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UNION BANK BRAND GUIDELINE & GRAPHIC STANDARDS 7

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Annual Report 2017

2 Union Bank AG – Annual Report 2017

Union Bank AG

Austrasse 46

LI-9490 Vaduz

Phone +423 239 35 35

Fax +423 239 35 37

[email protected]

www.unionbankag.com

HR FL-0002.303.567-3

Company address and contact

3Union Bank AG – Annual Report 2017



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Business trend page 4

Organisation page 5

Annual report page 6

Balance sheet page 10

Off-balance sheet transactions page 12

Income statement page 13

Cash flow statement page 15

Annex to the financial statements page 17

1. Notes on business activity, governance and personnel page 18

2. Accounting and valuation principles page 23

3. Notes on the balance sheet page 29

4. Notes on the off-balance sheet transactions page 39

5. Notes on the income statement page 40

6. Other important information page 42

7. Disclosure page 44

Auditors’ report page 50

Table of Contents


In the first quarter of 2017, the Liechten-

stein Financial Market Authority (FMA)

approved the takeover of the majority

shareholding by the new shareholder.

This involved a complete realignment of

the business model of Union Bank AG. As

a consequence, the bank positions itself

as a specialist provider and is now pri-

marily offering corporate banking ser-

vices to companies in the Middle East

and to business partners in the DACH re-

gion. At the same time, private banking

activities for customers in the CIS coun-

tries have been reduced. Regulatory

adaptations and approval procedures

following the reorganization required a

considerable involvement and commit-

ment on the part of the management and

of the bank in general. The new strategic

orientation assumed during the reporting

year created also numerous opportuni-

2017 – A Year of Transition

ties for both the existing and the new

employees. With a significantly improved

attractiveness of Union Bank AG as an

employer, we have been in a position to

capture good quality employees and we

continue to expand our know-how base.

In the second half of the year, we focused

on the establishment of the new business

area, Trade Finance, and the related im-

plementation of processes, software as

well as their integration into our core

banking system.

The Board of Directors thanks all cus-

tomers, business partners and the ma-

nagement for their trust and loyalty. As

every year, very special thanks go to our

employees, who have greatly contributed

to a successful leap from a quasi-start up

position to the new organisational form

of Union Bank AG.

Mohammad H. Dastmaltchi

Chairman of the Board of DirectorsThomas Schmidt

Chairman of the Executive Board, CEO

Mohammad H. Dastmaltchi Thomas Schmidt




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Board of Directors

Mohammad Hans Dastmaltchi,

Chairman of the Board of Directors

Dubai/VAE

Wolfram Kuoni,

Vice President of the Board

Herrliberg/CH

Elfried Hasler,

Member of the Board

Gamprin/FL

Thomas Krawietz,

Member of the Board

Zürich/CH

Governing Bodies

Executive Board until 15.05.2017

Thomas Schmidt,


Hans-Ulrich Nigg,

Member of the Executive Board CFO/COO

Executive Board since 15.05.2017

Thomas Schmidt,

Chairman of the Executve Board, CEO

Rudy Suter,

Member of the Executive Board, COO

External Auditors

ReviTrust Grant Thornton, Schaan

Internal Auditors

Dr. Peter Hemmerle,

AREVA Allgemeine Revisions-

und Treuhand AG, Vaduz


In Retrospect

Union Bank AG looks back on a very

eventful year 2017. The implementation

of the new business model, initiated

already in 2016, was successfully com-

pleted in the year under review. Impor-

tantly, a platform for professional han-

dling of the trade finance business has

been successfully implemented and put

into operation following a time-con-

suming project phase, which also en-

tailed a considerable involvement of the

bank’s employees. As a result, the strate-

gic repositioning, the internal reorgani-

zation as well as the new efficient and

effective structure of the bank, create an

optimal set of conditions for achieving

the targeted profit zone.

At the same time, various business pro-

cesses, including payments and trade fi-

nance, have been reviewed and adapted,

fine-tuned and improved in order to meet

both customers’ needs as well as the in-

creasingly stringent regulatory require-

ments.

Annual Report 2017

In the aftermath of the restructuring, the

bank has not only expanded in terms of

its balance sheet total, but also in regard

to its personnel which increased by

6.9 employees (on a full-time equivalent

basis) - a testimony to the fact that

Union Bank AG has become an attrac-

tive employer. In order to implement

the demanding business plan, to meet

the regulatory requirements as well as

to ensure a smooth business develop-

ment, further personnel growth has been

planned.

Business performance

As is usual for a start-up company, the

first years had been particularly challeng-

ing. It is, therefore, all the more gratifying

that, whereas the change of the share-

holders involved a massive decline in

family office income flows, the ordinary

income in the year under review in-

creased by more than 13% year-on-year.

Since the expenditures associated with

the implementation of administrative ap-

Rudy Suter Thomas Schmidt




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plications for new customers acquisi-

tions, new employee hires and the neces-

sary investments in infrastructure, initially

exceeded targeted earnings, the bank is

currently facing a negative earnings posi-

tion. Personnel and operationel expenses

increased by approximately 26%, respec-

tively, by 17%. In addition, the continued

negative interest rate environment and

the interest cost incurred on liquidity loan

raised on the market, reduced interest in-

come by 8%. The latter serves for refinan-

cing of letters of credit on the asset side

of the balance sheet, which will be taken

on as a new core activity from 2018 on-

wards. As a positive extraordinary factor,

we could record the release of a valua-

tion allowance on a claim against banks

formed in 2015 in the amount of CHF 0.4

million. Hence, an annual result within the

budget has been achieved.

In consequence, at the end of 2017, the

bank posted a slightly higher net loss of

CHF 3.1 million (previous year: CHF 2.8

million), but also, an almost 60% higher

balance sheet total.

Liquidity

All throughout the year 2017, the bank

has been compliant with the regulatory

provisions for Banks and Investment

Firms (BankG / BankV) regarding liquid

assets and readily marketable assets.

Equity capital

The increased regulatory pressure was

also felt strongly in 2017 due to, among

other aspects, the tightening of capital

requirements. Thanks to capital increase

in the amount of CHF 7.0 million in total,

allowable equity capital was again in-

creased by more than CHF 3.8 million as

compared to the previous year.

Risk and uncertainties

Union Bank AG strives to keep the risks

and uncertainties associated with its

business activities at a low level. The

risks are being recorded, monitored and

held within limits in accordance with the

bank’s risk policy. A detailed description

of the risk management is to be found in

the attached notes to the financial state-

ments.

Outlook 2018

Following the successful completion of

the newly assumed orientation and

thanks to its interesting location in Liech-

tenstein, Union Bank AG presents itself

as a very attractive financial partner to

customers across the target regions. For

2018, the focus shall be on both the con-

tinued expansion of the corporate cus-

tomers base and the development of our

market position in the trade finance busi-

ness. In the short-term, it is the bank‘s

objective to compensate for the high in-

vestment costs through a strong and

sustainable earnings growth. It is by

means of the sustainable growth of

earnings, that further strengthening and

stabilization of equity capital shall be

carried out. With the establishment of


the new banking and service activities,

we aim at a stable, long-term organic

growth.

Acknowledgements

The management thanks its customers,

its business partners, and the Board of

Directors for their support, their loyalty

and the trust placed in the bank. Special

thanks go to our employees, who have

supported the Union Bank AG and con-

tributed to its growth with their extra-

ordinary commitment in this extremely

challenging phase.

