Corporate Report - SaarLB · *** Change in the figure from 2011 1. BALANCE SHEET 31 DEC. 2012 EUR MILLION 31 DEC. 2011 EUR MILLION CHANGE IN % ... economic success story. Prof. Dr

The Franco-German regional bankDie deutsch-französische Regionalbank

Corporate Report 2012

Foresight THROUGH PROXIMITY

2

CONTENTS

Foreword from the Board of Management .................................................. 6

Group Management Report – Overview ......................................................13

SaarLB consolidated financial statements 2012 .......................................58

Consolidated statement of comprehensive income .................................59

Consolidated balance sheet .........................................................................60

Schedule of changes in equity .....................................................................62

Cash flow statement .....................................................................................63

Group Notes to the consolidated financial statements 2012 ..................64

Board of Administration ............................................................................. 142

Board of Management ................................................................................ 143

Independent Auditors’ Report ................................................................... 150

Report of the Board of Administration ..................................................... 151

Organisational Chart ................................................................................... 152

Shareholders ................................................................................................ 153

“Wortsegel” (“Wordsail”)

Steel plastic in Tholey-Sotzweiler, by Heinrich Popp

3

CORPORATE REPORT 2012 | CONTENTS

Take our word for it

As a regional bank with Franco-German

roots, we have grown with the region.

Thanks to our experience and dedication,

knowledge of the regional economy and

culture, we work with our customers to find

the right solutions for present and future

challenges. Take our word for it.

4

At a glance (IFRS)

* Including security repurchase transactions and interests in entities valued at equity

** Including shares of profits in associated companies accounted for using the equity method

*** Change in the figure from 2011

1. BALANCE SHEET 31 DEC. 2012 EUR MILLION

31 DEC. 2011 EUR MILLION

CHANGE IN %

Total assets 18,740 19,761*** -5.2

Business volumes 19,713 20,912 -5.7

Loans and advances to banks 3,246 4,106 -20.9

Loans and advances to customers 9,039 8,607 5.0

Assets held for trading 518 432 19.9

Investments* 5,271 6,531 -19.3

Liabilities to banks 6,000 8,008 -25.1

Liabilities to customers 5,898 5,905 -0.1

Securitised liabilities 5,115 4,329 18.2

Liabilities held for trading 645 544 18.6

Shareholders’ equity 559 461 21.3

Liable capital in acc. with Sec. 10 KWG/Banking Act

932 976 -4.5

2. PROFIT AND LOSS ACCOUNT

Net interest and commission income** 146.1 133.8 9.2

Gains or losses on fair value measurement 37.0 -16.2 >100.0

Administrative expenses 72.4 78.5 -7.8

Earnings before taxes 82.1 18.4*** >100.0

Consolidated net income/loss for the year 59.4 22.2*** >100.0

5

SaarLB’s earnings were exceptional in 2012.

This is proof of the very good collaboration

with our customers and partners in the region

– and the further expansion of our position.

CORPORATE REPORT 2012 | AT A GLANCE (IFRS)

6

Ladies and Gentlemen,Dear Business Partners,

7

We are pleased to present SaarLB’s annual

report for 2012. It was a very successful finan-

cial year that we can look back on, with an af-

ter-tax profit of EUR 59.4 million. There were

multiple reasons for this.

On the one hand, it was due to a constant

improvement in our core business. Both the

volume of business and earnings are steadily

growing.

Growth in the regional economy may have

been weaker than in 2011 and 2010, but we

also saw increasing demand for loans in seg-

ments such as Corporate Customers or Ger-

man Real Estate – and were able to expand

our volume of business here.

Thomas Christian Buchbinder

Corporate Development, Market 2

Corporate Development, Savings Banks, Institutionals

and High Net Worth Individuals, Treasury and Portfolio

Management, LBS Market and Risk Office, Internal Audit

CORPORATE REPORT 2012 | FOREWORD FROM THE BOARD OF MANAGEMENT

8

The real estate business in France and the pro-

ject financing (above all for renewable energy)

performed well. It was the same with strong

municipality business on both the German

and French side. Furthermore, we were able

to further reduce the non-core business –

which is why the balance sheet total fell to

EUR 18.7 billion.

The fact that SaarLB enjoys a very good rep-

utation as an issuer can be seen from the

strong demand for our own issues in the past

year – which let the funding of the bank be

achieved at attractive conditions.

The most important reason for our success is

the mostly long-term business relationships

with our customers. But SaarLB is much more

than “just” a lender: We are advisers in all fi-

nancial questions, an engine for investments

and innovations and promoters of cross-bor-

der business.

Here we would like to present four of our

customers as examples. They are well-known

names in the region. Wendelin von Boch

elaborates on why sustainable business was

always important for him as an entrepreneur

– and why he now built a solar power plant for

this reason. Dr. Guido Colsman and Bruno P.

Proietti from the company Ludwig Schokolade

explain how a Saarland family-run company

with a passion for cocoa products became an

economic success story. Prof. Dr. Peter Theiss

describes how he turned his father’s small

pharmacy into a successful company on five

continents – with natural cosmetics. And Dr.

Karlheinz Blessing makes it clear why the suc-

cessful work in Dillinger Hütte or at Saarstahl

AG has much in common with good harmony

in an orchestra – and why qualified actors, i.e.

employees, guarantee our success.

9

Frank Eloy

Market 1

Corporate Customers,

Real Estate and Projects,

Central Sales Management

SaarLB is much more than “just” a lender.


10

Education and training play a major role for us.

The subject of education and training also

plays a major role for SaarLB. It is very impor-

tant that the future generation profits from

experienced colleagues. We will also describe

how well this works at SaarLB in this annual

report. Going beyond the area of education,

we would like to thank all our employees at

this point for their tremendous dedication

yet again in the past year.

Werner Severin

Bank Management/Operations

Overall Bank Management,

Risk Office, Services, Compliance,

Data Protection

11

Good collaboration with our partners in the region is another of the bank’s major “secrets of

success.” SaarLB benefits from the cross-border character of the region. At the same time, it

gives a lot back to the region through its dedication. We support the arts, culture, and science.

We have been an important taxpayer for a long time. The bank offers more than 500 profes-

sional jobs. For the purchasing of products or services, the bank mostly awards contracts to

companies in the area.

Last but not least, we would like to express our particular thanks to our shareholders both in

and outside the region. Their tremendous commitment to the bank will also serve as the basis

for its success in the future.

Werner SeverinThomas Christian Buchbinder Frank Eloy


12

13

CORPORATE REPORT 2012 | GROUP MANAGEMENT REPORT

OVERVIEW

ECONOMIC ENVIRONMENT

The German economy enjoyed a strong start

to 2012. In the Summer and increasingly dur-

ing the rest of the year, growth slowed on ac-

count of the poor performance of the global

economy and the difficult situation in the

euro zone. In the fourth quarter, economic

output actually even declined. Overall, real

gross domestic product (GDP) rose by 0.7% in

2012, and foreign trade remained a bright spot

despite the foreign trade environment, as ex-

ports were the strongest driver of growth.

However, on account of weaker demand

from the euro zone, export activity declined

in the last few months of the year. Domestic

demand, which fell overall in real terms, de-

veloped unevenly. Private and government

consumption may have increased and stimu-

lated growth, but investments did not make

a positive contribution for the first time since

the economic crisis in 2009. Construction in-

vestments and capital expenditures declined,

although a positive development is that most

companies kept their employees despite the

hesitancy to make investments. The number

of employed people reached a new record

high in 2012. Government budgets continued

to be reduced, and measured in terms of gross

domestic product (GDP), there was a small

general government surplus of 0.1%.

In the course of 2012, the recovery in the Saar-

land economy weakened substantially. The

reason for this was the development of the

global economy, which had a corresponding

impact on some important export markets.

Demand fell substantially in the steel indus-

try, a significant sector for the Saarland econ-

omy. Machine building also saw a decline in

incoming orders, whereby there was still an

increase in sales. The automotive industry,

on the other hand, performed better. Despite

a decline in economic activity, Saarland and

Germany as a whole achieved a record high

number of employed people.

Economic growth in Rhineland-Palatinate

was primarily fuelled by the service sectors in

the first half of the year. As compared to previ-

ous years, manufacturing made only a minor

contribution. But here, too, companies’ busi-

ness expectations dimmed toward the end of

the year due to the euro crisis.

The French economy did not grow in 2012,

and economic output actually contracted in

the fourth quarter of the past year, although

private consumption and exports had a stabi-

lising impact. Industrial production was quite

volatile over the course of the year, fluctuat-

ing very unevenly within various industrial ar-

eas. The inconsistent business environment

led to a slight overall decline in investment ac-

tivity by companies. Despite a deterioration

in the financial position of companies and

uncertainty with regard to the overall devel-

opment of the economy, the investment ratio

remained on a high level. However, unemploy-

ment continued to rise and, together with a

rise in taxes in the second half of the year, had

a negative impact on the purchasing power of

private households. Private consumption was

helped by the savings of private households.

The Lorraine economy faced a difficult envi-

ronment in 2012. Business activity declined

significantly due to the poor business cli-

mate. Gross domestic product fell by an esti-

mated 0.4%. The investment rate dropped no-

ticeably. There were many lay-offs, especially

in industry, as a result of which unemploy-

ment rates continued to rise. Exports also fell

sharply.

Alsace also suffered an economic slowdown

in 2012, contracting by an estimated 0.3%.

The stagnating economic output forecast for

the second quarter was not confirmed. Small

and medium-sized enterprises (SMEs) had to

withstand a decline in their business activi-

ties. The liquidity situation and earnings fell

as expected. However, the investment rate re-

mained stable despite the negative business

climate in 2012. The number of unemployed

people also increased in Alsace.

Group Management Report

14

FINANCIAL SECTOR

The critical factor on German financial mar-

kets in 2012 was again the European sover-

eign debt crisis, which resulted in a turbulent

year. After the crisis initially spread and also

reached large economies such as Spain and

Italy, massive efforts by central banks in the

second half of the year ensured an improve-

ment. In June 2012, the European Central Bank

(ECB) lowered the interest rate for deposit fa-

cilities to 0.0% p.a. and decided to reduce the

main refinancing rate to 0.75% p.a.

The decision by euro member states to form a

bank union should also stabilise the markets.

The plan for the bank union includes uniform

bank supervision by the ECB, a collective un-

winding and restructuring mechanism and a

European system of deposit insurance. The

establishment of a European bank superviso-

ry authority is a requirement for the direct re-

capitalisation of banks by the European Sta-

bility Mechanism (ESM) and is being forced by

some member states against this backdrop.

The significant regulatory measures that are

usually combined under the description of Ba-

sel III or CRD IV have not been implemented

yet. In contrast to the original plan, coordina-

tion and passage on the European level will

still take some time, which means that these

measures did not enter into force on 1 Janu-

ary 2013. In 2013, additional, currently not

yet completed amendments are waiting for

passage and/or implementation. They include

the separation of investment and commercial

banks and the financial transaction tax. With

regard to its risk-bearing capacity, the Ger-

man banking system is stronger than it was

before the financial market crisis.

SAARLB

SaarLB’s strategic objective is to be a region-

al bank with a focus on corporate customer

lending, real estate business and advisory

services for institutional investors, public sec-

tor/municipalities and high net worth private

customers (wealth management). In recent

years, the Bank has distinguished itself as

a special financier for projects in the area of

renewable energy throughout Germany and

France.

Landesbausparkasse Saar (LBS), part of Saar-

LB, finances primarily residential real estate

through its home loan savings business.

The Bank’s business model depends heavily

on the awarding of long-term loans and is to

be harmonised with respect to the coming

strict requirements of Basel III (particularly

with regard to the core capital ratio and li-

quidity management) by passing through a

control process with supervisory guidelines.

On account of its history and its ownership

structure, SaarLB is an integral part of the

savings banks finance group [Sparkassen-

Finanzgruppe] and places a high priority on

networking work, particularly with the Saar-

land savings banks, while simultaneously con-

centrating on core competencies. SaarLB is a

central bank for the savings banks and is the

principal bank for Saarland.

SaarLB’s ownership structure did not change

from 2011 and took the following form at the

end of 2012:

Saarbrücken 14.9%

SaarLB and its shareholders have each agreed

to commitments that are expected to ensure

the long-term independence of the Bank and

its further development as a Franco-German

regional bank. There is also a framework

agreement with the Sparkassen-und Girover-

band [German Savings Bank Association] on

the principles for collaboration between the

Saarland savings banks and SaarLB. The com-

mitments and the framework agreement set

15


forth fundamental framework conditions.

The binding form is determined by the Bank’s

risk strategy.

The SaarLB Group’s target market is made up

of the core market Saarland and the regional

market, which consists of the surrounding

regions in south-west Germany, France and

Luxembourg.

The objective for business financing is funda-

mentally business with target customers that

have their headquarters in the Bank’s target

market or, if their business’s headquarters is

outside of the target market, then at least

the business’s sales are primarily made in the

Bank’s target market.

The requirements for the business objective

in real estate and project financing and LBS

[Landesbausparkasse : subsidiary of savings

bank offering collective real estate savings

products and providing low-interest residen-

tial mortgage loans] are met if the financed

object or project is in Germany or France. For

real estate (with the exception of LBS), the

following criteria must be met:

a) the borrower/investor/asset manager must

be based in the target market or

b) the financed object must be in the target

market.

Portfolio financing is a business objective

if the focus of the portfolio is classified as a

business objective.

Customer relationship management is usu-

ally handled according to the so-called re-

lationship management approach, i.e each

customer has a primary contact who works in

a problem- and service-oriented way. For spe-

cial questions (e.g. interest and currency man-

agement), the customer manager receives

support from internal product specialists.

Depending on the significance (monetary/

ideas) of the customer for the Bank, he is in-

cluded in the senior coverage model. As a re-

sult, the customer relationship management

is handled by the respective manager of the

organisational unit, division head or Board of

Management.

On the product side, SaarLB primarily con-

centrates on marketable and standardised

products. Project financing is, however, an ex-

ception on account of the business structure.

Over the long term, complex products and

services that require substantial advice are

primarily handled by cooperation partners.

As a member of the Saarland Sparkassen-Fi-

nanzgruppe, SaarLB and Landesbausparkasse

Saar are heavily involved in the syndication

business and as an arranger with the region’s

savings banks. SaarLB is also a centre of ex-

cellence, particularly for project financing,

corporate financing, foreign commercial busi-

ness and interest and currency management.

SaarLB is the largest bank in Saarland and

feels a particular connection and obligation

to the region. SaarLB has deep roots in the

region and actively shapes economic life,

makes an important contribution to cultural

diversity and promotes the sciences in the

greater region. This is seen, among others, in

the promotion of science and culture through

the awarding of the SaarLB science prize and

countless permanent loans to the Saarland

museum.

EARNINGS

The SaarLB Group’s net interest income (in-

cluding the results of the companies valued

at equity) increased by EUR 16.6 million, from

EUR 122.2 million in 2011 to EUR 138.8 million

in 2012. This is an increase of 13.6%. The de-

cline in interest income from EUR 834.3 mil-

lion in 2011 to EUR 765.4 million in 2012 (-8.3%)

was more than compensated by the decline in

interest expenses from EUR 712.3 million in

2011 to EUR 626.7 million (-12.0%). The decline

in interest income is mainly due to a decrease

of roughly EUR 0.9 million in the portfolio

of investments and the current low interest

16

rates. The drop in interest expenses also re-

flects the advantageous refinancing costs for

SaarLB. In addition, the change in net interest

income is defined by one-off effects from the

receipt of prepayment penalties on interest

derivatives (approx. EUR 5.0 million).

Interest income from credit and money mar-

ket transactions fell slightly from the previ-

ous year (-1.3%).

As in previous years, increases in interest mar-

gin contributions in the corporate custom-

ers business and in real estate and project

financing explained the rise in the net inter-

est income. Thus falling income from other

budgeted reductions in the no longer strate-

gic portfolio from Treasury and Portfolio Man-

agement could be more than compensated

again.

The maturity transformation/treasury gains/

losses totalled EUR 14.8 million in 2012, thus

roughly on the high level of 2011 (EUR 15.8 mil-

lion).

The Landesbausparkasse’s net interest in-

come also increased in comparison to 2011.

The interest expenses for subordinated and

hybrid capital were EUR 19.5 million in 2012,

slightly below the amount in 2011 (EUR 20.1

million).

Expenses for risk provisions in the credit busi-

ness rose substantially, by EUR 14.4 million,

from EUR 18.9 million in 2011 to EUR 33.3 mil-

lion in 2012, but were still below the expected

amount in the budget for 2012.

The increase in the risk provisions is mainly due

to the valuation of the Treasury and Portfolio

Management segment in which the reduction

portfolio of non-strategic assets is managed.

Approx. 62.6% of the individual risk provisions

created for all segments, including provisions

for off-balance-sheet transactions, are repre-

sented by this segment. This was countered

by the risk provision requirement in the area of

corporate customers, which was significantly

reduced to roughly 4.4% of the net newly cre-

ated provisions. 29.7% of the risk provisions

for individual transactions can be attributed

to the real estate financing segment.

An additional negative impact was made by

the net additions to portfolio risk provisions

in the credit business for a total of EUR 2.4

million in 2012. This was also offset by a re-

lease of EUR 3.7 million in 2011.

Net commission income totalled EUR 7.3 mil-

lion and did not remain on the level from 2011

(EUR 11.5 million).

The decline in the net commission income is

primarily due to a drop in the commission in-

come from the credit and home loan savings

business.

The commission income in the credit busi-

ness was EUR 0.2 million below the level from

2011, despite good new business of EUR 12.9

million. The commission expenses totalled

EUR 1.6 million, in part due to significantly

higher than planned brokerage commissions,

and were EUR 0.8 million above the level from

2011 as a result.

The commission income from the home loan

savings business rose 2.5% to EUR 4.3 mil-

lion and was therefore roughly on the level

of the previous year. Commission expenses

increased 19.1% and reflect the substantial

rise in closing fees for home loan savings

contracts and the related brokerage commis-

sions.

Future increases in net interest income can be

viewed in comparison to the commission ex-

penses for the brokerage of credit and home

loan savings business, which were above the

level from the previous year.

The net commission income in the securi-

ties business declined from the previous

year to EUR -0.7 million (2011: EUR 1.5 mil-

lion) and is mainly due to lower year-on-year

17


commission income from EUREX transactions

of EUR 1.1 million. This is due to changes in the

investment habits of special funds, for which

SaarLB assumes the custodian bank function.

The gains on fair value measurement and

hedge accounting totalled EUR 36.9 million in

2012 and greatly exceeded the amount from

2011 (EUR -16.1 million). The improvement of

EUR 53.0 million is primarily comprised of

positive, planned maturity effects related

to interest swaps (EUR 4.8 million), the posi-

tive market development of credit deriva-

tives (EUR 5.4 million) and the very positive

valuation effects from securities measured

at fair value (EUR 24.8 million). Alone roughly

EUR 16.0 million are attributable to securities

invested in special funds; another roughly

EUR 9.0 million are due to securities that

were invested as part of the LCR portfolio.

The losses on hedge accounting totalled

EUR -0.2 million in the year under review and

were at the level of the previous year and in-

significant.

The gains on investments were EUR 3.2 mil-

lion in 2012, which reflected an increase of EUR

3.7 million from the level in 2011. The gains in

2012 were affected by disposal losses for Greek

bank bonds of EUR 5.9 million, which could

largely be compensated by the release of the

portfolio risk provision created for this in 2011

and amounting to a total of EUR 4.9 million.

Furthermore, another EUR 1.5 million in port-

folio risk provisions were released and had a

positive impact on income from investments.

The decline in gains/losses on the dispos-

al amount of EUR 11.7 million in 2011 to

EUR -3.7 million in 2012 is mainly due to a

special effect in 2011 related to the sale of the

DEKA bank shares (EUR + 12.3 million) and the

disposal losses on Greek bank bonds.

The write-down of debt securities and other

fixed income securities was EUR 0.7 million

and thus significantly below the amount from

the previous year (EUR 12.3 million).

Administrative expenses incl. the deprecia-

tion of property, plant and equipment and

the amortisation of other intangible assets

totalled EUR 72.4 million on 31 December 2012

and was EUR 6.7 million lower than planned

and also EUR 6.1 million below the amount in

2011 (EUR 78.5 million).

Personnel expenses rose slightly by

EUR 1.8 million year on year. On the other

hand, other administrative expenses fell

by EUR 8.4 million as compared to 2011

(EUR 37.6 million). This is mainly due to the

high one-off IT expenses (approx. EUR 8.5 mil-

lion) in 2011, which were connected with the

system migration to OSPlus. The depreciation

of property, plant and equipment and the am-

ortisation of other intangible assets totalled

EUR 2.6 million and was slightly above the

level from 2011 (EUR 2.2 million).

Other income amounted to EUR 1.6 million in

2012 (2011: EUR -1.3 million).

Other income rose from EUR 4.0 million in 2011

to EUR 5.1 million in 2012. It mainly includes

rental income from investment property

(EUR 1.3 million; 2011: EUR 1.4 million), income

from the release of provisions (EUR 0.9 mil-

lion; 2011: EUR 1.2 million) and other income

(EUR 1.8 million; 2011: EUR 0.8 million).

Other expenses totalled EUR 3.5 million in

2012, which was EUR 1.7 million below the

level from 2011 (EUR 5.2 million). The offset-

ting expenses with partnerships were critical

here and amounted to EUR 1.0 million (2011:

EUR 1.5 million).

In total, there was a consolidated net profit

before taxes of EUR 82.1 million in financial

year 2012 (2011: EUR 18.5 million).

After taking into account the tax expenses

of EUR 22.7 million (2011: EUR +3.8 million),

SaarLB had a consolidated net profit after

taxes of EUR 59.4 million (2011: EUR 22.2

million). The tax expenses consist of an ac-

tual tax expense of EUR 15.7 million and an

18

expense for deferred taxes of EUR 7.0 mil-

lion.

The SaarLB Group will service its hybrid capi-

tal in full in 2012, similar to previous years.

EUR 9.7 million (2011: EUR 10.7 million) will

be distributed on the equity component of

the hybrid capital. A dividend on the share-

holder capital of SaarLB will not be paid in

2012. As a result, the total consolidated profit

of EUR 49.7 million will remain (2011: EUR 11.3

million).

The cost income ratio (CIR) fell from 59.3% in

2011 to 49.0% in 2012. The cost income ratio

is calculated for the respective financial year

on the basis of the administrative expenses

in relation to the Bank’s income (net interest

income, net commission income and net trad-

ing income less additions to risk provisions).

The lower administrative expenses alongside

a substantial rise in income had a major im-

pact on the CIR in 2012.

On account of the very positive course of busi-

ness in 2012, the return on equity, which is

based on the consolidated profit before taxes

in relation to the currently available equity,

rose by 11.0 percentage points, from 3.0% in

2011 to 14.0% in 2012.

19


FINANCIAL POSITION

The SaarLB Group’s financial position re-

mained good in 2012. The inflow of liquid-

ity over the next few years is ensured on ac-

count of the current refinancing structures.

The flow of liquidity from the asset business

can be used again to refinance new business.

The expansion of the mortgage collateral real

estate business in 2012 continued to back

the surplus cover in SaarLB’s collateral pool

and the collateral pool for Pfandbriefe, and

remains on a high level, even if it fell slightly

from 2011. The lower surplus cover is mainly

due to an increase in the issuing of mortgage

Pfandbriefe and declining cover funds for

public sector Pfandbriefe.

The situation on the capital market, from the

perspective of the SaarLB Group, substan-

tially improved again as compared to finan-

cial year 2011. With just under EUR 2.3 billion

(2011: EUR 0.7 billion), the placed volumes

in 2012 rose significantly again year on year,

whereby the total volume solely took place

as part of private placements with custom-

ers and financial partners. As a result, SaarLB

was largely independent of capital markets

in 2012. In the process, the SaarLB Group also

succeeded in refinancing itself primarily via

uncollateralized issuances with long maturi-

ties.

In order to ensure solvency at all times, Saar-

LB deposited securities amounting to roughly

EUR 1.4 billion at the ECB, as in 2011. Payment

obligations could therefore be met indepen-

dently of other sources of refinancing.

The SaarLB Group’s ability to meet its pay-

ment obligations was thus ensured at all

times in the 2012 financial year.

The SaarLB Group’s access to money markets

and capital markets is supported by the credit

ratings of two international rating agencies.

The two rating agencies Moody’s Investor

Service and Fitch Ratings confirmed SaarLB’s

credit rating as an issuer in the past financial

year.

Rating Moody’s Fitch

Long-term rating (uncollateralised)

with government liability Aa1 AAA

without government liability A3 A

Short-term rating (uncollateralised) P-2 F1

Financial strength/viability rating D BB+

20

ASSETS

The SaarLB Group’s total assets fell by 5.2%

to EUR 18.7 billion as of 31 December 2012 (31

December 2011: EUR 19.8 billion). The decline

mainly results from a substantially lower

portfolio of investments, which is due to the

planned decrease in the reduction portfolio

for the most part. Furthermore, short-term

loans and advances to banks decreased sub-

stantially in comparison to the treasury-

related high level on 31 December 2011. The

increase in loans and advances to customers

by some EUR 0.4 billion in the core segments

of the Bank more than compensated for this.

In terms of liabilities, this decrease was pri-

marily reflected in a decline in short-term

bank liabilities. Scheduled maturities for

profit participation rights and subordinated

liabilities led to a further decrease in subordi-

nated capital.

The SaarLB Group’s equity increased to

EUR 558.8 million (2011: EUR 462.0 million)

in the year under review. This was primarily a

result of the increase in revaluation reserves

and the consolidated net income generated

in 2012.

The credit volume of the SaarLB Group – simi-

lar to total assets – fell by 9.2% from EUR 20.3

billion to EUR 18.4 billion in the 2012 financial

year.

Loans and advances to banks made a signifi-

cant contribution, declining year on year by

some EUR 0.9 billion to EUR 3.2 billion. The

decrease in invested excess liquidity in 2011 is

responsible for this.

Another major driver of the declining credit

volume was investments (including securities

repurchase transactions) that fell by EUR 1.3

billion, from EUR 6.5 billion to EUR 5.3 billion

(-19.3%) in the past financial year. The reasons

for this include the repayment of bank securi-

ties and investments in international corpo-

rates that do not belong to the core business.

PORTFOLIO PERFORMANCE

Change

in EUR million 31 Dec. 2012 31 Dec. 2011 Δ in EUR million Δ in %

Loans and advances to banks 3,246.1 4,105.6 -859.5 -20.9 %

Investments 5,271.3 6,531.2 -1,259.9 -19.3 %

of which

Interests in associated companies 2.9 2.8 0.1 4.1 %

Investments 4,698.4 5,574.2 -875.8 -15.7 %

Securities repurchase transactions 570.0 954.2 -384.2 -40.3 %

Loans and advances to customers 9,039.0 8,607.2 431.8 5.0 %

Contingent liabilities 274.3 290.2 -15.8 -5.5 %

Irrevocable credit commitments 592.9 756.7 -163.8 -21.6 %

Total credit volume 18,423.6 20,290.9 -1,867.2 -9.2 %

21


A slightly different development was seen in

loans and advances to customers, which are

mainly influenced by the Bank’s core business

segments. Loans and advances to customers

increased by EUR 0.4 billion to EUR 9.0 billion

in 2012 (2011: EUR 8.6 billion), primarily in the

long-term maturity area.

Contingent liabilities totalled EUR 0.3 bil-

lion in 2012 (2011: EUR 0.3 billion), while ir-

revocable credit commitments amounted to

EUR 0.6 billion and were 21.6% below the pre-

vious year (2011: EUR 0.8 billion).

The credit portfolio performance is reflected –

as illustrated in the following – in the busi-

ness segments of the SaarLB Group:

Corporate Customers services corporate cus-

tomers in Germany and corporate customers,

municipalities and municipally owned com-

panies in France. The target markets in Ger-

many include Saarland, Rhineland-Palatinate

and the surrounding regions. In France, the

SaarLB Group concentrates on the Grand Est

and here in particular on the neighbouring Al-

sace-Lorraine where the Bank is represented

by its SaarLB France branch at the offices in

Metz and Strasbourg.

In the past financial year, the positive trend

from 2010 continued. Both in our target mar-

kets of Saarland, Rhineland-Palatinate and

the surrounding regions, including the French

side, and particularly Alsace and Lorraine,

it was possible to significantly increase the

credit volume reported at the end of the year.

This is, among others, due to the increased us-

age of cross-border consulting and financial

services, which has let the SaarLB Group use

and further expand its unique selling point

among French and German customers. The

SaarLB Group also benefits, on the German

side, from long-term customer relationships

that were in turn the basis for the structur-

ing and financial support of numerous in-

vestment projects in 2012. The revaluation

of the entire Corporate Customers business

segment amounts to EUR 420 million (2010:

EUR 196 million), whereby roughly 55% is at-

tributable to Germany and 45% to France. The

margins on the French market increased no-

ticeably year on year, while in Germany it was

possible to maintain the high level from the

previous year. Risk premiums can be charged

increasingly better on the market in France.

Furthermore, the quality of the portfolio

continued to improve on account of the thor-

oughly better than planned ratings in new

business. Overall, the credit volume in the

business segment as of 31 December 2012 was

EUR 2.1 billion, and thus EUR 0.2 billion above

the level from the prior year.

Real Estate is responsible for the financing of

commercial real estate in the SaarLB Group.

The regional focus is also on the German tar-

get market already defined for the Corporate

Customers segment and the French Grand

Est, with a focus on the Île-de-France. The

management of French real estate financiers

is also handled from the offices in Paris. Addi-

tionally, Real Estate monitors public private

partnership measures (PPP) for investments

in infrastructure and education as well as

other public sector construction measures in

the German regional market. In Real Estate,

roughly EUR 447 million was revalued/extend-

ed in 2012 (2011: EUR 631 million) of which

EUR 202 million was in France and EUR 245

million in Germany. On the German market,

the budgeted targets for the past financial

year were substantially exceeded, by roughly

70%. The French business, on the other hand,

was roughly 40% below the budget, which is

mainly due to the stronger competition in

the conditions for high-quality business. The

targeted margins in both segments are above

the budget. In France, the missed targets

in volume were overcompensated by higher

margins. In total, the credit volume in the

segment amounts to EUR 2.8 billion, which is

EUR 0.2 billion above the level from the prior

year.

The Projects segment is responsible for the

financing of projects in the SaarLB Group,

especially in the renewable energy sector,

22

but also in the area of public private partner-

ship (PPP) on the French market. The regional

business also focuses on the target markets

already defined in the Corporate Customers

segment. In Project Financing subsegment,

loans for renewable energies were valued at

EUR 393 million (2011: EUR 561 million). Of this

amount, as in the previous year, almost 90%

was attributable to the French market, which

again underscores the substantial market po-

sition and the structuring and legal expertise

of the SaarLB Group as the Franco-German

regional bank. The planned volumes could be

slightly exceeded, which is primarily due to

the French business with renewable energies.

In total, the credit volume of EUR 1.5 billion in

the segment as of 31 December 2011 increased

by roughly EUR 0.3 billion to EUR 1.8 billion as

of 31 December 2012. In the PPP France sub-

segment, the Group was able to expand its

market position. The total volume here was

EUR 83 million in 2012, as compared to EUR 53

million in the previous year.

Privately used real estate was financed, in

close collaboration with the Saarland sav-

ings banks, exclusively through Landesbau-

sparkasse Saar, which belongs to the SaarLB

Group. The customer credit volume for the

Landesbausparkasse was a good EUR 0.5 bil-

lion as of 31 December 2012, that is, slightly

above the level in 2011.

Savings Banks, Institutionals and High Net

Worth Individuals provides asset advice and

management for savings banks, institutional

investors and high net worth individuals. The

focus of Savings Banks and Institutionals is

on increasing existing customer connections

and expanding contacts with insurance com-

panies and pension funds in the region and

the business relationships to savings banks

in Rhineland-Palatinate. It also deals with the

financing of the region’s savings banks and

municipalities. The credit volume – primarily

from the financing of municipalities in the re-

gion – fell slightly from roughly EUR 2.1 billion

to roughly EUR 2.0 billion year on year. New

business in the municipal sector successively

improved, particularly for the securing of the

low interest rates, while the loan volume in

this subsegment was roughly at the level of

the previous year, although margins increased

from 6 bp to 9 bp year on year. The good liquid-

ity situation at savings banks kept a lid on de-

mand, resulting in a drop in loan volumes by

EUR 131 million to EUR 744 million in the 2012

financial year.

The non-portfolio related business with insti-

tutional investors improved significantly year

on year due to the very successful placement

of SaarLB issues.

In the business with high net worth individu-

als, SaarLB continues to see risk aversion due

to the ongoing discussions surrounding the

debt crisis. The low interest rates also lead to

a decrease in margins in the asset area. In ad-

dition to the cooperation between the SaarLB

Group and Berenberg Bank, Hamburg, which

has existed since the end of 2009, we im-

proved high net worth individuals’ perception

of the SaarLB Group through the creation of

a specialized team for wealth management in

2012 and strengthened our image in this seg-

ment. Volumes with high net worth clients

increased even more here.

The Treasury and Portfolio Management seg-

ment handles the active management of all

the portfolios of the SaarLB Group that no

longer belong to the core business. This in-

cludes both the so-called reduction portfo-

lios (mainly the investments in international

banks and corporates outside the core of

Europe, the international commercial real es-

tate financing, the securitisations and diverse

smaller subportfolios that the SaarLB Group

would like to dispose of in the medium term)

and liquidity portfolios. They comprise the

Securities Account A, which is held primarily

according to strict liquidity criteria (securi-

ties portfolio with a focus on European com-

panies in the investment grade area) and the

LCR portfolio, which serves to expand the

qualified assets in accordance with Basel III.

