19/03/2024 - Commerzbank AG: Annual Report 2023

• Commerzbank Annual Report 2023

Letter from the Chairman of the

Board of Managing Directors

Frankfurt/Main, March 2024

2023 was overshadowed by wars, political turbulence and economic uncertainty. Commerzbank had a very successful financial year despite this challenging environment. We continued to make great strides on the path we embarked on three years ago with "Strategy 2024".

We have now completed what is probably the most comprehensive restructuring in the Bank's history, including a gross reduction of almost 10,000 full-time equivalents and deep cuts in our branch network. This means we have achieved the core goals outlined in the "Strategy 2024" programme, bringing our cost base back to a competitive level. At the same time, last year saw us establish our new business model on the market.

We are an omnichannel bank for all customer groups. In our business with private and small-business customers, we offer the best possible service on all channels based on a clear two-brand strategy built around Commerzbank and comdirect. This is how we best meet the different needs of our almost 11 million private and business customers in Germany. We have optimised our digital offerings and successfully rolled out our advisory centre as a location-independent service to complement to our now significantly leaner, branch-based business. Our particularly wealthy customers have access to customised solutions tailored to their specific needs. In short, we have found a setup that works for modern banking in Germany.

In the corporate customer business, the focus is on meeting the needs of German corporate clients and international customers with links to Germany, Austria and Switzerland. The same applies to companies from the growth sectors of tomorrow, and holds equally true for institutional customers. Commerzbank is the leading Mittelstandsbank in Germany and recently regained its top ranking as the leading principal bank in the German Corporate Clients segment. With a well-established relationship management model for these customer groups and industries coupled with a global presence that covers all trade corridors relevant to the German economy, we will continue to expand our strong position in this segment. Like in the Private Customers segment, digital services also play a crucial role for corporate customers. With that in mind, we took targeted action to expand this offering last year. Our efforts had the desired effect, with two thirds of our corporate customers now using online channels - and the trend continues.

The figures speak for themselves: our strategy is working. In the 2023 financial year just ended, we earned more than we have earned at any time in the past 15 years, both in operating terms at €3.4bn, and in consolidated terms at €2.2bn. With a return on equity ratio (RoTE) of 7.7%, we have already reached the target set for 2024 a year earlier than planned. This was bolstered by the very dynamic performance on the earnings side, propped up not least by the interest rate trend. Parallel to this, we maintained our proven cost discipline and were able to improve the cost income ratio to 61% last year. This means that we are almost at the level originally targeted for 2024 for this important key

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• Letter from the Chairman of the Board of Managing Directors
  5 Board of Managing Directors
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1. Our share

figure. Loan loss provisions also developed favourably, finishing the year significantly lower than initially expected despite the high overall level of economic uncertainty and the weak economy in Germany. This is further evidence of the resilience of our customer business and the high quality of our loan book.

All in all, we can say that Commerzbank is doing well in its new setup. It is in very good shape, has returned to sustainable profitability in its operating business, and has a very solid balance sheet with a Core Tier 1 ratio of 14.7%. We want to further expand our focus as the bank for Germany - and do so across all channels. Our hard work over the past few years has significantly improved the conditions for us to remain a defining force in the German banking market.

Our successes are gaining increasing attention and recognition. Trust in Commerzbank is growing, both within the Bank, where a spirit of optimism is progressively emerging among our employees and managers, as well as outside it, where our reputation has made noticeable gains and where we are also receiving a lot of support from investors. This upward trajectory is further underlined by our return to the leading German share index, the DAX, at the beginning of last year and our solid ratings.

Based on our significantly improved profitability, not only are we in a position today to make the necessary investments for the future, but we once again have the financial strength for a dynamic distribution policy, through which we offer our shareholders an appropriate share in the Bank's success.

Last year, with a dividend of €0.20 per share and an initial share buyback programme amounting to €122m, we achieved a payout ratio of 30% of consolidated profit after deducting AT1 coupons. Now, as announced, we want to increase this ratio to 50% on the back of a significantly increased dividend payment compared to the previous year and an additional share buyback. The 2024 buyback programme of up to €600m, which was approved by the ECB and the German Finance Agency last December, started on 10 January. As already communicated, the Board of Managing Directors and Supervisory Board will propose to the Annual General Meeting on 30 April 2024 a dividend for the 2023 financial year of €0.35 per share for the remaining shares.

