Brüll Kallmus Bank AG

Annual financial statements

31 December 2017

___________________ Bankers since 1884

PERFORMANCE AND KEY FIGURES

FOR BRÜLL KALLMUS BANK AG

31.12.17 31.12.16

TEUR TEUR

Total assets 29.728 27.775

Loans and advances to customers 464 553

Deposits from customers 393 129

Operating profit 2.558 4.477

Profit from ordinary activities 2.548 4.541

Eligible capital pursuant to part 2

of EU Regulation No. 575/2013

Capital requirements pursuant to Article 92

of EU Regulation No. 575/2013 (Total risk amount)

of which capital requirement for operational risk 14.468 14.790

Capital surplus 10.991 10.979

Capital as % of the measurement basis pursuant to Article 107 et seq.

of EU Regulation No. 575/2013 (credit risk)

Volume of client custody accounts 74.116 74.116

Assets under management 74.245 74.245

12.665 12.314

18.075 16.687

196,7% 648,1%

___________________ Bankers since 1884

Management Report 2017

Business performance

Looking back, 2017 was an extremely

quiet year on the international financial

markets. Rarely before has market

volatility been as low over an entire year as

in this past year. The presidential elections

in France on 23 April and the general

elections in the Federal Republic of

Germany on 24 September were decisive

elections in two of the largest member

states of the European Union. But neither

these polls nor Catalonia's independence

efforts had a lasting impact on the markets.

The sustained low level of interest rates,

driven not least by the currency policy and

interventions of the European Central Bank

(ECB) continued to put pressure on returns

on the bond market. Nevertheless, Brüll

Kallmus Bank was still able to achieve

extremely positive results in the last

financial year as a result of its excellent

customer relations and strong placing

power.

Brüll Kallmus Bank is the specialised bond

bank of the GRAWE banking group. With

branches in Vienna, Graz and Linz as well

as in Sežana in Slovenia, the two business

areas of Institutional Banking and Capital

Market Financing service institutional and

quasi-institutional customers as well as

public institutions throughout Austria and

neighbouring countries. Brüll Kallmus

Bank focuses here on arranging bond

transactions on the secondary market, in

particular illiquid debt instruments.

The 2017 financial year was characterised

by the implementation of new regulations

for the financial industry, in particular the

Markets in Financial Instruments

Directive,

better known as MiFID II. The support

process and large sections of the form

management process had to be adapted as

part of the implementation.

A decline in trading activities on the part

of institutional investors could be observed

in general. Trading volumes in the Fixed

Income area fell considerably from €948.4

million in 2016 to €697.6 million in the

last financial year. This is very likely

connected with the Corporate Sector

Purchase Programme (CSPP), i.e. the

ECB's programme for acquiring corporate

bonds in the eurozone.

The team at Brüll Kallmus Bank made

efforts to broaden the customer base in

response to this. This included for instance

a specific investment focus and targeted

approach towards international customers

in the 2017 financial year beyond the

DACH region of Germany, Austria and

Switzerland. Apart from banks and

insurance companies, new business

relationships were also established and

intensified with international funds.

Bonded loans continue to be a popular

instrument as a funding format for private

placement as they are easy to manage and

implement, and this area is also expected

to continue to play a pivotal role in 2018.

BRÜLL KALLMUS Bank belongs to the

GRAWE banking group. All staff and

service divisions belonging to the banking

group are located within the parent

company HYPO-Bank Burgenland AG,

where they provide their services to the

banks in the GRAWE banking group.

Significant quality and cost synergies have

been realised in recent years as a result of

this consolidation.

Additional focus in 2017 was placed on the

provision of training and further training

courses for the staff. Numerous seminars

were attended with the aim of bolstering

___________________ Bankers since 1884

the company’s position as a market

specialist for illiquid bonds. Brüll Kallmus

Bank felt the need for further training

courses in the area of regulatory

requirements for banks and insurance

companies in order to be able to

understand better the needs of customers

and to be able to offer suitable products

and solutions.

Brüll Kallmus Bank constantly makes

great efforts to ensure that the standard of

training and professional development for

its employees is at a very high level. The

advanced professional skills and

qualifications of our employees, together

with their commitment and our regular

investment in training and development, all

mean that we can look forward to the

performance of our bank, both over the

coming financial year and over the longer

term, with a great deal of confidence. As at

31 December 2017, Brüll Kallmus Bank

employed

13 people. There are no research or

development activities.

General economic conditions

The global economic upswing continued in

the year under review. According to

current estimates by the International

Monetary Fund (January 2018), global

economic growth amounted to 3.7% in

2017. The eurozone also developed

strongly at 2.4%.

At the beginning of 2017, the IMF's

forecast for the eurozone was only 1.6%.

However, the positive overall picture

continues to be clouded by the

heterogeneity of the growth figures. As in

the previous year, Italy was the country in

the euro area that benefited least from the

global upturn, alongside Greece. In

addition, the new elections of the Italian

parliament scheduled for March 2018 pose

risks for the Italian government. The

uncertainties surrounding the sluggish

progress of the Brexit negotiations have so

far been felt primarily in the United

Kingdom. As a result of the depreciation of

the British pound, the inflation rate hit 3%

in September. This finally prompted the

Bank of England to raise the key interest

rate by 25 basis points to 0.5% in

November.

By contrast, the European Central Bank

(ECB) maintained its expansionary

monetary policy in the year under review.

The interest rates on the main refinancing

transactions as well as on the marginal

lending facility and the deposit facility

have remained unchanged over the year at

0.00%, 0.25% and -0.40% respectively. On

26 October, at the Council press

conference, the ECB announced that it

would extend the bond purchase

programme for at least nine more months

until the end of September 2018 or longer

if necessary, at a monthly amount of €30

billion.

The US economy got off to another

disappointing start to the new year with

growth of just under 0.3% in the first

quarter. In the second and third quarters,

however, the economy recovered by

around 0.75% each. For 2017 as a whole,

the IMF expects growth of 2.3%. The IMF

forecasts a further increase to 2.7% for

2018. Uncertainties remain in the forecast

regarding the effects of the US tax reform

on GDP growth. Although the decline in

the unemployment rate continued in the

year under review and was most recently

4.1%, wage development is recovering

only slowly after the particularly weak

year 2016. In the last measurement for

November, real wage increases for all

employees in the private sector fell to

0.3%, down from 0.5% in September and

0.4% in October. The strong domestic

demand thus had to be financed by an

increase in private sector debt.

___________________ Bankers since 1884

This pushed the total nominal household

debt to new highs in 2017. Despite low

inflation, the US Federal Reserve

continued the interest rate cycle that began

in December 2016 with three further hikes

of the key interest rate to 1.25 - 1.50%.

On average, the members of the Open

Market Committee are expected to raise

interest rates three more times in 2018. In

addition, the central bank began a gradual

reduction of its total assets in October.

This means that some expiring securities

from the central bank portfolio are now no

longer being replaced.

Japan was also affected by the global

upturn. However, the momentum is already

slowing down again. At 0.3%, GDP

growth in the third quarter was already

significantly lower than in the previous

quarter. While the country benefited from

international trends, private consumption

and domestic investment made negative

contributions to growth. The IMF expects

growth of 1.8% for 2017. According to

current forecasts, however, growth will fall

to 0.9% by 2019. At only 2.8%, the

unemployment rate is at a very low level,

which is why a labour shortage is already

emerging. It is know that Japan's economy

has been suffering for years from its ageing

population. Despite the tight labour

market, real wage growth has largely failed

to materialise. Despite the Bank of Japan's

unchanged expansionary monetary policy,

inflation remains low. Most recently, a rate

of price increase of 0.6% was measured in

November.

Austria's economy picked up considerable

momentum, particularly in the second half

of 2017, and is in a phase of particularly

strong upswing. According to current

estimates by the Oesterreichische

Nationalbank (OeNB), real economic

growth in 2017 will amount to 3.1%. In

that same forecast, growth in 2018 is also

expected to be a strong 2.8%. This

represents a significant increase over last

year's forecasts. Thanks to the global

upturn, Austria's exports increased

significantly. And domestic demand is also

developing strongly. The development of

investments is pleasing, with growth

exceeding 8% not only due to replacement

but also due to expansion motives.

However, these growth figures cannot

easily be maintained. In 2019, the latest

IMF forecasts expect the rise in growth to

weaken to 1.9%, and 1.6% in 2020.

According to Eurostat, the European

statistical authority, the Austrian

unemployment rate has recently fallen to

5.4%. At 2.2%, the inflation rate in 2017

was significantly higher than in the

previous year and again above the

eurozone average.

