The report on 2021 operations for the period January 1 – December 31

Peter Wiklöf, Managing Director and Chief Executive

The Bank of Åland is a bank with strong customer relationships and personalised service. The Bank has extensive financial investment expertise and at the same time can offer good

financing services. The commercial bank was founded in 1919 and has been listed on the Nasdaq Helsinki Oy (Helsinki Stock Exchange) since 1942.

The Bank of Åland's Head Office is in Mariehamn. The Bank has two offices in the Åland Islands, six offices elsewhere in Finland and three offices in Sweden.

Two subsidiaries, whose operations are connected in various ways to banking, belong to the Bank of Åland Group.

Bank of Åland Plc. Registered office: Mariehamn Address: Nygatan 2, AX-22100 Mariehamn, Åland, Finland

Business Identity Code: 0145019-3. Telephone: +358 204 29 011. Website: www.alandsbanken.fi

Financial summary

Bank of Åland Plc Year-end Report, January-December20212

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MACRO SITUATION

The COVID-19 (coronavirus) pandemic dominated 2021 as well. The pandemic initially faded in our area of operations and most restrictions were lifted, but late in the year the Omicron variant struck with great force, with new restrictions as a consequence.

Fiscal and monetary stimulus measures have been large. The economic recovery has been strong. For the local economy in the Åland Islands, the record-strong summer tourist season represented a welcome positive injection.

During 2021 long-term market yields began to move higher, but short-term market interest rates - which are more important to the Bank of Åland's net interest income - remained at record- low levels. Central banks in Europe are expected to keep their key interest rates unchanged for some time to come.

BENCHMARK INTEREST RATES, AVERAGES, PER CENT

During 2021 share prices according to the Nasdaq Helsinki stock exchange's OMXHPI index rose by 18 per cent, while the Nasdaq Stockholm's OMXSPI index rose by 35 per cent.

The average value of the Swedish krona (SEK) in relation to the euro (EUR) was 3 per cent higher during 2021 than in the year- earlier period and 2 per cent lower than at year-end 2020. When converting the income statement of the Bank's Swedish operations into euros, the average exchange rate for the period has been used, while the balance sheet has been converted at the exchange rate prevailing on the closing day of the report period.

IMPORTANT EVENTS

On January 1, 2021 the Board of Directors of the Bank of Åland approved the distribution of a dividend totalling EUR 1 per share (a regular dividend of EUR 0.80 and a 100th anniversary dividend of EUR 0.20) for the 2019 financial year, in compliance with the authorisation that the Board received from the Bank's Annual General Meeting on April 2, 2020.

On March 30, 2021, the Annual General Meeting (AGM) approved the distribution of a dividend of EUR 1.00 per share for the financial year 2020.

The AGM also decided to authorise the Board to approve acquisitions of no more than 1,500,000 of the Bank of Åland's Series B shares. This is equivalent to about 10 per cent of all shares in the Company and about 16.4 per cent of all Series B shares in the Company. The Company's own shares may be acquired in order to change the Company's capital structure, to be used as consideration in acquisitions of companies or

sectoral reorganisations or as part of the Company's incentive programmes and may otherwise be transferred onward, be kept by the Company or be annulled. The shares may be acquired in one or more rounds.

The AGM re-elected the Board, consisting of Nils Lampi, Christoffer Taxell, Åsa Ceder, Anders Å Karlsson, Ulrika Valassi and Anders Wiklöf. At the statutory meeting of the Board the same day, Nils Lampi was elected as Chairman and Christoffer Taxell as Deputy Chairman of the Board.

In March, for the first time ever the Bank of Åland issued an additional Tier 1 (AT1) capital instrument, totalling SEK 300 M. This is a perpetual financial instrument, with a possibility of early redemption after five years. For financial reporting purposes, the instrument is regarded as equity capital.

In December, for the first time ever the Bank of Åland issued a green Tier 2 (T2) supplementary capital instrument, totalling SEK 150 M. This instrument has a 20-year maturity, with a possibility of early redemption after five years. The proceeds of the instrument will be used for financing and refinancing wind power projects and mortgage loans for properties with high energy performance ratings.