Dear shareholders, the fact that we are in a position to put all of this into practice is testament to Commerzbank's regained self-confidence and strength. This is due not least to the exceptional abilities and tireless commitment of our employees, who give their best day in, day out for Commerzbank and for our customers. I would like to take this opportunity to express my heartfelt thanks on behalf of the entire Board of Directors.

We have already accomplished a great deal together. But this is no time to rest on our laurels. Quite the contrary, Commerzbank is far from having reached its full potential. As we emerge from the tough restructuring of the past few years, supported by our new, sustainable and forward-looking business model, we have earned and created the opportunity to go back on the offensive. The updated strategy programme presented last autumn sets out how we intend to do this from now until 2027. Growth - Excellence - Responsibility: these are our strategic pillars for the years ahead.

We have devised a package of measures and initiatives we can apply to our excellent products and services to achieve profitable growth in our two customer segments. Above all, we want to increase commission income so we can become more independent of the interest rate environment. In addition, we will continue to streamline and digitalise our processes, maintain our strict cost discipline and use our capital efficiently.

In the Private and Small-Business Customers segment, Commerzbank's Asset and Wealth Management and comdirect will be our key drivers of growth. We also intend to further expand and optimise digital products and services for our customers. In the Corporate Clients segment, we will continue to expand our leading market position as a Mittelstandsbank, even faced with the current difficult economic environment, as we help to shape the sustainable restructuring of the German economy. As a solution provider, we want to actively support this transformation process and the associated financing needs with a comprehensive range of advice and products.

• Commerzbank Annual Report 2023

With our updated strategy communicated on 8 November 2023, we are sending a clear signal to the market and to the competition that we want to position ourselves as a defining force in the German banking market. We have also announced ambitious financial targets, combined with our clear and continuing aim to create value for our shareholders in the years ahead.

We aim to increase Commerzbank's net profit to €3.4b by 2027 and progressively improve the return on equity ratio (RoTE) to more than 11%. In this way the Bank will earn its cost of capital. The key performance indicator remains the cost income ratio, which we want to improve to around 55% by 2027. A target of 13.5% is set for the Core Tier 1 ratio. On this basis, the plan is to return more capital to shareholders in the coming years, with a payout ratio in excess of 50% planned for 2025-2027, albeit not exceeding the consolidated profit after deducting AT1 coupons. At the same time, we are keeping the pace of investment high: we will continue to make more than

one half a billion euros available per year for investments in expanding our business and in developing our own infrastructure and regulations.

In the current year, we want to inch closer to our medium-term goals - in spite of the expected slight recession in Germany, in spite of the ongoing inflationary pressure on our costs, and in spite of the fading tailwind from interest rates. With all due caution, we have decided to reduce the cost income ratio to around 60% and increase the return on equity ratio (RoTE) to 8%. The payout ratio for 2024 should be at least 70% as defined by the policy on returning capital, but not more than the consolidated profit after deducting AT1 coupons.

Dear shareholders, Commerzbank is back on the road to success. And just at the right time! Because now, more than ever, our customers need a strong, reliable partner by their side. Faced with the wars in Ukraine and in the Middle East, the climate crisis, the rise of the right-wing populists, budget crises, rising energy costs, inflation, recession, fear of creeping deindustrialisation; we are not turning a blind eye to all of this -- we are doing something about it. Our message is: Moving forward - and what better time than now! We want to encourage our customers to embrace the urgently needed green and digital transformation and give the tools they need to help them. We want to be an attractive employer for our employees that offers them a working environment to be entrepreneurial. And we want to fulfil our social responsibility by further advancing sustainable financing and investments.

We can say and do all of this because we are strong again. And because we know what we have to do to make sure things stay this way. We are firmly convinced that Commerzbank has what it takes to be the bank for Germany, to help shape the sustainable transformation of the economy together with its customers, and to continue the success story it has just begun - for the benefit of all of its stakeholders.

We would be delighted if you would continue to join us on this journey and put your trust in us.

Dr. Manfred Knof

Chairman of the Board of Managing Directors

• Commerzbank Annual Report 2023

Report of the Supervisory Board

Frankfurt/Main, March 2024

Commerzbank continued to consistently implement its strategy and transformation in the 2023 financial year, not only significantly developing the Bank's business model but also in large parts already achieving the targets it had set for 2024. With a successful 2023 financial year, Commerzbank is laying the foundations for its "Moving Forward" strategy, which aims at growth, excellence and responsibility. In addition to the financial results, it focuses on customer and employee satisfaction. The Bank has also created the prerequisites for further capital distributions to its shareholders. This is a commendable achievement for the Bank, given the political disruptions and ongoing uncertainties, as well as the associated geopolitical, business and economic dislocations.

