Illustrative financial state- ments according to ARB · PDF fileIllustrative financial...

Illustrative financial state-ments according to ARB FINMA circ. 15/1 Accounting - banks Status: September 2015

New accounting rules for banks (ARB)

FINMA circ. 15/1 Accounting - banks - Illustrative financial statements according to the ARB - Status: September 2015 PwC 2


A practice-based example of reliable assessment statutory financial statements

Through its revision of the Banking Ordinance of 30 April 2014, the Federal Council has revised the accounting standards for banks. The results are contained in articles 25–42 and 69–70 of the Banking Ordinance and in the new FINMA circular 15/1 dated 27 March 2014.

What are the most important changes?

Additional requirements

1. Strict individual valuation: To date, collective valuation has been permitted in statutory single-entity financial state-ments. As previously for accounts prepared according to the ‘true and fair view’ principle, statutory single-entity financial statements will now require unrestricted individual valuation of participations, tangible fixed assets and intangible assets. This has to be implemented by 1 January 2020 at the latest. The shift from collective to individual valuation can have a sig-nificant impact on the bank’s capital in certain circumstances. 2. Broader obligations to consolidate: The consolidation requirements have been extended. Banks have to recognise all significant subsidiaries, including special-purpose entities, in their consolidated financial statements and not only partic-ipations in banks and entities in the financial services and real-estate industries. 3. Impairment of assets: Any value adjustments have to be deducted from the corresponding assets. It is no longer per-mitted to disclose total valuation adjustments under ‘Valuation adjustments and provisions’ in the liabilities. The complexity of these revisions should not be underestimated – and it will even increase because the valuation adjustments not only have to be deducted from the corresponding asset item but also classified according to a diverse set of criteria in the considerably expanded notes to the financial statements. There may well be some questions regarding interpretation in practice. Due to the increased effort needed for implementation, a longer transition period has been granted. In 2015 and 2016, banks may disclose valuation adjustments as a whole as a negative item (total or subtotal) in the assets. 4. Disclosure of own shares: Own shares shall be deducted (as a negative item) from the equity capital irrespective of the type of account closing process. 5. Equity-based compensation schemes: For the first time, rules have been defined for equity-based compensation schemes. According to the new regulations, share-based ‘real’ and ‘phantom’ equity instruments have to be valued at the fair value of the shares at the date they are awarded and recognised in the income statement over the vesting period. In addition, the general contractual terms and conditions, the fair value calculation principles and the expenses recognised in the result for the period have to be disclosed. There may be an impact on the equity capital or the result, depending on how such eq-uity-based compensation schemes have been treated to date. 6. Structure of the income statement: As a first step, the net result of interest operations now has to be disclosed. The next step is to consider the ‘Change in value adjustments for default risk and losses from interest operations’ as a separate item. The net result from interest operations follows on from the calculation of this change. This is a significant change from the current presentation because, to date, all changes in valuation adjustments were included after the ‘Net result’ sub-total. The disclosure of gross profit is no longer envisaged as part of the minimum structure, but is replaced by the new item named ‘Operating result’. This modifies a broadly recognised and often used key figure, which could mean that modifica-tions to internal goals as well as changes in other areas are needed. 7. New notes: The notes to the financial statements have been considerably expanded. The notes now comprise a total of 40 disclosures, which represents almost double the number of notes. The additions include, for example, the disclosure of structured products issued by the bank, the classification of assets by country rating as well as the disclosure of current and deferred taxes, including a weighted-average tax rate The numerous new disclosures and information require a correspond-ing database as part of the IT system; the implementation costs of this should not be underestimated. 8. Obligatory interim financial statements: Even smaller banks will have to publish interim financial statements. If the bank’s equity or debt securities are listed on a stock exchange, the interim financial statements must now comprise an additional statement of shareholders’ equity and abbreviated notes.



9. Prolonged amortisation period for goodwill shortened from 20 years to 10 years: Goodwill continues to be amortised over the estimated useful life - usually within five years of the acquisition date - and recognised in the income statement. The previous law allowed for a prolonged amortisation period of 20 years in justified cases, whereas the new reg-ulations permit a maximum prolongation of 10 years. These rules apply to new acquisitions made after the entry into force of the FINMA circular. Existing goodwill may continue to be amortised over the original period of up to 20 years and recog-nised in the income statement.

Relaxations

1. Cash flow statement: The flow of funds statement (now called the cash flow statement) is only required for financial statements according to the true and fair view principle. 2. ‘Consolidation discount’: The group able to benefit from the so-called consolidation discount has been widened. If a financial group prepares and publishes consolidated financial statements and a group management report, the consolidated banks – provided their equity securities are not listed – do not have to prepare a management report, a cash flow statement and various notes for single-entity financial statements. To date, this relaxation only applied to the single-entity financial statements of the consolidating bank (parent company).

What do you need to do?

The minimum structure of the balance sheet and the income statement will be selectively modified – which makes a modifi-cation of the chart of accounts necessary. In addition, other internal and external reports (e.g. SNB reporting, budget con-trolling, capital resources calculation, ALM, etc.) have to be checked for consistency, as these are often based on the charts of accounts for the financial reporting. For example, the balance sheet must now disclose as separate items the receivables and payables relating to securities financing operations as well as the positive and negative replacement values of derivative financial instruments.

The new accounting standards are valid for the financial year beginning on or after 1 January 2015. The amendments to the new accounting standards have been mitigated somewhat by the transitional provisions. Even if the first-time financial statements according to the new standards will be published only at the end of 2015, one must not underestimate either the changes or the actions that need to be taken due to the central importance of financial reporting for a bank.

We recommend performing an analysis as early as possible to determine the required revisions and the need for action at your bank. Below is a selection of topics you will need to address:

Strategic challenges

What impact do the accounting changes have on other aspects of management, e.g. goals, annual result, employee com-pensation, etc.?

What type of account closing is used to prepare the financial statements?

Do the new standards affect the obligation to consolidate accounts? Does the group benefit from a ‘consolidation dis-count’?

Does the increase in transparency require modifications to your communications?

What impact do the new regulations have on your accounting and valuation rules?



Operating challenges

What changes are required to the chart of accounts and to IT systems?

Which policies, ratio systems and reports will have to be modified?

Revision of the accounting and valuation principles.

What modifications to valuations need to be performed by 1 January 2015?

Which items in the balance sheet, income statement, cash flow statement and the notes need to be reclassified?

What disclosures are required in the notes? Do we have all of the relevant information (especially, first-time presenta-tion incl. prior year data)?

Do we have sufficient resources to make the switch?

Recommendation: To finalise before year-end 31 December 2015

Approve the framework structure of the financial statements and notes, incl. prior year’s figures.

Involve external audit and get the key partial results reviewed before year end.


Contents

New accounting rules for banks (ARB) 2 A. Format of the illustrative financial statements 7 B. Management report 8

1. Requirements of the Code of Obligations concerning the management report 8 2. Disclosure according to FINMA circ. 08/24 Supervision and internal controls – banks 9

C. Reliable assessment statutory single-entity financial statements 10

1. Balance sheet 10 2. Income statement 12 3. Appropriation of profit 13 4. Cash flow statement 14 5. Statement of changes in equity 16 6. Notes 17

6.1. Business name or name of the bank, and its legal form and domicile 17 6.2. Accounting and valuation principles 17

6.2.1. General principles 17 6.2.2. Determination of previous year’s figures 24 6.2.3. Changes of the accounting and valuation principles 24 6.2.4. Recording of business transactions 25 6.2.5. Treatment of past-due interest 25 6.2.6. Treatment of translation differences of foreign currencies 25 6.2.7. Treatment of the refinancing of trading positions 26

6.3. Risk management 26

6.3.1. Credit risk 27 6.3.2. Interest rate risk 28 6.3.3. Other market risks 28 6.3.4. Liquidity 28 6.3.5. Operational risks 29

6.4. Methods used for identifying default risks and determining the need for value adjustments 29

6.4.1. Mortgage-based loans 29 6.4.2. Securities-based loans 29 6.4.3. Unsecured loans 29 6.4.4. Process for determining value adjustments and provisions 30

6.5. Valuation of collateral 30

6.5.1. Mortgage-based loans 30 6.5.2. Securities-based loans 30

6.6. Business policy regarding the use of derivative financial instruments and hedge accounting 30

6.6.1. Business policy regarding the use of derivative financial instruments 30 6.6.2. Use of hedge accounting 31

6.7. Material events after the balance sheet date 31 6.8. Premature resignation of the auditor 31


6.9. Function on the engagement 32 1. Securities financing transactions (assets and liabilities); 32 2. Collateral for loans and off-balance-sheet transactions, as well as impaired loans 33 3. Trading portfolios and other financial instruments at fair value (assets and liabilities) 34 4. Derivative financial instruments (assets and liabilities) 35 5. Financial investments 36 6. Participations 37 7. Companies in which the bank holds a permanent direct or indirect significant participation 37 8. Tangible fixed assets 38 9. Intangible assets 39 10. Other assets and other liabilities 40 11. Assets pledged or assigned to secure own commitments and assets under reservation of ownership 40 12. Liabilities relating to own pension schemes, and number and nature of equity instruments of the

bank held by own pension schemes 41 13. Economic situation of own pension schemes 41 14. Issued structured products 43 15. Bonds outstanding and mandatory convertible bonds 43 16. Value adjustments, provisions, reserves for general banking risks 45 17. Bank’s capital 46 18. Equity securities or options on equity securities held by executives and directors and by employees 46 19. Related parties 47 20. Holders of significant participations and groups of holders of participations with pooled voting rights 48 21. Own shares and composition of equity capital 48 22. Equity participations held by the governing body and compensation report 50 23. Maturity structure of financial instruments 51 24. Assets and liabilities by domestic and foreign origin 52 25. Assets by country or group of countries 54 26. Assets by credit rating of country groups 55 27. Assets and liabilities by the most significant currencies 56

6.10. Information on the off-balance-sheet business 58 28. Contingent liabilities and contingent assets 58 29. Credit commitments 58 30. Fiduciary transactions 59 31. Managed assets 59

6.11. Information on the income statement 60 32. Result from trading operations and the fair value option 60 33. Refinancing income and income from negative interest 61 34. Personnel expenses 61 35. General and administrative expenses 62 36. Material losses, extraordinary income and expenses, material releases of hidden reserves, reserves

for general banking risks, and value adjustments and provisions no longer required 62 37. Revaluation of participations and tangible fixed assets up to acquisition cost at maximum 63 38. Operating result broken down according to domestic and foreign origin 63 39. Current and deferred taxes 65 40. Earnings per equity security 65

D. Report of the audit firm 66 Additional tools relating to FINMA circ. 15/1 Accounting - banks 68 Contacts 69 Offices 70

A - Format of the illustrative financial statements


A. Format of the illustrative financial statements

Abbreviations

The reference in the left-hand margin is to the corresponding section of the accounting standards and other relevant provi-sions in which the disclosure requirements are described. For the source information, the following abbreviations are used:

BankO 12.3 Article 12 para. 3 Banking Ordinance (BankO) – Version: 1 January 2015

FAQ x Question no. x of FINMA FAQ: Frequently asked questions on the FINMA circular 2015/1 ‘Ac-counting – banks’ – Latest revision dated 22 July 2015

CO 123c.1 Article 123c para. 1 Code of Obligations (CO) – Version: 1 July 2015

ARB 123 Margin no. 123 of FINMA circ. ‘Accounting – banks’ (ARB) – Version: 27 March 2014

08/24.1 Margin number 1 of FINMA circ. 08/24 ‘Supervision and internal control – banks’ – Latest revi-sion dated 6 December 2012

Presentation of additional guidance

Sections of the financial statements marked in the right-hand margin as here should be reviewed for compliance with the disclosure requirements due to the amendments in the relevant provisions.

The guidance sections are presented in red text with a grey background.

Alternative presentations or examples are presented in black text with a grey background inside a black border.

Completeness and accuracy of the illustrative financial statements

This publication presents examples of reliable assess-ment statutory financial statements. The financial state-ments include the disclosures required by the revised Banking Ordinance and FINMA circular 15/1 ‘Accounting – banks’. The sample disclosures in these financial statements are not to be viewed as the only form of presentation. Other forms of presentation are possible and may be preferable, provided that they comply with the accounting standards. The form and contents of the financial statements are the responsibility of the bank’s supervisory body.

We have made every effort to ensure this publication co-vers all of the disclosure requirements correctly and com-pletely. Nevertheless, we cannot exclude the possibility that it contains errors. FINMA circ. 15/1 and the other le-gal requirements alone are binding. We recommend therefore that you consult the legal and regulatory re-quirements and seek professional advice before making any critical decisions. Depending on the circumstances of each case, additional disclosures may be necessary in or-der to comply with the legal, exchange-related and regu-latory requirements. PwC accepts no liability for any con-sequences arising from the use of this publication. We would be happy to hear from you about how we can im-prove the future versions of this checklist.

B - Management report


B. Management report

ARB 327 ARB 341

Note: Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consolidated fi-nancial statements and a group management report, the banks consolidated within the group are exempted from the requirement to include a management report in their single-entity financial statements. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permitted to apply the exemptions above.

1. Code of Obligations requirements concerning the man-agement report

BankO 36.1 ARB 327

Where a financial group prepares and publishes consolidated financial statements and a group manage-ment report, the banks consolidated within the group are exempted from the requirement to include a man-agement report in their single-entity financial statements.

ARB 341 Banks whose equity securities are listed are not permitted to apply the exemptions above.

BankO 36.4 The persons according to 961d.2 CO can request the complete financial statements and a management re-port.

CO 961 Undertakings that are required by law to have an ordinary audit must draw up a management report.

BankO 29 BankO 38

The management report of the bank is based on article 961c CO.

ARB A1 The management report contains at least the following:

CO 961c.1 Presentation of business performance and the economic position of the undertaking (and, if appli-cable, the group);

CO 961c.2 Number of full-time positions on annual average;

CO 961c.2 Conduct of a risk assessment;

CO 961c.2 Orders and assignments;

CO 961c.2 Research and development activities;

CO 961c.2 Extraordinary events;

CO 961c.2 Future prospects.

CO 961c.3 ARB A1

The management report must not contradict the economic position presented in the annual financial state-ments.

Notes: Comments on various other aspects may be added, e.g.

Economic situation; Strategic focus points; Staff-related; Information on the organisation; IT; Restructuring; Comments on the annual and the consolidated financial statements; The bank’s engagements in culture and sport.

The management report is not part of the annual financial statements and is not subject to the audit.

B - Management report


2. Disclosure according to FINMA circ. 08/24 ‘Supervi-sion and internal controls – banks’

08/24.1 Circular 08/24 regulates corporate governance, the monitoring of business activities and the internal con-trols and their monitoring by the unit responsible of banks, securities dealers, financial groups and financial conglomerates mainly active in banking or securities trading.

08/24.4 Securities dealers without bank status: margin nos. 18–40 do not apply if there is no segregation of duties between the board of directors and management.

08/24.5 Private banks: margin nos. 18–40 do not apply. Deviations from and relaxations of the remaining provi-sions are allowed upon prior agreement with the audit firm and FINMA, provided the partners are personally liable and are involved in managing the business.

08/24.6 Directly or indirectly held subsidiary banks and securities dealers as well as subsidiary companies that are primarily involved in financial activities which belong to domestic and international financial groups and financial conglomerates mainly active in banking and securities trading: margin nos. 18–40 do not apply; however, it is recommended to set up an audit committee.

08/24.7 Branch offices of foreign institutions: margin nos. 9–53 do not apply. All other provisions apply where rele-vant.

08/24.19 At least one third of the Board of Directors should consist of members who fulfil the independence criteria according to margin nos. 20–24. These members are to be named in the annual report.

If fewer than one third of the members fulfil the independence criteria, this must justified in the annual re-port.

08/24.30 Should an institution not have an audit committee, the Board of Directors must appoint one or two inde-pendent Board members (but not the chairman of the Board), who fulfil the requirements as per margin no. 39, with the duties defined in margin nos. 41–53. FINMA may permit exceptions. Nevertheless, if the chair-man of the Board is appointed to perform the above�mentioned duties, this must be justified in the annual report.

08/24.37 If an institution decides not to establish an audit committee, despite fulfilling one or more of the criteria listed in margin nos. 33–36, this has to be justified in the annual report.

Note: Institutions are to establish an audit committee if at least one of the criteria as listed in margin nos. 33–36 applies:

- Balance sheet total: >CHF 5 million;

- Custody account volume (securities and precious metals of clients, with the exception of banks, according to regulatory reporting AU 001/AU 101) >CHF 10 billion;

- Required capital according to the Capital Adequacy Ordinance (CAO) >CHF 200 million

- Listed on a stock exchange (equity securities).

