interim report - london stock exchange · 2016. 8. 16. · 30 june 2016 31 decembe r2015 moody’s...

Interim Report 30 June 2016

Contents

1 Directors and other information

3 Management discussion 6 Ratings 7 Business review 9 Regulatory capital and capital adequacy ratios 11 Events after 30 June 2016

12 Statement of directors’ responsibilities in respect of the unaudited condensedinterimfinancialstatements 13 Independent review report on the unaudited condensed interim financialstatements

15 Unauditedcondensedinterimfinancialstatements 16 Income statement – unaudited 17 Statement of comprehensive loss – unaudited18 Statementoffinancialposition–unaudited 19 Statement of changes in equity – unaudited20 Cashflowstatement–unaudited21 Notestotheunauditedcondensedinterimfinancialstatements

1Directors and other information

Board of DirectorsMr. E.-A. Brockhaus1) (German) (Chairman)Ms. F. FlanneryMr. F. Hellwig1) (German)Dr. H. Horn (German)Mr. C. Müller1) (German)Mr. P. Ryan1)

Dr. P. Schad (German)Ms. S. Webb1)

1) Non-Executive

Secretary & Registered OfficeMs. E. Tiernan1 Commons StreetDublin 1, Ireland

2

SolicitorsArthur CoxEarlsfort CentreEarlsfort TerraceDublin 2, Ireland

AuditorsKPMGChartered Accountants Statutory Audit Firm 1 Harbourmaster PlaceIFSC, Dublin 1, Ireland

Cover Assets Monitor Capita International Financial Services (Ireland) Ltd2 Grand Canal SquareDublin 2, Ireland

Registered Number 354382

3Management discussion

4

The Directors of DEPFA ACS BANK (“the Bank”) present their management discussion and the unaudited condensed interim financial statements (“the Interim Report”) for the six month period ended 30 June 2016.

Ownership The Bank is part of the DEPFA Group (“the DEPFA Group”) which comprises DEPFA BANK plc and its subsidiaries. The entire share capital of DEPFA ACS BANK is held by DEPFA BANK plc. On 19 December 2014 the entire ordinary share capital of DEPFA BANK plc, the parent of the Bank, was acquired by FMS Wertmanagement AöR, a German State Agency established by the Federal Republic of Germany and to which the DEPFA Group transferred non strategic positions in 2010. Prior to this date and since 2 October 2007, the entire ordinary share capital of DEPFA BANK plc was held by Hypo Real Estate Holding AG (“HRE Holding”), the parent entity of the Hypo Real Estate Group (“HRE Group”). FMS Wertmanagement AöR is a German State Agency established in 2010 as the Federal Republic of Germany’s winding up institution for the nationalised HRE Group. FMS Wertmanagement AöR is under the direct ownership of the German Financial Markets Stabilisation Fund/German Finanzmarktstabilisierungsfonds (“SoFFin”), which is managed by the Federal Agency for Financial Market Stabilisation (“FMSA”).

There was no change in the ownership of the Bank during the first half of 2016.

Principal activities The Bank’s primary purpose is the issuance of asset covered securities (“ACS”) in accordance with the Irish Asset Covered Securities Act, 2001 as amended by the Asset Covered Securities (Amendment) Act 2007 (“the Legislation”). Accordingly, the principal activities of the Bank are the management of public sector assets and the ongoing administration of ACS in accordance with the Legislation, subject to the conditions imposed by the European Commission’s approval, on 18 July 2011, of the state aid in relation to the stabilisation measures granted to the HRE Group by the Federal Republic of Germany. The Bank continues to wind down its portfolios in a manner designed to maintain value. The ACS are secured by a cover pool of public sector assets (“the cover pool”), which also includes cover asset hedge contracts. The jurisdictions of the public sector entity with the financial obligation under the assets are restricted by the Legis-lation to member countries of the European Economic Area, US, Canada, Japan, Switzerland, Australia and New Zealand.

The Bank is regulated by the Central Bank of Ireland and has a full banking licence. In addition, the Bank is a designated credit institution as defined under the Legislation.

5Management discussion

Major events

Going concernFollowing the transfer of ownership of the DEPFA Group including the Bank to FMS Wert-management AöR on 19 December 2014, the Directors continue to consider the appropriateness of the going concern assumption in the preparation of the unaudited condensed interim financial statements of DEPFA ACS BANK.

The Directors understand that the DEPFA Group including the Bank was transferred to FMS Wertmanagement AöR as a going concern and will continue its principal activities, being the wind down of its portfolios in a manner designed to maintain value. The Directors consider that the liquidity position of the DEPFA Group including the Bank is stable and that it continues to be in a position to meet its own funding requirements. The DEPFA Group is not currently dependent on funding from FMS Wertmanagement AöR and is expected to be able to meet its obligations as they fall due for a minimum period of one year from the date of this report. The Directors have also considered that the regulatory capital ratios are currently, and are expected to continue to be, significantly in excess of the required minimum ratios for a minimum period of one year from the date of this report.

The Directors have therefore concluded that it is appropriate to prepare the unaudited condensed interim financial statements on a going concern basis of accounting.

6 Ratings

Senior unsecured and covered bonds ratings of DEPFA ACS BANK are shown in the table below:

Senior unsecured and covered bonds ratings of DEPFA ACS BANK1)

30 June 2016 31 December 2015

Moody’sStandard &

Poor’s Moody’sStandard &

Poor’s

Long-term rating Ba12) A– Ba1 A–

Outlook Stable Stable Stable Stable

Short-term rating NP2) A–23) NP A–23)

Asset Covered Securities Aa23) – Aa23) WR4)

1) Ratings from mandated rating agencies2) On review for upgrade3) Stable outlook4) WR – Standard & Poor’s DEPFA ACS BANK covered bonds ratings withdrawn on 14 August 2015

The ratings assigned by the rating agencies do not necessarily represent the opinion of DEPFA BANK plc or any of the banks in the DEPFA Group. The rating agencies may alter or withdraw their ratings at any time. For the evaluation and usage of ratings, please refer to the rating agencies relevant criteria and explanations, terms of use, copyrights and disclaimers. Ratings should not substitute individual analysis. Ratings do not constitute any recommendation to purchase, hold or sell securities issued by DEPFA ACS BANK.

7Management discussionRatingsBusiness review

Business review

Review of performance The Bank has reported a pre-tax loss of € –6 million for the first half of 2016, compared with a € –8 million pre-tax loss in the prior period. The improved result includes decreases in Net expense from financial investments and Net fee and commission expense, offset by an increase in General administrative expenses and a decrease in Net interest income.

Net interest income has reduced from €15 million for the prior period to €10 million for the current period, primarily due to interest earned on the lower asset base in the Statement of Financial Position. Net fee and commission expense has decreased to € –1 million for the current period, compared with € –9 million in the prior period, primarily due to prior period losses of € –5 million on the termination of intragroup guarantees. Net expense from financial investments changed from € –10 million in the prior period to € nil in the current period, due to decreased losses on asset sales. General administrative expenses has increased to € –19 million for the current period, compared with € –9 million in the prior period, mainly due to a levy in relation to the Bank Resolution Fund of € –8 million and an increase in intragroup recharges from DEPFA BANK plc of € –2 million.

The result in 2016 compared with the previous period is detailed in the following table:

Income statement – unauditedHalf Year ended on

€ m 30.06.2016 30.06.2015

Net interest income 10 15

Net fee and commission expense –1 – 9

Net trading income 4 1

Net expense from financial investments – –10

Net income /expense from hedge relationships 1 –

Other operating income – 3

Total operating revenues 14 –

Provisions for /reversals of allowance for losses on loans and advances –1 1

General administrative expenses –19 – 9

Pre-tax loss –6 –8

Taxes on income – –

Net loss –6 –8

8

Development in assets, liabilities and equityTotal assets of the Bank amounted to €25.1 billion at 30 June 2016, compared with € 24.7 billion as at 31 December 2015. The total Bank liabilities amounted to € 24.2 billion as at 30 June 2016, compared with €23.9 billion as at 31 December 2015. The DEPFA Group including the Bank does not currently operate any new business in line with the conditions imposed by the European Commission state aid approval.

