OP Mortgage Bank : OP Mortgage Bank : Annual Financial Report OP Mortgage Bank Financial Statements Bulletin for 2012 6 February 2013, 9.00 am EET FINANCIAL STATEMENTS BULLETIN FOR 2012 OP Mortgage Bank's (OPA) loan portfolio grew to EUR 8,678 million in the January-December period (EUR 7,535 million at the end of 2011)^. The bank increased its loan portfolio significantly in February, in March, in May and in October when it purchased housing loans from OP-Pohjola Group member cooperative banks. OPA launched a covered bond issue at a nominal value of EUR 1.25 billion in May. In August OPA carried out two covered Private Placements, one at a nominal value of EUR 25 million and one at a nominal value of EUR 75 million. In November OPA carried out a covered Private Placement at a nominal value of EUR 115 million. In December OPA carried out two covered Private Placements, both at a nominal value of EUR 50 million. Earnings Development EUR thousand Q4/2012 Q4/2011 2012 2011 Income Net interest income 7,897 5,560 29,884 24,147 Net commissions and fees -3,426 -2,865 -11,992 -10,207 Net income from trading 0 0 0 0 Net income from investments - - -186 487 Other operating income 0 0 0 5 Total 4,472 2,695 17,707 14,432 Expenses Personnel costs 121 70 400 278 Other administrative expenses 390 486 1,586 2,054 Other operating expenses 300 291 1,459 1,396 Total 811 848 3,445 3,728 Impairments of receivables -17 -358 -53 -359 Earnings before tax 3,644 1,489 14,209 10,345 Earnings before tax for October-December amounted to EUR 3,644 thousand (1,489). The net interest income increased to EUR 7,897 thousand (5,560). Net commissions and fees were negative, as in the previous year, with commission income increasing to EUR 1,530 thousand (945) and commission expenses to EUR 4,955 thousand (3,810). Commission expenses consisted mainly from commissions paid to OP-Pohjola Group member banks for servicing housing loans. The bank's expenses amounted to EUR 811 thousand (848). Earnings before tax for January-December amounted to EUR 14,209 thousand (10,345). Net interest income rose to EUR 29,884 thousand (24,147) due to the growth of the loan portfolio. Impairment loss on loans on a collective basis of EUR 53 thousand was recognised. The bank's expenses decreased to EUR 3,445 thousand (3,728). Balance Sheet and Off-balance Sheet Commitments OPA's balance sheet total amounted to EUR 9,128 million on 31 December (EUR 7,912 million)^2. Change in Major Asset and Liability Items 31 Dec 30 Sep 30 June 31 March 31 Dec EUR Million 2012 2012 2012 2012 2011 Balance Sheet 9,128 8,976 9,263 8,427 7,912 Receivables from customers 8,678 8,511 8,841 8,000 7,535 Receivables from financial 53 77 93 72 82 institutions Debt securities issued to the public 6,110 5,879 5,716 5,440 5,423 Liabilities to financial 2,570 2,650 3,100 2,490 2,070 institutions Shareholders' equity 325 312 310 287 256 Off-balance sheet commitments 8 9 11 8 4 The bank's loan portfolio grew to EUR 8,678 million (7,535). OPA increased its loan portfolio in the January-December period when it purchased housing loans from OP-Pohjola Group member banks for EUR 2,445 million. On December 2012, households accounted for 99.6 per cent (99.3) of the loan portfolio and housing corporations for 0.4 per cent (0.7). The bank's non-performing loans increased but remained at low levels totalling EUR 2.9 million (2.1) on December 2012. The impaired amount for an impairment loss on an individual basis recognised in the review period was fully covered by collateral. The carrying amount of the bonds issued to the public totalled EUR 6,110 million (5,423) on 31 December. OPA issued its seventh covered bond at a nominal value of EUR 1.25 billion on international capital markets in May. Moody's Investor Services and Standard & Poor's Rating Services have given the bond their highest credit ratings of Aaa and AAA. In August OPA carried out two covered Private Placements, one at a nominal value of EUR 25 million and one at a nominal value of EUR 75 million. In November OPA carried out a covered Private Placement at a nominal value of EUR 115 million. In December OPA carried out two covered Private Placements, both at a nominal value of EUR 50 million. The covered bond issued in 2007 at a nominal value of EUR 1 billion matured and were paid off in June. In addition to bonds, OPA funded its operations through financing loans taken out with Pohjola Bank plc. On 31 December, financing loans totalled EUR 2,570 million (2,070). Shareholders' equity increased to EUR 325 million (256). Shareholders' equity increased in March by EUR 30 million, in May by EUR 20 million and in December by EUR 10 after OP-Pohjola Group Central Cooperative made additional investments