While the reduction portfolios fell in 2012 by

23


roughly EUR 0.9 billion to EUR 2.8 billion in

accordance with the strategic orientation of

the Group, the corresponding volume in the

Securities Account A remained, at EUR 2.3 bil-

lion, on the level of the previous year due to

the required structure and asset parameters.

In consideration of Basel III, the building of a

corresponding LCR portfolio was begun at the

end of 2011. The portfolio of securities in com-

pliance with Basel III totalled roughly EUR 0.3

billion as of 31 December 2012.

Furthermore, this business segment is re-

sponsible for the liquidity and asset-liability

management of the Group, for which the

Bank’s derivative business is mainly used. The

derivative business is mainly used to hedge

interest rate risks. The nominal volume was

EUR 16.5 billion, roughly on the level from the

previous year (2011: EUR 16.5 billion). Broken

down by type of business, 80.6% of this is at-

tributable to interest rate swaps.

Liabilities to banks fell by EUR 2.0 billion

(-25.1%) year on year to EUR 6.0 billion. The

decrease in short-term liabilities in the money

market was responsible for this, as they de-

clined by 41.5% year on year.

Liabilities to customers, on the other hand,

remained at the same level as in 2011, total-

ling EUR 5.9 billion in 2012.

Securitised liabilities (securities) increased

from EUR 4.3 billion to EUR 5.1 billion in 2012.

The increase of EUR 0.8 billion from 2011 is

mainly due to the fluctuations in liquidity for

the uncovered area, which is primarily a result

of the placement service in the Savings Banks

and Institutionals segment for private place-

ments.

The SaarLB Group’s liabilities structure is

shown in the chart below.

REFINANCING

Change

in EUR million 31 Dec. 2012 31 Dec. 2011 Δ in EUR million Δ in %

Banks 6,000.3 8,008.1 -2,007.8 -25.1 %

Customers 5,898.2 5,905.4 -7.2 -0.1 %

Securities (Securitised liabilities) 5,114.7 4,329.4 785.3 18.1 %

Volume of liabilities 17,013.3 18,242.9 -1,229.6 -6.7 %

24

SUBORDINATED CAPITAL

The subordinated capital fell from EUR 351.9

million to EUR 335.1 million in the past finan-

cial year. A planned run-off of subordinated

liabilities and profit participation rights for a

total of EUR 27.5 million was not replaced. The

debt component of silent reserves increased

by EUR 10.7 million in 2012 due to the shorter

maturities as part of the split accounting in

2012.

REPORTED EQUITY

Reported equity rose by EUR 96.8 million,

from EUR 462.0 million to EUR 558.8 million.

The change is, on the one hand, due to an in-

crease in the revaluation reserve from EUR

-11.6 million in 2011 to EUR 43.6 million in 2012

and, on the other, due to a significant rise in

the retained profit of EUR 49.7 million, which

is EUR 38.4 million above the previous year.

REGULATORY CAPITAL

SaarLB’s equity in accordance with regulatory

requirements [Solvency Ordinance : SolvV] as

of the reporting deadline 31 December 2012

fell from EUR 865.2 million as of 31 December

2011 to EUR 845.4 million. The reason for this

is a decrease in the profit participation rights

capital in accordance with Section 10 (5) KWG

[German Banking Act] of EUR 30.0 million and

a decrease in the dated silent reserves of EUR

10.0 million. Both capital components may no

longer be assigned to capital on account of

the remaining maturities. On account of the

use of the exemption provisions pursuant to

Section 31 KWG [German Banking Act], SaarLB

has not prepared a regulatory group report.

The core capital – before the items that are

subject to a 50% deduction from core capi-

tal – fell by some EUR 10.1 million to EUR 812.1

million. The reason for this includes two silent

reserves with fixed terms that may no longer

be assigned to capital on account of the ma-

turity date.

The supplementary capital – before the items

that are subject to a 50% deduction from sup-

plementary capital – totalled EUR 139.4 mil-

lion (2011: EUR 173.0 million) on account of the

regulatory subordinated liabilities and profit

participation rights that ceased to be eligible.

The decrease in the eligibility of the profit par-

ticipation rights was material.

The value adjustment shortfalls, which

must be deducted fifty-fifty from core and

EUR billion

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

Banks Customers Securities

2012 2011 2010

25


supplementary capital, fell by EUR 22.1 million

to EUR 87.0 million. This amount results from

the difference between the actual value ad-

justments made in accordance with economic

standards and those that must be forecast

based on prudent regulatory requirements.

Likewise, the items, which must be deduct-

ed fifty-fifty from core and supplementary

capital, decreased slightly for investments to

EUR 19.1 million (2011: EUR 20.9 million).

The risk positions of the SaarLB Group fell –

similar to the development of the balance

sheet total – by EUR 437 million to EUR 7.2 bil-

lion as of 31 December 2012 (2011: EUR 7.6 bil-

lion). A reduction in the risk positions was

primarily driven by a reduction in the non-

strategic business.

As of the reporting deadline 31 December

2012, the core capital ratio was 10.6% and thus

significantly above the level from 2011 (9.9%),

while the solvency coefficient improved from

11.4% in 2011 to 11.8% in 2012.

With the approval of the annual financial

statements (German Commercial Code) of

the Group’s parent company SaarLB, the core

capital of SaarLB will be strengthened by EUR

30.3 million through the increase in reserves

pursuant to Section 340 g of the German Com-

mercial Code.

The Bank has been engaged in intense ne-

gotiations with the shareholders since the

beginning of 2013 in order to strengthen the

silent reserves of Saarland savings banks to

meet the stricter capital requirements in ac-

cordance with Basel III. The negotiations have

been moving ahead positively and the objec-

tive is to have the Saar Association of Savings

Banks increase its share of the voting share-

holder capital of SaarLB to 25.1% by means

of converting the previous silent reserves of

Saarland savings banks, effective 30 Septem-

ber 2013. Furthermore, the plan is to grant,

to the remaining silent reserves of Saarland

savings banks in SaarLB, the right to request

conversion to solid core capital as of 1 January

2016, if need be.

Irrespective of this, the Bank continued to im-

plement the regulatory changes under Basel

III/CRD IV and CRR and determine the imple-

mentation measures required in 2013 by con-

ducting a commensurate concept study.

SUPPLEMENTARY REPORT

There have been no events of special signifi-

cance since the end of the year under review.

RISK REPORT

RISK MANAGEMENT AND MONITORING

PRINCIPLES

The SaarLB Group manages and monitors its

risks on the basis of uniform principles. All in-

formation given below relates to the SaarLB

Group unless expressly stated otherwise.

Management of subsidiaries and companies

valued at equity takes place as part of invest-

ment controlling.

The key risk management and monitoring

principles are laid down in SaarLB’s risk strat-

egy. In accordance with the business strategy,

the Board of Management sets the policy for

dealing with counterparty risk (counterparty

default risks and credit spread risks), market

price risk, liquidity risk, operational risk, risks

from unexpected behaviour of savers, real es-

tate risk, strategic risks / business risks and

reputation risks, which are the key risk types

for SaarLB. It is responsible for and monitors

the implementation of these guidelines.

Generating a reasonable and sustainable re-

turn after allowing for risk is the ultimate aim

of all SaarLB’s business activities. Risks may

only be entered into to the extent permitted

by SaarLB’s risk-bearing capacity.

26

Suitable limits for the key risk types have

therefore been set and appropriate proce-

dures for identifying, measuring and monitor-

ing them defined as part of the risk strategy.

The tasks, competencies and responsibilities

of the staff involved are based on clearly de-

fined organisational structures and process-

es. Organisational structures take account of

the regulatory requirements under the Mini-

mum Requirements for Risk Management

[MaRisk] and the Solvency Ordinance [SolvV]

on the division of functions between Sales

and Trading (business segments) on the one

hand and Risk Office, Settlement and Risk

Controlling on the other.

While business areas are based around Saar-

LB’s business model, core competencies have

been combined in the organisation of the Risk

Office and Settlement.

Global Risk Management is in charge of risk

controlling of all risk types at the portfolio

level. Risk Office is responsible for managing

and monitoring counterparty risk at the indi-

vidual exposure and sub-portfolio level. This

involves integrated risk reporting of all risk

types as part of a joint MaRisk risk report.

Internal Audit reports directly to the Board of

Management and is answerable to its Chair-

man. It is an independent internal division that

audits and assesses, on the basis of a risk-ori-

ented audit approach, all activities and process-

es within SaarLB, including the internal control

system and risk management and controlling.

This also applies for outsourced activities and

processes. Internal Audit acts in accordance

with legal and regulatory requirements such as

KWG [German Banking Act], MaRisk [Minimum

Requirements for Risk Management].

With the publication of the 4th MaRisk

amendment on 14 December 2012, SaarLB im-

mediately began the implementation of the

new requirements and completed them in ac-

cordance with the requirements at the end of

2013.

CAPITAL MANAGEMENT

The regulatory requirements set out in the

Solvency Ordinance [SolvV] are key for SaarLB

when assessing and managing capital ad-

equacy as well as maintaining economic risk-

bearing capacity.

REGULATORY CAPITAL

SaarLB has applied the relevant rules on cal-

culating capital requirements under the Sol-

vency Ordinance since obtaining approval

from the German Federal Financial Supervi-

sory Authority (BaFin) to use the Internal Rat-

ings Based Approach (IRBA) on 1 January 2007.

Regulatory capital – i.e. equity – comprises

core capital (essentially nominal capital, si-

lent partner contributions and reserves, in-

cluding the reserves under Section 340 g of

the Commercial Code) plus supplementary

capital (essentially profit participation rights

and long-term subordinated liabilities) after

deductible items.

The overall ratio – the ratio of capital to risk

positions calculated under Solvency Ordi-

nance rules – must not fall below 8.0% from a

regulatory point of view. SaarLB has specified

a stricter target ratio of 10.0% for its Group

figure and a core capital target ratio of 8.0%

in its internal management. The latter is the

ratio of core capital (after deductible items)

to risk exposures.

Target values are constantly maintained by

means of medium-term planning over a five-

year timeframe. The Corporate Development

segment is responsible for the strategic plan-

ning process. On the basis of the economic

conditions determined in this process, each

business area performs its own risk exposure

planning for this time period. Their figures

are then aggregated at the Group level by

Controlling – the department in charge of the

quantitative aspects of medium-term plan-

ning – and compared with the equity available

in the planning period. Finally, the measures

27


needed to procure capital or scale back pro-

posed business area budgeting are defined to

ensure the targets are met.

An overview of the key Solvency Ordinance

data as of the balance sheet date of 31

December 2012 and the corresponding fig-

ures from the previous year are given below.

SaarLB stopped preparing regulatory group

reports in the middle of 2011. To this extent,

the figures only include the single institute.

The key figures for SaarLB increased noticea-

bly year on year due to the drop in risk assets.

SaarLB complied with the minimum regula-

tory ratio during the entire reporting period

at all times as well as its stricter target ratios.

Good overall capital adequacy ratios were

also reflected in the results of the required

regulatory stress tests: Based on the assump-

tion of economic weakness, the equity ratio

at the Group level was 10.0% and the core

capital ratio was 9.0% as of 31 December 2012.

ECONOMIC CAPITAL (RISK BEARING

CAPACITY)

The core aim of the SaarLB Group’s risk man-

agement, aside from complying with regula-

tory capital requirements, is to ensure that

the economic risk-bearing capacity, which is

the difference between risk capital (risk cover

funds) and risk capital needed, is adequate.

Risk cover funds are fundamentally deter-

mined on the basis of IFRS accounting and

indicate the maximum actual level of unex-

pected losses from risks entered into that can

be borne.1 In the reporting period, the calcula-

tion of the risk bearing capacity was refined

with an impact on the components of avail-

able cover funds:2

Key Solvency Ordinance (SolvV) data 31 Dec. 2012 31 Dec. 2011

Risk exposure (EUR million) 7,181 7,618

Equity (EUR million) 845 865

of which: core capital (EUR million) 759 757

Equity ratio (Group level in %) 11.8 % 11.4 %

Core capital ratio (in %) 10.6 % 9.9 %

1 On account of the one-year period under consideration, the equity items as of the reporting deadline are not reported in the risk cover funds, but rather

the figures (if need be, reduced by maturities in the period under consideration) one year after the reporting deadline are recognised.2 The comparable figures as of 31 December 2011 were adjusted to the new system. A reconciliation with the available cover funds in the risk report for

the 2011 consolidated financial statements is included in the presentation. In the earnings after taxes, only the taxes to be actually paid in the case of

liquidation are taken into account. On the comparable reporting deadline, all taxes were recognised; compensating deferred taxes were included in the

revaluation reserve.

28

Components of the risk cover funds (EUR million) 31 Dec. 2012 31 Dec. 2011 Change

Results after taxes (minimum YTD and Proj.) 74.1 11.1 +63.0

+ nominal capital 132.1 132.1 -

+ capital reserves 50.8 50.8 -

+ retained earnings 154.1 129.3 +24.8

+ undated silent partner contributions 137.0 137.0 -

+ dated silent partner contributions 252.3 252.3 -

+ profit participation rights 38.5 38.5 -

+ subordinated liabilities 124.0 133.8 -9.8

+ revaluation reserve 58.7 -19.0 +77.7

Risk cover funds 1,021.7 865.9 +155.7

./. less intangibles -2.0 -2.1 +0.1

./. less balance of hidden charges and silent reserves from securities (LaR and HtM)

-0.4 -39.5 +39.1

./. less corrections in equity due to the surplus of deferred tax assets 8.0 -13.3 +21.4

Liquidation cover funds +1,027.3 +811.0 +216.3

./. less losses from non-performing positions -21.3 -20.9

./. less anticipated losses from the risk assessment horizon -30.5 -22.8

Available cover funds +975.5 +767.4

Previous reporting:


./. less buffer for business and strategic risks -46.7

./. less buffer for real estate risks -6.7

./. less buffer for liquidity and reputation risks -17.7

Available cover funds (to date) +739.9

29


The risk cover funds rose significantly in com-

parison to the previous deadline primarily due

to the higher earnings, an addition to profit

reserves and due to positive effects from the

revaluation reserve, while slight declines in

subordinated liabilities were overcompensat-

ed as a result.3 The available risk cover funds

result from the risk cover funds due to the re-

ductive consideration of other effects:

-

ducted from the cover funds, which might not

retain their value in the case of a liquidation.

cover funds are also deducted over a one-year

assessment horizon, which will not be explic-

itly considered in the future modelling of the

economic risk bearing capacity calculation.

As part of economic risk capital management,

SaarLB monitors its risk profile and ensures

its risk-bearing capacity is always adequate

by comparing each month the risk capital al-

located to the available cover funds and risk

capital needed. Risk capital needed is deter-

mined by analysing all significant risk types

in a consistent manner.4 The risks from across

the Group are collated into an overall assess-

ment of the risk existing. In ICAAP, the value at

risk (VaR) method based on a confidence level

of 99.95% is used to determine risk capital

needed. The limits are set at the level of the

individual risk types and collectively through

the (total) allocated risk capital. Assumptions

and results of the risk quantification are to be

validated at least once a year.

3 In 2013 – i.e. over a one-year assessment horizon – some EUR 10 million of subordinated liabilities will fall due.4 Besides the previously considered risk types, the new system also includes the following risks: unexpected behaviour by savers, real estate risk, strate-

gic risk / business risks and reputation risks.

30

The ICAAP risk-bearing capacity as of 31 De-

cember 2012 is illustrated in the following

overview:5

Economic RBC (ICAAP)(EUR million)

31 Dec. 2012 31 Dec. 2011

Capitalneeded

Limit Range Capitalneeded

Limit Range

Counterparty risk 331.1 430.0 77.0 % 338.5 430.0 78.7 %

of which default risk (141.2) (180.0) 78.4 % (136.2) (180.0) 75.7 %

of which credit spread risk (189.9) (250.0) 75.9 % (202.2) (250.0) 80.9 %

Market risk 32.2 90.0 35.8 % 12.0 90.0 13.3 %

Operational risk 2.6 5.0 51.1 % 2.1 5.0 41.8 %

Reputation risk 0.0 2.0 0.0 % 0.0 2.0 0.0 %

Unexp. behaviour by savers 0.6 3.0 19.7 % 1.0 3.0 32.5 %

Real estate risk 13.3 15.0 88.5 % 13.3 15.0 88.5 %

Strategic risk / business risk 72.7 85.0 85.5 % 68.1 85.0 80.1 %

Total 452.4 630.0 71.8 % 434.8 630.0 69.0 %

Available cover funds 975.5 767.4

Free econ. cover funds 523.1 332.5

5 The refinement of the risk bearing capacity calculation was retroactively applied to the comparable reporting deadline of 31 December 2011. In comparison

to the system outlined in the report for the previous year, credit spread risks (EUR +169.9 million) and market risks (EUR +4.6 million) are quantified higher

in the comparable figures as of 31 December 2011 as a result. In the credit spread risks, significantly higher divergence in spreads is anticipated on the basis

of the experiences in the financial crisis; a holding period of 10 days is no longer generally assumed for market price risks; instead, the losses expected

within a year are to be quantified. On the other hand, no longer regulatory, but expected capital needed due to economic performance is counted (EUR

-20.7 million). The utilisation of the limits allocated at the reporting deadline is also illustrated as of 31 December 2011.

The SaarLB Group’s risk bearing capacity was

ensured at all times without qualification

throughout the reporting period (both in to-

tal and on the level of individual types of risk).

Besides the ICAAP risk capital needed, the risk

capital needed in multiple scenarios, was cal-

culated among others in the case of serious

economic weakness across all risk types under

consistent assumptions. With regard to coun-

terparty risks, a sector-specific deterioration

of the credit portfolio and a further increase

in credit spreads are assumed, and for all oth-

er types of risk, more stringent assumptions

also apply.

31


While the capital needed fell slightly overall,

the free economic cover funds rose year on

year and significantly exceeded the capital

needed as of the reporting deadline.6

COUNTERPARTY RISK (CREDIT RISK)

Under counterparty risk (credit risk), SaarLB

combines counterparty default risk and credit

spread risks. SaarLB defines counterparty de-

fault risk as the risk that the credit quality of

a business partner will deteriorate to such an

extent that it is unable to meet its payment

or contractual obligations towards the Bank

either in full and/or on time. Counterparty

default risk traditionally covers credit risk

but also includes issuer risk, borrower risk,

country risk and investment risk. Other coun-

terparty risks (credit spread risks) result from

credit-related changes in prices for the securi-

ties portfolio (including credit derivatives and

securitisation).

The risk strategy sets out the framework for

taking on counterparty default risks. A limit

on them, calculated from the risk-bearing

capacity, is then set in the annual strategy

process. To manage and monitor concentra-

tion risks and for operationalisation purpos-

es, limits are also imposed according to the

credit quality of borrowers, transactions, geo-

graphical markets and sectors.

The entire credit business chain, including

management and monitoring systems, is de-

scribed in detail in the SaarLB Lending Man-

ual. The master processes defined here apply

Bank-wide and are implemented uniformly in

all Risk Office areas. The Lending Manual is

constantly updated to take account of chang-

ing internal and external requirements.

Counterparty default risk is initially assessed

at individual borrower and (regulatory) bor-

rower unit level using the rating procedures

of RSU Rating Service Unit GmbH & Co. KG,

Munich, for banks, corporate customers (in-

cluding municipally-owned companies), inter-

national public authorities, leasing entities

(leasing companies and real estate leasing),

insurers, international commercial real es-

tate, project financing, country and transfer

6 In the presentation of the stress scenarios as of 31 December 2011 calculated according to the new system for comparative purposes, the direct eco-

nomic impact of the scenario would have been manageable, but the simultaneous occurrence of the 2000 year ICAAP loss would no longer have been

covered. From a regulatory point of view, both the scenario losses and an additional SolvV stress would have been covered as of 31 December 2011.

Serious economic weakness(EUR million)

31 Dec. 2012 31 Dec. 2011

Capital needed Capital needed

Counterparty risk 306.8 332.0

of which default risk (155.8) (166.0)

of which credit spread risk (151.0) (166.0)

Market risk 12.2 9.6

Operational risk 1.3 1.0

Reputation risk 0.0 0.0

Unexp. behaviour by savers 0.5 0.8

Real estate risk 10.2 10.2

Strategic risk / business risk 38.3 36.0

Total capital needed 369.3 389.7


32

risk, and the DSGV liability association. These

procedures are backed up by the savings

banks standard rating and the savings bank

real estate rating modules from Sparkassen

Rating und Risikosysteme GmbH, Berlin. All

these rating procedures have been approved

by the German Federal Financial Supervisory

Authority (BaFin) for use within the Internal

Ratings Based Approach (IRBA) to calculate

capital requirements in accordance with the

Solvency Ordinance. They are validated an-

nually by the Bank in cooperation with these

partners on the basis of the current credit

portfolio.

Significant input parameters for the quan-

titative part of the credit rating analysis

performed in the rating process come from a

balance sheet analysis system that supports

the major accounting standards (among oth-

ers HGB, IFRS, US-GAAP) and facilitates peer

groups and industry comparisons. In addition

to borrowers’ credit ratings, the risk assess-

ment also takes into account, where required,

property and project risks as well as country

and transfer risks. Finally, borrowers are allo-

cated to a specific rating category on a 25-tier

rating scale based on the probability of de-

fault. Rating categories are therefore compa-

rable regardless of the rating procedure used.

In accordance with SaarLB’s requirements,

standard forms of bank collateral – particular-

ly mortgage liens, pledges, assignments, chat-

tel mortgages, and debt undertakings – are

accepted by the Bank to reduce risks. Collater-

al is processed and valued in accordance with

the Collateral Manual. The procedure used to

calculate and determine collateral value must

be clearly documented. In the case of deriva-

tives trading, master agreements are conclud-

ed for the purpose of close-out netting. Collat-

eral agreements have been made with certain

business partners limiting the risk of default

in each case to an agreed maximum.

Exposures that may be at risk are identified

using an appropriately constructed early

warning system – for example by means of

annually revised ratings – and transferred for

intensive support. As with problem loan han-

dling, this falls within the remit of the Risk

Office.

Counterparty default risks from trading are

monitored daily by Settlement to take ac-

count of MaRisk. In particular, all derivatives

business is monitored (counterparty risk). All

trading business conducted with each cus-

tomer is counted towards the borrower lim-

its – including settlement limit – set for that

specific customer in a system-supported and

uniform Bank-wide process and in accordance

with the requirements on market valuation

methods under the Solvency Ordinance.

The internal rating is key for managing and

monitoring counterparty default risks at the

overall Bank level; collateral is currently taken

into account only at individual exposure level

as part of reaching decisions. In particular

for the calculation of the capital adequacy

under the Solvency Ordinance [SolvV], col-

lateral (through the credit risk mitigation

techniques) is largely not taken into account.

Gross exposure limits for borrower units

based on rating categories, markets and cus-

tomer types derived from the business strat-

egy are clearly defined in the risk strategy.

In addition, to strengthen individual sector

portfolios, only selected new business may

be conducted in the risk sectors identified by

the Bank. A strict ancillary condition requires

risk-oriented pricing supported by a suitable

calculation tool.

The relevant Sales and Risk Office areas moni-

tor each individual credit decision to ensure

compliance with the risk strategy.

The quarterly MaRisk risk report for the Board

of Management, Board of Administration and

the SaarLB Risk Committee contains both an

analysis of the credit portfolio – particularly

in relation to rating categories, sectors and

countries – as well as a summary target/ac-

tual comparison with the risk strategy.

33


SaarLB uses the CreditRisk+ credit portfolio

model – particularly in calculating risk-bear-

ing capacity – to analyse risks at the portfo-

lio level. The credit portfolio model takes ac-

count of the SaarLB Group’s entire receivables

portfolio exposed to counterparty default

risk, weighted by the specific probability of

default for each borrower derived from the

rating categories. A key variable is credit val-

ue at risk, which breaks down into expected

loss – which the risk-oriented pricing takes ac-

count of – and unexpected loss. Both the ex-

pected and unexpected loss must be covered

by risk capital in the risk-bearing capacity cal-

culation.

PORTFOLIO ANALYSIS (ECONOMIC)

The presentation in the following sections ti-

tled “Portfolio analysis (economic)” and “Sub-

portfolios with elevated risk profiles” is based

on the internal risk management (manage-

ment approach) according to which there was

a maximum credit risk of EUR 20,139 million

on the reporting deadline (as of 31 December

2011: EUR 21,896 million). Minor deviations

from the balance sheet approach (see section

“Portfolio analysis (balance sheet)”) are due,

among others, to consideration given to add-

ons in the determination of the exposure of

derivative financial instruments according to

the market valuation method, counterparty

risks from securities repurchase transactions

and the recognition of credit derivatives at

nominal values.

34

Around 81% of exposure is in the investment

grade bracket (rating categories 1 to 5 ac-

cording to the DSGV scale). In comparison to

2011, this share has increased by around three

percentage points due in particular to the de-

crease in exposure in rating category 1.

SaarLB uses a value-added and risk-orientated

grouping code for the purposes of economic

management and strategic alignment of the

sector exposure, breaking down exposure

into 32 sector groups. Sector group exposure

(excluding the low-risk Banks sector group,

which is shown separately in the following

and comprises just under 42% of total expo-

sure) can be broken down as follows:

Exposure by rating category (EUR million)

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

DSGV scale 1 2 - 5 6 - 12 13 - 15 16 - 18(Landesbanks

scale:0-7 8-11 12-18 19-21 22-24)

31 Dec. 2011 31 Dec. 2012

Customer exposure by sector (EUR million)

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Real Estate SovereignsRenewable

EnergyUtilities Automotive

Construc-tion

SteelWholesale +retail trade

Food +Beverages

ABSRetail

customersOther

sectors

31 Dec. 2011 31 Dec. 2012

35


SaarLB’s sector portfolio – particularly the

corporates portfolio – continues to be well-

diversified. Real estate, the largest individual

sector (besides banks), comprises roughly 17%

of the total exposure (including banks) after

amounting to 15% in 2011.

In the year under review, the exposure in the

target industry of renewable energy signifi-

cantly increased again by EUR 448 million,

while primarily exposure to the bank sector

fell (by EUR 2,097 million).

SaarLB uses the official Bundesbank codes to

give a breakdown of its exposure in a uniform

manner for each individual country. Regions

are then grouped on the basis of global and

regional economic ties. The focus of SaarLB’s

country portfolio is in its defined target mar-

kets of Germany and France, which amount

to a share of around 85% (as of 31 December

2011: 84%). Another 12% (as of 31 December

2011: 13%) concerns exposure in the rest of Eu-

rope, whereby the exposure in Ireland and in

the southern European countries of Greece,

Italy, Spain and Portugal amounts to a total

of EUR 445 million (of which 71% is invest-

ment grade). In the reporting period, the vol-

ume of French business was expanded in par-

ticular, while exposure in Germany (primarily

to banks) and outside of the target markets

fell slightly.

Exposure by region (EUR million)

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

Germany France Other Europe North America Other

31 Dec. 2011 31 Dec. 2012

36

The loans and advances to banks – includ-

ing the credit substitute securities portfolio

reported under investments on the balance

sheet – are predominantly to banks based in

Europe, mostly in Germany. Across all regions,

the bank exposure fell by a total of EUR 2.1 bil-

lion in the reporting period, in absolute terms

seen most clearly in Germany where it fell by

EUR 1.3 billion, and as a percentage in France

where it dropped by -41%.

Banks: Maximum credit risk (EUR million)Regions

31 Dec. 2012 31 Dec. 2011

Germany 6,478 7,815

France 418 707

Rest of Europe 1,364 1,775

North America 213 264

Other 69 77

Total 8,542 10,639

Non-banks: Maximum credit risk (EUR million) as of 31 Dec. 2012 31 Dec. 2011

SectorsGermany France Other

WesternEurope

NorthAmerica

Other Total Total

Sovereigns 1,559 483 198 0 25 2,264 2,314

Real Estate 1,360 1,414 332 230 0 3,335 3,364

Automotive 222 68 9 0 0 299 326

ABS 8 0 90 9 0 107 160

Wholesale + retail trade 229 12 2 0 0 242 248

Construction 138 177 6 0 0 320 341

Utilities 214 31 111 0 2 359 353

Steel 303 7 17 0 0 327 312

Renewable energy 389 1,295 0 0 0 1,684 1,236

Food + beverage 125 69 85 0 6 285 297

Retail customers 420 130 2 0 0 552 508

Other sectors 1,241 367 165 35 12 1,821 1,798

Total 6,208 4,053 1,016 275 46 11,597 11,258

37


Most of the loans and advances to customers

(around 97%) – including the credit substitute

securities portfolio reported under invest-

ments on the balance sheet – are to customers

based or residing in Western Europe. Of these

customers, German and French customers

make up the largest share – roughly 91%.

Loans to banks were mostly in larger volumes

and were reduced slightly in the reporting

year. The changes in the higher size categories

result from the shift of individual customers

to adjacent categories.

Loans and advances to customers are well-di-

versified in terms of size. In accordance with

SaarLB’s business model, most of the new

exposures were in the EUR 1 million to EUR 50

million range.

Banks: Maximum credit risk (EUR million)Size category

31 Dec. 2012 31 Dec. 2011

Up to EUR 1 million 35 74

> EUR 1 million to 5 million 142 281



> EUR 20 million to 50 million 1,500 1,864




> EUR 500 million to 1 billion 1,492 699

> EUR 1 billion to 2.5 billion 0 1,062

Total 8,542 10,639

Non-banks: Maximum credit risk (EUR million) Size category

31 Dec. 2012 31 Dec. 2011

Up to EUR 1 million 695 742








Total 11,597 11,258

38

Subportfolios with elevated risk profiles

The securitisation positions held by SaarLB

largely possess a good to very good external

rating. More than 67% of the held volumes

have a rating in the investment grade area.

Securitisations: Maximum credit risk (EUR million) Rating category

31 Dec.2012 31 Dec.2011

1 46 115

2 - 5 26 37

6 - 8 17 0

9 - 12 11 3

13 - 15 4 3

Default categories 3 3

Total exposure 107 160

The receivables from the support given to

SachsenLB are included in the overall expo-

sure of the securitisation positions. They

amounted to some EUR 6.4 million as of 31

December 2012 (as of 31 December 2011: some

EUR 27.6 million). When classified according

to regions, a share of 8% of other exposure is

represented by Germany. 84% is distributed

across the rest of Europe, with a focus on

Spain (25%), Italy (21%) and Ireland (15%). The

share of securitisations in the North American

market is EUR 9.0 million and did not change

in comparison to the prior year.

The total exposure from securitisation po-

sitions fell even more in comparison to the

reporting deadline from the previous year.

The reason for this was both a reduction of

EUR 21.1 million in redemptions from the ex-

posure due to the support given to SachsenLB

and still existing exposure (around EUR 41.7

million) and repayments (around EUR 8 mil-

lion). These figures take into account a posi-

tive currency effect of EUR 0.3 million. In 2012,

there were no write-downs. New business was

not concluded in the reporting year and also

will not be concluded in the future under

SaarLB’s business and risk strategy. There was

a charge of around EUR 4.0 million from the

securitisation portfolio to the revaluation re-

serve at the balance sheet date. In addition,

reclassification of holdings as LaR in 2008

avoided a further charge of EUR 15.6 million

to the revaluation reserve.

On account of the sovereign debt crisis in the

euro zone, exposure in Portugal, Ireland, Italy,

Greece and Spain (“PIIGS” countries) is cur-

rently being observed very closely.

PIIGS exposureMaximum credit risk (EUR million)Country

31 Dec.2012 31 Dec.2011

Spain 212 370

Italy 175 274

Portugal 39 96

Ireland 19 70

Greece 0 26


In the reporting period, the credit level fell

by almost 50%. The maximum credit risk as

of the reporting deadline was 71% in the in-

vestment grade (rating 0-5 according to DSGV

scale).

PIIGS exposureMaximum credit risk (EUR million)Sectors

31 Dec.2012 31 Dec.2011

Banks 303 643

ABS 71 105

Real estate 33 35

Sovereigns 0 5

Rest 37 48


SaarLB does not have any receivables from

loans and advances to sovereigns in the PIIGS

countries. Impairments of EUR 3.6 million

have already been considered in the maxi-

mum credit risk of the Spanish exposure (real

estate sector).

39


Risk provisions

As part of risk monitoring, all exposures with

counterparty default risk are subject to a set

“early warning, intensive care and problem

loan handling process” and the relevant in-

structions and policies. Within this process,

exposures with warning signals are trans-

ferred to the appropriate type of support

adequate for the risk content and classified.

This is based on objective indicators pointing

to impairment of the exposure. These include:

stances,

streams than those agreed,

capital and/or interest, application for de-

ferment or extension,

or legal reasons in connection with financial

difficulties,

or other restructuring of the borrower,

-

tion,

financial asset due to financial difficulties,

When the risk analysis shows that the con-

tractual repayment or collection of all con-

tractual compensation for credit is improb-

able, a risk provision is established. The

calculation of the risk provision is made for

each business and considers all counterpar-

ty risks. The amount of the impairment is

fundamentally determined by the difference

between the carrying value of the receivable

and the anticipated future cash flows, which

are discounted with the original effective in-

terest rate. Specific risk provisions are also es-

tablished for exposures if repayment of loans

is improbable due entirely to country risks.

When establishing risk provisions, a distinc-

tion is made between specific risk provisions

for existing receivables and provisions for fu-

ture drawdowns (provisions for non-balance

sheet business in the credit business). Where

a default has occurred and it has been estab-

lished that there are no prospects of recovery,

the receivable is written off directly against

the gain/loss.

Portfolio risk provisions are established for

financial instruments that are recognised

at amortised cost and for which no impair-

ment has been identified. These include ex-

posures where objective indications as listed

above did exist for an impairment but, after

subsequent examination, were not rated as

impaired. When establishing portfolio risk

provisions, it needs to be ensured that impair-

ments not individually identified are taken

into account, thereby covering latent risks.

