Pictet & Cie (Europe) S.A. Société Anonyme 15A, Avenue John F. Kennedy L-1855 Luxembourg R.C.S. Luxembourg : B 32 060 Audited annual accounts for the year ended 31 December 2020 Management report Pictet & Cie (Europe) S.A. (the Bank), headquartered in Luxembourg, is mainly active in Wealth Management and Asset Servicing and offers custody, brokerage and trading services to private clients, asset managers, institutionals as well as services to independent asset managers. The Bank is also an operational platform for the Pictet Group. In addition to Luxembourg, Pictet & Cie (Europe) S.A. operates branches in six other European countries, with 11 offices located in Germany (Frankfurt and Munich), Spain (Madrid and Barcelona), France (Paris), Italy (Turin, Milan, Rome and Verona), United Kingdom (London) and Monaco. The Bank also operates a branch in Hong Kong, which is expected to be transferred to Banque Pictet & Cie S.A. in the course of 2021. After this transfer, Pictet & Cie (Europe) S.A. will focus on its strategic development in Europe. The year 2020 was impacted by the COVID-19 pandemic worldwide. The pandemic has led to unprecedented conditions in peacetime, such as suspension of travel, freeze of leisure activities, home working and quarantine measures. The Bank has taken a series of steps to monitor and prevent the effects of COVID-19, including measures to protect the health and safety of employees (physical distancing and working from home) and to ensure business continuity. In this context, Pictet & Cie (Europe) S.A. recorded positive net new money inflows in 2020. As at the end of 2020, the total Assets Under Management reached 244 billion CHF, with a 14% year-on-year growth due to both strong clients acquisition and investment performance. The increase of Assets Under Management and a high transactional activity have resulted in a 7% increase of net commissions as compared with 2019. The net interest income was down 50% from 2019, following the sharp decrease of the interest rates in particular in USD and GBP. Other operating income grew significantly, due to the final sale related to the business lease agreement signed with the Italian branch of Pictet Asset Management (Europe) S.A. and to a partial release of a provision for dispute recognized in 2019. Pictet & Cie (Europe) S.A. opened a new branch in Monaco in December 2019. This branch has started to operate beginning of 2020, hiring 18 new employees to develop Private Banking activities in this market. Besides, Pictet & Cie (Europe) S.A. confirmed its commitment to develop its other core markets with an increase of 23 Full-Time Equivalents (FTE). As a result, staff costs rose by 7%. Other expenses were reduced by 9%, and total expenses remained globally stable (+1%). KEY FIGURES in CHF million 2020 2019 % Net Banking Income 330.1 331.9 -1% Net interest income 36.6 72.7 -50% Income from shares in affiliated companies 1.3 - Net commissions 244.0 228.3 7% Net profit on financial operations 48.2 30.9 56% Other operating income 41.6 14.9 179% Expenses -262.4 -260.9 1% Staff costs -171.4 -160.4 7% Other expenses -91.0 -100.5 -9% Gross operating result 109.3 85.9 27% Net result 78.3 59.3 32% Total Balance Sheet (CHF bn) 10.4 10.3 1% Total capital ratio 28.8% 27.5% CET1 ratio 28.0% 26.7% Liquidity Coverage Ratio 165% 162% Leverage ratio 3.7% 3.6% During 2020, the Pictet Group committed to adopt three ambitions before 2025: to significantly reduce the environmental impact of our activities and investments, to fully integrate ESG factors and active ownership into all investment processes and to be a leading provider of responsible products and solutions (https://www.group.pictet/responsible-vision). These ambitions are fully embraced by Pictet & Cie (Europe) S.A. The first milestones were achieved by Pictet & Cie (Europe) S.A. in 2020 with the decarbonization of the balance sheet and investing in activities that help to speed up the transition to a low carbon economy. 2020 also saw an important reduction of Pictet & Cie (Europe) S.A.’s carbon footprint due to travel and commuting restrictions linked to the COVID-19 pandemic. Pictet & Cie (Europe) S.A.’s governance, policies, procedures and risk framework are being reviewed to include environmental, social and governance factors, climate-related risks a nd principal adverse impacts of investment decisions on sustainability factors, in accordance with the EU Action Plan and our ambitions. The Bank’s policy on risk management and the use of financial instruments is described in Note 4 to the annual accounts. We are not aware of any event occurring after the 31 December 2020, which would have an impact on the annual accounts or of any additional information or that would have a significant impact, favorable or not, to the current financial situation or results of Pictet & Cie (Europe) S.A. The Bank does not perform any activities in the field of research and development. The Bank does not have any own shares as of 31 December 2020. Luxembourg, 25 March 2021, Pierre Etienne Administrateur Délégué Audit report To the Board of Directors of Pictet & Cie (Europe) S.A. Report on the audit of the annual accounts Our opinion In our opinion, the accompanying annual accounts give a true and fair view of the financial position of Pictet & Cie (Europe) S.A. (the “Bank”) as at 31 December 2020, and of the results of its operations for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts. What we have audited The Bank’s annual accounts comprise: the balance sheet as at 31 December 2020; the profit and loss account for the year then ended; and the notes to the annual accounts, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with the EU Regulation No 537/2014, the Law of 23 July 2016 on the audit profession (Law of 23 July 2016) and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier” (CSSF). Our responsibilities under the EU Regulation No 537/2014, the Law of 23 July 2016 and ISAs as adopted for Luxembourg by the CSSF are further described in the “Responsibilities of the “Réviseur d’entreprises agréé” for the audit of the annual accounts” section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Bank in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the annual accounts. We have fulfilled our other ethical responsibilities under those ethical requirements. To the best of our knowledge and belief, we declare that we have not provided non-audit services that are prohibited under Article 5(1) of the EU Regulation No 537/2014. The non-audit services that we have provided to the Bank and its controlled undertakings, if applicable, for the year then ended, are disclosed in Note 20 to the annual accounts. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts of the current period. These matters were addressed in the context of our audit of the annual accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters How our audit addressed the Key audit matters Recognition of commissions receivable for which the calculation is considered as manual. The commissions receivable of the Bank amounted to 463,207,893CHF for the year ended 31 December 2020, as detailed in Note 17.2. This commissions receivable includes a material amount of manually calculated commissions. We focused on recognition of the commissions receivable for which the calculation is considered as manual for the following reasons: These commissions receivable are generated by a high volume of individual operations and represent a significant amount; These commissions are resulting from various fee arrangements and the non-standardisation of the pricing conditions for some clients. Thus, the set-up of the fee conditions in the system involves manual intervention that could give rise to a risk of error. We performed tests on the internal control of the Bank (including IT controls) over these commissions receivable as well as substantive testing. Our procedures included the following: Performance of a walkthrough of the commissions receivable process and assessment of the design effectiveness of key controls, including the effective segregation of duties; Inspection on the reporting process on operational incidents, including those covering incident on commissions receivable, and review of a sample of reports produced by the Bank in relation with operational incidents; Inspection of the controls report (ISAE 3402 - Type II report) prepared and issued by an independent external auditor on the relevant controls in relation to the asset custody, safekeeping and fund administration services. These controls are related to the information that serves as a basis for the commissions calculation; Test of relevant IT general controls such as the review of program changes and the