OP Mortgage Bank

Financial Statements Bulletin for 2014

Financial Statements Bulletin for 2014

OP MORTGAGE BANK
Stock exchange release 5 February 2014, at 10 am
Financial Statements

OP Mortgage Bank plc: Financial Statements Bulletin for 2014

OP Mortgage Bank (OPA) is part of OP Financial Group. Together with Pohjola Bank plc, it is in charge of OP's funding from the money and capital markets. OP Mortgage Bank is responsible for the Group's funding based on mortgage-backed securities by issuing covered bonds.

Financial standing

The loan portfolio of OP Mortgage Bank (OPA) increased to EUR 9,329 million (7,930)*. The company increased its loan portfolio by buying mortgage-backed loans from OP Financial Group's member banks worth a total of EUR 2,989 million. Between January and December, OPA issued two covered bonds in the international capital market. The maturity of the bond issued in March is seven years, that of the bond issued in June five years, and that of the bond issued in November ten years. These bonds are fixed-rate bonds, each having a nominal value of EUR 1,000 million. The bonds got the highest credit ratings from credit rating agencies.

The company's financial standing remained stable throughout the reporting period. Operating profit for January-December amounted to EUR 18.3 (11.8) million.

OPA has used interest rate swaps to hedge against its interest rate risk. Interest rate swaps have been used to swap housing loan interest and interest on issued bonds into the same basis rate. OPA has entered into all derivative contracts for hedging purposes, with Pohjola Bank plc being their counterparty.

* The comparatives for 2013 are given in brackets. For income-statement and other aggregated figures, January-December 2013  figures serve as comparatives. For balance-sheet and other cross-sectional figures, figures at the end of the previous reporting period (31 December 2013) serve as a comparative.

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 1,200 million at the end of December.

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 7,737 million at the end of December.

Capital adequacy

OPA has presented its December -end capital base and capital adequacy in accordance with the EU capital requirement regulation and directive (EU 575/2013) (CRR/CRD IV) entered into force on 1 January 2014.
In May, OP Cooperative increased OPA's equity capital by making an additional investment of EUR 10 million.

OPA's Common Equity Tier 1 (CET1) ratio stood at 133 % on 31 December. The Core Tier 1 capital includes the profit for the financial year. The profit for the period is unaudited at the time of publishing. OPA has presented the profit's impact on Core Tier 1 in the appendix Capital base and capital adequacy.

Joint liability of amalgamation

Under the Laki talletuspankkien yhteenliittymästä Act (the Act on the Amalgamation of Deposit Banks), the amalgamation of the cooperative banks comprises the organisation's central institution (OP Cooperative), the central institution's member credit institutions and the companies belonging to their consolidation groups as well as credit and financial institutions and service companies in which the above together hold more than half of the total votes. This amalgamation is supervised on a consolidated basis. On 31 December 2014, OP Cooperative's members comprised 181 cooperative banks as well as Pohjola Bank plc, Helsinki OP Bank Plc, OP Mortgage Bank plc, OP Card Company Plc and OP Process Services Ltd. The central institution is responsible for issuing instructions to its member credit institutions concerning their internal control and risk management, their procedures for securing liquidity and capital adequacy as well as for compliance with harmonised accounting policies in the preparation of the amalgamation's consolidated financial statements.

Companies belonging to the amalgamation are legally responsible for each other's debts. OP Financial Group's insurance companies do not fall within the scope of joint liability. The amalgamation's central institution OP Cooperative is obliged, if necessary, to assist member banks with a sum that prevents them from going into liquidation. The central cooperative is liable for the debts of a member bank which cannot be paid using the member bank's capital.

Each member bank is liable to pay a proportion of the amount which the central cooperative has paid to either another member bank as part of support action or to a creditor of such member bank in payment of an amount overdue which the creditor has not received from the member bank. Furthermore, in the case of the central cooperative's default, a member bank has unlimited refinancing liability for the central cooperative's debts as referred to in the Co-operatives Act.

Each member bank's liability for the amount the central cooperative has paid to the creditor on behalf of a member bank is divided between the member bank in proportion to their last adopted balance sheets.
According to the Covered Bonds Act, section 25, the holder of a covered bond has the right to receive a payment for the entire loan term of the bond from the assets entered as collateral without other receivables without this being prevented by OP Mortgage Bank's liquidation or bankruptcy.

Personnel

On 31 December, OPA had six employees. The Bank purchases all the most important support services from OP Cooperative and its Group members, reducing the Bank's need for its own personnel.

Administration

As part of the OP Financial Group management system reorganisation, the composition of OPA's Board of Directors was changed by turning it into an intra-group board of directors. The practice is the same for all subsidiaries.

