Quarterly Report • Nov 13, 2017
Quarterly Report
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Deutsche Pfandbriefbank Group
This notice is a quarterly report of the Deutsche Pfandbriefbank Group ("pbb Group") in accordance with section 51a of the Exchange Rules (Börsenordnung) of the Frankfurt Stock Exchange. Unless stated otherwise, the following comments are based on (unaudited) figures in accordance with International Financial Reporting Standards (IFRS), adopted by the EU. Furthermore, also unless stated otherwise, the comments relate to comparison with the same period of the previous year (1 January to 30 September 2016, also referred to as "9m2016" below) or, in the case of details concerning the (unaudited) statement of financial position, comparison with figures as at the previous year's reporting date (31 December 2016).
| Deutsche Pfandbriefbank Group (pbb Group) |
1.1.–30.9. 2017 |
1.1.–30.9. 2016 |
1.1.–30.9. 20161) |
|
|---|---|---|---|---|
| Operating performance according to IFRS | ||||
| Profit or loss before tax | in € million | 154 | 246 | 114 |
| Net income/loss | in € million | 126 | 187 | 78 |
| Key ratios | 1.1.–30.9. 2017 |
1.1.–30.9. 2016 |
1.1.–30.9. 20161) |
|
| Earnings per share | in € | 0.94 | 1.39 | 0.58 |
| Cost-income ratio | in % | 50.2 | 37.2 | 54.0 |
| Return on equity before tax | in % | 7.4 | 12.2 | 5.7 |
| Return on equity after tax | in % | 6.0 | 9.3 | 3.9 |
| New business volume 2) |
in € billion | 7.4 | 6.7 | 6.7 |
| Balance sheet figures according to IFRS | 30.9.2017 | 31.12.2016 | 31.12.20161) | |
| Total assets | in € billion | 57.9 | 62.6 | 62.5 |
| Financing volumes Real Estate Finance and Public Investment Finance |
in € billion | 31.8 | 31.5 | 31.5 |
| Equity | in € billion | 2.8 | 2.8 | 2.7 |
| Key regulatory capital ratios | 30.9.20173) | 31.12.20164) | 31.12.20161)4) | |
| CET1 ratio | in % | 17.3 | 19.5 | 19.5 |
| CET1 ratio fully phased-in | in % | 17.1 | 19.0 | 19.0 |
| Own funds ratio | in % | 21.9 | 23.7 | 23.7 |
| Own funds ratio fully phased-in | in % | 21.8 | 20.7 | 20.7 |
| Leverage ratio | in % | 4.6 | 4.6 | 4.6 |
| Leverage ratio fully phased-in | in % | 4.5 | 4.2 | 4.2 |
| Staff | 30.9.2017 | 31.12.2016 | ||
| Employees (on full-time equivalent basis) | 736 | 756 | ||
| Long-term issuer rating/outlook5)6) | 30.9.2017 | 31.12.2016 | ||
| Standard & Poor's | A–/Negative | BBB/ CreditWatch Positive |
||
| DBRS | BBB/Stable | BBB/Stable | ||
| Moody's Pfandbrief rating6) | 30.9.2017 | 31.12.2016 | ||
| Public sector Pfandbriefe | Aa1 | Aa1 | ||
| Mortgage Pfandbriefe | Aa1 | Aa1 |
1) Without consideration of the one-off effect from Heta Asset Resolution AG (Heta).
2) Including prolongations with maturities of more than one year.
3) In consideration of the current net profit less the maximum permissible dividend according to the ECB methodology (subject to the supervisory approval).
4) After confirmation of the 2016 financial statements and appropriation of profits.
5) The ratings of unsecured liabilities may diverge from the bank ratings.
6) The rating agencies may alter or withdraw their ratings at any time. Ratings of individual securities issued by Deutsche Pfandbriefbank AG (pbb) may deviate from the ratings indicated above, or an individual security may not be rated at all. For the evaluation and usage of ratings, please refer to the rating agencies' pertinent criteria and explanations and the relevant terms of use which are to be considered. Ratings should not serve as a substitute for personal analysis. They do not constitute a recommendation to purchase, sell or hold securities issued by pbb.
