OP Mortgage Bank - Interim report (Q1 and Q3)

Interim Report 1 January -30 June 2013

OP MORTGAGE BANK
Stock exchange release 31 July 2013 
Interim Report 1 January -30 June 2013


Financial Standing

The loan portfolio of OP Mortgage Bank decreased from EUR 8,678 million on 31
December 2012 to EUR 8,535 million on 30 June 2013. The company's loan
portfolio was increased in February and March by buying mortgage-backed loans
from OP-Pohjola Group's member banks with a total of EUR 463 million. Low
interest rates resulted in shorter loans, which were in turn reflected as a
decrease in OP Mortgage Bank's loan portfolio. No new bonds were issued in the
report period. 

The company's financial standing remained stable throughout the review period.
EUR 500 million of the funding for overcollateral concerning publicly issued
bonds was converted in May to long-term funding to reduce the funding risk.
Extending the term to maturity reduces profitability to a small extent in the
future. 

OPMB (OP Mortgage Bank) has hedged against the interest-rate risk associated
with its housing loan portfolio through interest-rate swaps, i.e. base rate
cash flows from the housing loans to be hedged are swapped to Euribor cash
flows. OPMB has also swapped the fixed interest rates of the bonds it has
issued to short-term market rates. All derivative contracts have been concluded
for hedging purposes. Pohjola Bank plc is the counterparty to all derivative
contracts. 

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 3,200 million at the end of June. 

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 4,878 million at the end of June. 

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 196 member banks as well as
Pohjola Bank plc, Helsinki OP Bank Plc, OP Mortgage Bank and OP-Kotipankki Oyj.
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 supervision and risk management, their
operations in securing liquidity and capital adequacy, and compliance with
uniform accounting principles 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 June, OPMB had six employees. It purchases all key support services from
the 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, Hämeenlinnan Seudun Osuuspankki
	Hanno Hirvinen	Executive Vice President, Pohjola Bank plc
	Jari Tirkkonen	Senior Vice President, OP-Pohjola Group Central Cooperative


OPMB's Managing Director is Lauri Iloniemi.


Risk Exposure

The most significant types of risk related to OPMB are credit risk, structural
funding risk, liquidity risk and interest-rate risk. The key indicators in use
shows that OPMB'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 OPMB. OPMB
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 2013. 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. 

This 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. 



 
Accounting Policies

The Interim Report for 1 January-30 June 2013 has been prepared in accordance
with IAS 34 (Interim Financial Reporting), as approved by the EU. In the
preparation of this Interim Report, OPMB substantially applied the same
accounting policies as in the financial statements 2012, except a change in the
recognition of actuarial gains and losses on the defined benefit pension plan. 

Since 1 January 2013, OPMB has applied the amendments to IAS 19 Employee
Benefits. The revised standard removes the option for entities to apply the
so-called corridor method in the recognition of actual gains and losses and
changes the calculation of net interest income on the net defined benefit
liability.Under the revised standard, the expected return on plan assets used
in the calculation of net interest income is calculated based on the discount
rate of the plan liability. 

OPMB voluntarily abandoned the corridor method as of the beginning of 2012. The
change in the calculation of the net interest income did not have any
substantial effects on the personnel costs year on year or the financial year
2012. 

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. 

Capital adequacy
OPMB uses the Internal Ratings Based Approach (IRBA) to measure its capital
adequacy requirement for credit risk and and uses the Standardised Approach to
measure its capital adequacy for operational risk. 

Related-party transactions
OPMB'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 

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                        
TEUR	H1/2013	H1/2012	Q2/2013	Q2/2012	2012 
 	 	 	 	 	 
Interest income	40,658	70,525	20,587	33,584	121,246
Interest expenses	23,983	56,186	12,241	26,013	91,362
Net interest income	16,675	14,339	8,346	7,571	29,884
Impairment loss on receivables	21	-36	11	-35	-53
Net commissions and fees	-7,743	-5,423	-4,074	-2,676	-11,992
Net trading income	0	0	0	0	0
Net investment income	1	-179	0	-180	-186
Other operating income	0	0	0	0	0
Personnel costs	232	202	111	106	400
Other administrative expenses	815	842	392	390	1,586
Other operating expenses	650	707	305	477	1,459
Earnings before tax	7,257	6,951	3,476	3,708	14,209
Income tax expense	1,777	1,701	851	907	3,478
Profit for the period	5,480	5,250	2,625	2,801	10,731


Statement of comprehensive income					
TEUR	H1/2013	H1/2012	Q2/2013	Q2/2012	2012
Profit for the period	5,480	5,250	2,625	2,801	10,731
Actuarial gains/losses on post-employment benefit obligations	-	-	-	-	-50
Income tax on actuarial gains/losses on post-employment benefit
obligations	-	-	-	-	12 
 	 	 	 	 	 
Total comprehensive income	5,480	5,250	2,625	2,801	10,693


Earnings                                       
TEUR	H1/2013	H1/2012	Q2/2013	Q2/2012	2012 
 	 	 	 	 	 
