Annual Report Individual. Personal. Digital. A Company of the WGZ BANK Group

Transcription

1 Annual Report 2015 Individual. Personal. Digital. A Company of the WGZ BANK Group

2 WL BANK As a customer-oriented, highly competitive Pfandbrief bank in the Volksbanken Raiffeisenbanken cooperative financial services group and as a subsidiary of WGZ BANK, WL BANK stands for responsibility, continuity and success. Tailor-made financing solutions from a broad product range make us a competent and flexible partner. AAA-rated Pfandbriefe enable us to benefit from refinancing advantages, which we pass on in the form of first-class conditions. High service quality and real commitment are the keys to the success of our dynamic staff team. Our customers: Volksbanken and Raiffeisenbanken, to whom we offer the full range of long-term loans for real estate and public sector financing through jointly used IT systems (Real Estate Loan Business, Bank Sales and Real Estate Loan Business, Service departments). Municipalities, for whom we act as a competence centre within the WGZ BANK Group and to whom we offer a broad range of services, from public sector loans to bonds, in particular in cooperation with the Volksbanken and Raiffeisenbanken (Pfandbrief Treasury and Public Sector Clients department, Public Sector Clients Sales division). Domestic and foreign investors, who demand our mortgage Pfandbriefe and public sector Pfandbriefe as well as Jumbo Pfandbriefe, floaters, structured issues and foreign currency bonds, and to an increasing extent also small-sized, privately placed bearer bonds and registered bonds (Pfandbrief Treasury and Public Sector Clients department). Companies from the housing sector/real estate investors, to whom we offer fast and individual services as a sustainably operating partner in all questions of real estate financing for new buildings and for measures on existing buildings (Real Estate Loan Business, Sales and Real Estate Loan Business, Service departments).

3 Key ratios WL BANK in EUR in EUR in EUR in EUR in EUR in EUR Net interest and net commission income 101, ,933 79,012 81,235 93, ,715 Administrative expenses -40,828-42,718-44,607-46,221-51,057-62,141 Operating profit before risk provisioning 63,220 61,812 47,883 36,212 43,094 50,397 Result from ordinary business activities 25, ,917 6,979 19,694 13,455 23,689 Net profit 10, Dividend 5, Allocation to reserves 5, Cost-income ratio (in %) * 48.2* 56.1* 54.2* 55.2* Return on equity before tax (in %) 6.8 < ** 9.8** 11.0** 15.2** Balance sheet total (in EUR bn) * incl. bank levy ** before allocation to reserves pursuant to 340f / 340g of the German Commercial Code (HGB) Development of equity capital, subordinated liabilities and participation rights* in EUR m % Aggregated capital ratio Tier 1 ratio % 9.95 % % % % % % Share capital Reserves Subordinated liabilities/participation rights * until 2013 recognition in accordance with SolvV/KWG, as from 2014 CRR

4 Funding structure Types of bonds, as of 31 December 2015 Total: EUR 31,494.0 million 2.6 % 0.5 % 10.0 % 9.6 % Public sector Pfandbriefe 6.3 % Registered public sector Pfandbriefe Mortgage Pfandbriefe 26.5 % Registered mortgage Pfandbriefe Promissory note loans Bearer bonds 19.7 % Registered bonds Supplementary capital Bearer instruments: 44.4 % Registered instruments: 55.6 % 24.8 % Public cover pool Debtor diversification as of 31 December 2015 Total: EUR 12,860.0 million 16.2 % 0.3 % 0.1 % 21.0 % German federal states Public sector banks (incl. federal and state development banks) Towns, local authorities, associations of 6.6 % local authorities, other municipal clients Foreign clients Federal Government/special assets of the Federal Government Substitute cover 55.8 % Portfolio of real estate loans Type of loan as of 31 December 2015 Total: EUR 19.9 billion* 5.5 % 14.9 % 29.2 % Private residential buildings Multi-storey housing Owner-occupied flats Commercial 50.4 % * including undrawn commitments of EUR 2.0 billion Share of the real estate loans Average loan volume Residential construction 91.2 % EUR thousand Commercial 88.6 % EUR 2,110.5 thousand ( EUR 2,290.2 thousand*) * without agricultural loans.

5 WL BANK Annual Report Individual. Personal. Digital. Annual Report 2015

6 2 WL BANK Annual Report 2015 Foreword by the Management Board Sehr Dear geehrte shareholders Aktionäre and und business Geschäftspartner, partners, Digitisation of the working world is a process that cannot be stopped. It has been going on for quite some time at WL BANK, too, and has embraced all of our departments. In this Annual Report we will show you in words and pictures what changes digitisation brings about in our Bank and how it helps us serve our customers and business partners even better. However, we do not understand digitisation as a singular, temporary task, but as an ongoing process. Our digitisation is not a revolution, but a transformation a continuous change that is constantly confronting us with new challenges. The real challenge of the future is to manage this process actively and to remain the driver of the development. What is important for us, despite all changes that we initiate and implement with digitisa tion: at its core, WL BANK remains characterised by personal relations and an individualised approach. We see ourselves as a customer bank: this is why automation and speed, efficiency and standardisation are only valuable to us if they get us closer to our actual goal: establishing and strengthening reliable and lasting partnerships. This applies to all our business relationships, but in particular to the cooperative financial services group, where we perform several functions for the Volksbanken Raiffeisenbanken. In this context, our digitisation makes a contribution to the future viability of the entire Group and consolidates its position in the overall market, for instance by WL BANK already offering the target process of cooperative construction financing (VR BauFi) fully integrated into its banking procedures. In the last financial year, our close connection with the cooperative financial services group and all other partners manifested itself in record new business of EUR 6.4 billion. We thank you for that and for your other contributions to our good results! Münster, 17 den March xx. März The Der Vorstand Management Board Frank M. Mühlbauer Chairman Frank M. Mühlbauer (Vorsitzender) Dr. Carsten Düerkop Dr. Carsten Düerkop

7 WL BANK Annual Report Dr. Carsten Düerkop, Frank M. Mühlbauer Management Board of WL BANK

8 4 WL BANK Annual Report 2015 Modern communication is digital, but personal. For it addresses specific target groups and can trigger real dialogue. Anne Görges Marketing specialist

9 WL BANK Annual Report Contents Lagebericht Annual Report Foreword 1 Grundlagen by the Management Board Geschäftsmodell 18 Focus: 1.2 Individual. Unternehmensziele Personal. Digital Steuerungssystem 21 Guest 2 Wirtschaftsbericht article by Prof. Dr. Thorn Kring 22 Digitisation 2.1 Gesamtwirtschaftliche of the working world Entwicklung challenges for the cooperative 22 financial 2.2 services Geschäftsentwicklung group der WL BANK Mitarbeiter 29 WL BANK 2.4 Ertrags-, digital Finanz- und Vermögenslage Nachtragsbericht (Vorgänge nach dem ) 34 4 Risikobericht Ziele und Aufgaben des Risikomanagements 34 Management 4.2 Organisation Report und Instrumente des Risikomanagements Risikoartenübergreifende Stresstests Gesamtbild der Risikolage 47 5 Chancenbericht 48 Annual 6 Internes Financial Kontroll- Statements und Risikomanagementsystem in Bezug auf die Rechnungslegung Balance 7 Ausblick Sheet und Prognose Profit 8 Vorbehalt and Loss Account der Zukunftaussagen Notes 62 Statement of Shareholders Equity 86 Jahresabschluss Cash Flow Statement Auditor s Report 88 Bilanz Assurance by the Legal Representatives Gewinn-und-Verlust-Rechnung Report of the Supervisory Board Anhang 62 Eigenkapitalspiegel 86 Kapitalflussrechnung Executive Bodies Bestätigungsvermerk Management Board des Abschlussprüfers Versicherung Contact Persons der gesetzlichen Vertreter Bericht Imprint des Aufsichtsrats 97 90

10 6 WL BANK Annual Report 2015 Prof. Dr. Thorn Kring Digitisation of the working world challenges for the cooperative financial services group The way traditional banks respond to the developments in the field of digitisation could almost be described as a love-hate relationship. On the one hand, there are almost euphoric reactions to the many new ideas and technological opportunities opening up interesting options in the digital customer business and promising more efficiency in production. In times when customers have turned their backs on branches, banks see the chance to get closer to them again, to fascinate them with new digital services, to get to know them better, and ultimately to bind them. They expect a productivity boost from the opportunities offered by modern IT architecture and automated production processes. However, this enthusiasm is dampened by the long-established banks observation that a lot of these digital innovations are often not developed by themselves, but by financially strong global Internet companies or agile, innovative FinTechs. Instead of being able to participate in the digital innovations, banks find themselves attacked by their new competitors where it hurts them most: at the point of contact with the customer. NUMBER26 offers a current account how it should be, simple, fee-free, and everywhere ; PayPal puts banks under pressure in the field of payment transactions; Kreditech uses the potentials of big data scoring for fast credit decisions; IDnow offers legally compliant digital contract closing in less than five minutes; etc. This list of points of attack could be continued with almost 300 FinTechs in Germany alone. What they all have in common is a central threat to the Volksbanken and Raiffeisenbanken: the loss of customer relationships. Customer business is drifting away. Customer relationships are eroding. In this period of low interest rates, the earnings situation is tense and will aggravate even further. Pressure on the cost side is increasing, and necessary investments in digital process architectures suggest that significant improvements in cost structures will only be seen in the medium term. To put it straight: digitisation puts the business models of banks to the test, and this applies in particular to territorial banks such as the Volksbanken and Raiffeisenbanken. As a result of digitisation, working environments in banks have already changed and will have to be adjusted further if the banks want to succeed in the competition for tomorrow s customers. New digital working environments In sales and customer advisory services, banks will have to focus on getting to know their customers better, especially the digital ones. It is a fallacy to believe that because you have a good understanding of the offline customers of the past, you are also familiar with their behaviour in the digital world. Employees of the Volksbanken and Raiffeisenbanken need to be made aware of the fact that tomorrow s digital bank customers will not have much in common with yesterday s branch customers. The biological computer for the evaluation of customer data will certainly continue to be important, but it will have to be supplemented by the opportunities offered by the evaluation of mass data on the consumption be haviour of bank customers. Changes in customer behaviour are expressed, among other things, in the expansion of digital communication and digital consumption. As a result, the demand for banking products and, for example, the affinity towards bank-related digital services is changing, too. In such a working environment, employees who do their banking

11 WL BANK Annual Report The electronic file makes communication between departments and work within digital processes easier for us throughout the Bank! Robin Pauli Organisational development specialist

12 8 WL BANK Annual Report 2015 transactions exclusively via the internal banking system and know their own banking app only from advertising campaigns will quickly reach their limits. They will neither be able to sufficiently understand their customers wishes, nor to give need-based advice. By transforming their sales channels to omnichannel banking, banks have laid the groundwork for a new sales environment. When it comes to a consultation, employees are expected apart from their professional competence to be able to master technology-based interaction with their customers and make the consultation a (digital) customer experience. By contrast, service employees will experience that simple tasks are increasingly being automated, so they will need to adapt their qualifications to new areas of responsibility. These changes are not trivial, but often lead to worries and concerns about their own future careers. Therefore, digitisation does not only create new IT-based processes, but will rather provide the initial spark for a profound cultural change within the Volksbanken and Raiff eisenbanken. The change that employees in sales departments are currently experiencing had already become apparent some time ear lier for their colleagues in the production, back office and internal departments, but is now given new impetus by the dynamics of digitisation. Processes are being further a utomated, while human work steps and decisions are being replaced by algorithms. Big or smart data, i.e. the systematic analysis of mass data in order to optimise business procedures and decision processes, will keep the pace of change within the banks internal working environments high. Tasks of the Volksbanken and Raiffeisenbanken Financial institutions will have to actively address these challenges. A passive waitand-see approach is not an option. The Kundenfokus 2020 project, the central strategic initiative of the cooperative financial services group, is a reasonable step towards ensuring the future viability of the Volksbanken and Raiffeisenbanken. How - ever, this initiative does not release the individual financial institutions from the responsibility of defining their own respective digital strategies. Each bank faces the challenge of further developing its own business model for the digital future. The commitment of management boards and senior executives as well as their function as digital role models seem essential if the individual banks are to succeed in implementing the digital transformation. In order to successfully implement elements of a digital strategy, banks need innovationfriendly organisational structures. Strong hierarchies are likely to be increasingly replaced by network forms of organisation or will at least be superseded by forms of project organisation. There needs to be room for innovation as well as for fast and flexible decision paths. Banks can find inspi ration in the agile structures of FinTechs. True, forms of organisation and work from an unregulated environment cannot be transferred without adaptation to the regulated environment of the Volksbanken and Raiffeisenbanken. However, closing one's mind to more self-organisation of teams or the offer of digital forms of work does not seem to be an expedient alternative. Instead, employees should be introduced to working digit ally. Webinars are a first step, communities of practice serve as a learning area, and

13 WL BANK Annual Report Our integration into the agree core banking procedure strengthens the performance of our brokerage banks because it makes the business with end customers easier and more efficient. Christian Dahl Regional director Real Estate Loan Business, Bank Sales

14 10 WL BANK Annual Report 2015 the use of home office solutions provides a digi tally supported approach in order to live up to the employees changing expectations with regard to place and hours of work. Last but not least, digital forms of work offer new room for interbank forms of cooperation or the integration of members and customers. However, the competition for the digital banking business of the future will probably be decided neither at the strategic nor organisational, but rather at the cultural, level. Unless all bank employees are convinced that the future of the banking business will be digital and banks will have to change radically if they want to survive, the digit al transformation will not succeed. Employees must be turned from neutral observers to active participants in the digital innovations. They need to experience digital banking; they are required to gain digital competence. This is based on the knowledge and understanding of digital banking innovations. Experience in the application of the respective bank s own digital offers is essential. In addition, banks will have to expand the requirements and skills profiles of their future personnel structure by digital requirements before a targeted and systematic development of their employees digital skills on this basis can and should be introduced. Digitisation can offer an opportunity for the Volksbanken and Raiffeisenbanken, but only if they accept that digitisation requires qualification. Tasks of the companies of the cooperative financial services network Finally, against the background of digitisation, Friedrich Wilhelm Raiffeisen s phrase What one individual alone cannot achieve becomes possible when many like-minded people cooperate is reaffirmed once more. Only in a common effort will the cooperative financial services group be able to cope with the digital challenge. At a first level, more effective use should be made of the group s innovation potential. Establishing an infrastructure for interbank cooperation formats, initiated by the central bank or by associations, would be a possible approach. Moderated innovation platforms, innovative large group formats such as hackathons, or the use of various creative technologies for business model development offer opportunities for tapping the financial services group s innovation potential. At a second level, central bank and associations are called upon to explore participations in or cooperations with innovative FinTechs and, as appropriate, realise them for the group. The area of incubators and the cooperation with FinTechs in the hubs of Berlin and Frankfurt should not be left to the commercial banks. Digital transformation can be successful if its necessity is recognised, accepted, and actively addressed. The Volksbanken and Raiffeisenbanken have the potential to cope with these challenges of digital working environments. Prof. Dr. Thorn Kring Institute for Ethics, Leadership and Human Resource Management at Steinbeis University Berlin

15 WL BANK Annual Report Mutual trust pays off also and especially when it comes to digital applications. Nadine Loddenkötter Credit analyst renewals

16 12 WL BANK Annual Report 2015 WL BANK digital Digitisation in WL BANK has been taking place for a long time and in many places. However, we do not see it as an end in itself: all of WL BANK s digitisation measures aim to improve and accelerate our services for the Bank s customers and partners, cutting costs in the process. Fast and seamlessly integrated access to jointly used data whether within the Bank or between us and our partners will help us fulfil our role as the network partner in the cooperative financial services group also in the future. Within the framework of our overall bank project WL BANK digital, we have used a variety of approaches: 1 A very early step towards digitisation was our integration into the bank21 core banking system. This complete integration of the application for a construction loan into the system of the Volksbanken Raiffeisenbanken enables them to prepare a loan offer with our terms and conditions and hand it over to the client, ready to be signed, already during the consultation meeting. And all this can be done seamlessly without any change of system, without any re-entering of data, in a fully auto mated examination and approval proce dure without delay! As a result, banks can act fast and flexibly to the customer s benefit and can respond to its wishes without themselves having to check once again. This makes their services more attractive and strengthens their position in the competi tion for the construction financing business. Not only initial financing, but also renewals are possible in bank21 online. For this purpose, all data of the loan is made available to the account manager five years before the start of the renewal term. By means of the event management function, sales-supporting measures can easily be put to use via the integrated raw data export. Offers for a future loan can thus be generated in a targeted manner from the bank s own system. No matter whether it is about a renewal or redemption, the deposited WL BANK offer makes it possible, via online renewal, to prepare and hand over a readyto-sign offer in several versions on the spot. This also includes the interest rate and repayment schedule. At WL BANK, around 30 % of the portfolio up for renewal is processed via online renewal. A similar tool is being prepared in agree21. Since autumn 2015 we have also been able to offer all banks deeply integrated construction financing with our agree core banking system. Via the WL Kredit assistant, they now also have the opportunity to prepare loan offers with WL BANK s terms and conditions and hand them over on paper during the customer meeting. Many banks appreciate that they now can make use of the opportunity for easy cooperation with WL BANK in agree. Thus, the standard retail business in the field of construction financing is already fully integrated in both core banking procedures currently used. The offer is constantly being expanded with every new release, in particular in agree. In doing so, WL BANK plays a pioneering role for the entire cooperative financial services group and has already largely met the quality requirements formulated by the IT committee of the BVR (Federal Association of the Volksbanken

17 WL BANK Annual Report My task is to digitise generic processes. This accelerates decisions and optimises procedures. David Schenke Application development and support specialist

18 14 WL BANK Annual Report 2015 and Raiffeisenbanken) with respect to VR construction financing. Beyond the core banking procedures, the overall bank project Digitisation within WL BANK has identified a lot of processes and process chains that offer the greatest value added when digitised. As the first step, this refers to decision-making processes regarding loans, resolutions and circumstances at WL BANK, because they are available in large quantities and a large number of people are involved. They can easily be transformed into a generic version, so that there is no need to develop a separate process for each decision path. At the same time, we are consolidating and optimising our in-house processes in order to digitise complex core process chains, as the second step. 2 In public sector financing, many process chains have already been digitised, too. Our databases support our sales department very efficiently in the preparation of offers and in the servicing of our clients. From the configuration of offers, which are often requested at very short notice in this field of business, to the preparation of an accompanying letter, the process has already been switched to an electronic format to a very great extent. As a result, regional directors and loan officers have more time left for servicing clients individually. 3 The greatest added value of digitisation is generated in the field of loan management. Step by step, its hitherto paper-bound processes are being fully digitised and about 4.5 km of files and 18 million sheets of paper are being converted into data sets. Once the conversion is finished, our loan officers will have access to them at any time, so that, for example, customer enquiries can be answered in real time without any delay. Moreover, changes and amendments to the files will be immediately available to all other process participants. This accelerates processes and makes standardisation easier at the same time. This makes sense wherever recurring or identical work steps used for multiple customers are implemented. In correspondence management, increasing digitisation ensures that standard letters are sent on time with minimum effort in order to accelerate the processing procedure. 4 At WL BANK, digitisation has long since embraced the self-organisation of each individual employee, too. This is especially true for sales employees, who need to have their workplaces as paperless as possible because of their high mobility. The smartphone is the linchpin of mobile working, with corresponding apps replacing the office on travels: reading and processing Word, Excel and PDF files, drafting documents, preparing offers, coordinating appointments and retrieving tickets all this and much more is possible. Electronic files and video conference systems have greatly expanded the opportunities of mobile working. In the future, working on the move or in the home office will no longer be much different from working in the Bank. This will also be beneficial to employees, as it enables them to coordinate job and leisure time or family without conflicts. However, the primary target is to allow regional directors to have fast and sound communication with clients anywhere.

19 WL BANK Annual Report Personal counselling and individual customer service are our strengths. Digitised processes help us achieve this. Linda Appelrath Consultant Public Sector Clients, Sales

20 16 WL BANK Annual Report Digitisation has also brought about profound changes in corporate communication. Online communication i.e. all forms of communication carried out via the Internet Protocol (IP) is an efficient form of advertising, because it is interactive, performance-oriented (measurable) and behaviour-based (adapted to search behaviour/needs) and communicated in real time. In addition, it helps to spread information via a wide range of media (texts, charts, audio files or films) that address the recipient in different ways. This is a big advantage over print media, for every brochure or advertisement no matter how good it is is limited in its display options. On a website, by contrast, it is possible to work with sound and vision, videos, animations and interactive elements. The opportunities are manifold and growing every day: from corporate websites and microsites to placing banners and marketing in order to draw attention to one s own home page or other products and services. WL BANK s construction financing campaigns today include a large number of online instruments which the Volksbanken and Raiffeisenbanken can incorporate into their own websites and apps without much effort and which they can use for their advertising. This includes: offers for self-service advertising branch TV online marketing campaigns for search engine and display advertising landing pages for financing offers information charts contents for the banks social media channels. 6 Last but not least, digitisation is also used in WL BANK s personnel work. Last year we launched our online application platform, which is open to everyone who is interested in a job with WL BANK. There is a direct link from the specific job advertisement to the application platform. Thus, applicants know exactly what information and documents the Bank needs, and they no longer have to send us their documents by mail. The high degree of standardisation has made the application process more understandable and more transparent for all those involved. However, the greater benefit of online application is on our side, for it enables us to pass applications on to all those in the Bank who are involved in the recruitment process without losing any time. As a result, the whole application process is significantly streamlined and it has become easier to react quickly and flexibly to interesting applicants.

