OP Mortgage Bank - Interim report (Q1 and Q3)

INTERIM REPORT FOR JANUARY-SEPTEMBER 2012

OP Mortgage Bank Interim report 31 October 2012, 9.00 am EET


OP Mortgage Bank's (OPA) loan portfolio increased to EUR 8,511 million in the
January-September period (EUR 7,535 million at the end of 2011). The bank
increased its loan portfolio in February, in March and in May when it purchased
housing loans from OP-Pohjola Group member cooperative banks. OPA launched a
covered bond issue at a nominal valued of EUR 1.25 billion in May. In August
OPA carried out two covered Private Placements, one at a nominal value of EUR
25 million and one at a nominal value of EUR 75 million. 
Earnings Development
EUR thousand	Q1-Q3/2012	Q1-Q3/2011	Q3/2012	Q3/2011	2011
					
Income					
Net interest income	21,987	18,587	7,648	6,716	24,147
Net commissions and fees	-8,566	-7,342	-3,143	-2,756	-10,207
Net income from trading	0	0	0	0	0
Net income from investments	-186	487	-7	486	487
Other operating income		5		1	5
Total	13,235	11,736	4,498	4,447	14,432
					
Expenses					
Personnel costs	278	208	77	58	278
Other administrative expenses	1,196	1,567	354	521	2,054
Other operating expenses	1,159	1,105	453	375	1,396
Total	2,634	2,880	883	954	3,728
					
Impairments of receivables	-36	0	-1	0	-359
					
Earnings before tax	10,565	8,856	3,614	3,493	10,345

The net interest income for January-September totalled EUR 21,987 thousand
(18,587)[1]. Earnings before tax amounted to EUR 10,565 thousand (8,853).
Increase in net interest income was due to the growth in the loan portfolio.
Impairment loss on loans on a collective basis of EUR 36 thousand was
recognised. 
Net commissions and fees were negative with commission income increasing to EUR
3,854 thousand (2,623) and commission expenses to EUR 12,421 thousand (9,966). 
Commission expenses mainly comprise commissions paid to OP-Pohjola Group member
banks for servicing housing loans. The bank's expenses amounted to EUR 2,634
thousand (2,880). 
Net interest income for July-September grew to EUR 7,648 thousand (6,716) and
earnings before taxes to EUR 3,614 thousand (3,493). The bank's expenses
decreased to EUR 883 thousand (954). 
Balance Sheet and Off-balance Sheet Commitments
OPA's balance sheet total amounted to EUR 8,976 million on 30 September (EUR
7,912 million) [2]. 
Change in Major Asset and Liability Items
EUR Million 	30 Sep 2012	30 June 2012	31 March 2012	31 Dec 2011	30 Sep 2011
					