access to the program and data; Analysis of the variation of the main commission revenues; Verification of the appropriate set-up of the commission fee parameters in the system; Re-performance of commission calculation for a sample of transactions; Test of details on a sample of manual journal entries. Other information The Board of Directors is responsible for the other information. The other information comprises the information stated in the management report but does not include the annual accounts and our audit report thereon. Our opinion on the annual accounts does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the annual accounts, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the annual accounts or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Board of Directors for the annual accounts The Board of Directors is responsible for the preparation and fair presentation of the annual accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts, and for such internal control as the Board of Directors determines is necessary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error. In preparing the annual accounts, the Board of Directors is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. Responsibilities of the “Réviseur d’entreprises agréé” for the audit of the annual accounts The objectives of our audit are to obtain reasonable assurance about whether the annual accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an audit report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU Regulation No 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts. As part of an audit in accordance with the EU Regulation No 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: identify and assess the risks of material misstatement of the annual accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control; evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors; conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our audit report to the related disclosures in the annual accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our audit report. However, future events or conditions may cause the Bank to cease to continue as a going concern; evaluate the overall presentation, structure and content of the annual accounts, including the disclosures, and whether the annual accounts represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the annual accounts of the current period and are therefore the key audit matters. We describe these matters in our audit report unless law or regulation precludes public disclosure about the matter. Report on other legal and regulatory requirements The management report is consistent with the annual accounts and has been prepared in accordance with applicable legal requirements. We have been appointed as “Réviseur d’Entreprises Agréé” of the Bank by the Board of Directors on 26 March 2020 and the duration of our uninterrupted engagement, including previous renewals and reappointments, is 21 years. PricewaterhouseCoopers, Société coopérative Represented by Olivier Delbrouck Luxembourg, 29 March 2021 Balance sheet as at 31 December 2020 (expressed in Swiss francs) Note(s) 2020 2019 CHF CHF ASSETS Cash in hand, balances with central banks and post office banks 4.2.1, 5 1 913 493 925 1 212 756 741 Loans and advances to credit institutions 4.2.1, 6.2 - repayable on demand 644 004 452 411 957 747 - other loans and advances 1 751 651 099 3 145 548 166 2 395 655 551 3 557 505 913 Loans and advances to customers 4.2.1, 6.2 2 139 162 813 2 550 754 069 Bonds and other fixed-income transferable securities 4.2.1, 7.1.1, 8.1 - issued by public bodies 1 727 759 142 1 328 787 163 - issued by other borrowers 2 006 039 772 1 457 480 621 3 733 798 914 2 786 267 784 Shares and other variable-yield transferable securities 4.2.1, 7.1.1 57 628 407 42 392 589 Shares in affiliated undertakings 4.2.1, 6.1, 7.1.2, 8.1 593 472 921 917 Tangible assets 8.2 13 811 393 14 024 313 Other assets 135 196 135 894 Prepayments and accrued income 7.2, 7.3 150 061 854 138 029 160 Total assets 15 10 404 341 525 10 302 788 380 The accompanying notes form an integral part of these annual accounts. Balance sheet as at 31 December 2020 (expressed in Swiss francs) Note(s) 2020 2019 CHF CHF LIABILITIES Amounts owed to credit institutions 4.2.1, 6.2 - repayable on demand 398 086 836 503 270 188 - with agreed maturity dates or periods of notice 15 141 798 400 542 281 413 228 634 903 812 469 Amounts owed to customers 4.2.1, 6.2 - other debts . repayable on demand 9 175 842 649 8 658 249 651 . with agreed maturity dates or periods of notice 173 490 2 047 568 9 176 016 139 8 660 297 219 Debt evidenced by certificates - others 4.2.1, 9 70 859 295 57 352 717 Other liabilities 10 1 112 341 967 524 Accruals and deferred income 7.2, 7.3 129 934 287 94 671 542 Provisions - provisions for taxation 17.6 15 896 498 15 925 723 - other provisions 11 68 219 952 76 127 960 Fund for general banking risks 3.7 1 100 000 1 100 000 Subscribed capital 12, 14 70 000 000 70 000 000 Share premium account 14 30 000 000 30 000 000 Reserves 13, 14 80 526 465 75 570 338 Profit or loss brought forward 13.3, 14 269 135 455 257 679 091 Profit or loss for the financial year 14 78 312 459 59 283 797 Total liabilities 15 10 404 341 525 10 302 788 380 The accompanying notes form an integral part of these annual accounts. Off balance sheet items as at 31 December 2020 (expressed in Swiss francs) Note(s) 2020 2019 CHF CHF Contingent liabilities 16.1 775 568 456 536 304 901 of which: - guarantees and assets pledged as collateral security 775 568 456 536 304 901 Commitments 16.2 2 500 000 2 500 000 Fiduciary transactions 3 956 437 543 5 249 313 495 The accompanying notes form an integral part of these annual accounts. Profit and loss account for the year ended 31 December 2020 (expressed in Swiss francs) Note(s) 2020 2019 CHF CHF Interest receivable and similar income 70 438 166 120 215 996 Interest payable and similar charges (33 804 303) (47 537 748) Income from transferable securities: income from shares in affiliated companies 1 324 509 - Commissions receivable 17.2 463 207 893 410 100 726 Commissions payable 17.3 (219 245 238) (181 793 391) Net profit or loss on financial operations 48 237 788 30 892 876 Other operating income 17.4 41 572 349 14 936 555 General administrative expenses : - staff costs 19 (171 385 111) (160 370 786) of which: . wages and salaries (143 422 035) (133 333 902) . social security costs (23 662 387) (20 951 372) of which pension costs (12 565 489) (9 428 349) - other administrative expenses (71 186 199) (69 448 673) Value adjustments in respect of tangible and intangible assets (6 561 278) (5 497 676) Other operating charges 17.5 (11 222 865) (25 628 739) Value re-adjustments in respect of transferable securities held as financial fixed assets, participating interests and shares in affiliated undertakings (2 117 528) 23 992 Tax on profit or loss on ordinary activities 17.6 (27 670 146) (23 898 775) Profit or loss on ordinary activities after tax 81 588 037 61 994 357 Other taxes not shown in the preceding items 18 (3 275 578) (2 710 560) Profit or loss for the financial year 78 312 459 59 283 797 The accompanying notes form an integral part of these annual accounts. Notes to the annual accounts as at 31 December 2020 Note 1 - General Banque Pictet Luxembourg S.A. (the “Bank”) was incorporated in the Grand-Duchy of Luxembourg on 3 November 1989 as a société anonyme governed by Luxembourg Law. Banque Pictet Luxembourg S.A. changed its business name on 30 September 2002 to Pictet & Cie (Europe) S.A.. The Bank is registered with the register of commerce and companies of Luxembourg under No. B 32 060 and its registered office is located at 15A, Avenue J.