Bank of land Debt Investor Presentation March 2019 Table of - - PowerPoint PPT Presentation

Bank of Åland

Debt Investor Presentation March 2019

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Table of Contents

• 2. Bank of Åland – Strategy and Market Position
• 3. Performance and Capital
• 4. Mortgage Market and Asset Quality

7 12 25

• 5. Cover Pool FIN

32

• 6. Liquidity and Funding

42

• 1. Bank of Åland in Brief

3

2

• 7. Contact Details

48

• 8. Appendix

50

• 1. Bank of Åland in Brief

Bank of Åland in brief

• A Finnish bank targeting high net worth and affluent individuals
• Top ranked in customer loyalty
• Tradition of stability and very low credit losses
• Net Operating Profit increased 11 % to EUR 29 M in 2018, from EUR 26 M in 2017
• BBB rating with a positive outlook from S&P

4

Bank of Åland Plc Covered Bond Program

• EUR 2 bn combined Covered Bond/ Senior Medium Term Note Program 2018

(Finnish law)

• Two cover pools: Cover Pool FIN and Cover Pool SWE
• Legal LTV cap at 70 % and minimum 2 % over-collateralization
• Published commitment to a strong over-collateralization and six months liquidity
• AAA (stable) rating from S&P on both Cover Pool FIN and Cover Pool SWE

Economy and Markets

• The demand-led Finnish economy has been growing strongly during the last years
• Unemployment has dropped from 9.2 % in 2015 to 5.4 % in 2018
• Finnish house prices have risen moderately compared to the Nordic neighbors, as

the demand has been strong in the low rate environment

• Sound Bank of Åland portfolio as at least half of the lending in every business area

has residential mortgages or property as collateral and many small loans are preferred to few large loans

5

Capital

• S&P rating uplift for strong capital position
• Common Equity Tier 1 capital ratio 13.0 % as
• f Dec 31, 2018
• IRB method for credit risk capital requirement

not yet approved for the Swedish credit portfolio

Liquidity and Funding

• Core funding ratio of 90 % as of Dec 31, 2018
• Liquidity reserve at 22 % of total assets as of

Dec 31, 2018

• LCR at 120 % as of Dec 31, 2018
• NSFR at 113 % as of Dec 31, 2018
• AAA rating on Covered Bonds

Risk Management

• Long history of having the lowest loan loss

level of all Finnish banks. Loan loss level was 0.02 % in 2018.

• No trading positions or complex financial

instruments

• Strict limits on exposures to financial
• institutions. Bulk of the exposure is to highly

rated Nordic entities

Profitability

• Challenging interest rate environment
• Positive earnings trend
• Net operating profit of EUR 29 M 2018
• Return on equity 9.8 % 2018

5

Scorecard

Finnish banks A- Business position

• 2
• Niche bank with geographical concentration to Finland and Sweden

Capital and earnings +1

• Strong capital position

positive

• Strong equity to assets ratio

Risk position

• 1
• Geographical concentration to Finland and Sweden
• Small customer base with concentration risks

Liquidity and funding

• Above average with very strong deposit base

Bank of Åland stand alone rating BBB positive Cover Pool FIN, Cover Pool SWE +9

• Very low credit losses and stable loan base
• Commitment to strong over-collateralization
• Commitment to six month liquidity buffer

Bank of Åland Covered Bonds rating AAA

Standard & Poor's rating on Bank of Åland

6

• 2. Bank of Åland

Strategy and Market Position

8

Three Markets – Two Strategies

The Åland Islands

• 3 offices + 2 rep offices, market share > 50 %
• Full product range offered
• A bank for everyone

Finland

• 5 offices in affluent parts of Finland, market share > 1 %
• Full product range offered but “bread and butter”

services only as complement to Private Banking and Premium Banking services offering

• Targeted segment: High Net Worth / Affluent

Individuals and their companies

8

Sweden

• 3 offices in Sweden's largest cities, market

share < 1 %

• Full product range offered but “bread and

butter” services only as complement to Private Banking and Premium Banking services offering

• Targeted segment: High Net Worth / Affluent

Individuals and their companies

Bank of Åland – a relationship bank with focus on Private Banking and Premium Banking customers

• Established in 1919 on Åland Islands
• Listed since 1942 on NASDAQ OMX Helsinki
• Total assets of EUR 5,558 M, as of Dec 31, 2018
• Actively managed assets of EUR 5,177 M, as of Dec 31, 2018
• Approximately 700 employees
• Operations in the Åland Islands, Finnish mainland and Sweden
• More than 200,000 customers and top-ranked in customer loyalty
• A long-standing tradition of stability and very low credit losses
• At the forefront for introducing new products in Finland