During the report period, the number of Series B shares outstanding increased by 16,249 as a result of the Bank's obligations within the framework of its employee incentive programmes.

During the period, the Bank of Åland opened a new office in Oulu on the Finnish mainland.

In March 2021 Borgo AB, an associated company of the Bank of Åland, received permission from the Swedish Financial Supervisory Authority to operate a financing business and to issue covered bonds. In the fourth quarter, the company started its operations in Sweden. In September 2019 Borgo entered into a partnership with ICA Bank, Ikano Bank, Söderberg & Partners and the Bank of Åland (IISÅ Holdco AB) for the purpose of creating a new Swedish mortgage company. In August 2021 Sparbanken Syd (a southeSwedish savings bank) also signed a binding agreement with Borgo to join the partnership. Together with its information technology subsidiary Crosskey Banking Solutions, the Bank of Åland is supplying platform solutions for the new mortgage company and contributing its existing knowledge on mortgage loan management.

Together with its customers, the Bank of Åland is continuing its commitment to a cleaner Baltic Sea. This year the Baltic Sea Project contributed EUR 500,000 to various projects that promote the health of the Baltic Sea. Since 1997 the Bank of Åland has awarded EUR 3.3 M to various environmentally related projects.

For the eighth consecutive year, the Bank of Åland (Ålandsbanken) Euro Bond Fund was named the best Nordic fund in its category by Refinitiv Lipper. The Morningstar investment research company, which compares fund data and funds in their respective classes, also assigned the Bank of Åland Euro Bond Fund its highest rating - five stars - in all its review cycles.

Bank of Åland Plc Year-end Report, January-December20213

On June 30 Alandia Holding completed its acquisition of Rettig Group's entire stake (24.9 per cent) in the marine insurance company Alandia Försäkring. Alandia Holding is a company created by the Bank of Åland, the pension insurance company Veritas Pensionsförsäkring, the cruise ferry company Viking Line, Föreningen Konstsamfundet (an association that supports the arts in Swedish-speaking Finland), Lundquist Shipping Company and Wiklöf Holding for the purpose of acquiring this shareholding in Alandia Försäkring. The express desire of the owners of Alandia Holding is to act as a long-term owner of Alandia Försäkring. Alandia Holding is an associated company of the Bank of Åland.

In August the Bank of Åland sold its shareholding in the company Åland Index Solution as well as intellectual property (IP) rights to the Åland Index to Doconomy, a Swedish-based fintech company. The Bank of Åland still has a significant ownership in Doconomy.

EARNINGS FOR JANUARY - DECEMBER 2021

Net operating profit rose by EUR 9.5 M or 24 per cent to EUR

49.2 M (39.7). About EUR 5.0 M of net operating profit for the report period was attributable to nonrecurring items.

Profit for the period attributable to shareholders increased by EUR 8.3 M or 27 per cent to EUR 39.8 M (31.5).

Retuon equity after taxes (ROE) increased to 14.0 per cent (11.6).

Total income rose by EUR 25.8 or 17 per cent to EUR 176.0 M (150.1).

Net interest income rose by EUR 3.3 M or 6 per cent to EUR 62.2 M (58.9). The increase came from higher lending volume and lower costs of deposits and capital market borrowing.

Net commission income rose by EUR 12.7 M or 19 per cent to EUR 79.0 M (66.3), mainly due to higher income from the Bank's asset management business.

Net income on financial items fell by EUR 2.3 M to EUR -0.4 M (1.8), mainly due to lower capital gains and re-measurement of liabilities attributable to an earn-out (contingent consideration) related to the purchase price of an asset.

Information technology (IT) income rose by EUR 2.5 M or 14 per cent to EUR 24.4 M (21.9). The increase came from higher project income.

Other income included nonrecurring positive effects related to associated companies and divestment of IP rights.

Total expenses increased by EUR 16.3 M or 15 per cent and totalled EUR 121.9 M (105.6). Higher staff costs and IT expenses plus increased depreciation/amortisation were the main reasons.