21 WL BANK Annual Report Financial Year 2015 Management Report 18 1 Fundamentals Business model Corporate objectives Management system 21 2 Economic report, macroeconomic development Macroeconomic development in WL BANK s business development Employees Earnings, financial and assets position 31 3 Supplementary report (events after 31 December 2015) 34 4 Risk report Objectives and tasks of risk management Organisation and instruments of risk management Stress tests across risk types Overall picture of the risk situation 47 5 Opportunity report 48 6 Internal control and risk management system 49 with regard to accounting 7 Outlook and forecast 50 8 Disclaimer on forward-looking statements 53 Annual Financial Statements 56 Balance Sheet 56 Profit and Loss Account 61 Notes 62 Statement of Shareholders Equity 86 Cash Flow Statement 87 Auditor s Report 88 Assurance by the Legal Representatives 89 Report of the Supervisory Board 90

22 18 WL BANK Annual Report 2015 Management Report WL BANK s business areas Business within the cooperative financial services network (residential and commercial construction) 1 Fundamentals 1.1 Business model WL BANK is a Pfandbriefbank within the Volksbanken Raiffeisenbanken cooperative financial services group. As a specialist institution, it is characterised by its distinctive customer orientation and close personal contact with its customers. Customer orders are processed with high quality, promptness and flexibility. The Bank has its head office in Münster and representative offices in Berlin, Düsseldorf, Hamburg and Munich. Sales locations are in Frankfurt am Main, Heidelberg and Schwäbisch Gmünd. WL BANK has held a full banking licence since the Pfandbrief Act (Pfandbriefgesetz, PfandBG) came into effect on 19 July Since 1 January 2009, WL BANK has been approved as an IRBA bank by the banking supervisory authority (IRBA = Internal Ratings-Based Approach minimum equity requirements for credit risks). WL BANK Customer Business Real Estate Loan Business Institutional housing sector Funds, investors (commercial/ residential/ syndicate) Pfandbrief Treasury Business Public Sector Business Public sector clients WL BANK has availed itself of the opportunity offered by Article 94 of CRR (derogation for small trading book business) and is a non-trading-book institution. WL BANK is a subsidiary of Düsseldorf-based WGZ BANK, which holds a stake of 90.9 % in the nominal capital. Other shareholders are the Stiftung Westfälische Landschaft with a 4.6 % stake as well as 95 Volksbanken and Raiffeisenbanken with a total stake of 4.5 %. There exists a control and profit transfer agreement with WGZ BANK. WL BANK makes use of the possibility pursuant to Section 2a KWG in connection with Article 7 (1) CRR (so-called waiver rule). The fourth quarter of 2015 in the cooperative financial services group was characterised, among other things, by the signing of a memorandum of understanding by WGZ BANK and DZ BANK in November 2015 with the intent to merge as a combined cooperative central bank. As a subsidiary of WGZ BANK, WL BANK is involved at the downstream stage of the current project to prepare for the integration. The continued existence of the waiver rule with the combined cooperative central bank is the subject of ongoing discussions with the banking supervisory authority. The focus of business activities is on the domestic real estate lending business and on the domestic business with public sector clients. These two business segments are the key pillars of WL BANK s business model. The Pfandbrief treasury business serves the purpose of liquidity management; it is conducted with domestic and international business partners. Real estate loan business The focus is on the financing of residential properties (single-family homes, multi-family

23 WL BANK Annual Report 2015 Management Report 19 homes, owner-occupied houses) and commercial properties that are suitable for thirdparty use with long-term secure cash flows (primarily office, retail, warehouses). The share of residential properties in the total real estate loan portfolio is to amount to at least 80 %. The share of commercial financing in the real estate loan portfolio, in turn, is not to exceed 20 % on a permanent basis; it currently amounts to 14.9 %. Within the framework of the Südstrategie project, the Bank was also able to integrate the private banking operations into the primary banking system agreebap, which was operated by the former FIDUCIA IT AG. Target customers in the real estate loan business are, on the one hand, private customers and investors from the Volksbanken Raiffeisenbanken cooperative financial network brokered to WL BANK (business within the cooperative financial services network). These are private persons (employees, civil servants, workers) as well as tradespersons and freelancers. On the other hand, the Bank s target customers also include the institutional housing sector, open-ended and closed-ended real estate funds as well as professional investors with substantial real estate assets. In the real estate loan business, WL BANK and WGZ BANK act together as a competence centre in coordinated fields of competence and regions. Within the framework of the Südstrategie project, the Bank was also able to integrate the private banking operations into the primary banking system agreebap, which was operated by the former FIDUCIA IT AG, thus increasing the opportunity to expand sales partnerships throughout the Federal Republic of Germany beyond the scope of bank21 users of the former GAD eg. The total portfolio consists of loans which are collateralised by residential properties and other commercial properties that are suitable for third-party use with long-term secure cash flows. We do not provide any corporate or property development financing, nor any project development and special financing. The same applies to investments in sub-primes, ABS, MBS or CDOs. In this respect, WL BANK does not have any portfolios. Public sector business Within the WGZ BANK Group, WL BANK has the function of a competence centre for the business with public sector clients. The range of customers comprises domestic territorial authorities with a special focus on German cities and communities. The granting of loans, particularly public sector loans and short-term loans (public sector loan business) are the core of the business with public sector clients, in which WL BANK acts as a subsidiary service provider to the Volksbanken and Raiffeisenbanken. On a smaller scale, business is also generated through direct sales. The business with public sector clients is based on long-term, trustful customer relations and the favourable funding conditions offered by Pfandbriefe. Pfandbrief treasury business a) Securities and promissory note loan business For reasons of liquidity and cover requirements and in order to comply with supervisory requirements, financing is provided

24 20 WL BANK Annual Report 2015 as part of the Pfandbrief treasury business to domestic but also some foreign public sector debtors, primarily in the form of securities. In this context, the Bank acquires bonds or promissory note loans issued by the German Federal Government and the federal states as well as by other debtors that may be used as cover pursuant to the German Pfandbrief Act (Pfandbriefgesetz, PfandBG). These are mainly development banks guaranteed by the German Federal Government or by the federal states, supranational organisations as well as selected European states and their regional authorities. As part of liquidity investments, but also as part of substitute cover pursuant to 19, 20 PfandBG, the portfolio also contains almost exclusively covered bonds issued by suitable credit institutions. For the overall bank management, derivative and/or money transactions are made with suitable credit institutions. Derivative, money and repo transactions are mostly made directly with national and international banking partners as well as with EUREX serving as repo clearing house. As part of the expansion of our range of services, capital market and money transactions as well as derivative transactions are carried out with selected institutional real estate clients and municipalities. Derivative transactions with customers are always covered by opposite hedging transactions. b) Pfandbrief business and other funding operations As a Pfandbrief bank, WL BANK funds itself predominantly from the capital market by issuing mortgage and public sector Pfandbriefe, whose buyers include national and international investors. This is supplemented by raising uncovered funding capital, which is like in the lending business largely denominated in euros. Funding capital and, analogously, also lending business operations denominated in foreign currencies are generally hedged by corresponding hedging transactions, so that foreign currency risks are eliminated. By offering a mix of different types of funding, WL BANK aims at optimising all its funding activities. The BANK s solvency is ensured within the framework of liquidity management. Supplementary capital is raised, if required, based on equity planning and in coordination with WGZ BANK. By offering a mix of different types of funding, WL BANK aims at optimising all its funding activities. The product range is oriented to the internal requirements resulting from the Bank s asset/liability management. Overall, the range of products includes low-volume and largevolume issues, registered bonds and bearer bonds, short-term and long-term issues as well as structured issues, so that we achieve a broad diversification on the funding side. The short-term funding operations are supplemented by money market activities and repo transactions. Derivative transactions are concluded as part of our asset/liability management as well as to hedge underlying transactions. 1.2 Corporate objectives WL BANK s main objective is to act as a subsidiary service provider to the Volksbanken and Raiffeisenbanken with deeply integrated processes. In this context, it is of particular importance that WL BANK maintains the excellent ratings assigned to the Bank and its Pfandbriefe. WL BANK s profit-making strategy forms the basis for the further accumulation of equity capital in line with the regulatory provisions and for the planned growth in new business. Particularly in its core function as a provider of real estate loans and public sector loans, WL BANK supports the WGZ BANK Group in achieving its strategic objectives. Therefore, the defined core business areas are consistently embedded within the strategic business areas of the WGZ BANK Group. WL BANK s main objective is to act as a subsidiary service provider to the Volksbanken and Raiffeisenbanken with deeply integrated processes.

25 WL BANK Annual Report 2015 Management Report 21 Targets 25% 20% Reporting date In 2010, the Bank s original goal was to reach an equal distribution of real estate lending business and public sector and securities business in 2019; due to the positive business development in the last few years, especially in the field of real estate loans, and the disproportionate reduction of the securities portfolio (in particular through sales and maturities), this goal has already been achieved. Accordingly, the targets regarding the distribution of business areas were restructured, with the focus of business activities being on the real estate lending business with domestic customers and on the Public Sector Clients business segment. For these two customer segments, WL BANK aims for a target of 75 % in relation to the balance sheet ratio by % Real estate loan business Business with public sector clients Pfandbrief treasury business 1.3 Management system WL BANK s management systems are based on the guidelines of the WGZ BANK Group. The Bank s departments are managed on the basis of the annual Group strategy process, the creation of the balanced score cards for the business areas and the Bank as a whole in spring/summer, a three-year plan adopted in autumn and an annual year-end update of our business and risk strategy. The most important key ratios in this context are net interest and commission income, personnel and administrative costs, the costincome ratio (administrative expenses in relation to the total of net interest income, net commission income and other ordinary result), the risk result and the financial investments result as well as the amount of the profit transfer to WGZ BANK. Besides the capital ratios according to CRR, the return on equity before taxes as well as the RORAC (return on risk-adjusted capital, profit of a period in relation to the risk capital) serve as other management parameters for the real estate loan business. Management parameters in sales are the gross margin (difference between customer conditions and funding costs) and the net margin (gross margin less commission payments). Apart from specific sales statistics, our monthly net present value profit centre accounting as well as our quarterly reporting illustrating the result for the period of individual business areas serve as further management instruments for our market departments. 31% 49% Real estate loan business Business with public sector clients Pfandbrief treasury business The monthly risk report informs the Management Board about the risks at the business area level. Detailed information about the portfolio structure and the largest loan exposures is provided on a quarterly basis. 20% In the semi-annual HGB financial statements, positive and negative earnings drivers are identified and analysed through detailed evaluations. Target-performance comparisons of the values established in the balanced score cards at the business area and overall bank level are also carried out on a semi-annual basis.

26 22 WL BANK Annual Report 2015 WL BANK incorporates IFRS values into the consolidated annual financial statements of the WGZ BANK Group. Against this background, and in light of the corresponding focus of the banking supervisory authority, the IFRS profit before tax is also an important management parameter. Against this background, and in light of the corresponding focus of the banking supervisory authority, the IFRS profit before tax is also an important management parameter. A non-financial performance indicator is provided by the result of the Great Place to Work survey, which influences the variable remuneration of the Bank s executives. 2 Economic report, macroeconomic development 2.1 Macroeconomic development in 2015 Overall, the German economy showed robust growth. Gross domestic product (GDP) increased by a solid 1.7 % (2014: 1.5 %). In price-adjusted terms, private consumption expenditure was 1.9 % and government consumption expenditure even 2.8 % higher than in the previous year. Equipment investments by companies increased once again in 2015; however, at 3.6 %, the increase was not quite as strong as in 2014 (4.5 %). The growth in construction investments was significantly weaker with a comparatively small increase of 0.2 % (2014: 2.9 %). The development was different between the construction segments: while non-residential construction experienced declining investments (-1.9 %), residential construction continued to be the driver of the positive development in the construction business, with investments up by 1.5 %. In residential construction, revenues increased for the sixth consecutive year in 2015 by another 6.8 % (2014: +6.3 %). In residential construction, revenues increased for the sixth consecutive year in 2015 by another 6.8 % (2014: +6.3 %). Incoming orders showed a similar tendency: a nominal increase in orders of 13.6 % was registered in 2015, with orders increasing by 7.6 % in the field of public sector building construction while decreasing by 2.4 % in the field of commercial building construction. The number of building permits for new residential units rose by 5.4 % in The increase is largely due to building permits for single-family homes (+ 6.4 %) and multi-family homes (+ 5.3 %), whereas the growth rates for two-family homes (+ 3 %) were relatively moderate. Building permits for new non-residential buildings collapsed by 25.8 % in This was mainly driven by about 30 % fewer permits for non-residential buildings taken out by companies than in the previous year. German foreign trade also picked up pace in Although the economic situation in important customer countries deteriorated over the year, exports in goods and services increased by 5.4 %. The fact that net export made only a small contribution (0.2 %) to GDP is due to the equally strong growth in German imports, which increased by 5.7 %. The number of employed people exceeded 43 million for the first time in Thus, the upward trend in the number of employees (2015: +0.8 %) continued for the tenth year in a row. The unemployment rate fell to 6.4 %. The persistently low level of inflation also had a positive effect on German consumer sentiment. The inflation rate was 0.3 % in 2015 (2014: 0.9 %). However, the low figures are mainly caused by the sharp drop in oil prices and the resulting decline in en ergy prices. On the other hand, prices for food and services rose only slightly. The public sector (federal government, federal states, municipalities and social security funds) achieved a financial surplus in the amount of EUR 16.4 billion. The positive employment figures and rising incomes of the citizens had a positive impact here, as well as interest rates at record lows and public spending increasing at a lower rate despite unexpected expenses (refugees). Overall, the government balance relative to GDP increased to 0.5 % (2014: 0.3 %), whereas the debt/gdp ratio slightly decreased to 71.4 % (2014: 74.9 %).

27 WL BANK Annual Report 2015 Management Report 23 While the markets concerns about the development in Greece diminished substantially over the year, worries about the Chinese economy increased considerably. Moreover, the diverging fiscal policies of the large central banks added to the uncertainty among investors and shareholders: while the European Central Bank (ECB) further loosened its monetary policy in 2015 and expanded its asset purchase programme once more, the US Federal Reserve System (Fed) initiated its first interest rate hike in seven years. The German stock index (DAX) experienced a steep increase in the first quarter, reaching an all-time high of 12,374 points in mid- April. In the further course of the year, however, the signs of a turnaround in interest rates in the United States and the deteriorating economic data from China sent the index back to the level seen at the beginning of the year. It was not until the end of the year that demand on the stock market increased again. As a result, the DAX recorded an annual increase of 9.6 %, closing the year at 10,743 points. Just like in 2014, the euro suffered heavy losses against the US dollar. The different monetary policy strategies of the central banks were also the main reason for this development. In the first quarter, the euro exchange rate therefore fell from USD 1.21 to a record low of USD 1.05, and afterwards fluctuated between USD 1.16 and USD The euro closed the year at USD 1.09, almost 12 cents lower than the year before. The yields of German ten-year government bonds continued their nosedive in the first quarter of 2015 and reached their low for the year of % in April. Economic hopes and the expectation of an imminent interest rate hike by the Fed finally drove yields up again, especially those for longer maturities. However, when they reached a peak of 0.98 %, scepticism prevailed once again, as a result of which the yield on ten-year government bonds declined again. Towards the end of the year, it levelled off at around 0.60 %, closing the year at 0.63 % or an annual growth of nine basis points. Apart from its influence on the development of interest rates, the ECB also exerted an influence, via its purchasing programme, on the spreads of government bonds, covered bonds and asset-backed securities. Of its average total purchase of bonds in the amount of EUR 60 billion per month, some EUR 10 billion was accounted for by covered bonds, of which shares of around 30 % and around 70 % were acquired in the primary and secondary markets, respectively. The swap spreads of Pfandbriefe had started to decline already at the beginning of the covered bond purchase programme (CBPP3) in October 2014, and continued to do so until August As from September, they expanded again, which was also due to the slowdown in secondary market activities. Nevertheless, the ECB continues with its quantitative easing measures and announced in December that it would extend its asset purchase programme until March 2017 and would expand its debtor base to include sub-sovereigns. 2.2 WL BANK s business development New commitments customer business Real estate lending business In 2015, WL BANK achieved successful results in the real estate lending business once again. Margins in the real estate lending business mostly increased compared to the previous year and even exceeded the target. New business with the partners in the cooperative financial services network recorded a particularly strong growth. New business with the partners in the cooperative financial services network recorded a particularly strong growth, increasing by more than 50 % from EUR 1.3 billion in the previous year to EUR 2.1 billion (target: EUR 1.3 billion).

28 24 WL BANK Annual Report 2015 New commitments real estate loans Commitment volume (in EUR m) 1, , , Change in the commitment volume 2015 New commitments real estate loans Residential/commercial (in %, EUR m) 3, % 2, % participants and the end customers continued desire for long-term fixed interest rates, WL BANK generated successful growth rates and yields. While many Volksbanken and Raiffeisenbanken offer own funds with fixed-interest periods of up to ten years, the brokerage business with WL BANK continues to gain importance due to the better funding opportunities with long-term fixed interest rates of years. The development of Investors and Private Customers is based on a steadily growing number of Volksbanken and Raiffeisenbanken doing business with WL BANK. Our aim for 2016 is to continue and further expand the cooperation with banks from the cooperative financial network and achieve further growth in the Private Customers and Investors segments while keeping margins stable. On balance, the margins achieved were increased in both business segments, despite the competitive situation % 13.7% commercial residential New commitments real estate loans Business within the cooperative financial services network/direct business (in %, EUR m) 1, , % 47.4% , , % 49.9% Business within the cooperative financial services network Direct business of which: other brokers As in the previous years, the development of business within the cooperative financial services network, which traditionally focuses on construction financing in private banking as the anchor product for a varied and intense business connection of our local partner banks, was characterised and controlled by various market and planning parameters. On the basis of the stable low interest rate environment, the investment needs of market In the Private Customers segment, further development work and process optimisation was carried out in the four existing electronic application systems (bank21, agree21, Genopace, VR-Baufi). The merger of the data centres in the cooperative financial services network into Fiducia & GAD IT AG, which was completed in 2015, confirms the strategic decision made by WL BANK in 2013 to integrate the private banking operations not only into bank21, which was operated by the former GAD eg, but also into the primary banking system agreebap, which was originally developed by the former FIDUCIA IT AG. After a pilot phase, which ran from the middle of the year to the beginning of October 2015, Kredit WL BANK was activated for broadband use. Thus, the work- and cost-efficient brokerage of private business by companies of the cooperative financial services network in a closed IT system was expanded into the entire agreebap area. Sales activities are focused on winning over those banks that have so far cooperated with VR-Baufi for cooperation with agreebap s Kredit WL BANK and establishing new sales partnerships. Successful implementation is supported by the tripartite sales concept, which consists of management meetings, in-house training events, and in-depth discussions.

29 WL BANK Annual Report 2015 Management Report 25 Moreover, the team in the application area of agreebap has been strengthened by the appointment of an additional regional director. In 2016, various new programmes will be implemented with the data centre in order to further improve the functiona l- ities of agreebap and align them to those of bank21. This is to ensure that in the migration of the partner banks from bank 21 to agree21, the technical performance level of the applications (WL-HYPO 1, online disbursement, online renewal) remains as constant as possible. A very successful business development was recorded in the Institutional Housing Sector, Funds as well as Investors (direct business) segments. As part of the Sales Offensive 2015 project, WL BANK repeated its customer survey among partner banks selected on a representative basis, which had last been carried out in Fortunately, the appraisal of WL BANK s services and product range was even better this time. The strengthening of assistance and support to the management level in the Volksbanken and Raiffeisenbanken is obviously having an effect and is perceived as a benefit to the cooperative financial services network, just like the gradual expansion of the cooperation areas and offers through products, customer information, services, online marketing or other fields of action. The focus continues to be on the intensified and strategically optimised cooperation with the partners as well as within WL BANK s Housing Sector, Public Sector Clients and Pfandbrief Treasury business segments. This is reflected, for example, in joint projects on product developments as well as in informal cross-sector networking; both result in improved performance for the benefit of the Volksbanken and Raiffeisenbanken. A very successful business development was recorded in the Institutional Housing Sector, Funds as well as Investors (direct business) segments. The expansion of business relationships with the institutional housing sector was encouragingly positive. Once again, WL BANK positioned itself as a market-leading and reliable partner of this customer group within the cooperative financial services group. At EUR 1,242.6 million, new commitments were 63.6 % above the previous year s figure. Key success factors were WL BANK s sustainable, long-term and clearly identifiable business model, as well as the trusting cooperation with the Federal Association of German Housing and Real Estate Enterprises (Bundesverband deutscher Wohnungs- und Immobilienunternehmen, GdW) and with the regional associations of the housing sector. New business and the volume of the portfolio with investors and institutional funds, in particular with open-ended property funds and special funds, were also successfully expanded. In spite of intense competition and other market participants increasing willingness to assume risks, the volume of new business grew by 18.7 % to EUR million. The comparative value as of 31 December 2014 was EUR 700 million. This growth was achieved through both existing and newly won customer relationships. Our market activities will continue to be based on the maintenance of our conservative lending and risk strategy. The financing of residential properties accounted for a share of 86.3 % in 2015, while the share of fixed-interest periods of ten years and more was 82.1 % Public sector business The Public Sector Clients business segment mainly comprises domestic municipal territorial authorities as well as their legally dependent owner-operated enterprises, which are serviced throughout Germany, both directly and in close cooperation with the Volksbanken and Raiffeisenbanken. The commitment volume amounted to EUR 1,006.3 million in 2015 (2014: EUR 1,002.0 million), thus matching the very high level of the previous year. It is largely made up of low-volume, medium- and longterm public sector loans with annuity or pro rata repayment structures.

