OP Mortgage Bank plc : OP Mortgage Bank plc: Interim Report 1 January -30 June 2013

OP Mortgage Bank plc : OP Mortgage Bank plc: Interim Report 1 January -30 June
                                     2013

OP MORTGAGE BANK
Stock exchange release 31 July 2013
Interim Report 1 January -30 June 2013

Financial Standing

The loan portfolio of OP Mortgage Bank decreased from EUR 8,678 million on 31
December 2012 to EUR 8,535 million on 30 June 2013. The company's loan
portfolio was increased in February and March by buying mortgage-backed loans
from OP-Pohjola Group's member banks with a total of EUR 463 million. Low
interest rates resulted in shorter loans, which were in turn reflected as a
decrease in OP Mortgage Bank's loan portfolio. No new bonds were issued in the
report period.

The company's financial standing remained stable throughout the review period.
EUR 500 million of the funding for overcollateral concerning publicly issued
bonds was converted in May to long-term funding to reduce the funding risk.
Extending the term to maturity reduces profitability to a small extent in the
future. 

OPMB (OP Mortgage Bank) 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. OPMB has also swapped the fixed interest rates of the bonds it has
issued to short-term market rates. 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 June.

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 4,878 million at the end of June.

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
Oyj. 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 the 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 June, OPMB 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 Board composition is as follows:

Chairman      Harri Luhtala          Chief Financial Officer, OP-Pohjola Group
                                     Central Cooperative
                                     Senior Vice President, OP-Pohjola Group
Vice Chairman Elina Ronkanen-Minogue Central Cooperative
Members       Lars Björklöf          Managing Director, Osuuspankki Raasepori
              Sakari Haapakoski      Bank Manager, Oulun Osuuspankki
              Mika Helin             Executive Vice President, Hämeenlinnan
                                     Seudun Osuuspankki
                                     Executive Vice President, Pohjola Bank
              Hanno Hirvinen         plc
              Jari Tirkkonen         Senior Vice President, OP-Pohjola Group
                                     Central Cooperative

OPMB's Managing Director is Lauri Iloniemi.

Risk Exposure

The most significant types of risk related to OPMB are credit risk, structural
funding risk, liquidity risk and interest-rate risk. The key indicators in use
shows that OPMB's credit risk exposure is stable and 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 OPMB.
OPMB 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.

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.

Accounting Policies

The Interim Report for 1 January-30 June 2013 has been prepared in accordance
with IAS 34 (Interim Financial Reporting), as approved by the EU. In the
preparation of this Interim Report, OPMB substantially applied the same
accounting policies as in the financial statements 2012, except a change in
the recognition of actuarial gains and losses on the defined benefit pension
plan.

Since 1 January 2013, OPMB has applied the amendments to IAS 19 Employee
Benefits. The revised standard removes the option for entities to apply the
so-called corridor method in the recognition of actual gains and losses and
changes the calculation of net interest income on the net defined benefit
liability.Under the revised standard, the expected return on plan assets used
in the calculation of net interest income is calculated based on the discount
rate of the plan liability.

OPMB voluntarily abandoned the corridor method as of the beginning of 2012.
The change in the calculation of the net interest income did not have any
substantial effects on the personnel costs year on year or the financial year
2012.

The cash flow statement presents the cash flows for the period on a cash
basis, divided into cash flows from operating activities, investing activities
and financing activities. Cash flows from operating activities include the
cash flows generated from day-to-day operations. Cash flow from investing
activities includes payments related to PPE and intangible assets, investments
held to maturity and shares that are not considered as belonging to cash flow
from operating activities. Cash flow from financing activities includes cash
flows originating in the financing of operations either on equity or liability
terms from the money or capital market. Cash and cash equivalents include
liquid assets and receivables from credit institutions payable on demand. The
statement has been prepared using the indirect method.

Capital adequacy
OPMB uses the Internal Ratings Based Approach (IRBA) to measure its capital
adequacy requirement for credit risk and and uses the Standardised Approach to
measure its capital adequacy for operational risk.

