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OP Mortgage Bank (70ZM)

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Thursday 05 November, 2009

OP Mortgage Bank

3rd Quarter Results

RNS Number : 0467C
OP Mortgage Bank
05 November 2009
 

OP Mortgage Bank                                    Q3 INTERIM REPORT

            

                                                                      5 November, 20093.30 pm Finnish time (GMT+2)




OP Mortgage Bank's (OPA) loan portfolio decreased from EUR 2,980 million on 31 December 2008  to EUR 2,704 million on 30 September 2009. During the reporting period, OPA neither issued covered bonds nor purchased housing loans from OP-Pohjola Group member banks.


Earnings Development

 

EUR thousand

Q1-Q3/2009

Q1-Q3/2008

Q3/2009

Q3/2008

2008







Income






Net interest income

9,355

9,869

3,455

3,448

13,497

Net commissions and fees

-5,843

-4,825

-1,893

-1,913

-6,686

Net income from trading

4

7

4

0

7

Net income from investments

1

1

-

-

1

Other operating income

26

-

23

-

0

Total

3,543

5,052

1,588

1,534

6,819


 

 

 

 


Expenses

 

 

 

 


Personnel costs

145

187

16

50

288

Other administrative expenses

608

531

188

189

737

Other operating expenses

649

712

298

102

877

Total

1,402

1,430

502

341

1,902


  

 

 

 


Earnings before tax

2,140

3,622

1,086

1,193

4,917



The net interest income for January-September totalled EUR 9,355 thousand (9,869)(1). Earnings before tax decreased to EUR 2,140 thousand (3,622). The decline in market rates decreased net interest income and earnings before tax to the extent that the loan portfolio is financed with the shareholders' equity. Net commissions and fees were negative, as in the previous year, with commission income increasing to EUR 1,170 thousand (486) and commission expenses to EUR 7,013 thousand (5,311). Commission expenses stem mainly from commissions paid to OP-Pohjola Group member banks for servicing housing loans. The bank's expenses amounted to EUR 1,402 thousand (1,430). OPA did not recognise any loan losses for the first nine months.  


Net interest income for July-September amounted to EUR 3,455 thousand (3,888) and earnings before taxes EUR 1,086 thousand (1,193). The bank's expenses totalled EUR 502 thousand (341). 


   

Balance Sheet and Off-balance Sheet Commitments


OPA's balance sheet total amounted to EUR 2,942 million on 30 June (EUR 3,149 million) (2).  


Change in Major Asset and Liability Items

 

EUR Million 

30 Sep

2009

30 June 2009

31 March 2009

31 Dec. 2008

30 Sep 2008







Balance Sheet

2 862

2 942

3 116

3 149

2 682

Receivables from customers

2 704

2 799

2 899

2 980

2 604

Receivables from financial institutions

33

34

27

32

37

Debt securities issued to the public

2 087

2 091

2 100

2 087

2 019

Liabilities to financial institutions

620

720

800

870

490

Shareholders' equity

89

88

88

87

86

Off-balance sheet commitments

19

16

28

19

16


OPA did not purchase any new housing loans from member banks in January-September. The loan portfolio decreased from EUR 2,980 million on 31 December 2008 to EUR 2,704 million on 30 September 2009, 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 30 September, households accounted for 98 % (98) of the loan portfolio and housing corporations for 2 % (2). The bank's non-performing loans increased but remained at low levels totalling EUR 0,4 million (0,2) on September 2009. No impairment losses on loans were recognised. 


The carrying amount of bonds issued to the public totalled EUR 2,087 million (2,087) on 30 September. In addition to bonds, other funding was based on financing loans granted by Pohjola Bank plc (Pohjola). On 30 September, financing loans totalled EUR 620 million (870). 


Shareholders' equity rose to EUR 88.9 million (87,3). Retained earnings amounted to EUR 8.9 million (7.3) 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 4,704 million (4,997). All derivative contracts have been concluded for hedging purposes. Pohjola is the counterparty to all derivative contracts.


Development of Capital Adequacy OPA's capital adequacy ratio stood at 10.8 % on 30 September. Since the beginning of 2008, OPA has calculated its capital adequacy in compliance with Basel II. Credit risk is calculated according to the standardised approach and the capital requirement for operational risk is calculated using the basic approach.  