-F. Kennedy, L-1855 Luxembourg. Under Luxembourg Law, the Bank is authorised to conduct all banking operations. The Bank is a fully owned subsidiary of Pictet Group. Since December 2018, the Bank is 100% owned by Pictet & Cie Group SCA (Pictet Group), Geneva, whose registered office is at 60, Route des Acacias, CH-1211 Geneva, Switzerland. The Bank is included in the consolidated accounts of Pictet Group forming the smallest and the largest body of undertakings of which the Bank forms a part as an indirect subsidiary. The consolidated accounts are available at Pictet Group head office at 60, Route des Acacias, CH-1211 Geneva, Switzerland. Note 2 - Presentation of the comparative financial data The figures for the year ended 31 December 2019 relating to Other liabilities have been split and an amount of 7 747 915 CHF has been reclassified to Accruals and deferred income to ensure comparability with the figures for the year ended 31 December 2020. Comparatives figures in the notes to the annual accounts have also been modified accordingly. Note 3 - Principal accounting methods 3.1 Basis of presentation The annual accounts have been prepared in conformity with the accounting principles generally accepted in the banking sector in the Grand Duchy of Luxembourg. The accounting policies and the valuation principles are determined and applied by the Board of Directors, except those which are defined by the amended law of 17 June 1992 relating to the accounts of credit institutions and by the “Commission de Surveillance du Secteur Financier” (the “CSSF”). Note 3 - Principal accounting methods (cont.) 3.1 Basis of presentation (cont.) The preparation of annual accounts requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the accounting policies. Changes in assumptions may have significant impact on the annual accounts in the period in which the assumption is changed. The Board of Directors believes that the underlying assumptions are appropriate and that the annual accounts therefore present the financial position and results fairly. The Board of Directors makes estimates and assumptions that affect the reported amounts of assets and liabilities in the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. As of 31 December 2020, the Bank reviewed current economic conditions, including the potential impacts of the COVID-19 pandemic on its business. The Bank has concluded that no assets were impaired as at 31 December 2020, nor written off for the year then ended. As at 31 December 2020, the Bank has seven branches, which are established in Frankfurt, Madrid, Paris, Turin, Hong Kong, London and Monaco. These were opened on the following dates: on 17 October 2000 for Frankfurt; on 5 December 2002 for Madrid; on 16 December 2003 for Paris; on 1 January 2007 for Turin; on 17 September 2012 for Hong Kong; on 24 April 2014 for London; on 17 December 2019 for Monaco. As a result, the balance sheet, the off balance sheet and the profit and loss account have been prepared by combining the items from the balance sheets, off balance sheets and profit and loss accounts of the Luxembourg-registered office and the seven branches. Based on the criteria defined by Luxembourg law, the Bank is not required to prepare consolidated annual accounts and a consolidated Management report for the year ended 31 December 2020. Therefore, in accordance with the amended law of 17 June 1992, these annual accounts were presented on an unconsolidated basis for approval by the Annual General Meeting. Note 3 - Principal accounting methods (cont.) 3.2 Foreign currencies The Bank prepares its annual accounts in Swiss francs (CHF), the currency in which its capital is expressed. The Bank has adopted the multi-currency accounting system whereby all transactions other than those expressed in the currency of its capital are recorded in the currencies of these transactions. Income and expenses are translated into CHF at the exchange rate prevailing on the date of the transaction. 3.2.1 Spot transactions Assets and liabilities denominated in foreign currencies are translated into CHF at the average spot exchange rate effective on the balance sheet date. However, shares in affiliated undertakings held as financial assets are translated at the lower of the value converted at the historical exchange rate or the spot rate on the balance sheet date. Tangible assets which are not hedged on the spot or forward market are translated into the local reporting currency at the exchange rates prevailing on their acquisition date. Unsettled spot foreign exchange transactions are translated into CHF at the spot rate prevailing on the balance sheet date. 3.2.2 Forward transactions Unsettled forward foreign exchange transactions are translated into CHF at the forward rate prevailing on the balance sheet date for the remaining maturity. For hedged exchange transactions, foreign exchange losses arising on revaluation of the hedged contract are set against profits arising on revaluation of the hedging contract (and vice versa). Provision is made to hedge any net loss position arising. 3.2.3 Foreign exchange gains and losses Foreign exchange gains and losses resulting from spot transactions hedged by forward transactions or resulting from forward transactions hedged by spot transactions are neutralised through prepayments and accrued income and accruals and deferred income accounts. Foreign exchange gains and losses resulting from spot transactions not hedged by forward transactions are recorded in the profit and loss account for the financial year. Differences arising due to the gap between spot and forward exchange rates are amortised in the profit and loss accounts on a prorata basis. Note 3 - Principal accounting methods (cont.) 3.2 Foreign currencies (cont.) 3.2.3 Foreign exchange gains and losses (cont.) Foreign exchange losses on unhedged forward transactions are recorded in the profit and loss account. Foreign exchange gains arising out of these transactions are disregarded. 3.3 Loans and advances Loans and advances are stated at their acquisition price less any repayments. Accrued interests not yet due are recorded as prepayments and accrued income in the balance sheet. It is the policy of the Bank to establish specific provisions in respect of doubtful and irrecoverable claims according to the circumstances and for amounts determined by the governing bodies in charge. These provisions are deducted from the appropriate asset account balances and are not maintained if the reasons for which they were recorded no longer exist. 3.4 Valuation of fixed-income and variable-yield transferable securities For valuation purposes, the Bank has divided its transferable securities into three categories of portfolios: 3.4.1 Investment portfolio of financial assets This portfolio comprises: variable-yield securities composed of shares in affiliated undertakings having the characteristics of financial fixed assets. These securities, which are intended to support the Bank’s activities over the long term, are valued at the lower of their acquisition cost or their market value; fixed-income securities intended to be held on a continuing basis until maturity in the normal course of the Bank’s activities. The fixed-income transferable securities are recorded at historical acquisition cost in their original currency. The acquisition cost includes the costs to purchase the asset. A value adjustment is made where the market value at the balance sheet date is lower than the acquisition cost. This adjustment is made when the Board of Directors considers the depreciation as durable or when the repayment of these debt securities is uncertain. The positive difference (premium) resulting from the purchase of fixed-income transferable securities held as fixed assets at a higher price than the amount repayable at maturity, is included in the profit and loss account on an amortised basis. Note 3 - Principal accounting methods (cont.) 3.4 Valuation of fixed-income and variable-yield transferable securities (cont.) 3.4.1 Investment portfolio of financial assets (cont.) The negative difference (discount) resulting from the acquisition of fixed-income transferable securities held as fixed assets at a lower price than the amount repayable at maturity, is released to income in instalments over the period remaining until repayment. 3.4.2 Trading portfolio This item comprises fixed-income and variable-yield securities purchased with the intention of selling them in the short term. These securities are traded on a market whose liquidity can be assumed to be certain, and their market price is at all times available to third parties. The securities in the trading portfolio are stated in the balance sheet at the lower of acquisition cost or market value. As at 31 December 2020 and 31 December 2019, the Bank does not have any trading portfolio. 