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DGAP-News: Aareal Bank Group posts a strong start to the 2014 financial year (news with additional features)

May 6, 2014

DGAP-News: Aareal Bank AG / Key word(s): Quarter Results Aareal Bank Group posts a strong start to the 2014 financial year (news with additional features) 07.05.2014 / 07:00 --------------------------------------------------------------------- Aareal Bank Group posts a strong start to the 2014 financial year - Consolidated operating profit of EUR 215 million, including negative goodwill from the acquisition of Corealcredit - Business development on schedule: consolidated operating profit excluding negative goodwill up year-on-year, to EUR 65 million; forecast for full-year 2014 affirmed - Capitalisation and liquidity situation remain very solid - Aareal Bank continues to comply with CRD IV requirements, even following the Corealcredit transaction Wiesbaden, 7 May 2014 - Aareal Bank Group started the 2014 financial year with a markedly higher result, even without the non-recurring effect from the acquisition of COREALCREDIT BANK AG ("Corealcredit"). As already announced, first-quarter consolidated operating profit of EUR 215 million was materially influenced by EUR 150 million in negative goodwill from the acquisition of Corealcredit, which was closed with effect from 31 March 2014. But even without this non-recurring effect, Aareal Bank Group succeeded in increasing consolidated operating profit: at EUR 65 million, it was up when compared both year-on-year (Q1 2013: EUR 47 million) and the strong final quarter of the previous year (Q4 2013: EUR 58 million). Consolidated profit was EUR 185 million. Even adjusted for negative goodwill, at EUR 35 million, it clearly exceeded the comparative figures of EUR 22 million (Q1 2013) and EUR 27 million (Q4 2013), respectively. Given that the closing of the Corealcredit transaction took place on 31 March 2014, Corealcredit's operative results will be included in Aareal Bank Group's consolidated income statement for the first time in the second quarter of this year. Accordingly, the results adjusted for negative goodwill, as well as all other income statement items for the first quarter, exclusively reflect the performance of Aareal Bank Group in its structure to date. The Bank's good net interest income was the main contributor to another very positive performance. Net interest income of EUR 144 million for the first three months of the 2014 financial year was up 19 per cent on the same period of the previous year (Q1 2013: EUR 121 million). In particular, the higher volume of the credit portfolio had a positive effect on net interest income; the figure also included EUR 4 million in non-recurring effects from early repayments. Aareal Bank recognised EUR 37 million in allowance for credit losses for the first quarter of 2014. The figure was lower compared to the previous quarter (Q4 2013: EUR 39 million), yet higher than in the first quarter of 2013 (EUR 17 million); it comprised a very low level of specific allowance for credit losses - at EUR 6 million, this reflects the high quality of Aareal Bank's credit portfolio, plus EUR31 million in portfolio-based allowance for credit losses. The latter is due to a change in measurement parameters for determining the portfolio-based valuation allowance, and thus essentially non-recurring. This does not affect the forecast for the year as a whole (EUR 100 million to EUR 150 million). However, due to a positive non-recurring effect from the reversal of provisions recognised at the peak phase of the financial markets crisis, net other operating income/expenses improved to EUR 16 million (Q1 2013: -EUR 5 million). In spite of further intensified competition for attractive transactions, new business originated in the Structured Property Financing segment remained at a high level, totalling EUR1.6 billion during the first quarter. Given a lower volume of loans for renewal, the figure was slightly below the previous year's level (Q1/2013: EUR 2.0 billion); the share of newly-originated loans increased to the high level of 67.4 per cent (Q1/2013: 59.5 per cent). "As expected, we had a very successful start into the new financial year. Once again, we were able to fully leverage our strengths in a highly competitive environment, thus further improving results. Overall, looking at the positive performance in the first quarter, we are very confident of being able to maintain the steady upward trend that we have shown