Thomas Schmidt


Rudy Suter

Member of the Executive Board



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Balance Sheet, Income and Cash Flow Statements


Balance Sheet as at 31 December, 2017

Amounts in CHF 2017 2016 Absolutee

change

Assets

Liquid assets 24’958’510 10’016’860 14’941’650

Accounts receivable from banks 19’134’080 16’867’684 2’266’396

– due daily 14’255’580 11’774’684 2’480’896

– other accounts receivable 4’878’500 5’093’000 -214’500

Accounts receivable from customers 7’526’388 4’726’619 2’799’769

of these, mortgage loans 570’424 0 570’424

Debt

Debt securities and other fixed-income securities 3’188’976 3’177’916 11’060

Money market instruments

– from public issuers 0 0 0

– from other issuers 0 0 0

Debt securities

– from public issuers 414’393 381’914 32’479

– from other issuers 2’774’583 2’796’002 -21’419

Shares and other non-fixed-income securities 0 0 0

Intangible assets 610’974 59’315 551’659

Tangible fixed assets 30’212 51’183 -20’971

Other assets 390’697 413’784 -23’087

Accrued income and prepaid expenses 286’442 128’392 158’049

Total assets 56’126’278 35’441’753 20’684’525




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Amounts in CHF 2017 2016 Absolute

change

Liabilities

Accounts payable to banks 25’563’765 0 25’563’765

– due daily 179’976 0 179’976

– with agreed upon maturity or notice period 25’383’789 0 25’383’789

Accounts payable to customers 12’862’925 22’004’769 -9’141’844

Other accounts payable

– due daily 12’862’925 22’004’769 -9’141’844

– with agreed upon maturity or notice period 0 0 0

Securitized liabilities 0 0 0

of these, medium-term bonds 0 0 0

Other accounts payable 161’618 45’530 116’088

Accrued expenses and deferred income 532’027 237’108 294’920

Balance sheet reserves 1’800 1’200 600

Balance sheet reserves for taxes 1’800 1’200 600

Other balance sheet reserves 0 0 0

Balance sheet reserves for general banking risks 0 0 0

Subscribed capital 32’000’000 25’000’000 7’000’000

Profit reserves 0 0 0

Legally required reserves 0 0 0

Other reserves 0 0 0

Loss carried forward -11’846’854 -9’026’831 -2’820’023

Annual loss -3’149’004 -2’820’023 -328’981

Total liabilities 56’126’278 35’441’753 20’684’525



change

Contingent liabilities 249’477 253’114 -3’637

– of these, credit guarantees 249’477 253’114 -3’637

– of these, performance bonds 0 0 0

– of these, irrevocable liabilities 0 0 0

– of these, other contingent liabilities 0 0 0

Credit risks 0 0 0

– of these, irrevocable commitments 0 0 0

Derivative financial instruments

– Positive replacement values 0 21’318 -21’318

– Negative replacement values 0 0 0

– Contract volume 0 3’224’100 -3’224’100

Fiduciary transactions 0 0 0

– of these, fiduciary transactions with third-party banks 0 0 0

– of these fiduciary loans 0 0 0

Off-balance Sheet Positions as at 31 December, 2017




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Income Statement for the Period 1 January, 2017through 31 December, 2017


change

Interest income 296’147 322’973 -26’826

Interest and discount income 1) 317’038 323’689 -6’650

of this, from fixed-income securities 18’773 42’245 -23’471

Interest expense -20’891 -716 -20’175

Current income from securities 0 0 0

Shares and other non-interest-bearing securities 0 0 0

Income from commission and service fees 1’180’968 1’083’251 97’717

Income from commission and service fees 1’424’060 1’162’555 261’505

– Commission income from credit operations 776’667 0 776’667

– Commission income from securities and investments 172’943 134’651 38’292

– Commission income from other services 474’450 1’027’904 -553’454

Commission expenses -243’092 -79’304 -163’788

Income from financial transactions 155’463 109’050 46’414

of this, from trading operations 155’463 109’050 46’414

Remaining ordinary income 84’479 0 84’479

Other ordinary income 84’479 0 84’479

Operating expense -5’155’454 -4’238’042 -917’412

Personnel expense -2’768’322 -2’196’220 -572’102

Operationel expenses -2’387’132 -2’041’822 -345’310

Gross income -3’438’397 -2’722’768 -715’628

– Depreciation of intangible assets and property,

plant and equipment -66’256 -83’533 17’277

– Other ordinary expenses -38’387 -16’242 -22’145

– Value adjustments for receivables and additions to

reserves for contingent liabilities and credit risks 0 3 -3

– Income from reversals of value adjustment and receivables 394’955 0 394’955

– Depreciation of investments, shares in affiliated

companies and securities treated as fixed assets 0 0 0

Result from ordinary business operations -3’148’085 -2’822’540 -325’545

1) According to FINMA-RS 15/1 negative interest

on lending must be recorded as a reduction

of interest income.



change

Extraordinary result 881 3’717 -2’836

Extraordinary income 881 4’091 -3’210

Extraordinary expenses 0 -374 374

Taxes -1’800 -1’200 -600

Taxes on profits -1’800 -1’200 -600

Other taxes/rounding differences 0 0 0

Addition/income to/from reserves for gen. banking risks 0 0 0

Addition to reserves for general banking risks/

income from reversals of provisions for general banking risks 0 0 0

Annual loss -3’149’004 -2’820’023 -328’981

Allocation of balance sheet loss

Annual profit/loss -3’149’004 -2’820’023

Profit/loss carried forward -11’846’854 -9’026’831

Balance sheet loss -14’995’858 -11’846’854

Allocations

a) Allocation to regulatory required reserves 0 0

b) Allocation to other reserves 0 0

c) Dividends 0 0

d) Carry forward to new account -14’995’858 -11’846’854




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Cash Flow Statement 2017

Amounts in CHF 2017 2016

Source Use Balance Source Use Balance

of funds of funds of funds of funds

Annual result 0 3’149’004 0 2’820’023

Depreciation of fixed assets 66’256 0 83’533 0

Change in balance sheet reserves 600 0 0 0

Deferred expenses and accrued income 1) 0 158’049 464’928 0

Deferred income and accrued expenses 1) 294’920 0 0 26’986

Other items 0 0 0 0

Dividends, prior year 0 0 0 0

Cash flow from operating result

(internal financing) 361’776 3’307’053 -2’945’277 548’461 2’847’009 -2’298’548

Increase in shareholders’ equity 7’000’000 0 0 0

Premium from increase in capital 0 0 0 0

Reserves for treasury shares/revaluation

Reserves 0 0 0 0

Cash flow from equity capital transactions 7’000’0000 0 7’000’000 0 0 0

Participations in companies 0 0 0 0

Other property, plant and equipment 0 3’829 0 0

Immaterial assets 0 593’115 0 27’510

Securities and precious metals in fixed assets 1) 0 11’060 1’228’781 0

Cash flow from transactions related

to fixed assets 0 608’004 -608’004 1’228’781 27’510 1’201’271

Accounts payable to banks 588’597 0 0 0

Accounts payable to customers 0 0 0 0

Accounts receivable from banks 0 0 0 0

Accounts receivable from customers 0 2’009’939 0 0

Other accounts receivable 0 0 0 0

Medium and long-term operations (> 1 year) 588’597 2’009’939 -1’421’342 0 0 0

Accounts payable to banks 24’975’168 0 0 0

Accounts payable to customers 0 9’141’844 1’853’191 0

Other accounts payable 116’088 0 0 33’229

Accounts receivable from banks 0 2’266’396 1’239’579 0

Accounts receivable from customers 0 789’829 0 1’261’250

Securities and precious metals in current

assets (without trading positions) 0 0 0 0

Other assets 23’087 0 0 283’975

Short-term operations (< 1 year) 25’114’343 12’198’069 12’916’274 3’092’770 1’578’453 1’514’317

1) Concerns the year 2016: change in

accounting of own securities from gross

to newly, net valuation according to

annex 3 part I chapter 6 subpara. 6 BankV.


Amounts in CHF 2017 2016

Source Use Balance Source Use Balance

of funds of funds of funds of funds

Cash flow from bank operations 25’702’941 14’208’009 11’494’932 3’092’770 1’578’453 1’514’317

Liquid funds 0 14’941’650 0 417’040

Liquidity 0 14’941’650 -14’941’650 0 417’040 -417’040

Total source of funds 33’064’717 4’870’012

Total use of funds 33’064’717 0 4’870’012 0



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Notes on Financial Statements


1. Notes on Business Activity, Corporate Governance and Personnel

Business activity

As of 2017, Union Bank is also offering its services to customers in the Middle East.