Capital market

In an environment of a globally

synchronised economic upswing and the

absence of drastic election decisions, the

capital markets were characterised by

exceptionally low volatility in 2017. Even

the dangerous saber rattling between North

Korea's Kim Jong Un and American

President Donald Trump did not unsettle

the stock markets. The S&P 500, which

comprises the 500 largest listed companies

in the USA, increased by almost 24% over

the course of the year, including dividend

income. It ended the year at 2673.61

points. After several largely disappointing

years, the equity markets of the emerging

markets also experienced a significant

upswing again. The MSCI Emerging

Markets Index, which comprises the equity

markets of the major emerging markets,

increased by 37.15% in the reporting

period. The DAX, Germany's leading

index, gained 12.5% in the course of the

year. It ended trading at 1,2917.64 points.

The ATX truly soared. With 3,420.14

points and an increase of 32.78%, it was

one of the strongest stock indices in the

world.

___________________ Bankers since 1884

By contrast, 2017 was a difficult year for

the bond market. The rise in yields on

German and US government bonds that

began in the second half of 2016 largely

continued in the year under review. In

view of the increased economic and

inflation data, yields on 10-year German

government bonds rose from 0.21% to

0.43%. This increase essentially took place

over the entire yield curve in the form of a

parallel shift. The resulting price losses

were hardly offset by the low interest

income. By contrast, government bonds

from peripheral countries benefited from

further declines in their credit spreads.

While 5-year CDSs on Italian government

bonds were still trading at 157.22 basis

points at the beginning of the year, these

fell to 117.37 in the course of the year.

Yields also rose in the USA during the

year. But unlike in Europe, there was no

parallel shift in the curve. Instead, yield

increases were concentrated on maturities

of one to seven years, which significantly

flattened the yield curve. A similar shift

could already be observed under Federal

Reserve President Greenspan when he

began to raise the US key interest rate step

by step in 2004.

The development of the exchange rate

between the European single currency and

the US dollar was of particular importance

in the year under review. After years of

dollar strength, the euro strengthened

significantly in view of the unexpectedly

strong economic growth of the eurozone.

While the exchange rate at the beginning

of 2017 was still 1.05, it was 1.20 at the

end of the year. After already rising

significantly against the British pound in

the previous year, the euro gained further

strength in 2017, increasing from 0.85 to

0.89. And the rise against the Japanese yen

from 122.97 to 135.28 also showed a

return of confidence in the eurozone.

Business development

Balance sheet

The total assets of Brüll Kallmus Bank AG

grew in the past financial year by €1.9

million (+7.0%) from €27.8 million to

€29.7 million. Loans and advances to

customers fell slightly from €553 thousand

to €464 thousand, while deposits from

customers rose by €264 thousand from

€129 thousand to €393 thousand. The item

Liabilities evidenced by certificates

comprises two of Brüll Kallmus Bank's

own issues and amounts to €9.3 million.

Liabilities evidenced by certificates

amounted to€ 6.4 million in the previous

year.

Eligible capital increased slightly by 2.8%

from €12.3 million to €12.7 million. A

€0.3 thousand increase was recorded for

the capital requirement to €1.7 million. As

such, the capital surplus amounts to €11.0

million.

The return on equity, which is calculated

from the ratio of the profit for the year

before taxes to the equity excluding

distributable profit before changes in

reserves, (ROE: 2017: 21.2%; 2016:

37.8%) fell by 16.6 percentage points on

the previous year’s level. The return on

assets, the ratio of the profit from ordinary

activities to the average total assets, fell in

the period from 17.6% in 2016 to 8.9% in

the 2017 financial year.

The return on capital employed is

calculated from the ratio of profit from

ordinary activities to capital requirements.

Given the lower level of capital employed

by Brüll Kallmus Bank AG to generate its

earnings for the year, the bank was able to

report a comparatively higher return on

capital employed of 152.2% for 2017.

___________________ Bankers since 1884

Income statement

In 2017, Brüll Kallmus Bank AG

generated profit from ordinary activities of

€2.5 million. Compared with the profit

from ordinary activities of the extremely

successful previous year, this equates to a

reduction of about €2.0 million or 43.9%.

In accordance with the object of the

company, most of the bank's income was

generated from fee and commission

business. With net fee and commission

income and net financial income of €7.0

million, the net profit generated was above

the historical annual average. Nevertheless,

despite this success the Bank is still

approx. €2.0 million or 22.2% below the

net fee and commission income and net

financial income from the previous year.

Personnel expenses fell by 7.3% as a result

of performance-related pay for the

extremely successful 2016 financial year,

and at €3.1 million were just below the

previous year’s value. Other administrative

expenses increased moderately by €344

thousand over the course of the year to

€1.8 million. Operating expenses rose

moderately by 2.2% to €4.9 million in

2017. Operating profit for 2017 amounted

to approx. €2.6 million, equating to a

42.8% reduction on the previous year.

Volume of client custody accounts

Client custody accounts amount as per 31

December 2017 to €133.4 million and

thereby increased by

€51.5 million when compared with the

previous year.

Proposed dividend

In the 2017 financial year, Brüll Kallmus

Bank AG generated a profit from ordinary

activities of €2.5 million and a

distributable profit of €2.7 million. After

an appropriate resolution has been passed

at the annual general meeting, the bank

will pay a dividend, which is expected to

be in the amount of €2.0 million, to its

owner Capital Bank – GRAWE Gruppe

AG.

Outlook

The IMF forecasts a further acceleration in

global growth to 3.9% in 2018 and 2019

compared with 2017, and economists

expect a significant growth increase to

2.7% in 2018, especially for the USA, also

due to the tax reform. The forecasts do not

predict another slight slowdown until

2019, when they expect a 2.5% drop. After

a particularly strong year in 2017, on the

other hand, Europe is expected to see a

slowdown again in 2018. After 2.4% in the

reporting year, the estimates for 2018 and

2019 are 2.2% and 2.0% respectively. The

trend in Italy, which will continue to bring

up the rear in the eurozone in the coming

years, remains a cause for concern.

Starting at 1.6%, the forecast for 2018 is

1.4%. A further decline in economic

growth to 1.1% is expected for 2019.

Nevertheless, risk premiums on Italian

government bonds have returned to pre-

crisis levels. A further increase in

financing costs in Italy could therefore

once again be a test for the country. France

is one of the few countries in the eurozone

that can look forward to a slight

acceleration in the economy in 2018.

Starting at 1.8%, French gross domestic

product was able to increase by 1.9% in

each of the following two years. The

emerging markets are also strong. For the

first time in years, the IMF forecasts do not

predict a recession for any of the countries

listed in the economic report. In 2016,

4.4% in 2016 and 4.7% in 2017, the

current estimates for 2018 and 2019 are

4.9% and 5.0% respectively.

A key component of the business operated

by Brüll Kallmus Bank AG is to monitor

and assess bond markets and then to take

the right decisions when responding to

changes in these markets.

___________________ Bankers since 1884

Persistently low interest rates continue to

make it difficult for institutional investors

to generate attractive returns. The

prevailing volatilities are low and the

volumes traded on the market are also

comparatively low. The current situation

on the bond markets can therefore be

described as strained with respect to Brüll

Kallmus Bank's business model. Brüll

Kallmus Bank is, however, also well

positioned for these situations, and has

shown in the past that it can succeed in

these types of market phases. We are

convinced that attractive opportunities will

continue to be presented by the secondary

markets business in 2018 and it will be

important to make the most of these

opportunities.

The goal is to continue to grow the number

of regular customers of Brüll Kallmus

Bank in the DACH region of Germany,

Austria and Switzerland, and beyond. For

this reason, in addition to banks and

insurance companies, approaches are also

being made to a greater extent to

institutional customers with a specific

focus on investment.

In addition to market trends, Brüll Kallmus

Bank AG will also need to keep a careful

watch on regulatory changes. We are

therefore very closely monitoring draft

legislation that is currently being discussed

at European and national levels and that

will have an impact on the business model

of the bank and its customers in order to be

able to make sound decisions also in

future.

Events after the balance sheet date

There have been no significant or

consequently reportable transactions or

events since the balance sheet date.

Risk report of Brüll

Kallmus Bank AG

Brüll Kallmus Bank AG is the member of

the HYPO-BANK BURGENLAND

Aktiengesellschaft banking group

specialising in institutional clients.

At Brüll Kallmus Bank AG, risk

management is defined as a process (based

on a division of labour) for identifying,

measuring, monitoring and managing risks

defined in the GRAWE Banking Group. A

risk management system with an

appropriate level of quality is seen as a

significant factor if the required growth of

the business is to be successfully sustained

over the long term. The risk-policy

principles, responsibilities as well as

control principles are enshrined in the

GRAWE banking group’s risk

management. The responsibilities are

clearly regulated in terms of content and

function.

