AI assistant
Ålandsbanken Abp Interim / Quarterly Report 2021
3251_rns_2021-10-26_51c8afbf-add4-47b1-ab2b-e85ad293d13f.pdf
Interim / Quarterly Report
Open in viewerOpens in your device viewer
ÅLANDSBANKEN
Interim Report
For the period January-September 2021 • October 26, 2021
January – September 2021
Compared to January – September 2020
- Net operating profit increased by 42 per cent to EUR 39.0 M (27.4).
- Net interest income increased by 5 per cent to EUR 46.0 M (44.0).
- Net commission income increased by 20 per cent to EUR 57.6 M (47.9).
- Total expenses increased by 15 per cent to EUR 89.5 M (77.8).
- Net impairment losses on financial assets (including recoveries) totalled EUR 1.4 M (4.9), equivalent to a loan loss level of 0.05 (0.16) per cent.
- Return on equity after taxes (ROE) increased to 15.1 (10.8) per cent.
- Earnings per share increased by 47 per cent to EUR 2.05 (1.39).
- The common equity Tier 1 capital ratio decreased to 13.9 per cent (14.3 per cent on December 31, 2020).
- Future outlook: The Bank of Åland expects its net operating profit in 2021 to be substantially better than in 2020.
The third quarter of 2021
Compared to the third quarter of 2020
- Net operating profit increased by 36 per cent to EUR 14.6 M (10.7).
- Net interest income increased by 5 per cent to EUR 15.5 M (14.7).
- Net commission income increased by 25 per cent to EUR 19.1 M (15.2).
- Total expenses increased by 20 per cent to EUR 29.8 M (24.8).
- Net impairment losses on financial assets (including recoveries) totalled EUR 0.8 M (0.3), equivalent to a loan loss level of 0.07 (0.03) per cent.
- Return on equity after taxes (ROE) increased to 16.7 (12.3) per cent.
- Earnings per share increased by 41 per cent to EUR 0.77 (0.55).
"We are continuing our strong growth in both Finland and Sweden. We have benefited from having continuously recruited new employees, and we have thus still had time to provide for both new and existing customers.
"All our volume metrics have reached new record levels. Over the 12-month period to September 30, 2021, actively managed assets grew to EUR 8,922 M (+36 per cent), deposits to EUR 3,836 M (+11 per cent) and lending to EUR 4,591 M (+9%), This positive volume trend has also generated our highest 9-month net operating profit ever, EUR 39.0 M, which was 42 per cent higher than during the corresponding period of last year."
4. quarter moving net operating profit
4. quarter moving ROE
Common equity Tier 1 ratio
Peter Wiklöf, Managing Director and Chief Executive
The Bank of Åland is a bank with strong customer relationships and personalised service. The Bank has extensive financial investment expertise and at the same time can offer good financing services. The commercial bank was founded in 1919 and has been listed on the Nasdaq Helsinki Oy (Helsinki Stock Exchange) since 1942.
The Bank of Åland's Head Office is in Mariehamn. The Bank has two offices in the Åland Islands, six offices elsewhere in Finland and three offices in Sweden.
Two subsidiaries, whose operations are connected in various ways to banking, belong to the Bank of Åland Group.
Bank of Åland Plc. Registered office: Mariehamn Address: Nygatan 2, AX-22100 Mariehamn, Åland, Finland Business Identity Code: 0145019-3. Telephone: +358 204 29 011. Website: www.alandsbanken.fi
Financial summary
| Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
|---|---|---|---|---|---|---|---|---|
| EUR M | ||||||||
| Income | ||||||||
| Net interest income | 15.5 | 15.2 | 2 | 14.7 | 5 | 46.0 | 44.0 | 5 |
| Net commission income | 19.1 | 18.9 | 1 | 15.2 | 25 | 57.6 | 47.9 | 20 |
| Net income from financial items at fair value | -1.7 | -0.6 | 0.6 | -1.9 | 1.4 | |||
| Other income | 12.3 | 9.7 | 27 | 5.3 | 28.2 | 16.8 | 68 | |
| Total income | 45.2 | 43.2 | 4 | 35.8 | 26 | 129.8 | 110.0 | 18 |
| Staff costs | -17.1 | -18.5 | -8 | -15.3 | 12 | -53.1 | -46.1 | 15 |
| Other expenses | -8.3 | -7.7 | 7 | -6.4 | 30 | -26.2 | -22.5 | 17 |
| Depreciation/amortisation | -4.3 | -2.9 | 49 | -3.1 | 39 | -10.2 | -9.2 | 10 |
| Total expenses | -29.8 | -29.2 | 2 | -24.8 | 20 | -89.5 | -77.8 | 15 |
| Profit before impairment losses | 15.4 | 14.1 | 9 | 11.0 | 40 | 40.4 | 32.3 | 25 |
| Impairment losses on financial assets, net | -0.8 | -0.5 | 69 | -0.3 | -1.4 | -4.9 | -72 | |
| Net operating profit | 14.6 | 13.6 | 7 | 10.7 | 36 | 39.0 | 27.4 | 42 |
| Income taxes | -2.5 | -2.4 | 6 | -2.2 | 16 | -7.1 | -5.7 | 24 |
| Profit for the report period | 12.1 | 11.2 | 8 | 8.5 | 42 | 31.9 | 21.7 | 47 |
| Attributable to: | ||||||||
| Shareholders in Bank of Åland Plc | 12.1 | 11.2 | 8 | 8.5 | 42 | 31.9 | 21.7 | 47 |
| Volume | ||||||||
| Lending to the public | 4,591 | 4,518 | 2 | 4,221 | 9 | |||
| Deposits from the public | 3,836 | 3,801 | 1 | 3,459 | 11 | |||
| Actively managed assets 1 | 8,922 | 8,541 | 4 | 6,547 | 36 | |||
| Equity capital | 322 | 311 | 3 | 280 | 15 | |||
| Balance sheet total | 6,353 | 6,261 | 1 | 5,726 | 11 | |||
| Risk exposure amount | 1,827 | 1,812 | 1 | 1,693 | 8 | |||
| Financial ratios | ||||||||
| Return on equity after taxes, % (ROE) 2 | 16.7 | 16.4 | 12.3 | 15.1 | 10.8 | |||
| Return on equity after taxes, % (ROE), moving 12-month average to end of report period | 14.8 | 13.7 | 11.0 | |||||
| Expense/income ratio 3 | 0.66 | 0.67 | 0.69 | 0.69 | 0.71 | |||
| Loan loss level, % 4 | 0.07 | 0.05 | 0.03 | 0.05 | 0.16 | |||
| Gross share of loans in Stage 3, % 5 | 1.19 | 1.01 | 1.30 | |||||
| Liquidity coverage ratio (LCR), % 6 | 149 | 152 | 138 | |||||
| Net stable funding ratio (NSFR), % 7 | 109 | 110 | 109 | |||||
| Loan/deposit ratio, % 8 | 120 | 119 | 122 | |||||
| Common equity Tier 1 capital ratio, % 9 | 13.9 | 13.4 | 13.4 | |||||
| Tier 1 capital ratio, % 10 | 15.5 | 15.1 | 13.4 | |||||
| Total capital ratio, % 11 | 16.7 | 16.6 | 15.5 | |||||
| Leverage ratio, % 12 | 4.8 | 4.8 | 3.8 | |||||
| Earnings per share, EUR 13 | 0.77 | 0.72 | 8 | 0.55 | 41 | 2.05 | 1.39 | 47 |
| Earnings per share, EUR, moving 12-month average to end of report period | 2.67 | 2.45 | 9 | 1.86 | 44 | |||
| Equity capital per share, EUR 14 | 18.74 | 18.09 | 4 | 17.95 | 4 | |||
| Working hours re-calculated to full-time equivalent | 836 | 825 | 1 | 773 | 8 | 813 | 745 | 9 |
1 Actively managed assets encompassed managed assets in the Group's own mutual funds, as well as discretionary and advisory securities volume plus external funds with contractual earnings
2 Profit for the report period attributable to shareholders / Average shareholders' portion of equity capital
3 Expenses / Income
4 Impairment losses on loan portfolio and other commitments / Lending to the public at the beginning of the period
5 Share of loans in Stage 3 / Gross lending to the public
6 LCR, assets at levels 1 and 2 / 30-day net cash outflow
7 Available stable funding / Stable funding requirement
8 Lending to the public / Deposits from the public
9 Common equity Tier 1 capital / Risk exposure amount
10 Tier 1 capital / Risk exposure amount
11 Own funds / Risk exposure amount
12 Tier 1 capital / Total exposure metric
13 Shareholders' portion of the profit for the period / Average number of shares
14 Shareholders' portion of equity capital / Number of shares on closing day
Bank of Åland Plc Interim Report, January-September 2021
Comments
MACRO SITUATION AND REGULATORY REQUIREMENTS
The COVID-19 (coronavirus) pandemic is beginning to fade in our area of operations, and most restrictions are being lifted. Fiscal and monetary stimulus measures remain very large. The economic recovery is strong. For the local economy in the Åland Islands, the record-strong summer tourist season represented a welcome positive injection.
Since the beginning of 2021, long-term market yields have begun to move higher, but short-term market interest rates – which are more important to the Bank of Åland's net interest income – remain at record-low levels. Central banks are expected to keep their key interest rates unchanged for a long time to come.
BENCHMARK INTEREST RATES, AVERAGES, PER CENT
| Q3 2021 | Q2 2021 | Q3 2020 | |
|---|---|---|---|
| Euribor 3 mo | -0.55 | -0.54 | -0.47 |
| Euribor 12 mo | -0.49 | -0.48 | -0.35 |
| Stíbor 3 mo | -0.02 | -0.03 | 0.01 |
During the first nine months of 2021, share prices according to the Nasdaq Helsinki stock exchange's OMXHPI index rose by 15 per cent while the Nasdaq Stockholm's OMXSPI index rose by 21 per cent.
The average value of the Swedish krona (SEK) in relation to the euro (EUR) was 4 per cent higher during the first nine months of 2021 than in the year-earlier period and 2 per cent lower than at year-end 2020. When converting the income statement of the Bank of Åland's Swedish operations into euros, the average exchange rate for the period has been used, while the balance sheet has been converted at the exchange rate prevailing on the closing day of the report period.
IMPORTANT EVENTS
On January 1, 2021 the Board of Directors of the Bank of Åland approved the distribution of a dividend totalling EUR 1 per share (a regular dividend of EUR 0.80 and a 100th anniversary dividend of EUR 0.20) for the 2019 financial year, in compliance with the authorisation that the Board received from the Bank's Annual General Meeting on April 2, 2020.
On March 30, 2021, the Annual General Meeting (AGM) approved the distribution of a dividend of EUR 1.00 per share for the financial year 2020.
The AGM also decided to authorise the Board to approve acquisitions of no more than 1,500,000 of the Bank of Åland's Series B shares. This is equivalent to about 10 per cent of all shares in the Company and about 16.4 per cent of all Series B shares in the Company. The Company's own shares may be acquired in order to change the Company's capital structure, to be used as consideration in acquisitions of companies or sectoral reorganisations or as part of the Company's incentive programmes and may otherwise be transferred onward, be kept by the Company or be annulled. The shares may be acquired in one or more rounds.
