2010-11-03 07:00:00 CET
2010-11-03 07:01:18 CET
REGULATED INFORMATION
Pohjola Pankki Oyj - Interim report (Q1 and Q3)
OP-Pohjola Group January-September 2010
OP-Pohjola Group Central Cooperative
Company Release 3 November 2010 at 8.00 am 1(43)
Release category: Interim report
OP-Pohjola Group January-September 2010
* The Group's performance was improving steadily: earnings before tax amounted
to EUR 438 million (393). Third-quarter earnings were up by 54% year on
year.
* Net interest income remained at the same level in the past three quarters.
* Other income increased by 26%, while loan losses shrank by 15% in the first
three quarters. Compared with the previous quarter, loan losses went down by
23%.
* September marked the 5th anniversary of the Pohjola acquisition. Cross-
selling has been extremely successful: the number of customers who both use
Group member bank services and have taken out Pohjola insurance policies has
increased by over 60%.
* OP-Pohjola Group's market share improved in life insurance and mutual funds,
remained unchanged in lending, and declined in deposits. Strong growth of
private customers' premiums written continued in non-life insurance.
* The Group's capital adequacy improved further: Tier 1 ratio stood at 12.7%
(12.6). This boosts the Group's competitive edge as the financial sector has
to cope with tighter regulation.
* The outlook has improved. Full-year earnings for 2010 are expected to exceed
those of 2009, with the greatest uncertainty related to developments in the
investment environment and loan losses.
Comments by Reijo Karhinen, Executive Chairman
Our third-quarter performance was very good, exceeding our expectations and
actually being the best quarter since 2007. We have performed well throughout
the year: net interest income is on the way up, other income is growing
steadily, and loan losses are getting smaller and smaller. I await 2011 with
confidence. We are a strong Finnish financial sector partner to our existing and
new customers.
OP-Pohjola Group is a master of its own fate. Our unique operating model and
solid capital adequacy, duly noted by the recent EU-wide stress tests, have
boosted our success. Our Group's ability to navigate through difficult times has
again proved to be top-notch, and we find ourselves even stronger now than
before the financial crisis and recession. Our capital adequacy now exceeds the
more stringent level of financial regulation that has been published
provisionally.
The fact that we have expanded into a genuine financial services group has
stabilised the entire Group's performance. We have succeeded in combining
banking and insurance operations in new and innovative ways that our customers
also value. Our customers have accumulated loyal customer benefits in the first
three quarters to an amount in excess of EUR 110 million, using them, for
example, to pay over 800,000 insurance premium bills. We are firmly committed to
our customer promise of providing the best loyalty benefits. Our genuine
cooperative principles have enabled us - and indeed give us the obligation - to
do so.
The Finnish economy has been storming ahead in recent months, and the effects of
the recession are less severe than initially feared. This is excellent news. Our
country's policymakers have received several analyses on how Finland can be put
back on the growth track. Finland's economic decision-makers are looking at
super months ahead. Following the parliamentary elections in April 2011, a
programme must be drawn that will pave the way of the Finnish economy long into
the future. Now we need courage, and we must try to think one step further. No
more analyses and reports, it's time for concrete action.
OP-Pohjola Group's Interim Report for 1 January-30 September 2010
OP-Pohjola Group's key indicators
------------------------------------+-----------+-----------+-------+-----------
| Q1-Q3/2010| Q1-Q3/2009|Change*| 2009
------------------------------------+-----------+-----------+-------+-----------
Earnings before tax, € million | 438| 393| 11.3| 464
------------------------------------+-----------+-----------+-------+-----------
Banking and Investment Services | 267| 379| -29.5| 471
------------------------------------+-----------+-----------+-------+-----------
Non-life Insurance | 84| 89| -5.8| 102
------------------------------------+-----------+-----------+-------+-----------
Life Insurance | 23| -108| | -159
------------------------------------+-----------+-----------+-------+-----------
| | | |
------------------------------------+-----------+-----------+-------+-----------
Bonuses paid to customers, € million| 112| 106| 6.0| 142
------------------------------------+-----------+-----------+-------+-----------
| | | |
------------------------------------+-----------+-----------+-------+-----------
Return on equity (ROE), % | 6.7| 6.8| -0.1| 5.9
------------------------------------+-----------+-----------+-------+-----------
Return on equity at fair value, % | 10.7| 16.4| -5.7| 14.7
------------------------------------+-----------+-----------+-------+-----------
Cost/income ratio, % | | | |
(Banking and Investment Services) | 58| 52| 5| 53
------------------------------------+-----------+-----------+-------+-----------
| | | |
------------------------------------+-----------+-----------+-------+-----------
Average personnel | 12,410| 12,670| -2.1| 12,632
------------------------------------+-----------+-----------+-------+-----------
| | | |
------------------------------------+-----------+-----------+-------+-----------
|30 Sep 2010|30 Sep 2009|Change*|31 Dec 2009
------------------------------------+-----------+-----------+-------+-----------
Total assets, € billion | 83.0| 78.7| 5.5| 80.4
------------------------------------+-----------+-----------+-------+-----------
| | | |
------------------------------------+-----------+-----------+-------+-----------
Capital adequacy, %** | 12.7| 12.3| 0.4| 12.6
------------------------------------+-----------+-----------+-------+-----------
Tier 1 ratio, %** | 12.7| 12.3| 0.4| 12.6
------------------------------------+-----------+-----------+-------+-----------
Ratio of capital base to minimum | | | |
amount of capital base*** | 1.70| 1.54| 0.16| 1.58
------------------------------------+-----------+-----------+-------+-----------
| | | |
------------------------------------+-----------+-----------+-------+-----------
Non-performing loan losses within| | | |
loan and guarantee portfolio, % | 0.4| 0.5| -0.1| 0.4
------------------------------------+-----------+-----------+-------+-----------
| | | |
------------------------------------+-----------+-----------+-------+-----------
Market share, % | | | |
------------------------------------+-----------+-----------+-------+-----------
Total loans | 32.6| 32.6| 0| 32.7
------------------------------------+-----------+-----------+-------+-----------
Total deposits | 32.7| 33.7| -1.0| 33.2
------------------------------------+-----------+-----------+-------+-----------
Capital invested in mutual funds | 23.6| 23.5| 0.1| 23.4
------------------------------------+-----------+-----------+-------+-----------
Of insurance savings through life| | | |
and pension insurance | 21.2| 19.9| 1.3| 20.0
------------------------------------+-----------+-----------+-------+-----------
| | | |
------------------------------------+-----------+-----------+-------+-----------
| Q1-Q3/2010| Q1-Q3/2009|Change*| 2009
------------------------------------+-----------+-----------+-------+-----------
Of premiums written in life and | | | |
pension insurance, % | 38.4| 23.4| 15.0| 25.2
------------------------------------+-----------+-----------+-------+-----------
* The change is presented as a percentage point, except for earnings before tax,
customer bonuses, total assets and average number of personnel, for which the
change is stated in percentages, as well as the ratio of capital resources to
the minimum amount of capital resources, for which the change is stated as a
change in the ratio.
** Pursuant to the Act on Credit Institutions.
*** Pursuant to the Act on the Supervision of Financial and Insurance
Conglomerates.
Operating environment
On the whole, the growth rate of the global economy slowed down somewhat in the
third quarter, but there was considerably variation from region to region, with
each area having its own challenges. In the US, growth is shadowed by weak
housing markets and persistently high unemployment figures. In the euro area, on
the other hand, the economic outlook is brighter, but growth is nevertheless
expected to be tardy owing to high unemployment and a stronger euro. Emerging
economies, such as China, are enjoying brisk growth.
The Finnish economy has continued on a clear upward trend in the third quarter,
and next year's development looks reasonably good. Business confidence was
relatively high in the early autumn and consumer confidence is record-high.
Growth is supported particularly by livelier exports and higher housing
investment. Improved outlook is also manifested in that the number of people
employed bottomed out in the third quarter.
There is no pressure in the near future to raise the main refinancing rate,
which has remained low. The European Central Bank is expected to keep its main
refinancing rate at the current level at least towards the end of 2011. Trust in
the interbank markets has improved, which has reduced the need for central bank
refinancing. This has raised short-term market rates by a fraction. The ECB aims
to ensure sufficient liquidity in the market, for example by buying government
debt instruments from countries struggling with heavy debts.
Capital market jitters caused by concerns about higher government bonds and
feconomic growth eased off towards the end of the report period. Corporate bond
markets operated in a positive mood. Risk premiums narrowed particularly in the
banking sector. The global decline in the equity market that started in the
spring bottomed out, resulting in Finland with the weight capped OMX Helsinki
CAP index rising by almost 14% during the third quarter. The market recovery
also turned net subscriptions of mutual funds positive, with fund assets
increasing by 6% in the third quarter.
Banks' total loan portfolio continued to grow in the third quarter at a steady
annual rate of about 6%. Growth in the corporate loan portfolio that began in
the first half of 2010 has evened out towards the autumn. Loans to households
continued to grow steadily in the third quarter, while the housing market was
still lively.
Deposits had begun to grow in the spring, and continued to do so in the review
period. The rate of growth of term deposits increased during the summer, while
current account became less popular. Life insurance premiums written were
clearly up owing to capital redemption contracts and transfer of group pension
insurance policies from companies' pension funds.
The increase of non-life insurance premiums written has settled at around 1%.
Claims paid out are growing at a higher rate than premiums written. The higher
claims have been caused by exceptional weather conditions and a higher number of
losses owing to greater economic activity.
OP-Pohjola Group's earnings and total assets
January-September
Earnings before tax increased by 11% and came to EUR 438 million (393)*.
Although interest rates remained low and contracted net interest income, the
financial services group's total income was at the same level as a year ago,
thanks to the continued growth of Other income. Earnings before tax at fair
value were EUR 694 million in the report period, which is the second-best result
ever for January-September at fair value.
The Banking pre-tax earnings contracted year on year by 29% mainly as a result
of lower net interest income. Non-life Insurance earnings, thanks to higher
investment income, were at the same level as a year ago, although the operating
combined ratio** weakened somewhat from the exceptionally strong level in the
comparison period. The operating combined ratio was nevertheless still good at
88.6% (86.7). Earnings/loss before tax by Life Insurance improved thanks to
higher investments from a loss of EUR 108 million a year ago to earnings of EUR
23 million. Net investment income by Life Insurance stood at 7.3% (6.8).
Net interest income was EUR 679 million (825), or down by 18% year on year.
Other income continued to increase substantially, reaching EUR 930 million
(737), up by 26% year on year. Banking investment and net trading income
remained on the whole unchanged. Net commissions and fees, totalling EUR 417
million (371), were higher than last year owing mainly to higher asset
management and payment transfer fees.
Expenses totalled EUR 941 million (920). The Group's wages and salaries were
somewhat lower than in the comparison period, because the number of personnel
was lower. However, total personnel costs increased by 1.9% because pension
costs increased by EUR 15 million. Other expenses increased by 2.8% mainly due
to immediate write-offs concerning information systems.
Bonuses paid to owner-members and OP bonus customers rose by 6% and totalled EUR
112 million (106).
Impairments and fair value changes reducing earnings were recognised to an
amount of EUR 233 million in the report period (350). EUR 29 million of these
were recorded under Non-life Insurance net income, EUR 69 million under Life
Insurance net income, EUR 108 under impairments of receivables, and EUR 26
million under other income. Impairment losses on loans and receivables remained
very low, at 0.25% of the loan and guarantee portfolio (0.31%). The final credit
losses were recognised to an amount of EUR 50 million EUR (17) and impairment
losses to EUR 109 million (155). The majority of credit losses derived from
corporate exposure. Value readjustments and cancellations of impairment losses
totalled EUR 50 million (45).
* Comparatives for 2009 are given in brackets. For income-statement and other
aggregated figures, January-September 2009 figures serve as comparatives. For
balance-sheet and other cross-sectional figures, figures at the end of the
previous reporting period (31 December 2009) serve as comparatives.
**The combined cost ratio excluding amortisation on intangible assets arising
from the Pohjola acquisition and allocated to the business segment without the
effect of changes in calculation bases.
Earnings analysis
------------------------------------+----------+----------+-------+-------+-----
€ million | | |Change,|Change,|
|Q1-Q3/2010|Q1-Q3/2009|€ mill.| %| 2009
------------------------------------+----------+----------+-------+-------+-----
Earnings/loss before tax | 438| 393| 45| 11.3| 464
------------------------------------+----------+----------+-------+-------+-----
Gross change in fair value reserve | 256| 546| -289| -53.0| 677
------------------------------------+----------+----------+-------+-------+-----
Earnings/loss before tax at fair | | | | |
value | 694| 939| -245| -26.1|1,140
------------------------------------+----------+----------+-------+-------+-----
| | | | |
------------------------------------+----------+----------+-------+-------+-----
Return on equity (ROE), % | 6.7| 6.8| | -0.1*| 5.9
------------------------------------+----------+----------+-------+-------+-----
Return on equity at fair value, % | 10.7| 16.4| | -5.7*| 14.7
------------------------------------+----------+----------+-------+-------+-----
| | | | |
------------------------------------+----------+----------+-------+-------+-----
Income | | | | |
------------------------------------+----------+----------+-------+-------+-----
Net interest income | 679| 825| -146| -17.7|1,070
------------------------------------+----------+----------+-------+-------+-----
Net income from Non-life | | | | |
Insurance | 309| 302| 8| 2.5| 396
------------------------------------+----------+----------+-------+-------+-----
Net income from Life Insurance | 62| -89| 150| | -120
------------------------------------+----------+----------+-------+-------+-----
Net commissions and fees | 417| 371| 47| 12.6| 496
------------------------------------+----------+----------+-------+-------+-----
Net trading and investment income| 72| 76| -4| -5.5| 103
------------------------------------+----------+----------+-------+-------+-----
Other operating income | 68| 76| -8| -10.2| 104
------------------------------------+----------+----------+-------+-------+-----
Share of associates' | | | | |
profits/losses | 2| 1| 1| 79.2| 1
------------------------------------+----------+----------+-------+-------+-----
Other income, total | 930| 737| 193| 26.2| 981
------------------------------------+----------+----------+-------+-------+-----
Total income | 1,608| 1,561| 47| 3.0|2,051
------------------------------------+----------+----------+-------+-------+-----
| | | | |
------------------------------------+----------+----------+-------+-------+-----
Expenses | | | | |
------------------------------------+----------+----------+-------+-------+-----
Personnel costs | 477| 468| 9| 1.9| 622
------------------------------------+----------+----------+-------+-------+-----
Other administrative expenses | 225| 223| 2| 0.7| 310
------------------------------------+----------+----------+-------+-------+-----
Other operating expenses | 239| 228| 11| 4.9| 316
------------------------------------+----------+----------+-------+-------+-----
Total expenses | 941| 920| 21| 2.3|1,248
------------------------------------+----------+----------+-------+-------+-----
| | | | |
------------------------------------+----------+----------+-------+-------+-----
Impairment losses on receivables | 108| 127| -19| -15.2| 179
------------------------------------+----------+----------+-------+-------+-----
| | | | |
------------------------------------+----------+----------+-------+-------+-----
Returns to owner-members and OP | | | | |
bonus customers | | | | |
------------------------------------+----------+----------+-------+-------+-----
Bonuses | 112| 106| 6| 6.0| 142
------------------------------------+----------+----------+-------+-------+-----
Interest on ordinary and | | | | |
supplementary cooperative capital | 9| 15| -6| -37.6| 18
------------------------------------+----------+----------+-------+-------+-----
Total returns | 122| 121| 1| 0.5| 160
------------------------------------+----------+----------+-------+-------+-----
* Percentage points
OP-Pohjola Group's total assets amounted to EUR 83 billion (80.4) on 30
September. Receivables from customers stood at EUR 55.7 billion (53) and
deposits at EUR 35.4 billion (34.6). Debt securities issued to the public fell
by 2.4% to EUR 19.5 billion (19.9). In addition to a five-year mortgage-backed
covered bond worth EUR 1 billion issued by OP Mortgage Bank, Pohjola Bank plc
issued three senior bonds during the report period, with maturities of three and
five years, worth a total of EUR 2.2 billion.