Balance Sheet	8,976	9,263	8,427	7,912	7,743
Receivables from customers	8,511	8,841	8,000	7,535	7,395
Receivables from financial institutions	77	93	72	82	93
Debt securities issued to the public	5,879	5,716	5,440	5,423	5,389
Liabilities to financial institutions	2,650	3,100	2,490	2,070	1,980
Shareholders' equity	312	310	287	256	215
Off-balance sheet commitments	9	11	8	4	5
The loan portfolio increased from EUR 7,535 million on 31 December 2011 to EUR
8,511 million on 30 September 2012. OPA increased its loan portfolio in the
review period when it purchased housing loans from OP-Pohjola-Group member
banks for EUR 1,943 million. 
On 30 September, households accounted for 99.6 % (99.3) of the loan portfolio
and housing corporations for 0.4 % (0.7). The bank's non-performing loans
amounted to EUR 2.7 million (2.1). 
The impaired amount for an impairment loss on an individual basis recognised in
the review period was fully covered by collateral. 
The carrying amount of bonds issued to the public totalled EUR 5,879 million
(5,423) on 30 September. OPA issued its seventh covered bond at a nominal value
of EUR 1.25 billion on international capital markets in April. Moody's Investor
Services and Standard & Poor's Rating Services have given the bond their
highest credit ratings of Aaa and AAA. In August OPA carried out two covered
Private Placements, one at a nominal value of EUR 25 million and one at a
nominal value of EUR 75 million. The covered bond issued in 2007 at a nominal
value of EUR 1 billion matured and were paid off in June. In addition to bonds,
other funding was based on financing loans granted by Pohjola Bank plc
(Pohjola). On 30 September, financing loans totalled EUR 2,650 million (2,070). 
Shareholders' equity rose to EUR 312 million (256). Retained earnings amounted
to 
EUR 27.3 million (21.3) 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 15,598
million (14,409). All derivative contracts have been concluded for hedging
purposes. Pohjola 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 in the end of September. 
Mortgages collateralising covered bonds issued after 1 August, 2010, under the
Finnish Act on Mortgage Credit Banks 680/2010, are included in Cover Asset Pool
B. The balance of Pool B was EUR 4,786 million in the end of September. 
Development of Capital Adequacy 
OPA's capital adequacy ratio stood at 9.1 % on 30 September. Capital ratio
excluding transition rules stood at 40.8%. Shareholder's equity increased by
EUR 30 million in March and by EUR 20 million in May when OP-Pohjola Group
Central Cooperative made an additional investment in OPA.  In May OPA called in
the Tier 2 debenture issued in 2007 at a nominal value of EUR 20 million. 
OPA calculates its capital adequacy in compliance with Basel II. In its
calculation of capital requirements for credit risk, OPA has adopted the
Internal Ratings Based Approach (IRBA). With respect to the capital adequacy
requirement for operational risks, OPA adopted the Standardised Approach in the
report period. Before 31 December comparison for credit risk here below are
presented according to the Standardised Approach. 
OWN FUNDS, EUR thousand	30 Sep
2012	31 Dec
2011	30 Sep 2011
			
Equity capital	312,250	256,475	215,176
Intangible assets	-547	-587	-661
Excess funding of pension liability and 
fair value measurement of investment property	-17	-248	-
Planned dividend distribution	-	-2,001	-235
Shortfall of impairments - expected losses	-3,634	-3 ,937	-
Shortfall of other Tier 1 capital	-3,634	-	-
Core Tier 1 capital	304,418	249,703	214,280
Shortfall of Tier 2 capital	- 3,634	-	-
Transfer to core Tier 1 capital	3,634	-	-
Tier 1 capital	304,418	249,703	214,280
Debenture loans	-	20,000	20,000
Shortfall of impairments - expected losses	-3,634	-3 ,937	-
Transfer to Tier 1 capital	3,634	-	-
Tier 2 capital	-	16,063	20,000
Total capital base	304,418	265,765	234,280
Capital ratio including transition rules			
Capital adequacy ratio, %	9,1	9.0	8,7
Tier 1 ratio to risk-weighted commitments	9,1	8.5	7,9
Core Tier 1 ratio	9,1	8.5	7,9
Capital ratio excluding transition rules			
Capital adequacy ratio, %	40,8	40.4	-
Tier 1 ratio to risk-weighted commitments	40,8	40.0	-
Core Tier 1 ratio	40,8	40.0	-
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 considered own funds. Furthermore, intangible assets was also
deducted from own funds. The Impairments - shortfall of expected losses total
EUR 7.3 million. 
Risk-weighted receivables, investments and off balance-sheet commitments,  EUR
thousand	30 Sep 
2012	31 Dec
2011	              30 Sep 2011
			
