OP Mortgage Bank - Interim report (Q1 and Q3)

Interim Report 1 January-31 March 2013

OP MORTGAGE BANK Interim 29 April 2013, 16:45 EEST

OP Mortgage Bank's (OPA) loan portfolio grew from EUR 8,678 million on 31
December 2012 to EUR 8,848 million on 31 March 2013. The bank increased its
loan portfolio in February and March when it purchased housing loans from
OP-Pohjola Group member cooperative banks. No new bonds were issued during the
review period. 

Earnings Development
EUR thousand	Q1/2013	Q1/2012	Change, %	2012
   				
Income				
Net interest income	8,329	6,768	23	29,884
Net commissions and fees	-3,669	-2,747	34	-11,992
Net income from trading	0	0		0
Net income from investments	1	1	-	-186
Other operating income	-	-		0
Total	4,660	4,022	16	17,707
   				
Expenses				
Personnel costs	120	96	25	400
Other administrative expenses	423	452	-6	1,586
Other operating expenses	345	230	50	1,459
Total	888	778	14	3,445
   				
Impairments of receivables	10	-1		-53
   				
Earnings before tax	3,782	3,243	17	14,209
OPA's net interest income January-March increased to EUR 8,329 thousand
(6,768)*. 
The increase was due to the growth of the loan portfolio. Earnings before tax
January-March amounted to EUR 3,782 thousand (3,243). Net commissions and fees
were negative. 
Commission income increased to EUR 1,492 thousand (1,106) and commission
expenses to EUR 5,162 thousand (3,853). Commission expenses consisted mainly of
commissions paid to OP-Pohjola Group member banks for servicing housing loans. 

The bank's expenses increased to EUR 888 thousand (778).
*) For balance sheet and other cross-sectional figures, the point of comparison
is the figure at the previous balance sheet date (31 December 2012). 
Comparatives deriving from the income statement are based on figures reported
for the corresponding period a year ago. 
Balance Sheet and Off-balance Sheet Commitments

OPA's balance sheet total amounted to EUR 9,295 million (9,128)* on 31 March.

Change in Major Asset and Liability Items
EUR Million 	31 Mar 2013	31 Dec 2012	30 Sept 2012	30 June 2012	31 Mar 2012
   					
Balance Sheet	9,296	9,128	8,976	9,263	8,427
Receivables from customers	8,848	8,678	8,511	8,841	8,000
Receivables from financial institutions	53	53	77	93	72
Debt securities issued to the public	6,069	6,110	5,879	5,716	5,440
Liabilities to financial institutions	2,747	2,570	2,650	3,100	2,490
Shareholders' equity	326	325	312	310	287
Off-balance sheet commitments	11	8	9	11	8
The bank's loan portfolio grew to 8,848 million (8,678) on 31 December 2012.
on 31 March 2013. OPA increased its loan portfolio in the review period when it
purchased housing loans from OP-Pohjola Group member banks for EUR 463 million. 

On 31 March, households accounted for 99.6 per cent (99.6) of the loan
portfolio and housing corporations for 0.4 per cent (0.4). At period end, the
bank's non-performing receivables totalled EUR 3.4 million (2.9). 

The carrying amount of the bonds issued to the public totalled EUR 6,069
million (6,110) on 31 March. In addition to bonds, OPA funded its operations
through financing loans taken out with Pohjola Bank plc (Pohjola). On 31 March,
financing loans totalled EUR 2,747 million (2,570). 

Retained earnings amounted to EUR 31 million (30) at the end of the review
period. 