The bank focuses here on standardized services such as payments and letters of

credit, whereby the letter of credit business will commence in 2018. The bank serves

both domestic and foreign clients who do business in this region. In addition, the

bank also offers other classic banking activities and private banking services. To this

extent, the bank grants, inter alia, Lombard loans. To provide liquidity to both

private and business customers is our guiding motto. The bank’s trading activities are

primarily geared to clients’ business. Trading for bank’s own account is carried out

only to a very limited extent. At the end of 2017, Union Bank employed 15.6 persons

on a part-time adjusted basis (previous year: 8.7).

Outsourcing of the business divisions

The bank has outsourced the following activities:

Business division Service provider

Operation of IT-Platform

(electronic data processing) Sobaco Services AG, Zürich

Backoffice services Finanz-Logistik AG, St. Gallen

Payroll accounting Sindus AG, Vaduz

Internal auditing Dr. Peter Hemmerle, AREVA Allgemeine

Revisions- und Treuhand AG, Vaduz

FMA, the Financial Market Authority of Liechtenstein, has been informed in writing

about these outsourcing activities. In order to guarantee confidentiality, any and all

employees of the service providers listed above are bound by the banking secrecy.

The FMA Liechtenstein stipulates the disclosure of the principles of corporate gover-

nance and of the remuneration policy in its Guide to Disclosure Requirements under

Art. 29c, Banking Ordinance. The bank expounds hereinafter, how it fulfils specific

requirements, in particular, those of corporate governance and the remuneration

policy. Since the contents of the Disclosure Requirements are available in extenso in

this Annual Report, no separate publication is offered on the bank‘s homepage. Com-

ments are updated at least once a year coinciding with the publication of an annual

report.




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Corporate Governance

Structure of the Executive Board

Art. 22 para. 2 B b BankG

The management of Union Bank responsible for the operative business consists of the

following two permanent members:

CEO Thomas Schmidt since 08.07.2013

COO Hans-Ulrich Nigg until 15.05.2017

COO Rudy Suter since 15.05.2017

Members of the Executive Board carry joint responsibility while performing their

duties. Furthermore, members of the Executive Board cannot act at the same time as

members of the Board of Directors.

Structure of the Board of Directors, Internal Audit and Risk Committee

Art. 22 para. 5 to 8 BankG in conjunction with Art. 29 para. 1 and Art. 29a BankV

Members of the Board of Directors and the external auditors are approved by the

FMA, Liechtenstein. The Board of Directors currently consists of four members elect-

ed by the General Assembly for a term of three years. When selecting the members

of the Executive Board and the Board of Directors, the FMA Communication 2013/07

is taken into account in order to ensure that the members possess the necessary

knowledge, skills, and experience. Furthermore, to ensure that the knowledge and

abilities of the Board members are maintained at a high level, workshops and courses

are offered at regular intervals. Further, the Disclosure Report (note 7 to the financial

statements) lists all other mandates, which every member of the Executive Board and

the Board of Directors may hold. The Board of Directors has decided not to form a risk

committee due to its limited size.

Monitoring and Control

Art. 23 a para. 1 and 2 letter a, b and d-f BankG

The Board of Directors holds at least four board meetings per year. The internal orga-

nizational and business conduct regulations of the bank expound the organization of

the internal audit as well as the non-transferable and irrevocable duties of the Board

of Directors. Regular review and evaluation of all rules by the Board of Directors en-

sures that, among other aspects, the separation of responsibilities is always clearly

defined and that appropriate measures can be taken to avoid any conflict of interest.

The Board of Directors receives monthly reports on the bank‘s financial situation.


Furthermore, the Board of Directors is responsible for the budget. The Board of

Directors is provided with ad hoc evaluations and is informed at least once a year by

the Internal Audit department and also receives an annual compliance report. Further

risk components are documented in the monthly reports, which also include regula-

tory components, and are, likewise, made available to the Board of Directors. Accord-

ing to Art. 24 para. (1) of the Liechtenstein Banking Regulation, Union Bank AG is not

required to issue interim financial statements. Preparation of an annual report is ap-

proved by the Board of Directors. General Meeting is prepared by the Chairman of the

Board of Directors in cooperation with the Executive Board. The Board of Directors is

informed of the disclosure during its regular meetings (in accordance with Chapter 7

„Disclosure“).

Remuneration policy

Disclosure of Information with regard to remuneration policy (Art. 450 CRR)

The basis for the remuneration report of Union Bank AG constitutes the implementa-

tion of the EU Regulation No. 575/2013 with reference to the EU Directive 2013/36 /

EU CRD IV, which governs, among other issues, the risks associated with remunera-

tion policy and practice.

Liechtenstein has implemented this guideline in the Law on Banks and Investment

Firms, in particular in Art. 7a, para. 6 (Banking Act) and in the „Regulation on Banks

and Investment Firms“ (BankV). Our report takes into account both size and structure

of the bank. The remuneration policy is defined in the bank‘s internal rules on the

management of risks associated with the remuneration policy and practice.

Excerpt from our remuneration policy principles:

1. The remuneration policy set by the bank is consistent with solid and effective risk

management. The bank’s remuneration policy does not contravene the risks de-

fined by the bank, nor does it provide motivation for taking on risks that exceed the

degree of risk tolerated by the bank.

2. The remuneration policy is commensurate with the business strategy, goals, values

and long-term interests of the bank, as defined by the Board of Directors and

detailed by the Executive Board, and it includes measures for avoiding conflicts of

interest.




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3. The Bank‘s Board of Directors, in its supervisory capacity, approves the general

principles of the remuneration policy along with the other risk policy requirements.

It reviews the policy at least annually and is responsible for its implementation.

4. Employees with monitoring roles are independent of the business divisions that

they monitor. They have sufficient authority and are paid a salary based on achiev-

ing the targets related to their tasks, independent of the performance of the busi-

ness divisions, which they monitor.

5. At least once a year, as part of a central and independent internal review, the im-

plementation of remuneration obligations is determined according to the remuner-

ation requirements approved by the Board of Directors.

6. Remuneration for top management within the Risk Management and Compliance

divisions, who are, therefore, “risk takers”, is reviewed directly by the Board of

Directors as part of its supervisory role. This takes place at least annually.

7. Whenever remuneration depends on performance, the overall remuneration is

based on an evaluation of both the corresponding employee’s performance and

that of his or her department, as well as the bank‘s overall result. When evaluating

individual performance, both financial and non-financial criteria are taken into ac-

count. The evaluation is based on a performance over several years to ensure that

the evaluation focuses on longer-term outcomes and that the actual payment of

performance-related remuneration components is stretched across a longer peri-

od to take into account the bank’s underlying business cycle and its business risks.

8. The total variable remuneration must not limit the ability of the Bank to improve its

equity capital base.

Elements of Remuneration

The total remuneration of Union Bank AG employees consists of a fixed part, and a

short- and a long-term performance or success related bonus program. Fixed remu-

neration constitutes the base salary agreed upon in a contract and is, in principle,

geared towards the requirements of the role that is performed while taking into ac-

count the local labour market. The variable part of the remuneration can, but does not


have to be granted (see Remuneration policy principles). A claim does not arise under

any circumstances. The profit-sharing amount must remain in an appropriate relation

to the fixed income and depends on the role and common practices in the market.

The Board of Directors determines the total amount of variable remunerations, as well

as the individual bonuses for members of the Executive Board. The latter determine

further distribution of bonuses among employees.

There are no agreements about severance pay either for the members of the Board of

Directors or of the Executive Board.

Except for preferential terms for deposits and securities transactions, there are no

fringe benefits for employees.




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2. Accounting and Valuation Principles

Principles

Accounting practices, valuation and balance sheet preparation are conducted in com-

pliance with the provisions of the Liechtenstein Persons and Companies Act (PGR),

Liechtenstein Banking Act and its associated ordinances, and also according to

possible guidelines relevant to financial reporting coming from the Liechtenstein

Financial Market Authority. The Annual Financial Statement has been prepared in

compliance with legal requirements and generally accepted accounting principles.

It provides a true and fair representation of the assets, the financial situation and

the earnings performance.

The accounting and valuation methods described below apply to assets and liabilities.

Valuation has been based on the assumption of continued company activity. All book-

keeping and accounting items are denominated in Swiss Francs.

Recording and accounting

All transactions completed as of the balance sheet date are recorded in the balance

sheet and income statement and are booked according to the set valuation principles.

