 new transactions with a total volume of million (2013: 16 transactions with a volume of million) in Europe and North America. Our new business volume was thus once again clearly above the average established over several years. Essentially, it was based on three economic scenarios: the need to refinance existing loans for rolling stock; a slightly increased propensity to invest, especially in the North American rail market, and replacement investments of fleet owners in their rolling stock. As in the previous year, the lending transactions we closed successfully were all secured by first-ranked collateral. Specifically, we arranged and participated in bilateral loans and larger-sized credit facilities on the basis of club deals. We also entered into non-recourse transactions with special purpose entities and successfully structured solutions for operating leases. Within the scope of non-recourse transactions, we also assumed implied exposures to the funded rolling stock ourselves. We worked closely with Land Transport Research regarding all transactions, jointly assessing the projected performance of the relevant transport assets, the specific features of the type of asset, the current supply and demand situation, future market movements and external trends. These analyses also incorporated regulatory aspects and expected technical changes, since they also determine the potential for remarketing on the secondary market, as well as future lease rates. During 2014, new rolling stock investments were once again below the levels seen prior to the economic crisis particularly in Europe. The US, however, saw a recovery in new orders for freight cars, not least due to the energy boom triggered by fracking of shale oil. Some larger-sized fleet disposals by lessors or even company sales were observed during the course of the year in some cases in order to realise higher values, to implement strategic changes, or to faciliate succession arrangements. On this basis, we once again concentrated on financings in the primary markets. We also closed one secondary market transaction.

118 114 Land Transport Finance New business we originated during 2014 exclusively consisted of rail asset transactions, with no transactions for rail-related vehicles. Financings of new or used freight cars and of new locomotives constituted the backbone of rail asset finance: at 51.7%, freight car financings continued to account for the largest share of new Land Transport Finance business, in line with the Bank s strategy, followed by transactions involving locomotives (36.4%). 11.9% of new business volume related to passenger train sets, reflecting the rising importance and momentum of this growing European rail transport segment. There were no financings of rail-related transport assets or container chassis during Notwithstanding the planned further diversification of the Land Transport Finance portfolio by boosting the share of this market segment, its actual portfolio share declined due to repayments. Some key Land Transport Finance transactions entered into in 2014 are: Facility Agent and sole lender in a long-term, asset-based amortising loan, as part of a multi-tranche transaction for the acquisition of used freight cars. The transaction enabled this key American client to further diversify its leasing fleet of standard freight cars in an important industrial segment. Facility Agent and Security Agent as well as co-lender of a long-term credit facility secured by first-ranking collateral, within the scope of a bank club deal, to finance the construction and initial leases of modern multi-system locomotives in Europe. This transaction was ground-breaking since it facilitated the establishment of a new locomotive leasing company, in co-operation with a strong international equity investor. In November 2014, DVB s Land Transport Finance team once again received two significant awards from Global Transport Finance, a renowned international trade publication: Rail Finance Innovator of the Year Rail Finance Deal of the Year (Europe) Co-arranger and Security Agent of a bank club deal for the leading European lessor of passenger train sets and locomotives. This involved a large-sized amortising credit facility to finance the purchase of 35 brand-new Stadler Flirt electrical train sets (Electric Multiple Units or EMUs ). The transaction permitted the client to strengthen its market position, and to offer the lessee an operating lease structure providing relief in terms of balance-sheet usage.

119 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Land Transport Finance 115 Land Transport Finance Deal of the Year 2014 Deal of the year 2014 The Florida East Coast Railway (FECR) founded in 1895 is a 351-mile freight rail line located along the east coast of Florida. It is the exclusive rail provider for Port Miami, Port Everglades, and Port of Palm Beach. FECR connects to the national railroad network in Jacksonville, Florida, and provides carload and doorto-door intermodal solutions across North America to customers who demand cost-effective and premium-quality service. FECR entered into an agreement to purchase 24 GE ES44C4 Evolution Series Tier 3 locomotives from GE Transportation in January DVB was able to provide the financing for this equipment in June. We closed the transaction in October 2014 as the sole arranger and lender in a fully amortising loan, that included three separate delivery dates prior to year-end. The GE ES44C4 is the latest Evolution Series locomotive offered by General Electric, providing lower maintenance costs and fuel savings. Furthermore, these locomotives are being built as LNGready, allowing optionality between the use of diesel or natural gas as fuel, further reducing costs for the railroad. FECR was the first railroad to be selected by the Federal Railroad Administration for testing of the LNG fuel, ahead of any Class I railroad. With this successful transaction, DVB once again proved its capacity to combine client relationship management with the assessment of a fleet of innovative assets, and its execution capability.