OPA has hedged against the interest-rate risk associated with its housing loan
portfolio through interest-rate swaps, i.e. base rate cash flows from the
housing loans to be hedged are swapped to Euribor cash flows. OPA has also
swapped the fixed interest rates of the bonds it has issued to short-term
market rates. OPA's interest-rate derivative portfolio totalled EUR 16,024
million (15,862). All derivative contracts have been concluded for hedging
purposes. Pohjola Bank plc is the counterparty to all derivative contracts. 
Collateralisation of bonds issued to the public

Mortgages collateralising covered bonds issued before 1 August 2010, under the
Finnish Act on Mortgage Credit Banks (1240/1999), are included in Cover Asset
Pool A. The balance of Pool A was EUR 3,200 million at the end of March.
Mortgages collateralising covered bonds issued after 1 August 2010, under the
Finnish Covered Bonds Act (688/2010), are included in Cover Asset Pool B. The
balance of Pool B was EUR 5,169 million at the end of March. 
*) For balance sheet and other cross-sectional figures, the point of comparison
is the figure at the previous balance sheet date (31 December 2012). 
Comparatives deriving from the income statement are based on figures reported
for the corresponding period a year ago. 

Development of Capital Adequacy 
 OPA's capital adequacy ratio stood at 8.9% on 31 March. Capital ratio
excluding transition 
rules stood at 42.4%.

OPA calculates its capital adequacy in compliance with Basel II. In its
calculation of capital requirements for credit risk, OPA has adopted the
Internal Ratings Based Approach (IRBA). With respect to the capital adequacy
requirement for operational risks, OPA has adopted the Standardised Approach. 
OWN FUNDS, EUR thousand	31 Mar 2013	31 Dec 2012	31 Mar 2012
   			
Equity capital	325,819	324,964	286,720
Intangible assets	-1,128	-1,101	-739
Excess funding of pension liability and 
fair value measurement of investment property	-12	-13	-16
Planned dividend distribution	-500	-2,001	0
Shortfall of impairments - expected losses	-3,662	-3,705	-3,300
Shortfall of other Tier 1 capital	-3,662	-3,705	-
Core Tier 1 capital	316,855	314,440	282,665
Shortfall of Tier 2 capital	-3,662	-3,705	-
Transfer to core Tier 1 capital	3,662	3,705	-
Tier 1 capital	316,855	314,440	282,665
Debenture loans	-	-	16,000
Shortfall of impairments - expected losses	-3,662	-3,705	-3,300
Transfer to Tier 1 capital	3,662	3,705	-
Tier 2 capital	-	-	12,700
Total capital base	316,855	314,440	295,365
   			
Capital adequacy ratio, %	8.9	9.2	9.4
Tier 1 ratio to risk-weighted commitments	8.9	9.2	9.0
Core Tier 1 ratio	8.9	9.2	9.0
Capital ratio excluding transition rules			
Capital adequacy ratio, %	42.4	41.9	42.5
Tier 1 ratio to risk-weighted commitments	42.4	41.9	40.7
Core Tier 1 ratio	42.4	41.9	40.7
The increase in shareholders' equity arising from the measurement of pension
liabilities and the assets covering them, under IFRS, is not considered own
funds. Furthermore, intangible assets were also deducted from own funds. The
Impairments - shortfall of expected losses total EUR 7.3 million. 
Risk-weighted receivables, investments and off balance-sheet commitments,  EUR
thousand	31 Mar 2013	31 Dec 2012	31 Mar 2012 
  			
 Credit risk	726,956	732,713	673,761
 Market risk	-	-	-
 Operational risks	19,941	14,043	14,043
 Requirement for period of transition	2,796,638	2,656,632	2,457,506
Risk-weighted receivables, investments and off balance-sheet commitments,
total	3,543,534	3,407,573	3,152,668 
The increase in the amount of risk-weighted commitments was due to an increased
loan portfolio. 

Joint Responsibility and Joint Security

Under the Act on Cooperative Banks and Other Cooperative Credit Institutions,
the amalgamation of the cooperative banks comprises the organisation's central
institution (OP-Pohjola Group Central Cooperative), the Central Cooperative's
member credit institutions and the companies belonging to their consolidation
groups. This amalgamation is monitored on a consolidated basis. The Central
Cooperative and its member banks are ultimately responsible for each other's
liabilities and commitments. The Central Cooperative's members at the end of
the report period comprised OP-Pohjola Group's 196 member banks as well as
Pohjola Bank plc, Helsinki OP Bank plc, OP Mortgage Bank and OP-Kotipankki Plc.
OP-Pohjola Group's insurance companies do not fall within the scope of joint
responsibility. 