The AGM re-elected the Board, consisting of Nils Lampi, Christoffer Taxell, Åsa Ceder, Anders Å Karlsson, Ulrika Valassi
and Anders Wiklöf. At the statutory meeting of the Board the same day, Nils Lampi was elected as Chairman and Christoffer Taxell as Deputy Chairman of the Board.
In March, for the first time the Bank of Åland issued additional Tier 1 (AT1) capital instruments, totalling SEK 300 M. This is a perpetual financial instrument, with a possibility of early redemption after five years. For financial reporting purposes, the instrument is regarded as equity capital. The issue was priced at 3-month Stibor + 3.75 per cent. It attracted heavy interest and was oversubscribed.
During the report period, the number of Series B shares outstanding increased by 16,249 as a result of the Bank's obligations within the framework of its employee incentive programmes.
During the period, the Bank of Åland opened a new office in Oulu on the Finnish mainland.
In March 2021 Borgo AB, a Swedish-based associated company of the Bank of Åland, received permission from the Swedish Financial Supervisory Authority to operate a financing business and to issue covered bonds. Other preparatory work is continuing ahead of launching operations. In September 2019 Borgo entered into a partnership with ICA Bank, Ikano Bank, Söderberg & Partners and the Bank of Åland (IISÅ Holdco AB) for the purpose of creating a new Swedish mortgage company. In August 2021 Sparbanken Syd (a southern Swedish savings bank) also signed a declaration of intent with Borgo to join the partnership. Together with its information technology subsidiary Crosskey Banking Solutions, the Bank of Åland is supplying platform solutions for the new mortgage company and contributing its existing knowledge on mortgage loan management.
Together with its customers, the Bank of Åland is continuing its commitment to a cleaner Baltic Sea. This year the Baltic Sea Project contributed EUR 500,000 to various projects that promote the health of the Baltic Sea. Since 1997 the Bank of Åland has awarded EUR 3.3 M to various environmentally related projects.
For the eighth consecutive year, the Bank of Åland (Ålandsbanken) Euro Bond Fund was named the best Nordic fund in its category and received the Refinitiv Lipper Nordics Fund Award. The Morningstar investment research company, which compares fund data and funds in their respective classes, assigned the Bank of Åland Euro Bond Fund its highest rating – five stars – in all its review cycles.
On June 30 Alandia Holding completed its acquisition of Rettig Group's entire stake (24.9 per cent) in the marine insurance company Alandia Försäkring. Alandia Holding is a company created by the Bank of Åland, the pension insurance company Veritas Pensionsförsäkring, the cruise ferry company Viking Line, Föreningen Konstsamfundet (an association that supports the arts in Swedish-speaking Finland), Lundquist Shipping Company and Wiklöf Holding for the purpose of acquiring this shareholding in Alandia Försäkring. Alandia Holding is an associated company of the Bank of Åland.
In August the Bank of Åland sold its shareholding in the company Åland Index Solutions as well as intellectual property
Bank of Åland Plc Interim Report, January-September 2021
(IP) rights to the Åland Index to Doconomy, a Swedish-based fintech company.
EARNINGS FOR JANUARY – JUNE 2021
Net operating profit rose by EUR 11.6 M or 42 per cent to EUR 39.0 M (27.4). About EUR 5.0 M of net operating profit for the report period was attributable to nonrecurring items.
Profit for the period attributable to shareholders increased by EUR 10.2 M or 47 per cent to EUR 31.9 M (21.7).
Return on equity after taxes (ROE) increased to 15.1 per cent (10.8).
Total income rose by EUR 19.8 or 18 per cent to EUR 129.8 M (110.0).
Net interest income rose by EUR 2.0 M or 5 per cent to EUR 46.0 M (44.0). The increase came from higher lending volume and lower costs of deposits and capital market borrowing.
Net commission income rose by EUR 9.7 M or 20 per cent to EUR 57.6 M (47.9), mainly due to higher income from the Bank's asset management business.
Net income on financial items fell by EUR 3.3 M to EUR -1.9 M (1.4), mainly due to lower capital gains and re-measurement of liabilities attributable to an earn-out (contingent consideration) related to the purchase price of an asset.
Information technology (IT) income rose by EUR 2.2 M or 14 per cent to EUR 18.1 M (15.9). The increase came from higher project income.
Other income included nonrecurring positive effects related to associated companies and divestment of IP rights.
Total expenses increased by EUR 11.7 M or 15 per cent and totalled EUR 89.5 M (77.8). Higher staff costs and IT expenses were the main reasons behind these higher expenses.
Total net impairment losses on financial assets decreased by EUR 3.5 M to EUR 1.4 M (4.9), equivalent to a loan loss level of 0.05 (0.16) per cent. In the first quarter of 2020, the Bank made sizeable model-driven provisions for impairment losses in compliance with the IFRS 9 international financial reporting standard, which have not yet been utilised.
Tax expense amounted to EUR 7.1 M (5.7), equivalent to an effective tax rate of 18.1 (20.8) per cent.
EARNINGS FOR THE THIRD QUARTER OF 2021
Net operating profit rose by EUR 3.9 M or 36 per cent to EUR 14.6 M (10.7). About EUR 3.0 M of net operating profit for the report period was attributable to nonrecurring items.
Profit for the period attributable to shareholders increased by EUR 3.6 M or 42 per cent to EUR 12.1 M (8.5).
Return on equity after taxes (ROE) increased to 16.7 per cent (12.3).
Total income rose by EUR 9.4 M or 26 per cent to EUR 45.2 M (35.8).
Net interest income rose by EUR 0.8 M or 5 per cent to EUR 15.5 M (14.7). The increase came from higher lending volume and lower costs of deposits and capital market borrowing.
Net commission income rose by EUR 3.9 M or 25 per cent to EUR 19.1 M (15.2), mainly due to higher income from the Bank's asset management business.
Net income on financial items fell by EUR 2.3 M to EUR -1.7 M (0.6), mainly due to lower capital gains and re-measurement of liabilities attributable to an earn-out (contingent consideration) related to the purchase price of an asset.
IT income rose by EUR 0.5 M or 11 per cent to EUR 5.4 M (4.9). The increase came from higher project income.
Other income included nonrecurring positive effects related to divestment of IP rights.
Total expenses increased by EUR 5.0 M or 20 per cent and totalled EUR 29.8 M (24.8). Higher staff costs and IT expenses were the main reasons behind these higher expenses.
Total net impairment losses on financial assets increased by EUR 0.5 M to EUR 0.8 M (0.3), equivalent to a loan loss level of 0.07 (0.03) per cent.
Tax expense amounted to EUR 2.5 M (2.2), equivalent to an effective tax rate of 17.2 (20.2) per cent.
OPERATING SEGMENTS
The Group's EUR 11.6 M increase in net operating profit to EUR 39.0 M was allocated as follows:
- Private Banking +3.9 (higher income)
- Premium Banking +3.7 (lower impairment provisions)
- IT -2.1 (higher expenses and earn-out)
- Corporate Units +6.1 (nonrecurring effects) & Eliminations
BUSINESS VOLUME
Actively managed assets on behalf of customers increased by EUR 1,486 M or 20 per cent compared to year-end 2020 and amounted to EUR 8,922 M (7,436). The increase was due to both positive net inflows and a positive market effect.
Deposits from the public rose by 6 per cent compared to year-end 2020 and amounted to EUR 3,836 M (3,605).
Lending to the public increased by 5 per cent compared to year-end 2020 and totalled EUR 4,591 M (4,378).
All these business volume figures were the highest recorded in the Bank of Åland's history.
CREDIT QUALITY
Lending to private individuals comprised 77 per cent of the loan portfolio. Home mortgage loans accounted for 77 per cent of this. Loans for the purchase of securities, with market-listed securities as collateral, comprised the second-largest type of lending to individuals. Historically, the Bank of Åland has not had any substantial loan losses on this type of lending. The corporate portfolio has a close affinity with the retail portfolio, since many of the companies are owned by customers who, as individuals, are also Private Banking customers.
The Bank of Åland Group had EUR 13.1 M in impairment loss provisions on September 30, 2021 (11.9 on December 31, 2020), of which EUR 2.1 M (2.5) in Stage 1, EUR 1.0 M (1.0) in Stage 2 and EUR 10.0 M (8.3) in Stage 3. During the first half of 2021, Stage 3 loans increased by EUR 14.0 M to EUR 44.6 M.
Bank of Åland Plc Interim Report, January-September 2021 4
Stage 3 loans as a share of gross lending to the public totalled 1.19 per cent (0.89). The level of provisions for Stage 3 loans amounted to 18 (21) per cent. Most of these loans have good collateral.
LIQUIDITY AND BORROWING
The Bank of Åland's liquidity reserve in the form of cash and deposits with the central bank, account balances and investments with other banks, liquid interest-bearing securities plus holdings of unencumbered covered bonds issued by the Bank amounted to EUR 1,205 M on September 30, 2021 (1,175 on December 31, 2020). This was equivalent to 19 (19) per cent of total assets and 26 (27) per cent of lending to the public.
In September 2021 the Bank of Åland exercised its call option to carry out an early redemption of SEK 2.5 billion in covered bonds from the Swedish pool with a final due date in November 2022. At the same time, the Bank issued new covered bonds in the amount of SEK 5.5 billion with a final due date in September 2026. The bond issue was unique, since these bonds carry contractual conditions that allow them to move from the Finnish to the Swedish legislative framework, and from the Bank of Åland as initial issuer to Borgo as subsequent issuer, when the Bank's Swedish mortgage loan portfolio is transferred to Borgo during the first half of 2022.
In September EUR 250 M in non-covered bonds also matured. The Bank chose not to renew them.
On September 30, 2021, the average remaining maturity of the Bank of Åland's bonds outstanding was about 3.4 (2.5) years. The loan/deposit ratio amounted to 120 (121) per cent.
Of the Bank of Åland's external funding sources aside from equity capital, deposits from the public accounted for 66 (64) per cent and covered bonds issued accounted for 21 (16) per cent.
The liquidity coverage ratio (LCR) amounted to 149 (159) per cent.
The net stable funding ratio (NSFR) amounted to 109 (106) per cent.
RATING
The Bank of Åland had a credit rating from the Standard & Poor's Global Ratings agency of BBB/A-2 with a positive outlook for its long- and short-term borrowing. Covered bonds issued by the Bank of Åland have a credit rating of AAA with a stable outlook.
EQUITY AND CAPITAL ADEQUACY
During the report period, equity capital changed in the amount of profit for the period, EUR 31.9 M; other comprehensive income, EUR -0.6 M; the issuance of new shares as part of the incentive programme, EUR 0.4 M; distributed dividends totalling EUR 31.2 M to shareholders; distributed dividends of EUR 0.6 M to holders of additional Tier 1 (AT1) capital instruments; and issuance of AT1 capital, EUR 29.4 M. On September 30, 2021, equity capital amounted to EUR 321.8 M (292.4 on December 31, 2020).
Other comprehensive income included re-measurements of defined-benefit pension plans by EUR 1.4 M after taxes, in compliance with IAS 19.
Common equity Tier 1 capital rose by EUR 16.0 M during the report period to EUR 254.5 M (238.5).