9

The Vision

Create value for ambitious individuals and companies that appreciate relations:

• Private Banking since 1982
• Premium Banking since 2004

Core values An Overview

• Service
• Finance
• Lifestyle
• Safety

Bank of Åland History of Strategic Decisions during the first 100 years

Foundation Listing Expansion to Finnish mainland IT company Crosskey Ab Ltd Expansion to Sweden

1919 1942 1994 2004 2009

10

Fintech Dreams

2016

From a local bank..

supporting development of Åland – a poor fishing and agrarian community

..to a Nordic banking group

with wide product range and personal service targeting high net worth individuals

Digitalization in focus: strategic fintech partners

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• 3. Earnings & Capital

Long-term financial targets

Return on equity after taxes (ROE) shall exceed 10 %

• As a bank for investors, with financing know-how, the Bank of Åland has a business model

that shall generate most earnings from operations with limited capital requirements. The Bank of Åland’s earnings will benefit from higher interest rates

The Bank’s capital adequacy, primarily defined as the core tier 1 capital ratio under the Basel regulations, shall clearly exceed all regulatory requirements The payout ratio shall eventually amount to 50 %

• This payout ratio target is subject to the condition that the capital adequacy target continues

to be achieved. At present, the Bank of Åland is prioritising balanced growth

13

2018 in summary

• Net operating profit EUR 29 M (26 M 2017), +11 %
• Return on Equity after tax (ROE) 9.8 % (9.1), +0.7p.p.
• Earnings per share EUR 1.48 (1.35), +10 %
• Implementation of IT systems and ensuring compliance with new regulation
• The net inflow of actively managed assets was strong in our Private Banking segment with focus
• n Sweden, EUR 397 M
• Strengthening of the total capital base with SEK 200 M T2 capital
• Digitalization: Ownership in the strategic partners Dreams Nordic AB and Doconomy
• Green banking: Baltic sea card and Aland index widely recognized

14

15

Bank of Åland “world champion” in sustainability

Income Costs Loan losses Operating profit 2016 120,4

• 91,3
• 4,1

25,1 2017 128,0

• 99,8
• 2,1

26,0 2018 127,6

• 97,8
• 0,8

29,0

• 150
• 100
• 50

50 100 150

Operating profit, EUR M

2018 in summary

16 YoY Change, % +6% 0% +4% +11% +9%

• 3%
• 48%
• 61%

2018: Unchanged earnings, lower expenses

17

YoY Tot. income change: 0% +2% without FX-effect YoY Tot. Expenses change -2% 0% without FX-effect

Bank of Åland business segments 2016 – 2018, Operating profit, EUR M

18

Business volumes 2016 – 2018, EUR M

19

EUR M Q4 2018 Q3 2018 ∆ % vs. Q3 2018 Q4 2017 ∆ % vs. Q4 2017 2018 2017 % YoY Net interest income 13.3 13.3 0% 14.1

• 6%

54.5 55.9

• 2%

Net commission income 12.7 12.1 5% 12.6 1% 50.6 49.7 2% Net income from financial items 1.4 0.6 1.0 41% 5.2 3.1 67% Other income 4.9 4.1 20% 4.6 5% 17.4 19.3

• 10%

Total income 32.3 30 7% 32.4 0% 127.6 128.0 0% Staff costs

• 14.3
• 13.2

8%

• 14.9
• 4%
• 57.1
• 59.8
• 5%

Other expenses

• 9.2
• 7.7

20%

• 8.5

8%

• 33.4
• 32.9

2% Depreciation/ amortisation

• 1.8
• 1.8

0%

• 1.9
• 3%
• 7.3
• 7.1

3% Total expenses

• 25.2
• 22.7

11%

• 25.3

0%

• 97.8
• 99.8
• 2%

Profit before impairment losses 7.0 7.3

• 4%

7.1

• 2%

29.8 28.2 6% Net impairment losses on financial assets 0.1

• 0.3
• 0.6
• 0.8
• 2.1
• 61%

Net operating profit 7.1 7.0 1% 6.5 9% 29.0 26.0 11% Income taxes

• 1.4
• 1.5
• 5%
• 1.3

4%

• 6.1
• 5.3

14% Profit for the report period 5.7 5.6 2% 5.2 10% 22.9 20.7 11% Attributable to the shareholders 5.7 5.6 2% 5.2 10% 22.9 20.7 11%

