Bank of Åland Plc STOCK EXCHANGE RELEASE 13.02.2006 09.00 hrs
Year-end report for the period January - December 2005
The year in brief
. Consolidated net operating profit climbed 34.5 per cent to 18.7 million
euros (2004: EUR 13.9 M)
. Net interest income rose by 4.5 per cent to EUR 31.4 M (30.0)
. Commission income rose by 25.7 per cent to EUR 16.1 M (12.8)
. Expenses declined by 1.3 per cent to EUR 33.2 M (33.7)
. Loan losses were EUR 0.3 M (0.7)
. Lending volume rose by 9.9 per cent to EUR 1,796 M (Jan. 1,2005: 1,634)
. Deposits rose by 6.8 per cent to EUR 1,640 M (Jan. 1,2005: 1,535)
. Mutual fund capital under management rose by 66 per cent to EUR 269 M (162)
. Return on equity after taxes (ROE) was 13.9 per cent (10.9)
. The total capital ratio amounted to 11.4 per cent (11.8)
. Earnings per share after taxes amounted to EUR 1.21 (0.91)
. The Board of Directors proposes a dividend of EUR 1.00 (1.00) per share
. The consolidated financial statements were prepared according to
International Financial Reporting Standards (IFRS)
THE GROUP
The Group's Annual Report for 2005 has been prepared according to the IFRS
standards approved by the European Union. Comparative figures and financial
ratios for the previous year have been recalculated according to the above-
mentioned standards. However, in accordance with IFRS 1, the Group has taken
advantage of the opportun ity to present the comparative figures related to
financial instruments according to previously applied accounting principles,
which affects comparability to some extent.
Earnings
During 2005, consolidated net operating profit amounted to EUR 18.7 M (13.9).
This was an improvement of 34.5 per cent compared to the year before. Return on
equity after taxes (ROE) was 13.9 (10.9) per cent.
The main reasons for the improvement in earnings during 2005 were increased
commission income from mutual funds (unit trusts) and asset management, improved
net interest income as well as reduced pension liabilities due to changed
legislation. Changed accounting principles concerning capitalisation of the costs
of computer software produced for the Group's own use lowered expenses and
affected comparability.
The profitability of the Group improved in a very satisfactory way, even adjusted
for nonrecurring items and items affecting comparability.
Net interest income
Net interest income amounted to EUR 31.4 M (30.0). Despite the continued
narrowing of customer margins, larger total deposit and lending volumes led to an
increase in net interest income by 4.5 per cent.
Other income
Commission income rose by a 25.7 per cent to EUR 16.1 M (12.8). Income from asset
management and from providing investment products rose the most.
Net income from securities trading for the Bank's own account was EUR 0.7 M
(0.3). Net income from dealing in the foreign exchange marke t amounted to EUR 0.9
M (0.9). For the first time, the Group is applying the IFRS fair value option.
Income in 2005 amounted to EUR -0.1 M. The effect on retained earnings in the
opening balance on January 1, 2005 was EUR 2.5 M.
Net income from financial assets available for sale was EUR 1.1 M (0.2). The
divestment of the Bank's shareholding in the Åland-based food processing company
Chips Abp during the first quarter of 2005 yielded a capital gain of EUR 1.2 M.
Net income from investment properties amounted to EUR 0.3 M, of which EUR 0.2 M
came from divestment of properties.
Other operating income totalled EUR 3.5 M, compared to EUR 4.4 M last year, with
EUR 1.0 M consisting of nonrecurring revenue.
Total income rose by 7.8 per cent to EUR 52.0 M (48.3).
Expenses
Staff costs declined by 3.0 per cent to EUR 17.8 M (18.4). Reduced pension
liability after changes in legislation and increased fair value of assets in
Ålandsbanken Abp:s Pensionsstiftelse, the Bank's pension fund, decreased staff
costs by EUR 2.4 M (-1.1).
Other administrative expenses (office costs, marketing, telecommunications and
computer costs) fell by 1.2 per cent to EUR 8.5 M (8.6). Production for own use
amounted to EUR 1.1 M (0.0) and was related to expenses for computer software,
which in accordance with IFRS must be capitalised. Depreciation/amortisation rose
to EUR 3.9 M (3.6).
Other operating expenses amounted to EUR 4.2 M (3.1). In accordance with the
sta ndard of the Finnish Financial Supervision Authority, the Bank's expense for
the Deposit Guarantee Fund, EUR 0.6 M, was reported under "Other operating
expenses" instead of a reduction in interest income as previously.
