OP Mortgage Bank

1st Quarter Results

OP Mortgage Bank
08 May 2008

OP Mortgage Bank             COMPANY RELEASE
                             Message category: Q1 Report
                             8 April 2008, 9.00 am Finnish time (GMT+3)

OP Mortgage Bank Interim Report  for January 1 - March 31, 2008


OP Mortgage Bank's (OPA) loan portfolio decreased from EUR 1,531 million on 31
December  to EUR 1,481 million on 31 March 2008,  since the amount of new
housing loans granted directly from OPA's balance sheet to customers was lower
than the total amount of repaid loans. During the reporting period, OPA neither
issued covered bonds nor purchased housing loans from OP-Pohjola Group member
banks to be recognised in OPA's balance sheet. The bank has no non-performing or
zero-interest receivables, nor did it recognise any impairment losses on loans.


Earnings before tax for January-March increased to EUR 1006 thousand (945)(1).
Improvements in net interest income and earnings were due to growth in the loan
portfolio.


Earnings Performance

EUR 1,000                                      Q1/2008       Q1/2007      Change, %          2007

Income

Net interest income                              2,533         1,553             63         8,274
Net commissions and fees                        -1,219          -479              -        -3,950
Net trading income                                   7            18            -61            87
Net investment income                                1             1              -             1
Other operating income                               -             -                            4
Total                                            1,322         1,093             21         4,416

Expenses

Personnel costs                                     68            61             11           257
Other administrative expenses                      152            64              -           337
Other operating expenses                            97            23              -           782
Total                                              316           148              -         1,376

Earnings before tax                              1,006           945              6         3,039


Net interest income totalled EUR 2,533 thousand (1 553).


Net commissions and fees were negative, as in the previous year, with commission
income increasing to EUR 113 thousand (68) and commission expenses to EUR 1,332
thousand (548). Commission expenses stem mainly from commissions paid to
OP-Pohjola Group member banks for servicing housing loans.


In the review period, the bank's expenses rose to EUR 316 (148) due largely to
risk management and ICT services purchased from the OP-Pohjola Group Central
Cooperative and its Group companies.



Balance Sheet and Off-balance Sheet Commitments



OPA's balance sheet total amounted to EUR 1,545 million on 31 March (1704) (2).


Change in major assets and liabilities


EUR million                                    31 March       31 Dec       Change, %      31 March
                                                 2008          2007                         2007

Balance sheet                                    1,545         1,704                - 9     1,537
Receivables from customers                       1,481         1,531                 -3     1,521
Receivables from financial institutions            8            138                           9
Debt securities issued to the public             1,054         1,060                 -1      138
Liabilities to financial institutions             346           516                 -33     1,310
Shareholders' equity                              64            64                    -      62
Off-balance-sheet commitments                     20            17                   18      30


OPA did not purchase any new housing loans from member banks in January-March.
The loan portfolio decreased from EUR 1,531 million on 31 December  to EUR 1,481
million on 31March 2008, since the amount of new housing loans granted directly
from OPA's balance sheet to customers was lower than the total amount of repaid
loans.



On 31 March, households accounted for 95 % (94) of the loan portfolio and
housing corporations for 5 % (6). The bank had no non-performing or
zero-interest receivables, nor did it recognise any impairment losses on loans.



The carrying amount of bonds issued to the public totalled EUR 1,054 million
(1060) on 31 March.

In addition to bonds, other funding was based on financing loans granted by
Pohjola Bank plc (Pohjola). On 31 March, financing loans totalled EUR 346
million (516).



Shareholders' equity rose to EUR 64.4 million (63.7). Retained earnings amounted
to EUR 4.4 million (3.7) 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 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 2,565
million (2661). All derivative contracts have been concluded for hedging
purposes. Pohjola is the counterparty to all derivative contracts.


Capital Adequacy



OPA's capital adequacy ratio stood at 12,8 % on 31 March.  OPA for the first
time reports risk-weighted assets according to the new capital adequacy rules
(Basel II) as of March 2008.

In 2008 credit risk is calculated according to the standardised approach and the
capital requirement for operational risk is calculated using the basic approach.
The capital adequacy ratio increased  primarily because the home mortgage
capital requirement was reduced as the standardised approach (Basel II) was
adopted.



