Interim report for the period January - March 2006

Bank of Åland Plc STOCK EXCHANGE RELEASE 24.04.2006 15.00 hrs Interim report for the period January - March 2006 The report period in brief . Consolidated net operating profit climbed 32.2 per cent to 6.4 million euros (Jan-Mar 2005: EUR 4.8 M) . Net interest income rose by 5.0 per cent to EUR 8.1 M (7.7) . Commission income rose by 22.0 per cent to EUR 4.4 M (3.6) . Expenses rose by 6.8 per cent to EUR 9.3 M (8.7) . Loan losses were EUR 0.0 M (0.0) . Lending volume rose by 13.5 per cent to EUR 1,802 M (Mar 2005: 1,588) . Deposit accounts rose by 1.1 per cent to EUR 1,211 M (Mar 2005: 1,198) . Mutual fund capital under management rose to EUR 278 M (230) . Return on equity after taxes (ROE) was 17.2 per cent (14.1) . The total capital ratio amounted to 11.0 per cent (11.5) . Earnings per share after taxes amounted to EUR 0.41 (0.33) EARNINGS AND PROFITABILITY This Interim Report has been prepared according to the International Financial Reporting Standards (IFRS) approved by the European Union, as well as in compliance with IAS 34, "Interim Financial Reporting". Earnings During the first quarter of 2006, consolidated net operating profit amounted to EUR 6.4 M (4.8). This was an increase of 32.2 per cent1 compared to the corresponding period of 2005. Return on equity after taxes (ROE) was 17.2 per cent (14.1). The main reasons for the positive tren d of earnings were increased commission income from asset management and from providing investment products, as well as increased revenue from the computer systems sales and development business area (Crosskey Banking Solutions Ab Ltd). Net interest income Net interest income amounted to EUR 8.1 M (7.7). As a result of higher interest rates as well as larger lending volume, net interest income rose by 5.0 per cent despite the continued narrowing of customer margins. Other income Commission income rose by 22.0 per cent to EUR 4.4 M (3.6). 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 0.5 M (- 0.1). Net income from dealing in the foreign exchange market amounted to EUR 0.3 M (0.2). Net income from financial assets available for sale was EUR 0.3 M (1.2). 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 0.0 M (0.2). Other operating income totalled EUR 2.3 M (0.9), chiefly due to a increase in revenue from the development and sale of computer systems. Total income rose by 16.0 per cent to EUR 15.5 M (13.3). Expenses Staff costs rose by 10.2 per cent to EUR 5.3 M (4.9). Increased fair value of assets in Ålandsbanken Abp:s Pensionsstiftelse, the Bank's pension fund, red uced staff costs by EUR 0.5 M (0.2). Other administrative expenses (office costs, marketing, telecommunications and computer costs) amounted to EUR 1.9 M (1.9). Production for own use amounted to EUR 0.1 M and was related to expenses for computer software, which in accordance with IFRS must be capitalised. Depreciation/amortisation rose to EUR 1.0 M (0.9). Other operating expenses amounted to EUR 1.1 M (1.0). Total expenses, including planned depreciation/amortisation, rose to EUR 9.3 M (8.7). Impairment loss on loans and other commitments Net loan losses were marginal during the report period, as during the corresponding period of 2005. Personnel Hours worked in the Group, recalculated to full-time equivalent positions, totalled 404 (392) in the first quarter of 2006. This represented an increase of 12 positions compared to the same period last year. Most of the increase was due to new recruitments at Crosskey Banking Solutions Ab Ltd. 1 All percentages are calculated on the basis of fair values. Expense/income ratio