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OP Mortgage Bank (70ZM)

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Wednesday 08 February, 2012

OP Mortgage Bank

OP Mortgage Bank : Final Results

OP Mortgage Bank : Final Results

OP Mortgage Bank
Financial Statements Bulletin for 2011
8 February 2012, 9.00 am EET

FINANCIAL STATEMENTS BULLETIN FOR 2011

OP Mortgage Bank's (OPA) loan portfolio grew to EUR 7,535 million in the January-December period (EUR 5,008 million at the end of 2010)[1].  The bank increased its loan portfolio significantly in March, in June, in September and in December 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 billion in April and a covered bond issue at a nominal value of EUR 1 billion in July.

Earnings Development

EUR thousandQ4/2011Q4/201020112010
Income
Net interest income5,5604,57724,14716,350
Net commissions and fees-2,865-2,055-10,207-8,450
Net income from trading000-1
Net income from investments-14872
Other operating income011519
Total2,6962,53414,4327,920
Expenses
Personnel costs7165282288
Other administrative expenses4863742,0541,396
Other operating expenses2914241,3961,398
Total8498643,7333,082
Impairments of receivables-358--358-
Earnings before tax1,4881,67010,3414,839

Earnings before tax for October-December amounted to EUR 1,488 thousand (1,670). The net interest income increased to EUR 5,560 thousand (4,577). Net commissions and fees were negative, as in the previous year, with commission income increasing to EUR 945 thousand (720) and commission expenses to EUR 3,810 thousand (2,775).  Commission expenses consisted mainly from commissions paid to OP-Pohjola Group member banks for servicing housing loans. The bank's expenses amounted to EUR 849 thousand (864).  

Earnings before tax for January-December amounted to EUR 10,341 thousand (4,839). Net interest income rose to EUR 24,147 thousand (16,350) due to the growth of the loan portfolio.
The bank's expenses increased to EUR 3,733 thousand (3,082). Growth in expenses derived largely from the ICT-services and the professional services purchased in connection with the new covered note programme.  

Balance Sheet and Off-balance Sheet Commitments

OPA's balance sheet total amounted to EUR 7,912 million on 31 December (EUR 5,191 million).  

Change in Major Asset and Liability Items

EUR Million 31 Dec 2011    30 Sep
      2011
30 June 201131 March 201131 Dec 2010
Balance Sheet7,9127,7436,8206,9485,191
Receivables from customers7,5357,3956,6436,7135,008
Receivables from financial institutions82938911962
Debt securities issued to the public5,4235,3894,2463,2173,287
Liabilities to financial institutions2,0701,9802,2453,3501,640
Shareholders' equity256215213211159
Off-balance sheet commitments45787

The bank's loan portfolio grew to EUR 7,535 million (5,008)[2]. OPA increased its loan portfolio in the January-December period when it purchased housing loans from OP-Pohjola-Group member banks for EUR 3,718 million.

On December 2011, households accounted for 99 per cent (99) of the loan portfolio and housing corporations for 1 per cent (1). The bank's non-performing loans increased but remained at low levels totalling EUR 2.1 million (1.4) on December 2011. No impairment losses on loans on an individual basis were recognised.

The carrying amount of the bonds issued to the public totalled EUR 5,423 million (3,287) on 31 December.  OPA issued its fifth covered bond at a nominal value of EUR 1,000 million on international capital markets in April and its sixth covered bond at a nominal value of EUR
1 billion on international capital markets in July. Moody's Investor Services and Standard & Poor's Rating Services have given the bonds their highest credit ratings of Aaa and AAA. In addition to bonds, OPA funded its operations through financing loans taken out with Pohjola Bank plc. On 31 December, financing loans totalled EUR 2,070 million (1,640).  

Shareholders' equity increased to EUR 256 million (159). Shareholders' equity increased in March by EUR 50 million and in October by EUR 40 after OP-Pohjola Group Central Cooperative made additional investments in the company.  Retained earnings amounted to EUR 21 million (14) 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 14,409 million (9,622). All derivative contracts have been concluded for hedging purposes. Pohjola Bank plc is the counterparty to all derivative contracts.

Development of Capital Adequacy

OPA's capital adequacy ratio stood at 9.0 % on 31st of December. Shareholder's equity increased in March by EUR 50 million and in October by EUR 40 million after OP-Pohjola Group Central Cooperative made additional investments in the company. OPA has calculated 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) from the end of 2011. With respect to the capital adequacy requirement for operational risks, OPA adopted the Standardised Approach in the report period. Before the 31 December comparison for credit risk here below are presented according to the Standardised Approach.