Income statement

20

Bank of Åland 2016 – 2018 ROE, %

21

Commitment to a strong capital ratio

• Bank of Åland is committed to a strong capital ratio
• Positive outlook on the rating reflects S&P view that the bank will continue to build up its capital

base, improve earnings, and uphold a sound approach to risk over the next two years

• Conservative pay-out policy is to safeguard the capital position
• The core tier 1 capital ratio for a small bank like Bank of Åland is not comparable to larger banks

with IRB methods. Standard & Poor’s rating method considers Bank of Åland well capitalized, giving a rating uplift of one notch

22 2014: revised Basel-regulation

S&P view of the total capital base

• According to S&P the capital position of Bank of Aland is strong
• Quality of capital is high
• Structure of the balance sheet is of low risk
• Pay out policy is conservative

23 Source: Standard & Poor's: Nordic Banks Sport Strong Capital – And It’s Not Likely To Soften, October 17, 2018

Capital structures in Nordic banks Dec 31, 2018

24

• Bank of Åland is heavy on CET1 in its capital base:
• There is no AT1 in the capital base

• 4. Mortgage Market

and Asset Quality

Housing market in Finland

• The accelerated economic growth has boosted the Finnish housing market in growth centers
• The low rate environment has also supported the demand in housing market
• The high supply of new properties in growth centers continued. This trend is starting to slow

down

• The sparsely populated areas have not experienced similar pattern
• The rise of house prices in Finland has been moderate compared to the Nordic neighbors. No

fear of overheating Price development of old dwellings in blocks of flats in Helsinki Metropolitan Area, index 2015=100

26 Sources: Statistics Finland and Pellervo Economic Research PPT

Lending strategy

• Bank of Åland is a relationship bank with primary focus on customers with investment needs in

the Private Banking and Premium Banking segments. Serving the core customers' credit needs are part of our commitment

• Bank of Åland is not granting credits as a stand alone product to mass market clients or

corporate clients

• Every business area (Åland Islands, Finland and Sweden) should have a balanced growth in

lending versus deposits

• At least half of the lending in every business area should be residential mortgages or have

residential property as collateral

• Many small loans are preferred to few large loans

27

Balanced growth in the credit portfolio

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• Total lending to the public was EUR 4,022 M Dec 31 2018, an increase of 1 % from a year ago
• Selective lending to high quality borrowers
• Asset quality prioritised over lending volume growth and higher returns
• Lending must always be made in consideration of safeguarding Bank of Åland’s strong

brand and market reputation

• Loan loss level 0.02 % in 2018

Lending 2014 – 2018

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• Lending to private individuals has increased from 65 % of the credit portfolio in 2014 to 73 % in

2018

Geographical distribution of mortgage lending

• Clear concentration to the wealthiest parts of Finland and Sweden
• As of Dec 31, 2018 approximately
• 70 % of the loan portfolio in Finland
• 30 % of the loan portfolio in Sweden
• According to the business plan growth

in the coming years will be mainly in Sweden

30

Vaasa 3 % Turku 14 % Gothenburg 11% Malmö 11% Stockholm 71% Helsinki 46 % Åland Islands 20 % Tampere 12 %

Loans in arrears 2016 – 2018

31 Data for Q1 2016 – Q3 2017: loans in arrears > 90 days

• 5. Cover Pool FIN

Issuer Alandsbanken Abp (Ticker: AABHFH)

• Exp. Issue Rating

AAA (S&P)

• Exp. deal size

EUR 300 M Maturity 5 year Format Mortgage Covered Bond / Reg S Bearer, backed by 100% prime residential Finnish mortgages, ECB repo & LCR 2A eligible, UCITS compliant Documentation Under the Issuer’s €2,000,000,000 Medium Term Note and Covered Bond Programme dated 05 October 2018 and supplemented on 30 October 2018, 12 February 2019 and 05 March 2019 Governing Law Finnish Law Listing Helsinki Stock Exchange Denomination EUR 100,000 and integral multiples of EUR 100,000 in excess thereof Coupon Fixed, Annual Target Market MiFID II professionals/ECPs-only (all distribution channels). No PRIIPs key information document (KID) has been prepared as not available to retail in EEA

Bank of Åland EUR Covered Bond: Key Features

33

Cover Pool FIN Prime residential mortgages, % 100 Total nominal amount, EUR M 950 Weighted arithmetic average LTV 54.7 Number of unique loans 12,065 Number of borrowers 7,293 Average loan size, EUR T 80 Interest rate type, floating % 96 Interest rate type, fixed % 4 Impaired loans

Cover pool characteristics, Dec 31, 2018

34

Credit quality and impaired loans Dec 31, 2018

35

Credit Quality Past due 31-60 D 61-90 D 90+ D Sum Loan volume, EUR M 1.7 0.0 0.0 2 Share of loan volume, % 0.0 0.0 0.0 0.0 Impaired loans 0.000%

Commitment to high OC and strong liquidity

• Bank of Åland is committed to an over-collateralization clearly over the legislative minimum of 2

%. Over-collateralization is kept to a level that allows the maximum uplift of 4 notches in Standard & Poor's Covered Bonds rating framework* or an AAA rating on the Covered Bonds.