The portfolio risk provisions are calculated us-

ing Basel II parameters and under considera-

tion of the loss identification period (LIP) for

portfolios with the same risks.

Adequate provision was made for any poten-

tial losses detected as part of risk monitoring

in the reporting year. The changes in risk provi-

sions for individual risks in the SaarLB Group

(including the Landesbausparkasse and the

country risk provisions) were as follows:

40

Direct write-downs due to rating changes

amounted to EUR 1.8 million. Portfolio risk

provisions of EUR 20.9 million have been es-

tablished for latent risks in the credit busi-

ness, including financial assets measured at

amortised cost, of which EUR 3.0 million are

related to warranties and irrevocable credit

commitments. As a result of ratings changes,

write-downs of EUR 0.7 million were carried

out on investments.

Portfolio analysis (balance sheet)

The changes in maximum credit risk based

on IFRS carrying amounts (taking account of

specific risk provisions and country risk provi-

sions in accordance with IAS 39) in the report-

ing period were as follows:

Risk provisions for individual risksEUR million

1 Jan. 2012-31 Dec. 2012

1 Jan. 2011-31 Dec. 2011

Start level 140.8 163.5

Release1) -13.3 -16.6

Unwindings -4.1 -3.4

Utilisations1) -20.5 -40.0

Additions1) 44.2 37.4

Other* 0.0 -0.0

End level 147.1 140.8

* In particular exchange rate fluctuations

1) Figures have been adjusted; see note 39.

Maximum credit risk (EUR million)Balance sheet item

31 Dec. 2012 31 Dec. 2011

Cash reserves 669 107

Loans and advances to banks 3,228 4,083

Loans and advances to customers 8,911 8,491

Assets held for trading (HfT) 518 432

Positive market value of fair value hedges 46 0

Financial assets* 5,162 6,468

Other assets 4 4

Contingent liabilities 274 290

Irrevocable credit commitments 593 757

Total 19,405 20,632

* Not including equity instruments, including securities repurchase transactions

41


Exposures that are neither past due nor

impaired fell by roughly EUR 1.0 billion pri-

marily due to loans and advances to banks

(by EUR 775 million) and investments (by

EUR 1.3 billion).

This was countered by the rise in loans and ad-

vances to customers by EUR 467 million and

cash reserves by roughly EUR 563 million.7

The following tables show this maximum

credit risk, broken down by (a) financial as-

sets that are neither past due nor impaired,

(b) financial assets that are past due, but not

impaired and (c) financial assets that are im-

paired.

Financial assets that are neither past due nor impaired: maximum credit risk(EUR million)

Distribution by rating category as of 31 Dec. 2012 31 Dec. 2011

Balance sheet item and category* 1 2-5 6-12 13-15 Default

category No

ratingTotal Total

Cash reserve (LaR) - - - - - 669 669 107

Loans and advances to banks (LaR) 1,224 177 1,739 - - 47 3,187 3,962

Loans and advances to customers (LaR) 2,235 3,317 2,517 79 24 73 8,246 7,779

Assets held for trading (HfT) 344 99 59 - 1 1 504 387

Positive market value of fair value hedges 39 7 - - - - 46 -

Investments** 4,266 708 175 4 - 5 5,157 6,455

Available for sale 3,059 415 71 - - - 3,545 4,379

Fair value option 328 40 - - - 5 373 406

Held to maturity 600 75 - - - - 675 752

Loans and receivables 280 177 104 4 - - 565 918

Other assets - - 3 - - 1 4 4

Contingent liabilities 21 120 108 12 0 0 261 259

Irrevocable credit commitments 178 230 116 4 - 37 565 733

Total 8,306 4,657 4,718 98 26 834 18,639 19,686

* Categories are: Loans and Receivables (LaR), Held for Trading (HfT), Available for Sale (AfS), Fair Value Option (FVO) and Held to Maturity (HtM).

** Not including equity instruments, including securities repurchase transactions

7 Unrated items relate to assets for which a derived rating could not be allocated in accordance with the management approach, e.g. active balances for

ledger accounts.

42

The loans and advances that were past due

but not impaired were largely those to cus-

tomers, while only a small number of loans

and advances to banks were slightly past

due. The reduction of around EUR 229 million

in the year under review took place across

almost all balance sheet items, but is primar-

ily due to loans and advances to customers

and banks.

Financial assets that are overdue,but not impaired (EUR million)*

31 Dec. 2012 31 Dec. 2011

Maximum credit risk by period overdue

Fair value of colla-

teral

Max. credit risk

Fair value of colla-

teral

Balance sheet item, category** and sector

< 30days

30 daysto

3 months

3 monthsto

1 year

> 1 year Total

LOANS AND RECEIVABLES TO BANKS (LaR) 41 - - - 41 21 119 59

Banks / Finance 41 - - - 41 21 119 59

LOANS AND RECEIVABLES TO CUSTOMERS (LaR) 347 56 2 21 426 217 539 267

Real Estate 175 46 1 3 225 115 266 132

Renewable Energies 100 - 0 - 100 51 114 56

Hotels 1 - - 17 18 9 35 17

Health Care 13 - - - 13 6 0 0

Construction 6 5 - - 11 6 14 7

Pharmaceuticals 10 - - - 10 5 14 7

Other sectors 42 5 1 0 49 25 97 48

ASSETS HELD FOR TRADING (HfT) 10 4 - - 14 7 45 22

Renewable Energies 6 - - - 6 3 2 1

Real Estate 2 4 - - 6 3 6 3

Banks / Finance - - - - 0 0 37 18

Other sectors 1 - - - 1 1 0 0

INVESTMENTS*** - - - - 0 0 - -

Contingent liabilities 1 10 - - 11 6 22 11

Manufacturing & Engineering - 6 - - 6 3 - -

Construction 0 3 - - 3 1 3 2

Steel - - - - 0 0 10 5

Other sectors 0 1 - - 2 1 8 4

Irrevocable credit commitments 21 4 - - 25 13 20 10

Steel 10 - - - 10 5 - -

Real Estate 9 - - - 9 4 2 1

Renewable Energies 2 - - - 2 1 9 5

Other sectors 0 4 - - 5 2 9 5

Total 419 75 2 21 516 263 745 369

* In the event of overdue receivables, the entire exposure of the borrower incl. investments, assets held for trading, contingent liabilities and irrevoca-

ble credit commitments are reported as overdue.

** Categories are: Loans and Receivables (LaR), Held for Trading (HfT), Available for Sale (AfS), Fair Value Option (FVO) and Held to Maturity (HtM).

*** Not including equity instruments, including securities repurchase transactions

43


Individual risk provisions of roughly EUR 146.5

million were offset in the maximum credit

risk as of the reporting deadline. The collater-

al includes standard forms of bank collateral,

particularly mortgage liens, pledges, assign-

ments, chattel mortgages, and debt under-

takings.

Market risk

Market risk is the risk of (valuation) losses

on open (trading) positions due to unfavour-

able market price fluctuations. For SaarLB,

relevant market prices are in particular inter-

est rates (in both EUR and foreign currencies),

share prices and exchange rates. Open posi-

tions are created from spot, forward and op-

tion transactions.

Financial assets that are impaired (EUR million) 31 Dec. 2012 31 Dec. 2011

Balance sheet item, category* and sectorMax.

credit riskFair Value

of collateralMax.

credit riskFair Value

of collateral

LOANS AND RECEIVABLES TO BANKS (LaR) 0 0 2 1

Banks / Finance 0 0 2 1

Other sectors - - 1 0

LOANS AND RECEIVABLES TO CUSTOMERS (LaR) 239 122 173 85

Real Estate 141 72 78 38

Retail customers 42 21 25 13

Pulp + Paper 13 7 19 9

Sovereigns 12 6 12 6

Construction 7 3 13 6

Renewable energy 5 2 0 0

Chemicals 4 2 1 0

Other sectors 16 8 25 13

INVESTMENTS** 4 2 13 6

Available for sale 1 0 0 0

ABS portfolios 1 0 0 0

Loans and Receivables 4 2 13 6

ABS portfolios 4 2 13 6

Contingent liabilities 2 1 10 5


Automotive 0 0 0 0

Construction 0 0 6 3

Other sectors 0 0 0 0

Irrevocable credit commitments 3 2 3 2


Automotive - - 3 1

Other sectors - - 0 0

Total 250 127 201 99

* Categories are: Loans and Receivables (LaR), Held for trading (HfT), Available for Sale (AfS), Fair Value Option (FVO) and Held to Maturity (HtM).

** Not including equity instruments, including securities repurchase transactions

44

The strategic principles for dealing with mar-

ket risks at SaarLB are set out in the risk strat-

egy. Organisationally, the trading business

is structured around the requirements of

MaRisk. Treasury and Portfolio Management

actively manages assets and liabilities, inter-

est rate risks from the banking book, while

the Savings Banks, Institutionals and High

Net Worth Individuals segment is in charge of

interest rate products and foreign exchange.

Trading transactions are processed by the Ser-

vices area. Controlling is responsible for man-

aging and monitoring market risks and for

systematically developing the tools required

to perform this.

Since the Minimum Requirements for Trad-

ing Activities (MaH) was introduced in 1996,

SaarLB has measured and limited market

price risks from both the trading book and

the banking book, including interest rate

risks, using a uniform Value at Risk (VaR) ap-

proach. Risk controlling monitors the risks in

all six sub-portfolios, taking account not just

of trading risks in the narrow sense, but also

the asset/liability management positions,

which hold substantial interest rate risks for

the Bank.

The parameters used for calculating VaR re-

flect the Bank’s caution in exposing itself to

market risks. Standard deviations in market

price variations over ten trading days are cal-

culated using the Bank’s own and sometimes

historically long time frames and are scaled

to a one-sided confidence interval with 99.5%

statistical probability. Particular account is

taken of any recent increases in volatility.

When producing a risk summary, correlations

that minimise risks are disregarded.

The Board of Management has set a maximum

potential loss limit (VaR limit) and a maximum

loss limit (target deviation limit) for each sub-

portfolio based on the risk cover funds. Each

sub-portfolio’s value-at-risk, which is calculat-

ed daily, must not exceed the VaR limit allo-

cated to it at any time. Negative deviations in

the sub-portfolio’s net gain/loss must not ex-

ceed any of the target deviation limits either.

The target deviation limit is usually 50% of

the VaR limit. In some cases, VaR limits can be

supplemented by guideline values for upper

portfolio limits and other restrictive stipula-

tions laid down by the member of the Board

of Management responsible for Trading.

Reporting to all departments and segments,

including the Board of Management, in the

risk monitoring and management process

takes place at the start of each trading day. It

covers realised gains/losses, valuation gains/

losses, VaR and limit utilisation for the pre-

ceding trading day.

45


Negative variations from the pro-rated fore-

cast net gain/loss for each portfolio can affect

calculated VaR and therefore the Trading De-

partment’s room to manoeuvre. This prevents

any trading losses exceeding upper loss limits

allocated to market risks. However, the scope

for trading may also be increased if targets are

exceeded. For the (net) VaR determined under

consideration of the target values, limits to-

talling EUR 31.0 million were allocated to the

individual portfolios from the risk cover funds

of SaarLB as of the reporting deadline. 18.6%

of the limit (across all portfolios) was utilised

on average in the reporting period, whereby

the utilisation fluctuated in a range varying

from a minimum of 0.0% to a maximum of

58.7%.8 The latter corresponded – in absolute

terms – to potential losses of EUR 18.2 million.

As of the reporting deadline of 31 December

2012, the VaR from market risks due to the

exceeding of targets amounted to EUR 0.0

million, i.e. across all divisions, the gross VaR

amounts are (more than) compensated by

the exceeding of target values built up in the

course of the year.

The tools described above are constantly

modified to take account of changing cir-

cumstances. Risk quantification methods

in particular are validated in a back-testing

procedure and refined accordingly every six

months. The risk parameters are updated on

a revolving basis every quarter.

When calculating risk-bearing capacity, the

potential losses in the daily management are

scaled at a uniform Group-wide confidence

level and holding period. In addition to quanti-

fying ICAAP risk capital needs, forward-looking

analyses based on unusual market price chang-

es (scenario analyses) are also carried out here.

Each month, interest rate risk in the banking

book is assessed specifically based on month-

ly interest rate changes of +/-200 basis points

in line with Bundesbank specifications. The

calculated changes in net present value rela-

tive to liable capital were well below the regu-

latory thresholds.

Market risks at LBS arise solely in the form of

interest rate risks. Interest rate risk is man-

aged using gap analysis, basis point value

calculations and building society actuarial

models based on the risk parameters used by

SaarLB:

Market risk(Gross VaR in EUR million)

12 month comparison as of 31 Dec. 2012 12 month comparison as of 31 Dec. 2011

Average Maximum Minimum Average Maximum Minimum

Interest rate VaR 3.7 15.5 0.9 2.9 5.7 0.9

FX VaR 0.2 0.2 0.1 0.2 0.2 0.1

Special funds VaR 13.1 18.1 0.9 7.2 10.8 2.1

Total VaR 17.0 33.8 2.0 10.3 16.7 3.2

8 In the above table, the minimum (maximum) of the gross VaR (not including the target value deviations) of the respective market risk type are

summarised, while the minimum (maximum) of the net VaR (including target value deviations) is reported across all market risk types.

46

The market risks of LBS were integrated into

SaarLB’s risk-bearing capacity analyses in the

reporting year.

Liquidity risk

SaarLB defines liquidity risk as the risk of be-

ing unable to meet payment obligations as

they fall due in full or on time or – in the case

of a liquidity crisis – only being able to obtain

funds at high rates or sell assets at discounts

to the market prices.

The strategic principles for dealing with li-

quidity risks at SaarLB are set out in the risk

strategy and the liquidity contingency plan.

The prime goal of liquidity risk management

and risk controlling is to ensure SaarLB’s pay-

ment obligations can be met and refinancing

obtained at all times.

Liquidity management is handled by Treasury,

which also includes the money market trad-

ing unit responsible for ensuring that liquid-

ity is balanced on the market for maturities

of up to one year. Liquidity risk controlling is

performed by Risk Controlling.

All the liquidity flows (incoming and outgo-

ing payments) of the Bank are included in

the measurement. They include the deter-

ministic payment flows and, modelled on as-

sumptions, the relevant non-deterministic

payment flows (e.g. from irrevocable credit

commitments or investments). The poten-

tial liquidity coverage which is juxtaposed

to the payment flows consists of the freely

available access to central bank money at the

ECB, securities that can be sold or loaned at

short notice and the potential for the place-

ment of Pfandbrief issues at short notice, and

quantifies the options for covering (negative)

liquidity flows.

The most important instruments for meas-

uring liquidity risks up to and including No-

vember 2012 were the liquidity commitment

schedule and the liquidity cover potential (in

gross terms). Since the reporting deadline

of 31 December 2012, liquidity outflows and

potential liquidity coverage have been net-

ted: The net presentation used since then

provides an analysis of solely the resulting

(cumulative) liquidity gaps in four different

scenarios:

Illustration of the “ordinary” business activ-

ity by taking into account the contractual

capital maturities and assumption of equiv-

alent new business at maturity.

Illustration of a significant downgrade of

SaarLB, which leads to liquidity outflows by

private and institutional investors (outflow

of variable portfolios).

Illustration of a capital market disruption

(loss of confidence in the interbank market),

which has an impact on the procurement of

liquidity and leads to outflows of liquidity

with primarily institutional investors (out-

flow of variable portfolios and extension

difficulties).

Simultaneous illustration of the effects

from the bank stress and market liquidity

crisis scenarios.

Market risk(Gross VaR in EUR million)

12 month comparison as of 31 Dec. 2012 12 month comparison as of 31 Dec. 2011

Average Maximum Minimum Average Maximum Minimum

Interest rate VaR 2.3 3.5 0.5 0.9 2.4 0.2

Total VaR 2.3 3.5 0.5 0.9 2.4 0.2

47


To remain solvent even in times of crisis,

SaarLB has a suitable portfolio of securities

eligible for refinancing at central banks. An

adequate facility with the ECB ensures that

any unexpected payment obligations can

be covered on the same day. SaarLB thereby

limits its short-term liquidity needs so that

the shortfall arising from liabilities maturing

overnight does not exceed the central bank

refinancing freely available at the time con-

cerned.

The volume of the ECB account remained

around EUR 1.4 billion as of 31 Dec. 2012, at the

level of the end of 2011. Payment obligations

can continue to be covered, if need be, largely

independently of other sources of refinanc-

ing. The Bank did not resort to the overnight

facility of the ECB in the reporting period (as

in previous years).

The short-term refinancing needs pursuant to

BTR 3.2 MaRisk [Minimum Requirements for

Risk Management] have been reported since

the end of 2011 by solely offsetting both the

ECB-eligible and GC pooling-eligible assets in

the potential liquidity coverage. This should

be sufficient in the weekly report updated

on each trading day for the coverage of the

liquidity gaps resulting from the “combina-

tion” scenario and increased by an additional

collateral surcharge of 10%.

Liquidity management and monitoring for

each next 180-day period is performed using

an analysis of the cumulative liquidity gaps.

The balance from the cumulative liquidity

outflows and cumulative potential liquidity

coverage should be positive in each case. The

following example shows the basic scenario

for the control-relevant 180 day point of view:

Cumulative liquidity gap in base scenario (EUR ‘000s)

4,500

4,000

3,500

3,000

2,500

2,000

1,500

01/01/2013 31/01/2013 02/03/2013 01/04/2013 01/05/2013 31/05/2013 30/06/2013

48

Lastly, the regulatory tools available under

the Liquidity Regulation [LiqV] are used to

measure short-term liquidity.

The cumulative liquidity commitment sched-

ule is also key for managing maturities for pe-

riods of longer than 180 days. Suitable fund-

ing instruments are employed by the Bank to

create a balanced funding structure so it can

safeguard its solvency and ability to refinance

in the medium and long term. This exists at

the present time: On the one hand, SaarLB’s

collateral pool – the pool of assets serving as

cover for Pfandbriefs – has sufficient surplus

cover, enabling issuing activity to continue in

normal market situations. On the other hand,

the liquidity commitment schedule has been

structured so that there will be a net inflow

of liquidity in the coming years. Returns from

asset management can therefore be used as

credit.

Under the stress assumptions of the previ-

ously defined scenarios, the liquidity out-

flows as of 31 December 2012 were covered by

appropriate potential liquidity coverage from

the control-relevant 180 day point of view at

all times.

All the tools described form part of the regu-

lar reporting to the Board of Management

and are integrated into the MaRisk risk re-

port. In 2012, potential liquidity coverage was

sufficient to cover SaarLB’s liquidity flows at

all times.

The ongoing positive assessment of the li-

quidity situation is also confirmed by the

liquidity ratio (according to the regulatory

requirements under the Liquidity Regula-

tion [Liquiditätsverordnung]). In its internal

regulations, SaarLB’s managing and monitor-

ing goes further than the regulatory require-

ment that the liquidity ratio within the com-

ing month must be greater than 1. The bank

sets its warning level to 1.25, which triggers

countermeasures. In the year under review,

the liquidity ratio of the bank was between

1.79 and 3.46; as of the reporting deadline of

31 Dec. 2012, it amounted to 2.60. The obser-

vance of both the regulatory and internal re-

quirements was thus ensured at all times. LBS

also complied with the regulatory require-

ments on liquidity at all times in 2012.

In addition, a breakdown of balance sheet

financial liabilities by contractually agreed

terms to maturity (excluding home loan sav-

ings deposits that have no agreed maturity) is

given below:

Minimum liquidity gapas of 31 Dec. 2012 (EUR million)

10 days 90 days 180 days

Base scenario 1,687 1,687 1,687

Bank stress scenario 1,953 1,953 1,953

Market liquidity crisis scenario 1,355 1,355 1,008

Combination scenario 1,244 1,005 177

49


In the reporting period, SaarLB was also able

to place sufficient covered issues on the capi-

tal market. There was also demand from in-

vestors for uncovered issues. In view of the

pricing involved, the Bank utilised this op-

tion selectively, but out of business consid-

erations used its sufficient other refinancing

possibilities.

Operational risk

a) General information

Operational risk describes the risk of losses

that occur in consequence of inappropriate-

ness or the failure of internal processes and

systems, people or as a result of external

events. This definition includes legal risks.

SaarLB undertakes to manage operational

risks efficiently so as to protect the Bank, its

employees and clients from financial loss, loss

of trust and loss of reputation.

The methods and processes for controlling

and managing operational risk are set out

in detail in the SaarLB OpRisk manual. The

measurement and limitation of operational

risks are also part of the risk strategy.

Operational risk is managed decentrally in the

individual business segments, with each one

being responsible for dealing with the opera-

tional risks that fall under its responsibility.

This in particular covers preventive measures

against risks from incomplete business pro-

cesses and human error. The intention is to

avoid or at least mitigate impairments arising

from unforeseen events – especially in tech-

nical areas – through disaster recovery plans

and the use of parallel systems. The disaster

recovery plans are regularly adapted to cater

to changing structural and procedural organi-

sational circumstances and the systems up-

dated on an ongoing basis.

EUR ’000s31 Dec. 2012

Up to 3months

>3 monthsup to 1 year

>1 year to5 years

>5 years

Liabilities to banks 1,976 1,519 1,534 971

Liabilities to customers 2,823 638 795 1,122

Securitised liabilities 121 265 3,721 1,008

Off-balance sheet liabilities 867

Liabilities held for trading 15 31 285 315

Total 5,802 2,453 6,335 3,416

31 Dec. 2011

Liabilities to banks 3,194 1,947 2,111 756

Liabilities to customers 2,642 914 986 858

Securitised liabilities 0 361 3,887 82

Off-balance-sheet liabilities 1,047

Liabilities held for trading 10 30 235 269

Total 6,892 3,252 7,219 1,965

50

The duties of SaarLB’s Legal Department in-

clude minimising legal risks from contractual

terms and conditions, provisions of national

and international law and litigation and court

decisions. Pending litigation is taken into ac-

count appropriately in the annual financial

statements.

Risk Controlling provides central monitoring

of operational risks. The used instruments

currently include in particular the systematic

collation of operational losses occurring at

SaarLB in a loss database, forward-looking

assessment of the OpRisk profile through

regular self-assessments of all of SaarLB’s

risk-relevant organisational units and the req-

uisite structural and procedural organisation

within the Bank. Since 1 January 2007, SaarLB

has used the standardised approach under

the Solvency Ordinance [SolvV] for calculat-

ing capital requirements for operational risk.

Losses that have occurred and the results of

the self-assessments are analysed in a regular

reporting process that is integrated into the

MaRisk risk report. In the reporting period, 23

losses were observed.

These losses had a negative impact on net in-

come of less than EUR 1.5 million. This amount

is significantly below the risk capital allocat-

ed for operational risk based on the capital

requirements of the regulatory standardised

approach in the amount of EUR 21.5 million.

b) Accounting-related internal control and

risk management system

The following comments relate to the pro-

vision of Section 315 (2) Nr. 5 of the German

Commercial Code [HGB], in conjunction with

Section 315a (1) of the German Commercial

Code, according to which corporations in

terms of Section 264d of the German Com-

mercial Code have to describe the significant

features of the internal control and risk man-

agement system with regard to the Group ac-

counting process.

Responsibilities and goals

To ensure the appropriateness and reliability

of the accounting, the SaarLB Group has set

up an internal control system (ICS). It includes

principles, processes and measures to ensure

the effectiveness and efficiency of the ac-

counting. Against this backdrop, the internal

control system also serves to present a true

and fair view of the SaarLB Group’s net assets,

financial position and results of operations.

The main goal of the internal control system

is to ensure that all transactions are recorded,

processed and documented correctly and in

full in accordance with the legal requirements

and standards as well as the provisions of the

articles of association and the other internal

guidelines. The internal risk management sys-

tem is viewed as a component of the internal

control system.

Organisation

The SaarLB’s Board of Management (Group’s

Board of Management) bears responsibil-

ity for the Bank having a proper business or-

ganisation, which includes both appropriate

internal control processes and above all the

adequate controlling and monitoring of the

significant risks. The Group’s Board of Man-

agement is supported in this particularly by

the corporate area of Global Risk Manage-

ment with its two organisational units of Risk

Controlling, Financing and Reporting, and the

corporate area of Services with its IT organisa-

tional unit as well as by Internal Audit.

Risk management and monitoring

See “Risk management and monitoring princi-

ples” for the organisation of these areas.

Financing and Reporting

Financing and Reporting in the SaarLB Group

is responsible for the preparation of the

consolidated financial statements, the de-

velopment of accounting requirements, the

51


initiation of accounting-relevant projects and

for the observance of national and interna-

tional changes in the accounting. With regard

to the preparation of the consolidated finan-

cial statements, other subdivisions as well as

units to be consolidated are included.

Responsibilities in this context include pri-

marily ensuring the appropriateness of the

accounting, in particular the uniform Group

accounting and valuation (partially in collab-

oration with the IT organisational unit). This

primarily consists of setting up and monitor-

ing the effectiveness of the accounting pro-

cesses as well as the implementation of the

accounting standards and statutory require-

ments in the area of accounting that are rel-

evant for the SaarLB Group and are stipulated

in the accounting guidelines, the booking

logic and the posting rules. Furthermore, the

special departments and consolidation units

define the rules for business recognition,

master data maintenance and the fulfilment

of storage obligations in organisation and

process instructions. These instructions form

an essential basis for the accounting-related

internal control system.

The consolidated financial statements and

Group management report prepared on the

basis of the accounting guidelines are pre-

pared by the Group’s Board of Management,

examined by the Group’s auditor and finally

presented to the Board of Administration for

approval. The Board of Administration creat-

ed an Audit Committee that is responsible for

the review of the Group’s audit report and the

preparation of the decision by the Board of

Administration to approve the consolidated

financial statements and the Group manage-

ment report prepared in accordance with the

requirements of IFRS/IAS. Furthermore, the

Audit Committee addresses the accounting

process. It monitors the effectiveness of the

internal control, audit and risk management

system to the extent that this task is not

handled by the Board of Administration. The

Group auditor participates in the consulting

of the Audit Committee on the consolidated

financial statements and reports on the sig-

nificant results of his audit.

Internal Audit

Internal Audit audits the business operations

of the SaarLB Group and is subordinate to the

Chairman of the Group’s Board of Manage-

ment. The audit activities extend fundamen-

tally to all the SaarLB Group’s activities and

processes, also to the extent that they are

outsourced, on the basis of a risk-oriented au-

dit approach. This includes a review of the ef-

fectiveness and appropriateness of the inter-

nal control system and the risk management.

Internal Audit carries out the tasks assigned

to it independently of the activities, process-

es and functions to be reviewed or audited

in accordance with the applicable legal and

regulatory requirements (e.g. German Bank-

ing Act, MaRisk).

Control environment and control process

The internal control system is based on organ-

isation and process instructions.

The central components of these regulations

with regard to the accounting-related inter-

nal control system are:

-

uct processes for the recording, valuation

and reporting,

Manual for recording, valuing and reporting

on receivables as well as

-

paring the financial statements.

These provisions include the significant re-

quirements for uniform Group accounting

and valuation methods in the SaarLB Group

on the basis of IFRS/IAS.

52

Furthermore, Financing and Reporting pre-

pares the annual and semi-annual instruc-

tions at each reporting deadline, which con-

tain not only legal changes, but also primarily

the significant preparation work (including

the required proofs) and a schedule to be

undertaken by the respective special depart-

ments.

The rules for the recording and controlling

of business data are at the disposal of the

respective organisational unit; these instruc-

tions are prepared decentrally and updated if

need be.

The organisation and process instructions

also include the handling of the SaarLB

Group’s significant risks with regard to the

risk management and monitoring.

The rules for risk management and monitor-

ing are regularly reviewed and updated. On

account of the migration to the systems of

FinanzInformatik, a comprehensive revision

of all instructions and risk controlling and

monitoring was undertaken in the year under

review.

To ensure a complete and correct processing

of the transactions including the proper data

recording, booking and documentation, a va-

riety of internal controls are performed in the

SaarLB Group. These include appropriate sep-

arations of functions, a differentiated access

authorisation system for protection against

unauthorised access, continuous controls

within the scope of the work processes under

application of the four-eye principle as well as

programmed controls within the IT systems.

As part of the internal controls, general ledg-

ers and sub-ledgers are reconciled in SaarLB

and manually postable ledger accounts are

monitored by the responsible areas. Further-

more, controls and reconciliations are also

handled to ensure the proper transfer of data

between the different IT systems. Within

the process for preparing the consolidated

financial statements, the correct professional

presentation of the circumstances forming

the basis of the financial statements is re-

viewed and the quality assurance measures

are carried out for data included in the con-

solidated financial statements. The IDL-KON-

SIS server-based software that is used for the

consolidation contains multiple programmed

controls to ensure the recording of data and

documentation in accordance with the Group

requirements.

The SaarLB Group outsourced a portion of its

services (primarily IT services, services in the

area of payment transactions and securities

settlement) to external companies. The inte-

gration of the outsourced areas into the Saar-

LB Group’s internal control system is ensured.

Furthermore, Internal Audit at Saar LB consid-

ers the outsourced areas in the test process.

Where there is an audit by the Internal Audit

of the outsourcer, SaarLB’s Internal Audit reg-

ularly convinces itself of the functionability

of the respective audits by the outsourcers.

In the SaarLB Group, the accounting process

is subject to regular controls with regard to

the inherent risks in order to introduce appro-

priate measures for the further development

of the internal control system, if need be. This

also relates to the internal risk management

and monitoring.

Summary of risk situation

Saar LB has risk cover funds that are suf-

ficient to cover all the ICAAP risk capital

needed at any time in the year under review.

Consequently, the SaarLB Group’s economic

risk-bearing capacity was present at all times

last year without any qualifications. From a

regulatory point of view in terms of the Sol-

vency Ordinance [SolvV] report, the key fig-

ures in the year under review exceeded the

internal targets so that the regulatory risk-

bearing capacity was ensured at all times

without any qualifications.

53


OUTLOOK

For the German economy, growth is expected

to increase starting in the spring of 2013. The

good structural situation and the signals from

the global economy suggest a positive impact

will be had. This will be countered by the on-

going tendency for economies in the euro

zone to slip into recessions, although early

indicators suggest an improvement in the

situation. The forecast growth rates for Ger-

many mostly range between 0.4% and 1.0%

for the year. Recently positive signals for the

global economy speak for a gradual recovery

in exports over the course of the year. On the

other hand, consumption could make an even

stronger contribution to growth than in 2012.

The framework conditions such as employ-

ment, wages, low price increases, changes

in fiscal spending are advantageous for this.

Corporate investment, which was fairly disap-

pointing in 2012, will be critical for economic

performance. Based on the latest indicators,

consumer and economic sentiment have im-

proved slightly, and the labour market should

continue to see strong improvements.

In the Saarland economy, sentiment at the

beginning of 2013 has been restrained. In

the second half of the year at the latest, a re-

covery of the Saarland economy is expected.

Then the foreign business, domestic invest-

ment demand and private consumption will

ensure positive stimulus. Economic growth of

around 1% is anticipated for the entire year.

Despite the initially anticipated restrained

improvement in the economy, SaarLB contin-

ues to expect a robust labour market similar

to the forecast for Germany as a whole.

The prospects for the economy in Rhineland-

Palatinate improved again at the beginning

of the year. The reasons for this are consum-

ers’ ongoing high level of confidence and

companies’ adjustments to the economic

framework conditions. If there are no general

economic shocks, a moderate increase in eco-

nomic activity is expected in 2013.

The prospects for the first half of 2013 in

France are very conservative, with growth

forecast to be around 0.1%. The expected

stability of demand in France in the first few

months should mean that there is no fur-

ther decline in investment. The tendency of

private households to rely on their savings

should continue and thus allow stable private

consumption. A recovery of the global econo-

my and the expected devaluation of the euro

should generate export advantages. A slight

revival in some sectors of industrial produc-

tion is anticipated. The expectations in the

area of exports and for innovative companies

are very positive.

The forecasts for the Lorraine economy in

2013 are fairly subdued. Numerous small and

medium-sized companies fear a further de-

cline in business activities and are not plan-

ning any new investments. As a result, more

lay-offs are expected.

In Alsace, small and medium-sized companies

are anticipating a further deterioration in the

framework conditions, which should have a

corresponding impact on the labour market.

The liquidity and income position of compa-

nies will be hurt, possibly leading to a further

decrease in investment activity. Positive de-

velopments such as exports, tourism and new

businesses remain despite the poor business

climate.

After the decision by the ECB at the end of

2012 not to change the base interest rates, we

expect the three month interest rate for un-

collateralised interbank business to be 0.5%

on average for the year in 2013 on account of

the market expectations. It should then move

back in the direction of 1.25% in 2014.

The SaarLB Group as a whole sees a positive

course of business in the coming two years.

If, however, our expectations of a stable eco-

nomic development and a manageable crisis

54

in the euro zone are not accurate, our fore-

casts will not be met.

The development of Corporate Customers

must be viewed differently, depending on the

target markets and/or target customers.

In the German target market, the economic

performance of companies across all sectors

can be viewed as good. The only exception

here is the steel industry due to global over-

capacities and raw material and energy costs

and/or energy production, particularly on ac-

count of the impact of energy change.

Due to the material market position in Saar-

land and the increasing focus on acquisitions

in Rhineland-Palatinate, we are confident

that it will be possible to continue the good

performance in Corporate Customers in 2013.

The weak economic development and the lim-

ited willingness to invest in the French target

markets of Alsace and Lorraine are stifling

demand for credit. While retaining our risk-

oriented and selective new business strategy,

we have adjusted our plans accordingly. We

expect growth to be stimulated by the ongo-

ing high demand from municipalities and mu-

nicipally owned companies.