08/24.38 The majority of members must fulfil the independence requirements according to margin nos. 20–24. If the majority does not fulfil these requirements, this must be justified in the annual report.

08/24.40 The chairman of the Board of Directors should not be a member of the audit committee. However, if the in-stitution decides that the chairman should sit on the audit committee, this must be justified in the annual report.

08/24.66 The internal audit function must meet the quality standards promulgated by the Swiss Institute of Internal Auditing (SIIA). Exceptions must be justified in the annual report. The work of internal audit is governed by the Standards for the Professional Practice of the Institute of Internal Auditors (IIA).

C Reliable assessment statutory single-entity financial statements 1 Balance sheet


C. Reliable assessment statutory single-entity financial statements

ARB 74 Notes: Items and tables in the annual financial statements without balances may be omitted. Immaterial items may be summarised, provided this is done logically.

BankO 69.1 In the first two years after the entry into force of the Ordinance (until 31 December 2016), banks can dis-close value adjustments, in accordance with BankO 27.1, as negative items in the assets, either as full to-tals or sub-totals. FINMA regulates the specific details.

ARB 626 Banks and financial groups that require more time for the changeover with regard to the deduction of value adjustments from asset items may apply the transitional provisions of art. 69 para. 1 BankO. The value adjustments concerned are to be disclosed separately in the notes to the annual financial state-ments/consolidated financial statements in the ‘Presentation of value adjustments and provisions, re-serves for general banking risks, and changes therein during the current year’.

1. Balance sheet

(CHF million) Annex 31.12.2015 31.12.2014

ARB 75 Assets

ARB 76 Liquid assets 495 453

ARB 77 Amounts due from banks 6,573 5,874

ARB 78 Amounts due from securities financing transactions 1 28 33

ARB 79 Amounts due from customers 2 9,904 9,532

ARB 80 Mortgage loans 2 10,328 8,684

ARB 81 Trading portfolio assets 3 1,383 1,283

ARB 82 Positive replacement values of derivative financial instruments 4 255 220

ARB 83 Other financial instruments at fair value 3 1,392 856

ARB 84 Financial investments 5 1,983 1,864

ARB 85 Accrued income and prepaid expenses 197 244

ARB 86 Participations 6, 7, 37 131 114

ARB 87 Tangible fixed assets 8 1,273 1,405

ARB 88 Intangible assets 9 77 71

ARB 89 Other assets 10 530 350

ARB 90 Capital not paid in - -

ARB 91 Total assets 34,549 30,983

ARB 92 Total subordinated claims 15 42

ARB 93 - of which subject to mandatory conversion and/or debt waiver 12 7

C Reliable assessment statutory single-entity financial statements 1 Balance sheet


(CHF million) Annex 31.12.2015 31.12.2014

ARB 94 Liabilities

ARB 95 Amounts due to banks 2,526 2,318

ARB 96 Liabilities from securities financing transactions 1 73 61

ARB 97 Amounts due in respect of customer deposits 15,094 13,094

ARB 98 Trading portfolio liabilities 3 68 41

ARB 99 Negative replacement values of derivative financial instru-ments 4 72 63

ARB 100 Liabilities from other financial instruments at fair value 3 1,438 851

ARB 101 Cash bonds 4,357 4,112

ARB 102 Bond issues and central mortgage institution loans 15 4,849 4,558

ARB 103 Accrued expenses and deferred income 549 535

ARB 104 Other liabilities 10 287 308

ARB 105 Provisions 16 1,022 1,101

ARB 106 Reserves for general banking risks 16 119 112

ARB 107 Bank’s capital 17 830 680

ARB 108 Statutory capital reserve 140 170

ARB 109 - of which tax-exempt capital contribution reserve 128 158

ARB 110 Statutory retained earnings reserve 279 270

ARB 111 Voluntary retained earnings reserves 2,635 2,539

ARB 112 Own shares 21 -6 -10

ARB 113 Profit carried forward 8 5

ARB 114 Profit 209 175

ARB 115 Total liabilities 34,549 30,983

ARB 116 Total subordinated liabilities 474 216

ARB 117 - of which subject to mandatory conversion and/or debt waiver 3 4

ARB 118 Off-balance-sheet transactions

ARB 119 Contingent liabilities 2, 28 1,812 1,975

ARB 120 Irrevocable commitments 2 369 421

ARB 121 Obligations to pay up shares and make further contributions 2 124 113

ARB 122 Credit commitments 2, 29 5 4

C Reliable assessment statutory single-entity financial statements 2 Income statement


2. Income statement

(CHF million) Annex 2015 2014

ARB 126 Result from interest operations

ARB 127 Interest and discount income 33 647 657

ARB 128 Interest and dividend income from trading portfolios 2 1

ARB 129 Interest and dividend income from financial investments 45 42

ARB 130 Interest expense 33 -256 -289

ARB 131 Gross result from interest operations 438 411

ARB 132 Changes in value adjustments for default risks and losses from interest operations -17 16

ARB 133 Subtotal net result from interest operations 421 427

ARB 134 Result from commission business and services

ARB 135 Commission income from securities trading and investment activities 398 377

ARB 136 Commission income from lending activities 5 8

ARB 137 Commission income from other services 43 41

ARB 138 Commission expense -47 -45

ARB 139 Subtotal result from commission business and ser-vices 399 381

ARB 140 Result from trading operations and the fair value op-tion 32 98 70

ARB 141 Other result from ordinary activities

ARB 142 Result from the disposal of financial investments 53 48

ARB 143 Income from participations 5 5

ARB 144 Result from real estate 11 10

ARB 145 Other ordinary income 4 4

ARB 146 Other ordinary expenses -19 -17

ARB 147 Subtotal other result from ordinary activities 54 50

ARB 148 Operating expenses

ARB 149 Personnel expenses 34 -256 -276

ARB 150 General and administrative expenses 35 -251 -255

ARB 151 Subtotal operating expenses -507 -531

ARB 152 Value adjustments on participations and depreciation and amortisation of tangible fixed assets and intangible assets -121 -106

ARB 153 Changes to provisions and other value adjustments, and losses -67 -70

ARB 154 Operating result 277 221

ARB 155 Extraordinary income 36 57 39

ARB 156 Extraordinary expenses 36 -55 -28

ARB 157 Changes in reserves for general banking risks 36 -7 -5

ARB 158 Taxes 39 -63 -52


C Reliable assessment statutory single-entity financial statements 3 Appropriation of profit


3. Appropriation of profit

(CHF million) 2015 2014


ARB 164 + Profit carried forward 8 5

ARB 165 Distributable profit 217 180

ARB 169 Transfers from the statutory capital reserves (reserves of tax-exemptcapital contributions) - 60

Total at the disposal of the General Meeting 217 240

ARB 166 Appropriation of profit

Allocation to statutory retained earnings reserve -10 -9

Allocation to voluntary retained earnings reserves -120 -95

Dividend payment -83 -128

- of which, share of the dividend from retained earnings -83 -68

- of which, share of the dividend from the statutory capital reserves (reserves of tax-ex-empt capital contributions) - -60

New amount carried forward 4 8

C Reliable assessment statutory single-entity financial statements 4 Cash flow statement


4. Cash flow statement

ARB 170

Notes: Preparing a cash flow statement is voluntary in the case of reliable assessment statutory single-entity finan-cial statements (art. 25 para. 3 BankO). If the cash flow statement is prepared voluntarily, the provisions of the ARB must be applied.

Preparing a cash flow statement is mandatory for all other types of financial statements. The cash flow statement is based on annex 6 to the circular (ARB A6-1 to A6-9).

ARB 327 ARB 341

Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consolidated fi-nancial statements and a group management report, the banks consolidated within the group are exempted from the requirement to include a cash flow statement in their single-entity financial statements. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permitted to apply the exemptions above.

2015 2014

(CHF million) Cash in-

flowCash out-

flow Cash in-

flow Cash out-

flow

ARB A6-3 Cash flow from operating activities (internal financing)

Profit 209 - 175 -

Change in reserves for general banking risks 7 - -

Change in value adjustments for default risks and losses 17 - - 16

Value adjustments on participations, depreciation and amortisation of tangible fixed assets and intangible assets 113 - 106 -

Provisions and other value adjustments 67 - 70 -

Accrued income and prepaid expenses 47 - - 18

Accrued expenses and deferred income 14 - 46 -

Previous year’s dividend - 128 - 118

Subtotal 346 245

ARB A6-4 Cash flow from shareholder’s equity transactions

Share capital 180 - - -

Recognised in reserves 7 - 10 -

Change in own equity securities 7 2 6 1

Subtotal 192 15

ARB A6-5 Cash flow from transactions in respect of partici-pations, tangible fixed assets and intangible assets

Participations 7 27 2 29

Real estate 115 16 4 2

Other tangible fixed assets - 57 - 7

Intangible assets 26 - - 6

Subtotal 48 38

C Reliable assessment statutory single-entity financial statements 4 Cash flow statement


ARB A6-6 Cash flow from banking operations

ARB A6-7 Medium and long-term business (> 1 year)

Amounts due to banks 12 - - 199

Amounts due in respect of customer deposits 129 - 468 -

Liabilities from other financial instruments at fair value 339 - - 89

Cash bonds 496 - - 541

Bonds - 300 - 100

Central mortgage institution loans 832 - 220 -

Other liabilities - 6 86 -

Amounts due from banks - 849 269 -

Amounts due from customers - 568 - 744

Mortgage loans - 1,992 - 559

Other financial instruments at fair value - 307 304 -

Financial investments - 167 - 215

Other accounts receivable - 180 296 -

Short-term business

Amounts due to banks 196 - 73 -

Liabilities from securities financing transactions 12 - - 44

Amounts due in respect of customer deposits 1,871 - 374 -

Trading portfolio liabilities 27 - 62 -

Negative replacement values of derivative financial in-struments 9 - - 18

Liabilities from other financial instruments at fair value 248 - - 74

Cash bonds - 251 200 -

Bonds - - - 100

Central mortgage institution loans - 241 - 59

Other liabilities - 15 - 37

Amounts due from banks 150 - - 29

Amounts due from securities financing transactions 5 - - 9

Amounts due from customers 196 - 348 -

Mortgage loans 348 - - 189

Trading portfolio assets - 100 33 -

Positive replacement values of derivative financial in-struments - 35 - 24

Other financial instruments at fair value - 229 62 -

Financial investments 48 - 54 -

Other accounts receivable - 222 151 -

Liquidity

Liquid assets - 42 - 192

Subtotal 586 222

Total 586 586 260 260

C Reliable assessment statutory single-entity financial statements 5 Statement of changes in equity


5. Statement of changes in equity

ARB 171 ARB A4

(CHF million)

Bank’s capital

Capital re-

serve

Re-tained earn-

ings re-serve

Re-serves

for gen-eral

bank-ing

risks

Volun-tary re-

tained earnings reserves

and profit

carried forward

Own shares

Result of the

period

Total

Equity at 1 January 2015 680 170 270 112 2,544 -10 175 3,941

Appropriation of retained earnings 2014

- Allocated to the statutory retained earnings reserve - - +9 - - - -9 -

- Allocated to the voluntary retained earnings reserve - - - - +95 - -95 -

- Dividends - -60 - - - - -68 -128

- Net change in retained earnings brought forward - - - - 3rd - -3 -

Purchase of own shares (at acquisition cost) - - - - - -2 - -2

Sale of own shares(at acquisition cost) - - - - - +6 - +6

Profit from the sale of own shares - - - - +1 - - +1

Capital increase +150 +30 - - - - - +180

Allocated to reserves for general banking risks - - - +7 - - - +7

Profit 2015 - - - - - - +209 +209

Equity at 31 December 2015 830 140 279 119 2,643 -6 209 4,214

C Reliable assessment statutory single-entity financial statements 6 Notes 6.1 Business name or name of the bank, and its legal form and domicile


6. Notes

ARB 182 6.1. Business name or name of the bank, and its legal form and domicile

Musterbank AG is a joint-stock company under Swiss law. Services are rendered by the bank’s head office in Zurich and by its offices in Basel, Bern and Lucerne. Services are rendered abroad by the bank’s branch offices in Frankfurt, Hamburg, Luxembourg, Singapore and Hong Kong.

ARB 183 6.2. Accounting and valuation principles

6.2.1. General principles

ARB 184 The accounting and valuation principles are based on the Code of Obligations, the Banking Act and its re-lated Ordinance as well as the Accounting rules for banks, securities dealers, financial groups and con-glomerates according to FINMA circular 15/1. The accompanying reliable assessment statutory single-entity financial statements present the economic situation of the bank such that a third party can form a reliable opinion. The financial statements are allowed to include hidden reserves.

In the notes, the individual figures are rounded for publication, but the calculations are based on the non-rounded figures, thus small rounding differences can arise.

General valuation principles

ARB 186 ARB 13

The financial statements are prepared on the assumption of an ongoing concern. The accounting is there-fore based on going-concern values.

CO 959.1 ARB 64

Items are be entered on the balance sheet as assets if, based on past events, they may be disposed of, a cash inflow is probable and their value can be reliably estimated. If a reliable estimate is not possible, then it is a contingent asset, which is commented on in the notes.

CO 959.5 ARB 65

Items are entered on the balance sheet as liabilities if they have arisen due to past events, a cash outflow is probable and their value can be reliably estimated. If a reliable estimate is not possible, then it is a contingent liability, which is commented on in the notes.

BankO 27.2 BankO 69.2

The disclosed balance sheet items are valued individually. The transitional provision, which requires the individual valuation of equity participations, tangible fixed assets and intangible assets as of 1 January 2020, is not applied.

ARB 33 In principle, neither assets and liabilities nor expenses and income are offset. Accounts receivable and ac-counts payable are offset in the following cases:

ARB 33 Accounts receivable and accounts payable are offset if they concern the same type of transaction with the same counterparty in the same currency and they have an identical or earlier due date and do not lead to any counterparty risk.

ARB 35 The amounts of own shares and cash bonds are offset with the corresponding item in the liabilities.

ARB 36 Deduction of value adjustments from the corresponding asset item.

ARB 38 Offsetting of positive and negative changes in book value with no income effect in the cur-rent period in the compensation account.

ARB 40 Positive and negative replacement values of derivative financial instruments with the same counter-party are offset, if there are recognised and legally enforceable netting agreements in place.

Financial instruments

Liquid assets

ARB 354 Liquid assets are recognised at their nominal value.

Securities financing transactions

ARB 355 The term securities financing transactions includes repurchase and reverse repurchase transactions, secu-rities lending and securities borrowing.

C Reliable assessment statutory single-entity financial statements 6 Notes 6.2 Accounting and valuation principles


ARB 356 Repurchase transactions (repos) are recorded as cash deposits with own securities as collateral. Reverse-repurchase transactions (reverse repos) are treated as receivables against collateral in the form of securi-ties. The exchanged cash amounts are recorded at nominal value on the balance sheet. Securities lending transactions are treated as repos if they are subject to daily margining and secured by cash. Securities re-ceived and delivered are not recognised or derecognised in the balance sheet until the economic control of the contractual rights comprised in the securities is transferred.

Amounts due from banks, amounts due from customers and mortgage loans

ARB 359 Amounts due from banks, amounts due from customers and mortgage loans are recognised at their nomi-nal value less any necessary value adjustments.

ARB 360 Amounts due in respect of precious metal account deposits are valued at fair value if the precious metal concerned is traded on a price-efficient, liquid market.

ARB 411 ff. Doubtful receivables, i.e. obligations entered into with clients for which the debtor is unlikely to meet its future obligations, are valued individually and depreciated by means of individual value adjustments. The depreciation of doubtful receivables is determined by the difference between the book value of the receiv-able and the anticipated recoverable amount. The anticipated recoverable amount is the liquidation value (estimated net realisable value minus the costs of retention and liquidation). In doing so, the entire liabil-ity of the client or the economic entity has to be checked for any counterparty risk.

ARB 421 For the consumer credit portfolio, which comprises numerous smaller receivables, flat-rate individual value adjustments are made, calculated on the basis of empirical values.

If a receivable is classed as entirely or partially irrecoverable or a receivable is waived, the receivable is derecognised by booking it against the corresponding value adjustment.

ARB 427 ARB A3-24

If recovered amounts from receivables written off in earlier periods cannot be used immediately for other value adjustments of the same type, they are recognised in ‘Change in value adjustments for default risk and losses from interest operations’ in the income statement.