                                                                       Basel II          Basel I
OWN FUNDS, EUR thousand                                           31 March 2008     31 Dec  2007

Tier I                                                                   64,211           62,932
     of which hybrid capital                                                  -                -
Tier II                                                                  20,000           20,000
Decreases                                                                     -                -
Total                                                                    84,211           82,932

Risk-weighted receivables, investments and off-balance sheet            659 926          789,555
commitments

Capital adequacy ratio, %                                                  12,8             10,5

Tier I ratio to risk-weighted receivables, investments and                  9,7              8,0
off-balance-sheet commitments



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.



Joint Responsibility and Joint Security



OPA is a member of OP-Pohjola Group Central Cooperative, which is the central
institution of the amalgamation of OP-Pohjola Group. Within the amalgamation,
the resources of OP-Pohjola Group secure the operations of all member banks
since, according to Chapter 2, Section 3 of the Act on Cooperative Banks and
Other Cooperative Credit Institutions, the Central Cooperative and its member
credit institutions are jointly and severally responsible for each other's
liabilities and commitments that cannot be paid from the funds of the Central
Cooperative or the member credit institution in question. In addition to OPA,
Central Cooperative members at the end of December 2007 included 229 cooperative
banks, Pohjola Bank plc, Helsinki OP Bank plc, and OP-Kotipankki Oyj.



Central Cooperative provides its member banks with instructions governing
operations to secure liquidity, capital adequacy and risk management, as well as
shared accounting policies.



However, pursuant to Section 17 of the Act on Mortgage Credit Banks, 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 four permanent employees on an employment contract basis.
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. Matti Nykanen, was elected as a new member of the
Board of Directors, after which the composition of the Board of Directors is as
follows:



Chairman                     Harri Nummela            Executive Vice President, OP-Pohjola Group Central Cooperative

Vice Chairman                Mikko Hyttinen           Senior Vice President, OP-Pohjola Group Central Cooperative

Members                      Sakari Haapakoski        Bank Manager, Oulun Osuuspankki

                             Hanno Hirvinen           Executive Vice President, Pohjola Bank plc

                             Heikki Kananen           Managing Director, Mantsalan Osuuspankki

                             Risto Korpela            Managing Director, Turun Seudun Osuuspankki

                             Matti Nykanen            Senior Vice President, OP-Pohjola Group Central  Cooperative

                             Jarmo Viitanen           Managing Director, Lansi-Uudenmaan Osuuspankki


Mr. Lauri Iloniemi acted as OPA's Managing Director.


Prospects for the rest of the year

Earnings before tax in 2008 are expected to equal or exceed the 2007 figure. The
estimate is based on the assumption that the demand for housing loans will
remain good and that there will be no major disturbances on the capital markets.



OPA is planning to issue a new bond with real estate collateral to the
international capital markets this year.


Income Statement

EUR 1000                                    Q1/2008          Q1/2007     Change, %          2007

Interest income                              19,955            9,631             -        62,594
Interest expenses                            17,422            8,078             -        54,320
Net interest income                           2,533            1,553            63         8,274
Net commissions and fees                     -1,219             -479             -        -3,950
Net trading income                                7               18           -61            87
Net investment income                             1                1            10             1
Other operating income                            0                                            4
Personnel costs                                  68               61            11           257
Other administrative expenses                   152               64             -           337
Other operating expenses                         97               23             -           781
Earnings before tax                           1,006              945             6         3,039
Income tax expense                              257              244             5           798
Profit for the period                           749              699             7         2,241


Key Ratios

                                                 Q1/2008            Q1/2007                 2007

Return on equity (ROE), %                            4,7                6,8                  5,3
Cost/income ratio, %                                  24                 14                   31



Formulae for key ratios



Return on equity, % = Annualised profit for the period / Shareholders' equity
(average of the beginning and end of period) x 100



Cost/income ratio, % = Personnel costs + Other administrative expenses + Other
operating expenses / Net interest income + Net commission income + Net trading
income + Net investment income + Other operating income x 100



Balance Sheet


EUR 1,000                             31 March 2008 31 March 2007     Change, %           31 Dec
                                                                                            2007

Receivables from financial                    7,664         8,576           -11          138,266
institutions
Derivative contracts                         13,494             0             -              883
Receivables from customers                1,481,030     1,521,378            -3        1,531,475
Investment assets                                17            17             0               17
Intangible assets                               512            34             -              542
Property, plant and equipment                     0             0             -                0
Other assets                                 42,628         6,968             -           32,956
Tax assets                                        0             0                              -
Total assets                              1,545,345     1,536,974             1        1,704,140