3.4.3 Structural portfolio This item comprises securities purchased for their investment return or yield, or for the purpose of establishing some liquidity in the secondary market. It also includes securities not contained in the other two categories. The securities are valued at the lower of their acquisition cost or their market value. Exceptional value adjustments may be made in respect of certain securities, either in accordance with the principle of prudence or under the provisions of Luxembourg tax legislation. They also benefit from the provisions of the “Beibehaltungsprinzip” (under Luxembourg legislation, assets may be stated at a lower value throughout the holding period of the assets concerned). The Bank also issues structured finance instruments products on behalf of clients. Some of those products consist on issuing basket certificates based on equities. The risk on those position is covered by the acquisition by the Bank of the underlying securities with the aim to reduce volatility. The Bank applies the waiver allowed by the CSSF Circular 08/340 which permits to partially apply IFRS 9 standard. In the framework of its activities, the Bank is booking these products at fair value through profit and loss account. Note 3 - Principal accounting methods (cont.) 3.5 Tangible assets Tangible assets are stated in the balance sheet at their acquisition cost reduced by cumulated value adjustments. Tangible assets are amortised on a straight-line basis over their estimated useful economic lives: Rate of amortisation Transformation of the building 20% p.a. Hardware 33.33% p.a. Software 33.33% p.a. Other fixtures and fittings, tools and equipment 20% p.a. 3.6 Amounts payable Amounts payable are recorded under the liabilities at the amount of reimbursement. Some of the debts evidenced by certificates are composed of basket certificates based on equities whose purpose is to replicate the performance of an underlying reference securities basket. According to the waiver allowed by the CSSF circular 08/340 which permits to partially apply IFRS 9 standard with the aim to reduce volatility, these basket certificates are valuated at fair-value through profit and loss just like the representative underlying assets. 3.7 Fund for general banking risks The Bank created a fund for general banking risks intended to cover particular risks associated with banking operations. Increases or decreases to this fund are determined based on the profit after tax, but before determining the profit for the financial year, and are not subject to any quantitative limitations. 3.8 Lump-sum provision In accordance with Luxembourg legislation, the Bank has established a lump-sum provision for potential risk exposures. The lump-sum provision calculated on balance sheet items is deducted from the corresponding asset items. As at 31 December 2020, the lump-sum provision amounts to CHF 19 800 000 (2019: CHF 19 800 000). Note 3 - Principal accounting methods (cont.) 3.9 Valuation of derivative financial instruments Margin calls on financial futures traded on a regulated market are recorded on a daily basis. Gains and losses on trading positions are directly recorded in the profit and loss account. Gains and losses on hedging positions are amortised over the same period as the results from the hedged item. The derivatives on interest rates traded over the counter and unallocated to given assets or liabilities, are market-to-market. The unrealised losses are booked in the profit and loss account whereas unrealised gain are ignored. The derivatives on interest rates traded over the counter for hedging purposes of the Bank’s interest rate positions are not marked-to-market unless they are hedging fixed-income transferable securities included in the investment portfolio valued at the “lower of cost or market”. The Bank issues structured finance instruments products on behalf of clients. The risk on those positions is covered by the acquisition by the Bank of financial instruments with the aim to hedge the position and reduce volatility. The Bank applies the waiver allowed by the CSSF Circular 08/340 which permits to partially apply IFRS 9 standard. In the framework of its activities, the Bank is booking these products at fair value through profit and loss account. The Bank uses interest rate swaps to hedge its exposure to changes in the fair values of its investment portfolio for prudential reporting purposes. Hedging income is recognised in the income statement symmetrically with the method used to recognise income and expenses on the hedged item; thus, the interest flows of the hedging instrument are spread at the same time as the hedged interest is recognised. With regard to unrealised gains and losses, changes in value are recognised in the income statement in a symmetrical way with the method of recognising income and expenses on this item. Hence, unrealised losses recognised on the hedging instrument do not therefore give rise to the recognition of a provision. For the options traded over the counter and unallocated to given assets or liabilities, the premiums received or paid appear on the balance sheet until the exercise or the expiration date of the option, if the option is not exercised before that date. Commitments on written options are booked off-balance sheet. Options, other equity derivatives and credit default swap not used for hedging purposes are market-to-market. The unrealized losses are booked in the profit and loss account whereas unrealized gains are ignored. Note 4 - Analysis of financial instruments 4.1 Risk management objectives and strategy The Bank’s strategy is to focus on those activities where it can bring added value, which generate higher returns and whose risks are understood and managed. 4.1.1 Credit and counterparty risk Credit risk is the risk that a third party may not fulfil its obligations within the terms prescribed. Consequently, the risk not only encompasses loans and securities but also guarantees, commitments, inter-bank deposits, forward foreign exchange contracts and other financial instruments. Credit risk management is governed by an internal guideline which defines the terms under which loans may be granted, the limits and requirements for loans and advances on account as well as the competencies to approve commitments. It should be noted that the Bank does not grant any commercial loans and that customer loans consists mainly of Lombard credits and loans guaranteed by cash deposits or life insurance policies. The Bank’s policy regarding country risks is not to maintain any active relationships with creditors in high-risk countries. Finally, the banking counterparties with which the Bank works are well established first-rate banks, including Group companies. Further, the Bank’s Management has set concentration limits per banking counterparty. Compliance with these limits is controlled on a daily basis. The result of this control is sent on a weekly basis to the Bank’s Management. 4.1.2 Market and financial instrument risks Market risks are defined as risks relating to interest rate, foreign exchange or price fluctuations and to illiquidity which may lead to refinancing issues. The Bank invests in a held-to-maturity bonds portfolio. This initiative is part of the cash management of Pictet Group and the willingness of the Bank to respond to the Bank’s expectations with regards to treasury and liquidity management. The portfolio is composed of highly qualitative liquid assets. The Bank carries out currency swap transactions for its own account in order to cover future cash flow of some bonds hold in portfolio and to manage cash position in foreign currencies. Transactions conducted on behalf of customers are systematically mirrored with the sister company (Banque Pictet & Cie SA) and mainly consist of transactions relating to “standard” derivative financial instruments. Note 4 - Analysis of financial instruments (cont.) 4.1 Risk management objectives and strategy (cont.) 4.1.3 Liquidity risk Liquidity risk may be defined as the risk that a bank may not be able to meet its obligations on maturity due to the mismatches between the cash flows arising from its assets and its liabilities. The Bank’s liquidity risk policy can be compared to its interest rate policy to the extent that the Bank tries to avoid any mismatch between the uses and sources of cash in terms of maturity so as to avoid any major risk. The Bank invested in a held-to-maturity bonds portfolio with maturities up to 99 months. Each investment is highly liquid and qualitative. 4.1.4 Interest rate and foreign exchange risks With regard to investments/deposits, the Bank’s policy is to seek a perfect match in terms of maturity dates. The Bank does not take any position on the rates or on the maturities but limits itself to reflecting its customers’ deposits by ensuring the best possible rates. The interest rate margin generated by the Bank is monitored monthly by the Finance department. The Bank’s policy is to avoid any significant foreign exchange risks. The Bank has set overall limits and currency limits. Compliance with cash and forward positions and the result on these positions are controlled on a daily basis by the Finance department and are reported regularly to the Bank’s Management. 