ARB 411 In addition to the individual valuation adjustments and the flat-rate individual valuation adjustments, the bank creates value adjustments for latent default risks in order to cover the latent default risks as of the valuation cut-off date. Latent default risks are those that arise later even though, based on experience, they appear to be part of a seemingly flawless credit portfolio as of the balance sheet date. The assessment of latent default risks is based on empirical values for each credit-rating class.

The bank classifies all receivables in one of the ten rating classes. For receivables in the classes 1–8, the debt is serviced, the collateral is adequate and the repayment of the loan is not in doubt. For these receiv-ables, no value adjustments for latent default risks are created. Loans in classes 9 and 10 are highly likely to default and are individually depreciated. Value adjustments for latent default risks amounting to 0.4% of the receivable amount are created only for loans in classes 7 and 8, which, based on experience, repre-sent a certain risk of loss for the bank.

The value adjustments for latent default risks are created according to the incurred loss approach and do not include any expected future losses.

FAQ 1 For credit facilities (with corresponding credit facility limits) whose use is typically subject to frequent and large fluctuations (e.g. current account credit facilities) and for which provisioning is required, the bank uses an alternative method to record the required value adjustments and provisions. The initial and subsequent creation of a provision is carried out in its entirety via the item ‘Change in value adjustments for default risk and losses from interest operations’. If facility utilisation changes, a reclassification with-out an effect on income is carried out between the value adjustment for the corresponding balance sheet item and the provision for the undrawn part of the credit facility. Reclassifications without an effect on income are reported in the ‘Reclassifications’ column in appendix 16 ‘Value adjustments, provisions, re-serves for general banking risks’.

ARB 36 The individual valuation adjustments, the flat-rate individual valuation adjustments and the value adjust-ments for latent default risks are deducted from the corresponding asset item in the balance sheet.

ARB 428 Doubtful receivables are reclassified as performing if the outstanding amount of capital and interest are paid again on time according to the contractual agreements and other creditworthiness criteria. Value ad-justments are released with an effect on income via the item ‘Change in value adjustments for default risk and losses from interest operations’.

Amounts due to banks and amounts due in respect of customer deposits

ARB 361 These items are to be recognised at their nominal value.

ARB 362 Amounts due in respect of precious metal account deposits must be valued at fair value if the precious metal concerned is traded on a price-efficient, liquid market.



Trading portfolio assets and trading portfolio liabilities

ARB 363 Trading operations comprises items that are actively managed in order to profit from fluctuations in mar-ket prices or to realise gains from arbitrage.

ARB 364 The trading portfolio and liabilities relating to trading operations are valued and recognised at fair value in principle. Fair value is the price based on a price-efficient and liquid market or the price calculated us-ing a valuation model.

ARB 365 If a fair value cannot be determined, the valuation and recognition is based on the lower of cost or market principle.

ARB 363 The price gain or loss resulting from the valuation is recorded via the item ‘Result from trading operations and use of the fair value option’. Interest and dividend income from trading operations are recorded in the income statement via the item ‘Interest and dividend income from trading operations’. The refinancing costs for trading operations are not recorded in the ‘Interest and discount income’.

Positive and negative replacement values of derivative financial instruments

Derivative financial instruments are used for trading and for hedging purposes.

Trading purposes

ARB 369 The valuation of derivative financial instruments for trading purposes is done according to the fair value and the positive or negative replacement value is recorded in the corresponding item. The fair value is based on market prices, dealers’ price quotations, discounted cash flow and option pricing models.

ARB 370 The realised result from trading operations and the unrealised result from valuations relating to trading operations are recorded via the item ‘Result from trading operations and use of the fair value option’.

Hedging purposes

ARB 370 The bank also uses derivative financial instruments as part of its asset and liability management (ALM) to hedge against interest rate change, currency and default risks. Hedging operations are valued like the hedged underlying transaction. The result from hedging operations is recorded in the same item as the corresponding result from the hedged underlying transaction. The valuation result from hedging instru-ments is recorded in a compensation account, provided that no change in the value of the underlying transaction has been booked. The net balance of the compensation account is recorded via the item ‘Other assets’ or ‘Other liabilities’.

ARB 442 Hedging transactions performed by the Treasury department are concluded by the Trading department. The Treasury department itself is not active in the market. Assets and liabilities as well as expense and income from inter-company transactions are eliminated.

Hedges and the goals and strategies of hedging operations are documented by the group at the conclusion of a derivative hedging transaction. The effectiveness of the hedge is regularly reviewed. If the hedge is no longer or only partially effective, the part of the hedging transaction that is no longer effective is treated like a trading operation.

Netting

ARB 40 The bank offsets positive and negative replacement values with the same counterparty within the terms of the recognised and legally enforceable netting agreements.



ARB 400 Other financial instruments valued at fair value and liabilities from financial instruments valued at fair value (fair value option)

ARB 372 Financial instruments that are not used for trading purposes are recorded via this item and valued at fair value, provided that all of the following conditions are fulfilled:

The financial instruments are valued on the basis of the fair value and comply with the documented risk management and investment strategy, which ensure the identification, measurement and reduc-tion of the various risks involved.

The use of fair value valuation largely neutralises the effect on the income statement of the economic hedging relationship that exists between the financial instruments on the asset side and those on the liabilities side.

Any effect of a change in own credit rating on the fair value after the first-time recognition is neutral-ised in the income statement and recorded via the compensation account.

ARB 396 The derivative is separated from the underlying and valued separately as a derivative if there is no closelink between the economic characteristics and the risks of the embedded derivative and the underlying.

ARB 401 ARB 402

Self-issued structured products are disclosed in the item ‘Liabilities from financial instruments valued at fair value’. Debt instruments and equity securities as well as collective investment scheme instruments, which the bank holds in connection with structured products, are disclosed in the item ‘Other financial instruments valued at fair value’. For self-issued structured products that are separated and valued sepa-rately, the underlying is valued and recorded in accordance with the valuation principles of the underly-ing. The derivative is valued at fair value and disclosed on the ‘Positive’ or ‘Negative replacement values of derivative financial instruments’.

Financial investments

Financial investments include debt instruments, equity securities, physical stocks of precious metals as well as properties and goods acquired in relation to loan transactions and destined for sale.

ARB 385 If the fair value of financial investments valued using the lower of cost or market principle increases again after declining below the historical cost, the value may be appreciated up to a maximum of the historical cost. The balance of the value adjustments is recorded via the item ‘Other ordinary expenses’ or ‘Other ordinary income’.

Held-to-maturity debt instruments

ARB 380 The valuation is based on the acquisition cost principle with the agio/disagio (premium/discount) ac-crued/deferred over the residual term to maturity (accrual method). The agio/disagio is accrued/deferred over the residual term to maturity via the item ‘Prepayments and accrued income’ or ‘Accrued liabilities and deferred income’. Value adjustments for default risk are recorded immediately under ‘Changes in value adjustments for default risk and losses from interest operations’.

ARB 381 If held-to-maturity financial investments are sold or reimbursed early, the realised gains and losses, which correspond to the interest component, are accrued/deferred over the residual term to maturity of the transaction via the item ‘Other assets’ or ‘Other liabilities’.

Not held-to-maturity debt instruments

ARB 382 The valuation is based on the lower of cost or market principle. The value adjustments arising from a sub-sequent valuation are recorded for each balance via the item ‘Other ordinary expenses’ or ‘Other ordinary income’. Value adjustments for default risk are made immediately via the items ‘Changes in value adjust-ments for default risk’ and ‘Losses from interest operations’.

Equity securities, physical stocks of precious metals as well as properties and goods acquired in relation to loan transactions and destined for sale.

ARB 384 The valuation is based on the lower of cost or market principle. For properties and goods acquired in rela-tion to loan transactions and destined for sale, the lower of cost or market is determined by the purchase value or the liquidation value, whichever is the lowest. Own physical stocks of precious metals that serve as collateral for liabilities from precious metals trading accounts are valued, as they are in such accounts, at fair value. The value adjustments arising from a subsequent valuation are recorded for each balance via the item ‘Other ordinary expenses’ or ‘Other ordinary income’.



Participations

ARB 386 Participations owned by the bank include equity securities of companies that are held for long-term in-vestment purposes, irrespective of any voting rights.

ARB 387 Participations are valued at historical costs minus any value adjustments due to business reasons

ARB 477 Each participation is tested for impairment as of the balance sheet date. This test is based on indicators reflecting a possible impairment of individual assets. If any such indicators exist, the recoverable amount is calculated. The recoverable amount is calculated for each individual asset. The recoverable amount is the higher amount of the net selling price and the value in use. An asset is impaired if its carrying amount exceeds its recoverable amount. If the asset is impaired, the book value is reduced to match the recovera-ble value and the impairment is charged via the item ‘Value adjustments on participations and amortisa-tion of tangible fixed assets and intangible assets’.

ARB A3-136 ARB A3-146

Realised gains from the sale of participations are recorded via the item ‘Extraordinary income’ and real-ised losses are recorded via the item ‘Extraordinary expense’.

Tangible fixed assets

ARB 446 ARB 448

Investments in tangible fixed assets are capitalised as an asset if they are used for more than one account-ing period and exceed the minimal value for recognition of CHF 50,000.

ARB 465 Tangible fixed assets are recognised at acquisition cost minus the scheduled accumulated amortisation over the estimated operating life.

ARB 466 Tangible fixed assets are amortised at a consistent rate (straight-line amortisation) over a prudent esti-mated operating life via the item ‘Value adjustments on participations and amortisation of tangible fixed assets and intangible assets’. The estimated operating lives of specific categories of tangible fixed assets are as follows:

ARB 474 Asset class Operating life

Bank premises, other properties (not including land) 20–50 years

Installations and renovations in third-party properties Remaining duration of the rental agree-ment

Plant, property, equipment 5 years

Self-developed or bought-in software 5 years

Telecommunications, IT 3 years

ARB 558 Objects used by the bank as the lessee as part of a finance lease are recorded via the item ‘ Tangible fixed assets’ at cash purchase value. The leasing liabilities are disclosed, depending on the counterparty, in the items ‘Liabilities with banks’ or ‘Other liabilities’.

ARB 477 Each tangible fixed asset is tested for impairment as of the balance sheet date. This test is based on indica-tors reflecting a possible impairment of individual assets impaired. If any such indicators exist, the recov-erable amount is calculated. The recoverable amount is calculated for each individual asset. An asset is impaired if its carrying amount exceeds its recoverable amount.

ARB 467 If the asset is impaired, the book value is reduced to match the recoverable value and the impairment is charged via the item ‘Value adjustments on participations and amortisation of tangible fixed assets and intangible assets’.

ARB 468 If the impairment test shows that the operating life of an intangible asset has changed, the residual carry-ing amount should be depreciated systematically over the newly estimated useful life.

ARB A3-136 ARB A3-146

Realised gains from the sale of tangible fixed assets are recorded via the item ‘Extraordinary income’ and realised losses are recorded via the item ‘Extraordinary expense’.

Intangible assets

ARB 450 Acquired intangible assets are recognised in the balance sheet if they yield measurable benefits for the company over several years. As a general rule, intangible assets generated internally are not recognised in the balance sheet. Intangible assets are recognised and valued according to the historical cost principle.



ARB 475 Intangible assets are amortised at a consistent rate (straight-line amortisation) over a prudent estimated operating life via the item ‘Value adjustments on participations and amortisation of tangible fixed assets and intangible assets’. The estimated operating lives of specific categories of intangible assets are as fol-lows:

Intangible asset category Operating life

Licences and brands max. 5 years

Other intangible assets. max. 3 years

ARB 477 Each intangible asset is tested for impairment as of the balance sheet date. This test is based on indicators reflecting a possible impairment of individual assets impaired. If any such indicators exist, the recovera-ble amount is calculated. The recoverable amount is calculated for each individual asset. An asset is im-paired if its carrying amount exceeds its recoverable amount.

ARB 467 If the asset is impaired, the book value is reduced to match the recoverable value and the impairment is charged via the item ‘Value adjustments on participations and amortisation of tangible fixed assets and intangible assets’.

ARB 468 If, as a result of the impairment review, the operating life of an intangible asset changes, the residual car-rying amount should be depreciated systematically over the newly estimated operating life.

ARB A3-136 ARB A3-146

Realised gains from the sale of intangible assets are recorded via the item ‘Extraordinary income’ and re-alised losses are recorded via the item ‘Extraordinary expense’.

Provisions

ARB 522 Legal and factual obligations are valued regularly. If an outflow of resources is likely and can be reliably estimated, a corresponding provision must be created.

ARB 529 ff. Existing provisions are reassessed at each balance sheet date. Based on this reassessment, the provisions are increased, left unchanged or released. Positions are recorded as follows via the individual items in the income statement:

ARB A3-153 Provision for deferred taxes: ‘Taxes’

ARB 506 Pension provision: ‘Personnel expenses’

ARB A3-124 Other provisions: ‘Changes in provisions and other value adjustments and losses’, except provisions for restructuring

ARB 528 Provisions are released via the income statement if they are no longer needed on business grounds and cannot be used for other similar purposes at the same time.

Reserves for general banking risks

ARB A7 Reserves for general banking risks are prudently created reserves to hedge against the risks in the course of business of the bank.

ARB A3-148 The creation and release of reserves is recognised via the item ‘Changes in reserves for general banking risks’ in the income statement.

ARB 577 The reserves for general banking risks are subject to tax.

Taxes

ARB 538 Note: In the reliable assessment statutory single-entity financial statements, there is no obligation to calculate and recognise deferred income tax. In these illustrative financial statements, however, we include de-ferred income tax in order to provide a comprehensive example.

Current taxes

Current income taxes are recurring, usually annual, taxes on profits and capital. Transaction-related taxes are not included in current taxes.

ARB 537 Liabilities from current income and capital tax are disclosed via the item ‘Accrued liabilities and deferred income’.



ARB 540 Expense due to income and capital tax is disclosed in the income statement via the item ‘Taxes’.

Deferred taxes

ARB 547 The valuation differences between the value for tax purposes and the financial accounting value are calcu-lated systematically. The effects of deferred taxes are considered in the calculations.

ARB 543 Provisions for deferred tax are created via the item ‘Taxes’.

Off-balance-sheet transactions

Off-balance-sheet disclosures are at nominal value. Provisions are created in the liabilities in the balance sheet for foreseeable risks.

Own debt instruments and equity securities

ARB 35 The amount of own shares and cash bonds is offset with the corresponding item in the liabilities.

ARB 583 Purchases of own shares are recorded at the acquisition date at the cost of acquisition and deducted from equity via the item ‘Own shares’. No subsequent valuation is performed

ARB 585 The gain realised from the sale of own shares is recorded via the item ‘Statutory retained earnings re-serve’. The item ‘Own shares’ is reduced by the amount of the acquisition cost that corresponds to the shares sold.

Pension benefit obligations

The bank’s employees are insured through the bank’s pension fund. In addition, there is an executive staff insurance scheme. The pension fund liabilities and the assets serving as coverage are separated out into legally independent foundations. The organisation, management and financing of the pension funds com-ply with the legal requirements, the deeds of foundation and the current pension fund regulations. All of the bank’s pension funds are defined contribution plans.

ARB 511 The bank bears the costs of the occupational benefit plan for employees and survivors as per the legal re-quirements. The employer contribution arising from the pension funds are included in ‘Personnel ex-pense’ on an accrual basis.

ARB 502 The bank assesses whether there is an economic benefit or economic obligation arising from a pension fund as of the balance sheet date. The assessment is based on the contracts and financial statements of the pension funds (established under Swiss GAAP FER 26 in Switzerland) and other calculations that present a true and fair view of the financial situation as well as the actual over- or underfunding for each pension fund. The bank refers to a pension fund expert to assess whether a benefit or an obligation exists for each pension fund.

ARB 508 ff. The identified economic benefit (including the employer contribution reserves without a waiver of use) are recorded in ‘Other assets’. If an economic obligation is identified for an individual pension fund, it is recorded in ‘Provisions’. The difference with the corresponding value of the prior period are recorded in the income statement in ‘Personnel expense’.

ARB 507

Notes: It is mandatory to capitalise the future economic benefit (incl. employer contribution reserves) in the true and fair view single-entity financial statements and in the consolidated financial statements.

ARB 504 In reliable assessment single-entity financial statements, the employer contribution reserves and another economic benefit may be recorded in the assets, provided the requirements of the ARB are complied with. However, their capitalisation is not mandatory.

Equity-based compensation schemes

Equity-based compensation schemes exist for members of the Board of Directors and the executive man-agement as well as some employees. Employees are allocated bearer shares depending on their tenure, hierarchical level and individual performance. These shares are subject to a three-year blocking period during which they cannot be sold.