in the company. Retained earnings amounted to EUR 30 million (21) on 31 December. OPA has hedged against the interest-rate risk associated with its housing loan portfolio through interest-rate swaps, i.e. base rate cash flows from housing loans to be hedged are swapped to short-term Euribor cash flows. OPA has also swapped the fixed interest rates of the bonds it has issued to short-term variable rates. OPA's interest-rate derivative portfolio totalled EUR 15,862 million (14,409). All derivative contracts have been concluded for hedging purposes. Pohjola Bank plc is the counterparty to all derivative contracts. Collateralisation of bonds issued to the public Mortgages collateralising covered bonds issued before 1 August, 2010, under the Finnish Act on Mortgage Credit Banks 1240/1999, are included in Cover Asset Pool A. The balance of Pool A was EUR 3,200 million in the end of December. Mortgages collateralising covered bonds issued after 1 August, 2010, under the Finnish Covered Bond Act 680/2010, are included in Cover Asset Pool B. The balance of Pool B was EUR 4,935 million in the end of December. Development of Capital Adequacy OPA's capital adequacy ratio stood at 9.2 % on 31th of December. Capital ratio excluding transition rules stood at 41.9%. Shareholders' equity increased in March by EUR 30 million, in May by EUR 20 million and in December by EUR 10 after OP-Pohjola Group Central Cooperative made additional investments in OPA. In May OPA called in the Tier 2 debenture issued in 2007 at a nominal value of EUR 20 million. OPA calculates its capital adequacy in compliance with Basel II. In its calculation of capital requirements for credit risk, OPA has adopted the Internal Ratings Based Approach (IRBA). With respect to the capital adequacy requirement for operational risks, OPA adopted the Standardised Approach in the report period. 31 Dec 30 Sep 31 Dec OWN FUNDS, EUR thousand 2012 2012 2011 Equity capital 324,964 312,250 256,475 Intangible assets -1,101 -547 -587 Excess funding of pension liability and fair value measurement of investment property -13 -17 -248 Planned dividend distribution -2,001 - -2,001 Shortfall of impairments - expected losses -3,705 -3,634 -3,937 Shortfall of other Tier 1 capital -3,705 -3,634 - Core Tier 1 capital 314,440 304,418 249,703 Shortfall of Tier 2 capital -3,705 -3,634 - Transfer to core Tier 1 capital 3,705 3,634 - Tier 1 capital 314,440 304,418 249,703 Debenture loans - - 20,000 Shortfall of impairments - expected losses -3,705 -3,634 -3,937 Transfer to Tier 1 capital 3,705 3,634 - Tier 2 capital - - 16,063 Total capital base 314,440 304,418 265,765 Capital ratio including transition rules Capital adequacy ratio, % 9.2 9.1 9.0 Tier 1 ratio to risk-weighted commitments 9.2 9.1 8.5 Core Tier 1 ratio 9.2 9.1 8.5 Capital ratio excluding transition rules Capital adequacy ratio, % 41.9 40.8 40.4 Tier 1 ratio to risk-weighted commitments 41.9 40.8 40.0 Core Tier 1 ratio 41.9 40.8 40.0 The increase in shareholders' equity arising from the measurement of pension liabilities and the assets covering them, under IFRS, is not considered own funds. Furthermore, intangible assets was also deducted from own funds. The Impairments - shortfall of expected losses total EUR 7.4 million. Risk-weighted receivables, investments and off 31 Dec 30 Sep 31 Dec balance-sheet commitments, EUR thousand 2012 2012 2011 Receivables and investments 732,713 721,260 644,703 Off-balance-sheet items 4,185 10,161 2,063 Market risk - - - Operational risks 14,043 14,043 10,490 Requirement for period of transition 2,656,632 2,600,586 2,283,433 Risk-weighted receivables, investments and off balance-sheet commitments, total 3,407,573 3,346,051 2,940,688 The increase in the amount of risk-weighted receivables was due to an increased loan portfolio. Joint Responsibility and Joint Security Under the Act on Cooperative Banks and Other Cooperative Credit Institutions, the amalgamation of the cooperative banks comprises the organisation's central institution (OP-Pohjola Group Central Cooperative), the Central Cooperative's member credit institutions and the companies belonging to their consolidation groups. This amalgamation is monitored on a consolidated basis. The Central Cooperative and its member banks are ultimately responsible for each other's liabilities and commitments. The Central Cooperative's members at the end of the report period comprised OP-Pohjola Group's 196 member banks as well as Pohjola Bank Plc, Helsinki OP Bank Plc, OP Mortgage Bank and OP-Kotipankki Plc. OP-Pohjola Group's insurance companies do not fall within the scope of joint responsibility. The central institution is obligated to provide its member credit institutions with instructions on