Efficiency measured as expenses divided by income, including and excluding loan losses, respectively: Bank of Åland Group Mar 31, Mar 31, Dec 31, 2006 2005 2005 including loan losses 0.59 0.64 0.64 excluding loan losses 0.59 0.64 0.64 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 March, the Group's capital adequacy according to the Credit Institutions Act, was 11.0 per cent (11.5). Bank of Åland Group Mar 31, Mar 31, Dec 31, 2006 2005 2005 Capital base, EUR M Core capital 84.5 81.7 83.8 Supplementary capital 49.6 40.5 51.3 Total capital base 134.1 122.2 135.1 Risk-weighted volume, EUR M 1,224.1 1,060.4 1,192.7 Total capital ratio, % 11.0 11.5 11.3 Core capital as a percentage 6.9 7.7 7.0 of risk-weighted volume Profit for the report period is not included in the capital base. Cash flow statement Bank of Åland Group Jan-Mar Jan-Mar 2006 2005 Liquid assets, January 1 217.4 252.2 Cash flow from operating activities Net operating profit 6.4 4.8 Adjustment for net operating profit items not affecting cash flow 0.3 3.3 Profits/losses from investing -0.2 -3.2 activities Income taxes paid -1.4 -0.9 Change in assets and liabilities in operating activities -52.6 -47.5 45.3 49,3 Cash flow from investing activities -0.2 4.8 Cash flow from financing activities -11.5 -11.2 Liquid assets, March 31 158.2 295.1 Deposits Deposits from the public, including bonds issued and certificates of deposit, rose during the 12 months to March 31, 2006 by 4 per cent to EUR 1,583 M (1,522). Deposit accounts rose by 1.1 per cent to EUR 1,211 M (1,198). Bonds and certificates of deposit issued to the public rose by 17.6 per cent to EUR 371 M (324). During the report period, the Group floated bond issues with a nominal value of EUR 11.7 M. Lending The volume of lending to the public increased by 13.5 per cent to EUR 1,802 M (1,588) during the 12 months to March 31, 2006. Most of the increase went towards residential financing. Lending to private households rose by 12.0 per cent to EUR 1,233 M (1,101). Private households accounted for 68.4 (69.4) per cent of the Group's total lending. Crosskey Banking Solutions Ab Ltd Crosskey Banking Solutions Ab Ltd is a wholly-owned subsidiary of the Bank of Åland Plc (Ålandsbanken Abp). 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 four banks: Tapiola Bank, DnB NOR, S-Banken and the Bank of Åland. Crosskey currently has about 110 employees and offices in Mariehamn and Helsinki. Ålandsbanken Asset Management Ab Ålandsbanken Asset Management Ab is a subsidiary of the Bank of Åland Plc. The company offers discretionary and consultative asset management services to institutions and private individuals. The company currently has about 255 customers, EUR 565 M in managed assets and strong growth. Ålandsbanken Fondbolag Ab Ålandsbanken Fondbo lag Ab is a wholly-owned subsidiary of the Bank of Åland Plc. The mutual funds (unit trusts) that the company manages are registered in Finland and comply with the Act on Mutual Funds. On March 31, 2006, the number of unit holders totalled 10,605 (Dec 31, 2005: 9,443). This represented an increase of 1,162 or about 12 per cent during the report period. The total assets under management amounted to EUR 278.2 M (269), an increase of EUR 9.2 M or 3 per cent during the report period. New sales and the market price performance of the funds remained good, while a single major redemption of units substantially lowered the total net increase in managed assets. 