OWN FUNDS, EUR thousand31 Dec
2011
30 Sep
2011
30 June 201131 March 201131 Dec 2010
Tier I253,640214,506211,818209,533157,669
- Impairments - shortfall of expected  
  losses
-3, 937----
Tier I total249,704214,506211,818209,533157,669
Tier II20,00020,00020,00020,00020,000
- Impairments - shortfall of expected  
  losses
-3,937----
Tier II total16,06320,00020,00020,00020,000
Total265,765234,506231,818229,533177,669
Risk-weighted receivables, investments and off-balance sheet commitments2,940,6882,699,5612,423,7632,448,0341,836,279
Capital adequacy ratio, %9.08.79.69.49.7
Tier I ratio to risk-weighted receivables, investments and off-balance sheet commitments 8.57.98.78.68.6

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 7.9 million.

Risk-weighted receivables, investments and off balance-sheet commitments,  EUR thousand31 Dec
2011
30 Sep
2011
30 June 2011              31 March 201131 Dec 2010
 Receivables and investments644,7032,687,4182,411,0962,434,2041,824,798
  Off-balance-sheet items2,0631,6532,1773,3402,748
 Market risk-----
 Operational risks10,49010,49010,49010,4908,733
 Requirement for period of transition2,283,433----
Risk-weighted receivables, investments and off balance-sheet commitments, total2,940,6882,699,5612,423,7632,448,0341,836,279


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 supervised 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 205 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 five 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. Mika Helin, Executive Vice President, Hämeenlinnan Seudun Osuuspankki and
Ms. Elina Ronkanen-Minogue, Senior Vice President, OP-Pohjola Group Central Cooperative were elected as new members of the Board of Directors. Mr. Jari Himanen, Senior Vice President, OP-Pohjola Group Central Cooperative and Matti Nykänen, Senior Vice President, OP-Pohjola Group Central Cooperative were left out of the Board of Directors. The Board composition is as follows:

ChairmanHarri LuhtalaChief Financial Officer, OP-Pohjola
Group Central Cooperative
Vice ChairmanElina Ronkanen-MinogueSenior Vice President, OP-Pohjola
Group Central Cooperative
MembersSakari HaapakoskiBank Manager, Oulun Osuuspankki
Mika HelinExecutive Vice President, Hämeenlinnan
Seudun Osuuspankki
Hanno HirvinenExecutive Vice President, Pohjola Bank plc
Heikki KananenManaging Director, Mäntsälän Osuuspankki
Mikko HyttinenBank Manager, OP-Pohjola Group
Central Cooperative
Mikko RosenlundManaging Director, Tampereen Seudun
Osuuspankki

         
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 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 2012.    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

On 31 December 2011 the shareholders' equity of OPA totalled EUR 256,453,606.48, EUR 21,453,606.48 of which represented distributable equity.

The following funds are at the AGM's disposal for profit distribution:
        €
Profit for 2011                  7,654,673.43
Retained earnings     13,798,933.05
Total                        21,453,606.48

The Board of Directors proposes that he Company's distributable funds be distributed as follows:
EUR 26.12 per share totalling EUR 2,000,583.04.
Accordingly, EUR 19,453,023.44 remains in the Company's distributable equity.

Income Statement

EUR thousandQ4/2011Q4/201020112010
Interest income39,87119,407133,18063,314
Interest expenses34,31114,829109,03446,963
Net interest income5,5604,57724,14716,350
Impairments of receivables-358--358-
Net commissions and fees-2,865-2,055-10,207-8,450
Net income from trading000-1
Net income from investments-14872
Other operating income011519
Personnel costs7165282288
Other administrative expenses4863742,0541,396
Other operative expenses2914241,3961,398
Earnings before tax1,4881,67010,3414,839
Income taxes3835052,6861,264
Profit for the period1,1051,1647 6553,574

Key Ratios

Q4/2011Q4/201020112010
Return on equity (ROE), %1.93.13.72.4
Cost/income ratio, %32342639