Income	 	 	 	 	 
Net interest income	16,675	14,339	8,346	7,571	29,884
Net commissions and fees	-7,743	-5,423	-4,074	-2,676	-11,992
Net trading income	0	0	0	0	0
Net investment income	1	-179	0	-180	-186
Other operating income	0	0	0	0	0
Total	8,932	8,737	4,273	4,715	17,707
 	 	 	 	 	 
Expenses	 	 	 	 	 
Personnel costs	232	202	111	106	400
Other administrative expenses	815	842	392	390	1,586
Other operating expenses	650	707	305	477	1,459
Total	1,696	1,750	808	973	3,445
Impairment loss on receivables	21	-36	11	-35	-53
Earnings before tax	7,257	6,951	3,476	3,708	14,209

 
Key ratios	H1/2013	H1/2012	Q2/2013	Q2/2012	2012
Return on equity (ROE), %	3.4	3.7	3.2	3.8	3.7
Cost/income ratio, %	19	20	19	21	19


Cash flow statement                      TEUR	H1/2013	H1/2012
Cash and cash equivalents 1 January	53,300	82,434
Cash flow from operating activities	-15,620	-263,621
Cash flow from investing activities	-315	-390
Cash flow from financing activities	1,224	274,400
Cash and cash equivalents 30 June	38,589	92,823


Balance sheet                                 TEUR	30 June 2013	31 March
2013	31 Dec 2012	30 June 2012 
 	 	 	 	 
Receivables from credit institutions	38,589	52,881	53,300	92,823
Derivative contracts	219,616	276,403	318,473	247,456
Receivables from customers	8,535,321	8,847,903	8,677,652	8,841,128
Investments assets	17	17	17	17
Intangible assets	1,303	1,128	1,101	809
Property, plant and equipment (PPE)	-	-	-	-
Other assets	77,636	117,146	77,854	80,854
Tax assets	32	33	35	19
Total assets	8,872,515	9,295,512	9,128,431	9,263,106
 	 	 	 	 
Liabilities to credit institutions	2,420,000	2,747,000	2,570,000	3,100,000
Derivative contracts	10,448	10,867	16,382	21,545
Debt securities issued to the public	6,010,497	6,068,986	6,109,687	5,716,100
Provisions and other liabilities	102,227	142,136	106,964	114,829
Tax liabilities	899	704	435	1,112
Subordinated liabilities	-	-	-	-
Total liabilities	8,544,071	8,969,693	8,803,467	8,953,585
Shareholders' equity	 	 	 	 
  Share capital	60,000	60,000	60,000	60,000
  Reserve for invested unrestricted           .
equity	235,000	235,000	235,000	225,000 
  Retained earnings	33,444	30,819	29,964	24,521
Total equity	328,444	325,819	324,964	309,521
Total liabilities and shareholders'
equity	8,872,515	9,295,512	9,128,431	9,263,106 


Off-balance-sheet commitments   TEUR	30 June 2013	31 March 2013	31 Dec 2012	30
June 2012 
Irrevocable commitments given on behalf of customers	9,854	11,352	7,976	10,883

 
Change in key balance-sheet items and commitments			
EUR Million 	30 June 2013	31 March 2013	31 Dec 2012	31 Sep 2012	30 June 2012
 	 	 	 	 	 
Balance sheet total	8,873	9,296	9,128	8,976	9,263
Receivables from customers	8,535	8,848	8,678	8,511	8,841
Receivables from credit institutions	39	53	53	77	93
Debt securities issued to the public	6,010	6,069	6,110	5,879	5,716
Liabilities to credit institutions	2,420	2,747	2,570	2,650	3,100
Shareholders' equity	328	326	325	312	310
Off-balance-sheet commitments	10	11	8	9	11


Statement of changes in equity				
TEUR	Share capital	Other reserves	Retained earnings	Total equity
Shareholders' equity 1 Jan 2012	60,000	175,000	21,271	256,271
Reserve for invested unrestricted  equity	-	50,000	-	50,000
Profit for the period	-	-	5,250	5,250
Other changes	-	-	-2,001	-2,001
Shareholders' equity 30 June 2012	60,000	225,000	24,521	309,521
 				
TEUR	Share capital	Other reserves	Retained earnings	Total equity
Shareholders' equity 1 Jan 2013	60,000	235,000	29,964	324,964
Reserve for invested unrestricted equity	-	-	-	-
Profit for the period	-	-	5,480	5,480
Other changes	-	-	-2,001	-2,001
Shareholders' equity 30 June 2013	60,000	235,000	33,444	328,444



Capital adequacy

OPMB's capital adequacy ratio stood at 9.4% on 30 June. Capital ratio excluding
transition rules stood at 44.5%. 