The increases in total assets and total liabilities are mainly attributable to market related changes such as foreign currency exchange rates and interest rates partly offset by maturities of assets and liabilities.

Equity amounted to €807 million as at 30 June 2016 (31 December 2015: €812 million). The move-ment in equity is due to the net loss for the period of € –6 million and the movement in the AfS reserve of €1 million.

Future development in earnings, assets, liabilities and equityof DEPFA ACS BANKDEPFA ACS BANK has recorded a pre-tax loss of € –6 million for the first half of 2016. The 2016 net loss includes net profits of €1 million (2015: €2 million) from the early repayment of liabilities. The extent of similar gains in future years will depend on market and other developments. The Bank’s future position may also be adversely affected by higher additions to provisions for losses on loans and advances which may have to be incurred, or there may be other adverse factors such as serious turmoil in financial markets or the defaults of sovereign states.

Total assets in 2016 increased by €0.3 billion and total liabilities increased by €0.3 billion. The increase in total assets and liabilities also includes maturities, repayments and derivative termi-nations or restructurings as well as net increases due to changes in foreign exchange rates and interest rates. Apart from changes due to developments in foreign exchange rates and interest rates, it is expected that total assets and liabilities will decline in the second half of 2016 due to the fact that the Bank is not currently undertaking any new business. However, the development in total assets is not fully subject to the control of the Bank. Market-related factors such as changes in foreign currency exchange rates and interest rates can also have an impact on total assets and liabilities.

Opportunities, risks and uncertaintiesThe DEPFA Group has considered the potential impacts of the result of the UK referendum in June 2016 on leaving the European Union (“Brexit”).

The DEPFA Group considers that the direct impacts on the DEPFA Group including the Bank are low given the low level of exposures in the DEPFA Group including the Bank to the UK. The longer term macroeconomic implications of Brexit and related impacts on asset prices and global economic conditions remain uncertain and could have an adverse impact on the DEPFA Group including the Bank.

Other than the above the opportunities, risks and uncertainties facing the DEPFA Group including DEPFA ACS BANK for the remainder of the current financial year have not changed significantly from those disclosed in the 2015 Annual Report and are related mainly to European and global economic conditions, rating agency actions and liquidity risks.

9Management discussionBusiness reviewRegulatory capital and capital adequacy ratios

Regulatory capital and capital adequacy ratios

Since 1 January 2014 the regulatory capital and capital adequacy ratios have been produced in accordance with the Capital Requirements Directives 2013/36 /EU and the Capital Requirements Regulation No 575 /2013 (transcribed into Irish law under the European Union (Capital Require-ments) Regulations 2014 (S.I. 158 /2014 and S.I. 159 /2014)). These directives and regulations are together referred to as CRD IV. Following the introduction of CRD IV on 1 January 2014 a number of transitional provisions apply both to the eligibility of capital instruments (“Grandfathering”) and the phasing-in of deductions. Where figures are noted as “transitional” basis the transitional provisions have been applied, in comparison to the “fully loaded” basis where all figures reflect the fully implemented CRD IV rules.

The Bank is regulated by the Central Bank of Ireland, which applies a capital/risk framework for measuring capital adequacy based on the CRD IV. The Bank uses the CRD IV standardised approach to calculate the risk weighted assets (“RWA”).

CRD IV, on a fully loaded basis, requires a minimum total capital ratio at a legal entity level of 8%, with a minimum CET1 ratio of 4.5% and a minimum tier 1 capital ratio of 6.0%. A number of capital buffers have been established under CRD IV. Of these, the capital conservation buffer will be phased in from 2016 (0.625% for 2016 and increasing to 2.5% by 2019). The capital conservation buffer of 2.5% is designed to enable the Bank to withstand future periods of stress bringing the CET1 requirement to 7.0%. The capital conservation buffer also increases the total capital ratio requirement to 10.5%.

In addition, the local regulators can require countercyclical capital and systemic risk buffers to be held. These buffers aim to ensure that the capital requirements take account of the macro- financial environment in which banks operate. The countercyclical capital buffer ranges from 0% to 2.5% of RWA. The systemic risk buffer will range from 0% to 3% of RWA, but can be higher in certain circumstances. These additional buffers do not currently have any impact on the Bank.

During 2016, under this framework, banks were required to maintain a minimum tier 1 capital of 6.625% (2015: 6.0%) and a total capital of 8.625% (2015: 8.0%) of RWA (known as Pillar One requirements) determined on a transitional basis.

At 30 June 2016, with a tier 1 capital ratio of 35.34% (31 December 2015: 31.99%) and a total capital ratio of 62.26% (31 December 2015: 56.90%), the Bank exceeds the minimum required ratios (Tier 1 capital ratio 6.625% (2015: 6.0%), Total capital ratio 8.625% (2015: 8.0%)).

10

The following table outlines the CRD IV transitional capital /capital ratios with the fully loaded capital /capital ratios for comparison.

Regulatory capital30.06.2016 31.12.2015

CRD IV basis CRD IV basis

€ m Transitional Fully loaded Transitional Fully loaded

CET1 capital 637 637 644 645

Total Tier 1 capital 637 637 644 645

Tier 2 capital 486 409 501 410

Total capital 1,123 1,046 1,145 1,055

Capital adequacy ratios30.06.2016 31.12.2015

CRD IV basis CRD IV basis

Transitional Fully loaded Transitional Fully loaded

Risk Weighted Assets (€ m) 1,804 1,804 2,011 2,011

CET1 capital ratio (%) 35.34% 35.33% 31.99% 32.06%

Tier 1 capital ratio (%) 35.34% 35.33% 31.99% 32.06%

Total capital ratio (%) 62.26% 58.02% 56.90% 52.43%

11Management discussionRegulatory capital and capital adequacy ratiosEvents after 30 June 2016

Events after 30 June 2016

There have been no notable events after 30 June 2016.

12 Statement of directors’ responsibilities in respect of the unaudited condensed interim financial statements

Each of the Directors, whose names and functions are listed on page 1, confirm our responsibility for preparing the unaudited condensed interim financial statements in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the Transparency Rules of the Central Bank of Ireland and with IAS 34 Interim Financial Reporting, as adopted by the EU, and to the best of each person’s knowledge and belief:

(a) the unaudited condensed interim financial statements comprising the unaudited income statement, the unaudited statement of comprehensive loss, the unaudited statement of f inancial position, the unaudited statement of changes in equity, the unaudited cash flow statement and related notes 1 to 38 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

(b) the interim management discussion includes a fair review of the information required by:(i) Regulation 8 (2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an

indication of important events that have occurred during the first six months of the financial year and their impact on the set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii) Regulation 8 (3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the Board

Ernst-Albrecht Brockhaus Holger Horn Fiona Flannery Elaine TiernanDirector Director Director Company Secretary

28 July 2016

13Independent review report on the unaudited condensed interim financial statements

IntroductionWe have been engaged by DEPFA ACS BANK (“the Bank”) to review the unaudited condensed financial statements in the Interim Report for the six months ended 30 June 2016 which comprises the unaudited income statement, unaudited statement of comprehensive loss, unaudited state-ment of financial position, unaudited statement of changes in equity, unaudited cash flow statement and the related explanatory notes 1 to 38. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards as adopted by the EU (“IFRSs”). Our review was conducted in accordance with the Financial Reporting Council’s (“FRCs”) International Standard on Review Engagements (“ISRE”) (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’.

ConclusionBased on our review, nothing has come to our attention that causes us to believe that the unaudited condensed set of financial statements in the Interim Report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU, the TD Regulations and the Transparency Rules of the Central Bank of Ireland.

Basis of our report, responsibilities and restriction on useThe Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the TD Regulations and the Transparency Rules of the Central Bank of Ireland. As disclosed in note 1, the annual financial statements of the Bank are prepared in accordance with IFRSs as adopted by the EU. The Directors are responsible for ensuring that the unaudited condensed set of financial statements included in this Interim Report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility is to express to the Bank a conclusion on the unaudited condensed set of financial statements in the Interim Report based on our review.