120 116 Land Transport Finance Earnings contributions In an environment that was once again challenging, total income again increased compared to the successful results of the previous year by 12.7% to 23.9 million (previous year: 21.2 million). Net interest income after allowance for credit losses rose slightly by 12.2%, to 16.6 million (previous year: 14.8 million). The fact that allowance for credit losses for Land Transport Finance only increased slightly was positive and noteworthy. Given the relatively low market cyclicality of rail assets, transactions in Land Transport Finance are generally less prone to risks than financings in other transport sectors. Total allowance for credit losses in Land Transport Finance as at 31 December 2014 therefore amounted to a minimal 1.9 million (previous year: 1.6 million). Moreover, net commission income rose from 6.4 million to 7.2 million, up 12.5%. The segment result before taxes amounted to 20.0 million, a 11.7% increase on the previous year s result of 17.9 million. Extract from the segment report for Land Transport Finance mn % Net interest income Allowance for credit losses Net interest income after allowance for credit losses Net fee and commission income Results (excluding the IAS 39 result) General administrative expenses 1) Segment result before taxes ) Only those costs are allocated to DVB s operating business divisions for which they are directly responsible. General costs of operations, overheads or, for example, IT costs are not allocated to the operating business divisions.

121 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Land Transport Finance 117 Risk management 99.3% of the Land Transport Finance portfolio is collateralised by assets (previous year: 99.1%); other collateral accounts for an unchanged 0.4% of the total volume, while unsecured business was below the previous year s level, at 0.3% (previous year: 0.5%). There was little change in the risk situation in our target markets of Europe, Australia and North America during Being acutely aware of risks is a material element of our work when entering into a transaction, as well as when monitoring existing exposures. Our credit approval process, which may include up to three levels, includes an extensive analysis of each new exposure regarding the risk factors it may be exposed to. All potential new transactions are first discussed in weekly Deal Committee meetings, attended by the responsible member of the Board of Managing Directors, the entire Land Transport Finance team as well as Land Transport Credit and Land Transport Research. Transactions that are given the green light in these meetings are then finalised in negotiations with the client, and if approved submitted to the entire Board of Managing Directors for approval. Where required by the Land Transport Finance lending policy, new transactions also need to be approved by the Supervisory Board s Credit Committee. Decisions on new exposures always require an independent opinion from Land Transport Research. Furthermore, once a new transaction has been booked, the portfolio is constantly reviewed and categorised by risk class. During phases of increased risk relevance, the portfolio is run through the early warning system (with finance projects tagged green, amber, or red), with higher risk deals added to the Closely Monitored List or the Early Warning List, and ultimately where and when required for critical transactions placed onto the Watch List. The risk levels within our portfolio due to the higher intrinsic stability of the land transport markets compared to other sectors are comparatively low. This was evident in 2014, too: Thanks to tight and pre-emptive internal risk control management, the improved market environment, and due to our moderate appetite for risk, we only needed to assign a small number of clients to higher risk groups. Only a minimal addition to allowance for credit losses (amounting to 0.1 million) was required for Land Transport Finance exposures at the 2014 year end. One transaction that had been restructured several years ago finally provided a payoff the sale of the underlying freight car fleet not only allowed for repayment and yielded excess proceeds, it also allowed for a reversal of the allowance for credit losses recognised at the time. We recognised allowance for credit losses in a minor amount for a mid-sized transaction, following the initiation of insolvency proceedings for a remote parent entity of the borrower. Since the borrower has continued to perform on its contractually-agreed debt service obligations, we do not see any need for further measures at this point. The amount recognised only slightly exceeds the allowance for credit losses previously reversed for Land Transport Finance during the course of the year. As in the previous year, there were signs of a plateau forming in the rail transport segment as a whole, with increases in asset values in some asset sectors roughly exceeding losses in others. The outlook for the North American market was positive. On average, the renewal lease rates for rolling stock leasing in North America were slightly higher than the terms for maturing transactions, whilst in Europe they were stable on average. Fleet utilisation was unchanged, providing grounds for hope that the market will soon be past the trough. There was increased lessor demand for still-available chassis portfolios in North America and stable demand from lessees.