The risk exposure amount increased by 9 per cent during the report period and totalled EUR 1,827 M (1,671). The risk exposure amount for credit risk rose by EUR 196 M or 15 per cent. The elimination of the risk weight floor for mortgage loans in Finland decreased the risk exposure amount by EUR 108 M. A 15 per cent standardised upward adjustment of the risk exposure amount, calculated according to the IRB approach while awaiting an updated, approved IRB approach, increased the risk exposure amount by EUR 74 M. The operational risk exposure amount fell by EUR 4 M.
The common equity Tier 1 (CET1) capital ratio decreased to 13.9 (14.3) per cent.
The Tier 1 (T1) capital ratio, which had previously always been identical with the CET1 capital ratio, rose due to the issuance of AT1 instruments totalling SEK 300 M in March 2021 and amounted to 15.5 (14.3) per cent.
Due to the coronavirus pandemic, regulatory authorities have introduced a number of mitigation measures in the calculation of capital adequacy. One of these is related to impairment losses in compliance with IFRS 9 for Stage 1 and Stage 2 loans. These losses may be added back to the capital base ("own funds") in their entirety during 2020-2021 and may then be phased out. This amount totalled EUR 0.1 M on September 30, 2021. There is also a mitigation measure for certain intangible assets that may also be added back to own funds. The amount totalled EUR 7.1 M on September 30, 2021. Another mitigation measure that has been introduced is a higher supporting factor for small and medium sized enterprises (SMEs), which means lower risk exposure amounts. When these mitigation measures began to be applied, the effect on the Bank's CET1 ratio was +0.6 percentage points.
The total capital ratio increased to 16.7 (16.5) per cent.
In addition to mitigation measures in the calculation of capital adequacy, mitigation measures in the calculation of the leverage ratio have been introduced. Exposures to central banks with relevance for the transmission of monetary policy are exempted. The Bank of Åland has taken this into account in its calculation of the leverage ratio, which amounted to 4.8 (4.2) per cent on September 30, 2021. Excluding the mitigation measure, it would have amounted to 4.3 (3.9) per cent.
In addition to the basic capital requirement, various buffer requirements apply. These are mainly imposed by national regulatory authorities. Due to the coronavirus crisis, several of these buffer requirements have been lowered. The capital conservation buffer requirement, 2.5 per cent of common equity Tier 1 capital, applies in all European Union countries. The countercyclical capital buffer requirement may vary between 0-2.5 per cent. For Finnish and Swedish exposures, the requirement remains 0.0 per cent. However, the Swedish Financial Supervisory Authority has decided to raise the amount of the countercyclical buffer to 1.0 per cent. The new buffer amount applies starting on September 29, 2021. The Swedish FSA is aiming at gradually raising the buffer amount to 2.0 per cent during 2022 if the economic recovery continues.
The buffer requirement established by the Finnish Financial Supervisory Authority (FIN-FSA) related to Pillar 2 capital adequacy regulations, totalling 1.5 per cent of the Group's risk exposure amount (REA), was lowered to 1.0 per cent starting on September 30, 2021. This buffer requirement was previously supposed to be covered only by CET1 capital. Starting in 2021,
Bank of Åland Plc Interim Report, January-September 2021 5
part of the Pillar 2 requirement may also be covered by AT1 capital and supplementary capital, respectively.
The new minimum levels applicable to the Bank of Åland starting on September 30, 2021 are:
- Common equity Tier 1 capital ratio 7.6 per cent
- Tier 1 capital ratio 9.3 per cent
- Total capital ratio 11.5 per cent
In relation to the above buffer requirements, the Bank of Åland has an ample capital surplus:
- Common equity Tier 1 capital ratio +6.3 percentage points
- Tier 1 capital ratio +6.2 percentage points
- Total capital ratio +5.2 percentage points
Effective on January 1, 2022, Finland's Financial Stability Authority has given the Bank of Åland a formal minimum requirement for own funds and eligible liabilities (MREL) under European Union regulations, but in practice this does not represent any extra capital requirement beyond the already existing minimum requirements related to the Bank's total capital ratio and leverage ratio.
SUSTAINABILITY INFORMATION
Between the first nine months of 2020 and the first nine months of 2021, the Bank of Åland's carbon dioxide emissions from electricity consumption, travel and paper print-outs decreased by 22 tonnes or 19 per cent to 95 tonnes. As a consequence of the coronavirus pandemic, nearly all business travel was suspended, which significantly decreased carbon dioxide emissions compared to the first nine months of 2020.
IMPORTANT EVENTS AFTER CLOSE OF REPORT PERIOD
No important events have occurred after the close of the report period.
RISK AND UNCERTAINTIES
The single largest risk and uncertainty factor has been the impact of the global coronavirus pandemic, but this risk is now gradually decreasing.
The Bank of Åland's earnings are affected by external changes that the Company itself cannot control. Among other things, the Group's trend of earnings is affected by macroeconomic changes and changes in general interest rates, share prices and exchange rates, along with higher expenses due to regulatory decisions and directives as well as the competitive situation.
The Group aims at achieving operations with reasonable and carefully considered risks. The Group is exposed to credit risk, liquidity risk, market risk, operational risk and business risk. The Bank does not engage in trading for its own account.
Since 2017 the Bank of Åland has had a pending case with the Swedish Tax Agency concerning value-added tax (VAT) for the financial year 2016. The Tax Agency has announced a decision on the matter, in which it states that the Bank of Åland must pay about EUR 0.5 M in VAT. The Bank of Åland does not agree with the Tax Agency's assessment and has appealed its decision to the Administrative Court. No provision has been made in the accounts for any expense.
REVISED FUTURE OUTLOOK
In a stock exchange release dated July 8, 2021, the Bank of Åland revised its future outlook. The revised future outlook is as follows:
The Bank of Åland expects its net operating profit in 2021 to be substantially better than in 2020.
The Bank is especially dependent on the performance of the fixed income and stock markets. There are concerns about economic developments in a number of important markets. For this reason, there is some uncertainty about the Bank's current forecast.
UPDATED LONG-TERM FINANCIAL TARGETS
The Board of Directors has approved the following updated long-term financial targets:
- Return on equity after taxes (ROE) shall exceed 15 per cent over time.
- The common equity Tier 1 capital ratio shall exceed the FIN-FSA's minimum requirement by 1.75-3.0 percentage points.
- The payout ratio shall be 60 per cent of shareholders' interest in profit or higher, provided that capital adequacy does not fall below target.
The previous targets, which the Bank of Åland had since 2013 with only minor adjustments in their language, were:
- Return on equity after taxes (ROE) shall exceed 10 per cent.
- The Bank's capital adequacy, primarily defined as the common equity Tier 1 capital ratio under the Basel regulations, shall clearly exceed all regulatory requirements.
- The payout ratio shall eventually amount to 50 per cent. The payout ratio target presupposes that the capital adequacy target can be maintained.
The Bank of Åland has a strategy and business model which imply that a growing proportion of earnings will come from asset management operations, IT operations and business partnerships that require comparatively limited equity capital. Combined with the growth that the Bank has experienced, this justifies raising the profitability target – expressed as return on equity after taxes – from 10 to 15 per cent.
The newly quantified target of a common equity Tier 1 capital ratio that is at least 1.75 percentage points above the minimum required by regulatory authorities indicates a slightly higher minimum than is customary in the banking sector. This reflects the Bank of Åland's conservative approach to risk.
As long as the capital adequacy target is achieved, at least 60 per cent of profit for the year shall be distributed to shareholders. In order to ensure efficient use of capital, share repurchases may also be employed.
FINANCIAL INFORMATION CALENDAR
The Year-end Report for 2021 will be published on Wednesday, February 2, 2022.
Mariehamn, October 26, 2021
THE BOARD OF DIRECTORS
Bank of Åland Plc Interim Report, January-September 2021
Sustainability information
The Bank of Åland actively strives to lower the direct and indirect environmental impact caused by its operations.
The Bank of Åland works towards an awareness and reduction of the organisation's resource consumption and environmental impact. We make an active effort to achieve the established targets in the Group's environmental plan. By distributing funds yearly for environmental projects that promote a healthier Baltic Sea, we offset our resource consumption and environmental impact. We pursue a dialogue about sustainability and environmental responsibility with our suppliers and business partners.
Due to the coronavirus pandemic, the Bank suspended nearly all business travel, which greatly reduced carbon dioxide emissions compared to the nine months of 2020.
