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OP Mortgage Bank (76YF)

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Tuesday 29 April, 2014

OP Mortgage Bank

OP Mortgage Bank Interim Report for January-Mar...

OP Mortgage Bank Interim Report for January-March 2014

OP MORTGAGE BANK
Stock exchange release 29 April 2014, 9:30 am

Interim Report

OP Mortgage Bank Interim Report for January-March 2014

Financial standing

The loan portfolio of OP Mortgage Bank (OPA) increased to EUR 9,749 million (7,930)*. The company increased its loan portfolio by buying mortgage-backed loans from OP-Pohjola Group's member banks worth a total of EUR 2,172 million. In March, OP issued its eighth covered bond in global markets with a nominal value of EUR 1,000 million. The bond carries a fixed interest rate and has a maturity of seven years. Moody's Investor Services and Standard & Poor's Rating Services affirmed their best ratings, Aaa and AAA, respectively, for the issued bond.

The company's financial standing remained stable throughout the reporting period. Earnings before tax for the first quarter came to EUR 5.3 million (3.8).

OPA has hedged against the interest-rate risk associated with its housing loan portfolio through interest-rate 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.

*Comparatives for 2013 are given in brackets. For income-statement and other aggregated figures, January-March  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 comparatives.

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 3,000 million at the end of March.

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 6,362 million at the end of March.

Capital adequacy

OPA has presented its March-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. Comparatives for 2013 are presented according to CRD III in force on 31 December 2013.

OPA's Common Equity Tier 1 (CET1) ratio stood at 122.1% on 31 March.

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 monitored 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 181 member banks as well as Pohjola Bank plc, Helsinki OP Bank Plc, OP Mortgage Bank, OP Card Company Plc and OP Process Services Ltd. 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 control and risk management, their operations in securing liquidity and capital adequacy, and compliance with uniform accounting policies in preparing the amalgamation'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 the ratios following the balance sheet total.

In spite of the joint responsibility and the joint security, pursuant to Section 25 of the Finnish Covered Bonds Act, 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 six employees. It purchases all key support services from OP-Pohjola Group Central Cooperative and its Group companies, which reduces the need for more staff.

Administration

The Board composition is as follows:

Chairman Harri Luhtala Chief Financial Officer, OP-Pohjola Group Central Cooperative
Vice Chairman Elina Ronkanen-Minogue Senior Vice President, OP-Pohjola Group Central Cooperative
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-Pohjola Group Central Cooperative

OPA's Managing Director is Lauri Iloniemi.

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-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. 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 2014. 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.

Accounting Policies

The Interim Report for 1 January-31 March 2014 has been prepared in accordance with IAS 34 (Interim Financial Reporting). In the preparation of the Interim Report, OPA applied the same accounting policies as in the Financial Statements for 2013.

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.

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.

Related-party transactions
OPA's related parties include OP-Pohjola Group Central Cooperative and its subsidiaries, the OP Bank 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.

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

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                         TEURQ1/2014Q1/20132013
Interest income 26,357 20,070 81,047
Interest expenses 16,001 11,742 49,855
Net interest income10,3568,32931,192
Impairment loss on receivables -64 10 19
Net commissons and fees -3,963 -3,669 -16,070
Net trading income 0 0 0
Net investment income 1 1 1
Other operating income 0 0 0
Personnel costs 119 120 449
Other administrative expenses 564 423 1,570
Other operating expenses 305 345 1,302
Earnings before tax5,3403,78211,821
Income tax expense 1,068 926 2,887
Profit for the period4,2722,8568,934

Statement of comprehensive incomeQ1/2014Q1/20132013
TEUR
Profit for the period 4,272 2,856 8,934
Items that will not be reclassified to profit or loss
Gains/(losses) arising from remeasurement of defined benefit plans 0 0 -38
Income tax on gains/(losses) on arising from remeasurement of defined benefit plans 0 0 -6
Total comprehensive income4,2722,8568,889

Key ratiosQ1/2014Q1/20132013
Return on equity (ROE), % 5.1 3.5 2.7
Cost/income ratio, % 15 19 22

Cash flow statement                        TEURQ1/2014Q1/2013
Cash and cash equivalents 1 Jan.110,55053,300
Total comprehensive income for the period 4,272 2,856
Adjustments to profit for the period 780 711
Increase (-) or decrease (+) in operating assets -1,861,519 -167,473
Increase (+) or decrease (-) in operating liabilities 1,296,680 163,952
A. Cash flow from operating activities-559,78746
Shares and participations -23 -
Purchase of intangible assets -174 -83
B. Cash flow from investing activities-197-83
Increases in debt securities issued to the public 995,839 1,619
Decreases in debt securities issued to the public 0 0
Reserve for invested unrestricted equity 0 0
Dividends paid 0 -2,001
C. Cash flow from financing activities995,839-381
Net increase/decrease in cash and cash equivalents (A+B+C)435,855-419
Cash and cash equivalents 31 Dec.546,40452,881