Foreign currency positions

Accounts receivable and accounts payable in foreign currencies are valued at the

mean rate of exchange determined at the balance sheet date. Exchange rate differ-

ences resulting from the valuation are recognised in the income statement. For ex-

penses and revenues accruing in the course of the year, the applicable exchange rates

are the ones on the day of a transaction.

The following balance sheet exchange rates were used for the key currencies:

31.12.2017 31.12.2016

EUR 1.1701 1.0747

USD 0.9757 1.0186

GBP 1.3189 1.2536

Liquid funds and accounts receivable from Banks

Items on the balance sheet are booked at their nominal value, respectively, at the

purchase value, less individual value adjustment for receivables at risk.

Negative interest on the asset-side of the bank’s operations is recorded under the

item - interest income - according to the notification of the Liechtenstein Bank Asso-

ciation (Liechtensteinischer Bankenverband) dated 13 March, 2015 (agenda item 5.4)

based on the FINMA circular 15/1 (reduction in interest income).


Negative interest rates on the liability-side of the bank’s operations are recorded in

interest expenses (reduction in interest expenses).

Based on the communication from the Swiss Federal Banking Commission (SFBC

10/1999), cash and cash equivalents (sight deposits) on current accounts at the Swiss

Euro Clearing Bank (SECB), will be from now on booked as „Liquid funds“, according

to RRV-EBK (Guidelines to Financial Reporting Rules of the Federal Banking Commis-

sion), and no longer as „Receivables from banks“. Similarly, receivables from the Aus-

trian National Bank (OeNB) are also booked as” Liquid funds”.

Receivables due from customers and mortgages

These items are booked at their nominal value less necessary value adjustments. Re-

ceivables at risk, i.e., receivables for which it is unlikely that the debtor can meet his or

her future commitments, are valued on an individual basis, and individual value adjust-

ments are made for the impairment. For credit portfolios with a homogeneous com-

position which consist solely of many small receivables, generalised individual value

adjustments are made according to Appendix 3, part I, para. 6a BankV. Off-balance

sheet transactions are included in this valuation. Overdue loans are deemed at risk if

the contractually agreed-upon payments for capital and/or interest are past-due for

more than 90 days. Interest that is past due for more than 90 days is value adjusted

and recognised in the income statement only upon payment. Lendings are accounted

as non-interest bearing, if the ability to collect the interest is so questionable that

deferral is no longer deemed to be meaningful.

Value adjustment is measured based on the difference between the book value of the

receivable and the amount that is expected to be collected while taking into account

the counterparty risk and net proceeds from the recovery of possible collaterals. If the

recovery process is expected to take more than one year, the estimated recovery

income is discounted as of the balance sheet date. Individual value adjustments

are deducted directly from the corresponding asset positions.

If a receivable is classified as irrecoverable in whole or in part, or a debt waiver is

granted, the receivable is closed out at the expense of the corresponding value adjust-

ment. Recoveries of previously closed out amounts are recognised in the income

statement.

Trading positions in securities and precious metals

Trading positions are valued at market value on the balance sheet date. Positions that

are not traded at a recognized stock exchange or for which there is no representative

market, are valued at the lower of cost or market.




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Securities and precious metals in current assets and fixed assets

Current assets are valued at the lower of cost or market. Money market instruments

are valued at amortized cost. Fixed-interest securities that are assigned to fixed as-

sets are valued according to the “accrual” method and are accounted at net value.

Premiums or discounts of fixed-interest debt instruments are deferred for the dura-

tion of their term. Only debt instruments that are held until final maturity are recorded

as fixed assets. Precious metals in current assets are valued at market value on the

balance sheet date. Precious metals in fixed assets are recorded at the purchase value

less value adjustments due to operational necessities.

Shares in affiliated companies and participations

Shares in affiliated companies and participations are valued at the purchase value

while taking into account necessary depreciation. Shares in infrastructure companies

are also reported under participations in companies. These items are insignificant in

terms of capital and voting shares. Subordinate loans to affiliated companies are

recorded at the nominal value.

Intangible assets

Intangible assets here are the licensing and software capitalised costs for the banking

package. They are depreciated based on the maximum tax depreciation rates accord-

ing to Art. 26 letter d SteV [Liechtenstein Tax Ordinance]. The time-oriented method

was changed from declining-balance to linear in 2017. Intangible assets that can be

capitalized are recognized in accordance with Articles 1053 an 1072 PGR as soon as

the lower limit of CHF 5,000 per item is exceeded.

Property, plant and equipment

Installations in third-party property, furniture and equipment, office machines and

EDP systems, as well as vehicles, are recorded under property, plant and equip-

ment. They are accounted at the purchase value less depreciation following the tax-

related maximum depreciation rates according to Art. 26 letter d SteV. The time-

based method was changed from degressive to linear in 2017. If smaller purchases

exceed the minimum limit for capitalization of CHF 5,000 per item, they are to be

included in the balance sheet according to Art. 1053 and 1072 PGR (Liechtenstein

Persons and Companies Act).

Derivatives

Any and all replacement values of derivative financial instruments carried out on

bank’s own account, are to be recognised. Transactions with derivative financial in-

struments that are completed by customer are only recognised in balance sheet


accounting, if they are OTC contracts. Replacement values for customer transactions

with exchange-traded contracts are only recorded if the accrued single-day loss is

not entirely covered by the actually claimed initial margin. Replacement values are

recognised as gross values in the balance sheet, the off-balance sheet transactions

and in the appendix, i.e., the positive and negative replacement values are not offset

against each other. In addition, the contract volume is reported in the appendix.

Liabilities towards banks and customers

Liabilities toward banks and customers are recorded at nominal value.

Other assets and liabilities

Derivatives are valued at fair value. Other items (settlement accounts, coupons, etc.)

are recorded at nominal value or repayment amount.

Valuation adjustments and balance sheet reserves

Following prudential rules, individual value adjustments are made for all identifiable

risks as of the balance sheet date. In addition, balance sheet reserves are formed for

all identifiable or predictable risks. Taxes are calculated based on the result of the

reporting year, and the amount is placed in reserves. Tax effects deriving from differ-

ences in timing between the values of assets and liabilities and their taxable values are

booked as latent taxes under balance sheet reserves. Calculation is based on the

estimated tax rates from actual taxation.

Taxes

Current taxes on profit are recorded as expense in the accounting period during

which the corresponding profit accrues. For untaxed reserves, a balance sheet re-

serve is accumulated for latent taxes and recognised in income.

Leasing

Expenses for operational leasing (ownership rights and duties arising from the subject

of the leasing contract remain with the lessor) are recorded in the material expenses.

Balance sheet reserves for general banking risks

Balance sheet reserves for general banking risks are formed in the bank‘s course of

business in order to hedge against latent risks.

Off-balance sheet transactions

Off-balance sheet transactions are recorded at nominal value. Balance sheet reserves

are created for identifiable risks from contingent liabilities and other off-balance sheet

transactions.




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Events after the balance sheet date

As stated in the 2017 Annual Report, the establishment of new business activities

requires more capital, while the targeted revenue volume has not yet been reached.

As a result, the bank incurred half of its capital loss as of 31 March 2018 in accordance

with Art. 182e para. 1 PGR (Liechtenstein Persons and Companies Act). The company

management and the Board of Directors are informed about this and have already

evaluated and initiated measures to remedy the situation. The General Meeting, in

which the shareholders decide on measures to be undertaken, is planned to take

place until mid-2018.

Risk management (Art. 435 CRR)

The bank follows risk management policy based on legal requirements as defined by

Capital Requirements Regulation (Art. 435 para. 1 letter b CRR). The Executive Board

and the Board of Directors monitor, analyse and discuss business risks on an ongoing

basis by means of reports, limits and regular meetings (Art. 435 para. 1 letters c and

f CRR). The objective of the bank is to keep the risk profile low at all times (Art. 435

para. 1 letter d CRR). The risk management processes implemented at Union Bank

correspond to the common approach in the financial industry. The daily business

operations are designed in such a manner that the supervisory requirements are met

and that existing procedures are in alignment with the business model (Art. 435, para.

1, letter e CRR).

