Interim Report January - June 2004

9914Bank of Åland Plc STOCK EXCHANGE RELEASE 17.8.2004 09.00 hrs Interim Report January - June 2004 The report period in brief · Consolidated net operating profit rose by 14.3 per cent to 8.8 million euros (Jan-Jun 2003: EUR 7.7 M) · Net income from financial operations declined by 1.8 per cent to EUR 14.5 M · Other income increased by 20.6 per cent to EUR 10.7 M (8.9) · For future expenses (including loan losses), EUR 1.0 M has been set aside, thereby lowering the earnings forecast somewhat · Expenses advanced by less than 6 per cent to EUR 17.2 M (16.2) · Lending volume rose by 15.6 per cent to EUR 1,473 M (Jun 2003: 1,275) · Deposit accounts increased by 1.7 per cent to EUR 1,104 M (Jun 2003: 1,085) · Return on equity after taxes (ROE) was 12.6 per cent (11.9) · The total capital ratio amounted to 11.6 (11.7) per cent · Earnings per share after taxes amounted to EUR 0.57 (0.54) Bank of Åland mutual fund ratings improving During the first half of 2004, the Bank of Åland's mutual funds (unit trusts) have repeatedly attracted positive comments in the media and by the various mutual fund rating companies. In May, Finland's leading business weekly Talouselämä presented a comparison of the success of Finnish mutual fund companies, as measured by the mutual fund rating company Eufex. Ålandsbanken Fondbolag placed second in this comparison and was rated the best of the mutual fund c ompanies that offer a broad selection of funds (the winner in the comparison managed only one fund). In a comparison of investment funds by the Finnish financial magazine Arvopaperi in June, the Ålandsbanken Corporate Bond and Ålandsbanken Euro Bond funds made the list of the best mutual funds in Finland. According to the international mutual fund rating company Morningstar, Ålandsbanken Nordic Value has been among the best Nordic equities funds since its inception. During the spring, the European balanced fund Ålandsbanken Europe Active Portfolio fund continuously improved its rating as a consequence of good growth compared to other comparable funds. The Bank of Åland's allocation model for this fund's equity and fixed-income holdings, respectively, thus proved successful. On June 30, 2004, the European balanced fund Ålandsbanken Europe Value completed its first full three-year return history and thus qualified for a Morningstar rating. The fund received a full five stars. THE GROUP Earnings During the first half of 2004, consolidated net operating profit amounted to EUR 8.8 M (7.7). This was an increase of EUR 1.1 M or 14.3 per cent compared to the corresponding year- earlier period. Net income from financial operations Despite larger total volume, narrowing customer margins due to tough competition caused a slight decline in net income from financial operations to EUR 14.5 M (14.8). Other income Commission income amounted to EUR 6.2 M (4.7), up EUR 1.5 M or 30.6 per ce nt. This increase derived mainly from securities brokerage and other capital market products. Other operating income totalled EUR 3.2 M (2.5). This included EUR 2.5 M (2.0) in income from the systems sales business area. Other income rose by EUR 1.8 M or 20.6 per cent to EUR 10.7 M (8.9). This included nonrecurring income of EUR 1.0 M. Total income - net income from financial operations and other income - amounted to EUR 25.2 M (23.7). Expenses Staff costs rose by EUR 0.3 M or 3.8 per cent to EUR 9.0 M (8.7). One element of this item was a refund of EUR 1.6 M in surplus contributions to Ålandsbanken Abps pensionsstiftelse, the Bank's pension fund, including tax compensation. Other administrative expenses (office costs, marketing, telecommunications and computer costs) rose by EUR 0.6 M to EUR 4.5 M (3.9). Depreciation/amortisation was EUR 0.2 M lower than the year before and amounted to EUR 1.0 M (1.2), while other operating expenses rose slightly to EUR 1.9 M (1.8). Total expenses including planned depreciation fell by EUR 0.6 M or 3.4 per cent to EUR 15.7 M (16.2). Excluding nonrecurring items, expenses rose by EUR 1.0 M or 5.8 per cent to EUR 17.2 M (16.2). Loan losses Net loan losses amounted to EUR 0.6 M (recovery of EUR -0.02). Deposits Deposits from the public, including bonds issued and certificates of deposit, rose during the 12 months to June 30, 2004 by 1.4 per cent to EUR 1,373 M (1,355). Deposit accounts rose by 1.7 per cent to EUR 1,104 M (1,085). During the year, the Bank floated bond issues with a nominal value of EUR 35.1 M. Lending During the 12 months to June 30, 2004, the Bank's volume of lending to the public increased by 15.6 per cent to EUR 1,473 M (1,275). Most of the increase went towards residential financing. Private households accounted for 68.4 (68.2) per cent of the Bank's total lending. Nonperforming receivables Total nonperforming receivables and other zero-interest receivables amounted to EUR 2.2 M (2.4), or 0.1 per cent of loans and guarantees outstanding. Personnel At the end of June 2004, the number of employees - recalculated as full-time equivalents - was 386. This was an increase of 14 positions, compared to the same date in 2003. 