Real Estate will see above average growth

in Germany in 2013 through the financing

of portfolio real estate. The Bank is also in-

creasingly doing business in the area of new

construction financing for commercial real

estate. For the financing of commercial real

estate in France, SaarLB also expects a posi-

tive development of business despite sharp

competition. The real estate market in France

continues to be one of the most strategic and

important markets for institutional inves-

tors. SaarLB was able to establish itself as a

reliable partner for these professional players

in recent years.

In the Projects segment, the Bank antici-

pates – similar to the developments in 2012 –

a positive, dynamic development of new

business and ongoing stable portfolio in-

come. SaarLB is profiting from its very good

position in the markets of onshore wind

and photovoltaic in France, the stability of

the framework conditions there and the un-

changed need for retrofitting for a portion of

the renewable energy as a percentage of the

total energy produced. On the German mar-

ket, the Bank expects strong demand in the

sector of onshore wind due to the ongoing

discussion and the uncertainty with regard to

the EEC subsidy, especially in the first three

quarters of 2013. The Bank can rely on its tight

network of project planners, manufacturers,

investors, municipalities and municipality-

owned companies.


Worth Individuals will concentrate on and

increasingly intensify the deposit and service

business with institutional investors and

high net worth private customers in the next

two years. With a trend toward rising interest

rates in the euro zone and an improvement

in sentiment in the relevant asset markets,

the commission income should also increase.

The interest margin contribution from the li-

abilities business should also increase again

slightly against the backdrop of the Bank’s

interest expectations. Previously, additional

possibilities for income emerged through

derivatives in the interest and currency man-

agement due to the use of the currently low

interest rate.

The ongoing low market interest rate level will

continue to limit the income possibilities for

Landesbausparkasse in the next two years.

The liabilities side of the Bausparkasse is de-

fined by interest payments on the home loan

savings deposits, while the asset side with the

credit business and investment possibilities

largely depends on the current market condi-

tions. Consequently, the net interest income

is only anticipated to rise moderately, which

is justified by rising volumes. Due to the on-

going very positive development of new busi-

ness, the Bank also expects a net commission

loss for Landesbausparkasse in the coming

55


year. In total, SaarLB anticipates positive op-

erating income over the next two years.

Treasury and Portfolio Management will con-

tinue active portfolio management within

the framework of the risk and income man-

agement of the SaarLB Group. The Bank an-

ticipates a further decline in the contribu-

tions from non-core business on the income

side in the next two years due to the planned

decrease in the reduction portfolio (roughly

EUR 1.6 billion in the next two years), whereby

stable contributions to income are expected

from Securities Account A. Depending on the

development of financial markets, last but

not least the situation in the euro zone, an

increase in risks cannot be excluded in the

forecast timeframe. Consequently, the busi-

ness segment for portfolio management

anticipates another increase in the need for

risk provisions or rating-related value adjust-

ments in the reduction portfolio in this year.

Treasury income from the money market and

asset-liability management should stay at

the current level of prior years.

In the area of Banking, the SaarLB Group is

in good shape due to the application of in-

ternational accounting standards, the regu-

latory requirements of the German Solvency

Ordinance [SolvV], and the implementation

of the 3rd amendment of MaRisk [Minimum

Requirements for Risk Management]. In 2012,

the Bank began the preparations for the im-

plementation of other regulatory require-

ments, particularly Basel III, CRD IV, the 4th

amendment of MaRisk and numerous inter-

nal projects, which were continued in 2013.

New or updated IFRS requirements (cf. note

1) were also implemented. The impact of the

regulatory reforms, the further increasing of

liquidity buffers for Basel III and other possi-

ble legal changes as a result of the financial

market crisis would have a negative impact

on income.

In 2013, there will be new challenges in the

technical-organisational area, which the

SaarLB Group will advance on the way to the

greatest possible integrated data manage-

ment.

These positive assessments will also show up

in the coming years with constantly good pre-

tax income. The greatest risk for the SaarLB

Group continues to be another intensifica-

tion of the sovereign debt crisis in Europe,

which could produce a chain reaction across

the entire sector and also drag in the SaarLB

Group.

Net interest income in 2013 will carry over

from the performance in 2012 and remain at a

high level despite the restrained money mar-

ket. This is primarily due to the higher income

in the core business segments due to the

growth in volumes and margins.

In the net commission income, the trend from

2012 will continue in 2013 and increase no-

ticeably again from this level in the following

years.

For 2013, slightly higher personnel expenses

than in 2012 are expected – partly due to the

planned restructuring measures and the im-

plementation of salary increases. In the years

after that, personnel expenses will fluctuate,

starting in 2016, on the level from 2012. Due

to the already planned and largely regulato-

ry-driven projects, administrative expenses

will increase from 2012 to 2013, but fall suc-

cessively again, as of 2014, below the level of

2012.

The gains/losses on fair value measurement

take into account the pure maturity effects

of negative market values for the interest de-

rivatives in the portfolio for this time period,

as in the prior year. As a result, the positive

contribution to earnings as a result of these

income statement items in the budget peri-

od, similar to the situation with the portfolio,

is planned to decline commensurately. The

gains/losses on investments include disposal

losses from the sale of securities and income

from the release of portfolio risk provisions

for 2012 that should not be repeated in the

56

following years. For the planning horizon of

2013 to 2017, no income statement effects

from other transactions are planned for these

items on account of this.

With regard to the increase in the Bank’s capi-

tal requirements due to Basel III / CRD IV, the

SaarLB Group is moving in the right direction

on account of the advanced and positive ne-

gotiations with the shareholders to solidify

and convert the silent reserves into solid core

capital, meeting the future requirements for

adequate capital in accordance with the new

rules over the next few years.

In summary, the SaarLB Group anticipates

that the positive performance in the results

of operations for the core operating areas,

which the Bank has observed since the 2010

financial year, will also continue in the next

two years of 2013 and 2014 unless there is a

worsening of the situation in the euro zone

and the connected negative impact on eco-

nomic development.

Saarbrücken, 26 March 2013

Landesbank Saar

Board of Management

Thomas Christian Buchbinder Werner Severin Frank Eloy

57


58

SaarLB consolidated financial statements 2012

59

Consolidated statement of comprehensive income FROM 1 JANUARY 2012 TO 31 DECEMBER 2012

EUR ’000s Notes 2012 2011 Change

1 Interest income (26) 765,432 834,274 -68,842

2 Interest expenses (26) -626,717 -712,317 85,600

3 Shares of profits in associated companies accounted for using the equity method

(27) 114 269 -155

4 Risk provisions in the credit business1) (28) -33,310 -18,900 -14,410

5 Commission income (29) 24,060 25,186 -1,126

6 Commission expense (29) -16,742 -13,662 -3,080

7 Gains or losses on fair value measurement (30) 37,009 -16,150 53,159

8 Gains or losses on hedge accounting (31) -151 43 -194

9 Gains or losses on investments (32) 3,190 -507 3,697

10 Administrative expenses (33) -72,398 -78,521 6,123

11 Other income (34) 5,124 3,977 1,147

12 Other expenses (34) -3,500 -5,242 1,742

13 Income taxes (35) -22,723 3,769 -26,492

14 Consolidated net profit/loss1) 59,388 22,219 37,169

14 Consolidated net profit/loss1) 59,388 22,219 37,169

15 Change in revaluation reserve (net) (59) 80,182 7,694 72,488

of which valuation changes (gross, temporary, no impact on income statement)

(59) 70,668 1,490 69,178

of which portfolio changes due to recognition

of profits or losses (59) 9,514 6,204 3,310

16 Other comprehensive income before taxes 80,182 7,694 72,488

17 Income taxes established without impact

on profit or loss (59) -25,002 -3,046 -21,956

18 Other comprehensive income after taxes 55,180 4,648 50,532

19 Consolidated comprehensive income1) 114,568 26,867 87,701

1) Figures from 2011 have been adjusted; see note 39.

CORPORATE REPORT 2012 | CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

60

Consolidated balance sheet AS OF 31 DECEMBER 2012

Assets

EUR ’000s Notes 2012 2011 2010

1 Cash reserves (7), (36) 669,302 106,737 7,269

2 Loans and advances to banks (8), (37) 3,246,133 4,105,613 3,834,459

3 Loans and advances to customers (8), (38) 9,039,001 8,607,193 7,572,791

4 Risk provisions in the credit business 1) (9), (39) -162,694 -153,112 -179,822

5 Assets held for trading (10), (40) 517,917 431,629 359,649

6 Positive market values from derivative financial instruments (hedge accounting)

(11), (41) 46,181 - -

7 Investments (12), (42) 4,698,415 5,574,215 6,547,362

8 Securities repurchase transactions (6), (43) 569,969 954,197 779,740

9 Interests in entities valued at equity (13), (44) 2,876 2,762 2,493

10 Investment property (14), (45) 21,005 21,232 15,631

11 Property, plant and equipment (14), (46) 22,480 23,558 29,485

12 Intangible assets (15), (47) 2,010 1,612 2,120

13 Current income tax claims (25), (48) 5,467 8,036 9,451

14 Deferred income tax claims (25), (48) 58,320 73,523 61,236

15 Other assets (16), (49) 3,838 4,047 3,131

16 Non-current assets held for sale and disposal groups (17) - - 4,500

Total assets 18,740,218 19,761,242 19,049,495

61

CORPORATE REPORT 2012 | CONSOLIDATED BALANCE SHEET

Liabilities

EUR ’000s Notes 2012 2011 2010

1 Liabilities to banks (18), (50) 6,000,336 8,008,089 7,692,416

2 Liabilities to customers (18), (51) 5,898,175 5,905,351 5,136,091

3 Securitised liabilities (18), (52) 5,114,745 4,329,445 4,749,283

4 Liabilities held for trading (19), (53) 645,331 544,131 461,208

5 Negative fair values from derivative financial instruments (hedge accounting)

(20), (54) 31,636 32,585 20,010

6 Provisions (21), (55) 31,907 32,445 30,868

7 Current income tax liabilities (25), (56) 7,466 2,884 1,434

8 Deferred income tax liabilities (25), (56) 66,362 47,166 45,141

9 Other liabilities (22), (57) 50,394 45,290 50,546

10 Subordinated capital (23), (58) 335,112 351,888 412,970

11 Shareholders’ equity (59) 558,753 461,968 449,527

Subscribed capital (59) 169,114 169,114 169,114

Hybrid capital (23), (59) 91,453 104,258 114,909

Capital reserve (59) 50,841 50,841 50,841

Retained earnings1) (59) 154,058 137,798 117,500

Revaluation reserve (42), (59) 43,595 -11,585 -16,233

Consolidated profit1) (59) 49,692 11,542 13,396

Total liabilities 18,740,218 19,761,242 19,049,495


62

Schedule of changes in equity

EUR ’000s Subscribed capital

Hybridcapital

Capital reserve

Retained earnings

Revaluation reserve

Consolida-ted profit

Consolida-ted share-

holders’ equity

as of 31. Dec. 2010 169,114 114,909 50,841 116,800 -16,232 13,396 448,828

Correction for the previous year 1) - - - 700 - - 700

as of 31 Dec. 2010 169,114 114,909 50,841 117,500 -16,232 13,396 449,528

as of 1 Jan. 2011 169,114 114,909 50,841 117,500 -16,232 13,396 449,528

Change in the revaluation reserve - - - - 4,648 - 4,648

Total changes taken directly to equity - - - - 4,648 - 4,648

Consolidated net profit/loss - - - - - 22,001 22,001

Total consolidated profit - - - - 4,648 22,001 26,649

Correction for the previous year 1) - - - -10 - 218 208

Change in deferred taxes - - - 6,911 - - 6,911

Allocations to/Withdrawals from retained earnings

- - - 13,396 - -13,396 -

Decrease in hybrid capital - -10,651 - - - - -10,651

Distribution on silent partner contribu-tions and profit participation rights

- - - - - -10,677 -10,677

as of 31 Dec. 2011 169,114 104,258 50,841 137,797 -11,584 11,542 461,968

as of 1 Jan. 2012 169,114 104,258 50,841 137,797 -11,584 11,542 461,968

Change in the revaluation reserve - - - - 55,179 - 55,179

Total changes taken directly to equity - - - - 55,179 - 55,179

Consolidated net profit/loss - - - - - 59,388 59,388

Total consolidated comprehensive income

- - - - 55,179 59,388 114,567

Change in deferred taxes - - - 4,719 - - 4,719

Allocations to/withdrawals fromretained earnings

- - - 11,542 - -11,542 -

Decrease in hybrid capital - -12,805 - - - - -12,805

Distribution on silent partner contribu-tions and profit participation rights

- - - - - -9,696 -9,696

as of 31 Dec. 2012 169,114 91,453 50,841 154,058 43,595 49,692 558,753


63

CORPORATE REPORT 2012 | SCHEDULE OF CHANGES IN EQUITY & CASH FLOW STATEMENT

Cash flow statement

EUR ’000s 2012 2011

Consolidated net income for the year1) 59,388 11,542

Non-cash items included in the consolidated financial statements and reconciliation to cash flow from operating activities

Write-downs, impairments and write-ups on receivables, property, plant and equip-ment, investments, intangibles and investment properties

29,207 33,560

Changes in provisions -538 1,577

Changes in other non-cash items -89,947 -22,189

Gains on sales of non-current assets 3,734 -11,393

Other adjustments -105,864 -118,960

Subtotal -163,407 -117,404

Change in assets and liabilities after adjusting for cash items

Loans and advances to banks 837,639 -279,002

Loans and advances to customers1) -485,191 -1,064,710

Assets held for trading -74,122 -78,640

Other operating assets 209 -915

Liabilities to banks -1,969,531 315,435

Liabilities to customers 30,223 767,542

Securitised liabilities 786,003 -414,851

Liabilities held for trading 101,200 82,923

Other operating liabilities 5,104 -5,256

Positive/negative fair value of hedging derivatives -36,255 981

Interest paid -654,046 -669,482

Interest received 791,413 827,809

Dividends received 3,623 6,004

Income tax paid/reimbursed -6,428 -6,801

Cash flow from operating activities -774,180 -624,825

Inflows from sale/repayment of investments 2,339,191 1,813,949

Inflows from the disposal of property, plant and equipment,investment properties and intangibles

0 4,703

Outflows for the purchase of investments -971,060 -1,018,018

Outflows for the purchase of property, plant and equipment,investment properties and intangibles

-1,914 -1,913

Cash flow from investment activities 1,366,218 798,721

Payments to shareholders - -

Application of funds from subordinated capital (contribution) - -

Application of funds from subordinated capital (payout) -29,473 -74,429

Cash flow from financing activities -29,473 -74,429

Cash and cash equivalents at the end of the previous period 106,737 7,269

Cash flow from operating activities -774,180 -624,825

Cash flow from investment activities 1,366,218 798,721

Cash flow from financing activities -29,473 -74,429

Cash and cash equivalents at end of period 669,302 106,737


64

Notes to the consolidated financial statements of Landesbank Saar ...............................................66

Accounting policies ............................................................................................................................67

(1) General principles ...................................................................................................................................67

(2) Scope of consolidation ......................................................................................................................... 70

(3) Principles of consolidation .................................................................................................................. 70

(4) Currency translation .............................................................................................................................. 71

(5) Offsetting ................................................................................................................................................ 71

(6) Financial instruments ........................................................................................................................... 71

(7) Cash reserve ............................................................................................................................................77

(8) Receivables .............................................................................................................................................77

(9) Risk provisions in the credit business .................................................................................................77

(10) Assets held for trading ........................................................................................................................77

(11) Positive market values from derivative financial instruments (hedge accounting) ...................77

(12) Investments ..........................................................................................................................................77

(13) Interests in entities valued at equity ................................................................................................78

(14) Investment property/property, plant and equipment ....................................................................78

(15) Intangibles .............................................................................................................................................79

(16) Other assets ..........................................................................................................................................79

(17) Non-current assets held for sale and disposal groups .....................................................................79

(18) Liabilities ...............................................................................................................................................79

(19) Liabilities held for trading ...................................................................................................................79

(20) Negative market values from derivative financial instruments (hedge accounting) ............... 80

(21) Provisions ............................................................................................................................................. 80

(22) Other liabilities .................................................................................................................................... 81

(23) Hybrid capital ....................................................................................................................................... 81

(24) Leasing transactions ........................................................................................................................... 81

(25) Taxation ................................................................................................................................................ 82

Segment reporting .............................................................................................................................83

Disclosures on the statement of comprehensive income ..................................................................87

(26) Net interest income .............................................................................................................................87

(27) Shares of profits in associated companies accounted for using the equity method ................ 88

(28) Risk provisions in the credit business .............................................................................................. 88

(29) Net commission income ..................................................................................................................... 89

(30) Gains/losses on fair value measurement......................................................................................... 90

(31) Gains/losses on hedge accounting .................................................................................................... 90

(32) Gains/losses on investments .............................................................................................................. 91

(33) Administrative expenses ................................................................................................................... 92

(34) Other income ....................................................................................................................................... 93

(35) Income taxes ........................................................................................................................................ 94

Notes to the balance sheet ................................................................................................................96

(36) Cash reserve ......................................................................................................................................... 96

(37) Loans and advances to banks ............................................................................................................ 96

(38) Loans and advances to customers ................................................................................................... 96

(39) Risk provisions in the credit business .............................................................................................. 98

Group Notes to the consolidated financial statements 2012

65

CORPORATE REPORT 2012 | NOTES

(40) Assets held for trading ......................................................................................................................100

(41) Positive market values from derivative financial instruments (hedge accounting) ................. 101

(42) Investments ........................................................................................................................................ 101

(43) Securities repurchase transactions .................................................................................................104

(44) Interests in entities valued at equity ..............................................................................................104

(45) Investment property .........................................................................................................................104

(46) Property, plant and equipment .......................................................................................................105

(47) Intangibles ..........................................................................................................................................106

(48) Current and deferred income tax claims ........................................................................................107

(49) Other assets ........................................................................................................................................109

(50) Liabilities to banks ............................................................................................................................ 110

(51) Liabilities to customers ..................................................................................................................... 110

(52) Securitised liabilities .......................................................................................................................... 111

(53) Liabilities held for trading .................................................................................................................112

(54) Negative market values from derivative financial instruments (hedge accounting)................112

(55) Provisions .............................................................................................................................................113

(56) Current and deferred income tax liabilities ....................................................................................116

(57) Other liabilities ...................................................................................................................................116

(58) Subordinated capital ..........................................................................................................................117

(59) Shareholders’ equity ..........................................................................................................................118

Notes on financial instruments ....................................................................................................... 124

(60) Fair value of financial instruments ................................................................................................. 124

(61) Level information for financial instruments measured at fair value .......................................... 128

(62) Financial instrument measurement categories .............................................................................131

(63) Net gains or losses on financial instruments ................................................................................. 132

(64) Derivative transactions ..................................................................................................................... 132

(65) Notes to items in the cash flow statement ................................................................................... 135

Notes to the cash flow statement ................................................................................................... 135

(66) Subordinated assets..........................................................................................................................136

(67) Assets and liabilities in foreign currencies .....................................................................................136

(68) Transferred, but not fully written-off financial assets .................................................................136

(69) Transferred, fully written-off financial assets ............................................................................... 137

(70) Assets pledged as collateral ............................................................................................................. 137

(71) Collateral received that may be sold or pledged on .......................................................................138

(72) Leasing transactions .........................................................................................................................138

(73) Fiduciary transactions.......................................................................................................................139

(74) Contingent liabilities and other obligations ..................................................................................139

(75) Other financial obligations ...............................................................................................................140

(76) List of shareholdings of Landesbank Saar (excerpt) .....................................................................140

(77) Administrative bodies of SaarLB ..................................................................................................... 142

(78) Related party disclosures ................................................................................................................. 144

(79) Auditors’ fees ...................................................................................................................................... 147

(80) Employees ........................................................................................................................................... 148

Responsibility statement by the Board of Management ................................................................. 149

66

The consolidated financial statements for

Landesbank Saar, Saarbrücken, a corporation

established under public law (hereinafter

SaarLB), for the 2012 financial year have been

prepared in accordance with International

Financial Reporting Standards (IFRS), pursu-

ant to Commission Regulation 1606/2002 of

the European Parliament and of the Council

dated 19 July 2002, and in conjunction with

Section 315a (1) of the German Commercial

Code (HGB). In addition to the IFRS-defined

standards, IFRS also comprise the Interna-

tional Accounting Standards (IAS), the in-

terpretations of the International Financial

Reporting Interpretations Committee (IFRIC)

and the Standing Interpretations Committee

(SIC). All standards and interpretations that

are mandatory in the EU for the 2012 financial

year have been applied. In addition, German

Accounting Standards (DRS) 5– 10 and 15 were

applied with regard to the management re-

port.

The consolidated financial statements con-

tain the statement of comprehensive income,

consisting of the income statement with an

effect on profits and losses and without an ef-

fect on profits and losses, the balance sheet,

the schedule of changes in equity, the cash

flow statement, the Notes and the segment

reporting. The reporting currency is the euro.

Unless explicitly stated otherwise, all

amounts are given in thousands of euro (EUR

’000s). Figures in the tables may be rounded

by +/- one unit and are not normally preceded

by a symbol if it is clear from the context.

BayernLB continues to hold an unchanged

49.9%, Saarland 35.2% and Sparkassen- und

Giroverband Saar [Saarland Savings Bank

Association] 14.9% of the shares in SaarLB.

SaarLB is included in the consolidated finan-

cial statements of BayernLB at equity.

The Group management report, which in-

cludes the risk report, has been published in a

separate section of the annual report.

Notes to the consolidated financial statements of Landesbank Saar

67


(1) GENERAL PRINCIPLES

The consolidated accounts of SaarLB are

drawn up using consistent accounting poli-

cies across the Group. The accounting policies

are based on the assumption that the Group

is a going concern.

Income and expenses are accrued pro rata

temporis and recognised in the income state-

ment in the period to which they are economi-

cally relevant.

Estimates and measurements required for ac-

counting and valuation under IFRS are carried

out in accordance with the relevant standards.

They are examined on an ongoing basis and are

based on past experience and other factors

such as expectations of future events. The as-

sumptions and estimates essentially relate

to the calculation of the fair values of certain

financial instruments, the identification and

calculation of impairments under IAS 39, the

accounting treatment and measurement of

provisions and the realisability of future tax

reliefs. Where broader estimates were neces-

sary the relevant assumptions are shown in

the notes to the corresponding items.

Assets are recognised when it is probable that

the SaarLB Group will derive a future econom-

ic benefit from them and the cost of acquisi-

tion or production can be reliably determined.

Debts are recognised when it is probable that

satisfaction of a current obligation will result

in an outflow of economically useful resourc-

es and the amount required to do so can be

reliably determined.

Effects of new and amended IFRS

Standards and interpretations that must

be applied for the first time in the reporting

period

The amended standard IFRS 7 “Disclosure of

Financial Instruments” was required for the

first time in the reporting period.

The amendments to IFRS 7 were published

by the International Accounting Standards

Board (IASB) in October 2010 and endorsed

by the EU on 22 November 2011. The amended

IFRS 7 contains new disclosure requirements

for transferred assets.

Additional disclosure requirements for trans-

ferred assets that are not written-off (e.g. as

part of real repurchase transactions):

-

ferred asset and the connected liability is to

be described, including the limitations that

result from the transfer with regard to the

use of the asset (e.g. prohibition of a pledge

to third parties).

-

course to the asset transferred in connec-

tion with the debt, an overview is to be

provided, which shows the fair value of the

transferred assets, the fair value of the li-

abilities and the balance of the two.

Additional disclosure requirements for trans-

ferred assets that are not written-off in full:

The following information on retained rights/

obligations or newly obtained rights/obliga-

tions (ongoing exposure) is to be provided:

exposure,

-

sure,

the written-off asset (e.g. exercise price of

an option), and a maturity analysis of these

cash outflows,

ongoing exposure and the risk that the com-

pany continues to be exposed to,

-

sure (current and cumulative),

-

uted unevenly across the reporting period.

Accounting policies

68

There is no ongoing exposure if the company:

flows from the financial asset, but is con-

tractually obligated to pay the cash flows

to one or more companies if this involves a

pass-through arrangement in terms of IAS

39.19.

Cf. note 68 and 69 for details on the imple-

mentation of the new disclosure obligations.

Standards and interpretations passed in the

reporting period and to be applied in the

periods following the reporting period and

not applied in advance

The key standards approved in 2012, the man-

datory effective date and the expected im-

pact on SaarLB are summarised below.

Standard Effective date for financial years that begin after the stated date

Description of amendments and impact on SaarLB

IAS 1 “Presentation ofFinancial Statements”

1 January 2013 (published17 May 2012; endorsed5 June 2012)

Clarification that the income statement and other comprehensive income are to be reported directly after each other in the annual report.On the other hand, the other comprehensive income is to be divided between temporary items taken to equity and permanent items taken to equity.Clarification of the requirements for the comparative values from the previous year: All quantitative information in the previous period must be reported. If a company retrospectively adjusts a balance sheet item due to a change in the ac-counting method, voluntarily reported quantitative comparative amounts must be adjusted to the altered accounting method.These changes will not have any major impact on the financial statements of the SaarLB Group.

IAS 12 “Income Taxes” 1 January 2012 (published20 December 2010; endorsed11 December 2012)

For real estate held as an investment and measured at fair value, deferred tax assets and liabilities are to be recognized in the future on the basis of the tax consequences of a sale.Since SaarLB does not conduct any fair value measurement of real estate held as an investment, this amendment will not have any impact on the SaarLB Group’s financial statements.

IAS 19 “EmployeeBenefits”

1 January 2013 (published16 June 2011; endorsed5 June 2012)

The amendments to IAS 19 relate above all to the recording and breakdown of the expenses and income for defined benefit loans and termination benefits. The significant change consists of the discontinuation of the corridor method so that actuarial profits and losses are reported under other comprehensive income in the period in which they emerge. There continued to be no later re-cycling of actuarial profits and losses. The second major change relates to the calculation of the income from the plan asset. A typical return for the plan asset at the amount of the discount interest rate of pension obligations is to be rec-ognized as income at the beginning of the period in the future. A later deviation as a result of the actual returns is recognised in the revaluation reserve in other comprehensive income.This amendment will have an impact on the SaarLB Group, since SaarLB is cur-rently applying the corridor method.

IAS 32 “Financial Instruments: Disclosure”

1 January 2014 (published16 December 2011; not yet endorsed)

1 January 2013 (published17 May 2012; endorsed13 December 2012)

Clarification with regard to the term “current point in time” and the term “simul-taneity” in connection with the netting of financial assets and liabilities.This change will not have any major impact on the financial statements of the SaarLB Group.Clarification that the accounting of the income tax impact from distributions to the owners of an equity instrument must be in conformity with IAS 12 Income Taxes.The amendment will not have any material impact on the SaarLB Group’s finan-cial statements.

69




IAS 34 “Interim Financial Report-ing”

1 January 2013 (published17 May 2012; not yet endorsed)

Clarification that for interim financial statement there is a disclosure require-ment for the segment asset only if this amount is reported regularly to the Board of Management and there have been material changes with regard to the segment asset in comparison to the last statement.This change will not have any major impact on the financial statements of the SaarLB Group.

IFRS 7 “Financial Instruments: Disclosures”

1 January 2013 (published16 December 2011, endorsed 13 December 2012)

The amendments require disclosures on all reported financial instruments that are netted in accordance with IAS 32.42. Due to the amendments, it is also nec-essary to provide information on all the reported financial instruments that are subject to an enforceable global settlement or similar agreement, even if they are not netted in accordance with IAS 32.This amendment will have an impact on the SaarLB Group’s financial statements in the form of additional disclosure in the notes.

IFRS 9 “Financial Instruments” 1 January 2015 (published 12 November 2009; not yet en-dorsed)

1 January 2015 (published 28 October 2010; not yet endorsed)

The new IFRS 9 contains the results of the first revision of IAS 39, which refers to the classification and measurement of financial instruments. Accordingly, when financial assets are recognised, they are to be allocated to the amortised cost category or to the fair value category. Recognition at amortised cost occurs when

receive contractual cash flows and-

uled dates that represent interest and redemption payments on the outstand-ing nominal amount.

Financial assets that do not fulfil these conditions are recognised at profit or loss on fair value.A voluntary allocation of financial assets to the fair value category is possible upon recognition if incongruities are eliminated or significantly reduced with such measurement or disclosure.For the initial recognition of equity instruments that are not held for trading purposes, there is the option of disclosing changes in the value of these financial assets including the gain/loss on disposals not at profit or loss, but rather in the statement of comprehensive income without an impact on profits/losses.A change in the business model requires a recategorisation.Financial liabilities are usually measured at amortised cost. The exceptions to this are the trade portfolios and the financial liabilities for which the fair value option was selected. Fair value changes to financial liabilities in the fair value option are fundamentally recognised in other comprehensive income according to IFRS 9 if the fair value changes result from a change in the credit risk. All other fair value changes continue to be recognised at profit or loss.The application of the new IFRS 9 will have a major impact on the classification and measurement of financial assets in the SaarLB Group’s financial statements.

IFRS 10 “Consolidated Financial Statements”

1 January 2013 (published on12 May 2011; endorsed11 December 2012)

IFRS 10 replaces the previous IAS 27 and SIC 12 with regard to the group of consol-idated companies. Through this new standard, a uniform method to specify the group of consolidated companies is introduced for all companies that is based on the control of the subsidiary by the parent company. The control concept of IFRS 10 includes the following three elements, which must be cumulatively ful-filled:

power.The impact on the consolidated financial statements is not definitively clear. First-time application is required for financial years that begin after 31 Decem-ber 2013.

IFRS 11 “Joint Arrangements”


IFRS 11 replaces IAS 31 “Interests in Joint Ventures” and eliminates the former possibility of proportionate consolidation of joint ventures. A participant in a joint venture is to report his interests as an equity investment and use the eq-uity methods pursuant to IAS 28.At the present time, SaarLB does not have any shares in joint ventures.

IFRS 12 “Disclosure of Interests in Other Entities”

1 January 2013 (published on 12 May 2011; endorsed 11 December 2012)

IFRS 12 will lead to a reporting obligation for all equity investments in subsidiar-ies, joint ventures and associated companies as well as not-consolidated struc-tured units according to one standard. Accordingly, companies must provide quantitative and qualitative information that make it possible for readers of the financial statements to identify the risks and financial effect that is con-nected with the company’s equity investment in the business.Fundamentally, this amendment will have an impact on the scope of the infor-mation in the notes to the financial statements of the SaarLB Group.

70



IFRS 13 “Fair Value Measure-ment”

1 January 2013 (published on 12 May 2011; endorsed 11 December 2012)

In IFRS 13, uniform methods of valuation are set for measurement at fair value by defining the fair value and illustrating the methods for the determination of the fair value. In connection with the calculation of the fair value, the main market is to form the basis. The main market is the market with the largest trad-ing volume and the highest market activity for the financial instrument and to which the company has access. The new standard will also lead to an expansion of the information in the notes with regard to the measurement at fair value. Accordingly, additional inform-ation for level 3 is required in particular. Further-more, the processes that were applied for the determination of the fair value are specifically represented.These amendments will have an impact with regard to the fair value calculation and the scope of the information in the notes to the financial statements of the SaarLB Group.

IAS 27 “Separate Financial State-ments”


On account of the introduction of the new IFRS 10 standard, the consolidation rules included in IAS 27 were removed. Consequently, IAS 27 includes only the requirements that are to be applied to separate individual financial statements. In this connection, the standard was renamed.The impact on SaarLB’s consolidated financial statements has not been defini-tively determined yet.

IAS 28 “Investments in Associ-ates and Joint Ventures”


IFRS 11 resulted in the elimination of the proportionate consolidation of joint venture companies. Since the joint venture companies are to be taken into ac-count according to the equity method pursuant to IAS 28, the application area of IAS 28 was expanded for joint venture companies and the standard renamed accordingly. At the present time, SaarLB does not hold any shares in joint ventures.

SaarLB has refrained from early implementa-

tion of any amended or new standards and

interpretations (partially not yet endorsed)

that have been issued by the IASB and the

IFRIC and are fundamentally relevant for the

SaarLB Group where their application is not

mandatory as of the 2013 financial year or

later.

(2) SCOPE OF CONSOLIDATION

The group of consolidated companies at

SaarLB includes six (31 December 2011: seven)

subsidiaries. These include SaarLB Banken-

beteiligungsgesellschaft mbH, Saarbrücken,

and special funds that are consolidated in full

in accordance with IAS 27 in conjunction with

SIC 12. The consolidated financial statements

do not include entities that are only propor-

tionately consolidated. Two associated com-

panies (31 Dec. 2011: two) continue to be val-

ued according to the at-equity method.

Materiality criteria are used to determine

SaarLB’s scope of consolidation. A total of

three subsidiaries (31 Dec. 2011: three) and

five associated companies were neither fully

consolidated nor valued at equity as they are

only of minor significance to the Group’s net

assets, financial position and results of opera-

tions. The accounting and earnings-related

impact of the contractual relationships be-

tween Group companies and these excluded

companies is contained in the consolidated

financial statements.

A complete overview of the special funds and

associated companies included in the consoli-

dated financial statements can be found in

the list of shareholdings (see note 76).

(3) PRINCIPLES OF CONSOLIDATION

Consolidation was carried out using the pur-

chase method under IAS 27.18 in conjunction

with IFRS 3.

The costs of acquisition of the consolidation

entities were offset against their equity. To

date, there have been no amounts where the

costs of acquisition exceed equity.

In consolidating the balance sheet and in-

come statement and eliminating intragroup

gains, all receivables and liabilities, income

and expenses and gains arising from intra-

group transactions have been eliminated.

71


Associated companies are valued at equity

and shown under the balance sheet item in-

terests in entities valued at equity. Under

this method, the costs of acquisition of an

investment in an associated company is rec-

ognised at its acquisition cost at the time of

acquisition and subsequently carried over in

line with the Group’s share of the associated

company’s net income or other change(s) in

its net assets.