122 118 Land Transport Finance Land Transport Finance Outlook 2015 Market outlook 2015 Judging by the projected economic growth rates of the geographic areas Land Transport Finance is active in and the general positive correlation between economic development and rail freight and rail passenger volumes, 2015 is likely to be a year of various stages of growth for DVB s key land transport segments. The International Monetary Fund forecasts a gross domestic product growth of 1.2% in the euro zone, 2.3% in Canada, 3.2% in Mexico, 3.6% in the US, and the Reserve Bank of Australia gives a range of 2 3% for Australia. Transport price, lease rate and utilisation rate increases can be expected across the board. Railroading will still be a loss-making business for many of the railway companies in Europe, but could again turn out to be profitable in Australia and North America. Still quite a few Central and Eastern European governments will have their ailing rail freight companies for sale. Judging on company information, more open-access competition on the passenger market is to be expected in France, Germany, Slovakia and Sweden. Germany-based rail consultant SCI Verkehr expects the European rail market which is still the largest in the world to annually grow by 3.2% (Western Europe) and 2.2% (Eastern Europe) between 2014 and 2018, the North American by 3.3% and the Australian by 0.6%. About a quarter of the respective rail market investments will be in new rolling stock. In Europe, except for train set deliveries, new rolling stock deliveries will likely continue to be very far off from replacement needs, since existing equipment has to be (and will be) utilised first. The focus with freight car investments in Europe will be on silencing wagons to avoid railway companies to be penalised for noise (three countries in Europe already do so and Switzerland has posed a ban on noisy wagons to be used as from 2020 with Germany likely to follow). The trend in Australia will be to concentrate on better utilisation of equipment. In North America retrofitting, reassigning or scrapping tank cars for hauling flammable liquids (with new regulations expected in 2015 after the tragic accident in Lac-Mégantic, Canada, in 2013), installing positive train control systems and increasing train staff and locomotive capacity will be predominant themes in The latter will be a challenge, since only one manufacturer is able to offer Tier 4 emission-compliant main-line diesel freight locomotives. For Europe, Progtrans expects a 1.3% rail freight performance (tonne-km) growth p.a. between 2015 and 2050 and SCI Verkehr of only 1.1% p.a. up to Specific for Germany, Intraplan Consult and Ralf Katzenberger are a bit more positive, with an expected rail freight growth of 2.9% (tonne-km) and a rail passenger growth of 1.6% (passenger-km) in Germany in The International Union of combined Road-Rail transport companies has stated a slightly positive business outlook for intermodal transport up to 30 September In North America, transportation intelligence firm FTR reports a backlog of almost 125,000 freight cars to be built. This could take up to one and a half years to accomplish. Freight car production has seen uncertainty creep into its boom with the open questions on shale oil production and capital expenditure not to mention the still-to-come new federal regulations on crude oil and ethanol tank cars. Since by far the majority of the coal and iron ore is transported by rail from the mines to the ports, the Australian rail freight performance is closely linked to the development of coal and iron ore exports. The Australian Bureau of Resources and Energy Economics forecasts iron ore volumes to increase by 12.8% per cent in the business year ending on 30 June The projections for metallurgical coal suggest a growth by 2.4% and for thermal coal by 1.1%. It is to be seen whether the Chinese import duties on coal can be offset by the weakening of the Australian dollar.