The central institution is obligated to provide its member credit institutions
with instructions on their internal supervision and risk management, their
operations in securing liquidity and capital adequacy, and compliance with
uniform accounting principles in preparing the amalgamation's consolidated
financial statements. 

The central institution and its member credit institutions are jointly
responsible for the liabilities of the central institution or a member credit
institution placed in liquidation or bankruptcy that cannot be paid from its
assets. The liability is divided between the central institution and the member
credit institutions in ratios following the balance sheet total. 

In spite of the joint responsibility and the joint security, pursuant to
Section 25 of the Finnish Covered Bonds Act, the holder of a bond with mortgage
collateral shall, notwithstanding the liquidation or bankruptcy of a mortgage
credit bank, have the right to receive payment, before other claims, for the
entire loan period of the bond, in accordance with the contract terms, from the
funds entered as collateral for the bond. 
Personnel

On 31 March, OPA had six employees. It purchases all key support services from
the Central Cooperative and its Group companies, which reduces the need for
more staff. 
Administration 

The Annual General Meeting held in March confirmed the composition of the new
Board of Directors. Mr Jari Tirkkonen, Senior Vice President, OP-Pohjola Group
Central Cooperative, was elected as a new member of the Board of Directors. Mr
Mikko Hyttinen, Bank Manager, OP-Pohjola Group Central Cooperative, retired
from the Board of Directors. The Board composition is as follows: 
Chairman	Harri Luhtala	Chief Financial Officer, OP-Pohjola 
Group Central Cooperative
Vice Chairman	Elina Ronkanen-Minogue	Senior Vice President, OP-Pohjola 
Group Central Cooperative
Members	Lars Björklöf	Managing Director, Osuuspankki Raasepori
	Sakari Haapakoski	Bank Manager, Oulun Osuuspankki
	Mika Helin	Executive Vice President, Hämeenlinnan 
Seudun Osuuspankki
	Hanno Hirvinen	Executive Vice President, Pohjola Bank plc
	Jari Tirkkonen	Senior Vice President, OP-Pohjola Group Central Cooperative
OPA's Managing Director is Lauri Iloniemi.
Risk exposure

The most significant types of risk related to OPA are credit risk, liquidity
risk and interest-rate risk. The indicators in use shows that OPA's credit risk
exposure is stable. The limit for liquidity risk set by the Board of Directors
has not been exceeded. The liquidity buffer for OP-Pohjola Group, managed by
Pohjola Bank Plc, is exploitable by OPA. OPA has hedged against the
interest-rate risk associated with its housing loan portfolio through
interest-rate swaps, i.e. base rate cash flows from housing loans to be hedged
are swapped to short-term Euribor cash flows. The interest rate risk may be
considered to be low. 
Outlook

The existing issuance programme will make it possible to issue new covered
bonds in 2013. It is expected that the Company's capital adequacy will remain
strong, risk exposure will be favourable and the overall quality of the credit
portfolio will remain strong. 
Income Statement
EUR thousand	Q1/2013	Q1/2012	Change, %	2012
   				
Interest income	20,070	36,941	-46	121,246
Interest expenses	11,742	30,172	-61	91,362
Net interest income	8,329	6,768	23	29,884
Impairments of receivables	10	-1		-53
Net commissions and fees	-3,669	-2,747	34	-11,992
Net income from trading	0	0		0
Net income from investments	1	1		-186
Other operating income	-	-		0
Personnel costs	120	96	25	400
Other administrative expenses	423	452	-6	1,586
Other operative expenses	345	230	50	1,459
Earnings before tax	3,782	3,243	17	14,209
Income taxes	926	794	17	3,478
Profit for the period	2,856	2,449	17	10,731
   				
