Aktia Pankki Oyj : Interim report 1-9/2020

Q3

Interim report January-September 2020

A K T I A B A N K P LC I N T E R I M R E P O R T J A N U A R Y- S E P T E M B E R 2 0 2 0

The stable financial performance continued, negative value changes in the Life Insurance Company's investment portfolio affected the operating profit

In brief

• Stable growth of the loan book and low financing expenses contributed to the good development of net interest income
• Unchanged credit loss provisions - the loan book shows no significant risk concentrations
• Commission income continues to recover, however, lower consumption in households decreased card payments
• The negative value changes in real estate investments affected net income from life insurance negatively
• Customers' interest in investment advice increased noticeably, Asset Management's product selection was expanded further

Outlook 2020 (updated)

Aktia informed on 18 March 2020 that the significant worsening of the macroeconomic outlook and the grown volatility on the market as a result of the coronavirus outbreak are expected to have a negative impact on Aktia's operating profit in 2020.

Although the comparable operating profit for the whole year is expected to decrease due to the weak result during the first quarter, the underlying business performance is expected to develop steadily during the last quarter of the year, provided market and social conditions are stable:

• Continued growth in net interest income is expected to continue. The recovery in commission income from especially fund and asset management is dependent on changes in market values.
• Net income from life insurance is still very much dependent on changes in market values.
• Provisions for possible credit losses are expected to continue on a moderate level during the last quarter of the year at the same time as Aktia's liquidity and capital adequacy are strong.

Dividend (updated)

• Aktia's capital adequacy and liquidity enable a dividend pay-out for 2019 based on the Annual General Meeting's authorisation for the Board of Directors (a maximum of EUR 0.63 per share). The Board of Directors aims in January 2021 to decide on a EUR 0.63 dividend pay-out per share for 2019, provided that (new) regulatory policies do not hinder this. Aktia will inform about the Board of Directors' decision, record date and pay-out date for the dividend separately.

			∆ %	Jan-SepJan-Sep	∆ %		∆ %
(EUR million)	3Q2020	3Q2019	2020	2019	2Q2020	1Q2020	2019
Net interest income	20.0	19.6	2%	59.9	58.2	3 %	20.1	0%	19.7	77.6
Net commission income	24.2	25.3	-5%	72.2	73.3	-1 %	22.9	6%	25.2	99.1
Net income from life insurance	4.7	6.8	-31%	9.6	21.7	-56 %	10.1	-53%	-5.2	30.0
Total operating income	49.4	52.9	-7%	144.1	166.2	-13 %	54.8	-10%	39.9	221.4
Operating expenses	-33.8	-37.5	-10%	-105.7	-108.6	-3 %	-36.3	-7%	-35.6	-143.9
Impairment of credits and other commitments	-0.1	-1.2	-96%	-3.2	-3.7	-13 %	-1.8	-97%	-1.4	-4.5
Operating profit	16.0	14.3	12%	35.1	55.6	-37 %	16.3	-2%	2.8	74.8
Comparable operating income1	49.4	52.9	-7%	144.1	156.2	-8 %	54.8	-10%	39.9	211.4
Comparable operating expenses1	-33.8	-34.2	-1%	-105.5	-105.2	0 %	-36.1	-6%	-35.6	-140.4
Comparable operating profit1	16.0	17.6	-9%	35.3	49.0	-28 %	16.5	-3%	2.8	68.2
Cost-to-income ratio	0.68	0.71	-4%	0.73	0.65	12 %	0.66	3%	0.89	0.65
Comparable cost-to-income ratio1	0.68	0.65	5%	0.73	0.67	9 %	0.66	3%	0.89	0.66
Earnings per share (EPS), EUR	0.18	0.16	13%	0.39	0.67	-41 %	0.19	-5%	0.03	0.90
Comparable earnings per share (EPS), EUR1	0.18	0.20	-10%	0.40	0.56	-29 %	0.19	-5%	0.03	0.79
Return on equity (ROE), %	7.8	7.4	5%	5.8	10.2	-43 %	8.4	-7%	1.4	10.3
Comparable return on equity (ROE), %1	7.8	9.2	-15%	5.9	8.6	-32 %	8.5	-8%	1.4	9.1
Common Equity Tier 1 capital ratio (CET1), %2	15.6	15.6	0%	15.6	15.6	0%	15.7	-1%	15.9	14.7
Common Equity Tier 1 capital ratio (CET1), %2
taking into account the maximim dividend
payment for 2019	14.0	15.6	-10%	14.0	15.6	-10%	15.7	-11%	15.9	14.7

1) Alternative performance measures excluding items affecting comparability, see page 22 2) At the end of the period

Interim report January-September 2020 is a translation of the orginal Swedish version "Delårsrapport 1.1-30.9.2020". In case of discrepancies, the Swedish version shall prevail.

CEO's comments

Aktia's capital adequacy and liquidity enable a dividend pay-out for 2019 based on the Annual General Meeting's authorisation for the Board of Directors (a maximum of EUR 0.63 per share). The Board of Directors aims in January 2021 to decide on a EUR

0.63 dividend pay-out per share for 2019, provided that (new) regulatory policies do not hinder this. Aktia will inform about the Board of Directors' decision, record date and pay-out date for the dividend separately.

Aktia's year continued in a stable way during the third quarter despite the circumstances. Our customer related business continued to develop in a profitable way despite the increased uncertainty caused by the coronavirus, which was strongly reflected in the society.

Net interest income for the quarter was EUR 20.0 million, which is even slightly better than during the reference period.