4.1.5 Operational risks The Bank’s business focuses on private banking and custodian bank activities. In order to reduce its risks, the Bank follows a policy of spreading responsibilities, which are split between the various persons in charge of the activities. In addition, the Bank has a procedure manual which governs the Bank’s activities and which defines the control levels required for the relevant duties. The activities are also reviewed by the Internal Audit department which reports to the Bank’s Management. Finally, the Risk Management function has implemented a loss reporting system and an operational loss database subject to a specific follow-up. The Risk Management function is also in charge of the oversight of the custodian bank activities. Note 4 - Analysis of financial instruments (cont.) 4.1 Risk management objectives and strategy (cont.) 4.1.6 Legal risk Legal risk is defined as the risk that an error in the drafting or in the interpretation of a contract binding the Bank will result in financial losses or an unwanted increase in the Bank’s commitments. This risk is not necessarily directly quantifiable but may indirectly result in financial losses or lost profits. This risk is inherent to the nature and complexity of banking activities. As a consequence, the preparation of the annual accounts requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgment in the process of applying the accounting policies. 4.1.7 Effects of the COVID-19 crisis on the risk management. From the start of the COVID-19 crisis, the Bank has continued to apply sound and prudent risk management with respect to financial and non-financial risks. From an operational point of view, various measures aimed at protecting employees and customers have been put in place by the Bank and then continuously adapted according to the evolution of the health situation while maintaining perfect continuity of the Bank’s operations. It is also worth noting that, thanks to prudent financial risk management policies, the COVID-19 had no impacts on the Bank’s assets valuation as at 31 December 2020, and for the year then ended. 4.2 Analysis of financial instruments 4.2.1 Information on primary financial instruments The table hereafter analyses the Bank’s activity level regarding primary financial instruments. The data are broken down by type of financial instrument and by residual maturity. “Fair value” means the value at which an asset may be exchanged or a liability settled under a standard transaction conducted at arm’s length between unrelated qualified parties acting freely, with the exception of forced sales and sales conducted as part of a liquidation. Notes to the annual accounts as at 31 December 2020 Note 4 - Analysis of financial instruments (cont.) 4.2 Analysis of financial instruments (cont.) 4.2.1 Information on primary financial instruments (cont.) Analysis of primary non-trading financial instruments (book value) Primary non-trading instruments as at 31 December 2020 (book value in CHF) Total CHF Less than 3 months > 3 months to 1 year > 1 year to 5 years More than 5 years No maturity Instrument class (financial assets) Cash in hand, balances with central banks and post office banks 1 913 493 925 - - - - 1 913 493 925 Loans and advances to credit institution s 2 391 191 987 4 463 564 - - - 2 395 655 551 Loans and advances to customers 2 067 855 418 59 430 308 11 553 375 323 712 - 2 139 162 813 Bonds and other fixed-income transferable securities* 36 719 448 324 734 399 2 731 220 319 641 124 748 - 3 733 798 914 Shares and other variable-yield transferable securities - - - - 57 628 407 57 628 407 Shares in affiliated undertakings - - - - 593 472 593 472 Total financial assets 6 409 260 778 388 628 271 2 742 773 694 641 448 460 58 221 879 10 240 333 082 Non-financial assets 164 008 443 Total assets 10 404 341 525 * Considering their market value, these securities do not require any impairment as at 31 December 2020 (see note 7.2). Instrument class (financial liabilities) Amounts owed to credit institution s 413 228 634 - - - - 413 228 634 Amounts owed to customer s 9 176 016 139 - - - - 9 176 016 139 Debts evidenced by certificates - 12 229 752 - - 58 629 543 70 859 295 Total financial liabilities 9 589 244 773 12 229 752 - - 58 629 543 9 660 104 068 Non-financial liabilities 216 263 078 Total liabilities (excluding equity) 9 876 367 146 Notes to the annual accounts as at 31 December 2020 Note 4 - Analysis of financial instruments (cont.) 4.2 Analysis of financial instruments (cont.) 4.2.1 Information on primary financial instruments (cont.) Analysis of primary non-trading financial instruments (book value) Primary non-trading instruments as at 31 December 2019 (book value in CHF) Total CHF Less than 3 months > 3 months to 1 year > 1 year to 5 years More than 5 years No maturity Instrument class (financial assets) Cash in hand, balances with central banks and post office banks 1 212 756 741 - - - - 1 212 756 741 Loans and advances to credit institution s 3 557 505 913 - - - - 3 557 505 913 Loans and advances to customers 2 446 622 801 73 329 549 30 801 719 - - 2 550 754 069 Bonds and other fixed-income transferable securities* 128 687 989 317 442 826 1 680 312 731 659 824 238 - 2 786 267 784 Shares and other variable-yield transferable securities - - - - 42 392 589 42 392 589 Shares in affiliated undertakings - 921 917 921 917 Total financial assets 7 345 573 444 390 772 375 1 711 114 450 659 824 238 43 314 506 10 150 599 013 Non-financial assets 152 189 367 Total assets 10 302 788 380 * Considering their market value, these securities do not require any impairment as at 31 December 2019. Instrument class (financial liabilities) Amounts owed to credit institution s 837 107 642 66 704 827 - - - 903 812 469 Amounts owed to customer s 8 660 297 219 - - - - 8 660 297 219 Debts evidenced by certificates - 14 648 483 - - 42 704 234 57 352 717 Total financial liabilities 9 497 404 861 81 353 310 - - 42 704 234 9 621 462 405 Non-financial liabilities 188 792 749 Total liabilities (excluding equity) 9 810 255 154 Note 4 - Analysis of financial instruments (cont.) 4.2 Analysis of financial instruments (cont.) 4.2.2 Information on derivative financial instruments used 4.2.2.1 Description of derivative financial instruments The Bank conducts: currency and interest rate swaps for its own account; forward foreign exchange transactions, one metal option transaction, equity derivatives (CFD, options, swaps), credit default swaps on behalf of customers which are automatically mirrored with the sister company (Banque Pictet & Cie SA). The tables below provide information on non-trading derivative financial instruments according to the notional amount, the fair value, the residual maturity and the market type. 4.2.2.2 Analysis of derivatives financial instruments used As at 31 December 2020, the Bank held the following derivative financial instruments: (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Forward exchange contracts (notional amount) 58 960 659 558 6 267 450 370 1 429 855 65 229 539 783 Currency & Interest Rate Swaps (notional amount) 5 020 519 451 60 447 689 144 916 076 5 225 883 216 Equity derivatives (notional amount) 405 066 639 216 792 986 154 574 841 776 434 466 As at 31 December 2019, the Bank held the following derivative financial instruments: (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Forward exchange contracts (notional amount) 52 596 468 279 3 009 238 448 89 866 457 55 695 573 184 Currency & Interest Rate Swaps (notional amount) 3 004 130 222 371 786 287 92 987 154 3 468 903 663 Equity derivatives (notional amount) 4 635 968 998 463 500 635 143 043 238 5 242 512 871 Credit Default Swaps (notional amount) - - 2 173 946 2 173 946 Metal Option (notional amount) 1 040 728 352 - - 1 040 728 352 Note 4 - Analysis of financial instruments (cont.) 4.2 Analysis of financial instruments (cont.) 4.2.2 Information on derivative financial instruments used (cont.) 4.2.2.3 Evaluation of derivative financial instruments As at 31 December 2020, the fair value of derivative financial instruments held by the Bank amount to: (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Forward exchange contracts Positive replacement values 302 294 322 72 912 348 16 433 375 223 103 Negative replacement values 299 889 221 71 359 853 15 350 371 264 424 Net fair value of contracts 2 405 101 1 552 495 1 083 3 958 679 (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Currency & Interest Rate Swap Positive replacement values 9 317 528 1 444 986 4 781 728 15 544 242 Negative replacement values 1 805 731 2 573 081 65 093 268 69 472 080 Net fair value of contracts 7 511 797 (1 128 095) (60 311 540) (53 927 838) (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Equity derivatives Positive replacement values 6 502 300 25 568 858 5 744 927 37 816 085 Negative replacement values 4 487 337 25 568 858 5 744 927 35 801 122 Net fair value of contracts 2 014 963 - - 2 014 963 Note 4 - Analysis of financial instruments (cont.) 4.2 Analysis of financial instruments (cont.) 4.2.2 Information on derivative