We conducted our review in accordance with the Financial Reporting Council’s International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We read the other information contained in the Interim Report to identify material inconsistencies with the information in the unaudited condensed set of financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the review. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

14

This report is made solely to the Bank in accordance with the terms of our engagement to assist the Bank in meeting the requirements of the Transparency (Directive 2004/109/EC) Regulations 2007 as amended (“the TD Regulations”) and the Transparency Rules of the Central Bank of Ireland. Our review has been undertaken so that we might state to the Bank those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Bank for our review work, for this report, or for the conclusions we have reached.

N. Marshall

for and on behalf of KPMG Chartered Accountants, Statutory Audit Firm

1 Harbourmaster PlaceIFSCDublin 1, Ireland

28 July 2016

Unaudited condensed interim financial statements

16 Income statement – unaudited

Income statement – unaudited

Note

Half Year ended on

€ m 30.06.2016 30.06.2015

Interest income and similar income 304 361

Interest expense and similar expenses –295 –348

Net income from early repayment of liabilities 1 2

Net interest income 5 10 15

Fee and commission income 1 –

Fee and commission expense –2 –9

Net fee and commission expense 6 –1 –9

Net trading income 7 4 1

Net expense from financial investments 8 – –10

Net income/expense from hedge relationships 9 1 –

Other operating income 10 – 3

Total operating revenues 14 –

Provisions for/reversals of allowance for losses on loans and advances 17 –1 1

General administrative expenses 11 –19 –9

Pre-tax loss –6 –8

Taxes on income 12 – –

Net loss –6 –8

Attributable to: Equity holders of the parent – 6 – 8

The notes on pages 22 to 49 are an integral part of these unaudited condensed interim financial statements.

17Statement of comprehensive loss – unaudited

Statement of comprehensive loss – unauditedHalf Year ended on 30.06.2016 Half Year ended on 30.06.2015

€ m Before tax Tax Net of tax Before tax Tax Net of tax

Net loss for the period –6 – –6 –8 – –8

Other comprehensive income

Items that are or may be reclassified subsequently to income statement

AfS reserve movement – net 1 – 1 1 – 1

Total other comprehensive income 1 – 1 1 – 1

Total comprehensive loss –5 – –5 –7 – –7

Attributable to: Equity holders of the parent –5 – –5 –7 – –7

Disclosure of components of comprehensive loss – unauditedHalf Year ended on

€ m 30.06.2016 30.06.2015

Net loss for the period –6 –8

Other comprehensive income 1 1

Items that are or may be reclassified subsequently to income statement

AfS reserve movement – net 1 1

Reclassification adjustments for gains/losses included in net income 1 1

Total comprehensive loss –5 –7


18 Statement of financial position – unaudited

Statement of financial position – unaudited

Note 30.06.2016 31.12.2015€ m

Assets

Cash reserve 13 – 12

Trading assets 14 586 356

Loans and advances to other banks 15 1,327 1,318

Loans and advances to customers 16 6,478 6,502

Allowance for losses on loans and advances 17 –3 –2

Financial investments 18 12,977 13,430

Other assets 19 3,688 3,105

Total assets 25,053 24,721

Liabilities

Liabilities to other banks 20 2,869 3,094

Liabilities to customers 21 – 3

Liabilities evidenced by certificates 22 17,889 17,842

Trading liabilities 23 640 409

Provisions 24 – –

Other liabilities 25 2,222 1,929

Current tax liabilities 26 – –

Subordinated capital 27 626 632

Total liabilities 24,246 23,909

Equity

Equity attributable to equity holders

Share capital 28 510 510

Retained earnings 29 108 114

Capital contribution 30 200 200

Other reserves – AfS 31 –11 –12

Total equity 807 812

Total equity and liabilities 25,053 24,721


19Statement of changes in equity – unaudited

Statement of changes in equity - unauditedOther

reserves

€ mShare

capitalRetained earnings

Capital contribution

Unrealised gains/losses on available-

for-sale investments

Total equity

Balance at 1 January 2015 510 123 – –14 619

Net loss for the period – – 8 – – – 8

Net changes in available-for-sale investments, net of tax – – – 1 1

Total recognised comprehensive loss – –8 – 1 –7

Balance at 30 June 2015 510 115 – –13 612

Balance at 1 January 2016 510 114 200 –12 812

Net loss for the period – – 6 – – – 6

Net changes in available-for-sale investments, net of tax – – – 1 1

Total recognised comprehensive loss – –6 – 1 –5

Balance at 30 June 2016 510 108 200 –11 807


20 Cash flow statement – unaudited

Cash flow statement – unaudited

Note

Half Year ended on

30.06.2016 30.06.2015€ m

Cash flows from operating activities

Pre-tax loss for the period –6 –8

Adjustments for non-cash movements:

Foreign exchange loss /(gain) – –3

Net change in accrued interest income and expense –20 –

Provisions for /reversals of allowance for losses on loans and advances 1 –1

Loss on sale of investment securities and loans – 10

Income from early repayment of liabilities –1 –2

Other non cash items (including amortisations) –2 5

Net decrease in loans and advances to other banks 6 703

Net decrease in loans and advances to customers 159 2,202

Net decrease in other assets 1 10

Net decrease in liabilities to other banks –206 –158

Net decrease in liabilities to customers –3 –15

Net decrease in liabilities evidenced by certificates –565 –3,829

Net (decrease) / increase in other liabilities –17 4

Net increase /(decrease) in derivatives 59 –145

Tax paid – –

Net cash from operating activities –594 –1,227

Cash flows from investing activities

Purchase of investment securities – –331

Sale /maturity of investment securities 594 1,558

Net cash from investing activities 594 1,227

Net increase/(decrease) in cash and cash equivalents – –

Cash and cash equivalents at the beginning of the period 13 – –

Cash and cash equivalents at the end of the period 13 – –

Included in the cash flows from operating activities for the period are the following amounts:

Interest income received 297 477

Interest expense paid –308 –464


21Notes to the unaudited condensed interim financial statements

22 (1) General information

Accounting policies 23 (2) Summaryofsignificantaccountingpolicies 23 (3) Criticalaccountingestimatesandjudgements Segment reporting 24 (4) Business segments

Notes to the income statement 25 (5) Netinterestincome 25 (6) Netfeeandcommissionexpense 26 (7) Nettradingincome 26 (8) Netexpensefromfinancialinvestments 26 (9) Netincome/expensefromhedgerelationships 27 (10) Otheroperatingincome 27 (11) Generaladministrativeexpenses 27 (12) Taxesonincome

Notes to the statement of financial position 28 (13) Cashreserve 28 (14) Tradingassets 29 (15) Loansandadvancestootherbanks 30 (16) Loansandadvancestocustomers 30 (17) Allowanceforlossesonloansandadvances 31 (18) Financialinvestments 32 (19) Otherassets 32 (20) Liabilitiestootherbanks 32 (21) Liabilitiestocustomers 33 (22) Liabilitiesevidencedbycertificates 33 (23) Tradingliabilities 34 (24) Provisions 34 (25) Otherliabilities 34 (26) Currenttaxliabilities 34 (27) Subordinatedcapital 35 (28) Sharecapital36 (29) Retainedearnings 36 (30) Capitalcontribution 36 (31) Otherreserves–AfS

Notes to the financial instruments 37 (32) Derivativefinancialinstruments 38 (33) Transfersoffinancialassetsand collateralpledgedorheld 40 (34) Fairvaluesoffinancialassetsandliabilities

Other notes 48 (35) Contingentliabilitiesandcommitments 48 (36) Exchangeratesasat30June2016 48 (37) Relatedpartytransactions 49 (38) Eventsafterthereportingdate

22

(1) General information

DEPFAACSBANK(“theBank”)ispartoftheDEPFAGroup(“ theDEPFAGroup”),whichcomprisesDEPFABANKplcanditssubsidiaries.

Theunauditedcondensedinterimfinancialstatementsforthesixmonthsended30June2016areunauditedbuthavebeenreviewedbytheauditorwhosereportissetoutonpages13and14.ThefinancialinformationpresentedhereindoesnotamounttostatutoryfinancialstatementsthatarerequiredbytheCompaniesAct2014tobeannexedtotheannualreturnoftheBank.Thestatutoryfinancialstatementsforthefinancialyearended31December2015willbefiledwiththeRegistrarofCompaniesalongwiththeannualreturnby13September2016.Theauditreportonthosestatutoryfinancialstatementswasunqualifiedanddidnotcontainanymatterstowhichattentionwasdrawnbywayofemphasisofmatter.