(4) CURRENCY TRANSLATION

All assets and liabilities denominated in a

foreign currency are translated into the func-

tional currency at the spot rate on the day of

the business transaction on initial recogni-

tion. For the translation of currency in subse-

quent periods, it is necessary to distinguish

between monetary and non-monetary items

when translating currency. Monetary assets

and liabilities denominated in foreign curren-

cies are translated using the rate on the bal-

ance sheet date. In the case of non-monetary

items valued at historic cost of acquisition

or production, currencies are translated at

the historical acquisition rate. Non-monetary

items designated at fair value are translated

using the rate on the date the fair value was

calculated. Gains and losses from monetary

items resulting from currency translation are

recognised in the income statement.

(5) OFFSETTING

Receivables and liabilities are offset against

each other where they relate to the same

counterparty, are payable on demand, and it

has been agreed with the counterparty that

interest and commission will be charged as if

there were only one account.

(6) FINANCIAL INSTRUMENTS

Definition

A financial instrument is an agreement that

simultaneously creates a financial asset for

one of the contracting parties and a financial

liability or equity instrument for the other

party.

Recognition and measurement

Financial instruments are recognised on the

balance sheet from the date upon which the

company reporting becomes a contracting

party and is either entitled to obtain a consid-

eration or required to provide a consideration.

Normal purchases or sales (spot transactions)

of financial assets (regular way contracts) can

be recognised either on their trade date or

settlement date. Under IAS 39.9, purchases

and sales of financial assets where delivery

of the asset takes place in accordance with a

specified deadline in line with customary mar-

ket practice are deemed to be such contracts.

At SaarLB securities are always recognised on

their trade date. Derivatives are recognised on

their trade date. Other financial instruments

are recognised on their settlement date.

All financial instruments, including financial

derivatives, are carried on the balance sheet

in accordance with IAS 39 and allocated to

categories set out in IAS 39.

Initial recognition of financial instruments is

at fair value, which generally corresponds to

the consideration (the transaction price) paid

or received at the time of acquisition.

Subsequent measurement

Subsequent measurement of financial instru-

ments depends on their measurement cat-

egories under IAS 39, which differ as follows:

Financial assets and liabilities at fair value

through profit and loss:

These include financial instruments and deriv-

atives held for trading purposes that do not

meet hedge accounting criteria under IAS 39

(held for trading), and financial instruments

not held for trading purposes where the fair

value option under IAS 39 is used.

72

These are measured at fair value and recog-

nised in the income statement under gains

or losses on fair value measurement. This

item also shows realised gains and losses,

while current income and expenses appear

under net interest income. Derivatives in

hedges do not meet the hedge accounting

criteria under IAS 39. They are used for risk

management and have not been concluded

for trading purposes.

HfT financial instruments are recognised

under assets held for trading and liabilities

held for trading accordingly.

-

tion category (FVO):

The fair value option is used for portfolios of

financial instruments managed on a fair val-

ue basis in accordance with a documented

risk management or investment strategy;

this relates primarily to securities managed

by the securities special funds. For struc-

tured products that have to be separated

the fair value option is also applied to avoid

splitting the underlying transaction and the

embedded derivative. Measurement is at

fair value. Gains and losses are recognised in

gains or losses on fair value measurement,

while current income is recognised in net in-

terest income.

Financial instruments designated under the

fair value option are included under invest-

ments. Financial instruments that would

otherwise have to be measured at amor-

tised cost are not categorised under the fair

value option.

This category covers non-derivative finan-

cial assets with fixed or determinable pay-

ments, and fixed maturities that the Bank

intends and is able to hold to maturity,

where an active market exists for them at

the time of recognition or reclassification.

Measurement is at amortised cost. Please

refer to the comments on impairments for

the calculation of required write-downs.

These financial instruments are recognised

under investments. Current gains and losses

and income and expense from amortisation

are recognised under net interest income.

These are non-derivative financial assets

with fixed or determinable payments that

are not quoted on an active market. They

are measured at amortised cost. Please re-

fer to the comments on impairments for the

calculation of required risk provisions and

write-downs.

Financial instruments in the LaR category

are shown under cash reserves, loans and

advances to banks/customers, investments

and other assets. Current gains and losses

and income and expense from amortisation

are recognised under net interest income;

this also applies for holdings that are part

of a hedge under IAS 39. Gains and losses on

sale are shown under gains or losses on in-

vestments if they relate to investments and

under other income/expense if they relate

to receivables.

This category covers non-derivative financial

assets (securities, equity investments) that

are classified as available for sale or have

not been assigned to any of the categories

above. The financial instruments in this cat-

egory are measured at fair value. Any differ-

ence between fair value and amortised cost

is shown as a separate item under share-

holders’ equity (the revaluation reserve)

until the asset is either sold or matures or

a permanent impairment (see comments on

impairments) has to be recognised at profit

or loss.

Available for sale financial instruments are

included in investments. Gains/losses on

their sale and permanent impairment are

reported in gains or losses on investments,

current income and income and expense

from amortisation are recognised under net

interest income; this also applies to hold-

ings that are part of a hedge under IAS 39.

73


Liabilities measured at amortised cost in-

clude financial liabilities not held for trad-

ing purposes. They are shown at amortised

cost under liabilities to banks/customers,

securitised liabilities, other liabilities and

subordinated capital. Current gains and

losses and income and expense from amor-

tisation are shown under interest expense.

Fair value

The fair value of a financial instrument is the

amount for which it could be exchanged or

settled between knowledgeable, willing and

independent business partners.

The fair value is determined according to

the valuation hierarchy of IAS 39. In calculat-

ing the fair value, a distinction is made as to

whether fair values exist on active markets

or whether, for inactive markets, there is re-

course to valuation methods. Equity instru-

ments for which fair value cannot be reliably

calculated are recognised at their costs of ac-

quisition less any impairments.

As far as possible, SaarLB uses the quoted

price on an active market (such as the ex-

change price) to determine fair value (Level 1

and 2 of the valuation hierarchy of IAS 39). A

market for financial instruments is regarded

as active if quoted prices are easily and regu-

larly available from an exchange or broker and

these prices represent actual, regularly oc-

curring market transactions between knowl-

edgeable, willing and independent business

partners.

SaarLB uses the market price and prices on

other active markets for subsequent meas-

urement of financial instruments traded on

active markets and carried at fair value (se-

curities and derivative exchange-traded con-

tracts).

If there is no active market, valuation meth-

ods are used (Level 3 to 5 of the valuation

hierarchy of IAS 39). The aim is to determine

the transaction price that would have been

reached between two knowledgeable, willing

and independent business partners on the

valuation date. The inputs used for this pur-

pose must include all inherent market expec-

tations. Inactive markets are characterised by

heavily reduced trading volumes, extremely

wide bid/offer spreads and existing arbitra-

tion possibilities.

With securities, mainly indicative prices

from independent market data providers

are used in applying the valuation methods

and – where these are not available – prices

from other market participants (especially

issue arrangers). In the process, prices are

obtained from different providers for each

financial instrument. The prices provided are

compared for plausibility. If in exceptional

circumstances only one price is available, a

credit analysis is also performed as a plausi-

bility check. Where present, prices of securi-

ties with similar features, residual maturities

and credit ratings are used for plausibility.

This approach was used to calculate the fair

values of certain securities. In the absence

of other sources, fair values of ABS securities

were mainly calculated using prices provided

by arrangers.

Valuation models are used for OTC derivatives

and equity securities not traded on active

markets.

Fair values are also calculated using recog-

nised valuation models based on publicly

available market inputs and, to a limited ex-

tent, internal company data. The valuation

models include the net present value method

and option pricing models.

The net present value method is used for un-

conditional derivative financial instruments

(interest rate swaps, interest rate/currency

swaps, forward rate agreements and forward

foreign exchange transactions). Valuation is

based on cash flow structure taking account

of nominal values, residual maturities and

the agreed interest rate calculation method.

74

Credit default swaps are also treated as un-

conditional derivative financial instruments,

with expected defaults based on current cred-

it spreads also being taken into account.

The cash flow structure of financial instru-

ments with contractually agreed fixed cash

flows is calculated using the cash flows

agreed. For variable rate instruments, cash

flows are determined using forward curves.

Discounting uses a yield curve in the same

currency and of matching maturity, and a risk-

adjusted spread. Observable market inputs

are used where spreads are publicly available.

Material equity securities held as invest-

ments that are not traded on active markets

are valued using earnings power value analy-

sis. Expected cash flows are based on the tar-

gets of the entities in question. Non-material

holdings and holdings without reliable pro-

jected values are carried at amortised cost.

Options and other financial derivatives with

option-type characteristics are largely val-

ued on the basis of the Black-Scholes option

pricing model. The following parameters are

regularly used in the valuation process: cu-

mulative probability distribution function for

standard normal distribution, option strike

prices, risk-free interest rates (for different

currencies and maturities), price volatilities,

option time to expiry, (as applicable) interest

rate and pricing barriers, and probabilities of

occurrence. Options include interest rate cap

and floor agreements, swaptions and curren-

cy options.

The valuation models are therefore used to

calculate fair values for accounting purposes

for financial instruments in the categories

HfT and AfS. Balance sheet items and prod-

ucts affected are:

For Notes purposes, the financial instruments

recognised at fair value in the balance sheet

are allocated to a three-level system (level 1 to

3). These three levels are defined on the basis

of the input parameters used for fair value

measurement.

Allocation to level 1 occurs if the fair value

measurements is made with prices on the ac-

tive markets (without adjustment). This is the

case for securities where transaction-based

market prices or binding offers are available.

If the fair value is calculated according to the

valuation methods whose valuation param-

eters are directly or indirectly observable on

the market and have a significant impact on

the calculation of the fair value, then they are

allocated to level 2. Derivatives that are val-

ued solely with parameters observable on the

market, are to be allocated to level 2.

If the fair value is calculated with valuation

methods where the influence of valuation pa-

rameters – that are not based on observable

market data – is significant for the fair value,

they are allocated to level 3. The Bank also in-

cludes those securities that are valued on the

basis of indicative prices here.

Please refer to note 60 and note 61 for the dis-

closures of the fair values of financial instru-

ments and their level allocation.

Hedge accounting

Interest rate, currency and credit risks are

managed using financial derivatives to hedge

assets or liabilities on the balance sheet. The

different valuation methods possible for

the underlying transaction and the hedging

transaction can give rise to asymmetric ef-

fects in the income statement that do not

reflect economic reality and, most notably,

give an incomplete picture of profitability.

Hedges that meet hedge accounting criteria

within the meaning of IAS 39 are currently

reported exclusively as fair value hedges. By

applying hedge accounting, which in respect

75


of the hedged risk provides a valuation of the

underlying transaction through the fair value,

the frequency of asymmetric valuations is

reduced. All or a portion of an asset or liabil-

ity on the balance sheet is hedged against a

change in fair value due to interest rate risk

that could affect the net income for the pe-

riod. As a precondition for applying hedge ac-

counting, a high expected and actual degree

of effectiveness is needed; i.e. that changes in

the fair value of the hedged underlying trans-

actions must stay within a range of 80%-125%

of the hedged risk and the hedging derivative.

Fair value hedge accounting uses micro-fair

value hedges. Interest rate swaps are used

as hedging instruments. Derivatives used to

hedge the fair value of assets and liabilities

held on the balance sheet are measured at

fair value; changes in value have to be taken

to the income statement. The carrying values

of the underlying transactions are adjusted

for the measurement gains/losses arising

from the hedged risk, which are recognised in

the income statement.

Both the measurement gains/losses of hedge

transactions and measurement gains/losses

of underlying transactions are reported in

“Gains/losses on hedge accounting” in the in-

come statement. Current income from deriva-

tives that are part of a hedge and meet the

hedging criteria under IAS 39 is recognised

under net interest income.

Impairments

At every balance sheet date, SaarLB assesses

whether objective indicators of impairment

exist for a financial asset. A financial asset is

considered to be impaired and an impairment

loss to have occurred if:

-

ment due to a loss event that occurred after

the financial instrument was recognised for

the first time and no later than the report-

ing date,

-

mated future cash flow of the financial as-

set or group of financial assets and

amount can be made.

For financial instruments in the LaR, HtM

and AfS categories, SaarLB initially assesses

at the individual level whether objective in-

dicators of an impairment exist. To this end,

customer relationships and securities issu-

ers are analysed at regular intervals (if there

are debt securities and other fixed income

securities). The following criteria are specifi-

cally regarded as objective indicators of an

impairment:

streams than those agreed

capital and/or interest, application for de-

ferment or extension,

or legal reasons in connection with financial

difficulties,

or other restructuring of the borrower

-

tion

financial asset due to financial difficulties,

in comparison to the original buying price.

For receivables, the amount of the specific

provision is equal to the difference between

the carrying value of the financial instru-

ment concerned and the net present value

of expected future cash inflows calculated

using the discounted cash flow method and

based on the original effective interest rate.

Cash flows also have to include cash flows

that may result from the realisation of col-

lateral after deduction of the costs of acqui-

sition and sale. The carrying value of the fi-

nancial instrument is reduced by means of a

specific risk provision, which is shown on the

assets side of the balance sheet. The impair-

ment expense is recognised in the income

statement as part of the risk provisions.

76

Changes in expected inflows lead to releases

from or additions to risk provisions.

For securities in the LaR and HtM categories,

the amount of the impairment expense is

equal to the difference between the carrying

value and the fair value, if there is an active

market. The impairment expense is recog-

nised as a write-down and shown in gains or

losses on investments.

As soon as a receivable in the LaR or HtM cate-

gory is identified as impaired, interest income

ceases being recognised on the contractual

terms. Notwithstanding this, the change in

the net present value of expected future cash

inflows over time (unwinding) is reported un-

der interest income.

For financial instruments in the LaR and HtM

categories, portfolio risk provisions are cal-

culated on the basis of historic default prob-

abilities for receivables where there are no ob-

jective indicators of impairment and for those

where, in the case of objective indicators, an

individual examination has revealed no need

for impairment. Historical default probabili-

ties are updated on an ongoing basis in the

course of backtesting.

Country risks (transfer risks) are also reflected

through the creation of portfolio risk provi-

sions based on country-specific probabilities

of default, unless the risks have already been

taken into account through specific risk provi-

sions.

Irrecoverable financial instruments are

derecognised. With receivables this normally

involves utilising specific risk provisions. De-

faults for which no or insufficient specific

provisions have been created were charged to

current portfolio risk provisions.

For financial instruments in the AfS category,

an assessment is also made on each reporting

date as to whether objective indicators of im-

pairment exist.

For equity instruments classified as AfS, a

significant or lasting decline in the fair value

of the investment below the costs of acquisi-

tion constitutes an objective indicator of an

impairment. For debt instruments classified

as AfS, the existence of an impairment is de-

termined based on the same criteria as for

securities in the categories LaR and HtM.

If an impairment exists, the cumulative un-

realised loss that previously was reported

under shareholders’ equity in the revalua-

tion reserve has to be reallocated to the in-

come statement for the reporting period and

recognised under gains or losses on invest-

ments. The amount to be reclassified from

the revaluation reserve is the difference be-

tween the amortised cost and the current

fair value.

Where there is no further reason for impair-

ments on debt instruments, these are re-

versed through the income statement up to

a maximum of amortised cost. Increases in

the value of equity instruments may only be

reversed after prior impairment against the

revaluation surplus under equity.

Derecognition

Financial liabilities are derecognised when

the contractual rights to cash flows from the

respective assets expire or the financial asset

is transferred and the transfer meets the cri-

teria for derecognition in accordance with IAS

39. A transfer in accordance with IAS 39 occurs

when the contractual rights to the cash flows

from the financial asset are transferred to a

third party or the cash flows are forwarded to

a third party in accordance with IAS 39.19. If

such a transfer occurs, the financial asset is

derecognised when the Group has transferred

fundamentally all the rewards and risks from

the financial asset.

Financial liabilities are derecognised when

the contractual obligations are settled, re-

moved or expire.

77


Transfers that do not meet the criteria for

derecognition at SaarLB include in particu-

lar real securities repurchase transactions

and securities-lending transactions. Since all

the risks and rewards connected with own-

ership are primarily retained in these cases,

the transferred assets continue to remain

in full in the balance sheet and are disclosed

in a separate item (note 43). The equivalent

values received from real repurchase trans-

actions as well as accepted cash collateral

are disclosed as liabilities under liabilities to

banks/customers.

Please refer to the explanations under “Assets

pledged as collateral” (note 70) for the trans-

ferred assets that continued to be recognised.

(7) CASH RESERVE

The cash reserves include cash on hand and

deposits at central banks. Their disclosure

was at nominal value.

(8) RECEIVABLES

Loans to banks and customers involve non-

derivative financial assets with fixed or de-

terminable payments that are not quoted

on an active market and not held for trading

purposes. Measurement is at amortised cost

unless the receivable is not an underlying

transaction in an efficient fair-value hedge.

Premiums, discounts and fees that are part

of the effective interest rate of the financial

instruments are spread over the fixed interest

period and reported in interest income.

Impairments on receivables are recognised in

a separate risk provision in the balance sheet

and offset against the value of the asset.

(9) RISK PROVISIONS IN THE CREDIT

BUSINESS

The risk provisions for receivables are shown

as a negative item under an individual asset;

the item includes specific risk provisions and

portfolio risk provisions for receivables.

Expenses for allocations to risk provisions,

income from the release of risk provisions

and receipts on receivables written off are

reported under risk provisions in the income

statement.

(10) ASSETS HELD FOR TRADING

Assets held for trading contain exclusively

financial derivatives with positive fair values

not designated as hedging instruments under

IAS 39. Measurement is at fair value. Measure-

ment gains/losses and realised gains/losses

on assets held for trading are recorded on the

income statement under gains or losses on

fair value measurement; current gains/losses,

with the exception of gains/losses from credit

derivatives (premium payments), are recog-

nised in net interest income.

(11) POSITIVE MARKET VALUES FROM

DERIVATIVE FINANCIAL INSTRUMENTS

(HEDGE ACCOUNTING)

This item contains financial derivatives with

positive market values that are used as hedg-

es and meet the hedge accounting criteria of

IAS 39. These derivatives are measured at fair

value. Both changes in the fair value of hedg-

ing instruments and changes in the fair value

of underlying transactions that result from

the hedged risk are shown under gain/loss on

hedges. Interest income and expense from

hedging derivatives are recognised in net in-

terest income.

(12) INVESTMENTS

Investments comprise investments in the

categories HtM, LaR, FVO and AfS. Shares in

non-consolidated subsidiaries and associated

companies not consolidated under the equity

method are reported under available for sale

investments. Measurement of investments

varies according to the valuation category

to which they belong. The impairments to be

made are identified in accordance with the cri-

teria set out in note 6.

78

(13) INTERESTS IN ENTITIES VALUED AT

EQUITY

Interest in entities valued at equity include

the shareholdings in two companies valued

accordingly (cf. note 43).

(14) INVESTMENT PROPERTY/PROPERTY,

PLANT AND EQUIPMENT

Investment property includes land and build-

ings rented to third parties or primarily held

to achieve an increase in capital value. Prop-

erty, plant and equipment mainly comprises

land and buildings for own use and operating

fixtures and fittings. Where properties are

used for both purposes, the different por-

tions are normally accounted for separately.

If the portions cannot be separately sold or

let, the properties are only regarded as invest-

ment property if the portion used for own

purposes is insignificant.

Measurement is at cost of acquisition or

production, which in the case of depreciable

assets is reduced on a straight line basis in

accordance with useful life. The option un-

der IAS 40 permitting companies to chose

between fair value and amortised cost for in-

vestment property was exercised in favour of

amortised cost for investment property.

The useful life is determined according to the

expected rate at which future economic use is

exhausted and therefore factors in physical

wear and tear; technical or commercial obso-

lescence is taken into account independently

of expected physical wear and tear.

For the determination of the useful life, ad-

ditions to buildings (not incl. property) are

broken down into their main components. In

the subsequent measurement, these compo-

nents of property, plant and equipment are to

be depreciated separately if they

acquisition and manufacturing costs of the

property, plant and equipment and

length of use and depreciation methods.

The identification of the components and the

assessment of the essentiality are required

at the time of the first measurement of the

asset for the execution of the component ap-

proach. The applicable methodology for the

identification of the components and the

subsequent distribution of the total costs of

property, plant and equipment for the main

components is to be handled in accordance

with prudent business judgement. As a rule,

an estimate is required in the event of an ac-

quisition of property, plant and equipment.

Individual utilisability of a component is not

required for this.

The buildings (not incl. property) at SaarLB

are divided into the following components

with the following useful lives:

structure 90

(painting and floor work) 20

With regard to individual buildings for the

reconstruction/renovation measures, i.e. if

major renovations are made, capitalisation of

these measures occurs unless their costs are

inessential. Ongoing maintenance costs are

taken to the income statement.

The useful life of the operating and office

equipment is between 3 and 15 years.

An impairment charge is recognised in cases

of permanent impairment (according to IAS

36) and is the difference between the (higher)

carrying value and the recoverable amount.

79


Where the reasons for impairments no longer

apply, they are reversed, up to a maximum of

cost of acquisition or production. The impair-

ment process applies to components of an as-

set accordingly.

Impairments on investment property are

shown under other income, impairments on

property, plant and equipment are reported

under administrative expenses. Reversals ap-

pear under other income.

(15) INTANGIBLES

The only intangibles are purchased software.

Intangibles are carried at amortised cost and

depreciated on a linear basis over an expected

useful life of between three to five years.

An impairment charge is recognised in cases

of permanent impairment. Where the reasons

for impairments no longer apply, they are re-

versed, up to a maximum of cost of acquisi-

tion or production.

Depreciation of intangibles is disclosed under

administrative expenses. Reversals appear

under other income.

(16) OTHER ASSETS

Other assets include prepaid expenses and

miscellaneous assets.

(17) NON-CURRENT ASSETS HELD FOR

SALE AND DISPOSAL GROUPS

The SaarLB Group classifies non-current as-

sets and disposal groups as being held for sale

when the intention is to realise their carrying

value by selling them. Conditions for catego-

rising assets as being held for sale include: the

fact that the asset is immediately realisable

in its current condition; that there is a plan

for disposal; that an active search for a buyer

has started; and that the sale is expected to

be completed within one year of the time of

classification and that the price is reasonable

in relation to the current fair value.

Non-current assets and disposal groups clas-

sified as held for sale are measured at the

lower of carrying value or fair value less sell-

ing costs; financial instruments falling within

the scope of IAS 39 are measured according to

the principles set out in IAS 39.

Operating gains and losses are reported un-

der the same item in the income statement

as they would have been were there no inten-

tion to sell. Impairments are recognised when

fair value less selling costs is less than the

carrying value. These are shown under other

income/expense.

There were no non-current assets held for sale

or disposal groups as of 31 December 2012.

(18) LIABILITIES

Liabilities to banks and customers and secu-

ritised liabilities are measured at amortised

cost where they are not underlying transac-

tions in an effective fair value hedge. Premi-

ums and discounts are spread over the fixed

interest period on a constant effective yield

basis and recognised under interest expense

in the income statement.

(19) LIABILITIES HELD FOR TRADING

Liabilities held for trading contain exclusively

financial derivatives with negative fair values

not designated as hedging instruments under

IAS 39. Measurement is at fair value. Measure-

ment gains/losses and realised gains/losses

on liabilities held for trading are recorded in

the income statement under gains or losses

on fair value measurement; current gains/

losses, with the exception of gains/losses

from credit derivatives, are recognised in net

interest income.

80

(20) NEGATIVE MARKET VALUES FROM

DERIVATIVE FINANCIAL INSTRUMENTS

(HEDGE ACCOUNTING)

This item contains financial derivatives with

negative market values that are used as hedg-

es and meet the hedge accounting criteria of

IAS 39. These derivatives are measured at fair

value. Both changes in the fair value of hedg-

ing instruments and changes in the fair value

of underlying transactions that result from

the hedged risk are shown under gains/losses

on hedges. Interest income and expenses

from hedging derivatives are recognised as

those of the underlying transactions in net

interest income.

(21) PROVISIONS

This item shows the provisions for pensions

and similar obligations and other obligations

as well as other provisions.

There are various pension plans within the

SaarLB Group, which in the event of deferred

compensation are financed through an exter-

nal provider by means of reinsurance. The de-

fined benefit plans have set benefits that are

provided in the event of retirement or disabil-

ity and to surviving dependants in the event

of death, and that depend on multiple factors

such as age, length of service and salary.

Pension obligations are calculated annually in

an actuarial report.

The pension provisions were calculated on the

basis of the following actuarial assumptions:

The amount of the pension obligations is

calculated using the projected unit credit

method, whereby they are measured on the

basis of the defined benefit obligations ac-

crued at the balance sheet date. Assumptions

about the future trend of certain parameters

that affect the value of the benefits, such as

increases in salaries and pensions, are taken

into account in this measurement.

The determination of the pension accrual is

carried over on the basis of the anticipated

actuarial parameters at the beginning of the

period so that there is usually a difference

between the disclosed carrying value and the

current actuarial value that is reported as an

actuarial profit or loss. To the extent that ac-

tuarial gains and losses at the end of the re-

porting period exceed the corridor threshold

of 10% of the greater of net present value of

liabilities and fair value of plan assets under

IAS 19.92, from the following year they are al-

located over the estimated average remain-

ing working life of active plan beneficiaries

as an additional component of the pension

expense.

SaarLB is also a voluntary member of Zusatz-

versorgungskasse Saarland (ZVK). This is a

joint retirement benefit plan covering a num-

ber of employers; the benefits provided are

financed on a pay as you go basis.

Under the terms of IAS 19, the ZVK retirement

benefit plan is categorised as a defined ben-

efit plan. However, since the Bank does not

have access to the information required to ac-

count for it as a defined benefit plan and is un-

able to obtain this, and under the pay as you

go arrangement is also exposed to actuarial

risks relating to active and former employees

of other members (employers), no provision

has been created in the IFRS consolidated fi-

nancial statements for the contributions of

SaarLB to ZVK. In accordance with IAS 19.32

the commitment is recognised for conveni-

ence as a defined contribution retirement

benefit plan, so the contributions SaarLB

makes to ZVK are recognised immediately as

an expense under staff costs.

in % 2012 2011

Interest rate 3.50 4.80

Expected return on plan assets

3.61 3.90

Increases in salaries 2.50 2.50

Increases in retire-ment benefits

2.00 2.00

81


From an economic perspective all the pay-

ments SaarLB makes to ZVK, i.e. the regular

pay as you go contributions and the addition-

al “recapitalisation payments”, represent con-

tributions towards the ongoing financing of

ZVK. They serve neither to settle a past deficit

nor to create a capital base. The recapitalisa-

tion payments in particular are in essence

simply increased pay as you go contributions.

Other provisions are set up in accordance

with IAS 37 for present obligations both le-

gal and constructive arising as a result of an

event where it is probable that an outflow

of resources with economic utility will be re-

quired to perform the obligation. It must also

be possible to make a reliable estimate of the

amount of the outflow of resources.

There are no other long-term provisions to be

discounted except for long-term employee

benefit provisions.

Provisions have been set up at both the indi-

vidual transaction and portfolio level in the

credit business to meet contingent liabilities

and other liabilities where there is a risk of

default.

(22) OTHER LIABILITIES

Other liabilities contains deferred income,

other liabilities, accruals and amounts to be

distributed on hybrid capital reported under

equity.

(23) HYBRID CAPITAL

Debt and equity instruments are classified

in accordance with IAS 32, taking account

of IDW recommendation RS HRA 9 dated 11

March 2011 on accounting for financial instru-

ments. This states that a financial instrument

must be treated as equity if it:

the assets of an entity after deducting all

its liabilities (IAS 32.11)

obligation to transfer cash or cash equiva-

lents or other financial assets to the con-

tractual partner (IAS 32.16).

The accounting and measurement methods

used in the consolidated financial statements

for the contractual terms of the hybrid capi-

tal instruments issued by SaarLB are shown

below.

Undated silent partnership contributions not

recallable by the lender meet the criteria for

inclusion under shareholders’ equity if the

usual conditions exist.

Silent partnership contributions with a fixed

term or recallable by the lender and profit

participation rights are compound financial

instruments and have to be divided into their

equity and debt components (split account-

ing). On initial recognition the fair value of the

debt component is determined by discount-

ing the nominal value of the total compound

instrument at the agreed effective interest

rate. The debt component is shown under

subordinated capital. In subsequent years in-

terest is accrued on the debt component and

the associated expense is recognised in net

interest income.

The equity component, which on initial rec-

ognition is equal to the net present value of

expected future distributions, is shown as hy-

brid capital under equity. Distributions are re-

ported as part of the appropriation of profit.

Subordinated loans and bonds are shown un-

der subordinated capital.

(24) LEASING TRANSACTIONS

Under IAS 17, leases are divided into finance

leases and operating leases. Agreements are

classified on the basis of the distribution of

economic risks and rewards from the leased

property. A lease is classified as a finance

lease if substantially all the risks and rewards

associated with ownership are transferred to

the lessee; otherwise it is an operating lease.

82

SaarLB is currently only exposed to operating

leases.

SaarLB as lessor

The leased assets – primarily land and build-

ings – are reported on the balance sheet under

investment property and carried at amortised

cost. Both leasing instalments received and

depreciation and impairments are recorded in

other income.

SaarLB as lessee

Leasing payments made under operating leas-

es are recognised as administrative expense.

The assets leased are operating fixtures and

fittings.

(25) TAXATION

Current income tax assets and liabilities are

measured by applying currently valid tax

rates. Income tax receivables and liabilities

are carried at the amount of the refund or

payment due.

Deferred tax assets and liabilities arise from

the difference between the value of an asset

or a liability as shown on the balance sheet

under the German Commercial Code (HGB)

and the value on the balance sheet according

to tax law, which are so-called timing differ-

ences. This gives rise to increases and decreas-

es in income taxes that can be expected in the

future. For each entity in the consolidated fi-

nancial statement these are measured at the

specific applicable income tax rate expected

to be valid when the timing differences are

reversed, based on tax legislation which is in

force or has already been passed.

Deferred tax assets from as yet unutilised tax

losses carried forward and deductible timing

differences are only capitalised if it is prob-

able that sufficient taxable earnings will be

generated in future for the tax benefit to be

utilised.

Deferred taxes are not discounted. Deferred

tax assets and liabilities are formed and recog-

nised on the income statement where the un-

derlying transaction is recognised as income

or expense; where the underlying transaction

does not pass through the income statement,

they are recognised directly under the respec-

tive item in equity.

Income tax expenses and receipts arising

from normal operating activities are shown

under the income tax in the consolidated in-

come statement.

Other taxes not dependent on income appear

under other income.

83


Segment reporting is based on the business

structure of the SaarLB Group. In total, the

Group reports on seven segments: the six op-

erating business areas of SaarLB, including

the Landesbausparkasse Saar, and the Invest-

ments segment. The former Real Estate and

Projects segment was divided into a Real Es-

tate segment and a Projects segment in 2012.

The amounts from the previous year were ad-

justed for better comparison and are shown in

the segment reporting as of 31 December 2011.

The internal management information for the

Board of Management has been prepared on

the basis of a separate report since 2011 on ac-

count of the increasing size and significance

as well as the different income and risk pro-

file of the Projects segment as compared to

the other segments. As a result, the segment

reporting was adjusted in 2012 to systemati-

cally implement the requirements of IFRS 8,

according to which the Board of Management

acts as the main decision maker in terms of

IFRS 8.7 and the external segment reporting

follows the internal reporting and controlling.

The divisional heads in charge of each seg-

ment are responsible for earnings and serve

as segment managers as defined in IFRS 8.8.

The reconciliation contains those amounts

that cannot be meaningfully allocated to the

operating units. The column headed Consoli-

dation shows the results of the consolidation

of the special funds and the investments val-

ued at equity that are included in the internal

accounting on the basis of the calculation.

For the years 2011 and 2012, the management

information for net interest and net commis-

sion income and administrative expenses was

calculated on an arithmetical basis (internal

accounting) and for the other items using the

accounting and valuation methods of IFRS;

however, unrealised gains or losses on fair val-

ue measurement that SaarLB assumes will be

reversed in subsequent years are not allocat-

ed to any segment. These amounts, together

with those above, are also presented in the

Reconciliation column.

Segment reporting

Segment reporting as of 31 December 2012

EUR ’000s Corporate Customers

Real estate Projects Savings Banks, Ins-titutionals

and High Net Worth Individuals

Treasury and

Portfolio Manage-

ment

LBS Invest-ments

Reconcilia-tion

Consolida-tion

Total

Net interest income1) 22,253 29,318 19,952 7,374 36,787 15,244 3,510 4,363 28 138,829

Risk provisions in the credit business

-1,361 -9,136 -706 160 -19,258 -469 - -2,540 - -33,310

Net commission income 3,258 1,247 5,337 1,672 1,854 -1,768 - -3,844 -437 7,319

Gain or loss on fairvalue measurement2) 344 2,805 - 2,789 2 - - 14,423 16,494 36,857

Gains or losses on investments

- - - - -2,583 - -351 6,124 - 3,190

Administrative expenses -14,798 -8,709 -6,595 -7,948 -10,515 -10,784 -489 -11,390 -1,170 -72,398

Other income -1 - 1 -1 - 555 - 717 353 1,624

Earnings from ordinary operating activities /earnings before taxes

9,695 15,525 17,989 4,046 6,287 2,778 2,670 7,853 15,268 82,111

Segment assets 1,734,358 2,678,550 1,502,700 1,966,598 5,387,485 690,920 48,519 5,062,123 -331,035 18,740,218

1) Including shares of profits in associated companies accounted for using the equity method2) Including gains /losses on hedge accounting

84

Notes to the definition of segments

Corporate Customers

This segment covers the entire SME business

of the SaarLB Group in its target markets.