During the period under review (1 January to 30 September 2017 – "9m2017"), Deutsche Pfandbriefbank Group ("pbb Group") generated pre-tax profit of €154 million. Hence, this result was below the level of previous year's period (1 January to 30 September 2016 – "9m2016") of €246 million, which benefited from non-recurring effects of €132 million (€123 million in net income from financial investments, and €9 million in loan loss provisions). These one-off effects resulted from the reversal of value adjustments for Heta Asset Resolution AG (Heta). Excluding non-recurring effects, pre-tax profit increased considerably compared to (adjusted) pre-tax profit reported for 9m2016. The strong performance in net interest income, and net fee and commission income, made a valuable contribution to this development. pbb Group was able to improve these income figures despite the competitive market environment. A detailed breakdown of the results is provided below.
| in € million | 1.1.–30.9. 2017 |
1.1.–30.9. 2016 |
Change |
|---|---|---|---|
| Operating income | 309 | 395 | –86 |
| Net interest and commission income | 321 | 297 | 24 |
| Net interest income | 315 | 292 | 23 |
| Net fee and commission income | 6 | 5 | 1 |
| Net trading income | –4 | –10 | 6 |
| Net income from financial investments | – | 128 | –128 |
| Net income from hedging relationships | – | 1 | –1 |
| Net other operating income/expenses | –8 | –21 | 13 |
| Loan loss provisions | –2 | 3 | –5 |
| General and administrative expenses | –155 | –147 | –8 |
| Net miscellaneous income/expenses | 2 | –5 | 7 |
| Profit or loss before tax | 154 | 246 | –92 |
| Income taxes | –28 | –59 | 31 |
| Net income/loss | 126 | 187 | –61 |
| attributable to: Equity holders |
126 | 187 | –61 |
Maturities of higher-yielding liabilities led to lower interest expenses, thus contributing to the good development of net interest income (€315 million; 9m2016: €292 million). At €31.8 billion, the average aggregate volume of interest-bearing loans in Real Estate Finance and Public Investment Finance was marginally higher than the same period of the previous year (9m2016: €31.3 billion), whereas the volume of the non-strategic Value Portfolio continued to decline, in line with pbb's strategy. During the period under review, the average margin of the overall portfolio was slightly above the same period of the previous year, thus contributing to current net interest income. Positive non-recurring effects from prepayment penalties and from the redemption of liabilities amounted to €22 million, and were below the previous year's level (9m2016: €29 million).
Net fee and commission income from non-accruable fees amounted to €6 million (9m2016: €5 million).
Net trading income amounted to €–4 million (9m2016: €–10 million). The pull-to-par effect translated into expenses of €7 million (9m2016: €9 million), whilst interest rate and exchange rate fluctuations led to negative measurement effects of derivatives in the amount of €2 million (9m2016: income of €8 million). This was partly offset by income from the credit risk measurement of pbb as well as its derivatives counterparties in the amount of €5 million (9m2016: expenses of €9 million).
pbb Group disclosed balanced net income from financial investments (9m2016: €128 million). Expenses of €1 million were incurred from net additions to portfolio-based allowances following the changed risk assessment for some Southern European regions. This item was offset by net income from securities disposals in the same amount. During the same period of the previous year, pbb Group recognised income of €123 million from non-recurring effects associated with Heta.
Net income from hedging relationships was balanced (9m2016: €1 million), given that the valuation results of the underlying and hedging transactions offset each other in the micro fair value hedge and portfolio hedge accounting. The net figure disclosed for the same period of the previous year was due exclusively to ineffective portions from micro fair value hedge relationships within the range permitted under IAS 39 (80% to 125%).
Net other operating income/expenses (€–8 million; 9m2016: €–21 million) was burdened, inter alia, by the bank levy for the full year of 2017. Taking into account pledged collateral amounting to 15%, pbb Group recognised expenses of €19 million (9m2016: €21 million). Various other factors translated into additional positive effects in the amount of €11 million: the sale of assets held in pbb's non-strategic Value Portfolio, and VAT reimbursements, more than offset the expenses incurred from net additions to provisions and the impairment losses recognised in connection with a salvage acquisition in Southern Europe.
