The 2021 operations report for the period from January 1 to December 31

CREDIT QUALITY

Retail loans accounted for 78 percent of the loan portfolio. Residential mortgages accounted for 76%. Loans for the purchase of securities, with listed securities as collateral, constituted the second type of loans to individuals. Historically, the Bank of Åland has not recorded substantial losses on this type of loan. The corporate portfolio has close affinities with the retail portfolio, as many companies belong to clients who, as individuals, are also Private Banking clients.

The Bank of Åland group had €14.9 M in provisions for impairment on December 31, 2021 (11.9 le December 31, 2020), of which 2.1 euros M (2.5) at stage 1, 0.8 euros M (1.0) at stage 2 and €11.7 M (8.3) in Stage 3. In 2021, Stage 3 loans increased by €16.8 My €47.3 M

Phase 3 loans as a percentage of gross loans to the public totaled

1.23 per cent (0.89). The level of provisions for phase 3 loans was 20 (21) percent. Most of these loans have good collateral.

LIQUIDITY AND BORROWING

Bank of Åland’s liquidity reserve in the form of cash and deposits with the central bank, account balances and investments with other banks, liquid interest-bearing securities and holdings of unsecured covered bonds encumbered issued by the bank amounted to €1,320 Mon December 31, 2021 (1,175 out of December 31, 2020). This was equivalent to 20 (19) percent of total assets and 28 (27) percent of loans to the public.

In September, the Bank of Åland proceeded with the early repayment of 2.5 billion Swedish crowns in covered bonds from the Swedish pool with a final maturity in November 2022. At the same time, the Bank issued new covered bonds for an amount of 5.5 billion Swedish crowns with a final deadline in September 2026. The bond issue was unique, since these bonds have contractual conditions that allow them to move from the Finnish legislative framework to the Swedish legislative framework, and from the Bank of Åland as a counterparty to Borgo as consideration, when the Bank’s Swedish mortgage portfolio is transferred to Borgo during the first half of 2022.

In September 250 euros M in unsecured bonds also matured. The Bank has chosen not to renew them.

At December 31, 2021the average residual maturity of outstanding Bank of Åland bonds was approximately 3.1 (2.5) years.

The loan to deposit ratio stood at 118 (121) percent.

Among Bank of Åland’s external sources of funding, besides equity, public deposits accounted for 66 (64) % and covered bonds issued 19 (16) %.

The Liquidity Coverage Ratio (LCR) stood at 152 (159) percent.

The net stable funding ratio (NSFR) was 109 (106) percent.

EVALUATION

The Bank of Åland had a Standard & Poor’s Global Ratings credit rating of BBB/A-2 with a positive outlook for its long and short term borrowings. Covered bonds issued by Bank of Åland have a credit rating of AAA with a stable outlook.

EQUITY AND CAPITAL ADEQUACY

During the reporting period, shareholders’ equity changed in the amount of profit for the period, €39.9 M; the other extended result, €1.9 M; the issuance of new shares under the incentive program, EUR 0.4 M; dividends distributed totaling €31.2 M to shareholders; dividends distributed from 0.8 euros M to holders of Additional Tier 1 (AT1) instruments; and issue of AT1 capital, €29.4 Mon December 31, 2021equity amounted to €331.9 M (292.4 on the 31st of December2020).

Other comprehensive income includes remeasurements of defined benefit pension plans €5.1 M after tax, in accordance with IAS 19.

Common Equity Tier 1 capital increased by 0.5 euros M during the reporting period to €239.0 M (238.5). Finnish Financial Supervisory Authority authorized the purchases of the Bank’s own shares. The maximum amount that can be used for redemptions is 10.5 euro M. The amount is a fully deductible element of the capital base (equity) even when these redemptions have not taken place.

The risk exposure amount increased by 18% during the reporting period and totaled €1,976 H (1671). The credit risk exposure amount increased by 290 euros M or 22 percent. The elimination of the risk weight floor for mortgages in Finland decreased the amount of risk exposure by 108 euros M. A normalized upward adjustment of 26.5% to the risk exposure amount, calculated using the IRB approach pending an updated and approved IRB approach, increased the risk exposure amount by 129 euros M. The operational risk exposure amount decreased by 4 euros M

The Common Equity Tier 1 (CET1) ratio decreased to 12.1 (14.3)%.

The Tier 1 (T1) capital ratio, which was previously always the same as the CET1 capital ratio, increased due to the issuance of AT1 instruments totaling 300 SEK M in March 2021 and amounted to 13.6 (14.3) percent.

The total capital ratio decreased to 15.4 (16.5) percent.

A mitigating measure in the calculation of the leverage ratio has been introduced, exempting exposures to central banks relevant for the transmission of monetary policy. The Bank of Åland took this into account in its calculation of the leverage ratio, which amounted to 4.3 (4.2) % on december 3102021. Without the mitigation measure, it would have been 3.9 (3.9) percent.

In addition to the base capital requirement, various cushion requirements apply. These are mainly imposed by national regulatory authorities. Due to the coronavirus crisis, several of these buffer requirements have been lowered. The capital conservation buffer requirement, 2.5% of Common Equity Tier 1 capital, applies to all European Union countries. The countercyclical capital buffer requirement can vary between 0 and

2.5 percent. For Finnish and Swedish exposures, the requirement remains 0.0%. However, the Swedish Financial Supervisory Authority decided to increase the amount of the countercyclical buffer to 1.0 per cent. The new amount of the cushion applies from the September 29, 2021. The Swedish FSA aims to gradually increase the amount of the buffer to 2.0% in 2022 if the economic recovery continues.

Bank of Åland Plc Year-End Report, January-December20215

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