Total expenses, including planned depreciation/amortisation, declined by EUR 0.5
M or 1.3 per cent to EUR 33.2 M (33.7).
Impairment loss on loans and other receivables
Net loan losses amounted to EUR 0.3 M (0.7).
Changes in equity capital
Bank of Åland Share Share Reserve Fair Profit Minority Total
Group capital premium fund value brought interest
account reserve forward
Equity capital,
Jan. 1, 2004 22,086 24,966 25,129 0 34,935 389 107,506
Dividend to
shareholders -10,960 -10,960
Conversion of
subordinated loan 49 316 365
Subscription
by exercising
warrants 29 181 210
Change in
minority interest
in equity capital 143 143
Profit for
the year 10,506 10,506
Equity capital,
Dec. 31, 2004 22,164 25,463 25,129 0 34,481 532 107,769
Introduction of
IAS 39 incl.
fair value option1 536 1,147 1,646 3,329
Equity capital,
Jan. 1, 2005 22,164 25,999 25,129 1,147 36,127 532 111,099
Dividend to
shareholders -10,986 -10,986
Conversion of
subordinated loan 10 64 74
Change in
fair value -776 -776
Change in
minority interest
in equity capital 347 347
Profit for
the year 13,578 13,578
Equity capital,
Dec. 31, 2005 22,174 26,063 25,129 371 38,719 880 113,336
1 The fair value option influences earlier
published effects of the transition to IFRS.
Balance sheet total
The balance sheet total rose by 8.7 per cent to EUR 2,170 M (1,995).
Personnel
Hours worked in the Group, recalculated as full-time position equivalents,
totalled 411 during 2005 (392). This represented an increase of 19 positions,
compared to 2004.
2005 2004
Bank of Åland Plc 298 293
Crosskey Banking Solutions Ab Ltd 93 86
Ålandsbanken Asset Management Ab 12 9
Ålandsbanken Fondbolag Ab 5 4
Ålandsbanken Kapitalmarknadstjänster A b 3 0
Total number of employees 411 392
Profit margin
Profit margin calculated as net operating profit minus standard tax as a
percentage of total income. The profit margin of the Bank of Åland Group rose
from 20.6 per cent to 25.5 per cent in 2005.
Expense/income ratio
Efficiency measured as expenses divided by income, including and excluding loan
losses, respectively:
Bank of Åland Group 2005 2004
including loan losses 0.64 0.71
excluding loan losses 0.64 0.70
Capital adequacy
Capital adequacy rules require that the capital base in the form of equity
capital and reserves total at least 8 per cent of risk-weighted receivables and
contingent liabilities. At the end of 2005, the Group's capital adequacy
according to the Credit Institutions Act was 11.4 (11.8) per cent. To strengthen
the capital base in the form of supplementary capital, risk debenture loans
totalling EUR 14.8 M were issued during the year.
Bank of Åland Group Dec 31 Jan 1 Dec 31
2005 2005 2004
Capital base, EUR M
Core capital 84.2 84.4 82.8
Sup plementary capital 51.6 43.2 42.0
Total capital base 135.7 127.6 124.8
Risk-weighted volume, EUR M 1,192.7 1,064.7 1,062.4
Total capital ratio, % 11.38 11.99 11.75
Core capital as a percentage
of risk-weighted volume 7.06 7.93 7.79
Profit for 2005 is not included in the capital base.
Cash flow statement
Bank of Åland Group Jan-Dec Jan-Dec
2005 2004
Liquid funds, January 1, 2005 252,230 278,276
Cash flow from operating activities -170,221 -77,305
Cash flow from investing activities 488 -7,776
Cash flow from financing activities 134,911 59,034
Liquid funds, December 31, 2005 217,407 252,230
Deposits
Deposits from the public, including bonds issued and certificates of deposit,
rose during 2005 by 6.8 per cent to EUR 1,640 M (1,535). Deposit accounts rose by
4.4 per cent to EUR 1,300 M (1,244).
Bonds and certificates of deposit issued to the public rose by 16.8 per cent to
EUR 340 M (291). The introduction of the fair value option affected deposit
accounts by EUR 0.3 M (-0.2 on Jan. 1, 2005) and bonds by EUR 0.7 M (1.3 on Jan.
1, 2005).
Lending
During 2005, the volume of lending to the public increased by 9.9 per cent to EUR
1,796 M (1,634). Most of the increase went towards residential financing. Lending
to private households rose by 12.6 per cent to EUR 1,236 M (1,098). Private
households accounted for 68.8 (67.2) per cent of the Group's total lending.
