Translation notice: this document is a translation of the German original which can be obtained from Notenstein La Roche Private Bank Ltd at any

Transcription

1 2015 Annual Report

2 Translation notice: this document is a translation of the German original which can be obtained from Notenstein La Roche Private Bank Ltd at any time. While Notenstein La Roche makes every effort to ensure translation accuracy, the German version prevails in the event of discrepancies in content or interpretation.

3 1 Contents Introduction Page 2 Key Key figures figures Page 4 Organigram Page 6 Review Review of business of business results results Page 8 Auditor s report report Page 10 Balance Balance sheet sheet Page 12 Income Income statement Page 14 Statement of changes of changes in equity in equity Page 16 Notes Notes to the to the financial financial statements part part one one Page 18 Notes Notes to the to the financial financial statements part part two two Page Information on the on the balance balance sheet sheet Page Information on on off-balance-sheet transactions Page Information on the on the income income statement Page 48 Contact Contact Page 52

4 2 Introduction DEAR CLIENTS DEAR READERS In 2015, economic conditions were once again very challenging, with expansive monetary policies from the central banks, weak economic growth and major (geo)political uncertainty fuelling substantial volatility on the financial markets and making a combination of dexterity, expertise and prudence indispensable in wealth management. Switzerland s financial centre, too, continued to face a major process of adjustment, having to contend with margins under pressure at the same time as increases in costs due to the growing complexity of regulatory requirements. Many establishments are being forced to completely rethink their business models. For Notenstein La Roche, 2015 was a very eventful year, and one in which the two themes of focus and growth were very much in evidence. The spin-off of the asset management business into Vescore Ltd allowed us to focus fully on our core competence, private banking. With regard to growth, the merger with La Roche & Co Ltd, a Basel-based private bank with a long and rich history, was completed with effect from 1 November The increase in client assets resulting from this merger represents a significant step in the expansion of our bank. The positive effect from these strategic initiatives is already making itself felt in our balance sheet. With a broad earnings base of CHF 172 million and a cost-income ratio of 79.7 percent, we were able to significantly exceed the results achieved in the prior business period. Against this backdrop, we see ourselves as ideally equipped for the future and look to the year ahead with confidence. DR PATRIK GISEL Chairman of the Board Notenstein La Roche Private Bank Ltd DR ADRIAN KÜNZI CEO Notenstein La Roche Private Bank Ltd

5 Dr Patrik Gisel (Chairman of the Board of Directors) and Dr Adrian Künzi (CEO) 3

6 4 Key figures Amounts in CHF millions Notenstein La Roche at a glance Income statement Operating income Operating expenses Gross profit Cost-income ratio 79.7% 95.7% 90.8% Balance sheet Balance sheet total 6,804 5,218 4,324 Equity capital Client assets Assets under management 21,981 21,182 19,782 Custody assets 4, Total client assets 26,464 21,182 19,782 Resources Number of staff Number of full-time positions Number of locations Disclosure of capital adequacy and liquidity Common equity tier 1 ratio 14.4% 8.5% 13.8% Tier 1 ratio 19.0% 13.5% 13.8% Total capital ratio 19.0% 13.7% 14.0% Minimum total capital ratio target in accordance with FINMA Circular 11/2 plus requirement in respect of anti-cyclical buffer 11.3% 11.3% 11.3% Leverage ratio 6.0% 5.3% Short-term liquidity coverage ratio (LCR) 114.5% 101.7% The values for 2014 have been restated in line with the new accounting rules; key figures for 2013 are based on the former accounting rules. All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

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8 6 Organigram Board of Directors Auditors Internal Audit Audit Committee Executive Board Legal & Compliance Communication Corporate Development Private Banking Switzerland * Private Banking Basel Private Banking International Investment House Finance * Excluding Basel

9 7 Board of Directors Dr Patrik Gisel Chair of the Board of Directors Michael Auer Deputy-Chair of the Board of Directors, Member of the Audit Committee Günter Haag * President of the Audit Committee Heinz Karrer * Maya Salzmann * Member of the Audit Committee Thomas C. Weissmann * * Independent members of the Board of Directors as defined by the provisions of the Swiss Financial Market Supervisory Authority (FINMA). Executive Board Dr Adrian Künzi Chief Executive Officer Dr Ivan Adamovich Head of Private Banking International Deputy Chief Executive Officer Fabian Dori Head of Investment House Christoph Gloor Head of Private Banking Basel Dr Basil Heeb Chief Financial Officer Dr Silvio Hutterli General Counsel Martin Liebi Head of Private Banking Switzerland Patrick Revey Deputy Chief Executive Officer

10 8 Review of business results FOCUS ON PRIVATE BANKING Notenstein La Roche can look back on a good year in 2015 a year that saw the successful implementation of the focus-and-grow strategy. With a view to sharpening the focus on private banking, institutional client business was integrated into sister company Vescore Ltd. In addition, areas such as IT and parts of Services were reassigned to the Raiffeisen Group. This enables Notenstein La Roche to concentrate fully on its core business, that of wealth management and investment advisory services for the sophisticated client base within private banking. The various steps were completed on schedule and Notenstein La Roche thus achieved the target set for 2015, that of securing a sharper profile as private bank together with enhanced flexibility. GROWTH THROUGH MERGER WITH BANK LA ROCHE The next important step in the development of our bank was the merger with Bank La Roche, which was successfully completed on 1 November Around 60 members of staff and just under CHF 6 billion in client assets were taken over as a result of the merger. In addition, our bank adopted the new name of Notenstein La Roche. Thanks to the merger, which is extremely promising thanks also to the common values and shared traditions of the two predecessor banks, we have been able to significantly expand our position within the Swiss market. PROFITABILITY ENHANCED BY INCREASING EARNINGS AND LOWER COSTS The strategic focus and the merger with Bank La Roche had a positive impact on client assets and profit, with assets under management in private banking business increasing to CHF 22.0 billion. Overall client assets, which also include the assets held in custody for Vescore Ltd, rose to CHF 26.5 billion. Operating income was up 7.4 percent on the previous year, at CHF 172 million, despite the spin-off of the asset management business. The contribution from the merger with La Roche is still minimal here, and will not work through fully to results until The strength of Notenstein La Roche s earnings power is reflected in commission income, which was up 7.5 percent year on year at CHF million, as well as in trading income (primarily foreign currency income from client transactions), which increased by 22 percent. In contrast, despite growth in lending business, revenue from interest operations was significantly lower year on year. This is attributable to the introduction of negative interest rates in January 2015 as well as to the ongoing environment of low interest rates and the related difficult situation for investments in the bond market. Other ordinary income increased by 78 percent to CHF 16.4 million, due to a positive effect from the change in accounting method for financial investments as well as a high level of dividend income from participating interests. The positive impact from the reassignments is clearly visible in operating expenses, which were down almost 11 percent at CHF 137 million. Personnel expenses were 18.5 percent lower due to the significant reduction in staffing levels to 478 FTEs. General and administrative expenses were slightly higher due to the charging of costs for the contracted services. As a direct consequence of the successful focusand-grow strategy, gross profit increased significantly to CHF 35 million. Enhanced productivity is also reflected in the cost-income ratio, which at 79.7 percent is substantially lower than in the previous year.

11 9 Notenstein La Roche s profit for the year increased to over CHF 80 million. This increase is attributable for the most part to a gain on the realisation of the partial sale of the participating interest in Leonteq Securities Ltd. Thus, as at end-2015 and even after the acquisition of Bank La Roche, Notenstein La Roche had an extremely solid core capital ratio (tier 1) of 19 percent. SUCCESSFUL ISSUING OF STRUCTURED INVESTMENT PRODUCTS The issuance of the bank s own structured investment products, launched in 2013 and reinforced through the foundation of Notenstein Finance (Guernsey) Limited, was expanded further in As at the end of the year, there were over 2,600 structured products outstanding, with a volume in excess of CHF 2 billion. This development confirms that Notenstein La Roche has established itself as an important contender in the market and is attracting considerable interest thanks to its innovative products. LOOKING TO THE FUTURE WITH CONFIDENCE The 2015 business year was a year which confirmed Notenstein La Roche s focus-and-grow strategy: the strategic initiatives launched over the past few years are paying off. Our bank aims for organic growth, but will also continue to consider select acquisitions as and when suitable opportunities arise. Notenstein La Roche is ideally equipped to remain successful in the challenging private banking market and secure further growth in earnings in the future.