| Bank of Åland Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
|---|---|---|---|---|---|---|---|---|
| Carbon dioxide emissions, kg | ||||||||
| Paper | 3,264 | 6,013 | -46 | 4,192 | -22 | 14,146 | 13,376 | 6 |
| Electricity | 21,612 | 26,890 | -20 | 19,884 | 9 | 72,466 | 67,148 | 8 |
| Business travel | 6,635 | 590 | 930 | 8,042 | 36,605 | -78 | ||
| Total carbon dioxide | 31,511 | 33,493 | -6 | 25,006 | 26 | 94,654 | 117,129 | -19 |
| Bank of Åland Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Paper consumption, kg | 3,607 | 6,644 | -46 | 4,632 | -22 | 15,631 | 14,780 | 6 |
| Energy consumption, GwH | 0.55 | 0.52 | 6 | 0.54 | 2 | 1.60 | 1.62 | -1 |
| of which renewable | 0.48 | 0.43 | 12 | 0.47 | 2 | 1.36 | 1.39 | -2 |
| of which other | 0.07 | 0.09 | -22 | 0.07 | 0 | 0.24 | 0.23 | 4 |
| Number of business trips | 169 | 24 | 33 | 230 | 957 | -76 | ||
| of which aircraft | 94 | 12 | 16 | 123 | 692 | -82 | ||
| of which ship | 47 | 0 | 0 | 47 | 87 | -46 | ||
| of which train | 28 | 12 | 17 | 65 | 60 | 178 | -66 |
Bank of Åland Plc Interim Report, January-September 2021
Table of contents, financial information
Bank of Åland Plc Interim Report, January-September 2021
Page
Summary income statement...9
Summary statement of other comprehensive income...10
Income statement by quarter...11
Summary balance sheet...12
Statement of changes in equity capital...13
Summary cash flow statement...14
Notes
- Corporate information...15
- Basis for preparation of the Interim Report and essential accounting principles...15
- Segment report...16
- Changes in Group structure...18
- Net interest income...18
- Net commission income...19
- Net income from financial items at fair value...19
- Other expenses...20
- Net impairment losses on financial assets...20
- Lending to the public by purpose...21
- Lending to the public by stage...22
- Debt securities issued...23
- Derivative instruments...23
- Financial instruments measured at fair value...24
- Off-balance sheet commitments...25
- Assets pledged...25
- Capital adequacy...26
- Share-related information...29
Summary income statement
| Group | Note | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
|---|---|---|---|---|---|---|---|---|---|
| EUR M | |||||||||
| Net interest income | 5 | 15.5 | 15.2 | 2 | 14.7 | 5 | 46.0 | 44.0 | 5 |
| Net commission income | 6 | 19.1 | 18.9 | 1 | 15.2 | 25 | 57.6 | 47.9 | 20 |
| Net income from financial items at fair value | 7 | -1.7 | -0.6 | 0.6 | -1.9 | 1.4 | |||
| IT income | 5.4 | 6.7 | -19 | 4.9 | 11 | 18.1 | 15.9 | 14 | |
| Other operating income | 6.9 | 3.0 | 0.4 | 10.1 | 0.9 | ||||
| Total income | 45.2 | 43.2 | 4 | 35.8 | 26 | 129.8 | 110.0 | 18 | |
| Staff costs | -17.1 | -18.5 | -8 | -15.3 | 12 | -53.1 | -46.1 | 15 | |
| Other expenses | 8 | -8.3 | -7.7 | 7 | -6.4 | 30 | -26.2 | -22.5 | 17 |
| Depreciation/amortisation | -4.3 | -2.9 | 49 | -3.1 | 39 | -10.2 | -9.2 | 10 | |
| Total expenses | -29.8 | -29.2 | 2 | -24.8 | 20 | -89.5 | -77.8 | 15 | |
| Profit before impairment losses | 15.4 | 14.1 | 9 | 11.0 | 40 | 40.4 | 32.3 | 25 | |
| Impairment losses on financial assets, net | 9 | -0.8 | -0.5 | 69 | -0.3 | -1.4 | -4.9 | -72 | |
| Net operating profit | 14.6 | 13.6 | 7 | 10.7 | 36 | 39.0 | 27.4 | 42 | |
| Income taxes | -2.5 | -2.4 | 6 | -2.2 | 16 | -7.1 | -5.7 | 24 | |
| Profit for the period | 12.1 | 11.2 | 8 | 8.5 | 42 | 31.9 | 21.7 | 47 | |
| Attributable to: | |||||||||
| Non-controlling interests | 0.0 | 0.0 | 0.0 | -40 | 0.0 | 0.0 | |||
| Shareholders in Bank of Åland Plc | 12.1 | 11.2 | 8 | 8.5 | 42 | 31.9 | 21.7 | 47 | |
| Earnings per share, EUR | 0.77 | 0.72 | 8 | 0.55 | 41 | 2.05 | 1.39 | 47 | |
| Earnings per share, EUR, moving 12-month average to end of report period | 2.67 | 2.45 | 9 | 1.86 | 44 |
Bank of Åland Plc Interim Report, January-September 2021
Summary statement of other comprehensive income
| Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
|---|---|---|---|---|---|---|---|---|
| EUR M | ||||||||
| Profit for the period | 12.1 | 11.2 | 8 | 8.5 | 42 | 31.9 | 21.7 | 47 |
| Assets measured via other comprehensive income | ||||||||
| Changes in valuation at fair value | 0.1 | 0.2 | -57 | 0.9 | -91 | -0.5 | 2.8 | |
| Transferred to the income statement | -0.1 | 0.0 | -0.2 | -25 | -0.4 | -1.6 | -74 | |
| Translation differences | ||||||||
| Gains/Losses arising during the period | -0.5 | 1.2 | -0.5 | 10 | -1.2 | -0.8 | 50 | |
| Taxes on items that have been or may be reclassified to the income statement | 0.0 | 0.0 | -0.1 | 0.2 | -0.2 | |||
| of which assets measured via other comprehensive income | 0.0 | 0.0 | -0.1 | 0.2 | -0.2 | |||
| Items that have been or may be reclassified to the income statement | -0.5 | 1.3 | 0.1 | -1.9 | 0.2 | |||
| Changes in value of equity instruments | -0.1 | 0.2 | -0.1 | -0.2 | -0.2 | -12 | ||
| Translation differences | -0.2 | 0.5 | 0.0 | |||||
| Re-measurements of defined benefit pension plans | -0.7 | 1.2 | -0.1 | 1.7 | -0.6 | |||
| Income taxes | 0.3 | -0.3 | 0.0 | -0.2 | 0.2 | |||
| of which changes in value of equity instruments | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -12 | ||
| of which translation differences | 0.0 | -0.1 | -0.1 | |||||
| of which re-measurements of defined-benefit pension plans | 0.1 | -0.2 | 0.0 | -0.3 | 0.1 | |||
| of which taxes on dividends to holders of Tr capital instrument | 0.1 | 0.1 | 0 | 0.1 | ||||
| Items that may not be reclassified to the income statement | -0.8 | 1.5 | -0.1 | 1.3 | -0.6 | |||
| Other comprehensive income for the period | -1.4 | 2.8 | 0.0 | -0.6 | -0.5 | 16 | ||
| Total comprehensive income for the period | 10.7 | 14.0 | -33 | 8.5 | 26 | 31.4 | 21.2 | 48 |
| Attributable to: | ||||||||
| Non-controlling interests | 0.0 | 0.0 | 0.0 | -40 | 0.0 | 0.0 | ||
| Shareholders in Bank of Åland Plc | 10.7 | 14.0 | -33 | 8.5 | 26 | 31.4 | 21.2 | 48 |
Bank of Åland Plc Interim Report, January-September 2021
Income statement by quarter
| Group | Q3 2021 | Q2 2021 | Q1 2021 | Q4 2020 | Q3 2020 |
|---|---|---|---|---|---|
| EUR M | |||||
| Net interest income | 15.5 | 15.2 | 15.2 | 14.9 | 14.7 |
| Net commission income | 19.1 | 18.9 | 19.6 | 18.5 | 15.2 |
| Net income from financial items at fair value | -1.7 | -0.6 | 0.4 | 0.4 | 0.6 |
| IT income | 5.4 | 6.7 | 6.0 | 6.0 | 4.9 |
| Other operating income | 6.9 | 3.0 | 0.2 | 0.3 | 0.4 |
| Total income | 45.2 | 43.2 | 41.4 | 40.1 | 35.8 |
| Staff costs | -17.1 | -18.5 | -17.4 | -16.9 | -15.3 |
| Other expenses | -8.3 | -7.7 | -10.2 | -7.9 | -6.4 |
| Depreciation/amortisation | -4.3 | -2.9 | -2.9 | -3.1 | -3.1 |
| Total expenses | -29.8 | -29.2 | -30.5 | -27.8 | -24.8 |
| Profit before impairment losses | 15.4 | 14.1 | 10.9 | 12.3 | 11.0 |
| Net impairment losses on financial assets | -0.8 | -0.5 | -0.1 | 0.0 | -0.3 |
| Net operating profit | 14.6 | 13.6 | 10.8 | 12.3 | 10.7 |
| Income taxes | -2.5 | -2.4 | -2.2 | -2.5 | -2.2 |
| Profit for the period | 12.1 | 11.2 | 8.6 | 9.8 | 8.5 |
| Attributable to: | |||||
| Non-controlling interests | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Shareholders in Bank of Åland Plc | 12.1 | 11.2 | 8.6 | 9.8 | 8.5 |
Bank of Åland Plc Interim Report, January-September 2021
Summary balance sheet
| Group | Note | Sep 30, 2021 | Dec 31, 2020 | % Sep 30, 2020 | % |
|---|---|---|---|---|---|
| EUR M | |||||
| Assets | |||||
| Cash and balances with central banks | 789 | 665 | 19 | 560 | |
| Debt securities | 707 | 778 | -9 | 736 | |
| Lending to credit institutions | 53 | 51 | 4 | 49 | |
| Lending to the public | 10, 11 | 4,591 | 4,378 | 5 | 4,221 |
| Shares and participations | 15 | 13 | 18 | 10 | |
| Participations in associated companies | 8 | 1 | 1 | ||
| Derivative instruments | 13 | 14 | 25 | -45 | 23 |
| Intangible assets | 24 | 24 | -2 | 24 | |
| Tangible assets | 31 | 33 | -5 | 34 | |
| Investment properties | 0 | 0 | -2 | 0 | |
| Current tax assets | 1 | 0 | 0 | ||
| Deferred tax assets | 6 | 5 | 3 | 5 | |
| Other assets | 85 | 36 | 38 | ||
| Accrued income and prepayments | 28 | 25 | 12 | 25 | |
| Total assets | 6,353 | 6,035 | 5 | 5,726 | |
| Liabilities | |||||
| Liabilities to credit institutions and central banks | 751 | 509 | 47 | 474 | |
| Deposits from the public | 3,836 | 3,605 | 6 | 3,459 | |
| Debt securities issued | 12 | 1,243 | 1,441 | -14 | 1,335 |
| Derivative instruments | 13 | 7 | 15 | -54 | 13 |
| Current tax liabilities | 3 | 5 | -38 | 3 | |
| Deferred tax liabilities | 34 | 32 | 7 | 32 | |
| Other liabilities | 94 | 57 | 64 | 57 | |
| Provisions | 0 | 0 | -10 | 0 | |
| Accrued expenses and prepaid income | 41 | 40 | 2 | 37 | |
| Subordinated liabilities | 22 | 37 | -41 | 36 | |
| Total liabilities | 6,031 | 5,743 | 5 | 5,446 | |
| Equity capital and non-controlling interests | |||||
| Share capital | 42 | 42 | 42 | ||
| Share premium account | 33 | 33 | 33 | ||
| Reserve fund | 25 | 25 | 25 | ||
| Fair value reserve | 4 | 6 | -33 | 2 | |
| Unrestricted equity capital fund | 28 | 28 | 1 | 28 | |
| Retained earnings | 160 | 159 | 1 | 151 | |
| Shareholders’ portion of equity capital | 292 | 292 | 0 | 280 | |
| Non-controlling interests’ portion of equity capital | 0 | 0 | 21 | 0 | |
| Additional Tier 1 capital holders | 29 | ||||
| Total equity capital | 322 | 292 | 10 | 280 | |
| Total liabilities and equity capital | 6,353 | 6,035 | 5 | 5,726 |
Bank of Åland Plc Interim Report, January-September 2021
Statement of changes in equity capital
Group
| EUR M | Share capital | Share premium account | Reserve fund | Fair value reserve | Translation difference | Unrestricted equity capital fund | Retained earnings | Shareholders' portion of equity capital | Non-controlling interests' portion of equity capital | Additional Tier 1 capital holders | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity capital, Dec 31, 2019 | 42.0 | 32.7 | 25.1 | 3.1 | -1.3 | 27.4 | 129.3 | 258.3 | 0.0 | 258.4 | |
| Profit for the period | 21.7 | 21.7 | 0.0 | 21.7 | |||||||
| Other comprehensive income | 0.8 | -0.8 | -0.5 | -0.5 | -0.5 | ||||||
| Transactions with owners | |||||||||||
| Incentive programme | 0.2 | 0.2 | 0.2 | ||||||||
| Share savings programme | 0.0 | 0.0 | 0.0 | ||||||||
| Equity capital, Sep 30, 2020 | 42.0 | 32.7 | 25.1 | 3.9 | -2.1 | 27.6 | 150.6 | 279.8 | 0.0 | 279.8 | |
| Profit for the period | 9.8 | 9.8 | 0.0 | 9.8 | |||||||
| Other comprehensive income | 0.3 | 4.3 | -1.7 | 2.8 | 2.8 | ||||||
| Equity capital, Dec 31, 2020 | 42.0 | 32.7 | 25.1 | 4.1 | 2.1 | 27.6 | 158.6 | 292.4 | 0.0 | 292.4 | |
| Profit for the period | 31.9 | 31.9 | 0.0 | 31.9 | |||||||
| Other comprehensive income | -0.9 | -1.2 | 1.5 | -0.6 | -0.6 | ||||||
| Transactions with owners | |||||||||||
| Additional Tier 1 capital issue | 29.4 | 29.4 | |||||||||
| Tier 1 capital instrument dividends | -0.6 | -0.6 | -0.6 | ||||||||
| Dividends paid | -31.2 | -31.2 | -31.2 | ||||||||
| Incentive programme | 0.4 | 0.4 | 0.4 | ||||||||
| Equity capital, Sep 30, 2021 | 42.0 | 32.7 | 25.1 | 3.3 | 0.9 | 28.0 | 160.3 | 292.3 | 0.0 | 29.4 | 321.8 |
Bank of Åland Plc Interim Report, January-September 2021
Summary cash flow statement
| Group | Jan-Sep 2021 | Jan-Dec 2020 | Jan-Sep 2020 |
|---|---|---|---|
| EUR M | |||
| Operating activities | |||
| Net operating profit | 39.0 | 39.7 | 27.4 |
| Adjustment for net operating profit items not affecting cash flow | 17.1 | 24.6 | 19.8 |
| Profit from investing activities | -2.6 | ||
| Income taxes paid | -7.6 | -4.9 | -4.7 |
| Changes in assets and liabilities from operating activities | 106.0 | 128.7 | 35.6 |
| Cash flow from operating activities | 151.9 | 188.2 | 78.1 |
| Investing activities | |||
| Changes in shares | -3.9 | -4.4 | -0.7 |
| Changes in tangible assets | -1.8 | -1.3 | -0.8 |
| Changes in intangible assets | -4.3 | -3.8 | -2.7 |
| Cash flow from investing activities | -10.0 | -9.5 | -4.2 |
| Financing activities | |||
| Additional Tier 1 capital issue | 29.4 | ||
| Share issue | 0.4 | 0.2 | 0.2 |
| Subordinated debt issue/payments of principal | -14.8 | 0.0 | |
| Payment of principal on lease liability | -3.1 | -4.9 | -3.8 |
| Tier 1 capital instrument dividends | -0.6 | ||
| Dividends paid | -31.2 | ||
| Cash flow from financing activities | -19.8 | -4.7 | -3.5 |
| Cash and cash equivalents at beginning of period | 672.3 | 495.7 | 495.7 |
| Cash flow during the period | 122.1 | 174.0 | 70.3 |
| Exchange rate differences in cash and cash equivalents | -1.1 | 2.5 | -0.7 |
| Cash and cash equivalents at end of period | 793.2 | 672.3 | 565.3 |
| Cash and cash equivalents consisted of the following items: | |||
| Cash and deposits with central banks | 758.2 | 635.6 | 530.4 |
| Lending to credit institutions that is repayable on demand | 35.1 | 36.7 | 34.9 |
| Total cash and cash equivalents | 793.2 | 672.3 | 565.3 |
Starting with the Interim Report for Q1 2021, cash flows from interest-bearing securities and certificates issued, excluding senior non-prioritised liabilities and subordinate liabilities, have been moved from financing activities to operating activities as securities issued. This change is being made to ensure consistency with the business model. Comparative figures have been recalculated.
