OP Mortgage Bank : OP Mortgage Bank: Interim Report 1 January - 31 March 2013 OP MORTGAGE BANK Interim Report 1 January-31 March 2013 OP Mortgage Bank's (OPA) loan portfolio grew from EUR 8,678 million on 31 December 2012 to EUR 8,848 million on 31 March 2013. The bank increased its loan portfolio in February and March when it purchased housing loans from OP-Pohjola Group member cooperative banks. No new bonds were issued during the review period. Earnings Development EUR thousand Q1/2013 Q1/2012 Change, % 2012 Income Net interest income 8,329 6,768 23 29,884 Net commissions and fees -3,669 -2,747 34 -11,992 Net income from trading 0 0 0 Net income from investments 1 1 - -186 Other operating income - - 0 Total 4,660 4,022 16 17,707 Expenses Personnel costs 120 96 25 400 Other administrative expenses 423 452 -6 1,586 Other operating expenses 345 230 50 1,459 Total 888 778 14 3,445 Impairments of receivables 10 -1 -53 Earnings before tax 3,782 3,243 17 14,209 OPA's net interest income January-March increased to EUR 8,329 thousand (6,768)*. The increase was due to the growth of the loan portfolio. Earnings before tax January-March amounted to EUR 3,782 thousand (3,243). Net commissions and fees were negative. Commission income increased to EUR 1,492 thousand (1,106) and commission expenses to EUR 5,162 thousand (3,853). Commission expenses consisted mainly of commissions paid to OP-Pohjola Group member banks for servicing housing loans. The bank's expenses increased to EUR 888 thousand (778). *) For balance sheet and other cross-sectional figures, the point of comparison is the figure at the previous balance sheet date (31 December 2012). Comparatives deriving from the income statement are based on figures reported for the corresponding period a year ago. Balance Sheet and Off-balance Sheet Commitments OPA's balance sheet total amounted to EUR 9,295 million (9,128)* on 31 March. Change in Major Asset and Liability Items 31 Mar 31 Dec 30 Sept 30 June 31 Mar EUR Million 2013 2012 2012 2012 2012 Balance Sheet 9,296 9,128 8,976 9,263 8,427 Receivables from 8,848 8,678 8,511 8,841 8,000 customers Receivables from 53 53 77 93 72 financial institutions Debt securities issued 6,069 6,110 5,879 5,716 5,440 to the public Liabilities to financial 2,747 2,570 2,650 3,100 2,490 institutions Shareholders' equity 326 325 312 310 287 Off-balance sheet 11 8 9 11 8 commitments The bank's loan portfolio grew to 8,848 million (8,678) on 31 December 2012. on 31 March 2013. OPA increased its loan portfolio in the review period when it purchased housing loans from OP-Pohjola Group member banks for EUR 463 million. On 31 March, households accounted for 99.6 per cent (99.6) of the loan portfolio and housing corporations for 0.4 per cent (0.4). At period end, the bank's non-performing receivables totalled EUR 3.4 million (2.9). The carrying amount of the bonds issued to the public totalled EUR 6,069 million (6,110) on 31 March. In addition to bonds, OPA funded its operations through financing loans taken out with Pohjola Bank plc (Pohjola). On 31 March, financing loans totalled EUR 2,747 million (2,570). Retained earnings amounted to EUR 31 million (30) at the end of the review period. 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 the housing loans to be hedged are swapped to Euribor cash flows. OPA has also swapped the fixed interest rates of the bonds it has issued to short-term market rates. OPA's interest-rate derivative portfolio totalled EUR 16,024 million (15,862). 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 at the end of March. Mortgages collateralising covered bonds issued after 1 August 2010, under the Finnish Covered Bonds Act (688/2010), are included in Cover Asset Pool B. The balance of Pool B was EUR 5,169 million at the end of March. *) For balance sheet and other cross-sectional figures, the point of comparison is the figure at the previous balance sheet date (31 December 2012). Comparatives deriving from the income statement are based on figures reported for the corresponding period a year ago. Development of Capital Adequacy OPA's capital adequacy ratio stood at 8.9% on 31 March. Capital ratio excluding transition rules stood at 42.4%. 