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

23 April 2019
|

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

EUR MPrivate BankingPremium BankingITCorporate and OtherEliminationsTotal
Net interest income6.56.40.01.20.014.1
Net commission income11.02.90.00.30.014.3
Net income from financial items at fair value0.0 0.00.40.00.4
IT income  7.80.0-3.84.0
Other income0.00.00.10.2-0.30.1
Total income17.69.37.92.1-4.032.9
       
Staff costs-4.5-1.7-4.2-4.8 -15.1
Other expenses-2.9-2.2-3.2-5.83.5-10.6
Depreciation/amortisation-0.1-0.1-0.7-1.40.5-1.9
Internal allocation of expenses-5.6-4.2 9.80.00.0
Total expenses-13.0-8.2-8.1-2.24.0-27.5
       
Profit before impairment losses4.51.2-0.30.0-0.15.4
       
Net impairment losses from financial items, net-0.10.0 -0.1 -0.2
       
Net operating profit4.51.2-0.3-0.1-0.15.2
       
Income taxes-0.9-0.20.00.00.0-1.1
       
Profit for the period attributable to shareholders in Bank of Åland Plc3.50.9-0.2-0.1-0.14.0
       
Business volume      
Receivables from the public and public sector1.8072.206 28-214.020
Deposits from the public and public sector1.6731.402 41-193.098
Actively managed assets5.233341 0 5.575
Risk exposure amount70565643207 1.611
Equity capital86911444 235
       
Financial ratios etc.      
Return on equity after taxes, % (ROE) 17.04.1-8.2-1.2 7.0
Expense/income ratio0.740.881.031.01 0.84


Group  Jan-Jun, 2018   
       
EUR MPrivate BankingPremium BankingITCorporate and OtherEliminationsTotal
Net interest income12.813.00.02.10.027.9
Net commission income21.05.90.00.60.127.7
Net income from financial items at fair value0.0 0.01.4-0.11.3
IT income  16.30.0-8.18.1
Other income0.00.10.20.5-0.50.3
Total income33.919.016.44.6-8.665.4
       
Staff costs-8.1-3.3-8.5-9.70.0-29.5
Other expenses-4.6-3.0-5.9-11.67.2-17.9
Depreciation/amortisation-0.1-0.2-1.5-2.70.9-3.7
Internal allocation of expenses-11.2-8.60.019.70.00.0
Total expenses-24.0-15.1-15.9-4.38.1-51.1
       
Profit before impairment losses10.03.90.50.4-0.514.3
       
Net impairment losses from financial items, net-0.1-0.4 -0.20.0-0.7
       
Net operating profit9.93.60.50.1-0.513.6
       
Income taxes-2.0-0.7-0.1-0.10.0-2.9
       
Profit for the period attributable to shareholders in Bank of Åland Plc7.92.80.50.0-0.510.6
       
Business volume      
Receivables from the public and public sector1.7002.256 27-213.963
Deposits from the public and public sector1.6301.436 46-163.095
Actively managed assets5.287363 1 5.650
Risk exposure amount69064543197 1.575
Equity capital89911435 229
       
Financial ratios etc.      
Return on equity after taxes, % (ROE)18.56.47.60.1 9.3
Expense/income ratio0.710.790.970.92 0.78


Group  Jan-Sep, 2018  
       
EUR MPrivate BankingPremium BankingITCorporate and OtherEliminationsTotal
Net interest income18.819.80.02.70.041.2
Net commission income30.19.10.01.10.240.4
Net income from financial items at fair value0.10.00.01.3-0.11.3
IT income  23.70.0-11.812.0
Other income0.00.10.40.8-0.70.6
Total income49.029.024.05.9-12.495.4
       
Staff costs-11.6-4.9-11.7-14.60.0-42.8
Other expenses-6.2-3.8-8.5-16.810.4-24.9
Depreciation/amortisation-0.2-0.3-2.3-4.11.3-5.5
Internal allocation of expenses-16.5-12.70.029.10.00.0
Total expenses-34.5-21.7-22.5-6.311.7-73.2
       
Profit before impairment losses14.57.31.5-0.4-0.722.2
       
Net impairment losses from financial items, net0.0-0.4 -0.50.0-0.9
       
Net operating profit14.56.81.5-0.9-0.721.3
       
Income taxes-3.0-1.4-0.30.1 -4.5
       
Profit for the period attributable to shareholders in Bank of Åland Plc11.65.41.2-0.8-0.716.7
       