I am particularly happy with how net interest income developed during the reporting period even though the market is still challenging due to low interest rates and extremely pressed margins. Relatively low financing expenses and stable growth of the loan book contributed to the good development of net interest income during the quarter. As a conservative lender we have still neither observed any significant single risky lines of business nor risk concentrations that would give us a reason to worry. We have also not made any significant changes to the model-based credit loss provisions that we reported previously.

Net commission income was EUR 24.2 million, which was somewhat lower than last year. The decreased consumption and travelling in households have still decreased card payments significantly, which was the main reason for the slightly lower net commission income. Net subscriptions increased and the market value changes for the quarter were positive - as a whole, the assets under management were still somewhat lower than for the previous year due to the strong market drop during spring.

However, the result for the third quarter was mainly affected by the lower net income from life insurance which was EUR

4.7 million and thus clearly lower than for the previous year. The negative value changes in the life insurance company's investment portfolio in relation to the deteriorated general economic situation along with the uncertainty in the real estate business were the most significant factors affecting the result for the third quarter.

The comparable operating profit for the quarter was EUR 16.0 (17.6) million and was hence lower than for the reference period. However, in my opinion we have done well. After the market drop in the beginning of the year, we have quickly been able to return to making growth and Aktia's underlying profit is now developing in the right direction. The expenses for the quarter were EUR

33.8 million, which is line with the previous year. However, even though we are going in the right direction in terms of making our business more effective, there is still plenty of work left.

Asset Management further expands its product selection

The customers' interest in investment advice services has clearly increased during the COVID-19 period. This has been gratifying to note, since investing should be a significant part of each Finn's personal financial management. The increased interest combined with a very exceptional situation has further increased the number of users of our digital services.

The number of customer calls increased rapidly during summer, which led to longer queuing times in the telephone service.

To take care of the situation, we strengthened the resources for the telephone service and expanded the service hours to comprise Saturdays and Sundays. Additionally, we introduced the new chatbot service. It is very important for us to serve our customers as agilely as possible and going forward we will continue to pay special attention to this.

The expansion of the Asset Management's offering is an essential part of Aktia's strategy. We increased the product range for private customers with a new structured product and bought Askel Partners Oy's fund business. The transaction brings Aktia prerequisites to launch a new infrastructure fund during the coming winter. It is also worth mentioning that our active portfolio management has showed its strength during these turbulent times. Aktia's funds are in a league of their own when comparing the average Morningstar ratings received by funds in different fund management companies in Finland. You can be successful in such independent ratings only if you have reached very good results in the long term. An impressive example of this is Aktia's Micro Cap equity fund that had an annual return of 78.5 per cent in the midst of the pandemic.

Aktia's headquarters in Helsinki moved to new premises on Arkadiankatu during the end of the quarter. The move is historic since the earlier building on Mannerheimintie was built in 1963 for Aktia's precursor, Helsingin Säästöpankki, and the banking business continued there for 57 years without interruption. Even though Aktia's head office had long been a familiar sight next to the Three Smiths statue in Helsinki, the new and modern spaces offer Aktia-employees an inspiring work environment that supports flexibility and better cooperation.

Helsinki 3 November 2020

Mikko Ayub

CEO

Aktia Bank Plc Interim report 1 January-30 September 2020 - CEO's comments

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Profit and balance

Profit July-September 2020

Comparable operating profit decreased to EUR 16.0 (17.6) million. However, the Group's reported operating profit increased to EUR 16.0 (14.3) million and the profit for the period to EUR 12.4 (11.2) million.

The decreased comparable operating profit for the third quarter mainly relates to negative unrealised value changes in the life insurance company's investment portfolio as well as a lower net commission income than for last year. Net interest income still shows a steady growth from last year. Assets under management (AuM) were still slightly lower than last year due to the strong market drop in March.

Items affecting comparability

	Jul-Sep	Jul-Sep
(EUR million)	2020	2019
Costs for restructuring	-	-3.3
Total	-	-3.3

Income

The Group's operating income decreased to EUR 49.4 (52.9) million mainly due to the life insurance company's negative unrealised value changes and a lower net commission income compared to the third quarter last year.

Net interest income was EUR 20.0 (19.6) million. Net interest income from borrowing and lending increased by 4% to EUR

1. (18.7) million, whereas interest income from hedging measures through interest rate derivatives decreased to EUR
2. (0.8) million.

Net commission income decreased by 5% to EUR 24.2 (25.3) million. Commission income from funds, asset management and securities brokerage was 3% lower than last year and amounted to EUR 15.9 (16.4) million. Commission income from cards, payment services and borrowing decreased by 12 % to EUR 6.5 (7.5) million and commission income from lending decreased by 5% to EUR 2.3 (2.4) million.

Net income from life insurance decreased to EUR 4.7 (6.8) million, which is mainly related to unrealised value changes in the life insurance company's investment portfolio of EUR -1.6 (1.3) million. However, the actuarially calculated result improved by EUR 1.8 million from last year mainly as a result of the planned dissolution of the interest reserve from 2012 and a good risk result.

Net income from financial transactions decreased to EUR 0.2 (0.5) million. The decrease mainly relates to a lower net result from hedge accounting compared to the third quarter during last year.

Other operating income decreased to EUR 0.3 (0.4) million and dividends to EUR 0.0 (0.3) million.

Operating income 3Q2020		Operating expenses 3Q2020
Net income from life	Other income
insurance	EUR 0.5 million		Other expenses
EUR 4.7 million			EUR 6.0 million	Staff costs
	49.4			EUR 16.4 million
	EUR 20.0 million	Depreciation	33.8
		Net interest
		income	EUR 4.3 million
	EUR million			EUR million

Net commission income

EUR 24.2 million

IT expenses

EUR 7.1 million

Aktia Bank Plc Interim report 1 January-30 September 2020 - Profit and balance

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