Loan loss provisions amounted to €–2 million (9m2016: €3 million ). Whilst specific allowances for a small number of Real Estate Finance exposures were raised by €4 million in total, portfolio-based allowances of €1 million net were reversed. pbb Group recognised recovery payments on previously written-off loans and advances in the amount of €1 million. In the same period of the previous year, there were €1 million in net reversals to specific allowances, €2 million in net additions to portfoliobased allowances, €3 million in recoveries from written-off loans and advances recognised through profit or loss, as well as €1 million in income from the reversal of provisions for contingent liabilities and other commitments.
General and administrative expenses totalled €53 million in the third quarter of 2017, unchanged versus the same period of 2016, but the 9m2017 figure (€155 million) was higher than 9m2016 (€147 million). During the same period of the previous year, personnel expenses benefited from the utilisation of provisions recognised in previous periods. Personnel expenses have reached a normalised level in the current financial year, whilst the average staffing level declined. Non-personnel expenses for the period under review were in line with the previous year's level; it included expenses for a Bank-wide project to further optimise the finance and risk IT target architecture. Specifically, this project comprises, inter alia, the implementation of the requirements resulting from IFRS 9 and regulatory developments, as well as the adjustment of the IT systems and processes used to prepare financial statements.
Net miscellaneous income/expenses in the amount of €2 million (9m 2016: €–5 million) was predominantly due to the reversal of restructuring provisions.
Expenses for current taxes of €33 million (9m2016: €28 million) and income from deferred taxes of €5 million (9m2016: expenses of €31 million) resulted in total tax expenses of €28 million (9m2016: €59 million). Deferred tax expenses in the previous year resulted from reversals of temporary differences, largely due to the non-recurring effects associated with Heta, as well as close-outs and novations of derivatives.
| Assets | ||||
|---|---|---|---|---|
| in € million | 30.9.2017 | 31.12.2016 | Change | |
| Cash reserve | 349 | 1,136 | –787 | |
| Trading assets | 887 | 1,089 | –202 | |
| Loans and advances to other banks | 2,440 | 2,841 | –401 | |
| Loans and advances to customers | 40,070 | 41,146 | –1,076 | |
| Allowances for losses on loans and advances | –121 | –130 | 9 | |
| Valuation adjustment from portfolio hedge accounting | –1 | 2 | –3 | |
| Financial investments | 11,390 | 12,845 | –1,455 | |
| Property and equipment | 7 | 8 | –1 | |
| Intangible assets | 26 | 24 | 2 | |
| Other assets | 2,761 | 3,550 | –789 | |
| Income tax assets | 110 | 118 | –8 | |
| Total assets | 57,918 | 62,629 | –4,711 | |
| 30.9.2017 | 31.12.2016 | Change |
|---|---|---|
| 3,229 | 3,179 | 50 |
| 8,556 | 9,949 | –1,393 |
| 38,041 | 40,381 | –2,340 |
| 1 | 1 | – |
| 1,038 | 1,355 | –317 |
| 226 | 242 | –16 |
| 2,986 | 3,778 | –792 |
| 65 | 59 | 6 |
| 994 | 886 | 108 |
| 55,136 | 59,830 | –4,694 |
| 2,782 | 2,799 | –17 |
| 380 | 380 | – |
| 1,637 | 1,637 | – |
| 712 | 656 | 56 |
| –74 | –82 | 8 |
| 3 | 3 | – |
| –2 | 8 | –10 |
| –29 | –36 | 7 |
| 27 | 44 | –17 |
| 126 | 197 | –71 |
| 2,782 | 2,799 | –17 |
| 57,918 | 62,629 | –4,711 |
Total assets as at 30 September 2017 decreased compared to 31 December 2016, mainly due to maturing securities and public-sector loans, translating into declining financial investments, or loans and advances to customers, respectively. The decline in the cash reserve was in line with maturities of securitised liabilities. Furthermore, derivative market values recognised under other assets and trading assets declined, given market-induced effects from steepening yield curves.