30 26 WL BANK Annual Report 2015 New commitments public sector business (in EUR m) 1, , Change in the public sector business 2015 As part of WL BANK s strategy of operating as the competence centre for public sector clients within the WGZ BANK Group, customer relations were further intensified and expanded. This range of customers meanwhile includes more than 2,000 municipal clients. Market penetration was further increased throughout the Federal Republic of Germany. In the process, about 100 municipalities nationwide were won over as new clients of WL BANK. Sales activities around the Public Sector Clients segment are essentially supported by WL BANK s Pfandbrief Treasury department, which acts as an internal service provider and, due to its proximity to the capital market, can ensure market-compliant conditions. Sales activities around the Public Sector Clients segment are essentially supported by WL BANK s Pfandbrief Treasury department, which acts as an internal service provider and, due to its proximity to the capital market, can ensure market-compliant conditions. More than three-quarters of transactions in the public sector business were brokered by the Volksbanken and Raiffeisenbanken. Thus, WL BANK was able to sharpen its image as a public sector financing bank within the cooperative financial services group. WL BANK acted as joint organiser of the 11th German Treasurer s Day (Deutscher Kämmerertag) held in Berlin. The event was attended by high-ranking representatives from politics and administration. The working group on the subject of Urban development today: sustainable, flexible, and financeable, which was organised by WL BANK, received a very positive response. Apart from that, WL BANK participated in the regional Treasurer s Days in Baden- Württemberg and Hesse. WL BANK s working groups dealt with specific topics of municipalities in the two federal states, and both were very well attended. In addition, WL BANK s employees attended several municipal events of Volksbanken and Raiffeisenbanken, where they held lectures or actively participated in panel discussions. WL BANK organised municipal seminars for board members, executives and employees of Volksbanken and Raiffeisenbanken at the Academy of German Cooperatives (Akademie Deutscher Genossenschaften, ADG) and at the Academy of Bavarian Cooperatives (Akademie Bayerischer Genossenschaften, ABG). This enabled us to intensify our existing relationships with the Volksbanken and Raiffeisenbanken and to gain new contacts for our public sector business. For the first time, WL BANK successfully held a seminar on interest and loan management for executives and employees of municipalities at the Niedersächsischer Städte- und Gemeindebund (Association of Towns and Municipalities in Lower Saxony) as well as at the Gemeinde- und Städtebund Thüringen (Association of Towns and Municipalities in Thuringia) Pfandbrief treasury business and funding The mortgage and public sector cover pools are an essential part of WL BANK s business model. The focus of the Pfandbrief Treasury department is on controlling and optimising the two cover pools, funding through Pfandbriefe as the dominating funding instrument, managing market price risks and ensuring liquidity both for the individual cover pools and for the Bank as a whole. At EUR 5.5 billion, the volume of funding raised was almost at the same level as in the previous year (EUR 5.7 billion). The volume of new business in real estate lending increased significantly to a higher level than

31 WL BANK Annual Report 2015 Management Report 27 originally planned; on a pro rata basis, this resulted in much higher sales of mortgage Pfandbriefe than of public sector Pfandbriefe. With a volume of almost EUR 3.5 billion, mortgage Pfandbriefe accounted for almost two-thirds (63 %) of total sales and their volume more than doubled compared to the previous year. This also included four benchmark bonds issued in the course of the year; analogous to the new business in real estate lending, these were primarily issued with longer maturities (7 to 15 years). In addition, more than EUR 1 billion was issued as registered Pfandbriefe, also primarily with long maturities and, because of the higher yields for investors given the low level of interest rates, partially equipped with termination rights. With a volume of almost EUR 3.5 billion, mortgage Pfandbriefe accounted for almost two-thirds (63 %) of total sales and their volume more than doubled compared to the previous year. Public sector Pfandbriefe with a volume of EUR 464 million, or a share of 9 % in total sales, were exclusively issued through private placement. They serve primarily to fund the long-term public sector business. The trend towards large-volume Pfandbrief bonds, especially in the benchmark format, continued in the year under review. On the one hand, this is due to the fact that within the framework of liquidity investment under the liquidity coverage ratio (LCR), these issues are classified as highly liquid funds; on the other, they are also eligible for the ECB s covered bond purchase programme (CBPP3). In addition, Pfandbriefe benefit both from their high credit quality and from their privileged supervisory status through the removal of bail-in-able instruments. Uncovered funding capital in the form of bearer bonds, registered bonds and promissory note loans accounted for a share of 28 % in total sales. They serve to fund the non-cover business and over-collateralisation targets as well as the liquidity reserve to be held for the Bank as a whole. WL BANK s deep integration in the WGZ BANK Group and in the cooperative financial services group had a positive impact both on demand and on the issue spreads achieved. Overall, the available mix of funding through covered and uncovered securities, from largevolume benchmark issues to small-sized bearer bonds and registered bonds as well as the offer of fixed- or variable-interest issues and of structured issues enabled us to provide comprehensive services to different groups of investors. This was part of the reason why it was possible to place sufficient funding instruments with the required maturities at market-compliant conditions at any time. Initial sales of the funding instruments are also supported by secondary market activities. Therefore, good market support i.e. the permanent readiness to regulate our own issues is of great importance. We also repurchased own issues for the purpose of optimising the cover pools and within the framework of portfolio management Portfolio customer business The loan portfolio in the customer business (real estate loans and public sector business) amount to EUR 25,271 million, compared with an original target of EUR 24,668 million. Thus, it has a share of approximately 68.8 % in the balance sheet total as of 31 December 2015, as compared with the original 2019 target of 75 %. After payments of EUR 3,484 million and after scheduled and unscheduled redemptions and repayments totalling EUR 1,551 million, the real estate loan portfolio including risk provisioning increased further by EUR 1,933 million to EUR 17,936 million (2014: EUR 16,003 million). The total volume due for adjustments in the real estate loan business in the 2015 financial year of EUR million (2014: EUR million) was extended by EUR million (2014: EUR million). Due to the good volume of new business, the portfolio in the public sector business was also increased. As at 31 December 2015, the portfolio in the public sector business with public sector clients amounted to

32 28 WL BANK Annual Report 2015 Portfolio customer business (in EUR m) 20,910 13,689 22,016 14,966 EUR 7,335 million, compared to EUR 7,307 million in the previous year. 23,310 16,003 +4,450-2,489 25,271 17,936 7,221 7,050 7,307 7, Due to maturities and the shift into more liquid securities of public sector issuers, in particular to comply with future supervisory liquidity requirements, the more capitalmarket-oriented business with municipal promissory note loans declined by EUR 1,602 million to EUR 3,391 million. This effect clearly more than offsets the increase in the domestic public sector business, so that the total public sector loan portfolio shown in the financial statements decreased from EUR 12,300 million in the previous year to EUR 10,726 million as at 31 December Portfolio Pfandbrief business and other funding operations Public sector business Payments Real estate loan business Repayments WL BANK funds itself predominantly from the capital market by issuing mortgage Pfandbriefe and public sector Pfandbriefe in the form of registered and bearer bonds. 18, Portfolio securities and promissory note loan business The total portfolio of the securities and promissory note loan business declined from EUR 12,629 million to EUR 9,398 million in the 2015 financial year. Bonds issued by public sector issuers and by other issuers are mainly used to cover public sector Pfandbriefe or as substitute cover for mortgage Pfandbriefe and increasingly also as a liquidity reserve within the framework of overall bank management. The portfolio decreased by EUR 1,629 million to EUR 6,007 million. Portfolio securities and promissory note loan business (in EUR m) 12,176 15,321 Germany 10,473 12,629 Germany 8,234 Germany 9,398 6,292 Germany 6,476 Abroad 4,848 4,395 Abroad Abroad 3,106 Abroad The volume of registered mortgage Pfandbriefe issued increased from EUR 5,657 million as at 31 December 2014 by EUR 673 million to EUR 6,330 million as at the reporting date, 31 December During the same period, registered public sector Pfandbriefe declined by EUR 689 million to EUR 8,534 million. The changes result from the strategic expansion of the real estate loan business and the simultaneous reduction of the more capital-market-oriented business with municipal promissory note loans. This development is also reflected in the certificated bearer bonds. An increase in mortgage Pfandbriefe in the amount of EUR 2,014 million offset the decline of EUR 1,036 million in public sector Pfandbriefe. On balance, the portfolio of covered securitised liabilities increased as a result by EUR 978 million to EUR 10,928 million. In addition to the capital-market-oriented Pfandbrief business, WL BANK s financing base is made up of money market activities, in particular open-market transactions and repo transactions, as well as uncovered promissory note loans and bearer bonds as other funding operations. The portfolio of other funding operations decreased from EUR 12,707 million as at 31 December 2014 to EUR 10,261 million as at 31 December 2015.

33 WL BANK Annual Report 2015 Management Report Rating The top AAA rating for WL BANK s mortgage Pfandbriefe and public sector Pfandbriefe was confirmed by Standard & Poor s (S&P) on the basis of the regularly reported data and was assigned a stable outlook. In its covered bond criteria, S&P assigned a very strong rating, among other things, to the legal framework, the systemic importance and the high support for the Pfandbrief. S&P also confirmed WL BANK s AA /A 1+ rating with a stable outlook, appreciating WL BANK s core function with its deep integration in the Volksbanken Raiffeisenbanken cooperative financial services group with regard to new lending business, funding and protection scheme. The top AAA rating for WL BANK s mortgage Pfandbriefe and public sector Pfandbriefe was confirmed by Standard & Poor s (S&P) on the basis of the regularly reported data and was assigned a stable outlook. In March 2015, rating agency Fitch upgraded its rating for WL BANK within the framework of the rating for the cooperative financial services network from A+ to AA. The F1+ short-term rating and stable outlook were confirmed. Based on sustainability ratings, rating agency imug assigned a positive rating to our public sector Pfandbriefe and a neutral rating to our mortgage Pfandbriefe and uncovered promissory note loans. oekom research AG awarded prime status to WL BANK Derivatives In addition to the on-balance-sheet business, derivative transactions were concluded within the framework of overall bank management and as part of valuation units (micro hedge). Beyond that, the portfolio includes derivative transactions carried out with selected real estate clients and individual municipalities as part of product enhancements. The derivatives are concluded on the basis of basic agreements for financial futures. There exist netting and/or collateral agreements with a majority of counterparties. Overall, in nominal terms, interestrelated and currency-related transactions to hedge interest rate and currency risks amounted to EUR 22,532 million (2014: EUR 21,009 million) on the assets side and EUR 19,253 million (2014: EUR 16,985 million) on the liabilities side as at 31 December Employees In 2015, WL BANK s employees were once again a key success factor for our positive operating result. We thank them very much for their commitment and their high identification with WL BANK. On an annual average, WL BANK employed 354 (previous year: 327) people (a total of 176 female and 178 male employees), of whom 14 were apprentices. Thus, the total year was characterised by significant personnel growth of about 8 %. As in the previous year, the part-time employment rate was just over 21 %, and the average age of the total workforce was 40 years. Also worthy of note is the high degree of company loyalty within WL BANK. The average period of employment remained at the previous year s level of 10.5 years, but this is largely attributable to the high number of newly hired employees. The staff turnover rate, on the other hand, continued to decline and amounted to only 1.7 % in the period under review (2014: 2.5 %). As in the previous years, two apprentices could start a dual study programme with triple degree (trained banker, Bachelor s and Master s degree). In addition, four ladies and gentlemen started their regular training as bank clerks. The consistently good examination results of the graduates of 2015 were very pleasing. Apart from that, especially qualified employees were selected and admitted to the fifth class of our internal junior staff promotion programme.

34 30 WL BANK Annual Report 2015 In the Great Place to Work employer competition in spring, WL BANK was again among the Top 100 Employers in Germany both nationwide (42nd place) and, for the first time, in a comparison of the Münsterland region (3rd place). What is particularly remarkable is that over 80 % of our workforce participated in an anonymous employee survey. In this survey, the changes initiated since the last participation in 2011 received consistently positive feedback. Encouraged by the newly improved overall result, we could further promote our successful measures in the fields of corporate culture, management and cooperation as well as communication and exchange in the course of the year. At the same time, the survey enabled us to expand the range of further education and training measures offered in a needsbased manner. In the Great Place to Work employer competition in spring, WL BANK was again among the Top 100 Employers in Germany both nationwide (42nd place) and, for the first time, in a comparison of the Münsterland region (3rd place). For example, last year it was necessary to prepare employees for the continuously growing number of supervisory/regulatory requirements, also in an international context, and to ensure the respective required state of knowledge. The same applied to new requirements that have arisen from customer relationships. To this end, we resorted to further training measures offered by external partners and carried out internal trainings in order to facilitate the required (further) qualification of our staff individually and in good quality. Another focus of human resources management in the last year was on continuing to facilitate the compatibility of family and career for our employees. Apart from the described internal effects through noticeable improvements for our employees, achieving a good result in the Great Place to Work competition also has a positive impact on our public image and thus contributes to strengthening the employer brand WL BANK. The growing importance of such employer branding is primarily the result of changes in external parameters. Demographic change has to be mentioned as one of the central influencing factors; over the next few years, it will result in a significant shortage of skilled workers in Germany. As a consequence of this development, competition for qualified employees will intensify considerably and permanently between companies from the most varied sectors. Similar effects are to be expected in the field of training places, too. Accordingly, a key focus of WL BANK s personnel strategy is on enhancing its reputation as an attractive employer. One essential feature is our strong ties with the region, which are reflected in a variety of projects at the headquarters in Münster. WL BANK supports the Pro Talent scholarship programme of the Westfälische Wilhelms University as well as the external project Partnerschaft Schule und Betrieb (partnership between schools and enterprises) initiated by the Chamber of Industry and Commerce. Within the framework of this cooperation, students from two schools in Münster visited WL BANK s premises in order to obtain practical impetus for their vocational orientation. Furthermore, WL BANK participated in local initiatives of the Bürger für Münster (citizens for Münster) foundation as well as of the Wirtschaftsförderung Münster GmbH, in which short internships were offered. Another focus of human resources management in the last year was on continuing to facilitate the compatibility of family and career for our employees. For instance, our well-established holiday care for the children of employees was very popular once again. Our range of family-friendly offers is rounded off by our day care facility for children under the age of three (U3), the parent-child room and the existing cooperation with the cooperative association Familiengenossenschaft Münsterland eg.

35 WL BANK Annual Report 2015 Management Report 31 Cooperation with WL BANK s employee representatives was trustful and constructive. By resolution of the Supervisory Board, both the current proportion of women on the Supervisory Board of 2/12 and the current proportion of women on the Management Board of 0/2 are to be retained until 30 June The targets set by the Management Board in accordance with Section 76 (4) of the German Stock Corporation Act (Aktiengesetz, AktG) of achieving a proportion of women at the division management level of 0 % and at the department management level of 9.7 % for the period until 30 June 2017 correspond to the status quo of WL BANK, because as things stand now, only a few management positions will presumably become vacant or are planned to be created in the reference period. This is a consequence of the very low staff turnover rate and the executives long employment with the Bank. From a sustainability perspective, the low staff turnover rate is regarded as valuable. Therefore, there is currently no scope to change the proportion of women. We are seeking to further increase the proportion of women on the Supervisory Board and at all management levels of WL BANK. For this purpose, a specific development programme for female executives at WL BANK has been running since Earnings, financial and assets position Earnings position At EUR million, net interest income is around EUR 36.4 million higher than in the previous year and above the planned target of EUR million. Charges in net interest income resulting from the strategic reduction of the foreign securities portfolio and At a total of EUR million, net interest and commission income was 21.3 % above the previous year s figure (EUR 93.7 million). shifts from EU peripheral countries to lowerinterest bonds from EU core countries are continuously declining. They are more than offset by the continued positive development in the real estate lending business. At EUR million, net commission income improved compared with the previous year s figure (EUR million) and with the target figure, which was due to the higherthan-planned volume of new business in the brokerage business with the Volksbanken and Raiffeisenbanken as well as to the simultaneous expansion in margins. At a total of EUR million, net interest and commission income was 21.3 % above the previous year s figure (EUR 93.7 million). Personnel expenses amounted to EUR 28.0 million (target figure: EUR 27.5 million). Thus, they are about EUR 2.4 million higher than in the previous year, which is due to the higher number of employees as well as to standard and non-standard pay adjustments. Other administrative expenses increased by around EUR 8.8 million compared to the previous year and by around EUR 10.0 million compared to the forecast. They amount to EUR 33.4 million. This increase is primarily due to expenses in the amount of EUR 9.4 million for the European bank levy, which was paid for the first time. With regard to the payment of the contribution for 2015, we made use of the so-called 70/30 regulation, so that apart from the above-mentioned EUR 9.4 million, another EUR 4.0 million of the total amount of EUR 13.4 million was deposited as cash collateral with Deutsche Bundesbank. Adjusted for the European bank levy, which was only to a small extent included in the target figures for 2015, the increase compared to the target figure was only EUR 0.6 million and expenses were EUR 0.6 million lower than in the previous year. Moreover, the further development of the IT platform bank21, which is used together with the partner banks, as well as consulting expenses, resulting among other things from increasing regulatory requirements, continue to be a major cost factor within other administrative expenses.

36 32 WL BANK Annual Report 2015 At EUR 0.8 million, write-downs on assets remained at a similar level as in the previous years (2014: EUR 0.9 million). The other operating result, i.e. the balance of other operating income and expenses, declined by EUR 1.7 million year-on-year to EUR -1.2 million. Increased expenses for interest accrued for provisions, particularly pension provisions, had a negative impact here due to the persistently low level of interest rates. No use was made of the option to adjust the annual average of the underlying interest rate from 7 to 10 years. Despite the European bank levy, the cost-income ratio increased by only 1.0 percentage point compared with the previous year. At EUR 50.4 million, the operating result before risk provisioning was 16.9 % above the previous year s figure (EUR 43.1 million), and, due to the above-mentioned effects, e.g. the European bank levy, EUR 10.4 million below the target. The cost-income ratio amounted to 55.2 %, which was above the target figure (46.0 %) due to the expenses from the European bank levy. Despite the European bank levy, the cost-income ratio increased by only 1.0 percentage point compared with the previous year. The risk result was mainly influenced by four effects: the continued low default rates in the real estate loan business, earnings effects from the sale of municipal promissory note loans, expenses from the repurchase of the Bank s own issues and substantial allocations to reserves pursuant to Section 340f of the German Commercial Code. Allocations to reserves pursuant to Section 340f of the German Commercial Code were higher than in the previous year despite the European bank levy. Overall, the risk result amounted to EUR million. The net positive effects from the sale of securities valued like fixed assets amounted to EUR 32.1 million. Overall, the balance of risk result and financial investments result amounted to EUR million compared to EUR million at the previous year s balance sheet date. Overall, the balance of risk result and financial investments result amounted to EUR million compared to EUR million at the previous year s balance sheet date. The target figure was EUR million. The result from ordinary business activities amounted to EUR 23.7 million (2014: EUR 13.5 million). In 2013, WGZ BANK and WL BANK entered into a tax compensation agreement. Therefore, the income tax expense from the tax compensation in the amount of EUR 20.1 million incurred by WL BANK under the fiscal unity scheme for income tax purposes is recognised in the item Taxes on income and profit. After deduction of other tax expenses, the remaining profit of EUR 4.3 million was transferred to WGZ BANK, as in the previous year. The return on equity before taxes and before allocation to reserves was 15.2 %, which is well above the target rate of return (11.6 %) and above the previous year s return on equity (11.0 %). The IFRS profit before tax (before profit transfer) amounted to EUR million (target: EUR 83.0 million), compared to EUR 91.9 million in the previous year. The deviations were mainly caused by valuation effects; in addition, the significant growth in the real estate lending business led to an increase in interest income. In contrast to the result according to HGB (German Commercial Code), value fluctuations of underlying transactions and hedging instruments stated at fair value are reflected in the profit and loss account according to IFRS Financial and assets position In the year under review, WL BANK s balance sheet total decreased by about EUR 1.5 billion to EUR 36.7 billion. As in the previous years, the assets side of the balance sheet is dominated by the balance sheet items Claims on banks (EUR 2.4 billion; 2014: EUR 3.5 billion), Claims on customers (EUR 28.2 billion; 2014: EUR 27.0 billion) as well as Bonds and other fixed-interest securities (EUR 6.0 billion; 2014: EUR 7.7 billion). As a result of the expiration of the guarantor s liability to the savings banks, the portfolio of public sector loans to banks was further reduced, causing a decrease of EUR 1.1 billion in the item Claims on banks.

37 WL BANK Annual Report 2015 Management Report 33 Within the balance sheet item Claims on customers, the further expansion in the real estate lending business (portfolio increase of EUR 1.9 billion) and the increase in new business with German municipalities with offsetting sales of municipal promissory note loans resulted in a total increase of EUR 1.2 billion in this balance sheet item. Bonds and other fixed-interest securities were down by approximately EUR 1.7 billion due to the strategic reduction of the foreign portfolio through sales or maturities not replaced. Within the balance sheet item Claims on customers, the further expansion in the real estate lending business (portfolio increase of EUR 1.9 billion) and the increase in new business with German municipalities with offsetting sales of municipal promissory note loans resulted in a total increase of EUR 1.2 billion in this balance sheet item. The most important balance sheet items on the liabilities side are: Liabilities to banks (EUR 7.2 billion; 2014: EUR 9.1 billion), Liabilities to customers (EUR 14.7 billion; 2014: EUR 15.1 billion) and Secur itised li abilities (EUR 14.1 billion; 2014: EUR 13.3 billion). The other liabilities within the balance sheet item Liabilities to banks were reduced primarily due to the decline in securities repurchase agreements and lower borrowings from Deutsche Bundesbank. The balance sheet items Liabilities to customers and Securitised liabilities reflect the strategy-related changes on the assets side. Mortgage Pfandbriefe increased because of the expansion in the real estate lending business; public sector Pfandbriefe declined due to maturing issues and redemptions that were not equally replaced. WL BANK s equity capital amounts to EUR million. Besides the share capital of EUR 85.4 million, this includes capital reserves of EUR million and revenue reserves of EUR million. The participation rights existing as of 31 December 2014 were repaid during No new participation rights were issued in 2015, so that the portfolio did not contain any participation rights as of the reporting date 31 December Subordinated liabilities amount to EUR million. Of this amount, EUR 74.2 million comply with the requirements for the recognition as own funds in accordance with the CRR. As of 31 December 2015, the total capital ratio calculated for internal purposes was % (2014: %). The tier 1 capital ratio was % (2014: %). Apart from ensuring compliance with the supervisory requirements, WL BANK s liquidity management system also observes internal management ratios and other possible sources of risk to the Bank s liquidity supply. The regulatory provisions according to the Liquidity Regulation were complied with at all times. As of 31 December 2015, the value was 5.95 (2014: 1.69) in comparison with the required lower limit of 1.0. As at the balance sheet date, cash and cash equivalents amounted to EUR 3,665.6 million and payment obligations to EUR million. In section BTR 3.2.2, the Minimum Requirements for Risk Management (MaRisk) demand that sufficient liquidity is maintained for the next seven days. The surplus of cash and cash equivalents calculated in accordance with these requirements amounted to EUR million as of year-end Beyond these regulatory provisions, a stressed funding matrix for a one-year review period is compiled at regular intervals. For the compliance with short-term liquidity requirements, an appropriate model has been developed in order to identify highly liquid securities. In order to raise the degree of liquidity of assets, the Bank participates in the KEV procedure with the European Central Bank. As of 31 December 2015, there were open-market transactions with Deutsche Bundesbank in the amount of EUR million. In the stress scenarios of the funding matrix, market distortions and reasons attributable to the Bank are considered in isolation. In addition, a going concern approach and a combined market/bank-specific stress scenario have been implemented. The liquidity management takes account of all stress

