OP Mortgage Bank : OP Mortgage Bank: Interim Report 1 January - 31 March 2013

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

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Source: OP Mortgage Bank via Thomson Reuters ONE
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