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 thousand31 Dec
2011
30 Sep
2011
30 June 201131 March 201131 Dec 2010
Receivables from financial institutions82,43493,07588,525119,03261,673
Derivative contracts198,380165,30543,34137,97571,255
Receivables from customers7,534,5577,394,9376,643,0676,712,5865,008,381
Investments assets1717171717
Intangible assets587661745829914
Tangible assets--233
Other assets96,30188,78843,85077,38348,790
Tax receivables
Total assets7,912,2777,742,7836,819,5476,947,8255,191,034
Liabilities to financial institutions2,070,0001,980,0002,245,0003,350,0001,640,000
Derivative contracts11,2126,23328,77053,28621,835
Debt securities issued to the public5,423,0855,388,9494,246,1753,216,9033,286,747
Reserves and other liabilities131,213130,59165,82496,38163,311
Tax liabilities3131,6611,013699342
Subordinated debt securities20,00020,00020,00020,00020,000
Total liabilities7,655,8237,527,4356,606,7826,737,2695,032,235
Shareholders' equity
  Share capital60,00060,00060,00060,00060,000
  Reserve for invested unrestricted              . equity175,000135,000135,000135,00085,000
  Retained earnings21,45420,34917,76515,55713,799
Total equity256,454215,349212,765210,557158,799
Total liabilities and shareholders' equity7,912,2777,742,7836,819,5476,947,8255,191,034

Off-balance Sheet Commitments

EUR thousand31 Dec
2011
30 Sep
2011
30 June 201131 March 201131 Dec 2010
Binding credit commitments3,6924,5976,7007,6767,456

Change Calculation on Shareholders' Equity

EUR thousandShare capitalOther reservesRetained earningsTotal equity
Shareholders' equity 1 Jan 201060,00070,00010,224140,224
Reserve for invested unrestricted              equity15,00015,000
Profit for the period3,5743,574
Other changes0
Shareholders' equity 31 Dec 201060,00085,00013,799158,799
EUR thousandShare capitalOther reservesRetained earningsTotal equity
Shareholders' equity 1 Jan 201160,00070,00013,799158,799
Reserve for invested unrestricted              equity90,0007,66597,655
Profit for the period0
Other changes0
Shareholders' equity 31 Dec 201160,000175,00021,454256,454

Cash Flow Statement

EUR thousand20112010
Liquid assets 1 January61,67241,128
Cash flow from operations-2,060,12110,597
Cash flow from investments-8-246
Cash flow from financing2,080,89110,193
Liquid assets 31 December82,43461,672

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
EUR ThousandLoans and  receivablesRecognised at fair value through profit or loss Available for saleTotal
Financial assets
Receivables from financial institutions82,43482,434
Derivative contracts198,380198,380
Receivables from customers7,534,5577,534,557
Equities1717
Other receivables96,30196,301
Balance at 31 December 20117,713,293198,380177,911,690
Balance at 31 December 20105,118,84471,255175,190,117
EUR ThousandRecognised at fair value through profit or loss * Other
liabilities
Total
Liabilities to financial institutions-2,070,0002,070,000
Derivative contracts-11,21211,212
Debt securities issued to the public-5,423,0855,423,085
Subordinated liabilities-20,00020,000
Other liabilities-131,526131,526
Balance at 31 December 2011-11,2127,644,6117,655,823
Balance at 31 December 2010-21,8355,010,3995,032,235

*) Debt securities issued to the public are carried at amortised cost.  On 31 December 2011, the fair value of these debt instruments was approximately EUR 183,983.50 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.

Derivative Contracts 31 December 2011

EUR thousandNominal values/the remaining maturityFair valuesCredit counter-value
Less than 1 year1-5 yearsMore than 5 yearsTotalAssets Liabilities
Interest rate derivatives
Hedging4,909,1347,500,0002,000,00014,409,134198,38011,212328,295
Trading
Total4,909,1347,500,0002,000,00014,409,134198,38011,212328,295

Derivative Contracts 31 December 2010

EUR thousandNominal values/the remaining maturityFair valuesCredit counter-value
Less than 1 year1-5 yearsMore than 5 yearsTotalAssets Liabilities
Interest rate derivatives
Hedging364,2619,258,120-9,622,38171,25521,835144,451
Trading
Total364,2619,258,120-9,622,38171,25521,835144,451

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 2010.

The Financial Statements Bulletin for 1 January - 31 December 2011 has been prepared in accordance with IAS 34 (Interim Financial Reporting), as approved by the EU.  The Financial Statements 2011 contain a description of the accounting policies applied. Given that all figures have been rounded off, the sum total of individual figures may deviate from the presented sums.

Helsinki, 8 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 2010. Comparatives deriving from the income statement are based on figures reported for the corresponding period a year ago.
[2]  For balance sheet and other cross-sectional figures, the point of comparison is the figure at the end of 2010. Comparatives deriving from the income statement are based on figures reported for the corresponding period a year ago.




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information contained therein.

Source: OP Mortgage Bank via Thomson Reuters ONE

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