38 34 WL BANK Annual Report 2015 scenarios; special impulses for funding activities can be derived from the scenario with the lowest excess liquidity cover. The liquidity management takes account of all stress scenarios; special impulses for funding activities can be derived from the scenario with the lowest excess liquidity cover. At the bottom line, our business performance in 2015 exceeded expectations. 3 Supplementary report (events after 31 December 2015) We have no knowledge of any significant events that have occurred after the end of the financial year. 4 Risk report 4.1 Objectives and tasks of risk management WL BANK is closely integrated into the risk management system of the WGZ BANK Group. WL BANK makes use of the possibility pursuant to Section 2a KWG in connection with Article 7 (1) CRR (so-called waiver rule). In this context, since 17 December 2013, WL BANK has neither applied the provisions of Sections 10 and 13 KWG (old version) nor the subsequent provisions pursuant to Parts 2 to 4 of the CRR as well as section 25a (1) sentence 3 No. 1, 2, 3b and 3c KWG at the individual bank level. In addition, the waiver rule pursuant to Article 7 of the CRR includes Parts 5, 7 and 8 of the CRR. Within the WGZ BANK Group, uniform methods and processes are used for risk management. Apart from meeting supervisory and other statutory requirements, the objective of the Group-wide risk management is to guarantee at any time the risk-bearing ability of the Group and the individual Group companies, i.e. the ability to master the occurring risks from own financial resources. The internal operational framework is predetermined by the business and risk strat- egies as well as further requirements from the WGZ BANK Group, and it manifests itself, among other things, in the limit and competence systems, which are laid down in organisation guidelines. The external requirements result mainly from the German Banking Act (Kreditwesengesetz, KWG), the German Pfandbrief Act (Pfandbriefgesetz, PfandBG), the Capital Requirement Regulation (CRR) as well as the German Minimum Requirements for Risk Management (MaRisk). Despite the application of the waiver, the regulatory capital requirements are con tinued to be observed for the internal management. Irrespective of the application of the waiver rule pursuant to Section 2a (1) KWG in connection with Article 7 (1) of the CRR, WL BANK, as a Pfandbrief Bank, complies with any provisions of the PfandBG. This also entails that WL BANK s risk management system serves the implementation and control of the targets defined in the business and risk strategy. WL BANK s business and risk strategy has been consistently derived from the fundamental strategies of the WGZ BANK Group. It defines WL BANK s key function as a Pfandbrief Bank within the Group and as a player in corresponding strategic fields of business. Entrepreneurial action is generally characterised by decisions under uncertainty. The associated risks are not only a source of success, but can also lead to losses. Therefore, a targeted limitation of the risks to be taken is vital to ensure the maintenance of the Bank s economic independence and existence. In this context, consistent risk assessment and the aggregation of the relevant risk types are of great importance. In compliance with the statutory framework for the maximum acceptable potential loss, the following limitation standards apply, among others: the existing risk cover assets the likelihood that potential losses will materialise, as well as the security needs and risk tolerances of WL BANK s Management Board and of the

39 WL BANK Annual Report 2015 Management Report 35 Group Executive Board of the WGZ BANK Group through limitation of risks at individual company and Group level. 4.2 Organisation and instruments of risk management The general framework of WL BANK s risk management is derived from the superordinated risk management system of the WGZ BANK Group. Under the overall control of the corresponding bodies of the Group, the Risk Management division in WL BANK s Finance department is primarily responsible for the operational application and further development of procedures and methods for risk assessment at the overall bank level as well as for risk reporting. The monitoring of loan portfolios at the individual and loan exposure level via individual limits as well as the monitoring of structural provisions in the loan portfolio is the responsibility of the Back Office Real Estate Loan Business and Back Office Pfandbrief Treasury and Public Sector Clients departments. The decentralised early identification of risks is also carried out in the respective departments. In addition, the Back Office Pfandbrief Treasury and Public Sector Clients department monitors the utilisation of country limits to manage the country risk. These are approved by the Group Risk Committee (GRC) within the framework of the Group-wide risk management. In this context, the monthly calculation of the risk-bearing ability and individual limit systems are fundamental instruments of the overall bank management. They are supplemented by stress scenario observations for specific risk types and across risk types. As an instrument of the risk management and controlling process, the monthly risk report in particular serves as a Bank-wide source of information for management. The results from these calculations and analyses are fed into a comprehensive reporting system. As an instrument of the risk management and controlling process, the monthly risk report in particular serves as a Bank-wide source of information for management. All risk types defined as material within the framework of the business and risk strategies are illustrated and analysed in terms of risk potential. Likewise, the business areas are examined and the implementation of targets is monitored in accordance with the business and risk strategies. A survey of individual risks is provided in further reports at shorter intervals. The Group-wide risk inventory, which is carried out annually or as required, is another important instrument to examine the materiality of risks at the overall bank level. Potential risks are surveyed in a structured process. The result is an overall risk profile of WL BANK. In addition to this, workshops and self-assessments are carried out. Analogous to the WGZ BANK Group, WL BANK distinguishes between two different cases of risk impact for group management, the going concern case and the maximum impact case. The going concern case, which is primarily relevant for WL BANK, describes a negative normal year, in which the extent of the occurring risks exceeds that of a normal year, but does not jeopardise the continuation of the company. A Group-wide uniform confidence level of 95 % is assumed here. The potential risks are generally shown as value at risk (VaR). The maximum impact case describes a situation in which the occurring risks are so extreme that the continuation of the company would be jeopardised. The value at risk in this case is calculated with a Group-wide uniform confidence level of 99.9 %. Taking account of the multi-annual plan, the market assessments from the respective divisions as well as its attitude to risk, the Management Board derives limits for the material risks while complying with Group guidelines. The risks classified as material, such as market price risks, credit risks, liquidity risks, reputational risks and operational risks, are quantified, limited and monitored in the forms that are relevant for WL BANK. The strategic risk has been classified as not

40 36 WL BANK Annual Report 2015 material for the entire Group. Since 2014, the reputational risk has been taken into account quantitatively in the risk-bearing ability calculations. In 2015, the focus in the further development of the overall bank management system was in particular on the counterparty default risk, the liquidity risk as well as the migration risk. In 2015, the focus in the further development of the overall bank management system was in particular on the counterparty default risk, the liquidity risk as well as the migration risk. Projects concerning supervisory issues initiated in the previous years and focused in particular on management aspects were pursued according to plan. A Group-wide project for the implementation of the requirements of BCBS 239 (principles for risk reporting and risk data aggregation) was started in The pilot study phase will be completed in the first quarter of WL BANK plans to intensively address the requirements of BCBS 239, which may lead to new Minimum Requirements for Risk Management (MaRisk) in 2016, and will commence further project activities on this issue in Corresponding project resources are also envisaged for 2016 with regard to the pending merger between WGZ BANK and DZ BANK. WL BANK plans to intensively address the requirements of BCBS 239, which may lead to new Minimum Requirements for Risk Management (MaRisk) in 2016, and will commence further project activities on this issue in Continuous further development ensures that the management system at all times meets the supervisory and economic requirements in accordance with the principle of proportionality. The risk management system is subject to tests on a regular and as required basis by the Internal Audit department. The Group-wide observation of the riskbearing ability by means of going concern case and maximum impact case is accompanied by various historical and hypothetical as well as hybrid stress scenarios. These include both stress tests for specific risk types and stress tests across risk types. By means of stress scenarios across risks types, inter-risk concentrations are appropriately taken into account in the overall bank management. The creation of scenarios also makes transparent the impact of critical developments on the different risk types. At the same time, in particular the effects on the defined target figures, such as risk-bearing ability, P&L and supervisory parameters, are analysed both at the individual bank level and at the Group level. Due to its strategic positioning, WL BANK s risk policy must take particular account of the developments in the German real estate market as well as of the global economic developments with a focus on the European area. The factors of influence are thoroughly examined in regular portfolio analyses. In addition to Group-wide stress tests, Bankspecific stress scenarios are also simulated in order to achieve appropriate stressing of WL BANK s business model Credit risk Portfolio structure Credit risk is the danger which may result from the economic (mal)development or the (mis)behaviour of a counterparty. Credit risks can occur in the form of counterparty risks (the risk lies in the specific counterparty) or country transfer risks (the risk lies in disturbances in the transfer of credit-relevant payments by a foreign borrower due to national economic developments or political interference). Counterparty risk is further classified into default risk (risk of default of a borrower) and migration risk (risk of deterioration in a borrower s creditworthiness or probability of default). As at the reporting date, 31 December 2015, the volume of the real estate lending business including undrawn commitments

41 WL BANK Annual Report 2015 Management Report 37 amounted to EUR 20.1 billion, while the volume of the public sector business was EUR 7.3 billion and the volume in the securities and promissory note loan business including derivative market values after netting and collateral amounted to EUR 9.4 billion. Thus, the real estate lending business had a share of about 55 %, the public sector business of about 20 % and the securities and promissory note loan business of about 25 % in the total volume of WL BANK. These shares are in line with the strategic orientation. Thus, the real estate lending business had a share of about 55 %, the public sector business of about 20 % and the securities and promissory note loan business of about 25 % in the total volume of WL BANK. These shares are in line with the strategic orientation. Real estate lending business by usage as of 31 December % 15% Private residential buildings 29% Owner-occupied flats Rental housing construction Commercial 6% Due to the great number of borrowers, WL BANK s real estate loan portfolio is broadly diversified and has a low risk concentration. Real estate lending business segment As a long-term oriented real estate financier, WL BANK focuses its customer business on the financing of residential properties and commercial properties that are suitable for third-party use in Germany. Target customers are private customers and investors brokered to WL BANK from the Volksbanken Raiffeisenbanken cooperative financial services group (business within the cooperative financial services network), the institutional housing sector, open-ended and closed-ended real estate funds, professional investors as well as partner banks as part of loan syndication (direct business). Around 50 % of the real estate lending business is brokered via the cooperative financial services network. Private and housing associations account for 36 % and 35 %, respectively, of the total real estate loan portfolio. The share of housing finance in the total portfolio was about 85 %. The remainder was accounted for by the financing of office and administrative buildings that are suitable for third-party use as well as commercial and logistics buildings. At 91 %, the share of real estate loans in financing in the real estate lending business was at the previous year s level. Although in individual cases borrowers are domiciled abroad, WL BANK provides financing exclusively for real estate in Germany. Due to the great number of borrowers, WL BANK s real estate loan portfolio is broadly diversified and has a low risk concentration. About 71 % of the loan exposure is accounted for by 10 % of the borrowers, but most of these borrowers are housing associations, whose loans are spread very granularly over a large number of individual properties in many different locations in Germany. Overall, the real estate loan portfolio is low-risk and broadly diversified. This is also illustrated by the following chart of the real estate lending business subdivided by internal ratings and average default probabilities:

42 38 WL BANK Annual Report 2015 Real estate lending business subdivided by internal ratings Rating class Average 1-year PD in % Total EUR m Share in total in % Total EUR m Share in total in % Number of customers 0C D E , A , , ,181 1B , , ,573 1C , , ,160 1D , , ,717 1E , , ,233 2A ,470 2B ,789 2C D E A B C D E Default Total* 17, , ,729 *rounded values Internal ratings are an essential basis for the approval, monitoring and management process, particularly in view of the early identification of risks, as well as for loan pricing. New business and total portfolio are operationally and strategically managed according to a comprehensive bundle of measures, taking account of risk concentrations (e.g. regional distribution as well as individual and loan exposures). In accordance with the current ratings and in due consideration of individual risk provisioning, the risk in the real estate lending business continues to be at a low level. Sufficient risk provision has been made for existing risks. The risks from the real estate loan business correlate closely with the development in the real estate markets. The latter, in turn, is strongly dependent on the economic environment, but also on the future demo- graphic and national economic development. These aspects are taken into account in the planning process as well as in the strategic and operational risk monitoring and control at the individual and portfolio level. Loans are granted in accordance with conservative lending guidelines. These include, for example, the focus on financing residential properties and commercial properties in Germany that are suitable for third-party use as well as a risk and customer grouporiented competence and limit system. The first-time and ongoing collateral evaluation and monitoring of the mortgaged properties are carried out primarily in line with the high and sustainable quality requirements of the Regulation on the Determination of the Mortgage Lending Value (Beleihungswertermittlungsverordnung, BelWertV). The real estate loan portfolio is monitored and managed from a risk-oriented perspective and in a multidimensional manner, so that risk developments can be identified at an early stage and countermeasures be taken. The quality standard of the lending guidelines is regularly reviewed and, if necessary, further developed in order to meet the increasing internal and regulatory requirements for risk management. Other material risks or risk concentrations in the real estate loan business are not discernible at the moment. Market conditions in Germany, which continue to be stable despite signs of overheating in regional submarkets, are analysed by WL BANK s real estate research department. The results are taken into consideration in our strategic orientation as well as in the operating business. The Back Office Real Estate Loan Business department carries out targeted, risk-oriented portfolio checks. On the basis of selected, risk-adjusted parameters, customer-groupspecific analyses are made and the real estate loan portfolio is screened in a multidimensional manner. Individual loans thus identified that have been unsuspicious so far, that are properly serviced and are not subject to any current disclosure requirements are individually checked. These checks are

43 WL BANK Annual Report 2015 Management Report 39 Recovery rates by type of property Type of property aimed at detecting early warning indicators at the portfolio level and incorporating them into the portfolio management. At the individual case level, intensive management is to be initiated at an early stage. Corresponding overall reports are prepared and submitted to the Management Board. Generally, in the case of non-performing loans, only that portion of a real estate loan that represents 60 % of the lending value of the available collateral is regarded as recoverable. Allowance is made for the remaining portion of the loan. In addition, for latent risks, appropriate provision is made by the formation of general value adjustments. The recovery rates represent those values achieved by compulsory measures of WL BANK in relation to the lending value. The recovery rates are largely above the real estate loan limit of 60 %. The sustainability of the recovery rates is also supported by the fact that, in the past few years, parts of the allocations to individual value adjustments from previous years were released to earnings. This is partly also due to positive market conditions. The recovery rates of office and administrative buildings, which are below 60 %, do not pose a structural problem for WL BANK. The share of this type of property in the total portfolio amounts to only 7.5 %, and the loan-to-value ratios are moderate at an average of 68 %. Recovery rates WL BANK 2012 in % Recovery rates WL BANK 2013 in % Recovery rates WL BANK 2014 in % Multi-family home Single/double family house Terraced house Office and administrative buildings Other residential and commercial buildings Source: internal validation reports for the IRB-LGD method used Public sector business segment The granting of loans, particularly public sector loans (around 92 % of the total portfolio) as well as of short-term loans is at the core of the business with public sector clients. The majority of the business with public sector clients consists of loans granted to borrowers that are available as cover for the issuance of public sector Pfandbriefe. Limitation is achieved by a definition of possible target customers. In the business with public sector clients, the corresponding risk concentrations are managed to the extent adequate to their scale and risk content. A broad diversification of the portfolio is to be achieved by means of a risk-adjusted limit system that is linked to internal ratings. In combination with the constant monitoring and adjustment of the limits due to changes in creditworthiness or ratings, disproportionate risk concentrations are prevented. The limits as well as the utilisation at the loan exposure and individual debtor level are part of the reporting. The high quality of the portfolio is reflected in the high share (86 % as at 31 December 2015) of customers with an internal rating of 0E or better. The internal rating as well as economic and budget indicators serve as calculation parameters for the determination of limits. Limitrelevant events are immediately checked by the Back Office Pfandbrief Treasury and Public Sector Clients department. The public sector business is subject to permanent observation and monitoring. As of 31 December 2015, no individual risk provisioning was required in the public sector business. Securities and promissory note loan business segment In accordance with WL BANK s strategic orientation, a clear focus is on the customer business (real estate lending business and public sector business). In this context, the share of the securities and promissory note

44 40 WL BANK Annual Report 2015 loan business in the portfolio has been sustainably reduced for years. Due to liquidity and cover requirements and in order to comply with supervisory requirements, financing is provided to domestic and also some foreign public sector debtors, primarily in the form of securities. Here, the Bank acquires bonds and promissory note loans of the federal government and the federal states as well as of other borrowers eligible for coverage according to the German Pfandbrief Act (Pfandbriefgesetz, PfandBG). These primarily include development banks guaranteed by the federal government or the federal states, supranational organisations as well as additionally selected European states and their territorial authorities. Beyond that, the portfolio includes almost exclusively secured bonds from appropriate banks within the framework of liquidity investment and the substitute cover pursuant to 19, 20 German Pfandbrief Act (Pfandbriefgesetz, PfandBG). The securities portfolio is continuously optimised in terms of quality and earnings as well as against the background of emerging supervisory changes. The extent of credit risks is limited both by individual limits and by country and struc tural limits. Internal and external ratings as well as economic and business indicators serve as calculation parameters for the determination of limits. In addition, early warning indicators are used for faster response to market and risk developments. Limit-relevant events are immediately checked by the Back Office Pfandbrief Treasury and Public Sector Clients department. The securities and promissory note loan business is subject to permanent observation and monitoring. Subportfolios in the securities and promissory note loan business as of 31 December % 5% 1% 0% 29% Sovereigns Subsovereigns Supranationals Financials Companies of the Cooperative Financial Services Network As at 31 December 2015, the share of public sector borrowers in the securities and promissory note loan portfolio was 99 %. The share of customers with an internal rating of 0E or higher in the securities and promissory note loan business amounted to about 81 % as of 31 December 2015; the share of customers with an external rating of AA or higher also amounted to 81 %. As of the reporting date, 31 December 2015, the securities and promissory note loan business was distributed across the external rating classes as follows: Securities and promissory note loan business by external rating classes as of 31 December % 33% 12% 4% 0% AAA AA A BBB BB B 48% The securities and promissory note loan portfolio is divided into the subportfolios Sovereigns, Subsovereigns, Supranationals, Financials and Companies of the Cooperative Financial Services Network. The geographic structure of the portfolio (securities and promissory note loans) is as follows:

45 WL BANK Annual Report 2015 Management Report 41 Securities and promissory note loan business by geographic structure 28% as of 31 December 2015 Portfolio of selected exposures of public sector issuers in Europe Bonds issued by public sector issuers from Maturities 5% 0% 67% Germany EU/EEA countries Supranationals Non-EU/EEA countries At 67 %, Germany accounts for the largest share in WL BANK s securities and promissory note loan portfolio. The share of EU/EEA countries in the portfolio amounts to 28 %. International organisations account for 5 % of the portfolio. The share of EU/EEA countries includes securities and promissory note loans of PIIGS countries in the amount of EUR 1.5 billion. In 2015, the PIIGS port folio was reduced by EUR 1.2 billion (-41 %) as part of a planned accelerated reduction. The portfolio of selected exposures of public sector issuers in Europe is shown in the following table: Nominal value EUR m Book value* EUR m Market value* EUR m Italy 2016 to Spain 2017 to Portugal 2018 to Ireland 2020 to Total 1,542 1,538 1,659 * The book and market values shown do not include any deferred interest. Moreover, any existing hedging relationships have been taken into account in the determination of the market values. As part of the optimisation and management of risks, the portfolio in the Financials subsegment was reduced by 88.4 % compared with 31 December 2014 to EUR 0.1 billion. The significant reduction in this subsegment is mainly attributable to the natural portfolio reduction through maturities due to the expiration of the guarantor s liability for German savings banks and Landesbanken (regional state-owned banks) at the end of 2015 as well as to the complete reduction of the covered bond portfolio. As of 31 December 2015, the subsegment had a share of only 1.2 % in the total portfolio. The risks resulting from derivative transactions are reduced through netting agreements with the counterparties as well as through collateral agreements with selected banks. Risks resulting from repo transactions are minimised to the tolerance limit stipulated in the basic agreement, because value fluctuations of the underlying secur ities beyond the tolerance limit are offset by daily compensation payments by the counterparty. As of 31 December 2015, no individual risk provisioning was required in the securities and promissory note loan business. Loan portfolio model In order to quantify the counterparty default risk, WL BANK uses a Group-wide uniform portfolio model on the basis of CreditMetrics. Risks are calculated with a confidence level of 95 % in the going concern case and of 99.9 % in the maximum impact case. Apart from the expected loss and the unexpected loss in the form of a VaR, the expected shortfall is also determined as a risk ratio. It describes the expected amount of loss under the condition that the VaR is exceeded. Within the framework of the requirements of the business and risk strategies, the results offer the possibility of actively managing the loan portfolio with regard to diversification, planning of new business and risk reduction. In addition, the Group-wide risk coverage potential is operationalised through riskoriented credit limits at the portfolio level, at the structure level, and at the individual loan exposure level. Customer and businessrelated data, such as exposure at default (EAD), loss given default (LGD), and probability of default (PD), are important input parameters. Risk is determined monthly at the borrower unit level. Influencing factors, such as sector correlations, number of exposures, size and rating-class structures as well as industry and country structures, are also important within the framework of modelling.