Related-party transactions
OPMB's related parties include OP-Pohjola Group Central Cooperative and its
subsidiaries, the OP Bank Group pension insurance organisation OP Bank Group
Pension Fund and OP Bank Group Pension Foundation, and the company's
administrative personnel. Standard loan terms and conditions apply to loans
granted to the related parties. Loans are tied to generally used reference
rates. Related-party transactions did not undergo any substantial changes
during the reporting period

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 commissions and fees +
Net trading income + Total net investment income+ Other operating income) ×
100

Income statement            H1/2013 H1/2012 Q2/2013 Q2/2012    2012
 TEUR
Interest income                         40,658  70,525  20,587  33,584 121,246
Interest expenses                       23,983  56,186  12,241  26,013  91,362
Net interest income                     16,675  14,339   8,346   7,571  29,884
Impairment loss on receivables              21     -36      11     -35     -53
Net commissions and fees                -7,743  -5,423  -4,074  -2,676 -11,992
Net trading income                           0       0       0       0       0
Net investment income                        1    -179       0    -180    -186
Other operating income                       0       0       0       0       0
Personnel costs                            232     202     111     106     400
Other administrative expenses              815     842     392     390   1,586
Other operating expenses                   650     707     305     477   1,459
Earnings before tax                      7,257   6,951   3,476   3,708  14,209
Income tax expense                       1,777   1,701     851     907   3,478
Profit for the period                    5,480   5,250   2,625   2,801  10,731

Statement of comprehensive income
TEUR                                    H1/2013 H1/2012 Q2/2013 Q2/2012   2012
Profit for the period                     5,480   5,250   2,625   2,801 10,731
Actuarial gains/losses on
post-employment benefit obligations           -       -       -       -    -50
Income tax on actuarial gains/losses on
post-employment benefit obligations           -       -       -       -     12
Total comprehensive income                5,480   5,250   2,625   2,801 10,693

Earnings                H1/2013 H1/2012 Q2/2013 Q2/2012    2012
    TEUR
Income
Net interest income                     16,675  14,339   8,346   7,571  29,884
Net commissions and fees                -7,743  -5,423  -4,074  -2,676 -11,992
Net trading income                           0       0       0       0       0
Net investment income                        1    -179       0    -180    -186
Other operating income                       0       0       0       0       0
Total                                    8,932   8,737   4,273   4,715  17,707
Expenses
Personnel costs                            232     202     111     106     400
Other administrative expenses              815     842     392     390   1,586
Other operating expenses                   650     707     305     477   1,459
Total                                    1,696   1,750     808     973   3,445
Impairment loss on receivables              21     -36      11     -35     -53
Earnings before tax                      7,257   6,951   3,476   3,708  14,209

Key ratios                H1/2013 H1/2012 Q2/2013 Q2/2012 2012
Return on equity (ROE), %     3.4     3.7     3.2     3.8  3.7
Cost/income ratio, %           19      20      19      21   19

Cash flow statement           TEUR H1/2013  H1/2012
Cash and cash equivalents 1 January            53,300   82,434
Cash flow from operating activities           -15,620 -263,621
Cash flow from investing activities              -315     -390
Cash flow from financing activities             1,224  274,400
Cash and cash equivalents 30 June              38,589   92,823