123 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Land Transport Finance 119 Portfolio outlook 2015 Structured asset financing remains our core business. We have started the new year with a satisfactory transaction pipeline in all our core markets, and anticipate a positive business development. At the same time, we envisage some challenges ahead. On the one hand, the propensity to invest in new rolling stock in European and Australian land transport markets still falls short of precrisis levels. On the other hand, the much cheaper liquidity available on the financial markets increasingly leads market participants to refinance existing exposures. We expect the following trends to determine land transport finance markets during 2015: Demand for asset-based finance in Europe will remain intact for freight cars and locomotives in particular. Long-term financings for passenger train sets are expected to be increasingly covered by new financing models involving the public sector. In North America, we identify an increasing need for new freight car purchases. This is expected to stimulate market momentum. Demand for new rolling stock in Australia such as new locomotives and efficient railcar fleets for transporting raw materials is currently weakening. In spite of persistent economic weakness in some markets, we anticipate low risks for our portfolio. Our business is supported in principle by the inherent long-term stability of the land transport sector. Portfolio management remains a top priority in our business. We will adhere to our policy of maintaining tight risk analysis, to prevent such risks in our business that have materialised as a consequence of increased cyclicality in the land transport markets, and due to macroeconomic changes. For 2015, we expect the composition of our portfolio by regions, clients, and market segments to develop consistently, therefore remaining largely unchanged at current diversification levels. Given that the economic outlook for North America is still brighter than for Europe and Australia, we are confident that we will be able to expand the share of portfolio exposures there. Lending and other services provided within the scope of our Land Transport Finance platform will remain in demand during the forecast period. Our long-term client relationships have proven to be very sustainable in our business. We enjoy an excellent market reputation whereby we are seen time and again as a reference bank and continue to retain a clear focus on our core business. These factors remain crucially important, especially during challenging times. Therefore, we are convinced that we will be able to preserve our leading position in the market during We also see good opportunities for advisory mandates, increasingly for capital market transactions. We are generally optimistic with regard to the development of our high-quality portfolio, with rail assets set to remain the division s strongest pillar in Strategically important transactions are expected to materialise in this segment in the years to come.

124 120 Financial Institutions DVB s skills and expertise as an arranger and syndicator means that clients can rely on DVB to place their financing requirements. During 2014, the Financial Institutions team, responsible for all third-party financial institution relationships and sell-down efforts, continued to successfully raise bank debt for transactions across DVB s four Transport Finance divisions. Financial Institutions Market review Global syndicated loan volume increased to 3.8 trillion in 2014, representing a 22.6% increase on 2013 figures of 3.1 trillion. The 2014 figure is the highest annual volume since 2007, reflecting improved liquidity in the bank market. By region, syndicated loan volume in Europe/Middle East/Africa increased the most by 57.1% to 1.1 trillion (previous year 0.7 trillion). In North and South America, the volume grew to 2.1 trillion (previous year: 1.8 trillion). In Asia/Pacific the loan volume remained constant at 0.6 trillion. The syndicated deal volume in transportation finance (including shipping, aviation, offshore, and rail asset finance) increased by 11.1% to 59.9 billion in 2014, compared to 53.9 billion in During 2014, improved liquidity has meant that ship financing banks have continued to increase their activity in shipping and offshore, albeit selectively. As a result, syndicated marine finance volumes increased to their highest level since 2008, with the total volume of syndicated loans in shipping and offshore markets reaching 34.1 billion. This reflects a 5% increase on Of this amount, however, traditional shipping loans were significantly higher in volume terms, at 27 billion, with volumes for offshore at 7 billion. As was the case in 2013, lenders active in shipping and offshore finance continued to target top-tier clients; however during 2014 we saw ticket sizes increasing. The two-tier market we saw in 2013, with top names commanding significantly lower pricing and more aggressive structures remained intact during Regional disparity further increased pricing differences, with top Asian and US companies commanding significantly lower pricing than seen in other regions. During 2014 some traditional shipping and offshore lenders returned to the market. This resulted in lenders taking some underwriting capacity for investment grade clients and project style financings in offshore, which were oversubscribed. Club and bilateral deals, however, remained the focus for lenders, especially for relationship clients. The impact of the European Central Bank s asset quality review and stress tests did affect lending, especially amongst German banks. These institutions continued to seek innovative ways to reduce their shipping portfolios during A reduction in the oil price also led to some banks reviewing their offshore portfolios towards the last quarter of 2014 and taking a more cautious approach to this sector. Global syndicated loan volume per year trillion North and South America Asia/Pacific Europe/Middle East/Africa Source: Dealogic, January 2015