Total net impairment losses on financial assets were unchanged and amounted to EUR 4.9 M (4.9), equivalent to a loan loss level of 0.12 (0.11) per cent. These impairment losses were mainly due to a small number of individual loans. In the first quarter of 2020, the Bank made sizeable model-driven provisions for impairment losses in compliance with the IFRS 9 international financial reporting standard, which have not yet been utilised.

Tax expense amounted to EUR 9.3 M (8.2), equivalent to an effective tax rate of 19.0 (20.7) per cent.

EARNINGS FOR THE FOURTH QUARTER OF 2021

Net operating profit fell by EUR 2.1 M or 17 per cent to EUR 10.2 M (12.3).

Profit for the period attributable to shareholders decreased by EUR 1.9 M or 19 per cent to EUR 7.9 M (9.8).

Retuon equity after taxes (ROE) decreased to 10.6 per cent (13.6).

Total income rose by EUR 6.1 M or 15 per cent to EUR 46.2 M (40.1).

Net interest income rose by EUR 1.3 M or 9 per cent to EUR 16.2 M (14.9). The increase came from higher lending volume and lower costs of deposits and capital market borrowing.

Net commission income rose by EUR 3.0 M or 16 per cent to EUR

21.5 M (18.5), mainly due to higher income from the Bank's asset management business.

Net income on financial items rose by EUR 1.1 M to EUR 1.5 M (0.4), mainly due to re-measurement of an asset.

IT income rose by EUR 0.3 M or 5 per cent to EUR 6.3 M (6.0). The increase came from higher project income.

Other income included positive effects related to associated companies.

Total expenses increased by EUR 4.7 M or 17 per cent and totalled EUR 32.5 M (27.8). Higher staff costs and IT expenses plus increased depreciation/amortisation were the main reasons.

Total net impairment losses on financial assets increased by EUR

3.5 M to EUR 3.5 M (0.0), equivalent to a loan loss level of 0.30 (- 0.4) per cent. These impairment losses were mainly due to a small number of individual loans.

Tax expense amounted to EUR 2.3 M (2.5), equivalent to an effective tax rate of 22.4 (20.6) per cent.

OPERATING SEGMENTS

The Group's EUR 9.5 M increase in net operating profit to EUR

49.2 M was allocated as follows:

BUSINESS VOLUME

Actively managed assets on behalf of customers increased by EUR 2,390 M or 32 per cent compared to year-end 2020 and amounted to EUR 9,826 M (7,436). The increase was due to both positive net inflows and a positive market effect.

Deposits from the public rose by 13 per cent compared to year- end 2020 and amounted to EUR 4,070 M (3,605).

Lending to the public increased by 9 per cent compared to year- end 2020 and totalled EUR 4,788 M (4,378).

All these business volume figures were the highest recorded in the Bank of Åland's history.

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CREDIT QUALITY

Lending to private individuals comprised 78 per cent of the loan portfolio. Home mortgage loans accounted for 76 per cent of this. Loans for the purchase of securities, with market-listed securities as collateral, comprised the second-largest type of lending to individuals. Historically, the Bank of Åland has not had any substantial loan losses on this type of lending. The corporate portfolio has a close affinity with the retail portfolio, since many of the companies are owned by customers who, as individuals, are also Private Banking customers.

The Bank of Åland Group had EUR 14.9 M in impairment loss provisions on December 31, 2021 (11.9 on December 31, 2020), of which EUR 2.1 M (2.5) in Stage 1, EUR 0.8 M (1.0) in Stage 2 and EUR 11.7 M (8.3) in Stage 3. During 2021, Stage 3 loans increased by EUR 16.8 M to EUR 47.3 M.

Stage 3 loans as a share of gross lending to the public totalled

1.23 per cent (0.89). The level of provisions for Stage 3 loans amounted to 20 (21) per cent. Most of these loans have good collateral.

LIQUIDITY AND BORROWING

The 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 plus holdings of unencumbered covered bonds issued by the Bank amounted to EUR 1,320 M on December 31, 2021 (1,175 on December 31, 2020). This was equivalent to 20 (19) per cent of total assets and 28 (27) per cent of lending to the public.

