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Annual Report for the 2016 financial year Key figures (group) Income statement in CHF million 2016 2015 Change 2016 / 2015 in % Net result from interest operation 1,187 1,162 2.2 Result from commission business and services 728 668 1 8.9 Result from trading operations and the fair value option 379 328 15.8 Result from other ordinary activities 31 47 1 –35.1 Operating income 2,325 2,204 5.5 Operating expenses –1,441 2 –1,374 4.9 Value adjustments on participations and depreciation and amortisation of tangible fixed assets and intangible assets –124 –106 17.1 Changes to provisions and other value adjustments and losses –8 –61 –87.3 Operating result 752 2 664 13.3 Extraordinary result 16 66 –76.0 Taxes –7 –8 –10.4 Group net income from operations 761 2 722 5.3 Balance sheet (before distribution of net profit) in CHF million Total assets 157,985 154,410 2.3 Mortgage loans 77,275 73,623 5.0 Amounts due in respect of customer deposits 80,890 80,820 0.1 Provisions 636 584 8.9 Equity 10,793 10,429 3.5 Key figures in % Return on equity (ROE) 7.4 2 7.5 Cost / income ratio (CIR) 3 61.7 2 62.4 Common equity Tier 1 ratio (CET1) 4 15.6 15.8 Core capital ratio (Tier 1) 4 17.5 16.8 Total capital ratio 4 17.5 17.9 Leverage ratio 4 6.7 7.0 Liquidity coverage ratio (LCR) 5 132 128 Assets under management in CHF million Total assets under management 264,754 257,505 2.8 Headcount / banking outlets Number Headcount after adjustment for part-time employees, as on reporting date 5,173 5,179 –0.1 Banking outlets 6 89 91 Profit distribution in CHF million Share paid to canton to defray cost of capital 21 26 –21.3 Distribution to canton 220 200 10.0 Distribution to municipalities 110 100 10.0 Total profit distribution 351 326 7.5 Additional compensation for state guarantee 22 21 6.7 Additional payments from public service mandate 119 128 –7.0 Rating agencies Rating Fitch AAA AAA Moody’s Aaa Aaa Standard & Poor’s AAA AAA 1 A restatement of CHF 4.3 million was undertaken due to a changed profit allocation (+ profit from the commission and service business / – other ordinary income). 2 Excludes the CHF 70 million non-recurring expense in connection with the creation of provisions for pension benefit obligations. 3 Charged: Cost / income ratio (excl. changes in default-related value adjustments and losses from interest business) 4 In accordance with the provisions for systemically important banks 5 Average for the quarter, 4th quarter 6 Including branches of Zürcher Kantonalbank Österreich AG in Salzburg and Vienna as well as six automated banks. Section Contents In Brief 4 Interview with Dr. Jörg Müller-Ganz, Chairman, and Martin Scholl, CEO 6 Management Report 11 Environment and Strategy 11 Public Service Mandate 18 Customers 22 Employees 27 Analysis of Financial Statements 30 Corporate Governance 35 Compensation Report 55 Financial Report 65 Glossary 158 Branches 162 Contact 164 About the figures: The amounts stated in this report have been rounded. The total may vary from the sum of the individual values. The following rules apply to the tables: 0 (0 or 0.0) Figure is smaller than half the unit of account used – Figure not available or not meaningful blank No data available In Brief The bank that’s “close to you” public-law institution of the canton of Zurich and bene- Zürcher Kantonalbank is successfully positioning itself fits from a state guarantee. Our public service man- as a full-service bank with a regional base as well as date entails providing financial services for the public national and international links. We are the largest can- and businesses, assisting the canton in the perfor- tonal bank in Switzerland and one of the largest Swiss mance of its tasks in the economic, social and environ- banks. With a market penetration of around 50 percent, mental arenas, and ensuring that our actions comply we rank as the leader in retail and corporate banking in with the demands of environmental and social responsi- the canton of Zurich. Since the acquisition of Swisscanto bility. Our values are: personal, competent and in March 2015, we are also Switzerland’s third-largest responsible. We are part of life in the canton of Zurich. fund provider. Zürcher Kantonalbank is an autonomous Organisational structure of Zürcher Kantonalbank (group) Committee of the board Audit Board of directors General management Subsidiaries Swisscanto Holding Ltd. Institutionals & Products, Services & Corporate Banking Private Banking Multinationals Direct Banking Zürcher Kantonalbank Finance (Guernsey) Ltd. Zürcher Kantonalbank Finance Logistics Risk Österreich AG Parent Company 4 Zürcher Kantonalbank Annual Report 2016 In Brief Switzerland’s only AAA bank High level of