The Group's capital base increased by 7.2% to EUR 6.6 billion (6.2) mainly owing
to the report period's performance and an increase in the value of various
assets.
The fair value reserve, adjusted for deferred tax, was EUR 135 million (-54).
The fair value reserve increased by EUR 134 million in the third quarter mainly
because the market values of investments went up. The growth of the reserve was
also influenced by impairments recognised in the profit and loss, and by
realisation of assets. Only the fair value changes in the fair value reserve
have been recognised which the management have deemed to fulfil the relevant
requirements. Impairments of EUR 122 million (211) were recognised in the report
period.
On 30 September, the cooperative capital investments and supplementary
cooperative capital investments of the member cooperative banks' owner-members
totalled EUR 763 million (750).
The Annual General Meeting of Pohjola Bank plc decided on 26 March 2010 that the
company will pay a dividend of EUR 0.34 for each Series A and EUR 0.31 for each
Series K share for 2009, totalling EUR 107 million (45).
July-September
Earnings before tax for the third quarter increased by 54% year on year, coming
to EUR 172 million (112). Income increased by 12% mainly thanks to higher Life
Insurance net income. Net income from Life Insurance totalled EUR 15 million (-
60). Reported expenses grew by EUR 18 million. Personnel costs were at the same
level as in the comparison period. Impairment losses on receivables came to EUR
31 million, or EUR 22 million lower than a year earlier. The fair value reserve
(gross) increased by EUR 181 million, while a year ago it increased by EUR 368
million. Impairments of EUR 34 million were recognised in the third quarter.
The net interest income was at the same level as in the previous quarter.
Impairments of receivables were EUR 8.9 million lower than in April-June. Life
Insurance net income fell from the previous quarter. Pre-tax earnings were EUR
35 million higher than in the previous quarter. Pre-tax earnings at fair value
rose to EUR 353 million, while in the previous quarter they came to EUR 0
million.
Third-quarter earnings analysis
-------------------------------------------------+----+----+-------+----+-------
€ million | Q3/| Q3/|Change,| Q2/|Change,
|2010|2009| %|2010| %
-------------------------------------------------+----+----+-------+----+-------
Earnings/loss before tax | 172| 112| 53.7| 137| 25.3
-------------------------------------------------+----+----+-------+----+-------
Gross change in fair value reserve | 181| 368| -50.8|-137|
-------------------------------------------------+----+----+-------+----+-------
Earnings/loss before tax at fair value | 353| 480| -26.4| 0|
-------------------------------------------------+----+----+-------+----+-------
| | | | |
-------------------------------------------------+----+----+-------+----+-------
Return on equity (ROE), % | 7.7| 5.8| 2.0*| 6.4| 1.3'
-------------------------------------------------+----+----+-------+----+-------
Return on equity at fair value, % |15.9|24.2| -8.3*| 0.0| 15.9'
-------------------------------------------------+----+----+-------+----+-------
| | | | |
-------------------------------------------------+----+----+-------+----+-------
Income | | | | |
-------------------------------------------------+----+----+-------+----+-------
Net interest income | 226| 256| -11.8| 228| -0.9
-------------------------------------------------+----+----+-------+----+-------
Net income from Non-life Insurance | 119| 113| 5.3| 113| 5.5
-------------------------------------------------+----+----+-------+----+-------
Net income from Life Insurance | 15| -60| | 32| -51.6
-------------------------------------------------+----+----+-------+----+-------
Net commissions and fees | 135| 120| 12.7| 139| -3.2
-------------------------------------------------+----+----+-------+----+-------
Net trading and investment income | 26| 30| -14.4| 10|
-------------------------------------------------+----+----+-------+----+-------
Other operating income | 19| 23| -15.6| 23| -14.2
-------------------------------------------------+----+----+-------+----+-------
Share of associates' profits/losses | 1| 1| 13.4| 0|
-------------------------------------------------+----+----+-------+----+-------
Other income, total | 315| 226| 39.9| 316| -0.5
-------------------------------------------------+----+----+-------+----+-------
Total income | 541| 483| 12.2| 545| -0.6
-------------------------------------------------+----+----+-------+----+-------
| | | | |
-------------------------------------------------+----+----+-------+----+-------
Expenses | | | | |
-------------------------------------------------+----+----+-------+----+-------
Personnel costs | 142| 142| 0.1| 171| -16.9
-------------------------------------------------+----+----+-------+----+-------
Other administrative expenses | 70| 67| 5.2| 80| -11.7
-------------------------------------------------+----+----+-------+----+-------
Other operating expenses | 86| 71| 20.6| 75| 13.4
-------------------------------------------------+----+----+-------+----+-------
Total expenses | 298| 280| 6.5| 326| -8.6
-------------------------------------------------+----+----+-------+----+-------
| | | | |
-------------------------------------------------+----+----+-------+----+-------
Impairment losses on receivables | 31| 52| -41.3| 40| -22.5
-------------------------------------------------+----+----+-------+----+-------
| | | | |
-------------------------------------------------+----+----+-------+----+-------
Returns to owner-members and OP bonus customers | | | | |
-------------------------------------------------+----+----+-------+----+-------
Bonuses | 38| 36| 6.0| 37| 1.6
-------------------------------------------------+----+----+-------+----+-------
Interest on ordinary and supplementary | 2| 3| | 4|
cooperative capital | | | -9.9| | -45.1
-------------------------------------------------+----+----+-------+----+-------
Total returns | 41| 39| 4.9| 42| -3.3
-------------------------------------------------+----+----+-------+----+-------
* Percentage points
Capital adequacy
Two sets of capital adequacy ratios are calculated for OP-Pohjola Group. The
Group's operations are based on Act no. 599/2010 on the amalgamation of deposit
banks which became effective as of 1 July 2010. At the beginning of the report
period, the Group was still operating under the principles of the Act on
Cooperative Banks and other Cooperative Institutions. This law change has no
significant effect on the Group's operations.
Owing to the regulations on joint responsibility and security conditions
prescribed in the Act, a minimum amount of capital resources has been set for
the amalgamation of the cooperative banks calculated according to the
regulations for capital adequacy specified in the Act on Credit Institutions.
The amalgamation of the cooperative banks comprises its central institution (OP-
Pohjola Group Central Cooperative), the central institution's member credit
institutions and companies belonging to their consolidation groups. Although OP-
Pohjola Group's insurance companies do not belong to the amalgamation of the
cooperative banks, investments made in them have a major impact on capital
adequacy calculated in accordance with the capital adequacy regulations for
credit institutions. This capital adequacy figure is called the amalgamation of
cooperative banks' capital adequacy.
OP-Pohjola Group is also a financial and insurance conglomerate, pursuant to the
Act on the Supervision of Financial and Insurance Conglomerates. The
conglomerate is governed by specific provisions of the capital adequacy
requirement.
In view of both capital adequacy requirements, OP-Pohjola Group's risk-bearing
capacity is strong.
In its calculation of capital requirement for credit risk, OP-Pohjola Group will
phase in the Internal Ratings Based Approach (IRBA). OP-Pohjola Group uses IRBA
in its capital adequacy measurement for Pohjola Bank plc's corporate and
institutional customers' credit risks. IRBA will probably be adopted for all
other liabilities in September 2011, but until then the capital requirement for
credit risk such items will be calculated using the Standardised Approach. The
use of internal ratings reduces the Group's capital requirement, but makes it
more susceptible to market fluctuations. As to market risks, OP-Pohjola Group
will continue to use the Standardised Approach, With respect to the capital
adequacy requirement for operational risks, Pohjola will adopt the Standardised
Approach in the last quarter of 2010. This change will reduce the capital
requirement for operational risk by almost 20%, that is, about EUR 55 million.
As a result of the financial crisis, banks' capital adequacy requirements will
become tighter, in an effort to improve the quality of their capital base, to
reduce the cyclic nature of capital requirements and to set quantitative limits
to liquidity risk. These changes are still under preparation, due to be
effective between 2012 and 2018, and it is too early to predict precisely what
their effects will be. According to OP-Pohjola Group's analysis based on the
current interpretations, the Group can fulfil the capital adequacy requirements
in any eventuality. From OP-Pohjola Group's viewpoint, the major changes in the
new regulations are related to how insurance company investments and
supplementary cooperative capital are treated in terms of capital base
calculation concerning capital adequacy, to the leverage ratio and to liquidity
risk requirements.
Capital adequacy of the amalgamation of cooperative banks
On 30 September, OP-Pohjola Group's capital adequacy ratio under the Credit
Institutions Act and the Tier 1 ratio stood at 12.7%, that is, somewhat higher
than on 31 December 2009. The statutory minimum for capital adequacy ratio is
8%, and for Tier 1 ratio 4%.
Capital structure and capital adequacy
------------------------+-----------+-----------+---------+---------+-----------
€ million | | | Change,| |
|30 Sep 2010|31 Dec 2009|€ million|Change, %|30 Sep 2009
------------------------+-----------+-----------+---------+---------+-----------
| | | | |
------------------------+-----------+-----------+---------+---------+-----------
Capital base | | | | |
------------------------+-----------+-----------+---------+---------+-----------
Tier 1 capital | 5,420| 5,227| 193| 3.7| 5,124
------------------------+-----------+-----------+---------+---------+-----------
Tier 2 capital | -| -| | | -
------------------------+-----------+-----------+---------+---------+-----------
| | | | |
------------------------+-----------+-----------+---------+---------+-----------
Total capital base | 5,420| 5,227| 193| 3.7| 5,124
------------------------+-----------+-----------+---------+---------+-----------
| | | | |
------------------------+-----------+-----------+---------+---------+-----------
Risk-weighted assets, | | | | |
total | 42,768| 41,480| 1,289| 3.1| 41,521
------------------------+-----------+-----------+---------+---------+-----------
| | | | |
------------------------+-----------+-----------+---------+---------+-----------
Minimum capital | | | | |
requirement | | | | |
------------------------+-----------+-----------+---------+---------+-----------
Credit and | | | | |
counterparty risk | 3,105| 3,005| 100| 3.3| 3,003
------------------------+-----------+-----------+---------+---------+-----------
Market risk | 34| 36| -2| -5.6| 42
------------------------+-----------+-----------+---------+---------+-----------
Operational risk | 282| 277| 5| 1.8| 277
------------------------+-----------+-----------+---------+---------+-----------
Total | 3,421| 3,318| 103| 3.1| 3,322
------------------------+-----------+-----------+---------+---------+-----------
| | | | |
------------------------+-----------+-----------+---------+---------+-----------
Capital adequacy ratio, | | | | |
% | 12.7| 12.6| | 0.1*| 12.3
------------------------+-----------+-----------+---------+---------+-----------
Tier 1 ratio, % | 12.7| 12.6| | 0.1*| 12.3
------------------------+-----------+-----------+---------+---------+-----------
* Percentage points
September-end Tier 1 capital totalled EUR 5,420 million (5,227). Net profit for
the period, less estimated profit distribution, is included in Tier 1 capital.
OP-Pohjola Group's Tier 1 capital increased by 3.7% during the report period. At
the end of September, the ratio of capital loans to Tier 1 capital before
adjustments was 3.2% (3.2). Tier 1 capital does not include equity capital
growth resulting from the IFRS-compliant valuation of pension liabilities and
the assets covering them, and from the measurement at fair value of investment
property.
Tier 2 capital came to zero following deductions from the item at the end of the
report period. The deductions actually exceeded Tier 2 capital by EUR 32 million
(251), which were deducted from Tier 1 capital. The consolidation group's fair
value reserve, which is included in the capital base, was EUR 3 million (14).
At the end of the report period, insurance company investments, deducted in
equal proportions from Tier 1 and 2 capital, came to EUR 2,316 million (2,341).
EUR 143 million have been deducted from equity capital as a shortfall of
expected losses and impairments. On the basis of the exemptions granted by the
Financial Supervisory Authority, investments by OP-Pohjola Group entities in
venture capital funds, managed by Pohjola Capital Partners Ltd, are treated in
the capital adequacy calculation in the same way as investments in shares in
business or industrial corporations.
The minimum capital requirement was EUR 3,421 million on 30 September (3,318),
increasing by 3.1% in the report period. The most significant factor that
contributed to this growth was the higher capital requirement concerning the
loan and guarantee portfolio.