As at 30 September 2017, the aggregate nominal volumes of strategic real estate financings (€24.6 billion; 31 December 2016: €24.1 billion) and of public investment financings (€7.2 billion; 31 December 2016: €7.4 billion) were slightly above the previous year-end. The non-strategic Value Portfolio declined from €15.8 billion on 31 December 2016 to €14.2 billion, in line with the strategy.
Liabilities declined due to, among other things, maturing promissory note loans recognised under liabilities to customers. The decrease in securitised liabilities resulted from maturities (which exceeded new issues) and from fair value adjustments of items covered by micro fair value hedge relationships. Derivatives market values recognised under other liabilities and trading liabilities declined, given market-induced effects from steepening yield curves.
Regarding subordinated capital, the termination of hybrid capital instruments of €0.4 billion was more than compensated by initial issues of €0.5 billion.
At the beginning of June 2017, pbb distributed dividends of €141 million (or €1.05 per share). The remaining consolidated profit for 2016 of €56 million was appropriated to retained earnings.
Changes recognised under the item gains/losses on pension commitments translated into an increase in equity of €8 million. The reason for this increase was the discount rate used to measure defined benefit pension obligations: it rose from 1.75% as at 31 December 2016 to 2.00% on 30 June 2017, reflecting market interest rates.
pbb Group has ceased active cash flow hedge accounting, meaning that changes in the cash flow hedge reserve only reflect utilisations. The remaining cash flow hedge reserve will be reversed in line with the hedged cash flows from underlying transactions.
As at 30 September 2017 CET1 ratio amounted to17.3 % (31 December 2016: 19.5 %) and own funds ratio to 21.9 % (31 December 2016: 23.7 %). Fully phased-in, therefore after expiry of all Basel III transitional regulations, CET1 ratio amounted to 17.1% (31 December 2016: 19.0%) and own funds ratio 21.8% (31 December 2016: 20.7%).
The decline in capital ratios reflected the increase in risk-weighted assets – from €13.1 billion as at 31 December 2016 to €14.7 billion as at 30 September 2017 – which was largely due to the harmonisation of risk models by the European Central Bank.
New long-term funding was raised in the amount of €5.8 billion (9m2016: €4.8 billion) during the period from 1 January to 30 September 2017. Repurchases and terminations amounted to €0.6 billion (9m2016: €1.0 billion). At €3.2 billion (9m2016: €2.6 billion), Pfandbriefe accounted for just over half of the total issuing volume. Pfandbrief issues with a total volume of €2.2 billion were placed in benchmark format. Unsecured issues contributed €2.1 billion (9m2016: €2.1 billion), while subordinated issues contributed €0.5 billion (9m2016: €0.1 billion) to the overall refinancing volume. More than two-thirds of unsecured funding volumes were raised via private placements – in particular, through promissory note loans. Most issues were placed as fixed-rate bond.
Unhedged interest rate exposures are usually hedged by swapping fixed against floating interest rates. In general, funding activities have closely matched new lending exposures in terms of currency, product, tenor, and volume. In addition to capital market funding, pbb Group has been extending its unsecured funding base through overnight and term deposits from retail investors. As at 30 September 2017, the volume of deposits taken via "pbb direct" amounted to €3.4 billion (31 December 2016: €3.5 billion).
On 23 March 2017, the European Central Bank (ECB) provided a total of €233.5 billion for a maximum term of four years to banks within the euro area, within the scope of Targeted Longer-Term Refinancing Operations (TLTRO). Under this TLTRO, pbb Group was allocated a €1.9 billion, four-year tranche, at an interest rate of 0.0% (the interest rate for the ECB's main refinancing facility at the time of drawing the tranche). The interest rate applicable for this tranche may be reduced further, under certain conditions, and may thus turn negative. pbb Group assumes that these conditions will be met, hence interest-rate benefits are accrued over the term. The allocated TLTRO tranche was reported under liabilities to banks as at 30 September 2017.
pbb calculates the liquidity ratio at the single-entity level, in accordance with the German Liquidity Regulation (Liquiditätsverordnung – "LiqV"). It amounted to 3.6 at the reporting date (31 December 2016: 1.6) – significantly above the legally required minimum of 1.0.