Balance sheet        30 June 2013 31 March 2013 31 Dec 2012 30 June 2012
          TEUR
Receivables from credit
institutions                     38,589        52,881      53,300       92,823
Derivative contracts            219,616       276,403     318,473      247,456
Receivables from customers    8,535,321     8,847,903   8,677,652    8,841,128
Investments assets                   17            17          17           17
Intangible assets                 1,303         1,128       1,101          809
Property, plant and
equipment (PPE)                       -             -           -            -
Other assets                     77,636       117,146      77,854       80,854
Tax assets                           32            33          35           19
Total assets                  8,872,515     9,295,512   9,128,431    9,263,106
Liabilities to credit
institutions                  2,420,000     2,747,000   2,570,000    3,100,000
Derivative contracts             10,448        10,867      16,382       21,545
Debt securities issued to
the public                    6,010,497     6,068,986   6,109,687    5,716,100
Provisions and other
liabilities                     102,227       142,136     106,964      114,829
Tax liabilities                     899           704         435        1,112
Subordinated liabilities              -             -           -            -
Total liabilities             8,544,071     8,969,693   8,803,467    8,953,585
Shareholders' equity
 Share capital                  60,000        60,000      60,000       60,000
 Reserve for invested
unrestricted      .
equity                          235,000       235,000     235,000      225,000
 Retained earnings              33,444        30,819      29,964       24,521
Total equity                    328,444       325,819     324,964      309,521
Total liabilities and
shareholders' equity          8,872,515     9,295,512   9,128,431    9,263,106

Off-balance-sheet commitments  TEUR           30 June 31 March 31 Dec 30 June
                                                  2013     2013   2012    2012
Irrevocable commitments given on behalf of
customers                                        9,854   11,352  7,976  10,883

Change in key balance-sheet items and
commitments
EUR Million                   30 June   31 March    31 Dec    31 Sep   30 June
                                 2013       2013      2012      2012      2012
Balance sheet total             8,873      9,296     9,128     8,976     9,263
Receivables from customers      8,535      8,848     8,678     8,511     8,841
Receivables from credit
institutions                       39         53        53        77        93
Debt securities issued to
the public                      6,010      6,069     6,110     5,879     5,716
Liabilities to credit
institutions                    2,420      2,747     2,570     2,650     3,100
Shareholders' equity              328        326       325       312       310
Off-balance-sheet
commitments                        10         11         8         9        11

Statement of changes in equity
TEUR                             Share capital Other reserves Retained   Total
                                                              earnings  equity
Shareholders' equity 1 Jan 2012         60,000        175,000   21,271 256,271
Reserve for invested
unrestricted equity                         -         50,000        -  50,000
Profit for the period                        -              -    5,250   5,250
Other changes                                -              -   -2,001  -2,001
Shareholders' equity 30 June
2012                                    60,000        225,000   24,521 309,521
TEUR                                                          Retained   Total
                                 Share capital Other reserves earnings  equity
Shareholders' equity 1 Jan 2013         60,000        235,000   29,964 324,964
Reserve for invested
unrestricted equity                          -              -        -       -
Profit for the period                        -              -    5,480   5,480
Other changes                                -              -   -2,001  -2,001
Shareholders' equity 30 June
2013                                    60,000        235,000   33,444 328,444

Capital adequacy

OPMB's capital adequacy ratio stood at 9.4% on 30 June. Capital ratio
excluding transition rules stood at 44.5%.

CAPITAL BASE,              TEUR     30 June  31 Dec 30 June 2012
                                                     2013    2012
Equity capital                                    328,444 324,964      309,538
Intangible assets                                  -1,303  -1,101         -809
Excess funding of pension liability and fair
value measurement of investment property and
deferred tax assets on previous losses                -12     -13          -13
Planned dividend distribution                      -1,000  -2,001            0
Impairments - shortfall of expected losses         -3,502  -3,705       -3,586
Shortfall of other Tier 1 capital                  -3,502  -3,705       -3,586
Core Tier 1 capital                               319,124 314,440      301,543
Shortfall of Tier 2 capital                        -3,502  -3,705       -3,586
Transfer to Core Tier 1 capital                     3,502   3,705        3,586
Tier 1 capital                                    319,124 314,440      301,543
Debenture loans                                         -       -            -
Impairments - shortfall of expected losses         -3,502  -3,705       -3,586
Transfer to Tier 1 capital                          3,502   3,705        3,586
Tier 2 capital                                          0       -            -
Total capital base                                319,124 314,440      301,543
Capital adequacy ratio, %                             9.4     9.2          8.7
Tier 1 ratio                                          9.4     9.2          8.7
Core Tier 1 ratio                                     9.4     9.2          8.7
Capital ratio excluding IRBA transition rules
Capital adequacy ratio, %                            44.5    41.9         39.6
Tier 1 ratio                                         44.5    41.9         39.6
Core Tier 1 ratio                                    44.5    41.9         39.6