The strategy and methods for controlling individual risks are explained in more detail

below (Art. 435, para. 1, letter a CRR).

Interest rate change risks

Since Union Bank AG is active in the balance sheet transactions, changes in interest

rates can have a significant impact on the success of the interest-differential busi-

ness. Interest rate risks are calculated periodically and are monitored and controlled

during regular sessions of the Asset and Liability Committee.

Country risks

Country ratings and the setting of country limits serve to keep at bay the potential

risks with regard to countries or regions.

Risk exposure in trading and due to use of derivatives

Trading and derivative transactions are handled with first-rate third parties. No trans-

actions on own account with unlimited market risk are performed at this time.


Other market risks

The bank does not hold any significant foreign exchange positions. Foreign currency

assets are in principle match-funded in the relevant currency. They serve mainly for

covering daily foreign exchange positions of customers, they have limit restrictions

and are continuously monitored.

Credit risks

The bank adopted a practise of risk-oriented allocation of competence for credit ap-

provals for which creditworthiness and solvency are evaluated according to standard-

ised criteria. For business conducted with other banks and brokers, the criteria are

defined in such a way that primarily first-rate third parties are consulted.

Liquidity risks

Liquidity risks are monitored and controlled in accordance with the bank’s statutory

provisions. The bank always holds liquid levels in excess of the minimum ratio as re-

quired by banking law.

Operational and legal risks

Operational and legal risks are limited by virtue of internal regulations and instruc-

tions in regard to organization and monitoring, as well as internal controls (four-eye

principle, separation of corporate functions, compliance officer, EDP support, etc.).

External consultants are engaged on a case-by-case basis to limit legal risks.

Risk controlling

In order to support risk-oriented corporate governance, both the Executive Board and

the Board of Directors receive regularly risk reports, which provide a comprehensive

analysis of the bank’s current and expected risk exposure while incorporating any and

all risk types that are inherent in the banking business (market, credit, liquidity, op-

erational, legal and other risks). The annual risk analysis and valuation is captured in

detail in the ICAAP1 document.

1 Internal Capital Adequacy Assessment Process; a strategy for preserving the equity level, called “internal

capital adequacy process”.




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3. Notes on Balance Sheet

3.1 Overview of Coverage for Loans and Off-balance Sheet Transactions

Art. 24e para. 1 subpara. 3.1 BankV (in Thousand CHF) Coverage type

Mortgage Other No Total

coverage coverage coverage

Loans

Accounts receivables from customers (without mortgage receivables) 1’440 5’210 306 6’956

Mortgage receivables

– Residential property 570 0 0 570

– Office and commercial buildings 0 0 0 0

– Small business and Industry 0 0 0 0

– Other 0 0 0 0

Total loans 31.12.2017 2’010 5’210 306 7’526

31.12.2016 0 4’003 724 4’727

Off-balance sheet

Contingent liabilities 0 0 249 249

Irrevocable commitments 0 0 0 0

Call- and additional funding commitments 0 0 0 0

Credit commitments 0 0 0 0

Total off-balance sheet 31.12.2017 0 0 249 249

31.12.2016 0 0 253 253

Overview by coverage

Art. 24e para. 1 subpara. 3.1 BankV (in Thousand CHF) Gross Estimated Net Individual

outstanding recovery income outstanding value

amount from collaterals amount adjustments

Total receivables at risk 31.12.2017 0 0 0 0

31.12.2016 0 0 0 0

Receivables at risk


3.2 Breakdown of Trading Positions in Securities and Precious Metals, and of Financial Investments and Participations in companies

Trading positions in securities and precious metals

As of the balance sheet date, Union Bank AG had no trading positions in securities or precious metals.

Securities and precious metals in current assets (without trading positions)

As of the balance sheet date, Union Bank AG had no securities or precious metals positions in current assets (without trading positions).

Art. 24e para. 1 subpara. 3.2 BankV (in Thousand CHF) Book value Market value

2017 2016 2017 2016

Debt instruments 3’189 3’178 3’249 3’241

– of these, own bonds and medium-term bonds 0 0 0 0

– of these, valued according to the accrual method 3’189 3’178 3’249 3’241

– of these, valued according to the lower of book or market 0 0 0 0

Participations 0 0 0 0

– of these, qualified participations (at least 10% of the capital or votes) 0 0 0 0

Precious metals 0 0 0 0

Total securities and precious metals positions in fixed assets 3’189 3’178 3’249 3’241

– of these, securities eligible for repo transactions according to liquidity requirements 0 0 0 0

Securities and precious metals in fixed assets

3.3 Information on significant participations in companies

Union Bank AG does not hold any participations in companies.




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3.4 Fixed Asset Movement Schedule

Art.24e para.1 subpara.3.4 + 3.5 BankV Purchase Depreciation Book value Investments Divestments Reallocations Appreciation Depreciation Book value

(in Thousand CHF) value accumulated 31.12.16 31.12.17

so far

Participations

– Majority participations 0 0 0 0 0 0 0 0 0

– Minority participations 0 0 0 0 0 0 0 0 0

Total Participations 0 0 0 0 0 0 0 0 0

Securities and precious

metals positions

In fixed assets

Securities 3’002 176 3’178 0 -218 0 229 0 3’189

Total securities and

Precious metals pos.

In fixed assets 3’002 176 3’178 0 -218 0 229 0 3’189

Intangible assets

Intangible assets 1’810 -1’751 59 593 0 0 0 -41 611

Total intangible assets 1’810 -1’751 59 593 0 0 0 -41 611

Property,

plant and equipment

Property 0 0 0 0 0 0 0 0 0

– Bank’s building 0 0 0 0 0 0 0 0 0

– Other real estate 0 0 0 0 0 0 0 0 0

Other tangible assets 295 -244 51 4 0 0 0 -25 30

Total tangible assets 295 -244 51 4 0 0 0 -25 30

Overall total 5’108 -1’819 3’288 597 -218 0 229 -66 3’830

(in Thousand CHF) 31.12.17 31.12.16

Fire insurance value of the properties 0 0

Fire insurance value of other tangible assets 600 600

Accounts payable: future leasing rates from operational leasing 0 0

3.5 Breakdown of Intangible Assets

As of the balance sheet day, this position included capitalised banking applications in the amount of CHF 611 000

(prior year: CHF 59 000). Of this, TCHF 560 relates to bank applications under construction that are not yet subject to depreciation.


3.6 Assets Pledged or Assigned as well as Assets Subject to Reservation of Ownership Title in Order to Secure own Liabilities

Art. 24e para. 1 subpara. 3.6 BankV (in Thousand CHF) 31.12.17 31.12.16

Amount Liabilities or of Amount Liabilities or of

receivables these claimed liabilities these claimed

or book value or book value

Pledged assets

Receivables from money market instruments 0 0 0 0

Receivables from banks 573 0 500 320

Receivables from customers (without mortgage receivables) 0 0 0 0

Mortgage receivables 0 0 0 0

Securities and precious metals positions in fixed assets (without trading positions) 0 0 0 0

Securities and precious metals positions in fixed assets 0 0 0 0

Property, plant and equipment/other assets 0 0 0 0

Total pledged assets 573 0 500 320

Assets with reservation of ownership title 0 0 0 0

Assets pledged or assigned as well as assets subject to reservation of ownership title, without lending transaction

and repurchase agreements with securities.

As of the balance sheet day, there are no liabilities due to own pension funds.

3.7 Liabilities to own Pension Funds

3.8 Outstanding Bond Issues

As of balance sheet day there were no outstanding own bond issues.