The objectives in the risk management unit

are to identify, quantify and actively

manage all the risks arising in connection

with banking operations (credit risk,

market risk, interest-rate risk, liquidity risk

and operational risk). Brüll Kallmus Bank

AG is a wholly owned subsidiary of

Capital Bank – GRAWE Gruppe AG and

is integrated as part of the banking group

of HYPO-BANK BURGENLAND

Aktiengesellschaft. Pursuant to the

provisions set out in section 30 (7) of the

BWG, HYPO-Bank Burgenland

Aktiengesellschaft is required as the parent

bank to satisfy the ICAAP provisions. The

entities included in the ICAAP

consolidation for HYPO-Bank Burgenland

AG comprise Bankhaus Schelhammer &

Schattera AG incl. subsidiaries, Capital

Bank incl. subsidiary banks (among them

Brüll Kallmus Bank AG), Bank

Burgenland Leasing, as well as

Sopron Bank as a banking subsidiary based

in another EU country. The risk strategy in

the GRAWE Banking Group is to take on

___________________ Bankers since 1884

standard banking risks within a defined

framework and to exploit the resulting

potential returns. To this end, a risk

management system has been set up in the

GRAWE Banking Group. This system

forms the foundation for strategic bank

management based on risk and returns, and

therefore promotes selective growth.

At Brüll Kallmus Bank AG, risk

management is a central function that takes

into account the regulatory framework

based on the Austrian Banking Act

(BWG), the CRR, as well as various

policies and guidelines, along with the

nature, scope and complexity of the

transactions specific to the bank and the

resulting risks to which the bank is

exposed. The risk management system at

Brüll Kallmus Bank AG is integrated into

the risk management cycle managed by the

GRAWE Banking Group.

Risk management is defined as a process

(based on a division of labour) for

identifying, measuring, monitoring and

managing various risks. The basis for risk

management in the GRAWE Banking

Group is a strict segregation between front

office and back office functions. The

various risk management functions are

brought together under the member of the

Management Board responsible for risk

management. The activities of the risk

management units are conducted in

accordance with the risk policy guidelines

laid down by the Management Board.

These guidelines specify how risks are to

be managed and how they are to be

monitored competently and in a timely

manner in conjunction with the individual

corporate units and the independent risk

function. In application of the principle of

proportionality, the organisation of risk

management reflects – both qualitatively

and quantitatively – internal requirements,

the business activities involved, the bank's

strategy and the risk situation.

Organisationally, the risk management

system is located at the GRAWE Banking

Group level and is also implemented for

the subsidiaries under the responsibility of

HYPO-Bank Burgenland

Aktiengesellschaft. The responsibilities of

the risk management unit at Brüll Kallmus

Bank AG include the management of

market risk, liquidity risk, credit risk and

operational risks, risk management for the

subsidiaries of Brüll Kallmus Bank AG as

well as overall control over the bank. The

implementation of Group risk management

for the banking group involves close

cooperation between the risk management

unit at HYPO-Bank Burgenland

Aktiengesellschaft and Brüll Kallmus

Bank AG.

Basic principles of risk

management

Risks at Brüll Kallmus Bank AG BANK

AG are controlled and managed through a

system of risk principles, risk measurement

procedures, limit structures and monitoring

processes.

A key underlying component of the risk

management process is the risk policy. The

risk policy forms part of the corporate

strategy, specifies the bank's risk appetite

and risk focus, and sets out the framework

within which the operational risk policy

targets are to be pursued. At Brüll Kallmus

Bank AG, the risk policy is determined by

the Management Board taking into account

the Group's developments and policies. It

covers the planned development of the

business as a whole from a number of

different dimensions, specifies limits for

relevant risks and restricts concentration

risk.

The risk policy principles represent a

further component of the basic principles

of risk management. The following risk

policy principles have been specified as

applicable throughout the Group:

___________________ Bankers since 1884

The Management Board and all

employees must act in accordance

with the risk policy principles and

must make decisions in compliance

with these guidelines.

In order to achieve the desired balance

of risks and returns, the individual

business divisions must be limited by

means of risk and/or volume

specifications taking into account the

risk-bearing capacity of the bank.

The methods used for assessing and

measuring risk must be structured and

applied according to the scope,

complexity and risk content of the

transactions involved in each case.

The systems must cover not only the

risk arising from trading business but

also any risk arising from an analysis

of the bank's activities as a whole. The

selection of methods should be

flexible to permit sensible further

development in the future.

To ensure a consistent and coherent

risk management process, standardised

methods must be used for assessing

and limiting risk.

As part of the risk management

system, a suitable system of limits

must be implemented and

continuously monitored. The overall

bank limits must be used to derive and

specify limit systems both for the

individual sub-risks and also for the

individual subsidiaries. The specified

risk limits must be based on the

potential risk cover. However, the

entire potential risk cover must not be

used up in connection with the

measured risks; a proportion must be

held in reserve for exceptional

circumstances and other risks that

have not been measured.

Risk management and control

processes reflect the statutory

requirements currently applicable and

are adjusted in line with changing

conditions. The risk management

performance indicators are also

included in a system for strategic bank

management.

In the case of significant types of risk

that may jeopardise the bank as a

going concern, the bank will

endeavour to put in place a risk

management system that is at least

similar to that in comparable banks in

terms of structure and volumes (best

practice principle).

Responsibility for risk management

lies at GRAWE Banking Group level.

In addition, every employee is

encouraged to identify potential risk

and initiate appropriate corrective

action.

The organisation of risk management

is subject to the principle of

segregation of functions between front

office and back office and must ensure

that conflicts of interest are prevented

at all decision-making levels.

For the purposes of ongoing risk

management, regular reports on the

risk situation must be submitted to the

Management Board and to the

decision-making committees at Group

and individual bank levels. The

relevant organisational units are

responsible for risk documentation and

reporting.

___________________ Bankers since 1884

Another key component of the risk

management system is the product

approval process, which is applied when

the bank launches new products or

ventures into new markets. Brüll Kallmus

Bank AG generally only takes on

exposures in those areas of business in

which it has appropriate professional

knowledge or relevant experts and in

which it can assess the specific risks

involved and carry out suitable monitoring.

When moving into new business areas or

products, a key prerequisite is therefore a

suitable analysis of the risks specific to the

business concerned. To this end, Brüll

Kallmus Bank AG has set up a product

approval process, which comprises defined

rules and regulations for the organisation

of the procedures involved. The process

determines the procedures to be followed

for issues, investments in new products and

entry into new markets or areas of

business. When the process is implemented

it identifies the main opportunities and

risks, which then serve as a basis for

decision-making.

___________________ Bankers since 1884

Risk management

In order to ensure there is a

comprehensive, coordinated risk

management system, the bank has drawn

up an overall bank risk strategy and uses

an overall bank risk manual together with

service and work instructions as a

documentation basis; it has also specified

risk limits.

The overall bank risk strategy first defines

general principles for risk management

(basic principles, risk management

process, organisation, etc.) and then set out

risk strategies for each risk category. The

objective of the risk manual is to meet the

statutory and the business management

requirements in respect of risk

management. It provides support in the

systematic handling of risk and enables

employees and managers to systematically

address the individual components of risk

management. The service and work

instructions, like the risk manual, have the

objective of informing employees about

special (risk) topics and their management

in greater detail. In contrast to the risk

manual, they are extremely detailed and

are mostly restricted to specific individual

topics.

The risk limits are defined at least once a

year on the basis of the risk-bearing

capacity calculation. Compliance with risk

limits is continuously monitored and

regularly reported to senior managers. If a

limit is exceeded, limitation measures are

to be decided upon in cooperation with the

management board and the respective area

head in accordance with the respective

risk.

The main tool used for risk management at

Brüll Kallmus Bank AG is the calculation

of risk-bearing capacity. In this calculation,

the key risk figures from the individual

types of risk are aggregated into an overall

potential loss from the assumption of risk

and compared against the cover assets

(earnings, reserves, equity) available to be

set against these potential losses. The aim

of this comparison is to determine the

extent to which the bank is able to sustain

any unexpected losses (risk-bearing

capacity). According to the risk-bearing

capacity calculation, the goal is to ensure

the certainty of the bank’s continued

existence. The Management Board decides

on the overall risk strategy, which includes

the allocation of the potential risk cover to

the individual risk categories. The

calculation of the risk-bearing capacity acts

as a brake on all risky activities within the

GRAWE Banking Group. The risk-bearing

capacity is calculated quarterly at Group

level and on an individual basis for all

banks in the GRAWE banking group. Risk

positions are also constantly monitored in

order to be able to take ad-hoc risk-

minimising steps when discrepancies arise.