Bank of Åland Plc Interim Report, January-September 2021
Notes to the consolidated Interim Report
1. Corporate information
The Bank of Åland Plc (Ålandsbanken Abp) is a Finnish public limited company with its Head Office in Mariehamn. The Bank of Åland Plc is a commercial bank with a total of 11 offices in Åland, on the Finnish mainland and in Sweden. Through its subsidiary Crosskey Banking Solutions Ab Ltd, the Bank of Åland Group is also a supplier of modern banking computer systems for small and medium-sized banks.
The Head Office of the Parent Company has the following registered address:
Bank of Åland Plc
Nygatan 2
AX-22100 Mariehamn Åland, Finland
The shares of the Bank of Åland Plc are traded on the Nasdaq Helsinki Oy (Helsinki Stock Exchange).
The Interim Report for the accounting period January 1 – September 30, 2021 was approved by the Board of Directors on October 25, 2021.
2. Basis for preparation of the Half-Year Financial Report and essential accounting principles
BASIS FOR PREPARATION OF THE INTERIM REPORT
This Interim Report for the period January 1–September 30, 2021 has been prepared in compliance with the International Financial Reporting Standards (IFRSs) and International Accounting Standard IAS 34, "Interim Financial Reporting", which have been adopted by the European Union.
The Interim Report does not contain all information and all notes required in annual financial statements and should be read together with the consolidated financial statements for the year ending December 31, 2020.
Tables show correct rounded-off figures on each line, but this does not mean that rounded-off figures add up to the correct total. In cases where rounded-off figures add up to zero, they are shown as “0” in the tables, while a lack of figures is shown as an empty space.
ESSENTIAL ACCOUNTING PRINCIPLES
The essential accounting principles that have been used in preparing the Interim Report are the same as those used in preparing the financial statements for the year ended December 31, 2020.
The Bank of Åland has issued additional Tier 1 (AT1) capital. These instruments are classified as equity capital, since the instruments do not include any requirement that the Bank of Åland must pay the principal amount or interest to the holders. The Bank of Åland treats payments on financial instruments classified as equity capital (i.e. AT1 capital) as distributions of profits, and such payments are thus reported as dividends. Payment is made on a quarterly basis and the interest rate is the 3-month Stibor plus 3.75 per cent.
COMING CHANGES
During the second quarter of 2021, the International Financial Reporting Interpretations Committee (IFRIC) issued a new agenda decision on accounting for development costs in cases where development involves software systems that an entity does not exercise control over, but instead buys as a service. In such cases, the entity is no longer allowed to capitalise the costs. Instead such development costs need to be expensed on a yearly basis. The decision is not expected to have any major effect on the Bank of Åland's financial reports.
ESTIMATES AND JUDGEMENTS
Preparation of this Interim Report in compliance with IFRSs requires the Company's Executive Team to make assessments, estimates and assumptions that affect the application of accounting principles and the recognised amounts of assets and liabilities, income and expenses as well as disclosures about commitments. Although these estimates are based on the best knowledge of the Executive Team on current events and measures, the actual outcome may diverge from the estimates.
The substantial accounting assessments that have been made when applying the Group's accounting principles are primarily related to the application of the new impairment model in compliance with IFRS 9 and accounting of financial instruments.
Customers who, during the prevailing coronavirus crisis, apply for postponement of loan principal payments are not automatically moved from Stage 1 to Stage 2, since the postponement of principal payments in itself does not represent a heightened risk of losses. For the Bank of Åland's part, the loan volume that has been granted postponement of principal payments amounts to EUR 35 M. This volume is recognised in Stage 1 if there are no other reasons besides the postponement of principal payments that justify another stage. This approach was valid until March 31, 2021.
As for the recognition of leases in compliance with IFRS 16, estimates have been made in establishing the leasing period and the choice of discount rate.
Bank of Åland Plc Interim Report, January-September 2021 15
3. Segment report
The Bank of Åland Group reports operating segments in compliance with IFRS 8, which means that operating segments reflect the information that the Group's Executive Team receives.
"Private Banking" encompasses Private Banking operations in Åland, on the Finnish mainland and in Sweden as well as Asset Management (Ålandsbanken Fondbolag Ab, Ålandsbanken Fonder Ab, Ålandsbanken Fonder II Ab and Ålandsbanken Fonder III Ab). "Premium Banking" encompasses operations in all customer segments excluding private banking in Åland, on the Finnish mainland, in Sweden and Asset Management. "IT" encompasses the subsidiary Crosskey Banking Solutions Ab Ltd and S-Crosskey Ab. "Corporate and Other" encompasses all central corporate units in the Group including Treasury and external partner collaboration.
| Group | Jan-Sep 2021 | |||||
|---|---|---|---|---|---|---|
| EUR M | Private Banking | Premium Banking | IT | Corporate and Other | Eliminations | Total |
| Net interest income | 21.2 | 21.1 | 0.0 | 3.8 | 0.0 | 46.0 |
| Net commission income | 42.5 | 12.2 | -0.1 | 2.8 | 0.2 | 57.6 |
| Net income from financial items at fair value | 0.0 | 0.0 | -0.7 | -1.2 | 0.0 | -1.9 |
| IT income | 31.4 | 0.3 | -13.7 | 18.1 | ||
| Other income | 0.7 | 0.0 | 0.7 | 9.7 | -0.9 | 10.1 |
| Total income | 64.3 | 33.2 | 31.3 | 15.3 | -14.3 | 129.8 |
| Staff costs | -13.7 | -5.1 | -17.0 | -17.3 | 0.0 | -53.1 |
| Other expenses | -7.0 | -4.2 | -11.6 | -14.7 | 11.3 | -26.2 |
| Depreciation/amortisation | -1.6 | -0.2 | -2.4 | -8.8 | 2.8 | -10.2 |
| Internal allocation of expenses | -17.2 | -15.5 | 32.7 | 0.0 | ||
| Total expenses | -39.5 | -25.0 | -30.9 | -8.2 | 14.1 | -89.5 |
| Profit before impairment losses | 24.8 | 8.3 | 0.3 | 7.2 | -0.2 | 40.4 |
| Net impairment losses on financial assets | -1.2 | -0.2 | 0.1 | -1.4 | ||
| Net operating profit | 23.6 | 8.0 | 0.3 | 7.2 | -0.2 | 39.0 |
| Income taxes | -4.9 | -1.6 | -0.2 | -0.3 | -7.1 | |
| Profit for the period attributable to shareholders in Bank of Åland Plc | 18.8 | 6.4 | 0.1 | 6.9 | -0.2 | 31.9 |
| Business volume | ||||||
| Lending to the public | 1,892 | 2,292 | 407 | 4,591 | ||
| Deposits from the public | 1,841 | 1,941 | 68 | -15 | 3,836 | |
| Actively managed assets | 8,275 | 637 | 10 | 8,922 | ||
| Risk exposure amount | 691 | 546 | 75 | 515 | 1,827 | |
| Equity capital | 83 | 90 | 27 | 122 | 322 | |
| Financial ratios etc. | ||||||
| Return on equity after taxes, % (ROE) | 28.4 | 9.2 | 0.6 | 12.5 | 15.1 | |
| Expense/income ratio | 0.61 | 0.75 | 0.99 | 0.53 | 0.69 |
Bank of Åland Plc Interim Report, January-September 2021
Group
Jan-Sep 2020
| EUR M | Private Banking | Premium Banking | IT | Corporate and Other | Eliminations | Total |
|---|---|---|---|---|---|---|
| Net interest income | 21.3 | 20.2 | 0.0 | 2.5 | 0.0 | 44.0 |
| Net commission income | 34.5 | 10.8 | -0.1 | 2.3 | 0.2 | 47.9 |
| Net income from financial items at fair value | 0.0 | 0.1 | -0.1 | 1.4 | 0.0 | 1.4 |
| IT income | 27.2 | 0.9 | -12.2 | 15.9 | ||
| Other income | 0.0 | 0.0 | 0.7 | 1.1 | -0.9 | 0.9 |
| Total income | 55.8 | 31.1 | 27.8 | 8.2 | -13.0 | 110.0 |
| Staff costs | -11.8 | -5.0 | -14.4 | -14.9 | 0.0 | -46.1 |
| Other expenses | -6.7 | -3.9 | -9.0 | -14.4 | 11.6 | -22.5 |
| Depreciation/amortisation | -0.7 | -0.2 | -2.0 | -8.1 | 1.8 | -9.2 |
| Internal allocation of expenses | -15.5 | -14.6 | 30.1 | 0.0 | ||
| Total expenses | -34.6 | -23.8 | -25.4 | -7.3 | 13.3 | -77.8 |
| Profit before impairment losses | 21.3 | 7.4 | 2.4 | 0.9 | 0.4 | 32.3 |
| Net impairment losses on financial assets | -1.5 | -3.1 | -0.2 | -4.9 | ||
| Net operating profit | 19.7 | 4.3 | 2.4 | 0.6 | 0.4 | 27.4 |
| Income taxes | -4.1 | -0.9 | -0.5 | -0.3 | -5.7 | |
| Profit for the period attributable to shareholders in Bank of Åland Plc | 15.7 | 3.4 | 1.9 | 0.4 | 0.4 | 21.7 |
| Business volume | ||||||
| Lending to the public | 1,853 | 2,248 | 122 | -1 | 4,221 | |
| Deposits from the public | 1,734 | 1,686 | 58 | -19 | 3,459 | |
| Actively managed assets | 6,100 | 442 | 5 | 6,547 | ||
| Risk exposure amount | 683 | 614 | 75 | 321 | 1,693 | |
| Equity capital | 93 | 99 | 25 | 63 | 280 | |
| Financial ratios etc. | ||||||
| Return on equity after taxes, % (ROE) | 21.6 | 4.6 | 10.7 | 1.0 | 10.8 | |
| Expense/income ratio | 0.62 | 0.76 | 0.91 | 0.89 | 0.71 |
Bank of Åland Plc Interim Report, January-September 2021
4. Changes in Group structure
On June 30 Alandia Holding completed its acquisition of Rettig Group's entire stake (24.9 per cent) in the marine insurance company Alandia Försäkring. Alandia Holding is a company created by the Bank of Åland, the pension insurance company Veritas Pensionsförsäkring, the cruise ferry company Viking Line, Föreningen Konstsamfundet (an association that supports the arts in Swedish-speaking Finland), Lundquist Shipping Company and Wiklöf Holding for the purpose of acquiring this shareholding in Alandia Försäkring. Alandia Holding is an associated company of the Bank of Åland.