TheBank’sprimarypurposeistheissuanceofassetcoveredsecurities(“ACS”)inaccordancewiththeIrishAssetCoveredSecuritiesAct,2001asamendedbytheAssetCoveredSecurities(Amendment)Act2007(“theLegislation”).Accordingly,theprincipalactivitiesoftheBankarethemanagementofpublicsectorassetsandtheongoingadministrationofACSinaccordancewiththeLegislation,subjecttotheconditionsimposedbytheEuropeanCommission’sapproval,on18July2011,ofthestateaidinrelationtothestabilisationmeasuresgrantedtotheHypoRealEstateGroup(“theHREGroup”)bytheFederalRepublicofGermany.TheACSaresecuredbyacoverpoolofpublicsectorassets(“thecoverpool”)whichalsoincludescoverpoolassethedgecontracts.ThejurisdictionsofthepublicsectorentitywiththefinancialobligationundertheassetsarerestrictedbytheLegislationtomembercountriesoftheEuropeanEconomicArea,US,Canada,Japan,Switzerland,AustraliaandNewZealand.

TheBankisregulatedbytheCentralBankofIrelandandhasafullbankinglicence.Inaddition,theBankisadesignatedcreditinstitutionasdefinedundertheLegislation.

On19December2014theentireordinarysharecapitalofDEPFABANKplc,theparentoftheBank,wasacquiredbyFMSWertmanagementAöR,aGermanStateAgencyestablishedbytheFederalRepublicofGermanyandtowhichtheDEPFAGrouptransferrednonstrategicpositionsin2010.Priortothisdate,andsince2October2007,theentireordinarysharecapitalofDEPFABANKplcwasheldbyHypoRealEstateHoldingAG(“HREHolding”),theparententityoftheHREGroup.FMSWertmanagementAöRwasestablishedin2010astheFederalRepublicofGermany’swindingupinstitutionforthenationalisedHREGroup.FMSWertmanagementAöRisunderthedirectownershipoftheGermanFinancialMarketsStabilisationFund/GermanFinanzmarktstabilisierungsfonds(“SoFFin”),whichismanagedbytheFederalAgencyforFinancialMarketStabilisation(“FMSA”).

TherewasnochangeintheownershipoftheBankduringthefirsthalfof2016. TheBankcontinuestowinddownitsportfoliosinamannerdesignedtomaintainvalue.

TheannualfinancialstatementsoftheBankarepreparedinaccordancewithInternationalFinancialReportingStandards(“IFRSs”)asadoptedbytheEuropeanUnion(“EU”).

23UnauditedcondensedinterimfinancialstatementsNotes to the unauditedcondensed interim financialstatementsAccountingpolicies

Accountingpolicies

(2) Summary of significant accounting policies

Basis of preparationTheunauditedcondensedinterimfinancialstatementshavebeenpreparedinaccordancewithIAS34InterimFinancialReportingasadoptedbytheEU.Thefinancialinformationcontainedintheunauditedcondensedinterimfinancialstatementshasbeenpreparedinaccordancewiththeaccountingpoliciessetoutinthelastfinancialstatements,includedinthe2015AnnualReportavailableatwww.depfa.com.

Theunauditedcondensedinterimfinancialstatementsarepreparedonagoingconcernbasis.FollowingtheannouncementthattheownershipoftheDEPFAGroupwouldbetransferredbyHREHoldingtoFMSWertmanagementAöRandthesubsequentexecutionofthattransferon19December2014,theDirectorshaveconsideredtheappropriatenessofthegoingconcernassumptioninthepreparationoftheunauditedcondensedinterimfinancialstatements.

TheDirectorsunderstandthattheDEPFAGroupincludingtheBankwastransferredtoFMSWertmanagementAöRasagoingconcernandwillcontinueitsprincipalactivities,beingthewinddownofitsportfoliosinamannerdesignedtomaintainvalue.TheDirectorsconsiderthattheliquiditypositionoftheDEPFAGroupincludingtheBankisstableandthatitcontinuestobeinapositiontomeetitsownfundingrequirements.TheDEPFAGroupisnotcurrentlydependentonfundingfromFMSWertmanagementAöRandisexpectedtobeabletomeetitsobligationsastheyfalldueforaminimumperiodofoneyearfromthedateofthisreport.TheDirectorshavealsoconsideredthattheregulatorycapitalratiosarecurrently,andareexpectedtocontinuetobe,significantlyinexcessoftherequiredminimumratiosforaminimumperiodofoneyearfromthedateofthisreport.

TheDirectorshavethereforeconcludedthatitisappropriatetopreparetheunauditedcondensedinterimfinancialstatementsonagoingconcernbasisofaccounting.

Initially adopted standards, interpretations and amendments Standards,interpretationsandamendmentswhichwereadoptedwithaninitialapplicationdateof1January2016comprisedtheAnnualImprovementstoIFRSs2012–2014Cycle.Theseamendmentshavenoimpactontheseunauditedcondensedinterimfinancialstatements.

(3) Critical accounting estimates and judgements

Therehasbeennosignificantchangesincethelastannualfinancialstatementstothepoliciesandestimateswhichmayinvolveahigherdegreeofjudgementandcomplexity(asdisclosedonpages72to73ofthe2015AnnualReport).

24 Segment reporting

(4) Business segments

The internal reporting structure of the DEPFA Group is organised into the following primary business segments, which reflect the basis on which the DEPFA Group was managed by the DEPFA BANK plc Board of Directors (being the chief operating decision maker) during 2016 and 2015: - DEPFA ACS BANK - DEPFA Pfandbrief Bank International S.A. (formerly Hypo Pfandbrief Bank International S.A.) - DEPFA BANK plc and other

The business segment DEPFA ACS BANK includes the assets and liabilities in the DEPFA ACS BANK cover pool as well as other ancillary business in that entity.

The business segment DEPFA Pfandbrief Bank International S.A. includes the assets and liabilities in the DEPFA Pfandbrief Bank International S.A. cover pool as well as other ancillary business in that entity.

DEPFA BANK plc and other includes all other business in the DEPFA Group.

As DEPFA ACS BANK is a separate segment within the DEPFA Group no segmental analysis is being presented in the unaudited condensed interim financial statements.

25Unaudited condensed interimfinancial statementsNotes to the unauditedcondensed interim financialstatementsSegment reportingNotes to the income statement

Notes to the income statement

(5) Net interest income

Net interest incomeHalf Year ended on

€ m 30.06.2016 30.06.2015

Interest income and similar income

Lending and money-market business and government subscribed debt 183 234

Derivatives (net interest income) 121 127

304 361

Interest expense and similar expenses

Deposits and liabilities evidenced by certificates –288 –341

Subordinated capital –7 – 7

–295 –348

Income from early repayment of liabilities 1 2

Total 10 15

Total interest income for financial assets that are not at fair value through profit or loss, amount to €183 million in 2016 (2015: €234 million). Total interest expenses for financial liabilities that are not at fair value through profit or loss amount to €295 million in 2016 (2015: €348 million).

Net interest income includes gains from the buyback of ACS that were redeemed before maturity at prevailing market levels on a reverse enquiry basis, along with ACS which were terminated before their maturity date of €1 million in 2016 (2015: €2 million). These liabilities were included on the statement of financial position in “Liabilities evidenced by certificates” and represented a nominal amount of €66 million (2015: €87 million).

(6) Net fee and commission expense

Net fee and commission expenseHalf Year ended on

€ m 30.06.2016 30.06.2015

Fee and commission income

From lending operations 1 –

1 –

Fee and commission expense

From lending operations –2 – 9

–2 –9

Total –1 –9

Net fee and commission expense totalled € –1 million in 2016, mostly as a result of commission costs incurred for the financial guarantees related to specific assets from DEPFA BANK plc and FMS Wertmanagement AöR (2015: € –9 million).

None of the above fees arose on either trust or fiduciary activities that result in the holding or investing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions.