Balance sheet                                TEUR31 Mar  201431 Mar  201331 Dec 2013
Receivables from credit institutions 546,404 52,881 110,550
Derivative contracts 199,126 276,403 198,086
Receivables from customers 9,749,343 8,847,903 7,929,630
Investments assets 40 17 17
Intangible assets 1,819 1,128 1,668
Other assets 117,719 117,146 76,362
Tax assets 39 33 630
Total assets10,614,4919,295,5128,316,944
Liabilities to credit institutions 3,136,149 2,747,000 1,885,000
Derivative contracts 7,778 10,867 8,767
Debt securities issued to the public 6,988,802 6,068,986 5,991,695
Provisions and other liabilities 145,316 142,136 99,628
Tax liabilities 321 704 0
Total liabilities10,278,3668,969,6937,985,090
Shareholders' equity
  Share capital 60,000 60,000 60,000
  Reserve for invested unrestricted         
 equity
235,000 235,000 235,000
  Retained earnings 41,125 30,819 36,853
Total equity 336,125 325,819 331,853
Total liabilities and shareholders' equity10,614,4919,295,5128,316,944

Off-balance-sheet commitments   TEUR31 Mar  201431 Mar  201331 Dec 2013
Irrevocable commitments given on behalf of customers 5,463 11,352 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 - - - 0
Profit for the period - - 2,856 2,856
Total comprehensive income 0 0
Other changes - - -2,001 -2,001
Shareholders' equity 31 Mar 201360,000235,00030,819325,819
Shareholders' equity 1 Jan 201460,000235,00036,853331,853
Reserve for invested unrestricted equity - - - -
Profit for the period - - 4,272 4,272
Total comprehensive income - 0
Other changes - - - 0
Shareholders' equity 31 Mar 201460,000235,00041,125336,125

OPA has presented its capital base and capital adequacy of 31 March 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.

Capital base and capital adequacyCRD IVCRD IVCRD III
 TEUR31 Mar  20141 Jan 201431 Dec 2013
Shareholders' equity 336,125 331,853 331,853
Common Equity Tier 1 (CET1) before deductions336,125331,853331,853
Intangible assets -1,819 -1,668 -1,668
Excess funding of pension liability, indirect holdings and deferred tax assets for losses 0 0 0
Planned profit distribution / profit distribution as proposed by the Board -750 0 0
Unrealised gains under transitional provisions 0 0 0
Impairment loss - shortfall of expected losses -2,010 -2,155 -1,077
Shortfall of Additional Tier 1 (AT1) 0 0 -1,077
Common Equity Tier 1 (CET1)*)331,546328,031328,031
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)000
Tier 1 capital (T1)331,546328,031328,031
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)000
Total Capital base 331,546328,031328,031
Risk-weighted assets
Credit and counterparty risk 247,947 263,887 263,881
Market risk 0 0 0
Operational risk 23,527 19,941 19,941
Basel I floor 2,908,024
Total271,474283,8273,191,845
Key ratios331,546328,031328,031
CET1 capital ratio 122.1 115.6 10.3
Tier 1 capital ratio 122.1 115.6 10.3
Capital adequacy ratio 122.1 115.6 10.3
Basel I floor
Capital base 331,546 328,031
Basel I capital requirements floor 322,569 255,348
Capital buffer for Basel I floor 8,977 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 does not apply to RWAs and becomes 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.

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 546,404 - - 546,404
Derivative contracts - 199,126 - 199,126
Receivables from customers 9,749,343 - - 9,749,343
Shares and participations - - 40 40
Other receivables 117,719 - - 117,719
Other assets 1,858 0 0 1,858
Balance at 31 March 201410,415,325199,1264010,614,491
Balance at 31 March 20139,019,091276,403179,295,512
Balance at 31 December 20138,118,840198,086178,316,944
Financial liabilitiesRecognised at fair value through profit or loss Other liabilitiesTotal
Liabilities to credit institutions - - 3,136,149 3,136,149
Derivative contracts - 7,778 - 7,778
Debt securities issued to the public - - 6,988,802 6,988,802
Other liabilities - - 145,637 145,637
Balance at 31 March 2014 - 7,77810,270,58810,278,366
Balance at 31 March 2013010,8678,958,8268,969,693
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 March 2013 254,529 254,529

Derivative contracts 31 Mar 2014
TEUR
Nominal values/residual term to maturity
Less than 1 year 1-5 years More than 5 years Total
Interest rate derivatives
Hedging 3,436,567 12,470,542 2,396,000 18,303,109
Trading - - - -
Total3,436,56712,470,5422,396,00018,303,109
     
          Fair values Credit  
Assets Liabilities equivalent  
Interest rate derivatives  
Hedging 199,126 7,778 397,695  
Trading - - -  
Total199,1267,778397,695 

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 - - - -
Total2,936,00711,644,865396,00014,976,872
     
           Fair values Credit  
Assets Liabilities equivalent  
Interest rate derivatives  
Hedging 198,086 8,767 325,316  
Trading - - -  
Total198,0868,767325,316 

Grouping of the balance sheet according to the valuation method, TEUR
31 Mar 2014Valuation of fair value at the end of the period
Balance sheet valueLevel 1Level 2Level 3
Assets recognised at fair value
Derivate contracts 199,126 - 199,126 -
Total199,126-199,126-
Liabilities recognised at fair value
Derivate contracts 7,778 - 7,778 -
Total7,7787,778
Financial liabilities not recognised at fair value
Debt securities issued to the public 6,988,802 7,127,613 115,719
Total6,988,8027,127,613115,719-
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 -
Total198,086-198,086-
Liabilities recognised at fair value
Derivate contracts 8,767 - 8,767 -
Yhteensä 8,7678,767
Financial liabilities not recognised at fair value
Debt securities issued to the public 5,991,695 6,139,724 107,822
Total5,991,6956,139,724107,822-
OPA does not hold any transfers between the levels of fair value valuation.

Helsinki, 29 April 2014  
  
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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Major media  
op.fi  



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Source: OP Mortgage Bank plc via Globenewswire

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