Capital adequacy under the Act on the Supervision of Financial and Insurance
Conglomerates
OP-Pohjola Group's capital adequacy pursuant to the Act on the Supervision of
Financial and Insurance Conglomerates is calculated using the consolidation
method, whereby assets included in capital resources but not included in equity
capital, under the regulations for the banking or insurance industry, are added
to the equity capital in the conglomerate's balance sheet. Capital resources may
not include items not available for covering the losses of other companies
belonging to the conglomerate.
The financial and insurance conglomerate's minimum capital requirement consists
of the credit institutions' consolidated minimum capital requirement and the
insurance companies' joint minimum operating capital.
On 30 September, OP-Pohjola Group's capital base, calculated according to the
Act on the Supervision of Financial and Insurance Conglomerates, exceeded the
minimum amount specified in the Act by EUR 2,679 million (2,121).
The insurance companies' equalisation provision is not included in the financial
and insurance conglomerate's capital resources. On 30 September 2010, the
combined equalisation provision less the Non-life and Life Insurance tax
liabilities stood at EUR 344 million. The equalisation provision acts as a
buffer for insurance companies in case of years with heavy losses and is
therefore part of the financial services group's actual buffer against losses.
Act no. 599/2010 on the amalgamation of deposit banks came into effect on 1 July
2010 and consequently the equalisation provision of OP-Pohjola Group Mutual
Insurance Company less tax liabilities, totalling EUR 207 million, is included
under the credit institution sector's Tier 2 capital.
Capital adequacy under the Act on the Supervision of Financial and Insurance
Conglomerates:
-----------------------------------------+------+------+---------+-------+------
€ million |30 Sep|31 Dec| Change,|Change,|30 Sep
| 2010| 2009|€ million| %| 2009
-----------------------------------------+------+------+---------+-------+------
| | | | |
-----------------------------------------+------+------+---------+-------+------
OP-Pohjola Group's equity capital | 6,632| 6,187| 445| 7.2| 6,042
-----------------------------------------+------+------+---------+-------+------
Business-segment-specific items | 1,857| 1,843| 14| 0.8| 1,852
-----------------------------------------+------+------+---------+-------+------
Goodwill and intangible assets |-1,061|-1,084| 23| -2.1|-1,096
-----------------------------------------+------+------+---------+-------+------
Equalisation provision | -344| -527| 183| -34.7| -521
-----------------------------------------+------+------+---------+-------+------
Other items included in equity capital | | | | |
and business-segment-specific items, but | | | | |
not included in the conglomerate's | | | | |
capital resources | -599| -627| 28| -4.5| -618
-----------------------------------------+------+------+---------+-------+------
Conglomerate's capital base, total | 6,485| 5,792| 693| 12.0| 5,659
-----------------------------------------+------+------+---------+-------+------
Regulatory capital requirement for credit| | | | |
institutions | 3,421| 3,300| 122| 3.7| 3,303
-----------------------------------------+------+------+---------+-------+------
Regulatory capital requirement for | | | | |
insurance operations | 385| 371| 14| 3.7| 368
-----------------------------------------+------+------+---------+-------+------
Total minimum amount of conglomerate's | | | | |
capital base | 3,806| 3,671| 135| 3.7| 3,671
-----------------------------------------+------+------+---------+-------+------
Conglomerate's capital adequacy | 2,679| 2,121| 558| 26.3| 1,988
-----------------------------------------+------+------+---------+-------+------
Conglomerate's capital adequacy ratio | | | | |
(capital resources/minimum of capital | | | | |
resources) | 1.70| 1.58| | 0.12*| 1.54
-----------------------------------------+------+------+---------+-------+------
* Change in ratio
Risk exposure
OP-Pohjola Group's risk-bearing capacity remained strong in the report period,
with marginal changes in risk exposure. The credit risk exposure had already
improved in the spring, becoming even better in the report period. The Group's
liquidity remained good. Return on investments improved thanks to favourable
market developments.
OP-Pohjola Group's impairment losses on receivables have declined as the markets
are up in Finland. Non-performing and zero-interest receivables, too, were lower
on 30 September than a year ago. The gross ratio of impairment losses to the
loan and guarantee portfolio was 0.36% (0.42). Owing to more reversals of
impairment losses, net impairment losses, converted into annual figures,
declined, accounting for 0.25% of the loan and guarantee portfolio (0.31). OP-
Pohjola Group's non-performing and zero-interest receivables came to EUR 259
million (223) on 30 September, which was 0.4% (0.4) of the loan and guarantee
portfolio. Of OP-Pohjola Group's exposures, 49% (49) fall into the top five
credit portfolio categories (out of twelve categories), also known as investment
grade.
OP-Pohjola Group's financial and liquidity position remained solid throughout
the report period. OP-Pohjola Group's both short- and long-term funding was
successful thanks to its high credit rating. Pohjola Bank plc, which acts as OP-
Pohjola Group's central financing institution, issued two senior bonds with a
maturity of three and five years worth a total of EUR 1.5 billion in the first
quarter, and one senior bond with a maturity of seven years worth EUR 750
million in the third quarter. In the second quarter, the OP Mortgage Bank issued
a five-year mortgage-backed covered bond worth EUR 1 billion.
OP-Pohjola Group's assets included in the liquidity reserve amounted to EUR
11.8 billion (13.9) on 30 September 2010. The liquidity reserve and the
contingency plan tools included in OP-Pohjola Group's liquidity management
strategy ensure the Group's liquidity in a threat scenario for at least 24
months.
Other market risks include price, interest rate and currency risks. In insurance
operations, market risk pertains to both technical provisions and investments.
On 30 September, Non-life Insurance investment assets amounted to EUR 3 billion
(2.9) and those of Life Insurance to EUR 4.5 billion (4.1). Insurance
operations' technical provisions and the distribution of and profits from
investment assets are covered in more detail in the sections dealing with
individual business segments.
The credit ratings are as follows:
+---------------------------------------+---------------+--------------+
|Rating agency |Short-term debt|Long-term debt|
+---------------------------------------+---------------+--------------+
|Fitch Ratings | F1+ | AA- |
|(OP-Pohjola Group and Pohjola Bank plc)| | |
+---------------------------------------+---------------+--------------+
|Standard & Poor's (Pohjola Bank plc) | A-1+ | AA- |
+---------------------------------------+---------------+--------------+
|Moody's (Pohjola Bank plc) | P-1 | Aa2 |
+---------------------------------------+---------------+--------------+
Fitch Ratings issues a rating for both OP-Pohjola Group and Pohjola Bank plc.
OP-Pohjola Group's financial position also has a considerable impact on credit
ratings issued for Pohjola Bank plc alone.
Pohjola's credit rating outlook issued by Standard & Poor's is stable. Fitch
Rating has issued a negative outlook for the long-term debt ratings of Pohjola
and Moody's Investor Service has affirmed negative outlook on Pohjola's credit
rating.
The main reason for the negative outlook was the rapid deterioration of the
Finnish economy in 2009 and its potential effects on Pohjola and OP-Pohjola
Group that mainly operate in Finland.
OP-Pohjola Group's long-term financial targets
At Group level, targets have been set for long-term risk-bearing capacity,
profitability and efficiency. OP-Pohjola Group's long-term financial targets
have been defined so as to ensure the Group's operational capacity. These have
not been adapted to the existing operating environment
The targets for capital adequacy and operational efficiency were achieved in the
report period. The Group's profitability is below the long-term target.
OP-Pohjola Group's success indicators:
+-----------------------------------------------+-----------+-----------+------+
| |30 Sep 2010|30 Sep 2009|Target|
+-----------------------------------------------+-----------+-----------+------+
|Capital adequacy ratio (under the Act on the | | | |
|Supervision of Financial and Insurance | | | |
|Conglomerates) | 1.70 | 1.54 | 1.5 |
+-----------------------------------------------+-----------+-----------+------+
|Return on economic capital, % | 12.8% | 10.5% | 17% |
|(12-month rolling) | | | |
+-----------------------------------------------+-----------+-----------+------+
|Growth differential between income and | | | |
|expenses, percentage points | 5.1 | -4.9 | >0 |
|(12-month rolling) | | | |
+-----------------------------------------------+-----------+-----------+------+
Changes in OP-Pohjola Group's structure
OP-Pohjola Group's consolidated financial statements include the accounts of
218 member cooperative banks (220), OP-Pohjola Group Central Cooperative
Consolidated and OP Bank Group Mutual Insurance Company.
Kiukaisten Osuuspankki and Hinnerjoen Osuuspankki merged with Euran Osuuspankki
on 31 May 2010.
Kuopion Osuuspankki, Iisalmen Osuuspankki and Varkauden Osuuspankki will merge
on 31 December 2010 to create Pohjois-Savon Osuuspankki.In another combination
merger, Nilsiän Osuuspankki and Koillis-Savon Osuuspankki will become Koillis-
Savon Osuuspankki on 30 November 2010. Kestilän Osuuspankki and Rantsilan
Osuuspankki will merge on 31 March 2011 to create Siikalatvan Osuuspankki, and
Pälkäneen Osuuspankki and Kuhmalahden Osuuspankki have decided to merge with
Kangasalan Osuuspankki on 31 December 2010.
On 14 June 2010, the Supervisory Board of OP-Pohjola Group Central Cooperative
took a decision in principle on the structural reorganisation the Central
Cooperative acting as the Group's central institution. This reorganisation
involves establishing a new service company separate from the central
institution, which will be responsible for the development and provision of
centralised services for OP-Pohjola Group and its member cooperative banks as of
1 January 2011. This change simplifies the central organisation's current role
on the one hand as an organisation in charge of Group control and supervision
and on the other hand as a provider of centralised services.
Pohjola Insurance Ltd and Pohjantähti Mutual Insurance Company are planning to
merge. At the meeting of 28 September 2010, the Board of Directors of both
companies have approved a merger plan whereby Pohjantähti Mutual Insurance
Company will merge into Pohjola Insurance. If both companies' extraordinary
general meetings adopt the merger plan, the companies will merge according to
the proposal to be submitted to the general meetings.
It has been decided that the entire share capital of private equity firm Pohjola
Capital Partners Ltd will be sold to its executive management. The transaction
should be finalised in December 2010. Pohjola Capital Partners Ltd will be
renamed Vaaka Partners after the transaction. After the management buyout, the
company's investment operations and the management of its existing private
equity funds will remain unchanged. The sale will have no significant effect on
the Group's financial statements.
Owner-members and customers
The cooperative member banks had 1,292,000 owner-members at the end of
September, or 35,000 more than a year earlier. Helsinki OP Bank Plc, which
operates in the Helsinki Metropolitan Area, had a total of 1,119,000 OP bonus
customers at the end of September.
Loyal customer bonuses earned by OP bonus customers totalled EUR 112 million, up
by 6% on the previous year. Bonuses earned by owner-members are stated in OP-
Pohjola Group's income statement under 'Returns to owner-members'. In January-
September, OP bonus customers used a total of EUR 56 million (51) of bonuses on
banking services and EUR 40 million (42) on Pohjola non-life insurance premiums.
Bonuses were used for the payment of over 801,000 insurance premium bills, and
17% of these were paid using solely OP bonuses.
OP-Pohjola Group had 4,152,000 customers in Finland at the end of September. The
number of private customers totalled 3,733,000 and that of corporate customers
419,000. In the year to September, the number of joint banking and non-life
insurance customers in Finland increased by 104,000 to 1,147,000 as a result of
cross-selling.
The strategic target for the number of Pohjola's loyal insurance customers was
reached, the number of loyal customer households increasing by 42,600 to
455,000 by 30 September. More than half of Pohjola's loyal customer households
have concentrated their banking transactions in OP-Pohjola Group member
cooperative banks.
Personnel and incentive system
On 30 September, OP-Pohjola Group had a staff of 12,310 (12,504). About 94% of
OP-Pohjola Group's personnel are members in the Group's Personnel Fund. A long-
term management incentive scheme is also in place within the Group.
Central Cooperative's corporate governance
OP-Pohjola Group Central Cooperative is the central institution of the
amalgamation of the cooperative banks, the parent company of OP-Pohjola Group
Central Cooperative Consolidated and the company heading the financial and
insurance conglomerate formed by OP-Pohjola Group. Acting as OP-Pohjola Group's
development and service centre and strategic owner institution, the Central
Cooperative is also the central institution in charge of Group control and
supervision.
The Annual Cooperative Meeting of OP-Pohjola Group Central Cooperative was held
on 26 March 2010, re-electing the following Supervisory Board members, who were
due to resign, for the term ending in 2013: Pekka Ahvenjärvi, Attorney; Ola
Eklund, Product Director; Paavo Haapakoski, liikuntaneuvos (Finnish honorary
title); and Bo Storsjö, farmer. The new members elected to the Supervisory Board
were as follows: Hannu Simi, planner; and Mervi Väisänen, Senior Lecturer. In
addition, the Meeting elected Matti Pulkkinen, Director of the Northern Savo
Hospital District, for the term ending in 2012. Managing Director Olli Lehtilä
resigned from the Board having been appointed as Managing Director of Helsinki
OP Bank Plc, a subsidiary of OP-Pohjola Group Central Cooperative. The
Supervisory Board comprises 32 members.
At is first meeting after the Annual Cooperative Meeting, the Supervisory Board
re-elected Paavo Haapakoski Chairman. Professor Jaakko Pehkonen and President
Jukka Hulkkonen were elected Vice Chairmen.
The Annual Cooperative Meeting re-elected KPMG Oy Ab, a firm of authorised
public accountants, the auditor of OP-Pohjola Group Central Cooperative and OP-
Pohjola Group for the financial year 2010.
On 14 June 2010, the Central Cooperative's Supervisory Board made changes in the
Central Cooperative's Executive Board, with Chief Communications Officer Carina
Geber-Teir, Chief Strategy Officer Tom Dahlström and Chief Risk Officer Erik
Palmén as new members, the last two beginning as deputy members and becoming
regular members on 1 January 2011 following a Central Cooperative rule change.
Harri Nummela, who will become the Managing Director of the new service company,
will leave the Board at the turn of the year. Board member Erkki Böös became a
Board member of the service company on 14 June 2010. Heikki Vitie will remain in
the Executive Board as Administrative Director until his retirement at the end
of February 2012, according to his plan.