OWN FUNDS, EUR thousand 

Basel II

Basel II

Basel II

Basel II

Basel II


30 Sep 2009

30 June 2009

31 March

2009

31 Dec

2008

30 Sep

2008

Tier I

87,644

86,890

86,824

86,394

85,586

  of which capital loans




-

-

Tier II

20,000

20,000

20,000

20,000

20,000

Decreases






Total

107,644

106,890

106,824

106,394

105,586







Risk-weighted receivables, investments and off-balance sheet commitments

996,072

1,032,313

1,074,236


1,094,191


955,739







Capital adequacy ratio, %

10,8

10.4 

9.9

9.7

11.0







Tier I ratio to risk-weighted receivables, investments and off-balance sheet commitments 

8,8

8.4

8.1

7.9

9.0


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. 



Basel II

Basel II

Basel II

Basel II

Basel II

Risk-weighted receivables, investments and off balance-sheet commitments, EUR thousand

30 Sep 2009

30 June 2009

31 March 2009

31 Dec

2008

  30 Sep 2008







 Receivables and investments

982,338

1,019,096

1,056,923

1,082,926

1,016,463

  Off-balance-sheet items

5,609

,5,092

9,188

6,704

6,364

 Market risk

-

-

-

-

-

 Operational risks

8,125

8,125

8,125

4,561

4,561

Risk-weighted receivables, investments and off balance-sheet commitments, total

996,072



1,032,313



1,074,236



1,094,191

1,027,388



The decrease in the amount of risk-weighted receivables was due to an decreased loan portfolio. 


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 the review period included 221 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 30 September, OPA had three 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. Jari Himanen 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

                                  Jari Himanen                    Managing Director, Etelä-Karjalan Osuuspankki 

                                  Hanno Hirvinen                 Executive Vice President, Pohjola Bank plc

                                  Heikki Kananen                Managing Director, Mäntsälän Osuuspankki

                                  Risto Korpela                   Managing Director, Turun Seudun Osuuspankki 

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

            


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


Events after the review period


Shareholders' equity increased by EUR 50 million after OP-Pohjola Group Central Cooperative made an additional investment in the company. 


OPA increased its loan portfolio after the review period when it purchased housing loans from OP-Pohjola Group member banks for EUR 1,786 million. 


Prospects for the rest of the year

The macroeconomic development in Finland deteriorated during the review period. This has led to increased unemployment rates and increased bankruptcy levels. The overall quality of OPA's credit portfolio is expected to remain strong in spite of the deteriorating economic outlook. 


The earnings before taxed for 2009 are forecasted to fall below the earnings of 2008 due to the more expensive funding costs and the decline in market rates. The decline in market rates will decrease the bank's net interest income and profit to the extent that the loan portfolio is financed with the shareholders' equity.


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



Income Statement


EUR thousand

Q1-Q3/2009

Q1-Q3/2008

Q3/2009

Q3/2008

2008







Interest income

54,924

87,487

11,332

35,727

121,827

Interest expenses

45,568

77,618

7,877

32,279

108,330

Net interest income

9,355

9,869

3,455

3,448

13,497

Net commissions and fees

-5,843

-4,825

-1,893

-1,913

-6,686

Net income from trading

4

7

4

0

7

Net income from investments

1

1

-

-

1

Other operating income

26

-

23

-

0

Personnel costs

145

187

16

50

288

Other administrative expenses

608

531

188

189

736

Other operative expenses

649

712

298

102

878

Earnings before tax

2,140

3,620

1,086

1,193

4,917

Income taxes

549

943

284

356

1,282

Profit for the period

1,591

2,677

802

836

3,634



Key Ratios



Q1-Q3/2009

Q1-Q3/2008

Q3/2009

Q3/2008

2008

Return on equity (ROE), %

2.4

4.8

3.7

3.9

4.8

Cost/income ratio, %

40

28

32

22

28



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

30 Sep

2009

30 June 2009

31 March 2009

31 Dec 2008

30 Sep

 2008

Receivables from financial institutions

33,000

34,431

27,347

32,255

36,875

Derivative contracts

89,753

94,114

103,233

74,075

649

Receivables from customers

2,703,595

2,799,055

2,898,547

2,979,704

2,604,195

Investments assets

17

17

17

17

17

Intangible assets

975

923

750

643

547

Tangible assets

1

2

1

1

1

Other assets

34,144

13,517

85,827

62,397

39,524

Tax receivables

33

121

2


0

Total assets

2,861,519

2,942,179

3,115,722

3,149,091

2,681,809



 