125 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Financial Institutions 121 Government lending and guarantees via export finance houses, together with bonds, still supported the ship finance market in 2014 together with capital market products. The funding gap caused by lenders which exited or ceased their activities as from 2008 was still to be felt, especially for clients with weaker balance sheets. Private equity also continued to increase its share of shipping portfolios during This was more focused on strategic participations in joint ventures with shipowners rather than the acquisition of distressed loans in the secondary market or the acquisition of portfolios from lenders exiting shipping. Aircraft financing continued to see an abundance of liquidity in 2014, fuelled by increased competition on opportunities from new and existing lenders. This resulted in reduced pricing levels, advance levels increasing and some loan covenant deterioration, notably for top-tier airlines and aircraft lessors. However, transactions involving non-investment grade borrowers, mature aircraft and non-recourse residual value risk have continued to remain challenging for most lenders. In addition to commercial bank debt, aircraft financing also relied on sources such as capital markets and (to a lesser extent) export credit financing, which also contributed to increased liquidity in the market. The enhanced equipment trust certificates, assetbacked securities and corporate bond market remained buoyant in North America and offered qualifying airlines/lessors a competitive funding alternative to the traditional commercial bank debt, adding to the pressure on pricing. In the rail industry, liquidity was available in abundance; though lenders remained relatively tight on limited recourse deals banks still being very selective when lending on an rail asset finance basis most of the banks showed an increased interest in either (quasi) public finance character deals (e.g. European passenger rail initiatives) or transactions with more corporate lending flavour (e.g. on-balance-sheet financings or larger portfolio deals). The market was also influenced by the capital markets and asset-based structures (primarily in the US). Again, during 2014, a number of new institutions looked at the sector, a few of which had left the scene during financial crisis, and came into some rail deals. Financial Institutions Strategy During 2014, the Financial Institutions team supported DVB s core business activities in Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance. Strong relationships with other institutions ensured that sufficient third-party bank debt liquidity was identified, thus adequately transferring risk from DVB s lending book. The key drivers that Financial Institutions has used to formulate its successful strategy are the following: Maintaining and expanding relationships with financial institutions; Developing and maintaining a good understanding of each financial institution s risk appetite and requirements; Ensuring close co-operation with DVB s global transport finance network, research and advisory teams Providing competitive pricing structures based on up-to-date information; access to global networks and ad-hoc analysis; Empowering effective management and monitoring of the syndication process; deploying a personalised, bespoke approach towards the banking partners; Understanding the wider economic conditions and how they affect transportation financing.

126 122 Financial Institutions Financial Institutions Portfolio analysis Total sell-down volume by business division During 2014, the Financial Institutions team was able to bring together a stable international group of banks with experience and knowledge in transportation, in addition to establishing new financial institution relationships. Thus, the team was able to sell down an overall volume of million (including ECA) in For the Shipping Finance and Offshore Finance divisions, Financial Institutions was able to successfully raise funds for new projects. Shipping and offshore transactions accounted for 53.6% and 22.0% respectively of the team s total commitments received in These projects were both underwritten and club-style transactions with our partner banks. On the aviation side, Financial Institutions concluded the syndication of a number of operating lessor transactions and direct airline transactions throughout the course of These deals were predominantly structured as club transactions and postclosing syndications to assist in exposure management. Financial Institutions concluded debt raising and/or debt sell-down transactions representing 24.4% of DVB s total commitments received in Shipping Finance 53.6% Aviation Finance 24.4% Offshore Finance 22.0%

127 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Financial Institutions 123 Financial Institutions Market and portfolio outlook 2015 During 2015, we expect adequate liquidity to persist supporting strong shipping and offshore transactions. We do not anticipate that many new banks will be actively looking at these sectors but some lenders which had exited may start to look at the shipping and offshore sectors on a selective basis. Traditional shipping and offshore banks may increase their activities and exposures during 2015 as a result of having managed their distressed loans. The impact of the European Central Bank s asset quality review, stress tests in 2014 and further Basel III capital and leverage ratio requirements will continue to impact certain lenders appetite for new business. Nonetheless, an abundance of cheaper liquidity at some banks, notably well-capitalised Asian lenders, will result in margins, tenors and terms converging towards pre-crisis levels for top-tier shipowners with strong balance sheets and the right assets, and the same is true in aviation. Moreover, we anticipate more refinancing activity for these names. Offshore finance will likely feel the impact of a declining oil price. This will result in a more cautious approach towards this sector, which could mean less aggressive structures and higher pricing for offshore deals than witnessed in Aviation financing is likely to continue to be supported through an availability of US dollar mainly supplied from the capital markets, enhanced equipment trust certificates, asset-backed securities, bond issuance and bank debt market while being less reliant on ECA-supported deals. The latter will continue to decline as a result of new ECA credit rating requirements which make these products less competitive for all but investment grade borrowers. Rating requirements may limit the spread of debt capital market products into Asia in particular where commercial bank debt and tax equity (Japanese Operating Leases with Call Options) are likely to remain popular with airlines and lessors. DVB expects some further opportunities for rail transactions in Some institutions view rail as a fairly stable sector and therefore could increase their exposure, as a means of diversifying their existing asset class and overall portfolio. With capacity in the bank debt market somewhat uncertain, liquidity will be at a higher level than that seen in Further, it is our expectation that the capital markets, inclusive of asset-backed securities, will be available thereby providing additional liquidity to the rail asset finance marketplace. Liquidity will concentrate on transactions involving younger assets, larger portfolios, strong lessors, publicly-owned borrowers, and in some cases or countries still with a stronger focus on domestic home markets. The Financial Institutions team anticipates for 2015 that there will be higher levels overall of available debt for shipping, aviation and offshore than those seen during the previous year. We expect to see more competition from lenders active in these sectors, given the further improvement in liquidity, but conversely greater opportunities to club, book build and potentially underwrite as a growing number of lenders focusing on investment grade borrowers will enter the transportation markets in The Financial Institutions team will continue to assist all the sectors within DVB in raising liquidity whilst maintaining, enhancing and developing existing and new relationships with financial institutions globally.