26

(7) Net trading income

Net trading incomeHalf Year ended on

€ m 30.06.2016 30.06.2015

From interest rate instruments and related interest and foreign exchange derivatives 4 1

Total 4 1

Net trading income relates predominantly to revaluation of stand-alone derivatives which do not satisfy the criteria of IAS 39 hedge accounting €4 million (2015: €1 million).

(8) Net expense from financial investments

Net expense from financial investmentsHalf Year ended on

€ m 30.06.2016 30.06.2015

Expense from financial investments – –10

Total – –10

Net expense from financial investments comprise gains and losses from disposals of financial investments and relate solely to instruments classified as Loans and receivables.

(9) Net income/expense from hedge relationships

Net income/expense from hedge relationshipsHalf Year ended on

€ m 30.06.2016 30.06.2015

Result from fair value hedge accounting

Result from hedged items –130 195

Result from hedging instruments 131 –195

Total 1 –

27Unaudited condensed interimfinancial statementsNotes to the unauditedcondensed interim financialstatementsNotes to the income statement

(10) Other operating income

Other operating incomeHalf Year ended on

€ m 30.06.2016 30.06.2015

Other operating income

Foreign exchange gains – 3

Total – 3

(11) General administrative expenses

General administrative expensesHalf Year ended on

€ m 30.06.2016 30.06.2015

Personnel expenses – –1

Wages and salaries – –1

Other general administrative expenses –19 –8

Total –19 –9

General administrative expenses for 2016 were € –19 million (2015: € –9 million) and mainly comprised recharges from other DEPFA Group entities for services provided of € –10 million (2015: € –8 million), along with Central Bank of Ireland Levies of € –8 million (2015: € nil).

The average number of persons employed by the Bank during the period was 5 (2015: 8).

(12) Taxes on income

Taxes on incomeHalf Year ended on

€ m 30.06.2016 30.06.2015

Current tax – –

Total – –

28 Notes to the statement of financial position

(13) Cash reserve

Cash reserve

30.06.2016€ m 31.12.2015

Mandatory reserve deposits with central banks – 12

Total – 12

Mandatory reserve deposits with central banks are restricted and are required to be held based on certain regulatory requirements. The reduction in the mandatory reserve deposits with central banks is in relation to the repayment of funds pledged under the Deposit Protection Scheme.

(14) Trading assets

Trading assets

30.06.2016€ m 31.12.2015

Stand-alone derivatives (banking book) 586 356

Total 586 356

Of which transacted with Group companies 492 281

Amounts transacted with Group companies in the DEPFA ACS BANK statement of financial position comprise derivatives transacted with other entities in the DEPFA Group and FMS Wertmanagement AöR.

Stand-alone derivatives include derivatives which are economically hedging but which do not meet the detailed hedge accounting criteria under IFRSs.

29Unaudited condensed interimfinancial statementsNotes to the unauditedcondensed interim financialstatementsNotes to the statement of financial position

(15) Loans and advances to other banks

Loans and advances to other banks broken down by type of business as follows:

30.06.2016 31.12.2015€ m

Public sector loans 147 152

Other loans and advances 1,180 1,166

Total 1,327 1,318

Of which due from Group companies 953 656

Balances due from Group companies in the DEPFA ACS BANK statement of financial position include amounts receivable from other entities in the DEPFA Group.

Other loans and advances primarily comprise cash collateral balances in relation to derivative transactions, loans to Group companies and nostro balances.

Loans and advances to other banks broken down by maturities as follows:

30.06.2016 31.12.2015€ m

Repayable on demand 1,179 972

With contractual maturities

up to 3 months 93 199

from 3 months to 1 year – 92

from 1 year to 5 years 55 55

from 5 years and over – –

Total 1,327 1,318

Cash collateral placed in relation to derivative transactions is classified as “Repayable on demand”.

There were no assets past due but not impaired and no assets impaired in 2016 or 2015.

The carrying value on these loans represents the maximum exposure to credit risk on these assets.

30

(16) Loans and advances to customers

Loans and advances to customers broken down by type of business as follows:

30.06.2016 31.12.2015€ m

Public sector loans 6,467 6,502

Other loans and advances 11 –

Total 6,478 6,502

Of which due from Group companies 11 –

Balances due from Group companies in the DEPFA ACS BANK statement of financial position include amounts receivable from FMS Wertmanagement AöR.

Other loans and advances comprise cash collateral balances in relation to derivative transactions with FMS Wertmanagement AöR.

Loans and advances to customers broken down by maturities as follows:

30.06.2016 31.12.2015€ m

Repayable on demand 11 –



from 3 months to 1 year 315 181

from 1 year to 5 years 1,300 1,486

from 5 years and over 4,820 4,788

Total 6,478 6,502

Cash collateral placed in relation to derivative transactions is classified as “Repayable on demand”.


(17) Allowance for losses on loans and advances

Movement in allowance for losses on loans and advances:

Incurred but not reported allowance for losses on loans and advances

2016€ m 2015

At 1 January –2 –3

Provisions for/reversals of incurred but not reported allowance –1 1

At 30 June /31 December –3 –2

The total allowance for losses on loans and advances relates to public sector loans.


(18) Financial investments

Financial investments broken down by type as follows:

30.06.2016€ m 31.12.2015

LaR financial investments 12,977 13,430

Debt securities and other fixed-income securities 12,977 13,430

Total 12,977 13,430

Of which due from Group companies 2,051 2,052

Balances due from Group companies in the DEPFA ACS BANK statement of financial position include amounts receivable from FMS Wertmanagement AöR.

The above amounts include the following amounts on which financial guarantees have been received from other Group entities.

Guarantee provider

30.06.2016€ m 31.12.2015

DEPFA BANK plc 428 436

FMS Wertmanagement AöR 288 150

Total 716 586

Financial investments broken down by maturities as follows:

30.06.2016€ m 31.12.2015



from 3 months to 1 year 671 744



Total 12,977 13,430


The carrying value of these financial investments represents the maximum exposure to credit risk on these assets.

32

(19) Other assets

Other assets

30.06.2016€ m 31.12.2015

Hedging derivatives – positive fair value (micro fair value hedge) 3,671 3,088

Other assets 17 17

Total 3,688 3,105

Of which due from Group companies 3,186 2,629

Balances due from Group companies in the DEPFA ACS BANK statement of financial position include amounts receivable from other entities in the DEPFA Group and FMS Wertmanagement AöR.

(20) Liabilities to other banks

Liabilities to other banks broken down by maturities as follows:

30.06.2016 31.12.2015€ m

Repayable on demand 2,618 2,088


up to 3 months 251 1,006

Total 2,869 3,094

Of which due to Group companies 2,629 2,879

Balances due to Group companies in the DEPFA ACS BANK statement of financial position include amounts payable to other entities in the DEPFA Group.

Included under “Liabilities to other banks” are amounts due under repurchase agreements.

Cash collateral received in relation to derivative transactions is classified as “Repayable on demand”.

(21) Liabilities to customers

Liabilities to customers broken down by maturities as follows:

30.06.2016€ m 31.12.2015

Repayable on demand – 3

Total – 3

Of which due to Group companies – 3

Balances due to Group companies in the DEPFA ACS BANK statement of financial position include amounts payable to FMS Wertmanagement AöR.

Liabilities to customers comprises collateral received from FMS Wertmanagement AöR in relation to derivative transactions.


(22) Liabilities evidenced by certificates

Liabilities evidenced by certificates broken down by type of business as follows:

30.06.2016 31.12.2015€ m

Public sector bonds 17,889 17,842

Total 17,889 17,842

Of which due to Group companies 6,407 –

Balances due to Group companies in the DEPFA ACS BANK statement of financial position include amounts payable to FMS Wertmanagement AöR.

Liabilities evidenced by certificates broken down by maturities as follows:

30.06.2016 31.12.2015€ m



from 3 months to 1 year 5,089 4,475



Total 17,889 17,842

(23) Trading liabilities

Trading liabilities

30.06.2016€ m 31.12.2015

Stand-alone derivatives (banking book) 640 409

Total 640 409

Of which transacted with Group companies 478 291

Amounts transacted with Group companies in the DEPFA ACS BANK statement of financial position comprise derivatives transacted with other entities in the DEPFA Group.