 Receivables and investments	721,260	644,703	2,687,418
  Off-balance-sheet items	10,161	2,063	1,653
 Market risk	-	-	-
 Operational risks	14,043	10,490	10,490
 Requirement for period of transition	2,600,586	2,283,433	-
Risk-weighted receivables, investments and off balance-sheet commitments,
total	3,346,051	2,940,688	2,699,561 
The increase in the amount of risk-weighted receivables was due to a decreased
loan portfolio. 
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 coalition'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 ratios following the balance sheet total. 
In spite of the joint responsibility and the joint security, pursuant to
Section 25 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 six 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. Lars Björklöf, Managing Director, Osuuspankki Raasepori
was elected as a new member of the Board of Directors. Mr. Heikki Kananen,
Managing Director, Mäntsälän Osuuspankki and Mr. Mikko Rosenlund, Managing
Director, Tampereen Seudun Osuuspankki were left out of the Board of Directors.
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	Sakari Haapakoski	Bank Manager, Oulun Osuuspankki
	Mika Helin	Executive Vice President, Hämeenlinnan 
Seudun Osuuspankki
	Hanno Hirvinen	Executive Vice President, Pohjola Bank plc
	Mikko Hyttinen	Bank Manager, OP-Pohjola Group 
Central Cooperative 
	Lars Björklöf	Managing Director, Osuuspankki Raasepori
Managing Director       Lauri Iloniemi.
Risk exposure
The most significant types of risk related to OPA are credit risk, liquidity
risk and interest-rate risk. The indicators in use shows that OPA's credit risk
exposure is stable. 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. OPA has also swapped the fixed
interest rates of the bonds it has issued to short-term variable rates. The
interest-rate risk may be considered to be low. 
Prospects for the rest of the year

The existing issuance programme will make it possible to issue new covered
bonds in 2012. 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. 
Income Statement
EUR thousand	Q1-Q3/2012	Q1-Q3/2011	Q3/2012	Q3/2011	2011
					
Interest income	97,644	93,309	27,118	39,555	133,180
Interest expenses	75,657	74,722	19,471	32,839	109,034
Net interest income	21,987	18,587	7,648	6,716	24,147
Impairments of receivables	-36	0	-1	0	-359
Net commissions and fees	-8,566	-7,342	-3,143	-2,756	-10,207
Net income from trading	0	0	0	0	0
Net income from investments	-186	487	-7	486	487
Other operating income	0	5	0	1	5
Personnel costs	278	208	77	58	278
Other administrative expenses	1,196	1,567	354	521	2,054
Other operative expenses	1,159	1,105	453	375	1,396
Earnings before tax	10,565	8,856	3,614	3,493	10,345
Income taxes	2,586	2,304	885	909	2,687
Profit for the period	7,979	6,552	2,729	2,584	7,658
Statement of comprehensive income
EUR thousand	Q1-Q3/2012	Q1-Q3/2011	Q3/2012	Q3/2011	2011
					
Profit for the period	7,979	6,552	2,729	2,584	7,658
Actuarial gains/losses on post-employment benefit obligations	-	-29	-	-10	-38
Income tax on actuarial gains/losses on post-employment benefit
obligations	-	7	-	2	6 
Other Statement of comprehensive income items 	-	-	-	-	-
Total comprehensive income	7,979	6,531	2,729	2,577	7,626
Key Ratios
	Q1-Q3/2012	Q1-Q3/2011	Q3/2012	Q3/2011	2011
Return on equity (ROE), %	3.7	4.7	3.5	4.8	3.7
Cost/income ratio, %	20	25	20	21	26
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
2012	30 June 2012	31 March 2012	31 Dec 2011	30 Sep 2011
					
Receivables from financial institutions	76,595	92,823	72,060	82,434	93,075
Derivative contracts	304,833	247,456	215,138	198,380	165,305
Receivables from customers	8,511,443	8,841,128	7,999,754	7,534,557	7,394,937
Investments assets	17	17	17	17	17
Intangible assets	881	809	739	587	661
Tangible assets	-	-	-	-	-
Other assets	81,765	80,854	139,590	96,060	88,555
Tax receivables	20	19	8	13	0
Total assets	8,975,555	9,263,106	8,427,306	7,912,048	7,742,551
					