ARB 612 As this is compensation using real equity instruments, there is no subsequent valuation. Any differences are recorded via the item ‘Personnel expense’.

Members of the executive management are also granted employee stock options of bearer shares in Mus-terbank AG, dependent on them achieving objectives. Such options are subject to a vesting period of five years. When exercising an option, the option holder has the right to either a cash settlement or shares in Musterbank AG. Employee stock options are treated as compensation using ‘phantom’ equity instru-ments.



ARB 612 The liability is recorded in ‘Prepayments and accrued income’ and revalued as of each balance sheet date. The resulting change of the fair value is adjusted in the income statement via the item ‘Personnel ex-pense’.

Comprehensive details of the design of the equity-based compensation scheme can be found in the com-pensation report.

ARB 185 6.2.2. Determination of previous year’s figures

ARB 185

Notes: In the case of true and fair view supplementary single-entity financial statements being pre-pared for the first time: disclosure as to how the previous year’s figures were determined or reference to the statutory single-entity financial statements of the previous year.

ARB 271 When true and fair view supplementary single-entity financial statements are prepared for the first time, reporting of the previous year’s figures and the preparation of a cash flow statement are mandatory in principle. If calculating the previous year’s figures and/or preparing the cash flow statement involves con-siderable effort, either the previous year’s figures of the most recent statutory single-entity financial state-ments are to be reported or the statutory single-entity financial statements of the previous year are to be published in full together with the true and fair view supplementary single-entity financial statements for the current year.

ARB 186 6.2.3. Changes of the accounting and valuation principles

There have been no changes in the accounting and valuation principles since the prior year.

ARB 186

Notes: If the accounting and valuation principles have been changed, the changes are disclosed here and their impact has to be indicated and explained. The effects on hidden reserves also have to be explained.

ARB 30 Statutory single-entity financial statements: In the case of changes to the accounting and valuation principles, a restatement of the previous year’s figures is not permitted in principle. However, simple re-classifications not relating to the equity capital and result of the period items are permitted.

ARB 32 True and fair view supplementary single-entity financial statements and consolidated fi-nancial statements: In the case of changes to the accounting and valuation principles, a restatement of the previous year’s figures and an explanation in the notes are required in principle. The financial state-ments including the previous year’s figures are to be presented as if the newly applied accounting and val-uation principles had always been in effect.



The explanation of a restatement might be as follows, for example:

In 2015, the bank introduced a new method to calculate the impairment of intangible assets, particularly goodwill. The key characteristics of the new method are as follows: …… These modifications require the restatement of the 2014 financial statements. The financial impact of the restatement is shown in the table below:

Item Before re-statement

Change After re-statement

Balance as of 1 January 2014

Intangible assets xxxx +/- xxxx xxxx

Retained earnings reserve xxxx +/- xxxx xxxx

Income statement for 2014 financial year

Value adjustments on participations and amortisation of tangible fixed assets and intangible assets

xxxx +/- xxxx xxxx

Group net profit xxxx +/- xxxx xxxx

Balance sheet as of 31 December 2014

Intangible assets xxxx +/- xxxx xxxx

Group net profit xxxx +/- xxxx xxxx

ARB 187 6.2.4. Recording of business transactions

ARB 17 All business transactions concluded up to the balance sheet date are recorded as of their trade date (trade date accounting) and valued according to the above-mentioned principles. Any foreign exchange spot transactions and foreign exchange forwards entered into but not yet fulfilled are recorded in accordance with the settlement date accounting method. Between the trade date and the settlement date, these trans-actions are disclosed at replacement value via the item ‘Positive replacement values of derivative financial instruments’ or ‘Negative replacement values of derivative financial instruments’.

ARB 188 6.2.5. Treatment of past-due interest

ARB 425 Past-due interest and the corresponding commissions are not included as interest income. Interest in-come only includes interest and commissions that are over 90 days past due and not yet paid. With regard to current account limits, interest and commissions are treated as past due if the credit limit has been ex-ceeded for over 90 days. From this point in time, no accrued interest and commission is recorded in ‘In-terest and discount income’ until there is no more past-due interest longer than 90 days.

Past-due interest is not cancelled retroactively. The liabilities from the accumulated interest up to the ex-piry of the 90-day term (due unpaid interest and accumulated accrued interest) are written down via the item ‘Change in value adjustments for default risk and losses from interest operations’.

ARB 189 6.2.6. Treatment of translation differences of foreign currencies

ARB 72 Transactions in foreign currencies are recorded at the respective daily exchange rate. Assets and liabilities are translated as of the balance sheet date using the average rate on the balance sheet date. Participations, tangible fixed assets and intangible assets are valued using the historical exchange rates. The price gain or loss resulting from the currency translation is recorded via the item ‘Result from trading operations and use of the fair value option’.

C Reliable assessment statutory single-entity financial statements 6 Notes 6.3 Risk management


ARB 189 For the foreign currency translation, the following exchange rates were used:

31.12.2015 31.12.2014

USD 0.9762 0.9943

EUR 1.0845 1.2029

GBP 1.5271 1.5472

ARB 190 6.2.7. Treatment of the refinancing of trading positions

Refinancing costs for trading operations are not deducted from the trading result.

6.3. Risk management

The bank, like any other financial institute, is subject to various banking-specific risks: credit, market and liquidity risks as well as operational and legal risks. The monitoring, identification, measurement and management of these risks is a priority for the bank. The bank’s primary goal is to maintain its first-class credit rating and its good reputation. The risk capac-ity is set in such a way that the bank complies with the statutory capital adequacy requirements, even if under the influence of diverse negative events. The key elements of risk management are:

a comprehensive risk policy;

the use of recognised risk measurement and risk management principles;

the definition of various risk limits and the corresponding monitoring and reporting measures;

ensuring timely and comprehensive reporting on all risks;

the allocation of adequate financial and human resources to the risk management; and

highlighting risk awareness at all management levels.

The Board of Directors is the supreme organ of the risk management organisation. It specifies the risk policy and, as part of this, defines the risk philosophy, risk measurement and risk management. The Board of Directors approves the strategic risk limits based on the risk capacity and it monitors compliance with the limits as well as the implementation of the risk policy. To fulfil its monitoring duties, a compre-hensive risk report is submitted to the Board of Directors on a quarterly basis. The internal reports ensure adequate reporting at all levels.

The executive management is responsible for the execution of the Board of Director’s policies. It ensures a suitable risk management organisation is in place as well as the use of an adequate risk monitoring sys-tem. It allocates the limits approved by the Board of Directors to the organisational units and delegates the corresponding competences. Adequate reporting at all levels is ensured by the internal reports. The risk control unit is independent of business operations and monitors the market risks incurred. In addi-tion, the risk control unit coordinates all risk reporting.



ARB 191 6.3.1. Credit risk

Loans to clients

The monitoring of credit risks is performed at three levels:

Ensuring established processes and tools for an in-depth assessment of credit risk and, hence, for high-quality decision-making relating to loans;

Risk positions are closely monitored by qualified experts and restricted by limits;

Periodic assessments of developments in the industry and in the credit portfolio.

Responsibility for sales and responsibility for decisions regarding loans are separated. Authority regard-ing credit matters is given to the Credit Office and the Credit Committee of the executive management. The Board of Directors’ is responsible for approving large credit exposures as well as loans and exposures to members of the governing bodies. Specific authority to grant loans involving manageable risks are dele-gated to the client advisers. Such loans may be granted only within the limits of the predefined parame-ters used in the IT-based decision-making process. Credit Administration, which is independent of the client advisers and the Credit Office, processes the approved loans and is responsible for the final checks.

The credit policy of the bank forms the basis of credit risk monitoring and control. This is expressed, par-ticularly, in the credit conditions and the monitoring of loans. Significant aspects include knowing the purpose of the loan and the client’s integrity along with the transparency, plausibility, ability to pay and the proportionality of the transaction. The credit policy is reviewed annually and supplemented by de-tailed internal policies and process descriptions.

A key aspect of credit reviews, which assess credit worthiness by means of standard criteria, is the credit rating. The rating is an estimate of the risk and it measures the probability of default for each client expo-sure. In principle, the rating is applied to all credit clients. The rating also serves to establish the risk-ad-justed conditions.

The bank’s rating system largely corresponds to the classifications given by external rating agencies. The bank applies ten rating classes, with each class assigned a fixed probability of default. The rating system is based on a mathematical/statistical model, which supports the credit decision. The assessment of the fi-nancial factors is primarily based on considerations of earning power, suitability of the loan and liquidity. The assessment considers quantitative factors and qualitative aspects of the borrower.

Credit exposures to counterparties are restricted by credit limits. The borrowing capacity of commercial clients is used to calculate the maximum loan amount. The basis is the long-term realisable operating free cash flow. The ‘cash flow over capital’ principle also applies to credit exposures to private clients. The loan-to-value ratios of collateral are based on the usual banking standards. All collateral used for mort-gage loans is backed by an up-to-date valuation. Valuations are always dependent on the use of each ob-ject. If the credit rating is low, the liquidation value of the collateral is used. The maximum possible fi-nancing amount is determined by the bank’s internal loan-to-value ratios and the ability to pay. Amortisa-tion is fixed depending on the risk.

The credit lines and collateral are reassessed and, if necessary, depreciated according to the bank’s own internal time schedule and the process described in section 6.4.

Counterparty risk in interbank business

In the interbank business and trading operations, a multi-level limit system is used to manage the coun-terparty and default risks. In principle, the bank works only with first-class counterparties. Before enter-ing into a business relationship with a counterparty in interbank business, the bank performs a compre-hensive assessment of the counterparty risk. The limit depends significantly on the rating and on the capi-tal adequacy of the counterparty. Risk Control monitors compliance with the limits on a daily basis.

A review of the appropriate classification of the counterparties and, thus, of the set limits is performed, usually on an annual basis. Additionally, Risk Control monitors weekly the developments in counterpar-ties’ ratings. In cases of extreme market events, a daily situation report is prepared in order to react im-mediately to increased risk situations.



ARB 191 6.3.2. Interest rate risk

As the bank is heavily involved in balance sheet transactions, interest rate risks could have a significant impact on the interest margin. The interest rate risk arises mainly from imbalances between the time lim-its of assets and liabilities. The measurement and management of the resulting risks is key. This is part of the asset and liability management (ALM) performed by the ALM Committee (ALCO) of the bank, which comprises the members of the executive management and the Head of Research.

The Risk Management function operates the ALM system and reports weekly. This measures the potential impact of market risks on the earnings situation and the equity capital of the bank by means of Value-at-Risk, gap and duration calculations. The variable interest-bearing items are illustrated using a mathemat-ical model that applies the so-called ‘constant maturity bonds’ approach. The analysis of the economic sit-uation and the derivation of interest rate forecasts from it includes a regular analysis of the income and value effects. Depending on the estimated interest rate developments, the ALCO takes hedging measures within defined risk limits and defined hedging strategies. To this end, derivative financial instruments are used.

Further, stress scenarios are used to assess the impact of non-parallel changes in the interest rate curve. A limit also exists for the standard stress scenario in use and compliance with it is monitored.

Money market operations ensure long-term refinancing and the management of interest rate risks, taking into account the following objectives:

Record, measure and manage all interest rate risks arising from client transactions with the bank;

Generate risk-adjusted income within the risk limits;

Ensure cost-effective refinancing in line with the development of the balance sheet;

Monitor liquidity and avoid potential liquidity shortfalls.

ARB 191 6.3.3. Other market risks

Currency risks

The bank’s currency management serves to minimise any negative impact on the bank’s earnings due to interest rate changes. Basically, the goal is to balance the assets denominated in foreign currencies with the liabilities in foreign currencies. The currency risks are included in the Value-at-Risk calculations.

Trading operations

The trading book limits approved by the Board of Directors are divided among various units and the over-all position of the bank is calculated continuously during the day. The value of trading operations, which forms the basis of the Value-at-Risk calculation, is determined using the fair value method based on daily market prices. The Value-at-Risk is calculated individually for the total trading book and for various risk factors (shares, interest rates, currencies and raw materials). The bank calculates the Value-at-Risk over a ten-day period and with a 99% confidence level using the Monte Carlo simulation method. Value-at-Risk reports are sent daily to the Heads of Trading and Risk Control at the group management level. Back test-ing of Value-at-Risk and simulations of stress scenarios are performed weekly and the results reported to the unit responsible.

Trades in derivative financial instruments are mainly on behalf of clients; trades on own account are small and limited to hedging operations for ‘nostro’ positions and transactions relating to balance sheet struc-ture management. The bank does not have any market-making activities Both standardised and OTC in-struments are traded.

6.3.4. Liquidity

The liquidity strategy of the bank has been developed by the Treasury department and approved by the Board of Directors. The Treasury department ensures that the limits and objectives are complied with. Liquidity positions, the financing situation and concentration risks are reported monthly to the ALM Committee of the bank. The liquidity and financing limits are approved annually by the executive man-agement and the Board of Directors. In doing so, the current and planned business strategy and the risk appetite are considered.

Liquidity management aims to create a solid liquidity position to allow the bank to pay its obligations in a timely manner at all times. Further, the financing risk is managed through the optimisation of the balance sheet structure.

The emergency liquidity plan is a key aspect of the bank’s crisis management concept. The emergency plan includes an assessment of financing sources in a stressed market situation, considers liquidity status

C Reliable assessment statutory single-entity financial statements 6 Notes 6.4 Methods used for identifying default risks and determining the need for value adjustments


indicators and key figures, and describes the emergency measures. Provisions for a crisis have been made by diversifying the sources of financing. All material expected cash flows and the availability of first-class collateral, which could be used to gain additional liquidity, are regularly reviewed.

6.3.5. Operational risks

Operational risks are defined as the risks of losses due to the inadequacy or failure of internal policies, people and systems or due to external events.

The assessment of operational risks and compliance risks evaluates the direct financial losses and the con-sequences of the loss of client trust and reputation. The primary objective of operational risk management is to ensure the trust of the clients, shareholders and regulators.

The operational risks are measured by calculating the potential extent of damages in normal and extreme cases. The Risk Control department maintains a database of cases of damages and the losses incurred. For risk management purposes, the potential losses are assigned to the various risk categories and risk-ad-justed measures to minimise the potential loss are defined.

The Risk Committee of the Board of Directors reviews annually the operational risk policy, which, to-gether with the detailed directives, serves as the basis for risk management. Risk-mitigation measures are implemented in the areas of process management, information security, control systems, quality and training. This also includes ensuring that operations continue in cases of internal or external events or disasters.

The key controls have been documented in a standardised manner. All of the bank’s departments perform (usually on an annual basis) an assessment of the internal control processes in terms of their operational effectiveness and take any improvement measures necessary. The effectiveness of the Business Continuity Management is tested annually. The results of these review measures are included in a report on the oper-ational risks. This report is discussed by the executive management and the Risk Committee of the Board of Directors. The improvement measures are summarily approved by these bodies. Significant control de-ficiencies impact the performance appraisal and the remuneration of the units concerned.

ARB 192 6.4. Methods used for identifying default risks and de-termining the need for value adjustments

6.4.1. Mortgage-based loans

For residential properties used by the owner, the valuations generated by the hedonic models are updated annually. In doing so, the bank uses regionally specific property prices stemming from external providers and validated by the bank. Based on these valuations, the bank updates the loan-to-value ratio on an an-nual basis. Additionally, late payment of interest and amortisation payments are analysed. From this, the bank identifies mortgages that involve higher risks. These loans are then reviewed in detail by credit spe-cialists. If necessary, additional coverage is requested or a corresponding value adjustment is created based on the coverage shortfall.

For investment properties, the property value is calculated using a capitalisation model which includes the estimated long-term revenues. This model also includes market data, location data and vacancy rates. The rental income from investment properties is reviewed at least every three years. If there are indica-tions of significant changes in the amount of rental income or the vacancy rate, a revaluation is performed before the end of the three-year period.

6.4.2. Securities-based loans

The commitments and values of collateral for securities-based loans are monitored daily. If the collateral value of the securities falls below the amount of the credit line, the amount of the loan is reduced or addi-tional securities are requested. If the coverage gap grows or in extraordinary market conditions, the secu-rities are utilised and the credit position is closed out.

6.4.3. Unsecured loans

Unsecured loans are usually commercial working-capital loans or unsecured account overdrafts of retail clients.