12 10 Auditor s report

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14 12 Balance sheet Amounts in CHF Assets Before appropriation of profit Liquid assets 520,740, ,510,026 Amounts due from banks 3,412,625,371 2,349,253,316 Amounts due from securities financing transactions 389,663, ,400,000 Amounts due from customers 321,045, ,914,695 Mortgage loans 473,216, ,597,900 Trading portfolio assets 26,059, ,013,466 Positive replacement values of derivative financial instruments 154,251, ,603,418 Financial investments 1,250,911,615 1,018,049,428 Accrued income and prepaid expenses 34,793,982 41,300,134 Participating interests 76,116, ,826,031 Tangible fixed assets 60,327,193 46,980,509 Intangible assets 66,095,534 1,763,034 Other assets 17,797,090 21,622,993 Total assets 6,803,643,048 5,217,834,950 Total subordinated claims 5,354,384 of which subject to mandatory conversion and/or debt waiver 1,814,654 Amounts in CHF Liabilities Before appropriation of profit Amounts due to banks 129,706, ,332,625 Liabilities from securities financing transactions 82,012, ,823,000 Amounts due in respect of customer deposits 4,602,855,221 3,235,824,623 Negative replacement values of derivative financial instruments 158,576, ,390,208 Bond issues and central mortgage institution loans 1,275,710,226 1,113,687,846 Accrued expenses and deferred income 31,228,970 23,589,315 Other liabilities 26,453,638 6,901,786 Provisions 16,575,733 23,921,442 Reserves for general banking risks 196,000, ,000,000 Bank s capital 22,200,000 22,200,000 share capital 20,000,000 20,000,000 participation capital 2,200,000 2,200,000 Continued on page 13 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

15 13 Before appropriation of profit Statutory capital reserves 56,787,474 56,787,474 of which tax-exempt capital contribution reserve 18,260,000 18,260,000 of which premium reserve from participation capital increase 38,527,474 38,527,474 Statutory retained earnings reserves 4,000,000 4,000,000 Voluntary retained earnings reserves 115,450, ,450,692 Profit carried forward 5,165,939 4,695,664 Profit for the year 80,920,954 18,230,275 Total liabilities 6,803,643,048 5,217,834,950 Total subordinated liabilities 101,577, ,000,000 of which subject to mandatory conversion and/or debt waiver 101,577, ,000,000 Amounts in CHF Off-balance-sheet transactions Before appropriation of profit Contingent liabilities 24,093,664 37,695,904 Irrevocable commitments 64,982,080 34,683,240 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

16 14 Income statement Amounts in CHF Income and expenses from ordinary banking operations Before appropriation of profit Result from interest operations Interest and discount income 16,201,698 19,153,852 Interest and dividend income from trading positions 2,732,873 3,069,496 Interest and dividend income from financial investments 3,737,666 7,275,918 Interest expense 3,018,805 3,103,154 Gross result from interest operations 19,653,432 26,396,112 Changes in value adjustments for default risks and losses from interest operations 15, ,141 Subtotal net result from interest operations 19,668,443 25,993,972 Result from commission business and services Commission income from securities trading and investment activities 125,302, ,033,533 Commission income from lending activities 72,576 59,107 Commission income from other services 6,852,875 4,152,141 Commission expense 10,767,928 10,223,860 Subtotal result from commission business and services 121,459, ,020,922 Result from trading activities and fair value option 14,408,180 11,810,235 Other result from ordinary activities Result from the disposal of financial investments 11,319,209 3,264,641 Income from participating interests 6,522,570 11,155,259 Result from real estate 95,997 45,581 Other ordinary income 1,312,319 Other ordinary expenses 1,504,541 Subtotal other result from ordinary activities 16,433,235 9,248,518 Operating expenses Personnel expenses 88,445, ,514,355 General and administrative expenses 48,663,993 45,029,263 Subtotal operating expenses 137,109, ,543,618 Value adjustments on participating interests, and depreciation and amortisation of tangible fixed assets and intangible assets 4,048,252 2,524,334 Changes to provisions and other value adjustments, and losses 853, ,203 Operating result 29,958,464 3,187,492 Continued on page 15 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

17 15 Amounts in CHF Extraordinary income 62,609,750 35,148,151 Extraordinary expenses 852,190 Changes in reserves for general banking risks 20,000,000 Taxes 10,795, ,368 Profit for the year 80,920,954 18,230,275 Amounts in CHF Appropriation of profit Proposed appropriation of profit Profit for the year 80,920,954 18,230,275 Profit carried forward 5,165,939 4,695,664 Distributable profit 86,086,893 22,925,939 Appropriation of profit Dividend distribution from distributable profit 19,980,000 17,760,000 New amount carried forward 66,106,893 5,165,939 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

18 16 Statement of changes in equity Statement of changes in equity Voluntary retained earn- Bank s capital Capital reserves Retained earnings reserves Reserves for general banking risks ings reserves and profit carried forward Result of the period Total Equity capital at 1 January ,200 56,787 4, , ,146 18, ,364 Appropriation of profit 2015 Dividend 17,760 17,760 Net change in profit carried forward Profit ,921 80,921 Equity capital at 31 December ,200 56,787 4, , ,616 80, ,525 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

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20 18 Notes to the financial statements part one EXPLANATORY NOTES ON BUSINESS ACTIVITIES GENERAL Notenstein La Roche Private Bank Ltd (hereinafter Notenstein La Roche ), a subsidiary of Raiffeisen Switzerland Cooperative, specialises in investment advisory and wealth management services for highnet-worth private clients. Notenstein La Roche offers its services at thirteen locations across Switzerland, with around 540 members of staff. Notenstein La Roche focuses on private banking services for private investors in Switzerland and clients in other selected international target markets. Vescore Ltd (formerly Notenstein Asset Management Ltd) commenced operations on 1 July The spin-off of the former Notenstein Asset Management Ltd into the newly founded Vescore Ltd was implemented retroactively from 1 January This new company combines Notenstein La Roche s Institutional Clients and Asset Management divisions with the boutiques of TCMG Asset Management AG, focusing the Raiffeisen Group s expertise in sustainable and quantitative investment strategies. The formation of companies specialising in private banking and asset management enhances strategic flexibility in both these segments within the Raiffeisen Group. Since March 2013, Notenstein La Roche has been issuing a broad range of structured investment products in cooperation with Raiffeisen Switzerland Cooperative as guarantor and Leonteq Securities Ltd. as service provider. Since September 2014, the bank has also been issuing withholding-tax-exempt structured investment products through the subsidiary Notenstein Finance (Guernsey) Limited. On 1 September 2015, Notenstein La Roche reassigned its IT division and large parts of its Services division, including Facility Management, to companies within the Raiffeisen Group. This enables Notenstein La Roche to concentrate fully on its core business, that of wealth management and investment advisory services for the sophisticated private client segment. EMPLOYEES At the end of 2015, Notenstein La Roche employed 539 members of staff (previous year: 694). Adjusted for part-time employees, this corresponds to 478 fulltime employees (previous year: 629). EMPLOYEE PARTICIPATION PROGRAMME In order to safeguard all eligible interests involved, the employee participation programme was dissolved in 2015, within the framework of the repositioning of a strategic participating interest with Raiffeisen Switzerland Cooperative. BUSINESS DIVISIONS The bank s main activities fall into the following categories: wealth management and investment advisory services for private clients comprehensive financial planning for private clients lending activities associated with private banking securities and currency trading support services for external asset managers issuing of structured products custodian bank services for private and institutional clients Two-thirds of the bank s clients are domiciled in Switzer land. Services to foreign clients are concentrated in selected target markets.

21 19 COMMISSION AND SERVICES BUSINESS Our core activities in the commission and services business fall under wealth management and advisory services. Other components of our services business include revenues from the issuing of structured products, support services for external asset managers and custodian bank activities for institutional clients. TRADING Notenstein La Roche offers its clients execution and settlement of all standard bank trading transactions. Moreover, Notenstein La Roche trades on its own account with the usual financial instruments. Proprietary debt trading mainly involves bonds from firstclass issuers, while equity trading principally involves Swiss and European shares. The bank trades in foreign currencies on its own account mainly to ensure the smooth functioning of its business activities. Such trading is limited to currencies for which there is a liquid market. Proprietary trading was scaled back substantially in the course of 2015 and is now limited to the provision of support for client business. LENDING ACTIVITIES Notenstein La Roche adheres to a restrictive credit policy, providing lombard loans against liquid securities in diversified portfolios. Loan-to-value ratios are conservative so as to minimise default risk. In addition, Notenstein La Roche grants mortgage loans to clients in the wealth management and investment advisory segment and to staff members. The loans disclosed as mortgage loans are secured exclusively by Swiss real estate. RISK POLICY In the same way as other financial institutions, our bank is exposed to various banking-specific risks: credit, market and liquidity risks, as well as operational and legal risks. A considered and careful approach to such risks is key to the long-term success of a bank. Notenstein La Roche attaches considerable value to comprehensive risk management, for both the bank itself and for the client assets entrusted to it. The risk policy aims to limit the potential negative impact on earnings, protect the bank against substantial extraordinary losses and safeguard and strengthen the bank s good name. The Risk Controlling unit ensures compliance with and the implementation of risk policy, while Legal & Compliance ensures compliance with regulatory requirements. RISK MANAGEMENT AND CONTROL The Board of Directors is the supreme body within the risk management structure. It defines the risk policy, setting out the information pertaining to risk philosophy, risk measurement and risk management, which it subjects to an annual review. Likewise on an annual basis, it defines the level of willingness to take risks, risk tolerance and overall limits in keeping with risk capacity, and monitors compliance with such as well as the implementation of risk policy. It determines the overall limits per risk category and business activity and sets standards for risk management and risk control processes. To enable it to carry out its monitoring function, the Board of Directors receives a comprehensive risk report. This report provides information on the risk situation, capitalisation, adherence to overall limits and any measures necessary.