Lending for business and professional activities rose by 4.9 per cent to EUR 533
M (508). Lending to the public sector and non-profit organisations was unchanged
at EUR 28 M, The introduction of the fair value option according to IFRS affected
lending by EUR -1.1 M (2.3 on Jan. 1, 2005).
Crosskey Banking Solutions Ab Ltd
Crosskey Banking Solutions Ab Ltd is a wholly-owned subsidiary of the Bank of
Åland. The mission of the company is to develop, sell and maintain banking
computer systems - either as whole systems or in modules - to small and medium-
sized banks in Europe, as well as sell operational and support contracts for its
deliveries. Crosskey currently works with three banks: Tapiola Bank, Den Norske
Bank and the Bank of Åland. During the report period, Crosskey Banking Solutions
AB and the Finnish consumer co-operative organisation SOK signed a contract to
renew the S Group's financial services account system. This contract did not
affect earnings during 2005, but will have a positive impact on 2006 earnings.
During the autumn, Crosskey also expanded its range of services by deciding to
establish a SWIFT service bureau for intermediation of foreign payments.
Ålandsbanken Asset Management Ab
Ålandsbanken Asset Management Ab is a subsidiary of the Bank of Åland Plc. The
company offer discretionary and consultative asset management services to
institutional investors, non-profit organisations, private individuals and public
sector organisations. The company currently has about 250 customers, EUR 529 M in
managed assets and strong growth.
Ålandsbanken Fondbolag Ab
Ålandsbanken Fondbolag Ab is a wholly-owned subsidiary of the Bank of Åland Plc
(Ålandsbanken Abp). The mutual funds (unit trusts) that the company manages are
registered in Finland and comply with the Act on Mutual Funds. The strategy of
Ålandsbankens Fondbolag Ab is that its mutual funds should be competitive and
adapted to the investment needs of Bank of Åland customers. On December 31, 2005,
the number of unit holders totalled 9,443 (Dec 31, 2004: 6,480), which
represented an increase of 2,963 or about 46 per cent. The total assets under
management amounted to EUR 269 M (162.5), an increase of EUR 106.5 M or 66 per
cent during the year.
Ålandsbanken Kapitalmarknadstjänster Ab
Ålandsbanken Kapitalmarknadstjänster Ab (Allcap Ab) is a subsidiary of the Bank
of Åland Plc. The company provides discretionary asset management as well as
consulting services related to securities and financing. The company was granted
its asset management licence during September.
Forecast for 2006 The goal is earnings in 2006 that are better than in the previous years.
Long-term financial targets
The Board of Directors of the Bank of Åland has adopted the following long-term
financial targets for the Group:
- The Bank of Åland endeavours to earn a return on equity that will exceed the
unweighted average of a defined group of Nordic banks.
- The total capital ratio shall amount to at least 10 per cent.
- In a medium-term perspective, the Bank's income/expense ratio shall
continuously improve to 2 (expense/income ratio 0.5).
- The Bank of Åland endeavours to pursue a dividend policy in which an
increasing percentage of after-tax profit is retained by the Bank, in order
to safeguard its sound business development. This is expected to result in a
dividend that approaches the industry standard for Nordic banks as a
percentage of earnings. It implies a dividend which, in a medium-term
perspective, on average will remain on today's level in euro terms.
Important events after the close of the financial year
No important events have occurred after the close of the financial year.
Proposed distribution of profit
The Board of Directors proposes that the Annual General Meeting approve a
dividend of EUR 1.00 per share, which is equivalent to a total amount of EUR 11.0
M.
Annual General Meeting and financial information in 2006
The Annual General Meeting will be held at 3 p.m. on March 23 , 2006.
The Annual Report will be published in the official Swedish and Finnish versions
at 9 a.m. on March 6, 2006 and in English soon afterward.
Interim reports during 2006:
January-March 2006 Monday, April 24, 2006,
January-June 2006 Monday, July 24, 2006
January-September 2006 Monday, October 23, 2006.
The figures in this Year-end Report are unaudited.
