Notes to the annual financial statements

1. Accounting principles and valuation criteria

The accounting principles and valuation criteria adopted in drawing up the Parent company financial statements are in compliance with the provisions of the Code of Obligations, Swiss banking law, and the rulings issued by the Federal Banking Commission. These principles coincide for the most part with those applied in drawing up the consolidated financial statements, except for the different valuation criteria for the items illustrated:

Participations

Equity investments are shown in the balance sheet at acquisition price less depreciation and amortization as appropriate.

Fixed assets

Fixed assets are shown at acquisition costs less depreciation and amortization as appropriate. Depreciation and amortization are applied at constant rates based on a conservative estimate of the assets’ presumed useful life. Accelerated depreciation and amortization may be charged within the limits allowed by law.

Valuation adjustments and provisions

Case-by-case value adjustments and provisions are made according to the conservative principle for all perceivable risks as at the closing date of the financial statements. Contingent risks are covered with lump-sum value adjustments and provisions determined by a calculation method that is systematic and constant over time. Valuation adjustments and provisions may also contain contingent reserves.

Changes in comparison to the previous financial year

The accounting principles used in drawing up the financial statements and the valuation criteria applied for the financial year-ending 31 December 2005 are the same as those applied in the previous year.

2.1 Other assets and other liabilities

(Amount expressed in CHF 1’000)

Year under review Previous year Other Other Other Other assets liabilities assets liabilities

Replacement value of derivative instruments arising from trading 1’572 1’189 3’460 3’434 Indirect taxes 206 1’201 398 660 Settlement accounts 12 81 18 94 Other 1’395 731 7 195

Total 3’185 3’202 3’883 4’383

2.2 Pledged or assigned assets and securities lending and repurchase transactions

(Amount expressed in CHF 1’000)

Year under Previous review year

Type of securities and purpose of the deposit

Financial investment reserved for REPO transactions with the SNB (unused) 4’971 5’238 Receivables from banks and financial investment to cover mandatory margins on derivative products (fully used). 7’407 7’350

Total 12’378 12’588

2.3 Liabilities to the pension fund of own staff

(Amount expressed in CHF 1’000)

Year under Previous review year Balances in sight and time accounts of the Bank’s foundation 372 1’007 Employer’s contribution reserve 0 0

The Banca del Sempione pension fund is a foundation whose task is to manage the voluntary-contribution pensions of its Swiss employees. The mandatory LPP is covered through membership in the collective LPP Foundation of the company Basilese. Basilese also provides life and accident insurance for the voluntary part. The pension plan is based on the primacy of contributions principle. The retirement age is the same as that established by the AVS. In case of early retirement, the affiliate receives the capital accumulated up to that time. Any financial commitment assumed by the bank before the Foundation is fulfilled upon the payment of the contributions. Insurance coverage contracts for the Group’s foreign employees have been stipulated in accordance with local law. The combined total of contributions for the financial year 2005 amounted to CHF 1’231’000 (previous year: CHF 1’210’000).The standards of the new Swiss GAAP RPC 16 will be applied as of the financial year ending 31 December 2006.

2.4 Valuation adjustments and provisions

Recoveries, New doubtful allocations Reversal Change interest, charged credited Previous Specific in definition exchange to income to income Year under

(Amount expressed in CHF 1’000)

year usage of purpose differences statement statement review

Valuation adjustments and provisions reserve for loan losses (credit and country risks) 20’428 311 518 –507 20’750 Other provisions 26’927 –220 94 275 27’076

Total valuation adjustments and provisions 47’355 –220 405 793 –507 47’826

less: valuation adjustments directly netted with assets –20’358 –20’680

Total valuation adjustments and provisions as per balance sheet 26’997 27’146

2.5 Share capital and major shareholders with more than 5% of voting rights

(Amount expressed in CHF 1’000)

Year under review Previous year

Total Dividend Total Dividend nominal Number right nominal Number right value of shares capital value of shares capital

Capital structure

Share capital 20’000 200’000 20’000 20’000 200’000 20’000

Total share capital issued and fully paid 20’000 200’000 20’000 20’000 200’000 20’000

Nominal value Participation Nominal value Participation CHF in % CHF in %

Major shareholders at 31 December

Eburnea Holding SA, Sion (Donelli Group) 10’400 52.00 10’400 52.00 Molu Holding SA, Lugano (Gattei Group) 7’000 35.00 7’000 35.00 Golden Horn Finanz AG, Lugano (Filofibra Group) 2’350 11.75 2’350 11.75

There is neither conditional capital nor shareholders without rights to vote.

2.6 Statement of changes in shareholders’ equity

Shareholder’s equity, at beginning of year under review

Share capital General legal reserve Other reserves

(Amount expressed in CHF 1’000) 20’000 30’000 17’000 Retained earnings 4’235

Total shareholders’ equity, at the beginning of year under review (before profit distribution) 71’235

- Dividend provisions to reserve –2’000 + Net income 4’513

Total shareholders’ equity, at end of year under review (before profit distribution) 73’748

Of which: Share capital 20’000 General legal reserve 30’500 Other reserves 18’200 Retained earnings 5’048

2.7 Related parties transactions, loans to member of the Bank’s governing bodies

(Amount expressed in CHF 1’000)

Year under Previous review year

Due from related companies

5’137 4’415 Due to related companies 2’142 9’546 Loans and exposure to members of the bank’s governing bodies 3’945 3’971

Transactions with related parties

No significant transactions with shareholders and group companies were executed during the financial year. The conditions applied for banking services are generally equivalent to those applied to primary customers. Bank staff members enjoy the same benefits made available to all employees.