Risk-bearing capacity is calculated using

two methods: the gone concern approach,

which focuses on protection for creditors,

and the going-concern approach, which

takes as its basis the need to ensure the

problem-free continuation of the bank as a

going concern.

Under the gone concern approach, the

capital available to the GRAWE Banking

Group for dealing with risks is the equity

composed of the tier 1 capital, reserves and

the supplementary capital, including from

the profit already generated by the key

date. Under the going concern approach

the forecast value is taken into account in

determining the risk coverage potential

instead of the results already achieved. The

methodology used for calculating the risks

varies depending on the risk category and

the selected analysis method. Credit risk

(incl. consideration of risks from loans in

foreign currencies and country risks),

market risks in the banking book (incl.

credit spread risks), operational risk,

liquidity risk, investment risk, real estate

risk and other types of risk as well as the

macroeconomic risk are all taken into

account with this. To determine the overall

___________________ Bankers since 1884

risk, the individual types of risk are

aggregated without factoring in any

adjustment for the effects of correlation

between the types of risk.

During 2017, the bank at all times took

into account the mandatory reconciliation

process between the quantified potential

risk and the risk coverage potential

available to the bank. Calculations based

on stress scenarios are also applied in order

to assess the risks that could arise from

extreme market volatility.

Management of special types of

risk

As part of the overall management of the

risks faced by the bank, Brüll Kallmus

Bank AG makes a distinction between

market risk, credit risk, liquidity risk,

operational risk and a group of other risks.

Due to the bank’s focus of operations,

significant risks are particularly to be

found in the area of credit, market,

operating and legal risks, which, within the

framework of the monitoring and

management process assume particular

importance.

Market risk

Market risk refers to potential losses that

could arise from adverse changes in the

market value of exposures as a result of

changes in exchange rates (currency risk),

share prices, indices and fund prices

(equity risk), credit spreads (spread risk)

and volatility (volatility risk). Risk

exposures affected by market risk arise

either in connection with client

transactions or as a result of the conscious

inclusion of such exposures in the bank's

own portfolio. The main risk factors within

the scope of market risk include interest-

rate risk, currency risk, price risk related to

variable-yield securities and price risk

related to interest-bearing securities caused

by credit spreads.

Market risk is managed by Group

Treasury, the assets and liabilities

committee, the capital markets committee

and by the risk management unit, which is

responsible for identifying, measuring,

monitoring and managing market risk in

the trading book and banking book. A key

feature of the organisation of treasury

activities is the segregation of front office

and back office functions. The bank may

only take on market risk within existing

limits and only in respect of authorised

products. These limits are specified

annually by the Management Board and

the Supervisory Board taking into account

the risk-bearing capacity of the bank and

the limits specified for the Group. Key

factors used in developing the limit

structure are the desired degree of

diversification in the portfolio and the

trading strategy. The limits include country

limits in addition to volume and exposure

limits.

The bank may only conduct investments

on its own account within defined limits.

These limits are monitored continuously in

accordance with the risk management

guidelines for treasury investments. To all

intents and purposes, currency risk is

effectively eliminated at Brüll Kallmus

Bank AG by means of currency-matched

funding and the use of foreign exchange

derivatives.

At Brüll Kallmus Bank AG, interest-rate

risk is defined as the risk of fluctuations in

the price of interest-bearing securities,

arising in turn from changes in capital

market interest rates. Interest-rate risk is

managed by Group Treasury and the assets

and liabilities committee, which manage

the interest-rate structure taking into

account the risks involved. On the basis of

interest-rate risk statistics from the

Austrian National Bank (OeNB), it is

possible to state that interest-rate risk at

CAPITAL BANK – GRAWE GRUPPE

AG is at a low level compared with the

___________________ Bankers since 1884

regulatory threshold of 20% of eligible

capital.

Operational risk

At Brüll Kallmus Bank AG, operational

risk is defined in the same way as in the

statutory provisions as the risk of

unexpected losses caused by the

inadequacies or failure of internal

procedures, people or systems, or by

external events, and includes legal risk. A

more detailed and then aggregated

measurement and management of risk

should therefore be applied, for example,

to breakdowns in IT systems, damage to

property, processing failures, fraud, natural

or other disasters and changes in the

external environment.

Such risks must be classified according to

the cause of the risk so that operational risk

can be identified and analysed with

precision. The purpose of risk categories is

to help the bank to analyse the size, cause

and impact of operational events that

occur. Self-assessments are also used to

support the process of ascertaining the

potential risk. Loss events are recorded in a

separate database on an ongoing basis.

Additional risk information can be

obtained from various risk indicators, such

as the number and duration of system

breakdowns, findings from internal audits

(process risks) and the frequency of

complaints and claims against the bank.

The principal concern of risk management

is to find an answer to the question as to

whether and how an existing risk can be

mitigated. The task of risk management is

therefore to search for solution options and

possible corrective action. The task is

carried out by the department responsible

for the risk, generally in collaboration with

the Internal Audit and Organisation units.

The management of operational risk at

Brüll Kallmus Bank AG BANK AG is the

responsibility of the risk management unit.

The duties of the unit include classifying

the risks, drawing up standard guidelines

for use throughout the Group, managing

the operational risk database, analysing

loss events and preparing reports for the

Management Board and various

committees. Based on the standards

applicable throughout the Group, loss

events related to operational risk are

assembled in one database. This database

can then be used as a basis for identifying

weaknesses in systems and processes and

then for initiating appropriate corrective

action.

The systems and structures used by Brüll

Kallmus Bank AG to minimise operational

risk also include internal control systems

(including control systems managed by

Internal Audit), clearly documented

internal guidelines (work instructions),

segregation of functions, the principle of

double-checking by a second person,

allocation and limitation of decision-

making authority, together with an ongoing

process of training and professional

development (personnel development) to

ensure that employees have the requisite

skills and qualifications, which they then

continue to enhance. These internal

management and control measures

integrated into the business processes are

intended to ensure that there is an

appropriate, acceptable level of risk within

the bank.

Within operational risk, legal risk is of

particular importance because it is one of

the main types of risk that can arise as a

result of the business activities undertaken

by Brüll Kallmus Bank AG. To mitigate

this risk, the bank carries out a product

approval process when introducing new

products or areas of business and, if

necessary, brings in external advisers. A

key component of the product approval

process is an appropriate analysis of the

risks specific to the business concerned.

Brüll Kallmus Bank AG uses the Basic

Indicator Approach to determine its capital

adequacy for operational risk in

accordance with Basel III.

___________________ Bankers since 1884

Credit risk

The most important risk within credit risk

at Brüll Kallmus Bank AG is settlement

risk. Settlement risk is defined as the risk

that one of the counterparties may not meet

his or her payment or delivery obligations

on the settlement date for a transaction.

Brüll Kallmus Bank AG has laid down

strict guidelines for the approval of

counterparties in order to minimise this

risk. The acceptance of new trade partners

is the responsibility of risk management,

which checks and approves the trade

partners in accordance with internal

criteria. The persons involved in the trade

are also under an obligation to apply the

principle of "delivery versus payment"

settlement to mitigate the risk. At Brüll

Kallmus Bank AG, credit risk arises

primarily in connection with trading in

bonds and promissory notes. Risks in this

area are reported to the risk committees on

an ongoing basis.

Investment and real estate risk

The investment risk represents a special

form of credit risk and includes the risk of

a need for depreciation or write down of

the carrying amount of the equity

investments. It describes the risk that the

investments made may result in potential

losses (as a result of a lack of a dividend,

partial depreciation, losses made on sales

or a reduction in undisclosed reserves)

from equity provided, from profit-transfer

agreements (assumption of losses) or from

liability risks (e.g. letters of comfort). At

Brüll Kallmus Bank AG the term

investment risk only covers risks from so-

called equity investments similar to loans.

Risks from stocks, investment fund units

and other investment securities on the

other hand are stated under market risks.

Real estate and holdings risk form a

subordinate category of risk in Brüll

Kallmus Bank AG.

Liquidity risk

Liquidity risk encompasses both

insolvency risk and liquidity maturity

transformation risk. The aim of managing

liquidity risk is to ensure that the bank can

meet its payment obligations by the due

date at all times without having to incur

unacceptably high costs.

The group treasury function together with

cash pooling for the entire banking group

is the responsibility of Group Treasury at

HYPO-Bank Burgenland

Aktiengesellschaft. Liquidity risk is

managed centrally for the whole of the

banking group under the auspices of the

assets and liabilities committee, which

meets regularly.