Mariehamn, February 13, 2006
THE BOARD OF DIRECTORS
FINANCIAL RATIOS ETC
Bank of Åland Group Jan-Dec Jan-Dec Jan 1
2005 2004 2005
Earnings per share, EUR 1 1.21 0.91
Market price per share, end of period, EUR
Series A 25.00 19.62
Series B 24.00 19.04
Equity capital per share, EUR 2 9.77 9.29 9.58
Return on equity after taxes, % (ROE) 3 13.89 10.86
Return on total assets (ROA) 4 0.69 0.47
Equity/assets ratio, % 5 4.68 4.88
Total lending volume, EUR M 1,796 1,632 1,634
Total deposits from the public, EUR M 1,640 1,536 1,535
Equity capital, EUR M 113 108 111
Balance sheet total, EUR M 2,170 1,995 2,000
Expense/income ratio
Including loan losses 0.64 0.71
Excluding loan losses 0.64 0.70
1 Profit for the year after taxes / Average number of shares, adjusted for new
issue
2 Equity capital / Number of shares on balance sheet date, adjusted for new
issue
3 Profit for the year after taxes / Average equity capital minus average
imputed tax liability
4 Profit for the year after taxes / Average balance sheet total
5 Equity capital minus imputed tax liability / Balance sheet total
SUMMARY BALANCE SHEET
Bank of Åland Group Dec 31 Dec 31 Jan 1
(EUR M) 2005 2004 2005
ASSETS
Liquid assets 78 72 72
Debt instruments eligible for refinancing
with central banks 96 112 112
Claims on credit institutions 128 110 110
Claims on the public and public sector entities 1,796 1,632 1,634
Debt instruments 0 2 1
Shares and participations 5 9 10
Shares and participations in associated companies 2 1 1
Derivative instruments 15 8 10
Intangible assets 4 2 3
Tangible assets 24 25 25
Other assets 9 11 11
Accrued income and prepaid expenses 14 11 11
Imputed receivables 1 0 0
TOTAL ASSETS 2,170 1,995 2,000
LIABILITIES AND EQUITY CAPITAL
Liabilities to credit institutions 73 24 24
Liabilities to the public and public sector entities 1,303 1,249 1,249
Debt instruments issued to the public 558 500 498
Derivative instruments 15 8 10
Other liabilities 30 30 30
Accrued expenses and prepaid income 11 12 12
Subordinated liabilities 55 54 54
Imputed taxes due 12 10 11
TOTAL LIABILITIES 2,057 1,888 1,889
EQUITY CAPITAL AND MINORITY INTEREST
Share capital 22 22 22
Share premium account 26 25 26
Reserve fund 25 25 25
Fair value reserve 0 0 1
Profit brought forward 25 24 26
Profit for the period 14 11 11
Minority interest in capital 1 1 1
TOTAL EQUIT Y CAPITAL 113 108 111
TOTAL LIABILITIES AND EQUITY CAPITAL 2,170 1,995 2,000
SUMMARY INCOME STATEMENT
Bank of Åland Group Jan-Dec Jan-Dec
(EUR M) 2005 2004
Net interest income 31.4 30.0
Income from equity instruments 0.1 0.5
Commission income 16.1 12.8
Commission expenses -2.0 -1.5
Net income from securities transactions and
foreign exchange dealing 1.5 1.2
Net income from financial assets
that can be sold 1.1 0.2
Net income from managed properties 0.3 0.6
Other operating income 3.5 4.4
Total income 52.0 48.3
Staff costs -17.8 -18.4
Other administrative expenses -8.5 -8.6
Production for own use 1.1 0.0
Depreciation/amortisation -3.9 -3.6
Other operating expenses -4.2 -3.1
Total expenses -33.2 -33.7
Loan and guarantee losses -0.3 -0.7
Share of profit/loss in associated companies 0.2 0.0
Net operating profit 18.7 13.9
Profit before appropriations and taxes
Profit for the period -4.6 -3.2
Minority share of profit for the period -0.5 -0.2
Profit for the year 13.6 10.5
INCOME ST ATEMENT BY QUARTER
Bank of Åland Group Q 4 Q 3 Q 2 Q 1 Q 4
(EUR M) 2005 2005 2005 2005 2004
Net interest income 8,3 7.7 7.8 7.6 7.6
Income from equity instruments 0.0 0.0 0.1 0.0 0.0
Commission income 4.8 3.7 4.2 3.5 3.6
Commission expenses -0.6 -0.5 -0.5 -0.4 -0.4
Net income from securities
transactions and foreign
exchange dealing 0.7 0.8 0.0 0.0 0.3
Net income from financial
assets that can be sold -0.4 0.0 0.3 1.2 -0.2
Net income from
managed properties 0.0 0.0 0.0 0.2 0.0
Other operating income 0.6 0.9 1.0 1.1 1.1
Total income 13.4 12.6 12.8 13.2 12.0
Staff costs -3.1 -4.5 -5.4 -4.9 -4.4
Other administrat ive expenses -2.0 -2.1 -2.5 -1.9 -2.1
Production for own use -0.2 0.4 0.9 0.0 0.0
Depreciation/amortisation -1.3 -0.9 -0.8 -0.9 -1.0
Other operating expenses -1.6 -0.8 -0.9 -0.9 -1.2
Total expenses -8.1 -7.8 -8.8 -8.5 -8.6
Loss impairment on loans
and other commitments 0.0 -0.3 0.0 0.0 -0.2
Share of profit/loss in
associated companies -0.1 0.1 0.1 0.1 0.1
Net operating profit 5.2 4.7 4.1 4.7 3.2
SEGMENT REPORT Retail Inv- Infor- Treas- Group Elim- Total
banking estment mation ury and staff inat-
operat- banking tech- portf- units ions
ions operat- nology olio etc.