Stand-alone derivatives include derivatives which are economically hedging but which do not meet the detailed hedge accounting criteria under IFRSs.

34

(24) Provisions

Provisions

2016 2015€ m

At 1 January – 1

Additions – –

Amounts used – –1

At 30 June /31 December – –

Provisions related to IT Separation provisions, which included the Bank’s obligations in connec-tion with the separation of the DEPFA Group’s IT infrastructure from that of the HRE Group. This provision was fully utilised during the prior period.

(25) Other liabilities

Other liabilities

30.06.2016€ m 31.12.2015

Hedging derivatives – negative fair value (micro fair value hedge) 2,181 1,871

Other liabilities 41 58

Total 2,222 1,929

Of which due to Group companies 1,802 1,220

Balances due to Group companies in the DEPFA ACS BANK statement of financial position include amounts payable to other entities in the DEPFA Group and FMS Wertmanagement AöR.

(26) Current tax liabilities

Current tax liabilities

30.06.2016€ m 31.12.2015

Current tax liabilities – –

Total – –

(27) Subordinated capital

Subordinated capital

30.06.2016€ m 31.12.2015

Subordinated liabilities 626 632

Total 626 632

Of which due to Group companies 626 632

Balances due to Group companies in the DEPFA ACS BANK statement of financial position include amounts payable to other entities in the DEPFA Group.


Subordinated capital broken down by maturities as follows:

30.06.2016€ m 31.12.2015

With contractual maturities 436 442

from 5 years and over 436 442

No fixed maturity 190 190

Total 626 632

The subordinated capital is analysed by nominal, maturity and interest rate below:

Subordinated liabilities€ m Issuer maturity Interest rate 30.06.2016 31.12.2015

DEPFA Finance N.V., 8.6.2030 Euribor + 0.8849% 50 50

DEPFA Finance N.V., 30.10.2028 6.55% 60 60

DEPFA Ireland Holding Limited, perpetual note Euribor + 0.425% 130 130

DEPFA Ireland Holding Limited, perpetual note Euribor + 0.72% 60 60

DEPFA Ireland Holding Limited, 28.6.2031 Euribor + 0.285% 75 75

DEPFA Finance N.V., 21.3.20325.099% until 2017, thereafter Euribor + 1.94% 170 170

DEPFA BANK plc, 15.10.2029 Euribor + 0.325% 70 70

Total 615 615

With all subordinated liabilities, there can be no early repayment obligation on the part of the issuer. In the event of bankruptcy or liquidation, such liabilities may only be repaid after all non-subordinated creditors have been satisfied.

(28) Share capital

The total authorised number of ordinary shares at 30 June 2016 was 1,000,000,000 (31 December 2015: 1,000,000,000) with a par value of €1 each per share (31 December 2015: €1 each per share). 510,000,000 shares were issued at par and are fully paid.

Share capital Number of Shares

in issueOrdinary

SharesShare

premium Total€ m

At 31 December 2015 510,000,000 510 – 510

At 30 June 2016 510,000,000 510 – 510

36

(29) Retained earnings

Retained earnings

2016€ m 2015

At 1 January 114 123

Net loss for the period/year – 6 –9

At 30 June/31 December 108 114

(30) Capital contribution

Capital contribution

2016€ m 2015

At 1 January 200 –

Capital contributions from parent company – 200

At 30 June/31 December 200 200

The capital contributions are considered distributable.

(31) Other reserves – AfS

Other reserves

30.06.2016€ m 31.12.2015

Unrealised losses from available-for-sale investment securities –11 –12

Total –11 –12

Unrealised losses from available-for-sale investment securities

2016€ m 2015

At 1 January –12 –14

Net gains transferred to net loss, net of tax 1 2

At 30 June /31 December –11 –12

37Unaudited condensed interimfinancial statementsNotes to the unauditedcondensed interim financialstatementsNotes to the statement of financial positionNotes to the financial instruments

Notes to the financial instruments

(32) Derivative financial instruments

Derivative financial instruments

30.06.2016 31.12.2015€ m

Assets

Trading assets (note 14) 586 356

Other assets (note 19) 3,671 3,088

Total assets 4,257 3,444

Liabilities

Trading liabilities (note 23) 640 409

Other liabilities (note 25) 2,181 1,871

Total liabilities 2,821 2,280

The fair values of derivative instruments held are set out below.

Volume of derivatives at 30 June 2016

Notional amount Fair value

Remaining maturities

€ mLess than

1 year1 to

5 yearsMore than

5 years TotalPositive

fair valuesNegative

fair values

Interest based transactions

Interest rate swaps 5,586 6,197 10,295 22,078 3,402 2,452

Total 5,586 6,197 10,295 22,078 3,402 2,452

Foreign currency based transactions

Interest rate/currency swaps 3,884 1,818 1,452 7,154 836 341

Spot and forward currency transactions 2,440 – – 2,440 19 28

Total 6,324 1,818 1,452 9,594 855 369

Total 11,910 8,015 11,747 31,672 4,257 2,821

Volume of derivatives at 31 December 2015

Notional amount Fair value

Remaining maturities

€ mLess than

1 year1 to

5 yearsMore than

5 years TotalPositive

fair valuesNegative

fair values

Interest based transactions

Interest rate swaps 4,633 7,106 11,159 22,898 2,970 2,075

Total 4,633 7,106 11,159 22,898 2,970 2,075

Foreign currency based transactions

Interest rate/currency swaps 3,323 2,081 1,467 6,871 445 188

Spot and forward currency transactions 1,717 – – 1,717 29 17

Total 5,040 2,081 1,467 8,588 474 205

Total 9,673 9,187 12,626 31,486 3,444 2,280

38

Derivatives counterparties 30.06.2016 31.12.2015

€ mPositive

fair valuesNegative

fair valuesPositive

fair valuesNegative

fair values

OECD banks and financial institutions 4,257 2,821 3,444 2,280

Total 4,257 2,821 3,444 2,280

Derivatives with Group companies included in the above are:

Derivatives with Group companies 30.06.2016 31.12.2015

€ mPositive

fair valuesNegative

fair valuesPositive

fair valuesNegative

fair values

OECD banks and financial institutions 3,663 2,240 2,894 1,454

Total 3,663 2,240 2,894 1,454

Fair values appear as sum of positive and negative amounts per contract, from which no pledged security has been deducted and no legally enforceable netting agreements are in place.

(33) Transfers of financial assets and collateral pledged or held

In the ordinary course of its business the Bank enters into transactions that result in the transfer of financial assets that consist primarily of debt securities classified as “Financial investments”, “Loans and advances to other banks” and “Loans and advances to customers”. The transferred assets continue either to be recognised in their entirety or to the extent of the Bank’s continuing involvement or are derecognised in their entirety.

Transferred financial assets that are not derecognised in their entirety Sale and repurchase agreements Sale and repurchase agreements (“repos”) are transactions in which the Bank sells a security and simultaneously agrees to repurchase it at a fixed price on a future date. The Bank continues to recognise the securities in their entirety in the statement of financial position because it retains substantially all the risks and rewards of ownership. The obligation to pay the repurchase price is recognised as a financial liability. As the Bank sells the contractual rights to the cash flows of the securities it does not have the ability to use the transferred assets during the term of the arrangement.

39Unaudited condensed interimfinancial statementsNotes to the unauditedcondensed interim financialstatementsNotes to the financial instruments

The following table sets out an overview of carrying amounts related to transferred financial assets that are not derecognised in their entirety and the associated liabilities:

30.06.2016€ m 31.12.2015

Financial investments 15 14

Total 15 14

Carrying amounts of associated liabilities

30.06.2016€ m 31.12.2015

Liabilities to other banks 16 14

Total 16 14

Transferred assets that are derecognised in their entiretyIn general, the Bank has no continuing involvement in transferred and derecognised assets.

Other pledges and charges on assets The Central Bank of Ireland (“CBI”) implemented a new collateral management system for Euro-system Credit Operations with effect from 26 May 2014. Under this new arrangement the Master Repo Agreement (“MRA”) signed by DEPFA ACS BANK and the CBI as part of the CBI’s Docu-mentation on Monetary Policy Instruments and Procedures was terminated and replaced by a Framework Agreement. With effect from 26 May 2014 DEPFA ACS BANK’s repo operations under the MRA have been replaced by an arrangement for secured lending. Under the terms of the Framework Agreement DEPFA ACS BANK executed a new deed of charge.