128 124 Corporate Finance DVB Corporate Finance (DVBCF) is an established investment banking franchise within DVB, providing best-in-class advisory and financial services to corporate clients on a global basis. As an independent financial advisor, DVBCF offers a complete range of financial products including Mergers & Acquisitions, Corporate Advisory, Equity & Debt Capital Markets, and Structured Asset Finance. Our services are based on long-term relationships with corporate clients, in-depth industry expertise across all transportation sectors, and strong professional skills: the objective is to provide integrated financial solutions. The team is comprised of about 15 seasoned professionals with comprehensive experience gained from a wide variety of backgrounds including bulge bracket investment banks and boutique shops, with offices in New York, London, and Oslo where proximity to key industry players provides a significant advantage. Our clients are international corporations as well as institutional investors (including private equity firms and hedge funds). Corporate Finance Market analysis Mergers & acquisitions (M&A) Over the past year, there was a surge in global M&A activity with total deal flow growing at the fastest pace since 2000 primarily due to favourable market conditions. As the business cycle of the advanced economies is generally perceived to be approaching its final expansionary stages, capacity is tightening and the ability to grow earnings organically remains more limited, while companies willingness to take on risk has improved. In addition, companies are holding significant amounts of excess cash and also enjoy access to debt for leveraging investments in the credit markets. In the transportation sector, consolidation and merger activity continued as management teams took a measured approach and focused on addressing overcapacity, fragmentation, and strengthening of the core business. Global M&A volume reached 3.0 trillion in 2014, up 25.0% year on year compared to 2.4 trillion in 2013, and the third-highest full-year volume on record, while global M&A revenue was 17.3 billion, up 11.6% compared to 15.5 billion in 2013, and the highest since Within transportation, shipping and offshore M&A activity focused mainly on distressed situations. The dry bulk segment was particularly active with a number of large deals, including the mergers of Star Bulk and Excel Maritime in August and Knightsbridge with Golden Ocean in October. High yield bond market The high yield bond market finished 2014 flat compared to 2013 in terms of issuance volume repeating prior year s record ( 435 billion globally). High yield corporate bonds in currencies other than the US dollar grew by over 20% to nearly 107 billion equivalent. However, a pronounced decline in the price of oil and geopolitical instability have led credit spreads to widen by over 150 basis points from their lows reached in June 2014, leading to increased investor selectivity and slowdown in new issuance in the latter part of While this cyclicality has negatively affected many credits exposed to oil and gas exploration and production activity, and emerging market risks, higherquality borrowers maintain market access. In the transportation sector, recent bond issues denominated in euro, Norwegian kronor or British pound included transactions by Hapag-Lloyd, TUI, Bibby Offshore, Polarcus and Norwegian Air Shuttle. AerCap, Fly Leasing, Intrepid Aviation, StarBulk Carriers, Scorpio Tankers, Scorpio Bulkers and drillers Oro Negro and Deep Sea Metro/Golden Close Maritime were among credits that successfully tapped the US dollar bond market in the second half of Innovative new products were introduced, particularly in the shipping sector, including perpetual preferred stock, baby bonds, and Term Loan Bs, which expanded the range of financing options for shipowners. Historical high yield bond issuance billion US$ Source: Offering Memorandums, DVBCF, January 2015