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 currently has about 178 customers, EUR 398 M in managed assets. Forecast for 2006 Full-year earnings in 2006 are expected to be better than in 2005. Mariehamn, April 24, 2006 THE BOARD OF DIRECTORS Review report To the shareholders of the Bank of Åland Abp We have conducted a review of the Interim Report of the Bank of Åland Abp for the period January 1 - March 31, 2006. The Interim Report, which was issued by the Board of Directors and the Managing Director, includes condensed income statement, balance sheet, cash flow statement, changes in equity capital and certain additional disclosures. After completing our assignment, we are issuing our statement of opinion about the Interim Report. Our review was conducted in accordance with the recommendations of the Finnish Institute of Authorised Public Accountants concerning reviews. A review is planned and carried out on a sufficient scope to confirm that the Interim Report does not contain essential errors or omissions. A review is mainly limited to interviews with the staff of the Bank and analytical examination measures. We have not conducted a complete audit and will thus not issue an audit report. On the basis of this review, to our knowledge no circumstances have emerged that would give reason to assume that the Interim Report has not been prepared essentially in accordance with the accounting and valuation principles of the IFRS standards approved by the EU as well as other Finnish rules and regulations concerning Interim Reports and that the Interim Report should not provide accurate and sufficient disclosures about the operating results and financial position of the Bank. Mariehamn, April 24, 2006 Marja Tikka Authorised Public Accountant Leif Hermans Authorised Public Accountant Rabbe Nevelainen Authorised Public Accountant FINANCIAL RATIOS ETC Bank of Åland Group Jan-Ma r Jan-Mar Jan-Dec 2006 2005 2005 Earnings per share before dilution, EUR 1 0.41 0,33 1.24 Earnings per share after dilution, EUR 2 0.40 0.32 1.21 Market price per share, end of period, EUR Series A 28.00 21.00 24.00 Series B 25.45 18.60 24.00 Equity capital per share, EUR 3 9.70 9.17 10.32 Return on equity after taxes, % (ROE) 4 17.2 14.1 12.5 Return on total assets (ROA), % 5 0.9 0.6 0.7 Equity/assets ratio, % 6 5.0 5.1 5.2 Total lending volume, EUR M 1,802 1,588 1,796 Total deposits from the public, EUR M 1,583 1,522 1,631 Equity capital, EUR M, 107 101 113 Balance sheet total, EUR M 2,143 1,986 2,170 Expense/income ratio Including loan losses 0.59 0.64 0.64 Excluding loan losses 0.59 0.64 0.64 1 Profit for the period before dilution/ Average number of shares 2 Profit for the period after dilution / Average number of shares + shares outstanding 3 Equity capital / Number of shares on balance sheet date 4 Net operating profit - taxes / Average equity capital 5 Net operating profit - taxes / Average balance sheet total 6 Profit for the period / Balance sheet total SUMMARY BALANCE SHEET Bank of Åland Group Mar 31 Mar 31 Dec 31 (EUR M) 2006 2005 2005 ASSETS Cash 50 24 78 Debt securities eligible for refinancing with central banks 47 174 96 Claims on credit institutions 146 119 128 Claims on the public and public sector entities 1,802 1,588 1,796 Debt securities 0 1 0 Shares and participations 4 5 5 Shares and participations in associated companies 1 0 2 Derivative instruments 20 10 15 Intangible assets 4 3 4 Tangible assets 24 24 24 Other assets 27 25 9 Accrued income and prepayments 16 12 14 Deferred tax assets 1 0 0 TOTAL ASSETS 2,143 1,986 2,170 LIABILITIES AND EQUITY CAPITAL Liabilities to credit institutions 75 19 73 Liabilities to the public and public sector entities 1,215 1,203 1,303 Debt securities issued to the public 594 530 558 Derivative instruments 20 11 15 Other liabilities 