46 42 WL BANK Annual Report 2015 For the determination of PDs and LGDs as an expression of the credit rating of borrowers, the following procedures are primarily used: VR rating for banks VR rating for countries VR rating for commercial real estate VR rating for private customers building loans WL rating for CFI Rating for local and regional government (LRG) LGD grading and CCF with the VR rating for commercial real estate for the retail business LGD grading and CCF with the VR rating for private customers building loans for the retail business These have been approved by the Federal Financial Supervisory Authority to be used for the calculation of capital requirements in accordance with the IRB basic approach. Subportfolios as of Share of risk potential in credit risk in % Securities and promissory note loan business 49 Real estate loan business 43 Public sector loan business 8 Financials 0 Apart from the monthly identified cases of impact, WL BANK also uses stress tests for specific risk types to examine its responsiveness to parameter changes in the loan portfolio. Apart from the monthly identified cases of impact, WL BANK also uses stress tests for specific risk types to examine its responsiveness to parameter changes in the loan portfolio. All procedures comprise methods, processes, management and monitoring procedures as well as data collection and data processing systems used to support the assessment of counterparty risks, the allocation of IRBA positions to rating classes or risk pools as well as the quantification of default and loss estimates for the IRBA positions and the internal management. Model development and validation are carried out jointly by the risk monitoring units of WL BANK and WGZ BANK. The validation of rating procedures is carried out at least once a year. Credit risk mitigation techniques in the form of collateral or netting arrangements are taken into account as a risk-reducing factor. The collateral in the real estate lending business primarily consists of real estate liens. Netting and collateral agreements are primarily used in derivative and repo transactions IRBA pursuant to CRR As an IRBA institute, WL BANK meets the high supervisory requirements on the methods and processes used in the lending business in order to measure and control risks. The procedures to measure the customer s probability of default, to determine recovery rates as well as to quantify losses and to forecast the degree of utilisation at the time of a potential default are subject to regular validation and further development and are newly established for other segments. Some of the rating procedures were developed in cooperation with the BVR, the WGZ BANK, the Association of German Pfandbrief Banks (Verband deutscher Pfandbriefbanken, vdp), S&P and Moody s. The procedures are used to control individual transactions and individual loan exposures as well as at the portfolio level. As for the total portfolio, the coverage amounts to 96 %. Limitation via the VaR is also carried out at the subportfolio level. The observation of subportfolios was extended in the first quarter of Apart from Real Estate Loan Business and Financials, they now also differentiate Public Sector Loan Business and Securities and Promissory Note Loan Business Market price risks WL BANK considers the interest rate risk and the credit spread risk as the most important components of the market price risk. Interest rate risks mainly arise through deliberately taken, temporary or permanent mismatches in interest rate fixation periods of interest-

47 WL BANK Annual Report 2015 Management Report 43 bearing operations on the assets and liabilities sides, particularly in fixed interest rate positions. Apart from operations that are refinanced or secured at matching maturities, WL BANK is to a very limited extent also active in the area of maturity transformation. The credit spread risk manifests itself in changes in the value of securities and occurs because of the changes of credit spreads due to changes in creditworthiness or changes in market perceptions. It is determined on the basis of issuer- and issue-specific spread curves. Market price risks are determined by the Management Board, taking into account the sublimits of the WGZ BANK Group, which are derived from the Group s riskbearing ability. Market price risk limit utilisation of the VaR in the going concern case 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Transactions are carried out with due regard to the annual plan, the statutory limitations and the credit lines and risk limits derived from the Group s sublimits. Their implementation takes place in accordance with current market developments. Apart from permanent market observation, the Bank s current positioning is a regular subject in the weekly Board meetings. The interest rate risks and the credit spread risks are quantified by means of the VaR. In the going concern case, the credit risk is calculated for securities held as current assets; in the maximum impact case, it is calculated for securities held as current assets and securities held as fixed assets Limit utilisation of interest rate risk limit in % Limit utilisation of credit spread risk limit in % The VaR is the potential loss in market value which will not be exceeded for a given confidence level and time horizon. The underlying statistical parameters are based on an observation period of the last 250 trading days, a ten-day holding period and a confidence level of 95 % in the going concern case as well as a one-year holding period and a confidence level of 99.9 % in the maximum impact case. In addition, stress scenarios are simulated. Market price risks are determined by the Management Board, taking into account the sublimits of the WGZ BANK Group, which are derived from the Group s risk-bearing ability. The VaR reports drawn up every day in the Risk Management department provide the Management Board, the Back Office Pfandbrief Treasury and Public Sector Clients department as well as the WGZ BANK Group with information on the extent of the market price risks. Management is performed by the Back Office Pfandbrief Treasury and Public Sector Clients department within defined limits and competencies. The conclusion of interest rate swaps, swaptions, caps and floors, among other things, serve this management purpose. The forecasts from the VaR model for interest rate risks are compared every day with the actual changes in cash value (backtesting). At the end of the year, the market price risk limit utilisation of the VaR in the going concern case amounted to approximately 20 % of the approved limit. The illustration of the individual market price risk potentials (interest rate risk and credit spread risk) in the going concern case shows that given a low limit, the interest rate risk was adjusted to a low level in the course of the year. Apart from the VaR report, balances of interest rate maturities, new business statistics, present value calculations and other instruments are drawn up as a basis for the management of the interest rate risks. WL BANK has good funding opportunities on the capital market and within the cooperative financial services group as compared to many competitors, not least because of its good rating and the AAA rating for its mortgage Pfandbriefe and public sector Pfandbriefe. Apart from low-volume registered bonds

48 44 WL BANK Annual Report 2015 and bearer bonds, we also sold structured products by using one-to-one hedges to our capital market partners. Option risks and currency risks from the capital market are negligible for WL BANK. Transactions that are subject to option risks or currency risks, aimed at lower acquisition costs than normal transactions, are hedged by opposite derivative transactions, so that these risks are eliminated. In 2015, settlement fractions and, to a small extent, results from foreign currency transactions on behalf of clients led to expenses and income from transactions in foreign currencies in immaterial net amounts of about EUR +2 thousand. Apart from the contractual option rights such as special repayment rights, there are legal termination rights according to Section 489 of the German Civil Code (BGB) with a maturity of ten years in the area of real estate financing. The effects of these unhedged option risks are shown in a separate risk model and covered by separate risk cover assets. Special contractual repayment rights are taken into account through statistically validated maturity scenarios Liquidity risks WL BANK understands liquidity risk as the risk that current or future payment obligations cannot be met in full at the time they fall due (operational liquidity risk) or that losses are suffered from liquidity transformation due to adverse market developments (structural liquidity risk). Moreover, liquidity risk can result from markets or products in which WL BANK operates. Such risk results from an insufficient market depth (characterised, for example, by significant transaction costs, high bid-ask spreads or a small number of market players) or from market disruption, as a consequence of which positions cannot be reversed or closed out, or only at a loss. Liquidity is managed by the Pfandbrief Treasury and Public Sector Clients department. For the management of liquidity, a liquidity forecast is compiled each day, taking into account the future deposits and withdrawals. Among other things, call and term money as well as repo and open-market operations are used to manage short-term liquidity. For the management of liquidity, a liquidity forecast is compiled each day, taking into account the future deposits and withdrawals. In the calculation of the risk-bearing ability, liquidity risks are quantified and limited by means of a liquidity value at risk (LiqVaR). In the course of the year, the LiqVaR did not show any considerable amount at risk. Determination of the liquidity risk is based on a historical simulation. In stress scenarios for specific risk types, potential funding costs are stressed, for example, by changes in maturity-dependent liquidity spreads. The liquidity management system is rounded off by the funding matrix, which shows liquidity surpluses and deficits under normal as well as stress conditions over time, taking account of liquidity buffers. The liquidity payment flow of the funding matrix forms the basis for five other stress scenarios, namely a market scenario, a company scenario, a combined market and company scenario, a time-to-wall scenario and an inverse crisis scenario. For the stress scenarios, the assumptions underlying the liquidity payment flow are stressed in accordance with the scenario definitions. Individual scenarios serve as early warning indicators for the activation of the emergency plan in exceptional situations. The scenarios are analysed on a monthly basis and communicated in the risk report. Apart from internal control mechanisms, the liquidity ratio is calculated in accordance with the Liquidity Regulation.

49 WL BANK Annual Report 2015 Management Report 45 So far, the liquidity ratio has always been above the legally required minimum ratio of 1.0. So far, the liquidity ratio has always been above the legally required minimum ratio of 1.0. Temporarily, there occurred various extraordinary liquidity-enhancing effects leading to a strong increase in the ratio at individual reporting dates. As at 31 December 2015, the liquidity ratio was The LCR (liquidity coverage ratio) established within the framework of Basel III is used to determine the short-term liquidity risk. It is defined as the ratio of the stock of highquality liquid assets to total net cash outflows over the next 30 days. In 2015, the LCR had to amount to at least 60 %. In the following years, the requirement will increase by 10 % per year to 100 % in The minimum requirement was met in Only as of 31 August 2015, the LCR was negative, which was due to higher inflows of liquidity. These were caused by maturing shortterm loans in the cover pool. According to the CRR, the inflows from the cover pool are excluded from the 75 % cap limit and are stated at 100 % in liquidity inflows. This approach led to negative net liquidity outflows over the next 30 days and thus to a negative LCR ratio as of 31 August As of 31 December 2015, the LCR amounted to %. WL BANK s funding spreads for both covered and uncovered funding capital showed a stable development over the year. The expansion of liquidity risk management, which also fulfils the additional requirements of the MaRisk amendment of 2012, and the handling of future supervisory requirements take place within the framework of a Groupwide project, which continued in Risk transfer, risk avoidance, risk mitigation and risk acceptance are essential strategies to manage operational risks Operational risks Operational risks are understood as the risk of direct or indirect loss resulting from inadequate or failed internal processes, employees, internal infrastructure or from external influences. This definition includes legal risks, but not strategic risks or reputational risks. Operational risks are implicitly taken with each transaction carried out and are immanent in the entire institution. As a rule, decentral responsibility for the management of operational risks is assigned to those organisational units in which the risk occurs. Risk transfer, risk avoidance, risk mitigation and risk acceptance are essential strategies to manage operational risks. Apart from a written record of processes and workflows, which is to reduce the danger of operational risks, there are emergency plans to guarantee the Bank s business operations in the case of system failure or serious external events. Furthermore, insurance has been taken out to cover certain partial risks, which is subject to regular checks whether the limit of indemnity is still adequate. Special attention is paid to careful personnel planning and selection as well as to the continuous further education and training of employees. The loss database to record operational risks that have occurred has increased the transparency in this risk category. The losses can be classified into various loss groups and loss subgroups. By means of central recording and classification, losses can be analysed more easily and, when necessary, countermeasures can be initiated to avoid future losses. WL BANK uses the basic indicator approach to derive the risk potential that is taken into consideration in the risk-bearing ability. The risk situation is analysed on an annual basis within the framework of the Groupwide risk inventory, the Group-wide OpRisk self-assessment, and various workshops. In the event that a potential loss is identified, action alternatives are evaluated and the appropriate strategy for the handling of the identified risk is examined.

50 46 WL BANK Annual Report 2015 Risks arising from contracts or from changes in jurisdiction are still not fully predictable. As a supplement to the government s draft bill on the implementation of the Wohnimmobilienkreditrichtlinie, i.e. the Directive on Credit Agreements relating to Residential Immovable Property (also known as the Mortgage Credit Directive), which was approved in July 2015, the German federal cabinet on 27 January 2016 adopted a resolution to abolish the so-called eternal right of withdrawal from real estate loan agreements concluded between 1 September 2002 and 10 June Reputational risks Reputational risks are understood as damage to WL BANK s image or its public reputation with regard to its performance, competence, integrity and trustworthiness. The image is composed of the accumulated perceptions of all stakeholders impacted by WL BANK s business activities, and it is decisively influenced by their individual expectations with regard to the financial institute and its operations. A risk controlling process to manage the reputational risks was introduced in A risk controlling process to manage the reputational risks was introduced in An essential part of this process is the selfassessment for the identification and assessment of reputational risks, which is carried out within the framework of the Groupwide risk inventory. In order to quantify a monetary risk potential, probabilities of occurrence and loss extents for risk scenarios are assessed. On the basis of these results, a VaR is determined by means of a statistical model for both the going concern case and the maximum impact case. 4.3 Stress tests across risk types A variety of stress scenarios across risk types are used to take appropriate account of, for example, inter-risk concentrations in the overall bank management. The configuration of scenarios also makes transparent the impact of critical developments on the different risk types. Stress tests provide additional information about the Bank s risk situation going beyond the VaR models. The stress scenarios across risk types are based on exceptional but plausible events. The simulated scenarios include historical, hypothetical, hybrid and inverse scenarios. Taking account of current events, even severe economic downturns are reflected in the parameter constellations. The results show the impact of the stress scenarios on the P&L, the risk-bearing ability as well as on the parameters according to the CRR. In the process, four time slices are observed over a period of three years. The analysis of the results creates transparency about interdependencies between the different risk characteristics as well as about the impact on the Bank s various financial key figures. WL BANK simulates, among other things, a sharp intensification of the sovereign debt crisis in the PIIGS countries up to the sovereign default of another southern European country as well as a European recession. In their constellations, both scenarios illustrate the possible material impact on the Bank s financial situation. Against the background of the current developments, a further intensification of the sovereign debt crisis cannot be ruled out. As this could result in significantly higher overall risk, we have taken strategic measures such as the reduction of government bonds to counteract the downstream effects of the sovereign debt crisis. The results show the impact of the stress scenarios on the P&L, the risk-bearing ability as well as on the parameters according to the CRR.

51 WL BANK Annual Report 2015 Management Report Overall picture of the risk situation Risk-bearing ability At the individual bank level, the following risk cover assets, risk limits and potential risks in the going concern case existed in WL BANK as at the reporting date, 31 December 2015: In total, the risk potentials correspond to around 41 % of the scheduled risk cover assets as of 31 December During the year, there was a solid security buffer between the total risk potentials and the risk cover assets. Also for the material risk types, i.e. credit risk, market price risk, liquidity risk, operational risks and reputational risks, the risk potentials were covered by the allocated risk cover assets. The riskbearing ability in the going concern case Risk-bearing ability in the going concern case as of 31 December 2015 (in EUR m) Going concern case in EUR m Risk cover assets I Scheduled risk cover assets I Risk limits Credit risks Market price risks Liquidity risks Operational risks Reputational risks 1.5 Risk potential Credit risks Market price risks Liquidity risks Operational risks Reputational risks 1.0 was guaranteed at all times in Since 31 December 2013, the risk-bearing ability at the individual bank level does not have to be guaranteed anymore due to the application of the waiver. However, as can be seen in the illustration on the left, it would still have been guaranteed at the reporting date and throughout the year 2015 on the basis of WL BANK s own risk cover assets. The risk-bearing ability in the maximum impact case did not exist at the individual bank level in the year under review. Due to the use of the option pursuant to Section 2a KWG in connection with Article 7 (1) of the CRR (so-called waiver rule), the risk-bearing ability at the individual bank level does not have to be guaranteed anymore since 31 December At the Group level, the riskbearing ability was guaranteed at all times in In the event that the waiver rule does not apply because of a possible merger of the cooperative central banks, the risk-bearing ability in the maximum impact case could be restored by a further reduction in the portfolio of foreign government securities and a capital increase on the basis of the intended extension of the precautionary resolutions on the issuance of share capital and participation rights at the Annual General Meeting on 7 June In addition, within the framework of the current merger project, discussions are ongoing with the ECB about maintaining the waiver in the case of a merger Remarkable developments 2015 was characterised by special developments. Further rescue packages for Greece were approved following extensive negotiations. After lowering interest rates in September 2015, the ECB intervened by launching a bond purchase programme with the intention to reach a European target inflation rate of 2 %. The envisaged reform plans for addressing the sovereign debt crisis were delayed due to political elections in several European states. Risk cover assets I Risk limits Scheduled risk cover assets I Risk potential

52 48 WL BANK Annual Report 2015 The fact that the ECB also bought covered bonds under its purchase programme had a positive impact on WL BANK s funding costs. The provision of low-cost liquidity gave an additional boost to our new lending business. After the very positive development in 2015, consolidation on the covered bond market seems likely in 2016, not least due to the expansion of the purchase programme to include further bond classes. The levels will continue to provide a sound and stable basis for the new business in lending. Negative interest rates became the new normal in EONIA swaps up to two years were trading in the negative territory throughout 2015 and reached new lows at the beginning of In April 2015, ten-year swaps reached a historic low of just under 0.45 %. The year was generally characterised by growing uncertainty and a corresponding higher volatility of the markets. In the me - di um and long-term maturity ranges, the European interest rate markets were temporarily trading at 50 % or 150 % of the absolute interest rates seen in January However, at the end of the year they were back at the same level as at the beginning of the year. In 2016, the markets will continue to face challenges at the European level, such as the refugee crisis and the upcoming referendum on Britain s membership of the EU, as well as global economic risks resulting from the economic situation in China and the low oil price. Economic recovery in the United States continued. Having reached an unemployment rate of currently 5 %, the labour market is heading towards full employment. Nevertheless, the Fed did not raise interest rates at the beginning of 2015, as had been expected by the market, but approved its first rate hike only at its meeting in December. The negative effects of the weak state of the global economy, in particular due to lower growth rates in China, and the collapse in energy prices involved the risk of an excessive appreciation of the dollar. That is why the Federal Reserve took a cautious approach. Given the ongoing risks to the US economy, America s central bank will act very cautiously in 2016, too. In view of the unresolved issues in Europe and the Fed s wait-and-see attitude, another year of low interest rates is to be expected. The environment for continued good margins in WL BANK s core business areas seems stable. In view of the unresolved issues in Europe and the Fed s wait-and-see attitude, another year of low interest rates is to be expected. The environment for continued good margins in WL BANK s core business areas seems stable. 5 Opportunity report As part of its economic and regulatory capital planning, WL BANK forecasts the development of risk and capital ratios for a period of five years. For this purpose, WL BANK assumes different Group-wide scenarios suggesting different economic developments. They show that the risk-bearing ability in the going concern case would be guaranteed even if the forecast risk potentials under stress conditions occurred. Strengthening of the risk cover assets from generated surpluses under the assumed scenarios is intended through the allocations to reserves pursuant to Sections 340f and 340g of the German Commercial Code. In particular Pfandbriefe are used as an investment instrument by a large number of investors. The current operating liquidity position can be regarded as comfortable and does not allow any conclusions about liquidity squeezes in the near future. Given the current positive market conditions, WL BANK is still able to take advantage of favourable funding opportunities in order to achieve a steady improvement in its structural liquidity position. In the real estate business, WL BANK still sees opportunities for a solid and sustained business development. In the real estate business, WL BANK still sees opportunities for a solid and sustained business development while maintaining its conservative lending guidelines. In order

53 WL BANK Annual Report 2015 Management Report 49 to prevent risks from excessive increases in market value, customers are often required to contribute more equity or additional collaterals in the financing. In the public sector business, we also see a good chance that the current trend will continue. In the Pfandbrief treasury business and in the issuance of its Pfandbriefe, WL BANK will continue to benefit from the good quality of the cover pools, due in particular to the conservative lending guidelines and the broad access to investors, and will thus be able to maintain its favourable funding conditions. WL BANK sees a possible merger of the two cooperative central banks as an opportunity to achieve even better access to the local credit cooperatives, which would result in a further increase in the brokerage business. In the future, WL BANK will continue to further expand and optimise its management methods while taking account of Group-wide guidelines. Through proactive action, particularly with regard to changes in supervisory requirements, WL BANK positions itself as a future-proof and opportunity-oriented specialist institution. WL BANK operates in certain strategic business areas as agreed with the Group and thus contributes its core competencies to achieve the Group targets. The Bank assumes that it will be able to further increase its earnings power. WL BANK sees a possible merger of the two cooperative central banks as an opportunity to achieve even better access to the local credit cooperatives, which would result in a further increase in the brokerage business. 6 Internal control and risk management system with regard to accounting Daily accounting tasks as well as the preparation of monthly financial statements or of quarterly, semi-annual and annual financial statements are based on internal work instructions, the accounting rules of the German Commercial Code as well as the accounting guidelines of the BVR. The foureye principle, timely plausibility checks of the values through close coordination between controlling and accounting, as well as permanent reconciliation between general ledger and sub-ledgers are components of the internal control system. Balance notifications (statements of account) are provided to banks and customers on an annual basis and serve as an additional important control instrument. They are dispatched by Fiducia & GAD IT AG and the Portfolio Service unit under the control of the Internal Audit department as a neutral body. In addition, the Accounting department has independent access to the decisive valuation parameters. Payment transactions are organised centrally in the Accounting department. Entries in the general ledger are also carried out centrally. Documentation within the framework of the year-end accounting work is comprehensible, and statutory retention periods are adhered to. The processes in the Accounting department are generally subject to permanent control with regard to new regulations and adjusted if necessary. A representative of the Accounting department regularly takes part in meetings of WL BANK s Legal Issues working group, in which legal issues are identified and responsibilities for their implementation are defined. The Finance department is involved in the new product process at an early stage in order to guarantee the correct accounting-related presentation. Technically, accounting is represented in the bank21 core banking system and the financial statements are prepared with the bank21-finanzen module of Fiducia & GAD IT AG, the partner in the cooperative financial services network. Besides that, we use standard software as well as in-house developed software on the basis of Microsoft Office applications. The latter are subject to an organised software development process and are categorised and documented by risk relevance.

54 50 WL BANK Annual Report 2015 The access regulations for both bank21/ bank21-finanzen and the other applications are clearly defined in accordance with the respective competences. The structure and process organisation is explained in detail in WL BANK s organisation handbook. It includes reference to both technical documentations and user documentations. In addition, the Internal Audit department carries out regular and subject-based tests. The test records are made available to the Group Audit department. 7 Outlook and forecast Estimates for German economic growth in 2016 are 1.7 % (IMF), 1.8 % (Deutsche Bundesbank), and 1.9 % (ifo Institute). Private consumption, which is supported by rising government spending in connection with the inflow of refugees, will continue to be the main driver of growth. In the euro zone, the expected growth is 1.7 %, according to an IMF forecast. For the global economy, the World Bank expects growth of 3.4 % in In 2015, the number of employed people reached its highest level since the reunification, as negative demographic effects were offset by the immigration of foreign workers. On an annual average, almost 43 million people residing in the Federal Republic of Germany were employed last year. This trend is expected to continue in As in the previous years, the forecast is subject to risks primarily in the international environment. The inflation outlook for 2016 remains subdued: inflation rates are likely to increase only slowly, so that the ECB s price target of just under 2 % will remain unachievable. Given the low inflation rates, the ECB will continue its policy of monetary easing in It has extended its bond purchase programme until the end of March Given the low inflation rates, the ECB will continue its policy of monetary easing in It has extended its bond purchase programme until the end of March Additional measures cannot be ruled out if the inflation rate continues to fall could become a decisive year for the savings and reform process in the euro zone. It will be important to see whether the budget consolidation policy will continue in a changing political landscape or whether individual countries will stray away from the reform path. In the United States, the low oil price will boost consumption on the back of purchasing power gains. On the other hand, the oil price decline puts great pressure on the fracking industry and its supplier industries while hampering corporate investment activities. In addition, the falling oil prices are having a negative impact on headline consumer price inflation, which is why the inflation forecasts for 2016 are likely to be revised downwards. Against this background, the Fed is expected to start just a slow rate hike cycle, i.e. its key interest rate will be raised only slightly. The next interest rate moves will probably be a constant balancing act for the US central bank, because during the current upswing, it has to raise interest rates to a sufficiently high level to be able to respond to the next crisis by lowering interest rates substantially. The German construction industry forecasts an increase in revenues of 3.0 % in Top representatives of the Main Association of the German Construction Industry (Hauptverbandes der Deutschen Bauindustrie, HDB) and of the Central Association of German Construction Companies (Zentralverband Deutsches Baugewerbe, ZDB) expect higher construction activities, saying this is partly due to the inflow of refugees. The main impetus in 2016 will once again come from residential construction. In this sector, the associations expect an increase in revenues of 5 %. An increase of 4 % is predicted for public construction. As for the construction of office buildings, factories and other buildings used for commercial purposes, the industry representatives anticipate stagnating revenues. However, conditions in the construction industry continue to be favourable due to good labour market data and financing terms. Also in 2015, we continued to systematically pursue the shift of WL BANK s strategic emphasis towards a real estate bank that