On 7 April 2014 DEPFA ACS BANK granted to the CBI (i) a first fixed charge over all of its present and future rights, title, interest and benefit in and to the Counterparty Collateral Account Assets (as defined therein) and (ii) a first floating charge over all its present and future rights, title, inter-est and benefit in and to the Other Collateral Pool Assets (as defined therein). This fixed and floating charge also contains a negative pledge provision whereby during the subsistence of the security, otherwise than with the prior written consent of the CBI, DEPFA ACS BANK shall not:

(a) create or attempt to create or permit to arise or subsist any encumbrance on or over the charged assets or any part thereof; and

(b) sell, transfer, lend or otherwise dispose of any of the fixed charge assets or any part thereof or attempt or agree to do so whether by means of one or a number of transactions related or not and whether at one time or over a period of time; and

(c) otherwise than in the ordinary course of business, sell, transfer, lend or otherwise dispose of any of the floating charge assets or any part thereof or attempt or agree to do so whether by means of one or a number of transactions related or not and whether at one time or over a period of time.

The Bank has granted certain charges to FMS Wertmanagement AöR on positions which the Bank has derecognised but where the Bank remains as counterparty of record.

In the normal course of business relationships with banking and custodian counterparties, other liens and encumbrances can arise on certain assets from time to time.

40

(34) Fair values of financial assets and liabilities

The following table summarises the carrying amounts and fair values of those financial assets and liabilities presented on the Bank’s statement of financial position.

Bid prices are used to estimate fair values of assets, whereas offer prices are applied for liabilities.

Asset and liability designations in the tables below are as follows:AC – financial assets and liabilities carried at amortised cost.FV – financial assets and liabilities carried at fair value.

Fair value of financial assets and liabilities at 30 June 2016 Carrying

value

Fair value hierarchy level

€ m Fair value Level 1 Level 2 Level 3

Assets

Cash reserve (AC) – – – – –

Trading assets (FV) 586 586 – 586 –

Loans and advances to other banks (AC) 1,327 1,327 1,180 – 147

Loans and advances to customers (net of allowance) (AC) 6,475 6,263 11 3,372 2,880

Financial investments – Category LaR (AC) 12,977 12,607 488 8,494 3,625

Other assets – Hedging derivatives (FV) 3,671 3,671 – 3,579 92

Total 25,036 24,454 1,679 16,031 6,744

Liabilities

Liabilities to other banks (AC) 2,869 2,869 2,869 – –

Liabilities to customers (AC) – – – – –

Liabilities evidenced by certificates (AC) 17,889 17,294 3,672 4,112 9,510

Trading liabilities (FV) 640 640 – 640 –

Other liabilities – Hedging derivatives (FV) 2,181 2,181 – 2,141 40

Subordinated capital (AC) 626 399 – – 399

Total 24,205 23,383 6,541 6,893 9,949

Other items

Contingent liabilities & loan commitments 125 7 – – –


Fair value of financial assets and liabilities at 31 December 2015 Carrying

value

Fair value hierarchy level

€ m Fair value Level 1 Level 2 Level 3

Assets

Cash reserve (AC) 12 12 12 – –

Trading assets (FV) 356 356 – 344 12

Loans and advances to other banks (AC) 1,318 1,318 1,166 5 147

Loans and advances to customers (net of allowance) (AC) 6,500 6,187 – 2,867 3,320

Financial investments – Category LaR (AC) 13,430 12,997 858 8,021 4,118

Other assets – Hedging derivatives (FV) 3,088 3,088 – 3,088 –

Total 24,704 23,958 2,036 14,325 7,597

Liabilities

Liabilities to other banks (AC) 3,094 3,094 3,080 14 –

Liabilities to customers (AC) 3 3 3 – –

Liabilities evidenced by certificates (AC) 17,842 17,139 3,719 3,621 9,799

Trading liabilities (FV) 409 409 – 399 10

Other liabilities – Hedging derivatives (FV) 1,871 1,871 – 1,842 29

Subordinated capital (AC) 632 462 – – 462

Total 23,851 22,978 6,802 5,876 10,300

Other items

Contingent liabilities & loan commitments 225 23 – – –

In the tables above, Level 1 balances under the categories “Loans and advances to other banks”, “Liabilities to other banks” and “Liabilities to customers” relate to nostro cash accounts, short term placements and collateral placed or received in relation to derivative transactions. These positions are considered to be repayable on demand and have interest rates which reset on a daily basis.

Financial assets and liabilities according to measurement categories

31.12.2015€ m 30.06.2016

Assets

Loans and receivables (net) 20,779 21,248

Held-for-trading 586 356

Cash reserve – 12

Derivatives 3,671 3,088

Total 25,036 24,704

Liabilities

Held-for-trading 640 409

Financial liabilities at amortised cost 21,384 21,571

Derivatives 2,181 1,871

Total 24,205 23,851

The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price). The fair values were determined as of the reporting date based on the market information available and on valuation methods described here.

42

The DEPFA Group including DEPFA ACS BANK measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements.

Level 1 – inputs that are quoted market prices (unadjusted) in active markets for identical as-sets and liabilities that the entity can access at the measurement date.Level 2 – inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 – inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.

For positions measured at fair value in the statement of financial position, there have been no transfers of fair value instruments from Level 2 to Level 1 in either 2016 or 2015. Similarly, there have been no transfers of fair value instruments from Level 1 to Level 2 in either 2016 or 2015.

The following table presents the changes in Level 3 fair value instruments for the period for positions measured at fair value in the statement of financial position:

Changes in Level 3 instruments Financial assets Financial liabilities

€ mTrading assets

Hedging derivatives Total

Trading liabilities

Hedging liabilities Total

At 1 January 2015 11 – 11 9 15 24

Comprehensive income recognised in Income Statement 1 – 1 1 – 4 –3

Terminations – – – – – –

Change due to transfer to FMS Wertmanagement AöR – – – – – –

Reclassifications into Level 3 – – – – 19 19

Reclassifications out of Level 3 – – – – –1 –1

At 31 December 2015 12 – 12 10 29 39

At 1 January 2016 12 – 12 10 29 39

Comprehensive income recognised in Income Statement – 1 1 – 10 10

Terminations – – – – – –

Change due to transfer to FMS Wertmanagement AöR – – – – – –

Reclassifications into Level 3 – 91 91 – – –

Reclassifications out of Level 3 –12 – –12 –10 – –10

At 30 June 2016 – 92 92 – 39 39

The Bank recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred.


The DEPFA Group including DEPFA ACS BANK has an established control framework with respect to the measurement of fair values. This framework includes a valuation team which has overall responsibility for all significant fair value measurements, including Level 3 fair values. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair value, then the valuation team assesses and documents the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRSs, including the level in the fair value hierarchy at which the resulting fair value estimate should be classified. Significant valuation issues are reported to the DEPFA BANK plc Audit Committee.

The valuation process is performed by Risk Management & Control in conjunction with the Finance department. The Finance department provides accounting-related data. These include: - Identification data, such as business identification numbers or International Securities Identification Numbers (“ISINs”) - Static data such as counterparties and maturities - Accounting-relevant data, including nominals, accruals, unamortised fees and hedge accounting effects

The Risk Management & Control function provides additional information used as inputs to the fair value measurement, such as interest rates, credit spreads and market prices. For certain financial instruments the function also provides information on internal ratings and loss given default (“LGD”). For positions that are measured on the statement of financial position at fair value, the fair values are calculated and determined directly by Risk Management & Control. For positions that are not measured on the statement of financial position at fair value the data is collected by the Finance department and checked for completeness. The Finance department calculates the fair values of the financial instruments using the valuation methods determined by Risk Management & Control. Following the valuation, the Finance department performs a quality check on the results.

44

The tables below set out information about measurement methods and observable inputs in measuring financial instruments carried at their fair value and categorised as Level 2 in the fair value hierarchy.