Capital expenditure and service development
Central Cooperative, together with its subsidiaries, is responsible for
developing OP-Pohjola Group's service activities. ICT investments and related
specifications make up a significant portion of costs of developing these
services. EUR 26 million (32) of these expenses consisted of ICT procurement
capitalised in the balance sheet in the report period. Of these investments, EUR
18 million (21) was allocated to banking and investment operations, EUR 5
million (7) to non-life insurance operations and EUR 2 million (5) to life
insurance operations.
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 supervised 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 218 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.
Deposit banks belonging to OP-Pohjola Group, i.e. its member cooperative banks,
Pohjola Bank plc, Helsinki OP Bank Plc and OP-Kotipankki Oyj, are regarded as a
single bank with respect to deposit protection. Under legislation governing the
Investors' Compensation Fund, OP-Pohjola Group is also considered a single
entity for purposes of compensation protection.
Events after the reporting period
As proposed by Central Cooperative's Executive Board, the Meeting decided to
change the Finnish corporate name to OP-Pohjola osk, while the English name
remains as OP-Pohjola Group Central Cooperative. The Meeting also decided to
increase the number of Board members, and made a few changes of technical
nature. The changes are related to the Central Cooperative's structural change
and will be effective on 1 January 2011. The Meeting also decided to pay an
additional interest of 5% on cooperative capital, and 6% on supplementary
cooperative capital. The additional interest will be paid in October, amounting
to a total of EUR 65 million.
Pohjola Bank plc received on 18 October 2010 authorisation from the Financial
Supervisory Authority to redeem a Lower Tier subordinated notes of EUR 70
million. This will reduce the Group's capital adequacy by 0.2 percentage points.
Outlook towards the year end
The Finnish economy is expected to continue on a path of recovery and people are
having a more and more positive feeling about the future. Despite a turn for the
better and the financial markets being more stable, the financial foundation is
still fragile.
Profit performance in the financial sector in 2010 will be weakened by
exceptionally low interest rates and persistently high credit losses. OP-Pohjola
Group's 2010 earnings before taxes are expected to be better than in 2009. with
the greatest uncertainty related to developments in the investment environment
and credit losses.
All forward-looking statements in this Interim Report expressing the
management's expectations, beliefs, estimates, forecasts, projections and
assumptions are based on the current view of the future financial performance of
OP-Pohjola Group and its various functions, and actual results may differ
materially from those expressed in the forward-looking statements.
Operations and earnings by business segment
OP-Pohjola Group's business segments are Banking and Investment Services, Non-
life Insurance and Life Insurance. Non-segment operations are presented under
'Other Operations'. OP-Pohjola Group's segment reporting is based on accounting
policies applied in its financial statements.
Companies within the Banking and Investment Services segment are the member
banks, Helsinki OP Bank Plc, OP-Kotipankki Oyj, OP Mortgage Bank, OP Fund
Management Company Ltd, Pohjola Asset Management Limited, Pohjola Corporate
Finance Ltd, Pohjola Capital Partners Ltd, as well as certain smaller companies
supporting banking and investment services in their entirety. Pohjola Group's
Banking and Asset Management segments are also included in the Banking and
Investment Services segment as are the operations of OP-Pohjola Group Mutual
Insurance Company, because most of the company's business consists of credit
insurance granted to the Group's retail banks.
The Non-life Insurance segment encompasses the operations of OP-Pohjola Group's
non-life insurance companies, i.e. Pohjola Insurance Ltd, Eurooppalainen
Insurance Company Ltd, A-Insurance Ltd, the Seesam companies operating in the
Baltic countries, as well as the operations of service companies supporting non-
life insurance.
The Life Insurance segment comprises OP Life Assurance Company Ltd engaged in
the Group's life and pension insurance business.
Other Operations includes operations that support all business segments,
particularly the operations of OP-Pohjola Group Central Cooperative and
Pohjola's Group management. Costs of the services for the business segments are
allocated to the segments in the form of internal service charges. The
allocation of equity capital to the business segments is carried out through an
internal bank under Other Operations, which means that any positive results in
excess of the target level will be shown under Other Operations.
Summary of performance by business segment
-----------------------------+------+--------+------+-------------+-------------
€ million |Income|Expenses|Others|Earnings/loss|Earnings/loss
| | | items| before tax| before tax
| | | | Q1-Q3/2010| Q1-Q3/2009
-----------------------------+------+--------+------+-------------+-------------
Banking and Investment | | | | |
Services | 1,172| 675| -231| 267| 379
-----------------------------+------+--------+------+-------------+-------------
Non-life Insurance | 321| 237| 0| 84| 89
-----------------------------+------+--------+------+-------------+-------------
Life Insurance | 81| 58| 0| 23| -108
-----------------------------+------+--------+------+-------------+-------------
Other Operations | 317| 250| 1| 68| 32
-----------------------------+------+--------+------+-------------+-------------
Eliminations | -283| -279| 0| -5| 2
-----------------------------+------+--------+------+-------------+-------------
Total | 1,609| 941| -230| 438| 393
-----------------------------+------+--------+------+-------------+-------------
Banking and Investment Services
* Earnings before tax narrowed from EUR 379 million to EUR 267 million as a
result of lower net interest income. Net interest income was 18% lower than
in the comparison period, but turned slightly upwards at the end of the
report period. Net commissions and fees increased by 12%.
* Loan losses reduced, being EUR 7 million lower than the comparison period.
Loan losses reached their highest point in the second half of 2009.
* The Group's market share improved in mutual funds, remained unchanged in
credit, and declined in deposits.
The general improvement in the financial situation had a beneficial effect on
banking and investment operations. Credit impairments reduced even more. The
growth of credit and deposits intensified during the report period but remained
moderate. The low interest rates sent net interest income on a steep downward
trend vis-à-vis the corresponding period a year ago. Net interest income has
already levelled off and turned slightly up in the report period. Confidence in
increasing for the economy to pick up, and the equity market was positive in the
report period. This has increased investment volumes and demand for asset
management services.
According to the sector's official statistics published in April, OP-Pohjola
Group solidified its position as Finland's leading bank in 2009. In the year to
September, the Group's market share improved in mutual funds, remained unchanged
in credit, and declined in deposits.
OP-Pohjola Group's loan portfolio at the end of September stood at EUR 55.4
billion (52.6), with the guarantee portfolio totalling EUR 2.9 billion (3). The
loan portfolio expanded by 5.7% (4.6) in the year to September and by 5.3% in
the report period. The market share of the loan portfolio was at the same level
as last year, 32.6%.
The home mortgage portfolio totalled EUR 26.9 billion (25.7) at the end of
September. In the year to September, home mortgages increased by 6.3% (6.5). OP-
Pohjola Group held 35.8% of the home mortgage portfolio on 30 September, down by
0.2 percentage points year on year.
The housing market perked up on the previous year. Housing brokered by OP-
Kiinteistökeskus was up by 14.7% on the comparison period, and the volume of new
home mortgages was 14.4% higher that a year ago.
The margin for new home mortgages decreased even further. The average margin on
new home mortgages taken out in January-September was 0.07 percentage points
lower than a year ago.
On 30 September, the consumer credit portfolio amounted to EUR 4 billion (3.7),
showing an increase of 6.8% in the year to September (4.1).
On 30 September, the Group's corporate loan portfolio stood at EUR 13.9 billion
(13.4) and the guarantee portfolio at EUR 2.6 billion (2.7). The corporate loan
portfolio expanded by 2.3% (2.2) in the year to September and by 3.6% in the
report period. The market share of corporate loans on 30 September was 28.5%, or
0.1 percentage points higher year on year. The average margin on new corporate
loans during the report period was somewhat lower than at the end of 2009.
On 30 September, deposits totalled EUR 35.4 billion (34.6), or 3.2% higher year
on year, and 2.2% in the report period. Competition on customer deposits was
tight, but towards the end of the report period there were signs that deposit
pricing was back to healthier figures. The fact that assets were channelled to
emerging investment markets impeded deposit growth. Investment deposits shrank
by 1.8% in the year to September (3.9), while current accounts increased by
8.3% (11.9). The Group held a 32.7% market share of deposits on 30 September,
down by 1.0 percentage point year on year.
Capital invested in OP-Pohjola Group's mutual funds totalled EUR 14 billion
(12.7), showing an increase of 15% in line with the general market trends in the
year to September, and in increase of 10% in the report period. On 30 September,
OP-Pohjola Group held a 23.6% market share of the capital of mutual funds
registered in Finland, up by 0.1 percentage points year on year. Net
subscriptions to OP-Pohjola Group's mutual funds totalled EUR 441 million
(1,357).
On 30 September, assets managed by Pohjola Bank's Asset Management were worth
EUR 35.2 billion (33.1), of which EUR 12 billion (11) was invested in OP-Pohjola
Group's mutual funds. OP-Pohjola Group companies accounted for EUR 8.6 billion
of assets managed by Pohjola Bank plc.
Assets managed in accordance with the OP-Private operating model totalled EUR
4.3 billion (3.6). Stockbroking for households totalled some 784,000 in the year
to September, or up by 13.2% year on year.
Earnings and risk exposure
Banking and Investment Services reported pre-tax earnings of EUR 267 million for
January-September, down by 29% year on year (379). Customer bonuses recognised
in the income statement during the report period rose by 6% to EUR 112 million
(106).
Net interest income decreased by 18% to EUR 627 million (762). Net commissions
and fees increased by 12% to EUR 441 million (394) especially owing to higher
payment service and asset management fees. The fall in net interest income was
caused by exceptionally low interest rates. Net trading and investment income
totalled EUR 58 million (82). Net trading income decreased because exceptionally
high trading income that realised a year ago had normalised. Investment income
at fair values totalled EUR 11 million (loss of EUR 3 million). Personnel costs
increased by 1.6% and other expenses shrank by 0.4%. The cost/income ratio stood
at 57.5% (52.2).
Impairments on receivables came to EUR 109 million (116), decreasing from the
comparison period by EUR 7.4 million, or 6.4%. The change in credit losses can
be seen clearly in the following figures: in Q2-Q4/2009, impairments of
receivables were EUR 39 million higher than in Q1-Q3/2010. The amount of
impairment losses was fairly low considering the business volume and the current
economic cycle.
The Group's non-performing and zero-interest receivables shrank but remained
low, totalling EUR 259 million on 30 September, down by 7.5% year on year. Non-
performing and zero-interest receivables are stated net of impairment losses
assessed on an individual and collective basis, which amounted to EUR 117
million (131).The ratio of non-performing and zero-interest receivables to the
loan and guarantee portfolio was 0.4%, that is, lower than last year.
Banking and Investment Services, key figures
--------------------------+-----------+-----------+-----------------+-----------
€ million | Q1-Q3/2010| Q1-Q3/2009| Change, %| 2009
--------------------------+-----------+-----------+-----------------+-----------
Net interest income | 627| 762| -17.6| 981
--------------------------+-----------+-----------+-----------------+-----------
Impairment losses on | | | |
receivables | 109| 116| -6.4| 167
--------------------------+-----------+-----------+-----------------+-----------
Other income | 545| 526| 3.6| 720
--------------------------+-----------+-----------+-----------------+-----------
Personnel costs | 301| 296| 1.6| 396
--------------------------+-----------+-----------+-----------------+-----------
Other expenses | 373| 375| -0.4| 507
--------------------------+-----------+-----------+-----------------+-----------
Returns to owner-members | | | |
and OP bonus customers | 122| 121| 0.5| 160
--------------------------+-----------+-----------+-----------------+-----------
Earnings before tax | 267| 379| -29.5| 471
--------------------------+-----------+-----------+-----------------+-----------
| | | |
--------------------------+-----------+-----------+-----------------+-----------
€ million | Q1-Q3/2010 Q1-Q3/2009 Change, %| 2009
--------------------------+-----------+-----------+-----------------+-----------
Home mortgages drawn down | 4,910| 4,292| 14.4| 5,723
--------------------------+-----------+-----------+-----------------+-----------
Corporate loans drawn down| 4,777| 4,777| 0.0| 6,325
--------------------------+-----------+-----------+-----------------+-----------
Net subscriptions to | | | |
mutual funds | 441| 1,357| -67.5| 1,618
--------------------------+-----------+-----------+-----------------+-----------
No. of brokered property | | | |
transactions | 12,906| 11,249| 14.7| 15,303
--------------------------+-----------+-----------+-----------------+-----------
| | | |
--------------------------+-----------+-----------+-----------------+-----------
€ billion |30 Sep 2010|30 Sep 2009| Change, %|31 Dec 2009
--------------------------+-----------+-----------+-----------------+-----------
Loan portfolio | | | |
--------------------------+-----------+-----------+-----------------+-----------
Home loans | 27| 25| 6.3| 26
--------------------------+-----------+-----------+-----------------+-----------
Other loans to | | | |
households | 10| 10| 4.1| 10
--------------------------+-----------+-----------+-----------------+-----------
Corporate loans | 14| 14| 2.3| 13
--------------------------+-----------+-----------+-----------------+-----------
Other loans | 4| 3| 19.2| 4
--------------------------+-----------+-----------+-----------------+-----------
Total | 55| 52| 5.7| 53
--------------------------+-----------+-----------+-----------------+-----------
Guarantee portfolio | 3| 3| -4.5| 3
--------------------------+-----------+-----------+-----------------+-----------
| | | |
--------------------------+-----------+-----------+-----------------+-----------
Deposits | | | |
--------------------------+-----------+-----------+-----------------+-----------
Total current and | | | |
payment transfer | | | |
--------------------------+-----------+-----------+-----------------+-----------
Households | 11.9| 10.9| 9.2| 12
--------------------------+-----------+-----------+-----------------+-----------
Companies | 3.9| 3.7| 3.7| 4
--------------------------+-----------+-----------+-----------------+-----------
Others | 2.6| 2.3| 11.4| 2
--------------------------+-----------+-----------+-----------------+-----------
Total current and | | | |
payment transfer | | | |
| 18.4| 16.9| 8.3| 18
--------------------------+-----------+-----------+-----------------+-----------
Investment deposits | 17.0| 17.4| -1.8| 17
--------------------------+-----------+-----------+-----------------+-----------
Total deposits | 35.4| 34.3| 3.2| 35
--------------------------+-----------+-----------+-----------------+-----------
| | | |
--------------------------+-----------+-----------+-----------------+-----------
Mutual funds | | | |
--------------------------+-----------+-----------+-----------------+-----------
Equity and hedge funds | 4.4| 3.5| 23.3| 3.9
--------------------------+-----------+-----------+-----------------+-----------
Balanced funds | 1.5| 1.5| 2.1| 1.5
--------------------------+-----------+-----------+-----------------+-----------
Long-term bond funds | 6.0| 5.1| 18.1| 5.0
--------------------------+-----------+-----------+-----------------+-----------
Money market funds | 2.1| 2.1| 4.6| 2.3
--------------------------+-----------+-----------+-----------------+-----------
Total value of mutual | | | |
funds | 14.0| 12.2| 15.4| 12.7
--------------------------+-----------+-----------+-----------------+-----------
| | | |
--------------------------+-----------+-----------+-----------------+-----------
Market share, % |30 Sep 2010|30 Sep 2009| Change,|31 Dec 2009
| | |percentage points|
--------------------------+-----------+-----------+-----------------+-----------
Total loans | | | | 32.7
--------------------------+-----------+-----------+-----------------+-----------
Home mortgages | 35.8| 36.0| - 0.2| 35.9
--------------------------+-----------+-----------+-----------------+-----------
Corporate loans | 28.5| 28.4| 0.1| 28.7
--------------------------+-----------+-----------+-----------------+-----------
Total deposits | 32.7| 33.7| -1.0| 33.2
--------------------------+-----------+-----------+-----------------+-----------
Capital invested in | | | |
mutual funds | 32.6| 32.5| 0.1| 23.4
--------------------------+-----------+-----------+-----------------+-----------
| | | |
--------------------------+-----------+-----------+-----------------+-----------
€ million | | | Change.,%|
--------------------------+-----------+-----------+-----------------+-----------
Non-performing and zero- | | | |
interest receivables | | | |
--------------------------+-----------+-----------+-----------------+-----------
Households | 197| 221| -11.2| 175
--------------------------+-----------+-----------+-----------------+-----------
Companies and housing| | | |
associations | 99| 94| 5.0| 92
--------------------------+-----------+-----------+-----------------+-----------
Others | 6| 14| -58.9| 3
--------------------------+-----------+-----------+-----------------+-----------
Collectively assessed| | | |
impairments | -43| -50| | -47
--------------------------+-----------+-----------+-----------------+-----------
Total non-performing and | | | |
zero-interest receivables | 259| 280| -7.5| 223
--------------------------+-----------+-----------+-----------------+-----------
Non-performing and zero- | | | |
interest receivables | | | |
within loan and guarantee | | | |
portfolio, % | 0.4| 0.5| -0.1| 0.4
--------------------------+-----------+-----------+-----------------+-----------
* Percentage points
Non-life Insurance * Premiums written grew at a higher rate, by 2% in January-September and by
4% in July-September.
