Landeskreditbank Baden-Württemberg - L-Bank

Contingency reserves
This item includes reserves for pensions and similar obligations (Item 7 a)), reserves for taxes (Item 7 b))
and other reserves (Item 7 c)). The amount to be accrued for our pension liabilities each year is the present value
of future payments computed by an actuarial method using a 6 % rate of discount.
The other reserves consist in large part of a reserve for interest subsidies (the entire amount required over
the course of a subsidized loan to cover the difference between the actual interest payable by the borrower and
the yield from a market based interest rate) to the extent not covered by funds supplied by Baden-Württemberg,
the Federal Republic of Germany or the European Union. On each interest payment date for any particular
subsidized loan, an amount equal to the subsidized portion of the interest, to the extent not taken into income
from deferred income, is debited from the reserve and credited to income under income Item 1 on the statement
of income. Expenses item “Allocations to reserves for interest rate reductions” on the statement of income
indicates the net cost of interest rate subsidies. See “—Deferred items” and “—Business—Reserves for Interest
Subsidies.”
The remaining amount of other reserves relates, among other things, to reserves for contingent liabilities
arising from export and other guaranties and from swap and other option transactions, and liabilities in
connection with an obligation to grant early retirement benefits to staff members.
Fund for general bank risks
Funds for General Banking Risks pursuant to Section 340g, German Commercial Code are counted as part
of core capital. Under that provision, banks may carry a special item called “Fund for general bank risks”
(Sonderposten für allgemeine Bankrisiken) on the liabilities side of their balance sheet for protection against
general banking risks. However, such a fund may only be established if, in accordance with reasonable
commercial judgment, the special risks inherent in the business of banks require the establishment of such a fund.
Any additions to the Fund for general bank risks or any profits derived from its dissolution must be reflected
separately in the bank’s income statement. See “—Regulation and Supervision of L-Bank in Germany—Capital
Adequacy Requirements.”
Equity
See “—Capitalization.”
Retained profit and reserves
We are not subject to any legal obligation or any obligation provided for in the L-Bank Statutes to establish
retained profit and reserves.
Contingent liabilities relating to negotiated cleared bills of exchange
This item includes contingent liabilities relating to negotiated cleared bills of exchange settled with
customers. It does not include liabilities in connection with instruments deposited with the Federal Central Bank
as collateral for the marginal lending facility or open market operations.
Liabilities relating to guaranties and indemnity agreements
This item includes contingent liabilities in respect of guaranties, credit default swaps, guaranties on bills of
exchange, check guaranties and indemnity agreements.
Depreciation and accumulated amortization on receivables and certain securities, together with allowances
for possible loan losses
This item represents depreciation and valuation adjustments on loans and certain securities in accordance
with Section 340f(3) German Commercial Code. See also “—Business—Loan and Securities Loss Reserves.”
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