   
Statement of comprehensive income
   				
   				
Profit for the period	2,856	2,449	17	10,731
Actuarial gains/losses on post-employment benefit obligations	-	-		-50
Income tax on actuarial gains/losses on post-employment benefit
obligations	-	-		12 
   				
Total comprehensive income	2,856	2,449	17	10,693
Key Ratios
	Q1/2013	Q1/2012	2012	Q1/2013
Return on equity (ROE), %	3.5	3.6	3.7	3.5
Cost/income ratio, %	19	19	19	19
Calculation of key ratios

Return on equity, % = Annualised profit for the period / Equity capital
(average equity capital at the beginning and end of the period) × 100 

Cost/income ratio, % = (Personnel costs + Other administrative expenses + Other
operating expenses) / (Net interest income + Net commission income + Net income
from trading + Total net income from investments + Other operating income) ×
100 
Balance Sheet
EUR thousand	31 Mar 2013	31 Mar 2012	Change, %	31 Dec 2012
   				
   				
Receivables from financial institutions	52,881	72,060		53,300
Derivative contracts	276,403	215,138	28	318,473
Receivables from customers	8,847,903	7,999,754	11	8,677,652
Investments assets	17	17		17
Intangible assets	1,128	739	53	1,101
Tangible assets	-	-		-
Other assets	117,146	139,590	-16	77,854
Tax receivables	33	8		35
Total assets	9,295,512	8,427,306	10	9,128,431
   				
Liabilities to financial institutions	2,747,000	2,490,000		2,570,000
Derivative contracts	10,867	15,716		16,382
Debt securities issued to the public	6,068,986	5,439,837	12	6,109,687
Reserves and other liabilities	142,136	174,277	-18	106,964
Tax liabilities	704	755		435
Subordinated debt securities	-	20,000		-
Total liabilities	8,969,693	8,140,586	10	8,803,467
Shareholders' equity				
  Share capital	60,000	60,000	0	60,000
  Reserve for invested unrestricted equity	235,000	205,000	15	235,000
  Retained earnings	30,819	21,720	42	29,964
Total equity	325,819	286,720	14	324,964
Total liabilities and shareholders' equity	9,295,512	8,427,306	10	9,128,431
Off-balance Sheet Commitments
EUR thousand	31 Mar 2013	31 Mar 2012	31 Mar 2011	31 Dec 2011
Binding credit commitments	11,352	7,869	7,676	7,456
Change Calculation on Shareholders' Equity
EUR thousand	Share capital	
Other
reserves	Retained
earnings	Total equity
Shareholders' equity 1 Jan 2012	60,000	175,000	21,271	256,271
Reserve for invested unrestricted equity		30,000		30,000
Profit for the period			2,449	2,449
Other changes			-2,001	-2,001
Shareholders' equity 31 March 2012	60,000	205,000	27,720	286,720
   				
EUR thousand	Share capital	
Other reserves	Retained earnings	Total equity
Shareholders' equity 1 Jan 2013	60,000	235,000	29,964	324,964
Reserve for invested unrestricted equity		-		-
Profit for the period			2,856	2,856
Other changes			-2,001	-2,001
Shareholders' equity 31 March 2012	60,000	235,000	30,819	325,819

Cash Flow Statement
EUR thousand	Q1/2013	Q1/2012
   		
Liquid assets 1 January	53,300	82,434
Cash flow from operations	46	-39,618
Cash flow from investments	-83	-236
Cash flow from financing	-381	29,479
Liquid assets 31 March	52,881	72,060
The cash flow statement presents the cash flows for the period on the cash
basis, divided into cash flows from operations, investments and financing. Cash
flows from operations include the cash flows generated from day-to-day
operations. Cash flow from investments includes payments related to tangible
and intangible assets, investments held to maturity and shares that are not
considered as belonging to cash flow from operations. Cash flow from financing
includes cash flows originating in the financing of operations either on equity
or liability terms from money or capital market. Liquid assets include cash in
hand and receivables from financial institutions payable on demand.  The
statement has been prepared using the indirect method. 
Fair values of financial assets and liabilities		
EUR Thousand	Loans and
receivables	Recognised at
fair value
through profit
or loss 	Available for
sale	Total
				