Liabilities to financial institutions

620,000

720,000

800,000

870,000

490,000

Derivative contracts

5,843

8,538

10,595

14,893

6,206

Debt securities issued to the public

2,087,102

2,091,479

2,100,153

2,086,535

2,019,228

Reserves and other liabilities

39,526

13,894

96,963

70,178

59,162

Tax liabilities

156

171

168

168

852

Subordinated debt securities

20,000

20,000

20,000

20,000

20,000

Total liabilities

2,772,627

2,854,083

3,027,879

3,061,774

2,595,448

Shareholders' equity






  Share capital

60,000

60,000

60,000

60,000

60,000

  Reserve for invested unrestricted . equity

20,000

20,000

20,000

20,000

20,000

  Retained earnings

8,892

8,096

7,843

7,317

6,362

Total equity

88,892

88,096

87,843

87,317

86,362

Total liabilities and shareholders' equity

2,861,519

2,942,179

3,115,722

3,149,091

2,681,809


Off-balance Sheet Commitments

EUR thousand

30 Sep

 2009

30 June 2009

31 March 2009

31 Dec 2008

30 Sep 2008

Binding credit commitments

17,949

16,346

27,973

19,145

15,983


Change Calculation on Shareholders' Equity

EUR thousand

Share capital

Retained earnings

Total equity

Shareholders' equity 1 January 2008

60,000

3,681

63,681

Reserve for invested unrestricted equity

20,000

 

20,000

Distribution of profit

-

-

-

Profit for the period

 

2,680

2,680

Shareholders' equity 30 September 2008

80,000

6,362

86,362





EUR thousand

Share capital

Retained earnings

Total equity

Shareholders' equity 1 January 2009

60,000

7,317

67,317

Reserve for invested unrestricted equity

20,000

 

20,000

Distribution of profit

-

-

-

Profit for the period

 

1,591

1,591

Other

 

-16

-16

Shareholders' equity 30 September 2009

80,000

8,892

88,892





Cash Flow Statement


EUR thousand

Q1-Q3/2009

Q1-Q3/2008




Liquid assets 1 January

18,380

15,266

Cash flow from operations

16,147

-981,662

Cash flow from investments

-423

-95

Cash flow from financing

-14,991

979,495

Liquid assets 30 September

19,113

13,004


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 includes 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 1,000 

Loans and receivables

Recognised at fair value through profit or loss 

Available for sale

Total





Financial assets




Receivables from financial institutions

33,000

-

-

33,000

Derivative contracts

-

89,753

-

89,753

Receivables from customers

2,703,595

-

-

2,703,595

Equities

-

-

17

17

Other receivables

35,154

-

-

35,154

Balance at 30 September 2009

2,771,749

89,753

17

2,861,519

Balance at 30 September 2008

2,681,143

649

17

2,681,809

Balance at 31 December 2008

3,075,000

74,075

17

3,149,091





EUR 1,000


Recognised at fair value through profit or loss 

Other 

liabilities

Total

Liabilities to financial institutions

-

-

620,000

620,000

Derivative contracts

-

5,843

-

5,843

Debt securities issued to the public

-

-

2,087,102

2,087,102

Subordinated liabilities

-

-

20,000

20,000

Other liabilities

-

-

39,682

39,682

Balance at 30 September 2009

-

5,843

2,766,784

2,772,627

Balance at 30 September 2008

-

34,911

2,569,239

2,604,150

Balance at 31 December 2008

-

14,893

3,046,881

3,061,774


Debt securities issued to the public are carried at amortised cost. On 30 June 2009, the fair value of these debt instruments was approximately EUR 101 155 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 realiably is difficult in the current market situation. 





Derivative Contracts 30.9.2009


EUR thousand

Nominal values/the remaining maturity

Fair values


Credit counter-value


Less than 1 year

1-5 years

More than 5 years

Total

Assets 

Liabilities

Interest rate derivatives








Hedging

2,005,720

2,697,887

-,

4,703,607

89,753

5,843

128,138

Trading

 

 

 

-

 

 

 

Total

2,005,720

2,697,887

0

4,703,607

89,753

5,843

128,138



Derivative Contracts 30.9.2008


EUR thousand

Nominal values/the remaining maturity

Fair values


Credit counter-value


Less than 1 year

1-5 years

More than 5 years

Total

Assets 

Liabilities

Interest rate derivatives








Hedging

53,000

4,602,061

,

4,655,061

649

6,203

36,126

Trading

-

-

-

-

-

-

-

Total

53,000

4,602,061

,

4,655,061

649

6,203

36,126


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



The interim report is unaudited.



Helsinki, 5 November 2009


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 2008. 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 2008. Comparatives deriving from the income statement are based on figures reported for the corresponding period a year ago.

This information is provided by RNS
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