In September the Bank of Åland carried out an early redemption of SEK 2.5 billion in covered bonds from the Swedish pool with a final due date in November 2022. At the same time, the Bank issued new covered bonds in the amount of SEK 5.5 billion with a final due date in September 2026. The bond issue was unique, since these bonds carry contractual conditions that allow them to move from the Finnish to the Swedish legislative framework, and from the Bank of Åland as counterparty to Borgo as counterparty, when the Bank's Swedish mortgage loan portfolio is transferred to Borgo during the first half of 2022.

In September EUR 250 M in non-covered bonds also matured. The Bank chose not to renew them.

On December 31, 2021, the average remaining maturity of the Bank of Åland's bonds outstanding was about 3.1 (2.5) years.

The loan/deposit ratio amounted to 118 (121) per cent.

Of the Bank of Åland's external funding sources aside from equity capital, deposits from the public accounted for 66 (64) per cent and covered bonds issued accounted for 19 (16) per cent.

The liquidity coverage ratio (LCR) amounted to 152 (159) per cent.

The net stable funding ratio (NSFR) amounted to 109 (106) per cent.

RATING

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

EQUITY AND CAPITAL ADEQUACY

During the report period, equity capital changed in the amount of profit for the period, EUR 39.9 M; other comprehensive income, EUR 1.9 M; the issuance of new shares as part of the incentive programme, EUR 0.4 M; distributed dividends totalling EUR 31.2 M to shareholders; distributed dividends of EUR 0.8 M to holders of additional Tier 1 (AT1) capital instruments; and issuance of AT1 capital, EUR 29.4 M. On December 31, 2021, equity capital amounted to EUR 331.9 M (292.4 on December 31, 2020).

Other comprehensive income included re-measurements of defined-benefit pension plans by EUR 5.1 M after taxes, in compliance with IAS 19.

Common equity Tier 1 capital rose by EUR 0.5 M during the report period to EUR 239.0 M (238.5). The Finnish Financial Supervisory Authority has granted permission for buy-backs of the Bank's own shares. The maximum amount that may be used for buy-backs is EUR 10.5 M. The amount is a fully deductible item in the capital base (own funds) even when these buy-backs have not occurred.

The risk exposure amount increased by 18 per cent during the report period and totalled EUR 1,976 M (1,671). The risk exposure amount for credit risk rose by EUR 290 M or 22 per cent. The elimination of the risk weight floor for mortgage loans in Finland decreased the risk exposure amount by EUR 108 M. A 26.5 per cent standardised upward adjustment of the risk exposure amount, calculated according to the IRB approach while awaiting an updated, approved IRB approach, increased the risk exposure amount by EUR 129 M. The operational risk exposure amount fell by EUR 4 M.

The common equity Tier 1 (CET1) capital ratio decreased to 12.1 (14.3) per cent.

The Tier 1 (T1) capital ratio, which had previously always been identical with the CET1 capital ratio, rose due to the issuance of AT1 instruments totalling SEK 300 M in March 2021 and amounted to 13.6 (14.3) per cent.

The total capital ratio decreased to 15.4 (16.5) per cent.

A mitigation measure in the calculation of the leverage ratio has been introduced, exempting exposures to central banks with relevance for the transmission of monetary policy. The Bank of Åland has taken this into account in its calculation of the leverage ratio, which amounted to 4.3 (4.2) per cent on December 310, 2021. Excluding the mitigation measure, it would have amounted to 3.9 (3.9) per cent.

In addition to the basic capital requirement, various buffer 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 per cent of common equity Tier 1 capital, applies in all European Union countries. The countercyclical capital buffer requirement may vary between 0-

2.5 per cent. For Finnish and Swedish exposures, the requirement remains 0.0 per cent. However, the Swedish Financial Supervisory Authority has decided to raise the amount of the countercyclical buffer to 1.0 per cent. The new buffer amount applies starting on September 29, 2021. The Swedish FSA is aiming at gradually raising the buffer amount to 2.0 per cent during 2022 if the economic recovery continues.

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