financial instruments used (cont.) 4.2.2.3 Evaluation of derivative financial instruments (cont.) As at 31 December 2019, the fair value of derivative financial instruments held by the Bank on behalf of customers amounts to: (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Forward exchange contracts Positive replacement values 271 548 618 20 455 076 4 259 865 296 263 559 Negative replacement values 267 857 434 19 672 879 4 164 259 291 694 572 Net fair value of contracts 3 691 184 782 197 95 606 4 568 987 (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Currency & Interest Rate Swaps Positive replacement values 10 766 460 28 372 583 4 919 824 44 058 867 Negative replacement values 9 548 292 1 059 358 49 944 067 60 551 717 Net fair value of contracts 1 218 168 27 313 225 (45 024 243) (16 492 850) (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Equity derivatives Positive replacement values 14 283 654 23 755 150 1 659 863 39 698 667 Negative replacement values 13 712 354 23 755 150 1 659 863 39 127 367 Net fair value of contracts 571 300 - - 571 300 Note 4 - Analysis of financial instruments (cont.) 4.2 Analysis of financial instruments (cont.) 4.2.2 Information on derivative financial instruments used (cont.) 4.2.2.3 Evaluation of derivative financial instruments (cont.) (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Credit Default Swap Positive replacement values - - 34 250 34 250 Negative replacement values - - 34 250 34 250 Net fair value of contracts - - - - (CHF) Less than 3 months 3 to 12 months 1 to 5 years Total OTC Metal option Positive replacement values 366 036 - - 366 036 Negative replacement values 366 036 - - 366 036 Net fair value of contracts - - - - 4.3 Credit risk 4.3.1 Description of credit risk Credit risk is the risk that a third party may not fulfil its obligations within the terms prescribed. 4.3.2 Credit risk concentration Geographical analysis (in %) Geographic zone (by country or zone) Loans and other balance sheet items Commitments OTC derivative financial instruments 31 December 2020 31 December 2020 31 December 2020 Switzerland 45% 4% 54% European Union and UK 40% 48% 42% Others 15% 48% 4% Total 100% 100% 100% 4.3 Credit risk (cont.) 4.3.1 Description of credit risk (cont.) 4.3.2 Credit risk concentration (cont.) Geographic zone (by country or zone) Loans and other balance sheet items Commitments OTC derivative financial instruments 31 December 2019 31 December 2019 31 December 2019 Switzerland 54% 5% 52% European Union and UK 27% 42% 40% Others 19% 53% 8% Total 100% 100% 100% Economic sector analysis (in %) Economic sector Loans and other balance sheet items Commitments OTC derivative financial instruments 31 December 2020 31 December 2020 31 December 2020 Financial sector 66% 39% 56% Private clients 24% 31% 1% Others 10% 30% 43% Total 100% 100% 100% Economic sector Loans and other balance sheet items Commitments OTC derivative financial instruments 31 December 2019 31 December 2019 31 December 2019 Financial sector 68% 38% 54% Private clients 20% 27% 4% Others 12% 35% 42% Total 100% 100% 100% The Bank has decided not to include the bond portfolio and the currency swaps in the geographical and economic sector breakdowns presented above as the credit risk on these instruments is very limited. Indeed, the Bank's bond portfolio includes solely high-quality securities rated, at least, AA- by Moody’s. Also, the majority of currency swaps are contracted with the sister company (Banque Pictet & Cie SA) which is a financial institution located in Switzerland. 4.3.3 Measurement of credit risk exposure related to financial derivative instruments For financial derivative instruments not traded on a stock exchange, the book value, i.e. the notional value, does not reflect the highest rate of exposure to risk. The Bank calculates the credit risk relating to derivative financial instruments on the basis of the standardised approach in accordance with the provisions of CSSF circulars. The table hereafter provides information on the Bank’s exposure to credit risk according to notional amounts, to the credit risk-equivalent amount and to the net risk exposure. Note 4 - Analysis of financial instruments (cont.) 4.3 Credit risk (cont.) 4.3.3 Measurement of credit risk exposure related to derivative financial instruments (cont.) Credit risk relating to OTC financial derivative instruments (initial risk method) as at 31 December 2020 Notional amounts CHF (1 ) Credit risk-equivalent amounts CHF (2) Guarantees CHF (3) Net weighted risk exposure CHF (4) = (2) - (3) Forward exchange contracts 65 229 539 783 490 166 222 - 490 166 222 Currency and Interest Rate Swaps 5 225 883 216 16 797 235 - 16 797 235 Equity derivatives 776 434 466 329 675 910 - 329 675 910 Credit risk relating to OTC financial derivative instruments (initial risk method) as at 31 December 2019 Notional amounts CHF (1 ) Credit risk-equivalent amounts CHF (2) Guarantees CHF (3) Net weighted risk exposure CHF (4) = (2) - (3) Forward exchange contracts 55 695 573 184 761 595 276 - 761 595 276 Currency Swaps 3 468 903 663 35 755 922 - 35 755 922 Equity derivatives 5 242 512 871 190 737 702 - 190 737 702 Credit Default Swaps 2 173 946 251 976 - 251 976 Metal options 1 040 728 352 72 850 985 - 72 850 985 The Management has decided to deal on forward foreign exchange contracts exclusively with the sister company (Banque Pictet & Cie SA). The Bank also conducts currency swaps for its own account in order to hedge future cash flows related to its investment portfolio and its open positions in foreign currencies. Instrument 31 December 2020 31 December 2019 OECD Group OECD Group Forward exchange contracts 96% 50% 95% 50% Currency Swaps 100% 97% 100% 88% Equity derivatives 94% 61% 59% 51% Credit Default Swaps - - 100% 50% Metal option - - 50% 50% Note 4 - Analysis of financial instruments (cont.) 4.4 Market risk Market risk represents the risk that financial assets in which the Bank invests or in respect of which it conducts short transactions may be subject to market price fluctuations. The Bank’s portfolio includes participating interests in other Group companies and a held-to-maturity bonds portfolio . Since 2016, it also includes securities acquired by the Bank in the frame of its strategy of economic hedging of the basket certificates based on equities issued by the Bank. The forward foreign exchange contracts agreed with the clients are mirrored with the sister company (Banque Pictet & Cie SA). The Bank conducts currency swaps in order to cover market risk related to some bonds hold in portfolio. Note 5 - Cash in hand, balances with central banks and post office banks Effective 1 January 1999, the central banks in Europe have implemented a system of mandatory minimum reserves which applies to all credit institutions. As at 31 December 2020, the amount maintained by the Bank and its branches to central banks in different countries is CHF 1 912 823 957 (2019: CHF 1 212 201 460), including CHF 1 895 258 640 (2019: CHF 1 193 657 783) to the “Banque centrale de Luxembourg”. Note 6 - Shares in affiliated undertakings 6.1 Summary of shares in affiliated undertakings As at 31 December 2020, the Bank holds shares in affiliated undertakings (exceeding 20%) in the following company: Name Head Office Carrying value Proportion of capital held (%) Shareholders’ equity 31/12/20 (*) Profit and loss for the year ended 31/12/20 (*) CHF CHF CHF PICTET LIFE INSURANCE ADVISORS (FRANCE) SAS Paris 594 856 100 1 898 127 559 326 Less lump-sum provision (1 384) 593 472 (*) Non-audited figures. Pictet Life Insurance Advisors (France) SAS is not listed on a stock exchange. The Bank is not required to prepare consolidated accounts following the article 83 (2 bis) of the amended law of 17 June 1992. A table summarising the movements of the year is detailed in note 8.1. 