The interim financial reporting was prepared in accordance with International Financial Reporting Standards (IAS 34). The interim financial statements were prepared using the accounting principles applied to the 2014 financial statements. The corresponding accounting principles may be found in the 2014 annual report on pages 90 et seq.

This 2015 interim financial report was audited by Ernst & Young Ltd, with the audited information and tables in the report marked as “audited”. The 2014 comparison figures were not audited. 

As at 7 January 2015, VP Bank Ltd, Vaduz, had acquired all shares of Centrum Bank AG, Vaduz. In accordance with International Financial Reporting Standards (IFRS), Centrum Bank AG was fully consolidated in the VP Bank Group’s financial reporting as from that date. At 30 April 2015, the legal merger between VP Bank Ltd and Centrum Bank AG was completed. 

Hedge accounting rules may be applied voluntarily. In some circumstances, the application of hedge accounting makes it possible to present a company’s risk management activities in the financial statements. This occurs by comparing gains and losses on the hedging instruments with those on the hedged items designated for specific risks. 

• The hedging relationship consists of permissible hedging instruments and hedged items. The company’s risk management strategy and the objective of the hedge is formally designated and documented at the inception of the hedging relationship. 
• The hedging relationship fulfils the effectiveness requirements.

The hedging relationship must be documented at inception. The documentation includes in particular the identification of the hedging instruments and hedged items as well as the designation of the hedged risk and method for assessing the effectiveness of the hedging relationship. To qualify for hedge accounting, the hedging relationship must satisfy the following effectiveness requirements at the start of each hedge period:

• An economic relationship exists between the hedged item and the hedging instrument;Credit risk does not dominate the fair value changes that occur as a result of the economic hedge; and
• The hedge ratio reflects the quantities of the hedged item and hedging instrument for the actual economic hedge.

The Group uses derivative financial instruments for risk management primarily in connection with interest rate and currency risk. When derivative and non-derivative financial instruments satisfy specific criteria, they may be classified as hedging instruments and used to hedge the following risks: changes in the fair value of a recognised asset or liability (fair value hedge accounting); variability in expected future cash flows that can be assigned with a high probability of occurrence to recognised assets or liabilities or forecasted trans­actions (cash flow hedge accounting); a net investment in a foreign operation (net investment hedging).

IFRS 9 allows for the application of fair value hedge accounting in order to avoid one-sided effects on profit or loss of derivatives used to hedge the fair value of recognised assets or liabilities against one or more designated risks. In particular, the Group’s credit business and marketable securities used for liquidity management are subject to market risk and interest rate risk insofar as they relate to fixed-rate instruments. These risks are hedged primarily through interest rate swaps. In accordance with fair value hedge accounting rules, the deri­va­tive financial instruments used for hedging are recognised as fair values from derivative hedging instruments. For the hedged asset or liability, contrasting changes in fair value resulting from the hedged risk must also be recognised on the balance sheet. The contrasting valuation changes from the hedging instruments and hedged items are shown through profit or loss. The portion of fair value changes not attribut­able to the hedged risk are recognised in accordance with the rules for the appropriate valuation category. Fair value hedge accounting can be established as either micro fair value hedge accounting or portfolio fair value hedge accounting for interest rate risks:

• In micro fair value hedge accounting, the hedged item is associated with one or more hedging transactions in a hedging relationship. As regards fair value changes attributable to the hedged risk, the carrying amounts of the hedged items are adjusted through profit or loss.In portfolio fair value hedge accounting, the hedging of interest rate risk occurs at the portfolio level. The hedging does not involve individual transactions or groups of transactions with similar risk exposures, but an amount of hedged items classified by maturity bands corresponding to a portfolio’s expected maturity and interest rate adjustment dates. Portfolios may include only assets, only liabil­ities or both. In hedging interest rate risk at the portfolio level, the corresponding fair value changes are recognised under “Other assets”or “Other liabilities”. 

IFRS 9 allows for the application of cash flow hedge accounting in order to avoid one-sided effects on profit or loss of derivatives used to hedge the risk of a change in future cash flows. Under cash flow hedge accounting, the derivatives used are recognised at fair value on the balance sheet. 