In Germany, this includes Saarland, Rhine-

land-Palatinate and the adjacent regions. In

France, the SaarLB Group concentrates on

the Grand Est and here in particular on the

neighbouring Alsace-Lorraine where the Bank

is represented by its SaarLB France branch at

the offices in Metz and Strasbourg. The main

product in this segment is traditional lending.

Furthermore, a full service is provided, primar-

ily by offering investment business and inter-

est rate and currency management as well as

the foreign trade and payment transactions

in accordance with customers’ needs and giv-

ing business advice on how to finance com-

panies. Furthermore, it offers financing for

municipalities and municipally owned compa-

nies (with a focus on Alsace and Lorraine).

Real Estate

This segment is responsible for the financ-

ing of commercial real estate in the SaarLB

Group. The regional focus is also on the target

markets of Corporate Customers, whereby

the support of the French real estate financi-

ers also takes place from the office in Paris.

Additionally, this segment monitors public

private partnership measures (PPP) for in-

vestments in infrastructure and education as

well as other public construction measures

in Germany. As in the Corporate Customers

segment, the main product in Real Estate is

lending, whereby the SaarLB Group’s struc-

turing and legal expertise is significant for

the business success in this segment. Since

the 2012 financial year, the Real Estate and

Projects segment has also been retroactively

separated into the Real Estate segment and

the Projects segment.

Segment reporting as of 31 December 2011

EUR ’000s Corporate Customers

Real estate Projects Savings Banks, Ins-titutionals

and High Net Worth Individuals

Treasury and

Portfolio Manage-

ment

LBS Invest-ments

Reconcilia-tion

Consolida-tion

Total

Net interest income1) 20,555 27,523 12,456 3,588 46,298 14,442 4,782 -3,712 -3,705 122,227

Risk provisionsin the credit business3) -6,152 -8,110 1,435 -269 -8,932 -1,232 - 4,360 - -18,900

Net commission income 3,449 2,898 8,315 4,487 879 -767 - -5,637 -2,100 11,524

Gain or loss on fairvalue measurement2) 212 4 - 863 5 - - -3,455 -13,735 -16,106


- - - - -4,559 11 11,247 -7,206 - -507

Administrative expenses -12,909 -7,472 -4,539 -7,370 -11,493 -10,993 -383 -23,184 -178 -78,521

Other income - - - - 59 412 - -2,247 509 -1,267

Earnings from ordinary operating activities /earnings before taxes

5,155 14,843 17,667 1,299 22,257 1,873 15,646 -41,081 -19,209 18,450

Segment assets 1,389,452 2,475,277 1,194,282 2,114,693 7,092,976 648,832 49,627 5,079,753 -284,556 19,760,336

1) Including shares of profits in associated companies accounted for using the equity method2) Including gain /loss on hedge accounting3) Figures have been adjusted; see note 39.

85


Projects

This segment is responsible for the financing

of projects in the SaarLB Group, especially in

the renewable energy sector, but also in the

area of public private partnership (PPP) on

the French market. The regional focus is also

on the target markets already defined in the

Corporate Customers segment. As in the Cor-

porate Customers segment, the main product

in Projects is lending, whereby the SaarLB

Group’s structuring and legal expertise is sig-

nificant for the business success in this seg-

ment.


Worth Individuals

This segment handles investment advisory

services and the administration for savings

banks, institutionals and high net worth in-

dividuals. The focus of the Savings Banks and

Institutionals is on increasing existing cus-

tomer connections and expanding contacts

with insurance companies and pension funds

in the region and the business relationships

to savings banks in Rhineland-Palatinate. It

also deals with the financing of the region’s

savings banks and municipalities. In the sub-

segment of wealthy private customers, the

focus is on holistic advise and consulting for

wealthy private customers. Lastly, as a centre

of expertise, it actively supports the other

segments in customer relationship manage-

ment, especially in investment, interest rate

and currency management.

Treasury and Portfolio Management

This segment is responsible for the Treasury,

which is in charge of asset/liability manage-

ment as well as the SaarLB Group’s liquid-

ity management. Furthermore, this segment

provides active support for all portfolios

that no longer belong to the SaarLB Group’s

core business and are to be systematically re-

turned. These primarily include investments

in international banks and corporations with

a focus on OECD countries. It does this chiefly

through involvement in loan syndications

and issues. They also include international

commercial real estate financing – primarily

via investments in consortia – with a focus

on Northern and Western European urban

centres as well as diverse smaller sub-port-

folios with primarily German counterparties

that the SaarLB Group would like to dispose

in the medium term. In the past financial

year, the returns from these non-core busi-

nesses resulting primarily from the regular

redemptions were partially reinvested with

counterparties in the investment grade area,

from an income perspective, as part of asset

portfolio management. The focus was on

bonds of German and French banks and cor-

porations. The management of the liquidity

accounts (Securities Account A and Basel III /

LCR Portfolio) are also the responsibilities of

the segment. While the Securities Account A

has the goal of establishing a sound ECB se-

curities account, Basel III / LCR Portfolio es-

tablishes a liquidity buffer for the fulfilment

of the liquidity ratio in accordance with

MaRisk and Basel III.

LBS

Landesbausparkasse Saar is a legally depend-

ent unit of SaarLB. It operates the home loan

savings business (= core business) of Sparkas-

senfinanzgruppe Saar, cooperating closely

with the Saarland savings banks. It also fi-

nances energy-saving measures for real estate

as part of the Renewable Energies Act [EEG].

Investments

Investments are mainly holdings in compa-

nies in the savings bank sector and in regional

development-type companies, which are man-

aged by the Strategic Development unit. A dif-

ference is made between strategic, finance-/

credit-related and other equity investments.

The segment assets involve loans and advanc-

es to banks and customers and bonds report-

ed under investments (known as credit sub-

stitute securities) and equity investments.

86

The reconciliation primarily includes financial

assets that are used to manage liquidity.

Notes to the reconciliation:

The reconciliation for net interest income

primarily relates to matters that are not as-

signed to a specific segment as part of the

management reporting to the Board of Man-

agement. In contrast to the netting in 2011, al-

most all profit components under equity are

distributed across the segments on account

of an improvement in the allocation logic.

This includes interest expenses for interest-

bearing equity offset with these segments

for EUR 9.2 million (target, actual value:

EUR 9.7 million), which are reported in the ap-

propriation of the result in accordance with

IFRS (2011: EUR 6.3 million) and the trailing

negative effects from the planned measures

in previous years.

The reconciliation of the risk provision items

primarily includes EUR 2.4 million (2011:

EUR 3.7 million) from the net change in the

portfolio adjustment. Since these are not al-

located to the segment, there is no allocation

to the segments as part of the management

reporting.

In the net commission income, the recon-

ciliation primarily results from the differ-

ences between the internal and external

accounting. These differences mainly relate

to EUR -4.5 million in expenses connected

with silent reserves and the reclassification

of commissions on credit derivatives to the

gains or losses on fair value measurement and

EUR -0.6 million (2011: EUR -0.3 million) for the

reclassification of commissions that are re-

ported under other income statement items

in accordance with the internal reporting.

In the gains or losses on the fair value meas-

urement, the reconciliation mainly relates

to losses from interest- and currency-related

transactions in the amount of EUR -1.2 mil-

lion (2011: EUR -1.7 million), the gains on credit

derivatives of EUR 5.4 million (2011: losses of

EUR -1.2 million) and the securities measured

at fair value. These gains are not allocated to

any segment in the internal accounting, since

SaarLB assumes that a reversal will take place

in subsequent years.

The reconciliation for the gains or losses on

investments is mainly influenced by the net

change in the portfolio provision for securi-

ties in LaR and HtM of EUR 6.4 million (2011:

EUR 6.9 million). In the management informa-

tion for the Board of Management, it is not

allocated to any segment, similar to the pro-

cedure with the risk provision.

The reconciliation of administrative expenses

mainly relates to EUR -12.6 million (2011: EUR

-23.8 million) in expenses that could not be

meaningfully allocated; these primarily re-

sult from strategic projects, overhead costs

and staff areas. The decrease in the year un-

der review is primarily due to the project and

consulting costs that were incurred in 2011 as

special effects on account of the system mi-

gration.

In other income/expenses, the reconciliation

includes almost exclusively non-allocatable

effects. They primarily result from the change

in provisions from EUR 0.8 million (2011:

EUR 1.2 million), which are compensated

through offsetting expenses with partner-

ships in the amount of EUR 1.0 million (2011:

EUR 1.5 million), other one-off expenses in the

amount of EUR 0.6 million (2011: EUR 1.5 mil-

lion and expenses from the management of

security issues of SaarLB for EUR 0.7 million

(2011: EUR 0.7 million).

No further breakdown of the income by indi-

vidual product or service is available and the

cost of producing such a breakdown would be

disproportionately high.

A further breakdown by region is only under-

taken in the internal reporting for Germany

and France with regard to selected products.

87


(26) NET INTEREST INCOME

Disclosures on the statement of comprehensive income

EUR ’000s 2012 2011

Interest income 765,432 834,274

Interest income from credit and money market transactions, 374,244 379,241

includingInterest income from unwindings

4,053 3,467

Interest income from debt securities and other fixed-interest securities

128,922 154,884

Current income from shares and other non fixed-interest securities

669 2,583

Current income from non-consolidated subsidiaries and associates as well as other investments

3,397 4,514

Current income from profit pools and profit and loss transferagreements

136 166

Interest income from derivatives in hedges 258,065 292,886

Interest expenses 626,717 712,317

Interest expense for liabilities tobanks and customers

246,055 278,611

Interest expense for securitised liabilities 66,843 88,198

Interest expense for subordinated capital 6,651 6,755

Interest expense for hybrid capital 12,805 13,349

Interest expense for derivatives in hedges 290,225 324,258

Other interest expense 4,139 1,146

Total 138,715 121,957

Total interest income from financial assets

and liabilities measured at fair value not

through profit or loss was EUR 494.1 million

(2011: EUR 524.2 million) and the total in-

terest expense was EUR 336.5 million (2011:

EUR 388.1 million). The constant effective

yield basis from the distribution of premiums,

discounts and fees led to interest income of

EUR 5.9 million (2011: EUR 6.6 million) and

interest expenses of EUR 7.0 million (2011:

EUR 9.8 million). Interest income in 2012

included the release of differing amounts

from the reclassification of securities for

EUR 4.2 million (2011: EUR 8.5 million), which

were largely compensated by amounts from

the release of the revaluation reserve.

88

The profits derive from pro-rata recognition of

net income for matching periods.

(28) RISK PROVISIONS IN THE CREDIT

BUSINESS

The amounts include both on-balance sheet

and off-balance sheet credit business.

The net release to the provisions for indi-

vidual risks from the off-balance sheet credit

business in the reporting period amounts to


The net addition to portfolio risk provisions

was EUR 2.4 million (net release in 2011:

EUR 3.7 million). The difference from the pre-

vious year is due to an increase in anticipated

losses.

The appreciation of receivables involves the

release of interest cancellations of invest-

ments recovered in the financial year.

(27) SHARES OF PROFITS IN ASSOCIATED COMPANIES

ACCOUNTED FOR USING THE EQUITY METHOD

EUR ’000s 2012 2011

Shares of profits in associated companiesaccounted for using the equity method

114 269

Total 114 269

EUR ’000s 2012 2011

Allocations1) 46,777 37,943

Direct depreciation 1,800 3,688

Releases1) 13,508 20,872

Receipts on receivables written off 1,093 654

Appreciation to receivables 668 1,205

Total 33,310 18,900


89


(29) NET COMMISSION INCOME

EUR ’000s 2012 2011

Net commission income 24,060 25,186

Securities business 4,423 5,232

Credit business 12,876 13,081

Payment transactions 1,359 1,653

Home loan savings business 4,293 4,190

Fiduciary transactions - 15

Other services 1,109 1,015

Commission expenses 16,742 13,662

Securities business 5,083 3,761

Broker's commissions - 12

Credit business 1,553 788

Payment transactions 156 199

Home loan savings business 6,417 5,387

Fiduciary transactions 2,909 2,911

Other services 624 604

Total 7,318 11,524

The decrease in commission income from the

securities business is due to EUR 1.1 million in

lower fees from the EUREX business.

The rise in commission expenses both in the

securities and in the credit business is con-

nected with an increase in brokerage services.

In the home loan savings business, brokerage

commission on account of higher new busi-

ness had an impact.

90

These figures include the gains/losses from

foreign currency translation.

Net trading income includes realised and

unrealised gains or losses attributable to de-

rivative valuation and current income from

credit default swaps of EUR 595,000 (2011:

EUR 788,000).

The gains or losses from the fair value op-

tion includes equity-related transactions of

EUR 2.5 million (2011: EUR -7.6 million), invest-

ment fund units of EUR -353,000 (2011: EUR

-6.7 million) and interest rate-related transac-

tions of EUR 22.7 million (2011: EUR 4.3 mil-

lion).

In the gains or losses on the fair value option,

the realised gains or losses of EUR 5.3 million

(2011: EUR -7.3 million) are reported.

Current gains and losses on HfT securities,

fair value option holdings and derivatives (ex-

cept CDS) held in the portfolio during the year

are shown under net interest income.

EUR ’000s 2012 2011

Net trading income 12,165 -6,368

Interest rate-related transactions 4,791 -3,253

Equity/Index-related transactions and transactions with other risks 1,878 -2,565

Currency-related transactions -93 384

Credit derivatives 5,435 -1,225

Other financial transactions 154 291

Fair value gains or losses from the fair value option 24,844 -9,782

Total 37,009 -16,150

(31) GAINS/LOSSES ON HEDGE ACCOUNTING

(30) GAINS/LOSSES ON FAIR VALUE MEASUREMENT

EUR ’000s 2012 2011

Gains or losses of underlying transactions -11,027 11,637

Gains or losses of hedging instruments 10,876 -11,594

Total -151 43

91


The risk of changes in interest rates is hedged.

The underlying transactions are receivables in

the LaR category, securities in the category of

AfS.

(32) GAINS/LOSSES ON INVESTMENTS

The disposal proceeds for financial assets in

the LaR category are due to the sale of two

Greek bank bonds. The write-ups relate to

three securitisations (known as ABS / asset

backed securities) and the release of port-

folio risk provisions that primarily include

EUR 4.9 million for the release of the afore-

mentioned Greek bank bonds (in the prior

year: allocation to portfolio risk provisions).

The disposal proceeds from investments in

the AfS category are connected with the sale

of bonds (EUR 1.3 million) and the buy back of

an issuer’s bonds (EUR 690,000). The write-

down of investments in the AfS category are

due to other investments.

EUR ’000s 2012 2011

Gains or losses on investments 'held to maturity' 13 118

Income from appreciation 13 118

of which portfolio risk provisions 13 118

Expenses from write-downs - -

of which portfolio risk provisions - -

Gains or losses on investments classified as 'loans and receivables' 1,330 -12,066

Disposal proceeds -5,746 -852

Income from appreciation 7,258 -

of which portfolio risk provisions 6,354 -

Expenses from write-downs -182 -11,214

of which portfolio risk provisions - -7,010

Gains or losses on investments 'available for sale' 1,847 11,441

Disposal proceeds 2,012 12,527

Income from appreciation 395 -

Expenses from write-downs -560 -1,086

Total 3,190 -507

92

(33) ADMINISTRATIVE EXPENSES

Staff costs include expenses for the estab-

lishment of pension provisions amounting to

EUR 716,000 (2011: EUR 535,000).

The decrease in IT costs is connected with the

completion of the migration to the systems

of FinanzInformatik in 2011.

The increase in costs for contributions, legal

and consultancy fees is mainly due to con-

sulting services rendered by BayernInvest

Kapitalanlagegesellschaft in the amount of

EUR 1.2 million and the contribution to the

security reserve for the DSGV in the amount

of EUR 878,000.

Other administrative expenses include the

bank fee in the amount of EUR 566,000

(2011: EUR 2.8). Furthermore, project costs of

EUR 2.8 million (2011: EUR 1.2 million), process-

ing costs for the closure of the Luxembourg

branch of EUR 323,000 (2011: EUR 685,000)

and contributions to D&O insurance in the

amount of EUR 413,000 (2011: EUR 413,000).

Expenses from external management relate

to the compensation paid by the Metz branch

to Banque LB Lux S.A. The decline resulted

from the closure of the Luxembourg branch at

the end of the previous year.

EUR ’000s 2012 2011

Staff costs 40,554 38,723

Wages and salaries 32,819 30,976

Social security contributions 4,891 4,787

Expenses for pensions and other employee benefits 2,844 2,960

of which:

Expenses for defined contribution retirement benefit plans

- 1,711

Other administrative expenses 29,249 37,614

Expenses for land and buildings for own use 2,502 2,488

IT costs 6,610 15,867

Office costs 252 268

Advertising 1,177 1,046

Communication and other distribution costs 2,587 2,280

Contributions, legal and consultancy fees 8,579 6,692

Other administrative costs 6,896 7,804

Expenses for agency arrangements 646 1,169

Depreciation of property, plant and equipment and amortisation of intangibles (not incl. goodwill)

2,595 2,183

Total 72,398 78,521

93


Depreciation of property, plant and equip-

ment and amortisation of intangibles include

impairments of software for EUR 152,000.

(34) OTHER INCOME

The rest of other income includes cost reim-

bursement and charged-on staff and operat-

ing costs.

The decline in other expenses is connected

with offsetting expenses with partnerships

of EUR 1.0 million (2011: EUR 1.5 million) and

expenses in connection with staff reductions

of EUR 207,000 (2011: EUR 965,000).

EUR ’000s 2012 2011

Other income 5,124 3,977

Income from the buyback of the Bank's own issues 1,094 -

Rental income 1,313 1,442

of which:

Rental income on investment property 1,313 1,442

Disposal profits from property, plant and equipment, intangibles,investment property and real estate of the inventory assets

- 37

Income from the release of provisions 932 1,243

Other miscellaneous income 1,785 1,255

Other expense 3,500 5,242

Expense from the buyback of the Bank’s own issues 741 739

Current expense for investment property 403 372

- Leased properties 403 372

Disposal losses from property, plant and equipment, intangibles,investment property and real estate of the inventory assets

- 324

Depreciation of investment property and real estate of the inventory assets

228 228

Expense from loss transfers 41 32

Expense for other taxes 132 126

Other miscellaneous expenses 1,955 3,421

Total 1,624 -1,265

94

(35) INCOME TAXES

The net current income taxes include income

of EUR 21,000 (2011: EUR 353,000) not related

to the period, as well as current taxes on hy-

brid capital of EUR -7.1 million (2011: EUR -7.6

million) that do not affect profits or losses.

The net deferred tax expenses of EUR -7.0 mil-

lion (2011: deferred tax income of EUR 15.4 mil-

lion) consisted of EUR -12.3 million (2011: 13.3

million) from the expenses due to the occur-

rence, i.e. reversal of timing differences and

EUR 5.3 million (2011: EUR 2.1 million) from

the change in deferred tax assets for losses

carried forward.

The reported income tax expense of EUR 22.7

million deviates from the anticipated income

tax expense by EUR 3.2 million in the report-

ing year. The reasons for this deviation are il-

lustrated in the following table.

EUR ’000s 2012 2011

Current income taxes -15,713 -11,595

German and foreign corporation tax, incl. solidarity premium -7,770 -5,296

German trade tax / foreign local taxes -7,943 -6,299

Deferred income taxes -7,011 15,364

German and foreign corporation tax, incl. solidarity premium -705 10,884

German trade tax / foreign local taxes -6,306 4,480

Total -22,724 3,769

95


The forecast income tax expense/income was

calculated using the tax rate applicable to

companies subject to taxation in Germany. Al-

lowing for the non-deductibility of the trade

tax from the corporation tax, a corporation

tax rate of 15%, a solidarity surcharge of 5.5%,

and an unchanged trade tax of 15.75%, there

was an unchanged Group income tax rate of

31.57% on the reporting date.

The impact of the tax-free income results pri-

marily from tax-free dividend income and dis-

posal profits in the previous years. The impact

of non-tax-deductible operating expenses are

due to expenses in relation to dividend in-

come, non-deductible assumptions of costs

for partnerships and expenses for bank fees

pursuant to Section 12 (2) of the Restructur-

ing Law. The impact of value adjustments/

disclosure corrections is primarily connected

with the subsequent recognition of deferred

tax assets for previously unrecognised losses

carried forward.

EUR ’000s 2012 2011

Earnings before taxes 82,111 18,232

Group income tax rate (in %) 31.57 31.57

Expected income tax expense -25,922 -5,756

Effect of different local tax rates -255 -12

Effect from previous years of taxes recognised in the financial year -400 496

Effect of changes in tax rates - -

Effect of non-deductible taxes (especially withholding tax) - -176

Effect of non-deductible operating expenses -2,744 -1,544

Effect of tax-free income 1,775 3,825

Effect of permanent accounting differences -434 -3,238

Effect of transfers of basis of assessment -823 2,497

Effect of impairments / value adjustments 7,491 8,565

Additions and reductions for trade tax -1,412 -888

Other effects 0 -

Effective income tax expense (-)/ income (+) -22,724 3,769

Effective income tax rate (in %) 27.67 -20.60

96

(36) CASH RESERVE

(37) LOANS AND ADVANCES TO BANKS

Breakdown of loans and advances to banks by maturities:

(38) LOANS AND ADVANCES TO CUSTOMERS

Notes to the balance sheet

EUR ’000s 2012 2011

Cash on hand 1,321 1,319

Balances with central banks 667,981 105,418

Total 669,302 106,737

EUR ’000s 2012 2011

Loans and advances to domestic banks 2,439,830 3,133,410

Loans and advances to foreign banks 806,302 972,203

Total 3,246,133 4,105,613

EUR ’000s 2012 2011

Payable on demand 853,039 941,579

Fixed-term with residual maturity of 2,393,094 3,164,034

up to 3 months 708,155 1,154,456

more than 3 months and up to 1 year 854,496 866,040

more than 1 year and up to 5 years 830,443 1,143,538

more than 5 years - -

Total 3,246,133 4,105,613

EUR ’000s 2012 2011

Loans and advances to domestic customers 4,820,752 4,827,376

Loans and advances to foreign customers 4,218,248 3,779,817

Total 9,039,001 8,607,193

97


Breakdown of loans and advances to customers by sector:

Breakdown of loans and advances to customers by maturities:

EUR ’000s 2012 2011

Real estate 2,751,891 3,081,916

Sovereigns / Public sector 1,510,883 1,664,711

Renewable energy 1,332,036 1,124,432

Retail customers 546,142 516,332

Steel 329,282 344,609

Utilities 220,212 217,069

Wholesale & retail trade 218,742 211,572

Automotive 139,867 190,770

Food & beverages 176,096 178,589

Construction 146,161 153,032

Health care 107,473 125,235

Pharmaceuticals 62,124 71,222

Aviation 36,866 45,689

Other 1,461,226 682,015

Total 9,039,001 8,607,193

EUR ’000s 2012 2011


up to 3 months 865,123 546,382


more than 1 year and up to 5 years 2,389,661 2,475,472

more than 5 years 4,754,802 3,907,292

Indefinite 372,884 1,046,343

Total 9,039,001 8,607,193

98

(39) RISK PROVISIONS IN THE CREDIT BUSINESS

Specific risk provisions

EUR ’000s Loans and advances to banks

Loans and advances to customers

Total

2012 2011 2012 2011 2012 2011

Balance as of 1 January -22,675 -21,765 -115,096 -139,710 -137,771 -161,475

Changes recognised through profit or loss

249 -343 -29,516 -15,188 -29,267 -15,531

Allocations1) -68 -458 -43,988 -34,418 -44,056 -34,876

Releases1) 304 59 10,432 15,799 10,736 15,858

Unwindings 13 56 4,040 3,411 4,053 3,467

Changes from currency translation

- - - 20 - 20

Changes not recognised through profit or loss

4,211 -567 16,314 39,802 20,525 39,235

Utilisations1) - 4,298 20,525 34,937 20,525 39,235

Transfers/Otherchanges

4,211 -4,865 -4,211 4,865 - -

Balance as of 31 December -18,213 -22,675 -128,299 -115,096 -146,512 -137,771

1) Figures from 2011 have been adjusted.

Specific risk provisions include country risk

provisions of EUR 60,000 (2011: EUR 93,000).

99


The following table shows the state of the

specific risk provisions (not including country

risk provisions) by sector.

The unwindings are recorded by a reduction

of the specific risk provisions; the income is

disclosed in net interest income.

In the financial statements, an incorrectly

created specific risk provision for a total

of EUR 908,000 in previous years was cor-

rected and taken to equity. The figures from

the previous year were adjusted accord-

ingly. The adjustment reduced the portfolio

of risk provisions as of 31 December 2011 by

EUR 908,000, the allocation to risk provi-

sions in 2011 by EUR 244,000, the release of

the risk provisions in 2011 by EUR 26,000, and

the profit reserves as of 31 December 2011 in-

creased by EUR 690,000. The total consolidat-

ed income as of 31 December 2011 increased by

EUR 218,000 to EUR 26.9 million.

EUR ’000s 2012 2011

Sector groups

Real estate 49,524 47,777

Retail customers 23,500 8,990

Banks / Financial service providers 18,213 22,357

Automotive 15,446 17,736

Construction 6,825 5,793

Steel 6,750 5,437

Media 4,356 4,251

Pulp and paper industry 3,243 4,327

Machine and system construction 3,067 3,160

Sovereigns / Public sector 2,971 339

Food & beverages 2,795 3,239

Aviation 2,672 2,672

Chemical industry 2,565 2,559

Technology 1,335 1,636

Health care 1,241 790

Utilities 967 967

Suppliers / Disposers 654 -

Logistics 268 -

Wholesale & retail trade 59 59

Textile / Clothing - 5,588

Other1) - -

Total 146,452 137,677

1) Figures from 2011 have been adjusted.

100

The risk provision for contingent liabilities

and other obligations is shown as a provision

for risks from the credit business.

(40) ASSETS HELD FOR TRADING

Please see note 64 for the composition and

performance of derivative financial instru-

ments.

Breakdown of assets held for trading by con-

tractual maturity:

Portfolio risk provisions

EUR ’000s Loans and advances to banks

Loans and advances to customers

Total

2012 2011 2012 2011 2012 2011

Balance as of 1 January -255 -277 -15,087 -18,068 -15,342 -18,345

Changes recognised through profit or loss

25 22 -865 -708 -840 -686

Allocations - - -1,076 -3,923 -1,076 -3,923

Releases 25 22 211 3,215 236 3,237

Changes not recognised through profit or loss

- - 1,800 3,688 1,800 3,688

Utilisation - - 1,800 3,688 1,800 3,688

Balance as of 31 December -230 -255 -15,952 -15,087 -16,182 -15,342

EUR ’000s 2012 2011

Positive fair values from derivative financial instruments (not hedge accounting)

517,917 431,629

Total 517,917 431,629

EUR ’000s 2012 2011

Fixed-term with residual maturity of 517,917 431,629

up to 3 months 14,258 4,803


more than 1 year and up to 5 years 211,989 207,188

more than 5 years 266,844 204,809

Total 517,917 431,629

101


(41) POSITIVE MARKET VALUES FROM DERIVATIVE

FINANCIAL INSTRUMENTS (HEDGE ACCOUNTING)

EUR ’000s 2012 2011

Bonds, notes and other fixed-interest securities 4,593,617 5,521,163

Money market instruments 458,532 894,143

Bonds and notes 4,135,085 4,627,020

Equities and other non-fixed-interest securities 55,563 9,077

Equities 469 1,136

Investment fund units 54,234 7,061

Other non-fixed-interest securities 860 880

Interest in subsidiaries 1,920 1,920

Associates not consolidated 2,292 2,292

Other investments 46,737 47,844

less portfolio risk provisions 1,714 8,081

Total 4,698,415 5,574,215

(42) INVESTMENTS

The investments consist of the following:

The hedges involve securing the risk of

a change in interest rates. Underlying

transactions are securitised liabilities and

promissory notes.

EUR ’000s 2012 2011

Positive market values from fair value hedges 46,181 –

Total 46,181 –

102

EUR ’000s 2012 2011


up to 3 months 411,958 288,042

more than 3 months and up to 1 year 601,661 1,407,116


more than 5 years 483,729 506,468

No maturity 106,512 61,134

Total 4,698,415 5,574,215

Breakdown of investments by maturity:

Recognition of shares without maturity with-

in the next twelve months is not planned.

Reclassification

Due to the financial market crisis, debt securi-

ties with a value of EUR 1.2 billion were reclas-

sified from the AfS to the LaR category retro-

spectively as of 1 July 2008 and in the fourth

quarter of 2008. Furthermore, SaarLB reclas-

sified debt securities with a market value of

EUR 538.4 million from the AfS to the LaR cat-

egory and debt securities with a market value

of EUR 1.1 billion from the AfS to HtM catego-

ry as of 31 October 2008. More details on the

reclassifications can be found in SaarLB’s fi-

nancial report for the 2008 financial year (see

explanations in notes 1, 6 and 42).

As of 31 December 2012, with separately re-

ported security repurchase transactions of

EUR 275.0 million (2011: EUR 468.0 million),

these reclassified securities had a fair value

of EUR 1.2 billion (2011: EUR 1.6 billion). The

amortised costs of the reclassified securities

amounted to EUR 1.2 billion (2011: EUR 1.7 bil-

lion).

103


The revaluation reserve of the reclassified

securities amounts to EUR -15.2 million (2011:

EUR -24.6 million). If no reclassification had

occurred, there would have been a revalua-

tion reserve of EUR -15.6 million (2011: EUR

-91.2 million) so that the portfolio of the re-

valuation reserve for the reclassified securi-

ties would have been another EUR 0.4 million

lower.

EUR ’000s 2012 2011

Change in the revaluation reserve

Without reclassification 65,670 -7,722

of which LaR 54,345 -7,256

of which HtM 11,325 -466

With reclassification 9,393 16,862

of which LaR 7,694 12,620

of which HtM 1,699 4,242

The effective interest rates determined at the

time of the reclassifications on the basis of

the new acquisition costs ranged from a mini-

mum of 2.3857% to a maximum of 13.1024%.

The estimated cash flows that SaarLB had

expected at the time of the reclassifications

amounted to EUR 3.5 billion.

EUR ’000s 2012 2011

Fair value 1,233,402 1,624,123

of which LaR 546,833 864,487

of which HtM 686,569 759,636

Amortised cost 1,233,785 1,690,783

of which LaR 564,121 938,720

of which HtM 669,664 752,063

Revaluation reserve -15,191 -24,584

of which LaR -12,025 -19,719

of which HtM -3,166 -4,865

Revaluation reserve without reclassification -15,574 -91,244

of which LaR -29,313 -93,658

of which HtM 13,739 2,414

104

EUR ’000s 2012 2011

Securities repurchase transactions 569,969 954,197

Total 569,969 954,197

(44) INTERESTS IN ENTITIES VALUED AT EQUITY

(45) INVESTMENT PROPERTY

(43) SECURITIES REPURCHASE TRANSACTIONS

EUR ’000s 2012 2011

Associated companies 2,876 2,762

Total 2,876 2,762

EUR ’000s 2012 2011

Land and buildings leased 21,005 21,232

Total 21,005 21,232

This item includes loans that are the object of

the securities repurchase transactions. Due

to the buyback obligation, SaarLB will con-

tinue to bear the credit rating and interest

change risk from these loans. The liabilities

connected with the securities repurchase

transactions amount to EUR 577.7 million

(2011: EUR 958.0 million) and are reported in

liabilities to banks.

With regard to the transactions, EUR 0 (2011:

EUR 0) had maturities of up to 3 months,

EUR 82.1 million (2011: EUR 36.8 million) had

maturities of more than 3 months and up to 1

year and EUR 487.9 million (2011: EUR 917.4

million) had maturities of more than 1 year

and less than 5 years.

Counterparties in the transactions are Bay-

ernLB, LBBW, NordLB, Sparkasse Köln-Bonn,

DZ-Bank and Commerzbank.

Summarised financial information about as-

sociated companies that are valued according

to the at equity method is included in note 76.

Recognition of interests within the next

twelve months is not planned.

105


Development of investment property:

(46) PROPERTY, PLANT AND EQUIPMENT

EUR ’000s 2012 2011

Land and buildings for own use 19,812 20,530

Operating and office equipment 2,668 3,029

Total 22,480 23,558

Limitations regarding the disposability or the

generation of income and disposal proceeds

did not exist as of balance sheet date.

The fair value of the investment property

and buildings amounted to EUR 22.2 million

(2011: EUR 22.1 million), of which EUR 22.1 mil-

lion (2011: EUR 21.2 million) was calculated by

external experts. The calculation is based on

the application of the discounted cash flow

process in which market and geographic data

are included.

There was no expert report for investment

property with a carrying value of EUR 49,000

(2011: EUR 49,000).

Recognition of investment property within

the next twelve months is not planned.

EUR ’000s 2012 2011

Cost of acquisition or production

Balance as of 1 January 25,089 18,939

Additions - 11

Transfers - 6,139

Disposals - -

Balance as of 31 December 25,089 25,089

Write-ups / write-downs


Scheduled amortisation 227 228

Transfers for scheduled amortisation - 21

Impairments - -

Transfers of impairments - 300


Carrying values



106

Property, plant and equipment with limited

disposal rights did not exist as of balance

sheet date.

Recognition of property, plant and equip-

ment within the next twelve months is not

planned.