55 WL BANK Annual Report 2015 Management Report 51 Also in 2015, we continued to systematically pursue the shift of WL BANK s strategic emphasis towards a real estate bank that we had initiated in we had initiated in Success factors for achieving our strategic targets still include the nationwide access to customers in combination with a strong brokerage business with the Volksbanken and Raiffeisenbanken as well as the constantly favourable funding opportunities, especially in the form of the Pfandbrief. The latter continues to prove to be crisis-proof and reliable. The direct access to capital market partners and the great confidence placed in us by investors are key components of the favourable funding opportunities. A day-by-day comparison of the spread data for jumbo Pfandbriefe shows that, in a benchmark comparison, WL BANK still ranks among the issuers with low funding rates. In the 2016 financial year, WL BANK s real estate financing portfolio is to be further expanded. The target is to achieve an increase in the volume of new business to EUR 3.77 billion compared with the previous year s target figure of EUR 2.93 billion. At the moment, WL BANK s organisational structure is not affected by the on going talks about a possible merger between WGZ BANK and DZ BANK. Nevertheless, impact analyses are currently being conducted in order to assess the consequences of a merger for WL BANK with regard to the departments and functions concerned as well as to the technical connections. WL BANK is closely involved in the company valuation process. The domination and profit and loss transfer agreement with WGZ BANK, which will expire on 31 December 2016, is planned to be extended or renewed at the ordinary general meetings in Now that the ECB has taken over supervision of WGZ BANK, the WGZ BANK Group is still facing new challenges both from a professional and technical perspective. It can be observed that the complexity and extent of supervisory consultation papers and publications are significantly increasing. This has led to Group-wide projects, such as BCBS 239: Risikodatenaggregation und Risikoberichterstattung (risk data aggregation and risk reporting) or AnaCredit. In the 2016 financial year, WL BANK s real estate financing portfolio is to be further expanded. The target is to achieve an increase in the volume of new business to EUR 3.77 billion compared with the previous year s target figure of EUR 2.93 billion. Margins are to remain at least at the level of the actual average margin of the 2015 financial year. In the medium term, the merger of the data centres in the cooperative financial services network will create a uniform system for all Volksbanken and Raiffeisenbanken. Already in 2015, WL BANK deployed the new agree- BAP core banking system for sales activities in the business within the cooperative financial services network, which is operated by Fiducia & GAD IT AG. The process integration will bring a new quality into the cooperation with the Volksbanken and Raiffeisenbanken affiliated to the system. The redundancy-free processing of loans provides considerable process advantages. Brokerage of real estate loans to WL BANK via the basic banking system, agreebap, which has already been implemented for the Volksbanken and Raiffeisenbanken affiliated to bank21, has been possible since mid In 2016, further Volksbanken and Raiffeisenbanken will use agreebap in their brokerage business. In the business with public sector clients, a further widening in the gap between financially weak and financially strong municipalities is expected. As in the previous year, a new business volume of EUR 1 billion with a constant portfolio of around EUR 7.5 billion to EUR 8 billion is planned for Given the decreasing effects from the strategic reduction of the securities portfolio in the previous years and the expansion of the customer business, an increase of around 21 % in net interest and net commission income is expected in Administrative expenses will rise by around 19 % due to the increase in personnel resulting from the

56 52 WL BANK Annual Report 2015 successful new business, investments in the IT infrastructure, project costs and in particular the European bank levy. Charges from the European bank levy are accounted for in the planned administrative expenses at EUR 15 million. According to current estimates, the costincome ratio (CIR) including European bank levy will decline to 54.7 % in Without taking the bank levy into account, the planned CIR for 2016 is 43.7 %. In the following years, WL BANK also anticipates a further decline in the CIR as a result of the positive effects of new customer business and the disproportionately lower increase in costs. Despite the continued low default rates and the, on average, high shares of real estate loans in the real estate lending business, risk provisioning is planned conservatively on the basis of the expected loss (EL). WL BANK continues to assume a stable development of risk provisioning in the lending business. The risk result is expected to remain at the level of the last financial year. At the bottom line, a significant increase in surpluses before income tax and profit transfer or profit retention opportunities is planned in 2016 and the following years. The balance sheet total will amount to around EUR 37.5 billion in 2016, which is a slight increase compared with The balance sheet item at the end of 2015 establishes the lower limit for the coming years, as the increase in new business in real estate lending and in the business with public sector clients is expected to more than offset the reduction in the securities and promissory note loan business. As a result of these developments, return on equity before taxes and allocations to reserves will probably amount to 11 % at the end of 2016 and rise further in the following years. At the bottom line, a significant increase in surpluses before income tax and profit transfer or profit retention opportunities is planned in 2016 and the following years. The IFRS result before tax is projected to decline compared to the level of the last financial year due to the credit quality effects to be expected in The liquidity position will continue to be adequate. The capital ratios according to CRR calculated for internal purposes are expected to be above the minimum requirements. The number of employees will continue to grow due to the planned increase in new business and the regulatory challenges. It is assumed that the staff turnover rate can be maintained at the low level of the previous years. The number of employees will continue to grow due to the planned increase in new business and the regulatory challenges. The precautionary resolutions on the issuance of share capital and participation rights expiring on 5 July 2016 are to be extended by higher amounts at the Annual General Meeting on 7 June 2016 in order to be able to meet the increased regulatory requirements. The new precautionary resolutions shall expire on 6 June Early extension of the domination and profit and loss transfer agreement with WGZ BANK, which was concluded at the end of 2011 and will expire on 31 December 2016, by 6 years, is also to be put to the vote at this year s Annual General Meeting. In case of a merger of the two cooperative central banks, the agreement will be transferred to the legal successor, DZ BANK Die Initiativbank.

57 WL BANK Annual Report 2015 Management Report 53 8 Disclaimer on forward-looking statements This Annual Report contains forward-looking statements relating to WL BANK s business and earnings development that are based on current plans, expectations and forecasts. These statements typically involve risks and uncertainties. There are a variety of factors, many of which are beyond our control, which affect our operations. These include, above all, the economic development, the price development in the real estate market, the further development of the financial and capital markets in general and our funding conditions in particular, as well as unexpected defaults of our borrowers. Thus, the actual results and developments may differ materially from our current assumptions. Münster, 17 March 2016 WL BANK AG Westfälische Landschaft Bodenkreditbank Frank M. Mühlbauer (Chairman) Dr. Carsten Düerkop

58 54 WL BANK Annual Report 2015

59 WL BANK Annual Report 2015 Notes 55 Balance Sheet as of 31 December 2015

60 56 WL BANK Annual Report 2015 Balance Sheet as of 31 December 2015 Assets as of 31 December 2015 in EUR in EUR in EUR in EUR in EUR Cash reserves 268, a) Cash on hand 68, b) Balances with central banks 200, including: with Deutsche Bundesbank 200, Claims on banks 2,368,832, ,457,242 a) Mortgage loans 4,426, ,474 b) Public sector loans 463,837, ,323,589 c) Other claims 1,900,568, ,129,179 including: payable on demand 1,630,435, ,922,811 against lending on securities Claims on customers 28,227,293, ,000,464 a) Mortgage loans 17,931,595, ,999,001 b) Public sector loans 10,261,921, ,976,622 c) Other claims 33,776, ,841 including: against lending on securities Bonds and other fixed-interest securities 6,028,495, ,678,590 a) Bonds and notes 6,007,235, ,636,227 aa) issued by public sector issuers 4,338,172, ,732,841 including: eligible as collateral for Deutsche Bundesbank advances 4,210,550, ,611,034 ab) issued by other issuers 1,669,063, ,903,386 including: eligible as collateral for Deutsche Bundesbank advances 1,592,882, ,860,497 b) Bonds issued by the Bank 21,260, ,363 nominal amount 20,793, , Equity investments in affiliated companies 387, including: in banks in financial services institutions Trust assets 1,771, ,655 including: trust loans 1,771, ,655 to carry forward 36,627,050, ,139,025

61 WL BANK Annual Report in EUR in EUR in EUR in EUR in EUR the amount carried forward 36,627,050, ,139, Intangible assets 298, a) Acquired concessions, industrial property rights and similar rights and assets, as well as licences to such rights and assets 298, Tangible fixed assets 13,073, , Other assets 33,663, , Deferred items 63,740, ,578 a) From issuing and loan business 63,374, ,281 b) Other 366, Total assets 36,737,826, ,239,459

62 58 WL BANK Annual Report 2015 Balance Sheet as of 31 December 2015 Liabilities as of 31 December 2015 in EUR in EUR in EUR in EUR in EUR Liabilities to banks 7,237,946, ,130,464 a) Registered mortgage Pfandbriefe issued 1,239,897, ,137,935 b) Registered public sector Pfandbriefe issued 554,697, ,292 c) Other liabilities 5,443,351, ,417,237 including: payable on demand 1,361, ,943 registered mortgage Pfandbriefe given to lenders as security for loans taken up 56, and registered public sector Pfandbriefe given to lenders as security for loans taken up Liabilities to customers 14,729,454, ,075,286 a) Registered mortgage Pfandbriefe issued 5,089,996, ,519,139 b) Registered public sector Pfandbriefe issued 7,979,442, ,647,819 c) Other liabilities 1,660,015, ,908,328 including: payable on demand 43,994, ,182 registered mortgage Pfandbriefe given to lenders as security for loans taken up and registered public sector Pfandbriefe given to lenders as security for loans taken up Securitised liabilities 14,085,089, ,331,224 a) Bonds and notes issued 14,085,089, ,331,224 aa) mortgage Pfandbriefe 7,896,693, ,882,739 ab) public sector Pfandbriefe 3,031,180, ,066,735 ac) other bonds and notes 3,157,216, ,381, Trust liabilities 1,771, ,655 including: trust loans 1,771, , Other liabilities 39,946, , Deferred items 65,884, ,923 a) From issuing and loan business 65,853, ,895 b) Other 30, to carry forward 36,160,094, ,654,959

63 WL BANK Annual Report in EUR in EUR in EUR in EUR in EUR the amount carried forward 36,160,094, ,654, Provisions 47,849, ,616 a) Pensions and similar commitments 30,456, ,433 b) Tax provisions 155, c) Other provisions 17,237, , Subordinated liabilities 152,000, ,000 including: due within the next two years 20,000, , Capital with participation rights ,000 including: due within the next two years , Fund for general banking risks 22,800, , Equity capital 355,083, ,084 a) Subscribed capital 85,376, ,376 b) Capital reserves 153,107, ,108 c) Revenue reserves 116,600, ,600 ca) statutory reserve 700, cb) other revenue reserves 115,900, ,900 d) Profit for the year Total liabilities 36,737,826, ,239,459 in EUR in EUR Contingent liabilities a) Liabilities from guarantees and indemnity agreements 26,463, , Other commitments a) Irrevocable credit commitments 2,162,452, ,675,570

64 60 WL BANK Annual Report 2015 Being available and having access to relevant information when on the go is essential for me. How good that there are mobile phones and laptops! Matthias Brauner Regional director Real Estate Loan Business, Sales and head of representative office Berlin

65 WL BANK Annual Report 2015 Notes 61 Profit and Loss Account from 1 January to 31 December 2015 Expenses and Income from 1 January to 31 December 2015 in EUR 2015 in EUR 2015 in EUR 2015 in EUR in EUR in EUR Interest income from a) Lending and money market transactions 974,765, ,047,726 b) Fixed-interest securities and government inscribed debt 164,980, ,139,746, ,847 1,253, Interest paid 980,173, ,573, ,130, , Commission income 1,530, Commission paid 47,387, ,857, ,445-29, Other operating income 2,546, , General administrative expenses a) Personnel expenses aa) wages and salaries 22,831, ,963 ab) social security contributions and expenses for pensions and other employee benefits 5,132, ,963, ,596 25,559 including: for pensions EUR 1,512, (1,268) b) Other administrative expenses 33,389, ,353, ,614 50, Depreciation and value adjustments on intangible and tangible fixed assets 787, Other operating expenses 3,723, , Write-downs and value adjustments on loans and certain securities as well as allocations to loan loss provisions 58,759, , Income from write-ups to investments, holdings in affiliated companies and securities treated as fixed assets 32,050, , Result from ordinary business activities 23,688, , Taxes on income and profit -19,214, ,984 thereof from tax contributions EUR 20,051, (8,913) 13. Other taxes not shown under item 8-205, ,419, , Profit transferred under a profit transfer agreement 4,268, , Net profit Profit for the year

66 62 WL BANK Annual Report 2015 Notes General information The annual financial statements of WL BANK AG Westfälische Landschaft Bodenkreditbank (in short WL BANK) were prepared according to the accounting rules of the German Commercial Code (Handelsgesetzbuch, HGB), taking into consideration the specific legal form requirements and sectoral regulations of the German Stock Corporation Act (Aktiengesetz, AktG), the German Banking Act (Kreditwesengesetz, KWG), the German Pfandbrief Act (Pfandbriefgesetz, PfandBG) and the German Accounting Directive for Banks and Financial Services Providers (Verordnung über die Rechnungslegung der Kredit- und Finanzdienstleistungsinstitute, RechKredV). On 25 October 2011, WL BANK and WGZ BANK AG Westdeutsche Genossenschafts-Zentralbank, Düsseldorf (in short WGZ BANK) entered into a domination and profit and loss transfer agreement with retroactive effect from 1 January The domination and profit and loss transfer agreement has a fixed term of six years. During the fiscal unity period, WL BANK (the controlled company) is obliged to transfer its total profit to WGZ BANK (the controlling company) according to 301 of the German Stock Corporation Act (Aktiengesetz, AktG). In accordance with 304 AktG, outside minority shareholders are paid a fixed compensation/guaranteed dividend by WGZ BANK irrespective of WL BANK s result. In return, WGZ BANK, as the controlling company, is obliged to compensate any annual loss of the controlled company occurring during the term of the agreement pursuant to the provisions of 302 AktG to the extent that such loss is not compensated by withdrawing amounts from the other revenue reserves which were transferred to such reserves during the term of the agreement. On 23/30 December 2013, WL BANK and WGZ BANK entered into a tax compensation agreement. WGZ BANK is entitled to impose a levy on WL BANK for income taxes incurred at WGZ BANK (corporation tax plus surcharges, in particular solidarity surcharge and trade tax). WL BANK commits itself to pay the respective due levy to WGZ BANK. Accounting and valuation principles Cash reserves, claims on banks and on customers, other claims, trust assets and other assets generally appear at acquisition cost less individual and overall value adjustments. In accordance with 340e (2) of the German Commercial Code, the difference between the amount actually paid out and the nominal amount is shown under deferred items and is deferred pro rata temporis. All recognisable individual risks in the lending business have been adequately accounted for by the creation of individual value adjustments and provisions. For latent risks, overall value adjustments have been made. The overall value adjustment under German Commercial Law is calculated according to a future-oriented procedure on the basis of credit structure data (expected loss). In addition, there are contingency reserves pursuant to 340f of the German Commercial Code. When reporting risk provisioning, we made use of the possibility of cross-compensation of all income and expenses pursuant to 340f (3) as well as 340c (2) of the German Commercial Code. Bonds and notes which are allocated to the portfolio treated as fixed assets are valued at the mitigated lower-of-cost-or-market principle at continued acquisition costs. In the case of an expected permanent decline in value, write-downs will be made on the lower fair value at the balance sheet date. The other bonds and notes have been allocated to the liquidity reserve. They are valued at

67 WL BANK Annual Report 2015 Notes 63 the strict lower-of-cost-or-market principle and carried at acquisition cost or lower fair value. Overall value adjustments have been made for latent risks in bonds and notes. Most of the bonds and notes treated as fixed assets are stated as ordinary or supplementary cover assets in the cover statement. The difference between historical costs and the amount payable will be included in the interest income over remaining terms. Reclassifications from the liquidity reserve to fixed assets are carried out in accordance with IDW RH HFA Fixed-interest securities that were bought together with an interest rate swap agreement are stated at their nominal value, setting off an upfront payment from the interest rate swap agreement linked to the fixed-interest security. The fair values have been determined on the basis of current market prices. If there is no active market, the valuation is carried out according to the discounted cash flow method, where the expected cash flows are discounted, allowing for the current swap rates as well as the respective relevant credit spreads, to arrive at their net present value. Investments in and credit balances with cooperatives are carried at acquisition cost or lower fair value. In accordance with the principles of orderly accounting (Grundsätze ordnungsmäßiger Buchführung, GoB), the limited partner s shares received as part of the inclusion of Fiducia & GAD IT AG shares into GAD Beteiligungs GmbH & Co. KG were capitalised according to exchange principles with continuation of book values. The shares of Fiducia & GAD IT AG were created during the financial year through the merger of GAD eg into Fiducia IT AG. The shares were also capitalised according to exchange principles with continuation of book values. In accordance with 253 (1) and (3) of the German Commercial Code, intangible and tangible fixed assets have been stated at acquisition cost reduced by regular depreciations on a straight-line basis and, where required, by unscheduled depreciation. The depreciations are calculated on a monthly basis in accordance with the expected useful economic lives. Minor-value intangible and tangible assets with acquisition costs, reduced by a pre-tax charge included therein, of more than EUR 150 and up to EUR 1,000 are combined in a compound item and depreciated on a straight-line basis and for a period of five years. Assets with acquisition costs of up to EUR 150 are fully charged to expenditure in their year of acquisition. In accordance with 253 (1) sentence 2 of the German Commercial Code, liabilities are stated at the amount at which their settlement will take place. The difference between the nominal amount and the issue price of liabilities is shown under deferred items and is deferred pro rata temporis. Zero bonds are stated at their price on issue plus pro rata interest in line with the yield on issue. For uncertain liabilities, provisions were made at the settlement amount being necessary according to reasonable commercial assessment. Provisions with a residual term of more than one year are discounted with the average market interest rate of the last seven years corresponding to their maturity according to 253 (2) of the German Commercial Code. Pension provisions have been made according to the projected unit credit method at their actuarial present value using a discount rate of 3.89 %, a rate of salary increase of 3.0 % per year, a rate of pension increase of 2.0 % per year as well as a labour turnover rate of 5.0 % per year. Valuation has been made on the basis of the actuarial

68 64 WL BANK Annual Report 2015 tables Richttafeln 2005 G by Prof. Klaus Heubeck. The discount rate corresponds to the average market interest rate of the past seven financial years with an assumed residual term of 15 years as published by Deutsche Bundesbank in accordance with 253 (2) of the German Commercial Code. Assets, liabilities and off-balance-sheet transactions denominated in foreign currency have been allocated to special cover funds in accordance with 340h of the German Commercial Code and translated in accordance with 256a of the German Commercial Code at the mean spot exchange rate at year-end (30 December 2015). The resulting balance sheet translation differences compared to a translation at the mean spot exchange rate as of 31 December 2015 are of minor significance. Forward exchange contracts that were entered into to hedge interest-bearing balance sheet items are translated by splitting the forward rate into its components, spot rate and swap rate, in accordance with IDW RS BFA statement 4. Off-balance-sheet transactions that were not entered into in connection with interestbearing balance sheet items are translated at the forward rate on the balance sheet date. bonds issued as well as pending transactions is grouped with financial instruments into valuation units (micro hedges) in accordance with 254 of the German Commercial Code, whose changes in value largely offset each other with respect to the hedged risk (interest rate risk). The net hedge presentation method ( Einfrierungsmethode ) was used to report the effective parts of the valuation units in the balance sheet. The interest-bearing operations that are allocated to the banking book including interest rate derivatives to hedge the general interest rate risk were valued without losses and taking account of the economic relationship between these financial instruments. In accordance with IDW RS BFA 3, the book value of the banking book was compared with the net present value of the banking book under a net present value approach in order to determine if there are, on balance, any unrealised losses in the banking book. Risk costs and administrative expenses expected to be incurred were taken into account in the examination. According to the result of the examination, there is no need to make any provisions as of the balance sheet date. The expenses resulting from the currency translation are included in the profit and loss account. Income from the currency translation is included only to the extent that it is based on particularly hedged transactions in accordance with 340h of the German Commercial Code. The results from the currency translation are shown in the profit and loss account in accordance with the other valuation results of the respective transaction. Interest rate option premiums received or paid are stated under other liabilities or other assets and recognised through profit or loss at maturity in the net interest income. In order to compensate for opposite changes in value from comparable risks, an organisationally defined number of bonds and notes, claims, registered Pfandbriefe and

69 WL BANK Annual Report 2015 Notes 65 Notes to the balance sheet Breakdown according to residual terms of validity Assets in EUR Claims on banks 2,368,833 3,457,242 payable on demand 1,630,435 1,922,812 up to three months 283, ,310 more than three months and up to one year 32, ,207 longer than one year and up to five years 268, ,251 longer than five years 153, ,662 Claims on customers 28,227,294 27,000,464 payable on demand 25,388 67,541 up to three months 694, ,997 more than three months and up to one year 1,439,384 1,614,996 longer than one year and up to five years 6,068,605 5,976,802 longer than five years 19,999,356 18,659,989 of unspecified maturity Bonds and other fixed-interest securities 6,028,496 7,678,590 Amounts falling due in the year after the balance sheet date 457, ,553 Liabilities in EUR Liabilities to banks 7,237,947 9,130,464 payable on demand 1, ,943 up to three months 1,828,407 3,822,644 more than three months and up to one year 623,930 1,360,148 longer than one year and up to five years 2,506,606 1,653,190 longer than five years 2,277,642 2,149,539 Liabilities to customers 14,729,455 15,075,286 payable on demand 43,995 50,183 up to three months 465, ,950 more than three months and up to one year 483, ,250 longer than one year and up to five years 3,181,638 3,488,051 longer than five years 10,554,460 10,456,852 Securitised liabilities 14,085,090 13,331,224 Amounts falling due in the year after the balance sheet date 2,546,378 2,092,512

70 66 WL BANK Annual Report 2015 Claims on/liabilities to affiliated companies in EUR Claims on banks 134,961 66,217 Other assets Liabilities to banks 864, ,946 Other liabilities 27,821 17,220 Subordinated liabilities 90,000 90,000 Claims/liabilities denominated in foreign currencies Assets include EUR 150,534 thousand (previous year: EUR 184,988 thousand) and liabilities include EUR 115,932 thousand (previous year: EUR 105,398 thousand) in foreign currencies. Securities and investments marketable on the stock exchange in EUR listed on the stock exchange 2015 not listed on the stock exchange 2014 listed on the stock exchange 2014 not listed on the stock exchange Bonds and other fixed-interest securities 5,957,099 71,397 7,622,925 55,665 Equity investments in affiliated companies Of the bonds and other fixed-interest securities which have been allocated to the portfolio valued like fixed assets and are clearly identified in the inventory system, a book value of EUR 902,802 thousand is not valued with the lower fair value as of the balance sheet date. The fair value of these securities amounts to EUR 813,214 thousand. Unscheduled depreciation has not been carried out, because on the basis of the results available at the time of the preparation of these annual financial statements, we do not expect a permanent decline in value. Hidden losses from fixed-interest securities issued by European countries that have been hit particularly hard by the European sovereign debt crisis (so-called PIIGS countries) are of minor significance. WL BANK will continue with its efforts to reduce the portfolio of these securities. In our securities portfolio which does not include any securities in connection with securitisation transactions we do not expect any loan losses or other defaults. We generally intend to keep bonds and other fixed-interest securities which have been allocated to the portfolio valued like fixed assets in the portfolio until their final maturity. At the moment, we see no circumstances that are opposed to our intention to hold the securities. Own bonds While registered bonds are immediately derecognised at the time of purchase, our portfolio still included bearer bonds with a volume of EUR 21,261 thousand at the end of the year (previous year: EUR 42,363 thousand) as part of our secondary market support operations.