The Supervisory Board advised the Board of Managing Directors and supervised and monitored its management as it tackled the multifaceted challenges of the 2023 financial year. The Board of Managing Directors reported to the Supervisory Board promptly, extensively and at regular intervals on the major developments at the Bank, including in the periods between meetings. The Supervisory Board received frequent and regular information on the Bank's business, economic and risk situation, the considerations relating to the Bank's strategic alignment, its corporate planning, its sustainability strategy, compliance and cyber risk issues, loan loss provisions and the Bank's risk strategy, and discussed these issues with the Board of Managing Directors. The Supervisory Board and its committees held a total of 42 meetings in the past financial year. Between meetings, the Chairman of the Supervisory Board was also continually in touch with the Chairman and other members of the Board of Managing Directors according to a set timetable and kept up to date with the current business progress, strategic considerations, the risk situation, risk management, compliance issues and major business transactions within both the Bank and the Group.

The Supervisory Board was involved in decisions of major importance for the Bank, giving its approval after extensive consultation and examination wherever required.

Meetings of the Supervisory Board

A total of ten Supervisory Board meetings (seven ordinary and three extraordinary meetings) were held during the past financial year. In preparation for these meetings, the shareholder representatives as well as the employee representatives on the Supervisory Board regularly held separate preparatory meetings. A

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• Letter from the Chairman of the Board of Managing Directors
  5 Board of Managing Directors
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1. Our share

particular focal point of the Supervisory Board's work was to monitor implementation of the "Strategy 2024" programme. The Supervisory Board therefore received reports on the Bank's strategic transformation on an ongoing basis. Another focus was on supporting the development of the "Moving Forward" strategy. The Supervisory Board was kept fully informed by the Board of Managing Directors about the ongoing development of the strategy and was involved in an advisory capacity. The Board of Managing Directors intensively discussed the Bank's new strategic direction with the Supervisory Board and separately with the shareholder and employee representatives during a total of two strategy days in 2023. Strategic issues were also regularly discussed in the meetings.

The Supervisory Board monitored the Bank's financial and business performance and risk situation closely. It also considered the consequences of the war in Ukraine for the Bank on an ongoing basis.

The Supervisory Board dealt intensively with personnel issues, in particular the appointment of a new member of the Board of Managing Directors. It also considered the composition of the Supervisory Board with respect to the shareholder representatives and submitted corresponding election proposals to the 2023 Annual General Meeting.

The Supervisory Board also dealt closely with matters at mBank during 2023, in particular the risks for Commerzbank arising from mBank's Swiss franc loan portfolio.

The focus of all ordinary meetings was the Bank's current business position, which the Supervisory Board discussed intensively with the Board of Managing Directors. The Supervisory Board considered in depth the financial and business performance of the Bank and its business segments, the risk situation, the strategy and its implementation status along with the strategic transformation, planning, compliance and tax issues, regulatory audits, the risk management system, the internal control system and cyber risks. The Supervisory Board regularly discussed a range of issues where the Board of Managing Directors was not present.

It subjected the reports of the Board of Managing Directors to analysis, in some cases requesting supplementary information, which the Board of Managing Directors provided. The Supervisory Board also received information on internal and official investigations into the Bank, asked questions regarding these and formed an opinion.

The meetings of the Supervisory Board and its committees, except for extraordinary meetings scheduled at short notice, were convened as face-to-face meetings, however virtual participation was always made possible via video conference.

Where resolutions were required between meetings or it helped to ensure efficient organisation of the Supervisory Board's work, the Supervisory Board adopted resolutions by way of circulars.

Where the Supervisory Board deemed it necessary, it brought in consultants to assist it in its activities.

The following specific topics were discussed at the Supervisory Board meetings:

At the extraordinary meeting on 12 January 2023, the shareholder representatives on the Supervisory Board nominated their candidates for proposal to the 2023 Annual General Meeting for election. In doing so, they took into account the skills and expertise profile and the suitability matrix for the Supervisory Board as well as the objectives adopted by the Supervisory Board for its own composition.