EUR ’000s Land and buildings for own use

Operating and office equipment

Total

2012 2011 2012 2011 2012 2011


Balance as of 1 January 23,327 29,466 14,711 14,064 38,038 43,530

Additions - - 388 967 388 967

Transfers - -6,139 - - - -6,139

Disposals - - - 320 - 320

Balance as of 31 December 23,327 23,327 15,099 14,711 38,426 38,038



Scheduled amortisation 355 355 749 699 1,104 1,054

Transfer of scheduled amortisation - -21 - - - -21

Impairments 362 - - - 362 -

Transfers of impairments - -300 - - - -300

Disposals - - - 298 - 298


Carrying values



Performance of property, plant and equipment:

(47) INTANGIBLES

EUR ’000s 2012 2011

Other intangible assets 2,010 1,612

Total 2,010 1,612

107


Performance of intangible assets:

(48) CURRENT AND DEFERRED INCOME TAX CLAIMS

EUR ’000s 2012 2011



Additions 1,525 934

Disposals - 6,118




Scheduled amortisation 1,127 974

Impairments - 152

Disposals - 5,802


Carrying values



EUR ’000s 2012 2011

Current income tax claims 5,467 8,036

Domestic 5,467 8,036

International - -

Deferred income tax claims 58,320 73,523

Domestic 58,320 73,523

International - -

Total 63,787 81,559

Intangible assets involve exclusively standard

software.

Recognition of intangibles within the next

twelve months is not planned.

108

Deferred income tax claims and obligations are distributed over the following items:

The decrease of EUR 34.4 million (2011: in-

crease of EUR 10.3 million) in the balance of

deferred income tax claims and obligations

does not correspond to deferred tax expens-

es of EUR 7.0 million (2011: tax income of

EUR 15.4 million).

The reasons for this are the changes in de-

ferred taxes not recognised at profit or loss;

these are due to bookings of EUR 25.0 million

against the revaluation reserve and profit re-

serves of EUR 2.4 million.

The stock of taxable losses carried forward

where deferred tax assets are reported is

listed separately in the following table for all

types of losses carried forward in the Group.

EUR ’000s 2012 2011

Deferred tax assets

Deferred tax liabilities

Deferred tax assets

Deferred tax liabilities

Cash reserves - - - -

Loans and advances to banks and customers 150 7,468 0 12,306

Risk provisions 1,735 - 872 -

Assets held for trading 32 - 32 9

Positive market value from derivative financial instruments - 4,593 - -

Investments 3,717 25,135 18,835 367

Property, plant and equipment - 2 - 2

Other assets 500 - - 1,017

Liabilities to banks and customers 1,664 - 6,897 -

Securities liabilities 2,666 - - 58

Assets held for trading 34,631 - 27,926 -

Negative fair values from derivative financial instruments (hedge accounting)

- - 10,289 -

Provisions 2,137 186 2,484 -

Other liabilities 290 73 674 451

Subordinated capital - 28,905 - 32,956

Losses brought forward for corporation tax and trade tax 10,792 - 5,514 -

Total deferred taxes after impairments and netting

58,314 66,362 73,523 47,166

109


In total, the excess of deferred tax assets over

deferred tax liabilities of EUR 26.4 million in

2011 changed to an excess of deferred tax li-

abilities amounting to EUR 8.0 million.

The disclosure of deferred tax assets for car-

ry-over losses is based on tax planning that

extends to 2017; a sufficiently precise plan is

possible for this period under consideration

of appropriate security discounts.

EUR ’000s 2012 2011

Corporation tax

Balance of losses carried forward 68,231 81,446

Losses carried forward for which a deferred tax asset has been created 68,231 34,846

Losses carried forward for which no deferred tax asset has been created - 46,600

Usable indefinitely - 46,600

Trade tax

Balance of losses carried forward 85,628 85,628

Losses carried forward for which no deferred tax asset has been created 85,628 85,628

Usable indefinitely 85,628 85,628

(49) OTHER ASSETS

The intention is to realise other assets within

the next twelve months.

EUR ’000s 2012 2011

Prepaid expenses 753 876

Other assets 3,085 3,171

Total 3,838 4,047

110

EUR ’000s 2012 2011

Liabilities to domestic banks 4,975,243 6,771,753

Liabilities to foreign banks 1,025,093 1,236,336

Total 6,000,336 8,008,089

(50) LIABILITIES TO BANKS

Breakdown of liabilities to banks by maturity:

(51) LIABILITIES TO CUSTOMERS

EUR ’000s 2012 2011

Payable on demand 213,733 183,928


up to 3 months 1,762,108 3,009,871

more than 3 months and up to 1 year 1,519,284 1,947,091


more than 5 years 971,253 755,775

Total 6,000,336 8,008,089

EUR ’000s 2012 2011

Liabilities to domestic customers 5,503,630 5,607,348

Liabilities to foreign customers 394,545 298,003

Total 5,898,175 5,905,351

111


EUR ’000s 2012 2011


up to 3 months 2,822,803 2,641,754



more than 5 years 1,122,476 858,458

No maturity (home loan savings deposits) 520,033 505,322

Total 5,898,175 5,905,351

Breakdown of liabilities to customers by maturity:

(52) SECURITISED LIABILITIES

Breakdown of securitised liabilities by maturity:

EUR ’000s 2012 2011

Fixed-term with residual maturity of

up to 3 months 120,910 -



more than 5 years 1,007,905 82,157

Total 5,114,745 4,329,445

EUR ’000s 2012 2011

Bonds and notes issued 5,114,745 4,329,445

Mortgage Pfandbriefe 350,555 208,714

Public-sector Pfandbriefe 783,647 805,722

Other bonds 3,980,543 3,315,009

Total 5,114,745 4,329,445

112

EUR ’000s 2012 2011


up to 3 months 14,906 9,776



more than 5 years 314,773 269,073

Total 645,331 544,131

(53) LIABILITIES HELD FOR TRADING

Please see note 64 for the composition and per-

formance of liabilities held for trading.

Breakdown of liabilities held for trading by con-

tractual maturity:

The hedges involve securing the risk of a change

in interest rates. The underlying transactions are

loans and advances to customers and fixed inter-

est securities.

EUR ’000s 2012 2011

Negative market values from derivative financial instruments (nothedge accounting)

645,331 544,131

Total 645,331 544,131

(54) NEGATIVE MARKET VALUES FROM DERIVATIVE

FINANCIAL INSTRUMENTS (HEDGE ACCOUNTING)

EUR ’000s 2012 2011

Negative market values from fair value hedges 31,636 32,585

Total 31,636 32,585

113


(55) PROVISIONS

EUR ’000s 2012 2011

Provisions for pensions and similar obligations 24,596 24,081

Other provisions 7,311 8,364

Provisions for the credit business 3,549 4,439

Other provisions 3,762 3,925

Total 31,907 32,445

EUR ’000s 2012 2011

Net present value of pension obligations 29,167 24,107

unfunded 28,576 23,493

funded 591 614

Fair value of plan assets -611 -710

Actuarial gains and losses not yet recognised -3,994 649

Assets not recognised due to the limitation of IAS 19.58 (b) (Asset Ceiling)

34 35

Pension provisions reported 24,596 24,081

Provisions for pensions and similar obliga-

tions

The value recorded on the balance sheet for

pension provisions is derived as follows:

Performance of the net present value of pen-

sion obligations:

EUR ’000s 2012 2011


Current service expense 716 557

Interest expense 1,124 1,150

Actuarial gains and losses 4,641 1,645

Benefits paid -1,421 -1,190


114

Fair value of plan asset

EUR ’000s 2012 2011

Balance as of 1 January 710 680

Expected return 26 29

Actuarial gains and losses -2 -29

Employee contributions - 30

Benefits paid -123 0

Balance as of 31 December 611 710

Change in the fair value of the plan asset

and the reimbursement rights reported as an

asset:

The plan asset consists of reinsurance claims

on insurance companies (so-called cover as-

sets) that are backed by its investments.

There is no right of recourse to specific invest-

ments; it is therefore not possible to provide

a breakdown by equities, debt instruments

and other assets. The expected return on the

plan asset is calculated using long-term yields

in the market and observed past trends for

information purposes. No reimbursement

rights have been reported as assets.

Actual returns on the plan asset in the year

amounted to EUR 26,000 (2011: EUR 29,000).

In the last five years, the net present value of

pension obligations, the fair value of the plan

asset and the surplus/deficit in obligations as

well as adjustments based on expectations

changed as follows:

EUR ’000s 2012 2011 2010 2009 2008

Net present value of pension obligations 29,167 24,107 21,945 19,609 19,795

Fair value of plan asset 611 710 680 624 571

Surplus/deficit in obligations 28,556 23,397 21,265 18,985 19,224

Expectation-based adjustments to value of obligations

-606 -73 -489 380 89

Expectation-based adjustments to value of plan asset

20 -29 -2 -1 -

Since the 2012 financial year, no contributions

to the reinsurance have been made.

115


The cost of pension obligations recognised

on the income statement consists of the

following:

EUR ’000s 2012 2011

Current service expense 716 557

Interest expense 1,124 1,150

Current return on plan asset 26 29

Actuarial gains and losses - 30

Effect of upper limit in IAS 19.58 (b) (Asset Ceiling) 1 9

Total 1,815 1,657

Other provisions

Provisions for the credit business Otherprovisions

At individual transaction level

At portfolio level

EUR ’000s 2012 2011 2012 2011 2012 2011


Utilisations - - - - 732 1,068

Releases 2,536 708 - 1,069 364 733

Allocations 97 2,458 1,549 374 933 1,888

Balance as of 31 December 589 3,028 2,960 1,411 3,762 3,925

The current service expense and the expense

from the effect of the upper limit in IAS 19.58

(b) (Asset Ceiling) is reported under adminis-

trative expenses. Interest expense is offset

against expected income from the plan asset

and reported under net interest income. Actu-

arial profits are reported in other income.

It is anticipated that pension provisions of

EUR 1.3 million will be utilised in the follow-

ing financial year.

The amendments to IAS 19 (discontinuation

of the so-called corridor rules) mean that in

the 2013 financial year, the not yet recog-

nised actuarial losses as of 31 December 2012

(EUR 4.0 million) will be taken to equity in

other income (cf. note 1).

The provisions in the credit business are cre-

ated for contingent liabilities and irrevocable

credit commitments.

The other provisions are largely provisions

for staff (length of service bonuses, provi-

sions for pre-retirement part-time working

and early retirement) of EUR 1.6 million (2011:

EUR 1.8 million), and for legal costs of EUR 1.0

million (2011: EUR 615,000).

External expert reports form the basis of the

staff provisions.

116

EUR ’000s 2012 2011

Prepaid income 192 665

Other liabilities 35,158 31,657

Accruals 15,043 12,968

Total 50,394 45,290

EUR ’000s 2012 2011

Current income tax liabilities 7,466 2,884

Domestic 4,969 2,619

International 2,497 265

Deferred income tax liabilities 66,362 47,166

Domestic 66,362 47,166

International - -

Total 73,828 50,050

Other provisions are not discounted, apart

from those related to staff, as the cash out-

flows are expected to take place within one

year.

Please see note 48 for a breakdown of the de-

ferred tax liabilities and the deferred tax as-

sets.

(57) OTHER LIABILITIES

Other liabilities mainly comprise the propor-

tionate, not yet paid servicing of subordinat-

ed and hybrid capital and permanent capital

contributions of silent partners amounting to


The accruals consist of EUR 7.1 million (2011:

EUR 4.5 million) in employee benefits due

in the short term, EUR 2.8 million (2011:

EUR 2.4 million) in taxes unrelated to income

and EUR 4.4 million (2011: EUR 4.9 million) in

outstanding invoices.

(56) CURRENT AND DEFERRED INCOME TAX LIABILITIES

117


The intention is to realise other liabilities

within the next twelve months.

(58) SUBORDINATED CAPITAL

EUR ’000s 2012 2011

Subordinated liabilities 135,782 145,362

Profit participation rights (debt components) 35,780 53,654

Capital contributions from silent partners (debt components) 163,550 152,871

Total 335,112 351,888

EUR ’000s 2012 2011


up to 3 months 10,000 -

more than 3 months and up to 1 year - 31,263


more than 5 years 226,012 108,277

Total 335,112 351,888

Subordinated capital broken down by matu-

rity:

118

(59) SHAREHOLDERS’ EQUITY

EUR ’000s 2012 2011

Subscribed capital 169,114 169,114

Statutory share capital 132,114 132,114

Undated capital contributions from silent partners 37,000 37,000

Hybrid capital 91,453 104,258

Profit participation rights (equity component) 2,720 4,846

Dated silent partnership contributions (equity component) 88,733 99,412

Capital reserve 50,841 50,841

Retained earnings 154,058 137,798

Other retained earnings 1) 154,058 137,798

Revaluation reserve 43,595 -11,585

Retained profit 1) 49,692 11,542

Total 558,753 461,968


Hybrid capital

Silent partnership contributions with a fixed

term or recallable by the lender and profit

participation rights are compound financial

instruments and have to be divided into their

equity and debt components (split account-

ing). The disclosure in equity takes place un-

der hybrid capital instruments.

Capital reserve

Additional contributions by the sharehold-

ers into shareholders’ equity are listed in the

capital reserve.

Retained earnings

Amounts allocated to reserves from the previ-

ous year’s distributable earnings are booked

under retained earnings.

Revaluation reserve

The item contains valuation gains and losses

on AfS financial instruments, and AfS finan-

cial instruments reclassified to LaR and HtM

instruments, taken directly to equity, if they

occurred during the categorisation as AfS.

119


The movements in the revaluation reserve

were as follows:

The revaluation reserve contains reclassi-

fied securities (before deferred taxes) in the

amount of EUR -4.9 million from the HtM cat-

egory and EUR -19.7 million from LaR; these

will be amortised over the expected remain-

ing life of the underlying investments.

Consolidated profit

The retained profit was EUR 49.7 million (2011:

EUR 11.5 million).

The determinant figure under the German

Commercial Code for the appropriate of prof-

its is, as in 2011, EUR 0.00. No dividends were

paid in 2012 for the 2011 financial year.

Capital management

The regulatory requirements set out in the

Solvency Ordinance [SolvV] are key for SaarLB

when assessing and managing capital ad-

equacy as well as maintaining economic risk-

bearing capacity.

Regulatory capital

SaarLB has applied the relevant rules on calcu-

lating capital requirements under the Solven-

cy Ordinance since obtaining approval from

the German Federal Financial Supervisory

Authority (BaFin) to use the Internal Ratings

Based Approach (IRBA) from 1 January 2007.

Regulatory capital – i.e. equity – comprises

core capital (essentially nominal capital,

silent partner contributions and reserves,

including the reserves under Section 340 g

of the German Commercial Code [HGB]) plus

supplementary capital (essentially profit par-

ticipation rights and long-term subordinated

liabilities) after deductible items.

The overall ratio – the ratio of capital to risk

positions calculated under Solvency Ordi-

nance [SolvV] rules – must not fall below 8.0%

from a regulatory point of view. SaarLB has

specified a stricter target ratio of 10.0% for its

Group figure and a core capital target ratio of

8.0% in its internal management. The latter

is the ratio of core capital (after deductible

items) to risk exposures.

Target values are constantly maintained by

means of medium-term planning over a five-

year timeframe. The Corporate Development

segment is responsible for the strategic plan-

ning process. On the basis of the economic

conditions determined in this process, each

business area performs its own risk exposure

planning for this time period. Their figures are

then collated at Group level by Controlling –

the department in charge of the quantitative

aspects of medium-term planning – and com-

pared with the equity available in the plan-

ning period. Finally, the measures needed to

procure capital or scale back proposed busi-

ness area budgeting are defined to ensure the

targets are met.

An overview of the key Solvency Ordinance

data as of the balance sheet date of 31

EUR ’000s 2012 2011

Balance as of 1 January -11,585 -16,233

Measurement changes taken directly to equity 70,668 1,490

Changes in deferred taxes taken directly to equity -25,002 -3,046

Measurement changes taken to the income statement / recognition 9,514 6,204

Balance as of 31 December 43,595 -11,585

120

December 2012 and the corresponding fig-

ures from the previous year are given below.

SaarLB stopped preparing regulatory group

reports in the middle of 2011. To this extent,

the figures only include the single institute.

The key figures for SaarLB increased noticea-

bly year on year due to the drop in risk assets.

SaarLB complied with the minimum regula-

tory ratio during the entire reporting period

at all times as well as its stricter target ratios.

Good overall capital adequacy ratios were

also reflected in the results of the required

regulatory stress tests: Based on the assump-

tion of economic weakness, the equity ratio

at the Group level was 10.0% and the core

capital ratio was 9.0% as of 31 December 2012.

Key Solvency Ordinance (SolvV) data 31 Dec. 2012 31 Dec. 2011

Risk exposure (EUR million) 7,181 7,618

Equity (EUR million) 845 865

of which: core capital (EUR million) 759 757

Equity ratio (Group level in %) 11.8% 11.4%

Core capital ratio (in %) 10.6% 9.9%

121


ECONOMIC CAPITAL (RISK BEARING

CAPACITY)

The core aim of the SaarLB Group’s risk man-

agement, aside from complying with regula-

tory capital requirements, is to ensure that

economic risk-bearing capacity, which is the

difference between risk capital (risk cover

funds) and risk capital needed, is adequate.

Risk cover funds were fundamentally deter-

mined on the basis of IFRS accounting and

indicate the maximum actual level of unex-

pected losses from risks entered into that can

be borne.9 In the reporting period, the calcula-

tion of the risk bearing capacity was refined

with an impact on the components of avail-

able cover funds:10

Components of the risk cover funds (EUR million) 31 Dec. 2012 31 Dec. 2011 Change

Results after taxes (minimum YTD and Proj.) 74.1 11.1 +63.0

+ nominal capital 132.1 132.1 -

+ capital reserves 50.8 50.8 -

+ retained earnings 154.1 129.3 +24.8

+ undated silent partner contributions 137.0 137.0 -

+ dated silent partner contributions 252.3 252.3 -

+ profit participation rights 38.5 38.5 -

+ subordinated liabilities 124.0 133.8 -9.8

+ revaluation reserve 58.7 -19.0 +77.7

Risk cover funds 1,021.7 865.9 +155.7

./. less intangibles -2.0 -2.1 +0.1

./. less balance of hidden charges and silent reserves from securities (LaR and HtM)

-0.4 -39.5 +39.1

./. less corrections in equity due to the surplus of deferred tax assets 8.0 -13.3 +21.4


./. less losses from non-performing positions -21.3 -20.9

./. less anticipated losses from the risk assessment horizon -30.5 -22.8

Available cover funds +975.5 +767.4

Previous reporting:


./. less buffer for business and strategic risks -46.7

./. less buffer for real estate risks -6.7

./. less buffer for liquidity and reputation risks -17.7

Available cover funds (to date) +739.9

9 On account of the one-year period under consideration, the equity items as of the reporting deadline are not reported in the risk cover funds, but

rather the figures one year after the reporting deadline are recognised (if need be, reduced by maturities in the period under consideration).10 The comparable figures as of 31 December 2011 were adjusted to the new system. A reconciliation with the available cover funds in the risk report for

the 2011 consolidated financial statements is included in the presentation. In the earnings after taxes, only the taxes to be actually paid in the case of

liquidation are taken into account. On the comparable reporting deadline, all taxes were recognised; compensating deferred taxes were included in the

revaluation reserve.

122

The risk cover funds rose significantly in

comparison to the previous deadline primar-

ily due to the higher earnings, an addition

to profit reserves and due to positive effects

from the revaluation reserve, while slight de-

clines in subordinated liabilities are overcom-

pensated as a result.11 The available risk cover

funds result from the risk cover funds due to

the reductive consideration of other effects:

-

ducted from the cover funds, which might

not retain their value in the case of a liqui-

dation.

cover funds are deducted over a one-year as-

sessment horizon, which will not be explicit-

ly considered in the future modelling of the

economic risk bearing capacity calculation.

As part of economic risk capital management,

SaarLB monitors its risk profile and ensures

its risk-bearing capacity is always adequate

by comparing each month the risk capital al-

located to the available cover funds and risk

capital needed. Risk capital needed is deter-

mined by analysing all significant risk types

in a consistent manner.12 The risks from across

the Group are collated into an overall assess-

ment of the risk existing. In ICAAP, the value

at risk (VaR) method based on a confidence

level of 99.95% is used to the determine risk

capital needed. The limits are set at the level

of the individual risk types and collectively

through the (total) allocated risk capital. As-

sumptions and results of the risk quantifica-

tion are to be validated at least once a year.

The ICAAP risk-bearing capacity as of 31 De-

cember 2012 is illustrated in the following

overview:13

Economic RBC (ICAAP) (EUR million)

31 Dec. 2012 31 Dec. 2011

Capital needed

Limit Range Capital needed

Limit Range

Counterparty risk 331.1 430.0 77.0% 338.5 430.0 78.7%

of which default risk (141.2) (180.0) 78.4% (136.2) (180.0) 75.7%

of which credit spread risk (189.9) (250.0) 75.9% (202.2) (250.0) 80.9%

Market risk 32.2 90.0 35.8% 12.0 90.0 13.3%

Operational risk 2.6 5.0 51.1% 2.1 5.0 41.8%

Reputation risk 0.0 2.0 0.0% 0.0 2.0 0.0%

Unexp. behaviour by savers 0.6 3.0 19.7% 1.0 3.0 32.5%

Real estate risk 13.3 15.0 88.5% 13.3 15.0 88.5%

Strategic risk / business risk 72.7 85.0 85.5% 68.1 85.0 80.1%

Total 452.4 630.0 71.8% 434.8 630.0 69.0%

Available cover funds 975.5 767.4


11 In 2013 – i.e. over a one-year assessment horizon – some EUR 10 million of subordinated liabilities will fall due.12 Besides the previously considered risk types, the new system also includes the following risks: unexpected behaviour by savers, real estate risk,

strategic risk / business risks and reputation risks.13 The further development of the risk bearing capacity calculation was retroactively applied to the comparable reporting deadline of 31 December 2011.

In comparison to the system outlined in the report for the previous year, credit spread risks (EUR +169.9 million) and market risks (EUR +4.6 million) are

quantified higher in the comparable figures as of 31 December 2011 as a result. In the credit spread risks, significantly higher divergence in spreads is an-

ticipated on the basis of the experiences in the financial crisis; a holding period of 10 days is no longer generally assumed for market price risks; instead,

the losses expected within a year are to be quantified. In return, no longer regulatory, but expected capital needed due to economic performance is

counted (EUR -20.7 million). The utilisation of the limits allocated at the reporting deadline is also illustrated as of 31 December 2011.

123


The SaarLB Group’s risk-bearing capacity was

ensured at all times without qualification

throughout the reporting period (both in to-

tal and on the level of individual types of risk).

Besides the ICAAP risk capital needed, the risk

capital needed in multiple scenarios was cal-

culated among others in the case of serious

economic weakness across all risk types under

consistent assumptions. With regard to coun-

terparty risks, a sector-specific deterioration

of the credit portfolio and a further increase

in credit spreads are assumed, and for all oth-

er types of risk, more stringent assumptions

also apply.

While the capital needed fell slightly overall,

the free economic cover funds rose year on

year and significantly exceeded the capital

needed as of the reporting deadline.14

Serious economix weakness(EUR million)

31 Dec. 2012 31 Dec. 2011

Capital needed Capital needed

Counterparty risk 306.8 332.0

of which default risk (155.8) (166.0)

of which credit spread risk (151.0) (166.0)

Market risk 12.2 9.6

Operational risk 1.3 1.0

Reputation risk 0.0 0.0

Unexp. behaviour by savers 0.5 0.8

Real estate risk 10.2 10.2

Strategic risk / business risk 38.3 36.0

Total capital needed 369.3 389.7


14 In the presentation of the stress scenarios as of 31 December 2011 calculated according to the new system for comparative purposes, the direct eco-

nomic impact of the scenario would have been manageable, but the simultaneous occurrence of the 2000 year ICAAP loss would no longer have been

covered. From a regulatory point of view, both the scenario losses and an additional SolvV stress would have been covered as of 31 December 2011.

124

The notes on the risks arising from financial

instruments under IFRS 7 are contained in the

risk report.

(60) FAIR VALUE OF FINANCIAL

INSTRUMENTS

Overview

Notes on financial instruments

EUR ’000s Fair value Carrying value

Fair value Carrying value

2012 2012 2011 2011

Assets 19,056,136 18,643,366 19,753,804 19,645,520

Cash reserve 669,302 669,302 106,737 106,737

Loans and advances to banks1) 3,456,062 3,227,919 3,982,450 4,082,938

Loans and advances to customers1) 9,096,375 8,910,702 8,766,924 8,492,097

Assets held for trading 517,917 517,917 431,629 431,629

Positive market value from derivative financial instruments (hedge accounting)

46,181 46,181 - -

Investments 4,692,650 4,698,415 5,506,507 5,574,215

Securities repurchase transactions 574,688 569,969 955,850 954,197

Interests in entities valued at equity 2,876 2,876 2,762 2,762

Other assets 85 85 945 945

Liabilities 18,156,121 18,063,168 19,191,828 19,213,045

Liabilities to banks 6,052,162 6,000,336 7,936,097 8,008,089

Liabilities to customers 5,917,771 5,898,175 5,929,652 5,905,351

Securitised liabilities 5,133,337 5,114,745 4,353,621 4,329,445

Liabilities held for trading 645,331 645,331 544,131 544,131

Negative fair values from derivative financial instruments(hedge accounting)

31,636 31,636 32,585 32,585

Other liabilities 37,833 37,833 41,556 41,556

Subordinated capital 338,051 335,112 354,186 351,888

1) After deduction of individual risk provisions, before the deduction of the portfolio risk provision. The carrying values in 2011 were adjusted for loans and

advances to customers; see note 39.

The difference between fair values and carry-

ing values is EUR 412.7 million for assets (2011:

EUR 109.2 million) and EUR 93.0 million for li-

abilities (2011: EUR -21.2 million).

It was not possible to reliably determine the

fair value for EUR 6.7 million (2011: EUR 7.5 mil-

lion) of unlisted equity instruments under in-

vestments. These are therefore stated at car-

rying value.

125


For the purposes of the notes, the fair value

of loans measured at amortised cost and re-

ported in loans and advances and liabilities to

banks and customers as well as subordinated

capital is determined using the net present

value method. In the case of receivables the

discounting process uses:

and in the same currency,

Risk-adjusted spreads are calculated by tak-

ing the rating, the fixed interest period and

the size of capital repayments.

In the case of liabilities, risk-adjusted spreads

and rating-related cost of equity premiums

are not used.

The cash reserves, the other accounts in-

cluded in loans and advances and liabilities

to banks and customers as well as the items

reported in other assets and liabilities are dis-

closed at their nominal amounts.

The fair values for the securitised liabilities

are based on the prices that the Bank deter-

mined itself as issuer.

See note 6 on the methods and assumptions

for the fair value calculation in assets and li-

abilities held for trading (including the nega-

tive market value from derivative financial

instruments for hedge accounting) and finan-

cial assets (including securities repurchase

transactions).

126

FAIR VALUES BY CATEGORIES

Assets

EUR ’000s Fair value Fair value

2012 2011

Cash reserves 669,302 106,737

Loans and advances to banks 3,456,062 3,982,450

Clearing and current accounts 261,715 241,178

Overnight and time deposits 1,692,365 2,037,720

Loans 1,444,607 1,696,630

Other loans and advances 57,375 6,922

Loans and advances to customers 9,096,375 8,766,924


Overnight and time deposits 319,364 576,270

Loans 8,511,568 8,073,880

Other loans and advances 40,802 16,469

Assets held for trading 517,917 431,629

Interest rate-related transactions 513,948 427,264

Equity-related transactions 1,734 1,257

Currency-related transactions 1,945 3,108

Credit derivatives 290 -

Positive market values from derivative financial instruments (hedge accounting)

46,181 -

Interest rate-related transactions 46,181 -

Investments 4,692,650 5,506,507

Bonds, notes and other fixed-interest securities 4,586,138 5,445,374

Money market instruments 458,532 894,143

Bonds and notes 4,127,606 4,551,231

Equities and other non-fixed-interest securities 55,563 9,077

Equities 469 1,136

Investment fund units 54,234 7,061

Other non-fixed-interest securities 860 880

Interest in subsidiaries 1,920 1,920


Other investments 46,737 47,844


Interests in entities valued at equity 2,876 2,762

Other assets 85 945

127


Liabilities

EUR ’000s Fair value Fair value

2012 2011

Liabilities to banks 6,052,162 7,936,097



Loans 3,326,936 3,599,579


Liabilities to customers 5,917,771 5,929,652

Clearing and current accounts 1,144,450 623,007


Loans 2,292,229 2,287,790

Home loan savings deposit and savings deposits 514,301 506,417


Securitised liabilities 5,133,337 4,353,621



Equity-related transactions 1,734 1,257

Currency-related transactions 1,750 12,522

Credit derivatives 1,595 6,145

Negative market values from derivative financial instruments (hedge accounting) 31,636 32,585



Subordinated capital 338,051 354,186

128

(61) LEVEL INFORMATION FOR FINANCIAL INSTRUMENTS

MEASURED AT FAIR VALUE

General level information

EUR ’000s Level 1 Level 2 Level 3 Total

2012 2011 2012 2011 2012 2011 2012 2011

Assets held for trading 3,589 5,622 514,053 426,007 275 - 517,917 431,629

Interest rate-related transactions 1,855 4,365 512,093 422,899 - - 513,948 427,264

Equity-related transactions 1,734 1,257 - - - - 1,734 1,257

Currency-related transactions - - 1,945 3,108 - - 1,945 3,108

Credit derivatives - - 15 - 275 - 290 -

Positive market values fromderivative financial instruments(hedge accounting)

- - 46,181 - - - 46,181 -

Interest rate-related transactions - - 46,181 - - - 46,181 -

Investments 655,492 435,582 2,320,626 2,902,162 747,694 1,014,246 3,722,022 4,351,990

Bonds, notes and other fixed-interest securities

601,258 427,385 2,319,766 2,901,282 703,045 969,687 3,624,069 4,298,354

Money market instruments - - - 197,669 458,532 696,474 458,532 894,143

Bonds and notes 601,258 427,385 2,319,766 2,703,613 244,513 273,213 3,165,537 3,404,211

Equities and other non-fixed-interest securities

54,234 8,197 860 880 469 - 55,563 9,077

Equities 54,234 1,136 - - 469 - 54,703 1,136

Investment fund units - 7,061 - - - - - 7,061

Other non-fixed-interest securities

- - 860 880 - - 860 880

Subsidiaries - - - - 1,790 - 1,790 -

Associates not consolidated - - - - - 2,000 - 2,000

Other investments - - - - 42,390 42,559 42,390 42,559

Securities repurchase transactions

- - 294,850 486,225 - - 294,850 486,225

Liabilities held for trading 3,832 5,622 641,499 537,789 - 720 645,331 544,131

Interest rate-related transactions 2,098 4,365 638,397 519,842 - - 640,495 524,207

Equity-related transactions 1,734 1,257 - 0.3 - - 1,734 1,257

Currency-related transactions - - 1,507 12,522 - - 1,507 12,522

Credit derivatives - - 1,595 5,425 - 720 1,595 6,145

Negative market values fromderivative financial instruments(hedge accounting)

- - 31,636 32,585 - - 31,636 32,585

Interest rate-related transactions - - 31,636 32,585 - - 31,636 32,585

129


Level 1:

Level 1 consists of those financial instruments

for which a transaction-based price could be

determined on or shortly before or after the

balance sheet date at a not insignificant trad-

ing volume. For derivatives, these include in

particular prices that were determined on

the EUREX. Accordingly, the SaarLB Group

presents securities that have a price listed on

an active market and OTC derivatives under

level 1.

Level 2:

Level 2 consists of financial instruments

where the significant input parameters for

the determination of the fair value are exclu-

sively observed on the market. This relates in

particular to derivatives not traded over-the-

counter where valuation models with input

parameters observable on the market are

used to determine their fair value (primarily

observable interest and spread curves). For

securities that do not meet the criteria ac-

cording to level 1 and whose prices are observ-

able on the market, allocation to level 2 take

place unless there are indications that alloca-

tion to another level is appropriate.

Level 3:

Level 3 consists of financial instruments

where the criteria for allocation to level 1 or 2

were absent, i.e. where input parameters that

are not observed on the market have a signifi-

cant influence on the determination of the

fair value. These include loans and debt se-

curities for which only the indicative courses

are present (counterparty prices that do not

represent an offer). SaarLB derives spreads

from internal ratings for CDS to a limited ex-

tent; consequently, these derivatives are allo-

cated to level 3 on account of the significant

influence of credit spreads on the fair value.

Furthermore, this level contains investments

that are measured at fair value.

The so-called stress test led to the following:

If the spreads as an input parameter vary by

10% for a CDS allocated to level 3, then the

fair value changes by roughly 22%. The fair

value of the CDS allocated to level 3 and val-

ued in this way amounts to EUR 275,000 (2011:

EUR -720,000). If the spreads fall by 10%, the

positive market value rises accordingly to

EUR 304,000 (2011: EUR -870,000).

The investments are valued in particular on

the basis of the so-called risk-free interest

and a risk surcharge, which consists of the

market risk premium and the beta factor (rep-

resentation of sector volatility). If the input

parameters are uniformly raised or reduced by

10%, then the value of the investments meas-

ured at fair value in the amount of EUR 42.4

million (2011: EUR 45.5 million) decreases or

increases by EUR 4.5 million (2011: EUR 2.4 mil-

lion) or EUR 4.1 million (2011: EUR 4.4 million).

If only one input parameter varies by 10%, the

change in the fair value is less.

No stress test for the input parameters was

made for level 3 financial instruments that

were valued with an indicative price. There

were no significant reclassifications between

level 1 and 2.