Liabilities to financial
institutions	2,650,000	3,100,000	2,490,000	2,070,000	1,980,000 
Derivative contracts	18,383	21,545	15,716	11,212	6,233
Debt securities issued to the
public	5,878,746	5,716,100	5,439,837	5,423,085	5,388,949 
Reserves and other liabilities	114,473	114,829	174,277	131,213	130,591
Tax liabilities	1,703	1,112	755	267	1,601
Subordinated debt securities	-	-	20,000	20,000	20,000
Total liabilities	8,663,305	8,953,585	8,140,586	7,655,777	7,527,374
Shareholders' equity					
  Share capital	60,000	60,000	60,000	60,000	60,000
  Reserve for invested unrestricted              .
equity	225,000	225,000	205,000	175,000	135,000 
  Retained earnings	27,250	24,521	21,720	21,271	20,176
Total equity	312,250	309,521	286,720	256,271	215,176
Total liabilities and shareholders'
equity	8,975,555	9,263,106	8,427,306	7,912,048	7,742,551 
Off-balance Sheet Commitments
EUR thousand	30 Sep 2012	30 June 2012	31 March 2012	31 Dec 2011	30 Sep
2011
Binding credit commitments	8,973	10,883	7,869	3,692	4,597
Statement of Changes in Equity
EUR thousand	Share capital	Other reserves	Retained earnings	Total equity
Shareholders' equity 1 Jan 2011	60,000	85,000	13,646	158,646
Reserve for invested unrestricted  equity	-	50,000	-	50,000
Profit for the period	-	-	6,531	6,531
Other changes	-	-	-	-
Shareholders' equity 30 Sep 2011	60,000	135,000	20,176	215,176
				
EUR thousand	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	-	-	7,979	7,979
Other changes	-	-	-2,001	-2,001
Shareholders' equity 30 Sep 2012	60,000	225,000	27,250	312,250
Cash Flow Statement
EUR thousand	Q1-Q3/2012	Q1-Q3/2011
		
Liquid assets 1 January	82,434	61,673
Cash flow from operations	-281,109	-2,008,222
Cash flow from investments	-537	2
Cash flow from financing	275,807	2,039,623
Liquid assets 30 September	76,595	93,076
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 include 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. 
Classification of financial instruments		
EUR 1,000 	Loans and  receivables	Recognised at fair value through profit or
loss 	Available for sale	Total 
				
Assets				
Receivables from financial institutions	76,595	-	-	76,595
Derivative contracts	-	304,833	-	304,833
Receivables from customers	8,511,443	-		8,511,443
Equities	-	-	17	17
Other receivables	81,785	-	-	81,785
Balance at 30 September 2012	8,669,824	304,833	17	8,974,674
Balance at 30 September 2011	7,576,567	165,305	17	7,741,889
Balance at 31 December 2011	7,713,051	198,380	17	7,911,448