During the third quarter of 2021, the subsidiary Kiinteistö Oy Espoon Koivurinne and the Bank's shareholding in the associated company Åland Index Solutions were divested. The business of Kiinteistö Oy Espoon Koivurinne was property management connected to a real estate holding taken over as collateral. In addition, Model IT was merged with its parent company Crosskey during the third quarter.
5. Net interest income
| Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
|---|---|---|---|---|---|---|---|---|
| EUR M | ||||||||
| Lending to credit institutions and central banks | -0.3 | -0.3 | -20 | -0.1 | -0.7 | -0.1 | ||
| Lending to the public | 15.9 | 15.9 | 0 | 16.3 | -2 | 47.7 | 48.9 | -2 |
| Debt securities | 0.1 | 0.1 | -13 | 0.1 | -11 | 0.2 | 0.3 | -10 |
| Derivatives | 0.3 | 0.3 | -3 | 0.3 | 5 | 0.8 | 1.1 | -23 |
| Other interest income | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Total interest income | 16.1 | 15.9 | 1 | 16.6 | -3 | 48.1 | 50.1 | -4 |
| of which interest income according to the effective interest method | 16.0 | 15.9 | 0 | 16.5 | -3 | 47.9 | 49.8 | -4 |
| Liabilities to credit institutions and central banks | -0.8 | -0.8 | -3 | 0.0 | -2.2 | -0.3 | ||
| Deposits from the public | 0.5 | 0.5 | -3 | 0.5 | -15 | 1.4 | 1.7 | -21 |
| Debt securities issued | 0.3 | 0.3 | -19 | 0.8 | -68 | 1.0 | 2.2 | -54 |
| Subordinated liabilities | 0.2 | 0.3 | -31 | 0.3 | -40 | 0.7 | 0.9 | -18 |
| Derivatives | 0.4 | 0.4 | 8 | 0.3 | 64 | 1.2 | 1.5 | -19 |
| Other interest expenses | 0.0 | 0.0 | -15 | 0.0 | -25 | 0.0 | 0.1 | -40 |
| Total interest expenses | 0.6 | 0.7 | -15 | 1.9 | -69 | 2.1 | 6.1 | -65 |
| of which interest expenses according to the effective interest method | 0.5 | 0.6 | -14 | 1.9 | -71 | 2.0 | 5.9 | -66 |
| Net interest income | 15.5 | 15.2 | 2 | 14.7 | 5 | 46.0 | 44.0 | 5 |
| Interest margin, per cent | 1.06 | 1.06 | 1.06 | 1.04 | 1.09 | |||
| Investment margin, per cent | 1.02 | 1.02 | 1.01 | 1.00 | 1.03 |
Interest from derivative instruments is recognised together with the item that they hedge within the framework of hedge accounting (fair value hedging and cash flow hedging). Interest margin is interest on interest-bearing assets divided by the average balance of assets minus interest on interest-bearing liabilities divided by the average balance of liabilities. Average balance is calculated as the average of end-of-month figures for the period in question plus the opening balance for the period. Investment margin is net interest income divided by the average balance sheet total.
Bank of Åland Plc Interim Report, January-September 2021 18
- Net commission income
| Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
|---|---|---|---|---|---|---|---|---|
| EUR M | ||||||||
| Bank commissions | 2.7 | 2.6 | 5 | 2.4 | 16 | 7.9 | 7.3 | 8 |
| Asset management commissions | 15.7 | 15.6 | 1 | 12.2 | 28 | 47.5 | 38.6 | 23 |
| Other commissions | 0.7 | 0.8 | -13 | 0.6 | 4 | 2.1 | 2.0 | 9 |
| Net commission income | 19.1 | 18.9 | 1 | 15.2 | 25 | 57.6 | 47.9 | 20 |
- Net income from financial items at fair value
| Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
|---|---|---|---|---|---|---|---|---|
| EUR M | ||||||||
| Valuation category fair value via the income statement ("profit and losses") | ||||||||
| Derivative instruments | 0.3 | 0.0 | 0.0 | 0.3 | 0.0 | |||
| Valuation category fair value via the income statement ("profit and losses") | 0.3 | 0.0 | 0.0 | 0.3 | 0.0 | |||
| Hedge accounting | ||||||||
| of which hedging instruments | -0.9 | -1.5 | -39 | 0.0 | -3.2 | 0.7 | ||
| of which hedged item | 1.0 | 1.5 | -38 | 0.0 | 3.3 | -0.9 | ||
| Hedge accounting | 0.0 | 0.0 | 0.0 | 5 | 0.1 | -0.2 | ||
| Net income from foreign currency revaluation | 0.0 | 0.0 | 0.0 | -0.2 | -0.4 | -61 | ||
| Modification results and expected credit losses | 0.0 | 0.0 | 0.0 | 0.2 | 0.1 | |||
| Net income from financial assets and liabilities | -2.0 | -0.6 | 0.6 | -2.4 | 2.0 | |||
| Total | -1.7 | -0.6 | 0.6 | -1.9 | 1.4 |
Bank of Åland Plc Interim Report, January-September 2021 19
- Other expenses
| Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
|---|---|---|---|---|---|---|---|---|
| EUR M | ||||||||
| Stability fee | 0.0 | -0.1 | 0.0 | 2.8 | 2.7 | 4 | ||
| Other administrative expenses | 8.3 | 7.8 | 6 | 6.4 | 30 | 23.4 | 19.8 | 18 |
| Total | 8.3 | 7.7 | 7 | 6.4 | 30 | 26.2 | 22.5 | 17 |
- Net impairment losses on financial assets
| Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % | Jan-Sep 2021 | Jan-Sep 2020 | % |
|---|---|---|---|---|---|---|---|---|
| EUR M | ||||||||
| Impairment losses, Stage 1 | -0.1 | -0.2 | -43 | -0.1 | -17 | -0.6 | 0.1 | |
| Impairment losses, Stage 2 | -0.1 | 0.0 | -0.1 | 5 | -0.1 | 2.2 | ||
| Net impairment losses, Stages 1-2 | -0.2 | -0.2 | 30 | -0.3 | -5 | -0.6 | 2.3 | |
| Impairment losses, Stage 3 | ||||||||
| New and increased individual provisions | 1.9 | 1.2 | 60 | 1.9 | -4 | 3.8 | 4.6 | -19 |
| Recovered from previous provisions | -0.7 | -0.5 | 49 | -1.4 | -46 | -1.8 | -2.2 | -20 |
| Utilised for actual loan losses | 0.0 | -0.1 | -93 | -0.2 | -95 | -0.3 | -4.8 | -94 |
| Actual loan losses | 0.1 | 0.2 | -58 | 0.3 | -69 | 0.6 | 5.3 | -89 |
| Recoveries of actual loan losses | -0.1 | -0.1 | 60 | -0.1 | 51 | -0.3 | -0.2 | 21 |
| Net impairment losses, Stage 3 | 1.1 | 0.7 | 58 | 0.6 | 90 | 2.0 | 2.6 | -23 |
| Total impairment losses | 0.8 | 0.5 | 69 | 0.3 | 1.4 | 4.9 | -72 | |
| of which lending to the public | 0.8 | 0.5 | 57 | 0.3 | 1.6 | 4.8 | -68 | |
| of which off-balance sheet commitments | 0.0 | 0.0 | 0.0 | -68 | 0.0 | 0.0 | ||
| of which debt securities at amortised cost | 0.0 | 0.0 | -79 | 0.0 | 37 | -0.1 | 0.0 | |
| Loan loss level, lending to the public, % | 0.07 | 0.05 | 0.03 | 0.05 | 0.16 |
Bank of Åland Plc Interim Report, January-September 2021 20
- Lending to the public by purpose
| Group | Sep 30, 2021 | Dec 31, 2020 | % | Sep 30, 2020 | % | ||
|---|---|---|---|---|---|---|---|
| EUR M | Lending before provisions | Provisions | Lending after provisions | Lending after provisions | Lending after provisions | ||
| Private individuals | |||||||
| Home loans | 2,704 | -3 | 2,702 | 2,466 | 10 | 2,355 | 15 |
| Securities and other investments | 402 | 0 | 401 | 388 | 3 | 333 | 21 |
| Business operations | 95 | -2 | 93 | 101 | -8 | 104 | -10 |
| Other household purposes | 329 | -4 | 326 | 295 | 10 | 277 | 18 |
| Total, private individuals | 3,530 | -8 | 3,522 | 3,250 | 8 | 3,069 | 15 |
| Companies | |||||||
| Shipping | 56 | -1 | 56 | 61 | -9 | 55 | 1 |
| Wholesale and retail trade | 43 | 0 | 42 | 38 | 10 | 39 | 9 |
| Housing operations | 280 | -1 | 279 | 260 | 7 | 306 | -9 |
| Other real estate operations | 151 | -1 | 150 | 181 | -17 | 195 | -23 |
| Financial and insurance operations | 229 | 0 | 229 | 253 | -10 | 234 | -2 |
| Hotel and restaurant operations | 33 | -1 | 32 | 34 | -5 | 31 | 4 |
| Agriculture, forestry and fishing | 12 | 0 | 12 | 12 | 1 | 11 | 11 |
| Construction | 54 | 0 | 54 | 87 | -38 | 97 | -45 |
| Other industry and crafts | 38 | 0 | 37 | 38 | -2 | 38 | -1 |
| Other service operations | 115 | 0 | 115 | 113 | 1 | 101 | 14 |
| Total, companies | 1,010 | -5 | 1,005 | 1,078 | -7 | 1,106 | -9 |
| Public sector and non-profit organisations | 64 | 0 | 64 | 49 | 30 | 47 | 38 |
| Total, public sector and non-profit organisations | 64 | 0 | 64 | 49 | 30 | 47 | 38 |
| Total | 4,604 | -13 | 4,591 | 4,378 | 5 | 4,221 | 9 |
Bank of Åland Plc Interim Report, January-September 2021
- Lending to the public by stage
| Group | Jan 1, 2021 - Sep 30, 2021 | Jan 1, 2020 - Sep 30, 2020 | |||
|---|---|---|---|---|---|
| Stage 1 | Stage 2 | Stage 3 | Total | Total | |
| EUR M | |||||
| Carrying amount, gross | |||||
| Opening balance, January 1 | 4,197.4 | 153.5 | 38.9 | 4,389.8 | 4,122.5 |
| Closing balance, September 30 | 4,400.3 | 149.3 | 54.6 | 4,604.1 | 4,233.6 |
| Provisions for expected losses | |||||
| Opening balance, January 1 | 2.5 | 1.0 | 8.3 | 11.9 | 12.4 |
| Increases due to issuances and acquisitions | 0.5 | 0.0 | 0.0 | 0.6 | 0.1 |
| Decrease due to removal from balance sheet | -0.4 | 0.0 | -0.6 | -1.0 | -1.4 |
| Decrease due to write-offs | 0.0 | 0.0 | 0.0 | 0.0 | -3.5 |