22 20 Notes to the financial statements part one The Executive Board is responsible for implementing the risk policy set by the Board of Directors and ensures the establishment of an appropriate risk management structure as well as the implementation of adequate risk monitoring systems. It gives concrete form to the Board of Directors requirements for each risk category and business activity. Risk Controlling provides independent oversight of the bank s risk exposure. This department structures and implements appropriate risk monitoring systems, and supplies the information needed to monitor risk policy, appetite and limits. Monitoring focuses primarily on operational risks, market and credit risks, as well as liquidity risks. Notenstein La Roche Risk Controlling is incorporated in consolidated group risk management within the Raiffeisen Group. RISK MANAGEMENT PROCESS The risk management process applies to all risk categories; namely credit, market, operational and liquidity risks. It comprises the following elements: risk identification risk measurement and assessment risk management risk limitation by means of appropriate limits risk monitoring The aim of the bank s risk management is: to guarantee effective controls at all levels and ensure that any risks entered are in line with the corresponding level of willingness to take on risks; to establish the prerequisites for risks being entered into consciously and in a targeted, controlled manner and managed systematically; to ensure optimum use of risk appetite and ensure that risks are only entered if suitable returns are available. CREDIT RISK Credit risk refers to the risk that losses may be incurred when clients or other counterparties cannot fulfil their contractually agreed payment obligations to the extent agreed. Loans, irrevocable credit commitments and contingent liabilities entail credit risks, as do instruments used for balance sheet management. Notenstein La Roche identifies, assesses, manages and monitors the following risk categories in lending business: counterparty risks country risks collateral risks concentration risks MANAGEMENT OF THE BANK S BALANCE SHEET Notenstein La Roche accepts credit risks in particular as consequential risks of business activities with counterparties and in order to manage the balance sheet within the framework of limits laid down by the Board of Directors. The bank manages its own counterparty and country risks within the centralised limit management structure of the Raiffeisen Group. Before entering into a business relationship with a counterparty in interbank business, the bank carries out a comprehensive assessment of the counterparty risk. The Raiffeisen Group must also have issued prior approval for the counterparty. Notenstein La Roche restricts credit risk by setting limits and through the approval required for counterparties and indirect counterparties (brokers, clearing

23 21 houses and custodians). Credit risk is measured and evaluated according to appropriate and established procedures. The risk measurement process and the applicable parameters are binding. Credit risks are measured according to value at risk. For the bank as a whole and for individual business units, the Board of Directors sets global or individual limits for counterparty risk exposure. The Executive Board is responsible for the more detailed formulation of individual limits and investment guidelines. Risk Controlling monitors credit risks on a daily basis. In addition, the development of counterparty ratings and CDS levels is monitored regularly. If extreme market events occur, the situation is assessed daily in order to allow the bank to react promptly to any increases in risk levels. LOANS TO CLIENTS The bank grants loans to clients where top quality, easily realisable collateral is available and against domestic real estate. Unsecured loans or loans secured by collateral that is not readily realisable are approved in exceptional cases, if justified. The bank primarily extends lombard loans (secured by account balances and securities eligible for use as collateral in lombard loans and deposited with the bank) and mortgage loans (mortgage assignments or mortgage notes serving as collateral). Notenstein La Roche grants lombard loans against liquid securities in diversified portfolios as collateral. Loan-to-value ratios are conservative so as to minimise default risk. In addition, Notenstein La Roche grants mortgage loans to clients in the wealth management and investment advisory segment and to staff members. The loans disclosed as mortgage loans are secured exclusively by Swiss real estate. Risk management involves careful selection, detailed financial assessment and a close relationship with our clients as well as prudence in structuring business transactions and the close monitoring of loans. In this regard, the bank does not enter into any credit risk without first having subjected the transaction to a thorough loan review. Mandatory elements of this review are: creditworthiness; this involves an assessment of the integrity, business sense, business conduct and pasts of the parties involved in a transaction. solvency; this involves the financial situation, business potential and overall economic environment. transaction structure; the structure and business purpose of a transaction must be transparent and in line with legal requirements; similarly, the collateral must be able to retain its value and be realised. repayment; the sources of repayments and the possibilities for withdrawing from a credit commitment must be ascertained when a transaction is concluded. The Credit unit is responsible for monitoring the credit risks arising from loans to clients on a daily basis. INTEREST RATE RISK The risk of a change in interest rates is of central importance to Notenstein La Roche. Such risk arises primarily through maturity mismatches on the asset and liability sides of the balance sheet. Active management is carried out by the bank s Asset and Liability Committee (ALCO), which is made up of an Executive Board committee and the head of Treasury.

24 22 Notes to the financial statements part one Measurement is based on standard ALM systems used within the industry. Value at risk, sensitivity and gap data are used to determine the potential impact of interest rate risk on the bank s earnings and equity capital situation. Positions with variable interest rates are mapped using a replication model. The resulting data is reviewed at least once a year and adapted where necessary. Analysis of the economic environment and the formulation of interest rate forecasts derived on the basis of this analysis make regular analysis of the effects on income and value possible. Depending on the assessment of how interest rates will develop, ALCO puts in place appropriate hedging measures within predefined risk limits and defined hedging strategies. Derivative financial instruments may be used to this end. Risk Controlling monitors interest rate risks on a daily basis. CURRENCY RISK Through its currency risk measures, the bank aims to minimise the potentially negative impact of changes in foreign currencies on its earnings situation. Essentially, it seeks to offset liabilities in a foreign currency with assets in the same currency. Currency risks are contained in the value at risk calculation and restricted with nominal exposure. Proprietary trading in foreign currencies is primarily to ensure the smooth functioning of business activities with clients and is limited to currencies for which there is a liquid market. RISKS IN TRADING BUSINESS The bank does not undertake any active trading business with a view to benefiting from short-term market fluctuations. For accounting purposes, items are disclosed as trading positions for the settlement of individual transactions or the hedging of balance sheet items. Trading in derivative financial instruments is carried out primarily for clients; the bank limits its proprietary activities to hedging transactions in connection with nostro positions and to transactions relating to the management of the balance sheet structure. The bank has no market maker activities. Trading is carried out via standardised and OTC instruments. Monitoring of the market risks that arise in trading business is carried out by Risk Controlling on a daily basis. LIQUIDITY RISK Liquidity risks are administered using operational criteria, managed by Treasury in accordance with the requirements under banking law and monitored by Risk Controlling. As part of the management of liquidity risks, inflows and outflows of liquidity in particular are simulated against the backdrop of various scenarios and using different timeframes. These scenarios encompass, inter alia, the repercussions of refinancing risks as well as general liquidity risks. A solid liquidity position is targeted through liquidity management, so as to allow the bank to fulfil its payment obligations on schedule at all times. The basis for monitoring is formed by the statutory limits as well as the limits defined by the bank s Board of Directors, which are based on the scenario analyses. Risk Controlling monitors liquidity risks on a daily basis.