The increase in shareholders' equity arising from the additional investment
and from the measurement of pension liabilities and the assets covering them,
under IFRS, is not included in the capital base. Furthermore, intangible
assets were deducted from the capital base. The Impairments - shortfall of
expected losses total EUR 7 million.

Risk-weighted assets investments and               30 June    31 Dec   30 June
off-balance-sheet commitments, TEUR                  2013      2012      2012
Credit risk                                        697,577   735,840   746,948
Market risk                                              0         0         0
Operational risks                                   19,941    14,043    14,043
Requirement for period of transition             2,664,897 2,656,632 2,714,917
Risk-weighted assets, investments and            3,382,415 3,407,573 3,475,908
off-balance-sheet commitments, total

Classification of financial assets and liabilities (TEUR)

                     Loans and other   Recognised at fair Available
Financial assets          receivables value through profit  for sale     Total
                                                   or loss
Receivables from
credit institutions            38,589                    -         -    38,589
Derivative contracts                -              219,616         -   219,616
Receivables from
customers                   8,535,321                    -         - 8,535,321
Shares and
participations                      -                    -        17        17
Other receivables              77,668                    -         -    77,668
Balance at 30 June
2013                        8,651,578              219,616        17 8,871,212
Balance at 30 June
2012                        9,014,824              247,456        17 9,262,297
Balance at 31
December 2012               8,808,806              318,473        17 9,127,296

Financial liabilities           Recognised at fair value       Other     Total
                                  through profit or loss liabilities
Liabilities to credit
institutions              -                            -   2,420,000 2,420,000
Derivative contracts      -                       10,448           -    10,448
Debt securities issued to
the public                -                            0   6,010,497 6,010,497
Subordinated liabilities  -                            -           -         -
Other liabilities         -                            -     103,126   103,126
Balance at 30 June 2013   -                       10,448   8,533,623 8,544,071
Balance at 30 June 2012   -                       21,545   8,932,040 8,953,585
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 30
June 2013, the fair value of these debt instruments was approximately EUR
291,736 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 30 June 2013

TEUR                   Nominal values/residual term to maturity
                           Less than 1  1-5 years More than 5 years      Total
                                  year
Interest rate
derivatives
Hedging                        519,664 12,648,557         2,496,000 15,664,220
Trading                              -          -                 -          -
Total                          519,664 12,648,557         2,496,000 15,664,220

TEUR                          Fair values     Credit equivalent
                           Assets Liabilities
Interest rate derivatives
Hedging                   219,616      10,448           381,489
Trading                         -           -                 -
Total                     219,616      10,448           381,489

Derivative contracts 31 December 2012

TEUR                   Nominal values/residual term to maturity
                           Less than 1  1-5 years More than 5 years      Total
                                  year
Interest rate
derivatives
Hedging                        585,259 12,947,452         2,330,000 15,862,711
Trading                              -          -                 -          -
Total                          585,259 12,947,452         2,330,000 15,862,711

TEUR                          Fair values     Credit equivalent
                           Assets Liabilities
Interest rate derivatives
Hedging                   318,473      16,382           328,295
Trading                         -           -                 -
Total                     318,473      16,382           328,295

All derivative contracts have been entered into for hedging purposes,
regardless of their classification in accounting.

Helsinki, 31 July 2013

OP Mortgage Bank
Board of Directors

For more information, please contact Managing Director Lauri Iloniemi, tel.
+358 (0)10 252 3541

DISTRIBUTION
LSE London Stock Exchange
OAM, Officially Appointed Mechanism
Major media
op.fi

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