OP Mortgage Bank : OP Mortgage Bank : Annual Financial Report

        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)^[1]. 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

[1]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
 
Press spacebar to pause and continue. Press esc to stop.