71 WL BANK Annual Report 2015 Notes 67 Trustee operations in EUR Trust assets Claims on customers 1,771 2,655 Trust liabilities Liabilities to banks 1,770 2,654 Liabilities to customers 1 1 Other assets/other liabilities Other assets (EUR 33,664 thousand) include, as a major item, the contra entry to the income from positive translation differences of particularly hedged foreign currency and forward transactions in the amount of EUR 26,018 thousand as well as a cash deposit with Deutsche Bundesbank in the amount of EUR 4,036 thousand. In accordance with 12 (5) of the Act for the Establishment of a Restructuring Fund for Credit Institutions (Gesetz zur Errichtung eines Restrukturierungsfonds für Kreditinstitute, RStruktFG), WL BANK has been given permission to make 30 % of the stipulated 2015 annual contribution to the restructuring fund by means of a cash deposit. Other liabilities (EUR 39,947 thousand) mainly include tax liabilities due to the tax compensation agreement concluded with WGZ BANK (EUR 20,051 thousand), premiums earned (EUR 4,995 thousand) as well as deferred interest of the subordinated liabilities (EUR 4,957 thousand). In addition, other liabilities include the liability to WGZ BANK resulting from the profit transfer for the 2015 financial year (EUR 4,269 thousand). Assets pledged as security Within the framework of open-market transactions with the European Central Bank (EUR 900,000 thousand), securities and loan receivables were pledged or assigned. Within the framework of real securities repurchase agreements (repo transactions), securities with a book value of EUR 1,310,605 thousand (previous year: EUR 2,716,925 thousand) were sold. As security for loans raised from banks, claims under loan agreements amounting to EUR 1,103,288 thousand (previous year: EUR 1,087,574 thousand) were assigned. In addition, cash deposits amounting to EUR 1,536,992 thousand (previous year: EUR 1,876,670 thousand) were provided within the framework of collateral agreements for financial futures. Deferred items from the issuing and loan business in EUR Assets 10a 63,374 62,281 Discount received from liabilities 48,980 36,329 Premiums from claims 9,102 21,303 Other deferred items 5,292 4,649 Liabilities 6a 65,854 77,895 Premiums from liabilities 29,355 24,345 Discount from claims 16,239 18,316 Other deferred items 20,260 35,234

72 68 WL BANK Annual Report 2015 Development of fixed assets in EUR 000 Acquisition and production costs Additions 2015 Disposals 2015 Write-ups 2015 Write-downs Residual book value on accumulated Intangible assets a) Software Tangible fixed assets 20, , ,074 13,262 a) Land and buildings 15, , ,766 12,046 b) Office fixtures, fittings and equipment 5, , ,243 1,216 c) Advance payments made and assets under construction Financial assets 7,209,982-1,436,678 5,773,304 7,209,982 Changes total (+/-) a) Bonds and notes 7,209,931-1,437,015 5,772,916 7,209,931 b) Equity investments in affiliated companies Land and buildings for the Bank s own use had a net book value of EUR 11,118 thousand (previous year: EUR 11,372 thousand). In the presentation of the development of financial assets, amounts have been aggregated as permitted by 34 (3) of the RechKredV. Subordinated assets The balance sheet item other claims on banks includes subordinated assets in the amount of EUR 2,000 thousand (previous year: EUR 2,000 thousand). Other provisions In contrast to the previous year, commitments from commission agreements for partially disbursed loans in the amount of EUR 3,729 thousand are recognised in other liabilities to banks (Liabilities 1c). In the 2014 financial year, this item amounted to EUR 2,324 thousand and was recognised under other provisions. The previous year s figure has not been adjusted in the balance sheet. Contingent liabilities Contingent liabilities contain guarantees made within the framework of the lending business in the amount of EUR 25,677 thousand (previous year: EUR 33,521 thousand).

73 WL BANK Annual Report 2015 Notes 69 Other commitments The irrevocable credit commitments shown are commitments for: in EUR Mortgage loans 2,094,600 1,656,728 Public sector loans 61,608 15,392 Guarantee credits 6,244 3,450 Total 2,162,452 1,675,570 For credit granting and processing, including the constant monitoring of financing, WL BANK uses sophisticated systems that correspond to its individual business profile and allow the Bank to comprehensively assess its default risks under its own responsibility. Intensity and frequency of the assessment and the corresponding necessary documents are stipulated in accordance with the type, extent, complexity and risk of the transactions. Within the framework of the initial and ongoing credit assessment, the borrower s capacity to meet principal payments is checked, a rating is determined and the borrower s potential credit risks are assessed on a risk-oriented basis. The rating shows the customer s likelihood of default for the following 12 months. In the case of longer-term undrawn commitments, the borrower s creditworthiness is again assessed separately before the loan is disbursed. Apart from credit monitoring, the collateralisation of the properties financed by us by way of a real estate lien is an essential element of risk reduction. The valuation of the properties serving as security is made in accordance with the strict provisions of the Pfandbrief Act in combination with the Mortgage Lending Value Regulation, and is the prerequisite for the high quality demands of Pfandbrief coverage. Analogous to the requirements of 18 of the German Banking Act (Kreditwesengesetz, KWG) regarding the continuous disclosure of the borrower s financial circumstances, the performance of the properties serving as security is also monitored on a regular basis in accordance with Article 208 of the CCR; in addition, internally defined early warning indicators allow for the early identification of possible risk increases. In the case that a credit and/or collateral deterioration becomes apparent, a review is made as to whether the financing continues to comply with all disbursement requirements. If the borrower s creditworthiness has deteriorated, the Bank shall have the right to refuse the disbursement. If the loan has already been disbursed, risk provisioning in the amount of the assumed or expected loss will be considered. Drawdown of the loan commitments is to be expected. Against the background of the above-mentioned measures, the likelihood of risk provisioning needs arising from contingent liabilities or other liabilities is considered to be low. For latent risks, overall value adjustments have been made on the basis of credit structure data (expected loss). Other financial commitments Other financial commitments from rental and lease agreements amount to EUR 740 thousand per year. Of this amount, there are commitments to affiliated companies of EUR 92 thousand. The rental and lease agreements have a maximum duration of five years. Our Bank is a member of the protection scheme existing at the Federal Association of German Volksbanken and Raiffeisenbanken (Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.v., BVR). According to the statutes of the protection scheme, we have provided a guarantee bond to the BVR. This includes the possibility of an obligation of EUR 12,496 thousand. Moreover, there is a contribution guarantee to BVR-ISG in accordance with 7 of the declaration of accession and commitment to the bank-related protection system of the BVR Institutssicherung GmbH (BVR-ISG). This concerns annual contributions to reach the target level or payment obligations, special contributions and special payments, in case the available financial resources do not suffice to compensate the depositors of a CRR credit institution belonging to the bank-related protection system in the compensation case, as well as replenishment obligations after funding measures.

74 70 WL BANK Annual Report 2015 Deferred taxes As for the calculation of deferred taxes for the controlling company, the consequences are as follows. WL BANK has no deferred tax liabilities. Due to the fiscal unity scheme with WGZ BANK, deferred tax assets cannot be stated at WL BANK. The calculation of deferred taxes for the controlling company was based on a tax rate of 31.9 %. Subordinated liabilities Nominal amount in EUR 000 Interest rate in % p.a. Maturity Expenses 2015 in EUR 000 up to 10 % of the aggregate amount 62, from to ,970 more than 10 % of the aggregate amount 90, ,486 Total 152, According to the terms of the contract, no early repayment obligations may arise for the subordinated liabilities. A conversion into another type of debt or into equity capital is not planned. The expenses 2015 item refers to payments and pro rata interests reported under other liabilities. Capital with participation rights As of 31 December 2015, WL BANK had no participation rights in its portfolio. Interest paid on participation rights capital repaid in the 2015 financial year amounted to EUR 71 thousand. The Management Board is authorised to issue participation rights of up to EUR 130,000 thousand at usual market terms in the period to 5 July Subscribed capital and reserves in EUR Subscribed capital (share capital) 85,376 as of ,376 additions 0 Capital reserves 153,108 as of ,108 additions 0 Revenue reserves 116,600 Statutory reserves 700 as of additions 0 Other revenue reserves 115,900 as of ,900 additions 0 Total 355,084 The share capital is divided into 166,750 registered individual share certificates. The Management Board is authorised, with the consent of the Supervisory Board, to increase the share capital on one or several occasions in the period to 5 July 2016 by up to a total of EUR 30,720 thousand against cash contributions by issuing 60,000 new registered individual share certificates.

75 WL BANK Annual Report 2015 Notes 71 Notes to the profit and loss account All income was generated in Germany. In the exceptional case of premature termination of derivative transactions concluded to hedge the general interest rate risk, the income from the compensation payment is reported in net interest income. Derivative transactions that are in a hedging relationship are terminated prematurely and recognised under the P&L item under which the profit contribution of the underlying transaction is to be recognised. Current interest payments from hedging transactions with valuation units in underlying transactions on the assets and liabilities sides are recognised under interest income or interest paid. Income from the repurchase of own issues is recognised under the P&L item Write-downs and value adjustments on loans and certain securities as well as allocations to loan loss provisions. Given the current period of low (and sometimes negative) interest rates and in order to give an accurate presentation of the earnings position, negative interest was netted under the same P&L item under which positive interest would normally have been recognised. Overall, negative interest was of minor significance in the profit and loss account and amounted to EUR -723 thousand in interest income. Positive interest income in interest paid amounted to EUR 223 thousand. Other operating income (EUR 2,546 thousand; previous year: EUR 3,106 thousand) mainly includes rental income (EUR 1,091 thousand; previous year: EUR 1,039 thousand) and releases of provisions recognised in the profit and loss account (EUR 847 thousand; previous year: EUR 824 thousand). In addition, other operating income includes income from the currency translation in the amount of EUR 7 thousand (previous year: EUR 27 thousand). Other operating expenses (EUR 3,723 thousand; previous year: EUR 2,638 thousand) mainly include expenses from interest added back to provisions (EUR 3,411 thousand; previous year: EUR 2,211 thousand). In addition, other operating expenses include expenses from currency translation in the amount of EUR 5 thousand (previous year: EUR 3 thousand). Within the framework of the cross-compensation pursuant to 340f (3) of the German Commercial Code, the P&L item Write-downs and value adjustments on loans and certain securities as well as allocations to loan loss provisions includes income from the sale of securities in the amount of EUR 3,939 thousand. There were no offsetting losses from the sale of securities of the liquidity reserve in the 2015 financial year. Earnings effects from the sale of securities held as fixed assets are recognised in the Financial investments result under the P&L item Income from write-ups to investments, holdings in affiliated companies and securities treated as fixed assets. Due to the tax compensation agreement concluded between WL BANK and WGZ BANK on 23/30 December 2013, taxes on income and profit include WL BANK s corporation tax and trade tax liabilities for 2015 (EUR 20,051 thousand). In addition, this balance sheet item includes compensation payments to minority shareholders in the amount of EUR 78 thousand taxable to WL BANK itself under the fiscal unity scheme pursuant to 16 of the German Corporation Tax Act (Körperschaftsteuergesetz, KStG) and, with the opposite effect, tax receivables from previous years in the amount of EUR 915 thousand. The remaining profit for the current financial year in the amount of EUR 4,269 thousand was transferred to WGZ BANK AG, in accordance with the existing profit and loss transfer agreement. The annual net income of EUR 0.00 corresponds to the profit for the year.

76 72 WL BANK Annual Report 2015 Cover statement A. Mortgage Pfandbriefe in EUR Ordinary cover 1. Claims on banks (mortgage loans) 4,427 4, Claims on customers (mortgage loans) 14,784,081 13,124, Tangible fixed assets (land charges on the Bank s own property) 8,838 8,838 Other cover assets 1. Other claims on banks Bonds and other fixed-interest securities 684, ,600 Total cover assets 15,482,096 13,533,830 Total of mortgage Pfandbriefe requiring cover 14,060,215 11,378,952 Over-collateralisation 1,421,881 2,154,878 B. Public sector Pfandbriefe in EUR Ordinary cover 1. Claims on banks (public sector loans) 457,759 1,311, Claims on customers (public sector loans) 10,096,552 10,720, Bonds and other fixed-interest securities 2,298,656 2,430,327 Other cover assets 1. Other claims on banks Bonds and other fixed-interest securities 7,000 17,000 Total cover assets 12,859,967 14,479,246 Total of public sector Pfandbriefe requiring cover 11,359,311 13,063,426 Over-collateralisation 1,500,656 1,415,820

77 WL BANK Annual Report 2015 Notes 73 Notes according to 28 of the German Pfandbrief Act (Pfandbriefgesetz, PfandBG) Pfandbriefe outstanding and corresponding cover assets ( 28 (1) Nos. 1 4 German Pfandbrief Act) a) Total amount of outstanding mortgage Pfandbriefe Nominal Net present value Risk-adjusted net present value in EUR m , , , , , ,930.3 Liabilities from derivatives in the cover pools Cover pools 15, , , , , ,993.1 of which derivatives of which other cover assets ( 19 (1) No. 1) of which other cover assets ( 19 (1) No. 2) of which other cover assets ( 19 (1) No. 3) Over-collateralisation 1, , , , , ,062.8 Maturity structure (residual term) in EUR m Mortgage Pfandbriefe 2015 Cover pools 2015 of which: other cover assets 2015 Mortgage Pfandbriefe 2014 Cover pools 2014 of which: other cover assets 2014 up to 6 months inclusive 1, , , longer than 6 months and up to 1 year inclusive longer than 1 year and up to 18 months inclusive 1, , longer than 18 months and up to 2 years inclusive longer than 2 years and up to 3 years inclusive , , , longer than 3 years and up to 4 years inclusive , , longer than 4 years and up to 5 years inclusive 1, , , longer than 5 years and up to 10 years inclusive 5, , , , longer than 10 years 2, , , , Total 14, , , ,

78 74 WL BANK Annual Report 2015 b) Total amount of outstanding public sector Pfandbriefe Nominal Net present value Risk-adjusted net present value in EUR m , , , , , ,583.8 Liabilities from derivatives in the cover pools Cover pools 12, , , , , ,711.7 of which derivatives of which other cover assets ( 20 (2) No. 2) Over-collateralisation 1, , , , , ,127.9 Maturity structure (residual term) in EUR m Public sector Pfandbriefe 2015 Cover pools 2015 of which: other cover assets 2015 Public sector Pfandbriefe 2014 Cover pools 2014 of which: other cover assets 2014 up to 6 months inclusive , longer than 6 months and up to 1 year inclusive , , longer than 1 year and up to 18 months inclusive longer than 18 months and up to 2 years inclusive longer than 2 years and up to 3 years inclusive 1, , , longer than 3 years and up to 4 years inclusive 1, , longer than 4 years and up to 5 years inclusive 1, , longer than 5 years and up to 10 years inclusive 2, , , , longer than 10 years 2, , , , Total 11, , , , Supplementary cover assets ( 28 (1) Nos. 5 and 6 of the German Pfandbrief Act) A. Mortgage Pfandbriefe supplementary cover assets ( 19 (1) No. 2) in EUR m Federal Republic of Germany of which according to 4 (1) sentence 2 Nos. 1 and of which according to 4 (1) sentence 2 No of which covered bonds within the meaning of CRR Total Mortgage Pfandbriefe supplementary public sector cover ( 19 (1) No. 3) in EUR m Federal Republic of Germany Total Total amount

79 WL BANK Annual Report 2015 Notes 75 B. Public sector Pfandbriefe supplementary cover assets ( 20 (2) No. 2) in EUR m Federal Republic of Germany of which covered bonds within the meaning of CRR The Netherlands of which covered bonds within the meaning of CRR Total Key figures regarding Pfandbriefe outstanding and corresponding cover assets ( 28 (1) Nos German Pfandbrief Act) A. Mortgage Pfandbriefe Total amount of outstanding mortgage Pfandbriefe EUR m 14, ,379.0 of which share of fixed-interest Pfandbriefe ( 28 (1) No. 9 PfandBG) % Cover pools EUR m 15, ,533.8 of which total amount of claims exceeding the limits according to 13 (1) ( 28 (1) No. 7 PfandBG) EUR m of which total amount of claims exceeding the limits according to 19 (1) No. 2 ( 28 (1) No. 8 PfandBG) EUR m of which total amount of claims exceeding the limits according to 19 (1) No. 3 ( 28 (1) No. 8 PfandBG) EUR m of which share of fixed-interest cover assets ( 28 (1) No. 9 PfandBG) % CAD Net present value according to 6 of the Pfandbrief Net Present Value Regulation (Pfandbrief-Barwertverordnung) per foreign currency in EUR m ( 28 (1) No. 10 PfandBG (balance of assets/liabilities)) CHF GBP JPY USD Volume-weighted average of the age of the claims (time elapsed since the granting of the loan seasoning) ( 28 (1) No. 11 PfandBG) years Average weighted loan-to-value ratio ( 28 (2) No. 3 PfandBG) % B. Public sector Pfandbriefe Total amount of outstanding public sector Pfandbriefe EUR m 11, ,063.4 of which share of fixed-interest Pfandbriefe ( 28 (1) No. 9 PfandBG) % Cover pools EUR m 12, ,479.2 of which total amount of claims exceeding the limits according to 20 (2) No. 2 ( 28 (1) No. 8 PfandBG) EUR m of which share of fixed-interest cover assets ( 28 (1) No. 9 PfandBG) % CAD Net present value according to 6 of the Pfandbrief Net Present Value Regulation (Pfandbrief-Barwertverordnung) per foreign currency in EUR m ( 28 (1) No. 10 PfandBG (balance of assets/liabilities)) CHF GBP JPY USD

80 76 WL BANK Annual Report 2015 Claims used as cover for mortgage Pfandbriefe by loan size ( 28 (2) No. 1a German Pfandbrief Act) Mortgage serving as cover in EUR m up to EUR 300,000 inclusive 5, ,238.9 more than EUR 300,000 up to EUR 1 m inclusive 1, ,380.3 more than EUR 1 m up to EUR 10 m inclusive 5, ,390.9 more than EUR 10 m 2, ,128.1 Total 14, ,138.2 Claims used as cover for mortgage Pfandbriefe by countries in which the mortgaged properties are located and by type of use ( 28 (2) No. 1b, c German Pfandbrief Act) Cover assets in EUR m 2015 commercial 2015 residential 2014 commercial 2014 residential Federal Republic of Germany 2, , , ,840.9 Owner-occupied flats Single- and two-family homes 4, ,882.5 Multi-family homes 6, ,025.9 Office buildings 1, ,082.4 Commercial buildings 1, ,008.1 Industrial buildings Other buildings used for commercial purposes Unfinished new buildings not yet capable of producing a yield Building sites The Netherlands Owner-occupied flats Single- and two-family homes Multi-family homes Office buildings Commercial buildings Industrial buildings Other buildings used for commercial purposes Unfinished new buildings not yet capable of producing a yield Building sites to carry forward 2, , , ,841.1

81 WL BANK Annual Report 2015 Notes 77 Cover assets in EUR m 2015 commercial 2015 residential 2014 commercial 2014 residential the amount carried forward 2, , , ,841.1 Belgium Owner-occupied flats Single- and two-family homes Multi-family homes Office buildings Commercial buildings Industrial buildings Other buildings used for commercial purposes Unfinished new buildings not yet capable of producing a yield Building sites Total amount 2, , , ,841.2 Overdue payments ( 28 (2) and (3) German Pfandbrief Act) Overdue payments on claims used as cover for mortgage Pfandbriefe ( 28 (2) No. 2 German Pfandbrief Act) 2015 Nominal value in EUR m 2015 in % of the cover pool 2014 Nominal value in EUR m 2014 in % of the cover pool Federal Republic of Germany total amount of payments being at least 90 days in arrears of which arrears 5 % of the claim Overdue payments on claims used as cover for public sector Pfandbriefe ( 28 (3) No. 3 German Pfandbrief Act) 2015 Nominal value in EUR m 2015 in % of the cover pool 2014 Nominal value in EUR m 2014 in % of the cover pool total amount of payments being at least 90 days in arrears

82 78 WL BANK Annual Report 2015 Compulsory measures and arrears ( 28 (2) No. 4 German Pfandbrief Act) 2015 commercial 2015 residential 2014 commercial 2014 residential Compulsory measures number number number number pending forced auctions pending forced administration of which included in pending forced auctions forced sales carried out cases in which real estate was taken over to prevent losses Arrears in EUR m in EUR m in EUR m in EUR m total arrears of which: in interest payments Distribution of claims used as cover for public sector Pfandbriefe by size class ( 28 (3) No. 1 German Pfandbrief Act) Claims in EUR m up to EUR 10 m inclusive 2, ,959.7 more than EUR 10 m up to EUR 100 m inclusive 5, ,798.8 more than EUR 100 m 4, ,713.7 Total 12, ,472.2 Claims used as cover for public sector Pfandbriefe ( 28 (3) No. 2 German Pfandbrief Act) Cover assets in EUR m Federal Republic of Germany 10, ,278.7 Central government Regional authorities 2, ,773.4 Local authorities 7, ,014.2 Public sector institutions Other France Central government Regional authorities Local authorities Public sector institutions Other to carry forward 10, ,323.0

83 WL BANK Annual Report 2015 Notes 79 Cover assets in EUR m the amount carried forward 10, ,323.0 Italy Central government Regional authorities Local authorities Public sector institutions Other Ireland Central government Regional authorities Local authorities Public sector institutions Other Portugal Central government Regional authorities Local authorities Public sector institutions Other Spain Central government Regional authorities Local authorities Public sector institutions Other Belgium Central government Regional authorities Local authorities Public sector institutions Other Luxembourg Central government Regional authorities Local authorities Public sector institutions Other to carry forward 11, ,658.1

84 80 WL BANK Annual Report 2015 Cover assets in EUR m the amount carried forward 11, ,658.1 Sweden Central government Regional authorities Local authorities Public sector institutions Other Austria Central government Regional authorities Local authorities Public sector institutions Other Canada Central government Regional authorities Local authorities Public sector institutions Other The Netherlands Central government Regional authorities Local authorities Public sector institutions Other Poland Central government Regional authorities Local authorities Public sector institutions Other EU institutions Central government Regional authorities Local authorities Public sector institutions Other Total 12, ,472.2

85 WL BANK Annual Report 2015 Notes 81 Other notes Forward transactions At the balance sheet date, there are still unsettled, interest-related and currency-related forward transactions that have been concluded in order to hedge interest rate risks and currency risks. The counterparties are OECD banks. In connection with loan agreements, borrowers as well as a public-law institution that formerly operated as a financial institution also act as counterparties (positive fair value EUR million; negative fair value: EUR 84.0 million). The products are exclusively OTC products. Nominal amount by residual maturity Fair value in EUR m <_ 1 year 1 5 years > 5 years Total positive negative Interest-related contracts Interest rate swaps (same currency) 3,371 11,334 26,641 41,346 1,703 3,165 Interest rate options sales Other interest rate contracts* Currency-related contracts Forward exchange contracts* Cross-currency swaps Total 3,400 11,417 26,968 41,785 1,735 3,246 * Fair values smaller than EUR 0.5 m The counterparty risk was calculated according to the current exposure method. Under the current exposure method, the loan equivalent exposure is the current replacement cost (positive market value), taking into account counterparty netting agreements, plus an add-on amount for potential future increases in exposure. The value thus determined is subject to counterparty weighting according to the rules of the CRR. The weighted counterparty risk before inclusion of netting agreements amounted to EUR million at the end of the year 2015 (previous year: EUR million). Including netting agreements, the counterparty risk has declined by EUR million to EUR 47.6 million (previous year: EUR 50.4 million). In addition, a part of the remaining counterparty risk was secured by cash contributions. Interest rate swaps are valued according to the discounted cash flow method, using the current interest rate curves at the balance sheet date. Under this method, cash flows are discounted with the market interest rate including adequate consideration of risk and maturity. Structured products are broken down into their component parts. Option price models are used for the valuation of options. They are used on the basis of the generally acknowledged basic assumptions, according to which the value of an option is determined, in particular, by the value of the underlying transaction and its volatility, the agreed basic price, basic interest rate or basic index, the risk-free interest rate at matching maturities and the remaining term of the contract. Option premiums received with a book value of EUR 5.0 million are included in other liabilities. The pro rata interests from derivative transactions are reported under claims on banks (EUR million), claims on customers (EUR 18.8 million), liabilities to banks (EUR million) as well as liabilities to customers (EUR 10.7 million). Compensation payments paid (EUR 5.1 million) are shown under deferred items on the assets side. Compensation payments received (EUR 19.5 million) are shown under deferred items on the liabilities side. Adjustment items from the foreign currency valuation of swaps are included in other assets (EUR 26.0 million) as well as in other liabilities (EUR 2.9 million). Furthermore, a liability from the pro rata establishment of a repayment obligation as part of a hedging transaction in the amount of EUR 9.0 million is included in liabilities to banks. Since derivative transactions are used to hedge interest rate risks and exchange rate fluctuations, negative fair values in derivatives are offset by valuation reserves in balance sheet transactions.