25 23 OPERATIONAL RISK Operational risks refer to the the danger of losses occurring due to the inadequacy or failure of internal processes, employees, IT systems, buildings and installations, or due to external events or the effects of actions by third parties. This definition includes IT risks and security risks. These comprise, in particular, IT and security systems as well as their infrastructures. Operational risks are accepted as consequential risks of business activity and are avoided, mitigated, transferred or borne by the bank on the basis of cost/ benefit considerations. The potential impact on compliance and the bank s reputation is also taken into account here. When the Board of Directors defines the business strategy and business activities, it also determines the appetite for operational risks. Risk tolerance is defined in quantitative terms (value at risk limits) as part of the risk budgeting process; the qualitative definition of risk tolerance is based on the internal documents that govern business activities (regulations, policies and guidelines). Action to avoid or mitigate operational risks must primarily be taken wherever such risks arise, with the objective of reducing risks to a manageable level. The most critical processes are identified and their continuation ensured with emergency and contingency plans. Operational risks are identified and assessed annually by means of a top-down assessment by the Executive Board and a bottom-up assessment by line management process supervisors. Risks are assessed before and after taking account of risk-mitigation measures already in place as specified by the Executive Board and the group risk management structure. Risks are assigned to the various risk assessment categories according to specific criteria (threshold values) and submitted to the Board of Directors each year for review and approval. Operational risks are monitored both at individual risk level and at corporate level. Line management is responsible for monitoring at individual risk level, while Risk Controlling handles risk monitoring at the corporate level and is responsible for the bank-wide register of operational risks as well as the analysis and evaluation of operational risk data. The results of risk assessments, material internal operational risk events, relevant external events and the development of the risk situation are reported to the Executive Board and the Board of Directors on a quarterly basis, together with information on the implementation status of measures aimed at reducing risk. In addition to the standard risk management process, Risk Controlling also conducts ad hoc risk analyses as required, analyses any loss events that have arisen and maintains close links with other organisational units that, as a result of their function, come into contact with information on operational risks within the Raiffeisen Group. All measures to control operational risks are elements of the Internal Control System (ICS). The ICS comprises all controlling structures and processes, procedures, methods and measures at all levels of the bank that provide the basis for the attainment of the business policy objectives and for the proper operation of the bank s business. A review of the entire ICS is carried out each year. The ICS is assessed at both corporate and process level to determine the adequacy and effectiveness of the risk management measures implemented. The

26 24 Notes to the financial statements part one results of the ICS review are submitted to the Executive Board and Board of Directors quarterly. METHODS USED TO IDENTIFY DEFAULT RISKS AND DEFINE THE NEED FOR VALUE ADJUSTMENTS Loans secured by mortgage The property value of owner-occupied residential property is determined on the basis of real value or a hedonic estimation. Where a hedonic estimation is carried out, the bank proceeds on the basis of real estate price information specific to the region in question. This information is supplied by an external provider and validated by the bank. The bank updates the property values periodically using these valuations. In addition, arrears on payments of interest or principal are monitored on an ongoing basis. The bank uses this to identify any mortgage loans that are associated with higher risk. Such loans are then subject to a more detailed review by credit specialists. Where necessary, further security is requested or a corresponding value adjustment created based on the collateral shortfall. For multi-family units, commercial real estate and special properties, the property value is determined using the income method, which is based on the income produced over the long term. The rental income generated by investment properties is reviewed periodically and if there are any indications of material changes to the level of rental income or vacancy rates. credit exposure, a possible reduction of the lending amount is reviewed or additional collateral requested. If the collateral shortfall increases or exceptional market events occur, the collateral is realised and the loan closed out. Unsecured loans Unsecured loans and loans secured by collateral that is not readily realisable where it is not possible to value the collateral are granted purely on an exceptional basis and must be approved by the Executive Board. Unsecured loans are reviewed, recorded and submitted to the Executive Board for approval annually, or at shorter intervals where necessary. If a higher level of risk is involved, the bank conducts a more detailed assessment and defines appropriate measures together with the client. If it must be assumed, at this stage, that the credit exposure is impaired, a corresponding value adjustment is carried out. Procedure for determining value adjustments and provisions New requirements for value adjustments and/or provisions are identified on the basis of the procedure defined. In addition, known risk positions where impairment has been identified previously are reassessed quarterly and the correction in value adjusted as required. Loans with securities as collateral Exposure to loans with securities as collateral and the value of the collateral attached to such loans are monitored daily. Should the lending value of the securities provided as collateral fall below the amount of the VALUATION OF COLLATERAL Loans secured by mortgage In the mortgage lending segment, a current valuation of the collateral is carried out each time a mortgage loan is granted. The valuation method applied

27 25 depends on the type of property involved and how it is used. Residential property is valued using a hedonic valuation model, which analyses the price of the property based on the internal characteristics of that property in comparison with similar real estate transactions. The bank applies the income method in valuations of multi-family units, commercial real estate and special properties. If it is not possible to estimate the value of a property, valuation reports are obtained from external experts such as architects, building engineers and property surveyors. A liquidation value is also determined if there is a marked deterioration in the credit rating and the exposure threatens to become non-performing. Loans with securities as collateral or other readily realisable collateral For lombard loans and other types of loans with securities as collateral, it is primarily transferable financial instruments, such as bonds and equities, which are liquid and actively traded that are accepted. Whether and the extent to which a portfolio can serve as collateral is geared to the investment method applied by Notenstein La Roche. Discount factors (haircuts) applied in respect of lending values are generally applied on the basis of the assignment of the instruments to the defined risk/return classes. Other factors, such as the ratings and terms of debt securities, are also considered. Lending against investment funds and structured products is governed by special rules. The bank applies discounts to market values in order to hedge the market risk associated with marketable and liquid securities and determine lending values. Highly diversified portfolios are awarded add-ons in respect of lending values. With life insurance policies and guarantees, discounts are defined at product level. BUSINESS POLICY GOVERNING THE USE OF DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING Business policy governing the use of derivative financial instruments Derivative financial instruments are used for trading and hedging purposes. The bank has no market-maker activities. The bank carries out trading for its own account and for the account of its clients using both standardised and OTC instruments, primarily instruments for interest rates, currencies, equity securities/indices and, to a lesser extent, commodities. Derivative financial instruments are used by the bank within the framework of risk management mainly in order to hedge interest rate and currency risks, as well as the market risks arising in connection with the issuing of structured products. Hedging transactions are carried out solely with external counterparties. Use of hedge accounting The bank does not use hedge accounting within the framework of its financial statements.

28 26 Notes to the financial statements part two COMPANY, LEGAL FORM AND HEADQUARTERS OF THE BANK Notenstein La Roche Private Bank Ltd is a limited company ( Aktiengesellschaft ) under Swiss law. It offers services from its headquarters in St. Gallen as well as from its branches in Basel, Berne, Chur, Geneva, Lausanne, Locarno, Lucerne, Lugano, Olten, Schaffhausen, Winterthur and Zurich. It has no offices outside Switzerland. ACCOUNTING AND VALUATION PRINCIPLES GENERAL PRINCIPLES The bookkeeping, accounting and valuation principles are based on the provisions stipulated by the Swiss Code of Obligations, Swiss banking legislation and other statutory provisions, as well as on the accounting rules issued by the Swiss Financial Market Supervisory Authority FINMA. These reliable assessment statutory single-entity financial statements present the bank s economic situation in such a manner as to allow third parties to form a reliable opinion. Raiffeisen Switzerland, parent company of Notenstein La Roche, publishes the consolidated annual financial statements of the Raiffeisen Group in a separate annual report. Unlike statements prepared in accordance with the true and fair view principle, these single-entity statements may be influenced by hidden reserves. inflow is probable and their value can be reliably estimated. If no reliable estimate is possible, the item is considered to be a contingent asset requiring explanation in the notes. Items are recognised on the balance sheet as liabilities if they have been caused by past events, a cash outflow is probable and their value can be reliably estimated. If no reliable estimate is possible, the item is considered to be a contingent liability requiring explanation in the notes. The positions stated within a balance sheet item are valued individually. There is no offsetting of assets and liabilities or of income and expense items. Receivables and payables are offset only in the following instances: Receivables and liabilities are offset where they arise from transactions of the same type with the same counterparty, in the same currency, with the same maturity or earlier maturity of the receivable and cannot give rise to counterparty risks. Deduction of value adjustments from the corresponding asset item. Offsetting of positive and negative changes in book value with no income effect in the current period in the compensation account. The positive and negative replacement values of derivative financial instruments with the same counterparty may be offset where recognised and legally enforceable netting agreements are in place. GENERAL VALUATION PRINCIPLES The annual financial statements are drawn up on the assumption that the bank will continue as a going concern. Items are recognised on a going-concern basis. Items are recognised on the balance sheet as assets if, due to past events, they may be disposed of, a cash CONSOLIDATION Notenstein La Roche is fully consolidated within the Raiffeisen Group with the subsidiary companies, Notenstein Finance (Guernsey) Limited, Notenstein Financial Services GmbH and TCMG Asset Management AG.