6.2 Operations with affiliated undertakings 2020 2019 CHF CHF Loan and advance to affiliated undertakings Loans and advances to credit institutions 1 009 912 519 2 631 398 505 Loans and advances to customers 1 908 997 3 272 126 Note 6 - Shares in affiliated undertakings (cont.) 6.2 Operations with affiliated undertakings (cont.) 2020 2019 CHF CHF Amounts owed to affiliated undertakings Amounts owed to credit institutions 362 755 890 789 414 282 Amounts owed to customers 115 051 607 229 376 953 Note 7 - Transferable securities 7.1 Quoted and unquoted transferable securities 7.1.1 Quoted transferable securities 2020 2019 CHF CHF Bonds and other fixed-income transferable securities: - issued by public bodies 1 727 759 142 1 328 787 163 - issued by other borrowers 2 006 039 772 1 457 480 621 Shares and other variable-yield transferable securities 57 628 407 42 392 589 3 791 427 321 2 828 660 373 7.1.2 Unquoted transferable securities 2020 2019 CHF CHF Shares in affiliated undertakings 593 472 921 917 Note 7 - Transferable securities (cont.) 7.2 Categories of bonds and other fixed-income transferable securities The bonds and other fixed-income transferable securities are classified as follows: 2020 2019 CHF CHF Bonds and other fixed-income securities 3 733 798 914 2 786 267 784 Premiums (booked as accruals and deferred income) (40 266 780) (37 120 060) Discounts (booked as prepayments and accrued income) 2 013 710 1 679 793 Adjusted book value of bonds and other fixed-income securities 3 695 545 844 2 750 827 517 As at 31 December 2020, the market value of these financial assets amounts to CHF 3 794 491 216 including CHF 13 021 633 of accrued interests booked under “Prepayments and accrued income” on the asset side of the balance sheet. The adjusted book value of bonds and other fixed-income transferable securities reaching maturity in 2021 amount to CHF 371 156 365. 7.3 Amortisation of premiums and discounts on bonds and other fixed-income transferable securities held as financial fixed assets As at 31 December 2020, the amortised value of premiums and discounts since acquisition date for the financial assets amounts to: 2020 2019 CHF CHF Premiums 40 266 780 37 120 060 Discounts (2 013 710) (1 679 793) Note 8 - Fixed assets 8.1 Financial assets The movements in financial assets during the year may be summarised as follows: Shares in affiliated undertakings transferable securities Bonds and other fixed-income 2020 2020 CHF CHF Gross value as at 1 January 923 925 2 792 336 861 Additions - 2 202 804 605 Disposals (326 090) (1 202 390 842) Foreign exchange difference (2 979) (50 244 780) Gross value as at 31 December 594 856 3 742 505 844 Less lump-sum provision ( 1 384) (8 706 930) Net book value as at 31 December 593 472 3 733 798 914 Disposal of shares in affiliated undertakings relates to the liquidation of Pictet & Cie (Monaco) SAM, a management company located in Monaco as at 30 June 2020, after its liquidation. Disposals of bonds and other fixed-income transferable securities held as fixed assets consist of securities that reached maturity during the year 2020 and a sale of securities which did not comply anymore with eligibility criteria defined by the Bank for its investment portfolio. Note 8 - Fixed assets (cont.) 8.2 Tangible assets The movements in tangible assets during the year may be summarised as follows: Technical fixtures & fittings and machinery Other fixtures & fittings, tools & equipment Total tangible assets Total tangible assets 2020 2019 CHF CHF CHF CHF Gross value as at 1 January 32 406 539 35 611 007 68 017 546 62 282 937 Additions 4 575 182 5 935 718 10 510 900 12 994 235 Disposals/transfers (3 937 651) (11 523 868) (15 461 519) (6 691 782) Foreign exchange difference (179 655) (570 387) (750 042) ( 567 844) Gross book value as at 31 December 32 864 415 29 452 470 62 316 885 68 017 546 Cumulated value adjustments as at 31 December (including foreign exchange difference) (27 487 668) (20 985 617) (48 473 285) (53 962 684) Less lump-sum provision (16 985) (15 222) (32 207) (30 549) Net book value as at 31 December 5 359 762 8 451 631 13 811 393 14 024 313 Note 9 - Debt evidenced by certificates During 2016, the Bank started to issue structured finance instruments, including basket certificates based on equities. As at 31 December 2020, total issuance of these instruments amounts to CHF 70 859 295 booked on the liability side of the Bank’s balance sheet. In the frame of its strategy of economic hedging of the equity basket certificates, the Bank has acquired the securities composing the underlying portfolio of these certificates. As at 31 December 2020, the total value of these securities amounts to CHF 57 651 975 booked on the asset side of the Bank’s balance sheet. Note 10 - Other liabilities As at 31 December, “Other liabilities” consist of the following: 2020 2019 CHF CHF Pension plan 1 112 341 967 524 1 112 341 967 524 The pension plan concerns employees of the Italian branch. The caption P referential creditors have been reclassified to A ccruals and deferred income for both years 2020 and 2019. Note 11 - Other provisions As at 31 December, the other provisions are composed of: 2020 2019 CHF CHF Bonuses and staff costs 61 786 883 57 601 245 Provision for litigation 187 445 543 486 Others 6 245 624 17 983 229 68 219 952 76 127 960 As at 31 December 2020 and 31 December 2019, the lump-sum provision amounts to CHF 19 800 000 . The lump-sum provision is fully calculated on balance sheet items and is deducted from the corresponding assets. The line “others” mainly relates to a current dispute of the Bank. Note 12 - Subscribed capital As at 31 December 2020, the Bank’s subscribed and fully paid capital amounts to CHF 70 000 000 and is represented by: Number Nominal Value Total CHF CHF Registered shares 56 000 1 000 56 000 000 Preferred shares 14 000 1 000 14 000 000 Total 70 000 70 000 000 Note 12 - Subscribed capital (cont.) Preferred shares are entitled to a preferential and cumulative yearly dividend set at 10% of their nominal value, or CHF 100 per share. They are also entitled to a preferred right to the repayment of the contributed capital. Note 13 - Reserves 13.1 Legal reserve In accordance with Luxembourg law, the Bank must transfer at least 5% of its annual profit to the legal reserve until this reserve equals 10% of the subscribed capital. The legal reserve is not distributable. 13.2 Special reserve In accordance with the tax law in force since 1 January 2002, the Bank reduced its Net Wealth Tax (“NWT”) burden by crediting it on the amount of the Corporate Income Tax (“CIT”) before deduction of tax credits. To comply with the law, the Bank decided to allocate under non-distributable reserves (a “special reserve” item) an amount that corresponds to five times the amount of the reduced Net Wealth Tax. This reserve is not distributable for a period of five years from the year following the one during which the Net Wealth Tax was credited. 13.3 Retained earnings The retained earnings represent the earnings from previous years that were affected by the General Meetings of shareholders to this account over the previous years. The retained earnings are distributable, and the distribution can take place after approval of shareholders at a General Meeting. Note 14 - Changes in shareholders’ equity The movements in the Bank’s shareholders’ equity may be analysed as follows: Subscribed capital Share premium Legal reserve Other reserves Profit or loss brought forward Profit or loss for the financial year Total CHF CHF CHF CHF CHF CHF CHF Situation as at 31 December 2019 70 000 000 30 000 000 7 000 000 68 570 338 257 679 091 59 283 797 492 533 226 Allocation to the 2020 Net Wealth Tax reserve - - - 14 946 465 (14 946 465) - - Dissolution of the 2014/2015 Net Wealth Tax reserve - - - (9 990 338) 9 990 338 - - Transfer of profits and losses carried forward by the branches in 2019 - - - - (12 416 520) - (12 416 520) Supported profits and losses carried forward by Luxembourg in 2019 - - - - 12 416 520 - 12 416 520 Distribution of dividends - - - - (44 450 000) - (44 450 000) Profit or loss brought forward - - - - 59 283 797 (59 283 797) - Profit or loss as at 31 December 2020 - - - - - 78 312 459 78 312 459 Foreign exchange difference 2019 - - - - (40 886) - (40 886) Foreign exchange difference 2018 - - - - 1 619 580 1 619 580 Situation as at 31 December 2020 70 000 000 30 000 000 7 000 000 73 526 465 269 135 455 78 312 459 527 974 379 The Annual General Meeting of the shareholders held on 4 May 2020 approved the allocation of the profit for the financial year ended 31 December 2019. The meeting resolved to distribute a dividend for an amount of CHF 44 450 000. The transfer of branches’ profits and losses carried forward for 2019 amounts to CHF (12 416 520) after adjustments for intercompany transactions. The branches’ profits and losses for 2019 before adjustments for intercompany transactions can be broken down as follows: Frankfurt The 2019 loss amounts to EUR 259 478. The exchange value of that amount at the average rate for the year concerned is CHF 288 300. Note 14 - Changes in shareholders’ equity (cont.) Paris The 2019 profit amounts to EUR 6 453 002. The exchange value of that amount at the average rate for the year concerned is CHF 7 169 775. Madrid The 2019 profit amounts to EUR 376 425. The exchange value of that amount at the average rate for the year concerned is CHF 418 237. Hong Kong The 2019 loss amounts to HKD 133 133 698. The exchange value of that amount at the average rate for the year concerned is CHF 16 874 430. Turin The 2019 profit amounts to EUR 3 131 970. The exchange value of