At the meeting on 15 February 2023, the Board of Managing Directors reported in detail on the current business situation and the progress made with the transformation, the preliminary results for the 2022 financial year and the results for the fourth quarter of 2022. Compliance and cyber security issues were discussed. The Board of Managing Directors presented the Bank's new brand campaign to the Supervisory Board. The findings of a commissioned market research study and the measures derived from this by the Board of Managing Directors were also discussed with the Supervisory Board. The Board of Managing Directors and Supervisory Board discussed the Bank's dividend policy, and the Supervisory Board approved the Bank's buyback of its own shares. In addition, the Supervisory Board dealt in its February meeting with the 2023 sub-risk strategies for credit, market, liquidity and operational risks as well as the cyber risk and information security strategy. The Supervisory Board agreed the variable remuneration for members of the Board of Managing Directors for the

• Commerzbank Annual Report 2023

2022 financial year. It also extended the appointment of Michael Kotzbauer to the Board of Managing Directors. Additionally, it addressed the Supervisory Board report, the declaration on corporate governance and the remuneration report for 2022. The results of the evaluation of the Board of Managing Directors and Supervisory Board, which had been carried out internally within the Bank, and of the Supervisory Board's self-assessment for the 2022 financial year were presented and discussed, and resulting measures were resolved. The Supervisory Board also declared its intention to elect me as Chairman of the Supervisory Board, provided I was elected by the 2023 Annual General Meeting.

At the accounts review meeting on 22 March 2023, the Supervisory Board approved the 2022 financial statements for the parent company and the Group following a report by the Board of Managing Directors, a recommendation from the Audit Committee and a discussion with the auditor. In this context, the auditor presented the results of its audits to the Supervisory Board and discussed them with the Supervisory Board. The Supervisory Board concurred with the recommendation made by the Board of Managing Directors on the appropriation of profit. The Supervisory Board considered the accounting process, the internal control system and the risk management system and discussed the assessments of the Board of Managing Directors and the auditor regarding their appropriateness and effectiveness. On the recommendation of the Audit Committee, the Supervisory Board determined that there were no objections to be raised with regard to the separate non- financial Group report under Art. 315b of the German Commercial Code (HGB) or the non-financial report under Art. 289b HGB, even after the final results of its own reviews. The Board of Managing Directors reported to the Supervisory Board on the current business situation and on developments relating to mBank. The Board of Managing Directors and Supervisory Board also discussed the Bank's strategic direction in detail. Human resources issues were discussed with the Supervisory Board as well. The Supervisory Board approved the notice and agenda for the 2023 Annual General Meeting as well as the proposed resolutions for the Annual General Meeting contained therein. The Supervisory Board approved Commerzbank AG's remuneration report under Art. 162 of the German Stock Corporation Act (AktG) for the 2022 financial year. The Board of Managing Directors reported to the Supervisory Board on the "Simply Simpler" project, which aims to contribute to the sustainable reduction of complexity at Commerzbank.

Following the Annual General Meeting on 31 May 2023, the Supervisory Board elected me as Chairman of the Supervisory Board and Uwe Tschäge as Deputy Chairman of the Supervisory Board at its constituent meeting on the same day, each for the duration of our respective terms of office as Supervisory Board members. The Supervisory Board also appointed the members of its committees. On the recommendation of the Audit Committee, the Supervisory Board determined the focal areas of the audit for 2023 and resolved to appoint KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG) to audit the non-financial report for the 2023 financial year.

At the extraordinary meeting on 20 June 2023, the Supervisory Board resolved to launch a new search to fill the position of Chief Risk Officer after Rüdiger Rass decided, following discussions with the banking supervisory authority and in agreement with the Board of Managing Directors and the Supervisory Board, that he was no longer available for this position and would instead continue to hold his previous position as Chief Credit Risk Officer of Commerzbank.

At the meeting on 6 July 2023, the Board of Managing Directors reported to the Supervisory Board on the current business situation, the status of the strategy process, the progress made with the transformation, the results of an internal management staff survey and compliance issues. Against the backdrop of the ruling of 5 June 2023 of the European Court of Justice (ECJ) on loans issued in foreign currencies, the Supervisory Board again discussed matters at mBank in detail - in particular the risks for Commerzbank arising from mBank's Swiss franc loan portfolio. The Board of Managing Directors also reported on the current status of the "Simply Simpler" project. The Board of Managing Directors and the Supervisory Board additionally discussed the target state and the alignment of Commerzbank's IT in detail. The Supervisory Board was consulted on the extension of the appointment of the Remuneration Officer. On the recommendation of the