* The strategic target of 450,000 loyal customer households was reached ahead
of schedule.
* Non-life Insurance recorded very good profitability. The operating combined
ratio stood at 88.6% (86.7),
* Return on investments at fair value was 5.2% (9). Pre-tax earnings from Non-
life Insurance amounted to EUR 84 million (89).
Non-life Insurance's business improved well in the report period. Growth
remained strong within Private Customers and the decline in insurance premium
revenue from Corporate Customers levelled off. Insurance premium revenue
increased by 2% to EUR 723 million (712). Pohjola Insurance is the non-life
insurance market leader in Finland in terms of premiums written.
Insurance premium revenue from Private Customers increased by 11% to EUR 355
million (320). The number of loyal customer households increased in January-
September by 29,900 (22,800). Insurance policies sold well in Group member banks
and at car dealerships. Private customers solidified their position as the
biggest customer group in Non-life Insurance.
Insurance premium revenue fell by 5% to EUR 331 million (347). The recession
affected the corporate sector, reducing insurance premiums based on companies'
payroll bills, net sales and operating profit. Statutory workers' compensation
insurance was affected the most, with the level of premiums being lowered for
2010. Premium revenue continued to fall but at a slower rate as the year
progressed. The impact of the recession on premium revenue was not properly felt
until the second quarter onwards.
In the Baltic States, insurance premium revenue decreased by 16% to EUR 37
million (44). The economic recession has reflected heavily on the Baltic
insurance market, as a result of which the total market of the region has shrunk
by almost a fifth in 2010.
When the non-life insurance business was acquired in 2005, a strategic target
was set to have 450,000 loyal customer households by the end of 2010. This
target was already reached in August. By 30 September, Pohjola's loyal insurance
customers households totalled 454,700.
Up to 57% of these loyal customer households also use OP-Pohjola Group member
cooperative banks as their main bank. OP-Pohjola Group member banks' and
Helsinki OP Bank's bonus customers can use their OP bonuses earned through
banking transactions to pay Pohjola non-life insurance premiums. During January-
September, OP bonuses were used to pay 801,300 insurance premiums, with 142,250
paid in full using bonuses. Insurance premiums paid using bonuses totalled
EUR 40 million.
Earnings and risk exposure
Insurance profitability was excellent, although the high volume of traffic
accidents and vehicle damage in the winter and storm damage in late summer
increased claims. Pre-tax earnings from Non-life Insurance amounted to EUR 84
million (89). The operating combined ratio, excluding amortisation on intangible
assets arising from the corporate acquisition, stood at 88.6% (86.7%).
Profitability in the comparison period was particularly good.
Insurance premium revenue totalled EUR 723 million (712) and indemnities EUR
443 million (421). Earnings before tax at fair value came to EUR 164 million
(247). Net investment income amounted to EUR 65 million (48) and net investment
income at fair value reached EUR 145 million (205). Impairment charges
recognised from the fair value reserve in the income statement totalled EUR 29
million.
Claims incurred increased to EUR 486 million (463), or by 5%, owing to a growth
in private customers, the high volume of traffic accidents and vehicle damage in
the winter and storm damage in late summer. The loss ratio deteriorated to
67.2% (65.1) and the risk ratio (excl. loss adjustment expenses) stood at 61.3%
(59.2). The reported number of major or medium-sized losses (in excess of EUR
0.1 million and over EUR 0.5 million in pension liabilities) came to 157 (141)
in January-September, with their claims incurred retained for own account
totalling EUR 79 million (66).
Non-life Insurance's expenses grew by 2.9% to EUR 237 million (230). Personnel
costs shrank by 0.8%, while other expenses increased by 5%, mainly as a result
of immediate write-offs for information systems.
Operating expenses as specified in the insurance company's profit and loss
account were EUR 154 million (154). The expense ratio stood at 21.3% (21.7) and
the cost ratio (incl. loss adjustment expenses) at 27.2 (27.6).
On 30 September, Non-life Insurance's solvency capital rose to EUR 943 million
(827) and the ratio of solvency capital to insurance premium revenue (solvency
ratio) stood at 99% (88). Equalisation provisions rose to EUR 443 million (417).
On 30 September, Non-life Insurance's investment portfolio amounted to EUR 3
billion (2.9) and the return of investments at fair value was 5.2% (9). Fixed-
income investments accounted for 77% (76), listed equities for 7% (10) and
equities, including unlisted investments, represented 10% (13). The fixed-income
portfolio by credit rating remained healthy, with investment-grade exposure
reaching 89% (94) and 75% of the exposure being at least A- grade receivables.
The average residual term to maturity of the fixed-income portfolio was 5.1
years and the duration 3.9 years (3.4).
Non-life Insurance: key figures
----------------------------------+-----------+-----------+---------+-----------
€ million | Q1-Q3/2010| Q1-Q3/2009|Change, %| 2009
----------------------------------+-----------+-----------+---------+-----------
Insurance premium revenue | 723| 712| 1,6| 943
----------------------------------+-----------+-----------+---------+-----------
Insurance claims and benefits | 443| 421| 5,3| 560
----------------------------------+-----------+-----------+---------+-----------
Net investment income | 65| 48| 33,9| 61
----------------------------------+-----------+-----------+---------+-----------
Unwinding of discount and | | | |
other items included in net | | | |
income | -34| -32| -4,8| -44
----------------------------------+-----------+-----------+---------+-----------
Net income from Non-life Insurance| 310| 306| 1,2| 400
----------------------------------+-----------+-----------+---------+-----------
Other net income | 11| 13| -13,5| 20
----------------------------------+-----------+-----------+---------+-----------
Personnel costs | 81| 81| -0,8| 110
----------------------------------+-----------+-----------+---------+-----------
Other expenses | 156| 149| 5,1| 207
----------------------------------+-----------+-----------+---------+-----------
Earnings/loss before tax | 84| 89| -5,8| 102
----------------------------------+-----------+-----------+---------+-----------
Gross change in fair value reserve| 80| 157| -49,5| 188
----------------------------------+-----------+-----------+---------+-----------
Earnings/loss before tax at fair | | | |
value | 164| 247| -33,7| 291
----------------------------------+-----------+-----------+---------+-----------
| | | |
----------------------------------+-----------+-----------+---------+-----------
€ million | Q1-Q3/2010| Q1-Q3/2009|Change, %| 2009
----------------------------------+-----------+-----------+---------+-----------
Insurance premium revenue | | | |
----------------------------------+-----------+-----------+---------+-----------
Private customers | 355| 320| 10,9| 424
----------------------------------+-----------+-----------+---------+-----------
Corporate Customers | 331| 347| -4,7| 461
----------------------------------+-----------+-----------+---------+-----------
Baltic States | 37| 44| -16,3| 57
----------------------------------+-----------+-----------+---------+-----------
Total insurance premium revenue | 723| 712| 1,6| 943
----------------------------------+-----------+-----------+---------+-----------
| | | |
----------------------------------+-----------+-----------+---------+-----------
€ billion |30 Sep 2010|30 Sep 2009|Change, %|31 Dec 2009
----------------------------------+-----------+-----------+---------+-----------
Insurance contract liabilities | ,| | ,| ,
----------------------------------+-----------+-----------+---------+-----------
Discounted insurance contract | | | |
liabilities | 1.3| 1.3| 1.3| 1.3
----------------------------------+-----------+-----------+---------+-----------
Other insurance contract | | | |
liabilities | 0.9| 0.9| 0.9| 0.8
----------------------------------+-----------+-----------+---------+-----------
Total | 2.3| 2.2| 2.3| 2.1
----------------------------------+-----------+-----------+---------+-----------
| | | |
----------------------------------+-----------+-----------+---------+-----------
Investments portfolio | | | |
----------------------------------+-----------+-----------+---------+-----------
Bonds and bond funds | 2.2| 2.1| 8.0| 2.1
----------------------------------+-----------+-----------+---------+-----------
Money market instruments | 0.1| 0.2| -49.7| 0.1
----------------------------------+-----------+-----------+---------+-----------
Equities and equity funds | 0.3| 0.3| -2.1| 0.4
----------------------------------+-----------+-----------+---------+-----------
Real property investment *) | 0.2| 0.1| 27.7| 0.2
----------------------------------+-----------+-----------+---------+-----------
Alternative investments | 0.2| 0.2| 12.5| 0.2
----------------------------------+-----------+-----------+---------+-----------
Total investments | 3.0| 2.8| 5.0| 2.9
----------------------------------+-----------+-----------+---------+-----------
*) Includes real estate funds
Life insurance
* The market share of premiums written in life and pension insurance rose to
38.4%.
* Premiums written in unit-linked products increased in line with the
strategy.
* The segment's earnings turned positive, and earnings before tax at fair
value improved to EUR 219 million (158).
* The solvency margin was 3.8-fold compared with the required minimum.
* Return on investments at fair value was 7.3% (6.8).
Life Insurance's volumes and earnings continued to grow in the report period,
with the market position improving. Insurance contract premiums written
increased by 81% and came to EUR 822 million (454). Unit-linked premiums written
increased by 45% to EUR 353 million (243). Investment contracts were made in the
report period worth EUR 468 million (6). When calculating market share,
investment contracts are considered equivalent to premiums written. The increase
in volume is mostly related to two one-off group pension schemes, which
contributed considerably to the rise in market share.
In terms of premiums written, OP-Pohjola Group is the clear market leader. The
Group's market share of premiums written was 38.4% (23.4) and, according to
preliminary information, 21.2% (20.0) of insurance savings. The market share of
unit-linked premiums written was 23.6% (20.1) and 25.3% (24.6) of unit-linked
insurance savings.
Earnings and risk exposure
Pre-tax earnings came to EUR 23 million, improving on the comparison period by
EUR 131 million. Earnings before tax at fair value came to EUR 219 million
(158). Net investment income without the income from unit-linked insurance came
to EUR 88 million (-44). Investment income was improved particularly by higher
capital gains.
Life Insurance's investment assets, excluding assets covering unit-linked
insurance, amounted to EUR 4.5 billion (4.1). Fixed-income investments accounted
for 62.7% (58), equity investments 18.6% (17), property investments 7.1% (8) and
alternative investments 11.6% (17) of the portfolio. Investments under the
'investment grade' accounted for approximately 78% (77) of the fixed-income
portfolio. The portfolio's modified duration was 3.0 (3.6) on 30 September.
Return on investments at fair value was 7.3% (6.8).
Life Insurance's operating efficiency remained good. The cost ratio, in which
sales channel fees are excluded and in which all income to cover business
expenses are included as income, came to 29.4% (35.2). Thanks to higher sales
volumes, sales commissions included in Other expenses increased to EUR 29
million (20).
Life Insurance's solvency improved in the report period. The solvency ratio,
meaning the ratio of solvency capital to weighted technical provisions, was
16.8% (13.3). Technical provisions increased by 10.5% and came to EUR 6.6
billion (6). Unit-linked technical provisions accounted for 42.8% (33).