| Transfer to Stage 1 | 0.4 | -0.4 | 0.0 | 0.0 | 0.0 |
| Transfer to Stage 2 | -0.4 | 0.8 | -0.3 | 0.0 | 0.0 |
| Transfer to Stage 3 | 0.0 | -0.2 | 0.2 | 0.0 | 0.0 |
| Net changes due to changed credit risk | -0.4 | -0.3 | 2.3 | 1.7 | 4.5 |
| Net changes due to changed estimation method | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Exchange rate differences and other adjustments | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Closing balance, September 30 | 2.1 | 1.0 | 10.0 | 13.1 | 12.2 |
| Carrying amount, net | |||||
| Opening balance, January 1 | 4,194.9 | 152.4 | 30.6 | 4,377.9 | 4,110.0 |
| Closing balance, September 30 | 4,398.1 | 148.3 | 44.6 | 4,591.0 | 4,221.4 |
| Sep 30, | Dec 31, | Sep 30, | |||
| Impairment losses, IFRS 9 - Financial ratios | 2021 | 2020 | 2020 | ||
| Total provision ratio, lending to the public, % | 0.28 | 0.27 | 0.29 | ||
| Provision ratio, Stage 1, lending to the public, % | 0.05 | 0.06 | 0.01 | ||
| Provision ratio, Stage 2, lending to the public, % | 0.66 | 0.68 | 2.03 | ||
| Provision ratio, Stage 3, lending to the public, % | 18 | 21 | 16 | ||
| Share of lending to the public in Stage 3, % | 1.19 | 0.89 | 1.30 |
Bank of Åland Plc Interim Report, January-September 2021
- Debt securities issued
| Group | Sep 30, 2021 | Dec 31, 2020 | % | Sep 30, 2020 | % |
|---|---|---|---|---|---|
| EUR M | |||||
| Certificates of deposit | 39 | 280 | -86 | 187 | -79 |
| Covered bonds | 1,203 | 910 | 32 | 898 | 34 |
| Senior non-covered bonds | 0 | 251 | -100 | 251 | -100 |
| Total | 1,243 | 1,441 | -14 | 1,335 | -7 |
- Derivative instruments
| Group | Sep 30, 2021 | Dec 31, 2020 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| EUR M | Nominal amount/maturity | Nominal amount | Positive market values | Negative market values | Nominal amount | Positive market values | Negative market values | ||
| Under 1 yr | 1-5 yrs | over 5 yrs | |||||||
| Derivatives for trading | |||||||||
| Interest-related contracts | |||||||||
| Interest rate swaps | 6 | 59 | 6 | 72 | 2 | 2 | 64 | 3 | 3 |
| Currency-related contracts | |||||||||
| Currency forward contracts | 459 | 459 | 1 | 1 | 420 | 6 | 6 | ||
| Total | 465 | 59 | 6 | 530 | 3 | 3 | 484 | 9 | 9 |
| Derivatives for fair value hedge | |||||||||
| Interest-related contracts | |||||||||
| Interest rate swaps | 2 | 815 | 61 | 877 | 10 | 4 | 1,118 | 16 | 6 |
| Total | 2 | 815 | 61 | 877 | 10 | 4 | 1,118 | 16 | 6 |
| Total derivative instruments | 466 | 874 | 67 | 1,408 | 14 | 7 | 1,602 | 25 | 15 |
| of which cleared | 5 | 874 | 64 | 943 | 11 | 6 | 1,176 | 17 | 9 |
Bank of Åland Plc Interim Report, January-September 2021
- Financial instruments measured at fair value
| Group | Sep 30, 2021 | |||
|---|---|---|---|---|
| EUR M | Instruments with quoted prices (Level 1) | Measurement techniques based on observable market data (Level 2) | Measurement techniques based on non-observable market data (Level 3) | Total |
| Debt securities | 443 | 443 | ||
| Lending to the public | 162 | 162 | ||
| Shares and participations | 1 | 14 | 15 | |
| Derivative instruments | 14 | 14 | ||
| Other assets | 4 | 4 | ||
| Total financial assets | 444 | 176 | 18 | 638 |
| Debt securities issued | 646 | 646 | ||
| Derivative instruments | 7 | 7 | ||
| Other liabilities | 3 | 3 | ||
| Total financial liabilities | 653 | 3 | 655 | |
| Group | Dec 31, 2020 | |||
| EUR M | Instruments with quoted prices (Level 1) | Measurement techniques based on observable market data (Level 2) | Measurement techniques based on non-observable market data (Level 3) | Total |
| Debt securities | 478 | 13 | 491 | |
| Lending to the public | 130 | 130 | ||
| Shares and participations | 1 | 12 | 13 | |
| Derivative instruments | 25 | 25 | ||
| Total financial assets | 479 | 167 | 12 | 658 |
| Debt securities issued | 901 | 901 | ||
| Derivative instruments | 15 | 15 | ||
| Total financial liabilities | 916 | 916 | ||
| Changes in Level 3 holdings | Jan 1 - Sep 30, 2021 | Jan 1 - Dec 31, 2020 | ||
| EUR M | Shares and participations | Shares and participations | ||
| Carrying amount on January 1 | 12.0 | 9.4 | ||
| New purchases/reclassification | 2.5 | 2.5 | ||
| Change in value recognised in "Other comprehensive income" | -0.2 | 0.2 | ||
| Carrying amount at end of period | 14.3 | 12.0 |
Financial instruments for which there is price information that is easily available and that represent actual and frequently occurring transactions are measured at current market price. For financial assets, the current purchase price is used. For financial liabilities, the current sale price is used. The current market price of groups of financial instruments that are managed on the basis of the Bank's net exposure to market risk equals the current market price that would be received or paid if the net position were divested.
In the case of financial assets for which reliable market price information is not available, fair value is determined with the help of measurement models. Such models may, for example, be based on price comparisons, present value estimates or option valuation theory, depending on the nature of the instrument. The models use incoming data in the form of market prices and other variables that are deemed to influence pricing. The models and incoming data on which the measurements are based are validated regularly to ensure that they are consistent with market practices and generally accepted financial theory.
Bank of Åland Plc Interim Report, January-September 2021
The measurement hierarchy
Financial instruments that are measured according to quoted prices in an active market for identical assets/liabilities are categorised as Level 1. Financial instruments that are measured using measurement models that are, in all essential respects, based on market data are categorised as Level 2. Financial instruments that are measured with the help of models based on incoming data that cannot be verified with external market information are categorised in Level 3. These assets essentially consist of unlisted shares. Such holdings are generally measured as the Bank's portion of the net asset value of the company. In companies that have carried out a new share issue without preferential rights based on previous holdings, each share is valued at this issue price, with a deduction for share illiquidity. Unlisted shares are essentially classified as available for sale. The changes in the value of these holdings are reported in "Other comprehensive income".
In the tables on the previous page, financial instruments measured at fair value have been classified with regard to how they have been measured and the degree of market data used in this measurement on closing day. If the classification on closing day has changed, compared to the classification at the end of the previous year, the instrument has been moved between the levels in the table. During the period, no instruments were moved between Levels 1 and 2. Changes in Level 3 are presented in a separate table on the previous page.
15. Off-balance sheet commitments
| Group | Sep 30, 2021 | Dec 31, 2020 | % | Sep 30, 2020 | % |
|---|---|---|---|---|---|
| EUR M | |||||
| Guarantees | 43 | 42 | 4 | 40 | 8 |
| Unutilised overdraft limits | 304 | 276 | 10 | 266 | 14 |
| Unutilised credit card limits | 88 | 86 | 2 | 85 | 2 |
| Lines of credit | 617 | 315 | 96 | 421 | 47 |
| Other commitments | 32 | 32 | 0 | 29 | 10 |
| Total | 1,084 | 751 | 44 | 842 | 29 |
| Provision for expected loss | 0 | 0 | -10 | 0 |
16. Assets pledged
| Group | Sep 30, 2021 | Dec 31, 2020 | % | Sep 30, 2020 | % |
|---|---|---|---|---|---|
| EUR M | |||||
| Lending to credit institutions | 18 | 14 | 26 | 14 | 25 |
| Debt securities | 316 | 299 | 6 | 301 | 5 |
| Loan receivables constituting collateral (cover pool) for covered bonds | 2,093 | 1,548 | 35 | 1,515 | 38 |
| Other assets pledged | 4 | 4 | 7 | 3 | 11 |
| Total | 2,432 | 1,864 | 30 | 1,834 | 33 |
During the report period, no major shift has taken place concerning the scale of financial assets and liabilities that are subject to offsetting, netting agreements or similar agreements. Information about this type of agreements is included in the Bank of Åland's Annual Report, Note G45.