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 has adopted the Standardised Approach. OWN FUNDS, EUR thousand 31 Mar 2013 31 Dec 2012 31 Mar 2012 Equity capital 325,819 324,964 286,720 Intangible assets -1,128 -1,101 -739 Excess funding of pension liability and -12 -13 -16 fair value measurement of investment property Planned dividend distribution -500 -2,001 0 Shortfall of impairments - expected losses -3,662 -3,705 -3,300 Shortfall of other Tier 1 capital -3,662 -3,705 - Core Tier 1 capital 316,855 314,440 282,665 Shortfall of Tier 2 capital -3,662 -3,705 - Transfer to core Tier 1 capital 3,662 3,705 - Tier 1 capital 316,855 314,440 282,665 Debenture loans - - 16,000 Shortfall of impairments - expected losses -3,662 -3,705 -3,300 Transfer to Tier 1 capital 3,662 3,705 - Tier 2 capital - - 12,700 Total capital base 316,855 314,440 295,365 Capital adequacy ratio, % 8.9 9.2 9.4 Tier 1 ratio to risk-weighted commitments 8.9 9.2 9.0 Core Tier 1 ratio 8.9 9.2 9.0 Capital ratio excluding transition rules Capital adequacy ratio, % 42.4 41.9 42.5 Tier 1 ratio to risk-weighted commitments 42.4 41.9 40.7 Core Tier 1 ratio 42.4 41.9 40.7 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 were also deducted from own funds. The Impairments - shortfall of expected losses total EUR 7.3 million. Risk-weighted receivables, investments and 31 Mar 2013 31 Dec 2012 31 Mar 2012 off balance-sheet commitments, EUR thousand Credit risk 726,956 732,713 673,761 Market risk - - - Operational risks 19,941 14,043 14,043 Requirement for period of transition 2,796,638 2,656,632 2,457,506 Risk-weighted receivables, investments and 3,543,534 3,407,573 3,152,668 off balance-sheet commitments, total The increase in the amount of risk-weighted commitments 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 amalgamation'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 Finnish Covered Bonds Act, 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 March, OPA had six employees. It purchases all key support services from the 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 Jari Tirkkonen, Senior Vice President, OP-Pohjola Group Central Cooperative, was elected as a new member of the Board of Directors. Mr Mikko Hyttinen, Bank Manager, OP-Pohjola Group Central Cooperative, retired from 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 Lars Björklöf Managing Director, Osuuspankki Raasepori Sakari Haapakoski Bank Manager, Oulun Osuuspankki Mika Helin Executive Vice President, Hämeenlinnan Seudun Osuuspankki Hanno Hirvinen Executive Vice President, Pohjola Bank plc Jari Tirkkonen Senior Vice President, OP-Pohjola Group Central Cooperative OPA's Managing Director is 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. 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. Income Statement EUR thousand Q1/2013 Q1/2012 Change, % 2012 Interest income 20,070 36,941 -46 121,246 Interest expenses 11,742 30,172 -61 91,362 Net interest income 8,329 6,768 23 29,884 Impairments of receivables 10 -1 -53 Net commissions and fees -3,669 -2,747 34 -11,992 Net income from trading 0 0 0 Net income from investments 1 1 -186 Other operating income - - 0 Personnel costs 120 96 25 400 Other administrative expenses 423 452 -6 1,586 Other operative expenses 345 230 50 1,459 Earnings before tax 3,782 3,243 17 14,209 Income taxes 926 794 17 3,478 Profit for the period 2,856 2,449 17 10,731 Statement of comprehensive income Profit for the period 2,856 2,449 17 10,731 Actuarial gains/losses on post-employment - - -50 benefit obligations Income tax on actuarial gains/losses on - - 12 post-employment benefit obligations Total comprehensive income 2,856 2,449 17 10,693 Key Ratios Q1/2013 Q1/2012 2012 Q1/2013 Return on equity (ROE), % 3.5 3.6 3.7 3.5 Cost/income ratio, % 19 19 19 19 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 EUR thousand 31 Mar 2013 31 Mar 2012 Change, % 31 Dec 2012 Receivables from financial 52,881 72,060 53,300 institutions Derivative contracts 276,403 215,138 28 318,473 Receivables from customers 8,847,903 7,999,754 11 8,677,652 Investments assets 17 17 17 Intangible assets 1,128 739 53 1,101 Tangible assets - - - Other assets 117,146 139,590 -16 77,854 Tax receivables 33 8 35 Total assets 9,295,512 8,427,306 10 9,128,431 Liabilities to financial 2,747,000 2,490,000 2,570,000 institutions Derivative contracts 10,867 15,716 16,382 Debt securities issued to the 6,068,986 5,439,837 12 6,109,687 public Reserves and other liabilities 142,136 174,277 -18 106,964 Tax liabilities 704 755 435 Subordinated debt securities - 20,000 - Total liabilities 8,969,693 8,140,586 10 8,803,467 Shareholders' equity Share capital 60,000 60,000 0 60,000 Reserve for invested 235,000 205,000 15 235,000 unrestricted equity Retained earnings 30,819 21,720 42 29,964 Total equity 325,819 286,720 14 324,964 Total liabilities and 9,295,512 8,427,306 10 9,128,431 shareholders' equity Off-balance Sheet Commitments EUR thousand 31 Mar 2013 31 Mar 2012 31 Mar 2011 31 Dec 2011 Binding credit commitments 11,352 7,869 7,676 7,456 Change Calculation on Shareholders' Equity Other Retained EUR thousand Share capital reserves earnings Total equity Shareholders' equity 1 Jan 2012 60,000 175,000 