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Art. 24e Abs. 1 Ziff. 3.9 BankV (in Tausend CHF) As of Utilisation in Recoveries, Net additions Release of As of

31.12.16 conformity with overdue interest, recognized in provisions 31.12.17

purpose currency income recognized in

translation statement income

differences statement

Value adjustments and balance sheet reserves for default

and other risks

– Value adjustments and balance sheet reserves

for default risks (del credere and country risk) 395 0 0 0 -395 0

– balance sheet reserves for contingent liabilitie

and credit risks 0 0 0 0 0 0

– balance sheet reserves for other business risks 0 0 0 0 0 0

– balance sheet reserves for taxes and latent taxes 1 -1 0 2 0 2

– other reserves 0 0 0 0 0 0

Total value adjustments and balance sheet reserves 396 -1 0 2 -395 2

less: value adjustments directly recognized in assets 0 0 0 0 0 0

Total adjustments and balance sheet reserves as per

balance sheet 396 -1 0 2 -395 2

Balance sheet reserves for general bank risks 0 0 0 0 0 0

– of these, taxed 0 0 0 0 0 0

3.9 Value Adjustments and Balance Sheet Reserves/Balance Sheet Reserves for general Banking Risks


3.10 Share Capital and Shareholders with Participations above 5% of all Voting Rights


Total Quantity Capital Total Quantity Capital

nominal value entitled to nominal value entitled to

dividends dividends

Share capital

– registered shares 32’000 32’000 32’000 25’000 25’000 25’000

Total share capital 32’000 32’000 32’000 25’000 25’000 25’000

Authorised capital 7’000 7’000 0 0

– of these, implemented capital increases 7’000 7’000 0 0

contingent capital 0 0 0 0

– of these, implemented capital increases 0 0 0 0


Nominal Share in % Nominal Share in %

Significant shareholders

and shareholders groups with voting rights

with voting rights:

– TREMEZZO Foundation, LI-9490 Vaduz 6’750 21.1% 25’000 100.0%

– M. H. Dastmaltchi, AE-121000 Dubai 23’550 73.6% 0 0.0%

– N. A. Fay, CH-7504 Pontresina 1’700 5.3% 0 0.0%




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Art. 24e Abs. 1 Ziff. 3.11 BankV (in Tausend CHF)

Equity at the start of the reporting year

Subscribed capital paid in 25’000

Statutory reserves 0

– of these, reserves from capital contributions 0

Other reserves 0

Reserves for own shares 0

Balance sheet reserves for general banking risks 0

Net profit/loss -11’847

Total equity at the start of the reporting year

(before apporopriation of earnings/loss compensation) 13’153

+ Capital increase 7’000

+ Preminum from capital increase 0

+ Allocation to balance sheet reserves

for general banking risks 0

– Dividends and other distributions from

the prior year annual profits 0

– Annual loss in the reporting year -3’149

Total equity at the end of the reporting year

(before apporopriation of earnings/loss compensation) 17’004

Of these:

Subscribed capital paid in 32’000

Statutory reserves 0

– of these, reserves from capital contributions 0

Other reserves 0

Reserves for own shares 0


Net profit/loss -14’996

3.11 Statement of Equity Capital


3.12 Maturity Structure of Assets as well as Accounts Payable and Reserves

Art. 24e para. 1 subpara. 3.12 BankV (in Thousand CHF) On demand callable Due Total

within 3 months from 3 months from 12 months from 5 years immobilised

up to 12 months up to 5 years

Assets

Liquid funds 24’958 24’959

Accounts receivable from banks 14’256 4’879 19’134

Accounts receivable from customers 5’516 1’440 6’956

– of these, mortgage receivables 570 570

Trading positions in securities

and precious metals 0

Securities and precious metals

positions in current assets

(without trading positions) 0

Securities and precious metals

positions in fixed assets 819 900 1’235 235 3’189

Other Assets 1’314 4 1’318

Total Assets

31.12.2017 46’044 4’879 819 900 3’245 235 4 56’126

31.12.2016 27’166 5’093 752 0 2’210 216 5 35’442

Liabilities and balance sheet reserves

Accounts payable to banks 180 22’112 2’664 608 25’564

Accounts payable to customers

– of these, savings deposits 0

– of these, other liabilities 12’863 12’863

Balance sheet reserves (without

reserves for general banking risks) 2 2

Other liabilities 694 694

Total liabilities and balance sheet

reserves

31.12.2017 13’739 22’112 0 2’664 608 0 0 39’123

31.12.2016 22’289 0 0 0 0 0 0 22’289

Debt securities and other fixed-interest bearing securities that will be due during the next reporting year 1’719

Negotiable debt securities that will be due during the next reporting year 0




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3.13 Receivables and Liabilities towards affiliated Companies und qualif ied Investors as well as Loans to Governing Bodies and Transactions with related Persons


Accounts receivable from affiliated companies and qualified investors 1’998 4’706

– of these, affiliated companies 0 0

– dof these, qualified investors 1’998 4’706

Accounts payable to affiliated companies and qualified investors 589 2’604

– of these, affiliated companies 0 0

– of these, qualified investors 589 2’604

Loans to Governing Bodies 604 0

Transactions with related Persons

Transactions (such as securities and payment transaction, granting of credit and reimbursement of deposits) with members

of the Board of Directors, and of the Executive Board as well as with employees are executed on employee terms of the bank.

Transactions with related persons will be executed on conditions applicable to third parties.

3.14 Assets and Liabilities broken down into Domestic and Foreign

In accordance with Art. 24e para. 1 subpapara. 3.14 BankV Union Bank AG waives publication.

3.15 Total Assets broken down by Countries or Groups of Countries

In accordance with Art. 24e para. 1 subpapara. 3.15 BankV Union Bank AG waives publication.


3.16 Balance Sheet by Currency

Art. 24e Abs. 1 Ziff. 3.16 BankV (in Tausend CHF) Currencies Total

CHF EUR USD Other

Assets

Liquid funds 9’723 15’236 24’959

Accounts receivable from banks 4’603 9’529 4’929 73 19’134

Accounts receivable from customers (without mortgage receivables) 1’488 5’462 4 2 6’956

Mortgage receivables 570 570

Debt securities and other fixed-income securities 250 2’939 3’189

Shares and other non-fixed-income securities 0

Participations 0

Immaterial assets 611 611

Property, plant and equipment 30 30

Other assets 391 391

Deferred expenses and accrued income 262 24 286

Total reportable Assets 17’358 33’760 4’933 75 56’126

Delivery claims from forex spot, forex futures and

forex option transactions 0

Total reportable Assets

31.12.2017 17’358 33’760 4’933 75 56’126

31.12.2016 15’838 12’724 10’034 70 38’666

Liabilities

Accounts payable to banks 25’563 1 25’564

Accounts payable to customers (without savings deposits) 331 7’800 4’719 13 12’863

Savings deposits 0

Other liabilities 93 69 162

Deferred income and accrued expenses 520 12 532

Balance sheet reserves 2 2


Subscribed capital 32’000 32’000

Legally required reserves 0

Other reserves 0

Profit/loss carried forward -11’847 -11’847

Annual profit/annual loss -3’149 -3’149

Total reportable liabilities 17’950 33’444 4’719 14 56’126

Delivery commitments from forex spot, forex futures and

Forex options transactions 0

Total liabilities

31.12.2017 17’950 33’444 4’719 14 56’126

31.12.2016 19’404 9’241 9’985 35 38’666

Net-Position by currency

31.12.2017 -592 316 214 61 0

31.12.2016 -3’566 3’482 48 35 0




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4. Notes on the Off-Balance Sheet Transactions

4.2 Confirmed credits

Art. 24e para. 1 subpara. 4.2 BankV

There are no confirmed credits.

4.3 Open derivative f inancial instruments

Art. 24e para. 1 subpara. 4.3 BankV (in Thousand CHF) Trading instruments Hedging-Instruments *

Positive Negative Contract Positive Negative Contract

replacement replacement volume replacement replacement volume

values values values values

Foreign exchange/precious metals

Futures contracts 0 0 0 0 0 0

Swaps 0 0 0 0 0 0

Futures 0 0 0 0 0 0

Options (OTC) 0 0 0 0 0 0

Options (exchange traded) 0 0 0 0 0 0

Total foreign exchange/precious metals 0 0 0 0 0 0

Total open derivative financial instruments 31.12.2017 0 0 0 0 0 0

31.12.2016 0 0 0 21 0 3’224

There were no netting contracts during the reporting year.

* Hedging instruments as in circular 29g, FINMA-RS 2008/2

Positive Negative

replacement replacement

value value

(cumulated) (cumulated)

Total replacement value 31.12.2017 0 0

31.12.2016 21 0

There are no open derivative financial instruments at this point in time.