Bank of Åland Plc Interim Report, January-September 2021 25
- Capital adequacy
| Group | Sep 30, 2021 | Dec 31, 2020 | % | Sep 30, 2020 | % |
|---|---|---|---|---|---|
| EUR M | |||||
| Equity capital according to balance sheet | 292.3 | 292.4 | 0 | 279.8 | 4 |
| Foreseeable dividend | -15.8 | -31.2 | -49 | -26.0 | -39 |
| Common equity Tier 1 capital before deductions | 276.5 | 261.2 | 6 | 253.9 | 9 |
| Intangible assets | -22.3 | -22.9 | -2 | -24.1 | -7 |
| Non-controlling interests | 0.0 | 0.0 | 21 | 0.0 | 0 |
| Net other items | 0.0 | 0.0 | 0.0 | ||
| Further adjustments in value | -0.5 | -0.5 | -9 | -0.5 | -4 |
| Expected losses according to IRB approach beyond recognised losses (deficit) | -6.6 | -3.7 | 78 | -5.8 | 15 |
| Adjustments due to transitional rules related to IFRS 9 | 0.3 | 0.5 | -29 | 0.5 | -29 |
| Mitigations due to COVID-19 | 7.1 | 4.0 | 76 | 2.1 | |
| Common equity Tier 1 capital | 254.5 | 238.5 | 7 | 226.0 | 13 |
| Tier 1 capital instruments | 29.4 | ||||
| Additional Tier 1 capital | 29.4 | ||||
| Tier 1 capital | 283.9 | 238.5 | 19 | 226.0 | 26 |
| Supplementary capital instruments | 21.9 | 37.0 | -41 | 36.0 | -39 |
| Supplementary capital | 21.9 | 37.0 | -41 | 36.0 | -39 |
| Total capital base | 305.9 | 275.5 | 11 | 262.0 | 17 |
| Capital requirement for credit risk according to the IRB approach | 39.2 | 39.8 | -1 | 42.7 | -8 |
| Additional capital requirement, IRB approach | 5.9 | 8.7 | -32 | 8.7 | -32 |
| Capital requirement for credit risk according to standardised approach | 83.2 | 67.0 | 24 | 65.9 | 26 |
| Capital requirement for credit-worthiness adjustment risk | 0.0 | 0.0 | 0.0 | ||
| Capital requirement for operational risk | 17.8 | 18.2 | -2 | 18.2 | -2 |
| Capital requirement | 146.2 | 133.6 | 9 | 135.4 | 8 |
| Capital ratios | |||||
| Common equity Tier 1 capital ratio, % | 13.9 | 14.3 | 13.4 | ||
| Tier 1 capital ratio, % | 15.5 | 14.3 | 13.4 | ||
| Total capital ratio, % | 16.7 | 16.5 | 15.5 | ||
| Risk exposure amount | 1,827 | 1,671 | 9 | 1,693 | 8 |
| of which % comprising credit risk | 88 | 86 | 87 | ||
| of which % comprising operational risk | 12 | 14 | 13 |
Bank of Åland Plc Interim Report, January-September 2021
| Requirements related to capital buffers, % | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2020 |
|---|---|---|---|
| Total common equity Tier 1 capital requirements including buffer requirements | 7.6 | 8.5 | 8.5 |
| of which common equity Pillar 1 capital requirement | 4.5 | 4.5 | 4.5 |
| of which common equity Pillar 2 capital requirement | 0.6 | 1.5 | 1.5 |
| of which capital conservation buffer requirement | 2.5 | 2.5 | 2.5 |
| of which countercyclical capital buffer requirement | 0.0 | 0.0 | 0.0 |
| of which systemic risk buffer requirement | 0.0 | 0.0 | 0.0 |
| Common equity Tier 1 capital available to be used as a buffer | 13.9 | 14.3 | 13.4 |
| Exposure class | Sep 30, 2021 | ||
| --- | --- | --- | --- |
| EUR M | Gross exposure | Exposure at default | Risk weight % |
| Credit risk according to the IRB approach | |||
| Without own LGD estimates | |||
| Corporate, other large companies | 276.3 | 216.8 | 50 |
| Corporate, small and medium sized companies | 310.0 | 275.5 | 53 |
| Corporate, special lending | 5.0 | 5.0 | 71 |
| Using own LGD estimates | |||
| Retail with property as collateral (private individuals) | 1,846.0 | 1,831.2 | 9 |
| Retail with property as collateral (small and medium-sized companies) | 124.8 | 122.8 | 21 |
| Retail, other (small and medium-sized companies) | 34.8 | 33.5 | 20 |
| Retail, other | 388.7 | 334.9 | 10 |
| Total exposures according to IRB approach | 2,985.7 | 2,819.6 | 17 |
| Credit risk according to standardised approach | |||
| Central government or central banks | 814.4 | 898.0 | 0 |
| Regional governments or local authorities | 63.2 | 90.7 | 0 |
| Multilateral development banks | 40.3 | 47.7 | 0 |
| International organisations | 4.0 | 4.0 | 0 |
| Institutions | 257.2 | 217.7 | 21 |
| Corporates | 665.4 | 254.8 | 96 |
| Retail | 709.0 | 260.6 | 49 |
| Secured by mortgages on immovable property | 1,330.7 | 1,329.2 | 34 |
| Exposures in default | 15.6 | 13.5 | 117 |
| Covered bonds | 437.1 | 437.1 | 11 |
| Collective investment undertakings | 0.9 | 0.9 | 116 |
| Equity exposures | 22.7 | 22.7 | 154 |
| Other exposures | 140.0 | 140.0 | 53 |
| Total exposures according to standardised approach | 4,500.6 | 3,716.8 | 28 |
| Total risk exposure amount, credit risk | 7,486.4 | 6,536.5 | 23 |
Bank of Åland Plc Interim Report, January-September 2021
| Exposure class | Dec 31, 2020 | ||||
|---|---|---|---|---|---|
| EUR M | Gross exposure | Exposure at default | Risk weight % | Risk exposure amount | Capital requirement |
| Credit risk according to the IRB approach | |||||
| Without own LGD estimates | |||||
| Corporate, other large companies | 183.0 | 144.9 | 50 | 73.1 | 5.8 |
| Corporate, small and medium sized companies | 397.7 | 352.5 | 53 | 187.0 | 15.0 |
| Corporate, special lending | 5.0 | 5.0 | 93 | 4.7 | 0.4 |
| Using own LGD estimates | |||||
| Retail with property as collateral (private individuals) | 1,833.8 | 1,821.3 | 9 | 169.5 | 13.6 |
| Retail with property as collateral (small and medium-sized companies) | 118.6 | 117.7 | 21 | 24.5 | 2.0 |
| Retail, other (small and medium-sized companies) | 32.8 | 31.2 | 21 | 6.5 | 0.5 |
| Retail, other | 362.9 | 313.8 | 10 | 31.7 | 2.5 |
| Total exposures according to IRB approach | 2,933.8 | 2,786.3 | 18 | 497.0 | 39.8 |
| Credit risk according to standardised approach | |||||
| Central government or central banks | 700.5 | 812.8 | 0 | 0.0 | 0.0 |
| Regional governments or local authorities | 64.2 | 90.1 | 0 | 0.0 | 0.0 |
| Public sector entities | 11.7 | 11.7 | 0 | 0.0 | 0.0 |
| Multilateral development banks | 53.5 | 58.6 | 0 | 0.0 | 0.0 |
| International organisations | 4.0 | 4.0 | 0 | 0.0 | 0.0 |
| Institutions | 264.8 | 209.0 | 20 | 42.6 | 3.4 |
| Corporates | 555.6 | 195.5 | 95 | 185.2 | 14.8 |
| Retail | 459.5 | 207.6 | 43 | 90.1 | 7.2 |
| Secured by mortgages on immovable property | 1,158.2 | 1,155.5 | 33 | 382.9 | 30.6 |
| Exposures in default | 2.9 | 2.3 | 121 | 2.8 | 0.2 |
| Covered bonds | 470.8 | 470.6 | 11 | 51.7 | 4.1 |
| Equity exposures | 14.3 | 14.3 | 100 | 14.3 | 1.1 |
| Other exposures | 93.7 | 93.7 | 71 | 67.0 | 5.4 |
| Total exposures according to standardised approach | 3,853.7 | 3,325.9 | 25 | 836.7 | 67.0 |
| Total risk exposure amount, credit risk | 6,787.5 | 6,112.1 | 22 | 1,333.7 | 106.7 |
| Leverage ratio | Sep 30, 2021 | Dec 31, 2020 | % | Sep 30, 2020 | % |
| EUR M | |||||
| Tier 1 capital | 283.9 | 238.5 | 19 | 226.0 | 26 |
| Total exposure measure | 5,920.1 | 5,624.8 | 5 | 5,872.1 | 1 |
| of which balance sheet items | 5,698.1 | 5,466.7 | 4 | 5,699.4 | 0 |
| of which off-balance sheet items | 222.0 | 158.1 | 40 | 172.7 | 29 |
| Leverage ratio, %* | 4.8 | 4.2 | 3.8 |
- Excluding mitigation due to COVID-19, the Bank of Åland's leverage ratio on September 30, 2021 would have been 4.3 per cent.
The leverage ratio was calculated according to the situation at the end of the report period. Tier 1 capital included profit for the period.
Bank of Åland Plc Interim Report, January-September 2021
- Share-related information
| Group | Sep 30, 2021 | Dec 31, 2020 | % | Sep 30, 2020 | % |
|---|---|---|---|---|---|
| thousands | |||||
| Number of Series A shares outstanding | 6,476 | 6,476 | 6,476 | ||
| Number of Series B shares outstanding | 9,126 | 9,110 | 0 | 9,110 | 0 |
| Number of shares outstanding | 15,602 | 15,586 | 0 | 15,586 | 0 |
| Number of shares outstanding after dilution | 15,616 | 15,634 | 0 | 15,598 | 0 |
| Shareholders' portion of equity capital per share, EUR | 18.74 | 18.76 | 0 | 17.95 | 4 |
| Closing price per Series A share, EUR | 28.60 | 21.60 | 32 | 18.80 | 52 |
| Closing price per Series B share, EUR | 27.70 | 20.90 | 33 | 18.80 | 47 |
| Market capitalisation, EUR M | 438 | 330 | 33 | 293 | 49 |
| Market capitalisation/shareholders' portion of equity capital, % | 150 | 113 | 105 | ||
| Group | Q3 2021 | Q2 2021 | % | Q3 2020 | % |
| --- | --- | --- | --- | --- | --- |
| thousands | |||||
| Average number of shares outstanding | 15,602 | 15,602 | 15,586 | 0 | |
| Average number of shares outstanding after dilution | 15,602 | 15,602 | 15,586 | 0 | |
| Earnings per share, EUR | 0.77 | 0.72 | 8 | 0.55 | 41 |
| Earnings per share after dilution, EUR | 0.77 | 0.72 | 8 | 0.55 | 41 |
| Earnings per share, rolling 12 months, EUR | 2.67 | 2.45 | 9 | 1.86 | 44 |
Bank of Åland Plc Interim Report, January-September 2021 29
KPMG Oy Ab
Töölönlahdenkatu 3 A
PL 1037
00101 HELSINKI
Puhelin 020 760 3000
www.kpmg.fi
Translation
Report on review of the interim report of Bank of Åland Plc for the accounting period January 1 – September 30, 2021
To the Board of Directors of Bank of Åland Plc
Introduction
We have reviewed the summary balance sheet as of September 30, 2021 and the related summary income statement, summary statement of other comprehensive income, statement of changes in equity capital and summary cash flow statement of Bank of Åland Plc group for the nine-month period then ended, as well as other explanatory notes to the consolidated financial statements. The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of this interim financial information in accordance with IAS 34 Interim Financial Reporting and other Finnish rules and regulations governing the preparation of interim reports. We will express our conclusion on the interim report based on our review.
Scope of review
We conducted our review in accordance with the Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the standards on auditing and other generally accepted auditing practices and consequently does not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the interim report, in all material respects, is not prepared in accordance with IAS 34 Interim Financial Reporting and other applicable rules and regulations governing interim financial reporting preparation in Finland.
Helsinki, October 26, 2021
MARCUS TÖTTERMAN
Authorised Public Accountant, KHT
FREDRIK WESTERHOLM
Authorised Public Accountant, KHT
HENRY MAARALA
Authorised Public Accountant, KHT
KPMG Oy Ab, a Finnish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
Business ID 1805485-9
Domicile Helsinki