129 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Corporate Finance 125 Securitisation market Securitisation, commonly referred to as asset-backed securities or ABS, is a form of non-recourse structured asset finance that involves the repackaging of assets and associated cash flows into marketable securities. Bankruptcy-remote structures and the sole reliance on the assets for repayment are key features of ABS. Driven by strong underlying performance and improving industry fundamentals, ABS backed by aircraft, containers and railcars have seen steady improvement from issuance lows experienced during the recession years from 2007 to For investors, operating asset deals gave more prepayment certainty, provided more stable average lives, and offered diversity from traditional consumer-related ABS, which were at the epicenter of the financial crises. For issuers, ABS can provide an efficient and low-cost funding alternative to other credit products, and enhance asset-liability management strategies. Following a robust 2013, operating asset ABS issuance volume in 2014 reached near-record highs, driven by a resurgence in aircraft-backed deals and the introduction of new issuers to the market overall. The increase in issuance slate and credit trends supported secondary market trading volumes, which helped drive spread compression to all-in record tight coupons on new issue execution. Successful transactions were introduced by both first-time and repeat issuers in all transportation sectors, including Jetscape, Apollo, and Avolon in aviation, Buss and Dong Fang in containers, and Flagship Rail and American Railcar in land transport. Equity capital markets Despite the S&P 500 ending 2014 with a robust 14% gain and a record of 79 billion of capital raised in initial public offerings (IPOs), the equity markets displayed a high degree of volatility towards the second half of the year, with the S&P reaching a low of 1,860 in October and later climbing back to 2,090 in December. A number of problems contributed to the large movements, including geopolitical issues, fear of market overvaluation, uncertainty regarding the Federal Reserve s decision on the future direction of US interest rate, a sharp drop in commodity prices, and overall global economic weakness. The significant decline in oil price in particular became a major concern as the benchmark West Texas Intermediate crude oil price dropped by 50% relative to the US dollar, triggering major sell-offs in energyrelated equities. In addition, the strength of European recovery and geopolitical tension once again became issues causing the euro to fall by more than 10% and the Russian ruble by more than 45% against the US dollar over the past year. Access to the equity market for general shipping and offshore energy companies became challenging following the decline in oil price. However, seasoned issuers and companies in aviation and rail sectors still have abundant supply of capital. Well-known IPOs in 2014 included companies such as Hoegh LNG Partners, GasLog Partners, Nordic American Offshore, Avolon, and Virgin America. Particularly in Shipping and Offshore, of the five US IPOs completed in 2014, four were structured as master limited partnerships or a full payout model, indicating investors emphasis on yield, which was a notable trend throughout the year. Historical ABS issuance by asset type US$ 8,000 6, ,001 3,199 4,000 1,770 3,500 1, ,596 2, , , Container Aircraft Railcar Source: Bloomberg, ABS Alert and Offering Memorandums, January 2015

130 126 Corporate Finance Corporate Finance Strategy DVBCF is a Bank-wide resource that renders strategic and financial advisory services to corporate clients. The objective is to increase non-capital binding revenue, enhance cross-selling of DVB s products and services, and contribute to sustainable bottom-line growth of the DVB franchise. By leveraging DVB s specialised industry focus and deep knowledge of transportation assets and asset-based lending, DVBCF co-ordinates closely with relationship managers to develop trusted strategic dialogues at the Chief Executive Officer/Chief Financial Officer level and deliver tailor-made financial solutions. While DVBCF s traditional activities have included mergers and acquisitions, advisory services, and private placements, the team is enhancing its debt capital markets and structured asset finance capabilities as an extension of DVB s core loan business. As traditional bank lending continues to be scarce and capacity is limited, the capital markets have emerged as an important source of funding for corporations particularly as the markets gain familiarity with the transportation sector. DVB s strong network of corporate clients and lending relationships provide an ample opportunity to gain a foothold into the capital markets. Accordingly, DVBCF, acting through its broker-dealer DVB Capital Markets LLC in New York, continues to gain momentum by taking on larger roles in prominent capital markets transactions. Another key initiative by DVBCF in 2015 will be the further development of its securities sales and distribution resources by increasing its institutional placement capability to support the origination of new deals. This approach will enable DVBCF to continue its trend of upgraded roles, in particular joint-lead positions in larger capital markets issuances, and facilitate improved positioning to collaborate with other banks on the distribution of securities, both debt and equity. With the hiring of senior sales professionals specifically for distribution, DVBCF will further develop institutional investor relationships. Going forward, DVBCF aims to provide one-stop shop solutions to DVB clients across all transportation sectors, with its offering of core financial products supplemented by new products in development including structured asset finance/securitisation, public and private debt capital markets, and institutional coverage and distribution. In a weak market, distress restructuring, recapitalisations, and liquidation management can be additional products; while in a strong market, public and private equity raises and joint ventures will become more of the focus. In 2014, DVBCF substantially expanded its debt capital markets origination, structuring, and execution resources by recruiting product specialists focused on corporate bonds and structured asset finance products such as securitisation, thereby creating a dynamic platform for growth and expansion. The initiative to develop the debt capital markets platform will continue in 2015 with the co-operation and support of key middle and back office teams within DVB to build up the infrastructure and processing capabilities to deliver the products. We believe this strategy will allow DVB to provide integrated debt financing solutions for its corporate clients, to further enhance DVB s brand recognition, and to compete with the larger banking franchises in the transport industry.