4.4 Fiduciary Transactions


There are no fiduciary transactions.

4.1 Contingent Liabilities Art. 24e para. 1 subpara. 3.1 BankV (in Thousand CHF) 2017 2016

Credit guaranties and similar instruments 249 253


5.2 Profit from Trading Operations Art. 24e para. 1 subpara. 5.2 BankV (in Thousand CHF) 2017 2016

Trading with foreign currency notes and coins 147 109

Trading with precious metals 0 0

Trading with securities 8 0

Other trading 0 0

Total profit from trading 155 109

5.1 Refinancing Income in the Interest- and Discount Income Position


There were no refinancing costs for trading credited to the interest- and discount income position.

5. Notes on the Income Statement

5.3 Personnel costs Art. 24e para. 1 subpara. 5.3 BankV (in Thousand CHF) 2017 2016

Wages and salaries 2’229 1’877

Social contributions and expenses for pensions and

other benefits 361 312

of these: pensions 319 273

Other Personnel cost 85 7

Outside personnel cost 94 0

Total Personnel cost 2’768 2’196

Based on Art. 1092 subpara. 9 letter. d of the Liechtenstein Person and Company Law, (Personen- und Gesellschaftsrechts, PGR)

remunerations of the members of the Executive Board and of the Board of Directors will not be disclosed.

5.4 Material Expenses Art. 24e para. 1 subpara. 5.4 BankV (in Thousand CHF) 2017 2016

Expenses for premises 158 153

Expenses for EDV, machines, vehicles and other equipment 385 254

Other business expenses 1’845 1’634

Total material expenses 2’387 2’042




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5.5 Substantial losses, extraordinary Income and Expenses as well as Balance Sheet Reserves

Other ordinary income and expenses

The ordinary income includes exclusively capitalized own input in connection with the integration project

«Doka» for the settlement of the letter of credit (CHF 84‘478.65). The ordinary expenses include various adjustment bookings

in connection with fee charges (CHF 38‘387.08).

Extraordinary income and expenses

As of balance sheet day, there is/are no substantial extraordinary income and/or expenses.

Balance sheet reserves

The balance sheet item «Reserves» includes at the moment solely the tax reserves in the amount of CHF 1’800, i.e., the minimum

tax on profits.

5.6 Income and Expenses according to the Operational Site Principle

In accordance with Art. 24e para. 1 subpara. 5.6 BankV, Union Bank AG waves publication.


6. Other significant Information

6.1 Disclosure of Equity Capital (Basel II/Basel III) (in Thousand CHF) 31.12.17 31.12.16

Required equity capital (8.0%)

For credit risk standard approach 872 498

For market risk de minimis approach 53 290

For operational risks Base indicator approach 201 188

for Credit Value Adjustment (CVA) standard indicator

approach 0 1

Total required equity capital (8.0%) 1’125 977

With/add. capital conservation buffer (CCB) (2.5%) 352 305

Total required equity capital with (10.5%) 1’477 1’282

Eligible equity capital

Total core (Tier 1) 16’393 13’094

Total eligible equity capital 16’393 13’094

Equity capital surplus 15’268 12’117

Eligible equity capital Tier 1 16’393 13’094

Tier 1 Ratio (min. 8.0%) excl. ICAAP 117% 107%

Tier 1 Ratio (in Prozent) incl. ICAAP 96% 97%

6.2 Customer Assets (in Thousand CHF) 31.12.17 31.12.16

Type of customer assets:

Assets in self-managed funds (investment companies) 0 0

Assets with discretionary mandates 0 0

Other customers assets 822’095 420’081

Total customer assets (incl. double counts) 822’095 420’081

of these, double counts 0 0

of these, net new money inflow/outflow Payment trans-

action only 16’699 -439

With transfer

of securities

(custody) -62’368 -439




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6.3 Other Assets and Liabilities

Art. 24e para. 2 subpara. 6 BankV (in Thousend CHF) 31.12.17 31.12.16

Other assets Other liabilities Other assets Other liabilities

Replacement value from derivative financial instruments

– Contracts as principal

– – trading positions 0 0 21 0

– – asset liability management (ALM) 0 0 0 0

– Contracts as commission agent 0 0 0 0

Total derivative financial instruments 0 0 21 0

Adjustment account 0 69 0 0

Capitalised organisational costs 0 0 0 0

Indirect taxes 0 10 51 2

Settlement accounts 391 83 342 43

Unredeemed coupons, medium-term notes and bonds 0 0 0 0

Other assets and liabilities 0 0 0 0

Total other assets and liabilities 391 162 414 46

Art. 24e para. 1 subpara. 6 BankV (in Thousand CHF) 2017 2016

Annual loss -3’149 -2’820

Balance Sheet Total 56’126 35’442

Ratio -6% -8%

6.4 Return on Investment

6.5 Accounts payable Banks with agreed upon Maturity or Notice Period

Accounts payable to banks with an agreed maturity or notice period, currently include liabilities to Max Heinr. Sutor oHG in Hamburg,

Germany, in the form of fiduciary time deposits with various maturities and amounts. For the so-called flex money investments

there is an interest rate guarantee of 1.01% p.a. until the end of April 2018. These liquid funds will be mainly used for refinancing of

letter of credit transactions on the asset side of the balance sheet from 2018 onwards.


According to standards on disclosure requirements based on Part 8 of Directive (EU)

No. 575/2013 (CRR), additional regulatory information must be disclosed. Qualitative

information is provided under consideration of material and confidentiality aspects,

as well as the principle of proportionality.

Principles of information (Art. 432 CRR)

The disclosure requirements below marked with a star (*) have no current relevance

or significance for Union Bank AG (Art. 432, para. 1 CRR), are subject to trade secre-

cy provisions, or must be classified as confidential (Art. 432, para. 2 CRR) and are,

therefore, not elaborated further (partial duty of disclosure).

Disclosure interval and medium (Art. 433 and 434 CRR)

Based on the characteristics listed in Art. 433 CRR, an evaluation was made as to

whether the regulatory disclosure in whole in or in part is to be performed more

frequently than once or year. As a result, it was decided that annual disclosure is suf-

ficient. By selecting publication of the corresponding annual report as the medium

according to Art. 434, para. 1 CRR, the requirement according to Art. 434, para. 2 is

met.

Risk management objectives and policy (Art. 435 para. 1 CRR)

Please refer to the explanations in the „Risk management” chapter of this appendix.

Rules of corporate governance (Art. 435 para. 2 CRR)

A total of 24 management and supervisory positions are held by members of the

company Executive Board and the Board of Directors. As part of internal processes

that have been put in place, regular enquiries and evaluations are conducted to en-

sure availability of sufficient time on the part of the members of Union Bank AG

governing bodies (Art. 435, para. 2, letter a CRR).

Board of Directors Function Management role Supervisory role

Mohammad H. Dastmaltchi Chairman of the Board 1 2

Wolfram Kuoni Deputy Chairman 1 11

Elfried Hasler Member of the Board 1 1

Thomas Krawietz Member of the Board 1 4

Executive Board Function Management role Supervisory role

Thomas Schmidt Chairman of the Executive Board, CEO 1 0

Hans-Ulrich Nigg Member of the Executive Board 1 0

(until 15.05.2017)

Rudy Suter Member of the Executive Board 1 0

(since 15.05.2017)

7. Disclosure




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Members of the Executive Board are selected by the Board of Directors based on

technical expertise and experience as well as taking into account Union Bank AG’s risk

and corporate policy. Members of the Board of Directors are also selected based on

professional qualifications and experience as well as taking into account Union Bank

AG’s risk and corporate policy. Their appointment must be approved by the General

Assembly and agreed upon by both main shareholders. (Art. 435 para. 2 letter. b and

c CRR).

Union Bank AG did not form a separate Risk Council (Art. 435, para. 2, letter d CRR)

The Executive Board and the Board of Directors are regularly informed in a timely

manner about individual risks pertinent to daily business activities. (Art. 435, para. 2,

letter e CRR).