Liabilities to financial institutions       346,200     1,310,400           -74          516,200
Derivative contracts                          1,118         1,346           -17            3,165
Debt securities issued to the public      1,053,873       137,967             -        1,059,989
Provisions and other liabilities             59,566         4,972             -           40,493
Tax liabilities                                 157           150             5              611
Subordinated debt securities                 20,000        20,000             0           20,000
Total liabilities                         1,480,914     1,454,834             2        1,640,459

Shareholders' equity
  Share capital                              60,000        60,000             0           60,000
  Retained earnings                           4,431         2,140             -            3,681
Total equity                                 64,431        62,140             4           63,681
Total liabilities and shareholders'       1,545,345     1,536,974             1        1,704,140
equity


Off-balance-sheet Commitments
EUR 1,000                                    31 March 2008      31 March 2007       31 Dec  2007
Irrevocable credit commitments                      20,104             29,487             17,272



Statement of Changes in Shareholders' Equity


EUR 1000                                    Share capital      Retained earnings               Total equity

Balance at 1 January 2007                          19,148                  1,440                     20,588
Profit distribution                                     -                      -                          -
Profit for the period                                   -                    699                        699
Other                                              40,852                      -                     40,852
Balance at 31 March 2007                           60,000                  2,140                     62,140

EUR 1,000                                   Share capital      Retained earnings               Total equity

Balance at 1 January 2008                          60,000                  3,681                     63,681
Profit distribution                                     -                      -                          -
Profit for the period                                   -                    749                        749
Other                                                   -                      -                          -
Balance at 31 March 2008                           60,000                  4,431                     64,431



Cash Flow Statement


EUR thousand                                                         Q1/2008              Q1/2007

Cash and cash equivalents 1 January                                   15,266               11,196
Cash flow from operating activities                                   14,744              -55,289
Cash flow used in investing activities                                     1                    0
Cash flow used in financing activities                               -22,348               52,689
Cash and cash equivalents 31 March                                     7,664                8,596





The cash flow statement presents cash flows for the period on a cash basis,
divided into cash flow from operating activities and cash flow used in
investment activities and financing activities. Cash flow from operating
activities includes that generated by daily operations. Cash flow used in
investing activities includes payments related to property, plant and equipment
and intangible assets, investments held to maturity and shares not regarded as
belonging to cash flow from operating activities. Cash flow used in financing
activities includes cash flows based on the financing of operations either on
equity or liability terms in the money or capital market. Cash and cash
equivalents include cash in hand and callable receivables from financial
institutions. The statement is prepared using the indirect method.


Derivative Contracts 31 March 2008


EUR 1,000                 Nominal values/remaining maturity                  Fair values

                          Less than   1-5 years More than 5       Total   Assets  Liabilities     Credit
                             1 year                   years                                    counter-value

Interest-rate derivatives

Hedging                      85,000   2,480,299           -   2,565,299   13,494        1,118          47,420
Trading                           -           -           -           -        -            -               -
Total                        85,000   2,480,299           0   2,565,299   13,494        1,118          47,420



Derivative Contracts 31 March 2007


EUR 1,000                 Nominal values/remaining maturity                   Fair values

                          Less than   1-5 years  More than 5       Total    Assets Liabilities     Credit
                             1 year                    years                                    counter-value

Interest-rate derivatives

Hedging                     120,600      42,500    1,521,224   1,684,324         -       1,346          23,031
Trading                           -           -            -           -         -           -               -
Total                       120,600      42,500    1,521,224   1,684,324         -       1,346          23,031



All derivative contracts have been concluded for hedging purposes, regardless of
their classification in accounting


This interim report is based on unaudited figures.


Helsinki, 8 May 2008

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 previous balance sheet date           (31 December 2007).
For income statement and other cumulative figures, the point of comparison is
the figure for the January-March period in the previous year.


(2) For balance sheet and other cross-sectional figures, the point of comparison
is the figure at the previous balance sheet date          (31 December 2007).
For income statement and other cumulative figures, the point of comparison is
the figure for the January-March period in the previous year.


                      This information is provided by RNS
            The company news service from the London Stock Exchange