C Reliable assessment statutory single-entity financial statements 6 Notes 6.5 Valuation of collateral


For unsecured commercial working-capital loans, information is requested from clients every year (or more frequently, if necessary) that enable inferences to be made about the financial development of the company. This information might include, among others, revenue, sales and product development. The audited annual financial statements and, if applicable, the interim financial statements are requested reg-ularly. The Credit Analysis department analyses these data and identifies any significant risks. If signifi-cant risks are identified, the Credit Analysis department makes a detailed assessment and defines jointly with the client adviser if action should be taken. If it is expected in this phase that the credit commitment is at risk, a corresponding value adjustment is created.

6.4.4. Process for determining value adjustments and provisions

Any new value adjustments and provisions needed are identified by the process described in Sections 6.4.1 to 6.4.3. Further, the known risk exposures already identified as at risk are reassessed at each bal-ance sheet date and the value adjustments are adjusted, if necessary. The Risk Committee assesses and approves all of the value adjustments created for the risk exposures. Then, approval is given by the execu-tive management and the Board of Directors.

ARB 193 6.5. Valuation of collateral

6.5.1. Mortgage-based loans

Each mortgage-based loan granted is backed by an up-to-date valuation of the collateral. Valuations are always dependent on the use of each object. To assess residential properties, the bank’s internal apprais-ers use hedonic valuation models. These compare property transactions based on the detailed characteris-tics of each property. For multi-storey dwellings, commercial properties and special properties, certified external property appraisers calculate the going-concern value, which takes into account the rental in-come, in particular. If the credit rating is low, the liquidation value is calculated.

The bank uses as the basis for granting a loan whichever has the lowest value of the internal valuation, the purchase price and the external estimate.

6.5.2. Securities-based loans

Primarily, transferable financial instruments (like loans and shares) that are liquid and actively traded are used for Lombard loans and other securities-based loans. Transferable structured products, for which there is regular market information and a market maker, are also accepted.

The bank applies a discount to the market value in order to cover the market risk relating to marketable liquid securities and to calculate the value of the collateral. For structured products and products with long residual terms to maturity, the closing out period can be significantly longer; hence, higher discounts are applied to them than are applied to liquid instruments. For life insurance policies or guarantees, a product-specific or client-specific discount is fixed.

ARB 194 6.6. Business policy regarding the use of derivative fi-nancial instruments and hedge accounting

6.6.1. Business policy regarding the use of derivative financial instruments

ARB A5-3 Derivative financial instruments are used for trading and for hedging purposes.

Derivative financial instruments are traded exclusively by specially trained traders. The bank does not have any market-making activities. Standardised and OTC instruments are traded on own account and on behalf of clients, especially interest-, currency- and equity/index-based instruments and, to a limited ex-tent, those based on commodities. There is no trading in credit derivatives.

Derivative financial instruments are used by the bank for risk management purposes, mainly to hedge against interest rate and foreign currency risks as well as, in some circumstances, to minimise credit risks, including risks of future transactions. Hedging transactions are concluded exclusively with external coun-terparties.

C Reliable assessment statutory single-entity financial statements 6 Notes 6.7 Material events after the balance sheet date


6.6.2. Use of hedge accounting

ARB A5-4 Types of underlying and hedging transaction

The bank uses hedge accounting mainly in relation to the following types of transaction:

Underlying transaction Hedged using

Interest rate risks of interest-rate-sensitive receiv-ables and payables in the banking book

Interest rate swaps

Exchange rate changes on net currency positions Foreign exchange forwards

Default risks of counterparty positions Credit derivatives (especially, credit default swaps and first-to-default swaps)

ARB A5-5 Composition of the group of financial instruments

Some interest-rate-sensitive positions in the banking book (especially receivables and payables with cli-ents as well as mortgage receivables) are grouped in various fixed-interest-rate bands by currency and hedged by means of macro hedges.

ARB A5-6 Economic relationship between the hedged items and the hedging transactions

As soon as a financial instrument is designated as a hedging transaction, the bank documents the rela-tionship between the hedging instrument and the secured underlying. Among others, it documents the risk management goals and strategy for the hedging transaction and the methods to assess the effective-ness of the hedging. The economic link between the underlying and the hedging transaction is continu-ously assessed as part of the effectiveness testing by observing the opposing changes in their values and their correlation.

ARB A5-7 Measurement of effectiveness

A hedge is seen as highly effective when the following criteria are fulfilled in all material aspects:

The hedge is estimated as highly effective from its first application and for the rest of its lifetime.

There is a close economic correlation between the underlying and the hedging transaction.

Changes in the value of the underlying and the hedge are contrary to the hedged risk.

The actual results of hedges are within a range of 80%–125%.

ARB A5-8 Ineffectiveness

If a hedging transaction no longer fulfils the effectiveness criteria, it is considered like a trading transac-tion and the effect of the ineffective portion is recorded via the item ‘Results from trading operations and use of fair value option’. In the 2015 income statement, the following effects due to ineffective hedges were disclosed:

Due to an unexpected development in the maturity and fixed-interest structure of the mortgage portfolio, some interest-rate swaps concluded for hedging purposes were assessed as ineffective. The ineffective portion of these hedging transactions resulted in a loss of CHF 2 million, which was charged via the item ‘Results from trading operations and use of fair value option’.

6.7. Material events after the balance sheet date

ARB 195 No material events occurred after the balance sheet date that could have a material impact on the finan-cial position of the bank as of 31 December 2015.

6.8. Premature resignation of the auditor

ARB 196 PricewaterhouseCoopers AG, Zurich, was elected as the bank’s auditor by the General Meeting. The audit mandate was granted in 2001 for the first time. The auditor has not resigned prematurely from its func-tion.

C Reliable assessment statutory single-entity financial statements 6 Notes 6.9 Information on the balance sheet


ARB 197 6.9. Information on the balance sheet

ARB 174

Notes: Unless expressly provided for otherwise by the remarks or detailed information set out in annex 5 to the FINMA circ. 15/1, all quantitative entries are to be accompanied in the notes by figures from the previous year.

ARB 627 When preparing annual financial statements in accordance with the provisions of FINMA circ. 15/1 for the first time, banks and financial groups may omit the presentation of the previous year’s figures in the notes if this constitutes new information in the notes compared with FINMA circ. 08/2 ‘Accounting – banks’, valid until 31 December 2014.

ARB 198 1. Securities financing transactions (assets and liabilities);

(CHF million) 31.12.2015 31.12.2014

ARB A5-9 Book value of receivables from cash collateral delivered in connection with securities borrowing and reverse repurchase transactions* 28 33

Book value of obligations from cash collateral received in connection with se-curities lending and repurchase transactions* 73 61

Book value of securities lent in connection with securities lending or deliv-ered as collateral in connection with securities borrowing as well as securities in own portfolio transferred in connection with repurchase agreements 90 84

- of which, with unrestricted right to resell or pledge 78 73

Fair value of securities received and serving as collateral in connection with securities lending or securities borrowed in connection with securities bor-rowing as well as securities received in connection with reverse repurchase agreements with an unrestricted right to resell or re-pledge 91 85

- of which, re-pledged securities 10 5

- of which, resold securities 4 -

* Before netting agreements



ARB 199 2. Collateral for loans and off-balance-sheet transactions, as well as impaired loans

ARB A5-10 Collateral for loans and off- balance-sheet transactions

Type of collateral

Secured by mortgage

Othercollateral

Unsecured Total

(CHF million)

Loans (before netting with value adjustments)

Amounts due from customers 618 6,602 2,909 10,129

Mortgage loans

- Residential property 8,554 - 262 8,816

- Office and business premises 941 - 26 967

- Commercial and industrial premises 572 - 27 599

- Other 381 - 22 403

Total loans (before netting with value adjustments)

31.12.2015 11,066 6,602 3,246 20,914

31.12.2014 10,314 5,941 2,605 18,860

Total loans (after netting with value adjustments)

31.12.2015 10,610 6,405 3,217 20,232

31.12.2014 9,928 5,780 2,508 18,216

Off-balance-sheet

Contingent liabilities 60 856 896 1,812

Irrevocable commitments 364 5 - 369

Obligations to pay up shares and make further contributions

- - 124 124

Credit commitments - - 5 5

Total off-balance-sheet

31.12.2015 424 861 1,025 2,310

31.12.2014 548 915 1,050 2,513

ARB A5-15 Impaired loans

Gross debt amount

Estimated liquidation

value ofcollateral

Net debt amount

Individual value ad-

justments

(CHF million)

31.12.2015 1,373 691 682 682

31.12.2014 1,296 652 644 644

ARB A5-15 The net debt of doubtful receivables increased by CHF 38 million or 6% compared with the prior year. The worsening of the situation is largely due to lower estimated recoveries.



ARB 200 3. Trading portfolios and other financial instruments at fair value (assets and liabilities)

ARB A5-17 (CHF million) 31.12.2015 31.12.2014

Assets

Trading portfolio assets

Debt securities, money market securities/transactions 741 954

- of which, listed 716 914

Equity securities 623 317

Precious metals and commodities 18 12

Other trading portfolio assets 1 -

Total trading portfolio assets 1,383 1,283

Other financial instruments at fair value

Debt securities 875 522

Structured products 493 316

Other 24 18

Total other financial instruments at fair value 1,392 856

Total assets 2,775 2,139

- of which, determined using a valuation model 23 18

- of which, securities eligible for repo transactions in accordance with liquidityrequirements

695 867

Liabilities

Trading portfolio liabilities

Debt securities, money market securities/transactions 6 7

- of which, listed 6 7

Equity securities 44 23

Precious metals and commodities 17 11

Other trading portfolio liabilities 1 -

Total trading portfolio liabilities 68 41

Other financial instruments at fair value

Debt securities 138 117

Structured products 1,271 716

Other 29 18

Total other financial instruments at fair value 1,438 851

Total liabilities 1,506 892

- of which, determined using a valuation model 148 132



ARB 201 4. Derivative financial instruments (assets and liabilities)

ARB A5-18 Trading instruments Hedging instruments

(CHF million)

Positive replace-

mentvalues

Negative replace-

mentvalues

Contract volume

Positive replace-

ment values

Negative replace-

ment values

Contract volume

Interest rate instruments

Forward contracts including FRAs - 4 67 - - -

Swaps 44 20 1,145 74 48 1,654

Futures 9 16 320 - - -

Options (OTC) 5 - 84 - - -

Options (exchange traded) 1 - 12 - - -

Foreign exchange/precious metals

Forward contracts 81 61 2,577 98 41 4,406

Combined interest rate/currency swaps 17 17 558 - - -

Futures 17 15 537 - - -

Options (OTC) 2 - 27 - - -

Options (exchange traded) 1 - 34 - 2 16

Equity securities/indices

Forward contracts including FRAs 71 49 943 - - -

Swaps - - - - - -

Futures 34 22 461 - - -

Options (OTC) 2 - 18 - 4 38

Options (exchange traded) 4 9 42 - - -

Credit derivatives

Credit default swaps - - - 5 - 65

Total return swaps - - - - 3 39

First-to-default swaps - - - 18 - 376

Other credit derivatives - - - 1 - 27

Other

Forward contracts including FRAs 3 - 15 - - -

Swaps - - - - -

Futures 1 - 7 - - -

Options (OTC) 2 - 12 - - -

Options (exchange traded) 4 - 36 - - -

Total before netting agree-ments

31.12.2015 298 213 6,895 196 98 6,621

of which, determinedusing a valuation model

227 151 - 196 96 -

31.12.2014 223 140 6,767 168 114 5,356

of which, determinedusing a valuation model

167 98 - 152 104 -

(CHF million)

Positive replace-ment values

(cumulative)

Negative replace-ment values

(cumulative)

Total after netting agreements

31.12.2015 255 72

31.12.2014 220 63



ARB A5-18 Breakdown by counterparty

(CHF million)

Central clearing

houses

Banks andsecurities

dealers

Other customers

Positive replacement values (after netting agreements) 45 167 43

ARB 202 5. Financial investments

ARB A5-30 Breakdown of financial investments

Book value Fair value

(CHF million) 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Debt securities 1,699 1,697 1,742 1,731

- of which, intended to be held to maturity 1,417 1,319 1,460 1,345

- of which, not intended to be held to maturity (available for sale) 282 378 282 386

Equity securities 226 121 226 136

- of which, qualified participations (at least 10% of capital or votes) 28 3 28 4

Precious metals 3 3 3 3

Real estate 55 43 58 44

Total 1,983 1,864 2,029 1,914

- of which, securities eligible for repo transactions in accordance with liquidity requirements 1,445 1,432 1,452 1,443

ARB A5-30 Breakdown of counterparties by rating

(CHF million)

AAA to AA-

A+ to A-

BBB+ to BBB-

BB+ to B-

Below B- Unrated

Book values of debt securities

812 454 272 125 5 31

The bank relies on the rating classes of Standard & Poor’s.



ARB 203 6. Participations

ARB 327 ARB 328 ARB 341

Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consoli-dated financial statements and a group management report, the banks consolidated within the group are exempted from the requirement to include this component of the notes in their single-entity fi-nancial statements. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permit-ted to apply the exemptions above.

ARB A5-31 Acqui-sition

cost

Accu-mu-

lated value

ad-just-

ments

Book value

(prior year end)

Reporting year Mar-ket

value

(CHF million)

Re-classi-

fica-tions

Addi-tions

Dis-posals

Value ad-

just-ment

s

Appre-ciation

in value

Book value 31.12. 2015

Participations

With market value 75 - 75 +8 +18 - -5 - 96 96

without mar-ket value 60 -21 39 -8 +9 -7 -4 +6 35

Total par-ticipations

135 -21 114 0 +27 -7 -9 +6 131

ARB A5-32 Due to economic difficulties, the bank has accumulated depreciation of CHF 15 million since 2009 on its participation in Epsilon Bau AG. As the business situation worsened further during the year under re-view, depreciation was increased by CHF 4 million in 2015, resulting in a new net book value of CHF 9 million.

Thanks to the sale of a part of the property portfolio, Zeta Immobilien AG, Basel, realised substantial proceeds from sales. This means that no reduction was made to the company’s equity capital during 2015. The bank therefore increased the value of its participation by CHF 6 million to restore it to the his-torical cost of CHF 8 million.

ARB A5-31 Note: In the consolidated financial statements and in the true and fair view single-entity financial statements, participations valued using the equity method also have to be disclosed. In the case of true and fair view statutory single-entity financial statements, the impact of a theoretical application of the equity method for participations over which the bank can exert a material influence is to be disclosed.

ARB 204 7. Companies in which the bank holds a permanent direct or in-direct significant participation

ARB 327 ARB 329 ARB 341

Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consoli-dated financial statements and a group management report, the banks consolidated within the group are exempted from the requirement to include this component of the notes in their single-entity fi-nancial statements. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permit-ted to apply the exemptions above.

ARB A5-34 Company name and domicile

Business activity

Bank’s capital

Share of Held

Capital Votes Direct Indi-rect

(CHF m)

ARB A5-35 Recorded as financial assets

Alpha Handels AG, Bern Trading com-pany 53 40% 35% 35% -



Recorded as participations

Beta Finanz AG, Zurich Finance com-pany 142 35% 35% - 35%

Gamma Fonds AG, Lau-sanne

Fund manage-ment company 10 15% 40% 5% 35%

Epsilon Bau AG, Lucerne Real estate company 25 45% 45% 45% -

Zeta Immobilien AG, Ba-sel

Real estate company 3 30% 30% 30% -

Eta Travel AG, St. Gallen Travel agency 62 12% 12% - 12%

ARB A5-36 As of 20 March 2015, the bank increased its share in Beta Finanz AG, Zurich, from 22% to 35%.

ARB A5-36 As of 15 April 2015, the bank acquired a call option to purchase a maximum 9% of the shares of Beta Fi-nanz AG, Zurich. The replacement value of this option was CHF 1.8 million as of 31 December 2015 and was recorded via ‘Positive replacement values of derivative financial instruments’.

ARB A5-37 Further, an option was conceded with a third party to sell all of the shares in Zeta Immobilien AG, Basel, upon demand. This option is valid until 30 June 2016 at the latest.

ARB 205 8. Tangible fixed assets

ARB A5-39

Notes: Where tangible fixed assets are immaterial or where their book value is less than 10 million Swiss francs, the breakdown may be limited to the gross additions and disposals and depreciation for the current year. In the event of the determination of acquisition cost being waived, reasons must be given for this.

ARB 327 ARB 330 ARB 341

Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consolidated financial statements and a group management report, the banks consolidated within the group are ex-empted from the requirement to include this component of the notes in their single-entity financial statements. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permitted to apply the exemptions above.