financial stability We are the only Swiss bank and At the end of 2016, the bank had the only full-service bank in the net equity of CHF 10,793 million. world to be given an AAA rating The total capital ratio amounted to by Standard & Poor’s. Fitch and 17.5 percent. We are therefore one Moody’s also awarded us their top of the best capitalised banks in the marks. world. Strong roots in the canton Highly popular “Büro Züri” We are the market leader in the “Büro Züri” also opened its doors canton of Zurich for retail and with the reopening of the head corporate banking. We also have office on Bahnhofstrasse in Zurich. the densest network of auto- The 21 workplaces that the bank mated banks and branches. Our provides to the Zurich population customers are increasingly con- free of charge are very popular. ducting their banking trans actions The utilisation rate is 98.5 percent via our call centres, eBanking on average. and eBanking Mobile. Further income diversification Important employer Our economic strength is based 5,958 people work at Zürcher on a highly diversified income Kantonalbank (group) in model. As at the end of 2016, the 5,173.3 full-time positions. With share of commission and fee 421 traineeships in banking, income increased by 2 percentage IT, logistics and operational main- points to 32 percent year-on-year tenance, we are one of the due to Swisscanto’s integration largest training centres in the which was continued in 2016. Zurich region. Net result Commitment to fintechs With a group net income of CHF and start-ups stepped up 761 million, we again achieved a Since 2016, we have committed pleasing result in 2016. The canton ourselves to the “Swiss Fintech of Zurich receives a dividend of Innovations” association in order CHF 351 million, of which 21 mil- to make Switzerland a leading lion is used to cover capital fintech centre. In addition, we fur- costs and 110 million goes to the ther developed our position as municipalities. The canton also a leading provider of risk capital in received CHF 22 million as compen- Switzerland by participating sation for the state guarantee. in the “investiere.ch” investment platform. Zürcher Kantonalbank Annual Report 2016 5 Martin Scholl (left) and Dr. Jörg Müller-Ganz at the bank’s head office in Bahnhofstrasse, Zurich. “A long-term approach is in our bank’s DNA” Dr. Jörg Müller-Ganz, chairman of the board of directors and Martin Scholl, CEO, discussing the strength and future of Zürcher Kantonalbank. Interview: Pascal Ihle Dr. Müller-Ganz, in your view, which investment You advocate sustainability. Isn’t this in conflict with was particularly worthwhile in 2016? the short-term nature of our current day-to-day life? Müller-Ganz: With our multifaceted commitment to the Scholl: No, a long-term focus is entrenched in Zürcher canton and municipalities, we provide substantial Kantonalbank’s DNA and differentiates us from our and sustainable local support to our community in competitors. Our task is not to look good in the short Zurich. This creates closeness and trust. term but to hand a fundamentally healthy bank to the next generation. This long-term perspective shapes And for you, Mr Scholl, what was your best, personal our decisions. investment in the last year? Martin Scholl: More creative freedom for our employees. What were the biggest challenges in 2016? We discontinued the traditional employee appraisals, Müller-Ganz: For me, these were the dealings with the i. e. the target agreement, qualification and performance regulators, the Financial Market Supervisory Authority value in 2016. We now focus on continuous dialogue and the Swiss National Bank. We have to keep on between line managers and employees. This should allow showing that, although we are a systemically important us to work more flexibly and with greater agility. institution, we have a different business model to the Away from rigid management tools towards personal two major banks and we have less complexity. We are discussion – that does better justice to our fast- not an internationally focused financial institution but paced world. a domestic bank significant to, and in particular a stable pillar of, the Swiss financial sector. Was it well received? Scholl: There will always be sceptics. The positives, And what was the biggest surprise in 2016? however, clearly predominate and there was an almost Müller-Ganz: There were so many surprising events in the euphoric mood at times. This shows us that we are past year. As a company, we were well prepared for on the right path. various scenarios and were able to use the opportunities. A pleasant surprise for me was the resilience of You have both invested in trust.

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