The effective portion of gains and losses on valuation changes are recognised directly in equity in the cash flow hedge reserve after adjusting for deferred taxes. Meanwhile, the ineffective portion is recognised through profit or loss. The above-mentioned accounting rules remain the same for the derivative instruments used to hedge cash flows. 

The hedging of a net investment in a foreign operation, including the hedging of a monetary item that forms part of the net investment, is presented similarly to a cash flow hedge. The effective portion of gains and losses on hedging instruments are recognised in other comprehensive income, while the ineffective portion is shown through profit or loss for the period. 

In a (partial) disposal of the foreign operation, the effective portion of accumulated gains and losses on hedging instruments is recycled to profit or loss for the period. 

Derivative financial instruments are measured at fair value and recognised on the balance sheet. Fair value is determined using listed prices or options pricing models. Realised and unrealised gains and losses are shown through profit or loss. 

VP Bank Group uses the following derivatives for both trading and hedging purposes. They can be classified into the following main categories:

• Swaps. These are transactions in which two parties exchange cash flows on a nominal set amount for a previously determined period. Interest rate swaps are interest rate derivatives used to hedge fixed-rate instruments (e.g. unstructured fixed-rate bonds or covered bonds) against changes in fair value due to market interest rate changes. Currency swaps involve the exchange of interest rate payments on underlying amounts in two different currencies with different benchmark interest rates and also generally include the swapping of the nominal amount at the beginning or end of the contractual period. Currency swaps are typically traded over the counter. Forward agreements and futures. These are contractual obligations to purchase or sell a financial instrument or commodity at a future date and set price. Forward agreements are customised agreements negotiated by parties over the counter. Futures, on the other hand, are standardised contracts traded in regulated markets. Options and warrants. These are contractual agreements in which the seller grants the buyer the right but not the obligation to buy (call option) or sell (put option) a set amount of a financial instrument or commodity for a set price before a specified date. The buyer pays the seller a premium for this right. Some options also have complex payment structures. Options may be traded over the counter or in regulated markets. They may also be traded in the form of a warrant. 

Carrying amounts of receivables for which micro fair value hedge accounting is used are adjusted for fair value changes to the hedged risk. In portfolio fair value hedge accounting, fair value changes are recognised on the balance sheet under “Other assets”.

In the case of micro fair value hedge accounting, hedged liabilities are adjusted for fair value changes attributable to the hedged risk. In portfolio fair value hedge accounting, fair value changes are recognised on the balance sheet under other liabilities. 

On 18 June 2015, VP Bank announced that the Board of Direct­ors was making use of the authorisation granted to it by the annual general meeting of 24 April 2015 to repurchase the company’s own bearer and registered shares and planned to acquire up to 5 per cent of the share capital in a fixed-price offer corresponding to a maximum of 300,750 bearer shares and 300,208 unlisted registered shares. The repurchase price was set at CHF 84.00 per bearer share and CHF 8.40 per registered share. The full impact of this transaction was recognised in shareholders’ equity at 30 June 2015. 

Up to the end of the tender period on 3 July 2015, 944,368 bearer shares with a par value of CHF 10.00 were offered to VP Bank at the price of CHF 84.00. Since the repurchase was limited to 300,750 bearer shares (4.55 per cent of the share capital and 2.50 per cent of the voting rights), the offers of bearer shares were reduced proportionally. 

Meanwhile, 114,080 unlisted registered shares with a par value of CHF 1.00 (0.17 per cent of the share capital and 0.95 per cent of the voting rights) were offered to VP Bank at a price of CHF 8.40 (adjusted relative to the par value of the bearer shares). Since fewer than 300,208 registered shares were tendered to VP Bank, no reduction in the number of tendered securities was necessary. 

The payout on the share repurchase was made effective on 7 July 2015. The transfer tax (Umsatzabgabe) and all commission expenses were assumed by VP Bank.

At the conclusion of the fixed-price repurchase offer on 3 July 2015, VP Bank had a total of 303,058 bearer shares and 115,712 registered shares, corresponding to 4.76 per cent of the total shares outstanding and 3.48 per cent of the voting rights. 

The shares purchased under this offer will be used for future acquisitions or treasury management purposes. Since no shares were cancelled, the relationship between share capital and voting rights remained unchanged. 

At its 20 August 2015 meeting, the Board of Directors discussed and approved the interim financial report and released it for publication.