Since 1 January 2017, a minimum Liquidity Coverage Ratio (LCR) of 80% has been mandatory in regulatory liquidity reporting. This minimum value will rise to 100% by 1 January 2018. In the reporting period the figures determined for pbb Group were significantly higher than 100%.
Irrevocable loan commitments of €3,814 million (31 December 2016: €3,802 million) constitute the material part of off-balance-sheet obligations. Contingent liabilities under guarantees and warranties amounted to €95 million (31 December 2016: €171 million) and commitments from bank levies due to collateral pledged to €15 million (31 December 2016: €11 million).
| in € million | REF | PIF | VP | C&A | pbb Group |
|
|---|---|---|---|---|---|---|
| Operating income | 1.1.–30.9.2017 | 245 | 22 | 37 | 5 | 309 |
| 1.1.–30.9.2016 | 225 | 23 | 144 | 3 | 395 | |
| Net interest income | 1.1.–30.9.2017 | 255 | 26 | 29 | 5 | 315 |
| 1.1.–30.9.2016 | 234 | 25 | 29 | 4 | 292 | |
| Net fee and commission income | 1.1.–30.9.2017 | 7 | – | –1 | – | 6 |
| 1.1.–30.9.2016 | 5 | – | – | – | 5 | |
| Net trading income | 1.1.–30.9.2017 | – | –1 | –3 | – | –4 |
| 1.1.–30.9.2016 | –6 | –1 | –3 | – | –10 | |
| Net income from financial investments | 1.1.–30.9.2017 | –1 | – | 1 | – | – |
| 1.1.–30.9.2016 | 3 | 1 | 124 | – | 128 | |
| Net income from hedging relationships | 1.1.–30.9.2017 | – | – | – | – | – |
| 1.1.–30.9.2016 | 1 | – | – | – | 1 | |
| Net other operating income/expenses | 1.1.–30.9.2017 | –16 | –3 | 11 | – | –8 |
| 1.1.–30.9.2016 | –12 | –2 | –6 | –1 | –21 | |
| Loan loss provisions | 1.1.–30.9.2017 | –3 | – | 1 | – | –2 |
| 1.1.–30.9.2016 | –6 | – | 9 | – | 3 | |
| General and administrative expenses | 1.1.–30.9.2017 | –123 | –21 | –11 | – | –155 |
| 1.1.–30.9.2016 | –114 | –20 | –13 | – | –147 | |
| Net miscellaneous income/expenses | 1.1.–30.9.2017 | 2 | – | – | – | 2 |
| 1.1.–30.9.2016 | –4 | –1 | – | – | –5 | |
| Profit or loss before tax | 1.1.–30.9.2017 | 121 | 1 | 27 | 5 | 154 |
| 1.1.–30.9.2016 | 101 | 2 | 140 | 3 | 246 | |
| in € billion | REF | PIF | VP | C&A | pbb Group |
|
|---|---|---|---|---|---|---|
| Financing volumes1) | 30.9.2017 | 24.6 | 7.2 | 14.2 | – | 46.0 |
| 31.12.2016 | 24.1 | 7.4 | 15.8 | – | 47.3 | |
| Risk-weighted assets2) | 30.9.2017 | 8.6 | 1.4 | 3.6 | 1.1 | 14.7 |
| 31.12.2016 | 6.4 | 1.4 | 4.1 | 1.2 | 13.1 | |
| Equity3) | 30.9.2017 | 0.7 | 0.3 | 1.4 | 0.4 | 2.8 |
| 31.12.2016 | 0.6 | 0.3 | 1.5 | 0.4 | 2.8 |
1) Notional amounts of the drawn parts of granted loans and parts of the securities portfolio.