Making provision for an unforeseeable

increased need for liquidity is guaranteed

through maintaining a sufficient portfolio

of liquid assets which can be used for

liquidity procurement at short notice. The

amount of the liquidity buffer is

determined based on the liquidity

simulations for various scenarios which are

regularly reported to the Management

Board. Brüll Kallmus Bank AG had

sufficient liquidity at its disposal at all

times in 2017 and was above the key

figures required under supervisory law at

all times.

Macroeconomic risk

Macroeconomic risk arises from an

economic deterioration as part of the

traditional economic cycle and a potential

increase in the accompanying risk

parameters. Macroeconomic risk is

factored into the bank's risk calculations so

that it would have sufficient aggregate risk

cover even after such a period of

deterioration without the need for massive

intervention and corrective measures. The

quantification of the risk assumes a

contraction in GDP which is then reflected

in a deterioration in default rates. Credit

risk is recalculated using these modified

___________________ Bankers since 1884

parameters and the difference compared

with the original credit risk represents the

macroeconomic risk.

Other risks

The main risks included within other risks

are business risk, strategic risk and also

reputational risk. These risks are factored

into the calculation of risk-bearing capacity

in the form of a capital buffer. Business

risk is defined as the risk of a loss from a

negative trend in the economic

environment and in the bank's business

relationships. Business risk may arise

primarily from a significant deterioration

in market conditions, from changes in the

competitive position or from changes in

client behaviour. This can lead to a

sustained fall in earnings and thus a

decrease in enterprise value.

The management of business risks lies within

the responsibility of the business units.

Strategic risk refers to the risk of losses

arising from decisions on the fundamental

direction and development of the bank's

business activities. In terms of attaining long-

term corporate objectives, the consequences

can be a range of problems from undesirable

developments to a complete failure to

achieve objectives. Responsibility for

strategic corporate management lies with the

Management Board of Brüll Kallmus Bank

AG.

___________________ Bankers since 1884

Summary and Outlook

At Brüll Kallmus Bank AG, suitable action

is taken to limit and minimise all material

risks. An analysis of risk-bearing capacity

is carried out in which all the measurable

risks throughout the whole of the bank are

aggregated. The measures to limit risk also

include a suitable limit system and the

calculation of different key risk indicators.

During 2018, Brüll Kallmus Bank AG will

continue its business activities in line with

its chosen risk strategy. One of the key

areas of focus in risk management

activities will be the ongoing further

development of risk methods, systems and

management in the GRAWE Banking

Group. In Brüll Kallmus Bank AG, risk

monitoring in the area of operational risks

will be placed at the centre of risk

management activities specifically due to

the business model it employs. In addition

to this focal area, the ongoing ICAAP and

ILAAP processes, capital guarantees, the

extension of documentation requirements,

the

internal control system and continuous

improvements to existing risk management

activities will all represent further tasks for

risk management. As in previous years,

dealing with the latest supervisory topics

will represent an important area in terms of

risk management activities. The focus in

2018 will also remain on developing

management tools, supporting the

professional development of employees

and ensuring continuous improvements in

internal risk quantification methods.

Graz, 2 March 2018

The Management Board

Mag. Constantin Veyder-Malberg Mag. Berthold Troiß, LL.M., Member of the Management Board Member of the Management Board

___________________ Bankers since 1884

BALANCE SHEET OF BRÜLL KALLMUS BANK

AG AS AT 31 DECEMBER 2017

Assets

31 Dec. 2017 31. Dec. 2016

EUR EUR TEUR TEUR

1. Cash in hand and balances at

central banks 99.945,56 100

2. Public-sector debt instruments

are eligible as collateral for central

bank funding 1.005.363,63 1.778

3. Loans and advances to banks

a) Repayable on demand 8.664.886,16 5.031

b) Other loans and advances 1.495.587,19 10.160.473,35 6.497 11.528

4. Loans and advances to customers 463.999,98 553

5. Bonds and other

fixed-income securities

from other issuers 5.228.111,80 6.777

6. Shares and other variable-yield securities 3.139.960,56 402

7. Equity investments 6.887,75 27

8. Intangible assets 25.744,28 0

9. Property and equipment 79.093,94 35

10. Other assets 9.420.565,17 6.427

11. Prepaid expenses 57.466,29 68

12. Deferred tax assets 40.566,20 80

29.728.178,51 27.775

Below-the-line items

1. Foreign assets 14.717.305,76 11.673

___________________ Bankers since 1884

Equity and liabilities

31 Dec. 2017 31. Dec. 2016

EUR EUR TEUR TEUR

1. Deposits from customers

Other deposits

Repayable on demand 393.325,75 129

2. 9.250.777,85 6.380

3. Other liabilities 3.495.269,59 3.011

4. Prepaid expenses 47.567,84 73

5. Provisions

a) Provisions for severance 290.662,23 210

b) Tax provision 0,00 0

c) Other 1.532.638,90 1.823.301,13 2.281 2.491

6. Subscribed capital 6.000.000,00 6.000

7. Capital reserves

a) Non-distributable (share premium) 1.335.268,14 1.335

b) Distributable 1.000.000,00 2.335.268,14 1.000 2.335

8. Retained earnings

a) Legal reserve 14.534,57 14

b) Other reserves 2.294.674,74 2.309.209,31 2.295 2.309

9. Liability reserve pursuant to Section 57 (5) BWG 1.355.522,55 1.356

10. Distributable profit

a) Profit brought forward 690.647,43 315

b) Net profit for the year 2.027.288,92 2.717.936,35 3.376 3.691

29.728.178,51 27.775

Below-the-line items

1. Credit risks 0,00 0

2. Eligible capital pursuant to part 2 of

EU Regulation No. 575/2013 12.664.903,15 12.314

of which: Supplementary capital pursuant to Part 2 Title I

Chapter 4 of EU Regulation No. 575/2013: €0 THOUSAND).

3. Capital requirements as per Article 92 of

EU Regulation no. 575/2013 (Total risk amount) 18.074.900,34 16.687

of which: Capital requirements pursuant to Article 92

Paragraph 1 (a) to (c) of EU Regulation 575/2013:

a) Common Equity Tier 1 capital ratio 70,1% 73,8%

b) Tier 1 capital ratio 70,1% 73,8%

c) Total capital ratio 70,1% 73,8%

4. Foreign liabilities 9.250.777,85 6.380

Liabilities evidenced by certificates

___________________ Bankers since 1884

INCOME STATEMENT AS AT 31 DECEMBER 2017

2017 2016

EUR EUR TEUR TEUR

1. Interest and similar income 137.026,98 216

of which: from fixed-income securities 127.510,68 195

2. Interest and similar expenses -4.938,63 1-

I. NET INTEREST INCOME 132.088,35 215

3. Income from securities and equity investments 72.158,32 45

Income from variable-yield securities 72.158,32 23

Income from equity investments - 22

4. Fee and commission income 7.418.001,25 9.078

5. Fee and commission expenses -379.693,60 48-

6. Income/expenses from financial operations -16.380,88 1-

7. Other operating income 267.400,36 15

II. OPERATING INCOME 7.493.573,80 9.305

8. General and administrative expenses

a) Personnel expenses

aa) Wages and salaries -2.697.471,41 2.980-

bb) Statutory social -228.519,70 247-

security contributions,

mandatory and other

contributions linked to pay

cc) Other social security expenses -8.249,88 9-

dd) Post-employment and other -43.080,52 21-

employee benefit costs

ee) Severance payments -80.354,68 39-

and contributions to occupational

pension funds

-3.057.676,19 3.296-

b) Other administrative expenses

(expenses) -1.847.200,51 -4.904.876,70 1.503- 4.799-

9. Write-downs of assets

in asset item 7 -29.248,98 28-

10. Other operating expenses -993,28 1-

III. OPERATING EXPENSES -4.935.118,96 4.828-

IV. OPERATING PROFIT 2.558.454,84 4.477

11. Impairments on receivables and additions to

provisions for contingent liabilities and credit risks (73.762,25) -

12. Income from the reversal of allowances from loans and advances

from provisions for contingent liabilities and credit risks 76.235,58 8

13. Write-downs of securities

measured as financial assets (22.700,00) -

14. Income from reversal

of write-downs of securities which are

measured as financial assets 10.121,50 56

V. PROFIT FROM ORDINARY

ACTIVITIES 2.548.349,67 4.541

15. Income tax -520.445,39 1.164-

16. Other taxes not reported under

item 12 -615,36 1-

VI. PROFIT FOR THE YEAR 2.027.288,92 3.376

17. Changes in reserves 0,00 -

VII. NET PROFIT FOR THE YEAR 2.027.288,92 3.376

18. Profit brought forward 690.647,43 315

VIII. DISTRIBUTABLE PROFIT 2.717.936,35 3.691

___________________ Bankers since 1884

CAPITAL AND CAPITAL REQUIREMENT IN € ’000 OF

BRÜLL KALLMUS BANK AG AS AT 31 DEC. 2017

2017 2016

Tier 1 capital 12.665 12.314

Subscribed capital 6.000 6.000

Capital reserve 2.335 2.335

Retained income 2.309 2.309

Liability reserve 1.356 1.356

Retained earnings 691 315

Intangible assets -26 -1

Supplemental elements (Tier 2) 0 0

Hidden reserves pursuant to Section 57 (1) BWG 0 0

Revaluation reserve 0 0

Deductions 0 0

Eligible capital 12.665 12.314

Risk amount for

Credit risk 3.607 1.897

Operational risk 14.468 14.790

Total risk amount 18.075 16.687

Total capital ratio 70,1% 73,8%

Tier 1 capital ratio 70,1% 73,8%

Common Equity Tier 1 capital ratio 70,1% 73,8%

___________________ Bankers since 1884

BRÜLL KALLMUS BANK AG STATEMENT OF

CHANGES IN EQUITY AS AT 31 DECEMBER 2017

in EUR As at

1 Jan. 2017 Additions Transfers Disposals

As at

31 Dec. 2017

Public-sector debt instruments 1.778.055,00 497.755,00 0,00 1.277.450,00 998.360,00

Loans and advances to banks (securities) 1.489.545,00 0,00 0,00 0,00 1.489.545,00

Bonds and other fixed-income securities 6.797.484,00 3.386.391,21 0,00 4.993.251,21 5.190.624,00

Equity investments 26.800,00 2.787,75 0,00 0,00 29.587,75

Intangible assets 613,44 30.750,00 0,00 0,00 31.363,44

Property and equipment 148.807,61 65.556,71 0,00 0,00 214.364,32

Low-value assets 0,00 2.792,26 0,00 2.792,26 0,00

Total fixed assets 10.241.305,05 3.986.032,93 0,00 6.273.493,47 7.953.844,51

Cost

in EUR As at

1 Jan. 2017 Additions Write-ups Transfers Disposals

Appreciation,

amortisation and

write-downs

current year

As at

31 Dec. 2017

Public-sector debt instruments 28.181,07 1.704,14 0,00 0,00 29.695,00 0,00 190,21

Loans and advances to banks (securities) 56,48 0,00 0,00 0,00 0,00 0,00 56,48

Bonds and other fixed-income securities 104.641,74 8.017,60 0,00 0,00 106.860,00 0,00 5.799,34

Equity investments 0,00 22.700,00 0,00 0,00 0,00 0,00 22.700,00

Intangible assets 289,68 5.329,48 0,00 0,00 0,00 0,00 5.619,16

Property and equipment 114.143,14 21.127,24 0,00 0,00 0,00 0,00 135.270,38

Low-value assets 0,00 2.792,26 0,00 0,00 2.792,26 0,00 0,00

Total fixed assets 247.312,11 61.670,72 0,00 0,00 139.347,26 0,00 169.635,57

Cumulative depreciation,

amortisation and write-downs

in EUR Carrying amount

1 Jan. 2017

Carrying amount

31 Dec. 2017

Public-sector debt instruments 1.749.873,93 998.169,79

Loans and advances to banks (securities) 1.489.488,52 1.489.488,52

Bonds and other fixed-income securities 6.692.842,26 5.184.824,66

Equity investments 26.800,00 6.887,75

Intangible assets 323,76 25.744,28

Property and equipment 34.664,47 79.093,94

Low-value assets 0,00 0,00

Total fixed assets 9.993.992,94 7.784.208,94

Net carrying amounts

___________________ Bankers since 1884

Notes to the annual financial

statements of Brüll Kallmus

Bank AG as at

31 December 2017

A. GENERAL

Brüll Kallmus Bank AG is a bank

established in accordance with the Austrian

Banking Act (BWG), specialising in

institutional clients.

Within the banking Group, HYPO-BANK

BURGENLAND Aktiengesellschaft

occupies the role of the superior credit

institute. CAPITAL BANK - GRAWE

GRUPPE AG was integrated by the Grazer

Wechselseitige Versicherung

Aktiengesellschaft into the HYPO

Aktiengesellschaft. Key subsidiaries of

Capital Bank - GRAWE GRUPPE AG

include Brüll Kallmus Bank AG and

Security Kapitalanlage Aktiengesellschaft.

The ultimate parent company that

prepares the consolidated financial

statements for the greatest number of

entities is GRAWE-

Vermögensverwaltung in Graz. The

consolidated financial statements are

published at the registered office of the

ultimate parent company. The parent

company that prepares the consolidated

financial statements as well as the

sustainability report for the banking group

of entities is HYPO-BANK

BURGENLAND Aktiengesellschaft,

Eisenstadt, Austria. The consolidated

financial statements together with the

sustainability report of HYPO-BANK

BURGENLAND Aktiengesellschaft are

submitted to the Eisenstadt regional court.

The comparative figures included in this

report are taken from the 2016 annual

financial statements and are shown in

parentheses. The balance sheet and the

income statement have been broken down

in accordance with the templates included

in annex 2 to section 43 of the BWG.

B. Accounting policies

The annual financial statements of Brüll

Kallmus Bank AG have been prepared in

accordance with generally accepted

accounting principles and the standard

requirement to provide a true and fair view

of the financial position and financial

performance of the company. In preparing

the annual financial statements the

principle of completeness has been

observed.

The company was assumed to be a going

concern for valuation purposes.

Assets and liabilities have been measured

individually. All identifiable risks and

impending losses that arose in 2017 or in

an earlier financial year have been

recognised in the financial statements.

The accounting and valuation methods

applied up until now have been retained.

As a result of application of the RÄG

2014, write-ups were generally applied if

the reasons for an unscheduled

depreciation ceased to exist or in the event

of an appreciation in value, with the

maximum value applied for the write-up

that represents the residual value with due

regard to consistent scheduled

depreciation. A tax write-up provision has

been formed pursuant to section 124b no.

___________________ Bankers since 1884

270 of the Income Tax Act (EStG) for the

write-ups not implemented by 31

December 2016. This is recognised as

deferred income in accordance with section

906 sub-section 32 UGB and will be

released in accordance with these tax

provisions.

The deferred taxes were recognised as at 1

January 2016 on account of the RÄG 2014.

The balance of deferred tax assets existing

as at 1 January 2016 was capitalised in full

and will be distributed in line with income

over 5 years by forming a deferred income

item pursuant to section 906 sub-section

33f UGB.

In accordance with the principle of

prudence, only those gains realised as at

the balance sheet date have been reported;

all identifiable risks and imminent losses

have been included.

The reference exchange rates published by

the ECB on 31 December 2017 (middle

rates) have been used for measuring loans

and advances and liabilities

denominated in a foreign currency.

Securities were measured at the lower of

cost or market (strict lower of cost or

market principle) regardless of whether

they are classified as fixed assets or current

assets. The bank has made use of the

option to amortise negative differences

between cost and settlement amounts on a

pro rata basis as permitted by section 56

(2) of the BWG. The criteria for

classifying securities as fixed assets was

the use of the securities for generating

returns over the long term and the

existence of restrictions on the use or sale

of the securities. The bank maintains a

trading book although, as in the previous

year, there were no securities in this

portfolio at year-end.

Fee and commission income is one of the

most crucial factors for success for Brüll

Kallmus Bank AG, and is composed of

securities transactions and the mediation of

bonded loans. Fee and commission income

from securities transactions is based on a

high number of transactions that are

processed with automatic bookings based

on manual system entries. Only those

profits realised as at the balance sheet are

stated in the current financial year in

accordance with the principles of proper

accounting.

Loans and advances to banks and

customers are generally carried at their

principal amounts. Appropriate specific

valuation allowances are recognised to take

into account all risks identifiable in the

lending business.

Equity investments have been valued at

procurement costs or, if applicable in the

event of permanent reduction in value, at

the lower value they held at the balance

sheet date.

Both intangible assets and office and

operating equipment have been valued at

procurement cost, reduced by their

scheduled depreciation rates. Depreciation

is recognised on a straight-line basis. Low-

value assets are written off in full in the

year of acquisition.

The depreciation rates amounted for

movable assets to between 10% to 33.3%

p.a. A full year's depreciation is recognised

for additions in the first half of the

financial year, but only half of a year's

depreciation for additions in the second

half of the financial year.

In accordance with statutory requirements,

the measurement of provisions takes into

account all identifiable risks and imminent

losses as well as the amount of contingent

liabilities. Long-term provisions are

recognised and discounted at their

settlement amount.