over recent financial years throughout the current year, as announced", said CEO Dr Wolf Schumacher. Structured Property Financing segment: net interest income at a high level Consolidated operating profit in the Structured Property Financing segment amounted to EUR 221 million in the first quarter of 2014. Excluding EUR 150 million in negative goodwill from the acquisition of Corealcredit, it amounted to EUR 71 million, clearly exceeding the previous year's figure of EUR 51 million. The increase was mainly attributable to markedly higher net interest income, which rose to EUR 143 million in the quarter under review (Q1 2013: EUR 118 million). The higher volume of the credit portfolio had a particularly positive effect in this context. Allowance for credit losses amounted to EUR 37 million (Q1 2013: EUR 17 million) in the first quarter, comprising EUR6 million in specific allowance for credit losses and EUR 31 million in portfolio-based allowance for credit losses. The latter is largely due to a change in measurement parameters for determining the portfolio-based valuation allowance, and thus essentially non-recurring. Consulting/Services segment: Aareon developed on schedule Operating profit in the Consulting/Services segment totalled -EUR 6 million for the quarter under review (Q1 2013: -EUR 4 million). The business activities of the Aareon AG subsidiary developed on schedule; it contributed EUR5 million (Q1 2013: EUR 5 million). Following a fourth quarter characterised by high licence fees (which is a usual feature in this type of business), the first quarter was shaped - as in the previous years - by contributions from consultancy, maintenance, and software rental fees. Aareon's international business also remained positive during the first quarter. In contrast to the first quarter of 2013, the subsidiary Incit AB was fully consolidated in the quarter under review. As in the previous year, the banking business in the Consulting/Services segment continued to be shaped by two developments. On the one hand, deposit volumes continued to increase, averaging EUR 8.1 billion during the quarter under review, up from EUR 7.7 billion in the fourth quarter of 2013. On the other hand, the persistently low interest rate environment continued to burden the results generated from deposit-taking business during the first three months of the year. Yet the importance of this business therefore goes way beyond the interest margin generated from the deposits, which is under pressure in the current market environment. Deposits from the housing industry represent a strategically important additional source of funding for Aareal Bank. Successful funding activities and strong capitalisation Aareal Bank raised a total of EUR 1.7 billion in long-term funds on the capital market during the first quarter. This sum comprised Mortgage Pfandbriefe in the amount of EUR 0.7 billion, unsecured funding of EUR 0.6 billion, as well as subordinated liabilities of EUR 0.4 billion. Aareal Bank has therefore maintained its long-term funding at a high level. Aareal Bank therefore continues to be very solidly financed. The Tier 1 ratio as at 31 March 2014 stood at 15.9 per cent, which is comfortable on an international level, whilst the Common equity tier 1 ratio without the silent participation of SoFFin was 12.1 per cent on the reporting date. Both ratios already include the impact of the Corealcredit transaction. Aareal Bank already complies today with the capital and liquidity requirements under the CRD IV, which will be gradually implemented between now and the end of 2018. Notes to Group financial performance Net interest income of EUR 144 million for the first three months of the 2014 financial year was up significantly on the same period of the previous year (EUR 121 million). Net commission income was up slightly on the previous year, to EUR 40 million. The aggregate of net trading income/expenses, the net result on hedge accounting, and net result from non-trading assets, of EUR 4 million resulted largely from the measurement of derivatives used to hedge interest rate and currency risk. Administrative expenses totalled EUR102 million (Q1 2013: EUR 92 million). The increase was largely attributable to higher project-related costs (including costs incurred in relation to the acquisition of Corealcredit) as well as to regulatory measures such as the Asset Quality Review by the ECB. Net other operating income/expenses amounted to EUR16 million (Q1 2013: -EUR 5 million). Taking into consideration