130

Special disclosures on level 3

EUR ’000s Financial assets measured at fair value

through profit or loss

Financial assetsavailable for sale

Financial liabilities measured at fair value

through profit orloss

Assets held for trading

Investments Liabilities held for trading

Start level - 1,015,150 -720

Total of profits or losses 275 21,653 720

on income statement 275 12,731 720

in revaluation reserve - 8,922 -

Purchases - 489,625 -

Disposals - -1,478 -

Redemptions - -815,149 -

Exchange rate effects - 858 -

Transfers from level 3 - -8,808 -

Transfers to level 3 - 46,894 -

Investments measured at fair value for the first time - 1,790

Investments no longer measured at fair value - -2,841

End level 275 747,694 -

Total of measurement profits/losses for assets that were in the portfolio at the end of the period

275 6,479 720

131


(62) FINANCIAL INSTRUMENT MEASUREMENT CATEGORIES

EUR ’000s 2012 2011

Assets

Financial assets measured at fair value through profit or loss 944,941 844,831

Fair value option 427,024 413,202

Investments 427,024 413,202

Financial assets held for trading 517,917 431,629


Investments held to maturity 674,478 752,063



Loans and receivables 13,523,097 13,751,076

Cash reserves 669,302 106,737

Loans and advances to banks1) 3,246,133 4,105,613

Loans and advances to customers1) 9,039,001 8,607,193


Other assets 85 894

Financial assets available for sale 3,598,306 4,432,561

Investments 3,303,455 3,946,284


Other assets - 51

Positive fair values from derivative financial instruments 46,181 -

Liabilities

Financial liabilities measured at fair value through profit or loss 645,331 544,131

Fair value option - -

Financial liabilities held for trading (Held for trading) 645,331 544,131


Financial liabilities measured at amortised cost 17,386,201 18,626,650


Liabilities to customers 5,898,175 5,905,351




Negative fair values from derivative financial instruments(hedge accounting)

31,636 32,585

1) Before deducting risk provisions

132

(63) NET GAINS OR LOSSES ON FINANCIAL INSTRUMENTS

EUR ’000s Net interest income

Risk provisions Gains or losses on fair value

measurement

Gains or losses onhedges


Total

2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

Financial assets and liabilities measuredat fair value throughprofit or loss

-18,736 -14,231 - - 37,009 -16,150 10,876 -11,594 - - 29,149 -41.975

Fair value option 13,424 17,141 - - 24,844 -9,782 - - - - 38,268 7.359

Financial assets held for trading1 ) -32,160 -31,372 - - 12,165 -6,368 10,876 -11,594 - - -9,119 -49.334

Loans and receivables2) 384,996 399,399 -33,310 -19,118 - - 5,640 11,392 1,330 -12,067 358,656 379.606

Financial assets available for sale3)

94,272 104,333 - - - - 225 245 1,847 11,441 96,344 116.019

Investments held to maturity

14,791 20,785 - - - - - - 13 118 14,804 20.903

Liabilities measuredat amortisedcost

-336,493 -388,059 - - - - -16,892 - - - -353,385 -388.059

1 ) Including gains/losses on currency conversion2) Including financial assets in the loans and receivables category3) Including shares of profits in associated companies accounted for using the equity method

For each category, net gains or losses on fi-

nancial instruments include both measure-

ment gains and losses and gains or losses on

disposal.

Gains amounting to EUR 70.7 million (2011:

EUR 1.5 million) on fair value measurement of

available for sale financial assets was taken

straight to the revaluation reserve in equity

(see note 59).

(64) DERIVATIVE TRANSACTIONS

Interest and foreign currency-related and

other forward transactions and credit deriva-

tives not settled at the balance sheet date are

shown in the tables below. Most of the deals

were concluded to hedge fluctuations in in-

terest rates, exchange rates or market prices

and trading on behalf of customers.

133


Volumes

EUR ’000s Nominal values Positive fair values

Negative fair values

2012 2011 2012 2012

Interest rate risks

Interest rate swaps 13,658,119 13,324,482 554,536 -663,979

of which interest rate swaps under hedge accounting

1,093,096 70,365 46,181 -31,636

FRAs - 100,000 - -

Caps, floors 1,275,776 1,350,483 2,830 -2,828

Futures 903,148 810,060 1,855 -2,098

Total interest rate risk 15,837,043 15,585,025 559,221 -668,905

Currency risks

Forward foreign exchange transactions 267,504 584,137 1,905 -1,467

Currency swaps, currency/interest swaps 30,803 29,893 908 -3,226

Foreign exchange options 50,532 40,400 40 -40

- Purchases 25,266 20,200 40 -

- Sales 25,266 20,200 - -40

Total currency risk 348,839 654,430 2,853 -4,733

Equity and other price risks

Index options 156,674 122,191 707 -707

- Purchases 78,337 61,095 707 -

- Sales 78,337 61,096 - -707

Equity options 54,844 8,191 902 -902

- Purchases 27,422 4,095 902 -

- Sales 27,422 4,096 - -902

Futures 25,196 32,543 124 -124

Total equity and other price risks 236,714 162,925 1,733 -1,733

Credit derivative risks

Protection buyer - - - -

Protection seller 65,000 135,000 290 -1,595

Credit derivative risks 65,000 135,000 290 -1,595

Total 16,487,596 16,537,380 564,097 -676,966

134

Breakdown of maturities

The information is based on contractual re-

sidual maturities.

Breakdown by counterparty

Nominal value

Interest-rate risks Currency risks Other price risks

Credit derivative risks

EUR ’000s 2012 2011 2012 2011 2012 2011 2012 2011

Residual terms

up to 3 months 709,152 573,302 278,315 540,087 227,900 160,230 5,000 15,000

up to 1 year 1,817,049 1,480,866 42,306 84,450 8,798 2,395 - 55,000

up to 5 years 7,579,737 8,514,597 28,218 29,893 16 300 60,000 35,000

more than 5 years 5,731,105 5,016,260 - - - - - 30,000

Total 15,837,043 15,585,025 348,839 654,430 236,714 162,925 65,000 135,000

Nominal values Positive fair values Negative fair values

EUR ’000s 2012 2011 2012 2011 2012 2011

OECD banks 13,664,695 14,007,156 408,593 327,157 -670,679 -561,744

Public-sector entities within the OECD 744,968 807,960 5,854 86 -436 -

Other counterparties 2,077,933 1,722,264 149,650 104,385 -5,851 -14,971

Total 16,487,596 16,537,380 564,097 431,628 -676,966 -576,715

135


(65) NOTES TO ITEMS IN THE CASH FLOW

STATEMENT

The cash flow statement shows the cash

flows resulting from operating activities, in-

vesting activities and financing activities for

the financial year.

Cash and cash equivalents reported are equal

to the cash reserves item on the balance

sheet, which comprises cash on hand and de-

posits at central banks.

Cash and cash equivalents are not subject to

any restrictions on the right of disposal.

Payments from loans and advances to banks/

customers, securities (unless investments),

derivatives and other assets are shown as

cash flows from operating activities. Pay-

ments from liabilities to banks/customers,

securitised liabilities and other liabilities are

also assigned to operating activities. Interest

and dividend payments from operating activi-

ties are also included under cash flows from

operating activities.

Cash flows from investing activities shows

payments for investments and property,

plant and equipment (including intangibles).

Cash flow from financing activities includes

payments to silent partners and holders of

profit participation rights and changes in sub-

ordinated capital.

Notes to the cash flow statement

136

(66) SUBORDINATED ASSETS

The following balance sheet items contain

subordinated assets:

(67) ASSETS AND LIABILITIES IN FOREIGN

CURRENCIES

(68) TRANSFERRED, BUT NOT FULLY

WRITTEN-OFF FINANCIAL ASSETS

As of 31 December 2012, SaarLB did not have

any such assets.

See note 43 for securities repurchase transac-

tions for which there was no write-off.

Other notes

EUR ’000s 2012 2011



Total 20,845 20,841

EUR ’000s 2012 2011

Foreign currency assets 735,455 1,022,037

CAD 18,813 26,661

CHF 207,668 261,228

GBP 61,984 65,529

HKD 1 1

JPY 6,116 8,100

USD 381,825 579,907

Other currencies 59,048 80,611

Foreign currency liabilities 708,405 500,277

CAD 2,464 2,807

CHF 116,516 89,004

GBP 40,934 59,617

JPY 6 14

USD 528,113 328,827

Other currencies 20,372 20,008

137


(69) TRANSFERRED, FULLY WRITTEN-OFF

FINANCIAL ASSETS

In 2012, SaarLB transferred a financial asset

that was written off in full, but in which it still

had ongoing exposure. The ongoing exposure

consists of a repayment option for the writ-

ten-off receivable if the shares in the borrow-

er are sold with income in the next 12 years.

The claim was sold for EUR 1 and it cannot be

assumed that the shares in the borrower will

be sold for a profit. For this reason, the fair

value of the ongoing exposure as of 31 Decem-

ber 2012 is EUR 0. There is no loss risk from the

ongoing exposure for SaarLB. At the time of

the transfer of the financial asset, there was a

loss of EUR 2.8 million.

EUR ’000s 2012 2011

Loans and advances to banks and customers 316,000 223,894

Investments 1,963,472 2,431,272

of which:Collateral that may be sold on or pledged on by the recipient

569,969 954,197

Total 2,279,472 2,655,166

(70) ASSETS PLEDGED AS COLLATERAL

The collateral pledged relates to securities

repurchase transactions, tender transactions

with the European Central Bank (ECB), trans-

actions on the European Exchange (EUREX),

with Clearstream Banking of Frankfurt am

Main and Clearstream Banking Luxembourg.

In these cases, substantially all risks and re-

wards associated with ownership of the trans-

ferred assets remain with the SaarLB Group.

Assets pledged as collateral relate to the fol-

lowing balance sheet items:

The transferred assets back liabilities in the

amount of EUR 1.4 billion (2011: EUR 2.3 bil-

lion).

These transactions were executed at stand-

ard market conditions.

138

(71) COLLATERAL RECEIVED THAT MAY BE

SOLD OR PLEDGED ON

EUR ’000s 2012 2011

Lease agreements (residual maturities) 5,708 5,708

up to 1 year 1,243 1,214


more than 5 years 985 1,248

EUR ’000s 2012 2011

Future minimum leasing payments from noncallable lease agreements (residual maturities)

1,880 1,385

up to 1 year 700 662

more than 1 year and up to 5 years 952 723

more than 5 years 228 -

As part of securities repurchase transactions

and securities lending transactions, SaarLB re-

ceives assets lodged as collateral that may be

sold on or pledged on without the collateral

provider defaulting. We held no such securi-

ties on 31 December 2011 or 31 December 2012.

(72) LEASING TRANSACTIONS

Operating leases

The SaarLB Group as lessor:

The leased assets are real estate. The leasing

agreements include some with fixed maturi-

ties and some that are open-ended. The long-

est fixed maturity expires on 30 September

2025. In some cases on expiry, the lessee has

the unilateral option to extend the agree-

ment or the option to a contractually agreed

extension provided the other party does not

object. There are no conditional payments.

The SaarLB Group as lessee:

The leasing agreements mainly relate to the

rental of fixtures and fittings. They have fixed

terms of three to five years. There are no op-

tions or conditional payments.

139


EUR ’000s 2012 2011

Fiduciary assets 105,753 104,816



Other loans and advances - 2,190

Fiduciary liabilities 105,753 104,816

Liabilities to banks 4,154 3,041



EUR ’000s 2012 2011

Contingent liabilities 274,333 290,170

Liabilities for guarantees and warranty agreements 274,333 290,170

Other obligations 592,900 756,707

Irrevocable credit commitments 592,900 756,707

Total 867,233 1,046,877

(73) FIDUCIARY TRANSACTIONS

Fiduciary transactions break down as follows:

(74) CONTINGENT LIABILITIES AND OTHER

OBLIGATIONS

The provisions (note 55) were established for

guarantees and warranty agreements where

an impairment was determined, since usage

is viewed as probable.

140

(75) OTHER FINANCIAL OBLIGATIONS

Furthermore, there are financial obligations

under operating leases and in relation to

rental, usage, service and maintenance agree-

ments (see note 72).

Moreover, under the articles of the deposit

insurance fund run by the Landesbanks and

giro associations, SaarLB has undertaken to

indemnify the Deutscher Sparkassen- und

EUR ’000s 2012 2011

Additional funding obligations to security reserve of the Landesbanks 21,527 18,221

Additional obligations and additional co-liability for other shareholders

7,012 7,012

Commitments not yet called 2,315 2,315

Obligations to acquire shares 6,505 6,043

Giroverband e. V. (German Savings Bank Asso-

ciation), as the owner of the deposit security

reserve of the Landesbanks and giro associa-

tions, against any losses that may be incurred

due to measures taken in favour of banks in

which SaarLB holds shares. As members of

deposit protection schemes, the branches

are also liable under the provisions governing

those schemes.

(76) LIST OF SHAREHOLDINGS OF LANDES-

BANK SAAR (EXCERPT)

The following table includes the list of share-

holdings (except where these are of minor

importance), pursuant to Section 285 Clause

11 HGB [German Commercial Code] for the in-

dividual financial statements and pursuant

to Section 315 in conjunction with Section 313

(2) HGB for the consolidated financial state-

ments of SaarLB.

141


Name Notes Share in %

Equity/fundassets

Total assets Total liabilities

Income Net income

EUR ’000s3) EUR ’000s EUR ’000s EUR ’000s EUR ’000s4)

Special fund included in the consolidated financial statements

LB Immo Invest Saar-Fonds, Hamburg 1) 100.00 41,626 43,242 1,616 1,346 399

SaarLB 1-Fonds, Munich 2) 100.00 149,649 149,892 243 11,066 10,967

SBLB-Fonds, Munich 2) 100.00 67,525 67,525 - 5,567 5,530

SBLB-2-Fonds, Munich 2) 100.00 68,071 68,071 - 5,734 5,696

SBLBHALBS-Fonds, Munich 2) 100.00 32,102 32,102 - 2,680 2,605

Subsidiaries included in theconsolidated financial statements

SaarLB-Bankenbeteiligungsgesellschaft mbH, Saarbrücken

5) 100.00 15,577 16,764 1,187 1,187 1,187

Associates included in the consolidated financial statements

Gekoba-Gesellschaft für Gewerbe- und Kommunalbauten mbH, Saarbrücken

38.00 6,091 25,910 19,819 1,136 590

GSW-Saarländische Wohnungsbaug-esellschaft mbH, Saarbrücken

28.57 8,325 19,651 11,326 2,315 113

Subsidiaries not included in theconsolidated financial statements

ELGESA Beteiligungsgesellschaft mbH in liquidation, Saarbrücken

5) 100.00 1,790 1,796 6 - 4

LBS Immobilien GmbH, Saarbrücken 5) 100.00 105 883 778 2,903 50

LBS Vertriebs GmbH, Saarbrücken 5) 100.00 25 158 133 571 86

Associates

TEGES Grundstücksvermietungsgesells-chaft mbH, Berlin

50.00 19 25 6 36 -

TEGES Grundstücksvermietungsgesells-chaft mbH & Co. Objekt Berlin KG, Berlin

47.01 -7,369 10,608 17,977 1,570 55

Gesellschaft für Wirtschaftsförderung Untere Saar mbH, Saarlouis

33.33 325 390 65 - -42

Saarländische Kapitalbeteiligungsgesells-chaft mbH, Saarbrücken

33.33 6,566 55,462 48,895 3,881 430

Saarländische Wagnisfinanzierungsge-sellschaft mbH, Saarbrücken (direct equity investment)

30.43 6,382 11,410 5,027 890 -169

Notes:

1) Income relates to rental income less administrative expenses

2) Income relates to interest income, commission income and gains or losses on fair value measurement less interest expense and commission expense

3) Shareholders’ funds as defined in Section 266 (3A) in conjunction with Section 272 of the German Commercial Code (HGB)

4) Net income/loss for the year as defined in Section 275 (2) No. 20 of the German Commercial Code (HGB)

5) There is a profit transfer agreement with this company

An interest of less than 20% with voting rights of more than 5% is held in Saarländische Investitionskreditbank AG.

142

Franz Josef SchumannPresident

Saar Association of Savings Banks,

Saarbrücken

Deputy Chairman

Manfred FichterBank employee

Landesbank Saar, Saarbrücken

Dr. Rudolf FuchsChairman of the Board of Management

Sparkasse Mainfranken Würzburg, Würzburg

(until 31 December 2012)

Peter JacobyMinister (in retirement),

Saabrücken

(until 20 August 2012 )

Marcus KramerMember of the Board of Management of

Bayerische Landesbank, Munich

Fred MetzkenChief Financial Officer

CEO of Dillinger Hüttenwerke and Saarstahl

AG, Dillingen

Thomas RoßBank employee


(77) ADMINISTRATIVE BODIES OF SAARLB

Board of Administration

Jan-Christian DreesenMember of the Board of Management


Chairman

Dr. Michael BraunSegment Manager for Corporate Strategy

and Corporate Communication at


(from 1 January 2013)

Dr. Winfried FreygangSegment Manager for Group Accounting and

Taxes at Bayerische Landesbank, Munich

Dr. Christoph HartmannMinister (in retirement),

Saarbrücken

(until 23 April 2012)

Thomas KleinBank employee


Heiko MaasMinister

Ministry of Economic Affairs, Labour, Energy

and Traffic, Saarbrücken

(from 12 September 2012)

Susanne RiesBank employee


Stephan ToscaniMinister

Ministry of Finance and Europe, Saarbrücken

(from 12 September 2012)

Representative of the regulatory body

Iris JungUndersecretary

Ministry of Economic Affairs, Labour, Energy

and Traffic, Saarbrücken

143


Board of Management

Thomas Christian Buchbinder Chairman of the Board of Management

Frank EloyMember of the Board of Management

Werner SeverinDeputy Chairman of the Board of

Management

144

Administration of SaarLB and their close

family members,

plans for SaarLB employees, which are used

after the end of the employment relation-

ship.

The circle of related parties has been expand-

ed from the prior year for complete disclosure

in accordance with IAS 24.

The SaarLB Group has business dealings with

related companies and persons. Transactions

with such persons and companies fall within

the normal course of business and are always

on the same terms (including interest rates

and collateral) as for comparable transactions

conducted at the same time with third par-

ties. These transactions did not have unusu-

ally high risks of recovery or other unfavour-

able characteristics.

Details on the subsidiaries and associated

companies in which SaarLB holds an interest

can be found in the list of shareholdings.

(78) RELATED PARTY DISCLOSURES

Companies and persons are deemed to be re-

lated where one party directly or indirectly

controls the other or can exercise significant

influence on its operating and business deci-

sions. Related parties of the SaarLB Group as

of 31 December 2012 include:

-

ture companies

-

LB (except for the last level),

-

iaries of BayernLB (except for the last level),

-

ture companies,

(except for the last level),

-

iaries of Saarland (except for the last level),

-

ies and joint venture companies,

State of Bavaria (except for the last level),

-

sidiaries of the Free State of Bavaria (except

for the last level),

and joint ventures,

-

LB Holding (except for the last level),

-

iaries of BayernLB Holding (except for the

last level),

-

aries of SaarLB (except for the last level),

-

cept for the last level),

its subsidiaries and joint ventures,

members and companies that are controlled

or materially influenced by these people or

their close family members, or hold signifi-

cant voting rights in this circle of related

parties; people in key positions are those

with direct and indirect responsibility for

planning, managing and monitoring the

activities of SaarLB. This includes members

of the Board of Management and Board of

145


EUR ’000s 31 Dec. 2012 31 Dec. 2011

Loans and advances to banks 932,748 1,000,142

BayernLB 838,281 902,244

Subsidiaries and joint venture companies of BayernLB 74,637 73,033

Subsidiaries and joint venture companies of Saarland 19,830 24,865


Subsidiaries and joint venture companies of BayernLB - 25,238

Saarland 212,410 522,094

Subsidiaries and joint venture companies of Saarland2) 304,998 274,173

Subsidiaries2) 29,249 29,803

Consolidated associates 5,474 6,279



BayernLB 17,028 20,882

Subsidiaries and joint venture companies of BayernLB 40,160 32,718

Subsidiaries and joint venture companies of Saarland2) 13,359 8,271


BayernLB - 573,369

Subsidiaries and joint venture companies of BayernLB - -

Saarland 53,725 72,700

EUR ’000s 31 Dec. 2012 31 Dec. 2011


BayernLB 1,280,104 2,020,052

Subsidiaries and joint ventures of BayernLB 9,282 11,967

Subsidiaries and joint ventures of Saarland 67,833 72,791

Subsidiaries of the Free State of Bavaria2) 64,800 64,762


Saar Association of Savings Banks2) 20,256 12,659

Saarland 3,851 3,210

Subsidiaries and joint ventures of Saarland2) 26,661 6,150

Subsidiaries 2,039 2,090

Consolidated associates 138 110



BayernLB 1,825,000 2,325,000


BayernLB3) 113,107 92,002

Subsidiaries and joint ventures of BayernLB - -

Subordinated capital - 55,158

BayernLB - 55,158

Hybrid capital I 58,927 44,842

BayernLB 58,927 44,842

Subsidiaries and joint ventures of BayernLB - -

Financial assets and liabilities as well as hybrid capital with respect

to related parties1):

1) Amounts not incl. accrued interest.2) Expansion of the circle of closely affiliated companies and adjustment of the amounts from 20113) Includes EUR 15.6 million (EUR 16.4 million) of negative fair values from financial derivatives (hedge accounting)

146

Amounts due from/to ZVK

EUR ’000s 31 Dec. 2012 31 Dec. 2011

Receivables 37 -

Liabilities 29,235 33,287



Amounts due from/to members of the Board

of Management and the Board of Administra-

tion of SaarLB

The total amount of loans granted to and de-

posits made by the members of the Board of

Management or the Board of Administration

at SaarLB (including their immediate family

members) breaks down as follows:

EUR ’000s 31 Dec. 2012 31 Dec. 2011

Receivables 17 24

Members of the Board of Management of SaarLB - -

Members of the Board of Administration of SaarLB 17 24

Liabilities 389 403

Members of the Board of Management of SaarLB 147 158


SaarLB received deposits of EUR 36,000 from

close family members (EUR 45,000).

147


Remuneration paid to members of the Board

of Management and the Board of Administra-

tion of SaarLB

The interested accrued on pension provisions

amounted to EUR 1.1 million (2011: EUR 1.1 mil-

lion) and is reported as an interest expense.

(79) AUDITORS’ FEES

External auditor’s fees reported as an expense

in the year under review are broken down as

follows:

In the 2012 financial year, the fee for the audit

services includes EUR 155,000 for 2011.

EUR ’000s 2012 2011

Members of the Board of Management of SaarLB 2,175 2,166

Benefits due in the short term 1,459 1,655

Benefits due after the end of the employment relationship 716 511

Expenses due for defined benefit plans 716 511


Benefits due in the short term for supervisory board activities 167 154

Benefits due in the short term for work performance 221 234

Former members of the Board of Management of SaarLB and theirdependants

1,298 1,190

Pension provisions established for members of the Board of Management of SaarLB

8,892 6,156

Pension provisions established for former members of the Board of Management of SaarLB and their dependants

19,684 17,337

EUR ’000s 2012 2011

Audit 835 975

Other audit and valuation services 164 153

Tax consulting services 85 -

Other services 317 437

Total 1,401 1,565

148

(80) EMPLOYEES

The average number of people employed dur-

ing the year was:

The average number of people employed in

associates consolidated at equity during the

year was 43 (previous year: 47).

EUR ’000s 2012 2011

Average number of employees in the year 518 514

of which full time employees 409 418

of which part time employees 90 79

of which trainees 19 17

Female 248 235

Male 270 279

149


We affirm that to the best of our knowledge

and in accordance with the applicable re-

porting principles the consolidated financial

statements give a true and fair view of the

net assets, financial position and results of

operations of the Group and the management

report of the Group includes a fair view of the

development and performance of the busi-

ness and the position of the Group, together

with a description of the principal opportuni-

ties and risks associated with the expected

development of the Group.


Landesbank Saar

Board of Management

Responsibility statement by the Board of Management

Thomas Christian Buchbinder Werner Severin Frank Eloy

150

We have audited the consolidated financial

statements, comprising the consolidated bal-

ance sheet, the Group statement of compre-

hensive income, the schedule of changes in

equity, the cash flow statement, the Group

notes to the consolidated financial state-

ments and the Group management report of

Landesbank Saar, Saarbrücken for the finan-

cial year from 1 January to 31 December 2012.

It is the responsibility of the Board of Man-

agement of the company to draw up the con-

solidated financial statements and the Group

management report in accordance with IFRS

as applicable in the EU, the extra legal require-

ments applicable under Section 315a (1) of the

German Commercial Code and the additional

provisions of the articles of association. Our

responsibility is to express an opinion on the

consolidated financial statements and the

management report, based on the audit we

have conducted.

We carried out our audit of the consolidated

financial statements in accordance with Sec-

tion 317 of the German Commercial Code and

German generally accepted standards for the

audit of financial statements promulgated

by the Institut der Wirtschaftsprüfer (IDW).

These require that we plan and perform the

audit in such a way that misstatements ma-

terially affecting the presentation of the

net assets, financial position and results

of operations in the consolidated financial

statements under the applicable accounting

standards and in the Group management re-

port are detected with reasonable assurance.

Knowledge of the business activities and the

economic and legal environment and expecta-

tions as to possible misstatements are taken

into account in setting the audit procedures.

In the audit, the effectiveness of the internal

accounting control system and the evidence

supporting the disclosures in the consoli-

dated financial statements and Group man-

agement report are examined primarily on a

test basis. The audit includes examining the

annual financial statements of consolidated

companies, setting the scope of consolida-

tion, assessing the accounting policies used,

evaluating significant estimates made by

the Board of Management and considering

the overall presentation of the consolidated

financial statements and the Group manage-

ment report. We believe that our audit pro-

vides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion based on the findings of our

audit, the consolidated financial statements

are in accordance with IFRS as applicable in

the EU, the extra legal requirements applica-

ble under Section 315a (1) of the German Com-

mercial Code and the additional provisions of

the articles of association and present a true

and fair view of the net assets, financial posi-

tion and results of operations of the Group.

The Group management report is consistent

with the consolidated financial statements

and, taken as a whole, provides an accurate

view of the state of the Group and accurately

presents the risks and opportunities of future

developments.


PricewaterhouseCoopers

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

Burkhard Eckes Isabel Rösler Wirtschaftsprüfer Wirtschaftsprüferin

(German Public Auditor) (German Public Auditor)

Independent Auditors’ Report

151


In the past year the Board of Administration

monitored the Board of Management’s con-

ducting of business. The Board of Administra-

tion and the Risk Committee have regularly

received reports on the Bank’s performance

and business situation, as well as on impor-

tant transactions and discussed them in de-

tail with the Bank’s Board of Management.

The Audit Committee addressed the audit

of the financial statements and the internal

control processes of the Bank and discussed

them with the Board of Management. At the

meetings of the Board of Administration, re-

ports were regularly given on significant mat-

ters at the meetings of the Risk Committee

and the Audit Committee.

In the trusting and close collaboration be-

tween the Board of Administration and the

Board of Management, the members pre-

pared the regular reports and addressed the

impact of the restructuring of WestLB, the

election of the auditor for the 2013 financial

year, the consequences of Basel III and CRD IV

on the equity plans of SaarLB and the project

for the optimisation of cooperation between

the savings banks and SaarLB. The Board of

Administration elected the economic com-

mittee of the Bank for the term from 1 January

2013 to 31 December 2015.

The Board of Administration and the Risk

Committee have, to the extent provided by

the articles of association, participated in

the Bank’s business and passed the requisite

resolutions.

At their meetings on 19 April 2013, the Bank’s

corporate bodies discussed compliance with

the Bank’s own corporate governance princi-

ples, to which SaarLB has voluntarily bound

itself, and stated that there were no indica-

tions of which they were aware that were in

contradiction to compliance with these prin-

ciples in the 2012 financial year.

The Board of Administration discussed the

management report, the annual financial

statements, the Group management report

and the consolidated financial statements for

the period ending 31 December 2012 and the

proposed appropriation of distributable earn-

ings with the Board of Management.

The annual financial statements and the

management report as well as the Group

management report and the consolidated fi-

nancial statements for the period ending 31

December 2012 were audited by the auditors,

PricewaterhouseCoopers AG Wirtschaftsprü-

fungsgesellschaft, and received an unquali-

fied auditor’s opinion.

The Board of Administration has taken note

of the audit findings and approved the an-

nual financial statements in accordance with

the German Commercial Code [HGB] for the

period ending 31 December 2012, in which

the company broke even, at its meeting on

19 April 2013. The IFRS consolidated financial

statements for the financial year ending 31

December 2012 were approved by the Board

of Administration. The Board of Management

was granted discharge.

Saarbrücken, 19 April 2013

The Chairman of the Board of Administration

Jan-Christian Dreesen

Report of the Board of Administration

152

MARKET 1

Frank Eloy

Corporate Customers

Michael Heß

∙ Corporate Customers Germany

∙ Corporate Customers France

- Branch of Landesbank Saar,

Metz

- Centre d’affaires Entreprises,

Strasbourg

∙ Foreign Trade

∙ Payments

Real Estate and Projects

Manfred Thinnes

∙ Real Estate Germany

∙ Real Estate France

Roger Lang

- Centre d’affaires Financement

Immobilier, Paris

∙ Project Financing

Daniel Koebnick

∙ Branch Management

Central Sales Management

CORPORATE DEVELOPMENT/

MARKET 2

Thomas Christian Buchbinder

Corporate Development

Dr. Matthias Böcker

∙ Communication and BoM

Support

∙ Human Resources

∙ Strategic Development

∙ Legal Services

Savings Banks, Institutionals and

High Net Worth Individuals

Andreas Hauck

∙ Savings Banks, Institutionals

∙ High Net Worth Individuals

∙ Savings Banks Relationship

Management

∙ Interest and Currency

Management

∙ Wealth Management

Klaus Bingel

Treasury and

Portfolio Management

Christian Mathe

∙ Portfolio Management

∙ Treasury

LBS Market

Dirk Hoffmann

∙ Market and Sales

∙ Service

∙ LBS Immobilien GmbH

LBS Risk Office

Jörg Welter

∙ Bank Management

∙ Risk Office

Internal Audit

Jörg Melde

OPERATIONS/MANAGEMENT

Werner Severin

Bank Management

Bernd Heublein

∙ Financing and Reporting

∙ Profit Controlling

∙ Risk Controlling

Risk Office

Frank-Oliver Groß

∙ Renewable Energies/Projects

∙ Real Estate Germany/France

∙ Portfolio Management:

Real Estate

∙ SME Corporate Customers

∙ Portfolio Management:

Financial Markets

∙ Credit Consult

∙ Area Coordination

Services

Barbara Wagner

∙ IT

∙ Organisation and Logistics

∙ Performance Coordination

∙ Customer and Accounts

∙ Project and Process

Management

Compliance

Data Protection

Organisational chart

As of: 26 March 2013

153As of: 26 March 2013

Shareholders

Bayerische Landesbank, Munich 49.9%

Saarland 35.2%

Sparkassenverband Saar, Saarbrücken 14.9%

Sparkassen-Finanzgruppe Saar

Aggregate total assets

in bank business

EUR 34.7 billion

Staff 4,886Aggregate premium volume

in insurance business

EUR 256.9 million

7 savings banks

Aggregate total assets

EUR 16.0 billion

Staff

3,777

Branches

259

Self-service branches

56

Advisory centres

42

Landesbank Saar

Total assets

EUR 18.7 billion (IFRS)

Staff

518

Landesbausparkasse Saar

Portfolio of contracts:

107,991 contracts

Savings contract total

EUR 2.9 billion

SAARLAND Versicherungen

Staff

591

Premium volumes

Non-life:

EUR 112.6 million

Life:

EUR 144.3 million

Investments

Feuerversicherung AG

EUR 126.7 million

Lebensversicherung AG

EUR 1.2 billion

Sparkassenverband Saar

Association members: 7 savings banks and their municipal owners, as well as Saarland and the Bayerische

Landesbank, owners of SaarLB.

CORPORATE REPORT 2012 | ORGANISATIONAL CHART & SHAREHOLDERS

154

155

Legal notice

Publisher Landesbank Saar

Ursulinenstraße 2

66111 Saarbrücken

Editors Communication and BoM Support

E-mail: [email protected]

This report was completed on 26 March 2013.

Design FBO Agentur für Marketing und Neue Medien

Heinrich-Barth-Straße 27

D-66115 Saarbrücken

Photos FBO, Fotolia, Karl-Otto Franz, Frank Schmitt, Andrew Wakeford

Print repa druck GmbH

Zum Gerlen 6

66131 Saarbrücken

CORPORATE REPORT 2012 | LEGAL NOTICE

address Landesbank Saar

Ursulinenstraße 2

66111 Saarbrücken / Germany

po box 66104 Saarbrücken / Germany

phone +49 681 383-01

fax +49 681 383-1200

internet www.saarlb.de

e-mail [email protected]

bic/swift SALADE55

sort code 590 500 00

SaarLB France, Branch of Landesbank Saar

address 2, place Raymond Mondon

57000 Metz

France

phone +33 387 6968-60

fax +33 387 5708-91


SaarLB France, Centre d’affaires Entreprises

address 9, rue du Maréchal Joffre

67000 Strasbourg

France

phone +33 388 3758-70

fax +33 388 3693-78


SaarLB France, Centre d’affaires Financement Immobilier

address 203, rue du Faubourg

Saint Honoré

75008 Paris

France

phone +33 145 6363-52

fax +33 145 6371-22


address LBS Landesbausparkasse Saar

Beethovenstraße 35 – 39


po box Postfach 10 19 62


phone +49 681 383-290

fax +49 681 383-2100

internet www.lbs-saar.de


DURCH NÄHEWeitsicht

Documents

Corporate Report - SaarLB · *** Change in the figure from 2011 1. BALANCE SHEET 31 DEC. 2012 EUR MILLION 31 DEC. 2011 EUR MILLION CHANGE IN % ... economic success story. Prof. Dr