• At Dec 31, 2018: actual OC 56.7 %, minimum committed OC 30.9%
• Bank of Åland is committed to maintain a liquidity buffer covering 180 days contractual outflows

from the Covered Bonds issued. The liquidity buffer consists of contractual inflows and liquid assets in the cover pool

36 * Standard & Poor's: Covered Bonds Criteria 9.12.2014

LTV and loan size Cover Pool FIN, Dec 31, 2018

37

EUR T

% of Residential Loans

Regional distribution, Dec 31, 2018

38 % of Residential Loans

Cash flow characteristics, Dec 31, 2018

39 % of Residential Loans

67% 2% 13% 10% 8% Euribor12 Euribor6 Euribor3 PRIME Other

Reference rates in Cover Pool FIN Dec 31, 2018

40

Breakdown by type, Dec 31, 2018

41 % of Residential Loans

• 6. Liquidity and Funding

43

• Demand deposits, time deposits and certificates of deposits from core private customers and

their companies are the main funding sources

• Strong capitalization
• Covered Bonds are the main long term funding instrument

43

Group funding profile Dec 31, 2018

Funding strategy

• Covered Bond programme was created in early 2012 in order to diversify funding sources and to

form a reliable and cost effective funding channel

• Since the launch of the programme both EUR- and SEK- denominated Covered Bonds have

been issued totalling EUR 1,114 M outstanding

• Bank of Åland has also issued senior unsecured to maintain a balanced funding mix
• Themes 2019-2020
• Demand conditions and the market situation favour issuance in Covered Bonds
• The balanced funding mix is maintained
• Bank of Åland didn’t get MREL requirements. There are no foreseen authority or regulatory

requirements which would have an effect on the funding of the bank

44 44

Long term funding Dec 31, 2018

45 Cover Pool FIN ISIN Nominal Amt EUR Settlement date Maturity date Coupon, % Currency Amt EUR Term to Maturity XS0999478372 100,000,000 03/12/2013 03/06/2019 1.55 EUR 100,000,000 0.42 XS1238023813 250,000,000 26/05/2015 26/05/2020 0.375 EUR 250,000,000 1.40 XS0876678391 100,000,000 30/01/2013 30/01/2023 2.75 EUR 100,000,000 4.08 XS1496878742 250,000,000 29/09/2016 29/09/2023 0.00 EUR 250,000,000 4.75 700,000,000 700,000,000 2.84 Cover Pool SWE ISIN Nominal Amt SEK Settlement date Maturity date Coupon, % Currency Amt EUR Term to Maturity XS1077864905 1,000,000,000 23/06/2014 25/03/2019 QUARTLY STIB + 0,55 SEK 97,515,310 0.23 XS1155041004 750,000,000 16/12/2014 16/12/2019 QUARTLY STIB + 0,50 SEK 73,136,482 0.96 SE0010598474 2,500,000,000 22/11/2017 22/11/2022 QUARTLY STIB + 0,53 SEK 243,788,275 3.90 4,250,000,000 414,440,067 2.52 Senior unsecured ISIN Nominal Amt EUR Settlement date Maturity date Coupon, % Currency Amt EUR Term to Maturity XS1585198879 100,000,000 24/03/2017 24/03/2020 QUARTLY EUR + 0,63 EUR 100,000,000 1.23 FI4000348966 250,000,000 13/09/2018 13/09/2021 0.5 EUR 250,000,000 2.70 350,000,000 350,000,000 2.28

Liquidity management

• Well-diversified maturity profile
• Limited exposure to short term funding
• Bank of Åland is committed to continuously cover the next 180-day liquidity need in the cover

pools for the Covered Bonds program

46

46

Maturing long funding

Liquidity position

• Very high quality in liquidity reserves
• The most liquid and tradable assets
• LCR target reached
• Coordinated cash pools between Finland

and Sweden

• Conservative approach to market risk within

liquidity reserves

• Assets with short duration
• Well diversified counterparty risk profile
• LCR 120 % as of 31 Dec 2018
• NSFR 113 % as of 31 Dec 2018