29 27 RECOGNITION OF BUSINESS TRANSACTIONS All business transactions concluded as of the balance sheet date are recorded on a day-end basis and valued on the balance sheet and in the income statement in accordance with the defined valuation principles. Spot transactions entered into but not yet settled are recognised in accordance with the trade date accounting principle. FOREIGN CURRENCIES Receivables and payables as well as cash and cash equivalents in foreign currencies are translated at the exchange rate prevailing on the balance sheet date. Price gains and losses resulting from such valuations are recognised in Result from trading activities. Transactions in foreign currencies during the year are translated using the rate prevailing at the time of such transactions. The main foreign currencies for balance sheet purposes were translated at the following rates on the balance sheet date: Currencies EUR GBP USD LIQUID ASSETS, DEPOSITS These items are recognised on the balance sheet at nominal or acquisition value. As yet unearned discounts on money market instruments, and premiums/discounts on own bond issues, are accrued over the term. AMOUNTS DUE FROM AND LIABILITIES FROM SECURITIES FINANCING TRANSACTIONS Securities lending and borrowing transactions are recognised at the value of the cash collateral received or given, including accrued interest. Borrowed securities or securities obtained as collateral are recognised on the balance sheet only if Notenstein La Roche gains control over the contractual rights encompassed within these securities. Securities lent or provided as collateral are derecognised from the balance sheet only if Notenstein La Roche loses the contractual rights associated with these securities. The market values of the securities borrowed and lent are monitored on a daily basis so that additional collateral may be provided or requested as necessary. Fees received or paid in respect of securities borrowing and lending transactions are recognised as commission income or commission expense on an accrual basis. Notenstein La Roche does not engage in securities lending with instruments held in clients safekeeping accounts. Purchases of securities subject to an obligation to resell (reverse repurchase transactions) and sales of securities subject to an obligation to repurchase (repurchase transactions) are treated as collateralised financing transactions and are recognised at the value of the cash collateral received or given, including accumulated interest. Securities received and delivered are not recognised on/derecognised from the balance sheet unless control of the contractual rights encompassed within such securities is relinquished. The market values of the securities received or delivered are monitored on a daily basis so that additional collateral may be provided or requested as necessary. Interest income from reverse repurchase transactions and interest expense arising from repurchase transactions is accrued in the corresponding periods over the terms of the underlying transactions.

30 28 Notes to the financial statements part two AMOUNTS DUE FROM BANKS AND CUSTOMERS, MORTGAGE LOANS These items are recognised at nominal value, less any value adjustments necessary. Interest income is accrued in the corresponding period. Receivables are deemed to be impaired where the bank considers it unlikely that the debtor will be able to meet the contractual obligations involved in full. Impaired receivables and collateral (if any) are valued at liquidation value. Individual value adjustments are created for impaired receivables. Such adjustments are based on regular analyses of the individual credit exposures, taking account of the debtor s creditworthiness and/ or the counterparty risk, as well as the estimated net realisable disposal value of the collateral. Where the recovery of the receivable is dependent exclusively on the realisation of the collateral, a value adjustment must be created to cover the unsecured portion in full. Interest and corresponding commissions that are more than 90 days overdue are deemed to be past due. In the case of current account overdrafts, interest and commissions are considered past due where the assigned overdraft limit has been exceeded for more than 90 days. Receivables are derecognised at the latest when a legal title confirms the conclusion of the realisation process. Impaired receivables are reinstated as fully performing (i.e. the value adjustment is released) when the outstanding principal amounts and interest are again paid promptly as per contractual agreements, and other creditworthiness criteria are met. Individual value adjustments, collective individual value adjustments and value adjustments for latent default risks are deducted from the corresponding asset items in the balance sheet. AMOUNTS DUE TO BANKS AND AMOUNTS DUE IN RESPECT OF CUSTOMER DEPOSITS These items are recognised at nominal value. Amounts due in respect of precious metals in metal accounts are valued at fair value if the metals concerned are traded on a price-efficient and liquid market. TRADING PORTFOLIO ASSETS AND TRADING PORTFOLIO LIABILITIES Trading portfolio assets and trading portfolio liabilities are valued and recognised at fair value. Positions for which there is no representative market are valued at the lower of cost or market. If, in exceptional cases, no fair value is available, the principle of lower of cost or market is applied to valuation. Gains and losses resulting from this valuation, and gains and losses realised during the period, are disclosed in Result from trading activities and the fair value option. Interest on and dividends from trading positions are booked to Interest and dividend income from trading portfolios, in the item Result from interest operations. There is no offsetting of the refinancing result and trading positions. POSITIVE AND NEGATIVE REPLACEMENT VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS All derivative financial instruments are valued at fair value. Such instruments are recognised as positive or negative replacement values in the corresponding items. The fair value is based on market prices, price quotations from brokers, and on discounted cashflow and option price models. For transactions involving derivative financial instruments entered into for trading purposes, the result

31 29 realised is recognised in Result from trading activities and the fair value option. The bank also uses derivative financial instruments in connection with asset and liability management in order to control interest rate risks. Hedging transactions for the Treasury division are carried out via client trading. The Treasury division is not itself active in the markets. Assets and liabilities as well as income and expenses arising as a result of internal transactions are eliminated. The bank may offset positive and negative replacement values with the same counterparty within the framework of recognised and legally enforceable netting agreements. OTHER FINANCIAL INSTRUMENTS AT FAIR VALUE AND LIABILITIES FROM FINANCIAL INSTRUMENTS AT FAIR VALUE (FAIR VALUE OPTION) Financial instruments that are not part of trading activities are disclosed under these items and valued at fair value if all of the following conditions are met: The financial instruments are valued at fair value and are in line with the documented risk management and investment strategy, ensuring correct reporting, measurement and limitation of the various risks. There is an economic hedging relationship between the financial instruments on the asset side and those on the liability side that is largely neutralised in terms of income by the fair value valuation. Any impact of a change in own creditworthiness on the fair value following first-time recognition is neutralised in the income statement and booked via the compensation account. STRUCTURED PRODUCTS ISSUED BY NOTENSTEIN LA ROCHE Where structured products issued by Notenstein La Roche comprise a debt instrument, the derivative component is separated from the basic contract, and valued and recognised separately. Debt instruments (basic contracts) are recognised under Bond issues and central mortgage institution loans at nominal value. Discounts and premiums are recognised in Accrued expenses and deferred income and Accrued income and prepaid expenses and realised against the interest result over the remaining maturity. Such structured products without a debenture com ponent and derivative components of structured products with their own debenture component are recognised in Positive replacement values of derivative financial instruments and Negative replacement values of derivative financial instruments at fair value. Income from the structuring of self-issued structured products is recognised in Commission income from securities trading and investment activities. Redemption of the structured products is guaranteed by Raiffeisen Switzerland. STRUCTURED PRODUCTS OF THIRD-PARTY ISSUERS Income from the issuance of structured products on a commission basis is recognised in Commission income from securities trading and investment activities. FINANCIAL INVESTMENTS Debt securities intended to be held to maturity are valued at acquisition cost and the premium/discount accrued over the remaining term (accrual method). Discounts and premiums are accrued in Accrued expenses and deferred income and Accrued income

32 30 Notes to the financial statements part two and prepaid expenses over the remaining term to maturity. Default-risk-related changes in book value are recognised immediately by means of a charge to Changes in value adjustments for default risks and losses from interest operations. If financial investments intended to be held until maturity are sold or repaid prior to maturity, the gains and losses realised that correspond to the interest component are accrued over the remaining term to maturity via Other assets and Other liabilities. Debt securities not intended to be held until maturity are valued at lower of cost or market. Changes in book value resulting from a subsequent valuation are recognised net via Other ordinary expenses or Other ordinary income, as appropriate. Default-risk-related changes in book value are recognised via Changes in value adjustments for default risks and losses from interest operations. Real estate and participating interests acquired through lending activities and designated for resale are recognised in financial investments and valued at lower of cost or market. The lower of cost or market value is deemed to be the lower of the acquisition value or the liquidation value. PARTICIPATING INTERESTS Participating interests are equity securities owned by the bank in companies, where those securities are held with the intention of a permanent investment irrespective of the percentage of voting shares held. Participating interests are valued individually at acquisition cost, less any economically necessary value adjustments. Testing is carried out on each balance sheet date to ascertain whether the value of individual participating interests is impaired. This impairment test is based on indications that could suggest that individual assets have been affected by such impairment. Recoverable amounts are determined in the event of any such indications and are determined for each individual asset. The recoverable amount is the higher of the net market value and the value-inuse. An asset is impaired if its book value exceeds its recoverable amount. Where an impairment is present, the book value is reduced to the recoverable value and the impairment charged to Value adjustments on participating interests, and deprecia tion and amortisation of tangible fixed assets and intangible assets. Gains realised on the disposal of participating interests are recognised via Extraordinary income ; realised losses via Extraordinary expenses. TANGIBLE FIXED ASSETS Tangible fixed assets are recognised at acquisition cost plus any investment that increases the value of the asset, and depreciated using the straight-line method over their estimated useful life as follows: Bank properties, other real estate maximum 66 years Conversions of and installations in rented premises maximum 15 years Furnishings and fittings maximum 8 years Other tangible fixed assets maximum 5 years IT systems and other software maximum 3 years Minor investments are booked directly to operating expenses. Comprehensive renovations which increase the value of the property are capitalised, whereas maintenance and repairs are reported as expenses. Tangible fixed assets may include hidden reserves. Properties and assets under construction are only