51 43 30 Accrued expenses and prepaid income 16 16 11 Subordinated liabilities 55 53 55 Deferred tax liabilities 12 10 12 TOTAL LIABILITIES 2,036 1,885 2,057 EQUITY CAPITAL AND MINORITY INTEREST Share capital 22 22 22 Share premium account 26 26 26 Reserve fund 25 25 25 Fair value reserve 0 0 0 Retained earnings 28 23 0 Profit for the period 5 4 25 Minority interest in capital 1 0 14 TOTAL EQUITY CAPITAL 107 101 112 TOTAL LIABILITIES AND EQUITY CAPITAL 2,143 1,986 2,170 SUMMARY INCOME STATEMENT Bank of Åland Group Jan-Mar Jan-Mar Jan-Dec (EUR M) 2006 2005 2005 Net interest income 8.1 7.7 31.4 Income from equity instruments 0.0 0.0 0.1 Commission income 4.4 3.6 16.1 Commission expenses -0.4 -0.4 -2.0 Net income from securities transactions and foreign exchange dealing 0.7 0.1 1.5 Net income from financial assets available for sale 0.3 1.2 1.1 Net income from investment properties 0.0 0.2 0.3 Other operating income 2.3 0.9 3.5 Total income 15.5 13.3 52.0 Staff costs -5.3 -4.9 -17.8 Other administrative expenses -1.9 -1.9 -8.5 Production for own use 0.1 0.0 1.1 Depreciation/amortisation -1.0 -0.9 -3.9 Other operating expenses -1.1 -1.0 -4.2 Total expenses -9.3 -8.7 -33.2 Impairment losses on lending and other commitments 0.0 0.0 -0.3 Share of profit/loss in associated companies 0.1 0.1 0.2 Net operating profit 6.4 4.8 18.7 Income taxes -1.6 -1.1 -4.6 Minority share of profit for the period -0.2 -0.1 -0.5 Profit for the report period 4.5 3.7 13.6 INCOME STATEMENT BY QUARTER Bank of Åland Group Q I Q IV Q III Q II Q I (EUR M) 2006 2005 2005 2005 2005 Net interest income 8.1 7.9 7.9 7.9 7.7 Income from equity instruments 0.0 0.0 0.0 0.1 0.0 Commission income 4.4 4.4 3.9 4.3 3.6 Commission expenses -0.4 -0.6 -0.5 -0.5 -0.4 Net income from securities transactions and foreign exchange dealing 0.7 0.4 0.6 0. 4 0.1 Net income from financial assets available for sale 0.3 -0.4 0.0 0.3 1.2 Net income from investment 0.0 0.0 0.0 0.0 0.2 properties Other operating income 2.3 1.0 0.7 0.9 0.9 Total income 15.5 12.7 12.6 12.8 13.3 Staff costs -5.3 -3.1 -4.5 -5.4 -4.9 Other administrative expenses -1.9 -2.1 -2.0 -2.5 -1.9 Production for own use 0.1 -0.2 0.4 0.9 0.0 Depreciation/amortisation -1.0 -1.3 -0.9 -0.8 -0.9 Other operating expenses -1.1 -1.1 -1.0 -1.1 -1.0 Total expenses -9.3 -7.7 -7.9 -8.9 -8.7 Loss impairment on loans and other commitments 0.0 0.0 -0.3 0.0 0.0 Share of profit/loss in 0.1 -0.1 0.1 0.1 0.1 associated companies Net operating profit 6.4 4.9 4.5 4.5 4.8 CHANGES IN EQUITY CAPITAL Bank of Åland Group Share Share Legal Fair value Retained Minority Total capital premium reserve reserve earnings interest EUR M account Equity capital, December 31, 2004 22,2 25,5 25,1 0,0 34,5 0,5 107,8 Introduction of IAS 39 incl. fair value option 0,5 1,1 1,6 3,3 Equity capi tal, January 1, 2005 22,2 26,0 25,1 1,1 36,1 0,5 111,1 Dividend to shareholders -11,0 -11,0 Conversion of capital loan 0,0 0,1 0,1 Change in fair value -0,8 -0,8 Change in minority interest of equity capital -0,1 -0,1 Profit for the period 3,6 3,6 Equity capital, March 31, 2005 22,2 26,1 25,1 0,3 28,8 0,4 102,8 Conversion of capital loan 0,0 0,0 0,0 Change in fair value 0,1 0,1 Change in minority share of equity capital 0,5 0,5 Profit for the period 10,0 10,0 Equity capital, December 31, 2005 22,2 26,1 25,1 0,4 38,7 0,9 113,3 Dividend to shareholders 1 -11,0 -11,0 Conversion of capital loan 0,0 0,3 0,3 Change in fair value -0,2 -0,2 Change in minority share of equity capital -0,3 -0,3 Profit for the period 4,5 4,5 Equity capital, March 31, 2006 22,2 26,4 25,1 0,2 32,2 0,6 106,8 1 Dividend payment for Series A shares EUR 5.2 M and