Life Insurance: key figures
----------------------------------+-----------+-----------+---------+-----------
€ million | Q1-Q3/2010| Q1-Q3/2009|Change, %| 2009
----------------------------------+-----------+-----------+---------+-----------
Premiums written | 822| 454| 81.0| 678
----------------------------------+-----------+-----------+---------+-----------
Unit-linked | 353| 243| 45.4| 368
----------------------------------+-----------+-----------+---------+-----------
Net investment income | 313| 312| 0.6| 371
----------------------------------+-----------+-----------+---------+-----------
Unit-linked | 226| 355| -36.5| 433
----------------------------------+-----------+-----------+---------+-----------
Change in insurance contract | 618| 481| 28.3| 653
liabilities | | | |
----------------------------------+-----------+-----------+---------+-----------
Unit-linked | 497| 549| -9.4| 761
----------------------------------+-----------+-----------+---------+-----------
Claims incurred | 443| 354| 25.1| 499
----------------------------------+-----------+-----------+---------+-----------
Other items | -6| -5| -19.1| -7
----------------------------------+-----------+-----------+---------+-----------
Net income from Life Insurance | 68| -75| 189.6| -110
----------------------------------+-----------+-----------+---------+-----------
Other income | 13| 12| 9.9| 16
----------------------------------+-----------+-----------+---------+-----------
Personnel costs | 7| 7| 5.9| 9
----------------------------------+-----------+-----------+---------+-----------
Other expenses | 51| 39| 32.3| 57
----------------------------------+-----------+-----------+---------+-----------
Earnings before tax | 23| -108| 121.2| -159
----------------------------------+-----------+-----------+---------+-----------
Gross change in fair value reserve| 196| 266| -26.3| 354
----------------------------------+-----------+-----------+---------+-----------
Earnings/loss before tax at fair | 219| 158| 38.8| 194
value | | | |
----------------------------------+-----------+-----------+---------+-----------
| | | |
----------------------------------+-----------+-----------+---------+-----------
€ billion |30 Sep 2010|30 Sep 2009|Change, %|31 Dec 2009
----------------------------------+-----------+-----------+---------+-----------
Assets (excluding assets covering | | | |
unit-linked insurance) | | | |
----------------------------------+-----------+-----------+---------+-----------
Bonds and bond funds | 2.4| 2.5| -3.4| 2.2
----------------------------------+-----------+-----------+---------+-----------
Money market instruments | 0.4| 0.3| 65.2| 0.2
----------------------------------+-----------+-----------+---------+-----------
Equities and equity funds | 0.8| 0.6| 44.9| 0.7
----------------------------------+-----------+-----------+---------+-----------
Real property investment **) | 0.3| 0.3| 6.0| 0.3
----------------------------------+-----------+-----------+---------+-----------
Alternative investments | 0.5| 0.5| 2.7| 0.7
----------------------------------+-----------+-----------+---------+-----------
Total investment portfolio | 4.5| 4.1| 9.0| 4.1
----------------------------------+-----------+-----------+---------+-----------
| | | |
----------------------------------+-----------+-----------+---------+-----------
€ million | Q1-Q3/2010| Q1-Q3/2009|Change, %| 2009
----------------------------------+-----------+-----------+---------+-----------
Premiums written, FAS | | | |
----------------------------------+-----------+-----------+---------+-----------
Endowment insurance, unit-linked| 289| 178| 62.0| 270
----------------------------------+-----------+-----------+---------+-----------
Endowment insurance, interest- | 44| 94| -53.9| 116
bearing | | | |
----------------------------------+-----------+-----------+---------+-----------
Pension insurance | 443| 137| 222.7| 235
----------------------------------+-----------+-----------+---------+-----------
Term life insurance | 67| 61| 9.7| 83
----------------------------------+-----------+-----------+---------+-----------
Others | 468| 6| | 69
----------------------------------+-----------+-----------+---------+-----------
Total premiums written, FAS | 1,310| 477| 174.5| 771
----------------------------------+-----------+-----------+---------+-----------
Unit-linked | 469| 248| 88.7| 377
----------------------------------+-----------+-----------+---------+-----------
| | | | ,
----------------------------------+-----------+-----------+---------+-----------
Market share of premiums written | 38.4| 23.4| 15.0| 25.2
in life and pension insurance, % | | | |
----------------------------------+-----------+-----------+---------+-----------
| | | |
----------------------------------+-----------+-----------+---------+-----------
€ billion |30 Sep 2010|30 Sep 2009|Change, %|31 Dec 2009
----------------------------------+-----------+-----------+---------+-----------
insurance savings | | | |
----------------------------------+-----------+-----------+---------+-----------
Endowment insurance, unit-linked| 2.1| 1.5| 35.0| 1.7
----------------------------------+-----------+-----------+---------+-----------
Endowment insurance, interest- | 2.1| 2.4| -13.5| 2.3
bearing | | | |
----------------------------------+-----------+-----------+---------+-----------
Pension insurance | 2.4| 1.8| 32.9| 1.9
----------------------------------+-----------+-----------+---------+-----------
Others | 0.3| 0.1| 202.3| 0.2
----------------------------------+-----------+-----------+---------+-----------
Total insurance savings | 6.8| 5.8| 16.7| 6.1
----------------------------------+-----------+-----------+---------+-----------
Unit-linked | 3.0| 2.2| 37.9| 2.4
----------------------------------+-----------+-----------+---------+-----------
| | | |
----------------------------------+-----------+-----------+---------+-----------
Market share of insurance savings | 21.2 ***| 19.9| 1.3| 20.0
in life and pension insurance, % | | | |
----------------------------------+-----------+-----------+---------+-----------
* Percentage points
** Includes real estate funds
*** Preliminary information
Other Operations
Other Operations' pre-tax earnings for January-September were EUR 68 million,
that is, EUR 36 million better than a year earlier (32).
Net interest income was EUR 49 million (47), net trading losses EUR 9 million
(loss of EUR 4 million) and net investment income EUR 28 million (loss of EUR 2
million). Investment income included EUR 22 million (0) in capital gains on
notes and bonds. A year ago, investment income was eroded by a EUR 5 million
negative valuation concerning real property investments. Impairments recognised
on shares and participations categorised under available-for-sale financial
assets totalled EUR 4 million (4), while a year ago impairments recognised on
bonds, which we categorised under loans and other receivables, totalled EUR 11
million.
Most of the other income in Other Operations came from within the Group as
internal service charges, which are recorded as business segment expenses. Of
the Other Operations expenses, EUR 88 million (84) were personnel costs and EUR
162 million (165) other costs.
The Group's liquidity and availability of funding have remained good. Pohjola
Bank plc issued three senior bonds in the capital market during the report
period, each worth EUR 750 million.
Other Operations: key figures
----------------------------------+-----------+-----------+---------+-----------
€ million | Q1-Q3/2010| Q1-Q3/2009|Change, %| 2009
----------------------------------+-----------+-----------+---------+-----------
Net interest income | 49| 47| 3.1| 72
----------------------------------+-----------+-----------+---------+-----------
Net trading income | -9| -4| -136.5| -7
----------------------------------+-----------+-----------+---------+-----------
Net investment income | 28| -2| | -5
----------------------------------+-----------+-----------+---------+-----------
Other income | 250| 251| -0.2| 336
----------------------------------+-----------+-----------+---------+-----------
Expenses | 250| 249| 0.5| 333
----------------------------------+-----------+-----------+---------+-----------
Impairment losses on receivables | -1| 11| -108.3| 12
----------------------------------+-----------+-----------+---------+-----------
Earnings before tax | 68| 32| 112.6| 51
----------------------------------+-----------+-----------+---------+-----------
| | | |
----------------------------------+-----------+-----------+---------+-----------
€ billion |30 Sep 2010|30 Sep 2009|Change, %|31 Dec 2009
----------------------------------+-----------+-----------+---------+-----------
Receivables from financial | | | |
institutions | 7.6| 7.4| 2.2| 7.4
----------------------------------+-----------+-----------+---------+-----------
Financial assets held for trading | 0.4| 0.7| -44.3| 0.4
----------------------------------+-----------+-----------+---------+-----------
Investment assets | 7.5| 6.0| 24.1| 6.5
----------------------------------+-----------+-----------+---------+-----------
| ,| ,| ,| ,
----------------------------------+-----------+-----------+---------+-----------
Liabilities to credit institutions| 3.2| 3.5| -8.6| 4.6
----------------------------------+-----------+-----------+---------+-----------
Debt securities issued to the | | | |
public | 17.1| 16.4| 4.2| 17.5
----------------------------------+-----------+-----------+---------+-----------
FINANCIAL STATEMENTS AND NOTES
Income statement
Statement of comprehensive income
Key figures, ratios and definitions
Financial performance by quarter
Balance sheet
Statement of changes in equity
Cash flow statement
Notes:
Note 1. Accounting policies
Notes to the income statement and balance sheet:
Note 2. Net interest income
Note 3. Impairments of receivables
Note 4. Net income from Non-life Insurance
Note 5. Net income from Life Insurance
Note 6. Net commissions and fees
Note 7. Net trading income
Note 8. Net investment income
Note 9. Other operating income
Note 10. Personnel costs
Note 11. Other administrative expenses
Note 12. Other operating expenses
Note 13. Returns to owner-members
Note 14. Classification of financial instruments
Note 15. Balance sheet classification according to valuation technique
Note 16. Reclassified notes and bonds
Note 17. Non-life Insurance assets
Note 18. Life Insurance assets
Note 19. Non-life Insurance liabilities
Note 20. Life Insurance liabilities
Note 21. Debt securities issued to the public
Note 22. Fair value reserve after income tax
Other notes:
Note 23. Collateral given
Note 24. Off-balance-sheet commitments
Note 25. Derivative contracts
Note 26. Related-party transactions
OP-Pohjola Group income statement
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Interest income 1,771 2,467 -28 3,072
Interest expenses 1,093 1,642 -33 2,002
Net interest income (Note 2) 679 825 -18 1,070
Impairments of receivables (Note 3) 108 127 -15 179
Net interest income after impairments 571 697 -18 891
Net income from Non-life Insurance operations
(Note 4) 309 302 2 396
Net income from Life Insurance operations (Note 5) 62 -89 -120
Net commissions and fees (Note 6) 417 371 13 496
Net trading income (Note 7) 38 87 -56 112
Net investment income (Note 8) 34 -11 -9
Other operating income (Note 9) 68 76 -10 104
Personnel costs (Note 10) 477 468 2 622
Other administrative expenses (Note 11) 225 223 1 310
Other operating expenses (Note 12) 239 228 5 316
Returns to owner-members (Note 13) 122 121 1 160
Share of associates' profits/losses 2 1 79 1
Earnings before tax for the period 438 393 11 464
Income tax expense 115 107 7 126
Profit for the period 323 286 13 338
OP-Pohjola Group statement of comprehensive income
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Profit for the period 323 286 13 338
Change in fair value reserve 256 546 -53 677
Translation differences 0 0 0
Income tax on other comprehensive income 67 141 -53 175
Total comprehensive income for the period 512 690 -26 839
Key figures and ratios
Q1-3/ Q1-3/
2010 2009 2009
Return on equity, % 6.7 6.8 5.9
Return on equity at fair value, % 10.7 16.4 14.7
Return on assets, % 0.53 0.50 0.43
Cost/income ratio, % 58 59 61
Average personnel 12,410 12,670 12,632
Full-time 11,361 11,572 11,520
Part-time 1,049 1,098 1,112
Definition of key figures and ratios
Return on equity, %
Profit for the period /
Equity capital (average of the beginning and end of the period) x 100
Return on equity at fair value, %
Profit for the period + change in fair value reserve less deferred tax liability
/
equity capital (average of the beginning and end of the period) x 100
Return on assets, %
Profit for the period /
Statement of financial position total (average of the beginning and end of the
period) x 100
Cost/income ratio, %
(Personnel costs + other administrative expenses + other operating expenses) /
(Net interest income + net income from Non-life Insurance operations + net
income from Life Insurance operations + net commissions and fees + net trading
income + net investment income + other operating income + share of associates'
profits/losses) x 100
Combined ratio (excl. unwinding of discount), %
Loss ratio+expense ratio
Risk ratio+cost ratio
Loss ratio (exc. unwinding of discount), %
Claims and loss adjustment expenses /
Net insurance premium revenue x 100
Expense ratio, %
Operating expenses + Amortisation/adjustment of intangible assets related to
company acquisition /
Net insurance premium revenue x 100
Risk ratio (excl. unwinding of discount), %
Claims excl. loss adjustment expenses /
Net insurance premium revenue x 100
Cost ratio, %
Operating expenses and loss adjustment expenses /
Net insurance premium revenue x 100
Operating cost ratio, %
Operating expenses before change in deferred acquisitions costs + loss
adjustment expenses/
Expense loading x 100
OP-Pohjola Group quarterly performance
2009 2010
EUR million Q3 Q4 Q1 Q2 Q3
Interest income 670 605 573 592 606
Interest expenses 414 359 349 364 380
Net interest income 256 245 224 228 226
Impairments of receivables 52 52 38 40 31
Net interest income after impairments 204 194 186 189 196
Net income from Non-life Insurance operations 113 94 78 113 119
Net income from Life Insurance operations -60 -31 14 32 15
Net commissions and fees 120 125 143 139 135
Net trading income 33 25 6 6 26
Net investment income -3 2 31 3 0
Other operating income 23 28 26 23 19
Personnel costs 142 154 164 171 142
Other administrative expenses 67 87 75 80 70
Other operating expenses 71 88 78 75 86
Returns to owner-members 39 39 39 42 41
Share of associates' profits/losses 1 0 1 0 1
Earnings before tax for the period 112 70 128 137 172
Income tax expense 27 18 33 36 46
Profit for the period 85 52 95 101 126
Other comprehensive income
Change in fair value reserve 368 131 212 -137 181
Translation differences 0 0 0 0 0
Income tax on other comprehensive income 95 34 56 -36 47
Total comprehensive income for the period 358 149 252 0 260
OP-Pohjola Group balance sheet
EUR million 30 Sep 2010 30 Sep 2009 Change, % 2009
Cash and cash equivalents 1,082 998 8 3,235
Receivables from credit institutions 1,147 2,125 -46 1,982
Financial assets at fair value through
profit or loss 1,060 1,695 -37 1,263
Derivative contracts 2,109 1,444 46 1,423
Receivables from customers 55,705 52,787 6 52,992
Non-life Insurance assets (Note 17) 3,281 3,111 5 3,101
Life Insurance assets (Note 18) 7,049 6,016 17 6,331
Investment assets 7,531 6,194 22 6,468
Investments in associates 15 16 -11 17
Intangible assets 1,149 1,193 -4 1,179
Property, plant and equipment (PPE) 741 767 -3 761
Other assets 2,029 2,046 -1 1,572
Tax assets 78 261 -70 108
Total assets 82,974 78,654 5 80,430
Liabilities to credit institutions 1,543 2,470 -38 2,174
Financial liabilities at fair value
through profit or loss 0 117 -100 71
Derivative contracts 2,358 1,575 50 1,360
Liabilities to customers 38,467 36,837 4 37,606
Non-life Insurance liabilities 2,518 2,480 2 2,279
Life Insurance liabilities 6,900 5,919 17 6,179
Debt securities issued to the public
(Note 21) 19,456 17,757 10 19,945
