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OP Mortgage Bank (76YF)

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Wednesday 29 April, 2015

OP Mortgage Bank

OP Mortgage Bank Interim Report for January-March 2015

OP Mortgage Bank Interim Report for January-March 2015

OP MORTGAGE BANK
Stock exchange release 29 April 2015
Interim Report

OP Mortgage Bank Interim Report for January-March 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 the Group's funding for the part of covered bond issuance.

Financial standing

The loan portfolio of OP Mortgage Bank (OP MB) increased to EUR 9,635 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 721 million. The company did not issue any bonds in the reporting period.

The company's financial standing remained stable throughout the reporting period. Operating profit for January-March amounted to EUR 5.6 (5.3) 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-March 2014 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

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 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 8,058 million at the end of March.

Capital adequacy

OP MB has presented its capital base and capital adequacy of 31 March 2015 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 133.2% on 31 March. 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 32.3 million in March. 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 Laki talletuspankkien yhteenliittymästä Act (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 March 2015, 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 March, OP MB 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

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 risk related to OP MB are credit risk, structural funding risk, liquidity risk and interest-rate risk. The key indicators in use shows 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-31 March 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, % = 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 TEURQ1/2015Q1/20142014
       
Interest income 27,202 26,357 117,550
Interest expenses 10,476 16,001 62,539
Net interest income16,72610,35655,011
Impairment loss on receivables -51 -64 -150
Net commissions and fees -9,907 -3,963 -32,394
Net trading income 0 0 -1
Net investment income 1 1 1
Other operating income 1 0 1
Personnel costs 114 119 385
Other administrative expenses 612 564 2,300
Other operating expenses 401 305 1,506
Earnings before tax5,6445,34018,277
Income tax expense 1,128 1,068 3,657
Profit for the period4,5164,27214,619

Statement of comprehensive income TEURQ1/2015Q1/20142014
   
Profit for the period 4,516 4,272 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 income4,5164,27214,606

Key ratiosQ1/2015Q1/20142014
Return on equity (ROE), % 5.1 5.1 4.2
Cost/income ratio, % 17 15 19
    
Cash flow statement TEURQ1/2015Q1/2014  
Cash and cash equivalents 1 Jan.109,046110,550  
Total comprehensive income for the period 4,516 4,272  
Adjustments to profit for the period 747 780  
Increase (-) or decrease (+) in operating assets -352,207 -1,861,519  
Increase (+) or decrease (-) in operating liabilities 332,150 1,296,680  
A. Cash flow from operating activities-14,794-559,787  
Shares and participations 0 -23  
Purchase of intangible assets -178 -174  
B. Cash flow from investing activities-178-197  
Increases in debt securities issued to the public 2,103 995,839  
Decreases in debt securities issued to the public 0 0  
Reserve for invested unrestricted equity 0 0  
Dividends paid -4,996 0  
C. Cash flow from financing activities-2,893995,839  
Net increase/decrease in cash and cash equivalents (A+B+C)-17,865435,855  
Cash and cash equivalents 31 March91,181546,404  
 

 
    

Balance sheet TEUR31 Mar 201531 Mar 201431 Dec  2014
       
Receivables from credit institutions 101,181 546,404 119,046
Derivative contracts 285,540 199,126 261,346
Receivables from customers 9,635,434 9,749,343 9,329,077
Investments assets 40 40 40
Intangible assets 2,630 1,819 2,610
Other assets 111,691 117,719 90,047
Tax assets 392 39 380
Total assets10,136,90810,614,4919,802,546
Liabilities to credit institutions 1,795,000 3,136,149 1,505,000
Derivative contracts 7,156 7,778 8,298
Debt securities issued to the public 7,836,945 6,988,802 7,810,673
Provisions and other liabilities 141,278 145,316 122,116
Tax liabilities 551 321 0
Total liabilities9,780,92910,278,3669,446,086
Shareholders' equity      
  Share capital 60,000 60,000 60,000
  Reserve for invested unrestricted equity 245,000 235,000 245,000
  Retained earnings 50,979 41,125 51,459
Total equity 355,979 336,125 356,459
Total liabilities and shareholders' equity10,136,90810,614,4919,802,546