ARB A5-38 Tangible fixed assets Ac-quisi-

tion cost

Accu-mu-

lated de-

preci-ation

Bookvalue31.12.2014

2015 Bookvalue 31.12.2015

(CHF million)

Re-clas-sifi-

cati-ons

Addi-tions

Dis-posals

De-preci-ation

Re-versal

s

Bank buildings 517 -145 372 2 +13 -53 -22 - 312

Other real estate 645 -178 467 -2 +3 -62 -21 - 385

Proprietary or separately acquired software 45 -15 30 - - - -15 - 15

Other tangible fixed assets 497 -86 411 - +16 - -23 +2 406

Tangible assets acquired under finance leases 143 -18 125 - 41 - -11 - 155

- of which, bank buildings 37 -5 32 - +28 - -1 - 59

- of which, other real estate 21 -8 13 - +8 - - - 21

- of which, other tangible fixed assets 85 -5 80 - +5 - -10 - 75

Total tangible fixed assets 1,847 -442 1,405 0 73 -115 -92 +2 1,273

ARB A5-40 The depreciation method applied and the range used for the expected useful life are explained in the general principles for accounting and valuation.



ARB A5-43 Significant construction defects were identified in a newly built property, which was partly for own use. Therefore, additional depreciation of CHF 18 million was booked besides the scheduled depreciation.

ARB A5-42 Operating leases

(CHF million 31.12.2015 31.12.2014

Off-balance-sheet leasing obligations

Maturity up to 12 months 4 5

Maturity between 12 months to 5 years 3 3

Maturity over 5 years 5 1

Total off-balance-sheet leasing obligations 12 9

- of which, may be terminated within one year 4 2

ARB 206 9. Intangible assets

ARB A5-45

Notes: Where intangible assets are immaterial or where their book value is less than 10 million Swiss francs, the breakdown may be limited to the gross additions and disposals and depreciation for the current year. In the event of the determination of acquisition cost being waived, reasons must be given for this.

ARB 327 ARB 331 ARB 341

Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consolidated fi-nancial statements and a group management report, the banks consolidated within the group are exempted from the requirement to include this component of the notes in their single-entity financial statements. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permitted to apply the exemptions above.

ARB A5-44 Cost value

Accu-mu-

lated amor-

ti-sation

Bookvalue31.12.2014

2015 Bookvalue

31.12.2015

(CHF million)

Re-classi-

fica-tions

Addi-tions

Disposals Amor-ti-

sation

Goodwill

Patents 1 -1 0 - - - - 0

Licences 77 -15 62 - +17 - -15 64

Other intangible assets 35 -26 9 - +9 - -5 13

Total intangible assets 113 -42 71 0 +26 0 -20 77

ARB A5-46 The marketing rights for X-Brand and the usage rights for the corresponding address database are no longer used. For this reason, an immediate write down of CHF 4 million was made.



ARB 207 10. Other assets and other liabilities

ARB A5-48 (CHF million) 31.12.2015 31.12.2014

Other assets

Compensation account - 59

Amount recognised as assets in respect of employer contribution reserves

22 22

Amount recognised as assets relating to other assets from pension schemes 73 41

Indirect taxes 38 42

Clearing expense 331 144

Other assets 66 42

Total other assets 530 350

Other liabilities

Compensation account 34 -

Indirect taxes 45 48

Clearing expense 148 179

Unredeemed coupons, cash bonds and long-term bonds 15 19

Liabilities from goods and services 6 6

Other liabilities 39 56

Total other liabilities 287 308

ARB A5-48

Note: Add any other material sub-items.

ARB 208 11. Assets pledged or assigned to secure own commitments and as-sets under reservation of ownership

ARB A5-49 31.12.2015 31.12.2014

(CHF million)

Book value Effective commit-

ments

Book value Effectivecommitments

Pledged/assigned assets

Due from banks 81 2 26 -

Pledged or ceded mortgage receiva-bles for mortgage-backed loans 455 376 341 328

Total pledged/assigned assets 536 378 367 328

Assets under reservation of ownership

1 - 1 -

Securities serving as collateral, for which the resale or pledging rights as part of the securities financing operations have been ceded, are presented in appendix 1.



ARB 209 12. Liabilities relating to own pension schemes, and number and na-ture of equity instruments of the bank held by own pension schemes

ARB A5-50 Liabilities relating to own pension schemes 31.12.2015

31.12.2014

(CHF m) (CHF m)

Amounts due in respect of customer deposits 6 3

Negative replacement values of derivative financial instruments 1 1

Cash bonds 2 1

Bond issues and central mortgage institution loans 3 4

Accrued expenses and deferred income 1 1

Total liabilities relating to own pension schemes 13 10

ARB A5-51 Equity instruments of the bank

The bank’s pension funds hold 1,480 bearer shares at a nominal value of CHF 1,000. This corresponds to a 0.2% share of the total company capital. The pension fund did not hold any shares in the bank in the prior year.

ARB 210 13. Economic situation of own pension schemes

ARB A5-52 Employer contribution reserves (ECR) 31.12.2015

Net amount 31.12.2014

Influence of ECR on personnel expenses

(CHF million)

Nominalvalue

Waiverof use

Netamount 2015 2014

Employer sponsored pen-sion schemes 3 - 3 3 - -

Pension schemes 19 - 19 19 - 1

Total 22 - 22 22 - 1

ARB A5-53 The employer contribution reserves correspond to the nominal value according to the calculation of the pen-sion fund. These are recognised in ‘Other assets’. The nominal amount of the employer contribution reserves is not discounted. Regular interest is paid on the employer contribution reserves. The interest payments are recognised in ‘Personnel expense’.

ARB A5-57 There are no non-capitalised employer contribution reserves.



ARB A5-54 Economic benefit/obligation and pension expenses (CHF million)

Over-/under-

funding 31.12.15

Economic interest

of the bank

Change in economic interest vs. prior

year

Contri-butions

paid 2015

Pension expenses in personnel expenses

31.12.15 31.12.14 2015 2014

Employer sponsored funds/ employer sponsored pension schemes - - - - - - -

Pension plans without over-/ underfunding - - - - 4 4 6

Pension plans with overfunding 41 - - - 16 16 13

Pension plans with underfunding -5 - - - 5 5 4

Total 36 - - - 25 25 23

All of the bank’s employees older than 20 years are insured through the bank’s pension fund. Employees with temporary employment contracts of up to three months are excluded. The pension fund is a defined-contribution scheme.

For members of the executive management and employees at management grade 2, the bank has a senior management pension fund. This is a defined-contribution scheme that ensures the portion of the basic sal-ary that exceeds a certain minimum threshold. The senior management pension fund is financed jointly by the bank and the insured members.

The accounting for the pension fund and for the senior management pension fund is in accordance with the requirements of the Accounting and Reporting Recommendations Swiss GAAP FER 26. There are no other liabilities on the employer’s side.

There are pension funds for the employees of the foreign subsidiaries; however, their sizes are not material for the bank as a whole. They do not disclose any underfunding or overfunding.

ARB A5-56 The overfunding of the bank’s pension fund of 108% is used exclusively for the benefit of the insured mem-bers, thus there is no economic benefit to the bank that needs to be recorded in the balance sheet and in the income statement.

The underfunding of the senior management pension fund amounts to 99%. The pension fund has not de-cided on any measures that would lead to a future liability for the bank.



ARB 211 14. Issued structured products

ARB A5-59 Underlying risk of the embedded derivative

Book value

Total

ARB A5-60 Valued as a whole Valued separately

(CHF million)

Booked in trad-

ing port-folio

Booked in other finan-

cial instru-ments at fair

value

Value of the host instru-

ment

Value of the derivative

Interest rate instruments 12 477 131 -4 616

- with own debenture component - 108 104 - 212

- without own debenture component 12 369 27 -4 404

Equity securities 9 272 280 20 581

- with own debenture component - 170 165 12 347

- without own debenture component 9 102 115 8 234

Foreign currencies 15 48 29 2 94

- with own debenture component - 8 12 -1 19


Commodities/precious metals 2 19 15 1 37

- with own debenture component - 9 7 - 16


Total 38 816 455 10 1,328

ARB 212 15. Bonds outstanding and mandatory convertible bonds

ARB 327 ARB 332 ARB 341

Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consolidated finan-cial statements and a group management report, the banks consolidated within the group are exempted from the requirement to include this component of the notes in their single-entity financial statements. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permitted to apply the exemptions above.

ARB A5-61 Inter-est rate

Type of bond Issue year Due date Earliest pos-sible termi-

nation

Outstanding nominal

value(CHF m)

2.250 % Long-term bond 2005 06.12.2016 400

4.750 % Subordinated loan without PONV* clause

2006 12.01.2017 12.01.2014 600

2.125 % Long-term bond 2008 11.10.2020 350

1.625 % Long-term bond 2009 20.03.2019 450

1.500 % Long-term bond 2011 28.05.2018 300

3.500 % Subordinated loan with PONV* clause

2012 unlimited 30.09.2018 400

1.250 % Long-term bond 2013 15.08.2027 280

1.125 % Long-term bond 2015 03.11.2029 550

Mortgage-backed loans 1,519

Total 2015 4,849

* PONV=Point of no viability



ARB A5-62

Note: If there are more than 20 issues, the information on bonds outstanding may be summarised and disclosed as per the following table. Separate disclosures for each issuer needed in consolidated financial state-ments.

ARB A5-62 Bonds outstanding and mandatory convertible bonds

Issuer Type of bond Weightedaverage

interest rate

Maturities Amount(CHF m)

ABC AG Non-subordinated 1.84 % 2016 – 2029 1,834

Subordinated without PONV clause*

3.51 % 2017 – 2020 574

Subordinated with PONV clause* 4.24 % unlimited 360

CDE Ltd. Non-subordinated 1.76 % 2019 – 2025 4,940

Subordinated without PONV clause*

2.94 % 2016 – 2031 1,452

Subordinated with PONV clause* 3.95 % unlimited 780

Total 2015 9,940

* PONV clause = Point of no viability

ARB A5-62 Maturities of bonds outstanding

Issuer Maturities

(CHF million) ≤ 1 year

> 1 year > 2 years > 3 years > 4 years > 5 years Total

≤ 2 years ≤ 3 years ≤ 4 years ≤ 5 years

ABC AG 182 230 640 460 385 871 2,768

CDE Ltd. 416 678 955 710 1,250 3,163 7,172

Total 598 908 1,595 1,170 1,635 4,034 9,940



ARB 213 16. Value adjustments, provisions, reserves for general banking risks

BankO 69.1 In the first two years after the entry into force of the Ordinance (until 31 December 2016), banks can dis-close value adjustments, in accordance with BankO 27.1, as negative items in the assets, either as full to-tals or sub-totals. FINMA regulates the specific details.

ARB 626 Banks and financial groups that require more time for the changeover with regard to the deduction of value adjustments from asset items may apply the transitional provisions of art. 69 para. 1 BankO. The value adjustments concerned are to be disclosed separately in the notes to the annual financial state-ments/consolidated financial statements in the ‘Presentation of value adjustments and provisions, re-serves for general banking risks, and changes therein during the current year’.

ARB A5-63 Status 31.12.2014

2015 Status 31.12.2015

(CHF million)

Use in con-

formity with des-

ignated purpose

Reclassi-fication

Cur-rency

differ-ences

Past due interest, recover-

ies

New cre-ations

charged to in-come

Relea-ses to

income

Provisions for deferred taxes 124 - - - - +11 - 135

Provisions for pension benefit obligations - - - - - - - -

Provisions for default risks 79 - -19 - - +21 - 81

Provisions for other business risks 92 -37 - - - +13 -22 46

Provisions for restructuring 278 -80 - -6 - - - 192

Other provisions 528 - - - - +40 - 568

Total provisions 1,101 -117 -19 -6 - +85 -22 1,022

Reserves for general banking risks 112 - - - - +7 - 119

Value adjustments for default risks in respect of impaired loans 596 -1 +19 - +5 +13 - 625

Value adjustments for latent risks 48 - - - - +2 - 57

Value adjustments for default and country risks 644 -1 +19 - +5 +15 - 682

ARB A5-67 The provisions for restructuring are mainly in relation to the obligations arising from the acquisition and integration of XYZ Asset Management Partners in 2013. They include integration measures and compen-sation payments in relation to personnel measures. Up to 2019, the expected liabilities will be estimated and, where necessary, justified on an annual basis. The compensation payments depend on imputed re-sults and the retention of the clients of XYZ Asset Management Partners.

The remaining provisions include those for legal costs as well as the hidden reserves. The legal risks are assessed continuously and the corresponding provision is adjusted during the course of the judicial pro-ceedings, if necessary. Whether a loss is realised depends on the ruling of the competent court.

ARB A5-68 The reserves for general banking risks are subject to tax.



ARB 214 17. Bank’s capital

ARB A5-69 31.12.2015 31.12.2014

ARB A5-88 Total par value

No. of shares

Capital eligible for

dividend

Total par value

No. of shares

Capital eligible for

dividend

(CHF m) (000s) (CHF m) (CHF m) (000s) CHF m

Share capital 630 1,230 630 480 1,080 480

Registered shares 200 800 200 200 800 200

- of which, paid up 200 800 200 200 800 200

Bearer shares 430 430 430 280 280 280

- of which, paid up 430 430 430 280 280 280

Participation capital 200 200 200 200 200 200

- of which, paid up 200 200 200 200 200 200

Total bank’s capital 830 1,430 830 680 1,280 680

Authorised capital 200 200 - 200 200 -

- of which, capital increases completed 150 150 - none - -

Conditional capital 20 20 - 20 20 -

- of which, capital increases completed none - - none - -

ARB A5-88 Rights and restrictions linked to the sharesThe company’s share capital is fully paid in. No special rights are conferred by the share capital.

The exercise of voting rights and the corresponding rights of the holders of registered shares requires recognition by the Board of Directors and entry in the share register as a voting shareholder. Such ap-proval may be refused if the investor, despite the bank’s requests, does not declare that the shares are held in his/her own name and acquired for his/her own benefit, or if the share of voting rights of a holder of registered shares exceeds 5% of the total number of registered shares entered in the commercial regis-ter.

With the exception of this duty of registration, there are no other limitations placed on shareholders’ vot-ing rights.

ARB 215 18. Equity securities or options on equity securities held by executives and directors and by employees

Equity securities Options

Number Value Number Value

31.12.15 31.12.14 31.12.15 31.12.14 31.12.15 31.12.14 31.12.15 31.12.14

(CHF m) (CHF m) (CHF m) (CHF m)

ARB A5-71 Members of the Board of Directors

671 620 3.5 3.7 - - - -

Members of executive bodies 1,594 1,541 8.3 9.3 7,841 6,476 5.3 4.1

Employees 2,922 3,145 15.2 19.0 - - - -

Total 5,187 5,306 27.0 32.0 7,841 6,476 5.3 4.1



ARB A5-72 Equity-based compensation schemes exist for members of the executive management as well as some em-ployees. Employees are allocated bearer shares depending on their tenure, hierarchical level and individ-ual performance. These shares are subject to a three-year blocking period during which they cannot be sold.

Members of the executive management are also given employee stock options of bearer shares in the bank dependent on them achieving their objectives. Such options are subject to a vesting period of five years. When exercising an option, the option holder has the right to either a cash settlement or shares in the bank. Employee stock options are treated as compensation using ‘phantom’ equity instruments.

Comprehensive details of the design of the equity-based compensation scheme can be found in the com-pensation report.

ARB 216 19. Related parties

ARB A5-73 Amounts due from Amounts due to

(CHF million) 31.12.2015 31.12.2014 31.12.2015 31.12.2014

Holders of qualified participations: 4 3 12 14

Group companies 12 7 4 9

Linked companies 1 5 4 2

Transactions with members of governing bodies

94 85 86 83

Other related parties - - 1 2

ARB A5-75 Amounts due to and from holders of significant (‘qualified’) participations in the bank that are members of governing bodies are disclosed in the row ‘Holders of significant participations’.

ARB A5-77 There are no significant off-balance-sheet transactions with related parties.

ARB A5-78 On- and off-balance-sheet transactions with related persons are granted in conformity with market con-ditions, except the following:

The bank is engaged to perform asset management activities for the MB Familienstiftung (Family Foundation) and its subsidiaries. The economic beneficiary of the foundation is A.A., a holder of a significant participation. The bank has waived any charges for brokerage, asset management, custody and account management. These would have amounted in 2015 to CHF 0.5 million (prior year CHF 0.4 million) of the standard commissions and charges of the bank.

For mortgages, the bank charges members of the governing bodies and employees a maximum of 1% up to a maximum credit amount of CHF 1 million per borrower. Loans to members of governing bod-ies and to holders of significant participations as well as to their related parties and undertakings are only granted according to the generally accepted banking principles.