Provisions and other liabilities 2,237 2,544 -12 1,832
Tax liabilities 992 1,045 -5 925
Cooperative capital 632 605 4 622
Subordinated liabilities 1,238 1,262 -2 1,250
Total liabilities 76,342 72,611 5 74,243
Equity capital
Share of OP-Pohjola Group's owners
Share and cooperative capital 358 357 0 358
Fair value reserve (Note 22) 135 -151 -54
Other reserves 2,663 2,605 2 2,604
Retained earnings 3,475 3,232 8 3,280
Total equity capital 6,632 6,042 10 6,187
Total liabilities and equity capital 82,974 78,654 5 80,430
Statement of changes in equity capital
Share and Total
cooperative Fair value Other Retained equity
EUR million capital reserve reserves earnings capital
Balance at 1
January 2009 362 -556 2,375 3,034 5,215
Increase of share
capital - - 170 - 170
Transfer of
cooperative
capital to equity
capital 2 - - - 2
Transfer of
reserves - - 62 -62 -
Profit
distribution - - - -26 -26
Total
comprehensive
income for the
period - 404 - 286 690
Equity-settled
share-based
transactions
Other -7 - -1 -1 -9
Balance at 30
September 2009 357 -151 2,605 3,232 6,042
Balance at 1
January 2010 358 -54 2,604 3,280 6,187
Increase of share
capital - - - - -
Transfer of
cooperative
capital to equity
capital 3 - - - 3
Transfer of
reserves - - 59 -59 -
Profit
distribution - - - -60 -60
Total
comprehensive
income for the
period - 190 - 323 513
Equity-settled
share-based
transactions - - - 0 0
Other -2 - 0 -9 -11
Balance at 30
September 2010 358 135 2,663 3,475 6,632
Cash flow statement
Q1-3/ Q1-3/
EUR million 2010 2009
---------------------------------------------------------------------------
Cash flow from operating activities
Profit for the period 323 286
Adjustments to profit for the period 995 899
Increase (-) or decrease (+) in operating assets -3,623 -4,008
Receivables from credit institutions 848 239
Financial assets at fair value through profit or loss 546 1,672
Derivative contracts -49 -35
Receivables from customers -2,851 -1,208
Non-life Insurance assets -174 -352
Life Insurance assets -401 -510
Investment assets -1,085 -3,595
Other assets -458 -219
Increase (+) or decrease (-) in operating liabilities 749 1,713
Liabilities to credit institutions -642 1,777
Financial liabilities at fair value through profit or loss -71 -21
Derivative contracts 52 -42
Liabilities to customers 861 -245
Non-life Insurance liabilities 163 169
Life Insurance liabilities 104 25
Provisions and other liabilities 282 51
Income tax paid -84 -43
Dividends received 78 53
---------------------------------------------------------------------------
A. Net cash from operating activities -1,562 -1,100
Cash flow from investing activities
Increases in held-to-maturity financial assets -17 -371
Decreases in held-to-maturity financial assets 132 364
Acquisition of subsidiaries, net of cash acquired 0 -1
Disposal of subsidiaries, net of cash disposed 2 1
Purchase of PPE and intangible assets -62 -71
Proceeds from sale of PPE and intangible assets 3 6
---------------------------------------------------------------------------
B. Net cash used in investing activities 58 -71
Cash flow from financing activities
Increases in subordinated liabilities 76 194
Decreases in subordinated liabilities -87 -238
Increases in debt securities issued to the public 35,619 39,860
Decreases in debt securities issued to the public -36,180 -40,288
Increases in cooperative and share capital 179 202
Decreases in cooperative and share capital -166 -165
Dividends paid and interest on cooperative capital -75 -52
Returns to owner-members -1 -3
Increases in invested unrestricted equity 0 171
Other 0 0
---------------------------------------------------------------------------
C. Net cash from financing activities -635 -319
---------------------------------------------------------------------------
Net change in cash and cash equivalents (A+B+C) -2,138 -1,490
Cash and cash equivalents at period-start 3,282 2,538
Cash and cash equivalents at period-end 1,144 1,049
Interest received 1,677 2,680
Interest paid -1,023 -2,000
Adjustments to profit for the period
Non-cash transactions and other adjustments
Impairments of receivables 114 134
Unrealised net earnings in Non-life Insurance 151 143
Unrealised net earnings in Life Insurance 500 302
Change in fair value for trading 97 52
Unrealised net gains on foreign exchange operations -17 -18
Change in fair value of investment property -1 13
Depreciation and amortisation 105 97
Share of associates' profits/losses 0 0
Other 36 159
Items presented outside cash flow from operating activities
Capital gains, share of cash flow from investing activities -1 0
Interest on cooperative capital 9 15
Other returns to owner-members 1 3
---------------------------------------------------------------------------
Total adjustments 995 899
Cash and cash equivalents
Liquid assets 122 139
Receivables from credit institutions payable on demand 1,022 910
---------------------------------------------------------------------------
Total 1,144 1,049
Notes
Note 1. Accounting policies
The Interim Report for 1 January-30 September 2010 was prepared according to IAS
34 (Interim Financial Reporting), as approved by the EU.
In the preparation of its Interim Report, OP-Pohjola Group applied the same
accounting policies as in the preparation of its Financial Statements 2009.
During the current period, the Group has also applied cash flow hedging when
hedging future cash flows from variable-rate debt or other variable-rate assets
and liabilities. Interest rate swaps are used as hedging instruments. Derivative
contracts documented as cash flow hedges and provide effective hedges are
measured at fair value. The portion of the gain or loss on the hedging
instrument that is determined to be an effective hedge is recognised in other
comprehensive income. Fair value changes recognised in shareholders' equity are
included in the income statement in the period when hedged items affect net
income.
The Interim Report is based on unaudited figures. Given that all figures in the
Interim Report have been rounded off, the sum total of individual figures may
deviate from the presented sums.
Summary of presentation of income statement:
+---------------------------------+--------------------------------------------+
| |Received and paid interest on fixed-income |
| |instruments, the recognised difference |
|Net interest income |between the nominal value and acquisition |
| |value, interest on interest-rate derivatives|
| |and fair value change in fair value hedging |
+---------------------------------+--------------------------------------------+
| |Premiums written, claims unpaid, change in |
|Net income from Non-life |provision for unearned premiums and for |
|Insurance operations |unpaid claims, investment income, expenses |
| |(interest, dividends, realised capital gains|
| |and losses) and impairments |
+---------------------------------+--------------------------------------------+
| |Premiums written, claims unpaid, change in |
|Net income from Life Insurance |provision for unearned premiums and for |
|operations |unpaid claims, investment income, expenses |
| |(interest, dividends, realised capital gains|
| |and losses) and impairments |
+---------------------------------+--------------------------------------------+
| |Commission income and expenses, and the |
|Net commissions and fees |recognition of Day 1 profit related to |
| |illiquid derivatives |
+---------------------------------+--------------------------------------------+
| |Fair value changes in financial instruments |
|Net trading income |at fair value through profit or loss, |
| |excluding accrued interest, and capital |
| |gains and losses, as well as dividends |
+---------------------------------+--------------------------------------------+
| |Realised capital gains and losses on |
| |available-for-sale financial assets, |
|Net investment income |impairments, dividends as well as fair value|
| |changes in investment property, capital |
| |gains and losses, rents and other property- |
| |related expenses |
+---------------------------------+--------------------------------------------+
|Other operating income |Other operating income |
+---------------------------------+--------------------------------------------+
|Personnel costs |Wages and salaries, pension costs, social |
| |expenses |
+---------------------------------+--------------------------------------------+
|Other administrative expenses |Office expenses, IT costs, other |
| |administrative expenses |
+---------------------------------+--------------------------------------------+
|Other operating expenses |Depreciation/amortisation, rents and other |
| |operating expenses |
+---------------------------------+--------------------------------------------+
Notes to the income statement and balance sheet
Note 2 Net interest income
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Loans and other receivables 947 1,390 -32 1,718
Receivables from credit institutions and central
banks 42 75 -45 93
Notes and bonds 315 195 61 238
Derivatives held for trading (net) 74 55 35 79
Liabilities to credit institutions -11 -9 22 -13
Liabilities to customers -194 -403 -52 -472
Debt securities issued to the public -320 -374 -14 -430
Subordinated debt -24 -27 -9 -36
Hybrid capital -4 -9 -56 -11
Financial liabilities held for trading -1 -4 -82 -5
Other (net) -2 5 4
Net interest income before items under hedge
accounting 821 894 -8 1,165
Derivatives under hedge accounting (net) -142 -69 -95
Total net interest income 679 825 -18 1,070
Note 3 Impairments of receivables
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Impairments of receivables 160 156 2 199
Reversals of impairments -44 -39 -12 -22
Payments on impaired receivables
amortised from statement of financial position -6 -6 1 -11
Net change in group-specific impairments -2 17 12
Total 108 127 -15 179
Note 4 Net income from Non-life Insurance
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Net insurance premium revenue
Premiums written 850 839 1 1,005
Insurance premiums ceded to reinsurers -38 -42 9 -51
Change in provision for unearned premiums -94 -91 -3 -15
Reinsurers' share 4 6 -25 4
Total 723 712 2 943
Net Non-life Insurance claims
Claims paid 477 443 8 595
Insurance claims recovered from reinsurers -19 -9 -20
Change in provision for unpaid claims -19 -17 -15 -30
Reinsurers' share 4 4 16 15
Total 443 421 5 560
Net investment income, Non-life Insurance
Interest income 48 52 -8 68
Dividend income 19 7 7
Property 3 2 43 4
Realised changes in fair value
Notes and bonds 53 -6 7
Shares and participations -16 19 15
Loans and receivables -1 0 0
Property 2 0 1
Derivatives -22 -17 -33 -21
Unrealised changes in fair value 0
Notes and bonds 0 1 -88 1
Shares and participations -23 -10 -20
Loans and receivables -3 -3 0 -4
Property 1 1 -5 1
Derivatives 4 -3 -2
Other 0 0 0
Total 64 44 46 58
Unwinding of discount -34 -32 -5 -43
Other -1 -1 -1 -1
Net income from Non-life Insurance 309 302 2 396
Note 5 Net income from Life Insurance
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Premiums written 842 471 79 703
Reinsurers' share -21 -17 -21 -25
Total 822 454 0 678
Claims incurred
Benefits paid -449 -358 -25 -504
Change in provision for unpaid claims -25 -12 -13
Reinsurers' share 5 4 38 5
Change in insurance contract liabilities
Change in life insurance provision -612 -476 -28 -640
Reinsurers' share 9 6 44 11
Total -1,071 -836 -28 -1,140
Other 4 -5 -19
Total -246 -387 -37 -481
Net investment income, Llife Insurance
Interest income 34 38 -10 53
Dividend income 44 36 20 40
Property 3 0 0
Realised changes in fair value
Notes and bonds 8 -5 -8
Shares and participations 56 1 28
Loans and receivables 1 -8 -8
Property 0 0 0
Derivatives -44 3 -12
Unrealised changes in fair value
Notes and bonds 10 33 -71 -3
Shares and participations -46 -148 69 -150
Loans and receivables -5 - -
Property 0 0 -1
Derivatives 13 -10 -15
Other 8 3 6
Assets serving as cover for unit-linked policies
Shares and participations
Capital gains and losses 38 25 53 65
Fair value gains and losses 171 319 -47 353
Other 17 10 62 15
Total 307 298 3 362
Net income from Non-life Insurance 62 -89 -120
Note 6 Commissions and fees
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Commission income
Lending 115 108 7 139
Deposits 4 4 -6 5
Payment transfers 111 96 15 132
Securities brokerage 22 16 36 22
Securities issuance 9 6 51 13
Mutual funds brokerage 65 42 55 60
Asset management and legal services 44 37 18 54
Insurance brokerage 46 63 -27 73
Guarantees 17 16 7 21
Other 29 31 -6 48
Total 461 419 10 567
Commission expenses
Total 44 48 -10 71
Net commissions and fees 417 371 13 496
Note 7 Net trading income
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Capital gains and losses
Notes and bonds 21 30 -31 37
Shares and participations 1 -3 -3
Derivatives -22 117 123
Changes in fair value
Notes and bonds 5 -1 -9
Shares and participations 3 15 -80 17
Derivatives 12 -80 -66
Financial assets and liabilities amortised at cost
Capital gains and losses
Loans and other receivables - 0 0
Dividend income 1 0 36 0
Net income from foreign exchange operations 18 9 12
Total 38 87 -56 112
Note 8 Net investment income
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Available-for-sale financial assets
Capital gains and losses
Notes and bonds 25 1 2
Shares and participations 5 -4 0
Financial assets and liabilities amortised at cost
Capital gains and losses
Loans and other receivables 0 - 0 -
Other - - -
Dividend income 13 8 54 9
Impairment losses -24 -18 33 -28
Total 19 -13 -16
Investment property
Rental income 34 36 -5 48
Maintenance charges and expenses -21 -22 3 -30
Changes in fair value, capital gains and losses 1 -13 -11
Other 0 0 -38 1
Total 15 2 8
Other - 0 -100 0
Net investment income 34 -11 -9
Note 9 Other operating income
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Income from property and business
premises in own use 11 10 12 14
Other 57 66 -14 90
Total 68 76 -10 104
Note 10 Personnel costs
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Wages and salaries 396 397 0 534
Pension costs 65 49 31 58
Other social expenses 17 22 -22 31
Total 477 468 2 622
Note 11 Other administrative expenses
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Office expenses 46 48 -4 66
IT expenses 79 74 6 101
Telecommunications expenses 28 26 8 37
Marketing expenses 33 37 -11 53
Other administrative expenses 39 38 2 54
Total 225 223 1 310
Note 12 Other operating expenses
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Expenses for property and business
premises in own use 57 53 6 73
Depreciation 105 97 9 135
Other 77 78 -1 107
Total 239 228 5 316
Note 13 Returns to owner-members
Q1-3/ Q1-3/
EUR million 2010 2009 Change, % 2009
Bonuses 112 106 6 142
Interest on cooperative capital 9 15 -38 18
Total 122 121 1 160
Note 14. Classification of financial instruments
Financial
assets at
Invest- fair value Available-
Loans and ments through for-sale Hedging
other held to profit or financial deriva-
EUR million receivables maturity loss* assets tives Total
--------------------------------------------------------------------------------
Assets
Cash and balances
with
central banks 1,082 - - - - 1,082
Receivables from
credit
institutions and
central
banks 1,147 - - - - 1,147
Derivative
contracts - - 1,874 - 235 2,109
Receivables from
customers 55,705 - - - - 55,705
Non-life
Insurance
assets** 681 - 88 2,511 - 3,281
Life Insurance
assets*** 434 - 3,246 3,369 - 7,049
Notes and bonds - 1,052 993 5,601 - 7,647
Shares and
participations - - 67 442 - 509
Other receivables 4,011 - 435 - - 4,447
--------------------------------------------------------------------------------
Total 30
September 2010 63,060 1,052 6,704 11,923 235 82,974
Total 30
September 2009 61,449 1,235 5,988 9,809 173 78,654
Total 31 December
2009 63,125 1,163 5,757 10,229 156 80,430
Financial
liabilities
at fair
value
through
profit Hedging
or loss Other deriva-
EUR million ****** liabilities tives Total
--------------------------------------------------------------------------------
Liabilities
Liabilities to
credit
institutions - - - 1,543 - 1,543
Financial
liabilities held
for
trading (excl.