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 June, the Group's capital adequacy according to the Credit Institutions Act was 11.6 (11.7) per cent. The core capital ratio was 8.7 (9.5) per cent. Profit during the report period is not included in core capital. The capital base amounted to EUR 114.8 M (107.1). 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. On June 30, 2004, the number of unit holders totalled 5,991 (Dec 31, 2003: 5,337), which represented an increase of 12 per cent. The total assets under management amounted to EUR 152.9 M (Dec. 31, 2003: 117.4), an increase of 20 per cent. Ålandsbanken Asset Management Ab Ålandsbanken Asset Management Ab is a subsidiary of the Bank of Åland Plc. During the first half of 2004, the company received several institutional asset management mandates. This is a concrete indication that Ålandsbanken Asset Management Ab is perceived as a credible asset manager among institutional investors as well. In terms of earnings, the company's basic asset management operations also exceeded expectations, while its proportion of extraordinary income was approximately as expected. Restructuring of the Bank's IT operations into a separate company The Board has decided to restructure the Bank's information technology (IT) operations into a separate company and, for this purpose, to form a wholly-owned subsidiary of the Bank to be known as ÅAB Data Ab. Formation of this company is expected to be completed during 2004. Anders Ingves, the Bank's Deputy Managing Director, has been appointed Chairman of the Board of ÅAB Data Ab. Peter Grönlund, Managing Director, and Dan-Erik Woivalin, Department Manager, Legal Affairs, have been appointed Board members. . Refund of surplus contributions At year-end 2003, the probable market value of the assets in Ålandsbanken Abps pensionsstiftelse, the Bank's pension fund, exceeded its actuarial liability by about EUR 4 M. Th e Bank received permission from the Finnish Financial Supervision Authority to refund EUR 1.6 M in surplus contributions including compensation for corporation tax. This refund was carried out during the second quarter of 2004. Forecast for the year Net income from financial operations and other income items are being squeezed by tough competition. Earnings comparisons between the first and second half of 2004, as well as comparisons with the second half of 2003, are affected by a number of nonrecurring items. However, due to loss provisions of about EUR 1.0 M (including provisions of EUR 0.6 M for loan losses), earnings for the full year 2004 may be somewhat lower than for 2003. Mariehamn, August 17, 2004 The Board of Directors Statement of opinion We have conducted a review of the Interim Report of the Bank of Åland Plc (Ålandsbanken Abp) for the period January 1 - June 30, 2004. This review included an analytical examination of the balance sheet and income statement items in the Interim Report. Such a review is significantly more limited in scope than a statutory audit. Nothing has emerged that indicates that the Interim Report does not fulfil the regulations in force. Mariehamn, August 17, 2004 Leif Hermans, Authorised Public Accountant Rabbe Nevalainen, Authorised PublicAccountant Marja Tikka, Authorised Public Accountant FINANCIAL RATIOS ETC Jan-Ju n Jan-Jun Full year Bank of Åland Group 2004 2003 2003 Net operating profit per share, EUR 1 0.57 0.54 1.02 Market price per share, end of period, EUR Series A 19.00 17.15 18.65 Series B 17.60 17.30 19.10 Equity capital per share, EUR 2 8.78 8.75 9.22 Return on equity after taxes, % (ROE) 3 12.6 11.9 11.4 Total lending volume, EUR M 1,473 1,275 1,385 Total deposits from the public, EUR M 1,373 1,355 1,398 Equity capital, EUR M 96.2 95.7 100.9 Balance sheet total, EUR M 1,834 1,846 1,851 Income/expense ratio