Scope of application (Art. 436 CRR)

The necessary quantitative and qualitative information is prepared on an individual

basis because Union Bank AG is exempt from preparing consolidated annual financial

statement in accordance with commercial law and does not hold shares in sub-

sidiaries that are required to prepare consolidated financial statements according to

Art. 18 CRD. As a consequence, there are no differences between the consolidation

basis for reporting and prudential purposes.

Equity capital (Art. 437 CRR)

The regulatory equity capital of Union Bank AG consists solely of common equity

instruments, less the regulatory adjustment positions and was determined solely

using methods and procedures as delineated in Part 2 Title I of the CRR.

After taking into account of the loss carried-forward, annual loss and intangible

assets, eligible equity capital amounts to CHF 16’393’168.55 (Tier 1 Capital). Addi-

tional positions do not have to be taken into account in this context.

Eligible equity capital as of 31 December, 2017 can be traced in the listing below

(amounts in CHF 1,000):

Reporting year Prior year

Capital paid in (share capital) 32’000 25’000

Loss carried forward -11’847 -9’027

Loss in the current reporting year -3’149 -2’820

Equity capital 17’004 13’153

Adjustment of the common equity -611 -59

Total eligible equity capital 16’393 13’094


Equity capital requirements (Art. 438 CRR)

Union Bank AG models calculation of equity capital requirements on Art. 92 CRR.

Risk-weighted assets amount to CHF14’066’724.35; the resulting required equity

capital of 8% of risk-weighted positions for each of the receivables classes listed in

Art. 112 CRR amounts to CHF 1’125’337.95 (column 1). The equity capital ratio, there-

fore, is at 116.54% (CET1 capital ratio).

The list below shows in detail the composition of the required equity capital as of 31

December, 2017 (amounts in CHF 1,000):

Reporting year Prior year

Credit risk 860 485

Off-balance sheet 12 13

Market risk 53 290

Operational risk 201 188

Credit Value Adjustment 0 1

Total required equity capital 1’125 977

Types Consisting of Target ratio Values

Common equity ratio common equity (CET1) 4.5% 116.54%

Core capital ratio + 1.5% additional core capital (AT1) 6.0% 116.54%

Minimum capital ratio + 2.0% supplementary capital(T2) 8.0% 116.54%

Total capital ratio + 2.5% capital conservation buffer(CCB) 10.5% 116.54%

*Counterparty credit risk exposure (Art. 439 CRR)

In terms of disclosure obligations as required by law, Union Bank AG currently does

not use any derivatives for collateralisation of credit operations and, therefore, waives

further information in view of material relevance criteria.

*Capital buffer (Art. 440 CRR)

Because of the small volume of credit risk positions in countries that have determined

and anti-cyclical capital buffers, Union Bank SG waves disclosure based on material

relevance criteria in accordance with Art. 440 CRR.

*Indicators of global systemic relevance (Art. 441 CRR)

Union Bank AG is not a (globally) system-relevant institution according to Art. 131 of

Directive 2013/36/EU. Therefore, disclosure of information according to Art. 441 CRR

is omitted.




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*Credit risk adjustments (Art. 442 CRR)

As of the balance sheet date, 31 December, 2017, there were no significant impaired

or overdue risk exposures.

*Unimpaired assets (Art. 443 CRR)

The portion of impaired assets is insignificant and does not require further explana-

tion.

Use of External Credit Assessment Institutions (ECAI) (Art. 444 CRR)

For external creditworthiness assessment of the risk exposure classes, Union Bank

AG has named the following rating agencies recognized by the supervisory authority

(ECAI): Standard & Poor’s, Moody‘s and Fitch. If no rating exists, the receivable is

treated as an unrated risk exposure.

The risk weighting to be applied to each receivable is calculated based on the credit-

worthiness levels specified in the CRR according to Art. 138 CRR, which in turn are a

function of the corresponding rating. External creditworthiness ratings are assigned

to the creditworthiness levels of unrated risk exposures based on the approach of

the Swiss Export Risk Insurance (Schweizerische Exportrisiko Versicherung, SERV)

according to Sec. 137, CRR, while taking into account the corresponding OECD regu-

lations.

Market risk (Art. 445 CRR)

Union Bank AG currently does not use house-internal risk models for regulatory pur-

poses, but applies regulatory standard procedures according to the CRR.

The weighted market risk on the disclosure day amounted to CHF 660 thousand,

which resulted in an equity capital requirement of CHF 53 thousand (8%).

Operational risk (Art. 446 CRR)

Union Bank AG applies the basic indicator approach according to Art. 315 CRR to

calculate equity backing of operational risks. The eligible amount here is calculated

based on the three-year average of the last three adjusted gross incomes. At the end

of the reporting year the capital adequacy requirement amounted to CHF 201 thousand

(last year: 188).

*Risks from participation position in companies not included in the trading book.

(Art. 447 CRR)

Union Bank AG does not hold at this time any participations.


Interest risks from participation position in companies not included in the trading

book (Art. 448 CRR).

The interest rate risk assumed by the bank as part of the market price risk derives

from the changes in the term structure of the interest rates. Those risks arise for

Union Bank AG in particular in the event of a rise in the yield curve. At present, interest

rate risk is not a significant risk position and, therefore, the bank does not hedge

against this risk at the moment. The measured risks are compared in a limit system

with the corresponding overall bank risk limit. The interest rate risk is measured as

present value. Interest rate shocks of +200 bp, respectively, -200bp are used to

calculate interest rate risk. The interest rate risk is measured at least quarterly. At

present, any losses are expected predominantly from interest increase.

Reportig Year Prior Year

Effect of a parallel interest rate shift of 200bp in relation to

eligible equity capital 1.14% 1.77%

*Risk from securitised positions (Art. 449 CRR)

Union Bank AG does not possess at this time any securitised positions and, hence,

does not perform any securitization transactions.

Remuneration policy (Art. 450 CRR)

Information regarding the remuneration policy is in Appendix 1 of this Annual Report.

Debt burden (Art. 451 CRR)

Union Bank AG deals with the risk of an excessive debt burden by taking into account

the leverage ratio during the planning and controlling processes. Because of the very

high eligible equity capital compared to the total risk exposure, the bank records a

leverage ratio of 29.83%. (fully phased-in definition of Tier 1; prior year: 36.90%).

*Application of the IRB (internal rating-based) approach to credit risks (Art. 452

CRR)

Union Bank AG does not apply the IRB approach to credit risks. Therefore, the dis-

closure is not due.

Application of methods to mitigate credit risk (Art. 453 CRR)

The bank uses credit risk mitigation techniques to control counterparty risk. When

implementing financial collaterals, Union Bank AG currently uses a comprehensive

method. It does not use either derivative financial instruments as a method to miti-

gate credit risk or possible netting agreements in terms of Art. 219 and 295ff CRR.

Further information is omitted for reasons of material relevance.




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*Application of advanced risk measuring approaches for operational risks

(Art. 454 CRR)

No advanced measurement approaches are used for measuring operational risks.

A corresponding disclosure is therefore omitted.

*Application of internal models for Market risk (Art. 455 CRR)

Market risk is determined by regulatory standard procedures. There are no internal

risk models used.


Auditors’ report




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51Union Bank AG – Geschäftsbericht 2017



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3/3

Ohne unser Prüfungsurteil einzuschränken machen wir auf die Anmerkung «Ereignisse nach dem Bilanz-stichtag» im Anhang 2 aufmerksam, wonach per 31. März 2018 ein hälftiger Kapitalverlust im Sinne von Art. 182e Abs. 1 PGR besteht. Der Verwaltungsrat hat die Generalversammlung über den Verlust von mehr als der Hälfte des gezeichneten Kapitals von CHF 32 Mio. zu orientieren und ihr Sanierungsmass-nahmen zu beantragen, was bislang nicht erfolgt ist. Schaan, 30. April 2018 ReviTrust Grant Thornton AG

Egon Hutter Zugelassener Wirtschaftsprüfer Leitender Revisor

ppa Veronika Schlegel Zugelassene Wirtschaftsprüferin

Zugelassener Wirtschaftsprüferppa Veronika SchlegelZugelassene Wirtschaftsprüferin

Egon HutterZugelassener WirtschaftsprüferLeitender Revisor



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logo - unionbank · all throughout the year 2017, the bank has been compliant with the regulatory...

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