Annual Report 2014 Inspiring times. The launch of our brand and the Initial Public Offering in late 2013 were at the time inspiring and challenging stages for our Bank. The stimulating advances during the first year under our new identity made us grateful, proud, and pleased. Much more has changed within our organisation and in our business environment, but one thing has remained untouched: Cembra Money Bank’s resilient commitment to trustful relationships with clients, investors, and business partners. Group Report 4 Key Figures and Financial Highlights 6 Letter to Shareholders 10 About Us 18 Corporate Governance 52 Compensation Report 70 Risk Management 80 Management Discussion and Analysis 94 Consolidated Financial Statements 136 Individual Financial Statements Key Figures For the years ended 31 December (CHF in millions ) 2014 2013 2012 Net interest income 301.0 282.6 282.3 Commission and fee income 78.4 71.9 73.4 Net revenues 379.4 354.5 355.7 Provision for losses – 40.9 – 7.0 – 22.3 Total operating expenses – 161.4 – 178.9 – 164.4 Net income 139.9 132.9 133.1 Cost / income ratio (in %) 42.5 % 50.5 % 46.2 % Net interest margin (in %) 7.4 % 7.0 % 6.9 % Total assets 4,812 4,590 4,439 Net financing receivables 4,074 3,993 4,011 Personal loans 1,855 1,861 1,902 Auto leases and loans 1,662 1,647 1,703 Cards 556 485 406 Shareholders‘ equity 842 799 1,081 Return on average shareholders‘ equity (ROE in %) 17.0 % 14.1 % 13.1 % Return on average assets (ROA in %) 3.0 % 2.9 % 3.1 % Tier 1 capital ratio (in %) 20.6 % 19.7 % 26.6 % Employees (full-time equivalent) 702 700 710 Credit rating (S & P) A – A– – Basic earnings per share (in CHF) 4.67 4.43 4.44 Dividend per share (in CHF) 3.10 2.85 – Share price (in CHF) 55.00 58.55 – Market capitalisation 1,650 1,757 – Share Price: Cembra Money Bank AG Share Information in CHF 62 61 Stock exchange listing SIX Swiss Exchange 60 59 Number of shares 30,000,000 58 Par value CHF 1.00 57 56 Bloomberg ticker CMBN SW 55 Reuters ticker CMBN.S 54 53 ISIN CH0225173167 52 Security number 22517316 51 50 30-10-2013 30-06-2014 31-12-2014 Financial Highlights 665,000 Customers trust Cembra Money Bank as their preferred partner for financial services. This equals 8 % of the Swiss population; that means every 12th resident in Switzerland is a customer of our Bank. 1 7.0 % 14.1 % 66 % — Dividend payout ratio 2013 2014 Return on average shareholders' equity (ROE) Financing Receivables Funding Structure in % in % Personal loans Asset backed securities (ABS) Auto leases and loans Bank loans Cards Senior unsecured bonds Deposits GECC funding Letter to Shareholders Dear Shareholders Our first full year as a stand-alone and listed Bank was very exciting but at the same time also challenging. We are pleased to report a solid operational result. Cembra Money Bank increased net income by 5 % to CHF 139.9 million and gained market share in all product lines. Based on the solid result and the strong capital position, a 9 % higher dividend per share of CHF 3.10 will be proposed to the Annual General Meeting. Higher revenues and costs well controlled receivables of CHF 40.9 million, or 1.0 % of Compared to 2013, net revenues increased financing receivables. Delinquency metrics by 7 % to CHF 379.4 million, supported by in our portfolio remained stable at low both interest income and commission and lev els with a non-performing loan ratio of fee income. Net interest income was 7 % 0.4 %. We maintained high operating effi- higher at CHF 301.0 million driven by lower ciency with total expenses down 10 % to funding costs due to changes in the fund - CHF 161.4 million, as a result of lower per- ing mix. Commission and fee income was 9 % sonnel expenses and non-recurring IPO higher at CHF 78.4 million mainly due to costs in 2013. This rigorous cost manage- higher credit cards fee income. Our prudent ment resulted in a solid cost / income risk management approach was reflected ratio of 42.5 %. in low provisions for losses on financing 6 Annual Report 2014 Letter to Shareholders Net financing receivables (loans and leases) While new car registrations and used car increased by 2 % to CHF 4.1 billion. The transactions in Switzerland declined by Bank was able to outperform the underly- approximately 2 % each in 2014, Auto leases ing markets in all key product lines. In and loans was able to capitalise on the 2014, the funding of the Bank has been fur- rebranding and the opening of regional ther diversified, reaching 87 % local service centers. Net financing receivables stand-alone funding. This was primarily increased by 1 % to CHF 1,662 million due to a 17 % increase in our deposit compared to 2013. base to CHF 1,941 million, from both insti- tutional and retail clients, demonstrat - Cards again recorded strong growth with ing broad investors’ confidence. In the sec- net financing receivables increasing by ond half of 2014, the Bank successfully 15 % to CHF 556 million compared to year- placed CHF 200 million of senior unsecured end 2013. The number of issued credit bonds and amended some of its bank cards grew by 10 % to 606’000 (compared to loans. The rating agency Standard & Poor’s year-end 2013) with the Cumulus Master- confirmed the Bank’s A– rating in Sep- Card being the main driver. To strength en tember and December 2014. our consumer-oriented focus, we success- fully launched our new eService platform At the end of 2014, the Bank’s shareholders’ in October 2014 with improved functio- equity amounted to CHF 842 million and nalities and user experience. the return on average equity (ROE) reached 17.0 %. This was achieved while maintaining FINMA proceedings concluded a very solid capital base with a Tier 1 In December 2014, FINMA concluded regula- capital ratio of 20.6 %. tory proceedings with regards to the Bank’s collaboration with a former external credit As part of our transition to a stand-alone agent. Other than the CHF 1.5 mil lion legal Bank, a major project is the migration of costs accounted for in 2014, there were no the IT infrastructure from the General Elec- further financial or business implications. tric platform to a stand-alone solution. This project made significant progress with Attractive dividend proposal about 70 % of all items successfully com- Given the solid results achieved in 2014 and pleted by year-end 2014 and will continue based on the Bank’s strong capital posi- until year-end 2015. tion, the Board of Directors will propose to the Annual General Meeting on 29 April Strengthening market position 2015 a 9 % higher dividend per share of CHF Our new brand is well perceived and our 3.10. The distribution will be paid out of customer focus highly appreciated. There- capital contribution reserves and will there - fore, we have been able to strengthen fore not be subject to Swiss withholding our market position in all our product lines. tax. The dividend proposal reflects a high pay-out ratio of 66 % of net income. Further- In a slightly decreasing consumer finance more, the Board of Directors has approv - market, product line Personal loans was ed the use of up to CHF 100 million of excess able to consolidate its market position capital to buy back shares in case of a li- keeping receivables flat at CHF 1,855 million. quidity event by a major shareholder. This underpins our ambition to return excess capital to shareholders. 7 Annual Report 2014 Letter to Shareholders Monica Mächler proposed all costs are denominated in Swiss Franc. as new Board member Potential regulatory changes and the The Board of Directors will propose to the further development of the Swiss economy Annual General Meeting the election of might potentially have a medium-term Monica Mächler (Swiss citizen) to the Board impact on the Bank’s business. At the cur- of Directors. Mrs. Mächler brings sub- rent stage it is difficult to quantify the stantial legal, regulatory and governance medium-term impacts. However, for the expertise in a national and international short-term the Bank remains confident context. She has held key positions at and hence is expecting reported earnings Zurich Insurance Group (1990 – 2006) and per share (EPS) of between CHF 4.50 and served as Vice-Chair of the Board of Di- CHF 4.70 for the financial year 2015. Medium- rectors to the integrated Swiss Financial term targets including a dividend pay-out Market Supervisory Authority (FINMA) ratio of between 60 % and 70 % remain from 2009 to 2012, after having been the unchanged. Director of the Swiss Federal Office of Private Insurance (2007 – 2008). On behalf of the Board of Directors and Management, we would like to thank our Confident outlook despite challenges customers, shareholders and business part- For 2015, Cembra Money Bank is currently ners for the trust they have placed in us. expecting interest rates to stay at histori- We would also like to express our particular cally low levels and therefore pricing pres- gratitude to our employees, who shape sure to remain in some of its product lines. the success of our Bank with their expertise, The decision of the Swiss National Bank dedication and loyalty. (SNB) to discontinue the Euro minimum ex - change rate has no direct impact on our business, as all of our revenues and almost Dr.