Board of Directors until 1 October 2014:

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

Board of Directors as of 1 October 2014:

Chairman                              Harri Luhtala                         Chief Financial Officer, OP Cooperative,
                                                                                       Financial Group
Members                              Elina Ronkanen-Minogue       Senior Vice President, OP Cooperative,
                                                                                       Financial Group
                                            Hanno Hirvinen                     Group Treasurer, Pohjola Bank plc

OPA's Managing Director is Lauri Iloniemi and Hanno Hirvinen is his deputy.

OP-Pohjola Group to renew brand: OP-Pohjola will become simply OP

On 6 October 2014, OP-Pohjola announced the renewal of its brand: OP-Pohjola will be shortened to OP. The change under way forms part of the creation of a new financial services group fully owned by its customers. In the future, the banking, non-life insurance and asset management businesses will all come under the OP brand. The Group recommends cooperative banks also adopt names beginning with OP.

As already announced, Pohjola Bank Plc and Helsinki OP Bank will come together to form a new bank for the Helsinki region: OP Bank Plc. Pohjola Insurance will become OP Insurance.

Furthermore, OP has decided to open four new private hospitals in Finland. It will also expand to new fields of specialised medicine and occupational health. The nationwide hospital network is built under the Pohjola brand. Omasairaala will change its name to Pohjola Health Ltd in the autumn of 2015.

The new name of the OP-Pohjola Group, OP Financial Group, was adopted on 1 January 2015.

Risk exposure

The most significant types of risk related to OPA are credit risk, structural funding risk, liquidity risk and interest-rate risk. The key indicators in use shows that OPA'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 Financial 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 2015. 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 good.

Accounting Policies

Financial Statements Bulletin for 2014 has been prepared in accordance with IAS 34 (Interim Financial Reporting).

This Financial Statements Bulletin 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.

OP Mortgage Bank adopted the following IFRS standards, interpretations and options in 2014: IAS 32 - Financial Instruments: Presentation change, reduction of Financial Instruments and Debts from each other. The change specified the regulations concerning the presentation of financial assets and liabilities and added application guidelines concerning the subject. The standard change did not have an impact on the financial statement of OP Mortgage Bank.

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.

OPA has calculated its capital base and capital adequacy in accordance with the EU capital requirement regulation and directive (EU 575/2013) (CRR/CRD IV). OPA uses the Internal Ratings Based Approach (IRBA) to measure its capital adequacy requirement for credit risk. OPA uses the Standardised Approach to measure its capital adequacy for operational risk.

OPA's related parties include the parent company OP Cooperative and its subsidiaries, the OP Financial 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.

Debt securities issued to the public are carried at amortised cost. The fair value of these debt instruments has been measured using information available in markets and employing commonly used valuation techniques. The difference between the fair value and carrying amount is presented as valuation difference in the Classification of financial assets and liabilities table. The carrying amounts of other balance-sheet items substantially correspond to their fair values.

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  TEURQ4/2014Q4/201320142013
         
Interest income 28,086 20,244 117,550 81,047
Interest expenses 13,161 13,229 62,539 49,855
Net interest income14,9257,01455,01131,192
Impairment loss on receivables -2 -29 -150 19
Net commissions and fees -9,989 -4,115 -32,394 -16,070
Net trading income 0 0 -1 0
Net investment income 0 0 1 1
Other operating income 0 0 1 0
Personnel costs 103 124 385 449
Other administrative expenses 564 380 2,300 1,570
Other operating expenses 406 371 1,506 1,302
Earnings before tax3,8611,99618,27711,821
Income tax expense 775 482 3,657 2,887
Profit for the period3,0861,51414,6198,934

Statement of comprehensive incomeQ4/2013Q4/201320142013
TEUR    
Profit for the period 3,086 1,514 14,619 8,934
         
Items that will not be reclassified to profit or loss        
Gains/(losses) arising from remeasurement of defined benefit plans -17 -38 -17 -38
Income tax on gains/(losses) on arising from remeasurement of defined benefit plans 3 -6 3 -6
Total comprehensive income3,0731,46914,6068,889

Key ratiosQ4/2013Q4/201320142013
Return on equity (ROE), % 3.5 1.8 4.2 2.7
Cost/income ratio, % 22 30 19 22

Cash flow statement  TEURQ1-Q4/2014Q1-Q4/2013
Cash and cash equivalents 1 Jan.110,55053,300
Total comprehensive income for the period 14,606 8,889
Adjustments to profit for the period 3,819 3,141
Increase (-) or decrease (+) in operating assets -1,486,421 869,905
Increase (+) or decrease (-) in operating liabilities -293,699 -828,177
A. Cash flow from operating activities-1,761,69553,759
Purchase of intangible assets -1,087 -776
B. Cash flow from investing activities-1,087-776
Increases in debt securities issued to the public 1,751,278 6,268
Decreases in debt securities issued to the public 0 0
Reserve for invested unrestricted equity 10,000 0
Dividends paid 0 -2,001
C. Cash flow from financing activities1,761,2784,267
Net increase/decrease in cash and cash equivalents (A+B+C)-1,50457,250
Cash and cash equivalents 31 Dec.109,046110,550