Including loan losses 1.5 1.5 1.4 excluding loan losses 1.6 1.5 1.4 Total capital ratio, % 11.6 11.7 11.4 1 Net operating profit minus imputed taxes / Average number of shares, adjusted for new issue 2 Equity capital and reserves minus imputedtax / Number of shares on balance sheet date, adjusted for new issue 3 Net operating profit minus imputed tax / Average equity capital CAPITAL ADEQUACY Jan-Jun Jan-Jun Full year Bank of Åland Group 2004 2003 2003 Capital base, EUR M Core capital 86.7 86.7 86.5 Supplementary capital 28.2 20.3 20.3 Total capital base 114.8 107.0 106.8 Risk-weighted volume, EUR M 993.0 917.3 932.7 Total capital ratio, % 11.6 11.7 11.4 Core capital as % of risk-weighted volume 8.7 9.5 9.3 Profit during the report period is not included in the capital base INCOME STATEMENT BY QUARTER Q 2 Q 1 Q 4 Q 3 Q 2 (EUR M) 2004 2003 2003 2003 2003 Net income from financial operations 7.1 7.4 7.4 7.4 7.4 Income from equity investments 0.4 0.1 0.2 0.3 0.4 Commission income 3.1 3.1 3.0 2.5 2.5 Net income from securities transactions and 0.6 0.2 0.7 1.0 0.4 foreign exchange dealing Other operating income 1.0 2.2 2.1 1.0 1.8 Total income 12.2 13.0 13.5 12.2 12.6 Commission expenses -0.4 -0.3 -0.3 -0.3 -0.3 Staff costs -3.2 -4.3 -5.7 -4.5 -4.5 Other administrative expenses -2.5 -2.0 -2.6 -1.7 -2.1 Depreciation/amortisation -0.5 -0.5 -0.6 -0.5 -0.6 Other operating expenses -1.0 -1.0 -1.1 -0.9 -0.9 Total expenses -7.6 -8.1 -10.3 -7.9 -8.4 Loan and guarantee losses -0.6 0.0 0.1 0.0 0.0 Share of operating results of companies -0.3 0.1 -0.2 0.1 0.1 consolidated according to equity method Net operating profit 3.8 5.0 3.1 4.4 4.2 SUMMARY INCOME STATEMENT Bank of Åland Bank of Åland Group Plc Jan- Jan- Full Jan- Jan- Full Jun Jun year Jun Jun year (EUR M) 2004 2003 2003 2004 2003 2003 Net income from financial operations 14.5 14.8 29.6 14.3 14.6 29.4 Income from equity investments 0.5 0.7 1.2 1.5 2.0 2.5 Commission income 6.2 4.7 10.3 4.8 4.0 8.5 Net income from securities transactions 0.9 0.9 2.7 0.9 0.9 2.6 and foreign exchange dealing Other operating income 3.2 2.5 5.6 3.2 2.5 5.6 Total income 25.2 23.7 49.4 24.7 24.1 48.6 Commission expenses -0.7 -0.6 -1.3 -0.6 -0.5 -1.1 Staff costs -7.5 -8.7-18.9 -7.1 -8.4-18.2 Other administrative expenses -4.5 -3.9 -8.2 -4.3 -3.8 -7.9 Depreciation/amortisation -1.0 -1.2 -2.3 -1.0 -1.2 -2.3 Other operating expenses -1.9 -1.8 -3.9 -1.9 -1.8 -3.8 Total expenses -15.7 -16.2-34.4 -14.9 -15.7-33.3 Loan and guarantee losses -0.6 0.0 0.1 -0.6 0.0 0.1 Share of operating results of companies -0.2 0.2 0.1 consolidated according to equity method Net operating profit 8.8 7.7 15.2 9.2 8.4 15.5 Appropriations -2.6 -2.2 -4.4 -2.7 -2.4 -4.5 Income taxes Minority share of profit for the period -0.1 0.0 -0.1 Profit for the period 6.0 5.4 10.6 6.5 6.0 11.0 SUMMARY BALANCE SHEET Bank of Åland Group Bank of Åland Plc Jun Jun Dec Jun Jun Dec 30 30 31 30 30 31 (EUR M) 2004 2003 2003 2004 2003 2003 ASSETS Liquid assets 60 62 40 60 62 40 Debt securities eligible for refinancing 177 205 263 177 205 263 with central banks Claims on credit institution s 54 220 77 54 220 77 Claims on the public and public sector 1,473 1,275 1,405 1,473 1,275 1,405 entities Lease assets 1 1 1 1 1 1 Debt securities 8 11 8 7 11 7 Shares and participations 9 17 15 8 16 14 Shares and participations in associated 2 2 2 3 3 3 and Group companies Intangible assets 4 4 3 3 4 3 Tangible assets 14 14 14 14 14 14 Other assets 25 28 15 25 27 15 Accrued income and prepaid expenses 7 7 8 7 7 8 1,834 1,846 1,851 1,833 1,845 1,851 LIABILITIES AND EQUITY CAPITAL Liabilities Liabilities to credit institutions and 100 131 93 100 131 93 central banks Liabilities to the public and public 1,108 1,091 1,140 1,109 1,091 1,140 sector entities Debt securities issued to the public 403 447 433 403 448 433 Other liabilities 58 22 30 58 22 30 Accrued expenses and prepaid income 13 18 14 13 18 14 Subordi nated liabilities 39 25 25 39 25 25 Imputed taxes due 7 7 7 Minority share of capital 0 0 0 Accumulated appropriations Reserves 23 23 23 Equity capital 22 21 22 22 21 22 Share capital 0 11 0 0 11 0 Share premium account 25 15 25 25 15 25 Reserve fund 25 25 25 25 25 25 Capital loan 10 10 10 10 10 10 Profit brought forward 17 18 18 0 0 0 Profit for the period 6 5 11 7 6 11 1,834 1,846 1,851 1,833 1,845 1,851 Off-balance sheet commitments Guarantees and pledges 10 10 10 10 10 10 Other commitments 113 107 104 113 107 104 122 117 1 14 122 117 114 0