EUR 1,000		Recognised at fair value through profit or loss	Other 
liabilities	Total
Liabilities				
Liabilities to financial institutions	-	-	2,650,000	2,650,000
Derivative contracts	-	18,383	-	18,383
Debt securities issued to the public	-	-	5,878,746	5,878,746
Subordinated liabilities	-	-	-	0
Other liabilities	-	-	116,176	116,176
Balance at 30 September 2012	-	18,383	8,644,923	8,663,305
Balance at 30 September 2011	-	6,233	7,521,141	7,527,374
Balance at 31 December 2011	-	11,212	7,644,564	7,655,777
Debt securities issued to the public are carried at amortised cost.  On 30
September 2012, the fair value of these debt instruments was approximately EUR
307,266 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 values are
substantially lower than their carrying amount, but determining fair values
reliably is difficult in the current market situation. 
Derivative Contracts 30 September 2012
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	603,880	12,993, 972	2,000,000	15,597,853	304,833	18,383	457,660
Trading							
Total	603,880	12,993, 972	2,000,000	15,597 853	304,833	18,383	457,660
Derivative Contracts 30 September 2011
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	4,784,286	7,500,000	2,000,000	14,284, 286	165,305	6,233	291,731
Trading							
Total	4,784,286	7,500,000	2,000,000	14,284, 286	165,305	6,233	291,731
All derivative contracts have been entered into for hedging purposes,
regardless of their classification in accounting. 
Related-party transactions
OPA's related parties include OP-Pohjola Group Central Cooperative and its
subsidiaries, the 
OP-Pohjola Group pension insurance organisations OP-Pension Fund and OP-Pension
Foundation, and the company's administrative personnel. Standard terms and
conditions for credit are applied to loans granted to the related parties.
Loans are tied to generally used reference rates. Related-party transactions
have not undergone any substantial changes since 31 December 2011. 
Accounting policies
The Interim Report for 1 January - 30 September 2012 has been prepared in
accordance with IAS 34 (Interim Financial Reporting), as approved by the EU. In
the preparation of this Interim Report, OPA substantially applied the same
accounting policies as in the financial statements 2011, except a change in the
recognition of actuarial gains and losses on defined benefit pension plan. 
Change in accounting policies
OPA has decided to voluntarily abandon as of the beginning of 2012 the
so-called corridor method in the recognition of actuarial gains and losses on
defined benefit pension plans. In accordance with the revised recognition
method under IAS 19, actuarial gains and losses are recognised outside profit
or loss in comprehensive income as a debit item or credit item in equity for
the period during which they occur. When recognising actuarial gains and losses
in other comprehensive income, these gains and losses cannot be reclassified
through profit or loss in subsequent periods. OPA has applied the change in the
accounting policy retrospectively. 
The effects of the changed accounting policy on the comparatives of the
consolidated balance sheet, income statement and statement of comprehensive
income shown in this Interim Report are as follows: 
EUR thousand	Previous
accounting policy	New accounting policy	Effect of change in accounting policy
Balance sheet 1 Jan 2011			
Assets			
Other assets	48,790	48,583	-207
Liabilities			
Tax liabilities	342	288	-54
Shareholders' equity			
Retained earnings	13,799	13,646	-153

EUR thousand	Previous
accounting policy	New accounting policy	Effect of change in accounting policy
Balance sheet 31 Dec 2011			
Assets			
Other assets	96,301	96,060	-241
Tax assets	-	13	13
Liabilities			
Tax liabilities	313	267	-46
Shareholders' equity			
Retained earnings	21,454	21,271	-183

Income statement 2011			
Personnel costs	282	278	-4
Income tax expense	2,686	2,687	1
			
Statement of comprehensive income 2011			
Actuarial gains/losses on post-employment benefit obligations	-	-38	-38
Income tax on actuarial gains/losses on post-employment benefit
obligations	-	6	6 

EUR thousand	Previous
accounting policy	New accounting policy	Effect of change in accounting policy
Balance sheet 30 September 2011			
Assets			
Other assets	88,788	88,555	-233
Liabilities			
Tax liabilities	1,661	1,601	-61
Shareholders' equity			
Retained earnings	20,349	20,176	-172

EUR thousand	Previous
accounting policy	New accounting policy	Effect of change in accounting policy
Income statment Q1-Q3/2011			
Personnel costs 	211	208	-3
Income tax expense	2,303	2,304	1
Statement of comprehensive income Q1-Q3/2011			
Actuarial gains/losses on post-employment benefit obligations	-	-29	-29
Income tax on actuarial gains/losses on post-employment benefit
obligations	-	7	7 
This Interim Report is based on unaudited figures. Given that all figures have
been rounded off, the sum total of individual figures may deviate from the
presented sums. 
Helsinki, 31 October 2012
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 2011. For income statement and other
cumulative figures, the point of comparison is the figure for January-September
period in the previous year. 
[2]  For balance sheet and other cross-sectional figures, the point of
comparison is the figure at the end of 2011. For income statement and other
cumulative figures, the point of comparison is the figure for January-September
period in the previous year.

Attachments:

opan osavuosikatsaus 1-9 2012.pdf