their internal supervision and risk management, their operations in securing liquidity and capital adequacy, and compliance with uniform accounting principles in preparing the coalition's consolidated financial statements. The central institution and its member credit institutions are jointly responsible for the liabilities of the central institution or a member credit institution placed in liquidation or bankruptcy that cannot be paid from its assets. The liability is divided between the central institution and the member credit institutions in ratios following the balance sheet total. In spite of the joint responsibility and the joint security, pursuant to Section 25 of the Act on Mortgage Credit Bank Operations, the holder of a bond with mortgage collateral shall, notwithstanding the liquidation or bankruptcy of a mortgage credit bank, have the right to receive payment, before other claims, for the entire loan period of the bond, in accordance with the contract terms, from the funds entered as collateral for the bond. Personnel On 31 December, OPA had six employees. It purchases all key support services from Central Cooperative and its Group companies, which reduces the need for more staff. Administration The Annual General Meeting held in March confirmed the composition of the new Board of Directors. Mr Lars Björklöf, Managing Director, Osuuspankki Raasepori was elected as a new member of the Board of Directors. Mr Heikki Kananen, Managing Director, Mäntsälän Osuuspankki and Mr Mikko Rosenlund, Managing Director, Tampereen Seudun Osuuspankki were left out of the Board of Directors. The Board composition is as follows: Chairman Harri Luhtala Chief Financial Officer, OP-Pohjola Group Central Cooperative Vice Chairman Elina Ronkanen-Minogue Senior Vice President, OP-Pohjola Group Central Cooperative Members Sakari Haapakoski Bank Manager, Oulun Osuuspankki Mika Helin Executive Vice President, Hämeenlinnan Seudun Osuuspankki Hanno Hirvinen Executive Vice President, Pohjola Bank plc Mikko Hyttinen Bank Manager, OP-Pohjola Group Central Cooperative Lars Björklöf Managing Director, Osuuspankki Raasepori Managing Director Lauri Iloniemi. Risk exposure The most significant types of risk related to OPA are credit risk, liquidity risk and interest-rate risk. The indicators in use shows that OPA's credit risk exposure is stable. The limit for liquidity risk set by the Board of Directors has not been exceeded. The liquidity buffer for OP-Pohjola Group, managed by Pohjola Bank Plc, is exploitable by OPA. OPA has hedged against the interest-rate risk associated with its housing loan portfolio through interest-rate swaps, i.e. base rate cash flows from housing loans to be hedged are swapped to short-term Euribor cash flows. OPA has also swapped the fixed interest rates of the bonds it has issued to corresponding short-term variable rates. The interest-rate risk may be considered to be low. Outlook The existing issuance programme will make it possible to issue new covered bonds in 2013. It is expected that the Company's capital adequacy will remain strong, risk exposure will be favourable and the overall quality of the credit portfolio will remain strong. OPA's board proposal for the allocation of distributable funds The shareholders' equity of OPA On 31 December 2012 € Share capital 60,000,000.00 Reserve for invested unrestricted equity 235,000,000.00 Profit for 2012 10,730,624.19 Retained earnings 19,233,136.49 Total 324,963,760.68 EUR 265,183,647.63 of which represented distributable equity. The Board of Directors proposes that he Company's distributable funds be distributed as follows: EUR 26.12 per share totaling EUR 2,000,583.04. Accordingly, EUR 263,183,064.59 remains in the Company's distributable equity. Income Statement EUR thousand Q4/2012 Q4/2011 2012 2011 Interest income 23,603 39,871 121,246 133,180 Interest expenses 15,705 34,311 91,362 109,034 Net interest income 7,897 5,560 29,884 24,147 Impairments of receivables -17 -358 -53 -359 Net commissions and fees -3,426 -2,865 -11,992 -10,207 Net income from trading 0 0 0 0 Net income from investments - - -186 487 Other operating income 0 0 0 5 Personnel costs 121 70 400 278 Other administrative expenses 390 486 1,586 2,054 Other operative expenses 300 291 1,459 1,396 Earnings before tax 3,644 1,489 14,209 10,344 Income taxes 893 383 3,478 2,687 Profit for the period 2,752 1,106 10,731 7,658 Statement of comprehensive income EUR thousand Q4/2012 Q4/2011 2012 2011 Profit for the period 2,752 1,106 10,731 7,658 Actuarial gains/losses on post-employment benefit obligations -50 -10 -50 -38 Income tax on actuarial gains/losses on post-employment benefit obligations 12 -1 12 6 Other Statement of comprehensive income