___________________ Bankers since 1884

The calculation of the provision for

severance obligations is based on

recognised actuarial principles using the

AVÖ 2008 – P Pagler & Pagler tables for

the calculation of pension insurance. The

obligations are determined using the

projected unit credit method. The

calculations are also based on a

pensionable age of 65 for men and 60 for

women. A long-term market discount rate

of 1.60% was applied (previous year:

1.55%). The salary increase trend used in

the calculations was 3.5% (previous year:

3.0%).

Actuarial gains and losses on non-current

personnel provisions are recognised in

profit and loss in the period in which they

arise. All changes are recorded in the

personnel expenses. No fluctuation

discount was taken into consideration in

calculating the long-term provisions for

personnel costs.

Liabilities evidenced by certificates include items for which the settlement

amount depends on the price of the defined

underlying instrument. Derivatives and

collateral instruments were, in accordance

with corporate law, accounted for in

valuation units that are formed between

underlying investments and liabilities

evidenced by certificates. The

effectiveness of the hedging relationship is

measured using the dollar offset method.

The formation of valuation units results in

the fact that the base investments and the

liabilities evidenced by certificates with

which the valuation units were formed are

accounted for at their fair market value.

The remaining liabilities are recognised at

their settlement amount.

Brüll Kallmus Bank AG forms part of a

corporate group as defined by section 9 of

the Austrian Corporation Tax Act (KStG).

The parent of this corporate group is

HYPO-BANK BURGENLAND

Aktiengesellschaft.

The disclosures pursuant to section 431 ff

CRR are the responsibility of the parent

bank HYPO-Bank Burgenland

Aktiengesellschaft.

C. Balance sheet disclosures

Fixed assets

The breakdown of fixed assets and the

changes in fixed assets over the year under

review are reported in the statement of

changes in fixed assets (see Annex 1 to the

Notes). As at the reporting date, the bank

held neither developed nor undeveloped

land as part of its property and equipment,

as was also the case in the previous year.

Securities

The bank's fixed assets as at 31 December

2017 included securities with a carrying

amount of €7.7 million (previous year:

€9.9 million).

The difference between the cost and higher

fair value for securities classified as fixed

assets amounted to €279 thousand

(previous year: €366 thousand). The

difference between the carrying amount

and the lower settlement amount for fixed-

income securities classified as fixed assets

amounted to €28 thousand

(previous year: €15 thousand).

Securities classified as fixed assets

(including pro rata interest) were included

in the following items:

- in A2 Public-sector debt instruments

in an amount of €1.0 million (previous

year: €1.8 million)

- in A3 Loans and advances to banks

in an amount of €1.5 million (previous

year: €1.5 million)

- in A5, Bonds and other fixed-income

securities

___________________ Bankers since 1884

in an amount of €5.2 million (previous

year: €6.8 million)

For further information please refer to the

attached statement of changes in fixed

assets (annex 1).

The items Bonds and other fixed-income

securities are comprised entirely of listed

securities in an amount of €5.2 million

(previous year: €6.8 million), of which

€1.0 million mature in 2018 (previous

year: €1.5 million). The Shares and other

variable-yield securities item consists in

total of non-publicly quoted securities.

Loans and advances to, and deposits from, banks and customers

Maturity structure

Loans and advances/deposits not

repayable on demand Loans and advances Deposits

Total for banks and customers (€ ’000)

31 Dec.

2017 31. Dec. 2016

31 Dec.

2017

31.Dec.

2016

up to 3 months 0 3,001 0 0

more than 3 months to 1 year 706 2,001 0 0

More than 1 year to 5 years 502 1,296 0 0

more than 5 years 745 745 0 0

Total 1,953 7,043 0 0

The item Loans and advances to banks

includes loans and advances to affiliated

banks amounting to €9,639 thousand

(previous year: €6,021 thousand).

Other assets in 2017 include a limited

partner's share amounting to €9,283

thousand (previous year: €6,425 thousand)

with a residual term of more than one year.

These involve an underlying investment

for liabilities evidenced by certificates.

The deferred tax assets amounting to

€40,566.20 (previous year: €80254.35

thousand) are predominantly made up of

deferred taxes from other long-term

provisions.

No deposits from banks existed at the

balance sheet date (previous year: €0

thousand).

The other liabilities essentially relate to

Group liabilities arising from tax-sharing

arrangements amounting to €1,415

thousand (previous year: €1,481 thousand)

with a term of less than one year and

liabilities to personnel amounting to €515

thousand (previous year: €269 thousand)

with a term of less than one year and

amounting to €1,291 thousand with a term

of up to 5 years (previous year:

€1,075 thousand).

The liabilities evidenced by certificates

form valuation units with limited partner’s

interests stated in Other assets (underlying

investments).

The deferred income includes deferred tax

liabilities in the amounts of €48 thousand

(previous year: €73 thousand).

Other provisions include mainly

provisions for other personnel expenditure

amounting to €1,278 thousand (previous

year: €1,731 thousand).

___________________ Bankers since 1884

The company's share capital remained

unchanged at €6.0 million and was divided

into 60,000 ordinary shares each with a

nominal value of €100.

The capital reserves result from payments

and deposits made by the shareholder.

The retained income of the company

encompass statutory and voluntary

reserves as well as profits generated in

previous years, reduced by dividend

disbursements.

D. Income statement disclosures

A breakdown of income by geographical

markets as required by section 64 (1) no. 9

of the BWG has not been included because

the geographical markets do not differ

materially from the location of the bank

organisation.

Fee and commission income represents the

most crucial factor for success for Brüll

Kallmus Bank AG at an amount of €7.4

million (previous year: €9.1 million). As in

the previous year, the commissions were

generated entirely from securities

transactions.

The Other operating income item largely

contains income from the release of

provisions in an amount of €266 thousand

(previous year: €13 thousand).

The Expenditure on severance payments

item contains expenditure on occupational

pension funds amounting to €21 thousand

(previous year: €17 thousand).

Obligations from the use of property and

equipment not reported in the balance

sheet:

Obligations 2018 (2017)

€ thousand 95 (95.0)

Obligations 2018–2022 (2017–2021)

€ thousand 527 (524.0)

Net income tax pursuant to section 237

no. 6b of the UGB attributable to the

current financial year amounted to

€521 thousand (previous year: €1,165

thousand).

Disclosure of the expenses incurred in

2016 for auditor fees has not been included

because these disclosures are published at

banking group level by HYPO-BANK

BURGENLAND AG.

E. Additional disclosures

At the balance sheet date, assets were held

in foreign currency amounting to €9,283

thousand (previous year: €6,425 thousand)

and equity and liabilities in foreign

currency amounting to €9,261 thousand

(previous year: €6,380 thousand).

Currency forward agreements were

measured using the rates published by the

ECB for the reporting date taking into

account the interest rates for the currencies

involved and the residual maturities.

Other assets includes a currency forward

agreement which is in a valuation unit with

the Bank's own issue and is recognised at

market value. The positive market value is

€10 thousand (previous year: €0 thousand)

with a nominal amount of €1,093 thousand

(previous year: €0 thousand).

The company’s total return on assets, the

quotient of the annual net profit after taxes

divided by the total assets on the balance

sheet date is 6.4% (previous year: 12.2%).

There were no material events after the

balance sheet date.

The Bank proposes that from the

distributable profit amounting to €2,718

thousand (2016: €3,691 thousand), a

dividend is distributed of €2,000 thousand

(2016: €3,000 thousand), and the

remaining amount is carried forward to

new account.

___________________ Bankers since 1884

F. Other disclosures

An average of 11 (previous year: 12) clerks

and no blue-collar workers were employed

in the 2017 financial year.

As at the balance sheet date, no advances

or loans had been made to members of the

Management Board or the Supervisory

Board.

The expenses for severance payments,

including additions to provisions, for

active members of the Management Board

and for other executives came to €100

thousand (previous year: €111 thousand),

and the equivalent expenses for other

employees were €37 thousand (previous

year: €38 thousand).

Regarding remuneration paid to the members

of the Management Board,

the details are not disclosed in application of

the option available under section 241 (4)

UGB. The members of the Supervisory Board

did not receive any remuneration during the

financial year under review.

Management Board

Mag. Constantin Veyder-Malberg

Chief Executive Officer

Mag. Berthold Troiß, LL.M.