Financial assets			
Receivables from financial institutions	52,881			52,881
Derivative contracts		276,403		276,403
Receivables from customers	8,847,903			8,847,903
Equities			17	17
Other receivables	117,180			117,180
Balance at 31 March 2013	9,017,964	276,403	17	9,294,384
Balance at 31 March 2012	8,211,412	215,138	17	8,426,567
Balance at 31 December 2012	8,808,806	318,473	17	9,127,296
EUR Thousand		Recognised at
fair value
through profit
or loss * 	Other
liabilities	Total
				
Liabilities to financial institutions	-		2,747,000	2,747,000
Derivative contracts	-	10,867		10,867
Debt securities issued to the public	-		6,068,986	6,068,986
Subordinated liabilities	-		-	-
Other liabilities	-		142,840	142,840
Balance at 31 March 2013		10,867	8,958,826	8,969,693
Balance at 31 March 2012	-	15,716	8,124,870	8,140,586
Balance at 31 December 2012	-	16,382	8,787,085	8,803,467

*) Debt securities issued to the public are carried at amortised cost. 

On 31 March 2013, the fair value of these debt instruments was approximately
EUR 346,211 thousand  higher than their carrying amount, based on information
available in markets and employing commonly used valuation techniques.
Subordinated liabilities are carried at amortised cost. Their fair values are
substantially lower than their carrying amount, but determining fair values
reliably is difficult in the current market situation. With regard to other
balance sheet items, the carrying amounts correspond substantially with fair
values. 


Derivative Contracts 31 March 2013
EUR thousand	Nominal values/the remaining maturity	Fair values	
Credit
counter-
value
	Less
than
1 year	1-5 years	More
than
5 years	Total	Assets 	Liabili-
ties	
Interest rate derivatives							
Hedging	570,740	13,123,423	2,330,000	16,024,163	276,403	10,867	476,948
Trading							
Total	570,740	13,123,423	2,330,000	16,024,163	276,403	10,867	476,948

Derivative Contracts 31 March 2012
EUR thousand	Nominal values/the remaining maturity	Fair values	
Credit
counter-
value
	Less
than
1 year	1-5 years	More
than 5
years	Total	Assets	Liabili-
ties	
Interest rate derivatives							
Hedging	5,385,376	7,500,000	2,000,000	14,885,376	215,138	15,716	392,264
Trading							
Total	5,385,376	7,500,000	2,000,000	14,885,376	215,138	15,716	392,264

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

Related-party transactions

OPA's related parties include OP-Pohjola Group Central Cooperative and its
subsidiaries, the OP Bank Group pension insurance organisation OP Pension Fund
and OP Pension Foundation, and the company's administrative personnel. Standard
loan terms and conditions 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 2012.

Accounting policies

The Interim Report for 1 January-31 March 2013 has been prepared in accordance
with IAS 34 (Interim Financial Reporting), as approved by the EU. In the
preparation of this Interim Report, OPA substantially applied the same
accounting policies as in the financial statements 2012, except a change in the
calculation of the net interest income on defined benefit pension costs. 

Change in accounting policies

As of 1 January 2013, OPA applies the amended IAS 19 Employee Benefits
standard. The amended standard eliminates the option of using the so-called
corridor method in the recognition of actuarial gains and losses, and changes
the calculation of the net interest income on defined benefit pension costs.
Under the amended standard, the expected rate of return on pension assets used
in the calculation of the net interest income is calculated at the discount
rate for pension liability. 

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

This Interim Report is based on unaudited figures. Given that all of the
figures have been rounded off, the sum total of individual figures may deviate
from the presented sums. 

Helsinki, 29 April 2013
OP Mortgage Bank
Board of Director

Liitteet:

osavuosikatsaus q12013.pdf