33 31 depreciated from the date when they are brought into use. Tangible fixed assets are reviewed for impairment losses whenever events or changes in circumstances suggest that the book value may not be recoverable. Any impairments are charged to the income statement, via Value adjustments on participating interests, and depreciation and amortisation of tangible fixed assets and intangible assets. If impairment testing of a tangible fixed asset reveals a change in useful life, the residual book value is depreciated as scheduled over the revised useful life of the asset. Gains realised on the disposal of tangible fixed assets are recognised via Extraordinary income ; realised losses via Extraordinary expenses. INTANGIBLE ASSETS Acquired intangible assets are recognised in the balance sheet where they provide a measurable benefit to the bank over several years. Intangible assets developed in-house are not recognised. Intangible assets are valued and recognised at acquisition cost. Intangible assets are amortised over a prudently estimated useful life, on a straight-line basis, via Value adjustments on participating interests, and depreciation and amortisation of tangible fixed assets and intangible assets. The estimated useful life for each individual category of intangible asset amounts to: Goodwill maximum 10 years Other intangible assets maximum 3 years Testing is carried out on each balance sheet date to ascertain whether the value of intangible assets is impaired. This impairment test is based on indications that could suggest that individual assets have been affected by such impairment. Recoverable amounts are determined in the event of any such indications and are determined for each in dividual asset. An asset is impaired if its book value exceeds its recoverable amount. Where an impairment is present, the book value is reduced to the recoverable value and the impairment charged to Value adjustments on participating interests, and depreciation and amortisation of tangible fixed assets and intangible assets. If impairment testing of an intangible asset reveals a change in useful life, the residual book value is depreciated as scheduled over the revised useful life of the asset. Gains realised on the disposal of intangible assets are recognised via Extraordinary income ; realised losses via Extraordinary expenses. PROVISIONS Legal and factual obligations are valued on a regular basis. Where a cash outflow is probable and can be reliably estimated, a provision in the corresponding amount is created. Existing provisions are reassessed on each balance sheet date, and subsequently either increased, left unchanged or released. Provisions are recognised via the individual items in the income statement as follows: Provisions for deferred taxes: Taxes Provisions for pension benefit obligations: Personnel expenses Other provisions: Changes to provisions and other value adjustments, and losses, with the exception of any restructuring provisions Provisions are released to income if they are no longer economically necessary and cannot be simultaneously used for other requirements of the same type.

34 32 Notes to the financial statements part two TAXES Taxes are calculated and booked on the basis of the result for the reporting year. CONTINGENT LIABILITIES, IRREVOCABLE COMMITMENTS, OBLIGATIONS TO PAY UP SHARES AND MAKE FURTHER CONTRIBUTIONS These items are recognised as off-balance-sheet transactions at nominal value. Provisions are formed for foreseeable risks. RESERVES FOR GENERAL BANKING RISKS Reserves for general banking risks are reserves that are established as a precaution to cover the bank s business risks. They are created and released via the income statement item Changes in reserves for general banking risks. The reserves for general banking risks are not taxed in the main tax domicile. OWN DEBT AND EQUITIES SECURITIES The bank s holdings of its own bonds and cash bonds are offset with the corresponding liability items. Own shares that have been acquired are recognised at acquisition cost at the time of acquisition and deducted from equity capital in Own shares. No subsequent valuation is carried out. The result from the disposal of own shares is booked via Statutory retained earnings reserves. A reduction in the amount of the acquisition value corresponding to the disposal is made in the item Own shares. PENSION BENEFIT OBLIGATIONS The pension fund for Notenstein La Roche employees is accommodated within a specific foundation for this purpose Katharinen Pensionskasse I. The bank pays the costs of occupational pension provision for all employees and their survivors in accordance with statutory provisions. The system in place is a defined contribution system. The organisation, management and financing of the pension plans is based on the statutory provisions, the foundation deed and the pension rules that are in force. The employer s contributions are booked to personnel expenses. The Katharinen Pensionskasse II, a supplementary, partially autonomous extra-mandatory pension fund, was set up in This enables individual investment of that portion of the annual salary which is to be insured on an extra-mandatory basis, with no need to take account of a minimum interest rate. As well as generating new options for purchase of benefits, this gives insured persons the choice of a lump-sum payment or an annuity on retirement. Determination of the actual economic effects of pension benefit obligations is based on the annual financial statements of the employee benefit institutions, which are drawn up in compliance with Swiss GAAP FER 26. An assessment is made as to whether any underfunding or overfunding of the pension funds could entail economic risks or benefits from the bank s viewpoint. Any economic benefit, or any employer s contribution reserves in existence, are not capitalised; however, provisions for economic risks are included on the balance sheet. CHANGES VERSUS THE PREVIOUS YEAR Switzerland s Federal Council changed the basis for the accounting rules for banks with the revision of the Banking Ordinance of 30 April FINMA set out the accounting requirements in detail in its Circular 2015/1 Accounting banks (ARB). Notenstein La Roche s annual financial statements as at

35 33 31 December 2015 are based, for the first time, on the new accounting requirements. The following changes apply in respect of the accounting and valuation principles: Changes in the balance sheet: Value adjustments for default risks are deducted directly from loans to customers and no longer recognised as liability items in value adjustments and provisions. Repurchase and reverse repurchase transactions with securities (securities financing transactions) are disclosed in a separate balance sheet item. Formerly, they were included in amounts due from/to banks or customers. The item Amounts due arising from money market instruments no longer exists. Transactions are recognised in financial investments. The replacement values of derivative financial instruments are disclosed in a separate balance sheet item. Formerly, they were contained in Other assets or Other liabilities. The item Liabilities from money market instruments no longer exists; the debenture components (underlying contracts) from structured products are now recognised in Bond issues and central mortgage institution loans. The former items Amounts due to customers in savings or deposit accounts and Other amounts due to customers are now grouped together in the new item Amounts due in respect of customer deposits. The new item Trading portfolio liabilities includes short positions from trading portfolio transactions (formerly Amounts due to banks ). Amounts due from/to social insurance and occupational pension contributions are now disclosed in Accrued expenses and deferred income and Accrued income and prepaid expenses, as appropriate (formerly Other assets and Other liabilities ). Changes in the income statement: The result from interest operations is disclosed on a gross and a net basis. The net result from interest operations takes account of changes in value adjustments for default risks and losses from interest operations. The creation and release of reserves for general banking risks are disclosed in a separate item. The former operating income and gross profit sub-totals are no longer used. A new sub-total, the operating result, is disclosed. Prior-year figures in the balance sheet and income statement have been restated in line with the new accounting requirements. In addition to these restatements, the valuation principles underlying the balance sheet item Financial investments have also been amended. These have been extended for debt securities intended to be held to maturity so as to allow for recognition in accordance with the accrual method. This change in valuation method applied resulted in the realisation of a revaluation gain in the amount of CHF 12 million. This amendment also brings the valuation methodology we apply into line with the valuation principles of our parent company, Raiffeisen Switzerland. EVENTS AFTER THE BALANCE SHEET DATE Up to the date when the annual financial statements were drawn up, no material events occurred which would require mandatory disclosure on the balance sheet or in the notes as at 31 December 2015.

36 34 1. Information on the balance sheet 1.1. Breakdown of securities financing transactions (assets and liabilities) Current year Previous year Book value of receivables from cash collateral delivered in connection with securities borrowing and reverse repurchase transactions* 389, ,400 Book value of obligations from cash collateral received in connection with securities lending and repurchase transactions* 82, ,823 Book value of securities lent in connection with securities lending or delivered as collateral in connection with securities borrowing as well as securities in own portfolio transferred in connection with repurchase agreements 1,244 32,470 of which with unrestricted right to resell or pledge 1,244 32,470 Fair value of securities received and serving as collateral in connection with securities lending or securities borrowed in connection with securities borrowing as well as securities received in connection with reverse repurchase agreements with an unrestricted right to sell or repledge 388, ,179 of which repledged securities 82,865 72,419 of which resold securities * before consideration of any netting agreements 1.2. Overview of collateral for loans/receivables and off-balance-sheet transactions, as well as impaired loans/receivables Overview by type of collateral Collateral type Secured by mortgage Other collateral Unsecured Total Loans (before and after netting with value adjustments) Amounts due from customers 312,169 10, ,315 Mortgage loans Residential property 409, ,095 Office and business premises 5,270 5,270 Commercial and industrial premises 25,102 25,102 Other 33,750 33,750 Total loans in current year (before netting with value adjustments) 473, ,169 10, ,532 Total loans in previous year (before netting with value adjustments) 421, ,854 23, ,777 Total loans in current year (after netting with value adjustments) 473, ,169 8, ,262 Total loans in previous year (after netting with value adjustments) 421, ,854 22, ,513 Continued on page 35 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