2) Including risk-weighted credit risk positions as well as the capital requirements for market risk positions and operational risks scaled with the factor 12.5.
3) Excluding revaluation reserve.
There were no significant events after 30 September 2017.
Given that stable development is anticipated during the fourth quarter, pbb Group raised its guidance for the full year 2017, to pre-tax profit of between €195 million and €200 million.
| in € million | 30.9.2017 | 31.12.2016 |
|---|---|---|
| Assets | ||
| Loans and advances to other banks | 2,440 | 2,841 |
| Repayable on demand | 1,732 | 2,059 |
| Up to 3 months | 4 | 18 |
| More than 3 months to 1 year | 133 | 45 |
| More than 1 year to 5 years | 28 | 164 |
| More than 5 years | 543 | 555 |
| Loans and advances to customers | 40,070 | 41,146 |
| Repayable on demand | 1,336 | 1,023 |
| Up to 3 months | 1,452 | 1,167 |
| More than 3 months to 1 year | 2,353 | 2,860 |
| More than 1 year to 5 years | 17,538 | 18,067 |
| More than 5 years | 17,391 | 18,029 |
| Financial investments | 11,390 | 12,845 |
| Unspecified terms | 3 | 3 |
| Up to 3 months | 785 | 765 |
| More than 3 months to 1 year | 429 | 1,690 |
| More than 1 year to 5 years | 2,901 | 2,542 |
| More than 5 years | 7,272 | 7,845 |
| Liabilities | ||
| Liabilities to other banks | 3,229 | 3,179 |
| Repayable on demand | 908 | 924 |
| Up to 3 months | 14 | 1,583 |
| More than 3 months to 1 year | 22 | 56 |
| More than 1 year to 5 years | 1,950 | 73 |
| More than 5 years | 335 | 543 |
| Liabilities to customers | 8,556 | 9,949 |
| Repayable on demand | 1,330 | 1,560 |
| Up to 3 months | 598 | 1,381 |
| More than 3 months to 1 year | 1,527 | 1,654 |
| More than 1 year to 5 years | 3,818 | 4,083 |
| More than 5 years | 1,283 | 1,271 |
| Securitised liabilities | 38,041 | 40,381 |
| Up to 3 months | 766 | 3,259 |
| More than 3 months to 1 year | 3,274 | 3,129 |
| More than 1 year to 5 years | 16,465 | 14,829 |
| More than 5 years | 17,536 | 19,164 |
| Subordinated capital | 994 | 886 |
| Up to 3 months | 17 | 54 |
| More than 3 months to 1 year | 193 | 361 |
| More than 1 year to 5 years | 71 | 246 |
| More than 5 years | 713 | 225 |
1) Excluding: trading assets, allowances for losses on loans and advances, valuation adjustment from portfolio hedge accounting (assets side), property and equipment, intangible assets, other assets, income tax assets, valuation adjustment from portfolio hedge accounting (liabilities side), trading liabilities, provisions, other liabilities, income tax liabilities and equity.
This report contains future-oriented statements inter alia in the form of intentions, assumptions, expectations or forecasts. These statements are based on the plans, estimates and predictions currently available to the management board of pbb. Future-oriented statements therefore only apply on the day on which they are made. pbb Group does not undertake any obligation to update such statements in light of new information or future events. By their nature, future-oriented statements contain risks and factors of uncertainty. A number of important factors can contribute to actual results deviating considerably from future-oriented statements. Such factors include the condition of the financial markets in Germany, Europe and the USA, the possible default of borrowers or counterparties of trading companies, the reliability of our principles, procedures and methods for risk management as well as other risks associated with our business activity.
Deutsche Pfandbriefbank AG, Munich, Germany (Copyright 2017)
HGB Hamburger Geschäftsberichte GmbH & Co. KG, Hamburg, Germany
Freisinger Strasse 5 85716 Unterschleissheim Germany
T +49 (0)89 2880-0 F +49 (0)89 2880 -10319 [email protected] www.pfandbriefbank.com
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