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Composition of the liquidity reserve 2018 2017 EUR M

• f total

EUR M

• f total

Cash and central banks 495.6 41% 523.8 49% Bonds issued by governments and official institutions 158.1 13% 131.7 12% Bonds issued by financial institutions 23.7 2%

• 0%

Covered Bonds 470.5 39% 342.7 32% Deposits 47.6 4% 67.4 6% 1,195.5 100% 1,065.6 100%

• 7. Contact Details

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Contact Details

Peter Wiklöf, CEO peter.wiklof@alandsbanken.fi +358 40 512 7505 Jan-Gunnar Eurell, CFO jan-gunnar.eurell@alandsbanken.se +46 70 589 1209 Maria Rissanen, Head of Group Treasury maria.rissanen@alandsbanken.fi +358 50 538 8898

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• 8. Appendix

Economy in Finland

• The economic situation in Finland is still positive and continues to be positive
• The demand-led Finnish economy has been growing 2.2 -2.9 %/ year during the last three years
• Unemployment has dropped from 9.2 % in 2015 to 5.4 % in 2018
• The exports and construction investments have stimulated the economy. But now the pace is

starting to slow down a bit

• The economy of Finland is expected to grow better than the average growth level among the

Nordic countries. This has to do with the moderate wage increases and inflation in Finland

51 Sources: Statistics Finland, Pellervo Economic Research PPT and Trading Economics

Key figures – Bank of Åland

52

2018 2017 2016 2015 2014 Return on equity (ROE), % 9.8 9.1 9.1 12.0 8.7 Cost/ income ratio, % 77 78 76 73 80 Loan loss level, % 0.02 0.06 0.11 0.09 0.06 Core funding ratio, % 90 88 89 100 105 Equity/assets ratio, % 4.4 4.4 4.3 4.6 4.6 Core Tier 1 capital ratio, % 13.0 12.9 11.8 12.0 10.9 Total capital ratio, % 15.4 14.2 13.0 12.9 12.1 Earnings per share, EUR 1.48 1.35 1.29 1.60 1.12 Equity per share, EUR 15.58 15.02 14.37 13.99 13.46 Lending to the public, EUR M 4,022 3,979 3,808 3,617 3,343 Deposits from public, EUR M 3,304 3,148 3,100 2,675 2,391 Shareholders' equity, EUR M 242 234 222 213 196 Risk-weighted assets, EUR M 1,578 1,538 1,576 1,581 1,554 FTE 691 691 685 663 644

EUR M 2018 2017 2016 2015 2014 Net interest income 54.5 55.9 55.1 54.0 49.3 Net commission income 50.6 49.7 44.9 46.5 46.2 Other income 22.5 22.4 20.4 24.4 25.1 Total income 127.6 128.0 120.4 124.9 120.6 Staff costs

• 57.1
• 59.8
• 57.0
• 56.0
• 53.1

Other expenses

• 40.7
• 40.0
• 34.2
• 35.6
• 43.3

Total expenses

• 97.8
• 99.8
• 91.3
• 91.6
• 96.4

Profit before loan losses 29.8 28.2 29.2 33.3 24.2 Impairment losses on loans

• 0.8
• 2.1
• 4.1
• 3.0
• 1.8

Operating profit 29.0 26.0 25.1 30.3 22.4 Income taxes

• 6.1
• 5.3
• 5.4
• 6.0
• 4.8

Profit for the period 22.9 20.7 19.7 24.3 17.6 Non-controlling interests 0.0 0.0 0.0 0.0

• 1.5

Attributable to the shareholders 22.9 20.7 19.7 24.3 16.1

Income statement – Bank of Åland

53

Thank you!

Disclaimer

• The presentation was prepared by Bank of Åland Ltd for use in investor relations. This

presentation is not intended for retail customers.

• This presentation has been prepared on the basis of publicly available information which Bank
• f Åland considers to be reliable.
• This presentation may contain forward-looking statements, which are subject to risks,

uncertainties, and assumptions. This presentation is being presented solely for your information and is subject to change without notice. No representation or warranty, expressed or implied, is made and no reliance should be placed on the accuracy, actuality, fairness, or completeness of the information presented.

• This presentation does not constitute an offer or invitation to purchase or subscribe for any

shares or debt instruments of the Company, and no part of this presentation shall form the basis

• f or be relied upon in connection with any contract or commitment.
• The contents of this presentation may not be reproduced, redistributed or passed on, directly or

indirectly, to any other person or published, in whole or in part, for any purpose.

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