derivatives) - - 0 - - 0
Derivative
contracts - - 2,070 - 288 2,358
Liabilities to
customers - - - 38,467 - 38,467
Non-life
Insurance
liabilities*** - - 1 2,517 - 2,518
Life Insurance
liabilities**** - - 2,832 4,068 - 6,900
Debt securities
issued
to the public - - - 19,456 - 19,456
Subordinated
loans - - - 1,238 - 1,238
Other liabilities - - - 3,861 - 3,861
--------------------------------------------------------------------------------
Total 30
September 2010 - - 4,904 71,150 288 76,342
Total 30
September 2009 - - 3,637 68,797 178 72,611
Total 31 December
2009 - - 3,601 70,476 166 74,243
*Assets at fair value through profit or loss include financial assets for
trading, financial assets at fair value through profit or loss at inception, and
investments and investment property covering unit-linked insurance policies.
**Non-life Insurance assets are specified in Note 17.
***Life Insurance assets are specified in Note 18.
****Non-life Insurance liabilities are specified in Note 19.
*****Life Insurance liabilities are specified in Note 20.
******Includes the balance sheet value of technical provisions related to unit-
linked insurance policies.
Debt securities issued to the public are carried at amortised cost.
On 30 September 2010, the fair value of these debt instruments was approximately
EUR 174 million 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.
Note 15. Balance sheet classification according to valuation technique
Fair value of assets in EUR million on 30 Sep
2010 Level 1* Level 2* Level 3* Total
Recognised at fair value through profit or loss
Banking 390 655 15 1,060
Non-life Insurance - - 8 8
Life Insurance - - 135 135
Derivative financial instruments
Banking 7 1,825 277 2,109
Non-life Insurance 1 4 - 5
Life Insurance - - - -
Available-for-sale
Banking 5,436 542 65 6,043
Non-life Insurance 1,658 636 217 2,511
Life Insurance 2,184 406 778 3,369
Total 9,676 4,069 1,496 15,241
Fair value of assets in EUR million on
31December 2009 Level 1* Level 2* Level 3* Total
Recognised at fair value through profit or loss
Banking 536 706 21 1,263
Non-life Insurance - - 8 8
Life Insurance - - 182 182
Derivative financial instruments
Banking 6 1,336 81 1,423
Non-life Insurance 0 0 - 0
Life Insurance - - - -
Available-for-sale
Banking 4,447 337 65 4,849
Non-life Insurance 1,544 552 193 2,290
Life Insurance 2,209 251 631 3,091
Total 8,742 3,182 1,181 13,106
Fair value of liabilities in EUR million on
30 Sep 2010 Level 1* Level 2* Level 3* Total
Recognised at fair value through profit or loss
Banking 0 - - 0
Non-life Insurance - - - -
Life Insurance - - - -
Derivative financial instruments
Banking 8 2,186 164 2,358
Non-life Insurance 1 0 - 1
Life Insurance - - - -
Total 9 2,186 164 2,359
Fair value of liabilities in EUR million on
31December 2009 Level 1* Level 2* Level 3* Total
Recognised at fair value through profit or loss
Banking 71 - - 71
Non-life Insurance - - - -
Life Insurance - - - -
Derivative financial instruments
Banking 1 1,327 33 1,360
Non-life Insurance - 0 - 0
Life Insurance - 0 - 0
Total 72 1,327 33 1,431
* This level includes equities listed on major stock exchanges, quoted corporate
debt instruments, bonds issued by governments and financial institutions with
credit rating of at least A-, and exchange-traded derivatives. The fair value of
these instruments is determined on the basis of market quotes.
** Valuation techniques based on observable input parameters. The fair value of
the instruments included within this level means value derived from the market
price of a financial instrument's components or similar financial instruments;
or value which can be determined using commonly used valuation models and
techniques if the inputs significant to the fair value measurement are based on
observable market data. The fair value hierarchy level at Pohjola Group
includes OTC derivatives, treasury bills/notes, debt instruments issued by
companies and financial institutions, repo agreements, and securities lent or
borrowed.
*** Valuation techniques whose input parameters involve special uncertainty. The
fair value determination of the financial instruments included within this level
contains inputs not based on observable market data (unobservable inputs). This
level includes the most complex OTC derivatives, certain private equity
investments, and illiquid bonds, structured bonds, including securitised bonds
and structured debt securities, and hedge funds.
Note 16. Reclassified notes and bonds
The table below shows the carrying amounts and fair values of the reclassified
notes and bonds:
Impairments
30 September Effective arising from
2010, EUR million Carrying amount Fair value interest rate credit risk
--------------------------------------------------------------------------------
Loans and other
receivables 1,712 1,732 4.9 92
Investments held
to maturity 702 659 4.2 -
Available-for-sale
financial assets - - - -
--------------------------------------------------------------------------------
Total 2,414 2,391 92
Impairments
31 December 2009, Carrying Effective arising from
EUR million amount Fair value interest rate credit risk
--------------------------------------------------------------------------------
Loans and other
receivables 2,838 2,856 5.1 71
Investments held
to maturity 798 761 4.2 -
Available-for-sale
financial assets - - - -
--------------------------------------------------------------------------------
Total 3,636 3,617 71
Note 17 Non-life Insurance assets
EUR million 30 Sep 2010 30 Sep 2009 Change, % 2009
Investments
Loan and other receivables 246 388 -37 379
Shares and participations 362 356 2 391
Property 75 81 -8 78
Notes and bonds 1,534 1,383 11 1,381
Derivatives
Other participations 623 526 19 526
Total 2,845 2,734 4 2,755
Other assets
Prepayments and accrued income 33 29 11 38
Other
Arising from direct insurance
operations 251 243 4 214
Arising from reinsurance operations 87 99 -12 89
Cash in hand and at bank 6 6 -5 4
Other receivables 58 - - -
Total 436 378 15 346
Non-life Insurance assets 3,281 3,111 5 3,101
Note 18 Life Insurance assets
EUR million 30 Sep 2010 30 Sep 2009 Change, % 2009
Investments
Loan and other receivables 343 408 -16 446
Shares and participations 2,683 2,683 0 2,777
Property 118 123 -4 122
Notes and bonds 821 550 49 496
Other 1 0 0
Total 3,966 3,764 5 3,841
Assets covering unit-linked insurance
contracts
Shares and participations 2,992 2,171 38 2,381
Other assets
Prepayments and accrued income 29 23 26 25
Other
Arising from direct insurance
operations 3 3 19 33
Arising from reinsurance operations 59 45 31 50
Cash in hand and at bank 0 11 -97 1
Total 91 81 13 108
Life Insurance assets 7,049 6,016 17 6,331
Note 19 Non-life Insurance liabilities
EUR million 30 Sep 2010 30 Sep 2009 Change, % 2009
Provision for unpaid claims
Provision for unpaid claims for
annuities 1,066 1,035 3 1,057
Other provision for unpaid claims 732 750 -2 726
Total 1,798 1,785 1 1,783
Provisions for unearned premiums 457 437 4 362
Other liabilities 264 258 2 134
Total 2,518 2,480 2 2,279
Note 20. Life Insurance liabilities
EUR million 30 Sep 2010 30 Sep 2009 Change, % 2009
Technical provisions 3,778 3,684 3 3,649
Insurance contract liabilities for unit-
linked insurance policies 2,832 2,123 33 2,335
Other liabilities 290 111 194
Total 6,900 5,919 17 6,179
Note 21 Debt securities issued to the public
EUR million 30 Sep 2010 30 Sep 2009 Change, % 2009
Bonds 9,635 8,275 16 9,168
Certificates of deposit, commercial
papers and ECPs 9,568 9,255 3 10,549
Other 252 228 11 227
Total 19,456 17,757 10 19,945
Note 22 Fair value reserve after income tax
EUR million 30 Sep 2010 30 Sep 2009 Change, % 2009
Notes and bonds -14 34 24
Shares and participations 150 -185 -79
Other -1 - -
Total 135 -151 -54
The negative fair value reserve may recover by means of asset appreciation and
recognised impairments. Only the value changes in the fair value reserve are
recognised which the management deem to fulfil the relevant requirements.
The fair value reserve before tax amounted to EUR 182 million (-74) and the
related deferred tax liability to EUR 47 million (deferred tax asset EUR 19
million). On 30 September, positive mark-to-market valuations of equity
instruments in the fair value reserve totalled EUR 279 million (180) million and
negative mark-to-market valuations EUR 68 million (265). During 2007-10,
impairment charges recognised from the fair value reserve in the income
statement totalled EUR 489 million, of which EUR 122 million were recognised in
2010.
Other notes
Note 23 Collateral given
EUR million 30 Sep 2010 30 Sep 2009 Change, % 2009
Given on behalf of own liabilities and
commitments
Mortgages 1 1 0 1
Pledges 5,988 5,272 14 5,839
Other 512 1,104 -54 600
Total 6,501 6,376 2 6,440
Note 24 Off-balance-sheet items
EUR million 30 Sep 2010 30 Sep 2009 Change, % 2009
Guarantees 1,268 1,412 -10 1,391
Other guarantee liabilities 1,618 1,611 0 1,548
Pledges 1 1 0 1
Loan commitments 8,912 8,657 3 8,789
Commitments related to short-term
trade transactions 140 151 -7 131
Other 803 772 4 785
Total off-balance-sheet items 12,742 12,605 1 12,644
Note 25 Derivative contracts
30 Sep 2010
Nominal values /
EUR million remaining term to maturity Fair values
<1 year 1-5 years >5 years Total Assets Liabilities
Interest rate derivatives 47,469 53,917 24,719 126,104 1,821 1,806
Currency derivatives 13,248 1,797 499 15,544 268 580
Equity and index-linked
derivatives 156 919 27 1,101 116 0
Credit derivatives - 157 100 257 4 3
Other derivatives 3,836 343 - 4,179 8 21
Total derivatives 64,709 57,132 25,344 147,185 2,217 2,410
31 Dec 2009
Nominal values /
EUR million remaining term to maturity Fair values
<1 year 1-5 years >5 years Total Assets Liabilities
Interest rate derivatives 42,048 45,394 12,995 100,437 1,155 1,104
Currency derivatives 11,274 1,959 489 13,722 239 338
Equity and index-linked
derivatives 177 814 41 1,032 87 0
Credit derivatives 56 178 - 234 4 2
Other derivatives 3,850 252 - 4,102 3 24
Total derivatives 57,406 48,597 13,525 119,528 1,488 1,469
The related parties of OP-Pohjola Group include associates, administrative
personnel and other related party companies. The administrative personnel
comprise OP-Pohjola Group's Executive Chairman (Chairman of the Executive Board
of OP-Pohjola Group Central Cooperative), President of OP-Pohjola Group Central
Cooperative, members and deputy members of the Executive and Supervisory Boards
and their close relatives. Related parties also include companies over which a
person among administrative personnel or his close family member exercises
significant influence. Other communities considered as related parties include
OP Bank Group Pension Fund and OP Bank Group Pension Foundation.
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 2009.
The Interim Report for 1 January-30 September 2010 have been prepared in
accordance with IAS 30 (Interim Financial Reporting) as approved by the EU.
The Financial Statements 2009 contain a description of the accounting policies
applied. OP-Pohjola Group has also applied future cash flow hedging in the
report period. 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.
Pohjola Bank plc will publish its own interim report.
OP-Pohjola Group's financial performance will be presented to the media by
Executive Chairman Reijo Karhinen in a press conference on 3 November 2010 at
12 noon at Teollisuuskatu 1 b, Vallila, Helsinki.
Helsinki, 3 November 2010
OP-Pohjola Group Central Cooperative
Executive Board
ADDITIONAL INFORMATION
Executive Chairman Reijo Karhinen, tel. +358 (0)10 252 4500
Tony Vepsäläinen, Chief Executive Officer, tel. +358 (0)10 252 4020
Harri Luhtala, CFO, tel. +358 (0)10 252 2433
Carina Geber-Teir, Chief Communications Officer, tel. +358 (0)10 252 8394
DISTRIBUTION
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London Stock Exchange
Major media
op.fi and pohjola.fi
[HUG#1458121]
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