Business volume      
Receivables from the public and public sector1.7132.260 25-203.978
Deposits from the public and public sector1.6101.449 46-193.085
Actively managed assets5.478371 1 5.849
Risk exposure amount67165043201 1.565
Equity capital84901449 237
       
Financial ratios etc.      
Return on equity after taxes, % (ROE)18.18.013.0-2.5 9.6
Expense/income ratio0.700.750.941.07 0.77


Group  Jan-Dec, 2018  
EUR MPrivate BankingPremium BankingITCorporate and OtherEliminationsTotal
Net interest income24.626.4-0.13.60.054.5
Net commission income40.112.3-0.11.60.254.3
Net income from financial items at fair value0.10.00.01.6-0.11.5
IT income  32.5 -16.116.4
Other income0.20.20.51.5-1.41.0
Total income64.939.032.88.3-17.3127.6
       
Staff costs-15.3-6.5-16.1-19.10.0-57.1
Other expenses-8.4-4.7-11.7-23.114.4-33.4
Depreciation/amortisation-0.3-0.4-3.1-5.41.8-7.3
Internal allocation of expenses-22.0-17.10.039.10.00.0
Total expenses-46.0-28.7-30.9-8.416.2-97.8
       
Profit before impairment losses18.910.21.9-0.2-1.129.8
       
Net impairment losses from financial items, net0.1-0.4 -0.60.0-0.8
       
Net operating profit19.19.91.9-0.7-1.129.0
       
Income taxes-3.9-2.0-0.40.2 -6.1
       
Profit for the period attributable to shareholders in Bank of Åland Plc15.27.81.6-0.5-1.122.9
       
Business volume      
Receivables from the public and public sector1.7392.280 25-224.022
Deposits from the public and public sector1.7301.551 45-223.304
Actively managed assets4.851325 1 5.177
Risk exposure amount67064543220 1.578
Equity capital82911455 242
       
Financial ratios etc.      
Return on equity after taxes, % (ROE)18.08.712.2-1.1 9.8
Expense/income ratio0.710.740.941.02 0.77

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.

GroupQ1
2018
Q2
2018
Q3
2018
Q4
2018
Jan 1-Dec 31, 2018

EUR M
     
Reported net operating profit, using straight-line accrued stability fee7.47.57.07.129.0
Adjustment, stability fee-2.20.90.60.60.0
Restated net operating profit5.28.47.77.729.0
      
Reported taxes, using straight-line accrued stability fee-1.6-1.6-1.5-1.4-6.1
Adjustment, stability fee0.4-0.2-0.1-0.10.0
Restated taxes-1.1-1.8-1.6-1.5-6.1
      
Attributable to:     
Reported profit to the shareholders in Bank of Åland Plc, using straight-line accrued stability fee stabilitetsavgift5.85.95.65.722.9
Restated profit to the shareholders in Bank of Åland Plc4.06.66.16.222.9
      
Reported earnings per share, using straight-line accrued stability fee, EUR0.380.380.360.371.48
Restated earnings per share, EUR0.260.430.390.401.48

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.

GroupQ1
2018
Q2
2018
Q3
2018
Q4
2018
Jan 1-Dec 31, 2018
      
EUR M     
Payment intermediation commissions0.50.50.40.72.1
Securities commissions0.60.30.20.51.6
Total net commission income1.10.80.61.23.7
      
Net income from financial items at fair value-1.1-0.8-0.6-1.2-3.7

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. 

GroupDec 31, 2018Restatement to IFRS 16Jan 1, 2019
    
EUR M   
Assets   
Tangible assets221437
Total effect, assets221437
    
Liabilities   
Miscellaneous liabilities571471
Total effect, liabilities571471


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

Operating lease obligation on December 31, 2018  7.0
Effect of discounting by the incremental borrowing rate  -0.8
Finance lease liabilities on December 31, 2018  1.5
Utilisation of extension and termination options  8.4
  Exemptions:   
  - Short-term leases  -0.2
  - Low asset-value leases  0.0
Recognised lease liability in opening balance sheet, January 1, 2019  15.9


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