Balance sheet TEUR31 Dec  201330 Sep  201430 June 201431 March 201431 Dec  2013
           
Receivables from credit institutions 119,046 599,325 652,971 546,404 110,550
Derivative contracts 261,346 252,120 230,912 199,126 198,086
Receivables from customers 9,329,077 9,521,936 9,929,237 9,749,343 7,929,630
Investments assets 40 40 40 40 17
Intangible assets 2,610 2,266 2,096 1,819 1,668
Other assets 90,047 92,283 82,515 117,719 76,362
Tax assets 380 61 60 39 630
Total assets9,802,54610,468,03110,897,83210,614,4918,316,944
Liabilities to credit institutions 1,505,000 1,935,372 2,400,892 3,136,149 1,885,000
Derivative contracts 8,298 9,295 7,761 7,778 8,767
Debt securities issued to the public 7,810,673 8,043,326 8,019,417 6,988,802 5,991,695
Provisions and other liabilities 122,116 125,890 118,876 145,316 99,628
Tax liabilities 0 762 667 321 0
Total liabilities9,446,08610,114,64410,547,61310,278,3667,985,090
Shareholders' equity          
  Share capital 60,000 60,000 60,000 60,000 60,000
  Reserve for invested unrestricted  . equity 245,000 245,000 245,000 235,000 235,000
  Retained earnings 51,459 48,387 45,218 41,125 36,853
Total equity 356,459 353,387 350,218 336,125 331,853
Total liabilities and shareholders' equity9,802,54610,468,03110,897,83210,614,4918,316,944

Off-balance-sheet commitments  TEUR31 Dec  201430 Sep  201430 June 201431 March 201431 Dec 2013
Irrevocable commitments given on behalf of customers 3,252 3,467 3,924 5,463 4,568

Statement of changes in equity  TEURShare capitalOther reservesRetained earningsTotal equity
         
Shareholders' equity 1 Jan 201360,000235,00029,964324,964
Reserve for invested unrestricted  equity - - - -
Profit for the period - - 8,934 8,934
Total comprehensive income     -44 -44
Other changes - - -2,001 -2,001
Shareholders' equity 31 Dec 201360,000235,00036,853331,853
         
Shareholders' equity 1 Jan 201460,000235,00036,853331,853
Reserve for invested unrestricted equity - 10,000 - -
Profit for the period - - 14,619 14,619
Total comprehensive income     -13 -13
Other changes - - - -
Shareholders' equity 31 Dec 201460,000245,00051,459356,459

OPA has presented its capital base and capital adequacy of 31 December 2014 in accordance with the EU capital requirement regulation and directive (EU 575/2013) (CRR/CRD IV) entered into force on 1 January 2014. Comparatives for 2013 are presented according to CRD III in force on 31 December 2013. In addition, an estimate of the figures a year ago under CRR is presented in column CRR 1 Jan. 2014.

Capital base and capital adequacyCRD IVCRD IVCRD III
 TEUR31 Dec  20141 Jan 201431 Dec 2013
       
Shareholders' equity 356,459 331,853 331,853
Common Equity Tier 1 (CET1) before deductions356,459331,853331,853
Intangible assets -2,610 -1,668 -1,668
Excess funding of pension liability, indirect holdings and deferred tax assets for losses -55 0 0
Planned profit distribution / profit distribution as proposed by the Board -5,000 0 0
Unrealised gains under transitional provisions 0 0 0
Impairment loss - shortfall of expected losses -1,898 -2,155 -1,077
Shortfall of Additional Tier 1 (AT1) 0 0 -1,077
Common Equity Tier 1 (CET1)*)346,897328,031328,031
Instruments included in other Tier 1 capital 0 0 0
Shortfall of Tier 2 capital 0 0 -1,077
Reclassification into CET1 0 0 1,077
Additional Tier 1 capital (AT1) 0 0 0
Tier 1 capital (T1)346,897328,031328,031
Debenture loans 0 0 0
Unrealised gains under transitional provisions 0 0 0
Impairment loss - shortfall of expected losses 0 0 -1,077
Reclassification into AT1 0 0 1,077
Tier 2 Capital (T2) 0 0 0
Total Capital base 346,897328,031328,031
    0  
Risk-weighted assets   0  
Credit and counterparty risk 237,258 263,887 263,881
Market risk 0 0 0
Operational risk 23,527 19,941 19,941
Basel I floor 0 0 2,908,024
Total260,785283,8273,191,845
    0  
Key ratios346,897328,031328,031
CET1 capital ratio 133 115.6 10.3
Tier 1 capital ratio 133 115.6 10.3
Capital adequacy ratio 133 115.6 10.3
    0  
Basel I floor   0  
Capital base 346,897 328,031  
Basel I capital requirements floor 304,995 255,348  
Capital buffer for Basel I floor 41,901 72,683  