items - - - - Total comprehensive income 2,714 1,095 10,693 7,625 Key Ratios Q4/2012 Q4/2011 2012 2011 Return on equity (ROE), % 2.5 1.9 3.7 3.7 Cost/income ratio, % 18 31 19 26 Calculation of key ratios Return on equity, % = Annualised profit for the period / Equity capital (average equity capital at the beginning and end of the period) × 100 Cost/income ratio, % = (Personnel costs + Other administrative expenses + Other operating expenses) / (Net interest income + Net commission income + Net income from trading + Total net income from investments + Other operating income) × 100 Balance Sheet 31 Dec 30 Sep 31 March EUR thousand 2012 2012 30 June 2012 2012 31 Dec 2011 Receivables from financial institutions 53,300 76,595 92,823 72,060 82,434 Derivative contracts 318,473 304,833 247,456 215,138 198,380 Receivables from customers 8,677,652 8,511,443 8,841,128 7,999,754 7,534,557 Investments assets 17 17 17 17 17 Intangible assets 1,101 881 809 739 587 Tangible assets - - - - - Other assets 77,854 81,765 80,854 139,590 96,060 Tax receivables 35 20 19 8 13 Total assets 9,128,431 8,975,555 9,263,106 8,427,306 7,912,048 Liabilities to financial institutions 2,570,000 2,650,000 3,100,000 2,490,000 2,070,000 Derivative contracts 16,382 18,383 21,545 15,716 11,212 Debt securities issued to the public 6,109,687 5,878,746 5,716,100 5,439,837 5,423,085 Reserves and other liabilities 106,964 114,473 114,829 174,277 131,213 Tax liabilities 435 1,703 1,112 755 267 Subordinated debt securities - - - 20,000 20,000 Total liabilities 8,803,467 8,663,305 8,953,585 8,140,586 7,655,777 Shareholders' equity Share capital 60,000 60,000 60,000 60,000 60,000 Reserve for invested unrestricted . equity 235,000 225,000 225,000 205,000 175,000 Retained earnings 29,964 27,250 24,521 21,720 21,271 Total equity 324,964 312,250 309,521 286,720 256,271 Total liabilities and shareholders' equity 9,128,431 8,975,555 9,263,106 8,427,306 7,912,048 Off-balance Sheet Commitments 31 Dec 30 Sep 30 June 2012 31 March 2012 31 Dec 2011 EUR thousand 2012 2012 Binding credit commitments 7,976 8,973 10,883 7,869 3,692 Change Calculation on Shareholders' Equity Share Other Retained Total EUR thousand capital reserves earnings equity Shareholders' equity 1 Jan 2011 60,000 85,000 13,646 158,646 Reserve for invested unrestricted equity 90,000 90,000 Profit for the period 7,626 7,626 Other changes Shareholders' equity 31 Dec 2011 60,000 175,000 21,271 256,271 Share Other Retained Total EUR thousand capital reserves earnings equity Shareholders' equity 1 Jan 2012 60,000 175,000 21,271 256,271 Reserve for invested unrestricted equity 60,000 60,000 Profit for the period 10,693 10,693 Other changes -2,001 -2,001 Shareholders' equity 31 Dec 2012 60,000 235,000 29,964 342,964 Cash Flow Statement EUR thousand 2012 2011 Liquid assets 1 January 82,434 61,672 Cash flow from operations -630,247 -2,060,121 Cash flow from investments -813 -8 Cash flow from financing 601,925 2,080,891 Liquid assets 31 December 53,300 82,434 The cash flow statement presents the cash flows for the period on the cash basis, divided into cash flows from operations, investments and financing. Cash flows from operations include the cash flows generated from day-to-day operations. Cash flow from investments includes payments related to tangible and intangible assets, investments held to maturity and shares that are not considered as belonging to cash flow from operations. Cash flow from financing includes cash flows originating in the financing of operations either on equity or liability terms from money or capital market. Liquid assets include cash in hand and receivables from financial institutions payable on demand. The statement has been prepared using the indirect method. Fair values of financial assets and liabilities Recognised at fair value through Loans and profit or Available Financial EUR Thousand receivables loss for sale Total assets Receivables from financial institutions 53,300 53,300 Derivative contracts 318,473 318,473 Receivables from customers 8,677,652 8,677,652 Equities 17 17 Other receivables 77,854 77,854 Balance at 31 December 2012 8,808,806 318,473 17 9,127,296 Balance at 31 December 2011 7,713,051 198,380 17 7,911,448 Recognised at fair value through Liabilities profit or Other to financial EUR Thousand loss * liabilities Total institutions - 2,570,000 2,570,000 Derivative contracts - 16,382 16,382 Debt securities issued to the public - 6,109,687 6,109,687 Subordinated liabilities - - - Other liabilities - 107,398 107,398 Balance at 31 December 2012 - 16,382 8,787,085 8,803,467 Balance at 31 December 2011 - 11,212 7,644,564 7,655,777 *) Debt securities issued to the public are carried at amortised cost. On 31 December 2012, the