37 35 Collateral type Secured by mortgage Other collateral Unsecured Total Off-balance-sheet Contingent liabilities 23, ,094 Irrevocable commitments 23,763 32,717 8,502 64,982 Total off-balance-sheet in current year 23,763 55,943 9,370 89,076 Total off-balance-sheet in previous year 20,845 41,832 9,702 72, Details of impaired loans/receivables Estimated liquidation Gross debt amount value of collateral Net debt amount Individual value adjustment Impaired loans/receivables in current year 1,270 1,270 1,270 Impaired loans/receivables in previous year 1, ,264 1, Breakdown of trading portfolios and other financial instruments at fair value (assets and liabilities) Breakdown of trading portfolio positions and other financial instruments at fair value (assets) Current year Previous year Trading portfolio assets Debt securities, money market securities/transactions 26, ,359 of which listed (traded on a recognised exchange) 75,977 of which traded on a representative market 26,036 60,382 Equity securities 90,689 Precious metals and commodities 10 5,965 Other trading portfolio assets 13 Total trading portfolios 26, ,013 Continued on page 36 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

38 36 1. Information on the balance sheet Current year Previous year Total assets 26, ,013 of which determined using a valuation model of which securities eligible for repo transactions in accordance with liquidity requirements 10, Breakdown of trading portfolio positions and other financial instruments at fair value (liabilities) As at the balance sheet date, there were no liabilities from trading portfolio positions or other financial instruments at fair value Presentation of derivative financial instruments (assets and liabilities) Outstanding derivative financial instruments by contract type Trading instruments Hedging instruments Positive replacement values Negative replacement values Contract volume Positive replacement values Negative replacement values Contract volume Interest rate instruments Forward contracts including FRAs Swaps 932 5, ,800 Futures 8,069 Options (OTC) 3,436 3,436 50,565 Options (exchange-traded) Total interest rate instruments 4,368 8, ,434 Foreign exchange/precious metals Forward contracts 9,333 9, ,450 Swaps 2,929 2, ,595 Futures 1,508 Options (OTC) ,390 Options (exchange-traded) Total foreign exchange/precious metals 12,601 12, ,943 Continued on page 37 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

39 37 Trading instruments Hedging instruments Positive replacement values Negative replacement values Contract volume Positive replacement values Negative replacement values Contract volume Equity securities/indices Forward contracts Swaps Futures 28,590 Options (OTC) 127, ,335 2,107,706 Options (exchange-traded) Total equity securities/indices 127, ,335 2,136,296 Credit derivatives Credit default swaps 8,531 8, ,646 Total return swaps First-to-default swaps Other credit derivatives Total credit derivatives 8,531 8, ,646 Other Forward contracts Swaps Futures 217 Options (OTC) 1,414 1,414 3,716 Options (exchange-traded) Total Other 1,414 1,414 3,933 Total before consideration of netting agreements 154, ,576 3,436,252 of which determined using a valuation model 140, ,458 2,396,181 Previous year 130, ,390 3,220,276 of which determined using a valuation model 112, ,999 2,188,467 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

40 38 1. Information on the balance sheet Outstanding derivative financial instruments by counterparty and after consideration of netting agreements Positive replacement values Negative replacement values Banks/securities dealers 6,270 n.a. Central clearing houses n.a. Other counterparties/clients 107,575 n.a. Total after consideration of netting agreements 113, ,170 Previous year 83,832 87, Breakdown of financial investments Breakdown of financial investments Book value Fair value Current year Previous year Current year Previous year Debt securities 1,239, ,756 1,238, ,179 of which intended to be held until maturity 1,090, ,856 1,089, ,812 of which not intended to be held to maturity (available for sale) 148, , , ,367 Equity securities 10,858 48,846 10,985 52,085 of which qualified participating interests (at least 10% of capital or votes) Precious metals Total financial investments 1,250,912 1,018,049 1,250,033 1,027,712 of which securities eligible for repo transactions in accordance with liquidity requirements 689, , , ,678 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

41 Breakdown of debt securities by rating Book value AAA to AA3 A1 to A3 Baa1 to Baa3 Ba1 to Ba3 Below Ba3 Unrated Current year 773, ,425 50,662 14, ,719 Previous year 517, ,973 15,945 14, ,201 In the year under review, Notenstein La Roche adjusted the valuation guidelines for Financial investments in line with the accounting and valuation principles applied by the parent company. Debt securities with a book value of CHF million were reclassified to the category intended to be held to maturity from the category not intended to be held to maturity. This led to the realisation of compulsory reserves in the amount of CHF 12 million in Result from the disposal of financial investments. Ratings assigned on the basis of the rating classes applied by Moody s and Standard & Poor s Breakdown of other assets and other liabilities Current year Previous year Other assets Indirect taxes 1,492 2,122 Clearing accounts 15,425 18,617 Remaining other assets Total Other assets 17,797 21,623 Other liabilities Indirect taxes 3,861 4,770 Clearing accounts 22,490 2,028 Remaining other liabilities Total Other liabilities 26,454 6,902 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

42 40 1. Information on the balance sheet 1.7. Disclosure of assets pledged or assigned to secure own commitments and of assets under reservation of ownership Current year Previous year Book value Effective commitments Book value Effective commitments Pledged or assigned assets Amounts due from banks 2,200,047 60,283 1,718,340 90,889 Trading portfolios 25,278 22,684 Financial investments 362, ,117 Other assets (guarantees) Total pledged or assigned assets 2,588,680 60,283 2,160,026 90,889 of which assets under reservation of ownership 1.8. Disclosure of liabilities relating to own pension schemes, and number and nature of equity instruments of the bank held by own pension schemes General: The personnel of Notenstein La Roche Private Bank Ltd are insured in the Katharinen Pensionenskasse I and Katharinen Pensionenskasse II pension funds. The benefits paid are calculated on the basis of contributions made (defined contribution plan). All employees are insured from the minimum annual wage defined in the Swiss federal law on occupational pension schemes and therefore entitled to benefits. More than half of the occupational pension premiums are covered by the employer. The employer has no further obligations to provide benefits. The Katharinen Pensionskasse II fund provides for extra-mandatory pensions in which a personal investment strategy can be implemented. The former staff of Bank La Roche & Co. Ltd who transferred to Notenstein La Roche on 1 November 2015 were insured under their former pension scheme for the full twelve months of 2015 and were incorporated into the Katharinen Pensionskasse I / Katharinen Pensionskasse II as of 1 January Equity capital instruments of the bank: As in the previous year, Katharinen Pensionskasse I and Katharinen Pensionskasse II continue to hold no equity instruments of the bank. Current year Previous year Liabilities relating to own pension schemes Amounts due in respect of customer deposits 9,253 8,596 Economic benefit/economic obligation and pension expenses: According to the provisional annual financial statements (under Swiss GAAP FER 26) of the Katharinen Pensionskasse, the funding ratio is: (no recognition of overfunding; underfunding, where applicable, is recognised in the balance sheet) (provisional) Pension fund Katharinen Pensionskasse I 111.2% 116.9% Pension fund Katharinen Pensionskasse II 118.8% 121.7% Continued on page 41 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

43 41 Employer contribution reserves for Katharinen Pensionskasse I and Katharinen Pensionskasse II : As at , Notenstein La Roche Private Bank Ltd held no employer contribution reserves Structured products issued Book value Valued as a whole Valued separately Booked in other financial Booked in trading portfolio instruments at fair value Value of the host instrument Value of the derivative Total Underlying risk of the embedded derivative Interest rate instruments 99,464 8,571 90,893 With own debenture component 99,464 8,571 90,893 Without own debenture component Equity securities 1,171,154 49,699 1,121,455 With own debenture component 1,171,154 73,139 1,098,015 Without own debenture component 23,440 23,440 Foreign currencies 2, ,013 With own debenture component 2, ,013 Without own debenture component Commodities/precious metals 2,742 1,414 1,329 With own debenture component 2,742 1,414 1,329 Without own debenture component Total 1,275,710 60,021 1,215,690 In the case of issued structured products containing a debenture component, the derivative is separated from the structured product and valued and disclosed separately. The host instruments are recognised at nominal value in Bond issues and central mortgage institution loans. The derivative components of the products are disclosed at market value in Positive replacement values of derivative financial instruments and Negative replacement values of derivative financial instruments. All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

44 42 1. Information on the balance sheet Value adjustments, provisions and reserves for general banking risks 2015 Use in confor- As at end of previous year mity with designated purpose Reclassifications Currency differences Past due interest, recoveries New creations charged to income Releases to income Balance at current year end Provisions Provisions for other business risks 23,921 7, Total provisions 23,921 7, Reserves for general banking risks (untaxed) 196, Value adjustments Value adjustments for default risks in respect of impaired loans/receivables 1, Total value adjustments for default risks and country risks 1, Bank s capital Current year Previous year Total par value No. of shares Capital eligible for dividend Total par value No. of shares Capital eligible for dividend Share capital 20,000 20,000,000 20,000 20,000 20,000,000 20,000 of which paid up 20,000 20,000,000 20,000 20,000 20,000,000 20,000 Participation capital 2,200 22,000,000 2,200 2,200 22,000,000 2,200 of which paid up 2,200 22,000,000 2,200 2,200 22,000,000 2,200 Total bank s capital 22,200 42,000,000 22,200 22,200 42,000,000 22,200 All components of the bank s capital are fully paid up. There are no restrictions in respect of shareholders voting rights. All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