Members of the bank’s governing bodies perform regular banking operations at the same conditions that apply to the personnel.



ARB 217 20. Holders of significant participations and groups of holders of participations with pooled voting rights

ARB A5-80 The following hold participations with more than 5% of voting rights:

ARB A5-79 31.12.2015 31.12.2014

(CHF million) Nominal % of equity Nominal % of equity

With voting rights

MB Familienstiftung, Zurich 221 60.9 % 205 60.0 %

Alfred Muster, Zurich 24 7.7 % - -

Bernhard Muster, Bern - - 24 8.7 %

Alpha Investment Inc., New York 69 5.6 % 13 1.2 %

Without voting rights

None - - - -

ARB A5-81

Note: In accordance with the principle of substance over form, both holders of direct and indirect participa-tions are to be disclosed.

ARB 218 21. Own shares and composition of equity capital

ARB A5-82 Own shares Average transaction price

No. of shares

(CHF)

ARB A5-83 Own bearer shares as per 1.1.2015 3,920

+ Additions 2,850 600

- Disposals 3,120 2,480

ARB A5-94 Own bearer shares as per 31.12.2015 2,040

ARB A5-84 Own shares were treated at fair value during the year under review.

ARB 585 The sale of own bearer shares resulted in a profit of CHF 1.2 million, which was credited to the statutory retained earnings reserve. The shares disposed of were regular own shares not held for trading purposes.

ARB A5-85 There are no repurchase or disposal obligations or other contingent liabilities in relation to the sold and acquired own shares.

ARB A5-86 Subsidiaries, joint ventures, affiliated companies and the foundations related to the bank do not hold any equity instruments of the bank.

ARB A5-87 1,685 bearer shares were reserved as of 31 December 2015 for equity-based compensation schemes. As of 1 January 2015, 3,570 bearer shares were reserved.

ARB A5-88 The composition of the equity as well as the rights and restrictions in relation to the shares are described in appendix Error! Reference source not found., Bank’s capital.

ARB A5-88 Non-distributable reserves

CO 671.3 To the extent it does not exceed one-half of the share capital, the statutory retained earnings reserve may be used only to cover losses or for measures designed to sustain the company through difficult times, to prevent unemployment or to mitigate its consequences.

There are no statutory limitations that apply to the distribution of the voluntary retained earnings re-serve.



CHF m 31.12.2015 31.12.2014

Non-distributable statutory capital reserve 136 70

Non-distributable statutory retained earnings reserve 279 270

Total non-distributable reserves 415 340

ARB A5-89 All transactions with holders of participations in their capacity as such have been settled in cash and have not been offset against other transactions.

Note: The following information is to be disclosed in true and fair view supplementary single-entity financial statements and consolidated financial statements:

ARB A5-91 Reasons for and disclosure of the valuation basis of transactions with holders of participations that could not be recognised at fair value.

ARB A5-92 Description of transactions with holders of participations that were not conducted at terms in line with the market, including disclosure of the difference recognised in the item ‘Capital reserve’ be-tween the fair value and the contractually agreed price of the transaction.



ARB 219 22. Equity participations held by the governing body and compensa-tion report

ARB A5-93

Notes: This appendix concerns banks whose equity securities are listed on a stock exchange or similar institu-tion. The disclosure requirements according to the Ordinance against Excessive Remuneration and art. 663c para. 3 CO also apply to organisations whose participation certificates are listed.

CO 663c.3 According to art. 663c para. 3 CO the shareholdings in the company and the conversion and option rights held by each current member of the Board of Directors, executive management and board of advisers as of the year end must be disclosed. Additionally, any shares and options held by related parties of the members of the governing bodies must be disclosed.

31.12.2015 31.12.2014

(No. of instruments)

Bearer shares

Options Bearer shares

Options

Board of directors

A. A. 346 - 329 -

B. B. 115 - 110 -

C. C. 142 - 126 -

D. D. 68 - 55 -

Executive management

E. E. 889 3,635 876 3,224

F. F. 341 1,985 330 1,506

G. G. 264 1,641 255 1,366

H. H. 100 580 80 380

The information that has to be published according to the Ordinance against Excessive Remuneration (ERCO) shall be presented in a separate compensation report. The bank’s compensation report is pub-lished on pages 75–82 of this report.



ARB 220 23. Maturity structure of financial instruments

ARB 327 ARB 333 ARB 341

Note: Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consolidated financial statements and a group management report, the banks consolidated within the group are ex-empted from the requirement to include this component of the notes in their single-entity financial statements. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permitted to apply the exemptions above.

(CHF million)

At sight Cancel-lable

Due within 3 months

Due within 3

to 12 months

Due within 12

months to 5

years

Due after 5

years

No maturity

Total

ARB A5-104 Assets/financial instruments

Liquid assets 495 - - - - - - 495

Amounts due from banks 814 611 2,658 1,691 419 380 - 6,573

Amounts due from securities financing transactions - - 28 - - - - 28

Amounts due fromcustomers 486 5,142 385 880 2,028 983 - 9,904

Mortgage loans 76 431 119 253 1,965 7,484 - 10,328

Trading portfolio assets 1,383 - - - - - - 1,383

Positive replacement values of derivative financial instruments 255 - - - - - - 255

Other financial instruments at fair value 1,392 - - - - - - 1,392

Financial investments 235 - 256 452 624 361 55 1,983

Total 31.12.2015 5,136 6,184 3,446 3,276 5,036 9,208 55 32,341

31.12.2014 4,433 5,481 2,641 2,883 4,909 8,409 43 28,799

Debt capital/financial instruments

Amounts due to banks 1,609 196 162 559 - - - 2,526

Liabilities from securities financing transactions - - 73 - - - - 73

Amounts due in respect of customer deposits 4,277 5,992 3,409 1,241 171 4 - 15,094

Trading portfolio liabilities 68 - - - - - - 68

Negative replacement values of derivative financial instruments 72 - - - - - - 72

Liabilities from other finan-cial instruments at fair value 1,438 - - - - - - 1,438

Cash bonds 208 - 310 410 3,262 167 - 4,357

Bond issues and central mortgage institution loans - - 15 471 2,186 2,177 - 4,849

Total 31.12.2015 7,672 6,188 3,969 2,681 5,619 2,348 - 28,477

31.12.2014 6,707 5,815 2,281 2,510 4,794 2,991 - 25,098



ARB 221 24. Assets and liabilities by domestic and foreign origin

ARB 221

Notes: Presentation of assets and liabilities by domestic and foreign origin in accordance with the domicile prin-ciple, provided at least 5% of the assets of the bank or financial group are domiciled abroad. The calcula-tion is based on the average of the last three business years prior to the current period.

ARB 327 ARB 334 ARB 341

Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consolidated financial statements and a group management report, the banks consolidated within the group are ex-empted from the requirement to include this component of the notes in their single-entity financial state-ments. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permitted to apply the ex-emptions above.

ARB A5-110 The breakdown by domestic and foreign origin is made on the basis of the customer’s domicile, with the exception of mortgage loans where the domicile of the property is the relevant criterion. Liechtenstein is deemed to be a foreign country.

ARB A5-109 31.12.2015 31.12.2014

(CHF million) Domestic Foreign Domestic Foreign

Assets

Liquid assets 495 - 453 -

Amounts due from banks 5,733 840 4,871 1,003

Amounts due from securities financing transactions 28 - 33 -

Amounts due from customers 8,541 1,363 8,436 1,096

Mortgage loans 9,170 1,158 7,458 1,226

Trading portfolio assets 1,141 242 1,075 208

Positive replacement values of deriva-tive financial instruments 178 77 141 79

Other financial instruments at fair value 730 662 410 446

Financial investments 1,637 346 1,661 203

Accrued income and prepaid expenses 160 37 217 27

Participations 131 - 114 -

Tangible fixed assets 1,273 - 1,405 -

Intangible assets 77 - 71 -

Other assets 515 15 316 34

Capital not paid in - - - -

Total assets 29,809 4,740 26,661 4,322



31.12.2015 31.12.2014


Liabilities

Amounts due to banks 1,084 1,442 1,231 1,087

Liabilities from securities financing transactions 73 - 61 -

Amounts due in respect of customer deposits 12,816 2,278 9,988 3,106

Trading portfolio liabilities 68 - 41 -

Negative replacement values of derivative financial instruments 52 20 51 12

Liabilities from other financial instru-ments at fair value 717 721 371 480

Cash bonds 3,667 690 3,559 553

Bond issues and central mortgage institution loans 4,849 - 4,558 -

Accrued expenses and deferred income 446 103 460 75

Other liabilities 252 35 280 28

Provisions 911 111 1,005 96

Reserves for general banking risks 119 - 112 -

Bank’s capital 830 - 680 -

Statutory capital reserve 140 - 170 -

Statutory retained earnings reserve 279 - 270 -

Voluntary retained earnings reserves 2,635 - 2,539 -

Own shares -6 - -10 -

Profit carried forward 8 - 5 -

Profit 209 - 175 -

Total liabilities 29,149 5,400 25,546 5,437



ARB 222 25. Assets by country or group of countries

ARB 222

Notes: Breakdown of total assets by country or group of countries (domicile principle), provided at least 5% of the assets of the bank or financial group are domiciled abroad. The calculation is based on the average of the last three business years prior to the current period;

ARB A5-111 The level of detail in the breakdown by country/group of countries may be established by the bank at its own discretion.

ARB A5-113 Model table 6 ‘Geographic credit risk’ in FINMA circ. 08/22 ‘Capital adequacy disclosure – banks’ may be used instead of the following table ‘Assets by country or group of countries’.

ARB 327 ARB 335 ARB 341


ARB A5-111 31.12.2015 31.12.2014

(CHF million) Absolute Share as % Absolute Share as %

Switzerland 29,809 86.3 % 26,661 86.1 %

Other Europe 2,848 8.2 % 3,097 10.0 %

Germany 1,714 5.0 % 1,662 5.4 %

Austria 416 1.2 % 337 1.1 %

France 339 1.0 % 481 1.6 %

Italy 215 0.6 % 442 1.4 %

Principality of Liechtenstein 76 0.2 % 83 0.3 %

Other countries 88 0.3 % 92 0.3 %

North America 104 0.3 % 69 0.2 %

USA 42 0.1 % 53 0.2 %

Canada 62 0.2 % 16 0.1 %

South America 319 0.9 % 341 1.1 %

Brazil 162 0.5 % 175 0.6 %

Argentina 115 0.3 % 160 0.5 %


Asia 1,331 3.9 % 705 2.3 %

Japan 489 1.4 % 120 0.4 %

Singapore 460 1.3 % 316 1.0 %


Other 138 0.4 % 110 0.4 %

Total assets 34,549 100.0 % 30,983 100.0 %



ARB 223 26. Assets by credit rating of country groups

ARB 223

Note: Breakdown of total assets by credit rating of country groups (risk domicile view), provided at least 5% of the assets of the bank or financial group are domiciled abroad. The calculation is based on the average of the last three business years prior to the current period.

ARB A7 The breakdown of assets by credit rating of country groups is based on the risk relating to the underlying item and not the domicile of the debtor. For secured commitments, the risk domicile is determined taking into consideration the collateral.

ARB 223 ARB A5-114

The bank analyses the country ratings of Standard & Poor’s, Moody’s and Fitch. Based on these agencies’country ratings and an assessment of the current situation, the bank assigns an internal rating based on a five-level scale. By way of explanation, the table below presents the internal ratings compared with those of Standard & Poor’s:

ARB A5-114 Net foreign exposure 31.12.2015 31.12.2014

Bank’s own country rating

Standard & Poor’s rating

Amount Share as % Amount Share as %

(CHF m) (CHF m)

1 – First class AAA to AA- 3,414 83.4 % 2,945 81.3 %

2 – Good A+ to A- 426 10.4 % 370 10.2 %

3 – Average BBB+ to BBB- 241 5.9 % 285 7.9 %

4 – Speculative BB+ to B- 13 0.3 % 18 0.5 %

5 – Risk CCC+ and lower

1 0.0 % 3 0.1 %

Total assets 4,095 100.0 % 3,621 100.0 %



ARB 224 27. Assets and liabilities by the most significant currencies

ARB 224

Notes: Presentation of assets and liabilities broken down by the most significant currencies for the bank or fi-nancial group, provided the total net position in foreign currencies exceeds 5% of the assets of the bank or financial group. The calculation is based on the average of the last three business years prior to the current period.

ARB A5-116 The level of detail in the breakdown by currency may be established by the bank at its own discretion.

ARB 327 ARB 336 ARB 341


ARB A5-115 31.12.2015

(CHF million) CHF EUR USD Others

Assets

Liquid assets 495 - - -

Amounts due from banks 5,192 1,709 857 524

Amounts due from securities financing transactions 28 - - -

Amounts due from customers 8,096 2,195 1,808 -

Mortgage loans 10,240 88 - -

Trading portfolio assets 383 501 368 131

Positive replacement values of derivative financial instruments 178 77 - -

Other financial instruments at fair value 162 571 386 273

Financial investments 1,004 352 435 192

Accrued income and prepaid expenses 80 96 16 5

Participations 131 - - -

Tangible fixed assets 1,273 - - -

Intangible assets 77 - - -

Other assets 485 45 - -

Capital not paid in - - - -

Total assets shown in balance sheet 27,824 1,730 3,870 1,125

Delivery entitlements from spot exchange, forward forex and forex options transactions 5,054 4,181 1,569 817

Total assets 32,878 5,911 5,439 1,942



31.12.2015

(CHF million) CHF EUR USD Others

Liabilities

Amounts due to banks 1,355 961 159 51

Liabilities from securities financing transactions 73 - - -

Amounts due in respect of customer deposits 9,468 3,580 1,420 626

Trading portfolio liabilities 68 - - -

Negative replacement values of derivative financial instruments 52 20 - -

Liabilities from other financial instru-ments at fair value 277 630 376 155

Cash bonds 4,357 - - -

Bond issues and central mortgage institution loans 4,849 - - -

Accrued expenses and deferred income 476 41 19 13

Other liabilities 249 38 - -

Provisions 962 48 12 -

Reserves for general banking risks 119 - - -

Bank’s capital 830 - - -

Statutory capital reserve 140 - - -

Statutory retained earnings reserve 279 - - -

Voluntary retained earnings reserves 2,635 - - -

Own shares -6 - - -

Profit carried forward 8 - - -

Profit 209 - - -

Total liabilities shown in the bal-ance sheet 26,400 5,318 1,986 845

Delivery obligations from spot exchange, forward forex and forex options transactions 6,567 461 3,377 1,129

Total liabilities 32,967 5,779 5,363 1,974

Net position per currency -89 132 76 -32

C Reliable assessment statutory single-entity financial statements 6 Notes 6.10 Information on the off-balance-sheet business


ARB 225 6.10. Information on the off-balance-sheet business

ARB 226 28. Contingent liabilities and contingent assets

ARB A5-117

Notes: Contingent liabilities and contingent assets where no reliable estimate is possible are not to be included in the table.

ARB 327 ARB 337 ARB 341


ARB A5-117 (CHF million) 31.12.2015 31.12.2014

Guarantees to secure credits and similar 1,274 1,339

Performance guarantees and similar 316 428

Irrevocable commitments arising from documentary letters of credit 165 131

Other contingent liabilities 57 77

Total contingent liabilities 1,812 1,975

Contingent assets arising from tax losses carried forward 1 1

Other contingent assets - 2

Total contingent assets 1 3

ARB 227 29. Credit commitments

ARB 327 ARB 338 ARB 341

Note: Under the terms of art. 36 para. 1 BankO, where a financial group prepares and publishes consolidated financial statements and a group management report, the banks consolidated within the group are ex-empted from the requirement to include this component of the notes in their single-entity financial state-ments. Banks whose equity securities are listed (art. 36 para. 2 BankO) are not permitted to apply the ex-emptions above.

ARB A5-119 (CHF million) 31.12.2015 31.12.2014

Commitments arising from deferred payments 3 2

Commitments arising from acceptances (for liabilities arising from acceptances in circulation)

1 1

Other credit commitments 1 1

Total credit commitments 5 4

C Reliable assessment statutory single-entity financial statements 6 Notes 6.10 Information on the off-balance-sheet business


ARB 228 30. Fiduciary transactions

ARB A5-120 (CHF million) 31.12.2015 31.12.2014

Fiduciary investments with third-party companies 341 186

Fiduciary investments with group companies and linked companies 3 -

Fiduciary loans 47 32

Fiduciary transactions arising from securities lending and borrowing, which the bank conducts in its own name for the account of customers

24 17

Other fiduciary transactions 15 13

Total fiduciary transactions 430 248

ARB 229 31. Managed assets

ARB 229

Note: Breakdown of managed assets and presentation of their development. This information is to be disclosed if the balance of the items

‘Commission income from securities trading and investment activities’, and

‘Commission expense’

is greater than one third of the items

‘Gross result from interest operations’,

‘Result from commission business and services’, and

‘Result from trading operations and the fair value option’.