ions operat- manag-
ions ement
External income 36.0 7.7 3.1 5.2 -0.1 52.0
Internal income 1.1 -0.8 10.6 1.4 1.7 -14.0 0.0
Total income 37.0 6.9 13.8 6.6 1.6 -14.0 52.0
Costs incl.
depreciation etc. -13.5 -2.1 -12.2 -2.1 -15.7 12.4 -33.2
Loan losses -0.3 0.0 -0.3
Share of
profit/loss in
associated
companies 0.2 0.2
Net operating 23.3 4.9 1.6 4.7 -14.1 -1.6 18.7
profit
Assets 1,847 23 102 6 205 -11 2,170
Liabilities 1,604 300 3 168 5 -21 2,057
Equity capital 113
LENDING TO THE PUBLIC AND PUBLIC SECTOR ENTITIES
BY PURPOSE
Bank of Åland Group Dec 31 Dec 31
(EUR M) 2005 2004
BUSINESS AND PROFESSIONAL ACTIVITIES
Service sector
Shipping 60 62
Hotels, restaurants, tourist cottages etc. 11 11
Wholesale and retail trade 46 47
Housing corporations 40 33
Real estate operations 95 87
Financial operations 137 139
Other service business 78 77
467 457
Production sector
Agriculture, forestry and fishing 21 20
Food processing etc. 9 11
Construction 27 12
Other industry and crafts 9 9
66 51
HOUSEHOLDS
Home loans 977 883
Studies 13 13
Other purposes 246 202
1,236 1,098
PUBLIC SECTOR AND
NON-PROFIT ORGANISATIONS 28 28
Total lending 1,796 1,634
DEPOSITS FROM THE PUBLIC AND PUBLIC SECTOR ENTITIES,
including bonds issued and certificates of deposit
Bank of Åland Group Dec.31 Dec.31
(EUR M) 2005 2004
Deposit accounts from the public and public sector entities
Demand deposit accounts 187 187
Current accounts 197 194
Savings and Environmental Accounts 109 111
Prime Accounts 494 499
Time deposits 228 195
Total deposit accounts in euros 1,214 1,187
Deposit accounts in other cu rrencies 85 57
Total deposit accounts 1,300 1,244
Bonds 174 162
Certificates of deposit issued to the public 166 129
Bonds and certificates of deposit 340 291
Total deposits 1,640 1,535
DERIVATIVE CONTRACTS
Bank of Åland Group Dec 31, 2005 Dec 31, 2004
(EUR M) For Other For Other
hedging hedging
purposes purposes
Value of underlying property
Interest rate derivatives
Option contracts
Purchased 0.0 0.0 15.0 0.0
Written 0.0 0.0 0.0 15.0
Interest rate swap contracts 287.7 4.6 329.5 4.5
Currency derivatives
Forward contracts 3.4 3.4 2.6 3.3
Interest rate and
currency swap contracts 0.0 0.8 0.0 0.2
Equity derivatives
Option contracts
Purchased 147.2 0.0 125.1 0.7
Written 0.0 147.2 0.0 125.1
438.3 156.0 472.2 148.8
Equivalent credit values of the contracts
Interest rate derivatives 1.9 2.5
Currency derivatives 0.2 0.1
Equity derivatives 24.6 18.3
26.7 20.9
OFF-BALANCE SHEET COMMITMENTS
Bank of Åland Group Dec 31 Dec 31
(EUR M) 2005 2004
Guarantees and pledges 13 13
Other commitments 132 97
145 110