Off-balance-sheet commitments TEUR31 Mar 201531 Mar 201431 Dec  2014
Irrevocable commitments given on behalf of customers 3,305 5,463 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        
Profit for the period     4,272 4,272
Total comprehensive income        
Other changes        
Shareholders' equity 31 Mar 201460,000235,00041,125336,125
         
Shareholders' equity 1 Jan 201560,000245,00051,459356,459
Reserve for invested unrestricted equity        
Profit for the period     4,516 4,516
Total comprehensive income        
Other changes     -4,996 -4,996
Shareholders' equity 31 Mar 201560,000245,00050,979355,979

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
TEUR
31 Mar 201531 Dec 201431 March 2014
       
Shareholders' equity 355,979 356,459 336,125
Common Equity Tier 1 (CET1) before deductions355,979356,459336,125
Intangible assets -2,630 -2,610 -1,819
Excess funding of pension liability, indirect holdings and deferred tax assets for losses -54 -55 0
Planned profit distribution / profit distribution as proposed by the Board 0 -5,000 -750
Share of unaudited profits -4,516 0 0
Unrealised gains under transitional provisions 0 0 0
Impairment loss - shortfall of expected losses -1,924 -1,898 -2,010
Common Equity Tier 1 (CET1)346,855346,897331,546
Instruments included in other Tier 1 capital 0 0 0
Additional Tier 1 capital (AT1)000
Tier 1 capital (T1)346,855346,897331,546
Debenture loans 0 0 0
Unrealised gains under transitional provisions 0 0 0
Tier 2 Capital (T2)000
Total Capital base 346,855346,897331,546
    
Risk-weighted assets   
Credit and counterparty risk 232,578 237,258 247,947
Market risk 0 0 0
Operational risk 27,846 23,527 23,527
Total260,424260,785271,474
    
Key ratios, %346,855346,897331,546
CET1 capital ratio 133.2 133.0 122.1
Tier 1 capital ratio 133.2 133.0 122.1
Capital adequacy ratio 133.2 133.0 122.1
       
Basel I floor   
Capital base 346,855 346,897 331,546
Basel I capital requirements floor 314,573 304,995 322,569
Capital buffer for Basel I floor 32,282 41,901 8,977

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 101,181     101,181
Derivative contracts   285,540   285,540
Receivables from customers 9,635,434     9,635,434
Shares and participations     40 40
Other receivables 111,691     111,691
Other assets 3,022     3,022
Balance at 31 March 20159,851,328285,5404010,136,908
Balance at 31 March 201410,415,325199,1264010,614,491
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     1,795,000 1,795,000
Derivative contracts   7,156   7,156
Debt securities issued to the public     7,836,945 7,836,945
Subordinated liabilities        
Other liabilities     141,828 141,828
Balance at 31 March 2015 7,1569,773,7739,780,929
Balance at 31 March 2014 7,77810,270,58810,278,366
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) 31 March 2015     370,624 370,624

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 31 Mar 2015  TEUR Nominal values/residual term to maturity
  Less than
1 year
1-5
years
More than
5 years
Total
Interest rate derivatives        
Hedging 4,798,382 9,141,000 4,396,000 18,335,382
Trading        
Total4,798,3829,141,0004,396,00018,335,382

  Fair values   Credit  
  Assets Liabilities equivalent  
Interest rate derivatives        
Hedging 285,540 7,156 495,007  
Trading        
Total285,5407,156495,007  
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 
 
31 Mar 2015 TEURValuation of fair value at the end of the period 
 Balance sheet valueLevel 1Level 2Level 3 
Assets recognised at fair value     
Derivate contracts 285,540   285,540    
Total285,540 285,540  
Liabilities recognised at fair value          
Derivate contracts 7,156   7,156    
Total7,156 7,156  
Financial liabilities not recognised
at fair value
         
Debt securities issued to the public 7,836,945 8,058,163 149,406    
Total7,836,9458,058,163149,406  
      
      
31 Dec 2014 TEURValuation 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, 29 April 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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