We stay close. Even when distancing. Annual report 2020 2 Contents Pages 3–8 Pages 57–70 At a glance 3 Compensation report 57 Review 4 Compensation policy 58 Interview 6 Compensation system 58 Compensation groups 60 Pages 9–30 Compensation in 2020 62 Management report 9 Business performance 10 Pages 71–124 Organisation 12 Annual financial statements 71 Public service mandate 12 Balance sheet 72 Strategy 15 Income statement and profit appropriation 74 Value creation 18 Notes to the financial statements 79 Forward-looking advice 18 Employees 23 Business and risk policy 24 Contact and imprint 125 Pages 31–56 Corporate governance 31 Organisational chart 34 Board of Directors 37 Executive Board 45 Foundations 51 At a glance 3 At a glance 2020 2019 2018 2017 2016 CHF m CHF m CHF m CHF m CHF m Balance sheet Balance sheet total 29,769.7 27,280.0 25,340.8 24,212.2 23,689.5 Mortgage loans 20,531.6 19,600.6 18,718.4 18,165.6 17,556.8 Due to customers in savings and deposits 18,794.0 17,486.8 16,717.7 16,689.7 15,729.8 Income statement Operating income 355.7 362.2 358.5 366.9 368.3 Operating profit 162.0 171.1 165.2 172.1 183.4 Annual net profit 138.1 136.8 134.5 133.3 133.6 Dividends on certificate capital 20.0 20.0 20.0 20.0 20.0 Profit distribution to the canton1) 60.0 60.0 60.0 60.0 60.0 Additional information Employees (FTE average) 710 687 685 673 657 Number of branches (includes Mobile Bank) 24 23 23 23 24 Assets under management 22,497 21,530 19,633 19,782 19,072 Average interest margin 1.126% 1.174% 1.245% 1.322% 1.405% Return on equity 6.60% 7.21% 8.08% 8.99% 9.52% Core capital ratio (CET 1) 20.16% 20.39% 20.35% 20.02% 19.86% Cost/income ratio I 49.99% 47.42% 46.95% 48.10% 44.04% Cost/income ratio II 54.46% 52.75% 53.93% 53.10% 50.20% Kantonalbank certificate Year-end closing price (in CHF) 940.00 920.00 908.00 904.50 900.00 Nominal value (in CHF) 100.00 100.00 100.00 100.00 100.00 Dividend per certificate (in CHF) 35.00 35.00 35.00 35.00 35.00 Market capitalisation2) 2,039.8 1,996.4 1,970.4 1,962.8 1,953.0 1) Includes compensation for the state guarantee and interest on the endowment capital up to 2017 2) Certificate and endowment capital 4 Review That was 2020 CHF 138.1 m Society People A pleasing result Staying close – despite distancing We generated a good operating profit of CHF 162 m in We stayed close to our customers even during the pandemic, 2020. Our net profit was higher than in the previous year at in part with the help of digital customer events on financial CHF 138.1 m. In addition, the business volume rose by a topics, the “BLKB live” virtual cultural event series, as well as significant CHF 2.1 bn. This was despite Covid-19 as well digital customer advisory services. as the persistently difficult situation on interest rates. People Society A stronger presence Stronger together We strengthened our presence in the The region remains strong and united despite the crisis. With a total of Northwest Switzerland economic region CHF 123.5 m in emergency loans as part of the federal government’s support with new branches in Basel, Frick and programme during the Covid-19 crisis, BLKB made an important contribution Rheinfelden. This enables us to advise our to the region’s stability. In addition, the bank supported innovative start-ups customers closer to home. with guaranteed loans totalling CHF 877,000. Even in difficult times, we are a dependable partner for the region and its people. Review 5 AA stable A Society Environment Solid and stable Sustainability rating improved BLKB remains one of the most solid regional banks in Switzerland and Europe. Sustainability rating agency MSCI ESG This is demonstrated by our very good core capital ratio (CET 1) of 20.16 per now rates BLKB an impressive A, in cent and excellent AA rating with a “stable” outlook from Standard & Poor’s. recognition of our major commitment to S&P commends us for our healthy financial situation, strong market position, a fully sustainable business model. high-quality loan book and progress on digitalisation. Environment Numerous accolades We received various awards for our ongoing commitment as a Fund analysis platform Morningstar awarded the BLKB fund sustainable, forward-looking bank. BLKB won the “Best Regional “iQ Responsible Equity World ex Switzerland” (iQ Equity Sustainability Bank Switzerland“ Award from international World) five stars. This fund incorporates environmental, social financial magazine cfi.co. The “BLKB Climate Basket“ structured and governance factors. product was voted Best Climate Protection Product in the Swiss Derivative Awards 2020. 