that amount at the average rate for the years concerned is CHF 3 479 857. London The 2019 loss amounts to GBP 4 970 112. The exchange value of that amount at the average rate for the year concerned is CHF 6 321 659. Note 15 - Positions in foreign currencies 2020 2019 CHF CHF Total assets denominated in foreign currencies 8 919 614 359 8 877 760 128 Total liabilities denominated in foreign currencies 9 251 901 534 8 677 555 230 Note 16 - Contingent liabilities and commitments 16.1 Contingent liabilities As at 31 December, the contingent liabilities reported in the off balance sheet accounts consist of the following: 2020 2019 CHF CHF Guarantees and other direct substitutes for credit 775 568 456 536 304 901 As at 31 December 2020, contingent liabilities with affiliated undertakings amount to CHF 556 399 880 (2019: CHF 369 418 010). Note 16 - Contingent liabilities and commitments (cont.) 16.2 Other commitments As at 31 December 2020, the Bank incurred the following commitment which is not recorded either on the balance sheet or on the off balance sheet: The buildings where the Bank operates are rented. The Bank is committed to pay an amount of CHF 51 905 737 until September 2026 in relation to the rented buildings (2019: CHF 9 369 641 until August 2021). As at 31 December 2020 and 31 December 2019, the Bank incurred the following commitment which is recorded off balance sheet: The Paris branch of Pictet & Cie (Europe) S.A. received subsidies from Banque Pictet & Cie SA for a total amount of CHF 2 500 000. These subsidies will be repaid when the branch will realize enough net profit. 16.3 Single Resolution Fund (“SRF”) and Luxembourg deposit Guarantee scheme (“LGDS”) The law related to the resolution, reorganisation and winding-up measures of credit institutions and certain investment firms and on deposit guarantee and investor compensation schemes (“the Law”), transposing into Luxembourgish law the directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms and the directive 2014/49/EU related to deposit guarantee and investor compensation schemes, was passed on 18 December 2015. This new system covers eligible deposits of each depositor up to an amount of EUR 100 000 (Luxembourg Deposit Guarantee Scheme) and investments up to an amount of EUR 20 000 (Luxembourg Investors Compensation Scheme). The Law also provides that deposits resulting from specific transactions or fulfilling a specific social or other purpose are covered for an amount above EUR 100 000 for a period of 12 months. The funded amount of the SRF shall reach by the end of 2024 at least 1% of covered deposits, as defined in Article 1 number 36 of the Law, of all authorized credit institutions from all participating Member States. This amount will be collected from the credit institutions through annual contributions during the years 2015 to 2024. The 2020 contribution to SRF is EUR 4 592 764 (CHF 4 918 689). This expense has been fully booked as other operating charges in the profit and loss account. Note 16 - Contingent liabilities and commitments (cont.) 16.3 Single Resolution Fund (“SRF”) and Luxembourg deposit Guarantee scheme (“LGDS”) (cont.) The target level of funding of the LDGS was set at 0.8% of covered deposits, as defined in article 163 number 8 of the Law, of the relevant credit institutions and has been reached by the end of 2019 through annual contributions. The credit institutions continue to contribute for 8 additional years in order to constitute an additional safety buffer of 0.8% of covered deposits as defined in article 163 number 8 of the Law after 2019. The 2020 contribution to LDGS is EUR 306 603 (CHF 327 053). This expense has been fully booked as other operating charges in the profit and loss account. 16.4 Management and fiduciary services During the year under review, the Bank provided the following management and fiduciary services to third parties: investment management or advice; safekeeping and administration of transferable securities; custodian bank; fiduciary representation; Note 17 - Profit and loss account 17.1 Breakdown of income by geographic markets The Bank mainly conducts its operations with Switzerland and European Union Member States. With regard to the Bank’s organisation, there is no difference between these two markets. Therefore, the Bank sees those markets as one single market and does not present the breakdown of the income by geographic market. Note 17 - Profit and loss account (cont.) 17.2 Commissions receivable As at 31 December, the commissions receivable are composed of: 2020 2019 CHF CHF Securities transactions fees 168 408 684 128 065 860 Custodian bank fees 100 754 922 93 976 374 Central administration fees & pricing fees 72 426 405 66 808 934 Asset management fees 50 801 083 52 696 491 Distribution fees 11 882 255 16 061 359 Other commissions receivable 58 934 544 52 491 708 Commissions receivable 463 207 893 410 100 726 17.3 Commissions payable As at 31 December, the commissions payable are composed of: 2020 2019 CHF CHF Securities transactions fees 147 369 229 111 184 957 Retrocession fees 16 148 740 19 856 456 Custodian bank fees 9 904 086 12 625 449 Other commissions payable 45 823 183 38 126 529 Commissions payable 219 245 238 181 793 391 17.4 Other operating income In 2020, this caption mainly relates to: to overhead costs and other staff costs charged to other companies of the Group (CHF 14 326 254); the settlement of the business lease agreement, signed between the Italian Branch of Pictet & Cie (Europe) S.A. and the Italian Branch of Pictet Asset Management (Europe) S.A., related to the marketing of shares in collective investment funds and fund management on behalf of third parties (EUR 13 000 000 or CHF 13 916 292); the partial reversal of a provision relating to a current dispute of the Bank recorded in other provisions as at 31 December 2019 (CHF 11 558 862) (cf. Note 11). In 2019, this caption mainly related to overhead costs and other staff costs charged to other companies of the Group (CHF 12 578 162). Note 17 - Profit and loss account (cont.) 17.5 Other operating charges In 2020, this caption mainly relates to the payments made in relation with: the “Luxembourg Resolution Fund” and the “Luxembourg Deposit Guarantee Scheme” (CHF 5 245 742); the partial reversal in Other operating income linked to a current dispute of the Bank is partially offset with the settlement (of CHF 3 666 772) paid during the year; operational errors (CHF 1 794 687). In 2019, this caption mainly related to the constitution of a provision for dispute (CHF 17 352 058), to the payments made in relation with the “Luxembourg Resolution Fund” and the “Luxembourg Deposit Guarantee Scheme” (CHF 4 206 666) and in relation with operational errors (CHF 1 567 852). 17.6 Tax liability The Bank is liable for certain taxes on income and capital. The Luxembourg head office is fully taxable in Luxembourg with respect to corporate income tax, municipal business tax and net wealth tax. Each branch is fully taxable in its respective country of residence. Tax provisions are stated out under the balance sheet item “Provisions for taxation”. Note 18 - Other taxes As at 31 December 2020, other taxes relate mainly to local taxes of the UK and Spanish branches, taxes on salaries of the French branch, withholding tax on Swiss bonds held in the investment portfolio of financial fixed assets. Note 19 - Information relating to staff employed and management 19.1 Personnel employed Average number of employees during the financial year is detailed as follows: 2020 2019 Management 8 7 Executives (Management Directors and more, excluding Management) 50 39 Employees 635 581 693 627 19.2 Members of the administration, managerial and supervisory bodies During the financial year, amounts paid to the Bank’s Management (excluding Banque Pictet & Cie SA), including Executives amounted to CHF 29 399 261 (2019: CHF 28 198 805). The pension commitments incurred with regard to the Bank’s Management (excluding Banque Pictet & Cie SA), amounted to CHF 196 768 (2019: CHF 224 801). The Bank has not granted any loan, guarantee or advance to members of the Management. Note 20 - Independent Auditor’s fees The fees of the Bank’s independent auditor consist of the following: 2020 2019 CHF CHF Audit fees 855 239 657 965 Audit-related fees 127 089 109 539 Tax related fees 152 752 357 989 Other fees 696 611 Total 1 135 776 1 126 104 Note 21 - Return on assets The return on assets of the Bank for the year ended 31 December 2020 stands to 0.75% (2019: 0.58 %). The return on assets is calculated as being the net profit divided by the total balance sheet. Note 22 - Subsequent events There are no subsequent events that require adjustment to or disclosure in the annual accounts.