for Series B shares EUR 5.8 M. SEGMENT REPORT Bank of Åland Group March 31, 2006 Retail Investment Information Treasury Group Elimi- Total banking banking technology and portfolio staff units nations (EUR M) operations operations operations management etc. External income 9.0 2.8 2.2 1.2 0.2 0.0 15.5 Internal income 0.4 -0.4 2.3 1.6 0.2 -4.1 0.0 Total income 9.4 2.4 4.6 2.8 0.4 -4.1 15.5 Costs incl. depreciation etc. -3.2 -0.8 -3.2 -0.4 -5.6 4.1 -9.2 Loan losses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Share of profit/loss in associated companies 0.1 0.1 Net operating profit 6.2 1.6 1.3 2.5 -5.3 0.0 6.4 Assets 1,852.6 30.1 3.6 53.6 218.1 -15.2 2,142.8 Liabilities 1,521.2 211.6 3.4 168.0 146.4 -14.5 2,036.0 Equity capital 106.8 SEGMENT REPORT Bank of Åland Group March 31, 2005 Retail Investment Information Treasury Group Elimi- Total banking banking technology and portfolio staff units nations (EUR M) operations operations operations management etc. External income 8.6 1.9 0.8 2.2 -0.1 0.0 13.3 Internal income 0.2 -0.4 1.0 0.8 0.3 -2.0 0.0 Total income 8.9 1.5 1.8 3.0 0.2 -2.0 13.3 Costs incl. depreciation etc. -3.1 -0.7 -2.8 -0.5 -3.5 2.0 -8.7 Loan losses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Share of profit/loss in associated companies 0.1 0.1 Net operating profit 5.7 0.8 -1.1 2.7 -3.4 0.0 4.8 Assets 1,638.1 31.8 4.1 181.3 134.4 -3.7 1,986.0 Liabilities 1,370.7 252.8 2.7 166.4 94.2 -1.5 1,885.3 Equity capital 100.7 LENDING TO THE PUBLIC AND PUBLIC SECTOR ENTITIES BY PURPOSE Bank of Åland Group Mar 31 Mar 31 Dec 31 (EUR M) 2006 2005 2005 BUSINESS AND PROFESSIONAL ACTIVITIES Service sector Shipping 61 67 60 Hotels, restaurants, tourist cottages etc. 12 12 11 Wholesale and retail trade 44 42 46 Housing corporations 40 34 40 Real estate activities 93 86 95 Financial activities 153 110 137 Other service business 75 59 78 477 410 467 Production sector Agriculture, forestry and fishing 21 19 21 Food processing etc 8 10 9 Construction 27 12 27 Other industry and crafts 8 8 9 64 50 66 HOUSEHOLDS Home loans 984 890 977 Studies 13 13 13 Other purposes 235 198 246 1,233 1,101 1,236 PUBLIC SECTOR AND NON-PROFIT ORGANISATIONS 28 27 28 TOTAL LENDING 1,802 1,588 1,796 DEPOSITS FROM THE PUBLIC AND PUBLIC SECTOR ENTITIES, including bonds issued and certificat es of deposit Bank of Åland Group Mar 31 Mar 31 Dec 31 (EUR M) 2006 2005 2005 Deposit accounts from the public and public sector entities Demand deposit accounts 170 173 187 Current accounts 187 209 197 Savings and Environmental Accounts 102 112 109 Prime Accounts 442 467 494 Time deposits 240 182 228 Total deposit accounts in euros 1,141 1,142 1,214 Deposit accounts in other currencies 70 56 85 Total deposit accounts 1,211 1,198 1,300 Bonds 182 168 174 Certificates of deposit issued to the public 189 156 157 Bonds and certificates of deposit 371 324 331 Total deposits 1,583 1,522 1,631 DERIVATIVE CONTRACTS Bank of Åland Group Mar 31, 2006 Mar 31, 2005 For hedging For hedging (EUR M) purposes Other purposes Other 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 334.2 8.6 355.0 3.9 Currency derivatives Forward contracts 10.9 11.4 2.0 2.4 Interest rate and currency swap contracts 0.0 1.1 0.0 0.3 Equity derivatives Option contracts Purchased 160.7 0.0 133.0 0.7 Written 0.0 160.7 0.0 133.0 505.8 181.8 505.0 155.3 Equivalent credit values of the contracts Interest rate derivatives 3.0 2.5 Currency derivatives 0.5 0.1 Equity derivatives 29.3 19.1 32.8 21.7 OFF-BALANCE SHEET COMMITMENTS Bank of Åland Group Mar 31 Mar 31 Dec 31 (EUR M) 2006 2005 2005 Guarantees and pledges 14 12 13 Other commitments 143 123 132 158 135 145