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OP Mortgage Bank (76YF)

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Wednesday 05 August, 2015

OP Mortgage Bank

OP Mortgage Bank Interim Report for January-June 2015

OP Mortgage Bank Interim Report for January-June 2015

OP MORTGAGE BANK
Stock exchange release 5 August 2015
Interim Report

OP Mortgage Bank Interim Report for January-June 2015

OP Mortgage Bank (OP MB) 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 MB is responsible for OP's funding for the part of covered bond issuance.

Financial standing

The loan portfolio of OP Mortgage Bank (OP MB) increased to EUR 9,600 million (9,329)*. The company increased its loan portfolio by buying mortgage-backed loans from OP Financial Group's member banks worth a total of EUR 1,119 million. The company did not issue any bonds in global capital markets in the reporting period.

The company's financial standing remained stable throughout the reporting period. Operating profit for January-June amounted to EUR 12.9 (10.5) million.

OP MB 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. OP MB has entered into all derivative contracts for hedging purposes, with Pohjola Bank plc being their counterparty.

* The comparatives for 2014  are given in brackets. For income statement and other aggregated figures, January-June 2015 figures serve as comparatives. For balance sheet and other cross-sectional figures, figures at the end of the previous reporting period (31 December 2014) serve as a comparative.

Collateralisation of bonds issued to the public

The last covered bond issued under the Finnish Act on Mortgage Credit Banks (1240/1999) before 1 August 2010 matured on 15 June 2015 and the programme was consequently terminated and the free collaterals of Cover Asset Pool A were transferred to Cover Asset Pool B.

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 9,227 million at the end of June.

Capital adequacy

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

OP MB's Common Equity Tier 1 (CET1) ratio stood at 133.3% (133.0%) on 30 June. The CET1 capital requirement is 4.5% and the fixed additional capital requirement is 2.5%, or a total of 7%.

OP MB's highest minimum capital requirement is determined by the Basel I floor. OP MB's capital base exceeded the Basel I floor by EUR 34.3 million in June. Information on the Basel I floor and capital surplus can be found in note "Capital base and capital adequacy".

Joint liability of amalgamation

Under the Act on the Amalgamation of Deposit Banks (Laki talletuspankkien yhteenliittymästä), 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 30 June 2015, OP Cooperative's members comprised 186 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 30 June, OP MB had five 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

The Board composition is as follows:

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

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

Risk exposure

The most significant types of risks related to OP MB are credit risk, structural funding risk, liquidity risk and interest rate risk. The key indicators in use show that OP MB'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 OP MB. OP MB 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

The Interim Report for 1 January-30 June 2015 has been prepared in accordance with IAS 34 (Interim Financial Reporting) and with the accounting policies presented in the financial statements 2014.
The 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.

OP MB'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.

Calculation of key ratios

Return on equity ROE, % = 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   TEUR  H1/2015H1/2014Q2/2015Q2/20142014
           
Interest income 54,746 58,215 27,544 31,859 117,550
Interest expenses 19,916 33,190 9,440 17,189 62,539
Net interest income34,83025,02518,10414,66955,011
Impairment loss on receivables 293 -165 343 -100 -150
Net commissons and fees -20,133 -12,291 -10,226 -8,328 -32,394
Net trading income 0 -1 0 -1 -1
Net investment income 1 1 0 0 1
Other operating income 1 1 0 0 1
Personnel costs 204 190 90 71 385
Other administrative expenses 1,181 1,135 569 571 2,300
Other operating expenses 754 788 353 483 1,506
Earnings before tax12,85410,4567,2105,11618,277
Income tax expense 2,570 2,091 1,442 1,023 3,657
Profit for the period10,2838,3655,7684,09314,619

Statement of comprehensive
income  TEUR
H1/2015H1/2014Q2/2015Q2/20142014
     
Profit for the period 10,283 8,365 5,768 4,093 14,619
           
Items that will not be reclassified to profit
or loss
         
Gains/(losses) arising from remeasurement of defined benefit plans         -17
Income tax on gains/(losses) on arising from remeasurement of defined benefit plans         3
Total comprehensive income10,2838,3655,7684,09314,606