income taxes of EUR 20 million and non-controlling interest income of EUR5 million, consolidated operating profit of EUR 215 million (EUR65 million excluding the negative goodwill from the acquisition of Corealcredit) translates into net income attributable to shareholders of Aareal Bank of EUR 190 million. After deduction of EUR5 million in net interest payable on the SoFFin silent participation, consolidated profit stood at EUR185 million for the first quarter (Q1 2013: EUR 22 million). Outlook: forecast for the full year 2014 affirmed Aareal Bank continues to expect a slight global recovery during the 2014 financial year, as well as more intense competition. In this environment, Aareal Bank envisages a continuation of its positive business development during the remainder of the year. One main focus of the activities will be the integration of Corealcredit. Discussions concerning the future business policy of the new subsidiary will take place over the coming months. The Bank has already incorporated the acquisition of Corealcredit into its forecasts for the full 2014 financial year. Given the positive performance during the first quarter, Aareal Bank has affirmed its forecast for net interest income to rise to between EUR 610 million and EUR 640 million. Despite a larger loan portfolio, Aareal Bank continues to forecast allowance for credit losses in a range of EUR 100 million to EUR 150 million. As in the previous years, the Bank cannot rule out additional allowance for unexpected credit losses that may be incurred during 2014. Net commission income is projected to increase slightly, to between EUR 170 million and EUR 180 million. Administrative expenses are expected in the region of EUR 430 million to EUR 450 million. A material reason for the projected increase over the previous year is the acquisition of Corealcredit. All in all, Aareal Bank sees good opportunities, including the negative goodwill from the acquisition of Corealcredit, to achieve consolidated operating profit of between EUR 370 million and EUR 390 million for the current year. Adjusted for this non-recurring effect, the Bank anticipates consolidated operating profit of between EUR 220 million and EUR 240 million. On this basis, RoE before taxes is likely to be in the region of 9 per cent; Aareal Bank's medium-term target RoE of approximately 12 per cent before taxes remains unchanged. New business of between EUR 8 billion and EUR 9 billion is expected for the Structured Property Financing segment in 2014. In the Consulting/Services segment, Aareal Bank anticipates a slightly higher profit before taxes over the previous year for its Aareon subsidiary, at around EUR 28 million. Note to editors: The full interim report for the first quarter of 2014 is available on http://www.aareal-bank.com/en/investor-relations/financial-reports/. Contact: Aareal Bank AG Corporate Communications Sven KorndÖrffer Tel.: +49 611 348 2306 sven.korndoerffer@aareal-bank.com Christian FeldbrÜgge Tel.: +49 611 348 2280 christian.feldbruegge@aareal-bank.com Heinrich FrÖmsdorf Tel.: +49 611 348 2061 heinrich.froemsdorf@aareal-bank.com ------------------------------------ Aareal Bank AG, Registered Office: Wiesbaden Commercial Register: Amtsgericht Wiesbaden HRB 13184 Chairman of the Supervisory Board: Marija G. Korsch Management Board: Dr. Wolf Schumacher (Chairman), Dagmar Knopek, Hermann J. Merkens, Thomas Ortmanns End of Corporate News +++++ Additional features: Document: http://n.equitystory.com/c/fncls.ssp?u=LJPSFEMMTA Document title: 20140507_PM_Q1__2014_en --------------------------------------------------------------------- 07.05.2014 Dissemination of a Corporate News, transmitted by DGAP - a company of EQS Group AG. The issuer is solely responsible for the content of this announcement. DGAP's Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases. Media archive at www.dgap-medientreff.de and www.dgap.de --------------------------------------------------------------------- Language: English Company: Aareal Bank AG Paulinenstr.15 65189 Wiesbaden Germany Phone: +49 (0)611 348 - 0 Fax: +49 (0)611 348 - 2332 E-mail: aareal@aareal-bank.com Internet: www.aareal-bank.com ISIN: DE0005408116 WKN: 540811 Indices: MDAX Listed: Regulierter Markt in Frankfurt (Prime Standard); Freiverkehr in Berlin, DÜsseldorf, Hamburg, MÜnchen, Stuttgart; Stockholm End of News DGAP News-Service --------------------------------------------------------------------- 266854 07.05.2014


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