*) The row of CET1 based on CRD III figures shows Core Tier as defined by the EBA

Under CRR, the Basel I floor no longer applies to RWAs but has become a minimum capital requirement.
The table above shows capital resources that exceed the Basel I floor.

Shortfall of difference between impairment losses and expected losses totals EUR 2 million.

The Q4 earnings are unaudited. CET1 excluding Q4 earnings is EUR 346,561,000 and the CET1 capital ratio is 132.9%.

Classification of financial assets and liabilities TEUR    
Financial assetsLoans and  other receivablesRecognised at fair value through profit or loss Available  for saleTotal
Receivables from credit institutions 119,046 - - 119,046
Derivative contracts - 261,346 - 261,346
Receivables from customers 9,329,077 - - 9,329,077
Shares and participations - - 40 40
Other receivables 90,047 - - 90,047
Other assets 2,990 - - 2,990
Balance at 31 December 20149,541,160261,346409,802,546
Balance at 31 December 20138,118,840198,086178,316,944

Financial liabilities Recognised at fair value through profit or loss Other liabilitiesTotal
Liabilities to credit institutions - - 1,505,000 1,505,000
Derivative contracts - 8,298 - 8,298
Debt securities issued to the public - - 7,810,673 7,810,673
Other liabilities - - 122,116 122,116
Balance at 31 December 2014 - 8,2989,437,7899,446,086
Balance at 31 December 2013-8,7677,976,3237,985,090
Valuation difference of debt securities issued to the public (difference between fair value and carrying amount) 31 December 2014     327,389 327,389

 

Derivative contracts 31 Dec 2014  TEUR
Nominal values/residual term to maturity
  Less than 1 year 1-5 years More than 5 years Total
Interest rate derivatives        
Hedging 4,496,752 9,141,000 4,396,000 18,033,752
Trading - - - -
Total 4,496,752 9,141,000 4,396,000 18,033,752

    Fair values   Credit
  Assets Liabilities equivalent
Interest rate derivatives      
Hedging 261,346 8,298 449,799
Trading - - -
Total 261,346 8,298 449,799

Derivative contracts 31 Dec 2013  TEUR Nominal values/residual term to maturity
  Less than 1 year 1-5 years More than 5 years Total
Interest rate derivatives        
Hedging 2,936,007 11,644,865 396,000 14,976,872
Trading - - - -
Total 2,936,007 11,644,865 396,000 14,976,872

    Fair values Credit
  Assets Liabilities equivalent
Interest rate derivatives      
Hedging 198,086 8,767 325,316
Trading - - -
Total 198,086 8,767 325,316

Grouping of the balance sheet according to the valuation method, TEUR 
     
31 Dec 2014Valuation of fair value at the end of the period
 Balance sheet valueLevel 1Level 2Level 3
Assets recognised at fair value    
Derivate contracts 261,346 - 261,346 -
Total 261,346 - 261,346 -
Liabilities recognised at fair value  0 0  
Derivate contracts 8,298 - 8,298 -
Total 8,298 - 8,298  
Financial liabilities not recognised at fair value   0 0  
Debt securities issued to the public 7,810,673 7,995,455 142,607  
Total 7,810,673 7,995,455 142,607 -

31 Dec 2013Valuation of fair value at the end of the period
 Balance sheet valueLevel 1Level 2Level 3
Assets recognised at fair value    
Derivate contracts 198,086 - 198,086 -
Total 198,086 - 198,086 -
Liabilities recognised at fair value 0 0 0  
Derivate contracts 8,767 - 8,767 -
Yhteensä 8,767 - 8,767  
Financial liabilities not recognised at fair value   0 0  
Debt securities issued to the public 5,991,695 6,139,724 107,822  
Total 5,991,695 6,139,724 107,822 -
     
OPA does not hold any transfers between the levels of fair value valuation.  
  Helsinki, 5 February 2015       
         
  OP Mortgage Bank      
  Board of Directors      
         
  For more information, please contact Managing Director Lauri Iloniemi,
tel. +358 (0)10 252 3541
 
         
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Source: OP Mortgage Bank plc via Globenewswire

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