Key ratiosH1/2015H1/2014Q2/2015Q2/20142014
Return on equity (ROE), % 5.7 4.9 6.4 4.8 4.2
Cost/income ratio, % 15 17 13 18 19

Cash flow statement   TEURH1/2015H1/2014
Cash and cash equivalents 1 Jan.109,046110,550
Total comprehensive income for the period 10,283 8,365
Adjustments to profit for the period 1,495 1,493
Increase (-) or decrease (+) in operating assets -193,337 -2,037,415
Increase (+) or decrease (-) in operating liabilities 1,180,516 568,891
A. Cash flow from operating activities998,958-1,458,666
Shares and participations    
Purchase of intangible assets -540 -490
B. Cash flow from investing activities-540-490
Increases in debt securities issued to the public -976,025 1,991,577
Decreases in debt securities issued to the public    
Reserve for invested unrestricted equity   10,000
Dividends paid -4,996  
C. Cash flow from financing activities-981,0202,001,577
Net increase/decrease in cash and cash equivalents (A+B+C)17,397542,421
Cash and cash equivalents 30 June126,443652,971

Balance sheet  TEUR30 June 201530 June 201431 Dec 2014
       
Receivables from credit institutions 156,412 652,971 119,046
Derivative contracts 191,919 230,912 261,346
Receivables from customers 9,600,216 9,929,237 9,329,077
Investments assets 40 40 40
Intangible assets 2,835 2,096 2,610
Other assets 62,080 82,515 90,047
Tax assets 2 60 380
Total assets10,013,50510,897,8329,802,546
Liabilities to credit institutions 2,790,000 2,400,892 1,505,000
Derivative contracts 22,769 7,761 8,298
Debt securities issued to the public 6,748,760 8,019,417 7,810,673
Provisions and other liabilities 88,896 118,876 122,116
Tax liabilities 1,333 667  
Total liabilities9,651,75810,547,6139,446,086
Shareholders' equity      
  Share capital 60,000 60,000 60,000
  Reserve for invested unrestricted equity 245,000 245,000 245,000
  Retained earnings 56,747 45,218 51,459
Total equity 361,747 350,218 356,459
Total liabilities and shareholders' equity10,013,50510,897,8329,802,546

Off-balance-sheet commitments TEUR30 June 201530 June 201431 Dec 2014  
Irrevocable commitments given on behalf of customers 1,822 3,924 3,252  
Statement of changes in equity  TEURShare capitalOther reservesRetained earningsTotal equity
         
Shareholders' equity 1 Jan 201460,000235,00036,853331,853
Reserve for invested unrestricted  equity   10,000   10,000
Profit for the period     8,365 8,365
Total comprehensive income        
Other changes        
Shareholders' equity 30 June 201460,000245,00045,218350,218
         
Shareholders' equity 1 Jan 201560,000245,00051,459356,459
Reserve for invested unrestricted equity        
Profit for the period     10,283 10,283
Total comprehensive income        
Other changes     -4,996 -4,996
Shareholders' equity 30 June 201560,000245,00056,747361,747

OP MB has presented its capital base and capital adequacy in accordance with the EU capital requirement regulation and directive (EU 575/2013).

Capital base and capital adequacy TEUR30 June 201531 Dec 201430 June 2014
       
Shareholders' equity 361,747 356,459 350,218
Common Equity Tier 1 (CET1) before deductions361,747356,459350,218
Intangible assets -2,835 -2,610 -2,096
Excess funding of pension liability, indirect holdings and deferred tax assets for losses -54 -55  
Planned profit distribution / profit distribution as proposed by the Board   -5,000 -1,500
Share of unaudited profits -10,283    
Unrealised gains under transitional provisions      
Impairment loss - shortfall of expected losses -2,211 -1,898 -1,931
Common Equity Tier 1 (CET1)346,363346,897344,691
Instruments included in other Tier 1 capital      
Additional Tier 1 capital (AT1)   
Tier 1 capital (T1)346,363346,897344,691
Debenture loans      
Unrealised gains under transitional provisions      
Tier 2 Capital (T2)   
Total Capital base 346,363346,897344,691
    