131 ABOUT US GROUP MANAGEMENT REPORT CONSOLIDATED FINANCIAL STAMEMENTS AUDIT OPINION DEVELOPMENT OF THE BUSINESS DIVISIONS Corporate Finance 127 Corporate Finance Portfolio analysis Global revenue breakdown by business division in 2014 Total portfolio Historically, DVBCF has derived significant business from the Bank s Shipping Finance division. This is why income and expenses from Corporate Finance activities are still allocated to the Shipping Finance segment and shown as part of the Shipping Finance segment result. Yet in recent years there has been a broader focus on all business divisions across the Bank. So in 2014, DVBCF generated 50.7% of its total revenue from Shipping Finance, 31.7% from Aviation Finance, 16.9% from Offshore Finance and 0.7% from Land Transport Finance, compared to 49.5% from Shipping Finance, 39.8% from Offshore Finance, 6.1% from Land Transport Finance and 4.6% from Aviation Finance in 2013, demonstrating the diversity of revenue streams and enhanced co-operation with all relationship teams. The growing collaboration with Aviation Finance and Land Transport Finance, with a particular focus on structured asset finance/securitisations, has resulted in a more robust pipeline for DVBCF. Several large air and land transport transactions have already been identified for the first quarter of Shipping Finance 50.7% thereof: 25.8% Container, Car Carrier, Intermodal & Ferry Group 13.5% Tanker Group 11.4% Dry Bulk Group Aviation Finance 31.7% Offshore Finance 16.9% Land Transport Finance 0.7% With respect to the revenues derived from our various products in 2014, Equity & Debt Capital Markets and Structured Asset Finance accounted for 53.5% of total revenue, while Corporate Advisory and M&A accounted for 46.5%. In 2013, Equity & Debt Capital Markets and Structured Asset Finance represented 44.1% of total revenue, while Corporate Advisory and M&A accounted for 55.9%. Depending on market conditions, the split between the four products can vary. As DVBCF capital markets capabilities continue to grow, we anticipate their contribution rising to approximately 60% in the near to mid-term.

132 128 Corporate Finance Corporate Finance Deal of the Year 2014 Deal of the Year 2014 DVBCF was a lead manager and bookrunner on a number of innovative asset-backed securities offerings in 2014, including Joint Bookrunner on Jetscape Aviation Group Ltd s debut ABS issuance. The mandate was a result of a co-ordinated effort between the New York Aviation Finance and DVBCF teams. Aviation Finance has had a long-standing deep relationship with Jetscape since its foundation, and provided the introduction to develop a financing solution for its portfolio of E-Jets, while DVBCF provided structuring and marketing advice following an initial pitch in May The offering consisted of senior and subordinated classes of notes that relied solely on cash flows derived from rental and disposition proceeds of 21 aircraft ring-fenced in a newly formed, bankruptcy-remote special purpose entity. Placed into the US institutional 144A market, the transaction included a number of firsts, including the first aircraft ABS comprised solely of the Embraer E-Jet family of regional aircraft, and the first to include time-tranched sequential pay senior securities together with a high-yield subordinated tranche since before the financial crisis. The offering included two subclasses of single-a rated notes, a class of BBB-rated notes, and a subordinated BB rated class, with the investment grade notes benefiting from a liquidity facility from DVB to support the timely payment of interest. The deal successfully launched and priced in December This transaction represented a significant co-operation between Aviation Finance and DVBCF by providing an important client with a tailor-made integrated financing solution that combines loan and debt capital markets products.