45 Related parties Amounts due from Amounts due to Current year Previous year Current year Previous year Holders of qualified participating interests 2,760,324 1,722, , ,168 Group companies 132,256 22, ,638 20,364 Linked companies 452 2,225 10,000 Transactions with members of governing bodies 5,242 6,625 7,905 2,360 Transactions with related parties: The same standard banking assessment criteria as for third parties apply to loans to members of governing bodies. For related parties and members of the Board of Directors, the same conditions are applied as for other clients. For Executive Board members, the same preferential conditions as are applied to other staff apply for standard transactions Holders of significant participating interests and groups of holders of participating interests with pooled voting rights The following holders of participating interests have interests with more than 5% of voting rights Current year Previous year Nominal Percentage of equity Nominal Percentage of equity With voting rights Raiffeisen Switzerland Cooperative 20, % 20, % Without voting rights Raiffeisen Switzerland Cooperative 2, % 1, % All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

46 44 1. Information on the balance sheet Own shares and composition of equity capital Equity capital at beginning of current year Paid-up capital 22,200 Distributable profit/accumulated loss 22,926 Capital reserves 56,787 Retained earnings reserves 119,451 Reserves for general banking risks 196,000 Total equity capital at beginning of current year (before appropriation of profit) 417,364 Dividend ,760 Profit for the current year 80,921 Total equity capital at end of current year (before appropriation of profit) 480,525 Own shares: As in the previous year, the bank did not hold any of its own shares in the year under review. Current year Previous year Non-distributable reserves Non-distributable statutory capital reserves 56,787 56,787 Non-distributable statutory retained earnings reserves 4,000 4,000 Total non-distributable reserves 60,787 60,787 The rights and restrictions relating to the holdings of the bank s capital are set out in Note 1.11 Bank s capital. All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

47 Assets by credit rating of country groups Net foreign exposure Current year Previous year Bank s own country rating Standard & Poor s Moody s Amount Share Amount Share 1 first-class AAA to AA Aaa Aa3 1,681, % 1,665, % 2 good A+ to A A1 A3 16, % 61, % 3 medium BBB+ to BBB Baa1 Baa3 79, % 27, % 4 speculative BB+ to B Ba1 B3 7, % 11, % 5 risk CCC+ and below Caa1 C 3, % % 6 unrated No rating No rating 8, % 27, % 1,797, % 1,794, % The statement of net foreign exposure is carried out on the basis of the risk of the underlying position and not based on the domicile of the borrower. With secured receivables, the security involved is taken into account when the risk domicile is defined. Notenstein La Roche bases its ratings on those of Standard & Poor s and Moody s. All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

48 46 2. Information on off-balance-sheet transactions 2.1. Fiduciary transactions Current year Previous year Fiduciary investments with third-party banks 130, ,836 Fiduciary loans 900 Total fiduciary transactions 131, , Assets under management Breakdown of assets under management Current year Previous year Type of assets under management Assets in collective investment schemes managed by the bank 509, ,884 Assets under discretionary asset management agreements 7,366,845 8,058,111 Other client assets under management 14,104,152 12,787,172 Total assets under management (including double counting) * 21,980,823 21,182,166 of which double-counted 507, ,431 * excluding subsidiaries Presentation of development of assets under management Current year Previous year Total assets under management (including double counting) at beginning 21,182,166 19,781,865 Net new money inflow/outflow 428,357 70,061 Price gains/losses, interest, dividends and currency gains/losses 104,138 1,261,106 Other effects 1,122, ,256 of which acquisitions 1 5,967, ,256 of which spin-offs 2 4,336,497 of which reclassifications 3 507,989 Total assets under management (including double counting) at end 21,980,823 21,182,166 1 Year under review: the bank acquired the business activities of Bank La Roche & Co Ltd with effect from 1 November Previous year: the bank acquired the business activities of LBBW (Switzerland) Ltd. with effect from 1 December On 1 July 2015, the bank spun off business activities to sister company Vescore Ltd. From the assets spun off, CHF billion continues to be counted among client assets in the form of custody assets. 3 Reclassification of assets not held for investment purposes in custody assets. All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

49 Breakdown of client assets Current year Previous year Assets under management 21,980,823 21,182,166 Custody assets 4,483,017 Total client assets 26,463,841 21,182,166 Assets under management include all assets of private, corporate and institutional clients managed or held for investment purposes as well as assets in funds managed by the bank. This essentially includes all amounts due to customers, fixed-term deposits and fiduciary deposits, as well as all valued assets including net values from outstanding derivative financial instruments. Assets deposited with third parties are included in so far as they are managed by the bank. Client assets are defined more broadly than assets under management and also include assets held solely for transaction and safekeeping purposes (custody assets). Other banks assets deposited with Notenstein La Roche Private Bank (on a custody-only basis) are not included in client assets. Fund units of funds managed by the bank in clients safekeeping accounts held with the bank and in clients safekeeping accounts with third parties managed by the bank are recognised under double counting. Each of these services generates added value and, hence, additional income for the bank. Net new money is calculated on the basis of new clients acquired, existing clients inflows or outflows and the outflow of assets due to the termination of client relationships; this figure indicates the result from the acquisition of assets under management. The volume of net new money is determined at client level using the direct method, on the basis of cash payments and deliveries of securities, and of cash flows related to loans taken out and repaid. Interest and dividend income from assets under management, interest charged to clients, fees, commissions and market or exchange rate fluctuations are not regarded as net new money. All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

50 48 3. Information on the income statement 3.1. Result from trading activities Breakdown by business area Current year Previous year Trading activities with clients (foreign currency income) 14,762 12,922 Proprietary trading 354 1,112 Total result from trading activities 14,408 11, Breakdown by risk and based on the use of the fair value option Current year Previous year Interest rate instruments (including funds) 158 1,950 Equity instruments (including funds) Foreign currencies 14,762 12,922 Commodities/precious metals 162 1,221 Total result from trading activities 14,408 11,810 of which from fair value option 3.2. Income from refinancing of trading positions and from negative interest Refinancing income in Interest and discount income No refinancing costs for trading positions are credited to interest and discount income Negative interest Current year Previous year Negative interest on lending business (reduction of interest and discount income) 1,962 Negative interest on borrowing business (reduction of interest expense) 1,680 All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

51 Personnel expenses Current year Previous year Salaries (meeting attendance fees and fixed compensation for the members of the bank s governing bodies, salaries and benefits) 69,830 88,762 Social insurance benefits 12,668 14,752 Other personnel expenses 5,948 5,000 Total personnel expenses 88, , General and administrative expenses Current year Previous year Office space expenses 4,245 9,302 Expenses for information and communications technology 6,546 11,082 Expenses for vehicles, equipment, furniture and other fixtures, as well as operating lease expenses Fees of audit firms of which for financial and regulatory audits of which for other services Other operating expenses 36,910 23,578 Total general and administrative expenses 48,664 45, CURRENT AND DEFERRED TAXES Current year Previous year Expenses for current capital and income taxes 10, Creation of provisions for deferred taxes Total taxes 10, Weighted average tax rate based on operating result 36.0% 3.3% There are no tax loss carryforwards that impact income taxes. The weighted average tax rate based on the operating result is not representative to the extent that, in the year under review as in the previous year, actual taxable profit contains certain tax corrections. All listed amounts are rounded. This can lead to a minimal difference in the total amounts.

52 50 3. Information on the income statement 3.6. Material losses, extraordinary income and expenses, as well as material releases of hidden reserves, reserves for general banking risks, and value adjustments and provisions no longer required Current year: Extraordinary income includes the realisation of a gain of CHF 62.5 million from the partial disposal to a third party of the participating interest in Leonteq Securities Ltd. Extraordinary expenses includes a charge of CHF 0.85 million in the form of a restructuring subsidy for our subsidiary Notenstein Financial Services GmbH in Munich. Previous year: Extraordinary income includes the realisation of a gain of CHF 15 million from the sale of 1741 Asset Management Ltd to TCMG AG. Further, shares in a participating interest were sold to our parent company, Raiffeisen Switzerland Cooperative. A sum of approximately CHF 20 million was realised from this sale, in Extraordinary income profit from sale of participating interests. Reserves for general banking risks in an amount of CHF 20 million were created against Changes in reserves for general banking risks.

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