21,271 256,271 Reserve for invested unrestricted 30,000 30,000 equity Profit for the period 2,449 2,449 Other changes -2,001 -2,001 Shareholders' equity 31 March 60,000 205,000 27,720 286,720 2012 Other Retained EUR thousand Share capital reserves earnings Total equity Shareholders' equity 1 Jan 2013 60,000 235,000 29,964 324,964 Reserve for invested unrestricted - - equity Profit for the period 2,856 2,856 Other changes -2,001 -2,001 Shareholders' equity 31 March 60,000 235,000 30,819 325,819 2012 Cash Flow Statement EUR thousand Q1/2013 Q1/2012 Liquid assets 1 January 53,300 82,434 Cash flow from operations 46 -39,618 Cash flow from investments -83 -236 Cash flow from financing -381 29,479 Liquid assets 31 March 52,881 72,060 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 Loans and through profit Available for EUR Thousand receivables or loss sale Total Financial assets Receivables from financial 52,881 52,881 institutions Derivative contracts 276,403 276,403 Receivables from customers 8,847,903 8,847,903 Equities 17 17 Other receivables 117,180 117,180 Balance at 31 March 2013 9,017,964 276,403 17 9,294,384 Balance at 31 March 2012 8,211,412 215,138 17 8,426,567 Balance at 31 December 2012 8,808,806 318,473 17 9,127,296 Recognised at fair value through profit Other EUR Thousand or loss * liabilities Total Liabilities to financial 2,747,000 2,747,000 institutions - Derivative contracts - 10,867 10,867 Debt securities issued to 6,068,986 6,068,986 the public - Subordinated liabilities - - - Other liabilities - 142,840 142,840 Balance at 31 March 2013 10,867 8,958,826 8,969,693 Balance at 31 March 2012 - 15,716 8,124,870 8,140,586 Balance at 31 December 2012 - 16,382 8,787,085 8,803,467 *) Debt securities issued to the public are carried at amortised cost. On 31 March 2013, the fair value of these debt instruments was approximately EUR 346,211 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 values are substantially lower than their carrying amount, but determining fair values reliably is difficult in the current market situation. With regard to other balance sheet items, the carrying amounts correspond substantially with fair values. Derivative Contracts 31 March 2013 EUR thousand Nominal values/the remaining maturity Fair values Less More Credit than than Liabili- counter- 1 year 1-5 years 5 years Total Assets ties value Interest rate derivatives Hedging 570,740 13,123,423 2,330,000 16,024,163 276,403 10,867 476,948 Trading Total 570,740 13,123,423 2,330,000 16,024,163 276,403 10,867 476,948 Derivative Contracts 31 March 2012 EUR Fair values thousand Nominal values/the remaining maturity Less More Credit than than 5 Liabili- counter- 1 year 1-5 years years Total Assets ties value Interest rate derivatives Hedging 5,385,376 7,500,000 2,000,000 14,885,376 215,138 15,716 392,264 Trading Total 5,385,376 7,500,000 2,000,000 14,885,376 215,138 15,716 392,264 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 Bank Group pension insurance organisation OP Pension Fund and OP Pension Foundation, and the company's administrative personnel. Standard loan terms and conditions 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 2012. Accounting policies The Interim Report for 1 January-31 March 2013 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 2012, except a change in the calculation of the net interest income on defined benefit pension costs. Change in accounting policies As of 1 January 2013, OPA applies the amended IAS 19 Employee Benefits standard. The amended standard eliminates the option of using the so-called corridor method in the recognition of actuarial gains and losses, and changes the calculation of the net interest income on defined benefit pension costs. Under the amended standard, the expected rate of return on pension assets used in the calculation of the net interest income is calculated at the discount rate for pension liability. OPA voluntarily abandoned the corridor method as of the beginning of 2012. The change in the calculation of he net interest income did not have any substantial effects on the personnel costs in the comparison period or the financial year 2012. This Interim Report is based on unaudited figures. Given that all of the figures have been rounded off, the sum total of individual figures may deviate from the presented sums. Helsinki, 29 April 2013 OP Mortgage Bank Board of Directors OP Mortgage Bank: Interim Report Q1 ------------------------------------------------------------------------------ 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#1697344
OP Mortgage Bank : OP Mortgage Bank: Interim Report 1 January - 31 March 2013
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