The Bank of Åland’s new operating segments and changed accounting principles in interim reports

Bank of Åland Plc
Stock exchange release
April 23,2019, 4.55 p.m

The Bank of Åland’s new operating segments and changed accounting principles in interim reports

The Bank of Åland’s new operating segments and changed accounting principles in the Interim Report for January–March 2019, which will be published on April 25, 2019.

Changed segment reporting

The Bank of Åland is changing its segment reporting, since Asset Management no longer has its own sales organisation aimed at institutional customers, but instead primarily supports Private and Premium Banking with asset management solutions. Looking ahead, asset management will be reported within the Private Banking segment, where its customer base is predominantly found. For the sake of comparability, historical periods have been restated.   

The new segments being reported are:

• Private Banking, encompassing Private Banking operations in Åland, on the Finnish mainland and in Sweden, plus asset management (Ålandsbanken Fondbolag Ab, Ålandsbanken Fonder Ab and Ålandsbanken Fonder II Ab).
• Premium Banking, encompassing operations in all customer segments excluding Private Banking in Åland, on the Finnish mainland and in Sweden, plus asset management.
• IT, encompassing the subsidiary Crosskey Banking Solution Ab Ltd including S-Crosskey Ab, which develop and offer information technology (IT) solutions for banking services, card services, securities-related services and digital customer contacts.
• Corporate and Other, encompassing all central corporate units in the Group, including Treasury and the subsidiary Ab Compass Card Oy Ltd, which develop and offer debit and credit card services.

The tables below present restated accumulated quarterly figures for the new operating segments related to 2018. This segment reporting reflects the information that the Group’s Executive Team receives.

Group                                                                                                                                               Jan-Mar 2018

Reporting of the stability fee

In accordance with the prevailing regulator-based reporting interpretations, and in line with other Finnish banks, starting in 2019 the Bank of Åland has chosen to recognise the entire annual cost of the stability fee in the first quarter, when responsibility for the fee arises, instead of a straight-line accrual of this cost over the four quarters of the year. The Bank of Åland’s earnings will thus show greater seasonal variations, with weaker first quarter earnings. On an annual basis, the change will have no impact on the Bank of Åland's profitability or return on equity after taxes (ROE).

The Bank of Åland has not yet received the final amount for 2019. The estimated amount totals EUR 2.3 M and is recognised under “Other expenses”. For the sake of comparability, historical periods have been restated.

The table below presents the effects for 2018, restated using the new accounting principle for the stability fee.

Reporting of foreign exchange commissions

The Bank of Åland is changing its reporting of foreign exchange commissions connected to customers’ payments and securities trading. The Bank of Åland has previously reported these under net income from financial items at fair value, but starting in 2019 the Bank will report them as payment intermediation commissions and securities commissions under net commission income. For the sake of comparability, prior years have been restated. 
The following table presents restated figures for 2018.

Application of IFRS 16

Starting on January 1, 2019, the Bank of Åland is applying IFRS 16, “Leases”. This standard replaces previous IAS 17 standard and related interpretations. IFRS 16 removes the requirement that lessees must distinguish between finance and operational leases and requires lessees to report a “right-of-use” asset and a lease liability for most leases in the balance sheet. In the income statement, rent expenses are replaced by depreciation of the assets and interest expenses for the lease liability.

This accounting model resembles the previous treatment of finance leases according to IAS 17. The Bank of Åland has chosen to apply the exemption found in IFRS 16, under which leases running for 12 months or less or leases of low-value assets will be recognised as expenses in the income statement. The lessor’s accounting is essentially equivalent to the previous treatment according to IAS 17.

Due to the introduction of IFRS 16, starting on January 1, 2019 tangible assets related to right-of-use increased by EUR 14 M and the risk exposure amount increased by the equivalent amount. The Bank of Åland is applying the modified retrospective approach. No comparative figures have been restated.
The most significant identified effect of IFRS 16 is that the Bank of Åland is reporting new assets and liabilities for its operational leases related to banking and office premises. Lease liabilities are initially being calculated upon the transition to the present value of future lease payments discounted using the incremental borrowing rate on the introductory date of January 1, 2019. Right-of-use assets are initially being recognised at an amount equal to the lease liability.

The table below presents the effects on assets and liabilities in conjunction with the transition to IFRS 16. 

Reconciliation, disclosure of operating leases according to IAS 17 and recognised lease liability according to IFRS 16

When transitioning to IFRS 16, the Bank of Åland recognised an additional EUR 14,336 K in right-of-use assets, bringing its lease liability to EUR 15,876 K on January 1, 2019. Lease liabilities are initially being calculated upon the transition to the present value of future lease payments, discounted using the incremental borrowing rate on the introductory date of January 1, 2019. The weighted average rate being used is about 3 per cent.

For further information, please contact:

Peter Wiklöf, Managing Director and Chief Executive, tel +358 40 512 7505