Bank of Åland Debt Investor Presentation October 2018
Table of Contents 1. Bank of Åland in Brief 3 2. Bank of Åland – Strategy and Market Position 5 3. Earnings and Capital 14 4. Asset Quality 31 5. Liquidity and Funding 35 6. Contact Details 41 7. Appendix 43 2 2
1. Bank of Åland in Brief
Bank of Åland in brief • Bank of Åland Plc • A Finnish bank targeting high net worth and affluent individuals • Top ranked in customer loyalty • Tradition of stability and very low credit losses • BBB rating with a positive outlook from S&P • Covered bonds program • EUR 2 bn combined covered bond/senior Medium Term Note program 2017 (Finnish law) • Two cover pools: Cover Pool FIN and Cover Pool SWE • Issuance under Finnish Covered Bond Legislation • Legal LTV cap at 70% and minimum 2% over-collateralization • Published commitment to a strong over-collateralization and six months liquidity in the program • AAA (stable) rating from S&P on both Pool FIN and Pool SWE covered bonds 4
2. Bank of Åland Strategy and Market Position
Three Markets – Two Strategies The Åland Islands 3 offices + 2 rep offices, market share 55-60 % • • Full product range offered • A bank for everyone Finland • 5 offices in affluent parts of Finland, market share 1 - 2 % • 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 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 6 6
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 5 484 M, as of Sep 30, 2018 • Actively managed assets of EUR 5 849 M, as of Sep 30, 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 7
Bank of Åland History of Strategic Decisions From a local bank 2016 supporting development of Åland – a poor fishing and agrarian 2009 community 2004 1994 Fintech Expansion to Dreams Sweden IT company 1942 Crosskey Expansion Ab Ltd to Finnish 1919 mainland Listing To a Nordic banking group Foundation with wide product range and personal service targeting high net worth individuals 8
Bank of Åland vision We create value for ambitious individuals and companies that appreciate relations Private Banking since 1982 • • Premium Banking since 2004 Service Finance Safety Safety Lifestyle 9 9
Bank of Åland group legal structure 10
Ownership structure Major owners Share of capital Share of votes Anders Wiklöf with companies 20,1 % 26,5 % Alandia-Bolagen 7,5 % 11,2 % The Family Kamprad Foundation 6,0 % 0,7 % Ålands Ömsesidiga försäkringsbolag 5,9 % 11,6 % Fennogens Investments S.A. (Family Ehrnrooth) 4,1 % 7,0 % 43,4 % 56,9 % Other owners Svenska Litteratursällskapet 1,4 % 3,0 % Föreningen Konstsamfundet 0,5 % 1,1 % Approximately 9,500 shareholders in total, mostly from the Åland Islands . 11
Standard & Poor's rating on Bank of Åland 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 0 - 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 overcollateralization - Commitment to six month liquidity buffer Bank of Åland covered bonds rating AAA 12
Scorecard Liquidity and Funding Capital • Core funding ratio of 91 per cent as of Sep 30, 2018 S&P rating uplift for strong capital position • • Liquidity reserve at 21 per cent of total assets as of • Common Equity Tier 1 capital ratio 13.2 per cent as of Sep 30, 2018 Sep 30, 2018 • LCR at 131 per cent as of Sep 30, 2018 • IRB method for credit risk capital requirement not yet approved for the Swedish credit portfolio NSFR at 110 per cent as of Sep 30, 2018 • • AAA rating on covered bonds Risk Management Profitability • Long history of having the lowest loan loss level of all • Challenging interest rate environment Finnish banks. Loan loss level was 0.03 per cent Q3 Positive earnings trend • 2018. • Net operating profit of EUR 7.0 M Q3 2018 No trading positions or complex financial instruments • Return on equity 9.4 per cent Q3 2018 • • Strict limits on exposures to financial institutions. Bulk of the exposure is to highly rated Nordic entities 13 13
3. Earnings & Capital
Long-term financial targets Return on equity after taxes (ROE) shall exceed 10 per cent . • As a bank for investors, with financing knowhow, 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 per cent. • 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. 15
9M 2018 in summary • Net operating profit EUR 21.9 M (19.5 M 9M 2017), +12 % • Return on Equity after tax (ROE) 9.9 percent (9.2 9M 2017), +7 % • Earnings per share EUR 1.12 (1.01 9M 2017), +10 % • Implementation of IT systems and ensuring compliance with new regulation • New management team for allocation and equities in Asset Management • Strenghtening of the total capital base with SEK 200 M T2 capital • Digitalization: Ownership in the strategic partner Dreams Nordic AB • Green banking: Baltic sea card and Aland index widely recognized 16
Prospera survey Private Banking Finland 2017 17
18
9M 2018 in summary 19
9M 2018: Unchanged earnings, lower expenses Earnings -0 % Expenses -3 % 20
2017 in summary 21
Income statement Q3 Q2 Q3 9M 9M EUR M 2018 2018 % 2017 % 2018 2017 % Net interest income 13,3 13,8 -4 14,3 -6 41,2 41,8 -1 Net comission income 12,1 12,6 -4 12,2 -1 37,8 37,1 2 Net gains and losses on financial items 0,6 1,7 -67 1,8 -70 3,8 2,1 78 IT income 3,8 4,1 -7 3,6 6 12,0 13,3 -10 Other income 0,2 0,2 -5 0,3 -11 0,6 1,3 -58 TOTAL INCOME 30,0 32,5 -8 32,2 -7 95,4 95,6 0 Staff expenses -13,2 -14,5 -8 -14,1 -6 -42,8 -45,0 -5 Other expenses -7,7 -8,3 -7 -8,3 -8 -24,3 -24,4 0 Depreciation -1,8 -1,8 0 -2,0 -8 -5,5 -5,3 5 TOTAL EXPENSES -22,7 -24,5 -7 -24,4 -7 -72,6 -74,6 -3 PROFIT BEFORE LOAN LOSSES 7,3 8,0 -9 7,8 -6 22,8 21,1 8 Impairment losses on loans -0,3 -0,5 -44 -0,6 -55 -0,9 -1,5 -40 OPERATING PROFIT 7,0 7,5 -7 7,2 -3 21,9 19,5 12 Income tax -1,5 -1,6 -11 -1,5 0 -4,7 -4,0 17 PROFIT ATTRIBUTABLE TO SHAREHOLDERS 5,6 5,9 -5 5,8 -3 17,2 15,5 11 22
Bank of Åland business segments 9M 2018 23
Bank of Åland 2016 - 2018 ROE, percent 24
Business volumes 2016 - 2018, EUR M • A strong increase in assets under management. Otherwise the long term growth has been very well balanced. 25
Loans in arrears 2016 - 2018 Data for Q1 2016 – Q3 2017: loans in arrears > 90 days 26
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 27
Bank of Aland capital base 2013-2018 15,7 15,2 14,2 12,9 13,0 12,1 2014: revised Basel-regulation 28
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 Source: Standard & Poors:Nordic Banks Sport Strong Capital – And It’s Not Likely To Soften, October 17, 2018 29
Capital structures in Nordic banks 31.12.2017 • Bank of Aland is heavy on CET1 in its capital base: • Share of T2 is low • There is no AT1 in the capital base 30
4. Asset Quality
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