Risk-weighted assets   
Credit and counterparty risk 231,980 237,258 257,579
Market risk      
Operational risk 27,846 23,527 23,527
Total259,826260,785281,106
    
Key ratios, %   
CET1 capital ratio 133.3 133.0 122.6
Tier 1 capital ratio 133.3 133.0 122.6
Capital adequacy ratio 133.3 133.0 122.6
       
Basel I floor   
Capital base 346,363 346,897 344,691
Basel I capital requirements floor 312,099 304,995 330,135
Capital buffer for Basel I floor 34,264 41,901 14,556

Classification of financial assets
and liabilities                       TEUR
      
Financial assetsLoans and  other receivablesRecognised at fair value through profit or loss Available
for sale
Total
Receivables from credit institutions 156,412     156,412
Derivative contracts   191,919   191,919
Receivables from customers 9,600,216     9,600,216
Shares and participations     40 40
Other receivables 62,080     62,080
Other assets 2,837     2,837
Balance at 30 June 20159,821,546191,9194010,013,505
Balance at 30 June 201410,666,879230,9124010,897,832
Balance at 31 December 20149,541,160261,346409,802,546
        
Financial liabilities Recognised at fair value through profit or loss Other liabilitiesTotal
Liabilities to credit institutions     2,790,000 2,790,000
Derivative contracts   22,769   22,769
Debt securities issued to the public     6,748,760 6,748,760
Subordinated liabilities        
Other liabilities     90,229 90,229
Balance at 30 June 2015 22,7699,628,9899,651,758
Balance at 30 June 2014 7,76110,539,85210,547,613
Balance at 31 December 2014 8,2989,437,7899,446,086
Valuation difference of debt securities issued to the public (difference between fair value and carrying amount) 30 June 2015     247,140 247,140

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.

Derivative contracts 30 June 2015  TEUR Nominal values/residual term to maturity
  Less than
1 year
1-5
years
More than
5 years
Total
Interest rate derivatives        
Hedging 4 877 819 7 154 977 4 230 000 16 262 796
Trading        
Total4 877 8197 154 9774 230 00016 262 796
     
    Fair values Credit  
  Assets Liabilities equivalent  
Interest rate derivatives        
Hedging 191 919 22 769 335 679  
Trading        
Total191 91922 769335 679 
     
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        
Total4 496 7529 141 0004 396 00018 033 752
     
    Fair values Credit  
  Assets Liabilities equivalent  
Interest rate derivatives        
Hedging 261 346 8 298 449 799  
Trading        
Total261 3468 298449 799 

Grouping of the balance sheet according to the valuation method            TEUR    
    
30 June 2015 Valuation of fair value at the end of the period
 Balance sheet valueLevel 1Level 2Level 3
Assets recognised at fair value    
Derivate contracts 191,919   191,919  
Total191,919 191,919 
Liabilities recognised at fair value        
Derivate contracts 22,769   22,769  
Total22,769 22,769 
Financial liabilities not recognised
at fair value
       
Debt securities issued to the public 6,748,760 6,859,761 136,139  
Total6,748,7606,859,761136,139 
     
     
31 Dec 2014 Valuation 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  
Total261,346 261,346 
Liabilities recognised at fair value        
Derivate contracts 8,298   8,298  
Total8,298 8,298 
Financial liabilities not recognised
at fair value
       
Debt securities issued to the public 7,810,673 7,995,455 142,607  
Total7,810,6737,995,455142,607 
     
OP MB does not hold any transfers between the levels of fair value valuation.  

Helsinki, 5 August 2015

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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The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: OP Mortgage Bank plc via Globenewswire

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