Measurement of Level 2 instruments at 30 June 2016 Fair value

€ m Assets Liabilities Measurement methods Observable parameters

Financial assets/liabilities at fair value 4,165 2,782

Trading assets /trading liabilities 586 640

536 600 DCF models FX Rate

Yield Curve

50 40 Option pricing models Cap volatilities

CDS spread

FX rate

FX volatilities

Recovery rate

Seasonality

Swaption volatilities

Yield curve

Fair value hedge derivatives 3,579 2,142

3,237 1,719 DCF models Cap volatilities

Seasonality

Yield curve


FX rate

FX volatilities

Seasonality


Yield curve


Measurement of Level 2 instruments at 31 December 2015 Fair value

€ m Assets Liabilities Measurement methods Observable parameters

Financial assets/liabilities at fair value 3,432 2,241

Trading assets /trading liabilities 344 399

325 381 DCF models FX Rate

Yield Curve


CDS spread

Correlation

FX rate

FX volatilities

Recovery rate

Seasonality


Yield curve

Fair value hedge derivatives 3,088 1,842

2,677 1,516 DCF models Cap volatilities

Seasonality

Yield curve


Correlation

FX rate

FX volatilities

Seasonality


Yield curve

46

The tables below set out information about measurement methods and unobservable inputs in measuring financial instruments carried at their fair value and categorised as Level 3 in the fair value hierarchy.

Measurement of Level 3 instruments at 30 June 2016

Fair value Measurement methods

Observable parameters

Non-observable parameters

Parameter range (weighted average)€ m Assets Liabilities

Financial assets /liabilities at fair value

92

39

Fair value hedge derivatives 92 39 Option price models

Cap volatilities ATM-Cap-Vola EUR-EO6M beyond 30 .06.2046

59.46%

Yield curveATM-Swaption-Vola EUR-EO6M beyond 30.06.2046 63.16%

FX rate FX-Vola EUR/USD beyond 30 .06.2026 12.45%

FX-Vola JPY/USD beyond 30 .06.2026 14.11%

FX-Vola JPY/AUD beyond 30 .06.2017 15.53%

FX volatilities FX-Vola EUR/CHF beyond 30 .06.2026 12.87%


Measurement of Level 3 instruments at 31 December 2015

Fair value Measurement methods


Non-observable parameters

Parameter range (weighted average)€ m Assets Liabilities

Financial assets /liabilities at fair value

12 39

Trading assets/trading liabilities

12 10 Option price models


EUR-EONIA beyond 30.12.2065 1.48%

GBP-XO3M beyond 30.12.2065 1.97%

Yield curve GBP-XOIS beyond 30.12.2065 2.14%

Fair value hedge derivatives – 29 Option price models

Cap volatilities ATM-Cap-Vola EUR-EO6M beyond 30.12.2045

28.90%

ATM-Swaption-Vola EUR-EO6M beyond 30.12.2045

36.00%

Correlation Forward-FX Correlation 0.00%

FX-Vola EUR/CHF beyond 30.12.2025 12.32%

FX rate FX-Vola EUR/USD beyond 30.12.2025 11.81%

FX-Vola JPY/AUD beyond 30.12.2016 13.02%

FX volatilities FX-Vola JPY/USD beyond 30.12.2025 12.85%

Historical FX-FX correlations 0.00%

Swaption Historical index-FX correlations 0.00%volatilities Historical index-index correlations 19.49%

Yield curve Index-inflation correlations 0.00%


The estimated fair value of deposits and loans repayable on demand (such as nostro and collateral balances) and the fair value of floating rate placements and overnight deposits at the reporting date is their carrying amount. The table below outlines the valuation methodology of amortised cost positions categorised as Level 2 or Level 3.

Disclosure Requirements for Financial Instruments (FIs) measured at amortised cost

Classes of financial instrumentsValuation methods for fair value level 2


Valuation methods for fair value level 3


Unobservable parameters

Asset

Loans and Receivables (LaR)

Quoted prices in active markets

Quoted prices for proxy trades

Discounted cash flow models

Credit spreads Internal rating classes


Credit spreads Benchmark interest rates

Recovery rates

Benchmark interest rates

Risk free interest rate

Expected remain - ing time to maturity

Risk free interest rate Future cash flows

Expected future cash flows

Future cash flows Adjustment to proxies

Liability Financial liabilities (measured at amortised cost)


Future cash flows Discounted cash flow models

Future cash flows Expected future cash flows

Credit spreads Credit spreads Credit spreads

Quoted prices for proxy trades

Benchmark interest rates

48 Other notes

(35) Contingent liabilities and commitments

Other commitments

30.06.2016€ m 31.12.2015

Guarantees 125 225

The above amounts represent nominal exposures on financial guarantees provided by the Bank to its parent DEPFA BANK plc.

(36) Exchange rates as at 30 June 2016

European Central Bank exchange rates as at 30 June 2016 were:

Exchange rates

€1 = 30.06.2016 31.12.2015

Great Britain GBP 0.82650 0.73395

Japan JPY 114.05000 131.07000

United States of America USD 1.11020 1.08870

Switzerland CHF 1.08670 1.08350

(37) Related party transactions

(a) Key management compensationKey management consists solely of Directors of the Bank. All Key management personnel are paid by DEPFA BANK plc.

There have been no loans to members of the Board in 2016 or 2015, nor are there any loans outstanding to members of the Board at 30 June 2016 (31 December 2015: € nil).

(b) Financial guarantees from related partiesDEPFA BANK plc and FMS Wertmanagement AöR have provided financial guarantees on assets classified as “Financial investments” with a carrying value of €716 million (31 December 2015: €579 million). The financial guarantee transactions are entered into on an arm’s length basis.

(c) Balances and transactions with FMS Wertmanagement AöR and DEPFA Group companiesFMS Wertmanagement AöR is considered a direct related party since 19 December 2014.

Balances due to and from FMS Wertmanagement AöR and DEPFA Group companies as at 30 June 2016 and 31 December 2015 are disclosed in the notes to the statement of the financial position.

49Unaudited condensed interimfinancial statementsNotes to the unauditedcondensed interim financialstatementsOther notes

Transactions with FMS Wertmanagement AöR and the DEPFA Group for the half year ended 30 June 2016 and for the half year ended 30 June 2015 are included in the Income Statement categories below.

Bank transactions with direct related partiesHalf Year ended on

€ m 30.06.2016 30.06.2015

Interest income and similar income 114 138

Interest expense and similar expenses – 82 –7

Net fee and commission expense –1 – 9

Net expense from financial investments – –10

Other operating income – –

General administrative expenses –10 – 8

The amounts above arise on intercompany borrowing, lending and transfers of assets between the Bank and FMS Wertmanagement AöR and the DEPFA Group. The amounts above also arise on hedging derivatives, as well as recharges for certain services provided. All related party transactions are entered into on an arm’s length basis.

In addition, the “Net trading income” and “Net income/expense from hedge relationships” includes derivative transactions traded on an arm’s length basis with FMS Wertmanagement AöR and the DEPFA Group, which are used to hedge certain of the Bank’s assets and liabilities and to offset other derivative positions.

Also, included in the amount above for “Interest expense and similar expenses” are amounts arising on liability instruments issued by the Bank and which have been acquired by FMS Wertmanagement AöR. The liabilities issued are included in the Statement of Financial Position under “Liabilities evidenced by certificates”.

(d) Other related party transactions As a result of the DEPFA Group’s ownership by HRE holding up to 19 December 2014 and since that date by FMS Wertmanagement AöR, the DEPFA Group including DEPFA ACS BANK is a state-controlled entity and a related party with other enterprises which are subject to the control, joint control or significant influence of the Federal Republic of Germany (so-called government-related entities). The DEPFA Group including DEPFA ACS BANK has availed of the exemptions in IAS 24: Related Party Disclosures from disclosing transactions and outstanding balances with entities that are related parties because they are under the control of the Federal Republic of Germany. Business relations with public sector entities are carried out on an arm’s length basis.

(38) Events after the reporting date

There have been no notable events after 30 June 2016.

DEPFA ACS BANK1 Commons StreetDublin 1, IrelandPhone: +353 1 792 2222Fax: +353 1 792 2211www.depfa.com

interim report - london stock exchange · 2016. 8. 16. · 30 june 2016 31 decembe r2015 moody’s...

Documents