 
CAPITAL BASE,                            TEUR	30 June	31 Dec	30 June 2012
	2013	2012	
 	 	 	 
Equity capital	328,444	324,964	309,538
Intangible assets	-1,303	-1,101	-809
Excess funding of pension liability and fair value measurement of investment
property and deferred tax assets on previous losses	-12	-13	-13 
Planned dividend distribution	-1,000	-2,001	0
Impairments - shortfall of expected losses	-3,502	-3,705	-3,586
Shortfall of other Tier 1 capital	-3,502	-3,705	-3,586
Core Tier 1 capital	319,124	314,440	301,543
Shortfall of Tier 2 capital	-3,502	-3,705	-3,586
Transfer to Core Tier 1 capital	3,502	3,705	3,586
Tier 1 capital	319,124	314,440	301,543
Debenture loans	-	-	-
Impairments - shortfall of expected losses	-3,502	-3,705	-3,586
Transfer to Tier 1 capital	3,502	3,705	3,586
Tier 2 capital	0	-	-
Total capital base	319,124	314,440	301,543
Capital adequacy ratio, %	9.4	9.2	8.7
Tier 1 ratio	9.4	9.2	8.7
Core Tier 1 ratio	9.4	9.2	8.7
Capital ratio excluding IRBA transition rules	 	 	 
Capital adequacy ratio, %	44.5	41.9	39.6
Tier 1 ratio	44.5	41.9	39.6
Core Tier 1 ratio	44.5	41.9	39.6

The increase in shareholders' equity arising from the additional investment and
from the measurement of pension liabilities and the assets covering them, under
IFRS, is not included in the capital base. Furthermore, intangible assets were
deducted from the capital base. The Impairments - shortfall of expected losses
total EUR 7 million. 

Risk-weighted assets investments and off-balance-sheet commitments,  TEUR	30
June	31 Dec	30 June 
	2013	2012	2012
 	 	 	 
Credit risk	697,577	735,840	746,948
Market risk	0	0	0
Operational risks	19,941	14,043	14,043
Requirement for period of transition	2,664,897	2,656,632	2,714,917
Risk-weighted assets, investments and off-balance-sheet commitments,
total	3,382,415	3,407,573	3,475,908 
			
			


 

Classification of financial assets and liabilities (TEUR)

Financial assets 	Loans and  other receivables	Recognised at fair value through
profit or loss 	Available for sale	 
Total
Receivables from credit institutions	38,589	-	-	38,589
Derivative contracts	-	219,616	-	219,616
Receivables from customers	8,535,321	-	-	8,535,321
Shares and participations	-	-	17	17
Other receivables	77,668	-	-	77,668
Balance at 30 June 2013	8,651,578	219,616	17	8,871,212
Balance at 30 June 2012	9,014,824	247,456	17	9,262,297
Balance at 31 December 2012	8,808,806	318,473	17	9,127,296


Financial liabilities	 	Recognised at fair value through profit or loss 	Other
	Total 
			liabilities	
Liabilities to credit institutions	-	-	2,420,000	2,420,000
Derivative contracts	-	10,448	-	10,448
Debt securities issued to the public	-	0	6,010,497	6,010,497
Subordinated liabilities	-	-	-	-
Other liabilities	-	-	103,126	103,126
Balance at 30 June 2013	-	10,448	8,533,623	8,544,071
Balance at 30 June 2012	-	21,545	8,932,040	8,953,585
Balance at 31 December 2012	-	16,382	8,787,085	8,803,467



Debt securities issued to the public are carried at amortised cost.  On 30 June
2013, the fair value of these debt instruments was approximately EUR 291,736
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 reliably is
difficult in the current market situation. 

 
Derivative contracts 30 June 2013

TEUR	Nominal values/residual term to maturity
 	Less than 1 year	1−5 years	More than 5 years	Total
Interest rate derivatives	 	 	 	 
Hedging	519,664	12,648,557	2,496,000	15,664,220
Trading	-	-	-	-
Total	519,664	12,648,557	2,496,000	15,664,220


TEUR	Fair values	Credit equivalent
 	Assets 	Liabilities	
Interest rate derivatives	 	 	 
Hedging	219,616	10,448	381,489
Trading	-	-	-
Total	219,616	10,448	381,489


Derivative contracts 31 December 2012

TEUR	Nominal values/residual term to maturity
 	Less than 1 year	1−5 years	More than 5 years	Total
Interest rate derivatives	 	 	 	 
Hedging	585,259	12,947,452	2,330,000	15,862,711
Trading	-	-	-	-
Total	585,259	12,947,452	2,330,000	15,862,711


TEUR	Fair values	Credit equivalent
 	Assets 	Liabilities	
Interest rate derivatives	 	 	 
Hedging	318,473	16,382	328,295
Trading	-	-	-
Total	318,473	16,382	328,295

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


Helsinki, 31 July 2013

For more information, please contact Managing Director Lauri Iloniemi, tel.
+358 (0)10 252 3541 

OP Mortgage Bank
Board of Directors

DISTRIBUTION 
LSE London Stock Exchange
OAM, Officially Appointed Mechanism
Major media 
op.fi

Attachments:

opmb q2 2013 eng.pdf