86 82 WL BANK Annual Report 2015 Valuation units according to 254 of the German Commercial Code Underlying Hedged risk Type of valuation unit Value of the underlying transaction in EUR m Asset Interest rate risk Micro hedge 1,957.0 Debt Interest rate risk Micro hedge 5,347.4 The valuation units are established between underlying transactions and derivative hedging transactions. As of 31 December 2015, the total volume of hedged risks amounted to EUR 1,073.0 million. These result from the non-devaluation of assets, the non-appreciation of debts and the non-creation of provisions for contingent losses, and are determined using the absolute market values of the derivative transactions. Valuation units consisting of pending transactions or highly probable transactions were not formed. The opposite performance of the underlying and hedging transactions results from the conformity of the major riskdetermining parameters of underlying and hedging transactions. The underlying and hedging transactions are fully included in a valuation unit for the entire term of the transaction. The effectiveness of the valuation unit is controlled by application of the critical-terms-match method. Auditor s remuneration Audit services Other certification services Tax consultancy Other services in EUR PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft of which for the respective previous financial year Emoluments of Board Members Pursuant to the exemption clause of 286 (4) of the German Commercial Code, the statement of the total emoluments of the Management Board is omitted. Total emoluments in the amount of EUR 741 thousand were paid to former Board Members or their surviving dependants in the past financial year. The emoluments of the Supervisory Board amount to EUR 104 thousand (previous year: EUR 100 thousand). The emoluments of the Advisory Board amount to EUR 59 thousand (previous year: EUR 63 thousand). There are pension provisions amounting to EUR 10,657 thousand (previous year: EUR 10,014 thousand) for former Board Members and their surviving dependants. Loans to members of the executive bodies The following loans to members of the executive bodies existed at the balance sheet date: in EUR Members of the Supervisory Board Members of the Management Board 0 0

87 WL BANK Annual Report 2015 Notes 83 Annual average number of employees On an annual average, the number of WL BANK s employees amounted to 340 (previous year: 312) and the number of apprentices to 14 (previous year: 15), 176 of whom were female (previous year: 162) and 178 of whom were male (previous year: 165). Group membership Pursuant to 20 (4), 21 of the German Stock Corporation Act (Aktiengesetz, AktG), WGZ BANK informed WL BANK on 28 April 2011 that it holds a majority stake in WL BANK s share capital. This notification has been published in the Electronic Federal Gazette. As of 31 December 2015, WGZ BANK held a direct stake of % in WL BANK s shares. WL BANK will be included in the consolidated annual financial statements of WGZ BANK. The consolidated annual financial statements are available at WGZ BANK s home page and published in the Electronic Federal Gazette. Executive bodies Supervisory Board Hans-Bernd Wolberg (Chairman of the Supervisory Board) Chairman of the Management Board of WGZ BANK Dr. Wolfgang Baecker (Deputy Chairman of the Supervisory Board) Chairman of the Management Board of VR-Bank Westmünsterland eg Karl-Michael Dommes Spokesman of the Management Board of Volksbank im Märkischen Kreis eg Gerd Hüsken Member of the Management Board of Volksbank Rhein-Lippe eg Anja Niehues* Authorised agent of WL BANK Rainer Peters Chairman of the Management Board of Volksbank Halle/Westf. eg Matthias Rammrath* Authorised agent of WL BANK Johannes Röring President of the Westfälisch-Lippischer Landwirtschaftsverband e. V. Rolf Schönherr* Authorised agent of WL BANK Werner Schulze Esking Deputy Chairman of the Management Board of Stiftung Westfälische Landschaft Stefanie Silge* Authorised agent of WL BANK Michael Speth Member of the Management Board of WGZ BANK * Representatives of the employees Management Board Trustees Frank M. Mühlbauer, Chairman of the Management Board Michael Führer Full-time Member of the Board Michael Nonhoff, Deputy Dr. Carsten Düerkop Full-time Member of the Board Münster, 17 March 2016 WL BANK AG Westfälische Landschaft Bodenkreditbank Frank M. Mühlbauer (Chairman) Dr. Carsten Düerkop

88 84 WL BANK Annual Report 2015 Digitisation in personnel work is not an end in itself. But it clears the mind for what is really important: people. Dr. Axel Roßdeutscher Deputy head of Human Resources / Marketing / Real Estate Research

89 WL BANK Annual Report 2015 Notes 85 Statement of Shareholders Equity Cash Flow Statement Auditor s Report Assurance by the Legal Representatives Report of the Supervisory Board

90 86 WL BANK Annual Report 2015 Statement of Shareholders Equity Statement of Shareholders Equity as of 31 December 2015 in EUR Subscribed capital Capital reserve Statutory reserve Other revenue reserves Profit for the year Equity capital as of ,376, ,107, , ,900, ,083, Net income Allocation to/withdrawal from the statutory reserve 0.00 Allocation to/withdrawal from other revenue reserves 0.00 Dividends paid 0.00 as of ,376, ,107, , ,900, ,083, as of ,376, ,107, , ,900, ,083, Net income Allocation to/withdrawal from the statutory reserve 0.00 Allocation to/withdrawal from other revenue reserves 0.00 Dividends paid 0.00 as of ,376, ,107, , ,900, ,083,712.81

91 WL BANK Annual Report 2015 Cash Flow Statement 87 Cash Flow Statement as of 31 December 2015* in EUR Net result for the period (annual net profit after taxes and profit transfer) 0 0 +/- Depreciation, impairments/write-up on claims and fixed assets -3,350-15,799 +/- Increase/decrease in provisions 5,233-4,172 +/- Other non-cash expenses/income ,099 -/+ Profit/loss from the disposal of fixed assets /+ Increase/decrease in claims on banks 1,088, ,319 -/+ Increase/decrease in claims on customers -1,254, ,365 -/+ Increase/decrease in securities (with the exception of financial assets) 213,353 62,361 -/+ Increase/decrease in other assets from operating activities -9,210 20,055 +/- Increase/decrease in liabilities to banks -1,892, ,573 +/- Increase/decrease in liabilities to customers -345, ,747 +/- Increase/decrease in securitised liabilities 753, ,750 +/- Increase/decrease in other liabilities from operating activities -17,252 14,481 +/- Interest paid/interest income -159, ,215 +/- Income tax expense/revenue 19,214 8,984 + Interest payments and dividend payments received 1.139,747 1,253,573 - Interest paid 980,174 1,130,358 -/+ Income tax payments = Cash flow from operating activities -1,441, ,162 + Receipts from disposal of financial assets 2,123,711 1,555,164 - Payments for investments in financial assets 655,457 1,114,197 + Receipts from disposal of tangible assets Payments for investments in tangible assets Payments for investments in intangible assets = Cash flow from investing activities 1,467, ,242 - Payments to company owners and minority shareholders 13,182 19,606 +/- Changes in cash from other capital (net) -12,000-10,000 = Cash flow from financing activities -25,182-29,606 Cash-effective changes in cash funds 247-6,526 + Cash funds at the beginning of the period 22 6,548 = Cash funds at the end of the period The cash funds correspond to the cash reserves item, which contains cash on hand and the balances with central banks. * according to DRS 21 (indirect method)

92 88 WL BANK Annual Report 2015 Auditor s Report We have audited the annual financial statements, comprising the balance sheet, the income statement, the notes to the financial statements, the cash flow statement and the statement of shareholders equity, together with the bookkeeping system, and the management report of the WL BANK AG Westfälische Landschaft Bodenkreditbank, Münster, for the business year from January 1 to December 31, The maintenance of the books and records and the preparation of the annual financial statements and management report in accordance with German commercial law and supplementary provisions of the articles of incorporation are the responsibility of the Company s Board of Managing Directors. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, and the management report based on our audit. We conducted our audit of the annual financial statements in accordance with (Article) 317 HGB ( Handelsgesetzbuch : German Commercial Code ) and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with (German) principles of proper accounting and in the management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Company and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the annual financial statements and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by the Company s Board of Managing Directors, as well as evaluating the overall presentation of the annual financial statements and management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion based on the findings of our audit, the annual financial statements comply with the legal requirements and supplementary provisions of the articles of incorporation and give a true and fair view of the net assets, financial position and results of operations of the Company in accordance with (German) principles of proper accounting. The management report is consistent with the annual financial statements and as a whole provides a suitable view of the Company s position and suitably presents the opportunities and risks of future development. Düsseldorf, 22 March 2016 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Mark Maternus Wirtschaftsprüfer (German Public Auditor) ppa. Michael Meteling Wirtschaftsprüfer (German Public Auditor)

93 WL BANK Annual Report Assurance by the Legal Representatives We assure that, to the best of our knowledge and in accordance with the applicable accounting principles, the annual financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of WL BANK AG Westfälische Landschaft Bodenkreditbank, and that the management report includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal opportunities and risks associated with the expected development of the company. Münster, 17 March 2016 WL BANK AG Westfälische Landschaft Bodenkreditbank Frank M. Mühlbauer (Chairman) Dr. Carsten Düerkop

94 90 WL BANK Annual Report 2015 Report of the Supervisory Board The Supervisory Board carried out its tasks in accordance with the law and the Articles of Association and permanently supervised the management of WL BANK. In joint meetings with the Management Board, the Supervisory Board was at all times able to obtain a picture of the current situation of the Bank on the basis of the reports and explanations by the Management Board. Moreover, it discussed important plans of special significance as well as WL BANK s strategy in detail with the Management Board. The Supervisory Board was regularly, promptly and comprehensively informed by the Management Board, both in writing and verbally, on the business development as well as on important business transactions. At the three ordinary meetings, the Management Board informed the Supervisory Board in detail about the business progress of WL BANK, about important loan exposures, about planning, the risks taken, the risk management as well as about important projects. The committees appointed by the Supervisory Board met at regular intervals in the year under review and were active in providing advice or adopting resolutions. The chairman of the committees gave regular reports on the work of the committees at the respective following ordinary Supervisory Board meetings. After a preliminary examination by the audit committee, the Supervisory Board finally audited the annual financial statements and the management report 2015 of WL BANK. There were no objections. PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, which was appointed as auditor at the Annual General Meeting on 25 June 2015, has examined the annual financial statements including the accounts as well as the management report and has granted its unqualified audit certificate. Representatives of the auditing organisation participated in the meeting of the Supervisory Board on 22 April 2016 concerning the establishment of the annual financial statements as well as in the preparatory meeting of the audit committee on 14 April 2016, in order to report in detail about the results of their audit. Following the final result of its own examination, the Supervisory Board raised no objections and acknowledged and agreed with the findings of the audit. On this basis, the Supervisory Board approved the annual financial statements. Thus, the annual financial statements have been established. In accordance with the domination and profit and loss transfer agreement concluded with WGZ BANK, the profit is transferred to WGZ BANK. The Supervisory Board thanks the Management Board and the employees of WL BANK for their commitment and their achievements in the 2015 financial year, which was a very successful year despite the well-known difficult operating environment. Münster, 22 April 2016 The Supervisory Board Hans-Bernd Wolberg Chairman of the Supervisory Board

95 Executive Bodies 91

96 92 WL BANK Annual Report 2015 Supervisory Board Hans-Bernd Wolberg, Chairman Chairman of the Management Board of WGZ BANK, Düsseldorf Dr. Wolfgang Baecker, Deputy Chairman Chairman of the Management Board of VR-Bank Westmünsterland eg, Borken Karl-Michael Dommes Spokesman of the Management Board of Volksbank im Märkischen Kreis eg, Lüdenscheid Gerd Hüsken Member of the Management Board of Volksbank Rhein-Lippe eg, Wesel Anja Niehues Authorised agent of WL BANK, Münster Rainer Peters Chairman of the Management Board of Volksbank Halle/Westf. eg, Halle (Westf.) Matthias Rammrath Authorised agent of WL BANK, Münster Johannes Röring President of Westfälisch-Lippischer Landwirtschaftsverband e. V., Vreden Rolf Schönherr Authorised agent of WL BANK, Münster Werner Schulze Esking Deputy Chairman of the Management Board of Stiftung Westfälische Landschaft, Billerbeck Stefanie Silge Authorised agent of WL BANK, Münster Michael Speth Member of the Management Board of WGZ BANK, Düsseldorf Advisory Board Banks Andreas Ermecke, Chairman (until ) Member of the Management Board of Volksbank Bigge-Lenne eg, Schmallenberg Hans-Peter Ulepić, Deputy Chairman Spokesman of the Management Board of Gladbacher Bank Aktiengesellschaft von 1922, Mönchengladbach Wilfried Bosch Member of the Management Board of Volksbank an der Niers eg, Geldern Siegfried Chmielewski (until ) Member of the Management Board of Raiffeisenbank Rastede eg, Rastede Achim Hahn (until ) Member of the Management Board of Märkische Bank eg, Hagen Michael Hietkamp Member of the Management Board of Volksbank Raiffeisenbank eg, Greifswald Peter Jungjohann Member of the Management Board of Dithmarscher Volks- und Raiffeisenbank eg, Heide Michael Knoll Member of the Management Board of Volksbank Bad Oeynhausen-Herford eg, Herford Hartmut Lüther (until ) Member of the Management Board of Volksbank Elsen-Wewer-Borchen eg, Paderborn Andreas Mertke Member of the Management Board of Berliner Volksbank eg, Berlin Egbert Messing Member of the Management Board of Volksbank Lette-Darup-Rorup eg, Coesfeld-Lette Ewald Müller (until ) Member of the Management Board of Raiffeisenbank Mehring-Leiwen eg, Leiwen Michael Müller (since ) Member of the Management Board of Raiffeisenbank Mehring-Leiwen eg, Leiwen Jürgen Neidinger Member of the Management Board of Heidelberger Volksbank eg, Heidelberg Paul-Ludwig Rosche (until ) Chairman of the Management Board of Volksbank eg, Warendorf Ralf Schierenböken Member of the Management Board of Volksbank Peine eg, Peine Norbert Schug Member of the Management Board of VR Bank Hof eg, Hof

97 WL BANK Annual Report 2015 Executive Bodies 93 Ralf Schwegmann (until ) Spokesman of Raiffeisenbank eg Aldenhoven, Aldenhoven Jürgen Timmermann Member of the Management Board of Grafschafter Volksbank eg, Nordhorn Ulrich Tolksdorf Chairman of the Management Board of vr bank Untertaunus eg, Idstein Lothar Uedelhoven (until ) Chairman of the Management Board of VR Bank eg Bergisch Gladbach, Bergisch Gladbach Theodor Winkelmann (until ) Chairman of the Management Board of Volksbank Koblenz Mittelrhein eg, Koblenz Franz Zeyda Spokesman of the Management Board of Hausbank München eg Bank für Haus- und Grundbesitz, Munich Advisory Board Institutional Housing Industry Dietmar Bock, Chairman (since , Deputy Chairman until ) Managing Director of GWG Städtische Wohnungsgesellschaft München mbh, Munich Werner Dacol, Deputy Chairman (since ) Managing Director of Aachener Siedlungs- und Wohnungsgesellschaft mbh, Cologne Uwe Flotho Member of the Management Board of Vereinigte Wohnstätten 1889 eg, Kassel Franz-Bernd Große-Wilde (since ) Chairman of the Management Board of Spar- und Bauverein eg, Kassel Rolf Kalleicher Member of the Management Board of Braunschweiger Baugenossenschaft eg, Braunschweig Peter Kay (since ) Member of the Management Board of BGFG Baugenossenschaft freier Gewerkschafter eg, Hamburg Steffan Liebscher Member of the Management Board of GEWOBA Nord Baugenossenschaft eg, Schleswig Matthias Lüdecke Chairman of the Management Board of Wohnungsverein Hagen eg, Hagen Dr. Wolfgang Pfeuffer Spokesman of the Management Board of JOSEPH- STIFTUNG Kirchliches Wohnungsunternehmen, Bamberg Hildegard Schumann Member of the Management Board of Beamten-Wohnungs- Verein zu Köpenick eg, Berlin Jörn-M. Westphal Managing Director of ProPotsdam GmbH, Potsdam Advisory Board Public Sector Clients Christian Schuchardt, Chairman Alderman and Treasurer of the City of Würzburg, Würzburg Claus Hamacher, Deputy Chairman Deputy for Financial Affairs and Local Economy of Städte und Gemeindebund NRW, Düsseldorf Manfred Abrahams (until ) Member of the Management Board of Stadtwerke Düsseldorf AG, Düsseldorf Konrad Beugel Economic and Financial Advisor for the City of Erlangen, Erlangen Dr. Birgit Frischmuth Expert at the Finance Department of the German Association of Cities, Berlin Dr. Stefan Funke Deputy Chairman of the Management Board of Fachverband der Kämmerer in NRW e. V. /Treasurer of the District of Warendorf, Warendorf Markus Kreuz Treasurer of the City of Hamm, Hamm Heinz Landers (until ) First Alderman and Treasurer of the City of Garbsen, Garbsen Andreas Merkel Treasurer of the City of Gaggenau, Gaggenau Dr. Frank Nagel Head of Credit Division, Ministry of Finance, Rhineland-Palatinate, Mainz Alfons Reinkemeier Treasurer of the City of Münster, Münster

98 94 WL BANK Annual Report 2015 Management Board

99 WL BANK Annual Report Management Board Frank M. Mühlbauer Dr. Carsten Düerkop Chairman Head of the following departments: Head of the following departments: Real Estate Loan Business, Bank Sales Real Estate Loan Business, Sales Real Estate Loan Business, Services Pfandbrief Treasury and Public Sector Clients 1 Human Resources/Marketing/Real Estate Research Audit/Data Protection 2 Back Office Real Estate Loan Business Back Office Pfandbrief Treasury and Public Sector Clients 3 Financial Accounting Organisational Development, IT and Operations 4 Basic Legal Issues Compliance The Management Board shall have the overall responsibility for the prevention of money laundering, financing of terrorism or other crimes pursuant to 25c of the German Banking Act (Kreditwesengesetz, KWG). 1 Until 31 December 2015 Treasury, Money and Capital Markets 2 Until 31 December 2015 Internal Audit/Data Protection 3 Until 31 December 2015 Back Office Capital Market Business and Public Sector Clients 4 Until 31 December 2015 IT/Organisation/Systems

100 96 WL BANK Annual Report 2015 Contact Persons Management Board Frank M. Mühlbauer, Chairman of the Management Board Dr. Carsten Düerkop Chief Representatives Rolf Hermes Artur Merz Financial Accounting M Artur Merz Basic Legal Issues Dr. Patrick Lübbersmann Real Estate Valuation Benno Kirchhof Real Estate Loan Business, Bank Sales Thomas Plum Real Estate Loan Business, Services Ludger Kortemeyer-Lanvers Real Estate Loan Business, Sales Jürg Schönherr Back Office Real Estate Loan Business Markus Wirsen Back Office Pfandbrief Treasury and Public Sector Clients Andrej Landl Organisational Development, IT and Operations Manfred Feld Human Resources/Marketing/Real Estate Research André Krabbe Pfandbrief Treasury and Public Sector Clients Sascha Aldag Audit Frank Schneider Public Sector Clients, Sales Markus Krampe Heads of Representative Offices Berlin Matthias Brauner Hamburg Horst Warneke Düsseldorf Marco Schaub Munich Christian Biskupek

101 WL BANK Annual Report Imprint Publisher: WL BANK AG Westfälische Landschaft Bodenkreditbank Sentmaringer Weg Münster Phone Fax info@wlbank.de Internet Reuters WL BANK Edited by: WL BANK, Marketing Photographs: Matthias Hubert, Dortmund (3, 4, 7, 9, 11, 13, 15, 60, 84) xiaoliangge (Titel, 1, 54, 59, 85, 94), ninog (85), Daniel Berkmann (91), ray8 (91), Myimagine (94) alle Fotolia.com Design: serres, design. Hattingen Text: WL BANK, Marketing Online Annual Report 2015: Follow us also on Twitter, YouTube and XING. We thank Fiducia & GAD IT AG for letting us use their innovation centre as a photo location and our employees for their support at the photo shoots!

102 WL BANK AG Westfälische Landschaft Bodenkreditbank Sentmaringer Weg Münster Phone Fax info@wlbank.de A Company of the WGZ BANK Group