Member of the Management Board

Supervisory Board

Christian Jauk, MBA MAS

Chairman of the Supervisory Board

Chairman of the Management Board of Capital Bank – GRAWE Gruppe AG

Chairman of the Management Board of HYPO-BANK BURGENLAND AG

Chairman of the Supervisory Board of Bankhaus Schelhammer & Schattera AG

DDIng. Mag. Dr. Günther Puchtler

Member of the Management Board of GRAWE Vermögensverwaltung

Deputy Chairman of the Supervisory Board

Dipl. Techn. Erik Venningdorf

Member of the Management Board of GRAWE Vermögensverwaltung

Member of the Supervisory Board

Dr. Franz Hörhager

Member of the Supervisory Board

Graz, 2 March 2018

The Management Board

Mag. Constantin Veyder-Malberg Mag. Berthold Troiß, LL.M., Member of the Management Board Member of the Management Board

Audit Certification

Report on the annual financial statements

Opinion

We have audited the accompanying financial statements, including the accounting system, of

Brüll Kallmus Bank AG

Graz,

consisting of the balance sheet as at 31 December 2017, the income statement for the

financial year ending at this reporting date, and the Notes.

In our opinion, which is based on the findings of our audit, the financial statements comply with

legal requirements and give a true and fair view of the financial position as at 31 December

2017 and of its financial performance for the financial year ending on said date, in agreement

with Austrian statutory company and banking regulations.

Basis for the audit opinion

We completed our audit in accordance with the EU Regulation No 537/2014 (hereinafter

referred to as the EU Regulation) and with the Austrian principles of orderly accounting. These

standards require application of the International Standards on Auditing (ISA). Our

responsibilities under these regulations and standards are described in further detail in the

‘Responsibilities of the auditor for auditing the annual financial statements’ section of our audit

certificate. We are independent of the company in accordance with Austrian company, banking

and professional laws and have fulfilled our other professional obligations in accordance with

these requirements. In our view, the audit evidence we obtained provides a satisfactory and

suitable basis for our audit opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most

significance in our audit of the annual financial statements for the financial year. These matters

were considered in association with our audit of the annual financial statements as a whole and

for the purposes of forming our audit assessment, and we do not give any separate audit

assessment on these matters.

Recognition of fee and commission income

The risk for the financial statements

The fee and commission income is stated in the income statement at an amount of €7.4 million

and thereby represents the most crucial factor for success for Brüll Kallmus Bank AG. The

commissions were generated entirely from securities transactions.

The Management Board describes the procedure for collecting fee and commission income in

the ‘Accounting policies’ section in the Notes to the financial statements.

Fee and commission income is based on the one hand a high number of transactions that are

processed with automatic bookings based on manual system entries. There are also transactions

for which fee and commission income is calculated and booked manually based on individual

customer agreements.

The risk for the financial statements arises from the operational risks in the determination and

recognition of fee and commission income in the correct period.

Our audit approach

We ascertained the process for recording transactions with respect to recognition in the correct

period and arithmetical accuracy of the fee and commission income as part of our audit. We also

ascertained the key controls and tested these in terms of their design, implementation and

effectiveness using random checks.

As part of our audit of the securities transactions recorded automatically we also employed the

services of an IT specialist to assess whether the functionality of the IT systems is appropriate

based on the IT applications used internally within the Bank. We audited the recognition with

the correct period and arithmetical accuracy of the fee and commission income booked manually

in test cases by inspecting documents.

Responsibility of the legal representatives and the Supervisory Board for the financial

statements

The management is responsible for preparing the annual financial statements and for the fact

that these provide a true and accurate picture of the company's financial and earnings position in

accordance with Austrian generally accepted accounting principles and statutory company and

banking requirements. The management is also responsible for the internal controls it deems

necessary in order to enable the preparation of annual financial statements that are free from

intentional or unintentional material misstatements.

When preparing the annual financial statements, the management of the company is responsible

for assessing the company's ability to continue its corporate activities as a going concern, for

stating any facts associated with continuing its corporate activities as a going concern as

relevant, and for applying the accounting principles to continuation of its corporate activities as

a going concern, unless the management of the company intends either to liquidate the company

or to discontinue its corporate activities, or has no other realistic alternative to this.

The Supervisory Board is responsible for monitoring the company's accounting process.

Responsibilities of the auditor for auditing the annual financial statements

Our objectives are to obtain sufficient certainty as to whether the annual financial statements as

a whole are free from material misstatements whether as a result of inaccuracy or through fraud,

and to award an audit certificate which contains our audit opinion. Adequate certainty is a high

degree of certainty, but not a guarantee, that any audit of the financial statements carried out in

accordance with the EU Regulation and in accordance with Austrian generally accepted auditing

standards will always reveal a material misrepresentation if one has been made. Misstatements

may be the result of fraud or a mistake and are considered to be material if either individually or

as a whole there could be a reasonable expectation that these will influence the economic and

financial decisions of readers made based on these annual financial statements.

As part of any audit in accordance with the EU Regulation and in accordance with Austrian

generally accepted auditing standards we exercise due diligence and maintain a critical approach

during the entire audit.

The following provisions also apply:

- We identify and assess the risks of intentional or unintentional material misstatements in the

financial statements, plan audit actions as a response to these risks, implement these and

obtain audit evidence that forms an adequate and appropriate basis for our audit opinion. The

risk that material misstatements resulting from fraudulent action will not be uncovered is

higher than those resulting from inaccuracies, as fraudulent action may involve fraudulent

collusion, forgeries, intentional incompleteness, misleading statements or bypassing of

internal controls.

- We gain an understanding of the internal control system relevant to the audit in order to plan

audit activities that are appropriate under the given circumstances. However, these activities

are not intended to represent a judgement of the effectiveness of the company’s internal

control system.

- We assess the appropriateness of the accounting methods applied by the company

management and the tenability of the estimated values provided by the company management

in the accounts and associated statements.

- We draw conclusions on the appropriateness of the application of the accounting principle of

continuation of the company's activities as a going concern by the company management, and

on whether there is any material uncertainty associated with events or facts which could raise

significant doubts regarding the company's ability to continue as a going concern based on

the audit evidence obtained. If we conclude that there is material uncertainty, we are under an

obligation to refer to the associated statements in the annual financial statements in our audit

certificate, or to amend our audit certificate if these statements are inappropriate. We draw

our conclusions based on the audit evidence obtained by the date of our audit certificate.

Future events or facts may result, however, in the company discontinuing its corporate

activities.

- We assess the overall presentation, structure and content of the annual financial statements,

including the notes, and judge whether the annual financial statements convey the underlying

transactions and events in a manner that provides a picture that is as true and accurate as

possible.

- We hold discussions with the Supervisory Board inter alia on the planned scope and schedule

for the statutory audit and on significant audit findings, including any significant defects in

the internal control system that we identify during our statutory audit.

Other statutory and legal requirements

Report on the Management Report

Pursuant to Austrian company law, the Management Report must be audited in order to review

whether it is consistent with the annual financial statements and whether it has been prepared in

accordance with the applicable legal requirements.

The company's management is responsible for preparing the Management Report in accordance

with Austrian company law.

We have carried out our audit in accordance with the professional principles and guidelines on

auditing the Management Report.

Opinion

In our opinion, the Management Report has been prepared in accordance with the applicable

legal requirements and is consistent with the annual financial statements.

Declaration

We have not identified any material misstatements in the Management Report based on the

findings from the audit of the annual financial statements and the understanding acquired of the

company and its environment.

Other information

The legal representatives are responsible for the other information. Other information includes

all information in the Annual Report, with the exception of the annual and consolidated financial

statements, the (Group) Management Report and the associated Audit Certificates. The Annual

Report is expected to be provided to us after the date of the Audit Certificate.

Our audit assessment on the annual financial statements does not cover this other information

and we will not be providing any type of warranty regarding this.

In association with our audit of the annual financial statements it is our responsibility to read

this other information once it is available and to determine whether it materially contradicts the

annual financial statements given the understanding obtained in the audit, or otherwise appears

to include material misrepresentations.

Additional information according to Article 10 EU Regulation

We were elected at the Annual General Meeting on 11 March 2016 to audit the financial

statements and were commissioned by the Supervisory Board with the audit of the financial

statements of Brüll Kallmus Bank AG on 24 February 2016. We have been elected the auditors

of the Bank's financial statements without interruption since the 2005 financial statements.

We hereby declare that the audit opinion in the section “Report on the Financial Statements” is

consistent with the additional report to the Supervisory Board pursuant to Article 11 of the EU

Regulation.

We declare that we have not provided any prohibited non-audit services (Article 5 (1) of the EU

Regulation) and that we have maintained our independence from the audited company in the

performance of the audit.

We have not performed any other services for the audited company or the company controlled

by it in addition to the audit of the financial statements that were not disclosed in the annual

financial statements or Management Report.

Vienna, 2 March 2018

KPMG Austria GmbH

Auditors and Tax Consultants