The calculation is based on the average of the last three business years prior to the current period.

Type of managed assets

ARB A5-121 (CHF million) 31.12.2015 31.12.2014

Assets in collective investment schemes managed by the bank 55,350 52,071

Assets under discretionary asset management agreements 15,037 15,682

Other managed assets 9,307 9,697

Total managed assets (including double counting) 79,694 77,450

- of which, double counting -4,305 -3,981

ARB A5-127 The managed assets disclosed include all client assets deposited at the bank with an investment character as well as client assets managed by the bank and held for safekeeping by a third-party bank. It does not include assets kept by the bank but managed by a third party (custody-only). Custody-only relates to banks and large fund companies (incl. their collective, investment and pension fund foundations) for which the bank acts exclusively as a custodian bank.

Assets under discretionary asset management agreements comprise clients’ deposits for which the bank makes the investment decisions. Other managed assets include those for which the client makes the in-vestment decisions. If products are developed in one business line but sold by another, they are double counted as both lines provide services to and generate income from their respective clients.

C Reliable assessment statutory single-entity financial statements 6 Notes 6.11 Information on the income statement


Development of managed assets

ARB A5-130

Note: Disclosure of net new money inflows/outflows: when reporting this information for the first time, disclo-sure of the previous year figures is not mandatory.

ARB A5-121 (CHF million) 2015 2014

Total managed assets (including double counting) at beginning 77,450 76,352

+/- Net new money inflow or net new money outflow -352 +2,351

+/- Price gains/losses, interest, dividends and currency gains/losses +1,786 -1,253

+/- Other effects +810 -

Total managed assets (including double counting) at end 79,694 77,450

ARB A5-121 During the financial year, the bank assumed the managed assets from one Swiss bank and some smaller independent asset managers in the amount of CHF 810 million. These assets are disclosed in ‘Other secu-rities’.

ARB A5-132 The amount of net new money is calculated by determining the inflows and outflows of the managed as-sets based on transactions at client level. Interest and dividend income relating to the managed assets are not classed as new money inflows. Market and currency fluctuations, charges, commissions and charged interest payments are not included in the net new money.

ARB 230 6.11. Information on the income statement

ARB 231 32. Result from trading operations and the fair value option

ARB 231

Note: Breakdown of the result from trading operations and the fair value option, provided the bank or financial group is not subject to the de minimis rule set out in FINMA circ. 08/20 ‘Market risks – banks’ (margin no. 49 ff.).

ARB A5-133 Breakdown by business area


Trading operations with corporate clients 83 49

Trading operations with private clients 35 16

Proprietary trading -21 3

Other trading operations 1st 2

Total result from trading operations 98 70



ARB A5-133 Breakdown by underlying risk and based on the use of the fair value option


Result from trading operations from:

Interest rate instruments (including funds) 16 3

Equity securities (including funds) 32 19

Foreign currencies 47 52

Commodities/precious metals 3 -4

Total result from trading operations 98 70

- of which, from fair value option 18 26

o of which, from fair value option on assets 14

o of which, from fair value option on liabilities -4 12

ARB 232 33. Refinancing income and income from negative interest

Refinancing income in the item ‘Interest and discount income’

ARB A5-137 The refinancing costs for trading operations are not recorded as interest and discount income.

Negative interest

ARB A3-10 ARB A3-19

Negative interest on credit operations are disclosed as a reduction in interest and discount income. Nega-tive interest on deposits are disclosed as a reduction in interest expense.


Negative interest on credit operations (reduction in interest and discount in-come)

14 1

Negative interest on deposits (reduction in interest expense) 6 -

ARB 233 34. Personnel expenses


Salaries (meeting attendance fees and fixed compensation to members of the bank’s governing bodies, salaries and benefits) 199 221

- of which, expenses relating to share-based compensation and alternative forms of variable compensation 5 3

Social insurance benefits 42 41

Changes in book value for economic benefits and obligations arising from pension schemes - -

Other personnel expenses 15 14

Total personnel expenses 256 276



ARB 234 35. General and administrative expenses


Office space expenses 33 35

Expenses for information and communications technology 116 114

Expenses for vehicles, equipment, furniture and other fixtures, as well asoperating lease expenses 9 8

Fees of audit firm 3 4

- of which, for financial and regulatory audits 3 3

- of which, for other services - 1

Other operating expenses 90 92

- of which, compensation for guarantee by canton XY - -

Total general and administrative expenses 251 255

ARB 235 36. Material losses, extraordinary income and expenses, material re-leases of hidden reserves, reserves for general banking risks, and value adjustments and provisions no longer required

ARB 255

Note: Where the release of hidden reserves in any one accounting period is material, it is to be disclosed in the notes. The materiality of the aggregate release of hidden reserves is to be assessed in particular in relation to the disclosed equity and disclosed result of the period, as well as in relation to the effects on these amounts. A release amounting to at least 2% of the reported equity or 20% of the reported result of the period is as a rule deemed to be material.

Material losses

Besides the matters described under the item ‘Extraordinary expenses’, no material losses were incurred in the course of the financial year.

Extraordinary income

The extraordinary amount of CHF 57 million is mainly due to the sale of properties. Properties no longer required for business reasons with a net book value of CHF 115 million were sold in the course of the year under review, realising a gain of CHF 42 million. The sale of several equity participations resulted in pro-ceeds from sales of around CHF 8 million.

ARB A5-140 The equity of Zeta Immobilien AG, Basel, was impaired significantly in FY 2012–2014, therefore the bank reduced the book value to the estimated recoverable amount. Thanks to the realisation of significant pro-ceeds from the sale of part of the property portfolio, the impairment of Zeta Immobilien AG’s equity was reversed in the course of the financial year. The bank therefore increased the book value of its participa-tion by CHF 6 million to restore it to the historical cost of CHF 8 million. This appreciation in value was booked in ‘Extraordinary income’.

Extraordinary expenses

A loss had to be assumed on a portion of the properties sold that amounted to CHF 42 million and wascharged to the ‘Extraordinary expenses’.

Material releases of hidden reserves

No significant hidden reserves were released in the course of the financial year.

Reserves for general banking risks

The item ‘Changes in reserves for general banking risks’ are used to record the creation of reserves for general banking risks in the amount of CHF 7 million.

ARB 533 Value adjustments and provisions no longer required

In 2013, provisions for other business risks were created in the amount of CHF 21 million to cover poten-tial claims for damages relating to advisory services about alpha products. As the provision was no longer



needed after an agreement was reached with the claimant, this amount was released in the income state-ment via the item ‘Changes in provisions and other value adjustments and losses’.

ARB 236 37. Revaluation of participations and tangible fixed assets up to acqui-sition cost at maximum

ARB A5-141 The equity participation in Zeta Immobilien AG, Basel, has been valued at the historical cost and an ap-preciation in value was recognised in the income statement. The details can be found in appendices Er-ror! Reference source not found. and 36.

ARB 237 38. Operating result broken down according to domestic and foreign origin

ARB 237

Notes: Presentation of the operating result broken down according to domestic and foreign origin, according to the principle of permanent establishment, provided the bank’s business outside Switzerland is material;

ARB A7 Definition ‘Foreign business’: Banks domiciled in Switzerland are deemed to have a foreign business if they have at least one branch or one company outside Switzerland required to be consolidated in accord-ance with art. 34 BankO.

ARB 327 ARB 339 ARB 341




ARB A5-142 2015 2014


Interest and discount income 605 42 619 38

Interest and discount income from trading activities 2 - 1 -

Interest and discount income from financial investments 45 - 42 -

Interest expense -220 -36 -258 -31

Gross result from interest operations 432 6 404 7

Changes in value adjustments for default risks and losses from interest operations -16 -1 16 -

Subtotal net result from interest operations 416 5 420 7

Commission income from securities tradingand investment activities 350 48 336 41

Commission income from lending activities 5 - 8 -

Commission income from other services 42 1 40 1

Commission expense -44 -3 -43 -2

Subtotal result from commission business and services 353 46 341 40

Result from trading operations and the fair value option 98 - 70 -

Result from the disposal of financial investments 53 - 48 -

Income from participations 5 - 5 -

Result from real estate 11 - 10 -

Other ordinary income 4 - 4 -

Other ordinary expenses -19 - -17 -

Subtotal other result from ordinary activities 54 - 50 -

Personnel expenses -238 -18 -260 -16

General and administrative expenses -235 -16 -243 -12

Subtotal operating expenses -473 -34 -503 -28

Value adjustments on participations and deprecia-tion and amortisation of tangible fixed assets and intangible assets -121 - -106 -

Changes to provisions and other value adjust-ments, and losses -64 -3 -66 -4

Operating result 263 14 206 15



ARB 238 39. Current and deferred taxes


Expenses for current capital and income taxes 52 45

Creation of provisions for latent taxes 11 7

Total taxes 63 52

ARB A5-144 Average tax rate weighted on the basis of the operating result 22.7 % 23.5 %

ARB A5-144 There are no tax losses brought forward that affect the income tax.

ARB 239 40. Earnings per equity security

ARB 239

Notes: Disclosures and explanations of the earnings per equity security in the case of banks whose equity securi-ties are listed.

ARB A7 Definition ‘Listed banks’: Banking institutions whose equity and/or debt securities are listed or which have applied for listing and have prepared a listing prospectus for that purpose.

ARB 327 ARB 340 ARB 341


ARB A5-145 2015 2014

Regis-tered

shares

Bearer shares

Partici-pationcertifi-

cates

Regis-tered

shares

Bearer shares

Partici-pation certifi-

cates

Profit for the financial year (CHF) 209,121,914 174,928,357

Outstanding participation rights

Time-weighted average number 800,000 385,000 200,000 800,000 280,000 200,000

Potential bearer shares from equity-based compensation schemes 7,841 6,476

Weighted average participation rights for diluted earnings per equity security 800,000 392,841 200,000 800,000 286,476 200,000

Result per equity security

Undiluted 66.60 266.40 266.40 64.31 257.25 257.25

Diluted 65.94 263.76 263.76 63.71 254.82 254.82

The undiluted group profit per share and participation certificate is calculated from the profit for the fi-nancial year divided by the weighted average number of outstanding shares and participation certificates. The various nominal values of the bearer shares are taken into consideration. The dilution takes into ac-count the potential impact of the bank’s equity-based compensation schemes.

D Report of the audit firm


D. Report of the audit firm

BankO 30

Report of the statutory auditor to the General Meeting of Musterbank AG Zurich

Report of the statutory auditor on the financial statements

As statutory auditor, we have audited the financial statements of Musterbank AG, which comprise the balance sheet, income statement, cash flow statement, statement of changes in equity and notes (pages 10 to 64), for the year ended 31 December 2015.

Board of Directors’ responsibility

The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorpora-tion. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from ma-terial misstatement, whether due to fraud or error. The Board of Directors is further re-sponsible for selecting and applying appropriate accounting policies and making ac-counting estimates that are reasonable in the circumstances.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Stand-ards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the audi-tor’s judgement, including the assessment of the risks of material misstatement of the fi-nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the cir-cumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements for the year ended 31 December 2015 comply with Swiss law and the company’s articles of incorporation.

D Report of the audit firm


Report on other legal requirements

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (art. 728 CO and art. 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with art. 728a para. 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the prepara-tion of financial statements according to the instructions of the Board of Directors.

We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.

PricewaterhouseCoopers Ltd

A. Sample J. Doe

Audit expert Auditor in charge

Audit expert

Zurich, 19 February 2016

Additional tools relating to FINMA circ. 15/1 Accounting - banks


Additional tools relating to FINMA circ. 15/1 Accounting - banks

In addition to these illustrative financial statements, PwC has developed various materials that can help you in implementing the revised financial reporting requirements:

Disclosure checklists

This checklist enables users to review whether the financial state-ments prepared in accordance with FINMA circ. 15/1 make full disclosure. The checklist is a complete and systematic list of the requirements of the Banking Ordinance, the FINMA circular and other regulatory documents relating to the disclosure require-ments.

FINMA circ. 15/1 ‘Accounting – banks’ – Disclosure checklist

Recognition, recording and valuation checklist

The financial reporting requirements applicable to banks and to securities dealers must be set out appropriately in the internal re-quirements, such as in the accounting manuals, accounting poli-cies or group guidelines, so that the business transactions can be presented according to the financial reporting rules and disclosed in the financial statements. This checklist allows users to review the correct and complete regulation of the accounting, recogni-tion, booking and valuation requirements in the financial state-ments prepared in accordance with FINMA circ. 15/1.

FINMA circ. 15/1 ‘Accounting – banks’ – Recognition, record-ing and valuation checklist

If you would like any of these materials, please ask your PwC contact or visit our website.

PDF

PDF

Contacts


Contacts

Bruno Gmür Partner Birchstrasse 160 8050 Zurich +41 58 792 73 17 [email protected]

Guido Andermatt Partner, Zurich +41 58 792 25 40 [email protected]

Alex Astolfi Partner, Lausanne +41 58 792 81 95 [email protected]

Andrin Bernet Partner, Zurich +41 58 792 24 44 [email protected]

Philippe Bingert Partner, Basel +41 58 792 59 52 [email protected]

Rolf Birrer Partner, Zurich +41 58 792 24 32 [email protected]

Philippe Bochud Partner, Geneva +41 58 792 95 76 [email protected]

Glenda Brändli Partner, Lugano +41 58 792 65 23 [email protected]

Beresford Caloia Partner, Geneva +41 58 792 98 28 [email protected]

Patrick Fritz Partner, Geneva +41 58 792 94 32 [email protected]

Christoph Käppeli Partner, Bern +41 58 792 79 20 [email protected]

Stefan Keller Partner, St. Gallen +41 58 792 74 09 [email protected]

Christophe Kratzer Partner, Geneva +41 58 792 96 16 [email protected]

Thomas Romer Partner, Zurich +41 58 792 24 26 [email protected]

Beat Rütsche Partner, St. Gallen +41 58 792 74 00 [email protected]

Hugo Schürmann Partner, Lucerne +41 58 792 63 57 [email protected]

Claudio Tettamanti Partner, St. Gallen +41 58 792 74 46 [email protected]

Offices

Aarau Bleichemattstrasse 43 5000 Aarau Tel. 058 792 61 00 Fax 058 792 61 10

LucerneWerftestrasse 3 P.O. Box, 6002 Lucerne Tel. 058 792 62 00 Fax 058 792 62 10

Basel St. Jakobs-Strasse 25 P.O. Box 4002 Basel Tel. 058 792 51 00 Fax 058 792 51 10

NeuchâtelPlace Pury 13 P.O. Box 2001 Neuchâtel 1 Tel. 058 792 67 00 Fax 058 792 67 10

Bern Bahnhofplatz 10 P.O. Box 3001 Bern Tel. 058 792 75 00 Fax 058 792 75 10

SionPlace du Midi 40 P.O. Box 1951 Sion Tel. 058 792 60 00 Fax 058 792 60 10

Chur Gartenstrasse 3 P.O. Box 7001 Chur Tel. 058 792 66 00 Fax 058 792 66 10

St. GallenVadianstrasse 25a/ Neumarkt 5 P.O. Box, 9001 St. Gallen Tel. 058 792 72 00 Fax 058 792 72 10

Geneva Avenue Giuseppe-Motta 50 P.O. Box 1211 Geneva 2 Tel. 058 792 91 00 Fax 058 792 91 10

WinterthurZürcherstrasse 46 P.O. Box 8401 Winterthur Tel. 058 792 71 00 Fax 058 792 71 10

Lausanne Avenue C.-F.-Ramuz 45 P.O. Box 1001 Lausanne Tel. 058 792 81 00 Fax 058 792 81 10

ZugGrafenauweg 8 P.O. Box, 6304 Zug Tel. 058 792 68 00 Fax 058 792 68 10

Lugano Via della Posta 7 P.O. Box 6901 Lugano Tel. 058 792 65 00 Fax 058 792 65 10

ZurichBirchstrasse 160 P.O. Box 8050 Zurich Tel. 058 792 44 00 Fax 058 792 44 10

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. It does not take into account any objectives, financial situation or needs of any recipient; any recipient should not act upon the information contained in this publication without obtaining independent professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers, its members, employees and agents do not accept or assume any liability, re-sponsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2015 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

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