fair value of these debt instruments was approximately EUR 387,298 thousand higher than their carrying amount, based on information available in markets and employing commonly used valuation techniques. Subordinated liabilities are carried at amortised cost. Their fair value are substantially lower than their carrying amount, but determining fair values reliably is difficult in the current market situation. Derivative Contracts 31 December 2012 EUR Fair values thousand Nominal values/the remaining maturity Less than 1 More than Credit year 1-5 years 5 years Total Assets Liabili-ties counter-value Interest rate derivatives Hedging 585,259 12,947,452 2,330,000 15,862,711 318,473 16,382 477,896 Trading Total 585,259 12,947,452 2,330,000 15,862,711 318,473 16,382 477,896 Derivative Contracts 31 December 2011 EUR Fair values thousand Nominal values/the remaining maturity Less than 1 More than Credit year 1-5 years 5 years Total Assets Liabili-ties counter-value Interest rate derivatives Hedging 4,909,134 7,500,000 2,000,000 14,409,134 198,380 11,212 328,295 Trading Total 4,909,134 7,500,000 2,000,000 14,409,134 198,380 11,212 328,295 All derivative contracts have been entered into for hedging purposes, regardless of their classification in accounting. Related-party transactions OPA's related parties include OP-Pohjola Group Central Cooperative and its subsidiaries, the OP-Pohjola Group pension insurance organisations OP-Pension Fund and OP-Pension Foundation, and the company's administrative personnel. Standard terms and conditions for credit are applied to loans granted to the related parties. Loans are tied to generally used reference rates. Related-party transactions have not undergone any substantial changes since 31 December 2011. Accounting policies The Financial Statements Bulletin for 1 January - 31 December 2012 has been prepared in accordance with IAS 34 (Interim Financial Reporting), as approved by the EU. In the preparation of this Interim Report, OPA substantially applied the same accounting policies as in the financial statements 2011, except a change in the recognition of actuarial gains and losses on defined benefit pension plan. Change in accounting policies OPA has decided to voluntarily abandon as of the beginning of 2012 the so-called corridor method in the recognition of actuarial gains and losses on defined benefit pension plans. In accordance with the revised recognition method under IAS 19, actuarial gains and losses are recognised outside profit or loss in comprehensive income as a debit item or credit item in equity for the period during which they occur. When recognising actuarial gains and losses in other comprehensive income, these gains and losses cannot be reclassified through profit or loss in subsequent periods. OPA has applied the change in the accounting policy retrospectively. The effects of the changed accounting policy on the comparatives of the consolidated balance sheet, income statement and statement of comprehensive income shown in this Interim Report are as follows: Previous New accounting Effect of change in EUR thousand accounting policy policy accounting policy Balance sheet 1 Jan 2011 Assets Other assets 48,790 48,583 -207 Liabilities Tax liabilities 342 288 -54 Shareholders' equity Retained earnings 13,799 13,646 -153 Previous New accounting Effect of change in EUR thousand accounting policy policy accounting policy Balance sheet 31 Dec 2011 Assets Other assets 96,301 96,060 -241 Tax assets - 13 13 Liabilities Tax liabilities 313 267 -46 Shareholders' equity Retained earnings 21,454 21,271 -183 Income statement 2011 Personnel costs 282 278 -4 Income tax expense 2,686 2,687 1 Statement of comprehensive income 2011 Actuarial gains/losses on post-employment benefit obligations - -38 -38 Income tax on actuarial gains/losses on post-employment benefit obligations - 6 6 This Interim Report is based on unaudited figures. Given that all figures have been rounded off, the sum total of individual figures may deviate from the presented sums. Helsinki, 6 February 2012 OP Mortgage Bank Board of Directors For further information, please contact Mr Lauri Iloniemi, Managing Director, tel. +358 10 252 3541 For balance sheet and other cross-sectional figures, the point of comparison is the figure at the end of 2011. Comparatives deriving from the income statement are based on figures reported for the corresponding period a year ago. ------------------------------------------------------------------------------ This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: OP Mortgage Bank via Thomson Reuters ONE HUG#1675693
OP Mortgage Bank : OP Mortgage Bank : Annual Financial Report
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