6 Interview “The people of the region can depend on us” Chairman of the Board of Directors Thomas Schneider and we’re on the right track with our focus on providing advice and CEO John Häfelfinger discuss a 2020 business year domina- developing the skills of our employees. ted by Covid-19, the benefits of sustainability for customers, and the opportunities presented by digitalisation. BLKB generated significantly higher income in its commission In an economic environment dominated by uncertainty, BLKB business in the year under review. Do you attribute that to achieved a slight increase in net profit compared with the BLKB’s growing investment capability? previous year. What were the key factors behind this good result? John Häfelfinger: Absolutely. In the commission business, we’re now reaping the rewards of the systematic advisory approach Thomas Schneider: BLKB coped well with the difficult overall we’ve taken in recent years. Indeed we continued to make selec- conditions of 2020. We achieved qualitative, risk-conscious tive investments in our advisory quality in the year under review. growth in our core business and increased our net profit. In dif- The fact that we successfully grew our overall investment business ficult times, BLKB supported the region in a fast, straightforward is encouraging. First, we were able to transfer a portion of the way and fulfilled its public service mandate as a cantonal bank. inflow of new money into the investment business. Second, our At the same time we made further progress on the automation in-house sustainable investment funds are proving popular and are of our processes and systems, which impacted positively on our contributing to growth. This shows that our offering meets a gro- future sustainability and cost structure. Our cost/income ratio wing need on the part of our customers and that we’re investing stayed within the target range despite the squeeze on margins in the right topics in terms of advice. as well as higher investment – clear evidence of the success of BLKB’s sustainability-led business model. BLKB is correctly positioned in strategic terms, and is rated one of the most stable Staying with the difficult environment, 2020 was totally regional banks in Switzerland and Europe. overshadowed by the pandemic. How did the Covid-19 crisis affect BLKB? John Häfelfinger: In what was an extremely challenging year, our employees performed very well and achieved a great deal. John Häfelfinger: 2020 was a difficult year for all of us. The The good results were attributable to a strong performance in pandemic had a serious impact on the economy and on society. the core business as well as constant vigilance on the cost front. Covid-19 brought a number of challenges for BLKB as well. But At operating level, the main drivers of our business developed thanks to our distinctive team spirit and high degree of flexibility, very well. The business volume – the inflow of new money and the bank continued to function and was able to fulfil its mandate mortgages, in other words – showed a significant increase. at all times. However, the crisis revealed just how valuable our The fact that this growth was reflected in profitability is particu- long-standing relationships with our customers as well our business larly encouraging. We generated higher income in our interest partners are. The people of the region can depend on us. operations as well as our commission business. This shows that Interview 7 BLKB increased its value adjustments for credit risks in the that we’ve replaced our existing mission statement with a new, year under review. What was the reasoning behind that, and sustainable mission statement demonstrates this strong commit- should a further increase be expected this year? ment. In terms of “people”, “society” and the “environment”, we aim to exert a positive influence and take responsibility beyond John Häfelfinger: We’ve always created value adjustments and the bank itself. right now we’re continuing to take a cautious approach with regard to the economic impact of Covid-19 on our loan book. The expectation is that many of our customers will only really What are the benefits of a sustainable business strategy notice the consequences of the pandemic over the course of this for BLKB’s customers? year. Fact is, the various financial support measures have helped cushion the impact so far. A lot now depends on how the eco- John Häfelfinger: There are lots of advantages: A business model nomy develops – in other words, how quickly consumption picks that is committed to sustainability reduces risks for the bank.